Paying Lip Service To Saving The Eurozone

Wolf Richter's picture

Wolf Richter

"The case of Greece is hopeless," Otmar Issing said today during an interview. He should know. He was a member of the Executive Board of the Bundesbank and of the Governing Council of the ECB. Another substantive voice in an increasingly loud chorus.

But it’s legally impossible to kick Greece out of the Eurozone. So he suggested a procedure: Tell the country that it has to implement reforms as a condition for financial help. When implementation is lacking, the basis for financial help disappears, and “you have to end it,” he said. “Then it's up to the Greeks to think about what they want to do."

That has been happening all along. The bailout troika (EU, ECB, and IMF) has offered money in exchange for a broad range of tough reforms. At first, it was easy for Greece to agree to reforms in return for bailout billions, but adequate implementation turned out to be impossible. Demonstrations, strikes, and riots, an unwilling bureaucracy, a political power struggle, morose economic conditions—all have seen to it that the unpopular German dictate, as it’s called, would fail.

“Greece must implement the agreed measures and reforms,” German Finance Minister Wolfgang Schäuble told reporters in Brussels. “And of course, all Greek parties must agree to the measures."

Another set of German must’s that Greece won’t be able to fulfill. By design. It gives German and Greek politicians an out—no one wants to be tagged with having made the first historic step in breaking up the Eurozone.

So, they’re going through a drawn-out step-by-step procedure of demands for reforms, promises, failed implementations, rebukes, withheld bailout transfers that then might still be made, and so on. The idea is to keep markets from panicking, give governments time to prepare for the inevitable, and render politicians blameless for Greece’s exit from the monetary union.

Return to Otmar Issing. "A monetary union without political union is absurd,” he said. “The keyword today is fiscal union. But a fiscal union cannot function without a political union. Yet decisions in that direction have to be democratically legitimate ... and that takes time. Those that defend the concept of a fiscal union know that."

So, Chancellor Angela Merkel, Schäuble, and the hordes of proponents of a fiscal union know that it cannot function without a political union—and yet they keep paying lip service to it. Beneath the surface, are they loosening the ties of the monetary union? Because the price of saving the impossible is just too high? It seems. And word is getting out.

 “The fact that we profit massively from the euro doesn’t mean we have to accept every political horse-trade to save it,” said the president of Germany's Association of Exporters. For how the German industrial elite opened up about exiting the Eurozone, read.... ‘The Old Europe’ Is ‘Not An Option For Germany.’

In Greece, the economic tailspin continues. Squeezed from all sides, and faced with oil prices that have nearly doubled in 2011, Greeks have been heading into public woods to chop down trees; they need logs for their fireplaces to make it through the winter. Authorities filed 1,500 criminal complaints in 2011, twice as many as in the prior year.

But not everything is doom and gloom in Greece. Tourism set a record in 2011: 16.5 million tourists, up by 10% from 2010, and responsible for a 1% increase in GDP, according to the Association of Greek Tourism Companies (SETE). And it expects another record in 2012. While the number of tourists from the EU declined, Russians increased by 88%. And the uptrend is expected to continue. Easier visa requirements, it seems; sometimes, the Greek government does something right.

And Greece’s exit from the Eurozone? According to the SETE, the drachma would turn Greece into a tourist mecca for all budgets, and business would boom. So the only major growth industry in Greece declares that it would be even better off if Greece left the Eurozone. A ringing endorsement.

Indeed. Austerity measures are taking their daily toll. Suicides jumped by 22.5%. Pharmacies are having difficulties obtaining medications. More cuts are coming. If there is no agreement on the debt swap and with the bailout Troika, Greece will default in March. But now, even the Troika is in disarray. Read.... Disagreement Everywhere, Rift in the Troika.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Stuck on Zero's picture

The Costa Concordia, christened in 2006, was named "Concordia" for international harmony. Each of the decks was named for a different European country. Is it a coincidence that when the Eurozone has hit the rocks, so has the ship? - Henry Makow

covert's picture

deception is why we dislike the political process.


