The search for a financial engineering solution in the EU is taking its toll on the European economy, creating a debt-deflation cycle that will suppress EU demand into the future and relegate the relative importance of the Euro as a credible currency in the global markets. EU policy makers should play the game not to lose – that is they should champion a resolution of the EU crisis linked with the internalization of RMB and currency misalignments into a managed exchange rate regime – in order to bring greater stability to world financial markets.
One likely scenario is the internationalization of the RMB by providing an off-shore hub for RMB in Frankfurt; such a solution must include fiscal union and the political will to march forward as a United States of Europe. It will be a long term objective. It could provide part of a solution to the EU debt crisis. Such a strategy would warrant the creation of an EU-China bond reversed engineered by China and thus outside the domain of the EU political hegemony.
It is the only rational institutional response within the democratic deficit of the European treaties is a response that provides for the EFSF ‘walking forward’ as a conduit bank for the ECB providing a package of catastrophic bonds to refinance defaulting sovereign states. Some of the arguments in ‘dark strategy’ – vide Chapter 7 of my book Game Embedded Strategy – wherein one player in a game influences the belief system of another player, EU policy-makers need to visualize today the outcome of their action tomorrow. To adapt Bob Dylan – so much older then (we should be) younger than that now’. This ‘thief of Nature’ strategy, providing an ‘off-shore’ hub for the RMB, should prevail because the time is now or never for EU as an economy, for Europeans and for the Euro as an international reserve currency in a global economy.
Tags: China. RMB, off-shore hubs