What the hell is going on with our economy in Europe since whatever that is, it underpins our level our activity our level of social engagement our socio political locus does it not?

One cannot avoid, when living in BXL now and again picking up a history book about Schuman[1] or Delors[2] and the various grand plans which developed to drag "the EU" from the Coal and Steel union huddles in Irish bars, cigar smoke and beef prices; to this monster of power which we have today.

I have been extremely critical of the performance of the EU in the face of the financial crisis which has been its first real test here on this website, certain facets of the EU megalith made some howling mistakes pre and post crisis and it has been made most obvious recently that senior EU personnel really do not understand how banking and financial markets function. (reference)

Right now that game-theoretic place between the EU, the European capital markets and the European banking system is a hotspot characterized by misinformation, smoke and mirrors and empty promises. Van Rompuy and Barroso (they are the figureheads, they appoint the executives, they define the commission-line) are wrecking the European banking system and screwing with the psychology of EU capital markets with what is quite frankly misinformation and confusion. Look at the Italian banking system; EU confusion is driving it to collapse! The Lloyds branches sell off; instructed by Neelie Kroes (in a previous Barrosso One guise) but made impossible since government demand for capital has crowded out UK supply of risk capital and total political confusion has caused massive economic uncertainty. I could go and on; but the absolute determination of the Commission not to do the right thing and enable a stabilization bank (the EMF) in a sufficient timescale to backstop European banking, simply because the commission does not want to see another powerful institution which can erode some of its power on its block; that is something they should protest indignantly in Madrid (but they don't really understand the ins and outs of this political complexity, the indignants[3], do they?) I don't blame them, they are not as paranoid as me! But it does seem to me, taking a step back, that Barrosso and Van Rompuy are not supposed to create Economic Havoc are they? Yet that is what they are doing, it seems to me there might be another (deeper, more sinister) agenda in play.

Let me layout the twisted logic of my paranoid delusions (or not?). Van Rompuy presents himself with his little Belgian jokes as a bumbling innocent; objective: the good of all mankind, a gentle grandfatherly elder statesman. Easy to be sucked into believing in the role the cracked actor is playing when beside him we have that roaring hot air from Barroso; benefiting all Europeans, taking care of them. Its nonsense and we now know it. The European economy is falling apart because what is the lifeblood of any economy is being sucked out of it because of the uncertainty caused by the bumbler and the roaring balloon. They have by my reckoning had three or four proper opportunities to use the muscle of the European Commission (which in a recession is responsible for more than half of the European economic playing field remember) to fix the banking problems pivoting on the Greek crisis and what have they achieved so far; uncertainty in capital markets not seen since the second world war; massive and climbing European unemployment, crowded out capital markets (by government demand for money) and the absolute humbling of the Italian banking system for starters (since that is clear) with the French banks looking like being next in line and that complete disaster in London around Lloyds. I can't imagine that Barroso and Van Rompuy are welcome in Frankfurt right now to boot; having angered and harried that gentleman of central banking who has put the ECB 4-square behind them throughout.

But What If? What if it is all an act? Whatif Barroso and Van Rompuy are dancing puppets in some morality play which they have dreamed up? Whatif its all just posturing towards failure because they have a second order objective; whatif this is a game with a first derivative which these two nutcases are prepared to drive along a hard road to achieve? It's not so mad as it might first appear.

I cannot be the only one who sees the European 'Crowding Out'[4] clearly. In summary; central government demand for capital market supply of money swamps out in particular the banking sector access to capital necessary to allow the banks to lend to you and me. But if there is a commission apparatchik who sees this also; then he/she can only advise the next apparatchik up the food chain and if the advice is silenced then that is it, end of story. The Commission is a politburo it's the most hierarchical nodding donkey, towing the line civil service in history; you are paid (handsomely) NOT to think and not to rock the agenda-boat of the guys at the top. Its control-freakery gone mad; developed from the French civil service; that is the real-politik.

For a great part of the 90's initiated by British laissez faire political philosophies the Bankers ruled the roost in the UK and Europe. It's not so long since we heard those debates about whether or not with the introduction of the euro (in 2001) Frankfurt would supercede London as the preeminent capital market centre in the global middle time zone. The bankers screwed up and the house of cards tumbled from August '07 through Lehman in '08 but then through Van Rompuy's claim of stablisation in 2010 and then again in 2011. Each time Van Rompuy claims 'peace with honour' another year develops on the value destruction process post crisis and European economies are further humbled. The banking systems of the European nations are the first to feel the pain as they would be the first to breathe the euphoria of Quantitative Easing[5] if it had the institutional structure behind it so that the policy would work. That's the cycle we are in.

So the 'what if' is obvious is it not? Logical! What if this cycle of value destruction is exactly what these game players in the European Commission want to achieve (whilst presenting themselves as great grandfatherly beneficiaries of the populous). What if they are playing a game of which the price of winning is massive protracted European unemployment and the objective is the total destruction of the European banking system and its relative political power? This game could take 3 to 5 years to play out; the banking system is already crowded out and politically on the back foot but those years of massive structural shift swinging the pendulum back to the Commission will be at the same cost as Thatcher planned when she swung the pendulum the other way in the UK in the 1980s.

It's a thin line between Marxism and Social Democracy and it pivots on the manner in which the ideology treats what is called by Marxists "surplus value"[6] (SV); SV is simply profits plus savings; that flow of capital which in a free-market democracy is managed by the capital markets via the banking and insurance institutions in a process called intermediation so that society applies that SV "going forward" or for future generations. The banking system and other capital market participants are simply stewards and conduits of that capital being generated daily by the non-financial sector. People in the banking system and capital markets are highly rewarded simply because they rationally and intelligently read economic signals to allow the optimal deployment of that capital. That is the 'neo-classical' or free market philosophy in as brief a form of words as I can conjure it. The Marxist idea is that apparatchiks of a politburo should fulfill that intermediation function. You should ask Mr Gorbachev how well that worked out in practice! Social democracy swings on a pendulum somewhere between neo-classical ideas and Marxist ideas.

