Rob Parenteau: How to Exit Austerity, Without Exiting the Euro

Yves here. This is an important post by Rob Parenteau which outlines a viable plan for subject nations austerity-afflicted Eurozone countries with reasonably-well-functioning tax bureaucracies to escape their downspiral. I fear the biggest obstacle is not the legal and economic viability of this idea, but that, in a variant of Stockholm syndrome, the leadership and elites of many of the periphery countries have come to believe that they must soldier on with economic mortification despite ample evidence that it is a failed program.

By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge and a research associate of The Levy Economics Institute. Originally posted at New Economic Perspectives

First of all, if a government stops having its own currency, it doesn’t just give up ‘control over monetary policy’…If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market, in competition with businesses, and this may prove excessively expensive or even impossible, particularly under ‘conditions of extreme urgency’…The danger then is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.

So wrote the late Wynne Godley in his August 1997 Observer article, “Curried Emu”. The design flaws in the euro were, in fact, that evident even before the launch – at least to those economists willing to take the career risk of employing heterodox economic analysis. Wynne’s early and prescient diagnosis may have come closest to identifying the ultimate flaw in the design of the eurozone – a near theological conviction that relative price adjustments in unfettered markets are a sufficiently strong force to drive economies back onto full employment growth paths.

Otherwise, why would policymakers willingly agree to give up much of their discretion in using monetary policy, fiscal policy, and exchange rate policy tools that had conventionally been used to stabilize economic growth? One would only pitch the proposal of expansionary fiscal consolidation if one shared a near theological conviction in the stabilizing properties of markets left to their own devices.

The failure of this neoliberal experiment is now all too obvious. Greece, for example, has traveled an economic trajectory over the last half decade that in many respects rivals that of the US in the Great Depression. While the immediate response of policymakers to such a failed live experiment might be to exit the euro, the short run costs of doing so can be very high. The sharp declines in newly introduced currencies on foreign exchange markets would be likely to sharply raise the cost of imported goods, and foreign investors would likely go on strike, at least until the currency had hit bottom. In the case of Greece, with fuel, food, and medicine making up a large share of the import bill, further economic disruption and destabilization would likely result from a choice to exit the eurozone. Exiting the euro does not appear to be an option – at least not one without a large risk of introducing further turmoil.

The task then becomes to thread the policy needle – namely, to exit austerity, without exiting the euro. The following simple proposal introduces an alternative financing mechanism, along with safeguards to minimize the risk of abuse of this mechanism, which may accomplish this threading of the needle.

If we can agree with the late Wynne Godley that the separation of central bank monetary policy from fiscal policy is one of the core design flaws of the eurozone, and we can acknowledge that the expansionary fiscal consolidations promised five years ago have proven anything but expansionary, then it is clear that effective demand must be revived by other measures. If private sector investment demand is going to continue to prove to weak (especially relative to private saving preferences), and if the increase in trade balance is going to continue to be made largely through import contraction (on the back of weak final domestic demand), then economic growth can only return if countries abandon austerity measures. Simply put, peripheral nations in the eurozone must regain control of their fiscal policy, and must actively pursue full employment growth policies.

To accomplish this, the following alternative public financing instrument may need to be unilaterally adopted in each peripheral nation in the eurozone. Federal governments will henceforth issue revenue anticipation notes to government employees, government suppliers, and beneficiaries of government transfers. These tax anticipation notes, which are a well known instrument of public finance by many state governments across the US, will have the following characteristics: zero coupon (no interest payment), perpetual (meaning no repayment of principal, no redemption, and hence no increase in public debt outstanding), transferable (can be sold onto third parties in open markets), and denominated in euros. In addition, and most importantly, these revenue anticipation notes would be accepted at par value by the federal government in settlement of private sector tax liabilities. The revenue anticipation notes could be distributed electronically to bank accounts of firms and households through some sort of encrypted and secure system, or they could be sent as certificates, preferably in denominations of 50 and 100 euros, to facilitate their possible ease of use in other transactions, should private agents elect to do so. Essentially, the government is securitizing the future tax liabilities of its citizens, and creating what amounts to a tax credit that will not be counted as a liability on its balance sheet, and will not require a stream of future interest payments in fiscal budgets.

