The European Project is dead

When the GFC emerged and confirmed what Modern Monetary Theory (MMT) proponents had been predicting for more than a decade, I initially thought that this might be the ‘paradigm-shift’ line in the sand with respect to economic theory and policy. The OPEC oil price hikes in the 1970s provided the ‘space’ for Monetarism to usurp Keynesian thinking – not as a triumph of evidence and facts but as an ideological shift in thinking. The ideological battle had been going on for three decades in the academy but the oil crises exposed policy flaws in the Keynesian orthodoxy that were exploited by the Monetarists to allow them to reintroduce ideas (and policies) that had been completely discredited during the Great Depression of the 1930s. In the same that the dominant paradigm collapsed in the 1970s, I thought the GFC would so destroy the public credibility of Monetarism’s latest iteration, which we call neo-liberalism, that we could find intellectual space to restore rigor to economic policy and the way economics was taught in the universities. I even thought that the pragmatic and dramatically successful use of fiscal stimulus in most advanced countries would provide the empirical reinforcement necessary to repudiate and expunge neo-liberalism forever. I was wrong. But what the GFC has achieved as neo-liberalism hangs onto the reigns of power in policy making circles is a major breakdown of the so-called ‘European Project’. The creation of ‘Europe’, which was conceived after World War 2 as a means to maintain peace and create prosperity among previously hostile nations, was a major human achievement in the C20th. That vision is now in tatters as the neo-liberals, blinkered by their own Groupthink, steadily dismantle the meaning and application of that great Post WW2 experiment. Jean Monnet and Robert Schuman would be turning over in their graves to see what their ‘Project’ has become under the domination of Wolfgang Schäuble and his lackeys in the Eurogroup. So we might see the demise of neo-liberalism after all as it destroys the grand European political project

Jean Monnet, the French statesman who fought hard against the Nazis during World War 2 and became French Planning Minister (1947-1952), “responsible for organising France’s reconstruction”, was a major intellectual force in the what we now call European integration.

His daily challenges in trying to put the French economy back into working order after the Nazi devastation led to him suggesting to the French politician Robert Schuman (who later would become the inaugural President of the European Parliament) that the French and German coal and steel industries should integrate.

Schuman’s famous May 9, 1950 – Declaration – in the Salon de l’Horloge of the French Foreign Ministry (Quai d’Orsay) which set out the plans to establish the European Coal and Steel Community.

The ECSC involving France, West Germany, Italy, the Netherlands, Belgium and Luxembourg) would “pool coal and steel production” as part of a striving for world peace.

Schuman began:

World peace cannot be safeguarded without the making of creative efforts proportionate to the dangers which threaten it … Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity. The coming together of the nations of Europe requires the elimination of the age-old opposition of France and Germany …

The pooling of coal and steel production should immediately provide for the setting up of common foundations for economic development as a first step in the federation of Europe, and will change the destinies of those regions which have long been devoted to the manufacture of munitions of war, of which they have been the most constant victims …

By pooling basic production and by instituting a new High Authority, whose decisions will bind France, Germany and other member countries, this proposal will lead to the realization of the first concrete foundation of a European federation indispensable to the preservation of peace …

It was a grand plan. A plan for political security, economic prosperity all overseen by strengthened democratic institutions.

The so-called ‘High Authority’ to oversee the ECSC was composed of Member State nominees (in varying proportions) and met for the first time on August 10, 1952. Jean Monnet was the President.

The ECSC was the beginnings of the ‘Common Market’, which was later the core model of integration adopted by the European Economic Community.

Monnet and Schuman thought big and thought that a ‘European Union’ would end the long history of wars, border and religious conflicts.

They didn’t want to repeat the mistakes of the victors in the First World War, which ended in the Versailles treaty disasters.

The French embrace of the creation of European level institutions was more about ensuring Germany would never again go to war with them than any grand desire for a supranational entity.

In 1950, the Planning Office, under Monnet’s directorship, published the final draft of the proposal to establish the European Coal and Steel Community (French Planning Office, 1950).

The draft said, “The French government proposes immediate action on one limited but decisive point”. The reference to a limited step was significant. The proposal indicated that:

… the ‘solidarity in production thus established will make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible.

Monnet clearly considered the ‘common market’ to mean prosperity for all rather than a painful process where nations would race-to-the-bottom to undermine the working conditions of their population. People not corporations were at the front of his vision.

At the heart of his early thoughts on European integration was a conceptualisation of democracy. In working through how the so-called ‘Common Assembly’ (which became the European Commission), would work, Monnet understood that there had to be a democratic mandate.

On June 20, 1953, for instance, he said during a speech over the “Debates in the Common Assembly – Session of 20 June 1953 Address concerning the ECSC levy” that for the “Assembly” to interact effectively with the High Authority (which ran the ECSC) that permanent structures would be necessary:

… as this was essential to bring our institutions to life, a process in which, by necessity, this new European Parliament must play an essential part.

This was 8 years before the European Parliament was formally constituted as such.

He wanted the ‘Common Assembly’ to be autonomous and reflect the democratic forces within the new ‘Europe’.

But above all, Monnet wanted to stop any further German martial ambitions.

The next major step to integration came with the introduction of the Common Agricultural Policy (CAP) in 1962. In my book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – I analyse the CAP in some detail.

For our purposes here, the introduction of the CAP locked the European nations into a mindset that required them to maintain fixed exchange rates (for administrative ease), which proved mostly an impossible task.

It meant that the export strength of Germany came to the fore and the other nations were forced to run compromised domestic economic policies (higher than desirable interest rates, tighter fiscal positions, higher unemployment) to maintain the parities.

This on-going crisis-ridden system fed directly into the final design of the Eurozone and the tensions that are now apparent were already obvious in the 1960s as the nations tried to maintain the CAP.

When the discussions about furthering European Integration and creating a common currency became more advanced at the Hague Summit in 1969 it was clear that a democratic oversight of such a venture was to be central.

At this stage the European Commission was not all powerful. For example, France and Germany realigned their exchange rates in

The resulting Werner Report (released in March 1970) outlined a staged plan to a common currency. Again, I discuss it in detail in my recent book.

