IF 200 -- August 29, 2011 -- 15/20

The EU is quite resourceful too at times.    On one hand, the EU shows commitment to established legal issues, rules and regulations, but on the other, when confronted with existential threats to the Eurozone, the UNION is able to work on the margins of its treaties -- i.e., the setup of the European Financial Stability Facility (EFSF) and subsequently the European Financial Stabilization Mechanism (EFSM) as an independent bank, headquartered in Luxembourg, which has nothing to do directly with either the EU or the EU bureaucracy.    Both funds are truly at the very extreme margin of legality, based on applicable EU treaties.    These bailout mechanisms do, indeed, infer how quickly the EU and the EUROZONE officials, out of necessity, sweep under the rug existing pacts if considered suicidal during crisis times.

History is in the making, as Europe tries to survive its crises with “bailout and hope” strategies!    Meanwhile, the European Union has opened the door to the International Monetary Fund (IMF).    This event is, indeed, a resounding precedent, which could most probably entail future consequences as this international institution could actually reign sovereign across the continent.

I believe that cracks are appearing in the sacrosanct “national sovereignty” of individual member states, even though in a “stealth” way.    If a country resorting to an EU-IMF bailout is “de-facto” relinquishing its national sovereignty, and if several countries would have to face such a dramatic reality, then Brussels could strategically centralize the European sovereignty power.

Embedded into the EU-IMF bailout remains the fact that Germany, which funded the lion’s share of the EU bailout, is effectively dictating the bailed-out nations’ retirement age, welfare benefits and pensions.    Undoubtedly, this is the logic of a common currency, but it has important repercussions in terms of sovereignty!

In my view, it is possible that, out of necessity, a centralization process could emerge in Europe, where the people would not be asked for their opinion through risky national referendums.    This scenario has every chance of becoming reality provided that European politicians design a simple founding “Constitutional Treaty” to truly unite the people of Europe!

The recent convulsion spreading across global financial markets might be, indeed, putting heavy pressure on the EU to rethink and to redesign the “UNION”.    Hence, threats to social stability could suddenly emerge, as mounting populist angst spreads not only in the countries being bailed out, but also in the countries doing the bailing.

3. Is an International Reserve Fund the Solution?

The world is indeed facing many economic challenges, namely the deleveraging across the West, while Japan remains stuck in deflationary doldrums, China resists a total de-peg of the Chinese Renminbi from the U.S. Dollar, and inflation picks up in emerging markets.

As the world is thorn with “liquidity” and/or “solvency” issues affecting an increasing number of countries, a call for global cooperation and coordination to address the debt problems in the United States and Europe is becoming louder by the day.

Investors, are consistently getting out of the U.S. Dollar and the EURO to literally stampede into the perceived-safety of the Japanese Yen and the Swiss Franc.    Amid growing concerns over a global slowdown, Japan and Switzerland are, as a result, worried that economic problems in the U.S. and the EUROZONE are driving up the value of their currencies to “absurd” levels and hurting domestic exports.