Warming Up

After the mixed martial arts Handshake[1] bouts between The Donald and France’s new president, Emmanuel Macron, there have been further signs of strain between the US and Europe. Speaking after last week’s NATO and G7 meetings, Germany’s Chancellor Angela Merkel called the G7 meeting ‘six against one’. You can guess who the latter was. In a separate speech, Merkel also remarked:

‘The times in which we could completely rely upon others are more or less over. That’s what I have experienced in the last few days … We Europeans have to take our destiny into our own hands … of course in friendship with the US, in friendship with Great Britain, also with Russia and other countries, but we have to know that we fight for our own future as Europeans, for our destiny.’

Notably, this was an ex-UK ‘Europe’.

Trump’s America First policy questions how far the US can still pretend to act both as the referee and as the biggest player in the imperial game. But the election of Trump is not the only thing that has called into question the ‘western alliance’ of major powers. Britain’s rejection of EU membership is also a big worry for the European members, ironically including Britain itself. While Brexit does not quite hurl the UK into the mid-Atlantic, the Brits are finding it difficult to keep a happy family together by using anti-Russian propaganda and posturing at NATO. Not surprisingly, since Brexit has upset the European institutions established over decades.

Merkel’s call for Europeans to take charge of their own destiny basically means that the major continental European powers need to prepare for the breakdown of the former international order from which they had benefited. It is a striking comment from a German conservative leader, and one that fits well with a more general European concern about Trump.

Things are warming up in the oven of imperial rivalry, not just on the fringes of the imperial system.

Tony Norfield, 29 May 2017

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[1] Macron won on points. The Handshake is a relatively new sport in diplomatic circles. It blends a rictus smile, white knuckle grips and macho, fake bonhomie arm slapping. The player with steadiest stance and gaze, showing the least perturbation throughout the 1-2 minute contest, wins. Points are given by the international news media and on Youtube. See here for example.

https://www.theguardian.com/world/2017/may/28/emmanuel-macron-my-handshake-with-trump-was-a-moment-of-truth

Merkel's Money

Don’t take the rally in Europe’s financial markets as a sign that the euro crisis is over. The 4.3% jump in Germany’s Dax index today and the rise in the euro’s exchange rate are more a reaction to hopes for further flows of ‘free money’ and relief at a crisis postponed once more. The surprise was genuine enough, after German chancellor Merkel’s former hard line on the need for austerity and ‘reform’ among indebted euro countries Spain and Italy, and in the context of widespread German political opposition to further bailouts.

A report on Merkel’s rationale for dropping the position Germany had before the latest Euro meeting, and making big concessions to Spain and Italy (hence, also to France, given French banks’ massive exposure to these countries!), highlights the following issues.

Merkel seems to think that high interest rate on Spanish and Italian debt are the problem, not the mess those countries are in which is leading to the high interest rates! Plus she thinks (or at least said in her statement to the Bundestag) that the EU Commission monitoring of their economic policies is still 'tough', so they did not need any additional terms applied to extra loans.

The end result is that there is a further extension of a 'euro country' general bail out for Spain and Italy, via the European Stability Mechanism, one of the newly invented funds. Merkel did not mention Germany's dominant share in paying for these, nor being liable for these, nor was she impolite enough to note the limited prospects for 'reform' in either country.

She won the Bundestag vote. But there will be further political trouble for her in Germany, and also many more disputes over terms and conditions of the new loans between Germany and other countries, when eventually they are due to be paid out.

Partly, this episode reflects the intractable debt situation in Europe and a desire to postpone confronting problems that cannot be solved. Partly, it is one of the wonders of the credit markets that you can always appear to have more money than you really have, if you only pay attention to the interest payments and not to the accumulation of debt. This is especially when it seems possible to drive the interest rate on borrowing down through state-credit backed bond purchases!

That neat solution of using someone else's money and credit rating to extend further debt begins to unravel when their credit rating is called into question. This is probably still some way off for Germany, which recently has had very low bond yields (even negative yields for 1-2 year bonds!). However, the first sign that the game is up will be when Germany loses its triple-A rating.

In the meantime, this episode also highlights the nonsense that it is German imperialism that is strangling Europe's economy. Yes, Germany is an imperialist power, but it is desperately trying to keep together a system – at growing cost to itself – that has guaranteed both its economic privileges and those that accrue to other members of the euro group. As a policy, this is like delaying an amputation until the last minute, just in case something else, less drastic, comes up. While these matters fester, just consider: how many tens, or hundreds, of billions in cheap credits have been extended to those outside the rich club?

Tony Norfield, 29 June 2012

Law of Value versus Berlusconi, Papandreou

The calculations of European politicians have come unstuck. Political favours, patronage, trusted allies and deals that worked to produce results in the past now do not work at all. The evolution of the crisis says: ‘You have no more money’. That is the simple message that has led to the resignations of Berlusconi, imperious clown of Italy, and Papandreou, dynastic head of Greece.

As previous articles on this blog have shown, things are getting worse.[1] The impact on Europe has hit the headlines most in recent weeks, with the media focus on rising bond yields, reflecting the lack of credibility that governments have in resolving the crisis. Even the European Financial Stability Facility (the more words, the less content) faces rising yields, leading to a situation where, as one market analyst put it, “the vehicle that’s supposed to borrow on behalf of countries that can’t borrow, can’t borrow.”[2] Read that two or more times, and you will get the idea. How the EFSF is meant to leverage its remaining funds to €1000bn in this situation I will leave to the geniuses of financial engineering.

The capitalist solution to the crisis involves a wholesale destruction of conventional living standards, and more besides. There are no solutions that any political party in crisis-stricken countries can propose that will get widespread support, but the destruction will get under way in any case. More Italians may hate Berlusconi now, but his exit will do nothing to resolve Italy’s problems. The resolution implies austerity, and no reduction in Italian bond yields based on his demise will prevent that. The same thing applies to Greece, which seems to have stepped back from the brink of what may have been an even bigger shock to its living standards – leaving the euro – than is now going to happen, minus Papandreou.[3]

The main European imperial powers, Germany and France, have their own reckoning to ponder. Busy trying to maintain the system they built, they have found their own finances under threat, as reflected in the weakened position of the EFSF, Sarkozy’s worries about French banks and Merkel’s troubles in the Bundestag. ‘Merkozy’ can deliberate, but the capitalist market decides. That is what the Law of Value is all about.

Tony Norfield, 8 November 2011

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[1] See ‘It Can Always Get Worse’, 22 September 2011.

[2] See Lex Column, Financial Times, 3 November 2011.

[3] In my view, the costs for Greece of leaving the euro are huge. There are no historical examples of leaving a currency system after having given up the domestic currency and having spent a decade writing commercial contracts in a joint currency. The banking system may collapse within the euro system; it would definitely collapse outside of it.