It becomes clearer by the day that the days of abundant cheap oil flows are over.
Oil will now continue to be valued according to its true worth and to the extent that this true worth will be discovered, its price will rise.

Wars will again be waged for the commodity.

Oil is still being priced in US dollar.
The US dollar is a worthless piece of paper with no intrinsic value whatsoever.
However, the fact that this piece of paper is still being used as the intermediary numéraire for oil-trade settlement, as the intermediary basic “standard” by which values are measured for oil-trade settlement, gives this dollar-paper the backing of oil (an indispensable valuable).

Once oil will see no more reason to support/back the dollar, oil will “openly” shift towards GOLD and back it (through demand for gold) so as to create the new market for physical gold in association with the gold-friendly euro-numéraire.

In an article under the title “Oil price shock means China is at risk of blowing up”,
Ambrose Evans-Pritchard argues in the 7 July 2008 electronic edition of The Daily Telegraph that the pendulum will now swing back from China to America and that the mercantilists will have to re-invent themselves, it being clear that Beijing’s mercantilist policy of holding down the yuan to boost exports share has now hit the buffers, says Evans-Pritchard.
(The mercantilist theory, which formed the foundation of economic thought from about 1500 to 1800, says however, that countries should export more than they import and, if successful, would receive the value of their trade surpluses in the form of GOLD from the country or countries that ran deficits (1).)

QUOTE from Evans-Pritchard:
The great oil shock of 2008 is bad enough for us. It poses a mortal threat to the whole economic strategy of emerging Asia.
The manufacturing revolution of China and her satellites has been built on cheap transport over the past decade. At a stroke, the trade model looks obsolete.
No surprise that Shanghai’s bourse is down 56pc since October, one of the world’s most spectacular bear markets in half a century.
UNQUOTE (2)

Now we know who are the culprits for the high price of oil.
Those culprits then have to be punished through the War on Terror.
The oil hunger of India and China is a crucial element of the present decade.
The USA is put in the position to arrogate (to) itself the right to unilaterally determine geopolitics because the dollar-regime allows the USA to, as former president of the French republic, Valéry Giscard d’Estaing, recently re-explained, live with gigantic budget deficits which are covered by the annual incoming of capital from countries buying dollars, [dollars which the USA can create at will out of thin air]. (3)
Others will be called upon to pay the bill.
Thank You, Mr Evans-Pritchard, for having made this explicit.

DE-PEGGING AND FREELY FLOATING

On Monday 7 July 2008, the Financial Times reported that Abu Dhabi has reignited speculation that the United Arab Emirates may break its fixed peg to the US dollar. The UAE is one of the world’s main holders of dollar-denominated assets. In a report published at the weekend, the Abu Dhabi department of planning and economy floated the idea of tracking a basket of currencies in advance of formation of a currency union in the six-member Gulf Co-operation Council (GCC). (4)

Some bloggers were then arguing that, after de-pegging their currencies from the US dollar, the GCC states will have no need to re-peg them against a basket of world currencies.
The bloggers argued that it’s one thing to say that the GCC states need to de-peg their currencies from the US dollar.
It is however quite another thing to say that the GCC states should adopt another pegging regime.
Hence, after de-pegging from the US dollar, the GCC states should allow their currencies to freely float, with their oil and gold reserves also freely floating in the background, concluded cyberspace. (5)

The dollar-regime fully realises that the days of its exorbitant privilege, bestowed on it by oil traders, are coming to an end.

In order to prolong the exercise of this privilege, the US regulator of futures markets said on Monday 7 July 2008 that the Dubai Mercantile Exchange will have to provide more data about traders and adopt US position limits if it wants access to US customers. (6)

And on Tuesday 8 July 2008, the Financial Times surprised its readers with an editorial under the title “Dollar-pegged out” in which it argued that the Gulf needs to peg to something.
A first step (after revaluation) would be to peg to a basket of currencies that included the euro and the yen, said the editorial.

