It looks to me as though the European Monetary Union (EMU) is at the
beginning of its death throes now. When the EU President, Herman Van
Rompuy, said last week that the European Union was in a "survival crisis"
even he was expecting the IMF team to have finished its inspection of
Ireland's accounts on Tuesday morning last as expected.
But it dragged on all through last week and over the week-end, and still
the details haven't emerged. Rumours have it, though, that the IMF and EU
teams haven't been able to force Ireland into giving up its highly
preferential 12.5% corporate tax rate (with which it has been able to
attract several large American corporations). They haven't been able to for
the simple political fact that Irish people are almost up in arms about the
whole mess that membership of the EU has led them into. The opposition
party will sweep into power early next year in Ireland's General Election
and might then decide -- even if the 12.5% rate is retained -- that Ireland
should default from its debts altogether, Latin American style, and thus
leave the EMU, with resignation from the EU likely to follow .
Only this would give Ireland a sporting chance of re-establishing itself as
a going concern. Almost anything could happen then. Portugal, the next on
the chopping block, could follow suit and then likely to be followed by
Greece -- once again! -- which, despite its recent bail-out, is nowhere
near on target in meeting EMU objectives -- and then there's Spain and
Italy, also, both in irredeemable financial trouble. And then there's
Germany. It, too, could secede from the EMU.
Germany, with its superb engineering exports, would be well able to manage
on its own. There are only two issues which have held Germany on a knife
edge from seceding from the EMU already in the past year. One is that it is
still suffering from the guilt of WWII, particularly of the Holocaust, and
feels it must act towards Europe in a super-responsible way in order to
expatiate itself. The other is that, with a weak Euro currency, its exports
are prospering. With a new Deutschesmark, bond investors would soon mark it
up and thus knock Germany's exports back somewhat -- at least initially. It
wouldn't be able to maintain its present low level of unemployment
(relative to the rest of the Western world).
It's in the lap of the Gods -- that is, bond investors -- as to whether
the EMU and the EU survives or not in the next few months. Politicians
don't have to be brave to try and keep the show alive, but bond investors,
who have to put their money where their mouth is, would certainly have to
be. And if the IMF succeeds in bailing-out the EMU for the time being (that
is, putting on a convincing show with large emotive financial numbers),
just where is its money coming from? Because many of its main funding
nations are themselves in debt, then any "money" from the IMF can only be
yet another form of money printing.
Keith
Keith Hudson, Saltford, England
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