Greece, Europe and the Global Economy: A debate with readers

My last post (in which I suggested that Greece will never be pushed out of the euro) generated a spirited debate with readers and friends who chipped in their views on this and related matters. Rather than allowing these exchanges to stay within the margins of the previous post’s Comments section, I reproduce them here as a fresh post. Enjoy! (And do comment further if you will.)

Gary Dymski

Brother – Two details appeared in the FT article published Sunday night, which you leave off: (1) the IMF imposed its own condition – withholding its next payment tranche unless Athens has a credible plan quote-unquote for the next 12 months; (2) that as much as half of the new financing needed in the period through end-2013 will come from readjusted terms for existing creditors.

So the IMF plays the role of “heat” or “heavy” – ‘he’s crazy and he has a loaded gun’. And there is a quiet haircut in the to-be-negotiated terms. Democracy in action?

YV’s reply: Brother Gary, I never thought the moment would come when I would defend (even for a passing second) the IMF but, alas, it has come: What its hapless functionaries have said makes perfect sense: They cannot hand out more money to Athens in June 2011 as part of a multiple year support project (the purpose of which is to prevent a Greek sovereign default) when it is, presently, clear that unless the EU comes up with a new funding formula for Greece, the country will deafult in 2012 even if it receives the IMF’s funds now. Effectively, the IMF is telling the Europeans: Guys, get your house in order. When and only when you do can you expect more money from us. Reasonable, don’t you think? As for the FT report concerning the need for ” readjusted terms for existing creditors” this is yet another euphemism for a debt restructure. This is right too. What the FT is reporting, in an admittedly candid manner, is that the EU cannot have its cake and eat it. If it does not find a way to unify part of the debt mountain weighing the eurozone’s periphery down (e.g. by issuing a eurobond, as we suggest in the Modest Proposal), the debt is so enormous that it will have to be restructured (however powerfully the ECB is kicking and screaming). While none of this is part of an IMT-Financial Times drive toward greater democracy, it is at least a position not totally devoid of logic. In sharp contrast, the EU’s position and practices are both undemocratic and idiotic…

Dimitris Yannopoulos

I agree with every point in the chain of events of your catastrophic ‘ND’ scenario except with its starting point. The blackmail – which amounts to an Ultimatum reiterated with increasing severity at the end of every quarter whenever an installment (this time, the fifth) from the 110bn euro loan is due for approval by the troika – entails the certainty of a disorderly Greek DEFAULT the moment the scheduled installment is withheld. In other words, the Ultimatum on Greece (the first of such weight since 1940) is also an ultimatum on Europe, every time Mr Thomsen or Herr Stark gnash their teeth to the Greeks: “surrender to our diktat or default”. And no Greek government – especially one as compromised as the present one – needs to “bite the bullet” to slip into the abyss, merely for failing to meet impossible and self-defeating conditions set by its creditors. After the Armageddon of a Greek default and its global repercussions, which you have enumerated with astute precision, there will be no Euro left to lean back on, and no viable new drachma either.

Only some form of global fiat currency (the Ameuro or Eudollar?), based on a common denominator of grossly undervalued “hard” currencies is “predicted” to take their place amidst the ruins. But at the moment, it seems that the barons of high finance in Frankfurt and New York are not yet fully prepared to pull the plug simultaneously on Greece, the euro and some 60-trillion-dollar worth of toxic financial bubbles (including sovereign euro debt) left in dormant bank or hedge-fund accounts and CDS/CDO ‘exposure’ since the Lehmann Brothers debacle. But with every reissuance of their Ultimatum, they manage to eliminate one countervailing force to their plans after another (as they did with DSK and his pipedream of an SDR-based global reserve currency – and as they now threaten to do with the last remaining friend of Greece, Wolfgang Schauble, unless he stops mumbling about the need for a debt restructure).
At every turn, they also manage to extract full and unquestioned compliance from their erstwhile ‘free-thinking’ pawns, old and new (be it ECB bigshots or assorted wannabe IMF chiefs). So, unless a full-fledged European alternative (like your Modest Proposal) is pushed through with resolve and urgency, the countdown to your “incredible” catastrophic scenario will remain on the cards.
We can’t afford the complacency of thinking that it will not or – worse – that it never was. No wonder your M-P has already won some valuable new recruits in Belgium over this weekend. However, it needs a steering committee of public individuals and like-minded folks to lobby for it as widely, effectively and continuously as possible, instead of consuming themselves in semantic refinements or in rebuttals of the pro-troika and anti-euro crowds.
Start it off with Stuart, and we (I suppose Y-patia, Krimbas and myself at the moment) shall sign up to it unconditionally.

