The Shocking 2008 AIG Report On "Empire Europe" And The Death Of Greece

Tyler Durden's picture

Yesterday, Nomura's Richard Koo presented one of the better assessments of the situation in Greece, when he said that the "IMF is slowly beginning to understand the Greek economy", which explains its strategic U-turn, one which now demands far greater debt cuts than what Europe, and Germany in particular, is willing to concede.

Koo further notes that "the reason is that Greece’s GDP has plunged because fiscal consolidation was carried out during a balance sheet recession, resulting in a destructive deflationary spiral that has devastated the lives of ordinary Greeks. While the nation may appear to be making progress when we view the data as a percentage of GDP, the raw data show an economy in collapse. This difference in perspectives widened the gap separating European creditors who thought everything is going well, and the Greek public who has been suffering serious declines in their standard of living. And this rift in perceptions was perhaps nowhere as evident as in the results of the national referendum on 5 July."

The observation of the Greek economic devastation is absolutely accurate, and is no surprise to our readers: it has been our base case that not only Greece, but the rest of Europe's peripheral countries would suffer an ongoing deterioration in living standards due to lack of an external rebalancing (thanks to the common currency) leaving internal devaluation (plunging wages, deflation, economic devastation) as the possibility to remain competitive in the Euro Area; however where our opinion differs from that of Koo is the "motives" behind the creditors' unwillingness to honestly interpret the situation on the ground in Greece.

Yes, it is true that it is the same creditors who were the next beneficiaries of some 90% of incremental debt-funded proceeds entering Greece (only 11% of the €220+ billion in Greek bailouts ever reached the general population), and as a result they may have had the impression that ordinary Greeks are also enjoying the spoils of their bailout.

They were not, as the events of July 5 showed.

But while the former Fed economist will surely attribute this "oversight" to mere carelessness or at best, stupidity, even if an entire nation of 11 million people is suffering more than ever in history as a result of what is, at best, a failed experiment, there may be a more ulterior truth to events in Greece in the past 5 years especially considering Germany's stern insistence on not writing off Greek debts despite what is now an accepted fact that without a major debt haircut Greece simply is unviable.

Meet Bernard Connolly.

Barnard is a British economist whose rise to prominence started when he worked for many years at the European Commission in Brussels, where he was head of the unit responsible for the European Monetary System and monetary policies. In other words, if any one was familiar with what the ascent of the Euro would lead to, it would be him.

We say "eventual" because he was terminated by the Commission in 1995. The catalyst may well have been his book "The Rotten Heart of Europe: The Dirty War for Europe's Money, a negative treatment of the European Exchange Rate Mechanism" which Eurocrats did not take too very lightly.

However, Bernard is more notable not his books, or his employment in Brussels, but where he went next and what he did there.

After ending his relationship with Europe, Bernaned worked at Banque AIG, the Paris-based financial arm of the infamous AIG whose collapse together with that of Lehman, was the primary catalyst for the great financial crisis. Bernard however was not in the front office and did not trade CDS, but was the global strategist. Here is euro skepticism flourished and culminated in a report on May 30, 2008, months before the GSEs and Lehman failed, and AIG was bailed out.

The report was titled "Europe - Drive or Driven", and it should have been a must read for all Greek (and Europeans) some 7 years ago as it not only lays out precisely why Greece is now on the verge of not only sovereign capitulation but total collapse, but presents what may be the true motives behind Europe's perpetual crisis and why it almost appears as if the core European countries demand that the sick men of Europe, because Greece is just the first of many, remain and keep Europe in a state of perpetual turmoil.

And since this report is as relevant now as it was 7 years ago, we lay out some of its key highlights again.

