As before, all that’s been done in euro land is highly deflationary.

No new euro will be spent by any govt as a result of the latest goings ons.

In fact, it’s more austerity.

And the ECB continues to do just enough to keep it all muddling through (including dictating that the new facilities be set up and activated) as it dictates terms and conditions.

And with euro zone gdp still growing (modestly) austerity still has room to slow growth before it sends it into reverse.

So why isn’t there more clamor to leave?

Simple, it’s not obvious that the currency arrangements per se are the problem.

Inflation is reasonably low, and interest rates are low, so (to the uninformed, non MMT world) how can that be the problem?

For most, the problem is obvious- same old story- their corrupt, worthless, self serving govts grossly over spent, dished it out to their banker buddies, insiders, etc., on most everything they were involved in, and now the entire nation is paying the price.

And thank goodness there were market forces in place to shut them down and stop them from turning it all into a Weimar scenario!

And this time at least they haven’t had the usual massive inflation where everyone loses their purchasing power, including those still working.

For example, those in Spain with savings can buy a lot more house than before.

The ‘good’ (prudence is considered a virtue) have sort of been rewarded.


And look how good Germany has it.

Unemployment down to 7%, driven by exports, no inflation, and they have near total fiscal domination/control (via the ECB) over the other members where they get to force austerity.

What more could they ask for?

It’s their dream come true.

So it could soon be back to strong euro, slowing growth, muddling through, until they push too far.

But even negative growth is sustainable without insolvency for as long as the ECB keeps funding it all.

11 Responses

  1. sounds like 1984! and we thought Europeans were smart?

    various factions, DeutscheBank in particular, are beginning to display hopelessly isolated thinking;

    it’s looking like the lasting effect of Breton Woods was to re-addict the non-US world to gold-std thinking;
    even most US economists haven’t noticed what changed in 1973

  2. As Milton Friedman already observed, human action often requires a crisis. The path from here to there is already laid out. Ireland and the other EMU nations that are forced into austerity will enter a depression. This increases their debt/GDP levels further as their GDP declines faster than deficits are reduced. The crisis occurs once general perception becomes aware of the viscious circle and an inflection point is reached. At this poin the fait of the EMU will be determined: It either falls apart as member nattions are forced to leave by their electorates or the Moneterary Authorities in Frankfurt realize that large deficits are a requirement for economic recovery in the Euro Zone.

      1. how long it takes for sense to propagate through an aggregate is the only relevant metric of social intelligence;
        history is full of famous dead people & subcultures whose insights were only appreciated later – by others

  3. Unfortunately, Warren, I think you may be right that the ECB will do just enough to maintain the status quo. It remains to be seen how tolerant the people will be of prolonged, sluggish growth and moderately high unemployment. Although, I can’t imagine that the Spainiards will put up with +20 percent UE forever.

    1. isn’t the worrisome part the vst experience many Latin countries have at adeptly moving large proportions of their economy underground? (25% -40%? vs what, <11% in "real" economies?)
      Ireland may turn out to be real battleground, if they insist on having a real vs a shadow economy that they're ill prepared for.

      Smarter groups, like UK & Sweden, just said no from the get go.

      I'm thinking that if Germany can bully Ireland & Greece, that the Latin countries will not mount effective opposition, per tradition. If submits, the Euro may actually stabilize.

  4. “how long it takes for sense to propagate through an aggregate is the only relevant metric of social intelligence”

    Assuming all beings have equal intelligence and sentience. The rate at which the population finds or receives the correct information is the determining factor. It took me a bloody long time to find the correct information. The volume of wrong information is much higher than the volume of correct information.

    Having said that. In countries with a skill set high on confidence and low on critical thinking. Propogation of good sense will be slower at low volumes of correct information. Conversely they will accept the correct information faster if the good volume is turned up to drown out the bad info’.

    UK and US have the crap information radio on full blast.

      1. that will cause, in order:

        1) fear & doubt,
        2) hiding it in the closet;

        too bad he didn’t go on to the logical conclusion & forcefully call for Treasury & Administration to do their jobs in times of crisis

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