June 2012 EU Summit Verdict: A good decision that will, probably, go to waste

Mrs Merkel went to Brussels intent on striking two birds with one stone, pick up her bag immediately and return to Berlin with no further ado. The stone was the fraudulent re-packaging of existing structural and EIB funds (with the addition of a paltry 10 billion euros) into a grandiose-sounding ‘Growth Pact’. The two birds were, respectively, the SPD opposition back home (which had set as its condition for supporting the ratification of the ESM some ‘movement’ on growth) and Mr Hollande (who also needed some semblance of a Growth Pact to sell it to his voters as sugar coat with which to swallow the bitter pill of the Fiscal Pact).

The early part of the summit was expended discussing this inconsequential ‘Growth Pact’. When it was seemingly in the bag, Mr Rumpoy and Mrs Merkel tried to make a clean getaway, hoping that the summit was over. It was at that point that Mr Monti called the Chancellor’s bluff. In effect, he threatened the summit with permanent delay until two agreements were reached: One was the direct recapitalisation and supervision of banks (from the EFSF and the ECB); precisely as outlined in our Modest Proposal two years ago. The other was that Italy (and one presumes other countries) gains access to direct EFSF funding (i.e. that the EFSF is allowed to purchase Italian bonds in the primary market). Naturally, Mrs Merkel resisted. But, as if to prove once again that her recalcitrance was always paper thin, the moment Spain and France sided with Italy, she buckled. The result was the very first sensible EU Council agreement since the Crisis erupted.

Having said that, any celebration is extremely premature.  First, Mrs Merkel has not spoken her last word. As before, this new role for the EFSF (and the ECB, in terms of its fresh bank supervisory role) may become undone in Berlin’s Federal Parliament, at the hands of the German Constitutional Court, or in the shadowy corridors of power in Frankfurt, Berlin, or Brussels. Secondly, even if this agreement is confirmed in the practice, rather than in the breach, it is only one small step. It will come to naught unless the toxicity of the EFSF is dealt with (see Policy 2 of the Modest Proposal, as an example of how this could be accomplished) and some genuine Growth Spurt is implemented (a New Deal for Europe, as we like to call it in Policy 3 of the Modest Proposal).

In a post last August, I explained why the EFSF is toxic and the reason for which it either will not have enough money for the job assigned to it (as per now) or, if allowed to raise enough money (under its existing CDO-like bond issues), the impact of its new found ‘wealth’ will put the Eurozone in the path of another vicious domino effect. For aesthetic purposes I reproduce the diagram I used to narrate my analysis back then. For the full analysis, click Why Italy? Why Spain? And why the EFSF’s size does not matter


In conclusion, the Eurozone is most certainly not out of the woods. Yesterday’s summit took an important decision that will buy Europe another few months. The gist of that decision was to rationalise the use of the EFSF’s funds. Alas, the EFSF’s way of raising funds is still irrational and conducive to a medium term reignition of the domino effect which, this time, will push France over the cliff. Or, to put it differently, and in terms of our Modest Proposal, Europe yesterday decided to adopt the essence of Policy 1. It has done nothing regarding Policies 2 and 3 (without which Policy 1 isbunk). While it may be satisfying to brag “One Down, Two to Go”, I very much fear that, truth be told, the accurate verdict is: One (policy) down, the other two are not even on the table and, soon, the one that is ‘down’ will probably dissolve in a cloud of parliamentarian, constitutional and bureaucratic debris, caused my Mrs Merkel’s tactical defeat.

Epigrammatically, for the first time ever a EU summit reached a sensible decision which, nonetheless, is still unlikely to provide the glue that keeps the euro together. Not unless this decision is acted upon speedily and foreshadows the other two decisions without which it is an empty letter. 


  • Great analysis prof.V,I THINK of it as a drop in the bucket.im also afraid that if germany keeps suffereing these “deafeats”at upcoming summits and sees these bills of bailouts start really growing she may pack her bags and go on her own.

  • Italy is lucky to have Monti (instead of the idiot Spanish PM, or Papademos or Papandreou or Samaras…). It is a small step in the right direction, and has had quite some impact on the markets. However, I think you are right that this is primarily about domestic politics in Germany and France, and there is apparently little interest in saving the eurozone economies.

    • Well ,i do not know if Italy is lucky to have Monti ,just another unelected technocrat. Maybe his goals for direct recapitalization are to give more power to the banks not the opposite.

  • There was a short lady named Merkel ,
    Who went to a summit and had intercourse with her freckle.
    The result of their [email protected] ,
    A Schauble like thug ,
    Who thought his ass was a bagel.

    From then on she was known as the Masochist Queen.
    She used thistles and cacti ,
    In pursuit of her practi ,
    In a manner both odd and obscene.

    A man named Monti saw her and said:

    Some Blondes are ugly but smart ,
    Others are dumb but sexy and fine ,
    So never go around showing off your girl ,
    Or you might just get outta line!
    It’s easy to do that ,
    Because Merkel is both ugly and dumb.

    But Monti had it comin’ as Merkel stole his bunny ,
    And wanted him to sell his country for money.

    Monti approached Merkel and asked for his health ,
    Which he had lost from Merkel and “friends”.
    Merkel said ,first give me some love ,
    But everyone else acted as it was a bluff.
    Monti said NOOOOOO ,
    She called her a foe ,
    Now she cries and asks for euro.

    Poor Merkel knows not what to do and how to act

    Her eyes got wide her nose got pink ,
    She says ,
    I came here
    To shit and stink ,
    But you force me
    To sit and think.

    Everyone seems against her at her big dismay.
    Their anger ,she thinks ,must be kept at bay ,
    So i have decided to just sit and pray.

    Our lager ,
    Which art in barrels ,
    Hallowed be thy drink.
    Thy will be drunk ,(I will be drunk) ,
    At home as it is in the tavern.
    Give us this day our foamy head ,
    And forgive us our spillage ,
    As we forgive those who spill against us.

    And lead us not to incarceration ,
    But deliver us from hangovers.

    For thine is the beer ,the bitter ,and the lager.

