Guest Post: Euro Double-Bind: Both Paths Lead to Disintegration

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Euro Double-Bind: Both Paths Lead to Disintegration

The euro's handlers are in a double-bind: whatever path they choose, Germany has no choice but to renounce the euro as an act of self-preservation.

Is there anything that hasn't already been said about the Eurozone's structural flaws and the absurdity of the half-baked "solutions" tossed together by its frenzied, fumbling leadership? Perhaps not, but we can fruitfully boil the mess down to a simple double-bind.

The double-bind can be stated thusly:

1. If the European Central Bank (ECB) tries to save the private banks and bondholders by printing trillions of euros to buy up the mountain of hopelessly impaired sovereign bonds, then Germany will rebel and renounce the euro as an act of self-preservation.

Germany knows that money-printing robs savers and the productive via the stealth theft of inflation, and its people will not stand idly by while their wealth is destroyed by ECB euro-printing.

2. If the ECB renounces money-printing, then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany, which will rebel against this debt-serfdom by renouncing the euro.

There are only two paths, and they both lead to the same end-state: dissolution of the euro and the EU's monetary union. The situation is truly binary; there are no other real solutions. The half-life of theatrical, fantasy "solutions" is shrinking fast; where a meeting, a resolution or a vote once sparked a three-month rally, now it powers a meager three-day rally at best.

Soon the rumor-fantasy-"solution" rallies will last three hours, not three days. Once the zero line is reached, then rallies invert to crashes, and the markets will go critical, i.e. implode. This is the nature of intrinsically unstable systems.

The only real question left is when the criticality occurs. Can it be staved off until 2012? How long will it take for Germany and the rest of Europe to grasp the end-state of this simple double-bind? Months? Or will it be weeks or even days?

Once you realize the only two paths left both end at the same destination, then the only rational action is to move your cash out of euros and the doomed banks, and liquidate your euro-denominated assets into some other currency as fast and as furiously as possible.

Meanwhile, the Status Quo is issuing calls for euro 1.40 and a year-end rally to beat all rallies. Anything's possible, but the double-bind is real and cannot be massaged away. How much longer can fantasy be substituted for reality?

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Abitdodgie's picture

I whish this collapse would just happen , I'm getting old

French Frog's picture

"How much longer can fantasy be substituted for reality?"

As usual, for much longer than most people think it can...sadly

nuinut's picture

The fantasy seems to be on the part of the author.

...whatever path they choose, Germany has no choice but to renounce the euro as an act of self-preservation.

Try wording that differently:

...whatever path they choose, Europeans have no choice but to renounce the euro as a store of value.

And we have a plausible third option.

As the reserve asset the ECB already use to value the euro publicly on their own balance sheet, and being the focal point in times of monetary stress, I suggest physical gold will be used as the natural alternative store of value.

Zeroexperience2010's picture

I think I know you from FOFOA blog ;)


Fully agree with you, FIAT won't be used as store of value for the next couple of years, maybe even couple of generations.


When I see what demonstrations happened in Germany against the EUR (couple of people here and there), the author can forget about his wet dream of German populus rising against the EUR. Germans have been forced to get used to inflation since the EUR replaced the DM, there were never any notable demonstrations. Rough guess would be, if they manage to inflate below 10-20% per year, Germans won't complain, just work more, and buy more and more gold (still quite simple and anonymous up to 15000EUR per transaction). Disclosure: I am half German.

Would 10% or 15% yearly inflation for a couple of years be sufficient to reduce the eurozone debt significantly or into a useful range?

UgglyBetty's picture

I completely agree with you, people dont complain about inflation, they just get used to it like the boiled frog. But imho, once yearly inflation gets to the levels you mention it easily gets out of control because of many factors (expectations, velocity of money, money being printed like hell as shortages appear... etc.etc).

So I think it is not a wise option for Germany to speculate and say: ok just a couple of years to liquify debt and then we get serious and fight inflation. Never occured, at least from our "extensive" inflation experience (I'm from Argentina)... Inflation becomes an addiction for governments, they never quit pushing it except when social unrest causes them to "take some measures" (which only work temporarily) and then everything stays the same.

As I said in some other post, it's very sad to see that the developed world is going down the Argentinean way, I mean, I really dont like seeing that our terrible experience will soon the extrapolated to the rest of the world...

