The Greek Parliament yesterday voted 229–64 in favour of accepting harsh new bailout terms. The decision all but guarantees Greece’s position in the Eurozone. But this is a no-win situation for them.
The Greeks took the easy option, but will face a difficult future for it. The landslide victory ensures Greek sovereignty is now in the hands of Germany.
Despite all the opposition to the bailout terms, why was the vote so decisive?
Prime Minister Alex Tsipras is on record as saying that his government had no choice but to accept the terms. He pleaded for parliament to support the measures, despite not believing in terms himself.
Did Tspiras have a gun pointed at his head from behind a curtain? In a manner of speaking, yes.
Whatever the EU and ECB told Tsipras, it was enough to spook him. We can only imagine the amount of threats the European elite threw at Greece during negotiations. Whatever they said, it worked. Ultimately, Tsipras couldn’t countenance the idea of abandoning the euro. So he pushed through with the reforms, and convinced the parliament of backing it.
It’s a shame too. Greece had an opportunity to defy history. It didn’t grasp that, and now its people will suffer for it.
Greece faces a future of worsening — not improving — economic conditions. The IMF has already said Greece has no chance of meeting all of their debt obligations. One thing is certain. The current predicament it finds itself in may pale in comparison to what’s coming.
But I don’t want to focus too much on what the reforms will do to Greece. I’ve covered that extensively here.
Instead, I want to talk about the inevitability of the situation. What’s happening in Europe is entirely predictable and, in some ways, was destined to take place. Let me explain.
The European dream
In 1997, the Eurozone was entering a period of rising prosperity. Living standards were improving across the whole union. Of particular interest was the economic rise of southern Europe. For decades, the south was regarded as the backwater of the monetary union. But things started to improve.
From the Iberian Peninsula, to the eastern edge of the Mediterranean, people were flush with money.
Property construction was booming, and credit was easy to come by. Europe, it seemed, was entering a golden period in its existence.
However, some took on a more cautious stance on the future of the union. In the same year, Arnulf Baring, of the now defunct Baring bank, make an eerie forecast about the EU. I’ll leave it to him to explain:
‘[Germany] will be subsidising scroungers, lounging in cafes on the Mediterranean beaches. Monetary union, in the end, will result in a gigantic blackmailing operation.
‘When Germany demand monetary discipline, other countries will blame their financial woes on that same discipline, and by extension, on us. They will perceive us as a kind of economic policeman.
‘We risk once again becoming the most hated people in Europe’.
To call this prescient would be an understatement. Baring described the exact situation that would play out in Europe 15 years later. He saw that monetary union, on its own, was inadequate. Without fiscal and political union, the European project was destined for failure.
And Germany knew the inevitability of this. Not only did they know, but they used it to exploit the rest of Europe. In hindsight, German dominance of the EU was easy to predict. That’s because, by nature, Germany is destined to rule Europe. It’s in their DNA.
Why Germany dominates Europe
Germany has been a perennial European power ever since its unification in 1871. There’s a good reason for that, and I’ll get to it soon.
Unlike the naval powers of Britain, Spain and France, Germany has always been a land based power. But that’s what made Germany an inherently insecure nation.
You see, Germany sits on flat terrain, separated only by its network of rivers. Throughout history, it’s had to contend with naval power projection from France and Britain to its right. To its left is the open North European plain. This easily traversable passage of land comes with its own threats. Germans fear the potential of a Russian force waltzing its way straight onto its borders. After all, it’s an easy trek without any real barriers. This is partly why Hitler went on the offensive against Russia.
In fact, this insecurity explains Germany’s behaviour to a tee. The two world wars, at its simplest, were about Germany’s insecurity. Instead of power hungry arrogance, we could look at it as an insecure tantrum. That’s not to belittle the fact that over 100 million people tragically lost their lives across the two wars. But the point about Germany’s insecurity stands.
Despite the threats that surround it, Germany not only survived, but thrived. Even after two devastating wars, it’s Europe’s economic beacon today. It may be open to outside forces, but it occupies a special place in European geography. How?
