America Has No Right To Be Embarrassed

The revelations of the extent of American spying has thoroughly embarrassed the Obama administration.

The original revelations that the NSA was spying on ordinary people and taking a drag net approach to internet information didn't embarrass them at all. They were just furious that the public had found out about their spying as it would mean that the programs might be properly scrutinised. What has really embarrassed the US is the revelations that the NSA had spied on the allies of the US. It was discovered that the NSA had bugged European Union offices in Brussels, infuriating the US' European allies. This week it was revealed that the US had tapped the phone of the German Chancellor Angela Merkel, needless to say Merkel was very unhappy. She called in the US ambassador and told him "frankly" to stop tapping her phone. What an awkward conversation that must have been for Obama.

Naturally this has raised tensions between the two countries. Things can only get worse for the President as not all of Edward Snowden's stolen information has been released.

To be honest I don't feel sorry at all for Obama or the American government. If they didn't want to be embarrassed then they shouldn't have spied on their allies. The revelation of Merkel's phone being tapped really shows that nobody is safe from the NSA. Who else have they spied on; Blair? Sarkozy? People within the American government? 

Old World Order - Germany

Population: 80 million
Area: 357,000km2
GDP: $3.6 trillion
GDP (per capita): $42,000
United Nations Security Council Veto: No

The numerous German states were unified in the late 1800s under the brilliant leadership of Otto Von Bismarck. The first century of its existence was tumultuous, its expansionist politics helped cause WWI and were the primary cause of WWII. Both wars ended with defeat and humiliation for Germany. Thankfully the Allies learnt how to deal with a defeated Germany and the Germans seemed happier to assume a smaller role in the world than they had previously desired. 

At the moment Germany is doing rather well, its lack of housing boom and export led economy meant it has been able to weather the recent economic crisis. It is the largest country entirely in Europe with over 80 million people (15th largest in the world). Its economy is the fourth largest, behind only America, China and Japan. Germany's economy is also growing, considering the circumstances this is quite a feat. Yet there are dark skies approaching Germany's future. 

For the first decade of the Euro's existence, Germany benefitted greatly as it made exporting to the European periphery easier. Unfortunately crisis in the PIIGS (Portugal, Ireland, Italy, Greece and Spain) could spread to Germany.  The northern Euro nations, especially Germany, have demanded that, in exchange for bailouts, the countries must impose harsh austerity. This had proved disastrous for the economies of the countries who are in a worse financial state, despite the bailouts Greece still risks default. If Greece goes then a domino effect could occur on the other PIIGS countries which would devastate the world economy, particularly the Eurozone. German banks that lent a lot to the PIIGS would default if the Germans did not bail them out.

Another risk to German power (and GDP) is its shrinking population. By 2050 Germany is expected to drop to 21st in the world rankings, with 71 million people, just marginally more than Britain. That would mean Britain would have the largest population in Europe by 2060. This is beneficial to Britain, not so much to Germany.

Germany's most serious threat originates outside of its borders, in the Eurozone periphery. I've already discussed what the problem is, so here I will concentrate on the solution. To solve the crisis will require the agreement of the Eurozone countries (there's 17 of them) and possibly the whole of the EU (28 nations) and help will probably have to come from the IMF and/or World Bank (the whole planet). Oh dear. Even just getting the agreement of the 17 Eurozone nations is difficult enough. What Germany needs to push for is more fiscal integration, which it has been doing, and economic stimulus in the problematic regions, which it has done the exact opposite. The Germans seem unwilling (like much of the rest of the world) to learn from the lessons of history that stimulus works and austerity fails.

To sum up; Germany faces two major challenges, a declining population and trouble in the Eurozone. The Eurozone challenge can be fixed - If German leaders recognise their mistakes and rectify them.

The Old World Order

It's been a year since I wrote about the rise of developing nations, a "New World Order" of sorts. I looked into five countries, and Africa, and how rapidly they were rising and what challenges they were facing. The countries I reviewed were:

1. China
2. India
3. Brazil
4. Mexico
5. Indonesia

This year I have decided to look into the countries that are currently at the top. The countries that will be faced with a lower influence in the world as other countries overtake them. I looked into how the "Old World Order" might manage its decline, or perhaps reverse it! Over the next few days I will be discussing the following countries as well as Europe:

1. United States of America
2. United Kingdom
3. France
4. Germany
5. Japan
6. Italy
7. Canada

Old World Order countries in red, Europe in green

Euorzone Crisis

For all of 2012 the crisis in the Eurozone dominated the news in Europe. As always Greece got the bulk of the attention, the problem for Greece is that every budget it passes has to have massive cuts mandated by the Troika. If they don’t pass the cuts then Greece doesn’t get the bailout money and it defaults on its debt. But everytime a budget comes out there are protests on the streets as people are fed up with the austerity. It didn’t help that Greece was forced to elect a new government twice. You see, Greece’s economy is in a death spiral, Greece struggles to pay its debts so gets a bailout from the troika. In exchange for money the troika force Greece to pass tough austerity, this forces the Greek economy to shrink as there is less money. This causes businesses to lay off workers or close altogether, adding to the government’s unemployed lists and causing the economy to shrink. This means less taxes are collected by the Greek government and more spending on unemployment benefits causing Greece to be unable to pay its debts. This forces Greece to go to the Troika for money and... you get the picture. Some fear that this death spiral could cause Greece’s economy to shrink by 25% of its pre-crisis level.

Spain had a bad year too, it was forced to bailout one of its largest banks, Bankia. Thankfully the Spanish government itself did not need a bailout, but was pressured to accept one. After summit talks in June Spain’s Prime Minister, Mariano Rajoy, got a massive victory; Merkel softened her hardline approach and allowed the Eurozone to bailout banks directly (rather than bailing out countries who had bailed out banks). This also brought the Eurozone to a banking union.

There were many fears that Italy could require a bailout to stay afloat; there was a problem. Italy is one of the world’s largest economies and there wouldn’t be enough money to save it. Thankfully Mario Monti, the country’s technocratic Prime Minister, has been able to steer Italy through this crisis pretty well. Unfortunately for Italy, Silvio Berlusconi is not quite gone, he is going to run for election this year. This spooked the markets as Berlusconi is a synonym for incompentence.

In the past couple of months the Eurozone has been much quieter and many are beginning to say the worst is over. And although I am optimistic, I agree with Merkel when she says the crisis is ‘far from over’.

The New World Order

Between the Age of Discovery in the 15^th century and World War Two, European nations ruled the world, both directly and indirectly. The colonial Empires of Spain and Portugal dominating in the early years of Empire, but they were eventually leapfrogged by the French and British Empires, and to a lesser extent the Dutch Empire. Russia, Germany, Austria and Italy also played an important role, especially in the later years. By the time the 20^th century dawned the world was changing, Japan and the US were emerging powers and Germany was threatening the balance of power within Europe itself. The two World Wars that followed devastated Europe, both economically and politically, immediately after WWII the empires of France and Britain fell apart and the UK handed superpower status to the USSR and USA. Yet Europe was far from unimportant, the USSR was a European country after all, and Germany, France and Britain still commanded significant influence. But with the fall of the USSR in the early 1990s, for the first time in modern history, the most powerful and important nation was not a European one, rather the USA.

So I think I’ve made my point, countries rise and fall and everyone has to adapt to the new world order brought about every century or so. Although Europe is still far from unimportant, of the top 20 economies, nine are European and of the five countries with a veto on the UN Security Council, three are European.

The Question is where is the world heading? Who will be the new countries on the scene, which nations will challenge western power?

The truth is nobody really knows, but there are certainly contenders. Over the next few days I will write about countries I believe could take the mantle of power from the West. The big debate surrounds whether China will eventually best the USA or will another country be the one to overtake America?

The following are the countries I believe have a chance of besting the west:

1.       China – the favourite to become the next superpower

2.       India – A rising nation with a population set to become bigger than China

3.       Brazil – the big boy of the South American economies

4.       Mexico – the rising star that may not be if drug lords have their way

5.       Indonesia – the island nation could be a surprise winner

6.       Africa – as a continent it will not take power any time soon – but its day will surely come 

New World Order Countries in red

Markets React Poorly to Greek Election

Well the markets didn't react particularly well to the news of stability in Greece, apparently the markets don’t like stability. In the end the results of the election are as follows:

New Democracy: 129

SYRIZA: 71

PASOK: 33

Democratic Left: 17

Communist KKE: 12
Independent Greeks: 20
Golden Dawn: 18

Although the result doesn’t look close between ND and SYRIZA, in a Greek election the first party gets awarded 50 extra seats, in terms of percentage ND was barely ahead of SYRIZA. Now the job of forming a coalition falls to Antonis Samaras, leader of ND; to achieve a majority he will need only 22 extra seats (151 seats required for a majority). It is expected that ND will get the support of pro-bailout party PASOK and marginal support from the Democratic Left.