CTG_Sweden's picture




”The fact that we [Germany] profit massively from the euro […]”




My comments:


I don´t think that it is a “fact” that Germany profits “massively” from the euro.


If Germany does not want a currency that continuously appreciates, or appreciates too much, there are a number of options available for them which can counterbalance this tendency and at the same time make German taxpayers more affluent. For instance, Bundesbank could print money, lend that money to a new holding company created by the German government that could buy stock all round the world. Later on, Bundesbank could decide to remit the entire debt. Subsequently, the German government could distribute all shares in the holding company to the German citizens.


If the holding company annually would get an amount of money from Bundesbank that would equal, let´s say, 3 % of the German GDP, that would mean a quite substantial increase of wealth for German households over a longer period of time.


However, I suspect that other EU countries would think that the Germans should not make money that easy and therefore should distribute the shares of the holding company to Greece, Italy and Spain instead. But I suspect that this would still be cheaper and less risky for the German taxpayers than the current strategy.


Ghordius's picture

I presume you were not around when during the last currency skirmishes the DM was under immense speculative pressure...
Just have a look at the current speculative positions on the EUR, this load would BREAK any smaller currencies group.
As ugly as it is, there is a self-protecting reason for a common currency...

CTG_Sweden's picture







"I presume you were not around when during the last currency skirmishes the DM was under immense speculative pressure...

Just have a look at the current speculative positions on the EUR, this load would BREAK any smaller currencies group.

As ugly as it is, there is a self-protecting reason for a common currency..."






My comments:


You got to be kidding. The DM appreciated continuously for decades before it was replaced by the euro. And so far everybody have said that the problem with replacing the euro with the DM in Germany would be that the DM would appreciate too much. If you are right, that shouldn´t be the problem. It also seems as if you think that the DM would be pegged to some other currency. Why peg the DM to some other currency? I also don´t understand what you are referring to when you talk about "the current speculative positions on the EUR".


Furthermore, it sounds as if you think that the euro is pegged to some other currency and that it is difficult for the ECB to maintain that exchange rate. Is that what you mean? To which currency is the Euro pegged? I know that the CHF is pegged to the euro, is that what you are referring to?


NEOSERF's picture

These tourists are vulture hedge funds looking for loot to buy...

apberusdisvet's picture

"Greek style" now has a whole different meaning.

battle axe's picture

Drachma now, Germans and French ring fence their Banks, lets get it over with. Then they can concentrate on the real problem, Spain and Italy.

Lost My Shorts's picture

I never understood this line about no monetary union without fiscal union.  That is nonsense.  All they need is independent banking regulation.  The Germans can then forbid their banks to buy Greek debt, and the Greeks can borrow as much as the market will lend them (which would not be much).

The German mistake was creating moral hazard in their own banking system by giving the impression that EU sovereign bonds would be bailed out; so their banks overloaded on ridiculous leverage, paid themselves huge bonuses, and left the government with a no-win situation.  Either bail out Greece, or bail out their domestic depositors in failed banks.

What about the Euro or monetary union compels Germans to buy Greek bonds ever, at all?  It would be easy to design banking regulations to eliminate moral hazard and keep everyone out of trouble; ditto for insurance companies, pension funds, etc.

honestann's picture

Tell me this.

If the entire world switched their "monetary system" to grams of physical gold (coins) with absolutely zero fractional reserve practices of any kind, then would it not be true that the entire world has a "monetary union"?

Of course that's true.  And it does not imply ANY form of political union whatsoever.  It implies NOTHING except the conventional way to state the value of goods.  It does not even require that individuals or corporations exchange goods for gold!!!  It merely provides a consistent, standard (and simplest possible) way to value any and every good in order to compute the exchange rate between any good and any other good.

The ONLY reason any problems exist is... the predators-that-be and predator-class REFUSE to deal in honest money, because it would deprive them the easiest and most effective way to lie, cheat, steal and enslave.  PERIOD.

These days, almost EVERYTHING IS A LIE.

Treason Season's picture

No offence but you're not thinking big I mean small enough.

