SECS4: Greek Crisis shows the need for a New EU Currency system

In world monetary history, some currencies have lasted more than a thousand years. That won’t happen with the present euro. Its self-destruction is as certain as anything in politics.
What is now urgent is to reform the currency on a solid basis. It will be a world-beater. A sound currency must retain a long-term store of value. Like tax it must have means for taxpayers to have proper representation in its destiny.
This eurDemocracy commentary predicted more than three years ago that the present euro will collapse. It is not due to Greece alone or other failing economies. The conclusion is based on Robert Schuman‘s own analysis of monetary systems. It was also clear from debates in the 1990s. Then the currency’s essential democratic foundation envisaged by Schuman and others was eliminated from the new euro design by politicians who willfully ignored warnings of a future calamity.
The present euro system is fatally flawed democratically. It is not only the extreme left-wing Greek Syriza party (which is nominally pro-euro) but the growing, powerful movements against Brussels-based party political cartels that will dictate its fate. They are vehemently anti-euro and in the foreseeable future will, in governments, kill the project from within.
Only a higher degree of democracy can save a European currency. It must show itself to the benefit of all. It must demonstrably improve the common good. The European currency must be

'in the service of the people and must act in accord with the will of the people.'          (c.f. Pour l'Europe, p55)

Secondly the present euro also has an economic illogicality in its foundation, making it unworkable. How did it arise? Today’s failure culminates from politicians arrogantly deciding that they could design a better European monetary system than Europe’s Founding Fathers. They at least were aware of the lessons of monetary history. The contradictions are now bringing turmoil on the money markets and threatening the political cohesion of the European Union.
Does that presage the end of the European Union? Not at all! The supranational Community system is stronger than its currency — even a flawed and suicidal one.
A new euro system will have to be built up based on sound economics. In effect Europe’s leaders have another chance to change their present failures into success and make the European currency the envy of the world. The Founding Fathers wanted to see their currency not last just for five or ten years but be stable for centuries. As designed, it would outclass any currency in history– even ones that lasted a thousand years!
What currency applies in a Community system? A Community currency. A supranational Community needs a Supranational Economic and Currency System. A real Community currency would bring wealth and investment unseen since the early Communities. Schuman, working as France’s Finance Minister, Prime Minister and architect of the European Community, helped initiate the ‘Thirty glorious years’ after WW2.

• A system based on intergovernmentalism won’t work. (Europe is more than intergovernmentalism!)
• A system based on federal principles won’t work. (The EU is not a federation!)
• A system based on Optimal Currency Area theory won’t work. (Europe is based on freedom of choice!)
• A currency that requires a fiscal, that is tax, union, without proper democratic representation won’t work. (The euroGroup is not even classified as a European institution in Treaties and yet has become the governing body of the EU!)
• A European currency whose value and Central Bank policy are dictated by politicians and not by the market will always fail.
• A system without a proper supranational democratic control of its economy and currency won’t work.

The euro has had only five or six years of stable interest rates across its Member States. It has been in crisis ever since.  The following graph from UCL gives the interest rates in excess of that offered by German bonds in euro.

The Greek crisis is only one of many challenges attacking the economic foundation to this euro system. It will certainly not be the last. Other Member States are likely to present Brussels with similar or worse problems in the near future.
A currency has to be based on public confidence. The flight of confidence and trust is as fatal as the flight of capital from banks.
The present crisis, and those with Ireland, Spain, Portugal and Italy have already exposed the fragile foundations. The process is under way and the outcome is inevitable.
The European public is now divided into those who see the euro continuing and those who see it failing. Those critics losing confidence in the euro are gaining in numbers. Hence the numbers of those who see it lasting longer are on a downward slope. The movement is in the direction of continual loss of confidence. Consider the consequences.
Those who in countries like Greece fear for their future have already involved in the multi-billion euro capital flight. They borrowed as much as possible, then stored notes or transferred them, buying where possible material assets abroad. They feared both that the Greeks might bring in a new Drachma or that their euro deposits in banks might be riffled as the euroGroup threatened to do during the Cyprus crisis.
European institutions sometimes made the matter worse. When European Central Bank tried to support Greek banks, directly or indirectly, it only accelerated the flight capital. Greek debts rose to some 325 billion euros, a third of this is flight capital.
What’s behind the Greek crisis? Three possible causes stand out among others:

• corruption,
• political immaturity or
• political sabotage.

