Euro crisis: “everyone thought everyone else would back down at the last minute…”

Writing in the Guardian, Paul Mason covers similar territory to my post last night [But in a more coherent manner? – Ed].  You might very well think that…  ANYhoo…

He opens with this

In the summer of 1914 the Austrian novelist Stefan Zweig was on holiday in Ostend with fellow writers and artists. One afternoon, noticing the sudden appearance of uniformed soldiers on the promenade, they buttonholed an officer: “Why all this stupid marching around?” It was 3 August: war was less than 24 hours away but it seemed impossible.

The European elite, because it believed the era of peace, social liberalism and globalised trade could never end, walked blindly into its ending. Today the political elites of Europe stand in danger once again of destroying a dream. They have convinced themselves the single currency and the European Union are the same project, and that the collapse of either would be the end of the world they know. Therefore it cannot end. This fallacy is now about to be tested.

And here are his final thoughts

In October 2008, and again in the spring of 2009, the US authorities were able to find a circuit breaker for the financial crisis, in the shape of the Tarp and quantitative easing. Europe, unwilling to impose losses on its banks, indeed prepared to rubber-stamp stress tests on banks that then went bust, has yet to find a circuit breaker.

As a result, the combined momentum of fiscal crisis and social unrest stands the chance of dragging the periphery further into crisis and, in the case of Greece, out of the euro altogether.

None of the options are palatable: a serious default by the periphery would hammer banks and pension funds in the north European core. A modern Marshall Plan for Ireland and South Europe would last years, cost hundreds of billions, and with the US itself in debt reduction mode, only China and a reformed IMF could conceivably fund it. Leaving the euro would not solve the basic problems of competitiveness and unfunded social benefits in the south. But these are the options: as real as the “Error Del Sistema” placards in Madrid’s Campo Real.

Looking back on the summer of 1914 Zweig wrote: “The worst of it was, the very thing we loved the most, our common optimism, betrayed us; for everyone thought everyone else would back down at the last minute and so the diplomats began their game of mutual bluff.”

Common optimism is a value worth preserving; but so are realism and decisive action.

As ever, read the whole thing.

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  • DC

    When Henry Paulson resigned from his job as CEO of the investment bank Goldman Sachs in June 2006 to serve as the US treasury secretary, he received a generous bonus of $18.7 million. What kind of work could be worth that much money? Investment bankers had nothing to do with honest work, because the value that they created was merely an illusion. It was achieved on the basis of risks that brought down the entire system.

    He should strung up by his b*lls and all that money from him and others like him should be returned to the US government.

    Same goes for those CEOs of banks running around London and Frankfurt with shares worth trillions – so much for so few. Freeze their assets.

    There is that optmistic enough for you! That is both realism and optimism rolled into one.

    The taxpayers are not part of the private banking debt problem, therefore they are not part of the solution.

    Nothing stops bankers from ripping off population again – journalist

    Lack of post-crisis prosecutions of fraudulent bankers is dangerous, says investigative journalist Matt Taibbi.

    (Obama’s presidential campaigns were funded by which financial services company?)

  • DC

    Matt Taibbi:

    “The number one thing that came out of this whole period is that there are absolutely no consequences for any of the people who committed this wide-scale fraud,” Taibbi said. “We had these massive bailouts and there is enormous amount of the public anger about that. If you couple bailouts with the lack of law-enforcement, the lack of prosecutions, there is really no incentive going forward for people on Wall Street not to commit crimes, especially if they are incredibly profitable.”

    “If people on Wall Street look at that and they say ‘Hey, if I rip off a pension fund or insurance company, or a foreign bank, or a foreign hedge fund, there will be absolutely no consequences. Even if it all blows up, even if we bet completely wrong, the worst-case scenario is that the government is going to come in and bail us out with tax payer money’,” he added.

    “What used to be the middle class in this country is now facing foreclosure in huge numbers. I mean, millions of people at a time are going into foreclosure, they are losing their houses, they are losing their life savings, but I think the people who are running this country do not really see that,” he said. “Their entire experience is limited to a very small circle of people who see a very different America, one that is very affluent.”