    And do not forget the bockwurst.

    • Merkel is dying! (Fullversion)

      PART A

      Merkel is dying.
      Around the bed of pain the whole family is concentrated. The atmosphere is heavy and mournful. One small candle next to the sick Merkel, is dimly illuminating the narrow room. Merkel ,with closed eyes and great effort, whispers:

      Merkel: Husband are you here?
      Husband (crying): Yes, my mistress.
      Merkel: My son are you here?
      Son (obviously excited): Yes, dear mother.
      Merkel: My little daughter ,are you here?
      Daughter: (inconsolable): Yes, mother, I am close to you.
      Merkel: AND WHO IS IN THE SHOP??????

      PART B

      The family realizes immediately the criminal negligence and all leave slowly from the room. As the daughter leaves ,closing the door of the room, she says:
      Daughter: Oh! And mother…. When you leave your last breath, leave it near the candle so as to extinguish it. It’s a shame to let it burn.

      PART C

      Merkel calls the son and tells him to approach. With the last remaining forces, Merkel picks up a pocket watch and explains that she has inherited it from the great grandfather.
      The son looks at it with eyes that shine.
      “You like it?” Asks Merkel.
      “Yes, oh great one!” the son responds.
      “How much you give?” Asks Merkel.

      PART D

      The day after the death of Merkel, her son goes to the local newspaper for the announcement of her death.
      Son: Please, what is less a charge for obituaries?
      Employee: 2 Euros ,sir.
      Son: Okay, then write “Angela Merkel died.”
      Employee: But, sir, you should keep in mind that with 2 Euros you can write up to 8 words.
      The son thinks a few seconds and tells the employee:
      Okay, then write “Angela Merkel died. Van for sale. Opportunity price. “

    • True story

      Merkel confused Berlin with … Russia

      The international students of a European School in Berlin were faced with the fictitious … Angela Merkel, that didn’t know where Germany is.

      Surprised the young students and their teacher saw the strong Chancellor to lose it when asked to show them where in the map is the hometown of Hamburg.

      To be sure of the correct identification, she looked for Berlin first and then the inevitable happened!

      With a deflection of few km ,Merkel, instead of showing Germany puts her hand … in Russia,” relocating” in her ignorance the capital of the country.

      “Berlin should be here? Or here?” Merkel said pointing to Moscow.
      “No … And what is here?” The Chancellor asked the professor.

      “This is Russia” replied the professor of geography rather bewildered by the incredible knowledge of Merkel.

      “What? Russia? So close?” Asks the German chancellor, worsening her position.




      Let us not underestimate her … maybe in the plans of the Fourth Reich, the new German capital is Moscow!

  • She will use every trick in the book to get out of it, including but not limited to the constitutional high court which almost certainly will impede any such agreement.

    Because the ingenious (I know, contradiction) Germans have designed systems to rescue Frau Isolated from falling into such traps.

  • HI Yanis! It’s great to see even a tiny ray of optimism coming from you. I’ll take it and run with it if I may, given that you are a staunt critique of the political handling of the economic crisis…

  • Accurate as always ! I was sure something was too good to be true about the Summit decision. The question is what next ? And the fact that Greece was not the one who stood up and fought, but Italy and Spain !

  • Yanis,

    I hope you read Greg Palast’s article in the guardian – Robert Mundell, evil genius of the euro

    The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.
    But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

    “It’s very hard to fire workers in Europe,” he complained. His answer: the euro.

    The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

    “It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.”

    • Clonal Antibody

      Yes indeed ,the euro succeeded remarkably as a destructive weapon.
      Or to be more precise the euro architecture ,not the common currency just by being common.

      WHEN will people open their eyes? WHEN?

    • Im personally not surprised by the article.He merely describes how difficult for an economy is to overcome such a crisis when the gvt is “weaponless”.Its a simple euro-reality description.The “shock” is that Mundell sees it as a bad thing.

    • That article is a pile of journalistic crap. The problem is primarily the way the eurozone was set up, along with the prevalence of neoclassical economists on its board and the overt influence of the Bundesbank.

      As far as Mundell’s contribution is concerned, he was merely reflecting the politically centrist orthodoxy of the time (you can find it just as easily in the OECD) that an independent central bank (like the Bundesbank) was a good thing because it stopped the politicians from abusing their power and spending their way out of problems.

      There are also serious issues, which even I accept, with labour markets in most of Europe. The primary issue is the balance between workers’ rights and the need for capitalism to have efficient workers in order to compete internationally. In no country is the balance obviously right, and in Greece and Italy the problem is that the institutional framework is very rigid — once you get a job, you are there for good, but the problem is getting a job in the first place. Skills, improved abilities, careers … you can forget all that. In other countries, the problems are different, but they are still problems.

      The point is, that the euro system did not have to result in this neoliberal mess that it is now in. This was the result of a mix of incompetence from some actors, such as the Greeks, and deliberate manipulation by others, such as the Germans. The only option open to Greece and others is to renegotiate the whole system, and make it into a federal and democratic one. Quitting the euro just won’t work.

  • For Greece this analysis is meaningless. Everything is too late. We are pandering to the globalised philosophy which says that Greece must stop asking for help and just do what the bosses tell it to do. And the people of Greece must starve, scavenge for food, have no medicines for the seriously ill, watch as people quietly, in their houses decide to suicide themselves. I’m sorry Yanis but it is far worse than everything you say. I am not Greek but I believe that yet again your country can lead us out of this gobalised financial tyranny by massive demonstration and even…dare I say it revolution, brought about by real hunger and despair. No economic or political analysis has ever really done anything, except in the safety of hindsight. Greece is going to explode and all your well meant and highly intelligent filtering of issues and facts will, in the end, amount to just some background static. You really need to start to address the state of your people and how we can help them right now in their time of terrible need.

    • Well, the starting point which was recommended here by Yanis and myself was a vote for Syriza and rejection of the Memorandum, and complete renegotation of Greece’s terms. Since a lot of Greek elderly people failed to find the courage to do so, Greece is again being managed by crooks who are intellectually, morally and literally bankrupt. What are we supposed to advise now? You cannot “mix-n-match” with policy advice: this is what malakas Papandreou used to do (and thought he was so clever with this idiocy).

