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Germany’s Trial Balloon Of A “Plan B”
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Some prominent Germans have publicly expressed their doubts about the future of the euro. A few politicians have tried to jam anti-euro sound bites edgewise into the evening news. And an anti-euro party, the Alternative for Germany, is forming just in time for the September elections, hoping to garner enough votes to move into parliament.
But those close to the epicenter of power, those near Chancellor Angela Merkel, have to toe the line. And the line is that the euro is far more than just a currency, that it’s a sacred concept, a sort of religion worth saving no matter what the costs. Even much of the opposition toes that line. While the possibility that a small country might exit the euro has been accepted more or less, the euro itself has been inviolable in those circles. Until now.
“I give the euro medium-term only a limited chance of survival,” said Prof. Dr. Kai A. Konrad, Chairman of the Council of Scientific Advisors to the Ministry of Finance, an advisory body to that epicenter of power. In his day job, he is Director at the Max Planck Institute for Tax Law and Public Finance. In an interview published in the Welt, he floated a trial balloon, an alternative, a heresy for Germans, a grand compromise of sorts, an exit strategy if you will, a way out of the crisis for every country in the Eurozone, a Plan B whose very existence the government has strenuously denied.
European “austerity” policies – the prescription for keeping the monetary union together – have come under blistering attack. But Konrad was no softie on that issue: “No country can pile on debt arbitrarily without exposing itself to the risk that investors will someday pull the plug,” he said. That’s what had happened to countries at the core of the debt crisis.
So it should be in the self-interest of each country to keep “the mountain of debt as small as possible,” he said. But there wasn’t a single number, like the 60% of GDP inscribed into the Maastricht Treaty – now de facto abandoned. The boundary at which point a country gets into trouble varies, he said, depending on growth dynamics and demographic developments.
When the Maastricht treaty was being negotiated, there’d been some justification for that 60%, based on the growth assumptions for each country. With hindsight, it was too high because “the European growth expectations have not been fulfilled in the past 20 years,” he said. “But countries whose growth is too weak can borrow even less.”
He saw another problem with strict debt and deficit limits. “When you try to impose such conditions on member states, it only creates resentments, and in the end, it puts the European project at risk.” A reference to the relationship between a bailed-out country, like Greece, and Germany that culminated with images of Merkel in Nazi uniform. Instead, Eurozone countries should be free “to borrow as much as they want to, with the stipulation that they alone are responsible for their debts.”
A radical thought in Germany, that each country should be able to borrow as much as it wants to! The second part, that each country would be exclusively responsible for its own debts, and not the debts of other countries, was of course one of the tenets of the Maastricht Treaty, and one of the ironclad promises proffered by German politicians to bamboozle the people into giving up their Deutsche mark. A promise that turned into a lie with the first bailout [read.... Ten Big Fat Lies To Keep The Euro Dream Alive].
But for Konrad, it was the grand compromise, the Plan B: forget the limits on debts and deficits in the Maastricht Treaty. Let each country splurge on borrowed money as it sees fit. But when investors pull the plug, there would be no bailout, no Troika, no ECB to buy bonds, and no German inspectors crawling around the ministry of finance. It would be up to the country to deal with its investors and fund its deficits with thin air.
To allow a country to go bankrupt in a monetary union, you have to render the banking sector “immune to crisis,” he said. He wasn’t talking about core capital ratios or derivatives, but about a very basic concept: “Banks should withdraw completely from funding governments. Then, if the state becomes insolvent, the bondholders of that state could be presented with the bill without immediately risking a systemic crisis.”
A sea change. European banks buy massive amounts of debt from their own governments, and from other governments. Under his proposal, banks could not own any sovereign debt and thus would be immune to a sovereign debt crisis. But that might not work either, given just how dependent governments are on their banks for funding. And so he closed on a somber note – and a trial balloon for the new government line.
