Eurozone Leaders Fiddling as Rome Starts to Burn? (Updated)

Worries about the Eurozone have heretofore been depicted as afflicting the periphery. But even though Italy is geographically on the margin, if the crisis engulfs it, it irreparably damages the core. And that time seems to be upon us.

European leaders have managed to muscle their way through an existential crisis with eleventh hour patch-up remedies that have worked for as little as days and sometimes as long as months. But the spectacle of the Greek rescue being retraded while in progress (Greece was told to take an austerity bullet to prevent default for now, but insufficient take-up of the debt rollover, an outcome that was clearly widely known, since it was discussed in the Financial Times, has led the powers that be to deal with nasty realities and consider the “D” word, for at least some of the bonds. That in turn led to a market freakout which continues today.

Ambrose Evans-Pritchard of the Telegraph explains why this escalation of the crisis looks so dire:
Yields on Italian 10-year bonds hit a post-EMU high of 5.3pc on Friday. This is not just a theoretical price: the Italian treasury has to roll over €69bn (£61bn) in August and September; it must tap the markets for €500bn before the end of 2013. The interest burden on Italy’s €1.84 trillion stock of public debt is about to rise very fast.

Spanish yields punched even higher, through the danger line of 5.7pc. The bond markets of both countries are replicating the pattern seen in Greece, Portugal, and Ireland before each spiraled into insolvency. And the virus is moving up the European map. French banks alone have $472bn (£394bn) of exposure to Italy and $175bn to Spain, according to the Bank for International Settlements.

European stocks are down in a serious way, and the euro continues its swan dive and S&P futures are trading down 14 points, a recovery from down 20 about an hour ago. From the Wall Street Journal:

European stocks opened sharply lower Tuesday and the euro remained under pressure, as investors continued to fret that the region’s debt crisis is spreading to Italy.

The Stoxx Europe 600 Index opened down 0.6%. Frankfurt’s DAX and Paris’s CAC-40 Index both dropped 1.7%, while London’s FTSE 100—less exposed to the euro-zone crisis than its continental peers—slipped 0.3%. The Milan market opened 2% lower.

Italian banks were among the heaviest fallers in early trade, amid concerns about their exposure to sovereign debt and fears some may not pass upcoming stress tests. Intesa Sanpaolo SpA fell 5.7% in Milan, while UniCredit SpA lost 7.1% before its shares were suspended from trading. Banca Monte dei Paschi di Siena SpA dropped 3.9%.

Fears that Italy may be the next country to be embroiled in a debt crisis, together with comments from International Monetary Fund Managing Director Christine Lagarde on Monday that it was too early to discuss a second Greek bailout, sent the euro to a four-month low against the dollar at $1.3932.

Those opening quotes understate the degree of deterioration. The FTSE is now down 1.7%, the DAX 2.3% and the
The latest reading from Bloomberg describes how the specter of European leaders casting about for new remedies is failing to reassure investors:

European finance chiefs cast about for a strategy to halt Greece’s debt spiral, reviving previously discarded ideas and sharpening a dispute with central bankers as the rot spread to Italy.

As exploding bond yields in Italy and Spain brought the crisis closer to the heart of the euro area, Europe’s search for answers took it back to a proposal scuttled by Germany this year to buy back discounted debt. Also being considered are remedies that would put Greece into temporary default, countering pleas from the European Central Bank to avoid that step at all costs.

The brainstorming in Brussels failed to stem the plunge in European shares and bonds of the most-debt laden countries, reflecting investor concern that their efforts will be overwhelmed. The euro fell to its weakest in four months. Italy’s 10-year bond yields exceeded 6 percent, reaching the highest since 1997. Milan’s stock index fell to its lowest in more than two years.
“They are misjudging the size of the problem they face,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Plc. “This is a euro-wide crisis and again they are behind the curve.”

Nine hours of talks yesterday yielded a six-paragraph statement in which the 17 euro governments pledged to flesh out a new master plan “shortly” to end the 21-month-old crisis, without setting a timeline. The meetings resumed today with all 27 EU finance ministers plotting a response to the release of bank stress tests later this week.

And to make matters worse, Berlusconi has decided to oust his well-respected finance minister at the worst possible juncture. David Malone explains (hat tip reader Jeremy) why this is key to the crisis is spreading from Greece to Italy without impairing Portugal and Spain first, as expected:

First let’s remember that Mr Tremonti is Italy’s answer to America’s Greenspan. He has governed Italy with Berlusconi for 15 of the last 17 years and spent many of them as finance minister. During that time Italy’s debt has climbed to about 120% of GDP and over 2 trillion euros. Right or wrong people see Tremonti as the man who has protected Italy and her banks. They fear that without him something bad will happen. I think they’re right. Without him some bad things will surface….

This is the logic that I think explains why the market sells UniCredit like it has the plague at the slightest hint of trouble. I think the market knows or at least suspects that UniCredit is in very bad shape and will only survive for as long as it’s [sic] friends have total control over Italian regional and National politics. Should Tremonti, in particular, lose his grip, then UniCredit’s viability suddenly looks very fragile indeed.

And if UniCredit looks fragile then so does Italy as a whole. UniCredit’s fall would bring Italy down, gold reserves or no gold reserves.

In my opinion Italy as well as UniCredit is in far, far worse shape than has so far been admitted. Italy has, I think, hidden debts in its Cities and regions, particularly those of the North. I think we will see ‘new’ debts surfacing, particularly if Berlusconi and or Tremonti goes.

But as Evans-Pritchard reminds readers, the real issues go much deeper:

More loan packages solve nothing. Pretending that this is just a liquidity crisis will no longer wash….Germany must now be willing either to buy or guarantee Spanish and Italian debt, and in doing so to cross the Rubicon to fiscal and political union, or accept that EMU must break up with calamitous consequences for German foreign policy. Large matters, beyond the intellectual vision of Germany’s current leaders.

It will also take a total purge of the ECB’s leadership, which clings to its madcap doctrine that monetary policy can be separated from other emergency operations, and which chose last week of all moments to raise interest rates again and kick Spain in the teeth. It did so knowing that the one-year Euribor rate used to price more than 90pc of Spanish mortgages must rise in lock-step.

And he rejects the rationale for the rate increases:

Where is the inflation threat? The eurozone’s M1 money supply has contracted on a month-to-month basis over the past two months, with sharper declines in the periphery. Annualized M1 growth is falling, not rising: it was 2.9pc in March, 1.6pc in April, and 1.2pc in May. Broader M3 grew at a rate of 2.2pc over the past three months.

The PMI data for Italy and Spain have dropped below the recession line. The Goldman Sachs global PMI indicator shows that 80pc of the world is tipping into a slowdown, including India and China. Taiwan’s bell-weather exports to China sank 12pc in June from the month before.

The blind dedication to austerity is not just driving countries like Ireland and Greece over the cliff but now about to take the Eurozone project along with it. There is a big difference between a severe, painful but relatively short-term dislocation of writing down bad debt and imposing losses on bondholder by forcing haircuts or equity conversions on them and the grinding process of deflation. The latter doesn’t simply destroy wealth; it has the potential to fracture the social order. Yet political leaders, addicted to expediency, are playing a far higher stakes game than they seem willing to comprehend.

Update 6:00 AM: Mirabile dictu, someone seems to have floated a rumor that is making Mr. Market a tad less anxious. Per Clusterstock:


After crashing 4% earlier, the FTSE MIB index is back to being flat on the day, following talk of the ECB stepping into buying bonds.
Still, most markets around the world are getting clubbed, just less than they were earlier.
Italian short-term yields are still higher on the day, though less so than they were earlier (see here).

Spain is off about 0.8%

Germany is down 1.7%.

