The recent events in Europe have captured the attention of the world and taken the heat off of China and the value of its currency, the United States and the value of its currency, and financial reform in its various forms.
The focus, in my mind, is going to stay on Europe for a while because that is where the greatest amount of disruption to world financial markets and damage to world economic recovery can take place.
How long will this disruption and damage last?
I continue to recall a piece of advice given several years ago that has never let me down. The advice is this: If you say the problem is ‘out there’, that is the problem! That is, if you blame your problems on everyone else or everything else, your outward facing focus is the problem. Maybe you had better look at what you are doing before you start blaming someone else.
I have found this true in individuals, families, organizations, communities, businesses, and governments.
Right now, Europe is over-run with self-pity blaming speculators and the ‘irrationality’ of markets.
As a consequence, Europe has responded to the difficulties it faces with a grudging move to maintain the liquidity of its financial markets while preserving as much as it can the ‘integrity’ of its economic model. Its leaders are still trying to hold onto their model of the world.
Hence, the blame must be aimed at someone else!
And, that is precisely the problem.
The fundamental problem is that the economic model used by most of Europe is faulty and the current financial problem is one of solvency and not liquidity.
The three primary perpetrators of these fallacies are President Nicolas Sarkozy of France, Jean-Claude Trichet the head of the European Central Bank (French), and Dominique Strauss-Kahn the Managing Director of the International Monetary Fund (also French).
So far, these French leaders have been the winners of the political battles for the heart of the
European Union. So far, international financial markets have given these leaders at least a D- in terms of the plan they have devised to save union.
Where can we find this grade?
The value of the Euro has declined 18% from the middle of December 2009 to this morning.
The German Parliament has voted to support the current ‘bailout’ but throughout Germany discontent is rising concerning the leadership shown by the German Chancellor Angela Merkel. She, more than any other leader within the European Union, seems to be losing her clout.
Chancellor Merkel cannot afford to follow the French leadership.
Germany has established its position within the European Union through its strong economic growth fueled by a very robust export sector. It has also been fiscally prudent and plans to reduce its budget deficit to zero by 2016. The yield on German bonds attests to the belief the international investment community has in the intent and discipline inherent in Germany to sustain these outcomes.
It is these factors, carried over to the whole EU, that have benefitted other nations within the community to the extent that they could live beyond their means and feast off of their association with the Germans.
This, as we have seen, is an unsustainable relationship. Either Germany has to give in and accept fundamental reforms to the European Union that would seriously damage German competitiveness. Or, it has to maintain its discipline and continue to adhere to its fundamental world view.
There is no question as to what I think Germany should do!
Yet, if Germany continues to encourage its competitiveness in European and world markets and maintains its fiscal discipline, others within the European community will either have to emulate them or will have to remove themselves from this union. It seems as if we are at the juncture where there are no other choices. A wishy-washy response at this time will just postpone the outcome.
Of course, the critics of Germany see such a German policy as disastrous. Following the German model of reigning in wages and social benefits and achieving real control over fiscal budgets would result in further dislocation of economic resources in Europe accompanied by social and political upheaval.
The problem is that these other European nations have put themselves into a position where there are no ‘good’ solutions! Years-and-years of profligate living eventually lead to a situation where nothing they can do provides happy answers.
The only thing these loose-living nations can hope for is for time, cause “things will get better in the future!” Yeh, sure!
I don’t know how many times I have heard this response in business and elsewhere. “The market doesn’t understand us!” “All we need is some time and things will work themselves out!” “It’s just that there are some ‘greedy bastards’ out there that want to make money off of our misfortune!”
Europe, your economic model of the world doesn’t work! The only way you are going to really get out of this mess is to change your economic model. Deficits and a lack of social discipline don’t contribute to economic health. But, it is so much easier to blame someone else and following Germany would be a disaster.
There remains a lot to work out in Europe. These issues are not going to go away overnight. How long things remain unsettled there depends upon how quickly people realize that the problems are internal and not a result of “irrational markets” and the greed of speculators. It is very difficult, however, to realize that your model of the world requires modification. Perhaps such change is generational…but, can we wait that long?
