Misleading Parliaments: The essence of Greek Bailouts Mk1 & Mk2

Misleading parliament is, in normal times, frowned upon by the political class. Misleading several parliaments at once is, on the other hand, the current state of play in the European Union.

Consider yesterday’s (non-) decision regarding Bailout Mk2 for Greece, and the associated drama concerning the July installment leftover from Bailout Mk1. Yesterday the Eurogroup ‘decided’, with the Greek PM’s approval, that unless the Greek parliament passes Austerity Mk2 (which goes hand in hand with Bailout Mk2), the July payment will be cancelled and Greece will, thus, be in default before the end of next month. This is akin to threatening my 7-year old daughter that unless she does her homework I shall hold my breath till I expire. In game theory, we call it a non-credible threat; i.e. a threat that deserves to be treated with contempt.

So, what is the point of issuing such an unbelievable threat? Will it scare Mr Papandreou into some decision that he would not have otherwise taken? Of course not. The whole point is to lean heavily upon Greek MPs to vote in the said package. And why is that? Is it because European leaders truly believe that Austerity Mk2 will help contain the Greek debt crisis? Put simply, I refuse to believe that they can be so naive.

If the above is not totally mistaken, and Europe’s high and mighty are not expecting Austerity Mk2 to do the trick for the Greek debt crisis, why are they pushing so hard for it? The simple answer is: Because they have an urgent need to mislead their own Parliament! Could this ‘outrageous’ claim be true. You bet it can!

Ever since the euro crisis (also known misleadingly as the ‘Greek’ Crisis) erupted, the difficulty facing Europe’s political class concerned the banking sector and, in particular, how to hide its serious insolvency crisis through providing banks with rivers of liquidity. After the first two waves of funds were pumped into them (first in 2008 and then again in 2009), it became extremely hard to persuade Northern Parliaments to carry on pumping more public money into the bankers coffers (without receiving equity in return). And when the Greek bond yields soared, the Great Banking Conundrum escalated, threatening to bring the whole sector, once more to its knees, at a time when the governments lacked the earlier political leeway to come to the bankers’ aid.

Enter the Bailouts. Under the guise of solidarity to the stricken Southern states plus Ireland (an honorary Mediterranean country), a ‘decent’ alternative was discovered for diverting much needed public money from the North’s taxpayers to the North’s bankers. Now, the trouble with this scheme was that, in telling the North’s taxpayers that their money would have to be sent South (in order to ‘assist’ Europe’s prodigal, sundrenched, sons and daughters), the citizenry of the surplus countries, quite naturally, began to develop a certain animosity toward the assorted peripheral laggards. Thus emerged a new problem: How to contain the growing Northern discontent toward the South.

One option would be to allow the truth to be known; the truth that the Bailouts were not really an act of solidarity to the people of Greece, Ireland etc. but a pragmatic, cynical act of assisting bankers whose banks  had become insolvent (due to sheer mismanagement and a degree of bad luck). Alas, this would be tantamount to letting the cat out of the bag; to admit to their voters that, all along, they were being misled by their own politicians. Such an admission was, unsurprisingly, out of the question. Another means had to be found toward the end of placating the wrath of Northern electorates (and their MPs by association) against the Southerners.

The French philosopher Rene Girard would be well placed to explain the means that Europe’s politicians employed to this end: A form of ritual humiliation that is closely associated to that other favourite social-order-stabilising ritual known as scapegoating. To cut a long story short, and to spare the reader (God forbid) of French philosophy, let me state my working hypothesis here epigrammatically: Austerity Mk2 serves the main purpose of showing German MPs Greek blood and pain, hoping that its hideous sight will act as a form of (anti-Greek) anger ‘repressor’; a ‘mechanism’ that will reduce the Northern electorate’s resistance to piling more money upon the Greeks so as to pass the Bailout Mk2 loans through the German, Dutch, Austrian and Finnish Parliaments.

Meanwhile in Athens, the Greek government’s problems make the troubles of its Northern counterparts seem like a walk in the park. Being at the Crisis’ frontline, a few  of the socialist party’s more recalcitrant MPs (who feel deeply ashamed every time they have to pass by the Syntagma Square demonstrators, to enter the Greek Parliament) are not so naive as to fall for the Eurogroup’s incredible treat (see above). A few of them are, indeed, seriously thinking of throwing a spanner in the works and refusing to vote for Austerity Mk2.

