The Euro Without German Industry
The reaction
to the sabotage of three of the four Nord Stream 1 and 2 pipelines in four
places on Monday, September 26, has focused on speculations about who did it
and whether NATO will make a serious attempt to discover the answer. Yet
instead of panic, there has been a great sigh of diplomatic relief, even calm.
Disabling these pipelines ends the uncertainty and worries on the part of
US/NATO diplomats that nearly reached a crisis proportion the previous week,
when large demonstrations took place in Germany calling for the sanctions to
end and to commission Nord Stream 2 to resolve the energy shortage.
The German
public was coming to understand what it will mean if their steel companies,
fertilizer companies, glass companies and toilet-paper companies were shutting
down. These companies were forecasting that they would have to go out of
business entirely – or shift operations to the United States – if Germany did not
withdraw from the trade and currency sanctions against Russia and permit Russian
gas and oil imports to resume, and presumably to fall back from their
astronomical eight to tenfold price increase.
Yet State Department hawk
Victoria Nuland already had stated in January that “one way or another Nord
Stream 2 will not move forward” if Russia responded to the accelerating Ukrainian
military attacks on the Russian-speaking eastern oblasts. President Biden
backed up U.S. insistence on February 7, promising that “there will be no
longer a Nord Stream 2. We will bring an end to it. … I promise you, we will be
able to do it.”
Most observers simply assumed that
these statements reflected the obvious fact that German politicians were fully
in the US/NATO pocket. Germany’s politicians held fast turbines refusing to
authorize Nord Stream 2, and Canada soon seized the Siemens dynamos needed to
send gas through Nord Stream 1. That seemed to settle matters until German
industry – and a rising number of voters – finally began to calculate just what
blocking Russian gas would mean for Germany’s industrial firms, and hence
domestic employment.
Germany’s willingness to self-impose
an economic depression was wavering – although not its politicians or the EU
bureaucracy. If policymakers were to put German business interests and living
standards first, NATO’s common sanctions and New Cold War front would be
broken. Italy and France might follow suit. That prospect made it urgent to take
the anti-Russian sanctions out of the hands of democratic politics.
Despite being an act of
violence, sabotaging the pipelines has restored calm to US/NATO diplomatic
relations. There is no more uncertainty about whether Europe may break away
from U.S. diplomacy by restoring mutual trade and investment with Russia. The
threat of Europe breaking away from the US/NATO trade and financial sanctions
against Russia has been solved, seemingly for the foreseeable future. Russia
has announced that the gas pressure is falling in three of the four pipelines, and
the infusion of salt water will irreversibly corrode the pipes. (Tagesspiegel,
September 28.)
Where do the euro and dollar go from here?
Looking at how
this will reshape the relationship between the U.S. dollar and the euro, one
can understand why the seemingly obvious consequences of Germany, Italy and
other European economies severing trade ties with Russia have not been
discussed openly. The solution is a German and indeed Europe-wide economic
crash. The next decade will be a disaster. There may be recriminations against
the price paid for letting Europe’s trade diplomacy be dictated by NATO, but
there is nothing that Europe can do about it. Nobody (yet) expects it to join
the Shanghai Cooperation Organization. What is expected is for its living
standards to plunge.
German industrial exports and
attraction of foreign investment inflows were major factors supporting the
euro’s exchange rate. To Germany, the great attraction in moving from the
deutsche mark to the euro was to avoid its export surplus pushing up the
D-mark’s exchange rate and pricing German products out of world markets.
Expanding the eurozone to include Greece, Italy, Portugal, Spain and other
countries running balance-of-payments deficits prevented the euro from soaring.
That protected the competitiveness of German industry.
After its introduction in 1999
at $1.12, the euro sank to $0.85 by July 2001, but recovered and indeed rose to
$1.58 in April 2008. It has been drifting down steadily since then, and since
February of this year the sanctions have driven the euro’s exchange rate below
parity with the dollar, to $0.97 this week.
The major deficit problem has
been rising prices for imported gas and oil, and products such as aluminum and
fertilizer requiring heavy energy inputs for their production. And as the
euro’s exchange rate declines against the dollar, the cost of carrying Europe’s
US-dollar debt – the normal condition for affiliates of U.S. multinationals
–rises, squeezing profits.
