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How do you leave the Euro? Plan C: odious debt...

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Paul Mason | 10:42 UK time, Tuesday, 1 March 2011

I once used to frequent a very decent restaurant on Kefalonia where you could get lobster pasta for 1700 drachmas. In the summer of 2002 I was stunned to find, chalked on the very same board in the very same harbour, that lobster pasta was now to cost 17 euros. In fact the old zeros were still faintly visible, but not the drachma sign.

The final exchange rate of the Greek drachma was 340/1, making the pre-Euro lobster a notional 5 euros - so this was a > 3x increase. But on adoption of the Euro the restaurant had simply decided it had entered the north-European economy and would now charge north-European prices. I have to say, it was still worth it - but it was a shock.

Soon Greeks may experience a shock in the other direction.

For, with GDP shrinking by 4.5% last year, on track to shrink a further 3% this year and unemployment on track to hit 15%, it is not clear how Greece will avoid a deflationary spiral. With Ireland scrambling to renegotiate, money flying out of the Emerald Isle at an alarming rate - and Portugal (10 year bond yield currently 7.5%) about to go through the wringer of bailout pressure from the ECB, everyone is talking about a "Plan B".

Plan B is that these countries go cap in hand to the EU Summit on 24 March 2011 and demand a collective renegotiation of the terms of the bailout. This would then move the stress in the European finance system towards the core, with most probably an uptick in the interest rate on French and German debt. Possibly it would involve an element of debt restructuring, so far ruled out by the ECB for any debts incurred before 2013.

But some are now openly contemplating a "Plan C". Around the fringes of mainstream politics in the stricken countries are now quite significant leftist or quasi-leftist parties in parliament and they are beginning to link up with debt NGOs more normally associated with the developing world over the issue of so-called "odious" debt.

Once the term "odious debt" enters the conversation, it leads inexorably to the suggestion that the stricken countries - above all Greece - should default on their debts. That is, instead of waiting for some kind of controlled restructuring of debt under the aegis of the ECB/IMF, they take control of the process themselves and declare - as with Argentina in 2002 - a default (Argentine investors got about 30% of their money back over the decade).

The odious debt concept emerged in 1927 as a discussion in international law about what to do with debts contracted by one state with another, where the debtor state then experiences a revolution and decides the previous government were rotters who contracted the debt without benefiting their own population. There is a sporadic case law on the question, outlined in this UNCTAD research paper.

However the bad debt sinking the peripheral economies of Europe is not primarily state-to-state debt, but state-to-bank debt: so the "odiousness" is not really relevant. If you are going to default, then you default - for whatever reason - and get on with it.

In polite European society it is not done to talk about default: but the cost of insuring E10m of Greek five year debt against default is currently about E0.8m - that is, there a precisely measured likelihood of default understood by the markets and it's about 12-1 and "coming in" as they say at the bookies'.

Two weeks ago Greek labour minister Louka Katseli, a perennial grumbler about the austerity plan, is said to have made some remarks that I cannot track down in the English language press along the lines that Greece might have to form a committee of wise men to look at what to do about its debt. I will try and find the precise quote.

We are going to see all kinds of peripheral rumblings about odiousness, "studying the structure of debts", the potential haircuts, repayment delays etc: and these of course form the thin end of the wedge of a full-blown default debate.

Right now, EU governments are obliged to hold the line on the impossibility of Plan C.

Yet the markets keep reflecting its possibilty, by edging upwards the cost of insuring against default, and by removing money from the countries they deem to be at risk of default.

This influential post from the geo-economics team at the Council on Foreign Relations is worth quoting in full (and the graph is worth a look, too):

"In the midst of the financial crisis of 2008, governments helped to prevent bank runs by guaranteeing bank debts. Yet as sovereign solvency itself becomes an issue, such guarantees quickly lose their value. If Ireland provides a rule of thumb, bank runs can be expected once sovereign credit default swap yields pass 3%. The figure above shows that when Irish government CDS yields first passed 3% in early 2009, foreign deposits fled the country. This happened again in late 2010. Now that Spanish CDS yields have broken the 3% threshold, there is reason to be concerned about the stability of Spanish bank deposits as well." (Council on Foreign Relations blog, 5 January 2011)

To summarise: nobody in mainstream European politics wants to see any country leave the Euro. Yet the non-mainstream politics are getting bigger as the elections tick over, and the markets themselves are registering a growing possibility that one country will go through a controlled default. An uncontrolled default would send the stress straight through from the periphery to the core: it would hole several EU banks below the waterline - as pointed out in my previous post.

Then the countries of the EU's northern core would have to finally pay the price of a decade of misalignment, profligate lending, low competitiveiness and tax evasion they turned a blind eye to in southern Europe.


  • Comment number 1.

    tax evasion and the "decade of misalignment" aren't just prominent in southern Europe. it's a curse of western society and capitalism as a whole.

  • Comment number 2.

    The simplest way round it, always assuming that a way around the issue is what the elites want, is to evaluate the level of state to bank debt in the Eurozone and sit down with the banks to hammer out a mutually agreeable and sustainable solution.

    The way debt has been pushed under the carpet in this crisis has become the new obscenity. It is the heffalump in the room as Pooh Bear would say and even that fictional honey grubbing drollery could see that it would have to be confronted.