For here, the important insight is that the Werner Plan was designed to “to determine the elements that are indispensable to the existence of a complete economic and monetary union”.

Among other things, the Werner Report said that:

… only the global balance of payments of the Community vis à vis the outside world is of any importance. Equilibrium within the Community would be realized at this stage in the same way as within a nation’s frontiers, thanks to the mobility of the factors of production and financial transfers by the public and private sectors.

The conceptualisation of the newly created economic and monetary union as a new ‘nation’ where the member countries effectively become states of a federation was clearly thought elemental. That conceptualisation did not emerge around two decades later in the Treaty of Maastricht.

The Report was clear that national fiscal policy would not be responsible for addressing asymmetric development.

There was an extremely powerful statement in the Report (pp. 12-13), which echoes today:

The centre of decision for economic policy will exercise independently, in accordance with the Community interest, a decisive influence over the general economic policy of the Community. In view of the fact that the role of the Community budget as an economic instrument will be insufficient, the Community’s centre of decision must be in a position to influence the national budgets, especially as regards the level and the direction of the balances and the methods for financing the deficits or utilizing the surpluses.

And moreover:

… transfer to the Community level of the powers exercised hitherto by national authorities will go hand-in-hand with the transfer of a corresponding Parliamentary responsibility from the national plane to that of the Community. The centre of decision of economic policy will be politically responsible to a European Parliament.

The Parliament would be elected on the basis of universal suffrage thereby recognising that economic policy should be democratically determined and those responsible for the policy should be held accountable to the will of the people.

There was no hint that this level of intervention would be the domain of officials centred in Brussels who would do deals with unaccountable bodies such as the IMF that would result in millions of Europeans being made unemployed, which is the norm in Europe today.

The later MacDougall Report (1977) reinforced the need for a central fiscal authority and the responsibility of a European Parliament for the decisions taken by that authority.

A close reading of the MacDougall Report will leave one wondering why the Eurozone was ever created. The major issues they highlighted were clearly still relevant in the 1990s as the European political elites rammed through their ill thought out plan for a single currency.

The Report concluded that:

It is most unlikely that the Community will be anything like so fully integrated in the field of public finance for many years to come as the existing economic unions we have studied.

In other words, after a detailed study of the realities in Europe in the late 1970s, the team concluded that the desirable structure for an effective economic and monetary union would not be present in Europe for the foreseeable future.

Certainly, by the time Delors came to report in 1989, the necessary conditions for such integration had not materialised.

Indeed, the factors that, according to the MacDougall panel of ‘experts’ in 1977, rendered monetary union “impracticable”, were subsequently built in to the Maastricht Treaty.

The early visions of a united Europe were thus built on a fear of authoritarian rule and breaches of democracy that had become manifest when Hitler set off on his disastrous venture in the 1930s.

The narrative that is now being widely circulated in different forms by different commentators and analysts is that the Greek debacle in the last few weeks is a denial of those visions for democracy and inclusion.

Instead, authoritarianism has returned to Europe, with, unfortunately, Germany at the centre of the bullies, contempuous of raw democratic voice and reducing governance to the administration and enforcement of some technical criteria (fiscal rules etc), which the early integrationists knew could not work.

The Eurogroup (Finance Ministers and Central Bank officials, with Madame Lagarde seemingly a permanent guest) is an unelected cabal.

A recent legal opinion suggests that (Source):

The Eurogroup is an informal group. Thus it is not bound by Treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup President is not bound to explicit rules.’ I let the reader comment on this remarkable statement.

Authoritarian regimes place arbitrary rule to use Irish commentator Fintan O’Toole’s words at the centre of their dealings.

Formal rules hinder dictators.

The Eurogroup runs economic policy in Europe now and is unelected, unaccountable, and has not requirement for transparency.

It is the anathema of how the pioneers of integration imagined the ‘European Project’ to unfold.

The pioneers considered the ‘European Project’ would benefit all nations as living standards converged as the nations came together through the European Parliament to ensure that all interests were served.

No particular nation was to dominate.

Fintan O’Toole’s column (July 14, 2015) – Tormenting Greece is about sending a message that we are now in a new EU – outlines the way that the European Union has been destroyed by the recent events.

He says that “whole notion” of a “closer union” was built on “three conditions”:

1. “the process of European integration was consensual – each member state would pool more and more of its sovereignty because it freely chose to do so.”

2. “these incremental steps were, to use the terms applied to monetary union in the Maastricht treaty, ‘irreversible’ and ‘irrevocable’ – once they were taken, there could be no going back.”

3. “unspoken but completely understood, was that Germany would restrain itself, accepting, in return for the immense gift of a new beginning that its fellow European countries had given it, that it must refrain from ever trying to be top dog again”.

He considers the way that Greece has been treated in recent weeks “torched” these “fundamental conditions”.

It is hard to disagree with him.

Greece has become a colony of Europe and the IMF. Technocrats will now be allowed to march into Greeek ministries and demand access to documents and strategic intelligence.

Remember, these characters are likely to be jumped-up graduates of some deeply flawed mainstream economics program who have little judgement, poor knowledge and an advanced sense of their own technical skills.

Psychologists have concluded that mainstream economists display the same sort of antipathy towards their fellow citizen as sociopaths. Their students are prone to inheriting this cruel view of humanity.

Greece will also have to submit its legislation to the Troika editors for their approval. Since when has a democratic nation had to do that?

Former Guardian German commentator David Gow wrote on July 17, 2015 – Germany Undoes 70 Years Of European Policy – that the:

2008 crisis and its aftermath have dismantled much of that hard-won legacy. Germany has become self-satisfied and complacent about its economic prowess, its export record, its “black zero” budget balance, and, not least, its “reforms” – mainly labour market changes introduced by a social democrat Chancellor, Gerhard Schröder, that led to several years of declining living standards for workers and record corporate profits and boardroom salaries. It now is trying to impose this model on the rest of the Eurozone – including its long-standing French “partners,” objects of derision for their unreformed statism, on the other side of the Rhine. Am deutschen Wesen soll Europa genesen is certainly making an unwelcome come-back. As is the self-preening “stability anchor” mantra intoned by successive Bundesbank presidents from Pöhl to Weidmann.

