Centralisation-Without-Representation: A reply to Frances Coppola, Simon Wren-Lewis and Niall Ferguson

euro crisis[This post was later published by Open Democracy]

Behind the European Union’s official ‘line’ that the worst of the Euro Crisis is behind us, a flurry of proposals for institutional changes reveal a deep-seated anxiety about the Eurozone. Indeed, in recent weeks, even the German finance minister, Mr Wolfgang Schäuble, went public with an op-ed in the Financial Times (1st September 2014, co-authored with Karl Lamers), presenting a proposal for a Eurozone Parliamentary chamber that would legitimise, and stand behind, a new office of Euro ‘Czar’ with the capacity to veto member-states’ budgets.[1]Screen Shot 2014-10-03 at 4.57.39 AM

In an earlier article (published last June in Open Democracy), James Galbraith and I surveyed the various plans for reforming the Eurozone and charted their history and theoretical heritage. Our conclusion was that, essentially, there are two camps. One we described as Federalist Austerian. This camp includes, naturally, Messrs. Schäuble and Lamers but also two influential groups of economists; namely, the Glienecker Gruppe[2] in Germany and the Piketty Group[3] in France. Despite significant differences between these proposals, there is a strong common thread binding them together: it is the triple proposal for

  • a fiscal Leviathan to be situated in Brussels whose remit focuses primarily on keeping national budgets within the agreed ‘rules, and with no substantial budget of her own;
  • a Euro Parliament or Chamber that affords this Leviathan political legitimacy;
  • a mechanism for encouraging member-states, mainly of the periphery, to employ their own resources (including public assets) in order to pay down public debt until the latter falls below the original Maastricht Treaty’s limit of 60% of GDP.

This combination of recommending further centralisation of political power [see (i) and (ii) above] with a continued emphasis on public debt consolidation (despite some other interesting ideas[4] that have been thrown in for good measure) motivated us to refer to this ‘school of thought’ as Federalist Austerians. And to juxtapose it against our own Modest Proposal for Resolving the Euro Crisis which falls in what we referred to as the Modest Camp (which includes also the Progressive Economic Initiative’s Call for Change[5]); a camp modest only in terms of its ambition to refrain from proposing further centralisation or even changes to existing treaties and charters.

In short, our argument was that, as long as the Euro Crisis is continuing to unfold, the Federalist Austerians’s promotion of closer political union is bound to reinforce Europe’s prevailing austerian mindset which, in a never-ending circle, guarantees that the closer political union (if it is to go ahead) will be authoritarian and, ultimately, the saboteur of Europe’s economic development, as well as the forger of an iron cage for the peoples of Europe.[6]

In two recent articles, Frances Coppola and Simon Wren-Lewis, commenting on our article, concurred with our main point and added some of their own. The following sections address their well-taken points, arguing once more in favour of our Modest Proposal, before concluding with a lament about the gross complacency of Europe’s ‘official spokespersons’ (as demonstrated, for instance, by Niall Ferguson’s latest intervention in the Financial Times).

  1. Political union is not tantamount to federation

In her reply to our article, Frances Coppola makes an excellent point: Europe’s de facto leadership (national politicians and Brussels bureaucrats alike) will never voluntarily consider our Modest Proposal. The reason is that they are only open to discussing plans for resolving the Euro Crisis “that further the political objective of closer union.” Their explanation is that there is no alternative way of combating the crisis; that it is time to complement monetary with political union. Undoubtedly, if by political union they meant a fully fledged democratic federation, I would probably concur. However, a democratic federation is precisely that which they do not mean.

Looking at all the proposals for closer political union on the proverbial table, it is clear even to the untrained eye that what is being proposed is certainly not a United States of Europe. The latter would require a common parliament or congress vested with all legislative power and in accordance with a constitution authored by a properly convened pan-European constitutional assembly. It would also require federal ministers that are either elected directly, on a one-person-one-vote basis, or who would have the consent of a working majority of the common parliament or congress and whose powers would be fully defined by the said constitution. Additionally, a proper federation should feature a second chamber composed in a manner that prevents the tyranny of more populous nation-states over the smaller ones. None of these features of a democratic federation are anywhere near the top of European leaders’ minds. Rather, as I have argued here, the political union on ‘offer’ is a cloak of respectability with which to adorn failed austerian policies and thus to make them more palatable and less obviously illegitimate in the eyes of Europeans.

Screen Shot 2014-10-03 at 4.36.48 AMCoppola describes, as we did, the plans for further political union “fundamentally undemocratic”. She adds that “[n]o-one in Europe has voted for closer union. Indeed, in the most recent European elections, the success of nationalist parties suggests that many Europeans want a looser union, or even no union at all.” This is, of course, so. However, my suspicion is that the enmity the majority of Europeans currently feel for ‘more Europe’ or for some ‘political union’ is not because Europeans are necessarily against the formation of a Federal Europe (although some Eurosceptics clearly are). No, they are against this particular type of authoritarian, anti-democratic political union that is offered them. They feel it in their bones that no democratic federation is on the cards and that, in essence, they are being asked to forfeit their national democracies in exchange for a deeply undemocratic political union in which the powers-that-be confuse popular sovereignty with consultation and demand maximal discretionary power for themselves, eager to exercise it over citizens that lack the power to keep them in awe, let alone dismiss them. Put bluntly, Europeans understand that the USSR was also a political union; a pointed but not impertinent reminder of the profound difference between the ‘closer political union’ on offer and the democratic aspirations of many Europeans who are turning their backs on their Union.

These suspicions, which underpinned the ‘eurosceptic’ wave evident in last May’s European Parliament Elections, are founded on solid evidence. The Euro Crisis has proven, so far, a pretext for imposing upon national parliaments tax measures that would not have been passed if it were not for blatant threats to these countries’ very survival (e.g. the threat of removing ECB or ELA liquidity from their banks).

