Asmussen leaves, Schaüble stays. Bad.

German coalition government announces cabinet ministers

Bad: Joerg Asmussen is leaving the ECB. He was an austerity hawk / debt dove. He’s likely to be replaced by a Bundesbank hawk on both fronts, who will then undermine Mario Draghi’s OMT bond-buying program. The OMT is the one policy currently holding the Eurozone in relative stability and removing it will likely let the crisis spiral out of control.

Bad: Wolfgang Schaeuble is staying as German Eurozone finance minister. He will then continue on his brave plan to burn down Europe’s economy outside of Germany, while funnelling to Germany massive financial profits through capital flight and manufactured risk arbitrage. German stocks, which dipped 5% in anticipation of the cabinet announcements, will jump back. Non-german European industry will fall.

The Eurozone crisis is about taxation vs. inflation

This formidable crisis that we’re having is, still, about taxation vs. inflation as a means of surplus recycling. A handful of countries including Germany have managed to make taxation work sufficiently well for surplus recycling (sort of, given high surpluses and still rising inequality). The Germans have foolishly written that into the constitution. All other countries, including the US and Japan, find taxation politically or practically insufficient as a means of surplus recycling and make up with a measure of monetary expansion. We’ll call that inflation although it’s not the same thing.

Monetary expansion taxes all assets denominated in a currency and is thus a form of recycling. In the US the market rises when easing is expected. Why? Because investors know that firms will have an opportunity to capture the surplus that is so recycled. Otherwise surplus will be more and more concentrated in retained profits, it won’t return to the market, and investments will have diminishing yield.

Southern Europe and the so-called lazy Greeks have been especially bad at taxation and especially reliant on inflation, devaluation, and the like. All countries pay their way if inflation is allowed. Fiscal obligations are covered in nominal terms and purchasing power for imports diminishes. The Eurozone was created, foolishly, with a German-inspired “there shall be no inflation” clause, and foolishly Greece applied and was admitted knowing that making taxation work in the timescale was unrealistic (and it’s a tall order for any country ever). The Eurozone then persisted, foolishly, in denial. The Greeks will endure anything but make taxation work, and the Germans will contemplate any measure but admit that taxation is insufficient and monetary expansion is a necessary pillar.

So please, let’s not moralise about lazy this and cruel that. Let’s see how we can back out of past decisions that were foolish, and that means talking about the role of both taxation and inflation (monetary expansion) in the Eurozone.

Inspired from Yanis Varoufakis’s blog here