Guest Post: EU Fiscal Union = EU Debt Serfdom

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

EU Fiscal Union = EU Debt Serfdom

"Fiscal union" is a code-phrase for a highly profitable debt-serfdom: the banks profit, the EU bureaucracy flourishes and the people of the EU are imprisoned in a modern serfdom.

The stock and bond markets are gearing up to celebrate the EU's approval this Friday of "fiscal union," the necessary surrender of sovereignty that's needed to seal the bondage of the EU's hapless citizenry to the banks and the lapdog bureaucrats slavishly devoted to their dominance.

"Fiscal union" is the code-phrase for the EU nation agreeing to automatic sanctions (penalties) should their borrowing exceed what is deemed prudent. In this sense, it's little different from the 3% deficit limit that the member states agreed to via the initial treaty but conveniently ignored.

The "teeth" of automatic sanctions is supposed to force nations to "tighten up" their fiscal and tax policies (including collection)--"austerity" at the fundamental economic and governmental levels.

In other words, "Oops, we borrowed too much, default looms, let's paper over the insolvency by really really really promising to borrow less from now on."

The mechanisms of the overborrowing--overleveraged, politically dominant banks and the euro--are left untouched. Why? For the "obvious" reasons the mechanisms of EU governance has been captured by the banks and their apparatchiks, and as a result of the quasi-religious devotion of the Eurocrats to the single currency, a catastrophically wrong-headed fantasy that they cannot give up without losing face.

I described the systemic problem with "austerity and higher taxes" as a "solution" to crushing debts in It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom (December 5, 2011): it sets up a positive (mutually-reinforcing) feedback loop where diverting more of the national surplus to pay interest on old debt leaves less for productive investment, a cycle of indenturement to debt that ratchets the risk of default ever higher, which drives interest rates up which then increases the cost of servicing all that crushing debt which then diverts more of the national surplus (via austerity and higher taxes) to paying the higher interest.

Every euro shipped off to the banks and bondholders is a euro that isn't going to be spent in the national economy, which means the economy contracts from a dearth of investment, income and spending. "Growing our way out of debt" is impossible in this indentured-to-debt positive feedback loop.

In a functioning democracy, then those who reaped the gain (the banks) would actually be exposed to the risk that accompanied their gain. But sadly, the EU is not a democracy except as a simulacrum propped up for PR purposes. The risk and the gain have been neatly separated by the Eurocrats and the toady figurehead leadership (Merkozy et al.).

As a result the gain remains safely private with the banks while the risk and losses are shifted to the taxpayers and citizens of the EU, who must now make good on those stupendous losses while remaining exposed to the risk of future default.

The same is of course also true in the U.S., another facsimile democracy in which the government and its proxies guarantee banks' profits and leverage while transferring the risk and losses to the voiceless taxpayers. (Go try to cast a vote over Fed policy. Serf, meet your Overlord, Ben Bernanke).

The banks and their lackeys in government prefer to use unaccountable proxy agencies to do the heavy lifting--the European Central Bank (ECB), the Federal Reserve, and the European Financial Stability Facility (EFSF), which is soon to be joined with other alphabet-soup agencies of oppression and predation, all in the name of "rescue."

Rescuing who and what? The banks and bondholders, of course. This requires avoiding not just democracy but also capitalism, which would require the clearing of bad debt via the discovery of price of both debt and risk, and also socialism, which would require wiping out the wealth of the banks and bondholders via nationalization, a process that would at least return surviving assets and control to an elected government.

It's not democracy, capitalism or socialism--it's all opacity and artifice to mask the imposition of a new, improved debt-serfdom on Europe, all in the name of "fiscal unity."

The eurocrats and the toady leadership would be more honest were they to simply declare: "We had to destroy democracy to save the banks. You are now serfs in our financial fiefdoms."

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AngryGerman's picture

...sounds like business as usual. That's the way it always worked. read niall ferguson.

HedgeAccordingly's picture

The bottom fell out of Crude on ECB rate worries as well as inventory builds.. funny -

falak pema's picture

some arab sheikh just made a million. These guys own the stuff and can jerk it around.

eureka's picture

asking EU to give up EUR is like asking US FED RES to give up giving free USD to US banks - without which there will be no more US EMPIRE and USD world reserve currency - without which US serfdom to China is ...

