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Euro Crisis: Britain Says No to Germany and France

Britain said “no” to Merkel and Sarkozy new Brussels’ Bureaucratic-Dictatorship and to the rest of the collaborators with their hands out. It is again a WWII line-up and play story.

Some things in Europe never change – they just acquire new shapes and colors.

When Britain declared war on Germany in September of 1939 the United states was also one year away from a definitive election that would free it to engage in its support. Today, Britain is again alone until November of 2012 when an election will free the United States to come to her support. Britain is now declaring economic war on Germany, who with the ‘collaboration’ of France, is stealing the sovereignty of the continent in exchange for Euros, and imposing a centralized regime in Brussels.

Germany and France have squeezed an agreement from 26 of the 27 EU members under threat of penalties, and bribes of loans, to comply with stringent fiscal and budgetary new rules that change the treaty of Lisbon governing the EU. Britain was the only ‘no”. Merkel said they will go ahead without Britain. Is that possible? Is that illegal? Most likely yes to both.

It is spelled out clearly that changes to the EU treaty must be unanimous. And that includes changes within the smaller Eurozone 17 countries.

The monetary Union of 17 countries that adopted the Euro as it’s monetary unit exists within the constrains and legal framework of the Lisbon Treaty of the EU.

Doubters of the legality of changing the EU treaty without the consent of all 27 states have given rise to the speculation of the possibility that this new power grab by Germany can come into existence as a “political declaration of intent”. The problem remains that such declaration could be easily broken by individual nations unable, or unwilling, to meet the stringent fiscal demands of the ‘declaration”. In short, it has no teeth of enforcement, and therefore it is less than worthless.

We already made clear the urgency that motivates Germany and France to get further powers to enforce new rules of fiscal and monetary policies on the rest of the member states in our piece, “Bondage for Bonds – The Euro Way”, and in “The Euro: Tick, Tick, Tick… Boooooom”, where we concluded that it would be an economic catastrophe for Germany to have the Euro break-up; and it would be a political catastrophe for France to have the EU collapse.

But what is not really understood yet is the motivation of the rest of the European nations for such meek compliance to the desires of Germany and France. But it should be obvious; they have all built large and fat entitlement states where government largesse maintains the standards of living of their populations well above their earning capacity and productivity. It is not possible to take it all down without creating political upheaval and social unrest. To survive they desperately need the loans that only the acquiescence of Germany, through the ECB and the EU Commission (Brussels), can provide. They must play ball with Germany or the game is over. It is indeed a trade off – “Bondage for Bonds”. The loss of national sovereignty is not as grave as the loss of their heads when the rabble comes calling. They cannot feed them cakes, baklava, pizza, or paella, they got used to holidays in the Spanish Riviera.

But this newly bought dictatorship by Germany cannot solve the problem for good. That can only be solved if the debt ridden states of Europe can manage drastically higher economic growth ratios than their annual budget deficits. And there is the conundrum. By selling their sovereignty for new loans with promises of fiscal restraint, they are making sure that those growth ratios won’t come. In fact, the fiscal rules imposed by Germany, without adjustments in individual nation’s monetary policy and rates of exchange, will only make certain that the Continent of Europe will enter a recession in 2012 and a long period of slow economic growth. And a recession will only exacerbate the fiscal problem even further. If it looks like a vicious circle it is because it is one.

Everybody is a loser, except Germany, in the short run, and the Brits, who wisely are not buying into it and have no intentions of selling their sovereignty. In the long run Germany will also lose this war (by 1945 or 2016) when the dream of 3% ceiling on budget deficits fails to be met,and/or growth ratios remain well below that 3%, which they surely will, adding perennially to the growing debt. The Euro will eventually break and Germany’s conquered markets will disappear.

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