 Welcome back once again to Mises Weekends. I'm Jeff Deist and we'd like to wish all of you a very happy 4th of July weekend. But it's not such a happy weekend in Greece where the Greek people are set to vote on a referendum which will determine whether or not they will accept the latest terms of a bailout offer from their European zone creditors. And to discuss this topic we brought back our old friend Pat Barron who is not only an economist and a university professor but also an expert on European geopolitics. So Pat will and I have a great conversation about European integration which really pits creditor nations like Germany against debtor nations like Greece under the yoke of the Eurozone and in doing so intensifies and fans some of the old nationalist flames that European integration was supposed to end. And with the Euro operating more as a political project than any kind of real currency as Patrick explained spend-thrifts like Greece will find themselves chronically unable to service their debt. And Greece represents in Patrick's view an example of Sey's law in action and a clear refutation of Keynes' belief that you can create artificial demand via cheap credit and stimulate production. We've seen quite the opposite occur in Greece. And if you think the Greek crisis is far away and that it won't affect us or it can't happen here I would argue that we should look no further than California with its own public pension crisis and huge debts. So if you're looking for a sober and hard-hitting analysis of what's really at issue in Greece stay tuned for a great discussion with Patrick Barron. Thanks so much for joining us and welcome back. It's been a while since we last talked. I'm glad to be here. Thanks for inviting me. Before we get into some of the mechanics of what's happening with this Greek crisis I want to just dial back for a second saying it's a really fascinating example of the loss of sovereignty that comes with some of these globalist schemes. Here we have poor Cyprus holding this referendum over the weekend and on the one hand he has to balance his desire to work out a fix for his debt problem with his European paymasters but on the other hand he has apparently about 57% of the Greek population who recently elected him in a very left-wing government opposed to this same workout so it puts him in a terrible position. Well I've said all along getting to the sovereignty issue I've said for quite a long time that I expect Europe to actually solve its problems before the United States. In the United States we are a unified country everybody says well that's great we're unified and Europe isn't but in the United States we are all subject to the mighty Federal Reserve. We have no escape from their money printing but in Europe the European Union which is a flawed organization and is completely unnecessary for world peace in fact it's anathema to world peace but that's no issue but the European Union is made up of sovereign countries. Those countries can leave they can go their own way that they say well there's no exit strategy in the European Union treaties the mastery is completely irrelevant. I have said for a long time that Germany should leave it's a sovereign country it has a right to leave it should leave because it's Germany that is actually being penalized. If you look at this thing objectively the Greeks have actually been the beneficiaries of European socialism they're sort of the welfare queens of Europe. There's other welfare queens but the Greeks you know it really stands out and who's actually paying the bill? Well the Germans. Mainly the Germans. The Germans have a 500 billion Euro credit at the European Central Bank. This is phony money that they're probably going to lose or at least it's going to be devalued to some fraction of what it is now. That means that the Germans daily are producing real vendible goods and they're shipping them off to these welfare queens mainly in the southern tier of Europe. So from a sovereignty issue sure Greece is a sovereign nation Cyprus you know has a big problem on his hands but this is all the result of this faulty European Union organization that started out with the best of intentions to preserve world peace by eliminating trade barriers in Europe. That was wonderful and then it was hijacked early on by the European federalists let's call them who said oh well free trade is good and we have open borders for trade and the free trade movement of good services and people well let's have a unified nation. Well this just went too far it's just become a socialist organization where supposedly all of Europe every one of Europe is responsible for everybody else's debt. Well that's just a prescription for failure. So I think this is the big problem is that the European Union is really just another further down the line of 150 years of European socialism that started back in the days of Otto von Bismarck and it's just Greece is another early victim so to speak they're a victim in one way as you say a loss of sovereignty but they're also they've been taking advantage of really the implicit supposed guarantee that Germany in effect will pick up the bill for everybody's profligacy and this just the Germans are just running out of patience and rightfully so they should have run out of patience a long time ago. Well it's interesting to note that European integration of which the Euro and the Eurozone are parts was designed to reduce nationalist tensions between countries like Greece and Germany but instead we see that by yoking everyone together under one currency we've actually intensified those tensions. Well that's right there are all these countries that occupy the same kind of land mass that we call Europe but the United States, Canada and Mexico occupy the same land mass that we call North America but hopefully we're not trying to have a federal union of Canada, the United States and Mexico I don't see that there's any need for it and I don't see that there's really any desire for it. The Greeks are not the Germans, the Germans are not the French and there's really nothing wrong with that they really have to embrace instead of saying well we all must be under the same political leadership they should just embrace free market capitalism free market capitalism is the panacea to all this in fact there's absolutely nothing that can be gained by any country by joining the European Union that it cannot achieve by simply declaring itself to be a free trade nation that's all it has to do just become a free trade nation like Hong Kong was like Singapore has been and just allow goods and services to come and go and allow people to set up businesses you still are a sovereign country you're still maintaining law and order you still have control of your individual country's boundaries but you're open to the world and you are a peace-loving commercial nation this is the path to true peace in Europe not forcing everybody to adopt to a German model or a French model or an