The ‘ugly German’ or to use Delors own framing the “German question” is back – centre-stage in Europe – and it bodes poorly.

Dow concluded that:

Stupidly, its political class, including unforgivably Social Democrat leaders, is undoing seven decades of foreign policy – and, what’s worse, of rebuilding the country’s image in the world.

The article by Cédric Durand (July 16, 2015) – The End of Europe – is also worth consideration.

There have been many similar articles in recent days – all expressing the view that the ‘European Project’ as envisaged after the Second World War is dead and a new, ugly, German-dominated, anti-people Europe has emerged which will disintegrate into a new period of political and economic turmoil.

The folly of Groupthink.

On a related issue, the former Greek Finance Minister wrote an Op Ed in the German Die Zeit (July 15, 2015) – Zu Schäubles Plan gehörte es, Griechenland fallen zu lassen.

He put an English-language version on his own site – Dr Schäuble’s Plan for Europe: Do Europeans approve?.

In the English-language version he wrote that:

The Eurozone’s faulty foundations revealed themselves first in Greece, before the crisis spread elsewhere …

While Greece has been an important ideological experiment the faulty foundations were revealed long before the actual GFC manifested and go to the heart of how the ‘European Project’ has destroyed itself.

Even as early as July 4, 1991, the European Commission issued a Communication to the European Council – Resuming Progress Towards Convergence of Economic Policies and Performances in the Community – in which they which expressed the concerns that it had for the lack of progress towards economic convergence, given that Stage II of the transition to economic and monetary union was “‘only two and a half years away”.

The Commission identified “worrying set-backs” among some countries in terms of rising fiscal deficits in the face of an acknowledged “less favourable economic situation”.

What they were finding almost immediately was that the fiscal rules envisaged under the Stability and Growth Pact (SGP) were not suitable for the swings in the economic cycle that European economies encountered and the impact those fluctuations had, via the automatic stabilisers, on the fiscal outcomes of the Member States.

The Groupthink that has destroyed Greece in recent years was well advanced in 1991.

The Commission, extraordinarily, claimed that it was appropriate for Member States to enact harsh fiscal cutbacks in the recessed environment of 1991 because:

… the policies required to strengthen growth fundamentals are also those necessary to improve convergence.

This is an early statement of the ‘fiscal contraction expansion’ mantra that has been at the forefront of the imposition of fiscal austerity during the current crisis.

The fault lines in the monetary union thus were evident even before the Maastricht Treaty was signed. The austerity mindset was established by the Delors Report in 1989 and the denial has only intensified since that time.

The wheels had starting falling off back then.

On October 25, 1991, the President of the European Council Wim Kok appeared before the European Parliament in Strasbourg.

It was reported in – European Parliament, Rapid Information Note, SP (91) 2669, 21-25 October 1991 Plenary Session – that
Kok said:

Maastricht … was just seven weeks away …

The emphasis was in relation to the major issues that were still unresolved including final agreements on the reference values for the binding fiscal rules and the mechanisms that would curtail the yet to be specified excessive budgetary deficits.

Even the single currency was not yet unanimously accepted.

Further, there was no agreement as to how an unelected and politically independent European Central Bank would be consistent with democratic ideals.

In that regard, there “was no consensus among Member States over executive decisions and the role of the European Parliament”.

Delors, who also appeared at the same session, muddied the waters by urging the discussion not to adopt a “solely arithmetical appreciation of deficits”.

In other words, universally binding numerical rules would unlikely be in the public interest – he knew it and wanted to cloud that reality over. The flawed design was visible to anyone who wanted to look.

But the denial was intense because the Eurozone was an ideological invention rather than a serious attempt to bring prosperity to the people of Europe.

I could go into more detail but the point is made.

The faulty foundations were also visible long before the currency was even introduced as the nations struggled to meet the so-called convergence criteria before ‘Stage III’ of the transition were finalised.

At the time, no-one believed that Italy much less Greece would meet the criteria. If Dr Dr Schäuble was aiming to get rid of Greece, then his predecessor Theodore Waigel was clearly against Italy being part of the original deal.

His 1995 submission which led to the final design of the SGP was targetted at Italy. To satisfy the Meister Waigel, Italy put in a draconian fiscal package of spending cuts and tax increases in 1998 which led Waigel to declare:

Italy has achieved remarkable success

He forgot to mention that the unemployment rate was already above 11 per cent and continued rising during that year as a result of the austerity.

It was obvious that the fiscal rules would entrench higher than necessary unemployment.

I could also mention the ratification farce – where citizens essentially were precluded from actually voting for the creation of the common currency after disastrous referendum votes in Denmark and France in 1992.

The ratification process did not provide positive reinforcement for the political manoeuvres that had ensued since the Delors Plan was released in 1989. There was uncertainty, dissent and in retrospect, a sense of foreboding of what was to come.

Then came the 1992/93 monetary crisis which should have stopped the whole venture in its tracks. This was the Black September and related meltdowns in the fixed exchange rate mechanism which demonstrated the sheer idiocy of trying to stitch all these nations together in a common currency arrangement.

With the tensions rising in 1992, the Germans once again demonstrated their destructive capacity in terms of that European Project (that has been for all to see in the current period).

The Bundesbank pushed up interest rates on 16 July 1992 because of its concern for rising inflation associated with the reunification. This had the effect of further reinforcing the view that the mark was undervalued.

This was especially the case given that US interest rates had been cut on 2 July 1992 as America battled to avoid recession. The obvious happened.

International currency speculators sold the US dollar, the lira and the pound and shifted massive volumes of funds into the mark.

By pushing interest rates up in Germany, the Bundesbank demonstrated it was more concerned about its own monetary conditions irrespective of their overall impacts on Europe’s exchange rate mechanism.

It was the leading currency and the strongest trading economy and thus it had to take leadership in helping the other currencies retain their agreed values in the European Monetary System.

To help the French franc and the Italian lira etc, the Bundesbank would have to sell marks. It selfishly allowed its own inflation obsessions to dominate and the EMS became highly unstable – again!

