The essence of the New Eurozone, as envisaged by the latest Treaty Change. Guest post by Joseph Halevi

My good friend, co-author and interlocutor extraordinaire, Joseph Halevi, spends half the year in a small town on the shores of an Italian lake. Upon hearing of the latest Treaty changes to which the euro 17 nations agreed today, he sent me the following message. I can think of no better or more analytically  astute comment on the latest news from Europe. Enjoy!

The new Euro-17 Club is like the small town on the shores of the lake that I spend many of my days. The owner of the main café is also the main force in the local association of shopkeepers. He fights, successfully, against any proposal to open new posh cafés allowing only the lesser ones to exist. Hence he gets the best clientele. Many, if not most, come from Rome. Thus he runs a surplus with both his town residents and Rome. Importantly, he does not have to care about their finances. But the trick that makes his enterprise work consists in that the clients are external to him and he does not determine their source of income.

Germany, on the other hand,  wants to be like the owner of that café. Yet it also determines a great percentage of the income of the clients. For this reason, and unlike the little town of my lakeshore, the new Euro-17 area is an unsustainable club.


  • An excellent (failed) analogy, I agree! Germany has not understood that within the eurozone it is no longer an independent national economy and therefore needs to revise its implicit model of economic management. This is foolish conservatism, that actually fails to conserve by not recognising the need to change.

  • Dear Yannis

    Just one question I have in my mind for months…. What if the owner of the cafe doesn’t care any more if the people from Rome will have money to spend on coffee, beer and sandwiches? What if he doesn’t count on them any more? What if he counts on making business with 2 other cities same size or even larger than Rome? China, India, are each larger than Europe, and most important with growing middle class. And the Germans think that they can sell their goodies everywhere…. Maybe they just want to leave ashes in Europe and come later to buy cheap. Maybe they think that the rest will deserve their fate. Maybe I am going nuts….

    • Sure. This is a thought at the back of their minds. Only it is wrong. For the emerging countries are also banking on net exports for their future growth. And since one net exporter cannot increase its surpluses in relation to another net exporter forever, the moment of eckoning will come. Only it will be too late then…

    • Thank you very much Yannis

      I tend to believe the same with you about the future of German exports, especially knowing that the Chinese bought Volvo for peanuts and now are ready to buy Saab.
      Now I am tempted to ask a question which may be (politically) more difficult to answer… (I have been following economic blogs/forums since 2008 and I still haven’t got to the point..)
      So what do you believe about the German attitude in the Euro-crisis overall? Is it simply a game of power, domination and survival of the fittest (which could be implied by ‘what is at the back of their heads’)? Or is it rather an issue of different perceptions and ways to deal with things which makes communication slow and painful? Or could it be that all this mess is too big for everyone, and Germany is also fighting (from a more favorable position than others) to save what can be saved?

  • Hey, I got an idea!

    What if you allow me to use my charms with the Cafe Owner lady? She kind of looks undersexed to me and it might work:

  • The german government knows very well what they are doing. 2008/2009 they had an excellent stimulus package of 100 Billion € or 5% of GDP, plus cash for cars plus short-time work. This rescued the german industry at the price of a record indebtedness. The current stance of the german government: austerity! austerity! for all others is therefore not rooted in a principled stance in economic theory or the desire to save the euro. The plan must be different. What comes to my mind is a compromise between the capitalists in the eurozone roughly speeking in the following lines: we, the german indutrialists, after you agreed that you will not do as we did 2008/2008 will take over your marketshare. As a quid pro quo we will create a new source of profit, we will take care that the interest on public dept will be high enough to compensate you. And the banks will also cash in.

    Disclaimer: i’m german

    • Peter there is a huge difference. The stimulus package in 2008/2009 was paid for by Germany itself. the bailouts we are seeing now are paid by Germany for other countries. Noone has a problem if Italy pays for its own stimulus package.

  • This all smacks of England’s grand old failed attempt to conquer the world hundreds of years ago. The EU has many elements of Mercantilism and we are just beginning to see the results. Really, how long could this present day EU continue to hope to prosper.