  • Pete Baker


    Ranting about “bankers”, again, might make you feel better.

    But it’s not addressing the actual topic in any meaningful way.

  • DC

    Excuse me Pete, but how is it not part of the solution?

    European leaders simply get in touch with the member states and their respective inland revenue / tax offices. The authorities look at those with high tax take and turbo salaries and identify which ones were in involved in financial services – these people will be known to government as they work hand in glove – for instance Goldman Sachs funded O’bama’s campaign for president (conflict of interest – no no not all?).

    Parliamentarians across the EU then create legislation that gives special powers to the police – similar legislation which the likes of SOCA use to freeze assets belonging to terrorists – the police then arrest these bankers and financiers, freeze bank accounts and assets – and recapture in part a fair and reasonable amount of the money – bonuses – creamed off between 2002-07 during those bogus boom years. This was (and actually still is) bogus money because it was ‘earned’ out of a rigged financial system, rigged to the point of collapse, but only once these bankers had taken the hardcore cash up front. Privatising profit and socialising loss – is illegal in my view.

    But like any legislation it’s not perfect and a blunt instrument, but it beats making a laughing stock out of the taxpayer and impoverishing the poor all the more.

    Or are you part of the ‘affluent’ few that simply don’t understand that this could really actually work – this is the audacity of hope in practice!?

    The Fred Goodwins and Andy Hornbys of this world are pathetic little men and government ought not to be so in awe and frightened of them – did you not see their type before the Commons select committees? I don’t see why more robust, hardworking people – taxpayers – should pay for their reckless lending.

    The reason why the EU is getting nowhere is that the wrong questions are being asked, the right questions are:

    1) who caused the problem?
    2) who has the money to pay for the problem that was caused?

    Therein lies the answer.

    I believe I have set out a rough proposal which if worked on in more detail and if legislation could be enacted secretly in an overnight sitting of the Commons could see private money lifted out of the pockets of those that caused the problem, which helps to pay back the private banking debt, which had to be converted into sovereign government debt. Why? Simply because under the neoliberal system such men had the freedom to walk away and deny everything.

    We need a SOCA type organisation except for financial services – to recapture in part the money made out of debt as a result of manipulating financial markets over the period 2002-07.

  • aquifer

    A progressive wealth tax could help unwind all of this. Also taxes on borrowing, as too many big corporations fund risky acquisitions and salaries with debt.

  • I suppose if you were a novelist in sunny Belgium in the summer of 1914, the war might have come as a shock. It would not have come as such a shock to the European Governments.

    However, what the European Governments could not have known, in 1914, is how the war was going to pan out or how much destruction would be caused. The scary parallel with the euro crisis today is that the Governments can see the crisis and are reacting to it but still nobody seems to have any idea as to how things are going to pan out or how much destruction will be caused.

    I believe the uncertainty, in itself, will soon become hugely damaging. I know a businessman who’s appetite for risk-taking has been severely curtailed by the euro crisis. I would not be in the least bit surprised if this sort of fear is spreading right across Europe.

  • DC

    Writing in the Guardian, Paul Mason covers similar territory to my post last night [But in a more coherent manner? – Ed].

    Well he is a journalist, whereas you could be viewed by some as a pseudo-journalist.

    I still believe that I have set out a doable alternative above; just because the political parties lack the will doesn’t mean it isn’t relevant! After all we do what works. I reckon that it would work and help to offset some of the sovereign debt, which is ultimately private backing debt.

    Wonder if Obama has thanked Goldman Sachs.

  • DC


  • Reader

    aquifer: A progressive wealth tax could help unwind all of this.
    Hi, the taxman is coming round now to value those paintings in your living room. And, while he’s there, do you have any interesting stuff in your attic? And is that a real diamond in that engagement ring?
    I suppose the Assets Recovery Agency could help to train up all the new Civil Servants that will be needed.