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The Modest Proposal of Yanis Varoufakis

by ARGeezer Tue Jun 7th, 2011 at 01:32:34 AM EST

Saviour of Last Resort

Over the last few weeks Yanis Varoufakis and Tasos Patokos "have carried out a series of simulations regarding the Greek debt-to-GDP ratio under different scenaria." The graph below represents four scenarios that have been modeled:


The vertical axis represents Greece's debt to GDP ratio

Scenario 1 (the grey bars): Steady as she goes, with strict adherence to the EU-IMF targets

Scenario 2 (the yellow bars): As in Scenario 1 with the addition of a highly successful privatisation program worth €50 billion in aggregate which yields €15 billion in 2011, another €15 billion in 2012, and a further €10 billion each for 2013 and 2014. All these monies are used to retire debt.

Scenario 3 (the blue bars): The Modest Proposal adopted in part. In particular, we assume that Policies 1&2 are adopted but not Policy 3. In other words, we assume that a part of Greece's debt is transferred onto the ECB's books (which issues 20 year eurobonds to cover it) and that Greece repays that debt over the same span of time at no more than 3.3% (which is, in our estimation, above the ECB-bonds' market rates). Further, we assume that the stressed banks are recapitalised and accept, in exchange for EFSF capital, selective haircuts. Policy 3 (the use of eurobonds to energise the European Investment Bank) is however not adopted, under Scenario 3.

Scenario 4 (the pink bars): The Modest Proposal fully fledged. Policy 3 is also activated with the European Investment Bank carrying out investments within Greece to the tune of 0,9% of Greek GDP (and assuming a very modest multiplier of no more than 2).

The policies discussed above are described in A MODEST PROPOSAL FOR OVERCOMING THE EURO CRISIS by  Yanis Varoufakis and Stuart Holland. The most "radical" policy resembles what Roosevelt did in the New Deal in the 1930s USA.

Of course the scenario in which everyone comes out OK requires revision of EMU and ESCB rules to create a fiscal union and a willingness to engage in fiscal policy beneficial to the whole of the EMU. In his blog Varoufakis makes the point, citing many others, that insisting on the current rules will break the Euro and prove very costly to all involved, as the surplus countries in the EMU will have a new currency, or currencies that will appreciate significantly, which will shut down the intra-EU trade in which they are currently enjoying surpluses and trigger a recession, (at a minimum), that hits both surplus and deficit nations.

There is a large price to be paid by all for the surplus countries indulging their desire to have scapegoats for their failings. But it can be quite amazing how far people will go to satisfy those desires. 0.9% of Greek GDP would be about €1.35  billion for the next few years. Undoubtedly, similar spending would be required for Ireland, Portugal, and, if properly done, all deficit countries.

This is far less than the liabilities already assumed in doomed attempts to save the un-salvageable. But, done properly, it would not "cost" the surplus countries that sum, as the ECB could just credit the national central banks with the money, although it might cause Austrian Austerians' and other Neo-Liberals' heads to explode.

If the "Modest Proposal" were implemented the deficit countries could continue to purchase the exports of the surplus countries. But a Götterdämmerung brought on by indulging atavistic impulses and fantasies of "winning" a zero sum game might prove irresistible -- to everyone's harm.

Display:
Hat tip to Migreu for the reference to the latest post from Yanis Varoufakis.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 01:36:27 AM EST
Policy 1 - Stabilising the sovereign debt crisis
Institution: The ECB (European Central Bank)

My summary (none was in the paper): ECB takes over the debt of the states up to 60% of all the states GDP and finances it by eurobonds. The memberstates keep paying the interest, but now to ECB. This removes the immediate crisis as ECB is infinitely solvent in euro.

Policy 2 - Tackling the banking sector crisis
Institution: The European Financial Stability Fund.

Summary: The purpose of Policy 2 is to cleanse the banks of questionable public and private paper assets so as to allow them to turn liquidity that comes their way in the future into loans to enterprises and households. The problem, currently, is that if banks are submitted to rigorous stress tests, several may be found to be bankrupt. Thus, Europe needs simultaneously to lean on them to come clean but also to help them do so without insolvency.

Policy 3 European Recovery Programme
Institutions: The EIB (European Investment Bank), the ECB (European
Central Bank) and national governments

Summary: Policies 1&2 will reduce but not eliminate the Eurozone's sovereign debt and private banking sector burdens. Only development and real recovery
will do the trick. Thus, the Eurozone (especially the periphery that has been in the doldrums for years) requires a productive investment drive. This is a task
well suited to an existing institution: the EIB.

The EIB has a formal commitment to contribute to both cohesion and convergence, where key cohesion areas include health, education, urban renewal and the environment. However, at the moment, EIB investment projects are co-financed on a 50-50 split between the EIB and the memberstate in question. The EIB's 50% does not count against national debt but the 50% of the member-state's contribution, if borrowed, does.

