Monday, December 10, 2012

Klaus: speech at Euro Business Breakfast

Mlýnec Restaurant, Novotný's footbridge, Prague, December 7th, 2012
Translation from

Time flies very fast. It seems to me that our previous meeting didn't take place one year ago but just several weeks ago. And not only that. I feel tempted to say that it may be possible to repeat my contribution from the last year because I am afraid that the basic characteristics – the situation in our country as well as the situation in Europe – haven't changed during that year. And if they have, it was a change to the worse. Because diverse unfavorable trends have continued, the situation – and its amplified reflection in the thinking of the Czech citizens as well as the citizens of other EU countries, i.e. inhabitants of Europe – has self-evidently deteriorated. This is another initial thesis of mine. That's not due to any aprioristic pessimism or hostile undermining of our coalition government by myself, as we sometimes hear. Instead, it is a neutral analytic appraisal.

The key political representatives of the European Union and its largest member states don't want to admit this deterioration to themselves. They still pretend to believe that nothing bad is going on. Maybe just a few grumblers are provoking them. I am reminded of their attitude day after day; the recent EU-Asia Summit in Laos that I had the honor to attend was another lesson of this type for me. The top-tier exponents of the EU don't understand – and I am quoting them – why people keep on talking about a crisis. Their lives continues in the straitjackets of their own illusions and they refuse to see the reality.

It reminds us way too clearly of the decades we have experienced in our country and the whole Eastern Europe. Even the rhetoric seems to be closely analogous. Of course that there also exist several important politicians in the EU countries who are saying that they have carefully read my book Europe: The Shattering of Illusions (which was published in Czech as well as in English, German, Italian, Spanish, and Bulgarian translations) and that they agree with the book in principle. One of them was even informing me that he has placed the book on a visible spot of his desk in his office, in order to provoke the visitors. When I have remarked that I had been listening to him just moments earlier and he hadn't said any of these things, he replied that I must surely understand the reasons. Let me admit that I don't understand them. (My speech on that summit is available at this server,

Off-topic but political: Auf Wiedersehen, Monti. ;-) The Italian prime minister is resigning. And they thought that Super Mario was the PC game associated with him...

Around us, both in our homeland and in the European environment, a crisis continues. It is an economic crisis, a political crisis, but also a crisis of the human perspectives, prospects, and hopes. To reduce this situation to a debt crisis of several countries or the crisis of the concept of the common European currency means to misunderstand the depth and breadth of the current European problem.

Wherever in the world I give talks, I am reminding the listeners that we're the country in which a great economist of the first half of the 20th century was born and educated at schools – Josef Alois Schumpeter (after all, I am the honorary president of the Schumpeter Society founded in his birthplace, Třešť in Moravia) whose famous quotes included the statement that the crisis is always and everywhere the process of creative destruction. Even if we wanted each crisis to be dominated by the constructive things, some destruction is inevitable. The part of the economy which was shown to be unsustainable by the crisis has to end; it's necessary to get rid of the flawed, unsustainable ideas as well as all incorrectly conceived institutions. That's what a crisis should be about. To attempt to preserve everything from the past means to wish to prolong the crisis indefinitely. Unfortunately, that's exactly what's going on in contemporary Europe – and even in our country – today.

We have refused to destruct and get rid of dysfunctional elements of the economy, flawed ideas, and unproductive institutions. That's why the crisis continues and even without a trace of pessimism, I am still forced to say that it will continue in the future, too.

Several years ago, we went through the crisis of the end of the first decade of the 21st century and – almost rightfully – we were saying that it was ignited by events outside our country and region. Even I am convinced about this assertion but this import of the initial crisis impulse changes nothing about the fact that the crisis has umasked all of our weaknesses, imbalances, and unsustainable projects that could only operate in a "good weather" (in the economic sense). Just like the United States and most of Europe, we chose methods to cure the crisis that were not leading to solutions. In the better case, they were pills to alleviate pain which were making it easier to go through the hard moments of the acute crisis but that had nothing to do with the genuine solution and overcoming of the crisis.

It was no accident that a crisis number II – and in this case, it was unfortunately stronger in our country than in some other European countries – began after the previous one. It's already worse than the first one and from the economy, it is pouring to politics and the people's elementary sentiments. It affects the mood, it creates the general frustration, it encourages radical populist moves that may only make the situation worse. The reason is still the same – it's the refusal to accept the crisis as such and to fairly describe its causes; it's the belief in the palliative cure and in the shamans' methods of exorcism. These are the dominant methods at the European Union summits.

As an economist, I was obviously primarily concerned and I am still concerned about the economic problems but I am no longer sufficiently motivated by the desire to enumerate them. I have been doing it for years or decades and many people simply don't want to hear about them because they are still controlled by the nearly communist belief that the laws of economics don't exist and that politics may dictate the economy. That's why I am afraid that the rational invitations to economic changes and reforms can't lead to anything.

