Philipp Bagus: The Tragedy of the Euro

Philipp Bagus is an associate professor at Universidad Rey Juan Carlos, Madrid and a visiting professor at Prague University. He has just written a new book for the Mises Institute — The Tragedy of the Euro — which has just been freely released for download as a PDF, with a foreword by Jesús Huerta de Soto.

Here is the book’s introduction:

Philipp Bagus

The Tragedy of the Euro


The recent crisis of the Eurosystem has shaken financial markets and governments. The Euro has depreciated strongly against other currencies at a pace worrisome to political and financial elites. They fear losing control. The monthly bulletin of the European Central Bank (ECB), published in June of 2010, acknowledges that the European banking system was on the brink of collapse in the beginning of May. Several European governments, including France, were on the verge of default. In fact, default risks for some European banks, as measured by credit default swaps, surged to higher levels than they did during the panics that followed the collapse of Lehman Brothers in September of 2008.

In reaction to the crisis, the political class has tried desperately to save the socialist project of a common fiat currency for Europe. They have been successful — at least for the time being. After intense negotiations, an unprecedented €750 billion “rescue parachute” has been created to support European governments and banks. At the same time, however, the ECB has started what many had regarded as unthinkable before: the outright purchase of government bonds, an action which undermines its credibility and independence. The public and market perception of the monetary setup of the European Monetary Union (EMU) will never be the same.

Resistance to these unprecedented measures is on the rise, especially in countries with traditionally conservative monetary and budget policies. A poll in Germany showed that fifty-six percent of Germans were against the bailout fund.

It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” program in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the program, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.

Germans assess the bailout of Greece as a rip off. The bailout makes the involuntary transfers embedded in the EMU more obvious. But most people still do not understand exactly how and why they pay. They suspect that the Euro has something to do with it.

The project of the Euro has been pushed by European socialists to enhance their dream of a central European state. But the project is about to fail. The collapse is far from being a coincidence. It is already implied in the institutional setup of the EMU, whose evolution we will trace in this book. The story is one of intrigue, and economic and political interests. It is fascinating story in which politicians fight for power, influence and their own egos.

Here are the contents:

  • Introduction
  1. Two Visions for Europe
  2. The Dynamics of Fiat Money
  3. The Road Toward the Euro
  4. Why High Inflation Countries Wanted the Euro
  5. Why Germany Gave Up the Deutschmark
  6. The Money Monopoly of the ECB
  7. Differences in the Money Creation of the Fed and the ECB
  8. The EMU as a Self-Destroying System
  9. The EMU as a Conflict-Aggregating System
  10. The Ride Toward Collapse
  11. The Future of the Euro
  • Conclusion

Here’s that PDF link again.