The US Treasury is right about Germany’s Eurozone policies: Here is why

On 30th October, in its Report to Congress on Economic and Exchange Rate Policies, the US Treasury took a swipe at Germany, accusing it of exporting economic depression to the rest of Eurozone and, indeed, to the global economy. The German Finance Ministry responded the next day with a statement that: “There are no imbalances in Germany that need correction. On the contrary, the innovative German economy contributes significantly to global growth through exports and the import of components for finished products.” There are few occasions in any argument where one side is completely right and the other comprehensively wrong. This is one of them! The US Treasury is spot on and the German response, unwittingly, confirms this. In this post I summarise the analytical foundation (as I see it) of the US Treasury position; a position that, incidentally, this blog has been putting forward (and analysing) for years. In brief, I shall be showing that to succeed, the current German policies must destroy whatever balance is left in the global economy. And given that, ultimately, it cannot succeed, it is bound to wreck further Europe’s Periphery and to deliver an unwanted deflationary shock to the global economy.

The argument’s gist

Before the Euro Crisis, Germany and the rest of the surplus Eurozone countries had a large Current Account surplus both toward the rest of the Eurozone and towards the rest of the world. A large portion of the surplus countries’ profits (due to these net exports) were rushing back to the Eurozone Periphery thus fuelling consumer booms and real estate bubbles. During that period, savings (S) exceeded investment (I) in the surplus countries while the opposite held true in the Periphery (since capital was flowing freely to the Periphery in the form of ‘investments’ that helped aggregate investment there dwarfed local savings).

Following the Euro Crisis, and the collapse of the Periphery’s aggregate demand (as a result of both the sudden reversal of the capital flows and the austerity measures taken), investment in the Periphery collapsed (sometimes to negative levels). Thus, suddenly, the Periphery mimicked the surplus countries in that savings exceeded investment there too (S>I). At the same time, imports into the Periphery subsided (courtesy of the sharp recession) and so the Periphery’s Current Account deficit narrowed (e.g. Greece) or was even transformed into a surplus (e.g. Spain).

Enter the Germany-driven Eurozone-wide policy of balancing budgets across the Eurozone. Here is why this policy turns the Eurozone into an exporter of recession to the rest of the world (as the US Treasury has claimed):

  • While savings exceed investment (S>I) both in the surplus and in the deficit countries, in Europe’s Core as well as in its Periphery, and
  • While low aggregate demand in the Periphery tends to eliminate Current Account deficits by the sheer power of collapsing imports (due to the Periphery’s recession)

the attempt to balance budgets can only bear fruit if the Eurozone as a whole manages to reach a Current Account surplus of between 8% and 10%. In other words, the Germany-inspired policy that is being pursued currently in Europe, as a means to fight the Crisis, is uniquely consistent with an attempt (perhaps an unconscious one) to turn the Eurozone into a mercantilist fiend; into a net exporter that would make China look like an exemplary global citizen.  

Now, of course, the Germany-inspired policies are bound to fail. For it is clear that, as the Eurozone’s Current Account surplus is pushing beyond 1.5% and rising (as per the German plan) the euro will appreciate much more, destroying Germany’s best laid plans for turning the Eurozone into a Greater Germany while, at the same time, crushing what is left of the Periphery’s social economies.

Nevertheless, before they are abandoned, these policies are perfectly capable of doing a great deal of damage. Both to Europe and to the world. While the United States has, indeed, a great deal to answer for regarding its own contribution to global economic woes, on this matter the US Treasury is entirely correct: Germany is turning the Eurozone into a net exporter of deflation, recession and global instability.

The analysis behind the last statement (wonkish) – for a full academic article on this matter click here 

The diagram below offers a snapshot of the relative macroeconomic position of the Eurozone’s deficit and surplus member-states in relation to their budget, current account and net investment positions.

  • σi = Si-Ii denotes savings in excess of investment for country i
  • τi = Ti-Gi is the govenrment i’s budget surplus, and
  • ρi = Xi-Mi is the difference between export income and income spent on imports, while subscripts D and S refer to the deficit and the surplus Eurozone member-states respectively, the downward slopping lines depict the loci that deficit and surplus countries are constrained on by the standad identities of national income categories.[i]

Screen Shot 2013-10-31 at 9.58.53 PM

Before the Euro Crisis the Eurozone deficit and surplus countries where at points like D1 and S1: The deficit countries occupied a point on their ρD contraint which reflected a current account deficit (ρ1D<0), a budget deficit (τ1i <0) and investment exceeding savings, as a result of the capital inflows from the Eurozone’s core (as well as from the City and Wall Street). In contrast, the surplus member-states where finding themselves in the adjacent quadrant since, by definition, their current account was in surplus (ρ1S>0). So:

Before 2008/10, the Eurozone as a whole experienced a small but discernible trade surplus with the rest of the world ρ1EZ (=ρ1D+ρ1S>0).

After the Euro Crisis the Eurozone deficit and surplus countries were violently shifted from positions D1 and S1 (respectively) to positions D2 and S2 – see the black arrows. The deficit countries saw a collapse of investment which pushed them into the same quadrant as the surplus countries, with their trade deficit shrinking fast as imports collapsed. The result of this shift was that:

After 2010, the Eurozone increased its trade surplus with the rest of the world from ρ1EZ (=ρ1D+ρ1S>0) to ρ2EZ (=ρ2D+ρ2S>0)

Germany’s current plan for the Eurozone is to balance budgets everywhere – especially in the ‘profligate’ Periphery. But this translates into a ‘push’ along the red arrow for the Periphery and the green arrow for countries like Germany, The Netherlands and Austria. Notice that, to be possible, such a ‘push’ demands that:

After 2013, the Eurozone becomes a mercantilist fiend – that its trade surplus with the rest of the world expands to a gigantic ρ3EZ (=ρ3D+ρ3S>0).

And this is the analytical underpinning of the US Treasury’s (correct) point: To succeed, the current German policies must destroy whatever balance is left in the global economy. And given that, ultimately, it cannot succeed, it will wreck Europe’s Periphery and deliver a deflationary shock to the global economy.


[i] From the standard identities Y=C+I+G+X-M (where Y=gross domestic product, or GDP, C=consumption, I=investment, G=government expenditure, X=export-generated income, and M=income spent on imported goods and services) and Y=C+S+T (where S=domestic savings and T=taxes), it turns out that S+T=I+G+X-M or (S-I)+(T-G)=(X-M).

109 thoughts on “The US Treasury is right about Germany’s Eurozone policies: Here is why

  1. When I see that a poster believes being Anti-€ is tantamount to being Anti-Europe, others believe that the FED is “honest and competent” and has solved the US crisis and when even the host believes some econometric tautologies justify the statement “To succeed, the current German policies must destroy whatever balance is left in the global economy” I am getting very pessimistic for Europe. How about a new post “Solutions for the European crisis” professor? In the meantime I would highly recommend to read this: http://www.theburningplatform.com/2013/10/27/culture-of-ignorance-part-one/ The writer is expressing his views of the US, but are imo correct for all Western societies..

    • Speaking of ignorance, the greatest and most dangerous ignorance taking place in economic discussions nowadays is the notion that gvt.debt and private debt in a sovereign currency issuing economy are exactly the same.Another great ignorance of the same type is that advocates of the above notion, also tend to equate public finance with single household finance.

      It’s always amazing to see an ignorant person write articles about ignorance.

    • …others believe that the FED is “honest and competent” and has solved the US crisis…

      To be fair, Bernanke has called for a loose fiscal policy.

    • @Crossover:

      For a second there I thought you were talking about the US Treasury. From Bloomberg:

      The U.S. Treasury Department said it will sell $10 billion to $15 billion of floating-rate notes Jan. 29 and keep coupon auctions unchanged in the current quarter because of political wrangling over the budget.

      I think the word that Mosler used to describe the boys and girls at Treasury was … “morons.” Pretty tough description from a guy not known to lose his temper.

    • Now that’s a very interesting question, thanks! Yanis, if I spent a part of my income on, say, buying shares of a company, the seller of this shares uses the money he gets to buy a new car, or something. Or if I spent part of my income on the premium for a cash-value life insurance, the insurance company uses this money to spend it for paying his staff and investing it in bonds, or something.

      So it in both cases is not immediately spent dirctly by me for consumption. But it is spent nevertheless, partially for consumption, partially for investment, and certainly it circulates in the economy.

      Thus such uses should be no savings according to your definition. No?

