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The euro could collapse

The prospects of a financial collapse in one more more country in Europe could well see the end of the Euro, writes Richard Brenner

Germany has had an easy ride through the crisis – because of the euro. Meanwhile weaker economies in the euro, Ireland, Greece, Spain and Portugal, have had it hard.

The normal way a capitalist government tries to get out of crisis is by devaluing its currency. This makes its exports cheaper relative to its competitor states.

This is what the US and Britain have done. It immunises these countries from the worst impact of recession, while exporting the downturn to other countries whose exports can’t compete.

This is what lies behind the repeated clashes between the US and China over the ‘artificially low’ level of China’s currency, the Yuan.
Eurozone members like Greece and Portugal are denied this tactic. They have to carry on with the Euro at its relatively high level and cannot devalue it. So the recession hits them twice as hard – meaning their state debt goes through the roof.

If Greece defaults on its debt, or if the EU can’t afford or can’t get voter support to bail out Spain, let alone Italy or Belgium, then the euro could collapse. Either the smaller countries would leave, busted out and facing decades of debt, or Germany itself would walk away, pocketing the spoils of 12 years of unfair advantage and returning to the Deutschmark.

This would be an historic change. The attempt of the Franco-German ruling class to create a new strong supra-national imperialist state to rival the US would have suffered a severe blow. A key element of the globalisation world order would have been shattered. The risk of protectionism and trade barriers within Europe would rise.

But the biggest effect would be beyond Europe. A powerful sphere of influence and power block in world politics would be significantly weakened, opening a new and frenetic chase for influence and control of markets between the US and China along with the remaining major European powers.

Already China is taking a close interest in the Eurozone crisis. The Financial Times on 28 May reported one ‘ray of light’ over the Greek meltdown was China’s willingness to use its vast stockpiles of surplus cash to fund the EU’s bailout facilities. “Word of China’s reported intent to stand by the eurozone’s sovereigns has tempered fears for Greece”, said Neil Mellor of Bank of New York Mellon, who drew comfort from “assurances that it will be a dominant presence at European Financial Stability auctions.”

If the euro can only survive by subordinating itself to China, we can be sure that whether it collapses or not, the lasting effect of this crisis will have been to intensify global imbalances and global instability.

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