The Guardian published an op-ed from Yanis Varoufakis today
"Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone."
Germany
won’t spare Greek pain – it has an interest in breaking us
Debt
restructuring has always been our aim in negotiations – but for
some eurozone leaders Grexit is the goal
Yanis
Varoufakis, former Greek finance minister
10
July, 2015,
Greece’s financial
drama has
dominated the headlines for five years for one reason: the stubborn
refusal of our creditors to offer essential debt relief. Why, against
common sense, against the IMF’s verdict and against the everyday
practices of bankers facing stressed debtors, do they resist
a debt restructure?
The answer cannot be found in economics because it resides deep in
Europe’s labyrinthine politics.
In
2010, the Greek state became
insolvent.
Two options consistent with continuing membership of the
eurozone presented themselves: the sensible one, that any decent
banker would recommend – restructuring the debt and reforming the
economy; and the toxic option – extending new loans to a bankrupt
entity while pretending that it remains solvent.
Official Europe chose
the second option, putting the bailing out of French and German banks
exposed to Greek public debt above Greece’s socioeconomic
viability. A debt restructure would have implied losses for the
bankers on their Greek debt holdings.Keen to avoid confessing to
parliaments that taxpayers would have to pay again for the banks by
means of unsustainable new loans, EU officials presented the Greek
state’s insolvency as a problem of illiquidity, and justified the
“bailout” as a case of “solidarity” with the Greeks.
To
frame the cynical transfer of irretrievable private losses on to the
shoulders of taxpayers as an exercise in “tough love”, record
austerity was imposed on Greece,
whose national income, in turn – from which new and old debts had
to be repaid – diminished by more than a quarter. It takes the
mathematical expertise of a smart eight-year-old to know that this
process could not end well.
Once
the sordid operation was complete, Europe had automatically acquired
another reason for refusing to discuss debt restructuring: it would
now hit the pockets of European citizens! And so increasing
doses of austerity were administered while the debt grew larger,
forcing creditors to extend more loans in exchange for even more
austerity.
Our
government was elected on a mandate to end this doom loop; to demand
debt restructuring and an end to crippling austerity. Negotiations
have reached their much publicised impasse for a simple reason: our
creditors continue to rule out any tangible debt restructuring while
insisting that our unpayable debt be repaid “parametrically” by
the weakest of Greeks, their children and their
grandchildren.
In
my first week as minister for finance I was visited by Jeroen
Dijsselbloem, president of the Eurogroup (the eurozone finance
ministers), who put a stark choice to me: accept the bailout’s
“logic” and drop any demands for debt restructuring or your loan
agreement will “crash” – the unsaid repercussion being
that Greece’s banks would be boarded up.
Five
months of negotiations ensued under conditions of monetary
asphyxiation and an induced bank-run supervised and administered by
the European Central Bank. The writing was on the wall: unless we
capitulated, we would soon be facing capital controls,
quasi-functioning cash machines, a prolonged bank holiday and,
ultimately, Grexit.
The
threat of Grexit has had a brief rollercoaster of a history. In 2010
it put the fear of God in financiers’ hearts and minds as their
banks were replete with Greek debt. Even in 2012, when Germany’s
finance minister, Wolfgang Schäuble, decided that Grexit’s
costs were a worthwhile “investment” as
a way of disciplining France et al, the prospect continued to scare
the living daylights out of almost everyone else.
class="Apple-converted-space" ‘By the time Syriza won power last January, a majority within the Eurogroup had adopted Grexit either as their preferred outcome or weapon of choice against our government’.
By
the time Syriza won power last January, and as if to confirm our
claim that the “bailouts” had nothing to do with rescuing Greece
(and everything to do with ringfencing northern Europe), a large
majority within the Eurogroup – under the tutelage of Schäuble –
had adopted Grexit either as their preferred outcome or weapon of
choice against our government.
Greeks,
rightly, shiver at the thought of amputation from monetary union.
Exiting a common currency is nothing like severing a peg, as Britain
did in 1992, when
Norman Lamont famously sang in the shower the morning sterling quit
the European exchange rate mechanism (ERM). Alas, Greece does not
have a currency whose peg with the euro can be cut. It has the euro –
a foreign currency fully administered by a creditor inimical to
restructuring our nation’s unsustainable debt.
To
exit, we would have to create a new currency from scratch. In
occupied Iraq, the introduction of new paper money took almost a
year, 20 or so Boeing 747s, the mobilisation of the US military’s
might, three printing firms and hundreds of trucks. In the absence of
such support, Grexit would be the equivalent of announcing a large
devaluation more than 18 months in advance: a recipe for liquidating
all Greek capital stock and transferring it abroad by any means
available.
With
Grexit reinforcing the ECB-induced bank run, our attempts to put debt
restructuring back on the negotiating table fell on deaf ears. Time
and again we were told that this was a matter for an unspecified
future that would follow the “programme’s successful completion”
– a stupendous Catch-22 since the “programme” could never
succeed without a debt restructure.
This
weekend brings the climax of the talks as Euclid
Tsakalotos,
my successor, strives, again, to put the horse before the cart – to
convince a hostile Eurogroup that debt restructuring is a
prerequisite of success for reforming Greece, not an ex-post reward
for it. Why is this so hard to get across? I see three
reasons.
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0px; font-style: normal;"
Europe did not know how to respond to the financial crisis. Should it prepare for an expulsion (Grexit) or a federation?
One
is that institutional inertia is hard to beat. A second, that
unsustainable debt gives creditors immense power over debtors – and
power, as we know, corrupts even the finest. But it is the third
which seems to me more pertinent and, indeed, more interesting.
The
euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM,
or the 1930s gold standard, and a state currency. The former relies
on the fear of expulsion to hold together, while state money involves
mechanisms for recycling surpluses between member states (for
instance, a federal budget, common bonds). The eurozone falls between
these stools – it is more than an exchange-rate regime
and less than a state.
And
there’s the rub. After the crisis of 2008/9, Europe didn’t know
how to respond. Should it prepare the ground for at least one
expulsion (that is, Grexit) to strengthen discipline? Or move to a
federation? So far it has done neither, its existentialist angst
forever rising. Schäuble is convinced that as things stand, he needs
a Grexit to clear the air, one way or another. Suddenly, a
permanently unsustainable Greek public debt, without which the risk
of Grexit would fade, has acquired a new usefulness for Schэauble.
What
do I mean by that? Based on months of negotiation, my conviction is
that the German finance minister wants Greece to be pushed out of the
single currency to put the fear of God into the French and have them
accept his model of a disciplinarian eurozone.
I was alerted to Varoufakis' article by this from Zero Hedge.
I prefer to read the original, rather than the ZH version. For God's sake, why do I need to know that Varoufakis was seen heading off to the Greek islands?!
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