Stoneleigh: The Imperial Eurozone (With All That Implies)
In the light of events in Greece, I want to address the structure and prospects for the eurozone, and specifically how the structure pre-determines the prospects. Talk about long term austerity measures in southern Europe by no means covers a worst-case scenario.
All aggregate human structures at all degrees of scale are essentially predatory. They all convey wealth from a necessarily expanding periphery towards the centre, where wealth is concentrated. The periphery may be either forced or enticed to join the larger structure, but that does not affect the outcome. Such structures are all inherently self-limiting, as the fundamental dependence on the buy-in of new entrants grounds them in Ponzi dynamics.
The Eurozone project is no different. The European periphery was sold an impossible dream - that they could by fiat have the same living standards as northern Europe. Perhaps the architects of the project believed that equalization by fiat would work, but whether their intentions were honourable or not is immaterial to the outcome.
The Ponzi scheme was very effective, because the impossible dream was so appealing. The euro project gave people and companies and governments in the periphery access to far lower interest rates than they had ever seen before, and encouraged them to enter the gingerbread palace. The result was a manic period of credit expansion where people borrowed vastly more than they could ever hope to repay, just like the US subprime borrowers who indulged in the same dynamic. Attempting to borrow yourself into wealth absolutely never works, no matter where you live. The developing debt slavery further enriches the centre in the meantime, though.
As we have discussed at The Automatic Earth many times, credit expansions create outward appearances of great real wealth. They do this by creating multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. Many people feel wealthy, but that is perception, not reality. This wealth is virtual. The structure is Enron-esque. At maximum expansion it appears robust, yet it is destined to implode rapidly.
(article continues at The Automatic Earth)