YV’s reply: Dimitri, I wish I could disagree forcefully with you. All I can is to present a feeble and half-hearted suggestion that there may be more nous in Frankfurt and New York than you acknowledge. But then again there may not…

Knut34

Can anyone explain to me why the Modest Proposal does not cost the taxpayers of DE, NL & FI any money? I assume the interest rate at which the ECB would borrow will be above what DE, NL & FI pay today. So who pays the delta? There is no free lunch! “The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.” Warren Buffett

YV’s reply: Dear Knut34, Since you asked, let me explain: The ECB bonds that we envisage will sell at rates less than 3% and have no effect whatsoever on the rates at which DE, NL and Fl borrow. Why? Because international investors (e.g. Chinese Sovereign Wealth Funds) are desperate for good quality paper that can help them diversify away from US Treasuries. The ECB has a solid reputation and its bonds will be massively oversubscribed. So, in answer to your question “Who pays the delta?” let me say this (while agreeing entirely with the time honoured dictum that “there is no such thing as a free lunch”): The ECB acts as a go between international investors and Europe’s member-states, thus securing better terms for them but only for the part of their debt that is Maastricht compliant (therefore not raising moral hazard concerns). Two additional supprting arguments: (1) Even the highly problematic (almost toxic) EFSF secures extremely low interest rates when raising money to fund the ill-conceived bail-outs for Ireland and Portugal. (2) President Roosevelt utilised US Treasury Bills in order to finance recovery not by lending money to the different states (or having California guarantee expensive loans for Illinois) but by using the US’ clout in the international markets to act as a lever of investment and recovery. Permit me to say that your thinking could do with a Gestalt Shift…

Chris Coles

The problem with the Euro is very much deeper than any will admit for the very simple reason that in ALL circumstances; there is simply insufficient free money in circulation to enable the redemption of the issued value of the leverage imposed upon the savings. The problem is value, not debt. http://www.itulip.com/forums/showthread.php/17889-We-need-a-Truth-of-Value-Reconciliation-Commission?p=184064

YV’s reply: You are certainly onto something. However, I would put it slightly differently: Debt is a means by which to transfer value not already produced from the future into the present. Presently, we have tried to transfer too much to the least productive (e.g. to the financial sector), the result being that existing capital does not find the return that would justify its existence. Thus the Crisis…

Lennart Fredrikson

I think the bulk of problem must come from Greece nation otherwise implications on Eurozone as mounted today will be substantial. In a 5-7 year period with right composition of measurements to be taken Greece can come out strengthen and credit worthy with house balance in order. I refer to recent article in WELT ONLINE: “Was die Griechen von den Deutschen lernen sollten” Conclusion: Restore Financial stability and good housekeeping key efforts to regain International confidence for Eurozone. Political consensus from Greece on action plan “To be or not To be”? (Active Trader)

YV’s reply: Dear Lennart, the whole point is that Greece cannot do this. No matter how hard a national economy tries to reform itself, and bring its finances in order, when caught in a vicious triple crisis (debt-banking-recession), without even having the capacity to devalue its currency, the only way is down, down and further down. And since (if my post was accurate) Greece cannot (even if it wants to) exit the common currency (without bringing it down with it), the “bulk of the problem” does not fall just on Greece but is shared by the whole of the eurozone. In short, I have some terrible news for you: Greece’s problems cannot be decoupled from those of the rest of the eurozone. But such is life in any currency union. Moreover, it works both ways: A country whose long term growth depends on maintaining large trade surpluses with its partners is as much a problem for a currency union as one that is generating chronic deficits…

Jerry Goldstein

I completely agree that the scenarios you paint are the ones that would occur, and you described them. But…if the Germans responded as you say they would in para 7 above eg., by aiding Greece and recapitalizing their own banks, then they would be doing precisely what they would be trying to avoid and thus pushing Greece out. If they are willing to do what you say, it would not be necessary for Greece to leave.

