Guest Post: Another European Summit, Another Beggars At The Feast Spectacle?

Tyler Durden's picture

Submitted by J.Luis Martin, director of, first published in El Confidencial

Another European Summit, Another Beggars At The Feast Spectacle?

And here I'm breaking bread 
With the upper crust! 
Beggar at the feast! 
Master of the dance! 
Life is easy pickings 
If you grab your chance. 
Everywhere you go 
Law-abiding folk 
Doing what is decent 
But they're mostly broke! 
Singing to the Lord on Sundays 
Praying for the gifts He'll send. 
But we're the ones who take it 
We're the ones who make it in the end! 

                          – “Beggars at the Feast,” from Les Miserables

The European Union will hold yet another do-or-die summit this week. On this occasion, “growth” is the plat du jour; the allegedly missing recipe in the “plan” to save the euro. In addition, some suggest that this time is also “different” because Greece, France, Italy and Spain may now be ready to corner Germany to relax its sacrosanct fixation with austerity. This summit truly promises to be quite a gathering of beggars at a feast, no less.

Billions to nowhere

The outcome of previous European summits leaves little room for hope that anything substantial will be achieved this time around, except perhaps for another massive central bank intervention, as was the case after last summer’s “Marshall Plan” summit, as well as after last December’s “10 days to save the euro” meeting.

In the four years since the crisis broke out, the EU cannot point to a single action, policy, or even a meaningful statement that has not been questioned later, if not completely overruled by one of its members or institutions. 

There is absolutely nothing that even suggests that Europe’s leaders are even close to agreeing on something with regards to a rational plan to address the Eurozone’s systemic problems. In fact, as much as European Commission President José Manuel Durão Barroso calls for coordinated European action in the form of a banking union, fiscal integration, eurobonds et al, his words prove to mean nothing unless they are sanctioned by the institutions that truly matter in the EU: namely the European Central Bank (closely monitored by the Bundesbank) and the German Finance Ministry.

The only thing Europe has managed to accomplish this far is to extend its monetary union’s survival through a series of circular debt-piling rescue schemes. Precious time and billions of euros worth of bailouts into the crisis, we are now being warmed up to the next summit with the same solemn messages of urgency and hope of the past, only this time there is a new euphemism to root for: the “growth compact.”

Besides the adoption of “growth” as the newest European mantra, some are openly calling for Europe’s beggars to become choosers as a way to force the debt mutualization scheme that will ultimately backstop the euro project. A type of chest-beating strategy, by the way, which seems to rhyme with Spain’s recent dealings with Europe.

Beggars unite?

Essentially, those suggesting that the periphery could and should threaten Berlin into an “all-in” German bet on the euro zone have decided to ignore two fundamental problems: the prevailing institutional and political idiosyncrasies of each of the 17 member-states, as well as the lack of real statesmanship and vision from those who represent them.

The latest “beggars becoming choosers” narrative basically suggests, in the case of Spain, that Berlin must be forced into accepting the following:

-- That the Spanish government, as per Prime Minister Mariano Rajoy’s own words, will not let any bank fail, and that the (still undetermined) European financial bailout is injected directly into the country’s troubled banks. Spain’s aim here is twofold: to separate the financial sector’s troubles from the state, and to prevent a hypothetical apocalyptic and highly contagious disaster stemming from Spanish savings banks’ downfall. 

From a German standpoint, this formula would pass the Spanish financial “hot potato” to the euro system without any real guarantee over the bailout’s success – and much less over its repayment. To Germany, this plan has moral hazard written all over. Accept that austerity in Spain does not include curbing the political structures that perpetuate heavy state intervention and a system void of political accountability. 
-- That “austerity” is to hit Spanish citizens in the form of more taxes and less public services, but not the political apparatus: an entanglement of publicly-financed labor unions and political parties, NGOs and foundations, dozens of highly indebted state-owned mass media corporations, thousands of public companies, hundreds of thousands of politically-appointed bureaucrats, and the 17 regional governments, which double and sometimes triple public functions. 
Naturally, relaxation of bailout conditions, as well as any joint debt instrument issued at supranational level, would further delay the potential for such structures to be significantly downsized and/or eliminated. Again, a problem of moral hazard surfaces should Germany fold to a debt mutualization scheme. 

-- That it must trust a political establishment that – like Greece’s – tells its citizens that bringing to justice those responsible for the current state of economic and financial affairs is not a priority, and that any parliamentary initiatives to such an end are to be systematically blocked. The epitome of moral hazard, indeed.

While some have focused on last Friday’s announcement of a €130bn European-funded growth package as proof of Germany’s loosening up to the periphery’s demands, the Spanish government’s alleged tough stance on the negotiating table was swiftly put aside by German Chancellor Angela Merkel, precisely on the grounds of moral hazard.

And yet it is also true that Germany’s own delusion to have it both ways in the EU have resulted in the schizophrenic policies of austerity and bailouts which have exacerbated the Eurozone’s demise.

