


The sinking euro

Denial and delusion in Brussels, as the single currency founders

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Der Perfesser

"..perhaps stoking inflation..."

For the ECB to buy bonds it will have to print money, by the hundreds of billions.

The outcome will be far worse than a universal Euro bond default. It will be hyperinflation.

Defaults can be lived through. All they affect are the investors, mainly the banks. There will be few other adverse economic consequences. No break up of the Euro zone. No (or not much) panic. Business, trade, and the economy will function just as well the next day.

Yes, certain banks may need to be supported, not compensated, so that they will stay open. That is all.

A default is just the consequences of a bad business decision. Unexpected maybe, but given the recent events, still a bad business decision. History is replete with defaults by nations. Nothing much bad happens. It is business as usual next day. Indeed things often improve, as the government concerned is forced to cut expenditure and force through fiscal reforms; which they did not do while they were allowed to continue funding current expenditure by borrowing.

Now, what would happen if instead of allowing the PIIGS, and possibly France, to default; the ECB prints over a trillion euros to buy the bonds? Printing money at any time can be inflationary. Printing a Trillion Euros right now will be HYPERINFLATIONARY. The European economies will collapse. Savings will be consumed. Unemployment will jump sky high. There will be nasty and unknown political consequences which could last for decades.

The policy of the ECB printing money, compared to letting the Eurobond borrowers default, will be catastrophic. It is a question, Angela, of pain now versus big pain later.

I note the the Economist (owned by banking interests) plays down the likelihood of inflation (forget hyperinflation), while continuously pressing for intervention by the ECB to buy bonds. When massive inflation occurs they will stand on the sideline, they will say "not our fault" and deny all responsibility.

OK. This is the message to the bond owners. Which do you want? Write off your losses on the bonds, which you can afford, or watch the Europen economy collapse through Hyperinflation. Some of you must have memories....


Since when is "armed robbery" called "mutiny"?
It is very simple: if the "club Med" can reform, they should do it now. Then we can support. If they can't, then there is no common ground to be with them in one Union. Then the EU will always remain the "feeding trough" it has been so far (extracting money from the Germans by blackmailing them with the war and some alledged character flaws like "Teutonic rigidity").

What if the ECB of Germany would "help out"? Let's call a spase a spade: is Charlemagne looking for a grant of for more loans. More loans will not be repaid for sure. And what when that new money is wasted? Let's face it: Europe is like a (social benefit) junkie: we have to go through the "cold Turkey". Better now thean later. Indeed: the longer we wait, the higher the price. Therefore, let's face the misic now. The lazy-bums in Brussels who are fretting about shark-fins but have done absolutely nothing to harmonize taxation or social spending accross the EU we can miss very well. Good riddens!

Curate's Egg

I have carefully followed the Euro-crisis for some time now, and came to the following conclusions:

1. The Eurozone was created to consolidate the EU into a new Roman Empire, thereby fulfilling the fondest dreams of some European elites and its intelligenstia ever since the Americans and the Russians took away the mantle of world leadership from the old world. Despite all the posturing, there was no economic logic behind a unified currency, much less an imperative need. France, the real leader of Europe, still acts as if it runs a colonial empire in Africa (the only region where she is powerful enough to act as a boss), and is effectively a closet imperialist; hence a pan-European empire was implicitly understood to be desirable by vast sections of the French society, and other Europeans followed like a sheep.

Of course, Europeans often argue that in a world run by giants such as the US or China, a single European nation-state stands no chance. This argument is facile, to say the least. So how do other small nation-states like Korea or Turkey thrive in such an environment? Your reasoning would have had them be trampled all over.

2. There is no Europe, and certainly no feeling of European brotherly kinship. This crisis clearly revealed that the Germans and the French do not care what happens to their dear fellow Europeans south of the Alps. They only acted because the contagion threatened their well-being as well. A highly public smirk by the 'Merkozy' over the Italian premier's trustworthiness, German populist presses' aggressive remarks against the so-called PIIGS... evidences abound that the Europeans do not think of themselves as a unified entity.

