The History of Europe And the Church

* The Uncrowned Kings of Essen

 

TKS-steel will leave its indelible mark on the world. Those foreboding words are found on the Thyssen Krupp Stahl AG company’s Internet webpage.

The Thyssen Krupp Group is an industrial giant whose history spans nearly 200 years. The Krupps gave invaluable support to Prussia’s and Germany’s military campaigns of the last 150 years.

Just a few years after the defeat of Germany and the conviction of Alfried Krupp at Nuremberg for war crimes during World War II, the Plain Truth magazine warned its readers that the Krupp family had fully intended to continue its drive for an industrial empire, bent on supporting Germany’s goal of world domination.

“Alfried Krupp, who once provided Germany with most of her munitions that plunged the world into the holocaust of the last war, can no longer manufacture crude steel or own coal mines in Germany. But Alfried Krupp is not giving up on his plans! No indeed. Latest reports reveal that Krupp has made contracts with foreign governments to build up his vast empire abroad” (Plain Truth, Nov. 1953).

After both world wars, Krupp was forbidden to manufacture arms. In both instances, however, he continued the family tradition of arming Germany and the world.

In 1996, a top-secret Allied document from 1944 was made public for the first time. It illustrates in detail two meetings on August 10, 1944, between representatives of German industrial companies, including Dr. Kaspar of Krupp. The purpose of these meetings was to convince German industrialists that the war was lost. The time had come “to take steps in preparation for a post-war commercial campaign.”

* Krupp History

 

In 1587, Arndt Krupp settled in Essen, Germany, where he became a merchant. His son, Anton Krupp, became a well-known military arms dealer. Around 1650, the Krupps were known as the “uncrowned kings of Essen,” according to Norbert Muehlen in his book Die Krupps (p. 13).

In 1811, Friedrich Krupp founded a cast-steel factory in Essen. Even today, Essen remains the headquarters for Thyssen Krupp Stahl AG, the multi-national company once exclusively owned by the Krupp family.

Friedrich’s son, Alfred Krupp, was known as the “cannon king.” He produced a cast-steel cannon in 1851 and it became the star attraction at London’s Great Exhibition. He also manufactured field guns and other armaments for various foreign countries.

With the rise of the German Navy’s demand for armor plate, Alfred’s son, Friedrich Alfred Krupp, enjoyed immense growth and by 1902 had 40,000 employees.

With no son heir apparent, his daughter, Bertha Krupp, and her husband, Gustav von Bohlen und Halbach (Gustav Krupp), took over the firm. Gustav Krupp manufactured the “Big Bertha,” a famous 42-centimeter howitzer which bombarded Paris from 75 miles away during the First World War. Soon after the war, Gustav Krupp began to rearm Germany using his vast international influence.

In the early 1930s Gustav Krupp had enormous influence in the politics of Germany. When the Nazi Party was on the verge of collapse, he donated 100 million German marks to support their candidates in the 1932 elections. Victory was achieved.

Some have asserted that Gustav Krupp—not Adolf Hitler—was the main driving force to rearm Germany after it lost the First World War. In his book The Arms of Krupp: 1587-1968, William Manchester states that Krupp did it in preparation for the next world war. The Versailles Treaty greatly hindered Germany’s ability to become a military power. But Gustav Krupp had connections that profoundly eased the process of rearmament.

Gustav Krupp was the sole owner of his vast empire, too extensive to measure its value.

Alfried Krupp became the sole owner of the Krupp industrial empire in 1943. And like his stepfather, Gustav, Alfried had always been an ardent supporter of Hitler.

He controlled a vast business empire that included 87 industrial complexes in Germany and held controlling interest in 110 companies. Abroad, he owned 50 percent stock in 41 foreign companies and held interest in several other companies. This included factories, coal mines, ore pits, cement works, hotels, banks and a bevy of private estates all over the world. And he used this wealth and power to defend the goals of Hitler and the Nazi Party. However, when all was nearly lost, he was prepared to endure Allied victory until the time was right for “round three.”

At the Nuremberg trials, Alfried Krupp was convicted of war crimes. His violations included employing slave labor and stealing property and factories in all the German-occupied lands. It has been estimated that he used up to 70,000 slave laborers throughout the war. Krupp’s slaves were some of the worst treated in Germany. He had so many slaves that a concentration camp for the children of the workers was established in Buschmannhof, Germany.

He was sentenced to 12 years in prison and ordered to forfeit all his property, but the U.S. high commissioner granted him amnesty and restored his holdings. He was released in the early part of 1951. Alfried Krupp had reestablished the prosperity of his company by the 1960s. He died in Essen in 1968.

* Krupp Today

 

In 1997, Krupp merged their steel operation with Thyssen AG, a rival firm. Today, Thyssen Krupp Stahl AG is the third-largest steel producer in the world. This industrial giant has five divisions and owns around 100 companies. They produce steel, heavy machinery, transportation equipment and industrial plants.

The secret document released in 1996 clearly showed that several industrialists, including Krupp, had a specific plan to support Germany’s—and the Nazi Party’s—inevitable resurgence.

Gustav Krupp fulfilled his objective to rearm Germany immediately after the First World War. That is a historical reality—a fulfillment of destructive intent that should cause us to be greatly concerned.

According to that document, on August 10, 1944, the German industrialists were told they must “through their exports increase the strength of Germany. They must also prepare themselves to finance the Nazi Party which would be forced to go underground.”

In Germany today, the Krupp name is above reproach. But if history is any indicator of the possibilities and motivation of a company, or a nation, we have a clear sign from past actions of one company—Krupp—and one nation—Germany—that our future may be clouded by the ambitions, however misguided, of several determined individuals to reap revenge, even if it takes half a century to accomplish it.

European Defence Expenditure as a Percentage of GDP. (click to enlarge)

* Latin American Trade

 

In their determination to defy the U.S. and work against it at every opportunity, nations of Latin America are joining forces in the area of trade in order to decrease their dependence on America. The U.S.-backed FTAA is for all practical purposes dead, while the Latin American trade group Mercosur (comprised of founding members Brazil, Argentina, Paraguay and Uruguay) is growing stronger, with Venezuela having joined last December and Bolivia expected to join.

Cuba’s trade with Mercosur and Brazil accounts for 80 percent of its foreign trade. The president of Brazil has said that he favors trade with Latin American countries over the U.S.; in fact, President Luiz Inácio Lula da Silva said last year that the U.S.-backed FTAA is off the agenda in Brazil altogether and had been for two years—much to the surprise of Washington.

Now, Cuba has requested associate membership in Mercosur. A few years ago, this request would have been considered beyond ridiculous. The United States of America—the largest trading partner of virtually every country on Earth—refuses to trade with Cuba. Washington would certainly have a less-than-friendly posture toward a group that boasts Cuba as a member. Even discussing the idea shows how intent Latin American governments are on alienating the U.S.

U.S. influence in Latin America is evaporating. What will takes its place?

To many, China might appear to be the prime candidate. Make no mistake: China is definitely marginalizing the U.S. in the Latin American region both economically and militarily. Beijing’s actions are causing the United States’ power in Latin America to decline. Also, there is an ideological connection between the Chinese and much of Latin America because of what appears to be their mutual acceptance of communist and socialist thinking. Combine those two factors, and it might appear that Latin America has a future as the resource basket for Beijing.

The ideology that actually reveals where Latin American loyalties are headed, though, is religious.

With 500 million Roman Catholics in Latin America, no matter what happens in Latin America politically, religion will be the predominant factor in foreign policy in the time ahead. Ultimately, the biggest benefactor of Latin American wealth will be Europe.

* A Mart of Nations

 

Negotiations have been underway since 1999 to forge a massive free-trade area joining together the European Union and the Mercosur trade bloc—encompassing 700 million people. The talks have encountered difficulties—in part because of EU demands that Mercosur drop internal trade barriers—but relaunched last September. EU Trade Commissioner Peter Mandelson visited Brazil and Argentina in March for four days to boost those talks. At the fourth joint EU-Latin American summit that took place in Vienna on May 11-13, 2006, the EU launched trade negotiations with the Andean trade grouping of Bolivia, Colombia, Ecuador, Peru and Venezuela.

