Tag Archives: Germany

The Guns of August

August has always been a good month to start a war. The reasons are simple: the harvest is ripening; the men are fit and ready; the long days are perfect for campaigning without worrying about the weather; and the summer heat seems to encourage rash decisions. In the Foreign Legion they call it le cafard – the depression or madness brought on by a hot summer.

We don’t have to look far for examples. Hitler decided to unleash his legions against Poland in August 1939; Putin invaded Georgia in August 2008; on 14 August 1974, Turkey launched its ‘Second Peace Operation’, which resulted eventually in the Turkish occupation of Northern Cyprus; and, most notorious of all, what started out as a European conflict went global in August 1914 when Britain declared war.

Well might Britain’s then Foreign Secretary, Sir Edward Grey, muse as he watched the lights going out on 4 August: ‘the lamps are going out all over Europe. We shall not see them lit again in our lifetime.’

If ever there was a war that changed the world it was World War I. Many of our international problems today stem from that disastrous August of 1914 and the conflict it spawned: Communism, Stalin, the USSR, Hitler and his Nazis, Israel, Palestine, Iraq, Iran, Islamic fundamentalism were all offspring of World War I. Most damaging of all were World War II and the long Cold War that followed. All have their origins in what was nothing more than a ruinous four-year civil war in Europe.

The irony is that it all went wrong from the start and could have been avoided with a little adroit diplomacy. If there is a villain of the story in 1914 it was the German General Staff, who had been planning for years how to deal with a war on two fronts. Under the eye of a workaholic general (he even went to work on Christmas day, according to his family), Generaloberst Alfred von Schlieffen devised a plan. Blackadder would probably have it called it ‘a plan so cunning you could stick a tail on it and call it a weasel.’

Unfortunately it wasn’t. The great Schlieffen plan was a deadly political and diplomatic trap. Even some Germans realised it at the time.

Late in the afternoon of 1 August 1914, Colonel General Helmuth von Möltke was driving back to the Army HQ in the Königsplatz when his car was stopped and he was commanded to return to the Royal Palace immediately. Back at the Berliner Schloss, a jubilant Kaiser told the head of the German armies that he had received a telegram from London assuring him that Britain would guarantee that, if Germany refrained from going to war with France, then London would ask the French not to attack Germany.

The Kaiser was ecstatic and ordered champagne; ‘Now we need only wage war against Russia! So we simply advance with the whole army in the east.’

Von Möltke was appalled. ‘But it is too late, Highness. All the planning, the stores and the armies are already moving west. The 16th infantry division is even now securing the railway junctions at Trier and in Luxembourg. It has been planned for years… we will just have a disorganised rabble without supplies. It cannot be done.’

A shocked Kaiser responded coldly, ‘Your uncle would have given me a different answer.’ Thrown out by a balked Kaiser, von Möltke went back to his office and wept.

He might have cried some more if he realised that the great Schlieffen plan was not just a rigid diplomatic and political cage: it had some serious flaws. Any decent general staff planner can spot them immediately. First, it relied on invading Belgium to outflank the French from the north. That would almost certainly drag the British into any war, as they were a guarantor of Belgian neutrality. Not a clever political move?

Second, it relied on Russia taking weeks to mobilise, thereby allowing the Germans to knock the French out of the war before Russia could attack in the east.

Unfortunately the German planners had forgotten their own rule: ‘No plan survives contact with the enemy.’ The Russians were disobliging enough to mobilise quickly and invade East Prussia and Poland, which caused something like panic in Berlin. Stories of sad German refugees streaming west from the marauding Cossack hordes forced the Kaiser to send his priceless reinforcements to the east, not to France.

Third, and most damaging of all, the much vaunted brains of the German General Staff just hadn’t done their sums. To march through Belgium, then south through France to Paris or the Marne is about 240 miles (380 km). But the German troop trains stopped in Belgium. From then on it was ‘Shank’s pony’, as the increasingly hot and exhausted Ländser pursued the retreating French and British Expeditionary Force south.

This is where the general staff got it so badly wrong; like a piece of elastic the German supply line was stretched a little further every day. In those pre-lorry days, every round of ammunition, every bale of hay for the horses, every bit of food for the weary troops, even horseshoes and new boots for the footsore soldiers, had to find its way forward on an ever-lengthening supply chain to the advancing armies, which were getting further and further away from their logistic bases.

