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  1. Wealth
November 26, 2012

Mekel's Austerity Mania Will Bring Down the EU

By Spear's

Germany is gradually taking over control of Europe, make no mistake about it

Those who backed the utterly daft and economically crazy Maastricht Treaty in 1992 cannot now avoid admitting that their blinkered and thoughtless belief in the EMU and the single currency has had exactly the opposite of what, in their naiveté, they believed would be the beneficial outcome of the great new eurozone: widespread anger and civil disobedience, 25 million unemployed, economic crisis in every country and deflationary debt-spirals – other than in Germany, of course.

When the Rt Hon Nicholas Ridley was forced to resign from the Cabinet for saying that the Maastricht Treaty was just a trick for Germany to take over the rest of Europe without firing a shot, he was of course completely right.

Read more: A day of Euro-protests is just the start

The worrying aspect of this treaty was the democratic deficit at its core, to the point where anyone who challenged it was cast aside and labelled an obstructionist, short-sighted Little Englander who was blinkered as regards seizing the greater new euro-future. Now we see who was wearing the blinkers…

Germany is gradually taking over control of Europe, make no mistake about it: Greece is a mere satrapy of Germany and likely to be so for a very long time; the same goes for Italy as Germany parachuted in an unelected bureaucrat to operate its austerity plan; Spain is dithering over a bailout as it desperately seeks to avoid Germany’s clutches, implementing its own EU-directed austerity just as Catalonia votes for secession.

Moreover, Portugal was recently visited by Merkel and told to keep up with its austerity programme; Ireland’s request for a resetting of its bailout interest rate was rejected by Germany; France’s Hollande doesn’t have a plan for dealing with his own economic problems, other than to make them worse, as the Sarkozy smoke-and-mirrors pretence of being an equal party to the reunified Germany falls visibly by the wayside.

It is Merkel who is running Europe, whereas the unelected president von Crumpled-Rompuy is just a joke in an ill-fitting suit, coming from the capital of a country coming apart at the seams!

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There’s only one snag to Germany’s seizing control of Europe and turning it into its new economic empire: it could easily all end in bust, leading to a Weimar Mark II scenario, with almost predictable consequences.

Read more: Eurozone, meant to unite, has divided

Remember all that Maastricht Treaty rhetoric about the treaty being the key to ending wars in Europe? Germany is still subsidising the former East Germany with €60 billion a year, and is now supporting the PIGS through the Bundesbank, which holds over €700 billion of uncollected so-called T3 debts, and through the EFSF guarantees for its share of the €500 billion bail-out fund, and through the ECB’s bond-buying or QE programmes, and finally through some €400 billion of its own commercial bank lending.

Now Merkel is pretending that there is no need to write off any of the money owed by Greece, just as Greece is trying to borrow another €110 billion when it can’t repay the first €130 billion it borrowed.

The fact is that Greece will never be able to repay any of this debt, as it hasn’t got any real earning assets, apart from shipping which is all offshore and non-tax-paying! And none of the PIGS has an effective UK-style tax-gathering mechanism.

The trouble is that Merkelnomics isn’t working as she forces austerity down the throats of her national clients in exchange for bailouts. This policy doesn’t work for two reasons: the first is simple: as she forces government spending down, GDP goes down and the level of debt-to-GDP goes up; then, secondly and more importantly, austerity is setting up a downward debt-deflationary spiral, as unemployment rises and increases governmental social spending just as its tax base goes down at the same time.

Read more: Eurozone can’t keep the euro and survive

In effect, as the single currency prevents the safety valve of currency market devaluation, it forces devaluation into the indebted economies through wage and price deflation, which have their own negative economic consequences.

Next, as these failing economies are squeezed back to some kind of parity with German price levels, German productivity meanwhile doesn’t stop rising, just as it hasn’t stopped rising since 1945.

Merkelnomics will throttle all the rest of Europe into economic asphyxiation, and eventually bring down Germany itself as all those debts go bad. Bravo to all those politicians – Hurd, Heseltine and Howe to the fore – who said there was no way forward without the utterly daft Maastricht Treaty and its bonkers euro idea! Apologise, apologise…

Read more from Stephen Hill

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