LankaWeb – The euro without German industry

Reaction to the sabotage of three of four Nord Stream 1 and 2 pipelines at four locations on Monday September 26 has centered on speculation about who did it and whether NATO will seriously try to find out the answer. Yet, instead of panic, there was a great diplomatic sigh of relief, even calm. Disabling these pipelines ends the uncertainty and concerns among US and NATO diplomats that had almost reached crisis proportion the previous week, when large protests took place in Germany calling for an end to sanctions and the commissioning of Nord Stream 2 to solve the energy shortage. .

The German public was beginning to understand what it would mean if their steel companies, their fertilizer companies, their glass companies and their toilet paper companies closed. These companies predicted that they would have to cease operations altogether – or transfer their operations to the United States – if Germany did not withdraw from trade and monetary sanctions against Russia and allow Russian gas and oil imports to continue. resume, and likely to fall. back from their astronomical eight to ten times price increase.

Yet State Department hawk Victoria Nuland had already said in January that one way or another, Nord Stream 2 would not move forward “if Russia responded to the escalating Ukrainian military attacks on Eastern Russian-speaking oblasts. President Biden backed US insistence on February 7, promising there will be no more Nord Stream 2. We will end it. …I promise you we can do it.

Most observers simply assumed that these statements reflected the obvious fact that German politicians were entirely in the pocket of the United States and NATO. German politicians held fast turbines refusing to allow Nord Stream 2, and Canada quickly seized the Siemens dynamos needed to send gas through Nord Stream 1. That seemed to settle things until German industry – and a growing number of voters – are finally beginning to calculate exactly what blocking Russian gas would mean for German industrial companies, and therefore for domestic employment.

Germany’s will to impose an economic depression on itself wavered – but not its politicians or the EU bureaucracy. If policymakers were to put Germany’s commercial interests and living standards first, NATO’s common sanctions and the New Cold War front would be shattered. Italy and France could follow. This prospect made it urgent to remove anti-Russian sanctions from the hands of democratic politics.

Although an act of violence, the pipeline sabotage restored calm to diplomatic relations between the United States and NATO. There is no longer uncertainty about whether Europe can break with American diplomacy by restoring mutual trade and investment with Russia. The threat of Europe breaking US and NATO trade and financial sanctions against Russia has been resolved, apparently for the foreseeable future. Russia has announced that the gas pressure is down in three of the four pipelines and that the infusion of salt water will irreversibly corrode the pipes. (TagesspiegelSeptember 28.)

Where do the euro and the dollar go from here?

Looking at how this will reshape the relationship between the US dollar and the euro, one can understand why the seemingly obvious consequences of Germany, Italy and other European economies severing trade relations with Russia do not were not openly discussed. The solution is a German and even European economic crash. The next decade will be a disaster. There may be complaints about the price paid for letting Europe’s trade diplomacy be dictated by NATO, but Europe can’t do anything about it. No one (yet) expects him to join the Shanghai Cooperation Organization. Its standard of living is expected to plummet.

German industrial exports and the attraction of foreign investment inflows were the main factors supporting the euro exchange rate. For Germany, the great attraction of the switch from the Deutsche Mark to the euro was to prevent its export surplus from driving up the Deutsche Mark exchange rate and pushing the prices of German products away from world markets. The enlargement of the Eurozone to include Greece, Italy, Portugal, Spain and other countries with balance of payments deficits kept the Euro from soaring. This protected the competitiveness of German industry.

After its introduction in 1999 at $1.12, the euro fell to $0.85 in July 2001, but recovered and even rose to $1.58 in April 2008. It continued to fall since then, and since February of this year, sanctions have boosted the euro trading rate below parity with the dollar, at $0.97 this week.

The main deficit problem has been rising prices for imported gas and oil, as well as products such as aluminum and fertilizers that require heavy energy inputs for their production. And as the euro’s exchange rate falls against the dollar, the cost of European debt in US dollars – the normal condition for subsidiaries of US multinationals – rises, compressing profits.

This is not the kind of depression in which “automatic stabilizers” can help restore economic balance. Energy dependence is structural. To make matters worse, the Eurozone’s economic rules limit its budget deficits to just 3% of GDP. This prevents its national governments from supporting the economy through deficit spending. Rising energy and food prices – and servicing dollar debt – will leave far less income to spend on goods and services.

