Thursday, March 12, 2009
Any thought that the EU will be able to pull itself out the economic hole it has created should be put to one side. The symptoms of total chaos are now starkly apparent, as no one has any idea whose responsibility it is to deal with the mess. If it wasn't so serious, it would be comic.
The world will soon see that Europe is headed for the abyss and no one anywhere will be in any position to stop it. Read the report from Open Europe today, quoted in full below.
Deutsche Bank Chief Economist: Europe is "in denial" on economic crisis
The IHT reports that the Obama administration appeared to turn up the heat on European governments ahead of April's G20 summit in London, quoting President Obama saying, "I think it's very important for the American people to understand that as aggressive as the actions we are taking have been so far, it's very important to make sure that other countries are moving in the same direction, because the global economy is all tied together".
Thomas Mayer, Chief European Economist for Deutsche Bank, is quoted in the IHT arguing that Europe is acting too slowly: "They are in denial, and hoping that something from the US will come along to help them out. The European system isn't designed for taking the unconventional policy measures that are now needed."
The article notes that German leaders are wary of sparking a long-term bout of inflation if they borrow and spend too much, while Germany and other countries in Europe do not want to shoulder the burden for more troubled economies.
The Express reports that this week Chancellor Alistair Darling pressed other EU finance ministers to agree more funds to bail out eastern Europe through the IMF and the EU. Open Europe's Stephen Booth is quoted saying, "While Mr Darling's desire to bail out struggling member states is noble, taxpayers will be outraged to hear that the Government is planning to spend even more of their money at a time when everyone is struggling to cope with the recession."
Philip Lane, Professor of Economics at Trinity College Dublin, is quoted in the IHT saying, "If a country were to need help, it's not clear if they should go to the European Union, the IMF or the ECB [European Central Bank]. The answer seems to change day to day."
Well Philip, let me advise. Buy dollars, peg the Irish currency to the dollar, and quit the Euro-Titanic while you still can. Keep all your debts in euros however. They will evaporate before your eyes. Democracy can return to Ireland once more, and corruption be driven from your shores.
The Buck Stops Here
The comparison between the mess in the EU should be made with the clarity of the American response to the economic downturn. In the USA there is still one man who knows he is responsible and is seen to be responsible, characterised by Harry Truman's phrase 'The Buck Stops Here'.
Read the history of the phrase - U.S. president Harry S. Truman had a sign with this inscription on his desk. This was meant to indicate that he didn't 'pass the buck' to anyone else but accepted personal responsibility for the way the country was governed.
Truman didn't originate the phrase, although it isn't likely that we would ever have heard of it had he not adopted it.
Fred M. Canfil, United States Marshal for the Western District of Missouri and a friend of Truman's, saw a sign like it while visiting the Federal Reformatory at El Reno, Oklahoma in 1945. He thought it would appeal to the plain-speaking Truman and arranged for a copy of it to be made and sent to him. It was seen on the President's desk on and off throughout the rest of his presidency.
On the reverse side, i.e. the side that Truman saw, it was inscribed, "I'm from Missouri". That's a short form of "I'm from Missouri. Show me". Natives of that state (a.k.a. the Show Me State), which included Truman, were known for their skeptical nature.
What would be the EU equivalent? 'You're Not My Responsibility', and on the obverse 'Where's My Cut?'
The problem in Europe is that 'fiscally responsible' countries such as Germany, Netherlands and Finland don't approve of more economic stimulus, preferring monetary discipline, while the countries that are facing insolvency, like Ireland, Portugal, Greece, Spain and Italy, are desperate for funds. Germany prefers to maintain the 'credibility' of the Euro, while the weaker countries fear the effects of the downturn and just want the money for short-term emergency assistance to their distressed economies.
The resolution of the two approaches should be made by a single central authority. In the USA they have the President. The EU has a series of summits and meetings where 26 member countries are expected to reach agreement. In the past they all agreed as the pay-offs for the politicians were huge. But now the European recession is threatening many of them with being thrown out of office, they are finding agreement impossible. The splits are cracking open the whole edifice as its currency sinks.
Friday, March 06, 2009
My Dad passed away today aged 90 years, after going into hospital yesterday.
I'll blog again soon, but today my mind is with him.
Here's the family he leaves behind him photographed at Christmas 2008 - wife Elizabeth, four children (me missing as I live in the Philippines) plus 2 other halves, plus nine of his eleven grand-children, plus two other halves.