Germany sits on one of the most extensive river networks in the world. Exporting goods via water is 70 times cheaper than by land. As a result, the country is capital rich without really even having to try.
This river network is second only to the Mississippi river basin in the US. And it makes Germany capital rich to the point that most European states can only dream of.
Because of this, Germans have always produced more capital than their economy could handle. That means that it has plenty of cash to go around. And this is where we come full circle to the issue of Greece and the German dominance of the EU.
German capital has flowed into southern Europe for the better part of two decades now. It’s largely through Germany’s capital-richness that southern Europe prospered.
It’s important to remember the EU was realised as a way to prevent war breaking out in Europe. If everyone started acting like partners, instead of competitors, they’d have less need to slaughter each other.
But the EU, in its current state, is nothing more than a monetary union. The Eurozone shares a currency, but not much else beyond that. When one of its members find itself in trouble, as Greece does now, there’s no political or fiscal pillar to support them. As Baring said, the rich members are left to subsidise the financially stricken ones.
German leaders must have known that their capital would flood southern European countries. Baring more or less indicated as much. But what if this was all part of a grand design? I’ll explain.
The rise of Imperial Germany
Germany has achieved through the European Union what two world wars couldn’t. I realise that sounds rash, but hear me out. It’s factually true that Germany twice failed to conquer Europe by force.
It’s also true that Germany, by virtue of its geography, is Europe’s economic powerhouse. Germany is both capital rich, and highly productive as an economy. Since the formation of the EU, it’s also true that Germany has ascended to become its most important member.
But German dominance of the EU is its greatest foreign policy achievement. Modern, pacifist Germany has done what aggressive Germany never could. It’s brought Europe under its wing.
The genius of Germany’s position is hard to overstate. Let me give you an example.
The Germans essentially uses the “rotten” part of Europe to keep the value of the euro down. Meanwhile, Germany’s productive capacity allows it to export its way to prosperity.
If Germany wasn’t part of the Eurozone, its currency would rise alongside any growth in exports. But Germany can rely on the unproductive regions of Europe to keep the euro down. That way, they can use their inherent advantages to keep exporting as much as they like.
Other Eurozone members can’t do much about it, because Germany is an industrial powerhouse. They simply can’t compete with the Germans on exports.
The end result is that Germany finds itself with an abundance of capital. This is used to spread credit around the rest of Europe, making other states dependent on German banks. These banks lent money to southern European nations knowing full well the risks involved in it. Southern Europe isn’t a naturally productive region.
For almost two decades, countries like Greece racked up debt by borrowing from German banks.
Now the German banks are coming for their money, and Greece’s assets. This was, as Baring might say, inevitable.
Here’s where things get even more interesting.
Arnulf Baring was right. The monetary union has ended in a gigantic blackmailing operation. Germany has become the economic policeman.
But in my view, this was the intended purpose all along. Think of it as a long con, if you will.
I believe the long term aim, particularly from Germany, was to bridge the gap between a monetary and fiscal union. And I believe the only way they knew they were going to do it was to instigate a crisis in southern Europe. They knew that, in the long term, the south could never pay back the productive north. They knew a crisis would come. But from that crisis, a solution to fiscal union could arise.
This is the crisis that we’re seeing right now.
Greece is now a vassal state of Germany. It’s signed over a large chunk of its state assets in return for servitude. That’s some deal, isn’t it?
However Germany would have won one way or another.
Had Greece exited the Eurozone, the Germans would have presented it as a case for more fiscal union. Now that Greece is committed to Europe, German banks take control of Greece instead. It’s a win-win as far as Germany is concerned. In my view, that’ll be the solution for other indebted nations. A slow, but steady, asset handover to creditor nations like Germany.
It’s the type of coup that makes you wonder what the need for guns is. It’s so much easier to use economic warfare in this day and age.
The end game for Greece, and Europe, is beyond doubt. This crisis will be used as a means to bring Europe closer together. At its heart, the German behemoth will sit atop its throne.
Contributor, The Daily Reckoning
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