STAFF NEWS & ANALYSIS
Soros: EU May Collapse
By Staff News & Analysis - April 16, 2010

Soros: Euro, EU Will Collapse if Germany Doesn't Make Concessions … Billionaire financier George Soros (left) thinks the euro and the European Union itself are at risk of breaking up if Germany refuses to play its traditional role and make concessions, he told a newspaper. "The Germans have always made the concessions needed to advance the European Union, when people were looking for a deal. Not anymore," Soros told Corriere della Sera in an interview published on Thursday. "That's why the European project is stalled. And if it can't go ahead from here, it will go backwards. It's important to understand that if you don't make the next steps forward for the euro, the euro will go to pieces and the European Union, too," he said. Soros, who is speaking at a variety of events in Italy this week, said whereas in the past there had been the political will to go forward, "now there's a lot of doubt that it is there." He said the EU needs a more flexible mechanism on deficit cuts so that countries do not have to cut public spending so drastically. – MoneyNews

Dominant Social Theme: It is a worrisome time.

Free-Market Analysis: Are you an investor? You are probably concerned about the EU, or at least aware of how the worldwide economic crisis is affecting it. If the EU breaks apart, the impact would be global. The dollar would probably benefit – at least initially. Gold and silver would likely rise as well. And individual European countries would have much different outlooks than they do now, some better, some worse. The undoing of the EU would also have large impacts on other currency unions and, in fact, would cause people to question the dominant social theme of the past half century which has been "globalization" – the harmonization of rules, regulations and "free trade" agreements throughout the world.

The stakes are high. What is at risk is the believability of the globalization meme, on which the power elite has staked so much. More than almost any other promotion, the inevitability of "globalization" is necessary if the elite is to continue to combine countries into currency regions and tear down barriers between nation states. Thanks to the economic crisis and the education about monetary issues provided by the Internet, the grand EU experiment seems as likely to founder as prosper.

In Germany, a group of anti-EU professors is suing over the Greece bailout. The professors claim it's unconstitutional. How would a bust-up occur? There are various scenarios. In the UK Telegraph, uber-reporter Ambrose Evans-Pritchard believes that a German court could do the trick by declaring Germany's bailout cooperation unconstitutional. He writes as follows:

… This court challenge over Greece may bring long-bubbling, long-suppressed tensions into the open. It clearly poses risks that the media, markets, and South Europeans have failed to understand. Most appear to think that Chancellor Angela Merkel is being truculent because of the North Rhine-Westphalia elections on May 9. This presumption reveals more about them, and the legal-political cultures they come from, than it does about German affairs.

The German passion for sound money is not just the result of hyper-inflation in 1947-1948 and 1923. It stems from the deeper intuition that sound money and democratic freedom are inter-linked. Monetary disorder bled Weimar of legitimacy. Of course, this complaint threatens to unleash havoc in all kinds of ways. "This may cause a great crisis in Europe but we already have a crisis," said Dr Karl Albrecht Schachtschneider, law professor at Nuremberg University and author of the complaint, when we chatted yesterday.

He will ask for an injunction to freeze all aid for Greece while the case is pending, which may take weeks or months. How will the Court rule? The breach of the no bail-out clause of Article 125 of the Treaties is so clear that it will be very hard to finesse. "It is a question of law – the duty of the court to defend the German constitution. They have no choice other than reaching a lawful decision," he said. His fellow Musketeer, Professor Wilhem Hankel from Frankfurt University, is more sceptical, telling me that the Verfassungsgericht is a "political court" that will try to wriggle out of a hot issue. He said a clear ruling that prohibits the bail-out is "unlikely", but the political fall-out will be great whatever happens.

We have a hard time believing that any German court would render an absolutist verdict in this case. The idea that a few men in robes would unravel – or be allowed to unravel – the EU "experiment" doesn't make much sense to us. Of course maybe it could happen, but we are more apt to believe that entropy will have its way. Ultimately, the EU will fail, if it fails, because people simply will have had enough. It may not be a court case, a political decision, even a stated abrogation. It may be simply be an evolution of frustration, disappointment and disenchantment with the concept itself.

Sometimes empires decline without sound and fury, without thunderous crashes and great declamations. Perhaps, people simply weary of the taxes and endless, manipulative warring. They may finally come to the conclusion that the Gods have not after all blessed their nation state more forcefully than another. They may simply decide that the oppression of the government is not worth the benefits of safety and stability. Here's what we wrote back in January 2010:

Endless History channel programs debate the rise and fall of [Central and] South American societies – the Mayan, Aztec, Inca, etc. We would argue that the rise of these societies had much to do with the little city-states that proceeded empire. Once a tyrant arose and conquered the city-states around him (or her in some cases) empire was established and the very thing that had enriched the culture and created the civilization – the ability of people to get away from oppressive government – was lost.

Of course, modern, mainstream analysis doesn't see it that way. The greatness of these cultures, the History channel has determined, arises from empire itself. In fact, the aggregation of power and the assumption of empire spells the end of the civilization not the beginning. Yes, the History channel has it backwards – but that's OK. National Geographic et al. love nothing more than prattling on about kings and queens and heirs and dynasties. It makes for colorful viewing but from our perspective, what they perceive as the greatness of leadership is actually the slow-motion descent into totalitarianism and rapine.

In fact, there is a theory that we have pointed out in these pages before (well, we try to point out it regularly) that many of the "glorious" dynasties of South and Central America came to an end because people simply couldn't stand the endless warfare and blood-letting. These were very bloodthirsty regimes apparently and getting your heart cut out while you were still alive was not a pleasant way to die.

… The demise of some of these empires (and it appears to be a cyclical pattern) may be more mundane. People simply melted back into the jungle when they couldn't take it anymore. Perhaps their societies had been partially destroyed by the endless wars. Certainly, nobody wants to live in a society that emphasizes constant warfare. So as these empires became ever greater and more powerful, they also became ever more horrible places to live in. They sowed the seeds of their own destruction. People finally just wanted to get away.

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We think this is how the EU may end, not with a bang but with a whimper. Right now the European elite is fighting hard to prevent a break up and set new sociopolitical power precedents about what Brussels can do to supersede national rule. But we have a hard time believing that Brussels will simply be able to legislate itself into a position of power vis-à-vis the whole of Europe.

After Thoughts

When times were good, Brussels could pass most any law or regulatory procedure it wanted. But that is much different than legislating frugality, higher taxes, reduced pensions, etc. In the latter cases, we believe Brussels would be first ignored and then confronted. There is no way that the entire European paraphernalia of "social justice" is to be dismantled at Brussel's whim. More likely, the various states of Europe are apt to go their own way for their own reasons. There will probably be a series of announcements, were this to occur, affirming the inviolability of the EU and the sacredness of its unity. And then countries would leave.

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