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Will Slovenia Be the Next Victim of German Politics?

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The IMF says that Slovenia will need to issue €3 billion in bonds this year. Since yields have short up from 4.5% to to as high as 6.4% as a result of the Cyprus rescue, that could be a costly order. And notice that these are dollar bond yields; the country is taking currency risk to get these funding rates. The country may be forced to seek painful assistance from the Troika.

Slovenia is commonly depicted as a potential victim of the botched Cyprus bailout, but if it is treated harshly, it will really be a victim of the hardening of attitudes in the northern nations. Austerity continues to drive periphery country economies into depressions, worsening their debt to GDP ratios, one of the key metrics the Eurocrats watch. But the surplus nations refuse to admit that their policies have failed, since they are trapped in a morality tale that depicts the debtor nations as profligates who must be punished. Never mentioned is the fact that debt levels in all advanced economies rose as e result of the global financial crisis, brought to you by American, British, French and German banks.

Like Cyprus, Slovenia’s problem is its banking sector. But it’s a tame 200% of GDP, while most measures put Cyprus’ banks at 800% to 900% of GDP. One of Slovenia’s biggest banks was one of only four in Europe to fail the capital targets (two were the banks in Cyprus now inflicting haircuts on big depositors). Non-performing loans at the three biggest banks, according to the IMF, rose from just under 16% in 2011 to over 20% last year. That means they are insolvent. The debt is mainly corporate debt, the result of lax lending by state owned banks to cronies. Slovenians commenting on a Washington Post article on the possible bailout focused on the corruption. Some examples (each paragraph is a different author):

One of the major problems here in Slovenia is that “everyone knows everyone”. This way the local wannabe managers (financial thiefs) in tie with scumbag politicians (big banks are in majority owned by the state) made some “friendly loans” that were unsecured. Those loans were then used to buy out the stock of the companies by the people managing them (manager buyouts). Yes it stinks to the high heavens. The companies later either dropped in value or went bankrupt..no way to repay a loan.. The biggest bank NLB is their milking cow…it gets recapitalized over and over by the people so the scum can take advantage of it and funnel the money they make out of the country in places like…Cyprus…

The crisis in Slovenia is result of ill conceived privatization policy of state enterprises initiated by incompetent right wing government of 2004-8 that resulted in a series of huge leveraged manager’s buyouts financed by banks: with the start of financial crisis in 2008 these manager’s buyouts went bust and banks were left with bad loans. True, in last few years a lot of corruption and white collar crimes were uncovered on all levels of society.

Corruption is finally getting some attention (it brought down Janša’s government and the mayor of Maribor, Slovenia’s second largest city) and has been in the spotlight the last few days as the new Minister of Infrastructure and Space (think zoning and land use) and the brother of the ex-president of Slovenia have both been caught building illegal buildings without permits on land restricted to agriculture. The minister had to step down, the shortest term, 4 days, for any minister in the short history of the country (a bit over 20 years old).

1/3 of the rescue funds would go to shoring up the sick banks. Slovenia hopes to avoid that by having the banks earn their way out of their hole. Reuters described the approach:

One of the key tweaks now under consideration, according to RBS, is the creation of internal bad banks within each of the country’s largest financial lenders, postponing any transfer of toxic assets to an external bank asset management company to a later date.

“Initially, bad assets would be transferred to the internal bad banks and backed simply by government guarantees,” said Abbas Ameli-Renani, an emerging market strategist at RBS.

Under the original proposal, assets would have been transferred immediately to the BAMC in exchange for newly-issued government bonds.

While there will be a simultaneous recapitalisation of banks under both arrangements, the new version would not result in an immediate spike in the government’s debt level, because the authorities would initially provide banks with guarantees rather than newly issued securities.

One of the downsides, however, is that the plan will keep bad assets on banks’ balance sheets and under the same management.

Richard Field adds:

Keeping the bad assets on banks’ balance sheets is not a ‘bug’, but a feature. By making the banks absorb the losses on all the excess debt in the financial system, the government is establishing how much in the way of future earnings must be retained to recapitalize the banks.

Going forward, the banks will retain 100% of pre-banker bonus earnings until they have rebuilt their book capital levels.

