Marshall Auerback: Anschluss Economics – The Germans Launch a Blitzkrieg on the Greek Debt Negotiations

By Marshall Auerback, a portfolio strategist and hedge fund manager

News stories continue to suggest that Greece once again appears on the verge of reaching a deal with its private sector creditors on how much of a loss they would be willing to accept on their bond holdings. The latest numbers suggest a 70% write-down. A pretty striking comedown for what is supposed to be a “voluntary default” and, hence, not subject to the triggers of a credit default swap on Greek debt.

Naturally, the spin surrounding the proposed agreement is that this is a “one-off” and that other troubled periphery nations shouldn’t even begin to think of securing a comparable deal. But the inherent tension between securing a write-down on Greek debt which more closely mirrors the disaster which is now the Greek economy, and the desire to minimise the potential contagion effect is rearing its ugly head already, and may help to explain some of Germany’s recent machinations.

Peter Spiegel of the Financial Times published the German government’s proposal for Greece’s “improvement of compliance” with the terms of the bailout, and all of a sudden Greek PSI positively pales in comparison. According to Germany’s proposal, whatever the result of the PSI deal, Greece would need to “legally commit itself to giving absolute priority to future debt service” and “accept shifting budgetary sovereignty to the European level”. If the Greek government is not willing to do this, the troika would presumably turn off the taps of bailout money and Greece would default. With no access to market or official financing, Greece would be forced to exit the eurozone.

Now, polls appear to indicate that a bunch of the Greek middle classes might actually welcome EU control over their finances, as opposed to a bunch of corrupt Greek politicians, but overall, it’s almost certainly guaranteed to trigger a violent reaction. In any case, given that a deal with Athens is seemingly so close, why did Berlin choose this particular moment to make this demand, and place the entire deal potentially at risk?

I think we have to look beyond Greece for the answer to that question.

One suggestion by Megan Greene is that Berlin’s proposal is a by-product of the unintended consequences of the ECB’s three year long term refinancing operation (LTRO):

If eurozone banks have as much access to cheap, three-year ECB funding as their collateral allows, perhaps Germany and the troika have decided that eurozone banks can survive a Greek default.

In the absence of the ECB hoovering up all of Greece’s debt via its Securities Market Programme (“Not gonna happen; wouldn’t be prudent,” as George Bush the Elder/Dana Carvey might have said), Greece is, as Greene argues, clearly insolvent and would likely have to leave the eurozone to eventually return to growth. The German proposal, argues Greene, may have accelerated the inevitable.

But there’s another, more sinister interpretation. The question which has been persistently asked since the debt renegotiations started with Greece is: what will stop Portugal, Ireland, or indeed Spain from demanding the same deal? And I continue to believe that Spain is the domino which is too big to fail. Its liabilities are too big to be covered by the existing firewall established by the EFSF and ESM. An expansion of the LTRO might address the solvency/banking crisis, but not the broader problem of deficient aggregate demand, high unemployment, and rising social turmoil.

So to repeat the question: how do you preclude Portugal, Ireland and, indeed, Spain from asking for the same deal as Greece, if the negotiations succeed?

Answer; you can’t. So the Germans throw a politically impossible demand in front of the Greeks, in effect saying, “No more money unless you effectively surrender your national sovereignty.” And that’s the implied warning ahead for the other periphery countries which look to secure the deal currently on the table for Greece.

In effect, the Germans (behind the auspices of the troika) are saying, “It’s fiscal austerity on our terms. You try to renegotiate like the Greeks and we take you over. The other alternative is that you leave.”

Anschluss economics, plain and simple.

Is this too harsh an assessment? Well, when their national interests are at stake, the Germans are perfectly prepared to shed the “good European” persona and play hardball. Think back to how the Bundesbank engineered the departure of Britain from the ERM back in the early 1990s, and you’ve got the template for today. By publicly suggesting that sterling was overvalued and refusing to offer support to the British pound (in contrast to its subsequent defence of the French franc), then BUBA President Helmut Schlesinger virtually assured the UK’s ejection from the Exchange Rate Mechanism. Let’s face it: history shows that Germany doesn’t do “subtle” very well. This looks like a blitzkrieg, plain and simple. Spain, Ireland, Portugal and Italy – you have been warned.

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  1. LeonovaBalletRusse

    YVES, do you think Germany is ready to assume major responsibility, while invoking the Kaiser’s plan before WWI, w/ Germany as “Elder Statesman” leader for the EU (not just a “Euro” arrangement). I’m thinking of Michael Hudson’s piece posted at NC on Friday (still at New Economic Perspectives) with 4 comments.

    I left a reference for you as comments under Satyajit-das-top-secret — film is only 10:12 minutes long, quite important. Think Australia as colony, British East India in the early days.

    1. LeonovaBalletRusse

      If my hunch is right, it might provide the U.S. with a way to “get out from under.” Are we happy to be Australia and Canada?

  2. lebo

    maybe i have missed it
    but has somebody told the germans that the greeks are holding alll the cards here.
    its not that complicated.

    1. Mark P.

      Yeah, the Greeks have the advantage now. But this way — and Auerback’s analysis is plausible to me — the Germans are probably playing the best hand they can play in terms of having minimax-type strategy aimed at long-term damage control.

      Of course, the truism is that ‘no battle plan survives the first contact with the enemy.’ Along those lines, all sides are going to be nastily surprised before this is over.

      1. Nathanael

        The trump card will be the overthrow of the Christian Democrats in Germany, to be replaced by an anti-austerity, pro-growth party — but that isn’t scheduled until 2014.

    1. KFritz

      This is the result of a google search of this blog: “Germany anschluss blitzkrieg.”

      Personally I can’t recall too many recent references to Germany’s current economic policies as ‘anschluss’ or ‘blitzkrieg.’ Mostly ‘austerian.’

      1. etc

        unfortunatelly confiscating Greek state future revenues control for serving foremost debt (in contrast to national defence, basic infrastructures etc) really does not have any other alternative words.

        1. Jim

          The state of Rhode Island just did the same….

          * AUGUST 4, 2011, 12:58 P.M. ET

          Bondholders Win in Rhode Island

          Central Falls, R.I., a city of 19,000 residents that filed for bankruptcy Monday, is a bondholder’s dream.