For three hundreds years, the economists have been trying to understand the patterns and laws in the economy. For their efforts, they have been attacked by revolutionaries of all colors throughout the centuries but in the wake of the 2008-2009 crisis, they earned new enemies who – much like all of their famous and infamous predecessors – think that it is possible to command the wind and rain. The Keynesian methods have been accepted as trustworthy once again and the application of these methods has led us astray once again. This "failed crossing" is most clearly visible in the current European debt crisis. Even some of those who have been refusing to believe for a long time start to realize that there's no way out in the forward direction. They start to comprehend that there's only one way, namely the way back to the previous crossing. However, Europe as a whole, our Parliamentary as well as extra-Parliamentary opposition, our labor unions, our aggressive applicants for entitlements of all kinds (from the subsidies to cinematography to increases of the physicians' and judges' salaries), and even our weakened current government don't realize that or don't want to admit that.

I am no fan of cheap historical analogies but in the recent years, I am reading lots of economic papers that no longer debate just economic aspects of the ongoing crisis but that focus on the political context, too. The crisis of the late 1920s and the early 1930s is being interpreted as a direct preparation for the terrifying events that took place a decade later. Even today, their authors are seeing certain parallels. Even today, they are worried while they observe a completely new political situation. Even I am worried about our democracy.

Believe me, this fear doesn't arise purely from the incident in Chrastava, from Mr Landa's speech during the Czech Nightingale Ceremony, from Mr Janeček's trips to the regions of the Czech Republic. These are just individual events that are easy to see, that may be made to happen, and that are endorsed or at least tolerated by a non-negligible number of people because of the gradual arrival of the climate that is a favorable mycelium for their growth. We should be very watchful about these things. Even on the Titanic's deck, the champagne was being served for quite some time.

The current situation doesn't have any fast and easy solutions or ones that may be formulated by concise slogans. This not-too-optimistic statement is implicitly containing at least three components:
  • Let's not get fooled by the offers of fast, easy, and radically sounding solutions and let's not take their apostles' bait.

  • Let's accept that even in the case of a hypothetical, because in practice very hard to achieve, agreement about the needed changes, their subsequent implementation and the beginning of their actual influence will require a significant amount of time and that the problems we see today will persist at least for several years.

  • Let's understand that the proposal of the desirable acts can't originate as a project of the anointed ones, as the output of our National Council of Economic Advisers or a similar institution or a document written by the ten most recent winners of the Nobel memorial prize for economics. The proposal for these changes must be shaping as a political process in the democratic system, it must be a result of the activity of the main political subjects in our country and it's only possible if and when its representatives understand that nothing less is expected from them today. And that they can't be substituted by anyone.
On the last Monday, I was presenting the Spanish edition of my book La Integración Europea Sin Ilusiones in Madrid and the Spanish publisher chose a very impressive cover graphics for it. It shows a chessboard with scattered pieces and the dominant piece is the lying white king. I thought it was a very apt metaphor for the situation on the European continent, and that's why I didn't hesitate and approved the cover immediately. Let's try to erect the pieces on the chessboard again. Otherwise we can't make any progress.


  1. Where do I sign ?

  2. You may come to a Wednesday party at the Prague Castle, including Jazz on the Castle, but you would have to tell me that you would accompany me so that I abolish other options. ;-)

  3. Ahem... :-)
    (Bloody options).

  4. Thank you for translating Prof. Klaus' words for us into English! I have only one question, what is "apostles' bait"? Guessing that it's something like promises that cannot be fulfilled (a.k.a. pie in the sky). If you have time, I'd be interested in the etymology of this colorful phrase.

    there's only one way, namely the way back to the previous crossing

    Klaus does not give a date for when the "previous crossing" was traversed, so I'm guessing he is referring to 1992 and the Maastricht Treaty. We are seeing clearly now that the European single market was the crowning achievement of the EU, or at least that things have been going downhill ever since. Most significantly of course is the euro.

    In my opinion, two causes for this badly thought out single currency stand out. One, the relentless thrust to form a European superstate, the public be damned. As Jean-Claude Juncker is quoted saying in 1999, "We jointly decide on something, make an announcement, and wait to see what will happen. If there is neither a great outcry nor any resistance because most people haven't understood at all what's been decided, we move forward, one step at a time, until there is no going back." This quote nicely illustrates the anti-democratic mindset of the new Euro-nobility.

    And second, the euro was Mitterrand's scheme to curtail German economic might. He told Kohl that France would not agree to German re-unification unless it relinquished the deutschemark. The idea was that a single currency would draw investment capital away from Germany and into the European periphery. At first the plan worked, Greece and Spain were suddenly flush with money, and Germany was really suffering. However, true to form the Germans buckled down, de-regulated their labor market, slashed benefits, ratcheted up productivity, and within a few years they were back as the continent's most competitive economy albeit at the cost of painful belt-tightening. Only now, the natural regulating power of different national currencies no longer existed.

