WESTERN EUROPEAN NEWS DIGEST
London Looks at U.S. Economic Breakdown
"America's high-spending households have become the world's consumer of last resort. That is not all for the good," writes Stephen Roach, chief economist and director of global economics at Morgan Stanley, in the Financial Times, Aug. 2. In an artilce entitled, "The Last Line of Defense," Roach points out that, "Recent statistical revisions reveal a 2001 recession deeper and longer than was previously thought. Less support from the consumer was the main culprit. But U.S. households are still steeped in denial, and the imbalances of the 1990s have yet to be fully corrected. The odds are there is more pain to come...."
Roach points to the meltdown of the "wealth effect," which, until recently, financed consumption through stock-market gains. "More recently, however, with stock markets sagging and residential property values rising, consumers have been tapping the home equity till. There are structural pressures on consumption, too: a low saving rate, record debt, an aging population and a lack of retirement security brought about by wider use of defined-contribution pensions."
"Taken together," he observes, "these factors suggest that the U.S. consumer is about to be caught in a vice. Three powerful forces are at work: wealth destruction; a long-overdue U.S. current account adjustment; and the coup de grâce: a negative income shock."
Stock prices have been falling, for some time, Roach writes. "Residential property values have held up a good deal better, enabling consumers to shift their equity-extraction tactics to property. But there is good reason to believe the property cycle is about to turn as well.... A current account adjustment should also put increased pressure on consumers. The massive current account deficit is an unmistakable symptom of a U.S. economy that has long been living beyond its means." As a consequence of these factors, Roach's view is that, "the coming current account adjustment cannot occur without a significant compression in consumer demand and a concomitant reduction in imports."
He continues: "An income shock, if it occurred, would be the clincher. The trigger is likely to be another wave of redundancies and cost-cutting as companies at last face up to the seemingly chronic conditions of bloated structures and excess capacity....
"The outlook is strikingly reminiscent of the early 1990s. Then, a managerial shake-out kept the national unemployment rate rising for 15 months into a recovery. A decade later, the prospect of another white-collar shake-out conjures up the possibility of a second jobless recovery and below-trend growth in incomes and personal consumption."
Roach then notes the political significance of this process: "It is at this point that politics and economics intersect. In their spare time, consumers are also voters.... Asset-based consumption growth and the excess leverage it spawns set any economy up for systemic risks and a serious shake-out. That, in turn, holds the potential for a significant reversal in public policy.
"The domestic and geopolitical ramifications of a retrenchment by the American consumer would, admittedly, be profound. I worry most about Asia, which remains dependent on U.S.-led external demand. Capitulation by the American consumer would threaten the region with a return to recession; political destabilization could ensue. China would not be spared, either: its exports to the U.S. surged at an annualized rate of 19 percent in the first half of this year.
"I suspect that the body politic in the U.S. and around the world will do everything in its power to buttress America's last line of defense. Fiscal and monetary restraint could be cast aside, as could the deregulatory thrust of the past 25 years. Shocked? Do not be. In a post-bubble era, the macro usually gets turned inside out." It seems that Roach is finally catching up with what Lyndon LaRouche has been saying for some time.
Helmut Schmidt: Europe Should Reject 'New Roman' U.S. Imperium
In Die Zeit July 31, former German Federal Chancellor Helmut Schmidt has a lengthy essay, in which he portrays current U.S. policies as a "New Rome" matrix, saying Europe does not need to be part of it. The piece shows both the strengths and weaknesses of the Continental European policy-making group that Schmidt represents. He titles his essay: "Europe Does Not Need a Guardian. Never before has U.S. foreign policy been as imperial as now. Europe can live with itbut it should not submit."
Schmidt begins with members of the Wolfowitz cabalthe "war party" around Deputy Defense Secretary Paul Wolfowitzin the Bush Administration, naming such figures as "Robert Kagan or Charles Krauthammer, William Kristol, Richard Perle, Zbigniew Brzezinski or Paul Wolfowitz," as "American proponents of ruthless use of power" and "intellectual leaders of American Unilateralism," based on a philosophy borrowed from Thomas Hobbes, which would discard NATO. "The nationalist, egocentric influence of imperialist-minded intellectuals, on the actual strategy of the U.S., is currently bigger than ever since World War II," Schmidt states, and quotes Edmund Burke's warning against "the hubris of the superpower."
The original instinct of the Bush Administration was to regard China as its sole competitor as a world political power, Schmidt writes, and before the Sept. 11 attacks, the U.S. President regarded a war between the U.S. and China as a definite possibility, if not probability. But, then there was Sept. 11, with its enormous psychological impact on the U.S.A. At first, there seemed to emerge a cooperative response, with the U.S., Europe, Russia, and China, but this has changed. Europe has been discarded, as being obsessed with "a Kantian world order," as opposed to the Hobbesian outlook of U.S. policies, which are similar to those of the Roman Empire: "Today, one can already hear Americans comparing their country with the world empire of the classical Romegiving Europe the role of provincial Athens, where the Roman patricians sent their sons to study rhethoric and philosophy."
All of this is now coming to the fore, in the context of the likely U.S. attack on Iraq, Schmidt says. "But, there are a number of realities, to which which Washington should not close its eyes":
1. A U.S. intervention may be able to eliminate Saddam Hussein, but it would not eliminate Islamic terrorism, and much rather incite Islamic terrorism.