The Bundesbank decisions were particularly problematic for Germany’s neighbours because they faced recession and unemployment was already high. The increased German interest rates forced them to increase their own interest rates beyond the levels deemed prudent given their domestic circumstances.

Monetary policy was locked into ensuring the exchange rates were stable and higher unemployment was the casualty.

The increasing political backlash to the high unemployment raised further doubts in the financial markets as to the commitment by policy makers to maintaining the ‘no realignment’ policy.

We knew even then that the common currency model proposed in the Maastricht Treaty which would be dominated by Germany would fail – back then.

The September 1992 currency crisis clearly reinforced that view. Only the British were sensible enough to pull out of the madness – floating their currency and restating their currency sovereignty. The foolish decision of John Major and his Foreign Secretary Douglas Hurd to push Britain into the ERM was reversed.

The 1992-93 crisis demonstrated that the system of fixed exchange rates or even tightly linked exchange rates between economies that were disparate in structure and performance would always fail with mobile capital.

After that crisis was swept under the carpet, the next disaster was the convergence process which descended into farce as the Germans had to fudge the books to get close to the unrealistic criteria.

Despite Theo Waigel’s constant warning that in 1995 that each country proposing to go to Stage III had to be in “strict compliance with words of the Maastricht criteria”, by 1997 France, Germany and Spain had deficits above 3 per cent and could not really appeal to the special circumstances clauses as a way out.

Further, the public debt ratios in Germany and Spain were above the 60 per cent threshold and had been increasing since 1995.

By contrast, although Italy’s public debt ratio was well in excess of the criteria, it had been falling. Further, Belgium was in a similar situation to Italy. Tactically, Germany could not isolate Italy without pleading some special case for Belgium, which of course it attempted without success.

It became obvious that Germany itself might not meet the deficit and public debt thresholds laid out in the convergence criteria and internal dissent within Germany was rising.

Waigel’s response was exemplified by his claim that:

I have never nailed myself on the cross of 3 percent. When I said in the past ‘3 per cent means 3 per cent’ I did not necessarily mean 3.0 per cent’

This was astounding gall.

It was also later revealed that Germany had been pulling the same sort of accounting tricks that it has accused the ‘southern’ nations of adopting to fraudulently satisfy the criteria.

The convergence farce demonstrated that the final decision on who would enter the EMU would be political and the convergence criteria were really a smokescreen, a sort of delusional security blanket designed to placate the German public and the conservatives elsewhere that the process was disciplined and sustainable.

There was no economic logic, just a set of arbitrary numbers grabbed out of the air, which were then backfilled with a series of spurious ‘economic’ reports that claimed to represent these numbers as ‘economic knowledge’.

They were never that. They were always just ideological statements about the Monetarist disdain for government activity.

And then we need never forget the 2003 fiscal crisis where the SGP criteria were shown to be incapable of consistency with prosperity. And, Germany was at the centre of the rule breakers then!

In 2003, Germany was one of the first nations to transgress the SGP rules. Its partner in crime was France. What followed was astounding, especially when we consider how Germany has played it tough with its smaller, more fragile EMU partners in the current crisis.

By 2002, Germany was heading into recession and its deficits were rising well above the 3 per cent rule limits.

It was ordered to reduce the deficits but defied the Commission because it new that any further slowdown in the German economy would generate a larger deficit because unemployment would continue to rise.

Germany (and France) was in breach of the rules by the end of 2002 and was now caught up in the trap it had set for Italy, Greece and other ‘suspect’ nations.

The German economy further contracted in 2003 and the fiscal balance rose to 4.2 per cent of GDP up from 3.8 per cent in 2002.

After months of Commission rulings and demands that it reduce its deficit, the matter came to a head when the Council defied the Commission’s recommendations that the response of both the French and German governments to their earlier demands was inadequate under the terms of the Treaty and that further action under the EDP be triggered and a much tighter frame required for resolution.

The Finance Ministers (who advised the Council on these matters) decided under German pressure to ignore the recommedations.

The Eurozone as envisaged effectively ended at that point.

The matter went to the European Court of Justice as the Commission sought redress against Germany and France. But the real politic was that the rules were bent then changed in favour of Germany and the Groupthink pushed the disaster down the road a bit.

Then the GFC struck and we know what happened then.

So Greece is just one step along the path of this disastrously designed system. The neo-liberals claim now that there is no alternative (TINA) but Britain knew all along there was – retain currency sovereignty.

Once the Eurozone nations surrendered that and didn’t follow the wisdom of Werner they were done. Greece didn’t expose the flaws – it has just endured the worst of them.


The extent to which the neo-liberal Groupthink has contained the debate is evidenced by the BBC News Report (July 13, 2015) – Greece ‘back in serious recession’ despite rescue.

In relation to the hideous further austerity that will now be inflicted on Greece, an economist from the so-called progressive Levy Institute in the US, who is working as the ‘Alternate Minister for Combatting Unemployment’ in the Syriza Government, was quoted as saying that:

Mr Tsipras had no choice but to capitulate in the face of pressure from creditors, led by Germany, because the alternative was the complete collapse of the banks, and the meltdown of the economy.

Which is just apologist rubbish (per my Tweet yesterday).

The TINA mentality is how the Groupthink corners any political leaders who might think outside the mob rule.

Of course there was an alternative and if Syriza had have shown leadership consistent with its mandate to end austerity it would have discussed with the Greek people the benefits of exit.

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It is a long book (512 pages) and the full price for the hard-back edition is not cheap. The eBook version is very affordable.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

This Post Has 30 Comments

  1. It is worth reading recent commentary by Mark Weisbrot “European authorities refuse to let the Greek economy recover, making eventual Grexit more likely” :

    Quoting from this article:
    …. the current deal, if it holds, almost certainly will not allow for the Greek economy to recover. The primary budget surplus targets of 2, 3, and 3.5 percent of GDP for the three years of the deal, 2016 through 2018, will make sure of that, given that the country is running a primary budget deficit right now. Of course, the government is unlikely to be able to meet these targets as the economy and therefore government revenues shrink. The Financial Times estimates that primary surpluses will contribute just 4.5 billion euros over the three years. Even if this estimate turns out to be low, this is a small part of a package currently estimated at 86 billion euros.