    We won't have the economy-stupid until we deal with the debt-idiocy.

    Sovereign default is not a happy experience for anyone and places large constraints on future economic activity.

  • Comment number 3.

    Sometimes (most times) I just want to yell at the EU: "Wake up!"
    Credit Suisse Group (CS) is introducing a service to let customers trade electronically in credit default swaps CDS) - a type of derivative.
    The introduction of electronic CDS trading on Monday foreshadows new regulations that are expected to reshape the opaque, $590 TRILLION-the-counter derivatives market by forcing swaps trading onto platforms that are more open and far quicker.
    Regulators around the world are in the process of writing new rules for the swaps market, in particular targeting CDS, which were blamed for starting and deepening the 2008 credit crisis. THOSE RULES ARE STILL BEING DRAFTED. The legislation enabling the rules has empowered regulators to force more transparency on the swaps market.
    Regulators want to see swaps traded on registered exchanges or electronic platforms, so companies using swaps to hedge price swings can see what dealers are offering other customers and negotiate the lowest possible prices.
    These regulators criticize the existing OTC market for allowing dealers to take advantage of the fact customers have no way of knowing what other customers pay for hedges.
    Credit Suisse has started quoting CDS prices on 16 individual SOVERIGNS and numerous industrial corporates in Europe, with a plan to add CDS on auto companies downstream.
    The bid/offer spreads that Credit Suisse is offering on five-year single-name soverign CDS are mostly three to five basis points, with spreads on Greece and Ireland much wider at 20 basis points, reflecting their increased risk of default.
    A basis point is one hundredth of a percentage point, and a differential of one basis point in the cost of a five-year CDS equates to $1,000 in the annual cost of protecting $10 million of debt for five years.
    Spreads for 10-year CDS on Ireland are as wide as 50 basis points, and for Greece, 40 basis points.
    So far, most of the trades have been executed by hedge funds, which are early adopters of electronic platforms. Volumes of trades going over the platform were not available.
    UBS Investment Bank launched electronic CDS trading last month for the most commonly traded corporate and soverign credit derivatives indices in Europe and the US, as well as for select individual Western European sovereigns.
    THE WORLD HAS SOMETHING LIKE 650 trillion in derivatives. Derivatives, in my opinion, are 10% solid and 90% junk. This is where the emphasis on control must land; this is where the bad debts must be identified and written-off - not traded to unsuspecting trading partners, indcluding sovereign countries. Economically, we are living in a glass house made of CDS bricks and standing on a foundation of derivatives.
    How long, how long, how long before all of it comes smashing down?
    (If you think leaving the Euro will solve the problem, please adjust your thinking: leaving derivatives and CDS will solve the problem...but there is just far too much money for the Wall-Street boys to make!)

  • Comment number 4.


    Spot on. Regulate, then tax. Take all the froth (and the profit skimming) out of it. Damn the rentiers.

  • Comment number 5.

    The Greeks and the Irish and, surprisingly, the (Southern) Italians have wanted life on easy street for far too long. 'Beneficiaries' of the Eu and the Euro. And yet I have lost count of the tirades I have heard, especially in Italy, against the Euro.

    For years I have not understood the above economies when I made many visits. The local populaces really did believe, in effect, in a New Paradigm. I did not doubt their sincerity, but I could not work out how justified or not they were in their assertions.

    As Mr Mason you started you blog about food an analogy could be thus.

    FANFARE : The Euro is born.

    Antipasti arrived, both hot and cold. Scrummy. First courses, primi piatti in Italian, were substantially filling and not too expensive. Life is great.

    The second courses arrive and are admired. Salivating Desires, modelled on Pavlov's dogs, abound amongst the PIGS. But quickly more food becomes unattractive to eat because one or two of the antipasti were poisoned.

    These countries are now onto their desserts. Their just desserts. An extreme view perhaps, but not totally inaccurate. Should they now 'vomit' or drink a stiff brandy and persevere.

    If you had listened to the hardened 'rantings' amongst some Germans as I did over Christmas there is not only very limited sympathy for the PIGS in some of Euroland...there is also anger and even hard-intended promises to avoid such countries for holidays. I had the impression that I was hearing visceral contempt.

    The Political Process and the Media use more delicate language. And put forward milder interpretations of events. If they are right or wrong, I do not know for certain.

    But if many amongst the Euroland ELECTORATES are unhappy at gut level about the Euro, how long can it survive ? Especially as it inhibits both jobs growth in the 'South' and living standards in the 'North'.

  • Comment number 6.


    A very sober and well worked out post (leave the ranting to us...very sensible).

    I would only observe by way of addition that timescales seem to be contracting for the events you suggest to unfold.

    I guess Merv and the like understand this and are (as suggested before) merely 'playing for time' ...'hoping something will turn up' to re-set the debt clock before the wheels fall off.

    I would say to central bankers of the careful what you wish for, time is fast running out as measured by the frequency of eruptions of 'mini crises' and sometimes not so mini crisis on the european and broader stage.

    The process starts to speed up as the time between crisis decreases in a negative feedback loop.

    A greece... followed by a gap..followed by Ireland can be managed. But can a continued contraction in the UK (and elsewhere) combined / hot on the heels with a spike in Oil and a bail out of Portugal and talk of 'sovereign defaults' be managed in the same way?

