Intransigent Bundesbank: Mr Jens Weidmann’s surreptitious campaign to bring back the (greater) Deutsch Mark

Any fair minded reading of the Bundesbank’s latest Constitutional Court deposition must lead to one of two conclusions: Either the Bundesbank has failed to recognise the existentialist threat to the Eurozone (that was placed in suspended animation during the past eight months or so), or the Bundesbank has intentionally opted for a strategy that will, sooner or later, see the disbanding of the current Eurozone. Loath to assume naiveté on the Bundesbank’s part, I opt for the latter. Here is why:

The 12th June moment

On 12th June, 2013, Germany’s constitutional court is scheduled to rule on the legality of Mr Mario Draghi’s OMT (outright monetary transactions) program. Of all the institutional interventions during the past three years of cascading Euro Crisis, OMT (together with Germany’s reluctant acceptance that Grexit was too risky) was the single most significant measure that has calmed the bond markets and allowed the euro not to fragment (beyond the recent de facto exit of Cyprus from the Eurozone).

This is not the first time that Germany’s constitutional court has heard cases against Europe’s institutional reforms the purpose of which was to calm markets and buy the Eurozone (and its political class) additional time. It was only last September that it ruled, through clenched teeth, that the ESM (the European Stability Mechanism) could go ahead, while imposing massively constrictive conditions on Germany’s participation in it (e.g. limiting Germany’s contribution to the ESM to less than €200 billion, specifying that the ESM would not be able to make a move without the Federal Parliament’s consent etc.)

While no one really expects that Germany’s Constitutional Court will dare a ruling that explicitly bans Mr Draghi’s OMT, almost everyone expects that it will attempt to weigh in regarding the form of conditionality that will accompany any bond purchases under the OMT – exactly, in other words, as it did with the ESM; i.e. give it a grudging green light while binding its operations in a manner that, effectively, renders it ineffective. Then, of course, the proof of the pie will be in the eating, both in terms of how the markets will react and, more importantly, how the ECB will act if it needs to activate OMT quickly to assist, say, Italy’s bond market (i.e. will Mr Draghi and Ms Merkel abide by the Court’s conditions or will they, quietly, sweep them under the carpet?).

The Bundesbank’s deposition

In a sense, the German Constitutional Court is doing nothing new; hedging its verdict by officially saying ‘yes’ to Berlin while piling up the conditions so that it is an effective ‘no’. Yet, this time it is different. While Karlsruhe (where the Constitutional Court is situated) will, most likely, tread a fine line between obstructionism and avoiding a public clash with Berlin and Frankfurt, what makes this hearing different is a deposition that was tabled last December at the Court by Germany’s Central Bank, the intransigent Bundesbank – a document that was only yesterday released by Handeslblatt and commented upon extensively in the financial press.

Three statemets make this is bombshell of a deposition. The first openly questions whether the ECB has a mandate to preserve the integrity of the euro; that is, to prevent the currency’s collapse. The second, in reality, questions the joint decision of Mrs Merkel and Mr Draghi to keep Greece in the Eurozone. And the third challenges Mr Draghi’s oft-stated conviction that the ECB’s broken monetary transmission mechanism should be mended as quickly as possible. Taken together, these three passages constitute an act of war against the euro as a coherent currency; especially in view of the fact that they are official depositions by the Bundesbank to the German Constitutional Court for the purpose of invoking a constitutional ban on Mr Draghi’s monetary stance. In view of the gravity of the matter, it is perhaps important that we take a look at each of these three acidic statements:

Statement 1: It is not the role of a central bank to guarantee the irreversibility of the currency

One wonders whose role it is, if it is not the Central Bank’s? As long as the democratically elected political leadership declares (for better or for worse) a cast iron determination to keep the Eurozone intact, it would be a gross violation of the ECB’s mandate not to guarantee, to the best of its abilities, the irreversibility of the currency (nb. Besides price stability the ECB’s charter specifies that the ECB is obliged to assist the European Council in the pursuit of its borader objectives). Especially in a Eurozone that, in truth, only has one substantial common institution: the ECB! By challenging this simple assumption, the Bundesbank adopted a brand new, utterly incendiary, position: The Eurozone’s salvation is not paramount, even if its political leadership thinks it is! Nothing can damage confidence in the Eurozone more than such a position-statement by the Central Bank of the monetary union’s most powerful economy.

Statement 2: The credibility of the OMT program, by which Mr Draghi tried to guarantee the euro’s irreversibility, was cast in doubt (even before OMT was announced) by Greece’s use of its own Central Bank’s ELA (from around April to December 2012).

This statement requires some unpacking. Lest we forget, Greece was cut off the troika’s loan tranches when the Papademos government lost its credibility in the early Spring and had to call for elections. The troika, citing the impossibility of coming to an agreement with a non-existent government, suspended all payments to the Greek government till further notice. It did not resume lending to the Greek state till the end of the year, well after the election in June of an acquiescent conservative administration that accepted all its terms and conditions to the full. Meanwhile, some time in the Spring of 2012, the ECB also cut Greek banks off its own refinancing operations; something it could not avoid given the clear state of insolvency of these banks. If at that point (when the state was utterly impecunious), the Greek banks had also lost access to ELA funding, they would have closed down instantly and the Greek government, whether it liked it or not, would have had to reconstitute the drachma and exit the monetary union.

Of course, this did not happen because the ECB never approved Grexit (thinking of it, correctly, as a systemically catastrophic development) and allowed the Greek Central Bank to continue providing liquidity to the bankrupt Greek banks. Moreover, and this is not unimportant, the ECB had another reason to do this: In May and in August of 2012, tranches of Greek government bonds that the ECB had purchased in 2010 (as part of the ill-fated SMP bond purchasing program) matured. Allowing Grexit would have meant taking losses on those bonds; a political and symbolic eventuality that Mr Draghi dreaded. Thus, the Greek government issued T-Bills to pay back the ECB (while keeping a few ‘peanuts’ for itself), T-Bills that only the Greek banks bought before handing them over to the Central Bank of Greece in exchange for ELA liquidity. In this manner, Greece was kept on a drip feed until the end of the year when the loan tranches from troika started flowing again and the ECB started accepting again Greek bank collateral (on the pretense that, somehow, they had become solvent again).

This is the background to Bundesbank’s charge against the ECB’s OMT. What Mr Weidmann is saying is that, in the above case, the ECB played fast and loose with its own rule book, accepting collateral that is worthless and, even when it could no longer bring itself to do this, allowing the Greek Central Bank to create euros on behalf of clearly bankrupt Eurozone entities (the Greek banks). And if the ECB played fast and loose with its rulebook on that occasion, why should we trust it not to do the same with OMT? What will stop Mr Draghi from purchasing Italian bonds even if the Rome government is less than diligent in the implementation of agreed spending cuts, tax hikes and ‘reforms’? One must admit that Mr Weidmann has a point. But, imagine what would have happened if Mr Draghi had proposed to the ECB’s Governing Council to veto the Greek Central Bank’s ELA liquidity provisions in June, in August, in September? Greece would have exited the Eurozone overnight, defaulted on the ECB’s Greek bonds (the first time that would have happened in the Eurozone’s short history), Italy would have crashed, and the euro would have been history.

Put briefly, by castigating the ECB’s handling of the Greek debacle during those crucial months in 2012, the Bundesbank is questioning whether the Eurozone ought to have been saved. In conjunction with Statement 1 above, it sends a signal that the Bundesbank thinks it preferable to let the Eurozone collapse than adopt a ‘flexible’ interpretation of insolvency or, in the case of OMT purchases, of ‘conditionality’.

Statement 3: Mr Draghi, and almost every other commentator, laments often that the interest rate transmission mechanism of the ECB has broken down; that unprecedented reductions in ECB refinancing interest rates are not passed on even to profitable and efficient firms in the hard-hit Periphery. Uniquely amongst all European financial and economic authorities, the Bundesbank told Germany’s constitutional court this:  “the question arises as to whether and why such a development must be corrected”.

This statement seemingly reveals a degree of callousness that exceeds the negative expectations of the Bundesbank’s most ardent critics. But is it callousness? It would only callousness, dear reader, if the Bundesbank truly thought that it is fine for a Spanish company to be paying interest rates of 7% when a comparable (in terms of efficiency and potential profitability) German company secures loans at a mere 2%. I am, however, beginning to tilt towards the interpretation that the Bundesbank does not think that this is a defensible situation. The reason it does not want the transmission mechanism to be ‘corrected’ may be because it is more useful to the Bundesbank’s strategy while ‘broken’. Useful in what sense? Useful in the sense that, while broken, the political climate in Europe becomes increasingly amenable to the idea of a Eurozone break-up; without the Bundesbank ever having to propose such a break-up.

Conclusion: Error or stratagem?

Some readers may feel inclined to dismiss my hypothesis as too far-fetched; too conspiratorial. It is perfectly true that I have no evidence that Mr Weidmann has intentionally embraced a strategy of pushing the Eurozone toward disintegration (thus creating an inexorable dynamic that will lead to the DM’s re-introduction). However, a close reading of the Bundesbank’s constitutional court deposition leaves us with only two possible interpretations. One is that Mr Weidmann does not ‘get it’; that he cannot see that a Greek exit in 2012, or an Italian exit in 2014, would spell the end of the Eurozone; that he cannot see that Mr Draghi’s OMT announcement played a crucial role in stopping the disintegration of the common currency last year; that he has no appreciation of the catastrophe facing good, solid Spanish and Italian enterprises due to the broken down interest rate transmission mechanism. The other is my interpretation: Mr Weidman can see only too well that the above hold unequivocally but is tabling this deposition at the constitutional course knowingly and as part of a strategy that leads the euro to a death by a thousand, almost silent, cuts. You take your pick, dear reader: Do we behold a Bundesbank Grand Error or a Grand Strategy, the purpose of which is to bring about a new hard currency east of the Rhine and north of the Alps, unencumbered by the deficit countries and France? I know which interpretation I would place money on.