Regards, BettyLaFea

masterinchancery's picture

No.  Inflation at that rate would cause a bond panic and a crash in the euro.  Germans may not demonstrate, but they will certainly vote.  In any event, ECB printing has been ruled out by the German courts without a public vote and new Constitution, neither of which will happen. As you must know, Germans are very law abiding.

Zeroexperience2010's picture

The European Union has shown again and again that laws and rules (she set up) are made to be broken. Germans might be law abiding, but the German politicians are of a different caliber, they are like 99% of the politicians. If direct printing will be avoided, then a couple of GS/JPM advisors will be able to set up an indirect way. And Merkel will utter again "alternativlos"...

If you look at the trade balance of the eurozone you will see it's pretty much in balance:

so the 'intrinsic' value of a euro (relative to gold, USD, CHF, whatever) is irrelevant for the import/export aspects.

The people that will get hit by inflation will be the employed (salaries will not rise as fast as inflation) and the people whose networth is savings accounts, life insurance, euro bonds.


AE911Truth's picture

I agree with physical gold as store of value for everyone globally. This raises the issue, why used debt as a transactional currency? Why not use simple debt free currency as a unit of exchange and account? There is no reason for the unit of exchange to be debt. I understand why bankers and polititions want money to be debt, since they profit enormously. Why do the citizens of countries around the world accept debt as money. Perhaps becsuse they do not know? I think the citizens of the world are waking up to the scam of debt as money. I think the Occupy movement is educating people around the world to this theft of their labor. Wake up everyone. Cast off your chains. Refuse debt as money. Demand debt free money for transactions. Save your wealth in physical precious metals.

This will help you understand how much of your wealth has already been stolen from you: "If that mischievous financial policy,[interest free colonial script money], which had its origin in the North American Republic, should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe." Source: The Flaming Sword, Vol. XII September 2, 1898

Everyone refuse debt based money.

boiltherich's picture

Gresham's Law:  Bad money forces out good money.  People will always use that money they like and respect the least when they have to option to use more than one legal tender.  If you need a couple thousand dollars worth of car repairs which would you use, $2,000 in Federal Reserve Notes or one ounce of your gold?  You will keep the gold and blow the bucks.  In the eurozone they either have to back the single currency to the bloody end or each move back to their own currencies.  There is no option of a core northern industrial euro having severed the weaker states, once those weaker states are out the value of the original euro will have been so compromised by debt and defaults and legal chaos that all will have to bury it.  That does not mean that smaller fiat bolcs could not emerge, but they will not be using euro, not for long or with any success that is certain.

nuinut's picture

Questions for you: are all current fiat currencies debt-based? Which specific criteria make a currency debt-based?


I agree, a medium of exchange needs only an objective valuation to be useful, such as an uninhibited public exchange rate with physical gold. This is all the information required by the potential users of said currency.

It is the exchange rate with the store of value that establishes the value of the medium of exchange.

We need to stop trying to have one instrument (fiat currency) performing both monetary functions (store of value and medium of exchange) because this creates a circular reference.... how can something objectively value itself? (answer: it cannot)

Any medium of echange is backed only by whatever it can be exchanged for in a free market. This is where it finds its value, or not.

Debt has nothing to do with it, except as a distraction from the real issue.

TheFourthStooge-ing's picture

nuinut asked:

Questions for you: are all current fiat currencies debt-based?

Not necessarily. United States Notes were directly inserted into circulation by the US Treasury as bills of credit. They were interest-free and, although at times they could be redeemed for precious metal, unlike demand notes they were never guaranteed redeemable for anything.

On being non-debt-based:

As to your second question:

Which specific criteria make a currency debt-based?

I must admit that I cannot provide a definitive answer. I know that it is borrowed into existence, is an obligation (IOU) of the issuing government, and that, in theory, it is redeemable in "lawful money". As to what constitutes so-called lawful money these days, I have no idea.


HardlyZero's picture

Seems like the tipping point has arrived and will be shown in the next month.

2012 will be the tailspin outcome.

Get as safe as you can.

Suggest precious metals.

covert's picture

down with the euro. I predicted from the beginning that it would fail and no-one believed me.