    I doubt it.

    Time is running out and there is not a proper visionary plan in sight except as expressed by the researchers in NEF maybe..but nobody is listening to them much less implementing it.

    Generations to come will look back upon this time and gasp at the stupidity of the technological revolution and its potential dividend being so spectacularly mishandled. Just at the point when we have the power to sustainably look after everyone... we (potentially)throw it all away.

    Go figure.

    I wonder, when all the dust has settled, who will be identified as the key protagonists and what will be seen as being the key decisions we got wrong.

  • Comment number 7.

    is the c for communists?

    these people like the idea

  • Comment number 8.

    3. At 1:13pm on 01 Mar 2011, BluesBerry wrote:

    THE WORLD HAS SOMETHING LIKE 650 trillion in derivatives. Derivatives, in my opinion, are 10% solid and 90% junk. This is where the emphasis on control must land; this is where the bad debts must be identified and written-off - not traded to unsuspecting trading partners, indcluding sovereign countries. Economically, we are living in a glass house made of CDS bricks and standing on a foundation of derivatives. [End quote]

    Whenever I have spoken to intelligent individuals across Europe about CDS OTC v. Tradeable, eyes have rather quickly gone into blank-mode. Electronic trading for clients seems like a brilliant idea, doesn't it ? (Some, but only some, irony intended).

    It ALL seems to be beyond the comprehension, or volition to understand, of many otherwise bright individuals. Reminds me of CDOs in 2004 and onwards.

  • Comment number 9.

    Paul hey lad if you can't beat them ...join 'em....take your own minitures in and fill up just buy a coke and fill yer boots...done it for years.. you can always beat the b.......ds

  • Comment number 10.

    "uncontrolled default would send the stress straight through from the periphery to the core: it would hole several EU banks below the waterline "

    This is what is needed - the criminal banks need to be totally shafted. States should say : bring it on (CDS's) and tell the IMF EU globalists to go to hell. They are just there to rape. If a country cant control its own situation its a debt slave.

    'what cant be paid wont be paid'

    Return Strauss-kahn's text calling card with: 'up yours sweetie'

  • Comment number 11.

  • Comment number 12.

    Its because they dont understand and this is because the BBC and other MSM who are basically captured will not tell them what Fractional Reserve Banking; Derivatives; Naked Short Selling and High Frequency Trading amounts to. When they start to hurt they will not know the weapon that hit them, they will act but not know the solution. No one wants to know about banking stuff. its as if they just think they cant be stopped when in truth all that is needed is that they remove their money en mass and demand new banks without much of the above or properly regulated .

  • Comment number 13.

    Hi Paul

    Havent all the peripherals considered default already? Spikes in national inflation, increased unemployment,capital flight,currency collapse,lock-out from capital markets, a new credit crunch for the defaulting economies - doesnt sound a great option to me but could be a threat to obtain leverage on existing terms?

  • Comment number 14.

    If this is a proper gauge of the problem it raises serious questions about the prognosis for the GO austerity programme. We will soon see if the economy goes the way of the econo-masochists and the Irish will be testing the resilience of the Euro zone this week. The reaction to peripheral default is likely to be more futile austerity with knobs on. Once outside the Euro the Greeks for example will devalue big time and tourists will get their lobster blow outs for £5 again!

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    You know how this is going to turn out, don't you?


    I think you do. So this is what I'll offer - you bring me the money and I'll let her go. Otherwise she's accountable, same as you. That's the best deal you're gonna get. I won't tell you you can save yourself, because you can't.

  • Comment number 17.

    If the Irish succeed this week surely it will be impossible to turn down the Greeks and Portuguese (may be Spain too). Is the Eurozone prepared for this or will there be concatenated crises over the next two months? I know where my money would go!

  • Comment number 18.


    How do the incumbent risk assesors involved in the financial industries assess and 'price in' the risk of the system itself collapsing?

    They can not.

    All their risk assessments must be flawed as they are un-naturally constrained by a tacit assumption that the global financial model will continue to function.

    'we must restore growth'... aparently.

    Except growth is no longer ecologically possible for the current world population and for the current world resources in the context of a highly mechanised technological society.

    The model is ******** frankly and it will collapse, it is only a question of the 'when' and the exact mechanics of the 'how'.

    All this risk assessing and pricing in various scenarios is re-arranging the deck chairs on the titanic... you only get value out of it until the point that the majority of passengers realise the ship is sinking, at which point life boats become at a premium.

    Life boats will be politically stable countries with a good education system and which are capable of sustaining themselves and protecting themselves from within thier own borders.

    Unfortunately we may not be able to rely on 'women and children first' and orderly queues to get in.

    The rest of the world risks anarchy in the aftermath. It could be really nasty for a while.

    Of course all of the above could be avoided if world leaders pulled their heads out of their backsides and did thier job instead of simply wallowing in a sense of their own needy self importance massaged by leveraged interests or religious allegiance on a promise of 'paradise'.

    Sorry Shireblogger non of the above is directed at you but your post set off the above chain of thought / rant/ whatever it is.

    But I would do you price in the risk of the system collapsing?

    It should be the first question on final year LSE graduates papers this year.

  • Comment number 19.

