The Modest Proposal in Berlin – INET Conference, 13th April 2012

The invitation to address INET’s Berlin Conference, and to deliver a fresh version of the Modest Proposal, gave me the impetus to revisit the latter. The extended summary below (of my INET talk) will soon spawn Version 3.0 of the Modest Proposal.

Europe’s strategy for dealing with the Euro Crisis has been to ringfence, at first Greece, then Ireland, then Portugal, then Greece again, nowadays Spain etc. Unfortunately, a deep seated crisis, raging simultaneously in the realms of public debt, under-investment & internal imbalances and banking, makes it impossible for such ringfencing to succeed. Put simply, either Europe as a whole must be ringfenced or the Eurozone will continue along a path that has already led it to an advanced stage of disintegration.

Before posting the text of my talk (see below), here is a clip of the discussion that followed (for my intervention jump to 16’50”)

How should such ringfencing proceed? Currently, Europe is caught in a savage dilemma between the present policy of bailouts-with-austerity (which no one seriously expects to work) and the idea of resolving the Crisis through federal moves (e.g. a transfer union, jointly and severally guaranteed eurobonds) that Europe is not ready for and which would, in any case, be outpaced by the galloping Crisis.

Thankfully, this is a false dilemma. Below I present three policies that would swiftly ringfence Europe without debt monetisation by the ECB, without a Federal Treasury, without having the surplus countries guaranteeing the debt of the periphery, without further loss of sovereignty, without Treaty changes, and with only a rational re-assignment of Europe’s existing institutions.

Policy 1: Dealing with the Debt Crisis

The ECB announces its Debt Conversion Program for any member-state that chooses to participate: It will service (as opposed to purchase) a portion of every maturing government bond corresponding to the member-state’s Maastricht-Compliant (or blue) public debt (MCD hereafter).

To fund these redemptions, the ECB will issue its own bonds (ECB-bonds) in its own name, guaranteed solely by the ECB but repaid, in full, by the member-states (on whose behalf the ECB will have issued them). This is how: Upon the issue of ECB bonds, the ECB will simultaneously open a debit account per participating member-state into which the latter is legally bound to make deposits (to cover the ECB-bonds’ coupons and principal).

Who will stand behind the ECB-bonds in the case of a defaulting member-state? First, the ECB debit accounts of each member-state shall enjoy super-seniority status vis-à-vis all its other debts. Secondly, the ESM-EFSF will insure, against a hard default, the repayments by each participating member-state into its ECB debit account. [3]

In summary, member-states will enjoy large-scale interest rate reductions (having refinanced their MCD at low rates secured by the ECB) while the ECB terminates both its government bond purchasing program and the LTRO. Instead of monetising debt, the ECB will have played the role of a go-between member-states and money markets, insured by the ESM-EFSF. Additionally, the ECB-bond issues will help create a large liquid market for European paper that advances the euro’s reserve currency status.

Policy 2: Redressing low aggregate investment and internal imbalances

Europe is in urgent need of (a) higher aggregate investment and (b) investment flows that ameliorate its internal imbalance of payments. Both can be achieved through an Investment and Internal Imbalances Amelioration Program involving the European Investment Bank (EIB), the European Investment Fund (EIF) and the ECB: The EIB will focus on infrastructural projects (with an emphasis on green technologies), the EIF on start-ups and SMEs (with an emphasis on new technologies) and the ECB will be a funding partner via its ECB-bond program.

The Program’s first task will be to untie the EIB-EIF’s hands to invest more in aggregate by allowing for the national contribution to projects (currently set, by convention, to 50% of total funding) to be funded by a net-issue of ECB-bonds (following agreement between the EIB-EIF and ECB), rather than through national borrowing which is, currently, severely circumscribed.[4] Upon completion of such projects, resulting from the EIB-EIF-ECB collaboration, all net revenues are to be repaid directly 50% to the EIB-EIF and 50% to the ECB.

Concerning the second task, dealing with the Eurozone’s internal imbalance of payments crisis, the distribution of investments among the Eurozone’s regions (as opposed to member-states) may be calibrated, by means of a pre-agreed formula, in proportion to each region’s balance of payments deficit within the Eurozone.

