ECB's First Chief Economist Warns: The EU Is A "House Of Cards"

Tyler Durden's picture

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

None of the following about the EU will come as a surprise to most of you, but the language used by Otmar Issing is nevertheless pretty remarkable.

The Telegraph reports:

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.


“One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.


Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.


“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.


The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.


Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said. 


The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.


The central bank already holds over €1 trillion of bonds bought at “artificially low” or negative yields, implying huge paper losses once interest rates rise again. “An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous,” he said.


“The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past,” he said.


Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

Indeed, as I highlighted in last year’s post: German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks.

Jacques Delors, the euro’s “political” founding father, issued his own candid post-mortem last month on the failings of EMU but disagrees starkly with Prof Issing about the nature of the problem.


His foundation calls for a supranational economic government with debt pooling and an EU treasury, as well as expansionary policies to break out of the “vicious circle” and prevent a second Lost Decade.

The fact that some are actively considering this in the wake of all the populist movements tells on the continent, tells you just how disconnected many of these people are.

“It is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis,” said the Delors report.


Prof Issing is not a German nationalist. He is open to the idea of a genuine United States of Europe built on proper foundations, but has warned repeatedly against trying to force the pace of integration, or to achieve federalism “by the back door“.


He decries the latest EU plan for a “fiscal entity” in the Five Presidents’ Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.


Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.

Of course, since most EU technocrats have virtually no capacity for introspection, there’s close to a zero percent chance they’ll do the right thing. Therefore, as I laid out in the post, It’s Not Just the UK – Widespread Support for EU Referendums Seen Across the Continent, here’s how I see things playing out:

  1. Euro skepticism is on the rise.
  2. EU technocrats will fight back with sticks instead of carrots, furthering euro-skepticism.
  3. Great Britain will be the first, but probably not the last country to hold an EU referendum over the next 5-10 years.
  4. The EU as it stands is a failed experiment. This is proven by the inept and corrupt handling of both the Greek “bailout” program and the refugee crisis.
  5. The only solution is to increase decentralization and restore national democracy within the framework of some of the popular attributes the EU offers.
  6. EU technocrats are obsessed with a further centralization of power and will continue to push it against the will of the people.
  7. The EU will ultimately disintegrate as a result of overwhelming popular dissent to technocratic scheming and incompetence.

For related articles, see:

German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks

Does the Migrant Crisis Represent the End of the European Union?

Video of the Day – Here’s What Happened When a Member of European Parliament Tried to Read the TTIP Text

The EU Wants to Impose a Tax for Sharing Links on the Internet

Head of the European Parliament Warns – EU at Risk of Falling Apart

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gojam's picture

The Issing Link

Bumpo's picture

At least Europe doesn't have a bunch of Sub-Saharan Africans living and shitting on your streets. Oops, I guess whether you like it or not, Brussels knows best.

Nemontel's picture

The Globalists in Brussels are the most evil in ones on this planet, what else do you expect. We need to kick them all out of office!

Kidbuck's picture

Yes, they are evil, but until very recently most of our intellectuals were telling Americans that we should pursue the European flavor of enlightened socialism. Just as these same Americans were having orgasms over the Soviet nirvana right up until the wall collapsed.

Eyjafjallajökull's picture

It is reassuring to know, that not a single one of these problems applies to the US of Amerika

Dead Canary's picture

Oooo... That's a good one.

Spigot's picture

Yeah, knocked the teeth of Mario right out of the ball park. Truthiest.

GreatUncle's picture

Hi there recognised name from long ago don't ask me why was on another tabloid too I think. Seems so many jumped ship into the ALT-MEDIA for the true MSM lies.

Mr. Magoo's picture

Now the Alt media has been corrupted as well. The whole world is a house of cards waiting for the breeze to knock it all down. The TPTB will start it all over again except with a lot more control

Batman11's picture

Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

After the crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring. The end result 2008.

With the Euro-zone, the Germans were the first ones to go bubble crazy over the boom and their version of the NASDAQ collapsed by 97% in the bust.

To help Germany, the ECB lowered interest rates and blew bubbles in the Club-Med nations that burst when the Euro-zone crisis hit.

The low interest rates didn’t actually encourage the German’s to borrow as they had just had their fingers burnt with the bust and they were busy repairing their balance sheets. The recessionary atmosphere in Germany allowed them to press ahead with labour reform.

