I have often joked to friends that every few decades, Germany tries to create a Reich involving lands outside of her borders, and just as the night follows day, the effort ends in spectacular failure. I don't mean to make light of the horrors of World War II, or to compare Charlemagne with the German-influenced ECB, but it seems that the periphery countries are revolting under German driven austerity and control. Let's be honest here. It's control.
Don't get me wrong: I have much respect for Germany and the German people. The issues arising today are not from some Teutonic ambition of world domination. The issues arise out of economically binding diametrically opposed economies and cultures. I believe in a united Europe. Europe should be proud of her accomplishments after millenia of bloodshed and warfare that makes the modern Middle East look tame by comparison.
But tying Europe together with a common currency seems now, in hindsight, to be an overly ambitious goal that ignores issues of culture, sovereignty, and fair trade. The periphery nations can be painted as irresponsible spenders needing a firm lecture, but that ignores the underlying issues of a common currency based on debt, that by its nature creates imbalances.
Germany was a manufacturing power before the Euro. And much of European trade is done amongst the Euro nations. Money that is lent to the periphery becomes a debt, but once that money is spent on German goods, it becomes Germany's asset. It's basic double entry bookeeping. For every nation in Europe to have a trade surplus, Europe would need to all at once strongly export outside of Europe. But much of trade is within Europe, and thus it is mathematically impossible for every nation in Europe to have a trade surplus simultaneously. And as a trade deficit grows, and money leaves the economy, governments pick up the slack by overspending, that is, creating new money/debt. It is a vicious cycle.
A debt based fiat currency is no help either. Under a gold standard, either you had an asset - gold, or you didn't. If you ran a persistent trade deficit, there were "brakes" in the system that made you address it. But under a debt based system where a nation's debt is another's asset - the game can continue for much longer, creating Tower of Babel sized imbalances destined to fail.. to topple. As I said, Germany's assets are the debts of other Euro nations. Germany isn't losing its export supremacy anytime soon, just as the periphery isn't going to become an economic German-style powerhouse any time soon.
And so, Europe is cracking. It is an awful sight to behold. After centuries of warfare, it is unsettling to watch European nations argue as they are today. And the worst is that everyone is somewhat right, and everyone is somewhat wrong. Thus, there are no rouge countries at fault. If there was a rouge country or two - that could be easily addressed. But what is at fault is the system. A system has no face, no body, no borders. It is intangible yet controls our daily routines.
Europe needs to figure this out, and soon, because to me, it seems like the early 1930s and 1910s could begin all over again. I don't foresee a European war, but I fear that if these things are not addressed in a fair way, we may be laying the foundation for the events that could lead to strife. In other words, we are two degrees away, not one. We have time, what Europe needs now is strong but fair leadership.
And so, here are some news stories and links that well describe the current ongoing European devolution:
From the Wall Street Journal:
Addressing reporters in Paris, George Papandreou said the Germans' view—long-held, but recently reiterated—that private bondholders could suffer losses as part of a future bailout was intensifying government-debt woes.
The German position "created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal," Mr. Papandreou said. He added that the spiral could "break backs" and "force economies toward bankruptcy."
From The Telegraph:
Spain's central bank governor, Miguel Angel Ordonez, lashed out at Dublin on Monday, calling on the Irish government to halt the panic and take the "proper decision" of activating the EU-IMF bail-out mechanism.
"The situation in the markets has been very negative due to the lack of a final decision by Ireland. It is up to Ireland to take that decision, and I hope it does," he said.
From The Gazette: