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The Advent of Berlin: The escalation of the war, the correlation of forces, neo-mercantilism, the zero-sum policy, the sustainability of public debt, Greece’s negotiation capabilities, and the currently available solutions for Greece

‘’In broad terms, the swift attack against a nation and the instantaneous prevalence, keeps the environment under control and paralyzes or overwhelms the opponent’s senses, affecting one’s ability to understand the facts. The purpose of the method «shock and awe», is to make the opponent completely unable to function – let alone resist’’.

‘’Mercantilism is a centralized, systematic economic policy, where government revenues are necessary for the maintenance of a costly state power, and the functioning of its expansionistic character. Its key elements are:

a) Targeting an increase in product exports, b) the reduction of product imports, c) the creation of a «strong fleet» for the transportation of the products and the avoidance of war conflicts, d) the creation of a road-system, e) the establishment of colonies, achieved through a supported cooperation of the «attacking» country with its strongest businesses (corporations) – in which case the colonies are to remain under absolute dependence to the metropolis.’’

ANALYSIS

It’s obvious that the German danger was severely underestimated by the US, which had focused its attention mainly towards China, and secondly towards Russia (the failure of the IMF, during the Russian default, to work to the benefit of the US, is one of the biggest mistakes in its recent history – compared to Germany, which managed to utilize correctly and to its benefit the sudden collapse of the Soviet Union, buying back its reunification at low cost).

As a result, the «neo-mercantilistic» economic invasion of Germany in the Euro-zone, and its continuous expansion to the rest of Europe, seems to have been crowned with success – let alone the fact that Berlin has almost entirely replaced Brussels. Perhaps the only «flaw» of the whole process is the invasion of the IMF in the Euro-zone, an act though that Germany itself provoked –in order to replace it later on with the ESM, since it used the «Fund» on the one hand to take on the «dirty work», and on the other hand to exploit it, learning from its past experiences and gain knowledge (learning the «technology» of the newest economic weapon the IMF possesses and has used many times in the past).

If Great Britain eventually withdraws from EE, despite the fact that it realizes where the continent is heading, and taken together with the proven inability of France to face Germany (already the Chancellor has formally stated that ‘’it worries about the economic condition of France’’, with an obvious intent of setting the markets against it), Germanys plans will be fulfilled – whether the Euro collapses or not.

In the first case, the German onslaught will continue, with the formation of «satellites» (Netherlands, Austria, Finland, etc.), as well as «economic zones» of complete submission to the country (Greece, Spain, Portugal, etc.), directly dependent on its industry (industrial products).  In the second case, that is if the euro will eventually not collapse, Germany will become the undisputed ruler of Europe – with the submission of all its partners to the its desires and plans (and as already stated by the Chancellor publicly, ’’it is not possible for a country that owes more than 90% of its GDP, to demand for its national independency’’).

In our opinion Italy, which faces major economic problems, and as a result has to deal with the danger of being «locked out» of the markets (funding), cannot confront Germany on its own – especially when Spain is on the verge of economic collapse, which threatens to have a domino effect throughout the entire South.

On the other hand, we expect Poland to be selected to replace France as the «partner» of Germany – with the criteria of both the size of its economy, as well as the acceptance of German supremacy on its behalf, and the influence Poland has on countries of the Former Soviet Union that dislike Russia.

The only possible danger Germany faces, is Russia – which has already openly stated its willingness to offer economic aid to Greece and Cyprus, an action that would allow Russia to create a docking system in the Mediterranean for its war navy, and would also open a window for the utilization of the rich undersea energy deposits of the two countries. Apart from that, Germany’s dependence on Russia to cover its energy needs is one of the biggest drawbacks of Berlin – a situation that may prove disastrous in the future.

Furthermore, Germany’s major weapon, is the European Central Bank – with the help of which Germany has the ability to impose itself on other countries, since it dominates the ECB, and through it controls Europe’s banking system (that is currently extremely fragile). Let’s not forget here the words of M.A. Rothschild: ’’Allow me to freely issue and control the money supply of a nation, and I wouldn’t care about who votes its laws’’.

An additional weapon of Germany, one that is not yet in full operation (when it will, it will transform into a German IMF), is the ESM – through which Germany will acquire the banking systems of its «partners», who not only will pose no resistance, but will actually plead instead for it to happen (as is already the case with Spain, Ireland, Greece and so on, which in order to avoid taking on the banking systems bad debts and increase their public debt, push for the recapitalization of their banks via the ESM).