108 thoughts on “Intransigent Bundesbank: Mr Jens Weidmann’s surreptitious campaign to bring back the (greater) Deutsch Mark

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    • Dear elenits
      I am sorry you’ve had such a bad experience in Germany. I’d like to assume that most people with foreign roots in Germany (and that is a large, growing group of people – about 16 million out of a population of 82 million) are fairly happy.

      Reading your post, one gets a truly horrible picture of Germany. I’d say in the age of cheap plane tickets, many people have the chance to have a look and get their own impression.
      There are of course some horrible people in Germany – some of then of non-German origin, by the way – but overall, Germany seems to me to have become a “normal country”. Which I think is great after 1914-1945.
      No need to insist on old stereotypes of Nazis, etc.
      There is both: rude, fat, narrow-minded and silly looking people – but also very friendly, open minded, interesting people.

    • Martin, thank you for your kind comments. I didn’t have a bad experience of Germany, but a rather standard one with the exception perhaps of the neo-nazi gathering!

      Incidentally I was lured to Germany after a project I had won and 2 years of pressure and fee escalation temptation. I was reluctant to live there, I admit.

      What I found was a rather dull, materially wealthy society full of pleasant but not very lively people and endless english books in translation – something that bewildered me i.e. why are there so few german writers?

      First, in my institute, most of us were foreigners. Germany does not seem to be educating enough high-level scientists and researchers, then or now, since these jobs – more than ever – are taken up by headhunted foreigners. Secondly, frustratingly, our relatively few german colleagues stuck religiously to a 37 hour week when all the other nationalities regularly worked 50-60 hours: out of interest & commitment. Unfortunately the difference in commitment showed in the quality of the results. This led me to turn down a professorship and contract extension and leave. Out of 23, only one foreign colleague stayed.

      No doubt many people would find Germany a paradise. I didn’t…and in my field it also meant 2 semi-wasted years.

    • In the Age of cheap plane tickets, one can live and work in different places. I would never live in Frankfurt, but I work there.

    • @Martin
      No one said that there are not many friendly, open minded, cultured and tolerant Germans. My best friend for example here in Switzerland is German.
      the problem is that these Germans do absolutely nothing, and they let all these, many by the way, narrow minded racists Germans to do and say whatever they want.
      In Greece nowadays for example, there is a huge reaction against Golden-Dawn political party and against their actions. I never seen anything similar in Germany. Instead, what I see, is the average Germans tolerate the mindless actions of racists like the ones Elenits described.
      So, besides these “rude, fat, narrow-minded and silly looking people” (your words) you describe, you have to blame the silence and tolerance of the “very friendly, open minded, interesting people” (that i assume you are one of them)
      And btw, these Germans have the same behavior even outside Germany. Here in Switzerland, for example, you can hear now and then a delirium of racist speech against (mostly) Greeks firsts, Balkanians second, and Mediterraneans in general third. (the last of which i heard 3 days ago: a German which we hosted for 2 weeks i our institution complaining about an expensive bill in local restaurant and too bad I’m not Greek and I can’t leave without paying my bill and feeling any kind of regret…)

    • Dear ΤΟΥΡΙΣΤΑΣ

      I live in Switzerland, too – and prices can feel outrageous from a German perspective. Still a tasteless joke, though.

      One of the reasons why you don’t remember any German equivalent to that in Greece against the “Morning Glory” movement is that, well, there is nothing comparable in Germany to that silly movement at the moment to protest against.

      With regards to the decent Germans not doing enough to calm the unpleasant ones down: point taken, but I think people are primarily responsible for their own actions. If a German neighbour of mine misbehaved, I may say something and may feel ashamed – but I don’t think I HAVE to do anything.

      With regards to the German mood: most people are actually not politically interested. They just want to live their lives and be left in peace. Sure there were always stereotypes around in Germany about Greece – but they were not negative. Overall, they were pretty positive (friendly, warm, honest, hard working among the ideas coming to mind of the average German when thinking about Greece).

      Suddenly, people are confronted with being called Nazis, being declared “the ugly Germans” again, expected to fork out money like crazy taking huge risks trying to help Greece in a crisis most Germans don’t understand and don’t primarily see as their reliability and problem.

      This causes frustration and anger.
      Germans, justified or not, feel they are used as a scapegoat. Not a nice feeling – and not helpful if the scapegoat is relatively powerful.

    • @Martin
      you say “Suddenly, people are confronted with being called Nazis”
      Suddenly? So for you, this is “sudden”? Truly, what do you expect, when there was this huge propaganda, even from the most intellectual part of your society, including your political “elite”, against Greeks and everything Greek. Need i remind you the words used by your politicians, your ELITE politicians, to stigmatize an entire nation? Suddenly, Merkel, Soible and their puppets started blaming for everything going bad in this world the lazy, thieves, anarchists, …, Greeks who, on top of that, live with their mother(!)
      Try to see your argument from the Greek perspective…and I’m afraid, that this whole speech of hatred against Greeks from your responsible political elite, constitutes something even more dangerous than a party like Golden Dawn that nobody takes it seriously…

    • Dear elenits
      Claiming there’s not a lot of German literature is unusual:
      There’s just also a lot of foreign stuff in book shops – but that’s not necessarily bad, is it?

      With regards to the 37 hour week (sometimes even less – but quite often also a lot more, it really depends): That can seem a bit weird, especially if rigorously applied in work environments where people are intrinsically motivated, such as research. But also weird it is so disliked – what’s so bad about not working very long hours? Maybe partly the disappointment because it contradicts the clichee of the “machine-like”, always working German?

      Anyway: sad you feel wasted 2 years of your life – maybe, if you ever considered going back, avoid rural areas and go for e.g. Berlin, Hamburg, Munich or Colgne instead. The weather is still Northern European – but you should find it more open, ethnically diverse and less dull.

    • Hi Martin
      I worked in a big city but lived outside because of my horses.

      I lived in Germany 1992-4. The hard-working german of the economic miracle was an earlier generation. (A miracle only made possible as a matter of strategic policy by first the Marshall Plan, and secondly Greece and other allied countries through the 1951 London Agreement debt forgiveness – at our own considerable cost). The Germany I saw was economically secure but by 1992 the germans had considerable leisure time and no need to drive themselves hard.

      Quite frankly I think you are far too touchy about silly details. German authors are not prolific and by choice the world does not beat a path to Germany’s door for its humour or food or fashion sense or liveliness or ‘modern german culture’ – get over it! Just as the world doesn’t beat a path to Greece’s door for its factories….

      What is under discussion here is the German government’s present political behaviour in the eurozone crisis which quite apart from systematically destroying the southern economies is beginning to harm even her satellite economies. What is the point of the german decisions? To use its economic & political clout to accumulate wealth. We – 17 countries – are in a financial union from which only Germany would ultimately benefit. Foreseen by Bernard Connolly in his book ‘The Rotten Heart of Europe” but not by our stupid politicians who signed up to the Maastricht Treaty which mandated competition BETWEEN the eurozone countries (ridiculous!) instead of between a united eurozone and the world.

      The only thing that matters now is to find a positive resolution for the horrendous situation in the EU, and the so-far failed experiment of the euro. This failure has been created and purpose-driven by german policy for Germany’s more or less sole benefit. This has focussed the entire world on Germany’s political/economic behaviour – it is not the fantasy of the commentators here, most of whom could normally care tuppence about Germany, nor have any interest in it. (This certainly describes myself.) In other words, criticism of Germany in this context is not personal, it is valid.

    • Dear ΤΟΥΡΙΣΤΑΣ
      Yes, for me that was “suddenly”. It was new for me that Germans were called “Nazis” or likened for dithering to push money to Greece.
      Let’s maybe think a bit about what Nazis did and what characterized them? To begin with, they had an ideology that was based on extermination and the “germanic race”. Then, they were very bellicose. They committed horrible crimes among them genocide. Overall, an absolutely devastating record.

      Now, what would justify Germany to be put in that category today? It may be stupid (I really don’t know) but it is certainly neither a crime nor a typical “Nazi” action to not give away money for free. I can certainly understand that Greece cannot understand how Germany “could be so stupid” not to just hand over the money, with no strings attached. Instead, it handed over the money, with certain conditions. Which may have been wise or not – but being called a Nazi in response to that, I find hard to bear.

    • @Martin

      It is funny to say the least,if someone comes to a blog which a lot of Greek people comment on,and complain that Germans are being used as scapegoats.
      It has only been 3 years since the lazy Greeks that had been having a party for the last 10 years,were accountable for the destruction of the global economy and even more so for the European.

      As we use to say in Greece, they don’t talk about ropes at the house of someone who has been hanged.

    • Dear Crossover
      You wrote: “It has only been 3 years since the lazy Greeks that had been having a party for the last 10 years,were accountable for the destruction of the global economy and even more so for the European.”

      It is really not the opinion in Germany that Greece is responsible for the global financial crisis!
      There’s frustration with what is seen as Greek mismanagement and that Germany is drawn into that. But that’s about it.

    • Dear elenits
      You wrote:
      “the so-far failed experiment of the euro. This failure has been created and purpose-driven by german policy for Germany’s more or less sole benefit.”
      This is nonsense. The idea that the failure of the Euro has been (deliberately) created for Germany’s benefit is wrong on so many levels that it is hard to know where to start.

      Yes, the Euro had and has its flaws. Together with the financial crisis and less than responsible behaviour of many Eurozone countries, the result is the disaster that we can see now.

      To ignore all the ingredients for the toxic mix and solely put the blame on Germany – and even claim that what we can see now was the intended result of a German plan, to Germany’s benefit is absolutely stupid.

      It fails to recognise a long list of conditions that had to be met to produce the situation that we’re in now. It completely ignores the role of e.g. Greece in shaping this disaster – and it ignores that Germany would of course benefit if the Eurozone was booming. It’s ridiculous to keep stating Germany’s addicted to exports to the Eurozone and at the same time phantasize that somehow it is in Germany’s interest and caused by Gefmany that e.g. Greece collapses.