QUOTE from the Financial Times:
Countries such as the UAE cannot simply adopt a floating exchange rate, however. They are too small, and dependence on a volatile commodity makes it all but impossible to predict what their purchasing power will be the year after next, and what a sensible monetary policy might therefore be.
UNQUOTE (7)

To quote again from blogosphere:
The dollar-regime is inflating the price of oil-wealth to such an extent that price inflation in third-world countries is three times as high as in the west.
Oil-speculators are therefore not interested in the possession of oil as wealth, but only in concluding wagers over the oil price in order to tap its monetary surplus value.
Untapped oil reserves have therefore the same wealth-consolidating function as GOLD.
Hence, after de-pegging from the US dollar the GCC states should allow their currencies to freely float, with their oil and GOLD reserves also freely floating in the background. (5, again)

Or will it be argued that the Greenspan-Bernanke monetary policy was/is sensible, predictable and designed so as to fit the Gulf countries and the rest of the planet?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

NOTES

(1)
Daniels and Radebaugh, “International Business”, Addison Wesley, 1995, 7th ed., p. 168

(2)
Oil price shock means China is at risk of blowing up
By Ambrose Evans-Pritchard
Last Updated: 12:33am BST 07/07/2008

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/07/ccview107.xml

(3)
ENJEUX LES ECHOS : EN COUVERTURE – ENTRETIEN – VALERY GISCARD D’ESTAING
« La crise l’a prouvé : on ne peut plus laisser la mondialisation livrée à elle-même »
Enjeux Les Echos n° 247 du 01 Juin 2008 • page 050

http://www.lesechos.fr/vg/articles/3e/3e1bce0c.html

SNIP
Enjeux-Les Echos – Cette première crise financière du xxie siècle s’apparente-t-elle à celles qui ont traversé le siècle dernier ?
Valéry Giscard d’Estaing – Cette crise est la première grande crise financière de la mondialisation. Deux composantes distinctes l’ont provoquée : l’extravagante bulle spéculative du système bancaire anglo-saxon et l’affaiblissement continu du dollar. L’once d’or a dépassé les 1 000 dollars en mars dernier, alors que jusqu’aux années 70, sa parité était fixée à 35 dollars. Ce glissement remet en cause son rôle de monnaie de réserve. La fin du règne absolu du billet vert serait un vrai bouleversement pour l’économie mondiale, équivalent à celui de la fin des parités fixes en 1973. Depuis la Seconde Guerre mondiale, le système tournait comme un système solaire autour du dollar, reconnu comme un conservateur de valeur et un instrument de règlements et d’échanges. Cela a permis aux Etats-Unis de vivre avec d’énormes déficits puisque ceux-ci sont couverts par la rentrée annuelle de capitaux des pays acheteurs de dollars. Avec la baisse de la devise américaine, c’est l’euro qui, par défaut, subit une pression à la hausse et prend progressivement la place de deuxième monnaie de réserve mondiale. Or les Européens ne souhaitent pas que leur monnaie se valorise et qu’elle appartienne à des circuits monétaires éloignés de l’économie réelle.

(4)
Gulf states urged to rethink dollar pegs
By James Drummond in Abu Dhabi
Published: July 6 2008 20:43 | Last updated: July 7 2008 18:38

http://www.ft.com/cms/s/0/43b48840-4b1f-11dd-a490-000077b07658.html

(5)
Monetary policy as tool to combating inflation: DPE weekly report
July 6, 2008 by admin

http://www.dubaichronicle.com/?p=305

Gulf must ditch dollar peg – Abu Dhabi gov’t
by Dylan Bowman on Saturday, 05 July 2008

http://www.arabianbusiness.com/523827-gulf-must-ditch-dollar-peg—abu-dhabi-govt?ln=en

No ‘magical’ cure for UAE inflation
Emirates Business 24/7
06 July 2008

http://aa.mc536.mail.yahoo.com/mc/compose?.rand=337969744&uc=0

GCC urged to reconsider dollar policy
Published: July 05. 2008 10:58PM UAE / July 5, 2008 14:58 GMT

http://www.thenational.ae/apps/pbcs.dll/news_messages?Category=BUSINESS&Profile=1001&SectionCat=NEWS&ThemeID=2564&GroupID=651323&Dato=200807052258&lopenr=543385303

