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More on Draghi’s “The ECB is All In” Bluff

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The more news comes out, the more it looks like Mario Draghi’s pledge that the ECB would do all it would take to save the Euro was a bluff. The best guess is that he hopes to appease the market gods until September 12, when the German Constitutional Court will render its decision on whether the “permanent” rescue mechanism, the ESM, is permissible. The assumption, of course, is the the ESM will be approved. I’d be delighted to be proven wrong, but in parallel to the lack of a Plan B when a private bailout of Lehman failed, there does not seem to be any Plan B in the works if the German Constitutional Court nixes the ESM. And the odds of that are not trivial.

The headfake earlier today was a photo op between Geithner and Finance Minister Schaeuble which was touted by Bloomberg as Germany supporting the Draghi move, when a more level headed reading would see this as a non-endorsement. Here is the opening para of the article:

U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble backed a commitment by European leaders to do everything needed to defend the euro area while failing to mention its weakest link, Greece.

Um, that’s already qualified. And then we get to the critical part:

In a joint statement issued after they held talks on the German North Sea island of Sylt today, Geithner and Schaeuble “took note” of comments made last week by European leaders to “take whatever steps are necessary to safeguard financial stability” in the 17-nation currency area.

“Took note”? That actually a remarkable formulation. It’s an acknowledgment of Draghi’s remarks, not approbation. There is nothing concrete in the Bloomberg story that would lead a reader to conclude that Schaeuble had changed his position from the one he took over the weekend, that the existing facilities were adequate and that additional action was not warranted. My readers of the German press take this to mean that the ECB might intervene, but its game is to do as much as possible with happy talk and as little as possible with real action. The Draghi statement likely does indicate a willingness to buy bonds if absolutely necessary, but not on any real scale. The idea is to tide this all over through the low trading volume/Euroholiday month.

An article in Der Spiegel confirmed the skeptics’ reading. It depicts Draghi as having make his commitment without getting the support of the ECB council. One assumes he might have hoped to present them with a fait accompli, but that kind of approach can backfire. Per Der Spiegel:

Meanwhile, experts at the central banks of the euro zone’s 17 member states had no idea what to do with the news. Draghi’s remark was not the result of any resolutions, and even members of the ECB Governing Council admitted that they had heard nothing of such plans until then.

It isn’t hard to see where this is going. It’s not likely that the Fed will announce anything major this Wednesday; while the economy is softening, most Fed mavens think the deterioration is not clear cut enough to warrant pulling out the big guns. Markets expect the ECB to announce something concrete after their meeting this Thursday, but given that Draghi ambushed its Governing Council, and the northern country members remain opposed to bond buying, it’s probable that if any commitments is made this week, it will be underwhelming. And tellingly, Draghi is looking like a leader whose command of the situation is faltering.

A big source of discord is that the ECB’s past bond buying was, like pretty much everything the Eurocrats have done thus far, a temporary band aid. As we noted, the LTRO, which was a back door sovereign bailout, provided relief for a mere few months, when even its harshest critics assumed it would take pressure off for a year to eighteen months. Similarly, a Spanish bond buying program that began in August last year was only a short term palliative. While interest rates fell over 100 basis points initially, when the ECB stopped buying last November, yields were higher than when the program began. From the Der Spiegel account:

If the ECB starts buying up the government bonds of highly indebted euro countries again, it won’t just be yielding to the pressure of European politicians. It will also be resorting to a tool that, in the most recent past, has primarily produced one outcome: discord within the ranks of the ECB. As Germany’s central bank, the Bundesbank, noted last week, Draghi’s proposal is a “problematic” instrument.

If Draghi puts his concept into practice, the climate in Europe’s monetary authority could sink to a new low. The representatives of the northern European creditor countries fear that the ECB, out of consideration for the crisis-ridden south, is willing to sacrifice even the most sacrosanct principles to monetary policy. Representatives of the Mediterranean countries, on the other hand, suspect that the Bundesbank, in particular, doesn’t even want to defend the euro anymore and is secretly contemplating a return to the deutsche mark.