The Club-Med nations and Ireland couldn’t resist the low interest rates and started borrowing heavily. This new debt created new money which increased the money supply. With more money around wages rose and labour quietly became more uncompetitive, un-noticed in the boom of low interest rates, mass borrowing and mass money creation.

Richard Koo goes into the details:

From 55 mins. – Explanation of ECB action to help Germany

The evidence seems over-whelming that monetary policy is far too broad a brush to control economies

The broad brush of monetary policy being applied to the divergent economies of Euro-zone was a disaster waiting to happen. It was never going to work and its problems have already manifested themselves in the housing bubbles of Greece, Spain, Holland and Ireland when trying to help Germany with low interest rates.

Holland desperately tries to keep its housing bubble inflated and avoid the fate of Ireland, Spain and Greece.

The broad brush of monetary policy also divided the Euro-zone’s labour market, making German labour more competitive and Club-Med nations labour less competitive.

The Euro-zone is suffering from problems caused by the crash and broad brush Central Bank monetary policy, these problems only manifested themselves much later after the next big crash in 2008.

Trying to solve these problems now, 16 years later, is proving very difficult indeed, especially using the broad brush of monetary policy that failed so miserably all those years ago. 

Infield_Fly's picture
Infield_Fly (not verified) Oct 18, 2016 2:43 AM

Bullshit - ECB is fine - they just keep on printing.

SmittyinLA's picture

They're good as long as they can buy missiles, right?

SmittyinLA's picture

We do not know whether this will be in six weeks, six months or six years.

Try 6 days

medium giraffe's picture

The EU Is A House Of Maxed Out Credit Cards

Ghordius's picture

go on, bring the comparisons, bring your numbers

how much? compared to whom?

taggaroonie's picture

An entity that effectively prints money out of thin air can handle the "huge paper losses once interest rates rise again".

Falcon49's picture

In order to move to the next must overwhelm the system.  Standard (problem--reaction--solution) process to bring about change.  In this case, a US Of EU.

Ghordius's picture

a "US of E"? funny how often this is taken out as the worst possible outcome of the European Project

look in the internets with your least untrustworthy search engine for "Wallonia" or Wallon Parliament + EU Trade Treaty + CETA

you will find out that the parliament (that's one of the things we elect, here, it's a democratic thing) region of the federation of states that is commonly called "Kingdom of Belgium" is blocking the neoliberal, anti-sovereignty treaty with Canada called CETA, particularly because those elected members of the Walloon Parliament have something against the setup of private tribunals that are outside the sovereignty of a country

that's right, one european region, not even a "member state", i.e. a member country of the EU is blocking CETA

Belgium is not the only federation of states that is member of the EU. Germany is another excellent example, and the BreXiting UK is too made up of whole nations, for example Scotland, which is btw quite pissed about BreXit, if you look at the referendum outcome

so the Wallon Parliament has said no, and by the Belgian Constitution and Laws the ministers of Belgium have to vote no in the leading body of the EU, the EU Council, and this possibly only vote of "no" looks like it is derailing the whole shebang

that's the problem. you guys talk about "US of E" and for some reasons think that we continental europeans, particularly our federalists, have the need and scope to copy the US model...

... as if we had no own models of how "the state" ought to look like

China is a very centralistic federation, but I don't read here urgings to see China break up

Russia is a very centralistic federation, it even has member states that are Muslim, but I don't read here urgings to see Russia break up

meanwhile, we have here very complex models and setups

the eurozone (19 members with a common currency) is not the European Union (27 members + exiting UK) is not the Schengen Area (which includes Switzerland but not the UK)

