Revisiting the Modest Proposal: Q&A with a sceptic – Fall 2014 version (*)

MP4.0 in FrenchAs Europe seems resigned to the perpetuation of the Euro Crisis, with its authorities in a state of permanent paralysis (with only the ECB trying, and failing, to stem the debt-deflationary vortex), it seems more pertinent than ever to keep the debate on the Modest Proposal going. If only as a reminder to the powers-that-be that there are immediately implementable policies whose implementation would stem the crisis without breaking any of the existing rules, without having the core countries pay one euro for the debts and losses of the periphery, and without any further diminution of national sovereignty. Can all this be possible? Is the Modest Proposal genuinely capable of delivering such much-needed relief at no cost and without bypassing any of the existing rules? We, the authors of the Modest Proposal, think so. Of course, sceptics have every right to pose questions and challenge our hypotheses. In this post, one such sceptic asks pertinent, probing questions about each of the Modest Proposal’s four policies. Which we do our best to answer. [(*)For earlier Q&As on the Modest Proposal, raising many of the same issues, click here and  here.) Read on…

BANKING CRISIS (Policy 1)

Does the step-by-step bank recapitalisation (recommended by Policy 1) not contradict a basic tenet of existing Treaties, contrary to the Modest Proposal’s claim that it stays within existing rules and Treaties? Will the ESM not suffer losses?

Of course there will be losses. Resuscitating bankrupt bankers will always come at a loss. But not of the ESM. Indeed, judging by historical precedent, the ESM should have no difficulty returning a (small) profit to the European taxpayer.

Let us look at these historical precedents. Indeed, the Modest Proposal’s idea here is neither new nor untried. In effect, we are suggesting that the ESM should function like TARP did in the US (after 2009), like the Swedish, Finnish and Norwegian Banking Authorities in 1992, indeed like the Banking Authority of South Korea in 1998. In all these instances (that followed massive financial sector collapses), the public bank bailout fund stepped in, capitalised the banks, wiped out the banks’ bondholders and shareholders (ensuring that the losses would not fall on the fund itself) and restored, in association with the Central Bank, the banking system. In each of these occasions, the ex post market valuation of the banking system exceeded the ex ante capital injected by the public fund into it. There is no reason why the ESM could not do likewise. Even if there are net losses in the case of some banks, the net gains made from the rest of the ESM’s banking ‘portfolio’ should compensate adequately.

(Addendum: The ESM is most certainly going to take losses under the current regime anyway! The Greek state, for example, will never be able to meet its current repayment schedule, for the 40 to 50 billion we borrowed for the banks. The rescheduling of Greece’s repayments that Mrs Merkel and Dr Schaeuble have promised Prime Minister Samaras is a haircut, at least in present value terms.)

If the ESM’s bank recapitalisations could return a profit, why wouldn’t any private investor be willing to do it?

Three reasons: First, to succeed, this type of recapitalisation must come with economies of scale and substantial coordination that private investors cannot pull off. (Recapitalising one bank in an environment where many are zombiefied, does not generate the trust and optimism throughout the banking sector that would make this investment safe). Secondly, at a time of a general banking malaise, no private investor can (or wants to) raise the capital required (recall also Keynes’ characterisation of investors as “fair weather sailors who not only abandon their vessels in a storm but also destroy the lifeboats that can transport to dry land”). Third, TARP, the ESM etc. can/do work together with legislators and the Central Bank to make this happen. Private investors cannot do this.

PUBLIC DEBT CRISIS (Policy 2)

Turning now to the proposal that the ECB offers member-states the opportunity for a limited debt conversion (Policy 2), pertaining only to their Maastricht compliant debt (and thus limited), what happens to the remaining debt (exceeding the Maastricht limits of 60% of GDP)?

