 This weekend we welcome Dr. Philip Bogus, who is really one of the up-and-coming stars in the Austrian movement worldwide. Philip is a professor of economics at the University of Rewan Carlos in Spain. He studied under Jesus Huerto de Soto, and he's written, I think, the most important Austrian book on the Euro, entitled The Tragedy of the Euro. We discuss both the history and the possible future of the Euro. We discuss what's changed and what hasn't changed at the ECB under Mario Draghi. We discuss the growing nationalist sentiments that are sweeping across Europe as they relate to currencies. We discuss German nostalgia, so to speak, for the Bundesbank. And we discuss, finally, how the ECB has effectively monetized the European sovereign debt crisis. Stay tuned. Ladies and gentlemen, welcome to Mises Weekends. I am your host, Jeff Deist, and today we are speaking with Dr. Philip Bogus from Madrid. Philip, how are you today? I'm very fine, Jeff. Thank you. Well, it is good to speak to you again. Let me open by saying that I think your book, The Tragedy of the Euro, is really a very important contribution to the Austrian discussion, so to speak, of central banks and monetary policy. I saw one commenter on our Mises.org website say that your book was to the ECB what Rothbard's against the Fed was to the Fed. Actually, I wanted to title the book first The Case Against the ECB, but then I chose The Tragedy of the Euro because my idea was to do something similar as Rothbard did with the Fed. Philip, the book really reads like a novel, and it's an excellent, concise history of the ECB. But I'd like to ask you, have there been any changes to the Euro or to the ECB in the four years since you wrote the book that would alter your central thesis? No. Actually, the developments are what you would forecast on basis of the books that they mainly that the ECB did or is doing anything to save the Euro, that the Euro is a political project. The last, let's say, Germans were pushed out of the ECB, the last Germans in the tradition of the Bundesbank because they did not want to print money fast enough as others thought would be necessary. So it has become more and more obvious that the ECB is an instrument of politics as I already had claimed in the book. So it's just what I thought would happen. It's interesting the way you explain the Euro as a purely political project rather than a true currency. And of course, Mises had a radically different conception of what money ought to be. It was basically an attempt to get rid of the Bundesbank, the German central bank because the central bank was the central bank in Europe that was inflating less due to the inflation phobia and the German population, which is caused by the hyperinflation of 1923, the experience of that and the experience of the currency reform after World War II when basically one generation experienced that they lost all their savings twice. So this led then to the Bundesbank, which were of course also just a money printing machine to keep up the government, but it did so less than the other European countries, which meant that if the other European countries, like let's say France or Italy, if they wanted to maintain the exchange rate more or less stable to the German mark, they had to follow the monetary policy of the Bundesbank. So if they wanted to finance their own governments, the French government, the Italian government, or basically the orders go the other way around. No, the French government spends has a deficit and says the central bank to finance it. So if they have a high deficit, the French central bank would finance it. And then there would be a depreciation, devaluation of the French strong. And this is, of course, very embarrassing for politicians. So the Euro was the attempt to get rid of this implicit discipline that the Bundesbank was putting on the monetary policy and to get the hand on it. And we have seen that this was a very successful move. So Philip, was the Euro in part conceived as an instrument for blunting German economic power? Yeah, in some sense, no. And there's this one anecdote that also tell in the book that there was at the end of the 80s discussions between German politicians or diplomats and French ones, because the French had stationed short range nuclear weapons at the German border that was supposedly they could only go to Germany. So supposedly if the Russians would invade, but of course, it's not very nice to have the short range nuclear weapons on the borders. So the Germans asked if there could be something done about that. And then the French answered, well, let's talk first about the German atomic bomb. And then the Germans said, well, surprised why we don't have an atomic bomb, you know, we are not even allowed to have one. And then the French replied, well, we are talking about the German mark. It seems like there is still this German collective guilt hardwired in Germans that compels them to accept whatever sort of globalist planning comes down, whether from the ECB or from Brussels, for instance. Well, it's less and less so in the younger generations. But of course, this guilt complex played an important role also in the direction of the Euro and the Euro crisis. You have to imagine that the politicians that are now in controlling German politics, they are the generation that was war-born at the end of the war