    • “The only thing that matters now is to find a positive resolution for the horrendous situation in the EU, and the so-far failed experiment of the euro.”

      Yes, let´s get rid of both as soon as possible!

      It is really funny how People argue Germany would benefit from the crisis in the ClubMed. Germany ALWAYS had lower interest rates than the ClubMed. Without the Euro the difference would be even higher!

  4. @Martin

    ” If I remember correctly, then you actually live in Germany.
    Now comes a bit of a personal question – but one that may be relevant when it comes to questions like your “we have nothing in common” and your obvious disgust with Germany, the vast majority of her population, her political and economical elite and all that.

    Why do you actually live there? If its such a horrible place with such horrible people and very unpleasant culture etc – why not simply move somewhere else?

    Could it be that you live there because there are aspects that you actually like a bit?

    For if that was the case, maybe you could share a couple of not-so-negative aspects of Germany and its people? Maybe it would actually be much more constructive to look out for things we have in common than increasing tensions and claiming dubious stuff like “we have nothing in common”?”

    Martin, have you seen your compatriots EUDSSR’s answer?
    “I also have nothing in common with many People of countries i have lived. And of course I would never share my bank account with them!”

    I think he answered your question better than I could ever do 🙂

    Now since you are so stubbornly denying the new European reality which is caused by Germanys intransigent policies:


    • @Martin
      I don’t see how the Nikos Tsafos article above supports your case. Rather, it would support Aristotelos case.

      I lived and worked in Germany for 2 years and left as soon as I could, throwing a black stone. I’ve lived in 17 countries (diplomat father / my job) and it was only in Germany that I felt completely isolated from the rest of the world. Furthermore, it was only in Germany that I’ve seen people on a daily basis put rather pointless rules above decency or common humanity, or been shrieked at aggressively for transgressing minor unwritten rules. I grant you, this is a lifestyle matter – but it is peculiar to Germany and rather unpleasant.

      One thing I know well from my work is that where as Germany pushes other countries to open its closed professions, Germany itself is the worst offender and repeatedly taken to the European court.

      My last observation: what distinguishes Germany as a society is that it is the one country where no foreigner can ever be accepted as german. Instead, foreigners are tolerated depending on their wealth and country of origin. But only tolerated, never welcomed. For a foreigner in Germany then, it is almost impossible to embrace it wholeheartedly.

      And one of my most abiding memories was being warned to stay at home for the weekend by the only other foreigner in our village, the italian Gelato shop owner. Neo-nazis took over the village for 2 days, and yes, smashed his shop. I had to hide because even though I’m blonde and half English, they were demanding people’s IDs and mine has a greek name.

      As a foreigner in so many countries I am well aware of one’s vulnerability. I am active in migrant help here in Athens, and sorry and ashamed that the stupider, angrier greeks have adopted Germany’s most vile export.

      Meanwhile the case in Germany is going to court now – the murders of Turks and greeks.

      Anyway….I believe this might point towards an answer to your question to Aristotelos. Remember too, that not all greeks are gastarbeiters, but work at universities, the Max Planke Institute, European Union institutions, your banks, your universities, and fill 1000s of engineering and highly skilled technical posts.

    • @elenits:

      How racist are Germans? I guess according to latest research about 30 to 40 percent of all Germans are actively or latently xenophobic:

      and this one is also of interest:

      Day-to-day business of racial discrimination in Germany

      Even Germans with an immigrant background have to cope with the threat of racism. Foreign names or physical attribute can be enough to lead to discrimination at work and in public.

      Having spoken about racism in Germany my question which I have asked persistently since the beginning of the Euro-crisis is that:

      What role has racism played in the whole Euro crisis? Was all the negative media propaganda driven by latent racism? Was the unwillingness of the Germans and their northern allies also driven in part by latent Xenophobia?

      How “united” is the north and the south if xenophobia and racism were an important part of the Euro crisis?

      This all leads to my last question how can we talk about a European Union when in fact we would rather need to speak about a European Disunion.

    • Sadly Aristotele, racism is everywhere, not only in Germany but here in Greece with the rise of Chrysi Avgi, a nazi-inspired but definitely home grown party.

      From a psychological point of view racism is self-hatred projected outward on to the ‘other’.

      It takes root in people who feel insecure and insufficiently equipped to deal with society through lack of education or other problems, leading them (this is not automatic) to internalise a sense of personal inferiority. The greater this sense of personal inferiority (which is emotionally driven, not logical) the more difficult it is for the psyche to contain the resulting pain and anger, because indeed, this is a self-generated assault on the healthy psyche. A death wish in Freud’s terms. Normally, at this point, a person suffering from this should see a therapist…

      The psyche, realising that it is an assault, fights for health by searching for the cause of its pain. Instead of looking inward – ie the initial false assumption – it is easier and less painful to find an external cause – therefore it makes a projection outward.

      We see this in the german propaganda disseminated in the last 3 years: lazy (and in the past dirty, subhuman) southerners etc; and in the blame placed by Chrysi Avgi on the migrants in Greece, which has mutated into foreigners in general. Both projections are untrue – southerners work longer hours for less pay, and migrants in Greece work at jobs that no Chrysi Avgites would touch. Its nothing to do with logic.

      What is fascinating about projection is that we project outward our own sins, weaknesses, failures. Everything that we can’t bear to face about ourselves. So the german projection is about their fear & unwillingness to face their own laziness, corruption, feelings of dirtiness, sub-human-ness etc. etc. and the Chrysi Avgi projection amounts to the same thing, along with refusing to face that they would normally be doing (and should be doing-) the farmwork and grunt work in the greek economy. In other words the latter feel too good for the grunt work and that ‘sub-humans’ (migrants) should be doing it.

      Unless one is a psychopath and incapable of empathy or remorse, it is normal to have doubts about oneself or to feel pain over our failures or harm we have done to others (which is always a crime against the self/psyche). Most of us make projections in our emotional lives until we feel strong enough to ‘take back’ the projection and face the fault in ourselves (taking responsibility). But when the self criticism goes to deep and turns into self-hatred, the projections we make outward become toxic, socially dangerous.

      Therefore extreme racism is psychologically an outward projection of extreme self-hatred and psychic fear breeding anger. Racism practised against innocent children is the most extreme form of self-hatred, self-immolation because the human animal is instinctively programmed to protect infancy.

      I hope this is helpful.

      Fascinatingly, a projection ALWAYS describes the projector’s psychic problem and never the object’s problem (though the object will provide a ‘hook’ ie Greece did go broke, but not because of ‘the greeks’ ‘lazy southerners’; migrants do the jobs Chrysi Avgites should be doing but feel too superior to do). In sum, the projection is, and perfectly describes, the projector’s personal dilemna.

    • @Martin: “Dear Aristoteles
      Not a very convincing answer – if you live somewhere for many years that you claim to basically hate, this makes no sense to me. But your private matter, of course.”

      I never claimed to hate the Germans! My language might be hard but what do you want me to say after endless Greek-bashing in German media? Action leads to reaction!
      No I don’t hate anybody, I am just very angry about the insane policy of the German coalition government and the endless biased media coverage in German newspapers.

      At the end of the day I am convinced that if this unbelievable stupidity continues like that than Germany will be probably even the biggest looser of all. So what I am saying is that the current political line is against Germanys self-interest.

    • @Martin

      I’m trying really hard to understand the point of this article but i utterly fail.Again that’s one of the numerous articles,that try to prove that no austerity has taken place,by comparing past and present per gdp figures.

      Someone has to either be lacking common (economic) sense or be driven by other motives to ignore facts that are central to these arguments.For example how can you expect government spending on wages to be lower than the pre-crisis levels on a per gdp basis when 1st of all you have a massive reduction of the gdp and 2nd its the private sector that took the largest hit and its own contribution to gdp has declined ?

      And what about the ridiculous example he gives with the 10 people economy?Why is he ignoring the fact that the per capita spending would show a way different picture than the one he’s drawing in order to prove his point?

      At least explain how Greece has come to the point to run a primary surplus if no austerity has taken place?

    • Dear Crossover
      I am not behind every word of the article but think there are some interesting points in it, among them: ” it is important to distinguish between austerity as a precaution and austerity as a last resort”

      I think Greece got into a position where it was “austerity as a last resort”, officially since 2009 – but really (had the reported numbers been correct and Greece been a bit more in the spotlight) already as early as 2004 or so.

      In the debates here and elsewhere I sometimes miss an awareness that Greece had ignored the urgent need for structural reforms and spending a little less that by 2009 it was in a truly desperate position.

      There was absolutely no way it could have continued on its path. Therefore, to keep insisting what happened since has been some kind of unnecessary cruelty, imposed by evil foreign powers (I.e. Germany) is missing some important facts, don’t you think?
      I am not saying that all policies implemented in Greece through the pressure of the Troika were right. I am sure they were not.
      But a line had to be drawn somewhere. The markets did that in 2009 / 2010 and since then, the options open to Greece have been extremely limited.

      It would be nice to acknowledge these simple facts sometimes and not to constantly follow a narrative that implies that only an idiot could have done to Greece what the Troika did and that maybe austerity was not at all necessary. If you ignore the need for “precautionary austerity” (to stick with the words of the article”, you can delay the inevitable – but only for so long. But then it will hit you, a few years later, even more brutally.

      Sometimes I get the impression that this is not at all seen.

    • This talk about too much austerity is laughable if you look at the numbers. Some ClubMed dovernments spend 30% more than their revenues are…

    • @Martin

      First of all, we should try to understand what “austerity as a precaution” is about.Precaution for what?If its about the public debt that might go out of hand and cause chaos, then I’m truly sorry for having to repeat myself over and over again but this is only an issue when you either have any kind of currency peg or borrow in foreign currencies or (unfortunately) you are a member of the eurozone.No country can default on its debt as long as its denominated in its own free floatng fiat currency.Unless it chooses to default for whatever reason.

