NC Crowdsourcing: Will the Euro Survive?

All eyes in finance are on Greece, as the poll-meisters are now predicting an inconclusive result to Sunday’s election, with New Democracy tipped to achieve a plurality but not a majority. This may still allow Syriza to act as a spoiler, and remember, it’s still within the realm of possibility that Syriza will score a win. The liveblog at ekathimerini has not been updated since Friday evening, but it will presumably have frequent reports on Sunday. The leading (and right wing) German paper FAZ reports that the ECB was fighting over whether to turn off the money supply to Greece. One has to assume the intent is to tell the Greeks that the rest of Europe is unwilling to negotiate with them (New Democracy has signaled that it won’t push hard; Syriza is taking a bolder stance, but since it has said it thinks leaving the euro would be really bad for Greece, its ability to negotiate effectively depends on being able to project the sort of vengeful unpredictability that Kissinger cultivated on behalf of Nixon [note that Kissinger merely had to tart up reality a bit…]).

Since many NC regulars read the European press, I’ll throw it out to you: what do you deem the odds of Euro breakup to be (with “breakup” defined as at least one country exiting the Eurozone) in the next month? In the next six months? And if you think it will come apart, but later, guesstimate how much later and why you think it will occur later rather than sooner.

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100 comments

  1. Bakasone

    Frankfurt here. My five cents: Whatever happens in Greece, the internal imbalance will destroy the Eurozone sooner or later. German stubbornness will accelerate this. I have a bet running that the eurozone as we know it will be history by the end of 2013.

    The majority in Krautland is convinved that they’ve been financing the lazy Southerners for years. People don’t get that the boom here was based on their willingness to work for less than other Europeans. No politician here can afford to offer Athens a compromise.

    1. brian

      Irish here.
      To be fair to the Germans, they have been paying for the rest of europe for the whole history of the EU.
      Also, the germans instituted reforms in 2003 (http://en.wikipedia.org/wiki/Agenda_2010) that were painful to plenty of people.
      Personally, i like the way that the germans i have met are not obsessed with money.

      1. Mac

        It is easy to be not obsessed with money if your situation is comfy. Which not obsessed group started the last two European war.

          1. proximity1

            “Banks” are what?

            Try this on– here’s a citation from which Ive deleted certain details so as not to immediately divulge the original context and thereby allow you, the reader to consider this as it may now appear to us today, within our present contexts:

            (terms in parentheses have been substitued)

            “(He) is, in a sense more important for (this nation) than (a leading national figure or), (another), (another), (another), or the generals. They all have, in a way, become the mere auxiliaries of the man who actually directs the giant power machine–charged with drawing from it the maximum effort under maximum strain…(elipses in the original cited text). In him is the very epitome of the ‘managerial revolution.’ ”

            “(He) is not one of the flamboyant and picturesque (members of the elite). Whether he has any other than conventional political opinions at all is unknown. He might have joined any other political party which gave him a job and a career. He is very much the successful average man, well dressed, civil, noncorrupt, very middle-class in his style of life, with a wife and six children. Much less than any of the other (national) leaders does he stand for anything particularly (national) or particularly (partisan). He rather symbolizes a type which is becoming increasingly important in all (of this sort of) countries: the pure technician, the classless bright young man without background, with no other original aim than to make his way in the world and no other means than his technical and managerial ability. It is the lack of psychological and spiritual ballast, and the ease with which he handles the terrifying technical and organizational machinery of our age, which makes this slight type go extremely far nowadays… This is their age; the (named notable leaders(s)) and the (other named notable leader(s)) we may get rid of but (the types like this fellow), (they) whatever happens to this particular special man, will long be with us.”

            And, I’ll just close for the time being by observing that this last prophetic remark has proven to be all too true.

            Now, what does the above profile bring to mind to you, the reader here?

            Tomorrow or later, if no one beats me to it, I’ll post the “key” to the excerpt, filling in the parenthetical omissions to reveal to whom and to what the text’s writer was referring.

            ———–

          2. LeonovaBalletRusse

            Jacques Ellul: “The Technological Society” and “Propaganda” — we can’t say we weren’t warned. Humans have forfeited their birthright to a humane society just as Esau forfeited his birthright to Jacob for a “mess of pottage.”

          3. proximity1

            Here’s the “key” to the excerpt from Sunday, 17th’s post:

            “((Albert) Speer) is, in a sense more important for (Germany) than (Hitler), (Göring), (Goebbels) or the generals. They all have, in a way, become the mere auxiliaries of the man who actually directs the giant power machine–charged with drawing from it the maximum effort under maximum strain…. In him is the very epitome of the ‘managerial revolution.’ ”

            “(Speer) is not one of the flamboyant and picturesque (Nazis). Whether he has any other than conventional political opinions at all is unknown. He might have joined any other political party which gave him a job and a career. He is very much the successful average man, well dressed, civil, noncorrupt, very middle-class in his style of life, with a wife and six children. Much less than any of the other (German) leaders does he stand for anything particularly (German) or particularly (Nazi). He rather symbolizes a type which is becoming increasingly important in all (belligerent) countries: the pure technician, the classless bright young man without background, with no other original aim than to make his way in the world and no other means than his technical and managerial ability. It is the lack of psychological and spiritual ballast, and the ease with which he handles the terrifying technical and organizational machinery of our age, which makes this slight type go extremely far nowadays… This is their age; the (Hitlers) and the (Himmlers) we may get rid of but the (Speers), whatever happens to this particular special man, will long be with us.”

            — original from The Observer (of London), 9 April, 1944; as cited in Inside the Third Reich by Alber Speer, (1970 ,Macmillan, N.Y.,)

          4. Jeff N

            American banks certainly funded Hitler pre-war; they liked the higher interest rate Germany was willing to pay.

  2. Nathan Tankus

    There is a sense of doom now about the euro. this same sense of doom was around two-two and a half years ago. Germany will pull it together for a little longer. I am expecting a euro breakup in 2013.

  3. Diego Méndez

    I’ve been wrong about almost everything in the past two years, so please take my advice with a pinch of salt.

    I think Europe means much more than finance. It means peace, culture and a new model for the world. Leaders have Europe dear in their hearts.

    We’ll get almost to the edge of the cliff, but we won’t jump. The whole Southern Europe will have to be intervened (much like Greece) and will suffer from mass unemployment for many years. Salaries in the private sector will necessarily fall down (via urgent decrees), and debt will get a haircut.

    However, if we can avoid an accident, the EU and the euro will survive. And that means peace for our children.

    1. IsabelPS

      Lisbon here (sort of). I agree with Diego. The EU politicians will do the right thing after they’ve exhausted all the alternatives, as Churchill put it. For the shortish term I expect them to come up with some weird legal contraption, never tried before, to keep Greece in a limbo, nor in nor out. For the long term, both debtors and creditors will do their part, kicking and screaming, for the couple of painful decades that it will take to reequilibrate the whole thing. Penso eu de que.

      1. carol

        Isabel,
        why accept “for the couple of painful decades ” ??

        If the cooperation of people in the various countries of the European continent had been allowed to continue, there would be no need of a “couple of painful decades” for the 99% !!

        There used to be a lot of cooperation within the EU (27 european union countries). Now we see a lot of hostility between the 17 euro countries.

        Countries that allowed its people a referendum on the euro stayed out. Politicians in other countries, knowing that the people would vote the euro down, decided not to hold a referendum.

        Europe is a continent, with many countries, languages (!!), cultures, huge differences in levels of corruption (see recent study by Transparancy International) etc.

        If Brussels had forced a single language on the people, in order to communicate easily with each other, how would that have worked out? Why force a single currency on the people? In return “for the couple of painful decades” ?

    2. Jose

      Suggested correction:

      …and that will mean certain poverty and uncertain peace for our children of peripheral Europe.

    3. Lambert Strether

      I agree, with Jose’s caveat, as long as we consider the Parisian bainlieu (and like zones of contention) as peripheral.

      In general, I prefer this outcome to Europe’s soil being soaked in blood yet again, but that’s not to say that the outcome is democratic or especially just. Those questions are yet to be decided, one can only hope not by the elites.

      I wonder when Obama will offer to sell the EU miniature drones? Or did I not get the memo?

