PONZI AUSTERITY: A definition and an example

For a while now I have been arguing that Europe’s policies for reducing the public debts of fiscally stressed member-states can be described as a Ponzi austerity scheme. In this post I attempt precisely to define ‘Ponzi austerity’.

Ponzi growth

Standard Ponzi schemes are based on a sleight of hand that creates the appearance of a fund whose value grows faster than the value that has come into it. In reality the opposite is true, as the scheme’s operator usually helps himself to some of the incoming capital while the scheme is not managing to create new capital with which to replenish these ‘leakages’, let alone pay the returns it promises. The appearances of growth that does not really exist is, of course, the lure that brings into the scheme new participants whose capital is utilised by the Ponzi scheme’s operator to maintain the facade of genuine growth.

Ponzi austerity

Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds). As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction.

Ponzi austerity’s inventor: The Eurozone’s great and good

Ponzi growth has been around for yonks. But it took the collective wisdom of Europe’s great and good to create the first Ponzi austerity scheme. The Greek, Portuguese, Irish, Spanish and Cypriot loan agreements were the first ever examples of such a scheme. Bankrupted states, in a death embrace with bankrupted banking sectors, were forced to take in ever-increasing capital inflows (from the IMF, from the ECB, from the EFSF-ESM, shortly under the ECB’s OMT threat) on condition of belt-tightening austerity. As the scheme progresses, more capital is coming into it, debt-to-GDP ratios actually grow (just as in Ponzi growth schemes the value of the total fund is depleted) and, therefore, even more outside capital has to be brought in in order to maintain the pretense.

Ponzi austerity’s worst example (*)

It is Spring 2012. The Greek government had collapsed under popular anger at the nation’s sad state and a new election is due in May. A left-wing party that advocates rescinding the bailout agreement was rising fast in the polls and the troika suspended the disbursement of loan tranches to Greece in response. Unnoticed by almost everyone, this episode represented a sinister moment when the EU asserted the right of its executive to intervene directly in the democratic process of a member-state. Unelected officials in Brussels concocted a ‘right’ to suspend unilaterally an international and intra-European loan agreement, on the basis of their assessment of which political party was and which was not ‘acceptable’ to form government in a member-state.

The caretaker Greek government was left with no alternative than to suspend its own payments to Greek institutions and individuals. Hospitals, schools, wages, pensions all diminished fast. But the concern of the great and the good was about Greece’s debt to our… ECB. You see, a year before, in an ill-fated attempt to shore up Greek government bonds, the ECB had purchased a bunch of them, at low, low prices. The ploy failed, as did Greece. Regardless, the ECB held these bonds and they started maturing. Had they not been purchased by the ECB in 2010, they would have been haircut together with the rest of the bonds in private hands a few months earlier, in early 2012. But no, the ECB cannot accept write-downs from member-states because it is against its charter which prohibits it from financing member-states. So, the caretaker Greek government, while putting Greece’s social economy through the wringer, had to find €5 billion in a few days to repay the ECB for one of these maturing bonds. But remember: the troika was not lending it any more and nor was anyone else.

The obvious thing to do, under the circumstances, would be for Athens to default on the bonds that the ECB owned. But this was something that Frankfurt and Berlin considered unacceptable. The Greek state could default against Greek and non-Greek citizens, pension funds, banks even but its debts to the ECB were sacrosanct. They had to be paid come what may. But how? This is what they came up with in lieu of a ‘solution’: The ECB allowed the Greek government to issue worthless IOUs (or, more precisely, short-term treasury bills), that no private investor would touch, and pass them on to the insolvent Greek banks. The insolvent Greek banks then handed over these IOUs to the European System of Central Banks (through the so called ELA program of the ECB) as collateral in exchange for loans that the banks then gave back to the Greek government so that Athens could repay… the ECB. If this sounds like a Ponzi scheme it is because it is the mother of all Ponzi schemes. A merry go around of Ponzi Austerity which, interestingly, left both the insolvent banks and the insolvent Greek state a little more… insolvent while, all along, the population was sinking into deeper and deeper despair. And all that so that the EU could pretend that its idiotic rules had been respected.