After two weeks the supply chain was stretched so far that hay intended for the front-line horses was being consumed by the horses trying to bring it forward. At the front horses were dying from lack of food or falling sick from eating green unripe corn. The great advance faltered and slowed in the sweltering heat. The German generals then took a fateful decision. Realising that they couldn’t surround Paris – it was now too far and would take too long – they ordered the advance to swing south, to the east of Paris. By doing so they presented a flank to the army in Paris, who promptly attacked and stopped the Germans on the river Marne. The German advance was over; they fell back in September to dig trenches and go on the defensive.

That was the moment the Germans found themselves fighting a war on two fronts. That was the moment Germany lost the Great War .

The four bloody years that followed merely reinforced the outcome of that August. But from that war, the world changed out of all recognition. The effect and consequences of World War I were dramatic. In 1914 Europe controlled most of the world, effectively. For five hundred years Europeans had sailed the globe, seizing land and dominating what Kipling called ‘lesser breeds without the law.’ The 15th-century European voyages of Henry the Navigator – resulting in discoveries and maritime expansion into Africa and Asia – set up the Portuguese Empire. A century later Spain dominated the Americas, to be followed on the high seas by the Dutch, the French, the English and the Americans, all projecting their trade and power across the world. By the 19th century, Europe, and European ideas and values, ruled the world in one form or another. The ‘Guns of August’ put a stop to that. By 1922, the Russian, German, Austrian Ottoman empires were no more. France and Britain were bankrupted and enfeebled and new countries after Versailles were hostages to future problems, from the Balkans to the Middle East.

The Great War opened a Pandora’s box of problems that has haunted us ever since.

Once again we are in the danger zone this month for armed conflict somewhere. So, yes, beware the month of August. Statistically speaking, this tends to be the favoured season for wars to start.

Looking around at our troubled world, it is worrying that there are far too many conflicts waiting to explode.

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Versailles – The Terrible Treaty

One hundred years ago, one of the most important conferences in the 20th century began (on 28 June 1919) culminating in the negotiation of a portentous document (finalised on 10 January 1920) that has had ramifications ever since. The Treaty of Versailles – signed to put a formal end to Word War I – turned out to be a disastrous script offering nothing but grief. It would lead in future decades to the death of millions and the chaos of the world in which we continue to live today.

For the first six months of 1919, the leaders of the great powers descended on Paris to reshape their world. Empires were broken up and horse-traded over tea and biscuits in the Quai d’Orsay as new countries were discussed and confirmed – or not. Royalty, journalists, economists, bankers, prostitutes, politicians and other con men poured in to make their unique contributions to building a ‘new world order.’

Although 27 nations attended the Peace Conference at Versailles, it was President Woodrow Wilson of the USA, Prime Minister David Lloyd George of Britain, and Prime Minister Georges Clémenceau of France who dominated the proceedings. They came to the table determined upon a settlement that would keep Germany down, albeit tempered by liberal-democratic ideals: a settlement intended to get rid of the catalysts for future conflict, or at least control them.

The problem was that everyone attending the negotiations had a different agenda. Belgium and France wanted payback and security from the warlike Germans across the Rhine. Britain had already got most of its war aims. Wilson insisted that there should be ‘peace without victory’, believing that that if Germany was treated too harshly she might seek revenge, and start another war. He came to Europe determined to preach that the sacred legacy of the Founding Fathers and American political ideas were universally intended for the good of all mankind. Cynics – including Lloyd George and Clémenceau – were sceptical.

The cracks emerged early on in the proceedings. Unlike the high-minded President, the British PM was a slippery, unprincipled pragmatist: in the US advisor’s words, he was ‘a mischief-maker who changes his mind like a weather cock’; and Clémenceau’s judgement was even harsher: ‘Lloyd George is a trickster…  Lloyd George has deceived me. He made me the finest promises, and now he breaks them.’ Clémenceau was heard to growl: ‘Between the crooked Lloyd George and the saintly Wilson, it’s like sitting between Napoleon and Jesus Christ.’

Wilson’s demand for a League of Nations to control his new world order was dealt with rapidly. Lloyd George agreed with the idealistic American to keep him happy, as did Clémenceau, both believing that although the League was theoretically a good idea, it would never work. Wilson virtuously lectured them all on ‘American values and principles of liberty and independence as a perpetual charter for the whole world.’ The startled delegates moved on rapidly to safer topics.