While it is conceivable this approach could work, I would not give it high odds. The last time I can recall it succeeding (as opposed for serving as official cover for zombification) was in the US in the aftermath of the S&L crisis. Many of the surviving banks had dangerously low capital levels. Many banking experts at the time were deeply worried about more failures and whether the banks were too weak to do enough lending to support growth. Greenspan engineered an unprecedentedly steep yield curve to help banks rebuild their balance sheets and their recovery was faster than the pundits expected.

The reason I doubt this approach can restore the banks to health (although it can reduce the size of the funding needs) is that first, they are deeply insolvent. Second, they don’t have the tail wind of easy and unusually rich “borrow short-lend long” profits. Third, the economy in the Eurozone is deteriorating, and a small open economy like Slovenia is certain to share in the pain. Fourth, housing is overvalued, and a fall in that market could leave the banks with more losses.

By contrast, Slovenia’s debt to GDP ratio is a modest 54%, which would seem to give it a fair bit of borrowing headroom. But skittish markets aren’t discriminating. If its interest rates remain high or rise, Slovenia may turn to the Troika of help. And that is where things could get ugly.

Some believe the dictatorial posture that the EU and IMF, particularly the EU, took with Cyprus was the result of the rise of an anti-Euro party in Germany. Its position is that continuing to provide support to periphery countries is bad for them and Germany. Merkel needs to play tough through the elections regardless; the anti-Euro party appears to be shifting the benchmarks for what “tough” means.

One open question is what stance the new center left government will take in any negotiations. The president, Alenka Bratušek, has made clear that she wants to give priority to growth, not debt reduction. But that does not square with Germany’s position. Slovenia and Germany could get into a row over the reforms required of Slovenia in return for assistance. If Slovenia attempts to push back against the Troika, it’s certain to get a forceful rejection just as Cyprus did. And another display of brute force is unlikely to go unnoticed by Italy and Spain.

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59 comments

  1. Swedish Lex

    Sweden organised a referendum in 2003 on whether to adopt the euro or to stick with the Krona. A group of experts issued a recommendation prior to the referendum saying that the euro was a promising project that offered plenty of advantages. However, the experts continued, the euro project is stuffed with uncertainties and risks too that can not be properly assesed at this point. Their recommendation was to wait and see. 56% voted against the euro.

    Suffice to say that support for the euro has not increased since :)

    What makes me wonder is how countries like Poland still are banging on the door to join Angela’s S&M Club. I do not get it.

    Footnote: I was in favor of Sweden joining the euro. I realised that many of the arguments against the euro were valid (anything but an optimal currency area), but I believed that the first euro crisis would provide the political momentum to create the necessary fiscal and political union to make the whole thing work. In my mind, Helmut Kohl (like his social democrat predecessor) would not have doubted a minute to push the “political union” button had they still been in power. As Kohl did with East Germany. He did not count the Pfennigs that reunification would cost. He just did it and nobody questions it today. He would have done the same thing with the euro.

    But now we are stuck with Merkel with no real hope in sight (other than maybe the German elections in September). As things stand today, I can only hope that Cyprus leaves the euro. They should do it quick and dirty. It would mean a year of hardship instead of a decade of depression under German rule.

    1. IF

      In an alternate universe Helmut “The Pear” Kohl would have paid for everything using the petty cash from his Portokasse that he laundered through Luxembourg, Switzerland and Liechtenstein. Europe would have turned overnight into a blooming landscape and nobody would have questioned if the money might have been made using illegal weapon deals. Alas, Angela did question him, saved the conservative party and he became history (at least he has a young wife now).

      Looking at everything from an economic only perspective makes people dull. I know K keeps saying Cyprus should default ASAP. But what is the outlook? The neighbor to the north invaded it, the neighbor to the east is in a civil war, the neighbor to the south has an unfinished revolution. Move the island to a friendlier location! That said I also don’t understand Poland. Angela is of Polish heritage, but that can’t be it.

      1. PoleP

        As a Polish guy I can explain Poland: it is the lack of acceptance of being a peripheral country. Poles still have this memory of Poland from the 15th century when we were the second power on the continent. The same is seen in Spain and Portugal. Their elites want to “belong” in Europe where they think their place is. There is also a huge fear of Moscow so everything that anchors Poland in the EU and makes us more of a core European country is seen as a goal in itself. All this combined with lack of any economic thought in Poland other than the orthodox school (Polish economists were allowed to study in America in the 80s on US govt funded stipend programs and they all studied Chicago-school economics and this now passes for economic science in Poland). Polish elites think that Greece, Cyprus etc. are lazy southerners who simply didn’t try hard enough, that we can avoid these mistakes. So there you have it. But one also has to remember that it is politics, the Polish elites mostly only pay lip service to accession in the EZ but say that this is to happen “after Euro problems have been ironed out” (meaning never), some say it is just a cynical ploy to show our commitment in the face of Poland being a huge recipient of EU money.