At the same time, the EU is looking for other inroads—apart from trade—into Latin America. Last December the European Commission proposed a

“renewed strategy designed to strengthen the EU-Latin America strategic partnership” (Austria Today, March 24, 2006).

The policy paper made recommendations including stepping up political dialogue between the two regions, stimulating economic interaction, and tackling inequality.

“Today’s partnership,” reported Austria Today, “reflects the increasing importance and growing potential of the Latin American region, and the will of both parties to further strengthen the relationship in the future” (ibid.).

In another effort to move in on Latin America, on March 27-28, 2006, the European Commission held a high-level conference in Brussels

“on the theme of social cohesion in Latin America, bringing together some 30 ministers from both sides of the Atlantic with a view to drawing up … strategies for enhancing social solidarity in Latin American countries” (European Report, March 28, 2006).

The EU is currently the leading donor, top investor and second-most important trade partner for Latin America. Their strategic partnership has developed basically over the past seven years.

* Trade Bloc Swinging Away From U.S.

 

On July 3, 2006 one of the most virulently anti-American governments in Latin America was officially inducted into the South American trade bloc Mercosur. Adding Venezuela—the world’s fifth-largest oil exporter—to Argentina, Brazil, Paraguay and Uruguay will boost the bloc’s gross regional product to more than $1 trillion. With the trade bloc now accounting for 75 percent of the region’s total economic activity and comprising 65 percent of South America’s population, Mercosur’s economic weight will certainly increase.

Of more significance is the fact that this expansion in Mercosur membership characterizes Latin America’s swing away from the U.S.

For years, the United States has been trying to establish a Free Trade Area of the Americas (FTAA) encompassing both American continents. In response, the nations of Latin America have closed ranks and progressively worked to form their own trade agreements.

In many ways, Venezuela has taken the lead in fostering an anti-American spirit in Latin America. Chavez rails against the U.S. at every opportunity and has made a point to cultivate relationships with other countries hostile to America such as Cuba and Iran. Chavez now claims the acceptance of Venezuela into Mercosur as “a victory against Washington’s ‘imperialistic’ economic plans for the hemisphere” (ibid., July 5, 2006).

In accepting Venezuela as a member with full voting rights, Mercosur is bound to adopt a stance even more at odds with the U.S. The way Chavez sees it, the alliance “should be a common front against U.S. free-trade deals” (ibid.).

The other Mercosur members are aware that Venezuela recently withdrew from the Andean trade bloc—consisting of Bolivia, Colombia, Ecuador and Peru—in protest of those countries having trade agreements with the U.S. Accepting Venezuela—which has the third-largest economy on the continent—signals that Mercosur doesn’t intend to get cozy with the U.S. anytime soon. Chavez’s passionate anti-Americanism evidently does not bother Mercosur.

Providing further evidence of Mercosur’s cross purposes with the U.S., on July 21, 2006 a trade agreement was signed between the bloc and Cuba, a sworn enemy of the U.S.

So, if the massive trade bloc is alienating the U.S., with whom is it seeking to develop trade relations? The European Union.

The EU is currently the leading donor, top investor and second-most-important trade partner for Latin America. Negotiations have been underway since 1999 to forge a massive free-trade area joining together the EU and the Mercosur trade bloc. Such a trading partnership would hold enormous influence on world trade and have the ability to isolate the U.S.

* Germany’s Corporate Blitzkrieg

 

EU - State by State Financial Contributions - (click to enlarge)

"German companies have stepped on the gas in the past 12 months.” That’s what Tim Albrecht, a fund manager at DWS Investment in Frankfurt, said earlier this year. “They’re in conquering mode, and we’ve not hit the peak yet” (International Herald Tribune, March 16, 2006).

In the first quarter of 2006 alone, German companies agreed to spend a record $99.5 billion on takeovers—more than in all of 2005. Swiss bank UBS says nearly 65 percent of this year’s bids by German corporations have been either hostile or at least unsolicited (German Foreign Policy, August 9, 2006).

These takeovers are one sign of an economy on fire. Germany has the largest economy in Europe, accounting for 20 percent of all economic activity in the European Union. It has also become the world’s third-largest economy and its largest exporter.

This is an amazing position for German business to be in, considering the state it was left in six decades ago. During the closing year of World War II, Germany took one of the worst poundings ever administered to any nation. Every city with a population over 50,000 was destroyed, and many other smaller cities as well. Every fourth home in the country was left in ruins. The Germans were broken both militarily and economically.

Near the close of the war, the Allies signed a document stating,

“It is our inflexible purpose to destroy German militarism and Nazism and to ensure that Germany will never again be able to disturb the peace of the world. We are determined to disarm and disband all German armed forces, break up for all time the German General Staff that has repeatedly contrived the resurgence of German militarism; remove or destroy all German military equipment; eliminate or control all German industry that could be used for military production. … It is not our purpose to destroy the people of Germany, but only when Nazism and militarism have been extirpated will there be hope for a decent life for Germans and a place for them in the community of nations.”

However, the Allies never followed through with ensuring Germany would not be able to ever again dominate Europe and the world. Instead they embraced a postwar policy designed to reconstruct the enemy.

Today, riding on its rebuilt industry, Germany has successfully reclaimed its role as the economic powerhouse of Europe. As a result, mainland Europe’s economy is being pulled along at its fastest rate in six years—even surpassing Britain and the United States, according to recent figures.

* Strengthening Corporate Sector

 

German companies are perfectly positioned to take advantage of the new German consumer spending. The years of weak economic growth gave many German corporations the bargaining power needed to bring their unions under control, often by threatening to move jobs overseas. All across Germany, domestically owned corporate giants such as Siemens, Volkswagen and DaimlerChrysler cut staff, demanded employees work longer hours, and increased productivity. They were forced to innovate and become more efficient in order to remain afloat. The effect is a stronger, more competitive corporate sector.

Meanwhile, as Germany’s corporate giants restructured, they also focused on increasing their exports, largely within Europe. In fact, over the past 10 years, German enterprises have expanded their eurozone market share by over 25 percent—more than double that of their French rivals and more than 2 _ times that of the Italians. Foreign sales have also allowed German corporations to become highly profitable. Both 2004 and 2005 were record revenue-generating years for German companies, and according to current predictions, this year will set a new record again. Last year, more than 130 industrial, commercial and service companies listed on Germany’s four leading stock exchanges increased their net profits by an average of 30 percent.

The most visible manifestation of German corporate muscle-flexing has been the recent deluge of German corporate takeovers—many of them hostile.

Business Week called the corporate leaders of German hunter companies like Siemens, the engineering group Linde, and energy conglomerate E.On, “young lions” that are “quick to pounce” (Business Week, April 21, 2006).

When commentators start referring to these companies as young lions that are quick to pounce, or as being in conquering mode, any person who reveres history should take note. To a large extent, these companies are the very same ones that marched in step with Germany’s World War I and World War II attempts to take over Europe and the world.

* German Takeovers

 

Siemens, for example, is a company whose roots extend back to 1847. During World War I, two fifths of Siemens’ entire corporate value was destroyed. After World War II, four fifths of Siemens operations were destroyed. Yet today Siemens is back as one of the world’s largest companies, employing 461,000 people in over 190 countries. Siemens is a leader in information and communications, power, transportation, medical and lighting technologies.

Linde, a 127-year-old engineering corporation, recently bought the strategic British-owned BOC Group, the world’s second-largest industrial gases manufacturer. During the world wars, Linde played an essential role in producing liquid oxygen and other explosives as well as in pioneering coal-to-liquid technology and nitrate fertilizer production in support of the German war effort. The BOC purchase now makes Linde the world’s foremost producer of industrial gases, employing 53,000 people throughout Europe and around the world.

E.On’s heritage can be traced back to two founding companies, Viag and Veba, which were established prior to World War II by the German government to oversee the nation’s metals, mining and power industries. In 2000, the two companies merged to form Germany’s dominant gas and power utility, E.On.