Anglo-Saxon model that certain countries aren't going to like they can all have their own model but they should all trade freely with one another and live in peace The debt crisis and the insolvency that the Greek government is facing is due to the fact they owe a lot of money to a lot of different creditors but chief among those creditors is basically the Eurozone itself The European stability mechanism which is backed by all 19 Eurozone countries is their single biggest creditor and that's also the entity from which they seek their current bailout to keep going running on fumes for a while you bring up Germany why all the focus on Germany why all the hatred directed towards Germany is Germany simply the most solvent and biggest lender within this European stability mechanism? Oh yes, there's no question that they are if you there's a website that you can if you just Google target two P-A-R-G-E-T and then the numeral two, target two that will show you all of the countries that are in the European Union it'll be a chart and it will show which ones have a debit balance with the European central banks and which ones have a credit balance with the European central bank so this is a key thing for the banking and it really shows in graphic detail that Germany is supporting all of Europe many of the countries have deficit balances in other words they owe the European central bank money they have not been settling their accounts their own individual national central banks such as the Bank of Greece have not been settling their outflow of deposits with real goods or with real assets so in effect the European central bank is allowing Greece and other countries to run overdrafts Germany is running the 500 billion euro credit balance so Germany is carrying all of Europe pretty much all of Europe financial I think Luxembourg is pretty much an even keel I think the Netherlands are pretty much an even keel maybe Finland but Portugal, Spain, Italy, even France all the usual suspects are running big deficit balances with the European central bank which means that the European central bank is preying money and giving it to these countries they're buying real, vendable goods and Germany is footing the bill for it if Germany says they're going to leave they're going to stop doing this which they should do the whole thing has to come to an end because there's nobody else supporting it in any kind of meaningful way but this is nothing more than to say that at some point in a socialist organization the people who are paying the goods just say they're not going to do it anymore and Germany has the right to do this because it's a sovereign country here in the United States if we tax payers who always wind up footing the bill for all the taxes that the government pays on all their welfare programs we would like to not have to do that but we're tied to this unified state and we can't get away from it Germany can get away from it and it would actually be good for all of Europe these countries have to learn to stand on their own if they had not had the European Monetary Union with the implicit guarantee of their sovereign debt then countries like Greece and Portugal, Spain, Italy would never have gotten themselves into the pickle that they're in they would have had to balance their books a long, long time ago So Patrick, the European government the European Central Bank become insolvent they become unable to service the interest on the national debt they've issued how does that mechanically trickle down to Greek commercial and retail banks so that individual Greeks are unable to obtain Euro unable to access their funds at their own retail banks well, I think we're talking about a Zimbabwe situation I think where the money just becomes there are no Euros in Greece the Greeks are running out of Euros the banks are running out of Euros Physically Physically and really the only salvation for Greece if I could tell Cyprus and Varysukas or whatever his name is what to do I would tell them the first thing they should do is repeal any legal tender laws allow the people to conduct their business in any currency they wish do not put on capital controls you're just going to have to let this whole thing work its way out through the free market but give the people freedom give them financial freedom and give them economic freedom they've got to repeal some of these terrible labor laws that they have over there and stop telling people that somehow they're going to be guaranteed a wage above what the free market will pay it's not going to be easy as we've seen in Eastern Europe when the Soviet Union collapsed the countries that embrace free market capitalism the earliest and really the most vigorously are the ones that recover the quickest and the ones that say well we're going to gradually get rid of the socialism well it drags on and it just keeps getting worse and worse and it drags on and on and on so there's no substitute for free market capitalism and that's what they need and I read what the socialists want to do they want to have capital controls you can only get 60 euros a day out of your bank if your bank has euros to give you and now there's no money in the country people can't pay their rents the whole economy is going to come to a grinding halt well then you've got to allow the people to use other forms of currency you've got to free up trade you've got to turn Greece into a Singapore and a Hong Kong and if the Russians want to come and invest you've got to let the Russians come and invest if they want to use rubles let them use rubles the Europe has created this horrible monster and it's all because of socialism and they've got to allow the poor Greeks to earn a living and start paying their bills it isn't going to be easy but the more constraints you put on them the more constraints the Greek government puts on the Greek people the longer this is going to drag out and the more pain and suffering the Greek people are going to experience well it's shocking but it's also fascinating I mean we are literally on the precipice of a humanitarian crisis and what we think of as a first-world nation I mean we could see supermarkets that look like Venezuela I also have read this is quite a while ago that if you travel to Greece that you know hope you don't get sick because apparently the pharmacies do not have drugs because the pharmacies have not been able to pay their bills to where they're importing drugs so I mean this thing is going very deep people look at Greece and say the sun still shines these Greek cities and the Mediterranean are still beautiful and your dollar goes a long way well that's just the surface below the surface are people that are in abject poverty and things are getting worse and they're going to have a real real crisis over there in all kinds of ways well you better hope that that Greek airport has jet fuel on the premises to fuel your plane home but you know you recently wrote this great article about the free market foundation where