Continuing, China is undoubtedly a very important competitor of Germany, with access both to Greece, Italy and elsewhere. Although both countries are organized under a state (authoritarian) capitalistic structure (as is Russia), a kind of modern National Socialism better stated, with «neomercantilistic» foundations, cooperation between them is not easy to be achieved.

Furthermore, Japan is also broadening its activities in Europe, by acquiring German companies – a behavior that does not seem to bother Germany though, which faces Japan more like a partner (targeting most probably in a cooperative concentration against a common enemy, China, to which the entry to the production of high technology products will not be allowed without resistance).

In this context, with Turkey visiting Germany, practically «begging» for its inclusion in the E.U., it’s hard to any one not to notice certain similarities to the past – since the former allies of the Second World War seem to be coming together once again. Greece on the other hand, if it stops re-enacting the Trojan horse under the command of the U.S., and based at least on the unilateral policy adopted by its government, seems to have chosen the German side this time – with a government that puts all its hopes to the Chancellor.

Concluding, the major difference between the U.S. and Germany (China, Japan, Russia), as well as countries that follow the «example» of the one or the other, from an economic standpoint, is that the U.S. are characterized by a balance of trade deficit, while Germany runs a surplus.

Table I below, demonstrates the weak spot of the U.S. being its trade balance, compared to Germany, China and Russia (whose export trade is not as safe or mercantilistic as that of the others, since it is based on energy and raw materials):

 

 TABLE I: The five countries with the greatest surplus and deficit, based on the balance of trade – in million $, in 2010

 

Country

Surplus

Country

Deficit

 

 

 

 

Germany

201,737

U.S.A.

-689,932

China

182,725

Great Britain

-152,830

Saudia Arabia

152,000

India

-106,540

Russia

151,621

France

-85,325

Japan

77,218

Turkey

-71,598

Source: WP

Table: V. Viliardos

From a political viewpoint now, in the U.S. the state is at the service of the individual (liberalism and neo-liberalism), while in Germany (China etc.), the individual is at the service of the sate (state capitalism or a type of National Socialism) – with the economic police today playing the role of the once existent «security battalions» (SS, Schutzstaffel), especially regarding the implementation of the terrorize tactic.

As a result, the private property of the US is enormous (about 38 trillion $), and so is its public debt (15 trillion $), as well as its the budget deficits – while in China, the opposite stands true, since the property of its citizens is low, and the country’s public debt is negligible. As far as Germany is concerned, it seems that the country has changed course, targeting a direct and accelerated reduction of its public debt, increasing constantly its tax revenues, that will exceed 600 billion € in 2012 – while at the same time reducing expenses/spending, with the help of its «partners» (zero interest rates, etc.).

Finally, when such «imbalances» are being formed in the global economy, wars are inevitable – as demonstrated historically throughout the centuries when mercantilism dominated. We should note here, that when we write about Germany, we do not mean the German citizens, but the country’s political leadership (which acts under the orders of an industrial establishment of international reach, with Prussian characteristics and authoritarian foundations).

MERCANTILISM

Although we have talked about mercantilism briefly before, it seems appropriate to analyze some of its important features, so we can better understand the «neo-mercantilistic» policy that Germany seems to follow (with some variations of course, «attuned» to the current economic conditions).

Specifically, in terms of the needs of authoritarian states during the 16th-19th century, for consistent and ever increasing government revenues, so that the army can be sustained, as well as the constantly growing public sector (government officials/employees), a political and economic system was created in most European countries, which was based on the almost complete government intervention on the economy. The key feature of this system was to achieve surpluses in foreign trade – or to elaborate, to expand exports, while at the same time reducing imports, so as to magnify the money reserve (gold at that time).

The export of raw materials was prevented, targeting the production and sale of finished/processed goods, which could be sold at much higher prices, create more jobs, etc. The exports of precious metals were strictly prohibited, especially gold, and the high interest rates on deposits where set in order to entice savers not to put their money elsewhere.

