Tuesday, November 01, 2011

A Suggestion as to the true purpose of the European Economic Union

If you look at the EU as a monetary union it never made a lot of sense, as the countries involved pursued radically different economic policies without a centralized control and countries ignoring poicy agreements and debt spending limits willy-nilly. Thus the tension today.

Hard working, parsimonious Germans set to retire at 67 are tied monetarily to, and paying for, spendthrift Greeks retiring at 50 on full government pensions.

After all, the Germans are rather fed up with bankrolling a Greek economy (and other problem European economies) that constantly spends more than it creates and exists mainly to provide feather-beds for state workers.

For example, the Greek railway system's debt is a rather stunning example. Greek rail has losses of over 1 billion against its $250 million income, each year, in, year out. This is, of course, completely unsustainable.

That Hellenic railway debt, at 5% of Greece's annual GDP isn't even counted as part of the Greek government's debt obligations causing the current crisis. But, as a state guaranteed entity the debt will fall on the state and add to its total debt as there's no one else to bail out Hellenic rail. Think Freddie Rail.

Now it looks like Germany and France will have to bail out the Greek's and Italian's profligacy or the whole Euro experiment, along with a few banks invested in PIIGS' bonds may collapse.

So a European Monetary Union isn't working out too well as it runs out of money.

However, if you think of the EU not as an economic union but instead as a union with a twofold purpose -

1. To constrain Germany and end its 50 year cycle of occupying France and
2. As a vehicle for reparations for World War 2

Then it all begins to make some sense.

Germany has been prevented from its natural pattern of kicking the French hither and yon, and has also been admirably restrained in not marching through Belgian territory on its way to to do so. Likewise, German tours de force of Eastern Europe have also ceased.

Goal #1 has been a rousing success.

Goal #2, The Euro as German reparations vehicle also seems to be promising.

After all, the Versailles reparations initially demanded were 785 billion in today's dollars, reduced down to $81 billion after the Lausanne Conference Treaty.

Today, Germany is going to be paying much more than that, and has already committed to $287 billion to the bailouts with likely further contributions to a 2 trillion big PIIGS bailout fund being necessary to make a full bailout.

Goal #2 looks to be well on the way to succeeding.

So who gets to be the one to tell the Germans that the European Economic joke is on them?


Scott said...

A side-snark, inspired by your citation of Hellenic Rail: Michigan is about to seriously embark down that same state-sponsored rail program, linking a few metro-Detroiters with the rest of the state.

I'm sure it will all turn out okay, because American socialists are so much smarter than European socialists. They'll be able to make that thing pay for itself. I'm sure of it. And if it doesn't, maybe the Canadians will bail us out.

Aaron said...

Yes, rail is very SW(D)PL.

But don't worry, I'm sure it will work out much better here. After all, there are more taxpayers to fleece in order to continue to subsidize on it.