If this plays out as predicted we are in deep do do
Spiralling towards Europe's endgame
Robert Gottliebsen
Published 7:36 AM, 18 Nov 2011 Last update 7:36 AM, 18 Nov 2011 inShare
The European 'solution' I worked on during Wednesday night with European-connected investment bankers will require a deep crisis to trigger it (The euro's last-minute print job, November 17).
We took a big step closer to that crisis last night when for the first time I could see that there was real fear in the eyes of European bankers. I did not need to physically see their eyeballs to experience that sense of fear. And that fear is seeping into global sharemarkets. The French and European banks have been in loss denial for months.
Last night, when Spanish bonds joined Italy in the effective '7 per cent club', the French and German banks’ real losses became monumental. Eventually the bankers know they must tell the truth and confess that they have been concealing staggering losses.
President Obama knows that what could happen in Europe is now very serious, so that’s why he must swing the US emphasis away from the Atlantic to the Pacific if he has any chance to regain some momentum in the US economy. The Australian visit was part of that process.
But US companies will not find it easy in the Pacific. I commend to you a fascinating KGB interview with the chairman of Huawei in Australia, John Lord, and one of his co-directors, former Victorian Premier John Brumby. They explain what they discovered when they joined the Huawei Australian board and give us a rare insight into the way Chinese companies are thinking and acting.
Huawei is the largest privately-owned company in China and it has achieved incredible growth in the telecommunications business and now challenges the former dominance of Ericsson and Alcatel. But it is much more than that.
Huawei is modelling itself on IBM and it aims to become the IBM of telecommunications. What makes the rise of Huawei so alarming for both the US and European corporations is the way Huawei has undertaken the process. Huawei has poured large sums into research and development to become a technology leader and at the same time it has used the low manufacturing costs and economies of scale available in China to give it a price edge. That is exactly what US leaders like IBM and Microsoft did but the Chinese are doing it when the Western world’s capital systems are under increasing pressure as the fear among European bankers becomes more and more infectious.
When the Europeans threatened Greece that if they held a referendum it would be a referendum on whether they stay in the euro, the markets began to realise that the eurozone might break up. If that happened then almost certainly there would be a deep European depression because the German currency would go through the roof, destroying the country's industrial base, and most of the other countries would experience a currency slump. The banking losses would create a global banking crisis.
The German-French plan of forging a United States of Europe involves incredible austerity and a complete dismantling of the European social accord. As I pointed out yesterday, European bankers have come out here looking at the the possibly of quitting all Australian exposures and taking an enormous loss. We would not escape.
That leaves us with the 'solution’ I canvassed yesterday: wait for the moment of ‘no hope’ and then start printing money. That would see the US dollar soar against the euro and it would bring on European inflation. The falling euro would reduce global money supply. But so far, Germany remains adamant on limiting the costs it's prepared to incur in any solution to rescue the eurozone (Will Germany break the ultimate taboo? November 18).
There are no easy answers but last night’s fear in the bankers' eyes shows that soon they must face their destiny. And China knows that the European crisis brings China closer to its destiny – being the largest economy in the world and Huawei the new IBM.