Earlier this year, E.On announced a $34.3 billion hostile takeover of Spanish energy company Endesa—the largest takeover proposed by any power company ever. If this deal goes through, E.On, which is already Europe’s dominant combined electricity and gas provider, will become Spain’s largest power supplier and probably Germany’s largest publicly owned company. Endesa also has holdings in Portugal, Italy, North Africa, Brazil and Chile.

This takeover attempt by E.On follows a string of others. In 2001, E.On purchased British-owned Powergen for $9.5 billion, making it Britain’s second-largest electricity and gas provider. In 2002, E.On purchased Hungarian utility Edasz. Then in 2003, E.On purchased Ruhrgas, the Continent’s largest importer of natural gas. This purchase gave E.On a 6.5 percent stake in Russia’s super-giant gas company Gazprom, making it the largest foreign shareholder in the group. In 2005, Romanian utility Electrica Moldova was E.On’s successful takeover target. Electrica Moldova, supplying 1.3 million customers, controls approximately 11 percent of Romania’s wholesale market. In January 2006, Hungary’s largest oil and gas company, MOL, headquartered in Budapest, was acquired. E.On also owns significant operations in Italy, Sweden, the Netherlands and a host of other European countries.

An E.On adviser says the reason the German company is so successful at takeovers is that its huge pile of cash allows it “to blow rivals out of the water” (Financial Times, February 22, 2006). With 80,000 employees, E.On is the world’s largest privately owned energy service provider; by these takeover actions, it is rapidly becoming the literal powerhouse of Europe.

Other German corporations are also taking over strategic industries throughout Europe.

German stock exchange Deutsche Borse’s battle for control of the Euronext stock exchange is perhaps the most high-profile example of a major prospective German takeover. Deutsche Borse officials tout the potential Euronext purchase as the first creation of a “truly pan-European exchange organization” representing a “significant step forward in the integration of European financial markets” (Agence France Presse, May 22, 2006).

Deutsche Borse shareholders lauded the potential pairing as the creation of a “European champion.” If this merger proceeds, Europe’s major financial markets in Frankfurt, Paris, Brussels, Amsterdam and Lisbon will all fall under German control. Additionally, the Italian stock exchange based in Milan has reportedly indicated that if a pan-European exchange led by Germany is created, it too would like to join the group.

German-owned companies such as Deutsche Bank, Deutsche Post, Deutsche Telekom, Allianz Group, RWE and many others have all actively bought out foreign competitors, extending their reach and influence throughout Europe.

Across Europe, major power, gas, water, manufacturing, telecommunications, finance and media corporations have fallen to German buyers. These are industries no nation would want in the hands of an enemy during a crisis. Even in good times, it opens a nation up to coercion—in bad times, blackmail or worse.

German financiers and businessmen—merchants of the earth—are turning their nation into the economic hub for Europe and the world. Their success is worth noting, since twice last century such merchants—to a large extent, the very same companies—marched in step with the military, with devastating results.

* German Corporate History

 

In 1996, the U.S. government declassified a top-secret World War II document that exposed agreements made between several of Germany’s largest industrial giants and top German officials at a meeting just nine months before the war’s end in Europe.

According to the document, on Aug. 10, 1944, principle German corporate leaders representing Krupp, Volkswagenwerk, Messerschmitt, Rheinmetall, Rochling, Büssing and others met with top German military and political personnel from the SS, Navy, and the ministries of armaments to prepare for a “postwar commercial campaign” after the eventual German loss.

German industrialists must, the document said, “through their exports increase the strength of Germany.” They were instructed to place existing financial reserves at the disposal of the Nazi Party “so that a strong German Empire can be created after the defeat.”

This document highlighted the exact worry the Allied powers tried to address by seeking to destroy Germany’s future war-making capability.

Have Germany’s World War II corporate industrialists followed through with their directive? Germany has become the world’s largest exporting nation, and German corporations are again economically powerful—but has a corporate Germany actually conducted a “postwar commercial campaign” to increase its influence over Europe?

A look at the astounding post-World War II success of the above-mentioned six companies identified in the declassified document not only suggests a postwar German commercial campaign, but a highly effective one.

Take steel and weapons manufacturer Krupp (now ThyssenKrupp). When Germany lost World War II, the company was forbidden by the Allies to manufacture arms (as it was after World War I) and Alfried Krupp, the company’s owner, was convicted of war crimes including the use of mass slave labor. He was sentenced to 12 years in prison and ordered to forfeit all his property. Later, however, the U.S. high commissioner for Germany granted him amnesty and restored much of his holdings. Alfried Krupp was released in the early part of 1951, and even though many of the Krupp factories, shipyards and steel and coal mines had been damaged, destroyed or dismantled, Krupp was still able to reestablish itself as a leading German company by the 1960s, to continue its 100-year tradition of supplying Germany with the arms needed for war.

The speed at which ThyssenKrupp reestablished itself as a corporate giant is astonishing.

Today, ThyssenKrupp is one of the largest steel and technology groups in the world, employing about 184,000 workers in more than 70 countries. It is also a leading naval military supplier, building some of the most technologically advanced submarines, frigates and corvettes available. Its fiscal 2004/2005 sales of approximately 42 billion Euro (us$53.3 billion) were generated in bulk from its roughly 600 foreign subsidiary companies, located in the UK, France, Italy and 13 other European countries. ThyssenKrupp also has operations in the U.S. and Asia. Not bad for a company that was all but destroyed in two world wars.

Volkswagen, another German corporation documented for its collusion with the World War II Nazis, has become a very powerful and dominant automotive player on the world scene. Although its core market is the European Union, Volkswagen sales make it the world’s fifth-largest automotive company by revenue. Volkswagen owns the Bentley brand, international vehicle manufacturer Audi, Seat and Skoda, which manufacture and sell cars in Spain and in southern and eastern Europe, and Lamborghini, which makes sports cars in Italy.

Messerschmitt, Germany’s famous World War II manufacturer that built much of the fighting aircraft behind Germany’s Luftwaffe, is also active and prospering today, although under a different name.

Like Krupp, much of Messerschmitt’s infrastructure was destroyed in the war. Further, Messerschmitt was even forbidden to produce aircraft. Yet it too has risen from World War II to become part of a world-leading corporation. Messerschmitt was eventually allowed to build aircraft again, and in 1989, after several post-war mergers, Messerschmitt became part of Daimler-Benz Aerospace (another German industrial giant). Daimler-Benz Aerospace then later helped found the European Aeronautic Defense and Space Company (EADS), becoming a 30-percent owner.

EADS today is a global aerospace and defense technology leader. The group includes the aircraft manufacturer Airbus, and the world’s largest helicopter supplier, Eurocopter. It is also a major shareholder in MBDA, the international leader in missile systems. EADS produces the Eurofighter and other military aircraft. Galileo, the European satellite navigation system being constructed to rival the U.S.’s GPS, is also being built in large part by EADS. The company employs 113,000 people at more than 70 production sites, primarily in France, Germany, Great Britain and Spain.

Both Rheinmetall and Rochling, two of the other companies indicated by the World War II intelligence document, have also become very successful corporations.

Rheinmetall has been at the forefront of German military manufacturing for over 100 years, so it isn’t too surprising that it again became a weapons builder after the World War II loss. In fact, despite the Allies’ initial ban on arms production, Rheinmetall was back mass producing machine guns by 1956. By 1972, Rheinmetall had developed and begun selling the Leopard 2 battle tank.

Not much later, and after a series of corporate acquisitions, Rheinmetall became Europe’s leading military supplier of systems and equipment for ground forces, providing everything from artillery and munitions to communications, surveillance technology and guided missile systems. Rheinmetall subsidiaries, which also include significant automotive component manufacturers, are located throughout Europe, the Americas and China.

Rochling, founded 184 years ago as a coal trading house, has now become a leader in high-performance plastics technologies. In 2004, the Rochling Group’s worldwide operations generated revenue of approximately 1.4 billion Euro (us$1.78 billion) and employed 8,000 workers.

