The slow motion train crash of the Eurozone monetary alchemy

Former European Commissioners also found commercial home in big private businesses. Neelie Croes (Competition Commissioner) joined boards of Uber and Salesforce; Karel de Gucht (Development aid Commissioner) joined Arcelor Mittal; Connie Hede- gaard (Climate Commissioner) joined VW; Martin Bangemann (Commissioner for internal market and industrial affairs) joined Telephonica; Jonathan Hill (Commissioner for financial stability, financial services and capital markets) joined the Union Bank of

Switzerland;... A profound problem and serious concerns with such revolving door affairs is that the frormer highest officials and lawmakers join the industry he/she formerly regulated. Suspicions remain. No wonder why there is a wide popular discontent regarding the running of the EU institutions.

The alumni network of excessively powerful Goldman Sachs is impressive. It is the greatest one in the global private business. This investment bank is using all available “guns” to win business. One day they hire prostitutes to win business in Libya, the next day they hire the former President of the European Commission. And their business goes on.

The elected politicians are supposed to provide a popular counterweight against the demands by powerful businesses. This irresponsible revolving door practice and recycling of lawmakers in big private businesses escalates public distrust in government institutions. Do elected politicians serve the people or big business, especially big banks? Does the political elite know greed or decency? Is this beyond repair? Does this open gates to the extremists and the popular backlash against the EU?

The Troika

Many important actions that relate the eurozone take place outside the cover of the EU treaties. From 1998 the Eurogroup refers to informal and unofficial monthly closed- door meetings of the finance ministers of countries that officially take part in the eurozone. Hence, it escapes the legal and transparency coverage of the EU laws. Even though the Eurogroup's political decisions on austerity are important and harsh, they are legally illegal as this group does not exist in the EU law!

Created from “thin air” and outside the EU legal structure in 2010, the “Troika” is composed of the top officials from the International Monetary Fund (IMF), the ECB and the European Commission. It is a new institution that is not based on any international treaty or national constitution. It is unaccountable to any elected body, but it is the master of the economic survival of countries such as Greece. The presidents of the IMF and the ECB have no democratic mandate (people did not vote for them), while the democratic mandate of the President of the European Commission is rather meagre. The Troika is principally in solidarity with bankers, hence the democratically elected national representatives are subject to this unelected institution that was created from thin air. The Troika reviewed the Greek problem as an issue related to liquidity, while in fact, it was an issue of insolvency.

In spring 2010, as Greece wrangled with the IMF and the rest of Europe for what would turn out to be a ˆ110 bln emergency loan, a revealing, chilling phrase slipped out. When Greece's then Prime Minister, George Papandreou, begged for easier borrowing terms, he was told by Angela Merkel that the deal had to hurt. According to a well-sourced report in The Wall Street Journal, the German Chancellor said: “We want to make sure nobody else will want this”. In September 2012, Merkel pleaded in favour of “une Europe forte et solidaire [strong and united Europe]”. This is EU solidarity in the Teutonic manner. For the French, enthusiasm for `solidarity' means something else: redistribution and protectionism.

Who was rescued with emergency loans? “Of the total lent to Greece, less than 10 percent ever got to the Greek people. The rest went to pay back creditors, including German and French Banks” [Stiglitz, 2016, p. 144]. So, the generosity by the Germans and the French and others was primarily to save own domestic banks that gave reckless loans to Greece even though the story presented to the public was that the assistance goes to Greece. How can a debtor that has no economic growth repay loans? The London Debt Agreement (1953) assisted Germany to make a fresh start. This was not the case with Greece.

The Greek Problem

Greece is a country with enormous debt and needs solidarity in the form of (generous) debt forgiveness as its foreign debt is so huge that it can never be repaid in full [Jovanovic, 2015a]. In addition to the Marshall Plan, it should be recalled, Germany benefited in 1953 from foreign solidarity and debt relief in which Greece participated. The London Debt Agreement wrote off roughly a half of Germany's external debt, which was “more than 280 per cent of the country's 1950 gross domestic product”. Repayments of the rest were linked to revenues from exports. This debt forgiveness (the German debt/ GDP share was significantly higher than is the current Greek debt/GDP share) was, at the time, as controversial as is the current discussion about the possible writing off of Greek debt. However, if there is a Greek debt forgiveness precedent, would others in this so poorly designed and operated eurozone request the same (moral hazard)? Would market confidence flop? Greece and the whole of the eurozone need growth, not never-ending austerity.

The eurozone as it is constructed does not have a problem: it is the problem itself. The eurozone architecture morphed into an economic torture chamber. It is like the Procrustean bed which forces conformity standards. Procrustes, a bully from ancient Attica, was either stretching people or hacking at their legs to make them fit onto an iron bed. The modern version of the Procrustean bed is represented in the eurozone's one-size-fits-all austerity policies, which have significantly slowed growth and made unemployment, especially among the young, a hideous long-term problem (compounded by an endless flow of economic migrants and refugees from the Middle East and Africa). Poverty and inequality have also risen sharply which creates serious social problems. A real rise in investment is rather anaemic. This does not provide grounds for vigorous growth and employment.

