If 6 was 9

European Geography 101

1. “Spain is not Greece.”

Elena Salgado, Spanish Finance minister, Feb. 2010

2. “Portugal is not Greece.”
The Economist, 22nd April 2010.

3. “Ireland is not in ‘Greek Territory.’”
Irish Finance Minister Brian Lenihan.

4. “Greece is not Ireland.”
George Papaconstantinou, Greek Finance minister, 8th November, 2010.

5. “Spain is neither Ireland nor Portugal.”
Elena Salgado, Spanish Finance minister, 16 November 2010.

6. “Neither Spain nor Portugal is Ireland.”
Angel Gurria, Secretary-general OECD, 18th November, 2010.

7. "Spain is not Uganda"
Rajoy to Guindos... Last weekend!

8. "Italy is not Spain"
Ed Parker, Fitch MD, 12 June 201

The EU Smiled While Spain’s Banks Cooked the Books

Big Time Crooks

By Jonathan Weil 

Only a few years ago, Spain’s banks were seen in some policy-making circles as a model for the rest of the world. This may be hard to fathom now, considering that Spain is seeking $125 billion to bail out its ailing lenders.

But back in 2008 and early 2009, Spanish regulators were riding high after their country’s banks seemed to have dodged the financial crisis with minimal losses. A big reason for their success, the regulators said, was an accounting technique called dynamic provisioning.

By this, they meant that Spain’s banks had set aside rainy- day loan-loss reserves on their books during boom years. The purpose, they said, was to build up a buffer in good times for use in bad times.

This isn’t the way accounting standards usually work. Normally the rules say companies can record losses, or provisions, only when bad loans are specifically identified. Spanish regulators said they were trying to be countercyclical, so that any declines in lending and the broader economy would be less severe.

What’s now obvious is that Spain’s banks weren’t reporting all of their losses when they should have, dynamically or otherwise. One of the catalysts for last weekend’s bailout request was the decision last month by the Bankia (BKIA) group, Spain’s third-largest lender, to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss rather than a 40.9 million-euro profit. Looking back, we probably should have knownSpain’s banks would end up this way, and that their reported financial results bore no relation to reality.

Is it game over for Greece?

All eyes are on Sunday's election results in Greece

By Laurence Knight

It has been cast as a referendum on the country's future membership of the eurozone.

But could it be that the result no longer matters?

The steady withdrawal of cash by depositors from the Greek banks has reportedly accelerated in recent days.

And if this apparent bank run gets out of hand, there is a danger that Greece could find itself forced out the euro, whichever way its citizens vote.

Out of cash

Nobody knows who will win the elections - there has been an official polling blackout since 2 June - although, whatever the outcome, it will most probably be followed by many days of coalition negotiations.

The big question is whether the radical left-wing upstarts of Syriza will pip the established centre-right New Democracy to first place.

That would give Syriza a bonus 50 seats, making it by far the biggest party in the 300-seat parliament, though probably without a majority.

Syriza has vowed to reject the austerity programme agreed with Greece's rescue lenders in the eurozone and at the IMF.

It is happening right now

Passing the Bailout Buck

by Philipp Bagus

Recently, there has been an intense debate in Europe on the TARGET2 system (Trans-EuropeanAutomated Real-time Gross Settlement ExpressTransfer System 2), which is the joint gross clearing system of the eurozone.[1] The interpretation of this system and its balances has provoked divergent opinions. Some economists, most prominently Hans-Werner Sinn, have argued that TARGET2 amounts to a bailout system. Others have vehemently denied that. Jürgen Stark of the European Central Bank (ECB) even said that some commentators could lose their reputation as serious academics by claiming that TARGET2 functions as a bailout system.

Indeed, TARGET2 debits and credits have been built up since the beginning of the financial crisis. While peripheral countries accumulated TARGET2 debits, in April 2012 TARGET2 claims of the Bundesbank amounted to almost €644 billion. That is almost €8,000 per German.

