The penny may be dropping? Five interviews/debates in which yours truly struggles to make a self-evident point (Al Jazeera, BBC, ABC, Bloomberg, Die Zeit)

During the past 24 hours I was involved in a large number of interviews with non-Greek media outlets. For those interested, a collection of links is provided below. The main reason for bothering you with these interviews is that they reveal a gradual Gestalt shift. Whereas a year ago no one in the media took seriously my (admittedly contentious) point that there is no such thing as a Greek crisis (but that the crisis is systemic, affecting the eurozone in its entirety), the penny seems to be dropping – however gradually. At least, this is my impression from my on-air and off-air discussions with Bloomberg, with the BBC’s business desk, even with German, Danish and Finnish financial journalists. Lastly, below you will find the english text of an article I published in Die Zeit yesterday/today (click here for the German original), on the astonishing subterfuge of our European leaders in their attempt to escape from a trap of their own making. (A reader from Germany advised me to stop publishing in Germany under a Greek name because it enrages German readers to have a Greek economist pontificating on what Europe must do. I shall, naturally, treat this piece of advice with the contempt that it deserves. But it does vindicate what I had written here some days ago and reflects grossly on Europe’s current state of play.)  For the links and the Die Zeit article… 

  • Bloomberg short interview on what the world can expect of the new government. 16/6/2011 [My rating: Informative but inessential]
  • Al Jazeera English debate with a Greek free marketeer businessman (paroting  the usual neoliberal mantra) and a Greek demonstrator (advocating that Greece goes it alone) 16/6/2011 [My rating: Comprehensive debate poorly coordinated by an anchor out of his depth who insisted on separating the Greek from the Euro conumdrum]
  • BBC World Service Radio, Business News 16/6/2011 [My rating: Excellent. I felt I put my point across and I particularly enjoyed the segment that followed my interview. Make sure you keep listening after yours truly goes quiet.]
  • ABC Radio National, Breakfast News 16/6/2011 [My rating: Highly enjoyable (for me at least) and relaxed, courtest of an interviewer who was genuinely interested in the subject (I believe he has a Greek wife!) but who also seemed to understand basic principles of how not to manage a crisis.]

Lastly, here is the English version of my Die Zeit article just published

Semiotics versus hard facts

Europe is currently struggling to escape from a trap of its own making. Back in early 2010, two realities were staring us in the face: A banking sector replete with paper titles (both private and public) whose market value had shrunk precipitously. And several sovereigns, Greece first and foremost, on the brink of insolvency.

During the first part of 2010, culminating in the May ‘bail out’ for Greece, Europe decided: (a) to remain in denial about the poor health of its banking sector, (b) to treat Greece’s insolvency as a liquidity crisis and (c) to prescribe austerity measures that deepened and widened the ensuing debt crisis.

Since then developments have made it abundantly clear that this is a course to nowhere. Predictably, the Greek crisis got worse not because the medicine was badly, or insufficiently, applied but because (a) it was toxic and (b) it had awful side-effects on Europe’s ailing banking sector.

Instead of mending its ways, Europe is now seeking a Vienna-style ‘solution’. Put differently, it continues to be in denial dreaming of some agreement by Greece’s major creditors to buy new seven year Greek bonds of their own accord (once the bonds they hold mature). The key words here are “of their own accord”. Why? Because a debt roll over without free volition will cause the rating agencies to declare that Greek debt is in a state of default, thus making it impossible for the ECB to accept it as collateral from banks; which will in turn lead to a cascade of bank defaults which will… Thus, we are now embroiled in a discussion on the definition of ‘free will’ that would delight political philosophers and linguists.

The truth of the matter is that no investor, in their right mind, would choose to roll Greek debt over if they could help it. Which means that if they are allowed to decide freely, only a minuscule amount of debt will be rolled over; thus rendering the whole exercise pointless. The alternative is to give them ‘incentives’ to buy new Greek bonds that are akin to the Mafia’s favourite expression “we shall make you an offer you cannot refuse”.

Today, it seems, politicians, the ECB and credit rating company Fitch have stitched up a two-part deal: (a) Creditors will be ‘leaned upon’ to roll over, and (b) Fitch will downgrade Greece to ‘restricted default’ but keep Greek bonds at CCC! In this manner, the ECB can continue to pretend that it accepts Greek bonds as collateral, the French government can claim that they avoided a default, and Berlin can celebrate its success in making some creditors pick up part of the bill.

