Lagarde Fails the Euro on Ukraine
Literally, I read this piece from Christine Lagarde, President of the European Central Bank, in the Financial Times, and it was wtf?
Lagarde talks about the importance of Europe having “geopolitical credibility,” and yet one action (or inaction) that the ECB has undertaken has done more to undermine that very same geopolitical credibility than anything else.
The ECB has been blocking the use of immobilized Russian central bank assets to ensure a speedy victory for Ukraine in its war with Russia. The ECB has used weak rule of law kind of arguments against it.
But the rule of war is that in order to win a conflict you have to be better armed and financed than your opponent. And we – Europe – have simply not done that. We have funded Ukraine, grudgingly to the tune of $100 billion a year through the past 3.5 years.
To give Ukraine a chance of winning I reckon a figure of nearer $150 billion per year would have been needed – when Ukraine has been on the front foot, it has been financed at an annual rate nearer to $150 billion.
We have fallen short, and the result is 3.5 years later, the war is not won, Russia is on the front foot, and Europe has now left itself exposed to the vagaries and blackmail of the Trump administration.
If we had seized the full $330 billion in immobilized RU assets three years back and used them to buy US kit to help Ukraine win the war, Putin would already have been defeated.
Instead, Ukraine is struggling to hold back Russian advances. Europe faces an existential security threat from Russia and looks weak. And Trump is pulling back from supporting Ukraine and backstopping European security.
Fair to say there is a security crisis in Europe – Lagarde et al failed us.
And Lagarde seems to have zero clue what a Russian victory in Ukraine would look like.
Let me spell it out for her:
First, tens of millions of Ukrainians moving West, stretching the social, economic, and political fabric of Europe. It will further bolster the hand of far-right parties seeking the end of the European project.
Second, the two largest military-industrial complexes in Europe will be combined – Russia plus Ukraine – posing an absolutely existential security threat to Europe. It will not be if Russia will move further west, but when and where.
Europe will have to massively increase defense spending and very quickly – from 2% to 5% of GDP, plus within a few years. That means higher taxes, less growth, the crowding out of social spending, and likely more poverty, and social and political pressures, more centrifugal forces in Europe.
Third, a huge confidence shock to the whole European project. How can a €27 trillion ($31 trillion) European economy not fend off Russia, with a €2 trillion ($2.3 trillion) economy? The message will be Europe, and the EU is simply not fit for purpose, badly managed and run, incompetent.
Credibility? Why would anyone invest in a region that cannot defend itself, or its neighbors, subject to blatant aggression? The Euro will suffer an inevitable decline as a result.
Europe, and the ECB, had their chance, but Lagarde et al fluffed their lines by not utilizing the $330 billion in CBR assets in our defense. Why should anyone trust them with our security going forward?
Reprinted from the author’s @tashecon blog. See the original here.
The views expressed in this article are the author’s and not necessarily those of Kyiv Post.
Source: Timothy Ash