Monday, March 12, 2012

328 EU prepares a Federal Treasury to deal with crisis - end of sovereign member states

EU prepares a Federal Treasury to deal with crisis - end of sovereign member states

(1) Attack on Greece was an offensive against the Euro; EU has placed itself under IMF
(2) US money supply plunges at 1930s pace as Obama eyes fresh stimulus
(3) World Bank sees 'double-dip' recession for parts of Europe
(4) EU prepares a Federal Treasury to deal with crisis - end of sovereign member states
(5) Europe's fiscal Fascism brings British withdrawal ever closer

(1) Attack on Greece was an offensive against the Euro; EU has placed itself under IMF

From: chris lenczner <chrispaul@netpci.com> Date: 15.06.2010 04:34 AM
Subject: If you are not convinced that the attack onto the Euro is manufactured from London, by Ambrose Evans-Pritchard, Read- Finance and business comments at http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/

http://www.voltairenet.org/article165569.html

Crisis and whispers
Euro: the worst case scenario
by Jean-Michel Vernochet*

The Greek budgetary crisis, which has become a crisis of the euro, is not the inevitable result of market self-regulation, but rather the consequence of a deliberate attack. According to Jean-Michel Vernochet, the crisis was provoked by an economic offensive directed from Washington and London that followed similar principles to those of contemporary military warfare, employing game theory and a strategy of ‘constructive chaos’. The ultimate aim is to oblige the Europeans to enter into an Atlantic bloc, i.e. an empire where Anglo-American budgetary deficits would be automatically financed through the expedient of a dollarised euro. The agreement concluded between the European Union and the IMF, giving the Fund partial oversight of Union economic policies, is a first step in this direction.

11 JUNE 2010

From
Paris (France)

The financial attack launched against Greece because of its sovereign debt and its potential insolvency soon proved to be an offensive against the Euro and to have only a distant relationship with the flaws and structural deficits of the Greek economy itself. These ‘vices’, incidentally, are largely shared by the bulk of post-industrial countries which have acquired the bad habit of living beyond their means and on credit, hence the soaring quantum of debt, a bubble (as any other) doomed to burst.

Everything seems to indicate that behind the brutality of the attack and beyond a simple stampede to pillage some European economies loom other objectives, notably of a geopolitical character, carefully thought out. In any case, the appetites of anonymous financial predators - as sharp as they might be - cannot account for the sustained intensity of the offensive which, in the short term, threatens to shatter the Euro zone, the European Union itself, indeed even beyond …

With the proliferation of crises over the last two decades, a quick reading of the pawn movements on the Grand Eurasian Chessboard is enough to suggest that Europe is actually one battle ground within a geo-economic war (war in the proper sense), a battle that it has besides already potentially lost.

Indeed, the adoption of a European plan – at the insistence of the White House – for the bailing out of heavily indebted EU member states not only does not constitute a panacea, a durable remedy to the structural budgetary crisis that has been rapidly affecting all Western states, but points in the direction desired by the U.S. of a rapid integration of the EU, a necessary prerequisite for the constitution of a united Western bloc.

This European plan responds to a crisis of confidence and solvency (largely artificial at the outset, but which became contagious and is now snowballing) by the recapitalisation of states as if it were a matter of a simple liquidity crisis. A European plan of 750 billion euros, even greater than the 700 billion-dollar Paulson plan designed to bail out the American financial establishment with public funds after the debacle of September 2008. The deviant consequences of that solution can be seen at present in the heavy expansion of the public debt on both sides of the Atlantic.

Thus, the U.S.-born crisis, after having triggered the recession which de-activated the economic pump, has since dried up the fiscal resources of states rendering it more difficult to service an ever expanding debt. Now, the EU has just increased the existing debt by an additional 750 billion euros, which further strain member states’ national budgets (the average indebtedness of the euro zone being actually 78% of GDP), all this with the illusory plan of ‘re-establishing market confidence’.

To this end, the EU has voluntarily placed itself under the thumb of the IMF which has consented to have up to 250 billion euros at the ready. This is the same IMF, whose calling until now has been to support tottering Third World economies through crippling recipes in the guise of so-called structural adjustment plans. It is thus a supranational entity, formally ‘globalist’, which will head, indeed supervise more or less directly, the structures of economic governance which the EU will most certainly adopt if the euro zone does not spontaneously break up beforehand.