    The fact that European officials are willing to keep the Greek economy indefinitely stuck in a depression for such a small fraction of the money that they are putting up – really pocket change relative to their resources – should be an eye-opener for anyone who is following the drama. It means that the European authorities are really not interested in an economic recovery in Greece in the near future. It also indicates that this fight is not mostly about the debt itself, but part of a much larger political struggle over what kind of society Greeks (and tens of millions of other Europeans) will live in.

    The European authorities have now made it clear that – so long as they are in control of Greece’s economic policy – the country’s depression and mass unemployment will continue indefinitely.

    …. since the masks have come off and the whole world can see how mean and ruthless the current leadership of the eurozone is willing to be in order to impose their own brand of economic order on the common currency area. If Greece left the euro, things would likely get worse before they got better, but the economy would recover.

    As is well known, Argentina suffered a very severe financial crisis after it defaulted on its debt at the end of 2001 and de-linked its currency from the dollar in January of 2002. However, the economy was growing three months later, and went on to grow 63 percent over the ensuing six years – one of the fastest rates of growth [PDF] in the world during this period. Contrary to popular belief, growth was not driven by a “commodities boom” nor by exports. Although Greece has more exports as a percent of GDP than Argentina did, and would benefit from a devaluation, the main boost to recovery – as in Argentina – would come from being able to escape from the destructive economic policies imposed by foreigners. (Argentina had just one-third of the troika to deal with – the IMF – but it was a pretty deadly constraint.)

    Some economists have correctly noted that a default and devaluation that involves creating a new currency presents additional challenges, as compared with Argentina’s abandoning the peso/dollar peg. But this does not change the basic story. A developed economy does not transform itself overnight into a failed state, simply because it exits from a currency union. We can look at the worst financial crises over the past 25 years, and none of them resulted in the kind of economic damage that Greece has already suffered. It is not clear why anyone would argue that Greece would be worse off leaving the euro than it would be three years from now if it were to follow the economic program that it is currently finalizing with the European authorities.

  2. Dear Bill

    If the European project is dead, then that is at least one thing to cheer about. European unity was a silly idea from the beginning. All claims made for the beneficence of the EU and its predecessors are false. First, the notion that the EU preserved peace is laughable. There was no real peace in Europe between 1948 and 1988, but there was a cold war. Europe was divided into 2 hostile blocs. If that cold war had become hot, it would have been the most destructive and murderous war in European history. Fortunately, it didn’t become hot, but the credit for that should go the decision-makers in Washington and Moscow, not to the centralizers in Brussels.

    it is totally unbelievable that it was de Gaulle and Adenauer who kept the peace between West Germany and France. War between them was no more possible than war between East Germany and Poland. The latter would have been stopped by the Soviet Union, and the former was made impossible by the Americans. Does anyone really believe that the Americans would have allowed a war between West Germany and France? It is true that harmony between Germany and France is a precondition for peace in Western Europe, but to attain such harmony there is no need for an EU, at the most for a Franco-German confederation.

    Real friendship requires trust. Well, the French were opposed to German reunification. They pursued the traditional French line that Germany has to be kept weak and divided. That tells you all you need to know about how real the “friendship” between France and Germany was in 1989. Suppose that we have 2 neighbors who have come to blows several times. Now they decide to bury the axe, and to make sure that they will remain friends, they plan to get married. Is that a good idea? I don’t think so, but that was roughly the idea that the EU builders had.

    If you put small nations together with large ones in the same political entity, then the small ones will still be small and can be outvoted. Just ask the Scots, who are part of the same polity as the English. The Scots may prefer Labor, but if the English prefer the Conservatives, then that is what the Scots will get, and have been getting. Political unification can only be successful if there is prior national unification. There is no European nation. A Dane who finds himself in Greece, Portugal, Slovakia or Hungary is among foreigners, even though they all have a EU passport. We should have learned by now that common citizenship is not sufficient to create a common nationality. The headquarters of the EU is in Brussels, a country created in 1830, but that is still as divided between the Flemish and Walloons as ever. There is a country called Belgium, but there is no Belgian nation.

    Er is een Belgische koning.
    Er is ook veel Belgische vertoning.
    Er is een Belgische vlag en een Belgisch lied.
    Maar Belgen, nee, die zijn er niet.

    There is a Belgian king.
    There is also a lot of Belgian ceremony.
    There is a Belgian flag and a Belgian hymn.
    But Belgians, no, they do not exist.

    Quite right, there are no Belgians in the national sense, just in the political sense. Likewise, there are no Europeans, except in a geographic and political sense.

    Second, the claim that the EU made Europeans more prosperous is false. True, Europeans are much more prosperous today then in 1945, but a lot of people outside of Europe have also seen rising prosperity since WWII. Inside Europe, countries that didn’t join the EU also prospered. Countries that joined much later haven’t done worse than those that joined right at the beginning. Prosperity doesn’t require transfer of sovereignty to a supranational entity like the EU.

    Third, the argument that the EU was an instrument for democratization is unconvincing. Granted, there are far more democracies in Europe now then there were in 1950, but we should get the causal direction right. Countries didn’t become democracies after they joined the EU, but they could join the EU after they had already become democratic. If Eastern Europe is democratic today, then we should thank Gorbachev, not the EU.

    In conclusion, it wasn’t the EU that brought peace, prosperity and democracy to Europe, and it certainly wasn’t the euro. The EU may be a fixation of the European elite, but it doesn’t live in the hearts of ordinary Europeans. If I were European, I would like to see both the EU and the euro disappear.

    Regards. James

  3. James, not only that, but European nations failed to stop murderous ethnic war in the Balkans barely 20 years ago.

    The ‘european project’ is just an autocratic corporate project, nothing else.

  4. The EU is an overkill that lost its only ‘raison d´être’ in the same year of the Maastricht Treaty signature as the Soviet Union collapsed.
    There is not and there was not anything “grand” in a project that targets and targeted to destroy the greatest wealth of European people: the highest planetary diversity of nations and cultures in a given surface of land.
    This would not be the case for a European Community of Independent States.

  5. “Some economists have correctly noted that a default and devaluation that involves creating a new currency presents additional challenges”

    It’s not correctly noted at all.