At this point, as Draghi acknowledged in his statement last week and we’ve been highlighting for some time, a big driver of the crisis now is defensive actions in anticipation of a possible Eurobreakup of some sort. Banks are increasingly lending only to the extent they have deposits and can secure funding from central banks. Funds are no longer flowing from the surplus countries to the deficit countries; what we have instead is a slow motion bank run via deposit flight to the core. So increased distrust of central bankers for each other is not noise; it feeds into this process and will reinforce their belief that ring fencing the banks in their countries is a prudent move.

And the particular program that Draghi apparently has in mind is contentious:

According to plans that were circulating among Europe’s monetary watchdogs last Friday, the ECB might buy the bonds of the threatened Spanish government again as a supplement to the purchases by the EFSF.

The plan envisions having the Luxembourg-based temporary bailout fund buy bonds directly from the governments because the ECB is not allowed to make such purchases on the so-called primary market. However, under Draghi’s plan, the monetary watchdogs will buy the securities of banks or investment funds in the so-called secondary market so as to drive down yields. This would double the firepower of the euro zone’s crisis weapons while simultaneously preventing Spain itself from having to resort to the bailout fund and accept stricter constraints on its reform programs.

But it is already clear that the plan will encounter resistance. Many monetary watchdogs — including Weidmann and, most of all, central bankers from the Netherlands, Belgium and Finland — have already been very outspoken in recent months about their opposition to new bond purchases.

The Der Spiegel summation is apt:

That’s the tragic aspect of Draghi’s rescue idea: What is intended to keep the monetary union together could actually drive it even further apart.

One telling theme in the article was Draghi becoming uncharacteristically angry when colleagues told him the ECB might be exceeding its legal authority. Draghi appears to be far along in the “this is an emergency, we must break glass thinking, which means he may eventually take radical action. But given how vocal the northern countries have been in making their objections known, that may not happen until a full blown crisis allows him to override them.

The Eurozone is increasingly looking like a zero sum exercise to its members: that there are no win-win strategies, only dividing up a fixed pie. And with austerity on in full force, it’s actually worse than that: the power that be are haggling over a pie that is shrinking before their very eyes. There’s declining trust and no willingness to consider alternatives that would put economies on a better trajectory. There’s now lip service being given to the need for growth, but the neoliberal budget-cutting religion is very much intact: the only alternatives under consideration are delaying the wearing of hairshirts, not considering completely different options.

It’s hard to see any happy outcomes from this situation, but Mr. Market is convinced there is. I wish him and the Europeans luck.

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47 comments

  1. MyLessThanPrimeBeef

    That makes sense – appease the market gods until September, so that the consequence is that it will be those barbaric Germanic jurists who sacked the modern day Rome and caused Europe to descend into the second Dark Ages.

    1. rotter

      Modern day Rome – i think thats right on the mark..not that the eurocatastrophe is anything like a modern day Rome,(maybe a modern day Hanseatic League) but i think that lots of Europeans had warm fuzzy nationalistic emotions to that effect – that they were reviving Rome, and therefore launching a new European millenium..even more ridiculous than a “new american century”…

  2. Hugh

    We have seen this umpteen times: a grand announcement which falls apart the first time anyone takes a serious look at it.

    I think the markets are casinos. Market movers don’t believe any of this stuff emanating from the European powers that be, but are willing to act like they do to goose markets for a few days and make some money off these pronouncements. My view is that if markets were tethered to reality, they would have run to safety months ago, and stayed there.

  3. Hubert

    “there are no win-win strategies, only dividing up a fixed pie”
    Kicking the can or not kicking the can per definition is not a win-win.
    Also it is not about the pie now, it is about the bill for the pie already eaten. Now the sponsor of the pie is still not defined and there is a quarrel if we should order some more pie in the meantime or try to get on with less pie (what the Keynesians call “austerity”). Nobody seems to accept that credit-boom pies are history. It is about normality / reality creeping in. It will be either “austerity” or REAL inflation (or both). My bet is on inflation.

