 Good morning everyone. Today I am going to speak on the Euro crisis. I know that I have written a book on this that has been published in many languages. I always forget one language so this time I will start in the East. It's Bulgarian, Greek, Romanian, Polish, Slovak, Italian, German, Dutch, Spanish Portuguese, European Portuguese and Brazilian Portuguese. American English, British English and then forthcoming are also French and Russian. So I think this time I haven't forgotten anyone and I don't hurt anyone's feelings. So it's in the news every day the Euro crisis. This week it looked again like it was falling apart but then yesterday came the president of the European Central Bank, Mario Draghi, and saying he would do anything that he could to prevent the Euro falling apart. So of course banking stocks especially in stock markets in general saw it yesterday. So to give you a broader picture on the Euro, one should combine a political and historical analysis with an economic analysis to really get a feeling of the crisis and to understand what has happened and what may happen in the future. So there are basically two visions for Europe. One you may call the libertarian or better maybe the classical liberal one. These were I mean just tendencies. The founding fathers of the European integration of the European Union, they were closer to this vision. So Robert Schumann, Konrad Ardenauer, they were closer to this vision. They were still influenced very much by the experiences of World War II. They were convinced that in order to have peace, lasting peace in Europe, you would need a free trade and for them the most fundamental Christian and European value would be individual liberty. In Europe there would be still sovereign states with private property rights defended, open borders and a free exchange of goods, services, capital and ideas. So for this vision the Treaty of Rome of 1957 was a first victory because it established the liberty, the free movement of goods, of capital, of persons and services. It was not but it was not a convincing victory. It was if in Sokka we would say it was maybe a three one because the other side also scored and because in the Treaty of Rome the cap was introduced the common agricultural policy which amounts to central planning in agriculture. So this libertarian vision just wanted to bring back what classical liberalism had achieved in the 19th century with free trade but then had been lost in the age of nationalism and socialism and two world wars. So for this vision for a harmonic cooperation in Europe you only need liberty, you don't need a European super state. In fact this vision is opposed to such a European super state because it's seen as a danger to individual liberty. And as the Founding Fathers were also Christians and belonging to Christian democratic parties they saw the borders of the European Union in Christian countries. They were also all Catholics so they subscribed to the principle of subsidiarity that means just trying to solve the problems at the lowest institutional level possible. For them you don't actually need central European institutions maybe the only one that would be acceptable would be central European court that would defend the four liberties and resolve conflicts between states. Then on the other hand on the left side we have the socialist vision or also called the empire vision like politicians like Jacques Delors or François Mitterrand they back this vision and nationalist, socialist, social democrat, social con they all favor to more or less this vision and they want Europe to be a fortress to be protectionist to the outside with terrorists and interventionists to the inside so it's this empire, empire fortress vision and they and they do dream of a central European state that is directed by technocrats and in their dreams I suppose they are these technocrats so they are the empire controls the periphery the the sovereign state stopped to to exist the central legislation a European super state that redistributes between nations and there's regulation and harmonization at a ever higher level and again the vast majority of the political class the bureaucrats the interest groups the subsidized sectors they all are in favor of the central state because they want to use this to enrich themselves actually the idea of a central state in Europe is not nothing new several politicians have tried to achieve it Charles the Great Napoleon Hitler Stalin they all wanted a central government in Europe they tried to achieve this via military means but they failed and now a little bit less violent means political means are used one of the tactics that is employed is what Robert Hicks explained to you that in a crisis situation when there's a crisis then you use the fear of the citizens to press forward towards more power for the central for the government so to introduce new institutions and to assume more power you can see it also in the euro crisis the European commission behaves as if Greece Ireland and Portugal would be their protectorates supposedly protecting them against evil speculators that sell their bonds and they they tell the commission tells them what to do how to reduce the deficit to raise taxes for example and the ECB also expanded its business it expanded its balance sheet it started to buy for the first time government bonds that it had not done before assumed this authority and also totally new institutions were were installed like the European financial stability facility or the European stabilization mechanism that all amount to some socialization of government debt so we have these two visions opposed and there's a struggle between them because more power for the central state obviously means less liberty so who is on which side in this battle this is also only a tendency so traditionally the Christian democratic parties have been closer to the classical liberal side countries like the Netherlands Germany Ludwig Erhard or Great Britain with Margaret Setscher they have been closer to this vision why the social democratic parties the socialists usually under the leadership of the French political class tend to support the socialist side socialist side and France is an important case because