Guest Post: It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom

The European debt Bubble has burst, and the repricing of risk and debt cannot be put back in the bottle.

It's really this simple, Europe: either rebel against the banks or accept decades of debt-serfdom. All the millions of words published about the European debt crisis can be distilled down a handful of simple dynamics. Once we understand those, then the choice between resistance and debt-serfdom is revealed as the only choice: the rest of the "options" are illusory.

1. The euro enabled a short-lived but extremely attractive fantasy: the more productive northern EU economies could mint profits in two ways: A) sell their goods and services to their less productive southern neighbors in quantity because these neighbors were now able to borrow vast sums of money at low (i.e. near-"German") rates of interest, and B) loan these consumer nations these vast sums of money with stupendous leverage, i.e. 1 euro in capital supports 26 euros of lending/debt.

The less productive nations also had a very attractive fantasy: that their present level of productivity (that is, the output of goods and services created by their economies) could be leveraged up via low-interest debt to support a much higher level of consumption and malinvestment in things like villas and luxury autos.

According to Europe's Currency Road to Nowhere (

Northern Europe has fueled its growth through exports. It has run huge trade imbalances, the most extreme of which with these same Southern European countries now in peril. Productivity rose dramatically compared to the South, but the currency did not.


This explains at least part of the German export and manufacturing miracle of the last 12 years. In 1999, exports were 29% of German gross domestic product. By 2008, they were 47%—an increase vastly larger than in Italy, Spain and Greece, where the ratios increased modestly or even fell. Germany's net export contribution to GDP (exports minus imports as a share of the economy) rose by nearly a factor of eight. Unlike almost every other high-income country, where manufacturing's share of the economy fell significantly, in Germany it actually rose as the price of German goods grew more and more attractive compared to those of other countries. In a key sense, Germany's currency has been to Southern Europe what China's has been to the U.S.

Flush with profits from exports and loans, Germany and its mercantilist (exporting nations) also ramped up their own borrowing--why not, when growth was so strong?

But the whole set-up was a doomed financial fantasy. The euro seemed to be magic: it enabled importing nations to buy more and borrow more, while also enabling exporting nations to reap immense profits from rising exports and lending.

Put another way: risk and debt were both massively mispriced by the illusion that the endless growth of debt-based consumption could continue forever. The euro was in a sense a scam that served the interests of everyone involved: with risk considered near-zero, interest rates were near-zero, too, and more debt could be leveraged from a small base of productivity and capital.

But now reality has repriced risk and debt, and the clueless leadership of the EU is attempting to put the genie back in the bottle. Alas, the debt loads are too crushing, and the productivity too weak, to support the fantasy of zero risk and low rates of return.

The Credit Bubble Bulletin's Doug Nolan summarized the reality succinctly: "The European debt Bubble has burst." Nolan explains the basic mechanisms thusly: The Mythical "Great Moderation":

For years, European debt was being mispriced in the (over-liquefied, over-leveraged and over-speculated global) marketplace. Countries such as Greece, Portugal, Ireland, Spain and Italy benefitted immeasurably from the market perception that European monetary integration ensured debt, economic and policymaking stability.


Similar to the U.S. mortgage/Wall Street finance Bubble, the marketplace was for years content to ignore Credit excesses and festering system fragilities, choosing instead to price debt obligations based on the expectation for zero defaults, abundant liquidity, readily available hedging instruments, and a policymaking regime that would ensure market stability.


Importantly, this backdrop created the perfect market environment for financial leveraging and rampant speculation in a global financial backdrop unsurpassed for its capacity for excess. The arbitrage of European bond yields was likely one of history’s most lucrative speculative endeavors. (link via U. Doran)

In simple terms, this is the stark reality: now that debt and risk have been repriced, Europe's debts are completely, totally unpayable. There is no way to keep adding to the Matterhorn of debt at the old cheap rate of interest, and there is no way to roll over the trillions of euros in debt that are coming due at the old near-zero rates.

Never mind actually paying down debt, sovereign, corporate and private--the repricing of risk and debt mean even the interest payments are unpayable. Consider this chart of one tiny slice of total EU debt:

There is no way to push the repricing genie back in the bottle, and so there is no way to roll over this debt and add to it--and to support the high-cost structure of Euroland's welfare-state governments and their astounding debt, then debt must be added, and in staggering quantities.

Austerity won't put the repricing/bubble burst genie back in the bottle. A funny thing happens when more of the national income is diverted to debt service (making interest payments and rolling over existing debt into new higher-interest debt): there is less surplus available for investment and consumption, which means that both productivity based on investment and consumption based on debt will plummet.