From May 30, 2008

The Global Economic Crisis and the EMU Crisis

  • The global crisis is the result of intertemporal misallocation (Greenspan; EMU).
  • In effect, there has been a global Ponzi game.
  • In Europe, this was intensified by the myth that “current accounts don’t matter in a monetary union”: EMU is the biggest credit bubble of them all.
  • The treaty says that government should have the same credit status as private sector borrowers.
  • Monetary union means greater economic instability.
  • These two factors should mean a worsened credit standing in EMU, yet government bond spreads actually diminished in EMU and ratings agencies actually upgraded governments

When the bubble bursts…

  • A collapsing credit bubble in the world means collapsing domestic demand in deficit countries (e.g. US, Britain, Balkans, Baltics – and several euro-area countries)
  • In the US, and to some extent Britain, domestic demand is being supported by rate cuts and, in the US, by a fiscal stimulus
  • In the affected euro-area countries, it isn’t
  • In the absence of support for domestic demand, affected countries will be forced into an improvement in net exports via improved competitiveness
  • In the US and Britain, this is happening through currency depreciation; in the euro area it isn’t.

[ZH: it is now, but for Greece it is far too late, plus any incremental "support" merely makes the European debt bubble even greater as we have shown recently]

And the implied real exchange rate movements are enormous…

  • Obstfeld and Rogoff saw a need for perhaps a 65% real effective exchange rate move for the US if current account adjustment were sudden (e.g., after a housing collapse).
  • The effect is linear in the size of the current account deficit relative to the size of the traded goods sector, so for the four
    large euro-area deficit countries we get the required real exchange rate movements as:
    • Greece: 94%
    • Spain: 55%
    • Portugal 36%
    • Italy: 9%
    • France 15%

…meaning huge required inflation differentials between blocs within the euro area

  • If the ECB tries to avoid depression in the deficit bloc (i.e., keeps its inflation rate at, say, 3%) and the deficit countries as a bloc (equivalent to about 2/3 of euro-area GDP) have to improve competitiveness by, say, 30%, over a five-year period, then that would involve euro depreciation of 50% and (with1/3 passthrough into German Bloc CPI) a rise of 17% (almost 3½% a year) German Bloc price level, taking German Bloc inflation to around 6½% for five years.

The ECB did not. Instead it chose the following, which is also why youth unemployment in the periphery is about 50%:

  • If instead the ECB tried to keep euro-area inflation at 2% (and no change in the euro), all the competitiveness change would have to come from Latin Bloc deflation; that would almost certainly involve a horrible depression, financial chaos, widespread default, social distress and possibly political instability.
  • But this would mean substantial euro-area deflation, too, so hitting the euro-area target must involve substantial euro depreciation and a substantial increase in German Bloc inflation.
  • These are all first-round calculations – they do not take account of wage-price spirals in the German Bloc as economies overheat.

And this is where it all comes home for Greece:

Things are even worse for individual countries

  • If the ECB decides to avoid depression, deflation and default in the weakest country (Greece), the required depreciation of the euro would be enormous and German Bloc inflation would be well into double digits for several years.
  • If weak countries have, individually, little political influence, it will be hard for them to get the ECB to bail them out via low interest rates and a weak euro.
  • But if there is no ECB bailout, vulnerable economies face catastrophe.

That's not only how it all played out, but it has also led - as we have seen - to Greece which clearly had "little political influence" to lose it all, and is now on the verge of abdicating its sovereignty to an oligarchy of unelected political bureaucrats and German industrial interests (remember: German exports account for 40% of GDP and a weak EUR is far, far more valuable than a strong DEM).

In further retrospect, the above assessment and the current events also explain Wolfgang Schauble's cryptic statement to Welt am Sontag in this 2011 interview:

Schauble: "We decided to arrive at a political union via an economic and currency union. We had the hope - and we still have it today - that the Euro will gradually bring about political union. But we're not there yet, and that's one of the reasons why the markets are distrustful.


Welt am Sontag: "So will the markets now force us into a political union?"


Schauble: "Most member states are not yet fully prepared to accept the necessary constraints on national sovereignty. But trust me the problem can be solved."

And, thanks to Greece, we are about to see precisely how.

