What Europeans should know about the current situation in Greece – Interviewed by Edward Geelhoed

Some positive sounds are audible from Greece these days. Mostly produced by the government itself, of course, but also by Merkel, by the OECD (along with some negative sounds), by some European officials (while others say they’re ‘impatient’ with Greece). Is Greece slowly recovering?

It takes a passionate disregard for the truth to suggest that Greece is recovering. Investment has fallen by 18% since the dismal levels of 2011/12, credit to non-financial institutions is 20% down from the asphyxiating depths of 2012, poverty has reached record heights, and is still growing, employment is at levels that are best narrated in the style of Steinbeck’s Grapes of Wrath, public debt is exceeding the worst expectations of the greatest pessimists, private debt is reaching for the sky at a time when the collateral posted (e.g. house prices) are sinking fast, the government’s tax take is trailing the worst forecasts. The list of woes is endless and the so-called ‘Greek Success Story’, or ‘Greek-covery’, reflects nothing except the determination to reverse the truth, Goebbels-like, by those who insisted on the policies which resulted in this debacle.

The positive sounds refer to the budget surplus, to a small growth (says the gov’t) or just a small recession (says the others) of the economy.

Europeans have a duty to themselves to see through this toxic propaganda. There is no such thing as a Greek budget surplus – not even a primary surplus (i.e. a surplus if we not count loan and interest repayments). If you look at the government’s own accounts, the January to October 2013 balance reveals a primary budget deficit of nearly €6 billion. As for the rumoured primary ‘surplus’ that is ‘around the corner’ this is a projection, a piece of wishful thinking that may, or may not eventuate, next year. As for growth, the Greek economy is still, by the government’s own accounts, shrinking at -4%. The projection of growth of… 0.4% is for 2014. Europeans need to look at this projection in the context of similar projections which, for example, had (at the time of ‘bailout Mk1’) Greece growing by 2012 at a dizzying rate of 2.3%! In truth, 2014 and 2015 will again see the Greek social economy shrink further.

Is some ‘positivity’ justified, or is Samaras’s so-called success story about ‘justifying austerity in the eurozone’, as The Guardian puts it?

Austerity is being, falsely, justified by the so-called Irish ‘escape’ from the clutches of the ESM. I have argued elsewhere that the justification for austerity in the Irish experience is fraudulent. Nevertheless, the Greece case is not even used by Brussels, Frankfurt or Berlin as a justification for austerity. The reason is simple: it takes only a perusal of the facts to recognise that Greece is in a sad, never-ending mess.

In an op-ed in the Financial Times, Mr. Spiegel recently stated that ‘Athens is gradually shedding the incentives for reforms’. Is that what we’re seeing with the Troika talks, now the gov’t is satisfied with the budget surplus?

What your readers must come to understand is that, the moment the ‘bailouts’ were forced upon Greece in 2010 and then again in 2012, all chance of meaningful, effective reform disappeared. Think about it for a moment: In 2010 the Greek private and public sectors became insolvent. So, what did Europe and the Greek government do? They piled on the weak shoulders of the bankrupt Greek social economy the largest loan in human history on condition that Greece’s GDP (from which old and new loans would have to be repaid) shrinks substantially (for this is what the stringent austerity meant)! Naturally, no one with any sense invested in this country and the insolvency both of the state and of the private sector deepened. Now, turning to reforms, ask any CEO of any decent company: “If you want to reform, to modernise, to re-structure your company, can you do it on the cheap? Without any investment?” The answer is negative. Similarly with Greece. The country was pushed into a never-ending negative spiral that rendered it un-reformable and un-governable all at once. For it is not ‘reform’ to cut wages, pensions and to push taxes through the roof at a time when GDP is collapsing and the banks have no capacity whatsoever to lend even to potentially successful enterprises. These so-called ‘reforms’ are nothing but acts of brutality. The homage propaganda pays to irrationality.

Is PASOK’s concern for overburdening society genuine and sincere, or does it fear for its weakened position only, for political reasons?