It is simple: The ‘bad’ or ‘red’ or Maastricht non-compliant’ part of maturing bonds will have to be repaid by the member-states – as is the case now for 100% of their debt. There are two possibilities here for over-indebted member-states:

One is that they will have to pay high interest rates for that part of newly issued debt (compared to the ultra low interest of the ‘good’ or ‘blue’ part that the ECB’s scheme makes possible). This is a major strength of our proposal, rather than a weakness, in that it addresses the (mostly German) fears of ‘moral hazard’, and giving governments a powerful incentive to stick within the Maastricht limits. It answers Mr Schaeuble’s concern that ECB action should not encourage member-states to allow their debt-to-GDP ratio to run riot.

A second possibility is that a member-state will not be able to repay its ‘bad’ or ‘red’ debt in full, in which case that part will have to be restructured using the CACs already included in all post Greek PSI bond issues. This is as it should be. Investors (banks in particular) should know that, if they lend to a heavily indebted member-state, the ‘red’ or ‘bad’ part of that sum might be ‘haircut’. Such discipline amongst investors would be a godsend and put an end to the preposterous presumption of assuming that a bankrupted member-state will invariably meet its obligations in full, come what may, by borrowing from the rest of Europe on the (absurd) condition of shrinking its national income (i.e. harsh austerity).

Your proposal includes giving super seniority status to the member-states obligations to the ECB for the servicing of the ECB-bonds issued on behalf of that member-state. But super seniority status has to have various attributes in order to have any substance. The first and foremost attribute is that it is paid BEFORE any other debt. 

Quite right. This is the meaning of super-seniority, and it is what gives the Modest Proposal’s second policy, i.e. the proposed ECB-mediated public debt conversion facility, its credibility.

But does this not mean that the debt over and above the Maastricht compliant component (or the ‘red’ debt), which is to be refinanced by the member state itself, must mature after the ECB-mediated debt is repaid?

It is not a question of timing. It is a question of ranking debt obligations. The member-state’s agreement with the ECB should say, explicitly, that when a payment is due into its ECB debit account (in order to redeem an ECB-bond issued in the past on behalf of that member-state), it takes priority over all other debt repayments of the said member-state. Nothing different to the agreement each of our states has with the IMF.

Surely this will affect dramatically the interest to be paid on the ‘red’, non-Maastricht compliant, debt! 

As it should! Remember: A large interest rate differential between the ‘good’ and the ‘bad’ (or the ‘blue’ and ‘red’) debts of our member-states is an essential part of our policy’s design, which we think makes it both (a) potentially appealing to fiscal ‘hawks’ and (b) an appropriate signal to governments and investors.

Still, I fail to see how the ECB-bonds will be sold at a low interest rate, if the repayment risk stays with the member-state without any form of guarantee by the ECB.  

There is a misunderstanding here: The ECB-bonds will be issued and backed fully by the ECB. From the perspective of investors, they will be dealing only with the ECB, which will guarantee to them that they will get their money back, with interest. This is why the interest rate of these ECB-bonds will be tiny. Then, it is a matter for the ECB to recover these monies from the member-states. To ensure an almost 100% probability of full recovery, Policy 2 of the Modest Proposal includes not only the super-seniority clause (discussed above) but, also (and quite importantly), the provisions that:

  • the ECB charges a small fee to all member-states for this ‘service’ (e.g. 20 basis points), and
  • the ESM use a small part of its funding to buy additional insurance for the ECB, in case of an ultra-hard default by some member-state (thus, the ESM acts like an official CDS provider for the ECB)

Under these provisions, the ECB will be able to borrow (in today’s conditions) at no more than 1.1% and charge member-states, say, an ultra low 1.3% for servicing their ‘good’/blue’ debt. Overall, that would reduce the present value of aggregate Eurozone debt by at least 30%, bringing down with it the interest rates for the ‘bad’/’red’ debt (while preserving the large spread between the ‘good’ and ‘bad’ debts). In effect, the Eurozone’s debt crisis goes away!

Don’t’ you think that the 60% of GDP threshold, for the ‘blue’/’’red’ distinction, is arbitrary.

Of course it is arbitrary. But it is in the Maastricht Treaty and our Modest Proposal is about finding a solution within the existing (arbitrary and, in my view, idiotic) Treaties.

