14, December, 2011
Even if all the plans of the December European Council are passed into law, one outcome is certain: the Euro as presently designed will fail.
Even if all 27 Member States joined the Euro and tried to stay within the guidelines of the Stability and Growth Pact, one thing is certain: the Euro as presently constructed will fail.
Even if all the Member States scrupulously adhered to the Six Pack, with close inspection of national accounts by the European Commission, the Euro as presently conceived will FAIL.
Yet the vision of a European currency is not only reasonable. A solid European currency in a single market is inevitable. One day Europe will have a strong, single currency. It will be far stronger than anything yet discussed behind the closed doors of the European Councils and the hyper-secretive EuroGroup, now the main body dictating the guidelines for the European currency and the economy. The EuroGroup is a non-institutional body of the European Union and not subject to democratic control.
The Euro was badly designed from the start. It does not confirm to supranational principles — open Community democracy. It is not based on a single supranational standard agreed democratically and enforced by law.
While the measures taken by the heads of government at the European Council to ensure fiscal responsibility — including a new intergovernmental treaty — might be useful to prevent and predict fiscal irresponsibility at the national level, they are insufficient. They place the instruments again in the hands of the governments and the politicians. These are the same ones who fiddle the books, overspend and then ask for ‘understanding‘ from fellow politicians and chums. The cartel-like approach of the Council provides NO independent arbiter for the citizen to ensure fairness and justice.
“Nothing is easier for political counterfeiters than to exploit good principles for the purposes of an illusion; and nothing is more disastrous than good principles badly applied.” So wrote Robert Schuman (Pour l’Europe, p70).
What the politicians did was at a certain time baptise their national currencies the EURO but there was no repentence from fundamental monetary sins. From a European point of view its politicians are still immature and unwashed. How can I say that? The unwillingness of politicians to study revolutionary supranational principles has led to this disaster. Governments still continued their old way — with deficits, government-induced inflation and budget overspending. Changing the name of national currencies to the EURO did not effect anything fundamental in the honesty of their governance systems. They counterfeited a European currency made up of a soup of their own inadequate currencies.
The public is not convinced by this renaming fraud. “Drachma, you are now a Euro. Lira you are now a Euro. Deutschmark you are now a Euro.”
The markets are not convinced by this renaming fraud.
And the politicians? Now the politicians are beginning to realise that the jig is up. Everybody has found this conjuring trick out. The most deceived are not the markets or even the public, but the politicians themselves, some of whom are still deceiving themselves. They are only starting to wake up because of a series of law cases coming up about monetary fraud and corruption in high places.
The inability of politicians to install a proper European currency — when such a currency was clearly needed — has been thrown in sharp relief by the present crises exacerbated by hostile external forces and the dollar sub-prime political frauds and banking meltdown. Europe’s crises are their own fault, the fruit of wilful blindness and refusal to deal with Europe’s main problem over decades. Their mistakes are not lethal. Speculators are wrong. Breaking the present Euro will not break the European Community system. It will outlast the avarice or ignorance of any group of politicians.
The politicians constructed a currency based on some of the worst aspects of old politics — that have always failed in the 2000+ years of European history. They counterfeited money. A little cheating, they said, won’t be noticed. In the past governments shaved the edges of silver and gold coins. Today they do it electronically via inflation and overspending. They have no gold, no silver, no paper, just electrons. Now they are chipping the edges off the electrons.
Many politicians want to do this coin-clipping to help their economies. Some think they have a right to cheat to catch up with the stronger and more honest Member States. That is an illusion, a deceit.
The politician-creators of the Euro refused to apply supranational principles to an opportunity foreseen in the founding treaty requiring a supranational currency. Instead they made a soup of their own currencies and it has no solidity. They hoped against experience and history that it would work. It hasn’t. They had an opportunity after the Euro’s launch to reform the foundational structures. Instead they made the lax principles looser and ignored legal obligations and Court judgements. They undermined the European Commission and refused democratic obligations of the treaties and the citizen’s rights of the Declaration of Interdependence (which they still refuse to publish!).
The founder-politicians and subsequent politicians can’t see how they can run an economy without shaving edges off the currency. Yet they want to have a single market and that works best with a single currency. They had the arrogance to think they knew best. Experience has now shown they didn’t.
Firstly, let us examine the present inadequacies. In the past the political chums turned their eyes away as other chums indulged in fraud and overspending — even though they knew the consequences ate into their own economies. The Greeks were involved in frauds for decades, but so was France under de Gaulle and practically all the others.
Some like the Dutch complained so loudly that at one point the Commission even took the culprits to Court — for breaking the Stability and Growth Pact. In the early days of the Euro in 2004 — before the Lisbon Treaty –the Commission still had pretensions of being ‘Independent‘ and the ‘Guardian of the Treaties‘. It wasn’t entirely taken over by party politicians and national representatives. After much cajoling the Commission took the Council to the European Court of Justice in Luxembourg because of open violation of the Stability and Growth Pact.
