Europe’s Modern Titanomachy: How Europe’s future is being shaped by large battles on seemingly small matters

PART A – In the balance

They sound technical and minor when projected against the great scheme of Europe’s extraordinarily rich history. Will there be conditionality attached to the ECB’s bond purchases? Will the bonds that it purchases be treated on a pari passu basis in relation to bonds held by private institutions? Will the ECB supervise all banks or just the ‘systemic’ ones? These are questions that ought to be of no genuine interest to anyone other than those with a morbid interest in public finance. And yet, these questions (and the manner in which they are answered) will probably prove as important for the future of Europe as the Treaties of Westphalia, of Versailles, of Rome even. For these are the issues that will determine whether Europe holds together or succumbs to the vicious centrifugal forces that were unleashed by the events of 2008.

It is now official: The existing institutions of the Eurozone have caused the common currency area to spin out of control once the financial sector imploded in 2008. They just could not sustain the thrust of that earthquake, the result being that the whole edifice started unravelling. Either the architecture would have to be revamped throughout the Eurozone or it would, inevitably, buckle under its grossly erroneous design.

Europe chose to remain in denial for three long years. To do only the minimum necessary in order to avert the Eurozone’s imminent collapse. These ‘moves’ did ensure that the Eurozone survived till now but, alas, they deepened the structural faults under the surface and hugely increased the economic and social cost of resolving the Crisis. The very principle at the heart of the ‘rescue’ efforts revolved around the combination of huge loans for stricken banks and member-states and generalised austerity which reduced the incomes on which the solvency of these same banks and member-states relied. The result was to gain time at the expense of the Eurozone’s longer term prospects.

Three currents: Euro-clasts, Euro-loyalists, Euro-critics

From the outset, three were the dominant views on what to do with this Crisis: First, there were those who welcomed the Eurozone’s dismantling. I shall call them, borrowing from our Byzantine tradition, Euro-clasts. They comprised neoliberal eurosceptics who always looked upon Brussels and the European integration project with the antipathy that they felt a super-state deserved, left wingers who saw in the Eurozone an attempt to pull the rug from under whatever powerbase labour had built up over the decades for supporting working people’s lives and conditions, and, finally, outright nationalists for whom borders provided a false sense of identity/security.

Amongst those is us who, for different reasons perhaps, did not want to see the European Union fall into pieces (thus recognising that the Eurozone, however terribly designed it might have been, ought to be maintained) two were the dominant currents: the Euro-loyalists who subscribed, however reluctantly, to the European elites’ handling of the Crisis and those who, like myself, thought that the cure was worse than the disease (whom I shall refer to as Euro-critics).

The Euro-loyalists’ argument has been, from the beginning, that the steps taken (e.g. the first Greek bailout, the creation of the EFSF, the first bond purchasing program of the ECB, the creation of the ESM, the Fiscal Pact, now Mr Draghi OMT etc.) were natural steps toward the creation of the missing architecture. They concede that terrible mistakes were made along the path but insist that the path, however meandering, will lead Europe to deliverance.

In contrast, Euro-critics (like myself) have been arguing that the chosen path leads with a high probability to a bottomless pit from which nothing good can come out; that the very foundations of the new institutions, e.g. the EFSF-ESM, are toxic and, therefore, will fail the more ‘weight’ is placed upon them by authorities increasingly desperate, as the Crisis worsens.

The last few weeks have seen to an acceleration along the path that the Euro-loyalists think will take Europe out of the Crisis’ black forest. Mr Draghi’s OMT pronouncement, moves by Brussels to integrate the banking system, plus the favourable verdict by the German Constitutional Court, have all contributed a nice breeze straight into the Euro-loyalists’ sails. The question is: Is this genuine hope? Or just more hot air? To answer dispassionately, we need to take a nuanced, close, careful look at the facts.

[To be continued tomorrow]


  • I am afraid that the path the so called ‘elites’ have chosen from the very beginning will lead to the dismantling of Europe, to anger, hatred and ultiamtely war.

