What’s The EU’s Endgame?

Judging by the image of a lighthouse embedded in this video, the view expressed is supported by UKIP. Not exactly the outfit whose own long term visions of a socio-political economy I would support. That however should not detract from Vladimir Bukovsky’s assessment of what is currently transpiring. This, IMO, holds true for both UKIP and Right-Libertarians in the US; their assessments are dead on, their economic prescriptions are short sighted and in the long term inane, even though it could be easily argued that their short term path would overall be more salutary, at this critical stage, than the neoliberal status quo, supported by a distorting socialist ideology of global worker wage-slave solidarity, which at best envisions a Dantean way out, and more likely, simply serves as foil for the global oligarchy.

 

The Rise and Fall Of The European Union

What is the EU? How shall we understand the EU? What has history taught us? What is going to happend in the future? This video gives another perspectiv on the EU. Explained by Vladimir Bukovsky.

 

What’s The EU’s Endgame?

By David McWilliams, August 3, 2012

The headline in yesterday’s Irish Independent was eye-catching. It said that half of all Irish businesses are on the verge of collapse, according to stress tests carried out by business and credit risk company Vision-net.

Companies in the hospitality, construction, IT, motor, and wholesale and retail sectors are least likely to survive, Vision-net said. Added to this is the news that five companies went bust every day this month.

This news came on the day that the central bank pronounced that lending to the private sector continues to slide. On an annual basis, lending fell by 3.7 per cent, with mortgage lending down by 2.2 per cent and lending for consumption and other purposes down by 7.9 per cent in June.

Credit for companies also declined, down by 2.9 per cent on an annual basis. Loans to companies fell by €399 million during June, following a decrease of €338 million in May.

We also have new data showing a complete collapse in retail sales last month, more evidence that houses prices continue to fall, news that long-term unemployment has reached 200,000 and four out of every ten people on the dole have been out of a job for over a year.
The picture painted by the most recent data, is one of a domestic economy that is grinding to a standstill. Far from recovering, this evidence screams that the domestic economy is getting weaker. People and companies aren’t borrowing, we are not spending and there are debt and cash flow problems emerging everywhere in the local market while long-term unemployment, the most significant indicator for absent demand, continues to rise.

Doubtless exports are doing well, but this is coming from the multi-national sector, which is part of the global supply chain and hardly indicative of unique competitive gains in Ireland. The big change in Irish competitiveness has come from the fall in the Euro against our major trading partners. As Ireland does 62% of all its trade outside the Eurozone, we benefit more than most from Euro weakness.

But still the weakness in the local market predominates and the better perfomance in exports is not dragging the local economy upwards. In fact it is decoupling from the local economy. The hope would be that the greater production would be leading to increased demand from the multinationals for products that Irish companies can sell them. But it looks like they are sourcing their inputs abroad, implying that the positive effects their hyper-production might be limited to wages of those directly employed in the sector, which is not that high at just over 100,000.

If this trend continues, Ireland will become an economy where there is a highly profitable multinational sector, a large public sector and a smaller and smaller private domestic economy. The private sector will be turned into the debt servicing agency – a type of extractive industry where rent will be extracted to pay for the public sector but where profitability will be tampered by high local costs and an exchange rate, which although now weakened, is still far to strong for our domestic conditions.

If you think the weakened Euro reflects conditions here, just look at the data released by the EU on unemployment yesterday which shows the lowest unemployment rates were recorded in Austria (4.5%), the Netherlands (5.1%), Germany and Luxembourg (both 5.4%), while Ireland’s rate was almost three times that of the core; Ireland’s rate was 14.8%. The Euro is still far too strong for us.
But maybe that’s the point.

In the course of the next few years, it is likely that the mandarins and the political elite in Ireland and elsewhere will use the current crisis in the Euro to push for greater integration. Political integration means the end of the nation state – make no bones about it. That’s what it means. With the end of the nation state comes the end of the nations state’s ability to engineer its own policies. The first thing that would go in Ireland is our corporation tax. With this gone, the Americans would be out the door like a flash and what does Ireland do then?

For a few years, the local business sector will be squeezed by high costs, maintained by the costs of a large public sector, the legacy of high debts and an exchange rate that offers no support to local exporters. What happens then?

Maybe we settle into the role of an inoffensive group of 5 million odd people on the western fringes of Europe, kept in a sort of concubine existence by some wealthy neighbours, living on Euro handouts which is in turn are used to buy imports made in the productive core of Europe.

Maybe that’s the essence of the coming European deal. Countries like Spain, Ireland, Portugal, Greece, most of Italy, maybe even the new entrants like sunny Croatia and some other Balkan states, see their domestic economic marrow hollowed out in this crisis and credit crunch, but see their public sectors expand, so there are enough sated appetites to keep everything ticking over.

In such an environment, the fiscal compact is delivered without affecting public sector numbers but by wage freezes, higher taxes and off-shoring of the bits of manufacturing that the core doesn’t want to do.

The ECB – as is becoming clearer – will buy up all the debts, opening its balance sheet and operating more like the Federal Reserve. This goes against every monetary value that the Federal Republic of Germany was built on. Why will the more dogmatic Germans, Dutch and Finns accept the deal unless it is part of a grand bargain?

Rather than the periphery acting as a threat to the core via lower costs, it will be allowed to emasculate itself via higher costs and ongoing credit rationing, reinforcing the industrial dominance of the core.

Maybe this is just a bit of sun getting to your columnist, but sometimes events that appear random and unfathomable – like why a country such as Ireland would actively allow its private sector grind to a halt – happen for a reason. Maybe that reason is that these events fit into a larger plan, someone else’s larger plan.
Otherwise why do Germany and its creditor friends countenance what is happening right now in Europe? Why would they let their central bank be looted to pay for the debts of the peripheral countries and why would they let all that they hold dear about not printing money go out the window?