If the above smacks of desperation it is because it is one last desperate bid to deny reality. Everyone knows that the time will come soon when linguistic games will no longer hold sway over the menacing facts. And when the rating agencies give the green light for the cashing of CDSs taken out against the Greek debt, Europe’s banks will come crashing down (courtesy of all the CDSs issued by their subsidiaries, and which the banks will have to cover for, repeating the sad rituals of AIG after Lehman’s).

The time to stop dithering has come. First, Europe needs to recapitalise its banks. Secondly, it needs to unify the Maastricht-compliant part of eurozone’s debt (through the introduction of a homogenous eurobond). Finally, we need a new pan-European investment spree (via the European Investment Bank). Then and only then will the ‘Greek’ problem be reduced to an order of magnitude in concert with my country’s actual size.

44 thoughts on “The penny may be dropping? Five interviews/debates in which yours truly struggles to make a self-evident point (Al Jazeera, BBC, ABC, Bloomberg, Die Zeit)

  1. Pingback: «The Junta of Experts tells us: Vote how you like, but policies cannot change»: « Nyheter for aktivister

  2. Pingback: The Penny Is Dropping: « Greek Left Review

  3. The problem here is (and has been from inception) the cost of debt.

    Say, for example, that Greece spends 40 Bil. euro annually in servicing its debt.

    What if the same amount was directed in paying down the Greek debt instead? In 10 years the public debt will be close to zero.

    I used this extreme case of 0% financing to illustrate that the Greek debt is both manageable and the country solvent. And that the answer to those concerned about solvency is simple: low cost of debt for awhile.(say 2%)

    Eventhough I am all in favor of political reform as well (I am in favor of everything that increases efficiency in general), I think at the present moment we are putting the cart in front of the horse.

    • Theo:

      I am speaking of efficiency as synonymous to optimization.

      My basic premise is that a system is efficient if nothing more can be achieved given the resources available.

    • Even worse…allow me to say. How can you know that nothing more (or maybe else) can be achieved when you cannot even sure about the given number of all resources available? All you can see are some indications showing the trend until now, given a bunch of circumstances of the past (not knowing their implications yet and whether are interrelated or related with something else we fail to include). In other words, optimisation is an illusion in social relations…It’s not like physics or chemistry where you can perform an experiment of a specific material tenacity under given circumstances you are able to choose.

      Anyway, I kindly mention that we better stop arguing about it. This is not the main issue of this topic and we will end up rambling both lacking delicacy against our host…

  4. Greece doesn’t have a problem with debt, it’s problem is that it doesn’t control its currency. From this point of view the implosion of the Euro is just a matter of time. There has never been an instance of a supranational organization dismantling the nation-state structures that grew up capitalism. This ‘dream’ of a supra-nationalist order to impose stability on the capitalist world system has been going on over 100 years, critiqued by Lenin in ‘Imperialism’ , for one.

    On a more brutish level, there have been attempts by all the major European powers to unify the continent through violence and World War and it never worked; I doubt a myopic like Trichet will be any more successful.

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  6. Dear Yanis,

    I think the real problem is that we all grew up with the wrong adagium:”it’s the economy,stupid”.

    Yesterday I read an article in the Dutch newspaper NRC Handelsblad about Paul Jorion,an antropologist who used to work for many years in the American “haute finance”, who says this form of capitalism will fail, because everybody ows the other money, everybody becomes vulnerable.

    Already more than 2000 years ago Aristoteles taught us about the virtues how to manage our oikos and
    its social structures.

    Unfortunetaly we are no fast learners.

    Pieter Wondergem

    • You are not wrong. But I would put it differently: Even if “it’s the economy stupid” the economy is more than a sum of well functioning markets and to assume that this is all there is to them one produces extremely dangerous economics and awful… anthropology.

  7. Mr.Varoufakis, you are dealing with the debt problem but the debt isn’t our real problem. Even if there was no debt at all, we ‘d still be running deficits each year which would have to be financed with new loans. Since the markets are effectively closed for us at the moment, there is only the EU-IMF support mechanism to count on for this.
    Europe is helping us by providing a cushion for the transition period in which we must get our house in order and stop running deficits and finally run a surplus someday (just for a change βρε αδερφέ).
    Where are your suggestions on how we could achieve this? What you are saying is that the rest of the eurozone should somehow accept that the euro and their banking system are at risk (I think they already know this) and that they should focus on the big picture by starting something like a new Marshall Plan. Right, where does that leave us? Does it mean that we wouldn’t still have deficits if only this new plan (a new source of easy loans) came into effect?