The recently reshuffled Greek government knows this and is developing a new strategy, exploiting its new (politically seasoned) Finance Minister whose gravitas it intended as a bulwark against defections during the passage of Austerity Mk2. But because the gravitas of anyone in today’s Greek government is severely circumscribed, given the collapse of its political legitimacy among the voters, the government does not feel it can put all its eggs in Mr Venizelos’ (the Finance Minister) sizeable basket. Something else needs to be added to the mix.

That ‘something else’ comes in the form of another instance of wilful misleading: Various government whisperers are currently emitting the impression that Austerity Mk2 is just for show (which, of course, it is – only for different, Northern European consumption). The rebellious MPs are ‘allowed to imagine’ that if they vote in favour of Austerity Mk2 now, the Greek state will secure another €60 billion and, then, Mr Venizelos (courtesy of his much heralded gravitas) will slowly but surely find ways of ‘deconstructing’ the government’s austerity program…

To sum up, once it begins, subterfuge cannot be easily contained. These days, it is spreading like a bushfire across eurozone countries, from one Parliament to the next. Utilitarians might say that there are times when misleading Parliament(s) may not be such a bad thing, if good consequences follow. The trouble with the eurozone today is that nothing good will ever come of this. For the new loans will act, just like Bailout Mk1, as petrol on a kindling fire. When all our houses, North and South, are in ashes, we shall only have ourselves to blame.


  • Fascinating as ever Yanis may be some of your followers will be interested in our article on Greece and the threat of contagion – keep up the fantastic work in raising awareness re the severity of this situation http://wp.me/p1D2NI-3i

  • “This is akin to threatening my 7-year old daughter that unless she does her homework I shall hold my breath till I expire”

    Love it.

    Be careful though Yani. There are some dark forces out there which use rational arguments like yours as a cover for their evil deeds.

    Not only the present German and EU arguments are laughable, but there is an organized effort to use such flawed thinking as the basis for irreparable harm.

    The part for me most difficult to understand is why the task of finding an effective solution was given to those most unimaginative, out-of-depth, economic amateurs that we can possible find.

    It is akin to be asked to go to a butcher in order to receive the benefits of specialized medicine.

    Why are they asking us to deal with the butchers of Europe?

    • Could it be that the butchers (no offence to a fine profession) are the ones that are prepared to do anything it takes to leave the bankers in charge of their bankrupt banks courtest of the overgenerous taxpayer?

  • As stated elsewhere, the absence of real leaders in the EU right now is so obvious, that I am really amazed how people cannot see the “unthinkable” closing in so fast. Because it takes a real leader to go out in the public and talk about the real problems causing this Eurozone crisis, which is shaking the foundations of Europe as a union. Looking only for financial solutions is the necessary practical side of the analysis of the situation. But shouldn’t we all looking as well for a solution to the obvious financial problems which need to be addressed prior to any financial measures?

    The main problem of the EU is not the banking sector (at least not only). The main problem of the EU is the absence of real political union (or taking decisive steps towards it). Which requires that member countries should move on to giving up much of their so called national policies and fake sense of independence. But it takes a real leader to go out and present such a case and vision to the current citizens of Greece as well as of Germany, or France, or Malta. EU countries at this time of history are ruled by people who are either bankers or subjects to bankers. Completely impossible to present a real vision to suffering or scared people.

    This is the only way to create a reasonable – effective “wealth control and transfer” procedure in the EU. Without it… The Eurozone and the EU are walking the green mile.

    • It seems to me that every politician who participates in the summit conferences should stand up & speak the truth .
      Frankly , I would prefer that the scientists that investigate & analyze the economic data & cover every possible scenario , they could also get in the field & teach the farmer the worker the trader how to build their own economy & how to connect it to the economy of their neighbor . There are too many people that know how to do a profession very well but they cannot cope with all the financial terms & contracts , the rapidly changing laws etc. .
      An economy is based on the work of those people . If we could fortify them with the proper knowledge the guidance and assistance , then I believe that a crucial step towards the prosperity has been done .
      The banks do their job ; they sell money . The people need it so as to survive but most of the times they cannot manage it correctly . Plus , they have to resist the aggressive policies of the credit institutes & the taxes’ rip-off .
      As I see it , some geniuses tried to mess with all these simple people , force them to work endlessly for a living & now them cunning plan has gone bananas .
      A leader wouldn’t work for me . We could use though persons who do their job honestly .
      Thank you.
      Bardis Panayotis

