An emergency program for Greece

The Greek government, under intense pressure from the troika of its lenders (IMF-EU-ECB), is about to give the wheel of depression another, powerful turn. At a time when national income is shrinking at a rate not seen since the Great Depression in any post-feudal society, in an economy where the circuits of credit (not just the banking sector) have been utterly and truly dismantled, and against a background of the greatest fiscal squeeze ever attempted in peacetime, Greece’s creditors are imposing upon the country another fiscal contraction even greater than before.

The 2013 draft budget tabled recently at the Greek Parliament included a fresh fiscal contraction of 11 billion euros – in a country where GDP has already crashed from 249 billion in 2009 to 194 billion in 2012. Given the huge multiplier that has resulted from the accumulated force of austerity, the new fiscal squeeze will, with mathematical precision, reduce national income to around 173 billion, sending the country’s debt ratio to a stratospheric 201% (nb. the government, continuing a long string of underestimated, puts it at 190%). At that point, Greece will need another 100 billion to be approved by the German taxpayer just to keep the illusion going, at which point it will be game over as the nation’s insolvency, at a time of unprecedented poverty and hopelessness, will be unavoidable and no politically fathomable OSI (i.e. haircut taken by the troika) could address the problem.

Many in Europe think that, by next year, Mr Draghi’s OMT will have somehow paved the ground for a manageable exit of Greece from the Eurozone, and that this exit will be the ‘final solution’ to the Greek problem. Well, I am afraid they have another thing coming: Just as now, so in 2013-4 a Grexit will be deemed potentially catastrophic. Which means that squeezing Greece further into the proverbial ground today will only intensify the Eurozone’s woes next year.

Given, however, the obvious reluctance of Berlin, Frankfurt and Brussels to step back from a policy on Greece that is inane, in addition to being inhuman, what can Greece do in the short run to minimise its pain, and the pain that it will be inflicting on the rest of Europe in the months and years to come? Here is an idea:

A short-term strategy for Greece

Presently, the Greek government is trying to push through Parliament a horrendous fiscal squeeze that will take out of the circular flow of income 11 billion in 2013 and another 2,5 billion in 2014. As explained above, this will be the nail in the Greek social economy’s coffin. First, it will push the debt-to-GDP ratio to above 200%. Secondly, and most importantly, it will delay the elimination of the primary surplus by at least another two years. As long as the Greek state has a primary deficit, the Greek government remains in no position to negotiate with the troika. And since the troika does not even want to hear of rational arguments against the type of fiscal waterboarding that it is imposing on Greece, achieving a primary surplus (or at least eliminating the primary deficit) ought to be the nation’s top priority.

Regaining bargaining power vis-à-vis the troika

Can Greece achieve a primary surplus in the coming weeks? Sure it can. The primary deficit is now running at around 1.5% – or, in nominal terms, around 2.5 billion. The government can thus design a fiscal contraction of only 2.5 billion, instead of the 13.5 billion that the troika is demanding, in order to eliminate the primary deficit forthwith. Furthermore, to minimise the negative multiplier effect on the rest of the economy of this 2.5 billion contraction, the government could find these relatively modest savings from leximinimising wages and pensions: i.e. by taking the highest state salary and pushing it down to the level of the second highest, then taking these two salaries and pushing them to the level of the third highest and so on until the necessary savings are found (doing the equivalent for pensions). (Nb. By squeezing salaries top-down, it will be attacking first the incomes of those with the lowest marginal propensity to consume, thus minimizing the multiplier effect.)

Another constraint on the government’s capacity to bargain with the troika comes from its unpaid debts to a host of its suppliers (from pharmaceutical companies to contract janitors). The outstanding sums come up to around 8 billion euros that the government cannot afford without another tranche of loans from the troika; a dependence that impinges further on its bargaining power with its creditors. In this regard, the government could issue new anonymous transferable titles that entitle its holder to cash them in in lieu of taxes for a three year period (2013-2015). Since the tax burden on both individuals and (legitimate) firms is increasing exponentially (as the Greek state imposes heftier and heftier taxes in a desperate bid to make ends meet), these titles will have immediate value. Recipients will be able to use them both in order to repay taxes due in soon and, importantly, to trade them for goods and services (including as a form of paying outstanding wages – to the extend that workers too have taxes to pay next year).

Lastly, there is the constraint of the bank recapitalisation program. Of the 30 odd billion that the troika is dangling in front of Mr Samaras’ eyes (i.e. the next loan tranche), most will be used to recapitalise the banks. Setting aside that the mechanism with which they propose to do this is reeking with the smell of corruption (Greece’s version of what I call Bankruptocracy), this capital injection will be to no avail. Greece’s banks are beyond insolvent. They are irredeemably bankrupt, in view of the Depression all around them. The planned capital injection will, in its self, be nowhere near sufficient to guide them back to solvency. Indeed, even the European Commission agrees that unless (a) private capital is injected (along with the EFSF funds) into their equity structure and (b) deposits (that have migrated in droves over the past year abroad) return to the Greek banks, the recapitalisation project will have failed. But what investor will prove foolhardy enough to invest in a bank domiciled in a state that is about to default a second time in a year or two? What heroic Greek, who has sent her savings to Frankfurt or to Geneva, will repatriate them now, after reading the Greek government’s gloomy assessment of the nation’s prospects. It is, therefore, abundantly clear that having the insolvent Greek state borrow twenty odd billion now to inject it as capital into the Greek banks constitutes a major act of financial folly. Good money will be thrown after bad into the black hole of a banking sector that is reliant entirely on a state soon to be declared officially bankrupt (again)!

The point of the previous paragraph is simple: Just don’t do it! Do not use the next tranche of loans to recapitalise the banks, as long as the terms and conditions for receiving these tranches are such that the Greek state will be bankrupted with probability 1 in the foreseeable future. “And do what instead?”, I hear you ask. For the time being, let us continue with the present awful reality (with the ECB keeping the Greek ATMs going through the daily provision of liquidity through the Greek ELA) until the Greek government can negotiate (once it has regained a modicum of bargaining power) a new program that stands a chance of succeeding, at which point a recapitalisation can be effected that does not waste another large chunk of EFSF money.

The idea here is that, once the government has attained a primary surplus (see above), it can politely ask the troika’s representatives in Athens to leave and request at Eurogroup and/or Ecofin level the following, as a first bid in a new negotiation that may lead to a manageable program.

Extracting a commitment to re-negotiate the logic of its program

So, once it has achieved a primary surplus on the basis of 2.5 billions of savings (after having rejected the troika’s demand of the impossible fiscal squeeze of 13.5 billions in magnitude), what should the Athens government do in order to convince Europe to re-negotiate the logic of its program – a renegotiation that, presently, Berlin does not even want to hear of?

It should announce that all repayments to the ECB (of the bonds that the ECB bought during the ill fated SMP program circa 2010-11, which are now maturing and which were not haircut under the infamous PSI) are suspended until a new program is agreed with the EU, the ECB and the IMF. Since, due to the PSI, no Greek government bonds that are in circulation (and not held by the ECB) will mature before 2022, this means that the Greek government will be playing hardball only with the ECB and, by extension, the EU. Not with private creditors.

Before outlining what the Greek government’s demands ought to be, a question arises pressingly: What if the ECB gets so cross with the Greek government that it cuts Greek banks off the Greek Central Bank’s ELA, thus forcing the Greek government out of the Eurozone? Two answers come to mind. First, it would be illegal to do this unilaterally, the reason being that the Greek banks’ collateral is not of lower value or grade than, say, that which the Spanish banks use daily. Since Greek banks no longer hold any of the pre-PSI Greek government bonds, the ECB (which holds many of those) cannot claim that the Greek banks are now insolvent on the basis that the Greek state is refusing to honour bonds that they have in their books. Of course, the cynic will rightly argue that where there is a will there is a way. That if the ECB wants to cut Greece off, it will find a way (legal or not). True. But here comes my second answer-argument: There is no such will either in the ECB nor in Berlin.

I have no doubt, dear reader, that if Germany (and perhaps Mr Draghi) thought that they could amputate Greece and get away with it, they would. But they know that, with Spain and Italy teetering on the edge, there is no such way. So, if the Greek government, having achieved a primary surplus within weeks, demands a renegotiation by threatening to cease redeeming pre-PSI ECB-held Greek government bonds, both Frankfurt and Berlin will come to the table so as to arrive at a quick agreement that does not jeopardise the ECB’s credibility in relation to other member-states.

Three demands

If the Greek government is, thus, granted its re-negotiation, what should it demand for its partners? Three ought to be the demands that Athens has a moral obligation (not only to itself but to the whole of the Eurozone) to put on the table:

First, that the Greek banks are recapitalised directly by the EFSF-ESM, as per the June EU Summit agreement (which has fallen by the wayside since it was struck).

Secondly, that the 12 billion of unspent (due to the recession) structural funds earmarked for Greece for the period 2007-2013 (nb. 20 billion were earmarked of which only 8 billion were spent) are passed on not to the Greek state but to the European Investment Bank for the purposes of investing directly into the Greek private sector.

Thirdly, a new schedule for repayment of Greece’s debt to the troika which binds the pace and timing of repayments to GDP growth; effectively, making Greece’s creditors equity holders in its future income and wealth.


These are truly desperate times for Greece. The nation is experiencing not only a vicious Great Depression but also an existentialist crisis. Other great nations, under equivalently singular threats, would even consider using the nuclear option. My suggestion here is far, far milder. Just say no to a new fiscal squeeze that is commonly known to be terrible for Greece and bad for Europe. Instead, do what it takes to regain the bargaining power the government needs in order to argue for a program that is mutually advantageous for all Europeans. 

105 thoughts on “An emergency program for Greece

  1. Pingback: Greece's austerity: democracy tested to destruction - Government Tenders, Government News and Information - Government Online

  2. Δεν νομίζω οι τραπεζικές καταθέσεις θα επιστρέψουν οτι και αν συμβεί, ακόμα και στο καλύτερο σενάριο για 2 γενιές τουλάχιστον. Η δικτατορία των τραπεζών (μνημόνιο), η χαμένη τραπεζική πίστη (τραπεζες Online με εφορία, λιστες εμβασμάτων ενώ τα στοιχεία τα κράταγε η ΤτΕ για στατιστικούς λογους), η οχλοκρατία που αντικαθιστά την συνταγματική δημοκρατία (χαράτσια, περουσιολόγια) σε αγαθή συνεργασία με τις τράπεζες, δεν επιτρέπουν αισιοδοξία.

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  11. Is this the daily nightmare you’re going through? How “accurate” is this “image”? Because I heard different “versions” of the same “story” so far and, as you all know, “The Truth is Always in the Middle”. Anyway, what I see is way too intense, unbearable and outrageous!
    Btw, do rich people pay taxes in Greece? (sounds rhetorical, I know..)

