The Phenomenology and Politics of Hatred

I have long been of the view that, in general, we human beings have only a very vague understanding of our emotions. The result is that we very often misuse emotional terms, either applying them to the wrong objects or using them in a way so vague that their more precise meaning gets lost, thereby actually hindering our better understanding. 

Take the word ‘hate’, for instance, which, at present, is probably the most overused and misunderstood word on the planet. As a trivial but commonplace example, consider, for instance, the statement: ‘I hate Brussels Sprouts’. Nothing wrong with that, you might think. Lots of people hate Brussels Sprouts. Except that, strictly speaking, it is no more possible to hate Brussels Sprouts than it is to hate the Atlantic Ocean. You may find their slightly bitter taste and fusty smell not quite to your liking. You may even have an adverse reaction to them as a result of having been forced to eat them as a child. But neither of these forms of aversion is the same as hatred.

Now, of course, you may wonder why this is important. After all, if I say that I hate Brussels Sprouts, all I’m really doing is expressing my strong dislike for them. My choice of words to express this dislike is irrelevant as long as everyone knows what I mean.

The problem with this approach to language, however, is that by using a word like ‘hate’ as a ‘catch all’ term simply to express strong dislike, we forget or never even come to properly comprehend what the word really means. This in turn makes it increasingly likely that it will be misapplied, which, at a time when more and more people are being prosecuted for ‘hate speech’ and ‘hate crimes’, can have serious consequences. This being the case, it is absolutely vital, therefore, not only that we properly understand what the word actually denotes, but that we become far more careful in its usage.

So what is genuine hatred? 

The first thing to note is that it is an emotion with a strong cognitive element. This differs markedly from purely affective or non-cognitive emotions such as disgust, which is largely a purely reflexive response to anything visibly or malodorously diseased or decomposing and very probably has its origin in our deep evolutionary past when members the species who did not exhibit this reaction to carrion and the like tended to contract more infectious diseases and were thus weeded out of the gene pool through the process of natural selection.

Other emotions with very little cognitive content include what one might call aesthetic emotions such as awe, which results almost exclusively from sensory overload, usually as a consequence of being confronted by something very big, very loud and very powerful, like a large body of water during a storm. Thus while one may not be able to hate the Atlantic Ocean, one can certainly be overawed by it. Hatred, in contrast, is neither a reflex reaction nor a response to sensory stimuli, but the concomitant emotion to a very particular set of beliefs.

This then brings us to the second thing to be noted about hatred, which, strange as it may initially sound, is that it is what one might call an upward-looking emotion, not in the same way as respect or admiration, but more like envy, to which it is closely related, the two emotions having a number of characteristics in common, not the least of which is the fact that, like envy, hatred is always directed towards another person or group of people, never towards inanimate objects.

Again, one might find this questionable, not least because, in the case of hatred, we regularly use the word so loosely that we now feel free to apply it to almost anything, while in the case of envy it is almost universally assumed that we envy others for what they have: a beautiful home, a new and expensive car, etc. However, it is not for their possessions, themselves, that we envy those who have them. In fact, a desire to possess what somebody else has is what is properly called covetousness – even though we hardly ever use this term anymore. More to the point, it is quite possible for us to covet someone else’s possessions without envying them. For envy is less about what someone has than about who or, more especially, what they are.

Take, for example, the exceptionally handsome, athletically gifted boy at school who was liked by all the teachers, inevitably chosen as captain of the rugby team, and is now a Member of Parliament. Or the very attractive girl who starred in all the school plays, effortlessly obtained a place at Oxford and is now a TV presenter for the BBC. We envy such people not because of their success and good fortune – or any of the material benefits their success has almost certainly brought them – but rather because we feel that their success was never in doubt. Indeed, it is almost as if success and good fortune were part of their birthright. As, in a way, they very likely were. For good looks, natural athleticism and even, to some extent, intelligence are genetic, being passed down to those blessed with them by their parents. The good looking girl at school, for instance, will almost certainly have had an attractive mother who, by virtue of her own good looks, would almost certainly have been able to attract for herself a very successful husband. As a result of his success, he, in turn, would have been able to provide all the material benefits his family could have wanted: a beautiful home, the best schools, foreign holidays, and everything his children ever needed in order for themselves to be successful, including the confidence and self-belief to expect that such good fortune would go on following them throughout their lives, as indeed it has.

To us lesser mortals, for whom life is an uphill struggle full of failures and disappointments, it is this ease and apparent inevitability with which success comes to these seemingly blessed individuals that really sets them apart and makes us envy them in a way we could never envy mere lottery winners, for instance. For anyone can win the lottery. Indeed, we could win it ourselves. What we could never be, however, is one of these favoured few for whom life has always held such promise. And while, for some – those more innocent among us, perhaps – this special state of perceived though almost inexplicable distinction elicits only admiration and perhaps even hero-worship, to our more jaundiced eyes it rather reveals to us what we have always known but never wanted to admit, that we, ourselves, are not among their number.

Indeed, it is this bitter recognition, along with the even deeper level of disappointment to which it gives rise, that is the real essence of envy, and which, if left to fester or, worse still, picked at like a running sore, can eventually lead to resentment and even malice. 

We see this most clearly in our celebrity culture, which places a small number of sacrificial deities upon a pedestal almost with the overt intention of knocking them off again should they exhibit even the slightest human weakness, much to the delight of those who take pleasure in seeing their idols brought low. For envy is always, at least in part, a tacit expression of our own self-doubt and feelings of inadequacy, which are partially – if only temporarily – alleviated when those we have placed above us are revealed to be no better than ourselves. 

As such, envy tells us more about the envier than it does about the envied. And the same is true of hatred, which, unless or until it is actually taken out on its victim, is far more an affliction of the hater than of the hated. Indeed, a hated person can often be oblivious to the fact that he or she is the object of such a passion, while this can never be the case with respect to the person who has this passion burning in their breast. More to the point, like envy, hatred flows from that same deep well of dissatisfaction with ourselves that is the source of so many of our negative emotions, the two being so  closely related that envy can very often be the precursor of hatred, the one being transformed into the other by the addition of two further cognitive ingredients. 

The first of these is the belief that at least some of the comparative advantage which the envied person enjoys has been gained at our expense, often as a result of our respective membership of different groups. Indeed, holding this belief is one of most common ways in which we assuage some of the more invidious aspects of being envious. For given that the last thing any of us wants to admit is that the apparent superiority of those we envy is innate – thereby making our own inferiority equally fixed and inalienable – we naturally prefer to attribute their good fortune to anything other than natural ability. Given the further fact that good fortune, along with good looks and natural athleticism, very often go hand in hand with wealth and privilege, the most prominent among these alternative explanations for the envied person’s relative advantage is therefore quite naturally their social position: their family’s wealth, their social connections, and all the potential advantages and opportunities for advancement which such a position brings with it and which we, ourselves, are unfairly denied.

As a strategic solution to our fundamental dissatisfaction with ourselves, however, this approach brings with it a number of problems of its own. For even though it allows us to go on believing that our relative lack of success is not the result of our own deficiencies – and to therefore feel better about ourselves – all it really does is replace our former envy with a long-term sense of grievance and injustice, which is equally as difficult to redress and which can be just as debilitating and inimical to our happiness, leaving us just as bitter and resentful as the original envy it was meant to alleviate.

