Czech president Václav Klaus is one the very few politicians, who´s speeches and articles always are interesting to read. In his recent speech at the Com.Sult congress in Vienna Klaus offers the following forecast for the next two years:
1. the European single currency, the Euro, will survive its current acute crisis but we will pay a very high price for it in long-term economic slowdown if not stagnation, in a heavy burden of inter-country fiscal transfers, in the further loss of sovereignty of the EU member states, in increasing centralization of decision-making in Brussels, in a growing democratic deficit;
2. eurodebt crisis à la Greece or Ireland will reach other eurozone countries. The costs of helping them will be increasing but these costs will be – reluctantly and unwillingly – paid by the tax-payers in the rest of the EU;
3. economic growth in Central and Eastern European countries, including the Czech Republic, will be faster than in Western Europe. The gap in the level of economic development between the European East and West will keep diminishing;
4. economic growth in the U.S. will continue to be weak. It will be taken as a disappointment and Obama’s administration will have more and more problems. It becomes clear that – because of structural deficiencies – Obama’s fiscal stimulus cannot rescue the U.S. economy. It stimulates employment more in China and India than in America;
5. global economic growth will continue to depend on new dynamic economies in Asia and Latin America. The BRIC countries will grow fast and their catching-up process will continue. The BRIC economies as a group are practically as important to the global economy as the United States economy already now and their role in the world economy will grow.
Read the entire speech here. The analysis in the first part of the speech is strongly recommended reading.
The climate in Europe is deinitively changing.. which is proved by the fact that at the Vienna Congress the whole audience (700 participants) applauded loudly and were shouting "bravo" after President Klaus said the following sentense: "As someone who spent almost fifty years living in an oppressive, visibly irrational and hopelessly inefficient communist system, I hope I can afford to say that I see more similarities between communism and the current EU than it is considered politically correct to admit".
My comment to Klaus´s points:
"Mrs. Merkel and I will never, never allow the Euro to fail"
"Let me say this very clearly again. The euro is our currency. And it is much more than just a currency. It is the embodiment of Europe today. Should the euro fail, Europe will fail"
If one considers what Merkel and Sarkozy said a couple of days ago in Davos, Klaus´s (from a eurorealist point of view) rather pessimistic forecast looks very plausible, but I think there is another scenario that may lead to an accelerated demise of the euro in its current form. This scenario takes a more pessimistic view of the development in China as its point of departure:
It now seems very likely that the Chinese property bubble will burst in the near future, causing huge problems for countries now relying on exports to China.
The present strong economic growth in Germany - the euro paymaster - is very dependent on exports to China. A crisis in the Chinese economy would thus have major repercussions for Germany (and of course many other countries). In that kind of a situation Germany will - despite Merkel´s and Sarkozy´s fine words in Davos - not hesitate to change its attitude towards the common currency. An entirely new ballgame would follow. It could lead to the formation of e.g. a "Northern euro" consisting of those countries that are capable of playing on the same level as Germany, or some other similar arrangement.