Eurozone ship is on the course that was set for it: heading for the rocks … Two events last week saw the crisis in the Eurozone deepen – the Portuguese bail-out and the ECB's interest rate increase. But much more is brewing. Everyone is now focused on government debt as the nub of the problem. And the numbers are shocking. – UK Telegraph
Dominant Social Theme: The EU will survive. These are merely trying times.
Free-Market Analysis: Two recent articles show the trouble the EU is in. Brussels' "happy talk" – sub dominant social themes engineered to give the impression that the EU can surmount the problem – are apparently not having the desired effect anymore. In this article we will explore why. It is a notable evolution in our view.
The Telegraph article above, entitled, "Eurozone ship is on the course that was set for it" is startling in terms of its blunt talk about the REAL state of the Union (seemingly unsalvageable). The other article in the Financial Times is just as negative in its own way. Together they constitute a surprising indictment of the EU and its prospects for survival. This is big news.
Let's start with the Telegraph article. It is written by Roger Bootle who is a managing director of Capital Economics and economic adviser to Deloitte.
He's also something of an internationalist who doesn't much believe in gold and silver as money, according to back articles in his archive, and is even an unfortunate fan of an emergent Keynesian bancor (Lord help us). But on the issue of the euro and the EU, in this article anyway, he is positively ferocious.
Bootle claims the EU crisis is deepening and that both the Portuguese bail-out and the ECB's interest rate increase are tell-tale signs of the Eurozone's decline. It is the numbers that Bootle offers in this article that make it noteworthy. The debt of the Union's peripheral states is becoming unmanageable. Also three other factors.
Competitiveness is one, he suggests. German's labor costs have not risen the but labor costs in such countries as Greece, Spain and Portugal have positively soared; this makes it even more unlikely that the UE's weaker countries will benefit from the Union. Then there is the real estate market. The property bubble lifted housing prices into the stratosphere in numerous countries including Ireland and Spain and these prices still have not corrected, leaving an unresolved overhang that could last years. The third problem is the congenital weakness of Europe's big banks, ironically many of them in German, though also British and French. Germany as we reported previously, has not even bothered to recapitalize its banks; who knows, therefore, how seriously Germany is exposed to the EU's defaulting PIGS.
It is the debt issue that must be most discouraging to Brussels; and it is here that Bootle makes his strongest points. Bootle's conclusion: "The numbers are shocking. The debt to GDP ratio is over 140pc in Greece. Indeed, it is all but impossible for Greece to adjust through fiscal austerity. It is caught in a debt trap from which the only escapes are inflation (which is impossible if you are still in the euro), default, or being bailed out. As with most things ‘euro,' the bail-outs provided to Greece and Ireland – and now on offer to Portugal – aren't quite what they seem. They are high interest loans. If this is any sort of remedy, it is for a different malady."
There you have it. Greece is stuck. The last umpteen months have been nothing but a shadow play, meaning little and signifying less. The IMF austerity that has caused such misery, so much rioting and bloodshed, will not matter after all without a devaluation. The notion that Greece can pay down its accumulated debt by raising taxes and lowering government spending alone is not feasible. Either banks that bought Greek bonds will have to agree to lower the face value of those bonds or Greece will have to leave the euro in order to inflate. These are the options. The rest according to Bootle is mathematically impossible.
The Financial Times's article entitled, "Anger begins to infect Europe's prosperous core" is just as devastating in its own way, reporting on rising frustration in the more prosperous Northern half of the Union. The article points out that the EU is already readying an effort to "save Spain," the EU's fourth-largest economy, but that the real challenge may come from countries like Finland that may soon elect "the EU's first Eurosceptic prime minister."
According to the Financial Times, "Popular anger at bail-outs, austerity and general economic uncertainty has already toppled leaders on the Eurozone's periphery: first in Ireland, then Portugal and arguably Spain, where José Luis Zapatero has said he will not seek a third term as prime minister … Mainstream parties are losing ground to populist outsiders playing on resentment and frustration triggered by austerity and falling living standards."
The article reminds us that France's Nicolas Sarkozy, a primary backer of the EU effort, is in electoral trouble. (This is understandable since several years ago the French voted against the now defunct EU Constitution.) Belgium, meanwhile, has not been able to form a government for nearly a year because of Flemish nationalist sentiment. The current Dutch government stays in power, according to the FT, only with the help of an anti-EU nationalist party. German nationalism – a source of much concern within Germany itself – may eventually impel centrist parties such as the liberal Free Democrats to take openly anti-EU positions. Germany's chancellor Angela Merkel is beginning to lose local elections regularly because of her pro-EU stances.
While Europe's nationalist parties have been painted as xenophobic and even racist in the past, the FT article claims that public frustration with an increasingly dysfunctional and costly EU is allowing them to reposition themselves as defenders of economic solvency and smaller government. By tapping into anti EU anger, nationalist parties discover issues that are at once more mainstream and less divisive.
In what must certainly be seen as a most shocking statement (for the FT anyway), the article suggests the following: "We are witnessing Europe's own Tea Party moment."