Table presents the evolution of the Greek GDP, deficit and public debt from 2001 to 2020. The Greek economy shrank sharply in the period 2008-2013. The evolution of the deficit during the same period was even sharper. The EU, i. e. the German, remedy was to cut spending. However, debt as a share of the GDP almost doubled during the same period, not because expenditure increased, but because the Greek economy shrank. The

Source: [OECD Economic Outlook, no. 99 (June 2016); no. 104 (November 2018)].

Medicine may have been worse than the disease. The Greek economy needs growth and the externally imposed economic instruments were wrong. Paul Krugman noted that “Austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the `no' side offers at least a chance for an escape from this trap”.

What are the theoretical choices for Greece? Is it simply between the Grexit (Greek exit from the eurozone) or destructive austerity with no end in sight? The effect of the imposed austerity was that “wages have fallen by nearly 20 % since 2010 with pensions and other welfare payments cut by 70 % in the same period. The size of the public sector has been cut back by 26 %”. A toxic mix of policies imposed by the Troika reduced public services and led to the collapse of the middle class. Unemployment reached 28 % and the young were disillusioned about their future in Greece. So, “up to 400,000, mostly aged between 20 and 30, have left in the past eight years... So many doctors have left since 2010, the cash-strapped health service faces a shortfall of 8,000 doctors, said George Patoulis, president of the Athens medical association. `The country has lost more than 18,000 doctors, not only new graduates but established specialists' ”.

If the euros from the ECB are not available, the Greeks will have to pay wages and pensions in certificates. Those IOU (“I owe you”) paper certificates would evolve as a parallel currency that would eventually develop into a new drachma. It has become obvious, since the most recent debt crisis, that the expected eurozone economic benefits to Greece have vanished. A number of observers may agree with Krugman that “The Greek exit from the euro is the best of bad options”. The price to remain in the eurozone is dear.

The Greek government announced on 2 November 2011 that it would hold a referendum as soon as possible on the bailout programme in order to get a clear mandate by the people to stay in the eurozone. That announcement created “shock, panic and anger' around the world, but especially in France and Germany. The French Prime Minister François Fillon said that `France regretted the unilateral decision by Greece to hold a referendum”. The fear was that a negative reply to the bailout programme would trigger sovereign, as well as bank failures that could wreck the eurozone. The Greek government withdrew, in a matter of days, the decision under foreign “peer pressure” because of real fears that the result by the Greek people would be a no answer.

Four years later, the Greeks voted on the Troika's financial-rescue plan and responded with a resolute NO (62 %) on 5 July 2015. Does a clear NO vote in a national referendum in an EU country mean NO or does it mean something else? Jean Claude Juncker, a member of the Troika and the President of the European Commission, has a rather slender democratic mandate. He was appointed by the EU Presidents/Prime ministers through the political “black box” and was passed on to the European Parliament for approval. Juncker “ridiculed the Greek No vote as an unintelligible `circus' ”. Unelected politicians and the EU technocrats hate referendums. Public and democratic voting is not the way to do business in the EU. This was confirmed a week after the referendum when Greece caved in and accepted the Troika's draconian deal. Hence, it was all a circus. Do the eurozone countries need democratic decisions about crucial national issues or do they not? Once again, referendums may not be the ways to do the EU business. Is this a postdemocratic EU?

The European elite are more and more afraid to verify democracy through referenda. Decisions are taken and implemented in the exclusive and closed elite-led political process. If things go wrong, the elite which rule over our lives blame Brussels. With this in mind, Ken Livingstone's book has a revealing title: If Voting Changed Anything, They

Would Abolish It [Livingstone, 1987]. Voting may not be the actual means how the EU integration business is done in reality. Whenever the policymakers consult the people on EU matters through the voting process and when they do not get the pre-set decision, they force the people to vote again and again (Denmark and Ireland) until they approve the decision that has already been taken by the `dark masters' of European integration. This type of management of EU affairs created a kind of democratic deficit which evolved into a democratic crisis.

A referendum may not always be the most appropriate way to have people speak on certain issues. For complicated matters such as treaty texts, voting may be skewed. If the voters are not informed properly by the politicians and the media, then sectoral interests may prevail. For instance, farmers may be against reductions in subsidies, housewives may be in favour of increases in benefits for part-time work, while domestic plumbers may be against increases in work permits to foreign plumbers. These sectoral interests may distort the general interest that a treaty aims to promote. In certain cases, and if key national sovereignty issues are not compromised, national parliaments may be a more appropriate places for decision-making. In addition, national referendums in France normally turn into voting on the popularity of the current government, no matter if the question asked on the voting slip relates only to France or the EU.

