Geopolitical Series: European Union

Posted: August 14, 2013 in Uncategorized
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In order to understand what is happening in Europe, it is necessary to back of how and why Europe has been formed.

The European Union has been essentially built after the 2 World War to contain the USSR and build a Golden Cage for Germany.

Every time Germany has been let free (1871 and 1933), we all know that it created a few issues (namely, 2 wold wars).

So Germany has been given a Golden Cage  (also called free markets with competitive advantage), since putting sanctions and ravaging the country after the 1 World War clearly did not work.

With the Euro, the Golden Cage became perfect as it took away the only advantage the other European countries had, their own currencies.

At this point, the rest of Europe was unable to defend itself by the competitive efficiency of the Germans (praise to them. To be honest it took all the world to stop them in the Second World War and thank God they had a madman at the wheel). When the US hit the world with the GFC, the latent issues got brought forward.

The issues are various:

– The Deutsche Mark has been converted incorrectly into Euro (undervalued in respect to the other currencies)

– Europe is a Monetary Union without a financial Union (praise this time our politician for thinking (dreaming?) it could work)

-Europe does not exist (ever met a tourist say I am from Europe….usually they say I am from France, italy, Spain…Germany!)

So Germany had a massive advantage from Europe….a captive market and  a weak currency.

That is why Germany, even with this European Crisis, had a massive growth. It actually need to prolong the crisis to keep the Euro down and maintain the growth profile (that is why the German High Court is challenging the ECB Bond Buying…..they do not want the crisis to be solved).

It seems that now they are getting what they want. Pay attention to what you think. In 1942 the German war machine seemed already to have won.

The issue is that until last year there was an axis German-Sarkozy-France that was pro austerity. Now the Hollande-France is leaning towards growth and there is a strong anti-German push in the European population.

The unemployment level is particularly scary as unemployment can lead to social unrest and even revolution (thinking Greece now, 65% of youth unemployment).

This could introduce a systemic risk in Europe, also because of the TARGET 2 issue *

So Germany is playing a very subtle poker game of remaining in “crisis mode” without eating the duck the lays the golden eggs. unless someone call their bluff.

More article will follow as it is a very intricate argument, but that is essentially why we have to muddle through and we cannot solve the situation: it is all real-politik.

Now, most probably, they will have to show the situation as improving as the risks above (youth unemployment) are starting to be too real.

*http://www.voxeu.org/article/target2-germany-has-bigger-things-worry-about

 

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