          Thanks to a new state law that places bondholders ahead of other creditors, Central Falls plans to pay investors the entire $635,000 it owes them in October.

          Retired city workers might not be so lucky. Instead of $296,000 in pension checks promised before Central Falls became the second U.S. municipality to seek Chapter 9 protection this year, the retirees could get only $196,000 in payments next month—a 34% cut.


    2. MacCruiskeen

      Indeed, I would suggest a moratorium on the use of the word “anschluss” and other references to Nazi policies. While I don’t doubt the usefulness of historical contexts, but this doesn’t really seem all that far from just saying that someone is like Hitler. There are bad things happening in the world with negative potential consequences for many, but I think it worthwhile to remember we need to focus on what is really happening here. I recall similar language being tossed around a the idea of the budget “super-committee,” which ended up producing exactly nothing.

      Perhaps I am being a little oversensitive about this because I have just finished reading (for pay) Michael Savage’s new book-like object. In it he throws every political curse-word you can think of at Obama (even when it is contradictory, which he doesn’t really care about). There’s enough crap in the world already. Does NC have to go down that road also?

      1. Praedor

        OK, let’s try “lebensraum” then. The Germans are seeking to force the Greeks to hand over THEIR public lands to help pay off their debts. They (the Germans) seek to force the Greeks to hand over THEIR national treasures to pay off their debts. What else is this property grab than lebensraum 70-ish years after the original fact?

        1. LeonovaBalletRusse

          Praedor, Financial Lebensraum is correct, it isn’t for “the Germans” today any more than Reich III Lebensraum was for “the Germans” then. Thorstein Veblen understood *How it Works* when the Rentier Classes get together to reap profits at the expense of the peoples of their respective spheres.

          See Veblen’s shrewd assessment of *How It Works* from even before The Versailles Treaty in Chapter 2, “The Veblenian Prophecy” – “Dreaming of Hitler and Deciphering Versailles” in “CONJURING HITLER: How Britain and America Made the Third Reich” by Guido Giacomo Preparata (London and Ann Arbor MI, Pluto Press, 2005):

          “A convinced pacifist before 1914, he turned his coat to the disbelief of his colleagues and friends in 1917 … he advanced a proposal for securing lasting peace in the terminal chapters of his 1917 opus ‘The Nature of Peace and the Terms of its Perpetuation.’

          “For Veblen, the Great War offered the opportunity to rid the West of its chief ill: the DYNASTIC SPIRIT, of which, he claimed, Germany was imbued to a pathological degree. [caps mine]

          [NOTE: this mantle of the Dynastic Spirit was donned by Imperial USA!!!]

          “Veblen insisted that with Germany’s dynastic spirit … no compromise was possible. It had to be extirpated, root and branch. The German people, he added, was no less susceptible to kindness than its European neighbors, but prolonged and unfortunate habituation to received schemes of feudalistic servility had molded its mind into a ferocious patriotic ben, which was ‘not of the essence of human life.’ … Veblen admonished the Western statesmen, were they to win the war, not to impose on Germany a trade boycott – a traditional trigger of national jealousy: ‘the people underlying the defeated governments,’ he wrote, ‘are not to be dealt with as vanquished enemies but as follows in undeserved misfortune brought on by their CULPABLE MASTERS.’ (p. 84, caps mine)

          [Does the same situation not prevail in EU in 2012?]

          “Veblen detested the Anglo-Saxon CAPTAINS of finance and the inequality they congenitally thrived upon not much less than he despised the JUNKERS, the GERMAN absentees.’ (p. 84, caps mine)

          [These would become the covert *winners* of the Treaty of Versailles, leaving *the Germans* to pay the debts–as Veblen predicted would be the outcome of the Treaty of Versailles.]

          “The main argument, which Veblen presently ready to unfold, was comprised of three propositions: (1) the thesis, (2) the prophecy, (3) the clue.” (p. 85)

          “So the Treaty was in essence an articulate TRAP by which the German upper classes – the custodians of Reaction – were to be left UNTOUCHED, and thus UNCURED OF THE FEUDAL DISEASE, while the grief and resentment of the underclass — the proximate victims of the reparations’ bloodletting — was counted on to provide as much fodder for ‘radicalism’ as the sheltered JUNKERS required to r-establish a reactionary anti-Bolshevik regime.

          3. The Clue. What gave the Allied plot away? On the basis of his 1917 recommendations, Veblen observed that ‘The provisions of the Treaty shrewdly avoid any measures that would involve confiscation of property. There is no reason, other than the reason of ABSENTEE OWNERSHIP… why the Treaty should not have provided for the comprehensive repudiation of the German war debt, … So also no other reason stood in the way of a comprehensive confiscation of German wealth, so far as that wealth is covered by SECURITIES and is therefore held by ABSENTEE OWNERS, and there is no question as to the war guilt of these OWNERS.'” (p. 86, caps mine)

          Preparata continues [to state reality also for 2012]:

          “The levers of command of a modern democracy are not operated from its ministries, but from its financial network.” [he continues in italics, indicated here between asterisks, caps mine] *The financial strength of a CAPITALIST REGIME is crushed the moment its portfolios of SECURITIES — bonds, stocks, debentures, and cash and all like TITLES of OWNERSHIP — are passed into foreign hands. Such critical confiscation, which would have sapped the tenure of the GERMAN ABSENTEE OWNERS, was never effected under the terms of the Treaty, and DELIBERATELY SO.* Thus the nature of Versailles’ diplomatic contrivances revealed that ‘the statesmen of the victorious Powers have taken sides with the war-guilty absentee owners of Germany AGAINST THEIR UNDERLYING POPULATION. [caps mine]

          From this it followed that *all dispositions touching disarmament and indemnification* were to be sabotaged behind a hustle and bustle of diplomatic trucking so prolonged and muddled as to disaffect the participation of the unknowing public.” (p. 86: “CONJURING HITLER”)

          The Third World War for confiscation of property has been conducted, yes, through Financial Lebensraum, and TODAY the same ABSENTEE OWNERS are in universal COLLUSION to spare themselves and soak their peoples.

          “How long, O Lord, how long?”

