Collision Course

[Guest guest]

http://www.truthout.org/docs_2005/032705Y.shtml

 

Collision Course

By Stirling Newberry

t r u t h o u t | Perspective

 

Sunday 27 March 2005

 

Europe is in the process of trying to pass a new constitution,

and it is going to be a delicate business. Le Figaro reported that,

for the first time, more than half of French surveyed were against the

new constitution, and the opposition asked Chirac to put his own

political weight behind its passage.

 

Why should this be of interest to the US, and even more so to

the opposition to Bush? Because Europe and the Bush are on a collision

course, over a deep issue: what kind of world we will live in. It is a

global game of chicken over wages and prices.

 

What is this division? George Bush and Alan Greenspan are

pushing a world where materials prices are higher, wages are lower,

and the profits of large corporations are higher. They are doing this

by running very high budget deficits, having very low interest rates,

and using China as a vast engine of deflation to keep wages, and thus

consumer inflation in line. This leads to what Professor David Hackett

Fischer called a " money drought " in his book The Great Wave. We can

see the results: oil has gone from a rock bottom $11 a barrel, to

hovering over $55 dollars a barrel. Real wages in the US have barely

moved, and yet Wall Street banks are showing record profits. Bush

wants everywhere to look just like here: high profits, low wages, and

a rush for mining and drilling.

 

This catches Europe in a bind, because it imports energy, and

manufactures goods. The higher material prices go in real terms, the

more they have to manufacture to buy energy. The European Central Bank

warned about the dangers of increased material prices, and painted a

picture of high European unemployment combined with sluggish growth -

and said that they were committed to staying the course of fighting

inflation. This hard stance has meant that the dollar has fallen

dramatically against the Euro, the Swiss Franc, and the British Pound

Sterling.

 

This discipline from Europe is not an issue of left or right:

center-right, center-left and left governments have all backed strong

currencies. It is not only the Eurozone, as Great Britain and

Switzerland show. Instead, it is about holding the line on falling

real wages, and being willing to withstand the pressure from the

Federal Reserve and United States. Europe has decided to maintain real

wages, and not buckle. Either the US Federal Reserve wins, and Europe

devalues, or the US runs out of money to borrow, and must dramatically

cut expenditures.

 

Many have commented that the current budget and trade deficits

cannot be maintained or sustained; what is not as widely written about

is whether Europe can withstand the political pressure of having

Germany with 12.5% unemployment, and 8.9% unemployment across the E25

nations. The pressure is for Europe to throw in the towel, lower

interest rates dramatically, and accept dramatically lower wages in

real terms.

 

Through most of 2002-2003, it seemed that Europe was alone:

most of the other economies in the world devalued to match the dollar,

and the Asian central banks bought US debt, allowing the US to finance

its borrowing binge. However in 2004 Korea and Japan began " limiting

their dollar exposure, " which is central bank speak for buying more

Euros. Even the Chinese, pinched by higher steel prices and facing a

hard slowdown that threatens their internal security, has started to

be more assertive.

 

If Asia swings away from the Bush-Greenspan inflation policy,

then the United States will have to come to terms quickly. If it backs

that policy, Europe will face increasing internal pressure. Already

" blaming Europe " has become something of a pastime in France, and

without the European Union, no single nation in Europe is strong

enough to fight the Fed by itself.

 

In 1987, when the US and Europe last disagreed so vehemently

about monetary policy, there was a stock market crash that rocketed

around the world. Cooler heads prevailed, and agreements were reached.

This time, however, Bush has promoted the same gaggle of

unilateralists that pushed this policy in the first place. Bolton,

Rice and Wolfowitz are his way of telling Europe that he won't back

down, and instead is willing to have a replay of the collapse of

Bretton-Woods under Richard Nixon.

 

So if you want to know why Europe is increasingly estranged

from the US, the reason is simple: by printing too many dollars, Bush

is trying to tax the Europeans to pay for his borrow and squander

policies. By appointing Bolton, Rice, Wolfowitz and other neocons to

high positions, he sends the signal that he expects Europe to capitulate.

 

It is a global game of chicken, and it is the working people

of the world who are going to get plucked should reason not prevail.

And reason could, still, prevail. The amount of growth in our " black

gold " world economy is based on two factors: how much more oil we can

extract, and how much more we can make with that oil. These two

numbers together are the pie to be split. Currently, the United

States, by having an inflationary monetary policy, can force more of

that growth to go here rather than elsewhere. Not because the US is

doing better, but because oil is priced in dollars and protected by US

carriers. A new Bretton-Woods system could divide this global growth

equitably, rather than by Federal Reserve fiat. There would be

restructuring: more use of technology, changes in land use,

changes in government regulations, but the stress would be distributed

around the globe, forcing all of the developed and developing nations

to make painful choices.

 

But right now the house of Saud and the house of Bush see no

reason to do this, and they have enough allies in countries eager to

keep resource extraction economies to try to force the issue. However,

increasingly, the rest of the developed world is turning against this

system. And that means, as markets are wont to do, there will be a

correction, and it will be short, sharp, sudden and surprising. The

question is: will Europe run out of political capital before Bush runs

out of capital to borrow against.

 

Stirling Newberry is an internet business and strategy

consultant, with experience in international telecom, consumer

marketing, e-commerce and forensic database analysis. He has acted as

an advisor to Democratic political campaigns and organizations and is

the the co-founder, along with Christopher Lydon, Jay Rosen and Matt

Stoller, of BopNews, as well as being the military affairs editor of

The Agonist.

 

-------

 

 

 

 

© : t r u t h o u t 2005