One advantage of this alternative financing approach is that day one, the government issuing these tax anticipation notes (we could call them G Notes for Greece, I Notes for Italy, S Notes for Spain, etc.) can pursue the fiscal deficits that are required to return their economy to a full employment growth path. Fiscal austerity can be abandoned without abandoning the euro.

The explicit cost of this approach could involve the imposition of fines for violating the 3% fiscal deficit to GDP ratio of the Growth and Stability Pact. However, Germany openly violated this threshold in the last decade with no fines imposed, and so what is good for the goose, must be good for the gander. Moreover, if renewed fiscal stimulus is successful enough to revive the economy, tax revenues will rise, and public debt to GDP ratios are likely to fall. After all, the outcome of recent episodes of fiscal consolidation has been rising, not falling debt to GDP ratios, as fiscal restraint has held back nominal GDP growth, or led to outright declines in nominal incomes. Finally, in countries with current account deficits that are in excess of 3% of GDP, the rules of double entry bookkeeping imply countries will need to violate the 3% fiscal deficit to GDP rule if their domestic private sectors are to be kept off of deficit spending paths.

In addition, the use of these tax anticipation notes will tend to free up more euros for payment of externally held public debt. Euros may also be freed up to pay for imports of essential goods like food, fuel, and medicine as well, at least until fiscal policy can help develop domestic production in these areas. With both the ECB and eurozone commercial bank balance sheets shrinking over the past year, the supply of euros may be contracting. This contraction of bank balance sheets may be making it more difficult for each country to acquire more euros by selling assets or tradable goods to holders (and more importantly, creators) of euros.

Of course, to make this alternative financing mechanism, enforcement of tax collection will need to be improved in some nations. A more equally distribution of the tax burden across citizens would also help in the issuance of these notes. To accomplish this, citizens will also need to take back their democracies from what Jamie Galbraith has termed the predator state. Otherwise, there is a risk that programs facilitated by the issuance of tax anticipation notes will just become another vehicle for political patronage.

A second criticism of this alternative financing mechanism is that it would offer a quick route to accelerating inflation, if not hyperinflation, as some of the constraints on government budgets would be reduced or removed. To address this, it might be helpful for the central bank of each country to be held responsible for not only monitoring inflation conditions, but also for creating early warning systems for the possible acceleration of inflation. Both exercises could be overseen and validated by an independent third party – say IMF or ECB staff.

Hard rules could then be set in place along the following lines: should inflation accelerate through say a 4% YoY ceiling for more than six months in any nation, the Treasury of that nation would have to implement an across the board sequestration on government spending of 5%. This sequestration would remain in effect until the inflation rate dropped below 4% for at least six months. A schedule for ratcheting such measures if inflation continues to accelerate above the ceiling could surely be devised. Alternatively, taxes could be increased on households to create a deferred savings pool, much as Singapore currently employs, and much as Keynes proposed for WWII England.

In addition, public/private inquiries into the specific location of supply bottlenecks in the chain of production could trigger the redirection of infrastructure spending to help clear those bottlenecks. Inquiries into sectors with above normal profit margins or real wage growth persistently in excess of labor productivity growth could also be launched. Excess profit taxes designed to incentivize higher reinvestment rates, as well as collaborative bargaining in cases of aggressive labor demands, could be required to address any such inflationary pressures on the supply side. Using these tax anticipation notes to implement an employer of last resort approach to labor market improvement could also have a stabilizing effect on inflation. It is not hard, in other words, to create the demand and supply side policy mechanisms that could reduce the odds of an ever-accelerating inflation once fiscal policy is liberated.  After all, the fear of this outcome is one of the reasons the eurozone was designed with precisely the division between central banks and fiscal policy that Wynne Godley identified in the opening quote.

Austerity has proven to be a disaster on nearly all fronts. It is time to abandon the fatal conceit of the neoliberals. Economies are not naturally drawn to full employment growth paths when prices are free to adjust . We know this from the theories of Keynes, Fisher, and Minsky, and we know it from historical and direct experience – yet this was the central premise, as well as the fundamental design flaw, behind the European Monetary Union. This theology of “markets uber alles” has been demonstrated to be very questionable, if not deceitful, both in theory and in practice. The human cost of the neoliberal conceit has proven both tragic and unacceptable. Furthermore, this live and misguided experiment in neoliberalism has set in motion dynamics of political and social polarization and dissolution – dynamics that are blatantly antithetical to the original unifying intention supposedly behind the eurozone project.

