The Wicked Game

How Greece is being beaten into a pulp to force Europe’s banks to accept capital while keeping Italy et al in awe. 

Reliable sources tell me that the troika has drawn a surprising line on the sand: Either the Greek government agrees to force upon the private sector trades unions an immediate reduction in minimum wages with immediate effect (plus the dismantling of all awards regarding dismissal compensation and limitations), or the next instalment (or tranche) of EU-IMF-ECB loans to Greece will be withheld. Noting that even Mrs Thatcher took years before she could impose her iron will on the trades unions, it is clear that the troika is asking the Greek government to commit to a change that it may be both unwilling and unable to effect. If this is true, two questions arise:

QUESTION 1: Why do the representatives of the Greek state’s creditors gamble the progress of their loan agreement with the government of the day on an immediate diminution of wages and awards that concern the private sector? While the IMF has had a long held fixation with low-er wages (and has never left an opportunity to dismantle collective bargaining agreements unexploited), it is curious that the troika seems prepared to risk derailing an already hugely expensive Greek bail-out for the sake of such an ideological project. Granted that that the troika may think of the present moment as its golden opportunity to beat a demoralised Greek government into total submission (especially given that no Greek state bonds will mature until well into December), a question remains about the troika’s choice of target: Why aim at the already pitifully low private sector wages when there are so many larger fish to fry elsewhere within the Greek state (e.g. public procurements, pharmaceutical bills, fee-free Universities etc.)?

QUESTION 2: The second question concerns the troika’s very thinking: Can they really believe that a wage reduction for the lowest paid European workers (who are vying for this ‘honour’ with their Portuguese counterparts) will, in the midst of a rampant recession, help boost private sector economic activity? Do they seriously think that entrepreneurs will seize upon such a wage reduction to invest in the Greek economy handsomely enough to generate a modicum of growth? As I am loathe to impute inanity on other parties, I shall assume that they cannot possibly believe this. I shall, therefore, give the troika the benefit of the doubt and presume that they, too, understand that a further reduction in private sector minimum wages will (at a time of falling public sector wages and employment) lead to a further, reduction in aggregate demand which will, undoubtedly, maintain (if not accelerate) the current rate at which Greek national income shrinks and, naturally, generate lower future taxes, thus giving the remorseless wheel of recession another twirl.

If my assumptions above are correct, what on earth is the troika doing? Here is a scenario that I think captures nicely, in all its horror that is, much of what is going on at the moment. Three are the main protagonists in my scenario: (1) European bankers (mainly French and German), (2) the German government, and (3) the NYF member-states, where NYF stands for ‘not yet fallen’ (which includes mainly Italy but also Spain and perhaps Belgium). Having established who the players are, it is important to define their objectives and constraints.

BANKERS: The bankers know well that their banks are bankrupt. They have known it for some time  but have been hoping that the European Central Bank, together with their national governments (made up of politicians who truly value their cosy relation with the bankers), would keep their banks afloat and themselves in control of their banks. Unlike most businessmen/women who labour under the fear of bankruptcy, bankers face a different nightmare (since bankruptcy in fact increases their command of the surpluses produced by others, courtesy of the politicians’ infinite generosity with the taxpayers’ and the ECB’s money): Forced recapitalisation, is their worst-case scenario – of the sort that the American government introduced in conjunction with TARP (the trouble assets relief program). They fear a Euro-Tarp (of the type that we proposed in our Modest Proposal a year ago – see Policy 2) for the simple reason that recapitalisation of ‘their’ banks means that the bankers will lose the part of equity which has hitherto delivered to them control over the banks.

NYF member-states: Waiting on the sidelines, unable to utter a world (in case loose talk brings them greater disasters than their current situation), they are holding their breath hoping against hope for some decision from Berlin that might get them off the hook. With the bond markets treating them like the new pariahs, Italy, Spain and Belgium find themselves in a tight corner. They are damned if their do not adopt swinging cuts (since ‘inaction’ will be perceived as fresh evidence that their spreads will rise) and they are damned if they do (since austerity will further erode their nations’ anaemic growth; a development which will also push up interest rates). Deep down, their remaining hope revolves around some scheme that will see their sovereign debt come down in size, if not via a haircut then at least by means of a reduction of the interest payments due in the coming decade.

GERMAN GOVERNMENT: Berlin’s main concern is how to manage this crisis by means of minimal European integration. It disdains the idea of any type of continental consolidation which threatens the Principle of Perfectly Separable Debts (PPSDs, as I call it). After a long eighteen months during which Germany’s political elite struggled to remain in denial of the systemic nature of this Crisis, Mrs Merkel now seems resigned to the idea that the banking sector of Northern Europe (including of course Germany’s) is in tatters and in urgent need to capital infusions. German politicians seem to have grasped the importance of the fact that the liabilities of the eurozone’s banks is more than 300% the eurozone’s aggregate GDP (Nb. the relevant ratio in the United States, in 2008, was ‘only’ 200%). After a lot of huffing and puffing, Mrs Merkel and Mr Schaeuble have accepted the inevitable: About one trillion notional euros must be set aside for the banks. While they have not swallowed, as yet, that this must be done at the central EU level (as opposed to a government by government level), they are getting there, kicking and screaming of course. Two are sticking points for Germany: It does not want to refloat the banks (for the second time in three years) and have to pay Greece the money that Greece owes to the banks. In short, a Greek default is a political prerequisite for what is becoming a serial bailout of the Franco-German banks. The second sticking point is Italy and, more generally, the NFY member-states: Germany fears that if the NFY member-states see that Greece is allowed to diminish its debt mountain through a default that still allows it to remain within the eurozone, they may get ideas that a similar solution may be in the offing for them.

THE EMERGING STRATEGY: Germany knows that the banks will resist recapitalisation as long as Greece is being kept afloat by the troika. To gain leverage over the recalcitrant bankers, Berlin must push them over the edge with a Greek default. But, at the same time, to stop Italy and the remaining NFY member-states from getting dangerous ideas in their head, Mrs Merkel is determined to make an example of the one member-state that is allowed to default: Greece. It is for his purpose, and for reasons that have nothing whatsoever to do with Greece itself (its economy, its much needed structural change etc.) that the troika has embarked on a mission to make Greece so wretched, so poor and so unattractive that its default will give Berlin the bargaining power it needs with Northern European bankers while, at the same time, making it abundantly clear to the NFY member-states that they really do not want to even think of default as a way out of their debt crisis.

THE CATCH: This strategy might have worked if the Crisis were additive, quasi-linear and static; if it were possible, in simpler words, to use plain arithmetic to add Greece’s debts with other bad assets inside the banks’ books, then to juxtapose this sum against the (possibly leveraged) funds that the EFSF can throw at the banks, and so on… until this most peculiar Crisis Accounting yielded Germany’s optimal strategy. Unfortunately for all of us, no capital ‘c’ Crisis is  additive and quasi-linear. It is, rather, highly non-linear and violently dynamic. The attempt to ring-fence Greece will fail as surely as it did last year. Last year, in May 2010, the very creation of the EFSF was meant to ring-fence Greece on the basis of a linear, static logic. Unremarkably, it failed. Now, the great idea that Mrs Merkel seems to have accepted is to try again by turbo-charging the toxic EFSF (e.g. by using ECB leverage to turn its €440 billion into more than €1 trillion). What this stratagem is ignoring is that the problem with the EFSF type of approach (based as it is on the assumption that each country’s woes ought to be dealt with separately/sequentially – as opposed to at once, systemically) is not the size of the EFSF but its structure and logic. That by turbo-charging a toxic creation you get a monster.

In short, the plan seems to be to let Greece default in a big way, so as to scare the bankers into accepting new capital, while, at once, grinding the Greek social economy into a pulp to keep Italy and the rest of the NFY member-states in awe and keen to do as they are told. Our collective tragedy is that this plan, like all the others before it, will not work. Why? Because, like all the previous plans, it does not address the eurozone’s systemic Crisis systematically. Because, once again, the powers that be choose to ignore the interconnections between: (a) the banking sector’s insolvencies, (b) the lack of fiscal shock absorbers in case there is a run on the bonds of one or more member-states, and (c) the absence of a decent surplus recycling mechanism that directs surplus into deficit regions in the form of productive investments. As long as this form of  European denial remains, Greece’s reduction to a pile of ashes will only lead Mrs Merkel to a Pyrrhic victory over the banks. 

129 thoughts on “The Wicked Game

  1. I sometimes giggle when people debate, in all earnestness, how the snaggermonster would look better if the spots were rearranged!
    None of this money is real.
    The writer assumes their is no will behind what is happening, that it’s all an accident.
    This tortuous road to the collapse of Greece presages the collapse of that dream we are taught to call money, which largely exists only in the computers of those that control this mirage.
    When money vanishes, this year, chaos will ensue from the ashes of which will emerge a new, darker, world order.
    Once you wake up to this realisation, all becomes clear.

  2. Pingback: The Wicked Game « Griechen in Wien

  3. Pingback: Τι παίζεται; « Το μεγαλύτερο blog της πόλης

  4. An evil plan if ever there was one… I shoud have known better than to read this before bedtime. Only one question though. Are we sure that what the Troica is said to demand, is actually what the Troica demands?

    • Austerity is austerity, any which way you cut it or try to interpret it.

      Problem is that the overwhelming majority of people in the know says that austerity is precisely the wrong medicine. And that’s now a fact watching the Geek economy get sucked into the German engineered black hole that only economic amateurs could have conceived.

  5. Pingback: “Η μετατροπή της Ελλάδας σε ένα βάλτο κατοικούμενο από σκιές ανθρώπων” (Βαρουφάκης έφα, -δυστυχώς…) « Το Μώλυ

  6. Klaus:

    The video is in the “My Profile” section on the left hand side, where I describe my background and say “and here is my favorite video”(not the Favorites label at the top). Click on the hyperlink(this is the same section where I quote Heraclitus, show you a picture of Olympus and talk about an ancient computer – all on the left hand side). I made a mistake is saying right hand side. Forgive me:

    http://www.youtube.com/user/Athenaikos?feature=mhee

  7. why is it that people who think currency devaluation is just the thing also think that lowering wages will destroy an economy? If you think it might be politics, you are getting warm.

    germany and greece have the same exact exchange rate. why is germany competitive and greece isn’t? if you realize that those “abysmally low wages” in greece aren’t really that low, you are getting very, very warm.

    • “germany and greece have the same exact exchange rate. why is germany competitive and greece isn’t? ” Are you five years old? What’s the real benefit in reducing wages in a country that has no productive infrastructure whatsoever and minimum exports? If people gain less money the revenue of greek componies will be devastated. Greek banks have no money to invest in the greek economy. So in order to extract benefit from a wage reduction a foreighn bank/organisation must invest in GREEK companies in order to increase exports. In what century will the BIG EUROPEAN productive and agricalture corporations not only pass the oportunity to invest in a low wage, highly educated greek economy, but make room in international market for its new competitive corporations? The most likely is that they will just throw in a bone to sustain the greek economy while Greek people will suffer because all these years they were buying german products instead of greek

    • ““germany and greece have the same exact exchange rate. why is germany competitive and greece isn’t? ”

      Please read the McKinaey study (from the office in Athens). You will see that Greek labor became too expensive over the last 10 years. If Geek companies would be more efficient wages could stay the same. If not wages have togo down 20-30% or they will exit the market very simple.

  8. Pingback: Weekend Recap Reading (while Rome is burning). | The Trader

  9. This is truly terrifying analysis from Prof Varoufakis

    What is so frightening is the utter obscurantism and illogic of the public debate. No-one seems to be grasping and grappling with the magnitude of the crisis. To use a metaphor – I know Yanis likes metaphors! Watching the “progress” of the Euro-negotiations is like watching an ancient play being performed, in a dead language, full of stylised conventional gestures. You try hard to pay attention – because if the play makes no sense, surely it must be our fault, the audience, for not trying hard enough to understand. And then you suddenly realise that no, it’s not our fault: the actors themselves, the experts, do not have a clue what they’re saying either! They’re just stringing together a series of mantras. If we are not a truly engaged audience, if we no longer have faith that they’re acting _for us_, then: Who is the true audience? Is there someone else, some other area of the theatre, containing a different audience, to whom these mantras make sense – if not as coherent narrative, then at least as “laikismos” (excellent word – but IMHO it’s the troika who are indulging in this, not Yanis)?

    It’s very refreshing, in contrast, to read this blog and the quality of the debate below-the-line.

    There are fixed, dead, “givens” (mantras) in discussion of this crisis, which are very hard to unpack. One of these is that Greece only wants to TAKE, can only TAKE.

    Sometimes this theme comes out of its hole and shows itself clearly, in terms of racial stereotypes, which remind me of the characterisation of terrorists during the War on Terror: analysis from an assumption of rationality is brushed aside, in favour of an imputation of pure, irreducible, absolute forces, beyond the reach of rational debate, to which rational debate should not even be applied, because it can only lose: absolute evil, for the terrorists; absolute laziness and corruption, for the Greeks. And now absolute “will-to-power”, for the Germans, is popping up. (Nietzsche is spinning in his grave).

    At least when this theme reveals itself it can be dealt with. I believe it’s always there, underneath, and more dangerous for that. There was a revealing moment in your Sky interview (http://yanisvaroufakis.eu/2011/09/19/to-use-it-it-would-have-to-be-prepared-to-lose-it-why-germany-is-not-using-its-power-to-fix-the-euro/), when the interviewer veered towards implying that your analysis of the disastrous consequences of a Greek exit might originate from specifically Greek, self-interested brinkmanship, rather than hardheaded economic analysis. An ever-present risk, in this fossilised debate, simply because you are Greek. I thought you deflected this implication very well; but it occurred to me that you could have squashed it more thoroughly by emphasising a point that I think you’ve made on this blog: that even if the Modest Proposal was implemented, that would still leave Greece with enormous problems – specific to the Greek economy – to sort out. (Just with a better chance of being able to start addressing them).