So there should be no problem forming a coalition, but what is important here is that Golden Dawn still polled strongly at almost 7%. This is despite the assault of two politicians on live television by the spokesperson of the party and the fact that the party continue to back the assailant.

Regardless of the political impact in Greece, the economic impact is what the rest of the world is interested it. Most people were disappointed in the markets reluctance to accept that Greece was at least somewhat stable. Leaders at the G20 summit in Los Gabos, Mexico are meeting to discuss global issues; at the centre will be the world’s 35^th largest economy, Greece.  Almost immediately after the election results were in Merkel issued a statement saying the bailout deal was non-negotiable. This will not go down well in Greece, many Greeks voted for the pro-bailout parties in the belief that they would go to Brussels and negotiate a less tough deal for Greece. But don’t forget Merkel also said there would be no bailouts two years ago; there have been five since then. Most economists do believe that the austerity in Greece is too harsh, even some centre-right economists. Greece needs to be given slightly looser terms, otherwise a third bailout may be necessary. This is something that Merkel will want to avoid at all costs.

The crisis is far from over, it will continue to dominate the news for the rest of the year.

A European Superstate?

Is this the accidental creation of a European Superstate? It certainly seems like it.

Basically the Eurozone appears to have two choices; fall apart or be bound closer together. Merkel has increasingly mentioned the need for “more Europe, not less” she says that more and more responsibility must be handed over to centralised European control. Although many Europeans believed that the creation of the Euro in 2000 was the beginning of a federal Europe, most people didn’t think it would start being seriously talked about in 2012. The Euro crisis has changed everything.

Although I highly doubt that a United States of Europe is on the horizon, with each state losing ‘country’ status, I do believe that the Euro crisis will mean more political, fiscal and economic union in Europe. Even if the crisis does get resolved by creating an early USE, I would imagine countries would still have control over international relations the armed forces and other similar functions.

If the Eurozone were to form a USE, a new map of Europe would look like below (the USE in blue with the EU in green). It would certainly transform the world as a number of individual Eurozone members are already very powerful in their own right (most notably France and Germany).

The Eurozone as a superstate in blue
The rest of the EU in green

The below map is what the future of the Europe could look like, this map includes countries in the EU that have signed up to join the Euro, although this vision of Europe (if it ever does come to be) is a long way away. (Note: Croatia is in light blue as it will join the EU in 2013 and has agreed to enter the Euro at some stage)

Blue - all current and future Euro members as a superstate
Green - The remaining members that are unlikely to join the Euro

There are, of course, many issues and obstacles surrounding the creation of the USE. The biggest would be the electorate in member states, governments would have to go to the people in a referendum. Most people would be furious if they didn’t get a say over whether or not to end their country’s existence, I would be furious even though I would vote yes! Ireland would be a major stumbling block as well as many other nations with strong Euro-scepticism. There is also the problem of much of Eastern Europe, most of these countries have only been independent for about 20 years and aren't going to give over their hard won independence easily.

Despite the major stumbling blocks we are living in a momentous period, a federal Europe is being seriously discussed by some of the top politicians in Europe. This is a make or break time for European federalists and Euro-sceptics alike.

The Never-Ending Woes of the Eurozone

The never-ending Eurozone crisis has reached a new low today with the cost of borrowing for Spain rising to almost record levels, just a whisker below 6.7%. Tomorrow is also going to be an important day for the Eurozone, the Irish are going to the polls tomorrow to vote in a referendum on the new EU fiscal compact treaty. If the Irish reject the treaty, it will send shockwaves throughout Europe likely destabilising Greece and Spain even more.

More discussion has focused on the likelihood of Greece leaving the Eurozone. The Economist Paul Krugman who has written a book on, what he calls, an economic depression is becoming increasingly visible. He claims that a Greek exit would be “awful” for the world economy and that Greece may never recover, he believes that the austerity imposed on Greece and other Eurozone countries simply is not working. In the UK he is calling for the government to use the record low borrowing costs to borrow money to fund infrastructure projects and help to boost the economy.

Krugman has claimed that the crisis will send the world economy into chaos and he believes that if the leaders of Europe want the euro to survive there must be some form of political union. Although this appears unimaginable it does make sense, a political union would make it easier to spread the wealth around and allow Greece and Spain to become competitive again.

So what are the risks for the UK? Well we have very little exposure to Greece itself, but the fear of contagion if Greece defaults or leaves the Eurozone puts us at bigger risk. The exposure to Italy and Spain for Barclays, RBS and HSBC is about €10 billion each, but RBS’ exposure to the Eurozone as a whole is €70 billion. If Greece defaults and leaves the Eurozone it will have catastrophic consequences for the Eurozone. Krugman believes that unless Merkel and the Germans concede defeat and allow the Greeks to have more lenient austerity a Greek default is inevitable. 