3. Europhiles really need to grow up. Their habit of wishing Britain or the US ill, or even going so far as blaming the so-called 'Anglo-Saxon speculators' for the crisis, is clearly in bad taste and ignorant. The Anglos stand to lose drastically from the Eurozone crisis and possible breakup. And Europhiles by and large still do not seem to understand the underlying issue that bedevils their currency. Some of the funnier responses by Europhiles I have heard in recent days are:

1. Why are the British calling for Germany lending to the PIIGS? Why not Finland? This is clearly a British conspiracy against Germany!
(That would be because Finland has less people than the Frankfurt metropolitan area, you dolt)

2. Why isn't the world talking about economic troubles in the UK or the US? This is conspiracy!
(They are)

3. The USD is structurally weaker than the Euro. (Yes, in your imagination)

And so on.

As for the charge that speculators are causing this crisis, it is a dumb one. People who trumpet such idiocies clearly do not understand how the market works, and mix some truths about an overly hyperactive financial market with contemptible ignorance.

There, I said it.

Excellent analysis of the euro crisis.

Bottom line the EU created a common currency before Europe was ready for it. First political & fiscal union and than a common currency is usually the way it works.

They put the cart before the horse.

You also hit it on the nail about the various anglo conspiracies. Needless to say the fact that the Fed has been extending a crucial life line to the ECB with credit swaps seems to have been totally lost on them.

PS: Latest news is that IMF Is going to lend Italy 600 billion euros. Since the USA is the largest contributor to the IMF, it appears Timothy Geithner observation at the recent G20 summit that the EU was trying to put out the euro fire with the US's fire engine while Europe's fire engine is parked in the garage seems to be coming true.

JoeSolaris in reply to sherryblack


PS: The IMF has denied officially that any negotiations were under way between Washington and Italy.
So, thank you for playing your part in spreading the lies about my country. I will remember to repay the favour.

In the meantime, how is that project going to reduce the deficit in Washington - still around double digits as a percentage of gdp?

Or how about unemployment in the US - still around 9.2% as opposed to 8% in Italy?

Inflation? Still at 3.9% and rising in the US? As opposed to 3.4% in Italy?

Or total debt to gdp? In Italy at 118.6% last year - stabilised this year at about 119.5% and set to decline next year - while in the US?

And BTW, speaking of US debt - how are things doing at Freddie Mac and Fannie Mae?

The homeless in Italy: 20,000 - of which 60% are non-Italian citizens.
In the US, the number is believed to be 1.5 million - and rising:

"Physician Heal Thyself!"

sherryblack in reply to JoeSolaris

"The IMF has denied officially that any negotiations were under way between Washington and Italy.

And thank you for proving once again that you lack the critical thinking skills to realize that in this day and age of the globalized media you can't tell a lie and get away with it.


Agence France presse article:


(AFP) – 1 day ago


The money would give Monti a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms "by removing the necessity of having to refinance the debt," La Stampa reported, citing IMF officials in Washington.


PS: Ooops, looks like you got caught red handed in one your lies again.

JoeSolaris in reply to sherryblack

Oops, Sherry, it seems like you are out of date. Today, Italian newspapers reported that the IMF has officially denied that report:

"Intanto il Fondo Monetario Internazionale smentisce che siano in corso trattative con le autorità italiane per la concessione di aiuti. Ieri il quotidiano La Stampa aveva scritto che il Fmi ha pronto un piano da 600 miliardi di euro, da utilizzare nel caso che la situazione italiana peggiori ulteriormente: un prestito che darebbe al governo di Mario Monti 18 mesi di tempo per fare le riforme necessarie. Notizia smentita ora da un un portavoce del Fondo che a una domanda dei giornalisti sull'argomento ha risposto: "Non ci sono colloqui con le autorità italiane su un programma di finanziamento". E fonti dell'organismo internazionale a Roma hanno detto di non essere a conoscenza di richieste di aiuto da parte italiana."

How many homeless people can you see from your home Sherry?

sherryblack in reply to JoeSolaris

Now you say out of date?

Before that you jumped up in phony moral posturing about "spreading lies" even though you knew that item about IMF rescue fund for Italy was all over the news.

Good to see that you have finally realized how easy it is to get caught red handed in lies in this day and age of google.

Homeless? Are you referring to the Roma camps which were burnt by Italian authorities who delibrately made thousands of people homeless?

