The Tragedy Of The Euro

2012 has been a year of great turmoil for the euro. But our common currency is not the only thing that is in crisis. OUr economic theory is too, and even more so. For decades, macro-economic policy has been conducted within a Keynesian framework. And while no Keynesian economist has predicted this crisis, or is even able to explain its causes, we are still listening to them today to get out of the mess they brought us into. I would say that this is a problem of legitimacy.

I am writing this article not only as an economist: I am a defender of liberty too. What is happening in Europe right now should not only worry economists, but every freedom-loving citizen. As we speak, measures are being taken to take away our liberties in a way that Hayek described so well in his “Road to serfdom”: each government intervention requires more government intervention, until no freedom is left. Step by step, our individual rights are being eroded, and here, in Brussels, a giant moloch called the European Commission is centralizing powers with a speed that would have been unimaginable before the Treaty of Lisbon.

Let us start with some theory about how value is created, what the origins of money are, and how the euro is the right answer to the wrong question.



Economics is the study of value creation. It does not consider itself with the question what values men should pursue, nor how value should be shared in a community. These are questions for respectively moral and political scientists. It takes the valuations of individuals as the given and goes from there. A value is something one wants to gain or keep, and economics studies the means people use to get it. About the desirability of ends, it has nothing to say.

Mainstream economists largely ignore this definition of economics, and even turn it around. They regard their valuations as the thing to be achieved, and the valuations of individuals as the means to achieve this end. Instead of analyzing how individuals create value, they devise policies to make them conform to their one chief value: stability. Macro-economic policy has only one purpose: an economy “in equilibrium” and the use of government intervention is their way to push individual valuations towards this pre-set value.

It is tempting to judge these policies form a moral angle, but that is why this article has two parts. As an economist, the only question I have to answer is: “What policy creates the most value?” If it would turn out that mainstream economics is right, then I have no story. But if it can be proven that macro-economic policy actually destroys value, then the best macro-economic policy might be that we have none. This is actually the thesis I will be defending here.



If I can prove the claim that macro-economic policy destroys value, then the discussion about monetary policy is only a subset of this more general thesis. We will see that the euro is indeed a problem of forced valuation, and more specifically the imposition of a centrally planned quantity of money onto the public. It is the European Monetary System that determines what the quantity of money is. Its value does not arise out of the interaction between individuals, but out of the decision of a few policy-makers, imposing their valuations on the rest of society.

Apart from the problem of the impossibility of central planning, which we will discuss in a minute, the euro is confronted with yet another problem, of a more political nature. Without judging the specific political reasons for setting up, not a European Central Bank, but a European Monetary System with now seventeen members, it can easily be observed that the euro is a system with ill-defined property rights. While every member of the Eurozone can print its own money, nobody is responsible for the purchasing power of the currency.

It is this essential feat of the political architecture behind the euro, which is mainly causing its problems: if property rights are ill-defined, every body tries to externalize his costs. This is commonly known as “the tragedy of the commons”, as described by Garett Hardin, back in 1968. Meadows that are owned by nobody, but can be grazed by anybody, will be exhausted in no time. A currency that is owned by nobody, but can be printed by anybody, face the same dynamics. The euro is a monetary tragedy of the commons.


Why central planning cannot work

Let’s start with the proof that central planning cannot work. In his 1920 paper, called “Economic Calculation in the Socialist Commonwealth[2]”, Mises demonstrates why that is: under central planning, there is no private property. If there is no private property, there is no exchange. If there is no exchange, there are no prices. And if there are no prices, there is no way for a central planner to know what needs to be produced, for whom, by whom and at what cost. By abolishing the institution of private property, central planners abolish the one institution that could make their plans work. Or in short: the only way central planning can work, is by leaving the market free.

