In These New Times

A new paradigm for a post-imperial world

The real money war is not over devaluations

Posted by smeddum on January 3, 2011

Author: Dionysios (Dennis) Kefalakos
3 January 2011 –

neweurope

The ” political clout” of  US and Britain is largely hubris and delusion

Brussels-Come the spring of the year 2013 and Eurozone would be a reborn first rate world economic entity, have the Franco-German plans for the euro sovereign debt rearrangement is successful. Until that time the money war would be ranging, with the English language print and digital press having declared on many occasions the end of the euro money. It is not about highly competitive but officially demonized devaluations as many believe, but the very existence of the monies.

The truth is that the euromoney right from its appearance at the turn of the Millennium has created a lot of problems to the British pound and to a lesser degree it has undermined the world dominate position of the dollar. In any case the euro has changed the way financial markets function. For one thing every financial firm based in New York or London could not any more take it for granted that its dealings in the main European markets, being it stocks or bonds, are to be always profitable. Mainland Europeans are no longer willing to let others take advantage of their economic growth, without paying an “entry fee”. There were two incidents that make this pretty clear to everybody outside Europe. The first incident had to do with the stock of the famous German car manufacturer Porsche, which also owns around thirty percent of the much larger car producer Volkswagen. Some US “investors” thought to earn some easy euro and tried to play with the stock of those firms. At the end they paid a dear price and their losses amounted to billions of dollars. The other important incident is around the sovereign bonds issued by Greece. Here again a number of American and British financial “players” tried to make billions out of playing short those bonds.

The outcome of this operation is not yet clearly decided but it looks like those “investors” are again to write large losses instead of profits. Today the investor relations www site of Porsche warns everybody with the following announcement: “The Porsche Automobile Holding SE is responsible for the stock of the operating subsidiary, Dr. Ing. h.c. F. Porsche AG, and for the investments in Volkswagen AG. With the new structure, Porsche ensures that the autonomy and independence of the traditional Stuttgart-based company remain fully protected. This is the main purpose of separating holding and operating activities. At the same time, the holding also represents a single company responsible for the management of stock”.

So the terms of the new financial play in the worldwide arena are now rewritten with the euro is fighting for a prime position. What New York and London fear most is that Eurozone’s economic expansion all over the world, can be financed with bond and stocks issued in euro, with the US and Britain being left entirely outside from huge regional markets, like East Europe and Russia, both in the financial and the industrial facets.

For example the modernization of the Russian railways is a huge project in itself that can be exclusively designed, engineered and financed from west European industrial and financial centers in Frankfort, Paris and Milano.  New York and London may be left out, just to watch the successes of Eurozone’s economic might. All those issues are now being fought for, in the midst of the world gravest sovereign debt financial crisis. New York and London want this crisis to unfold solely on mainland European soil. And this despite the fact that the dollar’s and the pound sterling’s value is not based on the solid ground of exports as in the case of the euro but on the political help of Beijing and the oil producers Kingdoms of the Persian Gulf. On the other hand euromoney’s position in the world markets is wan with the sweat of German metal workers, Paris hoteliers and Roman restaurateurs, despite the fact that the European PIGS do not entirely share this mainland European vision of the future.

In the everyday facet now, the euro has presently to prove that it can self finance the PIGS’s problems, because there will be no help from elsewhere. The IMF’s involvement in the support mechanisms for Greece, Ireland and probably tomorrow Portugal does not represents American or British money because it is more than analogically financed by the Eurozone member countries contributions to IMF’s capitalization. All along this exercise, Eurozone authorities will be having to also make face to the rest of the world antagonism. Even certain Russian quarters are not at all happy to see the euro coming out unscratched from this battle. In any there will be for sure some scratches in the face of the euro, because such fights are not without victims. Average Irish and Greeks income earners are already felling this cost deep in their family budgets. The same is true for the Duisburg and Lyon metal workers and the Dutch, the Austrian and the Finish taxpayers. It is actually a pan European effort to save the euro money.

In reality there is no danger whatsoever for a total collapse of the European single money. On the other hand though Washington, London and why not Beijing does not want to watch the euro just losing some of its foreign value, thus make the European exports of goods and services more competitive. That is why the English language press and certain think tanks in Britain and Washington openly speak of the extinction of the euro. It seems that now some percentage losses in foreign value are not at all within the targets of the other side. The total victory is the sole purpose of the confrontation. At the point we have arrived in this war, things are so advanced that everybody is trying to cut a piece of the cake. For example China did not hesitate to help Greece financially, in exchange of secure and low price foot hole on Eurozone’s real soil. Beijing knows very well that by helping Greece it helps the euro gain in value vis-à-vis the dollar. And Beijing goes along with its Greek plans despite the huge Chinese investments in dollar denominated assets.

Obviously at this level decisions are not taken with short term criteria. Decision makers think not only globally but have before their eyes a long time horizon. The time of the New York dealers who plaid in every market with a few hours horizon has being a trait of the past. Now all major financial houses have remembered the existence of the Political Economists and even the Swedish Academy’s Nobel Prize award board in Economics forgot the perfect market mathematicians and chooses socially minded economic analysts, even if their major is that they work as analysts in… newspapers, American of course.

As in any war however none of the adversaries is to disappear. It will be so crippled though so as not to present a threat to the other. That is why Germany and France have placed all the reserves they have in the European Financial Stability Mechanism (EFSM around 60 billion euro) and the European Financial Stability Facility (EFSF around 440 billion euro). And this is real money not counting the practically unlimited quantities of it, that the European Central Bank can produce by buying Eurozone sovereign bonds from holders of such assets. No doubt all arms are to be used in the money war, but Europe has better chances than the US and Britain because Germany, France, Holland, Finland and Austria have accumulated real reserves through past trade surpluses. On the other side of the fence US and Britain have more political clout over the entire planet than Eurozone. And the players are to put in this battle, whatever they have in their arsenal.

Dennis Kefalakos is the Editor-in-Chief of New Europe newspaper

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