Once again, George Soros exhorts European leaders to save the Euro. But what does this curious phrase ‘Save the Euro’ actually mean?
The Euro is not like the Giant Panda: a cuddly creature that ornaments our world. The Euro is not one thing. It is different things to different groups. It’s a currency used in day to day transactions by people who live in a group of semi-sovereign nations. It is part of the underpinning of the European political experiment we call the EU. It is a settlement currency which rivals the Dollar. As such it is part of Europe’s challenge to American hegemony both financial and political. It is the currency in which a huge amount of wealth is denominated. And last but by absolutely no means least it is one of the global currencies in which a truly titanic amount of private and sovereign debt is denominated.
So when George Soros and various politicians and bankers insist on exhorting us to ‘Save the Euro’ might it not be helpful if they could at least be clear what exactly they have in mind to be saved, who will benefit if it is, who will lose if it isn’t and who will pay either way?
One question we could ask about the Euro is what exactly will be lost if the Euro were not ‘saved’? Funnily enough, given all the Chicken Little hyperventilating and shrieking of our political class about the end of civilization should the Euro collapse, nations do not depend on the euro. Certainly they would be disrupted and there would be widespread suffering if their currency collapsed. One look at Germany between the wars makes that clear. But it also makes rather clear that nations and their people continue on.
It’s an interesting thing about currencies, that because we use them to buy things day to day and get paid in them, we equate currencies with wealth. But when talking about a nation of people, a political and cultural entity, it turns out that the wealth of nations will not be lost if the euro dies. But their debts could well be. And this, I think, is a clue to the panic that emerges - in certain quarters - when default or collapse of the euro is mentioned. It is also one fairly simple thing amidst all the confusion and intimations of doom.
Currencies do not create wealth they merely denote it and allow its exchange. On the other hand, debt actually depends on the currency in which the debt contract is written. Wealth comes from productive activities. Debt comes from honouring an agreement to pay someone an agreed amount. Wealth creation carries on after a currency collapses and soon enough a new currency takes over the job of conveying arbitrary units of the wealth created. Again please see Germany or any other nation – and there are many – who have defaulted or whose currency has collapsed. Debt, however, either does not survive the death of the currency in which it was agreed or does so as a fragment of its former worth.
It is a troubling aspect of our present financial and political situation that there has been a tendency, I would say a deliberate desire, to confuse wealth with debt; to present them as flip sides of each other when they are, in fact, entirely different. Why should this be? Well it might be because much of Mr Soros’ wealth, the wealth of the institutions he owns shares in, the wealth of banks and other financial institutions and the wealth of those who own and run them, is tied up in debt agreements of one kind or another. Your wealth and mine is probably in sovereign issued ‘money’. Most of us don’t have investments. Many don’t have savings to speak of. The wealth of the top 10%, on the other hand, is tied up in debt of one kind or another.
Since the advent of securitization, that process whereby debts can circulate as a form of currency, which can be used as collateral for issuing loans and can be counted as capital, debt has become a larger repository of wealth than sovereign currencies. Why do you think no one talks about the money supply the way they did in the 80’s? Governments do not control the money supply. The issuers of private debt control it.
This may seem an odd claim, but the amount of debt issued by private banks denominated in euros, dollars, yen and Yuan, is far greater than the amount of those currencies issued by the sovereign nations. Derivative agreements denominated in sovereign currencies run to the tens if not hundreds of trillions.
Were the debt backed currency in which those privet debt agreements are denominated to collapse, then those agreements would be worth very little, if anything. They would be like finding a parchment of a debt owed in golden pazoozas from a long lost kingdom. Good luck cashing it.
I suggest that it is not a concern for the people of Greece, Spain or indeed any of the people’s of Europe that fuels concerns among the banks and the super wealthy about the Euro and its future. If the Euro were to evaporate what would happen to all of their wealth that is tied to debt agreements denominated in Euros?
Now of course people will argue that were the euro to collapse then Greece or Spain would be thrown into the street, so to speak, with nothing in their pockets and no one would lend them a dime for their daily bread. On a larger scale it is argued that civilization would become paralyzed were the Euro to go bust.
Let’s get a few things straight. First, Europe is one of the three largest economic entities in the world. If we think JP Morgan is too big to fail, what do you think that makes Europe?