Showing posts with label Sarkozy. Show all posts
Showing posts with label Sarkozy. Show all posts
Monday, May 24, 2010
Wednesday, May 12, 2010
The European Union: It's a Question of Leadership
The dust is clearing around the recent negotiations in Europe concerning the “bailout” bill and what we are seeing, at least to me, is unnerving.
“France has won!” (“Paris seen as trumping Berlin at EU table” at http://www.ft.com/cms/s/0/4fbef0b4-5d5e-11df-8373-00144feab49a.html)
“The French government yesterday vowed to ‘reinvent the European model.” (“Sarkozy triumphs in his bid to rewrite the rules” at http://www.ft.com/cms/s/0/f2666c76-5d5d-11df-8373-00144feab49a.html)
The press has predominantly been following German Chancellor Angela Merkel over the past month or so as she struggled to achieve a “German” twist to the negotiations concerning the fate of Greece and the bailout package that was needed to keep the EU together.
Many in Germany did not like what her leadership has achieved as people voted against her party last Sunday making it ever so much more difficult for her to lead her nation.
Sarkozy, the president of France, kept a very low profile…for him.
And, who seems to have come out on top? France!
France’s intent? To build a new structure with greater budgetary policy co-ordination and more effective fiscal rules. In essence, to follow the French model, allowing the spenders to spend and the savers to pay for what the spenders are spending on.
The start is a vast loan facility to distribute cash quickly to “a stricken member” without prior approval from other national governments…especially Berlin! (However, the current effort is to last only three years, but once begun…)
Also, Sarkozy is said to be very happy with the decision of the European Central Bank to start buying euro-zone government debt. This is a massive step toward “Quantitative Easing” something the ECB had been constantly resisting.
The ECB has been “Bernankied”!
This shift in policy direction is seen by Sarkozy as “irreversible” and puts France in the driver’s seat.
In my mind, this “victory” just exacerbates the “race to the bottom” (See “How the euro-zone set off a race to the bottom” at http://www.ft.com/cms/s/0/5d666d5a-5c69-11df-93f6-00144feab49a.html.)
The feeling in Germany? The newspaper Bild Zeitung puts is very simply: "The 'safety parachute' for the euro is the ultimate crime for Europe. We Germans have made sacrifices for a stable euro for the last 10 years, with wage restraint and sacrificing pension rises. We have paid the price while others have been partying at our expense . . . Europe's path to a transfer union is simply a road to its ruin."
And, what direction are you betting the euro will go?
This whole muddle returns to the question of leadership and in Europe.
Unfortunately, I don’t see anyone there that I would call a real leader.
In terms of the leadership at central banks, the head of a central bank can only go so far in achieving a monetary policy independent of the party that rules a nation.
NOTE: Check out what recently happened to the head of the central bank in Argentina!
Ben Bernanke and the Federal Reserve System have never acted independently of the presidential administration in Washington, D. C. whether it was the Bush 43 administration or the Obama administration.
The only show of independence that Bernanke and the Fed has made is to keep the Congress from conducting an audit of them.
Alan Greenspan was the lackey of whoever was in the White House.
This is why the financial markets expect that sooner or later massive governmental deficits will be monetized. Central banks cannot forever “hold out” against a government that wants to continue to live way beyond its means.
And, because of this Jean-Claude Trichet should not be judged too harshly. The “profligates” are in charge and a central banker can only fight back so hard. At least if they want to keep their high profile position.
So, we go back to the victory that France has achieved. If people were uncertain over the future of the European Union and the future of the euro, in my mind a lot of that uncertainty has been removed.
The major uncertainties now relate to when the periodic financial upheavals are going to take place, how severe they will be, and how long it will take for a European leadership to arise that will have had enough of the “race to the bottom”?
Weak leadership always caves in to the popular short run viewpoint!