This is but one example of the vicious cycle of Ponzi Austerity that is being replicated incessantly throughout the Eurozone. Its stated purpose is to reduce debts. But debt is rising everywhere. Is this a failure? Yes and no. It is a failure in terms of the EU’s stated objectives but not in terms of the underlying ones. For, in reality, the true purpose of the ‘bailout’ loans was to effect a cynical transfer of the Periphery’s bad debts from the books (mainly) of the Northern European banks to the shoulders (mainly) of Northern Europe’s taxpayers. Sadly, this cynical transfer, effected in the name of European ‘solidarity’, led to a death dance of insolvent banks and bankrupt states – sad couples that were sequentially marched off the cliff of competitive austerity – with the awful result that large sections of proud European nations were dragged into the contemporary equivalent of the Victorian Poorhouse.

(*) This example comes from my recent talk entitled The Dirty War for Europe’s Integrity and Soul

51 thoughts on “PONZI AUSTERITY: A definition and an example

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  4. Can this “transfer of the Periphery’s bad debts from the books (mainly) of the Northern European banks to the shoulders (mainly) of Northern Europe’s taxpayers” brought a raise in the level of citizens consciousness ? and can the “degrowth” (check about at http://www.degrowth.eu/ or in wikipedia) point of view synthesize all the interesting ideas concerning a transition to better societies ? thanks

  5. Giani,

    One reason the Syriza party has risen so much in the polls is because Germany took the stance to victimize and punish Greece and Cyprus. This clear influence over the internal affairs of a country, might result in Greece electing for the first time a communist party in government while traditionally such parties never received more than 10%. So your argument about the influence of the Troika in the Greek elections does not stand as there is an equal counter force from Germany’s stance and their austerity push. Also please remember that in the days of the last election the Syriza officials made several blunders such as saying that they will take over the banks and take the money over 25K.

    I am equally amazed at ECB’s refusal to accept the same haircut it imposed on Greek citizens, banks and public insurance agencies. And you are right, austerity and more loans is a Ponzi schema that leads to destruction for Greece. The solution for that lies entirely in Germany as they control the levers of the European policy that has resulted in such a difference in pressure between the north and the south and the huge self-reinforcing currents of money and safety northward and unemployment and risk southward.

    Greeks have a role to play by becoming more responsible over the affairs of their country. Electing Syriza the party behind the permanent chaos in Greek universities is not the best path forward.

  6. Dr. Varoufakis, please state too that the tranches of loans to Greece, so far did not really serve the Greek economy. Instead a study found that the amounts of these loan installments go by about 98.6% directly back into paying debts to foreign banking institutions. Only a symbolic 1.6% supposedly went to the real Greek economy, practically zero…. Therefore, a stop in future such loans to Greece may not affect the Greek economy as much as it will affect its debt holding institutions….Of course, this was the case all along from the very start in 2009, as you know!

  7. Look similar is happening all over. It is simply the way “a few” capitalists have conspired to buy politicians and rule the(western)world. Maybe to Yanis, or to me, or to the people that blog here,or the worthy youth of Europe this seems horrid, manipulative, submissive. But to many others, they seem happy. Citizens across the western world are bribed daily by endless football matches on the telly, “free” healthcare, mindless shopping, TV shows selling staged reality, lifestyle attitudes , consumer products ranging from skin tightening creams to penile extending pills. Political postures are also for sale as audiences around the globe tune in to try some of these on like Halloween costumes… As for Greece, the plan is simple, they are on the slow train to oblivion. Where each stationed stop seems more surreal thus delivering more pain to the conscious mind that truly cares for our youth and our heritage.I know for people like Yani, the fate of an express train would,at least, have been easier to fathom. Where do we go from here? Well I am an optimist…plan is complicated but the start seems to be supporting people like Yani, Pholimila and the like.