At the same time, exports strengthened with the re-exportation of products, that where initially imported at low prices from countries with low cost labor – a policy that Germany is currently implementing which, with the help of the strong Euro, and also due to the country’s high liquidity, pushes down prices of imported goods from Asia and elsewhere (products that Germany then re-exports to its European «Satellites»).

On the other hand, due to increased support to investments made in manufacturing industries, a dramatic drop in lending rates was observed –currently a prevailing situation in Germany, assisted by the increasing influx of money from the surrounding regions, caused by depositors need for security (after previously accomplishing, unfortunately with the help of US rating agencies, to create conditions of insecurity in the southern countries – resulting in a massive outflow of deposits from the banks there, with their ultimate destination largely being Germany).

We should note here, that the intentional reductions in imports at that time, were accomplished with the imposition of tariffs on foreign products – today, with the reduction of domestic consumption, the «management» of which is actualized with the help of payroll policy adjustments (salaries lower than productivity, salary increase adjustments lower than inflation, wage freezes – methods Germany has been using, after entering the Euro-zone, aiming at total control over Europe).

The wars at that time, as well as the constantly growing hostility between states, was the result of this policy, mainly because mercantilism «defined» foreign trade as a «zero-sum» game – a transaction that is, in which the one side wins and the other looses, since the total revenues are given and constant.

Continuing, a policy which all followers of mercantilism find themselves agreeing on, is the oppression of the working class. Both industrial workers and peasants, where forced to live close to their survival limits – so that the products produced could cost the minimum. The goal was to increase the output to its maximum, at the lowest possible cost, while completely disregarding the living standards of workers (their quality of life).

According to the then prevailing view (similar to Germanys view today, an idea of what should be imposed on Germany itself and on its «partners»), only a country that would be able to offer its employees the minimum means for survival through hard work, could achieve the highest possible production levels, with the minimum possible cost.

Furthermore, always according to the theory of mercantilism, higher wages, leisure time or the education of lower income classes, would increase costs for businesses, reduce competitiveness, push employees towards «laziness», and generate large losses to the state.

 

NEO-MERCANTILISM

 

Mercantilism was ultimately rejected by the liberal and British Adam Smith, who also refused to wade into monetary policy – believing that products, people and institutions constitute the foundations, on which general well-being can be built on peacefully, and under conditions of freedom and democracy.

 

However, many economists believed that mercantilism, in some cases, is not erroneous. The most important among them was J.M. Keynes, who incorporated some elements of mercantilism in his theory – stating that the money supply, the foreign trade balance and prime interest rates are very important for an economy (believes that where later used to set the grounds for modern monetarism).

 

Adam Smith rejected the sole focus on production mercantilists thought to be the key – believing that consumption is the only way to develop an economy. In contrast, Keynes considered both the production and the consumption as being equally important for economic growth – recognizing also, that at the then modern times, the pursuit to increase reserves in precious (noble) metals was a reasonable goal.

 

His ideas were based on the fact that, before the introduction of paper money (1973), an increase in gold reserves was the only way to increase money supply – with the help of which productive investments and consumption could be reinforced (today, an increase in money supply is achieved by simply «printing» more paper money – either by the central or commercial banks).

 

Now, because the U.S. in the early 1930’s withdrew their money from abroad, due to the great recession it faced at that time, while many countries-debtors were unable to pay off their obligations (over-indebted economies) (something similar is happening with Germany and the South today), Keynes realized the importance of the balance of trade deficit.

 

He also understood that, when all the over-indebted countries try to increase their exports, while minimizing at the same time their imports, to be able to pay off their debts, as well as to enhance their internal labor market (similar to what is happening today, at least to some extent), Germany would not be able to achieve a surplus balance, so that it could pay off its obligations (reparations of World War I).

 

So he tried to convince the lenders of Germany to scale down their demands (claims), to avoid the creation of explosive conditions in Europe – unfortunately without success, resulting in the rise of Nazism through the Weimar Republic and ultimately to the initiation of the Second World War (a fact that Germany does not seem to understand today, planning in creating indebted colonies, in which it wants to establish cheap labor industries that offer unbeatable costs compared to that of Asia – with an apparently Utopian goal, to first dominate the EU, and then the whole world).

 

So, in contrary to Adam Smith’s free market theory (laissez-faire), Keynes, because of the then global crisis, brought back to the forefront the mercantilistic idea of government intervention on the economy – which later led to the «new deal» policy in the US by President Roosevelt (massive employment boost by means of the state), a policy adopted by many other countries up until the   1970.