Such integrative measures have been vigourously called for by Paul Volcker, Chairman of the White House Economic Recovery Advisory Board, who, while recently in London, lambasted European leaders demanding a boosting of the euro which the Americans and British need to keep their own economies afloat.

Let us note, in passing, that it is probably with a heavy heart that the German Chancellor accepted to subscribe to this mindboggling support plan for the faltering Euro zone countries since her French counterpart – according to persistent rumours – was threatening to return to France if she did not conform. But, while it is true that ‘the worker ant is not altruistic’, a return to the Deutsche Mark would be equivalent to signing the death warrant of the German economy as a strong currency would restrain its industrial exports, at the base of its economy. Like it or not, the situation forces Berlin, under duress, to navigate the strictures drawn up by the Obama Administration.

American ukases that lead to a big open trap: capital borrowed from the markets or lent by the IMF to save the ‘PIIGS’ (Portugal, Italy, Ireland, Greece and Spain) – threatened with cessation of repayment - must rely on structures guaranteeing long term solvency of the euro. A currency whose soundness cannot be assured, however, by the type of federal institutions which Jacques Attali has been promoting in calling for “… the creation of a European Treasury, immediately authorised to borrow in the name of the EU, and of a European Budgetary Fund, given immediate mandate to control the budget expenditures of any country whose debt exceeds the 80% of the GDP.”

It essentially boils down to subjecting States to economic tutelage under the guise of saving the Euro zone from an allegedly inevitable collapse ... since the abandonment of the Euro is an inviolable taboo that nobody apparently dreams of touching.

Certain projects go even further, by prescribing that the budgets of member states should be entirely controlled and decided on by a triumvirate comprising the European Commission, the European Central Bank and the Eurogroup (the member states’ Finance Ministers). What about the popular will and the European Parliament in Strasbourg?

No one cares about denouncing the sophistry or the fallacy of equating economic integration with a return to market confidence. First of all, why should markets, and markets alone, impose their own laws? Besides, is it not time to revisit stock market capitalism, anonymous and volatile, and capable of ruining countries on a whim or from self-interest?

On this account, centralised economic control from Brussels is no more the panacea than is a flood of liquidity the solution to the current crisis. The additional indebtedness generated by the ‘plan’ is without doubt a false solution imposed from outside with the end goal of further enslaving us Europeans to capital markets and their unspeakable dictatorship.

The idea of centralised control proceeds from the same stance for it is literally a non-sense in that it ignores all the societal differences operating across all layers of the European construct: types or models of economic growth, fiscal and social systems, etc. It is basically a “non-idea”, one which is fundamentally ideological by its nature … a smokescreen concealing a whole range of ulterior motives, all in fact foreign to the economic prosperity and well being of the peoples of the EU.

Some have rightly seen that this crisis was only the means and the pretext to precipitate the introduction of a hard-core federal system [1] encompassing all twenty seven member states despite and in contempt of the popular will over which the Treaty of Lisbon has been imposed in the most underhanded fashion. A crisis which is and remains – a cardinal fact to be borne in mind – artificial, fabricated; in a word, it is the opposite of an inherent ‘inevitability’ implied by a self-regulating and disembodied market environment, supposedly steered by an ‘invisible hand’. A reputedly ‘mechanical’ process, which, despite its anonymity, is none the less constituted by corporate executives and traders made of flesh and blood that call the shots and manipulate the market.

It is for this reason that the U.S speaks with a forked tongue through two separate voices, that of its ‘market’ representatives and President Obama himself. The latter intervened to berate the Europeans and press them to stabilise their currency, or, in other words, the European economic policies, good or otherwise, which are inextricably linked to the health of their own currency. Now, don’t start imagining for one second that some kind of meddling in the affairs of Continental Europe could be involved here! Can you picture Madame Merkel and Monsieur Sarkozy asking the White House to clean up Manhattan?

The other voice belongs to those who call the shots … in short, the managers of the self-regulating order, anonymous even to the governments themselves, as French Finance Minister Christine Lagarde shamefully confessed; those who play yo-yo with the markets like a cat plays with a mouse, anticipating the lows and highs that they themselves intentionally provoke. In practice, these people are promoting a very different discourse.

Indeed, how else to explain the evident contradiction between the concerns expressed by President Obama – legitimate by the way, for the EU needs a strong euro that penalises European exporters, but is advantageous to American industry, a useful bonus given the record US fiscal deficit ($1400 billion for 2008-09) and above all necessary to support the ongoing war effort in Iraq, Afghanistan and Pakistan – and the radical destablisation of Western economies by the persistent attacks by the markets against the euro?