2. This, and the poverty in overcrowded Islamic population centers, may bring down moderate Muslim governments.
3. U.S. policies toward the Middle East and Near East are incoherent, because they are determined by U.S. domestic factors.
4. U.S. use of nuclear weapons would destroy the policies on nuclear non-proliferation, and were a dangerous precedent.
For Europe, Schmidt says, there are the following strategic principles:
1. Because of its proximity to "hundreds of millions of Muslims," the European Union "must stand for dialogue with and tolerance of Islam," and, "it cannot support policies that will be seen as provocations by the Islamic peoples."
2. Europe has suffered terrorism for decades, and, in fighting terrorism, has never violated international law. There is no reason now, to violate these principles.
3. In case of "preemptive" U.S. attacks, NATO members are not bound to assist. In fact, the German Reunification (2+4) Treaty forbids that Germany participate in wars not explicitly sanctioned by the UN Security Council.
Schmidt develops the point that Europe should try to constructively influence U.S. policiesbut without any illusions.
European Opposition Could Prevent Iraq War
Columnist William Pfaff, the European-based American writer for the International Herald Tribune says that the European nations should use their "power" against the disastrous policies coming from Washington, especially the Iraq war drive. Although there is much tension and many complaints about U.S. policies, European governments are not saying anything seriously in public, wrote Pfaff in the July 25 IHT. Americans think that the Europeans have no alternative but to fall in line, but this could be a dangerously complacent illusion, because the European members of NATO do have an alternative, although they seemingly do not understand their own power.
"Few in Europe's leadership seem to grasp that if the European NATO governments and public indeed object to a U.S. attack on Iraq, as they say, they can prevent it, or at least block it for many months, while accomplishing a fundamental transformation in the Middle Eastern situation to their own advantage," Pfaff writes, adding that this could be done if the Europeans were to take a simple but decisive step: "reaffirm that Europe is an alliance of independent and politically equal countries." The Europeans could refuse to allow the Americans to use NATO's European assets for an attack on Iraq. This would not destroy NATO, Pfaff suggests, but it might even save NATO by re-creating a political equilibrium. Sooner or later, Euorpean powers will have to deal with the consequences of American unilateralism, and this could be the best time to act.
The fundamental reason that this will not destroy NATO, Pfaff explains, is that the U.S. needs NATO more than the Europeans do. NATO provides the indispensible material and strategic infrastructure for American deployments throughout Europe, Eurasia, the Middle East, and Africa. Furthermore, "without NATO, the United States has no legitimate claim to a say in European internal matters."
For all these reasons, a polite mutiny within NATO could force the U.S. to back down on Iraq, and after this, the Europeans would never again have reason to complain that the U.S. is not paying attention to them. "But do the Europeans really want this? Or is it all talk?" Pfaff asks, in conclusion.
While there is little open criticism in Europe of the U.S. Iraq war insanity, the deep concern was in evidence behind the scenes at the Franco-German summit in the eastern German city Schwerin. On July 30, German Chancellor Gerhard Schroeder said that, so far, the Americans have not signalled a concrete need for consultations with the Europeans. One should "stay calm" and not engage in "speculations" about American plans, he said. Among the non-European issues on the agenda, the Iraq one was on top of the list in Schwerin, indicating that there is more to worry about it than the leader of Germany wants to discuss openly.
With respect to Pfaff's analysis that the Europeans could force the U.S. to back off on attacking Iraq, Lyndon LaRouche agreed that "they could, but they won't."
British Oligarch Praises Empire Faction in U.S.A
Former British Foreign Secretary Lord Owen praised the American Imperial thrust, and the strategy of the U.S. to use Russian oil to replace Saudi oila strategy from which he intends to obtain enormous personal profit.
The Swedish daily Svenska Dagbladet ran an article July 28 with the headline, "Lord Owen Wants Us To Stop Complaining About the United States." This article opens a series of interviews, the paper says, on "the controversial question," of whether "the 'U.S. Imperium' is for better or for worse."
Lord Owen states that "we ought to be happy that the USA is taking on terrorism, even when we look at the Mideast," and gives full support to President Bush, expressing admiration for "the clarity of thought which is part of an American attitude," vis-a-vis Yasser Arafat and related matters. He continues, "And people tell him [Bush], 'but what about all the other countries, which also are not democracies'?... I believe that this man intends to take on Saudi Arabia. America will not be nice to the old Saudi leadership only because they have a lot of oil. They have an alternative nowRussian oil."
This last comment is of great significance given that Lord Owen recently joined the board of Yukos Oil, a company owned by the notorious Mikhail Khodorkovsky, who is at the forefront of negotiating various energy deals with the Americans and British, which deals are supposed to supersede American reliance on Gulf oil. Some months ago, Khodorkovsky created an "Open Russia Foundation" in London, on the board of which is ultra-Anglophile, Sir Henry Kissinger.
Joblessness Hits Four-Year High in Germany; Two-Year High in France
Although unemployment figures for July will not be published until about Aug. 7, the German media have already leaked the news that this month's figure is expected to be very close to 4.1 million unemployedthe highest level since July 1998. The unemployment rate is now 9.8%.
In France, unemployment reached the highest level since October 2000, with 2.4 million, or 9%.
Particularly worrisome is the decrease in apprentice jobs for young Germans just graduating from school in June: There are 6.3% fewer such jobs being offered in industry and banking, than in July 2001.
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