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“Too Big to Fail” (Uber Alles): The EMU and German Economic Imperialism

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. [1] (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

Joseph Goebbels, Hitler’s pro­pa­ganda chief, once said [2]: ‘In 50 years’ time nobody will think of nation states.’

NB: Updat­ed on 5/1/2013

COMMENT: Before we return [some­what reluc­tant­ly] to the Boston Marathon bomb­ing and the remark­able [and pre­dictable] con­nec­tions emerg­ing in con­nec­tion with this milieu, some impor­tant points and obser­va­tions should be record­ed about the stun­ning events unfold­ing in Europe.

(These have been large­ly eclipsed by dis­cus­sion of the Boston bomb­ing, which MAY have been part of the idea.)

Build­ing on past obser­va­tions and bear­ing in mind points made in oth­er posts:

“Ger­many Soaks up Tal­ent from South” by Marie de Verges; The Guardian Week­ly; 4/12/2013. [3]

EXCERPT: Unem­ploy­ment rates con­tin­ue to break records in the euro­zone, and there is lit­tle chance of an improve­ment this year. The cri­sis in the jobs mar­ket across Europe is hit­ting young peo­ple hard­est, set­ting in motion new migra­to­ry pat­terns between Mediter­ranean coun­tries and the north.

Ger­many stands out as an excep­tion. Despite slug­gish growth in the EU’s largest econ­o­my, unem­ploy­ment is steady: good news that won’t fall on deaf ears. In the past two year the net num­ber of peo­ple enter­ing Ger­many rose from 128.000 to 340,000. Ger­man busi­ness­es are draw­ing on a fresh source of cheap, qual­i­fied labor from Greece and Spain. . . .

. . . . Unem­ploy­ment is soar­ing in Greece and Spain, with more than one in four out of work. Youth is bear­ing the brunt of the down­turn, with more than half the active pop­u­la­tion under 25 job­less. Mean­while, the Ger­man labour mar­ket is buoy­ant. Accord­ing to fig­ures pub­lished by the fed­er­al employ­ment agency in Feb­ru­ary unem­ploy­ment is steady at 6.9%. . . .

. . . In the first nine months of 2012,27,000 Spaniards, 26,300 Greeks and almost 10,000 Por­tugese moved to Ger­many. The Ger­mans already have a name for them, neue Gas­tar­beit­er (new guest work­ers), a throw­back to the immi­grants who flocked to West Ger­many in the 1960’s. . .

. . . .How­ev­er the new gen­er­a­tion dif­fers from its pre­de­ces­sors. Today’s migrants are younger and bet­ter qual­i­fied. . . .

. . . Ger­man busi­ness is thriv­ing but the pop­u­la­tion is grow­ing old, result­ing in an increas­ing­ly acute short­age of labour. The coun­try is des­per­ate­ly look­ing for qual­i­fied per­son­nel to staff its fac­to­ries, research lab­o­ra­to­ries, hos­pi­tals and kinder­gartens. Accord­ing to experts, at least 400,000 new­com­ers (in the net migra­tion bal­ance) will be need­ed every year to com­pen­sate for age­ing and to main­tain cur­rent eco­nom­ic trends.

South­ern Europe has a mas­sive reserve of young tal­ent with poor prospects. . . .

“Ger­man Firms Eye Invest­ment in Cri­sis-Bat­tered Euro States” by Anni­ka Brein­hardt; Reuters; 4/25/2013. [4]

EXCERPT: Ger­man com­pa­nies are set­ting their sights on south­ern Europe as fears of a euro zone breakup fade and eco­nom­ic reforms trans­form the cri­sis-bat­tered region into an attrac­tive place to invest once again.

Coun­tries like Por­tu­gal, Italy, Greece and Spain are still strug­gling with deep reces­sions and high unem­ploy­ment but have also attract­ed atten­tion for the oppor­tu­ni­ties they present, not just the risks.

Strong com­pa­nies are attract­ing inter­est among the “Mit­tel­stand”, medi­um-sized and often fam­i­ly-owned man­u­fac­tur­ing firms to which Ger­many owes much of its export­ing prowess.

That is in large part due to the eco­nom­ic and labour mar­ket reforms bailout coun­tries have been forced to imple­ment — mak­ing it eas­i­er to hire and fire and reduc­ing wage costs — which less strick­en coun­tries such as France have been slow­er to embrace.

“For finan­cial­ly strong Ger­man Mit­tel­stand firms, the cri­sis is turn­ing out to be an oppor­tu­ni­ty. They are increas­ing­ly active with acqui­si­tions in Spain,” said Christoph Him­mel­skamp, a con­sul­tant at Roedl & Part­ner who advis­es small­er Ger­man firms on deals with Span­ish coun­ter­parts.
Him­mel­skamp says he has seen a 30 to 40 per­cent increase in Ger­man acqui­si­tions of Span­ish firms since 2009, when the euro zone debt cri­sis first flared in Greece.