    Chaos in Athens: Greece in for new round of austerity as protests rage

    • Of course the image is accurate, but don’t try to understand it. There have been numerous demonstrations before this, that have been dissolved by tear gas, w/o any violence, in expectation of violence that would eventually arise, to be honest, by a group of ~500 anti-authoritarian extremists. Thus, the situation is overloaded with years of demonstrations on the same issues, and different people have different views on the need for action, depending on how much neglected and manipulated they feel, and where they were in previous demonstrations.

      I am not in Athens, so this is also not an accurate description, but I have heard that there were exceptionally too many molotof fire-bombs in the recent street-conflicts in Athens…

  12. Για την ερώτηση που τέθηκε:

    ,—- Δεν εξαρτάται η ανακεφαλαιοποίησή τους από την ΕΚΤ! Αυτό που παρέχει η ΕΚΤ είναι ρευστότητα κάπου 110 δις μέσω του Target2.Εμμέσως αυτό που καταγράφεται στο κείμενο είναι ν ανακεφαλαιοποιηθούν μέσω της ΕΚΤ-Target 2! Πάλι όμως αυτό το χρέος λογίζεται στο εξωτερικό χρέος της χώρας-ανεξάρτητα- πως εξετάζουμε τον μηχανισμό Target 2!
    Οι τράπεζες έχουν αρκετές αρνητικά κεφάλαια ακόμα και να κάνουν τα coscos (ή μόνο με κοινές) πάλι ίσως θα έχουν οριακά θετικά 2-3% με σχετικά χαμηλή ποιότητα κεφαλαίου αν περιλαμβάνει και τις 2 εκδοχές.
    Εφάπαξ δεν έχει καταγραφεί πουθενά αν μπορεί να επανακεφαλαιοποιήσει. η ΕΚΤ. Η πρόταση είναι η ΕΚΤ με αρνητικά ή οριακά θετικά κεφάλαια των τραπεζών να αναχρηματοδοτεί για πόσο καιρό; —-

    Υπάρχει η εκτίμηση, ότι τα δεδομένα της ερώτησης δεν είναι ακριβή και δεν κρίνεται σκόπιμο να δοθεί απάντηση;

    Όπως και για αυτήν την πρόταση;

    —— η κεφαλ επάρκεια αν είναι 7-8-9-10 δεν είναι το σημαντικό, όσο αν τα υβριδικά κεφάλαια έχουν την ίδια αξία κατάθεσης στην ΕΚΤ ή δυνατότητα αντικατάστασης με άλλα, υπό την εγγύηση κάποιου μηχανισμού. Αυτό θα ευνοούσε απίστευτα τους βασικούς μετόχους ή ακόμα και πιθανούς να συμμετάσχουν στις ΑΜΚ και θεωρητικά θα αποτελούσε κίνητρο συμμετοχής εφόσον καταγραφόταν και οι ζημιές σ ένα ποσοστό από μη εξυπηρετούμενα δάνεια στο target2 και όχι στο ελλην τραπεζικό σύστημα.—–

  13. I’m living in Greece and I personally feel that i work for the government and not the other way around. I would like to thank you for reinforcing collectivism in Greece and giving to Greek politicians excuses to continue their corrupt economics. In the next elections will have Siriza and then straight after Golden Dawn, thanks to your support..

    • I am sorry you feel this way. My efforts have been, since the beginning, concentrated on arresting the parallel implosion of the equally corrupt and inefficient public and private sectors. For this is what happens in a tailspin like that of 1929 or today: both sectors implode and nothing good can flourish in either. Such wholesale implosion is the best friend of authoritarianism – of all shades and forms. Once again: I am deeply sorry that you feel this way about my efforts. They were not meant to dishearten people like you.

    • Thanasis – “I personally feel that i work for the government and not the other way around. ” – Right on brother. Its not a feeling, it is reality. The government looks at you as a cow that belongs to them which they milk for taxes. Nothing more, nothing less.

    • I would like to thank you for reinforcing collectivism in Greece . . .

      No, please, let me “thank” YOU for lessening my faith in humanity. It’s not every day I come across a piece of work like you, Thanasi.

      You hear it, people? Yanis is proposing FEASIBLE STRATEGIES here that can help the people of Greece, and the guy vomits up the bile to call it “collectivism.” What rubbish!

    • I’m living in Greece and I personally feel that you are a malakas.

      *the word “malakas” I used is used with the ancient greek meaning, don’t be offended.

    • Sorry Yianis about my previews writing. But do you believe that Greek economy is a free economy that any individual can pursue and fulfil his or her dreams? As an individual working in a private sector i feel that i have no freedom and that the government takes away from me all my dreams and it’s not just the government’s taxation. The problem in Greece is much deeper and if the monster which is called governmental bureaucracy doesn’t do any deep and only deep structural reforms, i strongly believe that nothing good will ever happen in this country. Therefore i think that more people who have access to media and know economics will have now and then play a role in order to reemphasize the importance of reengineering the Greek economy. It will never happen on its own and non Greek government will ever try to implement those changes and give more liberty to people. All governments & political parties are corrupt and especially in the Greek parliament we have the state of the art of corruption. We all Greeks have to change our political culture and help each other in order to achieve this transition.

    • Thanasis – Your are 100% correct. Something good may happen, if the bailouts stopped.


    • Thanasis – Right on! Do this and watch the money flood into Greece. I think the people of the world are crying out for a country like this.

      What you say can happen quite easily if Greeks will just stick to their principles. Greeks could only pay the taxes they think are fair. Greeks could say “I am not paying this out of principle and if I go to jail then so be it” It would only take a tiny fraction of people to think like this before the judicial system & the government is brought to its knees. (Disclaimer: I am not in anyway saying people should do this)

      If I can point you to this article. The history of Greece is based on voluntary taxation.

  14. I can’t see how you can balance this without a national unit of account.

    The oil balance has not moved because of the export of hard currency / import of oil.

    The capital account has of course been destroyed.

    With a current account surplus these past couple of months also.

    I would like to see the UK or US go into current surplus for even a few months.

    They would implode in a even grander fashion.

  15. Usual Greek Media and also pro-Memorandum and Troika governments, MPs and politicians question is ‘Do you have a plan’ as this planning is not their exact job they should execute.
    Now Yanis offered a free of cost plan. I can understand why pro Troika and pro Bank government does not pay any attention.
    But is SYRIZA paying attention? By their duty as second in Parliament. Or they just rest saying ‘not ready yet’
    George Kakarelidis

  16. I’m not an economist (Thank God!), and while what Yannis proposes might work, I would be more interested in how the Greek economy can be rebuilt ? To date it has lost 20% of its productive capacity and we can expect it to have lost 30+% before it stabilises. That is a hell of a chunk. I’m in business but I don’t see any compelling reasons to invest in Greece at present. I just do not see a future for Greece within the Euro. Why is it that so many Greeks cling to this silly project when the evidence for the destruction it has wrought is all around them ?

    • Andy – It is easy to fix Greece. Greece is screwed because of the socialist tendencies of the people and the government. This has led to huge needless regulation and massive liabilities to anyone who wants to employ someone.

      Get rid of the regulation and things will bounce back quickly. I think any Greek would agree.

      There is nothing fundamentally wrong with the country. On the contrary, it has one of the most educated populations in the world, it has access to all modern technologies, its geographic position has to be top 10 worldwide and its real estate has to be some of the most desirable. The problem is the massive ball and chain put around the ankles of all Greeks.

      Something more concrete.

    • @Richard: we have already had your foolish discussions about regulation on another thread, where you refused to accept the clear limits of your understanding. IT IS NOT ABOUT REGULATION: IT IS ABOUT BAD REGULATION. States without regulation are a disaster, and are mostly third world.

      Stop the crude simplifications of reality: we are all in this mess exactly because of this serious intellectual deficit.

    • Guest – I just saw you comment “States without regulation are a disaster, and are mostly third world.” – You are clearly talking about something you have never researched in the slightest. Do some research you will find the poorest countries are the ones with the highest regulations (and yes, even countries in Africa). I did not believe it until I looked into it.

      And before you start making comments “serious intellectual deficit.” it would be a good idea if you displayed some evidence of yours.

  17. When the Persians sent envoys to Athens to ask for “earth and water” as a sign of submission the Athenians throw the envoys including the translator from the Acropolis. When the Persians sent envoys to Sparta to ask for “earth and water” the Spartans throw them in the well. The Greek city states saved what is today Europe for democracy as opposed to the Persian autocracy. They didn’t ask for help, they just did it.
    It is time for the Greeks to throw the entire troika to the well or from acropolis whatever is closer including the translators.
    When the Greeks from Konstandinoupoli asked the rest of Europe for help when Islam and Turks where pushing they didn’t help, they would if: conditions, conditions, conditions etc. We don’t have Konstandinoupoli and we will never have it any more.

    If we will continue to ask for help we will lose Greece forever.

    • Demetre – I know Greek who say they are willing to lay down their life to stop what is happening to the country. The problem is they say is that they don’t know who to fight. I tell them they don’t need to sacrifice their life, they just have to pay the taxes they feel are fair and no more. Peaceful resistance that will topple the system.

    • @ Demetre:

      ‘If we will continue to ask for help we will lose Greece forever.’

      It’s rather: if you Greeks don’t finally start to help yourself, you yourself will send Greec in a spiral of desaster.

  18. First of all eu cant throw Greece out of Euro.

    They wont dare stop the liquidity for Greek banks as well cause in that case the whole system goes down , esp now hat germany is in recession and needs eu more than ever .

    Through Greek banks recapitalization ( and the ireland and portugal and Spain) indirectly through the ridiculous interest rates Germany is recapitalise their own.

    Thats the issue with Germans not wanting the monty proposal cause then everyone will know how bankrupt the German banks are as well..

    So the 31, bn is pre scheduled months if not years now.

    The question that lies is why Greek politicians do what they do and the answer is pretty simple.

    out of the 31 bn some of them will go directly to them thats the real deal behind all this fallacy

    Oh and dont forget almost all politics in the coalition are under the siemens umbrella for so long now ..

    Get a clue and wake up

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  20. Yianis,

    As much as I would like to agree with you, I see no insight in your proposal. It seems as if you are talking as a Greek, but not as an economist, and we need both!

    Let me make myself clear. The worse part of your proposal is, the 3rd request of the renegotiation you put forward. It makes no sense! Telling ECB and the troika that old bonds that ECB has will have to be refinanced, is one very difficult thing! But …this is not the problem. You ask that the renegotiation will request that repayment will be based on Greek GDP growth!!! And what if Greeks do not want to grow the economy with expansion of the service sector, but want to stick on tourism and construction? What if there is unrest for years? What if the global crisis gets worse and we cannot grow?

    In fact, what you ask, if you were to ask it personally, you would not be able to ask it from a bank –it is not a loan, but an indefinitely long deal. To keep your self-respect, such a thing you could not even ask from your friends! Only if some friend could feel he could and was willing, and only if he proposed it, would you be able to accept a loan that you would “return only when you could”. Loaned and not to be returned — “δανεικά κι αγύριστα” we call them in Greek….