      With that said,Greece is indeed a member of the eurozone.But having said what i said in the 1st paragraph,i believe there’s no room for TINA arguments.This merely is a problem of the architecture of the eurozone.So instead of arguing whether Greece enforced austerity as a precaution or as a last resort,maybe we should consider whether a reconstruction of the flawed architecture of the EZ would be more appropriate instead of austerity no matter if it is as a precaution or as a last resort.

      So if you ask me, then yes, only an idiot would have adopted such policies since there exists an alternative.As a matter of fact there are more than 1 alternatives but that’s a different matter.

    • Exactly so, Crossover, well put. Of course it is first and foremost a problem of the eurozone architecture and there are millions of alternatives. 40 years from now anyone supporting “austerity” will be seen in retrospect as stupid ……or with an evil agenda.

    • @elenits

      I’m not really hopeful on that one.It’s not like we haven’t seen before,what harm austerity can cause.What’s even more sad is that it’s the Germans that actually experienced the pain of the austerity,inflicted upon them by the allied forces.Normally they should be the first to avert austerity after such experience.

    • Make ‘em Prove the Causality before They Cause Any More Suffering: Part One

      OK, austerity has always been about the causality. The people who are trying their best to get us to cut more and more spending, somewhat less than their best to get us to raise taxes, and who are doing nothing to fix our fraud-laden financial system, or the worst period of dis-employment we’ve experienced since the Great Depression, have been making other people (never themselves) suffer, because they believe the theory that excessive public debt hurts economic growth, and that to get rid of it we must follow a plan of long-term deficit reduction. And I’m being very charitable when I opine that they believe in this theory, because the alternative is that they don’t believe it, but are just using it as an excuse to make other people suffer, and widen the wealth gap between themselves and the rest of the population.

      Either way it’s important for the rest of us to demand that before we do anything more based on that theory, they should be forced to prove that it is the best theory out there about the causal relationship between public debt and economy growth. Actually, we should have made them prove that before we allowed Congress and President Obama to start playing austerity games with us way back in 2009 – 2010, because there’s been a lot of water under the bridge since then, including continuing very high disemployment, thousands and thousands of people dying due to lack of health insurance, suicide, depression-related illnesses, crime that need not have occurred, and all the effects of hopelessness that afflict the poor and the middle class during bad economic times. And now, our wonderful leaders have managed to inflict the sequestration upon us, while planning to inflict entitlement cuts on the old and the sick.

      Lately, of course, the armor of the austerians, and their claims of empirical support for their view that high levels of the debt-to-GDP ratio are associated with and/or cause very low or even negative rates of economic growth has suffered repeated blows from Economics Graduate Students and Professors at the University of Massachusetts and the University of Missouri at Kansas City, in recent papers. I’ll review those studies in Part Two. In the rest of this part, I’ll evaluate the proof austerians had for their policies before this new research work appeared.

      What Proof Did They Have?

      So, what proof did they have, before the recent research appeared, that austerity is the best course to follow? Well, it’s been practiced all over Europe for years now, and what are the results? Only record unemployment, shrinking economies, increasing public debt, crime, public unrest, increasing suicide rates, damaged health care systems denying care to people who need them, no improvement to speak of in the economic outlook, and immense dissatisfaction all over the continent.

      How about here? A stagnant economy, three steps forward, two steps back, high youth unemployment, no jobs for college graduates, layoffs in the public sector and declining services, low wages, recovery limited to the financial sector and the stock market — the kinds of results that in not so many years will produce a plutocracy, if one doesn’t exist already.

      Everywhere austerity is being practiced we see a slowed economy. In some places, like Japan, we see short periods of it followed by some backing off, producing stagnation for close to a quarter of a century. In other places, like Australia and Canada we’ve seen enough of it that the prosperity they could have enjoyed is beyond their grasp.

      Sure, Germany, hasn’t hit real hard times yet because their export-led economy gives them more policy space to run surpluses, but most of the nations of the Eurozone can’t run a trade surplus, so for them, continuing government austerity results in private sector losses, year after year, absent a change in rules by the Eurozone. Even the German economy has been slowing as its neighbors can afford less and less German goods, and France is seeing more than 10% unemployment and is rapidly becoming another basket case, creating the need for changing the well known Eurozone acronym to the PFIIGS. Is there an unambiguous success for austerity since the Second World War in a country running a trade deficit? I don’t know of one.

      So, what about the work of Carmen Reinhart and Kenneth Rogoff? Didn’t it show that, on average, nations experiencing debt-to-GDP ratios above 90% had negative rates of economic growth? And doesn’t this provide evidence that excessive debt does cause low economic growth and even economic contraction, so that if we value economic growth, we must reduce the debt-to-GDP ratio to a much lower level than 90% before we try to use deficit spending to try again to grow?

      Well, the answer to these questions is no, and no. I’ll explain the second “no” first, and consider the first “no” later on in Part Two.

      Common Fallacies: First, Reinhart and Rogoff never claimed that the findings of their analysis of their very extensive cross-national, historical database supported causal inference. It’s true that after they wrote their paper and published their book reporting on their data and analysis, they recommended austerity policies and either referred to their work in that context, or have been identified by others hosting an appearance or publishing an article as having done that work to support their “expertise.” So, they talked out of both sides of their mouths; but in their work itself they acknowledge that correlation isn’t causation, and that they hadn’t proved cause and effect. And they urged further research to explore cause-and-effect relationships.

      In addition, critics of their work have long emphasized that the reported association between high debt-to-GDP levels and low economic growth for all nations, had nothing to say about cause and effect in individual nations and therefore could not serve as the basis for a fiscal policy of austerity, or for Reinhart and Rogoff’s mere opinions that such a policy, expressed in other contexts should be implemented. One problem is that the association between debt-to-GDP and economic growth at levels of debt-to-GDP above 90% doesn’t apply to every instance in every nation. It’s an average, a mean or a median which is reported.

      So, the association is ecological across all instances. It is the well-known ecological fallacy of social science to conclude that it applies to all or even most instances in the high debt-to-GDP category. To go on from there, and then suggest that the association is causally relevant in individual systems, is to compound the ecological fallacy with the correlation is causation fallacy. To do that is just terrible social science.

      Currency Regime Variables: Second, we know that the instances in the high debt-to-GDP category vary considerably in their history and in key attributes that can critically affect economic growth. In particular, nation-instances in the R-R database vary according to whether Government debt is denominated in its own fiat currency, whether it allows a freely floating exchange rate, and whether it has a currency that is non-convertible. These variables determine whether a nation does or doesn’t have solvency constraints, and so cannot possibly involuntarily default on its debts. A nation has a sovereign fiat currency if it is non-convertible, freely floats and if the nation has no debts denominated in any other currency. R-R didn’t consider these variables in their classification, and it is very likely that any association between the debt-to-GDP ratio and economic growth will vary with these variables.

      Yet, R-R simply ignored these variables in their work, even though Kenneth Rogoff was once the Chief Economist of the International Monetary Fund (IMF). It is mind-boggling to think that R-R did not know about these distinctions. They must have known about them, and their possible significance. So why did they ignore them in their analysis? Were they afraid that including them would have shown that the key association in high debt-to-GDP level nations they were reporting (which we shall shortly see was in error anyway) was spurious?

      Control Variables:Third, of course there are a host of other variables in addition to the monetary ones I just mentioned that could, if data were gathered, and they were taken into account, have shown that any simple reported ecological association between debt-to-GDP and economic growth was spurious. I’ll just list the first five of a much longer list that might have been considered in a serious research design:

      – the gap between actual output and projected “full” output;

      – High involuntary unemployment vs. full employment;

      – Price stability vs. inflation or hyperinflation;

      – Minimum wage vs. a living wage;

      – No operative right to health care for everyone;

      There are many more variables that might plausibly be related to economic growth and that, if included, could have affected any observed simple correlation. So, why weren’t such variables in the database? And if the answer is that the resources were not there to provide them, then why weren’t very loud disclaimers included in the RR study telling readers that the results reported were very exploratory, could not serve as the basis for any policy, and might well be swept away by a more comprehensive analysis.


      So, even before the recent empirical work casting further doubt on the idea that austerity is necessary, or at least good policy, because it is generally true that high levels of the debt-to-GDP ratio are associated with and/or cause very low or even negative rates of economic growth, there were several considerations of theory, methodology, and facts on the ground, showing that any generalization of the associational and causal relationships assumed by austerity advocates (and reported in the R-R work) to individual nations and times had no basis in fact. So, decision makers who adopted austerity were doing so in the absence of proof and on the basis of a theory that sounded right to them.

      Erskine Bowles made this very clear in his response to the new paper by Thomas Herndon, Michael Ash, and Robert Pollin, showing significant errors in the RR work. He said:

      What it doesn’t change is the common sense and my own personal experience in both the public and private sector that when any organization has too much debt that is an enormous risk factor and your risks go up then people lending you money will want more money for their money.

      Or, in other words, he’s had his theory and he’s sticking to it whatever the research says, and however much harm it’s already caused in the real world. It’s infuriating to see this kind of attitude expressed by people who know well the results of austerity in Europe and who are also very well aware of the great damage it is causing elsewhere, including the United States. The rage one begins to feel has, I’m sure, a lot in common with the rage French peasants felt at the entitled aristocrats of 18th century France. It is the “let them eat cake” attitude expressed by those who, from their comfortable and often lavish financial perches, counsel the rest of us to wait, wait, wait, for the favorable effects of their austerity to bring us all nirvana, that really gets to you. They keep forgetting that “prosperity is just around the corner” didn’t work for Herbert Hoover, and that “in the long run we’re all dead.”

      Just yesterday, in a post calling for the repeal of the sequester Richard Eskow pointed out that President Obama’s weekly address called for replacing the sequester with his “balanced” austerity-filled deficit reduction budget. Eskow says:

      It’s as if the White House hadn’t received the memos: That the Reinhart/Rogoff paper’s been discredited. That contractionary policy kills economies … and dreams. That the jobs picture is still lousy, but that Keynesian economics still works so we can create some.