Russia was not represented at Versailles, even though the country was theoretically one of the victorious belligerents. The new Bolshevik regime spurned international diplomacy, concentrating instead on exporting revolution to their erstwhile allies’ home countries. The problem was that Russia was still legally an ally. However the subversive aims of Bolshevism, Lenin’s flat refusal to pay Russia’s debts, and the murder of Tsar Nicholas II and his family, sent a shiver down the spines of European politicians, aware that they were seeing something new and alarming on the international scene.

The other important reason was that war-weary Western public opinion was decidedly hostile to any new war; in many places (such as Red Clydeside and Liverpool) people actually supported the Bolsheviks. In 1919 Whitehall was terrified of a British revolution. So the powers opted to isolate Red Russia by blockade and provide dwindling support for the anti-Bolshevik Whites. It was a policy that would cost the unfortunate Russian masses dear over the next 70 years.

The other big absentee from the negotiating table was Germany. Most Europeans were understandably bitter about the legacy of the ‘Second Reich’. Their millions of dead stood as a mute reproach to any calls for leniency towards German militarism. Clémenceau of France, demanding ‘victory with vengeance’, insisted that the defeated must expect little mercy from the victors. His aims were clear: to punish Germany; to make the Germans pay for all the damage they had done to France and Belgium; to recover Alsace and Lorraine; and to restrict Germany military power to ensure that it was forever weaker than France. The Germans were not consulted. Berlin was, in historian Norman Stone’s dry comment, ‘just expected to sign on the dotted line.’

Meanwhile the peacemakers turned their attention to creating a new and supposedly more peaceful Europe. New countries sprang up in the Balkans, where the war had started in 1914. Hungary, Czechoslovakia, Bulgaria and Greece all got new borders. The Slavs got a national home in Yugoslavia and an independent Poland was created with a curious corridor to Danzig on the Baltic, isolating East Prussia, and creating a serious international hostage to fortune. The Baltic states of Lithuania, Latvia and Estonia suddenly appeared. Italy’s frontiers took in former Austrian territories inhabited by Italians. Ottoman Turkey lost everything as their empire was parcelled out. Further east the French got Syria – much to TE Lawrence and the Arabs’ dismay – and the British got the oil in what was now Iraq and Persia. (Kurdistan was completely overlooked, because Lloyd George had never heard of it and didn’t know where it was.)

When the details of the treaty were published in June 1919 German reaction was surprised and outraged. The still-blockaded German government was given just three weeks to accept the terms of the treaty, take it or leave it. Its immediate response was a lengthy list of complaints, most of which were simply ignored. The terms of the treaty were seen as an unreasonable Diktat, clearly intended to ensure that Germany remained militarily and economically powerless. After all, argued the militarists of the ‘stabbed-in-the-back’ nationalists, Germany had never actually ‘lost’ the war.

The final terms of the Treaty were indeed harsh. The blame for the whole war was placed firmly on Germany. The ‘War Guilt Clause’ (Article 231) in particular was judged very unfair. How could Germany be the only country to blame for the war? The war had been caused because a Serbian hothead had assassinated an Austrian Prince. Germans believed that they were being made the scapegoats for everything.

Berlin was also ordered to pay reparations of around 226 billion gold marks. The German army was reduced to 100,000 men, the navy to six warships and no submarines; and all military aircraft were to be destroyed. Heavy artillery, gas, tanks and military aircraft were banned. In addition, there was to be no military presence within 30 miles of the east bank of the Rhine. Kaiser William II and some German army officers were found guilty of ‘war-crimes.’

The Allies also foisted a new form of government on Germany to prevent the country from being taken over by a dictatorship. Instead ‘proportional representation’ would lead to more than 30 political parties, and the Weimar Republic’s eventual weakness and collapse.

The final act of Versailles was overshadowed by German’s refusals to sign. Political chaos reigned in Germany. The government folded and no politician was prepared to put his signature to what was seen as a dishonourable capitulation. Without a government there could be no Treaty. The Germans said that if the offending articles were removed, then they would sign. Paris refused, threatening to start Foch’s armies marching again. Germany backed down, sending two subordinate ministers to sign.

On 28 June 1919, in a glittering ceremony in the Hall of Mirrors at Versailles, the Peace Treaty to end World War I was finally signed. Next day Paris rejoiced, en fête; but in Germany the flags were at half mast.