Most mainstream economists – Keynesians, neo-classicals and monetarists alike – to this day have not understood Mises’ fundamental challenge: how are you going to centrally plan what is needed if the information for that kind of planning can only be generated in a free market? How are you going to decide how many shoes need to be produced if there are no ratio’s of offer and demand? How are you going to decide whether the production of shoes is more urgent than the production of trousers? How are you going to decide who is to make the shoes or the trousers? How are you going to decide what the cost of that specific product should be? The answer is: you can’t. The information you need to answer these questions can only be generated in a free market, by giving people the freedom to exchange their property as they see fit.

It is startling to see how little economists really know about the workings of the price system. When I buy an apple, the price of all remaining apples raises. This price raise attracts entrepreneurs who see a profit in the production of more apples. More apples are produced. Clean, simple. If I have to wait for a central planner to decide that an apple must be produced, I might as well just eat carrots. By the time he has – politically – decided which orchard has to produce that apple, has transmitted that order to Public Orchard nr. 56 and has replenished the stock of apples, I would already have starved. There is no system faster than the price system to transmit a change in market conditions.


Mixed market model

Now, do we live in a centrally planned economy? No. But whatever is valid in principle, is also valid in degree. In a centrally planned economy the production of a citizen is expropriated entirely, and the state spends 100% of his income. In our economy the production of a citizen is expropriated only in part, and the state spends a bit more than 50 % of his income. But is there a difference in principle? Not at all. In both cases, there is only a difference in the degree to which the economy is centrally planned. Economists reducing the concept of central planning to the image of a Politburo full of high-hats deciding how many cars have to be produced in the next five years, miss out on most of the debate.

The new central planning is much more subtle: the market is nominally left free – private property still exists – but that what you can do with your property is regulated to such a great extent, that free prices are practically impossible. Yes, the horse can run freely over the plains, but it has to eat this grass, use that saddle, let itself comb with this particular brush and has to be in the stable at that hour. Our prices aren’t free at all. How high or low they can go, is centrally decided. The margin by which they are allowed to fluctuate is still quite broad compared to full-blown communism, but that margin is diminishing with every new measure the government takes.

Thus, the 1920 analysis of Mises, which indeed was originally intended as a critique of central planning, is applicable to socially corrected market economies too. In our economy, property rights still exist, but they are heavily burdened by taxes and regulations. Therefore, exchange rates are not what they should be, and the natural price mechanism that normally coordinates supply and demand is disrupted, the rate of disruption being the rate of central planning, which can be measured, in part by the levy of taxes. The crucial insight is that every disruption of property rights sends wrong price signals into the market, causing entrepreneurs to produce things there is no real demand for.


The production of money

Now that it is proven that central planning cannot work, neither in principle, nor in degree, it is easy to conclude that the euro cannot work either, since the euro is just another case of central planning, be it in a monetary form. Most people have accepted the fact that shoes and trousers cannot be produced through central planning, but though money is half of each transaction in the market, accepting the same idea for the production of money, is a bridge to far for most people.

Nevertheless, money is an economic good, just like all others. You cannot eat it, you cannot use it as a part that fits in the construction of a car, nor can you mow the lawn with it. It seems like dead matter that has to be transformed, before you can actually do something with it. And this, precisely, is its function: being the most common means of exchange. Money is hoarded because it can be traded against all other goods. It is an economic good that has gained currency. To think that money is just a convention is not only wrong: it is the root of the problems we are facing today.

For how did money come about? By government decree? No, by millions and millions and millions of transactions in the free market. Before money arised from the market, there was only barter. One individual had a bit of fish, and some other a lump of silex, and an exchange took place. Or not. Because this is the biggest problem of barter: what if you really want that fish, but the guy does not want your silex? What if he only wants to trade his fish for a handful of berries? The only way to solve this problem is to look for a third trading partner that has a handful of berries. But that guy might not want your lump of silex either, but some wood for the fire. A fourth person has to be found. And so on and so on.


The function of money

Money solves this problem. It is a good that is accepted for any other good. Out of all the possible exchange materials (berries, fish, straw), the free market selected that exchange product that would be the most steadfast of quality, have the longest sustainability in time, the easiest divisibility, the rarest occurrence, and the most obvious recognisability. These five main characteristics are what determined a regular economic good to gain a monetary premium. These goods were no longer sought for their own sake, they rather served as a medium of exchange for other goods.