          1. prufrock

            That is true for Spain & pesetas, for Italy & lira…
            What about a sudden exit of Italy and Spain, back to devaluing currencies? How will be the reaction for Poles, Hungarians, Czechs: are they getting closer to EZ or running away from the mega-partner: Germany?
            Finally: what about Frau Merkel when Uncle Vlad will come closer? What about German exports when Chines will start production of high standard machinery (’cause they will as they miss money or human capital to do that)?

        1. Dave of Maryland

          PoleP has it exactly right. Dimon and Goldman are rational actors, bent on self-aggrandisement. We may not like them, but we can anticipate what they’re likely to do.

          Finance ministers are essentially Sir Humphrey types from Yes Minister. Their motivations are long-standing and do not necessarily have anything to do with actually helping the victim country. God help us.

          1. curlydan

            great comments! As economists recommend that Greece and Cyprus leave the Euro for their own benefit and then watch as it doesn’t happen, you’ve revealed much of why it doesn’t. The current bureaucrats and politicians like being in the EU on on the Euro. If they’re not in it, they can’t go to the parties and conferences and would look like little guys instead. God forbid they give up those perks to help their people! They’ve got conferences in Switzerland to go to. Frat brothers unite!

  2. Gina

    I suppose that explains why Slovenia has been Germany’s biggest backer in its hardline stance towards Greece and Cyprus. My suspicion is that Slovenia will never get the same treatment that Greece got. I think Germany wants to “break” the “periphery” block by turning one against the other. Hence the “preferential” (if you can call it that) for Portugal and Ireland. I mean didn’t these countries effectively get a haircut a few weeks back with maturity extensions and lower interests and also extensions of time in which to meet their fiscal targets. Or did I get that wrong? Poland wants to join the EU because they believe that their economic success in the last few years can be put down…to them and to them alone. That they’re going to be able to compete one day with Germany in terms of exports. That they’ve made it. They’re running on a high and totally in love with Germany at the moment. Anyway, maybe it’s all words, all part of the media parade being orchestrated by Germany. Otherwise it’s hard to explain why Poland would want to join the Euro at this stage or why Northern Europe would even want them to join…

    1. Systemic Disorder

      The Netherlands and Finland are arguably Germany’s strongest backers, but let us not quibble over small details. Regardless, I see no reason why Slovenia won’t get the same hard-line treatment, particularly if it has go to the Troika before the German elections.

      As to Poland, it is not “in love with Germany” but rather fearful of, and hostile to, Russia. Poland wants the embrace of the European Union and the United States as a counter to Russia, and if one wants a bear hug from the E.U., nowadays that means aligning with Germany.

      And, as PoleP correctly says above, Polish economic “science” is totally dominated by Chicago School thinking – Polish “expert” opinion thus aligns with E.U./austerity orthodox thinking. Throw in the mystical and non-sensical idea common in the E.U. periphery that being outside the eurozone is equal to being outside Europe and we have a concatenation of factors putting Poland in Germany’s orbit.

      The point of getting Central and Southern Europe into the E.U. from the point of view of Western and Northern European capitalist elites was to have a convenient source of low-cost labor — in other words, the newcomers were to be as Mexico is to the United States. Austerity by another method.

  3. Conscience of a Conservative

    The World needs to wake up to the fact that we have an ongoing solvency crisis on our hands that we continue to treat as a liquidity crisis. I fear that Europe and in particular the United States will be revisiting many of the unresolved issues of 2008.

      1. different clue

        If the citizenries could reconquer their governments from the powerful, the citizenries could use their reconquered governments to stop that patching of upper class holes right now. Bit can the citizenries reconquer their governments even if the citizenries decide to state the problem in those terms?

        Whether yes or no, might individual citizens at least turn some of their meager money back into wealth? Because physical non-money wealth is a little harder to steal for hole-patching than money is. For example, how easy is it for the upper class to steal a thousand dollars apiece from a hundred million bank accounts to patch a hole? Is it just as easy for the upper class to steal a thousand dollars worth of canned food, toilet paper, shoes, socks, underwear, etc. apiece from a hundred million households to patch the same hole? Has the time come for a very slow very partial “run” on “money” itself?

