Greek Finance Minister Confesses: “I turned down the IMF’s offer of an alliance in favour of a debt restructure”

This is a stupendous story. Possibly for the first time in its tainted history, the International Monetary Fund had a major change of heart and tried to do the right thing by a ‘program’ country, only to be turned down by that very same country’s finance minister!

The summer of 2012 had just ended and Greece was, once again, facing a ‘funding gap’; a euphemism by which to cover up for the fact that, unsurprisingly, the bankrupt Greek government’s insolvency had not been addressed by new gigantic loans and fresh income-sapping austerity. Around that time, the IMF’s Ms Lagarde was being put under pressure from non-European member-states of the IMF to stop lending more money to Greece until and unless Germany and the European Central Bank came to their senses and accepted the simple premise that Greece’s solvency could only be resolved through a deep debt restructure (or, alternatively, by an enforced exit from the Eurozone).

Ms Lagarde was, in this manner, encouraged to ‘take her leave’ from the European club and to enter the Eurogroup meetings during the latter part of 2012 confrontationally, and with an aggressive agenda of restructuring Greek public debt. Alas, there was a snag: The Greek government, the main beneficiary of the IMF’s change of heart, was unwilling to forge an alliance with the IMF, disinclined to imagine the very possibility of siding with the Washington organisation against the mighty Mr Schäuble. Here is an extract from an article by Peter Spiegel and Kerin Hope from yesterday’s Financial Times:

“Indeed, Mr Stournaras said he bucked pressure from Christine Lagarde, IMF managing director, and Poul Thomsen, the IMF’s Greece mission chief, to ask other eurozone leaders – including German finance minister Wolfgang Schäuble – to accept “haircut” losses on their bailout loans. “Poul and Lagarde said I had to [stand] by their side,” he recalled. “I said: ‘OK, but if I come by your side, it is what would really help Greece, but it’s something which is totally out of the question.’ Schäuble told me: ‘Yannis, forget it.’ So it cannot be done, so what can I do?””

Never perhaps in the history of the European Union has a better example seen the light of day of the complete and utter subjugation of proud nations to the tyranny of the leading surplus nation. Never before have we had such a vivid confirmation that the European Union is no longer an association of sovereign nations and that a rational debate is ruled right out. Think about it:

1. Greece’s national interest, as well as the IMF’s, was to effect this restructure as soon as possible.

2. There was no risk to Greece from the IMF’s proposed alliance: Mr Stournaras had nothing to lose by forming the alliance requested by Ms Lagarde so as to push for a restructuring of the Greek debt. The very worst outcome of such an IMF-Greece alliance would be that the joint IMF-Greek position might be rejected by the rest of the Eurogroup and that Greece would end up with the same rotten deal it ended up getting anyway. In other words, under no circumstances would a joint IMF-Greek proposal lead to an outcome worse than the one Greece got after having rejected Ms Lagarde’s overtures.

3. Europe’s collective interest was that the Greek debt is restructured sooner rather than later – since the slow, Chinese-drop-torture-like process guarantees that no sane investor will invest in a country whose public debt remains hopelessly unsustainable (especially in the absence of a banking union), thus ensuring that European taxpayers will have to lend and lend and lend a permanently insolvent government, thus pushing through the roof the eventual costs of the restructure in particular and of the ‘Greek program’ in general.

4. Mr Stournaras, perhaps unwittingly, admitted to the Financial Times that he informed the German finance minister of Ms Lagarde’s and Mr Tompsen’s offer before the crucial Eurogroup meetings, thus voiding any surprise-move advantage that an IMF-Greek common position could have enjoyed. As we all know, from the experience of the past five years, when confronted unexpectedly by a determined large ‘player’ (e.g. the IMF), the German position suddenly becomes more flexible. Thus Greece stood to gain at least some benefits from accepting Ms Lagarde’s overtures. (But as the main beneficiary of the IMF’s readiness to confront Berlin, Greece that is, refused to join in, there was nothing that the IMF could do.)

5. Given the previous four points, it is hard to avoid the conclusion that Mr Stournaras was far more interested in maintaining a cosy relationship with Mr Schäuble than to pursue the interests of both Greece and of the Eurozone.


Yannis Stournaras happens to be a valued colleague and a good friend of mine (see the open letter I sent him upon his appointment as finance minister). It is with great personal sadness that I write these lines. Greece needs a finance minister that will re-negotiate forcefully the terms and conditions of a misanthropic, irrational, unworkable ‘bailout’ package (especially now that a Mk3 version is on the boil). Given the way he, by his own admission, squandered this remarkable opportunity to increase Greece’s bargaining power, he lacks the credibility amongst Greece’s polity to lead these negotiations. He should thus resign. Effective immediately. 

101 thoughts on “Greek Finance Minister Confesses: “I turned down the IMF’s offer of an alliance in favour of a debt restructure”

  1. I really don’t understand why we are fighting here about false definitions. The situation in its simplest form is as follows:

    The architecture of the euro without a corresponding political union is one of the most flawed mechanisms one could ever invent. And since the current trend in Europe(for better or worse) is the furthest away from political union, it automatically tells us that the flawed currency has to go. Member states should continue to trade and coordinate on things but in multiple currencies other than the euro (use the UK as an example).

    We spend an enormous amount of time to figure out who did what to whom when in fact out first priority ought to be to turn off the life support button on the euro. We can then act again as normal people and decide about the optimum nature of things.

    • This is one of the best posts on this blog. Thank you.

      It is really a waste of time trying to solve problems we would not have without the Euro.

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  5. Hello Mr. Varoufakis,

    as a german, i am ashamed by mr. schäubles and mrs. merkels politics. germany is ruled by insanity, again. most people here are brainwashed by mass media. the discourse here is becoming more and more ugly: “we, the strong, against the weak others”. people in europe must start a dialogue and movement against this right wing insanity, otherwise the future will be ugly. as one step, i thought about a website were the local press of the different countrys in europe is translated into english, so people can understand the different discourses and talk about it + give it a critical view.

    kind regards

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  7. typos corrected (Yannis, please delete the previous version, if you can):

    The observations in the post are correct. However, I believe such an alliance would not have worked on this occasion.