Oh regional Indian's picture

Nuts eh? I read a fascinating take today on the Parallels between Frak Herbert's Dune and the whole oil as spice and Fremen as Irakis (Arrakis).... fascinating. It definitely was last century's curse, vastly multiplying our killing/mutilating power.

Time to say goombye to the age of petroleum.

Viable options existed and were suppressed all through the last century. We are living not the best but the worst of tesla.



wang's picture

'Twas always thus

so sometime late Thursday, maybe Freitag a vague statement will be issued that will be sufficiently optimistic on fiscal union that the ECB will have the cover they need to start printing and a rally will ensue the likes of which we have not witnessed, of course if I am wrong (and I frequently am) you may want to dust off your 10k party hats.


philipat's picture

We have now been side-tracked into "Treaty Changes" as the next "Progress". The EUZ wants to ram these through with a minmum of democratic scrutiny. However, these che approval of these changes should not be taken for granted. For the periphery, "Fiscal union" means a loss of sovereignty, German approval of annual budgets and "Equalisation"of fiscal policy. All of this removes the only potential competitive advantage that the periphery could deploy.

Ireland for instance has specialised in helping US Corporations "Minimise" US taxes by offering low Corporate rates and tax holidays, in which it has been very succesful. So why would Ireland want to surrender the only succesful strategy it has? Ireland should have let the Banks go under and defaulted on its debt, just like Iceland which is now growing nicely again, or, earlier, Sweden then rebuilt by leveraging its tax advantages and highly educated English-speaking workforce to pull capex away from not only the Eurozone but also the UK.

No wonder the Eurocrts want to shove these changes down the throats of the people. Again.

bigdumbnugly's picture

taking over/unders on whether this union lasts longer than my own abbreviated 'til death do you part version.

Troy Ounce's picture





New Olympic sports

serf throwing


Ice serfdom

Table serfdom

modern Serfathlon








DormRoom's picture

Welcome to the desert of the real


The Titans were usurped by the Gods whom were usurped by Heroes whom were usurped by Hellenic Greek whom were usurped by the Romans whom were usurped by the Church-Clergy whom were usurped by the King-Mercantilists whom were usurped by the Capitalists whom were finally usurped by the Ogliagarchial Collectivists.

The tomes on control, and unliberty, since Guttenberg, are volumes.

one debt to rule us all. one debt to bind us.

Captain Kink's picture

Revolution is the endgame of forced servitude...  maybe they need to go through this to get to the democracy on the other side.

Ancona's picture

I like serfing! It's relaxing........oh, wait........never mind.

SheepDog-One's picture

We got it FIXED! See, all you millions and millions of people now have nothing, your kids will have nothing, your kids kids will have now work for us to keep us up here living like kings and you will work the rest of your lives ONLY for get to work, damn peasants!

wisefool's picture

Where is Timmay? It be cool if they started including him on the "where are the carriers" maps.

It is important for the euroes to understand that the USA provides the military, and pay taxes (to the IMF). Two of the most defining aspects of serfdom. Get used to it eurochildren!

Ropingdown's picture

Geitner's just leaning on euro-people to print and go joint-and-several because the US needs cover to start printing itself, and fears getting stuck with worthless euro-nation bonds.  He's terrified of euro bank collapses for the obvious reason that every euro bank problem reveals a bit of excessive risk or deception at some US bank.  No mystery there, is there?  Germany resents Geitner's transparent meddling, and of course Belgium, Luxembourg, Italy, et al love it. 

wisefool's picture

See, I am thinking he is there to defend the IMF "petty cash" fund from paying for merkozi trists in all these hotels. Timmay is kinda of a US tax payer. It would be pretty sweet though if they started putting SEC-IRS on the fleet deployment maps.

SheepDog-One's picture

Blah blah blah.....wheres all the piles of FREE MONEY at? Talk of future promises and responsibility is BORING, this here is a crystal meth fueled crack and grain alcohol market party! 

LawsofPhysics's picture

World serfdom is the endgame people.  A world run by a few members of an elite club and everyone else working for chinese wages to create real value to be enjoyed by those elite and no one else.  Real growth is dead and has been for a while and the effectiveness of creating more paper "assets" to bail out bad paper "investments" is becoming short-lived at an exponential rate.