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  1. Hubert

    I want to argue several points here:
    1) The common use of the word “austerity”. There is no real austerity policy. In nearly all parts of the Eurozone we have big budget deficit. A surplus would be austerity.
    2) The ECB repo rate is 1,5 percent. Real inflation rates are between 3-7% all over the Eurozone (not the official figures). All people living here will attest to that. So we have negative real interest rates – as we should have in our system as disgusting as it is.
    Yes AEP, they should have stayed down at 1,25 – but this is not a big deal. Another tactical blunder probably, a crisis-generating-measure maybe if one thinks Machiavellian.
    3) Banks are bankrupt. As always. Nationallize the institutions and throw these criminals out. Forbid CDS. Default and restructure bad debts. Will they do it? No, they will try again and again to kick the can down the road because the European political class is in bed with the national banking classes.
    4) There is NO SOLUTION. Great harm will have to be endured on way or another. You can have big trouble now or even bigger trouble later. Tertium non est.

    1. Leverage

      There is no inflation (except in minds), I’m from Spain and the only thing inflationary is energy and taxes. Get over it, that sort of inflation is unavoidable and will keep raising over the years. And anyway there is not much ECB can do about it, thank Bernanke for useless QEII and ‘managing expectations’ crew.

      But anything else, from real state to wages and even food is in deflation or stationary.

      There is no austerity? Yes there is, deficits in aggregate are being reducen. What this means is that if governments were speding 10.000 now they are spending 8.000. This means cuts, means austerity and means that if private sector is deleveraging and saving, the money has to come from somewhere. Somewhere is government, and if government reduces spending and increases taxes this means reduced savings for private sector, hence lower deleverage and to that you have to add contraction of demand, which means worsening deficit (because tax base is reduced).

      Certainly some purge of some public spending is not unwelcome, specially in places like Greece. But too much of a medicine can be damaging, and this is something the idiotic european elites seem to not get. There is no easy solution but this is mostly a manufactured problem (no shit, Sherlock!) by misunerstanding of how the system functions, what is money, what is a deficit, what is debt and corrupted private and public system, etc.

      If it wasn’t because this sucks it would be hilarious. Meanwhile we are udnermining real capital, destroying output and employment and not fixing real problems (like too much dependence on external inputs like oil or gas.

      1. Diego Méndez

        I totally agree with Leverage.

        If Hubert lives on the European core, its opinion about inflation may only point to a slight asset reflation there, compared to the depression-like asset deflation we are feeling in Spain (despite artificial support for some assets, such as real estate).

        There is no way out of the hole if Germany & co. do not boom through internal demand and experience some moderate inflation (6% range), allowing the periphery the opportunity to sell our products to them in order to repay debt.

        1. Hubert

          My point was “There is now way out of the hole”. No “IF”.
          I am old-fashioned: Cost of living means cost of living to me. Not capricious money figures. I live in Germany. I experienced inflation here for the last 10 years and substantially higher than the figures. I spend holidays with family in Italy, and prices there have gone up between 5-7% per year. I always stay at the same place with kids at the Adriatic Sea. Prices go up every year.

          1. Diego Méndez


            I don’t think cost of living is going up in Spain right now. As Leverage said, we’ve got some very minor inflation due to a rise in taxes and higher gas (oil) prices.

            Official stats may not be capturing it, but real estate is putting the Spanish economy in deflation. In a country where 90% of the people buy their own homes and 60% of family income is spent on real estate, that means deflation in the long term. (The same deflation applies to people renting a home, but they’re in a tiny minority anyway).

            And regarding food, prices in restaurants, bars, shops, etc. I haven’t felt any significant inflation in Spain in the last two years. In fact, many prices are going down, directly or indirectly (discounts, etc.).

            There are also fewer products and services to choose from, since many businesses are closing and many others are reducing the range of products in order to cut prices (e.g. Mercadona food stores).

            So the feeling here is definitely not inflationary.

      2. Hubert

        reg: Spanish real estate prices going down – please, where should they go after this foolish boom ? It certainly feels like “austerity” once the RE Ponzi stops – it just is not austerity but “normalcy”…… Get used to it.

        1. Leverage

          They should go down, off course. But that is deflation, not inflation, no matter how you spin it. I’m not saying it should be otherwise, I’m saying forces are deflationary, and if anyone does not spend, it will get even worse. What have to do housing prices with “austerity”? Don’t mix things which are not related at all (as if government spending would mean rising real estate prices).