Even this, however, does not necessarily lead to full-blown hatred. For this to occur, one more cognitive element is required. And this is the belief that, from their position of superiority – whether this be personal or social – those who have the advantage over us also look down on us as their inferiors, regarding us with a downward-looking emotion such as contempt or disdain, which, when perceived as such, throws in our face the very judgement about ourselves we most wish to avoid, thereby either giving rise to a sense of defeat and utter worthlessness which may well push many into a state of depression, or inciting an inner rage and festering hatred directed towards those who have inflicted this torment upon us.

Of course, this too may be mitigated by a sense of grievance and injustice if we believe that the way in which the now hated person or group gained their position of superiority was unfair, dishonourable or even criminal. Indeed, we may even come to think of our hatred as something righteous and noble. However, even if we are able to dismiss the contempt shown to us in this way, the mere fact that the hated person or group felt warranted in treating us in this manner, combined with the way in which we ourselves reacted – bristling with sudden rage – in itself reveals the intolerable truth, not just with respect to how we appear to others, but with regard to how we feel about ourselves. And it is never pleasant.

Indeed, so unpleasant is it to be made to feel this way that one might have thought that human beings would have long since worked out ways to avoid being thus triggered. And, historically, it could be said that, once upon a time, we did. For by helping people to understand both themselves and others, and the propensity we all have for immoderate and self-destructive emotions, both Christianity and Buddhism, in their different ways, once offered us paths towards achieving the kind of self-acceptance and inner peace which only self-knowledge can provide and which is the only real defence against the many provocations which life casts in our way. In their purest, most authentic forms, as exemplified by their respective founders, both religions thus provided a kind of antidote to hatred and, for some, still do.

The trouble is that for all those who elect to pursue some form of philosophical or meditative path towards a hoped-for enlightenment and spiritual peace, there are many more who not only now regard all such pretensions as delusional and ridiculous – such being the disregard with which all such peaceful forms of religion are currently held – but who, in their discontent and unhappiness with life, seemingly prefer to indulge their hatred rather than rid themselves of it: a preference which is unfortunately greatly facilitated by the fact that, although the beliefs upon which hatred is founded have to be credible – otherwise we wouldn’t believe them – none of them actually has to be true, thereby making it extremely easy for us, not only to nurture hatred in ourselves – by repeatedly rehearsing a fictional but plausible narrative which constantly stirs our blood – but to incite hatred in others, especially in a group setting, where all the aspiring demagogue has to do is point his finger at some other identifiable group, allude to whatever real or imaginary advantages they are perceived to have, and then describe his audience’s own disadvantages – preferably in the most lurid and outrageous terms possible – before finally claiming that this injustice has only been allowed to stand because those in the position of advantage hold the more disadvantaged group in absolute disdain.

A fairly obvious example of this, of course, is the way in which the Nazis managed to get so many ordinary Germans to hate Jews during the 1920s and 30s. Admittedly, this was under some fairly extreme conditions. But it is under extreme conditions that hatred largely flourishes: in this case the extreme poverty which ravaged Germany after the first world war, largely as a result of the reparations the country was obliged to pay under the Treaty of Versailles, and which, between 1921 and 1923, plunged the Weimar Republic into a period of hyperinflation, wiping out many people’s savings, destroying businesses and causing mass unemployment, for which the Jews were made a very easy scapegoat.

This was because, from the Middle Ages onwards, Jews had been forbidden to own land throughout much of Europe and had consequently gravitated towards businesses and professions which allowed them to accumulate more portable forms of wealth, most notably the trade in precious gems and banking: the very business, of course, which most Germans blamed for the financial chaos which had afflicted them. As a result, it was thus very easy not only to identify wealthy Jewish bankers, and hence Jews in general, as the culprits, but to further suggest that, not being true Germans, they had no regard for those they had made to suffer, thus fulfilling all three of the cognitive conditions required to arouse hatred.

Not, of course, that this is the whole story. For there was still a massive chasm of morality and common decency to be crossed before these three basic prerequisites for hatred could be channelled into mass murder. And for this to have happened, many more additional human weaknesses and accidents of history had to come together than I can possibly examine here. One factor or determinant that does merit special attention, however, is the way in which both the second and the third cognitive conditions for hatred were further manipulated in order to render their object that much more likely to be the target of violent retribution. For the claim was that neither the harm which the Jews were supposedly inflicting on Germany as a nation, nor the contempt in which they were further assumed to hold the German people, were merely the result of them not being entirely German, but were rather the consequence of something far more damning: of them not actually being entirely human, an idea which probably found its ugliest and most shocking expression in the cartoons commissioned by Julius Streicher for his virulently antisemitic newspaper Der Stürmer, which depicted Jews in a variety of inhuman guises ranging from the daemonic to the verminous.

The result was that by encouraging Germans to view Jews as less than human, the Nazis were also giving the German public their tacit permission to withhold from them the empathy and moral regard we normally bestow upon all our fellow human beings. And it was this, more than anything else, I believe, that led to the concentration camps and the gas chambers. For as the contemporary German philosopher Martin Heidegger argued in ‘Being and Time’, it is our perception of others as fellow human beings, rather than as mere things to be used or, worse still, pieces of meat to be discarded, that prompts us to treat them in the way in which we, ourselves, would want to be treated. Once this perception was removed, all such moral inhibitions also therefore disappeared, permitting ordinary Germans to give free rein to all the pent up grievances and dissatisfactions with life which more than a decade of grinding poverty had instilled in them, thereby allowing them to vent their rage on those they held to be responsible, smashing up their businesses, driving them from their homes, and watching with pitiless self-satisfaction as those who had once seemingly held the advantage over them were stripped of their possessions and herded onto cattle trucks to be taken to who knows where.

If there is any consolation to be taken from this dreadful period in our history, however, it is that, mercifully, such hate-based ethnic cleansing is actually quite rare – especially on such a scale – not least because it requires two identifiable ethnic groups to be living in close proximity, which, historically, has largely only occurred in large metropolitan cities such as Rome at the height of its imperial power. Thus while history is littered with examples of ethnic massacres at a local level – with one quarter of a city turning on another – the only other instances of large scale hate-based ethnic cleansing that readily come to mind are the genocides in Bosnia and Rwanda.

Another reason why this should be so is the fact that while racism – a fairly obvious prerequisite for ethnic cleansing – is fairly commonplace, racial hatred, strange as this may sound, is also, mercifully, quite rare. In fact, most forms of racism have nothing to do with hatred at all. When India was part of the British empire, for instance, many if not most of the British colonial officials who were sent out to administer it were almost certainly racists, looking down on the empire’s native populations as feckless, mendacious and lazy. But they didn’t hate them. For the simple fact is that one cannot hate someone one looks down on. If anything, the hatred would have flowed the other way, directed against these imperial overlords who ruled a land that wasn’t theirs, plundering its wealth and living in the style of ancient maharajas, while generally regarding their colonial charges with haughty disdain.