    • Thank you for your reply.
      Even though i am in agreement with your thesis imy approach is different because n my humble opinion your formula Y=C+I+G+X-M has already crossed tthe red line and may be obsolete. For reason of simplicity the country may increase the gdp by spending money and building prisons even though it may not be apparent at first glance that the country is destroying capital or misallocatres it due to its policies. Greece has diminished its ability to produce and has a major structural problem which some countries ie Germany try to take advantage of. Even though we say EU, every country acts for its own benefit. The problem stems from fiat currencies and the way they are handled. It is the first time in human history that all countries in the world are on fiat. If history is a guide all previous experiments ended in total chaos. I am truly puzzled by the endless conversations on TV about our current situation. The coin has two sides. One side is that the Germans are guilty because they did not pay the price of funding, exporting goods and services to a bankrupt country. Now they demand payment in goods and services (certainly why not!) The ECB bailed out some of their major financial institutions by printing a few billions and a small portion of the price tag was paid by our banks and our bond investors. But this is not enough because if all the obligations and debts are to be paid the currency will be destroyed due to hyper printing which will result in hyperinflation. The Germans do not want that as they have the experience of 1923 and they still have a very competitive productive base. This is the pathogenesis of the fiat system! It can create obligations and debtors to infinity and if the system tries to reverse course it faces collapse due to deflation. You print or you die in misery!! The other side is Greece which was trying to show a prospering economy by a thriving stock market and then by a bubbling to stratosphere real estate. All Greeks speculating in this markets many with borrowed money from the banks! But alas speculation and gambling can not bring prosperity. Our productive base in shambles thanks to the government policies of the last 30 years. It takes time for a system to collapse . Perhaps we crossed the line and we are defendless! We should first blame ourselves and the polticians we have been voting. Because with their blessings our banking system loaned money to most of our citizens without risk. I am certain prof. Varoufakis you are well aware that in a country with a capital market the possiblity all the players to go bankrupt by doing all the same mistake is zero. Either the market is not free or all are stupid. This is the other pathogenesis of the fiat currencies. It allows the banks to buy limitless bonds in order to provide a helping hand to the government to keep the interest rate structure low. The reason is well known. The results are too many to analyse here just to mention a few like property confiscation, destruction of middle class, capital misalocation and consumption , crony capitalism etc. As you see pure speculation from their part without risk. Why? Because the ECB could bail them out too. The matter is political and you know it. You can allow a productive business to fail but not a bank with many thousand depositors. Thus having consumed all of their capital and their clients deposits in later to become insane loans (borrowing short to lend long) and bonuses, and all the capital increases through the stock exchange they ended up insolvent crying for help from the government. And the government gives up. Helps their friends and socializes their losses by imposing heavy taxes and well known measures camouflaged in part by the troika because printing money will not help this time as Greece dont forget has a dissipated capital base and the Germans want to be paid in Goods and not paper. Oh by the way the measures fail because nothing has truly changed. The system works as before by kcking the can down the road and trying to win time. Nobody changes policy and the friction continues!!! As for the Americans who impose the global framework i would really like to see how they will get rid of the 3 billion bonds monetized in their balance sheet! The problem Mr Varoufakis is that we need honest money!!! Fiat currency is debt by central planning. NOT MONEY. You can not pay debt with debt once a threshold has been reached. Thank you for you space!

    • @Eric

      This is not a formula.It’s an accounting identity and as such it stands true at all times.It can’t be obsolete.

    • @VSS

      ” if I spent a part of my income on, say, buying shares of a company, the seller of this shares uses the money he gets to buy a new car, or something”
      Then that part of your income will add to S and then for the seller it will either be C or I.If the seller buys a car this adds to C and if after this purchase the year ends, the seller of the car will have also saved.Gross Private Savings (which is S) do not show the net Savings of the prv. sector. S – I does, which shows the amount of money that was drawn out of circulation and didn’t enter again during the accounting period.
      Thus when S – I is negative, the private sector has increased its indebtedness in aggregate.

    • @ Crossover

      Thanks for this explanation. I am a layman, but it sounds reasonable to me. S, I, C and so on are abstract, for me at least. Which statistical data exactly do reflect them in the real macro accounting world?

    • @VSS
      You can have a look here:
      http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm

      All the GDP components can be found here.The problem is that you will probably have to sum up certain accounts to come up with the components of the basic identity Y = C + G + I + NX

      For example I in the identity above represents Private Gross Fixed Capital Formation.This means that the account “Gross Fixed Capital Formation by government” should add to “G” along with “Government Final Consumption.”It might take a while before you find out what account belongs where.Its tricky.

    • Dear, Dean; this is not just a trade issue. Floating currencies, when the existed, had had to avoid surplus and deficits by adjusting exchanges. And if not enough by themselves, then another IMF had had to force the adjustment.

      And in any case, surplus is not only exports but imports in short. Maybe because wages in Germany went from close to 60% of the GDP to near a 40%? Maybe because the consequent lack of internal consumption also supposed a lack of internal investment opportunities, making preferable to export capital by investing outside?

    • Dean,
      It is a complex issue. Germany is fine as things are with 5% unemployment 1% borrowing rates and all the money flowing to their safe heaven. They are draining Southern Europe of euros, brainpower, companies. In Cyprus all they had to do is provide a backstop to the banks. They refused to do that, as a result Europe got divided to safe north and unsafe south.

      A Union will not work if – everyone is encouraged to move their money and business to the north and – all illegal immigrants are forced to stay in the south.

      As it is it is a disaster – 5% vs 28% unemployment. 28% is criminal.

    • Jordi:

      Of course it’s not only about trade. But if you had only a few words on how to cure the present problem it would be to put the G-trade surplus to zero. Currencies could play a role but for the Eurozone such is academic.

      So, assuming it came down to one thing in curing the current imbalance the answer would be to restrain German trade surplus to the theoretical maximum. And maximum means to eliminate it.

      Let’s KISS it.

    • Κωνσταντίνος:

      There is so much sensitivity on the German side about their 200 Bil. euro per year trade surplus with the world that the minute there is a serious effort to restrict it then Merkel would at a record time sit down at the negotiating table in search for an equitable solution.

      If you don’t restrict the 200 Bil. G-trade surplus then the current Eurozone problems could run in perpetuity. There is absolutely zero motivation for any German attitude change because it doesn’t hurt Merkel at all to continue to run large trade deficits while Europe is sinking (most of the German trade surplus comes from the US, China and UK – outside the Eurozone).

      No pain, no gain. There has to be large German pain for the rest of the Eurozone to gain.

    • @ crossover

      Thank you for your remark but you are REALLY missing the point. This IDENTITY or EQUATION if you prefer or whatever , is an ACCOUNTING GIMMICK formula! It can hide destruction of capital and many other things and present growth even though it may not exist. FANTOM GROWTH.

    • @Eric

      The purpose of the sectoral balances is not to hide or show growth in the first place.
      The only thing this identity shows is that for one sector of the economy to run a surplus then the other 2 sectors must run a a combined deficit equal to that surplus.
      And that’s always true.Nothing more and nothing less.

      There are other accounts such as the capital stock that can show if capital has increased or not.

      With that said a reduction to the capital stock may lead to reduced future output, but this doesn’t automatically imply reduced CURRENT growth

  2. Born in a surplus region proud of its surplus, as Catalonia was in relation with the rest of Spain, I found difficult to understand the first IMF design made by Keynes: a kind of international surplus and deficits clearing house, where surplus should be “heavily” penalized.

    I understand that it’s also difficult to be understood by most Germans today. But certainly, external surplus means lack of internal demand, and then a world contraction push, and also means a “colonizer” weapon.

    A New IMF must be thought and established in order to avoid permanent surplus and deficits.

    • @crossover
      We all know what the purpose is Sir. But you seem to neglect the abuse of purpose if the PURPOSE is not HONEST! Maybe you did not read my first post carefully enough! Everyday life is not with good and honest intentions from all.

      Concerning the FORMULA in money terms is as you say but money terms do not always reflect the economic landscape and you know it. There would be no crises if all the IDENTITIES you use had honest intentions Sir. This is my last post because i am perfectly clear to what i mean. I HOPE you will understand. THANK you again for your space.

  3. Gotarda,

    1. For a system to be in balance you cannot have borrowing differentials of 300-400 basis points between Germany vs Spain or Italy, let alone Greece which cannot borrow. That borrowing differential is a tremendous competitive advantage. Think of it as if the Germans waking up in the morning and starting the 100m race at the 10m line. Do the calculus over years and years and that advantage becomes humongous.

    2. You cannot have a huge banking safety gap between north and south leading to a huge wave of capital flows northward in the form of companies moving their base and in the form of bank deposits being transferred to euro-safety. Now the Germans wake up in the morning and start the 100m race at the 20m line. Just think of the unemployed Greek banking sector employees.

    3. You cannot have an ECB that sets deflationary monetary policy for the sole purpose of protecting Germans from inflation but at the same time resulting in 28% unemployment in the countries of the south. The sole purpose of the ECB is to protect Germany that has 5% unemployment and countries like Austria with 4%. Germans are now starting the 100m race at the 30m line. They have the borrowing rates, the capital and the ECB behind them.

    4. You cannot have a currency of 1.35-1.4 to the dollar, weakening further the weak economies to the south that have no industrial advantage and therefore cannot compete as easily in the global markets.

    Nothing against Germany’s success, if Germany wants to be in a currency union though, they cannot continue on the above course because they are the ones that are exploiting the countries to the south and not the other way around. They are essentially rigging the game so the race is lost from the beginning.

    If they could care less about the currency they should be the first to take action to leave. The market will reward them with a rate of 1.8-2.0 to the dollar, freeing the ECB to drive monetary policy for the needs of the unemployed countries and providing the necessary backstops to drive borrowing rates to normal levels and to else provide a banking safety guarantee so the money will stay at its source.

    As a Greek I don’t care about the euro if it is to destroy my country providing a huge advantage to the countries to the north. At the same time leaving the currency as a single country is a humongous risk that nobody is going to take.

    The choice is not for the Greeks to make, it is for the Germans to make, they control the game, they write the rules. Currently to their favor.

    • “You cannot have an ECB that sets deflationary monetary policy for the sole purpose of protecting Germans from inflation but at the same time resulting in 28% unemployment in the countries of the south.”

      Not to mention that Germany herself never gave a damn about the inflation rate of slightly less than 2% that was agreed upon at the installment of the ECB.
      German domestic policy from the start of the ECU has always been about undermining that target by cutting down ULC and thus effectively depreciating the common currency internally.

      Now it is France that is being scolded by german economists and politicians for alegedly joining the spending bonanza of the south, while all the french did was actually keep their promises and stick to that inflation target and most of the Maastricht criteria that Germany had also been quite quick to forget about, once the Euro was implemented.