“France has won!” (“Paris seen as trumping Berlin at EU table” at http://www.ft.com/cms/s/0/4fbef0b4-5d5e-11df-8373-00144feab49a.html)
“The French government yesterday vowed to ‘reinvent the European model.” (“Sarkozy triumphs in his bid to rewrite the rules” at http://www.ft.com/cms/s/0/f2666c76-5d5d-11df-8373-00144feab49a.html)
The press has predominantly been following German Chancellor Angela Merkel over the past month or so as she struggled to achieve a “German” twist to the negotiations concerning the fate of Greece and the bailout package that was needed to keep the EU together.
Many in Germany did not like what her leadership has achieved as people voted against her party last Sunday making it ever so much more difficult for her to lead her nation.
Sarkozy, the president of France, kept a very low profile…for him.
And, who seems to have come out on top? France!
France’s intent? To build a new structure with greater budgetary policy co-ordination and more effective fiscal rules. In essence, to follow the French model, allowing the spenders to spend and the savers to pay for what the spenders are spending on.
The start is a vast loan facility to distribute cash quickly to “a stricken member” without prior approval from other national governments…especially Berlin! (However, the current effort is to last only three years, but once begun…)
Also, Sarkozy is said to be very happy with the decision of the European Central Bank to start buying euro-zone government debt. This is a massive step toward “Quantitative Easing” something the ECB had been constantly resisting.
The ECB has been “Bernankied”!
This shift in policy direction is seen by Sarkozy as “irreversible” and puts France in the driver’s seat.
In my mind, this “victory” just exacerbates the “race to the bottom” (See “How the euro-zone set off a race to the bottom” at http://www.ft.com/cms/s/0/5d666d5a-5c69-11df-93f6-00144feab49a.html.)
The feeling in Germany? The newspaper Bild Zeitung puts is very simply: "The 'safety parachute' for the euro is the ultimate crime for Europe. We Germans have made sacrifices for a stable euro for the last 10 years, with wage restraint and sacrificing pension rises. We have paid the price while others have been partying at our expense . . . Europe's path to a transfer union is simply a road to its ruin."
And, what direction are you betting the euro will go?
This whole muddle returns to the question of leadership and in Europe.
Unfortunately, I don’t see anyone there that I would call a real leader.
In terms of the leadership at central banks, the head of a central bank can only go so far in achieving a monetary policy independent of the party that rules a nation.
NOTE: Check out what recently happened to the head of the central bank in Argentina!
Ben Bernanke and the Federal Reserve System have never acted independently of the presidential administration in Washington, D. C. whether it was the Bush 43 administration or the Obama administration.
The only show of independence that Bernanke and the Fed has made is to keep the Congress from conducting an audit of them.
Alan Greenspan was the lackey of whoever was in the White House.
This is why the financial markets expect that sooner or later massive governmental deficits will be monetized. Central banks cannot forever “hold out” against a government that wants to continue to live way beyond its means.
And, because of this Jean-Claude Trichet should not be judged too harshly. The “profligates” are in charge and a central banker can only fight back so hard. At least if they want to keep their high profile position.
So, we go back to the victory that France has achieved. If people were uncertain over the future of the European Union and the future of the euro, in my mind a lot of that uncertainty has been removed.
The major uncertainties now relate to when the periodic financial upheavals are going to take place, how severe they will be, and how long it will take for a European leadership to arise that will have had enough of the “race to the bottom”?
Weak leadership always caves in to the popular short run viewpoint!
Tuesday, October 6, 2009
"Europe's Plot to take over the World"
There is an interesting article in this morning’s Financial Times (10/6): “Europe’s plot to take over the world” (see http://www.ft.com/cms/s/0/a47079b2-b1e6-11de-a271-00144feab49a.html.) It was interesting to me because it has always seemed to me that the one who controls the writing of the agenda for a meeting is the one that most often ends up controlling the results that come out of the meeting.
And, according to my reading of Gideon Rachman’s comments, this is exactly what Europe is trying to do.
The thrust of Rachman’s argument ties in with my post of October 5 (see “What’s the dollar’s place in the new financial order”: http://seekingalpha.com/article/164848-what-s-the-dollar-s-place-in-the-new-financial-order.) where I discussed the changing nature of the world’s economic and financial relationships as observed in the changes occurring within the G-20 (and the lessening of importance of the G-7) and the jockeying of nations for position within the World Bank and the International Monetary Fund.