    1. Rik

      @iMatt
      Donot you think he can make a mistake, or sees no other option left, or the opposition simply uses it to destroy his credibility. Because let be honest if the German government parties and the Buba keep doing as they have done the last few days (and it looks that way), his credibility will have taken a hit. CBs should not steer into political waters.

      I expect somewhere in the process the Buba (or somebody else Teutonic) asking their Constitutional Court, if seen al this the ECB is still independent and still has as main mandate pricestability. And if there are serious doubts about that if the Buba should start preparing: demanding the powers back. These were the conditions under which the transfer of powers were deemed constitutional in Germany. Also probably first in a last stadium, as you start a civil war and a collapse.
      This would however simply mean that all credibility of the ECB would be destroyed and the South would mainly take the hit.
      Looks to me like the ideal countermaneouvre, when necessary.

      It is in the open like any courtcase and an ECB without German (and very likely Duch, Austrian, Finnish support directly after that) is nothing more than a BCB (Bananarepublic Central Bank). The bondbuying will need longer than it will take to get a ruling and also provisional measures are possible.

      Problem of course that also others could ask this and only the discussion could have started it. It simply brings also this question into the spotlight.

      There apparently is an legal opinion with the ECB that it simply needs treatychange to give the ESM a banking license and enabling it to leverage its capacity. Would also be very doubtful legally, wanting to do that without Germany. It is simply completely eroding the budgetrights of its parliament which looks clearly unconstitutional.

      The only real option is going per referendum to the German people. But clearly nobody wants that as the outcome would be a near certain. At the end of the day that is the problem of course. It is simply trying to push the German (and a few others) population an Euro-rescue and big Euro-state through their throat that they clearly not want.

    2. F. Beard

      It will be either “austerity” or REAL inflation (or both). Hubert

      Neither are necessary or just. A ban on further credit creation and a properly metered, universal and equal bailout of the entire population, including non-debtors, would:

      1) Allow debtors to pay down their debts.
      2) Provide non-debtors with plenty of cash to honestly lend and/or spend.
      3) Reflate the economy with little price inflation risk.

    3. Maju

      “It will be either “austerity” or REAL inflation (or both).”

      Or communism. Let’s not forget that the sovereign (the people-nation) can always remove all property privileges, declare all debts null and manage the economy in a (partly?) centralized form, like in Cuba.

      This is a most realistic option in my opinion in the mid term if Capitalism cannot deliver welfare to the citizenry.

    4. Calgacus

      There certainly is a win-win: a normal Eurozone, at minimum with the ECB supporting the member states’ debts. If this can’t be attained, the quicker the Eurozone breaks up, the better.

      The alternative is an endless austerity & instability, growing depression. Inflation is the very lowest probability outcome, and would be almost impossible for anyone to create at present.

      What you are calling “normality/reality” – the can’t-do-attitude that creates poverty amidst plenty in Europe is innumeracy & ignorance. The problem is that far too many, the vast majority accept “that credit-boom pies are history.” The cure for the private credit-”boom” is a realer public-credit, government-spending “credit-boom”.

  4. iMatt

    Totally disagree: the personal history of Mario Draghi shows he’s a very careful, serious and witty banker. He’d never dare making such a declaration without any reasonable support within the ECB, or he’s credibility would be totally destroyed.

    Also, most Europeans know very well the advantages that came and still come from the euro and are also aware of the dramatic consequences that would arise from its end: Mr. Schauble is among them.

    1. Ryan

      Darghi had nothing. He was like the wizard of Oz “MAKE NO MISTAKE, I HAVE POWERS, POWERS BEYOND YOUR UNDERSTANDING! POWERS TO MAKE YOU QUAKE!”. Shame nobody got the opportunity to ask Mr Draghi what those powers actually were? He was in a bind because Spanish bond yields went through the roof and he had nothing to counter it. I suspect Draghi did his little empty speech and pulled some strings to get bonds bought by the backdoor. Its pretty obvious he is seeting a floor so Italian yields don’t exceed 6% and Spanish don’t exceed 7%. Well I suspect that in another week they will be beyond those levels again and Draghi will have run out of any ammunition and all credibility. Then yields will go parabolic as the market puts Draghi to the test once again and it will be game over for Spain and Italy.