      Of course now our expert community seems to be proven right for their critizism of our western neighbours by the growing number of unemployment and the dwindling GDP growth in France. Nobody who has any real voice on that subject in Germany is drawing the obvious conclusion that the german economy has simply out-competed the french via a well organized wage dumping campaign over the last fifteen years or so.

      We have been starting the race from the 30m line all along.

    • “The choice is not for the Greeks to make”

      Quite the contrary. The choice is ONLY for the Greeks to make! The Greeks must choose if they want to keep their corrupt ‘elites’ in place, they must choose if they want to allow them forever to not pay taxes, thex must choose if they want to nurture a hugely overblown and unefficient publich sector…

      And THEY THEMSELVES must choose if they want to leave this desaster of a currency union. Nobody can impose this on them, it is a decision to be made by the Greeks themselves.

    • @Κωνσταντίνος

      1. All Southern European countries paid much higher interest rates before they entered the Euro Zone! That was – and still is – one of the reasons why they dont exit.
      The interest rates are a reflection of the Southern Gov policies, spend but dont tax.
      2. The Greek banks were bankrupt and the FDJ sl.. should have not intervened! She is in the pocket of the banksters and German and French banksters would have lost a lot of money.. . That is why she stated her policy of saving Greek banks is “alternativlos”. Of course the first Bailout billions went straight to the foreign banks, not to Greece. Why do you think Papandreou was smiling all the way from Berlin to Athens? I think he smiled because his mission was accomplished, i.e. the money of his rich friends had been rescued because without the Bailout Greek banks wouldnt been able to send money to CH or the UK.
      3. Sorry, but that is just BS and not worth my time. If you dont understand the ESCB then I suggest you educate yourself a little..
      4. Absolutely correct, that is why Greece should have exited the Euro.
      Gr became only an € Zone member, because a guy called “Super” Mario Draghi was helping the Greek Gov to cook the books and present a 3% Debt/GDP ratio, while he was working for Goldman Sucks.
      .I think that Germany should leave the € Zone asap, but the funny thing that both sides the pro & cons, use the same silly argument, i.e. it would do a huge damage to Germany. The elitists who claim this, know very well that there exports are payed by the German CB. Germany would only become more competitive in world markets. Look at CH and its strong currency ….
      If a Grexit would be secretly and professional prepared by your clueless politicians, it would not be not such big venture. Of course this a nightmare for those useless bureaucrats in Brussels, who make more money than “Mutti” in Berlin. Imagine what Italy, Spain and Portugal would do if the Gr economy would grow again after 3 years while they are struggling with 25% unemployment?
      Of course the Greek people can fool themselves forever, no problem, but please not on my taxes. -)

    • “1. All Southern European countries paid much higher interest rates before they entered the Euro Zone! That was – and still is – one of the reasons why they dont exit.”

      You clearly have no idea on the mechanics behind interest rates.ANY country that issues it’s own currency has the ability to control the yields on its gvt. bonds.
      For start, Central Banks control the interbank rate (which is the anchor for all the other interest rates in the economy) by controlling the price of the safest and most liquid financial asset in the economy: Gvt. Bonds.Being the defacto monopoly supplier of reserves they can buy (and sell) whatever amount of Bonds needed so as to achieve the target price which would establish the overnight rate at the desired level.That’s precisely the reason of the high correlation between bond yields and interest rates in EVERY country outside the Eurozone.The markets have no control over this.
      This means that in reality, a country can determine the rates for its bonds if it wants to.

      But apart from that, a country issuing its own money can never run out of it.So not only countries can set whatever rates they like for their bonds, but they are also able to never default on them, no matter the level of the rates, 1% or 99% is irrelevant.

      Thinking that Greece (or any other southern country) was benefited from the Euro with respect to its bond yields is utterly idiotic.We all moved from being sovereign and not subject to market desires to being fully subject to market desires,credit ratings etc.

    • Very Serious Sam,

      I agree that the Greeks do have a choice as well and you express it very well in the first paragraph of your message.

      They have absolutely no choice on being the only country to leave the currency.
      It would be a huge disaster. They should never have joined but as things are now they cannot leave. As such Greeks and Italians and Spaniards and others need a responsible Germany. Germany right now controls everything, borrowing rates, safety heaven status, inflation vs unemployment, immigration policy.

      You have 28% unemployment in Greece and there is no backstop in the Greek banking system. Why would anyone in their right mind keep money in a Greek bank when Germany threatens to take depositors money at any time they choose.

      How difficult is it to backstop Greek banks? You don’t like the current ones, let other banks come in, but guarantee the safety of people’s money and stop talking about haircuts.

      Americans lifted their bankrupt mortgages by printing money. They had a massive problem and solved it by inflating the market. Granted they are on the other extreme but they did not bankrupt people. Why is Germany inflicting that type of damage on Greeks and Italians?

      Ben Bernanke and Janet Yellen are talking not just about inflation but also of unemployment. Their target is +-6%.

      What is the unemployment target of the ECB?

      There is none, because Germany has 5% unemployment and could care less about 12% unemployment in Europe.

      European politicians say nothing. Why is that? They cannot say a thing because the next day the markets will sense weakness and increase borrowing rates.

    • Gotarda.de,

      1. Borrowing rates did not last, so your point is not valid. Instead we have a positive reinforcing loop in Germany and a negative one in the periphery. This is not only about Greece. Italy and Spain are suffering here from the borrowing differential. How is their industry going to compete with German industry with 300 basis points difference in the same currency zone.

      2. You are not correct. The Greek banks became bankrupt when Merkel decided to impose the bond haircut on them. There were other avenues to take, but no Merkel had to punish the Greeks and punish them she did. The majority of Germans were behind this and the stupid Greeks are still buying German cars.

      3. Isn’t Ben Bernanke targeting unemployment with his Fed policy? Why isn’t Draghi doing the same? They both went to MIT, they both understand the implications of their policies.

      I don’t want your taxes. But I don’t want my country’s bank deposits to be in Germany and the Greek corporations to be in Brussels. And I want a policy that will not tolerate unemployment of 28%.

      If Germany does not feel part of Europe, then admit it and go back to the DM. Otherwise work together.

      And one more important note. Corruption starts in Germany as well. German corruption was behind some of the biggest scandals in Greece over the last 10 years.

  4. There are many reasons for Europe’s and particularly Greece’s economic problems, German export surpluses, innovation and austerity are not one of them! Quite to the contrary, Member states of the European System of Central Banks dont even have to pay for their net imports from Germany. The German central bank pays the German exporter. ( BuBa Target II balance 700 bill. Euros !!) As a German who was so lucky to live in the most prosperous and peaceful times the country had ever experienced, I am saddened and angry to watch those corrupt bureaucrats and politicians in Brussels and Berlin taking away our hard earned wealth and freedom. (The freedom was rather a US present I concede)
    To understand the US Treasury argument requires no particular knowledge of economics. One must just understand the US business model: Consume as much as you can by siphoning the savings of the world to the US and hand out paper IOUs. Since in this wicked credit based Fiat money system the growth of savings depends on the expansion of Gov debt, the US Gov doesnt like austerity in the countries that finance their parasitic lifestyle. If America’s suppliers would suddenly demand payment with something tangible, the US business model would immediately collapse. IMO the process, i.e. to demand payment, has started already, as one can see in the FEDs monthly reports. The FED has printed itself into a corner of which there is no escape without crashing the US ( and world) financial markets. That is the real worry, just read the latest FOMC member comments.
    In the last Greek election the Greek people had the choice to leave the Euro zone and be the master of their fate or continue to live on handouts and subsidies. They had chosen the latter. That is a basic problem in all countries with permanent trade deficits. They are conditioned to live on other nations labour. The other major problem of Greece is that everybody with a brain and the will to change her/his life was, and still is, leaving the country. Many on a plane to Germany.

    • Oh my, oh my…

      Yani, after reading comments like this, do you still believe that eurozone/EU can be saved…?

    • Oh my, oh my … “Gotarda.de” is paraphrasing Warren Mosler here:

      One must just understand the US business model: Consume as much as you can by siphoning the savings of the world to the US and hand out paper IOUs.

      Well, what do you guys think the Chinese and Japanese are getting in return for real goods they send over to the States? Mosler has even joked about this saying that if the Chinese or Japanese ever figured out how the US has been getting the better of them all these decades they would be seriously freaking out now …lol

      The other major problem of Greece is that everybody with a brain and the will to change her/his life was, and still is, leaving the country. Many on a plane to Germany.

      This is sadly true. But not only on a plane to Germany — on a plane to America, Canada, and Australia to name a few more places. Interestingly enough, no Greeks headed for China or Japan. I wonder why ;-)

      PS: As I write this post, Hillary Clinton is patiently waiting in the wings getting ready to be the next president of the US with Bubba Clinton at her side.

    • @Gotarda.de:
      You can’t escape the arithmetic of trade imbalances. If you run a trade surplus you’re giving free stuff to your customers. I think this is a win-win, but it you don’t like it change it by raising your prices, consume domestically, or produce less and take more leisure.

      Maybe you say that trade surpluses and national debts are temporal transfers and when the time comes they should be paid back. But they are not. Debts for stupid projects like wars or the Olympics should be paid back but structural ones are not. What is the time scale for paying back decades of fiscal or trade deficits? Decades more? Centuries? Do you think one generation can “consume irresponsibly” and the next generation can “work to pay it back”? These are permanent transfers that are not paid back except incidentally, if circumstances change to create a flow in the other direction.

