STAFF NEWS & ANALYSIS
Will Euro Failure Usher in World Currency?
By Staff News & Analysis - March 03, 2011

German-Irish brinkmanship raises EMU stakes … German bail-out fatigue and fierce resistance to EMU "rescue creep" threaten to derail a eurozone deal this month, and risk triggering a fresh round of Europe's debt crisis. The EU's new criteria for bank stress tests to be agreed this week adds another risk. Ireland's new leader Enda Kenny faces a daunting task as he tries to change the terms of his country's €67bn (£57b EU-IMF package, either by cutting the penal rate of interest or changing the remit of the rescue fund to help Ireland claw its way out of a debt trap. – UK Telegraph

Dominant Social Theme: So much to muddle through. The EU will survive.

Free-Market Analysis: The Telegraph's Ambrose Evans-Pritchard has published one of his usual insightful analyses on the upcoming difficulties the Irish will face in renegotiating debt payments to prop up failing Irish banks (see article excerpt above). Irish bank bonds are held by German and French banks, among others, and there has been overwhelming pressure placed on Ireland ‘s government to borrow money, raise taxes and cut expenses so as to ensure the ailing banks do not founder entirely.

The stresses placed on the Irish economy and Irish taxpayers in particular are tremendous. Iceland chose not to support its insolvent banks and as a result the Icelandic economy has show some improvement; the Irish economy still lags badly and there is no expectation that it will much improve; in fact it is likely to end in a kind of national bankruptcy or popular rebellion.

For this reason, the Irish turned to the country's main opposition party, Fine Gael, in recent elections to provide a clear alternative to what has already been agreed upon with the EU. Nonetheless, as Evans-Pritchard shows, there are grave obstacles in the way of renegotiating an agreement with the EU that provided bank bailout money to stabilize Irish finances last year.

Much of the problem with renegotiating the current, likely unsupportable, agreement lies with Germany itself. Most recently it has been suggested that the EU could issue "eurobonds" that would considerably ease the financial crunch that countries like Ireland face. But Angela's Merkel's three-party German coalition is opposed to the eurobond idea, Evans-Pritchard reports, because ultimately all EU countries would end up guaranteeing such bonds. The coalition intends to put any agreement reached by the EU to a vote in the Bundestag. More than this, "A group of 189 German professors has [warned] of ‘fatal consequences for the whole process of European integration' if the EU crosses the Rubicon to a de facto debt union."

"I cannot remember any occasion when lawmakers have set guidance like this before: Merkel has very little leeway," Pritchard-Evans quotes Hans Redeker, currency chief at BNP Paribas as saying. "There is going to be disappointment at the summit and that will make life even harder for the EMU periphery." Meanwhile, an oil spike will considerably reduce EU growth and make the Irish economy (among others) even less responsive. Such "peripheral countries" are most at risk from exogenous financial difficulties.

Merkel's administration has an alternative plan to offer Eurocrats. In return for expanding the bailout pool, those recipients of aid will agree to an intrusive EU (German) regulatory and inspection reign. This has already met stiff resistance from the Irish and others. Resentments from World War II are still evident, especially in such countries as Greece, and the perception is that Germany is trying to use its financial clout to gain in peacetime the European empire it could not claim long ago by war.

The European Commission, Evans-Pritchard points out, has drafted a compromise plan, but in Germany, already, it is seen as more of the same. Outgoing Bundesbank chief Axel Weber – a vehement critic of any agreement that would further enmesh Germany financially into third-party bailouts – has attacked the plan, claiming it would eventually resolve itself into a move toward a eurobond program. Germany's views on this matter are increasingly shared in Holland and Finland – other so-called "Northern" states that are considerably more solvent than Southern ones.

Ireland currently pays nearly 6 percent for EU loans, versus the EU funding cost of 2.6 percent and there is no guarantee that the carrying costs won't rise as the EU gradually continues its recovery from the 2008 crisis. Evans Pritchard believes the new Irish regime has one considerable weapon in its arsenal, which is to "threaten 'haircuts' on senior bank creditors if the EU refuses to compromise, a move that might set off EMU-wide contagion and inflict big losses on German Landesbanken." To play it, he concludes, would encourage the wrath of the eurozone. To allow the situation to remain as it is will reignite the wrath of the voters that the just handed a resounding defeat to the previous regime that negotiated the current bailout terms. The alternatives could not be starker.

Evans-Pritchard's analysis ceases with the observation of the various alternatives. But we want to suggest a fourth option here – one that no respectable mainstream publication would likely speculate on. Our idea is that at this point the euro is actually being set up for failure. The current dilemma may be no accident and is in fact perfectly predictable. We have argued in the past that the eurozone is an integral part of the Anglo-American power elite's plans for closer global governance. But the EU itself has harmonized much of Europe's regulatory disparities and in a sense, even without full political power, has turned the Eurozone into a homogenous whole.

It may be that the euro itself is expendable at this point. The idea would be, of course, that as the euro continues to falter, an alternative currency must be waiting in the wings. The Anglosphere has such a currency available in the IMF's SDRs, which can be resolved into an even more fungible currency called the "bancor" as economist John Maynard Keynes suggested 50 years ago.

While this may sound somewhat unrealistic, to say the least, we would argue (as Devil's advocate) that it is sociopolitical and economic chaos that drives sizable economic changes. Is such chaos looming on the horizon? It seems to us that the power elite has already begun to inflict it on the world, creating regime change throughout the Middle East and Africa. We've covered Western culpability in this regard in numerous articles. We would argue that any elite capable of setting off controlled revolutions in a dozen countries is certainly willing to introduce similar chaos in the West.

What signs to do we see? We think that Western central banking policies may have deliberately introduced raging price inflation in developed and developing countries. We believe the sudden advent of food scarcity (to be followed by water scarcity) may be no accident either. All these factors are controllable via money power and we it would seem to us, arguably anyway, that this controlled – and expanding – chaos is meant to be.

In America, Barack Obama has added trillions to the national debt and made George W. Bush's profligacy look almost modest by comparison. Again, we believe that this may be a deliberate destabilization of the nation's fiscal and monetary situation. Homeland Security's authoritarian depredations are acting as deliberate incitements as well. With 40 million on food stamps, 20 percent unemployment (at least), mounting price inflation, failing wars, 10-percent foreclosures and a polarized political environment, we would tend to believe that America is on the verge of the kinds of civil disturbances that Europe is likely to face as the weather warms.

It is not the civil unrest itself that will make the difference but the inflationary decline of the dollar reserve system. The combination of monetary destabilization, social unrest and military tension (the West versus the growing "threat" of a (controlled) faux-militant Islam) could create the necessity for a grand G-20 compromise that could usher in a new monetary environment administered by the IMF under the auspices of the UN. At that point, all that would be needed to create a UN-driven "new world order" is a taxing authority, something the UN has been suggesting with increased enthusiasm for the past several years.

After Thoughts

Certainly all the above sounds radically speculative but we have been astonished at the boldness – desperation? – of the power elite's depredations in the past few years. Destabilizing a quarter of the world is apparently not beyond it and we would not put it past this shadowy cabal to purposefully begin to destabilize the euro as they have evidently destabilized the dollar. China has all but broken away from the dollar-reserve system in the past months and Russia shall not be far behind in our opinion. We do not yet foresee the exact mechanisms that might resolve themselves into a new monetary system but in this article we have done our best to pursue the issue logically. Far-fetched? Sure. But no more than many other events occurring in the world today.

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