YV’s reply: Precisely Jerry! Thus, the only issue that is now taxing the best and the brightest in Berlin is how best to keep the show on the road, and in particular how to deal with what I call the Great Banking Conundrum…

Joseph Halevi

Furthermore, any eurozone country exit from the euro is not just an exit from a monetary union. The Euro is part of the EU institutional framework although not all the EU countries belong to the eurozone. As explained by Luigi Spaventa in MIlan’s Il Corriere della Sera last year, exit from the eurozone entails an exit from the European Union. This eventaulity is totally opposed also by Germany, unless… something is changing there also in relation to the EU as such.

YV’s reply: This is a crucial point. Joseph is highlighting the political defeat for the very idea of a European Union that a gradual dismantling of the eurozone will trigger. Germany is (or ought to be) painfully aware of it. Otherwise a postmodern 1930s will dawn upon a continent that ought to know better.

Y-patia

If they only wanted to solve the debt problem and keep the Euro down they could just adopt a simplified version of your Modest Proposal, isn’t it so? i.e. make ECB buy – in fear allegedly of a default – as much Greek and other ailing paper as possible, then write-off all of this tranche of debt, and avoid in this way any haircut on private investors and pension funds the ECB making itself momentarily insolvent. Through printing money it would keep the Euro exchange rate perhaps below parity with the Dollar as it would be re-capitalising itself by some form of Quantitative Re-plenishing (they like the Re- prefix in Europe…). But they will not do it before they see the last hospital they can close closed and the last orphanage take the orphans under the bridges for shelter…Am I so off the mark thinking they are just imposing incredible austerity and above all money transfers and that they are not playing (misguided) “constructive destruction???”

YV’s reply: I think it is important, as Europeans, to acknowledge each other’s fears and concerns. Unless we do this across Europe, there will be no European Union to save. In this sense, I may not share in the majority of Germans’ fear of the inflationary effects of dealing with the debt crisis in the manner of Ben Bernanke (quantitative easing, printing money, quantitative replenishment, call it what you will) but I think it is important to respect these fears. They are grounded both in history (the mid-war hyperinflation) as well as in culture (I believe that, unlike in the rest of Europe, where debt is known as credit – meaning trust or belief – in German debt and guilt are the same word). The whole point about the Modest Proposal is that it shows the way out of our current impasse while respecting these fears and pointing at ways in which Europe’s overall debt burden can be reduced without transferring part of it to German taxpayers.

Anna Triandafyllidou

I like Yannis’ reasoning and exposing of some unfounded statements. But I would not go down a slippery slope of accusing ‘they’ (who is the ‘they’) of deliberately trying to make people suffer in Greece. The problems of the country are largely of our own making. What I think Yanis and other people have been arguing is that the solution to the problem was misguided because it did not take into account the features of the Greek economy and society. having said this there is a lot to say about the Greek government lacking the courage to implement some reforms while carrying forward other reforms (e.g. what about opening up the famous closed professions), and about Greek citizens having become ostrich-like  – many of us have dug their head deep in the sand and pretend they do not see the collapse coming. everybody is angry at the government and the creditors and the ECB etc. but forget to see what they have been doing wrong. but I do not want to open up again a rather old discussion. Let’s see what the future holds for us. I hope not the exit from the Euro. but I do not know what kind of ‘controlled’ ‘bankruptcy’ can there be??….

YV’s reply: Dear Anna, two responses:

First, the answer to your question “Who are they?” is terribly easy to answer: The leaders of the four surplus countries (Germany, Holland, Austria and Finland) plus the President of the pretend triple-A rated country (France). Do not get me wrong. I do not think they “have it in” for Greece or for the Greeks. What they have in their hands is a very hot political potato (of their own making, mind you): How to go to their Parliaments, only a year after the massive ‘bail-out’, and request another €60 billion on Greece’s behalf on top of the  €110 billion secured on the basis of  false promises of ‘ring-fencing’ Greece, of returning Greece to markets by 2011 etc. They know that, in their own political parties, cabinet, Parliament, there will be great resistance to the new loans. So, to overcome such spirited resistance in all four capitals, they must have some bone to throw at their own functionaries; something the latter can then throw at their own dispondent electorates to create the necessary consensus. As even the least qualified anthropologist knows, at such moments a little bit of suffering and scapegoating of the aid recipient goes a long way. The opportunity to report that the Greeks sold off in short order, and on the cheap, an electricity grid that it took generations to put together; the news that the Greeks gave up ownership of airports, ports, valued land etc. without any serious public scrutiny; the sight of a Greek PM in visible distress; a fast rising poverty rate in Greece; all these ‘news’ would carry enormous symbolic value in these Parliaments/cabinets/ electorates and might just help Mrs Merkel et al secure the loans that Greece must have to continue a little longer on the current unsustainable path.