Nigel Farage's UKIP did not get any seat in the UK's parliament, but it did in the EU's Parliament. do you know why? if not, you have no frigging clue about anything in Europe

find me any article in the alt-right or libertarian or anarchic-something US blogosphere that starts with the eurozone... and does not end in completely different matters, passing to unrelated things regarding the EU or the Schengen Area or the need for Washington to do this or that

you Americans are kept ignorant with plenty of bullshit. something Brits are too, but might soon find out because of BreXit, then the very act of exiting the EU forces them to have for once a realistic view of what the EU really is or not

it is, at the moment, the place where one elected parliament of a region you possibly never heard of can just say no... and this EU of 500 millions is blocked from a treaty with Canada (which, btw, is very important for the BreXiting UK, because if CETA does not pass, the chances of the UK of getting a sweet "soft" deal look slimmer)

nope, there is no other place on earth where you can try this

only in the EU

it's still the "United States" where members can exit. it's still the "Federation" where one elected P can block international trade treaties. it's still the "Empire" that, compared to the Eagle's, the Bear's and the Dragon's, does not see salvation in much, much moar military spending

meanwhile, I still fight against the USE project, with the same spirit I fought for the eurozone project but against TTIP and CETA

but should our federalists succeed, and manage in the next 200 years to bring up a USE that has this "Golden Liberty" for elected parliaments...

... then they deserve my applause

RockySpears's picture


  That is all well and good Ghordius, but it simply does not matter.

  There are people at the top who are living it large off the baacks of the rest of us.  They have no accountability, do not care for anything but their own superiority and they are completely losing their shit at the way things have gone over the last few months.

  The UK was formed over centuries of war and politics.  Europe cannot hope to have formed a functional "entity" in just 40 years.  It does not help that is has been hell bent on getting bigger and bigger.  Maybe The UK, France, Germany could have made a small trading block and gone on to expand over the coming centuries, but throwning 28 Cultures, Languages, Peoples etc etc was NEVER going to work.

  People seem to think we are beyond wars and enmity because somehow we have changed since WWII, we are Better People.  No, The Balkans Conflict, an example of how diverse people need their own spaces.

  Sadly I see no solution except civil strife, each country will kick out or kill any it decides are undesirables.  We will turn into squabbaling children looking to get the biggest slice of a shrinking pie, and it will end up ugly.


  The EU was and experiment that is just now blowing up in our faces.



petar's picture

Those who don't live in Europe could say whatever they want, but reality is that Europe has the strongest economy in the world. It is on first place in academic research, small businesses, education, social benefits, work-personal life balance, and much moree.. Debt to GDP is way smaller than US or Japan. Real unemployment is standing at 10% in US and in Europe. 

Joe A's picture

Yes, but that is about to sacrificed on the altar EU integration. An event such as a war with Russia on Europe's soil will change that.

Peoplein Europe before WWI and WWII had no idea that their lives would change forever until it did.

Ghordius's picture

Joe, now seriously, do you really think you find any european armies or generals even thinking about marching to Moscow... again?

inversely, do you see Russia having the manpower to overcome their former communist bloc and reach us in the western parts of europe?

the time for WWI and WWII-like affairs is over. MAD still applies, for example by Russian nuclear missiles in Kalinigrad

we are "at war". we are at cyber-war. we are at war in Syria (though we just pulled out again, note)

modern military alliances are a bit like dinosaurs in a tin can. they can only scratch at each other

this is the front. ZH belongs to the places where the new war is being fought, with some of the participants wanting to keep you scared, bearish, ignorant, buying this or selling that, applauding for that great guy or booing the other one

and don't get me started on that word-construction "EU integration". you won't even find two europeans that define that rubbish the same way, and even less if they are foreigners

Joe A's picture

There was one Eurocrat -a Brit commissionaire to the EC called Donnely, I think- that warned against the Euro and said that the real value of the German Euro compared to the Dollar should be $2.12 (instead of the $1.20 something now) while for Greece it would be $0.33. Germany's Euro favors them a lot leading to a competitive advantage compared with other EU countries. This led to Germany's export surplus. Other EU countries cannot compete with that.

The day after Donnely wrote that he was sacked from the EC. He has 15 minutes to pack his stuff, was denied access to his computer and was escorted out of the building by security guards.

Ghordius's picture

a Brit moaning about the EUR? paint me completely surprised

who has the power of firing a British EU Commissioner? there are only three bodies that can do that

the EU Council, the EU Parliament and... the UK government

which one of the three was it?

RockySpears's picture

"The leader of Labour's Euro-MPs, Alan Donnelly, is to stand down from his post and leave the European Parliament. 

Mr Donnelly announced the surprise decision in Strasbourg on Wednesday, citing the difficulties he has with travelling between the Parliament's two bases as the reason. "



Joe A's picture

Hmm, that I do not know. I only know he was really quickly dismissed. I think it was the council.