Following the August 2018 deal, Greece exited the bailout programme, but it would be under “enhanced surveillance”. Greece would start repaying it huge debt from 2032. Nobody knows where will be the country's economy, the eurozone and the EU at that time. This looks like kicking the can down the road. Still, “Germany turns out to be a major beneficiary of Greece's debt crisis as it earned total of 2.9 billion euros since 2010”.

The patrician EU elite and “dark masters” of the art of European integration were once again indifferent to the plight of their compatriots and did not listen to concerns and demands of the people they rule. The elite, for instance, contempt and ignored the popular will of the people expressed in a referendum (Greece, 2015). The popular backlash may come in 2019 after the elections for the European Parliament. If anti-EU forces gain majority, the whole EU law-making process may be in jeopardy.

Who is Responsible?

Bankers in Europe were lending to the “prodigal” Greece in the full knowledge that the loans would not be repaid. They expected (re)payments from (home) governments. Both sides violated basic banking principles:

• borrowers should be careful about borrowing. Their duty is to pay back loans;

• creditors must verify the creditworthiness of borrowers, their existing debt, assets and future stream of income. Creditors' moral duty is to lend diligently. If they do not do their homework on being careful in giving loans, well, then they deserve what transpires.

Although Greeks themselves have a sizeable share of responsibility for the trouble (excessive expenditure), others were also far from innocent. In fact, all types of sales (legal and illegal) to Greece were strongly encouraged both officially and covertly. Hence the blame should be shared. Foolish creditors always find reckless debtors. Here come just a few illuminating examples of illicit German sales to Greece.

The biggest corruption scandals in Greece involved German high-tech and defence firms. Ferrostaal, the German arms producer, was fined (ˆ149 mln) in 2011 for giving ˆ62 mln in bribes to the Greeks to buy (faulty) submarines at inflated prices. Furthermore, in March 2012 the Greek government reached an out-of-court settlement with German company Siemens related to bribes. Siemens would pay a fine of ˆ170 mln for bribes to Greek state employees and ministers for the procurement of equipment. In addition,

“a Greek court has been provided with conclusive evidence that the largest tax avoider in the country is Hochtief, the giant German construction company that runs Athens airport. It has not paid VAT for twenty years, and owes 500 million euros in VAT arrears alone. Nor has it paid the contributions due to social security. Estimates suggest that Hochtief's total debt to the exchequer could top one billion euros”.

The Independent Evaluation Office of the IMF (2016) document revealed unprofessional and dirty work behind the scene by the IMF concerning financial crisis in Greece and other counties hit by the Global Financial Crisis. Here come just a few details. “The IMF's policy on exceptional access to Fund resources, which mandates early Board involvement, was followed only in a perfunctory manner” (p. vii); “the troika arrangement potentially subjected IMF staff's technical judgments to political pressure from an early stage” (p. viii); “some documents on sensitive issues were prepared outside the regular, established channels” (p. viii); “written documentation on some sensitive matters, even with the help of generous staff resources, could not be located” (p. 5); “a number of factors undermined the quality and effectiveness of surveillance. First, the analysis often lacked sufficient depth, rigor, or specificity” (p. 22); “failure to grasp fully the functioning of the single currency” (p. 25); “a major downsizing of the IMF staff that took place during 200809 reflected this culture of complacency among the IMF's membership” (p. 27); and “there was no clear demarcation of responsibilities between the IMF and its European partners, and their areas of competence overlapped considerably” (p. 41). Those quotations lead to three conclusions:

• the financial rescue strategy for Greece, Ireland and Portugal was not implemented in the coherent way and it was not based on proficient analysis;

• excessive political pressures overturn economic facts and professional IMF's work;

• the IMF failed the standards of responsibility and transparency as are expected from public institutions.

Donald Tusk, the President of the European Council, suggested a “special place in hell” for those that backed Brexit without a plan. What would such a “special place in hell” look like? Yanis Varoufakis, the former Greek Minister of Finance, tweeted on 7 February 2019: “probably very similar to the place reserved for those who designed a monetary union without a proper banking union and, once the banking crisis hit, transferred cynically the bankers' gigantic loses onto the shoulders of the weakest taxpayers”.

To criticise Greece as the only culpable party in the financial catastrophe is unjustified. Again, responsibility is shared. However, it is easy and arrogant to blame the victim for its own trouble. In spite of the shared responsibility for crisis, the adjustment cost fell, i.e. was imposed on the Greek side only. The deep post-2010 Greek depression did not happen because Greece did not follow Troika's conditions, but rather because Greece followed them. Austerity usually has slim economic effects, while it creates harsh social troubles and discontent.

Reforms or Breakup

The eurozone works well only for Germany and for very few other countries. This is because:

• all eurozone countries must have fully open domestic market for the German (and other EU produced goods and services);

• no eurozone country may devalue to compete with the German (and other EU produced) goods and services.

