Tuesday, February 22, 2011.
Niall Ferguson, professor of history at Harvard University
Why long-term survival of the euro is unlikely
Source: Tribune.fr - 15/02 / 2011 them. And he wondered about the effects of the rise of China.
You are one of the first to analyze the crisis that has affected the world economy from 2007. Can we say that we are now out of this crisis?
The world has faced a great depression. Fortunately, we have resorted to massive fiscal and monetary measures that have enabled us to mitigate their effects. And now, after these support measures excessive, we have the hangover. This takes the form of a sovereign debt crisis, which extends each time a country is attacked by the markets financial, because too much debt. Does this chain will go beyond the euro area and across the Atlantic or take direction from Japan? I have been convinced for a while, because the deficits or the debt of these countries have nothing to envy to those known to us as the Pigs, I mean Portugal, Greece, Ireland or Spain. That's why I expect a significant change in the perception of investors on the risky aspect of Japanese bonds and U.S.. Change that would result in an upward movement of nominal interest rates, with important consequences for these countries. It the risk that currently runs the world economy, given the size of Japanese and U.S. economies.
At the last World Economic Forum in Davos, many speakers stressed the growing gap between the health of emerging economies and the slump in industrial countries. Do you agree with this analysis?
On a historic financial crisis is an epiphenomenon. This is a relatively discrete event that occurs in the context of a massive shift of economic power from West to East. In reality, this crisis has only accelerated this transfer, which began well before 2007.
Is in history, the world witnessed such transfers of power?
If you look a little more than a century ago, there was a similar phenomenon when the United States and Germany have taken over the UK among the top industrial powers. In the first case, this change was made successfully, the United States doubling Britain in the 1870s, and the latter agreeing well its gradual relegation of the status of senior than junior in the context of an Anglo-American partnership. In contrast, in the case Germany, although that country had cultural affinities with Britain, the result was a disastrous conflict. Today, when looking at the China-US relations, one can ask questions. Does the China-US economic partnership will continue to exist? If it were to disappear, for what would it be replaced? By a simple competition between two rivals, or something more serious or even a conflict?
What is your prognosis?
I am not fundamentally pessimistic and I do not think we are at the dawn of a new type of cold war or a bright day of real war between the U.S. and China. This is not inevitable. But in parallel, considering the importance of Chinese demand for raw materials, demand will go on expanding, and the global supply of these minerals or natural, it seems likely that rivalry 'il established between the Western powers and China. This would not be surprising, since most of the major conflicts of the modern era have had the issue of raw materials. In the sixteenth and seventeenth, we fought for gold and silver, the eighteenth for sugar and spices for coal in the nineteenth, twentieth century for oil ... This why I would not be surprised to see the Sino-American partnership, which dates back to 1972 end. And I think we are now seeing its disintegration.
You put in a long-term?
Not really. In fact, we already hear much criticism of U.S. policy on China. When I was in Beijing last November, the Chinese were constantly banging on Ben Bernanke's monetary policy QE2. On the military front, the visit to Beijing from Defense Secretary Robert Gates in January was marked by signals very symbolic of the rise China's military. We already have evidence that this marriage is sinking. The reality is that the so-called Chinamérique boiled down to a marriage between an economic saving and a spender and I always thought that such alliances do not last. After a certain point, it is a very illusory friendship. And for essentially economic reasons, there will arise some friction between the two powers.
Over the next decade, it is unlikely that these tensions are but a military tower on the diplomatic front, we already see the Chinese drive to position itself in the Asia Pacific. At Seoul, for example, Koreans recognize that China has already become the dominant power. What is the country with which they do not want any trouble. But Washington has not yet taken the full measure of that change. Probably because during the last decade, successive administrations have mainly concentrated on the Middle East and the conflicts in Iraq and Afghanistan. But during the same period, China has emerged so rapidly in terms of GDP calculated by purchasing power parity, China, by including Taiwan and Hong Kong has already reached the size of the United States. Yet, Americans remain confident that the partnership Sino-American for the long term. "They need us as much as we need them," say U.S. officials. But they are wrong: every year, China has less need of the United States. Conversely, the United States increasingly needs China.
