Every two weeks or so on average, we ask ourselves: why do central bankers only tell the truth after they have quit their post (rhetorically, of course). The last time it was the BOE’s former head Mervyn King, who said that “more monetary stimulus will not help the world economy return to strong growth.” This took place long after the BOE, under his watch, unleashed its own QE back in the early days of the great financial crisis. Another example: back in November, the Fed’s own former head, the person who single-handedly unleashed the great moderation and led to the current terminal financial state where the global economy bounces from one bubble to another even bigger bubble or else everything implodes, Alan Greenspan said “Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It.”

It was another statement by the maestro that has caught the world’s attention, this time opining on Greece, when he told BBC Radio’s the World This Weekend that “Greece will leave the Eurozone. I don’t see that it helps Greece to be in the Euro, and I certainly don’t see that it helps the rest of the Eurozone. It’s just a matter of time before everyone recognizes that parting is the best strategy.… At this stage I don’t see any people who are willing to put up the funds for Greece… All the cards are being held by the members of the Eurozone.” Naturally, this is just what anyone with a functioning frontal lobe (which immediatley excludes all tenured economists) would have said 5 years ago.

And it wasn’t just Greece that the Maestro decided to throw under the revisionist history bus: he took a stabe at the Eurozone itself. The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.

“Take a look at the Maastricht treaty. There is no indication of any conceivable way of unwinding the Euro and that was done purposefully but that’ doesn’t mean that the markets won’t pull them apart and indeed I would suspect that what’s allowing the big surge to go on, or will go on, in ECB expansion is what Draghi said originally when he came up with the so-called OMT, which meant lending to anybody for any occasion. If that doesn’t work: if numbers start to borrow under the OMT facility and something goes wrong, what happens then? And if you’re talking about a crisis – that is a crisis. Greece leaving the Eurozone is miniscule compared to that as an issue.”

His conclusion: “short of a political Union, I find it very difficult to foresee the Euro holding together in its current form. It probably could get a union of Germany, Austria, Luxembourg, the Netherlands, Finland for example. But not south Europe.”

With anti-Europe, anti-austerity, anti-Merkel political parties storming to the forefront in most peripheral European nations, Greenspan is right for once.

Which is not to say he said anything that these pages haven’t covered extensively in the past. Recall this exchange at the April 2013 ECB meeting:

Scott Solano, DPA: Mr Draghi, I’ve got a couple of question from the viewers at Zero Hedge, and one of them goes like this: say the situation in Greece or Spain deteriorates even further, and they want to or are forced to step out of the Eurozone, is there a plan in place so that the markets don’t basically collapse? Is there some kind of structural system, structural safety net, especially in the area of derivatives? And the second questions is: you spoke earlier about the Emergency Liquidity Assistance, and what would have happened to the ELA in Cyprus, the approximately €10 billion, if the country had decided to leave the Eurozone?

 

Mario Draghi, ECB: Well you really are asking questions that are so hypothetical that I don’t have an answer to them. Well, I may have a partial answer. These questions are formulated by people who vastly underestimate what the Euro means for the Europeans, for the Euro area. They vastly underestimate the amount of political capital that has been invested in the Euro. And so they keep on asking questions like: “If the Euro breaks down, and if a country leaves the Euro, it’s not like a sliding door. It’s a very important thing. It’s a project in the European Union. That’s why you have a very hard time asking people like me “what would happened if.” No Plan B.

 

 

 

So much for the European “Union” then? Worse, it looks like Europe’s political capital just ran out and Zero Hedge, even if it is filled with people “vastly underestimate the amount of political capital that has been invested in the Euro,” can’t wait to ask Mario Draghi the logical follow-up question in an upcoming ECB press conference following the Grexit: “what happened?”


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