European Fracture

This year promises to be even more jarring than the last. The pace of change and the spread of unrest will accelerate. Hopefully, this will translate into a toppling of the neoliberal consensus that has ruinously governed the globe for the last thirty years.

Europe is in trouble. Birthplace of the West, it is fitting that change will start there. The Charlie Hebdo massacre will certainly benefit Marie Le Pen's National Front, already polling ahead in France.

"‘Dangerous Moment’ for Europe, as Fear and Resentment Grow," by Steven Erlanger and Katrin Bennhold, provides a useful snapshot of the spread of nativism in Europe. From Britain to Germany, mainstream political formations are unwilling to accommodate anti-immigrant demands, and this has led to the rise of far-right parties.

Couple this with the rise of the radical left -- hopefully Syriza will triumph in Greek parliamentary elections at the end of the month -- and Europe will shortly have to perform an ideological about-face or risk the disintegration of the eurozone.

All of this is taking place against a backdrop of deflation. Brent crude dropped below $50 a barrel yesterday (before closing at $51) and American producers are beginning to cancel orders for oil rigs. (See Clifford Krauss' excellent "U.S. Oil Producers Cut Rigs as Price Declines.")

Mike Whitney has consistently argued from the outset of the current oil-price drop that $50-a-barrel oil will rip through the U.S. economy, increasing unemployment and undermining banks loaded with energy-sector derivatives. He revisited this topic yesterday in "Oil Price Blowback: Is Putin Creating a New World Order?"

Whitney frames plummeting oil prices in terms of the New Cold War. Shortly after the Minsk ceasefire agreement was signed at the beginning of September, U.S. Secretary of State John Kerry visited Saudi King Abdullah in Jeddah. An agreement was struck to increase Saudi production and cut the price of its crude. The targets were U.S.-Saudi enemies Russia and Iran. On Tuesday, Whitney notes, the U.S. Department of Commerce announced that it was fast-tracking the sale abroad of lightly processed U.S. crude. Deflation looks to be here to stay for a while.

Deflation is not as catastrophic an issue in the U.S. as it is in Europe. The Federal Reserve can maintain its policy of quantitative easing. The European Central Bank is not in the same position since Germany is opposed.

The U.S. is able to do what it does because it carries European elites in its hip pocket. Just look at what happened in Ukraine last year. The U.S.-EU relationship is about to be roiled because Europe is going to fracture. Putin invested wisely in loaning money to the National Front.