Yanis Varoufakis commentaries

http://yanisvaroufakis.eu/2012/06/07/solidarity-euro-style-finnish-loans-ecb-bond-purchases-efsf-tough-love-and-assorted-horror-stories-from-the-postmodern-euro-workhouse/

Solidarity Euro-Style: Finnish

 loans, ECB bond purchases,

 EFSF tough love and assorted

 horror stories from the

 postmodern Euro-Workhouse

7JUN

The world seems convinced that Europe, perhaps under duress, put together a large Solidarity Fund (the EFSF) for the purposes of helping the fiscally-stricken Eurozone member-states avoid bankruptcy once they were frozen out of the money markets. The criticisms waged at this type of ‘solidarity’ centred on two issues: First, that the Fund’s size was not large enough (and thus unable to help Italy and Spain). Secondly, that this Fund resembles more a Victorian Workhouse whose real purpose was not to show solidarity to its residents but, rather, to make their life so unpleasant as to deter able-bodied workers from ever seeking its assistance.

The first criticism, about the EFSF-ESM’s size, is true but irrelevant. As I have argued from day one of the EFSF’s creation, its problem is not its size but its CDO-like structure. Turning to the second criticism, that it resembles a Dickensian Workhouse, Spain’s current predicament is instructive: To get money to give to its decrepit banks, the nation must be humiliated and undergo further fiscal waterboarding so that Italy and others are deterred from turning to the EFSF for help. In this sense, when Europe’s functionaries say that there is no need for further action on Spain since the EFSF is available to help, they are inviting the Spanish to enter the Workhouse for a life of undeserved misery on behalf of their bankers. And they have the audacity to call this ‘solidarity’ with the Spanish people.

Still, many commentators are prepared to give Europe’s leaders the benefit of the doubt. To think of the EFSF-Workhouse like the Victorians did: better than the alternative of being left on the street to perish; a place where ‘tough Victorian love’ is practised in order to refresh Europe’s puritan ethic. Well, be that as it may, I invite those who would like to think this way, to consider the following two examples with a view to establishing whether they are consistent even with this Victorian view of ‘solidarity’. 

‘Solidarity’ Exhibit A: Forcing more loans upon the bankrupt

As I wrote in a Le Monde article recently, the bankrupt Greek state was recently forced, by the troika, to borrow  4.2 billion from the EFSF so as immediately to pass 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). Is this ‘solidarity with the fallen’, even of a Victorian Workhouse type? 

‘Solidarity’ Exhibit B: Taking money from the bankrupt to invest on behalf of prosperous countries

When the 2^nd Greek ‘bailout’ was agreed, you may recall that the Finnish government asked for guarantees, for collateral, that would reduce its exposure to Greece. The Greek government conceded, promising collateral of  925 million in value. One might have expected that the said collateral would come in the form of some assets (e.g. Greek government owned real estate). But no! Helsinki would have none of that. Instead, they demanded… cash! And cash they received. Last month, in May 2012, Athens wired  311 million to the Helsinki government, as a first installment. My sources here in the United States tell me that the Finnish government is now seeking to invest this money in joint ventures with US and other European firms. Now that is what I call solidarity with Greece…

To conclude on a sad and desperate note, I would like to call upon northern European governments to cease and desist from more ‘solidarity’ offerings to our fiscally-stricken, fast impoverishing nations. Your ‘solidarity’, your ‘tough love’ is killing our proud nations and, in the process, destroying Europe’s moral, political and economic fabric.

and......

http://yanisvaroufakis.eu/2012/06/03/italys-own-goal-guest-post-by-joseph-halevi/

Italy’s Own Goal: Guest post

 by Joseph Halevi

3JUN

The Eurozone’s idiocy is obvious to all those with eyes and ears. It can be witnessed anywhere we turn these days: from the evolving bank run to the non-debate on eurobonds. Joseph Halevi, friend, co-author and serial guest of this blog, just sent me a missive that offers new insights into our continent’s infinite inanity: Italy’s major own-goal in consenting to (what I call) the fiscal waterboarding of Greece, Portugal and Spain. Here is Joseph’s note (with some additions by yours truly):

Last year the Italian Confederation of Industry threw themselves behind all the EU decisions in regard to Greece, Portugal, Spain. Thus they supported deflationary policies in regions where Italy has big (albeit shrinking) net export surpluses (which have been acting as a buffer in relation to its expanding deficit vis-à-vis Germany).

Suppose Il Sole 24 Ore, the daily of the Italian Confindustria,  were to host on its front page a headline like: “In the US the financially strapped states are imploding and they account for 33% of Italy’s exports”. Panic would ensue with hundreds of articles flooding the Italian press. Well, this is precisely the situation in relation to Greece: Looking at 2008 figures, it turns out that Greece was absorbing Italian goods and services (mainly goods) equal in value to those that 100 million Americans consumed (i.e. Italy’s exports to Greece equalled 33% of Italy’s exports to the United States!).

