Guest Post: Today Germany is the big loser, not Greece – by Marshall Auerbach

Just before the Crisis erupted, in April 2010, with Greece falling into the troika’s embrace in May 2010, I had written an article (A New Versailles haunts Europe) to argue that Germany was about to commit the error that the winners’ of World War I had committed by imposing upon Germany the Versailles Treaty. It was a unique Treaty in the history of humanity in the sense that the winners (the ‘strong’) has imposed upon the losers (the ‘weak’) a Treaty which was not only cruel but, in the end, one that backfired on them, turning out to be just as catastrophic for the winners (the ‘strong’) was it was for the losers (the ‘defeated’, the ‘weak’). My fear was that the method Germany seemed ready to utilise in ‘dealing; with Greece would end up being disastrous for Germany itself. This is how I concluded that piece: “In this context, turning countries like Greece into sundrenched wastelands, and forcing the rest of the Eurozone into an even faster debt-deflationary downward spiral, is a most efficient way of undermining Germany’s own economy. Assuming, for argument’s sake, that Greece is getting its just deserts, do the hard working Germans deserve a political elite that quickmarches them straight into economic catastrophe?” It seems that the answer was, tragically, in the affirmative. 

Marshall Auerbach has just written an article that seems to confirm this gloomy assessment of the effects of the way Greece was treated by Germany on Germany. Here it is:

TODAY GERMANY IS THE BIG LOSER, NOT GREECE

Given the German electorate’s long standing aversion to “fiscal profligacy” and soft currency economics (said to lead inexorably to Weimar style hyperinflation), one wonders why on earth Germany actually acceded to a “big and broad” European Monetary Union which included countries such as Greece, Portugal, Spain and Italy.Clearly, this can be better understood by viewing the country through the prism of the Three Germanys, which we’ve discussed before:
 
Germany 1 is the Germany of the Bundesbank: the segment of the country which to this day retains huge phobias about the recurrence of Weimar-style inflation, and an almost theological belief in sound money and a corresponding hatred of inflation. It is the Germany of “sound finances” and “monetary discipline”. In many respects, these Germans are Austrian School style economists to the core. In their heart of hearts, many would probably love to be back on an international gold standard system.
 
Germany 2 is the internationalist wing of the country, led by Helmut Kohl. Kohl and his successors are probably the foremost exponents of the idea that Europe can rid itself of the “German problem” once and for all if Germany firmly binds itself to a “United States of Europe” and continues to construct institutions that broadly move the EU in this direction. It is questionable whether this vision has survived significantly beyond the tenure of Helmut Kohl himself.
 
One can see the inherent tension between these two Germanys. Bundesbank Germany would never allow vague, internationalist aspirations to dilute the goal of sound money, low inflation and fiscal discipline. One could envisage most looking askance at the Treaty of Maastricht and the corresponding threats to these ideals.
Which brings us to the key third variable in German politics: Germany 3, Industrial Germany, the Germany of Siemens, Daimler, Volkswagen, the great steel and chemical companies, the capital goods manufacturers. Clearly, these companies benefited substantially from the economic stewardship provided by institutions such as the Bundsebank, along with the broad adherence to Erhard’s social market economy. But they also recognized the benefits entailed by a completely open and integrated European market (still the largest component of their sales). Currency union, even if it meant admission of fiscal profligates such as Italy and Spain, also minimized the threat of competitive currency devaluation, given the implementation of a European wide euro (as opposed to the narrow currency zone which represented the limits of the Bundesbank’s internationalism). Industrial Germany rightly perceived that a broadly based euro zone which incorporated chronic currency devaluers such as Italy, permanently entrenched their competitive advantage. And with the support of this key component of German society, Chancellor Kohl, was able to embark on the huge institutional transformation embodied in the Maastricht Treaty.
One could argue that “Germany #3” made a bad bet, but is this really so?
A few months ago it appeared that the German sentiment data taken in aggregate showed that German domestic demand was turning up and the risk of a German recession was behind us. This was corroborated by truly powerful increases in total German employment, which now stands at a 20 year low.
To be sure, since then we received some weak data on industrial production and real retail sales. This coupled with the big down-tick in the manufacturing PMI rekindled recession fears. But the previous worrying data about the German economy appears to have been removed with the latest round of positive data with upward revisions. We now have much better data on factory orders and real retail sales. A few weeks ago Germany’s March industrial production was released. It showed industrial production rising a large 2.8% in March; additionally, there was more than a one percentage point upward revision to prior months.
Taking the constellation of German economic data in aggregate – real retail sales, factory orders, industrial production, total employment and the services PMI (which remains well above 50) – it is unsurprising that Germany’s preliminary 1st quarter GDP subsequently came in at 2%.Yes, the periphery remains a disaster, but Germany is still growing. It is also the case that the slowdown in Europe could eventually reach the core and China’s worrying loss of economic momentum and dent Germany’s growth momentum in the future.But for now, there is no significant fiscal restriction to speak of (unlike, say, Spain or Greece), domestic interest rates are super low, employment has been expanding rapidly. In short, it appears that, having absorbed a trade related and sentiment shock emanating from the European periphery, a domestic demand led expansion has probably resumed.

The point is not to celebrate the German economic model per se, but merely to highlight that for all of the gnashing of teeth and whining about “the cost” to Berlin of perpetually “bailing out” the “profligate periphery”, the reality is that Germany has done exceptionally well out of the euro zone and continues to do so.

“Germany #3” in effect placed the right bet: by locking in chronic devaluers to a currency union (thereby precluding the traditional expedient of currency devaluation to regain export competitiveness), Berlin in effect entrenched Germany’s mercantilist model and consolidated the country’s dominance as the trade superpower of Europe. The benefits are self-evident, given the contrasting data between Germany and the PIIGS.

Of course, one can already hear Germany’s apologists proclaiming that this success is the product of taking “hard decisions” in the earlier part of this century, in particular, the so-called “Hartz reforms”. The Germans have always been obsessed with export competitiveness. In the period before the euro, they would devalue the Deutschmark so that they could increase the sales of their products to their neighbors. Once the Germans lost control of the exchange rate by signing up to the Economic and Monetary Union (EMU), they couldn’t perform this trick anymore. They had to manipulate other “cost” variables in order to sell goods cheaply. So starting in 2002, they focused on wage suppression and cutting into the social safety net for workers through something called the Hartz package of “welfare reforms,” named after Peter Hartz, a key executive from German car manufacturer Volkswagen. 