If you apply those five characteristics to all materials you know, which ones pop to your mind first? The answer is: gold and silver. Out of all the possible forms of money, these two emerged as being the most wanted, just because of those characteristics. The rest is history. Taking gold on a business trip soon became to dangerous, and letters of exchange were emitted. These letters of exchange, first in person and for the exact amount, later on evolved to standard notes of a certain quantity. Notes we now know as bank notes. Gold was kept in the vault, and the notes were like a ticket from the cloakroom: if you want your coat, you can always get it.

But imagine being a banker, storing all that gold, and seeing that nobody actually ever comes for it. The banknotes circulate in the economy, and nobody bothers to come and pick up their gold anymore. If on average only 10 % of the gold is ever picked up, then why not loan out the 90 % that is “just sitting there idle”? New banknotes are emitted, for the same reserves, and all goes well. Only 10 % of the people comes to pick up their gold anyway. The banking business is truly a lucrative business. You namely did not give out the new banknotes for free, of course not, you loaned them out against an interest rate. So people pay you for using money you never owned in the first place. How good does it get?


Bank control in a free market

Pretty bad. With the evolving business of banking, bank notes only are a part of the money supply. Most of the banknotes have been dematerialized into bank accounts. This digitalisation in itself is not wrong. Whether one holds a property title in ones hand, or it is written in a book, or it is digitalized in a computer, the principle does not vary: one is entitled to the weight in gold that is represented by the property title. The most important thing is that these property titles are not duplicated, and that is where the problem really starts: if there are more property titles, than there is property, each property title becomes worth less. This is what we call inflation.

Inflation is what happens when somebody takes out a loan. Most people do not understand that the money they lend in the bank does not exist before they sign their loan contract. Just as bankers in the old days lent out money they didn’t have, the same happens today. The only difference is that when a banker commits this kind of fraud in a free market, he is evicted from the profession. The word “bankrupt” comes from the Spanish “banca rota” which means broken bank. If competing bankers found out that a banker had emitted more notes than he had gold in store, his little wooden exchange table was broken. Banca rota, and the market was clean.

Nowadays the banking market is one of the most regulated markets in the history of mankind. If I want to start a bank, I have to registrer with the central bank, which is not a public institution, but a private company that has been granted a monopoly to produce banknotes at will. The central bank determines the amount of reserves I must hold, in which products I can invest my money, what the tariffs are for interbank lending, and so on. Banking is as free as a fish thrown in the desert. You can do whatever you want, but you cannot swim, you cannot breathe.


Moral hazard

Then where does the impression of recklessness of bankers come from? It seems like they can afford anything. They can ruin people’s lives by taking foreclosures on loans with money that they never owned, they can demand fierce reforms of public services without having to take any losses themselves. They can even rule countries, as we have seen in the case of Greece. The answer is simple: moral hazard. If you know, in advance, that you are going to be saved by the government, you will do as you please. The government has no option but to protect you, because its own survival depends on it.

Let's go into the intricacies of banking. If we assume that the total money supply is one hundred ounces of gold and only 10 % is ever picked up, then 90 ounces of gold can be loaned out again in the form of previously non-existing bank notes. But those 90 banknotes, let’s call them guilders, are deposited somewhere in the banking system too. However, the 10 % pick-up ratio does not change. Only 10 % of these 90 guilders will ever be picked up. Then why not loan out 90 % of those 90 guilders? 81 guilders are created, and end up somewhere in the banking system. And the beat goes on. 72,9 guilders are created. And the beat goes on. 65,6 guilders are created. With a reserve ratio of 10 %, out of each guilder, one hundred guilders can be produced.

