Bank Crisis, Yes. Euro Crisis, No.



I am working on an essay which explains why some civilizations are superior to others, and how to measure that objectively, beyond the capability gunships provide with. It depends upon the notion of structure (among these structures are democratic institutions).

Measuring civilization is a much more interesting, and a much more difficult subject, that the silliness below. It is silly, because it should be totally obvious. But, somehow, it is not. As even Nobel Prize winners will not address it, someone has to. Sometimes one has to stoop, go to the trenches, and shoot back at the enemy, even when it’s a friend. After all Socrates killed at least four in real combat, and he is still esteemed…

I came across a post of April 11, 2011, from Paul Krugman, entitled "The Road to the Euro Crisis". That is a piece of not so crafty propaganda. Look at the title: it assumes that there is a "Euro Crisis".

That is a confusion of genres. There may be a crisis, but it is not of a crisis of the Euro itself. The Euro is strong, all too strong. The Euro was carefully calibrated to be worth one American dollar (by looking at very long term averages). Instead it has been for years hovering above 1.4 US dollar. The Euro is the world’s strongest currency. It would be better for the European economy if there were a Euro crisis.

Paul has claimed recently his European enthusiasm. If so, the aim of his propaganda would be rather mysterious. If it is not anti-European, what is it? Well, a careful analysis of the genesis of Krugman’s thought shows that, until a few months ago, he had no idea what was the idea behind the construction of the European Union. Then he discovered Robert Shuman, who explained clearly that Europe had to be made by irreversible moves, filling in the details in mopping-up operations later. Krugman, in truth, made a stubborn hostility against the Euro, part of his trade, for more than a decade.

That hostility against the European currency may be coming from the fact that, to keep overlording over the rest of the planet, it is better that the USA has by far the largest market, with the largest currency, so to speak. Since everything is written large in the USA, other countries become as many details, easily crushed. Ideas, feelings and companies get amplified in the internal market of the USA, and then they take over the world.

France and the USA conducted several war by proxy against each other after World War Two (although they were allied with several others).

The USA’s belated enthusiasm for democracy had allowed the European empires to be wounded to death by fascist Germany and Imperial Japan, and the USA moved in to replace them. Britain, not knowing too well which side it should chose, and mostly France, tried to resist this. A succession of wars happened, where interests and companies supported by the Americans confronted those supported by the French. Some of these wars are now forgotten: Katanga, Biafra…

I personally put the Rwanda war among these. It was terminated when a French paratroop division was dropped over Rwanda in Opération Turquoise, another of these UNSC operations implemented by France (one is just being conducted in Cote d’Ivoire). The origin of the Rwanda war have never been elucidated. However, before the holocaust, before the assassination of the two presidents which ignited it, the rebels spoke exclusively English, in a French speaking country, and were richly armed (including with anti-aircraft missiles). So some Anglo-Saxon power was behind them, and that may explain the lethargy of the USA to the whole Rwandan civil war.

Meanwhile the French, who were not exactly born yesterday, culturally speaking, proposed to the Germans to make an union, since disunion was clearly not working.

All Americans attached, one way or another to the reigning American plutocracy can only tremble, or more exactly can only toe the line that anything big from Europe is necessarily bad to the big, bad USA.

Thus the Euro is big, so the Euro is bad. Very bad: if the USA had to pay their oil, or their debt, not in Dollars, but in Euros they would quickly go the way of Argentina. So, from the context of the reigning American plutocracy, stopping the Euro is pretty much a question of survival. From the European point of view, the Euro is a way to stop being subjected to American domination. If not to stop outright exploitation, as the scale of the USA allows mediocre American companies and unspectacular ideas to become world dominant.

So the Euro is hyper strong, there is no Euro crisis, but clearly we have a Krugman crisis. Here is Paul’s short post, in its entirety:

“Just a note: I see that some readers are confused when I talk about how the coming of the euro led to low interest rates in the European periphery.

It’s actually very clear in the data:


As the euro became a done deal, countries that had previously had to pay a large interest premium found themselves able to borrow on the same terms as Germany; this translated into a big fall in their cost of capital. The result was bubbles, inflation, and in the aftermath of the bubbles and inflation, what you see now.”