    Another mantra – one we’re hearing a lot here in the UK – is this nonsense about “labour market flexibility” as a solution. What does this _mean_? Where is the rationality?

    “I shall, therefore, give the troika the benefit of the doubt and presume that they, too, understand that a further reduction in private sector minimum wages will (at a time of falling public sector wages and employment) lead to a further, reduction in aggregate demand which will, undoubtedly, maintain (if not accelerate) the current rate at which Greek national income shrinks and, naturally, generate lower future taxes, thus giving the remorseless wheel of recession another twirl.”

    Are you right to presume rationality? I really don’t know. I hope we can still believe in the rationality of the troika; but faith is fading. I have a horrible suspicion that you’re imputing too much rationality: that these obvious consequences of cutting wages (in GREECE, for God’s sake – it’s bad enough here in the UK!) are _not_ understood. That the troika is simply playing to a gallery, stroking the ears of a constituency who find these mantras soothing. That, imprisoned in this soothing music, the gallery are burying not just the suffering of Greek people or any people (as you suggest in your TrumanFactor interview), but also the long-term fate of the Greek economy, and even the European economy, as: _externalities_.

    The rationale behind “labour market flexibility” is utterly counterfactual. It assumes an actual free market in the essentials of living. The idea seems to be that labour costs can be cut, and that this will make itself possible through a reduction in demand for the essentials of living, and thus a fall in their price. This is simply not the case: as _whitenoise_ eloquently points out:

    “Now, you tell me how I can manage to stay alive or out of jail (let alone feed my family) and I will be happy to follow your suggestions.”

    I don’t know the details of living in Greece: but it sounds like the same situation (for different reasons, I’m sure) as here in the UK: we simply have no power to reduce our living costs beyond a certain point. Housing costs are enormous, and an established mantra of UK economic policy for decades prevents any adjustment according to demand: property prices, and rental returns, MUST stay high. Energy costs have risen 20%. Food prices are increasing. Transport has been captured by rent-seeking monopolies.

    I have a horrible feeling that there _is_ a crisis of legitimacy going on. The actors have lost the audience. The audience have lost faith in the actors. I really don’t want to re-read Carl Schmitt (“Legality and Legitimacy”) to try to understand this. That was about the Weimar constitution.

    • Sept:

      You got it right. Another point worth reinforcing is that the Merkel et al show is introducing deliberate terror in shaking down the Greeks.

      A recent der Spiegel article could not hide its disappointment in discovering an extra 1 Bil or so found in the Greek budget which extended the Greek lifeline until mid November(when in fact the Germans thought they had cornered the Greeks for a mid-October showdown). Instead of solidarity, the first reflex was the presumption of deception again. A tell-tell sign of the terror regime at work and the unmasking of a sinister and deliberate destruction of both the economy and the morale of the Greek people (this is in fact an act of war waged by the Germans and it will soon backfire in a big way).

  10. To Dean and Kastner

    I can not respond to what you have answered me .
    It requires studying and i need more time .
    Damn you Economists !!!

  11. To N. Kanellos

    First of all , i am not an economist . I am just trying to figure out what’s going on and how Greece can get out of this mess . I may be ideological predisposed but i am particularly interested in things i disagree .

    The reason i find Mr Varoufakis blog exceptionally interesting is that i can read many views i am not familiar with . (and to read his well supported views as well )

    By contributing to this blog , i put my arguments into test too . If i was thinking alone , i could have persuaded my self that i am right to everything , but i would also be ignorant .

    “It sounds to me like you’re recommending erecting a giant brick wall around the Greek economy. Is this what you are saying?”

    Of course i am saying to put restrictions around greek economy .
    Why is this so surprising ? You speak like this hasn’t happen before or like it was B.C time !

    I can not convey better than Mr Lapavitsa , the arguments to answer your question .

    http://www.guardian.co.uk/commentisfree/2011/sep/19/greece-must-default-and-quit-euro

    The disadvantages on greek economy staying inside eurozone overtake the advantages of greek economy staying inside eurozone ? What’s your answer to this question?

    Of course , i am fully aware that the answer of such question varies among greeks . There are greek people profiting by the financial environment of Eurozone . But when we talk about Greece , i believe we are talking about the majority of people, aren’t we?

    “By “denial of external debt” do you mean the entire 300-odd billion Euro’s. Or do you mean only the debt held by foreign institutions while continuing to honour the debt held by national debt held by Greek institutions? Wouldn’t that be a recipe for ensuring Greece’s pariah status for decades?”

    Yes , i mean what you say .
    Several countries have managed that in the past (including Greece) , with varying degrees of success . None of them was isolated for decades as you say. Countries are not like corporations .

    “Also, I’m quite curious what you mean by “management the debt of individuals by the state”. Please, can you clarify?”

    I mean write off of debts for people that can not pay their debts . Or part of debts considering their income . At present , a significant percentage of greek people can not repay their debts . What do you suggest ? Kill them and sell their organs? (By the way a disgraceful bill has passed turning every greek into a donor ,unless otherwise stated )

    I would personally prefer the implementation of modest proposal of Mr Varoufakis and have a hope that at the very last minute , something will change .

    At present , things are not looking good .

    A “realistic” person would plan to protect himself against a collapse of Eurozone and have a back up plan in case Mr Varoufakis modest proposal is implemented .

    Just a thought : If everyone is preparing for the worst possible scenario , doesn’t this mean that , everything is working as a driving force towards it?

    Greek Government has done NEITHER .
    Neither has supported Mr Varoufakis proposal for a viable Eurozone and an aversion of a post 1929 catastrophe
    Nor has protected its people from a collapse of Eurozone

    It’s a disgrace !

  12. I often wonder why we Greeks even deal with emotionally dysfunctional chimpanzees of Northern European origin.

    Our destiny is to spread humanity, warmth and happiness to those who love us and appreciate us, meaning the overwhelming majority of this world.

    • I think that Greeks do that “Untill the last moment…”

      Greek composer Yanni got this week the adoption of a panda from China for his harmonious music.He called the panda to his composition Santorini, because the Greek word irini means peace. Yanni is touring through Asia these weeks.

      Perhaps Merkel is also waiting untill the last moment she has to come with a solution and that moment may be still weeks away. The FDP has to held a referendum before the end of this year about the permanent EFSF to be established in 2013. The critical anti-euro members collected enough signatures for making this referendum among FDP-members necessary.
      Merkel is now trying to win time for that reason by saying that the crisis was not made in one week, so the solution can not be expected so quickly.

  13. Judging from some of the commentary below and just to make things simple.

    Every time you hear Greek banruptcy and haircuts, think of Germany leading Greece to this stairway:

    • Oh ,come on guys and gals. Love is All.
      Let’s not fight … before i have the advantage… ;p

  14. Ilia:

    You asked:

    “TO DEAN

    “What Germany wishes to achieve here is to minimize her exposure (which BTW is her only driving force) and engineer a massive transfer mechanism onto the backs of average Greek citizens.”

    Are you referring to debt haircut of 50% or more? Are you referring to a german drahma scenario ? We need education please . Please expand on that if possible .
    You are talking with riddles Dean ”

    Answer:

    Neither bankruptcy nor a haircut via PSI (Private Sector Involvement) is good for Greece or helps Greece in anyway. The only beneficiaries of Greek bankruptcy and haircuts will be the Germans. On such basis everytime you hear bankruptcy or haircut just vote it down because it is the wrong thing for Greece and needs to be opposed.

    This fellow below explains it pretty well why the 50% haircut is just a joke and its true effect on Greek debt and economy is next to nothing(only a 10-15 Billion net reduction vs. 360 Bil. of total debt). It only helps Merkel and her unbelievable nonsense, not Greece:

    http://news247.gr/oikonomia/sallas_ews_25_dis_eyrw_to_ofelos_apo_kourema_50.1410827.html

  15. There is no logical explanation of troika’s policy on wages, unless we accept Mr. Varoufakis analysis. Even a simple man, like me can understand that the result is an infernal cycle of recession and more recession. Unless there would be a kind of social contract, to de-inflate the Greek economy. But this solution demands a wider concensus of different interests in Greek society. And it is a political decision to proceed to it, not an economic one. Obviously Greek society is not mature enough to negotiate such a contract.

  16. Klaus:

    Regarding the US being a dumping ground of all the world’s exporters and an unsustainable consumption heaven, please go to my YouTube main page (click on the right hand lower corner where it says “my favorite video” and watch this excellent presentation by the MIT’s Dean of Business School):

    http://www.youtube.com/user/Athenaikos?feature=mhee

    Ilia:

    Yani has very methodically explained the answer to your question regarding the drachma in previous posts. In summary a return to the drachma at this stage would defeat the very purpose of doing so. If Greece’s debts where denominated in drachmas to begin with, it might make some sense. Since Greece’s debts are denominated in euros, a return to the drachma would simply double them or more (depending on the final settlement value of the new drachma vs. euro and other currencies).

    K:

    There is no use arguing at this point whether the euro is a good currency and who controls it. It is what it is. The question is how to deal with the sovereign debt issue affecting most EU countries and beyond. The US model says you inflate (in essence lowering the debt value). This is based on the US experience of the 30s where deflation ate away a good part of the US economy. The Germans on the other hand, having experienced runaway inflation in the period between the two WW can not deal with the concept of inflation and prefer deflation instead. I am sure there is a balance somewhere to provide an effective solution. Inflation is a fact of life whether the Austrian School of Economics accepts it or not. Today, the value of one American dollar at the start of the 20th century ($1 in the year 1900) is worth maybe about 3 cents. It’s a fact of life, so let’s get used to it. If you are concerned about of your purchasing power then get into gold (eventhough I wouldn’t recommend it at this particular point). The smart thing for you and others would have been to buy gold circa 2002 @ price of roughly $200/ounce and see it go to close to $1800/ounce recently.

    • Currency control is everything. Also, the US not only prints, but it recycles money amongst the states. States like California get less federal funding per tax dollar than states such as Alabama, or Mississippi. The EU does not have this feature – or rather – it now does, but as a reactionary measure to recapitalize banks.

      As for gold – I have seen this coming since 2007 – both for Europe and Wall Street. I have very good returns in gold in both Euros and Dollars. I have written about my views on gold on this site in the past. The global architecture of trade and finance has shattered. We will return to a gold standard eventually. Not that a gold standard is the best system, but in a world of scarce resources and runaway spending – gold will once again be used to settle international trade as the system reaches its termination. Central Banks have become net buyers of gold for a reason. The current fiat system designed hastily in 1971 is unravelling.

      We will also enter a period of global war for resources. For those that have noticed: the lines have been negotiated and fought over for the past ten years. It is far from over – there will be an endgame. Current proxy wars for resources will turn into actual confrontations between powers. We will be entering one of the darkest periods in human history. Societal, Political, and Economic complexity attained over the past century from essentially free energy (conventional oil) is now going through a simplification process. The Elites are fighting this process. The world will de-globalize, and re-regionalize. There will be no smooth transition.

      Long term – I do not worry for Greece that much. Next to Germany, Greece has the second largest coal reserves in Europe. It also has abundant sun for solar energy. It may even have petroleum and natural gas. Factories are easy to build – finding energy resources such as hydrocarbons and plentiful sunlight for solar can not be replicated. Good luck with that. Unlike factories – you either have energy, or you don’t. Greece also does not suffer from harsh winters – which are energy intensive to live through.

      The northern countries of Europe, and elsewhere in the world, only experienced an increase in civilization with the arrival of fossil fuels, at first, coal. Prior to that, survival was too harsh for them to engage in abstract hobbies such as arguing philosophy as the Ancient Greeks did in the warm Mediterranean sunlight.

      We speak of economics, and money – but these are mere abstractions. They are methods of settling trade and determining who consumes what and why. During a systemic breakdown of trade, such abstractions lose value. And what remains? Either your country has the capacity to feed itself, year round, or it doesn’t. Either your country has the ability to produce a large share of its own energy, or it doesn’t.

      That is the new world that is emerging. With the integration of India and China and other emerging countries in the consumption-based economy, we now have several more billion people to compete with for resources.

  17. Klaus K,

    Despite my criticism of Germany – I am in agreement with you regarding the balancing of trade within Europe. I in no way intend to offend the German people when I refer to the EU as the Fourth Reich. But let’s be honest – Germany has the EU’s steering wheel in its hands, and it is driving mostly to its own benefit. There is no other EU leadership that takes the EU’s interests 100% of the time. German Banks (and French Banks) also wield immense power.

    Greece was admitted to the EU as a surplus generating machine for the core countries. I find it hard to believe that Germany, or even France for that matter, wanted an industrialized Greece to compete with. All nations, to a degree have violated Maastricht in one way or another. It’s a farce.

    So what do we do? Unfortunately we either go the full federalization route, or we break apart. Those are the only options that remain – with all the intended and unintended circumstances that will follow.

    Surplus countries can not expect deficit countries to become surplus countries as well. It is mathematically impossible for all nations to have a trade surplus at the same time. A trade surplus, by definition, is someone else’s trade deficit. We have yet to come to grips with that basic mathematical truth.

