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08/09/2007

Sarkozy...Greenberg

New French President Nicolas Sarkozy is receiving rave reviews
after about three months in office.

Sarkozy wrote of his vision for France on the foreign policy front
in the July/August 2007 issue of The National Interest.
Following are his thoughts on EU expansion and Turkey.

---

“Europe is nervous because we have not had the courage to ask
questions about its borders. It is time to do it: Should Europe
have borders? My response is yes .Fixing a geographic and
political identity for the EU is an essential condition for re-
engaging our citizens in the European project

“The addition of a new member is first and foremost a decision
that the Union should take for itself, as a function of its own
interests, within the limits of its capacities and the will of its
people. This comes before making decisions based on what is
relevant to the Union’s foreign-policy aims and desires to
encourage others to reform. The interest for Europe is not to
dilute its policies and its institutions to the point where decision-
making will be impossible .This means that the Union cannot
extend forever .

“We must distinguish between two categories of states;

“First, those that have a natural place within the Union. The
European Union is open to all the continental states (Switzerland,
Norway and the countries of the Balkans) as well as Iceland.
These states will join the Union when they can (the Balkans) and
if they wish (the others), on the condition that the Union is, at its
end, ready to welcome them from the point of view of its
institutions.

“The second: Those that do not have a ‘natural right’ to be in the
EU are those that border on it but are not European. For those
countries of Eurasia and the Mediterranean, our first step should
be to establish a system of ‘privileged partnerships.’ We can
work with them within the limits of our collective interests
without making concessions on our values .

“Whether Turkey meets the conditions for entry or not does not
solve the problem. On this matter, I have always been clear: I do
not think Turkey has a right to join the European Union because
it is not European. But just because Turkey should not become a
member of Europe does not mean that it should be shunned by
Europe. Who could seriously argue that the closeness of links
between Turkey and Europe, that are the fruit of a long common
history and a sincere friendship, should be destroyed if Turkey
did not enter the EU? Turkey is a great country that shares a
number of our interests and our values. Therefore we must
strengthen our ties with the country through a ‘privileged
partnership.’

“But we should go further and offer to the countries in the
Mediterranean the establishment of a ‘Mediterranean Union’, in
which Turkey would be a natural pivot. This union would work
closely with the EU .There could be a Mediterranean Council,
like the European Council. The foundations of this area of
solidarity and cooperation would be a common immigration
policy, commercial and economic development.”

Meanwhile, Turkey’s Prime Minister Erdogan will have none of
this. He has vowed to strengthen Turkey’s EU application. The
debate, which I said was over awhile back, could yet reignite.

---

On a totally different topic, though a hot spot, in the same issue
of The National Interest, former AIG chairman Maurice R.
Greenberg has an essay on the current situation in the realm of
trade and the fate of the U.S. dollar.

In part:

“It is time the United States wakes up to a serious problem. The
dollar is increasingly losing the position it has enjoyed for nearly
half a century as the world’s currency of last resort. And as that
happens, the advantages we have gleaned from that status – the
ability to finance our twin fiscal and trade deficits while keeping
our interest rates low – will also be lost. And yet no one,
particularly in Washington, seems overly concerned.

“The world is awash in dollars right now, and the situation
cannot last. My concern is that many in this country continue to
have unrealistic views about the sustainability of the status quo.
Yes, our domestic economy is doing reasonably well – we have
modest but real growth, inflation is quiet, the stock market is
booming. But we also have not done anything to address an out-
of-control federal government budget deficit and the ongoing
huge trade deficits we run up with other nations. How long will
other countries continue to provide us with our credit card?
Other countries may no longer be willing to provide Washington
with a blank check – literally.

“China’s enormous trade surpluses with the United States have
generated more than one trillion dollars worth of reserves. In the
past, Beijing has purchased a large quantity of U.S. Treasury
bonds, enabling us to finance our government’s deficit spending.
But the Chinese have now indicate that they will begin to pursue
alternative investments with their surpluses, from purchasing
companies and assets to diversifying their holdings into a basket
of currencies – devoting at least $300 billion of their reserves to
this purpose. One thing high on Beijing’s agenda: trading their
excess dollars for ownership of natural-resources assets.