      1. carol

        Lambert,
        “In general, I prefer this outcome to Europe’s soil being soaked in blood yet again,”

        Do you sincerely believe that would have been a possible route, if the euro had not been created?

        If not, than the current misery cannot be offset against worse misery that would never have happened.

        If the euro would not have been created, but the EU would have continued with cooperation, wouldn’t the people in Europe be much happier? Look at the people in Denmark, Sweden etc.

        1. Lambert Strether

          “If the euro would not have been created, but the EU would have continued with cooperation…”

          I’m not sure that was possible. And it’s not clear to me how the EU backtracks from today to that alternative.

          1. carol

            Off course, that would have been possible.

            There was cooperation, trying to tackle supernational problems (e.g. environmental pollution, which does not stop at borders).
            There was a sort of fixed exchange rate mechanism. Companies and people could do business in other countries and knew the exchange rate. Only on a few occasions, i.e. much less frequently than before, did a currency devalue.

            Look at the 10 countries, all members of the EU, which do not have the euro. It could, and should, have been all 27.

      2. proximity1

        But the one element (i.e. “this outcome”) doesn’t necessarily preclude the other (i.e. “Europe’s soil being soaked in blood yet again”); and, as already seen, in Greece, for example, certain soil has already been soaked with a certain amount of blood–real enough and precious enough to the people it belonged to even if not by many orders of magnitude the kind of blood loss you allude to.

        This time, if and when elites provoke war or something like it, will average people put themselves at the disposal of such conflict as they have usually done time and again through history? In other words, have Europeans learned anything from their bloody history? Or, will they again allow an elite class of profiteers to again resort to war to artificially simplify (seemingly) complex issues and divert attention and resources and responsibility-bearing away from themselves as the key agents and parties which have created the financial “crises” –springing from their prior undoing of the potential (however remote in fact) of an actual partial realisation of democratic practices?

        1. Lambert Strether

          True. And I’m not there, but it’s easy for me to say.

          That said, Flanders Fields isn’t Serbia by a long shot.

          And nationalism can be awfully powerful.

          1. proximity1

            And that’s just the point.

            We can’t confidently suppose that this outcome will mean that another eventuality won’t also come about as well—and that, in this case, the very nationalism you mention could (as usual) be played on by the various political elites to foment the disorder that comes despite ‘this outcome,’–itself, as you remark, lacking in justice and democratic character.

            Just as I was trying to point out.

        2. Fiver

          While anything is possible, the odds of any war between any 2 or more members of the EU anytime soon are exceedingly remote unless as part of, or subsequent to, a larger system breakdown involving the US’s Global Corporate System Inc (and NATO) – which will come barring something of a miracle, but somewhat further down the road. Until then, a great deal more than a saved or buried Euro is required to trigger a war.

          In any case, the money spigot is going to be opened wide again short term, there will be substantially more assistance for the periphery, and Germany will in the end be praying along with everyone else who cannot conceive a different world (the vast majority) that some very large money bombs (monetary and fiscal) finally work in the US – else they (Germany) foots the bill.

    4. They didn't leave me a choice

      Bah, the only thing the EU means anymore is a slow grinding poverty and death for our children. Scratch that, a slow grinding poverty and death for my generation. Will a civilisational collapse finally save us from this hell? Can we at least have the end be quick and relatively painless, please?

    5. LeonovaBalletRusse

      If Germany can learn the difference between dominance and leadership, the EU may evolve into a great Continental State.

      1. They didn't leave me a choice

        What the hell is wrong with you yank megalomaniacs and your obsession with building europe into a state? Just let it die already. It’s not a state and it will never be a state.

  4. IF

    I would prefer to call the FAZ center right. Wikipedia seems to agree: “slight centre-right or conservative bias”
    http://en.wikipedia.org/wiki/Frankfurter_Allgemeine_Zeitung
    They certainly allow for a variety of opinions.

    As for your question. I assume Greece will go de facto but not de jure dual currency during the next year. The reason they won’t “leave” the Euro officially is that there is no benefit to declaring it. As soon as they do the ECB cuts all the lifelines (nobody would be able to keep withdrawing shiny Euros from the ATMs anymore – and who would want that?). Creating scrip (if you want to call it drachma) is a completely different story. California has done it. Repeatedly. Green eyed monster still in my wallet last time I checked.

    It will take the country of Spain 3-5 years to numerically go bankrupt. I don’t know about Italy. They have a head start but move slower. And Germany has been writing checks whenever needed. Of course the checks have been going to the banks, not to the populations. I assume at some point politicians will create Paneuropean work programs (Arbeitsbeschaffungsmassnahmen, if you want to learn a long word). With that things can drag for a long time. Nevertheless I assume significant shrinking of the Euro zone in 3-5 years or later.

    I know you keep expecting a much faster process, but these trillions have been virtualized. The banks are not going to collapse. ECB and Germany will keep printing. Just not enough to keep growing. Elites payed off, hence no discontinuity. Sadly, the European south will get deindustrialized from the bottom up like East Germany after unification. The banks are made whole and the population maybe get bread crumbs. The only way to accelerating the Euro exit is to organize politically. I don’t see this happening. Maybe we will see the start tomorrow in Greece? I would be surprised.

    1. JTFaraday

      “Of course the checks have been going to the banks, not to the populations. I assume at some point politicians will create Paneuropean work programs (Arbeitsbeschaffungsmassnahmen, if you want to learn a long word).”

      That’s because it takes that long for arbeit to macht frei.

      “With that things can drag for a long time.”

      You said it!

  5. Hilary Barnes

    The euro system has so many flaws, and each new attempt to patch over the flaws, such as the EFSF or mutualised euro bonds, seem to come with new built-in flaws, that it is difficult to see the system surviving beyound 2013. But it is not entirely impossible that the feel of the hangman’s noose will jolt Europe’s leaders into working out a holding plan that gives them time to implement a plausible federalisation of fiscal policy, a banking union, and a “real” central bank. That might even convince European voters.

  6. Alan

    Pretty much all the solutions advocated involve printing to infinity. That won’t work for long. Remember, the ECB gave the banks a trillion at 1% to buy what, 4 months? I think the Eurozone is irreparable, but they can prolong the agony for a few years, at best.

    As fast as Greece goes, it’s all classic creditor propaganda. They can’t risk having a country leave, and they won’t allow it, no matter the rhetoric. All the professional reports also put the risk of losses in the trillions. We also had one or two rating agencies say that the moment it happens, they will downgrade all eurozone countries. Besides, what Brussels and politicians say has been totally irrelevant for 2 years now, we have lost count of the u-turns a long time ago. So, if Syriza wins and plays hardball, Greece might get a chance, a real chance to stay in the eurozone until the whole thing implodes. If ND wins, it’s over for Greece, early 2013 at the latest, before others follow suit.

    In my opinion, the eurozone disintegrating will be a good thing. I don’t believe I’m saying that, because I really thought the project was inspiring and historic, but this whole fiasco proves that financial short-sighted interests rule to the detriment of taxpayers in Europe too, governments still look at narrow national interests missing the big picture completely, educated electorates like the Germans can still fall for childish morality plays, incompetent bureaucrats always lose touch with reality, and a historical high in European unemployment deserves hardly a whisper of sympathy from Europe’s elite, let alone any plan of action.

    Screw that. Back to a common market. Maybe next time they’ll try to make it work for European citizens instead.

    1. Hubert

      Basically agree with what you say, but “educated electorates like the Germans” – please !
      Germans subsidize state media with 15 billion Euros p.y. just to listen to low-grade BS that political PR departments are spitting out. Only in the comments sections of FAZ or from sometimes in “Der Spiegel” one can get kernels of truth. But you really have to search for it …..

      1. Alan

        Carol, this was all in context to the rhetoric about cutting Greece’s funding if Syriza was elected and insisted on a new program for Greece, which is classic creditor hardball. Not all the reports were from banks btw, and I had in mind the latest by Aviva investors mentioned in the Guardian, which estimated the losses at 3.5 trillion. Nomura had a report for 1.5 trillion. And so on. In any case, and with Obama making clear he wants no surprises until his election, my point was that the threats to Greece were not credible.