Indeed, while racism and racial hatred are often thought to be synonymous, viewed from this phenomenological perspective, racism and hatred are actually antithetical – one looking down while the other looks up – with antisemitism constituting an almost unique exception to this rule due to the relative success and prosperity which members of the Jewish diaspora managed to attain in the various foreign lands they came to inhabit. What is even more noteworthy, however, is the fact that when not a spontaneous and often unconscious response to those we implicitly regard as inferior – as was typically the case with respect to British colonial officials stationed almost anywhere in the empire – racism is often nurtured in those who embrace it with the principal, if not always conscious aim of fostering just such an attitude of superiority towards others. For among those of us plagued by a sense of our own inadequacy – no matter how much we may strive to deny it – belittling others and according them an inferior status is one of the most satisfying ways we have of feeling better about ourselves. 

Back in the 1970s, for instance, when the BBC still permitted racist comedy, there was a comedian called Jim Davidson who had an imaginary West Indian friend called Chalky White, whom he used to portray by putting on a very poor West Indian accent. His routine was then to place Chalky in various situations in which he could make jokes at the latter’s expense, revealing a rather naïve, almost childish ignorance of the world which quite naturally elevated both Davidson, himself – and, of course, his audience – into a position of patronage and condescension. 

In fact, most of the racism I have witnessed during my life has been of this type. It’s why it is most often to be found among groups who have few accomplishments and little to be proud of in their lives and who therefore try to compensate for this by putting down others: others of another race being a particularly easy target.

That’s not to say, of course, that this, in itself, isn’t baneful, injurious and unwholesome, particularly as those who adopt this strategy as a way of alleviating their own dissatisfaction with themselves also very often feel the need to ‘act it out’, providing an alternative rationale and justification for their attitude by giving voice to numerous violent expressions of a hatred they don’t really feel, in order to make others to believe that it is this that is the true cause of their antipathy. Thus while genuine hatred may play very little part in the actual aetiology of this type of racism, in playing out the role of the racist, those who opt for this solution very often end up feigning an emotion which, over time, can get pretty close to becoming the real thing. 

More to the point, there is at least one way in which this kind of compensatory racism, as one might call it, can actually generate genuine hatred. This happens when there is an inversion of the constructed superiority/inferiority relationship upon which this form of racism depends.

Imagine, for instance, that we have a friend like Chalky White whom we regularly belittle for his lack of ability in some particular field. Suppose, however, that one day he exhibits far more ability in this field than we, ourselves, are able to demonstrate and does so in front of a room full of people who have all previously witnessed our belittling of him on this very score. Not only does he thus turn the tables on us, revealing himself to be the one in a position of superiority, but he also makes us look a fool in the eyes of all those present, thereby making us the potential object of others’ contempt and providing us with all three of the cognitive preconditions required for triggering hatred. Indeed, such a dramatic inversion of the superiority/inferiority relationship can often spark an uncontrollable rage made all the more overwhelming by the fact that the person responsible for our shame has also left us bereft of the very compensatory strategy we usually employ to protect us from such humiliation. 

While both the real and counterfeit forms of hatred to which compensatory racism can give rise are thus clearly recognisable phenomena and are always likely to be with us – fulfilling, as they do, a certain psychological need – the good news is that the emotional dynamic required to produce them, as illustrated in the above examples, is so complex that neither is ever likely to become widespread. While there is much talk these days of White Supremacist groups posing a threat to democracy and public order, in political terms such groups are always therefore likely to remain a freakish sideshow on the fringes of politics and are never again likely to become mainstream. 

More to the point, when it comes to mainstream politics, hatred in it most basic form – arising as it so often does out of our sense of injustice at the disparities of wealth and privilege that are to be found in almost any society – is far more the preserve of the socialist left than of the conservative right and, indeed, is regularly used as a galvanizing force by left wing activists who, fully cognizant of its cognitive underpinnings, carefully nurture among their followers the belief that those who have all the power also have nothing but contempt for rest of us. 

In the United Kingdom, for instance, which has very little history of either antisemitism or race based conflict, it is this division between the haves and the have-nots – the conservative ruling class and the toiling masses – rather than any differentiation based on race, that has not only constituted the principal fault line in the country’s political history, but has also been the locus of most of its recent historical unrest. Indeed, one only has to remember the miners’ strikes of the 1970s and 80s to appreciate the strength and depth of the emotions which this division can arouse.

That is not to say, of course, that all those battling against what they regarded as inequality and injustice always succumbed to hatred. Having spent large parts of my life in areas of the country where Tories were generally regarded as a malignant disease, however, there have been times when I have witnessed more hatred in the hearts of my fellow countrymen than I thought possible in a civilised society. And this was especially the case in the late 1970s and early 80s when, after nearly two decades of financial mismanagement and economic collapse, the hated Conservatives, under the leadership of Margaret Thatcher – probably the most hated Prime Minister in the country’s history – were returned to power with a programme for government that was principally designed to remedy our economic woes, but which was almost universally interpreted in a way that strongly reinforced historic working class prejudices. For by cutting public expenditure to balance the government’s budget, while simultaneously cutting taxes to stimulate the economy, to those brought up in an age of Keynes, Mrs. Thatcher’s entire strategy for returning the country to economic health seemed more designed to benefit the rich while further impoverishing those dependent on welfare benefits and public services than to achieve her stated economic aims. What really made her hated, however, was not just her insistence that her ‘Austrian’ style economics were correct – as, indeed, they proved to be – but the fact that she made no attempt to conceal her scorn for those who championed the underclass she was apparently further disadvantaging. For believing that it was the welfare state, itself, which, by disincentivising aspiration and fostering dependency, was not only the root cause of the country’s economic decline but was also injurious to the people themselves – depriving them of a full and active life – she was the first and only Prime Minister in our history who ever tried to reverse our national decline by forcing people to face economic reality and take more responsibility for themselves, rather than handing this responsibility over to the state.

To a post-war generation brought up to believe that the state was the beneficent provider of all good things and that the last thing they would ever have to face again was economic reality, what this precipitated, therefore, was something akin to an existential crisis. For not only was this cold-hearted representative of the ruling class telling them that they had to solve life’s problems for themselves, but they were also being made to face the terrible truth that the life free from want they had always been promised was a fantasy – a fairy tale for children – and that it was time for them to grow up and live in the real world, which was hard and cold and totally unforgiving. 

In presenting the people of this country with such a pitiless and implacable message, not only was Margaret Thatcher thus quite clearly assuming a position of moral superiority but, by rigorously pursuing unpopular policies and forcing people to do what they didn’t want to do, she was also making it perfectly clear that she held their contrary opinions in utter contempt, thereby meeting all three cognitive conditions necessary for making herself hated. 

In this, however, not only was she possibly the most selfless Prime Minister this country has ever had – as well as the most thick-skinned – but she was also the country’s saviour. Because she was right: her policies worked. By the mid-1980s, the economy was booming. From having been the sick man of Europe, by 1985, Britain had become a European dynamo. And although Margaret Thatcher, herself, has always remained a monster in the folklore of the left, as the country grew more prosperous, the more widespread hatred to which she had initially been subjected gradually abated.

In fact, from the late eighties onwards, until the financial crash of 2008, Britain became as hate-free as I think I’ve ever known it. As the British people gradually got used to more people of colour living among them, not only did the endemic racism of the 60s and 70s also slowly disappear but, even more significantly, the fundamentally Marxist Labour party of the previous six or seven decades – which, throughout those years, had fought an unceasing class war – was now at least superficially transformed into New Labour: a centrist party which even embraced a form of capitalism, leaving the population at large with very little about which to argue and even less to hate each other over.