Barbar's picture



obviously you are distracted by the eloquent hadji show put on by the pr machine of the man exclusively for the serfdom class (i.e. your class) to quench your thirst for freshly spilt arena blood as a precaution in case you would happen to figure out to look at the man.

forget the hadjis. look at the man.

this will help:


Prepared's picture

same here...CTRL-ALT-Delete already.

edotabin's picture

lol.... that is referred to as a warm boot.  This needs a graceful shutdown (hopefully), power off, pull the plug, wait about a day or two, make hardware/software corrections/upgrades and then boot up again.

spastic_colon's picture befitting if this were to be the squids grand plan as retribution for all of Germany's sins of the past.

Bartanist's picture

That assumes a lot. Most importantly it assumes that they are/were not on the same side ... like the two party system.

WonderDawg's picture

Come on. Two words: Paul Warburg

Bartanist's picture

Your entire premise rests on the German people rebelling? They rolled over for Hitler. What makes you think they are any different than Americans in their will to rebel when faced with the exact same issues.

The American people were steamrolled because they have no power with their government.

WestVillageIdiot's picture

Don't forget that Hitler was a form of rebellion against Weimar.  His support was often middle class, with a large number of teachers supporting him.  The rebellion against Weimar was the rebellion against printing.  Hitler was also seen as a counter to communism which the Germans feared far more than nationalism. 

Is there a Hitler waiting to claim Germany?  I don't know but I just don't see Germany being able to build a military machine today like they did in the 30s. 

The real point is that the Germans have a history of rebelling against politics and monetary wizardry.  Right now the Euro zone is loaded with politics and monetary wizardry. 

The Limerick King's picture



The Germans will soon be rebelling

And Euro bonds Banks should be selling

The time has now come

To stock-up on rum

And quickly prepare for the shelling

WestVillageIdiot's picture

Very nice.  But I would have changed the rum lines to "the time is now here to stock up on some good beer" 

The Limerick King's picture



I would have been much more apropos.

Savyindallas's picture

The Nazi movement was nothing without Hitler. Putting all the post-war propaganda aside-if you look at objective facts, Hitler was one of those truly rare leaders who had the capacity to raise the entire nation to levels they otherwise could never have achieved. This type of leader comes around once in a century. Had Churchill not been so hell bent on wolkd war (something Churchill saw as essential to to his ticket for greateness) and had he stayed neutrAl or allied with Germany against the monstrous Stalin and Bolshevist Russia - Hitler may have been one of the greatest leaders of all time  -one for the ages.

Now you can never agree with this assessemt if you beleive the post war propaganda we have been taught  -the victor writes the history books. That should be self evident to true students of history.

DormRoom's picture

lmao.. You think the people from the country that produced, and sustained Protestantism aren't not going to rebel?

JPM Hater001's picture

It is different-

Because in the former 1930's Germany, you found a country beaten to a pulp and an economy in shambles with only micro-regions of the country producing any useful goods.

In the later Germany's problem IS wealth.  They learned the calculated risk in not owning up to irresponsible economics...even when created by war or other means.  In fact, you could almost claim that Germany has paid close attention to ensure they dont end up doing PRECISELY what the other EU countries in trouble have done.

Ahh, irony in the morning always makes for a nice late day crap of contentment.

JR's picture

I agree that the American people are being steamrolled; perhaps the rough treatment will awaken them.

Also, If you ask Lord John Maynard Keynes if the U.S. could be blamed for the Third Reich, he would say, “Yes.” Keynes warned that the heavy reparations Germany would be forced to pay until 1988 by the Allied Powers in the Treaty of Versailles after WWI, were excessive and counterproductive, and would force Germany, out of starvation and desperation, to war which is what happened. 

The greed cemented into the Treaty of Versailles led to Germany’s 1923 hyperinflation and forced the impoverishment that led, ultimately, to WWII

As for Hitler, in the second round of the 1932 election (Weimar Republic law provided that a candidate needed to receive an absolute majority of votes), the German people did not choose Hitler; they elected Paul von Hindenburg of the Independent Party. It was Hindenburg who unwittingly played an important role in the coming to power of the Nazis by appointing Hitler under political pressure as Chancellor of Germany in January 1933.