Unlike the American Henry Ford, who created good, well-paying jobs because he knew that having a secure middle class was essential to having a market for his cars, Peter Hartz regarded the relationship between wages and the economy very differently. In his view, squeezing workers was the way to keep a country “competitive”, which is precisely what his “reforms” did. And it had disastrous consequences for the rest of the eurozone – (See here)

[As an aside, the other inconvenient little truth is that the much vaunted Hartz “reforms” themselves are really devoid of any kind of democratic legitimacy. It was subsequently discovered that Peter Hartz himself had only secured the acquiescence of Germany’s workers by sanctioning illegal payments to Germany’s powerful works council  (see here)  for which he was given a 2 year suspended sentence.]The Hartz measures have been extremely far reaching in terms of the labor market policy that had been stable for several decades. Bill Mitchell and Ricardo Welters noted  that while the reforms appeared to be successful in early 2003, with lots of jobs created, there was a downside: “From the bottom of the cycle, in mid-2003, employment grew much less quickly than in previous upturns. And much of the rise took the form of ‘mini jobs’ – part-time posts paying no more than €400 a month, regardless of hours.”As Mitchell and Welters pointed out, the “reforms” actually decreased regular employment. Workers got stuck with so-called “mini/midi” jobs – a new form of low wage part-time employment. Such jobs were hailed as “flexible” and “efficient” by their champions, while detractors such as Mitchell noted that they were part-time jobs characterized by heightened insecurity, lower wages, and poorer working conditions.

More to the point, Germany benefited from “first mover advantage”: they initiated these reforms in the context of a growing global economy. Demanding such wage repression in the context of a global recession makes such “reform” virtually impossible, to say nothing of the fallacy of composition problems, when all other countries seek to deflate their wages in order to gain the elusive export competitiveness.

All of this is now coming under threat, given the renewed perturbations afflicting the euro zone. Greece’s inconvenient outbreak of democracy has created a new wild card: a new Greek party, Syriza, head of the coalition of the radical left, has vaulted to prominence, It’s new leader Alexis Tsipras, a previously obscure left-wing member of Parliament. led his grouping to second place in the recent national elections with the promise of repudiating the loan agreement Greece’s previous leaders signed in February.

From the birthplace of democracy, then, comes this horrible outbreak of genuine democracy. Naturally, in typical Brussels fashion, eurocrats are decrying this development. They are once again whipping up the “Greece to exit” frenzy and wheeling out all manner of mainstream economists who are issuing the most strident warnings that Greece needs the Euro and will walk the plank if it exits. Their earnest hope is that the new elections will result in the emergence of a new Greek Quisling, who will happily implement the Troika’s incredibly destructive austerity package, reforms which provide no hope of recovery for Athens or the rest of the euro zone.By contrast, Syriza represents a real threat to the current thrust of fiscal policy.

Alexis Tsipras is a good man. At least he’s a very good poker player. He hasn’t yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won’t like: He is, in short, the first Greek politician to use the his country’s leverage over creditors.

Rule #1 in negotiations: You must demonstrate to your counter-party that you have credible options to walk away from the table/deal. He has, amongst other things, simply pointed out that the Greek state is quite close to a primary surplus. All that is needed are a few small reductions wages and pensions, and the Greek public sector could finance itself for the foreseeable future. Were it to exit the euro, all of a sudden Athens’s problem becomes the eurozone’s problem.

Yes, Greece only constitutes a mere 2% of Europe’s GDP. And yes, the eurozone authorities are said to be “making preparations” in the event of a “Grexit”. But then again, Lehman was a tiny investment bank which almost brought down the entire global banking system when it was allowed to go bust. And recall that Lehman’s bankruptcy occurred several months after the rescue of Bear Stearns. In theory, the authorities had ample time to construct back-stops to prepare for this eventuality, as is now being said in regard to Greece’s potential exit from the euro zone. 

Would a firewall today be any more effective in “cauterising” the Greek wound and preventing the contagion from extending to Portugal, Spain, Italy and then to the core? Tsipras clearly understands this, and he could well be Greece’s next Prime Minister. It would entail massive firepower from the ECB, a “bazooka” that the ECB has hitherto been loath to supply.

In the meantime, the Greek election result has resulted in an acceleration of massive bank runs within the eurozone. There has been a steady flight of deposit funds from the PIIGS into German and other northern European banks (and perhaps to some banks outside Europe) for some time now. Data on the Target 2 financing of these deposit runs by the recipient countries apparently accelerated in the first four months of this year prior to the French and Greek elections. A recent statement by the Greek authorities suggests that the deposit run from Greek banks has accelerated, perhaps hugely, since the Greek elections. This has been denied, but under such circumstances one should never believe official denials.Indeed, late last week, El Mundo reported that depositors had withdrawn one million euros from the Spanish bank Bankia since its takeover by the government on May 9th. The odds are that this deposit run may have as much to do – or more to do – with a flight out of Spanish bank deposits in general that it has to do with any fears about holding deposits in a bank taken over by the Spanish government. In other words, this may be a sign that a deposit run caused by fears about euro exit has now spread in a significant way to Spain. Of course, the authorities are denying such, but under such circumstances one can never believe such denials.Paradoxically, the very existence of a monetary union facilitates bank runs. If you’re a depositor at a Spanish bank in Barcelona, there is nothing stopping you from withdrawing that money and re-depositing it in at a local German bank down the street. There are no capital controls or border controls in effect. With no exchange rate risk! Bank depositors in all of the periphery countries now fear they will wind up with the old currencies which will be worth much less than the euro. These deposit funds go into German and other core European banks who then recycle the funds through the ECB and the national central banks back into the banks of the PIIGS that are experiencing the deposit runs.

Apparently this deposit run and its reflux back into the imperiled banks on the periphery accelerated in the early months of this year before the French and Greek elections. It apparently has accelerated further since.
In effect, the System of European Central Banks is involved in an ever growing and massive bailout exercise which they are not publicly acknowledging.

The German response so far? “Oops. This guy is blackmailing us. What shall we do?” Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted “wirtschaftwunder” as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika?

