Submitted by Mark J. Grant, author of Out of the Box,
A fool-proof method for sculpting an elephant:
First, get a huge block of marble; then you chip away everything that doesn't look like an elephant.
Having just returned from the Continent I have been musing about the reality of what the European Union has become. I have crossed out the hype and the hyperbole and I concentrate this morning on not what we are all told but how the construct has evolved. In the forthcoming months as the likelihood of Spain, Portugal, Greece, Cypress, Slovenia and possibly Italy returning to the window for funds or more funds grows at a significant rate and as the Rules of Engagement have changed substantially; a realistic assessment now may prove to be quite worthwhile to consider future actions.
"The question is not what you look at but what you see."
-Henry David Thoreau
In the beginning there were a handful of core nations equal in partnership and full of the excitement of a new venture. Much of the esprit was a desire to band together and compete against the United States for economic dominance and world power. Americans were the upstarts, afterall, and it had long aggravated the Europeans that we had so much control. "Those cowboys," sums up the European position nicely.
Now the Europeans didn't say this aloud of course. They rattled off world peace and band of brothers soliloquys that held their populace at rapt attention. It was rather like Camelot where all of the knights sat at the Round Table in pursuit of their noble quest. Well, to quote an American colloquialism, "Them days is gone forever."
So now we find the EU headquarters no longer staffed by equals but a useful front for Berlin which resides in another country. In the EU now there is Germany and then there is everyone else and whatever motives you may ascribe to the Germans and whatever political position you may wish to embrace; Germany has gained control of most of Europe. Much more pleasant to use Euros than tanks; on that most of us can agree.
This point is critically important to understand. Yes, sure, the Germans will smile and nod and give way on agricultural supplements and on fishing rights and trivial matters but when it gets down to it and the decision is important; Berlin will have its way. Consequently when considering what might happen or allocating your assets; politically and economically the sole thing to consider is the German viewpoint because it will be put in place. When contemplating the discussion on the European banking union or what took place in Greece with the retroactive change in laws that swacked the bond holders, or the confiscation of depositors' money in Cyprus; this was all approved, if not formulated, in Berlin. It is called the European Union but the Emperor is German and the rest of the Court dances to the Prussian anthem.
The honey is free trade and money when needed and the vinegar is the lack of both. The EU stays intact by the utilization of this carrot and of this stick and it has proven to be a very effective strategy. The problem centers on the Germans wanting and expecting everyone to be German and the inability and the lack of desire for a great many of the people on the Continent to either be German in traditions and standards because of thousands of years of cultural differences that cannot be magically transformed by the occasional bratwurst for lunch. In the end, the Germans will demand too much and there will be some sort of revolt but for now; Puff the Magic Dragon holds sway.
The fact that the equity markets have done fabulously and that the interest rates for European sovereign debt have done remarkably well all rest on one thing and one thing only; the creation of money and a massive amount of it. There is no inflation because the underlying economies are in horrendous shape, unemployment in a number of countries at Depression levels and yet the band still plays on. The printing of money is the alchemist's dream and we have finally learned how to coin gold from iron ore.
For Britain, especially, it is a difficult moment. They fought two wars to not be governed by the Germans and now they find themselves trapped. London is the financial capital of Europe and now, moment by moment and drop by drop, they are seeing their stature erode. I can assure you that the Germans will, one way or another, overcome London if Britain remains in the EU and yet they cannot easily leave the EU either. England has become minimized and while they congratulate themselves for joining the European Union but keeping their currency that was really the second best choice. They never should have joined up and their status would have been on an equal footing while now they have been pushed into the coat closet and they get congratulated by the Germans for their fine work of maintaining it. There is no longer a Great Britain but a Trivialized Britain as Germany slowly but surely places their foot on England's neck. Britain needs to let its citizens decide and bear the consequences of their decision.
When lying in bed at night and looking up at the stars you may well ask yourself what happened to your ceiling.
Europe, and the rest of the world for that matter, has been transformed by the printing of money. The dislocation between economies and markets is huge and the glue is the twenty-four seven machinations of the printing presses. Politicians in Europe and America have taken a back seat to the heads of the world's central banks. These people, elected by no one, have become the absolute rulers of the world. The three most important people in Europe are Draghi, Weidmann and Merkel. Merkel, I would say, is appropriately put in third place.
Lastly, as I stare out at the horizon, you should understand the German viewpoint of the State. It comes first, foremost and before any laws. Anything may and will be utilized to further the State, defend the State and carry on its existence. Germany will not hesitate, for one moment and especially in the vassal nations in the rest of Europe, to protect its franchise. Nothing will get in its way as long as they hold their present position of pretty much absolute power.
My heritage is German and I get this joke. You win by being in control and control must always be exercised and never relinquished. In the German mind there are Germans and then there is everyone else and the "everyone elses" will not be treated as the Germans treat themselves.
Consequently as new troubles arise and other nations show up hat in hand, because money is both the carrot and the stick, you may expect whatever needs to be done to protect Germany to be what is done. The preservation of the German state and the continuation of Germany retaining power will be the guiding light that you may bank on in any investment decisions. It will be austerity for the needy, vengeance for those out of step and the sound of the boots marching for the Fatherland.
Achtung!