    Furthermore – Germany was the sick man of Europe until it cheapened the Euro via the Frankfurt-based ECB (in the early 2000s) and exported a massive credit bubble to the periphery. The periphery lost productivity to Germany, and a neo mercantilist system of money recycling appeared. Debts grew in the Periphery – to become surplus wealth to Germany, which instead of being used for consumption – was used to purchase subprime mortgages from the US and more periphery debt. A large trade surplus is just as destabilizing to the global economy as a large trade deficit is. Why? The two need to coexist. You can not have one and not the other.

    It’s madness. Greece can not be like Germany unless Germany also (to an extent) becomes more like Greece. And this in general applies to the entire core/periphery of the EU.

    • “Greece was admitted to the EU as a surplus generating machine for the core countries. I find it hard to believe that Germany, or even France for that matter, wanted an industrialized Greece to compete with. All nations, to a degree have violated Maastricht in one way or another. It’s a farce”.

      Of course, neither of us can say today why Greece was admitted to the Eurozone. Politicians such as Chirac/Schroeder described it in memoirs more or less as follows: “We knew they were not qualified but how could we leave the cradle of European civilization out of it? After all, they only accounted for 3% of the Eurozone’s GNP. A small economy like that couldn’t be expected to cause big trouble”.

      “Surplus countries can not expect deficit countries to become surplus countries as well. It is mathematically impossible for all nations to have a trade surplus at the same time. A trade surplus, by definition, is someone else’s trade deficit. We have yet to come to grips with that basic mathematical truth”.

      Right, except it is the current account balance which matters (and only in 2nd place the trade balance). Yes, on a globally consolidated basis, the world-wide current account balance is zero. No, I am not saying that Greece must turn her current account into the black (impossible!). I am saying, however, that a current account deficit means capital imports and one has to carefully monitor capital imports and their use in order to avoid bad surprises. If capital imports come as investment and if such investment is cleverly invested, the a country is headed for a Golden Age despite all of its imports. If a country imports capital as debt and spends that debt on consumption, then you have a short-term boom followed by a bust (when the debt falls due).

      http://klauskastner.blogspot.com/2011/07/comparison-with-usa.html

      http://klauskastner.blogspot.com/2011/10/importance-of-foreign-investment.html

    • >>>Greece can not be like Germany unless Germany also (to an extent) >>>becomes more like Greece.

      Why would anyone want this? Let Greeks be Greeks and Germans Germans.

      >>>It is mathematically impossible for all nations to have a trade surplus
      >>>at the same time
      But it is possible for all EUROzoo countries!

      The next one you have totally wrong:

      “Germany was the sick man of Europe until it cheapened the Euro via the Frankfurt-based ECB (in the early 2000s) and exported a massive credit bubble to the periphery. The periphery lost productivity to Germany”

      1. Germany (and NL, AT etc. as well) exported capital starting with the Euro introduction. This lead to low domestic growth –> Sick man

      2. If someone “cheapens the Euro” no Euro country will not become more or less competitive against another. Germany became more competitive against FR, PT, ES, FR because wages basically remained the same while in FR, PT, ES, FR wages exploded with little efficiency increase. Result: FR, PT, ES, FR went from a 10% advantage to a -20% disadvantage.

      With this one I fully agree: “So what do we do? Unfortunately we either go the full federalization route, or we break apart”

      But let the pople vote on it in an referendum!

  18. Pingback: Blogul lui Ilias Papageorgiadis | O abordare diferită a crizei. „The wicked game” de Yanis Varoufakis

  19. Dean P,

    Your response, although quite articulate, did not address my argument at all. We actually agree on most things.

    It’s the drachma issue that I disagree with you – and you did not address this. You said in an earlier post it is not a viable solution.

    But did you not notice that the ECB is located in Frankfurt? Do you know the history behind that choice of city for the EU’s central bank? A Teutonic currency equals Teutonic control.

    A nation that does not issue its own currency, is a currency user, not an issuer. It lacks the most fundamental basis of Sovereignty – the right to issue currency.

    It’s still your move, the ball never left your side of the court.

    K

    • Hey ,i tend to agree with everybody.
      Why?

      Because there is no totally right or totally wrong solution in the end.
      As with everything.

      The problem is not ,or is not only ,finding what must be done ,but rather the timing of the response.

      We are all framed in their game and rules ,so we must adjust accordingly. And no that does not mean acceptance of their actions or hypocritical diplomacy.
      It means being really careful.

      There is ,at least for now ,only one way that i know of ,for people to become the bigger frame of things.
      Freeze everything. And that would be lunacy. Except if it happens everywhere in the world. Ghandi-like revolution.

      Our game is not to escape pain ,but to control the kind of pain inflicted upon us.

      Having monetary sovereignty is and always will be important ,until we all change brains and become one. Good luck with that.

      No monetary sovereignty = opportunities for economic expansion policies the way they like it. Unfortunately.

      But now in such times ,such words don’t matter.
      And when it mattered ,people were selfish.
      Everywhere ,everybody.

      We never learn.

      But hope never dies.

  20. Dr Varoufakis,
    While I sympathize with much of your analysis regarding the European aspects of the crisis and inadequacy of the German-French response, I find you tend to avoid discussing the microeconomics and political economy of Greece.

    I think you will be hard pressed to deny the extreme inflexibility of the Greek labour market – looking at OECD data for example – http://www.oecd.org/document/11/0,3746,en_2649_37457_42695243_1_1_1_37457,00.html

    The disappointingly less interesting/conspiratorial reason for the Troika’s strong efforts to reduce the Greek minimum wage is that it is high in comparison to other EU countries of similar income levels (though not cost of living levels which is another fascinatingly disturbing microeconomic tale) and the hope-for outcome is to reduce the growth of unemployment – either by making it cheaper for firms to hire or reduce undeclared employment that is currently extremely widespread and growing (at the expense of social insurance contributions). And that is before we look more deeply at the wholy undemocratic, insider-dominated legal regime for collective bargaining that has been hatched by trade unions with a Soviet sense of equality. Oh, and my own reliable sources suggest the Ministry of Labour very very quietly supports this measure as a means to slow the growth in unemployment.

    In summary, I would be grateful if you complement your insightful critiques of the European response with fact-based analysis of the woeful economic institutions and political economy of Greece and unbiased constructive advice to the Troika and Greek policy-makers.

  21. Ilia Trou:

    The problem here is that we are mixing a short term and long term remedy into a bad amateurish concoction of a so called remedy.

    In the short term, meaning 2-3 years, Greece needs artificially low rates to service its existing debt and get its economy back on track.

    In the long term, 10-20 years needs to reform its finances so that the current condition does not happen again.

    Instead of the Germans et al giving Greece the tools needed, they are completely driven by some sick idea of minimizing their obligations and trying to impose a final solution on the cheap. This is what we call (all over the world) cheap skates.

    To compound the problem, Venizelos et al – out of europhilia and national pride mixed in one- openly declare that Greece will do whatever is necessary to avoid bankruptcy; which is an open invitation for futher abuse and pilling on of back-breaking obligations of further exaggerating the problem instead of addressing it.

    By her own admission Germany is playing for time, dumping Greek debt (from 20 billion down to less than 6 bil. in direct violation of her prior agreements with France and others) and thus blackmailing everybody that a Greek default will leave her relatively unscathed.

    This is not what you expect from a so called “friend” of Greece and a European partner. This is an open and hostile conduct of war and I don’t think there is any precedent of such bad German behavior other than WWII and we don’t even want to go there.

    The Germans need to understand that their current behavior has made them pariahs of Europe and has earned them the scorn of the United States, Russia and China. There is a unaminous global opinion that Germany is conducting an out-of-depth experiment in bad economic application the likes of which have not been seen in recent history.

    • “The problem here is that we are mixing a short term and long term remedy into a bad amateurish concoction of a so called remedy.”

      I agree with that but it goes to both scenarios ! Both drahma and euro scenarios so far .

      “In the short term, meaning 2-3 years, Greece needs artificially low rates to service its existing debt and get its economy back on track.”

      Who’s going to provide us with that?
      At least deny debts and go to national currency seems like an option to an ignorant like me .

      “In the long term, 10-20 years needs to reform its finances so that the current condition does not happen again.”

      By saying reform our finances , you mean reduce our debts in a realistic figure and revive our economy . If that is what you mean , sorry i think this is purely theoretical or Wishful thinking .

      Who is going to stay in Greece and work in these special working conditions prepared for us by greek and german financial elite. Anyone who can migrate , WILL do it . That is far more realistic .

      Especially when other countries want to reduce the working cost of educated labour .

      At least denial of external debt and introduction of national currency seems more realistic . Don’t underestimate the fact that greek people WANT to live in their country .

      PLEASE if you can elaborate on the catastrophe which will be brought by the introduction of new drahma , will be much appreciated .

      The rest of the post , we are in agreement . And i appreciate the insights you ‘re giving us .

  22. Yani,

    Ok … bear with me here, please.

    Using a broad measure of money supply such as M2, the U.S.’s money supply is approx. $8 trillion. And the U.S. national debt? Well, it is approx. $15 trillion — and if we include the unfunded liabilites, it’s a whopping $150 trillion, or something close to that crazy, astronomical figure. Now, I don’t have the E.U. figures, but I would not be surprised if they were proportionally similar to the U.S’s.

    What gives? There’s more debt than money, a factor of nealy 20-to-1, in the economy. How can debt be paid off when there is a hell of a lot more of it than money? It’s strange monetary system we have, isn’t it?

    • Debt need not ever be paid. This is the beauty of it. All sustainable growth requires is that it is constantly, and smootely, rolled over. Do not confuse private and public debt please.

    • Check out this video:

      I believe it explains in a very simple way how debt is converted to money and how the system works only with ever increasing debt!

    • Note on my above post:
      The video is part 1 out of 5. To watch the rest search for “money as debt”.

    • It has been a quite remarkable event in my life, yes, today, an event, which was to come to understand that, the makers of Money as Debt, and all those extolling the video; have never understood where real prosperity comes from.

      Now at last I fully understand why all those politicians are so determined to keep the banks solvent; and as such show they have no understanding of the true source of prosperity.

      The video claims that the economy will collapse if more debt is not continuously created.

      Total and utter rubbish!

      Real prosperity comes from adding value in our daily lives. The very best example is to ask you all to go out during the summer months and pull up a single Wheat plant. You will find that it is not a single stalk, but averages five stalks. At the top of each stalk you will find again, an average of 28 grains of wheat. That is 140 grains of wheat for every single seed planted. That is value added; the creation of real wealth. The same applies for anyone taking Iron ore and changing its nature into steel. The blacksmith that changes an Iron bar into an Horse shoe, value added again. The baker that takes flour and makes bread, value added. The fisherman that catches a boat load of fish, sustainable, there every time he fishes; value added…..

      And again, no, you do not need more money in circulation. Have you ever wondered why we used to have stable prices, even prices that go down…. Again, under value adding, the way forward is to add value that in turn reduces the amount to be paid. Within my lifetime a house could be bought for £100. What fiat money has done is inflate the supply without adding value.

      If the banking system collapses, the values will collapse, but the potential to add value will remain and the economy will very quickly indeed return to stability.

      It is only fear that keeps the whole stupidity going. We have nothing to fear but fear itself and our way out of the mess is to go out and get stuck into adding value.

    • @ Chris Coles

      I am sure that in no way can i understand these matters as you and other people here do.

      I find your posts always informative and more.
      To the extend that i can understand ,i see value as the source of real prosperity.
      There are many opinions ,many different ways publiced of correcting this world ,that may have merit if implemented.
      Free land ,resource-based economy etc.

      But i do not want to go that far for now.

      When i say that debt was never the problem ,i do not refer to the true economy at all. I have in mind that the financial system has become a tech trick ,a game of political manipulation for those in the know-how.

      There never was a problem to start with. Even simple adjustments of the system as it is now can solve everything. Not make life better ,but there never had to be a crisis in the first place. But they do whatever they like.

      They are the ones who decide what equals or not what else ,what terms are correct or not ,what algorithms should be used and how they should be perceived. When we create systems ,we create logic as we like it.
      It is all a perception game and the disturbed wishes of some to gain at the expense of others without working ,adding value properly in no way.

      I consider them ordinary human beings with many flaws that do not know when ,or ever want ,to change gears.

      It is not debt or the system. It is the perception of it that creates the problems ,human behaviour and now complex computer algorithms that in no way serve prosperity of the many.

      We make the systems. We are the systems.
      There are no problems. We become them.

      To change to a Value-oriented society ,a paradigm shift is needed. One that will change the perception of the multitudes towards spiritual values as well.

      One step at a time.

    • Chris, I am confused! In the first part of your comment you say the video is rubbish but then you seem to agree with what the makers of the video are advocating, especially with what they say towards the end of the video (parts 4 & 5) when they speak about introducing a new bank-free system based on “permanent interest-free money” which is created by value instead of debt. What do you think after all?

    • Dimitri,

      “To change to a Value-oriented society ,a paradigm shift is needed. One that will change the perception of the multitudes towards spiritual values as well.

      One step at a time.”

      Absolutely correct!

      Pkars,

      “Chris, I am confused! In the first part of your comment you say the video is rubbish but then you seem to agree with what the makers of the video are advocating, especially with what they say towards the end of the video (parts 4 & 5) when they speak about introducing a new bank-free system based on “permanent interest-free money” which is created by value instead of debt. What do you think after all?”

      Apologies for the confusion. The video was ALL about the need to continue to deliver debt into the economy to keep the economy stable and to underpin the prosperity of the people. My sudden revelation was that that argument is a complete fabrication of the reality.