“The mood was sub­dued when there was spec­u­la­tion Spain could leave the euro. Some of our clients start­ed putting the brakes on trans­ac­tions ... Once that dis­cus­sion end­ed, invest­ment returned.”

erman firms are buy­ing up strong com­peti­tors, clients or sup­pli­ers at a time when those com­pa­nies are strug­gling to stay afloat through years of reces­sion in their home mar­kets and as shaky banks restrict access to cred­it. . . .

“Schaeu­ble Touts Plan to Boost Ger­man Invest­ment in Span­ish Firms” by Ben Sills; bloomberg.com; 4/29/2013. [5]

EXCERPT: Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble agreed on a plan to boost invest­ment in small­er com­pa­nies in Spain at a meet­ing today with his Span­ish coun­ter­part, Econ­o­my Min­is­ter Luis de Guin­dos.

“There is a lot of mon­ey in the banks and at the Euro­pean Cen­tral Bank but not enough invest­ment,” Schaeu­ble said at a joint press con­fer­ence at a coun­try hotel near Grana­da in south­ern Spain. “That is where we want to take mea­sures.”

The two coun­tries backed a pro­gram that will seek “spon­sors” who will encour­age investors in Ger­many, Spain and oth­er coun­tries to pro­vide equi­ty financ­ing for com­pet­i­tive com­pa­nies, said de Guin­dos. Increas­ing the cap­i­tal of small­er com­pa­nies will help them tap bank financ­ing, he added. . . .

“Cyprus Res­cue Hurts Bloc’s Bank Plan” by Matthew Dal­ton; The Wall Street Jour­nal; 4/5/2013. [6]

EXCERPT: Euro­pean offi­cials have been deter­mined to mend the region’s finan­cial mar­ket after see­ing it torn apart along nation­al lines dur­ing the eco­nom­ic cri­sis. That effort suf­fered a blow with the rad­i­cal surgery pre­scribed for Cyprus’s banks as part of March’s bailout deal.

The agree­ment will see large depos­i­tors in Cyprus’s two big, inter­na­tion­al­ly active banks absorb steep loss­es. Mon­ey trans­fers to and from the island are now sharply restrict­ed. All told, the deal deliv­ered a wake-up call to reg­u­la­tors, investors and depos­i­tors alike about the risk of banks based in Euro­pean coun­tries with finan­cial­ly stressed gov­ern­ments.

This mes­sage could rever­ber­ate, ana­lysts say, threat­en­ing the economies of Europe’s depressed south­ern rim. Europe’s finan­cial plumb­ing remains clogged, with depos­i­tors in North­ern Europe wary of send­ing their mon­ey down south, where busi­ness­es and con­sumers are suf­fo­cat­ing in an envi­ron­ment of high inter­est rates.

If depos­i­tors and investors grow even-more ner­vous about the safe­ty of South­ern Euro­pean banks, the cost of their fund­ing will rise from already high lev­els and so will their lend­ing rates.

Cor­po­ra­tions have tak­en notice, said John Grout, pol­i­cy and tech­ni­cal direc­tor at the Asso­ci­a­tion of Cor­po­rate Trea­sur­ers. . . .

“Cyprus Finds not All Nations Are Equal” By Christo­pher Pis­sarides; Finan­cial Times; 3/28/2013. [7]

EXCERPT: . . . Many peo­ple think of Cyprus as fac­ing sim­i­lar prob­lems to Greece, because of the close con­nec­tions between the two coun­tries. But Cyprus has a man­age­able fis­cal deficit, effi­cient account­ing and legal ser­vices, inher­it­ed from British colo­nial rule. The large major­i­ty of the peo­ple run­ning those ser­vices are trained in British uni­ver­si­ties and speak flu­ent Eng­lish.

After the Turk­ish inva­sion of 1974, when most of the agri­cul­tur­al and indus­tri­al base was lost, Cyprus decid­ed to add busi­ness ser­vices to tourism as its prin­ci­pal export. Dual tax­a­tion agree­ments, lax immi­gra­tion poli­cies and low cor­po­rate tax­es attract­ed busi­ness from the Mid­dle East, the EU and Rus­sia.

The trou­ble, accord­ing to the troi­ka of the Inter­na­tion­al Mon­e­tary Fund, Euro­pean Com­mis­sion and Euro­pean Cen­tral Bank, is that this also brought large amounts of bank deposits to Cyprus, blow­ing up the bank­ing sec­tor to “unsus­tain­able” dimen­sions. Deposits are about eight times gross nation­al prod­uct. This fig­ure, how­ev­er, is still small­er than Luxembourg’s and not too dif­fer­ent from that of Mal­ta and Ire­land.

The troi­ka, with out­spo­ken sup­port from the Ger­man finance min­is­ter, is telling Cypri­ots that their “busi­ness mod­el” is unsus­tain­able. Its rec­om­men­da­tion is, in effect, that Cyprus’s banks should shrink 50–60 per cent in the next five years – and the oppor­tu­ni­ty for shrink­age was offered on a plate. The biggest Cypri­ot banks – Lai­ki Bank and the Bank of Cyprus – had invest­ed heav­i­ly in Greek sov­er­eign bonds. The banks would need cap­i­tal to con­tin­ue oper­at­ing. . . .