    1. jake chase

      Does everyone else know where Slovenia is? What did it use to be, Czechoslovokia (I’m guessing)? How long has it been independent? Was this one of Woodrow Wilson’s accomplishments, or did it follow the Soviet Union’s collapse? Perhaps it should be carved up into counties, boroughs, etc? Sounds like making the world safe for democracy mostly makes it profitable for gangster politicians and their cronies. Can’t say I’m surprised. Good luck to the people there, whereever it is.

      1. different clue

        To the best of my memory, Slovenia was the northernmost “Republic” of Yugoslavia; and the first to break away. It is either just south of Slovakia, or somewhat southeast of Slovakia. I am just guessing, of course.

        1. jake chase

          Natural mistake; don’t be so intolerant. Do you really think it matters where it is?

          1. Kristjan

            It does! Man wasnt intolerant, its kinda normal if you look on the map before quessing anything. We (slovenian people) are all scared what the Troika decisions and actions will take part in our small country. Situation is bad, young people cant get job and here is full of corruption. Especially between politics! And cuz most of banks and large companies are in government hands, there is full of corruption there too indeed. A we (little people) cant do anything. Is this democracy? You can go to elections and vote some..someone who will steal less then his predecessor..cuz everybody is stealing and the man in the back of the entire system have all the cords in their hands and are doing whatever they want to do since we are independent. Thats the main reason for our problems. Politics are very very corrupt and they screwed our country and let little people down on their promises and lies. Sincerely, Slovenian youngster.

  4. carol

    “Some believe the dictatorial posture that the EU and IMF, particularly the EU, took with Cyprus was the result of the rise of an anti-Euro party in Germany.”

    The new anti-euro party wants Germany to leave the euro irrespective of bail-outs. The party considers the euro a failed experiment.

    It was the German SPD (labour party) that did not want to spent taxpayers money to bail-out non-EU oligarchs.

    One of the many sad aspects of the Cypres case is that billionairs have been able to take most (all?) of ‘their’ money out of Cypres via associated banks in Russia and UK, even during the ‘closed’ week!
    Probably, well connected Cypriots have been forwarned and transfered their accounts too.
    That’s why the euro-group has not mentioned any amount the depositor bail-in will deliver, and why the IMF has not decided yet if it could loan money to Cyprus.

    1. Linus Huber

      @ Carol

      You are right. It is all about the treat to Merkel’s re-election chances that produced the latest bail-in and has very little to do with anything else.

    2. Milton Arbogast

      Do you have your own blog, because what you have said strikes me as entirely accurate and I would be fascinated to learn what else you had to say.

    3. jake chase

      A failed experiment? Seems to me it has worked pretty well for the people who engineered it. Or do you mean from the point of view of the populations? Well, you can’t make omelettes without breaking eggs.

      Anybody could have predicted all this twenty years ago. All these peripheral countries borrowing cheaply in Euros. Politicians shoveling up the money as fast as it came in. Corporations raking in the sweetheart deals, executives siphoning up the profits. The only thing produced was empty promises, and of course unserviceable debts, and gigantic corporate swindles.

      Did the Scandanavians at least get more convenient winter vacations? There should have been a less destabilizing way to make that possible.

  5. RueTheDay

    “its banking sector…a tame 200% of GDP
    One of Slovenia’s biggest banks…fail the capital targets
    Non-performing loans at the three biggest banks…rose from just under 16% in 2011 to over 20% last year
    Slovenia’s debt to GDP ratio is a modest 54%”

    Honestly, this doesn’t sound like crisis material to me.

    It sounds like they have one bank that has big problems, two banks that have smaller problems, and government finances that are pretty much in order.

    The smart move would be for the troika to deal with the one problem bank in isolation while the Slovenian government provides modest assistance to shore up the other banks.

    The dumb move would be to pull an Ireland and make the bank’s problems the entire country’s problems.

    That does not mean I expect them to make the smart move.

  6. Diego Schiavon

    I am sorry for our Slovenian neighbours (I am Italian). They are really a very nice people in a lovely country.

