European Pundits Starting to Give Up on the Eurozone

We’ve been pointing out for some time that Germany has refused to budge from wanting contradictory things relative to the Eurozone. Germany wants to continue to run trade surpluses, which are now predominantly with other countries in Europe. That means it needs to finance its trade partners’ deficits. But Germany simultaneously does not want to do that, at least with other Eurozone members. The only way to square that circle would be if the euro were vastly cheaper, so that Germany’s trade surplus was more with the rest of the world than with its fellow Europeans, and that countries like Spain could come closer to a trade balance or achieve a trade surplus via trade with the rest of the world. No one has entertained that as a solution, since the required level of euro depreciation would be so large as to invite retaliation from Europe’s major trade partners (I haven’t seen good estimates, but early on, Wolfgang Munchau suggested between .6 to .9 to the dollar).

The whole premise of the EU/Eurozone project was successive crises would force further integration. We’d assumed that the Eurobanks were sufficiently wobbly that absent more banking integration (at a minimum, a deposit guarantee), you’d eventually see some sort of Big Problem (see an analysis by Josh Rosner from last year of the poor condition of the German banks). Yet the European officialdom has managed to pull off years of “barely enough at the last minute” salvage operations to keep things from falling over. But the Germans have also insisted on crushing and failed austerity, and refuse to relent even as compliant periphery countries keep missing their targets and in the case of Greece, the result of breaking a country on the rack is a failed state.

Even though we’ve had quite a few individual commentators from Europe argue in favor of a Eurozone dissolution, the pundit class has treated that as impossible because the costs were so high that whatever compromises needed to be made would eventually be reached.

Now something still has to break, but some of my correspondents who’ve just been in Europe now think that we will see a political crisis in Europe before we see an economic one, and that, like objects in your rear view mirror, may be closer than it appears.

I was disappointed at the fact that (based on the thin comments) few readers apparently read an important interview with James Galbraith that we posted last week (Ambrose Evan-Pritchard saw fit to link to it from the Telegraph).

JG: I think that ultimately the decision on the future of Europe will be made in Germany, and Germany has to decide, does it want it or not? If it wants it, it has to take minimal steps to stabilize it on the same principles on which they stabilized the East, and on which they built the Federal Republic in the first place. And if they don’t want it, well, it will go away.

RS: I think even if they want it, they’re not going to stabilize it.

JG: In which case they’ll lose it, and then we can see what is left. But when it’s lost, Germany’s going to have the problem it had before of an appreciating currency, and an industry that quickly loses competitiveness, and there’ll be higher unemployment. And its markets will have collapsed and its debts won’t get paid.

Germany is not going to escape the consequences of this. Again, it’s a choice that Germans can, and I’m sure, will make. But what is necessary is to state clearly what the choice actually is….

But one needs to recognize that you have a project which has built up a standard of living of the European continent, and that’s a project of integration. Integration has a lot of efficiencies associated with it. In any event it creates a world in which there are cross-border interdependencies. And if you want to break them up, you can, but the price is enormous. In the experience that we’ve had recently, it’s on the order of 40%. So that’s a good benchmark for what might happen to living standards if you suddenly went back to capital controls and trade barriers and national industries. And good luck trying to build national industries that will compete with the industries that will be in Germany that are highly competitive, but will not have markets because nobody will be able to buy their goods.

While it is hard to tell if a tipping point is nigh, Yanis Varoufakis seems more evidence, despite the considerable cost of a Eurozone breakup, that the experts are struggling to find a resolution that is acceptable politically to Germany.

By Yanis Varoufakis, professor of economics at the University of Athens. Cross posted from his blog

Klaus Kastner has been in regular correspondence with me and with readers of this blog. A thoughtful commentator, he has held on to the thought that Greece can be revived within the Eurozone under the current mix of ‘fiscal consolidation’ policies. From the outset, he seems to have appreciated some aspects of our Modest Proposal but has maintained the position that countries like Greece can reform from within, independently of what Europe does to re-form the Eurozone. While appreciative of the Eurozone’s architectural faults, and the errors of its response to the crisis, he was never particularly convinced by my emphasis on the Eurozone’s brittle foundations or my arguments that the Eurozone is doomed if it fails to adopt policies like those in the Modest Proposal. Instead he has been consistently choosing to place his emphasis on micro-reforms and on institutional changes that the countries of the Periphery must enact.
In a recent post, that breaks with his narrative-so-far, he confesses to have lost faith in the Eurozone project; in the idea that the Euro Area can be maintained in a manner consistent with shared prosperity. He is not the first one. Many of my interlocutors of the past few years, who also thought that the Eurozone was salvageable, have changed their minds, turning to the position that it should be disbanded. For my part, I have not reached that position yet. In my mind, (a) a winding down of the Eurozone can never be smooth or controlled and will, most certainly, lead to another Great Depression for countries like Germany; and (b) the Eurozone can still be saved in the manner that we have been proposing for three years now. Having said that, Europe’s leadership seem determined to disprove me and to confirm the wisdom of Klaus’ recent turn.. For Klaus Kastner’s relevant blogpost…. read on..

“The idea of a common currency union is a big mistake, an adventurous, reckless and mistaken goal which will not unite Europe but, instead, divide it”. Lord Dahrendorf, 1995.

Since I started this blog, I have tried to be as self-critical as possible; taking differing views into account; pondering them; learning from them; incorporating them into my own views. This is my 11th effort to recognize the erred ways of my thinking – and it is a major one!

To make it short: I now believe that Lord Dahrendorf was right. Right not only then but, even more so, today.

My blog has focused on Greece; I have more or less ignored the situation in other countries of the periphery (and I have not paid enough attention to the German situation). Greece alone had made me optimistic. I had observed, on location, how a small economy which had totally collapsed could be successfully turned around in only a few years with the right domestic economic leadership and the right support from abroad (Chile in the late 1970s/early 1980s). And I thought the same could happen easily in Greece. Well, it’s not happening in Greece because the country does not have the right economic and political leadership nor the right support from abroad.

I had started wavering in my position some time last year but I forced myself to remain optimistic. What has brought me down to reality?

There seems to have been an intensified discussion of late about solutions to the Eurozone (at least in the media and blogs which I follow). I particularly refer to two articles in Prof. Varoufakis’ blog: Six Critical Responses to the Modest Proposal and James Galbraith on Europe (and the numerous comments to them). Those pieces were indeed thought-provoking!

However, the eye opener was the book “The Euro-Liars” by Hans-Olaf Henkel which I have just read. Henkel is a very provocative individual but one can discard his provocations. However, one should not discard his arguments!

Henkel’s principal – and irrefutable – argument is, like Lord Dahrendorf said almost 20 years earlier, that the Euro does not unite Europe but, instead, it splits it. There is massive evidence today that this is so. In my view, it is of secondary importance to analyze who is to blame for that because that always leads to endless loop-discussions without results. It is far better to recognize reality. And, secondly, Henkel argues that the Euro not only limits (if not destroys) economic potential in the South but also in the North.

It is futile, Henkel says, to impose a currency which doesn’t fit national cultures. Instead, national cultures have to shape their currency. The Euro, as it was designed, does not fit the cultures of countries like Greece, Portugal and Spain (Henkel also adds Italy and France!). Neither is today’s Euro suitable for the North because it makes it too easy for Germany & Co. to export (much of the exports are courtesy tax payers because tax payers lend the funds so that the periphery can pay for imports from Germany & Co. Put differently, a massive export subsidy!). If Germany & Co. were not in the Euro, they would have to become even more innovative and productive to remain competitive in the world and their surpluses would most likely come down.

In his critique of Six Critical Responses to the Modest Proposal, the American Uwe Bott (Bott Consulting, NY; contributing editor to The Globalist) writes more bluntly:

There will be no resolution to this crisis until European policy-makers come to grips with fundamental economics. The Eurozone never was and less and less is an optimum currency area. In theory the flaws in the construct are fixable, in reality there is not enough time or political will. It is the inescapable consequence that the Eurozone must be dissolved. In applying the lessons of German unification onto the Eurozone, it becomes unmistakably clear that even a willing Germany could never pay the price to make monetary union in the Eurozone work. The price tag for such exercise would be exponentially greater than the cost of German unification. Moreover, the ability to freely migrate in order to mitigate some of these problems simply does not exist in the Eurozone given cultural and language barriers.

My original optimism about Greece was based on the following logic: a long-term economic development plan (at least for 10 years) would be necessary to build up domestic economic value creation (and/or repatriate it through import substitution); a shift of the necessary foreign funding from loans to direct investment by foreign private sectors in the Greek private sector; EU-incentives to facilitate that (such as guarantees for the political risk including a Grexit); possibly temporary ‘infant industry protection’ (incentivating the repatriation of monies held by Greeks abroad and/or limitations on capital outflows). This is not happening (and I no longer have the hope that it will happen) because the EU never thought in those terms and Greek leadership never showed the will or, more importantly, the capability to effect the necessary reforms.

As Prof. Galbraith argues, austerity alone is not the solution; neither is stimulus alone the solution. It would require a ‘European Initiative’ comparable to what the US government might do in a similar situation. A United States of Europe with a federal government? Who would elect that government? Would national governments appoint it or would voters Europe-wide elect it? A Finn campaigning for election in Greece? A Greek in Germany?

The present EU as a role model for a future federal government? An EU which currently seems more outside of Europe than part of it? An EU which tells us which shape cucumbers must have; what kind of light bulbs we can buy; what kind of bathroom fixtures? Since I have about 10.000 qm of grass to take care of, I am particularly interested in the latest EU regulation which will tell me what type of machinery I can use during which hours of the day/week!

In short, an EU of self-possessed overpaid winetasters who regulate what must be done at the subsidiary level but who do not have one phone number which the US President could call on defense or foreign policy matters? If that is the price to pay for the Euro, the price is far to high! Europe is not a uniform continent. On the contrary, one of Europe’s USPs is its diversity of nations, cultures, languages, mentalities, etc. etc.

But something similar to the above seems necessary if the Euro is meant to survive in its present form. Some people argue that Germany should assume more ‘continental leadership’. That, however, ignores how many Europeans would be scared by that (most of all the Germans themselves).

Dissolving the Euro in its present form would cause very significant financial losses to all. True, but are those losses which could be avoided or are those losses which are already there but not yet realized?

The South has already paid much of its bill: unemployment; economic destruction; absence of future perspectives; etc. One could argue that it can’t get much worse and that a departure from the Euro in its present form would actually be beneficial: the South would become more ‘competitive’ in financial terms and it could draw on the capital which it has sent offshore during the crisis.

The North has, as yet, hardly paid any part of its bill. However, responsible accountants would have to book that bill as an ‘account payable’ and it is just a question of time when it will have to be paid.

So it comes down to operational questions: Who will pay for what part of the bill? What is the best mechanism for facilitating an orderly payment of the bill? Etc. One ought to be able to expect that a group of smart people would find a solution to that, if the EU were only willing to form such a group and give it a mandate.

Henkel makes an important point: it is not the deficit countries which should exit the Euro. That would be adding insult to injury. Instead, it is the surplus countries which should do that! There are various ways how this could be approached. Henkel proposes that Greece, Italy, Spain, Portugal and France should keep the Euro as it is (with France assuming leadership) and that the other countries should chose a new currency for themselves (Henkel proposes a North-Euro and a South-Euro). Some countries (Bulgaria, Romania, etc.) might want to join the South-Euro and other countries (CZ, Poland, Denmark, etc.) might want to join the North-Euro. Another alternative might be to introduce parallel national currencies. As I said, there are many alternatives (Merkel’s ‘no-alternative-position’ is an inconsistency in and by itself).

I sympathize with Greeks & Co. going on the barricades for having been deprived of a future. I also sympathize with Germans & Co. who feel that they have been (and are being) taken for a ride. Is that because of the Greeks & Co. and the Germans & Co.? I severely doubt it! Before the Euro, the Greeks & Co. and the Germans & Co. had a rather good time together. It is the Euro which has put the people of the Eurozone against each other.