 

The similarities now between Keynesianism and the theories that «emulate» it, as well as the precedent mercantilism, led follows of them to be called «neo-mercantilists» – while other economic systems, that incorporate some mercantilistic attributes, such as the highly protective economic system of Japan (less that of Germany), are called neo-mercantilistic.

 

To conclude, it was during the period of mercantilism that most of today’s economic institutions were created – such as stock exchanges, modern banking systems and insurance organizations. In general terms, «mercantilists» were mainly either businessmen or government officials – in no case works.

 

GREECE

 

From the very beginning of the crisis, everyone has been making references to the viability or not of Greece’s current debt levels – while at the same time any efforts to limit or/and pay it off gradually are hampered, although «inhuman» austerity programs and over-taxations are being enforced (economic genocide).

 

At the same time, propaganda, both within the country and abroad, literally thrives – targeting to manipulate the masses and in victimizing them, so that they will continue accepting without protests the looting of private and public property, the abolition of their basic rights, impoverishment etc.

 

As part of this propaganda, even lists of potential tax evaders (real or fictitious) are used, so that Greek and global media can seize the opportunity and accuse Greece’s citizens, as well as its politicians, as sole perpetrators of the country’s bankruptcy – even though it is neither the first nor the last country affected by corruption and/or that has faced difficulties in debt payoffs (with Germany of course being also among these countries). Especially when it happens under circumstances of a global financial crisis, with asymmetries both in Europe and worldwide, resulting in major geopolitical upheavals.

 

Regardless of the above, after the criminal PSI came into effect, Greece’s public debt was limited by 106 Billion Euros. As a result, the country’s total public debt was reduced to 262 Billion Euros from 368 Billion Euros in 2011 – to which, if we add the deficit of 2012, amounting approximately to 13 Billion Euros (as indicated in the government budget), the public debt in 2012 would normally be 275 Billion Euros (and not 343 Billion Euros as reported, with the arbitrary addition of aid to banks, funds etc. which paradoxically do not «pass» through the deficit).

 

Now, the solution available to Greece’s government, if it had the ability to negotiate properly, and if it truly wanted to make the country’s debt sustainable, without waiting for a divine miracle to happen (through the policy of subordination to the German chancellor), is to demand for the following:

 

(a) The time extension for the repayment of the 275 Billion Euros of public debt, with amortization installments equal in size to the country’s budget surpluses, so that its debt can actually be payed off – at least with respect to the loans of the EU, as well as those of the ECB and the IMF, which haven’t undergone any write-offs.

 

(b) An interest rate slightly above the ECB’s basic rate, since normally it should not be possible for European «partners» to speculate through loans to their peers. In the case of Greece and for about 175 Billion Euros of the agreed on loans from the EU, the IMF and the ECB (individuals cannot be forced into yet another loss), if the country was to be charged with 1% interest rate, rather than 5%, the budget savings would be around 7 Billion Euros – while it would be burdened with an annual interest charge of 1.75 Billion Euros to its European peers, the IMF and the ECB, as well as with 4.25 Billion Euros to individuals (a total of 6 Billion Euros, compared to 13 Billion Euros today – in which case Greece’s deficit levels would be within 3%).

 

(c) The write-off of that amount from the ECB, for which it has not paid via buying government bonds from the secondary market. This amount is to be around 20 Billion Euros, since it bought 50 Billion Euros in Greek bonds, reduced by 60% in value on average (30 Billion Euros). If that was to happen, both the interest and the amortization payments would be reduced accordingly.

 

(d) Recapitalization of banks by the ESM (as already planned for Spain, Ireland etc.), so as to avoid a further increase in Greece’s public debt – provided of course that the banks will have to pay back the amount within 5 years, in order to avoid their de-hellenization (a feasible plan, if public confidence is reinstated and the country’s citizens restore their deposits – of around 100 Billion Euros).

 

If the Greek government can negotiate properly all of the above (German repayment of past obligations remain a standard requirement), then Greece’s debt will become sustainable, limited to 255 Billion Euros or at 131% of GDP (if the GDP is to fall further to 195 Billion Euros). At the same time, however, budget deficits will almost reach zero, so that the debt can be serviceable – a state that will allow confidence to be restored, deposit repatriation, optimism, investments to take place, consumption increases etc.