    • Well Iam a “Realist” – by that iam mean I look at the information presented to me & try to seperate the facts from speculation & bullshit – which takes time, analysis as well as critical thinking. The information presented on this blog by Yanis & others help me do this…

    • so Mr Realist, 400 people in the United States have accumulated more wealth than 150 million US citizens. Examine that information, analyze, and tell me what it means. Equally. when the “ponzi growth” phase was happening in Greece a small amount of morons made out like bandits. Unfortunately, the ponzi austerity phase penalized the entire nation of 10 miilion. All these systems, whether they be in the US, Greece, Russia,China or wherever, favor the few at the expense of the many. As Zois said, the “ponzi austerity” phase will eventually run its course and what then? That’s the real question…what do the Greeks do then? Continue to run to Australia, Canada, the US, the UK and continue to run away and lose their Greek identity? The incumbent Greek gov’t, (which will survive the confidence vote) cannot see that far. The truth is that at some point in the near future, the situation will cease being mostly an economic problem and transform itself as mostly a political/sociological problem–that’s where the smart Greeks will have to stand up and show their mettle. I for one do not believe AS will be around for that show>

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  11. Yanis does not seem to understand banking unions as happened in the real world.

    The central goal is destruction of the periphery so as to act as a centralizing force as the banking system wishes to scale up even further…..The UK union of the 19th century and the EU union today are very similar outfits baby.

    The European union is working…. just not for most of us ……….like…. like those 19th century people destroyed in the satanic mills as their village agrarian life was no longer fit for the scale of banking operations
    Now the banking system has reached a different level , a different scale – former nations (controlled by banks post 1648) must now become like those extinct villages you see in the French Ariege or the shiellings of the Scottish highlands.

    Ireland and Greece will become the modern Ariege of the European market state just as the Ariege became a place where the wild beech wood grows after the French nation state reached its max capacity during and post The Great war.

    No doubt a good place for trekking and mushroom picking in the 22nd century but with little else but Ghosts from the past lost under a great mass of Beech tree leaf litter.

  12. The political elite of Europe (including Greece!!) need to be thrown in jail. Thank you Yanni, for showing us yet again the thieves that rule the roost.

  13. Hello Yanis,

    Yesterday I watched the talk + QandA session by ECB’s Mr Draghi given recently at the Harvard’s JFKennedy School…There was no mention or discussion of “Ponzi Austerity” ofcause, but Mr Draghi’s calm & controlled demeanour was tested by some well directed questions…this is the youtube link…http://youtu.be/i0EJqnC0M0Q

  14. I would like to see the term “Ponzi” replaced. I am thinking of “madoff” as an appropriate replacement. Some examples: “madoff austerity,” “madoff scheme,” “madoff-type investment.” Doesn’t “madoff” feel apropos?

    Charles Ponzi had some redeeming qualities. I can’t think of any — and hard I did try! — of this sorry piece of work Madoff. (Btw, in an interview he gave from prison, he had the gall to call Harry Markopolos an idiot. This coming from a guy who’s rotting in prison and whose son killed himself from all the shame that he brought on his family.)

  15. This means that in a worldview of pure profit/loss anything and we mean anything can be (securitized and sold) ad nuaseaum. Slavery anybody?

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  17. But to what end?

    Surely, same as Ponzi growth, Ponzi austerity has finite capabilities.

    I am aware of your explanation of the goal at hand (ie transfer loses from “systemic” banks to taxpayers) but I am still perplexed by what the powers’ that be ultimate resolution.

    Eventually austerity in the periphery will have run its course in the sense that there won’t be any more belt tightening left to do so as to “feed” the reverse Ponzi scheme. What then?

    You might say that they’re just kicking the can down the road for the time being.
    But even they undoubtedly acknowledge that this isn’t a solution.

  18. The EU intervention in the Greek democratic process is not the first time such a thing has happened. The Irish electorate has twice now been forced to re-vote on EU-related referenda until the ‘correct’ outcome occurred. The latest example was the Lisbon treaty.

    • The situation with the Greek elections was far worse than Yanis has described. The Irish referenda are merely an example of how non-democratic the EU desires to be, but in the case of the last Greek elections the intervention was direct. Not only did the Troika suspend tranche payments, but the malakas President of the EU Barroso plus others, plus Germans such as Schauble… warned the Greek electorate that if they dared to vote for Syriza then all Hell would break loose, all support for Greece would disappear.

