Do they really want your money back? op-ed in Bild Zeitung

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  • VON BY YANIS VAROUFAKIS

Last February, while visiting the federal finance ministry in my capacity as Greece’s finance minister, an aide to Dr Schäuble asked me playfully, but not without a strong hint of underlying aggression: „When am I getting my money back?“I am sure that many readers of Bild Zeitung would be proud of this official and of his impertinent question.This is not the time, nor the newspaper, for me to enter into an argument regarding the nature and causes of Greece’s public and private debt to German banks and to the German state. Let’s, for now, keep it simple:Greece owes a great deal of money to Germany, and other states, and finds it very hard to meet these repayments given the collapse of Greek national income over the past six years. The interesting question is this:Does the federal government of Germany genuinely place above other priorities getting its taxpayers’ money back from Greece? Was the finance ministry aide, who asked me that question, genuine in his concern? In other words, can German citizens trust their government to prioritise recouping the money that Germany has lent the Greek state? Or does the German government have other, unstated, priorities?Let’s approach this question dispassionately. Greece’s economy is badly damaged. Whatever the reasons, Greeks have lost exactly one third of our national income (since 2010), Greek banks are unable to lend even to profitable firms, and investment from abroad has dried up. These are facts independently of your theory, dear reader, or mine, as to their causes.

Given these facts, suppose that we were to sit down, together, to decide what must be done to ensure that Greece’s broken economy can generate the taxes from which the German taxpayers’ money will be returned. Would we agree on the measures that are currently being passed through the Greek Parliament as a result of inordinate pressure from the troika and with the blessings of the federal finance ministry?

A quick look at these measures is instructive. I begin with the changes, introduced last August, to business taxation. Corporate tax rate was pushed up from 26% to 29% and, more significantly, businesses were told that, by the end of 2015, they would have to pay in advance 100% of the tax that the Tax Office ‘predicts’ they would be paying during the whole of… 2016. In a country sharing a common border with Bulgaria (where corporate tax is 10% and where there is no advance payment of next year’s taxes), and when the vast majority of Greek businesses have neither cash reserves nor access to bank credit to pre-pay these taxes, this is a measure that guarantees to kill off the private sector cow that must produce the milk, instead of ‘milking’ more from it.And as if the new business tax were not bad enough, value added tax (VAT) on most goods and services was also pushed up from 11% to 23%, guaranteeing a drop in VAT collection in the long run as (a) consumers cut down further on their purchases and (b) VAT avoidance increases (for example, poor pensioners facing starvation deal under the table with struggling small shopkeepers facing bankruptcy).

Recalling that Greece owes a mountain of money, which will take decades of private sector recovery to pay Germany back, do you, dear reader, think that these measures will help „get“ your „money back“? I do not believe so. If anything, they guarantee more business closures, more talented young Greeks leaving the country (destroying future growth prospects), lower future income for the remaining Greeks, and therefore a lower future income for the remaining Greeks which will lead to a large haircut on Greece’s debt to Germany.Greeks have long questioned their governments’ handling of their state’s finances. It would not be inappropriate if Germans began to mistrust their own government’s commitment to „getting“ their „money back“ from Greece. And to suspect there is another, silent, agenda.

10 thoughts on “Do they really want your money back? op-ed in Bild Zeitung

  1. The answer to deflation is inflation. The answer to the Troika’s demands is just as obvious. If the ECB will not grant – not loan, but GRANT – more Euros for the Greek economy, then alternatives must be found to the EU currency. Informally, this is already happening with alternate currencies springing up all over Greece. But there needs to be a national effort, or perhaps a recognition of these other currencies somehow, in order to pay taxes and gain legal tender status.
    Right now, there are just too few Euros to run the economy of Greece, stopping businesses, destroying savings and ruining and even ending lives.
    I hope the new DiEM group will waste no time and recommend an alternate currency and how to get there. Don’t worry about a default, Greece has already effectively defaulted, and the only difference would be an end to the current and future looting of physical Greek assets. THAT is the hidden agenda, not so hidden anymore.

  2. As you all know, banks do create money whenever they need to lend or invest money. There’s no need for “German taxpayers” to fund German banks to lend money to Greece. It would not be inappropriate if Greeks began to mistrust their own banking system and their central bank about the narrative on the whole lending process. If the Greek banks don’t lend to their firms is because they don’t want to do so, and not because there is scarcity of out-of-thin-air digits in their computers. It seems to me that Varoufakis is not aware at all about how the lending process really work.
    For your benefit, read here: Werner, R.A., A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis (2015) http://www.sciencedirect.com/science/article/pii/S1057521915001477

    • Banks need to be well capitalized before they can “make loans out of thin air at will”.
      I know not of a single Greek bank that is adequately capitalized given their current NPL levels.

  3. The Problem of Governing Without Power

    For more than 60 years after its beginnings in the late 1940s, the European Union’s revolutionary path of state formation without centralized coercive power gradually mastered its members’ tribalism and local strategic interests. In many ways, this has been an inspirational story, challenging head-on Thomas Hobbes’ assertion in Leviathan that the only force strong enough to prevent people from using violence to pursue self-interest is a government that has more violence at its disposal than any of its subjects.

    Since 2010, however, evidence has been mounting that the European path toward state formation only really works in the best-case scenario. Confronted by genuinely Hobbesian challenges of greed and desperate refugees, the limitations of Brussels’ rules and committees have become clear.