 

As a result, the GDP will start growing again, gradually limiting the percentage of debt to GDP – while at same time government revenues will climb, slowly allowing Greece’s living standards to be restored.

 

If now Greece’s government fails to negotiate this solution, even though what it would be asking for is honest, feasible and reasonable, then it should have at least refused the «dose of shame» (the 2013 loan package now in effect) – choosing a direct halt of payments within the Euro-zone (nobody can actually expel Greece without its own will), since it is completely dishonest and unworthy for someone to borrow money, knowing in advance that there is no possibility for repayment.

 

The impact of such a decision would of course be the immediate need for Greece to survive on its own, relying solely on its own strength and without any borrowing – something that is highly possible, considering the limited primary deficits of the country. There will be of course significant difficulties, the banks perhaps may need to be nationalized, it is likely for certain public debt payments to be serviced with promissory notes (like in the case of California) and several other, but these will not be the end of the world for Greece – especially if public confidence in the state is restored and proper preparations are made.

Now Greece should avoid any further borrowing, accepting the risk of a possible default – a condition that is in any way not avoidable, if of course the country does not agree in becoming a German protectorate.

 

In any case, it is better for the country to suspend payments to creditors today (although it would have been preferable to have chosen to do so in 2010), no matter how distressful the consequences might be, rather than postponing it further – which would eventually drive it into bankruptcy, but like a «juiced out» lemon cup (that is, completely looted, impoverished and with degraded citizens).

 

 

CONCLUSION

 

What anyone should calmly consider, both the supporters of the Troika policies, as well as the critics of it, is whether Greece is currently in a better position compared to 2008 or compared to the year of the invasion of the IMF and Germany to the country. If correct steps had been made, no matter how painful, and even under the policy of austerity, citizens should have had voted «positively» – without any hesitation. Yet, as data reveal, no correct steps had been made (with the IMF and Germany both failing to succeed in their «plan», yet media only seems to be blaming Greece for the negative outcomes).

 

In this context, Greece’s public debt in 2008 was 262 Billion Euros or 113% of GDP – while its budget deficit did not exceed 5%, with public and private property being completely intact, standards of living under normal conditions, and with viable banks, pensions, wages etc.

 

Today, both the business environment or the competitiveness of the country’s economy, and the rule of law, were and are in the same situation – meaning that they haven’t in any way improved, despite the rapid decline in consumption and GDP, the dramatic increase in unemployment, poverty, crime levels etc. At the same time, the drop in the GDP by as much as 40 Billion Euros (mainly because of the austerity policy), has reduced government revenues by 10 Billion Euros, equal in value to the additional property taxes imposed (and with a projected income from state owned business privatizations calculated only at 13 Billion Euros).

 

So today, after a devastating recession, after the loss of Greece’s national independence, as well as after a 106 Billion Euros debt write-off which humiliated the country worldwide, destroying at the same time its banks and welfare funds, the public debt of Greece is placed (arbitrarily) at 345 Billion Euros or 175% of its GDP – and there seems to be no prospect for the future.

 

At the same time, scandalous frauds take place at a large scale, the Greek stock market has collapsed, the real estate market as well, the profitable state owned utilities are scheduled to be privatized at a minimum price, banks have gone bankrupt, small businesses are closing down one by one, young Greeks migrate, Greece has completely lost its dignity, as well as so much more, painful enough for someone not to be able to mention all this without feeling any grief.

 

Finally, I must remind that freedom needs virtue and boldness – as well as painful sacrifices, if a nation wishes to maintain its national independence, pride and dignity. And this must be understood by Greece, as much as by Spain, Portugal, Cyprus, Italy, Ireland, France and even England. Because the «European Dream», a dream of real unity, cannot hold true, if its nations are not willing to fight for their freedom, since the European Union should not be a union of submission, but a union of mutual prosperity.

 

 

Athens, 18.01.2013

Date of original: 04.11.2012

Translation of original: Dennis Viliardos

 

    Vassilis Viliardos is an Economist and an Author of several books on the Greek economic crisis. He has earned his Economics degree in ASOEE (Greek University of Economics) and in Hamburg, Germany.  He lives in Athens, Greece.

 



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