    Mr. Varoufakis, when King Ptolemy asked Euclid for an easy way to learn geometry Euclid’s reply was: “There is no royal road to geometry”. There is no royal road to solvency either. Cuts have to be made, the state sector must be reduced, despite these measures worsening recession in the short term (but that’s the reason why they should have been done in the growth years, it is not an excuse for not doing them even now). The tax system must be reorganised, ask the Germans for help, don’t ask them only for loans. All these structural reforms must be done, there is no other way round.
    Even if the debt issue is going to be negotiated with our main creditors, France and Germany, we must first prove ourselves worthy of any concessions to be made by reshaping our government and economy on a sustainable level. They want to help us, but if we can’t first help ourselves what’s the point?
    So, instead of proposals on how Europe should handle the credit crisis, please do try and make suggestions on how Greece can become a surplus country capable of standing on her own feet again. Thanks.

    • Sadly, you are wrong. And when I say ‘sadly’ I mean it deeply and genuinely. For I would like nothing more than for you to be right and for my musings to be wrong. No one wants to admit that their fate is not in their hands. But, I am afraid, in this instance it is simply utterly impossible for us the Greek state to eliminate its deficit however severely it cuts government expenditure. See my comments to Yiannis Louis below.

    • Petro
      Unfortunately, we are keep reproducing parroting German’s and IMF nonsense…I suggest to start thinking in a totally different way than the ”royal” obsolete neoclassical blubbering orders…I briefly mention here some of your suggestions’ logical gaps.

      1)No such debt could accrued if we were a surplus country so your ”even if there was no debt” assumption is non valid. A deficit country somehow should find the way to service it and loans are inevitably the number one option for that. Moreover, following your thinking, the alleged restructure of greek economy need investments, that means money and therefore loans to be taken again.

      2) The cushion of course is there but we are sleeping supinely and the only thing is doing is to stop us breathing normally…How can we become a surplus country when the greater part of the new loans go to the repayment of the old ones? No money for investment again…

      3) Stop looking Greece as a sovereign nation at last…The new Marshal plan will give to the so-called periphery countries a lot of money to rebuild and modernise their infrastructures as well as an opportunity to reorginise their health and educational system. The comparative advantage of greek economy, if we are interested for that, is renewable energy…So the Marshal Plan does give the impetus to all countries to become ”efficient” (don’t like this word) and more productive (hate this one again). The issue here is for the EU to become a surplus Union and not it’s member states separately so…

      4) Sorry but economy and society is just no geometry. Your parallelism is unfortunate. To my knowledge, There are no residuals and disturbances in geometry…Actually I am not an expert on that but I (sort of) remember that even in geometry more than one solutions could stand as equally valid. Anyway, cuts and reduced public sector mean a slump in the aggregate demand which than means a continuous fall of the GDP, which in turn means a deeper recession, lack of incentives for investments, rise of unemployment which will threaten social cohesion but will even decrease public revenues as unemployment benefits (if still there) should be given to more people who will also opt-out from health care and pension funds. There are other repercussions automatically taken place but I think all aforementioned make my point clear.

      5) We have to start thinking as belonging to a greater European community which indeed currently is a fictional one but sovereign states (as again fictionally shaped or better invented emerging out of diplomatic trade-offs after WWII) have no future nowadays. Such help by unbearable loans mathematically throw us to the nether and in due course those you say that presently want to help us will soon come to keep us company for good! Then I am not sure who will find solace to whom…

  8. Dear Johann von Rouf,
    Your comments about a supra Greek crisis do not acknowledge adequately that the Greek government cannot have an income of 10 and expenses of 20 forever. We can play the game of chicken with our creditors for a long time, but that really does not help our situation in the long term. Meanwhile, all this focus on the government debt and how to rationalize it has left Greece’s productive economy out in the rain.
    Economists may be good with smoke and mirrors, but at least some of the time some of the people have to produce things with some added value for a real economy to subsist.
    Yiannis Louis
    on behalf of hard working Greeks beleaguered in its real economy

    • Dear YL, the Greek state will have to eliminate its deficits one way or another. My point has always been that the current mix of expensive loans and austerity ensures that the deficits will remain. The reason: During a recession, and while new debts are piling up, however much you cut government expenditure the tax take will fall pro rata, thus leaving the budget in chronic deficit and the debt to GDP ratio on an explosive path. Thus, the Modest Proposal is all about ensuring that (a) the banks stop sucking the life out of the European economy (thus wasting the bailout funds), (b) the debt ratio is stabilised, and (c) investment takes off again (courtesy of the EIB). Once (a), (b) and (c) are in place then it becomes possible for the Greek state to stop spending more than it earns in tax revenues.