Vehicle manufacturer Büssing also became a successful post-World War II company, although in 1979 it was purchased by the MAN Group, another German industrial manufacturer, whose history can be traced back 250 years.

The MAN Group is now one of Europe’s leading manufacturers of commercial vehicles, engines and mechanical engineering equipment. MAN builds trucks, buses, diesel engines and turbomachinery; it also provides industrial services. According to MAN’s website, the corporation holds “leading market positions in all its business areas,” employing 50,000 people worldwide. Interestingly, in September 2006 MAN made a $12.3-billion offer for Sweden’s Scania, Europe’s fourth-largest truck maker, though the initial bid was rejected. If MAN does eventually succeed, however, it would become the leading truck-building industry in Europe.

* Germany’s Battle of the Peace

 

While Germany was but a pile of rubble after World War II, Herbert W. Armstrong in 1945, warned that Germany would eventually rise again to dominate Europe and threaten the world.

Broadcasting immediately after a United Nations meeting, Mr. Armstrong warned that German industry was working toward the revival of a German empire. “We don’t understand German thoroughness,” he said. “From the very start of World War II, they have considered the possibility of losing this second round, as they did the first—and they have carefully, methodically planned, in such eventuality, the third round—World War III !”

“What most do not know,” said Mr. Armstrong, “is that the Germans have their plans for winning the battle of the peace. Yes, I said battle of the peace.”

Peaceably, through corporate mergers and acquisitions, German corporations are reaching out beyond the borders of Germany to gain control of strategic industry. Even Germany’s most notorious World War II companies, which were severely disassembled and banned from future arms production by the Allies, have emerged as European and global leaders.

A third world war is coming, but this time Germany will not have to first fight to control Europe. Europe will find itself under Germany’s economic control before war even starts. As German companies increasingly seek to dominate Europe’s gas and power distribution, finance, manufacturing and defense industries, Europe will find itself under increasing pressure to submit to German leadership.

Former British Prime Minister Margaret Thatcher also warned, speaking of the EU in a speech given in America in October 1995,

“You have not anchored Germany to Europe; You have anchored Europe to a newly dominant, unified Germany. In the end, my friends, you’ll find it will not work.” It is Germany’s national character to dominate, she said.

Be forewarned. Trouble out of Europe is coming, and Germany will be the driving force behind it. Germany’s recent corporate blitzkrieg is just the precursor to a much larger and non-peaceable event.

* Germany: Export World Champion

 

In 2005, for the third year in a row, Germany was the world champion in exports. Last year, German companies exported us$942 billion worth of goods, a 7.5 percent increase over 2004. One third of Germany’s gross domestic product comes from exports. The export surplus last year was us$193 billion, the largest in post-war history.

The president of the Association of German Chambers of Industry and Commerce—which has 3.5 million member companies—referred to Germany as a

“global hub” and said the nation has “a good chance of becoming a kind of competence center in many technology fields” (Deutschland, June-July 2006).

* Takeover of Scottish Power?

 

One of Scotland’s most strategic corporations is being auctioned off to a foreign company. The $22 billion (11.6 billion U.K.) takeover of Scottish Power by Spanish energy corporation Iberdrola will give the Spanish conquistador 5.2 million customers and 6,200 megawatts of power-generation capacity within the UK. Iberdrola will then control 10 percent of the energy market in the UK, making it the fifth-largest energy provider for the British Isles.

Scottish Power is one of the last Scottish-owned and -headquartered corporations of any significance left in Scotland, says member of Scottish Parliament and economic affairs spokesman Jim Mather.

“Scottish Power is one of only 19 companies employing more than 5,000 people with their headquarters in Scotland, and is the biggest industrial company in the country,” he said (Sunday Herald, Nov. 12, 2006).

Scottish Power is an economic jewel—with a well-diversified asset mix, including natural gas, coal and wind power, located in both the U.S. and the UK. At a time of high and rising natural gas prices, this diversification is key: Scottish Power has been able to react to changing market conditions and generate a greater proportion of its energy from coal, which is much less expensive than natural gas. This gives an energy company a huge advantage, especially one in the British Isles, where demand drove natural gas inventories to near record-low levels this past year.

Scottish Power’s wind energy also becomes a lucrative alternative, as it has one of the largest wind power generators in the U.S. and UK. This, in fact, could be one of the driving factors behind the Iberdrola takeover. The combined company would be the world’s largest producer of electricity from wind.

The sale of Scottish Power is just one example in a hoard of foreign takeovers hitting Britain’s energy utilities. German energy giant RWE Power owns Britain’s third-largest energy supplier, NPower, which supplies electricity and gas to approximately 6 million customers. Another German energy giant, E.On, owns even more of Britain’s energy distribution system. Through its subsidiary Powergen, E.On provides power and gas to 9 million British customers, making it Britain’s second-largest electricity and gas provider. EDF Energy, the French state-owned energy giant, is Britain’s fifth-largest electricity and gas provider. If the rumors are correct, Russia’s state-owned gas giant Gazprom may be seeking to take over Centrica, Britain’s largest gas utility, supplying gas to 13 million homes.

Sadly, few question the wisdom of putting Britain’s heat and electricity in the hands of foreign corporations, even when so many strategic industries in the UK have already been snapped up.

* Europe’s Beating Heart

 

As the third-largest economy in the world and the largest in Europe, the German economy is pivotal to the health of the European economy. An underperforming German economy generally portends an underperforming European economy, and vice versa. This is why it is particularly significant that, after a period of sickness, the German economy, in comparison with the previous decade, had a stellar year in 2006.

Economic reports released by Germany’s federal statistics office show that the nation posted an economic growth rate of 2.5 percent last year, more than double that of 2005.

The impressive growth, reported Expatica, was fueled by “exports and rising corporate investment” (Expatica, January 11, 2007).

By November 2006, German exports—thanks to increasing global demand for German-made goods—had leaped 19.6 percent over the same period in 2005. Germany’s trade surplus at the end of November last year totaled 19.3 billion Euro, the highest level since German reunification in 1990.

The nation literally exported itself out of a six-year economic hibernation.

Greater global demand for German products proved a boon across the nation. Business confidence is up. Throughout 2006, industrial output soared. German companies seeking to take advantage of booming demand bolstered output, investing money in new machinery, technology and employees. Germany’s unemployment rate—a contentious issue among politicians ever since the Berlin Wall fell and thousands of unemployed East Germans entered the work force—dropped nearly a full percent to a five-year low.

The impacts of Germany’s economic upswing reverberated across Europe. The stronger the German heart pounded, the more life it pumped into the surrounding national economies.

The German economy, reported Deutsche Welle, “has won back its place as the driving force in the European economy” (Deutsche Welle, January 11, 2007).

Germany’s economy is once again the engine empowering Europe’s growing economic power and influence.

Europe is emerging as a global economic power, and the German economy is unequivocally the driving force behind this trend.

European Investment in 2006 - Equipment Procurement and Research and Development. (click to enlarge)

* The Bigger Picture

 

Grasp the bigger picture here! Germany has learned its lesson. If you want to rule the world, overt warfare in the name of your country or its dominant ideology is clearly not the way to go about it. Diplomacy, trade, “peacekeeping” and the employment of your traditional enemy’s principal ideology (democracy), plus the aggressive use of major internationally recognized bodies in pursuit of your national goals—the EU, UN, NATO—this strategy will yield the results you seek!

Many Germans have returned to lives of introspection, facing the prospects of higher taxes, decimated social benefits and a shaky coalition government that now appears, despite the confident image portrayed by its chancellor, to be at risk of fragmentation. What is it about these people that their mood can change so quickly?

One long-time observer of the German scene, Luigi Barzini, posed the question that has perplexed students of German history since the days of Rome.

“Which is the shape of the German Proteus this morning? Which will be its shape tomorrow?” (The Europeans).

One of Germany’s modern philosophers, Johannes Gross, said of his fellow countrymen,

“[T]he day may come when someone lifts the mask. … The face that appears may be less full-cheeked and rosy than today’s. … So long as we wear the mask, we remain hidden and continue to conceal the situation from ourselves” (ibid.).