Where is the European Commission on that spectrum? Where do Barroso and Van Rompuy want the pendulum to stop? Your key notional division line is of course halfway, even beyond halfway (i.e. central authorities have responsibility notionally for more than half of the activity of an economy) can still allow a free market and banking system to thrive, its only a pre-condition of Marxism that the banking system has to be smashed to pieces altogether.

Social Democracy developed as a hybrid idea in the 1960s and 1970s really. It had been around as an idea long before that but it actually got implemented then, most paradigmatically in Sweden & Holland but in the UK, the Labour government which so wrecked the economy in the 1970s and had to give way to Margaret Thatcher was definitely socially democratic in outlook; remember one of Thatcher's battle cries; "Rolling back the Frontiers of the State"[7].

The European Commission is often referred as "cadre". This idea is Platonic (i.e. it derives from the philosophy of Plato). The idea is almost Puritan; it's like the concept of "the elect"[8] held to by the protestant fundamentalists of the Hebrides. The idea is that humans are stratified by intellect and education and there is a bunch of them at the top of the pyramid who know a lot better than you about what is good for you. These are the cadre and thus these are the elect in the very senior positions around Barroso and Van Rompuy in the Commission. The history of the great European project is rooted in that kind of Platonic thinking referenced by totally unreadable French (particularly) political philosophy tracts of the 1970s. Social democratic intellectual output is in my view lunacy, crazier than science fiction; more complex than Einstein2 but real nonsense; the best  example of which is the concept of multipliers in the private sector being triggered by deficit spending as the counterpoint to Crowding Out; it wasn't true in the 1970s and its obviously not true now but I for one cant wait until time moves on sufficiently for some bright spark to write the PhD which kills the concept forever but with evidence in the rear view mirror.

The Commission cadre like all privileged upper middle class Europeans (of which Van Rompuy is the paradigm; Etterbeek is Brussels' Hampstead) are classically educated and onderzoek[9] in the 1970s in those crazy social democratic ideas; complex counterbalancing multipliers - Rawls is only the beginning of the wackier ideas; I myself had to wade through a tract on the mathematics of Marx in the 80's; NO, it didn't make any sense at all but my sociology professor insisted on it! The key is the Platonic point; the academic output which noone ever reads just gives the cadre some chimera they can point to in stacks of validation; they believe they know better than you; they actually believe, it's their mission in life to take decisions in your best interest since you don't know what that is.

Asking the European banks to lend more whilst at the same time asking them to carry more capital is a contradiction in terms. A contradiction which positions the European banks for vilification. Add to that Barnier's highly complex shifts of regulatory standards being revised on a quarterly basis, layer on top of that the fact that that EFSF and EU Central governments are sucking the flow of capital dry whilst holding the cost of capital close to zero. Integrate into that the fiasco of a pantomime repeating itself in Brussels over Greece whereby each time Van Rompuy speaks, the European banks take another notch down; once the semantic value of his utterances are actually examined.

Do we have a second order policy in the Berlaymont by the Cadre to smash the ancient European banking system to pieces forever and increase the scope of the authority of the European Commission by the apparatchiks squeezing into that void so that we proceed along the spectrum towards Marxism whilst calling it social democracy? Is that the agenda? Is it possible that these Super-Humans are prepared to accept a price (which they will not pay) of massive European unemployment whilst that structural shift takes place? That is what I am paranoid about.

Indignance about bankers is understandable today. In essence the moral failure of the banking profession in the crisis was to forget their relatively elevated social status which is a function of their stewardship and intermediation responsibilities. In the UK we used to talk about "Financial Institutions"; not even BP was an institution, the use of that word refers the elevated position of financial companies in the hierarchy of social groups under the final authorities being the executive of the government. Financial Institutions were different, they had a social role in the transmission of money; they had to be responsible to that. Generation X forgot all about that and went completely mental on the risk roller coaster. It's easy to despise that generation and the institutions who wrecked the European economy and its right some kind of action to circumscribe them should be taken. But the structural and transition costs of wiping out the European banking system and increasing the scope of the Commission, particularly when driven by a select few of un-elected officials are not acceptable collateral damage on the way to some Platonic vision of political perfection which flows from the Brussels pipe? Is it? I don't want any of what they are smoking. If this is an agenda, I would like it flushed out.

This is not some political paranoia, it matters, it matters in capital markets and it matters in risk management. I am all for Basel III and calculating risk econometrically through the business cycle but that is pointless if we are in a new game, just as mathematical but a different kind of logic where a large scale central authority in Europe becomes the only counterparty in town and thus the only risk management approach is not the business cycle but a game theoretic model of what these Lunatix are going to do next and what kind of agenda they are really playing.

[1] http://en.wikipedia.org/wiki/Robert_Schuman

[2] http://en.wikipedia.org/wiki/Jacques_Delors

[3] http://www.spiegel.de/international/europe/0,1518,767032,00.html

[4] http://www.asymptotix.eu/crowding-out-2

[5] http://www.asymptotix.eu/define-quantitative-easing

[6] http://mpra.ub.uni-muenchen.de/31863/1/MPRA_paper_31863.pdf

[7] http://www.margaretthatcher.org/document/109505

[8] http://www.newadvent.org/cathen/05374a.htm

[9] http://nl.wikipedia.org/wiki/Wetenschappelijk_onderzoek