But what happens when more than 10 % of the people comes to claim their money? Then the banking system faces a real problem, because to be able to pay out one guilder, a lot of investments that were created on top of this monetary base, have to be liquidated. And if a loan fails to be payed back, the same happens: on top of the money that was loaned out, and ended up somewhere in the banking system again, a vast number of new loans depended. The only way to pay out those people, or to replace old debt, is to create new debt, which is mingled in with the old debt, and the real money that is at the base of it.


The structure of production

However, there is a price to this. The monetary base on which all depends, the gold reserve, in comparison shrinks with each emission of new money. What is backing the new “money” is not an actual value, but a future value: the promise that the people that have taken the loan, will pay it back after a certain amount of time. But the problem is: there are no certainties. As a matter of fact, precisely by emitting more property titles than there is property, the whole price system is distorted. Price valuations do not reflect the true value of things, and the economic calculation problem grows. For instance, the price of capital becomes far too cheap. In a free market, the price of capital is determined by the amount of savings people hold. The more people save, the greater the supply of capital, and the lower its price. In an unfree market, like ours, the price of capital is determined by how many false property titles the central bank injects into the system, on top of which the commercial banks can expand even more. Since it is very lucrative to loan out money that one does not have, the price of capital drops far below free market levels.

This has an enormous effect on the economy. An effect you cannot even begin to imagine. Most economists think that inflation is the worst problem when injecting money into the economy. Not in the least. Inflation is only the canary in the mineshaft of monetary policy. The true problem is that the structure of production of the economy shifts towards capitalintensive sectors, while laborintensive sectors get weeded out. While you can buy IPads and Humvees and beauty treatments and luxury cruises and home cinemas and so on, you cannot find a plumber to do a little repair, a kid willing to help out at the bakers shop, or a stump of a guy willing to help the brewer to deliver his beer. These labour-intensive businesses can never compete with corporates for whom the most important cost is the cost of capital. A cost that is being subsidized by central banking.

The effect is that there is a lot of consultancy bullshit, but no more service for the customer. A lot of expensive HR-philosophies, but no room for small family businesses. A lot of fancy cars, but no social tissue that creates employment nearby, rendering these high-tech automobiles to luxury mobile prisons: big companies centralize employment, causing more long distance traffic than would be needed if the market was left free. The effects of centrally lowering the price of capital are so vast, but yet subtle, that most people never even realize that a lot of the daily problems they have is the utter distortion of values, caused by central planning.


Declining profits

There is yet another problem. Because the structure of production is forced, it produces a lot of things people actually don’t need. I see twelve year olds with an IPhone 5, eighteen year olds with a Mercedes Benz and middle class people leaving on a holiday to the Seychelles like there was no tomorrow. Meanwhile healthy food, good education, and qualitative medical care is starting to become unaffordable for ever larger segments of the population. Again: it is not the task of an economist to judge the ends people are looking to achieve. We must take it as a given. But knowing what we know about central planning, the creation of fiat paper money, and the effects it has, it is clear that because of the distortion of the structure of production less value is created than in a free market. And that IS an economists business.

This story, however, will not last. Just because the structure of production is geared less and less to the needs of the population, less and less profits will be made. One can only eat so many hamburgers, before having health problems. One can only ruin the minds of young people for some time, before companies find out they are graded idiots. One can only suppress symptoms of sickness with pharmaceuticals for some time, before people go stark raving mad. Very soon, it will show that our economy is not profitable at all, but has been consuming capital. Not by selling houses and living of the rents, but by the inflation of just about anything: money, grades, relationships, even concepts.

That this system is bound to crash, is obvious. Because the structure of production is less and less geared towards the market, the economy is less and less profitable, which makes the fiscal capacity shrink. The biggest lender of all, namely, is government; the very reason one bank was given a license to create a form of debt that everybody has to accept as a form payment is because the government always wanted to be sure of its ability to loan: we make sure that your debt titles are legal tender, which will keep demand up, and you make sure that we can lend whatever we want, which will enable us to buy votes. It is the perfect match.


