How monetary chaos has created the perfect recipe for European civil war

Riot police run after protesters throwing petrol bombs in central Athens, during an anti-austerity protest in July. A pre-revolutionary mood similar to the 1930s is taking hold across much of Europe.

It has come to this. The first finance minister of a eurozone country who dared to attract up contingency plans for a possible euro exit is under investigation for treason.

Greek prosecutors are examining criminal charges against a five-man “working group” in the Athens finance ministry for the sin of designing a “Plan B”, a parallel system of euro liquidity and bank payments that may – in extremis – lead to a return of the drachma.

It is hard to determine how a monetary union held together by judicial power, coercion, and fear such as this can have any future.

The criminalization of Grexit debate turns off the option with an orderly go back to the drachma despite the fact that there is a high probability – some say a certainty – the latest EMU loan package for Greece will prove unworkable and precipitate Grexit inside a year. As a matter of practical statecraft, this really is sheer madness.

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The Greek newspaper Kathimerini reports the charges would come with “breach of duty, violation of currency laws, and belonging to a criminal organization”, in addition to violating data privacy by hacking into the Greek tax base. The prosecutor has latched on to a legal suit with a private lawyer accusing Yanis Varoufakis of treason. The former finance minister enjoys immunity but is quickly becoming a sacrificial scapegoat. You will find moves afoot within the Greek parliament to strip him of his immunity.

The secret plan was approved in the outset by premier Alexis Tsipras. It had been designed to create an alternate source of euro liquidity if the European Central Bank cut off emergency funding for the Greek banking system.


The ECB did actually the pull plug – arguably violating its Treaty duty to uphold financial stability – once the Syriza government threw down the gauntlet with an anti-austerity referendum.
Pablo Iglesias, the pony-tailed leader of Spain\’s Podemos movement, has drawn their own conclusions after watching the Europe\’s first radical-Left government elected today brought to its knees by liquidity asphyxiation.

The lesson is when Podemos is ever elected in Spain it must expect an effort of strength and ensure that it takes power within the fullest sense. You can interpret this how to, but there is an indication of Leninist defiance, an alert that Podemos will launch pre-emptive strikes against the entrenched positions in the media, the judiciary, the safety forces, and also the commanding heights of the economy.

The deeper message is that no Leftist government can pursue sovereign policies within the constraints of EMU

The fate of Syriza in Greece has clearly tainted the radical-Left brand. The EMU creditor powers have shown that if you buck the system, your country will pay a price. It is hard to show Spanish voters – or indeed to anybody – how Mr Tsipras could pay a package of draconian demands rejected through the Greek people in a landslide vote only a week earlier.

Podemos has lost its lead within the polls, trailing the Socialists with a wide margin. However it would be premature to summarize that this may be the end from the story. The deeper message is that no Leftist government can pursue sovereign policies inside the constraints of EMU.

It is hard to see how a monetary union held together by judicial power, coercion, and fear such as this can have any future

Prof James Galbraith from Texas University – who played a vital role within the Greek plans – said Syriza\’s experiment over the last five months has revealed for all to see that it is impossible for any weak state around the EMU periphery to change anything by force of argument, even if the policies of debt-deflation and fiscal overkill imposed upon them happen to be calamitous. Speaking to the Left, Prof Galbraith said Spanish voters should not delude themselves that they would secure better terms merely because their country is larger. The creditors have shown themselves to become inflexibly rigid, insisting around the exact terms of their Memorandum no matter economic science.

There will be the same sudden-stop in capital flows from EMU banks, resulting in the same liquidity rationing through the ECB, the same internal bank-run, ending within the same “death spiral.”
Personally, I doubt that radicals will sweep Spain (or Portugal) in elections later this year. The country is having a cyclical upswing. Worries is what will happen in the next global downturn once the Spanish people realize that they are still trapped.

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Italy is yet another matter. There is no such mini-boom. Output is still 11 per cent below its pre-Lehman peak. Stefano Fassina, the ex-deputy finance minister in the ruling Democratic party, has already been proposing a “controlled disintegration from the eurozone” to break free of Germany\’s neo-liberal mercentalism. “Syriza and the Greek individuals have the undeniable historical merit of getting ripped away the veil of Europeanist rhetoric,” he explained.


Evoking the language of guerrilla warfare, Fassina is calling for “an alliance of national liberation fronts”, acting in concert with \’souverainist\’ parties around the democratic Right.
“We have to admit that the Left loses its historical be the force dedicated to dignity and social citizenship in the neo-liberal cage from the euro. It\’s dead,” he said.

Beppe Grillo, the leader of Five Star Movement, is definitely equivocal about Italy\’s euro membership. Disgusted by events in Greece, he has issued a full-throttle “Plan B” for any return to the lira. The lesson for Italy – he argues – is that it must take the fight pre-emptively to the creditors and force an exit from the euro on Italian terms.

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Donald Tusk, the EU president, concedes that the pre-revolutionary mood takes hold across a lot of Europe, comparing it towards the Left-Right alliances of the late 1930s. “It had been always exactly the same game prior to the biggest tragedies within our European history,” he explained.

Yet he couldn\’t bring himself to confess that the root cause of the populist uprising is the deformed structure of economic union which has led to six many years of mass unemployment. Nor will he admit the deal he himself brokered after “water-boarding” Alexis Tspiras in Brussels for seventeen hours perpetuates exactly the same vicious-cycle.

So we now have a Europe in which the political temperatures are rising to boiling point: where the EMU elites refuse to shift course; where foolish lawyers are concocting criminal charges against anybody daring to explore a way out of the trap.

This is really a recipe for a European civil war.