The first factor is political corruption. That is far bigger than most people think. By corruption I don’t mean just the Greek system. It was obvious from before Greek entry into the three Communities in 1981 that Greece remained highly corrupt after the dictatorship of the Colonels.
Parties of the Left and the Right tried too often considered electoral victory as a means to load the bureaucracy and the governmental system with their own supporters. Giving Greek bureaucratic posts to party loyalists is as corrupt as turning the Commission into a party political secretariat. An effective civil service must be above politics and political ideologies.
Greeks have a long history of what is called in Brussels ‘party political parachuting‘ their buddies into the civil service. It also leads to internal rivalries, turf wars and bribing. Externally it leads to paralysis.
Robert Schuman warned:

‘Amassing more officials is no guarantee against abuse … but is often just the result of favouritism‘ He said: ‘Administrative rigidities are the prime danger that threaten supranational services.’ (Pour l’Europe, p146.)

Greece also remained undeveloped as an economy, without proper attributes of a modern economy. For example Greece lacked a proper land registry system. Brussels paid some 100 millions euros so that they could have one. The money disappeared without a registry appearing. Brussels gave more money! Who owns land in Greece? No one knows! Nor does it have a fully working tax system. Yet these and many other failures were known to all the politicians of the time, including the Commission.
In 1978 the then European Commission President, Roy Jenkins, said that of the three Member State candidates, Greece was the least prepared and the least qualified. Which then entered the Community system first? Greece! Was it reformed? Judge for yourself! Joining the Community, Greece availed itself of handouts supposedly to reform its economy. The Brussels largesse led to the Karamanlis and Papandreou scandals involving dirty dealings in the Bank of Crete.
Thus corruption englobes the Greek governments of all stripes. But corruption also engulfs the European Commission. During the Gaullist years, France lied about the Community’s origin, and denied Schuman’s key achievements. The Commission played Gaullist tunes. France milked the rising German industrial power and the European Communities for all they were worth.
Under Roy Jenkins, a British Liberal politician, no real reform took place. Governments decided that the Commission should be populated only by party politicians, excluding all other citizens. This undermines public trust.
It is fundamentally dishonest. How? because none of the Commissions — who are supposed to be the ‘honest-brokers’ of Europe — were honest with Europe’s taxpayers.  Commissioner-politicians dished out European taxpayers’ money without proper controls. Commissions watched with open eyes and closed lips while fellow politicians in other countries committed fraud to buy votes. (They wanted to do the same.) They did not insist on reform over Meat Mountains, Wine Lakes, phantom autobahns going nowhere, fraudulent national statistics, and the fraudulent misuse of taxpayers’ money for political purposes. Meanwhile they embraced corrupt politicians of left and right as comrades and colleagues.
Under Jenkins the Commission decided to consider itself overtly party political. The Commission was always a political body but the Treaties forbade Commissioners to retain any interests,

• whether commercial or not,
• especially lobbying or other interests,
• party political membership,
• jobs, whether paid or not,
• and for three years after retirement not take up any employment in sectors of their Commission expertise.