So, I admit defeat in my belief that ‘European policy-makers would come to grips with fundamental economics’. They seem incapable of that. All those ideas which aim at solving the Eurozone’s problems through generating aggregate demand or through a Modest Proposal (which otherwise sounds very interesting) are pipe dreams. They might work in the United States of America with a strong federal government but they are pipe dreams in a Europe of administrators, technicians and bureaucrats focusing on national interests, all speaking in different languages and different directions.

RIP Eurozone!

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  1. F. Beard

    If A is $10 in debt and B has $10 in equity, is anything changed relatively if both A and B are given $10? No, but note that A is no longer in debt. Debt that he might not have been able to pay anyway.

    So distribute new Euros already! And should that risk price inflation then reign in the counterfeiting cartel, the banks, which caused the problems in the first place, I’d bet.

    1. H. Alexander Ivey

      Ahh, but Beard, then B will not have a moral advantage over A, and even more subtle, B will not have a physical advantage over A (B would no longer have claim to the asset or property of A).

      It’s not the money (but follow it). It’s the morality of it!

      1. F. Beard

        Ah yes, the borrower is the lender’s slave (Proverbs 22:7). But we have to assume that most people do not seek unfair advantage over others or would at least forego that advantage to solve an emergency … because dead lenders got no slaves anyway.

        1. G. Moustache

          But of course, I’m always prepared to take your money, let’s call it borrowing shall we, and never pay it back so as not to be your slave. May I suggest I can borrow one million dollar from your account and not pay it back so that I won’t become your slave? For starters of course I am always prepared to become even less your slave in the future.

          1. F. Beard

            What money? Banks don’t lend existing money; they create deposits as they lend them.

            Sounds like counterfeiting to me. You?

            1. G Moustache

              And who is eventually not going to get his money back? The depositor! Are you going to tell me he has also not existing money? So who eventually is going to loose all his money? The banks?? Know who the biggest debtor is who is not ever going to pay bach his debts : your counterfeiting STATE!

              1. F. Beard

                If one thinks about it, the debt of a monetary sovereign is morally bogus since the monetary sovereign NEVER has a need to borrow in the first place. But to pay off the National Debt simply requires swapping brand new fiat for it as it comes due. A big nothing burger as Karl Denninger might say about something else.

      2. F. Beard

        It’s the morality of it! H. Alexander Ivey

        Except driving people into debt by what is essentially a government-backed counterfeiting cartel is not something the Lord would consider moral, I’ll wager.

        So while we are attempting to make slaves of our fellow man, “for his own good”, mind you, we should always do so ethically, just in case it ISN’T really for his own good and because the Lord insists anyway, doesn’t He? Something along the lines of “Thou shall not steal?”

  2. Joe Five Boxes

    The Anlo-Saxon world will not destroy the Euro, no matter what you do, wish and propagate.

    Mind your own business, we are fixing ours economies and build our sound economic future. And you? What are you doing? Transform the USA in a corrupt and fascist economic system. Is your brave example to show to the World and to us, Europeans?

    1. mookie


      You’re somehow under the impression that the principle authors of this post, Yanis Varoufakis and Klaus Kastner, are Americans? Further, you think this blog cheerleads for US economic policy and denigrates European economic policy? Yet further, you somehow believe there is substantive difference between the underlying theories governing the US and European economies?

      utter and complete fail.

      1. Joe Five Boxes

        We have a long tradition of people who follows the american propaganda and are paid by the CIA and others american organizations do destabilize Europe. Since the beginnings of the USA.

        Even today some europeans are dumb to follow the americans. Which example do you give us? Economic fascism?

        In Europe is not the euro the main problem. It is politics, old politics, like communism, socialism and so on.

    2. Clive

      Yes, Mr. Five Boxes, you’re just as guilty of the empire building thinking that you’re accusing Yanis (wrongly) of.

      Individual nation states and the cultures within them — ruling cultures especially — are largely incapable of executing the sort of critical analysis and neutrality required to resolve endemic problems. Put simply, the people concerned are too close to the situation and have too much capital (emotional as well as fiscal) invested in the as-is world.

      Sometimes a world-view is required with peer reviews from outside parties. No-one can afford to be too “proud” to accept this outside help.

      One good example is that the near centaury long problem of the island of Ireland which had ossified since partition could only be improved (I would shy away from using the word “resolved”) with US input. Without that kind of believable and influential but still largely neutral stakeholder, there was no way that the UK, the Republic and the factions within the province would have collectively banged their heads together to forge some sort of progress.

      The US is, laudably (I think it’s laudable in intent, I’ll take views from the floor on that on though as it’s way-y-yyy outside of my expertise) attempting the same trick in the Israeli / Palestinian conflict. There, though, I think it’s got too dirty hands to pull it off. Hope I’m wrong but I don’t think I am.

      Anyhow, Europe needs sound thinking from and good advice from any source it can get it. So you’re wrong to pull up your drawbridge.

      1. Moneta

        I agree in theory but in practice, everyone has a take in the game.

        The US played a big role in forcing war reparations on Germany and we all know how that turned out.

        When it comes to maturity, the US is still an adolescent. Lots of testosterone….

        1. Clive

          It’s funny isn’t it, both the US and Germany have been thrust into positions of power and responsibility that they don’t often show the maturity of being able to handle.

          China, on the other hand, seems to still be able to draw on a millennia or two of experience of being the regional hegemon and demonstrate how to throw your weight around from time to time without knocking over all the furniture.

          Would be nice if the whole world could be a little more co-operative and the small fish not need to either fear or manipulate the big fish (neither reaction is good)… but that isn’t going to happen in my lifetime I don’t think.

    3. Massinissa

      Youre right, the Anglo Saxons wont destroy the euro.

      The Eurozone is busy doing that.

      As is mentioned by other commentators, Varofakis is Greek. You know, the country that has suffered the most from this insane project?

      I cant remember where Kastner is from, but I think its Austria or something. Its certainly not America.

      Is it really such a shock that there are Europeans (Brits dont count) that want the end of the eurozone?

      1. Joe Five Boxes

        Why are you saying the Euro is an insane project? Just because some communist or paid by the americans to destroy the euro says so?

        The majority of the Greeks, Spaniards, Italians, Portuguese want to maintain the euro. Democracy is this. Some are against the Euro, others, the majority approve the currency.

        You choose to hear the communists and the radicals. Who is protesting in these countries? The communists and the radicals. The majority of the people sees the protests as rubbish from radical minorities like communists or some old FASCISTS, who follow the English Fascism. Who do you thinh are the UKIP followers in the UK?

        The americans, dumb as they are, are not used to see protests in the streets. We in Europe think that are normal but we do not follow those radicals protesters. They have the right to protest and we have the right to ignore them.

        One thing is the street, another one is the secret of the vote in the elections.

        1. J Sterling

          The way you can tell who the fascists are, is by how they insist that everything would be all right if it wasn’t for the enemies outside, and the enemy race within.

          And what do eurozone enthusiasts always say? Nothing’s wrong with the Euro, it’s only the enemies outside Europe, and the insidious English race inside, who want to spoil things. Always the race-based appeal to solidarity against the enemy.

          It must suck to be an English eurozone enthusiast.

          1. Joe Five Boxes

            Sorry, but you are deceiving yourself. The Euro has a lot of problems and the currency was built with a lot of flaws. This is why they are fixing the flaws and changing theirs economies. The world is not black and white, has a lot of gray colors too.

            But the problem is very simple in political terms. Communists, fascists and nuts are together fighting the Euro currency. Are the radicals. Are the new Lenin’s, Stalin’s and Hitlers of these days. In Europe we see the UKIP together with the French Front National, the Greeks fascist, the Spanish communists and even the Portuguese and Italian communists. They are together against the Euro and the European Union. They are radicals and nuts. The majority of the people of these countries piss off in those nuts. Pretty simple politics. We do not need a PHD in Politics to understand these strange political alliance of will and hate. In special the Hate to the Muslims, the hate to Immigrants and the Hate to the European Union who protects the civil rights of all those citizens.

            In Economic terms the Europeans are creating the best sound currency of the World. The best sound currency and the best economy. Economic crisis can not be avoided as some think. some Utopians believe it is possible to print to create jobs. Others believe that the State can spent forever and avoid the crisis. They call this bad economic policies “economic stimulus”. Others believe that the day and the night can disappear because artificial lights but it is not possible. Man can not change his own nature and the natural cycles of the life and even the economic cycles. Look to Japan and think about theirs crisis.

            Of course others, “american-centrics”, think that the World round around theirs lives but not. The USA is decaying and the Ed of the American Empire is ending. Even theirs rotte believes and the struggle inside the USA are more deep and worrying than inside the Europa. But the “Hollywood way of life” is distracting the Americans and they are ignoring what is really going on in theirs country and in the World.

            I will give you a good example of this “Hollywood way of life” working. Check the Dreamliner of the Boeing. It was sold to the world as the best plane ever. A lot of technologies and ideas in one aircraft. It is publicized as the best airplane ever made in the glorious USA. rsrsrssrr But is is crap. “Hollywood” sells the crap plane as the best ever but it is crap. The Europeans made one similar but it is safe and better than the “Dreamliner of the Hollywood. It is not crap like the American plane.

            Now this great American fiasco, sold by Hollywood , it is a symbol of the American Decay. It is a symbol of the End of the Pax Americana. The Americans are not able to build planes, a civilian one, reliable, safe and cheap. Imagine the American weapons. They are expensive, weak and unreliable. Who will really in the American defensive alliance to protect his country? rsrrsrsrssrss

            In fact, the Dreamliner is the symbol of the USA. Too much “Hollywood marketing” but bad ability to do what is supposed to do. Flying safely, flying cheaply and reliable. The Europeans without so much “Hollywood marketing” built one plane to compete the Americans more safe, relaibale and economical.

            The others countries are not stupid. They know that the USA is a “giant with the clay feet”. rrrsrsrsrsrrsrs

            The Euro is a menace to the USA. Of course. It will replace the American Dollar in the next decades. I bet the smart Americans have afraid of that. If I was American I would be very worried with the Euro success. And the European achievements when they live in Peace and cooperate together to live in Peace. Without the “American umbrella” and guns.

            Bye, bye “Hollywood way of life”.

            1. Scylla

              Wow, just wow. Is it me or does this guy sound just like a stereotypical American? Its as if you took one of those Fox indoctrinated right wingers and put them in Europe. I will say that its refreshing to see some European exceptionalism to break the monotony of the American variety.

              What is the European version of of ‘Murika?

              Maybe its just me…..

              1. Maju

                He might be from Eastern Europe. No one else is obsessed about “communism” over here – except the fascists, of course (but even those would rather be ranting about immigration first of all).

                He is clearly self-deluding in any case.

            2. G Moustache

              Of course the majority of Greeks, Spaniards, Italians, Portuguese want to maintain the euro, who wouldn’t want their debts paid by others? Of course all of them want to stay at all cost in the Euro so as to happily install a transferunion where the Nord pays for the South until eternity. And of course who wouldn’t understand that they say that Europe is ‘solving’ its problems. But ‘solving’ for who? Surely not for that Europeans that are expected to pay the bills for all this European ‘solutions’!

              1. Maju

                Don’t be arrogant, Moustache. The main reason to keep the euro, at least for the time being, is that dismantling it in the midst of such a brutal crisis would be a total disaster. However, if Germany wants to leave, I believe nobody would complain. But why leave when they are the ones setting the rules and clearly benefiting from it, when they’d lose their markets and their area of influence?

