One of these perceptive souls is mr. Richard North of EU Referendum, who has been tracking world economic developments with a keen but weary eye all the way back since July of last year. Note that this was months before the sub-prime crisis in the US made itself felt. Thus it has been seven months since EU Referendum picked up the first rumblings of what has the making of an economic mudslide of global proportions, doing untold damage as it crashes down the slope.
And to lay blame where blame is due: Although this is a crisis caused by factors beyond the control of any one government, avoiding or mitigating the immediate effects the crisis will have on all of us in the grey huddles masses is within the EUnions control. This is the most important challenge to the EUnion these days. In all likelihood the economies of the EU memberstates will come under such pressures that even the continued existence of the euro may not be certain. And the EUnion has, ever since July 2007, fumbled the ball every step of the way, leaving little doubt as to whether the EUnion will be contributing to the crisis. It will.
But let me start at the beginning. Last summer saw the beginning of a surge in wheat prices. The soaring wheat prices are of course (partly) caused by the worldwide flight into 'biofuels' in an effort to stave off climate change. Resorting to biofuels has meant that land, normally used for food and feed production, has been used to produce the biomass needed for the production of ethanol and biodiesel. Which reduces food production, which has had an effect of driving up prices, as EU Referendum predicted accurately back in the summer of 2007.
Just how unreasonable and damaging the EUnions targets for biofuel are was the subject of another EUReferendum post in that same summer of 2007. Thus it was that in the summer of 2007 the EU announced it would propose scrapping set-aside, which currently keeps one tenth of arable land out of production as a measure to curb over-production.
Soaring wheat prices and predictions of a weak EU cereal harvest are causing alarm bells to ring in Brussels, especially as the EU's buffer stocks have shrunk from 14 million tons in 2006-07 to just 2.5 million tons.The staggering decrease in the EUnions wheat buffers is entirely due to the EUnions enigmatic decision to get rid of most of its stored reserves, which could have been used to regulate wheat prices within the EUnion, in a marketing campaign in 2006/07. This at a time when it should have been obvious that world market developments, as well as the EUnions own targets for biofuel production, would have an impact of wheat prices.
But here's where it gets really ridiculous: The set-asides, far from being left to the wind and the weeds, were used by farmers to produce industrial crops, which is allowed under EUnion rules. Industrial crops, like oilseed rape and maize being exactly the crops used in biofuel production. Dedicating the set-asides to wheat production, thus means that the industrial crops have to be grown somewhere else. This will have to be on existing arable land used for food production, as the EU's Single Farm payments rules do not allow new land to be brought into production. So, the EUnion getting rid of the set-asides has an effect on grain production of very exact quantitity: Zero.
Far from rethinking the EUnions strategy with regard to biofuels, two months later we find the European Commission vigourously defending it's policy on the same day when
there has been a "pasta strike" in Italy in protest at a 20 percent leap in prices in durum wheat. The leading UK bread supplier Premier Foods is complaining of runaway prices and the OECD is warning that governments needed to scrap subsidies for biofuels, or the "current rush" to support alternative energy sources would lead to surging food prices and the potential destruction of natural habitat.Early signs and warning that were completely unheeded by the 'colleagues'.
And so we skip ahead to November, when Ambrose Evans Pritchard in The Daily Telegraph noted a fundamental shift in the world economy.
The essence of Ambrose's thesis is that we are moving from a situation in the global agricultural market where there is a structural surplus, to one of structural shortage and inflated commodity prices. This, he avers, is no short-term trend, but a major sea-change which is going to have a massive effect on our food supply, driven in part by the obsession with producing ever-larger quantities of biofuels. Increasingly, shortages and food price inflation are going to dominate global politics.And this is the point where our handing over our sovereignty to the Brussels apparat makes itself truely felt. The EUnions pride and joy, the Common Agricultural Policy, was designed to deal with surplusses. And it is this instrument that the EUnion wields to combat shortages, something it was not designed for.
However, such is the measure of the people we have handed our sovereignty to that far from taking measures, however inepts, to avert the worst of the crisis, they seem completely oblivious to it. Instead we have the EUnion prattling on about CO2 targets and climate change, introducing measures that further damage the economies of EU memberstates.
