Follow by Email

Friday, December 28, 2012

Did they really know what they were doing?

This article from the Swiss paper TagesAnzeiger summarizes very nicely (mostly in German) the accusations which have been made against EU-leaderships many times, namely: they knew exactly what they were doing when they formed and shaped the monetary union; they knew exactly what the dangers were and --- they ignored their own findings. The most shocking realization is that the authors of the Delors-report did not think that a monetary union would come into existence in the foreseeable future: "The economic prerequisites for a monetary union that is characterized by immutably fixed exchange rates between the participating countries will probably not exist for the foreseeable future".

The article quotes the Delors-report from 1989 as well as comments made to it from Karl Otto Pöhl (then the President of the Bundesbank) and Francois Mitterand. Let me just cite the most important quotes below. 

"If sufficient consideration were not given to regional imbalances, the economic union would be faced with grave economic and political risks".

"This is especially important because the adoption of permanently fixed exchange rates would eliminate an important indicator of policy inconsistencies among Community countries and remove the exchange rate as an instrument of adjustment from the member countries’ set of economic tools".

"A particular role would have to be assigned to common policies aimed at developing a more balanced economic structure throughout the Community. This would help to prevent the emergence or aggravation of regional and sectoral imbalances which could threaten the viability of an economic and monetary union".

"Wage flexibility and labour mobility are necessary to eliminate differences in competitiveness in different regions and countries of the Community. Otherwise there could be relatively large declines in output and employment in areas with lower productivity. In order to reduce adjustment burdens temporarily, it might be necessary in certain circumstances to provide financing flows through official channels. Such financial support would be additional to what might come from spontaneous capital flows or external borrowing and should be granted on terms and conditions that would prompt the recipient to intensify its adjustment efforts".

"Moreover, the fact that the centrally managed Community budget is likely to remain a very small part of total public sector spending and that much of this budget will not be available for cyclical adjustments will mean that the task of setting a Community-wide fiscal policy stance will have to be performed through the coordination of national budgetary policies. Without such coordination it would be impossible for the Community as a whole to establish a fiscal/monetary policy mix appropriate for the preservation of internal balance, or for the Community to play its part in the international adjustment process. Monetary policy alone cannot be expected to perform these functions. Moreover, strong divergences in wage levels and developments, not justified by different trends in productivity, would produce economic tensions and pressures for monetary expansion".

"Rather than leading to a gradual adaptation of borrowing costs, market views about the creditworthiness of official borrowers tend to change abruptly and result in the closure of access to market financing. The constraints imposed by market forces might either be too slow and weak or too sudden and disruptive. Hence countries would have to accept that sharing a common market and a single currency area imposed policy constraints".

"The economic prerequisites for a monetary union that is characterized by immutably fixed exchange rates between the participating countries will probably not exist for the foreseeable future. Even among the members who form the nucleus of the exchange rate system, tensions must repeatedly be expected for the foreseeable future owing to differing economic policy preference and constraints as well as the resultant divergences in their economic development, which will make realignments in the central rates of their currencies necessary. Even within a common single market these problems will not simply disappear, especially seeing that this market will trigger additional structural adjustment constraints, the extent of which cannot as yet be fully assessed. For this reason, too, it will not be possible to do fully without occasional realignments in central rates for the foreseeable future. This indicates the necessity for further progress in the direction of greater convergence in a large number of macroeconomic as well as structural fields".

"Apart from this, it should be made clear that monetary integration cannot move ahead of general economic integration, since otherwise the whole process of integration would be burdened with considerable economic and social tensions. Moreover, examples from history demonstrate that new nations did not confer a uniform monetary order on themselves until after the process of unification was concluded. Any durable attempt to fix exchange rates within the Community and finally to replace national currencies by a European currency would be doomed to failure so long as a minimum of policy-shaping and decision-making in the field of economic and fiscal policy does not take place at Community level. Without this prerequisite being met, a common European monetary policy cannot ensure monetary stability on its own. Above all, it cannot paper over the problems in the Community arising from differing economic and fiscal policies".

"Isolated steps in the monetary field would overburden monetary policy in political terms and jeopardize the credibility of the process of unification in the longer run". 

Karl Otto Pöhl commented as follows: "From the German point of view it is essential to ensure, in the discussions about the future design of a European monetary order, that monetary and credit policy is not geared to stability to a lesser extent in an economically united Europe than is the case at present in the Federal Republic of Germany". And later in retrospect: "When the report was formulated, I did not think that a monetary union would become reality in the foreseeable future. I thought perhaps sometime in the next hundred years. I thought it was improbable that other European countries would simply accept the model of the Bundesbank". 