All that ended, however, in 2008 when, as I explained in ‘The End of an Era (Part II)’, the bubble of mostly false prosperity which had largely kept the nation together, finally burst, forcing the incoming Conservative/Liberal Democrat coalition to once again turn to the Margaret Thatcher textbook of fiscal responsibility, which, in turn, opened up all the old class divisions, eventually leading to the return of the old-style Marxist Labour Party under Jeremy Corbyn. 

Not that this last point is likely to be as important or even relevant as I suspect Jeremy Corby would like it to be. For over the previous twenty or thirty years, unbeknownst to most of us, a new political ideology had been steadily coming to take the place of old-school socialism, even though most of us didn’t recognise it as such. Indeed, we used tell jokes about it, calling it ‘political correctness’ and recounting tales of how this new trend in our political life had totally ‘gone mad’. What we didn’t realise, however, was that what we were joking about was actually a manifestation of what is, in fact, a fairly old political philosophy, which owes its origin to the Italian Marxist, Antonio Gramsci.

Like many Marxist thinkers of his generation, Gramsci had believed that at some point during the first world war, the ordinary soldiers of each nation would eventually turn on their ruling elites and join together in a great European socialist revolution. After all, as members of a world-wide proletariat, they had more in common with each other – or so it was thought – than they had with those who commanded them and sent them to their slaughter. When this great revolution failed to occur, however, Marxist philosophers had to rethink some of their basic assumptions about the international fraternity of the toiling masses and recognise that the ties of home, family, church and motherland were actually far stronger than the rather abstract category of class.

Another Italian Marxist philosopher who also clearly saw this was Giovanni Gentile. Realising that in order to build a socialist society, people very often had to sacrifice their own personal interests to those of the collective, and that people are generally far more willing to do this if the collective in question comprises their own family, their village or town, or indeed their country, Gentile argued that it was upon these deeper allegiances that a new form of socialism therefore had to be built. This new form of socialism he consequently called National Socialism, better known as Fascism – named after the bundle of rods surrounding a single axe which were carried by lictors in ancient Rome to signify magisterial authority – the main principles of which he outlined in a book called ‘The Doctrine of Fascism’, which was originally attributed Benito Mussolini, though how much Il Duce actually contributed to it is open to question. 

In contrast, Antonio Gramsci went in what one might almost call the opposite direction. He too recognised that people’s allegiances to the institutions of family, church and the nation were far stronger than any comradeship they may have independently felt towards their fellow workers. But rather than embrace these institutions, he argued that, for socialism to succeed, they had to be destroyed. Not all at once, of course – which would have likely been impossible – and not through violence – which would have likely been counter-productive – but slowly over time, through a process of re-education amounting to a cultural revolution which, he argued, had to precede any political revolution. 

It was this central idea of a slow ‘long march’ to cultural change that was then picked up by a group of academics of different disciplines at the University of Frankfurt. These included Max Horkheimer and Friedrich Pollock, who were the original founders of the group, Theodor Adorno, Herbert Marcuse and Erich Fromm, who were arguably its most famous representatives, and a number of others who, collectively, came to be known as the Frankfurt School. 

Not that they actually remained in Frankfurt for very long. For rightly fearing Nazi persecution during the late 1920s and early 1930’s, they each gradually made their way to Columbia University in New York, from where, over the next three or four decades, they and their followers slowly spread their cultural revolution all across the western world, firstly by propagating their ideas throughout academia, itself, especially in the social sciences, where ‘critical theory’, as their methodology was known, quickly became the dominant form of debate, and then by seeding all the other cultural institutions of western society – the news media, publishing, the theatre, cinema and education in general – with their students. In this way they were able to amplify their message exponentially, as Gramsci himself had recognised. For if you take over the institutions of a culture you very quickly take over the culture itself, from which point on it then becomes a relatively simple matter of replacing old cultural norms with those of a new, more progressive ideology.

In addition to working to eliminate any religion which still professed the kind of conservative values which might have constituted an impediment to their progress – which, in America, largely meant Christianity – their overall strategy was to undermine and replace the existing culture along three principal axes:

1. Firstly, they sought to undermine the institutions of marriage and the family, initially by promoting feminism and sexual freedom (it was Herbert Marcuse, for instance, who coined the phrase ‘make love not war’) and then, more latterly, by normalising homosexuality and promoting gender fluidity.
2. Secondly, they sought to rewrite the history of both individual nations and European civilization as whole, partly through the passive strategy of almost entirely ignoring the latter’s great achievements – in the arts and sciences, engineering and technology, jurisprudence and the development of democratic government – but mostly through the far more aggressive strategy of concentrating, instead, on the historical expansion of European culture and civilization around the world through conquest and colonisation and the consequent extermination or enslavement of the indigenous people it encountered.
3. Thirdly – and possibly most importantly – they sought to undermine the belief in objective truth, itself, replacing it, instead, with a thoroughgoing cultural relativism in which all perspectives upon the world were seen as equally valid and in which rational argument, scientific method and even mathematics were viewed as the product of one culture in particular, i.e. European culture, which not only meant that these previously dominant forms of intellectual enquiry were now believed to have no greater claim upon the truth than any other ways of perceiving the world, but were also made to seem fundamentally racist and sexist, owing their origin and propagation to mostly European (white) men.

Basically, what the West told itself – and gradually brought itself to believe – was that all opinions were equally valid and that science and rational thought were intellectual straightjackets imposed on people to prevent them from freeing their minds; that Europeans had no culture of their own except that which they had ruthlessly appropriated from others; and that the family was a patriarchal institution designed to oppress women, from which they could only free themselves through economic and sexual liberation.

From the point of view of reinventing Marxism, however, this systematic demolition of European culture and history had one even more significant consequence in that it also provided a solution to Marxism’s traditional problem of basing its ideology on class identity, which, as both Gentile and Gramsci had recognised, did not resonate well with everyone, and was soon found to be even less appealing in aspirational America where penniless immigrants strove to become millionaires and were not therefore very much interested in class-based politics. By concentrating on the West’s intellectual, historical and social failings, however, this new form of Marxism was now able to appeal to a whole raft of other identities – particularly those of gender, race and sexual orientation – all of which could not only be shown to have been subject to some form of discrimination, but were far more inalienable than mere social status, in that they were not identities which people could simply cast off and leave behind them.

Even more felicitously, these alternative categories of social victimisation were largely single poles in a binary pairing, thereby rendering those responsible for their oppression that much more obvious. For if women had been traditionally disadvantaged due to their gender, it could only be because men had taken advantage of them. If people of colour had been abused because of their race, it had to be because Europeans had abused them. And if homosexuals were discriminated against because of their sexuality, then it could only be because heterosexuals were prejudiced against them. The result was that one group – that of white, heterosexual males – could now be presented not only as having historically held all the power, but as having held this power by keeping all other groups oppressed, thereby opening the door to a new social revolution in which these wrongs could be addressed, the reign of white, heterosexual males brought to an end, and a new age of equality introduced. 

The problem, of course – although I don’t think it has ever been properly recognised as such – was that this analysis also painted white, heterosexual males in such a way as to perfectly incite hatred in those they were believed to have disadvantaged. For not only were they said to have held all the power – and to have systematically abused those they had held the power over – but, for centuries, they had behaved as if this were perfectly natural, thereby evincing in their attitude a belief in their own superiority and the inferiority of others. 