      Well, I don’t know about the Keynesian economics part, preferring the MMT approach myself, but Eskow’s right to point to the anomaly of the Administration continuing to advocate for austerity, when it is now plain that the austerian emperor has no clothes. This President gives the impression of being reasonable and open-minded, but when it comes to fiscal policy he has shown a troubling unwillingness to acknowledge failure and to adapt. Not least in his refusal to counter debt ceiling crises by filling the public purse with platinum coin seigniorage. And his continued adherence to his austerity budget in the face of both the older critiques and the newer studies undermining austerity means that we, the people, must demand that he and the Congress, The Washington Post, and the various other “captains of catfood” we hear so much from these days, prove causality before he and they, together, inflict any more suffering on the rest of us.

      I don’t know about you. But I’ve had it with all the austerians up to here. And I say that it’s time to get them to put up or shut up. If they can’t prove that the policies they’re advocating and have been implementing will work, then let them either can austerity, or resign, and get out of the way of people who can make things better.

  5. Wiki on Weidmann:

    He received his doctoral degree under the auspices of monetary theorist Manfred J. M. Neumann. During his studies Weidmann had internships at the Banque de France and the National Bank of Rwanda. Due to the resulting knowledge of the French financing sector his later career in German financial politics was welcomed in France and seen as a support of the Franco-German twin engine. His education has been characterized as specialising in monetarist economics.

    In September, with the ongoing European sovereign debt crisis, Weidmann was observed by a British commentator, David Marsh, to be taking a “cool” course relative to Chancellor Merkel. Marsh wrote that Weidmann was saying the European Monetary Union (EMU) “has to go in one of two directions. Either it takes the path of a fiscal union in which member countries fuse together their economic and financial systems into a much more robust framework that will protect them from internal dislocation. Weidmann says, coolly, this is somewhat unlikely. Or EMU remains a looser grouping of countries that will face the discipline of the financial markets if they fail to produce economic convergence,” namely exit from the EMU and default, looking particularly at Greece. Marsh also noted that Merkel is committed to the first course and so may come into conflict with her one-time economic adviser Weidmann.

    In a late November, 2011, speech in Berlin, Weidmann criticized the EMU’s peripheral states. “[T]heir ‘many years of wrong developments’, he said, were caused by ‘home-made’ errors, principally failure to use initially lower interest rates to channel funds into productive investments. Instead, they frittered away the post-EMU dividend on ‘disproportionate investment in private home-building, high government spending or private consumption'”, David Marsh reported.[7] In early December, with another in a string of Eurozone summits imminent, Bloomberg commented that the new ECB head Mario Draghi “knows he can’t afford to repeat” his predecessor Jean-Claude Trichet’s mistake of alienating the Bundesbank. Draghi was said in the report to be courting Weidmann by, among others, Julian Callow, chief European economist at Barclays in London.

    In May, 2012, Weidmann’s stance was characterized by US economist and columnist Paul Krugman as amounting to wanting to destroy the Euro.

    Weidmann, in late August 2012, was reported to have threatened to resign as Draghi’s July 2012 promise to do “whatever it takes [within ECB powers]” to save the Euro seemed likely to lead to purchases of Italian and Spanish bonds to keep interest rates in those major member economies capped at manageable levels. “In an interview with Der Spiegel last week, Weidmann said the bond buying made it look as if ECB was financing governments directly — and shouldn’t go ahead”, reported another MarketWatch commentator, Matthew Lynn. Lynn further speculated on the Draghi-Weidmann interaction, reminding readers of Axel Weber’s 2011 resignation over a “similar [ECB] scheme” and also of the 1992 failure of the European Exchange Rate Mechanism over German refusal to choose “printing money (taking some small risks with inflation) … to stabilize the system”.

  6. @klemperer85:

    “Thanks for all the responses, and thank you indeed for your explanations, Aristoteles. Of course I’ll read your link, I am here to learn.
    Meanwhile I think myself, reading Yanis’ great blog, what we could do in this situation. Staying a bit with my “there is not “the” Greeks” remark, I think what all of us can do is to at least criticise, and aloud too^^, those who spread wrong informations.”

    Honestly speaking klemperer I very much doubt after all the instigated media hate campaigns in Germany and elsewhere that the EU has much more shelf life!

    I believe that sooner or later we will see the EU explode just like a cluster bomb.

    There is nothing we have in common the North and the South just a bunch of superficial trivia.

    There is no European Union just an abominating Dis-Union.

    Game Over!

    • Dear Aristoteles
      If I remember correctly, then you actually live in Germany.
      Now comes a bit of a personal question – but one that may be relevant when it comes to questions like your “we have nothing in common” and your obvious disgust with Germany, the vast majority of her population, her political and economical elite and all that.

      Why do you actually live there? If its such a horrible place with such horrible people and very unpleasant culture etc – why not simply move somewhere else?

      Could it be that you live there because there are aspects that you actually like a bit?

      For if that was the case, maybe you could share a couple of not-so-negative aspects of Germany and its people? Maybe it would actually be much more constructive to look out for things we have in common than increasing tensions and claiming dubious stuff like “we have nothing in common”?

    • Why can´t he love where he wants? I also have nothing in common with many People of countries i have lived. And of course I would never share my bank account with them!

  7. Τὰ LIDL ἤξεραν γιὰ τὸ κούρεμα τῆς Κύπρου!

    Γνωρίζοντας ὅτι οἱ συμπατριῶτες τους θὰ πίεζαν πρὸς τὴν κατεύθυνση τοῦ «κουρέματος» οἱ Γερμανοὶ τῆς Lidl Κύπρου φρόντισαν νὰ προστατεύσουν τὶς καταθέσεις τὶς ὁποῖες σήκωσαν ἐλάχιστες ἡμέρες πρὶν τὸ ἐπίμαχο Eurogroup στὶς 15 Μαρτίου.
    Ὅπως ἀναφέρουν ἀσφαλεῖς πληροφορίες ἡ γερμανικὴ ἐκπτωτικὴ ἁλυσίδα super market, ἡ ὁποία ἐκτὸς τῶν ἄλλων προωθοῦσε τὴν κατεχόμενη Κύπρο ὡς τουριστικὸ προορισμό, ἀπέσυρε 4.300.000 εὐρὼ ἀπὸ τὶς κυπριακὲς τράπεζες ἀπὸ τὶς 4 ἕως 12 Μαρτίου. Σύμφωνα μὲ τὰ στοιχεῖα ποὺ ἔχει στὴ διάθεσή της ἡ “δημοκρατία” στις 4 Μαρτίου ἔγινε ἀνάληψη 1.350.000 εὐρώ, στὶς 5 Μαρτίου «ἔφυγαν» 1.000.000 εὐρὼ καὶ στὶς 12 Μαρτίου ἐκτὸς κυπριακῶν τραπεζῶν βρέθηκαν 1.950.000 εὐρώ.
    Καὶ σὰν μὴν ἔφθανε αὐτὸ σὲ διαφημιστικὰ φυλλάδια τῆς γερμανικῆς ἁλυσίδας ποὺ διανέμονται στὶς ὑπεραγορές της στὴν Γερμανία διαφημίζεται ὡς προορισμὸς διακοπῶν ἡ κατεχόμενη Βόρεια Κύπρος! Στὴν ἰστοσελίδα τῆς LIDL στὴν Γερμανία ὑπῆρχε μία πληθώρα ἐπιλογῶν καὶ προσφορῶν τοῦ ταξιδιωτικοῦ γραφείου τῆς LIDL, τὸ ὁποῖο λειτουργεῖ μέσω τῆς ἐπίσημης ἰστοσελίδας μὲ τὸ ἴδιο λογότυπο, γιὰ διακοπὲς στὴν “βόρεια Κύπρο”, μὲ πτήσεις πρὸς τὴν Ἀττάλεια καὶ ἀκολούθως πρὸς τὸ παράνομο ἀεροδρόμιο τοῦ Ἐρκᾶν.

  8. if German leader’s plan is the Mitteleuropa,
    it means that they have decided to “fight” in 2 fronts forever, with a population in retirement.
    I don’t think they are so idiots, don’t underestimate them or our critical view.
    My guess is that they try to exploit the situation, the best they can.
    Then, they will “save” the others, who cannot save themselves, or eliminate the “useless”.
    It happens to all “families”, like the “salvation” of the poor cousin, working as unpaid housekeeper.

    • Looks like there is still enough work. Noone answered yet. I will get me some Polish guys. They work harder and are cheaper.

    • Professor is there a reason you are letting this EUDSSR write one iflammatory post after another ?

  9. A Poderosa Alemanha quere ser forte nas suas politicas internacionais e agora temos os lideres da UE apoiar as politicas do governo da sra. Merkel com esse caminho de favores ao partido da sra.Merkel podemos ver o fim da Eurozona A Eurozona deve encontrar um modelo de crescimento dentro do mercado unico e acabar com esse inpério romano que esta dentro do corredores da UE

  10. Pingback: Eros in Crisis (following Theodor Adorno in four quotes) | Greece, Voices Inside

  11. Pingback: Intransigent Bundesbank: Mr Jens Weidmann’s surreptitious campaign to bring back the (greater) Deutsch Mark | gold is money

  12. This is quite the post. Interesting conclusion, and not in the least surprising from this American’s perspective. I do have an aside question, though. The article states that the deposition had been tabled since May but released only recently. What does it mean for the court to table something and who decides this? If something is tabled does it eventually have to be released to the public?

    Also, can someone recommend the financial press on this subject for an English only speaker?

    Thank you, everyone.

  13. So what do your German financial et al sources say?
    We’re not all that well (moreover globally) connected you know…
    May this perhaps be a Cauterise and Print mark 2 plan?

    • There is a difference. Cauterise and Print was a plan for ejecting Greece and Portugal from the Eurozone. This new strategy is about letting the Eurozone disintegrate conpletely.

