Thomas Kirchner on Europe and the Euro

Eurointelligence alerts us to this article by Thomas Kirchner, and speculates that we may hear more along these lines in the months to come.

42 replies on “Thomas Kirchner on Europe and the Euro”

Thanks for the link Kevin

Eurogroup finance ministers have been complaining that Varoufakis has been delivering macroeconomics tutorials at their meetings. This is encouraging news, they should listen.

If ‘muddle through’ is not politically viable, the options are to create a proper monetary union or, as Kirchner recommends, start thinking about the abandonment of the experiment before the markets do. Anyone who thinks the current dispensation is, with or without Greece, a path to any kind of financial market equilibrium is deluded.

It seems to me as if there is something of a Catch 22 about dismantling the euro in an orderly manner. It’s difficult for anyone with authority to consider it in public without already having a plausible implementation strategy, and it’s difficult for anyone with authority to develop a plausible implementation strategy without a good bit of public discourse.

Perhaps this is an area where public intellectuals could usefully shine, by proposing and promoting strategies for the euro’s orderly dissolution.


the Rock star is delivering tutorials in Applied Marxism. Nobody is listening. Same as my undergrad career more than 30 years ago.


The man in the leather jacket spoke at INET in Paris a couple of weeks back and at Brookings this week. Take a look.


why bother? Greece has run out of road and other countries tax payers. It is the sovereign version of the Norweigan Blue.

For anyone interested!

Our two heroes may emerge triumphant. A crash and burn seems a definite possibility. (The saga of Icarus comes to mind. The near impossibility of avoiding such mythological references is a measure of the depth of Europe’s cultural debt to Greece). More likely, however, is a camouflaged capitulation.

The conflict now has parted company with the issue of the euro as such. There surely has to be recognition at some point, by the academic world in particular, that the entire edifice of international finance is built on the principle of pacta sunt servanda. The institutions, on the failings of which our two heroes lecture, are not going to agree to the Greek approach not because the are unwilling to do so but simply because they cannot.


To your point, there would be a revolt among the taxpayers of most of the rest of the EU if there was a continued bail of Greece. The Greek model of cushy state jobs doing nothing, retiring at 55 and not paying taxes while borrowing from other EU taxpayers is kaput. The Swabian housefrau, Finnish forester and Slovakian car worker up with this will not put.
If the Greek govt wants to turn their country into Venezeula or Zimbabwe, the rest of Europe should not stop the process.


The good old Irish don’t need anything for other countries taxpayers though do they. Take a walk into crumlin children’s hospital and the capitulators (together with the wasters that preceded them) should hang themselves in shame when they talk about how well this country is doing. Ireland are a lot like a utility provider (think eircom) that has a network badly in need of investment, that is creaking at the seams but in the positive column it has a reasonable looking balance sheet (if you ignore the debt burden) due to years of significant cuts (again eircom) and scaled back investments. The balance sheet eventually can not hide the rot beneath the prolonged period of underinvestment – a strategy that is driven by the imperatives of the “today”, that running to (apparently) stand still is the only option when you are weighed down by a debt burden and the ridiculousness of the fiscal compact. Greece may well do the germans a favour getting out of the euro but more importantly they will be doing their citizenry a far bigger one in the long run.

I think it would be more accurate to say that the entire edifice of international finance is built on the principle of pacta sunt servanda up to the point where it is not. Greece has passed that point at multiple points in its history, most recently with the PSI (private sector involvement) episode, as have many other countries including past incarnations of Germany. A very large part of the purpose of the existence of the IMF is to allow governments to ditch unsustainable past commitments in an orderly manner.

A relatively humane approach to sovereign insolvency is one of the great achievements of the post-war world. It is utterly distressing to see European institutions and supposedly civilized European governments determined to dismantle it, and even to reinvent history by denying its existence.

@ colm mccarthy

Watching Yanis Varoufakis in the Brookings presentation, I just wonder if Greece could have set the conditions for a better deal than it’s likely to get if it had spent the past 3 months in quiet discussions with its partners.

