Business

Greece's profligacy, clandestinely assisted by Wall Street's Houdini-like amoral derivers of derivatives, succeeded in creating waning confidence in the euro, which fell from US$1.51 in December to a low of US$1.361 this week.

Europe, wishing to avoid the ignominy and embarrassment of turning to the Inter-national Monetary Fund (IMF), revisits an old solution, if only partially, of modern macroeconomics founder John M. Keynes.

This column has previously suggested that the IMF is really the successor to the British Treasury, banking system and Colonial Office in managing the world's money of sterling's exchange standard.

After all, it was created in 1944 at Bretton Woods.

India didn't exist as a country; the Third World was a colonial world. Sterling was still king, it ruled the roost.

After Britain emerged weakened from World War II, having sold off investments, leased bases to the United States (US), and severely indebted, it was clear that the balance of power had shifted.

Keynes proposed a world central bank but the US, reasonably, pooh-poohed the idea. Why give up being provider of the world's currency? Britain didn't.

So now the European Union (EU) is considering creating a European Monetary Fund (EMF).

Wayward EU members will be brought to heel by EMF emergency funds and conditionalities. The optimal solution proposed by Keynes, whereby both surplus and deficit countries have an incentive to curb their imbalances, is to be mimicked by a series of regional arrangements.

The US is its own IMF. It determines its own conditionalities based on Republican misrepresentation of facts and Wall Street's manipulation of Congress by its lobbying dollar power. The impact of this is to continue Wall Street's short run unwarranted gains while gouging the US population and the world with usurious interest rates and unconscionable borrowing terms.

This situation is a ticking world financial bomb. US President Barack Obama and his team should by now have learnt that 'change' is not easy, particularly in face of an opposition that creates its own facts to support almost primitive positions with respect to the role of government in a modern-day economy.

China can do little in the short run about its big holdings of US Treasury obligations, but can this stand forever? Unless the US deals with its unemployment and mortgage foreclosure problems in short shrift, this recession will continue longer than is being suggested.

An international response to the crisis is indicated. No such development, however, is in sight.

wilbe65@yahoo.com