1 gram = 15.432 grains

honestann's picture

You could go that way, but grams are lots more familiar.  So I'd think people could deal better with the equivalent of a penny (1/100 gram), nickel (1/20 gram), dime (1/10 gram), quarter (1/4 gram).  1/100 of a gram is something like 50 cents, I think.

Nels's picture

...  no monetary union without fiscal union.  That is nonsense.

Of course it's nonsense.  It's yet another Big Lie, to be repeated so often that every analysis of the problem starts with this as an assumption.  It wasn't necessary when the monetary union was based on gold, it's not necessary now. 

The lie is that Greeks were Germans were French were some sort of generic European, and all deserved the same interest rate. Cui bono?  It's a bankster driven takeover of a sovereign state.  The method was to get the Greeks hooked on cheap money suck out of pension plans, and then reel them in when they can't pay the vig.  Of course the pension plans will get screwed while the central banks get paid off, just to keep things even for all the non-bankster suckers.

The second lie is that Greek default is unthinkable, when it's the only way to keep Greece a sovereign state.

Peter Pan's picture

It's funny how some commentators saw how things would play out almost two years ago. (Greece will default and gold will vault)

Peter Pan's picture

The austerity has not only been designed to drive Greece out of the Eurozone. It has also been designed to break the country financially so that national assets will be disposed of at fire sale prices.

Friends told me 18 months ago that teams of Germans were in Greece surveying the islands and other hot spots in an effort to draw up their shopping lists for when the sales began.

Perhaps a fiscal and political union may have been far easier under a gold and silver standard.

ucsbcanuck's picture

"hot spots" - I have a mental image of large swathes of Greece being covered in solar cells as we speak...

Germans in Greece may not be such a bad thing - would improve the efficiency of their tourism industry...

falak pema's picture

today there are fifty year old greek women offering a packaged deal for mom n daughter services for male tourists visiting Greece. That's how desperate some people are. I don't really believe that Greek women have suddenly slipped back to Dionysian love rites as they lose faith in their Papa orthodox clergy and their Demos plutocrats to save their livelihood!

I was told this by a guy just returned from Cyprus and Rhodes. Terrific terms being offered for bed and breakfast, and the massage to boot! 


Peter Pan's picture

Interesting but perhaps the tourists are unwitting actors in cheap blue movie productions.

StychoKiller's picture

Unpaid male pr0n stars AND, we keep all the DVD profits!  Win-win!

ucsbcanuck's picture

Not only unpaid - we get to blackmail them after wards as well. Win-win-win! OPA!

ddtuttle's picture

Austerity imposed by the Germans, even with the agreement of government stooges, is incredibly counter productive.  Austerity should be imposed organically from within.  Switch to the drachma, and every transaction will automatically incorporate austerity as needed in a free market way.

88% more russians?  Yikes.  That'll destroy tourism.

Russinas are the only people on earth that can make the worst American tourists seem desriable.

ucsbcanuck's picture

"88% more russians?  Yikes.  That'll destroy tourism.

Russinas are the only people on earth that can make the worst American tourists seem desriable."

Why? Do you have a problem with loud, rude, fat guys flashing their gold teeth and their chest hair with tacky bling bling :-) Dude be more open minded!

walküre's picture

The Greek don't deserve that. Nobody should have to suffer from Russian tourists.

ebworthen's picture

"The idea is to keep markets from panicking, give governments time to prepare for the inevitable, and render politicians blameless for Greece’s exit from the monetary union."


StychoKiller's picture

Kinda like:  We need to get rid of the dead wood at the company, but they're older workers that might sue for age discrimination if we just simply fire them.  Instead, let's heap more and more work on them, along with the crappy tasks, until they quit on their own!

Georgesblog's picture

It's like watching Pro Wrestling.

Wednesday, Jan. 25th, 2012 – In all of the speculation about the global economy, and the European debt crisis, there is a question that I haven’t seen asked.

“What would happen if all of the currencies of the world collapsed, on the same day?”

resurger's picture

lol, thats a good question! They are all bankrupt...

Ghordius's picture

Good article, for once, from testosteronepit, except for the "fiscal union is needed" part. This part of the "Dogma" around currency unions will probably die last. Looks like the City's propaganda is losing steam.