Europe’s April, and how to thwart it

08/04/2012 by

The editor of a Swedish magazine asked me to contribute a short piece that combines elements of my Global Minotaur with the address I am about to deliver at the INET conference in Berlin this coming week on the Future of Europe. Here is the piece I concocted. Its title is borrowed from T.S. Elliot’s Waste Land

“April is the cruellest month”, wrote T.S. Elliot in his Waste Land. And so it proved this year in Europe’s wastelands, also known as the ‘eurozone’.

First came a very public, and at once hideously lonely, suicide in Athens’ Syntagma Square. A single gunshot, a solitary act of defiance in the midst of what had, hitherto, been the epicentre of mass demonstrations against the acutest symptoms of the common currency area’s malaise.

Then came another sign of cruelty’s triumphant advance: on the day that the finalists for the mischievous Wolfson Prize were announced (competing for a large wad of euros on how best to dismantle the… euro), Europe’s media were replete with news of a young Dutch boy’s entry. His idea? To force Greeks to convert their euros into drachmas and to expropriate from each a fixed sum with which to repay the monies owed by the Greek state to the bankers, the IMF, the ECB etc.

Of course, young boys are notorious for their unlimited cruelty The tragedy here is that the boy’s father, instead of breathing some reason and humanity into his son’s heart and mind, proudly translated his gibberish and submitted it to Wolfson. And, as if that were not enough, Europe’s media bathed his misanthropic nonsense in praise and plaudits.

Such cruelty is the last stage of intellectual and institutional failure at a grand scale. In today’s Europe it is a mere symptom of a stunning incapacity to grasp the nature of the Crisis and derivative of our botched attempts to deal with it. To stem its advances, nothing short of a gestalt shift will do; one that seeks the true causes of our shared predicament in place of the current blame game in which the Germans loathe the Greeks, the Greeks despise the Germans and, before long, every European nation turns on its own kind in a manner that ushers in a postmodern version of the 1930s.

On the eurozone’s woes: Lessons from the mists of time[1]

Once upon a time, in the famous maze-like Labyrinth of the Cretan King’s Palace, there lived a creature as fierce as it was tragic. The Minotaur’s voracious appetite had to be satiated to guarantee King Minos’ reign, a globalised regime which secured Peace and enabled trade to criss-cross the high seas in bountiful ships, spreading in its wake prosperity’s benevolent reach to all corners of the then known world.

Alas, the beast’s appetite could only be satiated by human flesh. Every now and then, a ship loaded with youngsters sailed from far away Athens bound for Crete – to deliver its human tribute to be devoured by the Minotaur. A gruesome ritual that was, nonetheless, essential for preserving the era’s Peace and for reproducing its Prosperity.

Millennia later, another, this time a global, Minotaur rose up from the ashes of the first postwar phase (also known as the Bretton Woods system). Its lair, a sort of Labyrinth, was located deep in the guts of America’s economy, taking the form of the US trade deficit which consumed the world’s exports. The more the deficit grew the greater its appetite for Europe’s and Asia’s capital with which our modern Minotaur satiated its hunger. What made it truly global was its function: It helped recycle financial capital (profits, savings, surplus money). It kept the gleaming German factories busy. It gobbled  up everything produced in Japan and, later, in China. And, to complete the circle, the foreign (and often the American) owners of these distant factories sent their profits, their cash, to Wall Street – a form of modern tribute to the Global Minotaur.

The tsunamis of capital racing across both oceans into Wall Street gave the impetus for what we now call financialisation. What do bankers do when between 3 and 5 billion dollars, net, passes through their fingers every morning of each week? They find ways to make it grow! To breed on their behalf. Thus, the 80s, the 90s and the naughties saw an explosion of private money minted by Wall Street.

Soon it went on the prowl for returns higher than the puny interest rates available in capitalism’s metropoles. It gushed, like flooding rivers, into Irish and Spanish real estate, the Greek state, continental Europe’s inane banking system. An era of cheap, plentiful, highly mobile private money was made to seem permanent.