PASOK effectively ceased to exist in November 2011, with George Papandreou’s resignation. The party paid the price of being in government, though not in power, at the moment the nation hit the rocks. Papandreou had a golden opportunity in early 2010 to tell the truth (i.e. that Greece was bankrupt) and thus save his government, his party and what was left of the nation’s dignity. He failed spectacularly. After his resignation PASOK became a rump whose raison d’ etre is to provide a life raft for political wreckages like Venizelos. Sadly, a significant party of the Centre Left has now degenerated into a small gang of corrupt politicians struggling to stay out of prison.

Stournaras (Greece’s finance minister) and Samaras (Greece’s PM) say they don’t need a third loan. Is Greece ready to return to the markets, can it stand on its feet? Or do they try to gain confidence with psychological statements like these?

None of the deficit Eurozone member-states can refinance their debts autonomously. Not even Italy and Spain. Without Mr Mario Draghi’s OMT proclamation, in September 2012, which was a clear threat to bond dealers not to bet against the deficit nations’ government bonds, Italy and Spain would have joined Greece, Ireland and Portugal in the group of failed states. While the OMT threat is still managing to keep spreads down, some of the deficit countries can refinance their public debt. Even Greece might be able to do so if the ECB were to signal to markets that Athens would be placed under the OMT umbrella. But to say that they can stand on their own feet in the money markets is to mis-read totally the situation. In this sense, Stournaras and Samaras are not hoping to fool the markets – they cannot be that foolish. No, they are hoping against hope that Berlin will consent to Greece being let out of the ESM and placed under the OMT umbrella. Of course, none of this matters. Whether under the ESM or the OMT, the deficit Eurozone countries (Ireland just as Greece, Spain just as Portugal) are still in chains, caught up in a negative feedback dynamic between un-payable debts, insolvent banks, recessionary forces and mindless universal austerity.

Merkel speaks of ‘impressive facts’, but these numbers are there due to heavy burdening the society. Increased competitiveness, an erased budget deficit, but it caused enormous despair. Samaras calls it ‘the sacrifices of the people’. Is it worth it? Isn’t there a huge difference in realities on paper and in the outside world, on the streets? Didn’t it not only cause despair, but also ruined the economy in the long run?

You are making a significant error: The situation is not just awful on the ground. The situation is unbearable also on paper; in terms of official statistics. Our leaders are disgracing themselves with ‘happy go lucky’ pronouncements that clash with their own statisticians’ numbers. Never before has such energy be expended by political leaders to mislead Parliaments and electorates regarding the economic situation on paper and on the ground. Worse still, our leaders are doing this cynically and knowingly, the result being the greatest democratic deficit in Europe’s post-war history.

Martin Schulz said that the Troika has done ‘more bad than good’. Do you expect a different policy to be executed?

No. I just expect that Mr Schultz is expecting to gather a few more Peripheral votes in his sad quest for the top position in Brussels.

Should bond investors share the costs of bailouts with taxpayers, as the IMF suggests? Should European governments write down the Greek loans? A former IMF economist said recently: ‘There’s no trade-off between austerity and debt restructuring – you have to do both.’

You are asking someone who warned, in January 2010, that any bailout for Greece would be a terrible blow against the Eurozone if it were not preceded by massive debt restructuring. The IMF, behind the scene, agreed with me. But in public they lent their voices to the Berlin-Frankfurt-Brussels cacophonous choir that proclaimed a debt haircut as both unnecessary and undesirable. To have these same officials lecture us on the importance of debt restructuring is a little like listening to the Titanic’s captain lecture us on iceberg avoidance.

What is the path to growth? Or is growth overrated?

It depends on what is growing. At the moment we have growing debts, non-performing loans, poverty, suicides, and… Nazi parties. These are our ‘growth’ areas. What we need, before we can talk about growth credibly, is stabilisation. To stabilise the Eurozone we need to Europeanise, without any federal moves, four realms: public debt management, banking sectors, aggregate investment policies and attempts to quell the humanitarian crisis.

