Depression in the Eurozone’s Periphery and how to restore Aggregate Demand without creating new bubbles: My reply to Kantoos Economics

Preamble: Kantoos Economics recently posted an article discussing points of agreement and points of disagreement between us regarding the restoration of growth in Greece, both in the short and in the long run. Here is my reply.

The problem with any Crisis is that it eliminates the type of scarcity which helps two crucial markets function properly (the market for labour and the market for money/capital) and replaces it with another kind of scarcity that causes these two markets to cease up: severe scarcity of aggregate demand. This is what happened in the 1930s in the USA and Europe. And it is happening today in countries like Greece and Spain with, however, a hideous twist. Can the depressed Eurozone Periphery be refloated, aggregate demand-wise, without new bubbles being formed? What would a New Deal for the Eurozone look like?

From aggregate demand scarcity to depression

Once in the clasps of demand scarcity, a macroeconomy enters a depression which means that wages reductions fuel unemployment and zero official interest rates do nothing to stimulate investment. If the government introduces austerity and helps employers bargain for lower wages, the result is a further reduction in aggregate demand and a boost to the recession. Still, the said macroeconomy may be lucky to escape a depression if one of the following two conditions is met:

(a) the external environment is buoyant, and thus the economy is helped along by increasing demand for its exports; and/or

(b) some bubble begins to grow (e.g. in the financial markets and real estate) that spearheads a boost in consumption which then pushes investment up which, in the end, restores demand.

A good example of (a) was Canada in the 1990s. As for (b), I can think of no better example than the so-called ‘anglosaxon model’; i.e. the manner in which, under the ideological cover of neoliberal nonsense, the UK and the US exited the 1979-1982 recession by means of cultivating massive bubbles in their real estate and financial markets.

Of course, not all drops in aggregate demand spell a depression. Rises and declines in aggregate demand are part and parcel of a normal business cycle. What is it that turns a normal recession into a depression? Historically, this happens when large bubbles have set in within the financial and real estate markets (these two always developing bubbles in unison), causing massive capital inflows in an economy, and then bursting at the height of the economic growth that they fuelled. With the bubbles gone, suddenly there is a vast debt overhang. In John Lanchester’s apt words, everyone owes to everyone and no one can pay. When, at that point, the government tries to rein in its burgeoining deficits via austerity, deleveraging dries up credit, businesses collapse, trust melts, unemployment explodes and a triple-crisis erupts (debt-deflation-banking failures) that brings the depression on.

Depression in the Eurozone’s Periphery: the cases of Greece, Spain etc.

In the case of the Eurozone’s depressed economies, there is another sad wrinkle to the picture above: unable to devalue their currencies, and bereft of a lender of last resort, countries like Greece and Spain are caught in an impossible death trap. With an ECB that ensures that no banks ever die, however sick they might get, a zombified, undead, network of disparate banking systems goes on ‘living’ without however having the capacity to perform its normal banking duties. Forced periodically to re-capitalise these zombie banks (since the ECB only offers them liquidity), the Eurozone’s stressed sovereigns find themselves tied to a sinking megalith. The more they try to resuscitate the banks, in order to give businesses a lifeline, the more they sink into insolvency; a fact that the money markets know (thus desisting from lending to these banks) and the local depositors fear (thus sending their money abroad). Thus, gradually, the circuits of credit die with the banks playing the sole role of funneling whatever capital is left in these god forsaken countries to the surplus countries. In a never ending circle of doom and destruction, the fact that the surplus countries are now experiencing unprecedentedly low interest rates (courtesy of the capital flight from the hapless deficit nations) reduces the incentives of the surplus countries’ politicians to act in order to help the depressed nations exit their death trap.

In this state of being, talking in conventional terms of aggregate demand is something between a tautology and a… luxury. Aggregate demand is the sum of G+I+(X-M), where G=government expenditure, I=investment, and X-M is net exports. For countries like Greece and Spain, troika conditionalities squeeze G into the ground and the collapse of the circuits of credit ensure that I is negative. The only tiny fillip comes from X-M, as imports (M) fall precipitously and firms that still produce something turn abroad for customers (thus pushing X up, as much as conditions abroad permit). In short, aggregate demand is on the floor in our countries, and digging a hole toward… China – as the troika is implementing its remit and the banks sink deeper into zombie-hood.

In short, Kantoos’ point that Greece, Spain et al are facing a dearth of aggregate demand is undoubtedly, almost tautologically, true. It is like saying that a terminal cancer patient is experiencing a mountain of pain. True but not particularly helpful, from an analytical point of view. The question is: What will it take to restore aggregate demand without rebuilding the bubbles that burst asunder, thus creating the problem in the first place.

The Modest Proposal

As Stuart Holland and I have been arguing for more than two years now, Europe’s task ought to be to restore aggregate demand without forming new bubbles of public and private debt. To effect this, Europe needs three things (for a detailed analysis of our proposal, click here):

1. Restore the circuits of credit

The bank run in deficit countries will not stop until and unless a euro in a Spanish bank account has, once again, the same present value as a euro in a Dutch or German bank account. For that to happen, the probability of a Eurozone breakup must be driven back down to zero, something that can no longer be achieved by means of brave declarations by Mrs Merkel or Mr Draghi: it requires a full integration of Eurozone banking systems into a single system to be supervised by the ECB and recapitalised/rationalised by the ESM-EBA.

2. Centralise part of the Eurozone debt

A currency union requires a common debt. Not only because this reduces the borrowing costs of countries like Spain and Italy, at a time when they are facing insolvency in the face, but because common debt acts as a buffer that prevents the evolution of a domino effect after a financial panic. Moreover, a common debt acts as a signal to markets that the Eurozone cannot be broken. Our proposal for ECB-bonds was intended to provide a simple method of creating this common debt without Treaty changes, without guarantees by Germany of other member-states’ debt, and without moral hazard concerns.

3. Convert idle savings into profitable investment

As intimated above, we do not want a new bubble to create the missing aggregate demand. Europe should not repeat the gross error of the Thatcher era, when the losses of aggregate demand due to crumbling industrial capacity and public sector cuts were replaced by huge aggregate demand generated from the twin bubbles of the City’s Bing Bang and the effervescence of the real estate sector. No, what Europe needs to do is to find a way of channelling the mountains of idle cash (both of the corporations that are stashing cash away and of the banks which, currently, prefer to park mountains of euros at the ECB at zero interest rates) into potentially profitably investments. Our suggestion of how to do this is to energise the European Investment Bank (EIB) in conjunction with the European Investment Fund (EIF), and with the ECB (which could issue ECB-bonds in conjunction with the EIB and EIF issued bonds) in a supporting role. And how would this help depressed economies like that of Greece and Spain? By ensuring that the aggregate flow of investments to these countries are proportional to the scarcity of aggregate demand in the various Eurozone member-states (while the distribution of these investments within a country, like e.g. Spain, is left to the EIB-EIF to decide along standard banking principles).


Certain Eurozone economies remain depressed and with a level of aggregate demand that is falling daily. Their depression increases the probability of a Eurozone breakup while the increases in the probability of a Eurozone breakup boost their depression. Something has to give. If Spain’s, Greece’s, Portugal’s depression is not addressed by policy makers, the Eurozone will simply shrivel and die. Alas, due to the Eurozone’s faulty underpinnings, the Periphery’s Depression cannot be addressed by standard macroeconomic aggregate demand management. Unless a euro is ‘forced’ to have the same value across the Eurozone, the Periphery’s Depression will get worse and the Eurozone will perish. Unless some debt mutualisation is effected, without asking German taxpayers to guarantee others’ debts, the Periphery’s Depression will conspire with the Euro Crisis to end the European Union. Lastly, the last thing Europe needs is another bubble to restore aggregate demand. No, we need to eradicate not only the Crisis’ symptoms but also its underlying causes (i.e. the imbalance in productive investments). In short, we need a cleverly designed New Deal for Europe, with the EIB at its forefront.

Appendix: Some comments on Kantoos Economics’ (KE) points

1. KE: “Channelling more aggregate demand towards Greece, however, is a difficult process. Banks need to be recapitalised… But equally important is that investors (and depositors) need to be convinced that Greece will stay in the euro. How do you go about that? Maybe by forcing Greek deposits back to Greece, as a sort of committment device? Legally challenging to say the least.”

Not just challenging but impossible within a liberal society and a single market. Also, unnecessary. Investors will only become convinced that the Eurozone will hold if banking sectors are unified. Pure and simple. (See Policy 1 of our Modest Proposal)

2. KE: “[T]he people of Greece need to send a strong and credible signal that their committment to the euro is final. European investment funds do not serve that purpose directly, just indirectly by making the situation less bad. I think this aspect is under-appreciated, but important.”

The people of Greece never fail to send such a signal. In the last election the top three parties (including Syriza) made an unequivocal commitment to staying in the Eurozone. Moreover, opinion polls show more than 80% support for staying in the Eurozone. Thus, the Greeks’ commitment to the Eurozone was never in question. It was Mrs Merkel who suggested that any Greek dissent on the terms and conditions of the bailout would be translated to a Greek No to the Eurozone. Can you imagine what would have happened if the Irish or French No to the Lisbon Treaty was interpreted by Berlin as a No to the EU? What right does one have to say that a European people’s objection to a particular Treaty or agreement equates with a rejection of Europe or of the Eurozone? No, I repeat, the problem is not a lack of commitment by Greek to the Eurozone. The problem, rather, is the lack of a European plan that makes the Eurozone sustainable.

4. Regarding our EIB-EIF administered New Deal for Europe proposal (see Policy 3 of the Modest Proposal), KE says: “[T]he EIB bonds should, according to Yanis, be serviced by the country that benefits from the investment. How should Greece do that? And what happens, if the benefiting country doesn’t or can’t service them?”

This is precisely NOT what we propose. We, instead, propose that the EIB-EIF fund directly profitable projects in Greece and elsewhere. Who repays the EIB-EIF bonds that are issued to carry out these investments? The investment projects themselves. Not Greece, Spain, the UK etc. E.g. suppose that the EIB funds a fast railway line from Patras to Munich, thus linking the fast train network of Western Europe with South Eastern Europe (a much needed infra-structural project which will, by the bye, benefit German and French companies enormously). Our proposal is that the EIB funds this without involving the Greek. Slovenian or Austrian states. That it funds it as a private investment bank on pure banking principles, by issuing EIB-bonds as it has been doing for 20 years now (and with the possible backing of a net issue of ECB-bonds). The only involvement of states that is necessary concerns the licensing of the project and the expropriation of the land. And how are these bonds to be repaid? By the revenues of the railway that go directly into EIB-ECB escrow accounts. It is up to the EIB-EIF (perhaps in collaboration with the ECB) to pick and choose projects that have a high expected return.

5. KE: “Investment is a risky business, and someone needs to be willing to take it on.”

Sure. The EIB has been doing this for decades. And has a sterling record of turning a profit from them. All Europe needs do is harness its capacity for profitable investments and unshackle it from the requirement of co-funding from insolvent sovereigns.

6. KE: “Yanis’ ECB bonds do not circumvent this problem. This is (in expectation!) a transfer if it is done below reasonable rates that take the risk appropriately into account (note: I did not say market rates). It is fine to argue that Germany needs to bear some of that risk, and I agree. But let’s be honest about those risks first.”