At a time of fiscal squeeze amongst many member-states, these co-financing rules severely circumscribe the utilisation of the EIB's investment capabilities. Once, however, member-states have debit accounts with the ECB (see 1.3 above), there is no reason why the member-state's 50% co-financing of a worthy (from a pure banking perspective) investment project should not be funded from that debit account (i.e. against the ECB's Eurobonds).

Thus, while the ECB is the guardian of stability, the EIB is the safeguard of recovery through investments funded by its own bonds and from transfers to it of net issues of Eurobonds by the ECB. It already has been remitted by the European Council to invest not only infrastructure but also areas of social cohesion including health, education, urban renewal, environment, green technologies and support for SMEs - all of which are in the joint EIB-EIF criteria since Lisbon 2000 (the EIF is now part of the EIB Group). Moreover, the EIF (European Investment Fund) - as recommended above - should offer equity capital to new high tech start ups rather than only venture capital guarantees.

Even shorter summary:

  • ECB handles the debt crisis by taking over a large portion (or all for the countries with little debt)
  • EFS handles resolving the financial crisis in Europe by doing what a financial regulator should do: create transparency and solvent banks
  • EIB handles investments, freed of free-marketeer nonsense.

With the black holes of raids on government debt and the finance sector are resolved, a classic Keynesian investment spending lifts Europe into a future with growth and stability for all!

And according to the authors, this can all be done within the current treaties.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Jun 7th, 2011 at 10:06:58 AM EST
Excellent plain English summary. To some The Modest Proposal may seem blindingly obvious. But, perhaps, if one has been taught and accepted that this is all "crass Keynesianism", it is all heresy and confusion and/or impossible to understand because their job depends on not understanding.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 10:20:27 AM EST
[ Parent ]
And according to the authors, this can all be done within the current treaties.

In addition to learned blindness reinforced by personal self interest I suspect that many in the surplus countries also believe that they are "winning" by maintaining the current policies and have convinced themselves that this is because of their "virtue" compared to the "losers", following their myth of The Protestant Ethic.


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 10:30:34 AM EST
[ Parent ]
Aye yaye yaye.

I have not spent much time in the countries you mention, though I live in the USA.

When you put it like that, I stop and think that I don't know much about the world. Just do depressing.

by Upstate NY on Tue Jun 7th, 2011 at 01:14:03 PM EST
[ Parent ]
Everyone wants to think well of themselves. The dynamics of collective self esteem, perhaps. I am only trying to explain this situation the best I can and the suggestions are only  hypotheses. But I have seen how spectacularly trying to tell people something they don't want to hear can turn out for a politician, especially if what he is telling them is true. Think Jimmy Carter's "sweater speech" on reducing oil consumption. I can only wish I had mastered the art of convincing people of the truth when that truth is painful. So much easier to tell soothing lies.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 10:32:58 PM EST
[ Parent ]
They are winning. They are coming out of this as the dominant political and economic force within Europe.

... it's just a pity that dominating Europe may well leave them exposed to being dominated by extra-European powers.

And they are indulging their sadistic urges - remember, these are EPP politicians. Kicking the poor, even at cost, is a driving motivation for these people.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 10th, 2011 at 04:15:06 PM EST
[ Parent ]
They are winning.

That is also my surmise. It won't be cheap. They will have a significant amount of bailing to do. But the EPP will pay any price and bear any burden provided it promises to result in crushing all others beneath their heel. Paying and bearing less so that all may prosper -- not so much. So it seems to me.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 10th, 2011 at 06:11:41 PM EST
[ Parent ]
I should say "so it seems at present." We have the possibility that what may be unleashed will over top all, given the weaknesses present in German banks and the ECB. Perhaps that is what you were referring to with your "be dominated by others" comment?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 10th, 2011 at 06:19:54 PM EST
[ Parent ]
The "dominated by others" reference was simply to the fact that there are no European great powers, only former European great powers who have not understood that yet.

So we may hang together or we may hang separately...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 11th, 2011 at 06:22:26 AM EST
[ Parent ]
there are no European great powers,

Especially true regarding economic weight considered by nation, and definitely not true when considered as the EU. This is where Germany is winning the battle by risking the war. Perhaps a union of the (currently) surplus countries, if accompanied by more political and fiscal union, would count as a great power, but how likely is that given the current crop of dick-heads on offer as "leaders"?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 11th, 2011 at 10:02:31 AM EST
[ Parent ]
German behavior makes sense in that the oligarchs have concluded the party is over regardless. Time to scavenge whatever booty is left and set sail for the high seas.
by Upstate NY on Sat Jun 11th, 2011 at 10:40:32 AM EST
[ Parent ]
It seems to take lots of time to infiltrate enough organizations so that the levers of control are operated by like-minded people. The institutions are media, academia, government, and the ones who sought to control these sat on corporate boards, especially on banks.