or in the 1950s shortly after the war. And for them, they have still this complex that their fathers or parents were involved in Nazi Germany. So they still have this complex. And of course, in the media, it's also very strong still. So it's I think it's unimaginable that the Euro would have survived without this complex, because there are so many disadvantages for Germany to keep the whole thing up and to finance all these bailouts that I don't think it would have been possible without this complex. Well, has living and teaching and working in Spain these last few years changed your perception of the Euro and the Eurozone? No, I mean, you get the perspective of Spain, no? My academic teacher, who had a disorder, makes a case in favor of the Euro, actually, because he says it imposes some kind of discipline on on governments and he's in some sense he has a point because without the Euro, what would have happened in 2007, 2008 would have been that the Spanish Peseta, they would have devalued it and they would have just continued with the horrible policies. And now at least they have done some some small reforms here. It's not enough, but OK. Philip, do you think the ECB eventually will have to prevent Eurozone countries from issuing their own sovereign debt going forward? This could be in some sense we have already. And this would be a nominal thing, more or less, because in some sense we have already a Europeanization of bonds. If the ECB is basically guaranteeing for all European bonds, because they say we will do anything to save the Euro and we will buy any amount necessary to save the project. So in some sense, they don't need Euro bonds to survive. It would be more, more, I guess, confidence or psychological thing to say, hey, we really, we really want to do this forever. And it's it's the past dependencies. It's more difficult to to to get rid of Euro bonds. Once you have it, then to get rid of the ECB policy of unlimited financing. But it would it's not necessary. In fact, we already have we have a debt socialization in the Eurozone. So the ECB has all of its various national constituencies. The US Fed, of course, has 50 political constituencies in the form of our 50 states. Now, those states do issued bond debt, but they don't each have their own central bank. Yeah, this was the one different until now that the Fed didn't didn't buy no state debt or municipal municipal debt. This is was why I called it the tragedy of the Euro because there are several independent governments, France, Germany, Portugal, Spain, Italy, and so on, that can use one central bank to finance the expenditures, which is the tragedy of the comments and you can imagine if you are of your politicians. It's very nice because you can externalize part of your costs. No, if you buy votes with government expenditures, you promise big projects, you spend it, you have a deficit and part of the costs is paid through the printing press because the ECB buys or in the Eurozone is actually the banks buy the bonds and then they give them to the ECB as collateral for new loans. So the ECB only indirect indirectly holds them. So it's a way to monetize these steps. The cost is, of course, that the purchasing power of Euro is lower than it would have been otherwise. So the nice thing then for Greek politicians, for example, is you can externalize the cost of your government expenditures in form of a loss in the purchasing power of the Euro on foreigners because the purchasing power of the Euro also loses or goes down all over Europe and Germany, France, Italy, and so on. So Italians, Germans and Frenchmen are paying indirectly for the Greek deficit for the Greek government spending and Greeks and French, Germans and Italians, they don't vote in Greek elections. So you see the incentives for the Greek politician that they they can externalize the cost of their spending on people who don't vote in their country. As a result, doesn't the ECB operate to increase nationalism and resentment among the Eurozone countries, despite the supposed goal of harmonization? Yeah, this is one point that I make in my book, not one teaching or that or if Frederick Bastiat showed and the oceans repeat again and again, free trade leads to harmonious harmony, cooperation, to peace. But this is this is broken up through the Euro system because it allows one nation to live or one political class to live on costs of the people of other nations, the Greek, the Greeks, for example, the Greek government, they they had very early pensions, a very higher government spending, very high, many, many government employees. And all the spending was paid through the printing press indirectly. And all other Europeans were paying for it. Of course, nobody or almost no one understands this monetary redistribution that was going on or that is going on. But suddenly it came all to the open with the European debt crisis, surround debt crisis, because suddenly markets doubted that the ECB would finance without limits the Greek government and the Greek government needed a bailout. And once it needed a bailout, suddenly it opened the eyes to many people that was going on, what was going on, namely, namely a redistribution between different European countries and people who don't like redistributions. So mostly, mostly those that pay them and also people who receive these redistributions, they