  9. Pingback: Buying Time on Greek Debt « Decisions, Decisions, Decisions

  10. Yianni,
    As you see they agree with you, it is a EU crisis.
    “German and French Execs Campaign for Euro”
    The German financial daily Handelsblatt reported on Friday that the heads of around 70 major German and French companies are seeking to break the European impasse on a Greek bailout with large newspaper aids across Europe next week promoting greater solidarity in Europe. The list of signatories reads like a Who’s Who of the Franco-German business elite. On the German side, it includes Daimler boss Dieter Zetsche, Peter Löscher of Siemens, René Obermann of Deutsche Telekom, electricity utility E.On chief Johannes Teyssen as well as BMW head Norbert Reithofer and Deutsche Post head Frank Appel.
    The French executives include the heads of aerospace giant EADS, oil company Total, carmaker Renault and energy utility EdF. The German and French executives who have signed the statement are responsible for more than 5 million employees and revenues of a total of more than €1.5 trillion.
    “A collapse of the euro would be a disastrous step backward for Europe,” the ad reads, noting that the international competitiveness of European companies has risen considerably since the introduction of the euro.

  11. Yianni,
    As you see they agree with you, it is a EU crisis.
    “German and French Execs Campaign for Euro”
    Yianni,
    As you see they agree with you, it is a EU crisis.
    “German and French Execs Campaign for Euro”
    The German financial daily Handelsblatt reported on Friday that the heads of around 70 major German and French companies are seeking to break the European impasse on a Greek bailout with large newspaper aids across Europe next week promoting greater solidarity in Europe. The list of signatories reads like a Who’s Who of the Franco-German business elite. On the German side, it includes Daimler boss Dieter Zetsche, Peter Löscher of Siemens, René Obermann of Deutsche Telekom, electricity utility E.On chief Johannes Teyssen as well as BMW head Norbert Reithofer and Deutsche Post head Frank Appel.
    The French executives include the heads of aerospace giant EADS, oil company Total, carmaker Renault and energy utility EdF. The German and French executives who have signed the statement are responsible for more than 5 million employees and revenues of a total of more than €1.5 trillion.
    “A collapse of the euro would be a disastrous step backward for Europe,” the ad reads, noting that the international competitiveness of European companies has risen considerably since the introduction of the euro.

  12. Dear Yianni

    Personally, I really admire your strength for going ”out there”, (many will say everywhere as some of my friends and colleagues but this is another issue) arguing with hardiness on the Euro crises which has put everybody in the grinder and threatens economy’s sustainability thus social cohesion and finally our physical and mental well-being. I also reckon, though sentimentally dislike, that nowadays even ideas need to be, first of all, properly marketised with the least ideological tinge implied in order to be widely spread to the general public. I am also following your job when possible, struggling to figure out whether is a blessing or a curse to belong amongst that dreadful guild of economists. All I could literally say is that your straight-shooting and plain-dealing with several economic issues, always make me reconsider my constant fear that modern economics have, from long time ago, deserted society and lost any linkage with ”human nature”. I do agree with the ”modest proposal” and I am trying to reproduce it whenever and wherever I can, giving all the references needed of course:) .

    But I am always getting that bizzare feedback that even if a proposal like this does makes sense, does find applications to the reality and can possibly ameliorate EU terrible predicament and thus our everyday life, it is impossible to be implemented because it ”change things”!!! I am really staying aghast with people who believe that any change is no longer possible and no action can be made from below to push things in a different direction. Most of them do not even want to change their office’s furniture arrangement! They all have the feeling that no change can be made for making any effort for an improvement! Well, how difficult is for someone not belonging to the ‘’peak of wolves’’ (I love wolves as long as they have four legs) to understand that we are currently driving, light-heartedly whistling, along ‘’the road to hell’’?

    We are living in a world where humans do all they can to get rid of their nature. We are attacking our own cells like an autoimmune disease and I think that as species we tend to become more the ”disease” than the actual combination of organs ”proxied” by our ”residual” soul. Obviously, diseases have no soul and that is why they don’t have any ethical considerations. Nothing seems immoral or unethical and everything that the human mind strove to establish from the first day of our existence, is now being continuously outweighed by a social construction, (of a pretty minor importance and of an administrative purpose when first suggested and established) named as a bank note. No one could ever think about that time that this construction would be totally distorted and reversed into a malicious autoimmune disease inside the human mind.

