The Modest Proposal as the last shot left in the eurozone’s barrel: Guest post by George Krimpas

The term ‘eurobond’ is bandied about ever so lightly. This is dangerous. 

This probably all started with Juncker a long time back given the rigid form in the joint Juncker-Tremonti proposal  shot down by both the Germans and the French.  Now it is revived by fiscal maximalists who know not that even US federalism is a fiscal compromise.  This is why I use the Bini Smaghi self styled ‘provocative’ proposal as benchmark: it is modelled on a unitary state with no fiscal devolution whatever.  There are two issues, the purpose of a eurobond and the agency issuing and servicing the eurobond.  With maximalism out, on the grounds of ever so modest realism, and minimalism – e.g. the crippled EFSF – espoused, the middle way suggested in the Modest Proposal depends on two presuppositions: (1) One that the ECB is the only existing legitimate entity which can issue its own bond, therefore a eurobond, for any purpose whatever, in the same sense that any central bank may issue money wherewith to conduct open market operations, (2) Two that the clear goal of monetary policy is to kill the toxic threat from the sovereign debt overhang.  It is of course, and must ever be, a guess to state the consequences of any bold positive policy after the markets have been treated with such moronic insouciance for over two years.  Yet the ECB taking up the servicing of the Maastricht compliant tranche of eurosovereign debt is the only shot left in the barrel.  And the markets are craving for a positive bold policy, gold and the swiss franc simply do not suffice as safe havens.  Finally, on the matter of resistance to the Modest Proposal‘s Policy 1, which is really the pivot for the other two to fall into place, I suspect the ultimate denial comes from the sheer inability of the current establishment to contemplate a truly novel and innovative idea.  Roosevelt had his fireside chats to take his ideas directly to the people.  I suggest that the Modest Proposal should be rephrased where needed according to Roosevelt’s simile of the Garden Hose – you could even obtain the historical sound recording of that famous speech and tag it along, an intellectually potent garden hose may be the catalyst hitherto missing. 


    Once upon a time there was a Europe suffering from poverty in all of
    OLD CONTINENT forcing people to emigrate to the NEW CONTINENT called
    the promised land with ever green pastures and full of possibilities for the masses
    to survive living a dream that ended in the famous AMERICAN DREAM forming
    the UNITED STATES OF AMERICA. Economic super power as never seen before.
    This model created wealth to Society and a high standard of living.
    Now Europe building a UNION with somewhat fragile fundaments is fighting
    a financial WAR with complex fallout from the 2008 CRASH in a struggle
    to restore confidance to a EUROPEAN DREAM to find light in a NEW NORMAL
    still not in place.The road to realize this dream faces severe difficulties to be
    overcome copying the victorious NEW CONTINENT MODEL. A few steps
    down the road EURO BONDS &TREASURY materializes and mission
    complete led by GERMANY EUROPES only hope establishing it´s FOURTH REICH.
    History Gives Clues!

  • Euro-zone needs leaders like President Roosevelt.
    “Suppose my neighbor’s home catches fire, and I have a length of garden hose four or five hundred feet away. If he can take my garden hose and connect it up with his hydrant, I may help him to put out his fire…I don’t say to him before that operation, “Neighbor, my garden hose cost me $15; you have to pay me $15 for it.”… I don’t want $15–I want my garden hose back after the fire is over. ”
    In December of 1941 President Roosevelt received a letter from Winston Churchill, the leader of Great Britain, stating that by June of that year England would no longer be able to pay for the supplies and arms the United States had been providing in the battle against Germany. In 1934 the Johnson Debt-Default Act had forbade the United States from trading with any warring nation except on cash terms. If England was to survive, a way around the Johnson Act had to be found.
    Roosevelt devised a plan where the necessary supplies and equipment could be lent and leased to England. Using the analogy of lending a neighbor your garden hose if his house was on fire and thereby keeping the fire from spreading to your own house, he gained support for the concept. The Lend Lease bill (H.R. 1776) gave the president broad powers to “sell, transfer title to, exchange, lease, lend or otherwise dispose of” items to other countries if he decided they were not vital to national security. In so doing the United State became, as Roosevelt stated, “the great arsenal of democracy.”
    At its peak the Lend Lease program assisted 38 countries and made $48 billion available. England received the largest share. After the war most of the debts were cancelled. Only about $8 billion was ever actually repaid and most of that came from England and France. The Soviet Union foreshadowed its Cold War hostility towards the United States by refusing to repay its portion.

    • Political midgets? About 70-80% of the population in Germany is against transfers from the North to the South in whatever form you put it.

      Germany would have to double taxes for small businesses and corporations to cover the additional financing cost it would face. For the Netherlands it would not be much different. the other option is to double taxes on gasoline and cars. Sounds like a great topic for public support, doesn´t it?

      The only difference is that we already have a Eurosceptic party in the parliament. The Germans will have it soon. Thanks to the Euro we will have small Hitlers emerging all over Europe. Thank you Brussels!