    • @crossover
      Up to “1% or 99% is irrelevant” you are absolutely 100% correct. But there is something missing which is the time parameter. Such a policy has a time limit and if you extend the consequences are horrible . What i do not understand however is the last paragraph. How is it possible for Greece to be subjected to market desires with 1. Total distortion of interest rates. You imply that the market has distorted them. 2. With such structural problems obvious now with so high unemployment! Has the market created them too? 3 Has the market issued and forced the banks to buy all those bonds? 4 Has the market forced the ECB to monetize A FEW billions? 5 Has the market forced price controls to all medicine resulting now to shortages of some of them? 6 i can write till the server is full! Iwonder how is it possible to have such knowledge Sir and still blame or imply that it is the markets fault only!

    • @Eric

      You have misunderstood a few of the things I’ve said.Let me explain and also argue to some of your remarks

      “Such a policy has a time limit and if you extend the consequences are horrible ”
      I’d like to know what type of consequences you are referring to.Though I can already say this: After the abandonment of the Gold Standard ANY country that started issuing its own free floating fiat currency has been able to do 2 things: 1)Never default on its bonds as long as they were issued under the country’s own currency 2) Maintain total control on the yields of the said bonds.
      40 years should be a long enough time span for any consequences to take place if they really existed i suppose.

      “How is it possible for Greece to be subjected to market desires with 1. Total distortion of interest rates. You imply that the market has distorted them”
      All Eurozone members are subject to market desires, not only Greece.For the simple reason that they gave up their ability to freely issue their currency, just like they have been doing until the adoption of the Euro.I remind you that when Papandreou asked for EU assistance in 2010 the level of the Greek Debt/GDP ratio was more or less at the same levels it has been during the whole 90′s.And I should also remind you that Bond Yields in the 80s and 90s were much higher than today or in 2010.
      So, no.I’m not implying that the markets distorted the interest rates.The markets simply realised what they didn’t realize when the Euro was created: Gvt. Bonds were not risk free any more.And when they realised this they started treating gvt. bonds as corporate bonds, pricing in the risk of default which was non existant during the previous regime.
      With that said, all I was implying was that moving from being completely independent of the markets to being totally subject to them is not what one would call a profit.Thus, whoever implies that Greece or any other peripheral country joined the Eurozone to enjoy lower interest rates is clueless or has other motives.

      ” 2. With such structural problems obvious now with so high unemployment! Has the market created them too?”
      It has not created them.But the situation right now is far from friendly to fix these problems, both from a social and an economic perspective.And the markets are simply “feeding” the situation on and on.But I’m not blaming the markets anyway.The design of the currency is the problem above anything else.

      “3. Has the market issued and forced the banks to buy all those bonds?”
      Banks and other financial institutions ARE the markets so I’m not sure what you mean.And nobody forced them to buy the bonds which is exactly the reason why they shouldn’t be saved with taxpayers money, either Greek or German taxpayers.Nobody owes them anything for their wrong decisions in asset allocation.

      “4 Has the market forced the ECB to monetize A FEW billions?”
      If you are referring to the bond purchases on the behalf of the ECB then who is the most direct beneficiary of such a scheme if not the markets themselves when holding junk bonds?So I’m not sure who forced the ECB to do whatever, but if the markets wanted to hold the junk bonds instead of ECB reserves then they should…

      “I wonder how is it possible to have such knowledge Sir and still blame or imply that it is the markets fault only!”
      I hope it is quite clear by now that I’m not blaming the markets.I’m blaming anyone who put us at the markets’ mercy while there’s clearly another way as has been proven 40 years now…

  5. @Gunter Ditthard,
    Dear sir, be advised that pachydermitida (thick skin) of yours is in that stretching that does not allow you to see the reality due to your “visibility” has the blur of neo nazi rogue legacy of criminality. Besides the bird chirping is heard as cra… and the germans speech articulation ability is the same.

    • @crossover

      1 Let me state that from the perspective of a speculator, yes, you can speculate on bonds and profit from it as a risk free frontrunner of the FED, ECB or BOE or whichever rich counttry for 40 years. But i wonder if the same thing and time interval applies to Zimbabwe and not only. Ask their citizens about the consequences. As i said yes maintaining control of the yields is perfect for the bond speculator, but leads to crony capitalism – command economy, capital misallocation, numerous bankrupties and total sudden collapse. I think the Russians did it in 1997 even though they could print. Please lend me money and maybe in case of difficulty i will decide to whom i will return it and to whom i will wave my finger. What kind of framework is this? The case does not rest iff the government can default or not but not to be let to be prodigal and undemocratic at fiirst. The USA DEFAULTED IN 1971 EVEN THOUGH COULD HAVE PAID THEIR OBLIGATIONS. SO WHAT! The mechanism of the market to force market participants even the government to prude policies and behavior does not exist. As for the elections as a mechanism…..

      I think that when you price in the risk of default the interest rate is higher. Now how come in 1980+ the interst rate was 10 to 25% when the country was able to print its own currency the drachma and there was no possibillity of default as you say it and in 2010 below 10% without the ability to print and also with the capital base eroded and the possibility of default. Did GREECE have the ability to control the ir structure or not, or somebody else did it for her? If it did have the ability to control it which i believe she did, it was not by direct money issuing but through bond issuimg and another way of handling the situation and thus we are arriving to the parameter of time and some i could say a few of the consequences i mentioned above. Please ask the Greeks!

      You wrote “The design of the currency is the problem above anything else” . This is what i mention in my main first post. This is the pathogenesis of the system. But alas no one and i say it no one says it and accepts it. Apart from very few voices in USA i have heard nothing about it in EU. But countries decree money and not markets thus they should fix it.

      About 3. you write “Banks and other financial institutions ARE the markets so I’m not sure what you mean.And nobody forced them to buy the bonds which is exactly the reason why they shouldn’t be saved with taxpayers money, either Greek or German taxpayers.Nobody owes them anything for their wrong decisions in asset allocation.”
      Yes i agree but you missed the point sir. Banks and fi should be markets participants and NOT the markets. Yes if you bankrupt all the citizens apart from a few FRIENDS i wonder why the marrkets if we can call them markets are , are so distorted. Perhaps you meant they control the markets. But of course they do. Give the presses and i could achieve the same thing. Let me also inform you that in Grecce it is compulsory for banks and fi to buy bonds. Thus you force in a way somebody to loose money if you default. EXCELLENT TACTIC!

      This market you mention in your last paragraph manipulates what was left of it. For the last 40 years this is exactly whathappens. Total manipulation best seen in the interest rate structure and beyond. This is the mercy of the market sir? Or the banks the fi and thegovernments? You decide!

    • “But i wonder if the same thing and time interval applies to Zimbabwe and not only. Ask their citizens about the consequences.”
      Why specifically ZImbabwe?Because of the inflation?You can add Weimar Republic to.But what’s the point?Those countries suffered a massive destruction of their productive capacity and at the same time they were wrecklessly printing money.How is this similar or resembling any normal situation ?You do realise that 1 or 2 special occasions do not justify arguments to the facts right?Especially when there is a clear explanation for both occasions.I mean you mentioned 1 country out of some 150 countries out there.

      ” As i said yes maintaining control of the yields is perfect for the bond speculator, but leads to crony capitalism – command economy, capital misallocation, numerous bankrupties and total sudden collapse.”
      You mix policies,political leanings and neoliberal phrasing with economic realities, while I like to stick with economics, period.And mind you, sudden collapse came in Greece AFTER it lost both its ability to issue currency and its ability to control rates.Else it would have defaulted in the 90s…
      “I think the Russians did it in 1997 even though they could print”

      The Russian Default, What Happened? – http://pragcap.com/the-russian-default-what-happened

      “The USA DEFAULTED IN 1971 EVEN THOUGH COULD HAVE PAID THEIR OBLIGATIONS. SO WHAT!”
      Get your facts straight.Nixon refused to allow foreign CB’s to redeem their Dollar holdings in exchange for Gold.It’s a rather weird situation to call it a default but let’s say it is.
      I never mentioned that a country with a commodity backed currency or a pegged currency can always avoid a default.
      In contrast I said that ever since countries abandoned the Gold Standard and started issuing FREE FLOATING fiat currencies, they have earned the ability to always pay their debts denominated in their own currency.
      US in 1971,or Russia in 98,or Weimar,or Greece DID NOT default on debts denominated in their own free floating fiat currency.

      ” Please ask the Greeks!”
      I am a Greek myself, living in Greece.TY.

      “Let me also inform you that in Grecce it is compulsory for banks and fi to buy bonds. Thus you force in a way somebody to loose money if you default. EXCELLENT TACTIC!”
      Again get your facts straight.The only banks that are bound by contracts to purchase gvt. bonds are the PRIMARY DEALERS of the Greek Bond Auctions.And only them.Ofcourse if I’m not mistaken, all 4 Greek Banks are participating as Primary Dealers in Greek Bond Auctions, but that was their choice.Being a Primary Dealer is a privillege compared to a regular bank and the Central Bank even puts their performance under surveillance.
      http://www.bankofgreece.gr/BogDocumentEn/PRIMARY_DEALERS_RULES.pdf
      http://www.bankofgreece.gr/Pages/en/Markets/HDAT/members.aspx
      http://www.bankofgreece.gr/Pages/en/Markets/HDAT/DispItem.aspx?Item_ID=3720&List_ID=1af869f3-57fb-4de6-b9ae-bdfd83c66c95

      Ofcourse according to Basel, gvt. issued securities have a risk weight of 0 regarding the Core Tier Capital requirements against assets so a lot of banks prefer to buy a lot of Gvt. Bonds that do not increase their Capital Requirements.But you see, like I’ve already stated, Gvt. Bonds are credit risk free through out the whole world except for the Eurozone.So Basel actually is right for making this distinction and recognizing a risk weight of 0 for Gvt. Debt.The fact that Eurozone gvt. bonds are not credit risk free is a fault of the Eurozone itself, and of the banks that didn’t recognize the change that took place after the adoption of the Euro.Not the fault of Greece, not the fault of anybody else.