US economist Paul Krugman

G8 Summit Crucial in Greek Crisis

The G8 meet in Camp David, Maryland, United States today. The group represents the eight most powerful industrialised nations; Canada, France, Germany, Italy, Japan, Russia, United Kingdom and United States as well as a representative from the EU. Also attending some of the G8 meetings are Brazil, China, India, Mexico and South Africa. The main focus of the meeting will be is the world’s 35^th largest economy: Greece. Obama (who is President of the G8 this year) is urging European leaders to come to an agreement to try and sort out Europe’s failing economy. Obama believes that what happens in Europe is extraordinarily important.

The G8 summit is the first meeting between Obama and Hollande, both presidents are advocates of stimulus to try and create jobs and boost economic growth. Obama calls for the focus in Europe to move away from austerity and towards the stimulus, the Eurozone is a huge trading partner for the United States and any serious trouble would throw America’s recovery off course. Obama has called on a stimulus specifically for Greece, but America will not provide a cent of this money; he believes the Germans must pay for this. Hollande and Obama are hoping that they will be able to persuade Merkel and the Germans to re-orientate Europe away from austerity.

Although Greece and the Eurozone’s woes will be the main focus of the meeting also on the table are the likes of Iran’s nuclear ambitions and the possibility of releasing oil reserves to keep the price of petrol down. Despite this there is no doubt that Greece will dominate the talks.

G8 Countries in Dark Green (EU in light green)
courtesy of wikipedia

The Continuing Greek Tragedy

The crisis in Greece continues as the three main parties have failed to thrash out a coalition agreement. They have agreed that another general election will be held in the coming weeks, this election is completely unpredictable with some experts believe that after voting for anti-bailout parties in the last election, people will move back to the centre. Yet most experts believe that the anti-bailout parties will gain more ground the next time the Greeks go to the polls.

SYRIZA leader, Alex Tsipras

If the Germans and Brussels want to avoid the anti-bailout parties winning they must negotiate ASAP with the pro-bailout parties, give them some concessions. Then PASOK and New Democracy can go to the voters and tell them that the bailout can still work, in the hopes of marginalising SYRIZA. The reality is, if SYRIZA were able to form an anti-bailout party after the next general election, then Greece would almost certainly go bust and have to leave the Euro which would have devastating affects around the EU. Spain, where borrowing is almost unsustainable already, would need a bailout immediately and any chance of a recovery in Ireland or Portugal would be out of the question. Likely Greece would drag the rest of the world back into recession. This could result in a break-up of the Euro and a destruction of the economies of the PIIGS countries, this could be worse for Germany than many other countries, as Germany’s central bank has lent €644 billion euros to other European central banks and a break-up of the Euro would mean that it wouldn't get most of that money back. Germany must defend Greece from financial collapse, otherwise the country will suffer the consequences.

French and Greek Elections

Elections in Greece and France have rocked Europe today, the markets turned down as the news of a socialist president in France came in. In Greece the majority of people voted for anti-austerity parties, yet the pro-austerity party New Democracy managed to come in first. Although New Democracy came first, they did not win a majority of seats so attempted to form a coalition but was unable to. As a result it is now up to the party that came second, the “Coalition of the left” to try and form a coalition. If no party is able to form a coalition then the Greeks will have to vote again.

The Golden Dawn Logo is
very close to the Swastika

What was more worrying in the Greek elections was the rise of the neo-Nazi party, Golden Dawn which got 7% of the vote. Golden Dawn opposes the Enlightenment and the Industrial Revolution and supports Hellenism and Greek Orthodoxy. This bizarre party is entirely legitimate and not a comedy party as you might hope. They genuinely oppose science, modern medicine and anything remotely modern, I do believe these people are beyond reasonable discussion and I hope their rise does not go beyond 7%.

Back in France Hollande has promised Europe and alternative to austerity and that there is hope for growth and restoration of Europe’s battered economy. Despite having a radically different viewpoint to Merkel they have both stressed the importance of the Franco-German relationship and that it will always remain amicable.  Most people do believe that even though Hollande and Merkel have difference opinions they will try and work together, after all both people only want to keep the Eurozone strong and continue with the European project… They just have very different views of how to get there.

The new face of France...
and Europe?

A Hollande Europe?