The Maastricht Treaty sets other economic targets that are interrelated, such as the Deficit-to-GDP ratio.  In reality if the latter is higher or lower it will affect the perspective of the Debt-to-GDP ratio. In 2009 Greece, for example, had a Deficit-to-GDP ratio over 15%. No level of debt would have been acceptable (at least in the near term) under the circumstances. 

Agreed. Your point about Greece, but also Ireland, proves that the Maastricht limits were meaningless, as no deficit member-state could be prevented from falling into a black hole after various bubbles burst (a public debt bubble in the case of Greece, a real estate and banking bubble in Ireland’s case). That we should have more flexible, and rational (i.e. less arbitrary), limits/rules is, of course, correct. That we should have had mechanisms from limiting the capital flow and current account imbalances prior to the crisis, is also correct. But the Modest Proposal takes these Treaties and the various mechanisms and rules in place as given, at least for now – until the current crisis is overcome. And here is another strength of the Modest Proposal: By ‘Europeanising’ (a) bank recaps (Policy 1), (b) the ‘blue’/’good’ debt (Policy 2) and (c) public investment (Policy 3), it makes it easier for governments (like Greece’s) to stay within the Maastricht limits, re. the budget deficit, in difficult times. Once the Eurozone is re-balanced, by the implementation of Policies 1,2&3, even Berlin will be more open to a serious discussion about overhauling Maastricht’s arbitrary rules.

INVESTMENT-LED RECOVERY PROGRAM (POLICY 3)

Again here I fail to see how there will be a massive investment program (which I am in favour of) without this being supported by the other member states, hence violating the Modest Proposal’s commitment to finding solutions within the existing ‘rule’s and Treaties.

This is important. So, let’s look at this carefully.

The EIB and EIF are two profit making organizations. Why would they go along with your proposal? 

The EIB-EIF operate on banking principles, and that is a good thing. But, there are not private profit-maximising banks, which is crucial. They are public institutions whose charter specifies that they exist to assist with the EU’s broader economic objectives. Rather than maximising profit, they operate on a basis of minimum profit targets (as most organisations, private ones too, do).

If the EIB/EIF are today willing to invest in any project, there is nothing precluding them to do so. 

Alas there is: it is the convention that 50% of a project must be co-financed by the member-state. The fact that member-states are either insolvent (e.g. Greece) or illiquid (e.g. Austria) erects a huge constraint upon the EIB’s plans, say, to fund a super-fast railway linking Patra to Munich, via Vienna. The Modest Proposal’s Policy 3 suggests that the EIB is unshackled from this constraint and that the ECB comes to its assistance in order to bring into fruition projects that the EIB considers potentially profitable but cannot rely on Greek or Austrian (temporarily cash-strapped) partners.

We have, in fact, suggested two ways in which the ECB can offer the backing necessary.

One is through a form of non-toxic Quantitative Easing: Once the EIB approves some major project (on sound banking principles, at a time when the member-states that will benefit are illiquid), it issues EIB-bonds to cover 100% of the funding and the ECB stands by so that, if EIB-bond yields begin to rise (because the EIB is borrowing in its own name a lot more from the markets than in the past), the ECB steps in and purchases these bonds in the secondary market in quantities necessary to bring the yields down. In a deflationary Europe, where Mr Draghi is struggling to find ways of introducing some form of QE (but has no Eurobond to purchase, unlike the Fed that buys US Treasuries of the Bank of England that buys gilts), buying EIB bonds is the obvious thing to do. Moreover, unlike US or UK style QE, which inflates bubbles in the financial sector (when CDOs, mortgages, credit card debt and the like are purchased with Central Bank money), buying EIB bonds avoids this pitfall and allows the ECB to be more surgical and efficient in its anti-deflation intervention, partnering up with the EIB for this purpose.

A second method is the following: Once the EIB approves some major project, it issues EIB-bonds to cover 50% of the funding, as it currently does, but the ECB issues additional ECB-bonds (since, Policy 2 will have created the mechanism for such issues anyway) to cover the remaining 50%, which it then charges to the debit accounts of the member-states that will benefit directly from the EIB-funded project. Then, it is the member-state that takes on that risk (as now) but does this at very low interest rates that only the ECB can secure on its behalf.

