Alasdair Macleod: Europe is in Worse Shape Than Everyone Thinks

From his perch in the United Kingdom, Alasdair Macleod provides an update on the ongoing economic crisis in Europe, which -- while largely absent from headlines in the US of late -- continues to worsen.

Due to bloated state-run programs and extreme malinvestment, EU governments find themselves in a box. Economic growth has stalled, and no amount of intervention seems able to get it going again. So in order to keep their economies moving forward, they are becoming increasingly rapacious in extorting tax revenues from wherever they can find them.

This, of course, is strangling the private sector  -- on which the government is counting on to grow the EU out of its recession (or depression, depending on which country in which you live). And so a vicious cycle ensues. Growing taxation reduces economic activity, unemployment worsens, the wealthy expatriate -- all leading to a declining income base to tax, and growing civil unrest.

These are desperate times. And the EU governments are taking increasingly desperate, and reckless, measures:

The Keynesians don’t understand why the growth isn’t there. They are very, very disappointed. And of course, their response is, the economy is not flourishing. You have to stimulate the economy more. The fact of the matter is that the average government size in the economy in the Eurozone is 50%. So 50% of every transaction is government.

Now that only leaves the private sector of 50%. The private sector, when it comes to recovering (recovery?), is carrying a huge weighted burden on its back. That burden is trying to tax the private sector horse who's carrying it. The tax burden is so great, the way in which they are doing it in most of these countries is that they are trying to preserve the public sector ,and they are trying to get the private sector to pay for it. The result is that there is no way there is going to be any growth at all.

If you look at countries like Spain, for example -- which has come out of this massive property bubble that's really been the reason for its downfall -- the property bubble has not unwound at all. You've got huge great levels of malinvestment, misdirection of funds in the wrong direction, the market has changed, people don’t want it anymore, and the market has got to adapt. And taxes are not going to be forthcoming until it has happened.

Unfortunately, governments have gotten themselves stuck into this position where they are not prepared to cut their spending enough. They think they can get taxes by taxing the rich, ratcheting up the taxes on anyone who you think has got any money -- but then people avoid it. Like in France, they just go abroad. It is that bad.

We are not seeing any recovery. The burden on private sector is far too great for that recovery to occur. Not only that, but the economies in the Eurozone are angled towards the wrong production. It is a huge great burden of malinvestment that needs to be addressed. You are not going to get any meaningful economic recovery without that slump happening.

Given that the slump is going to happens, you’ve got a choice: Either you get it over and done with and get it done quickly, or you have financial repression in the hope that over a long period of time something will turn up. Really, they are going for the latter rather than the former. But I don’t think they have got that much time. One of the things which Europe really does have a problem with is pension costs and the cost of health care for the elderly and all the rest of it. You think it is expensive in America; it is twice as expensive in Europe, on average. 

Click the play button below to listen to Chris' interview with Alasdair Macleod (49m:35s):

Click the play button below to listen to Chris' interview with Eric Sprott (34m:40s): - See more at:

This is a companion discussion topic for the original entry at

I mean really, if all of Europe is in much greater Debt than 4 years ago who is kidding who?!
If Tax receipts cannot cover even the interest rates then this just gets worse, terribly worse because the GDP of all of Europe are now and for some time running negative numbers. This is madness, it really is.

Steve Keen: Jubilee? Maybe.

Alasdair for me is "statistically" a jewel of an interview here at PP. I love the dude, and the timing of this Podcast was welcome by me for sure.

Be Good


Thank you for putting this podcast out for the public. I've been an enrolled member since 2008 but with retirement I can no longer justify the cost and the thing I miss the most are the podcasts, Thanks again.

…a reason to buy into (literally with PM I might add) the philosophy of better a year too early than a day too late, then this is it.
What a fantastic, cogent podcast. The points that have been covered here give me no hesitation whatsoever in believing that there is no way we can avoid a systemic failure of epic proportions. It might only last a short time, e.g. six months or so until some semblance of control is re-gained, but we stand every chance of a short term hyper-inflationary scenario.

I can't help but think we have inside information here and it is really important to act on it, not just mull it over.