      Now, I am not a constitutional lawyer. However, I have read the Greek constitution. In my opinion, the President of Greece had the legal authority (even duty) to suspend elections on the grounds of interference with the democratic process, and take the matter to the European Court of Justice and the Council of Europe. He did nothing and he said nothing.

      The question is why did he do nothing? My belief is that Greece is so caught up in the historical pattern of subservience to the Great Powers that the rule of law is not even considered. Nor do they consider it when dealing with Greek citizens: for the elites, it is obvious that political power trumps the rule of law. With such a mentality, Greece has no chance in Europe: it is fated to be a peripheral and exploited zone in perpetuity.

      For the people of Greece, I have only one message: you need to remove the assholes who have been screwing you for decades and replace them with servants of the nation. Public office is a privilege and its holders should understand that their duty is to the people and country of Greece. Did malaka Papandreou believe this? No. Does Samaras believe this? No. Does Tsipras believe this? I am not sure, and leave it to others to judge.

  19. Debt and property belong to the world of rights and obligations, and thus to the world of power and submission. Who owns whatever does not give it for free, even if the property produces nothing: the owner (or the creditor) will wait and even will invest and invest until getting some product or simply will wait and feel happy by owning that property and by dictating his rules in his property. At the end, the alternative of give it (or loose it) is worst for him.

    By this side, there is little hope that the Ponzi-Troika could change. The change could come whether by the debtors side, through its unilateral write-off, or by the third parties (USA) worries with the European surplus. The second should require a new Breton Woods scheme to force zero surpluses. This should imply to stop austerity and to push growth, and by the way this should reduce debts relative to GDP.

    I’m afraid that this is not why Draghi has reduced the interest rate. He still trying to maintain a cheap euro to maintain exports and surplus.

    • A Breton Woods agreement to force zero trade surplus is unlikely, given the benefits running a surplus gives to export oriented economies: http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html
      However, a country running a deficit can force balanced trade, eventually, by issuing import certificates. The idea, originally by Warren Buffett, is this: Greece (say) issues certificates to a country, Germany say, Greece exports to, to the amount of Greek exports to Germany. These certificates convey the right for Germany to export to Greece the amount of those certificates. This forces equality of trade between the two countries. The certificates can be traded among the other countries, but the result will still be that Greece has overall balanced trade, imports equal of value to exports. For Greece, running a deficit, they can be phased in, 1 Euro of imports from Greece earning the trading country, Germany say, say 1.4 Euro of exports into Greece, the ratio decreasing to 1 to 1, balanced trade, over the space of a few years, and to less than 1 to 1 for Greece to begin to pay off its debt with trade, rather than Greek assets. I discuss this at length at: http://anamecon.blogspot.com/2011/10/import-certificates-problem-and.html and at other locations at my blog. There are also references to other sources.

      Greece can unilaterally adopt a system of import certificates. It doesn’t need permission, although countries which profit from the status quo might object. Indeed, the adoption of import certificates would make unnecessary any treaties regulating trade.

    • Dear Greg, thanks for your comments and links.

      However, I’m afraid you miss something. A trade imbalance must be compensated by an equal and opposite capital imbalance. The surplus country must finance the deficit country and this financing maintain its internal demand and the external demand of the surplus country. If this financing is by buying assets, the surplus country gains “property” over the deficit country; and if the financing is by loans, the surplus country gains “sovereignty” over the deficit country.

      By this way, surplus means always “colonization”. It is a kind of economic war weapon. And as in any war, the citizens of the conqueror country must pain before, whether by producing weapons instead of comfort goods in a classical war, whether by reduce its internal consumption to produce export goods in an economic war. And by reducing internal consumption, surplus means a world demand reduction pushing to contraction, as US Treasury claimed recently.

      If you have a look to the wages as GDP% in Germany you’ll see a 15% cut since reunification and probably thanks to it, due the great number of cheap workers added to the economy. This relative wages reduction, which supposed a similar relative consumption reduction, was compensated with exports and credits to the importers. The euro facilitated this change of lost internal demand into external demand, thanks to the higher inflation of the periphery. An inflation pushed ahead by the credits.