          Austerity means cuts, not deficits. If you understand how the money system works you will understand that it’s impossible for the economy to run without eternal government deficits unless there is a extreme credit expansion (which is inflationary and unstabilizing by its own merits) or current account surplus (and this is non-sensical in aggregate anyway, because to have current account surplus someone else must run a deficit).

          Only in the head of European politicians, Trichet et al. is possible to cut spending while repairing balance sheets and increasing private savings. Get this over your thick skull, policy makers. Or better yet, end this silly euro thing which is unsustainable in the long term without structural and politically impossible changes anyway.

    2. swedish lex

      Echo that
      Only certain categories of people are enduring real austerity, like seeing basic public salaries cut. Real living costs are up, like the beer I just ordered….

    3. F. Beard

      There is NO SOLUTION. Hubert

      I disagree:

      1) Forbid any more credit creation by Eurozone banks pending fundamental reform.

      2) Send monthly bailout checks of Euros to every Eurozone citizen, including savers, equal in total to the amount of existing credit paid off the previous month. Continue till every Eurozone citizen was debt-free.

      The above would fix everyone, including the banks, with neither inflation nor deflation.

      It’s only money and money is only accounting entries.

      1. skippy

        Quibble…”It’s only money and money is only accounting entries.”
        Skippy here… Money is many things, observer / observed thingy, but on the pointy end of the stick_it_*is* societal advantage…See: SCOTUS Personhood et al status as the penetrating tip.

        Skippy…Check your history and the need to modify monies, the time frames are nearing a single line….oops….its folding in on its self as we speak.

    4. Maju

      I agree with all you say Hubert but no. 4: IF bankruptcy is declared and banks nationalized (after bankruptcy, citizens do not have to assume private debts, just guarantee the economical basics by impeding that small accounts vanish overnight), that is a solution which deflects the problem elsewhere, where again that will be the only possible solution: active socialism, placing the state and the people on top of the economy and not in the subordinate place they are now.

      With that as political plan, all problems can be solved. Only the rich would notice loses because with proper horizontal democratic economic planning, the public can get all it needs, just as in pre-war Yugoslavia (one of the most advanced European countries then, mind you).

      Only if war is imposed by foreign powers wanting to plunder their infinite loan machine would harm happen. Otherwise only good things can happen: loss of power by private neofeudal oligarchs, proper distribution of wealth and workload among all citizens, improving and expansion of democracy, incorporation of environmental issues into economic planning at all levels.

      It is the way ahead! The only way ahead!

      But the neofeudal lords we call capitalists, banksters, investors… will fight, are already fighting with all their might in order to impede this unavoidable development of socialism or economic democracy. And that’s why it looks like there is a problem (silly accountancy “problem” easily solved by starting a blank book) in their media outlets: because they are not willing to lose their profits… at any cost.

      And there is where the risk lays: are they willing to destroy planet Earth altogether before accepting defeat?

  2. bmeisen

    Ignoring the update, this fits in nicely with a kabalistic long on gold. Glen Beck isn’t worrying I bet.

  3. Diego Méndez

    The EU and the euro have lots of problems, OK. (As if the rest of the world didn’t…)

    However, I see all those authors and blogger trying to rationalize why “the market” did what it did yesterday. And I keep saying to myself: are they nuts or what?

    So they don’t understand easily why the market did what it did, and then they come up with very stupid answers and previously hidden suspicions as a consequence of what “the market” did yesterday.

    Let me just ask a question: if people react to what “the market” says as if there really was a market and there were no hedge funds trying to attack, manipulate and defend themselves from their previously ruinious bets against Greek debt, wouldn’t it be fantastically easy to be the market-maker one day and have the rest of the world supporting your value-destroying speculations on the next day?

  4. Ignim Brites

    It looks like the eternal return of Nietzchean economics, the revaluation of all values, is upon us once again.

  5. Allen C

    Devaluation and/or default are the well travelled paths for insolvent nations. The West has yet to accept that insolvency is possible beyond the third world.