“Let’s put it this way, Europe is important to me,” he said. “Not the euro. I give the euro medium-term only a limited chance of survival.” When pushed to define “medium-term,” he cautioned that identifying exact periods would be difficult, that it would depend on a lot of factors, “but five years sounds realistic,” said the Chairman of the Council of Scientific Advisors to the Ministry of Finance.
“We make or break human life every day of every year as probably no other force on earth has ever done in the past or will ever do again,” wrote Davison Budhoo, former IMF economist who in 1988 broke ranks and published a scathing 150-page resignation letter. In it he accused the IMF of corruption, self-interest, and deceit. Read..... Lies, Damned Lies & Sadistics: The IMF’s Role as Bankster Enforcer
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The new anti Euro party in Germany needs to be looked at hard. My take is that the CDU has found itself caught between political disaster if it agrees to Germany funding bailouts and the pressures coming from the private banker owned ECB to swamp the country in debt. The middle path they have chosen is likely to have annoyed the bankers. When an anti Euro party suddenly appears that will split the vote on the right and may lead to the Euro friendly SPD getting into power it could well be that this is a private banker funded ploy to undermine the CDU.
My thoughts exactly (except it's from a higher council than the bankers, in which the bankers are only a partner). Same old, same old ... Divide and Rule.
Plan B: defect to Russia
Portugal, Spain, Cyprus, Italy or Greece needs to go down HARD before September so that REAL CHANGE happens...
Nothing will happen really until Germany's euro shills get the boot!
Socialists are always looking for magic funding where more is consumed by society than is produced by society. Plan 'A' plan 'B'. plan 'C', etc....
I too appreciate the honesty.
You could imagine this bank-state separation in a Ron Paul-la la land. But in socialist-Europe? Each country is its own Hindenberg, the operating order is all hands go down in flames with the ship-of-state.
Banks couldn't own sovereign debt? That's crazy talk. Government couldn't inflate at will to buy votes? That would never fly with TPTB. They rely on the skim from millions of people getting skinned to buy off voting blocks. That will never fly. Government and bankers will fight tooth and nail to prevent that kind of setup. It's bad for their business. Pretty good for the sheeple, but try convincing the average guy why he should care and you're likely to get a really blank look.
Did the man say 5 years left for the Euro? LOL.
Either the Euro goes or Europe blows up.
A real government could then prevent these withdrawing banks producing credit in a taxable currency.
The banks would instantly lose access to a countries hinterland.
These German and others banking guys are so fucking bad the only way to stop them is to introduce a full military fiat system.
Banks are only source of funding for sovereigns either directly or by way of taxpayers. 'Plan B' only works if sovereigns offer their own demand notes (greenbacks).
The Europeans will do everything to save the euro.
Euro = gasoline. Peseta? Lira? Punt? Drachma? Whaddayouthink?
No fucking way. No gas = no cars. Can't have that! It would be 'inconvenient'.
Yes it would be inconvenient. I'd deport all of Southern Europe naked to the Taliban before I'D give up my v8 beemer.
Gas yourself.
The IMF is an 'american' global institution.
Where does it mention the IMF in the US constitution?
The IMF is a creation of the "money changers", not "we the people"...
Chinese Citizenism is a globalizing insanitation.
PS: Please send me a private message about my offer to have you carry my child. The offer still stands. (Although science cannot yet answer the question of what might result from the pairing of 'American' and Chinese Citizenism genes. Perhaps a half-man, half-thing?)
Not much of a sea change, just more of the same. How many of these ivory tower experts are there?
All of this bull can be summed up in the expression "Grasping at Straws" which is not much help to anyone.
When they come downstairs from their Ivory Towers, Idealists are very apt to walk straight into the gutter
L.P Smith
And gag on their own crap that they were too 'high' to smell before.
What you describe is exactly what we need. Just print the currency without the debt attached. I say do this for the entire government budget and eliminate taxes. Cap budget growth at 2%. If budget growth is above 2% then you need to tax again. Accompanied with the elimination of state debt, modification of consumer debt and ratcheted back fractional reserve banking these steps would end up not being inflationaryas many worry, but would serve to provide true economic revival.