And therein lies the supreme danger.

Wonderfully talented, organized, energetic and cultured the German people certainly are. Major contributors to the progress of modern society they certainly have been. But as long as Germany refuses to face the singular great flaw in its national character, its people risk becoming willing pawns yet again in the hands of any future demagogue who would seek to captivate their fancy. Yet again, Germany could emerge with a sense of superiority over the rest of the world—with disastrous results for all!

Friedrich Nietzsche wrote of his people,

“[T]he German is acquainted with the hidden paths to chaos …” (Beyond Good and Evil).

Populist leaders have taken advantage of this proclivity of the German people.

British political commentator Rodney Atkinson, a student of German history, once commented,

“The German is expert in creating a crisis, then posing the solution, with an outcome designed to further his own ends.”

We have seen that in the Balkans. We see it beginning to occur in Africa. Are we destined to see it play out yet once more, on a grand, global scale, as it has twice in recent history, since 1914?

* Grave Risk

 

There is grave risk in Germany’s present status. It has, by far, the largest economy in Europe. It is Europe’s most strident voice in foreign policy. It deploys Europe’s most organized military forces today over an ever widening arena. It houses the world’s singular greatest national banking enterprise, as well as the European Central Bank and many globalist corporations. It increasingly controls the internal waterways, road transit systems, power generation and distribution systems, water reticulation systems, mail and courier services and major publishing houses in Europe. And it has just succeeded in having a German public relations firm retained as propaganda merchants for that grand vehicle of German ambition, the European Union.

Germany’s current great political weakness, its fragmentary coalition government, is Europe and the world’s temporary protection from an immediate repetition of the grave errors of its past—errors that cost millions of lives in the carnage of two great global wars.

But what if this was all to change? What if, in a time of crisis—rising taxes, drastic social disruption from forced changes in economy and social benefits, the threat to its security posed by a rising Islamic empire—another demagogue arose? What then? Would history repeat itself?

As a member of global society in one of the most volatile and disruptive times in the history of man, you have a responsibility !

Barzini posed the question of the mutable German nation as he watched Germany gradually emerge from its hidebound postwar cocoon to assert itself, yet again, on the world scene,

“What is the German mood? Are they happy, as happy as human beings can reasonably be? (It is when they are disconcerted and fretful that they can be most dangerous)”

Will the German nation take this world once more down the hidden path to chaos?

* The Long Arm of European Law

 

The European Union is now routinely exerting its authority as a regulator on technology companies. Intel, AMD, Apple, Microsoft, Sony and Toshiba can verify this from first-hand experience. Consequently, European standards of doing business—if the European Commission’s behavior continues to go unchecked—will become de facto law in the United States.

The EU Commission sparked tremendous controversy in 2001 when it blocked a $42 billion acquisition of Honeywell International by General Electric, even after Washington had already approved the merger between the two U.S.-based companies. Until then, no one fully realized that Europe intended to exert its influence beyond its borders in such a proactive way. But now, among prominent technology companies, this sort of behavior is commonplace.

On July 27, 2007, for example, EU regulators accused the world’s largest processor company, Intel Corp., of anti-competitive activity. The crime? Intel gave rebates to companies that used its processors. Where the companies involved consider this an incentive to buy, Brussels considers it “abuse of a dominant position”—with a potential fine of up to 3.5 billion (us$4.8 billion). Advanced Micro Designs (AMD), Intel’s main rival, lodged the complaint.

The Wall Street Journal observed that Intel is being punished because it has an 80 percent share of the $33 billion microprocessor market, as opposed to AMD’s 20 percent:

“In Europe, a firm’s size and success are the determining factors of its alleged violations. The same commercial practices would be entirely legal if the company in question were not considered ‘dominant.’ This leaves companies in the absurd position of being free to compete as hard as possible until they reach a certain market share—at which point their hitherto legal behavior becomes unlawful. This is the kind of reasoning that has damaged the Commission’s credibility, as Europe’s highest courts overturn one major antitrust decision after another” (Wall Street Journal, July 31, 2007).

The European Commission is taking action even though amd actually gained market share throughout 2005 and most of 2006. The writing has been on the wall ever since EU officials carried out a raid of Intel offices throughout Europe at dawn on July 12, 2005. Such actions are becoming routine where technology companies—especially American technology companies—are involved.

Perhaps most shocking, the EU has launched an investigation into the war between Sony’s Blu-ray and Toshiba’s hd-dvd formats—without having received a complaint from anyone. In June the European Commission notified all the major studios in Hollywood to turn over agreements, e-mails, records of telephone conversations, etc. regarding their decisions on their choice of dvd format. Every major studio except NBC Universal has backed the Blu-ray format. Five studios exclusively produce Blu-ray discs, a decision the EU is specifically challenging. One can only presume that if these were still the days of VHS versus Betamax, the EU would be trying to prevent Betamax from failing in the marketplace. The result, if the EU is successful: Two incompatible formats getting equal support from movie studios and retail outlets because of government interference—and a foreign government at that!

Apple Computer has discovered the troublesome European standard as well—and on multiple fronts. EU regulators are targeting Apple because its iTunes music store pricing is higher in some European jurisdictions than others—likely a result of record companies’ pricing rather than any proactive decision on Apple’s part. Yankee Group analyst Mike Goodman said Apple is “somewhat caught in the middle on pricing” with a profit margin of only a few cents a song as it is. (MacNewsWorld, July 30, 2007).

EU regulators have also targeted the exclusive operation between the iPod and iTunes, which a consumer group in Norway called an “illegal lock-in” that forces consumers’ hands by “technically blocking interoperability,” MacNewsWorld reported. But, like the pricing war, it is the record labels that have insisted on this restriction. Nevertheless, Apple has started responding to European regulators’ concerns: It has made some of its catalog available without the restrictions—called Digital Rights Management (DRM)—that would otherwise prevent other players from using the iTunes store. The real story is that Apple is taking European law into consideration even though it is in the clear with its own government.

Microsoft has also famously come under the European hammer of justice, paying record-breaking fines and still currently under European review and the threat of stiffer fines.

The concept goes back to German Chancellor Angela Merkel’s May 2006 comments to the Bundestag:

“Europe has to show that it can mold world policy according to its own values.”

No doubt, that is exactly what Europe is doing: enforcing European ways of doing business on foreign companies, and in the process establishing laws far beyond its own borders.

Quadriga on top of the Brandenburg-Gate in Berlin, Germany. Quadriga currently faces East. Image by (Aleph), http://commons.wikimedia.org (click to enlarge)

* Preventing Foreign Takeovers

 

Berlin is tightening its control of German industries in an effort to shield them from foreign takeovers through a proposed law that would take effect at some time before June 2008.

The new legislation presented to Chancellor Angela Merkel’s government on Oct. 30, 2007, would allow Germany to veto foreign investment of 25 percent or more in a company if Berlin deemed it a national security threat.

The proposed legislation provides for the government to be notified about such an investment and gives Berlin up to four weeks to veto it. In cases of investments on stock markets, the government would have three months to force a roll-back of the deal, a measure to compel foreign investors to notify of partial takeover bids.

The new law is largely a response to growing takeover attempts by non-European-based companies. It wasn’t until a state-owned Russian fund showed interest in acquiring a stake in Deutsche Telekom ag and the Dubai International Financial Center bought a 2.2 percent stake in Deutsche Bank ag that Berlin decided to move more aggressively to shore up business defenses against foreign takeovers.

Germany’s protectionist move illustrates growing tension in Europe caused by competition from non-Western neighbors, especially Russia, China and Middle Eastern Muslim nations. Cash-rich and technology-limited, many of these often-state-owned enterprises are seeking to pluck fruit from corporate Europe, putting them in direct competition with German interests. This legislation, if adopted, would be a signal that Germany is more than willing to erect trade barriers to inhibit foreign entities from infringing on its turf, even if it means reciprocal legislative action might be taken against German companies elsewhere in the world.