    We are destroying our nature and we are creating monsters with brains full of information but no analytical thinking, full of specialization but no diachronic classical knowledge, full of labour market oriented competences but no talent driven ones, full of uncreative but special utilized human units of production, full of potentially miserable human-like creatures which will be thrown cynically in the bin when the information, specializations and competences they anytime hold will inevitably become obsolete and out-of-date. We are doing what Haim Ginnot (whose maxim I found pinned on the notice board outside your office while waiting for a meeting with you) were pleadingly requesting from a peace-living society, to avoid like a deadly plague…

    Fast food, education, information, communication…generation…Fast but fat, Fast but educated flat, gaining information but no actual knowledge, communicating virtually and generating the new homo-autoimmunus.

    Really sorry for that confession-like post, but I feel that we had enough with all that business – oriented econocentrism and econoscientism around us which not only tediously asks for a constant disprove that we are not elephants but also pledges that we are definitely so and that any effort from our part to disprove it again in the future will be banned.

    Great congratulations for this excellent and intuitive blogspot.

    ‘‘And all the roads jam up with credit
    And there’s nothing you can do
    It’s all just bits of paper
    Flying away from you
    Look out world take a good look
    What comes down here
    You must learn this lesson fast
    And learn it well
    This ain’t no upwardly mobile freeway
    Oh no, this is the road to Hell’’

    Chris Rea final strophe of the ‘’This is the road to hell’’ song.

  13. Wake-up and smell the coffee.

    This is all about market manipulation.

    In January 2009 Greek sovereign debt had a triple-A rating when at least one of the major dealers in the secondary bond market, Goldman Sachs, had been working privately with the Karamanlis government to hide the enormous volume of the Greek deficit from external scrutiny.

    http://www.youtube.com/watch?v=cOp9dXZnLDY

    In other words, the dealers, the managers of the market knew the story all along. What changed?

    THE CONFIDENCE AND THE ILLUSION

    Greece could never pay it back and the dealers in the market always knew it but now the kitty-kitty is out of the bag

    Goldman Sachs is in deep trouble:

    They organized the swap that enabled Greece to enter the euro zone (and pocketing $300 million in the process) while at the same time advising their clients to position themselves in favour of a Greek default

    Does this ring any bells?

    http://en.wikipedia.org/wiki/Rothschild_family

    http://en.wikipedia.org/wiki/Goldman_Sachs#Greece_and_European_sovereign_debt_crisis

    http://ftalphaville.ft.com/blog/2011/01/19/463176/weirdo-greek-debt-restructuring/

  14. Please forgive me for this comment ,for it may not be appropriate to publish here ,but i need someone to clarify some things.
    Terms like monetary soveregnty and monetary non-sovereignty ,that are cornerstone terms of the designed systems of today. At least i think they are.

    http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

    Is it not true that the basic procedures of the already existing systems can be adjusted slightly for prosperity?

    If personal finance and national finance are different things why monetary sovereign Nations like the US ,are putting money in the system through the bying of debt from themselves ,so that the deficit increases. Why don’t they just pass the money to the banks without the banks “lose” the money and so the money finds the way to creative endeavours by businesses?

    Manipulation of money flow through so called investments of the big heads.
    And when a crisis unfolds the little people have to pay (taxes etc.) while the federal debt is not their debt. It doesn’t even need to be debt and deficit. Just a buffer zone of newly created “energy”.
    For monetary sovereign Nations these words take a completely different meaning.

    If the above are true ,then what would be the problem of Nations like Germany when they become monetarily sovereign again? It seems to me nothing. Only in the beggining.

    And what happens now is delaying ,so certain banks do not lose money. And that happens not because it must ,but because such is the perception of economy. There is no science. All an illusion.

    We may have limited Natural freedom because of the physical laws ,so that our being is possible ,
    but when people create a system ,except the natural laws’ limitations and problems (physical disasters etc) ,they control the flow of energy (meaning ,relations) between cornerstone terms of the system.

    Playing with words is like a legal loophole to free a criminal.
    It is not the words that need changing (except if we want to) ,it is the use of the words and the actions caused by them.
    The flow of the meaning from their mouth to your ears ,the meaning of a word that might not really apply or need not apply in a specific situation. It depends on the agenda.

    If you understand the way economy works ,but also understand the sentimental impact of the expressions used ,when these are opposite of what they should be ,according to an accepted meaning of a word as a base of the design of the system ,then you know they play with you. It is like social reverse engineering.
    Economics and politics are social engineering and situation generators. And what is the main tool of social engineering? Words.