    #18 Jericoa
    No problem at all with your comment.I'm as frustrated as the next man at the response to all of this - see the London April 09 G20, which in my view was an opportunity lost to change the terms of reference. Tne reality of the powerplay was there for all to see. Sovereigns having to accomodate financial markets. The financial 'market' is now an unholy alliance of private profit-making by a global network, including nations, with its losses socialised. Fact. Bank creditors should have shared the pain, but contagion via interconnection was the cost. Having kicked the can down the road, here we are again.

  • Comment number 20.

    "The financial 'market' is now an unholy alliance of private profit-making by a global network, including nations, with its losses socialised."

    Exactly and that is why I have opposed the localisation movement despite its seeming environmental and social benefits. The localisation movement plays right into the hands of the financial elite who have created a separate tier of global living in which they commute from New York to London to Shanghai etc. etc. asset-stripping nations and leaving the rest of the world to eke out a living in 'local (static) communities'. It is feudalism on a global scale.

    But now we have arrived at this point, our main chance is through localisation - self-contained and self-sufficient communities that can exist entirely independently of the globe-trotters.

  • Comment number 21.

    Excellent posts from Paul Mason. I'm not sure anyone has a better handle on the euro crisis.

    And to think I once criticized him for being out of his depth on matters economic - my words were lunch.

  • Comment number 22.

    shireblogger - I can see your point about socialised losses but private gains. The banking industry was writing cheques they knew could not be cashed for a long time. Very bad behaviour.

    However, it strikes me it's not just banking failing to balance the books. Western states have underwritten banking losses, but with what? Aren't they in turn just underwriting the debt with more of their own debt? Banks were forced into a position where they had to pay the piper - and they couldn't. Are western states being forced down the same path as the generational ponzi lie unravels? Perhaps the banking crisis just sped up this day of reckoning by a bit. If the UK govt had to come up with a credible explanation as to how they will afford pensions in 20 years *and* the NHS would they do any better?

    I'm wondering if the underlying problem here is that the current generation's lifestyle is utterly unsustainable in the UK and US. That we moved to finance to manufacture credit when growth seemed like too much hard graft. That working until 65 when you live to 80+ and have little savings beyond your credit based house doesn't add up, and that only boomers will live long enough to enjoy some of the benefits of life on credit. Are boomers the generational bankers?

    ps Sasha sorry my brain just called me back and said "you asked about maths!". Thanks for replying. Sounds good. I have done research on this before but decided to do some other study first. Damn you time!!!!

  • Comment number 23.

    At the turn of the year, I watched Paul on Newsnight give a report about the prospects for 2011. He looked tired and gave a depressing report that there were bad things to come. It seems his fears may be about to start to become true.

    I can only agree with other contributors that our authorities are doing little or nothing to change the basic situation; it will leave us all suffering and will end the west's current position in the world. No ideas, no leadership to tackle the problem, growing stability problems in important parts of the world and inflation of the way up. The country is going down.

    I wonder where the bottom will be.

  • Comment number 24.

    22. At 9:44pm on 02 Mar 2011, Ben wrote:

    " .....That working until 65 when you live to 80+ and have little savings beyond your credit based house doesn't add up ...."
    I understand your point, but work must be suitable for those of that sort of age. Even if their minds are willing, bodies age and many over 6o have increasing health problems. Many over the age of 70 are just not well enough to hold down a job in todays world. Its pointless to suggest a plan thats intended for all but is practicable for only a percentage; its really a non-starter . The plan has to discuss the health and capability aspects of the elderly to be viable.

  • Comment number 25.


    It gets frustrating for all of us on here I guess, Paul included.

    It is not as if the situations and analysis presented by Paul and the positions adopted by his commentators here are a matter of 'opinion'.

    It is more a case of 'stating the bleedin obvious' again ...and again..

    I don't know why I get so het up about it.

    Biology is..what biology would appear.

    We only muster the will to fight if;

    a)We or our immediate loved ones are are physically suffering and we feel we have nothing to lose.


    b) We are young and full of hormones looking for a battle to fight and with nothing else to do.

    If those conditions are not met then we (it would appear) are prepared to accept the ridiculous over the sensible every day of the week and twice on Sundays.

    Heck just ask any resident of a despotic yet affluent oil rich nation with a population sufficiently low to be manageable by cause of the nations wealth (at the moment).

    If it were not so tragic it would be of sufficient hilarity to be worthy of the most obtuse LSD inspired archive sketch from Monty Pyton.

    Ahh...why do I bother... may as well drink myself to death, its more satisfying somehow than banging ones head against a brick wall.

    Funny that.

  • Comment number 26.

    @22 Ben "I'm wondering if the underlying problem here is that the current generation's lifestyle is utterly unsustainable in the UK and US. That we moved to finance to manufacture credit when growth seemed like too much hard graft. That working until 65 when you live to 80+ and have little savings beyond your credit based house doesn't add up..."

    Im sure you're right - at least partly. The trouble is that the increase in life expectancy is far from uniform, and from what I have read barely applies to the bottom end of society.

    ".... Are boomers the generational bankers?"
    Quite Possibly. I am not untypical. I had a free higher education and a maintainance grant - of course my parents paid 33% or so income tax. Many of my generation - at least, a significant minority, have unearned money in the bank because they have sold their late parents' homes at inflated and unrealistic prices - paid for, indeed created, by younger generations' debt.

