What is the Ultimate Prize? (Part 3 of 3)

In my mind, even if the Euro fails, the dominance of Germany and the other German speaking nations is not going to end, nor is their desire to expand geographically. Given that Europe imports 54.1% of its oil consumption, the events related to the Arab Spring and the growing extremism in the region are pulling the western world back into the region. The US pulling out of Afghanistan and Iraq only serves to create added fear and angst about the stability of the region. My sense is that European nations are going to be quickly drawn to the region to reestablish political and military ties. Further, the Gulf States in the middle east are also deeply anxious about the Arab Spring, the events in Egypt, and the likelihood of Iran getting a nuclear weapon. With the US’ influence waning, it is going to be an opportunity for Western Europeans to take on an ever increasing role in the region. This, in my estimation, could lead to riffs in Europe. This is particularly true given the decline of the European Union, the rise of Germany and the continued resurgence of Russia. Moreover, with Russia and Germany moving closer together, the French and the English are getting increasingly uncomfortable.

While everyone is focused on the European Union, the shifting balance of power in Europe to Germany and Russia bears watching. Moreover, the turmoil in the Middle East is creating an opportunity for the resurgence of a political backdrop similar to what was seen earlier in the last century or even in the 1700 and 1800’s, where tussles for power between European powers reverberated to the “colonies” in the Middle East.

In my estimation, the decline of the EU bears watching. However, the spark that could fracture the landscape could be weakness of Southern Europe and the instability in the Middle East and North Africa. At some point, Germany will grow weary of its Southern neighbors and the “Germanic Block” of countries will leave the Euro. Further, I believe the true prize for German expansion is eastward, with Russia, and south into the Middle East and North Africa. It would create a military, economic, and natural resource block that will have enormous power and influence. I have to say, when we wrote the piece in 1998 for Invesco, we held these same views. However, at the time this strand of logic seemed even a little farfetched to us.