    Greece will have future opportunities to play hardball on grounds of debt sustainability. For that game to work, however, it cannot bluff, and it must be prepared to offer an exit as the only credible alternative. Only then will the EZ choose the restructuring plan.

    So far, no-one in Greece is prepared to play that card, and no-one would be able to credibly play it even if they wanted to. Everybody else in the EZ would bet that Greece would back down (and, given where the Greek public stands on that issue, they would be right to bet that way). So even if Greece had sided with the IMF on that occasion and sprung a surprise on the EZ ministers, it would not have worked this time.

    The alternative has to be “restructure on terms of sustainability, or restructure on worse terms (for the lenders) which — following an exit — will be set by Greece (and the IMF)”. Why the “and the IMF”, you ask?

    Because the solution would have to start with educating the Greek public that an exit does not need to be a disaster. And the hitch with such an education effort is that Greeks are instinctively (if secretly) inclined to welcome oversight over Greek politicians and budgets from abroad after all that has happened over the last decades.

    So, the hardball game will only work if Greece submits itself to IMF alliance and oversight in all cases, even in case of an exit, because that is the only way the Greek public might buy an exit scenario. The Greek public and the IMF need each other, and the Greek politicians need both of them, to give such a negotiation tactic the necessary credibility.

    So, alas, Stournaras had no alternative. Not this time.

    • You are correct in pointing out that unless Grexit is credibly considered as an option by Greece and its public, politicians have little leverage. It is their own fault for not discussing this option publicly and educating the public in the process. Instead they chose to ridicule anyone who brought up the issue. Right to this day the Greek public is abnormally attached to the sense that an exit from the euro zone will equal disaster. Of course you cannot negotiate properly when you cancel all of your options publicly and denounce sane voices as traitors of the state. You are also correct in pointing out that the public does not trust at all the political establishment, they are the same ones that bankrupted the country in the first place after all. After the budget is balanced though and after a debt restructuring the government would not be able to run deficits because of its expulsion from money markets so no oversight would be necessary. Either they balance the budget or they default. In the case of Grexit, if the debt was internalized through some sort of currency conversion then the government could theoretically run deficits ad infinitum, print money through its central bank to finance it and watch inflation wipe it away. This is the option Germany adopted in the 20s.

  8. well it seems Stournaras tried to explain his decision:

    Pure bullshit mixed with admiration for the poorer nations that are giving their money to float Samaras and his employers, while Greece has no economy any more.

    Note that the commentator’s question was put like this: You stated on FT that the IMF was “putting pressure” on you to “accept” a debt haircut…!!!

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  10. Nice work, Yannis! None of this surprises me. The Greek political elite are only interested in covering their asses and protecting their privleges. They would not go for restructuring because of their slavish attitude towards the EU, They look to the EU for their careers and personal material prosperity. As for the bills and costs, they put that on the Greek people. It is really a serfdom relationship with these guys. Many Greeks willing to be serfs, too. But for how long???

  11. Dear Yannis,

    Sadly, I am not surprised by Stournaras’ admission. I am surprised at your surprise…
    You seem to believe that you and Stournaras–personal and collegial feelings aside–are somehow on opposite camps on major issues.

    To my eyes however you are both well inside the same camp; the “waiting for the barbarians” camp (to non-Greek readers offended by the word ‘barbarians’, I am referring to the immortal word of C.P Cavafy,

    Or, the “wait for the EZ to come to its senses” camp if you prefer, which you see as inevitable because of Italy…

    But tragically, you are wrong. When Italy is about to blow up, your nice Dr. Draghi will just do “whatever it takes” to keep it in the Franco-German camp, and Italy will take the deal. Thus, via the simple tool of ***orchestrated deflation***, we will end up in an atrocious kind of European Union, where (by reference to your MP policies):

    1) There is a lender of last resort for every country: for “systemic” countries it is Dr. Draghi’s cannon, for the rest it is bilateral loans that cannot be repaid.
    2) There is a banking union: banking revenues of periphery economies go the the “healthy” banks of the “systemic” countries, while losses from bankruptsy in the periphery stay with the banks of the periphery countries, supported by endless ELAs.
    3) There is cross-country investment: profits from periphery economies are invested via “center” banks to “center” economies, while the center sends back to the periphery capital to be invested in the foreclosed properties of bankrupt states, companies and people.
    4) There is major humanitarian crisis action: endless stream of nice words and pointless “retraining” to the suffering, massive immigration (called “worker mobility”, a *right* of every EU citizen) for those useful to the center economies.

    You have a lot of influence in Greece and that is why I bother to comment regularly to this blog. I am often critical because I see you dismiss the grotesque political reality of the EZ, and its inherent stability, thus (certainly unwillingly) influencing the Greek populate to submit to this atrocious regime, “waiting for the barbarians” who do not exist…

    Only a credible attempt to exit the EZ, bringing it to the precipice, may cause the barbarians (aka sanity in the EZ) to come into existence. If the barbarians do appear, this attempt may be aborted. If not, then leaving this disgusting trap the EU has become is the only choice free people can make.

    • Vasilis,
      Do you also write in the Capital blog?
      Anyway your points represent the situation very accurately. The only issue I see is that free people are not free really, they are chained to the euro as they prefer their salaries and pensions in euros rather than in some currency of uncertain value. So Germany has the situation wrapped up, 60% of Greeks still want in the euro. So the crisis lives for more years.

    • One more difference between Greece and Italy. Italy might have better politicians waiting in the wings than Greece has. Greece is still being run by corrupt politicians and waiting in the wings is the far left Syriza.

    • @Κωνσταντίνος
      Thank you for your kind words. No, I do not contribute to Capital.

      On the issue of free people that you raise, I would be content with people’s preference to the euro, if I were satisfied that theirs is a mostly informed choice. But, in the minds of most people I talk with, there is utter confusion and fear; they seek answers they are not getting and feeling ignorant prefer the known evil from an unknown possible evil.
      Not just “plain” citizens mind you, but also “serious” politicians and, alas, even economists and bankers (yes, I talk to a few of these as well).