    I will never forgive Gordon Brown and Tony Blair for "pulling up the ladder behind them" on higher education funding. They and their colleagues denied future generations the chances they had themselves. I have never been able to shake off the suspicion that the expansion of higher education, together with fees and loans, has been partly a strategy to con a large swathe of youth to pay for their own unemployment for a few years. I am particularly angry that this "expansion" in higher education has been accompanied by the closure of some well respected university departments, like the Chemistry department where I studied at King's London.

    There is no absolutely fair answer to this. Like many political choices, it is the matter of the lesser of evils. However, if mortgage credit were restricted so as to force down the price of houses in real terms, and interest rates were kept below a higher inflation target of say 5% for ten years, then this would help to redress the balance. Ideally this would be part of a wider economic strategy based on real long term capital investment rather than short term speculation.

    Re the maths - while there's life there are opportunities to study! :-) To me, the OU and the breathalyser are the two lasting achievements of Wilson's '64-'70 government.

  • Comment number 27.

    @Sasha, the most effective way to stop the boom bust cycle in house prices - in fact the boom bust cycle period - is to collect the full rental value of land (totally unearned) for public benefit. Excess credit always ends up in land/location value because, as they say, they ain't making any more of it. Gold may be attractive as a speculative asset but you can't get a rental stream from it as well as being assured of it's longterm appreciation. It's actually our activities and public investment which create land values + what nature gave for free. I cannot understand why economists don't mention this to their lords and masters.

  • Comment number 28.

    Jericoa and Ben
    I agree entirely with the thoughts, feelings and points. Generally, if you are over-borrowed you use care in picking your fights with the lender. If you are underwriting someone's business you use care in criticising that business.

    It takes 'leadership' from a 'Statesman' - where is he/she?

  • Comment number 29.

    Paul, A good and relevant article from 'Spiegel Online'

    "Economists Warn Greece May Have to Quit Euro",1518,746957,00.html

    One chilling fact from the end of the article:

    ".....Meanwhile, the Spanish central bank announced Monday that Spain's savings banks have outstanding real estate loans of €217 billion -- of which up to €100 billion has to be classified as toxic."

    I wonder what proportion of these loans were to finance holiday homes for North Europeans?

  • Comment number 30.

    Brown Sugar - doesn't soil your shoes like crude oil:

    Stock up early on Easter Eggs kids

  • Comment number 31.

    Carol @ 27

    Land is not the only thing that nature has 'given us' for free. It has also given us oil, gas, and coal amongst others. This is irreplaceable capital that Humans have not made, but simply found, and without which we can do nothing. Yet we treat this irreplaceable capital as if it was income - as if it was grown on trees.

    We are alienated from nature and thus ourselves. We only give value to those things that we have made and treat as valueless those we have not. What we use as capital is nothing compared to the capital used that nature has provided - and we don't even recognise it as such.

    To overcome the boom/bust dichotomy we require peace and permanence.

    Here's Schumacher in a nutshell:
    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 32.

    @dceilar, minerals are embedded in land until mined when they become capital since labour has been expended on them. In economic terms land encompasses all natural resources. However, whilst natural resources can be consumed the location element of land cannot, that's what makes it so special. Land can be used continuously in different ways over time. So, like unemployed workers, unused land is a permanent loss to production. If the rent were extracted (because it is a huge externality) no one would rationally own land except to use it and the market would function properly to allocate to best use. Schumacher failed to recognise the nature of land as location. I understand that his daughter is a bit more clued up.

  • Comment number 33.

    #31 dceilar

    "We are alienated from nature and thus ourselves. We only give value to those things that we have made and treat as valueless those we have not."

    Yes, we live alienated lives.
    As regards value, you appear to use the term in a moral sense - nothing necessarily wrong with that.
    But society has only one value today - monetary value.
    And monetary value is exchange-value not use-value.
    We produce luxury yachts, £100k watches, etc whilst most struggle to put a roof over their head & some in the world starve to death.
    And on top of that we destroy the world's ecology.
    Why? profit!

  • Comment number 34.

    SleepyDoormouse: "Its pointless to suggest a plan thats intended for all but is practicable for only a percentage"

    My parent's friends all retired on or before 65 from unremarkable jobs in nice houses and are now busy holidaying several times a year on final salary pension schemes. Sure they will hit 75+ and slow, but I'm pretty sure my generation won't be enjoying this, in large part because all our pension money is going to pay off their lifestyle right now, and very little will be left for us except a massive mortgage. The wife's parents - nothing council job. Retired before 65. 2 holidays a year. Bought out their council flat for a song.

    I really have to disagree. Go out to any decent restaurant any day of the week and it's full of old people. Sure they've worked all their lives - doesn't everybody? Only they enjoy disposable incomes now. They are the elite.

    Yes, there is no quick fix, because the economy has been completely screwed by that generation. Youth will fix it quick by taking it or leaving the country, I expect.

  • Comment number 35.


    If you had been born in thier time, you would have done the same.

    The blame lies with the current world leadership over, say, the last 10 years whom have, despite consistent and obvious warning signs, essentially, buried their heads in the sand and, encouraged by those who benefit most from it, allowed the status quo to continue way beyond its useful sell by date.

    At what price remains to be seen but fairly horrific I would guess.