    Germany was exporting automobiles and machine tools to countries that could pay for them only with money created out of thin air by customers' banks, which ended up, via the European Central Bank, on the balance sheet of Germany's reserve bank. And because there is no earthly way for Club Med countries to ever manufacture goods or sell services of approximately equal value that Germans would buy, ultimately German cars sold to Greek buyers were (will be) paid for by the German taxpayer.

    If instead each country still had its own currency, then the deutschemark would have appreciated against the value of the drachma and peseta, making German goods more expensive and acting as a "natural" curb on the growing imbalance of trade. Germans would have chosen to trade off productivity gains for more leisure time and spent some of their export surplus on holidays in Crete or Mallorca.

    The euro has made everyone miserable, angry, resentful, and suspicious of their neighbors. The Euro-nobility is taking this as a signal to double their federalist activities, exactly the wrong conclusion to draw. By now, however, they may simply be too locked into their previous choices to admit their mistakes.

  5. Dear Eugene, sorry if my translation of taking "apostles' bait was wrong. I did it using a dictionary because I don't know the idiom in English. This dictionary,pa74abXR-Cc=&sugword=lepit,lepit%20se

    found a translation of "sednout někomu na lep" – literally "to sit at someone's glue", and "take somebody's bait" was the first translation. Also "be taken in", "get cheated", "be conned by". Of course I could write the last 2 translations without a dictionary but I would think it would be inaccurate, and I just prefer accuracy over the fitting of the texts into the straitjacket of the most conventional version of English (or other things).

  6. "sednout někomu na lep" (...)

    Ahhhh, okay! This is interesting: while there is no direct counterpart in the English language, there is in German (hello neighbor!)

    The common etymology (dating back to the 16th century) is a simple but effective method for trapping birds: you cover branches of trees where they are expected to settle with glue. (See this newspaper article for a picture of this practice, which is illegal nowadays.)

    So, translation into German would have been a snap. Into English, it's a bit harder. Achieving accuracy is important but you don't want to sacrifice ease of reading or idiomatic language, which I feel that your choice of "apostles' bait" did. You could choose instead something like

    Let us not fall hook, line and sinker for the purveyors of ostensibly quick, easy and radical solutions.

    This replaces the "glue for birds" imagery with "bait for fish". Alternatives might employ the pied piper of Hamelin, or maybe snake charmers, or more prosaically

    Don't let the merchants of ostensibly quick, easy and radical
    solutions play us for fools.

  7. I think that even the original (i.e. current) architecture of the Euro
    would have been workable if it were not for the “innovations” in the
    banking system during the last 10 years. That is, over-indebtedness
    would have always been solved through defaults by punishing the the
    irresponsible lenders (i.e. those tight spreads between Northern and
    Southern European countries), while the defaulting countries would have
    gotten some post-default aid.

    I read somewhere that a Greek default would have been totally
    manageable 10 years ago. That’s no longer the case with the shadow
    banking system and the incomprehensible web of derivatives.

    As it's been repeatedly said throughout most of modern history,
    "Give a man a gun, and he can rob a bank. Give a man a bank, and he can
    rob a country."

  8. Impressive, Eugene.

    I thought that birds were the probably victims of some sort - poor birds. Oh, I see, the translation I copied targeted fish, other victims. :-)

    Your translation is cool. I wouldn't earn a penny by translations *into* English. ;-) You may apparently do it professionally in both ways, right?

  9. Martin "I know nuffink" Schultz did not speak? That's a shame!


  10. Dear Lubos, yes DE>EN and EN>DE. It occurs to me that this is as good an opportunity as any to give a shout-out to my colleague Radovan Pletka, Czech/Slovak translator/interpreter extraordinaire and a diehard anti-communist who took to capitalism like a duck to water, once he was out from the confines of socialism. Radovan taught me a whole bunch about business (mostly: chutzpah, humor, and looking out for #1), and I've never really given him enough credit.

  11. Hi Cynthia, Greece has a small debt... A country like Spain who would default would be the equivalent of 3 times the debt of Greece, Ireland and Portugal combined. The Shwarzchild limit would be quickly reached ;-)

  12. Klaus is one of the few true European heroes. I consider a few other ones, like Farage, Sarazin and Wilders. Nigel Farage is very good in explaining the problem.

    It is a pity that there seem to be so few who speak out against those bullies in Brussels and tell the truth.

  13. It's kick the can until the can has oxidized into dust, and can no longer be physically kicked.

    Same shit, different day (SSDD), Shannon. There won't be any
    pre-announcements to give everyone a heads up when they admit the
    conclusion, already brought to them in reality by the inescapable laws
    of arithmetic, that the parrot is no more, having ceased to exist:

    Germany won't be able to recapitalize the losses wrung up by a
    decade+ of spendthrift ways, phony GDP and an accumulated Mount Everest
    of bad debt by the PIIGS without inducing a far worse economic
    intra-German crisis (for taxpayers/consumers/savers/businesses) than the
    less-bad scenario that would occur by cutting itself loose of the noose
    that is the EU.