after the humiliation of 1940 and the loss of the colonies the French political class was looking for a substitute substitute for its lost empire and it was looking for it in Europe and the French political elite also wanted to prevent that Germany would recuperate its natural weight in the center center of Europe and want to prevent wanted to prevent that Germany would recover its lost territories so the idea was to assume absorb Germany into a socialist European union under the leadership of France so this fight was going on the struggle and it looked like that the socialist world winning slowly because the European Union was getting ever more power the budget of the European Union was rising ever more regulations there's also an implicit tendency built in the EU because the EU commission has the right of initiative for new legislation this is something unique worldwide that is not the parliament that proposes new legislation but the government would be like the government of the united states proposes new legislation and then congress may say yes or no nothing else so there's an implicit tendency towards more centralization more powerful for the government so it looked like the socialist were winning but then one unexpected event happened and it went that mises had predicted 70 years ago that is communism collapsed and the berlin war came down so this changed the scenario completely because what does this mean for the fight of the of the two visions for one germany would gain power through reunification and johnny germany was closer to the classical liberal side and opposed to the centralization more over the states of the east former communist countries like check republic poland hungaria they were they wanted to join they were pushing towards towards europe and they of course were tired of socialism and empires so they would then naturally join the classical liberal side so the balance of power was at this moment about to tip against the socialists so what did they do well first of all they tried to and they did prevent a fast extension eastwards of the european union because they thought if they if we extended too fast then this whole thing will become just a free trade zone and we don't want that so and at the same time they said we have to hurry up we have to hurry up hurry up now with centralization and the means for this centralization was the single currency uh the euro the euro so when the berlin wall came down this presented a unique opportunity for for the french political class here we have transform it around because the the french political class wanted to get rid of the discipline of the bundesbank the bundesbank is the german central bank there was a saying that the most feared institution after after the wehrmacht after second world war in europe was the bundesbank why because the bundesbank had a very well it was not as inflationary as the other central banks so if if the bundesbank did not print much money the bank of france couldn't print much money either because otherwise the currency would devalue and they did not really want to value their currency because it's very embarrassing it's also a clear sign for the population that there's inflation it's a small smoking gun so if they wanted and it's also uh disturbs uh international cooperation so if you don't want to devalue you have to follow the policy of the bundesbank so and if the bundesbank did not print much mother money the bank of france couldn't either which meant that it couldn't monetize as government debt as it wanted and as it could not buy with the new money as much french government bank adept as it wanted the french government could not spend as much as it wanted so by its restrictive monetary policy the bundesbank was implicitly uh indirectly also restricting government spending in france so actually the losers of the war were restricting the government spending of one party of the winning side why why was the bundesbank central banks so not so much so inflationary as other central banks were basically because germans learned from the errors because they twice in one generation they lost all their savings there was a hyperinflation in 1923 and after after the second lost world war there was a monetary reform where almost all savings were lost so even though german politicians wanted inflation the german public was very very opposed to it and the german politicians of course wanted to influence the bundesbank that it would inflate more but in this struggle against the bundesbank they couldn't win because the bundesbank had the strong support and the population everyone who dared to touch the independence of the bundesbank would lose elections so so this the bundesbank presented a limit for french inflation and french government spending which had to be reduced there's one anecdote at the end of the 1980s there's a meeting between french and german diplomats the germans want to speak about some nuclear bombs short range nuclear bombs installed at the german border that only reach into germany they say well there's not really a comfortable position for us that you have this short range atomic weapons installed near the border and then the french answer well before we talk about this issue let's talk first on the german atomic bomb and then the german said yeah but uh surprised naive well but you know that we are not allowed to have atomic bombs and we don't have atomic bombs and then the french replied well we we mean the d mark the dutch mark the german currency so so you see they equate this monetary or economic power with military military power and they wanted to get rid of it and the fall of the berlin wall provides this opportunity and miterrand actually uh in september 2010 when some archives were opened so now it's already proven fact before there were only voices or witnesses who said so now now it's a proven fact miterrand demanded the this thing accounts to the euro in exchange for his permission for human for german reunification well you might ask why did germany need french permission for reunification when you if you recall the situation of 1989 germany is still occupied by the four four allies or by the french it's military vastly inferior to france so there