TILL DEBT DO US APART
Germany's POV
Same stuff, different days 1.1
You gambled and fumbled in a million ways 1.2
A decade of cheats, a decade of lies 1.3
No longer will work, your alibis 1.4
The banks are furious, the debt is due 1.5
The time has come to ring-fence you 1.6
It is too late to tell I told you so 1.7
Out you go, out you go ... 1.8
Greece's POV
The rise of Prussia, the fall of the Third Reich 2.1
We watched it all, with fear with fright 2.2
Across the pond, lies the American dream 2.3
Let us build it here, with Germany and team 2.4
First amongst equals, not a solo lead 2.5
A European Germany, not a Germanic retreat 2.6
Free trade, single currency 3.1
Many nations, still Europe's destiny 3.2
With barriers down, with Germanic productivity 3.3
Credit boom, became Southern reality 3.4
Bankers and a new vision for Europe 4.1
1999 and structured credit products 4.2
Bye-bye to 19% interest rates 4.3
Happy days in a happy place 4.4
2.2 - we refers to European nations
2.3 - pond refers to Atlantic Ocean
2.5 - paraphasing Chancellor Helmut Kohl who was the key architect of the fall of the Berlin Wall and the Maastricht Treaty which essentially created the new Europe
2.6 - here retreat refers to a place that is a secure resting place for troops
3.2 - destiny refers to geopgrahpic and cultural factors that make the presence of several nations in Europe unavoidable in the current age
3.4 - Southern refers to Southern Europe
4.2 - Euro was first introduced on Jan 1, 1999
AA
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The Munich Security Conference concluded on Feb 05. It hosts a fairly open exchange of views amongst global policy, business and sovereign leads.
I summarize few of the speeches below.
Yours, enjoying London blanketed in snow analyst,
AA
My Summary: In Spain over 45% of the population under 25 is unemployed. Similar numbers for Italy and Greece. People in Europe are increasingly questioning whether they are part of a system that benefits them as well or are merely units to be used and profited from. The financial crisis is a crisis of trust. If actions fall short of restoring the trust then Europe would fall into disunity. With disunity Europe will lose the ability to shape international policy and instead each European nation would have to submit to externally recommended policy handouts. The young in Europe have not seen war and we must keep it that way. Political risks overwhelm risks of collective sovereign defaults. Europe needs both austerity and growth – an impossible combination so a fine balance is needed. The good thing about the European crisis is that balance in Europe can be restored endogenously. To restore the balance, Europe needs greater fiscal and political union.
My comment: Dr. Ackermann conspicuously does not mention a move towards a greater benefits or wealth transfer union as part of the solution.
My Summary: Allianz provides catastrophe insurance globally. Over the past few decades catastrophes have both increased in frequency and intensity. This has increased the cost of damage insurance and the cost of insuring global supply chains. In the future, Allianz would find it increasingly difficult to provide the value it has delivered unless Europe tunes in one voice on Climate Change Policy. Another risk to Allianz is regulatory drive towards unbundling energy production, transmission and distribution. This will reduce investor flexibility, create new regulatory barriers and decrease liquidity. This drive in the energy sector parallels financial sector regulators’ drive towards unbundling banking services.
My comment ref insurance of global supply chains: Today, Allianz and the preponderance of US naval fleet are fulcrums on which the seamlessness of global trade rests. Without these fulcrums consumers cannot squeeze value out of continentally spaced economic endeavors. Without these fuclrums, the law of comparative economic advantages is a mere myth. We take the existence of fulcrums for granted, don’t we? Stability and global cooperation is more fragile than what people who are not responsible for ensuring these believe.
My Summary: Asia’s history is different from that of Europe. Asia has been a victim of colonialism. The West should recognize that Asians have the right to adapt development and peace initiatives to local conditions and the principle of gradual change in China’s context must be appreciated and understood by all. There is talk of power shifting from the West to the East. This is good for all, including the West as it occurs at a time when Western economies have been declining. Asia’s increasing wealth is the result of ingenuity and entrepreneurship of Asians. Asia’s wealth will help sustain employment in the West. China has been a partner in peace and stability in Asia. China has peacefully resolved border disputes with 12 nations. China continues to be an important partner in peace in the Korean Peninsula through a pivotal role in six-party talks. China will not take lightly reinterpretation in certain quarters of its own peaceful economic rise as the rise of a militaristic hegemon. Also, China is against the emergence of multilateral security architectures in Asia. China does not seek to impose its development model on anyone and expects the same in return.
My comment: I have long believed that if you owe your banker thousand dollars then it is your problem but if you owe him a million dollars then it is his problem. Upon appropriate scale transformation, the same should hold true where the banker and debtor are nation states. As America’s largest creditor, Zhijun does not appear concerned about debt that America continues to pile; debt that America neither has the ability nor the intention of repaying. What gives in?
My comment: Zhijun used the collective pronouns “we” or “us” when presenting his views except when he is talking about what China has done for the good of the rest of the world. For him, it is axiomatic that China’s view is Asia’s view.
My Summary: Sikorski echoes former German Chancellor Kohl’s view that ‘Germany is too big to be the first amongst equals but too small to dominate Europe’. In doing so, he quotes Kissinger who he less agrees with – ‘Germany is too big for Europe but too small to dominate the world’. Therefore Germany should not have hegemonistic intentions and should instead value its, still, very privileged place in Europe, that of Europe’s largest shareholder. Should Germany continue to work towards European solutions rather than be driven by hegemonistic intentions then it will, in Poland, find a very willing partner that will help Germany achieve its goals. Warning Germany to not even attempt to be a hegemon Sikorski quotes a WWII Polish Marshall who when asked why Russia is always a bigger security challenge than Germany said that whenever Germany gets too big for its own boots, Poland automatically has allies – powerful words indeed from a Polish minister spoken on German soil. He backs those up with theory and numbers as follows. The numbers are stacked against Germany and Germany fails the test of theory:
(i) The hegemon must have a preponderance of economic power: In 1949, the year of foundation NATO, the US economy was $1.3T, larger than the economies of Britain, Germany, France, Italy and Spain put together. This should be noted since today even though Germany is very rich, its GDP is $3.1T which is merely 25% more than that of France. Secondly, Germany's enormous trade balance is regional rather than of global signifiance; 9 out of its 10 largest trading partners are within Europe. Thirdly, a hegemon should command a large share of resources (which Germany lacks).
(ii) The hegemon must have a preponderance of military power: It should be a net provider of security to support the conduction of global trade. As of date the US spends $680 billion on defense which is larger than the rest of the world combined whereas Germany spends a mere $43 billion on defense. Therefore, there is no chance for Germany to become any meaningful net provider for security.
(iii) The hegemon must be perceived as benign (which is not so for Germany).
(iv) The hegemon must be perceived as capable of building and maintaining a liberal political and economic order (which needs to be yet demonstrated by Germany).
(v) The hegemon must be capable of providing public goods to a wider community (which Germany appears unwilling to and, even lacks the economic and institutional capacity for).