    2. reprobate

      Der Spiegel clearly has input from sources in the ECB. So your take on his general reputation trumps specific sourcing?

      1. Hubert

        I am with iMatt here. It is not about reputation (which can be bought). One can see it in interviews and press conferences: Draghi is a VERY SMART guy. Character questionable for sure. But very smart. It was a well prepared speech with code words.
        The Spiegel is mostly wrong in editorials and mostly abused in its reporting. As they do both in one, it often becomes a mixture between those two.
        In any case, we will know soon ….

  5. Hubert

    I do not think it is a total bluff. Italian short rates exploded last week. There is a common understanding to not let the EZ fall apart here and now. And politicians want to do vacations. My best guess is they will come up with something to at least bridge August.

  6. carol

    “One telling theme in the article was Draghi becoming uncharacteristically angry when colleagues told him the ECB might be exceeding its legal authority. ”

    The economics advisor of EU ‘president’ Van Rompuy is on the record: let the ECB do what is needs to do (i.e. bond buying) and let the laywers, judges and courts discuss about it for the next 10 years.

    So Draghi is not alone in his disregard of laws and rules, as approved by the various parliaments.

  7. Austin F

    Draghi finally picks up the proverbial bazooka and brandishes it menacingly at a charging army of frenzied speculators, only to discover that the Germans have removed the firing pin and dumped the ammunition at the bottom of the Rhine. Oh dear.

    The Germans have some wonderful idioms/expressions. One that every mother should drum into her young sons roughly translates as: ‘when the prick is hard the brains are in the bucket.’ Indeed, or to paraphrase, when the Euro times are hard the brains are through the bottom of the bucket and dribbling down the gutter!

    1. Up the Ante

      as: ‘when the prick is hard the brains are in the bucket.’

      Should read ‘when the prick is hard “Draghi” appears.’

      Evident humor from the ‘German mothers’.

      lol

      “Draghi”, the CDS-trigger Phantom

      “Draghi .. was responsible for European operations for Goldman from 2002 to 2005, and predictably has no memory of the currency swaps deal that enabled Greece to camouflage the size of its budget deficit. ”

      “Hi-Drag”, his memories, ‘found out’, .. and return ..

    2. Paul Walker

      Laughable when the frenzied speculators so derided in this comment and elsewhere are a primary result of European national central banks and their money center institutions acting in their own perceived interest. All decisions to buy or sell are speculative, even when central banks do it.

  8. Maju

    I’m not enthusiast of Draghi or the ECB but obviously purchasing national debt is the only logical thing the ECB can do (unless they want to force the bankruptcy), specially once the austerity rampage has already been applied mercilessly as demanded by our ethereal overlords in Hell.

    Whatever the case, Draghi knows he is “the chosen one” (otherwise let them impeach him for doing the lesser evil thing: it won’t go ahead) and that he has been appointed by our bankster overlords to implement “austerity” (destroy working class’ rights and dignity), not to destroy the euro. The euro-collapse threat can only be a scarecrow: it will never be allowed to happen in reality.

    IF the euro does actually collapse (not anytime soon), then brace yourselves: something truly bad will have happened to the global economy (or there is a full-fledged revolution raging through the streets of all major European cities – or both).

  9. Amar from Paris

    Merci Yves pour le support !
    We need more pessimistic articles like this, very original and helpful indeed.

  10. nowhereman

    Draghi, and all his fellow Central Bankers, will do everything within their power to make sure that the Banks prosper at the expense of the citizenry.
    Nothing good can come out of this until that reality is dealt with.
    The obfuscation on the part of the powers that be and their media lackeys ensures nothing of consequence can occur.

