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Generational Dynamics Web Log for 1-Dec-2010
1-Dec-10 News -- Europe's financial crisis spreads to Italy and Belgium

Web Log - December, 2010

1-Dec-10 News -- Europe's financial crisis spreads to Italy and Belgium

The euro and the League of Nations

Europe's financial crisis spreads to Italy and Belgium

Last week (see "27-Nov-10 News -- Europe is torn apart as financial crisis hits Spain"), we showed you graphs of bond yields (interest rates) for four of the PIIGS countries -- Portugal, Ireland, Greece and Spain.

Now, here are the graphs for Italy and Belgium:

10-year bond yields for Italy and Belgium -- year preceding November 30, 2010 (Bloomberg)

10-year bond yields for Italy and Belgium -- year preceding November 30, 2010 (Bloomberg)

These interest rates are still around only 4-5%, not the 9-12% rates we were talking about for the other countries. But you can see from the graphs that they're rising parabolically, and that's causing EU officials to become nervous and panicky.

Ambrose Evans-Pritchard, writing in the Telegraph, compares the situation to World War II, and says that only one solution remains: Create a "total fiscal union to all members of the eurozone before everything falls apart, and to be enshrined in EU treaty law forever."

Under this proposal, "All debts of Greece, Cyprus, Italy, Spain, Portugal, and Ireland will be fused immediately with German debt; a single treasury will control spending, and issue euro-bonds for all Euroland."

According to an analysis in the Independent, investor panic "appears to be gathering pace." The article notes that, "Markets were also beginning to price in a second Greek crisis, as they digested the news that the payback by Athens of the €110bn in loans granted in May would be extended from 2015 to 2024." A bailout of Spain would "probably bring the EU/IMF €770bn rescue fund to breaking-point. Italy, the third largest economy in the euro area, really would be 'too big to save.'"

Ever since the credit crunch begain in August, 2007, central bankers and fiscal authorities have used one monetary easing trick after another to head off panic. In 2007, it was only necessary for the Fed to lower the Fed funds interest rate by 1/2%. Each crisis since then has been bigger than the previous one, and each monetary easing trick has had to be bigger than the previous one. This year's biggest was the EU's €770bn ($1 trillion) shock and awe rescue fund that accompanied the bailout of Greece in May.

So what's next? Europe's financial markets are in full-scale panic. Will Germany and France decide to recommend the "total fiscal union" of all eurozone members? I really don't think the German people would stand any of that, but it's hard to predict politics.

At any rate, things are moving quickly now, and we should see something, one way or another, within a short while.

The euro and the League of Nations

In a column entitled, "The Euro has no Clothes," appearing in the NY Times, Roger Cohen made a rather astute comparison between the euro currency and the League of Nations.

"Is the euro to the early 21st century what the League of Nations was to the early 20th: a fine idea that became a political orphan and was condemned to unravel?
As Ireland follows Greece in the great bailout domino game, and Portugal and Spain loom, the euro can no longer take its survival for granted just because its collapse would be unthinkable.
Both the League of Nations and the euro were conceived for worlds that vanished. The League emerged in 1919 from the ashes of World War I with the aim of preventing another war. But its idealism was an early victim of Hitler’s violent nationalism. Changed forces in Europe could not be checked by its covenant.
Jacques Delors’s “Report on Economic and Monetary Union,” laying out the path to a single euro currency, was presented in early 1989 just as all changed utterly.
Within months, the Berlin Wall fell, Germany was reunited, the Soviet empire imploded and Yalta’s imprisoned European nations were freed. ...
Yes, the League of Nations collapsed, but it did lead to the United Nations. The euro may also unravel but the idea is too good not to return in force. Between the League and the U.N. lay catastrophe. From here to euro 2.0 is not going to be pretty."

From the point of view of Generational Dynamics, the League of Nations and the euro currency were both created at roughly the same time in the generational cycle: during an Unraveling era just preceding a crisis era and a world war.

As I've pointed out many times, the survivors of World War II created the United Nations, the World Health Organization, the International Monetary Fund, the World Bank, the Rockefeller Foundation (Green Revolution), and other international organizations not only to prevent a new world war, but also to end poverty and starvation and to improve health. This happened as World War II ended, and could not have happened at any other time. That's the way the world works.

There are many big projects floating around these days -- the European Union, the euro currency, universal health care are examples. All of these projects are doomed to failure, like the League of Nations, and will be destroyed by the approaching world war. But once the war ends, all of them will be resurrected and implemented by the survivors.

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As we've described many times, a major fantasy of Iran's hardline leaders, including president Mahmoud Ahmadinejad, is that they will gain hegemony over the entire Arabian peninsula, and govern the Muslim world in the same way that the Ottoman Empire governed prior to its destruction. We've pointed out that this fantasy can never be realized because the Sunni Arab population will never agree to be governed by the Shia Persian Iranians. Now leaked confidential memos from the Wikileaks dump have demonstrated the contempt that Arab states have for Iran, including some that urge the US to attack and destroy Iran's nuclear facilities. LA Times

China is denying that it has any control over North Korea, and contradicts claims by Americans that China "is not behaving as a responsible world power." For example, Chinese Premier Wen Jiabao said that China opposes any military provocation on the Korean Peninsula, and called for the utmost restraint from all relevant parties and joint efforts by the international community to ease tensions. The real problem is the joint military drills by South Korea and the United States, which they hope will deter North Korea, but instead will just further anger the North Koreans, and press them to take more aggressive countermeasures. Xinhua

(Comments: For reader comments, questions and discussion, see the 1-Dec-10 News -- Europe's financial crisis spreads to Italy and Belgium thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Dec-2010) Permanent Link
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Generational Dynamics Web Log for 1-Dec-2010 1-Dec-10 News -- Europe's financial crisis spreads to Italy and Belgium

Europe's financial crisis spreads to Italy and Belgium

The euro and the League of Nations

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Generational Dynamics Web Log for 1-Dec-2010
1-Dec-10 News -- Europe's financial crisis spreads to Italy and Belgium