In the absence of the euro, developments on such a scale would not be possible. For other countries, such as Greece, the eurozone was brutal.

As the real economic growth in the EU was feeble, the EU changed in 2014 the statistical methodology used to calculate the GDP. The new methodology includes in the coverage illicit economic activities such as smuggling, drug trafficking and prostitution. Such an economic and statistical alchemy slightly increases the GDP, politicians may relax a bit and boost their confidence, however, few would feel richer because of such statistical makeup. What else needs to be reformed?

As there are no possibilities for the adjustment in exchange rates among the eurozone countries, there is a suggestion to the countries in trouble to apply “internal devaluations” (reducing domestic prices and wages). Still, this is hard, costly and highly unpopular. The problem is that there is no inverse policy suggestion to the export surplus countries to increase domestic prices and wages. Such “internal revaluation” is also unpopular, but these countries feel less pressure than the countries that have deficits in trade.

The German excessive current account surplus is one of the principal causes of imbalances in the eurozone. One way to solve the problem was proposed by [Priewe, 2019, p. 100]:

“Within the `European Semester' and among the `Country-Specific Recommendations' with `Medium-Term Budgetary Objectives' of the Commission, current account surpluses play hardly any role. Regarding sanctions, excessive surplus countries could be barred from access to structural funds -- having to replace them with domestic funding -- or obliged to pay a tax on the surplus that would be channelled into a fund to support industrial policy in countries with a weak export base. A key measure would be supporting countries with structural deficits in establishing industrial policy to improve non-price competitiveness and lean against the wind of further deindustrialisation”.

There is no doubt that Germany has an upper economic hand in the eurozone. However, this may not last forever in the fiat currency world. The `eurozone trilemma': independent ECB, perpetual export surpluses and no fiscal transfers (all at the same time) cannot last too long. Something has to give up otherwise the crisis is imminent.

Reforms of the eurozone are urgently needed as one is witnessing a slow motion train crash. Dark clouds, for instance, are looming over Italy. This country did not have real growth for 20 years. The population is disillusioned. Italy's debt is high (130 % of the GDP), the balance sheets of Italian banks have ˆ128 bln of non-performing loans (loans in arrears of over 90 days), and the public infrastructure is in poor shape (the collapse of the bridge in Genoa in 2018 with 43 fatalities is just one example of troubles). Eurozone deficit rules strictly limit public expenditure which severely restrain the inflow of fresh capital (economic oxygen) into the economy.

Eurozone-instigated cuts in public expenditure bite into Germany too. The defence budget is affected. For instance in 2014, “a shocking example is the decrepit state of German military hardware. Of the Luftwaffe's 254 fighter planes, 150 cannot fly”. The situation became even more serious in 2018. Eurofighters are state of the art combat aircrafts. Out of the 128 Luftwaffe's Eurofighters only four were combat ready.

A temporary means to bridge the crisis in the form of the European Financial Stability Facility was created in 2010 to assist Greece, Ireland and Portugal. This Facility, superseded by the European Stability Mechanism (ESM) (2012), has the financial “firepower” of ˆ 500 bln. Eurozone ministers agreed in principle, but not in detail, at the end of 2018 to create a eurozone budget to fortify the ESM. There are ideas to transform of the ESM into a eurozone's version of the IMF. If the German position remains that it needs to be done through the Lisbon Treaty's change, then the chances that this would happen soon are very slim.

The 2018 proposals for a deeper eurozone integration by the French President Macron were based on strong federalist grounds (common budget to assist countries in economic troubles; European Finance Minister). The eurobonds are also a well-known federal idea, but for such bonds there must be a strong vision of a common future. Eurozone successfully eliminated exchange risk. However, risk in general remained, but it was transformed into a credit risk inside the eurozone. Currency unions do not operate without some kind of risk sharing and political union. The Macron's deep federal vision was strongly criticised by 154 prominent German economists. Macron should perhaps put his own house in order and only then preach what to do in the EU. There is a stark division in opinions on how to reform the eurozone. The Germans argued in favour of an orderly eurozone departure framework for insolvent countries. Macron's federalist-type proposals were put aside even though

“Germany seems to recognize the importance of a banking union for the functioning of a single currency, but, like St. Augustine, its response has been, “O Lord, make me pure, but not yet.” Banking union apparently is a reform to be undertaken sometime in the future, never mind how much damage is done in the present”.