get get accustomed to it. And once you reduce their benefits, they also start to protest. And they start to burn German flags and Athens and so on. The Germans complained that the Greeks are lazy because they understand that they partially finance the Greek welfare state. So the harmonious cooperation between Europeans is broken up and their conflict that otherwise would not exist. And there's a new nationalism. Well, in the US, after the 2008, 2009 crash, we at least have an audience for Austrian business cycle theory. I wouldn't call it a mainstream view here, but we have an audience. Is anyone in Europe even considering or talking about Austrian business cycle theory with respect to the euro? Well, not so many. We had one German member of the German parliament, Frank Scheffler, of the Liberals, who is an Austrian. And he talked about it, but he was an exception. And he was not re-elected either. So does Merkel face any challenges from even a faintly libertarian political party, something akin to UKIP in Germany? Well, of course, we have this alternative for Germany, FBA, that is challenging Merkel's bailout policy. But they are not based on Austrian economics. They are based on order liberalism, mainly. And yeah, they don't understand Austrian business cycle theory. They are just they want the German markback. They think that this would be the optimal solution, so to speak. So they don't want gold or they don't want currency competition. They just want to get rid of the bailouts and the German guarantee of other other debts, which is a step in the right direction. But they don't have the theoretical background necessary to do thorough reform. Philip, you wrote a paper for the Wolfson Prize entitled How to Exit the Euro. And in that paper, you lay out some practical steps about how an orderly exit from the Euro back to sovereign solid currencies might occur. Among those ideas are an idea that Ron Paul has championed here in the US, the repeal of legal tender laws. And I was wondering if you could elaborate on your paper. Yeah, I mean, there are several options. You can do it more orderly or less, less orderly. One way would be, of course, also to introduce a gold euro that I also proposed in the paper, which is we just take take take all the gold that is in European central banks and we make the euro with it 100 percent. Of course, there are different ratios. For example, Germany might have or and Italy might have a higher ratio of gold in relation to the outstanding currency that they issued on their balance sheet. So there might to get the ratios the same. So there might be necessarily some redistribution, some gold loans between the different central banks. But then you would have a 100 percent gold backed euro. And of course, all the target two problems and so on, they would be also gold loans. So this would then and then you could open the thing for competition, European correct legal tender laws and so on. Philip, one last question. One of your mentors, Dr. Guido Halsman, has written a very important book where he discusses the cultural aspects of fiat money. I was wondering if you could speak a bit about how the euro has affected European culture, not just its politics or monetary policy. Yeah. The euro has accelerated the process of an ever higher indebtedness. The ECB lowered interest rates to levels never never seen before. They triggered bubbles. Then they financed bailouts between countries lowering interest rates to zero. And with zero interest rates, of course, you have very important cultural implications. So one is that it's a tendency of ever higher debts. Having there's an incentive as Guido Halsman explains to have to go early in debt into debts in your life and to go into high debts because prices will keep rising. So if you if you just save and cash, you will lose. So it's your incentive, of course, to go into debt early in your life. And and also into high debts to acquire early assets that keep rising in value. So this, of course, is keeping on with the euro. And now we get also the cultural culturing implications of zero interest rate policy and the bailouts. The bailouts leads to moral hazard and the zero interest rate policy threatens, I would say, a kind of life model that has been traditional for for the middle class worldwide, that if you are thrifty, if you save, if you invest, at some point of your life, you can make the decision to retire and you can be independent. You have accumulated a wealth that makes you independent. So this life model of if you work hard and if you save, then you get independent and wealthy. This is threatened by zero interest rate policies, not only in the eurozone worldwide, because people are the savings of people are worth less and less. Because inflation is eating up the savings and the savings of the people are basically used to finance the government deficits, which is basically they are they are burnt and they are burnt. They are they are lost forever. So many people may be faced with poverty in their old age and they may become ever more dependent on on the state. So they are self-reliance, self-reliance and self-responsibility is shaken by this policy monetary policy. Well, the situation you described sounds an awful lot like America. Dr. Philip August, thank you very much for a fascinating interview. Ladies and gentlemen, have a great weekend.