Europe’s Extremism Gambit

By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

I’ve spoken previously that apart from the economic and social fallout from the European financial crisis, the other major issue I see is the loss of political capital on both sides of the economic divide.

Obvious examples are Catalonia where the economic crisis has opened long festering wounds, and Italy where the failing economy has the potential to re-introduce political uncertainty. The most extreme case, however, is surely Greece where Golden Dawn continues to rise in popularity at the expense of other parties, and there is certainly more to come as the Greek parliament votes on an additional €13.5bn in cuts against an increasingly farcical outlook. Greece now faces another three days of anti-austerity strikes which is again counter-productive to all involved.

What we’ve also seen is what appears to be a loss of political will in creditor nations to support further emergency action by the ECB. This has forced Mario Draghi to front national parliaments to explain his reserve bank’s operations. The trust in the bank will certainly be tested in the coming week given what could be a major error in procedure in regards to Spain:

The European Central Bank has launched an internal investigation into whether it broke its own rules and lent money to Spanish banks on terms far more generous than those offered to Irish banks.

The ECB inquiry relates to the collateral received in exchange for nearly €17 billion worth of loans.

Spanish banks are reported to have offered collateral that the ECB accepted as being more credit-worthy than it actually was and so offered the Spanish banks a preferential discount – effectively a cheaper loan.

An ECB spokeswoman confirmed the collateral examination following a report in German newspaper Welt am Sonntag yesterday, which revealed the Spanish banks should have received the same discount as Irish banks.

The newspaper said that if they had been, the affected banks could have had to produce up to €16.6bn more in collateral.

Up until now, the northern creditors of Europe have been able to state to their citizens that, although liabilities are amassing, no realisable losses have occurred. Greece and Spain, and in some regard Italy, therefore present significant political problems for creditor nations as it becomes obvious to their citizens that real losses are inevitable. With an election year ahead in Germany this sets up an environment of a different kind; one in which the major issue is the loss of political will to do anything at all. From El Confidential (via translate):

The president of the Liberal Democratic Party of Germany (FDP), Philipp Rösler, partner in the coalition government headed by Angela Merkel, the Spanish government has warned that his group would vote against any sovereign bailout bill if the chancellor dare raise a proposal of this nature before the Bundestag. The German Parliament is then closed and bolted to Spain because the FDP has 93 seats that are key to settling a new financial assistance program in any country of the European periphery.


The role of occasional companion Merkel is broadly discussed in the framework of German policy and accommodated Euroscepticism has earned a strong loss of influence in their country. However, Rösler admonitions have served to sharpen the ear of Rajoy, who has gotten the message and is primed to rule out publicly in Parliament to address the possibility of a new assistance program for the remainder of the year. Chief of Executive considers that the rescue should never be an end but a means to ensure the financing of the Spanish economy and debt restructuring, which perhaps can be achieved without shaming Merkel in Germany.

Which brings me back to Greece, where I have previously stated that for political reasons I suspect they will be granted more time and just enough additional money to continue to enact the same failing plan.

Angela Merkel made the comment over the weekend that the euro crisis has at least another 5 years to run. Given that the current plan obviously isn’t generating economic growth, the number of countries under threat continues to grow, and the ECB’s emergency programs are barely making a dent in the economic retrenchment across the zone, it seems highly optimistic, bordering on delusional, to suggest that this is in anyway realistic.

It might be political palatable to Germans for Europe’s leaders to sit on their hand over the next 12 months, but that certainly isn’t the case for southern Europe.

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  1. JGordon

    Fiat money with an interest component is always a ponzi scheme–numbers getting exponentially bigger and bigger, underlying collateral getting logarithmically smaller and smaller, and no physical representation in actual reality. It’s not even worth the paper it’s not printed on.

    Oh yeah, this pig’s going down.

  2. psychohistorian

    As goes Greece, so goes the 99%

    I saw some headline in my skimming tonight that talked about some coming 48 hour strike in Greece.
    What really needs to happen is for the hammer to fall on the US economy again to incite more folks to wake up and maybe even consider coordinating with the 99% around the world so folks don’t get marginalized by the global inherited rich and their lackeys.

    1. Susan the other

      The unbearable lightness of politeness. Great article. I would only question why corruption in the northern states was not addressed. There was corruption in all those acts of deference and it comes down to collusion really. The temporary condition in the north where corrupt pols have not yet nationalized their banks’ losses is continuing to cause harm to EU member populations already harmed by their own corrupt leaders. Everybody knows the German and French banks zombies.

      The EU leadership is dedicated to not incurring losses – no mater that it creates structural deficits for the entire continent, which can never be paid. I do believe it makes no sense. Until they devalue it all.

      Merkel’s comment above, that the euro crisis has at least 5 more years to run because no growth is occurring, is equally a measure taken to save German banks by the state – just as much a nationalization of those debts as Ireland’s – but done in a way to save maximum face, and buy time. It’s getting clear, however that time has already become too expensive.

  3. The Dork of Cork.

    Who now would put their trust in a Venetian banker ?

    “Six hundred and fifty years ago came the climax of the worst financial collapse in history to date. The 1930s Great Depression was a mild and brief episode, compared to the bank crash of the 1340s, which decimated the human population.

    The crash, which peaked in 1345 A.D. when the world’s biggest banks went under, “led” by the Bardi and Peruzzi companies of Florence, Italy, was more than a bank crash — it was a financial disintegration. Chroniclers reported, “all credit vanished together,” most trade and exchange stopped, and a catastrophic drop of the world’s population by famine and disease loomed.”

    Like the financial disintegration hanging over us , that one of the 1340s was the result of 30-40 years of disastrous financial practices, by which the banks built up huge fictitious “financial bubbles,” parasitizing production and real trade in goods. These speculative cancers destroyed the real wealth they were monopolizing, and caused these banks to be effectively bankrupt long before they finally went under.

    The critical difference between 1345 and 1995, was that in the fourteenth century there were as yet no nations. No governments had the national sovereignty to control the banks and the creation of credit; or, to force these banks into bankruptcy in an orderly way, and replace fictitious bank credit and money with national credit. Nor was the Vatican, the world leadership of the Catholic Church, fighting against the debt-looting of the international banks then as it is today; in fact, at that time it was allied with, aiding, and abetting them.

    The result was a disaster for the human population, which fell worldwide by something like 25 percent between 1300 and 1450 (in Europe, by somewhere between 35 percent and 50 percent from the 1340s collapse to the 1440s).”

    That was written in 1995 when Europe still had national goverments and credit of a sort but it was of the post 1648 debt kind …….

    What have they now ?

    1. gepay

      The dork of cork fails to mention that the black plague. It is likely the financial failure and the plaque effects were synergistic. The plague was the deadlier of the two and more important in the population decline. I would imagine that the 1300s had much less intertwined economies so that a financial catastrophe had much less effect on the general population than it would today.

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