The deadly shift

As the government propaganda to consume more wanes, people start to realize that their real needs lie elsewhere. When grandpa needs nearly unaffordable medical attention, suddenly the new IPhone 5 is not seen “a real life saver” anymore. The whole structure of production, geared towards the production of capital-intensive stuff, often even paid for by consumer loans, shifts back to its normal free market proportions. It is this event that we call a crisis: the macro-economic illusions of policy makers are punctured by the micro-economic decisions of regular people like you and I. In the end, the market is always right.

In a free market, shifts like this are no problem, because they are small. In an unfree market, like ours, they are a huge problem, not only because the companies that go out of business during that shift are heavily indebted and cannot repay their loans, but also because this necessary shift has been postponed time and again by injecting new money to boost demand. While vital laws of reality – for instance that you cannot loan out what does not exist – have been denied for decades, reality now breaks through with the sum of its deferred forces. Politicians say that markets don’t work? They work like never before.

This shift is deadly to government finances. Because the economy in that shift temporarily produces fewer profits, less tax can be collected. But the interest payments do not wait. The only way to fill the gap between revenues and expenditures is by borrowing even more, which means, in our system, that even more “money” is injected into the market, creating ever bigger distortions of the structure of production, resulting in even fewer profits, reducing the tax revenues even more, igniting yet another round of borrowing. It really is a “perpetuum culpabile”, a never-ending amassment of debt.


The euro, finally

One might say this is a fairly long introduction to the actual subject of this talk, but how can one say anything sensible on the euro if one does not know how money originated from the market, how its production was collectivized by the government, what the real purpose of central banking is, what it does to the structure of production, and why this monetary system is bound to fail? All this knowledge is lost, and certainly in Flanders, Austrian Economics, the theoretical school I draw from for this article, is not taught at any economics department at any university. It is mentioned as a heterodox current, while it is as orthodox as economics get.

But now, let us use this knowledge to analyse the euro problem. We know that the euro is a centrally planned currency, suffering from all the problems that arise with this form of economic governance. But the euro faces even a greater economic problem, and that is the problem of the commons. In fact, “the” euro does not exist. It is a name for all the currencies emitted by the central banks of 17 countries. There are Greek euro’s, German euro’s, French euro’s, Dutch euro’s. Every euro has the same face value, but the debt that is emitted to back the currency, is often of a wholly different quality. And what is more: the more debt each state incurs, the more money it gets from the ECB.

If this description is too cryptic, let’s see in detail how the monetization of debt works. It is quite easy, actually. When a government needs money, it emits a bond. This bond is bought up by the central bank. With what money? With freshly printed money. The ECB prints “money” out of thin air, with as the backing value the debt obligation of the government. The government uses this newly created “money” to pay for what it has promised to its voters, while they pay taxes on what their produce to repay the debt the government has incurred. In short: debt is money, and money is debt. If all debts in our economy would be repaid, there would no longer be any fiat paper money.


The tragedy of the commons

So what happens when every national political elite can do this, but nobody has to incur the cost of a devalued currency? If France printed too much money in the old days, the French Franc lost value in international exchange. If it prints too much money today, the loss of value is shared with 16 other economies using that currency. In each and every one of those countries, imports will become dearer, even though if they themselves would have maintained a healthy monetary policy. The euro is the swimming pool in which everybody urinates: everybody can externalize the cost of going to the bathroom, and yet nobody is responsible for the water getting dirty. The price is paid by all the other people using the water to swim in.

The only way to prevent the externalisation of costs is to inextricably link them to the profits that arise from exploiting the same good. That is the function of property rights: if we would privatize the seas today, they would be clean tomorrow. The only reason they are as filthy as they are, is because everybody can externalize the cost of cleaning ones oil tanker by doing it at sea, which is nobody’s property, in stead of cleaning it in the harbour, where at least somebody has to be paid to process the waste. Property rights are what ties costs to benefits. In a purely free market society, there is no way to externalize costs. Socializing ones losses is only possible if there is a public good to socialize it to.

