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Merkel cuts Greece loose

With all eyes on the Eurogroup today, and the antics of the creditors speculating on a bank run in Greece, Angela Merkel’s declaration to the Bundestag on the upcoming European Council (press release with video) went completely under the radar, not that such speeches get widely reported anyway. And to judge by the media reporting, you would think that Merkel expressed support for Greece in the Euro. I mean, look at the BBC:

In her statement to the German parliament, Mrs Merkel said Germany was working hard to keep Greece in the euro, but said Athens had to follow through on reform commitments. “I’m still convinced – where there’s a will, there’s a way,” she said. “If those in charge in Greece can muster the will, an agreement with the three institutions is still possible.”

But, in reality, in a self-righteous tone Merkel blames the feckless Greeks for their failure to allow the EU to help them help themselves to their feet, and so sets the stage for cutting Greece loose from the Euro. I expect this will be clear from the transcript below (with my translation). Read more…


The double-dip recession as a Eurozone policy failure

The Spanish Economic Association (, from it Spanish acronym AEE) has introduced its own version of the business cycle dating pioneered by the US National Bureau of Economic Research. Here I look at the business cycle dating by NBER and AEE, as well as the Eurozone business cycle dating by the CEPR. My conclusions are:

  • the 2008 recession in Europe is indeed a knock-on effect of the US subprime crisis
  • Zapatero was right when he said on the campaign trail for his March 2008 re-election that there was no recession in Spain
  • bank failures in the Eurozone are a consequence of recession and not the other way around
  • automatic stabilizers and stimulus worked in 2009
  • the sovereign debt crisis was entirely artificial and manufactured
  • the second dip of the Spanish recession was caused by Zapatero bowing to Eurozone pressure and instituting austerity
  • the second Eurozone recession was caused by Trichet’s ‘impeccable’ rate raises in 2011
  • the end of the Spanish recession was helped by the European bank rescue of 2012
  • Draghi’s extraordinary monetary policy measures have not been enough to pull the Eurozone out of recession but have prevented it from getting worse

There is a timeline at the bottom of this post so you can draw your own.

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Where did all the Greek deposits go?

Last Friday, Eurointelligence wrote

… Greek private sector deposit outflows slowed to €7.63bn in February from a record high of €12.79bn in January, due to the upbeat mood about the February 20 deal. A further breakdown also showed that three quarters of the withdrawn deposits stayed inside Greece while only one quarter of those deposits went abroad, according to this article on Macropolis, a marked difference to 2012. …

And on Monday, in a twitter conversation with Miquel Roig of Expansión, we were wondering about the rationality of keeping Euros in Greek banks, and he provided a link to the Bank of Greece aggregated balance sheets of monetary financial institutions (MFIs), so I decided to take a look at the financial flows by assuming the changes in stocks equal the net principal flows (excluding interest and changes to asset valuations). He suggested to do it since, say, November (before the early elections heightened political instability in Greece). Read more…

Varoufakis and the memorandum

Cross-posted on European Tribune

Now that the Greek cliffhanger has moved on to whether Tsipras will give in to Merkel or not, let me go back to the debate over the past two weeks on Yanis Varoufakis’ position on the Troika. The favourite claims of the Very Serious People were that the Greek government was making different statements abroad from what it said in Greece, that it was flip-flopping on their acceptance of the “program”, or that Varoufakis in particular was one day saying he rejected the memorandum in toto and the next that it accepted 70% of the reforms, as if that were a contradiction.

In fact, to understand the Greek position one need only pay attention to what Varoufakis (mostly) has been saying, as opposed to what the press said he has been saying, and not assume that just because Syriza are radical leftists they must be talking nonsense. With this in mind, let’s take a look at Varoufakis’ second address to the Greek Parliament on February 10, during the debates preceding the new government’s confidence vote. It is not hard to see that Varoufakis’ position can be summarised as follows:

  • The “memorandum” is a “pyramid scheme” whereby an insolvent Greece is made to indebt itself further in order to pay its creditors on condition that it shrink its income.
  • The “program” is a “fig leaf” intended to cover up the fraudulent logic of the “pyramid scheme” “memorandum”.
  • The “troika” are bureaucrats sent to Greece to implement “austerity” and with no authority to discuss the “reforms” they are charged with overseeing.
  • Some of the “reforms” happen to be positive, some negative, but this is all incidental as they are part of the “fig leaf”.
  • The SYRIZA government agrees with 70% of the “reforms” and considers the rest “toxic”.
  • Because the “troika” bureaucrats do not have the authority to discuss the “toxic” reforms, the SYRIZA government does not recognise them as interlocutors. It does recognise the “institutions” and “partners” with an authority to discuss the “reforms”.
  • The SYRIZA government is willing to negotiate a new “program” with the legitimate “institutions” and “partners”, but not to extend the existing “fig leaf”.
  • The SYRIZA government “accepts 0%” of the “memorandum” and its “austerity” “pyramidal logic”.

As this was already clear at least since the press conference with Schäuble 5 days earlier, serious people who make snide remarks about 70% not being the same as 0% are being intellectually lazy.