The future of the fiscal and banking union is unclear. Germany and the Netherlands resist the pan-eurozone deposit insurance scheme, a vital part of the banking union, because of the fear that other countries failures would be foot by the German and Dutch taxpayers' money. As a temporary measure, Germany and a few other eurozone countries, may encourage the ECB to mutualise the Italian (even the French) debt. This would just postpone (not prevent) a possible eurozone breakup. If this mutualisation happens, the can will be just kicked down the road. Joseph Stiglitz thought that “the central problem in a currency area is how to correct exchange-rate misalignments like the one now affecting Italy. Germany's answer is to put the burden on the weak countries already suffering from high unemployment and low growth rates. We know where this leads: more pain, more suffering, more unemployment, and even slower growth. Even if growth eventually recovers, GDP never reaches the level it would have attained had a more sensible strategy been pursued. The alternative is to shift more of the burden of adjustment on the strong countries, with higher wages and stronger demand supported by government investment programs”.

France, under President Macron, introduced in 2018 neoliberal reforms which favoured big businesses. Reforms included tax cuts to big corporations; abolished progressive tax on capital gains; ended indexation of pensions; reduced housing benefits; and terminated liberty in the choice of university education by the state distribution of students based on their results at the end of secondary education. That was the reason for strong and lasting protests by the `deplorable' big part of the French population (gilets jaunes). Social discontent has been brewing and the trigger for protests in 2018 and beyond was an increased tax on fuel. The working class that has to use cars for transportation was hit as there were no increases in wages.

The rebellion against globalisation and in favour of re-gaining national control of affairs may have certain parallels with what took place during the Reformation that started in 1517 with the publication of Martin Luther's Ninety-five Thesis. At that time, there was a rebellion against the Catholic Rome that took too much power and money, that lived a sumptuous life and that lost touch with the people that paid for all that. The Western Christianity was split (disintegrated) into several denominations. Five centuries later, there is now a popular revolt against the EU's Brussels that does similar errors as the Catholic Church did before the Reformation. For instance, the earlier sale of Catholic indulgencies looks a bit similar to what does QE. The financial system needs change and slimming. For instance, “during the global financial crises of 2008 subprime mortgage losses were less than $300 billion, but when derivatives are included, total loses were over $6 trillion. To reduce the risk of the grand collapse ant to increase the robustness, the system needs to be reduced in size so that no component may grow too large. `Instead U. S. banks are bigger and their derivative books are larger today than in 2008. This makes a new collapse, larger than the one in 2008, not just a possibility but a certainty. Next time, however, it really will be different. .. .the next collapse will not be stopped by governments, because it will be larger than governments” [Rickards, 2012, p. 211].

Is exit or a dissolution of the eurozone a panacea? The consequences of the eurozone breakup would be substantial in the short term (Austria-Hungary, the Soviet Union or Yugoslavia), but if accompanied with active policy intervention, they would be manageable. “The advantages over a five-year horizon would be substantial” [Bagnai, Granville, Mon- geau Ospina, 2017, p. 533]. Hence, there are significant costs of breaking up the eurozone, but there are, possibly, even greater ones related to the keeping it together. Still, there is a strong possibility that the bad eurozone marriage continues with a hope by the politicians that are tinkering with some reforms would buy time for a financial fairy to come and solve the eurozone's existential problem with a magic stick. All that they do seems like actions by medieval wizards that prescribed leaches as medical therapies (kicking the can down the road).

One has to recall that for the success of a monetary union the participating countries need to have not only similar economic structure, but also similar system of beliefs on how the economic system works and about social justice [Stiglitz, 2016, p. 45]. This also includes similarities in the rates of inflation and unemployment, acceptance of wage cuts, exchange rate, taxation, labour standards, social services, environment-related regulation and even the energy mix.

Unemployment in the EU, France, Germany and Britain (2006-2018) is another concerning issue. The gap in unemployment rates between Germany and France is wide and worrying, especially since the post 2008 crisis. Just as was the case with industrial production, Britain outside the eurozone, performs significantly better than France even in the unemployment indicator. Was or is the eurozone a stumbling block for the French economic policy and prosperity?

If a eurozone country is shut out of an open capital market or if the loan terms are prohibitive (as was the case with Greece), the country is destined to have a permanent slump. It is forced to make painful reforms and it may encounter the temptation to reintroduce its national currency. This currency may be devalued and printed `freely'. The problem is that while the introduction of the common currency, the euro, was orderly (it was introduced on the basis of a detailed plan, timetable and fixed exchange rate), the reverse operation would not be orderly. It would be noisy, nasty and involve anger and panic. The cost would be enormous and hard to estimate. These costs would include a run on the banks to avoid forced conversion into a new and weak currency, as well as the logistical nightmare regarding conversion of contracts, bonds, deposits, mortgages and wages. Even though the exiting country could have its own (devalued) currency, it would still face payments of foreign loans in euros. Benefits that may come from the breaking of a monetary union (or leaving it) may be volatile. A country may devalue and increase exports, in particular if it has low import dependence (inputs) of its exports. Nonetheless, even if the cost of the eurozone breakup is colossal, this will not in itself prevent it from happening. The peaceful and orderly Czechoslovak dissolution may provide an inspiration. If there is a social group that may gain something from such chaos, those are mostly lawyers.

