Guest Post: EU - A Flawed Foundation, But Brilliant Strategy?

Tyler Durden's picture

Submitted by Gordon T. Long

EU - A Flawed Foundation, But Brilliant Strategy?

It was the perception of getting something of value without any meaningful sacrifice that initially fostered the EU Monetary Union. Though the countries of Europe were fiercely nationalistic they were willing to surrender minor sovereign powers  only if it was going to prove advantageous to them.  They were certainly  unwilling to relinquish sufficient sovereignty to create the requisite political union required for its success.

After a decade long trial period it is now time to pay the price for Monetary Union.  I suspect that the EU membership is unwilling to do so. Though they likely will see the price as too high to do so, the price to not do so has become even greater.  They have unwittingly been trapped by a well crafted strategy.

Never has a monetary union functioned without a political union with which to control Fiscal Policy. This was well understood by the strategists but not the salivating sovereign leaders looking for cheaper money to finance election candy and avoid unpopular, pressing economic realities.

It was expected that the obstacle of political union would  inevitably give way when the pre-ordained and unavoidable political crisis forced the issue. We are presently at the cusp of this crisis in Europe.  As we just experienced the Arab Spring we are about the experience the European Summer on an unavoidable path to the American Autumn and World Winter in an unfolding "Age of Rage'.

The initial resolution of sovereign debt defaults by the bailouts of  Greece, Italy, Ireland, Portugal, Spain (GIIPS) will eventually be the creation of a Eurobond, in my measured opinion.  It is the next move on the strategic chessboard being carefully orchestrated.

A Eurobond will allow the ECB to issue debt. With the ability to issue that debt, the obligatory abilities to pay for it will come. Paying for a Eurobond will mean giving up gradually increasing levels of sovereign taxation.

The current political impediment to political union is that never has a ruling political regime been willing to surrender the golden jewels, specifically public taxation. But this will happen because it is the hidden strategic goal now operating in Europe.

To understand the real European Strategy you need to appreciate the history of Europe and its cultural diversity. Ever since the Roman Empire and Charlemagne, leaders have dreamed of a single Europe. No one in modern times from Napoleon to Hitler has been successful.

The one thing the European nations understand and for a time were successful at, was Mercantile Colonialism. They were the ones that invented it.  When I say 'they', I refer to Kings and their financiers. The Kings may now be gone, but the financiers are even more powerful today than ever before.

The colonies are no longer on the other side of foreign seas to be conquered, but rather part of the Euro zone.

The essence of Mercantile Colonialism is to create a need for debt, then finance that debt and eventually exchange that debt for the collateral assets that are the underlying wealth producing assets.

In the Austrian School of Economics, this exchange of printed paper for real assets, is called the Indirect Exchange.  It is well understood and well documented but like usury is avoided in polite conversation. Eventually the colonies worked as slaves to pay the debt to their European masters.

Gold is the Money of Kings, Silver the Money of Merchants and Debt the Money of Slaves

The European banks are slowly but surely, through a tactic of Financial Arbitrage, moving more and more sovereign debt to the ECB and EU. Someone must pay for this debt and that will eventually be the entire European taxpayer base. That is the goal.

In the initial stages of the Euro dream everyone was benefiting.  Like an initial user of drugs the early stage is euphoric before the issues associated with the addiction surface. This stage fostered tremendous growth in debt - never ending Corniche housing villas in Spain and Portugal, embarrassing pensions and social benefits in Greece, tax advantages for off shoring corporations in Ireland or unjustifiable and hidden local government spending in Italy.

It has been a captive market for the Asian Mercantile Strategy and a financial retail market boon for US financial instruments created from the never ending supply of freshly minted US fiat paper.

I was living in Europe during the debates on the viability of a European Union. I remember only too well what everyone eagerly wanted and fantasized gaining from a European Union.


  1. They saw and wanted employment. The EU meant they could  go anywhere the jobs were.
  2. It meant cheaper goods because tariffs were to be removed,
  3. It meant cheaper cost of financing because of a single currency with as Germany the 'anchoring credit'.

None of which have turned out to be as advertised by those wanting the EMU 
(except cheap goods which they don't have the jobs nor disposable income now to afford)


  1. To the sovereign governments it meant cheaper debt since they effectively received German Mark backed debt.  Like free liquor to an alcoholic or free drugs to an addict, the politicians couldn't sign up fast enough as long as they kept sovereignty over precious taxation.
  2. To make the deal happen, countries were allowed to maintain fiscal sovereignty, though everyone quietly understood that separated Monetary and Fiscal Policy was a flawed concept and eventually would doom anyone attempting it.

