CapitalistImperialistPig

...has been remarkably successful in portraying the Greeks as the villains of the current debt fiasco, and Europe has bought into it, big time. The US has been slightly less gullible, probably because we were less of a target, but also because several of our top economists have repeatedly called "bullshit" on this particular pile of crap. Of course it helps the propaganda machine that the Greeks, both citizen and government, have screwed up badly, especially before the financial crisis of 2007. Most bankruptcies involve either really bad luck or stupidity on the part of both borrower and lender. The Greek disaster initially involved all three: reckless borrowing by an irresponsible Greek government, reckless lending by (mainly German) banks, and the bad fortune to get caught up in a global financial meltdown. The blame for this really bad situation becoming a disaster lies almost entirely with the Troika (EU and IMF) who imposed a brutal austerity which crushed the Gre...

Sometimes the stars align: Krugman Wolfgang Will the Eu's latest stunt blow up in it's face? TBD. But don't miss Matt Yglesias's take. The real issue here is that your typical middle class Cypriot seems to be getting royally screwed. The European Union demanded that bank depositors take a haircut here for two reasons. One is simply that Germany would rather spend less money than more money. The second is that a lot of large depositors in Cyrpiot banks are thought to be Russian tax dodgers. That made the politics of a more generous bailout especially unlikely. It's also what specifically made taxing Cypriot bank deposits look attractive rather than some other form of tax. Makes the Russians pay! So fair enough. That's why you have the 9.9 percent levy on deposits over €100,000. But why the 6.75 percent tax on deposits below €100,000? After all, those are the deposits that had received official FDIC-style insurance. Why break that promise? Most simply, you ne...

One of the rituals of entering the Marines, or almost any military service, is losing very nearly all one's hair. By that standard, depositors in Cypriot banks are getting just a light trim, but they aren't happy. The problem is that those Cypriot banks made a lot of bad loans - where have we heard this story before? Mostly to Greece. Another problem: there's a lot of money in Cypriot banks from overseas, attracted, I imagine, by the big interest they were getting on those crappy loans. Let me rephrase the problem: the banks were undercapitalized and lent money not wisely but well...stupidly. The financial powers of the EU (AKA Angela Merkel) decided that the best thing to do would be to divide up the losses among the depositors. According to Matt Yglesias: A tax of 9.9% on deposits over €100,000 and 6.75% on deposits below that level. If this were happening in isolation, I would be inclined to say, "good plan." Who better to take the fall than the stockho...

One might think that an emergency is not the right time to contemplate massive changes in governmental structure, but history tends to show that it's the only time for such changes. Thus, the depredations of the Barbary pirates triggered the formation of the United States and today's Euro crisis is provoking very serious contemplation of a major step toward fiscal union in the Euro zone . It won't be easy - or painless. TBD

Everyone has a purpose in life. For some it is to serve as a negative example to others.

Kevin Drum thinks Greece may be gone , and screwed. Bottom line: The German public is tired of Greece. The rest of Europe increasingly thinks of them as a special case and doesn't think Greek exit from the euro would produce insurmountable contagion to Spain and Italy. In addition, since the troika [EU, IMF, ECB] already owns most Greek debt, default wouldn't have much impact on EU banks. In other words, quietly but steadily the rest of Europe has been preparing itself for Greek default and exit from the eurozone. The only real reason to avoid it is that it wouldn't solve any of Europe's structural problems anyway. But German leaders don't seem to be buying that argument at the moment. A eurozone crackup is hardly inevitable, but it's becoming an ever more tolerable possibility with every passing day They probably also think Greece will be an object lesson for others who might be tempted to bail.

When Sauron put on the Ring of Power, he was revealed to Celebrimor, and Celebrimor heard him say: One Euro to rule them all, One Euro to find them, One Euro to bring them all, and in the darkness bind them. Jon Stewart noted the other night that German banks had done what German tanks had managed 70 years ago, bringing Europe to its knees. Recent elections seem to indicate that the dominant mood in Europe is now "anyone else but our current government." Voters voted for right wingers and left wingers. Greeks voted for ex-communists and neo-Nazis. Who can doubt that mischief is afoot?

Wolfgang asked me what Krugman thought should be done about the Euro. I guessed inflation. Krugman makes it official. ... as I emphasized in that post earlier today, that German success story was based on a (modestly) inflationary boom in much of the rest of Europe. Give the peripheral countries a comparably favorable external environment — or actually a more favorable one, since they’re much deeper in the hole — and maybe there is a way to make this work. Let Spain regain competitiveness by inflating more slowly than Germany, rather than by deflating, and this whole thing might, might, become feasible. But this means, yes, overall inflation in the euro area significantly higher than the less than 2 % target. It certainly means a lot higher than the 1.5% the market currently expects. Don’t like that? OK, so no euro. It’s that stark. If he's right, that means the choice is not between punishing borrowers vs savers, but between punishing savers vs everybody, including and mostl...