      Permanently interest-free money is not equity capital; it is simply another form of debt and at the end they were talking about a new mechanism to deliver money in the same way that money is delivered by any government as welfare. A very good example here in the UK is the cold weather payments to pensioners. Money delivered …….. But that is not true investment into new businesses.

      Take yourself back to the origins of the Joint Stock Company where the company was formed by a variety of people getting together to invest their savings, as equity capital into a new business. What went wrong with the Joint Stock Company is that when the parallel development of insurance companies brought forward the idea of insurance for the wider population; and, in turn, they became described as “Savings Institutions”; everyone very conveniently; failed to develop a way for the peoples savings to become the local community ownership of the development of their local community job creation mechanism.

      The financial institution treats those savings as if they own them; rather than as the keeper of the treasure of the local community. A good example today is that when a large financial institution decides to go and invest those same savings in another nation; they certainly do not expect to ask the local community if they mind.

      Parallel to that, from then onwards, the investment of equity capital disappeared because to lend as debt passed the complete control of the entire business cycle into the hands of the issuer of the debt. You need to read chapters 4, 5, 6 and then 8 “Savings should be invested as equity” of; The Road Ahead from a Grass Roots Perspective http://www.chriscoles.com/page3.html

      My argument is that we must always ensure that the equity capital investment of the local community savings is made on free enterprise terms, as equity capital, where the investor is not permitted to control the new business so that the employers of the local people; always remain free.

      That is why I devised the rules for such investment, made by the local community, where the “local” capital Spillway Trust fund become the holding organisation for that free enterprise investment. They do not control, but instead manage it; by peer pressure; so that those so invested into, know they are working for the local community, to create new employment for the local community. What I describe as “Local job creation for the people, managed by the people”.

  23. Pingback: Γιάννης Βαρουφάκης: Τι παίζεται; | Greece Get Up

  24. Since this article consists of a lot of assumptions (which may be right!), let me introduce some facts.

    From 2001-10, Greece exported 146 billion EUR and imported 446 billion EUR. If you count in foreign revenue from services (tourism, shipping), there was still a hole of 199 billion in the current account. Greece spent during this time 80% more abroad than she earned from abroad. Greek exports cover imports by only 40-45%. That ratio is 78% for the import-drunk USofA and 93% for the troubled Italy. I don’t think there is any developed country in the world which comes even close to such terrible statistics. The Greek economy literally burns money!

    The issue of sovereign debt is one of financial engineering. The issue of how to change the above facts is one of industrial management. Financial engineering can be handled by a few hundred people in a conference room. To get the Greek economy on its feet is a project for a generation and it requires leadership, good ideas and consistent implementation.

    Greece can lean back and passively await the judgement of the powers that be. Or Greece could take the initiative and propose a plan how a totally de-industrialized economy could become at least a bit more industrialized; how the Greek economy can live a bit more within its means (curtail imports and substitute them with new domestic production; attract foreign investment; stop capital flight).

    There are undboubtedly many different ways to accomplish the above. My own ideas are summarized in these links.

    http://klauskastner.blogspot.com/2011/09/endgame-for-greece.html

    http://klauskastner.blogspot.com/2011/10/letter-to-ekathimerini-on-foreign.html

    http://klauskastner.blogspot.com/2011/10/recapitalizing-greek-banks.html

    • Klaus:

      We don’t want industrial crap as part of the Greek economy.

      In case you have not been paying attention, the world is in the 3rd cycle at the moment.

      The 1st cycle was an agricultural economy lasting for centuries. Then we graduated to an industrial economy (in which we openly admit that Germany excelled) but now the entire globe (with the US leading the parade) has moved into the new informational age and the knowledge based economy.

      There is no need for Greece to engage in dirty industrial activities when we can cut through the chase and get straight into the new knowledge based economy.

      The Greeks are imminently qualified to do well in this knowledge based economy because the average Greek is well educated and very much up to the skill set needed to succeed.

      For one more time:

      We need no lessons from Germans on how to run and plan our economy. When one has a tooth ace, one does not go to the neighborhood butcher to apply dentistry. Your reputation in Europe is that of an unimaginative folk, condusive to obedience and unable to exercise independent thinking (a true hallmark of the Greek ideal).

      If industrialism delights the Germans (in my opinion a very bad idea of wanting to sell goods to others in disgusting consumerism out of control) then that’s fine with us. Keep polluting your country or go to unsophisticated Turkey to pollute its lands. But not ours. I think we have the final say on this and thank you very much for your good efforts but you only get an F on this one.

    • In your summing up :
      “If you count in foreign revenue from services (tourism, shipping), there was still a hole of 199 billion in the current account. ”

      Maybe you are missing another foreign revenue: former immigrants to US, Australia, Germany …. returning home to live on their foreign pension bringing their savings with them, buying property in their village etc. I do not have numbers but a ten year period is a large one and Greece was a nation exporting immigrants until quite recently ( and is becoming one now again). In my acquaintance maybe 10% of people have done this. Is this summed in your accounts?

    • To Dean Plassaras

      It would be fantastic if Greece you jump right away into a knowledge based economy! Earlier this year, I took a 1-month course at the Aristoteles University of Thessaloniki. I was very impressed by the young talent I met. They explained to me that 24 institutions in Greece had university status (which is a lot by international standards!); that Greece apparently has the highest rate of graduates in the entire EU; etc.

      I was worried when they told me that highly educated young Greeks had no chance of finding a decent job in today’s economy. They took me to cafes which were full of young people and they explained that these young people had been given a few Euros by their parents so that they could sip one coffee all day long but at least be among friends instead of sitting home depressed. Some of our friends have sons/daugthers with degrees in engineering, geology, etc. and they are earning about 600 Euros per month working in bars.

      One of my professors, in the mid-30s, told me that her husband was a geologist of world renown. Whenever there was an earthquake or similar natural catastrophe in remote places of the world, he was invited to consult. At the Aristoteles University, he is essentially playing the role of secretary to his professor. They are now thinking about emigrating to Norway.

      I would, however, caution that a knowledge based economy, even if Greece achieved that to its fullest extent, may not be the solution for all problems because experience so far doesn’t show that a knowledge based economy creates all that many jobs. Look at the US. Despite its sensational performance on the knowledge front, the US consumers need manufactured products like any other consumers. The US has, in the last decades, delegated a good portion of its manufacturing needs to Asian countries in exchange for issueing to them promissory notes. So they not only imported products from Asia but, at the same time, exported jobs there. The US is presently transferring way over 5% of the national wealth which it generates every year to other countries. In Greece that number is twice as high (current account deficit). That can’t go on forever, neither for the US nor for Greece.

      Let me finally try to get some emotions out of your thinking. First, I am not German. Secondly, I have been married to a Greek for nearly 4 decades and since my retirement we spend a good portion of the year here. And, finally, when I visit Germany I see no pollution at all, not even in the vicinity of industrial plants. In Greece, on the other hand, I see pollution all over the place and it is less industrial pollution but primarily consumption pollution.

      My Greek wife gets desperate when she sees that dirty mess all over. She is embarrassed about her own country and cries “why can’t the Greeks learn a bit from civilized countries of Central Europe?”

      The Germans get blamed by their European partners for not doing enough about domestic consumption. The Greeks are world champions in importing consumer products from abroad.

      I agree with you that no country should preferably need to learn from others; that every country should have the final say on its political and economic affairs. If Greece is against consumerism, Greece can curtail that without any advice from abroad. All she needs to do is to reduce imports. If Greece does not want industrialism, all she needs to do is to be satisfied with a pre-industrial standard of living. If Greece wants to stop pollution, all she needs to do is to clean up her mess. Not a single foreigner is needed to accomplish all of that.

    • To Anna V

      Whether or not remittances from abroad are included in these figures depends on the form which they take. If they are transferred as capital, they are not included in the current account balance but, instead, in the capital balance. If they are remitted as earnings, they are included in the current account balance. If they are remitted “unofficially” (i. e. as cash), they don’t show up anywhere (except in new shops, residences, etc.).

      You are perfectly right in pointing to the importance of money which Greeks earn abroad and then repatriate back to Greece. During the 1960s and 1970s, a good portion of domestic Greek growth (and wealth) was generated by remittances of guest-workers in Central Europe.

      One of the hidden strengths of the Greek economy is that there is so much hidden (under matresses or whereever), i. e. that official statistics cannot and do not show them. I marvel almost every day when I come across such hidden strengths in day-to-day life. This is, in my opinion, one of the reasons why classic IMF-measures don’t work in Greece. Normally, when the state cuts expenses as dramatically as Greece has done, costs/prices in the private sector would come down quickly. Deflation they call that these days. Greece, on the other hand, has inflation. Offcial measures can only impact the official economy, at least in the shorter term. When the unoffical economy still has hidden resources, money will continue to be spent and costs/prices won’t come down.

      One thing is certain, however. From 2001-10, the foreign debt of Greece increased from 121 billion EUR to 409 billion EUR (Bank of Greece). In other words, 288 billion EUR (net) entered the country officially as debt during this time and much if not most of that money was spent on consumption and stranded investments but not on investments generating future returns. That money is now gone but the debt is still there. A good portion of that money entered the country as public debt and left it again as private transfers (capital flight). A larger portion of it disappeared in the state’s deficit. But the largest portion went to the import of consumption goods (and some of it landed in the hidden economy).

    • >>>We need no lessons from Germans on how to run and plan our
      >>> economy.

      From a northern European perspective you need a lesson from more or less everyone on the planet. For us it is amazing that a country where so many things go wrong is a member of the EU. South America is better run in many places.

  25. Pingback: Η Ελλάδα σε ρόλο γερμανικού φόβητρου για τις Τράπεζες | GreeceSOS

  26. Dean,

    Before calling a return to the Drachma an act of stupidity, let’s understand the difference between severe debt deflation (money destruction) and rampant inflation.

    Sorry to say, but those assets in Greece are already on their way to a 50% reduction in value in Euros. That’s what debt deflation does.

    Furthermore, whether we go to a drachma or not – there will eventually be a default. When you default on a debt, does it matter what currency that debt is denominated in? It doesn’t.

    Money is created thru lending – it is a double entry book keeping exercise. As Greece progresses though an economic death spiral via internal devaluation, less money circulates. This in turn makes it more difficult for debtors to earn money to pay back lenders. A debt is a liability on a debtor’s balance sheet, and an asset on a lender’s balance sheet. When the liability can no longer be serviced – when the debtor defaults – the asset on the lender’s balance sheet vaporizes. Money is destroyed.

    We are experiencing money destruction right now. This is being reflected in all major asset classes in Greece – from securities on the Athens Stock exchange to real property.

    As more money is destroyed, less is available for future investments – jobs get destroyed too as consumption also falls off a cliff.

    Would a move to a drachma be easy? No. Sadly, there is no easy solution. We will have our economic collapse/correction either way, The question is, how do we proceed the day after? How much sovereignty do we want the “day after?”

    In a severe inflationary drachma environment, even though the currency is losing value, at least it circulates. And foreign goods become much more expensive than domestic goods – which is not a bad thing. Exporting and tourism also benefits from a devalued drachma relative to the Euro.

    I’m not saying the drachma is the only best answer. I’m saying we need to understand what Greece is going through right now. It’s an economic death spiral.

    • K:

      There is a huge difference between public finances and private finances.

      You are confusing bankruptcy procedures for individuals to that of a nation.

      What Germany wishes to achieve here is to minimize her exposure (which BTW is her only driving force) and engineer a massive transfer mechanism onto the backs of average Greek citizens.

      Such can not and will never happen.

      The Greek government will have to pay for its sins, but the Greek government does not equal Greek citizens. It’s a minority bureaucratic group and its messes are its own messes not that of the average citizen.

      Let me just tell you this before engaging in a long conversation:

      In the end, the German politicos will have to solve this problem and it will end up costing them 10-20 times more what it would have cost them iif they had acted with a knowledgeable and timely manner. Instead they are behaving like a buch of self-serving amateurs and this will not go unpunished.

      This feeble idea that 11 Million Greeks will have to pay for the sins of a government job gone bad you can soon forget it. It ain’t gonna happen.

      The other thing that it ain’t gonna happen is to have a bunch of German certifiable idiots of telling us what to do. This is a big no-no, and the idea that some Teutonic morons governing Greece without being elected is pure fantasy.

      Your move.

    • That’s what i want , a debate . Don’t have the necessary knowledge for that . I won’t involve into economics terms .

      But don’t underestimate dialogue !

      I would like some clarifications please , if possible .

      TO DEAN

      “What Germany wishes to achieve here is to minimize her exposure (which BTW is her only driving force) and engineer a massive transfer mechanism onto the backs of average Greek citizens.”

      Are you referring to debt haircut of 50% or more? Are you referring to a german drahma scenario ? We need education please . Please expand on that if possible .
      You are talking with riddles Dean :)

      “In the end, the German politicos will have to solve this problem and it will end up costing them 10-20 times more what it would have cost them iif they had acted with a knowledgeable and timely manner. ”

      You are assuming that Germans would not let Eurozone collapse .
      How can you be so sure ? Everything they do suggest otherwise .
      Wouldn’t be wise to have a back up plan too?

      I don’t know macro-economics . I am sure that a country with its own national currency and independent sovereignty exercise , sounds like a good plan . I am not convinced about the timing and the circumstances for that .

      But apart from that , why is it that drahma is such a taboo ? We put so many assumptions in everything we say . Why can’t we put one more ? What if … .

      I would not be referring to Germans or Greeks from now and on , because it creates unnecessary conflicts . I propose greek / german government , bankers , workers and so on .

      TO K

      How can we ensure that the “right” people would be in position to implement such policies ? This government is not going to even think such things ( Damn this government ) . How can we avert a chaos in the country during the transition ?