  • Mr. Varoufakis,
    I strongly believe that the issue of eurobonds will perpetuate and conceal temporary the structural and integration problems of Europe. South countries will possibly continue to borrow huge amounts that in the future will not be able to pay back, in order to “keep consuming” North’s products and that with the ensurance of Germany and other dominant countries. What’s your opinion?
    The direct finance of the European banks without the interference of state is with no doubt a positive development for the European scene as a whole. However several steps must be made in order to face the Debt Crisis in Europe. Do you believe that developments certify the stance of Eurozone in more neo-liberal (of that we call in Economics “Monetary”) policies?

    • “South countries will possibly continue to borrow huge amounts that in the future will not be able to pay back, in order to “keep consuming” North’s products ”

      Exactly. But Target 2, Bailout mechanism and interest rate convergence do and did exactly the same. We need to dich the Euro in order to fix the root cause.

  • “Epigrammatically, for the first time ever a EU summit reached a sensible decision”

    Don’t know what exactly is sensible with a decision which in effect says that banks can gamble away whatever they want, because hey will be rescued by the tapayers of the eurozone. Socialize losses, but keep the profits during good times, what sort of sensible is that?

    A sensible policy would be instead to finally introduce rules that 1st the shareholders and employees of such banks are on the hook with everything they have, and 2nd, if thsi is not enough, the bank is broken down and closed. The taxpayers shall just secure the deposits of the average working people.

    • @Very Serious Sam

      You are oversimplifying the question of bank bailouts (much like Yannis often does).

      The reason why banks are bailed out, thus “socializing” the losses, is that the alternative is that banks go bankrupt, thus destroying the assets of depositors, thus again “socializing”the losses, except to a small number of total innocents, instead of the whole population who, due to its larger size is able to absorb the losses more fairly. Note that currently banks are allowed to make very risky investments with money received from depositors who expect zero risk, in fact they expect a guaranteed interest.

      The alternative – in the current banking system – is that every customer should evaluate the credibility of their bank before deciding where to deposit their money. This is (a) not practical, (b) will lead to reduced effectiveness of the banking system due to lack of trust and thus (c) will increase the cost of credit substantially in a period of time, too short to manage.

      Of course you may rightly say that credit should not be so cheap, but this goes to my first point – in the current banking system. In order to change the model, you would need to change banking system and this should be done first, to avoid a catastrophic collapse.

      And finally when you come to the question of changing the banking system, it makes more sense to avoid the problem of losses through stricter supervision and banking regulation, which improve the trustworthiness of the system, at the cost of higher credit prices, rather than by letting banks collapse which undermines it, with disastrous results e.g. Lehman.

  • Love this graph! One would think that the Europhiles should understand that the rescue mechanism do not work. Hopeless. But they also do not understand that their “Endlösung” (final solution) does not work. Mutual debt will lead to socialism. Socialism was tried in a large scale laboratory called eastern Europe…

  • Question: why do you think bank supervision would become better than it is now by moving it to the ECB? Is it not also the ECB (directorate) that signed off on Basel-2 and 3?

    • Sure. But at least it will break up the cosy relationship between national politicians and bankrupt bankers.

  • By the way, here is the export/import picture of Greece.

    You will immediately notice that if the ill-mannered and unjustly exploiting Germans(thieves and liars in plain language) had the decency not to export to Greece 3 times more products in value than they buy from it, we wouldn’t be talking about a broken Greek economy.

    So, all of you who come here to offer unbridled criticism of Greece I want you to zip lock your mouths and get down to doing your part which is: BUY MORE GREEK PRODUCTS and cut your exports to Greece down to half the present level.

    Fair enough? Here is the message again: Increase your imports from Greece by a factor of 2 and reduce you exports to Greece by 50%.


    Don’t just stand there looking at me. Just do it! Pronto (Italian is very fashionable lately)! 🙂

    • Seems like you should raise the same request also to your homeboys from Italy (almost the same export/import ratio with Greece as the Germans). And what about China?

      Logic was invented in Greece, right?

    • I think you got carried away somewhat. If you are going to pick on Germany at least do it for the right reason (their inflexible politics, their toxic political narrative of the eurocrisis, holier than thou attitude..and so on). They have little to do with our trade deficit. Greece exports products of little added value like agricultural products and minerals and imports products of high added value like cars, industrial equipment, house appliances and so on. Fortunately the current account deficit does not depend solely on products but also on services so Greece has significant incoming revenues from tourism and shipping.

      Bottom line: our head to head trade with any industrial nation is going to be negative unless we develop a basic industrial base. This cannot happen easily or any time soon in the current free trade economic environment. In fact one could argue that it is pointless to do so and a waste of time and resources since we do not have a competitive advantage in this area. We can concentrate our efforts in projects that play to our competitive advantages in order to balance the account. Tourism is one such project. There is plenty room for development there and I am sure any European would be glad to buy this “product” and help Greece in the process. So the best that they can do is to take a vacation in Greece and the best that we can do is to develop the best possible services in this worldwide market.

    • “Increase your imports from Greece by a factor of 2 and reduce you exports to Greece by 50%.”

      Ah? Why not the message to the Greeks: decrease your imports from Germany by 50% and increase your exports to Germany by 100%?

      What? I can’t understand you, the words you say drown in your sobbing, as you realized that I am, again, completely right.

    • Taso:

      You are missing the point.

      You can’t have Turkey – supposedly our enemy – giving us a positive trade balance in this hour of need (and at her disadvantage)


      duplicitous Germany – posing as our EU friend – selling us 3 times more than we buy from the them during the same hour of need when support is expected rather than Teutonic vice.

      Gerrman imports to Greece – as long as the memoranda is in place – ought to be zero or next to zero. Common courtesy dictates so.

      You can’t have the same moralizers breaching us fiscal discipline while they are acting as common drug dealers.