    So, let me make it clear. You cannot ask for a new refinancing “loan” of indefinite payment. You can only demand that the old bonds will not be payed, which means there is no room for the ECB and troika to keep a balanced approach across eurozone! This is not that I don’t want this to be the case. From an economist, like you, I expected something that economists could also consider. This sounds like …pure politics!!!

    Finally, the 1st request of the renegotiation is also wrong targeted!!! Our banks cannot be recapitalized directly from EFSF/ESM because this would mean it should be done for Spain too. But this discussion has not concluded. Even though less than 100 billion is needed for Spain, they do not want to give it, saying the mechanism cannot be retrospective. This, probably points to many more insolvent banks that will appear with the ECB-established supervision… So, overly, this is also targeted to the wrong direction –even from a political perspective!!!

    Finally, I thing that you underestimate the ability of the eurozone to stop the “avalanche” of a euro breakup. They can concentrate on others not exiting, letting Greece default. That is what you ask, combined with a haircut. The markets will not press the euro, unless it gives the haircut. You suggest that for the ECB it is better to give us the haircut, than to through us out, and wait for courts to decide how much we must pay! I think that the markets will press Spain (to press ECB) more if they give us a haircut! Αt this point, I think the ECB and eurozone will prefer to through Greece out (and even Portugal, or Cyprus, if they cannot keep up) and try to keep bigger countries in….

    • Stamatis – A couple of comments about your comment. Like Yannis you are too close to the situation, you cant see the wood for the trees or more specifically you have forgotten what money is.

      Its just a reflection of labour and resources. Neither of those things will change with a government default.

      “You suggest that for the ECB it is better to give us the haircut, than to throw us out, and wait for courts to decide how much we must pay! ” – You’re not understanding the concept of government. No government or organisation can force another government to do anything unless they are prepared to invade.

    • “Even though less than 100 billion is needed for Spain”

      Make that more than 400 billion, then you get closer to the real sum.

    • @Richard:
      What will change with Greek government default is the balance sheet of the ECB. This means loses for the national central banks, including Spain and Italy.
      The ECB cannot force us out of the euro? Of course they can. If ELA is revoked by the ECB system, Greek banks will have to stop all money circulation. If they want us out, they will have their way with us.

      @Very Serious Sam:
      I don’t know how you came up with this number and, I think, the problem is not in Spain, but in Germany and France. Their banks are going to be shown insolvent, with Deutsche Bank being the most dangerous.

    • Stamatis – Screw the ECB.

      “The ECB cannot force us out of the euro? Of course they can. ” Of course they cant. If Greeks want to use Euros to exchange goods and services the Greek government and the ECB cannot stop them.

      “If they want us out, they will have their way with us. ” – Do they want Greece out? or is the Drachma a tool to coerce people? Whatever the case maybe Greeks should not respond to threats from anyone, domestic or foreign. Don’t negotiate with terrorists. Act on facts and not on rhetoric.

  21. Dear Yianni,

    I strongly support your proposal.

    But you are again shying away from a complete analysis, because it involves the d-word.

    Imagine that your proposal is endorsed and you are appointed chief negotiator, meeting with
    Mr. Schauble with the three demands firmly in your hand. Before you have a chance to utter
    a single word, Mr. Schauble says “You have one week to suppress this foolish and childish tantrum of your country, and return to the memorandum, or else its the drachma for you”. Then, he turns his head away with contempt and the meeting is over.

    At that point, the simple truth that you have often pointed out applies: you have to enter that
    negotiation, prepared for grexit, or it will be no negotiation.

    Are you prepared to declare publicly that, if it comes to that, you prefer grexit now, than memorandum and grexit in a few months? Because, if *you* (and your colleagues) are not prepared to declare it, then our parliament on Wednesday had better vote these f!@#$%
    measures. We (all Europeans) will be deserving them…

  22. the last comment by christos christou, sums it all up really
    Most comments reflect the same and come from Greeks actually living in Greece.
    The Greek government and its puppeteers are unwilling or unable to effectively look after the interests of its people. At least not at their expense….. Stalemate.
    Strangling itself through decades of acceptable corruption which filters down to all levels of society.
    To many politicians are implicated as well as many powerful elite, or wealthy others who have influence and will enable new laws to protect their interests.
    e.g. the latest shameful crackdown on free speech, arresting journalists, removing their employment and suspending broadcasts if they threaten to expose any names on lists or coverups are desperate measures. Shocking also in that it exposes such guilt.
    How many more years are we going to kick the can? …….Yanis?
    Surely a good blood letting has to come first?
    i.e., Parliamentary protections and freedom from prosecution enjoyed by Greek politicians and those that benefit has to be dissolved before we can move forward.
    Only then will it be possible to initiate any new reform.
    It will eventually come down to let go, or let the people.
    The first fat cat to be pushed on to his sword should be the man who introduced this law, that ever changing chameleon and survivalist, Evangelos Venizelos.

  23. Let’s assume Greece can re-negotiate again, I do agree with your request #2, about the usage of the earmarked funds.

    But not at all with #1. As you yourself correctly state, “Greece’s banks are beyond insolvent. They are irredeemably bankrupt”. So there is no point in re-capitalising them. Therefore these banks must finally be allowed to die for good. Only the savings of people and real economy businesses must be protected, to a certain degree. The banks services will very rapidly be taken over by other (and hopefully healthier) banks.

    As for #3, this would require much more additional money infusions for Greece than agreed upon so far. Try to get a 3rd support package for Greece through the payer nations parliaments – good luck.

  24. Mr Varoufakis, i really enjoy reading your articles and i believe that you are great economist and patriot as well (i really would like to see you involved in greek politics). But still you are making a mistake. A big one in my opinion. You assume that the Greek government can negotiate with the Germans and the bankers. YOU CANT NEGOTIATE WITH FINANCIAL TERRORISTS. Either you accept this horrific attack or you reject it!

    The Greek government should have already used the ‘bazooka’ and send the Troika to hell along with the Euro project.

    A return to Drachma (maybe under a gold standar) would give the Nation the pride and the futurre the awful Eurocrats are trying to eliminate.

  25. Greece’s govt does not wish “to regain the bargaining power”, as you put it Yanis. This govt is fully allied with the banker’s coup happening all over Europe. Here’s today’s post from David Malone:
    .Why are we bailing out the banks? – Part Four – What happens now?
    By Golem XIV on November 5, 2012 in Austerity, Bail-outs, debts, fire sale, latest, mark to market, mark to model
    In part one of this series I suggested that the simple reason we were bailing out the banks and simultaneously cutting public spending was because,

    If the banks were to be wound up it is their [the wealthiest 10%’s] credit/debt backed ‘money and the assets held in it, which would burn to ash….So the simple reason our rulers insist on bailing out the banks is that by doing so the wealthy and the powerful are simply bailing out themselves and guaranteeing the continuation of a system which suits them perfectly.

    In part two I argued that while the simple selfishness answer is true there are also theoretical justifications (albeit flawed ones) for the bail and cut policy.

    The two aspects of their policy ‘bail and cut’, they will insist are not contradictory at all. Simply put, they will say they are loosening or increasing the money supply (QE) in order to invest in growth (classic Keynesian) while simultaneously cutting those expenditures which they feel do not generate growth and which are in fact ‘drains’ on productivity – in their view any ‘public’ expenditure (Classic Free-market). Growth, for them, equals the free-market/private sector, while drains on growth equal government, public spending….Basically – Private Debt good, Public Debt bad.

    I argued that one of the legion problems with this world view is the fact that whatever the ideology says should happen, the reality is that giving money to the banks for them to invest has simply not worked. It was never going to work because it is founded on a misapprehension about the nature and business of modern banks. Namely – that they invest for growth. They do not – certainly not in the broader economy during a recession. Banks used to ‘invest’. Today they much prefer to speculate. Investing is long and slow and does not make big bonuses. Speculating on food prices, currency fluctuations and sovereign debt, lending for leveraged, debt ladened buy-outs – now these things can all provide the quick returns and big bonuses which old fashioned investment does not.

    The idea that ‘we are all in this together’ coupled with the other idea that the banks are there to help – or are ‘there for the journey’ as a UK bank advert claims, is wishful thinking at best. These notions may make snappy sound bites but that is all they make. Banks are not there to help. They are NOT a service industry. Banks exist to make a profit as fast and as often as possible for those who own them and large bonuses for those who run them. Which is fine. They are a business. As long as we remember that and treat them accordingly I have no problem. I have a massive problem when, in the good times, the banks insist on being recognized as a business in the free market, to be treated with a laissez faire, light touch. But then in bad times insist even more fervently that they are not just a business to be allowed to live and die by the rules of the market like any other business, but claim instead to be an essential, – no, THE essential public service which must be protected above all else. So essential, in fact, that all ‘other’ public services must be cut in in order to better save the banks.

    Let’s be clear the banks are not a public service. Banking – rather than the banks – could be a public service, but it is not run as such today. The banks are run as ruthless businesses. They exist according to an almost entirely selfish philosophy which extends from how they imagine human nature to be – no one, they think, would even turn up for work let alone do a good job unless rewarded more than anyone else – to justifying any and all fraud on the basis that if it makes a profit then who could blame you for trying. Be that as it may…

    In part three I suggested that the official policy with its armature of ideological justifications and soundbite explanations was today’s Big Lie and looked at how and why Big Lies work.

    In this last part, having looked at the origin and ideological justifications for the ‘bail the banks and cut everything else’ policy, I want to look at where the policy goes now. Because I believe the policies of the last four years have brought us to a critical and unstable juncture.

    From crisis to opportunity – The top of the hill
    For the last four years our Dear Leaders, political and financial, have been labouring to push everything back up the hill from which it slipped. As they have neared the top, however, I think they have come to see that the policies they have forced upon us can do much more for them than simply restore what they had before. Why stop there, they now wonder? The top of a hill is a place of fantastic opportunity. l think our leaders have come to see that shoved hard in the ‘right’ direction they could propell our societies in almost any direction they desired.

    But this state of potential is also perilous. The top of a hill is the place and the moment when the forces are all finely balanced and almost any ‘unauthorized’ push could send the system off in a direction the Dear Leaders would not like. Victory for the powerful and wealthy seems so close at hand and yet the crisis, far from being over, is also at its most critical juncture. So many possibilities exist together, like overlaid quantum states, in this one moment.

    Just as our rulers prepare for one last push, to enforce one more round of austerity and bank bail outs upon us, to propel us more firmly to their desired future, they find there is a building and spreading opposition to everything they are doing. I believe we are at, or very near, that place of maximum potential and maximum uncertainty where things could tumble down any number of quite different paths. Irreversible victory is within our leader’s reach. Yet at the same time they are only a stumble, a determined opposing push away, from irrevocable disaster.

    This place we are almost in, echoes with triumphant proclamations of imminent success while also being full of suspicion, fear and coercion. It is a moment that speaks of victory and a better future while feeling like the cusp of repression and paranoia, where free speech becomes seen as subversion and disagreement as dangerous dissent. This is the fascination of the non-linear moment when the pencil that writes our history is balanced on its end.

    Fire sales and fire storms

    When a business is so short of operating cash that it must sell assets in order to raise cash just to stay alive, and buyers know it, then the buyers hold all the power and prices tend to plummet. This is called a fire sale. On the high-street we would call it a ‘Closing-Down’ or ‘Everything Must Go’ sale. It is a perfectly normal part of the workings of the ‘free-market which the banks profess to be so keen on. Keen when it doesn’t apply to them, that is.

    One of the many things hanging in the balance right now, I think, is who is going to be forced to sell their assets in a fire sale – the banks or us? No prizes for guessing the bankers preference. More revealing is to ask yourself who our current political leaders think should have them.

    During the first two years of the bank debt crisis it was the constant worry of the banks and our Dear Leaders that without large and on-going injections of public cash, the banks would become so short of operating cash, or assets they could use as collateral for loans, that it would be the banks who would be forced to sell their assets in fire sales, which would burn the banks. And as I discussed in part one whose wealth do you think would turn to dust with them? As this 2012 paper from the BIS (Bank for International Settlements the central bank’s central bank) notes,

    At their peak, bank funding strains exacerbated fears of forced asset sales, … fears that funding strains and other pressures on European banks to deleverage could lead to forced asset sales,….

    These fears were at crisis level globally in 09 and became a crisis again in Europe throughout ’11 and ’12. Each moment of renewed crisis resulted in our leaders releasing a flood of bail out money for the banks, so they did not have to sell their assets at any price, let alone at fire sale prices. On top of which the banks lobbied hard for and got two other measures both of which ‘protected’ the banks and the wealthy from having to sell anything at a price they did not like. Those measures were the suspension of mark to market accounting which they got in 2009 after some very heavy weight lobbying ( I wrote about it in Liar’s Lexicon – Mark to Market) and then being allowed to transfer all sorts of dodgy assets they had been holding in their Trading Books, where they have to be valued, to their Banking Books where they do not.

    The amount of effort that has gone in to ‘protecting’ the banks from having to have fire-sales is a direct measure of the threat it posed and still posses to the banks and the wealthy. But that is only the first strand of the ‘bail and cut’ policy. While ‘bail’ is still very much on-going and about to be implemented again with another round of large bank bail outs, the second strand, ‘cutting’, is where we are now.

    The official justification for cutting everything, as I argued in part two of this series, is that they are only cutting non-profit making, therefore non-essential things like welfare, and we should see the pain of those cuts as ‘our’ contribution, our part, of being ‘all in this together’.

    It may be that this was indeed how they justified it in their own minds…at the start. But things have moved on. Today, the situation is that national central banks and behind them the Fed and ECB have made sure the banks have cash to operate. The ECB paper on bank funding again,

    Euro area banks raised large amounts of funding via the ECB’s three-year LTROs [Euro area bank bail outs in 2012] , covering much of their potential funding needs from maturing bonds over the next few years. Across both operations, they bid for slightly more than €1 trillion. This was equivalent to around 80% of their 2012–14 debt redemption, more than covering their uncollateralised redemptions.

    The bail out has bought time. Time for the next part of the evolving plan to take its effect.

    It is now nations that are short of cash and finding it hard to borrow. And who is now clamouring for nations to reduce their debts by selling assets, even above investing for growth? The banks.

    The banks who refused to have their assets sold at recessionary prices in a fire sale are delighted at the prospect – which they have helped bring to fruition – of arranging a fire sale for ours. The banks who did not want to see their assets valued in the teeth of a recession are happy to value ours. No mark to model for our assets. They will go to the lowest bidder.

    And who do you think that bidder will be? Yes you got it. The same financial class who own the banks. The banks will bid and so will the leveraged buyout businesses the banks lend to. And what money will the bank use for this? Right again. The bail out money.

    Those who keep assuring us that if we give the banks enough money they will start to invest in the real economy again are lying. The banks are not here to invest. They are here to predate, to scavenge. And our leaders have given them our money with which to do it.

    This crisis has seen the paper wealth of the banks and the wealthiest 10% imperiled. The securities, derivatives and shares that make up so much of what the wealthy own, have all lost a great deal of their worth. That has left the banks with large holes in their balance sheets and for the wealthy, whose assets they hold, large losses if ever they were forced to admit them. Let’s not forget, when the banks are allowed to not mark to market it is not just the banks whose wealth is protected. The top 10% of all our nations also own huge swathes of this paper wealth. If the ‘assets’ – were marked to market or forced in to the market to be sold then those people, the people who own and run the banks, insurance companies, accountancy firms, law firms, media companies, the Senators and Members of Parliament, the Cabinet Ministers, lobbyists and experts would also see their ‘wealth’ go up in smoke.

    But then along came the story which says nations are now in terrible debt and these debts are so large they cannot be carried, are in fact stifling growth (though how is never made clear) and must be paid down even if it means not only taxing the middle classes and cutting benefits to the poorer, but also also – sad though it makes us to tell you – also selling state assets.

    Austerity is a wonderful thing if you want to force a fire sale. And not just any old fire sale either. It will be, if the banks and our leaders get their way, a fire-sale fire-storm.

    A fire storm is created when a fire becomes so hot that it creates a self sustaining feedback loop of in-rushing air which super-charges the original fire causing it to suck in even more air and so on. They have been known where brush fires have spread in tinder dry forests and famously in the carpet bombing of German and British cities in WWII.

    If the banks had been forced to sell their assets, as each bank brought its assets to market they would have exposed the worthlessness of similar assets at other banks and the fire would have spread. An empire of debt backed wealth, that had long since ceased to be worth more than the paper upon which it was written, would have been lost. This did not happen.

    Instead we now have banks who have secret losses; Vaults full of paper wealth whose value is still eroding. The question for the banks and our leaders has always been, not how to rescue us, but how to replace all that lost value?

    The answer to start with was just to buy time. Give the banks cash flow with bail outs. They thought that might be enough. But the rot was too deep. The paper assets could not be re-animated. Four years in, a new answer has emerged – an epic-fire storm fire-sale of public wealth and assets. Such a fire sale, if it can be made to sweep from nation to nation, will allow the banks to buy up assets, real ones, electricity grids, power stations, ports, water companies, telecoms companies, airports and roads. Things which produce real wealth not just paper valuations of derelict properties and derivative claims on other people’s debts. The ‘cut everything’ austerity part of the official plan allows the banks to move from simply staving off admitting their losses to replacing their losses with real wealth producing assets. If the austerity plan can be maintained long enough, the fire will become self sustaining.

    The Greek people already rejected the terms of the Austerity programme being force upon them once. This week their rulers will try to vote it through anyway. The plan whose details you can read here is to sell off Greece’s main airports and ports, its Gas company, Nickle industry, Phone company and mobile phone company, its water companies, its power company, Post system and motorways, plus sundry state owned properties, land and investments.

    If the Greek fire-sale goes ahead it will set a bench mark, a low one, and a pressure, for similar sales in Portugal, Italy and Spain. And it will not stop there. The fire will be spread, welcomed, enforced, in Britain and France and Belgium and Holland. Only Germany may escape. For a while.

    A fire will have started and the banks will fan its flames. If the banks can force a fire sale they will have created a buying opportunity the likes of which only Russia has seen when it it was looted by the Oligarchs. And our banks and their owners will become the Oligarchs of the fading twilight of our democracy.

    This is the bank’s chance to replace the shrinking value of their paper assets with new, ‘real’ assets that produce real wealth. With these assets they can rebuild their paper world of virtual assets and start their game over. All they need is for austerity to reach critical so that the fire storm takes hold.

    Could they have acted differently?

    I think they could. Still could. They could have put money in to the economy without using the banks. For example the UK has put up £1.4 trillion. There are about 70 million people in the UK. The government could have ‘given’ £20K to every person earmarked to pay off their debts, with any remaining to be used as the person saw fit. Or if you balk at funding for large families, and prefer something more modest how about £20K for each adult. My family would have got 40K. That would have paid off our mortgage. I would then have had more of my income to spend on other things. I would have bought double-glazing for my house. The result would have been the banks having 40K paid off most household’s mortgage debt. That is 40K going in to the banks. So the banks would have still got their pound of flesh. But this way round would also have help the ordinary citizen. I think it was Steven Keen who first suggested this idea and it could still be done.

    How different such a scheme would be. Giving money to the banks to lend means if we borrow it we owe them. If the money was given to us and we deposited any of it in the banks, then they would owe us.

    “Moral hazard!” I hear someone crying. Why should we bail out the feckless who got themselves in to debt? Yet our leaders are happy we should reward the reckless and feckless banks. Moreover we apparently do not worry about the moral hazard of making those who did not create this mess pay to clean it up. What about those of us who did not partake of the orgy of credit and debt? What about those who saved and now see those savings and pensions being eroded? Apparently the banks and our rulers are sensitive to the moral hazard of giving to us but not of taking.

    Had we used stimulus money to pay off peoples’ debts, rather than the banks’ debts, that money would have still made its way to the banks. It would have shrunk their balance sheets, reduced their risk and made them safer – for us. They would not have had the chance to divert the money to use it for speculating on food and currencies. All good so far. It would have left ordinary people with fewer debts and with more money to spend. This would have helped industry and therefore employment.

    ….But it would have come from the bottom up. People, ordinary people, would have decided what to do with whatever part of their bail out they had left. That, to me, IS the market deciding. It is as Free Market as it comes. Financial decisions by the people for the people. Giving the money to the banks and asking them to lend to us, is letting them – just a few huge corporations and the handful of billionaires who own and run them – decide. That is NOT free market. It is banana republic cronyism.

    In our present policy of bailing out the banks, they can then lend to us and we owe them interest. In the bottom up bail out we would be lending to the banks. Remember putting money in to the bank is lending it to them. They would therefore pay interest to us. Funny how the banks and the wealthy, rentier class who own them prefer the present arrangement where they get the money for cheap and IF they lend it to us, we owe them. In the other version, the heretical version, they would be paying us.

    Wealth management and Povert management

    The future our leaders see from the hill top is one where banks are there to manage the wealth of the wealthy and governments are there to manage the poverty of the rest. Wealth Investment and Austerity Enforcement – a perfect division of power. IF we let it happen.

    • Hi David – As soon as I read your reply to my comment it immediately struck me that you might have copied and pasted your original comment in from another website rather than it coming from you and having checked, lo and behold you had!

      Anyway, I took the time to read the source blog and he comes out with the following in the same article

      “I don’t think our government’s have any interest in protecting us. They may say they do, and may make noises about ‘necessary measures’ but they seem mind-blind to any alternatives to what the bankers whisper in their ears.”

      “First thing this would do is destroy tax evasion and avoidance. Every nation would get a colossal windfall of tax THAT SHOULD HAVE BEEN PAID IN THE FIRST PLACE. That would help the austerity a bit.”

      I am sure his heart is in the right place but he falls into the trap all socialists fall into. The inevitable contradictions that come up when you slag off bank bailouts while at the same time thinking government has the answer.

      But I digress……..

    • Richard, it was me that posted Malone’s article at most of the websites you reference. I don’t know where you got the quotes, but it wasn’t from this article. Maybe you made them up?

  26. What if the ECB gets so cross with the Greek government that it cuts Greek banks off the Greek Central Bank’s ELA, thus forcing the Greek government out of the Eurozone?

    Cypriot banks were cut of from ELA, this action used as pressure to the Cypriot government to accept a memorandum and not take a Russian loan ( with milder terms)

    Everybody can understand what horrible place the EZ is turning to.

    • You have described it as a Victorian warhouse. I would like to add that the upper floor is used as a whorehouse.

    • Waves – If Greece has balanced its trade account it would not matter what the ECB does. Greece would be independent and strong and attractive to foreign investment.

      You should not be asking what Greece can do for the ECB but what Greece can do for itself.

    • Richard, what you write seems to me like a slogan from an election campaign.
      Anyway i think you should read again what i wrote

  27. Dear Yannis, these are critical times, that’s for sure, and your idea seems very attractive to me, I also saw your interview on SKAI TV Saturday night. Measures only 2,5billions euros instead of 13.
    Ok, but this could be really so easy??? The Greek political elit doesn’ t see it??? Are they so naive???
    What if the scenario to throw Greece away from the EU becomes real, if we don’t get these measures (although this leads to the disintegration of whole Europe), becomes reality???
    I think that Europe will pay a huge cost, huge recession etc, but it will SURVIVE one way or another…
    But what about Greece??? Will Greece survive AFTER Europe’s disintegration??? Who will be it’s allies in the new world??? Germany, France, Italy, who??? Could it buy oil with drachmas???
    This is the ONLY thing that keeps me cautious with your proposal!
    Will Europe step back if Greece follows your idea??? Or they will decide to take the risk of disintegrating the whole EU (enormous cost of course), but having ensuring before that Greece will be put to oblivion because of it’s attidute???
    Isn’t it a possibility???

  28. Allthough I believe that there is always room for negotiation, provided that more than 2 sides are represented on any table, lets suppose that the ECB welcomes the moment of the Greek default as an opportunity to settle once and for all the Greek drama and to push Spain and even Italy into the ESM. Where would Greece then stand.

  29. Prof.Varoufakis,

    Suppose the government follows this program you propose, what will happen at the ATMs on the 24th of October when most of the 3.000.000 pensions are supposed to have been deposited by the central government and the various agencies?

    Will it be covered by your statement “(with the ECB keeping the Greek ATMs going through the daily provision of liquidity through the Greek ELA) ” ?, though what ELA means evades my vocabulary of abbreviations.

    Do you realize that the over 1.5 million jobless are being supported by these pensions, meager maybe (or less meager but rapidly approaching there) which bring food on the table for the adult children who have returned to the nest? Most of my pensioner friends have one or more well educated with one or two degrees children who cannot find a job, and the ones that still have a job are keeping their fingers crossed and working twelve hours a day to keep them.

    Add to that dearth of money for food the salaries due to the 700.000 civil servants and one will not have to wait for the disaster, it will be here. Any cushion put aside for emergencies has been consumed by the high taxes of the last two years. :People will starve.

    My perception is that end of 2009 we grabbed the tiger by the tail. Ever since we are swinging it because if we stop it will consume us. There will be no time to gather a primary surplus because the social fabric will have collapsed.

    • Of course I meant the pensions coming due on the 24th of November. ου γαρ ερχεται μονον .

    • @Anna v
      Greece has been paying civil servant wages and pensions on its own ever since the last bailout tranche payment. The proposal that has been presented here is that Greece will continue to do just that by imposing fiscal cuts on wages and pensions but at the tune of 2,5 billion and not 13 or so as is the Troika’s goal. That is the heart of the proposal. In order for Greece to be able to negotiate, Greece needs to have a balanced budget. I think that it would take more than the suggested 2,5 billion, maybe 5 or 6 but the proposal is basicly correct. The problem with this proposal is that it does not properly address the debt the state owes to its contractors. The state needs to deal with that or basic operations such as public hospitals and army units will cease to be functional. The proposal is inadequate in my opinion on this aspect but it is correct when it comes to wages and pensions as is your concern.

    • @ Tasos are they ( the government and the minister of economy) lying when they say that the country runs out of this money ( your “on its own”, which I presume means taxes gathered as we go) November 16?

    • @Anna v
      They keep saying the same thing since July, they keep making the same threat. The central bank of Greece reported a primary surplus of 1,8 billion in September. Are they lying? You should remember that the bulk of this year’s tax along with property taxes is collected in the final quarter of this year, and this year specifically the tax invoices came later than ever. The state has also the additional albeit extremely unjust income source of the property tax connected to the electricity bills. Today an anonymous source reported to Reuters that the situation is not as critical as the media portray it. The state cannot on its own cover the 6 billion worth of maturities coming up but they can always issue short-term bills and use the CGBs ELA like they did before. All in all, if one sets aside the cost of maturities maybe the state can on its own cover pensions and wages but only that and for a short time. Cuts are necessary as prof Varoufakis wrote in order to balance the budget on a long term basis, but not at the level that has been suggested by the troika. In the end its all politics.

    • @anna v

      werent we supposed to have taken this payment by june (or july) because we were running out of money ?Is this the first time that we you hear them say that if the payment is delayed we will run out of money?is this the only delayed payment??

    • @Tasos

      “they can always issue short-term bills and use the CGBs ELA like they did before.When my income is not enough,”

      I can always fill up a charge card, get many charged cards. Is it a solution? Won’t I hit a wall of debt? with much higher interest than I can handle? I suppose they are hitting that wall now.

      Crying wolf and the wolf does not come may be a good proverb, but in the end the wolf comes. Maybe this is not the end. But if it is? Are you willing to gamble the stability of our society ?

    • Anna – Wall? Cliff more like. The interest rates are over 20% and they will only increase as long as the level of debt increases. In short, the Greek government must default to free the Greek taxpayer. There is no way out with the current debt level, no matter what the media says.

    • Anna – You have a shocking lack of confidence in Greece. You should consider becoming Prime Minister. There will be downsides to a government default, sure. But the government is a part of the economy. Not the whole thing. It might be hard for a few weeks but Greece will boom as long the government defaults completely. Small government means small taxes and small regulation. Its a golden opportunity.

    • @Anna V
      The part about the t-bills in my answer addresses the same t-bill maturities used by the Greek government to pay back maturing ECB held bonds back in August. Bonds that have been paid back at full price with significant profit for the ECB. Greece can roll over these bills with the help of the GCB for the time being. Greece needs a balanced budget ASAP and by the end of this year one way or the other we will have just that.

      Also by the way, you wrote of lies in one of your answers above. I suggest you take a look at the bill that is going to pass tomorrow. In its associating report you will find another one of the government’s arguments for the absolute necessity of the tranche payment revealed as another lie. The government debts of 2011 towards the private sector are going to get repaid entirely with the money saved from some 9 billion worth of budget cuts. I think it should be clear by now to anyone that the money from the bailout loans are exclusively reserved for debt maturities and nothing more. I am surprised that people have not realized that yet, it was expressed very clearly in the last pro-psi Eurogroup meeting. So you see it is the government that has been crying wolf this whole time, not the people who are arguing that their choices are in fact leading us towards disaster.

  30. This is beyond crunch time. I recall the previous loan trenches and the MSM was going ballistic about how Greece was going to be thrown to the wolves and now that the can has been kicked off the edge of the Earth (no more road down which to be kicked) everybody is talking about when the TV shows will start their new season. It is quite obvious to me that regardless what the outcome of the Greek parliamentary vote on the new policy measures is, something major is coming out of this and in a bad way. Remember, US elections will be through tomorrow and then Europe will be free to go $%@# itself. I can’t say that there is a direct correlation between the Amerelection and Grexit, but once the tally has been finalized on that side of the Atlantic, look out below…

  31. Nice to see you support the conversion to GDP bonds idea. I think it deserves a bit more prominence than a short paragraph in passing. If somehow the idea reaches the powers that be and is accepted, that would be a giant step forward. It’s also much easier to sell to northern electorates than raw cancellations or further loans.

    Most of your other suggestions are sensible but also more or less a given, so less in need of visibility. The 11 billions saving programme will probably naturally erode to 3 billions (I’m not under the impression the Greek state is good at achieving financial objectives with swiss precision). The problem if you try 3 billions is that if that erodes to 1 you don’t get the primary balance which as you say is very important.

    The banking recap will be transferred sooner or later I think. Needs to be done for the good irish anyway and consequently everybody else.

    As for the ECB, it will wait for the last few days before due date and do something sensible, like reschedule or get the efsf to pay for it. The only thing the greek government needs to do is to wait and not have the required monies as a cash balance at the ECB that they could cease. I assume that should be easy.

  32. @ Yanis V και πολλές διαφωνίες ουσίας και τεχνικές με το κείμενο

    Α) Τα 31,5 δις πάνε στην ανακεφαλαιοποίηση και κάποιες πληρωμές. Έχουν ήδη λογιστικά καταγραφεί στο χρέος άρα το θέμα δεν είναι οτι αν προστεθούν θα αλλάξουν τη βιωσιμότητα, καθώς το χρέος είναι μη βιώσιμο και χωρίς αυτά.
    (Η πρόταση να πάνε στον ESM είναι λογική-άριστη και θεωρητικά θα έπρεπε να επιδιωχθεί αλλά δύσκολη να εφαρμοστεί, πριν τις γερμανικές εκλογές, όλοι οι ενδιαφερόμενοι με ανακεφαλαιοποιήσεις θα τρέξουν!)

    Β) Το θέμα είναι οι όροι ανακεφαλαιοποίησης-συμμετοχής και η ποιότητα των κεφαλαίων. Θεωρητικά γράφεται στον τύπο για 6% με κοινές μετοχές 3% με hybrid bonds την πιο εξελιγμένη εκδοχή για να προστατευθούν οι παλαιοί μέτοχοι και ως κίνητρο συμμετοχής. Θεωρητικά το 9% κεφαλ επάρκεια είναι αρκετό. Όμως με δεδομένο οτι τα τα μη εξυπηρ δάνεια είναι προβληματικά +25% και οι καταθέσεις αρκετά λιγότερες από τα δάνεια (άρα δεν είναι αυτοχρηματοδοτούμενες οι τράπεζες) είναι τα 2 σημαντικά προβλήματα.
    Το 9% όμως ακόμα και 8% και 7% δεν είναι πρόβλημα, όσο 1) η ποιότητα του κεφαλαίου, και 2) η έκθεση της κάθε τράπεζας, το λεγόμενο ρίσκο σε προϊόντα που έχει. Αυτό δεν μετριέται δυστυχώς από καμιά Βασιλεία, ενώ αυτό θα ήταν το νο1 μέγεθος προς αξιολόγηση.

    —–παραπέμπω στην ουσία της διαφωνίας –Κάποιοι λένε: Τέλος πάντων, ας τα πάρουν αυτά τα χρήματα οι τράπεζες, από την επόμενη δόση, για να μην κλείσουν. Λάθος φίλες και φίλοι. Το αν θα κλείσουν δεν εξαρτάται από το αν θα πάρουν αυτά τα χρήματα αλλά από το εάν η ΕΚΤ θα συνεχίσει ή όχι σε καθημερινή βάση να παρέχει στις τράπεζες ρευστότητα αποδεχόμενη τους χάρτινους τίτλους που εκείνες προσφέρουν στο σύστημα Ευρωπαϊκών Κεντρικών Τραπεζών (π.χ. ελληνικά στεγαστικά δάνεια, κρατικά ομόλογα που προήλθαν από το PSI, έντοκα γραμμάτια του δημοσίου κλπ).—-

    Το θέμα είναι να επιστρέψουν οι καταθέσεις. Για να επιστρέψουν δεν μπορούμε να πούμε οτι δε θέλουμε τα 30 δις γιατί:
    Δεν εξαρτάται η ανακεφαλαιοποίησή τους από την ΕΚΤ! Αυτό που παρέχει η ΕΚΤ είναι ρευστότητα κάπου 110 δις μέσω του Target2.Εμμέσως αυτό που καταγράφεται στο κείμενο είναι ν ανακεφαλαιοποιηθούν μέσω της ΕΚΤ-Target 2! Πάλι όμως αυτό το χρέος λογίζεται στο εξωτερικό χρέος της χώρας-ανεξάρτητα- πως εξετάζουμε τον μηχανισμό Target 2!
    Οι τράπεζες έχουν αρκετές αρνητικά κεφάλαια ακόμα και να κάνουν τα coscos (ή μόνο με κοινές) πάλι ίσως θα έχουν οριακά θετικά 2-3% με σχετικά χαμηλή ποιότητα κεφαλαίου αν περιλαμβάνει και τις 2 εκδοχές.
    Εφάπαξ δεν έχει καταγραφεί πουθενά αν μπορεί να επανακεφαλαιοποιήσει. η ΕΚΤ. Η πρόταση είναι η ΕΚΤ με αρνητικά ή οριακά θετικά κεφάλαια των τραπεζών να αναχρηματοδοτεί για πόσο καιρό;

    —-Μα θα πουν κάποιοι: «Αν δεν περάσουμε τα μέτρα, επιλέγοντας τον δρόμο της σύγκρουσης με την Γερμανία, και δεν γίνει η επανακεφαλαιοποίηση, δεν θα κλείσουν οι τράπεζες;»..(…)…. έως ότου ολοκληρωθεί αυτή η πραγματική και ουσιαστική διαπραγμάτευση, οι τράπεζες θα συνεχίσουν να λειτουργούν όπως και σήμερα.—-

    Το μείζον δεν είναι αυτό! Έστω όλοι οι μεγάλοι συμφωνούν οτι δε βγαίνει το πρόγραμμα και αποδέχονται μόνο τα 2,5 δις ως μέτρα (που είναι συζητήσιμο αν θα βοηθησουν ) και όταν και αν αρχίσει η συζήτηση για τη βιωσιμότητα του χρέους η Σλοβακία ή η Ολλανδία πουν δε συναινούμε σε μείωση επιτοκίων, επαναγορά χρέους, ή νέα διαγραφή χωρίς νέους όρους; Αυτό μπορεί να υποτιμηθεί; Ενδέχεται να υπάρξουν και πολιτικές περιπλοκές;
    Τα 31,5δις τέλος συνδέονται και με πρόσθετη χρηματοδότηση που θεωρητικά θα καταστήσουν περισσότερο βιώσιμο το χρέος άρα δεν είναι μόνο τα 31,5 που έχουμε λαμβάνειν!

    (Για τα 1-5)

    Δυο τα ζητούμενα βιωσιμότητα χρέους συν δημιουργία ανταγωνιστικών πλεονεκτημάτων και στο δεύτερο δεν γίνονται πολλά και δεν έχουν σχέση μόνο με χρηματοδοτικά πακέτα διευκολύνσεις κλπ Τα 2,5 δις δεν είναι βέβαιο οτι θα δημιουργούσαν πρωτογενές πλεόνασμα με δεδομένο οτι το προσχέδιο προβλέπει οτι το χρέος θα ξέφευγε περισσότερο χωρίς τα 11,5 δις.

    Τέλος η κεφαλ επάρκεια αν είναι 7-8-9-10 δεν είναι το σημαντικό, όσο αν τα υβριδικά κεφάλαια έχουν την ίδια αξία κατάθεσης στην ΕΚΤ ή δυνατότητα αντικατάστασης με άλλα, υπό την εγγύηση κάποιου μηχανισμού. Αυτό θα ευνοούσε απίστευτα τους βασικούς μετόχους ή ακόμα και πιθανούς να συμμετάσχουν στις ΑΜΚ και θεωρητικά θα αποτελούσε κίνητρο συμμετοχής εφόσον καταγραφόταν και οι ζημιές σ ένα ποσοστό από μη εξυπηρετούμενα δάνεια στο target2 και όχι στο ελλην τραπεζικό συστήμα.

  33. You state that the primary balance is presently running around 2,5 BEUR and I have read similar statements elsewhere. Strangely enough, the latest monthly MoF-bulletin states that 1-9/2012, Greece had a cumulated primary surplus of 1.649 MEUR. What explains the difference between these two figures?

    Regarding your three recommendations in the same order:

    (1) Would you find it acceptable that the EFSF-ESM gets bank equity for its share of the recap? (sort of like the US and AIG/Citibank & Co.).
    (2) Over a year ago, the EU Task Force stated as one of its goals to swiftly process about 180 projects to utilize the unspent 12 BEUR. What ever happened to those projects?
    Further question on this: have you considered that instead of giving money to the EIB for cash investments in the private sector, the EU could directly guarantee private foreign investors the political risk (including the convertibility risk) of their own direct invstments. My thought is that when investors themselves do their own investments (instead of via an intermediary), chances could be higher that they turn out to be good investments.
    (3) No further comment.

    All in all, I don’t see anything nuclear in your proposals. They have in common that money would be spent wisely. In fact, I am pleased to see that you are sidetracking from solving the Eurozone and focusing on constructive measures for and in Greece!

    • Klaus – Can we please stop talking about the primary deficit/surplus. It is an utterly meaningless figure. Government budget deficit is the only figure that means anything. Primary is a propaganda tool

    • “Primary is a propaganda tool”
      If a gvt has a primary surplus,it means that it can default on its debt and still be able to cover the rest of its expenses without the need of borrowing (which would be impossible most definitely).So its actually important.No propaganda there.

    • Furthermore in the case of Greece,a primary surplus simply highlights the fact that a large or complete write-off of the debt would be meaningfull.2 years ago, the trend was “even if we default,10 years from now we will be on the same position due to our deficit”.Well a primary surplus means all of our deficit is due to interest payments.And this is currently also more or less true about our current account deficit.The only leakage is due to interest payments to the foreign sector.

      Ofcourse a primary surplus is catastrophic for the economy when an external deficit co-exists but its still better than a fiscal surplus.

    • @Richard

      Let me try to open a new perspective for you. Primary expenses have to be paid in cash. You can’t say to pensioners ‘I can’t pay your pensions this year; add them up and I will pay them up next year’. Well, I guess you could but then you would have a real problem.

      Interest, on the other hand, is an expense where you always have the option to negotiate with your creditor when you pay it in cash. Until it gets paid in cash, interest is accrued. Accruals do not run through the budget because the budget recognizes only cash items.

      A structured financing means that one adjusts the maturities of principal and interest to the borrower’s cash flow. Mind you, one doesn’t forego any claims; one just sets their maturity (i. e. date payable) at reasonable dates.

      In a restructuring when the scarce resource is cash, creditors/borrower would normally negotiate that at least part of the interest is capitalized to preserve cash for other priorities, i. e. added to principal when due and payable at some future date when more cash is available. That relieves the borrower’s cash flow in the short term and the creditor maintains all his claims.

      So, the primary balance is indeed very important because it shows whether there is cash from operations (the equivalent in a company’s P+L is EBITDA). Once there is positive cash from operations, i. e. a primary surplus, one determines what the surplus is best used for. Extreme examples: pay interest and thereby limit new investments, or make new investments and increase the capacity to pay interest later.

      The only way to get money back from a weak borrower is to make the borrower strong again. These blogposts explain it in a bit more detail.

    • Klaus – I read all your points and my point that the “primary” deficit is a meaningless figure still stands. Let me break it down using the points you highlight.

      “Interest, on the other hand, is an expense where you always have the option to negotiate with your creditor when you pay it in cash. Until it gets paid in cash, interest is accrued. ” – This is not how it works. The Greek government’s problem is that it is unable to pay back the money when the bonds mature. So no, interest is not accrued when, the bonds mature and you cant pay the money back. You default. About interest, yes and the interest rate is completely and utterly unservicable on the debt from 2008. The debt is now conservatively 50% more and interest rates are? Who knows? Well over 20%

      In short, interest payments are a massive part of the government expenses now. The OECD predicts it will account for 10% of GDP by 2015 which will equate to approximately 25% of the government budget being used to service the debt. And the OECD is using completely unrealistic interest and growth rates. In reality the situation is much much worse.

      “A structured financing means that one adjusts the maturities of principal and interest to the borrower’s cash flow.”The Greek government has passed this point long ago. It is now dependent on bailouts.

      “Mind you, one doesn’t forego any claims; one just sets their maturity (i. e. date payable) at reasonable dates. ” – If the investor accepts, sure. But the investor has the right to say “screw you” and claim their insurance money. Unless the rule of law goes out the window and investors are compelled to take longer maturities. I don’t doubt this is happening.

      “So, the primary balance is indeed very important because it shows whether there is cash from operations ” When you have interest payments swallowing up increasing amounts of revenue it is a fallacy to ignore it. Which is why the primary deficit is meaningless when you are talking about a party that has defaulted because it cannot service the interest let alone pay back the debt.

      “Extreme examples: pay interest and thereby limit new investments, ” – Extreme? Greece is doing this now. Cal it extreme if you want, I don’t disagree.

      “The only way to get money back from a weak borrower is to make the borrower strong again.” – I agree, but the Greek government is slitting its own throat to spite Germany,”look what are the Germans are making us do” when it is nothing of the sort. Germany needs Greece to grow their economy, they have nothing to gain by Greece collapsing.

    • @Richard

      I am sorry that I can’t get through to you. You seem to have set your antennas to receive a certain message and you then go through extreme motions to prove that you haven’t received it (and erroneously confirm what you think you have received).

      I don’t think I have ever made the point, in almost 2 years of blogging about Greece, that Greece can service its debt in full. It may come as a surprise to you, but no borrower who is in a restructuring can service his debts at that time. That is why he entered a restructuring.

      Having a deficit has next to nothing to do with the ability to service one’s debt. Germany has a deficit and can service its debt. Why? Because it can refinance it (including the payment of interest) and Greece no longer can. Why? Because Germany has creditworthiness in the eyes of investors and Greece does not. The US is the best proof that as long as a country has creditworthiness in the eyes of investors, it can get away with practically everything (including down-ratings).

      Interest payments are only a massive portion of government expenses if interest is paid in cash. If interest is deferred, it will become an even more massive portion of government expenses in the future but the problem is deferrred to the future and in the meantime one can worry about more important things (like fixing the economy). Look at California’s financials and you have a case in point.

      I, too, have argued from the beginning that in view of the magnitude of the problem, Greece’s debt should have been rescheduled by existing creditors instead of getting refinanced by tax payers. Not having done that was a huge blunder but bear in mind why it wasn’t done (to avoid having to bail-out their banks directly, the lending countries preferred to bail them out via Greece’s balance sheet; a bloody nuisance).

      The primary balance shows you if the government could handle its expenses if it had no debt at all. Before a government reaches that point, there is no point in discussing things like debt or interest payment. It’s like a dried-out well where you can only draw the water if you first dump it in.

      Let me correct a misjudgement of gigantic proportions on your part. You say that “the investor has the right to say ‘screw you’ and claim their insurance money”. If Greece’s creditors could have claimed any insurance money for their loans, they would have said ‘srew you’ a long, long time ago. Yes, investors have all the right in the world to say that. Why do you think they didn’t? Because they had at least as much to lose as Greece. They will still lose on Greece; no doubt about it but the longer they play the waiting game, the greater the likelihood that their losses will be contained to Greece. So much for the ‘generosity’ of the lending countries.

    • Crossover – The things you highlight would make sense if the goal of the Troika was to allow the Greek government to become sustainable and then default. But they are not, are they?

    • @Klaus Kastner
      Regarding: (to avoid having to bail-out their banks directly, the lending countries preferred to bail them out via Greece’s balance sheet; a bloody nuisance)

      Thank you for this absolutely spot on remark concerning our esteemed European partners motives. Imagine the trouble we are in, that there are still people in Greece,of all places, that cannot get this simple fact through their thick heads..

    • “The things you highlight would make sense if the goal of the Troika was to allow the Greek government to become sustainable and then default. But they are not, are they? ”

      I certainly believe this isnt their goal.And im glad that you seem to realise that too.But my point was that taking the primary balance into consideration is neither meainingless nor is it used for propaganda.Achieving a primary surplus is actually important for Greece if it ever “grew the balls” to reject the next tranche of the loan on the grounds that prof. Varoufakis mentions.

    • Crossover – “But my point was that taking the primary balance into consideration is neither meaningless nor is it used for propaganda.Achieving a primary surplus is actually important for Greece if it ever “grew the balls” to reject the next tranche of the loan on the grounds that prof.” – In which case the government should have defaulted in 2008. –

      This would have forced it to balance its books immediately without having to increase its debt by over 50% and without having to slash and burn the Greek economy. –

      Looking at the all figures I have ever seen, the Greek government was in a much better position when it ran into trouble originally as opposed to now. In short the bailouts make no sense IF their purpose is to benefit the Greek people. And if Merkel deserves any blame then it is for stopping the Greek government from defaulting and allowing the incompetents in charge to stay in control so they could bring the countries to it’s knees.

      Also, if I can go back to another point “I think” you made about the pensions not being paid out in a default. Sure, the Greek government could choose not to pay pensions and pay workers in the government instead. The point being it is up to the government to choose who they do not pay in a default. If they want to continue to pay a 35 year old public sector worker rather than paying 5 pensioners it is their choice. The fact that they are saying in their mind that the 35 year old is higher in the pecking order than 5 pensioners tells you all you need to know about the “compassion” of the Greek government.

      And if I can just say the governments revenue will not cease in a default. They will still receive close to the same income, the only difference is they will not be able to spend more than they take in. For the Greek politicians to be constantly saying the country will collapse if they cannot spend more than they take in is lies. And I think in calling the political elite in Greece liars is being unjustifiably polite.

    • @Klaus: I agree completely with all of your comments in the posts above. That we are at such a stage in the crisis yet have to continue repeating these basic but crucial points is a clear indication of why democratic process is unlikely to assist in resolution of the problem.

    • “In which case the government should have defaulted in 2008. –

      This would have forced it to balance its books immediately without having to increase its debt by over 50% and without having to slash and burn the Greek economy. –”

      “In short the bailouts make no sense IF their purpose is to benefit the Greek people. And if Merkel deserves any blame then it is for stopping the Greek government from defaulting and allowing the incompetents in charge to stay in control so they could bring the countries to it’s knees.’

      Thats exactly why i have been saying over and over again that the gvt,the troika and Merkel are all on the same side.

      “Also, if I can go back to another point “I think” you made about the pensions not being paid out in a default. Sure, the Greek government could choose not to pay pensions and pay workers in the government instead…..”
      No it wasnt me who said such thing.i think it was anna v.I dont believe this fearmongering.Ofcourse its up to the gvt to decide who to pay.And if they werent stupid they would mostly reduce payments that have a low fiscal multiplyer.Wages and pensions surely dont fall under this group of payments.Especially low and mid level wages and pensions should be protected as much as possible.

      I really dont disagree on anything here on this post of yours.

  34. “a program that is mutually advantageous for all Europeans.”

    like what? Take the money from Mars and give it to Greece and other European countries that in reality need to live by their means?

  35. Pingback: The Age Of Unreason And Vampire Economics « parina

  36. Your proposal makes sense. Especially the part about a direct ESM recapitalization of the banks. The PSI was a Merkel disaster and there is no need for the Greek state to borrow any further to fix something it did not cause to begin with – i.e. sub par Tier 1 capital requirements for the Greek banks.

    Agreed also on the EIB part plus some extra investment funding beyond the already allocated limits. As far as the OSI is concerned this ought to be a foregone conclusion. The haircut was Merkel’s idea so let her lead by example and undergo the deepest haircut possible (at least 80% magnitude) so that she could successfully demonstrate the merits of her approach (or get a good taste of her own medicine) – whichever way you like.

  37. Yanis – First things first. You keep saying the Troika is asking for wage and pension cuts. This is false. This is what the Greek government proposes as a way of avoiding layoffs in the public sector. From the mouth of the horse

    Second – You contradict yourself massively “, this capital injection will be to no avail. Greece’s banks are beyond insolvent. They are irredeemably bankrupt, in view of the Depression all around them. The planned capital injection will, in its self, be nowhere near sufficient to guide them back to solvency.”

    and then you say

    “First, that the Greek banks are recapitalised directly by the EFSF-ESM, as per the June EU Summit agreement (which has fallen by the wayside since it was struck).”

    Of course the banks are beyond saving. Yanis the only thing that needs to be done is for the depositors to be compensated. New banks will fill the vacum, that is a fact. The banks are nothing compared to the value of the people. The people have labour and land, the zombie banks are parasites on the economy. They no longer serve their purpose which is to assist the economy. They need to go bankrupt so new banks can come in. Let the invisible hand work its magic.

    Unfortunately the ECBs control of all banks as proposed in legislation you cheerlead makes it all but impossible for independent banks from China, India etc etc to come in and fill the vacum. No sane organisation wants to deal with the oppressive EU regulation.

    Giving the ECB more control is like is the equivalent of being in the middle of the ocean after your luxurious cruise liner (low interest rates) has sank, being surrounded by flesh eating jellyfish (insolvent banks) and deciding to fire your ouzi into the bottom of your lifeboat (increasing taxes) while yelling aarrrggghhhhh (austerity is terrible)!!!!!!

    Your putting on a good show (by cutting pensions & wages) but your only screwing yourself (through maintaining oppressive regulations and by not shrinking government)

    You cant eat the jelly fish (the banks cant help), you cant drink the water (the bailouts are making the situation worse), your only solution is to leave the area. (Default and whatever that brings)

    • “You keep saying the Troika is asking for wage and pension cuts. This is false. This is what the Greek government proposes as a way of avoiding layoffs in the public sector.”
      OK lets examine if the image you are giving to the troika is correct.I definitely believe that keeping on cutting wages and pensions instead of going after the big money and even layoffs in non productive and/or useless parts of the public sector is something that is preferrable by the government for voting reasons etc
      But lets see some facts now.When the coalition government was formed,you may remember that they had numerous meetings in order to agree on where the new fiscal cuts would be applied.At that time,it was said that the new cuts should be at 11bil if im not mistaken.At some point the biggest part of where the cuts would come from was agreed upon and there were just a “few” hundred millions left to be decided.I cant recall the exact amount right now but i believe it was around 100 and 300mil euros.
      The government proposed that those cuts should come from a reduction in military expenditure and the troika rejected this proposal and eventually accepted the new proposal which simply applied the cuts on the very same old shoulders.
      Since now you are claiming that all this is government decisions i would really like an explanation as to why the troika cant simply reject this type of cuts the same way they rejected the proposal about cutting military expenditure ?Why on one occasion they are able to reject the cuts and on another one they accept them right away?Especially now that the effect of these cuts on the economy is clear even to the troika?
      My take is that the troika and the government are on the same side.

    • Crossover – “i would really like an explanation as to why the troika cant simply reject this type of cuts the same way they rejected the proposal about cutting military expenditure ?Why on one occasion they are able to reject the cuts and on another one they accept them right away?Especially now that the effect of these cuts on the economy is clear even to the troika? My take is that the troika and the government are on the same side.” – I agree 100%, it is not logical for the Troika to be giving the Greek government cash going on their track record over the past 3 years.

      Your take sounds reasonable re gov and Troika on the same side.

      Also the Troika could be giving the Greek government enough rope to hang itself so to speak. If I were looking at a Greece as a country where I wanted to snap up the assets at knock down prices while at the same time smashing all government contracts I think I would probably do the exact same things as the Troika. The difference between Greece & Argentina and Russia was that the IMF did not need to extract cash out of the economy pre-default. The currencies in Argentina & Russia devalued overnight this would not happen in Greece meaning the people would still have wealth post default and assets prices would not implode.

      The Troika/IMF have had to play a long game with Greece, if they cant devalue the Euros in people’s pockets then they have to extract the money out of the country physically through unreasonable debt servicing costs and bank bailouts.