This is not
the kind of depression in which “automatic stabilizers” can work to restore
economic balance. Energy dependency 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 supporting the economy by deficit spending. Higher
energy and food prices – and dollar-debt service – will leave much less income
to be spent on goods and services.
As a final kicker, pointed out
by Pepe Escobar on September 28 that “Germany is contractually obligated to purchase at least 40 billion cubic
meters of Russian gas a year until 2030. … Gazprom is legally entitled to get
paid even without shipping gas. … Berlin does not get all the gas it
needs but still needs to pay.” A long court battle can be expected before money
will change hands. And Germany’s ultimate ability to pay will be steadily
weakening.
It seems
curious that the U.S. stock market soared over 500 points for the Dow Jones
Industrial Average on Wednesday. Maybe the Plunge Protection Team was intervening
to try and reassure the world that everything was going to be all right. But the
stock market gave back most of these gains on Thursday as reality no longer
could be brushed aside.
German industrial competition
with United States is ending, helping the U.S. trade balance. But on capital
account the euro’s depreciation will reduce the value of U.S. investments in
Europe and the dollar-value of any profits they may still earn as the European
economy shrinks. Reported global earnings by U.S. multinationals will fall.
The effect of U.S. sanctions and the New Cold War
outside of Europe
The ability of many countries
to pay their foreign and domestic debts already was reaching the breaking point
before the anti-Russian sanctions raised world energy and food prices. The
sanctions-driven price increases have been compounded by the dollar’s rising
exchange rate against nearly all currencies (ironically, except against the
ruble, whose rate has soared instead of collapsing as U.S. strategists tried in
vain to make happen). International raw materials are still priced mainly in
dollars, so the dollar’s currency appreciation is further raising import prices
for most countries.
The rising dollar also raises the local currency cost of
servicing foreign debts denominated in dollars. Many European and Global South
countries already have reached the limit of their ability to service their
dollar-denominated debts, and are still coping with the impact of the Covid
pandemic. Now that US/NATO sanctions have driven up world prices for gas, oil
and grain – and with the dollar’s appreciation raising the cost of servicing
dollar-denominated debts – these countries cannot afford to import the energy
and food that they need to live if they have to pay their foreign debts. Something
has to give.
On
Tuesday, September 27, U.S. Secretary of
State Antony Blinken shed crocodile tears and said that attacking Russian
pipelines was “in no one’s interest.” But if that really were the case, no one
would have attacked the gas lines. What Mr. Blinken really was saying was
“Don’t ask Cui bono.” I don’t expect NATO investigators to go beyond accusing
the usual suspects that U.S. officials automatically blame.
U.S. strategists must have a
game plan for how to proceed from here. They will try to maintain a
neoliberalized global economy for as long as they can. They will use the usual
ploy for countries unable to pay their foreign debts: The IMF will lend them
the money to pay – on the condition that they raise the foreign exchange to
repay by privatizing what remains of their public domain, natural-resource
patrimony and other assets, selling them to U.S. financial investors and their
allies.
Will it work? Or will debtor
countries band together and work out ways to restore the world of affordable
oil and gas prices, fertilizer prices, grain and other food prices, metals and raw
materials supplied by Russia, China and their allied Eurasian neighbors,
without U.S. “conditionalities” such as have ended European prosperity?
An alternative
to the U.S.-designed neoliberal order is the great worry for U.S. strategists. They
cannot solve the problem as easily as sabotaging Nord Stream 1 and 2. Their
solution probably will be the usual U.S. approach: military intervention and
new color revolutions hoping to gain the same power over Global South and
Eurasia that America’s diplomacy via NATO wielded over Germany and other
European countries.
The fact that
U.S. expectations for how anti-Russian sanctions would work out against Russia have
been just the reverse of what actually has happened gives hope for the world’s
future. The opposition and even contempt by U.S. diplomats toward other
countries acting in their own economic interest deems it a waste of time (and
indeed, to be unpatriotic) to contemplate how foreign countries might develop
their own alternative to the U.S. plans. The assumption underlying this U.S.
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, World Bank,
International Court, World Trade Organization and the numerous UN agencies now
biased toward the U.S/NATO by U.S. diplomats and their proxies, the coming
decades will see the U.S. economic strategy of financial and military dominance
unfold along the lines that Washington has planned. The question is whether
these countries can develop an alternative new economic order to protect
themselves from a fate like that which Europe this year has imposed upon itself
for the next decade.