  • Think, for example, of the new taxes and charges Irish citizens had to pay in the context of austerity drives due to the exorbitant cost of the infamous promissory notes that unelected ECB officials imposed illegitimately upon a small, proud nation.
  • Consider the hideous fact that the Greek Parliament was blackmailed by the troika to make Greeks pay income tax from the very first euro earned, not to mention property taxes on empty apartments that their owners can neither rent out nor sell.
  • Take a moment to mull over the reply I received from a European Commissioner back in early 2012 when asked “Why are you pushing for rises in fuel taxes in Greece and in Portugal when your own models tell you that government excise will be reduced as a result of the high elasticity of demand in a middle of a hideous recession?” “Because it is the only way of demonstrating to Italy our resolve to be tough on their people if they fail to tighten their budget”, was the astonishing reply.

The Euro Crisis has, from this perspective, acted as an opportunity for ‘Europe’ to introduce ‘concentration without representation’; a more virulent version of the situation that gave rise to original Tea Party in Britain’s American Colonies. Coppola is, therefore, right: The powers-that-be in Brussels, Frankfurt and Berlin are not interested in any proposal for ending the Euro Crisis that fails to concentrate power more centrally while reducing the capacity of Europeans to keep this power in check on the simple principle of one-person-one-vote. It would not be, after all, the first time in history that a political ruling class place their preference for more unchecked power ahead of their concern for shared prosperity.

Granted that the political elites have not shown, and will never show voluntarily, any interest in our Modest Proposal, the latter’s purpose has been served: It was to demonstrate that there exists an alterative set of policies that are immediately implementable within existing treaties and that their implementation would have ended the crisis forthwith and without requiring of the German taxpayer to pay for the legacy public and private debts of the periphery. A set of policies which the powers-that-be are choosing not to implement in pursuit of other, clearly anti-democratic, objectives. After all, our purpose in putting together the Modest Proposal was exactly that: to empower Europe’s citizens by arming them with an answer every time unscrupulous politicians and bureaucrats attempt to put them down, telling them that “there is no alternative to austerity”.

Screen Shot 2014-10-03 at 4.37.44 AM

  1. Is ‘closer political union’ necessary?

Simon Wren-Lewis, in his own response to our article, agrees with us that it is not. In fact he argues that, even without our Modest Proposal, the Euro Crisis could have been dealt with far more efficiently. Here is a summary of what he refers to as his ‘counter-factual’; i.e. a list of policies that could have been implemented profitably in 2010 but weren’t.

  • Allow Greece to default in 2010, within the Eurozone, and then mop up afterwards by means of some (smaller) bailout loan
  • The ECB could have introduced its OMT (Outright Monetary Transactions) program immediately, in 2010 rather than wait till the rot had set in in the summer of 2012 [Nb. OMT ‘threatens’ bond markets that the ECB will buy member-states’ bonds in volumes necessary to reduce their yields below a certain maximum.]
  • Immediate fiscal expansion in the surplus countries to counter-act the fiscal contraction in the periphery; and thus achieve a fiscal balance over the Eurozone as a whole.

Undoubtedly, these three policies would have given the Eurozone a substantially better chance to recover, compared to the disorganised insanity that were the policies actually implemented. Wren-Lewis’ counter-factual reveals nicely that, however terrible the Eurozone’s original design was, there was room within it to respond more rationally, efficiently, humanly. That Europe chose not to do so is quite revealing of a ‘dark side’ that is built into the foundations of the European Union (see here for my hypothesis on what that might be) and which manifests itself in the form of, what Wren-Lewis aptly refers to as, “…the obsession with public deficits and the need for austerity”.

Granted that the above counter-factual economic history is useful, there are some aspects of the reality on the ground, especially in 2010, that demand our attention. While I too advocated, in January 2010, that a Greek default [see (i) above] was infinitely preferable to the largest loan in economic history being piled upon the weak shoulders of the Greek state (on condition of GDP-sapping austerity), it is important not to forget that, in 2010, Greek debt and Greek banking losses sufficed to give the banking crisis raging in Paris and in Frankfurt another major boost. The reason for putting forward our Modest Proposal (and in particular the combination of (a) the policy on step-by-step bank recapitalisations and (b) the ECB-mediated conversion loan to governments) was precisely that: to show that it was possible to defuse that time bomb, in a manner that a Greek default would not have done, without violating either the EU’s Treaties or the ECB’s charter.

Our emphasis on making proposals that would defuse the crisis without Treaty and Charter changes was our Modest Proposal’s main objective. We believed then and we believe now that: (A) these Treaty/Charter changes will open a frightful can of worms and will take so long to complete properly that the crisis will have destroyed the union long ago; and (B) the moment you open that can of worms, and invite politicians and bureaucrats to recommend changes to the institutions themselves, the tendency will be, as the previous section suggested (in accordance with Frances Coppola’s main point), for moves toward ‘centralisation without representation’. The Modest Proposal’s dedication to proposing policies that required no modification of Treaties/Charters was motivated by these thoughts and fears. We believe they are still pertinent.

Which brings me, finally, to the question of OMT. Wren-Lewis, as mentioned above, would have wanted to see OMT announced in May 2010, rather than more than two years later. And, in a “further modest proposal” of his own, he would like to see:

  • the conditions under which OMT is activated (i.e. the conditionalities imposed on a member-state before its bonds are purchased by the ECB in the secondary markets) be spelt out and properly codified (presumably to make the OMT’s implementation more efficacious and, at once, to reduce the discretionary power of both Frankfurt and Brussels)
  • greater accountability of the ECB (e.g. in terms of its failure to keep the inflation rate just below 2%).

My qualm about (a) is that I am unconvinced by OMT’s wisdom, propriety and long-term efficacy. At the risk of surprising my regular readers (as I shall, seemingly, side with the Bundesbank’s official line on the matter), I shall state the view that OMT runs against the grain of existing Treaties. Buying up Italian or Greek bonds ad infinitum until yields fall below some threshold is at odds with the no bailout clause etched in the ECB’s charter. Personally I feel nothing but contempt for the no bailout clause. Nevertheless, I acknowledge the simple point that OMT is treading on legal thin ice and, for this reason, the ECB will only activate it as a last resort and never ad infinitum. My concern is that this reluctance is understood well by bond markets which, at a time of their choosing, may test the credibility of the OMT’s ‘threat’ with terrible consequences for the Eurozone. Thus, the Modest Proposal has never espoused OMT, proposing instead a limited debt-conversion program financed by ECB-bonds (see Policy 2 of our proposal).