                Germany will not leave nor will anybody else who matters. Therefore tension will grow and grow until it all explodes. The way of (mis-)managing it that the Euro-oligarchs have is to increase repression and promote loyal “national unity” governments like those of Greece and Italy, which render the ritual of democratic elections totally pointless (except in Greece, where Syriza may well win but by the moment: pretend and extend) and can only evolve to a situation like that of Turkey, Egypt, etc. in the term of mere years.

                IMO, as the overall Eurozone situation degenerates, the troubles will extend (they are already spreading) to the core EU, especially France, where not long ago workers effectively paralyzed the economy with a weeks-long general strike. That will probably be the point of no return: when France explodes. It may take some years but it’s probably unavoidable under the current conditions of a bottomless and endless crisis. Core EU (and very especially France) is not impervious to what happens in Spain and Italy (both too large in population and GDP to merely dimiss as nuisances), the opposite is true instead: all EU is deeply interrelated at economic level and the chickens will go back home to roost for sure.

                1. G Moustache

                  On the contrary if Germany left the Euro I believe everybody else would complain. Who else could then still be screwed to pay all the bills of the endless debts of the Greeks, the Spaniards, the Italians, the Portugese and the French? The remainder of the Euro would immediately implode to almost complete worthlessness. Don’t you think they all know that? You think they want that? I’ll tell you the names of the innoncent souls that invented this complete Euro-scam : the French! It was their premeditated plan to con the Germans into the Euro as a condition for their reunification. The French deliberately set up this Euro congame to allow them to let the Germans in the future pay for their endlessly lavishly piled up government debts into eternity. This and only this was the real purpose of the setup of the Euro : to silently setup a transferunion in Europe without having to openly ask permission for this from the people of the European countries. So the real purpose of the liar politicians was to con the peoples of Europe with ease of payment of the Euro into a fait accompli of a large-scale transferunion. Something that nobody of the peoples the North would have ever agreed on when openly asked in parlement!

                  1. Maju

                    Debt, which in several cases (Spain, Ireland) has been engineered by EU banksters and is not intrinsical (socialization of private problems, what is usually known as “hateful debt”), can be managed in several ways: it can be of course defaulted, it can be paid with the help of the central bank (if Germany would not be there to veto, the ECB would be probably financing the states: there’s no other way), etc.

                    Also if the management would be more democratic at all levels (or at least more rational and not so one-sided in favor of the hyper-rich), the costs would be detracted from military and police spending, not hospitals, R+D and education, and taxes would be issued on what can produce them: the rich, the polluters and the imports. But exactly the opposite is happening now.

                    You are anyhow all the time using the ethnic name calling strategy: it’s not German or French or whatever CAPITALISTS (oligarchs, 1%, banksters or whatever you want to call them) but, in your propaganda language it is the collective peoples of each state, as if they were ever asked and not just driven like sheep to the slaughterhouse.

                    I remind you that the French people (as well as the Irish, the Dutch, etc.) said NO to the European Constitution, which was then pushed by the back door in form of “treaty”. However this was not so much for being against European properly done unification but for being against the anti-social program implicit in it. Exactly the same anti-social program being implemented now with the crisis and “debt” pretext.

                    This is not just or even mainly a matter of “debt”, it is a matter of destroying the lives of the working class, so they are forced to beg for crumbs as slaves (or revolt). And it is happening all through the EU, not just here or there.

                    1. G moustache

                      Debt was engineered by the EU-banksters because intrest rates were engeneered by the central banksters. The central banksters were enineered by the governmentsters. Paying debt back with the help of the central bank is not paying, it is cheating. It is pretending to pay while in reality doing the opposite. Swindling can NOT be called ‘managing debt’! The ECB ‘paying’ for all the debts is swindling and defrauding of the people who saved money. In this case the people of the North of Europe. The purchasing power of their money is stolen by the ECB. The only thing that is ‘managed’ here is the management of the stealing.

                    2. G moustache

                      Ethnic name calling strategy? All the French politicians were democraticly elected by that collective people of their state so don’t tell me that they were the innocent souls who bear no responsability for the kind of politicians that were in power. The matter is that especially the French and in fact all the rest of the Southern PIGS are notorious for voting for politicians that spend without end with money they don’t have until disaster strikes. Being ‘social’ by spending other peoples money and cheating them so that state employees can live above their means is not social. It is anti-social. So the very ‘social’ French politicians wanted the Euro as a means for having their endless spendthrift paid by others so that they didn’t have to present the bill to their own voters. A very nice ‘social’ way to stay in power by letting other people who can’t vote for you pay the bill! Democracy at work in Europe!

                    3. Maju

                      “The ECB ‘paying’ for all the debts is swindling and defrauding of the people who saved money”.

                      I believe savers have already lost it all: bankruptcy is not yet formal but an overwhelming reality that is extending like an epidemic. Anyhow, that’s the traditional (and very capitalist) way of managing debt by sovereign states, so states who have ceded its monetary sovereignty to a shared state can and probably should do the same, especially in a situation like the present of extreme emergency.

                      In social emergencies, private interest is trivial, only the collective interest matters: and this is to save society from outright collapse.

                      The alternative is defaulting the debt and paying the price of losing credit altogether (although in practical terms that varies, because credit always belongs to future expectations and not directly to past deeds). There’s surely not any third option once debt surpasses sutainable level… maybe paying an eternal debt for centuries like Haiti but I don’t think Europeans will go through that, mostly because you can’t invade a continent like Europe with the ease you can invade half a small island like Haiti. Also European GDP is still a major share of global product, so Europe can in fact put a lot of pressure on other agents if need be and there is willpower.

                      The real problem of Europe is lack of a balanced continental focus and therefore joint willpower. But still its parts are among the biggest economies of Earth, even Spain and Italy are. So the only real problem is focus and willpower at all levels. Just imagine a Spain, for example, with the political willpower of Iran or Venezuela…

                      This brings me to the other criticism you make, Moustache: politics. Bourgeois democracies are not really democratic: you can almost always only choose between almost identical choices, while the media, not democratic at all but controlled by private corporations or the state itself, reinforces that extreme restriction of choice to the ritual pointless one. This may seem anecdotal when things go well, the same that a bloody dictator may seem anecdotal to the majority when things work. But it becomes a major barrier against much needed change when things collapse catastrophically as happens now.

                      So French or Spanish or Germans do not really have a choice, not even a serious debate. And it’s not even remotely necessary to get 50% of the popular vote to rule with absolute majority. A mere 30% is usually more than enough.

                      Worse: a politician can lie all they want in campaign, that no matter how bad are opinion polls, they will grab the office for the whole mandate and almost never resign. Rajoy for example would have now barely 22% of the vote (assuming only 52% of adult citizens vote, so rather something like a mere 10% of support) and the traditional “opposition” is doing even worse. Together they cater a bare 20% of all citizen support. Is that democracy? It’s just a pathetic regime that is bordering total collapse. Even Franco was more popular!

                      As I understand it democracy is social consensus to at least some reasonable level. And we don’t have it anymore in Europe, instead we have dictatorship of the banksters with a system that allows ruling with a mere 10% of popular support. It’s a total disaster!

                      Possibly in France Hollande manages to cater more support by the moment but I would never hold all citizens hostage to any government’s decisions. Only those decisions ratified by referendum can be considered truly democratic. But that only happens in Switzerland. Would you still hold Swiss accountable if their all-powerful banks fail? That’s ridiculous and would never work anyhow. You can drain Swiss citizens dry of everything they have and they would not be able to backup even a small bank.

                      Banks are private business and only private actors should be held accountable: stockholders and risktakers, i.e. “savers” (or more properly investors in risky endeavours like state bonds or whatever).

                    4. G moustache

                      Reply to your last answer down under : So French or Spanish or Germans do not really have a choice, Bourgeois democracies are not really democratic? If even they are not democratic can you imagine how ‘democratic’ a transferunion in Europe is? One European country feels it has the holy right to make its own policies and corresponding sky high debts while another European country is just supposed to pay for it while having nothing to say in the internal kitchen of that country?? How is that for a ‘democracy’ compared to yours? Did you find where the real dictators are situated here already?

                    5. Maju

                      The real dictators are the oligarchies, who hide behind corporations, who hide behind “elect” governments that can’t be impeached even if they lie day after day. The real dictators are the media moguls, who basically spit propaganda (almost zero real debate and only convenient truths reported) and those who hire their services, such as the banksters and other big capitalists.

                      That’s what we talk about when we talk of dictatorship of the bourgeoisie. It’s not too relevant to me if it is at state level or at union level, really.

            3. salvo

              LOL the Eurozone, the Thousand Year Reich, believe I’m German, an there are a lot of people in Europe who don’t want this Eurozone (a German Europe)

              In Europa wird deutsch gesprochen, Volker Kauder, CDU

              1. Beppo

                You’re exactly right. Germany would never be the country that ends the EU, because it’s the vehicle for their hegemony over Europe. What a nasty neoliberal project.

    4. G Moustache

      We are fixing ours economies and build our sound economic future?? You surely must be French to talk such ridiculous nonsens! Who has told you this baloney? Super-imposter Hollande?

  3. Disgruntled

    Right now all we are seeing are the elite bickering amongst themselves how to divide the spoils of neolib economic policies . Only when the lower classes of Europe pose a threat, will any further integration occur. (with even more disastrous consequences for the lower class interests) And in my understanding one wouldn’t be remiss to think that integration will take more after the form of the US with increasing centralization.

    The US is a bright and shining example of how a two party system which bribes the middle class can ensure the status quo. Just look at the last one hundred and fifty years of US history to see how effective their strategies have been.

    Regional integration is nothing more than the ruling elites deciding on a new equilibrium from which they can continue to fleece the lower classes. Why would it be anything else? They are called the ruling class because they rule and any policy would first and foremost serve their own interests. When you live under a State that rules by a monopoly of violence you don’t have any rights – only privileges.

    But yes, let the Europeans cling to a sense of European citizenship and patriotism. Patriotism only serves to strengthen tyranny, not prevent it.

    “Multiply examples, choose them where you will, consider the origin of all fortunes, large or small, whether arising out of commerce, finance, manufacturers, or the land. Everywhere you will find that the wealth of the wealthy springs from the poverty of the poor.” – Kropotkin, The Conquest of Bread

    1. efschumacher

      >The US is a bright and shining example of how a two party system which bribes the middle class can ensure the status quo. Just look at the last one hundred and fifty years of US history to see how effective their strategies have been.

      And the US is looking the more tarnished because the bribery of the ‘middle class’ (the 20% not the 90%) hasn’t been tended with sufficient assiduity in recent decades.

  4. PeakVT

    Henkel makes an important point: it is not the deficit countries which should exit the Euro. That would be adding insult to injury.

    A.E-P. pointed this out years ago here.

    1. Synopticist

      The only solution has always lain with Germany itself leaving the Euro. That’s been obvious to me since the whole thing kicked off. Maybe a small handful of other countries could join her.

  5. NotSoSure

    Perhaps the “thin comment” was due to relatively few things happening even after the supposedly bad economic data which then turned into somewhat better data. And this is after George Soros gave the Euro a 3 months deadine plus countless AEP’s the Euro is doomed articles.

    This ship ain’t going down simply perhaps because as long the food is still flowing and there are things to watch on TV (like the still good soccer games), nothing else is worth doing. Sounds like sarcasm perhaps but my humble opinion is that most people are concerned only about those not austerity, MMT, Keynesian, etc.

  6. Nell

    “I was disappointed at the fact that (based on the thin comments) few readers apparently read an important interview with James Galbraith that we posted last week”
    I read it and though Galbraith was right on the money. We are all suffering from the same problem – incompetent governance. Some of that stems from ignorance on the part of the political class. Politicians have failed to recognize the main factor preventing economic recovery of all our nations, which is private sector debt. They are all seemingly obsessed with government sector debt, labour flexibility, export markets etc etc. Until our nations face up to the fact that the financial sector is going to have to be shrunk and debt restructured we will all limp along, until, of course our legs give out.
    Dirk Bezemer has put together some excellent videos explaining banks, debt, productive debt vs speculative debt, asset bubbles, housing markets and general solutions.