was almost no way not to to give in and miterrand even threatened by saying literally quote if we don't step forward with your european integration now meaning introduce the single currency we will have the same situation as 1913 which is one year before the first war war broke out um and the german political class has this great fear of isolation because germany was isolated twice now in the 20th century fighting a two-front war so they didn't want to repeat this situation which meant they gave up the deutschmark in exchange for the permission french permission for reunification which was of course an important victory for the socialist side why because the euro the euro provokes by a set-up sovereign debt crisis that then can be used for further centralization of political and fiscal power and this explains why the end of the euro would also mean the end of for the socialist vision at least in the in the short and medium term and that is why they will do anything to defend the euro so this on the political origin and now let's go more to the economic reasons why did high inflation countries in germany we call them club met countries club Mediterranean Italy France Spain Greece portugal why did they want the euro why the first reason i already explained they wanted to write off the bundesbank that put in indirectly this discipline and post this discipline on the other central banks and for france um it was also a power question you could also get if you had the euro you could try to get the prestige of the bundesbank for your new currency and have a stronger currency senior rush is another reason senior rush is the profit from central bank money production and uh this is an interesting case because how in the euro system how are the profits distributed well in the first place why do the why do central banks have profits where they have assets for example they give loans to banks and then they they get interest so all central banks in europe put in one pool uh the interest payments the profits and then these profits are paid back to the individual governments well first to the central banks and then to the governments and how how is this food then shared well if it would be in function of the assets of the central banks and everyone would get the same back would make no sense no the the the profits are remitted back in function of a figure calculated by gdp and population so that is why some countries get more and then they get out well unsurprisingly germany germany get less back then it paid in and and so germany loses and france wins also in this then lower interest rates for government debts this was very interesting for inflationary countries why lower interest rates first of all because the risk premium in in the interest rates on government bonds would be reduced or was reduced because of the implicit guarantee of the stronger countries to bail out the weaker countries and also the inflation inflation era inflation premium in the interest rate was also reduced because it was thought that the e cb would be like a copy of the wunderspunk and very conservative so this meant that the interest rates for on government debts in the peripheral countries was reduced considerably which meant that there was a there was additional margin for government spending and to accumulate more debts it served for some countries also as an excuse for austerity measures that would have been necessary anyway in the early 90s some countries such as italy or beijing they were already at the verge of sovereign collapse sovereign insolvency so they had to do some reforms they had to privatize they had to reduce some government spending of course this is very unpopular but if you can tell your population where we have to do all this it hurts a little bit but we have to do this to get into the euro and once we are in there we will be fine then you can sell it to your population more easily there's monetary redistribution as i will show you later that the new money was not introduced in all countries in the same measure and last this inflation era countries would also get a stronger currency and have more more imports higher standard standard of living before the euro in germany when there was when germans would work hard and there was capital accumulation and they would have more exports and then the demarc would rise in value the german currency would rise in value which meant that the benefits of the hard work would be spread to all of the population because then they could import cheaper or go cheaper on holiday in in the south now the the benefits of the hard work which leads to a tendency of a strong currency are spread are spread to the to these peripheral countries who got a strong who got a strong currency then they would have had otherwise cheaper imports and this coupled with the lower interest rates led to an consumption and investment boom so these are the graphs for the last slide so the first thing that i mentioned was that the interest rates were reduced in the southern countries they actually fell to the level of germany so when it so the red line is germany so when it became clear which countries would join the euro the interest rates were reduced the risk premium was reduced inflation premium was reduced so they approximate the german interest level here with greece we have still a gap here because greece would not join the euro in 1998 but only it would only falsify the statistics later and so it would join in 2002 so there's still here this gap here we have the balance of trade we see an export surplus of germany that is compensated by import surplus of other countries and as i said the export surplus makes your currency stronger and the import surplus weaker and if you see this if you see this in time this has even increased so this is germany the germ export surplus has increased while the trade balance of trade has has worsened for for the southern countries the peripheral countries this is their competitiveness based on measured by unit labor costs so if this goes up you get less competitive because you are you are more costly so you see here that the peripheral countries used the euro the time of the euro to have rate rates to increase to give in to labor unions