    1. Up the Ante

      “Draghi, and all his fellow Central Bankers, will do everything within their power to make sure that the Banks prosper at the expense of the citizenry. ” [vultures]

      “The obfuscation on the part of the powers that be and their media lackeys ensures [everything] of consequence can occur. ”

      fixed it for ‘ya

  11. MLS

    Excellent piece.

    Couple observations:

    1) The politicians et al in Europe (despite all the evidence to the contrary) are not stupid. They recognize that none of them profit from a collapse of the Euro. However, they also understand that it can (and probably will) be brought down in as much of a “controlled demolition” as possible. In that light, all the rhetoric you hear today is posturing, and behind the scenes it is about capturing whatever pieces of the pie they can.

    2) At the end of the day, Germany holds the cards because they have more resources than anyone else in Eurpoe to deal with the problem. Thus, Draghi, Monti, and whomever else can say all the things they want about the ECB buying this and the EFSF buying that, but it’s Germany that will decide what does or doesn’t get done.

  12. MarcoPolo

    Bluffing?  That’s not how I saw it. I think Draghi called the Germans’ hand.  Now we’ll have to wait to see who’s holding what cards. But the German Constitutional Court can’t block Draghi doing what he wants to do. Even if they do rule against the ESM it’s still a question if they will have enough votes to block its implementation.  If it’s implemented it will help Draghi, if not he can do the lifting himself.  Draghi can do anything he wants in the name of stability. It’s legal. The reporters question is impertinent.  I read the Geithner meeting as a real politic moment – get on board.  The Fed is irrelevant at the moment.  What can they do?  

    The larger problem is that the markets are frozen and there is a bank run. I’m not sure that even Draghi can stop that. 

    1. Yves Smith Post author

      Please do your homework. Germany is far and away the biggest funder of the ESM, at 28%, so it fails on a practical level if Germany is out. And a simple Google search shows that you are incorrect in your claims on the legal ramifications if the German Constitutional upholds the injunction. Then the case moves to a full on trial, meaning the implementation of the ESM is at best delayed. And they need it in place to bail out Spain. From Wikipedia:

      A large number of ordinary citizens, several members of Parliament, and the Die Linke group in the Bundestag have challenged the constitutionally of the ESM and have petitioned the Constitutional Court in Karlsruhe to issue a preliminary injunction prohibiting the President Joachim Gauck from signing and ratifying the treaty. The President has declared that he will postpone his signature until the Court has ruled on the constitutionality of the ESM. The Court held oral arguments on 10 July 2012 and will issue a verdict on 12 September 2012.[55] If the Court rejects the injunction, the President will sign and ratify the treaty. If the Court grants the injunction, the merits of the case will be decided while ratification remains on hold. If the Court decides that the treaty is unconstitutional, the treaty in its current form cannot go into force.[56]

      1. Maju

        I understand that Draghi’s has indeed called Schauble’s hand but that it has nothing to do with the ESM.

        Let’s not forget that the ECB is a central bank and central banks create the money out of thin air. Hence the ECB can buy state debt (appealing to ‘extreme circumstances’, what is quite real) as long as he has the implicit support of a majority of the European Council. Germany does not have (nor can muster) a majority in the EC (it has only 29 votes, like France or Italy and barely two more than Spain) so they can’t impeach Draghi easily.

        The fact is that if this attitude of Draghi prospers and has enough support (even if just passive) among EU members, the euro will quit being a hyper-strong currency and become a normal one like the US dollar, what is actually a good thing.

        Germany can only grunt about that (or walk out, what they will not do).

      2. MarcoPolo

        Thanks, but I don’t think ESM is a solution with Germany or without. Draghi is right to take the initiative.

      3. MarcoPolo

        Some initiative, right?  I’m still not ready to concede it as “bluffing”.  Never ascribe to malfeasance what can be explained by incompetence. But events have proven you right.  It was all talk however one wishes to characterize that. Just don’t tell me to do my homework. No sane person has studied this more closely than I.  What good is a bazooka if nobody knows how to use it. 