Euro currency was introduced on 1 January 2002. This convergence-divergence of interest rates has nothing to do with the Euro. It has to do with the markets. As can be seen at the right hand of the graph, the interest rates are now diverging… But Spain is still in the Eurozone!

So this is not a Euro crisis, as far as the friends of the Euro can see. It is mislabeled a "Euro crisis" by the enemies of the Euro. So what is it?



In truth, the crisis is a private bank crisis, which has been transmogrified into a public debt crisis, as states came to the rescue of private banks, by making good on what they had lost.

That rescue of private banks, and all sorts of “shadow banks”  was led by the Bush, Obama, Greenspan ,Bernanke administrations in the USA: trillions of dollars were made available from taxpayers to plutocrats, as plutocrats, like Atlas, support the world.

The case of Iceland is enlightening: the state tried to persuade voters to pay for the obligations of a private bank based in Iceland, "Icesave". That bank lost 4 billion Euros of savings from savers in Britain and the Netherlands alone. The British government reimbursed the British savers, and then asked Iceland to reimburse the British state. Voters in Iceland said no. (Notice that the Brown and Cameron governments agree on this, that Britain is not in the Eurozone, and that Britain has been pretty much toeing the American and rest-of-Europe line on this.)

Iceland has a tiny population, 320,000, and it has been harder for the government to hypnotize the tiny population with plutocratic arguments, as Iceland is too small to be rules by plutocrats.

Icelanders have been told that their attitude compromised their application to the EU. I don’t see why. Police banks, and don’t enslave people who have nothing to do with them.

Ireland has a crushing debt. Why? Because the Irish government decided to refloat private banks in which other European private banks had invested in (although it refused to reimburse foreign banks directly invested in Ireland…). Ireland, and the like, ought to default, and that would be the end of the story. It’s a private bank crisis, not a currency crisis. More generally, it is a crisis of the relationship between all too generous public officials, and greedy sharks in private practice known as financiers. Private French, British and German banks have invested badly, they have to pay the price, the public should not.

Whenever a bank cannot survive, its operations ought to be nationalized, and small private savers accounts guaranteed. (What "small" means can be debated, but it should be big enough to cover the upper middle class, at least, but not so large to cover the hyper wealthy, as it presently does.)

There is vast hypocrisy in Germany in particular, as Germans profited vastly from loans of German banks to peripheral countries of Europe, to buy, well, German products, making Germany the number one world exporters.

It is high time for countries, that this for the public, to follow the example of the Icelanders, and say:"ekki" to the plutocrats! And, why does not Paul Krugman talk about that, rather than obsessing about the European currency? Is it because his renown, among the rich, famous and powerful, depends upon it? Why not use talent against evil, rather than using it to suggest that European nations should try to undermine each other, with small, weak, unworthy currencies?

Patrice Ayme

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8 Responses to “Bank Crisis, Yes. Euro Crisis, No.”

  1. Jo Says:

    Hey Patrice,

    you write: “In truth, the crisis is a private bank crisis, which has been transmogrified into a public debt crisis, as states came to the rescue of private banks…”

    This is true. However in many cases loans being made to banks of peripheral countries and/or direct investements into these countries have recieved state guarantees (by the peripheral states themselves). Moreover, the schemes private banks invested in were often government induced and facilitated real estate and other investment bubbles.

    While the private banks behaved irresponsibly it was in fact governments and their massive state interventions into their economies that actively provided the preconditions for these disasters. Part of this was the deragulation of the banks (see the case of Ireland) to allow them to invest even more irresponsibly into these government schemes.

    In many ways they followed the script of the US disasters and – like the US – were heralded as the examples of modern economic progress. The same thing happened in Spain, where government policies created the preconditions for a property bubble bigger that that of the US or Britain (in relative terms of course). This was also seen as a way of economic development and did produce high(ish) employment and higher wages without in fact producing anything of value (outside of empty beach resorts).

    It is therefore incomplete to call this a private bank crisis. The responsibility of the states must not be ignored. This is important because the prevention of further crises does not only require strong regulation of the private banks but requires also future governments to find sustainable economic patterns of development even if this means slower growth, lower wages and less state benefits etc

    Your main point is of course 100% correct. This is not a Euro crisis. It is a crisis of governance in the peripheral countries and a crisis of the European and international banking system. I also believe that there is a lot of truth in your speculations regarding the reasons of the “europhobia” in the US and UK.