In short they were forbidden from involvement in anything that might undermine public confidence. They have to show they are totally independent as honest brokers. Clearly politicians who insist on retaining membership of a group (like a political party) that lobbies and is ideologically driven will lose public confidence and trust. Their political enemies and non-party opponents of the general public consider them ‘partisan‘.
Honesty is paramount. The Commission as Europe’s honest broker has to be honest. During the 2011 Greek crisis on the euro, the then head of the euroGroup said: ‘When  it becomes serious, you have to lie.‘ Other politicians besides Mr Juncker colluded in this nefarious mission that undermined all public trust in the Community institutions. It only made the Greek crisis worse and worse. Mr Juncker was not alone either when he said of the referendums on the Lisbon Treaty/ Constitutional Treaty : ‘If it’s a Yes, we will say ‘on we go’, and if it’s a No we will say ‘we continue’, we go forward.’
A travesty of Magna Carta and Community Charter rights! The treaty drafts were soundly defeated in referendums in France and the Netherlands and were set for catastrophically higher rejections in other States before they were denied the public.
And now Europe is faced with its most serious Greek crisis and another on/off referendum. In November 2011 Greek Prime Minister Papandreou proposed a referendum on the euro crisis but was dissuaded from carrying it out. A referendum is supposed to be democratic but the Syriza coalition government called a no-time-for-real-debate Blitz Referendum. It seemed quite content to modify, postpone or abandon it and maybe their people and pensioners too in their polemic against Brussels ‘blackmail‘. So much for Greek democracy.
What of the second factor. Is the Greek government composed of immature politicians?
The IMF chief Christine Lagarde famously commented that negotiations is only possible ‘when there are adults in the room.‘ Does this indicate unwillingness to negotiate or perhaps an alternative strategy refusing to come to an agreement? The Greek government had to pay 1.3 billion by the end of June to cover the IMF loan and avoid a default. By not agreeing to anything the Greek government lost billions of euros due to be returned to it on condition some sort of agreement was made. These funds would have paid off a great deal of the Greek debts, far more than the sums due before 1 July. This money is now lost for ever.
What of their skittish behaviour? For the IMF’s negotiator Christine Lagarde:

“We have received so many ‘latest’ offers, which themselves have been validated, invalidated, changed, amended, over the course of the last few days, that it’s quite uncertain exactly where the latest proposal stands,” she told Reuters.

Is this apparent confusion and incoherence due to the fact that the Greek government is a coalition and the Syriza party itself is a coalition. It is a grouping of

social democrats, democratic socialists, left-wing nationalists, feminists, anti-capitalists, centrist-environmentalists, as well as

Marxist–Leninists,

Maoists,  Trotskyists,

Eurocommunists,

Rosa Luxemburgists and

Eurosceptics.