      Even you should be able to understand this. This is not complicated stuff. This is very basic material. And anyone in Greece caught buying any German product should be put in prison for life.

    • …preaching that is. Instead of breaching. I had all rules of moral and ethical code as well as Merkel in mind when I said breaching.

    • “the ill-mannered and unjustly exploiting Germans(thieves and liars in plain language) had the decency not to export to Greece 3 times more products in value than they buy from it, ”

      Dean, if the Greeks would get their ass up and produce something useful at a competitive price we would!

    • n eu d

      Produce something useful?

      You do understand ofcourse that without the initial abstract thinking of the Greeks you would have never managed to build any machine whatsoever.

      Let me say this again.

      We tell you what to do ,you do it and then you want money for our ideas.

      I do not mind you being the producers. I mind you wanting all the wealth that you do not deserve just because today economy has become the broader frame of society and it so happens that you produce machinery.

      Now THAT IS A CRIME.

    • Aaaaah Mr. Plassaras. You are wasting you breath when speaking to Very Incapable of Any Nuanced Thought Sam. Even the slightest complexity throws him in a state of total intellectual disarray. Hence the ensuing silences. A pity really..

    • NEUD:

      Which part of “we don’t want to buy your products” and “never send your crap here to be sold” don’t you understand?

      Germany needs to pass a law making it illegal to export to Greece even a toothpick.

      Let me restate your annual import/export targets for you German slow folk:

      German Exports to Greece: Zero. The mathematical expression for such is 0. Or more precisely for your robotic nature 0.000000.

      German Imports from Greece: Unlimited. And you take your time deciding which is useful for your Teutonic miserable lives. I have some cucumbers in my garden which you might find useful in more than one applications.

    • Sooo glad that it is so simple even I can understand this. Here I was thinking that there is no such thing as “Turkey” or “Germany” or “China” or what have you selling and buying anything in the global market but individual companies and citizens and their free choices. It is very good to know that you can simply press a button and order people around. I agree that this would eliminate the trade deficit overnight! What a simple solution!

      Jokes aside. I can buy German or French or any products I want to if I can afford it and set my mind to it. I chose to buy domestic products to help local companies whenever I can instead of imported ones. Unfortunately in a great deal of cases I do not have an option because foreign companies have such an advantage in certain fields in the global markets that there are not any domestic alternatives. Threatening me or anyone else with imprisonment does not work. So unless you develop the aforementioned magic button that imprints on peoples mind what to do, the problem of the trade deficit should be dealt with more traditional methods like investment in local companies, protective measures (out of the question in this current environment but worked in the past), advertising to promote consumption of local products and so on.

    • Dear Dean
      One of the key characteristics of the EU – that the UK still likes to adress primarily as “the common market” -is just that:
      It is a common market in which traded goods as well as people and capital can move freely.
      It is not a malfunction but precisely what was intended to allow Greece to buy German products – and Germans to sell products in Greece. The same was true the other way: Greece was free to sell products and services (tourism) in Germany / to Germans. It was not an evil plan but reflects the believe that free trade in the end increases the living standard of the nations that take part in it.
      It is neither necessary nor realistic to insist that all countries have exactly balanced trade with each other. Germany may very well export more to Greece than what Greece exports to Germany. Maybe, Greece gets paid for services it provides to foreigners (tourism) and that bridges the gap – then there is no problem long term. Maybe, Greece has a deficit towards Germany but a surplus towards other countries.
      Or maybe, Greece imports German machinery that increases the economic potential.
      Greece did not do that but consumed a big part of the imports, paying for it partly with loans taken from German banks (but also e.g. UK or French banks).
      The malfunction of the capitalist system here was that the market did not realize what was going on.
      Really, interest rates for foreign loans to Greece (be they private or the government) should have increased significantly way before 2010. But they did not – because the system was not as efficient as in economic theory.
      To say that this was evil of Germany is plain wrong.
      It was Greece that overconsumed, Germany (and others) that did not stop it in time (following a mistaken belief that “the markets” can’t be wrong – wo when Greece can get loans for low interest, this must mean that the risk of default is little) and nobody else (e.g. EU Commission / ECB, etc) intervening.
      You oversimplify and finger-point.
      Not good.

    • Dear Dean
      Here’s the trade statistics of Greece:

      As you can see, imports from Germany were about 7 billion EUR – but the total that Greece imported was EUR 60 billion.
      Greek exports were only EUR 17 billion.
      Greece can afford to not export as much as it imports due to services (tourism) and merchant navy that create income.
      But a negative trade balance of such proportions is challenging.
      It’s not Germany’s fault that Greece imported almost four times as much as it exported.
      Besides, even if you stopped to import ANYTHING that was made in Germany and instead bought the products somewhere else, the pain to Germany would be limited – and Greece would still have a terrible trade balance but would have to pay in Korean Won or Japanese Yen / Chinese Yuan Renmimbi instead of EUR.
      Good luck trying to explain to them one day that you can’t / won’t pay!

    • I am sorry Taso and Martin but you did not get my point.

      The point is simple. Whereas Germany is putting tremendous pressure to Greece to fix its finances (with the core problem being trade balance) during such period of adjustment all exports from Germany to Greece ought to be suspended.

      Because you can’t remove water on one end of the boat that has taken in quite a bit of sea water while at the same time add more water from the other end.

      There ought to be a temporary suspension of export trade from Germany while Greece is undergoing this adjustment. It may last for 2 years or so and then we can talk about gradually bringing it back.

      But, you might say, why don’t the Greeks import less from Germany? Because is not as easy and un-coerced as you think.

      Say for example you are an Audi or Mercedes or VW car dealer in Greece and you call Stuttgart and say that sales are down and please don’t send any more cars until the ones in the lot are absorbed. Do you know what Stuttgart says? They pull our you dealership agreement and remind you that you are obligated to buy X number of cars per month from Germany and if you can’t do it then your authorized dealer license will be canceled. And what does the terrified Greek car dealer do instead? He/she floods the airwaves with the useless latest version of the car that makes the doors close with an air-tight noise, or the model the girls are ready to make love to because it’s so sexy.