        Also, your assumption that because nothing happened when a ratings agency cut the US it would be the same for the eurozone countries is wrong. The eurozone is not the US, and we’ve seen what happens after every cut, be it for the sovereign or their banks. No love for the ratings agencies here, I consider them as corrupt as anyone in finance, but the point is that the last thing Brussels or politicians need is more cuts, again pointing to the fact that their threats to Greece were empty.

    2. carol

      Alan: “All the professional reports also put the risk of losses in the trillions. ”

      Are you refering to the many report from banks? That makes these report highly subjective as the banks stand most to lose.

      Plus, what are the cummulative costs the coming years without a break-up? In addition, what are all the non-financial ‘costs’ if the euro remains?

      “.. rating agencies …”
      Are you by any chance referring to the same rating agencies which in 2006 gave some 22.000 financial products a AAA rating?

      They are up or downgrading, just trying to maximize their profits. What happened with the US after ‘the downgrade’? Record low yields?

    3. Fiver

      All the major players have had 2 years to prepare for a Greek exit. It has no leverage at all in this, and exit would simply be cashed in on by Mr. Market like every prior “turning point” in this ongoing money-pump upwards while standards of all sorts sail to the bottom.

      Greece has been the example set not just for Europe, but for the “civilized” world, the “West”, the “developed world”, or whatever you want to call it. That lesson is:

      If you are not in the top 20%, and thus able to participate in the highest value-added industries, you are either badly screwed, or totally screwed.

      1. Alan

        You are mistaken. The “we are prepared” mantra is classic creditor propaganda. The intensity of the threats prove this, if the estimates coming from all major investment firms (the “market”) did not convince you.

        In order for the creditor nations to avoid losses in the trilllions, the EZ has to stay intact. If not, the losses will be realised. Start by looking not just at sovereign debt and bank exposure to the periphery, but also at Target 2. Then consider what higher EZ disintegration probability after a Greece exit will do to the world economy. Which also explains the G-whatever nations ganging up on Merkel to stop playing high stakes poker and start moving “the engines” to keep the EZ together.

        Otherwise, we agree on the example set and the overall game.

        1. Fiver

          Familiar with all that, and stand pat. This is about how elites can extract maximum wealth and exercise maximum power. Elite HQ is the Wall Street/Washington complex, which, as we all know, took power out in the open, in a bloodless coup formalized by the post-Lehman extortion for trillions and emergency power carte-blanche.

          They’ve been playing the same game ever since, and the “market” is weapon of choice. If there was any real threat to the integrity of the overall system due to this debt crisis (as opposed to acute crises coming from other sources), the solution always was to close markets except for an approved list of essentials, and work from there in a controlled, determined, absolutely no bullshit manner, as has taken place prior to WWI and during the Depression. The CB’s, top banksters, and top technocrats/policy planners all know it. The politicians largely don’t, being in general about as ignorant as the public in general, so continue to act like rabbits caught in the headlights every time the “market” (owned and operated by the criminals) says “boo”.

          Steve Keen and many, many others have approaches to handling the debt mechanics. A solution is entirely do-able, but there is zero political will in the US – which means only a voluntary decline in standard of living as part of withdrawal from the US global financial complex could possible work. We’re all headed that way in any case (i.e., less affluent life styles). I had hoped Greece would choose freedom and shared “frugality” while building a truly sustainable future, but as we’ve witnessed, they were bombarded by “end of the world” crap – give it a couple more years, and the next big blowdown (late 2014 I figure) and the day will come it doesn’t work anymore. THEN we’ll see just how fast solutions arrive.

  7. Ovidiu R

    Chance of breakup in a month: 10%.
    Chance of breakup in 6 months: 20%.
    Chance of break in over a year: 50%.

    I believe in the short term the politicians patch work will by some more time, but without a change in course, the chances of a breakup increase. Spain and Italy are going downhill and Europeans everywhere are becoming frustrated. The good solution would be more integration but people don’t want it. For now people don’t demand disintegration, so the politicians can still work on solutions. When we will have the Dutch, the Fins or the Germans opposing the EU project in high numbers (more than lets say 70%) we will have our game over.

    1. surfwalker

      Oh yes, the standard bullshit that “conservative” in Europe is to the left of “liberal” in America. FAZ is very much on the right right wing.

  8. Hubert

    They (TPTB) will keep the game going as long as they can. This will cause even much more damage than a break-up would now.
    The US does not want a Euro break-up here and now. The Power structure in Europe itself would not survive it much longer. The ECB would abolish itself (these things rarely happen)…
    At the same time the Euro brings back all those bad feeelings from the past and has destructive consequences: First in the credit boom (real estate in Greece, Spain …), now in the bust (all including Germany going bankrupt).
    System-wise there is nothing to hope for. Just look at Italy´s historical development: As one could not change the culture of Mezzogiorno by money from Rome and Milan, even less it can be changed from Berlin or Brussels.
    Southern Europe will just become a subsidized, even more corrupt zone.

    So how long will this process last? Not until 2020. National identities are strong; Language and nationality will provide the avenue for payer-countries to end the charade or for debtor countries to default.
    Greece will drop out first or be thrown out, probably after the US elections.
    They will herd the rest for as long as they can – my guess would be 2014-2017. And they will do it by massively inflating. A flight into real assets will stabilize the banking systems somewhat.
    But these situations are so dynamic that nobody really can say …. I both hope and fear that it will end earlier …..

    PS: FAZ really not a right-wing newspaper. On the US spectrum it would count as fairly “leftist”.

  9. E Berlin

    I have one German euro riding on a breakup by June 30th, a bet I placed last December, with a British friend of mine taking the other side. I am dismayed I have come this close to winning, but I still think I might lose. While the Greek political situation loomed as a big threat to monetary union when we entered into the wager, I also partly did it because I always lose at this kind of bet, and figured that the euro could use every little bit of superstitious encouragement at this point. We’re all glad I’m not in finance.

    1. Hubert

      FAZ is left of NYT in its political/economic outlook.
      Sarrazin is a member of the SPD, honest, upright technocrat with the rare courage of going against PC establishment. Sarrazin is NOT right wing even if the Political Establishment tries to paint him into that corner. His new Euro book is deeply analytic, not a trace of right-wing to find in there.
      If FAZ publishes an Op-ed from Sarrazin, why in hell does that make it “right-wing” ? Those statements are political smear-associations.

  10. Joe

    I have no idea about what the future of the EU shall be. There is no consensus and, in any case, there is no clear course of action. That would seem to indicate to me, that the so-called debtor countries will not be kicked out.

    Whether or not Greece or even Spain or Italy will decide to leave the EU, I don’t know. It really would be in their best interests to do so but they seem paralysed at the moment.

    It is fascinating and frightening to see that there is not even a serious discussion about breaking up the big financial institutions that are playing such a crucial role in the current crisis.

  11. Joe

    The FAZ is most certainly a centre-right, if not down-right right-right newspaper. Go read the comments section on any of the Euro related articles, or perhaps more tellingly in relation to multiculturalism, immigration, etc.

  12. proximity1

    I would really love to read comments that first set out what the writer takes as his or her premises–the assumptions on which the rest of the comments depend. That needn’t be done every time–these could be written up once and referred to via a hyper-link for those who haven’t already read them and wish to know.

    E.g.: What are your working assumptions behind your beliefs—that the Eurocurrency zone will /won’t soon/late fall apart/hand together?

    E.g. : What do you see as the various forces at work, what do these seek to accomplish, by what means (actually in their possession) and why– i.e. what are their main motivations?

    Who are their adversaries? What are their motives and their resources for thwarting the aims of others opposed to them? & Etc.

    ———————————–

    My premises include the assumptions that, among other things,

    The Euro or no-Euro is an epiphenomenon and issue; other more central issues should be taking precedence in our discussion. Namely, the most basic premises of the world-wide economic order are and have become seen to be a flagrant failure–by members of the political and economic elite themselves. Their efforts to date have been more and more desperate attempts to shore up a system which is no longer tenable even as a supporting mythology.

    Bankrupt banks are being asked to lend (in the form of bond-purchases) to governments which are, in themselves and in their central banks, also bankrupt, and the bonds are supposed to be bought with money lent by the bankrupt central banks to other bankrupt banks who lend it to corporate financiers who are themselves bankrupt. Ultimately, this is underpinned by private corportations who continue a decades-longs disinvestment in their own national economies as they’ve shipped their investments, factory construction and jobs to foreign sites where goods are produced and imported to the same local economies which have been devastated by widespread disinvestment, job-loss and wealth concentration at the top .01% of the income scale.

