Michael Hudson on the Euro without Germany

Connor: The rapid demise of Germany reminds me of the German intelligence agent Bachmann in “Wanted Man.” He was led to believe he was working on an equal level with the CIA and British Intelligence only to realize in hindsight that he was playing around the whole time.

Hudson gets to know what the fall of Germany will mean for the euro and what options are available to countries in the global south, Europe and Asia as they try to stand up to American hegemony.

Written by Michael Hudson, Professor of Economics Research at the University of Missouri, Kansas City, and Research Associate at the Levy Institute of Economics at Bard College. His most recent book is The Fate of Civilization.

Reaction to the sabotage of three of the four Nord Stream 1 and 2 pipelines in four places on Monday, September 26, has focused on speculation about who did it and whether NATO will make a serious attempt to discover the answer. But instead of panicking, there was a great sigh of diplomatic relief, even calm. The disruption of these pipelines ends the uncertainty and fears on the part of US/NATO diplomats that nearly reached crisis proportions the previous week, when large demonstrations erupted in Germany calling for an end to sanctions and a mandate for Nord Stream 2 to resolve the energy shortage.

The German public was coming to grips with what it meant to shut down steel companies, fertilizer companies, glass companies, and toilet paper companies. These companies had expected that they would have to stop operating entirely – or shift operations to the United States – if Germany did not withdraw from trade and currency sanctions against Russia and allow gas and oil imports to resume, presumably to back down. Eight to ten times the astronomical increase.

However, Victoria Nuland, the State Department’s hawk, already stated in January that Nord Stream 2 would “somehow not move forward” if Russia responded to the accelerated NATO/Ukrainian military attacks on the Russian-speaking eastern provinces. President Biden endorsed the United States’ insistence on February 7, promising that “there will be no Nord Stream 2. We will finish it. … I promise, we will be able to do it.”

Most observers simply assumed that these statements reflected the stark fact that German politicians were entirely in the pockets of the US/NATO. They stuck with their refusal to license Nord Stream 2, and Canada quickly took over the Siemens dynamo needed to send gas through Nord Stream 1. That seemed to settle matters until German industry—and a growing number of voters—finally began calculating just what was forbidden. Russian gas means for the German industrial company.

Germany’s willingness to impose a fluctuating economic depression has been – despite the lack of its own politicians or the EU bureaucracy. If German policymakers put German business interests and standards of living first, the joint sanctions imposed by NATO and the new Cold War front would collapse. Italy and France may follow suit. This nightmare of European diplomatic independence made it urgent to remove anti-Russian sanctions from the hands of democratic politics and settle matters by sabotaging the two pipelines. Despite being an act of violence, it restored calm to international diplomatic relations between American and German politicians.

There is no longer any doubt as to whether or not Europe will depart from the new Cold War goals of the United States by restoring mutual trade and investment with Russia. This option is out now. The threat to Europe away from US-NATO trade and financial sanctions against Russia has been resolved, apparently for the foreseeable future, with Russia declaring that with low gas pressure in three of the four pipelines, the infusion of salt water will irreversibly corrode the pipes. in it. (daily mirrorSept. 28.)

Where does the euro and dollar go from here?

Given how this trade “solution” will reshape the relationship between the US dollar and the euro, one can understand why the apparently obvious consequences of cutting off trade relations between Germany, Italy and other European economies with Russia are not discussed. The “sanctions debate” has been resolved by the German economic collapse, and indeed at the level of Europe. For Europe, the next decade will be a disaster. There may be mutual accusations against the price paid for allowing NATO to dictate its trade diplomacy, but there’s nothing it can do about it. Nobody (yet) expects it to join the SCO. What is expected is that their living standards will decline.

German industrial exports were the main factor supporting the euro exchange rate. Germany’s great attraction in moving from the Deutsche Mark to the Euro would avoid its export surplus from raising the D-mark exchange rate to the point where German products are priced outside world markets. Expanding the currency to include Greece, Italy, Portugal, Spain and other countries with balance of payments deficits would prevent the currency from appreciating. This would protect the competitiveness of German industry.