Mar­tin Bor­mann: Nazi in Exile by Paul Man­ning; Lyle Stu­art [HC]; Copy­right 1981 by Paul Man­ning; ISBN 0–8184-0309–8; pp. 55–56.) [22]

EXCERPT: . . . This huge orga­ni­za­tion I.G. Far­ben] func­tioned as a man­u­fac­tur­ing and research arm of the Ger­man gov­ern­ment, with the respon­si­bil­ity of dis­cov­er­ing all pos­si­ble means of increas­ing the mil­i­tary pow­er of Ger­many. More than RM 4.25 bil­lion was invest­ed in new plants, mines, and pow­er instal­la­tions, with oth­er mil­lions going into new research facil­i­ties. . . . So close had Far­ben become to the gov­ern­ment that I.G. always knew in advance all inva­sions planned by Hitler. It was to sup­ply the mate­ri­als nec­es­sary to each con­quest, and when a land had been over­run and sub­ju­gated, the Far­ben experts would han­dle the con­sol­i­da­tion and orga­ni­za­tion of the indus­trial facil­i­ties as addi­tional sup­ply sources for the Ger­man armed forces. As Ger­man troops swept across Europe and Hitler pro­claimed his vision of a thou­sand-year Third Reich, I.G. Far­ben also dreamed of world empire. This was out­lined with clar­ity in a doc­u­ment called Neuord­nung, or ‘New Order,’ that was accom­pa­nied by a let­ter of trans­mit­tal to the Min­istry of Eco­nom­ics. It declared that a new order for the chem­i­cal indus­try of the world should sup­ple­ment Hitler’s New Order. There­fore, the doc­u­ment stat­ed, Far­ben was fit­ting future indus­trial plans into such a frame­work. . . . I.G. Far­ben was the major chem­i­cal firm on the Con­ti­nent, and as each coun­try fell to Ger­many its acqui­si­tions of chem­i­cal and dyestuff com­pa­nies were enor­mous. I.G. also increased its invest­ments in these by RM 7 bil­lion. [Empha­sis added.] . . .

Mar­tin Bor­mann: Nazi in Exile by Paul Man­ning; Copy­right 1981 by Paul Man­ning;  [HC]; Lyle Stu­art Inc.; ISBN 0–8184–0309–8; p. 28. [22]

EXCERPT: . . . I.G. Far­ben was a for­mi­da­ble ally for Reich­sleiter Bor­mann in his plans for the post­war eco­nomic rebirth of Ger­many. In a tele­phone con­ver­sa­tion with Dr. von Schnit­zler, Bor­mann asked what would the loss of fac­to­ries in France and the oth­er occu­pied coun­tries mean to Ger­man indus­try in gen­eral and to I.G. in par­tic­u­lar. Dr. von Schnit­zler said he believed the tech­ni­cal depen­dence of these coun­tries on I.G. would be so great that despite Ger­man defeat I.G., in one way or anoth­er, could regain its posi­tion of con­trol of the Euro­pean chem­i­cal busi­ness. ‘They will need the con­stant tech­ni­cal help of I.G.’s sci­en­tific lab­o­ra­to­ries as they do not own appro­pri­ate instal­la­tions with­in them­selves.’ . . .

Mar­tin Bor­mann: Nazi in Exile by Paul Man­ning; Copy­right 1981 by Paul Man­ning;  [HC]; Lyle Stu­art Inc.; ISBN 0–8184–0309–8; p. 145. [22]

EXCERPT: . . . . The Reich­sleiter asked Schmitz his views of the future. Schmitz replied, ‘The occu­pa­tion armies will be under­stand­ing in the West, but cer­tainly not in the East. I have instruct­ed all Far­ben admin­is­tra­tors and tech­ni­cians to come to the West, where they can be of use in resum­ing our oper­a­tions once the dis­tur­bances of 1945 come to a halt.’ Schmitz added that, while gen­eral bomb dam­age to the I.G. plants was about 25 per­cent of capac­ity, some were untouched. He men­tioned speak­ing with Field Mar­shal Mod­el, who was com­mand­ing the defens­es of the Ruhr. ‘Mod­el had planned to turn our Bay­er-Leberkusen phar­ma­ceu­ti­cal fac­tory into an artillery base, but he agreed to make it an open, unde­fended fac­tory. Hope­fully, we will get it back untouched.’ ‘What about your board of direc­tors and the essen­tial exec­u­tives? If they are held by the occu­pa­tion author­i­ties, can I.G. con­tinue?’ Bor­mann asked. ‘We can con­tinue. We have an oper­a­tional plan for such a con­tin­gency, which every­one under­stands. How­ever, I don’t believe our board mem­bers will be detained too long. Nor will I. But we must go through a pro­ce­dure of inves­ti­ga­tion before release, so I have been told by our N.W. 7 peo­ple who have excel­lent con­tacts in Wash­ing­ton.’ . . . .