Policy 3: Dealing with the banking crisis

The Eurozone must be turned into a single banking area with a single authority that supervises directly and recapitalises the area’s banks. To this purpose, existing national boundaries are to be dismantled, together with national supervisory authorities. The currently confederate European Banking Authority (EBA) is to be re-configured as a unitary agency with a board comprising officials drawn from member-states, plus representatives from the ECB and the ESM-EFSF.  

With the ESM-EFSF now relieved of its task to fund the public debt of insolvent member-states (courtesy of Policy 1), the largest share of its capital is to be used for the purposes of direct bank recapitalisations.[5] These capital injections shall flow directly from the ESM-EFSF, under the supervision of the EBA and the ECB, to the banks but without mediation from the national governments and without these capital injections counting as part of national debt. In exchange, equity in the recapitalised banks is passed on to the ESM-EFSF which is then re-sold to the private sector when the EBA and ECB judge that banks have been sufficiently recapitalised.


Three crises, three policies for addressing them, each involving existing institutions and requiring no Treaty changes. In their totality, the three programs sketched above constitute nothing less than a New Deal for Europe, shifting idle savings into productive investments, dealing with the debt crisis, addressing the banking malaise and ameliorating the Eurozone’s crippling internal imbalance of payments.

[1] A variant of a Policy Paper jointly authored with Stuart Holland, and entitled A Modest Proposal for Overcoming the Euro Crisis, Levy Institute, May 2011

[2] Department of Economics, University of Athens & Lyndon B. Johnson Graduate School of Public Affairs, University of Texas, Austin

[3] This idea is borrowed from George Soros’ recent proposal. “How to pull Italy and Spain back from the edge”, The Financial Times, 25th January 2012.

[4] The remaining 50% is funded via the normal issue of the EIB’s own bonds.

[5] With another part dedicated to insuring the ECB’s debt conversion program (see Policy 1) against the hard default of some member-state.


  • Dear Yanis,
    having followed large sections of the conference, I have to express my disappointment, about the division between economists, which even on such a conference seems to be unreconcilable. How can we overcome this division, if people on such a conference still remain in their position and refuse to enter a real dialogue? Basically I refer here to the two speeches from Mr. Asmussen of the ECB and of Mr. Norbert Walter, former chief economist of the Deutsche Bank. The latter even has managed to use the term PIGS on such an internationally visited conference!

    On the other hand, dear Yanis, allow me to criticize you this time: the speech, which you had published beforehand in this blog, was atmospherically better, than your speech. The manuscript was reconciliatory. But at INET you appeared angry in my eyes. While you are right, your tone was little too harsh, IMHO. You stressed the adjective “idiotic” in your speech, and your answer in the Q&A session had an angry tone. Living abroad, I of course cannot feel like you must have felt, while being in Greece. Good willed listeners will understand that. Those who don’t like you, will take that as a reason to reject your views.

    Hope you have had though some meaningful networking with reasonable Germans, especially Prof. Bofinger. Why has his talk not been uploaded?

    • Xenofon: you highlight the difference between a good academic and a good politician. The academic has a strong intellectual grasp, and often a much weaker grasp of public and political mood; the politician has a strong grasp of public and political mood, and usually a weak grasp of intellectual and analytical issues. I cannot think of a single person in history who was able to combine these two aspects at the highest levels — implying that they are contradictory or competing skill sets.

      The moral is that we take the best from people, and employ individual people for their particular skills. I know that most Greeks do not understand this, but you need to learn.

  • “Idiotic Eurosystem” brilliant!

    However, your EIB, EIF point implies rampant inefficient allocation of capital – which is a destruction of wealth. If these projects would be so great, there would be private money to finance them.

    • Two economists are walking down the street. One says: “Look, there is a $10 note on the pavement.” The other refuses even to look, replying: “If there was one, someone would have picked it up”. I am afraid that your argument is precisely false. The problem with recessions is that the mechanism that recycles savings as productive investments breaks down. And when it does, it is the private sector that allocates capital inefficiently. Only government can, at that point, kickstart an efficient allocation through investment projects like that of the EIB, the World Bank etc.

    • Im afraid the output gap shows exactly the lack of wisdom that you claim the markets are having.Btw if all this gambling on derivatives that led to the crash is not inefficient allocation then what is it ?It doesnt get any more Hardcore neoliberal than that…

    • If politicians are so great at putiing capital to work, why do we see 90% failures and 10% success?

      This investment in infrastructure is another experiment we know the result form the past (as for socialism). We built top infrastructure in Eastern Germany. To transport what? Jobless people going to the beach. Noone needs a high speed railway system to transport cucumbers or olives from Greece over the Balkan to core Europe.