“Japan and Russia are the second and third largest holders of
dollars (some $900 billion and $300 billion, respectively). Right
now, Tokyo is interested in keeping the yen weak vis- -vis the
dollar in order to make its exports competitive. Russia continues
to accumulate dollars because oil exports remain denominated in
that currency. But there is a limit as to how many dollars can be
absorbed by other countries – and no one wants to hold on to
their dollars endlessly. Pressure is building to diversify. We are
seeing a move away from the dollar to gold and other currencies
– most notably the euro .

“(The euro) has become more attractive as a currency, not simply
as an alternative to the dollar, but because of increasing optimism
about the economic performance of the core European states –
Germany and Britain, most notably – and the expectation of
reforms in France away from socialism toward a more balanced
approach with the election of Nicolas Sarkozy.”

Greenberg writes of how just five to ten years ago, nations like
Brazil, Russia, India and China (BRIC) were trapped in various
ways, whether it was the style of government or simply the early
stages of reform. But today, each of the BRIC countries is
highly competitive in world markets; allowing other currencies
to acquire greater value such as the euro and the British pound.

“The bottom line,” Greenberg writes, “is that the U.S. dollar is
no longer the only game in town. Our currency has serious
competitors, because the economies of other countries have
major advantages (whether a low-cost manufacturing base or
natural-resource endowments) that make their currencies more
attractive as ways to hold wealth. We will also see a continuing
trend of diversification into precious metals.

“And we could see a major shift if the world’s energy producers
decide to switch both the pricing and selling of oil from the
dollar to the euro – as this would cause central banks around the
globe to dump more of their dollar reserves in favor of the euro –
and in turn cause a further major loss in the purchasing power of
the dollar.”

Iran is attempting to set up a new international system whereby
oil would be denominated in euros, but there has been no
stampede as yet to join it. Regardless, “Other countries will not
continue to accumulate and hold dollars for the dollar’s sake, or
continue to treat the dollar as the only possible global currency.”

---

Hot Spots will return Aug. 23.

Brian Trumbore


AddThis Feed Button

 

-08/09/2007-      
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Hot Spots

08/09/2007

Sarkozy...Greenberg

New French President Nicolas Sarkozy is receiving rave reviews
after about three months in office.

Sarkozy wrote of his vision for France on the foreign policy front
in the July/August 2007 issue of The National Interest.
Following are his thoughts on EU expansion and Turkey.

---

“Europe is nervous because we have not had the courage to ask
questions about its borders. It is time to do it: Should Europe
have borders? My response is yes .Fixing a geographic and
political identity for the EU is an essential condition for re-
engaging our citizens in the European project

“The addition of a new member is first and foremost a decision
that the Union should take for itself, as a function of its own
interests, within the limits of its capacities and the will of its
people. This comes before making decisions based on what is
relevant to the Union’s foreign-policy aims and desires to
encourage others to reform. The interest for Europe is not to
dilute its policies and its institutions to the point where decision-
making will be impossible .This means that the Union cannot
extend forever .

“We must distinguish between two categories of states;

“First, those that have a natural place within the Union. The
European Union is open to all the continental states (Switzerland,
Norway and the countries of the Balkans) as well as Iceland.
These states will join the Union when they can (the Balkans) and
if they wish (the others), on the condition that the Union is, at its
end, ready to welcome them from the point of view of its
institutions.

“The second: Those that do not have a ‘natural right’ to be in the
EU are those that border on it but are not European. For those
countries of Eurasia and the Mediterranean, our first step should
be to establish a system of ‘privileged partnerships.’ We can
work with them within the limits of our collective interests
without making concessions on our values .

“Whether Turkey meets the conditions for entry or not does not
solve the problem. On this matter, I have always been clear: I do
not think Turkey has a right to join the European Union because
it is not European. But just because Turkey should not become a
member of Europe does not mean that it should be shunned by
Europe. Who could seriously argue that the closeness of links
between Turkey and Europe, that are the fruit of a long common
history and a sincere friendship, should be destroyed if Turkey
did not enter the EU? Turkey is a great country that shares a
number of our interests and our values. Therefore we must
strengthen our ties with the country through a ‘privileged
partnership.’