you talk about the unfolding Greek crisis in the context of Say's law and you know we hear so much from what Hayek called the socialist of all parties about how we need demand side stimulus whether that's through fiscal measures or whether that's through monetary policy but you come to the conclusion that we need the opposite we need production stimulus and we need to obey Say's law so talk about Say's law in the context of what's happening in Greece now Say's law says that it really is the extreme very logical idea that you can't consume what you have not produced and therefore it is actually production that creates supposed demand I use the example in my argument of a farmer who raises corn he specializes in corn if he didn't for one thing people have found that specialization leads to greater productivity so instead of a farmer having a little plot for everything he needs some corn and some beans and maybe he has some pigs and some cattle he decides he's going to become a corn farmer or he's going to become a cattle farmer let's say a corn farmer so he specializes in that now he may have some corn that he consumes for he and his family and maybe to feed some livestock that he keeps around but mostly he sells the corn to receive money which is the indirect medium of exchange so that he can buy other things so his corn crop his actual production is his demand this is what Say's law is saying that it is your production with which you command other goods who are also producing surplus goods because they are specializing in other things so that's Say's law now the socialists try to turn this on its head and say oh no we need to produce demand first and somehow by creating demand we will magically entice these goods out of the marketplace and when you have a sound money environment this becomes illogical on the face of it for example if the king says well I'm going to stimulate the demand and the economy in my kingdom by living in luxury luxurious goods and fielding a great army and I'm going to do it with gold well where is he going to get the gold he's going to tax the people for the gold or he's going to borrow it so he pulls this he reduces the people's ability to produce by taking their gold and spends it himself so the people would recognize right away that in a sound money environment this is just ridiculous on its face but in a fiat money environment thanks all the in a fiat money environment all this is sort of hidden the government becomes the central bank becomes sort of a counterfeiter of money and with the same result in that it's hiding its real theft of what it's doing to spend the money to create this demand but it isn't but all it's really doing is causing prices to rise and causing dislocations in the structure of production it doesn't really magically pull resources out of the economy or entice people to do something that they would not ordinarily do and this is what our Federal Reserve is trying to do now for about 15 years without any success whatsoever by expanding our money supply tremendously with the idea that somehow we're going to magically entice the whole economy into greater levels of production so this is the this is the violation of Sey's law that came this whole general theory his entire book at the heart of it is his his attempt to invalidate Sey's law by saying that fiat money production does invalidate Sey's law it does no such thing we're seeing the results of this in Greece today Patrick as we wrap this up talk about potential exit strategies now in a free market situation we would see some sort of bankruptcy process whereby Greek creditors would take a haircut and potentially the Greek central bank and the Greek government would sell off assets etc. but what we're going to see is not that kind of process what we're going to see is a very political process so take us through how you see this whole thing unfolding well Greece can't pay these debts this is ridiculous I mean the European Union and the members of the European Union the European Union itself have been funneling money to Greece it's I really it's hard to say how it will fold out but frankly I don't see this as any different than a bank that has foolishly lent money year after year to a failing enterprise and when the failing enterprise can't pay its interest expense even then you loaned money to pay its interest expense you know in banking this becomes this is sort of a corrupt process in banking so European Europe has done this just at the national level on a gigantic scale but it is no less corrupt and in banking when this happens you just have to write it off I mean you have to write it off and let the chips fall where they may Europe should not try to collect this debt from Greece Greece cannot pay it that's all there is to it in fact I think the whole debt structure of Europe is unpayable now they may try to get some bit paid off you know there may be some I don't know some goods that creditors can take from Greece frankly I don't know what it is but I think it would cause a lot of animosity if you know Germany firms start hauling away Greek assets and not Germany or maybe they'll sell them to the Germans and maybe that would be a good thing you sell Greek assets to the Germans and the Germans run the Greek businesses but I don't really think it's on the Greek businessmen don't know what they're doing I think it's a problem with the whole structure of the European Union the Greeks are just the canary in the coal mine of this thing they're the smallest country that is the first one to suffer so I would just say look the money is gone the European Union was a bad idea we've got to liquidate the European central banks we've got to we've got to countries should allow their citizens to use whatever currency they want I would say in interim measure if I were the Germans I would bring back the Deutsche Mark and I would allow and I would imagine that if the Germans brought back the Deutsche Mark there would be a rush of many countries to become Deutsche Mark nations they wouldn't want to stay on the Euro they would not want to reintroduce their own small national local currency they would just want to become Deutsche Mark nations that would be a good thing and so I think it's you know this would be my ideal and interim step would be to allow Germany you know for Germany to go back on the Deutsche Mark and all of Europe may become a Deutsche Mark Deutsche Mark continent instead of a Euro continent but maybe not you know but with under freedom you're not really sure what people would do but I frankly don't see that there's anything that there's any ways that these debts can be collected the Greek people are just being grounded into poverty and it would just cause more animosity more real political animosity it's been a bad idea it's been a bad experiment you've got to end the experiment and move on Patrick Barron thanks so much for joining us on another great interview ladies and gentlemen have a great Fourth of July weekend