      So instead of lowering demand, the Greek representatives of German firms, in collusion, they fabricate demand even though that is terrible for the Greek state and its economy.

      As to your idea Martin, of some German gear that might increase production in Greece we can always examine those on a case by case basis.

      But the great majority of German products sold in Greece as neither productive tools nor scientific instrumentation. They are pure consumption items the type of which deteriorate societal divides and use capital for non-investment activities – both terrible for any economy.

    • DEAN: “The mathematical expression for such is 0. Or more precisely for your robotic nature 0.000000.”

      I am sorry, but 0 is more precise than 0.000000

    • I think Deans idea to stop importing from Germany is one of the best he ever had. German companies would hardly notice and Greeks could not complain that they are forced to buy the stuff.

      But above all: It is good for the German tax payer, since these products will never actually be paid for anyways. Greece is bankrupt.

    • Pedro

      Greece is bankrupt because your government wants her to be.
      But not if they fix the system as fast as yesterday.

  • In your nice “Euro 2012” diagram you should have noted, that “Start here” is Greece and that the “Endgame” will be played by Germany alone.

    So, a reasonable conclusion for Germany is this: leave people in Europe alone with their home made problems and get out of this club. Start with stopping any aid to Greece (which by the way never in history gave any aid to Germany) and which now is biting the feeding hand.

    Or try to convince them, that they have to contribute some effort to the solution of their own problems. Its the second way that Mrs. Merkel is trying to go, facing the opposition of many people in Germany, who think the first one is better.

    • The German politicians will do this to late. But you can do it legally. Cancel your Life insurance, move the money out of the EU and invest it there.

    • “aid to Greece”? “biting the feeding hand”? HAAAAAAAAAA!!!!!! Even an American schoolchild knows that the so called “aid” is aid to your reckless banks. When are you going to get a clue? But then again I may be asking too much by expecting an ignorant man(?) to employ his critical and analytical faculties Ooohh that’s right. You have none hence your ignorance, gullibility, and thinly veiled racism. (aaah yes I forgot stupidity- but then again stupidity is assumed since it presupposes racism. Yes for the close relationship between stupidity and racism you should read, assuming that you do indeed read, “The Banality of Evil: Eichman in Jerusalem” . Of course it was written by a Jewess…)

    • “which by the way never in history gave any aid to Germany”
      Wouldnt it be too much to expect aid from a country totally devastated by Germany’s own acts and never got any compensation for this ?

    • GERMANY needs to look at its self. She needs to look at her history in the last 100 years. WW1 & WW2 should have been lessons leant. We all share this world & it appears being a team player is not in their genes. Dominate at any cost and at any price will once again bring their downfall.

    • Everything you write is correct – and wasted, in this blog. Almost all of the Greeks here refuse to accept reality. Most of all the fact that the Greek people, Greece alone, is responsilbe for what happened to the country. Of course they try to spin this so that some aliens, preferably the Germans as such, are the root cause of all problems Greek had and has. But hey, some people will never grow up (we have quite a few of them in Germany as well).

    • @Rolf> To name one aid to germany:


      It’s a crucial bit of history, if Greece (and a few other nations) didn’t help back then there would probably be no german economic wonder.

      So, did Greece ever in history give aid to Germany?

      Yup, Greece did and it was very important aid too.

      @Very serious Sam> Actually what most Greeks are saying is that the issue is more complicated than the “the Greeks are too lazy, they should work more” that most non-greek people are spoonfed by their local media. If you like it or not (possibly not, but who cares?) Greece doesn’t have an independent secluded economy that isn’t affected by outside factors. Surely Greece (some of the Greeek people) are mostly to blame, but amongst other things the way that the eurozone is structured and the way that the troika chose to solve the Greek problem are to blame too.

    • @Rolf
      you state:

      “(which by the way never in history gave any aid to Germany)”r

      All the gold from the bank of Greece when it was occupied in 1940 was taken as a “loan” by the Germans, never returned. Is not that aid?
      All the produce from the fields in 1940-1941 in the occupation of Greece by Germany was confiscated to feed its armies warring over Europe; it led to the death by famine for hundreds of thousands in the cities of Greece in 1941. That was also called “aiding”.

      These were never paid for and are always pushed under the rug, at first because West Germany was not all of Germany, and after unification it was not pursued rigorously by our politicians; I suspect this “aid” played an under the table role in the acceptance of Greece to the EU and the eurozone.

    • Helmut if you do not want WW III, then you should fight to avoid Versailles II (=EURO & ESM)

    • @ VVS
      Interesting how you did not reply to Makis’ reply directed to you. You my dear sir as your friend Mr. Rolf are incapable of engaging in rational discourse. (Strange because one of your foremost philosophers Jurgen Habermas has quite a bit to say on the topic…)So this is how two rational beings rationally converse.One either answers with a
      counteragrument the previous argument or if he has nothing to counter with cedes his interlocuters’ point. Is this too high-minded for you? Now, I kow this point was wasted on you for it is obvious that you have already decided what to believe, becauseit serves some deep-seated need and is not the result of analytical and critical thinking, but what the hell I thought it was worth the shot.

    • Two corrections: the previous reply was directed to VSS, Very Serious Sam. And “re” should read “result”. And I would like to add to Mr. Very( not so) Serious Sam, that we fellow bloggers may try to convince you with rational arguments till we’re blue in the face how the Greek crises isindeed more complicated than the simplistic dribble that it “is the result of a lazy, thieving, tax-evading, free-loading, irresponsible- the last adjective is new- deeply flawed nation, without any success. For the reason I have already cited. You need to believe that sort of simplistic none -sense, so be my guest! Knock yourself out. I just hope it really helps you..

  • Professor I don’t think that euro has three quiet months ahead.

    Greece in my opinion hasn’t got three months to wait.

    And there are irrational things about this deal.

    1. Greek and Italian numbers concerning public debt aren’t that different

    2.Greece which is not part of the recent deal, has to pay its part for the rescuing of Spanish and Italian banks.