Yet countries can, in fact, exit the hell of enforced austerity policies without having to take on the very significant challenges of exiting the euro. It is possible to thread the needle. Through this alternative financing mechanism, the tax anticipation notes, countries can regain control of their fiscal policy, and mend the design flaw that Wynne Godley identified well before the first euro had even been issued. Perhaps there would be no better tribute to the man, as well as to the powerful and useful insights of heterodox economics, as the foundation and relevance of mainstream economics is increasingly in question. Another world is possible. There is, in fact, contrary to Lady Thatcher, an alternative. That alternative may very well be within reach, but only if current policymakers are willing to embrace innovative policy measures like the tax anticipation notes proposed herein.

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  1. charles 2

    By treaties, the tax anticipation notes cannot be made legal tender.
    Therefore, any private company could not be forced to accept it at par value, and would be crazy to do so. Once civil servants and government suppliers realize that the real value of what they receive is less than they expected, they will quickly sour on the deal…

    The only inflation is would create is general level of price increase when the prizes are denominated in tax anticipation notes. Denominated in euro, the price are most likely to go down.

    Ironically, it sounds like an effective idea to implement wage reduction of public employees, as the Germans want.

    This being said, it would be a useful tool to prepare an exit from the euro as the economic infrastructure would get used to a dual currency system. All countries, including Germany, should implement it, and banks should set aside enough capital to be able at any time to stand for the shock of an immediate conversion of their euro asset/liabilities into the TAN of their respective countries. The more I think about it, the more I see this tool as the beginning of the end for the euro rather than its savior !

    1. JohnB

      Tax Anticipation Notes (TAN’s), issued in 100 Euro face value, will pay down exactly €100 in tax liabilities.

      If you trade TAN’s on the private markets, and this causes them to drop in value to €95 for example, then this allows all companies/people not holding TAN’s, to extinguish €100 worth of taxes, by spending only €95 buying TAN’s (a 5% reduction in tax liabilities – very nice!).

      So, this would create high demand for TAN’s, which then cause them to move back up to parity with the Euro.

      Considering this, it makes no logical sense to assume they would be worth less than Euro’s (maybe a miniscule amount less, if anything).

      1. GRP

        It depends on the volume of the TANs issued. The demand for TANs at par is only to the extent of one’s current tax liabilities. Accumultion of TANs for future tax liabilities will be at a discounted rate. So for the TANs to be accepted at par, the total volume in any given time period should not exceed the total tax liability of the private sector in that period. Not sure what has been achieved by issuing the TANs since they would have spent the same amount in the period even without TANs.

        Unless it acquires a legal tender status, a TAN will trade at a discounted rate. Of course, it is a completely different affair if it acquires a legal tender status and is used for settling private accounts in the country and not just for paying taxes. That would have the effect of introducing a national currency, but without a banking system.

      2. Ruben

        The fact that TANs would pay at par for tax liabilities may not be enough to guarantee parity with the euro in the wider economy. After all not all payments are taxes so the demand for devalued TANs to pay taxes would not be sufficient to pull the value up to parity. For payments other than taxes people would understand that TANs are just a parallel currency and it would remained devalued, probably substantially devalued. Instead of TAN people would call them Drachmas/Liras/Pesetas. So I tend to think that charles 2’s point is a valid one.

        1. JohnB

          If they trade at less than parity, why would they not just then get snapped up by people looking to cut down their tax bill? That’s a logical reason for TAN’s to be in very high demand, thus very close to parity.

          1. vlade

            depends on the amount of taxes. If the (estimated) taxes are less than amount of TANs issued, they will trade at discount (since you may not get to use them). If you issue TANs that can be redeemed over more than one year, then there’s time discount (why pay 100EUR now for a tax liability that ou’re going to extinguish in 5 years?). If you issue too many TANs, that may imply higher taxes too, so again not a great for economy that’s already struggling..

            IIRC, there was a similar instrument that Continental congress issued in late 18th century, and had wide discount rate to greenbacks (but could be wrong, not my area of expertise).

            1. from Mexico

              vlade said:

              If you issue TANs that can be redeemed over more than one year, then there’s time discount (why pay 100EUR now for a tax liability that ou’re going to extinguish in 5 years?).

              But isn’t the entire purpose of the TANs to deficit spend? So the deficit imperative makes issuing more TANS than can be redeemed in the current tax season a necessity if its goals are to be achieved.