    Some say i “over-relate”. Well i am not an expert. I just collect perspectives and what i thing i have understood is that logic is in the eye of the beholder and that habits of the mass (even if people understand what is going on) are a great deception tool.

    Please tell me if you consider all of the above BS ,because my “conspiracy” nerve is pulsating too much lately.

    Thanks

  15. Only a remark not exactly related to this post. In the morning I read a post from Steve Randy Waldman how Greece can default and NOT default. Me thinks this is a very good idea and everybody except bankers will like it. For an interim solution until we’ve found some new enlightened European leaders this might work.

  16. Hi Yanni,
    I believe that in your various discussions with the public media a clear distinction on the question “who’s crisis is this?” needs to be made.
    You keep repeating that this is not a “Greek crisis” but rather “a European crisis”. I think few people will disagree that this is a crisis of both.

    Firstly it started as a Greek crisis because Greece alone and before anybody else, got itself into a big hole of unsustainable debt.
    Secondly it became a European crisis because the Eurozone does not have mechanisms designed in place to handle insolvent Eurozone states.
    In your public statements, it is clear that you have chosen to focus on the second part alone which I think it is perfectly understandable since you are an economist.

    But when asked a generic question similar to “Who’s crisis is this?”, I believe by choosing to throw the spotlight onto the second part alone will undoubtedly create a number of fallacious arguments if your debate partners choose to focus on the first part instead , assuming that you may be dodging consciously the elements of the Greek nature of the crisis.

  17. Let’s KISS it – (Keep It Simple Stupid).

    Greece needs 2-3 years of financing its debt at 2%. It can then repay all of its debts and put its economy back on a growth path.

    End of story.

    • This would sure help alot.
      And it would not cost anything besides some superprofits off the Greek debt poker game.
      But Greece still has to address governance, productitivity, labor, fiscal and budget issues.
      Even 2% can get expensive if it keeps piling up and is never paid down.
      But what you say is a no-brainer.
      Just KISS it!

  18. Greece should not be left to bear the cost of globalization alone

    1. The country is literally bankrupt

    2. Uncertainty is growing by the day on who will be called to pick-up the bill of the maturing bonds in early July

    3. Events of June 15th have clearly demonstrated that the Greek people do not want a second bail-out/loan

    All players involved in the creation of this global crisis must now find a way to co-operate in order to solve it

    The problem is political:

    The current economic crisis of Europe and the United States is inextricably tied to the greater geopolitical issues surrounding the United States desire to maintain it’s colonial presence in the Middle East at any price, the Palestine – Israel rift, the Turco-Cypriot conflict and Russia’s desire for hegemony in the Eastern Aegean.

    These issues must now be addressed simultaneously.

    The current Greek government must go immediately as it can not be lead by the discredited Papandreou.

    Greece needs a government of national unity.

    That new government needs a mandate from an immediate referendum on the second bail-out proposal.

  19. All this reminds me of the Brezhnev era. A set of doctrines that is impossible to penetrate whatever one says. I’ ve already seen the Pravdas of the Greek press opening a propaganda campaign against you.
    The next step of course is disintegration, unless…

  20. The discussion in the german public is indeed full of misunderstandings. A lot of people do not understand, what consequences it would have, if the euro fails or if greece is not bailed out.

    But I still have hope, that the silent majority understands how high the stakes are.

    Marcus Gatzke

    • Marcus, what are the stakes? Do you believe this mediahype from left wing media and the EU comission?

      Option 1 ist to start an endless bailout mechanism. Option 2 is to risk a recession. Anyone with some responsibility would take option 2. At least with a own currency (in a Northern country) you can control things. With a transfer union you are fully at the mery of reckless southern spenders who have no history of fiscal responsibility.

      Look at the examples outside Euroland: A) non EU: Norway, Switzerland, Lichtenstein
      B) within EU: Denmark, Sweden, Poland

      They are all doing just fine. Let the Club Med (incl. the socialist French and their Maoist friend Barroso) have this failed experiment currency called “the Euro”. Then the French could be the leaders, which would make them really happy. The central bank would be run by politics and my vacation in these countries would get cheaper every year as it was in the old times.

      Look at the “value” of “the EURO” against a real hard currency:

      https://charts.comdirect.de/charts/big.chart?WIDTH=417&HEIGHT=443&TYPE=CONNECTLINE&TIME_SPAN=3M&TO=1308321811&AXIS_SCALE=lin&DATA_SCALE=abs&LNOTATIONS=15204143&LCOLORS=000000&IND0=VOLUME&AVGTYPE=simple&WITH_EARNINGS=1&SHOWHL=1

      Trust me, if Merkel signs more bailouts, the next election results will look like in Finland and Holland.