To see this in print in the FT is OUR shocking moment. In fact, we have long expected an EU "tea party" moment and considered it almost inevitable; but to have the language surface in a Financial Times article is truly surprising. Such a statement cries out for elaboration, which the FT declines to provide. Yet in a sense having such a point raised in the FT – one of the Anglo-American power-elite's most prominent mouthpieces – is of itself a "teachable moment" and may be seen as a kind of metaphorical turning point in the argument over the EU's survival.
We think we know why a Tea Party is erupting in Europe, of course. We've explained it many times. The truth-telling of the Internet itself is interacting with the ongoing financial crisis in predictable ways. Unlike past crises, in fact, the Anglo-American power elites have not been able to aim popular anger at private enterprise. The socialism and communism that the elites encouraged in the 20th century (in order to concentrate more power into their own hands) is not working very well now.
The anger instead, from what we can tell, is focused mostly where it should be – at the political and banking SYSTEM, not greedy individuals in private enterprise that make convenient, illusory scapegoats. This is surely a problem for the EU but even more of a problem for the power elite itself. It wasn't supposed to happen this way. The financial crisis – which Eurocrats foresaw for decades – was supposed to generate an ever-closer EU. (Out of chaos, order.)
But back to Bootle, who astonishingly acknowledges this sentiment outright: "Most of this mess was envisaged by the critics of monetary union when the single currency was established but the euro-elite just ploughed on. The single currency was going to bring convergence between member countries. In fact, several members have diverged." Bootle's conclusion: "Europe is headed for the rocks."
Bootle's unvarnished anti-EU verdict when combined with the FT's statement about a pan-European Tea Party mark an evolution of negative EU rhetoric. Recently, a feedbacker of ours claimed our articles had become seemingly more pessimistic about the idea of a general rollback of the nascent power elite one-world governance. We replied that we tried to be agnostic about elite prospects; our paradigm postulates a kind of war between the truth-telling of the Internet and elite fear-based promotions, but we didn't intend to choose sides (despite our obvious bias), but only report on the conflict.
Yet here we are! A teachable moment. Two articles in one day – one from an admittedly anti-EU paper but another in one of Europe's most prominent pro-EU publications – is the kind of watershed we look for. The conversation IS seemingly changing; and when it comes to the EU anyway the power elite is perhaps increasingly on the defensive. Long gone is the mindless mainstream tub-thumping for the EU, for expanded powers, for an ever "greater union." Current stance: gritted teeth, a fingernail-clutching death grip.
We continue to try to look at both sides. We've suggested that the powers-that-be are endlessly inventive. Perhaps the EU's unraveling can provide a further justification for a one-world currency. But when one considers what is taking place objectively, it likely makes no sense that the Anglo-American elites behind the EU (in our opinion) would want to tear down what has taken 50 years to build. Any EU retrenchment, any bank haircut, any sense that the austerity oppressing Southern Europe's downtrodden masses is unworkable, must be seen inevitability as a defeat for the EU project.
This is where the power elite is today. The Internet has revealed the elite's war against Western middle classes to too many people. As a result, money power has moved from stealth to strength. Elite promotions are to be implemented by brute force. The masses are to get the message that their enlightenment means nothing. The program is to continue.
And yet … the trouble with this stance is that by emphasizing strength over stealth, the PE has upped the ante considerably. Now any setback, any defeat, is magnified. The Anglo-American elite cannot acknowledge losses. If one is to insist on the implacability of one's destiny and to show irredeemably that there is no escaping the onrushing new world order than one must not show weakness.
This is the reason we would argue that the Anglosphere elites bargained so long and so hard with tiny Iceland over a miserable US$7 billion (pocket change to central bankers). This is the reason for the absurd bailouts of bankrupt EU countries (which are NOT bailouts, the Germans are told). This is the reason, even, that the tiny African country known as the Ivory Coast has blown up and landed on front pages. No one is to be immune from money power. Every economic and sociopolitical event is now an object lesson and meant to be a hard one.
Money power is DETERMINED not to show weakness. The very same day that Iceland voters (see DB's article yesterday) rejected reimbursing Britain and the Netherlands for banking losses, those two countries announced the intention to sue. Whether it actually happens is a tale yet to be told; but the rhetoric was immediate, furious and meant to send a message in our view similar to a certain historical personage's "immoveable rigor."
The subterranean conversation is obvious; one just has to listen to its heartbeat. The elite is keeping score because it knows you are too. It cannot show a single sign of weakness, or so it deems. The crimes are so extraordinary, the ambition so unfathomably arrogant, the stakes so impossibly high (and the revelations so out-of-control) that there is no room to back down and no place to go (as the Ivory Coast's embattled president Gbagbo said only last week, see other article this issue).
The elite is now in a place where ANY setback is considerable and illustrates to the millions who are awakened that its grip is slipping. Because the secrecy is gone, all the elite has left is an aura of desperately cultivated invincibility. This is the final weapon in its arsenal, but it is a much more difficult one to wield. It demands "immoveable rigor" and a determination not to give in no matter the forces arrayed against it. Yet we would argue on almost every front elite plans are crumbling or at least under attack. The 21st century is not the 20th. The game has changed, and we have long wondered how those impossibly wealthy banking families ensconced in the City of London would react to the results. Not well, it seems.