Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.688

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Germany fought World Wars I & II having determined that the reunification of Europe, which had not once been unified since the collapse of the Roman Empire, was Manifest Destiny, but succeeded only in leaving behind a massive carnage of victims.
Germany has had an earnest desire embedded in the EU (European Union) and euro common currency system which began in 1999. Germany knew from the outset that providing those European nations that were inferior in terms of economic competitiveness, innovation, and currency credit with a currency (the euro) equal in creditworthiness to Germany would result in a credit bubble in the euro zone, which would in turn naturally trigger a real estate bubble. Just as Germany predicted, the euro zone nations rode the real estate bubble on a bubble-driven growth track, and, following introduction of the euro, the southern European nations in particular increased imports from Germany, which led to deteriorated current account balances and the accumulation of twin deficits. Meanwhile, with the benefit of the euro common currency, the euro zone nations were now able to borrow under favorable conditions above and beyond the capabilities of their real economies, which led to their burying their twin deficits by the repeated easy issuing of government bonds (debt). The result is today’s situation of financial collapse and sovereign default crisis. Euro zone government bond yields other than Germany’s have now reached the dangerous level of 7%, and even France’s government bond yield has risen sharply and the difference in interest (spread) with Germany has expanded. Looking at today’s euro zone finance and sovereign debt situation, the euro nations seem to be like a planet spinning around while being pulled by the gravitational force of a sun called Germany. Greece, Italy, Portugal, and even France have been driven into a financial crisis, and in the future, budget constraints will be tightened, and these countries’ already negative primary balances (balance of annual revenues and expenditures) will worsen even further.
As a result, it is clear that in the future, it will be impossible for these countries to repay their sovereign debt on their own. In other words, the euro zone countries, with the exception of Germany, are already potentially defaulters of their sovereign debt. If, moving forward, the euro nations reduce expenditures, raise taxes, and restructure in order to restore their fiscal health, protest movements by the people will intensify, which will make it difficult to achieve fiscal soundness. As the euro nations’ debt default draws closer, there is call for drastic support measures, such as the purchase of government debt by the ECB (European Central Bank), considered to be the lender of last resort. However, this is being made difficult due to strong opposition by Germany. There have also been many calls for SDR (Special Drawing Rights) of the IMF (International Monetary Fund) to be exercised. However, this is also not possible because of opposition by the U.S. Republican party, which holds the power of veto on the IMF board of governors. The collapse of the euro could mean opportunity for a rebound of the dollar in Europe so it is therefore natural that the U.S. would be opposed to IMF euro zone support.
It almost seems as if there is some strong intent at work to drive the euro nations into financial collapse and debt default.
On November 16, EU leaders resolved that the EU should not only oversee the spending of individual member countries, but have direct involvement as well.
It goes without saying that the strong intent by Germany for the EU to become an empire is at work behind the scenes.
If the euro-region plunges into a state of fear by sacrificing Greece through its debt default, this will be sufficient to induce consensus in one fell swoop for the euro nations to become an EU empire.
Once it is known what Germany is in favor of and opposed to, Germany’s ambition to become leader of the EU empire will become clear.
If Europe becomes an EU empire, it will no longer be called “old Europe” by the U.S. For Japan as well, with Germany as its former ally, Europe will become closer than ever. As for the U.S. it will be like an imposition of silence on a group of old men.
Europe’s political process moving forward will proceed as follows: first, the debt default early next year by sacrificial Greece, followed by defaults by Italy, Portugal, and Spain, then financial consolidation by the EU of the nations of Europe, and finally, birth of the EU empire.
Preceded by the presidential election in the U.S., the world looks like it will become hectic indeed.
The “21st century change” that president Obama called for during his election run is in the process of occurring, not in the U.S. but rather in Europe.
For Japan, I suppose it is “everything comes to he who waits.”