    However, I would like to remark about the frequent incitations to a Southern revolt in Italy, Spain, or France. Many articles on the Euro crisis end with “… but wait until this happens in a big, bad country like (Italy, Spain, France) and THEN watch the SOutherners really get angry!”

    (“And another display of brute force is unlikely to go unnoticed by Italy and Spain.”)

    Alright, let me cue you in: Italians are not going to do anything. Italy is but a collection of small states, mostly unable to form a real government, let alone to take the initiative on monetary issues. The Euro is not on any party program: people do not think their problems originate from the Euro, but they blame themselves and our politicians.

    Italians have a deep respect for Northerners, even after all.

    The same applies to Spain, and Spain is both smaller and poorer than Italy. Do not look for change there.

    The natural leader of the New Roman Empire is France. Too bad that France turned itself into Germany’s dumb sidekick. Hollande is not popular in France, and even less abroad.

    The situation is clearly untenable and is going to end. The Euro as it exists today is going to disappear. But it is not going to happen through the democratic process of a large Southern country.

    1. different clue

      Will all the “Southern European” countries become a series of Moldovas and Belaruses, then?

    2. banger

      Good comment. I think, generally, speaking we are moving towards a period of decentralization in many countries. The era of the nation state, I believe, is fading and power will go both down and up. Part of the power move will be towards smaller regional entities and powerful neo-feudal forces of big corporations and part will go “up” towards the emergent Empire that is the globalist project. The center of this Empire is where the muscle is and that is the U.S. with its overwhelming military force that now has claim to the entire planet. Let’s be clear here–the U.S. reserves for itself the right to kill, torture, detain anyone anywhere on the whim of the White House which seems to be something that European public seems to ignore and thus is in ultimate control of all countries in the world, even China. Economics as something discrete does not exist–it is a subset of politics. The finance oligarchs, in the U.S., now have political control of the entire system.

  7. neretva

    I am actually glad they are in shit! “Very nice people” not sure about that either. I am hesitant of giving out such statement. To my mind an individuals might and can be “nice” not a nations.

    “The IMF says that Slovenia…”, by the IMF you mean U.S. Treasury, right? What we have now and before is so-called neoliberal policy of the U.S. Gov. (nominally called Chicago School) in collusion with German’s version of that policy, called ordo-liberalism of “Freiburg School”. More precisely speaking both “schools” are policy driven and aren’t coming from nowhere. Both schools are tools in accumulation of capital, i.e. looting and pillaging somebody’s else wealth.

    As for Slovenia, once an exemplar of “successful transition” is classic story of country governed by U.S. and German’s picked elite, also known as Comprador class. Slovenia’s and its economy once the most developed country in former Yugoslavia is practically dismantled and non existent.

    And Slovenia isn’t the country in full sense of that word. It is an entity without its will and policy.

    After Slovenia and maybe Hungary (whose right-wing Gov. is hostile IMF) next in line is Luxembourg. See here:

    http://www.mf.public.lu/actualites/2013/03/pr_financial_markets_270313/index.html

    and, there are insisting that: “The spirit is and must remain European.” Nonsense, just ask German’s elite what they think about “European spirit”.

    http://english.ruvr.ru/2013_03_28/Luxembourg-is-the-next-Cyprus/

    1. prufrock

      “nice people” is plain translation from italian: that just means “I feel confortable downtown Lubjana” (untold: not so in Berlin!)
      I fully subscribe second paragraph: economics sold as scientific knowledge, maybe truth, has excited silly minded and robber barons in the past decades.
      All that’s coming from academic “economist”, never mind how much “prestige” is usually attached to their brands, is pure shit.

      1. neretva

        “I feel confortable downtown Lubjana”. Ljubljana…you cannot pronounce this unless you know the language.
        Downtown is Ok, while a city is kind of dull…train station is terrible. But it was long ago when I was there, in meantime a things maybe are improved.

      2. squasha

        whether a product of google translate or of shattered English, your comment is somehow an apt and dazzling bit of poetry.

    2. financial matters

      Oh boy, this is getting serious.. I hate to quote too much from wikipedia but..

      “”Luxembourg’s stable and high-income market economy features moderate growth, low inflation, and a high level of innovation.