Conversely, Germany’s new legislation is clearly not aimed at nations within Europe. German companies dominate the European corporate landscape, dwarfing many of their European rivals. German companies have been extremely active in acquiring operations in other EU countries. Knowing this, German politicians would be unlikely to use the legislation to instigate an inter-European protectionist revival that would invite political backlash and limit the ability of German corporations to further extend their presence on the Continent.

German corporate influence in Europe is growing rapidly. Not since the days of World War II have German companies been so influential in mainland Europe.

* Dump a Dollar, Buy a Euro

 

A trend of enormous significance for every reader: Investors the world over are beginning to pull away from the shaky dollar—and to bank instead on a young, up-and-coming currency.

Do you know what underpins, even drives, the global economy? It’s not the Federal Reserve Bank or any other central bank. It’s not the International Monetary Fund. It’s not a specific country. It’s not gold, oil or any other commodity. It’s not currency traders. It’s not even the almighty greenback.

What drives the economy is a force that cannot be seen—that is untouchable, intangible. It’s a phenomenon that can be shaped and molded; it’s fickle and susceptible to spur-of-the-moment change. In reality, the truth about what drives the global economy at the most fundamental level is alarming, sobering—even frightening.

The answer: confidence!
Perceptions. Feelings. Morals. Emotions. Convictions. Confidence.

Take the American dollar, for example. Its role on the world scene is hard to overestimate: As the currency of choice for global trade and commerce since World War II, it has greased the global economy for decades. Why? Fundamentally, it’s because the world’s perception of the United States—that it is a superpower with a strong, consistent and stable economy—has caused individuals and nations to invest their confidence (and subsequently their money) in American power and stability.

The American dollar, like all other fiat currencies, has no intrinsic value of its own—it is not underpinned by anything of real, tangible value. Its value lies in the global demand for the dollar, which is motivated by the confidence that global consumers have in the U.S. economy. Thus, if the global perception of America and its economy changes, if individuals begin to lose confidence in America’s financial stability, serious dilemmas arise.

This is precisely what is occurring.

Now, alarmed and growing increasingly edgy because of the critical condition of the American economy, the rest of the world is losing confidence in the U.S. as a stable economic system.

As people the world over increasingly perceive America’s dire economic condition, they are searching for a more solid alternative in which to invest their confidence. Recent months have revealed an alternative economic power the world is turning to: Europe.

After years of stagnation, many European economies and the overall European Union economy are now being considered alternatives to America’s. In 2006, the European Union showed signs that it could become the global economic powerhouse it has always sought to be. This trend looks set to continue.

* Global Confidence Shift

 

In December 2006, the Wall Street Journal spoke of this growing economic powerhouse.

“Europe’s economy is firing on all cylinders after years of feeble growth, helping sustain global expansion as the U.S. economy slows and surprising many economists who doubted the Continent could muster enough demand to break its reliance on exports”

Ignited at first by rising exports, the Continent’s economic resurgence is now spilling over to impact other facets of the European economy, including investment, job creation and consumer spending.

An increasing number of financial gurus and investors now see Europe as an alternative to America. “It’s looking increasingly like Europe hasn’t caught a cold from the U.S. sneezing,” commented economist Neville Hill from Credit Suisse in London.

In November last year, the Organization for Economic Cooperation and Development (OECD) reported,

“[T]he U.S. economy is running out of steam, but a European resurgence and the boom in Asia will prevent the world economy from derailing as it did after the stock market crash of 2000 ….”
According to the OECD report, the comeback of the European economy in 2006 contributed to the “rebalancing” of global demand and output, “mitigating the impact of a U.S. slowdown” (International Herald Tribune, Nov. 28, 2006).

America’s economy is stumbling while Europe’s is quickening its pace. In fact, America’s economic malaise is dramatically enhancing Europe’s reputation as a viable and attractive global financial center.

The euro is a good thermometer of Europe’s success. This young currency’s strong performance, particularly on the international scene, has taken many by surprise, as it has emerged as the primary currency after the American dollar. The last quarter of 2006 was especially momentous, as the value of euro notes in circulation broke the 600 billion mark (us$787 billion), nearly double the value of the national currencies the euro replaced when it was first adopted in 2002. The Financial Times stated, “The U.S. dollar bill’s standing as the world’s favorite form of cash is being usurped by the five-year-old euro” (Dec. 27, 2006). According to calculations performed by the Times, the value of euro notes in circulation in December 2006 exceeded the value of American dollars in circulation.

This is truly remarkable for a currency only five years old!

This global shift in confidence is stopping the mouths of critics. When the euro was released five years ago, many critics said it could never share the field with the dollar, pound or yen. On its five-year anniversary in January, the value of the euro was near its all-time high, and it shows no signs of coming down; it rose 14 percent in 2006 alone. As short as it is, this impressive history is causing demand for the euro to grow rapidly.

In a startling announcement in October 2006, former U.S. Federal Reserve Chairman Alan Greenspan warned that both private investors and central banks were beginning to dump dollars in favor of the euro.

“We’re beginning to see some move from the dollar to the euro, both from the private sector … but also from monetary authorities and central banks,” Greenspan said at a conference sponsored by the Commercial Finance Association on October 26, 2006.

As the value of the dollar slides and as banks and governments grow concerned about America’s long-term economic stability, more and more nations—including Russia, China, Japan, Sweden, the United Arab Emirates, Qatar, Syria and South Korea—have begun to talk about diversifying their holdings away from the dollar, which in many cases has meant purchasing more euros.

“Indeed, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of dollars over time to the euro,” said Howard Archer, chief European economist for Global Insight in London (Associated Press, Dec. 30, 2006).

Even in some non-EU states, the euro is being used alongside the local currency in trade and commerce. Associated Press explained recently that

“at least half a dozen other European mini-states and territories are using the currency as legal tender without approval from the European Central Bank.

“The euro was introduced five years ago to provide economic cohesion among EU countries. But euros also are in circulation in dozens of countries and overseas territories ranging from the North Atlantic to the Pacific. In Europe, Montenegro, Vatican City and San Marino and the principalities of Andorra and Monaco have used the euro since its inception. And in the province of Kosovo … the euro circulates alongside the Serbian dinar” (January 1, 2007).

The euro’s success, as AP noted, doesn’t bode well for America: “[T]he rise of the euro has made inroads into the dollar’s international dominance.” For a young currency that the European Central Bank has not excessively promoted, the growing use of the euro in international markets and in foreign exchange is testimony to the mounting confidence of banks, investors and governments in the European economy. Global demand for the euro has been organic; it started at the grassroots level and is being driven by growing faith in the Continent.

The rise of the euro is proving a boon for America’s oil-rich enemies too. The strengthening euro has equipped Iran with the option of demanding its clients pay for oil in euros rather than American dollars. Iran already receives payment for more than half of its oil in euros. Now Venezuela, another top oil producer, is strongly considering selling its oil in euros.

Russia, another major oil producer, is also switching to the euro. On April 20, 2006, Russian Finance Minister Alexel Kudrin said,

“Russia cannot consider the U.S. dollar as a reliable reserve currency because of its instability. This currency has devalued by 40 percent against the euro in recent years. The international community can hardly be satisfied with this instability.”

Over the next four weeks, the dollar plunged 6.6 percent. In June, Russia announced it had reduced its U.S. dollar foreign exchange reserves from 70 percent to 50 percent, while increasing its euros from 25 percent to 40 percent. The same month, Russia also socked the dollar by starting to trade futures contracts for gold and crude oil denominated in Russian rubles as opposed to dollars (in which most of the world’s commodities are traded) in the Russian Trading System.
By reducing their reliance on the dollar and investing in the euro, America’s enemies have a new weapon to use against the U.S.

A weakening dollar and strengthening euro is even making trade and commerce more difficult for America’s allies. During the last half of 2006, nations that accepted payments for goods and services (such as oil) in dollars saw the value of their dollars decrease dramatically against the euro and other currencies.

The significance of the world diversifying away from the dollar by buying more euros cannot be overstated. It is one of the most powerful proofs that global confidence in the American economy is eroding and that global confidence in Europe is taking its place. In a system where currencies are underpinned by perception and confidence, this is a trend with gargantuan ramifications.

