by WebToday Editor Lawrence J. Joyce Pharmacist/Attorney-at-Law author of LESSONS FROM DUGWAY: What I Learned About Surviving Germ Warfare At The U.S. Army Proving Grounds (www.germwarfarebook.com)
(WebToday, April 16, 2002)-- There is one day I will always remember: Wednesday, October 25, 2000. I was thinking about how the politics of the Middle East (a relatively light weight topic by today's standards) would play itself out in the larger scheme of things. And I think we are now within a few weeks of seeing one of the biggest ways in which that will happen.
I remembered the gas lines of the '70s. I remembered waiting in those gas lines. An image came to mind of something I had seen around 1979 in Time or Newsweek magazine: pictures of gasoline ration coupons which the U.S. Congress had already printed up ... just in case. And I wondered if the same thing might happen again.
Then I recalled that at the same time, OPEC had contemplated switching the denomination of its sales of oil from the U.S. dollar to an average based on a market basket of 16 different currencies worldwide.
This didn't even have anything to do with politics, as it turns out. It had to do with economics (or the lack thereof, under Jimmy Carter), plain and simple. The dollar was at an historic low, and no one knew when it would bottom out. The OPEC ministers were watching their valuable revenues become worth less and less all the time. And they wanted to do something about it.
Fortunately for us, November 4, 1980 came along just in time: election day for Ronald Reagan. And the dollar did a sharp reversal, and lived happily ever. So OPEC dropped its plans to dump the dollar.
Something else also struck me that night a year and a half ago, though: What if politics were to become an issue with OPEC again? I wondered. For a variety of reasons, an embargo might not be as effective today as it was in the '70s. But another weapon, I knew, may be at hand: the euro. For it already is a market basket of different currencies wrapped up into one neat little package.
The euro---the new, official currency of the European Union (EU)---first came into existence on Jan. 1, 1999, though only in electronic form, for the transfer of funds from one account to another. But now the coins and paper currency themselves are in circulation, as of Jan. 1, 2002. The new currency will replace the old currencies of the individual countries themselves---e.g., the Deutsch Mark, French Franc, Italian Lira, Greek Drachma (which had been the world's oldest currency---having originated about 650 B.C.), etc. The British are members of the EU, but they have not elected to go with the euro, and will retain their official currency, the Pound Sterling; Denmark and Sweden likewise have not adopted the euro. The countries which are adopting the euro are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
A switch by OPEC from the dollar to the euro, I realized, would immediately strike a blow against the U.S., lowering the dollar on world currency markets and placing inflationary pressure on our economy.
Not 24 hours later, I read an article online which truly caught my eye: Iraq was asking the U.N. for permission to make all of its food-for-oil sales denominated in euros instead of dollars. My jaw nearly hit the floor. The idea of how to hit us where it really counts had occurred to Baghdad, too.
The United States, quite incredibly, did not object to this proposal. The U.N. soon approved it. This was followed a month and a half later by a pledge from Saddam to the Palestinians of one billion euros.
This idea isn't limited to Baghdad or yours truly, either. Last month, when a Libyan plane landed in Egypt to carry Arab League Secretary-General Amr Moussa to Libya for urgent talks, the Libyan plane was held up in a dispute over payment for its fuel, $152 worth. The Libyans wanted to pay the bill in euros. The Egyptians, whose currency is pegged to the U.S. dollar, demanded dollars instead. And since they refused to allow the plane to take off unless that condition was met, the Libyans were forced to oblige.
Something more than Arab/Israeli politics may be a motivating factor here, however. European government pension plans are about to go bankrupt unless somebody does something drastic---and very quickly---to save them. Without some form of salvation for those pensions plans, every government in Europe will be forced to choose between either making drastic cuts in social spending (in their very socialist economies) or raising already exorbitant tax rates to even higher levels. If they adopt either approach, every government in Europe, as you can well imagine, will soon be voted out of office in favor of one opposition party or another within the next few decades, and some within the very next few years. Italy may be facing problems by next year, in fact, and Germany is not far behind. A stronger euro, however, would make all of Europe suddenly wealthier, and more capable of sustaining the tottering pension plans. And economic planning is automatically easier for the country whose currency is pegged to OPEC's oil.
Saddam, thus far, has been using only European banks for his food-for-oil program. And a few days after Saddam's pledge of one billion euros to the Palestinians, the EU, in a show of friendship with the Arab world, stepped in and pledged the Palestinians 90 million euros in support if Israel were to stop its flow of revenues. Then, a few days after that, the European Investment Bank (EIB) entered into an agreement to loan Syria 75 million euros after an eight year freeze on doing business with that country. And previously, in August of 2000, the EU had donated 1.7 million euros to Yemen to assist Eritrean, Ethiopian, Somalian, and repatriated Yemeni refugees living in the wake of the drought in Eritrea and that country's war with Ethiopia.