that wanted to have higher wages so their competitiveness decreased they had a good time they had a party but the competitiveness increased decreased while in the in other countries like belgium the netherlands also in germany the picture looks different especially in germany where the unit labor costs were reduced and germany is much more competitive than it was in 1995 15 years ago so what does this mean for the standard of living you have here some countries you see the retail sales like you in the us france and the uk from the last 15 years they increase so people consume more have a higher standard of living while in germany there's just stagnation there's just stagnation consumption with you we take a peripheral country like spain from 2000 to 2007 only only seven years retail sales increased more than 20 percent while in germany people people are not better off they it's just a stagnation of living standards the monetary distribution here you see the increase in m3 it's kind of chaotic graph but the big thick line is germany which is a tendency to be at the lower lower range while other countries like spain or greece they have much higher growth of the money supply okay so now the question the obvious question is if germany had so many disadvantages from the euro why did they why did they accept it why did they gave up the demarc in fact the population the majority of the population if they would have been a referendum they would have not given up the deutschmark there was a there were there were economists that that signed letters to the government not to do it lawyers went to the constitution constitutional court to to pressure against the euro however the german elite wanted the euro so why the first reason i already explained know that there was this pressure by by france to sacrifice the demarc in exchange for germany unification the second reason is that germ politicians of course also also wanted to get rid of of this stubborn bundesbankers that would not inflate enough so this was a way to get rid of them okay to get rid of the influence as we see now strong influential interest groups were in favor of the euro because they basically wanted the socialist vision to go on they wanted more harmonization for example of labor standards that are very high in germany they wanted to impose it on their competitors or environmental standards that were very high in germany so they want to go impose these standards on the other countries german exporters were in favor or big german exporters were in favor of the euro because without the euro they would occasionally there would be devaluations and a very strong pressure to innovate on them but here i would like to make the following comment because you often hear the argument that germany is the great benefit of the euro because it has so high exports and without the euro it wouldn't have it well if we look at it from the point of view of an individual what is really important is not the exports when i when i sell my suit or when i give give a lecture i'm selling goods and services i'm exporting to the rest of the world while when i when i buy a laptop or when i get a haircut i'm importing goods and services so if someone would ask me hey philip do you only want to export or do you only want to export import then if i would have this choice obviously i would only uh well i may i may give here this this lecture but i may only import because it's much much nicer you don't have to work you just just get all the things um so the important thing is to import and only to import this is actually what what satan europe did in the last 15 years they imported much more than they exported so then to say that the big advantage advantage of germany is that it had such an export surplus no makes me laugh banks also were in favor of of the euro why because as i said some countries in the early 90s they had already italy and belgium had more than 100 public debt per gdp so they were on the verge of bankruptcy so if italy and belgium collapse their banking system collapse there's a probably a banking crisis in europe germ germ banks may collapse so would germ banks be in favor of zero of course and they still are so they wanted to prevent this sovereign and financial collapse by just merging to a bigger thing to the euro so now we come more to the monetary setup the cv central bank they create the monetary base they print euros and the banking system creates money titles on top of this so um this is our this is in contrast to the fed not in the fed where here we have the system that the government spends more than it receives in taxes and for the difference it prints paper and writes on it government bond and the banking system buys these these bonds so the government gets new money and then the banking system sells its the bonds to the fed and gets new reserves and this is very very nice to have new reserves because then you can expand credits which is or produce more money which is a very nice business so then the bonds are the property of the fed the government has to pay interest on the bonds and then the fed at the end of the year has a profit because of the interest payments and the majority of these profits are then paid back to the government which meant that the government never has to pay their debts because when the bonds come due come due they just issue a new bond so it's a very nice way to finance yourselves to finance your expenditures in case of the cv it's a little bit different because they're the governments they when they have a government deficit the issue bonds they get money from the banking system but here traditionally the cv has not bought government bonds what the cv did is to give loans to the banking system but in exchange for these loans they said well we need a collateral we need a guarantee and we accept well some kind of securities but the best that you can offer us are government bonds so the banking system pledges bonds as collateral for new loans at the cv and get then the new loans and new reserves and can then expand credit so the difference is then that legally the bonds are still the property of the banking system which means that the government pays interest on the bonds to the banks