No one is really fine in the European gas chamber but – just to paraphrase Orwell – someone is finer than the others. It is Germany, as you can easily imagine.
Earlier this year, the German industrial production recorded no annual growth and consumer confidence was at very low levels.
However, as is now well-known, since the beginning of the Euro phase Germany has destroyed our manufacturing industry and is replacing us in the major global markets: China, Russia (except for the crazy sanctions due to the situation with Ukraine – an operation much more linked to the US and NATO actions than to the Russian ones).
Hence the crisis of German production was short and regarded the relative compression of the Chinese market, as well as the much more severe negative cycle of the US production.
However, when markets are stolen from the others, everything gets easier and quicker.
The story began with the Social Democrat Chancellor, Gerhard Schroeder, shortly before the phase of the EU single currency started, when – also thanks to the “reabsorption” of the German Democratic Republic (GDR) still underway – he managed the forced lowering of the German mark value and the companies’ production costs, already below the expected Euro waterline, so as to make the “great German factory” already competitive even before the introduction of the single currency.
Moreover the Euro certainly enabled Italy, which was not at all prepared for the single currency, to reconstruct its own debt record, which was approaching the end with an imminent “Argentina-style” perspective.
But the single currency, inevitably too “high,” destroyed the purchasing power of wages and salaries, by halving them, and doubled both production costs and consumer prices.
Italy experienced an 80% deflation, which lasted six month, of which you can easily imagine the social effects.
Social effects experienced not even after the Second World War lost – and that says it all!
Hence Italy was forced to increase exports, which made us gain some positions on the world market, but destroyed – due to an usurious and virtually absent ruling class – the great State-owned industry, sold at a loss, however with one-off “transfers and payments” to the old and new political forces.
Furthermore, the shift to a stupidly “high” currency value further destroyed Italy’s banking system, which is now playing a secondary role compared to the large liquidity areas being created both within the EU and in the rest of the world.
In fact, Italy experienced recession for at least five of the past eight years.
Still today, Italy’s GDP is lower than in 1999 and its sovereign debt has grown by 133% since 1999. Furthermore, since the introduction of the Euro the national average productivity has steadily declined.
But what does it has to do with Germany? Certainly it has to do with Germany.
In fact, the European Union is unable to manage the huge German current account surplus – and indeed it remains silent before it. Said surplus is over 8% – a percentage that no EU Treaty allows and which also funds the current remarkable growth of wages and salaries in Germany (4.5% on average), besides refinancing the local domestic demand, which is the real engine of growth in the current phase in which exports are flagging.
Since the beginning of the 2006 crisis, caused by the US “financial bubble” on the European monetary and banking markets, Germany has slowly but relentlessly forced the other EU countries to be more fiscally “correct”.
This means to increase their domestic taxes in order to support the expected lower purchase of government bonds and to “cash” money to add to their coffers in case of few renewals of bonds at maturity.
Nevertheless, even freshmen in Business and economic universities know that if taxation increases, domestic consumption will decrease and that if the internal market shrinks, there must be an equivalent share of exports offsetting that loss.
However, if the Euro external value changes for each individual country of the Area, Italy’s EU competitors recording a stronger and more stable external value of the Euro will take markets away from Italy also at equivalent prices.
This has meant basically destroying the Italian, Spanish and sometimes even French companies to favour both Germany and the German industrial expansion area beyond the old Iron Curtain.
Since the very beginning, the German labour outside German borders has supported the country’s expansion onto global markets at highly competitive prices, while Italy and the other regions which had not been cynically prepared for the Euro geoeconomics have collapsed under the weight of the unsustainable costs of their exports and international competition.
While former Italian President Ciampi was visiting China’s Great Wall, Chancellor Schroeder quickly landed in Beijing and in one single day signed all the contracts concerning the remarkable expansion of the Volkswagen Group into China.
It is worth recalling that this was exactly the same paradigm used by the Federal Republic of Germany (FRG) against the German Democratic Republic (GDR), reduced to an Anschlűss country, both to avoid the competition of Communist Germany’s companies, which were not performing so poorly, and to use – at a much lower cost – the labour force “released” from those areas.
Hence the model with which the Federal Republic of Germany (FRG) bought the German Democratic Republic (GDR) – with our money, and sometimes even with the GDR money – was replicated for the rest of Europe.
Incidentally, at that time the “moralistic” rules on rigour, which found many inexperienced advocates (but we would also say agents of influence) applied not even to Germany which, in the phase of “rigour”, made three-year investment plans accounting for 5.2% of GDP.
Also at geopolitical level, the strategic relationship between Germany and the United States makes economic sense: the pressure of sanctions against Russia, guilty of taking back what is its own in Crimea and part of Ukraine, undermines the economies more interrelated with Russia, including Italy’s – hence a crisis adds to the other.
The US interest is very clear: the more the European economic fabric and common interest crumble, the more the Dollar area – and, in any case, the US commercial and financial expansion area – is guaranteed and expanded.
The more the United States come back to Europe, the more the German bilateral power on the USA increases and the bilateral power of the other EU countries proportionally decreases. After the notorious “Arab springs”, the latter are now reduced to an internal struggle (such as Italy vs. France for Libya) or to a “joint action” – often fully ineffective – with the United States which, however, think they must walk out of the Middle East, after having madly set fire to it.
In a recently-published book, a CIA executive has candidly admitted that the United States “hoped that the democratic uprising would destroy Al Qaeda” – and we have seen with what tragic and uncontrollable outcomes.
Not to mention the case of the war in Syria and its impact on the EU welfare, which will shortly become totally unsustainable and will place the less cautious and far-sighted EU countries in a tragic situation while, on the contrary, it will create opportunities for profitable investment for the North European and US banks and private insurance companies.
After the EU restrictive rules on the EU Member States’ public budgets, with the 2011 regulations known as “Two Pack Regulations”, France has set itself – at least partially – against the financial (and later political) Germanization of the European Union, while Italy has continued to use the debt lever and the lucky chance provided by the ECB Governor, Mario Draghi, with the programme designed to repurchase – on the secondary market – the surplus of government bonds of countries like Italy.
But it will not last.
There are only two possibilities: either the sequence of “sacrifices” and budgetary constraints is applied – and forget about the story that States spend too much and badly, because all States do so – and hence Italy will no longer have a domestic market to support its industrial output, because it also has a low labour productivity, or it shall incur debt on financial markets and ultimately collapse under the burden of the interest generated by that debt.
Obviously, they will help us die.
Later, they will buy our companies at low cost so as to incorporate them in their European and global networks, with the national workforce that will be a variable – and not a constant – factor of business calculations and profits which will go abroad.
In 2013, Italy already ranked second in the list of Mergers and Acquisition (M&A) of German companies – and it just so happened during the crisis – and currently over 30% of the Italian companies which are now no longer nationally-owned have already been sold to the Germans.
Only in 2013, for example, we recorded as many as 23 deals of German small and medium-sized companies (SMEs) which acquired Italian companies, out of a total of 171 sales of national SMEs between 2013 and 2014.
Given the complexity of these operations, it is obviously not possible to speculate on the activities which are still in progress.
Hence the issue lies in undermining a country and then buy it at very low prices.
A strategy which has long been developed and that Italy, for the fatal inability of its ruling class, did not prepare on time, i.e. before the Euro’s entry into force.
What can be done? Getting out of the single currency is useless.
However, Italy must operate freely on the major global markets where the country can still compete with its European “allies” – and it shall do so quickly and with harsh and resolute methods.
And it must accept foreign to foreign transactions not denominated in Euro, as with China and the Russian Federation.
This is what good intelligence and a ruling class not consisting only of mere parvenus and upstarts, like the current ones, would be for.
