Catherine Ashton, the British High Representative of the European Union for Foreign Affairs and Security Policy and Vice-President of the EC, went to Washington where she met with John Kerry, US Secretary of State. (EC Audiovisual Services). Ashton is visibly quite happy with what Kerry says. Probably Britain is closer to the US than to the EU.
The North Atlantic economic volume, comprising mainly Eurozone and Britain on the one side and US and Canada on the other constitute the largest almost uniform playfield.
Of the two sides, however, the more dependant on the rest of the world is the American one and more precisely the US, with its huge double deficits, in government budget and the foreign trade. The US economy has come to anchor its existence on the acceptance of every dollar value by the rest of the world. This is traditionally achieved with political and even military means and realised in practice through the New York banks, which to this end have to be totally free to spin around other people’s money. On this side of the Atlantic things are not quite like that. Only Britain resembles to the US, also running double deficits that having to be financed by the rest of the global economy.
This means that the London City has to be able to also create values out of nothing, again under full liberties to spin money and market risky financial products. As for Eurozone, the single European money area is the only part of the Western economic volume that has founded its wellbeing on real exports of goods and services, which support the foreign value of the euro.
US rejects cooperation
For this arrangement to continue delivering results, however, the New York banks and the London financial firms have to be completely free and uncontrolled. The US and Britain also need to remind everybody with political and military means that they can jointly impose their views on how the global financial markets should function. As a result,the calls for cooperation in the G20 and the G7 are just a façade, leaving the field open to paper money values creation.
The realities of this short analysis were confirmed last week by two major events. Firstly, it was the results of the Moscow G20 gathering of financial ministers and central bankers and secondly, what Commissioner Michel Barnier said during his official visit to the US.
In Moscow nothing concrete was agreed over the international financial system. The Americans didn’t want to hear anything about supervision or controls. Washington, in order to make this message well understood, didn’t allow the slightest critic not even over the competitive devaluation of the Japanese yen. The G20 final communique contained just wishes and self-evident truths, like the avoidance of competitive devaluations, without any particular reference. Thus, deprived of any meaning at all.
Barnier in New York
It was of more interest though what Barnier said while speaking in New York last week, on the Transatlantic Finance Initiative. His speech was entitled “Why Global Markets Require Global Rules – and US-EU Cooperation”. The most important conclusion didn’t come from what he proposed but from his assessment of what the American are ready to discuss on this issue that is the US-EU cooperation. In short the US economic and monetary authorities do not discuss anything that resembles even from a distance to the introduction of any kind of controls or restriction on financial markets.
As everybody knows, the New York financial community has managed to appear again intact from the credit crunch crisis of 2008. Not the slightest restriction or controls have being institutionalised to hold back the American banks from doing exactly the same things that brought the world to its knees five years ago. They continue spinning around the world markets other people’s money on risky placements. That is why they managed in a rather short period to replenish their capital accounts. In this, they were decisively supported by the American central bank, the Fed, by zero cost loans with money coming directly from the printing machines.
Let’s see what Barnier understood while in New York. His speech was quite revealing. Don’t forget he was speaking about US-EU cooperation in regulating the financial markets. He started form banks: “First, in the banking area. Do we need additional measures on top of Basel III (covering investments with own capital)”? He answers that the Americans refuse not only any additional restriction but they have denied altogether the application of Basel III and Basel II. Why? Because if they had, their banks wouldn’t have been able to continue the game of risky placements, without adequate own capital coverage. This is the way they made money before the crisis and now they continue completely unobstructed on the same dangerous path. Barnier said: “Large international banks pose potential problems…It seems to me to be moving away from cooperation with international partners”.
As for the denial of the Americans to implement the International Accounting Standards he said that: “Let’s face it: we risk to return to a fragmented system based on national or regional approaches”. With the European dignitary to use such a strong language, one can imagine what he heard about the IAS.
Passing onto the most important chapter of regulation on derivatives, Barnier said indirectly that the American do not even apply the weak internationally rules. He said: “Second, on derivatives, the most mobile part of the financial system… Rules in the US and the EU are very similar. But the framework can only operate in practice if we are prepared to rely on each other. Expanding interpretation of home-grown rules to transactions that are already covered by equally solid foreign rules will only lead to legal conflicts”. In short Barnier says that the Americans are applying their own “rules” on this crucial for New York business. The message is that the US banks are completely free to do what-ever they want with other people’s money in this completely dark market of $600-700 trillion.
All in all Barnier must have left New York completely disappointed with the lack of any prospects for a possible cooperation with the Americans on Atlantic markets regulation and controls. The US will continue on the same track, because their lagging behind economy relies increasingly on the “production” of paper money values than in the real economy. As a result Washington will never accept controls and restrictions on New York banks.
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