These two methods could, in fact, be combined to create an investment injection into the Eurozone of 8% of overall GDP. Such an ‘injection’ would then ‘crowd in’ private investment that will blow new wind into the EIB’s sails and ward off the recession/deflation/depression afflicting the Eurozone. Put slightly differently, it is erroneous to think of the EIB’s expected returns from some project as exogenous to EIB policies and impervious to a broad, investment-led recovery program like the one Policy 3 of the Modest Proposal recommends.

HUMANITARIAN CRISIS (POLICY 4)

There are probably many sources, besides TARGET2, from where funds can be raised for Policy 4. Even direct financing from member states. 

Of course there are. But, once again, the Modest Proposal is making recommendations that require no Treaty changes. Which means we sought funds that would not require fiscal transfers or “direct financing from member-states”. The beauty of tapping into TARGET2 accumulated interest is that these monies are not the result of fiscal transfers but merely accounting profits whose volume reflects nothing but the internal imbalances of the Eurozone – which are also responsible for the hardship of millions of Europeans.

I can only agree with such a policy assuming its implementation is less costly than the benefits to be distributed (and that it does not produce counter incentives to receivers). 

Our suggestion is that these TARGET2 funds pay for a US food stamp type of program – an utterly low cost, superbly efficient system for countering hunger and fighting poverty (the evidence from the US is overwhelming) and, indeed, for propping up food producers, super-markets etc. As for your fear of “counter-incentives to receivers”, when the hungry get fed no incentives are distorted. Even if some less hungry people are fed, in this manner, that is fine too…

25 Comments

  • The new Greek finance minister professor Gikas Hardouvalis in a recent interview on Bloomberg tv reiterated with overconfidence that the country’s debt is sustainable and no future haircut is neither needed nor it is feasible. He indicated that presently 70% of debt is held by other member states which even if they wanted they could not obtain the parliamentary concession to writing off another country’s debt.
    My question to you Yanis is how is it possible a well known economist such as Mr. Minister of Finance proclaim publicly the absurd assertion about public debt sustainability of way excess 150% of GDP and getting away without having his diplomas taken away?

    • I think that you are neglecting the fact that Mr Hardouvelis spent ten years being the Chief Economist of a bank, Eurobank, which, following his advice and predictions, went to the wall. His recent predictions are utterly consistent with this sorry record.

    • Mr Hardouvelis appears to have an impressive list of Academic qualifications & experience, does that mean he has been fully indoctrinated into the “Priesthood”…surely there must be some humanity in there somewhere??

    • Mr Hardouvelis has not been an academic for fifteen years. He was Eurobank’s Chief Economist. As such, every piece of advice he gave to the bank’s Board, and every prediction he issued re. the Greek economy and Eurobank’s circumstances, crashed viciously on the shoals of reality, proving beyond doubt that the said gentleman was simply telling the powers-that-be, in Eurobank and in government, what they wanted to hear. In this sense, he is brilliantly qualified to be the finance minister of a government whose only priority is to say that which Mr Scauble and Mrs Merkel want to hear – regardless of its truth status.

  • “the ESM should have no difficulty returning a (small) profit to the European taxpayer.”

    Inflation adjusted? No way.

    • What he means Yani is that if Greece is given 40-50 years of debt repayment at 1%, for certain the combined inflation of such period will make the return of capital a negative return on investment exercise. So he is right.

      But that’s the intent of the EMU. Since most people don’t understand such issues it would be the equivalent of a haircut without publicly proclaiming one. A save facing issue for most parliaments unable to vote for a debt haircut.

      We have talked about this many times before. The NPV of Greek debt repayable in 50 years is a number close to zero. This means almost a 100% debt relief by pretending otherwise.

    • Sure. Any elongation at a lower interest rate is a haircut (in PV terms). Except that I very much fear, the new terms will be conditional on Athens’ ‘good behaviour’, and supervised bimonthly by a new doika (i.e. the troika sans the IMF). Which translates into permanent debt-bondage for Greece and a sneaky haircut against Europe’s taxpayers.