      Re. the quality of political stock in Greece, this is a truly global problem (e.g. aside from the EU, have you looked at the US lately?) So I am putting my hopes on an _informed_ citizenry.

    • Vassilis described accurately the German Proposal that is being applied in Europe for three years now.

    • While your Modest Proposal argues about the proper homogenization of European economies which have a common currency without any rules that are needed for it to funaction properly,

      The policy that is applied could be called the German or Core Proposal, because it strengthens the Core.

      Europe needs to be united and strong, but they want it done this way.

      Germany must be made strong enough to work as core.

      And this generation of politicians that governs Europe now, KNOWS this.
      SomeAreAss and StournAreAss knows this too so they cannot retreat now.

      The problem specially with Greece is where is this going to end…

  12. Abolish capitalism, inform workers that they now own their workplaces, write off all debts, and sack every police officer.

    • Hi,
      As a former citizen of the former “Soviet Union” or CCCP I would advise great caution when making such “heroic pronouncements”…but when Europe’s so called elites have caused a train wreck, there aren’t many alternatives.

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    • The German surplus is generated outside of the eurozone as of 2013 i.e. after Germany destroyed demand for its products (and in general) in the eurozone.
      Unfortunately for Germany sources of demand cannot be infinite in a closed system.Let’s see how long this can keep up.Who is it going to sell to if fears of bubble burst in China will materialize?China is already slowing down.They better have a good space program because they will have to export to aliens.

    • SoundMoney,
      The periphery is suffering from egotistical inflation and unemployment policy geared only towards Germany’s economy, absence of bank insurance, absence of any sort of common borrowing mechanisms. The result is a huge wave of money northward and massively unstable economies to the south totally unable to borrow. 5 more years of Merkel Soimble and the crime will be complete.

    • No borrowing mechanism? What do you call Target 2? How do you think the PIFGIBS managed to have more debt now than before 2009?

      Why export to space? It is muchbetter to work 3 days a week and take two days off than work 5 and give the benefit of two days work to other countries for free!

    • “No borrowing mechanism? What do you call Target 2?”
      : I call it a payments clearing system.Greece’s debt has nothing to do with the Target 2 deficit.Even when people out of fear (or tax evasion) moved their money to foreign banks, this was recorded as a deficit at Target2. Are you claiming that if I move my money outside then my debt is raised?So, What do YOU call Target2 ?

      “How do you think the PIFGIBS managed to have more debt now than before 2009?”
      Greece received loans under the condition that it would shrink the income with which it was supposed to service it.Under such a condition,debt had to be larger than 2009 both as % of GDP and in absolute numbers.Don’t you think?

    • @Crossover
      Surpluses in the rest of the world will continue as long as the US runs very high deficits. That may not be the case forever. I read that, thanks to new US oil production/exports, the US may, in a few years, start running trade surpluses. If that happens, the rest of the world will be in for a lesson.

      As long as the rest of the world, consolidated, can run surpluses thanks to the US, I think it is fair that everyone competes for those surpluses as best as he can. Those who lose out should not blame the others who win; instead, they should do their best to get a cut of the action.

    • @Klaus
      “…. If that happens, the rest of the world will be in for a lesson.”

      Sure.However I’m not exactly sure that the US really cares about pursuing a beggar thy neighbor policy like Germany.If its past is an indicator, then it would be safe to say that the US would redirect those surpluses.

      “As long as the rest of the world, consolidated, can run surpluses thanks to the US, I think it is fair that everyone competes for those surpluses as best as he can. Those who lose out should not blame the others who win; instead, they should do their best to get a cut of the action.”

      You do realize though that if everyone tried to pursue those surpluses as hard as “the others who win” the global economy would crumble, don’t you ? Germany has been restraining its domestic demand for over a decade, what happens if US or China try to do the same? Mind you that if US and China do decide to do the same, Germany would still be able to run surpluses if it compressed its domestic demand even further.
      I assume it would still be a winner in your eyes.
      In my eyes it would be everybody’s loss including Germany.Unless there’s some sort of a fetish in seeing underutilized economies all over the globe.

    • And Klaus,

      SoundMoney for whatever reason tried to point out that German surpluses are generated outside the EZ.I just argued that only recently this has been true.By killing demand in the periphery for the sake of competitiveness it also killed its exports in the eurozone.Just think for a minute what would happen if everyone decided to become competitive by the same recipe.
      Or imagine where Germany would be if in the early 00s the rest of the world went nuts and decided to reduce imports.Germany would have been far from a “success”.

    • @Crossover
      It must be my German name that everything I say is automatically interpreted as defending Germany. No country can sit on external surpluses. By definition, surpluses in the current account must be offset by identical deficits in the capital account (capital exports). The price which Germany has to pay for its external surpluses is that they have become the world’s largest exporter of capital; the world’s largest financier. The WSJ calculated that, from 2007-12, Germany took a loss of about 500 BEUR on its external assets. That’s part of the price to pay.

    • I would much rather not have a surplus. Consuming is much a much berrer lifestyle than producing!

    • @Klaus Kastner

      “As long as the rest of the world, consolidated, can run surpluses thanks to the US, I think it is fair that everyone competes for those surpluses as best as he can.”

      How can that be fair if ‘everyone’ doesn’t have the same chances of doing so in the first place, especially within the Eurozone? The notion that a common market would offer everyone the same opportunities was already flawed from the start and has proven to be completely unrealistic ever since.
      I think Crossover made a very good point here. Germany owes its high level of competitiveness almost exclusively to the rise in global demand for its products and there has been no substantial growth in the german domestic market over the last decade. Even if Ms Merkel and her associates succeeded in transforming the entire EU into a surplus union, what else could that mean for those member states who did not have the luxury of an already overblown export sector to begin with, but a further reduction of imports and domestic demand? And how long would that hold against the rest of the world who might not be so easily tricked into accepting their roles as eternal bearers of a trade deficit against this new surplus-Europe, unless we can somehow force everybody else into a currency union?

