EURO ERM New Chapter with both France and Germany's budget deficits exceeding the limits set up for the EURO

 

The days of the Exchange Rate Mechanism come back to haunt both France and Germany whose budget deficits have gone beyond the limits set up for the EURO. 

We remember both John Major and Norman Lamont making desperate efforst and selling British gold reserves as it there was no tomorrow to try and keep the value of the Pound that was collapsing. 

Now, the French political crisis is also an economic crisis and the fact that from now on there might be no government or a government kept hostage by a fragmented French Assembly says a lot. 

Only in July 2025 could President Emmanuel Macron dissolve the French Assembly and call new Parliamentary Elections. Although on a speech made the day after the vote that defeated the government and marked the end of Michel Barnier as Prime Minister the President promised to stay for the whole duration of his mandate that ends in 2027, doubts remain about what will happen in France until 2027 in terms of real governance. The question is 'who will actually rule France?' The country should not until 2027 be run by decree because of the President's lack of support in the French Assembly. And what does this mean for the European Union?

In January 2025 there should be a vote in the German Parliament to decide the fate of Olaf Scholz, followed by a Federal Election in February 2025. Once again, what happens to German budgets? Rule by decree? Germany represents 24 per cent of the European Union economy.

Both Germany and France need stable governance and the EU itself will be in great difficulty when two major players face such uncertainty.

On January 20th 2024, new challenges to the European Union economy could rise. Who will then be the negotiators. The Axe Berlin/Paris is in trouble.  

Michel Barnier on the way out? What next for France?

 

Michel Barnier was chosen as Prime Minister with a Parliament in which there is no Constitutional Majority to choose a Prime Minister.

Emannuel Macron appointed Michel Barnier as a pair of safe hands to guide France at a difficult time after Parliamentary Elections that generated more chaos than order.

Now, Michel Barnier could be outsted in a vote of confidence. After the Parliamentary Elections, the French government became hostage of adverse circumstances.

The next Presidential Election is due to take place in 2027 or wherever the French President resigns. If Emmanuel Macron were to resign, he could not stand again as Presidential Candidate. Such are the rules. Could the rules be broken to allow Emmanuel Macron to take part in yet another Presidential Election? While this is happening in France, in Germany Olaf Scholz faces a vote of confidence in January 2025 and possible Federal Elections in February 2025.

The two major players of the European Union are on the brink of a major upheaval in European politics and geopolitics. 

German Coalition: Vote of Confidence due to take place in January will actually take place on December 16th 2024

 

The days of Olaf Scholz as German Chancellor could be numbered. 

The vote originally planned for January 2025 is due to take place on December 16th, 2024 and the Federal Election will actually take place in February.

This can change quite a lot in German politics at a time when urgent measures are needed to sort out German economics.

Germany was remarklably absent from a top meeting about the Environment. The German government has more pressing concerns when the Green Party barely has a calculated 10 per cent support across Germany and in three state elections only managed to get 7 representatives elected out of 120 in Saxony and none in Thuringen and none in Brandenburg.

As part of a deal to get a coalition together, hawkish Annalena Baerbock got chosen as Minister for Foreign Affairs. The fact that she could be on her way out within weeks would be a step forward towards peace in Europe.But the outcome of the Federal Election will tell the story and possibly write a new script.

The outsted Finance Minister Christian Lindner wanted to stop sending money to Ukraine by sending Taurus missiles instead. To have a member of FDP, a Junior member of the coalition, dictating foreign policy would have been a serious error of judgment. Olaf Scholz was asking to change rules to allow more borrowing. Christian Lindner refused to change the rules abour borrowing and decided to blackmail the German Chancellor to force him to adopt an idea he is very much against because of the dangerous implications of having Germany as the initiator of a European-wide conflict. FDP has no foot to stand on.

But money is in short supply and recent announcements about major German industrial players talking about factory closures and lays offs does not help. Energy and migration are bound to become even more important subjects. Increasing the Defense Budget? Where are the monies going to come from? NATO quotas could simply be unreachable. Listening to individuals like Ursula von der Layen or Emmanuel Macron might make somebody think that there are resources aplenty. Well, no. France is running huge deficits and Germany faces borrowing limitations. Any monies sent Eastwards come from borrowing. Will Germany and France - like Britain - go for tax rises? What effect would tax rises produce when unemployment is rising? What political effects will rising unemployment produce?

 

In a few months time, the warmongers of today will be history

Whether it is USA, Britain, Germany, France, et cetera, one thing is certain: key warmongers of today will not be around for long.

How much time has Biden left? How much time has Rishi Sunak left? How much time Scholz and Macron have left?

Look at America. What is happening in Latin America? There was a time when in Uruguay the Colorado Party has an almost completely monopoly of power. Then came the Partido National, the other Conservative Party of Uruguay. What happened next? The Frente Amplio (Broad Front) took the reins of power and the conservative parties of Uruguay could only come back as a coalition. 