To be sure, the Germans might well say, “Enough is enough” and leave the euro zone (which would probably destroy the currency union). The likely result of a German exit would be a huge surge in the value of the newly reconstituted DM. In effect, then, everybody would devalue against Berlin, shifting the onus for fiscal reflation on to the most vociferous opponent of fiscal activism. Germany would likely have to bail out its banks (particularly the Landesbanken). This might well be more politically palatable than, say, bailing out the Greek banks (at least from the perspective of the German populace), but it would not be without significant short term economic cost for Berlin. And in the interim, the likely currency shock would put an immediate halt to its export machine, as the built-in conferred by the euro zone would be dissipated in the event that Germany reverts to a newly reconstituted DM.

By accounting identity, a fall in Germany’s external surplus would mean a large increase in the budget deficit (unless the private sector begins to expand rapidly, which is doubtful under the scenario described above), so Germany will find itself experiencing much larger budget deficits. It will become a ‘profligate’ if it wishes to mitigate the effects of a collapse in its current account surplus. Quite a reversal in fortune.

So who holds the gun now?

102 thoughts on “Guest Post: Today Germany is the big loser, not Greece – by Marshall Auerbach

  1. Pingback: Philip Pilkington: Why the Germans Probably Won’t Allow Greece to Exit the Euro « naked capitalism

  2. Pingback: Who loses in Europe? | A piece of the World

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  4. This guest post is utterly absurd. The Deutsche Mark was known as one of the most stable currencies in the world. It is rather the southern Europeans that have a history of devaluing their currencies. Everybody in the South used to be a millionaire.. in drachmas, liras or pesetas.

    • It was known as that. Do you know why?
      Because of your previous bad experiences with America.

      What they did to you was absurd.

      You sweared not to let them again. The only problem being that to keep at it ,you had to export the negative aspects to others. Eurozone helped to that.

      What others did to you ,you do worse. Like you don’t have a black page already.

      Now your government wants more. A whole country. By debt ,the Greek population never asked or needed.

      And you support these governments?

    • Now your government wants more. A whole country. By debt ,the Greek population never asked or needed.

      Unfortunately, the Greeks did “ask” — by demanding for services from their government that they were unwilling to pay for through increased taxes. In other words, they did not want to live within their means; they wanted a “free lunch.”

      And the greedy banksters, in their prursuit for high yields, obliged the Greeks.

      But the banksters were not only greedy but careless as well. With a modicum of due diligence, they would have certainly known that the Greeks could not have repaid the loans.

      Now the banksters want their money — every penny of it. You see, you would too if you were leveraged up to your eyeballs (40-to-1? 50-to-1?). Good luck getting it, I say. They know how credit markets work: An unsecured lender — a reckless lender — and his money are soon departed. A well functioning credit market requires it.

    • ———————————
      “Unfortunately, the Greeks did “ask” — by demanding for services from their government that they were unwilling to pay for through increased taxes. In other words, they did not want to live within their means; they wanted a “free lunch.””
      ———————————

      No ,they didn’t.
      Noone knows how the system works.

      With that logic ,when i didn’t know how the furnace worked ,i wanted it get burned. NO ,NO ,NO. And my government instead of explaining to me ,just lied to me. So ,as i have said before, every person lives with what one thinks apply at the moment. So ,if you see that there are services ,you want to use them. Simple as that.

      As for the taxes ,it is a cultural – psychological phenomenon that for the explanation we must go back 40 years.

      When your state steals from you ,you steal from the state.
      It is more complex than that ,since we always had sabotages in investment here.

      There is no free lunch. There are balancing acts.

    • Demetris, I have a “free lunch” for you (and all readers here) courtesy of the father-and-son team of Phelim and Feidhlim Boyle: “Derivatives: The Tools That Changed Finance.” Just google the title and you can download the free pdf from the any number of the sites listed. It’s all legit, no copyright violation. A most excellent, solid book both for the derivatives novice and for someone needing a refresher on the subject. You will even learn about the Frenchman Louis Bachelier🙂

    • lastgreek

      HAHA🙂

      What are you doing? Trying to kill me with a book about derivatives?
      Is it heavy? Does it support derivatives?
      If yes then ,this is no free lunch. This is attack of the financial martians.
      Away from me.
      If no ,thanks.

      Oh, you are not the last of the Greeks. Don’t get upset🙂

    • Is it heavy? Not at all — it’s very clear and coherent and without the dumbing down. It’s a gem.

      Does it support derivatives? The book illustrates the merits of their use, and makes the point that financial meltdowns are not caused by derivatives per se, but by people behind them taking on crazy positons without, unfortunately, the necessary regulations (checks) to stop them.

    • So they are talking about Nick Leeson attitudes. Although there were worst mistakes in the history of finance than what Leeson did. I guess they have examples.

      Anyway ,i have this thought that certain people can make a lot more complex investments using derivatives ,therefore earning by manipulating the direction of the markets. There can be no successful tracing back ,so a financial criminal/distorter would be stupid not to use this tool for many more agendas than money.

    • @lastgreek: I suppose one can make the argument that derivatives are merely a financial technique, and are analogous to other inventions such as the gun. The use of guns can be justified (at least, to most people) in defending your country or shooting rabbits; if you fail to regulate their sale and usage, allowing anyone to have them for unknown purposes, then you can expect terrible results. Like mass shootings by mentally unstable people in schools, for example.

      It is interesting to note that both these problems are endemic in the USA, and the derivatives problem actually originated from there. This suggests a cultural and political problem with that country concerning the concept and purpose of regulation.

      BTW, I was fortunate enough to have read the novel “Naked Lunch” before having the displeasure of reading Friedman’s book “There’s no such thing as a Free Lunch” (which I read in 1977, although I was studying music at that time). I know that the expression was common in the USA before this guy, but it still makes me vomit when I hear it. Maybe a “free naked lunch” would be better🙂

  5. If only this whole eu/euro-bullshit ends, i’d give all my german money to anybody, greeks, auerbachs, varoufakis’, i dont care, just end this…

  6. I’d rather be a loser, then. No matter how much Marshall Auerbach tries to distort the issue, the difference between living in Germany and living in Greece is plain to see for everybody. Germany can afford to absorb the losses from a Greek default, even though that would be annoying. And that industrious nation has permanently increased its trade with nations outside of the EU and thus secured millions of jobs. Greece, on the other hand, totally depends on other nations’ money to make even the most basic ends meet. If Auerbach sees beggars as the winners in nowaday’s economy, he should resettle in Athens asap.