To summarise, the reason I suspect Mr Draghi, the ECB’s President, is refusing to write down the precise conditions for OMT’s activation is because specifying precisely the conditions for activating and managing OMT will lead to high drama in the European Courts as well as in the German Constitutional Court. Properly to ingrain OMT into the existing rules, as well as to make the ECB’s governing board more accountable, we would most probably need to revisit the Treaties and to re-write the ECB’s charter. Both these ‘moves’ are pregnant with the danger of greater ‘centralisation without representation’ and should, thus, be avoided. In contrast, the Modest Proposal is a solvent of these fears (of centralised authoritarianism) and an effective remedy of the Euro Crisis.

  1. Epilogue: Niall Ferguson’s ‘extreme centrism’ undermines Europe

Following the Scottish independence referendum, in which a Tory-Labour alliance backed the ‘No’ campaign, Niall Ferguson wrote an op-ed in the Financial Times suggesting that not only Britain’s but also Europe’s best chance of holding together against the forces of ‘populism’ are grand coalitions between the centre-right and the centre-left. “The advent of a new era of grand coalitions is good news for me. From now on, I no longer need to deny my allegiance to the extreme centre,” he concluded confidently.

As evidence in support of his new enthusiasm for grand coalitions everywhere, including in continental Europe, Professor Ferguson mentions two such examples: The New Democracy-PASOK coalition government in Greece and the new European Commission that was stitched up by the centre right European Popular Party (under Mr J.C. Juncker, the new President of the European Commission) and Europe’s social democrats (under Mr. M. Schultz, the Speaker of the European Parliament). With regard to Greece, he claims that the grand coalition succeeded in keeping Greece in the Eurozone, the presumption being that a government led by the Left opposition (SYRIZA) would have taken Greece out of the Eurozone. As for the new European Commission, he clearly implies that the amicable division of the European Commission’s top posts between the centre-right and the centre-left was a bulwark against disintegration and populism. Both these presumptions run in the face of a more complex, less optimistic reality.

Beginning with the current Greek coalition government (that Niall Ferguson wants his readers to assume was something akin to a godsend), the fact is that its readiness to submit fully to the pointless, and self-defeating authoritarianism of the troika is the main fuel that powers the engines of Greece’s Nazi party. At the same time, this was a government that undermined the authority of the High Court (by blackmailing judges to succumb to troika-imposed legislation that violates Greece’s constitution), closed down the public broadcaster (Greece’s BBC), and left no stone unturned in order to donate gigantic quantities of money (that the taxpayer was forced to borrow) to bankrupt bankers who, as a result, have acquired a complete control over the media (which rely on them as the sol source of funding). In addition, the portrayal of a fundamentally Europeanist party (SYRIZA) as anti-European solely on the evidence that it resisted the mindless fiscal consolidation programs foisted upon Greek society, reflects the view that all those who do not obey the centrally issued decrees of austerian irrationalism are populist anti-Europeans. I can think of no greater gift to genuine anti-Europeans than this type of ‘extreme centrism’.

Screen Shot 2014-10-03 at 4.40.46 AMGreece may be a pronounced case but it is by no means exceptional. Wherever we turn to in Europe, we see large swathes of the population lost in despair at the hopelessness of their circumstances. Whether the French socialists run the government on their own or in alliance with the Gaullists, independently of whether it is the Spanish socialists or the current government that implement the blueprint emailed to them from Frankfurt or Brussels, the result is the same: European citizens that daily lose the last remnants of their belief in European institutions and their countries’ democracy, increasingly lured by the Sirens of misanthropy. This is Niall Ferguson’s ‘extreme centrism’ in action. While the functionaries of his ‘extreme centre’ in the EU’s capital and, at once, in their national capital, run the show, it is becoming increasingly difficult for citizens to remain confident Europeanists. I can, in fact, think of no better ally for misanthropy throughout Europe than Professor Ferguson’s ‘extreme centre’.


[1] The German finance minister’s intervention has added significance because of his choice of co-author for the said article: Karl Lamers, the CDU’s former foreign policy chief, had been Mr Schäuble’s co-author of a blueprint for political union in the early 1990s, when the euro was still on the designers’ board. It would be foolhardy to disregard the powerful symbolism of Mr Schäuble’s decision to revive that almost forgotten proposal, with the same co-author, and at the time when the ECB’s President, Mr Mr Draghi, is making it clear that there is something spectacularly wrong with the Eurozone’s overall fiscal stance and aggregate investment strategy.

[2] The Glienicker Gruppe comprises Armin von Bogdandy, Christian Calliess, Henrik Enderlein, Marcel Fratzscher, Clemens Fuest, Franz C. Mayer, Daniela Schwarzer, Maximilian Steinbeis, Constanze Stelzenmüller, Jakob von Weizsäcker, Guntram Wolff.

[3] The Piketty Group (PG) includes, besides Thomas Piketty, Florence Autret, Antoine Bozio, Julia Cagé, Daniel Cohen, Anne-Laure Delatte, Brigitte Dormont, Guillaume Duval, Philippe Frémeaux, Bruno Palier, Thierry Pech, Jean Quatremer, Pierre Rosanvallon, Xavier Timbeau, Laurence Tubiana.

[4] For example, the Glienecker Gruppe recommend investors are held responsible for unsafe loans they afford while the Piketty Group add a provision for a common unemployment insurance scheme.

[5] The Progressive Economic Initiative’s Call for Change was signed by: Joseph E. Stiglitz, Jean-Paul Fitoussi, Peter Bofinger, Gosta Esping-Andersen, James K. Galbraith, Ilene Grabel, Stephany Griffith-Jones, András Inotai, Louka T. Katseli, Kate Pickett, Jill Rubery, Frank Vandenbroucke.

[6] Since then that argument was augmented by two papers by the undersigned: Why is Europe not coming together in response to the Euro Crisis? And Can Europe escape its crisis without turning into an iron cage?


  • Ufff¡ Incredibly lucid, thank you very much Professor Varoufakis.

