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How to fix Europe’s Financial Crisis

2011 September 11
by Ian Welsh

It’s not complicated.  It’s just unthinkable.

1) Let the banks go under if they’re bankrupt.  Make their private owners take the losses.

2) Refloat the banks, this will cost a TON less than having governments pay of private losses.

3) For countries with “unsustainable” debts after doing this, roll the debts over into 100 year bonds at 1% interest.  If the bondholders don’t like that, that’s just too bad.  No, they won’t “strike”, neither Iceland nor Argentina have any trouble getting loans.

There are other things which should be done, but that’s the basics.  This is not complicated.  It just requires being willing to stick the bill for the financial crisis with the people who caused it, financial elites.

Oh, and every economy can’t be Germany.  Everyone can’t be in a trade surplus.

26 Responses
  1. StewartM permalink
    September 11, 2011

    No, they won’t “strike”

    What, can’t they “go Galt” on the rest of us? That’s not what they say. /snark.

    StewartM

  2. Bolo permalink
    September 11, 2011

    They could also just drop the Euro and reissue their own currencies, though I suspect the fallout from that would be a bit bigger than your plan…

    Should also note that Iceland and Argentina maintain their own currencies and so are technically never insolvent, while Europe shares the Euro and thus any individual nation will have to finance its debt in a foreign currency that it can’t legally control. I’m not sure if bondholders’ attitudes toward these two countries reflect this knowledge, or if they’re generally ignorant of it and just don’t care either way.

  3. Ghostwheel permalink
    September 11, 2011

    As usual, what’s lacking is not the means or the knowhow, but the political will.

    Same old, same old.

    I’m going to start a commune on the moon. Who’s with me? :)

  4. September 12, 2011

    Solving the deficit “crisis” is just as simple obvious (tax the rich put the unemployed to useful work). But apparently the crisis is not that critical that we need to raise taxes on the rich, not when stealing modest yet hard earned pensions from old people and withholding basic medical care from the less than fittest are still options.

  5. Celsius 233 permalink
    September 12, 2011

    But, but…the horror!
    Shouldn’t that have been the same for the U.S. of A.?
    I thought so…

  6. September 12, 2011

    (tax the rich put the unemployed to useful work)

    The problem for Greece etc is that the Greek rich can abscond in a trifle with all their wealth—far more easily than even the US rich can.

  7. kaleidic permalink
    September 12, 2011

    Fine, take away their citizenship and passports.

  8. BlizzardOfOz permalink
    September 12, 2011

    Capital controls. It’s not complicated, and it’s the patriotic thing to do.

  9. September 12, 2011

    Everyone can’t be in a trade surplus.

    Well, aren’t we Mr. Pessimism today? ;-)

  10. anon2525 permalink
    September 12, 2011

    It would be interesting to know what Greece can offer for export in exchange for what they need or want to import. That would give some indication of what the impact of leaving the neo-liberal credit regime would be. How far will Greek standard of living fall if they leave (or are pushed out of) the eurozone? Likewise for Portugal and Ireland.

    Of course, a big part of the reason for the “austerity” policies is that the neo-liberal socioeconomic class does not want to leave their credit-fueled expensive lifestyles of consumption and travel. They might have to work for a living.

  11. September 12, 2011

    @Ian:

    It’s not complicated. It’s just unthinkable.

    @Ghostwheel:

    As usual, what’s lacking is not the means or the knowhow, but the political will.

    Same old, same old.

    Yup. “Simple vs. easy,” again.

  12. anon2525 permalink
    September 12, 2011

    Oh, and every economy can’t be Germany. Everyone can’t be in a trade surplus.

    Maybe not even Germany. Without credit-fueled consumption, who will buy the German manufactured goods at the prices that Germany wants to sell them?

  13. Ian Welsh permalink*
    September 12, 2011

    Capital controls aren’t impossible to impose. Especially if the rest of the EU and/or the IMF cooperates. So no, they can’t necessarily abscond. And a lot of assets aren’t all that liquid.

    The line about elites running away is propaganda, just like in the 90s it was supposedly impossible for anyone to default without being crushed — until Argentina did it (and one of their main concerns was how to stop capital flight, btw. By and large they succeeded.)

  14. Jean Paul marat permalink
    September 13, 2011

    It is 475 AD, next year is 476AD.
    Did the Romans suddenly all leave?
    Did the Romans suddenly stop farming?
    Did all trade suddenly stop? No.
    Every year just gets a little worse until the Forum collapses and the stones are pillaged for pig stalls.

  15. madisolation permalink
    September 13, 2011

    Greece should default now. Charles Hugh Smith at Business Insider wrote:

    “Greece should respond to this planned predation with complete and total default: not a “haircut” or “extended terms,” a complete and total refusal to pay any of the debt.

    We are constantly warned that the resulting collapse of the “too big to fail” banks would trigger a global implosion. That is false; life would go on after the predators declared bankruptcy and were liquidated. What the predators fear most is an awareness that any disruption in normal life would be brief and relatively painless compared to the vast suffering imposed to render them their pound of flesh.”

    http://www.businessinsider.com/greece-please-do-the-right-thing-default-now-2011-6

  16. anon2525 permalink
    September 13, 2011

    Greece should default now. Charles Hugh Smith at Business Insider wrote:

    Why won’t “Greece” do that? Does CHS offer any information or insight?