    How such a clearly self-destructive and self-defeating set-up could ever have gained even a modicum of credibility is a question that concerns us as an issue in not only politics and economics but, more urgently as psychology and, especially, sociobiology, which must ultimately be involved here. A start at an understanding has to in part mention that there has been such an extreme specialization in the professions and for such a long time, that there is almost no knowledge at all of basic plant and animal biology, of basic sociobiology and of essential facts of genetics and evolutionary biology. In their places there is a certain set of wildly erroneous folk-beliefs about some of these fields but little or no real valid knowledge of them. In a field that is in its most intimate essence a field of human society, economists know and learn practically nothing of sociology, anthropolyg, biology and genetic sciences. It’s amaing, it’s absurd, and it’s at the root of our amazingly defective system of professional life, both commercial and academic–though these have long been hardly distinguishable as education has been run for so long by strictly commercial standards and assumptions.

    Those paying attention (that includes probably most, though not necess. all who read this site regularly) have recently witnessed one of the most spectacular debâcles in living memory as far as the prevailing economic mythology is concerned. The market catastrophe has demonstrated (though only to a relative few and to almost none of those who gain most by it and are most personally invested in its continuation) that the theoretical premises are (again) a bunch of nonsense.

    But what’s just as interesting is how this disaster has produced almost nothing in apparent practical damage to the economic mythology. Not only do the myths presist widely in public beliefs, their “apologists” aren’t offering any apologies –rather, they’re going on, taking advantage of what they see (apparently correctly) as opportunities to consolidate power, to take over weaker market players, etc. That, in practical terms is what the melt-down represents–the chance for more powerful players to eliminate/ take over their former “competitors”–such as they were.

    And this imperviousness to what ought to be a glaringly discrediting set of circumstances points up just how complete is the absence of any counterweight in practical and theoretical opposition to the mainstream economic mythology. A “left-wing” counter-view has it seems done nothing, gained nothing, “won” nothing in greater appreciation on the part of the public (here I have mainly the U.S. public in mind) concerned.

    We should also (somewhere) be trying to address some of these facts.

    It’s interesting that, even as its major defenders carry on with the job of publicly defending the theoretical mythology that underpins their self-serving political-economic system, among themselves, some at least recognize that this theoretical construction is a shambles and fully discredited and simply, they don’t know what to replace it with. They’ve learned—some to their dismay and shock–that markets aren’t rational, even if they can falsely seem to be at times; that, instead, they’re aggregations of more or less ignorant individual actors invovled in a guessing game about the next minute’s or hour’s, or afternoon’s, day’s or week’s “movements may be in a stock, bond or currency.

    Moreover, and perhaps most of all, they’re more and more aware that the utterly corrupt character of the financial and banking systems which they’ve enjoyed gaming to their immense profit simply cannot be maintained–not because insight and wisdom have mounted effective social and political opposition to this rigged casino, but rather because it has simply exhausted itself and even the players themselves can no longer muster the required suspension of disbelief in the phony workings. People who were used to believing in their own press-releases and propaganda can now no longer believe in them and this has meant a very real and serious ideological crisis for them.

    I seem to recall recently there being some comment somewhere in these threads about how it’s not really necessary that people have beliefs, that is, that if they chose to, they could in effect believe in “nothing”, nothing at all. The current crises should show us just how false and absurd is such an idea. People have to believe in something, some set of organizing principles by which they “make sense” of events around them in the world personally and, at further removes, in the national and international scene. To believe in nothing is simply not an option, and certainly this includes moral as well as political and economic beliefs.

    It isn’t just that certain centrally-held beliefs about a prevalent economic mythology have (once again) collapsed, it’s that these beliefs have collapsed among certain of the very people most personally and directly concerned in going to work every day and maintaining a national or internation political and economic order based on those now (again) discredited beliefs.

    There seem to me to be only two ways to interpret Chancellor Merkel’s position: either she remains sincerely convinced of the soundness and pertinence of the course she insists on (in which case she is profoundly ignorant of facts all around her which discredit her beliefs) or, she is desperately trying to present an insincere front–perhaps because she’s terrified of the consequences if she does not. This suggests that there may be some mixture, some psychological denial also going on on her part and that of others like her.

    Bankers must know to what extent their banks are bankrupt; some of them must also have told some of the top political leadership concerned, too. But there’s a continued effort in make-believe, a stubborn denial which assumes that if enough people are resolute enough in their denial of facts, things needn’t come (or continue to come) crashing down around them / & us.

    1. IsabelPS

      “…there has been such an extreme specialization in the professions and for such a long time, that there is almost no knowledge at all of basic plant and animal biology, of basic sociobiology and of essential facts of genetics and evolutionary biology. In their places there is a certain set of wildly erroneous folk-beliefs about some of these fields but little or no real valid knowledge of them. In a field that is in its most intimate essence a field of human society, economists know and learn practically nothing of sociology, anthropolyg, biology and genetic sciences. It’s amaing, it’s absurd, and it’s at the root of our amazingly defective system of professional life…”

      Hear, hear! I keep saying that economists should learn biology before leaving college. And also some psychology: why on earth should markets be “rational” if all important human decisions are emotional?

      1. proximity1

        I’m glad that you could find your way through this, my clumbsy construction, and recognize that I intended,

        “…there has been such an extreme specialization in the professions and for such a long time, that there is almost no knowledge at all among economists of basic plant and animal biology, of basic sociobiology and of essential facts of genetics and evolutionary biology. In their places (i.e. instead of such knowledge imparted to students of economics) there is a certain set of wildly erroneous folk-beliefs about some of these fields but little or no real valid knowledge of them. In a field that is in its most intimate essence a field of human society, economists know and learn practically nothing of sociology, anthropolyg, biology and genetic sciences. It’s amazing, it’s absurd, and it’s at the root of our amazingly defective system of (educating) (elites for their) professional life…”

        (revised)

        thanks for your appreciatiev response and I say, in return, Hear! Hear! for your:

        “I keep saying that economists should learn biology before leaving college. And also some psychology: why on earth should markets be “rational” if all important human decisions are emotional?”

        If we don’t insist on changes in economics education, and particularly the prevailing technocratic mythology taught in virtually all the elite graduate programs in finance, management, etc., the professionals such programs produce are going to continue to wreak havoc upon societies everywhere with their simplistic and in humane rationalistic ideologies.

    2. Christophe

      Proximity1,
      Thank you for sharing the parameters of your current thinking. Your interest in the sociological and philosophical questions begged by our unfolding crisis is refreshing. As is the thoughtfulness of your post. Rather than predict the future, you prod the wreckage of the present to understand how and why a system this dysfunctional and fragile developed and persists. No better method of soothsaying exists.

    3. Murky

      Hi Proximity1. Wow. Many words. Most of us will agree with the starting points in your discourse. That the “world-wide economic order”, as you phrase it, is a “flagrant failure”. That banks and governments are bankrupt. That a casino model of banking is the current standard. And that the welfare of ordinary people has been placed at grave risk. Nobody is going to challenge you on these points.

      Other content in your post is less clear. You write at length about an underlying capitalist mythology, but you never state explicitly what the mythology is. Even a single sentence of definition would boost your argument. And sure, ‘myths’ are false. It’s an easy target when you call something a ‘myth’. But it’s a lot harder to prove that an entire ‘ideology’ is wrong, and that’s what you are up against. I agree with you that economists have created such ideologies, legitimizing predatory varieties of capitalism. But I don’t think the cure-all is to have economists trained in secondary subjects of sociobiology, sociology, psychology, and genetics. But you are right enough just to point to deficiencies within current economic thinking. You say that there is no good counterweight to the prevailing mythology, but I don’t think that is true. At the academic level there is a currently a fantastic outpouring of first quality economic literature as a direct result of the financial crisis. And among the broad public there is a persistent anger over loss of jobs and homes; people are coming around to understand that the system is broken. And when you refer to the apologists of predatory capitialism, why not tag a few bad guys by name? It can be fun taking solid shots at people like Geithner, Summers, and Milton Friedman. I hope you get my point. Detail specifics when you can. Overall, though, I think you’ve got the story right. Were in a bloody fight with predatory capitalism. And we have to change people’s belief systems to win. On these points we stand solid.