After its introduction in 1999 at $1.12, the euro actually fell to $0.85 by July 2001, but recovered and actually rose to $1.58 in April 2008. The euro has drifted steadily since then, and since February of this year, sanctions have pushed the euro exchange rate up. Below par with the dollar to $0.97 this week. The main factor was the rising prices of imported gas and oil, and products such as aluminum and fertilizers that required heavy energy inputs to produce. As the euro-dollar exchange rate drops, the cost of carrying its US dollar debt – which is the normal case for subsidiaries of multinational corporations in the US – will rise, putting pressure on their profits.

This is not the kind of depression that “automatic stabilizers” can do “market magic” to restore economic equilibrium. Structural energy dependence. And the eurozone’s economic rules limit its budget deficit to just 3% of GDP. This prevents national governments from supporting the economy through deficit spending. Higher energy and food prices – and dollar debt service – will leave far less income spent on goods and services.

It seems strange that the US stock market rose -500 points to the Dow Jones Industrial Average on Wednesday. Maybe it was just the Plunge Protection team stepping in to try and reassure the world that everything would be okay. But economic reality reared its ugly head on Thursday, and the stock market gave up its phantom gains.

It is true that the end of German industrial competition with the United States ended at the expense of trade. But at the expense of capital, the depreciation of the euro will reduce the value of US investments in Europe and the dollar value of any profits those investments may continue to make as the European economy contracts. So the reported earnings of multinational corporations in the United States will be reduced.

As a final step, Pepe Escobar noted on September 28 that “Germany is contractually obligated to purchase at least 40 billion cubic meters of Russian gas annually until 2030. … Gazprom is legally entitled to receive money even without gas shipment. This is the spirit of The contract is long-term. … Berlin is not getting all the gas it needs but it still has to be paid.” It looks like a long court battle before the money can be changed – but Germany’s ability to pay will steadily weaken.

In this regard, the ability of many countries to pay has already reached the breaking point.

The impact of US sanctions and the new Cold War outside Europe

International raw materials are still mainly priced in dollars, so a higher dollar exchange rate will raise import prices proportionately for most countries. This exchange rate problem has been exacerbated by US/NATO sanctions that have driven up global prices for gas, oil, and grain. Many European countries and countries in the global south have already reached the limit of their ability to service their dollar-denominated debt, and are still dealing with the Covid pandemic. They cannot afford to import the energy and food they need to live if they have to pay off their foreign debt. The global economy has now overstepped its debt bounds, so something has to be done.

On Tuesday, September 27, when news of the Nord Stream attacks became known, US Secretary of State Anthony Blinken shed crocodile tears and said attacking Russian pipelines was “in no one’s interest.” But if that was really the case, no one would attack the gas lines.

I have no doubt that American strategists have a game plan for how to proceed from here, and doing so is in fact in what the neoconservatives claim is in the interest of the United States—that is, sustaining a unipolar global economy financed by neoliberalism and funded for so long. as they can.

They have always had a plan for countries unable to repay their external debt. The IMF would lend them the money, on the condition that the debtor country raised foreign exchange to repay the (increasingly expensive) dollar loans by privatizing what remained of their public domain, the inheritance of natural resources and other assets, primarily to American financial investors and their owners. allies.

will you work? Or will the debtor countries come together and devise ways to reclaim the seemingly lost world of reasonable oil and gas prices, fertilizer prices, grain and other food prices, minerals or raw materials supplied by Russia, China and their allied Eurasian neighbors?

This is the next big concern for US global strategists. The solution seems less easy than what was done with the sabotage of Nord Stream 1 and 2. But the solution seems to be the usual American approach: something militaristic in nature, new color revolutions. The goal is to obtain the same power over the countries of the Global South and Eurasian countries that American diplomacy has exercised over Germany and other European countries through NATO.

Unless an institutional alternative to the International Monetary Fund, the World Bank, the International Court, the World Trade Organization and many of the United Nations agencies now aligned by American diplomats and their proxies are created, the coming decades will see the emergence of the American economic strategy of financial and military hegemony with Washington. had plans.

The problem is that its plans for how the Ukraine war and sanctions against Russia work so far have been just the opposite of what has been announced. This may give some hope for the future of the world. The opposition and even contempt of American diplomats for other countries acting in accordance with their economic interest and social values ​​is so strong that they are unwilling to consider how these countries will develop their own alternative to the global plan of the United States.

Thus, the question is how successful these other countries will be in developing their new alternative economic order, and how they can protect themselves from the self-imposed fate of Europe in the next decade.

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