    • Well one could say that that would be a serious mark 2 plan indeed.
      But is this – letting the Eurozone disintegrate conpletely – what your sources are really saying? What are they in fact saying?
      Or are you just trying to construct a hypothesis that would verify and not get falsified by the data , i.e. the 3 statements and their logical consequences (or least your interpretation of them)?
      Please dear Professor, stop being so pythic, sibyllic and socratic; as the other commenter has already said, we’re not all that well connected…

  14. Not sure if the most recent book by the economist Prof. Dr. Dr. Joachim Starbatty, ‘Tatort Euro’ is already available in your languages, If so, do read it. It explains very convincingly in very detail how came the Euro was so misconstructed, where the Eurozone is at present, and what are the potential ways to go from here. The unlimited transfer union most GIPSIIFs and leftish oriented people dream about, it isn’t. Since this is the one and only sure path to the next big war in Europe.

    • @VSS

      “The unlimited transfer union most GIPSIIFs and leftish oriented people dream about, it isn’t. Since this is the one and only sure path to the next big war in Europe.”

      Incredible selfishness that seems to be the current German disposition!

  15. Pingback: » Blog Archive » Week in Bloggingportal: Eurosceptic Chic

  16. Pingback: Europe : face à l’intransigeance allemande, le krach politique n’est pas loin | Ligue des droits de l'homme

  17. Pingback: Yanis Varoufakis: Intransigent Bundesbank – Mr. Jens Weidmann’s SurreptitiousCampaign to Bring Back the (Greater) Deutsch Mark – The Doctor News

  18. Pingback: Yanis Varoufakis: Intransigent Bundesbank – Mr. Jens Weidmann’s SurreptitiousCampaign to Bring Back the (Greater) Deutsch Mark « naked capitalism

  19. Great piece yani:
    Bundesbank is doing what smart banker do. It is mainly concerned about its survival and not the Euro nor the suffering Europeans. It will make its decision based on cold and hard financial facts. It probably recognizes that keeping all the southern euro economies on drip life support will eventually pull their profits down. So why not have German Constitutional Court create the events that lead to breakup of the Euro. I am sure that they have already figured what their potential losses would be with a breakup in the next couple of years. A continuation of Euro probably means just larger future losses.

  20. Pingback: Bundesbank declares ‘war’ on Mario Draghi bond bail-out at Germany’s top court – Telegraph — State of Globe

  21. The comments so far are interesting. My reading of this analysis is that there are those in Germany who would like to see the end of the euro, including people at the Bundesbank, but it can’t be effected directly by the Bundesbank for political reasons. The Bundesbank can, however, make the situation so impossible that a breakup becomes inevitable.

    I suspect the larger issue is really political & is about a “United States of Europe”. The euro seems to be another attempt to produce what WWI and WWII (and the 30 years war and the war of the Spanish succession and a variety of others) did not produce, which is a Europe united under a federal government. There appear to be powerful centrifugal forces that have prevented this outcome in the past & they seem to be working against it in the present.


  22. Yanni, my friend 🙂

    I live since many years in “good old” Germany and follow German politics very closely so let me give you my own 2 Cents on that:

    Ever read the book the rotten heart of Europe by Bernard Connolly?

    (The rotten heart he is referring to is the German Bundesbank 🙂

    So let me put it bluntly what the German plan is:

    1. Germany doesn’t want neither OMT nor ELA nor a permanent Transfer Union
    2. Germany doesn’t want to leave the Eurozone alone (as Sorros has proposed) because it doesn’t want the Eurozone to exist without it and be a single counterpart to the Deutschmarkzone (D-A- NL-FL, etc.)
    3. Germany will do whatever it can to disintegrate the whole Eurozone and get everybody back to their own national currencies!!!
    4. In order to keep it’s export surpluses it will heavily push for implementation of the TAFTA zone so that it can compensate for the losses in the former Eurozone markets!

    Do you see their hard-boiled logic behind that plan? Now do you wonder anymore about what Kai Konrad, the chief-advisor to the German Federal Ministry of Finance said: “The Euro will be dead in 5 years. I care about Europe, I do not care for the Euro”

    Germany once more plays a very sinister game in Europe which will lead to new disasters and catastrophes. Once more they show their utterly selfish and nationalistic character.


    • Dear Aristoteles, I follow this blog since quite some times and am more than happy it exists. Hundreds of thousands should read here, certainly more Germans who should forget about what our mainstream media tell us.

      To your comment – as Yanis himself said in many of his articles – there is no “the germans”, “the greeks”, “they”. Nothing like this exists.
      That is prejudice and bad thinking. I understand the anger, as the politics of german parties, not only from Mrs. Merkel’s, is indeed selfish or following a rotten market-ideology, and often mind-blowingly anti-social. (only “die Linke”, I hope a lot of them, is for southern Europe’s rights at the moment, some others blurb but act with Merkel) is sometimes unbelievable.
      I completely agree that a lot of people in Germany either have no clue about the actual problems. Or they want to stay with their often rotten prejudices. My guess is, many simply know not a bit, and additionally don’t care for southern Europe’s people (as long as they can fly 15 times a week into the south for weekends, not a too small minority does that.).
      I listened to such stupidities concerning the Eurozone, listened to praisals of Merkel and so on thousands of times during the last years. Sure.

      Not the mainstream of our media alone, from taz to Focus to Spiegel to Süddeutsche to Bild and so on^^, are the problem. They indeed are… People are not forced to shut down the brains before reading…
      Yet “they” does not exist. I am often astonished and glad, to see that even in our nowaday’s times with often ridiculous media all around still 5-15% of people oppose Merkel’s, Schäuble’s and Rösler’s, social democrat’s and green-party’s egoism.

      “They” are not existent. It is important to understand this.

      There is not the slightest chance to change the official politics now, Merkel will win the next elections, CDU/green or CDU/FDP – that won’t make a real difference. 2013-17 is done with, apart from rumours that Merkel would resign in 2015 (nothing at all but rumours now). After her things wouldn’t change in our direction too.

      What can we do? We need more articles, more debates, more confrontations of Merkel+many more with their own sentences (“in 2011 things will be far better for the people in Greece” or nonsense like that Merkel indeed told the world if I remember right.).

      A final remark. Apart from the Eurozone politics, Aristoteles, you’ll find a lot more topics, about wars, about social justice, about climate changes and more, where people are really highly! uninformed. All of this has to change, starting with somehow numb and indifferent universities (where is resistance there? Well, it’s a bit like with Asterix&Obelix. You can find it, but it’s very small right now..hardly noticeable, whereas elderly people are far better informed than in the past.).
      Yet – it is not only a wrong insult, it leads to nothing to go on stating “the” Germans will do and “the” Germans will, after WW1 and WW2 do this and that. It is simply not true that “the” Germans are all against Greece, and the rest of Europe was so wonderful and helpful… Who tells Merkel how anti-social she acts, at those meetings? Certainly not the conservative greek government and mainstream greek media, to begin with. How could greek people vote for this government? Not that I could say what chances Tsipras would have had, of course I don’t know. (I read Yanis blog to learn.)

      The silence of all in Europe, too, the lack of help for the south is a problem. We are not enough against the wrong politics. Worldwide not enough. Yet. This is what has to change. Dear Aristoteles, stop with that “they” thinking. It won’t change the world on its own, you’re right. Still…
      Thank you for reading, ‘philosopher’.

    • @klemperer85

      Firstly I was refering to the German state, the legal entity which is responsible for all that!

      Secondly I feel sorry for the minority of Germans who have to live with a majority of media-controlled simpletons (we have a few here on this blog as illustrative examples) . It’s a real pitty what has happened to the former land of poets and thinkers. And it is also a bad omen for its future.

      “Yet – it is not only a wrong insult, it leads to nothing to go on stating “the” Germans will do and “the” Germans will, after WW1 and WW2 do this and that. It is simply not true that “the” Germans are all against Greece, and the rest of Europe was so wonderful and helpful… Who tells Merkel how anti-social she acts, at those meetings?”

      Can you see some similarities between Germany then and Germany now?
      Not? Why don’t you read what a Greek professor of international relations has written about Germanys latest hegemonial affectations:


    • @EUDSSR:

      “Do you care more for the Euro or Europe?”

      Oh I see, so Germans like you really care about Europe but not the Euro.

      Miserable hypocrites just like Prof. Sinn, ex-BDI-President Henkel, Schoibles chief-advisor Konrad and all the other ardent lovers of Europe or shall I better say ardent rapists of Europe!

    • Dear Aristoteles

      Have you really read the article in the Jerusalem Post and think that the elimination of Czechoslovakia in 1938 and imposing giving a well below market-interest loan to Cyprus in exchange for certain conditions is the same?
      I cannot believe that anybody could think that. You and many others are so blinded by your hatred of Germany that you get to ridiculous conclusions.

    • @Martin

      ” Have you really read the article in the Jerusalem Post and think that the elimination of Czechoslovakia in 1938 and imposing giving a well below market-interest loan to Cyprus in exchange for certain conditions is the same? I cannot believe that anybody could think that. You and many others are so blinded by your hatred of Germany that you get to ridiculous conclusions.”

      Martin this article might give you better a picture about the imposed/dictated “help” for Cyprus. Is this author also blinded by hatred of Germany? So many people “hating” altruistic Germany? Or just “envying” Germany as Schoible noticed recently?

      In psychology this pattern is called cognitive dissonance!

      Europe’s flesheaters are back. The claim that the worst of the eurozone crisis is behind us now looks foolish. The deal forced on Cyprus by the German-led Troika at the weekend isn’t a bailout: it will effectively destroy the island’s economy. Instead of getting a grip on its grossly inflated banks, it will impose a brutal credit contraction, combined with sweeping cuts and privatisations, wiping out perhaps a quarter of Cyprus’s national income. Ordinary Cypriots, not Russian oligarchs, will pay the price.

      Of course Cypriot politicians are to blame for having allowed the country to be turned into an adjunct of a bloated financial sector and a refuge for hot Russian money. But what tipped the divided island over wasn’t foreign investors’ sharp practices, but the impact of Europe’s wider crisis on its banks: in particular, their exposure to devastated Greece, currently also in the Troika’s tender care.