    1. Leverage

      Most european nations have defaulted at least once in their history. Including the champions of defaults, (hyper)inflations and other stuffs in the 20th century Europe: Germans.

      So it’s not a new concept unknown to western powers at all. But maybe only in the neoliberal era of ‘the end of the history’ and ‘extend and pretend’.

      1. Hubert

        We Germans were more experts in fighting stupid World Wars. Inflations, deflations and defaults were a mere consequence. Show me one nation losing a world war and not defaulting and/or inflating. In fact, most manage to do this without a World War. Now we Germans managed to fight two within 25 years. So what would have one expected ?

        1. Diego Méndez

          Hubert, you are taking this as a Germany vs. somewhere competition.

          Leverage just said the obvious thing: every country has defaulted historically, be it directly or indirectly.

          I don’t think Germans want other people to take history as the standard with which expectations around Germany should be made. Then please apply the same indulgence with other countries.

        2. Leverage

          I don’t care if Germany had to default at some point (even if by other means, i.e. hyperinflation Weimar), it wasn’t my intention to call names or point at the german people, but rather at corrupted elites that reign over all Europe right now. Specially when a burden was put on german people and generations that they did not have to carry.

          They, as sovereign people, did what they have to do (or considered best at the moment). I don’t believe in fantasies like paying unpayable debts (as Michael Hudson says: pays that can’t be paid, won’t be paid). But now we have some sort of authoritarian central bank and political and economic interests that wants the impossible to happen, and in the process destroy whatever is left of these economies. Greece is just the start, a state falling apart, and all the european countries will eventually suffer on the rule of european corrupt elites. There is not political capital in european institutions right now, but neither in national leadership, in Greece or in Germany, and the efforts to save the banks will be fruitless.

          This people made someone, which was a believer in the european project, like me, start to hate it to the guts. But I was foolish, how such a project could be functional at all, there is not the political and social will to carry it out, and it certainly goes against the (already lacking, in the Europe of the parties) democratic values of western civilization.

  6. /L

    The Gold Standard collapse due to war expenditures in among others UK, France and Germany have to resort to the printing press.

    Hyper inflation in Germany.

    The first Gold Exchange Standard is created on the framework agreed in the Genoa summit with Pound and Dollar as complementary funds besides gold.

    The first Gold Exchange Standard is put in practice when the Pound and the Dollar is convertible with Gold. UK does set the same official gold price as before the WW I.

    September 1929 – June 1932
    New York Stock exchange collapse, Dow Jones drop from 386 to 41.

    May 1931
    Credit Anstalt Bankvereins crash. Trigger breakdown of the international credit system.

    21/9 1931
    The first old Exchange Standard collapse when UK declare that the Pound no longer is convertible to gold and let the Pond float.

    9/3 1933
    USA declares the Dollar inconvertible.

    30/1 1934
    USA devalues the Dollar slightly more than 40 percent in relation to Gold. The official gold price increase from $20.67 to $35 per oz.

  7. /L

    7/4 1943
    Two plans on how the international payment should be arranged after the Second World War is also published. One is American (White Plan), the second is English (Keynes-plan).
    July 1944 Based on the revised plan, White created the Breton-Woods the other Gold Exchange Standard, again with the dollar and sterling as reserve funds in addition to gold. The dollar, however, the main reserve currency. Two institutions established: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (later called the World Bank).

    15/7 –20/8 1947
    Unsuccessful attempts by Britain to make sterling freely exchangeable with the dollar.

    September 1949
    Sterling devalued by 30%.

    Year end 1958/59
    The second Gold Exchange Standard is applied, which means that the pound and other major currencies are freely exchangeable with the dollar at all international current transactions.

    October 1960
    First Dollar Crisis: gold price of U.S. dollars on the London gold market is up in the 38-40 dollars per ounce.
    The crisis is resolved by the establishment of the so-called gold pool, which is complemented by other support measures, including revaluations (5%) of the German mark and Dutch guilder (March 61), and the creation of special international loans (so-called GAB-loans) administered by a single executive “within the IMF, which will be called The Ten (in January 1962 ).