      Again: Out of 52.000 patents in 2009 only 24 went to Portugal and 24 to Greece! Switzerland with a similar population had 2.420!

      There is not even a high speed rail link between any of these cities Munich, Stuttgart, Vienna, Zurich, Prag. So why use the same amount of money in a region that creates significantly less wealth from the use of such a project?

      NoEU – sitting in a high speed train on a low seed track going about 50 kmh between Würzburg and Frankfurt – costing his client a 4 digit EUR figure per day (about 1 ton of olives worth)

    • First, the state-owned EIB’s investments have proved far more profitable than those of any private bank over the past twenty years in Europe. Proof of that is that the EIB raises capital in the money markets at less than 2% interest for ten year bonds; unlike private sector banks that are, effectively, shut out. Secondly, Germany’s post war success would simply never have emerged if the US had thought the way you do. Unless of course you want to argue that German DNA is somehow superior and that your nation’s success was guaranteed whatever policies Washington adopted after 1945…

    • Let me begin by saying that i understand your frustration. Sitting in a high speed train going 50km/h is a pain in the ass.

      But there are a few arguments i wish to make.

      ” If politicians are so great at puting capital to work, why do we see 90% failures and 10% success?”

      Succes is relative. Where does 90% invetments unprofitable? Perhaps. But it is besides the point. Those investments represent the surplus recycling the Mr. Varoufakis is tallking about. They reprezent a necessary evil(considering they are unprofitable) that hold together a currency union, by adressing the internal imbalances. Without infrastructure investements in the east, West and East Germany could not have been part, in the long term, of the same currency union: the DM.
      Mr. Varoufakis is arguing that what W Germany(the states composing it) did in E Germany, to hold the currency union together, the surplus states in the Euro need to do in the deficit states, because of the same internal imbalances.

      It’s not the we don’t nees new infracstructure linking Munich and Stuttgart, we just need it more in the poorer regions for the simple fact they are poorer. Who need more help? A man using a walking cane or one in a wheelchair?

      And if you are thinking the eurozone should brake up, consider this:
      what would happen if Germany would be using the DM and it would brake appart in to its consituting states?

    • Let me begin by saying that i understand your frustration. Sitting in a high speed train going 50km/h is a pain in the ass.

      But there are a few arguments i wish to make.

      ” If politicians are so great at puting capital to work, why do we see 90% failures and 10% success?”

      Succes is relative. Where does 90% invetments unprofitable? Perhaps. But it is besides the point. Those investments represent the surplus recycling the Mr. Varoufakis is tallking about. They reprezent a necessary evil(considering they are unprofitable) that hold together a currency union, by adressing the internal imbalances. Without infrastructure investements in the east, West and East Germany could not have been part, in the long term, of the same currency union: the DM.
      Mr. Varoufakis is arguing that what W Germany(the states composing it) did in E Germany, to hold the currency union together, the surplus states in the Euro need to do in the deficit states, because of the same internal imbalances.

      It’s not the we don’t nees new infracstructure linking Munich and Stuttgart, we just need it more in the poorer regions for the simple fact they are poorer. Who need more help? A man using a walking cane or one in a wheelchair?

      And if you are thinking the eurozone should brake up, consider this:
      what would happen if Germany would be using the DM and it would brake appart in to its consituting states, each whith its own currency?

  • Yanis, I would love to read a few remarks on the reception of your presentation by other economists. Did you get any constructive critisism on your proposal? I noticed you got at least a chapeau from Keen for the originality of the name “modest proposal”. 😉

  • “Dans ce pays-ci, il est bon de tuer de temps en temps un adiral pour encourager les autres.”

    — From Voltaire’s novel Candide

    “Debt-deflation: concepts and a stylised model“, Goetz von Peter, BIS

    (1) Introduction

    In this paper we explore the concept of debt-deflation. We propose a stylised model to illustrate its key features, including unexpected losses, distress selling, and distributional effects. These features reflect the central place that financial distress occupies in traditional accounts of deflation. The term debt-deflation was coined by Irving Fisher {“The Debt-Deflation Theory of Great Depression“, Econometrica, 1933 }, and refers to the way debt and deflation destabilise each other. The issue of stability arises because the relation runs both ways: deflation causes financial distress, and financial distress in turn exacerbates deflation. The former was known for centuries, but the latter was, in our view, a key insight of the debt-deflation literature. This ‘feedback’ from financial distress to deflation can occur through several channels:

    Fisher (1933) argued that borrowers attempting to reduce their burden of debt (‘indebtedness’) engage in distress selling to raise money for repaying debt. But repayment in aggregate causes a contraction in the money supply and price level deflation.