What is happening in Argentina, in Chile, in Brazil, even in Bolivia? The old certainties have disappeared. The Partido Justicialista arrived completely divided in the October round of elections to select the new Argentinian Parliament - with barely 30 something of support compared to a completely political grouping that also got 30 something. Now, we wait for the second round of elections to see who is elected President of Argentina and on what basis. If Milei manages to attract the attention of younger generations chances are that he could be the winner replacing both Justicialistas and Radicales. But as political commentators remarked during the first round of elections, the issue is fundamentally not who is in charge but what can whoever is in charge do to revert a 134% rate of inflation.

Strategies to scare people and deter them from supporting alternative political forces are failing to do the job. People don't want continuity. They want positive changes. They are tired of a bit of the same. In Germany of all places the idea of banning a political force that already represents more than twenty per cent of the electors is a sign of desperation. Olaf Scholz knows that he is walking on a high rope with failing political partners. The SPD tried to distance itself from CDU/CSU as coalition member precisely because it was losing support. FPD is losing support and SPD itself is losing support. So how will the German coalition last? In spite of what politicians and mass media say, how feasible is a coalition of Alternative für Deutschland and other conservative groups. In the days of Angela Merkel, local CDU representatives were comfortable enough to work together with Alternative für Deutschland.

France is a bit of a puzzle. Macron is unpopular, but fears about the rise of Rassemblement National motivated some people to support what they did not like. Marine Le Pen did the right thing by choosing to have different young leaders to attract younger generations of voters.

Both in Germany and in France, political parties are exploiting what is happening in Palestine. Never mind what is happening in Palestine if what happens in Palestine helps them promote a certain narrative seeking to advance Nationalism in Germany and in France. Are you really and truly German? Are you really and truly French? Politics moves towards identity politics. You belong or you don't belong. You are part of the national culture or you are not part of the national culture. Multiculturalism is seen as a failure and Identity politics is no friend of Multiculturalism.

In Britain, with differences in political language approach, the message is clear: 'Multiculturalism is becoming a National Security issue' and the Home Secretary - herself a member of an ethnic minority - is investing a lot of political capital going against Multiculturalism. She does not explicitily say it, but the nature of what she is saying is obviously going against Multiculturalism. Other political operators are less shy and strictly say 'that is not British, they are not British'. She is diving the country and Mosques are becoming a target again. Not a target for people like Paul Golding that has dedicated his political career to attack Mulisms. They are becoming a target for the privileged political classes, because the privileged classes are closer to Jewish interests than they are to Muslim interests.

For one reason or another, Identity Politics is being promoted by people who used to say that they stood against Identity Politics. In a reversal of roles, Identity Politics is not been promoted by now defunct political forces like the BNP, the National Front or Britain First. Identity Politics is coming from the very top of British politics. Listen to commentators like Nigel Farage. What is he constantly talking about?

Whatever happens today you must remember that the warmongers of today will shortly be history. Even hawkish scarecrow Mr John Bolton might not be around too long. He criticizes Joe Biden saying that Jo Biden is not aggressive enough. Well, John Bolton was fired by President Trump because John Bolton wanted President Trump to be more aggressive. In retirement, a few cups of lime tea will do John Bolton a lot of good.

 

 

With EU in recession, German coalition wants to deprive German industries of gas to send gas to Ukraine

Since Angela Merkel's disastrous decision to get rid of nuclear power in Germany, Germany became extremely dependent on fossil fuel imports. When the situation in Eastern Europe worsened, Germany had to start reopening coal mines. Major industrial players in Germany alerted the German coalition that they need to have secure energy supplies. Unfortunaly, the coalition led by Olaf Scholz is deaf and intends to send German gas to Ukraine. What is even more astonishing is that countries like Netherlands that have gas stocks were thought to be diverting their own supplies to Germany.

In the midst of recession, diverting gas supplies away from German industries makes a bad situation even worse. If German manufacturing falters, the possibility of job loses, export losses and industrial unrest rises. Although the next Federal Election is still a long way into the future, if the worst happens, the future of the ruling coalition will be in doubt. It was hard for SPD to negotiate a deal that could unite conservatives FDP and Greens. For the German economy, there has been a triple whammy: loss of nuclear energy, higher prices of oil and gas plus exports of gas to other countries.

Germany is the engine of the EU. Will the coalition survive until the next Federal Election. The longer the conflict in Eastern Europe goes on the worse the prospects for the German economy. The axe Berlin/Paris is also going through challenges. President Macron will not be around for another mandate. One word that describes what is happening in France is 'uncertainty'. Who will step in to challenge Rassemblement National? 

This is a tour de force, a game of political survival. As all the weapons sent to Ukraine are being systematically destroyed, the European Union risks being naked because what is being sent is not being replaced. Taxes going up in the midst of recession to pay for the war effort?

Moscow and London: How signals are interpreted

 

How signals are interpreted

In 1991, the Soviet Union came to an end and this was very much the consequence of the efforts to remain ahead during the so called Cold War. The Soviet Union had to invest a vast amount of resources to remain significant in the arms race and it came the point when it could no longer afford to keep up because it did not have the financial muscle to do so.