    • @Klaus

      No worries about your name.That’s not how I roll.
      But I swear I see a huge contradiction in your words.
      You say: “Those who lose out should not blame the others who win”
      And then: ” No country can sit on external surpluses.”

      Well, how do you define a winner then if you acknowledge that what makes him a winner is bad even for himself ?

    • @Marcks
      I wish we could avoid Germany as an example because that sidetracks from the point I have tried to make. To put everyone to rest: I agree with the criticism of Germany’s external surpluses and I have written a lot about that in my blog. External imbalances, be they positive or negative, are a sign of weakness if they are excessive and chronic.

      You say: “Germany owes its high level of competitiveness almost exclusively to the rise in global demand for its products and there has been no substantial growth in the german domestic market over the last decade” – think what is really behind that thinking. There is demand in the world and entrepreneurs react to that demand (instead of letting the opportunity go by). An entrepreneur who sees demand but does not react to it will not remain entrepreneur for very long. I agree that entrepeneurs with an industrial base and Hartz-IV reforms could react to that demand much more easily than, say, Greece. But no one is ever in a situation where he/she can do nothing. Slovakia was an economic basket case after separation from CZ. They saw global demand for cars and decided to be part of that game. And it has worked quite well for them (so far). CZ had a car industry but a very backward one. Today, Skoda is competing with VW even though they have the same owners.

      Ok, neither Slovakia or CZ had the Euro. To many, the Euro seems like an unfair advantage to the German export industry (because it is too cheap for Germany) and in the shorter-term it certainly is. Longer-term, I think we will see the opposite because it is never good for an economy if it is too easy to export. Innovation and productivity tend to suffer. I have seen statistics about innnovation and productivity in Germany since the Euro and they showed a dramatic decline. The same goes for investment. Wouldn’t you expect such developments to hit home sooner or later?

      Looking at Switzerland, I could argue that Germany (and the world) – longer-term – would be better of with the DM because it would force the Germans to be much more on their toes than they have to be now. The DM revalued continually prior to the Euro and at every step of the game, it made the German economy even more competitive. Switzerland has seen a dramatic revaluation of the CHF in the last couple of years and, yet, exports, the economy and current account surpluses are booming (12% of GDP).

      My own country, Austria, faced a monumental decision back in the 1970s: pursue a hard or soft currency policy. Austria opted for the hard currency and it initially resulted in economic shock (much of the very large state-owned sector went bankrupt). However, somehow Austrian entrepreneurs managed to get out of this shock and they learned to live with (and profit from) the hard currency policy. Not every country is made for a hard currency policy and there is nothing really wrong with a soft currency policy (except that soft currency policies can lead to trade wars if too many pursue them). The problem begins when an economy which cannot handle a hard currency policy is forced into a hard currency (like the former DDR) or opts for a hard currency (like Greece).

      I remember conservative views in the early years of the EU (1980s and 90s) who argued in favor of a ‘Europe with two different speeds’. They were, of course, clobbered by well-meaning people. What we are seeing today is exactly that: European economies operate at different speeds and the price to pay for that is extremely high.

    • “I would much rather not have a surplus. Consuming is much a much berrer lifestyle than producing!”
      Then either your lifestyle dictates that you want to keep the cake and eat it or that you are trolling.
      For if you’d rather have increased consumption to the point where you have a deficit, then you should stop blaming those who do exactly the same.
      You either like Germany’s policy during the previous decade and you like the surplus pursuing thing or you don’t.

    • @Crossover – yours of 9:54 and 15:30
      “No country can sit on external surpluses” – what I meant by that is that surplus countries like Switzerland and Germany are condemned to put much of their economic assets outside their borders (with the associated risk). Germany has close to 3 times its GDP outside its borders, Switzerland as much as 6 times. Are they winners? For sure they think they are and I used the expression in that context. On the other hand, when the German economy loses about 500 BEUR on its foreign assets within a 5-year period, I question whether they are winners. This wasn’t always the case: back in the 19th century, the Chinese refused to import, required silver for its exports and sat on that silver. The Brits ran out of silver to pay for tea from China. So they smuggled opium into China and required payment in silver. And that led to the opium wars. Maybe this post will better explain to you my views.

      That Germany can’t have the cake and eat it at the same time is a point which I have made for 3 years now. Regrettably, I could only find this short post off the bat:

      Let’s call the Germany’s the mercantilists. At the end of the day, the mercantilists will always have the shorter end of the stick: they have forgone consumption and built up claims against the rest of the world. The others tend to be the winners: they have enjoyed consumption and they can threaten the mercantilists not to pay their debt.

      I will bow out of this look now. Enjoyed it!

    • “There is demand in the world and entrepreneurs react to that demand (instead of letting the opportunity go by). An entrepreneur who sees demand but does not react to it will not remain entrepreneur for very long.”

      It’s not like the German economy fully covers demand domestically and directs its excess production to foreign markets.It’s more like the German economy exports so much because domestic demand has been kept low by prescribed policies.It’s the policies the cause of the problem not the entepreneurs.

    • Klaus:

      The EU could and should exist without the common currency. It’s the euro that has to go.

      The arguments you bring up are only of concern to Germany (the how and why surpluses are used and/or recovered).

      A perfectly healthy common market can function without the euro which is nothing more than a bona fide replacement to D-mark.

      That’s the whole point: abolish the euro and proceed without it. Anything else is diversion on discussion shifting issues around to confuse people.

    • @Klaus Kastner

      “Today, Skoda is competing with VW even though they have the same owners.”

      And there you have the underlying problem of it all. Germany as a national economy may have become a net exporter of capital, but that doesn’t mean that its corporations and their owners are losing profits. On the contrary:
      Ever since the so called ‘structural reforms’ that our elite are so fond of were established by the social-democrats, there has been a steep rise in corporate profits, capital gains and high incomes as well as savings instead of investments in the corporate sector, while the brunt of said reforms have been putting a rising burden on the middle and lower income classes via stagnation and even reduction of wages and cutting down on social security, health insurance and pensions or increasing the mandatory fees on those.
      At the same time taxes on high incomes, capital gains and corporate incomes has been reduced while state and federal governments have been saving money, that would have been very much needed in the maintainance of infrastructure or the education system, in order to pay back public debt.
      And this, in a nutshell, is exactly what the greman government intends to prescribe to the deficit countries as the cure for their current desease. And given the latest announcements out of France, they are succeeding.