The biggest culprits against the Stability and Growth Pact were France and Germany. The Court made its judgement against the Council. What did the Council do? It laughed in their face, saying it was up to them if and how they would interpret the Law.
Today the questions Europe’s citizens and democrats should ask are:
- What has changed nowadays? If the Court came up with a similar judgement, would the politicians in the Council again thumb their noses at the judgement? The answer is probably, Yes. They would make a fudge AGAIN. But it is questionable if the rule of law and the Court would play a part. The penalties foreseen in a non-Community international treaty cannot be placed before the Court of Justice of the Communities or the EU. This form of ‘solution‘ shows that the Council is acting like an illegal Cartel of power and despises the rule of law.
- Would a legal case even be raised against a State? Probably not. Today the Commission is stuffed with politicians who quite shamelessly vaunt their party political loyalty. There are no Commissioners representing non-party citizens. They are all chums of the same people who violate European law.
- Would the States influence the Commission to stop any exposure of manipulated statistics or hidden overspend, unrealistic assessment of inflation or other economic indicators? Probably Yes. Anyone who did so would not have his or her mandate renewed and be subject to vilification as a betrayer of the national interest. (That is why the Founding Fathers required in treaties that the Commission should not be composed of national representatives.)
- Would the Commission turn a blind eye if they saw that the national banks or international banks on their territories were using as deposits worthless derivatives? What if the banks had again collected as assets something like bundles of sub-prime mortgage loans — which common sense tells you are largely worthless — but the credit rating agencies label as AAA? What if again the national governments would smile from ear to ear at the new revenues coming in from a property bubble or a dot com boom? Would the Commission’s party politicians call them out and say ‘You are living in Dreamland. This is unreal. This is pure cheating. You are colluding with fraud and hype.’? The Commissioners are nominated by States whereas the fundamental supranational principle is that the Commission should represent the overall European good and any direct communication or instruction is forbidden whether from the national governments OR political party OR any other body or association. Today it would be surprising if the Commission would ever take the Council to Court or raise embarrassing matters if they could be covered, whether quantitative problems of statistics or quality of banking. Events this year indicate that politicians still manipulate and cover inconvenient but illicit banking operations.
The present crisis derives from legal and technical problems that can only be removed if all politicians are simultaneously honest and law-abiding. Why? Because the present system has politicians as both the culprits and the guardians of rectitude. No independent checks and balances exist in the system devised by the politicians themselves.
Secondly, a major flaw exists in the design and structure of the present Euro itself. Under the present agitated state of the markets, any flaw in a system will be tested to destruction. It is inevitable that this will cause a rip in the fabric of the euro and unless immediate wise action is taken the European economy will suffer catastrophically.
The politicians have been unsuccessful in playing at speculation themselves. When Euro-candidate countries wanted to join, they took some action to clean up their finances, and the interest rates for their bonds declined as they were a better bet. When the markets saw that fraud and obfuscation was involved the interest spread increased between the reliable and the unreliable. The politicians in Council thought that they could play the same game. Instead of correcting the monetary system to a supranational one, they decided that they would make a counter-bet using the European institutions and national treasuries as the fodder. They thought that if the fast crowd in the City and on Wall Street used leverage, well why couldn’t they do so too? They hopelessly underestimated both the nature of the game and the money required to do so.
The European Financial and Stability Facility was set up in what finance ministers had only recently denounced a tax haven, Luxembourg. Previously they said companies set up in places like Switzerland and Luxembourg, not to mention other exotic places, were defrauding their treasuries because national taxpayers were sending their money there and they couldn’t trace it to grab it.
Now, all of a sudden, the ministers of finance are employees of such a company in the ‘tax haven’! OH! What are they doing there? Speculating on the currency market! They thought that they would be able to make a nominal deposit of the States’ money — taxpayers’ money — and then leverage it. At first they said they wanted to raise only a few hundred billion Euros. Then they said they needed a few trillion. They did not succeed in raising anywhere near that sum. Not even one.
Which brings us to the second main reason why the present Euro will fail. There are many people betting against the Euro, more now than ever. At the centre of this, as the Schuman Project warned the Commission in 2001, are forces inimical to the existence of a united Europe.
Europe is at war, whether the politicians recognize it or not. Europe needs an impregnable currency.
But it does not require just one group or ideological cartel to be at war to cause major destruction. Many people with vast resources will use their money and also leverage it to bet against the Euro project when they think that it will inevitably fail. This is the herd instinct and the herd will include many European and American citizens who will be hurt far beyond their gains if the Euro collapses. These turkeys are voting for the slaughterhouse because they think they will gain from higher prices at the butcher’s.