  • 3rd-corrected version:

    There is no such thing as a “kinder and gentler” EU which a Modest Proposal(or any other proposal in this matter) could effectuate. The Eurozone is a clear mal-experiment that has to cease. The EU’s proper function is to be a trading area like NAFTA and no more than this.

    All the combined misery in Europe today has one name: the euro currency. German intransigence’s sole goal is to keep the euro alive at any cost (to all others other than the Germans) because without it its(German) economy collapses. Therefore the only path to European freedom is centered around the simultaneous and coordinated abolition of the euro as the only practical means/path of changing German behavior. What replaces it is not that important; think of a new currency called the “euro-after” and stop agonizing about 28 national currencies with weird names. Assume that an EU Max Devo will result in a coordinated transition and a new monetary instrument following new rules which the deconstructionists will take great care in devising in order to minimize self-inflicted pain.

    Perhaps the greatest sin of the Modest Proposal is that it gives false hope when none exists. No European citizen can arm himself/herself with a theoretical construct which meets a guaranteed rejection by the obstructionists, incrementalists and clear beneficiaries of the status quo (read Berlin).

    The EU is a mirage. Circa 1973 the then size reduced EU commanded 35% of the world’s GDP. Today with the greatly expanded base of 28 members it comprises only 24% of the world’s GDP. In 2020 the projection is that it will become a minor actor controlling only 11% of the world’s GDP.

    As for the Ferguson argument about centrism I made the exact same mistake in the past of thinking along such lines. We are way past centrism at the moment because serious gravity forces have taken hold of the deconstruction process which is mathematically bound to occur. Forewarned means forearmed. It’s already too late for any proposals.

  • Yanis. I am suprised that throughout the whole crisis in Greece you have not pushed for the Greek government to issue their own currency in parallel to the Euro. It would be quiet simple for the government to at least pay their employees in the new currency if they at the same time accepted X percentage of taxes being paid in the new currency.

    At the very least is would relieve some pressure on the economy, pressure being caused fundametally by a lack of internal liquidity.

    This answer to the governments internal problems seems so obvious it makes me wonder if the whole point of the crisis is simply to bring the Greek economy to its knees and nothing more.

    But maybe “currency” is too politically charged a word. Perhaps “tax credits” is a more palatable term.

    • A parallel currency would be a disaster; devaluing immediately and causing public sector workers to lose purchasing power at a time when they are immersed in euro-denominated debt. As for your surprise that I have not proposed a different solution, based on tax credits, this is due to not having followed my proposals very carefully. See the last part here: http://yanisvaroufakis.eu/2014/02/15/bitcoin-a-flawed-currency-blueprint-with-a-potentially-useful-application-for-the-eurozone/

    • The ECB can cease bond purchases at a moment’s notice therefore causing such scheme inoperable. There is nothing legal or legitimate about such ECB action (at least nothing found in any treaties) but that’s how the ECB forces you to hard and involuntary compliance.

      You can dream up of a dozen such schemes which on paper could make sense and then the ECB with a flip of a switch will take you out of business before you can even ask “why?”.

      There is nothing constitutional about ECB actins and all this theater with German courts is a way of prolonging or causing delay in reinforcing an undemocratic process.

      You can’t fight against such tactics because you no longer control your economy.

    • Hello Yanis. Thank you for your reply!

      If I understand correctly, you agree with the concept of using tax credits as an additional form of exchange but only if it is based on a BitCoin type system.

      As long as the algorithim is open to scrutiny I agree.

      In effect we are talking about debt free money to grease internal transactions. Surely this would be a useful addtion to the economic landscape. Assuming the tax credits are pegged to the Euro, the alogorithm would take care of limiting supply.

    • Hello Dean.

      The tax credits would be completely independent of the ECB, this is the whole point.

      It would be 100% run by the Greek government. By accepting tax credits to pay taxes they are increasing the effective money supply in Greece without increasing anyone’s debt and without the system being effected by ECB actions.

      The tax credit system is designed to making transactions between Greeks easier by increasing the effective money supply.

    • Hello limit-less.

      You say tax credits are more “palatable” term. Yet in the Merkel/Schauble vocabulary tax = something rightfully due to the government. And this is precisely where Germany has a problem with Greece. They accuse Greece that is lax in collecting taxes (or more precisely that the Greek parliament is eager to introduce taxes which in practice are non collectible).

      And you think that under such framework you can impress Berlin with a concept of tax credits? If you can do it may the Force be with you. But I don’t see it not even as a joke. Our issue is that we have a “Nein culture” from Berlin and nothing else other than austerity and reform coming out of its chambers. Berlin is not even willing to acknowledge that austerity leads to lower tax revenue and there has to be some form of growth to compensate for such tax revenue lost. They say “it’s your problem, solve it”.

      Who in Berlin or Brussels is taking about the types of remedy you are advocating? Because I am not aware of any.

    • “It would be 100% run by the Greek government. By accepting tax credits to pay taxes they are increasing the effective money supply in Greece without increasing anyone’s debt and without the system being effected by ECB actions.”

      Tax credits reduce tax revenue thus increase net government spending which consequently accelerates debt growth or reduces the debt reduction rate (assuming there’s a primary surplus even after tax credits).Your claim that nobody’s debt increases is invalid.

      That’s not to say that I am against increased net spending when it is most needed, but as I have also argued on the post concerned, these tax credits are not much different than a bond issuance.

    • Hello Dean.

      Again, the tax credit system would work completely internally. The purpose of tradeable tax credits is to help liquidity inside Greece only.

      Germany’s concern is with the Greek government paying it’s foreign creditors. This is completely seperate subject from Greek’s trading with Greek’s inside the Greek borders and not using the Euro.

      And arguably anything that improves the health of the Greek economy would be good for the government and the people it owes Euros to.

      There are many reasons why this is not on the table, a debt free form of exchange is a scarey concept to the people who make money off the current monopoly system.

    • Hello Crossover

      Tax credits reduce government tax revenue in *Euro* terms yes,

      But they also reduce the government’s spends in Euros by the exact same amount.

      This is the core of the concept.

      It relieves some pressure that is building up due the dwindling supply of Euros. It gives internal trade a relief valve by injecting liquidity that does not increase anyone’s debt.

      A win-win for everyone except the tiny group of people who currently have a monopoly position on the medium of exchange.