No matter how voracious, inconsistent or irrational, the ‘operators’ are nevertheless aware that the pursuit of the offensive against the euro jeopardises the system in its totality and risks plunging the global economy into a new phase of chaos. Then why this dance on the edge of the abyss? Nobody will have us believe this nonsense that the markets have a life of their own, that they are uncontrollable and that all this is simply the result of the economic machine gone awry … In short, that it’s ‘nobody’s fault’, but the simple consequence of the impossibility of managing the agents and the irrational faux pas of the markets?

Clearly said, the risk of systemic collapse is at the very heart of the game currently being played. The big players, the cold calculators, are obvious disciples of the theory of games (since von Neumann & Morgenstern), probabilistic edifice on the foundations of which has been constructed the doctrine of nuclear deterrence … The winners are those who push the lethal bids the highest. A scenario that corresponds line for line to that which is unfolding before our eyes: increasing destabilisation of the European economies, with non-negligible effects for the U.S.

Let’s add that the financial chaos, monetary and economic, on both sides of the Atlantic is an undeniable windfall, for those who prosper in the backwash of the market’s trajectory, provoking and anticipating the cycles of panic and euphoria to play indiscriminately with the rising and falling currents of the hysterically erratic markets.

At the beginning of the Twentieth Century, the economist Werner Sombart conceived an embryonic theory of ‘creative destruction’ (subsequently taken up by Joseph Schumpeter). Since then this theory has been developed by, among others, the mathematical theory of the frenchman René Thom (‘catastrophe theory’). Amended by Benoît Mandelbrot, the theory was applied via fractal geometry to market behaviour, perceived already at that time to fall within the province of a theory of chaos, decidedly fashionable.

In the meantime, the economist Friedrich von Hayek, one of the theorists of neoliberalism, claimed to have raised the free-market economy to the status of an exact science. According to his hagiographer Guy Sorman, “… liberalism converges with the most recent theories of physics, chemistry and biology, in particular the science of chaos formalised by Ilya Prigogine. In the market economy as in nature, order is born out of chaos: the spontaneous agency of millions of decisions and pieces of information leads not to disorder, but to a superior order” … One could not say it any better, for a priori we hold there the keys to understanding the crisis.

At the end of the 1990s, the Neo-conservative disciples of Leo Strauss have carried to its logical limits the new dogma of greater disorder in making themselves the bards of ‘constructive chaos’ as a legitimation a priori for all the wars of conquest of the Twenty First Century. From this viewpoint, each is able to see this chaos at work in the Greater Middle East as s/he is able to see it at work today in Europe.

We can wager that the new regional order that the great organisers of chaos intend to see emerge from the crisis itself will be a unified Europe, centralised and federal, placed under the direct influence of the US with the aid of the Federal Reserve of which the European Central Bank will be only a branch, and under the vigilant watch of the IMF, representative or product of an emergent global power, deterritorialised yet omnipresent.

One understands quickly enough that the deification of the market associated with the idea of ‘constructive chaos’, itself complemented by an intensive application of game theory in the hands of the disciples of demolition, constitutes a mixture that promises to blow up in one’s face. An observation immediately comes to mind: ‘chaos’ (intentional) is these days a mode of government, of socio-economic transformation and of unopposed conquest. A heavy duty version of ‘divide and conquer’ even if it means nations will perish and the people with them.

For it’s a risk worth taking if in the end Europe finds itself on its knees. Greece – certainly at the soft underbelly of the euro zone but no more so than Italy, Spain, Ireland or Portugal – has been until now a sort of free electron frustrating a full integration of the Balkans in the American geostrategic orbit.

By way of a provisionary conclusion, if the EU, facing crisis, advances at forced march towards central economic control, a stage will be reached whereby quasi-discretionary power will be granted to the European Commission - for the most part composed of non-elected technocrats and recruits - for a stainless Atlanticist allegiance. To put it plainly, this will signify the obliteration of the European nation states.

In reality, nothing can prevent the integration of Europe within a trans-Atlantic Bloc. In the end, the merging of the euro with the dollar will accelerate the union of the old world and the new world. This conclusion is evidently not a matter of pure speculation but a simple projection of the architectonic tendencies visibly at work in the framework of a process of redistribution or of geopolitical recomposition of the global map. Sufficient to say that if the euro zone does not break apart, the fate of the European peoples seems definitely sealed, tied for better or worse to the manifest destiny of the United States. And this irrespective of a ‘reform’ of the global economic system.