Later generations would be left to deal with the problems of a resurgent Germany and the USSR, let alone Hitler, Stalin, the Cold War, the Arab-Israeli wars, Palestine, Iraq, Syria and control of global oil supplies.

All consequences of Versailles: the 20th century’s political Pandora’s Box…

Why D-Day Matters

The invasion of Normandy by Allied forces on 6 June 1944, was the Western Allies’ most critical operation of World War II.

By 1942 German armies had overrun most of Europe, North Africa and the western Soviet Union. They set up murderous police states and imprisoned million of people in the pursuit of implementing a policy of breeding a Germanic master race. With gas chambers and firing squads, Nazi Germany killed millions of Jews, Poles, Russians, homosexuals, gypsies, disabled people and others undesirable to the Nazi regime. If the attack, nicknamed ‘Operation Overlord’, had failed – and Hitler’s Wehrmacht had succeeded in pushing the invaders back into the sea – then world history would have been altered. ‘It’s hard to imagine what the consequences would have been had the Allies lost,’ says Timothy Rives, of the Eisenhower Presidential Library. ‘You could make the argument that they saved the world.’

Failure on D-Day would have freed Hitler to redeploy 20 more divisions, including eight Panzers, to meet the Red Army’s summer 1944 onslaught on the Eastern Front. The German generals would never have risked their 20 July bomb plot against a now victorious Führer and Germany’s V-weapons programme would have had the critical extra time it needed to produce thousands more new rockets and jet fighters. Many people forget that, even with D-Day and the Allied bombing offensive, German industrial production peaked in September 1944.

Also, as Andrew Roberts points out, if the Russians had overwhelmed the German armies in the East, nothing could have prevented the whole of Western Europe – perhaps even as far as Paris – falling to Joseph Stalin’s USSR.

The 50 miles of Normandy coastline is therefore one of the most important battlefields of World War II. Today’s golden tourist beaches witnessed the start of one the most ambitious and historically important campaigns in human history. In its strategy and scope – and with its enormous stakes for the future of the free world – it was among the greatest military achievements ever. The Western Allies’ goal was simple and clear cut: to put an end to the Germany military machine and topple Adolf Hitler’s barbarous Nazi regime.

For the very old men of the surviving British, American and Canadian troops who spearheaded that assault at dawn on what one commentator called ‘the longest day’, this year’s anniversary was special. It will be their last big celebration of their victory, 75 years ago in the summer of 1944. Amid the beautiful French holiday countryside, one of the most critical struggles of the twentieth century took place. It was a struggle that would eventually end at the gates of Hitler’s Chancellery in Berlin on the last day of April 1945, as a demented and broken Hitler poisoned his dog and his mistress, before finally blowing his own brains out.

But D-Day nearly didn’t happen. The whole enterprise was delayed for 24 hours by bad weather and heavy seas. Having taken the momentous decision, on the night before the invasion Eisenhower drafted an ‘In case of failure’ note, to be published if necessary: ‘If any blame or fault attaches to the attempt, it is mine alone,’ he wrote. Like all professional soldiers, he knew that in the final analysis – assuming that his soldiers had weapons and would fight – only two factors are of paramount importance in war: intelligence and logistics.

On both counts the Allies triumphed. One of the biggest and most successful deception operations ever fed the German General Staff a brilliantly conceived and executed stream of false intelligence. From a phantom ‘4th Army’ in Scotland, preparing to invade Norway, to Patton’s massive ‘1st US Army Group’ in Kent, with its thousands of rubber tanks, fake landing craft and a mock oil depot across from the Pas de Calais at Dover, the Germans were completely fooled. In reality the busiest warriors were a few hundred Allied radio operators busy transmitting phoney signals to simulate non-existent armies’ radio traffic.

What is also often forgotten also is the staggering scale of the logistic back-up effort put in to ensure that the amphibious assault went well.

The statistics of all the materiel the Allies piled up on the beaches of southern England to support the invasion are mind blowing – not just in scale, but in attention to detail. All over southern England massive new ammo and supply dumps mushroomed. Millions of tons of stores, 100,000 vehicles and 250,000 men piled into the Channel coast bases in the spring of 1944. One of those supply units alone piled up 3 500 tons of soap, which Eisenhower insisted went to France so that his soldiers could take baths.

‘Ike’ had 3 million troops under his command; what they all devoured in just one day was stupendous. According to historian Rick Atkinson, US commanders had ‘calculated daily combat consumption, from fuel to bullets to chewing gum, at 41,298 pounds per soldier. Sixty million K-rations, enough to feed the invaders for a month, were packed in 500-ton bales.’