      1. proximity1

        RE:

        You write at length about an underlying capitalist mythology, but you never state explicitly what the mythology is. Even a single sentence of definition would boost your argument. And sure, ‘myths’ are false. It’s an easy target when you call something a ‘myth’. But it’s a lot harder to prove that an entire ‘ideology’ is wrong, and that’s what you are up against. I agree with you that economists have created such ideologies, legitimizing predatory varieties of capitalism. But I don’t think the cure-all is to have economists trained in secondary subjects of sociobiology, sociology, psychology, and genetics.

        Let’s set aside right away thoughts of any “cure-all’s” as I don’t propose one nor see one as possible. Teaching economics students some sustantial knowledge of evolutionary biology, genetics, plant and animal natural history and ethology

        ( Ethology http://en.wikipedia.org/wiki/Ethology ) in a number of unrelated animals. )

        in one combined or several diverse formal courses taught by competent professors of such subjects as a regular part of the undergraduate study of all students and, especially, of any graduate curriculum addressed to students pursuing a graduate degree in economics, finance, business management–that is, any degree awarded by a MBA program or graduate business school–is not proposed as a “cure-all” but as one element among several in any attempt to address the fact that those who are given entry to such top training programs and who typically go on to hold places on the elite track in finance and business management have been doing so without any deliberate acquaintance with a range of other important knowledge about the world; and, in this instance, I’m addressing the ignorance of such areas of natural sciences as being one of the key factors in our wider social/economic/professional predicament. Those students who come to MBA graduate studies with a solid knowledge in those subjects can be exempted from the courses.

        As for neatly summing up an “underlying capitalist mythology” all in one handy sentence, I may have to work on that one. I suspect that it’s too amorphous to encapsulate in a single sentence that springs readily to mind.

        I can give you some elements that go into what I have in mind by this prevailing mythology and with them, I think you’d get the idea well enough to extend the sampling and add other aspects–

        so, let’s try by considering broadly what elite leaders seem to believe, assume, and act on at leasst as is indicated by their observed priorities and tendencies as we can see them:

        To succeed in life and in work (business) (which is basically the same thing, it appears), apply yourself, study hard in school, earn good grades—because in general rewards go to those who merit them, the others, less deserving, getting less. I.e. People with much got it by hard work and thus they deserve it and those having little also get/got what they deserve by their lesser efforts/abilities. No one who tries hard enough, long enough, is left unrewarded by our system; though one has to compete, (apparently) everyone can succeed, do well, prosper if only he works hard enough.

        Much follows from the above, and goes nicely with the view that the best way to sort and allocate relative scarcities to those who need and deserve them is through the wonder of the marketplace–where, again, people compete to win the best and the most of what may be available.

        In the process, much and most, if not all, of society gains tremendously by the free and openly competitive operation of the marketplace–where freely acting individuals act according to their best conception of their present and long-term interests. Resources exploited and products are made and distributed and they gain according to their value and utility, with competing efforts keeping costs and prices at an optimum.

        The above examples, one may object, aren’t at all part of what’s expressly taught in graduate business school or mentioned in corporate boardrooms in formal or casual discussions. Nevertheless, variations on these themes are found in their fitting forms and versions according to one’s place in a graduate business school seminar or a boardroom. Nothing so elementary as the precise wordings above would be said in the boardroom, but a variant summary suited to that level of the hierarchy happens every day all ove the world. An example might, in fact did, once, go, (executive manager, interrupting new fresh-out-of-grad school-employee in the midst of first presentation on product-cost control: “Look, Florence, just tell us how we can make more profit; the rest we don’t care about.” (see Noiville, (2009) “J’ai fait HEC et je m’en excuse” http://en.wikipedia.org/wiki/Florence_Noiville#cite_note-10)

        In her short essay, Florence Noiville cites Henry Mintzberg, professor at McGill University and author of Managers Not MBAs: A hard look at the soft practice of managing and management development as saying about MBA programs, “Conventional MBA programs train the wrong people in the wrong ways with the wrong consequences.” ***

        Now, I pause to ask– aren’t we all familiar enough to come up with no end of examples of such rule-of-thumb beliefs trafficked all the time in commerce, in anecdotes in all manner of mass-media, and drawn from our own experiences or that of those we know first or second-hand?

        Think: what are the current taboos that one is “best-advised” not to mention around one’s work superiors? What prevailing assumptions simply “go along with” being able to keep one’s job in this environment? — if you’re in the military, you know them; if you work for Monsanto, for example, you know better than to question or challenge the primacy of genetically-modified seed-stocks, pesticides, etc. in front of your superiors in the company.

        If one cannot recognize what not to say, think, etc. and when not to say it, think it, etc., then, going back to conceptions drawn from biology and evolutionary life sciences, one is in danger of finding one’s self ill-adapted to ‘the environment’–in this case the environment is cultural, but we are, after all, discussing the juncture of biology and culture here in matters of society and commerce.

        Let’s go back to the basics of ignorance and in particular my recommendation that including solid coursework in life sciences–biology, genetics, ethology–would bring useful, helpful breadth and depth to economic studies that, without those and more, are stunted, impoverished, and lacking in certain indispensible elements for any sane and humane society which depends on management and control by a highly-educated, privileged elite.

        Konrad Lorenz, Edward O. Wilson, Neil Postman,

        Pierre-Noël Giraud, Nicolas Bouleau, Philip Delves-Broughton*,

        Joseph Stiglitz, Daniel Kahneman, Robert L. Trivers, Nassim Nicholas Taleb,

        John Ralston Saul, Florence Noiville, Janine R. Wedel, Paul De Grauwe**

        –all of these authors and many, many others, their contemporaries and many who preceded them, have written about the large discrepancies between their or our world as it really is on one hand and, on the other hand, the things that so many of us believe, take as assumed givens about the world (often as presented in school from grade 1 to graduate school). In so many respects, these discrepancies are at the base of what is so wrong–and so persistently wrong–with our society’s arrangements and, in general, they are left largely unremarked outside the confines of the author’s pages and those who write and publish in response.

        To repeat, there is no easy fix, no cure-all for what ails our society. There are many and various issues to address in a thoughtful and concerted way because so many of the issues are extremely interrelated. We can address those relationships but we can’t mention everything at once in one place. It seems to me, as I’m finding in my own efforts to understand these matters, that step by step a picture emerges from the stories that these and others relate about our circumstances in 2012 and their antecedents which must be taken up in the course of the examinations.

        You, we, have to start somewhere–from the ‘broad end’ of the scope or the ‘narrow end’ —and trudge ahead in the attempt to gain this emergent image of our situtation. All the authors mentioned above have provided me with major contributions to my developing view. This is, of course the very same general process that many other frequenters of this site pursue in their own efforts to understand what is going on around us in contemporary politics, economics and cultural affairs.

        But, as it seems to me, if most of our time and attention is devoted to the close-up view of matters, we risk missing how various matters are interrelated and how, by giving attention to root-relationships, we might address many aspects at a deeper level of operation– our habits of thought and behavior that support not one erroneous view but dozens of interrelated ones.

        —————–

        *** see the news report, “Five Hard Truths About the MBA” October 16, 2007, by Jeffrey James, at cbsnews.com :

        http://www.cbsnews.com/8301-505125_162-51170538/five-hard-truths-about-the-mba/

        Where the 5 truths include:

        No. 1: The ROI isn’t what it used to be.
        No. 2: The training has become too theoretical
        No. 3: Some of the people skills needed to be a manager today can’t be taught in the business school environment
        No. 4: MBA programs propagate management fads
        No. 5: The pressure to succeed inside MBA programs has weakened safeguards against cheating

        (of course, if cheaters prosper well in business school, then go out into the business world and find a swamp of the worst ethical practices, what is one supposed to expect them to do? Reform the mess or jump in with both feet?)