Government spending & brazen consumption masquerading as GDP started exactly with the retail launch of the Euro.


  1. As pushers of debt, the banks  acquired a whole new cadre of addicts.  
  2. The EU financiers understood only too well that with the free flow of Labor & Capital, came the free flow of Credit and Financialization.
  3. To the financiers it was the creation of an immensely profitable fixed currency regime with a known outcome.

"The way to make a lot of money is to invest in a known & predetermined outcome. "
Joseph P Kennedy, (father of President JFK and one of the richest self-made prohibition bootleggers in America).

It was obviously a flawed approach where Monetary Policy would be disconnected from Fiscal Policy. It was expediently swept under the carpet as something to be avoided and left for future political operatives to craft the public response.

Question:  "Why would we implement a flawed system?"

It is exactly the same question as why did US banks make liar loans?

Answer 1:  Someone else would carry the liability.

 .... and the tax payer has.

Answer 2:  Because there was a lot of money to be made!

.... and it has been made.

Prior to Greece exploding and knowing the strategy in play,  I was prompted to initiate writing two series of articles laying out the levels of hidden debt being rapidly and insidiously created in Europe

EURO EXPERIMENT Series:  Detailed the flawed underpinnings of the EU.  An experiment that would foster:

a - Extensive use of SWAPS to hide public debt at all levels of government,
b - The broad use of Off Balance Sheet Contingent Liabilities,
c - The epidemic use of PPP-Public Private Partnerships

"All of which is NOT discussed in these public viewed bailouts."

SULTANS OF SWAP Series:  Detailed the financial game of Regulatory Arbitrage.  A strategy of passing debt to taxpayers through:

a- Bailout,
b- Guarantees,
c- Monetization of Private Losses,
d- Sweetheart, Crony Capitalist deals


a- Extensive use of SWAPS to hide public debt at all levels of government,
b- Broad use of Off Balance Sheet Contingent Liabilities,
c - Epidemic use of PPP-Public Private Partnerships

"The EU is built on a FLAWED FOUNDATION but a brilliant STRATEGY ……
…. Unfortunately the People own the foundation & banks the strategy!

Like Colonial Mercantilism the real money in Europe KNEW going in what the debt strategy was.

They also had another card up their sleeve. They knew there was a structural advantage that would predetermine the eventual outcome.
They knew that the core countries, where the financiers were resident, had a competitive structural advantage over the GIIPS that could not be overcome or at least would highly unlikely be overcome.   

The core countries had:  

1.    Higher Export Volumes (a size advantage)
2.    Higher Productivity (Labor & Capital Advantage)
3.    Dominant Banking Control  and therefore cheaper cost of capital

The flawed EU experiment was more like a family father who is responsible, but his kids have unlimited use of Credit Cards and the hapless father is not allowed to police them. The outcome is perfectly predictable.

Do you really believe that major banks would put themselves in a position where they lent endlessly to the kids knowing they would  be left holding the bag? They knew the outcome and who was going to be left holding the bag. 

It was certainly not going to be those with an army of lawyers, lobbyists, campaign contributions and most importantly, a strategy.

Now the EU has hit a wall. The gig is up.

It is time for the next phase of the Mercantile Strategy, the demand for collateral and the family silver.

As is currently being exposed in Greece, the financiers will now demand the ports of Piraeus and Thessaloniki, Hellenic Transportation, the Greek Telephone company, the Greek Power company, the Gambling  ...... and eventually the Parthenon and Acropolis, if the people don't refuse and take a stand similar to the people of Iceland.

There is an old ADAGE that;

When you owe the bank a $100,000 and can't pay it you have a problem.

When you owe the bank a $1 Billion and can't pay, the bank has a problem.

The message here is that at some level the bank is responsible for having made a serious lending error - after all, assessing RISK  is the raison d'être of their business.

Though I believe Greece should never have been allowed into the EU, their debt never been accepted by the ECB as collateral and should have been sent to the IMF much sooner, I need to say, what I am now witnessing is what I effectively see as the 'Date Rape' of Greece.

