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The mother of all crises
Germany looks East and Europe survives
In defense of nuclear energy
Articles on Germany before 2011


  • (august 2011) The mother of all crises. As i have written recently (See Jobs), there are really two crises in the world, that get confused because they are happening at the same time: the USA has a private debt problem, Europe has a government debt problem. (Then there is a third crisis looming at the horizon, the Chinese bubble, but that's another story).
    Europeans have always been very good at finding the source of the world's problems outside Europe, even when (most of the times) the problems had been caused by Europe alone. The 2011 financial crisis fits that pattern. Obviously, the financial panic started with Greece, then Portugal, then Ireland and now the "too big to rescue" economies of Italy and Spain. Behind this panic are actually the "rich" European countries, like Germany: it's their banks that are massively vulnerable to a default by Italy or Spain. Even the "rich" countries, like Germany and France, tend to have a higher government debt (as a percentage of GDP) than the USA. In fact, if the USA did not waste billions of dollars in maintaining the "Pax Americana" that also benefits Europe, the USA would have a fraction of the average national debt in Europe.
    Those in Germany who ask for Greece and Portugal (and maybe Italy too) to leave the eurozone forget that their own banks would lose billions of euros in the process. Worse: Germany owns its current domination of Europe to the fact that the poor countries use the same currency, which is largely tied to the performance of the German economy (the largest in Europe). If Italy leaves the eurozone, it will again be able to compete against Germany by offering cheaper goods and services, as it was in the old days of the lira and the mark.
    Germany's wealth depends on the widespread adoption of the euro, which in turn causes lower competitiveness in the poor countries, which in turn causes huge government debts, which in turn attracts German investors, which in turn exposes Germany to the risk of a default by these governments. But Germany's options are not stellar.
    Ideally, Germany should do to the southern countries what it did to East Germany when the two got united: spend a fortune to restructure the poor regions and assume the responsibility of administering it. But the other European countries are unlikely to surrender their political power to Germany, because that would de facto amount to an annexation.
    Europeans also tend to forget recent history. When the USA was struck by a financial crisis that should have been only an internal affair, the country that went bankrupt was a Europen country (Iceland), and the European banks were the first ones to need government intervention. That wasn't even a European crisis.
    TM, ®, Copyright © 2011 Piero Scaruffi All rights reserved.
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  • (july 2011) Germany looks East and Europe survives. The budget crisis of the southern European countries has exposed a division that has existed for decades, and that the political will to cement a European Union had only temporarily hidden. In fact, some analysts now think that it was a mistake to pretend that the division did not exist: by funneling billions of dollars to the poor southern countries, the European Union de facto encouraged them to ignore their problems. Greece, Portugal, Spain and Italy all share a problem, although the details vary greatly: they are not competitive when they have to use the same currency that northern Europe uses. Some of them produce virtually nothing of significance (other than olive oil and tourism). Others mainly produced a real-estate bubble. And the biggest (Italy) is proof that miracles to happen in politics and economics, otherwise its many problems would have doomed another country a long ago. Spain and especially Italy have an additional issue: they are not "too big to fail" but "too big to be rescued".
    Germany's government has been agonizing over what to do. They can rescue this ailing economies and save the eurozone the way West Germany rescued East Germany. This would cost the German taxpayer quite a bit and presumably Germany would demand that the southern Europeans adopt German standards of austerity and productivity. De facto, this would amount to a German protectorate over Spain, Italy, Portugal and Greece. This might or might not happen. However, German businessmen have already decided on what to do: they are leaving southern Europe and aiming at Asia. On one hand you have an ailing subcontinent (southern Europe) that seems to have no future. On the other hand you have a booming continent (Asia) that seems to own the future. Governments may argue over ideology, but businesses simply go where the money is.
    The most sensible outcome of this crisis, in the medium term, is that both scenarios will materialize. Northern Europe will reduce its economic ties to the weak southern economies, and at the same time will increase its economic ties with Asia; but northern Europe will also salvage the eurozone by pouring billions into southern Europe and demanding in return that southern Europe becomes a German protectorate. De facto this would turn the tables on Asia: when the painful process of restructing is over (that will inevitably involve a reduction in standards of living and an improvement in productivity and competitivity), southern Europe will have become a viable industrial base for northern European companies that, meanwhile, will have greatly expanded their market shares in Asia. In the end, it may all make sense: this is just a readjustment of the world economies to the end of the Cold War (during which southern Europe played the role that is now played by Asia and Eastern Europe) and to globalization (during which Europe has to become a more integrated economy if it wants to survive against the new juggernauts of China, India and Brazil).
    The new danger that southern Europeans may underrate is the "Arab spring". This is eerily reminiscent of what happened in Eastern Europe during the 1990s. At first it only created a big mess, but eventually it created new opportunities for northern European companies to open factories in cheaper and more flexible places. Until the 16th century the Arab world was richer than southern Europe. Turkey is a model that should inspire southern Europe: a vibrant economy that was created outside any economic union with no financial help from any outside organization. Until the 19th century the Ottoman Empire (Turkey's predecessor) was competing with the European empires of Britain, France and Austria/Spain. It is always worth studying history.
    TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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  • (june 2011) In defense of nuclear energy. The Fukushima accident has revived fears about the catastrophic consequences of nuclear accidents. Germany has decided to phase out its entire nuclear energy. If the entire world followed suit, this would be a historical decision to return to a more primitive form of life. People are neglecting the fact that nuclear energy is one of the factors that made it possible to create the current level of prosperity in the world. It has also contributed to the current state of relative peace (the world has not seen so much peace in many centuries). Without nuclear energy countries like China and India would have had scant chances of developing at the speed at which they are. Without it, oil and gas would be even more precious and probably cause even more wars. Going forward this will be even more (not less) true. The nuclear power plants that Germany wants to shut down emit very few greenhouse gases. The coal power plants that are likely to replace them in the short term will produce much worse emissions. The more nuclear energy we have the less likely that we'll have wars over oil and the more likely that prosperity will spread and the more likely that the world will avoid a climate catastrophe. Antinuclear fundamentalists are ushering in a new age of poverty, war and global warming.
    TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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    Articles on Germany before 2011

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TM, ®, Copyright © 2015 Piero Scaruffi All rights reserved.