OK, let’s (be honest about the risks)! I submit that, under our ECB-bonds proposal, Germany will bear very much less risk (if any) than it will under the ill-designed ESM.

7. KE: I think we should not put too much faith into political institutions to manage these investments well. I don’t think the track record of similar efforts in East Germany is encouraging in that respect, or European structural funds in Greece or Spain for that matter. Projects like the common agricultural policy (CAP) are another European example of wasted taxpayer money, which to this day remains largely uncontested, despite the crisis.”

I agree. East Germany is a good example of what we need to avoid. Similarly the Brussel’s administered structural funds. This is why we are proposing the EIB as the pillar of EU investment policies. Not Brussels! As for the CAP, its purpose, from the beginning, was not to effect efficiency or justice but to ‘buy’ the support of Franco-German farmers for the customs union that would cause them problems while bestowing huge benefits to heavy industry. It was never more than a permanent side payment from oligopolistic industrial capital to landed rentiers.

8. KE: “The EIB may have an excellent track record so far (any evidence for that?), but in part because it could conduct its business unmolested by European politics.”

Quite so. So, let’s keep the EIB a politics-free zone. But let’s also unshackle it from a silly political constraint that stops it from delivering to Europe many potential benefits.

9. KE: The silly over-investment before the crisis… should also make Yanis cautious: yes, we have an aggregate demand problem (aka under-investment problem) … but we need to make sure that any European investment fund is smart, and unmolested by the domestic forces that in part brought Greece to the point where it is now.”

Could not agree more. In the terms of my preferred narrative we do not need another series of bubbles. What we need is to eradicate the causes of Eurozone disintegration and to shift idle savings into profitable, real, investment.

10. KE: “Exports are another way to direct AD towards Greece. How did countries in Asia manage to become such successful exporters?”

Greece must improve its export performance. This is indubitably true. But it won’t do so before (a) profitable, export-oriented Greek companies regain access to credit, and (b) investment into such companies re-starts. The three policies of the Modest Proposal are a prerequisite for both (a) and (b). All three? Yes. Consider Spain, for instance. Its export potential is excellent. Yet, without a functioning credit system and while state and banks are in a deadly embrace, export potential does not help restore aggregate demand.

11. KE writes that long term growth requires “…an efficient public sector, sensible regulation, occasionally even industrial policies like export zones. It requires local knowledge, local initiatives, and local policies that focus on growth. Outside investment funds can help, but as long as Greece ranks 155th in protecting investors out of 183 countries, 90th in enforcing contracts, and is last according to the overall business index in the OECD, I have no idea how long-run growth can take hold with EIB investment alone.”

It can’t. Until and unless the Greek state reforms itself and investors feel that there are simple, sensible, functioning rules, long term growth will not pick up. But let me make one thing clear: The belief (that is prominent in some German circles) that further austerity will ‘force’ Greeks (and their state) to adopt such important reforms is patently erroneous. Just like Yeltsin gave democracy a bad name in Russia in the early 1990s (allowing Putin later to trample important democratic rights in view of a lack of public support for defending these rights), the word ‘reform’ is now being associated in Greece with misery, loss of hope, indignity. The more the depression continues, and the deeper it goes, the less reformable Greece becomes. Spain is about to go the same way. And Italy.


  • just a heads up for Yanis – only because this is at least the third time I have seen the same mistake: markets do not “cease up” but rather “seize up”. Just as a helpful hint, not a criticism. Rest of the article is good although some of the Q & A is a little terse.

  • That last paragraph is very good, I think. If you try and “reform” while going out of your way to smash an economy to bits, the effect is essentially the same as bringing democracy to a country by bombing it. You end up with neither the country nor democracy intact.

    I appreciate the argument that nobody wants to reform in times of plenty – this is true enough. It’d be difficult. But isn’t that sort of thing what political leadership is for?

    Perhaps the real point though is that the advocates and enforcers of austerity will take no responsibility when their plan fails. (As they are not takiing any responsibility, today, in Greece.) You can always say oh, the Greeks – or the Spanish or the Italians or the Portuguese or the Irish – didn’t do enough, it’s all their fault it went wrong. Indeed you have to, since the alternative would be to accept being the author or their supporter of a gigantic mistake.

    Besiees, who cares? Wh ocares if, instead of reform, you get permanently knackered peripheral economies unable to do anything but try uselessly to pay debt interest while most of their young and educated people go abroad. I don’t imagine that was the plan from the start. But nor do I think the advocates of austerity care too much if this is the outcome.

  • Guys:

    We don’t have to look far and consider outcomes that have not even occured yet.

    Just look at Japan. A predominantly graying population country, a debt to GDP in excess of 200% and the country in its 3rd lost decade.

    And Japan is supposed to be an economy of the center, an export country bla,bla,bla.

    • And in case you didn’t get the point, let me remind you that when the crisis erupted back in 2008 most of the economic consensus at the time said that the most likely outcome – based on the response(fiscal stimulus) given – would be a guaranteed and prolonged period of stagflation, or a combination of a stagnate economy with inflation.

      And this is precisely what we got now, plus the German morony of austerity to deal with on top of it. So, that poor out-of-depth Merkel could learn on the job and on the backs of millions of innocents. Learn what, you might ask? Well, the depth of her own ignorance is the best answer.

  • ..”The belief (that is prominent in some German circles) that further austerity will ‘force’ Greeks (and their state) to adopt such important reforms is patently erroneous.”

    “The more the depression continues, and the deeper it goes, the less reformable Greece becomes. Spain is about to go the same way. And Italy.”

    I am still wondering if Greco-Latin block can react as such to this situation.

    • There is no Greco-Latin “block”. In fact, the split between them is greater than each individual country has with Germany.

    • Certainly France has taken great cares not to be grouped with its Mediterranean neighbours, while the other Mediterranean GIPSI countries have emphasized their distinctiveness from each other and (especially) from Greece.

    • France is the next one. It will be PIFGIBS soon.

      There was a great article in Handelsblatt in Germany that Germany and France need a divorce because their policies do not match each others.

  • The EIB idea is all very nice, but you may be overestimating the EIB’s capacity. Even if they’ve been good so far, they may not be able to remain so if they have to multiply the size of their loans, even after removing the state funds matching constraint.

    In a simplistic model, any supplier of credit has on one side a finite amount of capital, and on the other side a pipeline of projects they could fund which is usually larger than their available capital. When profit-maximising, they fund the projects with the best expected return (the top of their list of applicants ranked by expected return), so any incremental capital that becomes available funds the “next best” projects which are less productive than the ones funded before. The marginal return of each new increment in capital is ever decreasing. If you get too big for your pipeline, you sooner or later hit the unprofitable projects. Tasked with funding large enough projects to make a difference on aggregate demand, don’t you think the EIB could hit that limit?

    Your Patras to Munich rail idea is perhaps a good example of this. It’s very hard to fund rail on purely commercial grounds out of ticket fares, and I’d be surprised if there’s been many example on the existing projects where ticket income would have been enough to really pay for the full cost (including commercial financing) on the projects on commercial timeframes, even on the more heavily patronised corridors in flat regions like Paris-Lyon or Berlin-Hannover, which were much lower handing fruits than Patras to Munich can be. Not that it’s not a good idea for governments to fund these projects as public goods, but hoping to fund them on commercial terms sounds a bit unrealistic.

    • The problem with the EIB idea is that roads do not create jobs. It is the other way around: Jobs create roads.

    • You may think that. But it does not make it true. Road building was an essential part of the New Deal. And it worked.

    • Most Americans also believe that Hitler successfully jump started the German economy by building Autobahns. It did not work.

    • Eastern Germany is a great example how infrastructure does not build jobs. To run a company you need skilled emloyees, but much more important a network of suppliers!!! And if you you are in the middle of nowhere, outside a cluster you have a disadvanage on all fronts.

      Look at Easter Germany and Europe. You only see new jobs in manufacutring in areas where there was a manufacturing center before the socialist time (example: North West Slovakia, Dresden etc.).

      Central planning never works.

    • Do you want to live in China? If you want to make it work like in China you have to change a lot of other things too…

    • Dear Yanis / dear guest

      I am not so sure China or Sweden prove the thesis wrong.

      China is not a communist state. They just call themselves communist with the communist party running the show. But really, as you surely know, the country is more brutally capitalist than, say, the US.

      Of course, central planning, if done well and on a macro level does work. It did e.g. in Singapore and Japan. Efficient central planning together with brutal capitalism is a pretty proven way to catapult a country into a higher level of economic development.

      By the way: China has not always been behind. Until a couple of centuries Go it was ahead of Europe. European dominance was only temporary and China was poor but had lots of potential when Deng Xiaoping started reforms to unlock capitalist forces three decades ago.

      The post about Sweden I do not get. Could you please elaborate?

    • Central planning is prone to fail due to very few wrong decisions at the center. They can make the whole country fail. Decentral individual decisions, might not be as perfect as perfect cetral planning in theory could be, but the likelyhood of system failure is very low.

    • No EU – BRAVO!!!! Two heads are better than one, the wisdom of crowds, etc etc etc Why is it so hard to understand?

    • Martin

      Anyone who actually knows anything about economic history knows that post-war Sweden for two decades ran up massive state debt in order for the state to invest in economic development. The factories were state-owned, public sector employment was predominant and the tax rates were rather high to help finance it. This strategy was denounced as lunacy by US economists, and turned out to be a very successful industrialisation that almost certainly would not have occurred if left to market forces.

      Economic orthodoxy of the US variety has a very poor track record — to the point that it is impossible to take seriously. Yet most people do, including you.

    • @Richard

      If you believe that wisdom emanates from crowds, then that might explain why your ideas are so completely wrong. Try reading some serious (individual) philosophers, economists, novelists, whatever and compare their ideas with the bullshit that appears on the comments pages of newspapers.

      Moreover, the idea of market forces as providing superior information and direction — as advocated by von Hayek in particular — was one of the driving forces behind deregulation of banking. Again, the success rate of these economic theories when put to the test is pitiful — yet idiots persist in supporting them while the rich collect their Porsches.

    • Guest – “If you believe that wisdom emanates from crowds, then that might explain why your ideas are so completely wrong” – So you must believe democracy is a deeply flawed concept?

      “Moreover, the idea of market forces as providing superior information and direction” – there is one easy way to prove the market is superior to anything. People who think they know better can make a fortune. ie if you as a person thinks the market is stupid and wrong, the market allows you to profit massively from the stupidity of others in 3 ways 1. if you believe this is correct then everybody is equal, 2. if you believe this concept is wrong you must be extremely rich, 3. if you believe the concept is wrong and you are not rich then you obviously don’t understand how the market works in enough detail to profit from the stupidity of others. In short, if you agree with the market, the market lets you profit from it, if you dont agree with the market, the market lets you profit from it. In other words it is freedom.

      “was one of the driving forces behind deregulation of banking.” Im not sure if you have tried to set up a bank lately but the regulations are oppressive, at least in the USA. You must be saying deregulation is bad. I suppose you think this because of 2008, deregulation of a truly free market would have let these banks/entities fail without taxpayer involvement, surely you must support that?