I am with Orlov on the nature of the collapse.
It will be a step-wise decent. How many crises (Steps) have we had now? If we overlay the Limits to Growth curves over the economy and then make the curves discontinous and stepwise we get a nice fit. (Nice in the old sense of the word.)

Gold will be accepted as money by those who covert it. I am uncertain that countries outside of India, China and Russia will not find some way of circumvent the necessity of backing their currency with metal. The Emergy springs to mind.

Of cause if energy becomes abundant (Solid State Nuclear Effects) then Emergy will not work. If we solve the energy problem, and quantum computing and 3d printing produces self replicating  robotic slaves then the mind boggles. Asimov's prognostications will triumph

This is a multi dimensional problem fit for a Talosian.



And I assume that you meant that word Arthur… along with all the negative connotations that come with it;


Yearn to possess or have (something).
crave - desire - hanker - lust
If Gold can help me protect my savings against the ravages of paper money to come.. they I guess I do crave, desire, and lust after it. Of maybe I will just convert my green paper into it.

The point I really want to make is about Silver… and the reason one should want some is because it is rightfully viewed as a form of stored energy.  I really like the way SRSRocco makes this point;

Silver = Stored Energy

One factor that most precious metal investors fail to comprehend is the energy nature of silver as a store of value.  Of course they understand that silver and gold are real money and in that vein… they hold a certain amount of perceived or intrinsic value.  Unfortunately, they fail to realize that the most important value attached to an ounce of silver, is the stored energy contained in each coin.

A monetary value was attributed to an ounce of silver or gold based upon the amount of energy and capital it took to mine the metals as well as its degree of rarity.  During the Roman times when silver was mined by human and animal labor, the monetary value was given based upon the amount of labor (energy) it took to produce a one ounce coin.  Basically, the free market determined the prices of goods and services in silver coin to their relative energy value.

For example, if it took on average four hours of labor to produce an ounce of silver during the Roman Empire, that coin was exchanged for a good or service of equal energy value.  In this example, a  city laborer working a twelve hour work day might receive 3 silver coins as pay.  I realize I am making a basic assumption here, but this is how a monetary value was given to gold and silver.  Of course, the market would figure out on its own the value of an egg, chicken, horse or a cow for example.  But, in the end, the more energy that went into producing a good or service, the more silver or gold coins it took to equal the energy transaction.

Once an investor realizes this energy value as it pertains to silver (or gold), you will then understand how important energy plays as a role in the production of the metal as well as its role in the overall economy.  Thus, as the energy supply of a society increases, so will its production of gold and silver as money (if the society uses precious metals as money).  On the other hand, as the society experiences a decline in its energy supply, so will the mine supply of its gold and silver.

The mining industry has been banking on the continued growth of the global liquid energy supply to be able to increase the production of gold and silver.  With the knowledge that the peak of conventional oil production is now upon us, new hope has been placed on the supposed SHALE ENERGY PARADIGM to be its energy savior.

The story continues via the link...

I do covet silver and gold. My neighbour also covets my silver. Therefore I got rid of it before he was overwhelmed by his lust.I bought a nice yacht.Now that is Love.

"The Keynesians don’t understand why the growth isn’t there."
Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.


Good to have you aboard Chad.I hope that you intend to put up a vigorous defence of Keynesian economics. I will stay in the peanut gallery as I have no strong opinion on the various positions, other than to say that models are designed to be destroyed.
Good luck.

…and have just concluded reading it. Michael Pettis did a terrific job in this book, and I do recommend it.


better than covet even if it was a typo. Maybe a Fleudian Srip?

This is nonsense.  Keynes was a proponent of government spending in place of consumer spending during deflationary periods only if countries had little to no debt.  Last time I looked that wasn't the case for Europe & the US.  What we have today from political hacks like Krugman is Keyensinism on steroids and a total distortion of what Keynes wrote.