  21. Dear Yannis,
    You are focusing on the technical aspects (and by all means you are spot on with your proposal), but you are consistently missing the most essential ingredient. That is the political background needed for these solutions – measures you are proposing. You are missing the need for a European Finance Ministry (allow me the title), a central bank overpowering state banks and of course a supervision of this central bank by the European ministry. States around Europe (from Malta to Germany) are not accepting this path right now. People are not ready to indulge such radical measures, and give up part of their independence (which of course led us here partly). Politicians are leaders who follow public demand mostly. Unfortunately Europe nowadays is missing leaders who could inspire people to move on at an extremely fast pace towards this kind of union. So… the bottom line is: Eurozone happened at the wrong time and was applied in an un-natural way. It is time to pay I think. I really hope that some leaders will stand out and present the obvious, which is a real European Union (with all the sideffects like eurobonds etc. that you are proposing). But till then, I am not convinced that anything will take Greece and Euro away from the “end of story” path that they are on now.

    I think it is time to start analysing the European and Greek reality after the melt down that is likely to happen. Unfortunately, once more, the unthinkable (a year ago) looks very likely to happen right now. So we should start thinking about this possibility as well.

    Thank you!

  22. Dear Yanis,

    thanks for your entertaining post! You can find here an article from Spiegel, where an EU official summarizes the current state of affairs as “We are buying time, because we don’t know what to do”. And Speigel comments that “This phrase reveals the muddled situation in its full glory.”

    I think the rating agencies threatening to downgrade French/German/… banks holding Greek bonds is actually helpful.

    best, KP

  23. Let’s assume that the 60 % GDP of the Greek debt is transfered to somebody else. Would that really solve the problem? As far as I know the current debt will soon approach 140% of the GDP and the annual deficit is likely to stay in the order of at least 5% for the next years. Even if Greeks debt is reduced to about 80% I would assume that it will get hard to find investors to finance the persisting annual deficit. Keeping in mind that your proposal still requires that Greek still pays a modest interest rate for the 60% GDP debt, I dont see how the annual deficit can be significantly reduced.

  24. Morning, :-(

    honestly? After going thorough c couple of pages German commentary on your article in DIE ZEIT, I had to stop reading more of it, this is a bit too much for my first coffee, the milk turns sour.

    I am left with a feeling of deep embarrassment. I mean this is not the ‘hatred-views-and-sex-sells-best’ BILDZEITUNG.

    Clearly, what we can observe in such comments is the level of deliberately miseducated views that are trumpeted in an inappropriate and aggressive manner.

    It saddens me deeply to think what lays beneath this thin and fragile crust of consensus that makes up the European idea. I know it since long time, and the numbers speak a clear picture.

    Reading the idiotic, hateful and utterly misinformed comments, Adorno comes to mind, and perhaps it is a good time to read Adorno again!

    Freedom would be not to choose between black and white but to abjure such prescribed choices – Theodor Wiesengrund von Adorno –

    Hope you don’t speak German Yanis.

    • You guys don´t get it. I will repeat myself: My personal share of debt guarantees that the German government has signed for the bailouts (IE, PT & GR) is around EUR 70.000. I calculated this based on total debt guarantee amount Germany x my taxes / total German tax revenue.

      Germany would be much better off playing a role in the EU like the UK. The argument that if Germany and Greece would have different currencies there would be huge unemployment is pure blackmail and on top of that based on wrong assumptions. Do you see mass unemployment in Switzerland? No.

      If you look at exported German goods you have to understand that there is a huge imported content e.g. around 2/3 for machine building. So the 2/3 has no cost disadvantage maybe even cost advantage after currency appreciation. The remaining 1/3 has different cost elements. Labor will have a cost disadvantage but cost of capital has a cost advantage due to decreased interest rates.

      I understand that politicians do not get it. I do not understand that economists do not get it. Proposals that fhere is a price to be paid for successful countries are insane. If we set the targets to the level of the weak countreis (like France), Europe will lose against China etc. It is bad enough to read ho much is invested in Europe in agriculture and how much in education. OK, the education numbers do not include all the untaxed money that Greeks use to send their kids to top american universities.