      The problem came when they realized that those credits could be not payed back. Then, they used the gained “sovereignty” over the debtors to guarantee the payback. Something that the actual periphery surpluses are close to do, at the higher price of poverty and unemployment.

      In relation with the certificates you speak about, they are not compatible with the free trade and free capital flows agreed in Maastricht, and at the end they are quite similar to the ancient currencies and can be sorted out as those. That’s why I said that without a world agreement (a new Breton Woods) to impede surplus and deficits, the surpluses will be used as ever as colonizer weapons.

      The open question should be: is it impossible for a country to grow without colonize others?

      Today, colonization is reviewed by the neocons as something good even for the colonized countries, serving the theoretical justification of a new colonization. The future is an strange place, is the last history book of a great Catalan intellectual. I’m afraid he’s right. Strange and dangerous.

      Somebody in Europe is maybe happy by having a eurosurplus that gives again to Europe voice in the world, even if this means internal pain in Europe.

    • Greg:

      Germany has 3:1 exports into Greece as compared to 1.3:1 German exports into the EU. How do you explain the fact Germany victimizes Greece 3 times higher?

    • Jordi Thank you.

      The surplus country finances its exports to the deficit country by exporting its capital, yes. Germany exports money to Greece. But this is essentially money from the deficit country recycled. What the surplus country does not do is buy goods and services from the deficit country, recycling the money that way. Buying the goods and services of the deficit country, and/or buying the assets of the deficit country, are the only way the surplus country can, in real terms collect on that debt. If the surplus country insists on assets, it is economic warfare, and as you point out, economic colonization. If they, Germany, instead allow the deficit country, Greece, to pay back in goods and services, there must be a mechanism to implement a reversal of the balance of trade. I suggest the implementation of import certificates to be this mechanism.

      While treaty may hinder implementation, no country is bound by treaty to commit economic and social suicide. Especially if it is the consequence of economic warfare. Granted, repudiation of treaty has consequences, but which is the lesser evil: repudiation of certain trade treaties which have been disastrous to the Greek economy, or pursuing the debt-austerity spiral to its logical conclusion. It’s jumping from a moving train, that is only going to go faster and faster, until it crashes. Whether or not it wishes, Greece is an example to the world. An example of what is still up to Greece.

      PS: Wages in Germany were cut as a deliberate strategy to increase competitiveness. See: http://www.youtube.com/watch?v=TFKzAAd_1W8&feature=player_embedded
      Eventually all the other Eurozone countries will end up in debt to Germany, unless they also cut their own citizen’s welfare to compete and export their debt to the rest of the world.

      Also, economic colonization is not even good for the world economy, as producing sectors in the colonized countries are destroyed, without the compensating development of production according to the premises of comparative advantage, which development might be the case if trade were balanced. See: http://anamecon.blogspot.com/2013/04/more-on-negative-effects-of-trade.html

      One of the sources of global surplus, then, is the reduction in demand brought about by the destruction of producer demand in colonized countries. (Although one can argue that this actually reduces the global surplus, since producers, by definition, produce more than they demand.) Further, the value of assets in the colonized countries are reduced, making them unattractive as investment vehicles to colonizers in the surplus countries. Austerity aggravates the depressive effects of excess global production by reducing demand. This is why Germany now has to look beyond the Eurozone to export debt.

    • Dear Greg, I share your feelings but not all your ideas.

      Surplus is not recycled money but a loan: products and services sold by credit. You in Greece as we in Spain have demanded in excess in relation with our supply and we could do that because someone allowed us to do by giving credit at an incredible low price: the interest rate convenient to the surplus North and without any risk penalty to the deficit South because the euro made apparently save any credit. We also demanded outside and not inside because our prices and salaries were climbing while North prices and salaries were flat, something that the former currencies had solved by devaluation of the inflationary ones.