It is not just a matter of Greece being forced to surrender their most precious assets which belong to future generations of Greek children. It is about assets being sold by a Belgium centered fund - whose interests are those of the financiers, not the Greek citizens.

This is the equivalent of having your house sold by the potential buyer's real estate agent with you just seeing the accepted deal. Or maybe more appropriately, the same way a repo happens when they just take it and sell it - you may or may not get any residual equity back. In the case of Greece, they may or may not get what they thought their asset were worth. It is highly unlikely it will be anywhere near the expected price and highly likely to be an exceptional bargain for the politically powerful and connected.

This is the old tried and tested Mercantile Strategy that European financiers know so well.

While Americans are turning to "Strategic Defaults" in waves in the US, if I was living in Greece I would be demanding my government default.  It is time for Greece to strategically default like the hapless American homeowner stretched beyond their means and crushed by a shrinking disposable income. This is a direct result of the money printing that is flowing to the banks to engineer this racket that the Gambino's and Gotti's would have simply called a 'lawyered'  version of loan sharking, extortion and racketeering.

It must never be forgotten that the banks create their money from your money.  It is only time, therefore before as  in a children's monopoly game, they own the whole board.

Also it must never be forgotten that this is why banks fight so hard against Tier 1 Capital requirement changes. This is the money they have previously extracted that is now actually at risk.

Be aware that the mercantile financiers are so opposed to risk that operating as the secured bond holders of the banks they make the profit from the banks - not the shareholders. The financiers get first distribution of profits and are always kept whole.  The public typically attacks the bank owners, not those who insidiously control and profit from its operations - the senior secured bond holders.  It is the senior secured bond holders who must take the Greek 'haircut' but as part of the strategy they have their political mouthpieces vehemently opposing it.

Maria Damanaki, a European Union commissioner and a Greek said publically that “the scenario of removing Greece from the euro is now on the table.

Forcing the Greeks to sell all that's left of the family jewels is now seen as a key part of the political solution. But who will want to buy them when there is every possibility of Greece leaving the euro? 

Capital is already fleeing Greece as fast as it can; what's the chance of attracting it for Greek assets?

Someone is going to get real fire sale prices. 

It's easy as a bookie to make money on a sure thing when the horse race is fixed!


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
High Plains Drifter's picture

the first thing this makes me think of , is germany. if i was a german i would break out my steel pants and grow eyes in the back of my head......

Doña K's picture

Just a minute.. There is a theory out there that the US wants to financially break and then plunder Europe. Then after that the US defaults and blames the EU..

How about that? Maybe that's why China is buying Porto Bonds.

Or is it that China and the US are dividing the world pie into two? By engaging in financial war. Come guys start thinking like they do.

Comments please

Doña K's picture

Okay...I am not into numerology.. but that thread shows lots of creative thinking.


Orly's picture

Actually, it's not really about numerology so much.  Oh Regional Indian is like a seer who gets "signs" but he either doesn't like to put things together or he simply leaves it to me to do it.

He points out some pretty amazing signs, as he says and I can extrapolate them into the dynamic I understand as the Western world since before World War Two.  Of course, these ideas sound insane but, as Mr. Spock said, "My cousin from long ago had a saying: once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth."

These creative ideas are the only ones remaining, I am afraid.


Michael's picture




margaris's picture

Because if Zerohedge was mainly interested in the FED, their name would have to be





but Zerohedge is bigger then that.


Mec-sick-o's picture

Sounds like promiscuous debt.

I think that they will just entangle everybody so much deep into debt that people will accept ANY new financial scheme just to start fresh out of debt.

A big reset must be coming.

Clay Hill's picture

Doña K

The Elites do have that in mind. They feel justified in doing so, balanced as they are against the other players in the game. They think it is for our own good that they subjugate us, and see no reason to turn back until they succeed , or lose all. 

An interesting conversation between East and West begun here.


Summarised with a conservative spin here.

el-greco's picture

Thanks for the links. there was an interesting assertion of Mr Dugin's which I copy/pasted here

In Dugin's view America is the champion of a hyper-materialistic ethic, based on radical individualism. It is subversive of traditional human values. As an empire of "frenetic consumption,"


Funny, the most extreme hyper materialistic ethic circulating in Western Europe is Russian by nationality and outstrips by a country mile anything its materialistic/hedonistic US counterpart can rustle up. 

chump666's picture

Hey Europeans and Germans. Asia is slowing down (re:WSJ report), now they just have to sneeze to knock out your growth markets.  Not only is Greece going into a hellish stagflation, but the German taxpayers are going to suffer heavily i.e strong EUR and oil price.


legal eagle's picture

The UK and Switzerland are looking pretty clever for staying out of Euro.

css1971's picture

The UK and Switzerland are already owned.