      “Again, the success rate of these economic theories when put to the test is pitiful” – Are you saying pre 1912 America was less successful than post 1912 America? Are you saying Germany as an economy is less successful than France or Greece? Because America is the closet the world has come to Hayek’s vision, and Germany is the closest thing we have to Hayek in the modern world re the philosophy behind money. Personally I think the USA pre 1912 was unbelievably successful for the USA and I believe Germany is one of the strongest economies in the world. What are your “pitiful” examples of Hayek’s philosophies?

      “Try reading some serious (individual) philosophers, economists, novelists,” – if you want to recommend some then I will check them out

    • Dear Guest (Xenos)

      Thanks a lot for the clarification on Sweden. Itwawas already an industrialized country before 1945 and then was relatively stronger after the war as much of the rest of Europe was impoverished due to destruction and chaos.

      It is news to me that Sweden really was a socialist country (as you describe it). It was social democratic, not socialist. Only US propaganda would call it oialist. I had heard it handled the crisis after 1929 well, based on Keynesian theories successfully implemented. But did it run up massive debts after WW II in order to industrialized Sweden by having the state run enterprises?

    • @ Richard: It seems to be difficult to understand especially for people who never had a proper (non government/academic) job.

    • @Martin

      I find it astonishing that you claim expertise on the economic history of Sweden. As far as I am concerned, I prefer to rely on the very many books and papers written on the country’s economic history — mostly by Swedish economists.

      This is one of the problems of the modern world — that with so much information available, the actual level of knowledge is declining because most people prefer to believe in political propaganda and what they call “common sense”. Try reading some of the detailed accounts available before telling me such nonsense. I have not only read them, but taught courses on economic history at university level.

    • Dear Guest (xenos)

      I have not claimed to be an expert on the history of Swedish economy.

      But you do and in quite an arrogant way: “Anyone who actually knows anything about economic history knows that post-war Sweden for two decades ran up massive state debt in order for the state to invest in economic development. The factories were state-owned,…”

      Even though I am not an expert I believe this statement of yours is wrong.

      As I said: Sweden was an industrialized country before 1945 and not everybody who does not agree with you is an idiot.

    • @Martin (and others generally)

      I repeat: I suggest that you try reading the serious economics literature before asserting your opinions. You seem to think that repeating journalistic crap and semi-educated commonsense ideas is quite good enough to make your arguments. I am not interested to debate your nonsense.

    • Guest – “: try reading the serious economics literature before asserting your opinions” I have asked before, please recommend some authors

    • Dear Guest (xenos)

      You wrote: “Anyone who actually knows anything about economic history knows that post-war Sweden for two decades ran up massive state debt in order for the state to invest in economic development. The factories were state-owned,…”

      In you following posts you hinted that you find my doubts regarding your statement laughable. Fair enough and as I said, I am not an expert. But you claim to be. So how about this document, page 16:

      Swedish government debt increased from below 20% of GDP to about 27% when dealing with the great depression in the 1930ies.
      Then it increased further during WW II, peaking at 50% of GDP in 1945.
      Then, post-war, it FELL to 29% in 1955 and below 20% in 1965.

      I am clearly not the economic genius that you are but I am sure you can explain this?
      Your statement “The factories were state-owned” are non-sense. I would not doubt that there were some government-owned factories in Sweden after WW II but the vast majority was not. The picture you paint is not supported by facts. Or is it? Then please share some – should not be a problem as you have taught economic history on university level which is something I cannot claim.
      I am curious!

    • Richard

      The last time I quoted the FT (on economic data) was in 1991. I realised after that error that they are almost as incompetent as other newspapers on financial matters. So forgive me for not even bothering to look at your link.

    • @Martin

      I shall try to dig up some of the standard literature. I have not taught conventional economics courses since 1994, so the references are not at the front of my bookshelf.

  • On the point that ECB bonds in the Modest Proposal are “without moral hazard”, I think you’re painting yourself in a corner there. With this argument, you are cutting the bridges with the people you need to convince most, as people will just dismiss you as a quack.

    As far as I can see, the moral hazard remains: a member state could manage their affairs so badly that (a) they are cut off from private debt markets (b) they cannot, or choose not to, repay their Maastricht compliant tab at the ECB, at least the interest, and the capital when GDP is going down (if you are a state who starts with 60% of GDP in Maastricht-debt at the ECB, and your GDP goes down 10% the following year, you then owe 6% of your start GDP to the ECB to remain compliant, at a time you’re unlikely to be able to afford it). Even if the ECB has a powerful stick to beat debtor member states with, the risk the states default on their ECB tab cannot be taken to zero, or am I missing something obvious? As long as the moral hazard risk is non zero, you cannot argue it away.

    You could argue that the moral hazard is lower than current arrangement (I would agree), because of lesser systemic risk when the worst that can happen is a bit of monetisation, or because the ECB has a more powerful stick under this proposal, or some other reason, but the nature of the argument is different: lower moral hazard is a different concept as no moral hazard. The former would at least get you a chance of having an argument, and make your opponents having to work harder at justifying their position (as they then need to quantify the moral hazard that is left as harmful enough). By denying moral hazard altogether, you give them an easy stick to dismiss you with.

    • Ask people in New Orleans who have still not recovered after Katerina

    • @KS, in the US, the member states control a much lower proportion of public expenditure (very approximately: US state 10% fed 20% of GDP, EU member state 40% brussels 1% of GDP), so the potential for cock up is already much smaller, and the US Federal government has a more solid mandate to forgive or punish states than euro institutions, as they stand, do. Besides I think the federal level lends very little to states, but rather makes transfers (donations) to poor states, which while not entirely free of moral hazard (states can misrepresent their poverty to get more federal donations) is a more limited problem.

      The modest proposal doesn’t solve that problem, putting all that on the ECB’s shoulders which could end up both ineffectual (lack of tools) and politically risky (everybody may end up blaming the “unelected” ECB for everything).

  • Hi Yanis,
    Great! Modest Proposal as the way to trigger investment WITHOUT creating bubbles!
    From a marketing point of view at last, a narrative which could in fact sell in Germany!…

    • If you could read German press (which is normally Europhile and left wing, since writers hardly make more than jobless people), you would see that the wind is turning. Germany will be out of the Euro in the next 24 months at latest.

    • No EU: all of the German press is left wing because writers are badly paid?

      Hahahaha, no the truth is that you are a right wing piece of **** who obsesses over making money out of others, and would like to buy a Porsche. Along with the other neoliberal propagandist(s) here, your opinions are entirely self-interested and antagonistic to European values and democracy. Go and take your rabid money-making obsessions to the USA, where they belong.

    • Guest – Its easy to be the big man on the internet isn’t it? re “No EU: all of the German press is left wing because writers are badly paid? Hahahaha, no the truth is that you are a right wing piece of **** who obsesses over making money out of others, and would like to buy a Porsche. Along with the other neoliberal propagandist(s) here, your opinions are entirely self-interested and antagonistic to European values and democracy. Go and take your rabid money-making obsessions to the USA, where they belong.” – So much hate can only come from someone that calls themselves a socialist. The irony…….

    • @Richard: I do not generally call myself a socialist, and most certainly did not do so on this blog. So your comments reveal that you also are another of these right wing extremists floating around the ether. This was previously evident when you blamed trades unions for blocking reform, and conveniently ignored big business. banking and other vested interests that are actually more important. Your bias is so extreme, that you cannot hide it.

    • First of all. I do not want to buy a Porsche. I had one when I was 30. It does not make you a happier person to have one, and it´s a bit small with wife and kids…

      I do not consider my self right wing. I consider myself liberal. I like freedom, self responsibility & peace.

      And third I already took a great deal of my, as you cal it “money-making obsessions to the USA, where they belong”. What I cannot not understand is that you think that is good. Since a lot of people are doing just that, the economy in Europe will be more and more sluggish due to all the capital outflow.

    • @No EU

      I think your socio-political beliefs are very clear to everyone, from your own admissions. And you are even stupid enough to tell us that you actually owned a Porsche when you were 30! You do not represent ordinary decent people, so stop pretending that you do.

      And I did not tell you to take your money to the USA, but to take yourself and your right wing crap (sorry, libertarian and freedom-loving!). LOL

    • Guest – I am going to assume you are slightly left of center.

      If you don’t like people owning a Porsche at 30 give them the choice to opt out of the government system. ie let them stop paying taxes in return for not getting any support from the government.

      I mean, why would decent working class people want to take tax money from right-wing people who are not decent? Screw these 30 yeard old Porsche owning right wingers, let them make their way without government help and lets see how far they get.

    • “You do not represent ordinary decent people, so stop pretending that you do.”

      Actually I am. I live way below my means. I still work even if I do not have to.

      Please read “The millionaire next door” that reflects pretty much my view on life. Which is that owning expensive luxury goods does not make you happy and will spoil your kids. What makes you happy is knowing that you you are financially independent.

      And just for the record: The Porsche was my company car. My employer bought it for me. Today i drive a used Audi Avant costs less than a new Golf.

  • Thank you, Yanisv, for this post. It convinced me completely. Are there translations of the original Modest Proposal to German, French etc.? Or is it only intended for the discussion among researchers?

    In this case it can take a long time to get these ideas to the public area. Maybe too long and that would be a pity.

  • You tend to interprete financial activity in conjuction with theory, “ceteris paribus” and imply the impossibillity of current situation to change even a bit, if specific obligations implemented and better financing is enabled, which is acceptable.
    You overtone the “aggregate demand scarcity” and make the clarification with (a) and (b) as what theory says.
    But as for (a) external enironment, IS buoyant in very selected areas, only Greece is unable to reclaim because of ineffective stucture (what we produce, good channels for promoting, Greek brand name not only in specific areas of exporting) Ireland on the other hand is more adaptive and as for (b) a diversification can be met eg in an export – to be economy- can mitigate the effects of bubbles where ever seen.
    You say also”Aggregate demand is the sum of G+I+(X-M)”.
    For you G is of 72 font (lol) and the others of 8 font! The circuits of credit does not collapse because of squeeze G only, but because of luck of any(I) especially foreign not under “special zones”. Being 155th to 183 to protecting investors, hindering investments for many years of over 10 b € because of environmental, justice and luck of land registry issues. An increase in foreign (I) the adoption of know how expertise can be extremelly effective with multiplying effects (increase rapidly basic salary), but if also investment environment change at no cost.
    For the question” What will it take to restore aggregate demand without rebuilding the bubbles that burst asunder, thus creating the problem in the first place”, let claim:
    1. Restore the circuits of credit is rational as presented in MP. One is accept and write down losses, two recap under terms that will create assurance that deposits are safe and increase deposits, three start under eib -eif investment projects under terms of feasibility and ROI.
    2. Centralize part of the Eurozone debt is difficult to implement without proper structure in eu in countries- institutions and mechanisms.
    3. In case of Greece if there is an agreement and banking sector take its loses, recapitalize there are good possibilities in connection with reforms. But there is an issue in leverage of others and in investment portofolio for every bank institution independently, and what will be the administration principles. How easy is to follow a common policy in crucial banking management and under which terms?

    Conclusion the luck of even descent funding is worsening the recession. Minus 6 % to funding -3% to GDP. With tools made already is possible to decrease recession if used in combination and reforms accepted and mature.
    2,3 remarks and possible legal clarification and affirmation to buy debt in sec market might be a plus.

