IMMEDIATE RELEASE 5 Dec 2016
WASHINGTON MERRY-GO-ROUND
Today’s Events in Historical Perspective
America’s Longest-Running Column, Founded 1932
The Law of Inverse Construction: As goes the euro, so go the EU and NATO
By Douglas Cohn and Eleanor Clift
WASHINGTON – The political crisis in Italy, marked by the resignation of Prime Minister Matteo Renzi following the country’s failure to enact constitutional reforms, has placed in doubt its continued participation in the euro and possibly the European Union (EU) and, eventually, NATO. This could prove contagious.
In this scenario, void will play upon void, beginning with the collapse of the euro, a currency built upon the erroneous concept that the nations of Europe could manage their own fiscal policies of taxation, borrowing, and spending without controlling their own monetary policies, especially the expansion and contraction of money supply. An equivalent scenario would have the world witness the United States’ Federal Reserve surrendering control of its monetary policy to the Frankfurt-based European Central Bank (ECB).
When the Great Recession of 2007–08 struck, halving the stock market and driving real estate values below mortgage balances, U.S. Federal Reserve Chairman Ben Bernanke convinced a majority of the Reserve members to flood the market with electronic money in what was called quantitative easing. That action plus congressional legislation prevented a depression. However, if the ECB had been in control and instituted the opposite policy of money tightening—as it has to the chagrin of member nations with weak economies—there is no telling what financial disasters might have ensued.
The EU’s attempt to operate in a functionally inoperable system characterized by separate fiscal and monetary policies contrasted with the flexible and complex U.S. system, where a constitutionally and congressionally coerced balance between the fiscal policies of Congress and the monetary policies of the Fed interact to create a structural solution capable of lessening the depth, breadth, and duration of financial depressions, deep recessions, and panics.
It is in this context that Italy, Greece, or some other financially strapped nation, unable to meet its EU and ECB financial commitments, will first drop the euro as its currency and soon after drop out of the EU altogether, having realized that monetary and political sovereignty are too intertwined to do otherwise. True, the United Kingdom never did adopt the euro, and just as true, the United Kingdom has voted to exit the EU.
These events are certain to expose the underlying weakness of a common currency governed by a central multinational monetary body, the ECB, prompting other nations such as Spain and Portugal to follow the exit pathway, reverting to their old currencies while concurrently recreating national identities and economies of prior decades.
With the first crack in the EU having occurred, the underlying conceptual weakness in the organization and its currency are going becoming starkly apparent. And as goes the euro, so goes the EU. Currently nine of the 28 EU nations do not use the euro and the 19 others are sure to follow. Overnight, economic nationalism is going to be followed by political nationalism. Already, abandoned border checkpoints are once again being manned by border guards in the wake of terrorist attacks in Paris and an influx of refugees from Syria and elsewhere. And the vanishing dream of a united Europe will impact nations and equally affect unassimilated ethnic groups whose movements press for devolution or secession in Spain and elsewhere.
When the EU and, later, the Euro Zone (EZ) were created, it was thought these events would strengthen NATO by further unifying Europe, and, initially, this appeared to be the case. No one dreamed these very building blocks would one day be the instruments of NATO’s demise, the EU and EZ founding fathers apparently not considering that the unraveling of those entities would create a sense of disunity that could spill over, infect, and undermine the alliance. But that is precisely what could happen. It is a phenomenon of what I will call the Law of Inverse Construction: An essential building block’s benefit is asymmetrically outweighed by the repercussions from its failure or loss.
This column is adapted from Douglas Cohn’s new book, “World War 4.” A discussion of Cohn’s new books, “World War 4,” endorsed by seven flag officers, and “The President’s First Year: The Only School for Presidents Is the Presidency”, may be found at:
https://www.c-span.org/video/?414121-1/presidents-first-year-world-war-4 or by typing “C-SPAN” and “Cohn”
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