    3.Also nobody is talking about the greek bonds that ECB posseses and makes money out of.

    Monti was and is under extreme pressure, coming from Betlusconi’s party which is the major patry of the coalition, but also from the FIVE STAR movement. The right way to say it would be that the Five Star mocement is pressing Berlusconi’s party which in its turn is pressing Monti.
    It’s like having a coalition whose major party is almost against euro (Berlusconi has been positioned against euro, while SYRIZA in Greece while accused of doing such hasn’t done it.

  • The righteous Germans strike again.

    The Greek Cretan actor Grigoris Orphanoudakis was hired in 2005 by a company called Campari Germany to shoot an ouzo commercial for Germany.
    Instead of getting paid the 110000 euros owed to him ,he got a 1/5 or nothing ultimatum with a 5000 euro first deposit ,because of the German company’s imminent “Crisis” problems ,as they excused themselves to him. Notice that this was before the “Crisis”.
    As an initial payment before the commercial he got 1000 euros.

    The actor refused to sign for the rest 1/5 and sued the company.

    1 year ago ,Grigoris went to Germany for the court where he was treated ,as someone not worthy to shit on. Then the court charged Grigoris the sum of 10000 euros for the trial.
    Grigoris decided to pay half this amount for the court and use his right to pay the rest later.

    “I am angry with the Germans, because they know how to degrade us as a state, but individually they do not know how to be okay on their obligations.” said the actor.

    The company ,till this day hasn’t paid a dime to Grigoris.
    Not only that ,but the “smart” Germans after the court ,hired another Greek actor and shot the exact same commercial ,thinking that this will deter Grigoris from “harassing” them. Only that they kept his voice ,while now they say it is the voice of a German.

    Also ,instead of the commercial being played only for 1 year as it was supposed to ,it aired for 6 years.

    Grigoris brought the case to Greece.
    The Greek courts didn’t do anything about it ,for “political” reasons ,although an expert proved that the voice was of Grigoris.

    And now the most beautiful part.
    Since Grigoris didn’t pay the 5000 euros for the German court immediately (as it was his right) ,the Germans decided to come to Greece and get his house.

    So the actor had to accept the initial and unjust 5000 euros from the company ,only to give it all back to the Germans ,not to lose his house and while THEY OWE TO HIM.

    Does that remind you anything similar called “bailout”?

    Grigoris still hunts them.




    Germans. The biggest ,worst ,most immoral free getters of History.


    This is our only true domino effect.

    • Exactly! and the answer on how to deal with Germany is in this chair domino video. See how the last chair refused to topple.

      We simply have to turn our backs to Merkel and completely ignore her. She doesn’t exist. She only exists if you let her and pay attention to her daily nonsense.

    • It is very clear over recent years that many German companies are run by crooks, and the courts and politicians refuse to do anything. I personally have had problems with illegal deductions from credit cards, refusal to provide airline tickets charged to my card etc.

      Don’t forget: Germany is the country where their President had a fake CV with a claimed doctorate. The President….

      So, the idea that Germany is a country of law-abiding citizens is the biggest joke in Europe. The second biggest joke is that their structural manipulation of the eurozone is permitting these crooks to control the EU: this is less a joke and more of a tragedy.

    • Don’t go too far, they took the money for 4 “crooked” submarines worth billion of euroes. Greeks (and not only Greeks) did not get neither the submarines, nor the money back…free meals for the Germans! (as always) and free morality lessons for the rest of us….

    • “Then the court charged Grigoris the sum of 10000 euros for the trial.”

      No. If the dispute is about 110.000€, the bill for the court is 856€. Obviously, the oh so sad story mixes a few things up, for instance truth and fiction.


    • Anecdotal evidence to prove Germans and Germany as a whole is not law-abiding, fair, etc?
      There is no doubt that there are dishonest people in Germany and bad, selfish personalities tend to accumulate at the top of the pyramid, unfortunately (in Germany and elsewhere).
      But to suggest that it is typical for Germany to not pay agreed amounts or to commit fraud is a bit weird.
      Sounds a bit like a “psychological projection” in which the accusing part (Greece) claims that the accused part (Germany) has certain inacceptable characteristics. But those characteristics are really elements of the accusers nature that he/she dislikes. To manage that and turn their anger on the outside world, these characeristics are attributed to others, Germany in this case. An understandable mechanism, but can be dangerous.

    • Martin

      Hehe ,i liked the psychological projection.
      No ,i do not judge all Germans.

      It is only a reaction to what certain Germans started.

      Nice try reversing the argument though.

      Don’t worry ,it is only a stereotyping blame game.
      Have fun with it.
      Only problem ,people die here.

      And as many have said “Greeks do something to rectify the situation” ,i say “Germans do something against your super-corrupted government”.


      If Grigoris lied then we will kick his butt.

    • vss

      Also i must add this argument makes things worse since they came to get his house for 856 euros.

    • vss

      Last but not least you are referring to the costs of a family court trial.

    • @Demitri

      The costs are depending of the volume of the dispute (here 110.000€, as per this melodramatic story), not on which part of the civil law is

      Ah, and no German can ‘decide to come to Greece and get his house’, what a lot of BS is this? This story is a lie, completely made up. What a lame attempt to find another thing to blame the Germans for. Grow up!

    • vss

      Ok vss i apologise for the gossiping. Maybe it is a lot of BS.

      Oops ,no German has ever apologised for THEIR gossiping and their BS!!!!!!!!!

      Anyway ,you may be right. You know ,journalists.

      We’ll just stick to the good old and all-known German multinational corporation scandals and government manipulation. Both for Greece and Germany. You know ,the elite.

      As for the “grow up” part ,i just can’t. I lost my pacifier. The “Germans” took my mommy.

  • Excellent analysis. Two questions: 1) What are Greece’s chances (and Portugal’s and Ireland’s as well) of benefiting from the solution agreed for the Spanish banks? 2) Do you still believe in a time extension offered to Greece after the recent elections? Recent macroeconomic projections show that the goals of memorandum MKII are clearly very optimistic to say the least. Any ideas on what to expect?

