Wednesday, November 16, 2011

Germany Resurgent

Historically Europe has been the battleground of the West with France and Germany playing dominant roles with Britain and Russia playing important but secondary roles. This pattern has existed up until 1991 with the creation of the Euro-zone which was intended to link Europe financially in an effort to prevent any future wars due to the interdependence. This effort recognized the nationalism within the zone so the interdependence was strictly financial. It left borders intact along with languages but most importantly it left financial controls intact, meaning financial policies continued pretty much as they had in the past but with a common currency.

Unfortunately Europe has been held in thrall by its socialist programs – generous social programs that rewarded workers with lavish health and retirement benefits without demanding a great deal of work. While the taxes have been high in order to support these programs tax collection has been a challenge and the great national game has been to avoid paying taxes. The result has been the cost of government has far exceeded the revenues and the imports have exceeded exports. But the European problem isn’t totally theirs alone. China manipulates its currency keeping it an artificially low rate which drives its export based economy. The US has allowed the government to increasingly get involved in the financial structure which has caused instability both at home and abroad. But the serious problems remain in Europe because the objective of the common currency was unification and stability and the creation of an economic power – United Europe – to rival the United States – politically and economically. All of these objectives are seriously threatened.

The Maastrict Treaty created the Euro as a common currency but left the countries control of their individual fiscal policies. This meant that the countries in the Euro-zone had their own tax policies and would not share banks but would share interest rates. This allowed countries like Greece to continue their socialist programs supported by borrowed money but without any control over the value of money. In effect the Euro remains under central control but at the expense of national sovereignty. The result is the fiscal crisis in Greece and the imminent crises in Italy, Spain, Ireland, and Portugal. But these financial problems are jeopardizing the objective of a Unified Europe as well as the Euro itself, because of the resurgence of nationalism.

The Maastrict Treaty was intended to unify Europe and suppress the nationalism that has plagued Europe since the fall of Rome. But unlike the other members the German economy was designed to be export based unlike the other members in the European Free Trade Zone. . Germany became the dominant financial force in the Euro-zone and the unwilling source of financial support for the less responsible members. This is a role the German people quickly tired of as they couldn’t see why they should subsidize the irresponsible Greeks while the Greeks see the Germans as manipulating the financial system in their favor. The first bailouts by the Germans did not go well with the German people and when it became obvious that more bailout money was needed the Germans demanded action. The result was the creation of the European Financial Security Facility (EFSF) which raises money on the bond market and funnels that money to the weak Euro-Zone members, but the EFSF is run by Germany and it is the Germans who call the tune – not the French and certainly not the weak governments who depend on German money.

With the EFSF in place Germany can demand economic reforms before loaning money and are doing so. These reforms are austerity reforms which strike at the very heart of the socialist programs in place in these countries. In effect they can’t continue as they are without financial aid and they can’t get this aid without meeting Germany’s demands for reform. At a stroke and without firing a shot Germany has achieved the control over Europe that has been it’s objective since Bismark. The result has been a rise of nationalism that threatens the Euro and the concept of a unified Europe. At the very least the generous socialist programs that the Europeans have enjoyed for a long time cannot survive without extreme restructuring. This means fewer government jobs, longer work weeks, reformed pension plans, and higher taxes that are actually collected. These reforms are being resisted in Greece and Italy but when implemented will bring them more in line with the rest of the world. The question of what the European Union might become is now less relevant that can it survive at all without significant changes.—changes dictated by Germany. Welcome to the Fourth Reich.

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