and then of course the banks have to pay also interest on the loans from the cv and then the cv remits the profits back to the government of course there's a slight difference because some of the interest payments remain in the banking system because the interest rate on the government bonds is higher than the interest rate on the loans to the banking system from the cv so you should let your friends participate no in the scheme so it's it's a more just a system in this sense so here you see the bank holdings of government debt in the EU so you see two trillion euros of government bonds are held by the banking system you will see here when the financial crisis hits in 2008 governments have to issue more government bonds there's a deficit high very high deficits so they issue the bonds and then they tell their banking friends hey you have to pay more buy you have to buy buy these bonds so you see here a strong increase in the bank holdings of government debt that then the banks use and go to the ECB to get new money in percentage in 2010 almost 30 percent 30 percent of all government debts are held by banks in the euro area probably now it's even higher in comparison in the US it's only 11 percent which makes totally sense because in the in the US as we have seen the Fed just buys the bonds so it's not property of the banks anymore so what is the difference between the two the Fed and the cv well economically it's very similar in both cases the money supply increases in the case of the ECB the money supply increases as long as the cv rolls over the loan to the banks that is when the when the loan comes due they just renew it and in the case of the Fed the money supply increases also until the Fed sells the government bonds again so the legal leader difference is that in the EMU of the European monetary system the bonds remain the property of the banks and they are off the balance sheet of the central bank however in both cases government bonds are effectively monetized that is there has been money produced to buy government bonds to finance government bonds so the bailout of priests did not really start in 2010 when the ECB started to buy greek government bonds but much earlier because they they accepted greek government bonds as collateral for new loans so that the greek government could issue bonds the greek banks could buy the bonds and then go to the ECB and receive or to the euro system and receive more money so one interesting question is of course if 30 percent of government there's only 30 percent of the government bonds held by by the banking system who holds the rest well for non-eupian banks hold european government bonds foreign central banks hold government bonds and one interesting aspect is the indirect monetization of government deficits government bonds are the preferred collateral in the euro system so if you as a bank hold a government bond it's almost as good as holding money because you can always easily go to the ECB receive new reserves this makes it very makes government bond very very liquid artificially liquid and you can always use it to get new reserves and then create new money on it so to show it graphically to you this indirect monetization through the euro system this is what we have seen before the government issues bonds to finance the deficits gets you money banks goes to the ECB receive new reserves okay so so maybe 30 percent of all this government bond is financed like this is sold by this but here's a story does not end because the banks have now higher reserves what do they do with the reserves the normal times they expand credit they give loans to to a construction company for example who starts to build houses and to hire workers so new money is created by the banks goes to the first to the entrepreneurs then to the workers construction workers and what do construction workers do when they get the new money where they will consume part of it but maybe they will also save part of it and invest maybe in insurances hedge funds pension funds and what do they buy with part of these this new money why not buy a very very liquid asset that you can sell very easily that banks are very eager to buy so important part of the new money then ends up buying again government bonds so this is the indirect monetization that is often neglected good here in these in the euro system there's also one important difference to the Fed because in case of the Fed only only one government can use the Fed to finance the deficits but in the case of the euro system several governments can use one central banking system to finance the deficits so they have all European governments or eurozone governments have the incentive to run a deficit to print government bonds and to use them as collateral to get new money so this is what I called a tragedy of the comments in a tragedy of the comments property rights are not defended or defined well and several users can exploit one resource a common example are fishes in the ocean they are not the property of anyone any fisher can fish them so the incentive is to fish as many fishes as possible because if I don't fish them well the other fisher will come and get them so it leads to an over exploitation of the resource here we have the same thing we have a public money that's on property rights and money are not defended and several governments can use one central banking system to finance themselves it's like if we would have here a printing press and all of us could use it so of course if I'm stupid I don't use it and you start printing the money and prices go up and I look hey everything is more expensive I cannot afford anything anymore so what do I do well I also try to use the printing press and print the money for myself and bid up prices so there's a redistribution the important thing that is that I print faster money than you because only then I can profit from it if I if I print money slower than you then prices rise up faster then I have I have more money so here we have a redistribution and the first receiver of the new money win they buy at the old prices and then the prices rise and the people lose that have to pay higher prices before their income increases so takes takes the case of Greece the government