    Those entirely relient on pensions will be thrown into the mix with the rest of us, but are likely to be less well equiped to cope with it.

  • Comment number 36.

    Just as a slight aside, while I am here. I can see quite alot of trouble brewing (more than has been hinted at today in the news) with respect to the tuition fees changes and its knock on effects which dont seem to have been thought through.

    I have not worked any numbers ( would need a bit of research) but I think the 'uni course' myth has been busted. I doubt as many youngsters will opt for a 'non' degree which will plunge them into debt.

    Presumably even a modest reduction of applications (say 15%) would have fairly disastrous results for many 'learned' institutions.

    They will react by cut backs and redundancies..which will be met by strikes which will affect all students which will result in a lot of angry students with a tangible issue to hang their hat on.

    I would welcome that, but even that dynamic may be overtaken by even larger events elsewhere in an earlier timescale depending on how the existing situations play themselves out and how quickly they do so (interest rates, Oil price / inflation / further bail outs and the capacity of the system to still absorb them).

    It is all stacking up again, but this time it is in the 'real' economy.

  • Comment number 37.

    training is a commercial proposition, education is not.

    the enlightenment was as much a spiritual revolution as it was scientific.

    creationism and mammonism will steer the arts and sciences, away from creativity and philosophy, towards technology and markets.

  • Comment number 38.

    And as if by magic Alistair Heath in CityAM had the same thoughts this morning!

    His two options boil down to:
    1. have rich parents
    2. work your arse off for nothing

    To which I've added:

    3. Emigration

    Jericoa - uni doesn't add up because you cannot run faster than the house price curve. Trust me, I've tried. If you have half a brain you will be able to earn enough to buy a house, but by that time you will also have worked out the entire thing is built on sand.

    The problem lies with fools taking on too much debt. Take some responsibility man. I was amazed to hear that radio 4 programme with Flanders (normally Evan Davis) saying there are 2 sides to a transaction and yes the lending was dire but so were the borrowers. First time I've ever heard that on Radio4.

  • Comment number 39.

    Dear Ben (@38),

    I don't blame you for being bitter. Nor do I blame you for considering emigration - if you can find somewhere which runs its economy on a saner basis than we do.

    However, the house price curve is finished. That particular pyramid selling scheme is not reviveable, because there are few in a position to come in at the bottom and prop-up the pyramid. Economically, we have had thirty wasted years conning ourselves that we could live by "making money not things". The truth was that our imports were paid for by North Sea Oil, and more recently by international debt which fed from foreign banks to house prices for your generation and then to consumption for mine. In many cases, I don't blame people for taking on that debt. What choices were there in areas where there wasn't social housing, and private rent had been inflated by the "lie to bet" market?

    The other thing is pensions: I am convinced that annuity pensions in particular are inefficient and another source of exploition. Too many institutions exist to take a cut of pension savings by gambling on the markets. And of course many, particularly in S E England are trapped into becoming cogs in this wheel.

    I believe that inflating the debt away coupled with a severe clamp down mortgage availability and on the City is the least bad option.

    Unfortunately there isn't a chance of it happening until the present governmemt's "solutions" have been seen to fail. And I am not optimistic then, but one has to try.

  • Comment number 40.


    Interesting post.

    The biggest issue for me is that we seem to have forgotton what a good education is and mistaken the absorbing of facts and figures and proceedures on mass for 'education' like Pink Floyds famous sausage machine in the 'education' video.

    There is a spiritual aspect missing (the vision narrative) you are quite right but the cult of rationality has done a good job of debunking the credibility of anything which even hints at something beyond the rational.

    That has to change.

    The key for me is to point out the double standards of rationality whenever they appear, I am a fan of scientific method, which is a tool hewn out of rationality without inteference from the human psychy.

    Scientific method has been producing quite a few repeatable non rational results for some time yet this has not (as yet) been transposed into a narrative capable of displacing the old religious orders or 'blind' rationality (as I call it).

    If that can be done it would be a new 'enlightenment' is my guess and the next necesarry step.

  • Comment number 41.

    38 ben

    I have read the article you kindly provided the link to.

    I don't feel you have provided a fair description of Allister Heath's conclusions.

    I think he is bidding you to work and work hard. Nothing wrong with that in my view. It is best done when you are young because then you have the energy, the ideas and the time to make mistakes.

    He also bids that the education system is made to work. Nothing wrong with that either.

    Allister Heath might be of a right wing disposition but he is a polite and generous individual given to useful ideas. I might hold to the same perspective as him but his heart is in the proper place.

  • Comment number 42.

    #38 Ben

    Yes, it does indeed take two to tango in the lending / borrowing relationship. But if the borrowing was excessive, why should only the borrower take the responsibility?

    Unlike corporate and personal bankruptcy (where the lending party gets partially burned for its faliure of diligence), austerity & inflation merely ensure the protection of debt contracts by any means neccessary. Not only that, but innocent bystanders are taking the hit, not the guilty. Even Mervyn King agrees with me on this:

    It is 21st Century asymmetric warfare. Otherwise known as: Crime and Collective Punishment

  • Comment number 43.

    stanilic - not sure why you thought I don't like Heath. I really like him. I subscribe to his RSS feed.