      I also would not be too quick on using eastern Europe as an example for the success of these measures. There certainly has been considerable economic growth in most of them, but in order to determine wether that has been a blessing or a curse on the people living in those countries, one has to ask the old cui bono question and follow the money trail all the way to where it ends and amounts to savings that may or may not be invested in future growth but are most definitely not contributing to a rise in overall wealth of the people who helped create them in the first place..

      I understand that economists tend to view everything from the perspective of number crunching and since it is difficult to put inequality into verifiable numbers, you guys often prefer to stick to official data like GDP growth and current account balances, but you don’t have to be an economist to realize that there is something terribly wrong with the way all this wealth is distributed amongst the people of Europe – not to speak of the rest of the world.

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  16. Can you please cut out the punctuated nonsense?

    For starters the IMF charges Greece 4% on 50 Bil. of Greek debt whereas the latest EU loans to Greece are at only 0.7%. Therefore the IMF hypocrites that you wish to align with are charging Greece 6 times higher interest than the rest.

    Second, how do you side with the freaking IMF when the IMF is less than 30% of the decision makers the other two being Germany+Germany when Germany says no?

    This non-analysis is disgusting and outrageous in spreading false hope which never existed to begin with. Greece is full of false prophets. Shame, shame, shame.

    • Is this you Dean? Or has some troll hijacked your account? Stournaras himself stated that the IMF offered him an alliance. Was it disgusting of me to report this? Or is it wrong to say that Greece had nothing to lose from such a strategic alliance at the Eurogroup meetings of late 2012?

    • Dean.
      Well said. That is the reality – Merkel’s ultra-national united Germany, supreme decision maker of the fates of the people of the southern countries. Give them enough help so they don’t choke to death but keep them underemployed and unemployed and make sure their banks are useless and all capital continues to flow northward.

    • How can someone be so stupid to send Money to the North of Europe. It will be confiscated in the end to save to pipedream of EU/EURO. Anybody with a sense of responsibility to his Kids sends money outside the EU or converts it to real assets preferably outside the EU.

    • Making a bad thing worse. Let’s face it: He has deeply regretted letting the cat out of the bag during the FT interview.

    • A sad, depraved, intellectually and ethically disastrous performance. (Not to mention the great lie that the constitution of European nations bans the write down of Greece’s debt to the ESM-EFSF.)

    • Why should I be happy? Devastated more like it. I wanted YS to succeed, rather than to market failure as success so as to move on to some other position of non-power. I wanted him to to use well whatever opportunities presented themselves to drag the Greek economy out of the doom-loop. His failure to do so, and his spectacular admission to the FT, only fill me with genuine sadness. Regardless of this judgment, and our differences, Yannis is a friend. And friendship goes hand in hand with empathy.

    • Yani:

      I am sorry but you are missing the point here.

      What you suggest is to team up with the IMF which can’t accept a haircut on its own 50 Bil. euro loan to Greece (due to its charter) and instead ask the EU member countries to accept a haircut on the roughly 150 Bil. euros they hold, very well knowing that such can’t be done either because it’s unconstitutional or simply a non-starter.

      Tell you what. Here is the deal. You get from the IMF an upfront commitment in writing that it will write-off 50% of the Greek debt it holds @ 4% (which happens to be a usurious rate for Greece’s circumstances) – or a 25 Bil. euro reduction – and I will personally deliver the request to Brussels for an addition 75 Bil. haircut on its Greek debt to match.

      The likely result of Greece siding with the IMF on such mission impossible would have been for the IMF to be able to fully discharge the negative global market reaction sure to follow on such Quixotic request and pin it on Greece for all the damages that would ensue.

      But, hey, maybe I missed the whole point that the IMF is Greece’s best friend and I am truly wondering why I just missed such an obvious everlasting match made in heaven.

    • Am I missing the point? Let’s begin by accepting the simple premise that the IMF is morally and politically indefensible. That it has an awful history and are appalling hypocrites, demanding of others to accept haircuts when it is refusing to do so itself. So what? The fact of the matter is that the IMF is in the troika because Mrs Merkel needed it to be for her own domestic reasons (its involvement was, indeed, the only way she could convince her own party to lend money to the Periphery).

      Point A: Merkel needs the IMF to be on her side to carry out her hideous Eurozone policies.

      Let’s move on.

      For its own (possibly less than humanist) reasons the IMF’s leadership is keen to see part of Greek debt to the ECB and the EU written off (without accepting any haircuts on its own loans to Greece). So Ms Lagarde is proposing to Mr Stournaras that they form an alliance within the Eurogroup to pressurise Germany to accept that parts of Greece’s debt to the ECB and to the EU should be cut.

      Point B: The IMF, that (see Point A) Merkel is desperately keen to remain part of the troika (for her own reasons), is offering the victims of troika’s bidding (Greece) an alliance with the said victim (Greece) that will relieve the victim (Greece) of some of its debt/pain – and even if this alliance does not succeed the net cost to Greece is zero.

      Question: What right did Mr Stournaras have to turn the IMF overtures down? What right did he have to go to Mr Schauble to warn him about the IMF’s overtures prior to the crucial Eurogroup meeting, and thus scuttle the IMF-Greece alliance before it was formed?

      My answer is: None whatsoever. This is why he should resign. This is why he will remain in the consciousness of every Greek (including the voters of New Democracy) as (at best) a failure, no different to Papandreou-Papakonstantinou-Papandreou-Venizelos. Samaras, by allowing him to carry on in this manner, is adding his name to that sorry quattro.