A prophet of nostalgia

Ray Bradbury RIP

Where most sci-fi writers create an alternative present or imaginary future, the great Bradbury longed for a future that would recapture the past.

by Patrick West 

As a general rule, science fiction tends to be located in an imagined future or alternative present. The settings may be utopian or dystopian and the themes innumerable, but a constant hallmark is that of potentiality: how the world could be different to how it is now. This is why, in death, science-fiction writers are often lauded as prophets. Isaac Asimov explored the domains of robotic artificial intelligence before it started to become a reality; Arthur C Clarke is credited with devising the idea of the geostationary artificial satellite; and Philip K Dick doubted objective reality before postmodernism and cyberspace came along.

Ray Bradbury, the author of The Martian Chronicles (1950) and Fahrenheit 451 (1953), who died earlier this month, leaves a more peculiar legacy. Paradoxically, his work longed for a future which would recapture the past. He was a prophet of nostalgia.

Bradbury’s work did have the familiar sci-fi staples of his era – spacecraft, aliens, revolutionary technology – and he superficially embraced modernity. He was, for instance, a lifelong champion of manned spaceflight, as he explained in 1979: ‘Orwell’s Nineteen Eighty-Four came out 30 years ago this summer. Not a mention of spaceflight in it, as an alternative to Big Brother, a way to get away from him. That proves how myopic the intellectuals of the 1930s and 1940s were about the future. They didn’t want to see something as exciting and soul-opening and as revelatory as space travel. Because we can escape, we can escape, and escape is very important, very tonic, for the human spirit. We escaped Europe 400 years ago and it was all to the good.’ This theme of escape pervades Ray Bradbury’s oeuvre. And this avowal to escape was the consequence of a desire to escape the modern world.

Compassion – Killer Of Society?

Expectations have been created that cannot be met and that cannot now be undone

by Rex van Schalkwyk

In politics, it is the idea that counts. So also in philosophy, pop music, pedantry and philanthropy. The idea is everything. And between the idea and the reality, there lies that vast uncharted terrain of promises unfulfilled, of lies and deceit and of naked hypocrisy, all of which account for the failure of the public discourse and of public life. In short, this self-inflicted deception accounts for the failure of society.

Bertrand Russell, who is said by some to have been the greatest philosopher of the 20^th century, and a notable socialist, proposed that in the one-world society he envisaged, the supply of food should be used as a lever to ensure social compliance. This is what he wrote on the need to prevent the increase of the world's population: "If this is to be done otherwise than by wars, pestilence and famines, it will demand a powerful international authority. This authority should deal out the world's food to the various nations in proportion to their population at the time of the establishment of the authority. If any nation should subsequently increase its population, it should not on that account receive more food…"

In this way, the philosopher would have contrived a one-world totalitarian dictatorship in a perpetual state of starvation. Russell did not even consider where the world's food, without which people were to be starved into submission, would realistically be produced. The most extraordinary thing of all is that he could suggest such an idea in pursuit of his ideal of the utopian life. Were it not for the fact that his work, The Impact of Science on Society, is no laughing matter, it might have been read as a malicious satire.

‘The Sunrise’ in a globalized century

Asia must rise and shine

By Maria Monica Wihardja

There is a Japanese saying: “The name speaks for itself”. This appears to be true in reflecting the current global economic and geopolitical landscape. Asia, meaning “sunrise” in Greek and “East” in Assyrian, is clearly rising, and its time has come to be dubbed as the “Asian Century”. 

At the other end of the spectrum, the word Europe comes from the Phoenician word EROB, which means “where the sun sets”, reflecting the now crumbling Europe due to its economic meltdown. America’s Germanic origin means “ever-powerful in battle”, which aptly reflects the US as the omnipresent military might. 

What will the Asian Century be like against the backdrop of the crumbling Europe and the US’ military might? Will the sun keep rising in the East? Or will the Asian Century, like a comet, disappear all too soon, never to return for a very long time? There are at least two ways to look at how the Asian Century will turn out: How Asia strengthens itself as a region and how Asia interacts with other powers within the global system.

