http://yanisvaroufakis.eu/2012/05/25/for-europes-sake-greece-must-renege-on-its-bailout-commitments-my-op-ed-in-le-monde/

For Europe’s sake Greece must renege on its bailout commitments – my op-ed in Le Monde

25MAY

Le Monde commissioned me to write an op-ed explaining my view that it is in Europe’s interest that Greece resists the ‘terms and conditions’ of its bailout package while staying within the eurozone. In effect, to explain why there is no contradiction between (a) the Greek people’s determination to stay in the eurozone, and (b) their tendency to vote overwhelmingly for parties that reject the terms of the ‘bailout’. For the french version, as published in Le Monde, click

Le prochain gouvernement doit refuser les termes de l’accord de “sauvetage”

For the english (original) version, read on…For Europe’s sake Greece must renege on its bailout commitments

Conventional wisdom has it that, if Greece wants to stay in the Eurozone, it must abide by the terms and conditions of its ‘bailout’ deal.

It is my considered opinion that the conventional wisdom is, once more, profoundly wrong. That Greece’s only realistic chance of staying in the Eurozone is to challenge the terms of its ‘bailout’ agreement. Moreover, I shall be arguing that such a challenge would be a great gift to Europe. Indeed, it may prove a prerequisite for the Eurozone’s survival.

Consider the following indisputable facts:

A week ago the bankrupt Greek state borrowed 4.2 billion from Europe’s bailout fund (the EFSF) and immediately passed it on to the European Central Bank (ECB) so as to redeem Greek government bonds that the ECB had previously purchased in a failed attempt to shore up their price. This new loan boosted Greece’s debt substantially but netted the ECB a profit of around 840 million (courtesy of the 20% discount at which the ECB had purchased these bonds).

During the same week, the fiscally stressed Spanish government was injecting large amounts of capital into Spanish banks. Simultaneously, to help finance the Spanish state, the ECB has provided large loans to Spanish banks (at 1% interest rate) which they then re-lent to their ‘saviour’, i.e. the Spanish state, at interest rates often exceeding 6%.

For the Greek and the Spanish governments to be ‘allowed’ to borrow the monies involved in the operations described under 1 and 2 above, the ECB and the European Commission (plus, in Greece’s case, the International Monetary Fund) demanded of them that they deflate their economies through savage spending cuts which will, with mathematical precision, reduce the national income from which loans, new and old, must be repaid.

Average interest rates in the Eurozone (even if we exclude the three countries that have fallen out of the markets and have received ‘bailouts’, and include Germany’s crisis-induced ultra-low rates) are at least 1.5% higher than nations with a higher average degree of indebtedness, e.g. the UK.

The German Chancellor (correctly) argues that we cannot escape a debt trap by accumulating more debt. However, consider facts 1,2&4 above: they constitute a typical case of adding debt to debt; of insolvent states borrowing in order to pay a Central Bank that is lending to insolvent banks which, at once, receive capital from insolvent states and lend to them part of the money they themselves borrowed from the Central Bank!

Is this prudential, austerity-driven, economics that a country like Greece must abide to? Or is madness-in-action? With such policies in place, is it any wonder that the Eurozone has already entered an advanced stage of disintegration?

Something must shatter this vicious cycle. If not, the Eurozone will soon join the Latin Union as a footnote in the economic history books of the future. But what could that ‘circuit-breaker’ be? Can President Hollande provide it? His willingness notwithstanding, he is hampered by the state of the French state’s finances and the accusation his criticism of austerity is a ‘cunning ploy’ to have Germany finance French ‘white elephants’.

This is where the next Greek government enters the scene as a potential circuit-breaker. Imagine if the incoming Greek Prime Minister were to try out something novel: Telling the truth! Addressing our European partners and telling them that, even if every Greek man, woman and child strove to stick to the nation’s ‘bailout’ commitments, Greece’s debt-to-GDP ratio will remain on an explosive path which guarantees an ignominious exit from the Eurozone. And then add:

that Greece will not borrow another euro from the troika until and unless a rational plan is in place
that this ‘rational plan, must apply to all member-states, rather than privilege Greece at the expense of Ireland, Portugal, Spain etc.
that until such a plan is in place, Greece will strive to live within its meagre means within the Eurozone, suspending temporarily all payments to all creditors

At that point, Europe will have to make a momentous decision. Either ignore this Greek call to sanity, and instruct the ECB to cut Greece loose (with devastating repercussions for the Eurozone as a whole), or choose to europeanise the banks throughout the Eurozone (i.e. recapitalise them directly by the EFSF, without that capital counting against national debt), europeanise investment projects (viathe European Investment Bank) and europeanise part of the member-states’ debt (via eurobonds).