          The APOTHEOSIS of this Rentier Confiscation of Universal Wealth/Property was reached in 2008, and plays out even now, propped up behind the scenes as the “Euro/EU Crisis.” THIS TIME, is there a REMEDY via a great REVERSAL of fortune to the Master Class Absentee Owner Winner-Take-All Model?

          Michael HUDSON suggested a possibility that should be in best interest of The German People as potential legitimate leaders (not despots) of the EU into C.21 — expressed in his article: “Banks Weren’t Meant To Be Like This” (blog at NC, at New Economic Perspectives, later in a Frankfurt paper on 27&28 Jan 2012. This would be for Germany to return to the Real Economy productivity plan proposed by the Kaiser, to benefit local banks serving industry serving the People for the good of the whole.

          Was it not the purpose of WWI and Versailles to removed this threat of grievous loss to the Universal Oligarchy, accustomed to profits from Extraction Capitalism theretofore? Will GERMANY return to the Kaiser’s model, and re-define *BANKING* in C. 21, for the People of Germany and of the EU, AWAY from the FrancoJunkerAnglo-Saxon Master Class Owner model?

          MATURE leadership by Germany now would serve to erase a *multitude of sins* of the past, which were ordained by Absentee Master Class collusion.

          “CONJURING HITLER: How Britain and America Made the Third Reich” by Guido Giacomo Preparata; “THE BUBBLE THAT BROKE THE WORLD” by Garet Garrett; “THE SECRET WAR AGAINST THE JEWS: How Western Espionage Betrayed the Jewish People” by Loftus and Aarons. They and their DNA control The Club.

          As George Carlin shrewdly observed, we are not in The Club: “They don’t give a F%#K about you! They don’t care about you at ALL! at all, at all. … And now they’re after your Pension, your Social Security.” What, then, shall we do?

          Shall We the Scapegoats unite? We have nothing to lose but the Iron Heel on our necks of the Universal Transnational Rentier Class. “LET’S ROLL!”

          “The levers of COMMAND of a modern

        2. Fiver

          Just maybe the German public, which for some reason the world believes should be on the hook for all of Europe’s stupidities when it simply is NOT responsible, nor CAN AFFORD IT might be more inclined to support the Greek PEOPLE if there was some tiny sliver of recognition that Germany has already eaten an enormous amount of other nations’ debt detritus yet NO ACTION anywhere has been taken to hold the various national elites accountable – what gives with all the finger-pointers hanging this all on Germany as if their own leadership elites were not the bunches that had completely betrayed their peoples’interests?

          And don’t forget for 1 second: the German elite is NOT the top of the chain. That resides in the US.

    3. Lambert Strether

      Perhaps terms from the Prussian military tradition might be more precise and less charged.

      If indeed the Argentin– sorry, the Greeks, hold all the cards, German policy might be characterized as a flucht nach vorn rather than an anschluss.

      That said, the Germans are proposing loss of sovereignty. How is that not an Anschluss, even if the Greeks aren’t throwing flowers at the tanks?

      1. pws

        It’s the Schlieffen Plan, impressive in the short term, and an unmitigated disaster in the long term.

        1. Praedor

          Not necessarily. The original plan was modified (not by Schlieffen) so it is not clear whether it would have actually been a disaster. The modified plan was, however (Schlieffen stated, “Remember to keep the right flank strong” – that would be facing Russia but the modified plan strengthened the left flank instead. Oops).

          1. Procopius

            Wait a minute, you’ve got things thoroughly confused. “The right wing” did not refer to the Eastern Front, facing Russia. It referred to the right end, as you faced Westward, of the Western Front. The right wing was supposed to go through Belgium and capture Paris, which Schlieffen believed would end the war quickly. The Germans were supposed to move troops from their left wing to give extra strength to the right as it was extended toward the Atlantic Ocean. Instead, Prince Ruprecht decided he had a chance to destroy the French forces facing him (he was supposed to just pin them down, but he wanted the glory). So the right wing was weakened by not sending troops from the left wing. However, the big landowners in East Prussia were panicked by the approach of the Russian Armies. They didn’t know the Russians were starving, exhausted, and short of ammunition. So troops were taken from the center of the Western Front and sent East, rather than to strengthen the right wing.

            There’s no way to know now. Gingrich (and Niall Ferguson) loves him some “counterfactuals”, but that’s just making stuff up. But it sure looks to me like the original Schlieffen Plan would have worked if they had stuck to it. See Barbara Tuchman’s wonderful book, “The Guns of August.”

          2. Nathanael

            Worked? Sort of worked.

            The Schlieffen Plan was replayed by Germany in World War II, and sure, it worked — France was conquered.

            Germany proceeded to invade Russia, overextend its armies, run out of resources, and finally lose the war of attrition.

            The same would have happened in World War I. In fact, the same *did* happen in World War I; the Western Front hit a stalemate, but the war of movement continued in the East. Germany had a massive advantage in WWI, because Russia’s government was untrusted; it collapsed, a civil war started, and the new government wanted to sue for peace while trying to get control of the country. Germany lost ANYWAY because they ran out of resources.

            Russia had great gobs of resources, including several very larger and industrialized cities, east of the Caucasus mountains, where German armies could never reach. By World War II, Russia had a humungous industrial base behind the Caucasus, rendering the situation even more impossible for a German invasion.

            In retrospect, the problem with the Schlieffen Plan was fighting Russia and France at the same time. As some historians have said, Bismarck always made it his top priority to break any Russian-French alliance, allowing for the invasion of France with a quiet eastern border, but later German commands ignored the geopolitics completely.

  3. KFritz

    Re: Germans subtlety

    I have to disagree about Germany not doing subtlety well. They do it well. But when they abandon subtlety….danger awaits.

    1. Jim

      What should German pols do? Betray their people by agreeing to a permanent fiscal transfer? Betray their people by allowing the ECB to monetize Greek debt?

      Put it to a vote in Greece. If the Greeks agree to become subjects of Germany, let it be. If they don’t, allow Greece to leave the EZ.

      1. Nathanael

        Give their people what their people were promised, what their people deserve, by monetizing EVERYONE’s debt. Including Germany’s.