    Is it because Greece’s political/professional class sees its interests as being tied to the non-Greek banks instead of with their country and fellow countrymen?

  17. Ian Welsh permalink*
    September 13, 2011

    Yeah, default is acceptable, for sure. So is going off the Euro.

  18. Everythings Jake permalink
    September 14, 2011

    @anon2525

    “Why won’t “Greece” do that?”

    Why can one barely find info about Iceland’s response to the global financial crisis (toppling its complicit government, rejecting payment of bad debt, doing just fine)?

    Aside from the fact that a Greek default topples the rest of Europe’s banks, that wiping out debt may actually be a real solution has to be suppressed for as long as possible wherever the thought arises. People might begin to think that austerity under which the poor and the vast majority of the middle class falling into poverty to protect the rich from their folly wasn’t a good idea.

  19. Celsius 233 permalink
    September 14, 2011

    Jean Paul marat PERMALINK
    September 13, 2011
    It is 475 AD, next year is 476AD.
    Did the Romans suddenly all leave?
    Did the Romans suddenly stop farming?
    Did all trade suddenly stop? No.
    Every year just gets a little worse until the Forum collapses and the stones are pillaged for pig stalls.
    ==============================
    A true voice of reason! Well done. But is it a valid comparison?
    Unfortunately, this isn’t 475AD; but it does strike a chord, no?

  20. September 14, 2011

    Greece has become the Cadillac-driving welfare queen of German politics. Germany won’t throw over its banks for Greece, but it won’t bail out Greece directly either, and it won’t accept the inflation/devaluation necessary to make the marginal parts of the EU competitive. The only option is a Greek default and Euro exit. German politicians are already talking up this option, even if Merkel won’t.

    In fact between Merkel and Schäuble, the ideal situation for Germany has already been made known: keep Greece in the Euro without bailing it out. ie having your cake and eating it too. That means putting older Greeks on ice floes in the arctic and selling off the Aegean islands.

    If you know anything about Greeks—another me spent a couple of years on a board with a lot of virulent Greek nationalists more than a decade ago, don’t ask—this is not in the cards.

  21. September 14, 2011

    Is it because Greece’s political/professional class sees its interests as being tied to the non-Greek banks instead of with their country and fellow countrymen?

    Yes, and as I said, it’s worse: it’s not the case that they have assets that can be held for ransom in Greece. The only tax cow is the “immobile” part of the middle class which can’t keep Greece afloat by itself. Greece is not that industrial, and you can be sure that the Greek rich don’t keep their major assets in Greece or possibly even Europe. Germany made a killing selling to Greece when Greece, etc, were suddenly given a currency that made German goods consistently cheap. Keeping Greece un-industrialized, and the wealth of its rich fairly liquid.

    Turkish politicians must be laughing and/or sighing with relief.

  22. Jean Paul marat permalink
    September 14, 2011

    Maybe it is 475 AD.
    The vandals and Goths are at the gates.
    Just waiting for the final sack of the treasures of Rome.
    Tommorow the Forum is privatized for pig stys.

  23. Leon permalink
    September 16, 2011

    The answer is blindingly simple
    DROP THE DEBT
    food will grow the world will turn nothing real will change.
    Just a very small amount of very rich bankers will get just a fraction less profit than they expected.

  24. Celsius 233 permalink
    September 16, 2011

    Leon PERMALINK
    September 16, 2011
    The answer is blindingly simple
    DROP THE DEBT
    =====================
    None so blind, as those who won’t see.
    Stupid human tricks seem to be at epidemic proportions, no?

  25. September 17, 2011

    FDL liveblogging the Wall St. occupation.

  26. September 21, 2011

    It would be interesting to know what Greece can offer for export in exchange for what they need or want to import.

    (i hope that works)

    every country has something to sell, something to offer, something to trade. every last one, even places like the Sudan. like with all ‘consumer’ based economies, it’s a matter of good marketing, planning, and suitable gov’t support of developing industries which take advantage of what ever a nation’s natural ‘resources’ may be. greece is really, really easy. it’s called “tourism.” would you like to see Naxos? Crete? the birthplace of Socrates and Theseus? etc? of course you would. if you could afford to go there, it would be someplace on your list of annual vacation destinations. i hear they’re pretty good with fish, wine, olives and cheese over there as well.

    just because a nation isn’t happening to do well at the moment, economically speaking, doesn’t mean it has “nothing” to trade. as i mentioned, the Sudan could become a powerhouse in say, fine glass and tile, given all the sand they have there. it’s always a political will sort of question, not one of resources. there is nothing your area has “too much” of that someplace in some other part of the world “lacks.” artificial levers and pressures are why places as naturally rich as Africa or parts of Asia are poor, not because they don’t have anything to sell. hell, if you want to be brutal: a nation can always even sell its own people. when i was in london somewhat recently i was really struck by that; there were so many euros from other countries working there it hardly felt “british.”

    all “economies” are false constructs based on false assumptions which have to do with things like war, currency trading, “the markets” and other non-existent crap. in the end, there’s always “enough money to make the world go ‘roud” for all of us. it’s the folk who bottleneck it who are the problem and that’s only a tiny handful of the world’s population, at any given time.

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