              The governments could designate TANs as the only form of acceptable tax payment, which might help buoy their value.

              Predicting the future market value for TANs is a fools’ game. People might decide to hold them for reasons which have nothing to do with instrumental calculation, such as patriotic or nationalistic sentiments. They might also decide to hold them if they perceive some sort of secondary economic benefit, as I believe Parenteau predicts.

              1. vlade

                If a 100 EUR trades deliverable at 2 years in future trades at discount to 100 EUR today, then TANs most certainly will trade at discount.

                That of course doesn’t make TANs worthless idea – it’s just that the argument 100TAN=100EUR(today) doesn’t hold. As for the patriotic etc. holders – if TANs were required to be the only acceptable means to pay taxes (which would in all practical means equal withdrawal from EUR, not a bad thing in itself, but unlikely as it stands right now), the major users would be companies (unless there’ no pay-as-you-go system), not private individuals. Thus this argument would likely not apply either.

                To an extent, the discussion about TAN trading at discount or not is sort of dumb. If TANs are not perfect substitute to EUR in all forms and means, there will be discount. If TANS are perfect subtitute, then two things apply – a) you just effectively left EUR (so there will be discount to EUR) b) even EUR trade at discount to EUR (i.e. 1 EUR today will buy you more than 1 EUR in future)

            2. Min

              “IIRC, there was a similar instrument that Continental congress issued in late 18th century, and had wide discount rate to greenbacks (but could be wrong, not my area of expertise).”

              The Continental Congress issued Continental Dollars during the Revolutionary War, which was before the Articles of Confederation, which itself was before the formation of the United States under the Constitution. Continental Dollars were not accepted at par in payment of taxes. Benjamin Franklin advised that Congress be given taxation powers, but the states did not do so. Nor did they pledge to accept Continental Dollars in payment of their own taxes. Little surprise (to Franklin and to us today) that the Continental became almost worthless.

          2. GRP

            TANs will have parity with Euro only as long as the TANs available is less than the tax liability in the period. Not sure why anyone would like to buy a TAN at par today for a payment to be made in future, since while the TAN in one’s possession earns nothing, a Euro in one’s possession can earn an interest. Taxes can be paid in TANs or Euros. So buying and holding TANs while losing potential revenue from Euros doesn’t make financial sense. So the only financial reason to buy TANs today would be that they are available at some discounted price that will offset the potential revenues from the Euro. The discount increases as the time when the taxes are due increases. To hold the market value of TAN as close to Euro as possible, the government will have to regulate their supply to be equal to the taxes due in the immediate time period. But that defeats the very purpose of issuing TANs. If the government issues TANs far in excess of the taxes due in the time period, they will be discounted heavily in a positive feedback cycle until TAN value becomes close to zero. The only way it can be avoided is if the government issues TANs, not as a source of public finance, at least initially, but as an alternate instrument for paying taxes and keeps its volume much less than the taxes due in the time period, so that they are guarranteed to trade at par and are used in commerce and over time increase their supply slowly so as not to shake the confidence of the public in its value. Even then it needs to have all the advantages of the Euro (available in physical and electronic form, easily swicthed from one form to the other and electronic payment system) for it to replace Euro in domestic transactions. Something that will take a very long time to accomplish.

  2. Calgacus

    Charles – the Euro isn’t legal tender in many Eurozone jurisdictions, IIRC. Legal tender or not just isn’t important, and can only have minuscule effects.

    TANs would probably trade at some small discount. But this depends on the size of the tax liabilities relative to the TAN issuance, which would relate to the size of the (external & internal) national debts they are meant to diminish. If the (especially external) debt is big enough relative to the nation’s economic potential, which sets an upper bound on the taxation reflux giving the TANs value, the smartest plan (besides coming up with a con game) can’t do anything, and the TAN discounts would become deep.

    My own view is that even Greece’s debt is still small enough that with great leadership, an FDR, an Alexander (?), they could use Parenteau’s TANs and a lot of full employment hard work to get themselves out of the hole they are in. But they would have to be very lucky to have that, very wise to understand that.

    1. from Mexico

      Calgacus says:

      …with great leadership, an FDR, an Alexander (?), they could use Parenteau’s TANs and a lot of full employment hard work to get themselves out of the hole they are in.

      But doesn’t this again move us into the realm of intanglibles: whether the leader selling the TANs has the ability to instill trust, confidence and enthusiasm?

