Europe's Two Endgames
by Gary North: German
Pope, Italian Central Banker
On November 22, the New York Times published an interactive
chart on which governments owe how much money to which foreign nation's
chart reveals the fault lines in Europe's economy. The debts
are owed above all to French banks. The biggest debtor is Italy.
If Italy defaults, France's largest banks go down. Overnight.
November 28, there was a Financial Times article speculating
that the Eurozone has less than two weeks to survive. The headline:
"The Eurozone really has only days to avoid a collapse." It was
written by an associate editor of the publication.
been lots of these articles over the last few weeks. They all offer
the same formula: "The end is near, unless. . . ." Unless what?
Unless Western Europe's largest governments unilaterally abolish
the treaties that created the European Union in the 1990s. This
will involve the following: (1) the consolidation of the Eurozone
into an unconstitutional super-state, and (2) the European Central
Bank buys bonds issued by this new entity, which is also unconstitutional,
according to the existing treaties.
The first solution
is consistent with over 90 years of behind-the-scenes planning to
centralize Europe politically, thereby destroying individual national
sovereignty. I have written about this many times. The mastermind
of this was Jean Monnet. Monnet started working for political unification
when he and Raymond Fosdick, John D. Rockefeller, Jr.'s agent, sat
together at the Versailles Peace Conference in 1919.
In July 1919,
Fosdick sent a letter to his wife. He told her that he and Monnet
were working daily to lay the foundations of "the framework of international
government." [July 31, 1919; in Fosdick, ed., Letters on the
League of Nations (Princeton, New Jersey: Princeton University
Press, 1966), p. 18.] Fosdick returned to New York City in 1920,
where he took over running the Rockefeller Foundation for the next
the #1 front man for the New World Order for the next five decades.
He promoted political unification by wrapping it in the swaddling
clothes of economic unification. The first institutional manifestation
of this plan was in 1951: the creation of the European Economic
Coal and Steel Community. It was extended in 1957 with the creation
of the Common Market.
aspect of this unification process was the creation of a unified
currency and a single central bank. The NWO did not get all of this,
but they got most of it in 2000: the Eurozone and the euro.
We are now
facing the clash of these two endgames: (1) Monnet's political endgame,
which could easily become a reality in the next few weeks vs. (2)
the monetary endgame, in which Monnet's original vision is not consummated,
because the Eurozone collapses in a wave of big bank failures. The
world then goes into a recession . . . or worse.
Also on November
28, European stock markets had an enormous rally, between 3% to
5.5%, depending on the market. I see three possible explanations:
1. The article
was dead wrong: no Eurozone crisis.
2. Monnet's political endgame in about to happen.
3. Investors grab at straws.
There was a
rumor over the weekend that the IMF was going to lend Italy's government
€600 billion. Here
is how one news outlet reported it.
The IMF could bail out Italy with up to €600bn ($794bn),
an Italian newspaper reported on Sunday, as Prime Minister Mario
Monti came under pressure to speed up anti-crisis measures.
would give Monti a window of 12 to 18 months to implement urgent
budget cuts and growth-boosting reforms "by removing the necessity
of having to refinance the debt", La Stampa reported, citing IMF
officials in Washington.
The IMF would
guarantee rates of 4.0% or 5.0% on the loan - far better than
the borrowing costs on commercial debt markets, where the rate
on two-year and five-year Italian government bonds has risen above
article was wrong, or else the author's alternatives fiscal
union and European Central Bank inflation on a massive scale
are a slam dunk, to use an American phrase.
morning, the IMF had denied that any such plan existed. The markets
paid no attention to the denial. The rumor had to be true. It was
only right that it be true. It was too good not to be true. All
day, they soared upward.
to believe that Santa Claus will come early this year.
the volatility of Europe's stocks has been enormous. Wild waves
of pessimism are followed by equally wild waves of optimism. The
pessimism is driven by free market forces: the relentless upward
move of interest rates for PIIGS government bonds. Greece is paying
well over 100% on its two-year bonds. Italy and Spain are facing
7%, which is regarded as some sort of tipping-point figure
why, we are not told. It just is. Greece pays almost 20 times this,
but we are reassured that Greece will not default. However, Spain
and Italy may default as a result of 7%.
I do not buy
either story. Greece will surely default, contrary to all assurances
to the contrary, but Italy and Spain may not, if they cut government
spending fast enough and deep enough. But they won't.
So, are the
investors wiser than the columnists? Is the IMF going to come through,
even though (1) Europe is not yet consolidated politically, and
(2) the ECB will continue to refuse to inflate? Is the IMF Santa
Claus? Or will it turn out that the ECB is going to play Santa this
don't care. One of these scenarios has to be true, because the alternative
is a crash. France will have its credit rating downgraded. Sarkozy's
government will fall.
needs a lot more than €600 billion. It needs something in the range
of €2 trillion in a TARP-like bailout. And this doesn't include
however much the ECB must inflate to keep the banks solvent. This
is the opinion of the other Sarkozy: Nicholas' half brother, who
is a senior manager of the Carlyle Group, the third largest private
hedge fund on earth. Among its investors are George H. W. Bush and
the rich bin Ladens.
How soon is
this enormous infusion of capital needed? A lot sooner than most
people think, he says.
investors on November 28 were saying, "No problem!" The money will
be forthcoming. From whom? No one knows. From bonds issued by a
unified government that does not exist and which most voters oppose?
Bonds purchased by whom? By the ECB, which has held out against
major increases? By nearly insolvent large banks? By private investors?