Enduring flaws in the euro system are for another time in response to a new crisis that may break out in the long-term in response to what looks lie permanent low growth.

There will not be a cut in Greek’s sovereign debt but what does it matter when servicing costs are very low and the lowest historical interest rates since Babylonian times may persist for years.

In the presentation, Varoufakis spends almost 18 minutes on various grievances but also acknowledges failures in Greece. However, he does not outline how Europe’s most closed economy will dig itself out of a hole.

There is of course reform fatigue and Varoufakis refers to:

“chronic malignancies”

Current account surpluses/ beggar my neighour policies in Northern Europe;

“Ponzi growth,” “Ponzi austerity”

“experimental lab”

“9% of bailout loans went to the real economy”

“democracy should also matter”

“dead keen to come to an arrangement”

“New Deal for Europe”

In Washington DC, Varoufakis was introduced by Kemal Dervis, a former minister of economic affairs of Turkey and World Bank official, who had to deal with an economic crisis more than a decade ago. Turkey had serious problems but it has had an impressive recovery – between 1992 and 2012, trade with neighbouring countries increased 23-fold from $4 billion to $93 billion.


The current Greek government does not want to ditch its unsustainable past commitments – in fact they want to increase them. One of their long term goals is to pay the mortgages of people who can’t afford them. Sounds lovely, if you can afford it.

Might I also take the opportunity to let the readers of this site know about yet more fantastic employment data from the UK. Unemployment down to 5.6% and employment levels in new record territory. Theory-based readers should not be alarmed, all these ‘facts’ relate only to the boring old real world and do not undermine the predictions made by Das Kapital in any way.

I’ll add that it is quite blatantly hypocritical of official Europe to talk of pacta sunt servanda, when the history of the crisis is that that it has manipulated seniority of liabilities repeatedly to favour its own interests on occasions when funds looked like coming up short. The ECB’s practice of unilaterally raising the seniority of secondary market bonds when it purchased them has been particularly unsavoury.

My point was not just about Greece. The global principles for resolving sovereign debt crises established since WW2 are under attack as a consequence of what has happened in Europe.

That said, Greece is transparently trying to ditch past commitments, whether through write-downs or through debt reprofiling asymptotic to perpetual zero coupon bonds.

@ Tull

2Tn E is neg yield and nothing to do with Greece. If you were a bond manager would you go negative “for the currency upside” LOL ? CH the latest to go below zero.

QE is too low, too close, too late and deflationary anyway

@ JF

The Phillips curve is banjaxed so unemployment without wage inflation is pointless growthwise. UK inflation is ZERO.

Phillips developed his curve in the 70s when unions had power.

@tull: Being ignorant is not so much a shame, as being unwilling to learn.

colm mccarthy Says:
April 17th, 2015 at 12:08 pm

The man in the leather jacket spoke at INET in Paris a couple of weeks back and at Brookings this week. Take a look.

tullmcadoo Says:
April 17th, 2015 at 1:41 pm

why bother? Greece has run out of road and other countries tax payers. It is the sovereign version of the Norweigan Blue.

The Rock Star reminds me of Geoffrey Howes dismissal of economists-knowledge of every position in the Kama Sutra but knew no women or an exponent of game theory who can’t play 26s. Pity as it is gonna cost 11m people.

The Rock Star speaks truth to power.
Sarko said in 2011 he wasn’t elected so France would suffer the indignities of Ireland and Greece. Mais oui.
The endgame will be brutal. Too much debt. Detroit redux.

It seems to me that the judgement of history on the new Greek government will be harsh. A more aimless, clueless administration would be hard to imagine. It gains full marks, however, for obduracy in the face of the fact that it is running out of money.

Former economic professors are playing a leading role. It is doubtful whether their performance is doing much to enhance the reputation of the discipline, already in deep trouble cf. John Kay of the FT.


It is a comforting thought! However, the record shows that the interests of taxpayers, whether they be in creditor or debtor countries, are not the decisive consideration. In a world of fiat currencies, everyone is operating on the basis of what are, in essence, IOU’s. Unless it is absolutely clear that these will be honoured they are as valuable as the confetti in which Draghi was showered at the most recent ECB meeting.