    What exactly do you mean by “German hypocrisis” ? Remember Germany’s (or rather Merkels) original position on this issue was that there should be no bail-outs at all (bail-outs are expressively forbidden by Maastricht), that Greece (which was at the centre of the discussion in the early meetings of the Eurogroup) should default in the worst case and Germany, France etc should deal with their own banks (bail them out like they did before and or nationalise them). This seems to be your exact position, if i understand you correctly?

    The German plan however was discarded and the discussion was pretty heated with Sarkozy at one point threatening to leave the Euro (according to a statement by the Spanish premier) if the Germans would not agree to a general bail-out strategy. (in relative AND absoute terms French banks are far deeper in this mess: According to the Bank for International Settlements French and German banks at year-end 2009 had combined exposures of about $958 billion – $493 billion and $465 billion, respectively – to Spain, Ireland, Greece and Portugal).

    – Jo


    • Patrice Ayme Says:

      Dear Jo:
      It seems that we basically agree. As I said somewhere else, there are no truly private banks: they are state organized monopolies. Even the ex-non bank Goldman Sachs. I used to like Merkel, but recently she has made me extremely angry with her attitude in Libya. I cannot believe she was genuine about no bail-outs. Hypo bank (I think that was the name) was finshed, and it’s a very large German bank.

      No bail-outs, a position I support, also means systematic nationalizations of the bank operations. It’s of course feasible: Scandinavian countries did that in the 1990s. I hope it ends up that way, and the sooner, the better. Now it is going to be more complicated, with all this public-private entanglements, as you describe, because we have a number of bankrupt countries too.

      So it will require more than posing. It seems to me that French and British real estates are massively overvalued. Now, of course, they are the new super-power. However, should that deflate, more fun is to be had. Overall, the selling to China of european and American industries, related to the existing industrial and financial systems, is intolerable, and has to be fixed now. It reminds me a lot of the deals of the (mostly) Anglo-Saxon plutocrats with Mussolini, Stalin, Hitler, Franco and their friends in the 1920s and 1930s…


  2. mojo Says:

    The SCOTUS decision to allow unlimited anonymus political cash infusion into
    campaigns has seriously broken the resistance to plutocratic dominance in the US. Continuing the run of illegal wars and the privatization of military quartermaster functions will cost the US much more than the trillion dollars already taken. Rather than fight against this theft the MBA graduates seem too ready to assume they will be welcomed at the table to enjoy the largess. As usual the press and major political parties defer to the plutocrats for explanation and receive the usual lies as truth. A wise man said something along the lines of how hard it is to get someone to change what benefits them financially. The bankers are grabbing all they can because they see this as a
    limited opportunity before a real accounting in the public and are running scared.


    • Patrice Ayme Says:

      Mojo: Agreed. I think the Afghanistan war is a bottomless disaster, and it’s time for very creative thinking there. But of course the true reason is that NATO and the UN are in there now is unsaid. It is to keep an ominous presence next to thermonuclear Pakistan.

      Lots of big bankers should go to jail, and not just in the USA. In Europe, nationalizations of bank operations and default of countries ought to start ASAP, and that would be now. (Even “The Economist” agrees with me on the second point, although it entails the first…)
      I am astounded at the propaganda against the Libyan war. But, in a sense, it makes sense, because it is the anti-Iraq war, so many who approved the Iraq war now disapprove of the Libyan war…


  3. Jonathan Lam Says:

    Gamesmith94134: The pain in Spain


    Martin wolf also mentioned the “multiple equilibia” that the optimal and fundamentals varies , and it also causes “CURRENCY CRISES”
    “A continuum of speculators must decide whether to attack a fixed exchange rate. The cost to the monetary authority of defending the peg depends on the fundamentals of the economy and the proportion of speculators who attack the currency. If the monetary authority has some fixed benefit of maintaining the peg, then for each realization of fundamentals, there will be some critical mass of speculators sufficient to induce abandonment of the currency”

    Click to access paper_28_Rethinking_Multiple_Equilibria.pdf

    • Nasdaq, ICE Take NYSE Takeover Bid To Shareholders by By STEVE SCHAEFER
    • Deutsche Bank hit by $1bn US lawsuit By Justin Baer in New York

    EU Competition Authority is investigating the allegedly rigged CDS market, levying fines of potentially 10% of turnover of banks found guilty of collusion. mattus Surrey, UK

    With much of the Euro goes Euro 1.46 to a dollar, most currencies are dollar-based must give or run on the fixed exchange rate with the devaluation of the equities and properties. I predicted the crisis would arrive in September can be understated. It is sooner. If Deutsch Bank and Goldman Sachs were proven guilty in misleading their investors, it would be the end of the Euro crisis and when the global crisis begins. I am not reviving the half full or half empty dispute for the reserves or equity in the monetary sovereignty; the challenge is already on that the future market will fall till some will fallout. It is the critical point where the global economy can harbor with less calamity and rebuild on the zones.