      The only way is educating People . About the options in what concerns them .

    • A return to the Drachma would have been possible a few years ago and it may again become possible in a couple of years’ time but not now in the present situation of havoc. Because of the impact on the European and global financial system? That is not my point.

      My point is that I don’t see how social peace could survive a return to the Drachma at this point in time. The Greek population has already had to suffer significant blows to their incomes and wealth, and there will be more of that. Already, I see the social tension between Greeks and Greeks as quite significant. A return to the Drachma would devalue domestic financial assets of Greeks overnight by 30-40% (or even more). All I can say in this scenario is: bye, bye social peace (and perhaps even democracy). As soon as Greece could print its own currency again, inflation would soar and further erode the domestic financial assets of Greeks (don’t forget that there are roughly 200 billion EUR in Euro-denominated savings in the Greek banking sector which would become Drachma).

      So, irrespective of the economic plusses/minuses of a return to the Drachma, to me that is a question of risking social peace.

    • To Kastner :

      Thank you for contributing :

      My concern is social unrest too . Such transition requires educating , organization and initiatives from all greeks to secure the most vulnerable parts of greek population . The problem? This is just talk .

      The encouraging thing is that such organizations (supporting each other ) have already taken place and they are expanding as we speak .
      I can gather some links regarding product exchange and products-work exchange and post it in a blog .
      These are useful whether we exit Eurozone or not .

      On the other hand there are some assumptions in your arguments which may prove to be wrong .

      “A return to the Drachma would devalue domestic financial assets of Greeks overnight by 30-40% (or even more)”

      What you say may be a strong argument if domestic assets stop to devaluate while in Eurozone .
      If those continue to devaluate (The worse have not come yet) , there is no point in this argument.

      Imagine if you have said that argument one year ago and have successfully persuaded someone into that . What would say to defend your argument today ?

      “All I can say in this scenario is: bye, bye social peace (and perhaps even democracy”

      Although i share your worrying about social peace . I have a different opinion .

      There is no social peace at this moment in Greece . How can social peace establish itself once more ? There is only one way , according to my understanding : Show people a prospect of justice being served (in many levels ) and employment . Do you see this happening ?

      Personally , i find this greek to greek conflict insignificant . I have been in the “squares” , i have talked to people from anarchists to extreme right minded . They all share the same concerns . As long as we maintain in contact and talk to each other , There is no problem .

      Is there a possibility of a Dictatorship ? Highly unlikely according to me.The police force and army have the same concerns with simple people .

      What really makes Greece a completely different case is that :

      There is plenty of information on the internet . There are disagreements but , most people share the same concerns more or less . This is not a privilege of young people . You would be surprised how many old people (over 60) discovered the internet and the technology , just to be informed .

      The second reason is that greek people has suffered a lot during the past century . Those memories are still vivid . My grandfather , who fought in the Balcan wars is still alive (God blesses him) . We know what civil war is . We know what dictatorship is . ( a bit more than what we have now)

      Family bonds are still strong in greek society . We don’t have an aggressive mentality . Still as long as we maintain this contact to each other , we have nothing to fear .

      The third and most significant reason concerning social unrest is that , if people CHOOSE to follow the route of drahma . The whole endeavor will gain new potential . In contrast , if a european policy is enforced upon greek people , without their consent . You can guess the outcome … . And so far , european leadership is doing the best it can… to make things worse .

      Don’t underestimate the common sense of people .

      Sorry about the lengthy answer

    • I am a fan of common sense and I would NEVER underestimate the common sense, improvization and creativity talents of Greeks. I wouldn’t be surprised if Greeks invented a “Greek Euro” in addition to the Euro. How could that work? Post-dated Euro-checks!

      A clarification regarding the immediate 30-40% devaluation of domistc financial assets: Greeks have currently around 200 billion EUR as Euro-deposits with Greek banks. There is someone out there who owns that money. The day after the Euro-exit, those 200 billion EUR will now have a Drachma value at the re-conversion exchange rate. And that new Drachma will devalue against the Euro by at least 30-40%. So, that “someone” will wake up the next morning; see that he has a lot of Drachma in his deposit account; look up the new exhange rate to the Euro; and – oops – he suddenly sees that he no longer has the value of 200 billion EUR but only about 120-140 billion EUR. And that “someone” will be extremely unhappy.

      I can only judge the aspect of social peace as a visitor and part-time resident but I have become very sensitive to this issue in the last year. So much emotion seems to have built up on the part of those who feel (justifiably) taken advantage of and those who (truly) took advantage of the others. To me, that is dancing on a potential vulcano. I have written this post about it.

      http://klauskastner.blogspot.com/2011/10/how-will-greek-movie-end.html

      I totally agree with you that Greece has something which Central European societies don’t even know – very good family structures. Without those, I think the young generation would already be up in arms today. In addition to those family structures, another strength is that there is so much hidden in the economy which official statistics don’t show. Every day I run into situations where the normal eye can’t see a first glance how things worked out which, according to logic, should have never worked out…

    • To Dean and Kestner

      I am not pro Drahma , but convince me !
      Show me what euro has to offer to Greece now and in the future .

    • There would have been a lot to say why Greece should not have joined the Euro; there might have been something to say a few years back why Greece should leave the Euro; there might in a few years again be a lot to say why Greece should leave the Euro.

      But to leave the Euro now in the midst of havoc would only bring more short-term pain to Greece.

  27. Pingback: Τι παίζεται; « ΑΝΕΞΑΡΤΗΤΟΣ ΣΑΡΩΝΙΚΟΣ Blog

  28. Interesting analysis.
    Where do you get the 1 trillion euros from? Everyone else seems to be reporting the need for 2-3 trillion. Anyway, what chance getting an agreement on 1 trillion euros (however it is raised when it is becoming a hard slog to get the 440 billion agreed.
    I think they are hoping to get this 1-2 trillion for the Euro Stability Mechanism in mid 2013 ; wonder if things can wait that long?
    Also , it seems France is to recapitalize it’s own banks rather than use the EFSF as stated in your analysis This may well, of course, further affect France’s credit rating and place further pressure on the whole sovereign debt crisis which I think it was concerned about.

    So it seems the first priority will be to save the banks which will put further pressure on sovereign debt and then hope that the crisis over sovereign debt can be contained until further reassurance about the implementation of the ESM and the impending agreement (say 6 months before it is planned to come in to place) giving a fight for the Euro another year. Of course by this time it could well be that Europe may be experiencing some growth
    and the ESM still only needs the 1-2 trillion, otherwise, it is likely to be more than 1-2 trillion. But that alone will not solve the debt mountain only placate bond holders that they will not lose their money in the near future. However, I’m afraid we will just have a fund guaranteed by European tax payers initially then including private sector loans eventually…so more loans to pay debt. If nothing is done structurally and institutionally (including financial regulation of certain instruments and trading practises) to reduce the likelihood of this happening again then we will be back here again pretty shortly. A correction needs to be made and What happened in 2008 is still playing itself out.

  29. Hi Yannis

    Could you comment on ”The Swedish model for Europe’s bail-out”? appeared on the FT website today? Seems to me like a proper ”Swedish-wise” solution but I am afraid that since Europe is lacking time and will for reorganising the banking operational framework as well as any sense to promote solidarity between it’s member states, it will probably end up named as a non-feasible state-control bail-out solution by all European officials-if they bother to comment so…

    Here is the link: http://www.ft.com/cms/s/0/e172baf6-f414-11e0-8694-00144feab49a.html#axzz1aZv9WuOF

  30. From Greece’s perspective, a return to drachma is beyond moronic.

    The minute Greece adopts the drachma, the following would occur:

    1. All Greek assets held by Greek citizens (cash, immovable assets etc) will be worth 50% of the prior value.

    2. All Greece’s public debt (denominated in euros) will automatically double (200% increase).

    Talking about the ultimate con game. How many of you would you give me a euro and accept back 25/100 of a euro instead?

    The myth that somehow with the drachma Greece will be in charge of her own destiny is just that; a completely fabricated myth which bestows upon those who are even uttering this false proposition the automatic world championship of stupidity.

    • Hi
      With all the respect , i follow your posts and agree in most things you say . I particularly enjoy your momentum . But i think you ‘re being unfair on this argument because no one says that by returning to dramas will solve the problem .

      I have heard logical reasoning by Lapavitsa , Kazakis , Kotzias , Marias about returning to national currency . No one argues that returning to national currency is the ultimate answer to our problems . They all propose a set of measures along with national currency .

      For instance , nationalization of banks , market control , management the debt of individuals by the state and denial of external national debt . No one says this is a recipe for success with 100% probability . But it’s a platform for future development .

      As far as the black market you mention , Will or will not Euro dissolve as soon as Greece exits Eurozone ? Will Germany exit eurozone as soon as Greece declares exiting Euro? If the last argument stands still true , the will be no Euro in the black market . (Is this argument correct? not sure )

      And a question , who’s going to guarantee the deposits in greek banks and the insurance and pension funds , unless you have national currency?

      I have heard Mr Varoufakis saying that Greece is decided to be doomed for the next couple of decades . I understand his logic and what he seeks . I am very fond of his views and his pursuits . BUT i am not going to accept that !
      I am not going to take that for granted and wait Europe nations to feel sorrow for our misfortune . I am interested in my country’s sole interest .

    • After default though a national currency would end capital flight, bring capital in, end deflation with monetary expansion. If the country’s monetary authorities can handle inflation… which I seriously doubt…

    • Ilias said

      “For instance , nationalization of banks , market control , management the debt of individuals by the state and denial of external national debt . No one says this is a recipe for success with 100% probability . But it’s a platform for future development .”

      It sounds to me like you’re recommending erecting a giant brick wall around the Greek economy. Is this what you are saying?

      By “denial of external debt” do you mean the entire 300-odd billion Euro’s. Or do you mean only the debt held by foreign institutions while continuing to honour the debt held by national debt held by Greek institutions? Wouldn’t that be a recipe for ensuring Greece’s pariah status for decades?

      Also, I’m quite curious what you mean by “management the debt of individuals by the state”. Please, can you clarify?

  31. Dear Yannis,

    what is your explanation on the Greek goverment policy on the crisis?

    Are incapable to face the problem? Is there any conspiracy theory valid? Are they play the role of Mr Christoforakos? (Working for some other employee?)

  32. ” What is dastardly, in my estimation, is that the ones who earn the most while producing the least (i.e. those in the financial sector) are also the ones who are targeting those on minimum wages who were never responsible for the gap between production and consumption. ”

    Can’t argue with that :-)

  33. Professor the troikas demand had nothing to do with deficit reduction.It was a setting of the goal post(strutural change) for the bloated civil service salaries.Unfortunately your question brings us back to my comment about laikismos.I have seen you on greek tv many times giviing a great analsys as you did in the article above on the macro picture but coming out against the precription(syntagi)proposed by the troika which in turn has made you cause celebre amongst the greek left and the media laikistes(autias oiknomea).You have called for a marshall plan for grecce as opposed to the austerity proposed by the troika.my question is why sink billions into a corrupt oriental model(greek state)which promotes unjust policies such as wage disparities between public and private sector workers,or is that troikas fault.

  34. The Incrementalists

    I call them incrementalists, because they stick to wrong policies like flies on a piece of paper with glue, and pretend the program to work just fine, if only they can add a little more glue now, then they all will be free again.

    Let’s face it; Politicos negotiating with market makers and banks is like seals trying to start negotiations with a shoal of sharks. The proposed 9% Tier 1 increase is just plain ridiculous and nothing but propaganda coming from the very bankers themselves, well, at least this is what I believe, it is a mock fight, a stage managed mock fight for the public to believe that politicos would be able to stand up and fight for the people.

    The simple fact is, this has not happened in three years.

    No, I do not think that this problem needs a complicated longwinded and painfully slow, for the benefit of banksters slow that is, solution finding process that sticks to paradigms that obviously failed.

    Let me explain.

    a)

    The 1st paradigm is that of ‘sustainable exponential growth’. It is an oxymoron in deed, and deeply ingrained in the very system that drives economic thinking, and the priesthood of inflation and deflation deliberately leaves out facts that contradict this paradigm.

    The multiple Ponzi schemes attached to this paradigm post WWII were designed to create a social fabric based entirely on consumerism, and this ideology was exported even by military force if so required, only a few succeeded to resist to a degree.

    Put it this way, when will they admit, that with all the advances we made in technology, that it is absolutely not required anymore for people to work until they are 65 or older? They won’t of course, on the contrary, they will push hard to increase retirement age forward.

    The lies presented about sustainable exponential growth have been dismantled since a long time now, and it is truly a simple matter of pure arithmetic.

    I would like to introduce you – those who have not heard about it that is – to a living legend, a gifted teacher, and someone who met people like Niels Bohr, when he stumbled as a young man into the Manhatten project, Physics Prof. Emeritus Albert Bartlett. I was honored to exchange some letters with Al last year in spring, and I warmly recommend you to sit back and listen to this famous lecture of Al, and before i forget it, this is very digestible material, it is presented in a way that everyone is able to understand it, even children!

    It is in 8 parts and you can watch them here:

    http://www.albartlett.org/presentations/arithmetic_population_energy_video1.html

    b)

    Did politicos ban HFT, high frequency trading? No!

    Do it!

    Did politicos stop the financial industry to create ever so more toxic products to flood the globe with? No!

    Do it!

    Did politicos stand up to banksters and tell them to suck it up and go to Hell? No!