    • Limitless:

      Let’s use the example of tax credits for photovoltaics. Without the subsidy the companies building solar projects simply will not do them.

      Yet Greece can’t do these projects anymore precisely because the government a. does not have the money to give out for the subsidy needed and b. the consuming public pays higher electric bills.

      So how would a tax credit work in such situation when 1. you are asking for public money that is not budgeted and 2. it turns out that is a horrible deal for the consumer?

      How do you justify such projects?

      The tax credits idea is centered around creating special zones for commerce. But if you create special zones for commerce it means that you are not part of the EU. If you don’t want to be part of the EU then why are going through such sort of trouble? (putting yourself out of, voluntarily, without the corresponding benefits key among which is to have your own currency)?

      It doesn’t make much sense, doesn’t it?

    • Hello Dean

      I think your over complicating things.

      Greek government accepts Euros and “credits” to pay taxes.

      Government uses the exact same number of “credits” to pay its internal (inside Greece) expenses.

      That’s it.

    • “But they also reduce the government’s spends in Euros by the exact same amount.”

      Until the tax credits are redeemed (i.e. people use them to extinguish their tax liabilities) and this materializes as an actual cost.

    • Why don´t all you Statists move together in a socialist or Statist community and be happy? That way you do not need to worry about others who do not want their lives run by others.

      I do not tell people how they have to live and I do not accept that someone tells me how to live.

  • Hi Yanis,
    Recently Mr Ferguson also made some interesting comments as part of a panel discussion which included Ronnie C. Chan and Joschka Fischer which everybody can watch here:–http://youtu.be/GhGUxjtpRcU .His comments in relation to Ukraine’s economic & political prospects were interesting to hear, but I was baffled by his insistence that at in the Crimean territory can be returned back to Ukraine in the not too distant future. Is he saying that if European applied addition Political & Economic as well as possible military pressure on Russia then Putin & Medvedev will change their minds?? The reality of everyday life for 99% of Ukrainians in the West & in the East involves a battle just get through day by day. The destruction of infrastructure, housing & basic services is devastating. So my suggestion to this “Happy-go-Lucky” Scot is to volunteer some of his precious time on the ground in Eastern Ukraine – I would be glad to be his translator!!

    • Niall Ferguson is a dangerous UK neo-liberal, Atlanticist and pro-neocon fellow traveller, disguised as an historian. Our European Samuel Huntington…
      To be taken with a large dose of salt.

  • I almost completely agree with the article, except for the following assumption:

    “However, my suspicion is that the enmity the majority of Europeans currently feel for ‘more Europe’ or for some ‘political union’ is not because Europeans are necessarily against the formation of a Federal Europe (although some Eurosceptics clearly are). No, they are against this particular type of authoritarian, anti-democratic political union that is offered them.”

    I fear that Europeans in general are in fact very much against a Federal Europe, however democratically legitimized it might become or not. That is not because they are against democracy, which is also not the reason why they are voting for nationalist parties all over the continent – it is because they do not understand what is going on. They are confused and afraid and thus they turn their favour in the direction of those who promise easy solutions.

    Right wing nationalists like le Front National, the german AfD and even the greek Golden Dawn thrive on the people’s need to at least find someone to blame for the misery they can’t seem to pull themselves out of. The members of the ‘extreme centre’ like Mr Ferguson – and I would count Mr Juncker, Mr Schäuble and Ms Merkel and even Mr Schulz among those as well -, while essentially doing the same as their competition on the far right by blaming the periphery for the crisis, have found a much better way to disguise it and sell themselves as leaders by example. Or they simply point towards Germany and her (white-washed) labour statistics and tell everybody to follow, assuring the people that they know best and can be trusted to leave everything in their capable hands.
    As the recent reelection of Ms Merkel has proven, austerity is an easy concept to sell to the voters. They may not like what it does to them, but at least they can understand the general idea.

    The left on the other hand can only lose at this game because their solutions, including your modest proposal, are not that easy to comprehend and need to be properly understood and thought through in order to be recognized as viable alternatives.
    It is highly unlikely that the mass of Europeans have even heard of there being alternative solutions to the one (more austerity) their current leaderships are advertising, that do not call for a break-up of the monetary union. And even if they had, it is questionable if they understood them.

    • Hubert:

      You say:

      “I fear that Europeans in general are in fact very much against a Federal Europe, however democratically legitimized it might become or not. That is not because they are against democracy, which is also not the reason why they are voting for nationalist parties all over the continent – it is because they do not understand what is going on. They are confused and afraid and thus they turn their favour in the direction of those who promise easy solutions”

      Of course you understand that the exact opposite might be true which is that citizens precisely understand what is going on. If you read the Sinn interview here the Berlin objective is abundantly clear:

      1. preserve the euro at all cost.
      2. push for deeper integration.

      You don’t have to be of either the radical Left and radical Right to oppose such blatant undemocratic aim. Even the average Joe understands that these 2 aims are elitist and have nothing to do for what is good and beneficial for the average citizen.


      Btw, denouncing euroscepticism as a product of fascism or extreme right wing ideologies is the crescendo of shallowness and superficiality. You never judge a book by its cover rather by its content. The content of euroscepticism is a solid as pure gold. What populists do with gold is of no concern of ours. Most people when they find gold they flaunt it; this is also part of the shallow human nature.

    • Dean,

      First of all, I didn’t call all of the eurosceptic parties fascists (with the exception of Chrysi Avgi, which must certainly be called a fascist movement). Most of them, however, are nationalists. Their campaign strategies are based on a very narrow-minded national perspective on the European Union and they basically tell their potential voters that the solution to the crisis is for everyone to look after their own propblems and forget about everybody else. Some (like Mdme le Pen’s FN) are actively identifying immigrants as a major part of these problems and many of them (like the german AfD) focus on what they call ‘traditional values’ to appeal to their followers and to exclude everybody who they declare as not having these values.
      I would call that the very essence of conservatism and since this is contradictory to the progressive and usually rather internationalist approach of the ‘left’, I think it is safe to call them ‘right-wing’ parties without being too shallow or superficial about it. Whether one could call them ‘extremists’ is certainly debatable and needs to be viewed per individual party/group and not as a general attribute for all of them.