A Brit moaning about the EUR does not mean he is not right. It pretty much played out like he and others warned. The Euro was not designed by economists but by politicians or at least by political economists. All for the sake to further the political union of the EU. The Euro has many advantages but a lot of countries cannot become competitive because they are tied to the Euro and to the policies of the ECB. And what the guy featuring in this article says about the bailout of Greece being a bailout of German and French and Dutch banks that made bad and risky investments in Greece is also true. That has very little to do with capitalist principles.

Anyway, haven't seen you for some time here. I hang around still here but often wonder why. Mostly for the news other than that the MSM is feeding you I guess.

Ghordius's picture

"quickly" points to the UK gov, doesn't it? the other two can't do "quickly" very well, it's the source of many, many jokes on the EU

"All for the sake to further the political union of the EU"

if that was so, why do only 19 countries use the EUR? note in this that Sweden is a splendid example of a country that signed a treaty to adopt the euro... eventually. meanwhile, that "eventually" is "when we Swedish will feel the need to"

don't ever tell a Brit this one truth: if the Brits were applying for EUR membership now... well, the British Pound (actually, the BoE) would not qualify

"a lot of countries cannot become competitive... "

looking forward to see how more competitive the UK becomes with the falling Pound

meanwhile, how would a super-inflating Drachma really help Greeks to come by, for example?

Joe A's picture

"the other two can't do "quickly" very well"

Ha, you'd be surprised how fast actors can move if somebody or something gets in the way of their plans. This Brit was closely involved in the creation of the Euro but they wanted to get rid of him really fast when it became clear he was not drinking the kool aid.

"if that was so, why do only 19 countries use the EUR?"

Because others don't qualify yet or they are smart and see how it all works out.

"don't ever tell a Brit this one truth: if the Brits were applying for EUR membership now... well, the British Pound (actually, the BoE) would not qualify".

The Italians (and also the Greek) did not qualify either but still they were allowed to join. That was a political decision, had nothing to do with economics and these countries joining contributed to the mess we have now in Europe (France insisted that Italy would join the Euro just like it insisted that Italy joined the EU. This in order to form a Medittarranean bloque against Germany and the Northern countries). If the Italian banking sector goes then so very likely will the Euro. We all got France to thank for that then.

In regards to joining the EU, Romania and Bulgaria were not ready either still that happened. Why? Because it was a political decision. But their economies and institutions were not at all ready for joining the EU. This perpatuated the corruption in these countries.

"meanwhile, how would a super-inflating Drachma really help Greeks to come by, for example?"

They'd be debt free. Sure, they would be out of the money markets for a while and life would be tough for the Greeks but with 25% unemployment, 50% youth unemployment, 37.5% poverty rate things at this moment are not nice either. Plus for extra bonus they will be debt slaves until 2059 and their assets are being sold to the lowest bidder so they can make a big return on their investments. It is a fire sale.

Which Gordhius am I talking to now at this moment? :-)

CHX's picture

 f(ECB, FED, BOJ) = CNTR + P => MOAR

CHX's picture


GreatUncle's picture

Economically no big deal ... anything can be resolved in this world if a reasonable path can be chosen.


EU needs a bit of population representation that has by design been purposefully kept out.


Level of immigration, economic policy, etc.

EU dictatorship does not permit this and why it will be sticks every time never carrots to get what it wants.


Ghordius's picture

that's why there is no seat for Nigel Farage in the EU Parliament, eh? define "dictatorship", you seem to use a different vocabulary then me

ExpertiseAsia's picture

Apropos Greece... 

Here is how they are handling things.

Seb's picture

Intentional, of course:

"We do not know whether this will be in 6 weeks, 6 months or 6 years."


We have the power now to take control from the banksters,   and yes the net could go down, but if it did we will be eating barriers and grass so any kind of monetary asset would be pretty useless. We the people now have the power, but will we use it? Do yourself a favour and watch the vid. We are in a monetary revolution and we have the power at last.

General Titus's picture

Wake up and rise people!

Last of the Middle Class's picture

Looks like the head rat is noticing the water level rising on the ship. Hope it's a very very long swim for ya dude.

JailBanksters's picture

I'll bet you never expected Otmar is a German Jew in the Central Bank did ya