Eurocrats Trash Their Own Backyard

Survival is a strong instinct. Animals, viruses and even humans go to great lengths to avoid death and extinction. In many cases, the organism’s will to survive can cause others to suffer. Charles Darwin theorised that survival of the fittest generates the strongest societies. Darwin, however, overlooked one institution whose will to survive leads to second-best outcomes – that institution is Government.

A particularly atrocious example of the will to survive to the detriment of the common good is the EU’s handling of the Debt Crisis. The core problem is that the 27 or so Governments in Europe spend too much. Debt is the result of spending exceeding revenue. The logical fix to the crisis is to stop spending. But this would shrink the size of Government, threatening the very survival of the Eurocrat species. So the approach to the crisis has not been to fix the core problem; instead it has focused on finding large enough pools of money to sequester.

The first act of survival was the ‘Greek Solution’ which confiscated private bondholders assets by retrospectively inserting collective action clauses and subordinating private claims in the government bond market. That created a few problems for the Eurocrat, such as uniformly higher borrowing costs for the government debt that they continue to amass. Another problem was the destruction of bank balance sheets that had held Greek Debt for reserve purposes – particularly the banks in Cyprus. Which brings us to….

….the “Cyprus Crisis”. This is an entirely Eurocrat-inflicted wound on their own constituents based on survival at all costs. The drama is still unfolding as I type, but the prognosis is not good. Weak banking institutions should not be supported but the Cypriot banks are victims rather than villains. The Eurocrats nevertheless have raided the banks’ wealthy deposit base to pay for the Eurocrats’ mess.

The only beneficiaries of these actions are the Governments themselves. Collectively, the EU has agreed that there is ‘…a need for stimulus…’ to help the ‘….economies to grow out of their Debt…’. What drivvle. This just entrenches the Eurocrats further in the system.

What is the long-term result of this fight for survival? Capital flight. This began a decade ago and will gradually accelerate. Capital will land in nations who are net-creditors, namely banks in Asia and the Middle East.

In the meantime, the Eurocrats will continue to trash their own backyard. What are they going to do next?