by Paul Craig Roberts, Paul Craig Roberts:
Washington Used the “Ukraine Crisis” to Bind Europe to Washington
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization.
Michael Hudson Explains that Washington’s Russian Sanctions Have Freed Russia of Her Delusions that She Had “Western Partners” while Destroying Europe Economically. Hudson’s article, slightly edited by PCR, is reproduced with permission with final comments by PCR.
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The reaction to the sabotage of three of the four Nord Stream 1 and 2 pipelines in four places on Monday, September 26, has focused on speculations about who did it and whether NATO will make a serious attempt to discover the answer. Yet instead of panic, there has been a great sigh of diplomatic relief, even calm. Disabling these pipelines ends the uncertainty and worries on the part of US/NATO diplomats that nearly reached a crisis proportion the previous week, when large demonstrations took place in Germany calling for the sanctions to end and to commission Nord Stream 2 to resolve the energy shortage.
The German public was coming to understand what it meant that their steel companies, fertilizer companies, glass companies and toilet-paper companies were shutting down. These companies were forecasting that they would have to go out of business entirely – or shift operations to the United States – if Germany did not withdraw from the trade and currency sanctions against Russia and permit gas and oil imports to resume, and presumably prices to fall back from their astronomical eight to tenfold increases.
Yet State Department hawk Victoria Nuland already had stated in January that “one way or another Nord Stream 2 will not move forward” if Russia responded to NATO/Ukrainian accelerated military attacks on the Russian-speaking eastern oblasts. President Biden backed up U.S. insistence on February 7, promising that “there will be no longer a Nord Stream 2. We will bring an end to it. … I promise you, we will be able to do it.”
Most observers simply assumed that these statements reflected the obvious fact that German politicians were fully in the US/NATO pocket. They held fast in refusing to authorize Nord Stream 2, and Canada soon seized the Siemens dynamos needed to send gas through Nord Stream 1. That seemed to settle matters until German industry – and a rising number of voters – finally began to calculate just what blocking Russian gas would mean for Germany’s industrial firms.
Germany’s willingness to self-impose an economic depression was wavering – although not on the part of German politicians or the EU bureaucracy. If German policymakers were to put German business interests and living standards first, NATO’s common sanctions and New Cold War front would be broken. Italy and France might follow suit. That nightmare of European diplomatic independence made it urgent to take the anti-Russian sanctions out of the hands of democratic politics and settle matters by sabotaging the two pipelines. Despite being an act of violence, it has restored calm to international diplomatic relations between U.S. and German politicians. No Russian energy for Germany means no threat to Germany’s subservience to Washington.
There is no more uncertainty about whether or not Europe will break away from U.S. New Cold War aims by restoring mutual trade and investment with Russia. That option is now out. The threat of Europe breaking away from the US/NATO trade and financial sanctions against Russia has been solved, seemingly for the foreseeable future, as Russia has announced that as the gas pressure falls in three of the four pipelines, the infusion of salt water will irreversibly corrode the pipes. (Tagesspiegel, September 28.)
Where do the euro and dollar go from here?
Looking at how this trade “solution” will reshape the relationship between the U.S. dollar and the euro, one can understand why the seemingly obvious consequences of Germany, Italy and other European economies severing trade ties with Russia have not been discussed openly. The “sanctions debate” has been solved by a German and indeed Europe-wide economic collapse. For Europe, the next decade will be a disaster. There may be recriminations against the price paid for letting Europe’s trade diplomacy be dictated by NATO, but there is nothing that Europe can do about it. Nobody (yet) expects the EU to join the Shanghai Cooperation Organization. What is expected is for Europe’s living standards to plunge.
[ And, I would add, for parts for BMW, Mercedes, Porsche, and VW to become scarce.]
Germany’s industrial exports were the major factor supporting the euro’s exchange rate. The great attraction to Germany in moving from the Deutsche mark to the euro was that it prevented Germany’s export surplus from pushing up the D-mark’s exchange rate to a point where German products would be priced out of world markets. Expanding the currency to include Greece, Italy, Portugal, Spain and other countries running balance-of-payments deficit would prevent the currency from soaring. And that would protect the competitiveness of German industry.
After its introduction in 1999 at $1.12, the euro did indeed sink to $0.85 by July 2001, but recovered and indeed rose to $1.58 in April 2008. It has been drifting down steadily since then, and since February of this year the sanctions have driven the euro’s exchange rate below parity with the dollar to $0.97 this week. The major factor has been rising prices for imported gas and oil, and products such as aluminum and fertilizer requiring heavy energy inputs for their production. And as the euro’s exchange rate declines against the dollar, the cost of carrying its US-dollar debt – the normal condition for affiliates of U.S. multinationals – will rise, squeezing their profits.
This is not the kind of depression that “automatic stabilizers” can work “the magic of the marketplace” to restore economic balance. Energy dependency is structural. And the eurozone’s own economic rules limit its budget deficits to just 3% of GDP. This prevents EU national governments supporting their economies by deficit spending. Higher energy and food prices – and dollar-debt service – will leave much less income to be spent on goods and services. Not that there will be energy to produce many goods.
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