The financiers will perhaps get their fingers burnt if the international community agrees to curb their appetites in regulating the markets, but the fact remains that the promoters of constructive chaos will have won this hand as they set out to recreate the conditions for new conflagrations.

The worse case scenario, often evoked in France by such influential men as Bernard Kouchner and Jacque Attali, happens to be the least improbable at a time when governments, backs to the wall, see themselves condemned to fleeing headlong into the unknown. In Kuwait in 1991, in Iraq in 2003 among the thinly disguised objectives of war, the boosting of the economic machinery through plans of reconstruction was high on the list. Not to mention other more flagrant and immediate interests such as fossil fuels, arms sales and all the related industries.

Whatever the accords between Turkey and Iran on uranium enrichment for medical purposes, whatever the related diplomatic annoyance for the State Department, it suffices to re-read the fabulist Jean de la Fontaine to know that the rhetoric of the wolf always prevails over that of the lamb! In a situation of extreme fragility of the global economy, one must await an end to the crisis at the harrowing door of the chaos constructor.

Jean-Michel Vernochet

Former journalist for Figaro Magazine and professor at l’École supérieure de journalisme (ESJ-Paris). Most recent published work: Europe, chronique d’une mort annoncée (Éditions de l’Infini, 2009).

(2) US money supply plunges at 1930s pace as Obama eyes fresh stimulus

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.

The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.

Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.

Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, "failure begets failure" in fiscal policy as the logic of compound interest does its worst.

However, Mr Summers said it would be "pennywise and pound foolish" to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy "faces a liquidity trap" and the Fed is constrained by zero interest rates.

Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.

"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.

Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust.

Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.

This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a second warning that the economy was about to go into a nosedive.

Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called "creditism" has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.

Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. "Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched," he said.

However, Mr Ashworth warned against a mechanical interpretation of money supply figures. "You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets," he said.

Events may soon tell us whether this is benign or malign. It is certainly remarkable.

** While the Fed does not publish M3, it still publishes the underlying components. The indicator is reconstructed accurately for clients by Dr John Williams. See it here. <http://www.shadowstats.com/>

(3) World Bank sees 'double-dip' recession for parts of Europe

A double-dip recession is possible in several European countries if investors lose faith in efforts to control debt, the World Bank said on Thursday.

Published: 3:00PM BST 10 Jun 2010

http://www.telegraph.co.uk/finance/economics/7817995/World-Bank-sees-double-dip-recession-for-parts-of-Europe.html

Government finances in high-income countries in Europe, France, the US and the UK are currently on an “unsustainable path,” said Andrew Burns, the World Bank’s manager of global macroeconomics.

“We’re expecting that growth in the second quarter is also likely to be disappointing, quite possibly seeing negative growth in several European countries and a double dip in some of these economies,” he added.

The European Union and International Monetary Fund has set set up a ?750bn bail-out fund for countries in danger of financial instability, in an attempt to halt the spread of the region's sovereign debt crisis.

Herman Van Rompuy, the EU president, said this week that the EU would be prepared to extend that rescue package if it proved insufficient.

“Currently there isn’t even the hint of a request to put this rescue plan into practice,” Van Rompuy told Belgium’s Trends magazine. “And if the plan were to prove insufficient, my answer is simple: in this case, we’ll do more.”

The EU hopes to prevent countries such as Spain and Portugal from succumbing to debt woes after a separate €110bn lifeline for Greece failed to contain the fiscal crisis.

A second downturn in Europe could lead to global fall-out, the World Bank said in its 2010 Global Economic Prospects report.

Failure to resolve the debt crisis in Europe could hurt global growth and have “serious” effects on East Asia, where exports and investment are large shares of economies, it said.

Germany this week announced a four-year, ?80bn package of budget cuts and revenue-raising measures. Greece, Spain, Italy and Portugal are among euro countries with austerity programs in the works. France plans a three-year spending freeze.

“If markets lost confidence in the credibility of efforts to put policy on a sustainable path, global growth could be significantly impaired and a double-dip recession could not be excluded,” the World Bank said in its report.