      Related to destruction of production capacity, this is something which goes together with economic grow. A new higher productive process kills the precedents, as a new device does with the former. As an example: the smartphone have killed the phones and its production capacity. In fact, in terms of previous and final stocks, economic grow is an illusion, and not only because natural resources consumption. But forgetting the illusion effect, it’s clear that the German technology&organization had higher productivity and it was a time question, and a prices&exchange question, that such higher productive t&o should replace the lower until homogenize productivity in the EZ. Today, apparent productivity (GDP per worker) is almost the same in Germany and in Spain, once here in Spain have closed the doors the lower productivity activities, sending home millions of workers.

      As Yanis have stated along this blog: the economic asymmetries of the euro countries explains what have happened and it was even predicted when the creation of the euro by people as Krugman or Stiglitz. Without correction measures or without a surplus recycling mechanism, the dynamics of the euro should suppose, as it have happened, the destruction of the weaker economies. Or, at least, of a great part of those.

      And then, there is the debt question.

      Let us suppose that you have some savings. Those are a kind of a domestic surplus and frau Merkel thinking is a domestic one. Obviously, you can reduce it by spending more. But what if you want to maintain it? You know that savings have always risks and you’ll try to reduce them, but for sure you will give not for free your savings. Exactly as frau Merkel does. So, instead of spending more by buying products to the South to cancel the debt, she wants the South paying back its debt by getting surplus with third countries. Not just to get back the debt (what should she does with that money?) but to get interests enough to maintain the credit value. As you with your savings: you’re not interested to get them back if you don’t need them, but to be sure that you will get them back when you need and meanwhile receive some interests.

      And the fastest way for the South to get surplus is austerity: reduce internal consumption by cutting public and private expenditure and compensate it with tourism and exports. In Spain they have already got that and we are in surplus now. As Greece does, if I’m not wrong.

      Obviously, this domestic procedure has tremendous effects. Pain and suffering in the depressed South and also in the proud North, world demand contraction and thus less growth everywhere. And its potential benefit, the global euro surplus, is a worldwide colonialist menace.

      As I’ve said to Yanis in a letter recently, the question is if we are now in a Europe rebirth as empire or in a suicide process. In both cases, all Europe is responsible: the ones who have pushed for austerity and the ones who have accepted it. As you said, no country is obliged to maintain a treaty when it’s against its population.

    • Dean:
      One possible explanation is that a larger portion of the Greek economy, being relatively smaller, has been more quickly destroyed, 19% just since 2009:
      and thus it is more dependent on imports.

      Granted, its wages also rose more quickly than the rest of the Eurozones, but this was partly a result of increased capital inflows, which contributed to its decreasing competitiveness.

      But see Dr Heiner Flessbach’s talk at http://www.youtube.com/watch?v=TFKzAAd_1W8&feature=player_embedded
      The charts are revealing.

    • It is a loan, yes, but it is a loan of money which, once the cycle is started, is originally paid to producers for their product: German profits from sales to Greece are lent back to Greece, so Germany can sell more. But they refuse to buy (as much) from Greece, because they suppressed the wages of their own workers. (For two reasons, Greek products became less competitive, and the workers don’t have the money anyway.) If, instead of suppressing them, Germany had allowed their wages to grow at the ECB prescribed rate for the past decade, (about 2%) Greece would be in much better shape. But as Heiner Flessbach explains, they pursued a ‘Beggar thy Neighbor’ policy, and succeeded. Granted, Greece, and Spain, followed policies which led to greater than the prescribed labor inflation, but much of this was the result of capital inflows from Germany, recycling the profits they made by repressing their own wages.

      It works out to be a trap. And I do not think you should be so apologetic for being entrapped. The bait was cheaper products and cheap credit. But the trap was the destruction of your economy for their profit. And I don’t mean the profit of the average German, who is enduring his own version of austerity, (and is resentful of the wrong people.) Only the wealthy few profit, and continue to profit, from the misery imposed on the many. As Flessbach says, http://www.youtube.com/watch?v=TFKzAAd_1W8&feature=player_embedded it is at its root, class warfare. How much Spanish assets and industry are being destroyed, and sold, to make yourselves ‘competitive.’ And to whom are they being sold? And whose are being destroyed. Look around you at the unemployed, and the small businessmen driven out of business.