has the deficit the prince bonds the banks buy them they go to the to the ECB receive new reserves they expand credit the money supply increases and prices rise but not only in Greece also in France Germany Spain Italy so the greek government thereby can externalize part of the costs of the deficit the costs of the deficits are here rising prices or lower purchasing power of money on foreigners it's very nice because foreigners don't vote vote for you in the next election so you can promise gifts to your population and and finance a welfare state while you make foreigners pay in the form of a loss of the purchasing power of money interesting thing is of course that not only Greece has this incentives but all other governments as well and here again the same is true that you you only profit if you exploit the comments faster than the others if you fish more than the others or if you print more than the others it takes example that Germany has a government deficit of 3% of GDP and the rest of the eurozone has a deficit of 10% of GDP they buy bonds banking system buys them prices rise let's say the rise on they rise on average 8% in the eurozone this implies that even though the government has a deficit of 3% prices rise even faster than than the deficits that means that real german government spending may actually fall so here you see the incentive to have to profit from the monetary redistribution by having a higher deficit than the other countries which obviously is very explosive indeed the question that now is obvious is why why hasn't the euro not exploded already why is it still there why has have there not been hyper inflation well I made the analogy with the printing press that several users can use one printing press and it's good to understand the principle but of course it's not a perfect analogy there are some differences because governments cannot print euros the only thing that they can do is print their paper and write on them government bonds but then they depend basically on two institutions one is banks that they buy these government bonds and second that the ECB accept these government bonds as collateral so there's the risking wolves that in this chain that's this chain breaks for example banks could say no we don't buy these bonds because the interest rate is not high enough or we fear that you will default on your debts in the future or the ECB may say no we don't accept bonds of the greek government anymore because the rating is so low they may default so there there's some risk involved in in the scheme which however I alleviated because the euro is a political project that is why it's important to you know know the history of the euro and the political political interest behind them there from the winning there was an implicit guarantee to bail out these countries that would have financial problems so indeed the chain never broke and it's still working that is banks still buy government bonds especially the bonds of their own government and the ECB still accept them as collateral indeed the ECB had promised or they had the rule that they would only accept collateral rated at a minus then this was reduced during the financial crisis to bbb minus but then the greek government the greek government bonds received a lower or were expected to receive a lower rating and then the ECB said okay we will now accept greek government bonds even though they have a lower rating now they are rated junk and the ECB still accept them as as as bonds the same is true for portuguese bonds so you see it's a it's a because it's a political project they gave in and the tragedy of the euro of the commons is still intact however there was another limit for the tragedy of the euro the tragedy of the commons the use of the printing press the stability and growth pact what is the stability and growth pact well it's if you imagine the fishers in the ocean governments often instead of privatizing the resource they try to regulate the resource they impose for example quotas they name like ten fishers and they say you each of us each of you you can fish this year 10 tons of fish they they want to prevent prevent the over exploitation of the fish in this way the same happened here with the stability and growth pact there were quotas imposed on governments on the deficits they were saying you can have a deficit of up to three three percent of GDP so this was the quota imposed however this limit was a total failure because basically because if you if you don't fulfill it there's no there's no there's no someone who punishes you there's no there are no penalties or sanctions this explains why the countries had often more than three percent deficit of GDP also germany france in 2010 only two countries had less than three percent a lux luxembourg and finland and for Greece for example for the next 10 years for the next years they suppose that they can have a higher deficit spain is allowed to have a higher deficit next year once this year so that it was basically a voluntary agreement between fishers of saying okay let's only fish so much but then at the end no one was there to enforce it this explains why the euro is self-constructing self-destructing and provokes the accumulation of debts and then the sovereign debt crisis which then is used for centralization and this also generates conflicts it's not only in stable but it generates conflicts bastion basti art frederick basti art heads has this saying that if goods do not cross borders armies will so one of the pillars of classical liberalism is that free trade fosters peace while government barriers between nations generate conflicts because they lead to autarchy and they lead to the desire to get to get rid of these barriers with arms with the with the war while a free voluntary exchange leads to a pacific and harmonic cooperation because you get to know these each other you you depend you or you know you realize that you depend on on each other for mutual benefit so germans export cars to to greece and greece exports feta cheese to germany or germans go on vacation for greece so everyone is happy but this voluntary exchange is hampered in the eu in several ways one is the redistribution through cohesion funds or regional