It's easy to see it happening quickly now all over the world. In the USA, it is laughingly infiltrating into our elementary schools (laughingly, I say, because we have politicians here writing textbooks for the pre-10 year olds).

It's a matter of organizing now outside of media, forcing change in the part of academia which hasn't gone over to the business wing. What other institutions are there? Politics changes last, obviously, since they colonized that first.

by Upstate NY on Fri Jun 10th, 2011 at 08:18:47 PM EST
[ Parent ]
I have before advocated a broad alliance with all who see the need to take down the existing corrupt system. There are a lot of economically literate people in the financial sector who are disgusted with the present spectacle and there are the Ron Paul followers who want to audit the Fed, and, indeed, abolish the Fed. I can buy into that. What we have should be abolished. We have to allow the insolvent to fail. Failure should be cheered!

All we are preserving are the incompetent oligarchs who brought us to this pass. We cannot make any real progress, in the USA, in Greece, Ireland, Portugal or Spain, without taking down the existing system. Every day that passes only makes the situation worse.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 11th, 2011 at 12:23:43 AM EST
[ Parent ]
Ruling party lawmakers attack new Greek bailout

(Reuters) - The Greek government failed on Tuesday to persuade doubters in the ruling Socialist party to back a new bailout deal with the EU and IMF, after the fund said the country could not afford to slacken the pace of reforms.

Unrest is growing in the governing PASOK party about a deal struck last Friday with Greece's international lenders, under which Athens has promised a new wave of austerity and faster privatisation in return for the new bailout.

Finance Minister George Papaconstantinou got a rough ride when he tried to sell the plan to a committee of senior PASOK lawmakers at a marathon meeting, the latest stage in a drive to get the government's medium-term economic plan through parliament this month.

Vasso Papandreou, who chairs parliament's economic affairs committee, evoked French revolutionary Mirabeau in recounting what she had told Papaconstantinou at the meeting. "When parliament is blackmailed, then democracy is blackmailed, according to Mirabeau," she told reporters. "You have no plan... What you are doing will not get you very far."

But Prime Minister George Papandreou does appear to have a plan: AGREE TO ANYTHING TO GET THE NEXT INSTALLMENT OF THE BAILOUT.

Public hostility is strong to the idea of yet more austerity, on top of measures agreed under Greece's original 110 billion (98 billion pound) bailout last year which have helped to send unemployment soaring to almost 16 percent. On Sunday more than 80,000 Greeks vented their anger at a protest in central Athens.

Tuesday's committee meeting went on for so long that a meeting of the PASOK political council due later in the day was postponed until Wednesday, and a cabinet meeting supposed to sign off on the plan and send it to parliament was likewise put back by a day from Wednesday to Thursday.

'THE FUTURE OF OUR COUNTRY'

Prime Minister George Papandreou says that clinching the new bailout, which still needs to be approved at an European Union summit later this month, is crucial for the future of the nation.



As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 09:58:25 AM EST
by Migeru (migeru at eurotrib dot com) on Wed Jun 8th, 2011 at 10:02:15 AM EST
[ Parent ]
Yep, and of the few remaining from PASOK's Old Guard (and no relation to the PM). If she is freaking out, you know it's bad.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 8th, 2011 at 11:58:23 AM EST
[ Parent ]
Yanis Varoufakis: The New York Times' article on our Modest Proposal: My reaction
NYT: "The prime minister is in favor of the proposal," said Vasso Papandreou, a former top financial advisor to the prime minister and an influential member of Parliament within the governing Socialist party, known as Pasok, who has been openly critical of the government's austerity plan.

YV: Vaso Papandreou's predicament is highly instructive. One fine morning (or perhaps afternoon), the Prime Minister called Vaso and asked her to head a PASOK (the governing socialist party) parliamentary committee whose purpose would be to canvass for eurobonds. This was announced with much fanfare in the media and was also given an appropriate label: The Eurobond Committee. Alas, soon after, Vaso realised that her committee was hanging in mid-air: Animosity from Mr Papakonstantinou's (the Finance Minister) team and precisely zero support from the Prime Minister. Naturally, she allowed the committee to fade into oblivion since convening it and pushing ahead (against a background of hostility combined with indifference) would resemble a Sisyphean task.

NYT: "This is not a Greek problem any more -- it's a European problem."

Ms. Papandreou is not related to the prime minister.