      The sociopathic Hoover, for instance, could never have achieved what FDR did:

      President Roosevelt’s first fireside chat was perfectly attuned. Quiet, uncondescending, clear, and confident, it was an incredibly skillful performance. The banks opened without any such renewed panic as had been feared. They might not have done so had people realized that it was impossible, in a few days, to separate the sound banks from the unsound with any certainty, and that errors were bound to be made. The story goes that one bank had been in such bad shape that its directors decided not even to put in an application to reopen; through a clerical slip this bank was put on the wrong list, received a clean bill of health, and opened with flying colors! In some places, to be sure, there were bank runs even after the opening–runs which had to be met unquestioningly with Federal funds, lest the whole trouble begin over again. And so many banks had to be kept shut anyhow that ten per cent or more of the deposits of the country were still tied up after March 15, and the national economic machinery thus remained partially crippled. On the whole, however, the opening was an immense success. Confidence had come back with a rush; for the people had been captivated and persuaded by a President who seemed to believe in them and was giving them action, action, action.

      The New Deal had made a brilliant beginning.

      The problem I see is that Europe, including Greece, has not produced a single leading political figure who is not cut out of the same moth eaten cloth as Herbert Hoover was.

      1. Brooklin Bridge

        This is a little picky, but in these times of super restrictive selection and vetting of candidates by TPTB, before a voter even becomes aware of them, it’s perhaps inaccurate to say a modern country procedures a great leader? Did not even FDR slip through the cracks of this process? From his pedigree, who could have known he would come down on the side of the people?

        All I’m getting at is that there is probably at least someone who COULD lead Greece out of this mess, but there are also a number of vested interests that will make sure that doesn’t happen.

        It is a serious flaw in any political system that there is no sure fire way to ensure a great leader when society desperately needs one and it seems Americans have a hard time accepting that two such incredible miracles in a row (Lincoln and FDR) were indeed just that; miracles, and not built in to the structure of Democracy.

  3. The Dork of Cork

    Ehhh – using the Euro in any form , a expression of pure evil will not work.
    Keep it simple stupid.
    Introduce domestic demand notes and ban free banking & most especially car purchase in your jurisdiction and these euro wastelands will return to areas of rational domestic demand in short order.

    My home town is booming these past few weeks – sucking in imports and living the high life as people finally run down their hard money deposits……with traffic jams (burning imports) going into Cork over this Christmas season.
    But people have not read the Euro Clause.
    It will not end well.
    Expect a slight rise in Ireland fuel consumption balance for 2013 and a further titanic drop in the years ahead.

    Perfectly good 1990s era petrol cars are being scrapped (supposedly for our safety under Euro imposed car test rules) so as to make space for new capital expensive diesel cars……destabilizing the entire oil refinery sector
    Since 2010 new cars sales continue to be in the region of 70 – 80 thousand a year.

  4. Yancey Ward

    A terrible idea unless its purpose is to prepare for exit from the Euro. Only one entity in the entire country would be accepting these notes at face value- the central government. In other words, buying power of the issuing governments would be decreasing from day one, not increasing as the proposal states. It would not free up Euros as the author states- the central government would be collecting less and less of those as time goes on, and it would be printing and collecting more and more of the bad money instead. The author needs familiarize himself with Gresham’s Law.

    1. Yancey Ward

      And just to make it clear to all- within months the issuing government would stop accepting these notes at par for taxes, and would instead only accept them at a discount, further eroding their value. You cannot compare this to, let’s say California issuing short term IOUs. In the case of California, they end up having to redeem at par in dollars by actually collecting the taxes in dollars, or turning the non-interest notes into interest notes by borrowing dollars. If Greece, for example, were to actually mimic California, its Euro-denominated debt would eventually rise in the exact amount of the issued IOU

    2. Min

      “It would not free up Euros as the author states- the central government would be collecting less and less of those as time goes on, and it would be printing and collecting more and more of the bad money instead. The author needs familiarize himself with Gresham’s Law.”

      You are right that the TANs would be “bad money” under Gresham’s Law and tend to drive Euros out of circulation. However, the Massachusetts Colony in the 1690s started its own currency, and it was a roaring success. Other colonies followed suit, and the result was an increase in prosperity. (There had not been enough British Pounds in circulation in the colonies, which is the main reason that the US used Spanish Dollars, and named its currency dollars.)