Who is the
Santa who will come in the night with toys for good politicians?
Who are these good politicians? Politicians who say that the two
European Union treaties need not be honored, since they do not authorize
fiscal union or central bank purchases of bonds issued by such a
This will not
be decided by voters. It will be decided by elected leaders, who
will be taking orders from the real powers in Europe, which are
closely allied to the large banks. The large banks will not be allowed
to go under. No pieces of paper (treaties) are going to be allowed
to interfere with a European big bank bailout.
this. They know that the game will go on. They know that the leaders
will work out something, and that the tight-fisted ECB will capitulate
in the face of a domino collapse of commercial banks.
is, the leaders may not work it out in time. Merkel has verbally
stonewalled, although she has not demonstrated any serious resistance.
She will surrender. But she is playing a game of chicken. She is
playing the hard-nosed bluffer, trying to get some kind of deal
favorable to Germany. Sarkozy looks ready to surrender to get any
deal that will keep French government debt from being downgraded.
OF A SOLUTION
The rumor about
the IMF carried weight, because the IMF does not need to consider
voters. It lends other people's money, namely, money ponied up by
member governments. The IMF can do whatever it wants. It will want
to save Europe's largest banks.
If banker Sarkozy
is correct, the IMF alone will not be able to keep this ship afloat.
Europe's northern (non-Irish) taxpayers must consent to having their
future income pledged by politicians as collateral for the extra
debt. If his estimate is anywhere near correct, it will take an
enormous pulling together to enable the governments in a "new, improved"
Eurozone to borrow over €2 trillion. Unless . . . the ECB comes
up with the money.
all it takes are hints to send investors into a buying mania. They
are ready to believe rumors. They are willing to believe rumors
that are officially denied. They are ready to believe that credit
is always available by the trillions on a moment's notice, and at
low interest rates.
They do not
believe that there are limits to debt. They believe that the ratchet
of government debt can be cranked higher and higher, despite the
obvious fact that no one denies: European government debts will
never be re-paid. They will be rolled over forever, growing exponentially,
without causing either (1) rising rates, (2) delays in interest
payments, or (3) price inflation.
Hints of a
solution are all it takes to get investors to buy shares. The actual
entries on balance sheets have no effect on their thinking. They
are following Napoleon Hill: "think and grow rich."
Merkel is going
to deliver a speech to the German Parliament on December 2. This
is in preparation for the next scheduled summit on the weekend of
December 8-9. Investors are convinced that there will be a resolution
to the crisis then.
been other summits. Each time, there has been enormous optimism
regarding a forthcoming solution. Then the summit issues a soothing
press release, but without specifics. The magnitude of the looming
crisis is still not perceived by investors.
Or is it? Are
they correct? Will a summit meeting provide all the political capital
needed for a non-existent new government to borrow enough money
from visibly insolvent, undercapitalized banks?
I do not see
how the investors can have hope in anything other than the willingness
of the ECB to provide whatever digital funds are necessary to provide
borrowers to buy government debt issued by the PIIGS's politicians
at rates low enough to calm the equities markets. In other words,
investors are counting on Federal Reserve-like increases in the
ECB's monetary base.
tidbit supposedly was instrumental in the rapid rise of the
France stepped up a drive on Monday for powers to reject euro
zone members' budgets that breach EU rules. Finance ministers
of the 17-nation currency area meeting on Tuesday are due to approve
detailed arrangements for scaling up the European Financial Stability
Facility rescue fund to help prevent contagion in bond markets.
I see. They
will scale up the EFSF rescue fund. What rescue fund is that? The
last time I read about the fund, the EFSF was using its funds to
buy its own bonds.
"No," you may
think. "That would be Alice-in-Wonderland finance." You would be
correct. That is where we all live today: in Wonderland. This
appeared in the London Telegraph (Nov. 12).
Financial Stability Facility (EFSF) last week announced it had successfully
sold a €3bn 10-year bond in support of Ireland.
Sunday Telegraph can reveal that target was only met after the
EFSF resorted to buying up several hundred million euros worth of
the EFSF had spent more than € 100m buying up its own bonds to help
it achieve its funding target after the banks leading the deal were
only able to find about €2.7bn of outside demand for the debt.
I thought this
was illuminating. On November 18, the
Telegraph ran this:
a leaked document seen by The Daily Telegraph yesterday showed
Berlin has drawn up radical plans for an intrusive new European
body which will be able to intervene directly in beleaguered countries.
wants to exercise more control over the PIIGS. How? Does Germany
plan to invade? What sanctions can the EU impose? Cut off more bailout
money? You mean the way the EU has cut off Greece? Oh, it hasn't
cut off Greece? I see.
John Major, the former prime minister, warned last night that the
growing integration of the eurozone nations threatens democracy
in those countries. He told Al Jazeera television that richer euro
members led by Germany and France will "insist on moving towards
what we call fiscal union. By that I mean common control over budgets
and fiscal deficits".
here is John Major, 21 years after he replaced Margaret Thatcher,
because she opposed entry into the EU, and he didn't, going on Al-Jazeera
to warn about the loss of democracy. The Monnet plan in Europe has
been just that ever since 1951.
The end of
democracy in European nations is Monnet's endgame. The bankruptcy
of over-leveraged French banks is the free market's endgame. The
political mouthpieces of the bankers are promoting the acceptance
of Monnet's endgame, all in the name of avoiding the free market's
endgame in the financial markets.
for the free market.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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