Finally, Pepe Escobar pointed out on September 28 that Germany is contractually obliged to buy at least 40 billion cubic meters of Russian gas per year until 2030. …Gazprom is legally entitled to be paid even without shipping any gas. … Berlin does not get all the gas it needs but still has to pay. A long court battle can be expected before the money changes hands. And Germany’s ultimate ability to pay will gradually weaken.

It seems curious that the US stock market climbed more than 500 points for the Dow Jones Industrial Average on Wednesday. Maybe Plunge’s protection team had stepped in to try to reassure the world that everything was going to be okay. But the stock market gave up most of those gains on Thursday as reality could no longer be dismissed.

German industrial competition with the United States ends, which helps the American trade balance. But on the capital side, the depreciation of the euro will reduce the value of US investments in Europe and the dollar value of the profits they could still make as the European economy shrinks. Global profits reported by US multinationals will fall.

The Effect of US Sanctions and the New Cold War Outside Europe

The ability of many countries to pay their external and internal debts was already reaching breaking point before anti-Russian sanctions drove up global energy and food prices. Sanctions-induced price rises have been compounded by the rise in the dollar’s exchange rate against almost every currency (ironically, except against the rouble, the rate of which has soared rather than crashed as strategists Americans tried in vain to do so). International commodity prices are still mostly denominated in dollars, so the appreciation of the dollar further drives up import prices for most countries.

The rise in the dollar also increases the local currency cost of servicing dollar-denominated foreign debt. Many European and Southern countries have already reached the limit of their ability to repay their dollar-denominated debts and are still dealing with the impact of the Covid pandemic. Now that US and NATO sanctions have driven up global gas, oil and grain prices – and the appreciation of the dollar is increasing the cost of servicing dollar-denominated debts – these countries cannot can no longer afford to import the energy and food they need to live if they have to pay their foreign debts. Something has to give.

On Tuesday, September 27, US Secretary of State Antony Blinken shed crocodile tears and said attacking Russian pipelines was in no one’s interest. But if that was really the case, no one would have attacked the gas pipes. What Mr. Blinken was really saying was Don’t ask. Cui bono.” I don’t expect NATO investigators to go beyond blaming the usual suspects that US officials automatically blame.

America’s strategists must have a game plan for how to proceed from here. They will try to maintain a neoliberalized world economy for as long as they can. They will use the usual ploy for countries unable to pay their external debts: the IMF will lend them the money to pay – on condition that they raise the foreign currency to repay by privatizing what remains of their public domain, natural resource heritage and other assets, selling them to US financial investors and their allies.

Will it work? Or will the debtor countries unite and find ways to restore the world to affordable oil and gas prices, fertilizer prices, grain and other food prices, metals and raw materials raw materials supplied by Russia, China and their allied Eurasian neighbors, without American conditionalities? as have put an end to European prosperity?

An alternative to the neoliberal order designed by the United States is the great concern of American strategists. They can’t solve the problem as easily as sabotaging Nord Stream 1 and 2. Their solution will likely be the usual American approach: military intervention and new color revolutions in hopes of gaining the same power over the Global South. and Eurasia that American diplomacy via NATO has exerted on Germany. and other European countries.

The fact that US expectations of how anti-Russian sanctions would work against Russia was simply the reverse of what actually happened gives hope for the future of the world. The opposition and even the contempt of American diplomats towards other countries acting in their own economic interest consider it a waste of time (and indeed, to be unpatriotic) to consider how foreign countries could develop their own alternative to the plans Americans. The assumption behind this American tunnel vision is that there is no alternative – and that if they don’t think about such a prospect, it will remain unthinkable.

But unless other countries work together to create an alternative to the IMF, the World Bank, the International Court of Justice, the World Trade Organization and the many United Nations agencies now biased in favor of states States/NATO by American diplomats and their proxies, the coming decades will see the US economic strategy of financial and military dominance unfold according to Washington’s plans. The question is whether these countries can develop a new alternative economic order to protect themselves from a fate like the one Europe has imposed on itself this year for the next decade.

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James R. Rhodes