Sorry, we don't have such barbaric policies over here.

BTW you still haven't answered how the project of the euro replacing the dollar as the world's reserve currency is going?

JoeSolaris in reply to sherryblack

No, Sherry, as I wrote above...

"PS: The IMF has denied officially that any negotiations were under way between Washington and Italy."

the IMF had already issued its categorical denials.

Also Sherry, I must insist you apologise for that lie and defamation:
"...Roma camps which were burnt by Italian authorities who deliberately made thousands of people homeless?"

Really, Sherry? By Italian authorities? Yours is a crime which in the Italian civil code is called "Vilipendio" to vilify, willfully and in full knowledge of the lie, the Italian State. I demand an apology. No Italian State authorities have burnt anyone. Your racist attitudes with regard to all Mediterraneans are deplorable.


Germans know: If ECB goes printing it goes into billions, at least 2-3, and Germany would be the single underwriter of it. In other words: When the plethora of Anglo-Saxon media and politicians is asking - no demanding and bullying Germany to cede they are actually expecting Germany to commit suicide. It is an outright disgraceful act.

P.S. The euro most certainly has failed in its primary goal "promoting peace and understanding among European nations"

P.P.S. Get rid of the euro


This problem has been rehashed to death numerous time and the anti-Euro apostles will not relent. They have already postponed the Euro death few times - that says much about their illiterate prognosis.

The Euro is an economic issue and the doom scenario is created by the Anglo-American “well-wishers” which is understandable because they are bound to loose most from the Euro success. Despite their own precarious situation they offer to provide advises to Europe. Be aware of this negative propaganda!

After inflationary period arrive contraction and cheap credit and debt and after this inflationary period will come again – routine capitalistic business cycles. This has nothing to do with the Euro.


Yes, the Franco-German "leadership" was great. Time to move on to something else.


"“If anybody wrote a paper on contingency planning for the break-up of the euro, it would leak out immediately,” says one official".

Yes indeed, and we must hope that the same thing applies to the EU's finance ministries and central banks. Specifically, we must hope that they have secretly drawn up detailed plans for the end of the euro - and that they are keeping deathly quiet about them rather than mention details that might set off the final rout.

Anyway, we'll soon find out.......



"...Lucas Papademos and Mario Monti, the technocrats running Greece and Italy after their predecessors were cast overboard..."

Oh, yeah; L-Pap replacing G-Pap... and Three Card Monti replacing "Bunga-Bunga".

Let's face it folks: Europe is a joke... politically and otherwise.




You've cried wolf so many times already (i.e. said the euro had weeks to survive) that we just ain't buying it any more. Even if the world is standing just outside our cabin, you've cried , screamed even, wolf so many times in our ears, that it's just hard to see why this would be the time to think that FINALLY you are right.

You've become the new Pete, Charlie.

Hope you had fun writing this article though.


A J Maher is only the more extreme case of those who fail to imagine what is in the mind of a national leader. Cp. the case of those (nearly everyone) who failed to see that the person who most wanted everyone (certainly neighbouring countries and his own people, even his own generals) to believe that Iraq had WMDs in 2003 was Saddam Hussein.
Now it should be at least an alternative and used starting point for serious thought about the Eurozone's problems that Mrs Merkel has a plan, albeit a high risk and necessarily flexible plan, to produce a satisfactory, or at least the best possible risk-adjusted outcome. What it might be should be the line of thought.

Clearly the weak members of the Eurozone need the pressure to be kept up for as long as possible to ensure that huge changes are made in the shape of higher retirement ages, cuts in various welfare costs even including pensions, and many other unpleasant measures needed to ensure future solvency without the hoped for but unlikely increase in productivity and GDP per capita. In the case of Greece the reforms have to be far more radical, notably in the railways. If the Euro and Eurozone are not to collapse the reform of the weaker members is the first priority so the show must keep going as long as possible without even making the hard decisions (openly) about all those banks, especially the French ones, which are in deep trouble because of their holdings of PIIGS bonds, public and private. Then the banks losses must be crystallised and dealt with swiftly and ruthlessly. No mercy on shareholders. Not much on bank creditors. If necessary Mrs Merkel might say to a wavering French President "If you can't find the money to nationalise or recapitalise all your banks I'll do it for you and sell them off at a profit to the Chinese or whoever will pay in two years time". All wrong maybe, but worth thinking about what Mrs Merkel has in mind, as a responsible leader, to achieve, and how. Don't give too much credence to whatever is supposed to follow from none of her advisers, allegedly, having read Keynes. [I bet they read his "The Economic Consequences of the Peace"(1919)].