    1. brazza

      “I was disappointed at the fact that (based on the thin comments) few readers apparently read an important interview with James Galbraith that we posted last week”
      I read it too and also though Galbraith was right on the money.
      As a result I thought it wiser to spend time planting potatoes than to engage intellectually. At this juncture I harbor no illusion that events may be tampered and shaped by wise political or economic decisions; it is simply smarter to wait for the next shoe to drop and be flexible as a reed in the wind when it does. My hunch is that it will drop in Italy in the autumn … as Grillo has been forecasting for a while. Berlusconi’s guilty final sentence means the 6-month shroud of calm imposed on the hyper-chaotic italian media during the coalition experiment is about to come to an abrupt end.

    2. F. Beard

      There’s a debt-free form of money called common stock which consists of shares in Equity.

      Queue the “money must be debt” crowd except they won’t show cause they got nothing. Why? Because while money is most often issued as Liabilities, note that Equity is also on the right side of the balance sheet and thus is also backed by the Assets but less Liabilities.

      But hey, why share if your competition can legally steal via the government-backed credit cartel? Shouldn’t you do the same?

      If we want an equitable (pun intended) society then why in Heaven’s name do we subsidize debt creation and punish sharing with the capital gains tax on common stock?

      1. Alejandro

        I really like the “moral” of the story in the parable of the sower (Mat 13). Which is keep on keeping on with the sowing of good seeds in spite of the birds eating some, shallow soil, hot sun and thorny weeds…eventually they fall on fertile soil and produce abundant harvest. The ideas of honest money are excellent seeds so keep on keeping on and preach on.

        1. F. Beard


          Speaking of Scripture, there’s nothing like an uninspired day* to remind me of how dependent I am on inspiration.

          I am the vine, you are the branches; he who abides in Me and I in him, he bears much fruit, for apart from Me you can do nothing. John 15:5 New American Standard Bible (NASB) [bold added]

          And why would one even want to try unless he knows no better?

          * Caused by sin, usually excessive.

      2. Calgacus

        Hey, Beard. It is tough being a crowd of about one. Excepting of course the MMT scholars, who also complain/ask why their buds just don’t GET it – Wray’s last economonitor column. Got a life, and unlike those guys, I haven’t hoodwinked anyone to pay me for explaining why money = debt (or credit, or liability).

        Too many MMT fans are enamored of bright ideas, bells and whistles that they think just MUST be added to MMT (e.g. “fiat money isn’t true debt”) to want to follow / understand the real 200 proof MMT analysis. I grant it is not exposed in the most perspicuous manner. MMT books need a chapter 0. But the bells and whistles, if they are anything determinate and not superfluous, amount to regression to the commodity/thing theory and repudiation of the credit/debt/social relation theory.

        Wrote some replies to you over at Mike Norman’s, but my comments appear and then disappear there. And unfortunately I didn’t save them.

        On your own belled & whistled hobbyhorse: Does it give you pause that common stock has never been used as money anywhere? Sure, you can call something “equity”, call it “common stock”. But what would it mean to issue money “as equity”? If dollar bills said “this is an common stock equity share in Uncle Sam”, what would follow? Nothing. Common stock is classified as a liability. But to serve as money, it has to be usable for something. If it can only be used to obtain a proportionate share in a distant, indefinite liquidation of an entity which will be destroyed by, whose living value is erased by this liquidation, then it will never be worth much. It is like selling rights to your corpse, instead of your labor power. In the real world, common stock, equity, varies far too much in value however understood to serve as something the ordinary person can buy food or pay the rent with, that the landlord or supermarket will accept.
        That’s why anything the human race has ever used as money is best understood as debt, the most ordinary, truest kind of debt there is, “debt” being Absolutely Nothing But the universally understood moral concept, social relation that even chimps understand.

        1. Ben Johannson

          Some people think those assets should be classified as liabilities rather than debt.

          1. Calgacus

            Debt=liability, they are synonymys, in ordinary parlance, and in MMT. (So saith Kelton, Wray etc.) One should think whatever one wants. But in expounding someone else’s theory, paying attention to their terminology (which I think is correct and enlightening) is a good idea and good scholarly practice. For something to be money it has to be a high-ranked, senior liability, or nobody will accept it, which is what is usually called debt if one makes a distinction. The debtier something is, the more moneyish and vice versa. Uncle Sam’s money is the world’s moniest money because Uncle Sam has the best record and prospect of redeeming it for valued things, for non-default.

        2. F. Beard

          On your own belled & whistled hobbyhorse: Does it give you pause that common stock has never been used as money anywhere? Calgacus

          Except it is, every time a common stock company issues new shares to buy anything, including fiat.

          Sure, you can call something “equity”, call it “common stock”. But what would it mean to issue money “as equity”? Calgacus

          Nothing which is why I now say “shares in Equity” to correct my previous sloppy nomenclature.

          If dollar bills said “this is an common stock equity share in Uncle Sam”, what would follow? Nothing. Calgacus

          True but I only advocate common stock as one form of private money for private debts ONLY. Inexpensive fiat is the only ethical money form for government debts.

          Common stock is classified as a liability. But to serve as money, it has to be usable for something. If it can only be used to obtain a proportionate share in a distant, indefinite liquidation of an entity which will be destroyed by, whose living value is erased by this liquidation, then it will never be worth much. It is like selling rights to your corpse, instead of your labor power. Calgacus

          Common stock would be exchangeable for the goods and services the common stock company produces. This is the drain for the common stock money to go along with the source which is, of course, spending by the common stock company of its common stock money.

          In the real world, common stock, equity, varies far too much in value however understood to serve as something the ordinary person can buy food or pay the rent with, that the landlord or supermarket will accept. Calgacus

          Much of that volatility is a result of the government-backed counterfeiting cartel, the banks, which create and destroy huge amounts of purchasing power. But common stock would also be priced in the goods and services of the common stock company producing them and thus its price in fiat not so relevant except for taxes. Of course, we should abolish all government backing for the banks in which case the real value of fiat would be more stable and thus cause less apparent but unreal common stock volatility priced in fiat.

          That’s why anything the human race has ever used as money is best understood as debt, the most ordinary, truest kind of debt there is, “debt” being Absolutely Nothing But the universally understood moral concept, social relation that even chimps understand. Calgacus

          People share too. Both debt and sharing are morally acceptable and usury too if only collected from foreigners (Deuteronomy 23:19-20; however, in a multicultural society who’s to say who is a foreigner? That’s in the eye of the beholder, no?) But what is totally unacceptable or at least should be is government subsidies* for debt creation and government punishment** for sharing. But that’s the current, corrupt system.

          * 1) Government deposit insurance instead of a government provided risk-free fiat storage and transaction service that makes no loans and pays no interest. 2) a legal tender lender of last resort. 3) sovereign borrowing.

          ** The capital gains tax on common stock since it is measured in fiat, a competing currency for private debt payment.

          1. F. Beard

            BTW, debt is not completely morally acceptable since periodic debt relief is mandated in the Bible and other cultures as well, at least in history. I suppose bankruptcy is our modern equivalent.

          2. F. Beard

            On your own belled & whistled hobbyhorse: Calgacus

            Common stock as private money DOES NOT require:
            1) Government deposit insurance.
            2) A legal tender lender of last resort.
            3) Sovereign borrowing
            4) Interest (this drains assets needlessly)
            5) Dividends (these also drain assets needlessly)
            6) Borrowing at all since assets can be bought with new stock issue.

            I’d say it’s the current system that is overly complex because it is both unethical and unstable. Reducing the former increases the latter and vice versa.

            Yes, it’s a hobby horse but even so the lack of support for such an obvious solution and the desperate objections tell me that there is an underlying spiritual problem. But at least my faint attempts exonerate me from not trying to help while removing the TINA excuse.

            Of course, I’ve poisoned the pill for some by merely acknowledging that common stock as money solves a Biblical paradox which is that profits are good but profit sharing isn’t.

              1. allan harris

                “Profit taking is not good.” Well, capitalism would not exist without profit taking. I doubt if the capitalists in the Deutsche Bank, ECB, IMF, World Bank, will let you touch their capital.

                1. F. Beard

                  Profits can be distributed but not taken via stock-splits since those do not touch the Assets. Yes, some dilution may occur but that should diminish if the company has invested wisely.

                  1. F. Beard

                    On second thought, dilution is what is desired should the price per share appreciate too much and thus make the shares unwieldy for everyday commerce. So, the normal process:

                    1) The company issues new shares to buy assets.
                    2) When the new assets cause share price appreciation, a stock-split is used to dilute the price back down by increasing the number of shares on a pro rata basis.

        3. Moneta

          Equity can be written down or devalued with new issues… Just like what happened during the high tech bubble.

          It all comes down to delusion and trust.

          At the end of the day, what a nation produces will determine how it lives. The type of printing can be used to efficiently allocate capital but up to now, perpetual helicopter chutes have not proven themselves to be very democratic.

          1. F. Beard

            Equity can be written down or devalued with new issues… Just like what happened during the high tech bubble. Moneta

            True but in the case of common stock the dilution is ethical (and hopefully only temporary till the new assets come online) because it only adversely affects the stock owners, not innocent by-standers as the current “private” money cartel does. So only those in control of new stock issue are potentially harmed by its dilution. How can private money creation be any more ethical?

            I know that ethics seems a very strange solution to economic problems but it shouldn’t be. How else are we to get along peacefully and grow gracefully?

            1. Moneta

              Ethics are a set of principles of right conduct which a group adheres to make things work.

              When a large percentage of individuals in the group do not benefit from these rules, they break them and ethics go out the window..

              Right now in the US, we are witnessing social breakdown because the pre-set ethics of the recent past do not benefit a large percentage of the population.

              Frankly, I do not see how changing money from debt to equity will fix this problem. I believe we need to fix the balance of power and this needs to be a flip between the federal and local.

              IMO, humans function better on a small scale and there is too much power at the federal level.

              How will this occur? Who knows? For all I know, the US will split into 4 different countries if they can’t flip this power structure back to the people.

              Today’s America is an experiment. How many 300m people countries do you have with market economies and democracy?

              1. F. Beard

                Frankly, I do not see how changing money from debt to equity will fix this problem. Moneta

                If it were always such, we would not have gross wealth inequality. But instead, we have suffered under a government-backed counterfeiting cartel, so restitution is called for too.

                1. Gizzard

                  In reality, changing it from debt to equity is simply changing the sign. We could assign all debt created from new federal infrastructure spending as true “national” debt, dividing it equally amongst all citizens. That would accomplish the same thing. Allow every citizen to receive a portion of the interest payments on national debt and it will effectively be equity.

                  1. F. Beard

                    Inexpensive fiat, legal tender for government debts only but also useable for private debts, is also needed since private monies must only be acceptable for private debts to avoid favoritism by government. But surely we don’t want our representation in government* to be proportional to the amount of fiat we own, do we? But sure, hand out an equal “Citizen’s Dividend” of new fiat every month. Why not, unless price inflation in fiat is/becomes a problem?

                    *Hah! As if it isn’t!

    3. Clive

      Agree Nell; the best summary I read of the situation made the point that the reason we have zombie governments who tolerate zombie banks who prop up zombie corporations who exchange zombie currencies with other zombie governments is… because we’re now societies of zombie households and zombie individuals. People who are either already subsumed in unpayable debts, or only making enough to cover 99% of their costs the majority of the time and are uncreditworthy as a result and doomed to living a modern subsistence existence.

      Until us, the people, get to operate in a system which relieves our debt burden, relieves the need to become indebted and allows us to generate a surplus which we feel safe in sharing with others, it’ll only ever be debts and deficits.