        Of course, the Christian Democrats will never do this. Will the Social Democrats? Will the Greens?

    1. Marshall Auerback

      Very Serious Sam,

      To quote John McEnroe: “You cannot be serious!” If you think I’m shrill about Germany, take a look at some of the images of Germans conveyed in the Spanish, Greek and Italian papers. They use the “N” word quite regularly along with the usual Swastika imagery. What Germany is doing right now in Europe is the economic equivalent of mediaeval blood-letting. Nothing shrill about it.

      1. Very Serious Sam

        “If you think I’m shrill about Germany, take a look at some of the images of Germans conveyed in the Spanish, Greek and Italian papers. They use the “N” word quite regularly along with the usual Swastika imagery”

        You see yourself in-line with lowest-level tabloids? As you please. But those papers are not less shrill than you are. And ‘shrill’ is a very polite understatement, ‘anti german rascist idiots’ would be more to the point.

        Besides, by comparing the current ongoings with what has happenend during the nazi-years, you deride the victims of and fighters against the nazis. So please get back to the use of reputable and serious wording.

        As for the issue on hand: the facts don’t support such claims and analogies. Germany is not at all interested in concquering Greece, in ruling Europe, or whatever ridiculous imaginations certain people. Germany just does not want to endlessly support countries who refuse to help themselves. I hope you at least acknowledge Germany’s right to pursue such target.

        As for Greece, so far the only thng that was delivered since the drama started was promises and lies. None of the promises the gave to qualify for the next cash infusion was kept. None.

        It is just logical that there must be consequences for this proven failure of Greece to get her act together. Should have been done at least a year ago.

          1. chad

            “None of the promises the gave to qualify for the next cash infusion was kept. None.”

            If that is true then I have to side with Sam. How could you think otherwise?

          2. hoops

            I guess neither “Serious Sam’ nor “Chad” are regular readers of NC. You don’t seem to understand MMT at all.

            Just the usual good productive Germans vs the Lazy Periphery crap being recycled over and over.

      2. Paul Tioxon

        Without getting into unwarranted “MARSHALL” bashing, and escaping the content of his writing, there has been a noted British blindspot when it comes to Germany. From a UK book review of: “The German Genius”, BY PETER WATSON.

        “The reason Peter Watson gives for writing this long intellectual history of Germany since 1750 is a convincing one: that British obsession with Nazism has blinded many British people to the achievements of German culture. Watson describes the complaints of German commentators about the emphasis on Nazism even in British schooling, which were borne out by the 2005 report of the Qualification and Curriculum Authority: ‘There has been a gradual narrowing and “Hitlerisation” of post-1914 history.’”

        In other words, they got Hitler on the brain over there in England, more so than the Hitler Channel on cable TV here. And I am not sure how much Marshall has from British socialization, but it is an overused and less than pedagogic set of names and phrases. It is of course not the end of the world intellectually for every word than springs forth from here, but the fascism this and Hitler that winds up sounding like the all to familiar it’s all just the will of the lord kind of thinking.

        It is 2012, and while you may learn a lot from history, we do need to analyze what the objective conditions are today, and then name them something else, other than a comfortable boogey man designation from the past. Also, there are people who are old enough that Hitler really means something to, like my family that had many of the men, my fathers and uncles over there fighting Hitler. And then there are the new members of my expanded family that carried the tatoos from the camps around with them everyday when they went to the ACME market.

        Maybe to younger people on here, there is a historical distance that relegates Hitler, NAZI and Fascists to names with a fading meaning, like Napoleon was to me. But it would not be a bad idea to dispense with the shorthand telegraphing of phrases using WWII historical reference points, it may distract and misguide more than inform.

        1. LeonovaBalletRusse

          Paul, it is an Anglo-Imperial obsession all right, and the U.S. proxies for the Victorian East India Company/Holy Roman Reich have led us down the primrose path to the People’s Poverty as Agents of a Foreign Power for their Extraction Capitalism.

          “CONJURING HITLER” by Guido Giacomo Preparata puts WalkerBushDulles in place. Xref “The Anglo-American Establishment” by Carroll Quigley, and see how the University (MonopolyFinance) System stacks the deck with Rhodes Trust Agents in Banking and Transnational Corporations for private equity ROI on Bush Wars.

        2. Birch

          While not disagreeing with you at all, Paul, I have been having a hard time with the equating of nazis and fascism and the limitations it creates. Sure Hitler was fascist, but he didn’t invent fascism, perfect it, or even implement it for very long. Fascism has been a continual global force for a long time, and Germany was only ever a small part of it.

          I wonder if the branding of the word ‘fascim’ with swastikas and skinheads has been specifically to weaken the word for its real use: corporate controll of government. Are we to admit failure and abandon a word that still has much utility? It seems to me that it would be an easier task to bring the word back into relevant use – as many people in comments here are doing – than to go inventing new words altogether.

          1. Paul Tioxon

            We live under the pain of the power of money. Try going somewhere to live without money or some source of earning it to buy what you need to simply not starve to death in a short time. Fascism is a revolt against the power of money, in particular, the global brand of capitalism at the time under British hegemony. China, India, the Middle East, North America, and Australia, and much of Africa were closed off by the British Empire for exploitation and wealth building to other ambitious European powers. One of the alternatives, Communism and another Fascism were not the power of business allied with government in the format that capitalism was and still is.

            The Fascist theorist seeking wealth accumulation did not use money as much as the force of the state mechanism under the control of the leader, the thaumaturgic king, that Fascist European Dictators assumed by right of force, not money transmission via banking systems. Government and money joined at the hip in many forms throughout history, Fascism sought and achieved a place in the world that did not rest upon Gold and Silver, but violence and emotional control via fear, authoritarian leader worship, to produce a garrison state where the market, the rule of law, the consent of the governed, and any other niceties of the liberal world view were swept from society and replaced with the will of Il Duce, Der Fuhrer, and El Caudillo, among others. Capitalism grew in conjunction with many the liberal features that we come to enshrine as the correct moral and ethical order of the world: the rule of law, the free market, democracy, and a limited government. Machiavellianism would be a more exact term for what we see today. AS you know, fascists have no need to deceive or manipulation when they can dispense with you in a street riot or a piano wire lynching. Capitalism does nuance, it works ingeniously at it to stay in power.