This leaves the nation with lower productivity and lower GDP, which means there is also less tax revenues being collected and more bankruptcies as companies and individuals accept the reality that their debts cannot be paid.

The repricing genie responds to this decline in national income, surplus and taxes by repricing risk of default even higher, and so the interest rate is also repriced higher. This makes servicing the mountain of existing debt even more costly, and so even less national income is available for consumption, investment and taxes.

This is called a positive feedback loop: each action reinforces the other, i.e. a self-reinforcing feedback loop. Debt and risk are repriced higher, the burden of debt service reduces national income available for investment, consumption and taxes, which further reprices risk higher, and so on.

So you see, Europe, there is only one choice: either accept the endless debt serfdom of ever-rising interest payments and lower income and productivity, or rebel against your pathetic lackey leadership and renounce the entire mountain of unpayable debt. Grasp the nettle and renounce the euro as the fundamental cause of your fantasy and collapse, and revert to national currencies which enable the market to discover the price of your underlying productivity and ability to borrow money.

Renouncing the euro does not mean renouncing the freedoms of the European Union: the two are only bound at the hip in the minds of your enfeebled leadership, who are in thrall to the leveraged-26-to-1 banks that are poised on the edge of insolvency.

Let the banks implode in bankruptcy, clear the worthless "assets" of debt from the books, and let the market price currencies and everything else. The only other choice is debt-serfdom.

All the other schemes and proposals are simply variations of one single fantasy: that the feckless leadership can fool the repricing genie with parlor tricks. They can't. Everybody with any understanding of the situation knows that the debt bubble has already burst, and risk and debt cannot be repriced back to fantasy levels.

That repricing has already occurred, and cannot be revoked or shoved back in the bottle. The Great European Debt Bubble has already burst, and so now it boils down to a simple choice: debt serfom or open rebellion against the banks that profited so handsomely from the euro-fantasy.

There is no middle ground, as the debt cannot be repaid, not now and not in the future. It cannot be reshuffled, masked, or hidden; it can only be renounced.

It's your choice, Europe; choose wisely. If you want a model for sanity and growth, look to Iceland. They renounced their unpayable debts and debt-serfdom, and let the market reprice their currency, debt and risk. The nightmare is past for them; they chose wisely. Now it's your turn to choose.

The debt-serfdom will fall to you, not the banks or your Elites.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
LookingWithAmazement's picture

Last week the whole system was saved again.

falak pema's picture

every week is thanksgiving in Europe. We will go from outside central bank to central bank, except the ECB kept under lock and key by Merkel. She is using debt serfdom of all of europe to save her own future by getting others to bail out the club med countries. Merkel's spiel is very simple : its our banks but its your money that has to be printed to save them. Now the Nixon phrase is on the other shoe : Our banks your problem !

trav7777's picture

we'll need to start saving this system every other day it seems

Harlequin001's picture

'It's your choice, Europe; choose wisely. If you want a model for sanity and growth, look to Iceland. They renounced their unpayable debts and debt-serfdom, and let the market reprice their currency, debt and risk. '

Who are you kidding? If the rest of the world did what Iceland did the world would be in revolt. Iceland got away with it for now because the rest of the world is still printing and borrowing to delay the collapse and hide Icelands defaulted debt on the balance sheet of its banks. The harsh reality of bankruptcy has not yet visited Iceland, but it is on its way...

The nightmare is past for them; they chose wisely...' You must be fucking joking...

knight99's picture

It wasnt saved dumbass it just bought them a little more time. When is the last time CB around the world saved anything? The Bernak is either a fking moron or criminal psychopath. 7.7 trillion in guarantees, 13 billion straight to the banks for profits?? What do the banks do instead of raising capital in 2010 when they had a chance. They paid RECORD BONUSUS. Tax payers what’s left of them get screwed middle class is stuck with negative wage growth and standard of living when inflation in real products (gas and food ) is going higher by the day.

Only thing I can say is I am gald I live in a tax free country where politicians dont fking waste my money bailing out the bankers.

 The only thing you should be "lookingwithamazement" is your stock account getting smaller while you hold your soon to be worthless portfolio.

Michael's picture

What can't be repaid won't be repaid.

I say, Let the banksters and oligarchs go bankrupt and eat tuna fish sandwiches.

topcallingtroll's picture

I take it knight 99 doesnt understand sarcasm. One of the common signs of obsessive compulsive personality or even more serious mild autism such as asperger's.

JungleJim's picture

Read somewhere that there's a lot of lead in tuna fish, oh ...., maybe it was mercury.

Harlequin001's picture

Plutonium and cesium now I believe...

and Pacific tuna is particularly 'green' because you can fillet it 24/7 without the need for artificial lights because it glows with an erie blue glow at night...