So is there an other way out? The answer is yes - and it is precisely the basis for Varoufakis huge "game theory" gamble over the past 6 months, a gamble which was all about "who has more leverage" as we explained in January. However, thanks to the arrival of QE just in time, it allowed the ECB to set and control market prices (markets which no longer had to discount adverse outcomes and merely frontrun a central bank) of equities and bonds, in the process crushing all Greek leverage.

  • Current account deficits can be closed without a corresponding reduction in the trade deficit if current transfers are big enough.
  • The treaty prohibits a takeover of a country’s public debt, but does not prohibit additional transfers to support private spending.
  • The ECB is in effect already helping some banking systems by accepting increasingly risky collateral (but note that this may be helping German, Dutch/Belgian banks as well as, say, Spanish banks – note public disagreement between Mersch and Weber).
  • But the numbers involved in a complete fiscal bailout would be staggering: eliminating current-account deficits within the euro area by fiscal bailouts would require the surplus countries (the German Bloc) to make payments equivalent to 16% of their total government revenues (7% of their GDP).

Yes, Varoufakis was right, and will be right in the end: the cost of a Grexit would have been too great in the future. However he did not anticipate that Europe has a just as powerful counterweapon: locking up Greek deposits indefinitely right now.

Greece folded.

Which brings us to the final question: What Europe Wants?

Here is Connolly's answer:

To use global issues as excuses to extend its power:

  • environmental issues: increase control over member countries; advance idea of global governance
  • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
  • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
  • EMU: create a crisis to force introduction of “European economic government”

And there it is: in four simple bullet points laid out in a 7 year old presentation, a prediction which is about to be proven right. Because once Greece folds, next will be Italy, Spain, Portugal, and so on, until the European Economic Government, also known as the "European Empire", controlled by a handful of "northern" European players and the bankers financially backing them, shifts from mere vision to reality.

* * *

Full presentation below

h/t @TrueSinews

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ted41776's picture

inflation is the only thing keeping this pyramid scheme going

nope-1004's picture

Satanists running the financial world.  They should all be hung.


keremetski's picture

Not shocking report for me. BTFD.

ted41776's picture

broccoliman strikes again

Captain Debtcrash's picture

When the media and governments can’t be trusted, you have no choice than to analyze the information yourself, review history for context, and come to your own rational conclusions. Those rational conclusions, as to what is and may happen, are going to be more accurate than what you are spoon fed by the powers that be. But don’t be surprised if you do anything but keep that analysis to yourself when you are labeled a conspiracy theorist. When the government and media do nothing but tell half-truths and lies that title should be worn with pride.

Pinto Currency's picture



Greece is a sideshow.


"... So while the European ruling plutocracy is trying to find a new way to further dispossess the Greek people and keep southern Europe subjugated to the rule of international bankers and financiers, the participants of the double summit in Ufa are laying the basis of a new world order, but not at all the New World Order predicted by George H.W. Bush. One could say that they are building an anti New World Order.

Predictably, the western elites and their corporate media are in a “deep denial” mode. Not only do they not comment much about this truly historical event, but when they comment about it they assiduously avoid discussing the immense implications which these events will have for the entire planet. This borders on magical thinking: if I close my eyes hard enough and long enough this nightmare will eventually vanish.

It won’t. "


"... Get ready for ground shattering geopolitical changes. At the crossroads of Asia and Europe, it has been decided that the Russian city of Ufa will be the point of convergence for all the initiatives and projects of the Silk World Order of trade and integration that China and Russia are spearheading. Ufa, which is the capital of Russia’s Bashkortostan, is being used to simultaneously host an extraordinary summit for both the BRICS—which has increasing become an alternative forum to that of the G7—and the Shanghai Cooperation Organization (SCO) respectively from July 8 to 9 and from July 9 to 10, 2015. ...