American diplomacy’s comeback and Bulgaria’s institutional trench war
Even though many mainstream media outlets have not noticed it, US diplomacy has staged a gran comeback in the Balkans. The Biden administration chose Bulgaria as the stage on which to reaffirm America’s hold on the region. Putting strong sanctions on Bulgarian oligarch, Washington is signalling not-so subtly to Russia that its reach goes far and wide. But there are sensible implication for the little South-Eastern European country’s future as well. Perhaps, the fight against systemic corruption is finally reaching its apogee. Could this be the end of misgovernance?
A corrupted country — Introduction
Many argue that corruption in Bulgaria and South-Eastern Europe is but a remnant of national Communist Parties’ half-century long rule. Thus, the EU’s threat to metaphorically swap the carrot for the stick should have favoured a thorough clean-up. Instead, it merely yielded some short-term successes for anti-corruption campaigners, activist judges and specialised procurators. Yet, State capture and malpracticesremain endemic for one reason or another amongst post-socialist countries inside and outsidethe Union. More specifically, these efforts were vain and Bulgaria was still ill-equippedwhen it joined the Union on January 1, 2007. Hence, Brussels allowed in a deeply corrupted country where hidden interest behold even those occupying the highest echelons of power.
If not membership in the European Union, at least internal politics could have helped the country fend off endemic maladministration. Yet, the status quo has preserved itself intact despite calls and promises to root out corruption having been getting louder. In a sense, corruption’s pervasiveness is a feature and not a bug embedded in Bulgaria’s imperfect liberal free-market democracy. These conservative – and, in a sense, perverting – forces have found their embodiment in Prime Minister Boyko Borisov and his associates. Therefore, governmental agencies, political parties, courts and the entire extant structure of power contribute to prevent any change.
The wind of change: Popular unrest and institutional trench war
That notwithstanding, the proverbial ‘wind of change’ may have begun to lash across Bulgaria in summer 2020. After having taken to the streets against the party of power’s abuses and failures, voters abandoned Borisov in the April 2021 elections. Conversely, new parties and loose coalitions of civil-society organisations, formed shortly before the contest, won a relative majority of preferences. And, as many analysts noticed, these newcomers do not share much besides the desire to “dismantle the Borisov system”.
Nonetheless, these new actors failed to form a governing coalition due to the heterogeneity and inherent negativity of their agendas. Thus, President Rumen Radev scheduled new elections on July 11 and appointed a caretaker government.
Indeed, there is an institutional custom prescribing such cabinets to limit their activities to managing current affairs. Nonetheless, these technocrats – many of whom supported Radev in his feud with Borisov – started an extensive review of past governments. In the process, the cabinet reshuffledbureaucracies, suspended Sofia airport’s concession and halted other public tenders for suspected irregularities. More importantly, the ministry of interior has confirmed prior suspects that Borisov-appointed officers may have illegally wiretapped opposition politicians.
In a word, President Radev’s ministers are endeavouring to tear apart the ‘Borisov system’ before the next elections. However, simply ousting most – or even all – of the previous government’s men in key positions within State apparatuses is uncomplicated. Especially when pushing such an agenda is the President,with the palpable backing of an absolute majority of the population. But the Borisov system has also an economic component. In fact, the party of power has set up a tentacular network of supportive oligarchs funding and favourable media coverage. Putting them out of the game is equally, if not more, important than firing bureaucrats — but also much more difficult.
Chasing the oligarchs
In other words, undoing the Borisov system’s appointments and putting trustworthy officers in those posts in just the first step. But real change requires leaving the wealthy individuals and organisations benefitting from the status quo clawless and teethless. Such a task entails deep economic transformations that would surely evoke immense opposition from powerful pressure groups. Evidently, there is not enough time before Bulgarians vote again and their representatives pick up a new executive. But the caretaker government is powerless in front of Bulgaria ‘s condemnation to persistent corruption no matter what.