Ahmeexnal's picture

Heads on a pike don't need to eat.

sqz's picture

I am gald I live in a tax free country

You live in the Cayman Islands? :)


Ahmeexnal's picture

Yanomami Nation in the Amazon Forest.

BigJim's picture

The use of the word 'again' in 'Last week the whole system was saved again' implies irony.

BigDuke6's picture

Thank you BJ.

Its ironic that on a thought provoking site such as ZH that irony is usually met with aggression.

COI - i am a big fan of MDB.   Read his posts - they are pure gallows humour.

Do you understand that?  Its like the 'Life of Brian' bit at the end where they are being crucified and Brian says - 'I can see my house from here...'  Its the realisation that you are fucked and why not have a laugh.

Junking irony makes you dimwitted so have a think about it first.

Ghordius's picture

Irony, sarcasm - all under the attack of the netetiquette imposing the view that you are supposed to attach /sarc tags...


To the article: I still have the impression that Smith, like others, view the EZ problem through an American lens...

This "Debt Serfdom" meme, for example.

Another two I really like: 1. "The Euro is flawed" and 2. "Net exporters create unfair imbalances"

In a full gold system you would have to rewrite them into:

1. "Gold is flawed, you can't have one sort of money for the whole world" and

2. "Net Exporters want our gold / shrink our money supply"

Buck Johnson's picture

You hit it right on the head, right on the head.  All that money 13 trillion and all those guarantees 7.7 trillion could have been used to rebuild our society and our economy for a new golden age and we could have led the world in this new age.  Orbital manufacturing, new powersystems, new rocket propulsion systems, colonization of our star system from our new technologies and more.  This may sound like science fiction, but eventually we will have to do this anyway might as well start the new age.

Sockeye's picture

Love the time bomb graphic. Just need to add some short little fuses burning brightly.

GeneMarchbanks's picture

In February, the iTalians will be in some pain.

Ghordius's picture

nah, by January the Italians (what is iTalians meant to be, anyway? The word is now a couple of millennia old) are Out Of Trouble until August 2012

just have a look at the financing needs and you'll see what I mean. But they have to get out of December, first...

agent default's picture

Debt serfdom it is.  The europeans are as spineless as it gets.  In the end they will lose both their money and their freedom and rightly so, if you accept being held hostage by these scumbags instead of sending them to the gallows tree, you deserve to get steamrolled, just like they will.  Americans, are you paying attention here, or did Wallmart just put something extra shiny on discount offer?

Collapse is imminent's picture

Stocks are shiny and cheap, everyone should buy some. /sarc

Dr. Kananga's picture

By the time Americans learn to pay attention, it may be too late.

Mystery company buying up U.S. gun manufacturers

"In recent years, many top-selling brands - including the 195-year-old Remington Arms, as well as Bushmaster Firearms and DPMS, leading makers of military-style semiautomatics - have quietly passed into the hands of a single private company. It is called the Freedom Group - and it is the most powerful and mysterious force in the U.S. commercial gun industry today.

Never heard of it?

You're not alone. Even within gun circles, the Freedom Group is something of an enigma. Its rise has been so swift that it has become the subject of wild speculation and grassy-knoll conspiracy theories. In the realm of consumer rifles and shotguns - long guns, in the trade - it is unrivaled in its size and reach. By its own count, the Freedom Group sold 1.2 million long guns and 2.6 billion rounds of ammunition in the 12 months ended March 2010, the most recent year for which figures are publicly available.

Behind this giant is Cerberus Capital Management, the private investment company that first came to widespread attention when it acquired Chrysler in 2007. (Chrysler later had to be rescued by taxpayers). With far less fanfare, Cerberus, through the Freedom Group, has been buying big names in guns and ammo."

slewie the pi-rat's picture

what's that smell?


hardcleareye's picture

Bechtel... Provokes a  response in me similar to Steve Martin in Dead Men Don't Wear Plaid to the words "cleaning women".

falak pema's picture

Bechtel and Bohemian Grove blues, when Ronald Reagan and Tricky Dicky talked world order and deregulation over a golf course way back in 1970s. It paid dividends to Bechtel, as two top Bechtel Oligarchs were in RR's first administration :  Weinberger and Shulzt. Bechtel invented politically slanted 'financial engineering' in the Oil Patch, in Iran and Saudi. They were the original model on which the Bush-Cheney Houston Clique then built the Halliburton model ratcheting up the 'financial engineering' with political payout to unforseen levels. 

Bechtel, Halliburton-Cheney, Koch Bros, the Oil services lobby money line; riding on the coat tails of the MIC-Oil lobby bonanza trail. Since the late 60's. 