(4) EU prepares a Federal Treasury to deal with crisis - end of sovereign member states

Europe prepares nuclear response to save monetary union

Are Europe's leaders grasping the nettle at last? Faced with the imminent disintegration of monetary union, they appear poised to create the beginnings of an EU debt union and authorize the European Central Bank to step in immediately to stabilize the eurozone bond markets.

By Ambrose Evans-Pritchard
Published: 7:54PM BST 09 May 2010

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7702335/Europe-prepares-nuclear-response-to-save-monetary-union.html

"It is an absolute general mobilization: we have decided to give the eurozone a veritable economic government," said French president Nicolas Sarkozy, once again basking as Europe's action man. "Today we have an attack on the whole of the eurozone. This is a systemic crisis: the response must be systemic. When the markets open on Monday morning we will be ready to defend the euro."

Great caution is in order. German Chancellor Angela Merkel has so far said little. The descriptions of the deal agreed by EU leaders in the early hours of Saturday are coming from the French bloc and EU bureaucrats. How many times during the Greek saga of the last four months have we heard claims from Brussels that turned out to be a distortion of what Germany had actually agreed, causing each relief rally to falter within days? They had better get it right this time.

But if the early reports are near true, the accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe's AAA rating to help eurozone states in trouble -- apparently ?60bn, with a separate facility that may be able to lever up to ?500bn -- is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.

No EMU country will be allowed to default, whatever the moral hazard. Mrs Merkel seems to have bowed to extreme pressure as contagion spread to Portugal, Ireland, and -- the two clinchers -- Spain and Italy. "We have a serious situation, not just in one country but in several," she said.

The euro's founding fathers have for now won their strategic bet that monetary union would one day force EU states to create the machinery needed to make it work, or put another way that Germany would go along rather than squander its half-century investment in Europe's power-war order.

Whether the German nation will acquiesce for long is another matter. Popular fury over the Greek rescue has already cost Mrs Merkel control over North Rhine-Westphalia and with it the Bundesrat, dooming her reform agenda. The result was a rout.Events are getting out of hand, and not just on the streets of Athens.

For now, the world has avoided a financial cataclysm that would have been as serious and far-reaching as the collapse of Lehman Brothers, AIG, Fannie and Freddie in September 2008, and perhaps worse given the already depleted capital ratios of banks and the growing aversion to sovereign debt

Bond risk on European banks as measured by the iTraxx financial index reached even higher levels late last week than in the worst moments of the Lehman crisis. The safe-haven flight into two-year German Schatz was flashing the most extreme stress warnings since the instruments where created forty years ago."We're seeing herd behavior in the markets that are really wolfpack behavior," said Anders Borg, Sweden's Finance Minister.

Credit specialists in Frankfurt, London, and New York feared a blow-up by Thursday afternoon, when ECB president Jean-Claude Trichet said the bank's council had not even discussed the `nuclear option' of buying Club Med bonds. The ECB seemed to be on another planet.

It was the fall-out from that press conference -- at a moment when markets were losing all confidence in EU leadership -- that had much to do with the DOW's 1000 point drop in New York hours later. This is not to blame Mr Trichet. He did not have a mandate to go further at that stage. The Bundesbank had blocked him, knowing full-well that ECB purchases of bonds is the end of monetary discipline and the start of a Primrose Path to Hell. As they say in Frankfurt, a central bank should be like pudding: "the more you beat it, the harder it gets".

It is pointless to fault either camp is this clash of Latin and Teutonic mores. The euro was never an "optimal currency area", which is to say it was never an "optimal legal and cultural area". It was a late 20th Century version of the same Hegelian reflex of imposing ideas from above -- making facts fit the theory -- that has so cursed Europe. Schopenhauer said Hegel had "completely disorganized and ruined the minds of a whole generation". Little did he know how long the spell would last.

But I digress. There is a difference between quantitative easing by the US Federal Reserve and the Bank of England for liquidity purposes, and use of this policy to soak up the debt of governments dependent on external finance to cover structural deficits. The lines are of course blurred. One purpose can leak into the other.

But whatever the objections of the Bundesbank, it seems that Europe's elected leaders pulled rank this weekend -- and high time too says the French Left. The reaction in Germany already been fierce. "The ECB is going crank up the printing presses," said Anton Börner, head of Germany's export federation. "In five to ten yeas we will have a weak currency, with rising inflation and higher rates of inflation that will act as a break on growth."

I don't agree with Mr Börner. The M3 money supply is contracting in the eurozone, pointing to the risk of a Japan-style slide into deflationary perma-slump, although the panic response to that down the road may well be to call in the printers. But there is no doubt that Mr Börner represents German opinion.