George Pagoulatos says that structural reforms are clearly happening, for example; at the pension system, all possible structural changes have been made, he says, not so much horizontal measures. Others disagree. The Troika agreed not to execute horizontal measures anymore. Are true reforms happing, in your eyes? Where is it needed most?

To compress pensions to unlivable levels is not to carry out structural reforms. As I already argued (see above), genuine reforms cost money and cannot be effected in an environment of fear, collapse and political illegitimacy.

Is there a real, radical alternative to all of this? Are proposals by Syriza possibilities? (If so, which ones mostly?) You seem to have sympathy for the party’s ideas, isn’t it? 

No solution can be effected at the national level. It is as if in the 1930s the state of Kansas could have reversed, on its own, the effects of the Great Depression through Kansas-centred policies. The Eurozone is experiencing a systemic crisis that needs to be dealt with systematically. How? What we need is to escape the false dilemma between the current, dead end, policies and the (false) alternative of moving in a federal direction (that Europe is not ready for). This false dilemma must be escaped through a rational redeployment of existing institutions in a manner that does not ask of the surplus nations (like Germany and the Netherlands) to pay the bills of the deficit nations while, at the same time, not pushing the burdens of adjustment onto the weakened shoulders of the deficit countries. Together with my colleagues J.K. Galbraith and S. Holland, we have presented what we call a Modest Proposal for Resolving the Euro Crisis. Michel Rocard, the former French PM, as well as a number of former EU heads of state, have endorsed its basic tenets.

As for Syriza, my reasons for supporting Alexis Tsipras, both in his bid to win government in Athens and also in the context of European politics, is simple: Europe needs a major jolt from a government that is at once committed to the European-Eurozonal project and to the truth. I do not really care where it comes from as long as someone in the EU Council, in the Eurogroup, in Ecofin breaks the code of silence about basic truths that no one dares speak. At long last, Europe must have a debate on basic prerequisites for stabilising the Eurozone. To do so, someone must refuse to continue the lie of the past five years that, supposedly, Europe is on the right track. Tsipras is prepared to veto this lie while doing his utmost to keep Greece in the Eurozone. For this reason he has my support.

How can (youth) unemployment be conquered best?

It is absurd and, indeed, indecent, to imagine that youth unemployment can be tackled when adult unemployment is skyrocketing. Youth unemployment will fall when unemployment falls. Of course, there are clever and innovative methods of combining education with vocation training, as it is done with some success in Germany. But none of this is possible in a crashing economy.

Can you call Greece still a welfare state? To what sort of society will these policies lead to, eventually?

Greece is being used as if it were an experimental laboratory in which the welfare state is dismantled and the experimenters keenly observe the effects of its dismantling. If so, it is time to end this misanthropic experiment. For we can now see that the result is untold pain, economic collapse (even of potentially profitable enterprises), and the rise and rise of a Nazi party in the one country of the European Union that fought most heroically against the original Nazis.

18 thoughts on “What Europeans should know about the current situation in Greece – Interviewed by Edward Geelhoed