Hedge accordingly.

Spitzer's picture

Zerohedge refuses to acknowledge that ECB and the fed are two totally different animals. There is a cold war going on between the two

hedgeless_horseman's picture



...ECB and the fed are two totally different animals.

Yes, maybe one is an old ox and the other a young ass, but both are domesticated beasts of burden for use by the big banks, then slaughtered and replaced once their usefullness has ended. 

Are you not familiar with why The Fed (and ECB) was formed, and who formed it?

Read The Creature From Jekyll Island.


Spitzer's picture

Old hard money Europe(mainy the french who ended Bretton woods 1 by pulling out of the London Gold Pool.) formed the ECB in 1962.

Fuck the creature, read up on the Ganoa confrence.

hedgeless_horseman's picture



My point, exactly, as the same Old Hard Money Europe was there at Jekyll Island to form The Fed.  You cannot get any older, harder, monied, or European than the Warburg and Rothschild families.

In my opinion, any "war" between the ECB and Fed is scripted.  The short-term goal is Eurobonds to allow the ECB to get caught up with the USA, UK, and Japan, then the synchronized diving can get started in earnest.

Ghordius's picture

cold war - you trade, you even help, sometimes - how old are you? Less then thirty, I suspect. And no, the pictures aren't arguments.

hedgeless_horseman's picture



Much older, but thank you.  I'll take that as a compliment

I am merely trying to open people's mind to alternative theories that may not be so obvious.  For example, I believe that CBs collude rather than compete, so Race to the Bottom may no longer be an appropriate analogy, and so I have proposed Synchronized Diving.  I certainly do not know the truth, and probably never will.

Ghordius's picture

ok, then you do remember the cold war. do you remember how US grain was shipped to the Soviet Union? made US farmers happy? yes, this kind of collusion

hedgeless_horseman's picture



I disagree that shipping US grain to the Soviet Union had anything to do with making US farmers happy. 

Ghordius's picture

from memory, and I might be mistaken: as soon as the exports decreased Reagan started to pay farmers to keep land fallow

anyway, my point is that Spitzer is right, they have a "cold" war. and they do collude and help each other. hell, they practically share a banking system...

Ghordius's picture

I agree with Spitzer, FED and ECB are two different animals and in a cold war.

"Creature from Jekyll Island"? If you want a good article without "conspiracy theories" about how the FED was formed,

read this (

from US Congressman and Presidential Candidate  Dr. Ron Paul,

and note that part how the US Commission was sent to Europe to "see" how central banking was done here. And then how it was setup.

And don't come with "how the ECB was formed" before you have studied it. You are clearly thinking in the lines of "if the Yankee version is bad, the wog's is clearly worse".

A hint: the ECB is a "Federation" of Central Banks, one CB, one vote.

hedgeless_horseman's picture



Are you saying that Oceania's central banks have always been at war with Eurasia's central banks?  It sure sounds like it.  Don't believe the fascist propaganda.

Ghordius's picture

you are so cute! so you prefer other propaganda...

be so kind to explain why my POV is fascist so that my fascist relatives smile on me from heaven

hedgeless_horseman's picture



Fascists are about pitting us versus them...divide and conquer.

Your's and Spitzer's posts are about pitting ECB versus The Fed...divide and conquer.

In 1984, Oceania had not always been at war with Eurasia, it was just fascist propaganda.

Ghordius's picture

sorry, sorry, sorry, I missed the 1984 reference. I apologize.

And I was brought up by real fascists who knew personally from the inside how it works. And I'm quite sure I'm a "Classical Liberal", because or despite that.

No, I don't think two little posters in ZH can really pit two MegaEntities like the ECB and the FED against each other. I still urge you to read Ron Paul's article, though.

My point is that they are helping each other - grudgingly. The FED and the Bank of England would prefer to have the old continental currencies or the EuroBonds or a Fiscal Union - it would make their instruments sharper.

hedgeless_horseman's picture



No worries.  Most of my references get missed.


Ghordius's picture

Peace - read this 1954180 BTW, it's a discussion I had with popo about the real strenght of the USD

boiltherich's picture

Fed= good cop, easy money and tons of it

ECB= bad cop, no money for YOU flagrant welfare reprobates

End result three quarters of a billion people owing everything above subsistance to the two and their shareholders.