On the contrary, the government has endeavoured to chase and derail some of these Borisov-connected oligarch. For instance, the finance minister appointed an Audit Committee with the task of reviewing the Bulgarian Development Bank’s (BBR) activities. As a result, the public discovered that oligarchs had steered the BBR away from its mandate of supporting small companies. In fact, eight large private companies have received more than half of the BRR’s total credits or ca. €473 million. On average, each of them has borrowed almost €60mln — and “this is not a small and medium business. In addition, these companies borrowed against a 2% rate instead of the average 5–7%. Following this leak, the Minister of Finance fired the entire board of the BBR. He also instructed the Bulgarian National Bank (BNB) to appoint a new directorate.
The US strike back
Quite surprisingly, the United States has just given Radev and his government a valuable assist. On June 2, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned several “individuals for their extensive roles in corruption”. In first instance, the sanctions target Vasil Bozhkov, a Bulgarian businessman currently hiding in Dubaito escape an arrest warrant for accusation of bribery; Delyan Peevski, prominent figure of and former member of the Parliament for the predominantly Turk Dvizhenie za Prava i Svobodi as well as the owner/controller four of the companies involved in the BBR’s scandal; and Ilko Zhelyazkov, former appointee to the National Bureau for Control on Special Intelligence-Gathering Devices. Secondarily, the US have sanctioned “their networks encompassing 64 entities” with which no transaction in dollars is possible.
The US chose to hit Bulgaria, a NATO ally, with “the single largest action targeting corruption to date”. On the one hand, this falls within the boundaries of the current administration’s effort to restore America’s moral stewardship. More to the point, one may interpret the sanctions as a not-so/veiled message to Russia — which heavily influences Bulgarian politics. Still, those who had been looking at US-Bulgaria bilateral relations should have expected a similar decision. After all, the sanctions came after US ambassador Herro Mustafa’s reiterated criticisms of pervasive corruption in the country. Mustafa has also refused symbolically to meet Chief Public Prosecutor Ivan Geshev, who embodies systemic corruption in Bulgaria.
Consequently, the game has scaled up to a whole new quality now. The BNB barred all Bulgarian banks to entertain commercial relationships with people under US sanctions. Moreover, the BNB had already froze some of Peevvski’s, Bozhkov’s and Zhelyazkov’s deposits, means of payment, and assets earlier. However, after the OFAC’s decision, the block extended to their entire network of affiliates and related entities.
Conclusion: The US are reclaiming the Balkans, and it may not be bad for Bulgarians
Officially, corruption’s malign influence on democracy provides the US with a moral justification to sanction any corrupt individua. Namely, the Treasury argues that it
undermines the values that form an essential foundation of stable, secure, and functioning societies; ha[s] devastating impacts on individuals; weaken[s] democratic institutions; degrade[s] the rule of law; perpetuate[s] violent conflicts; facilitate[s] the activities of dangerous persons; and undermine economic markets.
Surely, the soon-to-come meeting with Russia’s President Vladimir Putin also played a role in this decision.
Yet, the sanctions’ timing suggests that there might be other forces at play. Rather, it seems that Washington decided to pick a side in the ongoing institutional trench war between Presidency and Government.
From Bulgaria’s perspective, even though most American media have not noticed it, the impression is quite clear. To quote President Biden: “America is back, diplomacy is back”. Specifically, this resurgence has a special meaning in the Balkans, a region of immense relevance for Europe’s energy security. Concretely, the US is taking the lead in the West’s effort to keep China, Russia, and Turkey out.