    24/6 1962
    The so-called Fouchet Plan for a political union between the six tipped by the Belgian Foreign Minister Spaak and his Dutch colleague Luns.

    4/2 1965
    President de Gaulle condemned the Americans’ abuse of the international payment system.

    2/6 1967
    France ceases to actively participate in the gold pool. The decision, which was secret, but revealed by a journalist on 21 / 9 1967, was taken after President de Gaulle attempts by the Israeli head of state, Ben Gurion to refrain from wars of aggression against Egypt (the Six Day War).

    18/11 1967
    Large sterling crisis. The British currency is devalued 14%

    14/3 1968
    Big dollar crisis: the price of gold on London gold market have increased to $44 per oz. The gold market is closed. During the weekend 16-17 March in Washington where all active members of the Gold pool have gathered – that is all except France. The signification of the “solution” is that the Second Gold Exchange Standard de facto ceases to exist when USA no longer unconditional exchange dollar for gold on request from Central Banks. The Gold pool is abolished, which means that price formation of Gold outside the Central banks is let free. The London Gold market is not open until beginning of April.

    1. /L

      June – Dec 1969
      Eurodollar rate (3 month) increase to double digits.

      10/8 1969
      The French Franc devalues by 10 percent.

      24/10 1969
      The German mark revalued by 8 percent.

      1-2/12 1969
      Haag summit. At The Six (EC) first summit after de Gaulle have left office (April 1969) the plans for closer political collaboration and a currency union is announced. UK gets OK on its application for admission.

      8/5 1971
      West Germany let the Dm float in an attempt to curb the dollar.

      15/8 1971
      The Second Gold Exchange Standard breakdown definitely when USA declares the Dollar inconvertible. The dollar is floating.

      18/12 1971
      In the so-called Washington Agreement the system is passably patched. U.S. agrees to devalue the dollar relative to gold, but without reintroducing the dollar gold convertibility. Gold’s official price increase from 35 to 38 dollars per ounce. Other currencies, particularly the German Mark and Japanese Yen is revalued to strengthening the dollar. The allowable margins on the new official parities widened from 1 to 2.25% up and down.

      1/1 – 30/6 1972
      Steep rise in gold prices on the London market (43-68 dollars per ounce).

      Mars 1972
      The so called currency snake is established by the EG countries, they make the fluctuation margin more narrow than an was agreed in Washington December 1971 (+- 2,25 %). EG Central Banks shall intervene to keep with their own currencies to keep exchange rates inside the margin.

      1/5 1972
      UK join the EG currency snake.

      23/6 1972
      Big Pound crisis, UK leaves the currency snake.

      1. ming

        Thank you /L for the history update. It should make all those persons ‘pining’ for the Gold Standard to take pause…it is not the panacea to inflation and ‘sound money’ as is advocated by the Gold Bugs.

        I am suprised that MR.Ambrose Evans-Pritchard says that ‘Germany will have guareentee the debt of Spain and Italy’…as the ECB is the printer of Euros, there is no reason why it cannot guareentee the debt of Spain and Italy. There may be laws of agreements that prevent the ECB from doing this directly, but Germany, together with France and the Netherlands would have the political muscle to have those rules ‘adjusted’ for this problem scenario. So I wonder why he advocated this?

        The fundamental problem of Italy, Spain, and Greece is that they do not have any export opportunities that would allow for both a decent standard of living for their populations, a decent rate of return for the industrialists, and sufficient level of taxation to pay off accumulated governement and private debts. This is where the creditors should be forced to take responisibility for their collective stupidity in fomenting a debt-based asset- inflating nonsustainable economic boom in those countries. The Eurozone (especially Germany), Eastern Europe and China will have to re-evaluate their industrial/export/trade finance polices in order to bring the trade balance back into a sustainable equilibrium.

        Or else… accept a huge unsuprising default and any resultant contagion.

  8. Johnny Clamboat

    That which cannot be paid back will not be paid back. No action (fiddling, equivocating, lying, etc) by any stooge in charge will prevent default.

    The most relevant question is how much tax money will be thrown at the banks? Since that number is already above zero, it will be way too much.