      As of 2011, according to the IMF, Luxembourg was the second richest country in the world

      Services, especially banking and finance, account for the majority of economic output. Luxembourg is the world’s second largest investment fund centre(after the United States), the most important private banking centre in the eurozone and Europe’s leading centre for reinsurance companies. Moreover, the Luxembourg government has aimed to attract internet start-ups, with Skype and Amazon being two of the many internet companies that have shifted their regional headquarters to Luxembourg.

      n April 2009, concern about Luxembourg’s banking secrecy laws, as well as its reputation as a tax haven, led to its being added to a “grey list” of nations with questionable banking arrangements by the G20. In response, the country soon after adopted OECD standards on exchange of information and was subsequently added into the category of ‘jurisdictions that have substantially implemented the internationally agreed tax standard.’[36][37] In March 2010, the Sunday Telegraph reported that most of Kim Jong-Il’s $4bn in secret accounts is in Luxembourg banks.[38] Amazon.co.uk also benefits from Luxembourg tax loop holes by laundering substantial UK revenues as reported by The Guardian in April 2012″”

      1. neretva

        But, isn’t the Netherlands is having the same type of “economy” a casino one? I know that an Irish U2, and some other celebrities from Ireland don’t remember which one right now, group have “residence” in the Netherlands just because to avoid paying taxes in Ireland.
        Now cynical and orthodox liberal Dutch politicians (as well as from Scandinavia) are preaching and imposing austerity in third-tiered EU countries.
        EU devouring itself, a crisis has come to a Europe’s Core countries, which is good.

        1. allcoppedout

          I guess Luxembourg is a nether-land country but we usually mean Holland when we say Netherlands (though Holland is only part of it). That Netherlands shares, with the UK, mega-exposure to shadow banking. Luxembourg is gifted with many EU institutions and generally operates as a tax-money-laundering centre and generates a lot of business selling cheap booze and fags. The Germans might want to bring it down out of envy!

      2. allcoppedout

        Luxembourg is the centre for many transfer pricing and tax avoidance scams. If I buy from Amazon or drink a Starbucks in the UK I don’t feel subsidised by this. Maybe some of our governments have a spreadsheet telling them how much they are losing and standard excuses like Laffer curves no longer hold sway?

          1. ambrit

            Dear xrayed;
            That was Napoleon commenting on the Popes’ aspirations. (Although the Pope does have Banco Ambrosiano, and all those Jesuit financial managers.)

      3. jake chase

        Only $4billion? And he owns the whole country? Just shows you how productive Communism is. What do they export? Sand and gravel? No, I bet it’s lumber, or some exotic mineral. Anybody know?

        1. AbyNormal

          interesting Jake…
          Total exports to North Korea for 2012 were less than $12 million, and in some months there was no trade at all. By comparison, the United States sold nearly $39 billion worth of goods to South Korea last year.
          http://www.slate.com/articles/news_and_politics/explainer/2013/01/north_korean_trade_restrictions_is_there_anything_left_for_the_u_s_or_u.html

          “the North Korean government has been quite successful in running capitalist enterprises abroad, ensuring a steady flow of foreign currency to the coffers in Pyongyang. North Korea runs trading companies in Thailand, Hong Kong, Macau and Cambodia, which export North Korean goods – mostly clothing, plastics and minerals such as copper – to the region. At the same time, they import various kinds of foodstuffs, light machinery, electronic goods, and, in the past, dual-purpose chemicals, which have civilian as well as military applications. Those companies were – and still are – run by the powerful Daesong group of companies”
          http://wiki.answers.com/Q/What_does_North_Korea_export_and_import

        2. financial matters

          ‘Treasure Islands’ has a lot of good info on this general topic.

          “The system was working two transformations simultaneously; helping criminal enterprises imitate legitimate business, and encouraging legitimate businesses to behave more like criminal enterprises.

          And the secrecy, in turn, provided the managers of large corporations with fabulous new opportunities for bribery, insider trading, and fraud. A new crime-friendly environment was being created for American capitalism. The scale of this criminality can hardly be guessed at. But secrecy makes criminality possible. And in competitive markets, whatever is possible becomes necessary.”"

          What’s being seen now is a dicey game being played with the possibility of the
          emergence of fascist leaders or outright wars. It’s hard to imagine
          the EU and IMF pulling a Cyprus on Luxembourg. Such as confiscating 4
          billion dollars of Kim Jong-Il’s money or that of African
          leaders and even US and European political leaders and corporation executives. But this off-shoring of money is very destabilizing to their local
          economies and leads to damaging austerity programs while concentrating
          wealth among the few.