    Obviously my terse summary of him was very brief. Yes he is exalting us to work hard. Hard to pay over the odds for a house, pay for final salary schemes we will never see and a government safety net that won't be there when we get old. That's not his fault, he is just being honest.

  • Comment number 44.

    Jeri - I'm sure you know more about this than I do but what I do know is that reason and ration are not the same thing

    and the great trick of the UK/Western political class has been to confuse the two to such an extent that they cannot tell when they are citing reasons and when they are rationalising away reasons.

    An example "a pupil asks to go early to make football. the teacher initially says no and then realises that she has a doctor's appointment. the class is then dismissed early so that 'those going to football can make it in time'." rationalisation to disguise the real reason, which the teacher thinks may refelct badly on her.

    probably nothing to do with numeric concepts but nevertheless, a slippery slope that has allowed in the IMO-(and I don't need to give any reasons why)-brigade.

  • Comment number 45.


    The concluding line should have read `I might NOT hold to the same perspective as him but his heart is in the proper place.'

    You just can't get the staff these days..........

  • Comment number 46.

    it is true that cuts are a response to money leaving the economy via the finance sector but the causal reason for this situation is the collective failure of policymakers to understand and operate society as a system, instead of as discrete and competing sectors.

  • Comment number 47.

  • Comment number 48.


    The first link made perfect sense right up to the point where he suggested the Euro could take over from the dollar as the international reserve currency.

    I had to check all I was drinking was real ale at that point.

    Is he serious?

    The Franc-marc (or similar 'best bits') may have a chance but the Euro as is...I just cant see it.

    It is potentially quite a filet to go for though and may encourage the northern european nations to change tack and cut loose from the south.

    All they need is a good printing press to prop up their banks in advance of cutting them loose and a desire to eat lobster for £5 again from happy sustainable a dn debt rescheduled Greeks.

    Wouldn't everyone be happy with that?

    Sound like a plan Herman Van Rumpoy?

    I reckon if you could see inside Von Rumpoys head you would see a miniature sarkosy and Merkel pulling levers in a sweaty labour of unspoken euro love.

  • Comment number 49.

    Its official..this guy is certifiable.

  • Comment number 50.

    Hi Hawkeye

    "Yes, it does indeed take two to tango in the lending / borrowing relationship. But if the borrowing was excessive, why should only the borrower take the responsibility?"

    Didn't say that, and I completely agree with you on this. As I said banks were dire also. The borrower should be stripped of all assets and if that doesn't pay for the amount they should face prison. The lender should loose all the money that remains outstanding.

    Collectivism has really gone mad now. It seems totally acceptable that anyone can make an error and suffer no consequences, and at the same time the greater whole will outnumber those making errors by so much that they won't even notice the shared cost. This works fine when debtors are the exception, not the rule.

    What is funny is that if I had to blame the crisis on one individual, King would be in my short-list. It makes me sick to see him sat there saying these things.

    I disagree with King's inference that banks caused the crisis alone. Private debt is now massive, the vast majority of Brits have serious financial issues (housing "asset" aside) and are one monthly wage packet from the street (unless they fall back on yet more credit cards).

    Put up interest rates so we can fast-forward this slow-motion mess so we don't ruin the prospects of two generations in a row. Cut the state right back as it's an unsustainable fantasy. Pull back from final salary schemes by changing the law so kids don't have to work all hours to pay for boomers.

  • Comment number 51.

    #50 Ben

    Thanks for the feedback. I wouldn't necessarily pin the blame on King. Top of the contenders in the UK would be Ed Balls & Gordon Brown for creating the deregulatory regime in the late 1990s. King was actually stripped of any powers to control the rise in private credit creation under the Tri-Partite arrangement.

    I don't fully buy the notion that interest rates alone control the supply and demand for credit. Private credit creation is the greatest factor in controlling the supply, and it has been a runway train since the 1990s. De-regulation has enabled credit supply with no oversight whatsoever. I recall reading somewhere that the FSA doesn't even oversee credit issuance (except for Mortgages). And the BoE only oversees formal bank institutions.

    Credit can be created out of thin air by various "lending" institutions (whether banks, credit card companies, Finance arms of car makers, Gvts or even the IMF) to stimulate effective demand for goods & services. The institution does not forfeit any tangible asset in return for issuing the loan. All they need these days is to be confident that they can get the principal & interest back from the lender. Enforcing debt maintenance effectively creates state sponsored loansharking.

  • Comment number 52.

    #49 Jeri

    Everything is going to plan. George's job is to expand the Predator State in the UK. To make our economy in the image of the US.

    The only function of the State is as collector of taxes and enforcer of private contracts and social compliance. Whilst the spoils are then doled out to the private sector:

    "Economic freedom is reduced to the freedom to shop, including the freedom to buy elections, and anything that interferes is a threat. 'Market' means nothing more than 'nonstate', a negation of use of policy in the public interest....'market solutions' are designed to enrich a favored oligarchy through a spoils system administered through the state's structure."

  • Comment number 53.

    Hawkeye - yes, interesting. However I feel banks are only in a win-win situation of we socialise losses. If not, who is to say they will get even the principal? They certainly would not have got this without the bailouts. If they don't get that they are in trouble so discipline is maintained. Or people get burnt for choosing to invest in fools, like Lehmans. But I agree credit creation is insane and needs controlling.