  9. citizendave

    An article by Mark Weisbrot, at The Center for Economic and Policy Research, makes a case that the Euro is not worth saving. Denmark, Sweden, and the UK are members of the EU, but do not use the Euro. The EU could survive without the Euro, or it could withstand current members dropping out of the Eurozone. He does not discuss what it would take — or how long it would take — for Greece, for example, to return to the drachma. He describes the Eurozone as right-wing from its inception, and points to the looting of public assets in Greece, among other examples.

  10. Hugh

    The core problem is kleptocracy. Debt restructurings and fiscal unions are meaningless until the looting stops. You have the countries of the Northern European core that allowed banks to gamble and blow bubbles in the periphery: the PIIGS and the East. They did so in part because these activities allowed them to cycle their positive balance of payments back to the periphery as debt. It kept their workers happy and kept their export sectors going, but it was not sustainable, especially for the PIIGS tied as they were to the monetary constraints of the euro. And of course this was all made worse by the bubbles that were being blown in the PIIGS plus the siphoning off of wealth by the local kleptocratic elites.

    Kleptocracy is the reason why we only see extend and pretend and not real solutions, not just in Europe but everywhere. Kleptocrats are not there to keep the economy going but to continue the looting. They do not fix. They do not reform. They paper over so the looting may go on. The standard criticism of this view is that if the economy goes, it will take the kleptocrats with it. First, this is not how kleptocrats think. Second, as the 2008 meltdown taught us, even when there is a collapse, the kleptocrats are the first and sometimes the only ones to be bailed out. If anything, collapse expands and reinforces their control. So looting up to the point of collapse and then looting the collapse represents a win-win for them. Why then should they act any differently than they have?

    1. Hubert

      EXACTLY. And as these kleptocrats sit on the Dick-Fuld-Line drawn between criminality and stupidity, they almost always get away with these schemes. For maybe ten-20 people per institution to make 20 million each over several years (read: 200 million in US-terms) in Germany 6-8 banks lost an aggregate 200-500 billion Euros. And now they get cover from the politicians they have bought in the last 10 years.

  11. TC

    I beg to differ on the analysis per Italian Finance Minister Tremonti. He also is known for supporting a Glass-Steagall like reorganization of the EMU, and short of wacking him (like was done to a like-minded German back in 1989: Deutsche Bank CEO Alfred Herrhausen), Team Fraud, in its desperation for capital amidst the collapsing Ponzi scheme in which their interests are trapped, conveniently targets Italy, if only that what purpose it always has served — swindle — might be brought to light for all to see in this, their final hour just prior to collapse.

    “…calamitous consequences for German foreign policy” should the EMU collapse? This strikes me as the same sort of scare tactic used by hacks here in the States warning of “dire consequences” if Treasury does not submit to “the market’s” swindle of the day.

    Someone tell Pritchard there’s no inflation threat. Rather, there’s a shortage of good money willing to chase bad. Thus, the ECB rate increase ventures to draw in the yield hungry, risk taking sucker.

  12. Thomas Barton, JD

    I greatly enjoy AEP’s writing and analysis but I wonder if Germany has the capacity to cross the Rubicon even if it chooses to. The problems it would take on are enormous and seem to be growing. Many a river crossing has foundered on a misjudgment of the depth and power of the current.

  13. Jim

    What I don’t get is why so few are open to the possibility of the termination of the EuroZone. Why must “something” be done? Why are we so “certain” that the counterfactual is as dire as the decades of austerity that Spain and Greece have to look foward to?

    Another thing. If the German voters don’t wnant Germany to finance Greek operating losses, doesn’t that count? Or do German citizens not know what’s good for them?

    And if you believe that, do you also believe what the GOP says in this country as they face polls which indicate that the public doesn’t support the Ryan Austerity Pact?

    Do you believe that the American public is simply too ignorant to realize that austerity is necessary right now?

    Or is the fiscal union the overpaid technocrats in Brussels the right call, despite public opposition, but the Ryan-led austerity pact not constructive in the US, in concert with public resistance to it?

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