(6)
US futures regulator requires more Dubai data
Reuters – USA
WASHINGTON, July 7 (Reuters)

http://uk.reuters.com/article/oilRpt/idUKWAT00973320080707

(7)
Dollar-pegged out
Published: July 7 2008 19:49 | Last updated: July 7 2008 19:49

http://www.ft.com/cms/s/0/166e1cac-4c55-11dd-96bb-000077b07658.html

and the logic of letting the GCC-currencies freely float

Oil should be priced in Honest Money NOW.

The six members of the Gulf Cooperation Council (GCC) are Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.
They all peg their currencies to the US dollar.
Kuwait pegs its currency to a basket including the US dollar.
The five others only to the dollar.
Most of those five others seem to be in the process of de-pegging from the US dollar.
Of the six GCC-members, only Bahrain and Oman are NOT OPEC members.

The 6th summit of the leaders of the Developing-8 Muslim nations, also known as Group of Eight Islamic Developing Countries, and popularly known as the D-8, is being held from 4 to 8 July 2008 in Kuala Lumpur, Malaysia.
The theme of the summit is “Meeting Challenges Through Innovative Cooperation”.
The D-8 was set up in 1997 as an economic alliance with the objective of improving the position of Muslim developing countries in the global world economy through the diversification of their economies by creating new opportunities via increased trade relations.
Its eight members comprise Indonesia Bangladesh, Egypt, Iran, Nigeria, Malaysia, Pakistan and Turkey.
Iran and Nigeria are also OPEC members.
I understand Indonesia is no longer an OPEC member.

Rais Yatim, Malaysia’s foreign minister and D-8 chairman, was quoted by the Financial Times on Monday 7 July 2008 as having said on Sunday 6 July 2008 that the D-8 wanted the UN to lead efforts to bring down fuel prices because oil producers, particularly OPEC members, “do not seem to see the logic that by producing more oil they would reduce the price”.

TRUTH

Spontaneous logic is the order that the human intellect follows naturally in knowing reality.
For Thomas Aquinas, logic is the art that directs the reasoning process so that man may attain knowledge of the truth in an orderly way, with ease, and without error.

Logic teaches us that one of the assumptions missing in Yatim’s reasoning is that other prices in the economic system exist and remain unchanged.

Moreover, for the law of supply and demand to operate in the oil trade, the supply of oil must be exchanged through a medium of exchange for something the consumers of oil can offer to the suppliers, so that a price can be arrived at.
Supply and demand have to be meeting in a standard of value so that a price can be arrived at.

Oil is not being bartered on this planet (except perhaps by Venezuela).
Instead of barter, oil is being exchanged through trade.
The oil trade is being conducted with money,
money being a good that is readily accepted in a given geographical area and that is sought for the purpose of being re-exchanged.

At present supply and demand of oil are meeting in the US dollar, a currency which the inhabitants of this planet, outside of the USA, are more and more unwilling to hold and which they are thus not seeking (for the purpose of being re-exchanged).

Indeed, since 15 August 1971, when USA president Richard Nixon broke the Bretton Woods system, the US dollar has no value.
The dollar-regime is at present inflating the price of oil-wealth to such an extent that price inflation in the D-8 is three times as high as in the west.
Oil-speculators are therefore not interested in the possession of oil as wealth, but only in concluding wagers over the oil price in order to tap its monetary surplus value.

Hence, untapped oil reserves have, for oil producers, the same wealth-consolidating function as gold.

That’s why after de-pegging from the US dollar, the GCC states should not re-peg their currencies against a basket of world currencies but should allow their currencies to freely float, with their oil and gold reserves also freely floating but in the background.

In the meantime, if the D-8, with its OPEC members, Iran and Nigeria, really wants to bring down fuel prices, it should see the logic that oil producers, particularly OPEC members, will only be enticed to produce more oil if that which they receive in exchange for their oil-wealth has some value.
Why should they give their oil-wealth away for something which has no value?
To repeat, since 15 August 1971, when USA president Richard Nixon broke the Bretton Woods system, the US dollar has no value.