      “Now how come in 1980+ the interst rate was 10 to 25% when the country was able to print its own currency the drachma and there was no possibillity of default as you say it and in 2010 below 10% without the ability to print and also with the capital base eroded and the possibility of default.”
      Because by controlling the price (and thus the yields) of gvt. bonds Central Banks control short term interest rates.And since the Bank of Greece wanted to keep rates high, it had to move Gvt. Bond Yields up to the levels you mentioned.Real Yields were around 2-3% most of the time which is prety similar to the real yields Greece has been paying after it entered the Eurozone.
      You can check any short term gvt.bond yield of any country with a free floating currency and compare it to the overnight rate.You will see the correlation yourself.

  6. “If one take a look at the data, can see that the share of the US government debt held by the “Federal” Reserve reached record levels in 2011, reaching 11.2% of GDP, the highest since 1940 onwards, and possibly the historically higher. In 2012, this rate was also high at 10.6% of GDP. Only once this figure reached such levels, in 1946, i.e. shortly after the end of WWII, when it reached 10.7% of GDP.”

    http://failedevolution.wordpress.com/2013/10/07/new-deal-vs-obamacare-one-reality-and-one-desperate-try/

    • @crossover
      It is certain that you misunderstood many of my points. I never said that you said that a country with a commodity currency can avoid a default. I mentioned Zimbabwe (as the most recent) and the default of the USA (which believe me was a default) just to highlight the fact that things are not always what most people think they are and there is the pathogenesis of the fiat currencies nobody mentions. Basell state that bonds are risk free!!! Trust me it looks like it (certainly you can print the money and pay) but they are NOT. I hope you will not find it out.Basel happened due to other reasons i cannot mention here. Greece lost the ability to issue bonds as one day suddenly Ecb did not accept them as collateral. The way the government was abusing its power would destroy the currency after swallowing the others first. There was no Market for them. SUDDENLY!!!! As far as Free floating currencies you mention! i wonder if you truly believe that! Yes some are but some are not and are excesively manipulated and you know it. SEE your competitive devaluation correlations!!! Anyway what i state is not neoliberal or such AND i do not mix policies etc. Economics and politcs always go hand in hand. My view is from the named AUSTRIAN school of economics. If you have any spare time give them a read. The problem is the pathogenesis of this Currency system. And i say it again. This papering between the treasury and the central bank is fraudulent and one day will be terminated. BELIEVE ME! I print money and give it to whom i want and i tax anyone and anytime i want . Ah and i have the monopoly of legal force. What a deal!!!

    • No wonder you are influenced by the Austrian School.Your rhetoric is full of it.

      ” I mentioned Zimbabwe (as the most recent) and the default of the USA (which believe me was a default) just to highlight the fact that things are not always what most people think they are and there is the pathogenesis of the fiat currencies nobody mentions. ”
      Again Zimbabwe destroyed almost half of its productive capacity due to the land reforms it enacted and at the same time it was expanding its money supply RAPIDPLY.
      When did I say that was a sane thing to do?When did I say that countries should boost domestic demand at levels exceeding their productive capacity?NEVER
      On the other hand you mention Zimbabwe as a counter argument but you fail to explain how Zimbabwe resembles any other nation that is ALREADY able to print and is printing its own currency.Zimbabwe is a case of its own that proves nothing.

      As for USA, you obviously fail to understand that even if you want to call it a default it happened under a COMMODITY BACKED CURRENCY.They “defaulted” because they wouldn’t exchange dollars with gold at a fixed price.How does that make it a default under a fiat currency is beyond me.Either you don’t understand what a fiat currency is or you don’t understand that the US refusal to exhange USD with Gold at a fixed price was precisely due to their decision to ABANDON the Gold Standard and start issuing a FREE FLOATING FIAT CURRENCY which in other words means that the exchange price between the currency and gold would not be fixed any more.

      “Greece lost the ability to issue bonds as one day suddenly Ecb did not accept them as collateral. The way the government was abusing its power would destroy the currency after swallowing the others first. There was no Market for them. SUDDENLY!!!!”
      Which again proves my point.You’re not going to find another CB that doesn’t accept its respective gvt debt as collateral.And that’s precisely the reason why you’re not going to have trouble selling gvt bonds of a country with its own free floating fiat currency and CB.

      “I print money and give it to whom i want and i tax anyone and anytime i want . Ah and i have the monopoly of legal force. What a deal!!!”
      Sure I’m completely fine with that.Just because people are unable to elect legit persons to govern them doesn’t mean that its wrong for the currency to be public monopoly.After all if it’s not the public then who’s going to issue it? Oh wait, the same people that can’t elect a legit person…..
      That’s as stupid as saying that just because murders have happened with knives, we should not use them at all…
      EDUCATION IS KEY.
      And speaking of Education, I really suggest you at least try to have a look at other schools beyond Austrians.In their mind a monetary economy is the same as a Robinson Crusoe island economy(which is their favorite example most of the time).They simply havent evolved after the abandonment of commodity based currencies.

    • I can’t tell you how wrong you are. I;m instead totally opposite to the Austrian school. I think you totally missed the point probably because you make you analysis through the mainstream economics, Central banks are private institutions serving banking cartels. Therefore QE is not the issue. The problem is where the money goes. QE today is loading more debt to government and give more money to banksters. The only solution is that the central banks should be totally controlled by states.

    • And no Basel does not state that ALL Bonds are risk free.All corporate bonds carry credit risk and even according to Basel they have a risk weight.The only zero risk weight assets are gvt. bonds.And I’m talking about general/federal gvt. bonds.Municipal or State bonds do have credit risk.

    • @FailedEvolution

      How are ALL Central Banks privately Held?
      I’m fully aware that the Bank of Greece is traded publicly at the exchange but according to it’s chart shareholders have NO say in monetary policy decisions.Ofcourse that’s not to say that the Bank of Greece has helped the interests of Greece during this whole time but then again neither judges have or else former Prime Ministers and/or former MPs would have at least been judged if not imprisoned.Would you then say that the Judicial System is privately held?Or does the fact that it’s not privately held make it less sinister?
      So they might be corrupt but that’s a totally different thing from saying “Oh look, they have private share holders”.They could have private share holders and still do their job properly precisely because they (the shareholders) don’t get to decide monetary policy.

      I’m fed up with this conspiracy about Central Banks.
      Fed shares its profits with the US Treasury (Just like the Bank of Greece) and here’s what the Federal Reserve Act says:
      “Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary. “
      Article 6

      http://www.federalreserve.gov/aboutthefed/section%2010.htm

      I’m sorry but zeitgeist type of arguments are perfectly close to Austrian rhetoric.

      And QE does not affect the debt burden of the US govt.Neither for better or worse.For debt has no meaning for an entity issuing the currency with which debt is extinguished.An entity pays for its liabilities with other liabilities, does that make any sense?

    • crossover something is wrong with the posts, I thought you replied to me but I see now that Eric is in the conversation. I’m afraid there is a big confusion in replies. Anyway, 95% of the stocks of the Central Bank of Greece are in the stock market and no one knows its basic stockholders. I assure you that the Greek state has absolutely no power in BoG. Also, please read this if you are interested:

      http://failedevolution.wordpress.com/2013/11/15/an-example-of-how-the-banking-cartels-control-countries/

    • @failedevolution

      I have seen a list naming the shareholders of the BoG that owned above a certain pct. of shares.Unfortunately it’s been a few years now and I don’t remember the pct., it probably was 4 or 5% but I believe only the Greek Public was listed.In other words all the other shareholders, individually held less than 4 or 5% of the total amount of shares.I will look if I can find the list again.
      But like I said, the fact that the BoG is traded publcicly does not mean anything in itself.The shareholders do not have a say in monetary policy decisions.
      Actually the BoG is one of the few Central Banks (along with Belgium i believe) that are privately held.You think that the powers that be, if they exist and whoever they might be would not have control over the other Central Banks if they wanted to?
      And to take it one step further, did the Greek Government have private shareholders that decided to put Greece in the Eurozone?
      Did it have private shareholders when it decided to seek assistance from the Troika instead of defaulting outright?
      Why only the Bank of Greece must be privately held to act against the interests of the Greek economy/society then?

  7. Here is another argument on how countries that run trade surpluses export depressions onto those countries they force deficits on: http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html
    Based on hanns’ reply to mussoo’s comment, the Germans know exactly what they are doing. It’s an asset grab. The only cure is for deficit countries to unilaterally balance their trade, difficult to do once they have become dependent on imports for their comfort and even survival. And deficit countries also become burdened by debt, which makes it more difficult for their domestic industries to operate at a profit.

    • “[...] onto those countries they force deficits [...] ”

      Force deficits onto countries, how exactly is this done?

    • Sorry first by making it very easy to buy their products (because they are export oriented).

      Credit etc…

      Imposing austerity makes sure that the debts cannot be paid back.

      Then comes the asset grabbing.

      CMon it is the German SOP…

    • @crossover
      Again Zimbabwe destroyed almost half of its productive capacity due to the land reforms it enacted and at the same time it was expanding its money supply RAPIDPLY.When did I say that was a sane thing to do?

      You did not. A country able to print its own currency and issue its own bonds no one wanted. But the game of paper did not come up well because the feedback from the market was lost and the mechanism of the market to stop or warn the centtral planners was also absent. That is why i mentioned it. It comes from the time issue above remember?
      When did I say that countries should boost domestic demand at levels exceeding their productive capacity?NEVER
      That is so. You never wrote such a thing directly. But excessive bond issuing and buying from the CB lead to such outcomes as prolonged playing with the interest rates.

