In today’s complex global landscape, the economic policies of Europe are under scrutiny, particularly their reliance on the United States and the challenges posed by energy crises. This insightful discussion features Michael Hudson and former British diplomat Ian Proud, who delve into the self-destructive nature of these policies and their implications.
It would be difficult to cover every aspect in a brief conversation. Nonetheless, a significant reason for Europe’s increasing dependence on the U.S. is the latter’s gradual withdrawal from NATO. If European leaders were more candid, they would realize that establishing robust military forces capable of countering Russian aggression would take at least two decades.
However, boosting military capabilities serves multiple purposes. After the financial crisis, deeper economic integration within the EU has stalled. In contrast to the U.S., where states like California don’t complain about subsidizing Mississippi, nations such as Germany and the Netherlands have protested vehemently against rescuing the so-called PIIGS countries. The centrifugal forces within Europe intensified further after Brexit.
Strengthening armed forces exemplifies the Iron Law of Institutions. Transitioning the EU into a military alliance elevates the significance of its institutions, consequently enhancing the power and stature of its leaders.
This has led to a form of schizophrenic behavior: an aggressive stance towards Russia now, despite the EU’s inability to stand alone, under the misguided hope that conflicts will galvanize U.S. support for NATO, alongside unrealistic expectations of rapidly assembling sizable forces.
Let me express a recurring concern. Hudson contends that Chinese production is not excessive, yet Chinese leaders have acknowledged the overproduction in sectors like electric vehicles, seeking consolidation to manage output. He defends Chinese trade surpluses while simultaneously advocating for a bancor-style system. Keynes designed bancor to tackle what he identified as the root cause of economic crises: persistent trade surpluses, also known as mercantilism. In Keynes’s view, surplus nations posed a greater threat than deficit nations since they profited from offshoring jobs and ultimately acquiring assets from the deficit countries. Bancor aims to impose penalties on both surplus and deficit states via mechanisms like currency appreciation and fines against surplus countries.
By Ian Proud. Originally published at The Peacemonger
It’s always a pleasure, Professor Michael Hudson. I appreciate our conversations about economic issues that are close to my heart.
On October 14, 2022, Zelensky visited London while the UK Chancellor was in Thailand, advocating for stricter sanctions against Russia, particularly targeting Russian liquefied natural gas. Under the shadows of a global energy shortage largely triggered by U.S. policy in Iran, discussing further sanctions seems almost absurd.
This must be contrasted with Trump’s decision to ease sanctions on Russian oil to secure just 9.8 days’ worth of diesel for the U.S. This disjointed Western foreign policy is confusing and utterly nonsensical. How do you interpret this situation?
Professor Michael Hudson
The deal may not significantly impact U.S. prices, yet it solidifies Europe’s dependence on the U.S. It highlights how European foreign policy has become captive to EU leaders like Von der Leyen and Kallas of Estonia. Moreover, the euro’s value has plummeted from $1.15 to $1.11 in a month, suggesting the U.S. perceives Europe as on a self-destructive course.
European leaders—especially those from Germany, France, and England—have indicated that increasing the cost of living for European labor is acceptable if it means boosting military expenditure in anticipation of a conflict with Russia. President Putin recently remarked that the war would last potentially a few hours, highlighting the different outlook on how such a conflict might unfold.
The implications of Trump’s agreement with Europe underscore the extent to which Europe is willing to absorb costs for the U.S. effort. This deal is more about support for the U.S. than opposition to Russia. Essentially, Europe will be selling its national petroleum reserves to the U.S. at artificially low prices, only to later replenish its reserves at possibly double the initial price.
Destruction of oil production, refining capacities, and natural gas exports from the Persian Gulf may require seven to ten years for recovery. Consequently, energy prices and availability are set to rise long-term.
This trend reflects how the U.S. has consistently undermined EU negotiations since Trump initiated his controversial tariff policies. Von der Leyen acquiesced to these tariffs, which started at an illegal 25 percent, and then moved to a still illegal 15 percent. The U.S. demanded that Europe commit to opposing Russia and agree to long-term deals to purchase American oil and gas at inflated prices compared to Russia and Iran.
Inflation and the decline of European heavy industries, including the glass and fertilizer sectors, alongside reduced crop planting, are political choices that don’t seem to resonate with an increasingly dissenting electorate. Yet, leaders like Merz, Macron, and the British Prime Minister continue to act as though they serve U.S. interests rather than authentic European ones.