Francois Mitterrand: "I consider it dangerous that the Central Bank, for lack of an appropriate political institution, assumes sovereign power. The common currency area is already a 'German Zone' but Germany has no authority over our national economies. With the new Central Bank, Germany would have that power" (Mitterrand later became a supporter of the common currency union). 

Final comment 
My previous understanding had been that only people from the outside, like Milton Friedman, had criticized the monetary union (sort of as a defender of American hegemony). As is apparent, EU-leadership itself voiced the very same concerns which Friedman had voiced. I previously thought that European elites had simply been too arrogant to listen to an American. Now I know that European elites were too dumb to listen to themselves.

4 comments:

  1. Very interesting article - as are many of the comments.

    Something else happened in 1989 - The Wall came down!

    When the Delors report was being written in the 1980's it was unimaginable that by the end of the same decade The Wall wouldn't be there, and the Soviet Union would be in the process of dismantling itself.

    This created the opportunity for German Reunification, something that Kohl desperately wanted as his legacy. But Thatcher & Mitterand felt they had to irrevocably chain a united Germany to the rest of Europe before that could happen. The EMU was the price they all had to pay. Mitterand at least, probably hoped that the cost of reunification would drag the Germany economy down to the same level as France & Italy

    They didn't foresee things such as Schroeder's Agenda 2010, or the impact of the structural changes in the Global Financial System (GFS) being implemented under the Clinton, Bush Jnr and Blair/Brown regimes. These created the conditions for the near collapse of the GFS in 2008.

    A big mistake by the European politicians was the delusion that Mainland EU was immune from the impact of the GFS collapse because it wasn't governed by neoliberal regimes. But their banks were in the GFS up to their necks, and in many cases over the heads.

    Whilst the man in the street may know little of the Molotov-Ribbentrop Pact, any European politician worth his or her salt knows that it was significant factor leading to Germany's invasion of Poland in Sept 1939. The prospect of another Moscow-Berlin alliance coming into being at the end of the 20th century was a risk that the European elites weren't willing to take.

    If the Euro collapses then that possibility would come back into play. Personally I doubt that anything like Molotov-Ribbentrop would happen again - but I'm not calling the shots. If I were, then I also might not be willing to take the risk. Hence the 'Save the Euro Whatever the Cost' attitude of the current crop of European elites.

    Another geopolitical consequence of The Wall coming down, was the need/desire to get Central & Eastern Europe into NATO and the EU - this was as important to the US as it was to the EU.

    It's easy to forget that one of the primary objectives of the EU is to permanently de-fang Germany.

    And it should not be forgotten that Mitterand was a German POW in WW2, nor that Britain had recently fought a war against Argentina - a country with plenty of links to Nazi Germany.

    History Matters - Geopolitical and Personal.

    My memory is that the Zeitgeist of the 1990's was Anything Is Possible, we had after all reached the End of History... again ;)

    CK

    ReplyDelete
  2. As an aside, I recently visited the Ostpreußisches Landesmuseum in Lüneburg. It was a very interesting mirror to my visit to Wrocław in Poland many years ago.

    Because as with so many things, Germans don't just live in Germany. There were the so-called Donauschwaben, and other ethnic groupings living deep in Siberia. In more recent times they have joined hands with Japan to revitalize car making in Britain.

    It seems wherever they go, they bring business acumen and wealth creation. It goes with one of their more negative characteristics, of being arrogant. Given their abilities, this can be understood. When irritated by unfeeling Anglo-Saxons it can lead to problems of another kind.

    So what has this to do with Greece? Well many Germans living in what was the BRD would like to slough off the former DDR. It costs a lot of money after all. Kohl's legacy it might have been, I don't think he reckoned with a lack of maintenance that was on an industrial scale.

    In a very real way, the old DDR put as much thought to their future as did any Greek government. Their stance has always to be able to end the day with their jobs intact. Their legacy has been a lack of investment - infrastructure in the case of the DDR and administration in Greece. Both are very real and both take decades to repair.

    A recent visit to Stendal showed the effects of the old government and that of two decades of Western investment. The difference is striking. It will take the same influence for as long in Greece.

    It is fair to say that the provinces around Berlin were always less industrialized than the West. The same can be said for Greece. That does not forgive their lack of intent. Neither need have slipped as far as they have.

    Because in returning to my opening thoughts, I would bet that the former German provinces in Poland (which include East Prussia and Wrocław in Schlesien) would happily come under German rule again - if only for the economic input! Mind you, with the number of Polish lorries on the Autobahns, I think this is already happening.

    Now as to the EU - they are typical intellectuals. They are guided by thoughts that are not properly engaged and thus are easily misled by those who have other agendas. I happen to know that you understand how Goldman-Sachs steers the herd. I say no more.