    Minsky (1982) elaborated the concept to incorporate the asset market. He recognised that distress selling reduces asset prices, causing losses to agents with maturing debts. This reinforces distress selling and reduces consumption and investment spending, which deepens deflation.

    Bernanke (1983) observed that debt-deflation involves wide-spread bankruptcy, impairing the process of credit intermediation. The resulting credit contraction depresses aggregate demand.

    Note that these channels involve features that are quite uncommon in today’s mainstream macroeconomics: among them are losses and distress selling, the idea that debt and deflation destabilise each other, and the notion that the quantity of money endogenously contracts through the repayment of debt. Note also that some standard methods, including the representative agent and log-linearisation, are not well-suited for exploring this territory. This may explain the shortage of formal work on debt-deflation.

    (2) Irving Fisher: the level of prices

    Fisher sets out a monetary theory of how financial distress exacerbates deflation. Fisher’s argument starts with a state of ‘over-indebtedness’. Agents seek to reduce indebtedness by ‘liquidating’ debt. The first and most important steps in Fisher’s ‘chain of consequences’ are,

    Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar.

    Fisher views price level deflation as “the root of almost all the evils” that he elaborates in six further steps. Note that, rather than taking deflation as given, he explains it as the consequence of agents’ attempt to reduce their indebtedness.9 They do so by distress selling, to raise the money for repaying bank loans. Repayment in aggregate reduces the quantity of money, or ‘deposit currency’, which causes deflation. Since deflation is known to increase indebtedness, Fisher’s channel closes the loop of debt-deflation,

    … and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed.

    Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing. But if the over-indebtedness is not sufficiently great to make liquidation thus defeat itself, the situation is different and simpler. It is then more analogous to a stable equilibrium; the more the boat rocks the more it will tend to right itself.

    — ”The Debt-Deflation Theory of Great Depressions”, Econometrica, October 1933

    Fisher’s theory was largely ignored by contemporaries …

    (3) Hyman Minsky: asset prices

    Minsky’s elaboration of debt-deflation incorporates the asset market. He recognised that distress selling reduces asset prices, which (1) reinforces distress selling, and (2) worsens deflation. Regarding the first channel, Minsky wrote,

    Fisher does not identify the ways a unit can get cash to repay loans that fall due. […] Once a situation exists where debt payments cannot be made either by cash from operations or refinancing, so that assets have to be sold, then the requirements imposed by the debt structure can lead to a fall in the prices of assets. In a free market, the fall in asset prices can be so large that the sale of assets cannot realize the funds needed to fulfill commitments.

    — “Debt-Deflation Processes in Today’s Institutional Environment”, Banca Nazionale del Lavoro Quarterly Review, December 1982

    In other words, when distress selling reduces asset prices, the resulting losses exacerbate indebtedness, and may lead to further distress selling. As in Fisher, distress selling can be self-defeating. The asset market and distress selling feed back on each other.

    Regarding the second channel, Minsky argues that the fall in asset prices reinforces deflation:

    If payment commitments cannot be met from the normal sources, then a unit is forced either to borrow or to sell assets. Both borrowing on unfavorable terms and the forced sale of assets usually result in a capital loss for the affected unit. However, for any unit, capital losses and gains are not symmetrical: there is a ceiling to the capital losses a unit can take and still fulfill its commitments. Any loss beyond this limit is passed on to its creditors by way of default or refinancing of the contracts. Such induced capital losses result in a further contraction of consumption and investment beyond that due to the initiating decline in income. This can result in a recursive debt-deflation process.

    — Can It Happen Again? Essays on Instability and Finance (1982)

    In other words, losses from the decline of asset values reduce aggregate spending through a wealth effect.

    (4) Ben S. Bernanke: credit

    Both Fisher and Minsky emphasised the consequence of financial distress for macroeconomic variables: aggregate spending, the price level, and asset prices. Another channel of feedback can arise when financial distress affects the banking system.