Secondly, I am startled by your observation “The problems of the country are largely of our own making.” Let me reverse your own (earlier) question: “Who on earth are we?” Just like I would never generalise vis-a-vis the Germans or the Chinese for that matter (being a true believer in the proposition that there is more variation between a nation than across nations), I will be damned if I generalise about us Greeks either. The whole world, dear Anna, spent the past twenty five years digging, as you write, “their head deep in the sand and pretend they do not see the collapse coming”. We are all in it together. The sin is evenly spread across the whole planet. From California and Miami to the City of London and from today’s Shanghai to Athens: The global economy was living on the thin crust of a bubble (and a significant part is still continuing to do so – my recent visit in booming bubble-ridden Australia confirmed this). Returning to Greece, let us not forget that even before the crisis struck, official poverty rates were the highest (by far) in the Eurozone and only second (after Latvia) in the Europe of 27 nations. To portray Greeks, wholesale, as spendthrift over-reachers is to fall prey to the worst instincts of the tabloid press (and equivalent, in reverse, to celebrating Greeks as somehow superior to all others – a trait of Greek nationalists).

In short, if this crisis has revealed anything it is that Europe has failed singularly to look at itself in the Crisis’ unforgiving mirror, reflect and try to remodel itself in a manner consistent with its supposed interest in building a Union. Instead, it is indulging in scapegoating, generalisations and a beggar-thy-neighbour policy that can only lead to a postmodern Hobbesian war of all against all.

selene32607

I agree with Anna. When the economy was “working” people were quite happy not to pay their taxes, work in protective professions or work in public administration. But since 2008 that model does NOT function. Greek society has to accept its role in the debacle and it must change its ways.

YV’s reply: Nor does the European model, I am very much afraid. Even if a cruel (or compassionate?) God were to erase Greece from the planet’s surface, the European crisis would continue. Think about it: If Ireland (which was a model country by your exalted standards; free of corruption, tax evasion etc.) is sitting on the same dock as Greece, there is something rotten in the Kingdom of Europe, don’t you think?

14 Comments

  • Hi Yanis,

    I can not say that I agree or disagree with your analysis, as I my knowledge of national economics is not very good. However, it sounds very reasonable.

    One question though: to what extent do you think that everything you predict, will not materialize because of what is going on across major Greek (and European) cities with the “Enraged Citizens” movements?

    I don’t actually believe that we will see the same things happening to European nation, like we saw in Egypt, Libya. But, at some point these movements could seriously influence any course of events… Especially in Greece.

    Alexis

  • Yani
    For me all this pressure and threats has nothing to do with actually defaulting or not. It is means to legitimise the ‘handing over’ of whatever natural resources we have to cover our debt and at the same time being grateful for our lucky escape. Been done before, will happen again.

    The question is will we fall for it?

    • The question is will we fall for it?

      I do agree with your comment but I fear that there can only be one answer to your question and it’s not a pretty one.

      The people have to rise up. Period.

  • There is even a greater force at work here than just the insolvency of Greece, or the EU Euro crisis as a whole. We are at the end of the post Bretton Woods system of free floating irredeemable currencies.

    With fiat money, the economically destructive practice of consistently maintaining trade imbalances was easily masked with debt growth that relied on global wage arbitrage of the East. Asset values rose even though technology and global wage arbitrage kept consumer goods prices low. Malinvestments and over consumption followed. Economies became distorted, financialized, ponzified… Manufacturing moved East along with capital, and the unemployment consequences were dealt with by being absorbed by the public sector and ponzi economy. Governments were able to increase private sector savings by running deficits. And nations that did not run large deficits, often had private sector banking systems running amok with debt growth.

    Whether debt’s origin is public or private – it’s all debt in the end. And as we have seen with Ireland, debt migrates from private sector to sovereign. The few nations that have successfully maintained vast trade surpluses too, are guilty. Their situation is just as dangerous to the world economy.

    I have yet to see a supranational body (G8, G20, IMF, EU, etc…) address these massive trade, and resultant global debt imbalances. Is it a lack of intellectual capacity? Ignorance? Self interest over-riding a common solution? Maybe it’s all of the above.

    Either way, the system will break down on its own. Revalued Gold will once again be used by sovereigns, reluctantly so, to rebalance the world economy.