As a result, the concepts of ‘white privilege’, ‘toxic masculinity’ and ‘homophobia’ are now central to almost every cultural and political debate, with white, heterosexual males being made the objects of almost universal scorn. And who is it, today, who most personifies this universally hated archetype? Why, Donald Trump, of course: a man who is not only totally unapologetic about what he is – even revelling in the fact that so many people seem to regard him as a monster – but who, in becoming president of the United States and placing himself in a position of power over those who consequently came to hate him even more, inflicted on his opponents one of the most humiliating inversions of the superiority/inferiority relationships in history. For prior to his election, the progressive left – those who now embody the ideology of Cultural Marxism, whether they are aware of this or not – regarded both him and his followers with contempt. Hilary Clinton even described his followers as a ‘basket of deplorables’. They were uneducated hillbillies, rednecks, and white supremacists whose representative and very personification should never have been allowed to attain the presidency. The result, therefore, was that when he did, the outpouring of rage was almost hysterical, especially among women who seemed, quite literally, to lose their minds, donning ‘pussy hats’ and howling ‘Nooo!’ at the empty sky.

What is particularly interesting about this, however, is that it is not the only instance of a such an inversion to have occurred as a result of Cultural Marxist indoctrination over the last few years. For something very similar happened with regard to Brexit.

I say this because, before the referendum, it was widely believed that the principal reason why supporters of Brexit wanted to leave the EU was their opposition to mass immigration. This, therefore, not only made them xenophobic, nationalistic ‘Little Englanders’ but also, by definition, racists. Indeed, within the mainstream media they were regularly represented not only as knuckle-dragging Neanderthals but as fascists, white supremacists and Nazis. Due to their supposed low intelligence and limited education, however, it was also assumed that when the vote came, they would be soundly defeated by all the educated, enlightened, ‘right-thinking’ people who made up the majority of the British population and who would clearly see the benefits of remaining in the EU. When this didn’t happen, therefore – when the basket of deplorables actually won – the outpouring of hostility against them was very similar to that which met the election of President Trump five months later. Moreover, the hatred which was then unleashed throughout the UK has only strengthen and become more visceral in the three years of waiting and uncertainty that have followed. 

So what do these two events have in common and what is actually going on here?

The first thing to note is that, in certain ways, Cultural Marxism has a very similar aetiology to compensatory racism, in that they are both based on our primordial insecurities about ourselves. Awash with a sense of his own inadequacy, the compensatory racist, as described earlier, belittles and derides another ethnic group in order to feel superior to them and thus better about himself. Similarly, those who subscribe to Cultural Marxism – whether or not they identify themselves as doing so – deflect whatever doubts and fears they may have about their own ability to cope in a cruel and hostile world by blaming their self-doubt and sense of inadequacy on whichever group they hold to be responsible for their oppression, thereby similarly alleviating their feelings of existential angst.

However, unlike compensatory racism, Cultural Marxism doesn’t stop there. For not only does it tell its subscribers that they are not to blame for whatever shortcomings they may feel – these having been fostered or even ground into them by those who have kept them oppressed – it also tells them that, in their blamelessness, they are morally superior to those who have wilfully and malignly inflicted this oppression upon them, thereby effectively turning the tables on their erstwhile tormentors and allowing them to now look down upon those who had previously had the upper hand. And why not? After all, is it not said that the meek shall inherit the earth? And are not those who have suffered centuries of oppression, by definition, the meek? 

Even this, however, is not the end of the story. For the conclusion to which this whole new compensatory philosophy of the oppressed then inevitably gives rise is the belief that if we could only eliminate all the racist, sexist homophobes who have been responsible for all these centuries of oppression, then we would finally arrive at the promised land: a socialist utopia in which no one would be abused, put down or reviled; where tolerance, equality and communal harmony would reign; and where everyone would have what they need without reference to wealth, status or power. The problem with this, however, is that this whole wishful vision is of course a total fantasy: another fairy tale for children who refuse to confront the harsh vicissitudes of life, and who hate not only those who constitute an immediate threat to their delusions – uncivilized monsters like Donald Trump and Boris Johnson – but those, like Margaret Thatcher, who would force them to recognise and face up to the existential fears that are basis of their desperate attempt to avoid reality.

For it is reality, of course, that is the ultimate problem. It is too big for us, too overwhelming; while we are too small and too insignificant. It’s why we have always needed an omnipotent god or an all-powerful state to protect us and provide for us, and why we are even willing to give up our liberty and right to self-determination to an undemocratic, international institution like the EU, if only it will keep us safe from reality in its comforting, bureaucratic embrace. 

However, this is where the whole strategy falls down. For reality is nothing if not persistent and is currently not just knocking at our door but, due to the western world’s economic and monetary policies over the last three decades, is practically taking a sledgehammer to it. Indeed, as I have tried to demonstrate in my last few essays, the post war era, during which the West has prospered more than at any other time, is coming to an end. Another financial crash, on scale far more destructive than in 2008, is on its way, and the result will be a new economic reality far different from that which any of us have known before. 

And it is this that is the real cause of our current discord. For while most people wouldn’t be able to say why or how the world has gone wrong, most of us sense that it has. And it is our different responses to this awareness that now divides us, not along lines of class or race, but between those who embrace reality, no matter how challenging it may be, and those who want to hide from it and do not want it thrust in their faces, which, of course, is exactly what Brexiteers and supporters of Donald Trump, by their very existence, do. For it is reality they represent. And it is this for which they are fundamentally and existentially hated.

The Inevitable Demise of the Euro

In a free market, the value of any currency is determined by the demand for that currency for the purposes of trade. If an importer in country A wishes to buy goods from an exporter in country B and the price of those goods is denominated in the currency of country B, then the importer has to buy units of that currency in order to pay for the said goods, simultaneously selling units of his own country’s currency in order to do so. This latter transaction, along with thousands of other transactions just like it, is what then determines the price of the currencies involved. For if more people want to buy goods from country B than country A, then the demand for currency B, along with its price, will rise, while the demand for currency A, along with its price will fall. 

It is for this reason also that, in a free market, trade tends towards equilibrium. For if there is a significant and persistent imbalance in trade, then the currencies of the net importers will continue to decline against the currencies of the net exporters, such that the goods of the net exporters become more and more expensive. This results in the net exporters selling less and the price of their currencies consequently falling until some kind of equilibrium is reached.

This doesn’t mean, of course, that significant and persistent trade imbalances cannot exist. Rich countries with large stores of accumulated wealth – otherwise known as capital – can maintain trade deficits for decades without damaging their currencies, especially if, like the USA, their currency has a reserve status and is used for international trade in which the issuing country is not a party. However, all such trade deficits represent capital out-flows and eventually even the richest countries will become impoverished by such capital loss, such that the tendency towards equilibrium is restored.