Hollande is likely to become France’s next President after Sunday, but wider implications could a socialists rise to power have on Europe, particularly the Eurozone countries. The Dutch government has already fallen, the Spanish government is experiencing serious protests and Greece is approaching elections.

So what does Hollande have to offer to a Europe still in crisis? Most importantly he offers an alternative to fiscal austerity; he says that he will re-orientate the European economy to growth and jobs (much like what the Labour Party advocates here as well as an Obama-style stimulus) and away from harsh, growth killing budget cuts. Although he disagrees with Merkel and other north-European leaders on the policy of austerity he does believe firmly in fiscal responsibility and the Euro project. The key difference on fiscal responsibility is that Hollande believes that it should come later, that the European economy is already on a path to recovery before the government reigns necessary spending.

The centre-right currently have control over the vast majority of the European Union, they have failed epically to deal with the financial crisis. One important part of Hollande’s vision for Europe is stimulus, which is funded by borrowing. This poses one major problem; the Mediterranean countries cannot borrow at a cheap rate and would be unfeasible for them to do so. On the other hand, north European countries such as Germany and Finland have low interest rates and can borrow cheaply. I find it difficult to imagine the Germans borrowing more money to facilitate a Greek stimulus; it would be political suicide for Merkel. So although the vision of growth would be perfect for northern Europe, it would still leave the question of what to do with the Mediterranean countries and Ireland. Hollande will need to think about this if he is to solve Europe’s difficulties!

Rise of German Neo-Nazis

In Germany there is the worrying rise of Neo-Nazis, although they don’t call themselves the Neo-Nazis, rather “The Free Forces” or “The Immortals” along with numerous other groupings. This trend is epitomised in the 12 murders committed by the National Socialist Underground between 2001-2007 and the NPD (the legal wing of the far-right movement) getting seats as elected officials.

Germany’s post-war constitution is based on a “never again” attitude, many German’s feel huge guilt that it was their country that started a war that took 70 million lives. This fear of the far-right means that the far-right feel even more marginalised than in other countries, this makes them all the more dangerous. In the past 20 years there have been 180 murders committed by the far-right, more than any other group including Islamists and the far-left.

One of the more worrying elements of the resurgence is the ability of far-right groups to attract students, the middle class and intellectuals. This normalisation of far-right politics is dangerous as now there could be a pool of lawyers who will defend far-right groups in all sorts of cases as well as more NPD members as elected officials.

Although the far-right has no real power in Germany, it does display a worrying trend that is evident across Europe in the wake of the 2008 financial crisis. History shows us that in a time of crisis, people lurch to extremes.

The location of the 12 murders by the NSU that shook Germany to its core.

Greece Needs a Stresemann

In 1923 Germany was experiencing hyperinflation and its economy was in tatters. Then along came Gustav Stresemann who turned Germany around, brought down its debt and saved the country from complete collapse. Six years later he died, just weeks before the Wall Street Crash, if he had lived Hitler may never have risen to power and WWII wouldn’t, therefore, have happened.

This is exactly who Greece needs right now, the country is collapsing, the politicians are inept, the Eurozone leaders don’t know what to do and everyone is panicking. The riots yesterday show that Greeks aren’t prepared to take more austerity and any attempt to get another package through parliament could spell revolution. The middle class, working class and business class are united in their opposition to the government’s austerity plans. Of 300 MPs, 101 voted against the measures or did not attend parliament, Greece simply cannot take more austerity. If new elections were to produce a Stresemann then the panic could end, but the chance of that is small. Instead of a Stresemann, all Greece needs is a strong leader who will stand up to Merkel and Sarkozy and say no to more austerity. Germany needs to realise that in order to keep the Euro alive they must finance the Greek recovery. Otherwise the inevitable default would change Greece into a wrecking ball destroying Italy, Spain, Portugal and Ireland, sending the world into recession and the Euro into history.

Germany needs to look to America, the USA has one of the largest deficits of any western nations, yet it is managing to grow. This is largely due to Obama’s stimulus package. Look to Ireland, so far Ireland has taken austerity well (in that there have been no major protests or riots) and yet its economy is still faltering and it could head back into recession if something isn’t done. Germany needs to end its experiment with austerity and change course to prosperity through a stimulus package. Four years of austerity has only produced perpetual recession in Greece, little economic growth in Europe and a decline in European influence. For the sake of this continent Merkel needs to wake up and stop the austerity.  

The man who saved Germany in 1923, Gustav Stresemann. Unless Greece or Europe finds a similarly able politician collapse is almost inevitable