Hitler succeeded Hindenburg as head of state only two years later, when Hindenburg's death brought his term to a premature end in 1934. After the president's death Hitler abolished the office entirely to replace it with the new position of Führer und Reichskanzler ("Führer and Reich Chancellor"), and cement his dictatorship.

spanish inquisition's picture

I have already fully baked in all projections of half baked solutions and all I needed was the directions on a box of brownie mix. My ideas are cooling as we speak.

WestVillageIdiot's picture

That reminds me, we have a box of brownie mix that has been in the cupboard for a while.  I think I will make those today.  Thanks for the reminder.  With a little vanilla ice cream they should be very pleasing.

This should also be a reminder that as we watch this colossal fustercluck play out, you still need to enjoy some of the little pleasures that life offers.  This may be an afternoon raking leaves, drinking a beer or just sitting with your thoughts on a beautiful fall day.  Letting this crap seap too deeply into your spirit is not good for anybody.  Fighting these battles doesn't mean killing yourself. 


lolmao500's picture

Not a big surprise.

In other news...

Occupy Portland Prepares For War

Police Friday said they had reason to think many in the camp were arming for a confrontation, calling for reinforcements from Seattle and San Francisco, along with constructing weapons and fortifications.

Police said hundreds were possibly heading to Portland and people may be in trees during any police action and a hole was being dug, reinforced by wood.

Protesters were also thought to be hammering nails into pieces of wood for weapons and gathering gas masks.

Several pallets were brought in Thursday night to the northwest corner of Chapman Park known as "The 420 Hotel" where police were told it looked like protesters were making shields.

WestVillageIdiot's picture

Have you seen the equipment police departments have amassed since 9/11?  I think the cops will do just fine.  Or they can be like the protests here where there are 2 or 3 cops per protester.  That gravy overtime has to be nice. 

TruthHunter's picture

The untold story is the amount of brainwashing they endure to keep their jobs. Since

9-11 huge amounts of "training" precautions have been taken to insure loyalty.

I would have some hope for the future of the USA if I could trust that the cops would

do the right thing.

monkeys.pick.bottoms's picture

Politicians in Europe use the threat of war to blackmail Europeans (especially Germans) to stick to the slave system we have now. I wish people could understand war will not happen because everybody is broke. Let's crash and rebuild and then, when we get really rich, let's worry about people invading other people. Also: Screw nationalism, let individualism finally break through. I'm fed up carrying the shitty burden of mistakes made by people that accidentally lived in the same land that I do. Greetings from Poland.

mccoyspace's picture

I think option 1 is the most likely by far, but I really wonder if the Germans will ultimately balk at that. Yes I know they know their history of hyperinflation. Yes I know their central bank wouldn't do it. But I don't think they will give up on their dream of a unified Europe very easily at all. They really really like having a common currency and open borders. And when you travel in Europe, those things are really nice. If they do finally pull out I think it will not be anytime soon, and only after a LOT of printing has happened. I could be wrong. We shall see.

Börjesson's picture

It doesn't have to be either full union or total isolationism. There are lots of paths in the middle. You don't need a common currency to have open borders (which I too enjoy) and free trade.

Also, I don't know that it's really the Germans who have been dreaming of a unified Europe. Seems to me it's more the French and some others who have been pushing for it, and talked the Germans into it.

bearsecutor's picture

agree but timetable is up in the air...I think squids , traders covering shorts and wanting to get year end bonuses, plus hedge funds trying to hit their bogeys/cover shorts  can keep things up until even Jan 1- then it gets very interesting - of course bond vigilantes may not wait that long- and note too that even retail investors find it very hard to sit on sidelines in  ZIRP MMFs when they see Dow rising 2% daily — the macro Euro situation is as you describe it, its unavoidable - it will eventually exert its influence — in the meantime I don't think q1 and certainly not q2 will sustain any conclusion other than bona fide euro recession, and slower growth globally-that will end the party even if bond vigilantes dotn step in beforehand

in short term (days to weeks) Draghi is key-watch what Draghi does-he will have to reveal his hand/tendencies-he is talking a good Bundesbank talk , but we don't know how much Italian debt he is buying, and based on Fridays drop in spread, he's buying a ton — and Italian parliament is talking a good game,a nd berlsuconi APPEARS  to have withdrawn from political scene but this is very dubious-the dude has real exposure to legal prosecution, his cronies are still well entrenched , and MOnti is not going to be a cagy political player-at best he will be Hoover not Roosevelt - and Italian political culture will take decades to improve - rule of law, active instead of cynical citizenship, effective parliament etc. 