Ultimately, Europe faces the prospect of paying exorbitant costs for oil sent to the U.S., leading to budget cuts elsewhere. Military spending is set to rise, projected at 5%, meaning any growth in European GDP may be funneled into preparing for conflict rather than developing trade relations with Russia, a foundation for their past economic stability.
A significant point to note is that the criticism of this deal is not emerging from Republicans; they shy away from criticizing Trump. Instead, it’s the Democratic Party—specifically figures like Charles Schumer—who align with the neocons advocating an aggressive stance. They endorse the idea of fighting rather than seeking diplomatic solutions, mirroring European strategies.
This creates a unified front between Europe and the U.S., increasing Europe’s reliance on American energy and escalating costs, while further undermining the euro against the dollar.
IP
Having recently visited Russia, it’s evident that the country sits on vast oil and gas reserves. While not the world’s largest producer, it remains a major player. The irony is that its energy independence enables it to redirect trade towards other nations effortlessly.
The sanctions against Russian energy do not seem to faze Moscow. They have demonstrated resilience as their current account surplus has slightly exceeded pre-war averages. This self-defeating rhetoric surrounding Russian energy essentially harms Western economies while failing to impact Russia.
Returning to the European diesel deal with the U.S., one must question the feasibility of the U.S. being able to re-export diesel back to the EU in four months. Selling cheap diesel from national reserves to replenish later at much higher costs raises serious concerns. What actual supplies will exist to facilitate this plan?
MH
Ironically, as the U.S. targets Russian refineries, they are concurrently restricting Russian diesel exports. This leads us to speculate where the anticipated Russian oil will materialize from. Notably, Europe has been indirectly purchasing Russian oil, and it appears likely that Moscow might turn to buying Iranian oil and then marking it up for sales under a Russian label. This suggests that Russia does not require the European market to survive but rather seeks out new buyers, predominantly in Asia and the Global South.
This self-imposed isolation of Russia by the West merely opens the door for Iran to develop stronger trade relations, raising questions about the economic course Europe is adopting while continuing to follow U.S. demands.
There seems to be an internal struggle within the U.S. between Trump and the CIA, leading to perceived inconsistencies in policy messaging. For instance, the divergence occurs with Trump urging Zelensky to cease attacks on Russian refineries, while U.S. support is directed towards enabling Ukraine to strike those same targets.
The U.S. seems to operate in various contradictory ways, with Trump perhaps being used as a political figurehead while deeper state interests guide the real policy direction. Unfortunately, this reflects a broader contempt for Europe and its interests, highlighting a troubling dynamic.
IP
Indeed, it seems there’s a need for an enemy around which to rally public opinion, and Russia has been cast in this role. Historically, Russia, recognized for its energy contributions, was once seen as an economic partner. However, the current portrayal demands sacrifices, despite the reality that the costs of production should dictate economic policy, not adversarial relations.
The dramatic consequences of disregarding energy inputs and surrendering to U.S. instructions could create unsustainable economic conditions for Europe. The pressing question remains: how can one wage war without energy or industry?
MH
Considering President Putin’s perspective, it’s astounding how Europe could squander past opportunities for collaboration, moving towards a more isolating strategy that destroys earlier economic ties. Russia initially sought a partnership with Europe post-Yeltsin, aiming for shared economic growth.
In the early 2000s, investments flowed from Europe into Russia with significant potential for mutual success. Instances of major European firms like Volkswagen investing in Russian industries illustrate a collaborative trajectory that has since been lost due to political decisions and rising hostilities.
The disconnect reflects broader societal and governmental choices that favor geopolitical narratives over productive relationships, ultimately resulting in a detrimental loss for both sides.
In conclusion, the economic and political strategies employed by Europe, whether by choice or coercion, have ultimately favored U.S. interests at the expense of its own stability and growth. The ongoing dialogue highlights the urgent need for Europe to reassess its dependencies and chart a course that prioritizes its economic interests—one that fosters mutual benefit rather than submission to external pressures.
IP
Thank you for engaging in this thought-provoking discussion, Professor Hudson. I welcome further dialogue on the economic relations between Europe and Russia. There’s significant ground to cover, and I’m grateful for the insights shared today.
MH
I always enjoy our discussions.