      1. Min

        The situation in depressed Euro countries is similar. There are not enough Euros in circulation in those countries. TANs could make up the difference. And the experience of the British colonies in America shows that issuing TANs could be successful. Besides, the current course is a long depression.

      2. Yancey Ward


        The Massachusetts Colony was a success before it introduced public paper currency (and it only did it then because of an ill-conceived attempt to lay siege to Quebec). And the history afterwards suggests that the issuance of that currency, and its subsequent replacements in 1750 and 1751 did not contribute to the colony’s continued economic success (and I am not even discussing the hard money, silver and gold coins, that England had to infuse into MA to prop up these issues- something Greece won’t be in a position to do)

        Greece may be no worse off for following Parenteau’s advice (though I doubt that seriously), but I question it really improves the situation either. What Greece should have done 4 years ago was write down the debt to every creditor. If they are in a position of primary surplus today (I am agnostic on this being true), then maybe they are in a position to negotiate better terms with the Troika.

        1. Min

          “What Greece should have done 4 years ago was write down the debt to every creditor.”

          IIUC, that would have threatened French and German banks, and the EU would not agree. Some 80% of the so-called Greek bailouts went to foreign creditors, even with the write-downs that were in effect.

          1. vlade

            As we saw with Argentina, whetherthe creditor does or desn’t agree matters little. What people somehow don’t get is that once creditor hands over the debt, there may be relatively little they can do afterwards (especially when the debtor is a sovereign and you’re unwilling to declare a war)

      1. vlade

        The major problem of MMT in my view always was that while it describes extremely well what is really happening with money, it fails to take into account the human irrationality (i.e. just because all things being equal, you can “print” w/o inflation doesn’t mean that humans won’t panic irrationally especially when nudged by media and you don’t get a problem) . Seems a common fault with economists.

  5. Ignacio

    This is the first succint and comprehensive solution I have ever read to the infamous “internal devaluation” process. It goes beyond the fantasies of banking or fiscal unions that have been so much discussed but nobody really believes that would do the miracle.

    As Yves notes, the problem is not the lack of solutions but the unwillingness of policy makers to 1) recognise their past and current errors and 2) work hard for the benefit of the citizens they represent, which are ALL citizens, not only those who voted them or those who finance legally or illegally their activities.

    I don’t see any kind of leadership whose objectives are to remediate the damage done after the financial crash. Moreover, the mediocrities in charge only seem interested on advertising themselves and transform their inability in a success story.

  6. Synoia

    The danger then is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.

    So wrote the late Wynne Godley in his August 1997 Observer article, “Curried Emu”. The design flaws in the euro were, in fact, that evident even before the launch

    Ok, please tell me why this is also not true for the US Dollar and the States.

  7. Synoia

    Floating the Tax anticipation notes against the Euro would provide a mechanism to restore mational currencies.

    I suggest we call the Itanian ones Lira, the Greek Drachma, The Irish the Pund, etc.

    Those without the Sivrign Currebcy can remain thralls of Germany.

  8. The Dork of Cork

    The periphery transfers and concentrates its surplus wealth to the Financial capitals and core in general and what does it get in return ?
    Debt and BMWs
    We cannot afford to buy what they are selling.
    If that is the case the production / distribution and consumption system has broken down.
    Which means finance has no function other then extraction (it always was the case I guess)

    Continued free banking activity in the periphery makes capital scarce by destroying it as quickly as it becomes available.

    The Electricity Output in Ireland is now trending much lower after a period of shallow decline over the previous years of crisis
    (gigawat hours)
    Y2009 M10 : 2,211
    Y2010 M10 : 2,213
    Y2011 M10 : 2,215
    Y2012 m10 : 2,157

    Y2013 M10 : 1,989 !!

    Please look at gross and net figures to get a historical trend of the current entropy in the system – which is now much worse then the previous phase of euro deflation /integration during the early 1980s

    Access line chart / graph

    Please remember (discount the propaganda) our population is rising !!!! after a period of record per capital population growth during the euro boom years.
    Energy consumption per person is tanking.

    Economics as a discipline which seeks to improve our standard of living is now a activity which happens elsewhere on the planet.
    The lesson for today and infact everyday….
    In the Euro you are worth more dead then alive !!!

  9. The Dork of Cork

    Watched this on Irish Anti -State TV land.