          It’s taken this game of ‘musical chairs’ as the deleveraging going on
          is exposing many liabilities that aren’t covered by appropriate assets
          to expose many of these fraudulent and criminal activities and getting major ‘players’ fighting against each other for what is left.

          1. jake chase

            I like that: “helping criminal enterprises imitate legitimate business, and encouraging legitimate businesses to behave more like criminal enterprises”- it makes a nice 10 second commercial spot. Moreover, that sounds like a full service bank to me. All they need in addition is credit cards and a derivative book.

  8. allcoppedout

    It is impossible to apply hard science to these issues. I do sometimes try to think as a scientist without knowledge of economics – difficult as I teach the subject in business context. I always find, in this thought experiment, that I just would not start with concepts from economics. A key finding in ‘anthropological archaeology’ is that the lives of a certain class of people got worse with our turn to agriculture – something we might call ‘broken back syndrome amongst the sod turners’. A book of examples later, I conclude the problem with real-world economics – the theories-in-action as opposed to espoused – is that it has no way of fairly organising work and reward against such ideals we might cherish like real democracy and proper guardianship of the planet. This no doubt looks like naive thinking. I then find myself thinking about how we organise such matters as ‘a trip to Mars’ (Newton, Einstein, the 3-body problem, moving space and down to stuff like the crew having to line (with proper hygiene) the craft with their excrement to protect against ‘space weather’. Lots of other complex systems flow – the arms’ race of co-evolution, combating Lyme’s disease, parasitism as the most common lifestyle – and I find myself questioning why I an feel some much more competent as a scientist than economist or increasingly disaffected cog in the political machine.
    Popper once pointed out that Freud and Marx could not be scientific because if you went against the theories you were immediately in denial or false-consciousness. As we repeatedly see “economics” destroy the potential of most ordinary lives (and those of the few through hedonism in a libidinal economy) we are told it is because we just won’t engage in real free markets – the neoclassic form of the denial-false-consciousness routine.
    I’m less inclined to worry who is next to go under as a country in the great depression (I guess Luxembourg, Switzerland, UK – though all bets are off if the USD goes down) – but on how and why we are in thrall to a mad control fraud that keeps on failing. Invited on a space ship to Mars built by economists I would simply wish the crew godspeed and utter a silent atheist prayer, noting that oars are an unlikely propulsion system. If the crew were Critical Theorists I’d want to save, I’d be happy in the thought none of them could row.
    Deep don we seem scared of the idea of a world of people with enough “money and security” to be able to tell power they will only work for “things and a quality of life” they want. I have instant reservations about this state myself as a manager and through experience of free-loading and the dire trivia most people “want” – from plastic crap, neat mobile phones to Saudi princes raiding Syrian refugee camps for wives. Nonetheless, with much of ‘Robot Heaven’ with us in principle and some practice, the lack of modern thought experiments (such as what place Calvinist work ethic would have in 100% Robot Heaven – how could we morally keep people poor when machines do all the work etc?) and repeated fetish concerns with homilies from the 18th century leaves me cold.

    The current model seems no better than handing over bags of electronic cash to people who trouser it and at most engage in acts of charity similar to pouring slops over a medieval monastery wall. In the UK we have a Chancellor so smart he has just created a British Fanny Mae/Freddy Mac! As one country after another faces becoming Cyprus (by the end of next week we will be discovering wee don’t know the half of that – note three old-fogey judges are already rostered for the cover-up) we have no politics of lancing the banking boil generally and production-based (responsible type) schemes for people to work their way out of the mess without seeing the toil go to paying off bank debts.

    1. jake chase

      Very interesting, but you are judging economics from only one perspective. It produces excellent results for those who control the debate, and it is not designed for any other purpose. As for the people left out in the cold, those who are not lobotomized by propaganda are controlled fairly effectively by a police establishment. Plus, there are numerous loopholes and niches for those who are sufficiently nimble, and these can often be exploited without recourse to criminality.

      Of course, a good many of those are closing these days.

  9. Hugh

    Conditions throughout the EZ and EU, including Germany, are getting worse. It is the Titanic. The hole hasn’t been patched. The ship is still taking on water. Indeed no one seems to be even looking at the hole, and the pumps are turned on only intermittently to keep water out of the first class dining area. There can only be one end to this process. The rich aren’t worried though. They still think they can make it to the lifeboats ahead of everyone else. For one thing, they bribed the crew and believe the crew will stay bribed when the time comes for them to flee.