It was around that time that Europe had the brilliant idea to create a common currency lacking any of the shock absorbing mechanisms (e.g. a unified banking sector, a common debt instrument, and a substantial surplus recycling mechanism) that prove essential when things turn bad, when recession exerts disproportional pressure on its different regions, when the underlying faultlines begin to deepen and ever widening cracks develop on the surface.

As long as the rivers of private money kept flowing, the eurozone resembled a fine riverboat crossing a peaceful Pacific Ocean. Alas, the Global Minotaur that kept them flowing buckled under the weight of its own hubris in the Fall of 2008. The private money it was spewing turned to ashes and taxpayers were made to replace it with freshly minted public money (pushing states into the arms of bankruptcy). However, no state could fully replace the lost ‘liquidity’. Like a cruel tide that goes out in a hurry, nothing was left to remind the ample liquidity of the past except for a few weedy posts buried in the mud.

Thus, after 2008, the financial Pacific turned stormy and Europe’s splendid vessel started taking water in. Its fair-weather commanding officers remain, to this day, in denial about their ship’s seaworthiness, blaming the low-lying ‘peripheral’ compartments for being too close to the water. As long as passengers and crew are bickering, refusing to accept the urgent need for a re-designed vessel, the shipwreck is unavoidable. The question is: How can the eurozone be re-designed given the tight political constraints?

A Modest Proposal for Resolving the Crisis[2]

Europe is currently caught up in a false dilemma between current policies, which guarantee the eurozone’s disintegration, and a ‘federal move’ that cannot possibly unfold swiftly enough to arrest a crisis which promises to leave nothing to ‘federate’ but the ashes of what used to be the dream of a United Europe.

The first step is to identify the three realms in which the crisis is raging hitherto unimpeded: The banking sector, public debt and, last (but most emphatically not least), the eurozone’s chronic internal imbalances (and aggregate underinvestment). The trick is to ‘mend’ these broken realms without making the taxpayers of one country guarantee (or buy) the debts of another; without cumbersome Treaty changes; without new dictatorial powers vested in unelected bureaucrats; without committing now to a Federal Europe that should be only one of our future options, to be considered after the crisis is over (as opposed to a prerequisite for resolving it).

The backbone of our Modest Proposal comprises three policies:

(A)  Unify the eurozone’s banking sectors under one authority that recapitalises forcefully the ailing banks (as Sweden did in the 1990s) with no involvement by member-states

(B)  The ECB services a portion of each country’s Maastricht-compliant public debt by issuing ECB-bonds in its own name (without any member-state guarantees) and opening debit accounts into which the member-states repay these sums in the long term and at interest rates that the ECB secures on behalf of the eurozone as a whole

(C) The European Investment Bank (and the European Investment Fund) collaborates with the ECB (via net issues of ECB and EIB bonds) to shift idle savings into productive (and profitable) investments that (i) maintain aggregate investment at levels that avert eurozone-wide recession, and (ii) counter the internal imbalances which undermine the eurozone’s integrity.


To avoid a postmodern 1930s, Europe must devise its own New Deal after having grasped that the eurozone was a fair-weather vessel kept afloat by a Global Minotaur’s hubris. Once the latter met its nemesis, the only thing that can prevent the eurozone’s transformation into a sad shipwreck is the Europeanisation of three realms: banking sectors, public debts, and investment flows. If Europe fails to see this, and continues to play the ‘blame game’, April’s cruelty will turn into the summer of our shared discontent.  

[1] The narrative in this section stems from my recent book The Global Minotaur: America, the True Causes of the Financial Crisis and the Future of the World Economy, London: Zed Books

[2] This section summarises Y. Varoufakis and S. Holland, “A Modest Proposal for Overcoming the Eurozone Crisis”, Levy Institute, Policy Note 2011/3, May 2011

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