Although power is not equal to strength, Asia’s strength will only come if there is a balance of power in the region. However, there is still a great deal of misunderstanding, confusion and mistrust, as well as uncertainty, among individual countries and in regards to the state of the region, which leads to a rivalry of power with one country trying to dominate the others instead of trying to find a balance.

Will Globalization Go Bankrupt?

Globalization is primarily a monetary phenomenon in which expanding liquidity induces investors to take more risks

by John Eagle

“Only the young generation which has had a college education is capable of comprehending the exigencies of the times,” wrote Alphonse, a third-generation Rothschild, in a letter to a family member in 1865. At the time the world was in the midst of a technological boom that seemed to be changing the globe beyond recognition, and certainly beyond the ability of his elders to understand. As part of that boom, capital flowed into remote corners of the earth, dragging isolated societies into modernity. Progress seemed unstoppable.

Eight years later, however, markets around the world collapsed. Suddenly, investors turned away from foreign adventures and new technologies. In the depression that ensued, many of the changes eagerly embraced by the educated young — free markets, deregulated banks, immigration — seemed too painful to continue. The process of globalization, it seems, was neither inevitable nor irreversible.

What today we call economic globalization — a combination of rapid technological progress, large-scale capital flows, and burgeoning international trade — has happened many times before in the last 200 years. During each of these periods (including our own), engineers and entrepreneurs became folk heroes and made vast fortunes while transforming the world around them. They exploited scientific advances, applied a succession of innovations to older discoveries, and spread the commercial application of these technologies throughout the developed world. Communications and transportation were usually among the most affected areas, with each technological surge causing the globe to “shrink” further.

NINJA credits: "No income, no job, no assets."

Europe's surrender of resources similar to U.S. spending on wars

By HANS-WERNER SINN

Once upon a time, stocks were risky and collateralized securities were safe. That time is over, as the breakdown of the American mortgage securitization market has shown.

For years, hundreds of billions of new mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment.

Now virtually the entire market for new issues of such securities — all except 3 percent of the original market volume — has vanished.

To compensate for the disappearance of that market, and for the simultaneous disappearance of nonsecuritized bank lending to American homeowners, 95 percent of U.S. mortgages today are channeled through the state institutions Fannie Mae, Freddie Mac and Ginnie Mae. Just as there was a time when collateralized securities were safe, there was a time when economies with so much state intervention were called socialist.

Most of these private securities were sold to oil-exporting countries and Europe, in particular Germany, Britain, the Benelux countries, Switzerland and Ireland. China and Japan shied away from buying such paper.

As a result, European banks have suffered from massive write-offs on toxic American securities. According to the International Monetary Fund, more than 50 percent of the precrisis equity capital of Western Europe's national banking systems, or $1.6 trillion, will have been destroyed by the end of this year, with the lion's share of losses of U.S. origin.

Thus the resource transfer from Europe to the U.S. is similar in size to what the U.S. has spent on the Iraq war ($750 billion) and the Afghanistan war ($300 billion) together.

Americans now claim caveat emptor: Europeans should have known how risky these securities were when they bought them. Even AAA-rated CDOs, which the U.S. ratings agencies had called equivalent in safety to government bonds, are now only worth one-third of their nominal value. Europeans trusted a system that was untrustworthy.

The Terrible End of Europe's Nanny State

If Germany does not keep up the lending, it will be a sad day, for Germany

By David Warren

Austerity is the mot-du-jour almost everywhere at the moment. It reigns in Spain, for instance. (“Austeridad.”)

As Jim Flaherty said, in hailing the Spanish bank bailout, it “doesn’t solve the problem but it’s a step in the right direction.”

Let us examine that statement for the briefest moment, leaving aside such interesting but tangential questions as, whose money is bailing?

The problem is structural, not fiscal. The fiscal solution does not really get at the problem. Instead, it kicks the problem down the road.

If gentle reader managed somehow to run up a credit card debt, beyond the ability of his grandchildren to pay, the problem wouldn’t be the balance (or shall we say, imbalance) revealed in his bank statement. That would be a symptom of the problem.