HCE,  now you can take your stuff off and play at being Kim B...

bugs_'s picture

Cerberus also bought Dyn-Corp

Bring the Gold's picture

Living up to their namesake and guarding the gates of Hell.

rambler6421's picture

Eh.  It's time to liquidate the malinvestment.  If any of you follow Jim palast, he claims that this is the goal of the IMF (to rape and pillage these countries) so the elite can gobble up assets for pennies on the dollar.

sabra1's picture

exactly, but these authors just don't get it! all is going as scripted, to finally bring the US to third world status. hence, a new second word status will be created, worldwide. WAKE UP PEOPLE, DON'T YOU WANT YOUR WORLD BACK?????

Gringo Viejo's picture

OFF TOPIC: Just read that Swiss America which has produced 2 television commercials advocating the purchase of precious metals, has been denied on-air access by ALL major TV networks. Source:

GeneMarchbanks's picture

GE no likey silver...

You're... what? Surprised?

Temporalist's picture

Here you go:

Obama and Ben: Part 1 "The Inflatocracy"

Obama and Ben: Part 2 "The Wizards of Oz"

Apeman's picture

I want to rebel, but I'm surrounded by sheeple. The mojority still hasn't got a clue what's going on. Courtesy of the pro-EU media.

sabra1's picture

for a crash course people, check out

Al Gorerhythm's picture

Your position is akin to Ron Paul's. He'd like to make changes but is surrounded by the TBTF"s bought and paid for lackeys.

Econolingus's picture

Rebel against what?

Figure that out, and then maybe you can help the "mojority" see the light.


JustObserving's picture

Where is the US time bomb?  According to, our debt and unfunded liabilities are growing at $23.6 billion a day, or $8.6 trillion a year.  Yet, the super committee could not agree to cuts of $1.2 trillion over 10 years.  I suspect the debt action is far more vigorous on our side of the Atlantic. We are bigger, better debt-serfs in the US of A. 

electricgorilla's picture

COMING SOON: Hungary's Death Spiral

slewie the pi-rat's picture


serfdom ain't so baaaaad...

yabyum's picture

The US is in the same boat, that boat is sinking quick.

Carlyle Groupie's picture

Scuttle the bish before Slewie the PieRat takes over.

smoked's picture

tyler hard to keep a  lit on lithuanian witches HEbrew

SilverIsKing's picture

Sounds like you'd better be buying your guns now cause his consolidation shit seems like a ploy for gun control at the manufacturer level. Either that or these guys know a growth business when they see it.

Bring the Gold's picture

Clearly the former. They buy a Merc group like DynCorp that undobutably will head up police actions in the Western World and they buy up gun manufacturers?


Everything Cerebrus touches is more than a little on the darkside. Definitely not the friend of the little guy, I'm not even a gun fan and I find this alarming. 

Tom Green Swedish's picture

The USA has trillions more in assets than liabilities, its the liquidity that people are worried about. I would really like to see a comparison of all major countries balance sheets; ie total assets / to debt, not just the GDP thing. The macroeconmic theory just points to one thing. Its like one part of the credit equation. For example if I make 45,000 dollars a year and have 45,000 dollars in debt, but I also have 500,000 dollars in assets, does it really matter that I have 45,000 in debt?

Its all about the stock market and "their story" to manipulate markets. All they care about is short term things. Quarterly Earnings / Yearly Growth, so they can trade stocks. In this case they are using countries now to trade the stock market. What do countries debt and growth have to do with private industry, other than interest rates? In all reality it would be smart for these countries to default on their debt, especially if they have more assets.

Teamtc321's picture

Mid way through Mr. Bass's interview there are some chart's that you are looking for.

BigJim's picture

...For example if I make 45,000 dollars a year and have 45,000 dollars in debt, but I also have 500,000 dollars in assets, does it really matter that I have 45,000 in debt?

Bad analogy... here's a better one: For example, if my neighbors make 45,000 dollars a year, and have 45,000 dollars in debt, but I have 500,000 dollars in assets that they can steal through inflation, taxation, or outright confiscation, does it really matter that they have 45,000 in debt?

Well, it may not matter to my neighbors, but it certainly fucking matters to me.

Waterfallsparkles's picture

They cannot steal Real Estate Value thru inflation.  Yet, the value of your Mortgage Loan decreases with inflation as the value goes up with inflation.

Remember that there was not a period in the last 50 years where Real Estate actually went down.  Only in the last 3 years with all of the Bad loans sliced and diced into Finance vehicles.

So, own Real Estate, owe a Mortgage and you will be fine.  The Real Estate Appreciates and the value of the loan depreciates.

Got it?  Buy Real Estate.

Al Gorerhythm's picture

... as your currency is slowly destroyed. Got it? Buy gold and other fungible PMs.