    Agree Brown / Balls are worse. The thing I find frustrating about King is that he didn't sing out under Brown yet he seems intelligent. Whilst Brown is probably the worst PM we have ever had, I can only dislike him up to a point for being stupid. I don't think King has even that defence. I don't like all this talk of remits. Typical bureaucratic buck passing. Department A would like to help but department B overseas topic X. B would like to help but A overseas Y. A says you need X before Y, B says the opposite. What is true is that King, Brown, Balls and Van Sant all had dinner regularly and during those dinners they said "yes it's bad but let's not bite the bullet and ride the short-term wave". Nobody can tell me that in an economy where teachers are suddenly in houses worth 500k and spending part of that equity that we don't have a problem. It's just too obvious. We passed the point of no return in 2002 or so (or perhaps as you say way before) and since then it's been a case of waiting for gravity to kick in.

    The origin is important, but the bottom line is the next generation are at the other end of that line and are just stood there getting kicked. The smart ones will leave, the rest will be left holding the bedpans in old people homes up and down the country, paid for by the sale of their houses. The demographic time bomb is ticking! Makes me laugh how people kick up about retiring at 68. They will be begging for that deal in 10 years time.

    ps King reminds me of a Le Carre line where he describes a character as having the nimbleness only fat men posses.

  • Comment number 54.

    If our politicians really represented our interests they would meet together at the United Nations and TELL the global financiers that they face a global financial inquiry and long prison sentences unless some practical realistic and fair sytem of global financial regulation is introduced NOW!

    At the same time our nations should do an Iceland and walk away from this absurd level of indebtedness and go the banks did.The world is too big to be allowed to fail!

    It`s obvious that instead of having a collection of shady shysters and gamblers running the world we need a fair and transparent global economy based on enlightened social democratic institutions....and a powerful global regulator not in the pay of the elite.

    I can`t see any point in pursuing the "repayment" approach to settling this crisis...the levels of indebtedness are far too high and it could all happen again anyway.

    In the end it`s about power...and my recollection of life in the school playground was that things didn`t get any better for me until I hit the school bully/extortioner much harder than he imagined I could!

    Call their bluff....they are crooks ...they only respond to being made offers they can`t refuse!

    And if our politicians won`t do it I suppose it`s time they learned who is boss fact they have a very good run since 1945....considering they are just puppets of the USA without the slightest ability to look after our interests... even if they were inclined to do it.

  • Comment number 55.

    All this user's posts have been removed.Why?

  • Comment number 56.

    There was an informative graph in the Economist (unusual I know)this week.

    It showed the spare oil production capacity as a %tage of global demand.

    Basically if you take out Libya the world only has about a 3% excess capacity on current oil consumption levels.

    if you add this

    into the equation then it really does give a perception of how tenuous a supply situation we are already in.

    Either that or a collective of enterprising journalists are hoping to make a few quid on the futures market off the back of real hardship for millions.

    Diesel is at 1.38 / litre round my way at the moment. I come accross Shell (ha!) shocked souls complaining about how stretched their finances are constantly now.

    It is taking over from 'the weather' as the no.1 conversation item at bus stops and water coolers as the de rigour expression of the English collective sense and melancholy appetite for social interaction via shared hardship with a dash of sarchasm.

    I was chatting to one guy on a construction site who was telling me he and his partner had £300 to live off for the next month after all his basic outgoings excluding food anmd he only had that because he was working overtime. The thing that bothered me about that conversation was that he seemed quite resigned / accepting of it along the lines of 'we had it good for a while but now we just have to tighten our belts, stiff upper lip and get on with it.

    Such stoicism in the face of crisis has served up well in the past as part and parcel of a collective struggle of some kind, but this is a different ball game here..'putting up with it and getting on' is simply playing into the hands of those who are actively privitising profits and socialising loses.

    Of course when I explained all this to him he nodded politely but I got the distinct sense while he was in agreement with my arguments he would still happily curled up on the sofa that evening watching 'Location Location' ... if he could only pay his debts back quicker (live off porridge maybe) perhaps that £170k mortgage for a 3 bed semi a short walk from the park and amenities in a fashionable area of birmingham would be within his grasp.

    That is not the type of stoicism we need !!!!!!


  • Comment number 57.

    LSE = Libyan School of Economics.

  • Comment number 58.

    All this user's posts have been removed.Why?

  • Comment number 59.

    The debt crisis in many countries of the eurozone (Greece, Ireland, Portugal etc) is part of a modern capitalism’s severe crisis. Unfortunately, The neoliberal experiments in the European Union have proven to be a total failure for the working and middle-classes while it has created profit-addicted institutions and corporations. The denial to pay off the debt would be a blow to this anti-social liberal madness and would send a strong message to international loan sharks.
    The theory of the odious debt isn’t a newly-founded concept and not even a general one. It is based on the principles of international law and can be used in a legal way when the debt "has been incurred, not in the interests of people, but against its interests and/or in the personal interest of the rulers or persons close to the regime".
    Furthermore, institutions like the World Bank and the IMF must be questioned for their policies towards lending money, requiring austerity mechanisms that exhaust the countries:
    A new policy is needed which will take into consideration the real needs of the masses, the vested rights of the working class and the strengthening of social solidarity within the Union.


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