      Some have hailed the fact the raid was carried out on Cypriot bank deposits over €100,000, rather than the public purse. At last the rich and those responsible for private banking failures are being made to cough up, it’s been said. Which would have been a good thing. But it’s savers, not bankers or shareholders, who are taking the 40% hit. And many of the targeted depositors, such as pensioners, are scarcely rich – or are small businesses which will now go bust.

      The Cypriot government should instead have learned from Iceland: taken over the banks, isolated the bad loans, protected deposits, imposed losses on the wealthy, and used a publicly owned banking sector to rebuild the domestic economy. That would have offered its citizens a better future, almost certainly outside the eurozone. But it would have also encroached on private capital’s privileges and clearly couldn’t be tolerated. Instead, in classic EU style, Cypriots have been given no say, while German MPs vote on the deal. Meanwhile, Cyprus’s banks are still closed and capital controls will start to erode the euro as a genuine single currency. As the Greek economist Costas Lapavitsas argues, Cyprus has “reactivated” the European banking crisis.

      The eurozone has now become a zombie zone. And any further deterioration can only deepen Britain’s own crisis. Whatever the focus of the meltdown in each country – banking in Cyprus, property in Spain – all flow from the same crisis that erupted in 2007-8 out of a deregulated profit-hunting credit boom across the western world and has delivered a prolonged depression. In the eurozone, the impact of that systemic failure is made worse by a lop-sided one-size-fits-all currency straitjacket that was always going to come apart under pressure. In Britain, the power and weight of the City of London are a particular block on sustainable recovery.

  23. Difficult to disagree. It would not have to do this as other Central Banks did not. What would German exit and DM mean ? Revaluations and devaluations. One consequence could be the end of the EnergieWende as electricity imports from other countries become so cheap as to undermine it. And this could eventually lead Germany to reconsider the internal energy market ?

    • Thanks for all the responses, and thank you indeed for your explanations, Aristoteles. Of course I’ll read your link, I am here to learn.

      Meanwhile I think myself, reading Yanis’ great blog, what we could do in this situation. Staying a bit with my “there is not “the” Greeks” remark, I think what all of us can do is to at least criticise, and aloud too^^, those who spread wrong informations.
      Here is an example, right from german universities. Sorry Yanis for that it has not much to do with Mr. Weidmann.

      As late as summer 2012 Mr. Aly, a former communist (in times where that was “cool”), born, 1947, now a right-wing neoliberal, (again this is regarded as “cool” by not so few german art-scenes and Berlin Hamburg etc. intellectuals today), wrote about the problems we deal with here.
      The article, sadly enough in german, in all its one-sidedness can be read here,1472602,16530024.html

      (If you read german and don’t suffer from high blood pressure – read it. It’ll make your blood boil, this “Frankfurter Rundschau” column. The paper, liberal-leftist before around 1997, is now bankrupt and taken over by the conservative FAZ).

      I translate what the historian wrote about Greece here. He starts, in a snobbish manner, that there was no crisis of the banks, and no other – it was only “the welfare states” that ‘were’ the crisis. Yes.

      About Greece he has this to say in the article (my translation)

      “The holiday season allows many Germans to make observations in other countries. Du to the weakness of the Euro only very few will afford to go to Switzerland. But in Italy and Greece the german tourists can see how often they don’t get a sales check and think about that they are the ones who pay this tax fraud via the european bailout fund. Shipwrecked men and women must be saved – impostors, swindlers need not to be saved.” (Götz Aly, “Das Gespenst der Krise”, July 2012)

      This is, and a remarkably rude tone is in the rest of the article, the recapitulation of the yellow-press stuff germans daily swallowed since the beginning. Aly praises Merkel’s and others austerity politics, condemns social welfare, only to end with a somewhat slimy if-we-don’t-rigorously-cut-we’ll kill welfare statement. (Typical neoliberal ending.).
      So “the” poor Germans fly to Greece to see how “the” Greeks deal with “the” wonderful German’s money. I spare you details.

      What he, and others, write, can be described as a kind of hatespeak not based on facts. Yet this historian is well accepted at some german universites, and often interviewed in papers and our so-called “good” radio stations.

      I would, Aristoteles, thinking about your first post in this thread, not doubt for a minute that Götz Aly is writing what rightly makes your blood boil – and that from quite a few here too, most probably.

      Yet, what can we do? These people are in the media. “The renowned historian on Greece”, and so on – this indeed is a problem!
      What we can do, for example, is to at least to answer directly. Thousands should, all with well informed letters and ideas. (Very easy in this case where i constantly have a hard time to stay polite, reading his mind-blowing accusations and wilful distortions.)
      And to maybe write politely to stations that interview them, telling some facts against this resentment and – nonsense.
      They are not the politicians who actually act, yet they are the “4th power”.

      To end this long post with something positive – at least all (!) of the comments of german readers to this Aly-article contradicted him extremely. Some wrote he was a man who sets bar-room-clichés into the world. And well – he does. Still makes me angry to read this collection of lowbrow clichés.

      Maybe Yanis could take such a well-known scientist with a high reputation as an example. There is no “the” Germans, yet people who lie into your face like Götz Aly does are, as they are quite a few, powerful. Let’s contradict them! What else could we do, we must try.

  24. I wouldn’t take it seriously. This is part of German theatrics to show that they have skin in the game. And that Germany in doing what they are doing (which is nothing really) comes as a great “sacrifice” and at “great cost” to Germany.

    In the end, Germany raises an issue and then Germany solves the issue (in a John serves and John drinks scenario) pretending that it is of great constitutional merit.

    The bottom line is that all of this is BS of the grandest order, another delay tactic, another waste of time technique whose only purpose is to perpetuate the current game set up in which Germany wins and everybody else loses.

    All markets and the rest of the world don’t even pay attention to this German nonsense anymore.

    BTW, when someone engages in a form of self pleasure we have a different word for it. 🙂

    • Couldn’t agree more.

      Everybody (surplus and deficit countries I mean) remains loyal to the euro.

      It is just a screaming order fRom Germany to the rest of Eurozone to stay focused on the austerity programmes.

      Just when they were beginning to protest again.

      Bundesbank plays the bad cop this time, and Merkel the good one.

      And the markets? The markets have done almost all the downgrading they ought to do and remain spectators of the parody.

  25. Pingback: Banks More Important Than German & EU Law – Yanis Varoufakis «

  26. Since the Bundesbank is accountable to the German populace and state only, not any other nations, the deposition it made makes perfect sense. Plus it is also perfectly logical and correc argued. Jens Weidmann seems to be a lone voice of reason in a sea of irresponsible economists.

    There is neither grand error nor grand strategy. Your interpretations seem rather far fetched and conspirational, indeed. There are many more interpretations possible than just the two you choose to see. For instance, the Bundesbank could be right and you could be wrong 🙂

    • >>Jens Weidmann seems to be a lone voice of reason in a sea of >>>irresponsible economists.

      There are more economists in favor of ending the currency experiment, then going on like this.

      Looking at the track record, the Bundesbank is a much better source for advice than any of the other central Banks taking part in the currency union experiment.

    • Eud

      Yes there are more economists in favor of ending the currency .

      Don’t be glad though this one isn’t.

    • Bundesbank threatens to cut Greece out of the EZ through ELA.

      When Germany at the same time exports to Greece 3 times more that what it imports.

      It’s parody

  27. Excellent analysis, Yani. I do not find it far-fetched; the struggle within the eurozone is essentially a political struggle. Even though almost all participants are neoclassical economists (with strong neoliberal inclinations too) this is more about power than about economics. Did anyone seriously expect the Bundesbank to embrace the arrival of the ECB — which ultimately would replace it? Institutions fight for their survival, and with a properly functioning eurozone the national central banks would soon be pared down or even perhaps closed.

    Sadly, the EU is in serious political crisis — when it also has to deal with the global banking crisis. This was all quite predictable, but it seems that nobody bothered to think through the large set of logical implications of the euro.

  28. Prof. Sinn now recommends Merkel not to exit the Euro. This is a surprise and Shows a bit how close Merkel is to exiting the currency experiment.

  29. Whay are you so afraid of a reintroduction of the DM? Putting Weidmann´s letter into perspective with other demands emerging in Germany in the last months, you have to conclude that Germany will exit the Euro Zone.

    Yes it will be costly, but at least it is a one off cost!

    A company paying 7% interest in the South and only 2% in Germany? I know many medium sized German comapanies who pay more than 7%! But so what, should the State or Dr. Draghi set interest rates??? Are you still promoting monetary socialism?

    A currency should serve the People and not vice versa. It is actually the South who should have learned this by now!

  30. Lately a serie of negative news for EU been published.Public confidence at a record low in most EuroZone countries. Now 5Y of Crisis and no end in sight! In spur of all this Anti Euro expressions we now face a new born German Party AFD( Alternative Fur Deutschland) headed by Prof. Lucke and supported by an extended list of German eonomic Elite. This party is clearly Anti Euro and like a redesign. Popularity on the rise because Germans are Bailout exhausted! German coming elections presents as an Euro fate event! Present 5Y Anti Crisis policies have all bluntely failed in providing solutions. How Fix This Mess?? I guess we all have to wait and see the NEW GERMAN face after elections. Present route is at the END.

  31. “However, a close reading of the Bundesbank’s constitutional court deposition leaves us with only two possible interpretations.”

    Perhaps there is a third possibility: Suppose Weidman gets it but does not want to acknowledge it. The official story in Germany is that confidence induced by austerity lead to a fall of the intereset rates with the OMT barely being mentioned at all. What you have described could also be seen as an attempt to maintain and strengthen the neoliberal narrative of events to maintain Germany’s hidden power over the Eurozone through the control of monetary policy. Whether the ultimate goal of that control is the disintegration of the Eurozone is in my view hard to say. In order to grow the German export sector the Euro is at the moment quite useful.