I am truly dismayed by the comments of most Germans in here, who fail to see the obvious: would you put your money in German banks (or invest there) when you don't know the effects of the fall of the euro and of the EU? Can't you see that it's not about Greece and PICS anymore?

Let's try to relax and think history. Germany has been at cross-roads before. Before WWI, WWII and if things are as bad as they look, now. Everytime the situation was not, nor not mainly, Germany's fault; yet, Germany had a choice. Why give in to the wicked Allies of Versailles? Or the British Empire, or arrogant France? Or to the PIGS now?

Let's say that it is found that the government of Bavaria has cheated on its budgets for a decade (like Madeira's). It owes billions of euros it has used to finance useless jobs, early retirement, and what not. Would the Bundestag ask Bavarians to choke on their debt or leave Germany? The German gov't would not even force a (good) change of government as was done in Italy and Greece.

I know the answer: can't happen 'cause Bavarians are Germans, and Germans don't do such things. Greeks, Italians, Spaniards, (French, Belgians, Irish) do (Austrians, Finns, Dutch can be forgotten if convenient).

This is the real problem.

Once it's accepted that a union will stand by all its members, whatever it takes, like NATO did for defence, you put the fire out, and find ways to fix the rules.


The Economist used to be the voice of liberalism, reason and free markets.

This article, however, is just another socialist voice of the emerging EU-SSR. Or, in one word, pro-pa-gan-da.


Wishful thinking!

Charlemangne writes as if Angela Merkel is in a position to save the Euro. Angela Merkel lives in one of the truly democratic countries where it is the Bundestag and the citizens that decide what is best for the country.
Although stopping the absurd propping up of unwilling and uncooperative Southern European countries will have grave consequences, it is hard to imagine that the German electorate will sacrifice their own rather stable position in order to continue the dubious attempts to maintain a status quo situation.

It is not only the South European countries that are in trouble. All the old industrialized countries including Germany are in trouble. Apart from the present attempts to construct a viable solution through a new treaty, the focus should be redirected from the “howling and screaming money industry” to the much graver problem, namely that the old industrial countries are no longer able to earn enough money to maintain their present socio economic position.

The fundamental and much graver problem, that even the best functioning European countries are no longer competitive, has got too little attention.
The cause of the economic crisis has up till now primitively been explained as the result of too much spending, how can anybody be satisfied with such a primitive explanation?!!!
The economic crisis and the production crisis are in reality two sides of the same coin
until that is understood and accepted no real cure can be implemented!

jomellon in reply to s.h.basse


What you say is true for the US and the UK, but not true for Europe.

Many Euro countries and companies are internationally very, very competitive:
Germany's Mittelstand for instance has thousands of unbeatable products from ball bearings for super hot conditions to the white paint used to paint the White House.

Airbus is the world's leading producer of commercial aircraft and is about 3 years technologically ahead of Boeing. EADS has been the leading satellite launcher for about 2 decades, ...

But the strongest Euro countries are actually some of the smaller ones like Austria and Finnland (Nokia, software, ...)

This attack by the anglo saxon finance world is an attempt to use their one remaining asset (international finance) to pull down Europe to their level: it will fail and in doing so they have already fatally damaged their own financial industry.

Finance trades on reputation: and my dears in London and NY yours is irreparably damaged.


It's frustrating to continue to hear the press spout the argument that Germans don't want the ECB involved because they don't want inflation. Of course inflation is part of what would happen if the ECB got involved but the more important problem is that it simply isn't fair to print money and give it to irresponsible neighbors like Italy!

It's like saying to a US citizen "Obama is planning on printing a billion dollars and giving it to his college friends who are having financial difficulty - but don't worry, we're not going to touch your dollars so you won't be affected". Then, people get upset and they are accused of being overly worried about inflation. No, the problem is that it just isn't fair.