If any nation were to be ejected from the Euro it would survive. The fate of the Euro and the wider European Political experiment would be more drawn out. The country involved would issue its own currency and yes it would find it difficult to borrow. But then again as a sovereign nations with its own currency it would, once again, be able to do what neither Greece nor Spain nor Ireland can currently do: print. Would its newly minted currency become instantly worthless? No, of course not. Would it be worth less than the Euro? Yes.
The nation with its new currency would find it was less able to borrow and that imports would be expensive. On the other hand exports would be cheaper by far. And the currency it would print would allow its citizens to continue to carry tokens of their productive labour around with them and exchange them with other citizens. Greece should take a look at Iceland.
I think the fall out would be more profound for the remaining Euro zone than it would be for the ejected country. For a start if one country goes it is quite likely others would follow. If any of them had any sense they would make common cause and find themselves part of another grouping who would not be as powerless as our present leaders would have us and them believe.
Although that is a large statement to make I feel it justified because the nation involved would still be able to produce wealth. What is more it would do so without the crushing burden of its debts. Many of those would have gone much like a bad smell in a healthy breeze.
It is worth remembering that there is international precedent for debt commissions to look at a nation’s debts and dismiss those found to be odious. The idea of a debt commission was in fact discussed by the US government as a way of helping in the ‘liberation’ of Iraq. The discussions only stalled, it is said, when it was pointed out that many of the odious debts were held by US banks.
But what about the remaining Euro countries and the European Union project? Could it survive the exit of one or more of its members?
According to John Mauldin in his article, “The Bang! Moment is now”,
Europe is down to two choices. Either allow the eurozone to break up or go for a full fiscal union with central budget controls.
I agree those are two possible choices, but I think he is wrong to declare they are the only two.
This crisis is not about which countries leave the Euro or which countries default on their debt, it is about which countries remain in the Euro but continue to bail out the bad private debts of their banks. If our leaders insist on saving the private debts in the private banks within the Euro system then it will break apart.
It is too easy to become transfixed by Greece and its public debts. Spain is far larger and its problems are private debts not public ones. The same is true for Belgium Ireland and Cyprus. Sure, the private debts have been made public but such debts can and should be repudiated and thereby thrown back on to the private parties who were feckless enough to make the bad loan agreements in the first place.
On the charade of national agency, Tony Curzon Price argues that,
The game is up not because Europe has won, but because the powerlessness of the nation is being revealed. Watch Rajoy, Hollande, Merkel, Holande, Tsipras and more trip form crisis to crisis as they try to wear the myth of power to the very end.
I agree this crisis has shown the powerlessness of the nation. But for me it is powerlessness not in the face of Europe but in the face of international finance. And the powerlessness is not so much financial as political.
There is simply no political will to force the losses to be taken by those who made them. But this, we are told, we cannot do. But we can. We put men on the moon and brought them home again. It is not beyond us to close insolvent banks and open new ones. We need a banking system. But it does not have to be made up of the banks, the insolvent banks, that we currently cripple ourselves trying to ‘save’.
Would this destroy the Euro? It might. It would certainly destroy much debt backed wealth that is currently held by the wealthiest 1% and is on the balance sheets of Europe’s largest banks. And of course if any nation did leave the Euro then those banks holding their sovereign euro debts might have a hard time collecting those too.
The Bundesbank could find itself holding agreements under Europe’s Target2 agreement, whereby central banks hold IOU’s from other central banks and nations, amounting to over €600 billion that were in a currency that no longer existed. That alone is reason to expect that the Euro will survive in some form.
Of course this is just one aspect of a complicated situation. I understand that. But I think in a world where it suits some to have as much confusion as possible and for economic matters, especially concerning their wealth and our debts, to be presented as being too complicated for us ‘little people’ to follow, let alone have an opinion about, it is important to sometimes hold on to certain simple facts. Like a torch on a dark night, even though they leave most things still shrouded in darkness, they do at least illuminate a way forward.
Our present crisis is one of democracy even more than it is of finance. It is about a lack of honesty as much as it is a lack of growth. Debt and dishonesty are together strangling European democracy.
We should rid ourselves of both.
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