Oil should be priced in Honest Money NOW.

Ivo Cerckel
ivocerckel AT siquijor DOT ws

“We don’t accumulate greater WEALTH with this situation, it isn’t true,”
[OPEC, the Organisation of Petroleum Exporting Countries, secretary-general]
El-Badri told the [Spanish El Pais] newspaper in an interview published Wednesday,
reported the Saudi Gazette this week in an article under the title “OPEC tells US to stop harassment”. (1)

“No acumulamos más RIQUEZA con esta situación, no es verdad.” (2)

Now, we know that OPEC wants to accumulate greater WEALTH, not more US dollars.

The dollar-regime is inflating the price of oil-wealth to such an extent that price inflation in third-world countries is three times as high as in the west.

Oil-speculators are not interested in the possession of oil as wealth, but only in concluding wagers over the oil price in order to tap its monetary surplus value.

Hence, untapped oil in the ground has the same wealth-consolidating function as gold.

As Helen Thomas, Financial Times-Lex writer, puts it in her “Message from the Editor” in this week’s “Best of Lex”-column under the title “Crude awakening” in the Financial Times:
The soaring oil price is necessary to change behaviour in the face of dwindling supply. (3)

The World Petroleum Congress (WPC), held in Madrid this week, did not realise that the dollar is the cause of the speculation in oil prices.

Hence, the WPC saw no hope of oil prices decreasing (4),
the delegates being divided between consumer and producer countries on who to blame for the oil spice. (5)

Two articles published in the Sunday 22 June 2008 online editions of Arab News Newspaper explain why it is the USA, and its central bank, the Federal Reserve, with its dollar-debauchment policy, which is to blame for speculation in oil prices.

In an article under the title “Time for OPEC to defend its rights”,
Fawaz Al-Alamy writes that
as oil prices are pegged to the dollar, speculators realised that the actual price of crude is not really high compared to its nominal fixed market price. Therefore, purchasing oil becomes tempting in the eyes of investors transacting in other currencies such as the euro, yen and pound sterling. Instead of speculating with the dollar, investors alternatively speculate in dollar-denominated commodities, such as Oil and Gold. Hence, oil prices keep soaring, while the dollar continues sliding. (6)

Arab News also writes in its “Drive out speculators”-article
that
it is not OPEC members nor other oil producers who are to blame for the present wholly unjustifiable sky-high prices. Consumers must look nearer home. The problem started with investors in the main financial centres — New York, London, Frankfurt, Tokyo, Hong Kong and the others — as they searched for an alternative to the sinking dollar and began moving into oil. Prices started to rise. (7)

Instead of harassing OPEC, it is the USA itself which must take the blame for the high oil prices.

It’s the US dollar, stupid!

Since 15 August 1971, when US president Richard Nixon broke the Bretton Woods system, the US dollar has no value whatsoever.

Since that date, the US dollar is indeed a worthless piece of paper.

Ivo Cerckel
ivocerckel AT siquijor DOT ws

NOTES

(1)
OPEC tells US to stop harassment
Saudi Gazette report

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2008070310864

(2)
ENTREVISTA: La nueva crisis energética ABDALLA SALEM EL-BADRI Secretario general de la OPEP
“Muchos se están haciendo ricos con el mito de que falta petróleo”
ALEJANDRO BOLAÑOS – Madrid – 02/07/2008

http://www.elpais.com/articulo/economia/Muchos/estan/haciendo/ricos/mito/falta/petroleo/elpepieco/20080702elpepieco_2/Tes

(3)
Friday Jul 04 2008

(4)
Pétrole: le Congrès de Madrid s’achève sans espoir de voir les prix baisser http://www.romandie.com/ats/news/080703131556.0rff7mwd.asp
SNIP
MADRID – Le XIXe Congrès mondial du pétrole s’achèvait jeudi à Madrid sans espoir de voir baisser les prix, qui ont dépassé jeudi les 146 dollars, alors que les coûts de production explosent, que l’Opep refuse d’admettre un problème d’offre, et que les tensions géopolitiques dans le Golfe inquiètent.