    • That industrious nation was exporting unemployment to the periphery.
      Come on ,man. We do not attack the German population.

      You know why all this negative propaganda against the Greeks begun from the get go? Because everybody knew that the Greeks will be the first to understand the game and oppose them.

      They do not even care about the rest in that aspect. Because all you do is abide by their criminal laws. So they keep you a little happier.

      We are all happy slaves. How nice.

    • Don’t you know your own history?
      You will let your non-german German mafiozos make you feel ashamed again?

      I know we are for our own non-greek Greeks.

    • I mean non-german and non-greek at heart.
      Not to be confused with extreme nationalistic trends.

  7. To “Very Serious Sam” and “Achim”: A lot of important people in the Eurozone and the US seem to disagree with you in thinking that Greece is too small to create a Europe-wide problem. A big number of serious politicians, bankers and Eurozone leaders believe that Portugal and Spain will be next to fail and their arguments are strengthened everyday as these countries are going from bad to worse, even with Greece inside the Eurozone. For example, recently Spain raised its’ projected deficit from 8.5% to 8.9%. When Greece exits, their interest rates will increase further and then the “core” countries will exit, destroying themselves in the process.

    Dear people, make no mistake, the Eurozone is disintegrating fast regardless of little Greece. Our politicians have failed us all in being shortsighted and self-interested, beyond imaginatation.

    Finally I would agree that the “little communist blackmailer”, as you say, has to be stopped by Greeks exactly because he holds a large bomb and everybody in the Eurozone knows it, regardless of their natural denial. However, living in Greece I must inform you that the Greeks will probably not stop him as most of them are angry and have nothing left to lose. Any way in a few months we shall know who was right.

    I really hope I prove to be wrong, as not all Greeks are the same, as much as not all Germans, Austrians, etc. are the same!

    • For example, recently Spain raised its’ projected deficit from 8.5% to 8.9%. When Greece exits, their interest rates will increase further and then the “core” countries will exit, destroying themselves in the process.

      Maybe not. The markets have had a lot of time to prepare for Grexit and understand the special situation in this country. Spain is a modern country all in all and suffers mostly from a real estate bubble that burst. The cut measures taken are significant and the political situation is stable. It’s just very unfortunate that Spain cannot ask for help with its bank recapitalization without going to EFSF/ESM as a whole.

      I must inform you that the Greeks will probably not stop him as most of them are angry and have nothing left to lose

      Oh, I think the Greeks have a lot to lose. Unfortunately, a lot of people don’t realize that.

    • They shoved money down the throats of every country to save the bankers. Greece was the first. Whatever happens ,the rest depend on Greece ,at least for the creation of a legal precedent.

      Of course we are angry. They do not ask for economic assurances. They ask for the whole country ,for money we didn’t ask and weren’t needed for anything else than reforms and growth.

      As for Tsipras he is not a blackmailer for answering back at corrupted leaders; Nor does he necessarily hold a bomb.

    • “I must inform you that the Greeks will probably not stop him as most of them are angry and have nothing left to lose”

      I am afraid that the Greeks will probably not just not stop the little communist blackmailer but even support him with more votes.

      As for nothing left to lose: I think the Greek people are not really aware about the consequences for them of leaving the eurozone and defaulting. They have still a lot left to lose, and they will lose it, if they continue what they started.

      BTW, there are reports that bookings for vacations in Greece plummeted by 30…50 percent in France, Germany and the UK. This of course doesn’t help Greece at all, quite the opposite, but one can’t blame the tourists to be cautious. Besides, in the case of Germany, I wouldn’t spent money in a country where a lot of people are calling us Nazis and generally spit on the hand which feeds them.

    • Go read a book.
      You know what a book is?

      Go read: MMT
      Go read: Political Ponerology
      Go read: Economic Hitman

      etc. etc.

      Just go read and test reality.

    • VSS

      Just a small gift.

      The Quantum Apocalypse of The Holographic Universe

    • “Besides, in the case of Germany, I wouldn’t spent money in a country where a lot of people are calling us Nazis and generally spit on the hand which feeds them.”

      I would if it was cheap (New Drachme)🙂

    • And this

      Fractal Universe, we are all connected

      Now ,trying to preserve an economy that does not respect the flow of energy is simply SELFDESTRUCTIVE at the end. Inviting destruction before its time is simply stealing.

      The so called “leaders” are coward stupid pathetic little beings who want to hide behind the Greeks or world hunger or the greenhouse effect for their misuse of power and criminal resource allocation policies.

      What else can i say?

      Maybe you are just someone who wants this.

  8. @Yanis,

    couple of points:

    1. how the world sees things:

    “Germany is seen as having the most positive influence in the world among all countries evaluated. This has been the case since tracking began in Germany in 2008 ”

    http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/05_03_11_bbcws_country_poll.pdf page 26
    Greece is not even on the map (page 2)

    And the Canadians are a close second in popularity. How do they see things? :

    http://www.theglobeandmail.com/news/opinions/margaret-wente/quebecs-tuition-protesters-are-the-greeks-of-canada/article2437462/
    “They want the Germans to send them money forever and ever, and no matter how much the Germans send, they’ll keep demanding more. The student protesters are the Greeks of Canada. And we’ve had it.”

    I see many parallels with Tsipras.

    And just from my this sunday morning reading:
    http://www.theglobeandmail.com/news/opinions/editorials/the-greeks-must-choose-between-the-euro-and-austerity-relief/article2432618/

    http://www.themoneyillusion.com/?p=14448 (Scott Sumner, the NGDP guy)
    “If (God forbid) it was destroyed by an asteroid tomorrow, stock markets would soar upward all over the world. The Greek crisis would be over.”
    Morgan Warstler, a guy I actually dont like that much: “Getting rid of squirrels is easy, kill one and hang it in a tree.”

    A little Mao Tsetung quote, for Tsipras : – ) : 惩罚一教育
    Punish one, Educate one hundred

    2. Greek Economic Recovery Plan
    A few weeks ago Kastner and I asked you kindly here, to come up with a plan. You are the Dean of a / (the ?) most important economics academia in Greece.
    Right ? So the number one to ask ??

    Did I miss something ? All I have seen so far, are plans for just getting more money for consumption. But please direct me to your plan, in case I have missed it.

