A modest objection to the Modest Proposal: Debt write offs instead of the Modest Proposal

Jordi Angusto sent me the following missive regarding our Modest Proposal. To which both Stuart Holland and I respond below. 

The fixed exchange rates which supported the stablishment of the euro made necessary a common price and GDP growth path in all eurocountries, something almost impossible in such different countries. As a result, deficit in the GDP growth and price champions countries and surplus in the others; mainly, in the wage-depressed Germany.

Without the euro, the currencies would have adjusted automatically and thus those large surpluses and deficits would have been avoided, and the actual external debt of the south with the North would not exist.

Your European New Deal (nb. I think he is referring to our Modest Proposal), that should be endorsed by Germany, sounds like an oxymoron. How could Germany allow for such a demand-boosting program when its own surplus is due to its lack of internal demand? (And is based on low German salaries that are compensated for by exports)?

Instead of this, why not campaign for a Debtors’ Conference to “share” and cancel the Southern Debt, given the fact that it has been created by the euro’s fai;ed architecture?

The debt cancelation will give to the South resources enough to reflate its economies. Also to effect a better income distribution. Is not the enormous concentration of wealth  behind the lack of consumption and effective demand in the Eurozone?

Once these issues are solved, I agree that the European Investment Bank can play a very useful role in assuring productive investment in the South in order to increase its productivity. Something which has nothing to do with the Greek or the Spanish character but with its recent history and its lack of means and applied knowledge.

I don’t believe we need a German Hegemony. The Occidental growth under democracy and stability from 1945 until 1989 did not result from the American deficits, that created demand all over the world. It was an effect of the Cold War, which allowed a welfare state in Europe (and as a result enough internal demand to meet the growing supply) and continuous military expenses in the USA.

This is my (modest) opinion.


And now for two responses: One from Stuart Holland, one from yours truly:

Stuart Holland’s response

You are entirely right in your general analysis.  But we are not suggesting that Germany lead. What is vital is that other leading member states do so on the basis of enhanced cooperation to which we explicitly refer in our Modest Proposal. And with a variable geometry Europe now (rather than waiting for(n)ever for federal solutions).

I have managed to get this across to a range of people (including advisers to Minister Ayrault) with a recommendation that they pass it to President François Hollande. Interestingly, it looks as if he may have had the chance to catch up with the case in August judging by the interview that he gave to Le Monde on September 3rd which is exactly in line with the decision-making principles we have recommended in the latest version of our Modest Proposal.

French federalists don’t like this, e.g. Sauvons l’Europe which responded, unwillingly, that Hollande aims to slay the federal monster…

Hoping this helps respond to the good points you have made, and also that, if he acts, it may help reverse the sacrfice of so many people to the Minotaur!

Stuart Holland


Yanis Varoufakis’ response:

A debt write-off would be the right thing. Economically, politically, ethically even. The weaker members of our societies have endured so much pain, after having had experienced so few of the benefits of the ‘fat cow’ years, that to lessen their debt burden would be right and proper. Alas, I remain convinced that our job is to push for something like the Modest Proposal for two reasons.

First, for pragmatic purposes. Put bluntly, the German mindset is unlikely to yield to our logic and sentiment. But it may yield (though there are no guarantees to the logic of a Eurozone-wide conversion loan – as outlined in Policy 2 of our modest Proposal).

Secondly, because even if there is a debt write off (or write down), the dynamics of an ill-designed Monetary Union will come back to bite us again, and again, and again. For an analysis of why this is so, and why a one-off debt write down will not solve our currency union’s problem’s, see here. Our Modest Proposal, in this sense, is atriving for a permanent stabilising mechanism. Your debt write off only offers (at huge political price) and… one off relief.