YV: Vaso Papandreou, in short, understands the essence of the problem: However the crisis may have commenced, it is now a European-wide disease that can only be cured by a Pan-European therapeutic treatment. The Modest Proposal's purpose was to suggest such a treatment in a manner that does not require any major Treaty changes (which would have rendered it politically and institutionally infeasible).



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 04:19:49 AM EST
[ Parent ]
I think George is extending everything and waiting for the EU partners themselves to get into a squabble. He's trying to hold it together long enough for the EU and IMF to pull the plug. I bet Wolfgang Schauble was shocked that Greece agreed to give over sovereignty, and now Wolfgang comes back to the table with demands that are freaking out Trichet.

It's a gigantic game of chicken.

Who will blink first?

France, Germany or Greece?

by Upstate NY on Wed Jun 8th, 2011 at 10:53:31 AM EST
[ Parent ]
"Whatever else history may or may not say about these terrible, tremendous years, we can be sure that the Greek government acted with perfect sincerity according to his lights and strove to the utmost of his capacity and authority, which were powerful, to save the eurozone and the EU from the awful, devastating jungle in which we are now entering. This alone will stand him in good stead as far as what is called the verdict of history is concerned."

few words changed here and there

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Wed Jun 8th, 2011 at 12:35:43 PM EST
[ Parent ]
Well, no one can complain that he put the interests of his own country above that of the EU.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 02:37:59 PM EST
[ Parent ]
He's trying to hold it together long enough for the EU and IMF to pull the plug.

That is the only motive of which I can conceive, but will it make any difference for Greece in the long run. Is it worth having the country pillaged just to say that someone else pulled the plug? And is his primary motive one of his place in history or one of the welfare of Greece? Or does he concatenate the two?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 01:13:01 PM EST
[ Parent ]
Have they been threatened with expulsion from the EU? In secret? With deference given to Macedonia and Turkey in any territorial disputes should those arise?
by Upstate NY on Wed Jun 8th, 2011 at 01:24:39 PM EST
[ Parent ]
They don't have to be in the EMU to be in the EU. While territorial disputes might involve a minor loss of territory or symbolic defeats, at worst, that hardly compares with having your economy looted. My recommendations, not that they matter, would be to proceed with a maximally beneficial restructuring of the bonds unilaterally, combined with the issuance of a new local currency.

They should court Spain, Portugal and Ireland, along with other new EMU entrants, with the proposal to have their own monetary union that functions along the lines Yanis Varoufakis has sketched out, but supplemented with a PIGS' Central Bank and a transfer system. They might find themselves confronted with other countries clamoring to join. But, in order to be successful, they would have to find some practical way to insure against the neo-liberals taking over the PIGS' Central Bank.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 02:35:15 PM EST
[ Parent ]
They don't have to be in the EMU to be in the EU. While territorial disputes might involve a minor loss of territory or symbolic defeats, at worst, that hardly compares with having your economy looted.

If you lose territorial sovereignty to "international investors," you can Putin them at a later date. If you lose territorial sovereignty to Turkey, you will not get that land back this side of a serious shooting war.

But, in order to be successful, they would have to find some practical way to insure against the neo-liberals taking over the PIGS' Central Bank.

Enshrine its financial stability mandate and its full subservience to Parliament in the treaties. Explicitly enshrine in the treaties that the financial stability mandate supersedes any price stability concerns.

If that's not enough, then there is no solution short of lining up the neoliberals against a wall. And I'm not all that convinced that I'd prefer that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 10th, 2011 at 04:30:12 PM EST
[ Parent ]
It might sound silly to you but it is a matter of honor for Greeks.

It is important for us not to be those who will blow up the whole project of euro. At least we will be able to say that we did all we should do. The tide is overwhelming.

Today I was reading (for professional reasons) a speech by Commissioner Barnier. Last week he said "But we are making real progress. We have built strong solidarity between eurozone members." Does he call that "solidarity"? At best you can call it "usury".

ps. forgot to say that the above adjusted quote was Churchill on Chamberlain. Note that I respect Chamberlain.

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Wed Jun 8th, 2011 at 02:44:06 PM EST
[ Parent ]
And having your country's assets looted is not a violation of that same honor? And, besides, Greece has another card to play on any territorial disputes. She is a member of NATO and has a significant Greek population in the USA, both of which can be brought into play in such an instance. And Greek diplomacy could attempt, at least, to defuse or thwart such schemes.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 04:01:44 PM EST
[ Parent ]
Greece's American lobby has been ineffective for a long time. Again and again, it has suffered one loss after another in regard to Greek and Cypriot foreign policy. It has been out of the armed wing of NATO for sometime now, and its relationship to NATO has been antagonistic (the Greek papers over the last decades used to report of intercessions by NATO commanders beating it back for complaints of Turkish buzzing of Greek tourist islands). Greece has been regularly using veto threats inside the EU to accomplish its foreign policy goals, and has been skewered for it by many of the heavyweights. Indeed, the actions of Greece with regard to the veto have been cause for a reconsideration of the EU's acquis communitaire. There was talk that a veto by one country would no longer be allowed.
by Upstate NY on Wed Jun 8th, 2011 at 08:51:11 PM EST
[ Parent ]
Thanks for the background.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 10:56:20 PM EST
[ Parent ]
It is important for us not to be those who will blow up the whole project of euro.