Maybe the Germans give in and allow the ECB to (essentially) print new money and hand it to Italy. But I hope they don't. I hope the euro fails because if it doesn't, Europe will be stuck for the future (not just the next five years, but the next hundreds of years) on a slow road to eventual poverty and will sadly become no more than a glorified tourist attraction for Americans and Asians.

sherryblack in reply to Alex Kilgour

The dollar has survived far worse crisis than the current one.

Since 1792 the green buck has hang onto life through a civil war and the Great Depression so I wouldn't expect it to implode anytime soon.

BTW, it wasn't too long ago that the EU was excitedly predicting that the euro would replace the dollar as the world's reserve currency - how is that project going?


Why is the Charlemagne column written by a British europhobe who continues to miss every chance of shutting up?

Ale66 in reply to Nautor

In my experience, Charlemagne is only mildly Euro-phobic for British Press standards.
Moreover, he/she is a journalist who's there in Brussels to write reports, not to shut up.
You might as well consider not reading his/her blog no?

jomellon in reply to Ale66

> In my experience, Charlemagne is only mildly Euro-phobic for British Press standards.

Yes, which says a lot about the British press, nothing good about Charlemagne: he is tediously unbalanced, and his articles are polemic.


Nothing new here, the European Comission ruminates its old ideas. If Barroso really thinks Eurobonds would help, he did a huge disservice to his cause, as trying to sell the same old things with a new name had a really bad resonance with german politics and people. Not that that would be needed after taking a look at elected officials in Greece or Italy and thinking of being liable for their debt.

Just giving things new names doesn't change their nature. "stability bonds" are still the eurobond idea floated months ago. And "lender of last resort" or "quantitative easing" is still "let the money printers run hot". Perhaps markets will buy it for a few years, but at some point their will be no alternative but acknowledge that more money in circulation with no change to economic fundamentals equals less decreased value of monetary units. And in the end the difference between having your wage depressed by austerity and having its worth reduced by inflation is insignificant.

A J Maher

Of course the punishments inflicted on Greeks must continue and now the cunning plan from the Deutsche Daleks was to orchestrate a “negotiated” default on privately held Greek debt. Private bondholders were to absorb a 50% haircut that was not technically a credit event thereby denying them claims on the CDS insurances which they had paid for. So the market got royally screwed and immediately re rated all eurozone debt from being risk free to super risk!!!

The resultant towering inferno swept on to the global debt giant that is Italy. The $44 trillion bond market pushed Italian interest rates up from 2.9% to 7.2% in just a few short weeks. Spain followed and the great dumping of European debt has now started for France, Belgium, Austria, the Netherlands and (say it ain’t so Joe!!!) Germany.

More austerity!! Italy’s prime minister is removed and another Viceroy appointed. Everybody in Berlin agrees that eventually Italy could have a more competitive economy with no buyer of last resort, in the wrong currency, with the wrong interest rates and the wrong policy of austerity. Of course the size of its economy will have shrunk by 30% and its people will have been deliberately impoverished – but you can’t protect the German taxpayer and bondholder without breaking a few Italian eggs.

Wiping out Italy's assets, its output and its capacity to support the Italian population in the name of somebody else's definition of competitiveness might (at least outside of Germany) be thought to be destructive of a lot of Italian economic welfare for a very poor economic outcome.

Just to make it absolutely clear to the markets that all of Italy’s fire exits had all been blocked bundesbank officials decided this would be a good time to deliberately sabotage the ECB's own purchases of Italian bonds by declaring that they are
a.) Wrong and
b.) Going to be discontinued.

Germany's response to an uncontrolled forest fire is to ration the water and blame the trees for growing so irresponsibly.

The time has come to insist that Germany leave the euro. Now! She will not help so she must get out of the way and let others help themselves.

The DM area can float upwards and away from its most generous customer base whilst the euro can float downwards. The ECB, relieved of the burden of the borg from the Bundesbank, can confront the panicking markets with a wall of money, they can inject liquidity into the interbank lending and they can target growth (not inflation!) in order to counter the catastrophic recessionary cycle that they have unnecessarily entered.

Dancing to Berlins tune has been the proven route to disaster.