“But we should go further and offer to the countries in the
Mediterranean the establishment of a ‘Mediterranean Union’, in
which Turkey would be a natural pivot. This union would work
closely with the EU .There could be a Mediterranean Council,
like the European Council. The foundations of this area of
solidarity and cooperation would be a common immigration
policy, commercial and economic development.”

Meanwhile, Turkey’s Prime Minister Erdogan will have none of
this. He has vowed to strengthen Turkey’s EU application. The
debate, which I said was over awhile back, could yet reignite.

---

On a totally different topic, though a hot spot, in the same issue
of The National Interest, former AIG chairman Maurice R.
Greenberg has an essay on the current situation in the realm of
trade and the fate of the U.S. dollar.

In part:

“It is time the United States wakes up to a serious problem. The
dollar is increasingly losing the position it has enjoyed for nearly
half a century as the world’s currency of last resort. And as that
happens, the advantages we have gleaned from that status – the
ability to finance our twin fiscal and trade deficits while keeping
our interest rates low – will also be lost. And yet no one,
particularly in Washington, seems overly concerned.

“The world is awash in dollars right now, and the situation
cannot last. My concern is that many in this country continue to
have unrealistic views about the sustainability of the status quo.
Yes, our domestic economy is doing reasonably well – we have
modest but real growth, inflation is quiet, the stock market is
booming. But we also have not done anything to address an out-
of-control federal government budget deficit and the ongoing
huge trade deficits we run up with other nations. How long will
other countries continue to provide us with our credit card?
Other countries may no longer be willing to provide Washington
with a blank check – literally.

“China’s enormous trade surpluses with the United States have
generated more than one trillion dollars worth of reserves. In the
past, Beijing has purchased a large quantity of U.S. Treasury
bonds, enabling us to finance our government’s deficit spending.
But the Chinese have now indicate that they will begin to pursue
alternative investments with their surpluses, from purchasing
companies and assets to diversifying their holdings into a basket
of currencies – devoting at least $300 billion of their reserves to
this purpose. One thing high on Beijing’s agenda: trading their
excess dollars for ownership of natural-resources assets.

“Japan and Russia are the second and third largest holders of
dollars (some $900 billion and $300 billion, respectively). Right
now, Tokyo is interested in keeping the yen weak vis- -vis the
dollar in order to make its exports competitive. Russia continues
to accumulate dollars because oil exports remain denominated in
that currency. But there is a limit as to how many dollars can be
absorbed by other countries – and no one wants to hold on to
their dollars endlessly. Pressure is building to diversify. We are
seeing a move away from the dollar to gold and other currencies
– most notably the euro .

“(The euro) has become more attractive as a currency, not simply
as an alternative to the dollar, but because of increasing optimism
about the economic performance of the core European states –
Germany and Britain, most notably – and the expectation of
reforms in France away from socialism toward a more balanced
approach with the election of Nicolas Sarkozy.”

Greenberg writes of how just five to ten years ago, nations like
Brazil, Russia, India and China (BRIC) were trapped in various
ways, whether it was the style of government or simply the early
stages of reform. But today, each of the BRIC countries is
highly competitive in world markets; allowing other currencies
to acquire greater value such as the euro and the British pound.

“The bottom line,” Greenberg writes, “is that the U.S. dollar is
no longer the only game in town. Our currency has serious
competitors, because the economies of other countries have
major advantages (whether a low-cost manufacturing base or
natural-resource endowments) that make their currencies more
attractive as ways to hold wealth. We will also see a continuing
trend of diversification into precious metals.

“And we could see a major shift if the world’s energy producers
decide to switch both the pricing and selling of oil from the
dollar to the euro – as this would cause central banks around the
globe to dump more of their dollar reserves in favor of the euro –
and in turn cause a further major loss in the purchasing power of
the dollar.”

Iran is attempting to set up a new international system whereby
oil would be denominated in euros, but there has been no
stampede as yet to join it. Regardless, “Other countries will not
continue to accumulate and hold dollars for the dollar’s sake, or
continue to treat the dollar as the only possible global currency.”

---

Hot Spots will return Aug. 23.

Brian Trumbore