U.S. Congressman Ron Paul from Texas commented on the situation on January 1, 2007:

“There are now more euros in circulation worldwide than dollars. This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65 percent of foreign central bank exchange reserves are still held in dollars, versus only about 25 percent in euros. … Still, the rise of the euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business. More importantly, our greatest benefactors for the last 20 years—Asian central banks—have lost their appetite for holding U.S. dollars."

With 65 percent of central bank reserves comprised of American dollars, the dollar remains, at this point, the currency of choice. But for the young, relatively unproven euro to comprise 25 percent of international currency reserves is impressive.

Many financial analysts anticipate that the euro will grow even stronger this year—particularly against the dollar and the yen. As this trend persists, consider the psychological changes it portends. The shift in confidence from the American currency to the European suggests that some dramatic changes are occurring on the world scene. Though it may not occur next week or next month, if this trend persists, America’s easy days of plentiful money and low inflation will be over; interest rates will rise; consumer confidence will plummet, and so will the economy.

* New Economic Superpower ?

 

As we see the world remove its confidence from the American economy and invest it in the European economy, we should be concerned. Such a radical shift will upend the American economy, which will drive other nations to invest in Europe all the more. The U.S. is facing an economic calamity far worse than the stock market crash of 1929; the scale of this financial crisis will be unprecedented.

Of course, in a globally interconnected economic system, a collapse of the dollar will have massive ramifications around the world—including in Europe. The spillover effects of an American economic crisis may well trigger the unification of Europe under one strong leader. History shows that crisis can force nations to band together and to look to a political savior for a way forward.

But in the end, the European economy will be in a position to take advantage of America’s downfall and fill the vacuum it will create—and is already creating. The economic ruin of America portends the formation of a deadly economic and political force in Europe. Ultimately, the Continent will amass the power and influence to become the greatest economic superpower of the age. Like America after World War II, Europe will become the center of global activity, growing wealthier and more influential, garnering more global power. And, like America these past 60 years, when Europe comes to underpin the global financial system, it will become the greatest, most dominant power on Earth.

* Germany Moves Full Speed Ahead

 

German business is booming, investor confidence is climbing, and productivity is up—all good signs for Germany’s economy.

“Germany has finally found its role again as the motor for growth in the eurozone,” said German Chancellor Angela Merkel during an opening speech at a technology fair in Hanover.

Exports, along with corporate investment and increased global demand for German-engineered products, are responsible for this sudden economic rise. The world’s largest exporter experienced a 2.7 percent growth in gross domestic product in 2006—its highest in six years—and higher than the average growth in the eurozone. Exports grew 12.5 percent in 2006; the nation shipped almost 25 percent more goods to Russia and China alone.

Germany’s export business is driven largely by its global niche products—highly sophisticated technological tools that enjoy booming worldwide demand. Businesses that offer these specialized products don’t compete with nations such as China, which produces many less-sophisticated goods at much cheaper costs than its Western counterparts can. The demand for these higher-end products is growing, even though the goods have become more expensive as the euro increases in value.

The European Union’s success as a dominant global superstate that can compete with the United States hinges on Europe becoming less dependent upon the U.S. economy and more competitive in the world economy. Germany, the engine of the European economy, is proving itself to be just that.

Its unemployment rate, for instance, is in the single digits for the first time since 2002.

“The simple fact that the German labor market is turning … shows that this is a genuine German renaissance, one that is independent of the U.S.,” said Nicolas Sobczak, senior European economist at Goldman Sachs in Paris (International Herald Tribune, April 11, 2007).

Germany now exports more to the nations of the former Soviet Union than it does to the U.S. It ships five times more goods to nations within Europe than to the U.S.

Already other EU nations are benefiting from Germany’s booming economy. In 2006, Germany’s exports to Poland rose 29 percent while imports from Poland rose 23 percent. Other countries in Europe need an economy like Germany’s to fuel their own growth.

Germany is still modestly dependent on the U.S. economy. If America’s economy takes a turn for the worse, which is expected, Germany will still have to endure the effects. However, its success in turning a stagnant economy into the world’s third-largest provides a hint of its likely resiliency in case of an American collapse, and all the more quickly as it becomes less dependent on it.

European Investment in 2006 - Research and Technology for Defence Purposes. (click to enlarge)

* Greenspan: Euro Could Replace Dollar

 

U.S. Federal Reserve Bank Chairman Alan Greenspan has warned that the dollar’s days as the world’s reserve currency may be numbered, and that a trend to replace the dollar has already begun.

Though some have speculated this is an inevitability, these predictions, published September 20, 2007 in a German magazine, are particularly shocking considering their source. Greenspan was the central banker responsible for overseeing the dollar’s value for over 18 years up until 2006.

In the interview published in Stern magazine, Greenspan said it was

“absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency.”

If the former chairman’s words prove true, the dollar’s present downward slide will continue. Greenspan noted that at the end of 2006, two thirds of all currency reserves were held in dollars, as opposed to 25 percent for the euro. If central banks continue to increase euro proportions at the expense of the dollar, demand for the dollar will fall and excess dollar supplies could start flooding the market.

In fact, this trend is already under way, as evidenced by the recent breakdown in the dollar’s value. In recent months, the dollar has hit all-time lows against the euro and multi-decade lows against many other currencies. The dollar has also reached new lows against oil and wheat, and a 28-year low against gold.

Greenspan also stated that although more countries still use the dollar as a reserve currency, the greenback doesn’t actually have “all that much of an advantage” over the euro any longer. In terms of cross-border trade, the dollar accounts for 43 percent, while the euro is used in 39 percent of such transactions.

The trend to adopt the euro as a reserve currency has greatly benefited Europe. In addition to the prestige and power gained by the European Central Bank, Europe’s economy has also profited. With the euro’s emerging role, Greenspan said Europeans are beginning to experience the benefits that reserve currency status has given Americans—including lower interest rates and higher growth with diminished inflation concerns.

Loss of the dollar’s reserve currency status would be a huge blow to the United States. It would drastically undermine the dollar’s value and cause Americans to lose many unique economic blessings that they have become used to. Economic conditions in the U.S. may be about to radically change.

* The Rise of Europe

 

Eurozone Currency Users

Currency Users Outside Eurozone

When the euro was launched nine years ago, many critics said it could never share the field with the dollar, pound or yen. Critics and analysts, while focusing on the many obstacles that a culturally fragmented Europe would need to overcome, largely overlooked or dismissed the economic strength a united Europe could exert if monetary union succeeded.

America is being replaced in its role as the world’s sole-surviving superpower. Today, even as you read this article, a religio-political machine … is on the rise in Europe.

Today the global shift in investment from the dollar to the euro is stopping the mouths of critics. Europe and the euro are on the rise—largely because of the weakness of America and its dollar. The euro has risen 62 percent against the dollar since 2002.

Even former U.S. Federal Reserve Bank chief Alan Greenspan sees the possibility of the euro replacing the dollar as the world’s reserve currency. Greenspan warned in a September 2007 article in the German magazine Stern that both private investors and central banks were beginning to dump dollars in favor of the euro, narrowing the gap between the number of dollars held by foreign central banks as compared to euros. Greenspan also noted that the greenback didn’t actually “have all that much of an advantage” over the euro anymore and that in terms of cross-border trade, the dollar accounts for 43 percent, while the euro is used in a close 39 percent of exchange.

The world’s economic landscape is drastically changing. The dollar is on the verge of collapse, foreign investors are beginning to abandon the U.S., and investor confidence is shifting to Europe.

The dollar’s recent depreciation is only the beginning of many more events that will drastically impact the Western world.

* The Con That Turned the World Against America

 

The world’s financial system came precariously close to seizing up recently.

In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money—the lifeblood of today’s economic structure—came uncomfortably close to clotting up in August this year.

Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting nearly a half trillion in dollar steroids into the economic pulmonary system.

But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.

Irrevocable damage to America’s economic system has taken place.