        ** RE: Paul de Grauwe, see:

        “Economics is in Crisis, It’s Time for a Revamp”
        http://www.econ.kuleuven.ac.be/ew/academic/intecon/degrauwe/PDG-papers/FT_articles/FT%202009%2007.htm

        “The basic error of modern macro-economics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.

        “It will remain difficult to model these collective movements. There is much resistance. Too many macro-economists are attached to their models because they want to live in the comfort of what they understand – the behaviour of rational and superbly informed individuals.”

        * RE: Philip Delves-Broughton, see:

        http://www.bbc.co.uk/worldservice/business/2009/06/090602_globalbusiness_020609.shtml

        Radio journalist, Peter Day, of the BBC Radio’s program, Global Business introduces his interview (listen at the link) with P D-B. :

        “But he (Delves-Broughton) set me thinking about what business schools do, and how they go about it. Harvard is famous for its use of case studies, and I wonder whether they help newcomers master the problems of the past, not the future.

        “Business Schools fit out their keen young graduates with the tools of the trade : the analytical devices, the buzz words, the methodology. They give them a potentially magnificent network of coworkers to go out into the world alongside, always at hand in distant places.

        “They give them superb self confidence.

        “But maybe they also insulate their graduates from the outside world. Buffed up by a biz school degree, the new MBAs join big companies and apply what they’ve learnt. But have they really been taught to look outside the corporate shell at what is happening in the world their companies make goods and services for?

        “That degree ‘MBA’ is a problem itself. Business Administration actually seems rather a lowly pursuit. Harvard is where it seems to have started in 1908; American business in the early 20th century was preoccupied with increasing efficiencies, and unlocking the scientific truths about management.”

        1. Murky

          Proximity1,

          Sounds to me like you are brimming with enthusiasm for a variety of worthy academic disciplines. All that’s good, but I’ve thoroughly sampled these things. Almost certainly I’ve spent more years working within universities than you’ve been alive. You are preaching to the choir.

          If you feel strongly that the curricula of economics departments should be revised, try communicating with department chairs within a few institutions. I’d love to read the responses you get.

          I’ll try to be constructive here in leveling a very simple criticism. Don’t overburden your reader with excess text. In forums like this, it’s a courtesy to demand no more than a minute or two of a reader’s time. Learn to be concise!

          George Orwell’s essay, “Politics and the English Language” is an excellent statement about better quality written language. Here is the link:

          https://www.mtholyoke.edu/acad/intrel/orwell46.htm

          1. proximity1

            Dear Professor Murky,

            Thank you for reading, answering and informing us of your authority in these matters.

            And, since you put great store by brevity, then, here’s (relative)brevity for you:

            As you should be well-placed to tell us, I ask,

            How many are there, there, in “the choir”? And how does that number compare to what you’d reckon the opposing view(s) to number.

            I hope this hasn’t taxed your reading time. (You’re excused from reading further–the following is for T.A.’s, other non-tenured and all who have nothing beyond a high school diploma:

            I didn’t state it right out, but, with your experience and wealth of knowledge, you might have figured out all by yourself that my comments are addressed foremost to those who have not ” …spent more years working within universities than (I’ve) been alive.” In which case, by the way, you’d have over 55 years in working in universities. If you started at 25 years of age, then you’d be around eighty years old today. By that age, most people read strictly according to their personal proclivities, having nothing and no one in a positiion to reequire their time be spent other than as they see fit.

            Last–the reader may sigh in relief–about Orwell. Orwell is, with Bertrand Russell, probably the writer I have most prized, most read and most re-read. His essay Politics and the English Language ranks among my favorites only behind Such, Such Were the Joys and Why I Write. I’m very pleased that you are in that choir with me.

            Oh— I deplore about the character of such discussion fora as these that you are correct to assert that comments of the length you caution me against are, yes, seen as taxing under prevailing norms. And Orwell, if he were here, would deplore it, too.

        2. run75441

          Proximity:

          As one of those glorious Masters, thanks for these comments:

          “Think: what are the current taboos that one is “best-advised” not to mention around one’s work superiors? What prevailing assumptions simply “go along with” being able to keep one’s job in this environment? — if you’re in the military, you know them; if you work for Monsanto, for example, you know better than to question or challenge the primacy of genetically-modified seed-stocks, pesticides, etc. in front of your superiors in the company.”

          Try challenging your German VP with what really ails Europe and Germany. It most certainly is not Greece and again we are fooled into believing so when we should look to the same culprits which brought down Wall Street in 2008.

          Another intriguing scenario you have painted:

          “The basic error of modern macro-economics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.

          “It will remain difficult to model these collective movements. There is much resistance. Too many macro-economists are attached to their models because they want to live in the comfort of what they understand – the behaviour of rational and superbly informed individuals.”

          The models that crashed the world economy.

          1. proximity1

            run75441,

            Whoever among those I recommended you are, you’re very welcome.

            As for painting the following, the credit goes to its author, economist Paul de Grauwe:

            The basic error of modern macro-economics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.

            “It will remain difficult to model these collective movements. There is much resistance. Too many macro-economists are attached to their models because they want to live in the comfort of what they understand – the behaviour of rational and superbly informed individuals.”

            When “Murky” wrote that I’m “brimming with enthusiasm for a variety of worthy academic disciplines” he (or she) is so, so correct.

    4. Hubert

      Thank you for putting this out.
      Only one quibble: I do not think that economists (non-)thinking is that relevant – they are just the clowns in that circus. Powerful people do not give a … about what these apologists are putting out.
      CORRUPTION is the Biggie, the one thing not mentioned once in any economic formula. What good are rules and laws when they do not need to be followed by privileged ones? Wellcome to Feudalism again.

  13. Paul Handover

    I’m always tempted to answer questions like these! But then I am reminded of the power of the Law of Unintended Consequences! Ergo, it’s anybody’s guess.

    Just started reading the revised edition of the book Aftershock and it’s clear that the proposition in this greatly revised edition is the eventual (1 to 2 years) collapse of the dollar and a massive increase in inflation!

    So from this Brit living in Arizona, you all have a nice day! ;-)

  14. Jackrabbit

    How do you define “break up”? Greece might be the only country in danger of leaving the Euro. Whether they leave or not, they are being made an example to all the others.

    To me, “break up” means the end of the Euro and every country essentially goes their own way, even if some country groups may have trade pacts/alliances.

    Chance of “break up” (ever): 0%

    Chance of increasing pain until real reform that forces ordinary people to accept some sort of loss of sovereignty: 100%

    =================

    We can debate ad infinitum whether the good times were a setup for “There Is No Alternative” (TINA) consolidation of power. TINA seems to be the way “leaders” make “hard choices” (hard on us) these days.

    TPTB have the advantage because:
    a) they have the money/power
    b) they have the bull horn (MSM)
    c) they fund think tanks, etc. that plan ahead

    From the perspective of TPTB, people they are easily divided; distracted (hey what’s on tonight? There’s an app for that!); fooled (MSM, enough said); and they fight back only after they already lost.

    So if TPTB want a United States of Europe (I think they do) then that is what will occur — with some “convincing” of the people as necessary.

    1. Jackrabbit

      Spain says Europe working towards fiscal union (Reuters, June 18)

      “I think that European leaders are united, we know perfectly well that we are all in the same boat,” he told reporters on the sidelines of a Group of 20 summit in Mexico.

      “We know perfectly well that we have to keep going in one direction, in the direction of making more progress towards fiscal union and banking union and there, for example, I think that decisions can be taken very quickly and we could see those in the next few days.”

      Leaders from France, Germany, Spain and Italy are due to meet on Friday ahead of a wider EU summit on June 28-29, where they aim to lay out a roadmap for closer fiscal links.

  15. rjs

    what i wrote in my emailed commentary this AM:

    but from here it’s hard to see it all blowing up tomorrow; watching europe stumble from crisis to crisis for over two years has been more like watching paint dry than anything explosive; the eurozone will certainly break up, but it will more likely be with a long whimper than anything like a bang…

  16. pebird

    Hasn’t the Eurozone already broken up, we’re just waiting for the official announcement?

  17. William C

    Exit polls now suggest that result of Greek elections is ‘too close to call’ but ND initially slightly ahead. On the assumption ND does come out ahead I would say chance of Greek ‘departure’ in next month is close to zero (much higher if it is Syriza)but how define departure? Default on all debts? Forced closure of ECB credit lines to Greek entities? Printing of drachma? The first seems more likely than the latter, but is that really ‘departure’? Other Balkan countries use the euro as their currency without being formally part of the ECB members. That may be the most likely outcome.