Ultimately, Spain needs to focus on transforming its educational, economic and territorial model in the face of an extremely dire economic and demographic outlook.

To think that such profound matters of pressing national concern, along with the prevailing divergences within the Eurozone, can be solved by virtue of transferring sovereignty to Brussels – backed by the core’s checkbook – is both infantile and negligent. In fact, to promote “more Europe” to “save Europe” is nothing but a replay of the same mistakes which characterized the flawed European Monetary Union’s foundation.

No more European bailout feasts

Last winter, I asked Economics Nobel Laureate Dr. Vernon Smith about his views on Europe’s troubles. At the time, Smith explained, “the strong countries of Europe are being asked to foot the bill for the profligate countries and that is not a sustainable policy. The weak countries are de facto bankrupt, should face that fact, and default, if necessary, on their debt. This will force them into balancing their budgets, becoming more disciplined, and to live within their means. Investors will return if these actions are credible, as investors are remarkably forgiving, buoyed by hope that stability and growth will return.”

Dr. Smith went on to warn about the potential damage bailouts could have on Spain’s path to overcoming its economic hardships: “The open question,” he underlined, “is whether the Spanish political process can credibly put its house in order if they are being protected from default. That is an umbrella fraught with incentive leaks and hence may not even be in Spain’s interest.”

Today, Dr. Smith’s comments remain as pertinent as ever – especially when we are beginning to witness how the people’s austerity for the sake of useless bailouts revives long-buried European extremisms. It is time to stop thinking in terms of impossible rescues and “compacts”, and demand that our European leaders adopt a more responsible conduct at their upcoming summit; a change from the customary European “beggars at the feast” spectacle, no less.

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blueridgeviews's picture

Everyone talks about the PIIGS leaving the Euro and what disaster that might bring.  H

Has anyone thought what would happen if Germany leaves the Euro?

BorisTheBlade's picture

Germany is a main beneficiary or the united european market space, if euro fials, so is the german export-oriented economy. Why should they leave then.

Ghordius's picture

Boris, this is a big canard. Germany's exports are half to the eurozone and half outside, and they did fluctuate, but the levels of both are not that different from 50 years ago.

The true reason for Germany's export are the German Industrial policies. Which support further education on the job of the already highly skilled German worker and make the true value adding German machinery possible: the (mostly) family owned Small and Medium Enterprise - unknown frontier for the typical Financialist because nearly devoid of IPOs, stocks, etc. and based more on (often state-) bank loans instead of corporate bonds.

Germany cherishes the SME model. You can do much worse than that, if you want a functioning market economy in a republic based on democratic principles that tries to keep the social compact alive. Lots of compromises there - often a good sign.

Faced with the question if it would be thinkable to protect the German industrial wage levels through tariffs, and noticing that this is currently not the "allowed way" of the globe, the German Trade Unions and Industrialists sat together and enacted a very painful labour market reform, eventually driving the worker unit prices down, down, down, to a level where the German Industry can compete with the MegaCorporations using China et al as the workshop of the world. The US and the UK went the other direction and shipped their factories to the East.

Germany is not going to leave the EUR for political reasons - and those are not the "dominance" idiocies that the Financials newscasters are spouting.

GeneMarchbanks's picture

Even if Germany wanted to leave they couldn't. Since there is really no exit, you might as well hijack the project by direct democracy. Claim your share Egyptian style.

Ghordius's picture

I don't agree with "they couldn't" fully, but anyway, if they brought the DM back online they would keep (have to - want to) their existing debts in EUR, service them in EUR and effectively have two currencies, with the new DM hiding temporarily under the skirts of the EUR until we all know where the reserve currency of the world is going. Which is the real reason for the EUR and the real reason for all this can-kicking, waiting for Godot etc. etc.

GeneMarchbanks's picture

King Dough-Larr!!!

So strong...

Ghordius's picture

that's why his girlfriend likes him so much, he is the white bull on which she rides, since he displaced golden Saturn... though she fears Jupiter might leave her, one day, and she wants to be prepared for this eventuality

BorisTheBlade's picture

Always good to see balanced response from someone who understands subject better, thanks for that.

Ghordius's picture

very kind of you - I don't claim better understanding, just a few years of thought on those matters before they came back to the fore. I'm counting the use of the word Central Bank Reserves on ZH and elsewhere, for example, and expect headlines with it more often in the future...

123dobryden's picture

beneficiary? holding phony wealth like PIIGS government debt can hardly be considered a benefit. let me see what exactly will german pensioners be able to buy with it in few yars time. it only looks like germany is beneficiary, it is unsustainable trajectory and as soon as something is not sustainable it must end.

sunnydays's picture

That is exactly what I believe Germany will have to do.  They already have printed new Deutsch Marks.  It would be smart for Germany to leave the Euro and tell the others they are done with bailing them out.  Now that would be awesome.