    We happy few in Ireland must embrace Pirates simply because they are given letters of Marque.

    The English speaking world has certainly embraced its Tudor roots with a unhealthy gusto.

    Pirates do not create wealth……….they concentrate it.

    Watching this show you can see quite clearly the Euro is a creature of the Fed & BoE who help their knights suck up the last drops of fuel.
    But what happens to the investments when the society implodes ?
    But its also possible their plan to replace the Irish who have given up on life will somehow work.
    A Ireland filled with eastern European automans previously crushed by communism is their true goal me thinks.

    1. Synoia

      The Euro is no creation of the B of E.

      The Irish Government brought this upon the Irish people by not following the example of Iceland.Any Government which is not sovereign in its own currency should unconditionally grantee private Bank’s debts.
      Own goal It appears.

  10. Samuel Conner

    On the Cartalist understanding of sovereign currencies, the monetary sovereign’s issued currency is a tax credit, a promise to extinguish so much of the holder’s tax obligation, and it derives its value from the sovereign’s power to punish those who refuse to pay in the specified form.

    So this definitely is a parallel currency, that is notionally par with the Euro.

    For this to work well in Greece, tax enforcement might need to improve, as RP noted.

    I wonder whether it would be helpful to impose an additional tax requirement that a certain proportion of each citizen’s tax bill be paid in this alternative currency. That must violate a treaty or two, but perhaps that would be a good thing. That, coupled with good tax enforcement, would drive the alternative currency to par (or even perhaps a bit above par, depending on how plentiful it was); it wouldn’t simply be usable; it would be necessary.

    Implement a job guarantee program with a proportion of the wages paid in these credits; the workers would have no trouble finding takers for them.

  11. The Dork of Cork

    “The sharp declines in newly introduced currencies on foreign exchange markets would be likely to sharply raise the cost of imported goods, and foreign investors would likely go on strike, at least until the currency had hit bottom. In the case of Greece, with fuel, food, and medicine making up a large share of the import bill, further economic disruption and destabilization would likely result from a choice to exit the eurozone.”

    A focus on the price of fuel here……but thats not the problem with oil.
    Its scarcity……not enough is available for basic life support.
    But why ?
    The European Entreport wastes oil on toy manufacture …no matter how efficient it is at toy manufacture …it just makes more toys.
    If we in the periphery refuse to buy its toys oil is set free for other more basic uses.

    More diesel is burned in the Icelandic fisheries then in its road transport for a reason.

    Its oil balance is also increasing.

  12. The Dork of Cork

    As I am sure Yanis would agree – the production / distribution / consumption loop is already broken in Euroland.

    So what are are you trying to save ?
    The Euro is dead already

    People really want wine women and song……not cars built in the core.
    Its as simple as that.

    If there is money in the village people will follow the money back to the village.

    We are now living in a artificial Environment.
    Corporate forces have prevented the production of money which will flow back to the village.

    Hardy Kruger : tell me what did you do before you entered the field of civic administration ?

    Anthony Quinn : Oh I was a wine seller sir ….

    Hardy Kruger : and whom did you sell your wine.

    Anthony Quinn : well anybody who had the money to pay for it……..get it ?

    The decline of table wine consumption has been dramatic in France and Italy since the deflation post 1980.

    All so to pay for cars and the black liquid which goes into it.

    The 1979 /80 event was a crisis of German capital and the financial capitals which have backed it over generations.

  13. praedor

    So it might violate a few ill-conceived treaties? Meh. Violate them then as such treaties are invalid and criminal to start with. Besides, the US has demonstrated numerous times that treaties are irrelevant. Do it and screw the ECB criminal syndicate and screw the EU technocrat neoliberal thieves.

    A nation is insane and ill-led to EVER give up control of its own currency. Money and banking must be made to serve society, not society serve the banks and money.

