Eurocrisis at its peak (december 2011)... some forward thinking here

Well, I think the world has all very much suffered its eurocrisis fatique in the last months. Yet it is time for some new forward thinking on the euro. And I'm going to ensure it's a plain vanilla explanation here. The situation is: this euro-thingy was and is a cunning French plan. And we shouldn't fall for the cunning French for a second time.

Let my try to explain this in three simple steps. That will help you understand the world without constantly following tweets and live blogs. It is - after all - not really that complicated, although the rethorics of the French President Sarkozy and the German Bundeskanzlerin Merkel do create a bit of fog.

Step 1: Monetary union means moving money between regions that constitute the union
Let's look at history. In particular the year 1977. A group of experts, headed by Mr MacDougall, wrote a report on the possibilities for a monetary union and the consequence on public finance. It's a beautifully written report in typewriter format, the standard of those days. And it describes the functioning of monetary unions in a numbere of countries, thus providing the European Commission (9 countries then) with a bit of inspiration for the future.

Conclusion four in this report clearly outlines that an economic and monetary union will always (and permanently) lead to a redistribution of money from richer regions to poor ones via a number of methods (taxes, subsidies and so on):
The redistribution through public finance between regions in the countries studied tends to be reflected to a large extent (though not, of course, precisely because other factors are involved) in corresponding deficits in the balances of payments on current account of the poorer regions, with corresponding surpluses in the richer regions. These deficits and surpluses are of a continuing nature. Net flows of public finance in the range of 3 - 10 % of regional product are common for both relatively rich and relatively poor regions, but a few of the latter enjoy considerably higher net inflows, up to around 30 % of regional product.

The report then continues to describe diplomatically that it's too early for a monetary union now. It also becomes clear that the redistribution of income between regions requires a central form of taxation/income for the centre of the Union (the EU itself) and a bigger budget. Because that creates the mechanisms through which redistribution can occur.

2. The euro: cunning French plan consisting of well packaged creeping committments
In an earlier Dutch blogpost I mentioned and honoured the foresight of Bernard Connolly. This former EU civil servant described in 1995 the French policy: use the euro to gain more influence in the relationshop with Germany. Because without some form of cooperation, the German economy would rapidly show its tail lights to the weaker French economy. By introducing the euro, the French got their influence as well as the desired endgoal; a political union in Europa.

The French understood that going into the discussion with their main goal revealed: political union, would not work. So they chose the Monnet-strategy of creeping committments. Just start with a joint currency and understand that economics will then in the end lead to some crisis-moments. Which are then used to further cement the union. They cleverly disguised their main goal (as no one was ready and willing to committ) and suckered the Germans into believing that this 'no-bail-out'-clause was really worth the paper it was written on.

Of course the French were clever enough to understand that in times of crisis, such clauses will be dropped. They also succeeded in making the sanctions of the Treaty subject to political assessment. And thus they put Germany and Europe on the road of small creeping committments were there is only one way: forward. Until in the end, after some crisis-moments, the full policial union would be arrived at.

Step 3: French magic and illusions: confuse the public with the actuality and hide the real rabbit
I think that it's useless to be excited about the events in the market and politics. What's happening now is exactly what was planned by the French. The diverging economies and bad public finances in the EU have become a strain on the functioning of the European Union. So now is the time to cement forward towards the political union. And we see Merkel and Sarkozy using this opportunity to convince their people and local politicians that this is the time to really step up to the plate and cement some solid new agreements in place. And once again, the German-French axis is the dealmaker with the rest of Europe standing by.

The real choice: political union or not?
By using short term rethorics Sarkozy still hides the real choice as the magician hides his rabbit for his audience. And that choice is wheter or not we want a political union in Europe (where rich countries yearly pay the poor ones and where a central EU-taxation exists and is used to redistribute wealth).

Let's be clear: we failed to properly assess the French gameplan in 1994. We got suckered into their game of creeping committments with only one endconclusion: political union. And our politicians didn't see it, were unaware or otherwise incapable of noticing this. But now that we have seen this happening, we can choose to engage in todays rethorics on new pacts and unions or to step back and repeat the main question: do we really want this political union? Is there sufficient solidarity among all countries in Europe to start sending money from rich to poor countries?

The answer and most likely outcome: Marseillaise rather than the ninth of Beethoven
Our true challenge now is not to be confused by the magic, the tricks, the thick air, the fog and the 34th rescue plan for the Euro. So when brushing all that aside, what remains is a lack of solidarity in Europe to go forward towards a political union. But we can also see that our current style politicans lack the courage, guts or vision to really deal with that question openly. Then again, that is also a valid choice. It's the choice to remain the puppet/marionet in the French theatre.

My guess is that Sarkozy is a very smart man who foresees that the European countries will continue to fall for his cheap magic and will remain puppets in the French masterplan. And could that perhaps also be the reason why, at the end of his pro-Europa-speech, one week ago, we didn't hear the European anthem (the Ninth of Beethoven) but the Marseillaise?

Click here to the read the Dutch version of this blogpost.