In 2011, according to UN Comtrade, Italy’s exports to Greece fell by 46% compared to 2008; the natural victim of Greece’s implosion. In terms of the Italy-Greece balance of trade, whereas Italy’s export (to Greece)-to-import (from Greece) ratio was 5 to 1 in 2008, the Greek crisis reduced this to 2 to 1. Some Greeks may think that this is a good thing, in that Greece’s balance of trade has improved. But it isn’t really. Such shifts constitute improvements when there is an shift in relative competitiveness. When, for example, Greek goods improve in quality, relative to Italian ones, or when Greek production processes become more cost effective. But nothing of the sort applies here. The reason Italy’s balance of trade surplus with Greece collapsed was because Greece collapsed. Pure and simple. In this sense, a nuclear explosion that wiped out Greece, would totally eliminate its trade deficit. Would that be progress? No, it would not. Neither for Greece nor for Italy.

A similar story can be told in relation to the bilateral trade between Italy and Spain, Italy and Portugal, Italy and Cyprus (soon to ask for a bailout). Southern Europe and France were the safest areas for Italy’s net exports within the Eurozone. In the remaining Europe (north of the Alps), Italy could only compete via devaluing the lira (a main reason why Germany insisted on Italy’s inclusion in the Eurozone).

It is clear that Italy (both under Berlusconi and Monti) was keen to be seen to be part of Europe’s core. To that purpose, its leaders felt that they must be seen to be on the ‘right’ side of the waterboarding of Greece, Spain and Portugal. Alas, by supporting the troika’s policies, Italy turned against its own interests and, thus, contributed to its own demise in areas which hitherto generated hefty profits on the export balance. Even though it hates to admit it, Italy has already joined the ‘waterboarding experience’ on the ‘receiving’ side; taking its place amongst its victims (Greece, Spain and Portugal), patiently waiting to be waterboarded until all economic life is squeezed out of it.

and.....

http://yanisvaroufakis.eu/2012/06/03/why-europe-should-fear-fina-gail-like-reasonableness-much-much-more-than-it-fears-syriza/

Why Europe should fear Fine

 Gael-like ‘reasonableness’

 much, much more than it

 fears Syriza

3JUN

The establishment view in Europe is that the problem is too much debt (by profligate countries like Greece) and, therefore, that the solution must involve (a) austerity and (b) structural reforms (which increase the competitiveness of the weaker states). The problem, however, is that the establishment view is profoundly mistaken and, as a result, the proposed treatment poisons the patient. If this is so, Europe (and the world) have a lot more to fear from the ‘reasonableness’ of political parties like Fine Gael et al than from the ‘ultra-leftists’ of Syriza.

The other day, the Irish voted in favour of a hideous impossibility: They voted in favour of the EU’s fiscal compact which specifies that which is both impossible to attain and catastrophic if it is attained. What was that? The pledge by member-states that “general government budgets shall be balanced or in surplus”, that “the annual structural deficit must not exceed 0.5 percent of GDP”, that if “government debt exceeds the 60% reference level” it will be reduced “at an average rate of one twentieth (5%) per year as a benchmark” and that, failing all this, “the EU’s highest court will be able to fine a country”; a penalty equivalent to up to 0.1% of GDP”.

Suppose that every European citizen adopts the fiscal compact as her or his guiding principle and puts its implementation above all else in life. If Spain, Italy, Portugal, Ireland, France, Greece, Germany etc. (i.e. countries with debt well above 60% of GDP) were to reduce their debt by the specified 5% per annum, this would mean that all these nations should turn an average 2.8% primary deficit to something akin to 6% primary surplus. Suppose we could do it (which,  of course, we cannot). Were we to succeed in this endeavour, the result would be a very deep recession equal to at least -4.5% in terms of average Eurozone-wide ‘growth’. In a period when a banking crisis is in full swing, the Periphery is in free fall, US growth is tittering of the verge, China is slowing down etc., engineering such a recession via this piece of ‘legislation’ is the macroeconomic equivalent of committing suicide.

So, why did the Fine Gael-led Dublin government push so powerfully in favour of this piece of crippling idiocy? And why did the smart, decent Irish voters said Yes, despite their tradition of saying No to euro-silliness? The answer is simple: They were blackmailed. Ireland’s voters were told: Vote No and the flow of money from the troika will cease. And so they voted Yes, even though I suspect that no government minister, no rank and file Fine Gael or Labour Party member, no man or woman on the street believes that the Fiscal Compact they voted for makes sense. 

Similarly in Greece today. Voters are being bombarded by the media with precisely the same dilemma: If you vote for Syriza, as opposed to one of the pro-bailout parties, the money flow from the troika will cease and then all hell will break loose. Indeed, the same scenario is played out all over the place. In Spain, the hapless government of Mr Rajoy speaks out against Eurobonds so as to stay on the ‘right’ side of Mrs Merkel in the hope that Spanish banks will be kept afloat without an ignominious inclusion in the EFSF-ESM fold. Italy’s Mr Monti is invoking the Greeks to vote for ‘reasonable’ parties even though he knows full well that this sort of ‘reasonableness’ involves policies that constitute cruel, unusual and ineffective punishment. And so on.