  • We keep talking about proposals of which Merkel does not want to know about, let alone ever implement.

    The only rational action is to engineer a coordinated break-up of the EMU. This is not a unilateral action to be taken by a single member (such as Greece for example) but by an entire group of EMU members leaving the eurozone all at once ( a so called “coordinated multi-exit”).

    Of all the European countries only the U.K. is advanced in such matters because among other things they never joined the eurozone. The UK’s commitment to a continuous debate of the flaws of the EU is a remarkable democratic experiment worthy of pure admiration. It basically messages to the outside world that in the UK we have intelligent and more free citizens; not at all the case in Greece where most people associate these matters with an inferiority complex of whether they make the cut or not to a certain undemocratic club guided by rules designed by others rather than the Greeks themselves.

    We are talking about this unintelligent construct called the eurozone which Greece has no reason to be part of since it mainly facilitates German exports to Greece but makes Greek exports non-competitive to the rest of the world.

    I have never seen a study weighing the pros and cons of using the euro in Greece; at least not a serious one. Other countries (like the UK )are full of such studies in multiple variations.

    In any event being in the EU and the eurozone at the same time seems to be the worst combination possible. The EU for sure makes its citizens poorer, less democratic and less free. Using the euro on top of it means that a country like Greece has no escape whatsoever but rather a lifetime commitment to an indefinite prison term. The question is: why? Who decided this? When did the Greek people receive the facts to decide on such issue(to adopt the euro) and by what process? Did we vote to join the eurozone? When?

    What do you really find attractive about the EU? It’s beyond me:

    • It is beyond me too, on both counts – count 1, the EU (undemocratic corporatist club presently negotiating TiPP and TISA behind closed doors; with a joke of a ‘parliament’ whose only democratic tool – and only recently! – is a veto) and count 2, the disastrous, catastrophic Eurozone. The one thing we Greeks have learned – every single one! – is that if you don’t have your own currency, you cannot control your destiny.

      On the other hand I feel a certain sympathy for Yanis. As an economist he can see how it can be put right. It’s like being an engineer faced with a complicated problem that is solvable. Accepting that it IS solvable though, the question remains: how desirable is the structure itself? Are its benefits greater than its losses?

      When the core countries of the EU joined the Common Market, later EEC, they joined a trade bloc. They had no intention of sacrificing their sovereignties, their currencies, their control over their national economies and destinies to become mere provinces of a Federal EUSA / EUSSR. The subsequent fast forward transformation of the EEC into the EU, a nascent federal superstate, took off in 1989 when the Wall crumbled. At the same time, Europe’s other inter-state structure – NATO – was forced to either shut down or re-invent itself.

      It is my opinion that the re-invention of NATO was deeply intertwined with the re-invention of the former Common Market into the present EU. Though this is not as yet provable through documentation, and murky, we can consider some of the results:

      What should have been the last act of NATO, the re-unification of Germany, turned into the first act of NATO’s reinvention and the destruction of 2 of the foundational pillars of the Common Market, ie Germany’s first act as a reunited nation was to formally recognise breakaway Croatia, thus precipating the Yugoslav war. Thus, ‘No more war within Europe [Never again]’ and the inviolability of borders disappeared in the bombs, flames and death of a new, illegally interventionist NATO, who under the ridiculous re-formulation ‘R2P’ and ‘Humanitarian Warfare’ tore up the Geneva convention and the primacy of the UN governing war, to go rogue.

      Later, the predictable Eurozone crisis tore down the 3 remaining European foundational principles: Equality of nations, the Social Contract, and the French-German axis of balance.

      As Yanis has explained eloquently, the result is entrapment inside an iron cage designed to further corporatist interests. To which I add: an iron cage that has stealthily morphed way past what the original countries had agreed to on entry, an iron cage that has abandoned ALL the principles on which it was built; that has changed the fiscal rules to advantage certain countries [recreating the rules of the game as it goes along]; that is thoroughly and unredeemably undemocratic AND non-transparent both in its structure and functioning. And finally, 60 years after WW2, we find ourselves in a Europe dominated 100% by Germany – whose ‘containment’ was the whole point of the common market enterprise. Germany itself is home to the US European Command HQ, which in turn oversees our transmogrified, unilateralist, illegal, rogue NATO.