‘.. an undergraduate career …’ Wonderful newz!

Prey tell, which progressive Hedge School did you attend in Kingstown where you all blithely ignored the lectures on ‘applied Marxism’?

Any connection with your preference for bright yellow bellbottoms and true blue hoodies?


Germany maintains a nationalistic right wing intellectual (sic) small elite that pines for a neu-romantic-reich – there were other variants around in the 20s and 30s and their influence remains today; unfortunately, more than somewhat too much so. They are NOT EUropeans.

Say what you like about Marxists but the people at Monthly Review and the commenters at are on the same page re stagnant US wages. There won’t be any interest rises this year for Janet.

Oct 4, 2014
It would be helpful, and realistic, if we had a breakdown on these new jobs and their respective wages. Much of the optimism would be found to be manufactured.”

Oct 3, 2014
There’s no wage pressure in the US.. same as the UK. Workers have no pricing power any more. This may be the result of globalisation, it may be something else. But it’s excellent news for companies and their stockholders.”

Tull and his delusions about well run economies.


The UK may have stumbled on to something! Instead of a “tenured” sector of the employment market gaining, or at least maintaining its position, at the expense of those in “precarious” employment, or unemployed, all are now in the same “static” wage boat. ”

Do you understand what this is likely to mean for UK economic growth going forward ?

It’s a bit rich of the Greek people to expect their newly elected Govt to stand up to / face down a Atlantic Wall of European Finance ministers, while at the same time undermining their Govt by not paying taxes & pulling money out of the country.

Some support / back up the Syriza are getting!!

They should have read Machiavielli … “He who builds upon the People..builds upon the mud”.

Courtesy Guardian blogs.

President Obama has weighed in on the crisis. Here’s what he told reporters in Washington (during a press conference with Italy’s PM)

“Greece needs to initiate reforms; they need to collect taxes; they need to reduce their bureaucracy.

When the new PM (Alexis Tsipras) came in, I called him and recognised you need to show your people that there’s hope, that you can grow, but you have to show those who are extending credit, who are supporting your financial system that you’re trying to help yourself; that requires making the tough decisions.”

Varoufakis got 11 minutes of private discussion with Obama and a photo-op on the occasion of Greece’s national day. The Treasury Secretary has now also weighed in with the same message in the FT.

Whatever one’s view of Varoufakis, it has to be recognised that he has an extraordinary level of chutzpah. How long his high-wire act can continue must be open to question. A policy approach based on advising your opponents in negotiation that “if I were you, I would not start from here” has evident limits. As is also the case with regard to critical commentary of the euro as it exists at present.

A la recherche du temps perdu :

Cowen was asked about autumn 2008

” Asked if any mistakes had been made, Mr Cowen replied: “Of course, mistakes were made. You can only go on the basis of information made available to you at the time and, of course, with the benefit of hindsight all of us can look at various other options that might have been available.’’

Perhaps risk management might have been an option pre 2008 . It might have made more information available at the time.

Other excuses he could have used :

• I can’t comment on individual cases
• Obviously it fell way short of expectations
• Lessons will be learned
• We fulfilled all of our legal requirements
• There have been failings in the system however lessons have been learned
• Unfortunately nobody is available for comment at the moment

“Whatever one’s view of Varoufakis, it has to be recognised that he has an extraordinary level of chutzpah. How long his high-wire act can continue must be open to question”

Until 5 to midnight on the night the deal is closed, surely. In usual EZ style.

@ seafóid

At the risk of repeating myself, and of pointing out the obvious, growth can only be brought about by increases in productivity, an area where the UK is also sadly lacking, not by “nivellement par le bas”, as the French put it, (which seems to me to catch the sense better than “race to the bottom). It is possible to combine good working conditions with growth in productivity. The Scandinavian countries have shown the way. It seemingly requires (i) a high level of labour organisation with collective enforceable agreements for entire sectors from which all workers benefit whether in a union or not and (ii) collective concentration on increasing productivity and agreeing wage increases as a function of that increase, NOT on “protecting the existing rights” of workers already in employment at the expense of new employees and/or the unemployed.