Some of these radical neo-Marxist/ Communist groups have not raised their heads in public in the West since 1968, others since WW1! Others form part of the alter-globalist movement aimed to fight the ‘neo-liberal’ IMF, International Monetary Fund.
We now come to the third possibility. Is there a neo-Marxist strategy in the Greek action? The Marxist system has internal contradictions that led to analysts like Robert Schuman predicting in the 1950s that the Soviet Union would collapse before the end of the century. Classical economists and historians also predicted that the Soviet system would tear itself apart as it had no means to value objects, products and services on the market. Hitler’s economy made similar errors and ended in absolute failure.
The Soviet system had a ‘Gosplan’ setting production targets by quantity (and often neglecting quality and demand). It also set their prices (without market information!) It had no consumer feed-back! (Complainers were class traitors!). As there were no free consumers, the Gosplan had to copy prices on the free western markets. The private enterprise system of the free market not only reduced prices but incorporated technological improvements that left Soviets in a cloud of dust. Maoists took an opposition stance against progress and Mao’s ‘Great Leap Forward‘ ended in de-industrializing China and killing upwards of 40 millions.
Is the new Syriza working according to a common anti-banker plan? The apparent changes of drafting documents, late arrivals and changes of negotiators may be explained by coalition disagreements. They might equally be consistent with a strategy to unnerve the Brussels negotiators to gain time and ensure maximum capital flight and nuisance power. This is also apparent in the violence of denunciations of Brussels: ‘blackmail‘ and fiscal ‘water-boarding‘.
When one party accuses the other of blackmail, it often means they are really the blackmailer. In this case three financial institutions and 17 euro Member States independently believe that they are negotiating in good faith. Some like Ireland, Portugal, Latvia and Spain have had similar conditions imposed on many of them. Now they are being as flexible as possible to Greece. They are not blackmailing. So who is blackmailing whom?
Why nuisance power? According to Marxist dialectic the new agreements with Brussels on the euro involve a new synthesis that resolves the old problem (for example, debts, government overspending, unworkable pension schemes, overpopulated civil service, untaxed industries and corruption). The opposition force, (Brussels and the bankers' 'neo-liberal' creditor Troika) is called the anti-thesis. The Marxist dialectic resolves the thesis and anti-thesis into a new synthesis.
What then is the anti-thesis of the Marxist radicals? One new synthesis would be the reinforcement of the link to the people against the fiscal ‘water-boarders‘. In other words, a referendum. Sufficient extra complications, extra documents, new proposals and fresh negotiation calls were submitted so that the Syriza government might even withdraw from the referendum if they felt public opinion was turning against them with the wrong answer. The referendum could be cancelled if the Brussels Troika betrayed trust!
Was the referendum an act of desperation or part of a strategy? The clues indicate that it was part of a strategy. First clue was their reaction to the unexpected euroGroup meeting that Europe’s heads of government declared AFTER the European Council of 25-26 June. It is clear the Greeks were taken by surprise. In the middle of negotiations on Saturday, the Greek negotiators were called out of the meeting. Their Prime Minister was about to announce the referendum.
They were stopped mid-negotiation. What sort of ultimatum/ blackmail is that?
The second indication is that the referendum document where the people are urged to vote NO, has, as its annex, documents which were being discussed on Saturday and are incomplete. Furthermore they are now useless. The basis for the documents was an agreement to be made on 30 June at the latest. Thus the Annex on which the Greek voters are to vote is legally useless!
The conclusion can only be that either the Greek government did not read the text itself and they are incompetent, or that the Greek government planned the referendum well in advance and were taken by surprise. They assumed that they would have a legally valid, final document published after the European Council that they could claim was Blackmail.
What is the end game for neo-Marxists? The final synthesis for Marxist theory is the collapse of capitalism due to its internal contradictions and the rise of the Workers’ State. In this, everyone would get a minimum wage from some sort of fiat currency with no material backing. The Soviet ruble was such a Workers’ currency. It was neither stable (it was devalued several times) nor did it reflect real values. It did not stimulate innovation by being a store of value. It was also not the currency of the workers, as workers who had saved their earnings immediately lost them in devaluations when the decimal place was moved in their bank accounts. Nor was it controlled by the workers. The Soviet Politburo decided when and how such decisions were made.
Many members of Syriza have long-standing relations with Russia, many in families back to Soviet times. Curiously when Prime Minister Tsipras visited Mr Putin the question of a Russian loan was not discussed. A Russo-Greek gas pipeline was. The Russian monopoly gas supplier, Gazprom, is now coming under scrutiny by the Commission for abuse of dominant power in the gas market, where in some EU Member States it supplies the totality of the gas.
One thing that Russia and many in the Greek government have in  common is the destruction of the European supranational law and Single Market system. Russia could then play of one Member State against another and gain the highest price in its bilateral contracts. Through its energy geopolitics it could dominate all Europe.
Russia and Greek debt are a major threat to the EU’s euro system. But if you think the present crisis is bad, be warned! Worse is yet to come before politicians see sense and it will get better.

Euro4: Eurozone leaders repeat: You must be honest! But honest practice brings honest money.

A euro based on supranational democracy would not fail to gain the highest credit ratings in all rating agencies worldwide. That is evident because it would have already been examined and rated that way by European civil organisations, businesses, workers and consumers, via their controlling chamber. Yet EU politicians want to do it their way: party political internationalism. They are fighting a tide of adverse criticism that says it will not work. Despite their efforts at the Euro zone summit, US credit rating agencies have downgraded Greece because of the long-term loan swaps are considered a selective default.

The answer? In a phrase, honest conduct for an honest currency. Honest conduct does not come from words alone. Nor does it come from a system where the policeman is a paid up member of a gang. The control must be public and legal, not political.

Amid the multi-billion euro deal at the Euro zone Summit on 21 July 2011, all the leaders appealed their fellow politicians to be honest. They had in mind Greece, which they said posed a unique problem. They were not addressing the public, that is the voters. The voters are hardly relevant at this stage when elections are not in sight. They were addressing the markets. Their audience for this section was headlined Private sector involvement.

In other words, forget the voters. What they are interested in is the private sector and if it is going to loan any more money to a bunch of people who clearly cannot trust each other.

The top Eurozoners said:

'As far as our general approach to private sector involvement in the euro area is concerned, we would like to make it clear that Greece requires an exceptional and unique solution.'

The Statement they issued adds:

'All other countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.'

So the leaders are saying: Do not consider what has happened in the past about what we said to the voters. We are now telling you bankers, financiers and capitalists, we will be honest.

