The United States and the Balkanization of Europe

Germán Gorraiz López

After the realization of the Brexit, the hypothetical exit of Germany from the euro would lead to the gestation of a new European economic cartography that would mean the return to watertight economic compartments and the triumph of the United States by achieving the total balkanization of Europe.

Germany’s exit from the euro?

As Joel Kotkin points out in Forbes magazine, for decades “the northern countries (Germany, Norway, Sweden, Denmark, Holland, Finland and the United Kingdom) have compensated for very low fertility rates and declining domestic demand with the arrival of migrants and the creation of highly productive, export-oriented economies. Thus, following the doctrine of the Schuldenbremse (debt brake) that Germany introduced into its Constitution in 2009 with the inescapable objective that “each generation pays its expenses and does not consume the taxes that its children will pay in the form of debt”, Germany would have achieved successive economic surpluses over the last five years facilitated by the negative interest rates put in place by the ECB.

However, Charles Dumas of Lombard Street Research London, argues that “joining the euro has encouraged Germany towards a costly mercantilist strategy at the expense of domestic consumption and productivity in the economy, but now the necessary cure for the eurozone’s ills will require higher inflation in Germany, prolonged deflationary recessions in important eurozone markets and continued transfers of official resources to its partners.

In 2010, the International Monetary Fund (IMF) urged the German authorities to implement policies to boost domestic demand growth, as this would have important beneficial effects both in the eurozone and globally. German domestic consumption growth had been seen as a potential lifeline for Germany against the recession. However, the German constitution considers a balanced budget when a federal deficit equivalent to 0.35% of gdP is reached, following the Schuldenbremse (debt brake) doctrine.

Thus, Germany would have achieved successive economic surpluses over the last five years with a decrease in the fiscal year 2021 of 4 (surplus of about 173,000 million euros) because this would be explained by the fact that the zero or negative interest rates set by the ECB required less money for the payment of the public debt (equivalent to 60% of GDP), which allowed it to accumulate reserves to face the socio-economic crisis. economic crisis derived from the Covid-19 with a massive boost to investments estimated at 20,000 million euros to revive the economy.

However, at present, Germany would be burdened by the shortage of gas reserves, so that a total cut-off of Russian gas supply could mean for Germany a contraction estimated by analysts at nearly 200,000 million euros by 2023 due to the forced paralysis of industry and which would have as collateral effects the entry of the economy into recession and the rise in the unemployment rate coupled with galloping inflation and the settlement of trade surpluses.

European Balkanization. On the other hand, the rise in interest rates by the ECB coupled with galloping inflation will lead to real wage stagnation in Germany, budgetary adjustments and a sharp contraction in domestic consumption. So, in the words of Charles Dumas of Lombard Street Research London, a return to an appreciated German mark would reduce profits, increase productivity and raise real consumer incomes, because instead of lending excess savings to peripheral countries, Germans could enjoy a better standard of living at home.

Germany’s hypothetical exit from the euro would mean the beginning of the colonization of the eurozone and the gestation of a new European economic cartography that would mean the return to watertight economic compartments and the triumph of the United States in achieving the balkanization of Europe. Thus, we will witness the conversion of the current Eurozone into a Europe of Six (Germany, France, Belgium, Holland, Luxembourg and Austria), leaving the rest of the peripheral European countries (Portugal, Spain, Italy, Ireland, Greece, Slovenia, Malta and Cyprus), gravitating in their orbital rings, forced to return to their national currencies and suffer their subsequent depreciation.

Peripheral European countries would not have developed strong economies to compensate for their demographic decline by basing their economies on the so-called “Mediterranean diet” whose main ingredients were urban boom, tourism and domestic consumption that created excellent minimalist opportunities but are mortgaged by exorbitant public debts. Therefore, the aggressive rate hike by the ECB to curb inflation will cause a stratospheric escalation of the debt premium of these countries as well as their financial impoverishment, which will be translated into tax hikes, a brutal reduction in the number of civil servants, the dismantling of public health, wage cuts and maximum flexibility in the labor market.

Thus, Peter Morici, an economist and professor at the University of Maryland, stated in statements to the Fox network that “the need for a fiscal union in the Eurozone and for the ECB to adopt a role similar to that exercised by the US Federal Reserve”, will not arrive in time to save the peripheral countries. Also, there is the possibility that “these countries will leave the euro so that they can print their own money and solve their problems as the United States did in the aftermath of the financial crisis.

In addition, the decline in exports due to the contraction of domestic consumption in the EU as a result of the economic recession (trade between EU member states is 60% of their total trade volume) and the reduction in their competitiveness with the rest of the world, (with a particular impact in traditional exporting countries such as Finland) could lead to the formation of a Scandinavian Federation (composed of Sweden, Norway, Denmark, Finland, Latvia, Estonia and Lithuania). This would mean a return to watertight compartments of countries. The rest of the Central and Eastern European countries (members of the so-called emerging Europe), with the exception of Hungary, will become part of the so-called “European arc of hydraulic fracturing”, which would extend from the Baltic States to the European Ukraine, through Poland, the Czech Republic, Slovakia, Romania and Bulgaria. They will remain in the American orbit and will constitute the new Berlin Wall, not excluding a new conflict in the Balkans in the scenario of the Cold War 2.0 between the United States and Russia.

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