2012/01/09

The "Euro" crisis and defence

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Predictably, I won't discuss the Euro crisis with whining or ranting about military spending cuts. I'm for WELL-ALLOCATED military spending, not necessarily for MUCH.


Instead, let's summarize the roots of the crisis first;

Many European agreed on a common currency and had high hopes for it. Many people hoped for idealistic progress (a sentiment of being Europeans), others hoped that national problems would e solved and others simply expected further improvement of their wealth.

Well, most hopes were disappointed.
It turned out that economic science with its optimal currency area theories (some of them pro, others contra the project) had delivered the correct warning: Dissimilarity was still too great for shedding the balancing mechanism of flexible exchange rates.
Without flexible exchange rate, some countries (mostly Germany) experienced an export boom and at the same time an inhibited consumption while others experienced an unsustainable and huge trade balance deficit. Some economists blame the false confidence of lenders (mislead by supposed creditworthiness because of the low-inflation Euro currency). This false confidence led to lending beyond creditworthiness and sustained bubbles for a while.
Meanwhile, even Germany -in a superficial macroeconomic view the winner of the game- did not really prosper. Reforms had pushed the competitiveness of our industries up (this turned out to be an unnecessary move) and imports were relatively expensive because of the (for Germans) 'weak' Euro.


The lack of flexible exchange rates was one problem; the lack of a lender of last resort the other. Germany had insisted on a central bank which did not act as a lender of last resort. The German hope (and condition for its membership) was that ECB policies and rules would force some fiscally shaky Euro members into fiscal discipline and thus keep them from harming Germany indirectly. Further rules for this purpose were established (and in part violated by Germany itself).

This was essentially a bet. It seemed to work fine for years (budget deficits were moderate and some member states such as Spain were very fiscally disciplined).
It also proved to be disastrous in crisis. The 'lender of last resort' thing was an important safety in crisis, and without it multiple Euro zone governments (at least two of whom had done good fiscal policy for years) went downhill in creditworthiness.
The obvious way out - allowing the ECB to be a lender of last resort - is a short-term fix that holds little promise in the long term and is especially not in Germany's interest.

Well, Germany isn't interested in the troubles of leaving the Euro currency itself, the governments in trouble don't appear to try it either and the economies don't fit together. It does not work.


From a national security standpoint, the worst about all this is the demonstration of political ineptitude,the rule of ideology and the political division. The crisis has been ongoing for years and there's still no effective solution, but merely weak patches.
The Euro zone governments are not ready to admit that once the pro-Unified Europe ideology has led them into failure. They prove their inability to correct the original mistake, being stuck in various dynamics and in ideology.


I've repeatedly argued for a national and collective defence concept which keeps military strength levels moderate until the need for more arises.
Now it looks as if there would be a terrible lag between the rise of a major threat and a unified European response. Furthermore, it looks as if the European economies are in a too poor shape to sustain great military strength indefinitely without major reforms. Reforms that are not on the horizon yet.


Maybe some readers from beyond the Atlantic rejoice now about this confirmation of their suspicions (or prejudices) about Europe. I'd like to tell them that there's little reason for it. The U.S. government is obviously blocking itself and quite incapable of major action as well. Europe does not meet its intra-European imbalances with proper policies, and the U.S. does neither solve its intra-American nor its trans-Pacific imbalances.

I have a suspicion that in decades to come, social scientists will have wonderful models about how and why we moved into such deadlocks. I'm not so positive that they'll also have a consensus about how to break such deadlocks.


In the end, we're living in very lucky times. We don't have a solution for our collective imperfections on the horizon, but there's no major threat on the horizon as well. Truly lucky.

S Ortmann
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2 comments:

  1. "Maybe some readers from beyond the Atlantic rejoice now about this confirmation of their suspicions (or prejudices) about Europe. I'd like to tell them that there's little reason for it."

    Well I have to say that this person, from the european side of the atlantic, is cheering on this revelation and has good reason for it:

    Finally, we can talk about a different EU to the ideological goal of ever-closer-union, and do so in the hope of finding a more workable solution [before] a major threat does arise.

    The euro was a bet, but not one on the likelyhood of different Demos's responding in an convergent manner to the demands of a single Kratos.
    No, it was a bet that the inevitable cyclical downturn would permit the fiscal integration, necessary to make monetary union work, against the will of the people.

    The euro was built to survive the good times, because that was all political mandate allowed, but it was hoped that the bad times would catalyse its evolution into political union.

    Hasn't turned out that way, no, the euro has in fact damaged the harmonious prosperity between european nations.

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  2. Being on the SE fringes of "Europe" and in a quasi bankrupt country, I can only say that Europe has been an oxymoron. How can one have a single economic entity when the member states are allowed, or encouraged, or bribed (oh yes) to generate current account deficits with borrowed money?

    The executive summary for the Greek case is that we have been encouraged to overborrow, as a Stae and as an individual, we are proud owners of Miele appliances, French bridges, German aiports, HDW submarines (one has a certain ...tilt), Spannish Olympic Games, many Porsches and BMW's. All with money borrowed in euros, from primarily French and German banks.

    I personally do not owe a cent, I was against the Olympics, I thought the new (German) airport a waste of money and land, and I would much rather have submarines built by a local contractor with whatever purchased assistance. German courts have acknowledged bribes in the submarines case.

    We have also been heavily subsidized to discontinue traditional agriculture, and we are now being bullied into accepting nonsense renweable energy projects, good for German employment and exports, lousy for our pockets, idiotic from an energy point of view, aahhh but very Green.

    So, as a Greek I can accuse my polticians, or the ineffective local constitution, but it takes more than one to tango in dirty dances.

    I am a minority in advocating for the last 24 months a unilateral default and exit from the Eurozone.

    What all this will do to Greek defense is a whole different chapter...

    Happy New Year, 2012 won't be fun.

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