    “Between the end of 1991 when our imports and exports were last in balance, and February of 2002 when the dollar’s overvaluation peaked, our currency’s value rose by over 50%. Massive inflows of foreign capital seeking high returns and safe haven in the US capital markets were a major factor behind the rise to such totally unsustainable levels.”It may come of the rise of the Yens that displacement of the exchange rate from 300 yen to 120 yen to a dollar, and we double spent it from the excessive off the swap just like the ICE in reverse. Did the World Bank and IMF being throw off to the chopping block by its voting right or the SDR that put Japan idle for ten year on the wheels spinning? Where are the axles or may I say “Euro dollar”?
    I think we must set on the zones that all central bank must make reserves on the exchanges to trade or bonds and equity to eliminate errors that traders can abuse the system. I am sorry if our FED does not have tools for a long term strategy; but the World Bank or IMF can merge with the continents that the all trade groups must apply. Now, the ECB is question how the ICE work, or how it come through the scrutiny of the World Bank and IMF who must protect the global economy and development? Why not come to OCED, OAS, ASEAN, AU, Eastern Block or North America to monitor the trade process and exchange? Perhaps, it is time both World Bank and IMF must reestablish SDR and the voting right based on the half full and half empty theory to pace the global development from afar. The “conspiracy of Silence” as mattus mentioned must come through the scrutiny of the investors in deterring the coming disaster; even Pimco aspirated the act of picking pockets and the current situation may not continue. Again, only zoning can protect the regional integrity from the future looting by the stronger exchange rate and required reserves or equities on the exchange can guarantee a fair trade. It is not free trade that can loot with the stronger currencies; and fair trade that harmonize all regional exchanges by the essence of integrity.
    Gazpacho, salted ham with no bread is hard to swallow; chardonnay for water?
    May the Buddha bless you?

    Patrice Ayme
    High Mountains Somewhere
    May 4th, 2011
    9:06 am
    As one of the commenters above points out, speculators are concentrating on particular countries. Britain was taken out of the European Monetary system by the concerted attack of speculators led by Soros. Then they tried the same on France, and broke their teeth.
    So now it’s Spain. Tomorrow it will be Britain, should they win in Spain.

    It is astounding that Paul Krugman does not understand that devaluation is war by other means. Why does not the honorable Krugman concentrate on giving devaluation advice to Detroit, where housing prices are 35% below what they were in 2000?

    And that is a point: one has to look at long time series, as an economist. That is the difference with a short term speculator. Spain, overall, is doing much better than it used to, even with the present severe braking, which was caused by mis-investment in too few sectors of the economy.

    Over extended speculators ought to be left to default, though, and the method of using public funds to prevent them to do so, discontinued.
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    • Patrice Ayme Says:

      Indeed, on the whole subject, Krugman is either idiotic, or dishonest. He is basically saying Spain ought to declare (economic) war to France to save itself. or then make itself so cheap, Germans and French could buy it cheap. As Americans have done with Argentina. it’s not economics, it’s abysmal. The abyss as an economic solution. But also mostly the American will to keep Europe divided in warring factions. It’s beyond the pale. And it’s not going to happen; there are many alternatives, from making European bonds, to better fiscal policy to selected defaults…


  4. Says:

    It’s exhausting to find educated folks on this matter, but you sound
    like you realize what you’re talking about! Thanks


  5. Puerto Rico’s Default: Back To The 1930s? | Patrice Ayme's Thoughts Says:

    […] of the USA (Paul Krugman, etc.), and their European parrots. I exposed this as a cover-up of the outrageous state of banking under a thick layer of Europhobia, even more than four years ago. Now Puerto Rico exhibits an increasing unwillingness to pay […]


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