In These New Times

A new paradigm for a post-imperial world

Europe’s future with the Shanghai Cooperation Organization

Posted by seumasach on July 2, 2009

Christopher King


29th June, 2009

Christopher King argues that global economic reality calls for Britain and the rest of Europe to disentangle themselves from the politically dysfunctional and economically disadvantageous relationship with the United States and look east to the emerging economic powerhouses of the Shanghai Cooperation Organization.

”In approving the gift of massive taxpayer funds to the bankrupt private banks it is unclear whether the UK political class is in fact too stupid and incompetent to understand the economic realities or it has decided to identify with the interests of the rich and reinforce the stratification of the UK economy. Both are possible.”

It had to come. I discussed the factors underlying a move toward an alternative to the US dollar as a reserve currency here. It’s now on the table. China is calling for a new world reserve currency. In the meantime, Russia is attempting to have its trading partners use the rouble as a regional reserve currency, which probably means that it will expect payment for its gas from the EU in roubles. It’s probably a good thing as it will be a move toward integrating the EU and Russian economies.

It’s no coincidence that these announcements come immediately after the Yekaterinburg meeting of the Shanghai Cooperation Organization (SCO) just over a week ago. This group of countries comprises China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Observer countries are India, Pakistan, Iran and Mongolia. Significantly, the request from the US to attend as an observer was refused.

What would you expect? Those criminal sub-prime mortgage-based bonds blew big holes in banks’ assets in dozens of countries. I imagine that Russia and China are also fed up with buying US Treasury debt to finance the US’s standard of living and wars, at the same time as the US government criticizes, threatens and provokes them. When did you ever hear Bush, Obama or their Euro-propagandists Blair and Brown say anything nice about Russia or China?

In April, China bought no US bonds and its dollar bond holdings dropped for the first time in 11 months. The Chinese are concerned about the US attitude to its economy, its massive borrowings and the stability of the dollar. One estimate is that the Chinese lost USD 200 billion last year on the price of Treasury bonds (as investors demand higher yields on fears of inflation, the value of the bond goes down) and the depreciating US dollar. This is why confidence in the dollar is strained everywhere.

The European Union (EU) has demonstrated that close cooperation between nation states can be based on a model of mutual economic benefit rather than the Anglo-American models of exploitation or military action. This is the direction in which the SCO countries are moving. I invite you to consider the SCO’s basic characteristics in relation to the USA and EU:

Population (billions)

Area: sq km (millions)
SCO Members 1.5 27.5
SCO Observers 1.4 7.3
Total 2.9 34.8
USA 0.3 9.6
European Union 0.5 4.4

The Shanghai Cooperation group is enormous in population, land and resources whether or not we count the observers, who are presumably potential members. This is the area of dynamic growth.

If you can stand a shock, look at a map of the world and note the relative size of the European Union against the SCO group’s territory. Be careful not to include Ukraine, Belarus and Turkey that Google Earth appears to include in the EU. Crucially, you might note that the EU occupies a smallish corner of the same Eurasian land mass as the SCO group countries.

These simple, basic facts are the reasons why Europe’s future economy will be governed by its relationships with the SCO countries rather than the US. Europe shares a border with one of the most important – Russia, which actually has a railway from St Petersburg through Moscow to Beijing. There has been desultory upgrading of this important commercial and strategic link for some time, but with the economic trend in favour of the SCO countries one would expect this to be given high priority soon. It would be in EU interests to participate in this.

Let us also notice that the US is separated from the EU by about three thousand miles (4,300 km) of water. From a US viewpoint this is a vital military defensive separation. Its integration of US forces with those of Europe in NATO makes Europe the US’s forward defensive outpost against Russia. There’s military disadvantage to Europe in this as the US has the dominant role in NATO and the military initiative on European soil. It is also to the EU’s economic disadvantage, since the US has shown by its interference in European Union matters, its proposed missile bases in Eastern Europe and Georgian provocation of Russia that it intends to maintain a new Iron Curtain and inhibit closer EU-Russian economic integration.

Against this, what economic benefits does the US offer Europe? There appear to be none. Anglo-American economics is in ruins and what of the US-UK economies in future?

A week or so ago an interview with Tim Bond of Barclays’ Capital appeared in the Finacial Times (play 22 June  “Long view – the China-centric recovery”). What Mr Bond is saying is this:

  • Because China has the biggest foreign exchange surplus in the world and no debt, it has been able to make USD 1 trillion available domestically to maintain its production, growth and employment during the current recession
  • China will come out of recession first with strong growth, perhaps 9 per cent by late 2009 but with mixed effects for the rest of the world
  • The countries producing commodities, i.e. food, minerals and oil will benefit first and commodity prices will rise sharply
  • Prices will rise much more steeply for given demand than they have in the past because the world’s raw materials are approaching their limits; supply cannot keep up with demand due to Malthusian constraints
  • The rise in commodity prices will have negative effects on other industrialized countries, which will find it difficult to recover to their previous levels of production and employment
  • It’s possible that inflation due to high food and materials costs will keep industrial production down (in the US and Europe) while unemployment remains high, i.e. there will be stagflation (stagnant economies with high inflation)
  • It is the sheer scale of China’s demand for materials, accounting for nearly half global growth, that is putting pressure on world resources and other economies

These circumstances point clearly to a dramatically changed future from the economic trends that we have experienced in the past. Unless action is taken immediately, the economic trends in Europe, the UK and the US will be downward rather than upward as they have been since the agrarian and industrial revolutions. The world economic order has changed dramatically and unfavourably for the developed countries.

The political class in the UK is evidently incapable of understanding what is happening, much less of formulating effective strategies for the future. There is an assumption that in the normal course of events the present recession will soon end, the economy will recover to its previous levels and growth will continue as in the past. That is not the case.

In future, unless action is taken, the structure of the UK’s society will become sharply stratified in terms of welfare and disposable income. Socio-economic strata have always existed. Until the present time the trend of increasing prosperity has enabled even the unemployed to maintain a reasonable standard of living. Where deprivation has been mentioned, it has been relative. In future, with a shrinking economy, absolute deprivation will begin to be seen. For some persons, obtaining the basic necessities of life, food, clothing and housing will become difficult. Extreme wealth will co-exist with extreme poverty. This is the usual case outside Europe, the US and most developed Asian countries.

In approving the gift of massive taxpayer funds to the bankrupt private banks it is unclear whether the UK political class is in fact too stupid and incompetent to understand the economic realities or it has decided to identify with the interests of the rich and reinforce the stratification of the UK economy. Both are possible.

The general framework essential for economic survival in a resource-scarce world in the immediate future, i.e. from 2009 onward, is:

  • The US must dismantle its dysfunctional military-industrial complex and reorganize its use of resources and production
  • The UK must reform its parliament and devise a more efficient and egalitarian economic model.

Above all, Europe’s and the UK’s attachment to the US in some supposed special relationship has no economic advantages beyond those that it might have to any other country. Indeed, the current NATO relationship is disadvantageous to Europe. Recent experience is that it has disadvantageously tied Europe to US foreign policy in relation to Iraq, Afghanistan, Israel, Iran, Georgia and Russia, a key member of the emerging Shanghai Cooperation Organization and Europe’s natural partner in mutual development.

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