        My sister-in-law called Monday to tell us she had had a meeting at work. She will be paid for July. Nobody knows thereafter.  If she leaves she won’t find another job.  And if she leaves her company won’t find anybody to replace her.  And a brother-in-law underwent emergency surgery Tuesday to repair an aneurism – after being admitted to hospital  3 weeks ago and sent home until they could get ready.  I was told the doctors were on strike.  Hospitals and pharmacies don’t have medicines.  There are life and death consequences to inaction.  My brother-in-law is recovering normally, but people are surely  dying as these “leaders” drag their feet.

    2. Jim

      MarcoPolo, isn’t that the rationale that Bush/Bernanke/Obama have used to justify what many believe were clearly illegal actoins by the Fed?

      If one believes that Central Bankers can do as they want in the name of “stability”, then why even have a democracy?

      1. MarcoPolo

        Won’t argue that point. Don’t know the law, but they’re going to do this anyhow. The alternative is to let German intransigence blow up the euro. Something must be done. They will do this. It may or may not work. But nothing else is working either. What occurs to me is that additional printing will only flow to foreign assets.

        1. MLS

          disagree, the reason for the tough talk from Draghi (IMO) is to give Germany excuse to exit the Euro, leaving it behind for others.

          1. MarcoPolo

            I haven’t been clear. I agree with you. Draghi’s statement raises the stakes for Germany – get with it or get out. Dragi holds the trump card. If he plays it Germany will have that decision to make.

  13. Paul Walker

    The whole idea that rules governing conduct are essential to facilitate all sorts of social aims, financial intermediation among them, are to be sundered when the sledding gets tough expressly from circumventing these same rules on a more “limited” basis to maintain confidence renders the whole concept of rulemaking, enforcement and adherence tragically farcical.

  14. rc

    Germany is maneuvering toward a political union where they will have control over member states like Greece. Everything between then and now is Kabuki theater

    1. Jim

      rc, are you then proposing that Germany would (i) not allow the residents of the state (protectorate?) of Greece to vote within a US of Europe, or (ii) grant northern European supervoting rights in parliamentary elections, similar to the ones conferred upon the founders of Zynga, Facebook and Google?

      Otherwise, in a democratic political union, how can Germany hope to dictate the terms? There are simply far more residents of the southern European states than Northern ones. And those residents will ask for sizeable permanent fiscal transfers.

      1. rc

        This is a plan that Germany is using to reel in it’s neighbors. Austerity, no austerity, bail out, no bail out. Just mind games to prepare the Piigs for slaughter. By the time Germany has pulled their Helsinki Syndrome tactics with their hapless victims, they will be willing to take anything.

        The founders of the Euro were never intended it to succeed but to use it to hook their neighbors into a political union.

        Poor Germany, they just can’t stop trying to dominate Europe

        1. rc

          I might add that countries like Greece will no longer be part of the original union but part of a 2nd teir of nations. Helpless and hopelessly dependent on the EU. A 10 nation Confederacy will remain

  15. Mac

    It seems to me that the EU has the problem of “too many cooks”.On any given day it is hard to say who in stirring the soup.

  16. Kunst

    There remains only one comprehensive solution:
    1. The ECB creates Euros and refinances all EZ debt at a low interest rate (why not zero?). Now creditors have Euros and the ECB has national bonds, and the out-of-control interest rate problem is solved. The ECB could sell Euro bonds instead of creating Euros, but it amounts to the same thing, so why bother?
    2. EZ countries may **ONLY** borrow (under limits set by the EU) from the ECB, not on the private market. Non-ECB borrowing would be be prohibited and invalid.
    3. The EU works out a plan with each country to get to budget balance in a finite time, at which point its debt no longer rises. This may take several years in some cases. Note that lower interest on existing debt helps.
    4. Effectively this means that the ECB/EU now has a means to limit deficits. You only have so much externally-sourced revenue (new ECB borrowing). Since you can’t borrow anywhere else, all you can spend is that plus your tax revenue.