With his experiences of the Somme and Gallipoli, Churchill was deeply pessimistic about casualties. There is ample evidence that he harboured grave misgivings about the whole enterprise. The US Chiefs of Staff were having none of it. They insisted that casualty evacuation was given particular attention. Many of the ships headed across the channel for France, had no soldiers on board. Instead, they carried some 30,000 stretchers, 96,000 blankets and tons of supplies – blood, dressings, splints, plasma, beds, to name a few – for the assault troops that would land at Normandy.

Once ashore, a sophisticated and well-organised system of field hospitals swung into action. Medics on the beach applied basic first aid as they sorted the casualties. The ‘transportable wounded’ were embarked on to the very ships that had carried the blankets that now covered them. Across the channel they were loaded on to trains for the 150 American-built hospitals across southern England. This was the medical staffs’ vital contribution: to save lives, none more so than the forward Casualty Clearing Stations and mobile Field Hospitals as the battle plunged further into France. ‘Doctors and nurses, often working 14-hour-long shifts, consider this time as their actual battle participation,’ one medical official wrote.

Except for the difficulties on Omaha Beach – when the Americans launched their swimming tanks too far out, where they were swamped by the waves – casualties were surprisingly light, considering the perils of any frontal assault. Although German machine-gunners hit Allied soldiers hard as they came ashore from their landing craft, the Montgomery’s attack plan (in his role as Land Forces Commander) overwhelmed them, as 160,000 assault troops, 12,000 aircraft and 200,000 sailors manning 7000 vessels first blasted the defenders, then stormed the beaches.

The eight assault divisions suffered 12,000 killed, wounded and missing. The Americans lost 8230, with 2400 casualties at Omaha alone. On the other beaches casualties were surprisingly light; at Utah, the US lost only 197 men. Thanks to the firepower of their swimming tanks and other ‘funnies’ the British and Canadians had only 3000 casualties. Although no major French units took part in the invasion, many French civilians were killed, mostly by Allied bombs or shell fire. Some injured citizens were reduced to disinfecting their wounds with calvados, the local apple brandy.

By dawn on 7 June the Allies were safely ashore, dug in and there to stay. German counter attacks had been repulsed. Supplies and fresh reinforcements were flooding in and the bridgehead was expanding. As the Allied soldiers marched inland from the beaches, the delighted French cheered, many of them giving flowers to the soldiers. The success of D-Day changed the course of history for ever.

That is why President Johnson’s tart reply to de Gaulle in 1966, when the arrogant French leader demanded that all US troops leave France immediately, still hits home: ‘What? Including all the ones in your cemeteries?’

A Most Secret World

Reproduced by kind permission of Eye Spy intelligence magazine, where this article first appeared in 2004 (Volume IV, Issue 28)

On the launch of his 2004 book, The Puppet Masters (Amazon: UK; USA) Colonel John Hughes-Wilson wrote articles published in the RUSI Journal and in Eye Spy that described his service as an intelligence corp officer. His Eye Spy feature is reproduced below as a series of images.

 

 

 

The Doomed Euro?

In any normal January commentators offer their views on the coming year. However, most years, after the usual mix of doom and gloom, the world seems to carry on in the same old way.

This year, however, really is different. Quite a lot of the world is already not carrying on in ‘the same old way.’ In 2019 we are going to realise that something big has changed ‘out there’.

The Eurasia Group, political risk consultancy and adviser to the world’s elites, warns in its latest report: ‘The geopolitical environment is the most dangerous it’s been in decades.’ This is the year that events, and lack of remedial action, threaten global stability and risk collapsing the old world order in a way not seen for many years. The post-1945 Pax Americana is crumbling before our eyes as President Trump unravels the transatlantic alliance that has underpinned Europe since the 1950s. Many blocs – NATO, the UN, the G7, G20, WTO and the EU – are in varying degrees of crisis as new global challenges emerge and as America walks away from acting as the world’s sheriff. The Middle East is a basket-case, fighting its own ‘Thirty Years War’ between Sunni and Shi’a with a wary Israel looking on. In the East, China and North Korea are flexing their muscles; and in the emerging world a new breed of hard-line autocrats are taking over in Brazil, Turkey, Saudi Arabia, the Philippines and Hungary.

The world order is changing – and not for the better.