    • @ Crossover

      “The government proposed that those cuts should come from a reduction in military expenditure and the troika rejected this proposal”

      Well, no. The Troika would have accepted. But, as usual, the Greeks themselves managed on their very own to ruin this good approach. How? Simple: the Greek military screamed bloody murder as they were made aware of the plans, as well as many mayors. Didn’t take long until the government buckled. So, this time it wasn’t the ruling cleptocracy of Greece. It was the (inefficient and ridiculously oversized) public sector who blocked change, may it cost the Greek nation in total what it wants.

    • @VSS
      here it is: (use a translator)

      actually it was more like 500mil than 100-300 that i mentioned.still my point stands.The article says that the minister of defence would propose that these 517mil would be cut from operating expenses and arm purchases.80mil from the former and 437 from the latter.

      we already know that the troika rejected this proposal.Keep in mind that im not judging the rejection.Rather im judging the selective rejection.The government proposed an equal measure in terms of money.It would just come from arm purchase reduction rather than cutting wages.
      I can even agree that the government proposed the equal measure because “the Greek military screamed bloody murder as they were made aware of the plans, as well as many mayors”.End point is that the Troika rejected it.
      Now im asking once more:why cant they similarly reject the unfair cuts that are imposed on the same people again?

    • @VSS
      “It was the (inefficient and ridiculously oversized)”

      Inefficient maybe (probably, although my experience is different). But ridiculously oversized? here you go:
      -Public Sector size in Greece ~ 600.000 (probably LESS, as of august there were 574.556 public servants out of 11 million)
      -Public Sector size in Germany ~4.700.000 (WITHOUT THE MILITARY PERSONNEL ).

      Not enough? Look at the public servants of some other countries:
      -Finland 26%,
      -Holland 27%,
      -Slovenija 28%,
      -France 29%,
      -Belgium 31%,
      -Denmark 32%,
      -Sweden, Norway 34%

      Do the math and come tell me again about “ridiculously oversized” public sector in Greece. I think you know all these, we hahave said it billion of times, but you just want (as usual) create impressions

    • ΤΟΥΡΙΣΤΑΣ – You bring up something very interesting. But the important figure is the government deficit as a percentage of GDP. the fact that the Greek government is “small” compared to the other governments you highlight shows one of two things. Either certain public sector people are getting paid fortunes, either through pensions or wages OR the government is paying out simply tonnes of cash to people not employed by government. Either way there is something seriously wrong. Personally I think there is something going on that no one knows about, I don’t believe the Greek government can be increasing their debt so much every month if things were “normal” there is a black hole somewhere. My opinion. To highlight the point the government could go back to their 2007 budget and they would achieve the “catastrophic” budget being voted on today. Something is making this difficult, question is what?

  38. Jiannis, I told you about leaving the euro for the drachma. You invent the drachma, and you say that this drachma has this value. Then you pay the debt or you ignore to pay it. If you want to pay the debt, you just invent the money out of thin air, that all the banks are doing, and you pay off, all your debt in 1 second. It is so ridiculously simple. You don’t give the banks the the power to create electronic credit in drachmas out of thin air.
    No austerity!

    Check professor Werner

    Check out Bill Still

    Greece’s problem is easy to solve! Create at least a paralell drachma-system, like Licoln did with his “Greenbacks”

    • Lasse – Its one solution one consequence being pensions get wiped out along with savings.

    • You do realise that it doesnt matter what would be the declared price of the drachma as long as we would have to swap it for euros in order to repay euro denominated debt, dont you?According to you we can simply mint a jumbo drachma coin and price it at 300bil euros.This coin will have to be exchanged for euros.Do you know anyone that would buy this coin for 300bil?

      End result will be a devaluation that will reflect the real value of the currency and if we try to repay by printing more drachmas end result will be inflation big time (even i recognize the inflationary pressure in this case, lol ).Ofcourse if we manage to swap the euro denominated debt for drachma denominated debt everything changes and inflationary dangers are reduced.

    • Crossover – Greece is already a fascist regime. It would be utter butchery for Euro demoninated debt not to be turned into Drachmas. Utter butchery. I’m not saying it wont happen, the Greek elite that Greeks keep voting for are capable of anything to keep their jobs.

    • Richard, i agree.But i guess its not just about the domestic elites.Foreign creditors will suffer exchange rate losses if the debt becomes redenominated in drachmas thus they have great incentives to not let this happen

    • Crossover – “Foreign creditors will suffer exchange rate losses if the debt becomes re-denominated in drachmas thus they have great incentives to not let this happen” –

      Unless they have the power to inflict taxation on the population, seize physical assets due to non payment of illegal debts

      or launch a military campaign against Greece they will have to eat their losses. Buyer beware. –

      Except the Greek government and political parties have completely sold out and made an invasion of armed forces by a foreign power completely unnecessary. Call it a bloodless coup, except no one has noticed. At least in the media. –

      Problem is people these days only listen to the government. If the government says something hasn’t happened then it hasn’t happened regardless of the evidence that is staring people in the face. Again I refer people to this video

      tell me it isn’t so…..

  39. Judging by your latest post these are desperate times indeed. I am afraid that at best your solution can be summed up as too little too late. Allow me to voice my concerns with aspects of your proposal

    Your proposal concerning the outstanding debts of the Greek government towards the private sector does not address the problem. The majority of the companies and individuals concerned are now on the brink of total bankruptcy and collapse and your disguised IOU proposal cannot possibly help them stay afloat. Since said IOUs can only be used in government dealings they do not have the immediate impact of an actual payment in euros. The best solution would be for said IOUs to be able to be used as collateral at face value with the banking system for medium interest-free loans. The banking sector is under the complete control of the government and of course the troika so if there was any will the way is clear. The issue could be resolved in another way by raising the debt ceiling of the total amount of short term bills the government is allowed to issue. This can easily be done again with the help of the ELA program of the GCB. My guess is that this is probably the solution that the troika is going to allow for Greece in order to restore some liquidity to the market. The fact that these debts have been allowed to go on unpaid for so long speaks volume of the Troika’s intentions and strategy.

    The recapitalization aspect of your proposal is correct, but unfortunately one can easily guess that the real problem is that the necessary capitals due to the recession and the increasing amount of loans turning into liabilities are far greater than the numbers that have been making the rounds. The 30 or so billion euros just aren’t going to cut it anymore. It is anyone’s guess how this is going to play out.

    The 12 billion euros worth investment program through the EiB is of course a completely logical solution but naturally is not going to happen. The EiB very very reluctantly recently issued 300 million or so worth of loans towards small businesses and that happened after political pressure and I think the state guarantees. So what chances are there for 12 billion euros then to reach the Greek economy?

    I think the best aspect of your proposal is the part about forcing a confrontation. You suggest the ECB but really anything will do. We need answers regarding everyone’s true intentions and agendas and we need them fast. Staying in this destructive path nearly for a year until the German elections to be then told that an exit from the euro is inevitable is simply pointless.

  40. Mr. Varoufakis,

    I am pondering about the following. A major issue is the recapitalization of Greek banks at a point where brutal tax measures are taken. My thought is driven by the simple notion that if you have to deprive people from hopelessly needed money, then you have to start from people that wont end up in hunger or cause survival issues in their lives (sure everyones life will get worse, but some people’s life will get even worse if they cannot have even the basic to survive). In that context, I believe that someone who has money in banks abroad, does not need that money to … survive. I am not saying that he is super rich or anything. Maybe it is just life-savings for a house for his children. This however does not change the fact, that he can feed himself and his family without these money.

    So let’s assume this scenario: the greek government issues a law that for everyone who has deposits abroad there are two options:
    1. choose the safety of non-greek banks and be taxed a 10 or 20 % of these money.
    2. return the money to greek banks without any additional tax.

    The result is either that the greek government collects a serious amount of taxes (should all those numbers that circulate on the overall sum of greek deposits in foreign banks are true) if people do not trust the future of greek banks or state or have a big injection in cash flow for the greek banks from the deposits that return to Greece.

    Any way, I also believe that thorough investigation for tax evasion should be performed for all those accounts.


  42. It is a rare pleasure to read a plan to get Greece out of its present wows that is more realistic and concise compared to the one presented by Dr. Varoufakis (here and in all his other articles). Unfortunately however such a voice of pure reason is not be given the attention it deserves in Greece. In the rare occasion that his views are given a public stand in Greece it is solely for the purpose of ridiculing them and in so doing to provide legitimizing to the government policies or to “show” that there are no viable alternatives. The treatment of Dr Varoufakis by self proclaimed economists and semi-literate -newscasters on the Greek TV is the best example of this parody. The fact is that the present government will take all economic, political and social measures required to increase the dependency of Greece on the European financial economic and political system to such an extent that no matter which government comes to power – left-right or center – there will be no viable alternative policy to take other than the one prescribed by the European financial system economic and political system. This is done purposefully and systematically from the beginning of this constructed crisis, by politicians in Greece in conjunction with their European counterparts. Greek politicians are not traitors in doing so as some people believe, but simply believe in the European financial, economic and political system the same way a believer – say your grandmother- believes in the existence of god. What Greek people do not realize is that they are suffering from politicians that are for the most part complete idiots with very limited or no knowledge of anything other than taking money under the table and placing their sons daughters and nephews in government posts (since they too have acquired their positions as a result of these same methods. Such politicians are first and foremost concerned about keeping their positions and they suppose that their positions are much better secured if they follow the existing system rather than going against it. So, indeed the situation in Greece will become worse, indeed the dependency will increase even further so that even if an “anti-establishment” government comes to power its alternatives will be excessively constrained due to this deliberately constructed dependency.

    • Christos, you write in your most readable comment: “Greek politicians are not traitors in doing so […]the same way a believer – say your grandmother- believes in the existence of god. ”

      After countless debates here in Germany with all kinds of folk, (scientists that have a deeper, (yet german-centered and neoliberal) understanding than I could have as I did not study economics; politicians, the “crowd” after reading our papers) – I think Schäuble, Merkel and others somehow “believe” too, their immensely wrong ways would work. They did not work from the start. Merkel, Troika and so on never thought for a minute about poor people in Greece or Spain. Yet Merkel seems to believe in her book of market-radical ideas.
      You’d laugh out loud if you knew what some people talk about Europe and Greece.
      It does nothing to enlighten the world, but if you want to see such a figure of the “majority”, type “US election How can rivals woo Virginia voters” into youtube and go to 1’55. In a BBC clip from Virginia you see the typical Romney-voter here. He says Europe, and before all Greece (?) Spain(?) and UK (?) are “socialistic”.
      Back to your discussion, people, I read a lot of the comments.

      Greek Left review (see above in this thread for the link) has an article about how Noam Chomsky, himself no economist either, sees the situation in Greece. He compares it somehow to Argentine, many moons ago. They just said “no!”.

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