    3. Auerbach
    This was for me the same as for many others here.
    I read it, and said, there is mor wrong than right. Many factual mistakes have already be pointed out, I ll leave it with that.

    4. some quotes
    “You have to differentiate between credible enforcement powers and joint European control over revenue and spending,” [Merkel] said. “And as long as this is so, joint liability for the debt of others is unthinkable. That also takes care of the debate over so-called euro bonds for now.”
    http://www.bloomberg.com/news/2011-12-02/merkel-says-joint-euro-bonds-unthinkable-as-eu-faces-debt-crisis-marathon.html

    “I cannot see how you can ensure the stability of a monetary union by violating its legal provisions,” Mr Weidmann argued. “I don’t see how you can build trust in a system that violates laws.”
    http://www.ft.com/intl/cms/s/0/641237a8-0dcd-11e1-91e5-00144feabdc0.html#axzz1vJuSv4N9

    • “And the Canadians are a close second in popularity. How do they see things? :

      http://www.theglobeandmail.com/news/opinions/margaret-wente/quebecs-tuition-protesters-are-the-greeks-of-canada/article2437462/
      “They want the Germans to send them money forever and ever, and no matter how much the Germans send, they’ll keep demanding more. The student protesters are the Greeks of Canada. And we’ve had it.””

      We never asked for your money.

      “http://www.themoneyillusion.com/?p=14448 (Scott Sumner, the NGDP guy)
      “If (God forbid) it was destroyed by an asteroid tomorrow, stock markets would soar upward all over the world. The Greek crisis would be over.”
      Morgan Warstler, a guy I actually dont like that much: “Getting rid of squirrels is easy, kill one and hang it in a tree.””

      Ofcourse. Greece was the first to be used as a laundering mechanism for your banksters. Now all we have to do ,is die. You first.

      “A little Mao Tsetung quote, for Tsipras : – ) : 惩罚一教育
      Punish one, Educate one hundred”

      The responsible ones are not those that do not have the power to manipulate the capital flow. As simple as that.

      ““I cannot see how you can ensure the stability of a monetary union by violating its legal provisions,” Mr Weidmann argued. “I don’t see how you can build trust in a system that violates laws.”
      http://www.ft.com/intl/cms/s/0/641237a8-0dcd-11e1-91e5-00144feabdc0.html#axzz1vJuSv4N9

      Exactly. Now if the law tells me to die so you can appear nice ,guess what. So ,do not allow for their criminal laws. All of us.

      How low can you go?

    • ““Germany is seen as having the most positive influence in the world among all countries evaluated. This has been the case since tracking began in Germany in 2008 ”

      http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/05_03_11_bbcws_country_poll.pdf page 26
      Greece is not even on the map (page 2)”

      And so isnt Austria,Denmark,Netherlands and so on and so forth…Nice way to twist things….

      You must havent realised that this was a selective list of 27 countries for a BBC survey ?

  9. “What has it got to lose at this juncture by refusing to roll over to the Troika?”
    Seriously? With no production to speak of, what about all of its natural assets for a piece of bread? What about all of its hard-achieved if still vastly underdeveloped State structure? How about the rich getting filthy richer and the poor filthy poorer? Not to mention an increase in the overall level of poverty which would bring us back to WW2 standards, where entire houses were LITERALLY sold for two large cans of olive oil.
    Let’s see if the emerging cast of black marketers will do a better job of running the country than the last one.

    • We have a lot to lose. So do they. What ever we do ,the rich win against any country.

      I do not see a Grexit ,but i sure do not allow overlords.

    • On the other hand we do have a lot of potential. A lot.
      Staying or leaving the euro.

      The problem may ,just may be the transitional mechanisms.
      That is why i want a government that can decide from a list of all solutions and not just say to the people that we have one or two.

      Euro did hurt us but the decision to stay in the euro is less economical only and more geopolitical.
      Everybody has a lot to think about and fear from a potential exit.

      And that is why the chicken game played is not about what the powers will win ,but how much and when?
      In other words if the Greek people stand their ground ,the corrupted leaders will not get Greece but they will continue as before ,like nothing is going on. They will make a better deal ,reinstating stability and continue to use alternative sources of energy instead of becoming energy free by raping the Greek land without the Greeks.

      Anyway ,scenarios all over the place.

      My opinion ,if it is possible to make Eurozone legal and not keep it manipulative ,i am in. If not ,we should get out and preserve our monetary sovereighnty.
      There are solutions.

  10. It is extremely depressive to read some of the comments: xenophobia and nationalism abound, mutual finger-pointing between Europeans of different nationalities.
    I myself would be in favour of a fiscal union, ie. a proper European budget (up to 10-20% of EU GDP at least) and hence common demand management, but clearly, European public opinion does not seem to be ready for such an option, they rather prefer disintegration and potentially a Europe-wide economic depression.
    But then we really deserve what we get.

    • @kk : It is extremely depressive to read some of the comments: xenophobia and nationalism (e.q.)

      I couldn’t agree more on these.. “patterns” !

    • 20% is already more than the tax rate in Slovakia. So all Slovak taxes should go to the EU?

    • hehe ,
      playing with percentages?

      Well ,let Goldman Sachs handle it. brrrrr

    • @No EU D

      Screw the tax revenue.All it would take is to recycle a larger portion of the surpluses that are created….its a trade imbalance problem after all…not misallocation of tax revenues.

    • Crossover

      True

      Anyway taxes are good only for the destruction of money ,not the use of money for development by the government as most people think.

      So ,there goes the tax evading argument and the lies of the “leaders”.

    • @Demetris_(Λ)

      True.In a fiat currency system taxes are just a way to handle inflation through handling aggregate demand.But thats simply another stupid problem the euro created for all the EZ members.Gvts need taxes as actual revenue since all EZ members are revenue constrained.

    • @Crossover where would you go to collect the trade surplus in order to channel it to the PIFGIBS?

    • And I do not mean which countries. Iwant to know which institution in a country.

    • @Pedro

      If it were to happen through already established institutions,then that institution would be the ministry of finance i guess.
      If you’re asking this due to my previous comment,that still doesnt mean that the surplus countries would have to pass 20% of their gdp.Let alone Slovakia that isnt anywhere near having a 20% of gdp trade surplus (not even Germany).