The outlook is bad enough; but to make things worse, a world trade recession is looming. Global economic forecasts for 2019-20 make for dismal reading: 2019 could turn out to be the year that the world economy falls apart, although timing global economic slumps is like watching an oil tanker running slowly onto the rocks.

This is the wretched backdrop against which the European Union is confronting the biggest challenge to its existence since it began as a dream of a single European superstate back in the 1950s.

The year 2019 will be full of important decisions for the EU, as Brussels will have to set a seven-year budget – without Britain’s cash – as well as appointing new leaders to key institutions, and discussing reform, whilst coping with falling economic growth, the threat of populist national elections, trade frictions with the US, plus the challenges from Russia and China. Brexit is merely background noise to the increasingly embattled, unelected and unpopular bureaucrats sitting in the Berlaymont (European Commission HQ).

The EU is fighting on three fronts at the same time, even as many of its member states have their own domestic problems to contain (the French anti-Macron revolution is a symptom of a wider EU malaise):

  • First, nationalism (aka, ‘populism’)
  • Second, the Catalan rebellion and the Visegrad Four’s mutiny epitomise the growing challenge to Brussels’ rule
  • Third, underpinning everything, is the threat to the Euro. Brussels’ flagship currency is in deep trouble

The smiling celebration party for the euro’s 20th anniversary masked the rising panic among the fat cats, bureaucrats and bankers waving champagne flutes for the cameras. They now know that their grandiose plans to cement the EU together by issuing a single currency was a huge gamble and a serious mistake. ‘The house of cards will collapse’, admits Professor Otmar Issing, ironically one of the original cheerleaders of the euro and the founding chief economist of the European Central Bank (Business Insider, 17 October 2016).

For a real monetary union to work smoothly you need a genuine single authority, plus the ability to swing government money around a united economy. Thus England can pipe London taxpayers’ cash to support Scotland, Wales and Ireland; and the US can shore up the Rust Belt states with money from New York and California. Brussels however does not have the power, or the authority, to transfer rich German taxpayers’ cash to struggling Greece, or to get the Netherlands to pay for the million illegal immigrants who are descending on Italy.

The real economic problem is the EU’s ‘Club Med’. Southern Europe’s economic fragility was well known when Greece was allowed to join the euro, after some pretty dodgy accounting. It was always a risky venture.

To take one simple example, when Greece had its own currency, Athens could stimulate an economic slump by devaluing the drachma: suddenly Greek holidays were dirt cheap and millions of tourists brought their spending power to Greece. Not anymore. Athens was trapped into a currency it could not control or devalue, and which the big boys of the EU wanted to keep strong at all costs.

Devaluation of any German controlled pan-European currency was unthinkable. So Greece was told to cut its budget and live with austerity. That meant that the only way Greece could get extra euros was by borrowing – heavily. Sure enough the big German and French banks were only too happy to lend trillions of euros to the Club Med countries. Unfortunately it became a vicious circle, known as a ‘debt doom loop’, between countries with high levels of debt and the banks that hold that debt.

The problem got worse. Big banks have bought more and more public debt from Eurozone countries. However, should the debts not be paid back (‘non-performing loans’ in Bankspeak) then the banks holding those loans are themselves in deep trouble. Now the euro-banks are running scared. Without payment, they could follow Lehmann Brothers into oblivion. The ‘rescue’ of Greece 2010-13 turns out to have been nothing more than a face saving bail-out ‘loan’ to save the big French and German banks. Even the IMF has admitted that Greece was sacrificed to save the euro and the European banking system from disaster in the great financial crisis.

Italy is the canary in today’s Eurozone coal mine. Italian banks hold one-third of the unpaid euro loans; Italy largest banks hold 300 billion euros of bad debt, dodgy securities and off-balance sheet items that aren’t being repaid. Also, billions of euros of Italian government bonds are held by Deutschebank, Commerzbank, Societé Générale, Crédit Agricole and the Netherlands’ ING.

All this could be solved at the EU level; however there is fierce opposition from Northern European countries to swinging their taxpayers’ money around. In 2018 they diluted President Macron’s proposals for greater money pooling and higher spending in the Eurozone. The idea of stripping elected parliaments’ control over taxation, spending, and the economic policies of the nation state was never going to be accepted; ‘ever closer union’ had hit the buffers of national self-interest, as the UK’s Brexit proves.