  14. MacroStrategy Edge

    Thank you all for your comments on my proposal. The illiquidity discount issue on TANs keeps coming up, I have noticed. Consider the possibility that, through multiplier effects, which even the IMF acknowledges now (a lifetime after Keynes and Kahn wrote about them), the fiscal stimulus that is made possible by the use of TANs will increase private sector incomes by an amount greater than the increase in fiscal expenditures and/or tax cuts…hence private incomes will increase…hence tax liabilities will increase…creating an immediate shortage of TAN’s…hence perhaps either reducing the illiquidity discount…or maybe even introducing a premium to the euro! In addition, consider the possibility, though it is not the main intent of the TAN proposal, that the private sector begins to use and accept TANs as a means of settling private transactions…which immediately increases the demand for TANs in excess of the current period tax liability…and so could also lead to a TAN trading above face value, or at a premium to the euro. In other words, while this is an admittedly complex question, I think it is still far from obvious that TANs will trade below face value. Unfortunately, the proposal is uniquely structured enough that we do not have any historical examples to look at (though I would love to be proven wrong about that), all we have is theory and the practical experiences with examples that are similar, but only remotely so. In any case, I think the political momentum set into motion once economies begin to revive in response to the freeing up of fiscal policy from a TAN financing approach will be a very important dynamic, a live experiment if you will, that falsifies the Troika’s counterproductive (and suicidal, for workers and citizens, for democracy, and ultimately, for the euro itself) claims that there is no alternative to fiscal austerity and markets (rentiers? finanzkapital) uber alles. Thank you again for all your comments, and I encourage you to send links of this piece Yves as so kindly posted on Naked Capitalism to other websites interested in such matters, on your Facebook page, to other economists and policy makers and economic and financial media journalists, as I don’t want this idea to just disappear into the ADD sinkhole of the blogosphere, and more importantly, I want to know where this approach is flawed and correct it before implementing it, if indeed there are major flaws to be found (I have yet to hear one, but I am not so stupid an arrogant to think any policy proposal cooked up by humans is impeccable). Too many people are suffering unnecessarily – this is not just a matter of correcting economic theory (ideology?) or debating policy measures in the abstract. It is time for us to break the stranglehold of ill informed (if not outright sociopathic) terrorist economics.

    1. vlade

      the moment TANs would trade above EUR, it would make more sense to settle any tax liability (TL) in EUR – as long as both TAN and EUR are viable, equal alternatives. For exactly the reasons above.
      TANs may achieve parity with EUR if and only if they become in effect EUR (so not only tax liabilities, but useable in anything and everything EUR can be used). If TANs can’t be put into interest bearing (TAN or EUR interest, it doesn’t matter) account though, they become zero-coupon notes and thus will trade at discount (wholesale, discount may be too small for private individuals to register effectively). EUR notes don’t trade on discount to EUR because they are on-call funds useable immediately. EUR accounts though do.

      There are in effect three options. TANS are fully equal with EUR (interest bearing over time, useable in private, including foreign transactions etc. etc.), and then would bear no discount or premium to EUR. They are less flexible then EUR (for example can’t bear interest), and then are likely to trade at discount. Or they are stronger than EUR (say tax can be paid only in TAN) – then and then only there would be premium.
      There’s of course a fourth, hybrid option (like can’t be used in private transactions, but taxes can be settled only in TAN), and then all bets are off.

      That said, the more I think of it, the more I believe that any effective use of TANs in fact equals dumping EUR. Gov’t assets (well, future income stream) would be then a mix of EUR and TANs. Now, the question is how well would that mixture match its liabilities (future outgoing cashflows), since all the existing stock of debt would be in EUR. If gov’t was forced to buy EUR on international market (in exchange for TANs), I suspect than any investors would require a reasonable discount as TAN would be in effect a dual currency.
      If private sector (people + companies) decided to see TANs as alternative domestic currency, they could just park all the EUR in (say) German banks and use TANs only. That would deprive the gov’t of any EUR streams, and would either have to default on its EUR obligaitions, or sell TANs to someone for EURs and as I wrote, likely that someone would require a discount. If foreigner, then because they would have no natural liabilities to settle with TANs, if locals then, well, just because you’re selling your stashed-away EURs, you’d want more TANS for them, right (if you trust TANS as much as EUR, then you won’t stash away in the first place)? In fact, you could look not just at gov’t balance (EUR/TAN), but also private economy. If that imports more than exports (i.e. can’t cover EUR outflows with EUR inflows), you’d have to buy EUR for TANS, again at discount (or drop imports, which may or may not be possible). If you’re net exporter, then you can stash the EUR surplus somewhere and keep domestic economy in TANs. But as gov’t you are unlikely to have EUR income stream (except for EUR subsidies, which are likely insuffcient to cover the outflows).

      So I believe that introduction of TANs would be viewed as creating dual currency, and would likely equal to the country in question leaving EUR (not a bad thing IMO), whether it was the intention or not.

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