As for the warnings recently issued by Berlin to British eurosceptics - I think that Britain's present and future isolation from these catastrophic EU experiments are rightly seen more as a source of celebration and strength rather than angst and fear.

Those in the grip of EU Stockholm syndrome may well see compliance and conformity to euro federation as our only option. They are wrong now – just as they were wrong about the euro.

A J Maher

So the madwoman drives the euro off the cliff. No Eurobonds, no ECB firebreak to contain the bond contagion. With the roof crashing about her ears the robotic idiot repeats the mantra of future treaty changes that will punish the guilty.

The whippings will not cease until the breathing stops!
These “rules” are being held up as a self evident truth - as though a particularly discredited set of ideologically loaded economic policy prescriptions should never be challenged!

Of course austerity was imposed on Greece. Greek unemployment screamed up, wages were cut and benefits were slashed. Living standards collapsed and domestic demand imploded. Output went into meltdown – more layoffs followed and more business dominoes fell. With a simultaneous contraction in both demand and output and with exports sealed off behind a punitively high currency barrier not to mention ECB imposed credit conditions so tight as to be deflationary Greek GDP had nowhere to go but down. Greece’s GDP has accordingly shrunk by over 10% in the last two years but obviously her deficit and debt levels did not. Smaller GDP same debt = a higher % of debt to GDP.

All of this wasteful destruction and human suffering has been the outcome of deliberate policy – a policy insisted upon by Germany despite worldwide warnings from grown up economists (and the markets) that this demented prescription would kill the Greek patient – not cure it.

They grownups were right - Greek austerity has failed to meet any targets of deficit contraction reduction.

Now, in the face of complete and comprehensive failure Germany’s response is more of the same! Nothing will now do but to completely reduce Greece into a dust bowl economy with sweated labour because unlimited Greek sacrifice is an acceptable sacrifice for the jealous tribal god of German austerity. On top of economic destitution Germany has now eradicated democratic control of Greek policy. An elected prime minister is removed and a Viceroy is appointed. All parties in the Greek Parliament must now sign up to an unconditional support of the new austerity drive. In a mad reversion to loathsome type the Junkers are determined to openly demonstrate that they are in charge and that when they have you by the balls they always squeeze.


sanmartinian in reply to A J Maher

Poor,poor Maher!

Like Chamberlain in 1938, you still haven't grasped it yet, have you?

If the Euro disappears now, particularly now, it will be Kredietanstallt again, another depression, Spanish civil war revisited (maybe in the Middle East), "Peace in our time" another infamous historical quote and the rest that History has taught us to expect of these crises.

It is not impossible the Euro disappears as it ever was since its inception.

With your lack of historical knowledge, poor applied maths skills and great hopes on the benefits of destruction you, and people like you, will be the first victims.

There may be the odd chance that you are right and I wrong.

I'd be a very happy old man if that proved to be case.

Just as I would have been a very happy teenager if Chamberlain had proved to be right and we had had "peace in our time " in 1938 and been spared WW2.

Unfortunately, it was Churchill who was right.

reader735 in reply to A J Maher

With Germany you must mean: Germany, Holland, Finland and Austria. They all back the same game plan to the greatest extent. Why is it that everyone sees Creditors like Germany as the main culprit. It is most understandable that nobody should have to underwrite somebody else's debt (remember the bail-out clause). If Germany nevertheless agrees to do so they are in full right to set rules or ask for guarantees like the Finns did. If you are a debtor you are not in a strong position to negotiate! Greece could have left the EZ, but they choose to hang on and now they pay the price.


The article is mistitled, it should have been "Denial and delusion in Berlin". Germany has to accept that leaders have obligations and that it bears a share of responsibility in what has happened. The Euro was tailor-made for the German economy and moreover Germany did itself break the rules, giving others the impression they could get away with it. Moreover, the present panic is largely caused by German (non-)policies, inspired by the "moral" reflexes of a ten-year old.

Greece of course is going bust mainly because it cheated, but the same cannot be said of Italy and France. It's certainly exaggerated to predict a return to the thirties if the Euro fails and the EU with it, but Germans need to understand that their economy would be the first victim should that happen and that moreover they would be widely blamed for everybody's misery. I do not look forward to a situation where Germanophobia and economic nationalism are again political factors in Europe.


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