    The new currency automatically pops into being the instant that Euros are not cleared via TARGET2-ECB but have to be swapped in exchange.

    The ‘additional challenges’ are for those economists who really don’t know how systems, banks and foreign exchange actually work.

  6. Bill, Missing end of sentence(s).

    At this stage the European Commission was not all powerful. For example, France and Germany realigned their exchange rates in

    The resulting Werner Report

  7. A small point. I would characterize the Bretton Woods period, which lasted from after the war until August 1971 when Nixon unilaterally abolished it, as being “quasi-Keynesian”. One of its theoretical developers and cheerleaders, Samuelson, referred to it as “neoclassical synthesis Keynesianism”, and one of its more acidic critics, Joan Robinson, called it “bastard Keynesianism”. Pro and con Bretton Woods, neither group considered the framework in play to be strictly Keynesian. Samuelson’s term suggests that the neoclassical takeover may have begun as nothing more than dropping a few troublesome principles rather than the replacement of one paradigm by another. Part of the “new” paradigm was already in place, along with its zealous disciples.

  8. James, I think your view of what a federal system could be is too limited. Take that of the US. With respect to the Iranian deal that has just been struck, when Obama presents it to the Senate, every state, large and small, has an equal vote to any other. This contrasts with the House of Representatives, where state populations determine how many representative each state will have in the House. It was an attempt by the founders to balance state rights with public rights.

    The Eurozone, on the other hand, which I distinguish from the EU, although it appeared to work initially, has failed dismally due to lack of attention to basic structural principles, pointed out by some of those who were responsible for its initial construction. Some of the elite who urged its construction were deluded about the consequences they thought would follow, while others were working from completely different conceptions of what sort of project they were engaged in, and neither of these differences were made clear at the time, nor are they now, except perhaps inadvertently. While not ideal, it is not unusual I think, as the same sort of differences are being “integrated” in stitching together the current Iran deal.

  9. Henry Miller once wrote “that which must be held together by force is doomed to fall apart”; this seems to be a rather astute observation of all human endeavor. There is some feeling coming out of this that nations, especially Germany, were not comfortable with the idea that sacrificing sovereignty for a greater chance at lasting peace would be something they could live with.
    What nation could be? Along with sovereignty goes the ability to support any semblance of democracy and the common good as it applies within the context of a national identity as defined by the history, culture and democratic process within the nation.

    Many on the left have a well developed sense, fear perhaps, presumably due to events like the second world war, that promoting sovereignty is tantamount to promoting extreme nationalism. This makes governing a democracy in a big world a balancing act. Protecting sovereignty/democracy and thus the ability to promote and maintain the common good within a nation requires a disciplined sensitivity and respect for other democracies. We used to think the UN could help with that.
    Neither it nor any super power can provide the type of measured discipline required from within nations for true multilateral cooperation to florish.

    Extreme nationalism and it’s imperialist-empire building tendencies seem to grow out of party politics in a democracy whenever members allow their thinking to become clouded by influential self serving power seekers with a business agenda, who are skilled in the art of recruitment; that is fostering groupthink, a profoundly anti democratic act. There is a difference between consensus and groupthink.

    Democracy does not run according to individual desires or individual timetables as the rules of finance dictate so yes, the current European project is dead and the world will be better for it. Trying to create a force such as fear or debt to bind nations in peace is futile and ignorant of history.

    Nations need to have the will to cooperate with one another, a carrot rather than the stick. Advancing the common good within nations through sovereign fiscal policy may depend on fostering a universal will to advance the common good among nations. Market fundamentalism applied on a global scale is not a good candidate for a carrot; this has already been demonstrated and should now be relegated to the history books.

    A possible answer (my utopian dream) might be found in some international treaty in which mutually beneficial trade between any two nations becomes a privilage bestowed upon the prospective parties by mutual (democratic) agreement among all nations after issues of fairness and neccesity and impacts have been duely debated. Violations would be punishable by international sanctions on both violators. Rather than free trade this could be considered freeest possible trade while ensuring the global common good. All standing armies would have to be abolished beforehand ( I did say utopian).

  10. To James Shipper
    I am a european expat living in another european country namely a french person living in the uk.
    I take issue with some of your comments.
    You claim that there is no such thing as a European nation, but the EU has made it easy for us to become not only bi/tri lingual but also bi/tri cultural , as such has fostered a common european consciousness, no small achievement imo.
    Maybe the reason why actually many ordinary european citizens are concerned today with ordinary greek people and attempting to come to their rescue.

    You also claim that the EU has not furthered democracy especially, however you are ignoring the fact that a candidate state has to fulfill certain democracy conditions before it too can join the union.
    Is it not one of the reasons Turkey was rejected?

    You write that De Gaulle had no power no independance viz the USA , did he not if my memory is correct stop France joining the OTAN precisely to maintain independance re war decisions ?

    You assert that the EU did not make its members more prosperous, well i consider myself well placed, living in ultra-liberal uk , to judge that our us little people living/working conditions here would have been much worse were it not for the EU and its high minded asociated body, the European court of human rights.

    Finally you conclude that if you were european you would not want the EU, well the point is you are not a european.If you were you’d be a completely different person whose mindset it is absurd for you to try and second guess here and now.

    Regards. a european.

  11. So it would appear that the initial mistake was to tie everyone to the Deutschemark. Once that was set as the benchmark then it automatically meant that economically speak, the Germans would be in charge. It’s also produced this mentality in the Germans that they don’t really need to do anything to make the system survive, as the way it was set up meant that convergence has always been towards Germany, never that Germany had to do that much to converge with the others.

  12. Whew, James, what a fantastic comment!

    I totally agree with all of your sentiments. It is not often that you read such distilled sense.
    To buck the current trend, I note that you do not single out a single country that has caused all the problems. This is a disingenuous ploy being spread around that clouds the difficult-to-accept truth. Sure, some countries have benefited from the EU & EMU and some have not. However, the citizens can hardly be blamed for the failed experiment. As things stand now, we are closer to confrontation between European nations than ever before since WW2. So much for the Euro-Dream!
    I regard myself as a European, if only by residence, and I would also like to see both the EU and the euro disappear.