    Take Greece. It was an economy ill suited for the western world. The Byzantine public sector coupled with an entrenched establishment, with control of the broader economy were not the progressive forces needed which could give Greece half a chance to compete in the unified Europe. Greece played the catch up game and the EU supposedly didn’t know the stats were rigged. How could any rational person not see that an uncompetitive and unproductive economy had an expiry date? How many idiot banks would continue to lend Greece money when capital investment was inconsequential and growth was plasmatic? The money was squandered away and the EU is completely complicit. I challenge them to look everyone in the eye and say they didn’t know.

    Everyone knows that the Greeks were basically buying first world technology and raising their standard of living with borrowed money and the EU and its own mother knew it too. The EU, and by that I mean primarily Germany and France, was profiting greatly by Greece’s attempt to EU itself so why spoil a good thing. But by this reasoning, there was an end date to this whole song and dance. See Lehman 2.0.

    By extension the aforementioned applies with varying degree to all the PIIGS. So, in effect, a classic mercantile economy was established which smacks of parasitism . I see Merkozy sermonizing a great deal but little action in treating the disease. Their inaction leads me to believe they have neither the guts nor the intelligence to be frank about their real agenda. I truly believe they will let things deteriorate to the point of no return until there is no other option but the EU’s disintegration, at least in its present day form.

    By May 2012 we shall see, at least in Greece’s case, that the rescue attempt was a colossal failure and that maybe events will be set in motion for what Merkozy have been planning all along.

    • You know something fella?

      I am sick and tired of Greek bashing by certifiable ignoramuses.

      How about this to get you going?

      Effective this Monday, Greece to impose a 300% import tax on all products made in Germania Horribilis.

      Now take this and write us a thesis about Byzantine mercantilism.

    • First off, do you live in Greece? Second, If you do, either you’ve been sleepwalking for a long time or you choose not to notice that Greece is a country that makes an art out of ineptness.

      I’ve been living in Greece for 12 years and am still amazed that 2 years into this crisis little has been done to cure the disease, lest our all knowing politicians do something right at the expense of their political future!

      And forget the I’m a bigger Greek than you contest. Very few Greeks know what the term constructive criticism means and get defensive when forced to recognize that for decades they were props in an ‘Alice in Wonderland’ set.

      Greece needs major structural change and instead it is being offered a tax and slash cocktail of measures which only guarantee economic debilitation.

    • Everbody should officially exti the Euro. Most people and companies have already done so.

  • Maybe there won’t even be a chance for exporters to compete. A Euro collapse will destroy German foreign markets since it will detonate the US pile of derivatives and bankrupt the US financial system, with international ramifications.

    First, the German elite destroyed their home markets by impoverishing their workers for the sake of cheapening labor costs for exports. It has been shown that increasing austerity at home was the most important element for German capitalists to gain competitive advantage, not technological superiority or “Teutonic frugality” and its associated culturalist nonsense. Then the German elite destroyed their regional markets in the “deficit” areas, with the willing help of an oligarchy of collaborators, in hopes of extending the same model to the rest of Europe, but on harsher terms since there is no political price to pay. Now the Germans are wrecking the Euro vis-à-vis the world, which will detonate the dry fuel of US derivatives and wreck their US markets. This in turn will damage China along with the “emerging markets” to various degrees, none of whom have the capacity to consume to the same degree as the US.

    It is interesting to observe commentators shifting attention away from debt to capital accumulation as the crisis climbs toward the top of the system and reaches its peak. I’m afraid that the German elite is in for a nasty surprise, not least of which will be another generation in the Atlantic camp deeply angry and mistrustful of German power.

    Furthermore, the ongoing nuclear crisis in Japan is literally a ticking bomb as the melted Fukushima fuel threatens to descend toward the water table, which could generate a massive explosion.

    The two post-WWII pillars of US power in eastern Asia and western Europe are under serious threat. In both regions, the US appears to be rather unable to compel events in its favor. 2012 may prove to be a volatile year in more ways than we imagine.

  • I have a question on the excellent analogy: Did the caffe owner made the little town’s residents pay for the loan he got to build, expand and renovate his cafe? As Romans have now less money they cannot afford to travel and drink their caffe there any more while he discovers that the locals as they are paying his loan now have less money to spend for coffee. The owner is trying to find out what is wrong and after much thought he concludes that it is the Romans fault and he decides that if they cannot economize through cutting all other life necessities so that they have enough to spend for their coffee they should be punished.
    I am sure that the reader will find inconsistencies and loose links in my question and story. I am in confusion as I write it…for some strange reason reminds me of the current EUz situation.

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