      Maybe my perspective on this is too narrow since I am, after all, german and that seems to be the way we like to view things here.
      However, the german AfD is a prime example of how ‘right-wing’ parties are viewed by their voters and sypathizers to have easy solutions. In the latest elections in two east-german states the ‘alternative for Germany’ has had stunning results of 10.6% and 12.2% and is now holding seats in both state parliaments. If one believes the recent polls, many who had formerly voted for Ms Merkel’s CDU as well as for DIE LINKE (‘the Left’, which has been traditionally strong in east-german states) had now turned their favour towards the AfD. Although, when asked about heir motive more than half (57% and 63%) of the voters said that their decisions were mainly driven by their dissapointment in the current government and aimed at teaching those in power a lesson. The AfD themselves, of course, rejected these polls as EU-loyalist propaganda and claimed that they had been elected because of their political agenda and not just out of spite for the powers-that-be.

      However, if you actually talk to people on the streets (and by that I don’t mean the tiny minority of germans who actually care or know anything about macroeconomics) , who at least sympathize with – if not voted for – the eurosceptics, you almost always get the same impression: They don’t have a clue about their real political agenda, although they think they do. The perceived message is clear:
      – The Euro is bad for Germany
      – Inflation(!) will skyrocket if the ECB keeps on printing money
      – The Greeks (synonym for southern Europe) are entirely to blame for their own misery if
      not for everything else because they couldn’t keep their act together and
      – Southern Europe must be stopped from dragging Germany down by making us pay for
      their mistakes and thus either them or Germany herself must leave the eurozone.
      I am not saying that this is what the distinguished group of more or less market-fundamentalist economics professors who lead the AfD have in mind when they are talking about their agenda, but it is what the public perceives as such.

      Ms Merkel and her grand coalition are mostly associated by their voters with a slightly different, though no less simplistic interpretation of the current state of affairs:
      – The Euro is good for Germany
      – The ECB is forbidden by law(!) to print money and Mr Schäuble will personally make
      sure that it doesn’t, so inflation(!) won’t skyrocket.
      – We are sorry to say so, but the Greeks (et. al.) must be forced to get their act together,
      since they can’t be trusted to do it by themselves and so that we don’t have to keep on
      paying for their mistakes.
      – Everybody needs to stick together and do as the Germans do so that the EU may one
      day become the world’s largest exporter of cars, nuclear power plants, High-Tech
      weaponry and all kinds of other expensive stuff.
      Again, I am merely trying to convey what reaches the hearts and minds of average voters and not what is the actual political agenda. Of course there is a whole lot of neoclassical economic theory behind these simplifications, which almost nobody who doesn’t do it for a living can really understand and which is therefore mostly irrelevant to the voters’ decisions.

      Now, how to explain the positions of the so called ‘radical’ left – let’s take myself as a sympathizer of this particular group – to the average german citizen on the street:
      – The Euro, as it is conceived now is good for german corporations but that doesn’t
      necessarily mean that it’s good for their employees, their subcontractors and external
      suppliers or the domestic market in general. But that’s not the point anyway,
      because it’s what we have now and returning to our own currency amidst a recession
      could cause a whole lot of other problems. Yes, I know they say that the german
      economy is growing but that’s not entirely true. Why not, you ask? After all, we’re
      selling expensive stuff all over the world and our unemployment numbers are falling.
      Well, it’s complicated. How much time do you have?
      – The ECB isn’t “printing” money. It merely made a promise to buy governement
      bonds of member states on the secondary market. I think it would actually be better
      If there was some kind of system that allowed it to finance sovereign debt up
      to a certain point. But there would have to be safeguards in place to prevent the whole
      scheme from going out of hand. By the way, the real danger at the moment is not
      inflation but deflation, even the hard-core monetarists at the Bundesbank are
      beginning to see that now… Are you still listening?
      – Yes, Greece and other deficit countries have made some mistakes in the past but so
      has Germany. It doesn’t help to use Greece as a whipping boy in order to draw
      attention away from our own mistake, which is mainly systematic internal devaluation
      in order to increase competitiveness. No. I’m not saying that Germany has to stop
      selling expensive stuff all over the world but that she needs to keep her current
      account balance in check. Oh, you don’t know what that is. Let me try to explain…
      – At some point it may no longer be avoidable that the Eurozone be dismantled and
      that the member states return to their own currencies. Especially if everybody keeps
      following the german example, trying to cure themselves by means of socio-economic
      auto-asphyxiation. But that would not necessarily solve all the problems. At the most it
      would be choosing the lesser evil. I think it would be better if we could find a way to
      stabilize the Eurozone first in order to give ourselves pause and start re-examining the
      whole idea of a common market. There are a number of alternative proposals out
      there to achieve that goal, only our current leadership is dumb, deaf and blind toward
      those. Hey… are you still there?

      Of course, the eurosceptics as well as the euro-friendly centre (conservative / social-democrat) parties also offer more sophisticated explanations to those who are willing and able to analyse them. But – let’s not fool ourselves – most average citizens neither have the time nor the energy to dive into the economic fineprint and thus they prefer what they see as ready made solutions. The ‘left’, i.e.: those who still dare to think about real alternatives, have a hard time matching these simplistic perceptions with similarly easy statements.
      Contrary to common belief on the other side of the political isle, we (the ‘left’) are not just a bunch of socialist do-gooders clinging to romantic visions of unachievable equality or lost in dreams of neo-soviet empire. 30 Years ago the german left may have still been able to prove their point by simply stating that capitalism was inherently undemocratic and had to be kept in check by unions, worker’s rights, a functioning social security system and government regulations, which is essentially what social democratic parties – far from being viewed as ‘radical’ back then – used to do. But the neoliberal revolution that has swept all over the industrialized world since then, together with its institutional manifestation within the EU Comission have robbed the left of these simple arguments. Common belief is now that there is no alternative and in order to argue against a belief system they would have to make an effort that goes far beyond simple campaign slogans.
      The ‘right-wing’ eurosceptics, on the other hand, are not even reaching for future alternatives. They aim to conserve the past by promising to turn things back the way they used to be, avoiding to expose their followers to ideas of radical change. And that is the whole point of my lengthy argument.