      On the other hand you mention Zimbabwe as a counter argument but you fail to explain how Zimbabwe resembles any other nation that is ALREADY able to print and is printing its own currency.Zimbabwe is a case of its own that proves nothing.

      Shows the way many countries including Greece is heading/nearing.

      As for USA, you obviously fail to understand that even if you want to call it a default it happened under a COMMODITY BACKED CURRENCY.They “defaulted” because they wouldn’t exchange dollars with gold at a fixed price.How does that make it a default under a fiat currency is beyond me.
      They had the ability to pay but they did not. They prefered to keep their gold. The exchange rate was too low to be accepted for payment even though they had fixed it to that level.

      Either you don’t understand what a fiat currency is or you don’t understand that the US refusal to exhange USD with Gold at a fixed price was precisely due to their decision to ABANDON the Gold Standard and start issuing a FREE FLOATING FIAT CURRENCY which in other words means that the exchange price between the currency and gold would not be fixed any more

      Do i sound like i do not understand what a fiat currency is? It is not polite to express yourself in such a way. What i am trying to do is open your eyes. Gold was never demonetized. It looked like it but still is a 2 tier system. That is why Greece was forced to accept the change in law concerning the confiscation of its public wealth by creditors.

      “Greece lost the ability to issue bonds as one day suddenly Ecb did not accept them as collateral. The way the government was
      abusing its power would destroy the currency after swallowing the others first. There was no Market for them. SUDDENLY!!!!”Which again proves my point.You’re not going to find another CB that doesn’t accept its respective gvt debt as collateral.And that’s precisely the reason why you’re not going to have trouble selling gvt bonds of a country with its own free floating fiat currency and CB.

      I never argued about this. It is known by all the financial community in the world. There is no point to be proven. What i mentioned in the first place was some of the results which obviously exclude the country mentioned above. It is an exclusice CASE even though their bonds could be found only on the balance sheet of the their CB. It is not the productive capacity that must be dissipated. It could also be the public trust!

      “I print money and give it to whom i want and i tax anyone and anytime i want . Ah and i have the monopoly of legal force. What a deal!!!”Sure I’m completely fine with that.Just because people are unable to elect legit persons to govern them doesn’t mean that its wrong for the currency to be public monopoly.After all if it’s not the public then who’s going to issue it? Oh wait, the same people that can’t elect a legit person…..That’s as stupid as saying that just because murders have happened with knives, we should not use them at all…
      Do not get angry or confused. If that is the case then by election only, the people whould find their way. But it is not enough. I mention again the inability of the system to wipe out abuse and show in the market the protest of the market participants. I will just mention the very well known old time bank run. It does not exist anymore along with other elements!!! I can congratulate though the central planners they did a good job on that! But there are other ways because reality always wins.

      EDUCATION IS KEY.And speaking of Education, I really suggest you at least try to have a look at other schools beyond Austrians.In their mind a monetary economy is the same as a Robinson Crusoe island economy(which is their favorite example most of the time).They simply havent evolved after the abandonment of commodity based currencies.

      Ah yes and speaking about education. That is endless and dynamic. So far i have devoured most of the dogmas currently taught in universities and many more not even mentoned schools of thought. Rob Cru is exactly their favorite example because it can be understood by most of the morons and the completely uneducated. It is so simple that even the stupiest could follow even the unable voters you mention above. But true knowledge can be found deeper in their literature and books. They have good arguments worth of debating. I am sorry but i will not continue my arguments due to lack of time anyway thank you for your thoughts.

  8. It took the german media exactly one day to completely dismiss and forget the US Treasury’s analysis. A quick look at the websites of all of todays major news outlets reveals a total lack of interest for the issue. While yesterday everyone was quick on their feet to critizise the Americans for talking down to us, or at least quote the usual display of ignorance by german officials without any further analysis, today’s headlines are of course again dominated by Edward Snowden’s offer to come to Germany and make a statement concerning the NSA and their alleged surveillance of Mr Merkels mobile phone in front of some yet to be instated investigating comittee.

    By the way – up until it became clear that US had tapped into her personal conversations, the mighty chancelor hadn’t lifted a finger to curtail the Agency’s surveillance of the private communications of millions of ordinary citizens, which – in my opinion – is a fine example of our glorious leader’s general lack of concern for the civil rights of her subjects as long as they keep on shoveling in those surplusses which she deems paramount to the success of the german economy.

    Unfortunately, there are many among our shapers of the puplic mind who are now using the whole spying Issue as a smoke screen to cover up the american critizism of said success story. They have already claimed that the timing of the Treasury’s allegations seemed ‘quite convenient’ for the US government to try and escape further scrutiny concerning the actions of their bloated intelligence community.
    And of course this strategy is proving very successful in discrediting any kind of critizism that comes from across the atlantic ocean in the public mind.

    So, instead of seeing it as a wake-up call for a change in their economic policy, the german elites are using international critizism as a reason to fortify their already deeply entrenched positions and they are selling their ignorance to the peasantry as an act of defence against the rest of the world that still refuses to see german wisdom. Once again, dust in the wind…

    • Wow – How disappointing but not surprising burying your head in the sand a recipe for disaster

    • What is the old saying: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

  9. I fully agree with the post, Just one comment.

    “While savings exceed investment (S>I) both in the surplus and in the deficit countries, in Europe’s Core as well as in its Periphery, and
    While low aggregate demand in the Periphery tends to eliminate Current Account deficits by the sheer power of collapsing imports (due to the Periphery’s recession)
    the attempt to balance budgets can only bear fruit if the Eurozone as a whole manages to reach a Current Account surplus of between 8% and 10%.”

    It should be clear that S>I is the norm in every economy and this is practically the reason why the great majority of governments worldwide are running deficits most of the time.Even the ones that are running external surpluses e.g. Germany. S – I represents the net financial flow of the prv. sector (aka Net Prv. Savings) which is the driver in a capitalist economy.I>S is not sustainable in the long term.As the prv. sector’s deficit it causes the aggregate debt of the prv. sector to increase, something that is far more destabilizing for the economy than increased gvt. debt, especially if we’re talking about sovereign currency issuers.

    People need to understand that when they demand a gvt. surplus, they’re actually demanding a deficit for the prv. sector (or a smaller surplus if X – M > T – G).Not letting the prv. sector move the S – I where it wants will always end badly.

    • “It should be clear that S>I is the norm in every economy and this is practically the reason why the great majority of governments worldwide are running deficits most of the time.”

      I have a layman’s question: Shouldn’t S=I at least in the long run? What’s the point of saving up money if they are never going to spend it?

    • @Hubert

      That’s one of the trickiest parts when you examine the sector financial balances.
      The key is that the definition of S in national accounting is a bit different from the one we have when we use the term saving in our everyday life.Most certainly Private Savings and Private investment don’t have to net out even in the long term.

      For a quick answer to your question: “Shouldn’t S=I at least in the long run?”
      Have a look at this graph: http://monetaryrealism.com/wp-content/uploads/2012/02/si.jpg

      For an extensive explanation on the matter you can read this post: http://coppolacomment.blogspot.gr/2013/09/savings-investments-and-dose-of-realism.html

      You have to consider that when you say S = I in the long term then you’re also saying that G = T and X = M in the long term.This is only valid for the global economy in aggregate and for every accounting period.

    • *Not to cause any confusion
      When i say in the last paragraph “when you say S = I in the long term then you’re also saying that G = T and X = M in the long term.This is only valid for the global economy in aggregate and for every accounting period”
      I mean that taking the global economy in aggregate, and while by definition in the global economy X = M then you have G – T = S – I.Then for every accounting period where S=I then G = T also.

    • Thanks for your answer, Crossover.

      I think I asked the wrong question though. I didn’t mean to say that savings were actually equal to investments. I just thought that they should be in an ideal world.

      Then again, my superiors up the economic and political foodchain keep telling me that private savings need to be as high as can be in order to stimulate investment and have been saying so for many years now – Obviously without taking one single good look at charts like the one you posted in your answer.

    • @Hubert

      The savings and investments in an economy in aggregate are always equal amounts (in magnitude).But private savings and private investment are a different story just like the chart shows.
      Anyone who claims that you need high PRIVATE savings to have high PRIVATE investment probably speaks with the now defunct loanauble funds market model in mind.
      Savings do not fund investment since banks do not lend deposits.It actually works backwards.Banks can make loans out of nothing by simply expanding their balancing, creating their asset (loan) and the corresponding liability (the deposit of the debtor).

      What the fiscal authorities do need to watch out for is to always accomodate the desire of the prv. sector to save.Recessions and especially the ones that followed bubbles, have taken place while S – I < 0 which in other words meant that the prv. sector was accumulating debt due to being in deficit.Once the prv. sector decided it was time to deleverage and attempted to increase its saving, consumption and investment took a hit, feeding the recession.

    • @ Crossover,

      Sorry if my non-economist, and sometimes inadequate use of the terminology is causing a misunderstanding.
      I don’t think we are really having an argument here.
      I fully agree with what you say and of course I am well aware of the fact that higher private savings do not necessarily trigger more private investments. Which is especially true in the case of Germany, where a significant rise in private ‘savings’ – that means profits of corporations and their owners – has failed to lead to more real jobs or a general rise in private consumption for some time now.

      By naming them ‘my superiors’ I was merely trying to use sarcasm in a lnaguage that is not my own. Actually I was – as always – refering to the Chancelor, her vast fan-base and the so called economists who act as her advisors and who are mostly paid for their advice by private corporations.
      These people are not only still claiming that corporate savings will stimulate the economy and that therefore the private sector must have constant surplusses in order to increase profits, but they are also treating Governement, corporations and private households like they were all the same thing. Thus everybody – at least those who earn enough to save some of it – are constantly trying to save, which leads to nobody spending anything anymore, except for the foreign sector, which in turn leads to the rising german trade surplus the US Treasury deems so dangerous to the world economy.