    • “But as for (a) external enironment, IS buoyant in very selected areas, only Greece is unable to reclaim”

      Is 1,7% global growth what you call a buoyant external environment?Please…..
      And i may mention GLOBAL growth but given that Greece (as most EU countries) trade mostly with other EU countries, our immediate external environment is anything BUT buoyant.Need i mention EU growth latest trends…?

    • (2010)

      ” A significant return to growth in Irish exports resulting from an economic bounce back in many international markets.Exports to North America were particularly strong with sales to our largest market, the USA, up by 18% in the year, and sales to Canada up by 27%.The emerging markets of Brazil, Russia, India, and China (BRIC countries) showed an increase of 12% ”

      There was a welcome, if unexpected, return to growth in our exports to the UK which rose
      by 19% in the first quarter. The growth was undoubtedly assisted by the weakening of the
      euro, return to jobs growth in the UK and continued improvement in Irish business
      competitiveness. However, the rapid rise in the cost of diesel and other heavy fuels in
      recent months is taking its toll on the costs of getting goods to market and will inevitably
      act as a drag on manufacturing exports.
      In the first quarter of 2012 there was a double digit growth in exports to three of the BRIC
      countries – Brazil up by 32%, Russia up by 32% and India up by 14% – which is a good
      indicator of the potential for rapid export growth in the fast growing emerging markets.
      The fall in exports by 5% to China in the first quarter continues the trend from last year,
      but this is expected to be corrected to positive growth following the recent three
      ministerial-led trade missions to China and the visit here of Vice Premier Xi Zinping.


      and page 13 of the above pdf.

  • Bubbles exist in the best economies. Try to rent an apartment in Munich. 2500 euros per month for 75sq meters. In Athens it was 300 to 600 euros before crisis. I suppose that in Bulgaria it could be lower than 200 euros. How much different could be the cost to built a house in those countries?

    • Sorry, the figure for Munich is substantially inflatedexaggerated. Wait, oh no, my landlord is calling….

    • 75m² in Munich only cost EUR 1500. Your price must be short term or furnished.

    • AZ your rate is EUR 33 per sgm. If it would be that rate I would be interested in buying again, because it implies a gross rent multiple of 12,5. BUT at the moment the multiple is more above 30!

  • The more things change, the more they stay the same…

    Quote from the American economist Henry Parker Willis in 1901:

    “It is hard to see why the admission of Greece to the Latin union should have been desired or allowed by that body. In no sense was she a desirable member of the league. Economically unsound, convulsed by political struggles, and financially rotten, her condition was pitiable. Struggling with a burden of debt, Greece was also endeavouring to maintain in circulation a large amount of inconvertible paper. She was not territorially a desirable adjunct to the Latin Union, and her commercial and financial importance was small. Nevertheless her nominal admission was secured, and we may credit the obscure political influences … with being able to effect what economic and financial considerations could not. Certainly it would be hard to understand on what other grounds her membership was attained.”

    Maybe some food for thought…

  • One of the biggest economic nonsense is to let people idle for some kind of belief. It robes the country of additional wealth that can be created by idle people; it robes the people of self esteem; it robes the people of ability to feed themselves. It is a crime and those who impose such conditions because of a belief or because they can are criminals. The powerful attached to every Greek a yellow star. If Greeks will not find the guts to remove the star they will be condemned by their children and the world. No proposal, no help will come from outside. The Greeks have to do it. We don’t have to prove that those people are predators; we have to assume that they are. It is up to us to find a way to defend our values and those of our forefathers.

    • “The powerful attached to every Greek a yellow star.”

      It may be worth noting that rhetoric comparing the Greeks of nowadays to the Jews of Nazi Europe is the sort of rhetorical overstep that might alienate more previously uninvolved people than it might persuade.

    • I disagree with you Randy… I had a discussion on Greece/Greeks with my German relatives. I let them talk and then I told them: ‘Now replace the word Greeks with the word Jews and tell me what was wrong in what you have just said.’ It was the only way to make them realize how racist their comments were. Of course one can not compare a racist attitude/comment with a holocaust, but I thought democratic people had a problem with both and that they could see the connection between the two. Unless of course you only have a problem with the holocaust and not with the racism Jews had to face for centuries in the German states… In that sense, the Jews were metaphorically wearing that yellow star for centuries and, in extension, all people that are subjected to racist comments/attitudes.

    • Dear Demetre

      I also find the “yellow star” a bit too heavy.
      It either overdramatizes what happens today or makes what happened to the jews with the yellow star seem not so bad (if it was similar to what “every Greek” suffers today).

      Both would be wrong.
      I think you could probably find ways to express your frustration and anger withouth using Nazi symbols / seeing similarities where there are none.

  • “It was Mrs Merkel who suggested that any Greek dissent on the terms and conditions of the bailout would be translated to a Greek No to the Eurozone.”

    It was not only Ms. Merkel. It was every other government in the European Union, including big countries like Germany and France and small countries like Slovakia and Finland. Among other entities.

    From the perspective of Greece, the idea may have been to legitimize the results of the negotiations with a referendum. From the perspective of all of Greece’s other partners, the effect was to completely undermine the commitments made by Greece after several months of tough negotiations, these negotiations having led to the fall of at least one government. Greece’s other European partners–not only Germany; the exclusive focus of this blog on Germany may serve the psychological crutch of undermining a sense of Greek isolation, but nothing more useful–were not going to tolerate the introduction of new moral hazard.

    • You are precisely wrong. Mrs Merkel, assisted by M Sarkozy, were the first political leaders who dared suggest that a Greek referendum on the October 2011 agreement would be a referendum on whether Greeks want in or our of the Eurozone. It was a silly mistake in that it officially broke with the common commitment never to acknowledge the possibility of an exit from the Eurozone. Other governments were, as you say, becoming impatient with Greece, and its collapsing economy. However, their leaders did not mention Grexit and did not commit the grave error of suggesting that a Eurozone member-state that wants to put a particular agreement to a referendum is, effectively, opting to get out of the Eurozone.

    • Yannis, I disagree with no sources no back up my point of view.

      Papandreou was the first person to start using the Drachma question to coerce Greeks.

    • So, Germany _and_ France.

      “However, their leaders did not mention Grexit and did not commit the grave error of suggesting that a Eurozone member-state that wants to put a particular agreement to a referendum is, effectively, opting to get out of the Eurozone.”

      Had Greece before that point mentioned that it was going to put the agreement reached with its European partners to a referendum? Or had the Greek announcement come as a surprise to Greece’s partners?

      If the former, then the reaction is unjustified.

      In the latter, then a harsh reaction from Greece’s associates, led by the two countries with the greatest heft in the Eurozone economy, is only to be expected. For the Greek government to enter into negotiations, reach what its partners thought was a binding argument, and then surprise its partners with an announcement that it will take the finalized agreement to the electorate and see what they think about it and what might need to be changed … Well, Greece’s European partners might reasonably think that the Greek government was not negotiating in good faith. From that starting point, it would make some sense for Greece’s European partners to favour very strict conditions that would leave Greece with as little room to maneuver and unilaterally repudiate its obligations as possible.

      Also: why the focus on Germany? At one point, the Netherlands, Finland, Slovakia and Slovenia demanded collateral for their loans. Germany, so far, has abstained from making similar demands. A case can be made that, contrary to the reputation it’s been given, Germany actually is not one of the more hard-line members of the Eurozone vis-a-vis Greece.

    • But Merkel also said at the time that any referendum would be a referendum not on the terms of a Greek agreement, but rather, on Greek membership in the Eurozone.

      It’s not surprising that statements from Merkel, Sarkozy, Hollande, and other Eurozone leaders over the past ten months have changed somewhat over this time. There’s been an election in France, say.

      At the time, though, Greece’s European partners were unanimous in rejecting the idea of a referendum. It’s hardly something to be blamed on Germany alone.

    • Merkel and Sarkozy spoke the evil words first. Then their minions elsewhere copied them. The blame goes to Merkozy. Period.

    • Why are you excluding the possibility that, for reasons of their own, member-states of the Eurozone other than Germany (and France, too, you now concede) agreed with the hard line on Greece because they agreed with it of their own free will?

      (One possibility is that such an interpretation would mean that, far from being leading the small and/or GIPSI states in the EU against German hegemony, Greece actually would be pretty unpopular in its own right.)

    • They were forced to make these statements and be even harder-line than the Germans and French?

      Also: you don’t think that the surprise Greek announcement was a poor negotiating tactic, the sort of thing that would encourage Greece’s European partners not to go easily on the country?

    • Please desist from putting words in my mouth. I did not say they were forced. All I said was that they repeated the Merkozy mantra. Spineless little politicians desperately competing against one another to show that they are more royalist than the King (or the Queen, to be more accurate). As for the wisdom of Papandreou’s referendum announcement, you are knocking on an open door. It was a silly idea. If he did not like the oct 2011 agreement he should have vetoed it in the Council (as I recommended to him). If he did like it he should not have called for a referendum. However, having said all this, it was his right as Greek PM to call for a referendum and it was NOT within the rights of Merkozy to subvert the content/purpose of the referendum. On that day, Europe forfeited an important principle concerning the rights of a member-state to determine its own referendum questions.

    • I’m not trying to put words in your mouth. There’s a big difference between states being prompted to support policies that they actually agree with and states being forced to support policies that they don’t agree with. Which is it?

      As for referenda, if the results involve multiple parties I’d argue which don’t have a vote that the would have a right to demand that a clear question be produced. Past referenda on independence in Quebec, for instance, were dangerously confusing, inasmuch as the questions posed to the electorate not only misled many “Yes” voters into thinking that Quebec would remain inside Canada but had a high likelihood of triggering Quebec independence no matter what opinion actually was. Passing the Clarity Act, which mandated that any referendum question be a clear question, was necessary to ensure that the will of the Quebec electorate not be misinterpreted.

      The hostile reaction to the idea of a Greek referendum on the terms of the bailout wasn’t motivated primarily by concern for the well-being of the Greek electorate. Maintaining the integrity of European institutions, specifically by banishing the spectre of democratic governments undermining their own agreements by appealing to the demos, was the big concern. I do think that it ultimately served the interests of the Greek electorate: a disorderly ejection of that country from the Eurozone would have been the most likely result of the referendum.

    • In my view, respectfully, you have lost sight of what the purpose of the Bailout Mk2 agreed in Oct 2012 was. It had nothing to do with giving Greece another chance to stay in the Eurozone. And it was a major assault on the principles of a community of democratically run nations. But, judging from your comments so far, I would need to repeat two years worth of blog posts to explain this point of view to you. Naturally, I do not propose to do this. If you are interested go back to my posts of 2011. If not, c’est la vie.

    • Randy, the “referendum” was a political master stroke. Greeks were on the verge of rejecting the bailout conditions with Samaras leading the way. The referendum question brought the Euro into the equation which left Samaras with no option but to get in line. He was not going to be the one held responsible for a Greek exit from the Euro because he knew Greeks loved the Euro.

      Papandreou had him by the balls as soon as he announced a referendum.

    • Randy you say Merkel said “any referendum would be a referendum not on the terms of a Greek agreement, but rather, on Greek membership in the Eurozone.”

      The is the exact opposite of what happened.

      Papandreou’s referendum was on Eurozone membership and NOT the conditions of the “agreement/memorandum”. That was the problem with the referendum for Merkel & Greeks, it was totally stupid, it was not the question that needed to be answered, it was purely political and it was a diversion from the real problems.

