European Financial Crisis May Result in Significant Political Changes
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European Financial Crisis May Result in Significant Political Changes
The world looks different from the heart of Europe.
English-language television channels in hotels are not a given, and sometimes it's difficult to even find a newspaper in English. This is not meant as a criticism—it's even more difficult to find a German- or French-language newspaper in the Midwest of the United States. But the shortage of English-language media can be frustrating when you like to keep up on what's happening in the world.
CNBC Europe was offered in one of the hotels I stayed in during a recent visit. As its name suggests, this is a European-based version of CNBC, an American financial news channel. It's very European-oriented, with business news from all over Europe and Turkey.
There was some news of the BP oil spill in the Gulf of Mexico but not much. Most of the news was centered on the European financial crisis and attempts to resolve it.
One commentator remarked on how there are two clearly differing approaches to the current international financial crisis: what she called "the Anglo-American model" and the "Franco-German model." Whereas the United States believes that the solution to the international debt crisis is yet more debt, Germany model advocates that only tight money will get us out of this mess. Even the new British government has reined in spending.
There was a great deal of talk about what used to be called a two-tiered Europe, although I did not hear that term used once on CNBC. The idea was expressed frequently, though, as a solution to Europe's crisis—dropping the "PIIGS" (Portugal, Ireland, Italy, Greece and Spain), while the other 11 members of the eurozone would surge ahead with an even closer union, built around Germany. It was also speculated that some of the PIIGS might drop out themselves, since they would then have greater freedom to maneuver.
Meanwhile, the recent 25 percent fall in the value of the euro has not done Germany great harm. The Wall Street Journal's European edition reported June 9 that manufacturing orders for German products is up 29.8 percent over last year ("Industrial Output Grows in Germany"). It was also pointed out on CNBC Europe that the average value for the euro during the last 10 years has been $1.17, so the currency is still higher than the historical average. The fall in the value of the euro has boosted international orders for German products. Other countries in the eurozone are also benefitting ("Euro Zone Posts Trade Surplus," Wall Street Journal, June 16, 2010).
But austerity was the dominant subject on the financial news channel. Faced with massive public spending cuts, European nations are set to experience great austerity in coming years. It should be mentioned that the United States is likely to follow, as American states are in no better shape than European countries.
Germans are not inclined to follow America's example of more stimulus money. The popular idea taught in American schools is that only big government spending programs got the United States out of the Depression in the 1930s. German memories are different.
"The two economic events which were seen as having had the most decisive influence on modern German history were, firstly, the Gründerkrach [Founders Crash] of 1873-4 and the subsequent period of stagnation...and, secondly, the Slump of 1929-32, usually seen as the main cause of the collapse of the Weimar Republic. In the popular mind, however, equal if not greater importance has long been attached to the 1923 hyperinflation, the 'memory' of which is frequently cited to explain the relative stringency of recent...German monetary policy" (Niall Ferguson, Paper and Iron, 1995, introduction).
Of course, there is little "memory" of these events other than what people learn in school or from a book or documentary, just as Americans have learned that the solution to an economic slump is big spending. These are clearly two different approaches. It remains to be seen which one will win out.
Bible prophecy shows that a final union of 10 kings or leaders will form in Europe, a modern successor to the Roman Empire. "The ten horns which you saw are ten kings who have received no kingdom as yet, but they receive authority for one hour [a short time] as kings with the beast. These are of one mind, and they will give their power and authority to the beast" (Revelation 17:12-13).
Eighty years ago, the international financial crisis resulted in significant changes in Europe. The slump that followed the 1929 crash led to the collapse of democracy in a number of countries, not just Germany where Hitler's Third Reich replaced the democratic Weimar Republic. Right across Europe fascism triumphed.
I'm not suggesting that fascism as it was could triumph again, but democracy as it is today is unlikely to weather the severe austerity storms that lie ahead. Greece has seen massive riots and strikes following an announcement of cuts in public spending. Public order will need to be enforced even as people see their standard of living drop dramatically. Portugal, Spain and Greece were fascist dictatorships until the 1970s—it's not inconceivable that they could turn once again to a strong centralized form of government.
Revelation 17:13 shows that such a development will happen among the 10 as "they will give their power and authority to the beast." The "beast" refers to the supreme federal leader, the dictator who will emerge at the top of the new union, as well as the empire he rules.
Whenever I travel through Europe, I like to read The Wall Street Journal's European edition. It has a good feel for developments across the continent. The headlines on June 9 included the following: "Spain's Government Workers Begin Strike"; "UK Should Slash Debts, Says Fitch"; "Budget Fears Take Over Dutch Voting"; "Hungary Moves to Close Budget Gap"; "Greek Inflation Jumps, Lifted by Fuel Costs, Taxes"; "EU Aides Urge Joint Planning." The last item shows the push for greater financial integration.
The French and German leaders met a few days later and agreed on the need for greater control of national budgets to avoid another Greek or Spanish crisis. This would mean a far greater loss of independence than the British would agree to. Others may feel they cannot abide by the strict rules. The outcome could be a very different Europe.
Odds of a prolonged slump are rising
Further food for thought on the global financial crisis, and the implications for Europe and the United States appeared June 18 on the Eurointelligence.com Web site.
Quoting from U.S. economist Paul Krugman in a segment titled "Krugman says it's back to the 1930s," the Web site states: "German deficit hawkery... has nothing to do with fiscal realism. Instead, it's about moralizing and posturing. Germans tend to think of running deficits as being morally wrong, while balancing budgets is considered virtuous, never mind the circumstances of economic logic.
"German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover. Europe's troubles are also leading to a weak euro, which perversely helps German manufacturing, but also exports the consequences of German austerity to the rest of the world, including the United States.
"How bad will it be? Will it really be 1937 all over again? I don't know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day."
Eurointelligence.com also quoted from the former chairman of the Federal Reserve, Alan Greenspan, who warned in The Wall Street Journal that "the US might soon face a borrowing limit," which would mean an end to stimulus programs and necessitate austerity measures similar to the nations of Europe.
The BBC's Web site June 18 quoted President Obama as warning other nations not to reduce their debts too quickly, "as it would put economic recovery at risk."
The article later noted, "But Mr. Obama said the US would still aim to halve its own deficit by 2013. The US budget deficit would be cut to 3% of GDP by 2015, the president said" ("Obama Warns G20 Leaders on Budget Cuts").
Interestingly, 3 percent is the eurozone limit rule, which has been in effect for a decade, though countries like Greece did not abide by the rule. This is what's behind the push for stricter controls in Europe.
Looking at the worsening financial situation from both sides of the Atlantic gives an interesting perspective. Whereas approaches are certainly different, the end result may be the same in both Europe and the United States—austerity and a prolonged slump! WNP