“What makes me optimistic in these difficult times is knowing the strength of our transatlantic union, our alliances, our liberal democracies.” That’s what Annalena Baerbock said in a public conversation we had in Munich just months after becoming Germany’s Foreign Minister and one week before Russia invaded Ukraine. (TIME)
Excerpt from Michael Hudson’s piece after gas leaks (via NC).
“The reaction to the sabotage of three of the four Nord Stream 1 and 2 pipelines in four places on Monday, September 26, has focused on speculations about who did it and whether NATO will make a serious attempt to discover the answer. Yet instead of panic, there has been a great sigh of diplomatic relief, even calm. Disabling these pipelines ends the uncertainty and worries on the part of US/NATO diplomats that nearly reached a crisis proportion the previous week, when large demonstrations took place in Germany calling for the sanctions to end and to commission Nord Stream 2 to resolve energy shortage.
The German public was coming to understand what it meant that their steel companies, fertilizer companies, glass companies and toilet-paper companies were shutting down. These companies were forecasting that they would have to go out of business entirely – or shift operations to the United States – if Germany did not withdraw from the trade and currency sanctions against Russia and permit gas and oil imports to resume, and presumably to fall back from their astronomical eight to tenfold increase.
Yet State Department hawk Victoria Newland already had stated in January that “one way or another Nord Stream 2 will not move forward” if Russia responded to NATO/Ukrainian accelerated military attacks on the Russian-speaking eastern oblasts. President Biden backed up U.S. insistence on February 7, promising that “there will be no longer a Nord Stream 2. We will bring an end to it. … I promise you, we will be able to do it.” …
Where do the euro and dollar go from here?
Looking at how this trade “solution” will reshape the relationship between the U.S. dollar and the euro, one can understand why the seemingly obvious consequences of Germany, Italy and other European economies severing trade ties with Russia have not been discussed openly. The “sanctions debate” has been solved by a German and indeed Europe-wide economic crash. To Europe, the next decade will be a disaster. There may be recriminations against the price paid for letting its trade diplomacy be dictated by NATO, but there is nothing that it can do about it. Nobody (yet) expects it to join the Shanghai Cooperation Organization. What is expected is for its living standards to plunge.
Germany’s industrial exports were the major factor supporting the euro’s exchange rate. The great attraction to Germany in moving from the deutsche mark to the euro would avoid its export surplus from pushing up the D-mark’s exchange rate to a point where German products would be priced out of world markets. Expanding the currency to include Greece, Italy, Portugal, Spain and other countries running balance-of-payments deficit would prevent the currency from soaring. And that would protect the competitiveness of German industry. …
It is true that the end of German industrial competition with United States is ended on trade account. But on capital account, depreciation of the euro will reduce the value of U.S. investments in Europe and the dollar-value of any profits that these investments may still earn as the European economy shrinks. So reported earnings by U.S. multinationals will fall.
As a final kicker, Pepe Escobar pointed out on September 28 that “Germany is contractually obligated to purchase at least 40 billion cubic meters of Russian gas a year until 2030. … Gazprom is legally entitled to get paid even without shipping gas. That’s the spirit of a long-term contract. … Berlin does not get all the gas it needs but still needs to pay.” It looks like a long court battle before money will change hands – but Germany’s ability to pay will be steadily weakening.
For that matter, the ability of many countries’ ability to pay already is reaching the breaking point.
The effect of U.S. sanctions and New Cold War outside of Europe
International raw materials are still priced mainly in dollars, so the dollar’s rising exchange rate will raise import prices proportionally for most countries. This exchange-rate problem is intensified by the US/NATO sanctions forcing up world prices for gas, oil and grain. Many European and Global South countries already have reached the limit of their ability to service their dollar-denominated debts, and are still coping with the Covid pandemic. They cannot afford to import the energy and food that they need to live if they have to pay their foreign debts. The world economy is now exceeding its debt limits, so something has to give. …”
Full post here.