February 1, 2012
EU has hit self-destruct button as world moves onPosted in Irish Independent · 283 comments ·
You can do worse than sit on a Tuesday afternoon in a little cafe about 20 yards from the Coliseum and watch five Chinese tourists getting their photos taken with three chain-smoking Italians dressed up as Roman gladiators.
There is something poignant about looking at the Italians in the epicentre of the greatest empire Europe has ever seen, pimping themselves out to the free-spending consumers of the world’s coming empire.
While Europe condemns itself to years of unnecessary austerity, China continues to grow apace. Whether China slips up this year or next is actually immaterial, the great structural shift in the world is towards China and there’s nothing we can do — short of protectionism — about it.
Chinese tourists will become commonplace in Europe. The affluent travel.
In contrast, Europe remains firmly wedded to the self-destruct button. The rest of the world is not waiting for Europe or Ireland to get its act together.
The fiscal compact signed on Monday revealed the worst type of pork-barrel politics in Europe because the concerns of the junior partner in German Chancellor Angela Merkl’s coalition rode roughshod over the interests of member states. A tiny tail is wagging a huge dog.
The fiscal compact is a bad joke. It is clearly drawn up by people who have no understanding of the rudiments of economics. It will drive Europe further into recession. If history is anything to go by, the political beast that will arise from the ashes of the economies of the debtor countries could be much more radical than anything we have seen in years.
This is ‘Angela’s Ashes’ — 21st century style.
Angela is driving a bulldozer through the EU and its institutions and in the process of trying to save the euro, she — together with Sarkozy — is destroying the EU.
Italy has just signed up to halving its debt-to-GDP ratio in 20 years. Do you have any idea what that means? Italian debt-to-GDP ratio is 120pc. It means that the Italians — who largely self-finance their own debts — are going to take 60pc of GDP out of the economy over the next two decades — a 20th every year. This is ludicrous, even if it were possible.
But it’s not possible because consider what is happening in Europe right now. Think about the world as it is, not as the politicians who met on Monday night would like it to be.
Here in Italy, youth unemployment is running at 30pc. In Greece, it is 51pc. In Spain it is 48pc and in Portugal it is 31pc. In Ireland, unemployment amongst young men between 15 and 19 is 45pc and one in three young men between 20 and 24 are on the dole. (I have just read excellent research on Irish unemployment by economist at NUIM Aedin Doris. Sobering but realistic.)
How can austerity now be the answer when these young people are on the dole because of a lack of demand? Everyone knows you can’t go on spending indefinitely, but there is a stage in the cycle when the Government has to support demand and that stage is now.
Why else would Portuguese bond yields be at 17pc yesterday if it wasn’t because the market thinks it is impossible for Portugal to survive in this straitjacket? Are yields high because austerity is making Portugal more likely to pay its debts? I think not.
And if Europe is putting its financial house in order and confidence is returning to the market — which is what the politicians have assured us — how come eurozone banks are set to borrow about â‚¬1 trillion in emergency loans from the ECB at its next three-year money auction?
If everything was hunky dory they would be borrowing from each other, but they are not because no one trusts anyone.
Then there is the little point about democracy. On Monday night I chatted to one of Greece’s foremost political commentators, Pavlos Tsimas, who painted a picture of a country imploding. Greece is supposed to be in the European family but is being cast aside.
At the weekend we saw Germany demand that the Greeks “give absolute priority to debt service” and “transfer budgetary sovereignty” to the EU while refusing to allow the issue to be put to the Greek people in a referendum. How are the Greeks supposed to react?
I write not as a eurosceptic but as a graduate of the College of Europe, someone who believes in the EU and has voted ‘Yes’ in every referendum. However, the EU that I voted for is being dismantled in front of our eyes.
All the while, the world is moving on and Chinese consumers are leading the charge. One of my must-reads of the week, the newsletter by Bill Bonner — the analyst behind the www.dailyreckoning.com — gave me a little bit of info on the ultimate luxury symbol, the Rolls Royce, and how the rich in China are emerging.
China is now the world’s biggest market for Rolls Royce cars, overtaking the US for the first time. Prices range between about â‚¬200,000 and â‚¬350,000 a car.
During 2011 the company sold 3,538 cars worldwide. And about a third of those sales were in China. In fact, Chinese sales jumped 60pc during the year to help the company reach the highest global sales in its 107-year history.
Meanwhile, but in the same vein, the Swiss luxury goods company Compagnie Finan- ciere Richemont SA — which owns the Cartier and Mont Blanc brands — reported a year-over-year increase of 36pc in third-quarter sales in Asia-Pacific.
Unemployment in Asia is almost non-existent. Inter-Asian trade, the next big story, is booming and, for the first time, Chinese tourists are flocking to Europe’s capitals much like the rich British commercial class did in the Victorian and Edwardian age when everyone who was anyone embarked on the Grand Tour. Back then, Britain was the workshop of the world; today it’s China.
China’s commercial might is producing a similar class who are now to be seen, when not in the Coliseum, a little bit up the road in Via Veneto, buying Gucci and Prada.
Europe is languishing. We can easily deal with this crisis. Eurobonds in the morning would solve the financing deficit, prudently. But we won’t do it. So we torch the debtor nations and in this inferno, we seem to think that 30pc to 50pc of young men will be content mooching around on the dole.
Let’s see what sort of malignant European phoenix emerges from Angela’s Ashes.