    • o.k. Let’s start by granting your last request which is for Stournaras to resign. Here is his brilliant replacement:

      As to the IMF (which has by now discovered that it was brought in for political cover reasons rather than technical knowledge) it only represents 1/3rd of the vote; the other 2/3rds ostensibly being Germany. So I have difficulty understanding how 1/3rd of the vote +a self-serving no vote (aka Greece) would ever trump 2/3rds of determined “under any circumstances not to budge” fanatical Talibans.

      If such an overriding formula existed then the US would not have a dysfunctional government at Congress level and the EU would not be in crisis. It’s precisely because the math is so overwhelming that we have a German Union instead of a European Union.

      In my book in order to restore the EU to its proper form you would need to attack the soft underbelly of the present structure which none other than the flawed euro currency. Unfortunately this would entail abandoning momentarily sentimental Europhilia and turning into a hard core Eurosceptic (I know, an anathema in your book). Who said life would be a path of roses, right?

    • Nobody is enough of an idiot to believe that the IMF pressed Stournaras because it cared about the debt burden on Greece.However they know that the chances of getting their money back in full are exponentially higher if the rest of the debt receives a haircut.That’s the most obvious reason why the IMF would be pro-haircut.They are perfectly trying to promote their interests.
      The question is, Dean, what’s wrong with siding with the IMF when at the given time our own interests and those of the IMF were in perfect convergence ?

    • Crossover:

      What’s wrong is that such Greece-IMF pseudo-alliance is destined for spectacular failure.

      This is like a prisoner siding with a minority independent prison review panel pleading for his/her earlier release. Rarely such tactics lead to a prisoner’s earlier release on good behavior since the very act of siding with such self-serving proposition is thought of as bad behavior by the Merkel prison warden.

    • And wouldn’t an outright default be a self-serving act according to them?
      Are you against the option of default in 2010 ?

    • Crossover:

      I am not sure I understand. We are in 2014 now.

      The euro is a flawed currency with poor architecture which must collapse under its own weight. There is enough Euroscepticism at the moment to bring down the whole house on the flawed currency so that it could regenerate in some better form. You make the necessary alliances to get the job done and then you go back to normal. All you have to do is your part in it while avoiding unilateral actions associated with maximum pain.

      The stewards (aka Draghi) would not allow a system collapse, so you might even benefit from the necessary rescue measures as a country. The last thing you want to do is keep things the way they are because that’s not in Greece’s benefit. Or Italy’s, or Spain’s or France’s or the UK’s in this matter.

      Do I have to say more?

  17. The view that the finance minister of a hostage-republic should strive for the interests of his country is not on par with reality:
    Even if Mr. Stournaras resigns, his successor will be obliged to obey the same kommandatur.

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  20. Though clearly in danger of repeating myself, I can’t help but notice that the german position is literally turning more and more into a self fulfilling prophecy.
    Just by convincing everyone that they will never agree to anything but a continuation of the current austeritarian course, the german government is making sure that nobody else will come up with an alternative.

    It is the same kind of circular argument that underlies the whole concept of the eurozone: Since we, the Germans, believe that only the market in its infinite wisdom can establish a viable pricing mechanism for sovereign debts of the member countries, we deem it unspeakable that any other solution is possible.
    And since our position is based on absolute, god-given truth everybody else must either believe in it as well or be damned and descend into the inferno of perpetual debt peonage.
    The IMF, the US government, several nobel laureates and the rest of the world may mean well by opposing this german line of argument. But since they lack the proper amount of faith in what is clearly the will of the almighty expressed through the marvel of globalized financial trade – which is merely given its due amount of worship by us faithful servants – they can only be wrong in the eyes of the creator. They must be serving the dark side and are doomed to fail until they repent and bow their heads in awe and thus become enlightened enough to see reason and follow our righteous cause.
    Mr Stournaras (hopefully) may not have converted into a true believer yet, but he clearly fears the wrath of the zealots in Berlin enough to refrain from following the heretics.

    Through the sheer power of faith my people, the Germans, have achieved in the intellectual realm, what has been regarded impossible in the physical world by generations of physicists: perpetual motion in a perfect circle. It’s a miracle.

    • Well written, this situation will linger for quite a while. Pity to the young graduates of the southern countries who are entering a job market with 25% unemployment. It is a heavy price to pay for a common currency – with the signature of Angela Merkel.

    • @Κωνσταντίνος

      “Pity to the young graduates of the southern countries who are entering a job market with 25% unemployment.”

      Oh, but of course we have already found a perfect solution for this problem: The german elite, mainly represented by all kinds of associations and think-tanks sponsored by our exporting industries, aided by most of the politicians from both sides of the aisle and supported by many influential members of mainstream media and various other brainwashed syccophants, have been telling the plebs for some time now that there was a widening gap in the supply of trained professionals, engineers and graduates of technical universities needed to maintain our high level of technological superiority over the rest of the world so that we can keep up the good work of further inflating our glorious trade surplus.

      So, the logical conclusion was to convince the nowadays rather not so immigration-friendly german public that it was neccessary to lure more foreign workers with said skills into the country. Fortunately, or so they thought, now that all these highly qualified youngsters can’t find decent jobs in Spain, Portugal or Greece anymore, they are more than welcome to join our own workforce, help Germany achieve economic world domination and send a big “Fuck You!” back home, while they watch the inevitable deindustrialization of their home countries from a cosy place underneath their german masters’ tables.

      Couriously enought, while there actually has been some migration of young academics from the south into Germany over the last feew years, the majority of these highly sought-after bearers of precious technical expertise and know-how seem to prefer migrating to countries where they get paid somewhat more than a few breadcrumbs falling off the gold-rimmed plates of their superiors.
      Of course, none of the above mentioned wise and enlightened leaders of german mainstream opinion have the slightest idea how anyone could ever not wish to come to our beautiful little island of stability and prosperity.

      I imagine they are propably thinking somethin along the lines of: Yeah, sure we called you lazy moochers and profligate gluttons in the past. But hey, that was all for your own good! Of course we pay you less than anybody else but that’s only because we know how to incentivize properly! Everybody knows that workers get lazy if you pay them too much, right? So please be good now, forget about all this entitlement nonsense, accept the truth and move your asses up here so we can go back to business as usual.