The euro is not different. Using the commercial banking system as a proxy, there is an intermediate step in the monetization of debt in comparison with the Federal Reserve System, but in essence, it is a clear case of externalizing the cost of unsustainable national policies onto a common currency, with nobody being there to halt the loss of value of that currency. The result is an ever-accelerating devaluation of the purchasing power of the currency, leading, in the end, to its final collapse. In the last century alone, approximately one hundred fiat paper currencies have found their grave. That is one each year. Why would the euro be any different?


To conclude, a lot more can be said about the euro, but this can suffice as a quick introduction. It is a fiat paper currency, which means that it is backed by nothing more the belief that some day, all the incurred debt will be repaid. But, whether one believes it or not, it is an economic certainty that the structure of production of the European economies have been distorted to such an extent, that the value creation necessary to pay off this debt can never be attained. With each company being rescued, each country being saved, a new round of debt is being monetized, distorting the price system even more, reducing profits, lowering the fiscal revenue, inducing governments to borrow even more. If it were not for the 15 % gold and gold receivables on the balance sheets of the ECB, the euro would certainly end up in hyperinflation. But even there, regarding where the gold actually is, the situation does not seem to be quite clear.



So much for the economic part . Up until now, I have not said anything about the political dynamics behind the euro. This is the province of my personal speculations, and should not be treated as a scientific explanation. But, observing Europe, I think it is correct to say that there are two large monetary traditions: that of Germany, with a quite strict monetary policy, and that of France, with a monetary policy which is rather loose. Both policies are forms of central planning, and therefore to a certain extent always flawed, although the degree to which they cause harm is different.

If you look at German monetary history, the importance of the 1923 hyperinflation cannot be underestimated. It is this horrific experience that engendered the desire to have a stable currency, and it is this desire that lay at the foundation of the predecessor of the Bundesbank, the “Bank deutcher Länder”, in 1948. Germanys central bankers inflated the currency too – that is what central banks are for – but at least they made sure that the German structure of production was not distorted in such a way that the profits would fall short to repay the debt incurred. At best, one could say that they were managing the plantation of fiscal slaves in a much better way than, lets say, for instance, the French.

French monetary history on the other hand is rife with examples of devaluing the currency, and hyperinflation, not once, but throughout its history. Even today, a loose monetary policy is not seen as a problem, and inflation is a quite normal method the political elite uses to finance its social policies without having to levy taxes. The French Central Bank, which is, again, a private institution, inflates the currency just as much as is needed to fund the policies of the political class. There is hardly any restriction, other than the exchange rates of the currencies around it. And that is where the story of the euro starts: as long as people can compare the exchange rates with other nations, they can find out if their government has been printing money.


Not an economic project

The euro, therefore, is the right answer to the wrong question. While in a free market, dollars, marks, guilders and francs are just names for a weight in gold, in an unfree market, like ours, the value of these currencies fluctuates amongst one another. While the official story is that the euro was needed to stabilize these fluctuations, the real deal is that some countries could not stand the fact that Germany was unwilling to print extra money as fast as they did. To give you an example: while Germany was being occupied after WWII, in part by the French, the monetary policy of the German central bank was still free, and by maintaining a policy of hard money, the French government was limited in its possibilities to monetize the debt of its policies upon its population.

During the European Monetary system, the same dynamic can be observed. In 1972 the countries of the European Economic Community agreed in 1972 to maintain stable exchange rates by preventing exchange rate fluctuations of more than 2.25%, the so called “snake in the tunnel”. Although no currency was designated as an anchor, the Deutsche Mark and German Bundesbank soon emerged as the centre of the EMS. Because of its relative strength, and the low-inflation policies of the bank, all other currencies were forced to follow its lead if they wanted to stay inside the system. Eventually, this situation led to dissatisfaction in most countries, and in August 1993 the so-called Brussels Compromise allowed for a broader fluctuation band of 15%. Again, France was one of its main advocates. It wanted to force Germany to print money as fast as they did. Germany stuck to its guns.