In December the increased demand for food in China, and for biofuels in the US and the EUnion, began to make itself felt for real:
In Chicago, we are told, wheat and rice prices for delivery in March 2008 have jumped to an all-time record, soyabean prices are at a 34-year high and corn prices at an 11-year peak. Knock-on price rises are set to hit consumers in coming months, raising inflationary pressure and constraining the ability of central banks to mitigate the slowdown in their economies.And as 2008 rolled around, the EUnion, far from being seen mitigating the looming crisis, is actively contributing to it: They are processing new regulations on pesticides, which are set to reduce dramatically the number of plant protection compounds available to farmers. As resistance to the existing (and still allowed) pesticides is increasing, reduction of options will inevitably lead to reduced crop output, whether it is industrial crop or food and feed crops.
Those earlier commodity price rises are already working their way into the system, pushing the eurozone food price inflation to 4.3 percent in November, causing a hike in the zone's annual inflation rate from 2.6 percent in October to 3.1 percent, the highest in six years.
And now at long last reality bites. Although the official inflation number seems relatively benign, it is when we look at the costs of food and fuel, that we see what is happening:
They showed that the prices paid by firms for wholesale goods such as food and oil increased by 5.7 percent in January, the sharpest increase since August 1991.And it may even be worse then that. Although reported inflation numbers have over the last years never breached the 4% barrier, this may be due to the flawed instruments that our politicians use to put us at ease. As the Tap Blog reports, the disparity between the Consumer Price Index (CPI, the UK version of the same inflation measuring instrument wielded by the EUnions Central Bank) and the Barclays Capital Essentials Inflation Index (BCEII), in which Barclays has indexed only essentials, such as food, housing and energy is staggering.
In retail terms, as calculated by the paper, these increases translate into retail price rises which have families needing to pay out on average an extra £1,300 [EUR 1,950 - KV] a year, mainly on food, energy and fuel, the prices of which are rising at their fastest rate for 17 years.
The Consumer Price Index (CPI), the official measure used by the Bank of England's Monetary Policy Committee when setting interest rates, has also risen, from 2.8 per cent to 2.97 per cent. It is now higher than at any time since December 1995. And a simple index of "essential inflation" calculated by Barclays Capital, the investment bank, consisting of food, council tax, utilities and petrol, jumped to 8 per cent in the year to December, compared with just 4 per cent a year ago.What this all means is that far from being a temporary slump in the economy, for which the USA is to blame, we are in it for the long haul. The shortages, in food as well as in energy, will be with us for some time, while the EUnions pre-occupation with climate change, renewable energy, islamophobia, opening the borders to EUROMED partners and the powers their precious Turnip grants them will ensure our central government will do exactly nothing to mitigate circumstances. Rather, totally disconnected from reality, the EUnion can be seen worsening an already deep crisis with their hamfisted measures introduced to chase pies in the sky.
But this can only last so long. With every day passing our local and central governments comes with pronouncements and exhoriations that ring untrue in the ears of the average citizenship. More and more people are starting to doubt the constant stream of economic good news (despite the looming recession) brought to us by FM Wouter Bos and his underlings. Nobody believes PM Balkenende anymore when he says the Turnip is not the same as the EU Constitution we've already rejected. Even state TV is openly admitting it, after all.
And thus what we have here is not one but actually two crises: One economic, who's effects are uncertain, but will probably not lead to riots in the streets of the Netherlands or elsewhere in the EUnion (though the same cannot be said for the streets of various capitals in Third World countries, one fears). The second crisis, more profound and potentially more devastating, is one of legitimacy. There comes a point where neither the EUnion nor our local governments are recognized as our legitimate government.
Especially when the effects of the economic crisis will make itself felt, dissatisfaction with the government will increase, as will the realization that since the Turnip our (supposed) government is not in any position to do anything, having handed over virtually all its power to Brussels. And in the case of our central government: They, in their ivory tower at Rue de la Loi will not be willing to do anything, since it might clash with their CO2 targets. But when finally that realisation sets in: Beware the Saxon!
[UPDATE001 Wednesday 13-2] And if to emphasize the point made in the last paragraphs of this post: Today a number of highly respected economists came out publicly critizing (NL) the 'overly optimistic' prognosis by the Central Plan Buro (CPB). Whereas the CPB predict an economic growth of 1.75% for this year and 2% for 2009, with an inflation rate of 2.75%, these economists say the best to be expected is an economic growth of 1.5% in 2008 with an inflation of 3% or more.
Sylvester Eijffinger (professor of Economy at the University of Tilburg) thinks the CPB numbers are based on the expectation that the credit crisis will be sorted out by the end of this year, after which the economy will recover. "This seems to me to be a rather optimistic view of the future", he is quoted.