Other than by countries borrowing or printing money in order to continue importing goods they can no longer afford – both of which practices, in themselves, tend towards instability and currency devaluation – there are only two ways to prevent or forestall this tendency towards balanced trade. The first is through currency manipulation, where the currency of an exporter is held at an artificially low value. In ‘The End of an Era (Part II)’, which you can find here, I described how China, with the tacit agreement of the United States, kept its currency – the renminbi or yuan – pegged to the dollar at between 30 and 40% below its true value for more than twenty-five years. This allowed it to build up a massive trade surplus in manufactured goods with the rest of world, laying waste to large parts of manufacturing industry not just in America but throughout the West, while at the same time accumulating huge capital reserves. 

I said in ‘The End of an Era (Part II)’ that, one day, this would be seen as one of the worst mistakes in post-war history. And I still hold to this view. However, there is another mistake that gets fairly close to it in terms of the damage the West, and Europe in particular, has managed to inflict upon itself: a mistake which relates to the second way in which the tendency towards balanced trade can be thwarted. This is by means of the creation of a monetary or currency union between countries with very differently performing economies, especially with respect to productivity. For if one or more  countries in such a union has a significantly higher rate of productivity than the others, it will either be able to produce goods more cheaply than its neighbours, or of a higher quality at the same price, thus giving it a distinct trading advantage. 

And, indeed, this is what we find in the Eurozone, where Germany, in particular, runs a significant trade surplus with nearly all the other members, who, due to the simple fact that they all share the same currency, are unable to counter this imbalance via the usual mechanism of currency devaluation. Worse still, because goods flow one way and capital flows the other, there has been an inexorable build-up of capital in Germany where it has inevitably been invested in further improving productivity, thereby widening the productivity and trade gap even further.

Nor is the advantage Germany has gained from this confined to the Eurozone. For the value of the euro on international currency markets is determined not just by the volume of demand for it to buy German goods, but by the volume of demand for it to buy goods from the Eurozone in its totally, which, on average, pulls the price of the euro down. As a result, the price of German goods sold to the rest of the world is significantly lower than would be the case if they were still denominated in Deutschemarks, allowing Germany to establish significant trade surpluses with nearly all other western countries, including both the UK and the US, thereby creating even more capital inflows from outside the Eurozone to invest in even greater productivity. And so it goes on.

The real casualties in all this, however, are the other members of the Eurozone, especially those in southern Europe, usually referred to as the Club Med group, whose comparative disadvantage can clearly be seen from the imbalances which, over years, have gradually built up in the Eurozone’s international settlement system, known as Target2: a distributed transaction processing platform managed by the ECB to which all the EU’s national central banks (NCBs) belong, along with all of their affiliated commercial banks, the purpose of which is the clearance of all international transactions denominated in euros. 

To understand how it works – or, at least, how it is supposed to work – imagine, if you will, a Mercedes car dealership in Italy which places an order for €10 million worth of new cars from Daimler-Benz in Germany. Daimler-Benz duly fulfils the order and sends the dealership an invoice, which the dealership duly instructs it’s bank, UniCredit, to pay. UniCredit then transfers the funds from the dealership account to the UniCredit Target2 account at the Italian NCB, Banca d’Italia, with further instructions as to where it is to be sent. Banca d’Italia then sends the money to the Deutsche Bundesbank, the German NCB, which places it in the Target2 account of Commerzbank, Germany’s second largest commercial bank, which finally transfers it to the current account of Daimler-Benz.

Naturally, this is something of an oversimplification of a process which undergoes wholesale aggregation and ‘netting’ out at each step of the way, so that only the net amounts owing are ever transferred between NCBs. At some point, however – though I don’t know when and I don’t know who authorised it – even the net amounts stopped crossing certain borders, the electronic border between Italy and Germany being a case in point.

Daimler-Benz, of course, still gets paid. Commerzbank – if it is Commerzbank with whom  Daimler-Benz actually banks – still credits the corporation’s account with the €10 million. But Commerzbank, itself, does not get any money from the Bundesbank. Instead, it receives from them an IOU, which, coming from a central bank, is probably as good as money. In fact, you might ask what else ‘money’ actually is. In reality, however, what happens is that Commerzbank places a debt of €10 million owed to it by the Bundesbank on the asset side of its balance sheet, while the Bundesbank places a debt of €10 million owed to Commerzbank on the liabilities side of its ledger.

Similarly, no money is actually transferred from Banca d’Italia to the Bundesbank. Instead, the Bundesbank places a debt of €10 million owed by Banca d’Italia on the asset side of its balance sheet, while Banca d’Italia places a debt of €10 million owed to the Bundesbank on the liabilities side of its balance sheet. Finally, to complete the transaction, UniCredit removes €10 million from the account of the Italian car dealership – so that the latter does actually pay the money – but UniCredit does not actually transfer the money to Banca d’Italia. Instead, it places a debt of €10 million owed to Banca d’Italia on the liabilities side of its balance sheet, while Banca d’Italia places a debt of €10 million owed to it by UniCredit on the asset side of its ledger.

Thus, while no money actually changes hands, the whole system is in balance. The result, however, is that after years of unsettled transactions building up within the Target2 system, as of 31^st October 2018, half of the Eurozone owed the other half over €1 trillion as shown in Table 1, with Italy being the biggest debtor at €489.5 billion, and Germany the biggest creditor at €927.6 billion.

Debtor NCBs	€ billions		Creditor NCBs	€ billions
Belgium	5.3		Germany	927.6
Estonia	0.2		Ireland	11.8
Greece	29.3		Cyprus	8.4
Spain	397.5		Luxembourg	223.7
France	25.8		Malta	3.6
Italy	489.5		Netherlands	91.7
Latvia	7.3		Finland	49.6
Lithuania	4.8		Slovenia	0.2
Austria	47.0		Slovakia	10.5
Portugal	78.7		Non-Eurozone	4.2
Totals	1,085.4			1,331.3
Imbalance shown as ‘ECB’	245.7

Table 1: Target2 Debtors and Creditors

Ignoring the question as to how the ECB can appear as a debtor in this system – a question to which I have not been able to find an answer despite lengthy searches – the real question one has to ask is how, given that Target2 is supposed to be a transaction processing and settlement system, these unsettled accounts could have been allowed to build up to such an extent. And why?

The answer, however, is not straightforward and is the result of a number of interconnected problems in the overall Eurozone banking system.

The first of these is the problem of ultra-low interest rates, which makes it very difficult for any bank to make much of a profit, especially on their primary fall-back or fill-in business of short-term interbank lending, through which otherwise uninvested or unlent deposits in customers’ current accounts – on which no interest is usually paid – would previously have been lent to other banks at an annualised overnight rate of somewhere between 3% and 4%, thereby generating a steady and almost risk-free revenue stream which more or less covered all the bank’s administrative costs. With the ECB’s marginal lending rate now set at 0.25%, however – down from more than 5% before the financial crash – interbank lending rates have more or less collapsed, with the result that banks now have to resort to more higher risk lending just to break even.

Yes, they try to avoid this as much as possible and make up for the deficit by charging customers for services that were previously free. But this hardly makes up for the reduction in the safe, regular income which interbank lending used to provide, especially as, being within the Eurozone, there are now other services on which they used to charge commission but which have now gone into steep decline.  This especially applies to foreign exchange services which, for most European banks, have been cut by more than half since the introduction of the single currency. 