    The EU worked perfectly well before the misdesigned common currency was imposed by France. There was freedom to travel, trade was running smooth, and certain problems could be solved by devaluating the local currency.

    What we have now is a deeply undemocratic and uncontrolled monster. And a transfer union which will inevitably cause the payers to sooner or later fight against this sort of Versailles 2.0. Since they (rightfully so) argue there is no reason the own standards of livings should be further kept lower than deserved just to prop up the standards of livings of alien nations plus to keep the countless zombie banks all over the place sort of alive.

    So I am sort of an euro critic like you, just much more pessimistic about the medium and long term results of the deeds done by the ‘elites’. And I mean German ones, French, Greek, Spanis, Italian… all of them.

    • VSS – You must be German? This history of the EU has been in the making for over a hundred years and it was apparently a German idea. The goal was for an area of free trade, free movement of people, low taxation and freedom from oppressive governments in general. And that’s it.

      Definitely no single currency and absolutely positively not a central government. That sounds like the ideal balance.

      The Euro was a creation of socialists, Germany never wanted it to start with.

      If what I have said about Germany is true then perhaps they are a fourth type. The love the idea of a European Union, as long as it stops at free movement, free trade, localized government, and low taxation.

      “When goods stop crossing borders armies are sure to follow” Sounds logical, Germany looks to be a believer. slogan of Frédéric Bastiat (1801-1850), “When goods cannot cross borders, armies will.”

      German history and the philosophy behind the EU –

    • @ Richard: I Love the idea of a European Union,but not as long as it stops at free movement, free trade, localized government, and low taxation.

      I would also happily agree to a lot more europeanizations, in defense, laws of all sorts, work regulations and so on.

      But not to mutualisations of (let alone old) debts, common deposit insurances and so on.

      And yes, I am a born German.

      Any problem with any of this?

    • VSS – “a lot more europeanizations, in defense, laws of all sorts, work regulations and so on.” – I could not disagree more, there are already too much, whats wrong with a market system instead of an unelected government system in Brussels?

      For example I do not want Ashdown supporting Al Qaeda as a way of bringing down a government in my name. Foreign policy is already too centralized. Whats wrong with my foreign policy ie deciding which countries I want to do business with? After all, isn’t that what it is all about?

      “But not to mutualisations of (let alone old) debts, common deposit insurances and so on” – Couldn’t agree more.

  • I read your blog/interviews avidly and thank you for your insights.
    I am American, have lived in Rome for over 30 years and visited Greece numerous times as a student of art history. I have a good general grasp of economics.
    I always vote Democratic and will vote for Obama again despite my disappointment in various aspects of his presidency.
    Yes, economically the US lacks the clout it once had because of the economic situation, but don’t think the US is uninterested in any country that may potentially have a left-leaning government.
    The US didn’t want Allende in Chile, didn’t want Berlinguer and the PCI in the “compromesso storico” in Italy (Aldo Moro was a victim of this situation) and does not want a party like Syriza leading a government in Greece.
    Nor do the Neo Liberals in Europe.
    It seems to me that when various EU leaders (institutional and national) declare how important it is to keep Greece in the Eurozone, this would leave an opening for the current Greek leaders to make demands against the austerity measures that are killing the Greek social state and find a more equitable solution for the current mess. Especially since there is wide consensus that Greece will never succeed in repaying its loans.
    So, why can’t the current Greek leaders demand measures against austerity? They are afraid to lose their grasp and do not want to cede power to the Greek left.
    This would not be like a bluff in poker. If Samaras could just step out of his own skin, straighten his back and stand up for Greece, he could surprise everyone and help his country instead of selling it short.
    Sorry if I sound like a naïve American, but I have long held the opinion that sometimes one must have the courage to act against personal interests.
    The problem is economic but it is also political.