      1. F. Beard

        and allows us to generate a surplus which we feel safe in sharing with others, Clive

        An interesting thing about common stock as money is that assets do not have to be drained to share profits. Instead, profits can be distributed as stock-splits leaving the assets intact (yes, there might be some share dilution but not if the split is issued before an expected price rise?). Not so with dividends or interest which suck assets out of companies.

        1. F. Beard

          Not so with dividends or interest which suck assets out of companies. moi

          Assets that could otherwise fuel the growth needed to prevent or offset share price dilution in a stock-split.

      2. Susan the other

        Agree about the Zombie Market. Good description. I just scanned Galbraith and Varoufakis at the last posting. I’m glad it was reposted. I’m a little surprised to hear that Varoufakis no longer supports the EU and this comes to us at the same time that one of our dear leaders just took a trip to Greece to extoll the virtues of austerity and cheerlead its continued policy. I’m referring to Jack Lew, last week. Clearly then, the European obsession with austerity has much to do with the foreign (trade) policies of the US. The Germans (accc’d to Uwe Bott) simply cannot afford to subsidize the South out of this mess, it would vastly more expensive than their reunification (which was horrific). They have done all they can to keep the EU together, and they are failing. Henkel’s North-South currency divide? Don’t know how that will help much because it will be based on Zombie Trade. And the Zombie TAFTA pact.

    1. Synopticist

      Aye, it was a bad idea. Who would have guessed that the blazer wearing mid-nieties tories who kept ranting about the Euro at the golf club would turn out to be right after all? Same for the unrealistic, soap dodging hippy anti-globalists.

      There has been a big swing against the Euro in the last few years, as broadly supportive types have become committed opponents, but that’s true of the entire idea of the EU.

      Personally, I would rather take my chances with the reptiles at Westminster, rather than the hayekian utopians in Brussels. I signed up for a social democratic Europe, not a Europe safe for the bankers. (And no-one else).

  7. Jose

    Galbraith was likely not in one of his luckiest days when he accepted that interview.

    He claims that a breakup of the eurozone would cause a 40% fall in living standards. How can he possibly know that? Why not 50, or 30 or zero percent? The hard truth is that nobody knows what would ensue – it would depend on a lot of unknowable accompanying circumstances. To claim otherwise in order to scare people over the prospect of eurozone dissolution (which, if done in an orderly and negotiated way, would perhaps constitute the best possible exit to the present crisis) does not contribute to enhance Galbraith’s reputation as a serious, detached, objective scholar.

    Galbraith goes on to claim that the national industries of member states would not be able to compete against Germany’s “highly competitive” industries once outside the framework of the euro. But then he adds that Germany’s industries “will not have markets because nobody will be able to buy their goods”.

    What gives? Not being able to sell (presumably as a result of overvaluation of the newly introduced DM) would be a sign of lack of competitiveness not hypercompetitiveness. In that case, the other former eurozone member states would be in an excellent position to gain market share in third countries at Germany’s expense. Under Galbraith’s own scenario national industries should thus become more – instead of less – competitive than they were under the euro.

    Intellectuals are often fond of grandiose schemes and perhaps this is the reason that otherwise rational people such as Galbraith and Varoufakis cling desperately to the preservation of the flawed euro project. Lord Dahrendorf knew better. And Lady Thatcher was also right to the point when she said that the euro was a monument to the vanity of intellectuals and as such destined to fail. The restoration of the monetary sovereignty of the eurozone states (including Germany) is a necessary condition for solving the terrible economic and political crisis currently plaguing the european continent.

    1. Ben Johannson

      Agreed. I don’t think Galbraith understands there will not be the political and financial integration necessary to deal with these trade imbalances. By calling for states like Greece to stay in he is endorsing a national torture program for the people of that country. Hiscomments in that interview seem very irresponsible.

  8. middle seaman

    Couldn’t have happened to a nicer group of nations. The nations that murdered more than 100 million people in the 20th century have come back with same spirit. They tell Egypt, Israel, Greece, Spain and Iceland how to behave (moral colonialism). Anti-Semitism grows, hate for both Arabs and Jews, immensely. Let the EU rest in peace and not a moment too soon.

    1. Lambert Strether

      The problem here is that the European project was meant (among other things) to make sure that World War I and World War II didn’t happen again. European soil hasn’t been saturated in the blood of millions of soldiers since 1945. That’s quite an achievement.

      If the EU falls apart, I wonder if some sort of geopolitical equivalent to Minsky’s theory will kick in, as soon as the last power holder to remember how horrific the wars were dies off?

      It’s always possible to make things even worse, let us remember.

      1. F. Beard

        Don’t worry! We have central banks to finance the slaughter. And money which is so tight now will “roll down like waters” and the blood like “an ever-flowing stream” except blood is finite and so can’t flow away forever.

        “But let justice roll down like waters and righteousness like an ever-flowing stream.” Amos 5:24

  9. diptherio

    I had observed, on location, how a small economy which had totally collapsed could be successfully turned around in only a few years with the right domestic economic leadership and the right support from abroad (Chile in the late 1970s/early 1980s). And I thought the same could happen easily in Greece.

    What is it with economists and their love of Pinochet? How can anyone still be defending his administration in this day and age? “Right domestic economic leadership”=killing socialists and “right support from abroad”=CIA assistance with the coup. Apparently, he thinks Greece needs a military dictator…

    It makes me ill that otherwise intelligent people can think like this. We don’t go around talking about how wonderful it was that Germany pulled themselves out of a depression during the late 30s/early 40s thanks to the right domestic leadership, do we? No, because that would be insulting to all the people who died at the hands of that demonic government. But singing the praises of a S. American dictator and mass-murderer is fine because he “saved the economy” from that evil socialist Allende.

    Seriously, WTF if wrong with economists?

    1. Synopticist

      That’s the blogger he’s quoting, the Klaus Kastner guy. He’s not an economist. I used to read his blog occasionally a while back to get a relatively well informed, “teutonic” view of the Greek crisis. His opinions invariably boiled down to a panglossian optimism about how Greeks were going to pull themselves up by the bootstraps and finally become more like Germans, and everyone else was going to help.

      There were told, (probably there still are) some interesting anecdotes, and many of the comments BLT were quite illuminating. One of the points he kept making was just how cushy the lifestyles of the top 5-8% of Greeks are, compared to upper-middle class Austrians and Germans.

    2. Luciano Moffatt

      Bravo diptherio!!

      whether it was an economist or not who said that, this kind of horrible commentary cannot be cited without the proper criticism. This is Yves responsibility. But not doing that, she is unwittingly supporting the idea that Pinochet regime was a good thing. Ask the chilean students about that.

      1. H. Alexander Ivey

        Looks to me the fellow posters on this blog are doing the job of calling out Pinochet and economists just fine. The hostess may not be perfect but be careful criticizing, you are in her house.

    3. from Mexico

      Klaus Kastner is a hard-core neoliberal ideologue, the Chile remark being a dead giveaway.

      The only people who believe Chile under Pinochet was an economic success story are neoliberal propagandists, as Greg Grandin explains here:

      Milton Friedman and the Economics of Empire

      The Road from Serfdom


      If there is a single word that describes EU policies since day one, it is neoliberal. For a neoliberal true believer like Kastner, when neoliberal policies are put into practice and fail, which they always do, it is never neoliberal policies which cause the failure. Kastner, true to form, has to cast about to find something else to blame for the devastation wrought be neoliberal policies.

    4. Yves Smith Post author

      Sorry for not commenting on that bit, but two things to remember:

      1. Yes, this is proof he’s a neoliberal. Neoliberals are also pretty much the only school of thought represented among the Eurocrats. So if a card carrying neoliberal is now of the view that the political will might not exist to save the Eurozone, that’s a serious statement.

      2. As documented in ECONNED, the “rescue” of Chile was necessary due to the neoliberal reforms Pinochet implemented, which resulted in a plutocratic land grab and created bubbles that blew up. And that rescue was…..gasp…Keynesian, and also involved the restoration of a lot of trade union rights.

  10. allcoppedout

    The EU has long been something of a farce, with daft things like the Brussels-Strasbourg split, the straight banana and very high agricultural subsidies. In the UK we barely turn out to vote in the EU elections and have long been ‘little Englander’ hostile to the whole shebang-wimper. UKIP and even the fascist BNP get in because of the PR system. I wish there was something to take seriously and we could establish a reasonable free-trade, defence and research area to include Russia and Turkey. I no longer believe much can be done unless we break up financial services and shift to a quality of work life, ecological economy and a new model of comparative advantage. Net contributions to the EU per person are very low – £80 in the UK a year.

    One of the things we never think about is why any country would want to be the ‘workshop of the world’ (as Germany is for the EU now), rather than live with much less of the grind and much less dull work. A union of free workers across Europe might want to think about sharing necessary production burdens as efficiently as possible in order to work (a disutility) far less. I wonder, in this sense, whether current mass unemployment is a good thing in making it obvious we could all be working much less if economics was not neurotic.
    Germany is the most modern country in the world in terms of retaining manufacturing, education and reasonably civilised welfare, but still has poverty-in-work. This makes it probably the next target for thieving CEOs, banksters and the rest, once they break the ‘restrictive practices’ of the German economy.

    Any EU project fails for me unless it broaches the real issues of a modern, ecological economy for all and the serious madness of a slave work ethic, gawping theory of comparative advantage,kleptocracy, and constitutional change to democracy through more electronic government (by us), more cooperative work environments and serious thought to outlawing all but essential, no frills finance.

  11. Moneta

    Why would Germany opt out when they can export using a weaker currency than if they were on their own? Just the fact that they want to focus on exporting out of Europe if proof that they enjoy the sweet deal. No politician would go against that unless they had to. Most of the population does not understand how the system works so politicians will never be able to change anything to fix the problem until something cracks.

    I believe the fate of the block will be determined by France before Germany. Spain, Portugal and Greece have minimum clout. France can still break it and Germany will no budge until it is up against a wall.

    1. Moneta

      Just the fact that they want to focus on exporting out of Europe is proof that they enjoy the sweet deal
      This shows how Germany is moving even farther away from the fix. Now that Europe is broke, they are ready to use their weakness to keep on exporting. They are stretching the elastic even more.

      Therefore, there will be no fix until it snaps.

    2. Yves Smith Post author


      1. The German people have been told repeatedly the problem isn’t their banks but those horrible lazy Latins. As a result,

      2. The German people don’t want to lend to those lazy Latins. Rescues are done only one punitive terms. That produces

      3. Destruction of Germany’s export markets. Moreover you have

      4. German politicians increasingly believing their own PR (1) due to how often they’ve said it.

      2 is getting more and more acute. If Germany won’t lend, it will kill its export markets regardless. It is forcing internal devaluations on the periphery, which in terms of their buying power, produces a similar result to a breakup with the German bund skyrocketing. So Germany can either kill its export partners slowly and produce failed states and eventually bear the consequences or let the Eurozone break up and have viable societies in Europe and suffer the economic consequences sooner.

      The Germans are simply refusing to make a choice. They have really convinced themselves that if they just squeeze those lazy Latins hard enough, they’ll shape up and everything will be fine.

      Galbraith also points out that if one country leaves, the EZ will break up. The precedent is one country leaving any similar political or economic unions typically produces an unwind. Others do follow.

      Italy has long been the prime candidate.

      1. Moneta

        Italy… hmmm. Italians tend to tolerate a lot of decadence before acting. They adapt. Right now my mind says France before Italy, I’ll have to do some more research!

      2. J Sterling

        “All political parties die at last of swallowing their own lies.”

        –John Arbuthnot 1667-1735, Scottish doctor and satirist

  12. Jim Haygood

    ‘Dissolving the Euro in its present form would cause very significant financial losses to all. True, but are those losses which could be avoided or are those losses which are already there but not yet realized?’

    Klaus Kastner doesn’t directly respond his own rhetorical question, but of course he intends the latter answer: unrealized losses, already incurred.