Support by the EU for the Arabs in the form of euros has surfaced again. Last month, Italian Prime Minister Berlusconi proposed a European version of the "Marshall Plan" whereby the United States, by its generous giving, rebuilt Europe after World War II. He proposes giving the Palestinians 6.2 billion euros worth of aid over five years.
Europe and the Arab world have already started to move together economically. Last May, Egypt, Jordan, Morocco, and Tunisia decided to set up a free trade zone---the Great Arab Free Trade Zone---among themselves ahead of the target for doing so by 2010, and to invite six other Arab countries---Algeria, Lebanon, Libya, Mauritania, the Palestinian Authority, and Syria---to do the same; Egypt is already expected to be fully integrated into this group. Meanwhile, the EU has negotiated with 12 Mediterranean countries as part of the so-called Barcelona process of cooperation between the EU and its Mediterranean neighbors to the south. The end result of the Barcelona process is to establish closer ties in commerce and social affairs, as well as politically, leading to the creation of a Euro-Mediterranean Free Trade Zone of 27 countries by 2010.
The EU is also starting to assert itself more and more as an independent voice from Washington. Henry Kissinger has taken note of this, and expressed his concern over this last May, calling the already increasing tension across the Atlantic ocean as the "source of my present greatest concern".
Just earlier this month, the EU boldly told the U.S. to step aside as the primary peace maker in the Middle East and let a coalition led by the EU (along with Russia and moderate Arab states) take over. The EU then sent a delegation led by its foreign policy chief Javier Solana to meet with Arafat, though Israel refused to allow the meeting to take place. Also in attendance from the EU was Spanish Foreign Minister Josep Pique; Spain currently holds the six-month rotating presidency of the EU. Originally, Spain was going to be represented by the Prime Minister of Spain himself, Jose Maria Azna, but Pique was sent instead when it was learned that Israel had already decided not to allow the meeting to take place. Since Washington's negotiator Anthony Zinni was allowed to meet with Arafat, however, one can only expect bad feelings to develop in Europe against Israel over the refusal to allow its delegation to likewise meet with Arafat.
In fact, less than a week later, Belgian Foreign Minister Louis Michel said the EU could rethink its trade ties with Israel in response to the snub. And a day later, following an emergency meeting of European foreign ministers in Luxembourg, Mr. Pique, one of the ones who was snubbed, announced that the ministers were considering up to $1 billion worth of trade sanctions against Israel. The European Parliament then passed a resolution calling for an agreement to suspend its Association Treaty with Israel, a six-year old treaty under which Israel enjoys trade benefits with Europe, its largest trading partner. And recent street protests in Europe by tens of thousands of demonstrators against Israel places increasing political pressure on Europe to punish Israel and embrace the Palestinians.
On April 15th, the EU did back off a little on its rhetoric, and placed all talk of sanctions against Israel on hold pending the outcome of Secretary Powell's mission to Israel. But the implication of the EU's statement is that if Powell does not achieve an unexpected breakthrough, the EU will consider this issue again. Yet another point of tension has been noted in the mean time: The EU now reports that Israel's actions against the Palestinians has destroyed over $17 million dollars in Palestinian property which was financed by the EU. European Development and Humanitarian Aid Commissioner Poul Nielson called this assessment "shocking". He also said that although the EU hasn't decided what to do about this, the EU has not ruled out taking some action against Israel for this, and he said that the EU will continue to do the "bookkeeping" on this damage. Meanwhile the head of the United Nations Relief and Works Agency (UNRWA), Peter Hansen, has accused Israel of being more uncooperative with UN relief workers than Angola, Bosnia, Chechnya, or Sudan ever were.
Evangelical Christians and many rabbis are, by and large, familiar with the Bible prophecies which point out that, in the end times, the world will witness the emergence of a revived form of the Roman Empire. (Dan. 2:1-45; Rev. 17: 1-18). The EU, arising out of virtually the very extent of the European dominion of the Roman Empire, fits eerily into that mold, even in its origins: The EU is the successor of the European Common Market, which itself arose of the 1958 Steel and Coal Pact of Rome. And the expansion of the EU's influence into the Arab sectors of the old Roman Empire appears to be on the rise. The emergence of Europe in Middle East politics, then, may be as much the topic of the Book of Daniel and the Book of Revelation (the "Apocalypse") as it is the topic of the headlines of USA Today.