      You are right, however. One doesn’t have to be of either the radical left or radical right to understand that the current state of the European Union is undemocratic and taylored to fit the needs of shareholders rather than those of average european citizens.
      Although I have to say, I don’t see what you are trying to explain by referring to the infamous Professor Sinn, who is anything but a neutral expert on the matter.

    • Dearest Hubert:

      I guess I deserved such a long and thorough explanation but fear not because you are one of the few people in this blog who could give me a complete dressdown without me seeing an iota of bad intent on your part.

      It is natural for one to be a sceptic when one is offered a bad and irrational deal. In Europe’s case the irrational/bad part is the concept of the eurozone because it has no foundation in either macroeconomics or finance. It’s a thoroughly artificial construct whose main purpose is to facilitate the incurable German condition known as “an impulsive need to trade or die”. This makes your country both very unpopular and an exporter of global depression to others.

      Now let’s talk about euroscepticism the same way we could talk about euroidiocy and euromorony. It’s true that eursceptics are primarily conservatives but you could not draw the reverse conclusion by association about the merits of their scepticism. You can not say for example “look we all agree about the merits of scepticism but because it happened to be espoused by some nasty rogues it is therefore a bad thing to be avoided because look who is for it”. This would be the sort of elementary thinking that does not belong in this conversation offered by this blog.

      Eurscepticism means a lot of different things to a lot of different people. To some it means being against the EU (for reasons of excessive regulation and red tape), to others the abolition of the evil currency the euro, to others yet the thoroughly undemocratic nature of the Brussels’ bureaucracy. Therefore we need not to waste any more time in matters of classification but rather look at the substance of the argument which is that something is seriously wrong and it can no longer stand as a rational proposition.

      You attempted to describe the ways the German public feels in perhaps trying to provide a justification of the current status of things (i.e. sympathy for the German position). Needless to say that what the German public fears the most (i.e. inflation) Merkel is doing in spades under their noses by another name (i.e. euro devaluation). Over the last month or so the euro has lost 8% of its value due the mechanics of internal devaluation which by the way Germany first practiced in absorbing the cost of East Germany’s reunification. So it’s an old trick, thoroughly practiced before and mastered. The problem here is that Merkel is imposing devaluation on the entire eurozone bloc and therefore creating an unfair trade subsidy for Germany. It’s one thing to devalue your own currency as a means of self-sacrifice in uniting your own country and completely another to send all eurozone members a devaluation bill because having a trade surplus of 200 Bil. euros with the world is satisfactory to you and you would like to keep it at such level for a very long time (in fact the theater goes that Germany would be very happy to sacrifice by preserving a record trade surplus frozen for a long time and forgo further increases in the gargantuan trade as a token of concession). This would be the equivalent of a junkie saying that they could overdose with drugs, but as a concessionary move one truckload of the white substance will do as the daily dose. Yeap, the German argument is so ridiculous.

      Moving over to Greece now which Germany considers a deserving recipient of austerity. Greece has an extremely low quality political class, completely out of depth and thoroughly incapable of grasping the macroeconomic implications of its eurozone malaise. The same goes for the Greek opposition which is at the lowest possible denominator of modern finance/macroeconomic sophistication level in the continent.

      So here is what your lovely Germany has done to Greece lately:

      1. Exported non-stop depression via austerity, loads of internal and external devaluation and in short whatever it takes to keep the euro alive (but not Greece).
      2. Provided political support to a badly suited pseudo-conservative government in Greece which saw an opportunity to extinguish its political opposition by following the Berlin doctrine while completely ignoring to protect Greek citizens in any way.
      3. Created an ineffective opposition whose main role is to punctuate why Greece should stay with the present program – which is killing her – because the opposition is worse than the incompetents who are running Greece at the moment (call it a political check mate).

      Therefore is you seek some understanding for the German position I would also like a reciprocal understanding for the worst position Greece finds itself in. Greece has no political talent, amateurs running it and an opposition that invokes far greater concerns that it portends to cure.

      BTW, since you were kind enough to declare yourself as a member of the progressive Left in Germany I can also truthfully say that there is no political party in Greece which expresses me. Think of me as an independent in exile, a rootless Ivanhoe entering jousting tournaments in the defense of Greece, while my beloved is tied to a pole burning as a witch on account of a German court conviction in absentia.

    • Dean,

      I’m afraid I haven’t made myself clear by writing that last lengthy explanation, so I will try to keep it short(er) this time. Again, it seems like we are having a big misunderstanding here.

      First, let me assure you that I am not a member of any political group either. (By the way, as an admirer of linguistic figures and metaphors I earnestly must compliment you on your Ivanhoe analogy! I feel like that myself most of the time.) I call myself a sympathizer of the (german) political left, mainly because they’re the only ones who are openly opposing Ms Merkel’s neoliberal agenda and her insane austerity scheme both within Germany AND the Eurozone and they at least hold a minority of seats in the german Bundestag.

      Secondly, I was not trying to condemn euroscepticism in itself only because people I don’t sympathize with and who I view as right-wingers or nationalists base their political agenda on it. I think it is perfectly legitimate to criticize the Euro and even the whole European Union in its present form and I absoutely agree with you – once again – on your assumption that Germany is driving the whole thing into the ground for purely selfish reasons, while pretending to act in the interest of everybody else. Whether this is due to incompetence or malice on the part of my government I cannot really say, but I assume it’s the former. I would even go as far as agreeing with you on the notion that the design of the Eurozone was flawed from the beginning and that dissolving it may well be the only way to rid ourselves of this faulty machine.

      What I do not agree with is the idea that doing so will turn Europe, or even Germany into the land of milk and honey, and what really disturbs me is that there are a lot of people out there who are willing to follow those who make that promise. And the reason for that is that people do not understand the economic implications of those promises.
      And what I am trying to explain is that, if we want democracy to work, we need to make people understand who they are voting for and what their real agenda is, be it ‘left’ or ‘right’. (Which, I admit, feels like a lost cause and, as far as knights’ errants go, rather seems to be one for a Don Quixote than for an Ivanhoe.)
      Granted, I am not an economist, so writing lengthy comments on an economist’s blog may be overstretching my competence. And I do not claim to have a solution to the proplems at hand either.
      I am, however, trying to understand what is going on and how economists think about it because, after all, they seem to be the ones calling the shots nowadays. I do not think, even for a minute, that politicians like Ms Merkel, or even Mr Schäuble came up with their european agenda all by themselves.