  13. Under the current arrangements of Finance Capitalism, all the chips in Life’s Casino are issued by the Casino and are repayable with increase to the Casino. Every punter who gets ahead (has a credit balance) does so because the rest of the punters collectively are in debt over and above their amount of credits, and to this exact amount.

    The only things that can pay off the punter’s collective debt, are chips issued as a credit, free and gratis to our punters, but the Casino is disinclined to embrace this form of distributism. The punters don’t want to think about this too much as it makes their head hurt. Their intellectuals think they could make it better by giving out land and cows, but the Casino says “Piss off, we only accept our chips in repayment for our chips which you have borrowed from us.”

    Since all values are designated in chips and the Casino has created all the chips that exist, and has the privilege of doing so costlessly, all things that chips can buy are owned by the Casino to the full extent that the Casino wants them. Yes, they will lend you some chips to buy cows, but only on the basis that these cows can be sold later for more chips that you borrowed, and that you share this increase with the Casino.

    Subsidiarity demands that what a lesser entity can do should not be usurped by a higher one. Does this mean that higher structures should not exercise a choice where persons as individuals are capable of making that choice? Surely it does.”
    Oliver Heydorn July 2015

    Mmt is merely finance capitalism operating within the restraints of the nation state.
    Europe today is perhaps the full expression of its goals under the market state system.
    So Europes sin is that it is merely making capitalism look bad……..
    Well I have news for you Bill .
    Capitalism ( state sponsered usury ) is bad any way you cut it.
    Finance has gained so much power today that it simply no longer cares about the optics.

    The ECBs overtly political role is simple finance operating on open ground.
    Therefore in some ways it is indeed refreshing to see its tooth and claws rather then it wearing grandmas clothes.
    The ECBs actions point to the people behind the monopoly of credit like no other.
    We are simply witnessing the final acts of the seizure of the commons by this satanic Venetian cabal.

  14. Bill,

    I wouldn’t agree that the European project is dead. Not quite yet anyway.

    The Greek government has been stifled, so what happens in Greece now is absolutely going to be the responsibility of the Troika. No-one else. If the EU ruling class are smart enough they will learn from their mistakes and do what is needed to make Greece and the euro system function properly.

    If they aren’t, they the system will struggle on from crisis to crisis and its death will be painful and protracted. I’m hoping that doesn’t happen but I’m not optimistic.

  15. Dear petermartin2001 (at 2015/07/21 at 10:43)

    If the what happens in Europe now is, in your own words, “absolutely going to be the responsibility of the Troika” then by your own admission the ‘European Project’ is dead.

    I remind you that the Troika includes the American-dominated IMF. The original Project never envisaged a dictatorial threesome running over democratic intent and destroying the prosperity of the European population.

    best wishes

  16. Bill,

    I hope you’re right, and I’m wrong, about the death of the European project. I was optimistic at one time but the sooner it all ends the better! AFAIC

    I was optimistic about Syriza at one time too. That’s all gone now. How about this from state minister Nikos Pappas, one of Tsipras’s closest aides?

    “What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false”

  17. Again I point to the British banking union.

    Success = famine.

    It took perhaps 300+ years to reduce Ireland.
    First really starting with total war /creation of ranch like structures as the country was planted in the 1500s /1600s ( 1half to a third of the local Munster population was wiped out)
    Total elimination of trade other then with mother England which adjusted its commerce to absorb huge external surpluses
    Some local capitalistic concentration in late 1700s Dublin as the population could at least make do supplying the likes of Wellington as he whored and gambled.

    Final collapse of the population some decades later as they were pushed on to high ground to free up better land for cash crops. ( no local money generating capacity forced the export of real wealth at all costs)
    Some sort of small scale rural revival in late 1800s and early 20th century of which the co-op movement was the best of a bad lot.
    So as to reduce costs (garrasions require real inputs) the Brits pulled out after the great war.
    They gave us the paint HM postboxes green experiment
    Ireland became increasingly corporate ( all local governing structures having been wiped out)as we moved into the post world war world.
    Corporate administration increasingly became transferred to Europe.
    Again the country is repeating the late 1700s/ early 1800s experience as we entered the second act of union phase post 1992 ~.
    Famine will arrive soon for people outside the corporate loop.

    I am talking about a 500 year period of History , no short period of time
    Total devastation can be sustained for many centuries at least.
    In fact history repeats.
    The EU is just getting started.

  18. Bill ~
    The web link provided by Mike Sax contains promotional malware in the form of a web page which forces a hard crash of the entire browser session to close. Readers should not be directed to this page, as unsophisticated users may require a complete system shutdown to escape it.

  19. Dear Benedict@Large

    Thanks for the vigilance. I have deleted the comments and placed the author on my watch list.

    Best wishes

  20. For the record I don’t have any malware. I write legitimate posts. I am trying a new ad campaign that is an alternative to adsense that may be a little aggressive but have no ill intent and it doesn’t destroy your system.

    I’m sorry for the problems. If I get more bad feedback about these ads maybe I will have to drop them.

    I am disappointed that you would immediately presume the worst.

  21. Again it’s tough for publishers who enjoy writing but just want to make a little income. Adsense drops people without explanation so I was trying to find an alternative.

    I did worry that Revenue Hits was too aggressive but unlike Chitika it actually makes you a little money.

    It isn’t malware but when someone first goes to the page it sometimes tries to open up a second page with the ad on really quickly. After you close that other window you can get to reading without any problem. I feel between a rock and a hard place as like I said it does make a little revenue but I don’t want my readers inconvenienced.

    Anyway, I’m sorry this happened as I’m a big fan, I’ll still read you but will feel kind of bad that I’ve been labeled a troublemaker.

  22. Above passage regarding the casino chips credited to Edward Minton and not Oliver Heydorn.

    It forms part of a attack on Belloc like agrarian distributionism given the current money dynamics and is the most recent blog post on Oliver Heydorns site.