Is there any reason why the bankers, speculators and financiers should not believe the government leaders? Aren't they all honourable people?

Well, it only takes a brief look at what the leaders have said in the past to have some doubts. Did they say that their signatures could not be trusted? No. They said the opposite. The reality was somewhat different. They had to continue to repeat this when news leaked out that raised doubts.

Only on 25 March 2011 the European Council had already

'underscored the need to give priority to restoring sound budget and fiscal sustainability. ... Fiscal policies should aim to restore confidence by bringing debt trends back onto a sustainable path and ensuring that deficits are brought back below 3% of GDP in her time frame agreed by the Council.'

On 25 March 2010, the Heads of State and Government of the euro area issued a statement on unheaded paper:

'We reaffirm that all euro area members must conduct sound national policies in line with the agreed rules and should be aware of their shared responsibility for the economic and financial stability in the area.'

The paper is unheaded because the euro zone meetings are not officially part of the legal framework of the EU. Protocol 14 of the Lisbon Treaty allows them to meet 'informally'.

I do not know why the Statement issued on 21 July 2011 was published on paper headed Council of the European Union as it was not a meeting of the Council of Ministers. Hardly honest. Why this subterfuge? Is it illegality-creep because the case needed shoring up? At least they hesitated to call it a European Council to avoid prime-ministerial objections from the British, Poles, Hungarians, Danes, Swedes, Latvians, Lithuanians, Romanians, Bulgarians and Czechs who were absent. Did the absentee States protest that the Euro zone Statement was a false-flag communication of the Council of Ministers?

It is a pity that, when the Heads of State and Government of the euro zone 'reaffirm their inflexible determination to honour fully their own individual sovereign signature', they do so in a fraudulent document. Worse, they say that 'the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.'

On 17 June 2010 the European Council said in its conclusions:

'The crisis has revealed clear weaknesses in our economic governance, in particular as regards budgetary and broader macroeconomic surveillance. Reinforcing economic policy coordination therefore constitutes a crucial and urgent priority.'

The government leaders were therefore obliged to present their accounts for inspection in the so-called 'European Semester'. This involved preventive and corrective aspects of the Stability and Growth Pact, a pledge central to the euro. It is a legal requirement in treaties since Maastricht.

Yes, yes, but who checks up on all the politicians and their sums? The European Commission -- but it is now composed entirely of politicians, not independent, competent personalities as the treaties require. The selection of the Commissioners is made by the governments who they are supposed to check. Hardly a guarantee of independence. The goverment ministers insist that all candidates should be party members! The Commissioners also insist on retaining party membership and attending party meetings. The outlaws are now the sheriffs!

Nearly all the States had distorted, corrupted or just ignored the Stability and Growth Pact. Among the first guilty Member States to do this were France and Germany. The French and German ministers immediately said that they should be let off the hook. The honest Dutch and others protested -- in vain. The Dutch said they were now paying for the Franco-German deficits. Other States got caught out later when the level of their statistical fiddling became apparent.

The Council added that new measures were necessary,

'ensuring the quality of statistical data, essential for a sound budgetary policy and budgetary surveillance; statistical offices should be fully independent for data provision.'

The 23/24 June 2011 the Heads of government and State in a full European Council noted:

'the clear determination of all Member States to do everything that is required to fully implement the Stability and Growth Pact.'

Why do government leaders need to keep repeating the same old thing? Firstly because they have been found out not adhering to the solemn pledge they had all made. Secondly even after they had repeated this pledge for growth and stability, some of the politicians still wanted to overspend their budgets -- especially just before elections. And the others said nothing.

Is that an honest mistake or it because they wanted to be free for political or social bribery for votes?

It can be statistically shown that this was electoral bribery and not honest statistical mistakes. How? Because the errors in the statistics are all in the same direction. They are all hidden deficits. Deficits increase before elections.

So what should the leaders do about it? How can these addictions to bad habits be resolved? In a Community moral values must be agreed by all. The honesty of politicians' decisions is exposed when times turn rough. When they were considering monetary union in around 1999, the price of oil was around 9 dollars a barrel. That was the free market price. Times and morals were easier. Countries like Italy had a huge surplus. Then energy blackmail recommenced. The twelve-fold rise in oil prices in a dozen years not only strained the economies but exposed corrupt practice and speculative bubbles.