    ReplyDelete
    Replies
    1. I "hear" your wonderful English. Mine is not so good, but I try to express myself with the few tools I have.

      You say: "..Now as to the EU - they are typical intellectuals. They are guided by thoughts that are not properly engaged..(...)"

      I agree with you, and to continue here my comment in the post "Watch out for January 11, 2013 at 22 hrs!":
      There has come a horrible dividing between the intellect and the intuition of the human being, many ages ago. Human beings in the west lost their most important knowledge by killing their inner natural connection with life and its intelligence. That Natural Intelligence is higher than the Intelligence we name Science in the present.

      That division has created a split human being, not realizing anymore where it goes beyond borders of what is really intelligent.
      Facts are missing. Unseen, not felt, because feelings do not belong to the Intelligence of the western society and education.
      Cold professors and cold scientist, leaders. Cold in the meaning of: not grown in the maturity of the knowledge of the heart.
      There is a blockade, and because of the big influence of Science all people have tried to suppress their true being, to become like them, to be glorified and hailed, to be successful in their carreers, on high posts, and no...
      they cannot sense anymore, nor do they have the time to think really about it, to go deep into the matter of that what is going on, they just go with a too high speed to make decisions.

      They create accidents.
      They create failures.
      Even Einstein knew that intuition is a must in "finding" solutions.
      Leaders have to be whole, healed, in balance, to know what they are doing.
      The most do not.
      But I trust evolution, and its Intelligence. I am not afraid. It will take time however. Even that belongs to it.

      Delete
  3. {Note to Klaus Kastner: this post needs your active moderation, see below}

    Thankyou for your thoughts, Antoinette. I think you will understand that we see the same thing from different perspectives.

    Again, I want to look at all this as something that is not overtly deliberate. Most people in the west deny their emotional selves because it makes no sense to them. They cannot believe in the irrational, things that are in a very real way "nonsense". They cannot believe in things that they cannot pick up and hold. That emotions exist, that they are crucial to understanding those things they want to pick up and hold is neither here nor there. That they can only pick things up and understand them is an emotional - and irrational - action in itself!

    The problem is very real. Because modern science is also based on this misunderstanding. The real problem is that awareness is self-contained. How can you step outside something you cannot see the boundaries of? How can you even think of stepping outside of something that has no boundaries? People speak of "thinking outside the box" yet all they mean is that they think in different corners of the same box. You wind up with the situation that a bureaucrat - for example - doesn't understand anything unless it is on a piece of paper. Anything else - ANYTHING - goes not ignored, but unseen. That is an incredibly dangerous situation!

    Because it is you and I who can really think outside the box. And you always need something more to throw a shadow over your box. That usually happens when you feel something isn't right. Now if you don't associate feelings with your thinking, you are left standing on an island somewhere inside your box.

    Goethe was a true German in that he was also a true Romantic, just as you are*. "What is all that goes on in outer physical apparatus as compared to the ear of the musician, as compared to the revelation of nature that is given us in the musician's ear itself. What Goethe wishes to emphasize by this is that we will never understand physical things if we observe them separately from man himself". That was Rudolf Steiner speaking in 1920. The things he spoke of have come to pass. He described DNA and Mad Cow Disease in the 20s.

    Einstein was correct about intuitions, sadly he was wrong about most of the rest. I speak as a scientist who understands the things he wrote. The forces that Einstein interfered with are the merest tip of a mountain, thankfully modern Science has no way to uncover the rest. The morally impoverished characters who scatter bombs to force nations into becoming democratic would split our planet in two with such a power. Thankfully such knowledge is guarded not by others, but by the intellect itself!

    When intellectuals gather, they do not do so because they enjoy themselves. It is for mutual benefit, and this can be many things to many men. When put under pressure, these benefits no longer exist - these men go their separate ways. The structures they have created can become unstable as a result. The very real problem here is that people who know what you do about emotion, yet have no moral truth in their hearts, can misuse these things. Herr Kastner himself has described Goldman Sachs "steering the herd" - imagine someone doing that with European Union bureaucrats ...


    *Not in the wishy-washy sense of silly girls, a Romantic is someone who trusts their heart. Its loss has had a devastating effect on Germany. [In no small part owing this to Hitler and the after effects of Versailles. Buchenwald was established at the very spot that Goethe took his afternoon walks. That will give you an idea of how "German" Hitler really was. ] {Note to Klaus, if you do not wish to publish this, that is fine, but please communicate this to Antoinette through her personal email as she will understand my meaning}.

    Your English, by the way, is exceptionally good. I wish that my second languages were as good.

    ReplyDelete