    • I am not an economist . But i think the problem is not only financial . It’s not only structural . It is also a democratic one .
      If governments all over Europe , as suggested in the article of Mr Varoufakis (and my personal assertion too) , are trying to manipulate their citizens against their interests and in favour of financial institutions , there is no democracy ( power of the people) in Europe .
      It is positive and optimistic for the future of Europe , that european citizens are convinced so far to endure austerity measures to aid Greece , that shows that solidarity among Europe really exists . I am not sure about the future of solidarity if things continue like this , but …
      A last short comment is about MASS media . Their role is too strong and unfortunately destructive . I hope it’s not decisive .

    • I am not an economist . But i think the problem is not only financial . It’s not only structural . It is also a democratic one .
      If governments all over Europe , as suggested in the article of Mr Varoufakis (and my personal assertion too) , are trying to manipulate their citizens against their interests and in favour of financial institutions , there is no democracy ( power of the people) in Europe .
      It is positive and optimistic for the future of Europe , that european citizens are convinced so far to endure austerity measures to aid Greece , that shows that solidarity among Europe really exists . I am not sure about the future of solidarity if things continue like this , but …

      But without Democracy , under the current circumstances , further European intergration will lead to what? more power to the banks? Leaders is not a all in one solution . Leaders take their power from people’s requests and needs .
      Politicians in Europe (my belief) are outstanding leaders for banks !!!

      A last short comment is about MASS media . Their role is too strong and unfortunately destructive . I hope it’s not decisive .

  • Dear Yani,
    thank you for your continued efforts to educate some of us on the crisis and possible ways out of it. To this end, I would like to read your comments on a proposal from Daniel Gros, that I read today in the NYT:
    Do you think that such buyback of part of our debt by the EFSF would work? Or would its commencement raise the prices of the bonds again to “unbuyable” levels?
    Your opinion is much appreciated.

  • This is an excerpt from today’s Guardian:

    “As EU finance ministers scrambled to build a second bailout of Greece in the space of a year, but delayed throwing Athens a €12bn lifeline until next month, the IMF delivered its bluntest public criticism to date of the way EU leaders have handled the crisis.

    “Policymakers are yet again facing uncomfortable dilemmas, raising uncertainty about the final outcome,” the fund said in its annual assessment of the eurozone. “With deeply intertwined fiscal and financial problems, failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers … a disorderly outcome cannot be excluded.”

    The warning came as the Greek prime minister, George Papandreou, was trying to secure agreement from MPs for a package of measures to cut the country’s huge debts that would mean deep wage cuts and sweeping privatisation. He faces a crucial parliamentary vote of confidence on Tuesday which could yet derail the delivery of the rescue funds.

    After meeting the ministers in Luxembourg, John Lipsky, the IMF’s acting head, warned that the Greek crisis would “be felt much more strongly around the world” if it was allowed to draw in core eurozone banks. He indirectly signalled that Europe’s attempts to get to grips with the crisis over the past 18 months had been disjointed, indecisive, and unproductive.

    Lipsky, an American who assumed the leadership of the IMF last month when Dominique Strauss-Kahn of France was forced to resign after being arrested on charges of attempted rape in New York, sounded frustrated with EU leaders’ slow-motion handling of the crisis and exasperated by the arguments raging for months. “The crisis has brought the euro area to a crossroads … Only a cohesive and co-operative approach to crisis management will be successful,” he said.

    Following weeks of feuding between Germany and the European Central Bank over whether Greece should effectively restructure some of its debt by forcing losses on private creditors, Lipsky demanded an end to the argument, supporting the ECB against Berlin.

    “It is essential to bring the debate about debt restructuring and the set-up of the ESM quickly to a close,” he said, referring to the European stability mechanism, or permanent eurozone bailout fund, to be established in 2013.

    His criticisms appeared directed mainly at Germany, which had been insisting Greece’s second bailout should entail “haircuts” or losses for the private banks, pension funds, and insurance companies owed billions by Greece in government debt. The Germans have also been seeking to establish a compulsory role for private creditors in the permanent regime to come into force in two years’ time.”