      I also know that, as you say, banks don’t just hand out people’s deposits as credit (except for a tiny fraction of them), but simply create the money needed for a loan and that this same amount minus interest is simply struck from the balance sheet and thereby effectively destroyed once the loan is payed back.

      But what happens if the money loaned or the savings earned are being ‘invested’ beyond the national level or used to buy financial assets with no discernible connection to the ‘real’ economy? Wouldn’t that lead to the kind of savings Yanis is talking about when he says they become detached from normal circulation? Couldn’t we say then that – speaking within the realm of a national economy – S doesn’t equal I anymore, even if on a global scale it eventually will do so?

      Sorry again, if that doesn’t make any sense. I am just trying to wrap my head around economic thinking.

    • @Hubert
      No worries I know you’re not arguing.My comment was directed towards your so called “superiors”.

      “But what happens if the money loaned or the savings earned are being ‘invested’ beyond the national level or used to buy financial assets with no discernible connection to the ‘real’ economy? Wouldn’t that lead to the kind of savings Yanis is talking about when he says they become detached from normal circulation? Couldn’t we say then that – speaking within the realm of a national economy – S doesn’t equal I anymore, even if on a global scale it eventually will do so?”

      For the economy as a whole (i,e. public,private,foreign sectors combined) Saving equals Investment because Income equals Spending.It may be more clear if I use some identities:
      Y = C + S : Income equals Consumption plus Savings
      Y= C + I: Total Spending equals Consumption plus Investment thus S = I.
      Remember this applies to the economy as a whole.If you wish to examine only one sector of the economy then S (of this particular sector) does not have to equal I (of this particular sector) since there are inflows/outflows to/from the sector.
      The savings that leak out of the circular flow of the economy derive from surpluses: The surplus of the public sector (G>T) equals to net public saving. equals to money drawn out of circulation, the surplus of the Private Sector (S>I) equals to net private saving and is also money drawn out of circulation.And finally the surplus of the foreign sector (M > X ) equals to foreigners saving in domestic currency which also is money drawn out of circulation.
      Such surpluses consist demand leakages for the economy which means that there has to be a source of demand to make up for these leakages.That’s why the Eurozone is in the situation we find it now.All sectors are trying to save, governments are trying to save,the private sectors are trying to save (which is the norm) and finally the external sectors are trying to save.

  10. Just wanted to say thanks for the explanations, Yanis. Indeed one could read much of it here before. We still have no parties that could be in power and see it your way. The left party is too small, but shares ideas with you, and is, by the way, for Syriza. The right-wing AfD which Veryserioussam supported before the elections would like to solve the problem by throwing out for example Greece after a final payment (that’s what they said before the elections; 2017 they will most probably be “in”, and many now-Merkel-voters would turn a bit more right to support them. Well, let’s wait and see.) Neither CDU-SPD nor CDU-green would have got us ANY changes concerning the problem. Since years no solution whatsoever is coming from Germany.
    Mussoo – I am afraid the german public opinion, led by mainstream media that support Merkel, is not the only problem. It really is the problem of our parties, and a vast kind of indifference of people, who get pro-Merkel media-reports from almost all papers.

  11. Freedom of speech is the political right to communicate one’s opinions and ideas via speech including USA where professor works and lives. In practice, the right to freedom of speech is not absolute in any country. If the freedom of information observes the same rule, then USA did the politically correct by revealing the german surpluses and had to be more analytic justifying the origin: rationale, transparency and democracy.

  12. It is a very logical and well presented argumentation, always within the parameters of standard Capitalist economical “science”. Just somehow I feel it is several years late, but I guess you (and others, including myself) have been denouncing this in essence the whole time. What surprises me is that the USA is saying precisely that (stating the obvious, I guess), what may mean growing US-Germany tensions (already apparent in the total lack of interest of Berlin in all those crazy schemes of trans-Mediterranean military intervention.

    The bottom line is clearly (as you correctly state) that in order for such a plan to succeed, the Eurozone, as you say would need to destroy the global economy by means of massive exports (re-colonization in practical terms but with no or very limited real power to impose their colonialist position) and that, anyhow, with such a hyper-strong currency as is the euro, there’s no way to even approach such “Eurocentric ideal”. Or is it?

    No, I don’t think so: the demand in the rest of the world is not that large (EU already has 1/7 of the Gross Global Product, while another seventh belongs to the USA) and becoming a net importer, much less in such massive amounts, is neither desirable nor feasible for the so-called Developing World and the euro’s strength has a direct and major negative effect in this hypothetical “export revolution”.

    This could only work, if at all, if the Eurozone would be a major military power able to impose its conditions by gun toting, something it is not and will never be. Europe depends militarily and geopolitically since WWII on the USA and cannot impose almost anything on its own. This underlines the danger of alienating the USA within Capitalist parameters (a Socialist Europe would play in a totally different league altogether) because, if the USA perceives a growing tension between World economy and European economy, it may well dump Europe down the drain.

    In many senses the EU crisis may be too similar to that of Yugoslavia, just that we have to replace Milosevic’s hyperinflationary tactics (which somehow worked for decades against all odds), also directed to gain a net exporter advantage (at a much more modest scale, of course), by Merkel’s de facto deflationary policies (surprisingly directed to the same goal but at megalomaniac level). Both have caused dramatic internal tensions and at least some external ones. The key issue is that Yugoslavia had become “strategically irrelevant” to a point that EU can never be, so war and secession were clearly geostrategically playable options.

    But the geostrategical weight of Europe has also decreased a lot. Europe was favored in the new US-centric imperial order because this was critical to contain the USSR via ideological contagion. Today Russia is a much smaller and US-friendly power (not as much as some overly lackeyish EU members but enough) and has absolutely no socialist remnants that may cause “contagion”. Oddly enough the main, geostrategical role of Europe is in Mediterranean facade, looking to West Asia’s oilfields, and little more (just its gigantic GDP, which is only relevant as long as it is a net importer and that area is precisely what the German oligarchy’s plans are destabilizing the most. Europe is too far from China to play any role in the already very real II Cold War between Washington and Beijing and has very limited natural resources. Europe is growingly for Washington a nuisance and I would not be surprised it the EU is some day dynamited in order to curtail Germany’s growing regional role, especially because of its global economic implications, that you underline above. Germany’s strategy is favoring such outcome by means of destroying European solidarity.

    The result would be a fragmented Europe, in which the US Empire would retain its hegemony on the “most coastal” countries, and where Russia would maybe replace Germany as regional power over other areas. This would need other adjustments re. “Pipelinistan”, where the USA and its more devoted puppies (UK, France, sometimes Spain and Poland too) have clashed with Russia often. The foreseeable losing role of oil and gas as central energy source may help with that. It may take time however, especially because both Russia and the USA are “oil fanatics”.

    In the meantime, Germany is playing its cards in the hope it can stabilize the Eurozone, or at least a residual EU, before such end-game unfolds. As you underline here, this simply does not seem possible with the current leadership (it’d need a more inflationary policy, and that somehow is not in their agenda). So I guess we can foresee this kind of “game over” for Germany within a decade, too early for their daredevil strategy to work.

    I could say I sometimes feel that we do not understand why they do not choose a more inflationary policy. I strongly suspect this is because of the national and imperialist interests of Germany (which needs to import cheap and export expensive), and not the whole Eurozone at all, and also because the USA would be even more deeply at odds with such an inflationary policy, which would damage its own troubled economic interests as well.

    So maybe somehow both are causing the whole problem they are bound to be victims of. But of course the greatest and most direct damage is for Europeans and that unavoidably includes Germans.

  13. Since perifery’s account surpluses are achieved by destruction of employment/ import, as soon as employment starts to pick up those surpluses will dissapear.
    Or maybe they plan to have such unemployment persist in the Perifery? Or if the buying power of the Perifery is kept low by spreading it among population (which i believe they want) it will still bring missery to all Perifery but it will be more evenly spread among their citizenry. And employment will not be able to pick up even if the present wages are reduced even more, improving employment of perifery will come only by more debt anyway.

  14. New German coalition Government will have a revised view on recovery and future stability of Eurozone.
    Germany itself need heavy investment in infrastructure and mínimum wages ,education ,healtcare etc. This is pushed
    by the SPD presence .Eurozone stimulus will have to beared mostly by member states with structural reforms for improved
    competitiveness.Stimulus will be linked to demand on strengthening structural reforms. IFO institute see improvements for peripheric
    countries in general.The US accusation on Germany might be partly valid but US have own LARGE problems besides the burden
    of World Reserve Currency. Rather sooner than later this must be changed because who trust a FIAT USD Currency with open ended money printing.ECB now is ready to act on spuring deflationary tendencies with either a new LTRO injection or lowered interest rate. Both this measurements will weaken Euro. A start of FED tapering will further weaken. .Reckless US Governance is the major threat to GLOBAL stability not an EXPORT driven GERMANY trying to pull out EUROZONE in recession! A new BUBBLE burst caused by present policies is another big THREAT. US must go the GERMAN way not the other way around!

    • US must go the GERMAN way not the other way around!

      So what you are suggesting is that US should become surplus country just as Germany. While at the same time EU should become more like Germany= surplus EU.
      SO what you are suggesting is that EU, US and China should be surplus countries.
      Then what countries should be deficit countries?

      Have you ever heard about equasion Surplus= Deficit for World?. Or more familiar S-D=0? To whom should world export? To Jupiter?
      Maybe India should cover US, EU and China’s surpluses? With what money?
      Such a lack of knowledge that you show is staggering.