    In principle, Germany’s vendor financing of the eurozone is no different than China’s vendor financing of the dollar zone. Neither of these pathologically co-dependent economic relationships is stable in the long run.

    Kastner implicitly posits a bipolar choice between an imposed common currency (with relatively open trade) and currencies shaped by national cultures (with the attendant protectionism and competitive devaluations).

    The late 19th century gold standard represented a third way, in which the monetary unit was objectively valued, and each country was responsible for seeing to its own competitiveness. What blew the gold standard apart? World War I, 1914.

    Today’s fiat currencies such as the euro and dollar represent permanent war finance, which the U.S. explicitly uses to maintain its crumbling global military empire. Presumably it will require another large scale bloodletting to end the iniquitous evil of discretionary, ‘culturally determined’ currencies, and return to depoliticized sound money.

    Death to the euro; death to the dollar!

    1. Ben Johannson

      We had six depression while on the gold standard. All we’d do is trade one set of problems for another which is why a fixed-rate currency is not the answer.

      1. from Mexico


        Although Haywood does a good job of summing up the problem, the belief that the gold standard is some sort of elixir which will cure all that ails humankind seems a tad simplistic, to say the least.

        1. F. Beard

          It’s more than a tad fascist too. Why not my hair clippings instead? They are rare, difficult to counterfeit, divisible, etc. Or someone else’s? ans: Because then we’d easily recognize the corrupt self-interest. But gold owners? Nah, they’re just patriots interested in sound money, not making a bundle off a new gold standard. /sarc

          And with gold fiat, it’s not the value of gold that backs the fiat but rather the taxation authority and power of government that back the value of gold.

          1. J Sterling

            The Brits have a principle that “no parliament may bind a future parliament,” i.e., that no law can be passed by one administration that another administration is forbidden to repeal. It’s not so much a principle as a political fact: who that is clamoring for a law that can never be repealed, would be happy for their opponents to have the same power?

            The gold “standard” sounds neutral, but it’s just a way for austerians to create a monetary policy that suits them, and which no future administration is allowed to depart from.

            Yet not even Republicans choose to pin the dollar to gold while they’re in power, even though they could if they wanted to, for as long as they were in charge. They just want the other guys to be forced to.

            1. F. Beard

              A gold standard not only privileges gold but also usury and money hoarding. The Bible permits usury from foreigners (Deuteronomy 23:19-20) but money hoarding is severely rebuked – Matthew 25:14-30 (The Parable of the Talents): Throw out the worthless slave into the outer darkness; in that place there will be weeping and gnashing of teeth. Matthew 25:30

              1. macduggie

                The parable of the talents is a metaphor. While there’s no settled translation, you’ve gotta guess “kingdom of heaven” is more about gnosis than GDP, shirley.

                1. F. Beard

                  you’ve gotta guess “kingdom of heaven” is more about gnosis than GDP macduggie

                  What good is knowledge if it is not applied to do good? Man does NOT live by bread alone* but he doesn’t live very long without it either**, not in these bodies.

                  *Matthew 4:4

                  ** If a brother or sister is without clothing and in need of daily food, and one of you says to them, “Go in peace, be warmed and be filled,” and yet you do not give them what is necessary for their body, what use is that? Even so faith, if it has no works, is dead, being by itself. James 2:15-17 New American Standard Bible (NASB)

    2. Calgacus

      Jim Haygood:In principle, Germany’s vendor financing of the eurozone is no different than China’s vendor financing of the dollar zone. Neither of these pathologically co-dependent economic relationships is stable in the long run. No, they are very, very different, unless the principle means merely “vendor financing”, that China & Germany run surpluses with respect to the USA and the Eurozone.

      The USA is indebted in its own currency to China. On the hardest money view, its sole responsibility is the easy one of maintaining low inflation. This sort of thing can and has gone on for many decades – a quite long run.

      Germany is the creditor of the rest of the Eurozone, and its hoarding enormously inhibits production, employment and wealth-creation in the rest of the Eurozone. This is comparable to an unrestrained domestic business cycle. It can only go on for a matter of years. It would have collapsed already if not for the ECB “interventions” supporting the periphery as long as they ritually mutilate themselves.

      Kastner implicitly posits a bipolar choice between an imposed common currency (with relatively open trade) and currencies shaped by national cultures (with the attendant protectionism and competitive devaluations). Why would any culture become addicted to protectionism? Why on earth would they competitively devalue? A strong, hard currency is always and everwhere a good thing. (Other things being equal)

      The late 19th century gold standard represented a third way, in which the monetary unit was objectively valued, “Objectively valued”? Nonsense. This is worshipping the golden calf. Gold does not have objective value. There is no other currency but fiat currency, and never has been.

      Gold is valuable because you can/could get dollars (or pounds) for it, not vice versa. If the central banks of the world got rid of their hoards, the price would collapse. The export giant of the era of a gold standard is the one that sets the price of gold, makes it valuable, by backing an objectively not-valuable commodity, gold, by its intrinsically valuable fiat currency / debt, which in turn can be used to acquire its valuable exports.

      If gold were “objectively valuable”, why do gold-miners part so readily with it for money?

      the iniquitous evil of discretionary, ‘culturally determined’ currencies, and return to depoliticized sound money. Childish fantasy. There’s always discretion. There’s always cultural determination. There’s always politics. That’s what being a grown-up means. The question is whether we should pretend there isn’t and leave the choices to the most evil, stupid, destructive and deluded people we can find – gold bugs, central bankers, mainstream “economists” and the financial sector – or just use plain common sense.

      A fiat currency run by people who understand money, by MMTers – or by ordinary 1950s sitcom housewives (OK, no Lucy) – would be the hardest currency, the least inflationary money that the world has ever seen. Keynes hated inflation & understood how to stop it & he did, in the real world, as did his epigones for a while, all over the world. Keynesian economics, full employment, the JG backs real fiat currency with real value – human labor, the best appreciating asset there is – with all the crimes and follies of the human race, its been that way for millennia!

  13. Moneta

    What blew the gold standard apart? World War I, 1914
    A case of Chicken or the Egg?

    England was not respecting the peg but then again everyone was surely cheating… Perhaps the War erupted BECAUSE the peg needed to be changed but those who benefited the most from it did not want to reset it.

    1. Synopticist

      No, WW1 started because, errr, how long have you got??

      Anyway, it’s worth noting that trade in 1914 was incredibly globalised. Germany and the UK were the two biggest trading partners in the world. That goes to show how quickly these things can unravel.

      1. Moneta

        I agree that it is more complicated than that… I did not want to write a book either… just questioning the order of cause and effect.

  14. Lune

    While the euro might be detrimental to much of Europe’s citizenry it has been stunningly successful for the aims of the 0.1% who control power. The euro has allowed for large financial flows which inevitably require large financial infrastructures (and their resulting large rents and ultimate large bonuses). It has allowed businesses to trump local (i.e. national) concerns by overruling them from a central european bureacracy unlinked from any real citizen oversight. And, in the specific case of Germany, it has allowed Germany to force its economic policy on the rest of Europe without having to do it the traditional way with armies and tanks.

    So the question of if/when the Euro will breakup will not be based on when the general population can no longer take its deprivations, but when the powerful no longer find use for it. Has that point come? Not really. Even in Greece, while the welfare state has been successfully dismantled, the wholesale conversion of public goods to private property at firesale prices has barely begun, and there are still pockets of wealth to be stripped for the 0.1%. Germany is even further from this point.

    So these European pundits are asking the wrong questions: it doesn’t matter how high the costs are nor how painful the adjustment might be, since the TPTB will not be bearing either. Even the 40% loss of living standards won’t be borne by the 0.1%. Rather the real questions are: is the Euro now serving as an impediment for the continued looting by the 0.1%? Barring that, is it at least no longer useful because there’s no longer any wealth left to steal? When one of these thresholds is crossed, that’s the precise time when the Euro will be dismantled. IMHO, we are a long ways from that point yet.

    1. Brooklin Bridge

      Your observations are excellent! The only explanation that answers all questions consistently is exactly your thesis: if it suits the .01% it will be, otherwise it won’t.

      However, when you say, “So these European pundits are asking the wrong questions: it doesn’t matter how high the costs are nor how painful the adjustment might be, since the TPTB will not be bearing either.”, that is not exactly accurate. True, the pundits are missing the point altogether, that’s accurate, but on the theft and the amount of the theft it DOES matter how high the costs are to the remaining 99.9% because TPTB measure their wealth based on the relative lack of wealth and on the abundance of suffering and hardship that their actions inflict on the have-nots. Simply having a pile of jewels does not produce happyness. It means nothing unless you can also preach your moral superiority (church charity in this country) and the .01% have never put too fine a point on the obvious contradiction that material abundance gained by theft does not necessarily mean “moral” superiority. But over and over again, it has been proven that simply stealing what belongs to others is no fun and leads to remorse and vague feelings of guilt unless you can use the very act of that theft to claim moral high ground; superiority, or in parlance du jour, your place in the meritocracy (which is but a threadbare cloak for what they are really after: inheritable aristocracy), at the same time.

      Thus the degree of suffering of the have-nots is critical to the process of transformation, from shameless theft to aristocratic integrity (thinly cloaked as meritocracy) that the haves absolutely require for being at peace with themselves and content with the world..

  15. Pelham

    A genuine (truly, not snarky) question re Germany:

    If the eurozone breaks up and Germany goes back to having it’s own currency, why would that necessarily be such a tragedy?

    James Galbraith is sympathetic with Modern Money Theory. And according to MMT, if German exports drop, sending employment down, all Germany would have to do is print up enough of its own sovereign currency to provide a decent-paying job for every German put out of work. Or, alternatively, cut taxes at the bottom end of the scale to spark enough domestic demand to make up for the jobs lost to declining exports.

    Granted, these measures would run up Germany’s budget deficit. But that wouldn’t matter, since money is basically a score-keeping mechanism — at least as long as you don’t print up too much of the stuff after full employment is achieved, leading to inflation.

    The measures I mention are what MMT prescribes for the U.S., which currently is running a huge trade deficit. Why wouldn’t it apply to Germany as well? Or, as other MMT advocates have said, any other country with sovereign money not linked to gold or other currencies?

    1. Susan the other

      Good point. The answer probably has to do with the relationship between the US and Germany. The US has been giving Germany marching orders since 1945. No one in either country with any political standing has advocated MMT. It’s one of those verboten topics.

      1. Synopticist

        Germany is probably the least likelly country on earth to consider MMT, even if she’s one of the few countries that could make it work properly.

        They have a total fetish about hard currency that goes back to 1923.

    2. Benedict@Large

      Ordoliberals do not believe in printing money, They believe that whatever amount is out there currently is the exact right amount (although they have no proof for this).

      1. Pelham

        Thanks for the answers, all of you.

        After posting my comment, it occurred to me as well that from the standpoint of actually existing Germany and the neoliberal world order, the Germans would never consider any MMT-like options.

        But from the standpoint of an MMT-er — or at least a sympathizer — using a sovereign currency in the scorekeeping way I suggest should work just fine. And so that’s what I was kind of hankering for Galbraith to say.

        Still, I’m glad to see that — so far, at least — no one has spotted any flaws in the MMT idea as theoretically applied to Germany.

      2. F. Beard

        We can be pretty sure a money supply is NEVER adequate for long so long as we have government-backed credit cartels creating multiple times that money supply in debt. But whence the interest except as more debt? Or by exporting real wealth?

