Backfilling a black-hole

Yanis Varoufakis writing in MRzine claims he has a ‘modest proposal’, it is anything but…

I’ll pull out a few paragraphs but read the rest yourself.

I’m certainly not an advocate of  the responsible federation, he seems to point towards – a system of shared responsibility, risk and benefit for all those that sought to bring the EuroZone about. Though it does seems fairer than what exists.

I doubt EU Finance Ministers have even considered anything close to his proposals..should they?

The EuroZone (EZ) is facing an escalating twin crisis but only acknowledges one of its two manifestations.  On the one hand we have the sovereign debt crisis which permeates the public sector in the majority of its member countries.  On the other hand we have Europe’s private-sector banks, many of which find themselves on the brink.  Over-laden with paper assets (both publically and privately issued) which are worth next to nothing, they constitute black holes into which the European Central Bank (ECB) keeps pumping oceans of liquidity that, naturally, only occasion a tiny trickle of extra loans to business.  Meanwhile, the EZ leadership steadfastly refuses to discuss the private debt crisis, concentrating solely on the need to curtail public debt through a massive austerity drive.  In a never-ending cycle, these fiscal cuts constrain economic activity further and thus pull the rug from under the European bankers’ already weakened legs.  So the crisis is reproducing itself.

What we have now is a textbook case of how not to run a bailout.  Is it any wonder that the banks are not reassured by Europe’s long-term “resolution” of the Greek crisis?  And is it surprising that the markets are ready to speculate on which will be the next domino pieces to fall, once Greece and some banks (that have lent it large sums in the past) have toppled?  This is, in a nutshell, the essence of the euro crisis.  A crisis that is young and that has much energy left in it.  The question that naturally arises in view of the above is: Could Europe have responded differently?

If the euro crisis reveals anything, it is the simple truth (once better understood — see George Krimpas’ excellent article here) that a currency union cannot bank on balanced trade within its regions.  Germany will, come what may, have a trade surplus with Portugal.  So, if the currencies of the two countries are to be locked up indefinitely, keeping the balance sheets balanced requires either a steady transfer of capital from Germany to Portugal or a constant diminution in Portuguese wages.  Though both phenomena are possible, and often observable, life has proved that neither the capital flows nor wage reductions are large enough to avert the ever-growing imbalances between deficit and surplus EZ countries.  In short, either the currency union will break up or a political-cum-institutional solution will be found.  What follows is a modest proposal of what that longer-term institutional solution might entail.  Why modest?  Because it does not call for the obvious solution to the problem: i.e. federation.

The idea that the burdens of the crisis should be shared between capital and labor, between productive and financial sectors, between deficit and surplus regions is anathema to them.  The notion that interest rates paid by the German government will have to rise (even very modestly) so as to maintain a semblance of balance within the EU is abhorrent to the German elites.  For they are quite happy with the current situation where their profit rates are on the rise while the German workers are having to make do with declining real wages.  When confronted with the reality of the imbalances between Germany and Greece or Portugal, their response is to think: “Well, if our German workers, who are considerably more productive, take lying down constant diminutions of their living standards, then the lazy Greek and Portuguese ones should be walloped with huge wage and benefit cuts.  If not, our own workers may object to their lot.”  Indeed, they are convinced of the moral case for such macroeconomic protectionism, unable to recognize that their insistence is incompatible with the maintenance of a common currency which boosts their own surpluses, viz. the maintenance of the deficit EZ countries and the rest of the world.

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  • The Greek’s suggestions are interesting, one reason being his chief proposal is a paper play of transferring debt.
    It looks like Fianna Fail has the situation under control. No doubt, the Vauxhall League team will take over next year and muck it all up.
    But, as long as the cuts bite deep and hard against all the greey little Biddies and Paddies who got themsleves into negativer equity, all is good with the world.

    I am sure Portugal, like Spoain, has a big invisible balance with Latin America but hey blame the Germans for their problems and the ignorance of others.
    Ho hum. Sir Alex gave a good interview today.

  • Alias

    “What follows is a modest proposal of what that longer-term institutional solution might entail. Why modest? Because it does not call for the obvious solution to the problem: i.e. federation.”

    The point of the single currency was to engineer a single country, so the agenda was – and still is – political and not economic. The reason the solution to the problem created by the single currency is “obvious” is because it was designed to create a crisis that could only be resolved by creating a federal EU state that would ultimately lead to the end goal of a single EU state. The better option is to remove the cause of the problem: which is the single currency and not the absence of a single EU state.

    His “Modest Proposal” ignores the reality that nothing will stop these europhile quislings from achieving their ultimate goal, and so we need to recognise that they are traitors among us who seek to remove from their nations the right to self-determination and plot and plan for that express purpose.

    The irrefutable reality is that Ireland’s debt crisis was created by membership of the eurozone. Ireland’s external debt stood at 11 billion punts in 1998, but it now stands at 1.67 trillion euros a mere 11 years after joining the eurozone. All of that ‘wealth’ that flooded into the country was all cheap credit that all has to be repaid with interest. So that’s what Ireland’s economy was for the last 11 years: borrowing cheap money from the eurosystem and spending it on cars, houses, holidays and hotels. The ‘economy’ doesn’t exist anymore, but the other part of the spending spree will exist for the next 100 years: paying it all back. So your economy will go from the extreme of extravagant spending to the other extreme of begging and borrowing…

    The europhiles don’t care about that just as long as they can flood your with cheap heroin and get you hooked on it, knowing you’ll sell your ass to pay for it once they control you and can put the price up. At some point you’re going to have to end the relationship with your dealer and go cold turkey, and there has never been a better time for Ireland to now exit the EU and regain control of its sovereignty. They already stolen 200 billion worth of fishing stock from Irish territorial waters and now they want us to hand over about 400+ billions of taxpayers’ money to eurosystem banks in order to bail them out so that they can further their federalist agenda and we can throw ourselves on the shitheap of the world’s non-sovereign nations like the Aboriginals and the Palestinians or those other discarded nations in history’s bin that you don’t get to hear about…

  • Wilde Rover

    Alias,

    “Ireland’s external debt stood at 11 billion punts in 1998, but it now stands at 1.67 trillion euros a mere 11 years after joining the eurozone.”

    And now debt slavery awaits.

    “They already stolen 200 billion worth of fishing stock from Irish territorial waters and now they want us to hand over about 400+ billions of taxpayers’ money to eurosystem banks in order to bail them out so that they can further their federalist agenda and we can throw ourselves on the shitheap of the world’s non-sovereign nations like the Aboriginals and the Palestinians or those other discarded nations in history’s bin that you don’t get to hear about…”

    In the long run it might be better just to crash the entire system.

  • Alanbrooke

    Maybe they see it that Ireland stole € 1.67 tillion from them

    Nobody made Ireland borrow the money, it was done through FF pork barreling and cronyism

    And the electorate kept FF in power and voted yes ( eventually ) to Europe as indeed FF instructed them to.

  • Mack

    Except Ireland didn’t borrow the money.

    The overwhelming majority of that debt was accumulated by private entities, the majority of it accumulated (or more likely simply transfered to low tax Ireland) by foreign banks operating in the International Financial Services Centre in Dublin.

  • JJ Malloy

    No wonder they kept on making Ireland revote whenever it’s voters proved skeptical of the whole EU project.