Friday, 28 May 2010

Smoke and Mirrors.....

“And now for my next trick” well words to that effect might as well have come from the mouth of Herman Van Rompuy when he stated today that “ordinary people” were “misled over the impact of the euro”

He goes on to say how “nobody ever told the proverbial man in the street that sharing a single currency was not just about making peoples lives easier when doing business or travelling abroad, but also about being directly affected by economic developments in neighbouring countries”


Try another card trick Herman….. For the Danes, the Swedes, the French and the Irish all voted against further political and economic integration, (and I dare say we Brits too would have if “cast iron guarantees” had been honoured) but the ‘project’ just bulldozed on ignoring the wishes of the “proverbial man in the street” until it got the result it wanted. And it will continue to do so.

And now the chickens come home to roost, if we are using “proverbial” statements.

I’ve never made it a secret I’m no fan of the EU or indeed its hidden agenda of total political, cultural and economic subjugation and integration, but the more I think on it my initial reaction of some glee at the problems besetting the Euro is turning to one of serious concern for we Brits will share the pain to come.

The Eurozone project establishing a common European currency has utterly failed in its core aim as it has clearly failed to deliver the positive effects that were ‘promised’ of it; i.e. to bring about an unambiguous economic benefit to all countries willing to give up the control over their own currencies and interest rates that had been in existence for in some cases centuries.

I remember well the reams of partisan almost pseudo-scientific studies published prior to the Euro being implemented promising accelerated economic growth, low inflation but mainly the protection against economic disruption and external seismic shocks from internal and external global events! The so called end of; “boom and bust”.

Quelle surprise?……errrr…..well….maybe not.

Let’s look at some facts:

The Eurozone economies GDP’s have slowed down upon membership, indeed the E.C.B.’s own data shows that GDP for the same Eurozone countries in the 1970’s was 3.4%, in the 1980’s it was 2.4%, the 1990’s it was 2.2% and in the last decade (the birth and growth of the Euro) it was 1.1%.

And it’s no co-incidence that the ever closer political and economic integration that began with the 1975 European Commission, to Maastricht to Lisbon treaties over this time is reflected in the overall gradual fall of GDP.

Eurozone GDP since the birth of the Euro has fallen far behind that of the USA and China but especially so in comparison with the small Asian economies and markedly so against the Eastern European states that are now part of the EU (but not the currency)

Of further concern was the failure of the promised “convergence” of inflation to a common low denominator amongst Eurozone countries. Two distinct groups of countries began to emerge, those with low inflation and those with high inflation, what we now call the ‘ClubMed’ countries (Spain, Portugal, Italy, Greece)

Massive trade imbalances have also emerged and it is no co-incidence that the ‘ClubMed’ basket cases of the Eurozone are the ones with higher net imports than exports and that compounds the problems of the Euro even further.

When the ‘good times’ or to give it it's technical economic term "Boom" were in full swing all was rosy in the garden and the sun shone for the rising debt and structural deficits of the basket case economies could be easily serviced from growing economic returns but when the ‘bad times’ hit, i.e. "Bust" (again I apologise for the technical jargon) with the banking crisis in 2008 the foundations were rocked and the true effect of these divergences has became evident.

In other words the global financial and economic crisis only escalated the Euro’s problems it did not create them for the creation of the Euro was not an economic decision it was a political one.

Gerald Warner over at the Telegraph thinks so too.

And we have the words of the former chief economist of the ECB Otmar Issing to confirm this: “the establishment of the eurozone was primarily a political decision” …. “that decision did not take into account the suitability of this whole group of countries for the single currency project” (Prague; December 2009)

We can see this now because over the last decade the individual economic performance of eurozone countries has diverged significantly but the poorer performing economies have been ‘straighjacketed’ into a single currency value and an interest rate policy at odds with their own domestic product that has been a reflection not of the collective averaged whole but of the main economic producer Germany.

The real truth is not that the “proverbial man in the street” has never been told about the effect of “economic developments in other countries” but rather that the real true cost of the project (i.e. the single currency) has been hidden, and deliberately so.

And by cost I don’t just mean the estimated 2.2 Trillion Euros needed to stem the current sovereign debt crisis now but the true cost of maintaining the Euro in terms of sacrificed economic growth or GDP longer term.

For economic growth is what pays for all our futures.

Countries that still have their own currency outside the Euro have the flexibility on their currency to profit from the changes in exchange rates to aid with growth, manage trade deficits without importing inflation, and the ability to devalue in line with internal and/or external economic pressures to manage sovereign debt and aid exports and balance of payments.

We will see this sacrificed economic growth within the eurozone, indeed we have already done so; all to satisfy a political agenda manifest itself in a number of ways:

Economic growth will be sluggish and for decades, it already is, because differing economies will still be locked into a central interest rate policy, inflation will still fail to converge, imports will be costly and the better performing economies will have to pay higher taxation to transfer their hard earned wealth to support the poorer (basket case) economies within the zone and here we come to the core rub of the issue, for to do this effectively (i.e. transfer this wealth) tighter political integration will become necessary to do this.

For the Angela Merkels of this world hate having to go to their Parliaments with their begging bowls saying ‘please can I have some more’

The current crisis actually plays into the hands of the like of Herman von rumpy pumpy and the EU Commissioners for they will seek to use this crisis to push for tighter central economic control and you cannot achieve that without tighter political control.

And it’s starting, watch this space.

The solution is simple in fact it’s primary school arithmetic; the basket case economies have to come out of the Euro, re-issue their currency then devalue it, thereby devaluing the debt. The markets then stabilise on the stronger economies that no longer have to service or guarantee the debt, the weaker economies take the pain and rebuild.

But the EU elite will not let this happen for it will signal the “collapse” of the Euro in their eyes, ergo the failure of the whole ‘project’ will have been illustrated.

The Euro will not collapse or be allowed to lose member states (as much as I would have wanted it to initially, and perhaps still do) for there is far too much political capital invested in the 'project' for that to be allowed to happen, no it will not collapse but the countries within it will pay a high price indeed for its survival, in terms of sacrificed economic growth, and for the weaker ones stagnation, and of course further political and economic integration and ultimately cultural, but the true cost both of shoring it up and in lost economic growth in the future will never be known, for the smoke and mirrors will be maintained.

That is the true deception of the “proverbial man in the street” as practised by you and your ilk Herman, our true masters in Brussels.


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