Whereas so much attention has been given to the rising strength of the BRIC countries of Brazil, Russia, India, and China, Rachman focuses on the bureaucratic reality of the evolving organizational structure of the G-20 itself. There are three points the author makes that I think are worthy of consideration.
First, Europe dominates the leadership of the G-20. Whereas Brazil, China, India, and the United States are represented by one leader each, the Europeans had eight positions at the conference table: Britain, France, Germany, Italy, Spain, the Netherlands, the president of the European Commission and the president of the European Council. Furthermore, the primary international civil servants at the meeting were Dominique Strass-Kahn, the head of the IMF, Pascal Lamy, the head of the World Trade Organization, and Mario Draghi, the head of the Financial Stability Board and these are all Europeans. The only other civil servant of similar weight was Robert Zoellick, the President of the World Bank, and an American.
Second, the Europeans seem to have a grasp of what is going on in the world than do the other participants at the G-20 conference. Rachman ties this back to the experience of the Europeans at European Union summits. The Europeans seem to be well advanced in the techniques of “bureaucratic paper-shuffling”, a process of introducing issues that they never let go of and which have important political implications in the upcoming years. Rachman argues that the European Union “advanced” from the very start “through small, apparently technical, steps focusing on economic issues.” The method used was to build the union through “the common management of common problems.”
Third, Rachman states that “the kernel of something new has been created. To understand its potential, it is worth going back to the Schuman Declaration of 1950, which started the process of European integration. ‘Europe,’ it said, ‘will not be made all at once, or according to a single plan. It will be built through concrete achievements, which first create a de facto solidarity.’”
The agenda is bigger than forming a G-3, a group of the United States, China and Europe. The world of the future cannot be organized by just these three territorial giants. The world of the future is either going to be integrated in a way that many might conceive of as inconceivable, or, the world is going to collapse into separate blocks with limited international trade and cooperation.
The model for this last scenario is the world at the start of the 20th century. World integration was discussed then for the world was open in the early 1900s in a way that has not been equaled since. Yet, the world conflict taking place in the 1910s split the nations apart leading up to conflicts of the 1920s and 1930s and the second world war that followed.
For the G-20 to help the evolution of the world into something approaching the first scenario the United States is going to have to adjust its attitude. Yes, the United States is still going to be the most powerful nation in the world, both economically and militarily, but it is going to have to change its belief that it can act, either economically or militarily, independently of the rest of the world.
If Rachman is even close to being correct on his view of how the G-20 might evolve, the United States is not going to be able to get away with continually allowing the value of the dollar to decline. The United States cannot have it all! Other countries must adjust their behavior as well (for example, the savings rate in China must fall), but the day is coming when the United States is going to have to accept the consequences of the irresponsible fiscal and monetary policy of the last eight years. And, the current administration cannot continue to add to these policy blunders going forward as they now seem to be doing.
Something new is happening. And, Nicolas Sarkozy and Angela Merkel, and other leaders in Europe are not going to let this opportunity pass them by. They will talk about cooperation with the United States, internationally, but they want the United States to get its shop in order. France, and Germany, and Britain, all went through the economic wringer in the last half of the 20th century as international financial markets took their governments to task for irresponsible fiscal policy and extremely loose monetary policy. They certainly are going to ask for the American government to exhibit a little more discipline going forward.
For people interested in the value of the United States dollar, my view is that the value of the dollar will continue to decline until the United States government stops talking about achieving a strong dollar while running up trillions and trillions of dollars in deficits and actually begins to act to achieve a strong dollar. How long this will take depends upon how much pressure is exerted in organizations like the G-20, the World Bank, the IMF, and elsewhere. This pressure will only continue to grow as the G-20 achieves more influence and these other international organizations are given more and more responsibility to oversee international financial markets. This is not going to happen, however, overnight.
And, according to my reading of Gideon Rachman’s comments, this is exactly what Europe is trying to do.
