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Shoot-Out at the Euro Corral (Will the Huns Stick to Their Guns?)
(6-27-12) Bloomberg reports the ominous warning of George Soros regarding the latest Euro summit. – “Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, saying policy makers should create a European Fiscal Authority to purchase the debt in return for the countries implementing achievable budget cuts… “There is a disagreement on the fiscal side,” Soros said in an interview with Bloomberg Television. “Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.” (Bloomberg.com)
What does this mean? Soros means that the Euro-situation and the proverbial Euro can can’t be kicked down the road any further – unless the Germans bend a little. This latest episode in the Euro-zone drama started on Monday when German Chancellor Angela Merkel said that Germany wouldn’t give an inch. The bigger issue that Merkel and new French president Francois Hollande are at odds with is this concept of selling short-term Euro bonds as an emergency financing measure to increase the amount of available bailout money. This is something that the Germans said they would not agree to.
They’re talking about creating a new class of securities which is again just another stop-gap measure. The problem is that it’s putting the word “Euro” into it and not an individual country anymore, so who becomes responsible for them? Ultimately it would be the Germans because they are the only ones with the economic capability to make good on them.
This would become the same situation as before because every country in Europe does not want to give up any sovereignty over its economic policies. Merkel has been saying all along that Germany is not prepared and the German taxpayers aren’t going to stand behind this unless the Bundesbank has sovereignty or German control over the spending of these other countries --since Germany is the only country that can make good on these newly created stopgap bonds.
The mechanism for this already exists in the European Union agreement, but it was never enforced because all the Euro-countries knew that no one would agree to it. Thus it became unenforceable. In other words, when the European Union (EU) came out in 1987, it was an idea that was essentially put together by so-called socialist-welfare elitists in order to build a federated Europe under a single monolithic super-state. The provisions for centralized fiscal authority were contained in the original treaty but they were never voted on. Why? Because the socialist welfare elitists wanted to dodge the problem.
All the difficult issues which could have been voted on originally because they were contained in the original charter were never voted on because if they were, the European Union would not have come to pass. Even so the European Union has not been a complete fraud or deception. It has been an incomplete project. The political aspect of it which would include coordination of economic policy was never voted on or agreed to when it should have been in the very beginning. All the European Monetary Union did was create the Euro, but did nothing to coordinate the economic policies of the individual member nation-states or to establish any bodies for the purposes of political coordination.
The pan-euro socialist welfare elitists knew that none of the provisions that would centralize monetary and political authority would pass. That’s why they never insisted on a vote.
The whole reason this was done was an attempt to diminish Germany’s role in Europe and to allow for so-called fiscal transfers from Germany to the rest of Europe. That was the original intent because the socialist welfare elite, who had principally come out of France and Belgium, wanted to maintain this idea that Germany should pay forever for what it did during the war. They believe that Germany effectively owes the rest of Europe a living in perpetuity. Through these transfers of money and the provision of guarantees of other countries’ bonds, this is in effect what German taxpayers have been providing. In other words, the German taxpayers have allowed most of the other euro nation states to live beyond their means.
Where this would have to go then is the creation of a new German empire. If a truly federated Europe is going to be formed, it’s got to be a German pond, so to speak.
This of course has to do with the consistent decline of the United States, which is aggravating the European situation to some extent because the Europeans can’t rely on the United States any more to bail them out, which is what they had always done in the past. Now the Chinese have already said they won’t do it either. So now it comes back to the same old thing as it has been for the last thousand years – that there’s only one place they can go to potentially get bailed out and have someone subsidize them – and that’s back to the Germans. And that’s something the rest of the European countries don’t want to do – to create another German empire. But it’s something they might have to do – if they want the EU, the EMU, and the EEU etc. to continue to exist in the fantasy of a federated Europe. Everybody has to understand this – particularly the French – that you have to turn Europe back into a German pond again.