    • “Rather sooner than later this must be changed because who trust a FIAT USD Currency with open ended money printing”
      Ι am willing to hold anybody’s dollars or US Treasuries and Bonds if they don’t trust these assets anymore.Pass them this way !

    • “Germany itself need heavy investment in infrastructure and mínimum wages ,education ,healtcare etc. This is pushed
      by the SPD presence .Eurozone stimulus will have to beared mostly by member states with structural reforms for improved
      competitiveness.Stimulus will be linked to demand on strengthening structural reforms. IFO institute see improvements for peripheric
      countries in general”

      I’m sorry to say that while I agree with the first sentence, I can’t help but think that the rest of it is just copy-pasted off the IFO website, or – in more direct terms: nothing but the usual propaganda.

      The SPD are at the monemt in the final stages of almost completely dismantling their campaign programme’s social agenda in order to make themselves presentable to the chancelor and erase any doubt about their willingness to serve as a means to her ends.
      The fact alone that they already abandoned their call for tax increases on the wealthy and rich will pave the way for any future expenditures being subject to the universal debt limit and therefore only even feasible if they are financed by further reductions in spending, most propably on the wellfare state, which is already being declared obsolete by some, anyway.
      I doubt that any kind of rise in domestic demand in Germany or the rest of the Eurozone will result from private, corporate and government sectors further refusing to take up credit instead of starting to spend some for a change and everyone behaving like the good capitalists they are.

      Furthermore, how the deficit countries should be able to bear ‘Eurozone stimulus’ by further decreasing private and public investment through harsh austerity escapes me.

      One can only believe that this was even remotely possible if one took the ramblings of these so called independent economic institutes (like Mr Sinn’s IFO) for granted without asking how they managed to interpret the official data in such a way that it comes out as evidence for their ridiculous claims.

      Then again, maybe it is not so hard to understand if one, for example, takes a look at how the IFO comes up with their frequently cited “ifo-Geschäftsklimaindex” (ifo business- ‘climate’ index). Which is simply Mr Sinn and his subordinates making phonecalls to an esteemed selection of their buddies on the executive levels of major german corporations and literally asking them how they feel about their business. This highly scientific piece of empiricism is then magically transcended into numbers and thereby transformed into hard scientific evidence and emailed to the press for further distribution among the public who then in turn regards the likes of Mr Sinn and his colleagues as the bearers of ultimate truth. It’s a tragedy.

    • @lastgreek

      Lol.Since they’re worthless I’m getting them for free.That means I get to sell them straight away for a quick profit.

  15. “Now, of course, the Germany-inspired policies are bound to fail. For it is clear that, as the Eurozone’s Current Account surplus is pushing beyond 1.5% and rising (as per the German plan) the euro will appreciate much more”
    Would it be possible to use ECB policies (for example, money printing) to counter the appreciation of the euro? I’m not asking if they’ll do it, just wonder if its possible.
    And how does China manage to keep its currency from appreciating? Is it by boosting internal demand (rising wages, urbanization, gov investments, housing bubble and so on) and how does that work?
    Thanks

    • It is possible but it will take a miracle for the ECB to use non-conventional tactics.The most it would/will do is to lower interest rates just like today.
      China simply buys dollars by issuing more currency to the foreign markets thus it creates upward pressure to the USD and downward pressure to the RMB, resulting in a relatively stable USD/RMB rate.

  16. Germans are capable to do whatever dictates the implementation of their criminal past and dream of getting Europe german. They did not hesitate to have the known camps of criminality and now without ethics and limits in the economy try to repeat their selves. Their surplus that have is the stolen money from their partners in Europe. Every one remembers why Germans exchange the Deutshe Mark with Euro one to one when the exchange rate was 1 Euro 2 DEM.

  17. Michael Pettis has long made this arguments. Indeed, I do know of anyone more insightful about trade balance issues than Pettis. I would be happy to introduce Yanis V to Michael P. It would also be good for Yanis to meet my Wharton friend Franklin Allen.

    Contrary to Yanis, neither Pettis nor Franklin think that the Eurozone is viable. Both feel that Greece in the long run would be better off with its own currency and proper debt restructuring. The same applies generally to the EU Periphery. That leaves us with the core countries, where the Mundell criteria fits better.

    France has synergies with Germany, but politically they may not want to be run by Berlin….. Greeks – at least the Greek political establishment – are hard core Germantsoliades and have no problem with loss of national sovereignty! Greeks unlike Yanis V are slowly waking up to the reality that the EU is not milk and honey.

  18. I wonder if it can be worst: while maintaining internal lack of demand in Europe, export capital worldwide to finance (and produce) deficits elsewhere, or to invest and colonize third world countries. By this way, the euro should not revalue in real terms (deducted inflation).

    In some way, as China have been doing for years, with the difference that China made that while its internal poverty decreases and Europe is increasing its poverty.

  19. “To succeed, the current German policies must destroy whatever balance is left in the global economy”

    You do really believe this ridiculous theory, don’t you?

    The US treasury analysis can’t be taken seriously since it is aimed solely to serve US interests. So one should take whatever they write with a huge portion of salt. Especially considering the timing: the relations between Germany and the US are not at the best level thanks to the revelations about the US government’s economic espionage (disguised as war on therror).

    As for the claims they made about the German surplus and it’s alleged effect on the Eurozone countries, the reality is that the German surplus vs. the Eurozone countries shrank from 5 % in 2008 to 2% now. A huge improvement. And the deficits of the eurozone periphery are shrinking since years. Also a huge improvement. All Ignored by the US treasury. As well as all the other nations who run surplus against the US or eurozone countries.

    Of course, in parallel, Germany increased her surpluses vs. other countries, including the US. BTW, inflation adjusted, the German exports were ~10 % lower in the 1st half of 2013 compared th the 1st half of 2008.

    What I agree with is that the domestic demand in Germany must be increased, and to reach this, the disposable incomes of the middle class must raise.

    So the bottomline is: the US treasury stuff is hollow and serves only to distract from other issues. Successfully so in your case, Yanis. But then, you jump gladly on every bullet which targets your favorite scapegoat, Germany.

    • “the reality is that the German surplus vs. the Eurozone countries shrank from 5 % in 2008 to 2% now. A huge improvement. And the deficits of the eurozone periphery are shrinking since years. Also a huge improvement. All Ignored by the US treasury. As well as all the other nations who run surplus against the US or eurozone countries.

      Of course, in parallel, Germany increased her surpluses vs. other countries, including the US. BTW, inflation adjusted, the German exports were ~10 % lower in the 1st half of 2013 compared th the 1st half of 2008. ”

      You’re either not particularly good at English ‘reading comprehension’ or you’re a deliberate prevaricator. How did the first ‘huge improvement’ materialize? As a result of what, exactly?

      Which “deficits of the eurozone periphery are shrinking since years”? And as a result of what are they shrinking? Finally, what has been the effect on the eurozone periphery countries, their social economies of all this “huge improvement” in their “deficits”?

      Btw, the notion that the NSA is engaging in “economic espionage” vs Germany by ‘tapping’ the cellular phone of Merkel is far-fetched to say the least.

    • “the disposable incomes of the middle class must raise” – that smacks of tax rebates for the better-off. Wrong. The gross income (pre tax income) of the lower two thirds or 75 pc of the population should rise. That’s the only way out.

    • “the reality is that the German surplus vs. the Eurozone countries shrank from 5 % in 2008 to 2% now. A huge improvement. And the deficits of the eurozone periphery are shrinking since years. Also a huge improvement.”

      The reality is that Germany destroyed the domestic demand of the periphery and demand for German goods naturally shrunk along with demand on domestic goods as well.
      If you want to call that an improvement, feel free to do so, but then i suggest Germany should call for similar improvements to the rest of its customers out of the EZ.Let us all improve and then sit back and watch Germany try to export to aliens.

    • “The reality is that Germany destroyed the domestic demand of the periphery”

      I know, ‘predatory loans’ and ‘forced deficits’ and ‘destroyed domestic demand’, all committed by Germany. While Greece herself did nothing wrong.

      You guys are shrill.

    • Νο you are right VSS.Greece imposed these austerity measures on itself.And so did Portugal,Ireland,Spain,Italy.
      It was also Greece that demanded that foreign banks should be paid back in full by loans it would not be able to service.

      We fooled Germany, I rest my case.

    • We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – Ben Bernanke – July 2005

      I really love the Greek people, they are so pure at heart …

  20. I am really scared about what I see is happening in my country, Spain and i agree with yanis that this is not going to work.

    Austerity will increase in euro valour that implies more austerity to balance the current account and exportind deflación and austerity all around the world.

    But, what can we do?

  21. Let me say that the problem is not Gemany but the german public opinion and they are not going to change their minds.

    • I absolutely agree! What did the German Ministry of Economics answer to the American allegations? “Wir können die Vorwürfe nicht nachvollziehen”: “We cannot comprehend these allegations”. What should we think about an Economics ministry that doesn’t understand that problem? Can anybody send some economists there for urgent developement aid?
      One has to understand that we are seriously continuing to talk about belt-tightening here in Germany. More pension cuts (lifting the pension age to 69), less job security for the employed (changing existing labour laws) and a debt-break written into the constitution which will be mandatory in 2016. And more belt-tightening here means even more belt-tightening in the rest of Europe. This country is becoming kind of an economic suicide bomber.

  22. Yanni, I think you’ve addressed this before but it escapes me at the moment: Is there anything that France could reasonably be expected to do (alone or with support from one or both of Spain and Italy) to “force” Germany into submitting to a change in EU and ECB policies?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s