The thrust of Rachman’s argument ties in with my post of October 5 (see “What’s the dollar’s place in the new financial order”: http://seekingalpha.com/article/164848-what-s-the-dollar-s-place-in-the-new-financial-order.) where I discussed the changing nature of the world’s economic and financial relationships as observed in the changes occurring within the G-20 (and the lessening of importance of the G-7) and the jockeying of nations for position within the World Bank and the International Monetary Fund.
Whereas so much attention has been given to the rising strength of the BRIC countries of Brazil, Russia, India, and China, Rachman focuses on the bureaucratic reality of the evolving organizational structure of the G-20 itself. There are three points the author makes that I think are worthy of consideration.
First, Europe dominates the leadership of the G-20. Whereas Brazil, China, India, and the United States are represented by one leader each, the Europeans had eight positions at the conference table: Britain, France, Germany, Italy, Spain, the Netherlands, the president of the European Commission and the president of the European Council. Furthermore, the primary international civil servants at the meeting were Dominique Strass-Kahn, the head of the IMF, Pascal Lamy, the head of the World Trade Organization, and Mario Draghi, the head of the Financial Stability Board and these are all Europeans. The only other civil servant of similar weight was Robert Zoellick, the President of the World Bank, and an American.
Second, the Europeans seem to have a grasp of what is going on in the world than do the other participants at the G-20 conference. Rachman ties this back to the experience of the Europeans at European Union summits. The Europeans seem to be well advanced in the techniques of “bureaucratic paper-shuffling”, a process of introducing issues that they never let go of and which have important political implications in the upcoming years. Rachman argues that the European Union “advanced” from the very start “through small, apparently technical, steps focusing on economic issues.” The method used was to build the union through “the common management of common problems.”
Third, Rachman states that “the kernel of something new has been created. To understand its potential, it is worth going back to the Schuman Declaration of 1950, which started the process of European integration. ‘Europe,’ it said, ‘will not be made all at once, or according to a single plan. It will be built through concrete achievements, which first create a de facto solidarity.’”
The agenda is bigger than forming a G-3, a group of the United States, China and Europe. The world of the future cannot be organized by just these three territorial giants. The world of the future is either going to be integrated in a way that many might conceive of as inconceivable, or, the world is going to collapse into separate blocks with limited international trade and cooperation.
The model for this last scenario is the world at the start of the 20th century. World integration was discussed then for the world was open in the early 1900s in a way that has not been equaled since. Yet, the world conflict taking place in the 1910s split the nations apart leading up to conflicts of the 1920s and 1930s and the second world war that followed.
For the G-20 to help the evolution of the world into something approaching the first scenario the United States is going to have to adjust its attitude. Yes, the United States is still going to be the most powerful nation in the world, both economically and militarily, but it is going to have to change its belief that it can act, either economically or militarily, independently of the rest of the world.
If Rachman is even close to being correct on his view of how the G-20 might evolve, the United States is not going to be able to get away with continually allowing the value of the dollar to decline. The United States cannot have it all! Other countries must adjust their behavior as well (for example, the savings rate in China must fall), but the day is coming when the United States is going to have to accept the consequences of the irresponsible fiscal and monetary policy of the last eight years. And, the current administration cannot continue to add to these policy blunders going forward as they now seem to be doing.
Something new is happening. And, Nicolas Sarkozy and Angela Merkel, and other leaders in Europe are not going to let this opportunity pass them by. They will talk about cooperation with the United States, internationally, but they want the United States to get its shop in order. France, and Germany, and Britain, all went through the economic wringer in the last half of the 20th century as international financial markets took their governments to task for irresponsible fiscal policy and extremely loose monetary policy. They certainly are going to ask for the American government to exhibit a little more discipline going forward.
For people interested in the value of the United States dollar, my view is that the value of the dollar will continue to decline until the United States government stops talking about achieving a strong dollar while running up trillions and trillions of dollars in deficits and actually begins to act to achieve a strong dollar. How long this will take depends upon how much pressure is exerted in organizations like the G-20, the World Bank, the IMF, and elsewhere. This pressure will only continue to grow as the G-20 achieves more influence and these other international organizations are given more and more responsibility to oversee international financial markets. This is not going to happen, however, overnight.
Subscribe to:
Comments (Atom)