In either case Greece will not be the one who blew up the EMU and/or the EU. But in either case she WILL be the one to be blamed, along with Portugal and Ireland.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 04:04:38 PM EST
[ Parent ]
So I don't see what is in it for Greece to go along with these doomed but harmful measures. Damned if you do, damned if you don't. But bereft of assets if you do while remaining in possession of assets if you don't. And I too have defended Neville Chamberlain and been castigated for so doing. :-)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 04:10:36 PM EST
[ Parent ]
Just to be clear, I agree with you. I'm just speculating on the type of threats they might be receiving behind closed doors.
by Upstate NY on Wed Jun 8th, 2011 at 08:51:56 PM EST
[ Parent ]
Jimmy Carter also comes to mind
In 2008, a U.S. News and World Report piece stated:
We would also do well to remember the sort of complexity and humility that Carter tried to inject into political rhetoric... Carter was unwilling to pander to the people... What Carter really did in the speech was profound. He warned Americans that the 1979 energy crisis -- both a shortage of gas and higher prices -- stemmed from the country's way of life. "Too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does but by what one owns", the president said. Consumerism provided people with false happiness, he suggested, but it also prevented Americans from re-examining their lives in order to confront the profound challenge the energy crisis elicited. Despite [some failures] Carter left behind a way of talking about the country's promise and its need to confront what is undoubtedly one of its biggest challenges -- to solve the energy crisis in a way that takes seriously both our limits and our greatness.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 04:36:57 AM EST
[ Parent ]
FYI, Carter is universally reviled by American conservatives as the worst president ever. Violently hated. Country saved by Reagan. The depth of this sentiment may not be obvious to the casual observer...
by asdf on Tue Jun 14th, 2011 at 06:15:21 PM EST
[ Parent ]
Oh, yes, I know Carter is universally reviled and not only by conservatives.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 06:57:16 PM EST
[ Parent ]
Carter wanted to talk, but was afraid to take action.
by rootless2 on Tue Jun 21st, 2011 at 05:44:03 PM EST
[ Parent ]
It might sound silly to you but it is a matter of honor for Greeks.

And what ever you love will be used against you. If Greece holds fast to that idea they will have been about the only honorable player in the whole sordid game. How is it honorable to be defrauded of your means of existence by those for whom honor is but a quaint concept? Or, for that matter, even by those who are too blind to see the dishonor inherent in their own actions?

I would propose Greece as the "Mark of the Century", but that probably is properly earned by the citizens of the USA for their staunch support of the "defense of freedom and democracy" by the US Government.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 11:06:12 PM EST
[ Parent ]
BTW, it isn't "almost" 16% anymore, today the official numbers for March came out: 16,2% - a 40% rise from last year...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 8th, 2011 at 01:20:50 PM EST
[ Parent ]
I'm talking about unemployment, of course...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 8th, 2011 at 01:21:35 PM EST
[ Parent ]
Yanis Varoufakis: The New York Times' article on our Modest Proposal: My reaction
Below, I reprint the article and annotate it meticulously for the purposes both of elucidating the Modest Proposal itself and of commenting on the NYT's take on the train of events surrounding the Greek PM's dallying with this proposal. But before I do this, it is important to make a point about the scope and purpose of the Modest Proposal itself: It was never meant as a plan for salvaging the Greek shipwreck. It is, rather, a plan that Stuart and I have been sculpting, for some time now, with a view to (a) arresting the eurozone's centrifugal forces, and (b) giving Europe a much needed growth spurt. To the extent, of course, that these aims are met, the Greek crisis would be resolved as a matter of course.

Did we think that the men and women in authority (in Greece, Berlin, Frankfurt or elsewhere) would read our Modest Proposal, be struck by its logic, and adopt it forthwith? Of course not. However, we knew (and remain convinced) that the euro crisis is spinning out of control. Our task, as we saw it, was to plant in their minds the seed of a feasible, rational, comprehensive solution which, when the powers-that-be run out of options, may grow and yield a way out of the calamitous impasse. That the Greek PM did not pin his colours on its mast is neither here nor there (even though we would have liked him to run with it). We remain convinced that, at some not too distant point, Europe will have to choose between allowing the euro to disintegrate or adopt policies that echo the essence of the Modest Proposal's three main policies.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 04:06:18 AM EST
NYT: Following that logic, the problem of Greece's debt is as much the E.C.B.'s, which is now the largest institutional owner of Greek sovereign debt, as it is Greece's. This reality was underscored this week when the Bank for International Settlements released data showing that European banking exposure to Greece, while high at €121 billion, has been declining as French and German banks have been reducing their exposures. That means, in many cases, that the E.C.B. has been left holding the bag, which helps explain why the central bank is so opposed to any talk of restructuring Greece's debt, or requiring bondholders to share in any losses, something known as a haircut.