The root cause of weak competitiveness of national goods and services on international markets has most often been low productivity, lack of innovation, rigid wages and a meagre flow of labour from low to higher productivity industries. Devaluation may help a country only temporarily, but it does not eliminate the root causes of low competitiveness. Hence, the potential benefit of the breaking up of a currency union (in the EU) or an exit from it may be rather slim in the longer term unless the competitiveness and productivity issues are addressed sufficiently.

Generally speaking, austerity policies in certain eurozone countries were not offset by expansionary policies in others. Hence, harsh austerity worsened the debt/GDP ratio and increased unemployment in the eurozone. Germany and the Netherlands have current account surpluses, but many of these may be accumulated unserviceable claims. Would these two countries be better off without such export surpluses? Incredibly harsh austerity packages and painful bailouts will be the rule of the game in the eurozone for many years to come. Strange and unsavoury politicians and movements are mushrooming in countries subjected to the draconian eurozone austerity measures. The reason this is taking place is that the EU elite and respectable politicians, refuse to admit that the imposed austerity measures are a tragic failure. The eurozone has turned out to be a dismal marriage. Would a painful divorce be preferable to agonising eurozone matrimony? A German proverb says: “Better a horrible end, than horror without end”.

The EU elite is either blind or deaf to sense the trouble in which the eurozone is. Silos mentality (one-size-fits-all policy) prevails in Brussels and Frankfurt while the people are stripped of money and democracy, hence the backlash in the form of public protests. The gilets jaunes did not emerge from trade unions or political parties. They emerged from the disenfrancised and deplorable part of the population that has no money. What remains to the people are yellow wests-type of movements and nationalism which may destroy the current euro and even the EU from within. Divided societies have a lot of hardship to operate properly. Errors by the patrician elite are not admitted, while troubled vanity project is continued. Germany prospers, while most of the others are impoverished of funds and hopes. This is especially obvious at the EU's southern periphery.

The eurozone operation and crisis triggered a massive transfer of macroeconomic policymaking authority away from national governments. More dangerously, it shifted policymaking towards institutions that are not enshrined in and controlled by the Treaty of Lisbon. This just contributed to the hostile sentiment in the general public towards the running of the EU by a remote elite that does not consider much democracy and the opinion and needs of the people.

The EU elite mind-set is entrenched in post-nationalism and post-Cold War view of the world. The central points of this new attitude are globalisation and liberal internationalism. National interests do not feature high. With such mentality, the EU is incapable of reform just as was the approach by the former Soviet Union. For over a decade the EU countries do not seem to agree on much of anything of substance.

Technocrats in the European Commission and their mentors lost both political, moral and professional respect regarding the eurozone in general and eurozone countries such as Greece or Italy. Whatever they forced as solutions went wrong. Italy did not have (almost) any real economic growth for a generation (since the introduction of the euro in 1999). Something new needs to be done.

The benefits of the eurozone, at least in the south, are controversial and in doubt. However, strong popular resistance to the replacement of the euro by national currencies is not obvious in that affected region. Many Greeks, Italians or Spaniards profited from low rates of interests during the eurozone “happy hours” (2000-2007). They acquired assets such as real estate and savings. They would not vote to get a new national currency which would devalue their assets by a half. The young, especially, unemployed have no such qualms. They could benefit from a fall in the prices of houses. If the eurozone continues unreformed, the EU (bar Germany) would be destined to have low growth, high unemployment and division between those that have and those that are different.

The breakup of the eurozone would normally provoke a huge devaluation (especially at the eurozone periphery), prices would drop for say Italian Fiats and Spanish Seats and the single EU market would be in jeopardy. Germany (or other country) would introduce customs posts to control the imports of cheap Fiats and Seats, so what would remain of the EU? Aparently, European disintegration may be more difficult than European integration.

The new German eurozone template (strict rules and punishments) for the operation of the EU may provoke perpetual austerity (devaluation is impossible) and no growth, when growth actually may be the best way to remedy the situation. How does this square with other countries' visions of the EU? Spain or Greece or Italy, for instance, not to mention the views of many others? The austerity rules may easily provoke violence and extremism as one country imposes its rules on others. Suspicions are running high -- the thrifty northern Protestants vs. the prodigal southern Catholics and the Orthodox; Britain vs. the Continent; everyone vs. the Germans. It is amazing how more than half a century of European integration has not managed to dissipate deep-seated mistrust and cultural conflicts. [Jovanovic, 2012, p. 77] wrote:

“During the Great Depression, Heinrich Brüning, the German Chancellor (1930-32), thought that a strong currency and a balanced budget were the ways out of crisis. Cruel austerity measures such as cuts in wages, pensions and social benefits followed. Over the years crises deepened. This led to what the reader of this article knows. Once the financial and the existential storm is over and the new EU architecture is in place based on the tough German template, a number of EU countries may not like or enjoy the EU that they live in. Many of them may find themselves in the slow-lane of European integration. The EU will not be the same again. It is turning into a multispeed and multi-directional EU”.