    Slovenia may be the next on the list, but in a lot of ways it doesn’t matter. Europe is going down. It is falling apart before our eyes. This is what falling apart looks like. This is what kleptocracy does. It is happening not just to Europe but to the world economy in general and all the other regional blocs and major economic players. Slovenia isn’t Cyprus, but then the US and China aren’t the EU. Still we see economy after economy running on empty, bubbles and the aftermath of bubbles yet no real attempt to fix any problem while every effort is made to keep the gamblers at the tables. This too is a Titanic, and it too has only one end.

  10. emmrob

    The financial powers ‘that be’ will recognize that the current crisis is a solvency crisis and not a liquidity crisis as soon as it has ceased to be their solvency crisis and became the solvency crisis of “we the people”.

    Readers from the Netherlands and Belgium who are interested in background information regarding the euro, our money system and the financial crisis can visit the following site:

    http://www.economie-macht-maatschappij.com/index.html

  11. Linus Huber

    It is interesting to watch how Americans gaze over to Europe but do not realize how there own country is ramped into the ground.

    Europe is a simply one of the first problems to occur but rather a symptom of a much larger global problem. The real problem is the inflationary monetary policy over the past decades that led to this unsustainable creditboom and will slowly grind down the citizens’ purchasing power either through massive inflation or direct theft as demonstrated in the latest “rescue”. It is all about protecting the power structure presently in place and I for one welcome any development that undermines the present situation, simply as the sustainability is not really understood or purposefully ignored. This applies not simply to Europe but to the same degree to the US or Japan.

    1. jake chase

      Actually, inasmuch as the only financial problem is unserviceable debt, the only practical financial solution is inflation. The value of money decreased by a factor of 20 from 1968 to 2008. Unfortunately, debt increased much faster.

      I would bet that prices and wages will at least double within five years. Of course all the real problems (notably energy and climate) will not only remain but dramatically worsen.

      Of course deflation and liquidation would work too, but the political fallout is too unpredictable for the elite to chance it.

      1. financial matters

        With the USD as the major global currency there also seems to be a limit as to how much inflation we can export without causing more destabilizing ‘Arab springs’. The efforts at developing a BRICS currency could be helpful here.

        I think the best hope for the USD and general global financial stability is to root out the fraud which is present on many levels and shift more to an equity/industry friendly system rather than a debt based system.

        1. jake chase

          Well, you are discussing the merits; I am focused on understanding the game. Debt money and continual recapitalization of assets is what one might call the ‘regime of capitalist extraction’. Don’t expect it to end any time soon. Revolution is impractical and looters don’t cut back voluntarily. I don’t think it pays to underestimate the power of propaganda.

      2. Linus Huber

        @ financial matters

        The only real solution is to write off unserviceable debt. The idea to resolve the problem via inflation does distort the economy further and will lead to an ever increasing wealth gap between the 0,1% and 99,9%.

        I do know the idea of inflating the debt away but has not exactly this inflationary monetary policy produced the present crisis situation.

        We all can recognize that values that damage the smooth functioning of a society are increasingly undermined, that the rule of law serves simply to protect the present power structure and has nothing to do with the principles of the real rule of law, that free market principles are being replaced by central planning and that responsibilities (that must remain the duty of a citizen in order to remain free) have been delegated to the state to allow a consequential race to irresponsible and selfish behaviour in order to extract the maximum personal benefits at the expense of society at large.

  12. Haper

    I dont see how Slovenia can eb in conection with Germany.
    Slovenia is state in Adriatic Sea, bordering to Italy, Croatia, Hunagary and Avstria. Slovenia is state south East from Alps. Germany is some state norht of Alps(mountains).
    Those two countries dont have even the same language.
    Slovenia is have the same langauge that states in Balkan peninsula, like Srbia and Bolgaria. And you can came to Slovenia, if you go up of river Dunabe and River Sava from Srbia. It is imposible to came from Germany to Slovenia. Only with aeroplane. You can come also to Slovenia with ship very easy from Italy. From Germany not.
    I think you have comfused now here some countries.

  13. Haper

    And who privatising there companies are mainly, ex-Yugoslavs, Russians, and or American Slovenes. Others dont have even right to privatisate there, according a laws there.

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