Tue 14 Oct 2008
Stratfor tends to have a good perspective on worldly happenings, and the following quote seemed like it was phrased incredibly well.
The weekend was essentially about this: the global political system is seeking to utilize the assets of the global economy (by taxing or printing money) in order to take control of the global financial system.
The premise is that the chaos in the financial system is such that the markets cannot correct the situation themselves, and certainly not in an acceptable period of time; and that if the situation were to go on, the net result would be not just financial chaos but potentially economic disaster.
Therefore, governments decided to use the resources of the economy to solve the problem.
Put somewhat more simply, the various governments of the world were going to nationalize portions of the global financial system in order to stave off disaster.
The assumption was that the resources of the economy, mobilized by the state, could manage ? and ultimately repair ? the imbalances of the financial system.
The bailout is ultimately the politicians taking control of the assets of the economy for what they deem appropriate. Those assets won’t be able to be used for other productive uses, so we can anticipate slower economic growth for the medium term.
Another quote:
What is most interesting in the long run is the fact the Europeans, even in the eurozone, have not attempted a European solution. Nationalism is very much alive in Europe and has emerged, as one would expect, in a time of crisis. And this raises a crucial question. Some countries have greater exposure and fewer resources than others. Will the stronger members of the eurozone help the weaker? At present it seems any such help would be simply coincidental. This is a global question as well. The Europeans have pointed out that the contagion started in the United States. It is true that the Americans sold the paper. But it is also true that the Europeans bought it readily. If ever there was a systemic failure it was this one.
However, it has always been our view that the state ultimately trumps the economy and the nation trumps multinational institutions. We are strong believers in the durability of the nation-state. It seems to us that we are seeing here the failure of multinational institutions and the re-emergence of national power. The IMF, the World Bank, the Bank for International Settlements, the European Union and the rest have all failed to function either to prevent the crisis or to contain it. The reason is not their inadequacy. Rather it is that, when push comes to shove, nation-states are not prepared to surrender their sovereignty to multinational entities or to other countries if they don?t have to. What we saw this weekend was the devolution of power to the state. All the summits notwithstanding, Berlin, Rome, Paris and London are looking out for the Germans, I talians, French and British. Globalism and the idea of ?Europe? became a lot less applicable to the real world this weekend.
Expect to see the idea of a unified Europe coming into question… and the Euro will likely suffer because of it.