  • The professor has made the point many times that it is not fair for countries like Spain or Ireland to have to bail out their own banks. Especially since these two were fiscally so well behaved before the crisis etc etc. Of course the other point of view says that these countries were able to be so well behaved (small deficits/debt) PRECISELY because of the huge credit expansion caused by the banks, that was stimulating the economy, creating jobs and income that was producing healthy tax revenues.

    In light of that view, the professor (or someone else here) should explain why Spain and Ireland ‘deserve’ (whatever that means in economics) bailout of their banking sector.

    Note: I am not for a moment saying that bailouts are wrong, it’s just that I really struggle to understand why we are justified in putting a moral barrier between private/public and banking sector/ state debts when the two are so strongly linked.


    • “The professor has made the point many times that it is not fair for countries like Spain or Ireland to have to bail out their own banks”

      The basic question is: why bail out banks at all, why socialize their losses (whilst their huge profits they kept for their employees and shareholders).

      If a real economy business goes bust – so be it. Why are there other rules for the casino capitalists of the finance ‘industry’?

    • @ Very Serious Sam:

      Well, twice today I find myself in agreement with your words and opinion!
      Not all hope is lost, it seems! 😉

    • You make a good point.

      Even good people like Yanis fall into the trap of perpetuating myths and/or moral judgements.

      If I live in a credit/real estate bubble country and I make it my business to flip houses and property for gain taking advantage of the generalized madness, in fact, with my actions I actively feed the monster that will certainly blow up crashing the economy, I am considered an unfortunate “victim” of circumstances…..
      If, on the other hand, I am an average public servant in a country that has bad public finances, and through my union I managed to get a salary of 1000 euros a month (actually below the poverty line) I am “profligate”, “lazy”, “overpayed” and morally responsible.

    • @VSS
      Because people like you waste their energy counting the pennies that are needed to help real people (mainly in Greece) while you whistle blissfully when Merkel implements policies to saves the banks on the backs of the people.

  • Again, not that I care anymore, but here comes the so familiar and insincere German obstructionism:


    And in case you haven’t figured it out yet the Greco-German relationship is beyond repair. There is not even a chance in a quatrillion than Greece and Germany will ever see eye to eye again. Ever.

    We are finished with you folks. Just take your misearble selves out of the room never to be heard again.

    • “We are finished with you folks. Just take your misearble selves out of the room never to be heard again.”

      Same to you Greeks.

    • Dear Dean
      Sorry to hear that you believe the Greco-German relationship is beyond repair. But ultimately, that does not matter anymore now. Especially if you are right and it really is beyond repair. In a way, that gives us the possibility to go ahead and try to do “the right thing” (whatever that may be), without having to worry too much about feelings.
      As Greece hates us anyway.

    • Martin

      We do not want to hate Martin.
      We react.
      And it is a just reaction.

    • @ Martin
      “Greece hates us”? All greeks hate all germans. Is that what you think? This is not the case. Neoliberal European policy is what greeks hate. It just saddens us that many Northern Europeans do not share our sentiment and would rather falsely believe that southerners are living off of them while we lounge on the beach drinkig ouzo.

    • Out of the two options:
      (A) Greeks love Germany
      (B) Greeks hate Germany + I get 0,01 Euros

      I ill always chose (B)

  • Goldman quote from zerohedge.com

    “Using these four paths as a framework, we see the most likely scenario going forward as follows:

    the European authorities continue their ongoing ‘long march’ of cumulative reform until, at some point—probably not imminently, but over the coming one to three years—market and/or political dynamics force the choice of whether to make a ‘great leap forward’ on the key Franco-German axis that has driven European integration since the 1950s.
    Sketching this baseline scenario raises two questions:

    When will the Euro area switch from the slow, cumulative path of the ‘long march’ to confronting the pressing question of whether to take a ‘great leap forward’? We believe Euro area can continue on its current ‘long march’ for some time yet. The institutional machinery of monetary union—notably the balance sheet of the ECB and the ability of its TARGET2 balances to accommodate intra-Euro area cross-border stresses elastically—has proved remarkably robust to market pressure: by its nature, monetary union has greater resilience than the fixed exchange rate systems with which it is often compared. Moreover, for different reasons, the key players are not facing immediate pressures: ample liquidity in the Euro area is keeping French government bond yields at close to historical lows, while the German economy continues to show resilience at the lowest level of unemployment seen n for a generation. And procrastination is the path of least resistance for European politicians, lending inertia to the process. This makes a continuation of slow, incremental reform—rather than a comprehensive and rapid resolution of the crisis—more likely. ”

    Yani, how probable do you find Goldman’s estimate, that we have somethiing between one to three years before Germany and France are forced to resolve the crisis? I am under the impression that you do not believe the big YES or the big NO decision can be taken beyond the end of this year.

    • Isn´t stuff like the ESM what all the PIFGIBS inhabitants want? A mechanism that funnels money from the north to the south at the expense of democracy and the North´s retirment savings!

    • n eu d


      You will always transfer your surpluses. It has nothing to do with any other country.
      The ESM and the system in general must be more responsible in checking these transfers.

      It is not the ESM that matters but the control of the flow.
      Everybody loses today at the expense of Democracy and the savings of everyone ,not just the North.

      How many times will we say these things?

    • @ ΝEUD
      It may come as a shock, but no sir it is not. Why would we want Northern European tax-payers’ money to be funelled into banks any more than we want Southern European taxpayers’ money to bail-out banks?( Aaah yes, you probably think that no Southerner pays taxes. Well rich Southerners don’t, you’re right. But the rest do. Especially the poor. and since you like numbers those who made a “whopping” 6.ooo euros, that’s right six thousand, paid taxes on it)

  • Either Tsipris has finally figured out that Samaras is a coward or that he is a Merkel puppet, or both. From Eurointelligence blog this morning:
    Alexis Tsipras, the leader of the main opposition party SYRIZA, called on the Greek government to veto the new agreement to prop up banks unless Greece is allowed to benefit from it in the same way as Italy and Spain, Kathimerini reports. Tsipras accused the government of “looking on from afar as Angela Merkel made concessions and not having the essential boldness to ask for Greece to be given the same treatment.” Government spokesman Simos Kedikoglou, who has accused Tsipras of undermining the government’s efforts to negotiate with creditors, responded  by saying that “the government will continue to strive to modify those policies that are leading the country into recession and thousands of Greeks into unemployment.”