To compound this, ever since the crash of 2008, all banks have come under ever more stringent regulations as to how much of their own capital they must hold. This varies between 7% and 10.5% of their total risk-weighted assets depending on their size and the systemic risk they therefore pose to the rest of the financial system. As ‘own capital’ is a combination of shareholder equity and retained profits, their general lack of profitability therefore gives them two further problems. Firstly, it makes it very difficult for them to build up their capital reserves organically through year on year retentions, especially if they want to provide an acceptable dividend to their shareholders. Weak profitability and a poor return on investment then also make it difficult for them to raise additional capital on equity markets.

This then leads to another, even more serious problem. For given their capital requirements and the difficulties they have in replacing capital, the one thing no bank can afford to do is make a loss, or admit it if they do. Combined with more risky lending practices, this has therefore led to a slow but inexorable accumulation of Non-Performing Loans (NPLs), or bad debts on the balance sheets of most Eurozone banks.

There are, of course, rules against this. In fact, they are quite detailed. Any loan on which a payment has been overdue for more than 90 days, for instance, is supposed to be written down to 70% of its nominal value. Any loan which cannot be recovered without legal action should be written down to 40%. And any loan that is deemed unrecoverable is supposed to be written off completely. The problem is that it is the banks themselves that make this assessment. And so they are naturally reluctant to write off any loan where there is any hope at all of recovery, no matter how slight, especially if such a write-off were to detrimentally affect their capital position.

This problem is further exacerbated by the fact that the NCBs, who are supposed to police this area of banking operations, are not inclined to be overly stringent when it comes to the enforcement of the rules. This is because, in addition to their general capital requirements, banks are further required to hold at least 5% own capital against their loan book. That is to say that, whatever other investments they may make, they can only lend twenty times their capital reserves to their commercial customers. This means that if they are forced to write off €1 million worth of NPLs, and consequently find their capital reserves reduced by the same amount, they are required by law to reduce their loan book by €20 million, calling in €20 million worth of good loans, which, if the borrowers cannot instantly return the money, may well turn into bad loans as a result. Indeed, it could well put many firms out of business and have a devastating effect upon the economy. Which is why the NCBs are not particularly exacting when it comes to enforcing the write-off rules for NPLs.

The result is that NPLs have accumulated on the balance sheet of Eurozone banks to the point at which the problem has now probably become insoluble. As a percentage of total assets, what proportion of Eurozone loans are NPLs? Only the banks, themselves, know that for sure. And they’re not telling anyone. Most estimates, however, place the figure above 20%. As even the largest banks are only required to hold capital to the value of 10.5% of their assets, this would therefore make all Eurozone banks insolvent if the NPLs were evenly distributed. Fortunately, some Eurozone countries’ banks have more NPLs than others, with Italy, Spain and Portugal being the worst offenders.

Why this should be the case is hard to say. Some people attribute it to the boom in the building industry before the financial crash, when, all around the Mediterranean, there was a massive amount of investment in holiday villas and time-share apartments, many of which still remain empty or even unfinished. However, looking for specific reasons for the preponderance of NPLs in certain countries is unnecessary. For, statistically, there will always be more business failures and hence more NPLs in poorly performing economies than in more successful ones. And this simply brings us back once again to the imbalance of trade within the Eurozone. 

What this also means, however, is that the state of the banks in some of these countries is truly shocking. Take UniCredit, for example. It tried to solve its NPL problem by creating what is generally known as a ‘bad bank’, a special purpose vehicle (SPV) into which it was going to place all its NPLs in return for bonds issued by the SPV and backed by the NPLs themselves. When the ratings agency, Moody’s, examined the NPLs to assess their value, however, it decided that they were so bad that the bonds issued by the SPV would be below ‘investment’ grade, such that, as a bank, UniCredit could not invest in them or take them in exchange for the NPLs, with the result that the plan fell through. Ironic or what?

What makes this general situation even worse, however, is the fact that the people who count, the customers of these insolvent banks, know that they are insolvent and have acted accordingly. For although the EU has a bank deposit guarantee scheme through which the national governments guarantee deposits up to €100,000, savers in Italy, Spain and Portugal etc. do not believe that their governments would have the resources to honour this commitment should there be a general banking failure.

And they are quite right. Italy, for instance, has a debt to GDP ratio of 132%, the second highest in Europe after Greece, and is only able to continue borrowing money at affordable interest rates due to the ECB’s Quantitative Easing programme, through which Banca d’Italia buys up all the bonds issued by the Italian treasury after they have first been bought by Italian banks. If there were a general banking failure, however, this system would itself fail, in that all of the Italian banks would have gone bust, leaving the Italian government with no one from whom they could borrow money in order to compensate depositors. 

This has therefore led to huge amount of ‘capital flight’, especially from Italy, which, somewhat inconveniently, happens to border Switzerland. What this also means, therefore, is that, with all of the Italian banks’ own capital tied up in NPLs – none of which can therefore be recycled – and with most of their depositors’ savings having been withdrawn to safer havens, most Italian banks would have now been left with almost no money at all to lend to new borrowers. Indeed, under this scenario, not only would the entire Italian banking system have already collapsed, but the whole Italian economy would have been sent back into a pre-banking era. And the only thing that has prevented this from happening are the unsettled balances within the Target2 system. For what these liabilities effectively represent are unofficial loans from Banca d’Italia to Italian banks which have more or less replaced the withdrawn deposits of their customers, thereby maintaining their overall liquidity. 

Not, of course, that this has ever been admitted to the public. Nor has it ever been talked about in the mainstream media. Yet everyone who has anything to do with Eurozone economics and finance must surely know this. Indeed, it is something which the whole Eurozone banking system has to be colluding in. Otherwise, German banks would be demanding payment of what they are owed from the Bundesbank. And the Bundesbank would accordingly be demanding payment of what it is owed from each of its counterparty NCBs across Europe. And these NCBs would then be demanding payment from their own commercial banks. Except, of course, they know that their commercial banks do not have the money to make these payments and that any demand on them do so would bring down the entire Eurozone banking system. For it is not ultimately Banc d’Italia that lent €10 million to UniCredit in my little example above; it was Commerzbank. In fact, as shown in Table 1, German banks have lent a total of €927.6 billion to counterparty debtor banks across the continent: €927.6 billion which can never be repaid and which therefore constitutes the largest portfolio of NPLs in the Eurozone. And it is thus German banks which are now the real threat to the system.

Even though it is little reported outside of the financial pages of a few quality newspapers, most people will be aware of the problems which Deutschebank, for example, has suffered over the last few years and which would appear to be coming to a head. Last quarter, it lost over €3.6 billion and recently announced 18,000 redundancies in an attempt to return to profitability. Of course, not all of its problems are due to the billions of euros it has lent to other banks at zero interest rate through the Target2 system and which it has little chance of ever getting back. It is mired in mismanagement and riddled with corruption. However, lending so much money on an indefinite basis without return certainly hasn’t helped its position. 

So what is the solution? Well, it’s quite simple. The banks of the countries that are debtors within the Target2 system need to be recapitalised. They can then write off the NPLs on their balance sheets and pay off their debts. The trouble is, of course, that this would require an investment of around €1 trillion. And, quite frankly, these banks, with their poor profitability, dodgy accounting and other liabilities which they have almost certainly hidden, simply aren’t worth that much. Indeed, it is very unlikely that any commercial enterprise would even consider taking over and recapitalising any of these ‘zombie’ banks. Otherwise, they’d have already done so, not just with the blessing of the governments involved but with their eternal gratitude.

