Welcome To The Hotel Europa…
On Friday, in This is the End of the Euro, I said: The euro has become a cage, a prison for the poorer brethren. The finance minister proposed by 5-Star/Lega and refused by Italian president Mattarella, Paolo Savona, has called the euro a German cage.
There are now stories spreading that the coalition, Savona first of all, were secretly planning an exit from the euro. A series of slides Savona prepared in 2015 on how to exit the euro is used as evidence of that secret plan. But the slides are not secret. Yes, he has said that it’s good to have a plan to leave ‘if necessary’. But that’s not the same as secretly planning such a move.
Every country should have such a plan, and you would hope they do. A government that doesn’t is being very irresponsible. But it’s true, this is how both the EU and the euro have been designed: not just as a prison, but as a prison without any doors or windows. No way to get out. And that will prove to be its fatal flaw.
It has more such flaws, for sure. The inequality of its members, which allows for the richer to feed on the poorer, is a big one. The US founders were smart enough to provide for transfer payments from rich to poorer, the EU founders couldn’t be bothered with that lesson. They must have studied it, though, and rejected it.
Credit were credit’s due: Yanis Varoufakis said it best when he compared the EU to the Eagles’ Hotel California. A few lines:
Mirrors on the ceiling
The pink champagne on ice
And she said “We are all just prisoners here, of our own device”
And in the master’s chambers
They gathered for the feast
They stab it with their steely knives
But they just can’t kill the beast
Last thing I remember
I was running for the door
I had to find the passage back to the place I was before
“Relax,” said the night man
“We are programmed to receive
You can check-out any time you like
But you can never leave!”
The EU was set up as some kind of eternal prison, a concept most familiar to us in the way Christian churches depict Hell, or the ancient Greek mythological story of Prometheus, who, as punishment for providing man with fire, was condemned by Zeus to being tied to a rock, with an eagle feeding on his liver every day, for eternity.
Rule number 1 for any organization: there must always be an escape, a way out. If there isn’t, that’s what will break the whole thing in the end. Think Leonard Cohen’s “There a crack in everything; that’s where the light comes in.” Every system must always be designed with inbuilt redundancy.
Paolo Savona understands that, and he said there must be a way to leave the euro. For Brussels and Rome, that means he’s not acceptable as a finance minister, no matter his competence, experience or credentials. It reeks of desperation on the ‘establishment’ side more than anything.
And now the entire financial world is in panic and turmoil. It’s ironic to see people decrying the sudden weakness in Italian “sovereign debt” at the same time they see pointed out, as if that were still necessary, that Italy is no longer a sovereign country. Think maybe there’s a clue to be found somewhere in there?
Italian bonds are falling so fast traders get vertigo. At what point will Mario Draghi be held accountable for the enormous losses this causes on the ECB’s books?
But fear not: the elites simply blame the whole thing on the people elected in Italy. Yes, that means they blame democracy. For daring to provide an election result that threatens their powers. And no, there is no other way to define what is happening than as a coup.
Italy will soon have all the characteristics of an emerging market. Which is a market from which no one can emerge in an emergency, according to one Don Cowe. I read that the six largest Italian banks together have €143 billion in Italian debt securities on their balance sheet. Systemic banks in the rest of Europe, mainly France, Spain and Germany, have €137 billion of Italian debt on their balance sheet. God only knows how much Mario Draghi holds:
That is one scary chart. And no, that is not the fault of 5-Star/Lega. It’s the fault of the European Union founders, and of its present ‘leadership’. What 5-Star/Lega have done is expose the stark-naked emperor. And the little boy who called out that sovereign didn’t undress him; he went out without any clothes on all by himself.
Varoufakis called out the naked emperor Brussels in 2015. Paolo Savona did so multiple times as well. The emperor’s reaction? Shut up the little boy, not get dressed. But the lesson contained in The Naked Emperor story is that there will always be another little boy to call him out. Shutting up the boy doesn’t solve the problem.
Greece and Italy are where western civilization was born. It appears wonderfully fitting to picture the EU at present as the German eagle picking at the southern European Prometheus’s liver for eternity. All the more so because Prometheus in Greek mythology was the champion of man: he first made man from clay, stood against the gods in favor of mankind, stole fire to provide it to man, and got punished for eternity for it.
The EU and euro cannot survive in their present state. But those who benefit most from both are also the ones who can stop either from undergoing desperately needed changes. That’s Hotel Europa.