Cryptocurrencies

Alternative currencies such as bitcoin appeared as new competitors to the fiat currencies. Still, there are controversies regarding bitcoins and similar options. A currency should be a unit of account, medium of exchange and a store of value. If the price of any asset changes about 10 % or more a day, is it a currency? So,

“anything that is so volatile cannot be a satisfactory unit of account. It is itself stable so you can't measure other values against it. It can be a medium of exchange but you would have to fix the transaction price instantly, and in any case the capacity of even an established cryptocurrency to handle a mass of transactions is limited. As for store of value, well, it clearly isn't”.

Such speculative cryptocurrencies are ideal assets to money launderers, criminals and terrorists.

The supply of bitcoins is limited. A growing economy needs more money. As there is no central bank to step in during inevitable crisis, bitcoins would create an unattractive deflation. In addition,

“although Bitcoin is perceived as the currency of the future, it is in fact, like gold, a currency of the past. The contrast with modern money is striking. Modern money is also called `fiat money' because it is made from nothing. Of course, the production of paper money costs a lot, but we use less and less of it. Instead we use more and more electronic money by making payments with debit and credit cards. Electronic money is produced with minimal use of scarce resources. As the cost of communication continues to decrease, the use of electronic money will become even cheaper in terms of resources needed to produce it. In this sense electronic money, not Bitcoin, is the money of the future. There is indeed a potential problem with fiat money. Because its production is so cheap, there is the danger that too much of it is produced. That then leads to inflation. However, since the 1990s, many central banks have followed a policy of strict inflation targeting. And that has proved very successful. It has ensured that annual inflation has remained close to 2 percent in the last 30 years in most industrialized countries. In the US, for example, average yearly inflation was 2.35 % from 1990 to 2017”.

As long as the “independent” central banks are under political or industry pressure, or even worse, privatised by private banks, the public needs to worry that private business interests would take primacy over interest of the general public and taxpayers.

A banker or a financial consultant may take you for a ride by saying says: “This paper or this cryptocurrency is a superb investment for you, but it is too complicated for you to understand (and me to explain). Just give me your money and be delighted about splendid investment you made”. There is golden advice to the potential investors in various (toxic) “financial papers” or electronic transactions: “If you do not understand it, do not buy it”.

Where to Go from Here? To Gold?

Collapses of the international monetary system take place almost every thirty years. We are limping towards the end of the useful life of the current one. One is witnessing volatility, confusion and suboptimal performance of the economy since 2007. The financial structure that existed prior to 2007 is over, but the new system is not yet in place. The new systemic collapse is approaching. “The United States is not getting the growth it needs to pay the debt. Derivatives are piling up, the banks control Washington, and the financial system is falling. Gold is the only sensible insurance in this state of affairs” [Rickards, 2016, p. 70]. No matter its flaws, money based on gold would restore financial and monetary order. This may not happen very fast, as those that have political levers, i.e. politicians that have the money printing press and that are controlled by private bankers, would not give up. Gold would not let them opportunity to manipulate as they do with the fiat-money alchemy. In any case, the new currency may likely be something tangible, exchangeable and permanent, not fiat money that may soon have the value of the confetti.

Let us refer to the Constitution of the US and its Section 10 -- “Powers prohibited of States” which reads (emphasis MJ):

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and

Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in

Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation

of Contracts, or grant any Title of Nobility”.

Hence, the recognition of value and importance of precious metals as the only legal tenders in the US. The only real money is gold (and sliver), the rest is just credit. If a national legal tender becomes accepted as an international currency, then it is used in international trade and finance in a much wider area than is the reach of its original central bank.

Bitcoin and gold have, however, a few similarities. Both exist in rather limited quantities; neither generates any revenue; and both are searched by investors that worry about the depreciating value of the dollar, euro or other fiat currencies.

Some argue against the use of gold as a currency. Their strong arguments include the following ones: (a) investment in gold is old fashioned; (b) gold does not bring interest; (c) gold has a deflationary bias; (d) there are important storage and transportation costs.

Those advocates are the ones that have faith in the fiat money and related financial manipulations. Counter arguments include that:

• the gold standard system is simple, direct and understandable to all (the eurozone rules are not only complicated, but also they are applied in an arbitrary way);

• gold protects value in the long term as it is rare, divisible (without any loss in value) and durable;

• gold does not rust;

• gold is trusted, especially during crisis and in the long term;

• gold cannot be stolen by hackers;

• once central bankers are deprived from their unlimited fiat money printing authority, manipulations with fiat money shall be replaced by the use of intellectual and other resources towards innovations in technology, production and better management, towards productivity that creates real, not paper wealth which ultimately creates disorder and chaos for the 99 % of the society.