      It was yet more evidence of the Greek government saying to Greeks default was not an option. When it obviously is.

    • Richard, please desist from idle talk. Papandreou called for a referendum on the October 2011 agreement and not on membership of the Eurozone. His grave error was to buckle under Merkel-Sarkozy’s pressure when they insisted that the said referendum would be, de facto, one concerning Greece’s continued membership of the Eurozone. Only then did Papandreou agreed with them that it would be de facto a referendum on the euro. His buckling then led to Venizelos dissenting, saying (correctly) that the cabinet never accepted a referendum on Greece’s membership of the euro (since Greece’s place in the Eurozone is non-negotiable and outside the referendum’s scope). Thus Papandreou’s fate was sealed.

    • I am happy to stand corrected when wrong. However, the facts are simple: Papandreou presented the Greek cabinet with a specific proposal for a referendum. While the wording was not agreed to the content was agreed: it would be a referendum about the Oct 2011 agreement as it pertained to Greece. On the strength of that Cabinet agreement, Venizelos vetoed Papandreou’s later capitulation to Merkozy, agreeing that it would also be about Euro membership. Thus Papapndreou met his doom.

    • I have to correct you, Mr. Varoufakis,

      The Finnish Finance Minister Jutta Urpilainen and the Alexander Stubb, Minister of European affairs and foreign trade said: “The situation is so tight that basically it would be a vote over their euro membership.”

      I remember that Jean-Claude Juncker said something similar. I googled a bit and found following sentence: “it comes down to the question if yes or no, Greece wants to stay as a member of the euro area or not.”

    • True. But they only got their cue from Merkozy. Once Merkozy made that point, their Finnish-Dutch-Lux simulacra began to recite the same.

    • Yiannis – You use the term Merkozy. Can you please state a source that leads you to believe their policies are the same, personally I have yet to see any evidence which backs up this nickname

    • If you cannot see that Sarkozy repeated that which Merkel said, even though he disagreed with her on almost everything, there is nothing I can do to help…

    • Flippa – what else is Junker going to say? He is in beds with the banks

    • Yiannis – “Sarkozy repeated that which Merkel said, even though he disagreed with her on almost everything, ”

      When you say “Sarkozy” are you referring to the individual or the French government?

      If you mean the latter it proves my point no?

      He agreed with Merkel in public to give an impression of unity but behind the scenes things were very different.

      That is the point I am making, behind the scenes their positions were poles apart which is why I say “Merkozy” is completely inaccurate.

      From my point of view, they can say want they want, its the actions I am worried about ergo that is what counts not the press conferences.

    • I agree. It is the actions that matter. And the only actions that are worth talking about are Sarkozy’s endorsement of catastrophic policies favoured by Merkel. The fact that he, or his government, disagreed with these policies makes no difference. It is his signature on the dotted line that matters.

    • Yiannis, I do not believe it was Merkel’s idea to put VAT on property sales, or to increase VAT, or to impose increases in fuel duty, or to reduce the minimum tax free allowance or to increase road tax, or to impose emergency taxes on business, or to force people to pay taxes on their previous years income that they had already paid income tax on, or to make VAT on food the same level as TVs, or to impose income tax according to a persons possessions and not their income etc etc. These were the ideas of the Papandreou regime.

      If Merkel/the German government did anything wrong it was supplying cash to a regime that wanted to do these things. But maybe that was just as bad as putting the ideas forward…….

    • Soon the French will lose patience with the French, the Germans with the Germans and the Italians with the Italians. This is the price that Europe will pay for its unnecessary slide into depression.

    • “The French will lose patience with the France”, ROFL! Of course I agree 100%

    • For having the stupid idea to eliminate currency competition. If we believe that competition is a good thing for goods, it needs to be a good thing for money too! The Euro is a socialists wet dream…

    • “The French are loosing patience with Greece”

      Understandably so. If one considers, for example, that Greece has since the independence from the Ottoman Empire in 1830 spent roughly half of the time in bancruptcy (it defaulted five times).

      Anyway, I lost my patience with France long ago, but who cares? 🙂

    • Sure. Only it is Germany that has had most loans written off over the past 120 years compared to all other Europeans.

    • “The French are loosing patience with Greece”

      You are such a funny little German agitator 🙂

      I guess the Greeks are loosing patience with you NED!!!

    • >>>Only it is Germany that has had most loans written
      >>>off over the past 120 years compared to all other

      Most likely not on a per capita basis. And if yes, Greece will overtake pretty soon!

    • ADear Yanis

      True, Germany defaulted on massive external debts in the 1930ies and then again after the second world war when the victors did not try to extract the full amount that they may have considered appropriate.

      Germany did, however, pay by having about 20% of it’s territory taken away, about 12 million Germans became victims of ethnic cleansing and for years what was left of German industrial production capacity was either shipped away (factories and infrastructure shipped to the victors) or the products taken off the line and taken as reparation.

      Both times, the external debt was due to devastating wars km which Germany suffered, too.

      The declarations imposed on Germany were unfair and Germany made to agree to them at gun.point.

      Those debts were not rightful.

      The situation in Greece seems different as Greece seems to land itself in default situations regularly since 1830, without it taking a major world historic disaster.

      Greece managed to default under whatever circumstances – poor, average and even great (like now, after decades of peace and prosperity).

    • I find your whitewashing of German past astonishing. In 1942 the occupying German forces forced the Greek state to provide it with a ‘loan’ worth 54% of the country’s GDP. In today’s terms, that sum is well over 100 billion. Add to this interest, and a huge number emerges. That forced loan was never repaid, courtesy of US pressure to relieve Germany of its wartime debts. In addition, Germany only paid a tiny portion of the costs of repairing the infrastructure that was destroyed by the Wermacht. As for the reparations for the tens of thousands of deaths (not to mention the starvation of a nation), Germany paid precisely nothing. The fact that it lost some territory to Poland is immaterial to the people of Greece. What matters to them, and I think ought to matter to all those interested in historical truth, is that Germany was allowed, in 1953, to write off all these debts; debts that were not the result of a voluntary transaction with a free people but debts extracted from blood and pain unwillingly. To turn around and suggest that Greece has a worse record than Germany in terms of debt defaults is to add insult to injury. Personally, I wish we stopped the practice of pointing fingers at one another, realising that the current Crisis will leave no winners standing. But when I read drivel about Greece’s default history, coupled with a whitewashing of Germany’s default history, I have no alternative but to put things right.

    • @all – Does anyone think the second world war has anything to do with the current situation with the Greek government? If so, how? At the moment I do not see any connection, maybe I am missing something?

    • Martin, as I have said many times before on this blog, it takes real determination and ingenuity to get a government in such financial difficulties given the massive geographical resources at its disposal.

    • My Samsung “smart” phone is driving me crazy: the unfairness of reparations mentioned referred to WW I.

      What happened to Germany after WW II was harsh but not unreasonable.

      Still, it was not a normal default.

    • “Is this what Europe has come to? Inane comparisons of that sort?”

      Are you aware that you yourself started this comparison?

    • What do we see again and again from this nation is lack of liberalism. There is only ONE VOICE coming out of Germany. No to wonder where we are heading again .
      Germany will hit the wall again with all of Europe following.

    • Dear Yanis
      I don’t mean to whitewash German Nazi history.

      I just wanted to add that Germany’s default was of a slightly different nature as it was in close connection with WW II.

      That does not exactly make it better than a ‘normal’ default, but it is different.

      And yes, Greece may well not have received as compensation what it should have. But Germany nevertheless paid a huge price for it’s crimes (about 6 million people dead, 20% of territory taken off, 12 million people subjected to ethnic cleansing, reparations (maybe not enough but they surely hurt), infrastructure, industry and housing to some extent destroyed.
      This does not mean that Greece benefited from it but Germany did not just ‘default for fun’.

      I just think the two scenarios (Germany after the war and Greece defaulting in times of peace and prosperity) are different.

      But I agree that finger pointing is wrong and I am sorry if my statement comes over as that.

      I guess I am just a bit sick of basically still being beaten up about WW II.

    • @ Martin “I guess I am just a bit sick of basically still being beaten up about WW II.”

      It is funny though that you had no problem when Very Serious Sam started this discussion by going back to the Greek 1830s and that you only replied to Yanis´ comment on the German “past 120 years.” (still I cannot understand why you felt beaten up about WWII… Who mentioned WWII before you brought this up?)

      This is why Yanis question “Is this what Europe has come to? Inane comparisons of that sort?” should all make us think. And by all, I mean all committed Europeans.

    • The root cause of all the anger is the transfer of liability from the creditors to the tax payers. The creditors need to lose their investment.

      I lost a lot of money with stocks in OPAP and NBG. I have no hard feelings. It was my decision. But if I have to pay tax only 10% of my OPAP losses to fund a failed state, I get freaking angry.

    • @European Decadent

      I am a committed european! I am just not committed that I and my children, and future generations of Germans fund the livestyles of fellow europeans, no matter if they are committed ones or not.

  • I will ask this again: Would the modest proposol work if Germany, Holland and Finnland exited the Eurozone?

    • It would, by definition, not work in terms of saving the… Eurozone. But it would work in terms of solidifying any currency union that adopts it (e.g. a new currency union involving France, Italy, Spain etc.)

    • That is good news. I do not think the route of inflating German wages by 20% would work as many suggest implicitly or directly. In order for the “iflate Germante” scenario to work, the Germans would need to spend this money instead of saving it. This is totally against German mentality.

    • “In order for the “iflate Germante” scenario to work, the Germans would need to spend this money instead of saving it”

      If I’d get a 20% net salary increase, I would spend it pronto to buy a Porsche, of course I’d have to trade in my Audi alsol 🙂

    • How many Porsches does one need… I really would not know on what to spend the 20% other than travel, eating out and investing. So most of it would flow outside the Eurozone.

    • “How many Porsches does one need…”

      Need? None, of course. It is a matter of a) to want one and b) able to afford one.

      Which closes the circle: live within one’s means, not on loans. This simple truth applies most of all to individuals, to a lesser extend to companies, and partially also to nations.

    • Then it would be a good idea to implement it after the North exits the soft Draghi Euro.

  • ECB Chief Draghi Being Investigated for Membership in the Group of Thirty

    It’s easy for Americans to labor under the delusion that other parts of the the world have less obvious forms of corruption or its milder form, conflict of interest, than our revolving door system (one of my favorites was when the NY Fed staffer tasked to overseeing AIG left….to AIG).

    And ex banking, that actually is true in most advanced economies. But as a reminder of how backs get scratched in Europe, we have Mario Draghi. The former head of the Bank of Italy, now ECB chairman, was responsible for European operations for Goldman from 2002 to 2005, and predictably has no memory of the currency swaps deal that enabled Greece to camouflage the size of its budget deficit.

    The new contretemps involves his membership in the Group of Thirty (aka G30), which despite its grand claims, is a bank lobbying group, even as he is serving as the head of the ECB. An alert reader pointed me to the story in Der Spiegel (German version only) and Google translate does a serviceable job.

    The inquiry was set in motion by Corporate Observatory Europe, which is an anti-lobbying group. From a recent article on its website:

    Industry experts and corporate lobbyists have effectively captured key areas of policy advice within the European Commission, according to new research carried out by the Alliance for Lobbying Transparency and Ethics Regulation (ALTER-EU) which finds that two thirds of DG Enterprise and Industry’s advisory groups are dominated by corporate representatives.