(5)
Oil eases amid profit-taking after reaching all-time highs
Analysts warn upward trend remains ‘intact’
By Agence France Presse (AFP)

http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=93806

SNIP
Divisions between consumer and producer countries on who to blame appeared to sharpen at the World Petroleum Congress this week which brought together political and corporate oil bosses in Madrid.

(6)
Time for OPEC to defend its rights
Fawaz Al-Alamy

http://www.arabnews.com/?page=7&section=0&article=111106&d=22&m=6&y=2008

(7)
Drive out speculators
Arab News

http://www.arabnews.com/?page=7&section=0&article=111107&d=22&m=6&y=2008

So far for the ECB’s independence …

As announced in my previous post, the European Central Bank (ECB) governing council met on 03 July 2008.
The meeting was followed by a press conference announcing the interest rate decision and by a question and answer session with the registered journalists.
At the press conference, Jean-Claude Trichet, ECB president, announced that the rates had been raised to 4.25%.

Reuters quotes Trichet as having said in the question and answer session
that:
part of the present [oil] prices are coming from a CARTEL [and that] this is very, very abnormal
+
If we have a SUPPLIER-DRIVEN artificial scarcity then it is very grey and it has an impact which could be very grave. (1)

CEP News Frankfurt reports that Trichet also said in that question and answer session
that:
Today’s oil shock is DEMAND-DRIVEN, Trichet noted, adding that the oil price shock in the 70s was supply driven, engineered by OPEC. (2)

We clearly have a contradiction here, no?
And since Aristotle, the principle of non-contradiction says that it is impossible to be and not to be at the same time and in the same respect.

Contrary to what many authors argue, this principle, or law, is not applicable to reality, only to thought. Thought is submitted to it. Reality is not. (3)

How can there be such a contradiction in Trichet’s thought?

Trichet started his introductory statement of the press conference announcing the rate decision by saying that Joaquin Almunia, AKA Joaquin Almunia Amann, member of the European Union (EU) commission, dealing with economic and monetary affairs, had among others also attended the meeting of the ECB’s governing council.(4)
The EU commission is headed by José Manuel Barroso.

This is the same EU commissioner Joaquin Almunia who, says AFP, told the Spanish Vanguardia newspaper on Wednesday that
One can have an opinion on the decisions but one should not put pressure on (the ECB). Those who are trying to do that ought to know that it could backfire. (5)

Of course, as Ambrose Evans-Pritchard,
(who seems to think that the application of competition law by the EU Commission requires a political decision – by the EU council),
says in today’s Daily Telegraph,
for the EU commission,
competition law or antitrust law is something very important. (6)

And it was Trichet himself who said yesterday that EU competition law wants to eradicate all CARTELS.

However, as Trichet’s former colleague, Alan Greenspan, said more than 45 years ago:
The world of antitrust is reminiscent of Alice’s Wonderland: everything seemingly is, yet apparently isn’t, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet “too much” competition is condemned as “cutthroat.” It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as “enlightened” when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict — after the fact. (7)

Barroso, Almuni, and, as a result, Trichet and, to a less extent Evans-Pritchard, are uttering complete nonsense.

Evans-Pritchard says that article 82, formerly article 86, of the EU treaty is an obscure article.
However, anyone who has the simplest knowledge of EU competition law knows that this article is together with article 81, formerly article 85, one of the two basic articles of EU competition law.
Article 82 of the EU treaty, abuse of dominant position, VERY ROUGHLY (I am over-generalising, I know) corresponds to monopolisation as provided for in section 2 of the US Sherman act of 1890.
Article 81 of the EU treaty, dealing among other things with price-fixing and market distribution corresponds, VERY ROUGHLY (I am over-generalising, I know), to section 1 of the Sherman act.
At present there is a bill, numbered HR 6074, somewhere pending before the US congress. The bill would in part amend SECTION ONE of the Sherman act in order to be able to apply it OPEC. (8)
As I said, section 1 of the Sherman act VERY ROUGHLY corresponds to article 81 of the EU treaty.
Why does Brussels then want to apply ARTICLE EIGHTY-TWO,
which VERY ROUGHLY corresponds to SECTION TWO of the Sherman Act,
to OPEC?