A switch by OPEC to the euro could give the impetus to enhance the value of the euro even further. The U.S. dollar is one of the chief reserve currencies of Europe's various central banks. A decision to dump the dollar in favor of the euro as a reserve currency---made amidst sanctimonious statements that this supposedly being done in the interests of Middle East justice---would enrich Europe even further. Keep an eye on Europe's famed semi-secret "Bilderberg Group", an association of the most powerful and wealthy figures in Europe, which also includes certain American politicians---e.g., Bill Clinton, even before he became President. Anything agreed on at Bilderberg meetings behind closed curtains is certain to become law in open parliaments.
A potential source of momentum of replacing the dollar with the euro in much of world commerce may come, paradoxically, from antiterrorist efforts by the United States. Islamic financiers met in Beirut, Lebanon recently to discuss the large withdrawals from American and European banks which have taken place in the wake of Sept. 11th. Many of the depositors fear (no doubt with good reason) that their accounts may be frozen on suspicions that the accounts are used to finance Islamic terrorists. The financiers were told that already at least $1 billion dollars has been removed from Western banks out of such fears, and that Lebanese banks have seen an influx of $800 million since Sept. 11th. Some Middle East financial experts now believe that Islamic banks in the Middle East could suddenly become the recipients of up to $1 trillion in funds withdrawn mainly from Western banks. And that sum might increase if the Arabs were to suddenly withdraw their untold billions of dollars from the U.S. stock markets in protest, causing a market collapse. Such a move would hardly hurt the Arabs. The Dow has gone practically nowhere the past few years, and the NASDAQ has only gone down, anyway.
Most large banks offer accounts denominated in any one of several different currencies. And if new accounts are to be opened to receive $1 trillion or more, don't expect them to be denominated in dollars. Expect them to be denominated in the newly-favored euro.
In any case, what may come next? America's economy would wind down, at a minimum. And one country in this world, above all others, is dependent upon there being a healthy U.S. economy for the strength of its own economy: Japan. For the strength of Japan's economy is dependent upon there being a prosperous U.S. economy to consume the vast amounts of goods which Japan now sells us.
Meanwhile, Japan's banking system, for the past several years, has had one foot in the grave and another on a banana peel. And the Japanese government is as obligated by its law to bail out the Japanese banks if they should fail as our own government is obligated to do so if our banks fail here. And if the U.S. economy should really hit the skids, would the already ailing Japanese economy be able to handle the decrease in purchases of Japanese products by America? Demand for gold in Japan this past month or so seems to have increased four-fold. It would seem that the Japanese people themselves are sure pessimistic about something. And if the economy of Japan couldn't handle this, would the Japanese banking system survive?
There is only one place where the Japanese government can get enough money to bail out its banking system: The Japanese government owns about 15% of our U.S. Treasury securities. And it would have to start selling them if it found itself facing a major banking crisis.
That would send the already ailing dollar down even further. And the initiation of a sale of our Treasury securities by Japan, of course, would immediately trigger a worldwide stampede to do the same before the securities become worth only a fraction of what they were purchased for. At the same time, interest rates in the U.S. would immediately go through the roof.
Will such a scenario come to pass? Saddam Hussein has suspended oil sales for only 30 days, just as a show of support for the Palestinians. The Iranians and---significantly---the Libyans have chimed in with their two cents' worth in sympathy with him as well. But none of the rest of OPEC even seems to be paying attention to them.
We cannot count on the eternal benevolence or even the pragmatism of the moderate Arab states forever, however. Saudi Arabia faces so much unrest over the Israeli/Palestinian conflict that it has even agreed to allow mass demonstrations to be held regarding it. This runs contrary to the conventional wisdom in that desert kingdom, for the royal family doesn't like to let people get a taste democracy even in matters which are pro-Arab, lest the people come to like the idea of expressing themselves and start expecting the right to be able to do so for all kinds of things.
In this context, Crown Prince Abdullah of Saudi Arabia flew to Morocco to warn Colin Powell on April 8th that U.S. interests in the Middle East are being threatened by America's continuing support of Israel. Even Egypt, the first Arab country to sign a peace treaty with Israel (Jordan being the only other one) just refused a U.S. request to condemn the suicide bombings.
Watch, then, for Saddam (or one of his cronies) to float the idea of switching to the euro for all OPEC countries. Be particularly watchful for this when Saddam's own 30 day period for stopping oil sales is about to expire (Wednesday, May 8th). And if things haven't cooled off in the Middle East by then (yeah, right), watch for OPEC to agree to this as a compromise between those who want an oil embargo against the U.S. (Iraq, Libya, and Iran) and those who oppose it, such as Saudi Arabia.
Would you be prepared for that?
You may email Lawrence Joyce at: firstname.lastname@example.org