Other countries, with the exception of Germany and Austria, but to a lesser degree, have been unable to achieve the necessary level of social cohesion to bring this about. Indeed, if you look at the two-tier Irish health service, it is a question not so much of an inadequate level of social responsibility but of its total absence.

If, and when, the penny drops with Irish unions, dominated by public sector employees, that there has to be acceptance of the basic link between rises in salary and rises in productivity, on the Scandinavia/German model, we will see progress. I am not holding my breath.


“It’s a bit rich of the Greek people to expect ..”

That is a very fair point. But do remember that the current Greek government has promised a real crackdown on tax collection, but the Eurozone governments and finance ministers have no intention allowing Syriza the time to collect the taxes.

The amount of money being ‘withheld’ is about 8 billion, compared with €1000 billion being printed by the ECB for the purpose of giving the better off in Europe a lift in the price of the assets they own.

The Eurozone has clearly adopted a strategy, taken from that of Putin in Ukraine, to make it impossible for Greece to survive economically by threats of shutting down the banking system, of throwing Greece out of the euro system, bank payments system etc etc.

The preferred solution is to make the Greek people realise the error of their ways in voting for Syriza, and to force them to ‘elect’ a different government, but the Eurozone will happily force a disintegration of the Greek economy in the meantime.
[I understand that Schaeuble in his latest missive pretty much admits that the destruction caused by the Troika program will be a problem for future generation]

UK real wages are increasing & the economy is near full employment- see JF. Philips curve may still live. The place is so badly run that people are trying to leave UK to emigrate to Socialists workers paradise of Greece.

I suspect the Greek government is close to the point of deciding that it is no longer in the interests of its electorate to prioritise debt service over its other obligations. I also suspect it will go the dual currency route rather than leaving the euro – quite possibly without imposing capital controls or undertaking any other shenanigans to preserve hard currency funds that could be demanded for debt service.

The increasingly loud and panicked din from those telling the croppies that it is in their interests to lie down tends to reinforce this view.

UK deficit stuck at 5% gdp due to failure of phillips curve. Inflation now 0% will feed through to wage negotiations.
UK needs loose monetary and fiscal policy to compensate for lack of sustainable wage growth. What gives?

Despite their good record on the economy and labour market (as outlined by JF and Tull), it’s beginning to look like the Tories will lose the election on May 7 and Red Ed Milliband will be PM by mid-May. I could be wrong, of course, there might be a late swing. But, as of now that’s what the polls are saying.

If so, Cameron’s extreme social liberalism will be partly to blame. On social issues (immigration, traditional marriage, abortion etc), Cameron-led Tories are indistinguishable from the Lib Dems. All this has happened under Cameron, who is supposedly the leader of the large section of the UK public that classifies itself as ‘conservative’. A total contrast with the U. States, where real conservatives are still to be found.

The result is that social conservatives in the UK are flocking to UKIP. it is perfectly possible that the election will result in the Conservatives + UKIP getting well over 50 per cent of the vote on May 7, and possibly close to 60 per cent in England, but still produce a socialist government. If so, there will be a furious reaction in England. There will be serious doubts among a large section of the English electorate about the legitimacy of the socialist government, especially if Labour have fewer seats than the Conservatives, but become the government with the votes of the SNP. And I have full confidence in the ability of Alex Salmond to stir the pot and antagonise the English electorate even further. It’s all shaping up to be a ghastly mess.

The best way to resolve the impasse to the satisfaction of everyone would be for the 55 or so SNP MPs to follow the lead of Sinn Fein in 1919, refuse to take their seats at Westminster, and simply declare Scotland independent. Fait accompli. They would certainly have the mandate to do so if they win the number of seats the polls predict. Given that this will then allow a conservative grouping to take power in the rest of the UK (effectively England), there is unlikely to be much opposition to such a move from London.

@ seafóid

I would lay odds that he will not be there; not involved in the decisive final negotiations, that is. He is simply not viewed as a valid interlocutor on the evidence of the statements by other leaders.