The long, slow-motion train wreck of the Euro continues, picking up a bit of speed with the downgrade of a bunch of European debt and the collapse of negotiations to "voluntarily" restructure Greek debt . The point of the so-called voluntary restructuring is to avoid triggering the now notorious credit default swaps (CDS) which continually threaten to send a cascading chain reaction of bankruptcy through the financial world. Why the damnable things - which Warren Buffet called "instruments of mass financial destruction" - were not banned, abolished, and consigned to the lowest depths of financial hell after 2008 I will never understand. Actually, I do understand, but I just don't like it. They weren't banned because international investment bankers love them - they allow them to make hugely profitable bets with other peoples' money, and stick the losses to taxpayers when they go bust. It seems increasingly likely that the Merkozy "solution" -...

There was a very direct connection between the emergence of fascism in Europe in the thirties and the economics of the depression, as Paul Krugman reminds us here . Krugman blames the wrong-headed policies now being implemented in Europe for the re-emergence of right-wing extremism in much of Europe today. Hungary is something of a worst case, having already drifted into a right-wing authoritarian statism. The details are complex. Kim Lane Scheppele, who is the director of Princeton’s Law and Public Affairs program — and has been following the Hungarian situation closely — tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there’s a crackdown on independent media; and a proposed...

Angela Merkel has won her point, and the Europe that didn't quite bow to German tanks has bowed to German banks - except for one troublesome island. Nicholas Kulish, writing in the New York Times, has some observations : Even as European leaders put together their latest response to the euro crisis last week, a German-American clash over how best to manage a vast financial crisis and put the world economy back on a sound footing was set in stark relief. Chancellor Angela Merkel of Germany defied skeptics and laid the groundwork for a deeper union that she said rights the mistakes of the euro’s birth and puts integration on a stable path for the long term. In the process, she forced German fiscal discipline on Europe as the prescription for the ills that afflict the region. Obama, and lots of economists, think it won't work and will provoke a major world recession. Of course the markets also get to have their say. In the end, Mrs. Merkel’s view clearly won out over Mr. Oba...

OK, I'm mystified. European countries cede a big chunk of their budgetary powers to Germany and get what, exactly? Is there an actual or virtual guarantee that the ECB will then buy the bonds of the endangered countries? If not, what the heck is the point? Will newer versions of the Euro have that motto Wolfgang covets? Something like "Wir legen unser Vertrauen in Angela" ???

Angela Merkel seems to have gotten her European conquest. Now what?

Kevin Drum quotes Noah Millman on the flip side of the "Germany Save Us" argument : One way of looking at the sequence of events is to say that the ECB was willing to permit contagion in order to wring out inflation. I think a better way of looking at it is to say that the ECB was willing to threaten Italy with insolvency in order to give Germany more formal control over Italy’s finances. That’s incredibly hard-ball politics, but if you are not accountable to anybody (which the ECB, basically, is not) then you can play really, really hard-ball politics.

Angela Merkel summons up some Alexander Nevsky for Paul Krugman. Her comments: The countries who don’t keep to the stability pact have to be punished – those who contravene it need to be penalised. We need to make sure this doesn’t happen again. Historically, Germany's attempts to impose it's will on the rest of the continent have tended to end badly.

Tyler Cowen I hear the market whispering in the ear of the Netherlands “get out of the eurozone, before it’s too late!” At this point all bets are off as to which country will be the first to bail on the arrangement. It could be virtually anyone but France. The market, it seems, speaks through Megan M , who adds: At this point, the ECB is the only player left with clear and untapped intervention potential. But even that may be waning fast.

Europeans just seem determined to put a wet blanket on our Thanksgiving : Investors began to fear the worst for the euro after unusually weak demand at an auction for bonds from Germany , the region’s largest economy. One analyst went so far as to put the currency on a “death watch.” The Germans seem determined to march the Euro over the cliff, and nobody else seems to have a clue how to get out of the parade.  Of course if we pretend nothing is happening, maybe it won't - doesn't that usually work? The bottom line is that a bunch of people are going to lose a hell of a lot of money - the MF global investors seem to have claimed the first place in line.  Others are trying to scramble to the back of the line or get out before everybody figures out where they are. Investors had kept buying German bonds as they fled crisis after crisis in the region: first in Ireland, then in Greece and Italy, and now in Spain and Belgium. But Wednesday, 10-year bunds dropped significantly a...

Paul Krugman isn't the only one singing a dirge for the Euro today. Others seem to think that Germany and France are planning a mini-Euro, minus the Southern weakies . One senior German government official said it was a case of pruning the euro zone to make it stronger. "You'll still call it the euro, but it will be fewer countries," he said, without identifying those that would have to drop out. "We won't be able to speak with one voice and make the tough decisions in the euro zone as it is today. You can't have one country, one vote," he said, referring to rules that have made decision-making complex and slow, exacerbating the crisis. Speaking in Berlin, Merkel reiterated a call for changes to be made to the EU treaty -- the laws which govern the European Union -- saying the situation was now so unpleasant that a rapid breakthrough was needed. I predict that it won't happen. The Euro will undergo spontaneous deflagration before the sl...

Italian bonds have reached beastly levels of yield, but Paul Krugman thinks that the Europroblem is salvageable . It's just that: What we need now is really bold leadership from European politicians and the ECB. Also peace, love, brotherhood, and a pony for everyone, which seem about equally likely. Hold my pony, OK?

Jared Bernstein has a nice graph of bank exposure to the variously Euro vulnerable sovereign debts, by country: