Interviewed by Dr. Michael Maier for Deutsche Wirtschafts Nachrichten:
For the interview in German, as published on the DWN site,
For the whole interview in English,…
Before we turn to Greece: You are very familiar with the European financial system. What is the threat for European banks coming from the Ukraine crisis (on RT-tv you said there is 900 billion Euro credit from European banks in Russia)?
Indeed, European banks have a large exposure to Russian corporations, up to €900 billion. Perhaps more importantly, this exposure requires monthly refinancing to the tune of €10 billion. Russia has, ever since it defaulted in 1998, taken steps to build up foreign currency reserves of around €450 billion. Still, the steady capital flight from Russia occasioned by the Ukraine-Crimea crisis is creating substantial uncertainty within the European financial sector regarding the capacity of Russian corporations to meet their obligations. Memories of 1998’s Russian default may begin to combine with the current worries over the European Central Bank’s forthcoming quality assurance exercise (in the context of the ECB’s new role as the single supervisor of Europe’s systemic banks) to produce a fresh phase in Europe’s banking crisis.
Can anyone – EU, US or Russia – afford a war?
No, although it must be said that this has not stopped us from staging ruinous wars in the past. More pertinent, perhaps, is the reality that Europe does not have the military capacity to prosecute war along the Ukrainean-Russian border. Meanwhile, on the other side of the Atlantic, it is clear that the United States has no intention to defend Eastern Ukraine by deploying troops. From the standpoint of America’s geopolitical posture the Ukraine is not Poland or one of the Baltic states – which the US and NATO have committed to defend. As for Crimea, it seems to me that the West is ready, eventually, to accept its annexation if Russia ‘ceases and desists’ in relation to Eastern Ukraine.
Who would be hurt most in case of economic sanctions?
Russia mostly, and Europe less so (but still significantly enough to give Berlin, Paris and Brussels cause to pause for thought). The United States has the least exposure to Russia but Washington is particularly worried about the impact of this escalating tension with Russia on the chances of normalising Washington’s relation with Iran, which in turn is of the essence in normalising Iraq and achieving some kind of peaceful resolution in Syria.
The debt in Europe has been climbing during the crisis: Do you see it beyond sustainability in the Periphery?
Once the financial sector collapsed in 2008, Europe and the United States experienced a violent, massive transfer of banking losses onto the public’s finances. The great difference is that, while the United States featured a federal government and a properly unified banking sector (complete with a proper Central Bank), Europe did not. The result was that in the United States the burden of adjustment fell mostly on the parts of the Union that were best equipped to withstand it. In sharp contrast, Europe’s architecture, which resembles strongly the pre-1929 Gold Standard, was such that the burden of adjustment fell on the shoulders of the European social economies least capable of shouldering it. The Principle of Perfectly Separable Debts (which is at the heart of the Eurozone’s design), as well as the fact that the insolvent banks had to be saved by the insolvent states, ensured that the European Periphery’s debts became unsustainable and that its banking systems will remain in a zombie state for decades, thus further depressing the Periphery’s economies.
The EU celebrated Greece’s “return” to the capital markets. Which investors bought Greek bonds and why?
All sorts of investors bought them. From speculators to proper institutional investors, including some from China and Japan. The reason is simple: While everyone knows that Greece’s public debt is unsustainable, and will be partially written off, investors know that more than 80% of Greek debt has been transferred to Europe’s taxpayers and to the IMF. When the debt restructure comes, as it will, it will ‘hit’ this part of Greece’s debt, not the bonds that are now being sold. Moreover, Berlin and Frankfurt have signalled to investors that the new bond issue will be underwritten by the ECB (perhaps under the so-called OMT program or some similar ‘intervention’). This is what lies behind what I refer to as the remarkable Grand Greek De-Coupling: the odd phenomenon of a totally bankrupt state whose new issues of bonds are selling like hot cakes! In essence, Europe is attempting to create a new bubble for Greek, and peripheral debt, on top of the existing debt overhang. This is a game that cannot possibly end well…
Greece reported a surplus, and Eurostat approved it. You proved it was a trick. Can you elaborate?
Having followed Greece’s public finances closely, I had a strong hunch that a primary surplus could not legitimately have occurred for 2013 – even if we take out of the calculations the large sums of money that the government borrowed on behalf of the banks and the more than €4 billion that it refused to pay to its suppliers (whom the government had a contractual obligation to pay within 2013). Armed with these suspicions, I delved into the official national statistics published by ELSTAT (the Greek Statistical Bureau) and approved by EUROSTAT.
What prompted me to look into the pension funds’ accounts was… experience. I remembered that the idea of ‘discovering white holes’ in the pension funds was first used in the late 1990s in order to ‘show’ that the Greek government’s budget deficit was closer to the Maastricht criterion (of -3% of GDP) than it really was. How do I know that? Because I was told in person by the official responsible at the time for coming up with that ‘trick’. And who was that official? My Athens University colleague Mr Yannis Stournaras, the current Finance Minister who, back in the 1990s, was Greece’s Chair of the Council of Economic Advisers, responsible for negotiating Greece’s entrance into the Eurozone. From the horse’s mouth, in other words…
One look at the pension funds’ accounts for 2013 confirmed that the same trick, which was used in the late 1990s, was employed again. To be precise, pension funds that were adding deficits to the state’s finances in 2011 and 2012, suddenly turned up a ‘white hole’ equal to €4.7 billion. If that were due to better management on the part of the pension funds, or the result of economising, or of additional pension contributions, it would have been perfectly legitimate. But it was not. Rather, monies borrowed by the Greek state, from Europe, were parked into that account during 2013, did not count as part of the state’s new liabilities, but were counted as part of its… liquid assets. Further probing revealed another such piece of ‘Greek Statistics’ in the local government accounts, in the (smaller) order to €700 million. Taken together, the two fake ‘white holes’ turned a primary deficit of -€3.9 billion to a primary ‘surplus’ of €1.5 billion.
The worst part of this is that the New Greek Statistics come with the seal of approval of EUROSTAT, the troika and, I presume, the German government. This I find saddening and infuriating. My question, and I suppose your readers’ question, to Mrs Merkel and Mr Schaüble is: “Were you conned by the Greek government, again? Or are you part of the con (in view of the need to declare the end of the crisis before the forthcoming European Parliament Elections)?” I very much fear that we all know which of the two explanations holds!
The Greek “elites” from Pasok and Nea Demokratia seem only to be interested in staying in power: Has all the new debt strengthened this elites by forcing the Greek people to pay the price?
Precisely. The main mechanism for the creation of Greece’s New Cleptocracy was the bank recapitalisation program. While both the private and the public sectors were collapsing, the bankers managed to extract a sweet deal from the governing politicians:
(1) They would remain fully in control of the banks, even though the state would provide 90% of the new capital needed and take more than 80% of the shares (NB. state-provided capital, of €50 billion, that the Greek taxpayers borrowed from European taxpayers even though every knows that these new debts will, eventually, be haircut – at the great cost of all taxpayers, Greek and non-Greek).
(2) Within a year or two, the lion’s share of the state’s shares will be given back to the bankers at a tiny fraction of the price the state paid for them. Already, new shares in private banks have been issued (that were mostly bought by the bankers themselves, with borrowed monies) at prices a fraction of those that the government had paid per share only a year ago.
(3) Banks that were resolved (e.g. the Agricultural Bank of Greece, the parts of the Greek branches of the Cypriot Banks, etc.) were split into ‘good’ and ‘bad’ banks, with the good ‘bits’ handed over to the bankers almost for free, while the bankrupt state retained the ‘bad’ banks.
(4) The bankers used their privileged access to capital to be the sole sponsors of Greece’s bankrupt media companies (which went to the wall as a result of the precipitous fall in advertising revenues, due to the recession), thus ensuring wall-to-wall favourable media coverage of their activities and, mainly, of the government’s bank re-capitalisation program of which they were the only beneficiaries, along with the governing politicians and the same media groups.
(5) The Central Bank of Greece consistently approved of all of the above, shielded the bankers’ sinful deeds from criticism, even from legal action, and advocated that stress tests and other regulations should not be “too strict lest they deter investors”. Interestingly, the Central Bank of Greece’s governor, Mr George Provopoulos, was, until he became governor, an employee of the banker that benefitted the most from all of the above.
As you correctly say, the result of the building of this New Cleptocracy is that the Greek people have paid the ultimate price so that the crisis does not jeopardise the power and wealth of the triangle linking bankers, establishment politicians and media owners.
The “rescue” of Greece was primarily a rescue of the financial system, aka the banks. Will this Ponzi scheme continue forever?
Ponzi schemes are bound to collapse under the weight of their hubris. This one will collapse too. The only reason that it has not, so far, is that the European Union, the ECB and the German government are not willing to let it collapse yet. However, they cannot maintain it forever, especially in view of the fact that it goes well beyond Greece. Ireland, Spain, Portugal and Italy are ‘maintained’ on the same basis. While the Ponzi scheme that keeps their state finances’ afloat are continuing, the social economies under the surface are continuing to crack up. There will come a moment when the ruptures below the surface will cause the Ponzi scheme on the surface to disintegrate, adding even greater social costs to our societies’ sorry tally. Two are the possible outcomes of this process: One is that Europe will come clean, the Eurozone will be rationally redesigned, and the losses from this Ponzi scheme will be shared around in a way that is sustainable and fair. Another is that the Eurozone will break up with a Big Bang.
You recently noted that the rise of Golden Dawn has changed Greek politics already. In which way?
By shifting the political agenda of the governing parties to positions unheard of, for their misanthropy, a decade ago. A couple of examples will make the hair of our readers stand on end. In 2012, in a bid to appease the ultra rightists, and gain their electoral support in the election that was due shortly, two socialist government ministers signed a decree ordering the police to apprehend women on the street (usually drug addicts), subject them forcefully to HIV tests, and throw them in prison (without any medical help) if they were found to be HIV positive – on the unbelievable basis that they might prove a health hazard to men that paid them to have sex. A few months later, legislators proposed laws that would disqualify young Greek citizens from the military and police academies if they could not prove that they were of Greek blood – essentially bringing back to a corner of the European Union Nazi-era racial legislation. My point, thus, is simple: If Nazi-like policies are implemented by mainstream parties, in a bid to attract Golden Dawn votes, Golden Dawn is already in power even if it is not in government.
Do you expect the extreme right to become even more powerful in Greece?
The post-1929 experience taught us that a financial sector implosion that the authorities fail to tackle can lead not only to a deep economic crisis but also to the rise of Nazis, fascists and assorted misanthropes. Similarly, with the post-2008 financial sector collapse and its aftermath. As we ‘extend and pretend’ more and more; as the burden of the crisis shifts increasingly onto the weakest of shoulders; as the discontent builds up; the Establishment must impose increasing doses of authoritarianism to stay in power. The result of this mix of denial, authoritarianism and greater redistribution from the ‘have nots’ to the ‘haves’ is a victory of the extreme right, irrespectively of whether they rise through existing power structures or through the empowerment of Neo-Nazi groups.
You once said the only politician who could make a difference in Greece is Alexis Tsipras. Assuming he comes to power: What could he really change and how?
I support Alexis Tsipras for a very simple reason: He, and his party, are the only political force that can conceivably form a Eurozone member-state government which simultaneously.
(A) Is doggedly pro-European, including a commitment to sticking with the euro and making the Eurozone work;
(B) Is determined forcefully to oppose the current toxic policy of more loans to the insolvent under conditions of stringent austerity;
(C) Is committed to re-designing the faulty architecture of the Eurozone without seeking a fiscal union, new Treaties, or anything that smacks of a European Federation.
If Tsipras gets elected in Greece, and his run for the European Commission Presidency acquires momentum, he will, I hope, achieve one small but terribly important thing: To shatter the toxic illusion of TINA – that There Is No Alternative. When, as a member of the Council of Europe, he opens up the debate that Europe has not had since 2008, he will allow many other able and smart Europeans to begin to speak their minds. Then, a genuine dialogue can begin in place of the veil of silence, and the inane platitudes, that typify our European Union’s official gatherings.
What about the rest of Europe: Do you see any movement that could break the links between politics and banks – and hence create momentum for true reform?
No, unfortunately I do not; at least at the level of officialdom or of the dominant discourse. But, I know that Europeans, both in the North and in the Periphery, are eager to start this movement, this dialogue. It is like a great river of opinion that has been dammed by unscrupulous dam builders, eager to break through the dam and flood Europe’s valleys with fertile views, debates, opinion and policies. This is why I support Alexis Tsipras: his election would be like a small chink in that huge dam. A chink capable of starting the chain reaction that will see to it that the dam of lies and misanthropy collapses, creating a rush of ideas on how to reclaim Europe for the Europeans.