Without a means to transfer funds and a ‘fiscal union’ by the EU countries (by pooling everyone’s taxes in Frankfurt and Brussels) the euro is at mortal risk. Now the economic storm clouds are gathering to make things even worse. Eurozone economies are slowing. Even the German economy is contracting. Industrial production was down by 4.7 per cent in the previous year leading up to November 2018. This means that, unbelievably, Germany – yes, Germany – is probably heading for a recession. Meanwhile, Italy has been in recession for a long time and Greece, Ireland, Spain and Portugal are still struggling to escape the last financial disaster. The Eurozone is heading for a full-blown recession; and without the means to devalue, or order ‘government’ spending to boost European economies, a slump seems inevitable. The pressure to break out of the stranglehold of the euro in order to print their own money has never been stronger for some nations.

‘What is clear is that the status quo cannot persist indefinitely if the euro is to survive in the long term’, an LSE blog article warned in October 2016.

This combination of member states’ disillusionment with Brussels, domestic problems, a shrinking economy, massive indebtedness, social and political challenges and the crisis of migration, plus the intrinsically unstable basis of the euro, means that monetary union has failed economically and politically.

Unless the EU27 agree to form a new central Treasury, the euro is doomed. That’s something to keep an eye on in 2019.

History’s Tipping Points: Kaiser Bill

According to documents in the RAF Museum archive in France, 100 years ago tomorrow Britain tried to kill Kaiser Wilhelm II in 1918 in a secret RAF bombing raid (David Keys, The Independent). History is full of ‘What ifs?’, some of which happen and others that don’t.

If Archduke Franz Ferdinand had survived assassination, the Great War may not have happened; if Kaiser Bill had been murdered, this revelation suggests the conditions for World War II may not have arisen.

Sliding doors? Alternative histories? Maybe … but it’s also fascinating to play out mentally the ‘war game’ scenarios of crucial tipping points of history. What will be revealed in 100 years’ time from now that will keep future historians guessing about what may have happened differently?

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Money Makes the World Go Round

For the second time in a month, to my surprise, I find myself agreeing with President Putin.  Speaking at the International Economic Forum recently he warned: ‘We don’t need trade wars today … we need a comprehensive trade peace.’

Cuddly old Vlad was really warning us that there’s a financial firestorm brewing. Looking at what is going on with the euro and the Turkish lira, it’s hard to disagree.

The euro is really our old friend the Deutsche mark, cunningly devalued and disguised to pay for German re-unification, and now Europe’s chokehold currency of no choice. For example, any independent Scotland joining the EU would nowadays be ‘forced’ to accept the euro. Difficult for the Scots: not for nothing did Thomas Carlyle call economics the dismal science.’

Dismal science or not, money makes the world go round – and always has done. Even St Paul admitted: ‘The love of money is the root of all evil.’ This titanic battle for economic power rages around us every day, as China and America tussle behind the scenes over who owes how many dollars to whom and what they are worth, whilst a worried Commission in Brussels watches nervously as its great dream of a superstate called ‘Europe’ begins to disintegrate.

Because the UK’s ‘Brexit’ is the least of the EU’s problems. With Poland refusing to toe the Merkel party line, the Balkan states disobeying Juncker’s ‘diktats’ on immigration, and now a major trade war looming with the USA, Brussels has its hands full. Money is at the heart of it all. The unfolding Italian political train crash that is the new populist, anti-establishment Eurosceptic government is Brussels’ worst nightmare. It threatens their euro. Austrian chancellor Kurz gives the game away, bleating: ‘We saw in Greece how dangerous it is if a country has a bigger and bigger debt and I hope that we will not have a second Greece in our neighbouring country, Italy.’

The reason? Money and debt. Frightened hard currency has been haemorrhaging out of cash-strapped Italy for months, driving it even further into the red, amid fears of a Greek-style euro debt crisis which would bring the country to its knees. The new Italian government is even threatening to quit the euro and set up a parallel currency.

This is serious, because Italy is the eurozone’s third largest economy, nearly ten times the size of Greece’s.

The former chief economist of the IMF – Olivier Blanchard – believes the eurozone is heading for an ‘horrific crisis,’ denouncing Italy’s popular new government’s plans as ‘likely to violate all EU and domestic fiscal rules and put debt on an unsustainable trajectory’. What he means is that Rome is inviting an economic and political war, because the big French and German banks risk losing billions if Italy says, ‘no more pay offs.’

