Commentary on Political Economy

Friday 25 March 2022



The writer, Fubini, here outlines the same thesis that I had sustained regarding the German mercantilist expansionism toward Eastern Europe. Hitler managed to persuade the German elite to back his imperialist aggression by demonstrating the ability of the German armies to subdue Eastern Europe.

After the War, Germany has continued this expansionism in mercantilist terms: suppression of domestic demand and artificially low exchange rate to conquer new markets even through colossal trade balance surpluses.

Here Fubini forgets at least one other fundamental strategy of imperialist mercantilism: the artificial suppression of the currency (Deutschemark first, then the euro from 2001) through savage deflationary policies that have kept the rest of the Eurozone uncompetitive as against German industry (domestic price rises in Italy and France could not be discounted through currency devaluations because of the single currency, the euro). 

Excellent stuff!!!

The response of Europe: indecisions of little use

 by Federico Fubini

 March 25, 2022

 The choice is between very harsh sanctions as soon as possible, aimed at crumbling the Kremlin regime, and Putin's next moves always aimed at subverting our political space

 Since Wednesday a countdown has started which no one can predict today, in this economic war that runs parallel to that on the ground.  The latter, atrocious, is being fought in Ukraine.  The first takes place between Russia and the world's democracies, especially between Russia and the European Union, and is now reaching a turning point.  Vladimir Putin said that from the middle of next week he will sell gas, oil and coal to us "hostile countries" only if we pay in rubles.  European leaders gathered in Brussels yesterday replied that the contracts include euros and dollars, so they will not fold.

 That of the dictator could be a bluff, a way to test the proverbial European irresolution and sow divisions.  It sure sounds like a submission request and, if only for that, it will be rejected.  But these years have taught us that all of us Westerners have the right to think about Putin, unless we underestimate what he says.  We abhor his world view of him, but we cannot deny that even in this economic warfare he tries to calculate his moves.  He started in the autumn by reducing gas supplies, to raise prices and with those the stress in the European social and productive fabric.  He continued in the winter by blocking the export of a strategic fertilizer on which Russia dominates world markets, again to create insecurity and inflation in Europe.

 Now the threat on the ruble betrays panic for the stability of the Russian currency, after the European sanctions, but also reveals the basic objective of the aggression against Ukraine: to destabilize and blow up the security order and therefore the European political order , as Putin openly said in his February 24 declaration of war on Ukraine.  In that 13-page text he starts talking about Ukraine only on page 8, before he discusses (acrimoniously) only about us.  We Westerners, we Europeans.  It would be foolish to exclude that one day he aims to bring subversion - if not weapons - into the European Union.

 It is against this background that the ongoing debate on the new sanctions to financially paralyze the Moscow regime even more must be weighed.  Today the plant has two flaws, as explained by the Corriere on March 23: with most of the billion euros a day paid by Europe for gas, oil and coal, the Moscow state-owned companies buy rubles and thus prevent the collapse of the currency which - let's face it - is an objective of the Brussels measures.  In essence, the Kremlin is less dissuaded than we would like.  There is therefore discussion of reducing payments to Moscow as soon as possible, even before being able to do without Russian fossil fuels altogether: there are many proposals to do so, while maintaining a sustainable dose of energy supply.  There is the Italian idea of ​​setting a ceiling on the price of gas in Europe, supported by Spain and accepted by France.  There is the one, technically feasible without aggravation, of imposing a tax on Moscow on its oil that will increase as the invasion of Ukraine continues.  There is the idea of ​​putting the gas payments into restricted accounts for withdrawal from Ukraine.  To stop buying Russian coal (for 40 billion euros a year) to replace it perhaps with Australian coal.  Or that of common European purchases of gas, oil - as has been done with vaccines - to ensure that the countries of the Union do not rush to compete against each other in a fratricidal way for resources.

 In short, realistic channels to strengthen sanctions and weaken Putin's war machine would exist, so much so that the dictator tries to confuse us with his threats on rubles.  Yet Europe hesitates, takes time.  It does so for a thousand different reasons, among which a constant emerges: Germany is holding back on everything, arriving at an invocation not to interfere with the "free market" that sounds grotesque now that gas prices are determined by the roar of the guns.

 Behind it is a profound insecurity in Berlin, because the framework in which Germany thrived is falling apart.  For twenty years the leading economy in Europe has suppressed internal consumption and investment, secured raw materials from Russia at low and stable prices and generated colossal trade surpluses by opening up new emerging markets including, above all, China.  The Italian industry is partly satellite of this system.  Now the Ukrainian tragedy is shattering the entire German model of economic co-dependence on the great dictatorships.  "The Russian invasion has put an end to the globalization we have experienced in the last three decades," says Larry Fink, who understands globalization: he manages BlackRock, the largest investment fund in the world with over ten trillion dollars employed everywhere.

 Putin blows this balance more than the financial crisis or Covid did, because he forces the great powers to take sides.  The harsh warning of the NATO summit to China on Thursday evening is a sign that two blocs could really reform as a result of the economic war between Russia and the West.  Germany and Europe will then have to rethink their mercantilist model.  There is an era of production chains closer to home, more interventionism, independence on strategic resources and yes, more inflation.  But all this is on the horizon for now.  In the immediate future, the choice for Europe is no longer between a squeeze on sanctions and a return to the world of yesterday (perhaps after Putin has made part of Ukraine a desert, calling it peace).  The choice is between very harsh sanctions as soon as possible, aimed at crumbling the Kremlin regime;  and Putin's next moves always aimed at subverting our political space.  There will also be some cost to ordinary people and European leaders will have to know how to explain why it needs to be addressed.  But only if Europe does it together, integrating itself, can the most fragile citizens be supported in this step and we will all emerge stronger.  At the moment - yesterday's summit in Brussels made clear - we are not there yet.

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