The crazy fools who are determined to ram the Lisbon Treaty down the throats of Europe’s citizenry, are all pumped up by Putin’s little parade around Georgia last week. Here at last, they hope and believe, is the raison d’etre for European political unification – Vladimir Putin and his severe inferiority complex.
There are two problems about this curious notion however. One is that the EU has no armed forces, and is unlikely to acquire any soon. The paltry few it has negotiated from willing countries like Britain will not be enough in quantity to make any difference in any serious military confrontation. The other problem is that the misplaced idealism behind European integration is about to face its severest challenge – to date – not on the military but on the economic front.
The EU might be able to carry on pretending that it can provide security against Russian aggression, to Albanians, Ukrainians, Poles and Georgians but in reality it cannot and will not. But what will be impossible to conceal is the gradual dawning of reality about the hopeless state of the prime European project to date – the so-called single currency.
As always Ambrose Pritchard Evans, writing in The Telegraph understands the problems best. He describes the background, and he explains how the growing stresses will inevitably over time split the Euro asunder. Here are the juicy bits from his article –
Germany’s economy shrank by 1pc in Q2 (2008). Italy shrank by 0.3pc. Spain is sliding into a crisis that looks all too like the early stages of Argentina’s debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.
The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe’s credit system will seize up as defaults snowball next year.
As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary “convergence” when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10pc), Portugal (10pc), Greece (14pc). UBS warned that these flows are no longer forthcoming.
The central banks of Asia, the Mid-East, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rythms.
It lacks the mechanism of “fiscal transfers” to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America’s currency union together through storms.
My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point, the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.
What we are about to see is a race to the bottom by the world’s major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.
The sooner reality dawns on the continent of Europe, and people realise that the EU and its works are little short of group insanity, the earlier the continent can awake to the real threats it faces from around the globe. With the EU out of the way, it will again be possible for independent nations to act in unison as they did before when faced with threat – effectively.