    • For the Nth time. You seem unable to comprehend politics and Greek politics in particular.

      So, your bright idea is that if a leader of a party that just lost the elections(Tsipras), in a Napoleonic moment declares that the winner of the election is entitled to Tsipras’ free opinion, then Samaras ought to pursue the Syriza policies instead of his own (thus voluntarily abandoning the prerogative of the elections winner)


      as a result Samaras ought to drop everything he is doing and follow Tsipras’s lead on how to best deal with the Europeans.

      So Tsipras- in the remake of a useless French general – is directing from his chateaux the Maginot lines fortifications manned by Samaras himself. And General Tsipras is issuing orders of command while the enemy divisions are flooding the forest of the Ardennes instead.

      That’s very astute. What else is Samaras supposed to do? Install Tsipras as the Greek Emperor with no clothes so that the Euroidiocy blog can finally write an approving comment?

  • I’ve been a big fan of the Modest Proposal ever since you introduced it in Monthly Review and I’ve been following your commentary avidly ever since, and marveling how almost everything you’ve said has been proved true. But I’m puzzled about about a couple things in your most recent commentary.

    First, you say above that “It [the recent summit decision] will come to naught unless the toxicity of the EFSF is dealt with (see Policy 2 of the Modest Proposal, as an example of how this could be accomplished).” But I don’t see anything in Policy 2 (in Version 3.0) changing how the EFSF raises funds or guarantees them. Surely the ECB bonds described therein will lower the funding pressure on states by reducing the cost of the majority of their debt to 2%. And perhaps indirectly lower the pressure on their banks? But if that’s what you are referring to, then this fabulous chart is a little out of date, because then you would be arguing that now size does matter, and that if the problem is reduced, then the toxic CDO structure will no longer matter because the EFSF will be large enough to cover the bill.

    Second, you tweeted a few days ago that “Saving the euro requires not a cent from Germany.” But if the plan requires the EFSF, with the money already raised, in the manner you describe as a toxic mutualized bond, to put €100B in Spanish banks, then it surely does require Germany to put money at risk. EFSF is putting that money is as equity, not as super senior debt, and if a bank goes under, that money is gone. It’s nice to look at TARP as a precedent about how the EFSF might get all its money back with a profit. But it also might not. You mention that some banks may need to be wound down. And certainly Spanish cajas, run absurdly, still exposed to a bubble that has only begun to deflate, and then piled up into the super opaque super caja that is Bankia, may be among the banks that need to be closed.

    Even if all of what I say is true (and I’m not missing something essential), none of this would invalidates the basic rightness of The Modest Proposal. It’s just that some secondary claims would have to be changed. Claims that perhaps were true 2 years ago, when you had the perfect plan and the perfect time to instantiate.

    But perhaps I have missed something essential, in which case, I await enlightenment.

    • Michael, of course Yanis can answer for himself.

      But if I understand his message correctly, the part of no cost to Germany is rationalized as follows:

      Once an official European debt instrument exists (call it anything you like but its function could resemble bond financing), there is so much pent up demand from emerging and other economy players that any European issues available for purchase in the global markets will be scooped up at no time.

      And if such contention is true, then yes the whole mechanism will not require German cost other than some guarantees in the event of failure. And unless failure occurs the whole set up will be at no cost to Germany.

      The fact that today you can pin point instances of German cost is because of German obstructionism and reluctance to engage Yani’s or similar proposals. Because the incremental and minimalist road chosen by Merkel has contrived costs by design so that it infuriates the same German electorate towards resisting and defeating Yani’s concept.

    • And Michael, one more thing.

      A common mistake in this eurocrisis debate is the assumption that the best and most efficient solution ought to be applied to the problem (which is natural because that’s how most well meaning individuals think).

      However, this eurocrisis is to a large extent contrived as a means of political leverage towards the next step of European integration.

      Notice here how the Germans, in a very theatrical way (hypocrisy comes to mind), lament certain exaggerated Merkel losses without any perceived reciprocity by the other Europeans,. In other words, instead of Germany engaging in a self-critique of her own flawed policies, Germans actually are faulting Merkel for giving in without getting something tangible in return.

      Which basically tells you what this whole theater is all about. It’s about raw political power that has nothing to do with economics. Because if economics were the issue then we could solve the whole thing yesterday.


  • Here is a naïve looking solution that needs an expert comment from any of you if you have the patience to teach:
    Yanis Varoufakis’ comments would be most welcome too.


    1) The buying power of Euro is far higher in Greece(south European countries Spain/Italy) than in Germany (North European countries France/Denmark) where a coffee or a salary or milk cost a lot less 30% to 50% less

    2) If every Euro Country EU Member State had its own Euro, Euro of Greece would be stronger than Euro of Germany !? subject to its cumulative and current deficit


    3) If Greece set the prices and salaries at the same level as Germany overnight say 40% increase from 70 to 100, the inflation caused would inflate all the taxes received including the VAT without touching the VAT rate or income tax rate and the deficit issue would disappear within a day. Moodys’ will have to accept that at that level Greece would become solvable overnight without reducing the tax evasion etc.

    Obviously, the increase in salary of 40% overnight will invrease the apparent buying power but the prices of goods and services will go up by the salary content of each of these goods, triggering a bigger inflation – probably lowering the true buying power. The solution is seems to be the only true solution looking at the cause of the problem above.

    Any counter-arguments on the lines of job losses/export losses/Euro’s fall do not hold and am willing to hear patiently.

    Sincere Regards,
    Le Cram
    P.S. In other words, I am saying Germany and North European countries are responsible for the current problems by hiding their deficits through and inflated system where the prices are 40% to 100% higher than in Greece and who is wrongly being pointed at as the culprit!

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