Unlike Arthur, I am unable to remain in the peanut gallery.  The first thing I would ask Chad to defend is the new Krugman vs. the old Krugman.  Chad said,

  You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

And I ask back, how many years are we talking about?  Those of us who read a lot know that Paul K seems to have reinvented himself of late as the uber-Keynesian... though in a past life he was more like one of us commoners... thinking they see something very devastating ahead - what follows are the words of the old Paul K; The crisis won’t come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out. But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge. What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.
It turns out that the Martensonians do have an idea about why growth isn't there.. and it's not due to lack of enough stimulus.  It's because when you hit the limits of resources, stimulus is pushing on a string.  The harder our Keynes-inspired central bankers push, the sooner will come our (old) Krugmanite Wile E. Coyote moment.    

Martensonians. I lke that.

Welcome, Chad, to the motley crew.   I like Krugman - once met him briefly and interviewed him in person and agree with many things he says.   And I have some sympathy toward the Keynesian solution as a way of easing down slowly.  But to me at this stage of global development in an exponentially growing debt world, it doesn't seem it can actually represent anything more than a temporary, can-kicking solution anymore.   I don't know whether Krugman really believes a Keynesian approach represents a longer term solution or not.  I guess he probably does, since he's an award-winning economist, and can't really say he doesn't have a solution for the larger global economy, or only has an one that is likely to deliver declining lifestyles by traditional standards to most people.On the other hand, I also don't think we should have followed the anti-Keynesian view and let "free market capitalism" work its wonders uninterruptedly via the deflationary collapse underway in Sept, 2008, for example, or that we should do that now.  The idea that that would have been an appropriate "market clearing event" that would have set us up for solid growth going forward seems pretty ridiculous to me.   I think it probably would have been a global-economy clearing event - the equivalent of a moon-sized asteroid hitting a heavily interdependent globalized economy and would have caused devastation and suffering on an unprecedented, worldwide scale that Treasury Sect'y Hank Paulson, someone I don't trust or like, in that case accurately predicted and warned against.
I think the best case now is to be let down slowly - some awkward combination of Keynesian printing and public projects, austerity, as recognition dawns regarding the intractability of our long term problems with resources, growth, climate, pensions, government spending, and with the shortcomings of the capitalist and socialist models themselves.  Maybe that will give time for people come to terms with the need to set priorities, conserve and be efficient, get more enjoyment out of less, and the high likelihood that government and central bank intervention is going to be persistent and heavy until economies devolve to the point that national gov'ts don't matter as much any more, or the elites have taken such full control of what's left of governments that they are free to let large swathes of the public decend into deep poverty on a long term basis, which might be kind of the same thing.  
What's missing most now is transparency, acknowledgement of reality, a public discussion of priorities and leadership, but those things seem very hard to come by.   It's like the old story of needing to hit the mule with the two by four to get his attention before he'll listen to what needs to be done - the public and the economy both still seem to need the hit by some more minor meteors before they recognize that there's very fundamental changes afoot in the cosmos they need to attend and adapt to.

…but, Krugman calling himself a Keynesian is even streeeetttching the truth a bit. A whole lots of bits. IMHO


Pretty brave to come out of the shadows and post. I never have understood why anyone would think that Keynesianism could possibly work. When times are bad, governments should stimulate the economy to get it working again. When times are good, governments should then increase taxes to pay back the borrowing. It is akin to giving children chocolate cake when they are hungry and then being surprised that they won't eat their vegetables when they are full. Assuming the first part (chocolate cake; borrowing stimulus) ever worked, when should the second part (vegetables; austerity budgets) be applied? Isn't 80-90 years a long enough trial period to admit it failed miserably?

[quote=Chad Brick]"The Keynesians don’t understand why the growth isn’t there."
Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.
Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.
When I was in college more than 20 years ago, I was studying advance mathematics and considered also minoring in economics.   But after getting into the high level undergrad econ classes I began to suspect it was nonsense.  One particular incident convinced me to stop studying "university economics".  It was an International Finance class where I questioned my Asian professor on American debt rollover and how the interest rate could overwhelm the deficit eventually.  He simply laughed at me in front of the class of econ majors and said the US could always roll over the debt at low cost because the US dollar was the reserve currency.   I wrote the non-linear equations on the chalk board and drew examples of how these systems "explode" to help explain but to no avail.  When you see economists use nice smooth system lines, run away as fast as you can.