  32. To me Weidmann’s course could also be a response, at least in part, to the Greek government’s declaration that it will officially pursue unresolved WWII reparations which Germany insists have long been settled.

    • @EUDSSR: “Noone takes this demand seriuously.”

      Can you imagine what will happen with all the loans which have been given to Greece up to now if Germany rejects any discussion about an additional haircut of the Greek debt?

      The Nazi reparations and the compulsory occupation loan will JIT blow up in the face of Germanys intransigent politics.

    • Noone in his right mind expects that the Greeks or any of the other failed ClubMed countries can pay back the “loans”. this is why am in favor of stopping the currency experiment at once.

      All the talk about an appreciating DM and lost “loans” is just to prolong the gravy flow from the North to the South.

      The Bundesbank rightly says: Euro breakup? No Problem for us, we have a great reputation & the people trust us. We can reinstate the DM withou any problems. – The issue might be different in Greece 🙂

      Can you imagine what will happen, if Greece get´s no more EU transfers (cohesion fund, etc), because Germany will just Offset future EU payments with “loans” that were not paid back?

  33. Yanis, I wonder if you could expand on your tweet that a DM-based BuBa could eliminate the target-2 claims with the stroke of a pen (you called it ‘writing a DM-check to itself’). My acccounting mind doesn’t grasp that. If 600 BEUR of BuBa assets become worthless, I don’t see how that wouldn’t trigger a 600 BEUR charge to net worth. I do understand that a DM-based BuBa could economically operate without a positive net worth. It could also operate with a negative net worth of 600 BEUR but that would still be a negative net worth of 600 BEUR.

    Also, I read that about 100 years ago there was a Latin Currency Union. Wikipedia doesn’t tell me all that much about it except that, on the surface, it sounds very much like the Eurozone. Is there anything one can learn today from the precedent of that Latin Currency Union?

    • Klaus. as you may know, Greece was expelled from it for debasing its silver coinage!

      Here are some academic analyses (summaries)

      Financial History Review / Volume 7 / Issue 01 / April 2000, pp 25-44

      In 1865, France, Belgium, Italy and Switzerland signed a monetary convention (later known as the Latin Union), which provided for the intercirculation of specie between member states. Conventional analyses of the treaty (such as that by Willis) have portrayed this arrangement as a by-product of French power politics. This article seeks to reinterpret the economic nature of the Latin Union, focusing on the interrelations between trade, finance and money. I argue that the Latin Union did not foster trade integration and that, as a matter of fact, such was not its objective, according to archival evidence. Instead, I suggest that the Latin Union was the result of the growth of France as a major supplier of capital. The need to provide French investors with exchange-rate guarantees led borrowing countries to tie their respective monetary systems to that of France. This, in turn, created opportunities for international monetary action and the French franc became the ‘natural’ focal point of projects of monetary unification. This evolution, however, had structural limits which help to explain the downfall of the projects for expansion of the Latin Union.

      Review of Development Finance
      Volume 1, Issue 2, April–June 2011,
      The Latin Monetary Union was initiated in 1865 by France, Belgium, Italy, and Switzerland. We find that LMU membership or adoption of a gold standard is frequently associated with lower volatility of private bill yields, bond yields, inflation, and deviations from Purchasing Power Parity. However, neither standard induces convergence with LMU leader France or gold standard leader Great Britain. Bond yield spreads indicate that adoption of the gold standard is more credible than membership of the LMU. Italy is an outlier, perhaps due to errant fiscal and monetary policies. A comparison to data from the modern EMS/EMU confirms that the LMU was a weaker and less credible currency arrangement.

      From the Franc to the ‘Europe’: Great Britain, Germany and the attempted transformation of the Latin Monetary Union into a European Monetary Union (1865-73)*

      The Future of EMU: What Does the History
      of Monetary Unions Tell Us?
      Michael D. Bordo and Lars Jonung
      NBER Working Paper No. 7365
      September 1999

      The creation of EMU and the ECB has triggered a discussion of the future of EMU. Independent
      observers have pointed to a number of shortcomings or “hazard areas” in the construction of EMU, such
      as the absence of a central lender of last resort function for EMU, the lack of a central authority supervising
      the financial systems of EMU, unclear and inconsistent policy guidelines for the ECB, the absence of central
      co-ordination of fiscal policies within EMU, unduly strict criteria for domestic debt and deficits, as set out
      in the Maastricht rules, in the face of asymmetric shocks, and Euroland as not an “optimal” currency area.
      Do these “flaws” represent major threats to the future of EMU? Or will they be successfully
      resolved by the European policy authorities, leading to a lasting and prosperous EMU?
      We provide answers to these questions by examining the historical record of monetary unions. We
      try to extract the key conditions for establishing and for maintaining monetary unions intact. Our main lesson
      from the history of monetary unions is that political factors will be the central determinants of the future of
      EMU. The “economic” shortcomings of EMU will likely be overcome as long as political unity prevails
      within EMU.

    • >>> Is there anything one can learn today from the precedent of that
      >>>Latin Currency Union?

      Yes. Never let Greece into any currency union!

    • Yes Eud we have that virtue.

      We have a history of putting an end to crappy monetary unions 😉

    • Ideas have been tested by Greek brains throughout history, the crappy ones have always been dismissed and forgotten.

    • No, EUDSS: that is not the correct conclusion. Try reading some of the articles, and you might learn something instead of making crude and inappropriate nationalistic comments.

      Currency unions depend on political will, in order to respond to unexpected shocks and inherent flaws in their construction. The last paper I referenced is surprisingly accurate in its identification in 1999 of the weaknesses of the eurozone — which have nothing to do with Greece. Greece is merely guilty of a serious error of judgement in joining the eurozone, but the northern euro countries were the most incompetent and culpable. As indeed, they remain.

    • “We have a history of putting an end to crappy monetary unions ”

      More power to you!

    • Dear Guest (xenos), if Greece would never have joined the Eurozone, some other country would be the one to break it. It just shows htat not even with only ClubMed countries currency unions will not break. The DM zone currency union that we will get pretty zone will last longer, but also not forever…

    • Allow me to add a few more statements from several economists that were able to foresee what was coming, years before the crisis.Maybe EUDSSR will be amazed by Greece not being mentioned once, yet the statements are perefectly accurate:

      In 1992 Wynne Godley described the inherent flaw in the Euro:

      “If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market in competition with businesses, and this may prove excessively expensive or even impossible, particularly under conditions of extreme emergency….The danger then, is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.”

      In his must read book “Understanding Modern Money” Randall Wray described (in 1998) the same dynamic that led to the crisis in the EMU:

      “Under the EMU, monetary policy is supposed to be divorced from fiscal policy, with a great degree of monetary policy independencein order to focus on the primary objective of price stability. Fiscal policy, in turn will be tightly constrained by criteria which dictate maximum deficit to GDP and debt to deficit ratios. Most importantly, as Goodhart recognizes, this will be the world’s first modern experiment on a wide scale that would attempt to break the link between a government and its currency.

      …As currently designed, the EMU will have a central bank (the ECB) but it will not have any fiscal branch. This would be much like a US which operated with a Fed, but with only individual state treasuries. It will be as if each EMU member country were to attempt to operate fiscal policy in a foreign currency; deficit spending will require borrowing in that foreign currency according to the dictates of private markets.”

      In 2002, Stephanie Kelton (then Stephanie Bell) was even more specific in describing the funding crisis that would inevitably ensue in the region:

      “Countries that wish to compete for benchmark status, or to improve the terms on which they borrow, will have an incentive to reduce fiscal deficits or strive for budget surpluses. In countries where this becomes the overriding policy objective, we should not be surprised to find relatively little attention paid to the stabilization of output and employment.In contrast, countries that attempt to eschew the principles of “sound” finance may find that they are unable to run large, counter-cyclical deficits, as lenders refuse to provide sufficient credit on desirable terms. Until something is done to enable member states to avert these financial constraints (e.g. political union and the establishment of a federal (EU) budget or the establishment of a new lending institution, designed to aid member states in pursuing a broad set of policy objectives), the prospects for stabilization in the Eurozone appear grim.” (emphasis added)

      In 2001 Warren Mosler described the liquidity crisis that the Euro would lead to:

      “Water freezes at 0 degrees C. But very still water can be cooled well below that and stay liquid until a catalyst, such as a sudden breeze, causes it to instantly solidify. Likewise, the conditions for a national liquidity crisis that will shut down the euro-12’s monetary system are firmly in place. All that is required is an economic slowdown that threatens either tax revenues or the capital of the banking system.

      A prosperous financial future belongs to those who respect the dynamics and are prepared for the day of reckoning. History and logic dictate that the credit sensitive euro-12 national governments and banking system will be tested. The market’s arrows will inflict an initially narrow liquidity crisis, which will immediately infect and rapidly arrest the entire euro payments system. Only the inevitable, currently prohibited, direct intervention of the ECB will be capable of performing the resurrection, and from the ashes of that fallen flaming star an immortal sovereign currency will no doubt emerge.”

  34. Great analysis Mr. Varoufakis. Food for thought. Thank you. I have one question: would your interpretation be affected in any way by taking the dimension of the German elections more seriously? Re-contextualize everything in pre-election rhetoric? Thanks.

  35. Pingback: BUNDESBANK IN A ROUGH GAME -Intransigent Bundesbank: Mr Jens Weidmann’s surreptitious campaign to bring back the (greater) Deutsch Mark | Yanis Varoufakis | Arjen polku

  36. read the guardian on internet about a “war “declaration from the french ps against merkel. hopefully blody europe as it is to-day will stop. the fake leaders of europe all kneel down for merkel,let germany get out of the euro or europe and let countries decide about the!r future. europe becomes more and more a hatefull organisation that to please miss. merkel has accepted that millions of unemployed people live now in europe without any!!! future like in spain. i cannot understand that Barosso,van rompuy and all these fackers still dare to get out on the street laughing at people. i personally am ashamed about so much hypochrisie.,so much subservience.the actual leaders should step down of they have any decence left.

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