    The Der Spiegel piece provides an overview of the G30 and highlights that bank executives play prominent roles. Per the Google translation:

    The International Banking Seminar of the Group of Thirty (G30) is held every year to coincide with the fall meeting of the International Monetary Fund (IMF) and World Bank, and is accessible only to selected visitors. Behind the G30 hides a group of leading bankers and economists who wish to make claims to influence decisions in the financial sector. Prominent members include senior representatives of Goldman Sachs, Morgan Stanley and JPMorgan Chase International and former and current heads of central banks.

    The original complaint contended that given the ECB’s role in bank regulation, having anyone in an executive capacity, let alone its chief, represented a serious conflict of interest. The EU Ombudsman thinks the charge has enough meat to warrant an investigation:

    The EU Ombudsman Nikiforos Diamandouros has instituted investigations against Draghi and sent to the Central Bank a mandatory questionnaire. Up to 31 October, the ECB will announce how they rated Draghi’s role in the G30 and whether it includes in its membership a conflict of interest.

    The European Ombudsman investigates complaints against EU institutions, which can be introduced both by citizens and organizations. For the procedure caused a stir recently with the European Food Safety Authority (EFSA). Thus, the Ombudsman has asked the EFSA in December 2011 to strengthen its rules and procedures to prevent conflicts of interest.

    So it appears that the EU Obudsman has been able to get some changes put in place, albeit at less powerful organizations. And the charge certainly looks valid.

    Draghi should not be involved with the G30 while he is active at the ECB. And if the EU Obudsman does find Draghi’s membership to be a conflict of interest, that has to be just as true for the other EU central bankers that are current participants.

    And please, don’t try insulting the readership’s intelligence by arguing in comments that membership in the G30 is valuable to Draghi because he gets “information”. As a central banker, he can practice proctology on banks. He doesn’t need to be chatted up over caviar and champagne to get the intelligence he needs to do his job. If you don’t think the G30 is in the business of representing specific interests, I have a bridge I’d like to sell you. While this would be only one small step, it would still be gratifying to see pushback against the overly cozy relationship between central bankers and the banks they supposedly regulate

    • Fotis – thank you for the comment, another hammer blow to the delusion that central banks are somehow “neutral” and not private businesses whose job it is to make money on the backs of taxpayers through government debt.

  • Your solutions are to difficult my dear professor.

    *Replace in a “difficult area” the ATM’s (Bankomat) for high quality printers. The ATM/printer will NOT print euro’s with stupid bridges and buildings that doesn’t exist but ONLY Euro’s with a local print.
    *These Euro’s are only valuable in a specific area.
    *Local taxes are paid in this area with this kind of Euro’s.
    *Public workers are partly paid with this Euro’s
    *Every public worker who killed a part of the bureaucracy gets a bonus.
    So far so good.

    *If the economic is going well these Euro’s can be chanced for “real” Euro’s.
    *With one mouse click you can give every household X Euro.

    You must solve this problem in the same way like a black-out. Start the power stations one by one.
    Live can be so easy… you are thinking to big…
    What do you think of my proposal professor?

    My English is real, real poor. Sorry.

  • Prof. Varoufakis, what’s your opinion on changing the ECB mandate from price stability to NGDP level targeting? In general, do you belief in “pushing on a string”-liquidity traps or do you think the ECB could push up AD by raising inflation expectations?

    If we look at Japan: they didn’t do fiscal austerity and ended up in stagnation nonetheless. Don’t we need some inflation?

    Great blog, great book (“The Global Minotaur”), keep up the good work!

    • If you offically change the ECB mandate Germany, Holland and Finnland will have to exit.

    • Pedro is absolutely right. Inflation is not acceptable in Holland. The Dutch are saving there money at the moment and our (private) pension-funds owns more 800 billion Euro. (more money than the ESM) By the way, Europe wants to get influence in those funds. That is one of the reasons why the Dutch are getting more and more eurosceptic. And they don’t want to lose their money in inflation. Holland will leave the Eurozone.

      Maybe you can translate this with Google:


    • If Germany would exit, you didn’t have to devalue 🙂 In this case, Germany itself would need a devaluation of its new “Übermark”! If not, chances are the Germans would end up like the Japanese. No growth, no children, exploding government debt…

    • martin, Holland

      You can’t save in money. Money is the medium of exchange. It has no inherent value. Trying to save in money is the ultimate bubble! If you want real savings, you have to find real investments.

      Now, if you have a sound investment, higher inflation won’t be a problem. Interest rates will rise, stocks will rise, real estate will rise, which is all good for savers.

    • LIbertaer – “Money is the medium of exchange. It has no inherent value. ” – This is an utter contradiction. Something can only be a medium of exchange if it has value. Why would a fisherman except something worthless in exchange for a fish for example.

    • You just need to follow the amount of anti EU anti Euro items being sold on ebay over time. You will get a pretty good feeling that we (the Dutch/Germans) have had enough.

    • Dear libertaer, stocks and real estate are a bit not done in our culture.

      “Dit betekent dat er per inwoner (inclusief kinderen) gemiddeld ruim 20.000 euro is gespaard en per huishouden ruim 46.000 euro.”

      Per capita, including children over $ 20,000 is saved. Per household more than 46,000 euros. They are the voters and will not allowed inflation.

    • martin, Holland

      I’m not sure about the dutch, but in case of a breakup (Spain exits, maybe even Italy) the germans will loose money big time. A little bit of inflation doesn’t hurt if you compare it to the alternatives.

      I wrote “inherent value”. Money has value in its function as a medium of exchange. Apart from that, fiat money has no value. On a desert island the guy who “saved” in money would have nothing, the guy who saved in real investments, let’s say solar power, would have a nice energy source.
      “Saving” in money is the dumbest bubble of them all, because every other bubble has at least a small chance of being a good investment. But if you “save” in money, there is no investment, you are just hoarding paper or bits and bytes, that’s not real saving at all.

    • LIbertaer – You say “Money has value in its function as a medium of exchange” and you also say “But if you “save” in money, there is no investment, you are just hoarding paper or bits and bytes, that’s not real saving at all.”

      Im not sure if you aware of the contradiction? Either money has value or it does not. If you cant use it, you save it so someone else can use it, that is why you get a return on your investment/interest on your savings. Getting a return or interest IS an investment.

      Im not sure if you understand what is supposed to happen when you put your money in the bank or in the stock market or in bonds etc etc. Your “savings” get used by other people. That can only happen if it has value.

    • Richard

      For economists saving is investing. People on the street use the word “saving” in a different sense. Often they think that putting their money under the mattress is “saving”. But it’s not, it’s just hoarding the medium of exchange. Now, what is investing? It’s buying goods which lose value more slowly than consumptions goods (it’s a gradual distinction), so that you can sell them at a later date. Money is just the medium to buy and sell, it’s not the investment good itself. An investment good would be housing, machinery, stocks…

      Let’s say you are a hair dresser, producing and selling consumptions goods (haircuts) and you want to save for a rainy day. In this case you exchange some of your consumption goods for investment goods. You sell hair cuts and buy stocks. Hair cuts have value, stocks have value, but money is just a nice trick to facilitate the exchange. It has no inherent value. If not, we could just print us rich. If I print every European one billion euros, the main effect would be rising prices, not value creation, right?

      Now, in normal times, if you lend your money to a bank, they will lend to someone else, who will buy an investment good. Today they are not doing this. Why? Because there is an excess demand for safe investments. The real interest rate is still to high to bring lending and borrowing into equilibrium even though nominal interest rates are already near zero. Since negative nominal interest rates are hard to sell (although government bonds in Denmark and Germany already have them), the best thing to do is create inflation expectations. Then real interest rates can fall to a market clearing level, bringing lenders and borrowers together again.
      Central banks have to pop the money bubble. To do this they have to raise their inflation target or better they should level target NGDP.

    • libertaer – forgive me, your close but you do not quite have a full understanding. –

      “Now, what is investing? It’s buying goods which lose value more slowly than consumptions goods (it’s a gradual distinction), so that you can sell them at a later date. ” – Investment is so you get more back than what you put in originally, you do not invest to lose money.

      Your not understanding this “Let’s say you are a hair dresser, producing and selling consumptions goods (haircuts) and you want to save for a rainy day. In this case you exchange some of your consumption goods for investment goods. You sell hair cuts and buy stocks. Hair cuts have value, stocks have value, but money is just a nice trick to facilitate the exchange. It has no inherent value. ” you seem to think that money only has value if you spend it. Okay you are right. But do you accept, that you can spend it in a month or in 10 years and you can still get your value back? (Reduced buying power or not). If you understand this point then you must realise money is a store of value, even if it is bits of paper under the mattress. As long you can spend that paper when you choose, that is what counts. You need to get passed what money is made out of whether it is paper or bit coins. The important thing is that whatever money is defined in is in finite supply, eg bitcoins.

      ” the best thing to do is create inflation expectations. Then real interest rates can fall to a market clearing level, bringing lenders and borrowers together again. Central banks have to pop the money bubble. To do this they have to raise their inflation target or better they should level target NGDP.” – You have this exactly wrong, if inflation increases then so does interest rates. At least in the case of government debt.

      “If not, we could just print us rich. If I print every European one billion euros, the main effect would be rising prices, not value creation, right?” – Right

    • Richard, you said:
      “Investment is so you get more back than what you put in originally, you do not invest to lose money.”

      Why not? If you sell haircuts to get stocks, it’s up to the market to decide, how much haircuts are equal to how much stocks. It could be that you sell 100 haircuts to buy stocks, which -after ten years-can be sold at 200 haircuts, but there is no holy law that prohibits that you have to sell them for 50 haircuts. And if that’s the only investement good you can get – because of a shortage of safe investments – and if 50 haircuts in ten years are better than nothing, you will invest although you lose money, right?

      “But do you accept, that you can spend it in a month or in 10 years and you can still get your value back? (Reduced buying power or not).”

      No, I don’t accept that, because there is no law that promise you to sell to you one haircut in ten years for every haircut you are selling now. It could be more or it could be less. If there is a shortage of hairdresser in ten years then a haircut in ten years will have a higher value then a haircut today.
      (“get your value back… reduced buying power or not.” What does that even mean? If your buying power get reduced, you don’t get your value back. I’m talking here about real value, not nominal value.)

      “The important thing is that whatever money is defined in is in finite supply, eg bitcoins.” Infinities are hard to handle. But let’s say someone would triple the money supply. What would happen in the long run? Prices would triple, that’s it.
      Money is like words, apart from their value as a medium of communication (exchange), they have no inherent value, they just represent value. “Money illusion” takes representations of value for value itself. Instead of saving by getting investment goods, people “save” by hoarding pictures of investment goods. The dumbest bubble of them all.

      “You have this exactly wrong, if inflation increases then so does interest rates. At least in the case of government debt.”

      Nominal rates increase, but I’m talking about the real interest rate. Let’s say inflation is at 5%. Even 3% on ten-year-bonds (double of todays rate in USA, Uk, Germany…) will give you a negative real interest rate of -2%.

    • libertaer – you sound like someone from the Venus Project! Let me put it another way.

      You say – “But let’s say someone would triple the money supply. What would happen in the long run? Prices would triple, that’s it. ” – We already covered this and I agreed with you.