  • There is a forth group, sub-standard industrial heretic, in which I must stand. I learned about us when, in 1987 I tried to get moving here in the UK with some ideas of mine regarding the use of creating bubble structures in space; only to discover that, (as the UK government, {at the highest levels}, very clearly had/has NOT THE SLIGHTEST interest; whatsoever; in anything to do with space technology), the European Space Agency was dead against ANY UK citizens involvement in their wider industrial strategies.

    As a group, we are technology minded British citizens that have been caught between a UK executive government that has not the slightest interest in our wish to return the UK to any form of true industrial dominance, (we are seen as a sub species not worthy of any attention here – a lifetime of experience teaches that), and a European group of technocrats that see the European future being built upon destroying the British industrial heritage.

    Disregarded in the UK and seen as undesirables in Europe.

    I learned much from meeting a Cypriot citizen who told me his future career in space inside the European Space Agency was stunted due to his holding a UK passport. That being seen as British was a definite drawback to his own career potential.

    Not sure what title would suit; but suggest perhaps, industrial heretic might suit.

    So this debate must be seen as much wider than banking; it is all about on the one hand a deeply disrespectful executive here that prefers to buy from major US corporations than ever to support any technology discovered and developed by a British citizen; while on the other side of the English Channel we are seen as something to be deterred from similar but European aspiration as we threaten their own industrial strategy.

    Yes, Sub-Standard, (we do not measure up on either side of the channel, but for quite different reasons), Industrial Heretic suits the bill perfectly.

    • Dear Chris
      I think you don’t need to give up hope in terms of UK high-tech industry:
      The UK is still strong in e.g. pharmaceuticals, aircraft engines and other high-tech stuff (such as BAE Systems products).
      Sure the UK industry has shrunk a lot as a percentage of GDP but I would assume that it is still big enough and strong enough in its niches that is has the potential to grow.
      Even outside proper “high tech” there is hope for UK manufacturing: E.g. Jaguar and Range Rover are doing fine – and I am sure there are other examples. It will take a while to reverse the trend of a declining industry, but it can happen – and I would assume things are moving that way, slowly. The weaker British Pound helps – and so does the relative decline of the financial sector that has so far absorbed many of the most talented brains in the UK to produce stuff that ultimately don’t have much use (at least now that the casino economy facing some problems).

      I would not be too angry over Europe trying to destroy the british industry. I guess that Britain managed that without much help from Brussels – and the UK can also reverse that without Brussels being able (or willing) to do anything against it. I think that e.g. Germany would see that with sympathy, even if it meant that there was more competition from the UK. But the world is big enough and if UK industry got stronger, Europe became stronger which would be good. For example now, with the potential merger of BAE Systems and EADS, this could be a good example how the UK and mainland Europe industry can together be a world leader, if they play their cards well.

      Space industry may be a different matter as in that field, there is not much money to be made and as I understand it, the French are very much in the driver seat when it comes to ESA, Ariane, etc. I believe the Germans are formally almost as strong, but really it’s the French that are in charge. Which is fair enough as they have devoted a lot of resources into this field, partly because they (like the UK and unlike Germany) see themselves as a “mini super power” with Nuclear Submarines, Intercontinental Ballistic Missiles, etc. In order to maintain that they had to invest in the technology for these gadgets – which Germany did not do to that extent. Therefore, the French are pretty strong in these fields. But I guess so are the British – if there was more cooperation, that could be good for everyone, save costs and make Europe more of a proper competitor to US and future Chinese products in this area.

    • Martin – A couple of points, “The weaker British Pound helps”, a common line used by the mainstream media, what they don’t mention is that a weak pound makes the UK more expensive to live (the country has a trade deficit) so the effect balances out, goods more attractive to export but country needs more money to pay for the increased cost of the things it imports.

      “I believe the Germans are formally almost as strong, but really it’s the French that are in charge. ” – Apples and oranges, France is much stronger politically, Germany is much stronger economically.

