Today's Stratfor article discusses Germany's changed status in the EU in light of the on-going debt crisis in southern Europe. Part of the rationale behind the post-war EU project was containing Germany. At the same time France used Germany's resources to enhance its own status on the world stage.
However, the crisis in southern Europe could only be solved with German capital. Germany has careful to maintain control of the European Financial Security Facility (EFSF), the financial mechanism for conducting the bailouts. As a result Germany, using the EFSF, can dictate terms to the southern European countries coming to it for assistance. At present that means they sacrifice financial autonomy to Berlin, and of course who knows what the future holds.
In addition, Germany is modifying its position with Russia. As a result England and France are both going to need to reconsider their posture and Central Europe once again finds itself sandwiched between two major powers.
For the article's Hot Stratfor babe I naturally decided to select a German actress. Finally, after my usual detailed hunt, I settled on
Natassja Kinski for the much coveted honor.
The main appeal in attaching her to this article was that, considering the fact it is about economic crisis, she was involved in the Francis Ford Coppola film
One From the Heart. That film was a box office disaster, grossing a little under $640,000 at the box office while costing $26 million to produce. As a result Coppola was forced into bankruptcy 3 times in the next decade and ultimately forced to sell his studio Zeotrope.
Meanwhile Kinsky, who incidentally was not responsible for the film's bombing, continued her prolific film career.
It was a little hard to find an appropriate bonus video of her -- apparently she forgets to get dressed an awful lot before appearing in front of a camera -- but I finally found one, albeit a very strange one. So, after the article you'll find a clip of a very stoned looking Natassja appearing on the David Letterman show. As an added, added bonus she's followed by John Candy who goofs off her earlier appearance.
GERMANY'S CHOICE: PART 2
By Peter Zeihan and Marko Papic, July 26, 2011
Seventeen months ago, STRATFOR described how the future of Europe was bound to the decision-making processes in Germany. Throughout the post-World War II era, other European countries treated Germany as a feeding trough, bleeding the country for resources (primarily financial) in order to smooth over the rougher portions of their systems. Considering the carnage wrought in World War II, most Europeans -- and even many Germans -- considered this perfectly reasonable right up to the current decade. Germany dutifully followed the orders of the others, most notably the French, and wrote check after check to underwrite European solidarity.
However, with the end of the Cold War and German reunification, the Germans began to stand up for themselves once again. Europe's contemporary financial crisis can be as complicated as one wants to make it, but strip away all the talk of bonds, defaults and credit-default swaps and the core of the matter consists of these three points:
- Europe cannot function as a unified entity unless someone is in control.
- At present, Germany is the only country with a large enough economy and population to achieve that control.
- Being in control comes with a cost: It requires deep and ongoing financial support for the European Union's weaker members.
What happened since STRATFOR published Germany's Choice was a debate within Germany about how central the European Union was to German interests and how much the Germans were willing to pay to keep it intact. With their July 22 approval of a new bailout mechanism -- from which the Greeks immediately received another 109 billion euros -- the Germans made clear their answers to those questions, and with that decision, Europe enters a new era.
The Origins of the Eurozone
The foundations of the European Union were laid in the early post-World War II years, but the critical event happened in 1992 with the signing of the Maastricht Treaty on Monetary Union. In that treaty, the Europeans committed themselves to a common currency and monetary system while scrupulously maintaining national control of fiscal policy, finance and banking. They would share capital but not banks, interest rates but not tax policy. They would also share a currency but none of the political mechanisms required to manage an economy. One of the many inevitable consequences of this was that governments and investors alike assumed that Germany's support for the new common currency was total, that the Germans would back any government that participated fully in Maastricht. As a result, the ability of weaker eurozone members to borrow was drastically improved. In Greece in particular, the rate on government bonds dropped from an 18 percentage-point premium over German bonds to less than 1 percentage point in less than a decade. To put that into context, borrowers of $200,000 mortgages would see their monthly payments drop by $2,500.
Faced with unprecedentedly low capital costs, parts of Europe that had not been economically dynamic in centuries -- in some cases, millennia -- sprang to life. Ireland, Greece, Iberia and southern Italy all experienced the strongest growth they had known in generations. But they were not borrowing money generated locally -- they were not even borrowing against their own income potential. Such borrowing was not simply a government affair. Local banks that normally faced steep financing costs could now access capital as if they were headquartered in Frankfurt and servicing Germans. The cheap credit flooded every corner of the eurozone. It was a subprime mortgage frenzy on a multinational scale, and the party couldn't last forever. The 2008 global financial crisis forced a reckoning all over the world, and in the traditionally poorer parts of Europe the process unearthed the political-financial disconnects of Maastricht. [continued after jump]