          2. F. Beard

            Fascism sought and achieved a place in the world that did not rest upon Gold and Silver, but violence Paul Tioxon

            What is gold but an almost useless metal unless it too is backed by violence – the requirement that taxes must be paid in it?

            Hitler recognized that money does not require gold. Why on Earth should it?

    2. Yves Smith Post author


      Where have you been? Seriously. Michael Hudson has written numerous posts that are more blistering than Marshall’s but they are longer so I must they tax your attention span. And it isn’t just “tabloids” that are running the imagery and language Marshall is referring to.

      Do you have a substantive argument? You appear to lack one and are instead are trying to use “tone policing” when there is nothing out of line here.

      1. Very Serious Sam

        Yves, right now we discuss Marshall Auerbacks piece, not something Michael Hudson has written. As for the arguments against shrill rants by Marshall and others, I already wrote

        “As for the issue on hand: the facts don’t support such claims and analogies. Germany is not at all interested in concquering Greece, in ruling Europe, or whatever ridiculous imaginations certain people entertain. Germany just does not want to endlessly support countries who refuse to help themselves. I hope you at least acknowledge Germany’s right to pursue such target.”

        There is no evidence at all that supports the ridiculous German Neonazi Blitzkrieg Anschluss blabla claims raised by Auerback. At least he didn’t provide any, or did I miss something? I mean proven facts, not interpretations, assumptions, speculations and so on.

        I would kindly suggest you demand substantive arguments from your guest writers 1st, before jumping with such request onto the commenteers.

    3. Praedor

      You use the weapon most suited for the situation. If it had been the French forcing unacceptable terms upon a prostrate subject, the appropriate use of words would be different (and likely involve “effete”, “surrender monkeys”, or other inflammatory terms). When speaking out against unacceptable German moves (particularly by a nasty rightwing troll like Merkel) one uses the Nazi/Hitler ammo. Works well and is not inappropriate as metaphor.

  4. Jesper

    What is surprising is how the Greek leadership is dealing with the situation: The Greek leadership would get a nice life paid for by the rest of Europe if they agree to the demands, the rest of the Greek population would not. With leaders in Greece having that kind of priorities, what could possibly go wrong for Greece?

    Protestors in Greece are doing the right thing in trying to stop the deal, however, if there are bad guys in this situation then I’d say it is the Greek administration.

    1. Ignacio

      I believe that the first hypothesis is more accurate than the second. The harder you push, the higher de probability that the rest of troubled countries will find politically attractive to design their plan B: euro exit.

      Bye bye Mer.

      1. Ignacio

        Previous message was not supposed to be a reply to Jesper’s message. Sorry Jesper, anycase I agree with your comment.

    2. okie farmer

      I would go one step further in condemnation of Greek Admistration – this is a set-up to defuse all the anger of Greek citizens before the Greek govt eventually agrees “very reluctantly” to the terms by which they give up control of their fiscal affairs. Only a great and continuous uprising in the streets will stop Papademos from eventually ceding fiscal authority to the troika. That’s what he was brought in to do.

      Here’s a nice rant from Yanis Varoufakis on the German demand:

  5. F. Beard

    According to Germany’s proposal, whatever the result of the PSI deal, Greece would need to “legally commit itself to giving absolute priority to future debt service” Marshall Auerback

    How very odd and sinister that governments must borrow their own money supplies except of course that they have ceded their monetary sovereignty in the case of the Eurozone.

    But thank you, thank you, thank you, Europe, for demonstrating the folly of a gold standard!

    But if Germany wished to act in good faith, the obvious solution is a universal and equal bailout of the entire Eurozone, including German savers, with new fiat combined with stringent leverage restrictions on the banks to preclude price inflation and to prevent the problem from occurring again. Professor Steve Keen has suggested this (in rough).

    What a world! We combine counterfeiting (“credit creation”) with hypercritical demands that the debt be treated as legitimate!

    Do I over simplify or is the problem simply absurd?

    1. Ignim Brites

      “We combine counterfeiting (“credit creation”) with hypercritical demands that the debt be treated as legitimate!”
      You are right on this. But the question is: How much real rot exists in the real economy financed by the counterfeit currency? Would a universal bailout solve this or would we actually be back at square one pretty quickly.

      1. F. Beard

        Would a universal bailout solve this or would we actually be back at square one pretty quickly. Ignim Brites

        We need genuine reform too to prevent the problem from reoccurring. I advocate (per Matthew 22:16-22 “Render to Caesar …”) distinct government and private money supplies. That would allow the Euro to remain as a purely private money supply and allow governments to issue fiat that was legal tender for governments debts only.

      2. F. Beard

        How much real rot exists in the real economy financed by the counterfeit currency? Ignim Brites

        That’s an irrelevant and cheeky question, imo. The system is unjust and so it is bound to have produced some real rottenness. But some real good has been produced too. Attempts to pull up the tares may damage the real wheat (see Matthew 13:24-30). And then there are the “smoldering wicks and bruised reeds” (Matthew 12:20) that we should be gentle with too.

        The Austrian solution to the problem of “malinvestments” is to purge them with deflation but that ignores the fundamental injustice of our money system and would harm many innocents.

        1. Nathanael

          Agreed that the question is irrelevant; the rot in the fake economy, the financial machinations, is massive, and must be cleaned out regardless of the level of rot in the real economy.

          But I’ll take a stab at answering the question.

          One of the main sources of rot in the real economy, once the financialization is removed, is “externalities”. Fossil fuel extractors and burners don’t have to pay for pollution. Sex education benefits everyone, but is paid for by a minority. There are a zillion examples.

          A second source of rot is duress — using straight-up violence and intimidation, or threats of starvation or blacklisting, to prevent people from making fair deals. This is applied to almost all workers.

          A third source of rot is straight-up fraud.

          We actually know how to deal with all of these. To do so we require government; functional government.

          Thus we find that the root source of rot is the people who are trying to prevent the governments from fixing these problems. Right-wing “churches”, charismatic men fronting groups paid for by oil billionaires, institutes pushing phony economics and getting tenured positions for fake economists — they all do their part.

