Crisis – the current catchphrase in Europe. Will the Euro break down? Is Europe doomed?
These and similar questions wander like ghosts through European newspapers. What is this all about? I would like to give a short overview about my thoughts concerning this topic.
First of all there are two levels. The first level represents the real economy which means companies that produce products or services. The second level deals about the financial system which is not connected to the real economy. However unfortunately the connection is valid the other way around. What does that mean? The failure of companies does not necessarily have an impact on the financial system because financial strategies are already uncoupled from the real economy. Money produces money is the dogma of the current financial system. It’s easy to do and who doesn’t take part of the game will fall by the wayside. Banks are the main players in this game. Banks keep the money river alive, banks provide the real economy with credits. And credits are the base of economic expansion. But at the moment there is not much money to earn only with credits. Credits are old school. There is much more money to earn with bets. Bets on everything and nothing and hedges against this bets minimizes the risk. Easy isn’t it? The whole system works until one thing gets lost: trust. Trust in the banks. The trust in a country or the trust in an idea. There is also an easy measurement for this trust: the interest. High interest means less trust whereby low interest means much trust in the company, state, idea.
Now the cycle closes: The trust in Europe is decreasing. There are no real facts that prove the crisis. The indebtedness compared to other countries with better interest is low, the social system in Europe is better than in the rest of the world, the real economy is booming. So why does Europe lose trust? An answer might be because of weak politicians. But also other countries have weak politicians.
My answer is because the Euro as world currency became too dangerous. Too dangerous for what? For the Dollar. The dollar is and was the undisputed world currency. This means that the USA has spare hands to control their inflation. The best thing to fight high depts is high inflation. Nobody is able to complain if the USA supports a high inflation because the dollar is the world currency. If the Euro remains a rival to the dollar as world currency the other countries might think to invest their forex in Euro than in Dollar. And also the commodity trade might change to Euro. If this would happen the USA would have huge problems because the dollar will rapidly diminish in value and also the political influence will fade.
So the question that remains is: Might this be a realistic scenario? And if this is real, who is the head of this strategy and who are the aides?