Am I proposing that Greece blackmail Europe? Certainly not. Since when is telling the truth and refusing to take loans that one cannot repay a form of blackmail? By taking this principled stance, Greece will be acting as a good citizen of Europe and will offer leaders like President Hollande a splendid opportunity to stop the rot that is nowadays consuming Europe’s body and soul.

and Tsipras clearly is on the same page as Yanis...... note how Tsipras handles himself and intelligently responds to tough non CNBC style softball question from Der Spiegel

http://www.zerohedge.com/news/spiegel-interviews-tsipras-if-greece-destroyed-it-would-be-merkels-fault

Spiegel Interviews Tsipras: "If Greece Is Destroyed, It Would Be Merkel's Fault"

Submitted by Tyler Durden on 05/28/2012 13:18 -0400

Corruption

Creditors

Cronyism

European Central Bank

The person who has caused global stock markets so much consternation by daring to play chicken with Germany until the bitter end conducts a no holds barred interview with Germany's Spiegel. There is little love lost between the Syriza leader and the Germans, who were quite surprised to find a political leader who is willing to play blink with Germany, with the ECB, and the developed world until the very end, or June 17, whichever comes sooner. Tsipras' bottom line: "We're trying to convince our European partners that it's also in their interest to finally lift the austerity diktat." Alas, the European "partners", as evidenced by Lagarde's Guardian interview this weekend, have an image of Greece as a bunch of lazy tax evaders, who only seek to mooch on the German teet, resulting in 60% of Germans now pushing for Greece to be kicked out of the Euro, consequences be damned. Nothing new there. What is curious is Tsipras' answer to the question everyone wants to ask: "If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?" His response: " I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit...we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts." Presumably this means that Greece infrastructure projects will not be commanded from the same location in the Athens ministry of finance which houses the now legendary following data room.

Yet the line that will draw the most ire out of the already exhausted German taxpaying public is the following:

"if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel."

Well, in the US, it is all Bush's fault; in Greece, it appears to be Merkel.

Anyway, here is the full Spiegel interview, full of so much confusion, chaos, contradictions on all sides, that we urge a Blood alcohol level of at least 0.1 before commencing reading.

SPIEGEL: Mr. Tsipras, is Berlin really as bad as you always say back home in Athens whenever you rail against theevil Germans?

Alexis Tsipras: Berlin is my favorite capital city in Europe. It's too bad that I'm always here only briefly. I'd like to have more time.

SPIEGEL: You might be Greece's prime minister the next time you come to Berlin. If that happens, will Greece still be a member of the euro zone?

Tsipras: Of course. We'll do everything we can so that Greece can retain the euro. We're trying to convince our European partners that it's also in their interest to finally lift the austerity diktat. We need policies that don't destroy the Greek economy but, rather, allow for renewed growth. If the austerity course isn't changed, it will result in the complete destruction of the Greek economy. That would indeed be a danger to the euro.

SPIEGEL: But even some parts of Syriza, the leftist alliance you lead and which came in second place in the May 6 election, have been calling openly for a return to the drachma.

Tsipras: That's only a minority. In each party, no matter whether big or small, there are different orientations, different opinions. Then there will be a vote, and the majority decides. What's more, this minority among us isn't in favor of an exit from the euro, for example; it just wants to ensure that Greece can also survive, with the help of another currency, for example, if others have completely ruined our national economy.

SPIEGEL: Which "others" do you mean? The Greek economy is already in a shambles.

Tsipras: What I mean by that is if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel.

SPIEGEL: Are you seriously claiming that the reforms which Europe is demanding as a precondition for loan assistance are the reason for Greece's miserable situation?

Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.

SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?

Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.

SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …

Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.

SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?

Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.

SPIEGEL: Is that the complete truth? Even Alekos Alavanos, your old mentor and the former Syriza floor leader in parliament, has called on you to finally be honest with your fellow Greeks.

Tsipras: Alavanos left the party some years ago because he didn't share our conviction about remaining within the euro zone. It's fairly odd that I now have to justify myself for the fact that we -- like the vast majority of the population, incidentally -- want to stay within the euro association.

The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy …

SPIEGEL: The concept of merit-based remuneration hasn't made it all that far in Greece. Instead, there's widespread corruption, cronyism and clientelism -- not exactly an advantage when it comes to competitiveness.