      Meanwhile, as we all know, NATO under Washington has broken its pact with Russia to move its no-longer-defensive missile systems into ex-Warsaw Pact countries: an act of aggression; and is engaged in encirclement of Russia, which is disastrous (and makes no sense) both for Europe AND for Russia; but is American foreign policy. At the same time it has become mandatory for countries joining the EU to join both the failed Eurozone and NATO.

      Since the US-propagated coup in Ukraine, we are faced with the reality that the EU is a mere pawn and extension of Washington policy: witness ‘our’ Orwellian lies and propagandising against Russia, our nonsensical ‘willingness’ to further harm our already catastrophic EU economy and to destroy our natural trade / diplomatic relationships with Russia – through Washington’s imposed sanctions. Clearly the EU is neither free, nor independent nor truthful nor moral.

      So ‘our’ European problems are far greater than finding solutions for the toxic, deliberately impoverishing malstructure of the Eurozone, (though this would temporarily help until it could be wound down?). They are greater than even the totally unacceptable and un-european lack of democracy, transparency, sovereignty and non-recognition of independent national interests within that ‘club’. They demand recognition of the true nature of the EU itself, as a non-independent structure under Washington’s command, coerced and held hostage by the presence of multiple NATO and US bases throughout Europe.

      Meanwhile on Greece (and a minor confirmation of the above):
      http://www.truth-out.org/news/item/26112
      The Economic Hitman himself, ex-IMF John Perkins, is interviewed on Greece.

    • I fully agree with you, Dean.
      As I said when first time I read the “modest proposal”, it is a modest one just because its “implementation would stem the crisis without breaking any of the existing rules”: in other words, it’s aimed to save a system basically authoritarian, where few people without any accountability and democratic legitimacy decide about the life of 320 milions of (not anymore) citizens. I wonder why should we maintain such system…
      I find amazing that Yanis, whose Nation has been so tragically devasted by this system, spend his considerable intellectual resource to find a way to save it, instead of find a way to escape from such dystopia.

    • I should add to the comment I wrote below, that the EU is not even concerned with protecting or promoting european interests! Instead this monstrous structure promotes Washington’s geo-political interests at the expense of our own, endangering our existence; and pushes into place American neo-liberal economic policies / Trade Pacts to the detriment and impoverishment of every country inside the EU, the gutting of national constitutions and democracy itself.

    • Elenits:

      Yanis is an academic, pacifist and humanist too and has come up with an intellectual product worthy of some serious attention. Therefore he has a moral obligation to make everyone concerned aware of this debate and invite constructive input. Alas we are dealing with a political monstrosity here and not a noble economic debate. It’s very clear that Germany wishes to save the euro at the expense of any idea of a united Europe and therefore waiting for Germany to reform its errors of intent is a fruitless exercise and leads to nowhere (certainly not a solution along the lines of Yanis’ suggestions).

      As far as NATO is concerned I have a different opinion. This is an already defunct organization, without any mission and no one in America believes in its utility or function (despite public pronouncements to the contrary). Having made a decision to withdraw from the region (Middle East and Europe) the US wants the Europeans to pick up their own tab instead of freeloading on the US taxpayer. Using Ukraine as an excuse, US wants Europe(Nato member states) to dedicate about 3% of its GDP in defense budgets thus freeing up US stationed troops towards redeployment in the Pacific.

      The US will avoid direct intervention from this point on and will execute a much subtler game of diplomacy which reinforces a local equilibrium of power balance. The US wants the local players to do the balancing themselves and is willing to act as a catalyst but preferably behind the scenes.

      The core of the US is to be a naval power; so US’ preoccupation is maintaining control of the world’s oceans and seas via her navy. A study of the American history teaches us that American action always follows this pattern:

      1. The US always intervenes militarily at a late stage of the game so as to tip the balance (see WWI and WWII)
      2. When it intervenes it wants to be part of a defined alliance and play a specific role within such alliance (pre-defined space).
      3. When the US finally intervenes it does so with overwhelming force (part of the American character to go all out once a decision is made).