To illustrate the depths of misrepresentation, be it due to laziness or dishonesty, in the serious people‘s commentary, let’s look at Varoufakis’ “cunning plan” for negotiating with the Eurogroup:

Our only tactic, ladies and gentlemen of the Opposition, would be to come up with reasonable, sensible proposals. I will not go with any available tacticism. Although I have spent many years of my life with game theory, I assure you that it will not apply it. Game theory is for gaming. Not playing with the future of Greece. Not playing with the future of Europe. Without bluffs, without twists and turns, this is our “cunning” tactic.

Now look at the reporting:

To substantiate my above interpretation of Varoufakis’ position, here is an excerpt from the Greek Parliament’s official journal for February 10 [.doc file], google-garbled. To find the speech in the very long file, just perform a textual search for ‘ΒΑΡΟΥΦΑΚΗΣ’ (all caps) which indicates he’s the one speaking, whereas lower case returns dozens of hits of references to him by other speakers.

The Memorandum for us very simply defined. Was that the combination of new debt accumulated over already unsustainable loans and private debt, provided the shrinking incomes, from which have to be repaid the old and new loans. That was the understanding.

This is the memorandum which was born in 2010 and which remains philosophical, macroeconomic, morally toxic and the skeleton, the basis of the program, which “run” and “running” up to our election. Is pyramidal austerity imposed and guarded with periodic visits the troika of envoys technocrats three important institutions to whom we belong and will belong and in which we are working, but not on the basis of stewardship and enforcement by a group of technocrats who send in the country us, with colonial features, this pyramid austerity.
Question: What percentage of the Memorandum accept? Just 0%! We will not accept nor a condition that enhances the vortex of the crisis, which magnifies the rate of debt, further wage reductions, new taxes on those who have already exhausted from taxation. We will not tolerate even a line, not a word, not one of the “red” lines that Mr. Venizelos, which reinforce the denial of reality and sacrifice Greeks of the most powerless without cause. We will not succumb to the deceitful error that deregulation of the labor market is reformed.
Ladies and gentlemen, the Memorandum, the pyramidal austerity loans the fed condition growing decline of our society, this story ended. This does not mean that ended the loan agreement with our partners. To stop, however, this Loan Agreement to be toxic require a new agreement, a new contract between us and our partners. Elected to negotiate. What to negotiate? A new agreement.

For example, why reject the commitment to reform the tax code -We have no reason to do it, just because it is part of the list of the MoU; – or the commitment of the redefinition of the concept of tax evasion? We want to do that. 70% of this “fig leaf” of the paper, the list, which came mnimoniaki logic pyramidal austerity is either irrelevant or independent of the mnimoniaki logic.
I repeat: What percentage of the Memorandum accept? We accept 0%, ladies and gentlemen.

Konstantinos SKREKAS: The “fig leaf” we want to hear.

GIANIS VAROUFAKIS (Minister of Finance): The “red” lines are yours and ours. And we have more. But overall, if the yield line to line and quantitatively, around 30% is toxic, mnimoniako piece which will reject.

And just so that it cannot be said that I take things out of context, I reproduce the entire speech below the fold. Enjoy.
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Greece’s Plan B?

In an ideal world, Greece’s new finance minister Yanis Varoufakis would succeed in negotiating with the Eurogroup on the basis of his own Modest Proposal. However, we live in this universe and the immediate question arises of how Greece is going to fund its foreign commitments, in particular the redemption of €7bn’s worth of bonds held by the ECB and maturing in 6 months. According to the Wall Street Journal,

The next hurdle will be €7 billion in bonds held by the ECB that mature in July and August. Greece doesn’t have the cash to repay them, and failure to do so could ultimately lead to Greece’s exit from the eurozone.

Syriza Win in Greek Election Sets Up New Europe Clash (January 26, 2015)

Here I outline a plausible (based on the published opinion of Greek government ministers and their associates) plan for Greek economic recovery, consisting of:

  • a universal job guarantee program at the new minimum wage
  • the introduction of a parallel currency in the form of transferable tax credits
  • capital controls

Cross-posted on European Tribune.
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This, my friends, is why we can’t have nice things

Earlier today in the European Parliament, Jean Claude-Juncker introduced his much-touted €300bn investment plan with these words:

I often hear that we need ‘fresh’ money. What I believe we really need is a fresh start and fresh investment. Others say we need more debt. We do not. National budgets are already stretched. The EU operates on balanced budgets and the abundant liquidity can allow Europe to grow without creating new debt. We will not betray our children and grandchildren and write more checks that they will ultimately have to pay off. We will not betray the rules of the Stability and Growth Pact that we have agreed jointly – this is a matter of credibility.

Cross-posted on European Tribune
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The flaws of the EU’s asymmetric approach to imbalances

Originally published on on July 19, 2011. It has been used as a source in Rachael Wheeler’s dissertation Not If, But When – The Inevitability Of The Eurozone Crisis (University of Dundee, April 2012); also by e-commerce digests. It was also discussed on European Tribune.

The EU is pursuing a lopsided approach to resolving the eurozone’s internal imbalances. If all the adjustment were to take place among deficit countries, one of the consequences would be a situation under which the capital investment to improve productivity can hardly take place.

Read more…

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