Who wants to be more Catholic than the Pope?

Can you spell organised HYPER-INFLATION?

So far for the independence of the institution to which, as president Duisenberg said in his 2002 Acceptance speech of the Charlemagne price for Aachen, the citizens who own it have assigned,
by a contract binding the people of Europe to their monetary authority,
the task of protecting it. (9)

So far for its objective of price-stability …

Ni dieu, ni maitre!

Oh yes, you wanted to know how Trichet can argue that the present high oil price is both supplier-driven and demand-driven, at the same time and in the same respect?

Could the presence of a member of the Barroso-gang at the ECB governing council be the answer?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

NOTES

(1)
Trichet comments after ECB rate rise
Thu Jul 3, 2008 2:59pm BST

http://uk.reuters.com/article/businessNews/idUKECBNEWS20080703

(2)
Oil Crisis of 1970s Showed Importance of Price Stability, Says ECB’s Trichet
Thu Jul 3, 2008 10:38am

http://www.economicnews.ca/cepnews/wire/article/96476

(3)
Fernand Van Steenberghen, (F.-X. de Guibert, ed.), Philosophie fondamentale , Longueuil, Québec, Editions du Préambule, 1989, footnote p. 296:
Contrairement à ce qu’affirment beaucoup d’auteurs, ces principes [the principle of non-contradiction, the law of the excluded-middle and the law of identity] sont des lois logiques ou des lois de pensée comme telle et non des lois de l’ordre réel.

(4)
Introductory statement
Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB
Frankfurt am Main, 3 July 2008

http://www.ecb.int/press/pressconf/2008/html/is080703.en.html

SNIP
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.

(5)
Politicians, ECB chief square off as rate hike looms
1 day ago
FRANKFURT (AFP)

http://afp.google.com/article/ALeqM5iM7aAR8ZmyHXI33f7FZlMXTwYo9g

(6)
European politicians look to obscure article to curb speculators
By Ambrose Evans-Pritchard
Last Updated: 12:55am BST 04/07/2008

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/04/cneu104.xml

(7)

http://www.polyconomics.com/searchbase/06-12-98.html

(8)
The Bill provides, in part:
“The Sherman Act (15 U.S.C. 1 et seq.) is amended by adding after section 7 the following:
Sec. 7A. (a) It shall be illegal and a violation of this Act for any foreign state, […], whether by cartel or any other association or form of cooperation or joint action–
(1) to limit the production or distribution of oil, natural gas, or any other petroleum product;
(2) to set or maintain the price of oil, natural gas, or any petroleum product; or
(3) to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product;
when such action, combination, or collective action has a direct, substantial, and REASONABLY FORESEEABLE EFFECT [emphasis mine] on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States”.

(9)
International Charlemagne Prize of Aachen for 2002
Acceptance speech
by Dr. Willem F. Duisenberg, President of the European Central Bank,
Aachen, 9 May 2002.

http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

Why is oil still being priced in US dollar?

The late 1980s saw a growing movement within the European Community towards closer European union.
In December 1989, two intergovernmental conferences were convened pursuant to cooperation procedures introduced by the Single European Act of 1986 to consider the questions of (a) economic and monetary union and (b) political union.
The conference, which lasted for a year, resulted in the signing, at Maastricht, on 07 February 1992, of the Treaty on European Union or Maastricht Treaty. (1)

Article 109 of the Maastricht Treaty provides in section 2 that:
In the absence of an exchange rate system in relation to one or more non-Community currencies as referred to in paragraph 1, the Council, acting by a qualified majority either on a recommendation from the Commission and AFTER CONSULTING THE ECB [European Central Bank] or ON A RECOMMENDATION FROM THE ECB, may formulate general orientations for exchange-rate policy in relation to these currencies. These general orientations shall be without prejudice to the primary objective of the ESCB [European System of Central Banks] to maintain price stability.