  • One picture says more than thousand words. Today In the Dutch paper “De Volkskrant” you see how both our ministers of finance shake hands. The Greek minister looks empathic,the Dutch one looks
    like a bankster,greed on his face and he is even proud of it.

    That is not the Europe our ancestors were fighting for.

    • “That is not the Europe our ancestors were fighting for”

      I found this a very weird thing to say…
      I think it is more of the opposite: this is exactly the Europe our ancestors fought for.
      It is just some time after WWII (not too long ago that is) that people hoped and strived for a different Europe, and momentarily it looked to be working, but apparently it doesn’t.
      In the end it proved to be just a scam to make bankers and industrialists filthy rich(er) and create a new inter-european bureaucratic class on top of the existing national ones.
      There’s a serious chance that we’re going full steam back to a post-modern version of pre-WWI Europe.

      The old slogan “Europe of peoples and not of capital” is applicable and urgent, now more than ever.

      From a Greek who lives in the Netherlands…

  • When social anthropology, social studies and economy are interrelated and intertwinning, something really good will come up eventually.

  • Sarcasm mode on:

    Open letter to G-Pap:

    Dear Sir,

    In a study published in the Journal of Economic Perspectives (2007;21:3-24), economists Julio Elias, PhD, of the State University of New York at Buffalo (SUNY Buffalo) and Gary Becker, PhD, of the University of Chicago argue that the use of monetary incentives could increase the supply of organs for transplant sufficiently to eliminate the very long waiting times. They say this approach could eliminate the suffering and deaths of many of those individuals waiting for a kidney without increasing the total costs of transplant surgery by a large percentage.

    Here is another opportunity for a new export driven sector of the Greek economy. I propose that you apply the current average of 10,000 Euro for one kidney of a live donor.

    In the US and Europe together there are approx, 150,000 people on a waiting list. That would be an immediate 1.5 bln in the Greek kitty to pay back odious debts to Banksters.

    This should be a mandatory act of course, applying to all healthy Greek adults, preferably unemployed.

    I have many such suggestions, feel free to contact me for a initial consultation. I operate on commission basis, in the above case a 7% consultation fee per donor kidney applies, whereby 5.5% are paid on acceptance of the suggestion, the rest of 1.5% is paid quarterly into our swiss account.

    Kind Regards
    Prof. Dr. Dr. Dr. Desdemona A. Papasrewyounassiou

    End sarcasm.

  • You are right in everything you say, except your argument falls into the intentional fallacy….the European political elites have done precisely what you say, but without being nearly clever enough to have done it intentionally. They are muddling through, like fire walkers gingerly stepping on the hot stones. I’m certain, as you are, that they understand the additional loans are merely analgesics, but they are all living in the hope that by 2013 Greece will be generating a primary surplus, which will then allow Greece to continue paying some bills and at least importing fuel, while at the same time allowing the country to default. The European taxpayers will end of footing the bill, but the EU bureaucrats are so adept at befuddling the populace, that I expect the hope is that no one will complain too much. This is what they call in Brussels, a “political solution”, which means it’s ok.

    • On this one Jerry I have no option to agree with you fully. I now regret not stating it clearly that my narrative was pitched at the supra-intentional (or perhaps the sub-intentional) level. For they do not have a clue of what they are, in fact, doing.

    • Expressing my self alone , i would suggest that most of Greeks believed exactly what you say about politicians up until now . There were three cases : a) Incompetence b)forced on a dilemma , upon which they choose their own political survival c)intented-wilful action . So far greeks (personal opinion) believed that the wrongdoings of their delegates were due to the above-mentioned causes .
      Today , (personal opinion) , the majority has erased cause (a) and let (b) and (c) remain . As time goes by , (b) begins to fade because , given the awareness , greeks expect and pressure their delegates to act upon their interest (refuse to take new loan and figure out other alternatives ) . In the End , if greek MPs continue to act the same way , the only option which remains is (c) .
      Overall , Can someone assert that european MPs act unintentionally , or due to incompetence ? Hmmmm , do they have bonds or other products on their portfolio? Do greek MPs have greek bonds on their portfolio? Is their political decision independent of their financial status?

    • I think that their political decisions cannot be seen as part of an attempt to maximise the worth of their investment portfolio. The truth is more complicated. Do not forgeth that most of them have no concept of what is going on. The vast majority follow the codes of herd behaviour. Only very few are either ideologically driven or purely self-interested.