...The Silk World Order that is being shaped in Ufa will see the existing Bretton Woods financial architecture of the world unraveled and replaced by one that is no longer dominated by the trilateral grouping of the United States, Western Europe, and Japan. The monopoly of the World Bank and the International Monetary Fund, which has benefited Washington, is at its end. The US dollar as a currency in bilateral and multilateral trade is being scraped by the BRICS, SCO, and EEU— Washington’s flooding of oil markets was partially aimed at derailing this by forcing renewed dependence on the US dollar for energy trade. ..."

McCormick No. 9's picture

The US will use the EU as a baseball bat to beat the BRICS into submission.

or vice versa.

Look for the 10 kings. They will rise up out of Europe.


BoPeople's picture

Beast with 7 heads and 10 horns (kings?)?

sesme's picture

The illEUsion of democracy.

Pinto Currency's picture


A little background on AIG's connections going back to OSS and currently the CIA

Not saying the above report of AIG's is not correct - it's just not purely an insurance co.'s analysis.

Salah's picture

Nobody's going to a city the avr. temp is 10d F. or below, for 4 months of the year.  GlobalResearch is so full of it.

jefferson32's picture

Here is an older and similar confession by Romano Prodi (common currency will create a crisis allowing European fiscal integration).


ebworthen's picture

AIG?  Didn't those cocksuckers get bailed out?


chunga's picture

They were selling default insurance on the fraudclosure fiasco but never had the capital to pay out.  Hank Greenberg's AIG sure did get bailed par.

Too bad for him Goldman's Blankfein stole his bailout loot! Whooops.

EscapeKey's picture

"the report from the iron mountain" has a sequel?

Inthemix96's picture

Not to nit pick nope-1004, thats not the word you are looking for, its 'Hanged'.

Dont ask me where I know it from but its true, you can never be 'Hung', only 'Hanged'.


pods's picture

Some of us can be hung.



nope-1004's picture

Thank you.  "Hanged" implies a subdued body and death.  "Hung" implies struggling to breathe while everyone in the street looks on as the banker flails, legs a swingin', from the lamp post.



Truthfully, I didn't know which tense to use, so InTheMix96 is right.  But I don't care, as long as some corrupt bank ape swings.


Inthemix96's picture

I wasnt taking the piss nope-1004, I agree with most of everything you post, but that one thing has always stuck in my head.

You mate, are one of the good guys, and I would love to fucking hang the cunts meself.


nope-1004's picture

hey no worries.  I welcome down votes, corrections, dispute, and banter.  I seek the truth.  I dont' take anything personally, nor should anyone else.  We're all here to find out 'why', and possibly lend help to correct the sad state .gov has turned into.

All good man!

cdevidal's picture

While grammar Nazis take over internet comments, real Nazis take over Europe. Good show, boys.

gezley's picture





Indeed you're right: clothes are hung, people are hanged!

Atticus Finch's picture

A person can be hung if someone picks him up and hooks his collar on a coat rack. He would then be hung.

upWising's picture

Here's the rule. 

The ZH readers hung the crime of looting MF Global on Jon Corzine.

As a result, Jon Corzine was hanged by the neck.


It's only hanged when it's a (banker's) neck.

DavidC's picture

Psychopaths. They do not care one iota about people and the fuckwits CANNOT see what happens with central planning and absolute screwing down of the population. War. Or maybe that's what they want.


Milestones's picture

I keep saying;every city ,state and nation needs a plentiful collection of LYNCHING LAMPOSTS at their deiposal. The need is becomming apparent.       Milestones

Doña K's picture

<<<inflation is the only thing keeping this pyramid scheme going>>>

When there is inflation PM prices go up. /s

TheReplacement's picture

I do not understand why some leader does not take the opportunity, when they are having some sort of international summit, to capture and kill all the bankers. 

detached.amusement's picture

Right?  Its common enough knowledge when those big meetings happen.  If ever there was a time and a place for a nuke to go off...'d know the ones skipping the event helped set it up, and then try to assume everyone's old roles

kill switch's picture

Chris Hedges it's all in this vid,,long but put some time aside it's worth it..