    There is only one left top do so, the true sovereign, THE PEOPLE, and it has started with many little steps, wikileaks, the spanish indignados, occupy wall street, anonymous, and many more signs of resistance against the global ponzi schemes that are designed to enslave the people for generations to come in their debt traps.

    Banks need to be disemboweled and brought back into a world where they serve the people and not the other way around.

    Legions of economists are produced every year, they produce these mathematized modelling freaks on purpose. Economics is camouflaged as science, and well, I would agree that there are a few, a very few of them truly performing social sciences, the majority however does not!

    Economics is infested by ideological schools of thought. The vested interest groups, Banks and Industry, manipulating the system from the ground up, by implementing elitist structures, lobbying, sponsoring and bribing the entire system to get the output they want.

    A massive output of leaches in the system is the result. Compromised personalities that are out for a short cut to wealth creation, the main motivator for them to study economics in the first place. this particular species is the overwhelming participant in economic studies.

    The system is designed to create the well known yes-men, and it works. The powerful lobby system implemented in Brussels etc. is making a mockery of parliamentarian democracy, the latter is simply outperformed, intellectually and by means of powers at once disposal.

    The incrementalists are the ones who will keep this system alive at all costs, bombarding you with their propaganda, ‘There is no other way’ etc.

    People are hanging on the lips of economists looking for solutions, but excuse me for being so blunt, they are part of the problem, not part of the solution, most of them are in deed!

    The very paradigms this system is founded on are flawed from the ground up, the constant fraud and deceptions are another phenomenon.

    There is no such thing possible called exponential sustainable growth, it does not exists, and let me finish by remembering you that economists have all one thing in common, they always start with …”Under the assumption that….”, and end with…”No one could have predicted THAT!”

    Best
    Georg

    • Thank you for your post .
      Particularly enjoyed your link .

      May i suggest what an “economist” may answer to your argument?

      a) In the long term we are all dead (apparently 10 years is a long term In five years time , there would still be no problem , we can order a “stress test” and play the game in (b) )

      b) We are going to sit on the seats when the music stops because that’s the rules of the game . ( A reference to financial theology , maybe a link with Richard Dawkins would be in order here )

      What or who gives them right in their sayings?

      If a person has more money or power than somebody else then truth is a given privilege to him/her .

      Wait are you still talking about Economics ? WoW !!!

      I tend to believe seriously that those who govern us are psychopaths .

    • I just have to add this too.

      ————————
      “I often wonder why we Greeks even deal with emotionally dysfunctional chimpanzees of Northern European origin.”
      ————————

      From the blog:

      http://ponerology.blogspot.com/2005/12/role-of-psychopath-in-generation-of.html

      “For our purposes, we should also draw attention to psychopathic types with deviant features: these were isolated relatively long ago by Brzezicki and accepted by E. Kretschmer as characteristic of Eastern Europe in particular.

      Skirtoids are vital, egotistical, and thick-skinned individuals who make good soldiers because of their endurance and psychological resistance. In peacetime, however, they are incapable of understanding life’s subtler matters or rearing the younger generation prudently. They are happy in primitive surroundings; a comfortable environment easily causes hysterization for them. They prove rigidly conservative in all areas and supportive of governments that rule with a heavy hand.

      Kretschmer was of the opinion that this anomaly was a biodynamic phenomenon caused by the crossing of two widely removed ethnic groups which is frequent in that area of Europe. If that were the case, North America should be full of skirtoids. This anomaly should be taken into consideration if we wish to understand the history of Russia, as well as Poland to a lesser extent.[…]”

    • Also

      —————-

      “If the time ever comes when “conditions will change” and “evil will no longer rule,” it could be because progress in the study of pathological phenomena and their ponerogenic role will make it possible for societies to quietly accept the existence of these phenomena and comprehend them as categories of nature. The vision of a new, just structure of society can then be realized within the framework and under the control of normal people. Having reconciled ourselves to the fact that psychopaths are different and have a limited capacity for social adjustment, we should create a system of permanent protection for them within the framework of reason and proper knowledge.

      ——————————————————————————–

      Here it should be noted that psychologically normal people constitute both the great statistical majority of human type beings and thus, as Lobaczewski points out, according to natural law, should be the ones to set the pace; moral law is derived from their nature. Power should be in the hands of normal people.”

  35. Pingback: Τι παίζεται;(Γιάννης Βαρουφάκης) « EcoLeft

  36. Dear Mr. Varoufakis,

    while I find your whole analysis very convincing, I have trouble accepting that the German Government is really deliberately putting the Euro at risk. Leading DAX enterprises had some full page ads in German newspapers some time ago calling for the rescue of the Euro. Also, it is well known that the German industry draws huge profits from the fact that the Euro is cheap compared to the Dollar and Asian currencies because of trade deficits in Southern Europe.

    So of course the banks have excellent access to Mrs. Merkel and I assume they will try to engage into delay tactis as you wrote above. But what about the export industry?

    The only explanation I could think of is that the German industry is going along with a highly risky strategy: First, use the current German “super powers” to push through further wage reducing reforms in all of Europe to make investments abroad more profitable. And second, let countries in Southern Europe (even Italy perhaps, which would be a real prize) rot until a) any competition still residing there is destroyed and/or b) any manufacturing company there can be bought real cheap.

    The risk here of course is enormous. So I’m not really convinced that this is behind whats happening. Maybe the German industry is also thinking it could focus on Asian markets but intra-EU-trade is still hugely important.

    What do you think?

  37. Pingback: Στρατηγική αποτυχίας. Τι παίζεται; | Const4ntino's Free Zone

  38. Setting off from your analysis (which I find coherent) questions spring into mind leading to a reasoning sequence:
    How can it be that we cannot hear of any voices, from within the establishment, urging for a shift of strategy? [By establishment I denote all of the political parties and related sectors partaking in the European Union administration and institutions, being in power or not, starting with the European parliament.] Have they all been hushed by bankers?
    You have been publishing and travelling around, disseminating this coherent package. I presume there must have been quite a few others who share such an approach / analysis; and others who have reached independently to similar assessments. Since there are so many important constituents of human social life at stake here, why there has been not a single collective response by e.g. European intelligentia (Academics and others)? Is Academia also hushed by bankers?
    It seems to me that for all those who, in various direct or indirect ways, affect our ‘destiny’ in the present context, there’s a fundamental convergence as to their spacetime coordinates. It seems as if a super-reality (I wish it was surreality), produced by the neocapitalist financial subsystem, creates a new History in which space becomes condensed (globalisation) as does historical time (via the short-term profit-making principle). In a manner analogous to that of a black hole, this superreality of a condensed History pulls everything into its devouring core, in an irresistible fatal attraction. Of course since Polanyi’s Great Transformation the financial subsystem has become the System and we have moved from a society with economy to an economic society. But today, it feels as something even deeper happens.
    Unfortunately, you, academics –esp. of the socioeconomics- have been profoundly responsible for the ‘Transformation-plus’; perhaps more than those petty politicians –in case you have not, as yet, become proffessional politicians; The idiocy, which you, Yanis, have so accurately described, has been persistently and systematically taught by you all, for decades. Moreover, the people / masses / demos etc., has effectively been too neutralised (in a Foucaultian manner) to resist/revolt …. Is it possible that you may resume responsibility and do something?
    Something should be done before we move beyond the black-hole’s spacetime threshold called event horizon, where History halts to infinite; there, the only hope is that eventually it (History) will evaporate outwards in a form analogous to the Hawking radiation; only that this hope belongs to a potential very distant humanity –not to us.

  39. I would be very interested to know Yanis’ view on the letter G. Soros and 95 others sent to the F.T. today, particularly on the following paragraph.

    While a legally binding agreement is being negotiated and ratified, the governments of the eurozone must in the interim empower the European financial stability facility and the European Central Bank to co-operate in bringing the crisis under control. These institutions could then guarantee and eventually recapitalise the banking system and enable countries in need to refinance their debt, within agreed limits, at practically no cost by issuing treasury bills that can be rediscounted at the ECB.

    http://www.ft.com/intl/cms/s/0/7d85abd2-f353-11e0-b11b-00144feab49a.html#axzz1ZeUAJ9pN

  40. I am astonished by some of the people here commenting on Germany’s “hunger” to “occupy” the world again…
    Anyway. I would like to say 3 things and ask a question.
    Firstly, our capacity (greeks) for loving conspiracy and always distributing blame to everybody but ourselves is unfathomable and incomprehensible.
    Secondly the people in the streets that call for a default – back to drachma scenario, do not have a clue what that means (I do not advocate or oppose such action, but i still think people should realise what that would potentially entail).
    Thirdly, all these people that shout and demonstrate now were nowhere to be found for the last decade or so when they were enjoying ridiculously high public sector salaries for 6 hours of “work” (if you can call it work) a day. The overinflated public sector is part of the reason why the private sector is such an uncompetitive mess today.
    Finally my question…what is the most likely solution…? to flood the EU with newly “printed” cash? (of course assuming that Germany, Netherlands, et al accept a huge devaluation and inflationary destiny) or the fall/restructuring of EU as we know it today?

    thank you

    • Why are you astonished by these comments?

      To a point i agree with you about the reactions of the people ,Greeks and Germans. I have said the same things. But i also acknowledge that this is human nature.

      There are reasons for everything. First let us distinguish between the countries Germany and Greece and the people Germans and Greeks from the states “Germany” and “Greece” and the system slaves “Germans” and “Greeks”.

      This goes on everywhere in the world. Behind every regime ,capitalism ,democracy ,or whatever else ,first there is the need for power.

      People are not different than politicians ,that we accuse, or other people of other countries. We have different ways of expression but deep inside the same behavioural procedures occur.

      When things go well for ourselves ,most of us do not thing about the true fabric of nature. That there is no true security and that we must all be true to eachother.

      These are behavioural loopholes that are exploited by the power that be ,using propaganda.

      Whatever you said applies for everybody Germans ,Greeks etc. ,but situations like these are always a good start for people to find alternative ways of living. Some will. For most it is improbable.

      You can never know the situations of ones life ,the knowledge one has ,the problems etc. So accusing in a big scale ,Germans and Greeks is unreasonable.

      So try to be a Greek or a German and Not a “Greek” or a “German”.

      We all must. Even if that means returning in very old ways.
      When will people learn that first is the heart and then everything else?

      We need momentum to break free from bad cycles. I hope we will find that momentum without worst situations. Some will. For most it is improbable. But nevertheless possible.

    • I don’t understand what you say .

      a) Capacity of greeks for conspiracy theories :
      Do you have a figure , any statistics ? If you don’t have , are you arguing that greeks as a nation have a characteristic of not blaming ourselves ? Are you talking about yourself or your close environment?

      b) People in the streets is a particular class of people ? Have you question them and deduce that they don’t know what they are talking about?

      c)Do you assume that ALL the people protesting are public servants that were enjoying ridiculously high salaries . And now they demonstrate because the government rightfully fixed that anomaly . Have you any evidence of what you say? Any statistics?

      You added a fourth too

      d) The problem of Greece is its super inflated public sector which destroyed the brilliant but spoiled private sector . Can you support what you say with some evidence ?

      As far as your question , i think that you are very clever since you have figured out what’s wrong in Greece , and european economical dynamics would be a piece of cake for you .

      Who are you Chuck Norris?

      I would suggest to you to investigate what’s going on in other countries. Are they protesting? Are they demonstrating? In what conditions do they live in? Are germans happy with their way of life? Has the rest of Europe been over-borrowing ? How much smaller is their public sector? Are the big foreign consultancies and construction corporations feed on private market ? Is the private sector entirely independent of the public sector in foreign countries ?

    • To Dimitri: I agree with you. My comment was to the effect that people tend to over-generalise (as I did as well) and are stuck in the past to a certain extend. In reality things are more complicated, but also simpler at the same time in a way. You explain it quite well.

      To Ilias: Ilia, my intention was not to create a robust thesis on the subject. It was just a comment, an opinion. I acknowledge your feeble attempt to “trash” my comment, but you missed the point. As far as your beloved statistics hunger is concerned, I see a lot of people using numbers in their comments, but these do not constitute statistics, especially as no sources or references are listed. To that extend I can list a plethora of “numbers” for you if that would make you happier. I certainly have a large number of examples I could add from close friends and family, newspapers, etc, etc, but I do not see the point in doing so. Finally you misinterpret, make wrong assumptions and in fact add words to my comment that I did not write, so I suggest you read it again. I assume that Yannis’s (the author’s) intention is to offer his point or view, educate and create a platform for debate, rather than petty arguments.

      Back to the points I was making:

      I do not think there is a single Greek “out there” that would argue that as a nation we like our conspiracy theories. Please, speak to people and to your families and I am certain that you will hear many ” fancy and improbable theories”…Unfortunately people are not educated enough in the details of what is going on, or perhaps they watch too much TV.

      This goes hand-in-hand with our obsession to blame others for our problems (Internationally a classic is “the Americans”, now it seems it is the “Germans”. Internally, it is our government.

      This ties in with the fact that only recently people have started to understand that Greek citizens have played their own role in this crisis. After all (conspiracy theories aside) strictly speaking, we elected our governments. Only recently (the last 6 months) I speak to people (friends, family, acquaintances, blogs) and read on blogs, articles, etc that people have started to understand that everybody contributed to this situation. Arguably different levels of contribution. Let me add that I agree that the Greek citizens are paying a price, which is too heavy and unfair at the moment and the solutions thus far are inadequate.