Not to comment on his lifestyle; but he must be using this credit card to buy things, even if he is merely kiting his debts from one card to another. (“Financial services” count as “goods,” statistically.) At some point he presumably bought something — or some things — he could not afford.

If his bank then intervened, to raise his credit limit in return for gentle reader’s solemn sovereign promise to start living within his means, we might say the move “doesn’t solve the problem but it’s a step in the right direction.”

We can understand why the bank would be so obviously naive. The alternative is to call in the card, and cut its losses. Those losses — multiplied by the million others lured by easy credit into playing the same game — would take the bank down, today. Better that the cows come home, tomorrow.

The solution is not an “austerity plan,” per se. This is anyway a solution that is not being seriously tried. The Spaniards, and Italians, are using the word “austerity” a lot, but their new, fiscally-conservative governments, aren’t delivering on their promises. They’re just using the word to soothe the nerves of international bankers and investors.

Spanish Bailout Shows Europe Still Doesn’t Get It

Europe must break the link between the banks and the government

By Malcom Steed

The challenge of bailing out Spain’s banks is compelling Europe’s leaders to confront a question they had hoped never to contemplate: How to prevent financial and economic malaise from overwhelming the euro area’s fourth- largest economy.

So far, their actions suggest they’re sticking with the strategy they pursued in Greece and expecting different results. They’d better think again.

The agreement last weekend to provide as much as 100 billion euros ($125 billion) to Spain’s banks shows Europe’s leaders are at least beginning to recognize the magnitude of the task. The amount matches some of the higher estimates of the capital the banks will need to offset heavy losses related to Spain’s real estate bust. As such, it might help inspire the confidence necessary to slow the flow of money out of the country and lower the odds of an all-out bank run, particularly if Sunday’s Greek parliamentary elections set that country on a path to leave the euro.

The deal, though, fails to address a fundamental issue that has been spooking markets: This is the worst possible time for Spain to borrow 100 billion euros. Under the agreement, any amount used to bail out Spain’s banks will be added to the country’s government debt, potentially pushing it to a net 70 percent of gross domestic product, from about 60 percent today. Spain is already struggling to sell its government bonds to anyone other than its own banks; the sudden increase in debt could completely cut it off from private financing.

Market Lockout

A market lockout would force Spain to ask the troika -- the European Union, the European Central Bank and the International Monetary Fund -- for the money it needs to cover its budget deficit, one of the euro area’s largest. If Greece is any indicator, that assistance would come with tough conditions, requiring Spain to exercise extreme austerity as its economy is mired in recession and its unemployment rate is approaching 25 percent. The Greek fiasco shows how well that works.

Italy Struggles to Break Out of Downward Spiral

Euro Crisis Deepens

By Hans-Jürgen Schlamp

Claudio Pesaro actually had big plans for this year. The 35-year-old Italian, who still lives at home, wanted to buy his own place, marry his girlfriend and have children. But even though he has saved more than a third of the purchase price for a property, he can't find a bank that is willing to lend him the rest. His job is also at risk, as his company is making losses. As a result, he will have to put his plans on ice for now.

Marco Michelli wanted to go into business for himself, starting a microbrewery complete with pub. Beer is popular in Italy, especially among the young. But the municipal authorities hampered him with conditions and fees, and the bank withdrew its commitment to fund his business. That was the end of his project.

These are just two typical stories from Italy, which is currently in the fourth year of its crisis. The mood in the country is depressed. The number of people committing suicide for economic reasons is increasing. The enthusiasm with which Italy greeted the introduction of the euro has long vanished. Now, around 65 percent of the population are skeptical of the common currency.

Hence, Italians were relatively tranquil in their reactions to the latest "Black Monday" on the stock markets, when stocks fell sharply following the announcement that the Italian economy had contracted by 0.8 percent in the first quarter of 2012. They have come to expect such plunges. The focus of the euro crisis is, after Spain, shifting again to Italy. Italian share prices have plummeted, and yields on Italian government bonds jumped back over the dangerously high 6 percent mark. Stock markets insiders report that hedge funds are investing large sums of money in bets against the country, on the assumption that yields will continue to rise -- and are thereby fueling the downward spiral.