      You say – “Nominal rates increase, but I’m talking about the real interest rate. Let’s say inflation is at 5%. Even 3% on ten-year-bonds (double of todays rate in USA, Uk, Germany…) will give you a negative real interest rate of -2%.” – I agree but we were talking about inflation’s effect on interest rates. Inflation goes up so does interest rates. High interest rates kill inflation.

      Anyway, lets get back to the core issue. You say – “Instead of saving by getting investment goods, people “save” by hoarding pictures of investment goods.” – so you recognize that money has value so you can buy something?

      And if so, how long do you think the money is valid for? Your points is implying money has an expiration date. When is it?

    • Richard

      “Anyway, lets get back to the core issue. You say – “Instead of saving by getting investment goods, people “save” by hoarding pictures of investment goods.” – so you recognize that money has value so you can buy something?

      And if so, how long do you think the money is valid for? Your points is implying money has an expiration date. When is it?”

      At an inflation target of 2% roughly 80% of your money is gone after 80 years. If people -because of a lack of safe investment goods- misuse the medium of exchange by hoarding it, the central bank should aim at a higher target. If they target 5% inflation per year 80% of your money is gone in 30 years. This will force some people to go into more risky investment, others will buy safe investments with a negative real return and yet others will stop saving and consume more, which is all good. Everything is better than hoarding pieces of paper, right?

      What the hell is the Venus project? I’m into Mars 🙂

    • libertaer – ignoring inflation, lets assume the person with the money does not care. You acknowledge that money has a value that can buy things right?

    • Richard, you asked:
      “You acknowledge that money has a value that can buy things right?”

      Yes, you can use money to buy things. Who would disagree here? What I’m saying is, money has no inherent value, it’s not an investmend good. The only value it has, comes from the fact that in complex economies we can’t barter, so we need a medium of exchange.
      Think of money as a wheelbarrow whick can be loaded with diamonds or gold. In this case the value of the wheelbarrow is negligible. The load it carries makes it valuable. No load=no value. If you unload a wheelbarrow full of diamonds (sell haircuts), you have to put in a new load (stocks), to conserve the value you own. If you say: “No thanks, keep your stocks, i’ll just hoard a lot of empty wheelbarrows”, you are making a big mistake. Wheelbarrows are only for transportation, they are not valuable inthemselves (inherent).
      That’s why central banks have to create inflation to remind people that they are misusing their wheelbarrows. Bernanke or Draghi should do this:

    • libertaer – “You acknowledge that money has a value that can buy things right?” Yes, you can use money to buy things. Who would disagree here? – Okay, so you agree you can put it in the bank and then take it out a week later to buy something right?

  • have checked in here first time for some month and really have to say: wow!…someone still hasnt understood anything at all…either its me or someone else.

  • Yiannis, thanks for your analysis.

    (Maybe I missed it on earlier posts?)
    I am no expert, but I am starting to think that the current situation is what “they” want to happen, and to use it to reduce all social contracts within complete europe (not only greece and spain). It is kind of similar as (I think) what mr M Hudson is telling that the aim of Obama is to reduce the wage for 30% (see here
    Or similar as what was mentioned in old interview with mr goldschmid ( (Gatt, free trade etc destroying society…)

    Maybe I am to pessimistic, but how sure are you that they want to solve the problems? And than especially ‘proper solutions’ (like yours)??

    Best Regards

    ps maybe a solution is (ok it is really very radical), why don’t you (Greece) nationalise some properties of the foreign companies (like Argentina), and “privatise it back” to the original owner for a lot of money…so to reduce your debt…

    • I am strongly convinced that you are right, ignace. One central problem of the Eurozone, according to many economists, have been falling wages in Germany during the last decade. That’s what made the great German “Exportwunder” possible, but led to current account deficits in many other european countries. Corporate Germany, however, will never allow wages to increase in Germany. Thomas Mayer, back then chief economist at Deutsche Bank, explained at the peak of the crisis 2009, answering demands to curb the current account surpluses: “We worked very hard to convert Germany into one of the most competitive economies of world, and we won’t allow that to be destroyed now.”
      If Germany doesn’t want to leave the Eurozone, which it doesn’t, because its currency would explode, the only way to curb its surpluses against southern European countries is to reduce wages there radically. And that’s what the German policy is up to right now.

    • Hans, wait a few months. The percentage of Germans wanting to leave the Eurozone has increased steadily. As soon as some people feel that socialist central planning hurts them, you will see a revolution like the one in East Germany.

    • “As soon as some people feel that socialist central planning hurts them, you will see a revolution like the one in East Germany.”

      Hope so. The sooner, the better.

    • Pedro

      If Germans have a revolution like that in East Germany, does that mean they will all try to cross the border into France?

      LOL, you guys are just clueless.

    • I am not sure if it will be pretty this time. There is so much hate. Yesterday someone in a bus started bitching about Greece. Soon the whole bus was mumbling and bitching against Spain etc..

      The Euro brings peace and prosperity to europe was what the ccentral planners in Brussels said….

    • @ No EU dictatorship

      I am increasingly disgusted by my fellow countrymen, I dare say. The hate these simple workmen adn clerks feel should rather turn against their exploiters and their government. I.e. the people accountable for their low wages and lowered pension expectiations. It has always been a technique used by capital to turn popular wrath against minorities or other nations as scapegoats. It obviously still works perfectly. People read the bild-Zeitung and think the Greek or Spaniards are responsible for the desaster. It’s a shame.

    • Hans, this is what the Euro took from them. when we had a better currency in Germany then the rest around us. the simple people benefitted because their money was worth more and more every year. –> Cheaper imports & vacation. Schiller called this the social dividend.

      Nowadays these simple people have to pay for the tax breaks of the rich Southeners. It is disgusting.

    • @ No EU dictatorship
      “Yesterday someone in a bus started bitching about Greece. Soon the whole bus was mumbling and bitching against Spain etc..”
      Please tell me.. It was you who started bitching, wasn’t it? I’m just kidding, don’t take it seriously.. 😛

    • Eχει γεμισει ηλίθιους εδω μεσα και εχω βαρεθει να διαβαζω τις κοτσάνες που αμολάνε οι ξενερωτοι εταίροι της ευρωζώνης!

      Θα κανω κανα μπανακι να ξεδωσω και ο θεος να μας προστατεύει από τοιουτους.

  • Since 10 am we are shooting back: Weidmann: We (Bundesbank) are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks in the Eurosystem.

    • Are you an employee of the Bundesbank, Pedro? If so, then you are engaging in propaganda and it is probably unlawful for you to do so. If not, then the “we” is obviously delusional.

    • Guest – “then you are engaging in propaganda and it is probably unlawful for you to do so” – there is nothing unlawful about propaganda in any country. Also propaganda can only come from government, from anyone else it is called advertising.

    • Weidmann can say whatever he wants, it does’t matter. Because the ClubMed has the majority in the ECB council. Incredibly enough, Cyprus, Greece and so on have as much voting power as Germany, France, Austria…. Talk about democracy, about one man, one vote.

    • We (the German people) against the robbery the ECB and EU is conducting to tranfer our wealth to the South.
      But now that the ECB is publically saying that it plans to break the law again and inflate the Ikarus (Euro), the will be the most hated institution in Germany very soon.

      “And with that the open warfare between the ECB and Germany will begin. The only question remaining is does Draghi, even if he is truly merely a figurehead for Goldman, really want to launch all out war against Germany? ”

    • @VSS
      Again your “one man, one vote” rhetoric. Do you had Milosevic’s (and all other favorite heroes of you with the same ideas) picture hanging from your wall? Past teaches you absolutely nothing?

    • @Richard

      I doubt very much that central banks are legally entitled to engage in anonymous internet propaganda. If they are, then this is yet another area that requires legal regulation.

      And propaganda is not confined to the state at all. Do you think your command of English is superior to mine? I do not even have to consult a dictionary to inform you that propaganda is the systematic dissemination of false or misleading information by any organisation, which seeks to disinform the public in an organised fashion in order to gain advantage.

    • People don’t exclusively associate propaganda with government? I personally cannot recall it ever being used to describe anything that was not connected to government. Feel free to point out any media article where the press describes the PR/ad campaign of a private firm as propaganda.

      “I doubt very much that central banks are legally entitled to engage in anonymous internet propaganda” – how is anyone going to judge if the theme of propaganda is correct or not? Also there are still some remnants of freedom in the world which means you can say what you want as long as it is not libelous/slanderous, defamatory, unfortunately governments are moving towards policing “dishonesty” on the internet but I do not think we are there yet, thankfully (print and TV are already neutered) .


      Stop projecting and cheap (and hopeless) attempts of insults. Start explaining why for you one man’s vote is worth more than another man’s.

      Unless you can convincingly do so, everybody knows you are a fan of selected ‘superiority’. Or Herrenrassenanhänger.


      If Yugoslavia teaches you anything than it should be that we have to avoid a Euroslavia. Do not force different countries together that do not belong together.

      The only wars we had in Europe in the last 50 years was in areas where countries were forced in a supra national state and use the same currency.

    • @VSS

      yet again you show your ignorance of how Europe works. Voting in the Council of Ministers is not one vote per country, but is weighted with a rough approximation to GDP and population size. Of course, it is theoretically possible for a small country to try to veto something, but rarely do they even contemplate this…

    • @NED
      The problem with Jugoslavija was NOT that is was a collection of countries that “do not belong together”. Of course they did and of course they do. The problem (as is also today) is that one part (Serbia then) tries to dominate over the other constituent parts using rhetoric of the form “one man one vote” and other actions to undermine the sovereignty of the other parts.
      And as usual, EU instead of trying to fix the problem, was standing for 4 years and looking at the bloodbath. The same it does now. Instead of trying to resolve the actual problem, it creates more and more (it’s very annoying actually: EU and Ger pointing the finger always to Gr and especially for “not doing enough to resolve the crisis”. What Ger and EU did to resolve the European crisis besides taking action that deepen the crisis?).
      All I was pointing out to VSS is that this kind of rhetoric is not new and we all saw the results and we should be rather careful.
      Oh, and please do not confuse “democracy” with “pluralism”.

    • Hey dean, how many medals at the Olympics in London so far? Sorry could not resist!

    • Dear ΤΟΥΡΙΣΤΑΣ

      You wrote: “The problem with Jugoslavija was NOT that is was a collection of countries that “do not belong together”. Of course they did and of course they do. The problem (as is also today) is that one part (Serbia then) tries to dominate over the other constituent parts …”

      It is up to you to have your own personal opinion on this. But to state that the countries that made up Yugoslavia “belong together” is courageous in my eyes. Maybe consult Slovenia, Croatia, Kosovo, Macedonia and Montenegro first? After all it is up to them if they want to be in one country with Serbia. Looks like they did not want that – so who are you to say “they belong together”?

      I think there is a number of ways how to read what happened in Yugoslavia and what to learn from that with regards to the EU.
      First of all, I am maybe a hopeless optimist, but I refuse to believe that Yugoslavia resembles too much the EU or the Eurozone.

      If you saw it as reasonably similar and interpret everything as being about “dominance”, then you could of course see Germany as Serbia and take that as another argument for seeing Germany as evil and the root of all problems.

      Obviously, that is how you see it.

      But that is not the only way to see it.