The euro, in this regard, is much more a political project than it is an economic project. As stated before, there is absolutely no need for a common currency in a free market. Even if you would have three thousand different currencies in the world, it doesn’t matter. As long as each currency represents a fixed weight in gold, and the exchange rates between them are fixed, it doesn’t matter if I pay you in Arnaert Guilders, or Krugman Francs, or Mises Dollars. The only difference between them would be a liquidity premium, offset by maybe some discount for some reason. But large fluctuations, due to easy money policies, are plainly impossible. Hence, the euro is not the answer to the question on how to stabilize the exchange rates, but to the question on how to break the monetary sovereignty of Germany.


Power and control

This thesis is not an accusation. It is a fact. The euro is the price Germany paid to France for its reunification. Before the wall fell, back in 1989, France was the leading economic power in Europe. It exploited the division of the two Germanys to tighten its grip on the European institutions. When suddenly the demand for reunification arises, it is confronted with the fact that it will have to play second violin again. That was not to the likings of the French political elite. The only means left open to maintain their power over Germany was by making them accept a common currency. If enough countries could print their own euro’s, and Germany was to deliver the biggest part of the fiscal backing needed to repay the debt, the euro would turn into a device to suck the lifeblood out of the German economy. For every euro of debt incurred, Germany would pay most of all. That way France could control German growth.

Of course, the story is not that easy. The way debt can be incurred is by voting for it in the ECB council, in which all the countries of the Eurozone are represented. It is situated in Frankfurt, where the Bundesbank is too. The Germans wanted it there, to keep a close watch on the European monetary policy, and by supporting Wim Duisenberg, a Dutch banker, it hoped to maintain its hard money policy. But democracy, in the end, comes down to two wolves and a sheep deciding what’s for dinner. France bought the votes of the other southern countries by promising them European Regional Development Funds, and started to steer policies away from the German tradition, and towards the French political goal of loose monetary policy.

In 2003, mid-term, Duisenberg resigned, and Jean-Claude Trichet, a student of the Ecole Nationale d’Administration – this is the school where France trains all its central bankers – took over. Since then, the German influence waned, and the democratic check on the speed with which the money supply could expand, loosened. By 2008 the balance sheet of the ECB had doubled in size. And that was before the crisis. With the treaty of Maastricht, in 1992, Helmut Kohl signed away Germanys monetary sovereignty. The gradual decline of that sovereignty is what we are witnessing now: Germany makes a lot of noise, but in the end, they have to accept what France has in store.


Slave, not master

There are many illustrations of the serving role of Germany. After the first bail-outs, a “temporary emergency fund” was installed, with Germany reluctantly participating. This European Financial Stability Facility quickly turned into a “permanent emergency fund”, in which Germany, nor any other country has any voice anymore. It is the French dream come true: a means of absolute power to subdue Germany, and in its wake, also the rest of the continent. Since its énarques (that is the name given to the students of the Ecole Nationale d’Administration) man the European Institutions, saying “European Union” is like saying “France”. And as a matter a fact, some high French dignitary expressed this Freudian slip, when he said that it was in the importance of France that the ESM should be installed, when he in fact should have said “Europe”.

The intention, meanwhile, is clear: to depict Germany as the boogeyman, while it is the one country that has, by virtue of its history, the best monetary mindset. In Greece, puppets of Merkel are being burned, and in Spain, nazi-crosses are being carried trough the streets, as if the demands for a sane economic policy is something nazi-ist. Meanwhile France acts as if it wants to protect the southern economies against this harsh German invader. The truth is, of course, that the welfare state is just another Fabian name for organized class war, not between capital and labor, but between tax producers and tax consumers. For decades now, politicians have bought votes by promising higher unemployment benefits, longer pregnancy leaves, and earlier retirement ages. They have passed the bill on to the next generation. My generation.


The future?