Right; and then the gubment worker will make 350% more than the same type job in the private sector instead of just 175%
I don't see how this can be done without a complete change in the financial system. Under the current system, banks need risk-free places to store cash in order to function. Governments need to sell bonds to someone, and the "primary dealers" have access to cash. The only way I see to make banks less important is to go to a full MMT-type system, where Federal Deficits automatically spend new Euros into existence. In this case, primary sovereignty has to be transferred to the EU level, since only the top level of government has the "money power".
Bullshit, why does one select group of society get access to "risk free" anything? Who decides this? What product of real fucking value to bankers create? Why isn't the tradmen giving access to a "risk-free" investing opportunity. Totally fucking stupid comment.
I don't see Andrew's comment as a stupid comment at all. He's correct as far as he goes. It's a "forest for the trees" error:
I don't see how this can be done without a complete change in the financial system. Agreed--and we want a completely different financial system. Under the current system, banks need risk-free places to store cash in order to function. I would rather have a system where banks ARE a risk-free place to store cash. No risky gambling. You make a loan, you keep it on your books.
Governments need to sell bonds to someone, False premise. That's only if they borrow money instead of taxing NOW for current spending. Selling bonds is a damnable fraud on the next generations. We spend the money, they get the bill. To hell with that, and to hell with the primary dealers.
You see? It's never even occurred to Andrew that a government could function without pulling forward earnings from the future to pay for current consumption. That's why we're going to hell in a handbasket, Andrew. We want our cake now, and we want the grandkids to pay for it, PLUS the interest. I hope they push our wheelchairs into the volcano, with us in them.
I guess the Germans forgot: when I owe you €100,000 it is my problem, when I owe you €4Billion it is your problem.
They just kept lending.
What this guy is saying could be pushed back at the Germans. He says let the guys who took the gamble (the bond holders) take the hit.
In the case of the EU PIIGS, it was the German and the French Banks who took the gamble, and then pushed the pedal to the metal, pushing loans for their fancy cars onto the peasants who took out 10 year mortgages to buy their cars. That is why the Italian, Irish, Spanish and Cypriot people have a net wealth greater than the Germans; they took on huge debts offered by the gambling banksters. Only the poor Portuguese with their average wealth of 75k are below the Germans.
Now that they are in over their heads, who should pay the price? Certainly not the local taxpayers.
R.
LawOfPhuckups-where does you worship of a golden calf fit into all of this?
It should be obvious to you by now Otto, but here it goes:
Gold is a store of wealth. If a country chooses a gold-backed fiat currency, that's fine, but people who hold gold as a store of wealth ultimately don't give a shit either way. Gold-based wealth storage is largely independent of governmental considerations.
Where do you see "golden calf" troll?
what's with "troll"obsession. you guys and your gold worship are amusing. when the price of crude is priced in something other than the US dollar then you gold nuts might be on to something.
Why? I have no problem exchanging gold for any fiat now. Price the oil in whatever fiat you like.
Wow. An IMF guy admitting that they are pirates, and handing in his resignation. Now I've seen everything.
Here's Budhoo's resignation letter:
http://www.scribd.com/doc/18810167/Davison-L-Budhoo-Open-Letter-of-Resig...
Smart rat jumping ship. Covering posterior.
actually- on pirate ships everyone had a voice in the ship's governance and decisions- the IMF is pretty much a totalitarian.
Actually, Otto, I wasn't thinking of a Captain Jack Sparrow kind of pirate enterprise. I was thinking more of a Captain Edward Teach (Blackbeard) sort of piracy, where it's not fun and games and the pirates don't really care who gets fed to the fishies.
http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
The Chicago plan has been gaining a great deal of strength. Consider the implications of not having to deal with debt at all in controlling the currency flows.
Yeah? How many cracks in a dike does it take to create a flood?