      Anyway, my question I agree seems extremely oversimplified. Again my intention was not to offer a “detailed and fully backed up solution” to the Greek and global financial crisis. I leave that to the “experts” who seem to be doing a “great” job. My intention was to point to the fact that after all the “statistical evidence”, all the “economic theories”, all the facts and figures, where do people see this going? Personally I read articles every day in the Greek and Foreign media suggesting a breakdown of Europe, or a large creation of newly printed money as the solution. I was curious to see what do people think. That’s all…don’t get paranoid! :)

    • As i read my answer again , i have to acknowledge that it was a bit rude. I apologize for that .

      What triggered my reaction is that your comments match the main tv propaganda which is : greek people are irresponsible , return to drahma is not an option and public state is the mother of all problems .

      I , like you , have read a lot of blogs and saw a lot of interviews throughout this year .

      I had worked abroad for a while and by seeing the similarities and differences between greek people and english and french people , made me appreciate some things that we as “greeks” do and some other “northern europeans” do .

      Private sector is dependent on public sector . There is no such thing as a free market . Markets are heavily dependent on governmental decisions .
      Greek people are not lazy . Greek people are civilized . In social terms , maybe we are more civilized than northern european terms . We give value to Values more , not principles .
      I say that because there are some cultural differences between nations.
      I am talking about majorities and to the extend i perceive things .

      Of course there are things to learn from other societies with different social and economical structures . Learn from them and critical thinking is a one way . Isolation is a dead end .

      Lastly , there is always a portion of truth in a well made conspiracy theory.

      +1 to Dimitris for his answer
      +1 John for answering my post and conversing .
      -1 to me :)

    • Also i agree with you John on that statistics are heavily misused . But sometimes are essential .

    • Agreed Ilia,

      and many thanks for your apology, although don’t worry about it, I FULLY appreciate your frustration at the situation that everybody is facing at the moment. We are allowed to get a bit angry sometimes, as long as we communicate in the end and solve our arguments in a sensible way :)

      I am Greek, leave in UK (England) for the last 15 years, but all family and best friends are in Greece so I visit very frequently. BTW the situation in England is slightly better, but not that much better than Greece. I travel a lot as well on a global scale so I talk to a lot of people.

      With the risk of becoming too personal, my own pensioner mother is leaving her rented flat to go and leave with her sister, as she cannot afford to SURVIVE any more on her pathetically small chopped up pension…and I have a lot more examples like that. Unfortunately she is VERY PROUD and she will not accept any money from her son to help her. I always believed that she embodies what is (or could be) best in ALL of us

      I agree with your overall sentiment about culture, family values, etc. Personally I always felt and still feel that Greece is a very, very special place (including its people of course). Plato said that Η πατρίδα είναι πιο ψηλά από τον πολίτη, από όλους και όλα. I am not quoting his precise words, as I would need to dig my books out… :) The Country is above all and everyone. I truly believe that this holds and also that there are not many nations out there that understand, exactly what this means today

      I also unfortunately believe that there has always been in existence a minority of people in Greece who sometimes consciously and sometimes inadvertently, out of ignorance, worked against Greece and its people.

      Allas, in my job I have to every day give solutions by stepping back and looking at the wood instead of the trees (English expression, suggesting looking at the bigger picture). I review the analyses I receive from different people and then I offer a way forward (sometimes i get it right and sometimes wrong). One of the problems I believe we are all facing at the moment is that nobody can (including me) see “the wood for the trees”. Everything is so foggy and messed up that we can not see the bigger picture, for the good of not just the Greeks, but the Europeans, HUMANITY at the end of the day, because I believe that we are all in a potentially very dangerous point in our history on this poor planet.

      During times such as this the world needs HEROES! We Greeks have had more of them than any other civilisation out there (apologies for the slight nationalistic sentiment of this message, but it is true!). In this case the “hero” could be ALL the “ordinary” people of Greece, ALL the ordinary people around the world who are fed up and beaten down to a pulp. My only hope is that they manage to bring change in a peaceful way.

      Finally, Greece is often called the “cradle of civilisation”. In my opinion this is a FACT, not just a cliché saying. I sincerely hope Greece now will become the “country that brought change to the world”. (we might not see it today, but history might judge it differently in a different light 100 years from now)

  41. Dear Yannis. Excellent analysis. Really hope that the outcome does not turn out the way you described. One question though, although it does not change much in terms of the overall picture. Is it not possbile that an additional reduction in comsumption through lower private sector wages is the primary goal of the troika mainly as a means to lower the trade deficit which despite the heavy austerity program and the semi-default state of the Greek state remains in a particulary high level? This deficit has been the subject of attention recently and Hans – Werner Sinn argued that again it is the German Bundesbank that is ending up paying the bill through the TARGET system and the ECB. He is also worried that this flow of euros from Germany to the GIPS (Political Corectness…could not bring himself to write PIGS i guess) is going to have a negative effect in local Germany private investment as well as being a sort of shadow bailout package that could end up as another time bomb. So could it be that economical orthodoxy is to blame instead of political goals? From our point of view it does not change much of course, we lose one way or another.

  42. A naive question by someone far away from micro or macro economics:
    As I see it the debt of all the member states is spread throughout the EU (and foreign) banks and is (actually) a logistic calculation, in other words numbers on computer screens. So why don’t all EU banks mutually agree to press the “Delete” button on the keyboard for the amount of the non-Maastricht-ian debts regardless of which country each “Delete” refers to and, having done so, leave the rest of the debt (held by foreign banks) to the ECB to deal with, in the way ECB sees more appropriate?

    • Because while each one of them would like the others to do that, each has an incentive not to do so themselves. A typical prisoner’s dilemma. To effect this rational debt write off, we would need a benevolent Leviathan that forces them to do this. Unfortunately, Europe’s Leviathan is not prepared to do anything that upsets the bankers…

    • Hitting the “delete” button will prohibit any E.U. countries successfully borrowing and will lead to a prolonged european depression. Essentially, it will dissolve any faith in the European economies. Most importantly however, assuming its a simple (or complicated) logistic calculation is erroneous. The same assumption went wrong in the ’08 u.s. banking crisis when the Fed neglected that the CDS’s and other derivatives riding on Lehman could not be quantified by any means and let Lehman go bust instead of spending 100bn. Its exactly the same story here, only at a much larger and more prolonged scale that’s led to a much larger “unquantified” betting spree. There is no telling of what the repercussions of one eurozone member bankruptcy will be on the secondary derivative markets where we are all essentially players.

    • True.

      Since everything is a tech trick to them ,they should use these same tech tricks to correct the situation.

      Unfortunately ,this is against their best interests.
      Fortunately ,WE DO NOT CARE.
      Unfortunately ,they do not mind.
      Hopefully ,something will make them mind.

      Optimally ,that something will be people and systemic dead-ends.
      Realistically ,not without us being the horses and them the horse riders.

      Disgusting.

    • Thomas,

      I ‘propose’ exactly that since 2007. Push the fucking button now and delete the debt, it is and was fraud to begin with, and of course you have to think it through, who get’s really hurt here?

      Yes, that’s right, the debt creators!

    • Yanis,

      this Leviathan perhaps is out there, and slowly awaking. There are not enough prisons available to arrest everyone and put into jail if they start to refuse paying back banksters.

      Talks about paying back, can I suggest something please? I lack the skill, access and resources, otherwise I would have done it long ago. Please take a moment to look at that here:

      http://bondwatchireland.blogspot.com/2011/10/dirty-dozen-we-oct-16th-2011.html

      Would it not be a good idea to create this in a global fashion for everyone to see?

      Cui bono needs to be highlighted in my opinion! November 2nd, the value of nearly 1 billion USD is being paid to Anglo Irish Bank bondholders. yesterday, another 70 million was paid out to others. this is ongoing, never stopped and in my humble opinion needs a spotlight for the people to understand and see.

      Best
      Georg

  43. I recall visiting Greece as a child in 1973 when the Drachma was 30 to the Dollar. When I visited again in 1978 it was 50 to the Dollar. Over the years, we returned to Greece each summer, and with each visit, the Drachma had hit new lows. When I visited as an adult in 2000, it was 400 to the Dollar. These were devaluations — no different it seems to me than the internal devaluation being imposed by the Troika. The only difference, in what I can see, is that those Drachma devaluations were adopted by the Government of the day to mask Greece’s structural shortcomings and lack of productive capacity.

    Greeks may be among the lowest paid in Europe, but they are still more highly paid than most non-Europeans — indeed most non-Westerners. And Greece has almost no productive capacity, especially in high value goods and services that would warrant European grade salaries. Given that, wouldn’t it make sense to see Greece’s salaries (in the private and public sectors) reduced to make Greece competitive at what she does produce? And, by extension, less consumptive at what she doesn’t.

    And so maybe a cigar is just a cigar.

    • Permit me to say that there are two problems with your thesis. First, an internal devaluation is not equivalent to a normal devaluation. The latter is inflationary while the former deflationary. Which means that, once the spiral of falling wages and prices begins, investment dries up. In sharp contrast, a combination of devaluations and inflation can go hand in hand with handsome investments. Secondly, Greek minimum wages are amongst the lowest in Europe already. A further reduction will not increase competitiveness, not will it attract investment. The only thing that attracts investment is improved expectations of aggregate demand. Macroeconomies are dynamic creatures. It is one thing to say to say that it would have been better if Greek wages/prices had not risen since 1995 as they did, it is quite another to say that, thus, they ought to fall. Lastly, if you are right that Greece is not producing in accordance to its lifestyle expectations, then the omens are not that goof for a great number of countries where the same applies; e.g. the UK or, indeed, the USA itself. Perhaps it is time to reconsider everyone’s living standards. What is dastardly, in my estimation, is that the ones who earn the most while producing the least (i.e. those in the financial sector) are also the ones who are targeting those on minimum wages who were never responsible for the gap between production and consumption.

    • >>>those on minimum wages who were never responsible for the gap >>>between production and consumption.

      Not directly. It was artificially low interest rates combined with low level of competitiveness. One could call it “sub prime consumption bubble”

      What is your solution to fix the Greek P&L? How can Greece be competitve again in the short term?

      Hint: It will not be the installation of solar panels and supplying Grrek industry with expensive energy or try to sell above market price energy to countries far away incurring huge transport losses!

  44. If this happens can Greece withdraw from the EZ and start printing it’s own currency, and at least go it’s own way?

    • Yes, but only after we have reached rock bottom. And even then, we shall only succeed in creating a black market operating in euros while most get paid in drachmas.

  45. Dear yanis,

    I have just watched your illuminating interview with Max keiser where u clearly state that Germany has not planned the “attack”but It was due to bad judgement.I am glad though aim not sure that idiocy is less destructive than well structured plan.

  46. This is what I have been saying for a long time now: For centuries Germany has had the aim of dominating Europe for its own economic benefit. And each attempt has ended in spectacular failure. Why should this time be any different?

    The Fourth Reich will collapse, just as the others before it. However, I will say that Greece is far from blameless.

    But the EU/Euro, at its inception, was a German designed system to integrate East and West Germany, at the cost of the peripheral economies’ productivity. What was the goal? Flood the peripheral economies with cheap money to be recycled back to Germany – much like the US-China trade relationship.

    The system works until it doesn’t.

    A chaotic inflationary drachma is looking more and more like a better alternative to German slavery.

    • I happen to be German and as I am sure you can imagine, I am not too impressed by your way to see things:
      No doubt – there was a period of aggressive German policy that ended in complete desaster. But that was from about 1890 to 1945. Bad enough -but not “centuries” as you are claiming. Before becoming a national state (like e.g. France) in 1871, what was later to become “Germany” was a very decentralized entity in the middle of Europe, pretty powerless against centralistic nation states like France. It was not particularly aggressive.
      When the first steps towards european integration were taken (in the 1950ies), German reunification was really not on the agenda.
      When the Euro was created, it was. Also to say that the Euro was created in order to pay for the sake of financing the integration of Eastern Germany is nonsense – sorry.

  47. A very good analysis of the big picture political -finance game going in europe today.Unfoutunately your description of germany wantiing to take it out on the poor wretched greeks was way off base. As a resident of athens i am sure it was par for the course for you seeing the rivers of garbage flowing through the streets courtesy of the poor public greek civil service workers.Why should the germans subsidise the Athenian kleptocrat politicians and their oriental patrons(unions,closed professions, media barrons etc).The prosperity of greece was built on consumption and borrowing enabled by the bankrupt corrupt greek state.Default is the wake up call that greek society needs to break off the shackels of the athenian kleptocracy and pave the way for a development model based on production and merit.Professor skip the laikismos and stick to the cold hard analysis

    • Answer this: If all the troika care about is the deficit, why insist on reducing the private sector’s pitiful minimum wage? I came up with one explanation – which is not at all predicated upon nastiness on behalf of Germany but is, rather, supported by her opposing interests viz, on the one hand, the banks and, on the other, keeping Italy on a tight leash. If you have a better explanation, I am all eras and eyes. [On a personal note, this is the first time I have been accused of stroking ears – or laikismos. I have spent a lifetime on the margins and, believe you me, I am most happy there.]