I hope to have given you a different take on the eurocrisis, which will enable you to see what I see. I see a continent in havoc, with people that do not know what the essence of value creation is: trade, and not power. I see how populism is on the rise, not commited by those who are accused of it, but by the accusers themselves. I see lies and propaganda. I see how the middle class is pauperizing. I see a population that only wants bread and games. I see Top Chef and the Champions League. I see an ageing population, with not enough youngsters to support them. And above all: I see the old international cleavages widening again, and don’t like it.

I hope that our generation will find inspiration in the works of Ludwig von Mises, Murray Rothbard, and Ayn Rand to do what is right in the chaos that is upon us.

Euro created to induce crisis and subjugate; no other reason

With all due respect, any dissertation of the euro as a legitimate entity is in vain.  The euro fathers had but one purpose for the currency, and that was to create a crisis (the very one that has been ongoing since late 2008, in fact) to induce the member states to give up their sovereignty.  (Save one member state, that is.)  Purely a power move.  Romano Prodi said as much back when the euro was first coming online.  Vladimir Bukovsky noted (on this very website, in fact) that the nature of the euro as a political currency is both bizarre and dangerous, calling it a "crazy idea".

I don't hear the author

I don't hear the author saying that the euro is legitimate.  Rather, I hear him saying it is a vehicle for the French administrative elite to exercise control over the Germans. 

Basic premisses are just not true

It's just not true that 'any member can print their own euros' and that 'no one is responsible for the purchasing power of the Euro'. Greece cannot just print 2 billion notes of 200 euro, stuff them in a train, send that train to Germany and expect to have paid of its debt.

I also feel the author exaggerates the influence of taxes and regulations on prices. Yes, they are somewhat different and it's likely their inefficiency supresses economic value creation somewhat. But the order of preference of goods by an individual is generally still well reflected through their prices with some notable exceptions, leaving the mechanism on what to produce or consume next mostly intact.

Another big problem with the author's article basic premisse is its focus on economic questions and disregarding political questions. Just as an economic free market is a system to search for the right tradeoffs in production and consumption of priceable goods, democracy is a system to search for the right tradeoffs in 'production' and 'consumption' of non-priceable goods (like the deep felt conviction of a religuous believer) or priceable goods where we can't enforce or even assign ownership (like the air) Sometimes these will clash and preferring political 'production gains' over economical 'production gains' is just as legitimate as preferring the other way around.

With regards the call for gold : if the author is really convinced that gold and silver best meet his 5 criteria, then he is free to use it exclusively. Nothing at all prevents the author from going to the bank right now, withdrawing all his euro/dollar/fiat currency holdings and converting them into a solid piece of gold (good luck with that divisability criterium though)

Meanwhile, since the author seems such a proponent of the free market, he can't fault me for freely deciding to store my wealth in a fiat currency and only accepting this currency should he wish to buy something from me or someone else. 

@ Bart

Political Production gains???

That sums it up nicely, difficult to find a better marxist expression.

@ Brecht Arnaert


To me this is the best summary of Europe’s political past of late and a projection of its fate. Having been done strictly by the use of economics/finance terms and categories, it is all the more convincing and hardly disputable.


I take pleasure personally with this material for yet another reason: a while ago I’ve launched the proposition to call all the “representative democracies” – whether real or virtual, like the Soviet Block states – Nomenklaturocracies, as they are each being governed by a “political elite” which pretends (or in some cases just usurps the entitlement) to govern in the name of its people. To some my claim that single-party vs multi-party Nomenklaturocracy is just the same as the cis- vs trans- version of the same organic compound sounded as next to blasphemy. Well, not anymore: you’ve just provided the criterion – in the Soviet Block the Central Planning (CP) was equal to 100%, while the rest feature CP<100%. Hence if you allow me to elaborate in a bit of a math around your rule,




where F would be the speed of arrival of failure, CP is the integer representing the percentage of Central Planning, and k=const. So, now we know why the Soviet system collapsed first (the propaganda had it different then, but at least you and I know better). And we know for sure the rest is doomed, too, in the order of the degree to which CP is being implemented.


Thanks for this excellent piece of analysis!