    The 40 year experiment of free floating irredeemable currencies is over. And keep in mind, that the system post Bretton Woods 1971, was not a system that evolved from academia’s wonderful monetary theories. That system arose because the US needed to default on its debts in some less than obvious way. The Monetarists had the most convenient answer.

    Once again, the US will default. But this time, it will be with revalued gold. The rest of the world will be forced to follow suit. The West’s free lunch is over.

    What we are witnessing in Greece will be common for much of the West.

    I don’t think there is a viable or realistic economic solution for Greece that is also politically feasible. The same can be said of the current state of the world economy. If history is any guide, a global economic system, constrained just as much by self-interest driven geopolitics as well as basic mathematics, more often is only replaced when it breaks down – and not one day sooner.

  • Although I do understand why you want to draw such a dark picture of what will happen if Greece exits the EMU I don’t agree with your doomsday scenario. The Greek government can issue its own currency without exiting the EZ. The € can remain legal tender and the ND can be issued as a complementary currency. The Greek government should consult one of their neighbors — Montenegro — who had a parallel currency arrangement (Dinar and German Mark) which worked pretty well. I would recommend to the people responsible for issuing the new currency to reread Abba Lerner’s work about “Functional Finance”.

    Technically your “Modest Proposal” is brilliant but politically it is wishful thinking. Especially the surplus recycling mechanism is a subtle form of fiscal transfer which won’t happen in the EMU as long as crazy Germans/Austrians (I’m Austrian.) can draft rules for the club. For me this mechanism is the essential part of your plan. Without such a mechanism a currency union won’t work in the long run. All the other problems can be dealt with. The Greek debt from an EU perspective is peanuts. And the EU zombie-banks are an annoyance which must be addressed anyway regardless of what the Greek government decides to do. (Nationalize them!)

    Thus the Greek government is left with a choice between a rock and a hard place. It should float its ND, default on the then foreign currency denominated debt and in general signal to its citizen: Get a life and stop worrying.

    • I have zero expertise in economics, but from a common sense point of view, the idea of a new legal tender, bonds/drachmas/whatever-you-call-it seems to me a more responsible choice than further endless borrowing. Since there doesn’t seem to be a strong european drive towards consolidation of our debt, we need to be realists and measure the prospects of the Greek economy.

      I was wondering if someone could provide a pragmatic review of the greek economy, which sectors have prospects of growth and which don’t; what could be the focus of the future re-growth efforts. Under that prism, it should be possible to tell whether this growth can be achieved faster within or outside of the eurozone.

  • Let me contribute my two cents of control engineering inspired thinking.

    First, it’s seldom useful to consider causality as being linear. The “egg or chicken first” contradiction can only be solved if we see causality as circular. The egg causes the chicken and the chicken causes the egg and there is not much more to say, other than ask how this circular causality that has no first cause developed. This is quite evident for biological systems and should never be forgotten for social systems of biological systems.

    Which is the root cause of the “Euro crisis”? The “profligate spending of the peripherals” or the “political goal of a European union and profit or rent seeking behavior of lenders?” (Substitute the phrases in quotes for whichever you like.)

    Both, they interacted in a self reinforcing, positive feedback circular causal loop leading to a growing instability economic situation for the EMU countries. System’s stability was only preserved by debt and economic growth. When the Financial Crisis choked growth and obliged to deleverage system’s stability was lost and the “crisis” emerged.

    Now, how to stabilize the system? Engineers know long ago that instability in a system is caused by positive feedback or absence of stabilizing negative feedback. So, where to put the negative feedback?

    Yannis’ Modest Proposal is a possible option. It has two great advantages: being easy to implement and dampening immediately the dangerous swings of financial and economic variables. The question arises now about its evolutionary potential.

    The evolutionary logic of the Modest Proposal is a political federal union supporting and being supported not by a currency union but by a true monetary union. But, as Yanis observed such a political federal union is as probable as we hearing tomorrow morning that all governments in the world became left wing. This leads to the fundamental question of assessing the single currency0s viability on the long term.

    I argue in the following way. A national sovereign, exchange free-floating currency provides immediate, local feedback to people in the nation about their economic performance with relation to other nations in two forms: it informs people how worth is their working hour through the changing prices of imports and it automatically market values the product of such hour through the prices of exports.

    That’s the reason I see for currency unions failing systematically. They substitute the local stabilizing feedback of national currencies by the much bitter, most often unworkable, feedback of deflation and austerity.