      As I said before. There is certainly no gap in the supply of self-righteous idiocy in my country.

    • “The IMF, the US government, several nobel laureates and the rest of the world may mean well by opposing this german line of argument”

      They can mean what they want, because talk is cheap. As long as the German taxpayers foot the bill, it matters more what THEY mean.

      Unless the nobeal laureates, the rest of the world or, as far as I am concerned, Martians, pick up the bill for the periphery’s self inflicted problems (don’t start the usual wailing – most of the problems ARE self-inflicted), I don’t care what they say.

    • @Very Serious Sam,
      You’re right. If german taxpayers want to see their money shovelled into the gaping maws of banks as a reward for their greedy and irresponsible lending, well, that’s their call to make.
      Although I’m not certain that it is being presented to them that way, is it?

    • Sorry, I posted this in reply to the wrong comment before. So in order to fit my role as a self-important german I have to repeat and quote myself:


      I know it’s pointless but I’m asking you anyway:
      Haven’t you heard about greek taxes and fees for government being raised quite a bit over the last few years? And what about Irish Tax-payers being fooled into bailing out their banks? Or what about the spanish workers, losing first their jobs then their social security system and then being forced to watch their government bail out the spanish banks with their own tax-money?
      Do you really think that germans are the only people paying taxes in the whole of the eurozone?

      Because that would just fit my own nasty preconceptions about my german compatriots being a bunch of paranoid crazy people, who think that the rest of the world have nothing else to do than steal their precious treasure from underneath their matresses.”

      @ Aris K.

      It definitely has been presented to the german public that their money is being shoveled down the black hole of the banking system. Unfortunately, this was only done either by VerySeriousSam’s favourite right-wing AfD-Party who missed the sufficient number of votes in last November’s general election to enter parliament, or by the far left who have been very successfully branded as incompetent socialist dreamers who only want to get their own hands under those matresses.
      So the german voters did what they always do when facing a difficult decision: They just ignored all those unpleasant facts, decided that they didn’t want to decide anything at all and consequently voted for the one person who promised them exactly that and nothing else. And being the good citizens we are, we now stick to our non existent principles and simply accuse everybode else of not having any.

  21. A greek poet Varnalis said in one of his poems.
    i quote : they are cowards and fatefuls.
    it matches absolutely for Stournaras and Samaras.

    • You are very soft.
      They simply are corrupted to the bone, Germany has proofs for their corruption, and holds them under its command, to what ever she wishes.

    • @VerySeriousSam

      I know it’s pointless but I’m asking you anyway:
      Haven’t you heard about greek taxes and fees for government being raised quite a bit over the last few years? And what about Irish Tax-payers being fooled into bailing out their banks? Or what about the spanish workers, losing first their jobs then their social security system and then being forced to watch their government bail out the spanish banks with their own tax-money?
      Do you really think that germans are the only people paying taxes in the whole of the eurozone?

      Because that would just fit my own nasty preconceptions about my german compatriots being a bunch of paranoid crazy people, who think that the rest of the world have nothing else to do than steal their precious treasure from underneath their matresses.

    • @αιωνιος φοιτητης

      Sorry for hijacking your post. I accidentally replied to yours instead of my own with that last comment.

  22. A “GRexit” would have been suicidal for Germany at the time. And our genius (Mr. Stournaras) “floated” the IMF’s proposal to the “enemy”. And when he (obviously) told him they wouldn’t go along with the IMF proposal, he demurred.

  23. ND was never anything but a neoliberal stalking horse. Merkel’s support for ND was all the info anyone needed to know that ND, would not only continue the extend-and-pretend strategy of the neoliberal cabal ensconced in ECB and EC, but would act just as Stournaras acted, essentially to further the bankers’ coup in EZ, while boosting neoliberal economics world wide.

  24. Congratulation Mr Varoufakis for your today morning conference to ANT1 TV. (10-1-2014).
    Νο comments for New Dimokratia party spokeswoman.
    At least Irrelevant to the subject of your conference .

  25. Yani, whenever your pieces get published in I long for your own responses to some of the comments below them. Perhaps you, as well, are chomping at the bit, so to speak, but refrain lest you … “get eaten by the hens” (as the modern Greek proverb goes).

  26. Wait…he just came out and said this in an interview? How out of touch with any tangible reality do you have to be to NOT realize what you’re admitting?

    • Well keep in mind that its the same person who stated a couple of weeks ago that Greeks are not over taxed.

    • Greek politicians ineptitude and corruption + German politicians ultra-nationalism and dogmatism => 28% unemployment in Greece, 170% debt to GDP ratio, wasting a new generation in recession.

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  28. Your ‘valued’ colleague and good friend has singlehandedly (with the blessings of course of Samaras) contributed the most in empoverishing his people and destroying his country. You will do well to chose your friends more wisely in the future. Greeks deliver justice to individuals like him in more decisive ways than just accepting his resignation.

  29. Pingback: Deflation in Greece: rapidly increasing | Real-World Economics Review Blog

  30. Alas Indeed, it should have been clear to Mr Stournaras in mid 2012 (when you penned your letter) that the Germans were on the wrong path & out of ideas. As you have said before…”memorandum of misunderstanding & more loans” was aimed at protecting the banksters…another betrayal of Greek people!

  31. Really, Greek politicians need to spend allot of hours on a psychiatrists couch. Never the less, a great democratic problem looms over EU. Europe is governed by a set of Germans that is voted-elected from the German minority of European citizens and not from all. This is the same motif that started the American tea party (taxation without representation was called at the time but the heart of the problem is the same).

  32. How sure are you of your statement :

    ” The very worst outcome of such an IMF-Greece alliance would be that the joint IMF-Greek position might be rejected by the rest of the Eurogroup and that Greece would end up with the same rotten deal it ended up getting anyway. In other words, under no circumstances would a joint IMF-Greek proposal lead to an outcome worse than the one Greece got after having rejected Ms Lagarde’s overtures.” ?