          1. LeonovaBalletRusse

            Nathanael, shout it from the rooftops: “We’re mad as hell and we’re not going to take this anymore!”

        2. Ignim Brites

          My point is one way or another the real rot will be excised. This will cause harm to a lot of innocent people.

          And btw, you are not proposing that banks should be relieved of their liability to return their depositors money (counterfeit or not) are you?

          1. F. Beard

            And btw, you are not proposing that banks should be relieved of their liability to return their depositors money (counterfeit or not) are you? Ignim Brites

            No, I am not. A ban on further credit creation plus an appropriately metered universal bailout till all credit debts is paid off would result in a 100% reserve banking system – meaning that ALL demand deposits could be withdrawn simultaneously without causing bank insolvency.

          2. F. Beard

            My point is one way or another the real rot will be excised. Ignim Brites

            Yes, but a deflating economy harms otherwise sound enterprises too.

          3. Nathanael

            Actually, deflation doesn’t get rid of the *real* rot. Extractive enterprises which get their profit by taking commonly owned natural resources out of the ground and privatizing them often do relatively well in deflation. Enterprises which pollute often do quite well in deflation. Fraud becomes even more profitable in deflation. Et cetera…

  6. WeWereWallStreetdotcom

    We think the headline misses by a little, as Austria supposedly welcomed Hitler home on the Anschluss. Even Czechoslovakia went down without a fight (peace in our time!). It wasn’t until Poland that we saw the blitzkrieg.

    That aside, and we use “welcomed” loosely, we think you’re on to something here. What we can’t figure out is why anybody would want any of those layabout countries.

  7. Very Serious Sam

    “Think back to how the Bundesbank engineered the departure of Britain from the ERM back in the early 1990s”

    This is another one of your very creative interpretations of reality. Sort of science fiction, just w/o any science. Please learn what has really happened, start here

  8. Foppe

    But if you’re saying that the Germans want to kick Greece out, then you must also think that the Germans believe that enforced austerity either is something the EU’s subject populations would be able to live under, or that they are no longer interested in preserving the Euro — given that most of the other countries will at some time down the road find themselves in a position that is largely similar to Greece’s now. Correct?

  9. Tom Jericho

    Let’s face it – playing hardball with the “Club Med” is the only way for the Germans to avoid paying ever increasing amounts of money for economically failed countries.

    1. beowulf

      No, the debate is whether Marshall is being shrill or germanophobic by using well-known historical analogies. The answer is clearly nein. But feel free to change the subject if you like. Guten Tag!

  10. Murat Gulkan

    To be bailed out, with ignominy…

    Leaving aside all the hysteria and the Nazi metaphors, the plain fact is this: you can’t have a no strings attached, pain-free 70% writedown of the debt. It’s simply bad economics and bad ethics. There has to be some kind of purgatory. Otherwise why should any other country (read the periphery) make any effort to pay its debt?

    So the Greek people should get debt relief and Greek politicians should be made to stand in a corner on one leg while adults administer the budget for a strictly limited time.

  11. Andyc

    When will they finally admit that CDS on these sovereigns are WORTHLESS?

    What happens to bank capitalization ratios if these CDS are worthless when they claim these CDS as hedges?

    1. Mark P.

      They have apparently refused to learn much from 2008.

      ‘After a hurricane, homeowners check nervously to see if their insurance will cover all of the damage. With the European financial crisis still threatening a trail of defaults, United States banks are betting that their insurance is going to pay out.

      ‘Five large American banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion of exposure to Italy, Spain, Portugal, Ireland and Greece, the most economically stressed nations in the euro currency zone …

      ‘But these banks have made extensive use of a type of financial insurance, the credit-default swap, to help them offset any losses that might occur if defaults swamped the five troubled nations. Using these swaps, along with other measures, the five banks have cut their theoretical exposure to the troubled countries by $30 billion, to $50 billion.’

      Well, there will be winners and losers.

      1. Doctor_K

        Who are the counterparts of these CDS?

        It must be seriously considered a world ban against CDS since only add uncertainty to the market. If the CDS were banned at least we would know who would go in bankrupcy in case of default of each country but with the CDSs active and the counterparts hidden, we know thre will be bankrupcies but we do not know who will be the unfortunate.

        If ban sounds too radical, at least should be obligatory to clearly state who is the counterpart.

  12. Paul Walker

    Germany just got tired of having the Fed do to it what it has desired to do for the longest time. Too bad Germany doesn’t have the reserve currency to back up it mouth.

  13. Doctor_K

    This dilemma of how to help someone without making the help attractive is a classic and has no secrets. Of course conditions must be harsh to stop other countries to neglect and drift to the default on purpose. I do not see neither Anchluss nor choucroute, but only a supervisor trying to do its job properly by making the help uncomfortable.

    It must be noted that all this problem is caused by the existence of rating agencies. If we were in the era before these morons giving their AAA,BBB babble, what would happen is that the price of some tranches of Greek emissions that come to maturity soon would fall in the secondary market while other would not. Also some tranches would be refinanced with no more problems. We are plenty of examples in the XIX century of this refinancing.

    The fact that these agencies give a general rating to all the Greek debt and the fact that many institutions are forced to follow the nonsense excreted by the agencies causes the current situation in which the agreement must be forced to seem spontaneous.

    It must also be said that this idea of “Greece being expelled from Euro” in case of default it is not self evident to me but I stop here to maintain the focus on PSI vs. default.

      1. F. Beard

        Exactly wrong.

        So-called “credit creation” creates negative real interest rates that drive people into debt else they risk being left behind.

        Applying the moral standards of honest lending to money that is created as it is lent is a non-starter.

          1. F. Beard

            “Loans create deposits.” Therefore banks create new, temporary, money – so-called “credit” every time they lend.

            Now where do you suppose the purchasing power for that new money comes from? It comes from ALL money holders including non-borrowers.

            So the game is either borrow oneself or be left behind by those who do borrow. It is a “Tragedy of the Commons” situation. It is the root cause of the “rat-race” too, btw.

  14. zebulon

    Boring post, platitudes all over, crying for the Germans to pick up the bill for the debt binges of the PIIGS countries in the name of solidarity, world peace or whatever. For guys sitting at the other end of the deal this is literally cheap talk.