  1. Pingback: What you should know about Greece’s present state of affairs – an update | greek_independent_news

  2. Pingback: What you should know about Greece’s present state of affairs – an update | gold is money

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  4. During last months we have experienced an intense debate among policy makers about of possible “Bail In” or “Nationalization” solution alike Cyprus for failing Banks.
    Two days ago (Wednesday 12-12-2013) European Parliament and Council Presidency issued press release about of struggling Banks.
    The new rules—known as the Bank Recovery and Resolution Directive (BRRD) made more than clear that the treatment of Cypriot Banks we have already known earlier in 2013 set a precedent.
    What does it mean for savers?
    “Nationalization” or “ bail in” solution and wipe down eight percent of a failing bank’s liabilities before recourse could be made to backstops such as resolution funds.
    Mandatory bail-ins begin in 2016 according to European Parliament press release.
    (The bail-in tool set out in the directive would require shareholders and bond holders to take the first big hits.)
    In contrast U.S.A has already the Deposit Insurance Fund (D.I.F) which serves dual pruposes
    1.Protecting the depositors of insured Banks
    2.More over funding the resolution of failed banks.
    The Eurozone is caught in a ‘diabolical loop’ in which weak domestic banking systems damage sovereign fiscal positions besides of that Europe do not have established a Deposit Insurance Fund alike Federal Reserve but instead of that we are going for the final form a “peer to peer” phase of Single Resolution Fund Mechanism that it wil take form during first months of 2014.
    Furthermore European States according to European Parliament press release two days ago (12-12-2013) are obliged for each EU member state, a fund will be established which will come to the aid of banks in order to help them recover or to wind them down.

    Mr Varoufakis you have already given a great deal of speeches and conferences in Greek media as well as in many foreign places many of them mainly in Greece “journalists” and “commentators” object your economic views.
    I would like to please your kind response one more time for Greeks “journalists” as well as for Greeks policy makers wise guys many of them are desperately extraneus to the matter of financial science .
    What does new issued by Europes Parliament Bank Recovery and Resolution Directive (BRRD mean for Greeks “success story”.
    What does it mean for “proud’ Greek savers who still support Primes Minister Mr Antonis Samaras “success story”?
    In Greek prevalent circumstances for Bank a mandatory 8 percent bail-in and 5 percent potential contributions from a banking industry financed resolution fund will not be “enouth” and :adequate” to justify Prime Minister Mr Antonis Samaras “Success Story” which sound like highly seasoned anecdote.
    New realized by European Parliament and Council Presidency Bank Recovery and Resolution Directive (BRRD) made more than clear that the treatment of Cypriot Banks we have already known earlier in 2013 set a precedent.


  5. Pingback: Yanis Varoufakis: What Europeans Should Know About the Current Situation in Greece – The News Doctors

  6. Pingback: Yanis Varoufakis: What Europeans Should Know About the Current Situation in Greece « naked capitalism

  7. Pingback: What is happening to Greece? | Arjen polku

  8. Interesting as usually, Yanis;

    Just one question: probably you’re right and the MP can be implemented without go ahead into federalization, but don’t you think that it’s necessary the same political willingness? An if needed, why not to push for a european federalism? Deficit countries we’ve already lost a sovereignty that now now is in the surplus countries hands. Is not the moment to profit that to construct Europe and to do that the US by mutualizing debts and credits?


  9. Excellent interview. I endorse your views wholeheartedly. I am, however, very pessimistic as to how Europe can break out of this “conspircay of lies” as it were. The Commissioners asserting arrant nonsense is the truth (such as Olli Rehn’s pronouncements). Recently another commissioner, the Hungarian Employment Social Affairs and Inclusion commissioner stated on BBC World TV’s Hardtalk programme, that Europe is converging. When questioned he repeated the assertion on the basis that Poland is growing at a higher rate than the UK. When it was pointed out that Southern Europe is on its knees, he appeared autistic. Neither to have heard still less to have understood. And what is worse he seemed genuinely clueless.
    It appears that the Commission and Eurocrats are so far removed from reality that they have come to believe their own fairy story.

  10. My dear Greek friends, simply accept the new reality.

    We are seeing a new world shaping, a new EUrope, a new Russia, a new Israel, a new USA and a new China.

    Ask yourselves what is more important the Euro or a decent living for our fellow Greeks?

  11. Instead of subjecting themselves to even more external bank policy, why doesn’t Greece abandon the Euro, take the devaluation hit that going back on the Drachma would bring, then use that to its advantage in creating new industries that can no compete on a regional level? Oh, and collect the property tax from the still-wealthy landowners instead of selling off its land to outside investors and literally dismantling the country?

    • You are wrong Yani. In contrast to Argentina we have a much larger tourism sector bringing in a lot of Forex PLUS all the natural ressources like oil, gas, metals etc.