Iocosus's picture

This report is not shocking. Actually, it looks like a template for all governments.

wombats's picture

Everyone with eyes to see and ears to hear should expect something similar in their neighbor hood soon too.

When it happens to everyone else's country it will only be a shock to those who have actually believed the MSM lies all along.

disabledvet's picture


"The Squid never sleeps."

disabledvet's picture

Crazy Goverments maybe.

What's that saying about "honey and vinegar" again?

This is more like "smell the glove!"

So trying to claim there is no overt "political dialogue" going on between Germany and say...the entire fucking EU! a little ridiculous.

They have the best economy in all of Europe right now...and they expect you to be obliterated by that apparently.

Move along...

Cadavre's picture

A traditional pastime in the bunker is recapping the "hole in the quan-brain" handicappers shedding ink like a drooling  Alzheimer-esque-ish Mephisto-Strutting Trance Dancer "snogged" somewhere between nothingness and eternity .. 4-X:

09:19 AM ET Stock Futures Flat, Nasdaq Gains; Celgene Spikes On Receptos Buyout Stocks Roll Higher, Trade Mixed BY ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY

11:28AM ET US Stocks Rise 0.43%: JPM Surprises Markets, JNJ Beats Estimate BY Market Realist

12:07 PM ET Stocks Rise As World Markets Bet On Greek 'Yes' Vote BY KEN HOOVER, INVESTOR'S BUSINESS DAILY

01:48 PM ET Stocks Lose Some Steam; Group 1 Breaks Out BY VINCENT MAO, INVESTOR'S BUSINESS DAILY

03:00 PM ET Stocks Erase Gains As Selling Picks Up In Afternoon BY JUAN CARLOS ARANCIBIA, INVESTOR'S BUSINESS DAILY

... and so on and so on ... like that last retail player with 600$ on his VISA, and brainumors from his IDingDong is pumping the midway carnie barkers' Tumplr stats to infinti and beyond ... ain't that  America!

Benjamin123's picture

Then comes european army...

DetectiveStern's picture

They'd just end up reverting to type and fighting each other. England was once at war with France for 117 years the period of peace we've had now is still only small in the grand scheme of history.

The media make out like everyone gets along but the ingrained negative stereotypes never go away.

thesonandheir's picture

I am English and I would personally volunteer to invade France if it all kicks off. Get up early in the morning, ferry to Calais and then rough up a few locals, watch them all run away and be all finished for lunch. There would be time to invade Ireland later in the afternoon.

KnuckleDragger-X's picture

It'll be too late by the time they try military force since they have to rely on an unreliable part of the population for troops.......

Billy Sol Estes's picture
The Path to European Defence: New Roads, New Horizons Paperback – July 9, 2009 by Karl von Wogau (Editor) Available on Amazon
Bill of Rights's picture

Hillary Clinton Calls Donald Trump a RACIST… And Trump FIRES Back in an EPIC WAY!


Typical Liberal Scum, Hillary has her ass handed to her and then brings out the race card.... Its the same old same old with these people.

Dixie Flatline's picture

It is so refreshing to see someone srtike back at the Deep State(Hillary!) like that!  The MSM will report not one of his words, but report how he lost his cool, or has a temper...

Totentänzerlied's picture

Doesn't know that Hitlery and Trumpet are buddy-buddy, and have been for a long time.

Tall Tom's picture

Of course this OFF TOPIC POST was made to distract the reader from the fact that the EU Oligarchy is attempting to form a Super State and that the crisis in Greece has been planned since before 2008.


That is because Bill of Rights is a STATEIST who worships the STATE and desires the EVIL OF GOVERNMENT


It is going to be a glorious day to watch the Governments of the World BURN..

Tall Tom's picture

When the truth is told...The liars will junk it.


Whin the fuck cares about the psychopaths running to be the puppets of Goldman Sachs?


Fuck you stateist. 


Your destruction is imminent.


Looking forward to September. The forces will overwhelm you.