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Commentary :: Globalization
Saving a Failed System
24 Aug 2012
class war
Saving a Failed System

by Stephen Lendman

Combining 17 dissimilar countries under one monetary/fiscal system assured disaster waiting to happen. One size fits all rules don't work. Euro expert Bernard Connolly knew it before the euro's 1998 introduction.

Saying so cost him his job as EU monetary affairs department head. He called the euro system a harebrained idea doomed to fail. He was years ahead of his time.

Since 2008, one crisis conditions deepened. Stopgap solutions buy time but nothing else. Massive money printing keeps wobbly Europe afloat but for how long. Bailouts, rescue plans, debt monetization, and other forms of money manipulation haven't made sick economies healthy.

Prosperity remains elusive. Money used for zombie banks and speculation sacrifices growth and millions of households with it. Debt problems can't be solved by adding more to existing amounts.

Financial expert Martin Weiss calls the West's financial crisis a debt monster. America and Europe face similar problems. Current US debt levels are three times what they were four years ago, six times greater than in the mid-1990s, 10 times mid-1960s levels, and hundreds of times compared to earlier periods.

There's no way to hide or fix it with bad policies. It exceeds GDP. Washington owes about $1.05 for every product and service dollar produced by all local governments, companies and individuals.

America is "passing a point of no return," says Weiss. It's "beyond which any new government initiative to end the crisis will probably just make it worse." Festering financial problems constitute "the definitive crisis of our generation."

Instead of responsibly addressing them, bipartisan complicity assures worsening, not improving conditions. Western economies are declining, not prospering. Europe's worse off than America.

ECB policy failed dismally. Throughout 2011, it intervened in bond markets. LTRO (Long-Term Refinancing Operation) 1 and 2 schemes provided over one trillion euros to troubled EU banks. They also got other liquidity windows.

Greece, Portugal, Spain, and Ireland got bailouts. Much more is needed. In the process, the ECB ballooned its balance sheet above 3 trillion euros. It's 30% more than Germany's economy. It's Europe's largest.

Everything tried so far failed. Time alone was gained. Crisis conditions aren't resolved. Solutions aren't rocket science. They're avoided to give zombie banks more money and keep failed economies afloat but not fixed.

Greece's debt crisis exploded in early 2010. Billions poured in to help. Conditions now are worse than earlier. Athens faces another major budget shortfall. It's greater than previously estimated.

Germany's coalition government rejects additional bailouts beyond ones already approved. German Finance Minister Wolfgang Schauble also rejects more aid. "We can't put together yet another new program," he said. "It is not responsible to throw money into a bottomless pit."

If tiny Greece can't be saved, how can Spain, Italy, Portugal, Ireland, and other troubled Eurozone nations combined?

ECB President Mario Draghi promised whatever it takes to preserve the euro system. Earlier policies tried failed. What new tricks hasn't he tried? Perhaps none but he dare not say.

He can keep binge money printing. He can't buy sovereign debt without European Stability Mechanism (ESM) authority. It's proposed, but not in place. If created, it's a permanent bailout fund.

Creation depends on Germany's Constitutional Court and parliament. Judges must agree to change German constitutional law. At issue is will they or won't they without required national referendum approval.

If approved, parliament must then act. In mid-September, another moment of truth approaches. Legislators will act one way or the other.

Massive money printing means future inflation and a much weaker currency. German officials strongly propose monetary madness.

Eurobonds issuance is another possible scheme. Angela Merkel said no "as long as (she) live(s). She means it. Doing so violates Germany's constitution. Doing so may cost her reelection. Germany's AAA credit status would also be at risk.

It's debt/GDP ratio already is too high at around 90%. Hundreds of billions of backdoor bailouts exacerbated its problems. Germany's pockets aren't deep enough to endlessly supply more.

At the same time, if its parliament ratifies the ESM, it's on the hook for nearly another 200 billions euros as well as around one trillion in committed bailouts. Germany's GDP is around 3.5 trillion euros. It's heading for its own solvency crisis.

Europe is a disaster waiting to happen. Central banks aren't omnipotent. They can print money. They can't save the world. They've let crisis conditions fester and grow to save zombie banks. They need to be nationalized, broken up or closed.

Economics Professor Yanis Varoufakis accuses the ECB of being complicit in a macro-financial crisis. Pre-2008, it featured "Ponzi growth." Now it's "Ponzi austerity."

Toxic money schemes created "irreversible" insolvent banks. Bailouts conditional on austerity delay inevitable defaults. In theory, the ECB was created to be "the only serious" Eurozone institution. Its mandate is to protect and guard the euro's credibility. It failed dismally before and after 2008.

It's "part and parcel of this crime against the peoples and spirit of Europe." Now that chickens are coming home to roost, Draghi pledges whatever it takes to save things. So far, deeds haven't backed up words.

Some analysts think he's bluffing. Varoufakis attributes ECB failure to "its most powerful constituent part, the Bundesbank." It hasn't so far agreed to two potentially normalizing operations:

(1) capping peripheral country spreads via unlimited bond purchases, and

(2) an EFSF/ESM (European Financial Stability Facility/European Stability Mechanism) banking license with a commitment to recapitalize banks directly.

The Bundesbank slammed Draghi's plan. It said bond purchases entail "considerable risks for stability." Perhaps it's signaling that Germany's monetary soul matters more than saving Greece and other peripheral countries.

German banks refuse to submit to ECB "scrutiny." It's inevitable under ECB EFSF/ESM mandates if adopted.

Draghi "is participating in a huge game of (Ponzi austerity) deception." He signaled readiness to sidestep Bundesbank objections provided Angela Merkel agrees. His scheme "is bound to fail."

He doesn't have enough ammunition to bail out troubled PIIGS countries, let alone all Europe. Draghi is "hapless," says Varoufakis. He's forced to choose between "a walk-on part in the unfolding tragicomedy of Ponzi austerity and a bond purchasing scheme whose failure is foretold."

Instead of adopting workable policies, why is he hardline for measures sure to fail? One reason is that Germany and other surplus nations (Finland, Austria, the Netherlands) won't approve policies that bind them irreversibly to the euro.

It's not about not wanting to stay. They won't surrender bargaining power and option to leave. One day perhaps they'll have no choice.

Germany is Europe's strongest economy. It's the ECB's most important backstop. It doesn't have the capital or inclination to prop up all Europe. It won't risk hyperinflation doing it.

Neither can Draghi on his own rescue Europe. Saying he will is bluff. Markets rally as much on hope as reality. Eventually one catches up with the other. Expect day of reckoning time to be painful.

Troubled EU countries may topple like tenpins. Expect sickest ones to tumble hard. The longer real solutions are delayed, the harder they'll fall. If Spain and Italy go, watch out.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen (at)

His new book is titled "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War"

Visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
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