    What if he was threatened with Grexit? Would that not be worse? Only twenty years from now we will now what sticks have been used in these negotiations.

    • Merkel herself admitted that if Greece went bust the whole Eurozone would follow and you still talk about the threat of a Grexit?Are you for real?
      You never ever learn do you ?

    • If Greece exited the eurozone and devalued the new drachma to say something like 30%, along with a similar indirect to haircut the now drachma denominated debt then most of its problems namely the lost competitiveness and the large external debt would be solved. If you compare that to Greece’s current situation where GDP has contracted by something close to 25%, unemployment is near 30%, the banking system is dead and the economy on a deadly deleveraging course then Grexit was preferable hands down. As we stand the effects really could not be worse than what we are experiencing now. Of course that would not happen as that would mean -and still does- the end of the eurozone and Greece could bargain for a viable program within the union or at least an orderly exit. Valuing sovereignty and independence I would personally prefer the Grexit option but I think that it is high time for all the memorandum lovers out there to at least get it to your thick heads that you have been taken for a ride by Mrs Merkel and co with the assistance of people like Stournaras. I wonder about him and I would let it be open for debate: What the hell do you think makes someone in his position behave in this way? Naivety? Stockholm Syndrome? What?

    • Several replies. To anna: the situation now, in my judgement, is that Greece is in a comparable position in terms of employment and average standard of household income levels as if it had left the euro at the beginning of the crisis and had defaulted. The difference is that it retains most of the debt and does not have even a hope of a stabilised economy that might recover through a mix of increased production, reduced imports and FDI. In other words, Greece is now fucked.

      To Taso: my view is that economists should never become politicians unless they are supremely gifted as such. They require very different skills. I do not know how good an economist Stournaras is (although I had the impression that he was one of the malakes around Simitis who urged no caution about eurozone entry), but as a politician he resides firmly in the third or lower rank. The role of economists is to advise politicians, who then have to make judgements about how to handle their country’s affairs. Greece has no Eleftherios Venizeolos (only a fake bloated one) and is consigned to a very bleak future as a consequence. I think most Greek people understand this, but whether it can result in a new politics is a very different issue…

    • Grexit is not a threat *to* Greece; it is a threat *by* Greece to the EZ surplus nations, as Yannis understands very well.(1)

      But, for those in power in Greece, it will mean losing power at least and for some it will mean exposing their illicit means of becoming rich and powerful leading them to prison.

      Thus, a decision was made by the majority Greek elite to misinform the global public about this: describe non-Grexit as solidarity and make a big fuss about EU unity, discredit every American economist (who promotes Grexit as preferable for Greece) as tainted by illicit interests, doomsday “predictions” of how Greece will die if it leaves the euro, etc. A well-orchestrated campaign of FUD (Fear Uncertainty and Doubt) which gave them a majority in the Greek elecrorate, of unwilling support to the euro, and the false impression among a majority of EZ-country electorates that they are “keeping Greece” as part of their obligation to show solidarity.

      Orwell would be writing a book about this if he were alive…

      (1) Yet he is worried–rightly I think–that breaking up the euro will mean the end of the Common Market as we know it. He has yet to explain why this break up of the CM *as we know it* is bad. Is he afraid of what sort of CM will succeed it? I am still, after years of reading this blog, in ignorance of his analysis on this; what I have heard of it is “recession in the North, stagflation in the South, postmodern 30s”.
      Isn’t what we have today worse? Will a break-up of the EZ forbid us Europeans to adapt and adopt, if we wish to do so, the policies of his MP and reform a new union, under new, saner treaties?

    • The way I see Grexit is , similar with Χενος that it is too late for us. We should have defaulted end of 2009 beginning of 2010. Then we would have had maybe great upheavals, but not as many businesses would have defaulted so unemployment would have been much less. The standard of living would have fallen, but it has fallen now anyway, After all we had had 30% inflation with the colonels and later, we would have adjusted smoothly.

      What signing the memorandum did was giving the northern countries time to get rid of the toxic greek products in their pension funds etc. This they have done, and in addition, the debt now is with the English law which will keep it tied to our backs forever . ( Τα δάνεια της Αγγλιας come to mind).

      Thus Merkel’s statement that a greek exit would destroy the eurozone is a political dare, and I am sure if any Greek politician takes it, we will find ourselves out on our backs, with a much worse economy than if we had defaulted and picked up the pieces in 2009, and with a huge dept based not on Greek but British law. In my opinion a Grexit now would be much worse than what we are currently going through as an economy.

      The only solution I see is to sit tight and hold on the handle bars until the whole eurozone either comes to its senses or disintegrates, when all of the south will be in the same condition.

    • Wow..Weren’t you the one that once claimed that Grexit would lead the country to run out of gas, medicine, not being able to pay for pensions, public servant salaries, cause economic Armageddon and send the living standard back to the 50s in this very same blog? Now it would have been preferable to what we are experiencing? I would be impressed if it wasn’t for the new narrative of “what’s done is done, sit tight, do not rock the boat and cross your fingers”. Is this the official party line nowadays? Pretty weak if you ask me. I repeat: You have been taken for a ride by mrs Merkel, Brussels and the cleptocratic “elit” of Greece. Keep it in mind when Greece will eventually be forced by economic reality to beg for an exit from the eurozone.

    • Tasos 14/1/14

      I have consistently expressed the same opinion here on this blog, that the decision of defaulting should have been taken end of 2009. The dire predictions are appropriate for the times after the memoranda, where we have had our hands tied with continuous debt and the english law. It would be foolish to default now.

    • @Anna V
      Greece still has leverage no matter what law the EFSF and bilateral loans are under. When your debt is close to 200billion legal terms are irrelevant, only economic reality matters. Take a look at the legal documents that Germany signed in Versailles in order to pay reparations after WWI, you will not find more binding and strict documents, still Germany defaulted on these payments first chance it got. Whether Greece’s politicians are capable of using the leverage Greece has, this is another matter entirely.

  33. Pingback: Greek Finance Minister Yannis Stournaras Should Resign

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