Haven't you noticed the centres of finance?



Coke and Hookers's picture

I'm not sure I've seen a better article on the subject than this one. Very impressive bitchez!

Orly's picture

Agreed 100%.  Concise and without hyperbole- just telling it like it is.

Excellent piece.

??'s picture

I was thinking that myself, this article deserves top of page position on ZH - one of the very best (but a bit of the Ron Paul effect - good message but the delivery  - see his site for more)


his writing reminds me of Jim Quinn over at Lew Rockwell

Bearster's picture

Where does Gordon T Long get off putting "never ending Corniche housing villas in Spain and Portugal, embarrassing pensions and social benefits in Greece, ... unjustifiable and hidden local government spending in Italy." with "tax advantages for off shoring"?

Can he not see the difference between:
1) looting some and giving the loot to others
2) not taking as much loot?

disabledvet's picture

Well...."he is part of the Madelbrot set"--a wild bunch so I hear.  "They got off on all sorts of things"

Atomizer's picture

An old ZH (blog) contributor has some insightful thoughts. Take the time to review.

Concentration, Manipulation and Margin Calls 

Periodically, I'll post Steve Keen's debt watch link from downunder. Keep your eyes peeled. 

Prof Steve Keen YouTube Channel in business again

Hope this helps you see things full circle.

??'s picture

thanks for posting that link, LB is one of the greatest in the blogosphere but became flakey when he got a day job (flakey as in erratic posting i.e. this is his first post in 6 weeks) but it's worth the wait - thanks again



Atomizer's picture

Your welcome. I was just a reader on the old zerohedge blog site. LB was always one of my favorite posters.

defender's picture

TD, could you cover that first link?  Lots of info that puts the financial crash in a very different perspective in there.

Segestan's picture

'Gold is the Money of Kings, Silver the Money of Merchants and Debt the Money of Slaves'..... There can be only one KING, and with a small merchantilist class. The rest will beg to be debters.


 This is why the Farmer was the center of civilization.The citizen soldier.Why a Republic was formed giving rights to the Freedman.

Manthong's picture

We all hear the squealing of stuck PIIGS.

Maybe their only hope of escaping enslavement is to go all wild boar over the financiers.

Oh, and the original version of that idiom I found to be:

Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.

Money and Wealth in the New Millennium, by Norm Franz, copyright © 2001, Whitestonepress, page 154.

Ahmeexnal's picture

To squeals of the PIIGS, you need the ears of a butcher.

mynhair's picture

EURUSD sez the EU hasn't hit a wall hard enough.

Suppose it's just 'transitory'.

Edit:  Ooops, Rosanne Rosannadanna.  Never mind.

Orly's picture

You forgot to calculate in that the Australiam economy contracted by 1.2%, silly.  The Euro and the Aussie dollar popped on the news...

Of course.

Makes sense.


topcallingtroll's picture

Any foreigner stupid enough to buy greek assets will be taxed and regulated to bankruptcy. Then the greeks will get it back.

DoChenRollingBearing's picture

NICE observation there top!

Rynak, Sudden Debt and top are invited to send me a gmail to look at my blog.  I am interested in the fate of Europe (we have visited numerous times), but I am not an expert like Rynak and Sudden Debt.  Everyone else invited too, as long as you tell me you will play nice.

top, I just want you in on the fun!  "110 ZH-ers can't be wrong."

mynhair's picture

You want the crazy potato?  Kewl.

Rynak's picture

I don't know what is so "brilliant" about assuming that a bunch of "peasants" will always pay the debt, no matter how high, no matter how painfull.

As i see it, it simply is a bet on poverty and slavedom NOT resulting in revolution. It is a bet on centralized ownership winning over decentralized anger. In principle, it precisely is FORCING revolution, and hoping that the target of that revolution, can defend itself against the masses. How often has THAT worked in history?

It only has worked, for 3rd world countries, where the centralized power interests were backed by a majority of 1st world countries. What happens if you try the same among 1st world countries?