      In fact, the trap, once set, is inescapable. The individual who tries to resist is at a disadvantage. He has less money, because others borrow, (from the Germans) and, buying domestically, must spend more money. It is a classic case of the Prisoner’s Dilemma: If all resist, all will be well. There will be no trade imbalance. But some will always defect. They will take the German money, and buy the cheaper German good. And then those who resist German credit, and ‘buy Spanish,’ will find themselves at a personal, and if they run a business competitive, disadvantage. They are also forced into the trap, and then you are all screwed as the trap is sprung, with the call for austerity and “payment of debt.”

      As for destruction going with growth, if I use slave labor (to be extreme) to drive you out of business, and destroy your factory, is this growth? Is the world a richer place, because your well paid workers are now destitute, and your ‘inefficient’ factory has been replaced by my ‘efficient’ one? The whole point of civilization is for people, all people, to live better, but (unrestricted) competition drives people to live worse. This is why the whole idea of the supremacy of the market is- evil.

      As for the destruction of the industry of Spain and Greece, and Germany being ‘forced’ to buy their assets, if it was not intentional, they should apologize, and undo what they have done. I do not think things will go so well if Spain and Greece should join Germany in exporting debt, and poverty.

    • Dear Greg;

      I agree most of your arguments. The exception is the debt cycle: its balance will be done with your “future” money, not with the one you had not when you buyed, and it means that the creditor “owns” that future.

      The only exit can be something similar that what was done by the 13 first US: only Virginia had surplus and accepted to put it together with the other 12 deficits in a new federal government. The price: the Capital in Virginia and a Virginian as president.

      maintaining the actual mix of austerity and surplus, Europe will fall for sure as a whole, as well as most Greeks and spaniards have already falled.

    • One more comment, Greg;

      Inside any system (defined this by a currency and its own monetary politics) and independently of how the product is distributed among salaries and profits, the higher productivity process replaces (or destroy) the lower. The currencies make possible the coexistence of different systems with different productivity level, but once you make a monetary union with a common policy there is a new unique system where the higher productivity will replace the lower. Maintain different prices and salaries in this unique new system is almost impossible in the mid&long run. Once we have decided to enter into the euro we have switch on this engine of replacement/destruction.

      It was foreseen and that is why we got compensations that here in Spain we used to inflate a real state bubble instead of increase our productivity (better education, more R+D, better industrial organization…). My doubt is if we could do it when industralization was dissuaded, being easier to import, and when the banks were offering cheap financing for any mortgage loan. Mainly, foreign banks that once realized that their investment was wasted, have obliged a country rescue to get sovereign guarantee to their loans.

      So, a mix of economic dynamics and egoism, as ever.

  20. Brilliant Post, where you are expressing what I have always been stressing for years now: the Euroweenie Ponzi bailout loans that go nowhere until one day things explode because the debts get bigger and bigger and capacity to repay with austerity and debt deflation gets smaller and smaller. Most of the IMF members excepting the Euroweenies and their US cohorts saw this ruse from inception and did not want the IMF to get involved in the Greek bailout. Is the Eurozone worth saving? Hell no! Does Europe have a soul? Did it ever? Goodness, you can argue that countries have souls like Greece, UK, France, Italy, etc. but an esperanto Europe held together by repression??? You are assisting to perpetuate a nightmare of an increasingly ugly Gulag that the Euroweenies are creating at the expense of sovereign national states more and more powerless to protect their citizens and ruled at gun point by the EU elite and the Germans though this hideous common currency scam.

  21. Pingback: Ponzi Austerity: A Definition And An Example

  22. “Bankrupted states, in a death embrace with bankrupted banking sectors, were forced to take in ever-increasing capital inflows”
    Hm? They weren’t ‘forced’ to anything. They accepted the deals they got offered. Their very souvereign decisions. Because they could instead have decided to leave the eurozone and default. But they didn’t. So pls. stop this ‘forced’ nonsense.

    • Yeah, right. The people of Greece, Portugal, Spain and Ireland certainly volunteered to have what is left of their economies crippled by this ridiculuos austerity scheme while they could have just watched their banking systems collapse instead.