      I think what you can learn from Yugoslavia is that in any kind of union of nations / countries / peoples, the members need to WANT to be a part of it in order for the union to be stable.

      Slovenia and Croatia did not want to be a part of Yugoslavia and that was the end of it, prolonged by a cruel war that the Serbian-controlled army of Yugoslavia fought against the parts that wanted to leave.

      Whatever you think about if they “belong together”- they did not think so. If there was ever any realistic chance of keeping Yugoslavia together, it would have been by making it a more federal country where e.g. Croatia and Slovenia would have had more say and enjoyed a high degree of autonomy. But Serbia tried the other option: Try to centralize power, less autonomy to the individual parts of Yugoslavia and use force if necessary to hold the think together against the will of the people.

      This was cruel, unsuccessful and ugly.

      If you insist seeing similarities / learn lessons from Yugoslavia that are helpful for the EU / the Eurozone, maybe learn from that instead?

      So if there is tension in the system, forcing something together where the individual parts are not actually so convinced they belong together will not work long-term.
      It will only work if the individual parts see it as beneficial. But at the moment, Greece probably does not see its membership within the EU and the Eurozone as too beneficial, at least judging from some of the comments in the blog. And Germany is not willing to use force to keep Greece in the union nor is is willing to commit infinite resources to keeping it in. If Greece wants to go or is unwilling or unable to follow the rules that are the precondition for its membership, then it is free to go. That was exactly not the case in Yugoslavia: Serbia wanted to hold it together by force.

      By the way: Serbia benefitted from the union of Yugoslavia in that wealthier parts (Slovenia and Croatia) contributed to the big pot and so Serbia (which was relatively a little less developed) had an incentive to keep Slovenia and Croatia in.

      Not the case with Germany and Greece.

      I think Yugoslavia is not a good anology. I am happy about that – and so should you!

    • ΤΟΥΡΙΣΤΑΣ, when is Greece going to do something to fix ITS problem.

      Ten years ago Greeks blamed the Americans for all problems Greece had, now you blame the Germans, who is next? The Australian Aborigines? – No it will be the Chinese, because they work harder.

    • @MARTIN
      first of all, I think I have better opinion than you since I am partly Jugoslav myself and spend a reasonable amount of my life there (doesn’t matter where)
      Second: all the constituent parts of Jugoslavia (with the exception maybe of Slovenija) wanted to be part of Jugoslavia as it was since 1980. They did not want to be part of “velika Srbija” and when they saw that this was the plan of their neighborhoods, they decided that it was better for them to get out.
      Third: I have consulted many people from Croatia, Bosnia and even Serbia. You might be surprised of how many people are nostalgic of the Jugoslav era.
      It is simple: people wanted and still want to leave together (the majority of them: of course there are some ultra nationalists still especially in Croatia and the Serb controlled part of Bosnia). But ask the normal people and you might be surpised by their answers.

      As for the case of who benefited, I just found this article (which was published in Bildt originaly-sorry, I cannot find the original)—–&catid=42:2009-07-19-21-26-12&Itemid=76

      which states that the short term benefits of the German economy are well above 100bln euroes. Is not comparable of what you say (which I fully agree-even the huge highway connecting Beograd with Zagreb was financed by Bosnian republic which was also wealthier at that time that Serbia).

      Also, I think you know very well the answer of who benefited more from the introduction of Euro currency. Greece or Germany?

      Moreover, the point of my comment was to point out the similarities in the rhetoric of people like VSS to the rhetoric of people in particular from Serbia prior to the bloodbath, when EU (as today) was sitting observing the situation…

    • “how many medals at the Olympics in London so far?”

      Two bronce as of now. However, at least they had a good time there in Londeon. Greece of all nations rented the by far most expensive meeting location, the Carlton Club.

      You know what makes me angry? During the preparation for the Olympics, there wasn’t enough money to train the Greek athletes optimal. So the rather low number of medals is not their fault.

      But the Greek ‘elites’, again, looked for their own well-bing, this time the NOC.

      I have the increasing feeling that there are no real elites in Greece anymore. Just a huge irrsponsibly selfish number of cleptocrats in sports, economy, politics…

      it is high on time the Greeks get rid of this structures. They should revolt, and accept it takes the blood of some of these ‘elites’ to achieve changes.

    • Dear Τουρίστας

      I am sorry to hear that Germany apparently benefitted loads from the break-up of Yugoslavia.
      I am not sure what to make of all this hostility towards Germany, seeing German evil plan behind everything bad that happened or happened. As a rule of thumb: We are to blame for WW II (and all the horrors that included). Which is bad enough.
      We are NOT to blame for other stuff by default as seems to be the consensus here.

    • We benefitted immensly from all the people who sought asylum in Germany during the Balkan war…. They cost a lot of money and imported crime…

      Some of the Christians stayed. Today they are a valuable part of the labor force.

  • @Very Serious Sam, Martin
    6 Defaults vs WWI, WWII, atrocities, bloodbath, genocide etc. It is indeed a difficult choice for what past history I would prefer.

    • Dear Patrick
      If I could change the past, I would certainly work hard on the period 1914-1945.

      Unfortunately, that’s not possible.

      Defaulting six times since 1830 or Germany’s terrible past would be an easy choice.

      I’d choose multiple default without genocide, destruction.

      I just feel Germany’s past is bad enough as it is, without putting it on one level with Greece in terms of defaults on debt on top of everything else.

      In a way this comparison is silly and I am sorry I got into it.

      As bad as Greece’s current situation is, it luckily represents a whole different level of human suffering than WW II.

      By the way: any ideas,by anybody regarding the proposal I posted the link to a few hours ago?

      It resembles the modest proposal in some respects, I would expect it to be met with some curiosity.
      It’s from a German economic think tank so could be sold to the German public as a German idea but seems based on Tania’ ideas.

  • Dear Yanis
    There is a proposal currently being discussed in Germany that has some similarity with your “modest proposal”.

    It has been drafted by the “Sachverständigenrat für Wirtschaft” (body of economic advisors, a pretty influential think tank in Germany).
    Until now, it was only available in German.
    But now, it is available in English, too.
    I would honestly be very interested in understanding your opinion about this proposal:

    This is something that’s coming out of the German economics establishment – and maybe a possible solution?

    What do you think?

    • Martin:

      Thank you for this very interesting post

      Page 9 especially makes quite a fascinating reading:

      “German claims on other Euro area member states (end of 2011) – Source: Deutsche Bundesbank” – Total in Euro Billions

      It is simply mind-boggling how Luxembourg, one of the smallest countries in Europe, ranking 170th in size of all the 194 independent countries of the world and with a population of 512,353 (as of February 2011) tops the chart with a staggering 585 Billion Euros, surpassing even France – 560 Billion Euros and the Netherlands – 418,6 Billion Euros.

      Surely it is no coincidence that Luxembourg’s Prime Minister Jean-Claude Juncker is also President of the Euro Group, the political control over the euro currency, since the creation of a semi-permanent position in 2005.

      Concern about Luxembourg’s banking secrecy laws, and its reputation as a tax haven, led in April 2009 to it being added to a “grey list” of nations with questionable banking arrangements by the G20: in March 2010, the Sunday Telegraph reported that most of Kim Jong-Il’s $4bn in secret accounts is in Luxembourg banks.

    • Dear Fotis

      I found those numbers quite striking, too.
      I guess that it must have to do with Luxembourg’s huge finance industry.
      Possibly, all assets such as investment funds that are domiciled in Luxembourg (even if owned by a German bank’s subsidiary in Luxembourg) that are owned by Germany fall in this category?

      Anyway, an astonishing number.

      The number for Greece is remarkably small, by the way.

      I am intrigued to see what people in this blog think about the actual proposal. Maybe some will have a look – might be worth it.

    • Martin:

      You are quite right about Luxembourg’s huge financial industry –

      it is the world’s second largest investment fund center after the United States, the most important private banking center in the Eurozone and Europe’s leading center for reinsurance companies.

      The Grand Duchy of Luxembourg also has the privilege of being recently called King of Space by Le nouvel Observateur magazine, whose latest issue dedicates an article to Luxembourg-based SES Astra communications group, in which the state of Luxembourg and two major public financial institutions are significant shareholders.

      Astra owns 51 satellites – a 16 Billion Euro outlay – and enjoys a virtual monopoly in the sector beaming 6,200 television and radio channels to 258 million households globally, of which 142 million are in Europe alone.

      Or in the words of Ferdinand Kayser, Astra’ s interviewed head:

      “Les gouvernements européens croyaient qu’ils pouvaient continuer à contrôler leurs médias. C’était une grande erreur…” – “European governments thought they could continue to control their media. It was a big mistake…”

      I would be most interested in knowing whether Mr. Joaquín Almunia, current European Commissioner for Competition, is aware of the above development and the response he would have given to the above quote.

    • Dear Fotis

      Luxembourg certainly has benefitted a lot from the way the EU has worked so far, so no wonder Mr. Juncker is trying everything to hold the Eurozone together – and not hurt the banks too much as otherwise, not quite so many people in Luxembourg would be able to afford their ridiculously huge SUVs, etc.

      I still find it astonishing that you are the only person who has commented on the document I sent the link to on August 1st:

      In my eyes this proposal is very interesting – not least because it strikes me as a variation of Yanis’ ideas and because it may actually form the basis for some major solution to the Euro-crisis. It also seems to me to be an interesting analysis of the crisis, contains relevant statistics and proves that there is not only “one voice” coming out of Germany as I read in one comment, seeing (again) some similarity between Germany now and in Nazi times. There are loads of voices – but one needs to listen and bother to read the stuff, even if it does not fit the stereotypes. But I guess that would not be as much fun as e.g. discussing about some stupidity that tabloids write.

  • Basically to cut all the unecessary talk and analysis etc..Greece and Spain are being used as laboratory experiments. The aim is to cause purposeful genocide as money-based mania driven economies have no place for ethos, ethics, values, people voicing their rights and true human values. Greece and Spain are the last nations to preserve their cultural and family ties and it is precisely this which the arrogant fake cultures of northern Europe want to acheive. In Spain the scenario which will unfold is even more firghtening as the system wants to purposefully break down the autonomous regions and disintegrate Spain into bloody civil war. Wake up there are little children and pensioners literally falling down dead in the streets of Athens from starvation. If you don´t believ me, then go and take a look for yourselves. And all this rubbish you are all talking about here does nothing to shun away this shocking fact. Are starving children anywhere in the world especially in Europe the price we have to pay in order to pay back the criminals “the banks” who created this mess in the first place. And yes Germany does have blood on its hands for the third time in its history. What is happening in Greece is purposeful genocide. Wake up all of you!!

    • Victor – Im not counting out the theory. But when you refer to “Germany” who do you mean? The politicians, the banks, the industry, the people? Who exactly?

    • @Richard: “Victor – Im not counting out the theory. But when you refer to “Germany” who do you mean? The politicians, the banks, the industry, the people? Who exactly?”

      I guess all of them are ment because all of them have played a bad role (all with different degrees of severity though) in this crisis!

      This is how wars normally start but I guess in our case it is just the end of the rotten Euro and the rotten EU!

    • Your problem is you cant see what the Germans cant see too: This situation is putting the North and its “arrogant fake culture” in trouble too.If this whole thing was fabricated in order to attack Greece or Spain then its an epic failure.For its dragging everybody down.

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