A summary of the logic behind the crisis by John Michael Greer:

“During the global real estate bubble of the last decade, European banks invested heavily and recklessly in a great many dubious projects, and were hit hard when the bubble burst and those projects moved abruptly toward their real value, which in most cases was somewhere down close to zero. Only one European nation, Iceland, did the intelligent thing, allowed its insolvent banks to fail, paid out to those depositors who were covered by deposit insurance, and drew a line under the problem. Everywhere else, governments caved in to pressure from the rentier class—the people whose income depends on investments rather than salaries, wages, or government handouts—and from foreign governments, and assumed responsibility for all the debts of their failed banks without exception.

Countries that did so, however, found that the interest rates they had to pay to borrow in credit markets quickly soared to ruinous levels, as investors sensibly backed away from countries that were too deeply in debt. Ireland and Greece fell into this trap, and turned to the IMF and the financial agencies of the European Union for help, only to discover the hard way that the “help” consisted of loans at market rates—that is, adding more debt on top of an already crushing debt burden—with conditions attached: specifically, the conditions that were inflicted on a series of Third World countries in the wake of the 1998 financial crash, with catastrophic results.

It used to be called the Washington Consensus, though nobody’s using that term now for the “austerity measures” currently being imposed on the southern half of Europe. Basically, it amounts to the theory that the best therapy for a nation over its head in debt consists of massive cuts to government spending and the enthusiastic privatization, at fire-sale prices, of government assets. In theory, again, debtor countries that embrace this set of prescriptions are supposed to return promptly to prosperity. In practice—and it’s been tried on well over two dozen countries over the last three decades or so, so there’s an ample body of experience—debtor countries that embrace this set of prescriptions are stripped to the bare walls by their creditors and remain in an economic coma until populist politicians seize power, tell the IMF where it can put its economic ideology, and default on their unpayable debts. That’s what Iceland did, as Russia, Argentina, and any number of other countries did earlier, and it’s the only way for an overindebted country to return to prosperity.

That reality, though, is not exactly welcome news to those nations profiting off the modern form of wealth pump, in which unpayable loans usually play a large role. Whenever you see the Washington Consensus being imposed on a country, look for the nations that are advocating it most loudly and it’s a safe bet that they’ll be the countries most actively engaged in stripping assets from the debtor nation. In today’s European context, that would be Germany. It’s one of the mordant ironies of contemporary history that Europe fought two of the world’s most savage wars in the firt half of the twentieth century to deny Germany a European empire, then spent the second half of the same century allowing Germany to attain peacefully nearly every one of its war aims short of overseas colonies and a victory parade down the Champs Élysées.

Since the foundation of the Eurozone, in particular, European economic policy has been managed for German benefit even—as happens tolerably often—at the expense of other European nations. The single currency itself is an immense boon to the German economy, which spent decades struggling with exchange rates that made German exports more expensive, and foreign imports more affordable, to Germany’s detriment. The peseta, the lira, the franc and other European currencies can no longer respond to trade imbalances by losing value relative to the deutschmark now that it’s all one currency. The resulting system—combined with the free trade regulations demanded by economic orthodoxy and enforced by bureaucrats in Brussels—has functioned as a highly efficient wealth pump, and has allowed Germany and a few of its northern European neighbors to prosper while southern Europe stumbles deeper into economic collapse.

In one sense, then, it’s no wonder that German governmental officials are insisting at the top of their lungs that other European countries have to bail out failing banks and then use tax revenues to pay off the resulting debt, even if that requires those countries to follow what amounts to a recipe for national economic suicide. The end of the wealth pump might not mean the endgame for Germany’s current prosperity, but it would certainly make matters much more difficult for the German economy, and thus for the future prospects not only of Angela Merkel but of a great many other German politicians. Now even the most blinkered politician ought to recognize that trying to squeeze the last drop of wealth out of southern Europe is simply going to speed up the arrival of the populist politicians mentioned a few paragraphs back.”