  16. Andrea

    There is something that I do not quite understand in Galbraith’s words: he says that competing with German industries will be tough outside the Euro (at least, this is what I understand from: “And good luck trying to build national industries that will compete with the industries that will be in Germany that are highly competitive, but will not have markets because nobody will be able to buy their goods.”). But France, Italy, Spain… did have a competitive industry, in many sectors if not all, before the Euro system. True, a large part but not all of the differential in productivity may be ascribed to the single currency, but it is only after the Euro was introduced that German (and, to a lesser extent, French) corporations, “go shopping” in the south, often to kill a potentially dangerous competitor using their huge liquidity (compared to the southern companies).
    I am also very sceptical with the idea of promoting southern economies by boosting exports (devaluating the Euro). I doubt it is a long term solution, and it is unlikely to lead to a growth in internal demand (German is the perfect example: an export economy likes deflationary policies, which I do not think is what we need).
    It seems to me that very few “common people” have any interest in keeping the Euro alive, even if they may think the opposite because of the propaganda of the last decades.

  17. Maju

    There’s no substantial difference to trading partners between dissolving the euro and devaluating it. However for Europeans the latter should work better. Or rather: should have worked better because it is probably too late already.

    Also the main oppositor to euro devaluation is not Washington but Berlin. As we know, they like the strong overvalued DM-like euro because that way they get cheaper imports from outside the Eurozone, something that only seems to work (if at all) for Germany and a couple of small Baltic states.

    Whatever the case I’m quite outraged by the tone of the this article: putting as “constructive” example the Chile of Pinochet is the last thing I expected to find here.

    In any case it is clear that the Cold War is over, that Europe is relatively prescindible therefore, and that for those reasons all what is happening is happening… and will get even worse. The Eurozone is just an accident in this road to much increased exploitation and almost zero redistribution, to the skeleton state that is nothing but a police and military machine in which citizens (or should I say “subjects”?) do not matter at all anymore. All this would happen with or without the euro.

    1. Susan the other

      If Berlin is the opponent of devaluation of the Euro (aka easing), then why are we, the US, actively supporting austerity for the GIPSIs? Wouldn’t we be more dovish if this were not our overriding goal – to keep the dollar steady and as devalued as possible relative to the Euro?

      1. Maju

        In Europe we do not perceive any hand of Washington on these matters. Maybe it’s just that they are being subtle but Merkel, Barroso and Lagarde are all Europeans.



    All this Shakespearean drama about the EuroZone is getting a bit tiresome. So many pundits thinking that the zone is heading for disaster.

    And so few, like me, who think that the Zone is doing just fine, given the awful economic mess it has had to contend with. (A mess that began, I will remind you, with the Great Recession that American exported to the world, which substantially reduced GDP growth; which, in turn, diminished national tax revenues thus pinching government spending.)

    To think that Germany is the culprit is very sad. The culprits (plural) were profligate politicians across the EU who thought that the Euro was a free ticket-to-ride – that is, to borrow, borrow, borrow and borrow in order to maintain debt repayments on old debts. Thus augmenting relentlessly their Debt Mountain. This kicking-the-can-down-the-road had to stop.

    Europe’s fault was in not giving the Commission the power to enforce the Maastricht Treaty of 1992 that stipulated clearly the debt-limit of 3% per annum. Countries disregarded the limit and continued to borrow, Because borrowing was so cheap due to low interest rates. When the recession arrived in 2009, they kept waiting hopefully for it to end and GDP growth to replenish Treasury coffers by means of national Value-Added-Taxation. That did not happen, but they kept borrowing anyway.

    Merkel took out the schoolmarm’s yardstick to give a bunch of bad-boys a lesson in budgetary restraint. Aka “austerity”, which has come at a great political price for some. But the lesson was necessary to set the foundation for future solvency and budgetary sanity.

    And, lest we forget, unemployment is on the rise in Germany as GDP growth slows. So, Germany is not necessarily the pot calling the other kettles black.

    Merkel’s re-election is coming up in September. With any luck she should win it. She is likely to modify her austerity-line, since it is ipso-facto no longer electorally useful. Besides, let’s not forget that most Germans are in full agreement with her policy to date; meaning that she is an adept politician.

    Her second term could mean a softening in policy and perhaps allowing the ECB to print money by means of further Quantitative Easing (QE). As well, there are some good signs on the ground. For instance, in France, unemployment is consolidating and no longer increasing.

    Which could be, yes, transitory, but is nonetheless a welcome indication of a possible turn in economic outcomes.

  19. Susan the other

    I got up this morning wondering if Timmy’s “foam the runway” comment referred to more than just the banksters crashing and burning. Was he talking about the entire capitalist structure?

  20. killben

    “A United States of Europe with a federal government”

    IMO, this cannot happen. Nationalism is a clarion call. Even in Eurozone, people would identify themselves as belonging to a country. Hence such an integration will not happen. Would you call yourself a Eurozonean?

    What is happening now will actually create animosity (e.g. do you think Greeks will like Germans now?), will divide the countries (haves and havenots) and will also give rise to outfits who can capitalise on this (e.g. as is happening in Greece). East and West Germany integration at least had a common thread of Germany running between them (even that might have been difficult).

    The only question to be asked is are you increasing the cost (a Greater “Greater Depression”) by not biting the bullet now. Hoping does not mean Happening.

  21. Bruce

    this is just anecdotal but, I was living between Germany and Spain when the euro came in. The day before a glass of beer at a bar in Madrid cost 100 pesetas, the day after the euro became the currency the same beer cose 1 euro. The official exchange rate was 167 pesetas to 1 euro. The people were fleeced overnight.

    1. shutter

      Bruce.. anecdotes are the reality of life. All the rest is people yakking about esoteric ego-preening bullshit.

  22. killben

    “Some people argue that Germany should assume more ‘continental leadership’. That, however, ignores how many Europeans would be scared by that (most of all the Germans themselves)”

    This is DOA. Given what Hitler did if I were Polish or Austrian I would always be distrustful of Germans. Hitler’s memories are not easily forgotten. One powerful country like that would also make the other countries “colonies” and would remind people of former Britain. Accepting politicians from one’s own country is tough but imagine the need to accept politicians from other country. Also the countries might be pulling against each other, so how will you set policies?

    Sooner the plug is pulled on this ill-fated project the better it is.

  23. Hugh

    I agree with lune and allcoppedout, Kastner and Varoufakis are continuing to miss the point. Europe is a kleptocracy, and the real battle lines are not between North and South but between the 1% and the 99%.

    The euro is a problem, but it is not the problem. The real problem is the kleptocrats and the class war they are waging against everyone else. These will still be there whether the euro continues or disappears.

    Kastner and Varoufakis still believe in the fundamental soundness of the current system. Even as they rail against the politicians and technocrats who run it, these are precisely the people they expect to either reform the Eurozone into a North and a South or carry out Varoufakis’ Modest Proposal. But they don’t have a single word to say about the rich, Europe’s ruling class, who have been the real beneficiaries of the euro, who blew the bubbles in the South, got the Hartz reforms enacted in the North, and who are again the ultimate beneficiaries of all of the austerity and bailouts crushing and tearing Europe and Europeans apart. Kastner and Varoufakis are like two good Russians criticising all of the tsar’s advisers who can not bring themselves even to mention the real culprit, the tsar himself. As the autocrat, who else could really be responsible?

    Their failure is that they still buy into the essential legitimacy of kleptocracy. They only wish a kinder, gentler form of it. If only the kleptocrats stole a little bit less, if only one of their tools of looting, the euro, were removed, if only Europe were split into more “sensible” north and south kleptocracies, then … what? the kleptocrats can continue to loot, the serfs will be less disposed to revolt? It is at this point I really lose Kastner and Varoufakis. Are they agents of the kleptocrats or merely their dupes?

    1. Timothy Y. Fong

      I can see why Varoufakis would want to save the Eurozone. I suspect that the political fallout from such a breakup would end the rule of the current Greek elite. It remains to be seen whether the alternatives would be even worse. I wonder if the left in Greece is prepared to fill the power vacuum; rather, it seems more likely to me that Golden Dawn or its equivalents would rise to power. We already know what it looks like when a modern European nation collapses. Yugoslavia in the ’90s showed us European state failure in all its ugliness.

      All the same, circumstances may outrun any of our abilities to stop a collapse in Europe. That seems to be what Varoufakis is saying in this piece. It’s a stark warning for those of us on the other side of the Atlantic, as the US elite continue to be , as you say, kleptocratic. I don’t think it’s an entire “conspiracy” to fail the state, but rather, the effects of neoliberal choices. Look at the collapses in pharma and firearms. I saw some information recently about shortages in neonatal vitamins due to industry consolidation, in a Washingtonian article. It’s happening across the board, from chemo drugs to things like Maalox. I have noticed lately in drugstores that they have fewer and fewer first-aid supplies available, and I suspect it’s the same dynamics.

      But it’s the firearms industry that tells me that the collapse of the economy isn’t being “planned.” Product quality has gone off a cliff as the industry has consolidated, with all the usual suspects trying to cut costs and increase profits by reducing product quality. Two examples of many are Remington (owned by Cerberus Capital) and SIG-Sauer (owned by a private equity firm). Both of these are brands heavily used by the security services. Both brands have seen a dramatic drop off in quality in the last few years. The ammunition industry has had a similar consolidation, and highly reliable sources tell me that LE agencies have had significant reliability problems with their duty ammunition. Not practice ammunition, but the duty loads that they carry out in the street.

      Obviously if a cabal was planning to collapse the economy and centralize all power to themselves, they would not undermine the operational effectiveness of their guard labor.

      It’s the logic of finance capitalism that’s doing this. Not a cabal.

  24. kris

    I have deep respect for Mr Varoufakis, I like his many analysis in general, but this one is based on a flatly wrong premise:
    Varoufakis thinks that europeans can decide for themselves.

    This is utterly wrong. EU was and still is a United States Project which started right after WW2 as a result of the Marshall Plan.

    USA forced europeans to create EU so we wouldn’t fight again and start ww3.

    Hence, EU exists because of USA, euro exists because of USA and euro would collapse only if USA permits it.

  25. kris

    Without euro, nothing would have changed in reality, it could have even been worse.

    People have been brainwashed by the propaganda of ‘monetary policy’. There ain’t such a thing as ‘monetary policy’.

    Money is first and foremost a ‘unit of account’ and that’s it.
    Whether euro, lireta, drachma, deutschmark, it matters not much.
    This is like saying, what is better to use, inches or centimeters?

    There is no ‘imposed austerity’. There is simply shortage or goods and services because:

    1)Because Europe and USA are not willing (yet) to shut down Deutsche Bank, Bank of America, Citibank, Societe Generale etc etc etc hence LEVERAGE is claiming PRODUCTIVE ASSETS AS COLLATERAL.

    2)Because means of production have been transferred to China.

    China has drastically reduced overproducing, hence USA and Europe are going through ‘china imposed austerity’.


    1. Sanctuary

      No it is not. China is still overproducing and still plans to for the foreseeable future. They have no real plans for rebalancing their economy to be based upon domestic consumption. They may overproduce less, but they will still overproduce as that is what they are used to and Chinese will do what they are used to doing even if it doesn’t work simply because it is what they know. Secondly, yes, part of the problem is that the US and Europe won’t allow some of these zombies to die and that is prolonging a lot of the sickness however, that does not change the fact that fundamentally, Greece, Italy, France, Spain, Portugal and Ireland did not belong in a currency union with Germany, Switzerland, the Netherlands and the Scandinavian states.

      1. kris

        What I’m saying is that China is not overproducing enough to cover the expectations of USA/Europe, hence austerity imposed by China.

  26. allcoppedout

    I obviously agree Hugh. We need to explicate the kleptocracy system, but there are massive soaked-up ideologies in play that prevent sensible dialogue.
    To be brief and use a trivial example, there is a science of cooking.

    The essence is that even good cooks and super-chefs use techniques 50 and 100 years old, when there are many new ways to cook. There are no doubt many new ways to do what the money system and economics do, but we fall back on the old routines.

    Much of the time, critique collapses into the assumptions or Idols (Bacon’s term) of growth, meritocracy, democracy, rational man, averages, aggregates, numbers of states as though they were ‘log tables’ in accuracy – and eventually supplication to power and bottom-line accounting actually reliant on all kinds of exclusion.