True, whether this external support will suffice for Bulgaria to finally eradicate corruption is debatable. Nevertheless, the US’s return may spur a positive competition dynamic in which Washington and Brussels compete for limited normative power. If this was the case, increase international pressures on Bulgaria to limit corruption may reach a breaking point relatively soon. At which point, either a fundamental shift will take place; or Bulgarian elites will entrench further
Indo-European rapprochement and the competing geopolitics of infrastructure
Current dynamics suggest that the main focus of geopolitics in the coming years will shift towards the Indo-Pacific region. All eyes are on China and its regional initiatives aimed at establishing global dominance. China’s muscle-flexing behavior in the region has taken the form of direct clashes with India along the Line of Actual Control, where India lost at least 20 soldiers last June; interference in Hong Kong’s affairs; an increased presence in the South China Sea; and economic malevolence towards Australia. With this evolving geopolitical complexity, if the EU seeks to keep and increase its global ‘actorness’, it needs to go beyond the initiatives of France and Germany, and to shape its own agenda. At the same time, India is also paying attention to the fact that in today’s fragmented and multipolar world, the power of any aspiring global actor depends on its diversified relationships. In this context, the EU is a useful partner that India can rely on.
Indo-European rapprochement, which attempts to challenge Chinese global expansion, seeks also to enhance multilateral international institutions and to support a rules-based order. Given the fact that India will hold a seat on the UN Security Council in 2021-22 and the G20 presidency in 2022, both parties see an opportunity to move forward on a shared vision of multilateralism. As a normative power, the EU is trying to join forces with New Delhi to promote the rules-based system. Therefore, in order to prevent an ‘all-roads-lead-to-Beijing’ situation and to challenge growing Chinese hegemony, the EU and India need each other.
With this in mind, the EU and India have finally moved towards taking their co-operation to a higher level. Overcoming difficulties in negotiations, which have been suspended since 2013 because of trade-related thorny topics like India’s agricultural protectionism, shows that there is now a different mood in the air.
The Indian prime minister, Narendra Modi, had been scheduled to travel to Portugal for a summit with EU leaders, but the visit cancelled because of the Covid-19 pandemic. As a result, the European Commission and Portugal – in its presidency of the European Council – offered India to hold the summit in a virtual format on 8 May 2021. The talks between these two economic giants were productive and resulted in the Connectivity Partnership, uniting efforts and attention on energy, digital and transportation sectors, offering new opportunities for investors from both sides. Moreover, this new initiative seeks to build joint infrastructure projects around the world mainly investing in third countries. Although both sides have clarified that the new global partnership isn’t designed to compete with China’s Belt and Road Initiative (BRI), the joint initiative to build effective projects across Europe, Asia and Africa, will undoubtedly counter Beijing’s agenda.
The EU and its allies have a common interest in presenting an alternative to the Belt and Road Initiative, which will contain Chinese investment efforts to dominate various regions. Even though the EU is looking to build up its economic ties with China and signed the EU-China Comprehensive Agreement on Investments (CAI) last December, European sanctions imposed on Beijing in response to discrimination against Uighurs and other human rights violations have complicated relations. Moreover, US President Joe Biden has been pushing the EU to take a tougher stance against China and its worldwide initiatives.
This new Indo-European co-operation project, from the point of view of its initiators, will not impose a heavy debt burden on its partners as the Chinese projects do. However, whilst the EU says that both the public and the private sectors will be involved, it’s not clear where the funds will come from for these projects. The US and the EU have consistently been against the Chinese model of providing infrastructure support for developing nations, by which Beijing offers assistance via expensive projects that the host country ends up not being able to afford. India, Australia, the EU, the US and Japan have already started their own initiatives to counterbalance China’s. This includes ‘The Three Seas Initiative’ in the Central and Eastern European region, aimed at reducing its dependence on Chinese investments and Russian gas. Other successful examples are Japan’s ‘Expanded Partnership for Quality Infrastructure’ and its ‘Free and Open Indo-Pacific Strategy’. One of the joint examples of Indo-Japanese co-operation is the development of infrastructure projects in Sri Lanka, Myanmar and Bangladesh. The partners had been scheduled to build Colombo’s East Container Terminal but the Sri Lankans suddenly pulled out just before signing last year. Another competing regional strategy is the Asia-Africa Growth Corridor (AAGC), initiated by India, Japan and a few African countries in 2017. This Indo-Japanese collaboration aims to develop infrastructure in Africa, enhanced by digital connectivity, which would make the Indo-Pacific Region free and open. The AAGC gives priority to development projects in health and pharmaceuticals, agriculture, and disaster management.