    • I was referring to the impression that many greek citizens have when trying to explain the decisions of their delegates . I happen to share the same view . They call their MPs thieves and tell them to go away (I shout too) . This accusation surely implies intent . And i am not talking only about the people gathering in squares .

      I acknowledge that what you say may be true . I surely agree with you that their portfolio and only is not a tool to explain their behaviour . However it’s difficult for me to accept that Greek MPs dont have an intention on what their doing . Simply because if i strip the intention off them , they would render not accountable and not responsible .

      Greek former PM Mitsotakis yesterday stated that the parliament must stay open and new austerity measures and new loan must be voted , even if that means dead protesters in the square . What kind of logic is that?

      Sorry if i took advantage of your hospitality . I understand that in order your arguments to be more convincing , they must have a defence against intentional fallacy .

    • A correction , former greek PM Mitsotakis stated that one week ago in an interview , not yesterday .

  • Just a thought…

    In Greece you need to exchange the entire political class, all of them, with new blood, honest and competent people who wish to make a difference, and Greece has many, you have to get rid of this generation old family business that runs Greece, put an end to this cronyism and corruption.

    In Ireland it is much more complicated.

    You have to exchange the entire public.


  • Could it be that we are entering a 90’s style Japan workout of its banks?

    One think though, Japan has a real economy whereas we do not manufacture anything

    (manuf is 0nly 10% of gdp)

    Do you (Yanni) have any good sugestions concerning re-jiggering the real economy.

    The idea that the greek state destroyed the pivate sector i certainly do not buy.

    The assets of the greek marine, both greek flagged and opportunity flagged far exceeds greek debt.

    Besides your financial engineering ideas i would like to hear how you intend to restart greek agriculture etc— This is a good time to do it.

    • Truth be told, I am short of ideas. But I do know that there are people out there (some of the Greek persuasion) who do have the drive, knowhow and staying power to infect these sectors with economic energy. My concern is that the current macro environment stiffles them.

  • Dear Mr Varoufakis, if I read you correctly, what you are saying is that all this is an effort to recapitalise european banks indirectly. In the end the inevitable (according to a growing number of economists) greek default will mean that the european banks will have minimised their losses at the european taxpayers’ expense, who will see their money vanish!

    But a possible contamination of other countries of the periphery, would eventually trigger a much more deep political and above all financial crisis in Europe (threatening perhaps the same existence of the common currency), which I suppose would cause much more serious problems to the european banking system. Isn’t the risk very high for european politicians just to make the hypothesis that all they are trying to do is to save their banks some hundreds billions euros of greek debt indirectly because of the political cost they would suffer if they would do it directly? Doesn’t that seem too narrow-minded to be true? And even if that’s part of the case, what about the germans’ insistence until recently to have a private sector participation?

    I dare to say that let Greece fall seems irrational from every point of view even if french or german banks have got ridden of their greek bonds. On the other hand I don’t understand why the Europeans don’t couple their austerity plans with development plans for the periphery countries (through EIB) as you among others have proposed. Eurogroup’s president expressed the same question publicly in an interview recently (http://www.lalibre.be/economie/actualite/article/667838/l-europe-doit-redonner-espoir-aux-grecs.html ). Europe’s handling of the crisis just doesn’t make sense!

    • I wish! They are not even recapitalising the banks. Just drip-feeding them with liquidity while hoping for another miracle. In other words, Europe is now doing what it was lambasting Japan for during the 1990s!

  • Perhaps there wouldn’t be so many bad loans outstanding in the EU (and the US) if labor had not be starved of wage increases over several decades. Lending money to broke people through whatever medium can’t work.

    • This is exactly what german politicos have pursued for decades. Coupled with very strong export power, they forced wages to stay low at the same time, hence killing any competitiveness, and now making demands on Greece and Ireland et al. in a moralising and schoolmaster manner, while the tabloid press feeds into hatred and racist views of the lowest possible level.

      Financial Institutions are the modern day Pol Pot causing social genocide in our Nations. Today, the German banking association demands incentives and guarantees for voluntary contributions. Naturally these guarantees are designed to dump losses again on the taxpayer. Honestly? I am deeply embarrassed to have a German passport in the light of the German activities concerning Greece and Ireland etc. This is not the Union the founders had on their minds, not by a long shot!