    Only dumb-minded people assume that there is something like a “win-win”-scenario in the euro crisis. It boils down to just one question: Who will pay?

    In my opinion the German crisis communciation has to be read as a pretty blunt way of saying “Okay, then we are all going to die together”. The apparent outbreak of lunacy which took hold of the German psyche recently, objectively improves Germany’s bargaining position, which has been getting increasingly weak. Do they mean it? Who knows. Anyhow history tells us that there is really something wrong with these Germans, so better be careful!

    As far as I can say it at least Marshall Auerback went for it full swing. As a result of this his product is not a very enlightning read.

    1. F. Beard

      It boils down to just one question: Who will pay? zebulon

      Not necessarily. A universal and equal bailout, including non-debtors, would fix everyone in nominal terms and would hurt no one in real terms if it was combined with a ban on new credit creation and metered to just replace existing credit as it is paid off.

      There is a way out. The price is to acknowledge what “credit creation” really is – counterfeiting.

      1. Jim

        A bailout will not solve the problem. Let’s assume that you cut the NPV of Italian debt by 50%. Italy still has the burden of the Euro. Let’s say that the Euro devalues 50% against the dollar (which Treasury would never allow to happen). Can you imagine how competitive BMW and Mercedes cars would become, relative to other luxury autos. And what about German precision goods.

        So long as you have the North and the South sharing the same currency, problems will ensue.

        1. F. Beard

          Let’s say that the Euro devalues 50% against the dollar Jim

          A big assumption. With no change in the total money supply (reserves + credit) how could the Euro weaken?

          But even if the Euro did weaken, a universal bailout would fix the debt problem since debt is measured in nominal, not real terms.

        2. Nathanael

          You don’t quite understand what redistributionary inflation would do, do you?

          Give a $50,000 euro check — newly printed money — to each and every citizen of the Eurozone, then think through the consequences carefully. Private debt levels drop, eliminating one problem. Savers get a bonanza too, so they aren’t jealous. The Gini coefficient improves.

          Spending rises, so the economy starts reviving, real goods and services are produced, people are employed, causing income to go up, and thus causing tax collections to go up, fixing the government debt “problem”…

          Direct infusions of cash to governments (“fiscal transfers”) would work *almost* as well but not quite.

          1. tiebie66

            Very interesting point, but one should develop it further. And, contrary to Beard’s view, it will not fix the problem (except in the short term).

            “Spending rises, so the economy starts reviving, real goods and services are produced, people are employed, causing income to go up, and thus causing tax collections to go up, fixing the government debt “problem”…”

            These effects will not occur, IMO, homogeneously across Europe. Neither real goods and services production, nor tax collection, will be uniformly efficient. In fact, lax tax collection and low productivity will resume in Greece and the long road to disaster will commence again. The only hope is “to make the help uncomfortable” (Doctor_K’s phrase) to incentivize self help.

            Perhaps Germany has sinister motives. I doubt that though. Germans have overcome severe crises with sacrifice, austerity, and hard work. I frankly think they are exasperated with Greece’s inability to put its house in order. If this failure to adjust continues, one must allow for the possibility that there is also a failure to learn from example and that tutoring and oversight may be necessary, no? This is what I think is happening.

            However, the real failure of the German position may be the inability to understand that the Greeks are not ignorant, but unable. This is a common problem, despite our efforts to deny differences in human population. We are still subject to evolutionary pressures and (sub-)speciation. The question is how to deal with it ethically.

            “Give a $50,000 euro check — newly printed money — to each and every citizen of the Eurozone, then think through the consequences carefully.”

          2. F. Beard

            And, contrary to Beard’s view, it will not fix the problem (except in the short term). tiebie66

            I did not say a universal bailout is the complete solution; it is necessary but not sufficient. I also advocate (along with others) a return to national currencies for the payment of taxes and a ban on credit creation or at least the removal of all government subsidies for it such as a lender of last resort and government deposit insurance.

  15. marcos

    Greece is in trouble because Germany was successful. German profits and French finance speculation profits had to find an outlet in the Eurozone lest the Euro gain value and make exports from Germany and France, and to a greater extent the Euro south, less competitive. Greece and Italy were the endpoints for keeping that French and German capital domesticated within the house of the EU.

    Ireland and Spain are in trouble for the same reason why the US is, the popping of a speculative financial bubble led by real estate price crash, not because foreign capital seeking its level drove debt high. That is an issue as relates to China, is a very live problem, but is not the topic of discussion here.

    The stories are different, Greeks can be called profligate because the credit crisis is state debt based and can be tied into the general austerity anti public benefit narrative. France and Ireland are more like Iceland where the regulatory captured public sector is being forced to bail out domestic private finance capital.

    1. Very Serious Sam

      “Greece is in trouble because Germany was successful”

      Ah. Not, maybe, because there were a lot of bad decisions and deeds done by the Greeks themselves? They are just victims?

  16. LeonovaBalletRusse

    YVES, see TIMELY “Economic Infographics” at

    For stunning panoramas of debt by truckloads, CLICK on:

    “Who Loaned Greece the Money?”
    “European Super Highway of Debt”
    “US Debt Stacked in $100 bills”
    “US Revenue & Deficit in $100 bills”

    For sing-along, see YouTube: “C.W. McCall – Convoy” (englandpete 73 on Mar 13, 2008) – LINK:

    (I’ll check the links.)

    Have fun!

    1. LeonovaBalletRusse

      YVES, the CORRECT LINK for “C.W. McCall – Convoy” is”

      When Sans Serif type is used on YouTube, an upper case I (Italy) looks like the lower case l (life). That’s what happened with the first link posted for Convoy. This version seems to have the most spirit.

      “Do Androids dream of trucks full of cash?”

  17. Lafayette


    Now, polls appear to indicate that a bunch of the Greek middle classes might actually welcome EU control over their finances, as opposed to a bunch of corrupt Greek politicians,

    That point is somewhat moot.

    Those EuroZone countries adopting the Golden Rule (of balanced budgets) will have Commission scrutiny annually of their budget in order to assure that no excess-spending is accumulated by a country.