      So, I am not seeking understanding or even justification for the german government’s position, which – in my perhaps ideologically biased view – is really the position of german economists paid by german capitalists and the transnational corporations and financial institutions they own.

      My lengthy description of what I have experienced as the general public perception of the issue and of the political parties’ positions towards a solution here in Germany was merely an attempt at trying to explain why it is so hard for progressive ideas to pass the political threshold of ignorance and misinformation that bars the voters’ minds from access to anything but a conservative / ‘right’ approach.
      I chose the left position as an example for that because a) the modest proposal, which is being discussed here, is coming from that (progressive / ‘left’) direction and b) because I haven’t yet heard of any ideas coming from the ‘right’ that didn’t involve either austeritarian or nationalist concepts, which I do not view as a way of making progress.
      (One might see libertarian positions as a third way but, at least as far as I know, those are all based on an idealization of the ‘homo oeconomicus’ and the infinite rationality of ‘the market’ which I regard as an appalingly perverted and flawed depiction of the homo sapiens and complex human interactions. And I wouldn’t mind being called shallow and ignorant because of that.)

      If I understand him correctly, our host is not advertising the modest proposal as a cure for all the problems but merely as a solution for the immediate crisis so that people can stop accusing each other of being profligate parasites, agents of the evil EUSSR empire or proponents of a fascist dictatorship and instead come together to really think things through. And – although I have my doubts whether this is even still possible at this point – wouldn’t it be the smart thing to do?

    • Hubert:

      I agree with everything you say because as I explained earlier among other things I find it impossible to disagree with you.

      What is hard to comprehend about this crisis is the disconnect between intent and appearances. The appearance is that somehow we are concerned about people or groups of people as exemplified by member states if you wish. There is a great deal of talk about Italy and France at the moment whereas Greece used to be the topic of the past.

      Yet the real intent is the preservation of a currency at all costs. If you pay attention your own German media tells you(admits) so (look at the Der Spiegel link below. The entire crisis is summed up into “currency endangered”)


      Therefore for those managing the crisis it comes down to a single issue: currency survival. Not people, not suffering, not unity and certainly not camaraderie.

      So guess what? If the system tells you that its own vulnerability is the currency(euro) then you have no other choice but to hit the currency as a means of taking the system out of its own misery. It will not be “milk and honey” as you said nevertheless this unpleasant task must occur sooner rather than later because the more we insist on a flawed currency the more injury we compile.

      Our host’s proposal and other like minded proposals concentrate on curing the people part and as such are by definition uninteresting to a power structure bent on currency survival. The power structure mistakes the pain derivatives of the currency rescue efforts as politically manageable consequences mixed with folklore and mythology regarding the cause and effect. The lazies vs. the industrious and similar fables which abound testify to the deliberate framing effort to recast the real problem otherwise.

      Is it more clear now what needs to be done? Not by whom it should be done but rather why it should be done.

  • The word “referendum” only appears one in the text in contect to the Scottish referendum. There is no mention of a referendum for the peoples that ended up in what is now the EU.

    Are the federalists so sure that their federalism is so unpopular that they are afraid of a referendum on more Integration? If they are so sure, why not dissolve the whle mess at once?

  • ‘Εχετε γίνει γραφικοί και οι μεν και οι δε.

    Το τέλος του κοινού νομίσματος δε σημαίνει το τέλος της Ευρωπαϊκής Ένωσης. Σημαίνει απλά το τέλος του κοινού νομίσματος.

    Και εσείς κύριε Βαρουφάκη δεν είστε καθόλου πειστικός. Ενώ κάνετε σωστές διαπιστώσεις, οι λύσεις που προτείνετε είναι ανεδαφικές.

    Και φυσικά κάνετε λάθος όταν λέτε οτι οι πολίτες της Ευρωπαϊκής ‘Ενωσης δεν είναι ενάντια σε μια ομοσπονδιακή Ευρώπη. Φυσικά και είναι ενάντια γιατί δεν υπάρχει κοινή ταυτότητα, σε αντίθεση με άλλες ομοσπονδίες, πχ ΗΠΑ και Γερμανία.

  • “In essence, the decision means that Europe passes into a hastily, coercive federalization, in terms that serve exclusively the destructive neoliberalism. The ECB is converted into an equivalent European Fed, which means, gaining complete control of the money flow through the whole eurozone.”


  • Hello Greece, are you listening?

    ” Michel Sapin, asserted that the commission “cannot reject the French budget or any other budget.”

    He argued that the deep cuts which the EU wants to force on France would only worsen the country’s prolonged economic slump and record unemployment.

    “Thankfully, in our democracies, the only place where we adopt, we reject, we censure, are the parliaments of the countries concerned,” he told RTL radio. ”


    • Greece is listening carefully, and noted this with surging hope. The coalition government should under no circumstances be confused with Greece.

    • Could it be that the french are finally coming to their senses?
      That would propably be the only thing that could shake la Merkel out of her intellectual paralysis.

      Alons enfants de la patrie…!

    • Elenits:

      Forgive me for stating the obvious but the part of Greece that is “listening” amounts to nothing.

      Berlin has gone out of its way to ensure this coalition government, which you denounce, to be the only part of Greece which matters. And unless the part of Greece which only matters finally wakes up and synthesizes all the advantages that circumstances keep piling up in front of its door, then the whole of Greece is doomed.

      The opposition in Greece is irrelevant and frankly comical. The geopolitical game which unfolding in Europe has Greece as the great absent and Greek opposition as a very unwelcomed participant. There is no European player at the moment willing to work with Syriza. None.

      As for the coalition government in Greece it happens to be amateurish, out of depth and completely in Merkel’s pocket by design. Which means that Greece has tons of wax in her ears and couldn’t listen even if her life depended on it.

      We have a European rebellion in our hands against the austerity nonsense and Greece is AWOL.


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