The article was later included in Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, first as article 111, then as article 219. (2)

Article 219 of those consolidated versions now provides in its section 2:
In the absence of an exchange-rate system in relation to one or more currencies of third States as referred to in paragraph 1, the Council, either on a recommendation from the Commission and AFTER CONSULTING THE ECB or ON A RECOMMENDATION FROM THE ECB, may formulate general orientations for exchange-rate policy in relation to these currencies. These general orientations shall be without prejudice to the primary objective of the ESCB to MAINTAIN PRICE STABILITY.

The ECB Governing Council is meeting on 03 July 2008.
The meeting will be followed by an interest rate announcement.
The Council seems certain to raise rates to 4.25%.

Wanting to drive a wedge between the good administration of the euro by the ECB and the maladministration of the US dollar by the USA Federal Reserve,
by saying that the Bush administration is reportedly furious with the ECB for undercutting US efforts to stabilise the dollar and halt the oil spike in very dangerous circumstances,
Ambrose Evans-Pritchard,
International Business Editor of The Daily Telegraph, argued on 01 July 2008
in an article “Stagflation grips Eurozone as interest rates look set to rise”
that:
EU ministers have the ultimate power – under Maastricht Article 109 – to shape the eurozone exchange rate, giving them a backdoor means of forcing a change in the ECB’s policy. The implicit threat to invoke this clause is a warning to ECB hawks that independence has limits. (3)

THE EURO ALTERNATIVE

The euro came into being in 1999.

In 1998, the key question was still who decides whether or not a given orientation for exchange rate policy is consistent with price stability. In practice, the ECB [was thought to be] likely to decide for itself, but this could lead to a direct and damaging conflict with the European Council [of Ministers]. Moreover, it [was] not clear that the ECB would win such a stand-off, said Darren Williams and Richard Reid. (4)

Dr Tim Congdon was then arguing that the key element in common in the four arguments on the link between monetary and political union was the interdependence of fiscal and monetary policy. (5)

In his 09 May 2002 acceptance speech of the Charlemagne Prize for Aachen, the late Dr. Willem F. Duisenberg, the first ECB President, said that the euro is the first currency that has not only SEVERED ITS LINK to gold, but also TO THE NATION-STATE. (6)

This means that in a monetary union the power to formulate the single monetary policy for the single currency area is transferred from the national central banks of the participating Member States to a supranational level, the Union Monetary Authority.
In accordance with the principle of central bank independence, this implies that not only the Union Monetary Authority but also national central banks, have to be independent,
at least to the extent that they contribute to decision-making at the supranational level and the implementation of related operations.

Is there, under such a system, still room for a fiscal policy?

OIL SPIKE

[Realising only in 2007 what Duisenberg had said five years earlier,] Dr Paul De Grauwe had [in order to contest the Duisenberg statement] to revise his 2003 book “Economics of Monetary Union” so that the 7th edition of 2007 included a chapter discussing the link between monetary and political union, says the back cover. (7)

The chapter which runs from pp. 113 to 118 concludes that:
The long-term success of the Eurozone depends on the continuing process of political unification. Such a political unification is needed to reduce the scope for the emergence of ASYMMETRIC SHOCKS and to embed the Eurozone in a wider system of strong political ties that are needed to take care of the inevitable divergent economic movements with the Eurozone.

On p. 31, De Grauwe wrote however that it is the existence of NATION-STATES which can be a source of asymmetric disturbances.

The euro has however severed the link with these nation-states, said Duisenberg in Aachen in 2002.

How can disturbances then be caused by these nation-states?

Nevertheless, as Evans-Pritchard says, the USA is furious with the ECB because by raising interest rates the ECB would undercut US efforts to stabilise the dollar and halt the oil spike.