      As a matter of fact there doesnt even have to be an absolute balance,any current account deficit at around 3-4% is more or less sustainable with reasonable inflation and reasonable growth.

    • Pedro

      Why are you asking this question at this site?
      Haven’t you read the modest proposal?
      Or you just want to post just to irritate people?

    • Wait, if the question was about the way MP tries to solve the imbalance problem,then just forget what i said.MP proposes funds from the EIB for productive investments in deficit regions mostly.It doesnt involve actual “planned” recycling.I mean, it advocates concentration of idle money from anywhere in the world, not just German surpluses.

  11. Germany can’t even win a Champion League’s final on its own soil and wants to lead Europe?

    Read my lips: A loser, is a loser is a loser. Germans always start impressively and then deflate and self-destruct in a spectacular way.

    • We just want to keep our property and not have the EU and ECB rob us constantly.

    • No EU dictatorship

      i am with you all the way.
      I want reforms without Germans paying the bill in an austerity program that throws good money after bad.

      Extensive Reforms (Greeks ,yes ,feel the pain) + Growth + Logical Economic Assurances for Europe = Compromise

      The 2nd bailout demands all the resources of Greece in case Greece does not have a surplus yesterday.
      They already got a lot of underwater wealth ,without our consent.
      Well ,what does that mean????????

      Why don’t they invest so that we all use the resources? They were lying about them existence all these years. It will ofcourse take time to use them ,as everything will anyway.

      This is real blackmail.

  12. Pingback: Warning: EU Ponzi Banking Scheme Ahead « French News Online Newsroom

  13. “El Mundo reported that depositors had withdrawn one million euros from the Spanish bank Bankia”
    As far as I know it has to be one billion euros

  14. “El Mundo reported that depositors had withdrawn one million euros from the Spanish bank Bankia”
    As far as I know it’s one biljon euro

  15. “one wonders why on earth Germany actually acceded to a “big and broad” European Monetary”

    The answer is simple: the Germans were never ever asked. There was and is a strong sentiment against the Euro. The German electorate would never have chosen to abilish the Deutsche Mark, that’s why the political ‘elite’ didn’t ever ask their voters.

    As for your article, it -again- manages to give the facts am impertinent spin. It contains to much fortune-telling and wishfulf thinking to comment on in detail.

    Just one example (of many): in pre-Euro-times it was not only the Germans who devalued the DM to become more competititve. Every other Eurozone country did the same! But you, of course, prefer to just point at the Germans (which you seem to hate a lot).

    As for who is holding the gun now: of course the core nations, not the little communist blackmailer Tsipras. Since the only relevant question is, whether Greece stays in the eurozone or not: what standard of living are other nations (mainly the eurozone core countries) prepared to fund (w/o ever getting the money back, that’s for sure).

    And that’s the reality. Not ‘Oops. This guy is blackmailing us. What shall we do?’. The answer already given is instead ‘If Greece doesn’t honour her contracts, well, it’s the sovereign decision of the Greeks. Of course, they then must bear the brunt the aftermath. Since the other eurozone countries’ support will then cease to a level set by humanitarian standards only’.

    Because Greece, who by now objectively fulfills almost every attribute that describes a failed state, cheated her way into the eurozone. Was never fit to be there. Isn’t fit, and will never be, judging from what Greece has shown during the past decades. There is no justified hope that Greece will ever change. Especially since a lot of Greeks are apparently incapable to act like grown-ups and accept that they themselves are responsible for the situation they are in. They acted irresponsibly for to long, and to much.

    Instead they (like you) blame others. Mainly Germany. This behaviour is of course completely infantile. ‘Ma, he’s looking funny at me!’.

    Marshall, all your pieces about Germany are incredibly biased, and full of completely grotesque accusations, spinned facts, and a general lack of understanding of reality. But at least by now you refrain from Nazi-speak like ‘Anschluß Economics’ or Blitzkrieg’ which you prefered so far.

    • I like this:

      “…all your pieces about Germany are incredibly biased, and full of completely grotesque accusations, spinned facts, and a general lack of understanding of reality…”

      And just a moment beforehand…

      “…a lot of Greeks are apparently incapable to act like grown-ups and accept that they themselves are responsible for the situation they are in…”

      Hahahaha! I think you got a Very Serious Blind Spot there, Sam…

    • Please, provide data that supports your claim that Greece cheated to enter the eurozone. Or, shut up!

    • Germany before entering the eurozone had a current account Deficit of around -$30 bn. In a decade it was more than -$200bn in deficits.

      After eurozone entrance, within only 8 years the deficit -30bn deficit was transformed to a SURPLUS of … $250 bn (!!).

      The difference in a period of 10 years is more than $2 trillions (that’s almost 60% of German GDP).

      That is the reason why the German government “sacrificed” the DM for the euro.

      German conglomerates were able to “devalue” their goods, “appreciate” the goods of their competitors such as France and Italy and finally to give buying power to economies that did not deserve to (Greece, Portugal, Spain etc) in order to sell German products.

      Thus, many of the article’s facts are not biased, but based on reality. Maybe, you should also question your thoughts about bias.

    • Your problem is that you generalize and attack the Greek population.
      You are being unreasonable ,trying to put at the same level of actions ,the people and the responsible parties who have nothing to do with nationality.

      This negative propaganda was from the get go a European leadership initiative and you just keep repeating it like a parrot.

    • “The answer is simple: the Germans were never ever asked.”

      “Especially since a lot of Greeks are apparently incapable to act like grown-ups and accept that they themselves are responsible for the situation they are in. ”

      I see, so let me get this straight.
      Germans are not responsible for their gvt. decisions and policies through out the years, while at the same time Greeks are responsible for whatever the Greek gvts have done all these years.
      I appreciate such an objective way of thinking.

    • estrangeiro

      The Greek state did cheat. Thanks to Simitis (and not only). Also remember the game he played against the Greeks ,with the stock market?

      But it is also a fact ,that everybody cheated in the eurozone and everybody knew.

      Except the people of ALL countries. Greek ,German ,Italian etc.

      And only one country or to be just certain people of one country benefited the most. Need i say?

      It is not the people’s fault ,ANYWHERE.

    • Guys: I recommned you to do an experiment: Next time you are in South America, when someone asks you where you come from say Germany. Then try the same with Greece.

