G20, a Meeting that didn’t Deliver

EUflag2

The Red Banner of the EUSSR may not be needed as the Euro zone and the European Federal Project look set to implode.

The G20 meeting failed to deliver either on its original agenda or on the agenda promoted by Reich Kanzler Merkel and Sarkozy, but it did show a different way forward.

When the G20 met in Nice, host French President Sarkozy was hoping to use it as a launch pad for the 2012 French Presidential elections. He crashed and burned.

Reich Kanzler Merkel was hoping to use the meeting to blackmail non-Euro Zone countries to dig deep into their pockets and pay off the Euro Zone debt. She crashed and burned.

What was achieved was an interesting alliance between China, the US and Britain. These three countries united to point out that the Euro Zone had a composite trade surplus and adequate funds to fill the the much trumpeted One Trillion Euro crash fund and could contribute even more. They also pointed out that, when the next country under fire was Italy with a 1.9 trillion Euro black hole, the fund needed to be doubled. Not what France and Germany hoped to hear.

The Franco German position was sheer cheek. It was similar to the situation should the US demand a huge injection of IMF funds if the economies of California and Florida needed to be saved. In that hypothetical situation, Germany and France would have been in the vanguard objecting to the US trying to use the IMF to sort out its internal problems.

In a nutshell, the Sino, US, British position was that the Euro Zone should behave as a single sovereign currency in bad times as much as in good times. The European Central Bank should operate as the national central bank of the Euro Zone. If, when the whole Euro Zone had exhausted its funds and still failed to bring under control the composite deficit, the IMF would be able to review the situation and become the lender-of-last-resort under conditions that would apply to every Euro Zone country. That of course is what the IMF was originally set up to do.

Merkel in particular is now in a very dangerous political position. Some 80% of German voters expect every Euro Zone country to exercise fiscal prudence and sort out its own problems. Clearly, Ireland, Portugal, Greece, Spain and Italy are unable to sort out their problems without a rapid influx of affordable loans, a significant change in political direction and governance, with firm plans to reduce debt and govern prudently in future. If Germany continues to obstruct a raid on its tax revenues and reserves to create an immediate bail-out fund managed by the European Central Bank. the PIIGS will be forced out of the Euro one by one, perhaps later in pairs. That will create a very disorderly default in each country and a major political upheaval for them. The slower the disaster unfolds, the deeper the ultimate problem to be solved, and the more countries affected seriously. With the Sino, US, British alliance putting steel into the IMF backbone, there are only those two places to go, neither of which will help the European Union, the European Federal Project, the fat cat Eurocrats in Brussels, the Germans or the French. It is now looking highly likely that both Merkel and Sarkozy will be out of office at their next respective elections.

The significance of the Sino, US, British Alliance is that the global community has lost confidence in the European Union and the Euro Zone, starting to prepare for the total failure of the Euro and the fire walling of the rest of the world to protect it from a Euro Zone melt down that could now take France with it and even Germany. It is now in Germany’s interest to give up all hopes of building a Forth Reich and concentrate on protecting itself. The longer it takes to the first Euro Zone default, the greater the danger building for the German economy.

The real significance of the G20 meeting may have been in what it didn’t cover rather than what it might have agreed. In its refusal to be dragged into the Euro Zone refunding, the G20 meeting has presented an urgent challenge to the non-Euro Zone states within the European Union. They all now need to urgently look to protecting themselves from the Brussels rail crash. Britain is in a potentially good position because 80% of the population want to exit the EUSSR, but participate in a free trade area which is what Britons originally signed up for. As the European Free Trade Association still exists, it should not take huge effort to make it a new trading and co-operation group. It could welcome those Northern European countries that would be looking for a new home when the Euro fails and all those who have been wise enough to avoid joining the Euro Zone.

Now that the Euro Zone has admitted that its first priority is to the European Federal Project and its commitment to the Euro is only as deep as its relation to the Federal Project, there may be a way forward for the rest of the world. Russia may be politically unstable and slipping back into a new Soviet era, but Brazil, China and India have achieved growth and surpluses. The fragility of their political structures makes it difficult for them not to support a world grouping that is prepared to follow a prudent fiscal policy and develop true open markets. There are many parts of the global market that are thus far unaffected by the troubles in Europe and offer viable markets. What the Sino, US, British Alliance demonstrated at the G20 meeting is that it would be possible to simply cast the Euro Zone adrift and create a new world trading order. The total wealth and trade exchanges outside the Euro Zone are adequate to cover losses induced by the Euro Zone for those countries outside the Zone. That may leave much of the European Union as an economic wasteland for decades but the people to blame for such a scenario would be the European Federalists who thought they could rule the world on someone else’s money.

When any three economists are gathered together there will be at least five opinions, so believing any announcements by economists can be dangerous. However, there is a new line of thought that the way to save the world, and get its economy growing, would be to let the core Euro Federalists sink. That also means that some of the PIIGS would also suffer badly. Ireland could escape the Euro implosion because Britain will feel the continuing need to help a close neighbour. Portugal may survive outside the Euro because it is making great efforts to resolve its economic difficulties and is most likely to attract external loans.

Editor.

Leave a Reply