Now there is a suggestion. Most expect the SNP to emulate Parnell but why not leap to the Shinners. But in this case the modern version since they have the same economic policies as the current version.

re: good records on the labour market!!!

‘When it is impossible to live on meager wages — a position tens of millions of U.S. families find themselves in — there is no alternative to turning to public-assistance programs. The scale of this was calculated by researchers at the University of California Berkeley Center for Labor Research and Education, and released this month in their paper, “The High Public Cost of Low Wages.”

…. Overall, $153 billion from these four programs goes to working families, representing 56 percent of total public-assistance spending by the federal and state governments.

This massive amount of public money represents a subsidy of corporations. The less they spend on wages and benefits, the more goes to profits, which are ultimately stuffed into the bloated bank accounts of corporate executives and financiers.
….. Raises most certainly can be afforded. U.S. corporations were sitting on about $5 trillion of cash as of 2011, a figure that undoubtedly has since grown. The massive hoards of cash, bloated salaries and bonuses for executives and financiers, and the starvation wages endured by so many all come with a cost — a cost borne by working people. There are not only no free lunches for working people, you are paying for the lunches and dinners of the wealthy besides your own lunch.


‘I would lay odds ..

Let’s hear them – Mad Oul Jozie down-the-road will take you on.


“Despite their good record on the economy and labour market (as outlined by JF and Tull), it’s beginning to look like the Tories will lose the election”

If their record was any good they’d win the election. Osborne promised to reduce the deficit to zero and failed.

“The key to riding the storm, as elsewhere, will be who is made to shoulder the burden of falling income and reform” as Paul Mason said a while ago.

The UK has its election first but politics all over the OECD is going to be reshaped by economic failure and plutocracy.

“The real struggle for Mr Renzi is not with the unions but the real struggle is poor people — especially among the young — and a crumbling social order,” Mr Galietti said.

Debt is the problem

“The chosen path of most governments, that of borrowing their way out of the crisis, has long term consequences for the distribution of income. The rest of society and future generations are on the hook to pay back those (likely richer people) who lent the money in the first place.”
By liybpg on Debt mountains spark fears of another crisis

@ Tull

The SNP will be same as Labour in office . Shinners as well. There is no alternative. Yet. Everyone follows the same failed doctrines.

Just in case anyone was wondering what we’re dealing with when we’re dealing with Schäuble:

Jeudi soir, le ministre des Finances allemand Wolfgang Schäuble s’est à nouveau fendu d’une sortie critiquant l’absence de réformes d’ampleur en France. «La France serait contente que quelqu’un force le Parlement, mais c’est difficile, c’est la démocratie», a lancé le responsable allemand, peu accoutumé à la langue de bois, lors d’un débat à Washington, après avoir évoqué les réformes selon lui «très réussies» menées en Espagne sous la supervision de la troïka.

They never change.


“If their record was any good they’d win the election.”

You are referring to their economic record?

Most polls show the Tories way ahead on the issue of handling the economy.

However, conservative parties in the West have traditionally relied on two main strands of support:

(1) Social conservatives.

(2) Those who believe in responsible economic management.

Cameron has lost the former, who are flocking to UKIP. The effect of UKIP is basically to split the conservative vote, possibly letting Labour in.

Similar in France, with the FN.

Similar in Ireland. Given the starting-point in 2011 and the surge in growth in 2014 and 2015, FG should be 35-40% in the polls. But, Kenny has gone out of his way to insult conservative Catholics and they have responded by deserting FG. Hence, they are stuck at 25%, and no amount of economic growth seems able to shift them back to FG.

All over Europe (less so in the U. States) traditional conservative parties have totally abandoned social conservatism. Whatever about their economic policies, Cameron, Kenny etc are now ‘cultural marxists’. In Kenny’s case, this has now extended to the point of using the state police to enforce ‘cultural marxism’. I don’t know if a party will emerge in Ireland similar to UKIP and the FN, that combines social conservatism and responsible economic management, and getting 15-20% of the vote. But, its a good bet that it will.

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