Brussels now has the beginnings of a serious rebellion on its hands. However, once again Italian voters have been over–ruled by EU technocrats, pressuring President Mattarella to ignore the voters, just as the Berlusconi government was toppled in 2011 by Brussels and the European Central Bank, in what was effectively a ‘soft coup.’

This is dangerous territory.

The Italian president’s refusal to accept the Lega-Gillini finance minister because he ‘could provoke Italy’s exit from the euro’ is dynamite. The political message to Italian voters is clear: whoever you vote for, the eurozone rules. A Lega spokesman explained: ‘You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It’s worse than a religion.’

In Brussels,  Juncker openly threatens: ‘There can be no democratic choice against the European treaties. One cannot exit the euro without leaving the EU,’ and Günther Oettinger, European Budget Commissioner for Budget, actually said: ‘This will teach the Italians to vote for the right thing.’

Because the ECB and Brussels will fight to the last drop of Italian money to stop anyone escaping from their eurozone straitjacket.  The French Finance Minister warns: ‘If the new government takes the risk of not respecting its commitments [in other words, “If Italy doesn’t pay its huge debts to our big French and German banks”], the financial stability of the eurozone will be threatened. Everyone must understand that Italy’s future is in Europe and nowhere else. … there are rules that must be respected.’

This push to smother Italy’s eurosceptic rebellion, as they muzzled Syriza in Greece, comes from a worried Berlin, Brussels, and the EU power structure. But this time they may have blundered into a trap, because the EU’s economic problems grow worse every day. Now debt-ridden Spain admits it is in serious trouble. And Spain owes euro banks ‘zillions’, too. The bottom line for the EU is that if the Italians and Spanish welch on their euro debts, then the euro is finished – with huge international bankruptcies on the cards.

‘So what?’ says the man in the Kyrenia café, ‘How do big economic problems affect me, my family and my bank account? Who cares?’

The answer to the puzzled denizens of Turkish North Cyprus is ‘look at your money.’ Something very odd has happened to their Turkish lira. One year ago, 1 GBP pound sterling bought you 4.30 TRY; ten years ago, on 31 May 2008, a quid bought just 2.12 lira. And today? Going to press, a pound buys you around 6 lira. That’s what international currency fluctuations do to the expat, watching his pension. That’s how small Turkish Cypriot businesses, being paid in lira whilst paying for their rents in sterling, go bust. The reason? Money: because the Turkish lira is now in deep international doo-doo.

For years, Ankara’s AKP government has funded its massive vote-buying economic programme with money borrowed from overseas investors, attracted by Turkey’s generous interest rates. No less than 70% of Turkey’s deficit is covered by short-term foreign loans.

The problem is paying off those loans. Interest payments were biting deeper and deeper into Ankara’s Central Bank’s precious reserves of hard currency US dollars or euros. Loans began to dry up, so the Central Bank increased interest rates to tempt the punters and keep the all-important foreign dosh flowing. The problem is that at 13.5% the interest payments were expensive – but, at 16.5%, they could become ruinous.

At which point Turkey’s would-be President stepped in, boasting that he personally intends to run the economy when he wins the election on 24 June to become all-powerful leader. On his orders, interest rates will be slashed to 10% to save Turkey’s money. Result? Instant panic and predictable flight by spooked, nervous lira investors. Consequence? A market panic with foreigners desperate to unload their lira while they can. ‘Cheap? Your real, genuine Turkish lira. A real bargain, guv … Gotta sell.’

Because that’s what markets do. That’s how economics works: supply and demand. No demand for lira, they go dirt cheap. The result is that Turkey will either have to devalue, introduce capital controls or accept that, whatever their ‘Dear Leader’ thinks, foreigners will decide just what the Turkish lira is truly worth: and foreign investors are not impressed.

As an anonymous fund manager at a major asset management firm, complained: ‘Erdogan is fighting the extremists, he is fighting after the failed coup – now he is fighting the financial markets, and that is dangerous …. You can fight your domestic foes all you want; but when you are trying to take on the global financial market, that is a battle you can’t really win.’

And the EU? Watch this space. Of one thing we can be sure: the Commission, Berlin, Paris and Frankfurt will gang up in a darkened alley, ready to bludgeon, beat, bribe, browbeat and bully Italy to keep their precious euro together at all costs. Once again, the financial gloves are off. It’s going to get ugly. Just ask the Greeks.

Money really does make the world go round.

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