Short version: This is not "brilliant" - it is totally stupid.... it is a conscious bet on winning a war against 1st world country populations.... not gonna work. You have just overestimated your leverage..... better get back to enslaving 3rd world countries.

HamyWanger's picture

No. This is brilliant. Because the masses will never revolt. 

You're betting?

I'm ready to sign a contract where I promise to pay you 2 kilograms of gold if there is a significant anti-bankers, anti-power elite revolution in a first-world country before 2050. 

Rynak's picture

They are already revolting. Junked for fun. Not expecting any gold in case the bet goes my way.

Again, the way you keep peasants in check, is to ENSURE their survival and non-poverty. You keep them in check by NOT pissing them off the the point where individual survival is threatened. You keep them as slaves, NOT dead people! Once you ensure that people have nothing left to lose, you lose. You keep them in check with bread and games - fail on any of both, and you're toast.

Coke and Hookers's picture

The question is whether the revolt will ever amount to anything more than banging on pots and pans. This will not stop until Brussels is knee-deep in the severed heads of eurocrats and bankers. I'm not sure that will happen before the masses have been turned into permanent peasants, stripped of the will to rise up. Remember that the European feudal system persisted for 600 years or so without any serious problems for the elite - apart from some insignificant revolts. I see no reason why a new system of debt-feudalism couldn't persist for a long time. The masses have no clue what's going on. There's only an isolated group that reads stuff like Zerohedge. The mainstream media NEVER tells people what's going on. That has become the main purpose of the media it seems; to put the masses to sleep while neofeudalism is instituted through the abolition of the nation state and personal freedom - and the total stripping of people's assets, both public and private.

I'm not sure I would bet against Hamy there - but one can always hope.

Rynak's picture

While i do not consider it impossible that it will work, from what i have seen so far, banksters simply have become too greedy. So, i do consider it probable that at least one central EU country will not play according to the supposed rules, simply because the demands will be too high. And it takes only one central EU country to start the forest fire.

As i said, i wouldn't say "impossible", but from what i have seen until now, my intuition says "odds stacked against th EU becoming a supernation".

Ahmeexnal's picture

What most fail to comprehend is the fact that the power elite are also dental hygienists highly concerned about the sheeple's teeth.

That's why the fluoridation in potable drinking water has been increased in most of the eurozone. That's why the sheeple will welcome slavedom calm as hindu cows.

??'s picture

I'll see your 2 and raise you 2 and extend the time to the next century - the masses are sound asleep and if or when they awake they will be in digitized shackles (as will most of us)

knowless's picture

it's a slow march, generation by generation mentally sterilized to accept the new reality, each itteration a slight abberation. any shock will be mitigated, and quickly explained away to those whose "education" was in the first placed carefully handled.

i'm always saddened to admit that the majority will never understand that the freedom to choose beyond reebok or nike isn't what is meant by "freedom".

humans are easily manipulated once they hold a common understanding of reality, breaking that common understanding destroys the capacity to control.


thriftymost's picture

Very astutely observed, Rynak.

Europe is auto-colonizing, ie, cannibalizing its own.

Bob's picture

Excellent analysis, Gordon!

Pepe's picture

Yeah, Outstanding article.

Mentaliusanything's picture

To Think - Two World Wars, tens of millions killed or displaced, Billions spent and massive amounts of finite real resources used up.

And all it takes is bankers with access to paper, a printer and knowledge of human greed to take a country down. 

Weapons of mindless destruction.

Top article - thank you

alien-IQ's picture

proving once again that the pen (or now binary code) is mightier than the sword.

David449420's picture

"And all it takes is bankers with access to paper, a printer and knowledge of human greed to take a country down. "

Let me rephrase that for you.

And all it takes is bankers and lampposts.  Sooner or later it is going to happen.

You might think that that is a pipe dream.

Or is it?

buzzsaw99's picture

Feb. 24 2010 Sultans of Swap was brilliant imo. I have some catching up to do.

chump666's picture

The markets are acting really weird (Asia) just saying...something is up. Worst GDP (Aussie) for 20yrs, China PMI 50% = slowdown, Korea PMI = slowdown.

Just strange trading going on...

Anyone else seeingg this?

Mentaliusanything's picture

Yes - forseen and waited for.

World Wide downturn baked in.

Who's going to save you?