    • Professor you have repeatedly claimed in various tv channels that the 110bn loan is financing “bankrupt french and german banks”.The truth is that 65 bn is paid to bondholders(which include individuals,pension funds and not only banks),10 are reserved for our bankrupt banks and the rest(35 bn) finance our primary deficits.If one takes your words for granted he would conclude that Greece is running a primary surplus, which is far from true.
      In this article you write “lowest paid European workers”.I’ll assume you mean Eurozone workers for this argument because otherwise simply looking at the balkan peninsula would suffice. Now without having to look this up I’m certain that the minimum wage(taking into consideration purchasing power) in Greece is significantly higher than at least three members of the Eurozone namely Slovakia,Slovenia,Estonia.Keep in my mind that all of these countries outrank Greece on indexes like ease of doing business,corruption perceptions index,competitiveness etc.
      I’m sure you are well aware of the above.This partial presentation of the truth would qualify for the above accusation.
      I’m pointing this out in goodwill, because I believe that you can contribute into transforming Greece to a sustainable state but your campaign for Europe is not helping change anything here. Even though you’ve stated(rarely that is), that you want no stick or stone unturned, you have not proposed anything besides that piece on protagon a few months back. Even if your proposal is implemented to the fullest, Greece will still have to service a mountain of debt (100% GDP+more than 200bn in unfunded liabilities for our pension funds) . In a previous post you claimed that after your solution is implemented the markets would calm down and that Greece could restructure its remaining debt in a more orderly fashion.If this was entirely a European problem and your proposal arrests that problem, why is a separate solution for Greece needed?
      Even though Greece’s problem is interconnected with the current fiscal state of Europe, it’s also independent.It would have exploded regardless of what would have happened in Europe. The notion that
      we as a nation cannot do anything about it on our own is a fatalist one and is not helping us at all.

  48. Does the Greek government know that this is the plan? If so, why do they go along with it? If not, why are they so, to put it mildly, naive?

    I hope your article is translated into Greek. Thanks, as always, for your excellent analysis.

  49. It all seems me as TPTB are forcing a catastrophical (in the sense of non-linear dynamics) single currency implosion… without knowing it.

    A possible interpretation is that German political decision-makers want Germany to get rid of the single currency without being blamed (by the French) of doing so.

    If that is the case, it would be a curious case of completely unjustified inter-national complex of guilt. Bygones are bygones. Can someone convince the Germans, please, that they owe nothing to other European nations? If they would, then present day Portuguese, Spanish, British, French, Belgians (also Dutch and Italians) would be owing reparations for colonialism (and even slavery) along the world.

    Hope that Greece is, in secrecy, printing drachmas, revising banking software and stockpiling crucial imports…

    • My dear friend,js

      The sad truth is that bygones are not bygones but “a brick” on the wall of future. Regarding the colonial powers of Europe , should they make amends for what they did in Africa and other parts of the world? Of course they should!! World would definitely be a better place then . It seems to me that our culture is based on the skulls and bones of the weak and so we will continue unless we decide to learn from our past faults.

  50. Horrific scenario written by Germans for one more time! History repeating itself as a tragic joke. To prevent you from calling me a racist, I don’t believe in races and genes but i do strongly believe in culture. It was too soon for that nation to regain so much power over peoples .. Over Europe . Pls consider that the Nazi generation is not physically dead yet. Nor the cruelty and the post war complexes that drives a whole society to feel they owe nothing to Europe .

    • The fact that countries such as Greece took on way too much debt (and cheated their way into the Euro with faked statistics) is nothing you can blame on Germany. The mess is so big that there is no easy way out for anybody. However, to assume that this is somehow proof for Germany being overly selfish, cruel or downright nazistic is wrong.
      If a country inflates its standard of living by taking on too much debt, cheats about it and then gets into trouble when the bubble finally bursts, that is unpleasant. But I don’t see how you can try to blame it on Germany. Think of one thing: Germany is not only an evil, gigantic, selfish, truly evil place (as you and a lot of other people seem to think). It is also a place where millions of people live their every day lives. Some of these people are actually quite nice. They have children, bills to pay, get ill, worry about their pensions, get frustrated with policians. This country is not just a country, it is human beings, more or less like you. I just don’t see why you blame ultimately those people for the problems that arose in Greece. On an individual basis, it is not the fault of the average German citizen that Greece is where it is. On a country level, it is the fault of Greece more than anybody else’s . It would be nice if people stopped bashing Germans for stuff they cannot be blamed for. Germany has had it’s period of austerity with declining standard of living in 1998-2005. People have a right to live their lives without permanent desaster. If Greece has messed it up, then Greece has to sort it out. With the help of solvent countries , sure. But not aggressivly blaming Germany.

    • @Martin: What you are describing is what is normal from Germany to Sweden. Do not try to make the Greeks be Germans and I hope they do not try to make you Greek. I fear however that many Northern Europeans are becoming more Greek and start to cheat with their taxes as they see their hard earned money being thrown into a whole without a bottom.

  51. Yanis, plans by “superpowers” can work up to a point. In the past, at least ,Germany’s plans to play God in the military field failed miserably. I see no reason for them to succeed this time around if the resistance of the rest of the European nations to Germanic economic policy recipes “forces” Germany to eventually leave the Euro. I see this film playing out very vividly.
    I do not see the reason for the Greeks or any other European people being afraid. It should be the German and the French leaders and bankers who should be scared at the end.
    P.S.1 Make Greece very poor, unattractive? Inside the Euro? What’s new?
    P.S.2 What about a series of disorderly, not planned, defaults by a number of European
    states? This, to my mind is the most probable outcome (orderly default is an
    oxymoron).
    P.S.3 What about the reaction of the people in the ” core” countries themselves?
    Ms Merkel’s upbringing under a totalitarian regime makes her think she knows best
    and should plan for all. Well, Markozy is in for a big surprise from their own
    electorates.

    • Dear Ioannis
      The whole tragedy, if you like, is that Germany in fact is not a superpower. It is in one league with the bigger EU nations such as France, the UK and Italy. True, the population of the UK and France is currently only about 80% of that of Germany. But the German population is gently declining while the UK’s and France’s are growing. Mid to long-term, they are on one level. Which is probably a good thing. Eastern Germany is still receiving massive transfers from Western Germany. Justified – but a drag on the resources of Western Germany. So the area you want to extract potentially colossal funds from is actually not that huge. It about the size of France or the UK (as Eastern Germany, like Slovakia would not really be in a position to save Greece or anybody).
      Western Germany cannot save the whole EU. Plus, honestly, I don’t see why it should. Greece got in a mess and I am sorry that this is causing so much hardship for the population. However, we should please not forget that this mess was not caused by evil Germans but by Greece taking on too much debt, cheating and then being slow in bringing down the deficit “when the shit hit the fan” (from 2009/2010).
      The Euro was a big present by Germany which could have constituted a “win-win-situation”: E.g. Greece getting a stable currency and benefiting from lower interest rates – and Germany benefiting indirectly by the “poorer” countries getting richer, buying more German products and eventually being in less need of permanent transfers from the EU.
      It did not work out, unfortunately. Instead, Greece happily enjoyed the lower interest rates and increased the debt burden till it collapsed.
      What is currently happening is that the Greek standard of living is falling back to a level that is sustainable given Greece’s economic base.
      Understandable that this is unpleasant and transfers from Germany to maintain a living standard beyond the means would be very welcome. But why should Germany do that? Obviously, from comments by you and others, Germany is hated anyway. So why bother and throw money at you when other countries (even within the EU such as Romania and Bulgaria) are poorer?

    • @Martin, just one quick comment: Bulgaria and Romania are indeed poorer than Greece, and their respective populations’ buying power is much lower. BUT, the very basic expenses one cannot avoid (rent, food, bills, etc.) are still affordable to them because they are lower still. While in Greece, from now on, they will not be affordable anymore: for instance my salary (I am an engineer with a master’s degree working in the public sector) is currently being butchered to less than half of what it was 18 months ago, but my mortgage is the same, the taxes are doubled (and I never evaded them), and all the prices go up. Now, you tell me how I can manage to stay alive or out of jail (let alone feed my family) and I will be happy to follow your suggestions.

    • @ Martin

      Please let us not talk about blaming the average citizen.
      Let us not hear anyone who does that ,Greek or German.

      There are no Greeks ,Germans ,Chinese ,Americans etc. playing economic and political games. Only the elit.

      We mention not Germans as people but “Germans” as well as “Americans” ,as those that decide undemocratically.

      And be sure that we do not leave outside of the matter the “Greeks”.
      They proved to be the most dangerous of all. At least for now.

  52. This is another example of classic medieval feudalism; where those in command assume they can decide the fate of anyone under their command. I hear this evening that the vote in Slovakia has gone against them http://www.bbc.co.uk/news/world-europe-15265987

    And now there will be, yes you have guessed it, a new vote to get the result they need……

    Democracy? Care for the general population? Taking responsibility?

    Dreadful!

    In a true free market, free enterprise, truly free, capital based economy; the way forward would be through immediate bankruptcy of the entire system. Clean out all the toxic vapourware and start again. Anyone who has in any way been associated with a bankruptcy will know just how efficient and effective that is. Immediate, well understood process, every accountant on the planet understands it.

    So we must assume that the likes of Mrs. Merkel have no understanding of the potential for clearing the whole thing up literally overnight.

    Fear of the unknown is a very powerful thing;

    They have nothing to fear but fear itself.

    Greece must sit on its hands and do nothing. Studied inactivity is the very best strategy from now onwards.

  53. Yanis,

    if it’s true what you say, then it’s not a part of a plan to save greece or the euro but simple class war. The Provocation of a new June 1848.

  54. I have no grasp about economics. I still think I do understand your point. I think this is very scary!
    Thank you for informing me.

  55. It completely escapes me why the task of saving Europe has fallen to the Germans, who as far as memory serves have tasted nothing but defeat.

    It is in fact part of the German character to accept final defeat and internalize it.

    Eventual defeat is baked in everything German from morality to ways of reasoning and engaging others.

    Can someone please get rid of this incompetent lot of losers and get some winners to lead us instead?

    • Dean, could it be that you have a bit of a “thing” regarding the all-overpowering Germans? Do you remember that, less than 10 years ago, Germany was the “sick man of Europe”? Why had Germany become sick? First of all, because she had completely miscalculated the cost of unification (to this day, the “West” transfers about 100 billion EUR annually to the “East”) and, secondly, because Germans had become “lazy”: higher and higher incomes and less and less productivity growth. Interestingly, it was the Social Democrat Gerhard Schroeder who changed all that with his “Agenda 2010″. And when Germans do something, they go all the way. Within less than 10 years of essentially zero wage increases, Germany has become the price-dumper in the Eurozone and world champion of exports.

      Bear in mind that the German economy tends to be highly overrated: it is light years away from employing all of its people. For decades now, German employment has depended on having customers for their productivity outside of Germany. Let those customers disappear and the German economy will show what happens when they are on their own.

      Try the following (correct) formula: “an economy with a current account surplus is an exporter of capital (and importer of jobs); an economy with a current acount deficit is an importer of capital (and exporter of jobs)”. This is mathematics and not economics.

      Everything would be fine today if Germans had exported all of their surplus capital as tourists in South European countries. Those countries would have then have received all of the Euros needed to buy imports from Germany. The books would have balanced.

      Instead, Germans exported their surplus capital as financial investments. As Michael Lewis pointed out in one of his good articles: the only financial bubble which Germans missed in the last decade was that of Bernie Madoff.

      If you rightfully want to criticize Germans (and EU-elites) for something it is their incompentence of not knowing how to deal with a country which faces external payment problems (Greece, for one). The most natural thing in the world when a country faces external payment problems is that it reschedules its debt with existing creditors. It has happended x-times in the last decades. That should have happened with Greece at the latest by mid-2009 (no haircut!). Instead, the incompetent Germans (and EU-elites) converted from the start this very natural problem into an issue of the survival of the Euro, the Eurozone and perhaps even the EU. And instead of allowing Greece to reschedule with her creditors, they arranged for a rescheduling of Greek debt from private to public. Having set this precedent, they now can no longer get out of it.

      Can you imagine what would happen if the US government – the next time when California, after all the 8th largest economy in the world in its own right, can’t pay its bills any more (and goes bankrupt) – can you imagine what would happen if the US government declared this as an emergency for the survival of the USofA as a nation and the dollar as a currency?

      Greece is responsible for the mess which she got herself into until 2008. For the real mess which has developed since then, the EU-elites are responsible.

      Germans unloaded their Greek debt instruments? That depends on how you define “Germans”. The German tax payers dramatically increased their holdings of Greek risk (EU-loans under rescue plans; ECB-loans to Greek banks and purchases of Greek bonds). Private German parties, on the other hand (banks, insurance companies, pensions funds, etc.), could significantly reduce their Greek risk by transferring the risk to tax payers.

      Has that been right? Heck no, it just underlines my point about the incompetence of German and EU elites. Has it been “help for Greece” as it has always been called? Heck no! They just used Greece’s balance sheet to bail out their own financial institutions and had the chuzpe to call it “help for Greece”. Those, however, were not the “Germans” or the “French”; it was incompetent political elites. Interestingly, the Bank of Greece just demonstrated with the Proton Bank how one deals with a bank when it hits trouble.

      Anyone who has ever dealt with external payment problems of a country (and I have been in involved for 7 years with the Chilean/Argentine reschedulings during the 1980s) knows that the most important thing is for the debtor country to take the initiative. The debtor country needs to assemble its creditors, ask them to form a Steering Committee and negotiate with them a rescheduling. The debtor country needs to propose the terms for such a rescheduling. The debtors country needs to leave the public impression as though it is calling the shots about its future. That is the only way for the debtor country’s government to have at least a chance to keep the population behind it.

      In the case of Greece, the government has done the opposite. From the start, it put the fate of Greece into the hands of others and since then they do nothing other than explain to their people why they have no choice but to do what others force them to do. Perhaps that was smart when you think it is smart to make your own problem a problem of others. It certainly is not smart when your objective is to really get some necessary structural reforms through your domestic democratic process.

      Don’t ask to get rid of incompetent German losers and, instead, get some other foreign winners to lead Greece instead. Ask that competent Greeks lead Greece and worry less about what happens elsewhere!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s