    In this view the single currency is unworkable, unless the EMU becomes a melting pot of nations. If pursuing this idea is judged infeasible, then the rational option is to plan a phasing out of the single currency. If an experiment threatens to run amok, better to plan its ordered unwind than to risk all the lab to implode.

    Yet, I will acknowledge the idea that “Europeans will learn with their errors” and probably they will make something innovative from them. I think that Keynes correctly diagnosed trade imbalances as a major source of instability among nations. Any Minotaurs feed on trade imbalances. It may be the case that the single currency needs not to be phased out. It is conceivable that it can be changed into a supra-national currency, to settle international transactions, designed from the outset to counteract trade imbalances, therefore pushing nations to neither “live beyond their means” nor “live below their means”. Rather to live according to their means so that account balances net to 0 in the average for each – the ideal situation to collectively reap the benefits of free exchange. If such thing could be done, THAT would surely put Europe in the forefront of developing civilization.

    Is it feasible? Is it worth? It is beyond my capability to assess the answers.

  • I covered the story of Greece and the threats materializing there (as well as the accusations of treason against the prime minister, George Papandreou) on my radio show here in NYC. Here is a relevant excerpt from the show.

    Please feel free distribute it (about 15 min covering the CDS fraud, the memorandum and the real threat of incursions on Greek boarders and civil strife from non-Greek groups that could be manipulated into creating independence movements to fracture Greece – very serious issue!)

    Excerpt from my Radio Show on the Accusations of Treason against Greek PM George Papandreou – http://bit.ly/mCvMVR

  • Hi Yannis. Ive read many of your blogs recently and tweeted to you a bit on some of the key issues facing your country, mine and Europe in general. I think your Modest Proposal is possible. However that makes it impossible because the EU is controlled by neo liberal govt’s or rather run by them as Brussels, Paris, Frankfurt and Berlin are the main players.

    It is in my view a neo liberal union(ie this nonsense on not allowing capital controls)and must end. This doesn’t mean we definitely go back to war with each other(although that is possible)but Fiscal harmonization of bonds, of fiscal policy ie potential Financial transaction taxes and other tax powers to make people’s lives better cannot be allowed because that is seen as left wing and counter corporateering. Has it ever occured to you that the EU is a failed experiment and that it has become an IMF outpost? I am afraid this seems like the reality to me.

    For me, there are a few options future governments must consider. I say this knowing full well from Dublin to Athens to Lisbon and Berlin, the cross party consensus drilling makes the likelihood of any left govt.(keynesian, socialist or both)implementing them only likely through an eu wide revolution of sorts. Firstly we need a two tier euro and to return to semi fixed rates if possible. I know people cite the Nixon Shock of 71 as proof this system wouldnt work, but I believe that happened due to externalities which were beyond various countries’ control i.e. the Vietnam War which the likes of Ireland obviously hadn’t any say in. Ideally the EU would then push for a global reserve currency as the dollar and Euro will probably crash soon anyways.

    I think though that all of these things are unlikely for now. In Greece you have a conservative party which will arrive at consensus. The opposition is the same as the govt and when they get elected there will be no opposition to hold the govt. to account apart from very small parties. Its the same here in Ireland where the far left, moderate left and far right make up about 30/166 of the Dail seats. Spain has the same problems. Portugal too. Iceland and Britain had them as well. Here you see a pattern-to escape neo liberalism we must escape voting for EU vessel parties. To do this the EU needs to break up in my view. And only then can we all go back to the table, eventually, with at least some left govt’s of sorts(not neccesarily Stalinist or anything crazy like that, but ranging from socialist to social democrat) in place that would push for a world monetary order that could benefit societies at large. And controling the flow of hot money and harmonising the taxing of it on a wide scale must happen too in my view. I hope it happens one day.

    • Like you, I think that the eurozone, as currently constituted, is a neocon travesty. In fact, during the euro’s incubation period I was dead against the whole project. Nevertheless, once constiuted, its breakup will bring massive misery to the weakest all over Europe. The only beneficiaries of such a breakup, I very much fear, will be the xenophobes, the racists and the spivs!

  • People’s Perspective and “justified” scapegoating.

    Or in other words people is one side of the same coin(behaviour). Politicians is the other.