    On a number of occasions I have been very interested to hear Greeks discussing possible ‘departure from the euro’. They have always been strongly opposed. The argument that is put to them is that it will return control of fiscal and monetary policy to the national authorities, to which their reply is ‘that is precisely why we want to stay in the euro’ (unspoken subtext: our politicians are all crooks so the last thing we want is to give them control of all financial matters).

    On timelines, Merkel faces an election in autumn 2013 so is likely to work hard to avoid any major disasters before then (but a Greek ‘departure’ probably would not qualify as such).

    On speed more generally, European negotiations usually proceed far more slowly than most reasonable human beings unfamiliar with the process would expect. That will probably continue to be the case here.

    1. Jeff N

      Greeks who say that want it both ways – to remain in the Euro but to not get pummeled with austerity.

  18. Jesse

    I enjoyed reading the responses and think this was a cool idea. More crowdsourcing in the future please.

  19. Murky

    Yves Smith writes:

    “I’ll throw it out to you: what do you deem the odds of Euro breakup to be (with “breakup” defined as at least one country exiting the Eurozone) in the next month? In the next six months? And if you think it will come apart, but later, guesstimate how much later and why you think it will occur later rather than sooner.”

    Here ya go:

    ‘Euro breakup’ in 1 month: 10%
    ‘Euro breakup’ in 6 months: 35%
    ‘Euro breakup’ in 1 year: 60%
    ‘Euro breakup’ in 2 years: 85%

    But I strongly question Yves’ definition of the term “Euro breakup”. Greece just isn’t big enough as a country and as an economy to cause the kind of collateral damage that brings the whole system down. Look to Spain for that. Spanish banks can be floated with continuing bailouts for a couple more years, but they can’t stay on the dole forever. Germany will not stand for it. An eventual Spanish bank collapse will then swallow up Italy with other countries soon to follow. That’s the real Euro breakup. As for Greece, it matters a lot how Greece exits from the Euro. Disorderly exit will be a catalyst for other countries to rebel against austerity, fomenting national antagonisms and advancing the date of union breakup. An orderly exit by Greece could keep the Euro community intact for several years more. But eventually, say 5 years, I think it’s the rot in Spanish banks that will undermine the whole Euro system. Complete Euro breakup by 2017. Reinstating national currencies will become a very important part of the ‘cure’.

    Disclaimer: My expertise level = low. My ability to read and ape expert opinion = not so bad.

    1. Hubert

      This is very well argued in all points. We need definition and time probabilities.
      I dispute your “expertise level”.

  20. surfwalker

    Stockholm in the house. The chances of a breakup within one month are near zero. In the longer term they are way lower than generally assumed, but there is plenty of room for shit to happen.

  21. F Libertarians!

    The business and financial elites who like chasing the highest possible return on investments around the world (i.e. fire workers in the industrialized nations and replace them with sweatshop laborers in some low wage country) like having the Euro around as it facilitates the movement of capital across borders. Since these elites literally own the ECB and possibly every single national government in Europe, the governments of the world will do all they can to preserve the Euro even if it means starving their own populations to death. Even Syriza (the supposed anti-bailout, anti-austerity party) wants to keep Greece in the Eurozone. (Sorry Syriza, the ECB and Germany have made it clear that you can’t have it both ways. Either you keep the Euro, take the back-door bank bailouts, and continue killing your own people OR you get the hell out the Eurozone and print your own currency.) In addition, it seems that, as the exit polls indicate, the people of Greece themselves seem to support austerity as the pro-austerity, neoliberal parties have a slim lead. (It would be nice to see turnout numbers as an indication of the level of cynicism and disillusionment the Greek people feel with respect to their government and political system. Maybe many Greeks did not vote as they felt that they still had no real choice in this election?)

    Even if a single country like Greece leaves the Euro, the Euro is not necessarily dead as the remaining countries will try to preserve it (i.e. more Bernanke-style bank bailouts and QE coming). It may even take more time than we think for Greece to finally get out. Therefore, I think it will take time for the Eurozone to collapse. I’ll take 2014-2015 as the most likely timeframe for a complete collapse of the Eurozone.

    1. Fiver

      Good comment. Greece could fold tomorrow, and the response would be an enormous Central Bank infusion – after a very, very profitable scare for the predators. I also believe the rest can hold it together for some time, but it will be determined by events in the US – for which I peg late 2014 as the point where the last big stimulus blast that is coming runs out of steam and finally everyone knows the world of 2007 is gone for good.

      Note Yves’ previous post re Basel III – stocks are going to be considered as “capital” in a few short years – I kid you not. Since this has already been agreed to, I fully expect the implementation date to be brought forward to ensure another asset bubble if CB action + this agreed “assurance” of adequate future “capital” needs does not do the trick on its own.

  22. Sound & Fury

    Everything we hear is just a smokescreen for the fight over haircuts. Nothing else matters in the end. No haircuts, no Euro. No haircuts, no NATO. No haircuts, no Europe. And if you compare this to how IMF ordinarily knocks creditor heads and gives haircuts, the notable difference is how enormously politicized this is. That’s a wonderful thing. Populations in the global south would typically never know what hit them. But now, with the IMF engaging Greece’s very capable civil society, and with Greek recourse to the ECHR, every bip of recovery will be a knockdown drag-out fight. The field would be leveller still if DSK was there – which is why they fed those women like hamsters to the snake. But big creditors are going to get scalped before this is over. It will take a while.

    That’s good for two reasons. First, it will weaken or kill many of the FIRE parasites. Second, it will accelerate the downturn, and Roberto Unger’s dream will come true. The economy will almost certainly effect Obama’s ouster.

    1. proximity1

      To me this sounds like “Scientific Socialism’s” successor as a world panacea.

      Hegelian dialectics without Hegel, and, as Edward O. Wilson, (who I’ll prefer as philosopher/guide to Professor Unger) wrote about Marxism, “Marxism is sociobiology without biology.”

      Does Professor Unger recognize that there is such a thing as human nature and that this presents our species with certain biologically-given constraints? If not, then I fear that we must expect more hard-learned lessons about how politics is the child of our biological nature.

  23. Hugh

    Just a reminder: Europe, like the US, is a kleptocracy. Kleptocrats do not do solutions. They loot. Kleptocrats will game the system until it collapses and then loot the collapse.

    Understand this and you will understand why this crisis happened in the first place and why it has been going on and worsening for more than two years.

    And one observation: This has been a very bank-centric discussion, how long the banks will last, and to some extent how long governments can fund them or find funding for them, but this approach overlooks the people in these countries. Spain and Greece have 25% unemployment. That’s not recession. That’s depression. This will breed massive political instability.

    From this perspective, it doesn’t particularly matter which party registers a marginal win in Greece. The result will be more political and electoral gridlock. And even in its absence, neither party has an extreme enough platform to deal with the country’s problems.

    As for Spain, as families eat through their reserves and their resources are depleted they will start going the way of Greece. This will happen faster than the stopgap deal for Spanish banks. And remember the financing for it still isn’t solid.

    When I look at Europe, it reminds me of the house of cards we were looking at back in the summer of 2008. It wasn’t a question that the house of cards was going to fall down. What we were guessing about was when and which card would do it.

    1. Franz

      “When I look at Europe, it reminds me of the house of cards we were looking at back in the summer of 2008.”

      Without a doubt, Hugh, and even Joe 6pack gets it this go ’round. When you look at what the central planners are doing, they are signalling that global economic collapse is imminent. Even with QE2, the diminishing returns demonstrate that QE3, QE4 will only hasten the collapse of the financial system. When it very quickly becomes obvious to even the village idiot that fiat currency is worthless, the madoff jig is up.

    2. Jackrabbit

      While kleptocracy does seem to be the order of the day, there are broad themes that TPTB agree on like dismantling the welfare state or United States of Europe. They argue for these themes in good times and bad.

  24. Franz

    The Eurozone is already dead, a zombie if you will. Now that this is widely accepted, the bank and bond runs will finish it off by year’s end. Were the global economy’s backdrop different, I would give it wee bit more, but as it is, the whole enchilada will ‘splode sooner than most imagine.