    • I think you are not getting it Knut. It is, of course, Germany’s right and priivilege to play a role similar to that of the UK; to exit the euro (perhaps taking Holland, Austria and Finland along) and go its own separate way within the EU. I do not contest this. My point (which each and every German colleague of mine understands well) is that such a move would trigger a recession caused by the revaluation of Germany’s new currency. Why is a blackmail? Is a prognosis of wide ranging climate change of form of blackmail practised by cilmate scientists? Anyhow, if Germans disagree with my prognosis, that’s fine: Exit the euro and go on your merry way.

  25. The single flaw in your argument, (most of which I agree with), is the suggestion that:

    “Finally, we need a new pan-European investment spree (via the European Investment Bank). Then and only then will the ‘Greek’ problem be reduced to an order of magnitude in concert with my country’s actual size”

    I have no problem with the idea of such investment; but the European Investment Bank has neither the funds available; nor any form of track record that will lead towards an expectation of success.

    European banking institutions are a significant part of the overall problem. They have a very clear track record of targeting investment at the major corporate players already on the ground. They have no track record of long term investment into new business. Take a look at all the collaborative programs in the various technologies. They all require the input of existing major players.

    Europe has no track record of long term investment into new, small, especially free enterprise companies. NONE!

    The central European Union is driven by a bureaucracy that shows no understanding of the free innovative spirit that creates new prosperity. That was why they stood back and did nothing while their banking system created the problems we face today. They simply do not believe in the power of the individual inventor, innovator, to create new industry.

    Again, banks deliver working capital as loans, not the equity capital anyone creating new companies need to construct the financial structure of the new business from the outset. That is why they always require an existing company to work with. They simply do not understand the creative process of job creation at the grass roots of their nations.

    It has taken me nearly twenty years to get that message across here in the UK. There is no sign whatsoever, that the European Central Bank has got the message.

  26. I saw you on al-jazeera the other night and not only did the presenter cut you off, he really didn’t understand what you were saying. He couldn’t grasp the fact that this is a european problem which is revealing itself in Greece (and Ireland), rather than a Greek problem which is ‘the cause’ of problems for Europe. As you said, the structural problems of the Greek and Irish economies mean that they’re the canaries in the coal mine but the point was lost on the presenter.

    • It is not a European problem. Norway and Switzerland are just doing fine.

    • Even if we take that for granted, however, it doesn’t change the fact of existing structural problems in the Greek and Irish economies. If these are not addressed from the get-go, what, precisely, are Yannis’ suggestions going to achieve? The debt will likely quickly be again where it is now. And then? Just repeat the whole process until Eurobonds are relegated to junk value as well? That can hardly be the solution. Yes, the bank sector urgently needs to be reformed and yes, precious time was wasted on that – but any such process will take years to reach an agreement and implement it – plus possibly more years where the whole packages is hauled through various courts on local and European levels. It might be wrong to consider this at its heart a liquidity problem, but the liquidity problem is an existing symptom. It’s one thing to discuss what fundamentally would have been necessary to avert the problem and what should fundamentally be done, but that doesn’t necessarily solve the short-term problems. We need as much quick fixes as we need a thorough, fundamental work-up.

    • Dear tyelko, You are absolutely right. If our Modest Proposal is adopted, nothing guarantees that Greece will not remain a basketcase. In this sense, we think of it as a necessary but insufficient condition for the survival of the eurozone and of Greece. What would bind our government to a path of reform that would suffice? How about a provision of balanced budgets that is policed by the European Commission through having the budget approved in Brussels or even by the European Parliament (not just for Greece of course but for every member state)? For if the ECB takes care of the (common) debt and the EIB takes care of investment, then I see no reason why member states should be allowed to have deficits.

    • Dear Yannis, that’s a provision that would have to go through all parliaments in the countries of the Eurozone – some of which consider it the highest and most important right and prerogative of parliament in their nation to approve their nation’s budget – it’s not going to fly. The chance that this is going through any time soon is nil. Besides, given the “popularity” of the measures suggested by Brussels in Greece or Spain at the moment, how likely is it that the public there would allow such a solution to begin with? And what are the Commission or the EP going to do if one or the other county doesn’t adhere? Right at the moment, we already have the nonsensical penalty of monetary fines to pay if a country doesn’t adhere to the SGP criteria – which isn’ really going to decrease a country’s debt. The only way for what you suggest now to become reality would be in the course of a full federalization of the Eurozone – which isn’t going to happen any time soon.

      In any case, you’re still talking medium to long term while the short-term liquidity problem also needs to be addressed. It’s one thing to transfer investment for recovery to the EIB, but “investment” for day-to-day work of the government and all public institutions is still necessary.

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