Consider what would happen if your local tennis club, commune or parish had a group of politicians who were accused of corruption. One may have been a worse culprit than the others but they were all in it together. Would the local parishioners or voters agree that the secret meetings should continue? Would they be happy that in the many subsequent secret meetings of the clique of culprits, the group issued the same sort of communiques on offically headed paper saying: 'Don't worry, the entire Tennis Club is insisting on being honest'?

Probably not. What may be happening was that the politicians were dividing up the spoils amongst themselves or inventing new ways to hide the corruption. They might be insisting on meeting in private so that the more corrupt members were putting pressure on the least corrupt members so that they would comply with their wishes. In some States, the politicians are now facing legal cases in the courts.

That is why Schuman and the other more politically honest Founding Fathers insisted that the Council should be open. Schuman wrote that

'New Europe needs to have a democratic foundation. Its Councils, Committees and other organs should be placed under the control of public opinion, a control that should be efficient while not paralysing action nor useful initiatives.'

It is hard to argue that the current behaviour of politicians passes the democratic criterion.

The solution for the euro is ultimately:

• to establish its foundation as full supranational democracy
• to include the full participation of organised civil society
• to establish a fully independent European Commission.

The definition of the European currency should be based on a full meaning of what is the common European good, not as happened what seemed good to a handful of politicians. The Stability and Growth Pact -- which was not observed by Member States with few exceptions such as Luxembourg -- is a poor approximation of what should be done.

Openness is not impossible in monetary matters. It is only impossible when for years politicians have been making cushy deals between themselves. On Greece it covers a lax period of thirty years. The questions arose when a cushy deal was made by politicians that it should leap forward from the least qualified candidate to join the EU -- according to the then Commission President Roy Jenkins -- to be the first. The questions remained unanswered when lots of EU money went missing. They were reinforced when in spite of huge and constant increase in its deficits and its past history, the politicians agreed to let Greece join the euro. It got even deeper into murk when statistical fiddling in many of the new euro States was exposed.

Who is in charge of monetary policy the central banks or the politicians? If it is the central banks that are by treaty law independent, why do politicians still have secret meetings on the monetary fundamentals? Are the central banks so secretive? Good banking practice is to publish the minutes of the monetary committee a few days after the decisions are reached. That way openness and protection of the currency from speculation is guaranteed. The Bank of England and the Riksbank of Sweden, which are not part of the euro, do this.

So why does the European Council refuse to have open sessions on what should not be their business? Why does it refuse to publish anything that resembles minutes, even though it is obliged to by treaty law? Is it something to do with their concept of honesty and honest practice?

The question of honesty has now been raised in the context of a global financial calamity. It is for the Member States to show they are serious. It they are, they will implement the treaties that call for independent institutions, not continue to fill them with compliant politicians.

Avalanche3 Is the assault on the Euro one 'unintended consequence' of the US toxicity bailout?

Over a year ago, a commentary on this page warned about

'the result of President Barack Hussein Obama’s policy of pouring some 4.5 Trillion dollars into the US system. The aim is to buy out toxic assets created by toxic financiers and decades of toxic government policy.

The problem is that it is likely to have major unintended consequences for Europe. It is not clear whether the US administration has fully considered the non-US consequences … or even cares.

That may sound harsh. But much of the origin of the crisis dates from this persistent Beggar my neighbour attitude. In fact the origin of the euro derives from wishing to avoid being taken for a ride by careless and self-serving US administrations'

Since then, some Europe governments and the euro have been under intense pressure. Some speak of the break-up of the euro, though this seems too often to come from over-hopeful speculators. It is rather like a purchaser of apples in the market who asks for a price reduction on the basis that he imagines one apple looks a little over-ripe. One should always distinguish between impartial analysts and greedy speculators whose wish-fulfillment brings massive rewards.

How has the trans-Atlantic mechanism been working? When in the 1970s under President Richard Nixon, the US government unleashed the Federal Reserve printing press, a largely divided, weak Europe got the back-wash. The Community of Six each with their own currency could only complain separately at the dollar inflation. Nixon’s Treasury Secretary John Connally responded famously: ‘It is our currency, but your problem.’ Europe created the Euro to deal with their problem.

