Save the EMU?
By Staff News & Analysis - July 08, 2010

EMU break-up risks global deflation shock that would dwarf Lehman collapse, warns ING … A full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history, devastate every country in Europe including Germany, and inflict a deflationary shock on the US. There would be no winners, warns the Dutch bank ING in a new report "Quantifying the Unthinkable". The end of the Deutschemark was marked in the northern German state Lower Saxony by a funeral. "Complete break-up would have effects that dwarf the post Lehman Brothers collapse. Governments would find themselves having to bail out banks again, worsening already fragile government finances. The risk of at least a temporary break-down in payments systems would be enormous, " said the report by Mark Cliffe, Maarten Leen, and Peter Vanden Houte." – UK Telegraph

Dominant Social Theme: No matter what happens, the EMU must salvaged. The consequence would end the world as we know it.

Free-Market Analysis: O, the horror! ING has issued a report that apparently concludes the break-up of the Economic and Monetary Union of Europe is simply unfathomable. The idea is that the pain and suffering that would be caused by its demise would spin the Western world into the likes of a depression that it has never seen before. Here is another way of writing the dominant social theme as we see it: "This deeply thoughtful and massively integrated system of conflict and control must survive for the good of everybody."

Well, maybe not exactly, but you get the point. This is a classic "fear-based" promotion. The EU is deeply corrupt, entirely unworkable in our opinion and a guaranteed misery for hundreds of millions if it is not broken up. The "austerity" concept now being inflicted across the eurozone is merely another way the elites to gain even more power, at the expense of whatever is left of the middle-classes of Europe.

The idea, we suppose, is that the mostly Anglo-American power elite that ultimately stands behind the EU, will fight a prolonged rearguard action designed to keep the EMU together. For if the EMU breaks up, the EU itself becomes fairly worthless, at least to those who want to continue consolidating and controlling the larger regions of the world. Here's some more from the article:

This is the picture of a world falling apart. It is an outcome that Angela Merkel, the German Chancellor, now seems determined to avoid, after dragging her feet over the Spring. The Bundestag has backed Germany's share of the €110bn rescue for Greece, and the €750bn EU-IMF bail-out for future casualties should they need it. The Bundesbank has lifted its de facto veto on purchases of Club Med bonds by the European Central Bank.Yet markets have failed to stabilise … The markets perhaps sense that the bail-out battles in Germany are not yet over. There are four complaints lodged at the German constitutional court arguing that the rescues breach EU treaty law and therefore German basic law. While the court has refused an immediate injunction to block aid, it has not yet ruled on the cases. …

The Dutch bank does not make any judgement on the merits of EMU, or on whether it is an 'optimal currency area', nor does it explore half-way options such as a split into a hard Teutonic euro and a weak Latin euro. The report said break-up talk is "no longer just a figment of fevered Anglo-Saxon imaginations". It has spread into top policy-making circles in the eurozone and must now be analysed as a serious tail-risk. A survey of 440 heads of global banks and companies by RBC Capital Markets found that 50% expect at least one country to leave EMU by 2013, and a quarter expect a complete collapse.

ING said heavily indebted states such as Greece would not gain relief by escaping EMU and devaluing since their debt burden would remain, even if government bonds are switched into the new currency. This is a controversial point. If Greece devalues and defaults as well, the calculus is different. Many big bust-ups entail both, such as the Argentine crisis in 2001. Some Argentines argue that their trauma proved cathartic, pulling the country out of a destructive downward spiral. If Greek, Portuguese or Spanish leaders ever start to ask their own Argentine questions as austerity grinds on, and unemployment grinds higher, events will run their ineluctable political course regardless of the greater risks.

This last paragraph above points out that if euro-leaders ever start to question austerity, then the break-up of the EMU is possibly assured. But we would argue that it is not the leaders of the eurozone (not the PIGS, anyway) that will question what has been made. It is the larger tribes themselves who simply won't stand for it over a prolonged period of time. Already there are plenty of reports that the violence and rioting is worse than is being reported. We don't doubt it. This is a continent that purged itself bloodily of millions in two world wars. While neither war may have had to be fought, history records that when violence did commence, it went forward with incredible aggression.

We would also argue, as we have many times before, that the process of EU entropy is an almost inevitable marketplace process. There are surely reports (and we have contributed to them) that the brain-trust behind the EU intended to use an economic crisis – one it fully expected – as a way to create a closer and more profound union between EU nations, one that would leave Brussels more fully in charge of the entire continent. But we think in retrospect this may have been fanciful, or at least overoptimistic thinking.

The elite did not expect the advent of the Internet. It has changed the calculus of the West. While the Internet may or may not be as effective in Europe as it is in America, there is one thing it has done indisputably, which is to raise further questions about the power elite and its plans. What is going on, increasingly, is a crisis of confidence in the leadership. It is a profound crisis because it is built not on predictable and even unrealistic Marxist rhetoric but is a reaction to what is actually occurring.

The free-market itself is doing its work. In the 20th century, the Anglo-American power elite achieved the goal of basically controlling all forms of media, but in the 21st century, a new form of communication has arisen spontaneously, one that the elite did not and could not control, certainly not initially.

The market will have its way, in Europe too. The EU was always an elite promotion, a kind of fear-based dominant social theme that scared people with the idea that if Europe was not one big happy family then it would fall back into chaos and bloodshed. And yet it is the CURRENT system that is starting to create chaos and bloodshed. Add an economic crisis to the communicative power of the Internet, stir briskly and you have an volatile cocktail.

The war in Afghanistan is not going well for the Anglo-American axis, and there is a good deal of resentment, generally, in the United States, not just about the war but about the larger state of the union. Leaving aside the economic difficulties that Japan and China are facing, there seems little doubt that the handful of wealth families and individuals that have tried to run the world for the past several centuries are facing their deepest and most protracted series of crises.

It is always fashionable within the alternative media to preach doom and gloom. In the 20th century, the elite obviously had significant control. In the 21st century, they have lost that control. This is as it should be. The market itself is all-powerful. Just because its operations can be staved off for a period of time (or even a century or longer) does not mean that it can be pushed aside forever.

This is very hard for people to believe. If they have gotten to the point of understanding the sub-rosa struggle that is taking place every day between the elites, the market and the larger mass of of people around the world, there is the temptation to dwell on the resources of the elite, the trillions of dollars they apparently control, the military and police power they own, the governments they operate secretly or in the open. But does it mean that much?

After Thoughts

The market wins. Always … over time. It has to win. There are rules in the world that are much more powerful than those of any human creation. It could be this is the ultimate truth that the elite does not wish for people to understand. But in the 21st century, we would venture to say that it is increasingly obvious. Still, we don't expect the power elite to be swept away by some cataclysmic, market-based tsunami; we do expect as we have written many times that in this era at this moment the elite may well have to take a step back, as they have before.

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