Ghordius's picture

and kicking the applecart with the APPLs flying in all directions?

that's the Financialist's way, sensing trading opportunities! :-)

the apple producer does not like market fluctuations

GeneMarchbanks's picture

Well done Luis, let me first congratulate you on the topic choice. It's a rarity, few people choose to tackle this topic.

There are entirely too few opinion pieces regarding this issue. Thanks.

michael_engineer's picture

Germany knows very well that peak oil effects on the economy may be forcing austerity no matter what games are played in finance and debt structuring.

In English :

Maybe that is part of the reason Germany will be hard to budge on austerity. Growth requires cheap energy and cheap resource inputs.

From that report :

3.1.4 Intra-societal Risks of Peak Oil

Since modern national economies strongly rely on inexpensive fossil raw materials, in particular oil, peak oil would pose considerable challenges to most countries and societies in the event of an incomplete or insufficient post-fossil transformation process. These challenges could entail restrictions in the mobility systems, interruptions in economic structures as well as an erosion of confidence in state institutions.

At first glance, it seems obvious that a phase of slowly declining oil production quantities would lead to an equally slowly declining economic output.

slaughterer's picture

Let's all piss in the Eurosummit catering together like Tyler does in "Fight Club"

ghenny's picture

I suspect that it would be even more disasterous for the European periphery if they do not accept some kind of fiscal discipline in the form of defaults and/or German/IMF supervision of government spending.  I agree their political and economic structures cannot reform without this.  Without those reforms the problems will get much worse and ultimately lead to an even more cataclysmic outcome.  At the same time, I believe the kind of reforms they need to undertake are the creative development of a "communitarian' economic system like the Mondragon corporation  in the Basque region of Spain.  This runs counter to standard neoclassical economic prescriptions.  The reason I recommend this solution is that global crony capitalism will not go away just because Spain adopts "market" solutions to its problems.  Crony capitalism is so deeply embedded in all the world's economic institutions it may by now be a natural force of human nature. It seems natural to try and make yourself comfortable at other people's expense using the institutions of government - whether national or supranational.  Markets can never exist in isolation from politics.  The libertarian phantasy is a myth.  People always seek to protect themselves from competitors beyond just becoming more adaptive and innovative.  Inertia is a very strong force.  We have never figured out how to prevent the regulators who are supposed to gurantee free, fair and transparent markets from being corrupted and we probably never will. This of course explains the growing disparities in income which itself creates pressure and corruption as well as huge inefficiencies.  In my view systems like Mondragon, while far from perfect at leas provide their members with a reasonably fair, just and efficient way to make a living.

The Age of Useful Idiots's picture

"At the time, Smith explained, “the strong countries of Europe are being asked to foot the bill for the profligate countries and that is not a sustainable policy."


Glad to see Economics Nobel laureates who should know better and maybe check a chart or two falling for the usual bs. It just proves what kind of charlatans they are.

Reality check:


How much was Spain's debt to GDP in 2008?            36,1%

How much was Germany's?                                  64,4%  (yes, almost double!)


And which of the two countries had a surplus back then? Hint: It wasn't Germany.

And which country has a higher debt to gdp ratio even this year? Hint: It isn't Spain!

In fact, there has not been a single year in the EZ era where Spain had a larger government debt to gdp ratio than Germany. Not one! Let me repeat:

In fact, there has not been a single year in the EZ era where Spain had a larger government debt to gdp ratio than Germany. Not one! Should I repeat it again?

In fact, there has not been a single year in the EZ era where Spain had a larger government debt to gdp ratio than Germany. Not one! But let's not let the facts ruin this wonderful story about the "profligate" sinners vs. "responsible", frugal Germany. 

Here are the facts historically: 

1) "Historically, from 1980 until 2011, Spain Government Debt To GDP averaged 47.2300 Percent reaching an all time high of 68.5000 Percent in December of 2011 and a record low of 16.6000 Percent in December of 1980."

2) "Historically, from 1995 until 2011, Germany Government Debt To GDP averaged 65.2500 Percent reaching an all time high of 83.0000 Percent in December of 2010 and a record low of 55.6000 Percent in December of 1995. 

And let's not even begin to compare all this with the US or the UK!!!

rufusbird's picture

This is the best piece I have read about the Euro situition yet! Kudos!

Pat Fields's picture

I contend that the banknote monetary scheme is an automatic system of co-generating currency-debt that, if not constantly fed by new borrowings to raise interest service funding ... immediately implodes into monetary deflation ... ironically, while bank currency balances skyrocket into self-destruction from failure to earn any gains on the huge pile of paper.

Further, I contend that 'central banks' exist principally as a mechanism to control rates of interest in order to variate the rate of interest-automated currency creation. This presumption has proven misconceived in the face of 'zero' interest resulting in exponential currency creation, nevertheless, because of complex compounding of past growth.

My conclusion is that the cockpit is impenetrably locked and there is no pilot on board. The 'computers' are attempting to execute completely faulty code and the world's economic plane is in a vertical dive.