China's demographic crunch

China's population will peak in 2026, then age rapidly

By MICHAEL RICHARDSON

Just four years from now, China will pass a milestone. Its huge workforce will peak and start shrinking. This will make it more difficult for the world's second largest economy to continue the turbo-charged growth that has played a key role in the rise not just of China, but also its Asia-Pacific trade and investment partners like Japan. They depend heavily on exports to the Chinese market.

Part of China's success since economic reforms and market-opening were started in the late 1970s has rested on its army of low-cost workers in industry and export manufacturing. As labor shortages have developed in parts of China in the past few years, wages and other costs have risen, making exports less competitive and investment less attractive.

But the decline in the workforce is part of a bigger problem for China, the world's top exporter. Its population is aging, so sharply that the state-run China Daily recently called the trend a "ticking time bomb" for the government as it struggled pay the rising pension and health care costs of an increasingly elderly cohort.

Dai Xianglong, the head of China's social security fund, warned last month that there was a "huge" shortfall in the capital needed for future pension payments. To forestall the crisis, officials have suggested raising the retirement age from 60 and allowing the fund to make higher-yield, but riskier, investments.

At the end of last year, 123 million Chinese, about 9 percent of the 1.35 billion population, were aged 65 or over. By 2030, the number of seniors is projected to be close to 240 million, or 17 percent of the population. Chinese demographers have warned that there will be less than 3 working-age people to support each senior citizen in 2050, down from 10 in 2000.

The EU remains one of the greatest failed experiments in history

12 Signs of the Europocalypse

From the Chinese buying spree to the rise of extremism, here's what to watch for as the continent teeters on the brink of disaster.

BY DOUGLAS REDIKER

Two short years ago, if anyone had suggested that we would be considering pan-European bank regulation, cross-border deposit guarantees, joint and several Eurobonds, and the very survival of the common currency, they would have been dismissed as nothing short of crazy. But what was unthinkable then appears to be verging on the inevitable now. With last weekend's announcement of a bailout for Spanish banks and with potentially euro-shaking elections in Greece this weekend, we can now say with certainty that the staid European Union we knew for its first two decades is a thing of the past.

What we're not yet sure of is just what will take its place. The complexity and breadth of the unfolding European financial crisis, with another imminent flash point seemingly around every corner, have made it particularly difficult to distinguish noise from signal and the valuable data from the spin in each day's headlines. In particular, the news focus on daily -- or hourly -- developments in the crisis often obscures the broader dynamics that will shape the European response over the next few months, which will in turn shape Europe itself over the next few decades.

Here are 12 key trends to watch over the next few weeks for help in projecting what the new Europe will look like if it finally emerges from the mire.

1. Continuing Greek dysfunction. Pundits and analysts are waiting with bated breath for the results of Greece's elections on June 17, with many declaring it as a virtual referendum on whether the country will remain in the eurozone. But here's the truth: The possible outcomes are narrower than people think, ranging only from pretty bad to worse.

How the Euro Will End

Greece will simply run out of cash. Then Spain's real-estate bubble will ruin an economy that really matters

By GERALD P. O'DRISCOLL JR

The euro is the world's first currency invented out of whole cloth. It is a currency without a country. The European Union is not a federal state, like the United States, but an agglomeration of sovereign states. European countries are plagued by rigidities, including those in labor markets—where language differences and the protection of trades and professions in many countries impede labor mobility. That makes it difficult for their economies to adjust to cyclical and structural economic shifts.

For such reasons, when the euro was created in 1999, Milton Friedman famously predicted its demise within a decade. He was wrong about the timing, but he may yet be proven right about the fact.

Greece is the epicenter of a currency and fiscal crisis in the euro zone. Markets fear a "Grexit," or Greek exit from the euro. That exit is almost a foregone conclusion. The endgame for the euro will be played out in Spain.