    • Dear Richard
      Regarding the weaker British Pound: It effectively helps to balance the UK economy – lower imports, more exports – at the expense of the living standard of the population in the UK.
      That is of course not fun for the people – but infinitely better than what happens when you delay adjustments for as long as you possibly can (see Greece as an example) .
      It is not a subject of this blog but generally, I am quite impressed by the way the UK has sof far handled its potentially very tricky situation (quickly increasing debt, poor trade balance, property bubble, huge financial sector and relatively small industry). I think that even though the UK is not doing great, it has been blessed with very skillful management by the Bank of England and the UK gervernment (and in the lucky position to still have its own currency).

    • Martin – the BOE & government are very skilled at keeping a bubble inflated. Ill reserve judgement on the rest when interest rates increase,then we will see where the UK economy really is but I don’t think it will be pretty…..

  • Should I resist my desire to add my own two cents until the next chapter of this euro-odyssey? I must.

  • Yannis, like many people who have “discovered” your website, I look forward to reading your insightful and educational articles. It has been and still remains difficult to always fully understand the mess that Europe has got itself into and how we will find our way out of it. I can only imagine that for many “Euro-citizens” like myself, we may not have the means to make any difference to the problems, but to be able to have some understanding of what is happening from someone like yourself instead of idiotic politicians and the sensationalizing media, at least leaves us feeling not entirely hopeless. Many thanks and I look forward to reading your next article.

    • John – I have to agree, but Yianis’s solution to the crisis is very similar to what you hear in the news ie the ECB should have more power to print money without interference from sovereign governments who have the Euro as their currency. (Don’t get me wrong, I respect Yianis hugely, if I didn’t I wouldn’t bother with his blog!)

    • Apologies Richard but you are misinterpreting our Modest Proposal. Its gist is that the ECB will not be printing money. Rather, it will be acting as a go-between fiscally stricken member states and money markets. Effectively, the ECB will be borrowing on, say, Spain’s behalf and ensuring that Spain pays the money back. This is hugely different to the ECB printing money.

    • Yanis – “Effectively, the ECB will be borrowing on, say, Spain’s behalf and ensuring that Spain pays the money back.” – Okay, I think I see what your saying now, your issue is that Spain for example can service its debt at 3% for example but not at 6% for example and the only reason it is at 6% is due to speculators?

      Assuming that is your position, you have to ask why has the interest rate gone up to 6% in the first place and is the situation really something that you want to perpetuate by getting the ECB involved? ie a situation that is out of Spain’s control due to the size of their debt and the power of international investors/speculators.

      And I think it has to be acknowledged that the bond markets are highly manipulated, and manipulated by the same major banks that are awash with cheap cash that ironically was issued by the ECB. The ECB is creating a self perpetuating problem by throwing petrol on the fire from both sides of the circle.

      In other words, the power of speculators to manipulate the borrowing costs of even Germany comes from the fact that the ECB is issuing almost free money to “support” these speculators/banks which is then giving them a spread to invest in other governments around the world who pay a much bigger yield on their debt, Brazil for example.

      What I am trying to say is that by the ECB keeping interest rates so low it is creating huge problems for Eurozone governments as the money center banks are investing in governments which pay a much higher yield. Forcing the ECB to come in and fill the vacum by bond buying to keep interest rates low. A full circle.

      There is a fundamental problem here and that is the low interest rates set at the ECB. They are forcing money out of Europe hence the problems in the bond market. And perhaps this is a partial explanation as to why inflation is taking a while to get to us. The cheap money from the ECB/Fed/BOE is being converted into other currencies.