    The banking problems of 1930-33 disrupted the credit allocation process by creating large, unplanned changes in the channels of credit flow. … {This} plus the actual failures, forced a contraction of the banking system’s role in the intermediation of credit. … experience does not seem to be inconsistent with the point that even good borrowers may find it more difficult or costly to obtain credit when there is extensive insolvency. The debt crisis should be added to the banking crisis as a potential source of disruption of the credit system. … The effects of this credit squeeze on aggregate demand helped convert the severe but not unprecedented downturn of 1929-30 into a protracted depression.

    — ”Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression”, American Economic Review, June 1983.

    In other words, financial distress impairs the process of credit intermediation, and a credit contraction in turn depresses aggregate demand.

    Testimony to the Senate Budget Committee hearing on The Global Economy: Outlook, Risks and the Implications for Policy

    The Likely Future of the Eurozone by Simon Johnson MIT, Peterson Institute for International Economics, and NBER

  • What does bank-recapitalization look like? Funneling money to the same old boys who caused this mess in the first place, which is happening right now anyway or, a more “invasive procedure”? Shall we finally use the N-word, Nationalization? Do you believe we have enough brains and integrity in Europe to really supervise the financial sector? (Not trying to be provocative here, but I have such doubts right now)

  • Soros is 100% on target:

    COPENHAGEN | Mon Apr 16, 2012 4:44pm EDT

    COPENHAGEN (Reuters) – Billionaire George Soros warned on Monday that the euro crisis is growing deeper, tearing at the fabric of European Union cohesion, because policymakers are prescribing the wrong remedies.

    “I’m afraid that the euro crisis is getting worse. It’s not over yet, and it is going in the wrong direction,” Soros said in discussion with Denmark’s economics minister hosted by the daily newspaper Politiken.

    “The euro is undermining the political cohesion of the European Union, and if it continues like that could even destroy the European Union,” Soros said. “That is due to a misunderstanding of what the problem is.”

    Soros, the Hungarian born U.S. investor, said that the creators of the single European currency believed that imbalances were created in the public sector without understanding that markets themselves can create imbalances.

    He said the euro crisis is being dealt with by policymakers as a fiscal crisis though the crisis began as a collapse of the banking system in the United States and was compounded by a divergence of competitiveness among European countries.

    He said that failure to deal with the crisis was creating tremendous tensions because people, who see that policy is failing, are driven into anti-European positions and dissent is growing within and between the countries of Europe.

    “It could be reversed at any time if only the authorities understood that the box is broken and you need to find some out-of-the-box invention to bring it back inside the box and then put it right, change the rules of cohesion,” he said.

    Soros said the crux of the problem was that debt reduction was coming at a bad time for the European economy. “You can grow out of excessive debt, you cannot shrink out of excessive debt.”

    And he warned that the euro zone fiscal compact, an agreement by 25 EU leaders to prevent another debt crisis and restore confidence, was pushing in the wrong direction because it obliged governments to balance budgets and reduce indebtedness at a time of inadequate demand.

    He said that because fiscal stimulus was ruled out, monetary policy remained the only tool available.

    • ” [Soros] warned that the euro zone fiscal compact […] was pushing in the wrong direction because it obliged governments to balance budgets and reduce indebtedness at a time of inadequate demand.”

      For Soros et al there is never the right time that nations get their financial acts together because then people like Soros reap less profit than in times of increasing debts more than just a bit.

    • How wrong you are! Soros’ private interests are served best under the EU’s present policies. He simply happens to be someone that, like David Ricardo in the 19th century, made a great deal of money under the policies pursued by his government and yet felt an urge to argue against them.

    • VSM:

      Any human construct has in it the seeds of destruction, because humans are far from perfect. The fact that some individuals could accurately pinpoint such fallacies and make money in the process is more of an affirmation of inherent systemic flaws.

      Obviously Soros is close to the end of his life and no longer interested in more profits. However, I would think that breaking the Bank of England ought to be a badge of honor and nothing to be ashamed of. In fact, I think that the Soros legacy would be incomplete unless he also breaks Bundesbank.

  • “In summary, member-states will enjoy large-scale interest rate reductions”

    Not Germany and some other nations, they will enjoy quite the opposite as with any other form of more or less cleverly masekd Eurobond-construction.

    BTW, the GIPSIFs enjoyed interest rates very close to Germany’s already between 2001 and 2008. A lot of good it did them, no? There is no reason at all to assume they will act more responsible once the to cheap money is available again.