But first to Greece, which is devolving from a money-using economy. Firms, households and even the government are short on cash. The government isn't paying its suppliers and workers in a timely fashion, so households cannot pay their bills to businesses with whom they transact. Businesses, in turn, cannot pay their suppliers. There is a cascade of cash constraints.

Normally, credit supplements cash in economic transactions. But there is scant credit in Greece. Anyone who can is moving their money out of the country, either to banks in other euro-zone countries, such as Germany, or out of the euro to banks in Switzerland, the United Kingdom and U.S. (the franc, pound and dollar, respectively).

Absent a truly dramatic event, Greece will exit the euro not by choice but by necessity. It will do so not because the drachma (its old currency) is superior to the euro, but because the drachma is superior to barter. Greek standards of living, which have already fallen substantially, will fall further in the short- to medium-term. It will then be up to the Greek people to forge a new future.

The Euro Zone is not a Gold Standard

Merkel Still Waiting for a Thatcher Moment

By SIMON NIXON

Who knows what ultimately drove Alexandros to commit suicide by hanging himself in a park in Athens? But clearly financial worries exacerbated by Greece's economic crisis weighed heavily on the pensioner's mind. In a farewell note, he set out what he saw as the answer to the country's problems, according to Greek press reports. It wasn't a euro-zone growth agenda, common euro-zone bonds, a banking union, an end to austerity or a more expansive role for the European Central Bank. What Greece needed, he wrote in his despair, was a leader like Margaret Thatcher, "a leader with b—."

Alexandros understood something important that seems to have eluded a great many politicians and pundits outside the euro zone who have lined up recently to give their views on how to solve the euro crisis. Most of this advice takes one of two forms. One group, largely made up of British euro-skeptic commentators, insists the euro has always been an unworkable disaster and that the only solution is to break up the common currency. The other group, which now sadly includes U.S. President Barack Obama and U.K. Prime Minister David Cameron, insists the euro zone should move to an immediate political and fiscal union.

What both groups share is the belief that Angela Merkel is the villain of the crisis whose inflexibility risks dooming entire nations to a never-ending cycle of misery. This is grotesquely unfair.

Greece Back Down To Just €2 Billion In Cash

Zeit Suggests A Third Greek Bailout May Be Coming

By Tyler Durden

Shifting away from the theatrical travesty for a moment, we move to the other such travesty: Europe, where while nothing has been fixed, despite what the BIS is trying to do with the EURUSD which is now up 100 pips in a straight line since the Dimon testimony started, we find that while the world is concerned about Greek elections, the real gamechanger may be the old and known one: Greek cash, or the lack thereof, and more specifically yet another bailout for the country. RTE reports that as of today Greece has about €2 billion in cash left, pro forma for the recent cliffhanger cash infusion from Europe which almost did not come, which is expected to last the country for just about one more month.

From RTE:

"Greece has about €2 billion to pay salaries and pensions until July 20, media reports said today. The finance ministry declined to comment on the reports. Greece is heading into a Sunday election which could lead to it leaving the euro zone."

Of course, there is the natural probability that this is merely electoral propaganda: "Greece's European peers have warned Athens in stark terms that further loan payments could halt if promised reforms, including an unpopular privatisation drive, falter. Should this happen, many analysts warn that Greece could be forced to ditch the euro and print its own currency to pay pensions and salaries." Oddly, this is despite Spain proving to the world that one has much more leverage when demanding bailouts in the context of preserving Europe. And the irony is that this may not be enough. As Greekreporter informs us :

Giants had replaced reality

More Gruel, More Gruel

By Mark Grant

Pathos

It is really rather pathetic. The Prime Minister of Spain today called for a deposit guarantee fund, pleaded for the EU to take over the budget of Spain and said Spain would cede its sovereignty over its banks. This is all just one thing; a cry for money and money at any cost. The poor fellow has obviously lost whatever self-respect that he had and is behaving no differently than some street urchin begging for alms. What can be seen from this kind of behavior is the desperate state that Spain is in and it is reflected in his desperate pleas for help. I would speculate that so much has been hidden and so many balance sheets falsified that Spain has suddenly found itself in a sea of their own making which could be termed, “Dire Straits.” When Rajoy termed the bailout for Spain as a “Victory for Europe” I knew that he had left “sense and sensibility” behind and headed into the land of Don Quixote where windmills were imagined to be giants and fantasy had replaced reality. The problem is, unlike the creation of Miguel Cervantes, this guy is the Prime Minister of Spain and not some aged senior chasing after the Knights Templar in his later years.