  23. Also to get a feel for real Irish nationalism ( and not the corporate construct) I would recommend the collection of short stories by Daniel Corkery entitled Stormy Hills published in the late 1920s just as the primary physical vehicle for corporate penetration (the car)was entering West Cork Hills.
    For a period of time (1960s~) we had local “Irish ” nationalistic corporate structures such as Aer Lingus and Bord name Mona that paid interest to London.
    Now the system has simply expanded beyond Dublin’s local control.
    But we were never dealing with a nation in the true sense of the word
    Our entire worldview has been wrapped by deep corporate propaganda that goes back to the first Cecil administration of England at the very least.

    I imagine many low level well meaning leftists are shocked by the stark reality of events on the ground that goes against everything they have been told about in this world of theirs (The Bankers)

  24. The left is a capitalist construct , a plaything of the liberal materialists.

    Science has been corrupted by financial capital , a analogue of Newtons hard money punishments which began as the first British banks began to produce credit out of nothing while stopping the state from doing so.

    The modern state has been shown for what it is.
    The physical force element of the banking system.
    Forced taxation / forced(mainly now pointless) labour is its modus operandi .

    What is the left to do now that social creditors has won the intellectual argument ?
    The brutal and obvious nature of the current centralized state cannot be denied.

    Many socialists retreat into their own illusions.
    The left in crisis , the left is asleep etc etc
    Some hark for a return to anarchy which in reality will replace the central banks and their enforced investment schemes of fire( which now merely drive up costs) with the goldsmiths frying pans.

    The establishment of a national credit office with a duty to distribute the money commons seems beyond them.

  25. I will vouch for Mike Sax. I often read his blog and post links to his place at Mike Norman Economics and there has never been an issue. He is very prolific, and I can understand that he needs to get paid something for his efforts.

  26. Dear a european

    I realise that you believe strongly – and, if I read you right, from your heart, not just your mind – in ‘european’ as an identity and perhaps even as a nationhood. I am not being insensitive towards your views or your feelings.

    Europe is a geographical term, not a political one. It is not a nation. There is no nationhood or nationality called ‘European’. It is a region of the Earth in the same way that Africa, South America, Asia etc are.

    On top of that, the original envisioners of European unification intended it as merely a step on the way to singular global government, so if I were you I wouldn’t get too attached to this label of ‘european’ since the plan is to remove that from you before long as well. It’s safe to say you won’t be consulted on any such future change in your identity or nationhood, since you weren’t consulted on any of the previous ones.

    PS To develop a sense of shared humanity, solidarity, global awareness, international identity, and so on, it doesn’t require politicians to create a supranational government and abolish the nations we live in. It only requires that we as human beings wish to do so.

    PPS Please don’t feel as if something is being taken away from you by those of us who point out that ‘european’ nationhood/nationality/etc doesn’t exist. It is we who are having our nationalities denied to us, without our consent. When we object, we get called names like racist, xenophobic, jingoistic, small-minded, swivel-eyed, little englanders, and so on, whereas those who support the EU project lay claim to the moral high ground as if they’re superior human beings. It comes across as thoroughly obnoxious, and disturbingly totalitarian.

    PPPS For the record, I’m a human being. I don’t think about which continent I dwell on, nor do I identify with it. In fact, it would be strange to do so. I feel kinship and solidarity with all humans, everywhere, not with ‘europeans’ – why would they be singled out for my kindship more than others? Proximity? I find that illogical and exclusionary, and an example of special treatment. Besides, as I’ve explained before (and can be verified on the EU’s official website, amongst many other sources) there are nations which are in the EU but which lie far, far away from Europe; the people there are not ‘European’ but they are EU citizens. And there are people in Europe whose countries are not members of the EU: should I exclude them from my solidarity because they are not EU citizens. So I will stick with my global, international solidarity, which includes every country and its people as equals, rather than giving my preference to those who have joined the EU. I find this withdrawing from globality to give preferred treatment to the European region to be illogical, distasteful, counterproductive, exclusionary and frankly insulting and retrograde.

    PPPPS I am not opposed to international mergers of sovereign nation-States (if they can first be proven to be workable, comprehensively beneficial, and unquestionably democratically sound). I am opposed to the EU. I will never accept it as legitimate because of the way it has been constructed, imposed, organised and run, but also because it is retrograde, self-harming and exclusionary to cut off from global interconnectedness and re-channel ourselves into a regional grouping.

  27. Dear James Schipper

    “If you put small nations together with large ones in the same political entity, then the small ones will still be small and can be outvoted. Just ask the Scots, who are part of the same polity as the English. The Scots may prefer Labour, but if the English prefer the Conservatives, then that is what the Scots will get, and have been getting.”

    That’s only partly true. The Scottish fully played their part in the British Empire and Commonwealth, and the majority remain committed to the UK. Some argue that it was the Scots who, via the SNP, twice got the Conservatives into power in the UK. Regardless, there isn’t the great division between Scotland and England that you seem to think. It also has to be borne in mind that when Scotland united with England-and-Wales (they were one, hence the hyphenation) the two were equal in population. There are strong divisions within England though, along Labour v Conservative lines, but because they’re not national lines you won’t notice them so much, or label them as ‘national’ issues or separative issues along national lines. Furthermore, in placing Scotland and England against each other you make it sound like that is the division, when it isn’t, it is more Scotland in relation to England-and-Wales, and sometimes Northern Ireland which can go in various ways. The UK is a sui generis country, with very complicated roots to its structures that do not get understood by simple categories like ‘Scots v English’, its sui generis nature make it not a good example to use for comparison. The EU’s model takes a lot from the USA, not the UK, not Australia or Canada, or China or India, etc, so probably best to keep to the USA’s structure and workings/malfunctions as the comparison example.

  28. @a european

    As opposed to have been born here (ie. in a European country).

    I moved to Spain some years back, purchased property here, have a Spanish bank account, pay Spanish taxes, became a permanent resident, hold a Spanish driver’s license and have voted in local elections etc, etc. IOW, I participate in the country’s affairs in the same way as a citizen would, except I am not (yet). In the beginning, I totally believed in the EU structure and was a supporter of the Euro as a European currency. However, when the cracks started to appear some years ago, I then educated myself about the subjects in far more depth. Unfortunately, my conclusions about the EU and the Euro have become negative. Hence my response to James Schipper’s article above.

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