In the longer term (months) French ability to avoid contagion is the key-watch to see if vigilantes make a run on France. It's really hard to see why Germans , despite their love for eurozone , will stay around to endlessly support the entire EU with transfers,a dn certainly Finland, Dutch and Austria would be happy to set up a joint currency with Germans. I can see Germany going all in, but of hey feel France is going to default as well, they have to leave for economic self preservation


They real question for ZH readers and any other with conviction on the euromess- is what will constitute an all clear to start buying equities ? Waiting for actual german departure form euro (or structural changes in treaties and constitutions) could take > 1 year..or do we go back in with a 20, 30% fall in stock prices ? Will that indicate market has price din Euro reorganization finally ?

DormRoom's picture

Timetable is not up in the air. It's widely accepted that once the ECB can no longer sterilize its bond purchases, then Germany must decide to either pull the plug, or allow carte blanche money printing.


I don't know how much more they can sterilize.  80-100B, perhaps.. So expect criticality around Feb?  Sooner, if they are forced to buy PIIGs bond at an accelerated pace.

Conax's picture

The German people have paid enough, for cripes sake. They paid ridiculous reparations after WW I. This 'Versailles Treaty' was directly responsible for the rise of Hitler and WW II. After that, they paid and paid for their 'sins' right up to today. They just gave Israel two submarines a while back, I believe.

So now the Europeans over-extend their credit (like everyone else) and start circling Germany looking to make the 'bad guys' take one for the team.  Successfully demonized over the years, disparaged, impugned, they are now supposed to hand over the profits of their labors to whom? That's right, the same people that have been criticizing them for 60 years.

Germany should look after the interests of her people.

WestVillageIdiot's picture

I love Germany.  My heritage is mainly German.  But the idea that Versailles was so hard on the Germans seems fallacious to me.  Did you ever see what the Germans demanded from the Russians in the treaty of Brest-Litovsk for the Russians to exit the war? Versailles was a love note compared to that.  Russia was lucky the Germans lost and couldn't collect on that treaty.  The Allies were generous compared to the Germans, in this sense.

Conax's picture

They took lands, wrote themselves a blank check the Germans had to cover, interefered in their politics and military..

"Land Losses:

"The following land was taken away from Germany :

Alsace-Lorraine (given to France)

Eupen and Malmedy (given to Belgium)

Northern Schleswig (given to Denmark)

Hultschin (given to Czechoslovakia)

West Prussia, Posen and Upper Silesia (given to Poland)

Financial costs:

The loss of vital industrial territory would be a severe blow to any attempts by Germany to rebuild her economy. Coal from the Saar and Upper Silesia in particular was a vital economic loss. Combined with the financial penalties linked to reparations, it seemed clear to Germany that the Allies wanted nothing else but to bankrupt her.

Germany was also forbidden to unite with Austria to form one superstate, in an attempt to keep her economic potential to a minimum."

How were they supposed to get back on their feet with this level of punishment?

I think the treaty brought Hitler to power.

jimmyjames's picture

I think the treaty brought Hitler to power.


You know this stuff well Conax--I'm impressed-

"Out of every economic and societal collapse-

A man riding a white horse appears"

jimmyjames's picture

The German people have paid enough, for cripes sake.


"Germany has always been the pawn"

General George S Patton-

Conax's picture

My uncle was wounded riding a tank in Patton's army. He hated his guts, but even he would acknowledge that Gen. Patton won the war in Europe.

A tough bastard, but he was nobody's fool. The crap that went on after V.E. Day was a real problem for the general.

jimmyjames's picture

There is much suspicion surrounding his death from a fender bender accident-

Who was it that opened the door and attended to him immediately?

Patton knew the game of the "money changers"

Conax's picture

I've forgeotten most of that stuff.. But questioned about his 'accidental' death, his niece told an author that it was not all that bad because, "Uncle Georgie wouldn't know what to do in peace time anyway" or words to that effect.

The PTB were worried he'd run for president, win, and screw up all their plans.

The sick part was, rumor had it he had already decided not to run for office.