    I do agree with turning the Eurozone into a single banking zone with the same rules and much tougher ones than nowadays. But as for recapitalizing ailing banks: why?

    Get rid of all banks who engage in shady fianance alchimism, the sooner the better. No support for investment banks. The European taxpayers should only secure the bank savings of the average Yanis on the street and of normal businesses. But not anything remotely connected with ‘structured’ instruments and so on.

    • The socialists will never get that is (a) no free lunch and (b) no public money.

    • Socialists on the other hand understand that all value is produced collectively and appropriated privately, a process involving plenty of free lunches for those denying that there is such thing as a free lunch.

    • Serious Sam: Spot on! If you listen to Bezemers INET talk at

      and the following discussion

      you get an idea of how much the financial sector has to shrink to free resources for the “average Yanis on the street and of normal businesses” As for the politics of achieving that in a managed way I am uttermost pessimistic given the pecuniary lobbying power of the big financial players which pales the budget og INET or Yanis’ booksales. So crash (instigated by Euro management follies) or slow agony?

    • If we look into the last 14 years, what has the misallocation of capital induced by artificial interest rates and central planning (which never works better than the market) brought us? Bubbles!

      – The Greek government used the lower interest rate to build a public adventure park
      – Italy delayed necessary privatizations
      – Spain expanded the public sector and built a housing bubble
      – Ireland added to their housing bubble a financial bubble

      These distortions were partially caused by the EMU interest-rate convergence and the expansionary policies of the ECB. Naturally, people related to the bubble activities in these countries — such as public employees and construction workers — benefited. However, the population in general took a loss through the extension of the public sector and reduction of the private sector, as well as through malinvestments in the construction industry.

      Why should anyone belive it will ork better in the future? Pimco does not.

      – “We therefore intend to stay away from investments in Greece and Portugal, which look very similar”
      – “Until we see more clarity along this bumpy journey, we will remain cautious with our exposures to Italy and Spain.”

      Most other investors will also move their capital away from the EUSSR. Germany is just an interim place for money. When things get worse the world will pull out of the mess which is the EU. (former Brazilian president Lula “I always thought the Mercusur was a mess. But then I visited the EU”)

  • Some of the biggest investor groups are betting Spain and Portugal will be frozen out of international money markets within the next 18 months and are hedging against Germany being forced to act as lender of last resort.

    A US hedge fund run by the billionaire John Paulson, who earned huge profits when the financial crisis struck from bets against the overheated US housing market, revealed he was now shorting European sovereign bonds, including Germany. Paulson expects the euro crisis to deepen and eventually undermine Berlin’s status as a safe haven.​business/2012/apr/18/​eurozone-crisis-deepens-economi​es-deteriorate?newsfeed=true

  • The ECB is already a nightmare. Draghi a Capo of the Banksters, and you want to create a kingdom of Central Banking??? The Central Banks is nothing but the prinitng press of the Banksters, run by Goldman Sachs. You can´t be serious.

    • Goldman Sachs can make money without any CB helping it…or was ECB involved for example in the Greek (and Spanish etc) debt swaps?You cant run a monetary system (at least the current one) without a CB or another relative entity regulating the monetary system.So instead of abolishing it,one should rather “fortify” it against “outlaws”.

  • Great follower of your work from Spain. The proposal is perfectly fine, and if implemented would lead to a dramatic new hope… this is why I think it has zero chance of success in the present political environment.

    For me, they key moment is reached when Spain closes the current account balance given the huge fall in GDP that the austerity measures and capital flight are going to produce. Imagine Spain under direct control having been rescued (or not, it doesn’t really matters now) in a situation where imports no longer outpaces exports…. what would you think our spanish elite would do? Would it let the country be destroyed, and most of the capital they directly control disappear? Or will they threaten to leave the euro if the debt is not insured once you do not need external financing? Would Germany let Spain go freely? I bet they would let Greece go if Greece ever closes the current account deficit.

    Even before that, let’s hope Hollande gets the presidency and faces a massive attack on French debt.. would it ask for inmediate ECB printing/guarantee/fix price (or else?) this is the two bifurcations I expect in the near future (I wandered about the first question in public and I still do not know which way our useless elite will take. I do nto expect any major rethinking or implementation of the proposal. i see action-reaction dynamics. It is all you can get from the present system. Any insight? any idea?

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