      Therefore I believe the US is no longer interested in NATO. It’s only interested in what would replace NATO (say a European Force of some sorts) and that the US maintains a defined role within the new structure.

    • Dean, I agree with you generally but if what you say were true re NATO, then the EU would NOT be levelling sanctions against Russia at its own cost and loss, it would NOT be saddling itself with the catastrophic expense of rump Ukraine (the Nazi half, no less), and it would NOT be installing NATO bases in ex-Warsaw Pact countries – as the dragged feet, gnomic silence and non-coalition of the unwilling make eminently clear. Why would the EU act against its own trade, financial and security interests if not coerced – and also in violation of its declared revival of DeGaulle’s Atlantic-to-the-Urals policy of 2012-13?

    • Dean,

      In 2002 Greeks became rich overnight. All of a sudden they had salaries and benefits coming to them in euros which at a point was worth 1.5 x the US dollar and right now is close to 1.3 x. They are not going to give that up. They like their euros and have absolutely no understanding of the bigger implications.

    • Elenits:

      The answer to your question is the difference between strategy and tactics. Strategy-wise US has very little reason to belong to a club where lesser members have absolute veto power. When Erdogan says that Turkey is an equal owner of NATO, the US secretly laughs and lets any NATO member to believe whatever they want. Tactically the US could use NATO structures as a means of increasing defense spending or getting even with Russia over the Snowden embarrassment. These are tactics. Also part of tactics is Obama’s inexperience of wanting to invoke financial Armageddon since military action is a matter of last resort for him. So the system has to allow leeway for the character of its president. However, the overall US strategy is hardly affected by such tactics. NATO is a tactical placeholder for the US and not its strategic objective. NATO has already been written off as nothing more than a social gathering of sorts and a way of keeping in touch.

  • This article on the Italian predicament illustrates the simplicity for the cruel game.

    Italy says: I need a combo of growth and reforms. Germany says: no you need only reforms (code name for austerity) . But everyone agrees that I need some growth too, says Italy. Do you take me for a fool, after I have cornered you so carefully on reforms to now let you off the hook at the 11th hour? – replies Germany. Something similar plays out in France too.

    And that’t the essence of the cruel game. There is no hope for growth in Europe plus its GDP as a share of the world’s GDP is projected to drop to 11% by 2020 from its current 24% level. So, that’s a loser’s game: no growth, more reforms so that Germany can assert more dominance over a shrinking EU economy. Who wants to play such game and for what reason if you are not German?

    http://online.wsj.com/articles/italian-prime-minister-renzi-pledges-believable-anti-austerity-push-1411601461

  • And, Yani, to complete the comedy-to-farce cycle of history repeating itself, we recently witnessed PM Samaras and the unrivaled Adonis Georgiadis accusing SYRIZA of having done everything in their power to bankrupt the (zombie) remaining Greek banks, hinting/warning/encouraging a ‘run-on-the-banks’ should SYRIZA come to power/office, and warning of the folly of ‘antagonizing’ our ‘partners’ in the EU and EZ just as an allegedly workable ‘modus vivendi’ has finally been attained through their prudent and conciliatory policies and the ‘sacrifices’ of the Greek people. If one heard/read the functional equivalent ‘story’ by the battered spouse of a brutal, oppressive, substance-abusing person, one would ponder the depths to which mechanisms of psychological defense will sink in order for the organism and mind to SURVIVE.

    • Hi GrkStav,

      Your line “comedy-to-farce” is pretty much on the money! Together with all the other childish games being staged behind closed doors or in public view…As a former citizen of what was called Soviet Ukraine (Советская Украина) Iam disgusted & angry that the current so called government headed by Mr Poroshenko (The “Choclate King” of Ukraine) wants to join in “Boots & All”…Also I think Yanis has already mentioned that he can see a number of “Booby Traps” being laid for Mr Tsipras & Syriza in case of electoral victory!

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