YV: Excellently put. Let me just add the following thought: Presently, the eurozone lacks a joint fiscal policy. During periods of normalcy and growth, this is sustainable. But after a meltdown, like that of 2008, a joint fiscal policy is unavoidable. When the institutions for it are absent, the ECB takes it to itself, whether it likes it or not, to play that role. To be more specific, as we speak, the European System of Central Banks (ESCB) is placing the onus on the German Central Bank to finance the Greek Central Bank which, in turn, keeps the Greek banks liquid which, in turn, support the Greek state by buying whatever short term debt it sells. In effect, the ESCB is financing, indirectly, the Greek State. And similarly with the Irish, Portuguese, Spanish, Italian and Belgian banks and states. The result is both bad fiscal policy and bad monetary policy. So, in response to those who may protest that the ECB cannot possibly issue eurobonds (because this would be to cross into fiscal policy territory) I have the following to say: It has already happened! Our Modest Proposal, if anything, limits such practices by taking the ECB out of the business of financing the issue of new sovereign debt and simply having it issue a revenue-neutral conversion loan (effectively financed by the sovereign wealth funds and private investors who will be buying the ECB's own bonds).

Recall, from two years ago: What's left of central bank independence? (Willem Buiter's Maverecon, May 5, 2009)
The modern independent central bank was born in New Zealand in 1989. It had a short life.  The onset of the financial crisis of the north Atlantic region in August 2007 signalled the beginning of the end.  Today, only the ECB still has a significant degree of operational independence left, and it will have to give that up if it is to be effective in the current phase of the crisis. In other words, the ECB is the last central bank to understand that, if it is to play a significant financial stability role, it cannot retain the degree of operational independence it was granted in the Treaty over monetary policy in the pursuit of price stability.

...

Inevitably, when the central bank takes on significant credit risk in its monetary policy management, liquidity management and credit enhancement policies, close cooperation between the central bank and the fiscal authorities is essential.  Cooperation and coordination do not necessarily mean loss of independence. The ECB, unfortunately, often talks as if cooperation and coordination, including binding agreements, between the ECB and the fiscal authorities of the Euro Area would in and of itself constitute an infringement on its independence.  So all it is up for is regular cheap talk with the Ecofin or with the Eurogroup finance ministers.

...

The regulation and supervision of financial institutions and markets is a deeply political activity. Property rights are being assigned, restricted, qualified or taken away.  Banks are stopped from doing things they want to do and forced to do things they do not want to do.  Barriers to entry and exit are created, lowered or removed.  Such activities don't fit the image of an independent, a-political central bank very well.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 04:34:29 AM EST
[ Parent ]
Now if only there were a feasible manner in which to clarify and detoxify the muddied and poisoned waters of public opinion in the surplus countries, especially Germany, there may be a way forward that does not involve collapse.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 09:47:34 AM EST
[ Parent ]
Sweden is a surplus country outside the eurozone, but unless things are much different two things can be noted:

  1. This is not a major issue. It is a major foreign policy story, but as such is less relevant then the number of JAS planes that will bomb Libya.

  2. Most people do not gloat about Greece. It is more a  "good that we did not join the eurozone and have to take care of that"-sentiment. And "how hard can it be to balance a budget, just do not spend what you do not have".

Public opinion is not against fixing the situation, public opinion is confused about the situation and not very interested.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Jun 9th, 2011 at 12:26:10 PM EST
[ Parent ]
Every country spends what they do not have. Every country borrows. Including Sweden.
by Upstate NY on Thu Jun 9th, 2011 at 12:29:52 PM EST
[ Parent ]
First the money is created, then it is spent, then taxes are collected. This stops working when the spending stops benefiting the country as a whole, is disproportionately siphoned to offshore havens and into the pockets of oligarchs who use it elsewhere. But that contradicts the political mandate, from the money elite, that capital has to be free to move internationally, especially when there is no effective means to regulate that capital beyond nation's borders.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 02:23:10 PM EST
[ Parent ]
Yes, you're right. I was merely pointing out that every country runs a deficit.
by Upstate NY on Thu Jun 9th, 2011 at 05:33:46 PM EST
[ Parent ]
Unless it wants to beggar its private sector or has a large trade surplus.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 10th, 2011 at 12:36:16 AM EST
[ Parent ]
And I generally agree with what you said about deficits.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 10th, 2011 at 12:38:07 AM EST
[ Parent ]
..into the pockets of oligarchs who use it elsewhere.