  • Concerning the different categories of “Euro-clasts”, let’s mention that, apart from the neoliberal eurosceptics, the left wingers and the outright nationalists, there are also the “cultural eurosceptics”, who are basing their euroscepsis on cultural grounds, namely by underlining the cultural differences within Europe.
    The Greek reader can find here an analysis of this view:

  • “…and, finally, outright nationalists for whom borders provided a false sense of identity/security.”
    I like my nation and my nation-state very much, thank you.
    Your argumentation (in general, not just this article or just this article plus part B) which is otherwise pretty much rational and very thought of (I’m not saying it’s the truth but I am accepting it as I valid rational and empirical point of view strongly argumented for) suffers more than else from an internationalist bias.Being a internationalist is fine by me in the sense not that I agree with it but in that you can believe in it as you can believe in whatever you want to; but not when you outrightly classify people believing in nations and nation states as backward and plainly being wrong.
    In other words the sentence above would be still just fine and would have more objective gravitas had you dropped the word “false” or “false”+”outright”, id est
    “…and, finally, outright nationalists for whom borders provided a sense of identity/security.” or
    “…and, finally, nationalists for whom borders provided a sense of identity/security.”
    By adding “false” you classify right wing cosmopolitan and left wing internationalist ideologies (let’s say internationationalism of the left and right variety) as acceptable and valid (you then of course chose the latter as the more vlaid) while denying equal ideological rights to left and right wing nationalists-patriots…

    This is imo the reason you deny validity in the grexit option and strongly oppose it despite the fact that you say and repeat again and again that Greece is in ruins and doomed.I’m not claiming of course that a grexit would be a panacea ;I could state the grexit position even more weakly as claiming that a grexit should be thought of as valid and very strongly argumented for thesis and option and at least as valid as your own(which by the way in one of its possible outcomes(imo the most probable one) ends up in a grexit despite the fact that you deny this)…

    I have to note and emphasise that one doesn’t have to be a “outright nationalist for whom borders provided a false sense of identity/security.” to be in favour of a grexit;one could also be e.g. one of the other Euro-clasts and still want a grexit;this might be or is a trivial logical consequence already resulting from your article defining or classifying categories of euroclasts and others.But I must repeat that I had to emphasize the above cause this is my understanding of your underlying outright opposition to a grexit instead of what you’ve recently ended up saying, id est that Greece would be even more in ruins after a grexit.I don’t believe this or to put it in a more precise way my reading of your stance is that Greece might be better after a grexit (after a short while,after the iniital earthquake) in economical and national terms or at least as bad or good as it would according to your proposal but more importantly it would be much worse in the sense that it would possibly or probably have returned or “retreated” to a more national-ist-ic status negating the internationalism you believe in and want us to end up living in.

    Again if my understanding of your opposition to a grexit is correct(it might of course be wrong) it would be fine by me for you to express it, had you stated clearly your premises, your ideological principles ,that you oppose a grexit due to them and not because it doesn’t make any sense, and finally that while you strongly disagree with it, the nationalist or “nationalist” view and ideology is equally valid at least in a general sense…
    In other words and ending my comment I believe that you don’t think the latter as equally valid (in fact you outrightly believe that it’s barbaric and wrong) hence your bias or “bias” against a grexit+default…

    • Two quick responses: You are quite right, I am an internationalist. Guilty and proud of the charge! Secondly, I wish Greece never entered the euro and that we kept the drachma. But staying out is one thing. Getting out is quite another. My opposition to an exit from the euro is not political or ideological. It is purely practical, in the sense that it will plunge both Greece and the rest of Europe into a bottomless pit; one even worse than the one we find outselves in in Greece today.

    • A.
      Yes I know that you’ve many times said that countrfactually it would be better not to have joined the EZ but exiting is not the same;Yes entering and exiting are asymmetrical, I know and I agree;I haven’t claimed otherwise.

