Following Bailout 2.0 for Greece, with its convoluted Euro-speak terms (which have been translated into hilarious but on-target summaries by Macro Man) I have since read five six different essays on the subject, aspects of which appear to be heading in the general direction taken by the Indecent Proposal.

The key point of the Indecent Proposal was this:

Creditors around the world have already lost their money. Now these creditors need to accept it so the world can move past the bailouts and onto more important things – such as allowing opportunities for everyone who is willing and able to work to earn their livelihood.

The Indecent Proposal can also be described as a pre-emptive strike against a flight-path to disorderly disintegration. A similar flight path was followed by the late Roman Empire during its centuries of decline. The taxes levied in the effort to sustain “the System” were so great that in the end the constituent parts found that “the system” was no longer worth keeping. If this is Europe’s current flight path, then a controlled crash landing in a ploughed field would be infinitely preferable to a tailspin followed by a massive fireball and a second Dark Age.

So, one can think of the 12 specific proposals in the Indecent Proposal as the how-to narrative of an attempt by the passengers to seize control of the plane and plot one possible course to a controlled crash landing, before the dangerous stunts of the oligarchs entrenched in the cockpit cause an inevitable tailspin and fireball.

With this introduction, here are extracts from and links to the five six interesting and related essays:

First onto the case two days ago was Acting Man, who called for massive haircuts in Euro Area Summit – Misguided Plans and Hopes:

What would happen in that case? No doubt a number of institutions would fail, specifically several Greek banks. Others would also have to finally recognize the losses on their Greek bond holdings and suffer large write-offs. The ownership of assets held by failed institutions would change. Many of these assets no doubt still offer good value at the right price, and  stronger hands would step into the breach. The bailouts in fact deprive said strong hands of this potential opportunity.

Second, and approaching the issue from the angle that the summit decision did not even address the right issues, let alone solve them, was Wolfgang Munchau in Some Useful Steps But Not Much of a Strategy:

The outlines of the agreement, as they have been presented so far, still fall short of the main goals – to have an EFSF capable of dealing with Italy and Spain – and to have a Greek package that reasserts debt sustainability one way or the other. Like all decisions in the European Council, this is a compromise for sure. But there are limits to compromises when you are dealing with a contagious debt crisis. You either do enough, or you do not. They are still lacking a strategy to deal with the wider crisis.

Third, Bill Mitchell in Euro Agreement on Greece – No Solution At All presents his own version of the Indecent Proposal:

The whole strategy is anti-growth – a high unemployment, low-wage and hence a very expensive solution to stabilised French and German banks. It would be a better solution to just wipe of the bad debts held throughout the European banking system and thus re-capitalise the zombie banks using the currency-issuing capacity of the ECB while at the same time forgetting about the Stability and Growth Pact that clearly doesn’t engender growth.

I don’t advocate bailing out private banks although I do advocate guaranteeing deposits. Failed banks should be nationalised and their executives dismissed and replaced by more realistically paid and publicly-focused professionals and their operations reoriented to public purpose. The ECB clearly has the financial capacity to do that but is poisonous (Bundesbank) culture prohibits it developing any progressive and pro-growth initiative.

Fourth, Ambrose-Evans Pritchard in his Telegraph column titled Europe Steps Up to the Plate views the summit decision as a step to closer European political and fiscal integration, but recognizes the obstacles and unsolved problems:

Questions abound. The EFSF is not yet big enough to handle the threat facing southern Europe. “To be credible, the EFSF needs to be proportional to the scale of contagion: we think €2 trillion is needed,” said Silvio Peruzzo at RBS. “We are not yet ready to say this is the full stop that ends the crisis.”
Europe’s economic recovery is sputtering out. Markit’s PMI surveys for the eurozone in July showed a preciptious fall to a 23-month low, with “deeper contraction” in the southern bloc. Howard Archer from IHS Global Insight said eurozone growth is “in serious danger of grinding to a halt”.
The risk is that Spain and even Italy tip back into recession, with knock-on effects for their debt trajectories. The root of Europe’s debt crisis is the gap that has built up over 15 years between North and South, which itself reflects the disparate characters of these countries. This economic chasm cannot be bridged by bail-out funds or loans guarantees.

Fifth, in the clearest explanation of the roots, nature and scope of the sovereign debt crisis, Ed Harrison made the following useful points in The Sovereign Debt Crisis and Currency Sovereignty:

Meanwhile, just as in the US, fiscal consolidation is seen as the only path to solvency for weaker debtors within the euro zone. But fiscal consolidation lowers economic output and therefore increases deficits in the short-term. This is what we have seen in Greece and Ireland to date. That means debt levels will continue to increase across Europe, sowing the seeds of doubt about solvency in markets and continuing the liquidity crisis that requires ECB intervention. Muddling through means deepening crisis for the euro zone then.

Over the medium-term, a credible solution to Europe’s debt crisis must be soft restructurings that reduce interest payments and lengthen maturities for some debtors and hard restructurings that also reduce principal repayment for the most-indebted sovereign debtors.

Over the long term, institutional structures for dealing with recessions and economic crises must be formed that are not reliant on artificial constraints like the stability and growth pact. I have some thoughts on a longer-term solution that meets the test in dealing with the politics, the liquidity issues and moral hazard which I will post soon.

Finally, Charles Hugh Smith provides much needed overall philosophical perspective with a powerful indictment. In 500 Million Debt-Serfs: The European Union Is a Neo-Feudal Kleptocracy the author castigates and condemns a political system that chooses to put the interests of bondholders and banking executives before the interests of Europe’s 500 million citizens:

Amidst the confusing overlay of voices and agendas, there is really only one agenda item: save the big European banks. Everything else is just mechanics. The banks are the new feudal manor houses, the bankers are the new feudal lords, and the politicians of the EU and its influential member nations are the servile vassals who enforce the “rule of law” on the serfs.

Here is the fundamental fact: there are trillions of euros of debt which can never be paid back. In a non-feudal system, one in which the banks were not the Masters, then this fact would be recognized and acted upon: something like 50% of the debt would be written off in one fell swoop, all the banks whose assets had just been wiped out would be declared insolvent and liquidated, the remaining debt would be sized to the economic surplus of each debtor nation, and a new, decentralized banking sector of dozens of strictly limited, smaller banks would be established.

To the degree that is “impossible,” Europe is nothing but a Neo-Feudal Kleptocracy serving its Banker Lords.