    If correct, this seems to leave just two options. The first is that the champions of political union will turn the crisis of state formation into an opportunity, persuading the bloc’s members to strengthen central institutions at the expense of local ones and thereby giving Brussels the powers it needs to tackle the forces of dissolution. Right now, however, that does not seem to be the direction Europe is moving in.

    The second option is the one that Cameron championed at Davos: rejecting “ever-deepening political union, with ever-deepening political institutions” as Europe’s goal. Cameron’s claim that the pacification of Europe since 1945 has been a product of the Continent’s shared democratic values rather than of political integration sweetens the pill, but rests on an unstated counterfactual assumption — that even if European nations had not surrendered so much of their sovereignty since the late 1940s, pacification would have happened anyway. In favor of Cameron’s counterfactual is the point that violence has declined across most of the world in the last 70 years even though the number of independent nation-states has grown; against it, perhaps, the fact that violence has declined more inside the European Union than anywhere else.

    No one has a crystal ball, and because Europe’s experiment in state formation without violence is unique in the annals of history, we cannot even appeal to arguments from analogy to see where it might lead. One of the clearest trends of the last 10,000 years has been the creation of larger and larger political units, which might mean that Cameron is wrong and that the European Union will somehow muddle through. On the other hand, because these larger units have always been formed by governments monopolizing the use of legitimate violence within their territories and because this is the one strategy that the European Union has always rejected, perhaps we should conclude that Cameron is right, and that ever-deepening political union is a dead letter.

    Back in 1651, Hobbes speculated that Leviathan — an awe-inspiring government controlling sufficient force to deter its subjects from using violence in their own interests — could be created in more than one way. The most common route, he surmised, was what he called “commonwealth by acquisition,” which depended on threats and coercion, “as when a man maketh his children, to submit themselves, and their children to his government, as being able to destroy them if they refuse; or by war subdueth his enemies to his will, giving them their lives on that condition.” However, Hobbes argued, it was also possible for there to be “commonwealth by institution … when men agree amongst themselves, to submit to some man, or assembly of men, voluntarily.”

    More than three centuries on from Leviathan, the European Union has been giving commonwealth by institution the most serious test it has ever had. It has been a noble and inspiring experiment in solving collective action problems without the threat of coercion. But the experiment is failing.

    Source: Stratfor

    • “Europe’s experiment in state formation without violence is unique in the annals of history”….

      That’s fine for Stratfor to say from the comfort of Texas, but no European citizen was informed of the fact or had any idea that the Common Market / EEC / EU was an ‘experiment in state formation’: the citizens of the EU were told and remained under the impression that their countries had joined a trade bloc, like ASEAN or MERCOSUR. Not only, but decisions to join the bloc were universally made without democratic participation – merely on the agreement of Prime Ministers. The only time the ‘ever further union’ was put to the test – i.e. the referenda in Ireland, France and Netherlands over a proposed constitution – the citizens roundly rejected it.

      It is rarely acknowledged that the idea for this European bloc did not originate in Europe but was formulated by the USA at Bretton Woods along with GATT, the World Bank and IMF. NATO was set up at much the same time. Thus “Europe” was conceived from the start as a partially occupied, rebuilt, militarized area under US command – a “western” fortress against the USSR in the Cold War. And also battleground between USA and USSR if worse came to worse, and if toxic nutters like John Foster Dulles had their way.
      “Europe” was never Leviathon, Washington was.

      When the post war order collapsed in 1989 both NATO and the US command over western Europe should have been unwound. Instead, from 1989 NATO was reinvented alongside the Common Market, which almost immediately morphed into the EEC, and soon after the EU. By 1991 the new NATO (and western Europe led by USA) was waging illegal war on Yugoslavia – yes, war inside Europe: contradicting the pieties of ‘never again’. Thus the present mess was set on course.

      Instead of mourning (or admiring) this rotten, non-European ‘EU’ construction – or trying to patch a totally malconceived vessel, we should be conceiving of real alternatives: with sovereignties regained after a 70 year interregnum, and peace and trade all the way to the China Sea, the development of green technology, the further development of international law etc. We should be aiming for something genuine, not patching the sick status quo.

    • I am not sure if deeply incompetent Europeans are really good for anything let alone posing as reliable allies of any kind. No nation one earth wants to be associated with the sick, perverted and mostly Germanized Europe. Enjoy your mess and feel free to drown on it.

  4. Since BILD readers are notoriously uninformed and propagandized, instead of asking them to question, it might have been better Yanis to SPELL OUT WHY their government has no interest in ensuring repayment, and WHO will get rich instead – at the German taxpayers / BILD readers expense of course!

  5. What you write, Yanis, is obvious. Any business person or banker would see this immediately. Kyriakos Mitsotakis, who finished Harvard Business School, somehow could not understand this and voted in favor of these measure last August??? So what is the other agenda that you hint but do not show the courage to discuss explicitly???

    • Not only Mitsotakis but also Tsipras and Euclid Tsakalotos, Greece’s present finance minister after Yanis was ‘stood down’. As for bankers seeing this immediately, Yannis Stournaras – Governor of the Greek Central Bank and finance minister under Samaras (2012-14) – not only fails to “see” but (like Mitsotakis & co.) colludes actively with Mario Draghi, Scheuble and IMF to continue the status quo.

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