The real opportunities across the globe right now rest within the future of European integration.
Let me be clear. This is the real reason why we are so bullish on this European Project. And the coming economic opportunities are immense and coming along right at the heels of this incoming Fiscal Union.
And guess what?
The European Fiscal Union is inevitable.
Inevitable because the massive and carefully hidden external debts and resulting deficits cannot be addresses in any other way.
So a True European Union is what it is.
But before the celebrations begin we have a few more steps to take.
Because we still have to deal with the total debt issues.
Because these debts are massive, they are hidden and these debts matter. They matter greatly for Europe because they represent the true North Pole for the Euro crisis robbing all Europeans of their wealth, their economic growth and even their quiet night’s sleep. And why is this the sum of all fears?
But we can fix this with the Fiscal Union and enjoy the added benefits of the Federal Europe to boot.
And fix we will, because we have to.
Because now the Euro crisis has gotten so deep that demands solving the external imbalances also. Those usually hidden imbalances that result from the flawed single currency system as well as the internal divisions and economic imbalances prevailing within the Eurozone and the economic union. To be true, the external deficits simply mean that residents are spending more than their income and financing the difference with capital from abroad. If and when the lenders/creditors decide such borrowers are no longer creditworthy (be they private or public), they will cut them off, thereby causing a recession and a plunge into deeper fiscal deficits. And these prolonged external deficits also shape the structure and competitiveness of an economy, making the overall European economy rubbish.
At the heels of it comes the instability, because sustained deficits lead to huge net external liabilities, often intermediated by banks. When the external lending halts, the banks are likely to implode, undermining both the economy and the fiscal position. As our old friends the learned government economists at Goldman Sachs say, the inability to devalue one’s currency, also rules out a way of adjusting net liability positions. This method that has proved extremely helpful to the US and UK is off limits to the continental Europeans. Wait, it gets worse because the only available mechanism – an “internal devaluation” (or falling domestic price level) – will make the burden of external debt even greater. The improvement in the current account balance must then be even bigger than it would otherwise need to be.
We don’t seem to be having any other choice besides the fiscal union recipe here, in order to solve this.
Because only the European Union will coalesce the various Peoples of Europe when they feel parochial. Because still the important thing is that above all else, people care about what happens in their own country. The inhabitants of a depressed member country will hardly console themselves with the thought that others are booming elsewhere in this loosey goosey EU. But in the same European Economic Union the idea of a nation gets diluted and the Peoples all feel like one. See how this works across the Atlantic in the United States of America.
Please remember, the true solution to the Euro crisis is not throwing money at the banks or the EFSF. The true solution to this problem is resolving the currency imbalance and that can only be achieved via the creation of autonomous monetary states. So, we either need a break-up of the union or a full fiscal union. I vote for the fiscal Union because of it’s obvious economic and political advantages and the social norms that clearly trump any other alternatives.
And that might very well be the Virginia moment of the European Union. It is the moment the ex-colony of Virginia accepted to join the fiscal union in the American commonwealth even though it was getting to join with 15 other states that were largely bankrupt. And of course, Germany, England, Poland and even Greece will all fight the fiscal union tooth and nail, but I am not sure they can fight this inevitability forever. This crisis will force greater action at some point, but who knows when that happens and how much longer they could kick the can down the street, via temporary fixes?
I think the buck stops here and now.
The Europeans have to solve this in its entirety. Because the alternatives are far worse. Worse yet, is that the delaying of action could make he whole thing actually unravel.
Maybe and maybe not, because Germany could be dubious, duplicitous, or just buying time towards plan B and moving slowly in order to minimize the damage for their exit…
However the resolution is on the table for the taking.
How much more pain we have to endure in getting there is entirely up to the ability of the Europeans to work together now fully or to simply give up and realize that they will never be able to work together. But a decision must be made and it must be made sooner rather than later as the looming prospects of degradation, penury and poverty of millions of European people hangs in the balance….
Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone. In its place, comes adjustment via depression and default. A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery. Solving that is the true cure. Can it be done?
Maybe…
Yet in some ways the George Washington example can be illuminating. The Virginian surveyor with the bad teeth and the brilliant mind, thought carefully and balanced the interests of power within the long term interests of the Federal Union as it contrasts with the interests of the States and came up with a civil solution. It of course helped that the Redcoats were just around the corner focusing the minds of the rebels. George Washington and the framers met often, shared food, fought together and thus coerced and co-opted their constituents and made sure that all state representatives agreed fully to the transfers of powers and the creation of this wealthy mercantilist union. What we call today the fiscal union was conceived then as a means to create a great logical country and this opportunity has ben given now to the Europeans, through this difficult crisis — albeit without any redcoats helping focus the minds, in the midst.
Yet for me this represents precisely the same hopes and the fabulous option to create a strong Union now. Europa will rise from the ashes of the old economic system as a new unified strong country.
We can do this.
Because it is easy to be strong same as the antithesis…
And we could easily trade in a bit of the old state sovereignty for a strong fiscal Federal government in Europe. Because am certain Germany won’t be adverse to this if given enough assurances and the plenipotentiary leadership of a plurinational EUROPEAN STATE.
Lets follow the American example. after all it has served them rather well these last couple of centuries. Don’t you agree?
No wonder that for the first three to four decades the US had exclusively Virginian or Southern Presidents that ruled the North with an iron fist and imposed their economic and policy will to a poor shambled and rapidly industrializing North. The policy worked so well that…. Well you know the rest.
Why do you think the US capital is in the South?
Me thinks this is the way to go for Europe too…
Yours,
Pano
PS:
And a German new Charlemagne as a leader, might not be such a bad idea now for Europe. We need righteous leadership more than anything else. Because the current minions have caused all of this mess anyway. Time to stand aside a bit and allow a great man or a woman to lead us to the promised Union.
And the economic union is wealth centric by nature of it.
So we pay e piper and make do with the necessary cycle convulsions. Eventually power will revolve to the rest all over again and the same mistakes will happen unless we engineer a system to prevent this.
Because without power concessions to the economic engine, the whole edifice might unravel. After all the Germans are still power hungry and the rest of Europe money hungry, so an exchange couched in civil language, suave diplomatic affectations and government treaty terms can easily be reached. And there are safeguards to ensure this process will be happening peacefully. Because even the Germans aren’t certain that they want this pole position right now. Memories of the East – West reunification are still raw and now the head of the Constitutional Court in Germany has made it very clear that any such explicit or implicit fiscal union in Europe requires the people’s approval through the vote of the German public. And getting to a YES vote in Germany where the electorate is almost two thirds against any such changes is just not going to be easy and will require fancy foot politicking across the political divide. And still then the nationalist logic of “Deutschland — Deutschland Uber Alles” might prevail and Germany just might choose to exit the Euro and follow its own unique Germanic fate of the Valkyries — thereby sinking the Union in despair…
What happens next, I will leave for the geniuses to debate.
But for now the choice is ours.
Yet for my money, the fiscal Union ideas of a united Europe and a successful European Project will prevail.