      You wil learn very quickly how “highly” regarded Greece is in the world. Works in China too.

      And don´t be too disappointed!

    • @ No EU d

      We won’t be. Do not worry.
      Then again ,who listens to people that only hear what suits them?

      Let’s say i do go and ask them. Then i will ask them why?
      I ask you. Why?
      And will you answer considering the past? The real past?

      The same with china.

      What ever answer we get ,it will be according to the system and events of the last decades.

    • As for China and culture.

      Some time ago the chinese archeologists found two pyramids with ancient hellenic symbols ,many of which today are being used in China as their own (as usual in all countries). Each of the pyramids had inside two well preserved bodies (male ,female) of european origin ,dressed with ancient chinese clothes with hellenic symbols.

      The problem for the Chinese government was the date. 5000 to 6000 B.C..

      Everybody has a reason to hate the Greeks. For everything.

    • No Eu D

      Whoever denies that the propaganda machine works equally good in South America is obviously dumb….

    • You wil learn very quickly how “highly” regarded Greece is in the world.

      From my experience as a Greek, I would say that Greek men are indeed highly regarded … by the women of the world😉

    • @No EU Dictatorship: Germany managed to repair its image in the world by not getting involved in politics after 1945. Its own Basic Law was written by the USA and allies, because Germans had become so corrupted and out of control. The very EU (or European Community) was designed to keep Germany under control.

      After several decades of gaining respect, you Germans have now made the fatal mistake of playing politics (or economic warfare) with the rest of Europe. It is not yet too late to withdraw, since there is a flaw in the Germanic character that means you will humiliate yourselves yet again — after a nineteenth century of aggression and two disastrous world wars in the twentieth…

      So, there are serious faults with the Greek way of running a state. Very true. Those faults bear no comparison with the German faults, which have gone down in the annals of history — along with such things as the Spanish Inquisition — as among the most evil things in the history of humanity. Better not to forget it, before you throw stones at others.

  16. The Germans have always been obsessed with export competitiveness. In the period before the euro, they would devalue the Deutschmark so that they could increase the sales of their products to their neighbors.

    What kind of nonsense is this? The Deutschmark has constantly appreciated against the neighbor currencies (Franc, Lira, etc.) as well as the US Dollar. One could argue that Germany has always tried to limit/contain the appreciation which is a natural interest. Compared to China today, Germany has never reverted to a policy of massively manipulated currency valuation.

    This article — like so many others — likes to talk about “Germany”. There are many more players involved in the Euro, it’s not just down to Merkel & Co. The other mistake is that it assigns way too much importance to Greece. The Greek exposure is almost entirely with the ECB and EFSF/ESM/IMF by now and by far not large enough to really send out major shock waves. Tsipras thinks he’s got the nuclear bomb but in reality all his bomb can do is send Greece to anarchy.

    • “What kind of nonsense is this? The Deutschmark has constantly appreciated against the neighbor currencies (Franc, Lira, etc.) as well as the US Dollar.”

      True ,the Deutschmark was an amazing currency and it might become again.

      “This article — like so many others — likes to talk about “Germany”. There are many more players involved in the Euro, it’s not just down to Merkel & Co.”

      Well ,join the party and feel what the Greeks feel.

  17. Another very useful article along the lines of Prof. Varoufakis’ arguments. The sad conlusion once again seems to be that we are all (in Europe) heading for another terrible fall. It is only natural from a psychological point of view, i.e. nations don’t change as much as individual characters don’t change. I think we should all prepare for the worst.

  18. THE REAL TROUBLE WITH FIAT CURRENCY

    Fiat money is money that derives its value from government regulation or law: the initial value of fiat money is established by government decree. The term fiat currency is also used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat, meaning “let it be done” or “it shall be”.

    As it is now globally evident – Camp David, Maryland U.S.A. included – that very few people seem to (or pretend to) understand how a fiat currency works, I suggest we go back to the basics:

    Most of the money supply in a country is created by banks as debt out of thin air. The notes and coins is a small part of the money supply and since no nation is on the gold standard anymore, money has no intrinsic value and the size of the money supply does not need to be constant. It can be decreased in good times and increased in bad times.

    There are three ways that a government can raise money for public spending:

    1. Taxes.

    2. Borrowing from private financial institutions.

    3. Gift from the central bank.

    The third option is very important in the present crisis. Usually it is disguised as lending but that is not true since if one arm of the government makes money out of thin air and lends it to another arm of government it is not lending but money creation.

    On the insistence of the German government the third option has been taken off the table for all countries with the Euro because the ECB is forbidden to lend to countries which have the Euro.

    This is the main cause of the present crisis.

    Countries that are not on the gold standard and do not have public loans in a foreign currency CANNOT GO BANKRUPT !

    The German rules has, however, de facto put Europe on a gold standard and driven Greece bankrupt.

    The problem with central banks creating money and then use it for public consumption is an increase in inflation.

    However, the ECB has just created a trillion Euros and given it to the banks.

    It is absolutely absurd that money is given to banks at close to zero interest in this way so that they can lend it to Portugal at 12%. Clearly the Germans thinks it is perfectly fine to help the (German) banks with trillions of Euros of welfare but not the people of Europe.

    So what should have been done ?

    In the beginning of the crisis the ECB should have offered the Greek government a 400 billion loan over 100 years at 0.1% interest from money created out of thin air.

    This would not have cost the Europeans anything cause the amount is small and the money was already spent i.e. no increase in inflation.

    It is now crystal clear that the root of the problem is that back in those high-flying days banks lent far too much money in the hope of making a killing. It didn’t work out.

    Interest repayments and bad debts are stalling any chance of a recovery.

    The solution is simple:

    1. Debts need to be restructured or written off completely.

    2 .Banks need to be restructured, recapitalised and nationalised. Full-stop.

    • As usual, Fotis, you understand the situation – better than Auerbach. The ECB has made it clear they serve the big banks of Europe, not any country, and certainly not the people.

    • Excellent….a large part of the reason EU cant find a reliable solution is that a lot of people still think and act as if we are living in a gold standard world or in a commodity backed currency world in general.Further more they treat government finance as if its about a household.”A gvt cant “live” beyond its means” they say.Total nonesense….They need a little bit of MMT thinking in EU.

    • @ Crossover

      “Further more they treat government finance as if its about a household.”A gvt cant “live” beyond its means” they say.Total nonesense….They need a little bit of MMT thinking in EU.”