I know everyone here will go mental, but please remain open to the fact that Alister has this TOTALLY wrong.

The Euro is going to survive. It will have a few more countries than it does now within 5 years. Even Jim Rickards gets the basics of the Euro right. 

The ECB print no more than needed to meet their stated inflation target of 2% (VERY tough on the PIIGS). No-one will force the ECB to print.

Many individual EU states are way overindebted, but do you really think they are going back to their 20 century currencies?

The Euro etc won't fall a lot because the Euro zone has a balanced trade account overall. There is no structural pressure on the Euro's FX rate.

Poor old Nigel Farage could be British PM right about the time the UK begs to join the Euro … Why? Because the next financial system has already been designed; CB gold marked to market and revalued  -- this will cover a multitude of monetary sins (and bring the collapse of the dollar). 

There will be a liquid, physical gold market, but in Euro only.

Once the dollar is in the toilet, the US will be allowed to buy Eurogold. 

Okay group thinkers …. release your hounds. 

But please come back and ask Alister how he got it so wrong. He seems like a good chap, but like almost all US/UK commentators has got the Euro totally wrong. 


searesponse, Pretty brave post. Hope you can respond to my questions. I'll try to be open minded. Can you? After all, it is already a fact (in your mind) that Alister (sic) has this TOTALLY wrong (no possible chance of getting even a meager crumb correct.)

Jim Rickards is the best you can muster?
The euro was doomed upon inception. The euro founders wanted a unified europe; however, they couldn't force a fiscal union upon the individual sovereign states. In a Keynesian way, they offered the countries a little candy in the form of a monetary union in hopes that all the countries would eventually submit to a super sovereign state. For the exporting countries, the candy was a weaker currency so they could export more and grow. For the club med states, the candy was lower interest rates so they could continue to live their signature lifestyle.
Over time, the PIIGS became more indebted and the exporters were required to bail them out. Ireland allowed itself to be controlled. (I'm sure they protested at the pubs.) Greece looked like a one-off event that could be contained with a pittance of pain. The northern countries required austerity as a condition of the bailout. Greece agreed and went about business as usual. Then, the next bailout with stronger conditions and the same result. Wash, rinse, repeat.
Greece's pain can't be resolved while they are in the euro (<sarc> searesponse, I'm open to hearing your well reasoned argument of how their plight will magically become the glue that holds the entire system together </sarc>.) The other PIIGS are jockeying for position to be the next contestant. Do you agree that at some point, the northerners will realize that the bailouts are simply not worth it? If Germany wanted the southern states to rebel and exit the currency, wouldn't they insist on austerity measures tied to the loans they provide? When the PIIGS default and leave, only the strong will remain. Will a strong euro give any of the exporters a currency advantage?

This may be correct for overt responses … so far. What happens when Spain or Italy throws in the towel? What will the ECB do when their very reason to exist (the euro) is faced with oblivion?

The euro is a 20 century currency. The PIIGS will go forward to a "New" version of the old currency that they'll be able to inflate the way they always did. Anything else would require an austere budget that they are currently avoiding like the plague. The others will go back to their "old" currency because it will have flusht.

I'm reminded of a bald man with a hairy back. On average, he's got plenty of hair.

Why would the UK beg to join the euro? Remember the Browne bottom (in 1999, Browne sold half of UK gold.) They would be at a huge disadvantage here. What multitude of monetary sins would this cover? Why would this bring on the collapse of the dollar?

Are you suggesting that only the euro will survive as a fiat currency and that it will be as accepted as equally as gold? If the physical gold market takes off, why on earth would anyone need the euro?

How will the US pay for eurogold if the dollar is in the sink? Will the US sell its 8394 tonnes of gold for euro paper? Please explain!!!

Funny that you are posting this on a non-mainstream site and accusing us of being group thinkers. Group thinkers think the fiat system will somehow come through it all and restore faith by saving all the promises that can't possibly be paid without an intact fiat system.
You seem like a good chap, but I can't figure out why you posted this. Could you please explain where Alister (sic), almost all US/UK commentators, and most of the group thinkers on this site got it wrong?
From an obviously mouth-breathing knuckle-dragger without hounds to release,