With hard money (gold) in place, corporations will have to compete and compete hard with their products and services, not with their influence on those that have the button in the money-printing press. With fiat money, governments and lobbies may go into war (the US is constantly in wars since 2001) in a much simpler way than would be the case with hard money. Easy money permits wars for which future taxpayers would foot the bill for generations. With hard money, governments would go to war when it is really necessary.

Men in the street normally have a poor idea about the role and operations of central banks. This is compounded by Delphic speeches by central bankers such as Alan Greenspan. Few could understand his ambiguous speeches about the fiat-money related financial alchemy. Gold is different. It is timeless, tangible and the same everywhere (which is not the case with, for instance, iron ore of crude oil). While gold has its eternal intrinsic value, i.e. melt value, fiat money is a currency without its intrinsic value. It is created from thin air. The value of fiat money is either established by the government regulation or by the agreement of the parties that use it. The gold standard would turn (central) banking from monetary manipulations into what it needs to be: boring.

If gold is a “barbarous relict” and old fashioned, then there is one “killer question” for the proponents of such ideas. If gold is of marginal importance or irrelevant, why don't you sell all your gold to the Chinese, Indians, Arabs, Russians, Kazakhs, Turks or Hungarians? Many of them, especially the Chinese and others in Asia, would be delighted to pay for it in fiat money (to move away from dollars and euros). In addition, why is almost the entire US gold hoard located on military bases (Fort Knox in Kentucky and West Point in New York) rather than in civilian bank vaults [Rickards, 2012, p. 34]? China, Russia, India and others are constantly adding to their gold stocks. These countries in the East are preparing not only for the post-euro, but also for the post-dollar financial world. The further East one goes from the US, the more there is demand for gold. When there is a currency crash, those that have gold have the best life-saving financial boats.

If the value and/or the future of a fiat money, especially international one, is in question, then both borrowers, lenders and savers alike normally chose to avoid such a currency. If the crisis is looming, then the risk-averse holders of such a currency would prefer to get rid of it.

There is also a fundamental difference in attitude towards gold between investors in Asia and the ones in the West. While the western investors use their dollars to buy gold in order to resell it when the price of gold increases (they get back more of their dollars), Asian investors buy gold in order to save and to store value. They have less confidence in fiat monies.

Conclusions

The euro is the crown jewel in the EU integration project. No similar currency circulated throughout Europe since the times of the Roman Empire. Measured by adoption, expansion and official political support, the eurozone is a great success. However, there are other and more important measures of success. Growth (or the lack of it), transformation of the economy and democracy (Draconian `ruling' of Greece by the Troika) are those yardsticks. At the same time, the euro is the EU's weakest link. It needs a substantial federal-type overhaul if it is to survive. Uncertainty about its future and the impact on the whole EU and beyond is paramount. There are contingency plans in the preparation for the eventual split of the EU.

The properties of a well-functioning economy are clear and well known. They are a rapid economic growth the benefits of which are shared widely in a society (solidarity) and there is low unemployment [Stiglitz, 2016, p. 5]. The results of the two decades of the operation of the eurozone are just the opposite. There are too many losers and too few winners. Is it worth continuing with such an important, but a vanity political elite-sponsored project or would it be better to dissolve it, lick wounds and try something superior?

In spite of great hopes and political support, the eurozone has been a failure. It failed to deliver growth and it contributed to various discords. As for the eurozone architecture, “the euro was a system almost designed to fail. It took away governments' main adjustment mechanisms (interest and exchange rates); and, rather than creating new institutions to help countries cope with the diverse situations in which they find themselves, it imposed new strictures -- often based on discredited economic and political theories -- on deficits, debt, and even structural policies”.

The initial diversity among the eurozone countries, both economic, institutional and behavioural were great and unfriendly with monetary integration. One-size-fits-all eurozone policies without the supporting institutions (federal budget managed by a minister, fiscal transfers to the ones in trouble [automatic stabilisers], banking union with a common insurance of deposits, fiscal rules, common bonds, dispute resolution mechanism and political union) which economic theory and rich experience propose, had no great chances for success. Still, the EU patrician elite was apathetic to warnings by economists. If the eurozone wants to survive in the longer term those suggestions by economists need to be supplemented by the abandoning of the existing fiscal rules that choke growth and by changing ECB mandate to include economic growth and fight against unemployment (the current mandate is to keep inflation low).

It is hard to find one positive economic effect which the eurozone can provide now or in a decade to come. Some would argue that the gain may be found in the ease with which travellers may make payments; of course, only those whom have enough euros to travel (many tourists are taking only short holidays). Others would argue that the gain may be found in the simplicity in trade, while others would argue that this easing in trade is the problem itself as countries traded too much, i.e. southern EU countries imported too much because loans were cheap. Germany was the principal exporter of goods and capital and the eurozone “worked well” until the importing countries could service their debt. This could not last forever.