The resignation of Mikhail Gorbachev as Soviet President is very much the end as soon after the Soviet Union disintegrated, leaving the USA as the one major superpower without any close competitors as China itself was far from being what China is today - economically, technologically and militarily. It could be said that the USA could attack Yugoslavia and dismember Yugoslavia without a UN mandate and without any real opposition and this is something that could not have happened if the Soviet Union had been around with the power to prevent such attack.

Having said that, 2022 is a different story. The Russian Federation is much more powerful than the Soviet Union for several reasons and one of them is the fact that the Russian Federation like China are much more homogenous countries with less ethnic and political contradictions. The Russian intelligence networks was magnifically helped by the fact that former Warsaw Pacto countries and regions were integrated into the European Union. If you were to look for an image to represent what has happened the Trojan Horse comes to mind.

The USA has used Britain as an extension of the USA in Europe and beyond. The USA has used Britain to justify USA agendas before the American people. If Tony Blair had not joined forces with George Bush Junior, it would have been difficult for the American President to sell his agenda to the American people. Britain has been used as a junior partner and as a propaganda tool and Britain has had to pay a very high price for it. It happened in Iraq and it happened in Afghanistan and it is happening in Europe. Inflation and financial difficulties that Britain is facing don't come out of nowhere. They are the direct result of sanctions and other measures taken against the Russian Federation that have had a boomerang effect not just in Europe, but worldwide. What happens when oil prices measured in US Dollars go up? Britain will pay higher prices not just because of market prices going up, but also because the loss of value of Pound means that Britain will need a lot more Dollars to pay for energy supplies and this has a direct impact on the British economy. If the Treasury cannot keep up with increasing expenditure and if the private sector in Britain has to translate cost into prices charged to consumers, industrial unrest is already on the horizon.

Just a few days ago, the British government was offering salary increases of 3% when inflation was already at 9% and more. Active workers will suffer and pensioners will suffer when the government is not able to adjust salaries and pensions taking into account the rate of inflation. The private sector already hit very badly by Covid, hit now both by inflation and consumption reduction will face an even harsher economic environment.

Liz Truss as Foreign Secretary said that she was in favour of cutting down the manpower of the British Armed Forces at a time when tensions are rising and there is the prospect of open conflict with both the Russian Federation and China. While would the UK be talking about cutting down its military capabilities? While is she asking other countries to increase their defense budget? My educated guess is that Britain does not have what it takes to beef up its Armed Forces and is therefore asking others to invest more to level the field in terms of what NATO can do or not do. President Donald Trump raised the concern that USA was the one feeling the pain created by military expenditure while other NATO members were not doing enough. Chancellor Olaf Scholz talked about hundred billions of EUROs to beef up German military capabilities, but how does this fit in with the fact that Germany is facing serious issues when it comes not just to the availability of energy sources, but also to the cost of existing energy sources. When both big economic players like Bayer and Thyssen-Krupp and the trade unions talk about the risk of economic collapse, what will Olaf Scholz be willing to sacrifice to beef up the German military capabilities? When you look East, Poland was offering to send their outdated Mig fighter jets to Ukraine if the USA could give Poland F35s in exchange, something that was rejected outrightly by the USA. What about other countries of the NATO block and what about those who are not members of NATO? Do they have the financial muscle to beef up their military capabilities or will they always depend on what USA or Britain can give them? Germany made many promises, but has delivered none of them.

Behind the speeches, this is the reality and today the British Primer Minister Boris Johnson fell not because of the scandals involving sexual misconduct of Conservative MPs. He fell because of economic realities. What were Conservative MPs talking about? VAT and Corporation Tax. Britain has been overspending for several reasons, including the fight against COVID when caution regarding budget was put aside to deal with a national emergency. On top of that, there is another national emergency created by British geopolitical decisions that have backfired. 

Look at the economy. For decades, Britain had remained relatively stable with very low interest rates and a significantly higher rate of employment and low prices in the shops. As the CEO of Poundland explained, he used to pay about 2,000 Pound for a container and now the price has jumped and it costs 20,000 Pound to bring imported products to the United Kingdom. Add to that fixed overheads and utilities and economic margins are dramatically reduced. This is not sustainable and on top of it the devaluation of the Pound compared to the US Dollar will make imports ever more expensive. Put aside Poundland and the situation many importers and exporters face and focus on food supplies. If Britain imports 60 per cent of what Britain consumes, then the costs of food will rise exponentially combining importation, transportation and distribution and costs involved in retail operations. Retail costs have been reducing by reducing manpower at the shops. You see today that the number of employees employed by retailers has been reduced with the introduction of automation. Automation reduces the numbers of jobs across the board whether we are talking about banking and financial institution, retailers and even transport. Much of the dispute affecting transport and leading to strikes is due to the declared intention of cutting jobs to cut costs. Having said that, if jobs been eliminated in one segment of activity are not created in other areas, the welfare bill will have to rise to pay for unemployment benefits and other social benefits in a country in which the number of non active population is rising while the number of those active at work is falling. This happens naturally because of an ageing population, but it is accelerated when people who are still fit to remain active lose their jobs.

What happened to the Soviet Union will happen to Britain. There is a time when your economy is not strong enough and everything is translated into accumulated and rising debt and when this happens there are social and political consequences.