funds where basically you text one country and you give it to another country to build a road to nowhere but there's also the redistribution through the euro that for example in in in greece the greek government has a deficit it pays subsidies to maintain an economy rolling that is uncompetitive if they are too high wages in greece labor unions are very strong in flexural labor market normally you would have a very high unemployment but this unemployment is reduced by government spending because you just pay or you pay the unemployed unemployment benefits or you hire them into the public sector or you send them in early and higher pension schemes of course the result of this is a very high deficit you live beyond your means but to cover the deficit you just issue the bonds that then buy the banks and use as collateral for new loans from dcb the money's applying increases and prices rise all over europe so there's a redistribution the first that receives the first who receives the new money is the greek government and the people who receive from it and then maybe the greek minister he buys a Mercedes in germany so the new money flies to germany bits are prices of Mercedes the money stays in germany because it doesn't flow back to greece because the greek economy is uncompetitive prices are too high so greece has a trade deficit with germany so goods are basically exchanged for in exchange for new money or debts that are never be paid paid back however you cannot maintain this forever and an economy that is not competitive forever so there was then the bailout in 2010 of greece the first one then there was the second one in 2011 and the loans of the bailout were guaranteed by germany to a large extent and this then made the redistribution more transparent because all of that that i explained before 99 percent of population has no has no idea about it but once you hear in the news whether there's a bailout of greece and we are um guaranteeing it then the redistribution becomes more transparent and then you ask why do greeks have higher and earlier pensions than we in germany for example or why do they have paid vacations and we don't why should we maintain their welfare state while while we reduced it in the last 10 years so of course the tensions build up germans get angry on greece they think that they are lazy and greek media attacks back by saying that germany should pay reparations for world war two so you know that is that is true but what is actually even more fascinating is that when there were some german politicians going visiting greece a member of the socialist greek party told them that um if germany would not bail out greece again the the germans would suffer as a safe fate as the germans increased in world war two where there was almost a world where many germans lost lost lost their lives so there are really tensions building up the harmonic cooperation of the free market is substituted by conflicts generated by the incentives of the euro system the question now is at this point who will eventually pay for the malinvestments that has has been where they have they have been malinvestment in the in the spanish real estate sector that has been have been socialized in part by by the government by bailing out banks they have been malinvestment in welfare states so all this money is basically lost has been spent on on on housing bubbles or or welfare state bubbles public education bubbles so all this money has been gone who will who will pay for it in the end where there are several there are six opportunities one is that over-endepted peripheral governments pay that is they reduce their public property they privatize the privatized public companies they reduce um government spending they reduce their power this would be the first the second would be that core governments the germ government finished government pay uh that is germ government uh privatizes public companies or the finish the third option is the peripheral taxpayers pay that is uh there's tax increase in Greece forces that core taxpayers pay that there's tax increase in in germany and a fiscal union their fiscal transfers from germany to the rest to the periphery fifth the users of the currency pay that is the cb inflates the money supply to pay for all these steps or six financial institutions pay that is banks go bankrupt so the french government and peripheral governments uh they favor four and five that is they want basically germ tax payers to pay the bill and the cb to to to buy even more government bonds to print more money so friends and the and the latin countries they push in this direction while germany and the netherlands they rather want peripheral governments to reduce their size they also recommend tax increases in these countries and they also talk about or they wanted to uh that um financial institutions suffer losses in debt restructuring so who who will win who will win well the future of the of europe and the europe depends on who will finally will win and after this how the tragedy of the comments will be addressed so there are three possibilities one is to reform the stability and growth pact so there are harsh austerity measures and structural reforms in peripheral countries so the deficit is reduced to three percent or even lower that is the optimistic uh view of where to the soto that he argues that this should be done and will be done the second is uh that the eurozone splits up because the loser is too dissatisfied with the outcome for example if france gets it it's well and germans paying in form of high inflation maybe then germany leaves of germany gets its way and they are harsh reforms in greece the government shrinks in greece spain italy and then they leave the euro because they don't want to do it or third option is that they are transfer union and the centralization and we we move through slowly to a central european state so which considering the geopolitical power and also the past evolution of how the euro was introduced and the interest behind it is probably the most likely and this with this positive outlook i i leave you i i think there are four books left so in the bookshop of my bookstore of my book so you better start running thank you very much