    Catch 22 is everywhere – one has to display kleptocracy to the kleptocrats (tell Al Capone he is a monster). Advocate transparency and be told this will ruin liquidity. Move to proper bank regulation and the financiers will take their ball home in a huff.

    Most of the solutions I think we should try, like big data, are already in the hands of 1% interests and subsidised by the establishment – and potentially the road to serfdom or more freedom. People not only don’t grok the underlying assumptions of such approaches, but fundamentally misconstrue them as continuations of correlation approaches.

    They are lying to us in many ways. Unemployment in terms of workforce participation is likely running as 25% plus – yet the lie is in in another way too. We are not really short of product with this level of unemployment – so what could this tell us about the efficiency and comparative advantage ideology that more or less says we should all be Germany? And a Germany that isn’t really working for Germans (poverty in work etc).

    And, of course, we still fall for the ultimate con that financial services are super-smart. We could put together a book-length bibliography of the critique – Yves blog is not far off this in some ways – but we are way off a working theory that does not fall back to kleptocracy-as-usual.

    I’m not into experimental cooking – the point being the ready-to-hand in finance and politics is not scientific and there are scientific possibilities. One has to say the ‘experiments’ of economics would not pass any ethics committee on the basis of outcomes pouring drugs and riches down the throat of the rich and leaving many starving.

  27. gibby the fifth

    Nearly 2 years ago, an FT columnist suggesting splitting the Euro imto 2: the Neuro and the Pseudo!

  28. charis

    I always wonder how different the mentalities of north americans and europeans are..

    Calling my homeland a “failed state” while 100 million US-citizins are on some kind of food stamps shows this very clearly.

    Nothing of what I read here comes to the right conclusion.You guys are still talking while you and your neighbours should already be on the streets.You (americans,germans,brits) have (always in relation to the population size) more people depending on the state for food,you have more homeless people,much less people which are some how “independent” (ie ownong your own house,some dwellings fpr own food etc),your banking system is at least as broke as ours if not even more.

    The only thing left for you is to start the resistance as we already did.

    1. The Rage

      100 million lol, nope.

      Most people on “foodstamps” work as well. Basically subsidized wages.

    2. Timothy Y. Fong

      Are you kidding me? Were you asleep during 2011?

      Oh and today in Richmond ,California as I type this a couple of thousand people have marched to the Chevron refinery and are getting arrested.

      So spare me your condescension– resistance is underway, and has been.

  29. Tom Hickey

    For the definitive answer to the likely outcome of abandoning sovereignty to adopt a common European currency, see Wynne Godley, “Maastricht and all that,” London Review of Books, v. 14, n. 19, 8 OCT 1992.

    Godley got it exactly right in 1992. MMT economists have been saying the same thing ever since.

    For an analysis of the neoliberal objectives of creating the EZ, see Greg Plast, “Robert Mundell, evil genius of the euro: For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan,” The Guardian, 26 June 2012

  30. jfleni

    “EU exists because of USA, euro exists because of USA and euro would collapse only if USA permits it.”

    Maybe, but nobody has considered how Bumbling Barry, Timmy the Mad, Larry the Lunatic, etc. ,all very limited lights, would fail drastically if they really tried to prevent the breakup of the Euro, something looking more and more likely with each passing day, especially as the Italians finally bow out, followed rapidly by others.

    The critical factor is the absolute impossibility of any other country adopting the Euro now or in the forseeable future. It has already completely failed; Only the final funeral remains.

    It could easily just be a temporary misery like a serious operation, which leaves the patient cured, and the ECB thrown away like some of the bloody bandages.

    1. kris

      barack o has given up leading. He’s forwarded his power to other people and you can see that by the way he spend his time….golfing.
      He simply puts his signature on paper and on to…..golfing

      john boehner is no different.

      I do not know who’s running the country,but not barack obama, this is abundantly clear.

  31. Sanctuary

    Jesus Christ, end the damn thing already! It’s caused nothing but misery for everyone except the bankster shills who pushed it. And any European still defending this thing is either a European bankster shill or has invested an irrational (and self-hating) notion that the Euro represents modernity and civilization while their own currency represents backwardness and barbarism. Hence the disasters known as Greece and Cyprus. Stop the navel gazing and insanity and break the cursed Gordian Knot. This is absolutely unconscionable and ridiculous. YOU, European individual, have NO RIGHT to force misery upon your own people because you cannot unfix your irrational obsession.

  32. Joe Five Boxes

    Seems to me we have two sides of the critics to the Euro currency. One side has afraid to see the rise of the Euro as the natural reserve currency of the World. That implies the USA living standards falling like a rock and the end of the America Empire. This side has good reasons to destroy the Euro. And they should. They know that the American Dollar is a broken currency and it will end in tears the end of the American Dollar as we know it.

    The other side are the nuts. Fascists (mainly from the UK), communists (special in the Southern Countries) and other radicals, and the only motivation is fighting the Euro because politics, not economic reasons. Those radicals live mainly in Europe, in the South and think that the Euro is the main tool to have an United States of Europe. But that kind of Federation is not in the table of the Europeans politics. Federalists in Europe are a minority like the old Fascists and Communists.

    The American pundits think the Europeans are brainless and like barbarians in the Classic sense of the Old Rome. But Europe is moving forward to a new World where we have various powerhouses, like China or even Brazil. We Europeans are building the foundations of a new World where the USA will be like Argentina today. A society of rentiers and serfs who serve the rentiers.

    We Europeans look to the USA like a rotten Empire and we are looking for the future where the USA will disappear after the split of the American States. You Americans who want to give us lessons and destroy the Euro are the fools. Rsrsrsrsrssrssr

    1. Maju

      The euro cannot be “the natural reserve currency of the World”. That role corresponds to either the dollar (classical) or the yuan (rising star). The euro is, in spite of being much overvalued, too weak to be any sort of “reserve”.

      “That implies the USA living standards falling like a rock and the end of the America Empire”.

      Not at all: the overvalued euro, together with the dismantling of the most basic protectionist measures, favors all foreign exportes. Maybe more China than the USA but both. The euro is no real threat to US hegemony: a politically united Europe might be but a disjoint EU with a burden currency is the most miserable thing on Earth: completly powerless!

      “The other side are the nuts. Fascists (mainly from the UK), communists (special in the Southern Countries) and other radicals, and the only motivation is fighting the Euro because politics, not economic reasons”.

      Many, most communists (who are not “nuts” but radical realists), from Southern Europe especially, do not want to dismantle the euro or at least they don’t feel any hurry to do so. A clear example is SYRIZA, but there are others. They would (will probably soon) challenge Brussels authority however and that may end up destroying the euro and the EU itself, as we know it, but they realize that quitting the euro would only be self-defeating. Another thing will be if the euro quits them.

      A clear example can be Ecuador, which keeps the dollarization while developing a more socialist, fair and democratic state and society. A small country like Greece would probably have to do the same, inside or outside the Eurozone. So what you can expect in fact from European Communists (at least those with chances of reaching power in the next decade) is some sort of pragmatic Euro-Bolivarianism, so to say. A more radical European revolution can only happen if the EU’s core (France, Germany and the Benelux) explodes, not just the periphery.

      “We Europeans are building the foundations of a new World”…

      Keep dreaming. We Europeans are suffering the worst oligarchic accumulation and social degeneration in 150 years or more. Maybe things are somewhat different in Germany, with its “green industrial revolution”, but for the rest of the EU and especially the periphery, the situation is the exact opposite: ecological developments are being dramatically slashed, R+D has all but vanished and qualified workers are being forced to emigrate, while quality education is becoming again a privilege of the rich. We are being forced into colonial status: we are becoming the Third World at extremely fast pace.

      “We Europeans look to the USA like a rotten Empire”…

      I mean, seriously, don’t you even small all the rot of the Eurosclerotic corpse right here? Don’t you even realize how European “governments” are mere puppets of Washington, as it should be obvious after the diplomatic scandal of blockading the presidential flight of Evo Morales just because someone from Washington told them so.

      These magnific Europeans you imagine collaborate 100% (at least their governments do) with fascist imperial terrorism, like kidnapping people to be sent to Guantanamo, spying their citizens, or occupying without even declaration of war, sovereign countries like Afghanistan or Haiti. Never mind the shame of allowing in our cultural events the genocidal state of Israel.

      Europe, as it is, sucks. That’s my opinion as EU citizen (or slave or whatever). Don’t be so cocky.

  33. Gerald Muller

    One thing everyone should agree on: the Euro was a flawed construction to start with. Its motives were political and neither economical nor monetary.
    The other discussion is the price of destroying this flawed construction. Most people just get away by saying that destroying the Euro and going back to national currencies would bear a terrible cost. However, no one even starts to compute what such a cost might be, with credible economic arguments. Probably the main point is that, since the euro was not meant to be broken up and no provision was ever made for its dissolution in the treaties, this calculation is difficult. That something is difficult is no good reason not to tackle it.
    Until someone comes up with a good plan and a reasonable estimate of the break up, most of this discussion is irrelevant.
    My own assumption is that, given the extremely poor governance in the EU and its member states, it will end up -for ending up it will – in a glorious mess. And there will be some idiot politicians to say afterwards: see, I told you it would be very costly!

    1. Joe Five Boxes

      Every breakup of a common currency in past had high economic costs, political instability and even triggered wars.

      The end of the Euro could have the same impact as the end of others common currencies in the past and this is why smart people doesn’t adhere to the “Break up Euro theory”. Only the nuts or the ignorant bet on that.

      But the majority of the people in the Eurozone want to keep the Euro even with the current cost to fix theirs economic problems. Are they stupid? Maybe not. Maybe are more smart that the Euro haters.

      In 20 or 30 years, the Euro will be reserve currency of the World. Even this crisis didn’t stop the grow of the Euro currency. They are 18 countries now who chose to have this currency. Are they stupid to have the Euro as currency? No.

      The Euro will end the Public Debt in the long term. This is This the best advantage of the all to have the Euro. Sure, The short term costs of the austerity needed to be inside the Eurozone are high but in the future the advantages will surpass the current costs. It will give the needed sustainability to the European Welfare State. The Euro will save the Welfare State of the Europeans.

      Today the interest rates in Germany and France are lower than in the USA and the UK. Why that happens? Why? The critics of the Euro doesn’t have the answer. They are dumb.

      1. Joe Five Boxes

        Sorry by my bad and nasty English. I didn’t edited the text the flaws and errors. Thanks for your sympathy.

  34. Hugh

    You have a curious view part millennialist part jingoist. It ignores both current and past events which contradict it and projects a bright future, which by being in the future can not strictly be refuted although to call it wildly improbable would be kind.

    1. Joe Five Boxes

      Well, you can be religious, as you wish. Doenst change the facts. Doesnt change the facts and even the reality.

      Of course you can invoke religious belief to defend your ideas but I rather like to check the facts and the trends of the future. And the facts are: the crisis is hard but it will give to the Europeans the conditions to survive to the End of the American Empire.

      We Europeans are building our future without the USA. The USA will end and split between states where the English and Protestantism are the main factors and the others where the Spanish and Catholicism are the main factors. It is simple to understand this. We are building the future without the USA and the American Empire. Others are distracted with the “Hollywood way of life”.

  35. The Dork of Cork.

    People seem obsessed with intercountry trade balances – while very important the lack of domestic production & demand for basic home produced goods is a general characteristic of the non national euro construct.
    I.e. there was a time when butter and stout were cheap in Ireland – indeed at one time they were giving out free butter to the unemployed.

    PS – there is one euro country that will and is indeed increasing its trade imbalance with Germany – thats the UK – the fulcrum on which the entire sick project turns.

  36. ChrisPacific

    I read and appreciated the Galbraith piece although I didn’t comment. I will usually try to read anything by him if it appears here.

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