The US dollar was long considered the world currency and the USA the world banker. That is why Europeans should keep a close watch on what is happening and how the debt drama will affect them.

Recently the US administrations tried to replace 'toxic' assets of derivatives and sub-prime loans with newly-minted dollars from the Fed. As a consequence, the federal deficit  has now risen more quickly than expected, touching 9.9 per cent of GDP already, according to the US Government Accountability Office. That is the largest since 1945. The Public debt-to-GDP ratio could reach and exceed the highest historical levels of 109 per cent by 2020. That is two years earlier than previous GAO estimates.

The federal government is staring at 'an unsustainable growth in debt.' The GAO had already warned in 2007 that this could 'spiral out of control.' Previous projections by the GAO indicated that debt-to-GDP ratio would rise from 60 percent to 'only' 90 percent by 2020. The debt-to-GDP ratios would double by 2040 and double them again by 2060, reaching 600 percent by 2080. This crisis may be underestimated. Without effective remedial action, the USA could reach a debt-to-GDP level of 200 per cent by 2030.

Toxic is merely a polite way of saying that a dishonest or fraudulent practice has been exposed. However, the new flood of dollars to help wash out fraudulent assets in the US economy is already having a major effect abroad. As the commentary here recalled such action has known deleterious effects on the European economy. More than two thirds of US dollars are held outside the US. When the Federal Reserve boosted its money supply it surged onto the external markets. It was looking for solid, non-toxic assets to avoid the same trap again. This wash of dollars has a major tsunami effect on what previously appeared as stable markets.

That's when the PIGs, the suspect Mediterranean economies, came under extra scrutiny. Previously, Portugal, Italy, Greece and Spain had proudly boasted of their safe monetary credentials as euro-members. Why did they then become less secure? Statistical blemishes had previously been forgiven by some indulgent politicians in other euro-states. Now the search is on for what is real, honest, quality money.

Consider a market trader selling apples. He has 27 apples to sell each week. The customers have 27 dollars with which to buy their fruit. The trader sets up a notice: 'A dollar an apple'. They are available on a first come first served basis.

All of a sudden the buying group now have 80 dollars credit for apples. What happens? The trader immediately sets up several notices 'Top quality apples now only 5 dollars an apple'. Another says: 'Excellent quality apples only 4 dollars an apple'. 'Good quality apples for 3 dollars.' And so on.

The Fed's money surge has an effect of differentiating the quality by expanding the price fork. This price fork accentuation was blunted before the money surge. It also sharpens the analytical skills of the potential purchaser (looking for profits). The surge no longer respects governmental quality labels on the apples but the buyer makes his own judgement. Why shouldn't he? The US administrations, specifically the party machines, were complicit fraudsters. Honest efforts in Congress to correct the looming disaster failed. Political oligarchies who should not be meddling refused to change their crony capitalism. The crisis deepened. Politics are discredited on both sides of the Atlantic. It is equally of no use for the apple trader to say that 'All my apples come from the top quality eurozone. Each is worth ten dollars.' Some of the European governments do run a clean shop. Others supported by party cartels are known to be playing tricks.

The discriminating buyer sees through that con. Why spend extra money on an apparently rotten apple (where politicians have a finger on the scales) just because it has a eurozone label? He will avoid it or expect the seller to change the category and price. Despite the eurozone label, the purchaser can discern perfectly well for himself what is a quality product and what is corrupt practice. Quality is not necessarily synonymous with something that has a government label or has the apparent approval of government. Why? because the label sometimes means that politicians and others are meddling where they should not be present. Nor are statistics necessarily reliable when they have the stamp of an international accountancy firm. Some do not smell too fresh. Reputations have to be earned.

We can compare the concept of quality apples to supranational values. These are the Charter principles on which the European Community was founded. They are based on your neighbour's evaluation of your actions. Honest money is one example.

Governments are not ignorant of honest money and honest accounting. Supranational values indicate that accepting bribes from the rich so they do not pay taxes is bad economics. Forcing the poor to take on the extra burden  is also recognized as an abuse according to such supranational values. Accountants should know when the books are in order. They should be firm to resist any bribery or twisting of arms to make them give approval to accounts that are falsified.