    The ECB becomes the central treasury for the Eurozone. Think parent (EU, ECB) and children (the EZ countries), the latter working within a fixed budget/allowance. Note that Germany Inc doesn’t have to “bail out” other countries; in fact, they have plenty of debt for the ECB to finance. The Euro money supply doesn’t increase. All debt is meant to be repaid to the ECB, which can then extinguish it. Obviously, some debt (Greece) might need to just be written off and some haircuts might be just. Finally, a rational combination of stimulus and austerity can be put in place for each country, many of which are not in serious fundamental trouble except for the current Euro straightjacket.

    1. Jim

      Wow.

      Let’s just do away with democracy. Germans can’t be trusted with what’s best for their future. And neither can those Spaniards who want their country to leave the Eurozone.

      Let’s leave the fates of every resident in the continent of Europe to the “small group of far sighted statesmen” (Soros’ words) who came up with the Euro. What can ever go wrong.

      1. Maju

        The ECB is not “German”, Jim. Giving Germany the only control on this or other European institutions would be the anti-democratic thing. Don’t be a hypocrite.

        Incidentally, has anyone considered democracy re. the IMF or the World Bank? Last time I checked they are managed like corporations and not the public institutions they actually are.

      2. Calgacus

        Jim: There really are only two sane choices – something like Kunst’s, or the breakup of the Eurozone. Germany has no right to declare 2+2=5, no matter what its voters were promised. No matter what its courts rule. Doesn’t make it so. And doesn’t make 2+2=5 policy – the trainwreck of monetary union without fiscal “transfers” workable without colossal economic destruction, which if consistently applied, would wreck the German economy.

        A Eurozone with “transfers” is workable, a normal “country”.

        Sane, pro-employment “transfers” are NOT transfers, but a magical free lunch that amounts to the Greeks getting employment, real wealth & consumption & the Germans getting increased financial wealth in uninflated Euros.

        However, a continuation for some time of the weirdest, stupidest monetary system of all time, the Euro, with “transfers” only to support destructive behavior – like giving transfusions only to patients that stab themselves – is likely. Because all the European economies are basically wealthy & healthy – so they can follow 2+2=5 economics for some time, albeit with major suffering.

        For enough have been inculcated in the weirdest, stupidest, most innumerate economic theories of all time – modern mainstream academic economics – that make them unable to see the weird stupidity of the Euro, the incoherent, unintelligible, insanity of non-Keynesian economics.

    2. Kunst

      Sorry Jim, I tried to be clear, but you obviously understood nothing of what I proposed. Not one word of your reply addresses anything I said. Preconceived ideology sure gets in the way, doesn’t it?

      This proposal doesn’t let anyone off the hook. The debts are still there and at this level need to be repaid. The key is that the weak nations are currently being held at gunpoint by “market” interest rates that are simply fatal. The ECB can take that off the table. Then the problem can be dealt with in a rational manner over time. The problem isn’t the debt so much as the interest. It’s as if your credit card or mortgage company jacked up their interest rate, even though you have been making your payments.

      The other key is that all of these nations have to balance their budgets at some point. How and when that occurs, and when it doesn’t have to occur (e.g., during a recession) can be decided through the European political process.

      I’m not sure this will solve all problems, but the alternative is the death of the Euro. And that’s what I expect, because I don’t think Europe can get there from here.

  17. D MacDonald

    Listen to you all, Germany this, Germany that, understand, all of the important politicians in the EU have been bought and paid for.Without the Euro there is no EU, Central bank or MEP’s they will never relinquish the power they enjoy and will destroy the middle classes of Europe via devaluation of the currency (Stalin anyone?) to create the United Soviet States of Europe which was the plan from the beginning. Your freedoms are being and will be completely removed and you will be left penniless.

    1. Maju

      Soviet?! I wish it’d be Soviet: this is Pinochetism! The first thing that the Soviets did was to declare all Russian debt null and void (ha!), then retreat from all wars (Afghanistan anyone?), the collectivize all banks, industry, etc.

      We wish that was the case, here the collective property is diverted to private pockets by means of bail outs and infinite debt trap.

      Soviet?! Ha!

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