And because the world’s largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the world’s financial system—a system based on the dollar as the reserve currency—is failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly cited economic causes, but because of broken faith. The result in the end will be a new world financial order—one without America at the head.

Here is what happened and why you need to know about it.

* Erosion of Faith

 

The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving the dollar in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight.

The same is true for every currency, whether yen, ruble or peso. Each is backed by confidence—confidence that the national government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.

When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.

In August, 2007, when fallout from America’s popping housing bubble began to hit the market, trust in America cracked—and with it, so too did confidence in the global economic system.

Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way:

“The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion” (August 17).

He continued: “The ongoing subprime mortgage crisis … presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world.”

Trust in America is quickly disappearing. Why? Because America single-handedly brought the international financial system virtually to its knees by foisting off fraud-ridden subprime debt on an unsuspecting world, which resulted in the ensuing credit crunch.

America will not escape unscathed. You can’t cheat the very people you rely upon to lend you money without a backlash.

Here is how American greed ripped off the rest of the world.

* Anatomy of a Bubble

 

In 2000, America faced a recession. But rather than letting the economy rebalance, the Federal Reserve decided to slash interest rates to artificially stimulate the economy—even though it knew that doing so would probably create even bigger problems later.

Consequently, mortgage rates in America plummeted and, suddenly, millions more Americans could buy homes. House prices skyrocketed, tripling and quadrupling in some areas. The bubble fed on itself as prospective homeowners, often acting more like speculators, rushed to buy homes as quickly as possible to capitalize on further price appreciation.

As home values rose, fewer people could afford traditional loans. To keep their profits growing, banks and lenders began offering easy-to-get subprime mortgages—mortgages to borrowers normally considered too risky because of their credit history, income status and other factors.

Oftentimes these loans were adjustable-rate, or had initial teaser rates that would ratchet up later. Often the loans were given without any meaningful applicant background checks at all. As long as a borrower could write his own name and yearly income (regardless of whether or not it was true), he could get a loan.

And everyone was happy. Record house prices fueled a building boom and jobs multiplied. Borrowers were glad because they got huge loans and could purchase homes that were rising in value. Real-estate agents were pleased because the bigger the house sold, the bigger their profit. Lenders and loan brokers were cheerful too because they each got their cut of the action.

But there was just one problem: The whole boom was based on artificially low interest rates. What would happen when interest rates rose, homes stopped appreciating and borrowers had more difficulty making payments?

American banks, understanding the risk involved in holding so many chancy (and possibly largely overvalued) subprime mortgages on their own books, decided to get rid of them. But who would want to buy all the risky mortgages? Certainly not Americans who were already maxed out on subprime debt. The answer was foreigners.

* False Advertising

 

But here was the catch. To make the sales profitable, the risky mortgages had to be marketed as a “safe” investment.

So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

Later it became public knowledge that these same ratings agencies, which foreign investors were relying on for impartial advice, were being paid by the very banks and lenders that were bundling and selling the subprime mortgages—a huge conflict of interest that produced some terribly misleading data for foreign investors.

It also emerged, at least in Moody’s case, that the agency knew for years that some of the mortgage securities it rated as safe were more than 10 times as risky as other similarly rated bonds.

But at the time, even the banks were happy. They could merrily issue subprime mortgages (and still collect all their fees) because they were able to both quickly remove the mortgages from their books and get top dollar for them, thanks to the high ratings. And foreign investors—as well as domestic investors—confidently purchased these supposedly safe mortgage investments (even though they would have known better if their own greed hadn’t blinded their proper due diligence).

That is, until interest rates started to rise—and subprime borrowers began defaulting in droves.

As with all parties, the fun and games eventually came to an end. Suddenly the world woke up to the fact that subprime mortgages were just that—subprime—regardless of what American ratings agencies and banks pretended. As the U.S. housing market slumped, suddenly nobody wanted any U.S. mortgage securities anymore, let alone subprime ones.

Investors around the world tried to sell American mortgage securities, but by this time the shoddy credit ratings had become public knowledge. American credit-rating agencies embarrassingly began to issue massive ratings downgrades, and foreign investors found that to get any bidders on their American mortgage portfolios they had to accept steeply marked-down prices.

Hedge funds and other investment vehicles began to seize up as people tried to pull their money out of any and all businesses associated with U.S. mortgages. Panic ensued.

* The Crisis Spreads

 

As the credit crunch spread, it became evident that the “made in America” economic crisis was not contained. America’s trade partners would also take the hit for the moral breakdown in America, a breakdown that could have been avoided had greed not been such a big factor.

Banks and mortgage lenders across Europe and America began to fail.

German, French and British banks, as well as stock market investors around the world, got hit especially hard as the credit crunch and fears of new restrictive lending practices shook international bourses. Investors lost billions.

Things got so bad in Germany that the government had to step in to save two banks from failing. In France, BNP Paribas, one of the nation’s largest banks, had to suspend redemptions from three investment funds it managed.

In Britain, Northern Rock Plc., the nation’s fifth-largest mortgage lender, experienced an unprecedented bank run as customers lined up for hours to clamor for their money when it was revealed that it was having trouble accessing enough credit to continue normal operations. The Telegraph compared the scene to something out of Zimbabwe. The Sunday Times reports that when all the books are balanced, Northern Rock may be worth zero.

And the few big-name collapses experienced so far may be just the beginning.

* Backlash

 

You can be sure that billions in losses—all as a result of what amounts to a con—will not pass without a response. International backlash is growing.

“The entire world is growing in its disgust for having been defrauded,” said economic analyst Jim Willie. “French, British, German, Japanese and Chinese banks have been harmed from ingesting falsely labeled food items. What was sold as AAA-rated milk products was actually highly toxic acid …” (321gold.com, Sept. 7).

For example, in a foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises—a rule book governing America. Sarkozy, who has vowed to “moralize financial capitalism,” said America’s crisis could recur if “the leaders of major countries” did not take “concerted action to foster transparency and regulation of international markets” (International Herald Tribune, August 28, 2007).

Peter Bofinger, a member of the German government’s economic advisory board, agrees.

“We need an international approach, and the United States needs to be part of it,” he said (New York Times, August 29).

Dick Bryan, a professor of economics at the University of Sydney, also said the world must respond.

“There is the need to challenge the sovereignty of national regulators,” he said. “Why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?” In this globalized world, “a problem in one location is a problem everywhere,” he added (ibid.).

If and how long Washington can resist international pressure is unclear. So far its response has been that it wants “no form of oversight,” according to Kenneth Rogoff, a former chief economist of the International Monetary Fund (ibid.).

But a new global rule book may be the least of America’s worries.

While regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves.

What if foreigners stopped lending to the U.S.? Worse, what if they started dumping U.S. debt in the form of treasuries and bonds?

“America depends on the rest of the world to finance its debt,” Bofinger reminds us (ibid.). If foreigners stopped buying America’s financial products, it would be a catastrophe.

* Boycotting the Dollar

 

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. The U.S. has become so dependent on foreign money that if foreigners stopped lending to America, the America of today would not survive.

Even now, the foreign backlash is beginning to be felt. The U.S. dollar is dropping to unprecedented lows. In October 2007, the dollar fell to the lowest it has ever been against the euro. It dropped below the value of the Canadian dollar, a 31-year low.

So while U.S. officials brag that all will work out just fine and that the credit crunch is contained, they are missing the bigger point: America cheated the very people it depends upon for loans. Now, foreigners are voting with their feet and are choosing to reduce investment in America. They are abandoning the dollar.

As Jim Willie warned, we “might be in the early stages of … a boycott of U.S.-dollar-based financial assets” (op. cit.).

But who can blame them?

Greed and corruption have been exposed for being endemic to so many levels of America’s economy. Who is to say that even U.S. government bonds more closely resemble subprime mortgages than their conventional reputation as a safe investment?

The world is approaching the end of an era. America’s moral collapse now lies exposed to all—a virtual death sentence for an economic system based on trust. America’s reputation as a financial safe haven is being replaced with subprime status—and as foreigners have found out, subprime risks just aren’t worth it.

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In the public interest.