In the early post-war period most western European countries had huge debts, high inflation and not too many scruples. They needed to reconstruct and also to outdo their neighbours. They engaged in a game of competitive devaluations and beggar my neighbour policies.

That started to change in 1950 with the creation of the European Community, (9 May 1950)  and the European Payments Union, created on 16 September 1950. Robert Schuman, who had been one of the most active Finance Ministers, commended Switzerland for having a solid currency and sound values.

'The participation of a country with a solid currency, like Switzerland, encouraged the expansion of the volumes of trade and commerce by providing sound money in the circuits of multilateral purchases. Everyone gained from this, without risks or sacrifices.' (Pour l'Europe, p130).

For Schuman Switzerland was a model for Europe. It was not only a community of peoples and cantons based on geography but a community based on shared values and traditions. It had the inspiration, self-discipline and leadership (that is many people of good character) who acted in the long-term interest. Such achievements do not come from egotistical autocrats -- something that the Swiss opposed over the centuries. To create a European Community with sound money requires that all governments, people and associations have self-discipline or if not at least have the will to submit themselves freely to community supranational values. Good money is based on mutual trust.

In community economics supranational values also clarify that the concept of 'Beggar my neighbour' is no longer acceptable. We are all each other's neighbour. In a globalised world we are all connected more and more. The unforeseen consequences of bad practice in one country reverberate worldwide.

Successive US governments set themselves on the same toxic road as Enron. This energy firm tried to hide its bad debts in off-shore companies. The US did the same thing when it decreed that the poor should have access to mortgages they could not conceivably repay. The crucial question was where to hide the debts. This was a political decision, not an economic one. The politicians calculated that those who benefited from these crooked property loans would surely vote for them. They could also cream off some of the takings for party funds. Successive US administrations appointed pliable politicians to the bodies to enforce this unrealistic policy in the large mortgage firms.

Politicians had the misconceived idea that that were on a higher plane or smarter than supranational values. Practically the whole American population went along with the scam. Why? Because they all thought they would gain something. The bubble felt fine while it was expanding.  The property sector boomed. Businesses also expanded. Yet it defied logic. It was all patently false, starting with the giveaway term 'subprime loans'. Just about everybody was on the take. If the US public gave it some honest reflection to it, they knew that all this was a scam. The honest few said so. The politicians gained most of all. Their party coffers were filled from the 'crony capitalism.'

Those mortgage-policy sellers who visited people and  sold them deals knew there was little chance of recuperating the house-loan. It was a fairy tale. The house-buyers if they took any advice realised they really could not pay to the mortgage fairy. Others, whether businesses or individuals, profited indirectly from the property bubble. They had no reason, they said, to object. And above all the executives at the top and the politicians who knew all the figures were well aware that it was fraudulent. Who was kidding whom?

When the Fannie Mae and Freddie Mac mortgage firms crashed out, as was inevitable, the politicians in Washington provided a means to bail them out. How? Out of public money. Who would pay the final bill if nearly the whole population was stealing from each other? They stole again via the Fed from the innocent, the voteless and speechless, the future generations, some yet unborn. And the foreigner.

This nasty little bit of political corruption is not and cannot remain local. The neighbours across the Atlantic are also affected. Using public money to save political cronies in the USA now affects the whole world, and Europe in particular. This avalanche washed over into Europe.

Europe's problems are correctable. Some Europeans had already learned their lessons: others are still learning. Competitive devaluations by accessing the monetary printing press bring no lasting solution.

Europeans can act wisely. They have the freedom to choose how to correct their problems. So have the Americans.

The secondary effect of the Obama avalanche is to test and prove whether the European governments are up to their job as honest guardians of the public good. Compare this to how some Mediterranean countries who for several decades have lacked the courage to set their house in order and who persistently apply bent practice have been differentiated recently.

Europe is left with a clear choice. The Obama avalanche has contributed to the clarity. Europe can clean up its house or it can continue the old corrupt economics.

This sad tale is not the only or even the main cause of Europe's monetary woes. It is hoped that we will return to this in the future.