Tsipras: I am aware of the problems the Greek state has. It was systematically run down by the politicians of ours who were in power. And many Greeks share in the blame: They've supported this system; they've sustained it by continually electing the same politicians. But this can't be the cause of the crisis but, rather, at most it is a symptom. The financial and debt crisis isn't purely a Greek problem -- otherwise, there wouldn't be high government deficits in other countries, as well, such as in Italy, Spain, Portugal and Ireland. So there must be other causes. That's why we have to analyze the structure of the community, its architecture. Also that of our common currency, the euro.

SPIEGEL: Do you see in François Hollande, France's newly elected Socialist president, a new ally in the battle against the austerity diktat coming out of Germany?

Tsipras: Hollande is clearly a great white hope for us. Now, ideas and arguments that haven't been listened to will once again be heard and discussed, such as a stronger role for the European Central Bank or the introduction of euro bonds. We can't just treat symptoms, or we really will stumble over Greece. That doesn't help anyone. If our country exits the euro zone, all of Europe is in danger. We mustn't fool ourselves about that.

SPIEGEL: The most recent talks in Athens aimed at forming a government failed because you refused to join in any coalition. At the moment, opinion polls indicate that your Syriza alliance is running neck and neck with the conservative Nea Dimokratia (New Democracy) party. Who would you like to partner with after the new elections on June 17?

Tsipras: We would, of course, like to have a left-wing coalition. And we'll do everything we can to make things add up in our favor this time.

Interview conducted by Julia Amalia Heyer and Manfred Ertel

and connecting the Greek dot to the Spanish dot , we will be looking at a bailout for Spain if their ten year bond crosses and stays over 7 percent .....

http://globaleconomicanalysis.blogspot.com/2012/05/spanish-10-year-bond-yield-hits-65.html

Spanish 10-Year Bond Yield Hits 6.5%, Spread to Germany Hits Record; Prime Minister Repeats Lie "Spain Does Not Need Bailout"; Backdoor Bailout or Ponzi Scheme? More Questions Than Answers

In the wake of Bankia bailouts to the tune of €19 billion, the second bailout in two weeks, yields of Spanish debt are soaring.

Spread to German Bonds Hits 5.05 Percentage Points

At this rate I expect it will take less than a week before Prime Minister Mariano Rajoy changes his mind about not needing a bailout, but for now please consider another candidate for understatement of the month: Spain funding situation 'very difficult', PM Rajoy says

Spain's prime minister has said it is "very difficult" for the country to get funds.

The premium investors demanded for holding Spain's 10-year bonds over its German equivalent rose to a record 5.05 percentage points.

But Mr Rajoy said the banking system did not need an international bailout.

"There will not be any [European] rescue for the Spanish banking system," he said, but he backed calls for the European rescue fund to be able to lend to banks directly.

Last week Bankia, which was formed from the merger of several struggling regional lenders, requested a 19bn-euro bailout, which was a much bigger amount of help than had been expected.

"We took the bull by the horns because the alternative was collapse," said Prime Minister Mariano Rajoy, adding that Bankia customers' savings were now safer than ever.

Rather than borrowing money on the open markets, potentially at high cost, there are reports that Madrid is considering giving Bankia government bonds. The bank would then use them as collateral for loans from the European Central Bank.

One analyst said this would amount to "an ECB bailout through the back door".

Some are concerned that by doing this, the government is not tackling the problem of the huge amount of bad property loans, estimated at 32bn euros, that Bankia is holding.

"It is not dealing with the problem of bad loans, it is just keeping them going," said Kathleen Brooks, research director at Forex.com. "It risks becoming a zombie bank," she told BBC News.

Backdoor Bailout or Ponzi Scheme?

Is Rajoy's proposal a backdoor bailout or a Ponzi Scheme?

I proposed the latter yesterday morning in Spain's Plans to Recapitalize Bankia Will Put Germany, ECB at Risk; When Does the Ponzi Scheme Collapse?

More Questions Than Answers

One thing that will change Rajoy's tune in a hurry is if the ECB says no to the preposterous plan.

Then what?What kind of interest rate can Spain get on the open market for bonds?

Doesn't the idea of recapitalization with junk bonds seem absurd enough in the first place?

I asked the key question yesterday: When does Germany say it has had enough of these preposterous schemes?

Catharsis Ours

Monday, May 28, 2012

For Europe’s sake Greece must renege on its bailout commitments – my op-ed in Le Monde

Le prochain gouvernement doit refuser les termes de l’accord de “sauvetage”

Spiegel Interviews Tsipras: "If Greece Is Destroyed, It Would Be Merkel's Fault"

Spanish 10-Year Bond Yield Hits 6.5%, Spread to Germany Hits Record; Prime Minister Repeats Lie "Spain Does Not Need Bailout"; Backdoor Bailout or Ponzi Scheme? More Questions Than Answers

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