    People must rise they say. But what people do is no different than what parties do. Parties promise the world before elections and then forget. People put down each other every day and only when things go really bad “unite”. For the mass only knows “war”.
    It is a good feeling to be with the many as it is a good feeling to be with the winners.
    There are no principles. There is no morality. Everybody wants someone to accuse and accusing the politicians for more than their mistakes is the need of people. Then we have more dividing (and possible conquering by the powers that are) between the people that go to Syntagma and yell and those that do not.

    It is my belief that movements like that do not achieve anything since any behavioural change does not occur. They may act as a channel of causes that lead to change but they are never the true cause. And in order for change to occur there must be an extremity , a shock with a ripple-like effect on the people.

    Although reverse social engineering is almost impossible because of lack of data and the fractal nature of …well…Nature ,this is my position.

    Do you really think that the intelligence of those that want control ,will let such situations unfold before the authoritative figures have a way to secure their authoritative positions? Maybe they need to stall now.
    A solution will be found ,but it will be such that people first defuse themselves (and yelling is a hell of a way) , say thanks for the “solution” ,”we made it” or “well we did what we should” and then go about their everyday business. Even if the country is being sold while the fact is now masked.

    I have the sense that Germany wants out of the euro and won’t have a problem with exports. Maybe an inner change is occuring. Germany or better yet “Germany” ,”owns” a lot of countries anyway.
    Suck the blood out of others first and not take the blame.

    As for the system ,every non-fractal ,inflexible system ,unable to increase entropy and absorb negative fluctuations ,breaks down eventually. The trick is to be a succesful psychic parasite and pass the slimeball to others. Imbalances is the nectar of authorities.

    Create a linear causal picture of “there is no other way for now but suffering and we are learning from our mistakes” but behind all this ,the succesful implementation of the “owning the world” plan.
    And their people won’t mind ,because everybody wants power and everybody is convinced that the only way of development is competition. Win Win Win.

    And this is for the nationalists. Greeks is Greece or better yet ‘Ellenes is ‘Ellas. Only then do we have a land.

    The only way i know to beat any system is by quiet personal development. The worst nightmare of authorities. Not knowing what people do and how they react. Supporting its other and being autonomous as much as possible. Finding alternate lifestyles.
    Even by growing a few vegetables.

    Being the wider frame of things. Not caring about what “they” want and do. Not feeding their social warfare needs.

    Maybe i am a cynic or just too sensitive but….

    It ain’t happening.

  • Dear Yannis Varoufakis,
    let me first congratulate you on your blog. I am impressed by your way of putting your arguments and your proposal forward and the reasonable and measured way in which you address the comments. I have learned a lot from your blog. As someone who is not qualified to judge the economics side of the Greek crisis, but interested in the quality of governance in Greece, I wonder if you have an idea to what extent has the quality of Greek public institutions contributed to the current crisis?

    There seems to be a dearth of information on all kinds of aspects of public governance in Greece. I can think of a number of questions, the answers to which would affect your projections since growth and governance are connected. Please forgive my ignorance in posing them here, they may be totally obvious to Greeks.

    First, how much does the Greek administration help the Greek economy to grow or hinders it. This has at least 2 aspects, the costs of it and its effectiveness. On the cost side also the absolute costs of it and the efficiency should be considered. This leads to a number of questions on which one cannot find data so easily but which are, to my mind crucial and would help a lot for a more intelligent public debate also in Northern Europe:
    What is the size of the Greek public administration and especially civil servants working for the central and local government (not teachers and doctors etc.)? What is their proportion of the working force? Along this vain, could Greece have some legal provisions to limit political hiring and firing in the administration? What is the average salary of a government employee and how does it relate to the productivity of the private sector?
    On efficiency one could look at how complicated regulatory regimes are, how much time it takes to set up a business and so on.how high is the administrative burden for (small) business?
    Then there are some comments about closed professions still existing in Greece. isn’t this a great contribution to youth unemployment?
    last but not least, you developed a PhD program yourself. How are Greek universities? How efficient are they and students in using public money?
    One does not need to be a neo liberal to ask these questions. But I believe that without a program to address governance issues any investment in Greece is bound to benefit very few people and not promote growth. In eastern europe we learned that some privatization, if done carefully and without haste (fully agree with you, not fast and on the cheap if one does not want more oligarchs…) can be beneficial even to public services. With proper regulation. So I am back to my point of the quality of governance in the public sector in Greece. I hear very few voices of Greek reason pointing to the need for change there, regardless of the bigger issue of the Eurocrisis.
    I hope you have some time to say something about these issues or direct me to a commentator that discusses them…