History is often made by single, very powerful individuals acting on their own mission according to their own calling. Many of these individuals are seemingly immune to the reality around them and try to recreate their own reality – sometimes succeeding to advance the well-being of those around them and beyond, but, usually, they just leave the main stage after creating havoc. I could name names. But only one name is relevant for today’s blog – Wolfgang Schäuble, the former CDU German Minister for Finance. Schäuble resigned that role after the recent German elections and is now being feted by the mainstream press as some sort of visionary who kept the Eurozone together through his disciplined thinking and his resistance to populist ideas that would have broken the discipline imposed on Member States by the European Finance Ministers. History tells us differently. He has overseen a disastrous period in European history where its major step towards political and economic integration in the 1990s has delivered dysfunctional and divergent outcomes for the Member States. Some countries (Greece) has been ruined by the policies he championed while others are in serious trouble. Further, despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue.

Last week (September 13, 2017), the President of the European Commission, Jean-Claude Juncker, presented his State of the Union Address 2017 in Strasbourg before the European Parliament. My only query arising from the speech was which Member State has left, given that the President began his speech by thanking “the 27 leaders of our Member States” (joke). He opened by saying how unity among the Member States had “showed that Europe can deliver for its citizens when and where it matters”. I wonder which Planet he was referring to. I thought Europe was on the Mother Earth and it certainly hasn’t been delivering for its citizens, if the usual measures are considered. Juncker’s speech just continues what I considered to be ‘Groupthink and Denial on a Grand Scale’, which was the subtitle of my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale. It is amazing that the denial continues after 10 years and that guys like Juncker can still command an audience and a salary.

There was an interesting article (July 18, 2017) – The Political Fiction of Economic Control – that has, seemingly, been the motivation for people sending me heaps of E-mails, some, demanding that I admit that Modern Monetary Theory (MMT) is bereft in this specific area of discussion. The article was allegedly written by a Polish journalist with a past that included working at the “Adam Smith Research Centre”, a ‘free market (not!)’ think tank in Warsaw, and a Hungarian economist Lajos Bokros who was formally a Socialist Minister of Finance from 1995 to 1996. But there is a lot of first person in the article (I’m, My, I etc) and only Bokros’ picture and bio is featured. Bokros is best-known for implementing the controversial Bokros Package, which was a “a series of austerity measures” described as “neoliberal shock therapy” based on the erroneous assumption that the Hungarian government would run out of money and have to declare bankruptcy. So it is no surprise that these characters (or Bokros, if he really wrote the article) would support the Eurozone and claim that surrendering a national currency in the case of Hungary and Poland was inevitable if these nations were to progress. The arguments used to make their case, reappear over and over again. They are always incorrect no matter what form they appear.

In this blog – The fiscal role of the KfW – Part 1 – I recounted how the government-owned German development bank, KfW (Kreditanstalt für Wiederaufbau) – interacts with the German Finance Ministry to allow its fiscal balance to move into surplus without the commensurate level of fiscal drag that would normally be associated with that degree of fiscal withdrawal. The intent of the blog was to show how the Germans cleverly use their state-owned development bank to advance ideological positions not available to other states that have either privatised these type of institutions or never created them in the first place. It is ironic given the Germans insistence that countries like Greece privatise everything in sight. Today’s blog returns to the KfW, in part, because new information has emerged where we learn that the Greek crisis has allowed the German Ministry of Finance to run surpluses without melting their economy down. The KfW’s role in that regard is undoubted. It has been a source of bailout funds for Greece, on behalf of the German government, and has been pocketing handy profits ever since. This information shows that the popular claims that German taxpayers are bailing out Greece are clearly false and just political verbiage. Further, despite the understanding that the Member States (bailout partners) would remit any profits made on asset holdings associated with the Greek bailout, the Germans have reneged on that deal, in part, because it has channeled those profits through the KfW, which it claims is at hands length to the government, despite being 100 per cent government-owned.

Just how poorly the Eurozone is performing is usually illustrated with reference to Greece, then Spain, then Italy and Portugal. The weakest links among the Member States. Not to mention Cyprus, Finland and then some. But the other way of looking at the same question is to focus on the strongest link in the currency union – Germany. A new report from DIW Berlin (German Institute for Economic Research) (released July 5, 2017) – Einkommensschichten und Erwerbsformen seit 1995 (Income levels and forms of employment since 1995), which is only available in German, tells a pretty sombre, if not bleak story as to what has been happening in the Eurozone’s powerhouse over the last 18 years. It demonstrates that not only is the German model wrong for the rest of the Member States, but it is also not generating sound outcomes for its own citizens – well the lower- and middle-classes to be more exact.

I have been looking at the latest Greek bailout deal between the Greek government and the European Commission/IMF), which was concluded last week (June 16, 2017) and released a further 8.5 billion euros in new loans to the Greek government which means it can make bond payments due in July. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions have abandoned any pretence to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. Just like the previous bailout agreements, this deal will fail. It actually only stalls the reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use – afford in both monetary and real terms.

Periodically, the European Commission puts out a new report or paper on how it is going to fix the unfixable mess that the Eurozone continues to wallow in. I say unfixable because all of the proposed reforms refuse to confront the original problem, which, at inception, the monetary union builders considered to be a desirable design feature – a lack of a federal fiscal capacity. They now know that this is the major issue but cannot bring themselves to deal with it directly. The politics won’t allow that. Everyone knows that Germany will veto such a development immediately and that would be the end of it. The latest report (May 31, 2017) – Reflection paper on the deepening of the economic and monetary union – maintains the inertness that was characteristic of previous ‘grand’ statements, such as the White paper on the future of Europe and the way forward (March 1, 2017) and the The Five Presidents’ Report: Completing Europe’s Economic and Monetary Union (June 22, 2015). So not much has happened in 2 years, despite the unemployment rate still hovering around 9.5 per cent, other than many workshops, conferences, reports, speeches, meetings in salubrious surrounds where the catering is the highlight and the conclusions moribund.