    • It may well be true that a large majority in the surplus countries are against fiscal transfers. (And I think they are following a good instinct to oppose the current transfers to Greece et al given that the transferred finds end up in insolvent banks…) But then again the question is not whether the Germans and the Dutch are in favour of fiscal transfers. The question is whether they would want their countries to exit the euro, reconstitute their own (possibly joint Dutch-German currency), see it soar faster than the Swiss frank and end up in a deep recession that will cause German and Dutch unemployment to skyrocket. Of course, you would be right to protest that this is not a good argument in favour of more money for the toxic EFSF or for a jointly issued eurobond. But, I submit, it is a good argument for ECB-issued eurobonds that will cost the German and the Dutch taxpayers nothing, they will cost the ECB nothing (in the long term) and which will be the foundation of the saving of the euro and, thus, of Germany’s (and by extension Holland’s) export markets.

    • Very soon there will be a majority for going back to national currencies again. The public already wants it. So in case the politicians do not follow, the voters will elect those who do. It is very simple.

      Your argument that national currencies would cause a “deep recession” is a bit blunt for an academic. It is understandable that Greeks fear being dropped by the EU like a hot stone.

      There is no “deep recession” in Sweden, Switzerland, Czech republicm Denmark. There was no permament deep recession in the Netherlands, Germany and Finnland before the Euro.

      Even if there would be a recession, I prefer having a recession and having national control. After all we are a country where things are pretty much in order and things work as opposed to other EU countries. The worst scenario is being at merci of how things go in countries where things are out of control. In that scenario I would support anyone who would get us out of the mess (the EU),

    • If you think that my prediction that a return of Germany to the DM will start a major recession in Northern Europe is due to my being of Greek origin, it is quite clear that you have never read anything of mine. Which is fine, as long as you desist from making claims of understanding my motives and the quality of my academic thinking. Anyway, back to the issue: A recoonstituted DM will cause a flood of capital into Germany that will make the recent advances of the Swiss frank seem like a walk in the park. This does not, of course, mean that you must change your mind about not wishing to share a currency with Greece or Italy. You may very well decide that a deep recession is preferrable to staying in the same currency union as the periphery. What you should not do is maintain the fanstasy that Germany and the rest of the surplus countries can maintain their export markets after the DM is reconstituted. You mention Sweden, Switzereland etc. Let me remind you that these countries never left the euro. It is one thing to choose not to enter and it is quite another to exit a common currency.

    • “A recoonstituted DM will cause a flood of capital into Germany that will make the recent advances of the Swiss frank seem like a walk in the park”

      This is an important point. However, it does not only imply that the currency Gulden, DM or whatever will increase. The most important effect is missing: It will cause a massive increase in domestic economic activity. Especially due to fact that domestic investments in the Netherlands etc. were reduced due to the capital export to the Southern European countries since the Euro was introduced.

      Currency appreciation is one thing, but interest rate advantage and relating domestic investments are another. To make a credible vs. a political statement both need to be taken into account. I have not seen anything that puts a number on both. Until then, I believe that risk that can be somewhat controlled by our stupid Dutch politicians is better than risk that may or may not be controlled by politicians of the worst country in Europe (which ever that may be at any point in time in the future).

  • Yes, although it is not my profession, it seems plausible that this is the only shot left in the Eurozone’s barrel. However, It also seems to me very remote that it is sheer inability of the current establishment to contemplate a truly novel and innovative idea. I will tend to lean on the explanation that France of today has no resemblance to France of the Mataroa. Germany finally has had its MittelEuropa, and realizes that it cannot lead the whole of Europe with only the French limping behind them and the English saying to the whole of the world “I have told you so”. (actually Thatcher had said “no! no! no!”). So Germany saves what it can save, leaving south Europe outside its already overreaching arms. Who will fill the gap? Salivating Turkey managed to have its wrists slapped twice within a month by the Russians and the Americans, and is left in a daze. The Aegean is too important to be left to peripheral powers. (or bankrupt countries that cannot fuel their planes and ships). Germany cannot control it (It avoided involvement in Egypt and Libya), nobody (but nobody ever) wants the Russians influencing the area, since the next stop for them will be Suez canal and the oil fields to its south, so it is the American cavalry that will return to these seas. Only this time the hard core anti Americanism of the 80’s is anachronistic, and also the Chinese will be allowed in by the American hosts to have a stake. Anyway these Chinese take ages to fill their strategic plans, and are not expected to be overzealous or destabilizing. I am willing to bet my 10$ that these are the inertial deep current forces set to motion, and all the rest we see is the foam of the surface waves. Of course these are non-falsifiable hypotheses, so all I can do is wait and see.

  • Dear Yanis,

    Most -Dutch taxpayers do not want to pay for Greece and other euro-countries any longer. The problem is that in a referendum about the EU the Dutch people in majority said NO, but the government did YES. And tnow he populist Geert wilders party PVV is playing the card of the no-voters: no more money to eurozone-countries with financial problems.

    I read that the eurozone-problems strenghens the regional cooperation in Southeast-Asia.

    And also this article can give some information about what is happening in the Asean+3 region;

    Do you know the facts about the Greek-Finnish deal?

    Our minister of finance said: there was no deal, but our minister-president said : when it is valid for the Fins, it should also be valid for the Dutch.
    Today they both said there is no deal and we are against it when one is existing.

    • This deal is great. It potentially will blow up the second rescue package.

      They start to fight in Austria and Germany about this too and demand collaterals in gold! It will not be long that Iveta from Slovakia says “no or collateral”.

      Divide and conquer!

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