The apparent inability of Europe to reliably protect its monetary Union leaves the world without any credible alternative to the dollar. Those who expect lawful currency of the economic system, almost equal in size to the American economy, offer an effective tool for diversifying a portfolio, you will have to accept a simple reality: the dollar remains the indispensable global currency and, without a doubt, the most important reserve asset.
The righteous hopes of the French President françois Mitterrand and German Chancellor Helmut Kohl that the single currency will unite their country and the rest of Europe in a peaceful and prosperous Union, may soon be destroyed. Their political offspring became a symbol of European discord and the reason is probably intractable Franco-German economic and political differences.
These historical disputes now otacute violent street demonstrations and the terrible rhetoric of the civil war in France, where leading politicians are trying to overcome right-wing and left-wing parties, which have almost half of the votes and require the immediate withdrawal from the EU and the Eurozone.
Investors should take this seriously. Even if relatively moderate, the French center-right forces manage to hold parties opposed to the EU under control, long-brewing conflict with Germany seems inevitable. For many French politicians of all stripes Germany went too far in the command of the rest of Europe and provoking the huge economic, social and political damage for France, Italy, Spain, Portugal and Greece by imposing vile and incorrect measures of financial austerity.
Insurmountable odds
This behavior of Germany had to leave her side. Philosopher jürgen Habermas has warned leaders of their country that they are “dozing on a volcano”.
So watch your portfolio as the economic and financial implications of the current European wave of controversy turning into a political earthquake, can be very serious. Euro accounts for 20 percent of world reserve assets, and the currency is still the official or de facto currency for the fifth part of the world economy.
And here’s an explanation of why the work of Germany and France for the destruction of the Eurozone will continue.
Both countries have always known that for the proper functioning of monetary Union and the credibility of the Euro required a common fiscal policy and common regulation of the labor market and the commodity markets (which is broadly defined as structural policy). This is what is needed to complete European economic and monetary Union (known as the “European project”).
But the leaders did not dare to tell the truth to their peoples. And the truth is that such an agreement is only possible in a political Union with an administrative structure of a Federal state.
Supporters of Brexit (Britain exit from the EU – approx. transl.) call it the European super-state. They do not want to participate because they know that this in turn will turn revered the Palace of Westminster into a Museum of parliamentary democracy.
The Germans also know what they want. As architects of the monetary Union, the Eurozone and the European Central Bank (ECB), they also want to obtain financial Union on their own terms. Germany requested the appointment of a Minister of Finance of the Eurozone (surely chosen by Berlin), who would manage the overall budget and co-financing of public debt.
But the Germans are (intentionally?) make an offer, which they know the French can’t accept. And the French make a counter-offer, which they know, the Germans probably rejected: Paris insists on the intergovernmental negotiations on financial issues, allow Intrusive (but subject to discussion) control by the Commission and (subject to discussion) the threat of sanctions. That is what is happening.
The Germans were the first who broke the financial rules of the Eurozone with budget deficits exceeding 3 percent of GDP for three consecutive years (2001 to 2003), and they refused to even talk about it, not what to negotiate. But now they reportedly are pushing the European Commission to impose sanctions (penalties) to France, Spain and Portugal because they repeatedly could not cope with the objectives set in the budget deficit. A brave and poor Greeks suffocate from the General strikes as Germany refuses to provide them some oxygen by way of an agreement on the proposed IMF flexible management of public debt.
“Don’t leave me”
Knowing all this, I pounced last week on the articles in the French press, which said the measures that France and Germany should take to strengthen the Euro. The big idea was to create a Eurozone Parliament for control over monetary and fiscal policy and to immediately implement the cancellation of public debt above 60 percent of GDP.
This, of course, doomed to failure, but it shows how the French did not trust the Germans and Vice versa, and how the French believe that the parliamentary format will help them – with the possible assistance of Italy, Spain and Portugal – to squeeze out the excessive influence of Germany on Eurozone policy.
And that’s exactly what I’m afraid of the Germans. The famous German businessman pleaded with Britain in February, during his speech in London not to leave his country alone with the French and other European socialists.”
The German Finance Minister said the same thing to a British audience earlier this month. The withdrawal of Britain from the EU, he said, will make Europe less stable and more volatile,” adding, according to reports, sarcastically, that “we (Germans) will cry” if Britain leaves. It looked like a Broadway performance desperately sad, religious songs of Jacques Brel “Ne me quitte pas” (don’t leave me).
Such requests reinforce the impression of the ruined Franco-German relations, in which the chances of a compromise in respect of the present fiscal Union and other measures to strengthen Euro is equal to zero.
Indeed, if only the successes of right-wing and left-wing parties in a year would not force France to leave the EU and the Eurozone, the situation will remain the same as long as the next crisis will not destroy the monetary Union. This time bomb continues to tick; it was laid with austerity policies that caused the economic recession (Eurozone GDP is still below pre-crisis level of 2007), high unemployment and political instability in countries that account for 53 percent of the Eurozone.
Investment reflections
The Euro is seriously injured, appears to be an insurmountable disagreement between France and Germany over control of their monetary Union. This crisis will be further complicated by anti-EU and anti-German parties in France and similar socio-political movements in Spain, Italy, Portugal and Greece.
The successors of these great European statesmen like Mitterand and Kohl, has seriously undermined bespovorotno the existence of the Euro. The political mantra that “Euro long”, turned into an empty slogan.
The dollar is the winner in all of this. A strong dollar could also slow down and mitigate the expected increase in interest rates by the Federal reserve, because the strengthening U.S. dollar is technically equivalent to a tightening of monetary policy. At the moment weighted by the value of the dollar is exactly the same as a year ago, and we have not yet seen evidence of a full-scale launch of the fed liquidity from the system.
translator Lilu