      We need just one thing and this is the military power and friendly allies in order to be able and defend the exploitation of the riches of our seas!

    • We need just one thing and this is the military power and friendly allies in order to be able and defend the exploitation of the riches of our seas!

      Over fishing, sea pollution, and now what on top of thatt? Greece drilling out of debt by “exploitation of the riches of our seas”?

      That’s nuts, A. How about this for starters. Instead of “defending” Greece’s right to exploit the seas, rich Greeks start paying their taxes and Greece cutting back drastically on its military spending?

      I dunno … maybe I am just too much of a softy for the preservation of marine life and clean waters (aka your tourism!) .

    • @lastgreek:

      You obviously strive to become soon the last Greek, aren’t you?

      We don’t have borders with Switzerland or the Netherlands or Belgium or Denmark or or or.

      Let me remind you “softy” who our neighbours are:

      Turkey, Albania, Kosovo, Syria, Lebanon, Egypt, Lybia

      Sounds like you are not from Greece otherwise you wouldn’t have such a splendid idea to reduce military spending while Erdogan and his Islamist government dreams of a new Ottoman empire spanning from the Balkans to Northern Africa and to Uzbekistan.

    • #Aristoteles
      “one thing and this is the military power and friendly allies”…maybe you are thinking of a military alliance with Turkey 😛

    • Uh, no. Besides, the Turks will be too busy clapping with glee to form an alliance 🙂
      But I do think Yanis is being a bit short-sighted in ruling out a switch to Drachmas and an exit from the EU. There are ways to handle the disruption in a less painful way, if we agree on the following:
      1. There is more productive capacity in Greece than there is currency to pay for it. That is, there is essentially deflation. Too little money chasing too much capacity.
      2. There is great value trapped in the under-taxed land-holdings of the rich, which ought to be taxed, in a Georgist way.
      3. Greeks are already experimenting with alternate currencies, albeit not with the blessing of the State, nor available to pay taxes, and certainly unacceptable in foreign trade.

      So, if we agree on all of this, Greece can:
      1. Begin small by creating a domestic-use only Drachma. This governemnt sanctioned alternate currency would be used to pay for domestic projects, putting the vast unemployed back to (public) work(s), and most importantly, usable in paying taxes. The exchange rate could be fixed at first, though obviously if it’s set too far off reality, a black market exchange will spring up, and this is counter-productive. This has to be watched closely.
      2. Begin taxing landholdings in a valid way, perhaps through the utility bills. This can be paid in Drachmas only, thereby legitimizing the new currency.

      Our own experience in the U.S. might be helpful here. During our Civil War, the banks would not loan to Lincoln’s North governemnt except at 24-36% interest(!). Some evidence points to a conspiracy of Europeans to weaken a dis-united States by fostering its split in two, but that’s immaterial to the effect, which was to drive Lincoln to the constitution’s Art. 1, Sec. 8, clause 5, which allows Congress to “coin Money” (case structure in the original and important). Lincoln persuaded Congress to produce $450 million in United States Notes, in 3 series (1862-1863). This debt and interest free Sovereign Money lasted through 14 series until 1996, and is our longest lasting form of currency to date. It was never allowed to be used to pay the national debt (the banks saw to that from the first), and it was issued in too small amounts to be meaningful after the Civil War, when it was 40% of the currency in the North (so much for governemnt running amok with the printing press – it’s the private banks that do that through loan-money creation).
      See more details about this here: http://www.opednews.com/articles/Debt-No-More-How-Obama-ca-by-Scott-Baker-130122-872.html

      The point is, Greece must do something. As Yanis says, the situation is only getting worse. There is no recovery, at best a slow acceptance of diminished, even third world status, perhaps forever. The German led Europe will not bail Greece out because it is beholden to the banks, who will not recognize their own insolvency due to debt non-repayments. Greece must act before the nationalistic neo-Nazi parties take it over and impose a national currency in a much less gradual and peaceful way.

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