It does not matter where they use them. It matters where they get them. If oligarchs use their money locally, that's good only if the oligarch incomes suddenly disappear. That's not the case.

by kjr63 on Fri Jun 10th, 2011 at 04:05:35 AM EST
[ Parent ]
Every country spends what they do not have. Every country borrows. Including Sweden.

Indeed. But Sweden repays more than it borrows. The national debt falls by about 5 % a year, and will be wiped out in less than 10 years, maybe in 6. If we still have a right-wing government when that day comes, the cashflow currently used for debt repayment will be redirected into tax cuts on a truly epic scale, dwarfing the ones we've seen since 2006.

:: ::

Unless the Swedish real estate bubble pops and the 500 % of GDP banking system have to be saved, but let's ignore that possible nastiness for the sake of the argument.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 12:37:28 PM EST
[ Parent ]
That is not sustainable.

Public debt = high powered money.

Reduction in public debt therefore requires either (a) a reduction in the demand for money, (b) an increase in the proportion of bank money in the economy or (c) a foreign surplus.

(a) and (b) are, of course, not sustainable, since (a), if sustained, would return you to a barter economy and (b) invariably leads to bankers trying (and failing miserably) to do economic planning that they really should leave to engineers.

And we can't all be running a trade surplus...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 12:42:11 PM EST
[ Parent ]
Good thing then, that Sweden runs a foreign surplus... which can be invested in productive investments in foreign less developed countries, which usually have a much greater need for capital investment than is the case in Sweden.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 18th, 2011 at 12:59:46 PM EST
[ Parent ]
Can be. But, judging by the recent Swedish financial escapades in the Baltic Rim, usually isn't.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 05:36:45 PM EST
[ Parent ]
In the 90ies Sweden instituted high unemployment, complete with independent national bank and all. Together with the classical MUD-approach to unemployed - blame them for their misery, cut benefits - this worked wonders to keep wages down and surplus up.

If surplus was invested wisely it would end being surplus and instead turn into useful goods and serices, so it was handled by financial gamblers who gambled on short-term profitable, long term dodgy debts.

Short story: Sweden is Germany, but much smaller. And not in a currency union.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Jun 19th, 2011 at 08:33:37 AM EST
[ Parent ]
Just to put into context with Greece, Sweden went from labor participation in the mid 70s to participation in the workforce in the upper 60s.

In Greece, it is now under 50%, and of course for those under 30, it is far lower.

I'll let Mig speak to Spain, and I note that Ireland has resumed exporting its most famous product, its own unemployed, as long as Dubai is taking them, I guess.

The Hun is always either at your throat or at your feet. Winston Churchill

by redstar on Sun Jun 19th, 2011 at 09:01:22 AM EST
[ Parent ]
Public opinion....is confused about the situation and not very interested.

To the extent that Sweden exports to EU countries it is likely to become concerned as this situation continues unresolved, as it will plunge all of Europe into one degree or another of recession as the money supply again severely contracts. I don't think Sweden will be able to create enough krona to fill the hole.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 02:29:28 PM EST
[ Parent ]
Of course, when it becomes a domestic issue, the public will be interested. But it is not treated as such at the moment, it is a foreign/economics pages issue.

For good or bad, the public is not interested. If this is the same way in other surplus countries, then the public is neither helpful nor in the way of a solution. I do not think the problem is public opinion, I think it is financial elite opinion, which dictates political elite opinion.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Jun 9th, 2011 at 02:46:56 PM EST
[ Parent ]
"how hard can it be to balance a budget, just do not spend what you do not have".

As we know from national accounting it is much easier to balance the budget if you are a net exporter. But it is not too surprising that this concept has not filtered down to the level of those exposed only to an introductory course in economics.

Not to criticize you, I am sure you are attempting to accurately report public opinion, but having no concept that things are more difficult when a country is a net importer makes it easy to blame those in deficit countries for having weak characters when the truth is a bit more complex.

  • Not every country can be a net exporter by simple logic.

  • How well would the surplus countries do without the deficit countries as markets?

  • How honestly and effectively have the deficit countries been treated by those who have capital to invest locally?

  • How does the control of government by wealthy elites in your own country compare with the situation in the deficit countries?

  • What has your own country done to improve the regulation of international capital markets?

Again, these questions are not so much for you as for the average Swede.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 03:21:27 PM EST
[ Parent ]
Ah, you are overestimating the public debate.

