I suppose I have to write something about the extraordinary deal that emerged out of Brussels yesterday. I tweeted at the time that the “Latest EU Bailout will not end the uncertainty. Greece will not be able to withstand a decade of repressive economic policies”. The ABC National News last night introduced the bailout in terms of “finally resolving the uncertainty” and then proceeded to interview an analyst who outlined why the deal will increase uncertainty. This is the state of confusion among the media commentators who are bullied by the Troika to mouth is the official rhetoric but who must also realise that the projections underpinning the approach are deeply flawed and that the situation in Greece will continue to deteriorate. The reality is that this “deal” only buys some more time. In the meantime, the real situation in Greece will continue to worsen. Standby for the third Greek bailout.

I am travelling for most of today and so haven’t much time to write a blog. I am typing this on the train to Sydney airport. The press has been increasingly highlighting the on-going Greece situation. What is important to note is that the neo-liberals are no longer honey-coating the fiscal austerity in terms of “fiscal contraction expansion”. The Greek finance minister is now saying that the Greeks have a choice between disaster and total disaster. Other are juxtaposing sacrifice with chaos. I have noted that in recent months that a lot of commentators have been asserting that an exit would be a disaster – far worse than the current “disaster” of 4 years recession and more to come. But rarely do you read any coherent analysis of what might happen should Greece exit the Eurozone. My view is that while the dislocation would be intense and costly it would, in the longer-term, be less costly than the current alternative – which is persistent recession for the foreseeable future and a savage erosion of real living standards, especially for the next generation. As on commentator put it over the weekend (full quote provided later) – the current austerity approach with “deep structural inequalities and its rigid adherence to a failed economic ideology, protects neither democracy nor human rights. Stiff-necked and punitive, it prefers to eat its children

The UK Guardian reported (February 6, 2012) – Disbelief as Greek politicians delay deal on €130bn rescue package – that the German Ma’am is becoming “exasperated”. Such discomfort. Apparently, the fact that the Greek government has to engage in some discussions with other interests in Greece before signing up to further extremely damaging cuts is upsetting the German leader. She claimed that “Time is of the essence. A lot is at stake for the entire eurozone”. She is probably right. The quicker Greece cuts further the faster its exit from the Eurozone will be. But Merkel’s discomfort is nothing compared to what the Greek population is feeling at present. The Hellenic Statistical Authority or EL.STAT reported that the October 2011 unemployment rate in Greece was 18.2 per cent compared to 13.5 per cent in October 2010 and 17.5 per cent in September 2011. It will continue to rise as long as the government buys the Troika-line and imposes worse austerity. But it seems that the Greek government has become totally obsessed with fiscal ratios – that is, totally neo-liberal-centric – and is losing focus on a human tragedy that they are causing. The Greek government should tell the Troika it is prioritising a fall in its unemployment rate – like it or lump it!

I had an interesting meeting in Melbourne yesterday and the topic of the discussion, among other things, was the propensity of the current economic malaise in Europe to invoke associations with its historical past – in particular, the rise of the ugly German. In my blog earlier this week (January 30, 2012) – Greece to leave the Eurozone and become a German colony – one might have been tempted to conclude that I was invoking memories of the Germany’s annexation of Austria (the Anschluss). I even used the word Teutonic – a rather old-fashioned term for Germanic peoples (broadly) – in the phrase “My how audacious our Teutonic friends have become!”. This was in a discussion about the leaked German document which urged the EU Summit on Monday to effectively put Greece into receivership. But in fact, what I have been at pains to bring to the public debate is not an urging that we construct the current nasty statements from German politicians and its press about lazy Greeks etc in terms of these historical enmities but rather see them for what they really are – deeply flawed macroeconomic reasoning. A thorough understanding of macroeconomics would lead to the conclusion that the German model is not workable for the Eurozone. It will not help Germany nor anyone else. It is a deeply flawed economic doctrine that reflects the same neo-liberal ideology that led to the the original design of the European Monetary Union. Whether the “ugly German” is also implicated is another question altogether.

The Australian Prime Minister, trailing hopelessly in the public opinion polls, made a fool of herself yesterday by commenting on last week’s S&P downgrade of European government debt ratings. she not only gave S&P more credibility than they are worth, but also demonstrated, once again, the mangled macroeconomic logic that is driving her own government’s obsessive pursuit of budget surpluses to our detriment. But there has been a lot of mangled logic about the S&P decision from a number of quarters in the last few days. Ultimately, the decision is only as relevant as the EU authorities allow it to be. The reality is that the fiscal capacity of the Eurozone is embedded in the ECB, which while ridiculous and reflecting the flawed design of the EMU, still means that the private bond markets can be dealt out of the game whenever the ECB desires it. In that context the S&P decision is irrelevant except for its political ramifications. And they arise as a result of the government’s own flawed rhetoric with respect to the role the ratings agencies play. That flawed rhetoric is exemplified by the Australian Prime Minister’s weekend offerings not to forget the French central bank governor’s recent claims that S&P should downgrade Britain’s debt ratings before it downgrades France. But does the downgrading matter? Answer: only if the ECB allows it to matter. The ratings agencies do not wield power. The issuer of the currency in any monetary union has the power – always.

The current Eurozone crisis is getting worse and has concentrated our minds on the most recent period of European history. As in all these situations where focus is very immediate our memories get a little blurred and we are inclined to accept propositions that closer analysis of the data suggest do not hold water. January 1 was the tenth anniversary of the date when Euro notes and coins began to circulate. It had of-course been operating since January 1, 1999 but only in a non-physical form (electronic transfers etc). If you believe the rhetoric from the Euro bosses in the first several years of the Euro history and didn’t know anything else you would be excused for thinking that it was a spectacular success. The Celtic Tiger, the Spanish miracle, the unprecedented price stability and all the rest of it. But the reality is a little different to the hype. The fact is that the common currency did not deliver the dividends that were expected or touted by the leaders leading up to the crisis. All the so-called gains that the pro-Euro lobby claim were in actual fact a sign of the failure of the design of the union although it took the crisis to expose these terminal weaknesses for all to see. My view is that the Euro was failing from day one and it would be better to disband it as a failed experiment that has caused untold damage to the human dimension.

I often wonder what outer space thinks of Earth. In recent days a new planet – named Kepler 22b – has been discovered which has Earth-like features and would probably support life. With the CofFEE conference over it was back to the Euro crisis today. Kepler 22b will be following the EU Summit as much as all of us. Laughing with us as the buffoons who parade as leaders work on the next can to kick down the road. The ECB boss gave a press conference yesterday which clarified things a bit – they won’t bail out governments but each week are bailing out governments. That sounds easy to understand. Like the rest of it. I wonder what Kepler 22b is thinking.

This week, the European Union Summit should see the leadership take the monetary union further into the mire and further away from an effective solution to their woes. The German Chancellor has vowed to create a new fiscal union across the Eurozone. She announced this plan to the German Parliament and declared she would push for a change to the treaty that established the common currency. Let me state at the outset – the plan as the press are reporting it – will not work. It is just the latest in a long line of Euro “solutions” that has fallen on its face soon after being announced as the way forward for the EMU. It won’t work because it doesn’t address the problem and will make changes that will make the actual problem worse. Europe is suffering a lack of aggregate demand and needs to address that head on by increasing public spending. Further constraining the capacity of governments to spend will make the situation worse.