There’s no way of getting around that. What Merkel was saying on Monday is that Germany isn’t going to give an inch on the idea of floating a pan-European short term notes (bonds) and the idea of pan-European bank guarantees.
It should be noted that the only pro-austerity parties are in Germany. It is austerity, not by choice, but because they have to agree to it. Political opinion polls in all the European countries show that the Germans are now leading the charge to scrap the whole deal, while support for the euro continues to decline in the rest of Europe – but for different reasons – because the rest of Europe still believes in this fantasy notion of endless German transfers of endless German guarantees and that the German taxpayer is going to allow them to run deficits which would allow the citizens of these countries to live beyond their means. That’s what all of the rest of Europe has done.
Now what the Greeks and Spaniards want is something they can’t have. They want continual bailouts but they don’t want the austerity requirements that the Germans are putting on it. How it ends ultimately depends on how much pain the Greeks want to take. The Greeks know they don’t have any choices. They know they have to agree to austerity. With these elections, Merkel gave them some false hope so that the so-called pro-austerity or pro-euro parties could win. They were able to form a coalition but now it’s the morning after. Now its reality time and now it’s back to the same debate it was before.
The German taxpayers aren’t going to provide the Greeks or the Italians or the Spanish or the Portuguese or the Irish with a living beyond their respective countries’ GDP – which is what the German taxpayer has been doing ever since this deal began in 1987.
In terms of impact on markets and the global economy – and the reason Soros made those comments – is because as of this writing what is not known is if in behind the scenes negotiations if they can come out with some sort of band-aid solution at the Thursday and Friday Grand Euro Summit No. 379.
Or has Merkel reached the point as her party the CDU continues to lose in the local and state elections where she understands that politically she has nothing left to lose, will she do the right thing for Germany?
And that’s quite frankly what everyone is frightened of – Merkel and the CDU coming to the realization that they’re not going to win the next general elections and since they have nothing to lose politically, they are free to do the right thing for their own country and that’s what frightens the rest of Europe.
If the European Union falls apart and Germany refuses to pay for everyone else’s debt load, Germany would also be in trouble because it exports so much to the rest of Europe. However the pain the Germans would feel would be only temporary because their manufacturing and export base is more diversified, more modern and more cost-effective than the manufacturing base of any other European country including Great Britain.
Although Germany would be hurt in the short-term by a break-up of the Euro and a return to the Deutschemark -- a complete break-up of the EU, let’s say, and a return to individual currencies and a return to the same-old same-old, which would essentially price German exports out of the European market, their markets are sufficiently diversified that they could replace those export markets. It’s the rest of Europe, particularly France, that would suffer the most – and that’s what Francois Hollande and the socialists in France are most frightened of. It’s the idea of throwing their hands up in the air once again and surrendering to the Huns.
This time it would be not surrendering to the Mausers, but surrendering to the Deutschemark.
The European Union, according to the socialist welfare elitists, was meant to heal old wounds and cement Europe, but the only way that was going to ever work, would be if the rest of Europe, ex of Germany, actually managed their economy properly. They would have to have lowered taxes to provide fiscal incentive and modernized their plants and infrastructure – and they never did that. Why? Because in order to do that they would have had to reduce social welfare spending, which is something that’s anathema in Europe. They were ensuring that the socialist welfare model, which is a fiscally corrosive model they all know, cannot survive. They’re trying to do the impossible. They’re trying to make a politico-economic model, i.e. socialist welfarism, which is unsustainable, survive -- when in fact in the real world of economics and markets, it can’t survive. So now what we’re seeing is the end of the survival period.
In order to make something that wasn’t meant to survive -- and can’t survive -- according to Economics 101, how can you get it to survive? You get the German taxpayers plugging money into it.
Based on Merkel’s comments and Hollande’s reaction, I think that Merkel herself has had enough and they feel they have nothing to lose politically – so why not try to do the right thing for Germany?
This means that everybody else in Europe ain’t going to be able to retire at 45 anymore…
* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.
After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.
His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."
Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.
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