The sovereign debt crisis seems to have subsided in Europe, and yet you remain pessimistic. Why?
already ten years ago, I announced that the euro zone would be an unstable entity because a monetary union without a fiscal union is not sustainable. This analysis was validated by the crisis. Currently, I think the situation remains very fragile and can easily be summarized by one question: the German Christian Democrat voter is willing to accept institutional change leading to income transfers from Germany to the periphery of Europe? The answer is no! Until the reunification of the country, it was accepted that Germany was the financier of the European integration process. It should provide the first contribution to EU budget: for the generation of Helmut Kohl, it was a sort of repair after the Second World War. The new generations do not feel German same obligation. This poses a major problem, because if there's nobody to check, the process of European integration can not continue. In fact, it might even go backwards.
So the first problem is the political obstacle, Angela Merkel can not or will not explain why ordinary German citizens they must continue to fund this process. There would, however, a very simple answer: if the Germans refused to continue paying the banks of the German Lander will sink. Because it is not a sovereign debt crisis but a banking crisis whose epicenter is located in Germany. But this reasoning completely escapes the German public, who thinks she works hard and pays for his lazy neighbors.
Why do you say that European integration can even go backwards?
We live in a time of economic disintegration, which is very deep and structural. If you look at unit labor costs since the inception of the euro area in 1999, you notice a difference, not convergence, which is very problematic. In the previous period, we have solved the problem with currency devaluations in countries that became too expensive. Today the only possible adjustment would be through reductions of nominal wages to workers Greeks, Irish, Portuguese or English, which seems very difficult.
You see a risk of bursting of the euro area?
This risk is real and I think it would be a great mistake to believe that just because the Euro now exists, there will always be there in 10 years. The lack of political will in Germany and the structural disintegration at work in the euro area are two factors that make long-term survival of the euro unlikely. Meanwhile, from the perspective of Berlin, the euro is a necessary evil, because without him, the Germans would have the same problems that the Swiss with their currency too strong. The best argument for the survival of the euro area it serves very effectively the interests of German industry.
You mean because of its exchange rate?
Exactly! Remember the significance of the euro area: there is an agreement that gave overly indebted countries like Belgium or Italy's low interest rates in Germany, Germany in return for receiving a rate weaker exchange. That was the deal! But the problem today is that in the absence of transfers center to the periphery and without a real integration of the labor market, the only way to keep the euro area in its current form through deflation in peripheral countries. Or, should the European Central Bank should introduce quantitative easing, the type and QE2, is much more aggressive in monetizing the debt ...
It seems possible you?
The simplest solution to solve the crisis in the euro area is that Trichet becomes Bernanke adopts the QE2 and buys bonds, and the euro weakens a bit. The Chinese might respond favorably to it even more by buying the debt of Pigs. The alternative, harder, would be to ask the Greeks or the Irish to turn their deficit from 10% of GDP to a surplus of 5% of GDP, and this is impossible! Especially there is a factor that should never be underestimated in the post crisis: what are the political consequences.
Until now, we are quite able to avoid them ...
Yes, but it is a slow burning! People often fail to realize that history does not unfold at the pace of a football match. The events are at their own pace, but already we see in many European countries major political turning points, irreversibly breaking the consensus that existed between Christian and Social Democrats since the postwar period. I am convinced that populism will become increasingly powerful in Europe. It is difficult to believe that the populists are vibrant defenders of the European project, for their goodwill, nationalism and xenophobia.
When you look at history, what is the best way out of a debt crisis? And how long will it take?
There have been a country that had a debt exceeding 200% of its GDP, which did not fail, and who has not seen inflation. This is Great Britain after the Battle of Waterloo. Between 1815 and 1914, the British debt was reduced, thanks to strong growth, with primary budget surpluses and finally thanks to low interest rates. Great Britain was, admittedly, have two advantages: the industrial revolution and the contribution of its colonial empire. Unfortunately, this is the only case I know of. And this one exception, all countries have accumulated debts too large in relation to GDP were taken from default or inflation, depending on whether the debt was denominated in their own currency or in foreign currency. We thus see well what might happen: the countries that can not print money will be missing, like Ireland, Greece and perhaps others. The others, who can create currency, starting with the United States will experience inflation and currency depreciation. That is also the lesson of history.
PORTRAIT
Niall Ferguson, a Scotsman fiber Braudelian
Niall Ferguson, professor of history at Harvard but also an author of books and historical economic and documentaries for television commentator and highly sought after by the media, rarely in sobriety. The next book of this middle-aged Scottish Oxford graduate, to be released in Britain in March, simply titled "Civilization". A book that its author calls "Braudellian," referring to the famous French historian (1902-1985), which aims to decipher the various factors that enabled the rise and domination of the West on the world for 5 centuries. Factors that have disappeared or which the West has no monopoly, the author analyzes. Orthodharma
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