  25. C

    I won’t attempt to predict what will happen but I will note this. There is a large, albeit often ignored by American Press, difference between the EU and the Eurozone. And while even europeans I have met often fail to distinguish the two the structural differences matter.

    The EU has a nominally elected parliment that is given the power to set rules for the population and nominally responds to its public.

    The Eurozone is a monetary union governed in large part by the central bank who doesn’t really answer to anyone. Thus the ongoing assumption that the European Parliment can or will fix the problem is a hope but an unlikely one.

    What the crisis has exposed I think was the tacit fallacy that the Eurozone would, in some form, be governed by the EU. What even the Germans are realizing is that noone but the ECB controls the Eurozone and that they answer to noone. Yet everyone (even non Eurozone countries like Britain) have to pay for the problems of the Euro.

    As a consequence I am not willing to predict what would happen. A breakup of the Eurozone would cost a lot but after the fiasco that was the EU “Constitution” vote only the most hardened EU beureucrats seem inclined to push for more integration and, at least on the face of it, less democracy.

  26. Jessica

    Chance of Greece of any peripheral nation voluntarily leaving the Euro: 0%
    Chance of Greece being thrown out: much higher
    Chance of the Euro lasting more than a week or two after the Greeks were thrown out: 50-50 at best
    Chance that this will play out the way anyone expects: 0%
    Chance that the end of the Euro will do long-term damage to the EU, such as splitting it in half or forcing out multiple members or reducing the entire thing to USA style second-world status (and without the nukes): Increasing the longer this thing goes on

    I don’t think the European elite has a coherent plan with any chance of success. Even if success is defined as “all the banks’ problems are resolved without harming any bankers and who cares what happens to ordinary Europeans in the peripheral countries”.

    Here is an amazing thought for you odds-setters: even if some Eurozone-wide mechanism for deposit insurance, debt backup, etc. were set up (and the German, Austrian, Finnish, and Dutch voters at least are dead set against this), that would get Europe to about where the US already is. Which is not what I would call out of the woods by a long shot.
    May the odds be ever in your favor.

  27. Newsboy

    The Greeks are adapting. the farmers who drive trucks of food in to city squares for direct sale, are becoming a more relevant factor than the politicians, but Syriza reflects the (50% unemployed) youth vote, and Pasok and New Democracy represent the post Military Junta liberals and conservatives, who are seeing all that they worked their lives for erode daily.
    Here is a piece about the potato revolution:
    http://www.aljazeera.com/indepth/features/2012/06/2012611102126662269.html
    The Greeks are in a tough spot, and adapting on a human level. They are not feeling bold. They don’t want the suicide of jumping off the floundering ship. They are trying to find and collect some floaty bits.
    I vote that the euro crash comes from elsewhere.

  28. MarcoPolo

    It is inevitable that one or more countries leave the euro – probability 100%.  But I’ve given up guessing when. If Germany were to leave – the most different of EZ economies – there just might be a chance that the rest could hang together.  The odds are long on Germany leaving and probably on others hanging together too.  Otherwise we watch the dominoes fall. First Greece (probably). Today’s election only keeps the Troika in the game while the Greeks get the rest of their money out of the country.  Eventually they’re gone and I believe the Germans would like to see them gone.  Eventually Spain will leave and there is no reason to have a euro without Spain so the whole thing probably blows up fast after that – Italy, France.  

    Spain is key. There was the briefest hope last week when Rajoy was reported to have said that the problem in Spanish banks was too large for the Spanish govt. to handle alone.  Everyone already knows this.  But hours later Dumbkofpt Schäuble open his mouth to remind us who we were dealing with.  The timing depends on the ECB. Either they get involved or it blows up sooner rather than later.  Ask your MMT people how the ECB can override German intransigence. 

    AE Pritchard, “It will require monetary stimulus on a crushing scale …”. If the ECB were to suck it up and do the MMT thing it could take longer. But in the end it’s over.

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9337283/Greece-will-have-to-leave-EMU-whoever-is-elected.html

    Still, it would seem that something will survive.

  29. Alex Morfesis

    1 week zero
    1 month zero
    one quarter zero
    one year zero
    2 yrs zero
    3 yrs zero
    5 yrs zero
    10 yrs zero

    the euro was designed to make life easy for the top 3000 corporate entities in europe…it does that…it still does that…and as long as it does that…it will be…das little people rejected(more or less) in 2005 the european constitution…and in 2008 they toasted the treaty of lisbon…most germans, most greeks, most italians and most everyone else will argue that the euro has not really helped them in the day to day of living…italy and spain are congolomerations of different people still haunted by the ambitions of former nobles who pray for the day they can come back to power publically by having their little principalities brought back to life with a break up of their overlord nations. if greece or anyone else were allowed out of the euro, the munchkin nobles might think they would have their wizard of oz moment and try to stir up some troubles and get themselves some respect. In the vast warehouse of stupidity of the old remnents of illium, they might try to get themselves some beer muscles by reminding themselves that royalty was quite acceptable 100 years ago and that in the long history of illium and its offshoots, 100 years is a minor detour. I doubt they will get much traction with such thinking…one does need more than back room dancing in funny outfits to run a nation and an economy…they might try…but I do not see any chance in hell that the eu goes bye bye…it will evolve and this “magic moment” will allow “needed integration”…as the little people are now demanding protection from the forces of the economy…brilliant…simply brilliant…

  30. 4D

    The view of a South African.

    I just cannot believe it can last with the huge diversities in place, but it could well be a protracted death. As with the Fed, I have learnt not to underestimate the lengths which the central banks will go to protect the bankster fraternity.

    They will do everything imaginable to spread the losses as far and wide as possible. It then remains a question of when a revolt or a crippling bank failure derails it once and for all. It could be next week or a few years still.

    For context I was a long term euro bull but have been short for two years now and I think we will be back at parity within a year, if it lasts that long.

  31. charles 2

    Full transfer union with existing euro members : 10%
    Departure of Euro by Greece then full transfer/fiscal union : 25%
    Germany exits the eurozone and Euro becoming the de facto mediterranean union currency : 60%
    Euro unwinding country per country and Euro becoming the de facto deutsche mark : 5%

    3 years to complete the process, but we know which way it goes (with the corresponding parity adjustment) before the end of the year.

  32. JustMeee

    The euro isn’t going anywhere. It’s great fun to hear US politicians warn Europe about what it had better do and what it had better not do, since they were and continue to be so successful in the economic management of their own country. Yeah, that’s the ticket!

    1. rotter

      Yes lets point out and justly mock the decline and ineveitable collapse of the imperial Federal US system, which the Euro’s are breaking their backs attempting to copy, ruining their people and desstoying thier culture, solely for the benefit of a tiny, worthless, elite minority, like in the US.

  33. Demeter

    While the concept of the euro was breath-takingly
    obvious, the execution was fatally & optimistically
    flawed, as events have proven.

    Part of the problem may be that membership was not
    simultaneously granted to all comers, and senior
    members felt entitled to lord it over the newcomers.
    In other words, by having nations enter, nation by nation,
    the eurozone remained a bundle of nations.

    In the US, all the colonies joined more or less
    simultaneously as equals, and all subsequent states, settled by US citizens or emigrants (not New Yorkers, or Virginians)were also entering as equals after meeting certain basic requirements, none of which had to do with money.

    I’m sure that the European on the street would be happy to
    belong to something larger than his state of origin, all other things being equal. I’m not so sure the nation states would be happy about it. The loss of national power is too painful to consider,when a proud nation like Greece is ordered to be prostrate at the feet of foreign bankers.

    And there lies the real problem…the banks rule, not
    the people nor their elected representatives.

    I do not see this fundamental disparity ever going away.

    For that reason alone, I can see the euro failing, and the sooner, the better, for the sake of the people. If unity is the goal, then the welfare of the people must be the priority, not the bankers, not the wealthy, not the Germans.

    I don’t think there will be any “exit”. I think there will be bloody revolution. Because even if Greece left the Eurozone, do you think the banks would give up trying to extort the last drachma?

    I’m no Kassandra, so I cannot guess when. I just cannot see any happy ending.

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