The EU is invoking the "exceptional circumstances" clause of Article 122 of the Lisbon Treaty, arguing that the euro is subject to an "organized worldwide attack". This is a legal minefield. A group of professors has already filed a case at Germany's Constitutional Court, claiming that the Greek bail-out is illegal and that the EMU is degenerating into a zone of monetary disorder.

The judges have denied an immediate injunction on aid to Greece, saying that it would to be too "dangerous" to take such a step on limited facts, but it has not yet decided whether to hear the case. The battle has escalated in any case. The new EU rescue mechanism is to be permanent and no longer just bilateral help, if Mr Sarkozy is right. The professors have been given an open goal. One almost suspects that the Kanzleramt in Berlin is so weary of this dispute that it has given up worrying about lawsuits. If the judges block an EU debt union, be it on their heads.

Nor is this rescue fund any more than chemotherapy for the cancer eating away at the foundations of monetary union. It is not a cure. The rot set it when the South joined EMU before it was ready to cope with ultra-low interest rates or match German wage-bargaining. The ECB made matters worse by gunning M3 at an 11pc rate during the bubble. Club Med lurched from credit boom to bust. It is now trapped in debt deflation at an over-valued exchange rate, like Argentina with its dollar peg in 2001 until air force helicopters rescued President De La Rua from the roof of the Rosada.

The answer to this -- if the objective is to save EMU -- is for Germany to boost its growth and tolerate higher `relative' inflation. This would allow the South to close the gap without tipping into a 1930s Fisherite death spiral. Yet Europe will have none of it. The weekend deal demands yet more belt-tightening from the South. Portugal is to shelve its public works projects. Spain has pledged further cuts. As for Germany, it is preparing fiscal tightening to comply with the new balanced budget amendment in its Grundgesetz.

While each component makes sense in its own narrow terms, the EU policy as a whole is madness for a currency union. Stephen Lewis from Monument Securities says Europe's leaders have forgotten the lesson of the "Gold Bloc" in the second phase of the Great Depression, when a reactionary and over-proud Continent ground itself into slump by clinging to deflationary totemism long after the circumstances had rendered this policy suicidal. We all know how it ended.

(5) Europe's fiscal Fascism brings British withdrawal ever closer

By Ambrose Evans-Pritchard

May 14th, 2010

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100005678/europes-fiscal-fascism-brings-british-withdrawal-ever-closer/

Just when you thought the EU could not go any further down the road towards authoritarian excess, it gets worse.

The European Commission is calling for EU powers to vet budgets of the 27 member states before the draft laws have been presented to the House of Commons, the Tweede Kamer, the Folketing, the Bundestag, the Assemblee Nationale, or other national parliaments. It applies to Britain even though we are not in EMU.

Fonctionnaires and EU finance ministers will pass judgement on the British (or Dutch, or Danish, or French) budgets before the elected bodies of these ancient and sovereign nations have seen the proposals. Did we not we not fight the English Civil War and kill a king over such a prerogative?

Yet again we are discovering the trick played on our democracies by Europe’s insiders when they charged ahead with EMU, brushing aside warnings by their own staff economists that monetary union was unworkable without fiscal union. Jacques Delors knew perfectly well that this would lead inevitably to a crisis, but it would be the “beneficial crisis” that would force sovereign parliaments to submit to demands that they would never otherwise accept.

This is now playing out before our eyes. Club Med governments have built up ?7 trillion sovereign debt under the cover of monetary union, which shut down the warning signals for borrowers and creditors alike. We are now near – or beyond – the point of no return. Eurozone states must go along with this cynical entrapment, or risk economic catastrophe. The conspirators have succeeded. The ?750bn shock and awe package agreed over the weekend clearly alters the character of the European Project, crossing the line towards an EU debt union and an EU Treasury. How long will it be now before the EU acquires direct tax-raising powers?

As French president Nicolas Sarkozy said: “We have a veritable economic government”. I hope the excellent and proud French people realise what this means before it is too late, as it is for the Greek, Irish, Portuguese, and Spanish peoples. They are being forced by the logic of the economic machine to squeeze fiscal policy at a time when they are either in recession or trapped in a deeper perma-slump without offsetting stimulus. A Deutsche Bank note to clients said these countries have given up all three instruments of economic control: fiscal, monetary, and exchange. They are powerless. We are under an “EU protectorate”, said Spain’s opposition leader Mariano Rajoy last week, though it was empty, useless rhetoric since he does not draw any of the necessary conclusions from this intolerable state of affairs.