GeneMarchbanks's picture

Mentality, my friends. Both sides of the pond are seeing things only one way. You have to have at least lived on both continents (+ done some business) to appreciate the immense complexity here.

As far I'm concerned nothing is 'pre-destined' to happen. Wittgenstein: that tomorrow will happen is only a hypothesis. We do not know whether or not tomorrow happens.

With that in mind, we are dealing with groups of people who now see that their perceived 'collective' interests are no longer viable. Someone, somewhere has to suffer. Germany dance to the tune of the Squid is hard to imagine by me. On it goes, the killer suspense...

Ghordius's picture

everytime my sister mentions Wittgenstein is to use it as a code word for "Shut up!" 8-)

CHS in this article is saying that what could happen here in the EZ to appease the markets is Debt Serfdom.

EU Fiscal Union = EU Debt Serfdom, he writes.

He is an hypocrite and seems too scared to put up the other equation

US Fiscal Union = US Debt Serfdom ??

kito's picture

@spitzer--not true, they are one of the same. the only reason why ecb hasnt launched their own qe bonanza to fix their banking mess is due to germanys refusal to allow their currency to be debased. if not for germany, europes qe wouldve been implemented already................

Ghordius's picture

kito, there is a poker game going on, bloody Germany's CB, the BuBa has exactly ONE VOTE out of seventeen.

Of course the political will of the German Nation is important, but it's still technically one vote.

Fact is that out of seventeen, no one really wants to print like the Old Master Ben does. Except Belgium, perhaps...

kito's picture

ghordius, maybe you should check out the exodus of germans from the ecb over the past year.....hmmm.....wonder why?

Ghordius's picture

because no "real" German central banker wants to go down in history as "the" German at the ECB that inflated again?

Of course the Germans are not happy, hell, I would not be happy there, too! Still, note how quick Magic Ben was with helping out with unlimited dollars at no cost for the european MegaBanks.

I think one of the biggest misunderstanding of common financial knowledge is that a CB is a bank.

We should find a new word, something that conveys the "creation of currency on behalf of the sovereign" part.

A Fiat Central Bank is more something like a Weapons System.

Spitzer's picture

good points Ghordius..

clearly the ECB won the latest standoff with the Fed, hence the newly cheap dollars. The death of MF global was also an ECB win.

ECB 2 Fed 0

jm's picture

Rubbish post. 

People that ran up debts have to sacrifice as well as the creditors have to sacrifice through inflation and haircuts. 

This is called paying the piper, not debt slavery.

island's picture

So you think other people paying the debts of the indebted and gamblers is "paying the piper"?

What friggin' school of critical thinking did you go to? 

Ropingdown's picture

Germany is saying "let the dancers pay the piper."  The others (and Geitner) are saying "no, everybody has to pay the piper because after all they knew we were dancing, didn't they."  I prefer the view that it isn't my job to tell the dancers they should be working more, dancing less.  They could possibly end up simply kicking the piper out of town with no dinner, as Iceland did, but then most pipers will avoid the town...for a time.

JOYFUL's picture

this pay the piper analogy is  much too lederhosen and bratwurst and generally uptight euro crap what is just not going to cut it matter who says what, it all comes down to the dance...

"The "teeth" of automatic sanctions is supposed to force nations to "tighten up" " Archie Bell & The Drells - Tighten up (1968)

A bunch o bro's from Houston Tejas figured this thing out bout 50 some years ago, put it to music, and everybody what was hip got down to it! Those what dinnet, well,

losers gonna lose!... Now face the music EVERYBODY an DO THE TIGHTEN UP!

jm's picture

It takes two to tango.  Creditors should have been more selective and debtors should have been more prudent.

There is too much debt for it to be mathematically serviceable.  The debt level needs to be reduced.  There is no other way.  Default is a horrible way to do this because there is so much debt that it will lock up credit markets and creidtor recovery will be horrible.  Inflation, extension of term, and forebearance is a better way.  At the same time, there needs to be severe and painful enough penalties on debtors to make sure that they avoid being deadbeats when it is at all possible to service their debt.