    This should have been done first-time around and is a major failure of the Commission oversight – since the oversight rule was incorporated in the Maastricht Treaty (upon insistence from Germany). Oversight was never executed sufficiently rigorously as presently is obvious.

    The Germans suspected that what could happen would happen, particularly in the zones soft-underbelly. But since the Commission is a “club” whose leadership is anointed by member country heads of state, it has no real responsibility except to those heads of state.

    The Commission leadership reports only to elected heads of state, which is perhaps necessary but hardly sufficient – and which is my point. This management “clubiness” is no way to run the Financial Management of the EuroZone, who are mutually responsible for the world’s second Reserve Currency.

    With all the benefits that such a status procures the zone.

  18. Lafayette


    And whilst we are on the subject of the EuroZone’s financial predicament, it was good news to see that at least one country leader has a set of you-know-whats.

    France’s President Sarkozy announced yesterday that France would institute a Tobin Tax (0.01%) on Financial Transactions. Read further here.

    It is curious that we, as consumers in the EuroZone, must pay a Value-Added-Tax when shopping, but banks are exonerated from any such transaction tax.

    Makes one wonder when the other EuroZone countries will follow suit.

  19. Fiver

    The anti-German, Hitler’s Ghost vitriol expressed here is just out of the park. Nobody, not 1 German now in any position of responsibility whatever has ANY f-ing connection to the Goddamn Second World War or Nazis. Germany has for decades been working for better international institutions, diplomacy vs war, handled reunion better than anyone hoped at the time, launched the entire Green/alernative energy movement, and put a tremendous amount of effort into making the EU work for all its members.

    If I was a German (I’m not) I would be asking myself exactly why I’M having the bill for a decades’ worth of other countries’ elites’ enormously expensive FRAUDS perpetrated on their own peoples (Ireland, Spain, Portugal, Greece, to some extent Italy, France and Belgium) laid at MY door – on TOP of my own country’s foibles with exploding US derivatives mines, which has already cost me an arm and a leg.

    Germany did NOT set out to beggar the PIIGS. Any aspect of German policy which assisted in making the German economy stronger was available for others to emulate, or not, or to try any of a variety of other options for economic development. Germany did NOT tell Spanish, Italian, French or anyone else’s banks how to conduct business in a way that would prove suicidal. Ditto their governments.

    It is also forgotten that Germany’s elite is NOT the top of the power chain, nor even close – that Hellhound sits over on Wall Street and in Washington and has its eyeballs in these negotiations, most visibly via the IMF. This looks like nothing so much as corporate headquarters ordering a re-organization of the European Branch. Wall Street intends to get its money one way or other. And it better be quick, because Wall Street’s Mr. Market is apt to have one of his controlled burns to keep the heat on.

    Greece is out no matter what. They should just choose it. Germany should also just opt out. But unfortunately it won’t, at least not yet, so this is going to play out for a couple of years. But apart from Greece this year, the rest are saved by the ECB. I doubt the fiscal union ends up ever being much more than a paper shell that never staffs up. The can will be hoofed by BigFoot made of printed money. It will come down round about when the US, Japanese and Chinese cans all fall out of orbit pretty much in synch. Going to be an unholy mess.

  20. Lafayette


    Naturally, the spin surrounding the proposed agreement is that this is a “one-off” and that other troubled periphery nations shouldn’t even begin to think of securing a comparable deal.

    Nice to say, hard to apply.

    Portugal is a bit like Greece, but slightly more connected into the main EU marketplace than Greece. One sees far fewer Portuguese than Greek products on EU supermarket shelves. Also, Portugal does have component production for cars and plastic wares – and it is physically closer to production lines in France and Germany.

    Still, based upon these two indices alone does not make Portugal “independent” in terms of its ability to pay its debt which is seriously high as a percentage of total GDP.

    I would not make the same assessment for Spain, which has far more of a presence in EU inter-union trade. Portugal has 1.1% of intra-EU27 trade whilst Spain has 5%. Similar proportions exist for World Trade (Ex EU27) as well.

    If trading patterns are such a considerable factor for which Germany has not lost its Triple-A rating, then that same logic applies to countries other than Germany. Under this consideration, banks should be expected to take a haircut on Portuguese debt as well.

    Unfortunately, since personal savings also enters into the consideration – which are taxable (and are taxed). But the debate about the competence of CRA analytical competence/judgment in the matter of Sovereign Debt is another discussion for another day.

    NB: And which is why the EU is moving towards an EU CRA … because judgment criteria, all in the balance, remain highly interpretive and therefore subjective.

    Remember the adage: “If I owe you a hundred dollars, that’s my problem. If I owe you a hundred million dollars that’s your problem.” Banks thought that was only a joke, but now the joke is on them.


    Such a colossal mistake as has occurred, by means of multiple factors and not just one, must be repaired by all those who participated in its making.

    EU citizens will certainly feel some hardship since debt repayments will incur slower growth rates, meaning fewer of its unemployed getting back to work and much later than need be.

    Such hardship should be shared; meaning by the banksters as well. How nice it was to see that one of them in the UK was obliged to forgo his bonus. (It won’t prevent him from tying up yacht quayside in St. Tropez next August.) But heaven forbid that such moral decency ever do the same in the US!

  21. Ex-pat G.I.

    I’m an old WW2 veteran and I’m living in Greece during these last years of my life and I’ve also lived in Germany as well. Those morons who babble about the “evil, lazy, freeloading Greeks” are just racist dickheads. No wonder most of them come from Germany, which NEVER – I repeat, NEVER – gave up on its nazi ideals; it just kept its nazism hid and well under the covers, with most of its cops being in bed with the NPD.

    With the benefit of hindsight, I don’t think we should have dropped that second bomb on Nagasaki. No. We should have dropped on Berlin. And we should NEVER have rebuilt Germany. We should have done what Alexander the Great did to Thebes; that’s how you set a proper example against the rebirth of nazism. And yes, Germany tries to do what it failed to do with two world wars. Let’s cut the “bomb Iran” crap and nuke Germany instead. Not that anyone’s going to miss it anyway.

  22. Bri Lee

    I hope that they will kick greece out of EU, they are always lying and even if they will say that they will do something, save money and so they will still do hust opposite and pay their crazy 14. salary to their emplyees and so…

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