More Gruel Please Sir

I am reminded of that famous scene in Oliver where a second serving is asked for and the commotion that it causes. The European Union can now be viewed as three distinct groups. The bailed-out countries that are trying to renegotiate their agreements, pleading for more money, and asking for more integration in the hopes of getting more gruel. This is all characterized by some grand plan of course so that they can con the wealthier nations out of their money under the banner of the Three Musketeers, “All for one and one for all” which really just means; “give me your money so I can live just like you do and thank you so much.”

Rescuing the eurozone

What would Isabel Peron do?

By James Jordan

There appears to be a widespread assumption (see this week’s Economist) that all would be well in the eurozone if only Angela Merkel would just step up and do the right thing. The right thing is defined as agreeing to co-guarantee joint eurozone bonds and to allow the ECB to make unlimited credit available to eurozone governments and their banks. Her refusal to do so is attributed to German stubbornness and selfishness.

Frankly, it is pointless to attempt to discuss the eurozone crisis in moral terms. Morality is irrelevant under such circumstances. All is fair in financial crises.

Let us accept the promise that it is in Germany’s interest to rescue Europe. Let’s not debate that, we’ll just take it as a premise. Germany agrees to sign up to lend its credit to the entire eurozone, and the Bundesbank allows the ECB to buy the bonds of troubled governments.

First, let’s look at the eurobond piece. While it is possible that an announcement such as this would reopen the debt markets to allow the PIIGS to to issue their own debt, that is quite doubtful. The bond market is not charitable. Therefore, the future source of credit for troubled eurozone governments will be eurobonds, co-signed by Germany, forever.

"Cradle-to-Grave" Politics

What Soviet Medicine Teaches Us

by Yuri N. Maltsev

In 1918, the Soviet Union became the first country to promise universal "cradle-to-grave" healthcare coverage, to be accomplished through the complete socialization of medicine. The "right to health" became a "constitutional right" of Soviet citizens.

The proclaimed advantages of this system were that it would "reduce costs" and eliminate the "waste" that stemmed from "unnecessary duplication and parallelism" — i.e., competition.

These goals were similar to the ones declared by Mr. Obama and Ms. Pelosi — attractive and humane goals of universal coverage and low costs. What's not to like?

The system had many decades to work, but widespread apathy and low quality of work paralyzed the healthcare system. In the depths of the socialist experiment, healthcare institutions in Russia were at least a hundred years behind the average US level. Moreover, the filth, odors, cats roaming the halls, drunken medical personnel, and absence of soap and cleaning supplies added to an overall impression of hopelessness and frustration that paralyzed the system. According to official Russian estimates, 78 percent of all AIDS victims in Russia contracted the virus through dirty needles or HIV-tainted blood in the state-run hospitals.

Irresponsibility, expressed by the popular Russian saying "They pretend they are paying us and we pretend we are working," resulted in appalling quality of service, widespread corruption, and extensive loss of life. My friend, a famous neurosurgeon in today's Russia, received a monthly salary of 150 rubles — one third of the average bus driver's salary.

In order to receive minimal attention by doctors and nursing personnel, patients had to pay bribes. I even witnessed a case of a "nonpaying" patient who died trying to reach a lavatory at the end of the long corridor after brain surgery. Anesthesia was usually "not available" for abortions or minor ear, nose, throat, and skin surgeries. This was used as a means of extortion by unscrupulous medical bureaucrats.

"Slavery certainly 'reduced costs' of labor, 'eliminated the waste' of bargaining for wages, and avoided 'unnecessary duplication and parallelism'."