Upon assuming the EU’s presidency on 01 July 2008, French president Nicolas Sarkozy is furious with the ECB because inflation is, he says, caused by soaring oil and other commodity costs
so that by raising interest rates, the ECB will not fight inflation,
German Finance Minister Peer Steinbrueck insinuating that raising interest rates will only hamper growth. (8)

If we connect Evans-Pritchard’s interpretation of the USA furor with the Sarkozy-Steinbrueck furor,
we realise that
the USA says that if the ECB raises rates,
the OIL SPIKE will continue because US efforts to stabilise the dollar will be undercut
whereas
the EU presidency says if the OIL SPIKE continues, this will cause inflation.

Inflation in the Eurozone is thus being caused by US efforts to stabilise the dollar being undercut.
It is the oil spike which makes this causation possible.

Why is oil still being priced in US dollar?

Did we already forget that Community law does not only constitute a new legal order in international law, for whose benefit the States have limited their sovereign rights, albeit within limited fields (9),
but also that the essence of a common market stands or falls by ensuring a uniform effect of the relevant rules of community law in every member-state,
and that the priority or primacy of community law therefore derives from the very nature of this law (10)?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

NOTES

(1)
Josephine Steiner, Lorna Woods and Christian Twigg-Flesner, “EU Law”, Oxford University Press, 2006, 9th ed., p. 6

(2)
Official Journal of the European Communities, 2008/C 115/01

(3)
Stagflation grips Eurozone as interest rates look set to rise
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:20am BST 01/07/2008

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/01/ccecb101.xml

(4)
Darren Williams and Richard Reid, “A central bank for Europe”,
in: Paul Temperton, (ed.), “The euro”, John Wiley and Sons, 1998, 2nd edition, 123, p. 135

(5)
Tim Congdon, “Could EMU be Europe’s “Maoist leap forward”?”,
in: Paul Temperton, (ed.), op. cit., 187, p.188.
Congdon’s four arguments were (a) Budget deficits are related to money growth and inflation, (b) The need for political accountability, (c) “Seigniorage” accrues to national central banks and governments, (d) Political union and the protection of bank deposits

(6)
International Charlemagne Prize of Aachen for 2002
Acceptance speech
by Dr. Willem F. Duisenberg, President of the European Central Bank,
Aachen, 9 May 2002.

http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

SNIP
The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to Gold, but also its link to the nation-state.
It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of Gold five hundred years ago — that it was made for men and that it had its value by them — applies very well to the euro.

(7)
Paul De Grauwe, “Economics of Monetary Union”, Oxford University Press, 2007, 7th ed.

(8)
ECB takes flak on rates as France takes EU helm
Tuesday July 1 2008
PARIS, July 1 (Reuters) –

http://www.guardian.co.uk/business/feedarticle/7622163

SNIPS
The ECB faced renewed pressure to think twice about raising interest rates as France took over the EU presidency for six months on Tuesday, with Nicolas Sarkozy leading the charge.
The euro currency’s exchange rate was way too strong and ECB interest rates could not fix inflation caused by soaring oil and other commodity costs, French President Sarkozy said in an overnight television interview.
“Today’s inflation…is caused by exploding commodity prices so don’t try to tell me rates must rise to fight inflation,” the French leader said when discussing his plans for France’s presidency of European Union affairs.
+
German Finance Minister Peer Steinbrueck followed up with an appeal to the central bank to take account too of the threat to growth from an interest rate rise that would bring no quick fix to inflation.
Inflation hit a record annual rate of 4.0 percent in the euro zone in June, according to official estimates and the ECB is widely expected to raise its key policy rate to 4.25 percent from 4.0 when it meets on Thursday.
“Inflation is a problem … but there are no short-term solutions,” Steinbrueck said during a stock exchange event in Frankfurt..
“The ECB should consider which effects an interest rate rise would have on economic growth,” he said.

(9)
European Court of Justice, judgment of 05 February 1963, in case 26 of 1962, re: Van Gend and Loos vs. Nederlandse Administratie der Belastingen

(10)
European Court of Justice, judgment of 15 July 1964, in case 6 of 1964, re: Costa vs. ENEL