      What about this is so hard to understand?

      To paraphrase a hollywood classic: “They were made an offer they couldn’t refuse”!

      ‘The Godfather’ is an interesting movie. You should watch it. Maybe it will help you understand what this precious freedom of choice you repeatedly mention here is worth to someone who is staring down the barrel of a gun.

    • The people of Greece, Portugal, Ireland etc. never volunteered to any such schema. Large majorities would have rejected it, if given a chance. But they were never goven a chance…

    • Dear all, Yanis wrote “..bankrupted states…” not “… the general public of the bankrupted states…” which seems to be the cause of the misunderstanding here.

      In a representative democracy the elected government takes the decisions on behalf of the electorate. That this decisions are in some or a lot of cases not exactly what the majority of the general public wants or what would be better for them is a fact but does’t change the game. I was refering to the governments with ‘they’. Sorry to not have made this clear, it seemed obvious to me.

      BTW, the general public in Germany was never asked if they want to join the eurozone. From the polls back then it is clear that large majorities would have rejected it, if given a chance. But they were never given a chance…

    • So I see all the smart guys piling on Sam with a hammer that comes down to the assertion that there is a difference between the “government” and “the people”. And these are the people calling Sam naive!! LOL. Show me any government in the industrialized world where decisions match up with the people´s wishes. In fact, they practically never do (look at the minority pushing through anti-abortion laws in the US for a perfect example of this). And to assert that the government was “forced” is simply populist hyperbole – a tendency that Yaris has a hard time resisting although it undermines his otherwise great work. Even in the case of Greece, no mention is made of the fact that the Troika WAS SOMEHOW ABLE to influence the election as they wanted – are the people of Greece so easily swayed , er duped? And if they are, does this not in fact undermine all this untoward – in my opinion – bowing and scraping at the feet of DEMOCRACY. Do I need to point out that Hitler won democratic elections? No, democracy is always trotted out whenever someone hasn´t gotten his way and wishes to cry “foul”. This brings nothing, really, to the discussion.

    • @Barry Fay

      “The assertion that here is a difference between the ‘government’ and ‘the people'” is actually a fact. It may be naive, as you claim, to think that it has ever been otherwise anywhere in the world, but that doesn’t mean that it isn’t wrong. Especially since our elected officials, be it the greek, german or american ones still claim to act in the best interest of their respective citizens, while most of their actual decisions serve only the interest of an elite minority who doesn’t give a damn about democracy as long as the profits keep piling up in their offshore bank accounts.

      I don’t know about you, but I personally dislike being lied to by the very people who got elected and are being paid to act as my political representatives.
      One of those lies – at least that holds true for the greman government – is that Germany had nothing to do with the development of the euro-crisis, that the whole debacle is a moral issue instead of an economic one and that the deficit countries are to blame for their moral failings and consequently need to suffer and repent in order to get things straight again.

      VSS may be getting the blunt of the blame here because he repeatedly argues in exactly the same way, despite his obvious disagreement with chancelor Merkel and her entourage. I don’t know if he really means what he writes, or if it’s just his way of provoking an argument.
      Nonetheless, it is a prime example of the way of thinking that sadly seems to dominate the german public opinion, and provides our political elite with a reason to stay on course even if we can already hear the ice cracking against the ship’s hull.

      If we were all just to accept that fact as inevitable, Mr Varoufakis could just as well shut down his blog and we could all stop discussing anything and instead bow our heads in awe to the markets or whatever sad excuse our elites can come up with to help remind us of our insignificance.

      By the way, Hitler may have been elected Chancelor of the Weimar republic. But since his national socialist party didn’t have the necessary majority of seats in the Reichstag, he needed the votes of the conservatives in order to become the head of government.
      Those they gave to him mainly because of the very strong opposition from the radical left who were threatening to overthrow their crony-capitalist corporate ruling class. The Nazis seemed to them like the lesser of two evils and so they went with Hitler and helped him to bully the senile president Hindenburg into supporting him, even when he finally declared himself the Führer, abolished democracy and turned the republic into a fascist dictatorship.

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