      Yes ,exactly.
      You just gave the better answer. Govts and households. In this system ,no common points at all. Still ,those in the know use our ignorance to have their way ,with phrases that attack a whole nation.

      People believe them ,because the interelations they are used to as households ,are diametrically opposite at state level.

    • @Demetris_(Λ)

      “People believe them ,because the interelations they are used to as households ,are diametrically opposite at state level.”

      Agreed.I dont know if its some kind of an orchestrated conspiracy in order to deceive people and turn them against their “targets” (Greece for example has been their main target lately), or its just that they are so hardheaded and stuck to their beliefs but the fact is that ignorance in the general population,seems to be cruicial and provides a good backbone for such an austerity agenda.
      For example the government-household analogy can only exist if ignorance co-exists at the same time.

      The real sad thing though,is that mainstream economic theory that is taught in the great majority of schools worldwide is flooded with such ideas and thus creates a steady amount of believers to defend such policies.

    • @Demetris_(Λ)

      Stephanie Kelton here breaks down in detail why the gvt – household analogy is nonesense.

      Proffesor may i ask whats your take on this ?

    • @ Crossover

      Thanks

      MMT is counter to government stupidity ,while gvt stup. is counter to reality.
      MMT is closer to reality and accepting the true flow of energy (money).
      The mechanisms of MMT are true stabilizers. Not blocks of flow ,and certainly not manipulators.

  19. I find a number of inaccuracies, some on the level of typos and some more substantial.

    The first “typo” is

    This was corroborated by truly powerful increases in total German employment, which now stands at a 20 year low.

    which should probably read

    This was corroborated by truly powerful increases in total German employment, with unemployment now standing at a 20 year low.

    Then there is the aside on the democratic legitimacy of the Hartz reforms:

    It was subsequently discovered that Peter Hartz himself had only secured the acquiescence of Germany’s workers by sanctioning illegal payments to Germany’s powerful works council (see here) for which he was given a 2 year suspended sentence.

    The linked BBC piece talks about the Volkswagen works council. There is no ‘Germany’s works council’ nor does it have a role in legitimizing labour law reforms.

    Finally, about bank runs. First, a typo on the size

    El Mundo reported that depositors had withdrawn one million euros from the Spanish bank Bankia since its takeover by the government on May 9th

    It should be one billion euros. And then on the mechanics of cross-border banking in the Eurozone

    If you’re a depositor at a Spanish bank in Barcelona, there is nothing stopping you from withdrawing that money and re-depositing it in at a local German bank down the street. There are no capital controls or border controls in effect.

    There is no local German bank down the street. Deutsche Bank branches in Spain are branches of a Spanish registered and regulated bank subsidiary of the Deutsche Bank group, not branches of a German registered and regulated bank. To take money to Germany one has to open a nonresident account in a German bank, and then there’s the easy, no-capital-or-border-controls step of doing an online transfer.

  20. This view that the people benefit form a weaker currency is absurd! A stron currency makes goods cheaper! I do not think we need to draw a graph to see that Swiss & Norwegians are better off than people in Zimbabwe!

    And no you do not lose your entire export markets. A cheaper exchange rate is significant if you want to increase Feta or textile exports, or encourage tourists to toast themselves on Greek beaches… The issue is how to persuade the German taxpayer to pay twice for his beach vacation: once at the travel agent, and a second time in taxes to be transferred to the Greeks with Swiss bank accounts… (and the second payment being due even if he didn’t go to Greece, but went to Florida !)

    • True.

      Well it is a dynamic game and who knows what the eventual fluctuations will be until after the fact.

    • You mention Switzerland. Almost one year ago, the Swiss Central Bank took specific measures (such as buying euros and Swiss francs) in order to devaluate the Swiss franc, because the fall of the euro, had incurred considerable appreciation of the Swiss franc with the usual consequences:

      – Increase in imports
      – Decrease in exports
      – Current Account Surplus reduction

      Thus, Switzerland is among countries (such as China, Germany, the Netherlands) which are “artificially devaluing” their currency (through monetary unions, pegging or other means). Therefore, your statement is a little contradicting.

    • Almost a year ago, the Swiss Franc greatly appreciated against the euro.

      As a result.

      – Swiss imports were increasing
      – Swiss exports were decreasing
      – Current account surplus was decreasing

      Thus, the central bank of Switzerland took action (buying euros and selling francs) in order to “devalue” the Swiss franc and keep it around 1.20 francs per euro. Thus, even Switzerland belongs to a group of countries, that according to many are “devaluing” their currencies (such as China).

    • “People” benefit from a full employment policy. A full employment policy introduces an inflationary bias. The German deflationary bias benefits rentiers by protecting the purchasing power of their net worth, and generates unemployment which is exported to its trade partners when the latter are locked in a currency peg with Germany.

    • “People” benefit from a full employment policy”

      Maybe you should ask East Germans or Slovaks if they believe in this statement.

      In the socialist Eastern European countries everyone was employed, but did not get a real currency for it. They got a weak (to non convertible) currency.

      In the extreme you are saying people are benefitting from having full employment ina labor camp. That they get nothing for it you are omitting.

      So having full employment in Germany is not a benefit if you transfer 20% of that to PIFGIBS. It is better to have one day of unpiad vacation per week than to work for the PIFGIBS!

    • @ No EU d

      Actually what you are saying can be considered correct and used against you.

      For now ,the European leaders have decided to treat Europe as two parts of Germany with the usual and even worst consequences.

      And your money is not transferred anywhere. It stays where it is.
      Stupid tech tricks. Everybody works for the bankers.

    • Actually “A full employment policy introduces an inflationary bias” has been never prooved….

      http://www.epicoalition.org/docs/buffer_stock_employment_model_in.htm

      Thats how you have real full-employment without inflationary pressure.
      By “real” im talking about full-employment the way everybody understands the term except for technocrats.Not talking about the highest level of employment that doesnt create inflation.

    • Ah ,these are the aces of Greece.
      Now all we need is a politician with a Greek heart.

  21. “In the period before the euro, they would devalue the Deutschmark so that they could increase the sales of their products to their neighbors.”

    What a load of bull. The FFR and ITL lost 80% of their value against the DEM…

    But I guess one should not expect more from people who mix up billions with millions… must be a journalist

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