Trade? Who mentioned trade? This is a debt-crisis (tv said so), so it must be caused by Greek government taking on to much debt, in effect failing to balance the budget. So then they have to pay the money back, right? Now that that is settled, what is happening with the king and the strip-club visits 30 years ago?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Jun 9th, 2011 at 04:40:38 PM EST
[ Parent ]
And this fact, combined with similar facts in other countries, combined with self serving ideas of monetary and political elites is why noble experiments can end up on the rocks.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 05:05:33 PM EST
[ Parent ]
The simple step the Greeks could take is to cancel all arms contracts.
by rootless2 on Tue Jun 21st, 2011 at 05:48:11 PM EST
[ Parent ]
One thing that does become clear from Varoufakis' response to the NYT article is the extent to which he sees Papandreou and Papaconstantinou as having served primarily as weather vanes through this storm. He makes a convincing case. Hard not to like the guy, given his sense of humor combined with his understanding of the seriousness of the situation.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 9th, 2011 at 10:08:37 AM EST
[ Parent ]
If you read Spanish, you may find this profile in a Spanish newspaper amusing...

Expansion.com: Entrevista al economista Yanis Varoufakis: "Grecia no puede escapar de la suspensión de pagos" (08-05-2010)

Tiene pinta de monitor de gimnasio, pero es uno de los economistas con más influencia en la política griega. De 2004 a 2007 fue asesor de Yorgos Papandreu, que al llegar al Gobierno le ofreció un puesto en el Gabinete. Dijo no: "Soy un economista, no un político".

Además, guarda notables diferencias con la visión financiera del primer ministro. Y desde entonces (octubre) se ha centrado en su labor docente y divulgadora. Autor de varios libros y conferenciante a nivel mundial, es director del Departamento de Política Económica de la Universidad de Atenas. A sus 49 años, Yanis Varoufakis prefiriere recorrerse, en camiseta, las calles de Atenas que depender del elefante de granito que es la burocracia helena. Trae consigo un mensaje nada halagüeño: «Grecia no puede escapar del default», asegura en una entrevista con EXPANSIÓN.

Interview with the economist Yanis Varoufakis: "Greece cannot escape bankruptcy"
He looks like a gym instructor, but he's one of the most influential economists in Greek politics. From 2004 to 2007 he was advisor to Yorgos Papandreou, who on reaching the Government offered him a cabinet post. He declined: "I'm an economist, not a politician".

In addition, he keeps notable differences from the financial vision of the Prime Minister. And from then (October [2009]) he has concentrated on his teaching and popularizing work. Author of several books and worldwide speaker, he's director of the Department of Economic Policy at the University of Athens [actually, director of the University of Athens Doctoral Program in Economics]. At 49, Yanis Varoufakis prefers to traverse, in his t-shirt, the streets of Athens than to depend on the granite elephant of Greek bureaucracy. He brings with him an unpleasant message: "Greece cannot escape default", he claims in an interview with EXPANSIÓN




Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 9th, 2011 at 10:20:54 AM EST
[ Parent ]
One interesting literally annotation is that the original Modest Proposal was referring to Ireland, not Greece.

I mean the satirical essay "A Modest Proposal" by Jonathan Swift for anybody unfamiliar with the title.

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Fri Jun 10th, 2011 at 04:49:50 PM EST
A proposal well worth reading:

A Modest Proposal, by Dr. Jonathan Swift

I am assured by our merchants, that a boy or a girl before twelve years old, is no saleable commodity, and even when they come to this age, they will not yield above three pounds, or three pounds and half a crown at most, on the exchange; which cannot turn to account either to the parents or kingdom, the charge of nutriments and rags having been at least four times that value.

I shall now therefore humbly propose my own thoughts, which I hope will not be liable to the least objection.

I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed, is, at a year old, a most delicious nourishing and wholesome food, whether stewed, roasted, baked, or boiled; and I make no doubt that it will equally serve in a fricasie, or a ragoust.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 10th, 2011 at 05:14:01 PM EST
[ Parent ]
The final solution to the commodification of labor? I think not. Better to wait until they are 18 and check first if they are needed on the labor market.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 11th, 2011 at 12:29:25 AM EST
[ Parent ]
A very interesting discussion with Varoufakis on France 24, disagreeing vociferously with Prof. Dr. Markus C. Kerber Professor of Political Economy, Technische Universität (from Berlin)... Varoufakis is supported by 2 reasonable French economists, Julia Cage and Philippe d'Arvisenet...
Part 2 here

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 15th, 2011 at 08:00:50 PM EST
So, in the final analysis, the home of democracy turns out to be unable to educate its citizens well enough in the responsibilities of democracy to make it work.

Humans. Odd species. Doomed, I think.

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Mon Jun 20th, 2011 at 09:52:10 PM EST


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