What sort of forces are the finance ministers in their Luxembourg company offices up against? No one knows for sure, even those responsible for future trading markets. The best estimate is that more than SEVEN HUNDRED TRILLION DOLLARS are involved in such Over the Counter (OTC) volatile money, according to the Bank of International Settlements. It is growing at a considerable rate — 18 per cent in the first half of 2011.
What currency, what raw material, what future market, what derivative will not be affected by the collapse of the Euro or even by the default of one Member State? By comparison the entire EU budget is around 140 Billion euros — one five thousandths of this sum. The entire EU combined GNP is a mere 12 trillion euros. A sum sixty times — and now probably more — bigger than the EU is being laid in hot money bets and its value depends on the stability of the Euro currency soup. How can our politicians — now apparently turned hot-rod speculators and esconced in their little Luxembourg office — compete with the big bucks?
The really big hot money is on the bet whether the Euro and the EU will survive. Now if you know that the Swedes would vote four to one against joining the Euro, how do you think the big betters should place a bet? Do you think it has a future? And if this was reinforced by the opinion of the Danes where only one in five also think the European Council’s Euro package will solve its problems, do you add more money to you stake? Or do you bet on a Euro collapse? If many of the investment companies and pension funds found that big money was heading against the Euro, where do you think they would then go to stick their money? And then the masses of smaller money will be also headed in the same direction.
Let’s be as wildly optimistic as the present politicians. Let’s assume that the Euro survives the present struggle. Let us further assume that the mass of corset-tightening measures also work. Most Euro countries stick with a spending deficit limit of around 3 per cent, keep in line with designated inflation differentials and bring their debt below sixty percent. That means some Member States are shaving only 3 per cent off the currency income they don’t have, but some others are shaving a little bit less and being a tad more honest. They hope this will be resolved by inflation. What happens then?
The smart hot money will then be bet more or less the same way. Some countries will be at 2.99 deficit and 59.99 debt. Others will be at 2 per cent deficit and 40 per cent debt. Some may be generating a good surplus. There will still be a differential in the bond market among the States. The huge mass of trillions of foot-loose money will then be bet on trying to split the strong from the weak AGAIN. This is just new apples in the game of apples for the rich men economics that exaggerates any difference in quality for equally exaggerated prices. The hot money folk will use their trillions to lever any holes in the system to break it up for the big, big prize — the bets on the destruction of the Euro.
The two main practical consequences for Europe with the present Euro policies involve its lack of national freedom and the non-convergence of the economies. Years ago one European prime minister who was formerly a banker warned other leaders that to build a Euro this way and ignore hard reality by egotism would cause major problems in the future. He was right. The Euro-constructors did not listen but conditions were imposed, albeit reluctantly, on the headstrong politicians by some others.
They imposed the Stability and Growth Pact. It doesn’t solve the problem but constrains all Member States to its own version of monetary chastity. But it is no chastity at all with an arbitrary chiseling of the currency by 3 per cent deficits and resultant inflation and credit card limit of 60 percent. (These conditions never applied for the budget of the European Communities, or the EU, where book-balancing is absolutely necessary and no debt hangover is allowed.) The 27 Member States and the 17 Euro zone members all have different potentials for growth and these are also squelched by the EuroGroup policies.
The supranational system for a common currency gives national governments complete freedom to choose what they want to do. It provides freedom to grow, especially in times of crisis. However it establishes a single standard for all. It does not make an unsatisfactory mixture of strong, weak and weaker currencies but a standard that all currencies can attain to. Schuman recalled that it took a thousand years for Europe to develop its democracy. It will also take time to develop the moral qualities and civic courage among leaders to build a European currency fit for all.
A Supranational currency is far superior to a currency soup. It will therefore inevitably replace the very expensive mistakes of cartel politics. Politicians had better think about how this can be done before they reach the edge of the cliff. Time is short.
One essential ingredient is humility. Europe is not about defending without question one’s nation or one’s currency. Its supranational purpose is making it a better nation, a better place by providing a more useful service for both the nation’s and the Community’s citizens. The politicians in Council have temporarily blocked the democratic imperative for both the Parliament and the Consultative Committees. The latter provide for non-political discussions and collaboration across all groups, associations and enterprises thus boosting growth and career opportunities.
A supranational currency will show up the faults in all the currencies but it will also provide a sure path to improve the nation’s, Europe’s and the global economy.David Heilbron Price
, BIS, Community, currency, currency soup, democracy, derivatives, EFSF, EMU, EU, euro, eurogroup, European Council, futures, John Major, Luxembourg, opinion, over the counter, raw materials, Schuman, Soros, speculation, supranational, tax haven