Join Dad's memorial service now and listen to my sister Alice's eulogy given at the service. See pictures of some of the family and friends who were able to attend, the church and the house.
Sunday, March 01, 2009
The discussion about the so-called 'solvent' and 'creditworthy' countries of Europe bailing out the insolvent countries has not entered into reality as yet. The trouble is the scale of the problem. Not only are Ireland, Greece, Italy, Portugal, Spain in severe difficulties. So too are Poland, Hungary, Czech Republic and Romania from the bigger East European countries, as well as Latvia, Estonia, Lithuania, not to mention Ukraine.
The only country it is said that is financially strong enough to orchestrate a rescue for the less fiscally responsible countries of Europe is Germany. And yet Germany is already finding trouble in raising enough money for her own banking rescues. Britain is fully overstretched, and France too is looking very wobbly.
The politicians in Germany have no choice but to talk of saving the European economy from meltdown, but in truth they don't have enough borrowing power or reserves other than gold, and if those are all put on sale, the price of gold will crash. The IMF doesn't have enough funds to resolve all the troubles that are coming into view either. The only countries that might be able to help Europe are outside Europe - the USA and China.
And yet the USA is fed up with Europe's lack of commitment to NATO and the alliances in Afghanistan and Iraq, and would be highly resentful of being asked to carry the load. If the USA is expected to bail out Europe, there will surely be a political price to pay. Germany is at last spending more money on defence as part of her economic stimulus package. See FT article HERE.
Much will come down to American preferences for a European future. Germany would insist on higher taxes around the Eurozone if she were the agent chosen by the USA to hold the EU together. And yet the burying of Europe in red tape and high taxes will only ensure the probems of Europe's low growth economy will carry on into the future.
Ireland for example is being threatened that if Germany comes to her rescue she will be forced to raise her Corporation Tax rate from 12.5% to the more general 25-30%. That would block one of Ireland's main appeals to foreign investors and slow down her economy, the exact opposite of what she currently requires.
The talk of countries leaving the Euro is blocked by the threat of their relaunched national currencies diving in value against the Euro. And yet it might soon be the Euro that takes the dive. If countries pegged their relaunched national currencies to the US dollar, and kept their outstanding debts in Euros, they could find their debts evaporating as the Euro economy sinks in a sea of debt that no government is in any position to hold back.
The US could help Europe the most by offering to support a peg to the dollar in Ireland, for example, and reducing load on the eurozone that way, and setting that as an example of how individuals countries could walk out from their economic troubles.
As for the move to one world currency that is the ultimate aim of the Bildebergers, why would it matter if European countries were in Dollars or Euros? Their intention is ultimately to link the two anyway.
In the meantime the Euro looks as if it could be taking an early bath, in all probability, and Germany will be powerless to stop it happening, despite the strong words of her political leaders. The scale of the problem is simply too vast, and there is no time. China would no doubt assist as she could in preserving Europe as one of her most valuable markets, but there seems little doubt that world political leadership will soon rotate back to the USA as Europe founders on a rock of unsustainable debt.
See The Times report today on Gordon Brown proposing that the USA takes part in a worldwide programme to stop the depression/recessionHERE. I guess it's all coded to mean 'please help Europe' but of course he wouldn't say that openly, would he!!!!
EXTRACT - Brown is under pressure to persuade American political leaders to sign up to bold aims for the G20 summit of industrial and leading developing nations, which is to be held in London next month.
Many US politicians believe economic policy should put America first, and have shown little interest in concerted global action. Brown will argue for a renewal of the transatlantic relationship, with the two powers working together to solve global economic problems.
The prime minister will borrow from the rhetoric of Franklin Roosevelt, who introduced the government-financed New Deal to tackle the US Depression of the 1930s. He will argue that his 21st century “global new deal” will also require public spending on a huge world-wide scale.
Writing in The Sunday Times today, Brown calls for “universal action to prevent the crisis spreading, to stimulate the global economy and to help reduce the severity and length of the global recession”.
Reading between the lines, you might narrow it all down to two words 'please help', and he means 'Europe' not 'Britain', although Brown is as guilty as anyone of blowing Britain's economic strength in pointless government spending and stealth taxes.
All credit to The Economist which has finally 'got it' regarding the scale of the financial problems facing the EU. See The Bill That Could Break Up Europe.