      But your opposition to a Grexit has evolved from something like
      a.Exiting would cause a parallel circulation of € and New Drachmae(or whatever) which will be a big prolem.Better prefer and follow Modest Proposal on solvinggeneral European problems and stop on Greece declaring that getting loans and external payement must stop so that European really chose a real and clear path.
      Note:The above plan of yours has as one of its possible outcomes (and imo very probable) a grexit+default.You neglect e.g. when creating the dichotomy of either Germany(+surplus countries) would then exit the eurozone ( it gets dissolved) or they would really save the whole EZ including Greece, that there is -inter alia- a third possible path ,Greece being ejected (directly or indirectly) while they really save (or anyway try to save) the rest of the EZ in its entirety.
      b.Claiming that exiting would be even more a catastrophy than the Memomoranda and the general European strategy for both Europe and Greece without (more import on the GReek part) really backing it up empirically, without really substantiating the claim.
      b2.while at the same time saying that Greece is ruined and doomed and that prolonging the internal devaluation etc (like what Samaras wants) is equivalent to giving more rope to a hanged man.
      b3.without any sign of you Modest Proposal + Greek specific proposal being accepted by Greek or Euroepean Echelon.And yet you propose to people again and again that it should be followed when again and again other paths(in basically the same direction) are chosen.

      OK you say it’s not your ideology that causes you to oppose it or consider it at least as one reasonable (albeit drastic) option.Acting in good faith I believe you and retract my diagnosis of your deeper thoughts and arguments.But then my view is that your argument is flawed or at least incomplete.
      Empirically and logically:

      1.Let’s assume that your Modest Proposal (which you’ve stated is a necessary but not sufficient condition for a Greek solution in the sense that it will solve for the ime being the general European Problem and then people would be able to tackle the Greek Problem per se,in relative isolation) or something similar NEVER gets accepted. long should Greece follow the internal devaluation strategy and all its consequences?
      Mind you as you’ve said the Modest Proposal would only be the initial general part about Europe;the Greece proper plan shoult follow afterwards.
      So how long is it going to last?
      1 year,2 years,5 years,10 years,20 years?
      How can you claim that this would be better than a grexit which would certainly be drastic but relativelly much shorter in duration(come on;most external debt crisis follow this pattern;once external default is “fully” done and the real currency devaluation happens things get messy for short time but then explode upwards! OK this time it would be harder because t things like in this case there is no local-national currency in circulation but this can not last longer thjan say 1 year)?
      You write e.g. in part B that Greece going keeping on the “orthodox” path will cause her to become a country exporting only its people and tourists.
      Byt that’s more or less their plan anyway(ok they also plan for German old age care;see e.g. McKinsey report) and that’s what is more less happening!!
      3.even if Greece tries to stick to Troika’s plan for ever isn’t it very probable ( a la Argentina) that in some unspecified time in the future there will be an explosion leading to a grexit? If so wouldn’t be better this to happen sooner rather later so that the come back won’t come in ,say, 10 years from now, but ,say, in 3?

      So please substansiate your claim that a Grexit would be even worse.
      Not in magnitude (cause this an earthquake in such a case would be certain) but in duration please!
      And let me perfectly clear on my part about my assumptions:
      A relatively short but extreme pain and chaos is presumed but then shortly a recovery.
      This imo is strongly preferrable (in fact imo a no brainer) to a seemingly endless chronic medium to large pain,misery and suffering(a crescendo of it;at least for many years to come).
      Planning it or at least preparing for it in advance hopefully by the Greek ruling class would ameliorate and shorten the mess;ok I have 0 faith in the Greek class so I won’t assume this.But I will claim that once the external devaluation gets complete, things automatically would start moving upwards.

      And mind you that if Europe doesn’t care about really helping in solving Greek problems then European problems can or should not enter the picture other than as how they affect solving Greek ones(in other words they can or should move to the background,e.g. how would they affect external demand)…

      B. OK you’re Internationalist! Good for you!
      Could you please, when argumenting for or against something,
      a.explicity state this and its consequences on you reasoning.Cause it’s not neutral or objective(nor is of course not being an internationalist)…
      b.not call people that are not internationalists-cosmopolitan names?
      While not agreeing with you in this ideology (understatement)
      some of us still think that you, contrary to other not to be named people of left or right internationalism, speak rationally and thoughtfully and should be respected for this…
      I won’t even go to the fact that like it or not a great number of people in Greece,Europe etc ARE not internationalist;or the fact that our constitution is of a nationstate therefore… 😉

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