Undoubtably, this evolving infrastructure-building competition may solve the problems of many underdeveloped or developing countries if their leaderships act wisely. The newly adopted Indo-European Connectivity Partnership promises new prospects for Eastern Europe and especially for the fragile democracies of Armenia and Georgia.
The statement of the Indian ambassador to Tehran in March of this year, to connect Eastern and Northern Europe via Armenia and Georgia, paves the way for necessary dialogue on this matter. Being sandwiched between Russia and Turkey and at the same time being ideally located between Europe and India, Armenia and Georgia are well-placed to take advantage of the possible opportunities of the Indo-European Partnership. The involvement of Tbilisi and Yerevan in this project can enhance the economic attractiveness of these countries, which will increase their economic security and will make this region less vulnerable vis-à-vis Russo-Turkish interventions.
The EU and India need to decide if they want to be decision-makers or decision-takers. Strong co-operation would help both become global agenda shapers. In case these two actors fail to find a common roadmap for promoting rules-based architecture and to become competitive infrastructure providers, it would be to the benefit of the US and China, which would impose their priorities on others, including the EU and India.
The Leaders of the Western World Meet
The annual meeting of the G7 comprising the largest western economies plus Japan is being hosted this year by the United Kingdom. Boris Johnson, the UK Prime Minister has also invited Australia, South Korea, South Africa and India. There has been talk of including Russia again but Britain threatened a veto. Russia, which had been a member from 1997, was suspended in 2014 following the Crimea annexation.
Cornwall in the extreme southwest of England has a rugged beauty enjoyed by tourists, and is a contrast to the green undulating softness of its neighbor Devon. St. Ives is on Cornwall’s sheltered northern coast and it is the venue for the G7 meeting (August 11-13) this year. It offers beautiful beaches and ice-cold seas.
France, Germany. Italy, UK, US, Japan and Canada. What do the rich talk about? Items on the agenda this year including pandemics (fear thereof) and in particular zoonotic diseases where infection spreads from non-human animals to humans. Johnson has proposed a network of research labs to deal with the problem. As a worldwide network it will include the design of a global early-warning system and will also establish protocols to deal with future health emergencies.
The important topic of climate change is of particular interest to Boris Johnson because Britain is hosting COP26 in Glasgow later this year in November. Coal, one of the worst pollutants, has to be phased out and poorer countries will need help to step up and tackle not just the use of cheap coal but climate change and pollution in general. The G7 countries’ GDP taken together comprises about half of total world output, and climate change has the potential of becoming an existential problem for all on earth. And help from them to poorer countries is essential for these to be able to increase climate action efforts.
The G7 members are also concerned about large multinationals taking advantage of differing tax laws in the member countries. Thus the proposal for a uniform 15 percent minimum tax. There is some dispute as to whether the rate is too low.
America is back according to Joe Biden signalling a shift away from Donald Trump’s unilateralism. But America is also not the sole driver of the world economy: China is a real competitor and the European Union in toto is larger. In a multilateral world, Trump charging ahead on his own made the US risible. He also got nowhere as the world’s powers one by one distanced themselves.
Secretary of the Treasury Janet Yellen is also endorsing close coordination in economic policies plus continued support as the world struggles to recover after the corona epidemic. India for example, has over 27 million confirmed cases, the largest number in Asia. A dying first wave shattered hopes when a second much larger one hit — its devastation worsened by a shortage of hospital beds, oxygen cylinders and other medicines in the severely hit regions. On April 30, 2021, India became the first country to report over 400,000 new cases in a single 24 hour period.
It is an interdependent world where atavistic self-interest is no longer a solution to its problems.
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