Notes From Underground

The Brazilians announced they were going to place tariffs on $1 billion-plus of U.S. goods in retaliation for U.S. cotton price supports that the World Trade Organization declared illegal. In a world that is courting the BRICS at every opportunity, the U.S. continues to trip over its legacy of agricultural price supports. The issue of ethanol-based corn subsidies continues to poison the U.S.-Brazilian relationship. When we include the newly contested cotton subsidies, you get trade relations that want to grow but  are continuously plagued by U.S. political expediency.

While the U.S. desires the Brazilians to stand against Iran by enacting sanctions, the U.S. trade agenda continues to undermine the desires of the State Department. The Obama administration continues to appear to be the leader of the G20, and while it desires to set its agenda, the administration’s ongoing ill-thought trade policies regarding the emerging markets will foster dissonance for a long time. After EADS’ decision to quit the battle versus the heavily-weighted Boeing over supplying refueling tankers to the USAF, there are storm clouds on the global trade horizon. Just as the credit market is showing some signs of thawing, potential trade tensions will cause harm to globalization. This is more important, given that Christine Romer and others have given trade an important role in the U.S. recovery.

In Europe, Merkel and company continue to press for restrictions on CDSs and other financial vehicles, as they try to redirect the debt crisis impact from bad policies to wanton speculation. We will hear this ad nauseam as it has been the modus operandi of Eurocrats for so many years. Europe needs to address its policy flaws and try to correct the inbalances caused by the ill-conceived monetary union. The centralized political power necessary to run a monolithic economic entity is severely lacking and thus puts the onus of responsibility upon the ECB, an unelected body without control of fiscal policy. The ECB’s reins on monetary policy is an accident waiting to happen. The EU is going to have to decide what it wants to be; not in theory but in practice. The world needs for Europe to decide or the continued debt problems of the PIIGS could end in a global nightmare. There are no victims in the European drama because all parties have acted irresponsibly over the initiation of the EU. It will take great leadership to correct the massive inbalances within Europe and as Martin Wolf says in the March 11 Financial Times, “Germany must become less German if the eurozone is to become more so.” The stability of Europe depends on it being so.

Tags: ECB, EU, PIIGS

This entry was posted on March 9, 2010 at 9:46 pm and is filed under Regulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.