So what about the governments, themselves? What if they were to nationalise these banks and, themselves, invest in them? After all, it is the obvious solution. Apart from the fact that it is against EU rules, however, the problem with this is that it would very probably be as destabilising to the euro as the collapse of the banking system itself. 

To see this more clearly, consider again the situation of the Italian banks. They owe €489.5 billion through the Target2 system. So it would require at least this much to recapitalise them and clear their debts. To do this, the Italian government would therefore have to raise this money by issuing additional treasury bonds to this amount, which, for want of anyone else with that kind of money, Banca d’Italia would eventually have buy up, printing the necessary euros to do so. This then would add a further €489.5 billion to the Italian national debt, taking it from its current 132% of GDP to 169%, only a little short of that of Greece.

This would have two effects. Firstly, given that Italian treasury bonds are already only rated as Baa3 by Moody’s, it would almost certainly drive them down to a level at which they would be rated as little better than junk, forcing institutional investors – including other NCBs – to sell them and making it almost impossible for the Italian government to raise any further monies on bond markets. Unless the Italian government then immediately balanced its budget by increasing taxes and reducing public expenditure, this would therefore force Banca d’Italia to go on printing euros in perpetuity in order to service the Italian government’s ever-burgeoning debt, thereby raising the question as to whether the euro really was a single currency and whether a euro issued by Banca d’Italia really was the same as a euro issued by the Deutsche Bundesbank.

Indeed, this is a question that is already being asked and is why, in January 2013, the EU required all members of the Eurozone to sign a Fiscal Stability Treaty (FST) that requires all signatories to reduce their debt to GDP ratios to 60% by 2030: something Italy will find it very difficult to do even with its current debt level but which would be absolutely impossible with a debt to GDP ratio of 169%.

This, therefore, leaves the EU with just one other option. In order to recapitalise the Club Med banks and clear their debts in the Target2 system, the creditor nations will, themselves, have to raise the money and gift it to the debtor nations.

Indeed, this is something that has already been suggested by Bob Lyddon, an economist with PwC, who sees it as the most likely solution to the problems he foresees arising out of the Fiscal Stability Treaty itself. In a recent paper entitled ‘Why the Eurozone’s Fate Makes an Immediate Brexit Vital’ he argues that, even at 132% of GDP, Italy’s debt level already makes it more or less impossible for it to achieve its FST target. He calculates that in order to reach a debt to GDP ratio of 60%, Italy would have to run a fiscal surplus of 8.44% for the next ten years, both raising taxes and cutting public spending in order to do so: something he argues would be politically unacceptable to the Italian electorate.

Unwilling to commit political suicide, the Italian government would therefore have no choice but to refuse to comply with the treaty, leaving the EU with just two options. Either it could force Italy out of the Eurozone, upon which it would almost certainly default on its Target2 liabilities, thereby bringing down the entire banking system along with the euro itself; or it could oblige the more solvent EU member states, including Germany, Luxembourg, the Netherlands and Finland to come up with the money to pay down the debts of the Club Med countries for them.

The problem with this, however, is that it would again require around €1 trillion, an amount which the less indebted members of the Eurozone could not raise without making themselves over-indebted, thereby making the situation even worse. Bob Lyddon’s fear, therefore, is that the EU would consequently demand that some of the money – €230 billion, to be exact – be paid by the UK under the ‘contingent liabilities’ clause in Mrs May’s ‘withdrawal agreement’, were this ever ratified. He therefore recommends that the UK make an immediate clean break from the EU, leaving it without any residual treaty obligations. 

While I believe this recommendation to be prudent, however, I do not believe that the impossibility of certain countries achieving their FST targets is what actually constitutes the real danger in all this. This is because I cannot see the other potential contributors to this solution actually being willing to go along with it. After all, according to Lyddon, German tax payers would have to fork out €303 billion to make it work, French tax payers €239 billion. And I just cannot see them accepting this as a price worth paying merely to preserve the single currency. Instead, I believe that the EU will be forced to find some other solution, such as pushing back the date for compliance with the FST to 2050 for instance. After all, this is what the EU typically does when it has an intractable problem: it simply kicks the can down the road for another couple of decades. 

The one instance in which I can see the EU pressing for this wholesale capital transfer solution, however – and, indeed, the member states actually going along with it – is in the event of a catastrophic collapse in the banking system. 

What might trigger this, I cannot say. However, the Eurozone is so fragile and is so full of cracks and vulnerabilities – as I hope that I have already demonstrated – that there are literally dozens of ways in which a cascade failure could be precipitated. And it is at this point, I believe, that the EU would call on the less indebted member states to transfer capital to the more indebted, not in order for the latter to pay down their debts but in order for them to recapitalise their banks. 

The way it would work is like this. The less indebted countries, including Germany, the Netherlands and Finland, would borrow up to €1 trillion from their commercial banks, even though many of these banks might not technically have this money at the beginning of this process. (I shall explain below). They would then gift it to the likes of Italy and Spain which would use it recapitalise their insolvent banks. These banks would then write off their NPLs and discharge their Target2 liabilities to their countries’ NCBs, which would then pay off their debts to their counterparty NCBs. These counterparty NCBs would then be able to discharge their liabilities to their own commercial banks, thereby providing these banks with the necessary funds to lend them to their governments so that they can be gifted to the recipient governments in the first place. This, of course, makes whole series of transactions circular and would mean that it would all need to happen instantaneously. But where banks and money are concerned, almost nothing is impossible.

The result would be threefold: the insolvent banks of the Club Med countries would recapitalised; the unsettled balances in the Target2 system would be cleared; and banks like Deutschebank would now be owed money by their national governments instead of their NCBs. As these latter debts would now be in the form of treasury bonds, however, they could be legitimately bought up by the relevant NCBs under a renewed QE programme, thereby restoring liquidity to the lending banks.

The only losers in all this would therefore be the taxpayers of the gifting countries, whose governments would have accrued an additional €1 trillion in combined national debt, thereby very probably forcing them to put up taxes and cut public expenditure. If they actually understood this and had any say in the matter, these taxpayers would therefore almost certainly demand that the EU immediately start dismantling the Eurozone in an orderly fashion in order to prevent the whole thing happening again. In the current state of our politics, however, the sad truth is that taxpayers have no such voice and, in the above scenario, would almost certainly be prevented from having any idea as to what was going on. In the mainstream media, indeed, the problem, if it were discussed at all, would almost certainly be blamed on a few greedy, ‘fat-cat’ bankers, while prominent Europhile politicians and EU bureaucrats would very likely be credited with saving the system they nearly destroyed.

At no point, of course, would any blame be attached to the euro, which is the one thing the European establishment cannot allow to fail. For without the single currency, there can be no prospect of the EU ever becoming the single European super-state, thereby bringing the entire European Project, as it is currently conceived, to an end. And no one in the EU is as yet willing to let this happen.

So does this mean that the euro can actually be saved? I’m afraid not. It just means that the EU will go on trying to keep alive… until it can’t, and that when it eventually does collapse, as it inevitably will, it will have even more appalling consequences than if its dismantlement had happened in a more orderly way. For in any battle between political ideology and reality, reality always eventually wins, usually at the cost of much human suffering. And that is what I fear the inevitable demise of the euro has in store for us.