In Brussels, Mr Barroso wants EU powers to monitor current account deficits and credit growth – under pain of sanctions – in order to stop booms running out of control. “We must get to the root of the problems,” he said.

Notice how one-sided this is. The entire adjustment burden falls on the people of the Club Med states – including his own nation, Portugal – though they are already trapped in debt-deflation. There is no recognition that the EMU system itself is fundamentally dysfunctional because the euro was painted on a cultural canopy that cannot possibly be deemed an “optimal currency area”, nor that these countries have been grossly violated by the entirely predictable – and predicted – perversions of EMU.

There is no hint that intrusive EU surveillance powers should be used to compel Germany to increase spending and tolerate higher inflation so that the EU’s North-South divide can be bridged by the both camps meeting each other half way. All responses are tilted in one direction: deflation, fiscal austerity. This is the Gold Bloc fallacy of Continental Europe from 1931 to 1936, the policy that led to Bruning’s destruction of Weimar, Laval’s near destruction of the Third Republic in France with his deflation decrees. It was a precursor to Laval’s fateful role as the Nazi enforcer of Vichy. He was later executed by firing squad, vomitting from a botched suicide with cynanide.

The reactionary character of the EU system is astonishing to behold. Mr Barroso – a Maoist student protester on the revolutionary barricades, turned Thatcherite, turned … what exactly – a Salazar, a son insu? – is becoming a serious danger to civil society and the survival of European democracy.  Señor Barroso, a decent man, needs to step back and ask himself what on earth is going to be achieved by imposing a deflation death spiral on a large swathe of Europe.

Nor is there any recognition at all that the European Central Bank was itself partly responsible for the crisis that has now engulfed the South. We all forget that the ECB ran a persistently loose monetary policy during the bubble – Greenspan Lite, let us call it – and an overly tight policy after the bubble burst. A double whammy for the GIPS.

It missed its own inflation target every year, and by the end it was tolerating an 11pc growth rate in the M3 money supply (against a target of 4.5pc, but by then it had abandoned its Bundesbank tradition of monetarism). This was pouring petrol on the property fires of Ireland and Spain.

The ECB has since let M3 contract, doing its own part to ensure a replay of 1931, at least until Europe’s politicians read the riot act on Friday and forced it to buy Greek, Portuguse, Irish, and Spanish bonds, albeit sterilized and injecting no net stimulus into the euroland system. This resassertion of political primacy is entirely appropriate. The idea that central banks should not be accountable to democracy is monstrous and untenable. Besides, they had their chance.

They showed themselves unfit for independence. Their doctrines were found to be pseudo-science.

Why did the ECB pursue policies that were so destructive for the GIPS? Because it was helping to nurse Germany through its long post-reunification slump in Phase I, and then bowed to Germany’s phobia of non-existent inflation in Phase II from 2008 onwards. ECB policy was twisted from the start to help one (mentally unhinged?) country. Let us at least be honest about this.

I do not envy David Cameron and George Osborne as they navigate these lethal waters. As Bruno Waterfield reports from Brussels, they will face their first clash next week when the new Chancellor is presented with the Barroso proposals, that is to say proposals for a reversal of the English Civil War and the re-establishment of Stuart monarchical absolutism.

The truth is that no British government can ever put Europe on the back-burner and hope it goes away. It hits you in the face, again, and again, and again. This is why so many British ministers end up feeling a visceral hatred for the project.

In my view, the EU elites overstepped the line by ignoring the rejection of the European Constitution by French and Dutch voters, then pushing it through under the guise of the Lisbon Treaty without a popular vote, except in Ireland, and when Ireland voted ‘No’, to ignore that too. The enterprise has become illegitimate – it is starting to exhibit the reflexes of tyranny.

The moment of definition is fast arriving from Britain. The measures now being demanded to save monetary union cannot and will not be accepted by this Government, Nick Clegg notwithstanding. The most eurosceptic people I have ever met are those who have actually worked for the European Commission, though it takes a while – and liberation from Brussels – for these views to ferment.

The outcome – un véritable gouvernement économique – will put Britain and the eurozone on such separate courses that it will amount to separation in all but name. The sooner we get the nastiness of divorce behind us, the better.

No comments:

Post a Comment