For two years now I have been arguing that Europe is being quickmarched, sequentially (one country after the next) off the cliff of competitive austerity – without any winners standing at the end of this gruesome process. Something must end this madness. There must be a circuit-breaker. Ireland could have been that circuit-breaker, with a resounding No to the idiotic Fiscal Pact. It did not happen. On the one hand, the fear that Ireland will be frozen out of the ESM and, on the other hand, the elevation of the troika’s ‘model prisoner’ image (for the Irish) onto the Pantheon of Irish virtues, saw to it that madness (in the form of a Yes vote to a Compact that everyone knows to be daft) prevailed. Greece is the next hope that Reason may manage to score a belated victory.

If on 17^th June Greeks voted like the Irish did last week (that is, against their reasoning and guided by fear and blackmail), the Eurozone will become history, with terrible consequences for the global economy. This is not the case of the Philosopher Kings blackmailing the plebs to do what is right. This is the case of ‘madmen in authority’, to quote Keynes, who are not only steering the vessel toward the rocks but who are, in the process, punching holes in the life vests that may carry us to safety once the shipwreck is complete. Consider what they are telling the Greek people: They are saying that Greece, to remain in the Eurozone, must,

(a)  carry on borrowing from the EFSF at 4% (and thus adding to Greece’s public debt) in order to pay the ECB (which will be making a 20% profit from these payments, courtesy of the fact that it had previously bought Greece’s bonds at a 20% to 30% discount)

(b)  reduce public spending by 12 billion euros in order to be ‘allowed’ to borrow for the benefit of bolstering the ECB’s profits from these transactions involving bankrupt Greece.

If the Devil wanted to guarantee that Greece is pushed out of the Eurozone, he and his evil handmaidens could not make up the above, satanic, scenario. Meanwhile, the same happens in Spain, where the government is forced to borrow money (at nearly 7%) it can hardly raise in order to shore up banks that are borrowing from the ECB (at 1%) to lend to the Spanish government at (7%) so that the latter can… bail them out. Not even the sickest of minds could make this up!

To conclude, Europe’s peoples are being marched into a catastrophe. They know that this is their predicament. They can see their march is leading them off a mighty cliff. But they are too afraid to veer off, in case there are beaten back into line, in case they get lost in the woods, for reasons that sheep know best. However, the only way this hideous march can end is if someone summons up the courage and does it. And steps out, showing the others that this march can stop and must stop – for everyone’s benefit. Who is that someone? We, Europeans, do not have many options. As I wrote above, the Irish people had a chance but did not take it. In two weeks, the Greeks have their chance. Voting for Syriza would offer us (and by ‘us’ I mean all Europeans) a chance of this circuit-breaker. A chance to say: Enough! Time to change course in order to save the Eurozone, so as to prevent the Great Postmodern Depression which lurks once the euro-system fragments formally. 

Should we be afraid of Syriza’s ‘ultra-leftism’? My answer is a resounding No. I recommend that (even those who have Greek amongst their languages) you do not read their manifesto. It is not worth the paper it is written on. While replete with good intentions, it is hort on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of  policies that are neither here nor there. Just ignore it. Syriza is a party that had to progress, within weeks, from a fringe political agglomeration struggling to get into Parliament (at around the 4% mark) to a major party that may have to form government in a few short weeks. It is, in important ways, a ‘work in progress’; and so is its unappetising Manifesto. No, the reason it is safe to take a gamble on Syriza is threefold:

First, because it is probably the only party that ‘gets it’; that understands (a) that Greece must stay in the Eurozone (despite the latter’s obvious failures), and (b) that the Eurozone will not survive unless someone forces Europe to put an immediate halt on this “march off the cliff of competitive austerity”. 

Secondly, because the small team of political economists that will negotiate on Syriza’s behalf are good. moderate people with a decent grasp of the grim reality that Greece and the Eurozone are facing (and, no, I am not part of that team – but I know the ones I am referring to).

Thirdly, because, in any case, a vote for Syriza is not going to establish a purely Syriza government. No party, including Syriza, will be in a position to form a government outright. So, the question is whether Europe is better off with a government in Athens which includes Syriza as a pivot or one which is supported by discredited pro-bailout parties, with Syriza leading from the opposition benches. I have no doubt whatsoever that Europe’s interests are best served by the first option.[1]

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[1] On a humourful note, perhaps we can even enlist the Fiscal Compact as a reason to support a Syriza-based government! One of the Compact’s articles, after all, says that member-states agree to take the necessary actions and measures, which are essential to the good functioning of the euro area in pursuit of the objectives of fostering competitiveness, promoting employment, contributing further to the sustainability of public finances and reinforcing financial stability.” Well, all this, at least in my estimation, requires saying No to the ‘bailout’ logic and, thus, Yes to the Syriza’s line of argument…