  • Yani,
    I am reading again and again your “open letter to the Greek Prime Minister” No more threats from EU. Greece must be prepared and say: NO “OXI” to another expensive bailout loan from EU.

  • “Le choix de la Grèce est alors entre l’empire ou la mort. Si elle refuse les conditions des prêts, elle fait immédiatement défaut, ce qui conduit à la faillite immédiate de ses banques, à la sortie de l’euro et à une inflation massive du fait de la monétisation de toutes les dettes : c’est la mort économique sous forme de chute brutale du niveau de vie. Si elle accepte, elle se soumet au contrôle des représentants des institutions européennes et des Etats prêteurs et doit liquider ses entreprises publiques : c’est l’empire sous forme d’une restriction brutale de la souveraineté grecque.
    Nous retrouvons là la question politique fondamentale qu’est l’organisation de l’Europe. Depuis Charlemagne, les solutions oscillent entre deux pôles : l’empire ou les nations, avec leurs avantages et leurs défauts. L’empire garantit la paix mais supprime la liberté : le maintien de l’unité dans un ensemble aussi hétérogène n’est possible que grâce à un pouvoir autoritaire. Les nations constituent le cadre originel de la démocratie, mais ont une fâcheuse tendance à se faire la guerre. L’Union européenne constitue une tentative historique unique de dépassement de cette tension entre unité et liberté : un empire démocratique résultant du dépassement volontaire et pacifique des nations. La crise actuelle illustre les difficultés d’un tel projet : pour les Grecs, l’UE apparaît comme le fossoyeur de la démocratie ; pour les Allemands, comme l’instrument d’une solidarité imposée et d’un leadership qu’ils ne veulent pas assume”
    Maxence Brischoux, banquier, “Le choix de la Grèce : l’empire ou la mort ?” LEMONDE.FR | 10.06.11

    Some questions to contemplate on: is the German European Empire the fate of the lazy and irresponsible Greeks only? Or does this include the rest of the Europeans? Do they all agree with this prospect? Should the Europeans surrender their democracies to multinationals and banks led by the German Eagle? Is Europe ready for another round of nationalism and imperialism?

    • Is Europe ready for another round of nationalism and imperialism?

      Ready or not, that’s what we are getting but it seems most people are too distracted to understand this.

    • The problem with the EU and the Euro is that it is not democratic. How many countries had a referendum iif they wanted the Euro? How many of them said yes? The current EU went much further than the people of the single countries want it to go. And on the side, can an organization that spends close 50% of its budget on agriculture can be taken seriously? If the EU continues its current route, it will need to build a fence around it, like the Eastern block during the cold war.

    • “Ready or not, that’s what we are getting but it seems most people are too distracted to understand this.”

      Exactly. This is why the Euro and the Eurocrats must disappear. The only amplify anger and distrust

    • Apologies for the delayed response. Mk1 was the first bailout that was agreed upon in May 2010, involving loans of 110 billion euros and a severe austerity package. A year later it turned out that Bailout Mk1 failed miserably in that Greece’s debt worsened and its national income shrank. So, what did EU come up with? Another huge loan, about 60 billion euros, and more austerity; a ‘deal’ that I refer to as Austerity or Bailout Mk2.

  • It is fine when we throw the ball at the court of the “other”. It is always “the other’s fault”, beginning with Adam and Eve.

    Let us face the everyday facts of the economy of Greece, and in my opinion, if there is blackmail from the EU, it is a blackmail to force us to change these absolutely destructive habits for an organized society. We can excuse ourselves with the 400 years under the Ottoman, but it will soon be 200 years without him and we still display the behaviours of “rayades”.

    1) Nobody pays taxes if he/she can help it , nobody at a level of 90%. From the doctor I visit to the electrician who comes for some work, to the gardener in the country cottage, to …. This serves both, no VAT means cheaper for “me” and tax evasion for him.

    2)When the salaries in the civil sector became 150% of the private one, for the same qualifications, everybody pushed their children to get a degree and get a post in the civil sector with political/family influence. Whole departments are full of extended relatives filling various posts. This happened for political payoffs and due to strikes. The politicians work with “anything for a quiet life” motto.

    3)Civil service hours are for the summer 7:00 to 2:30. Home for lunch, two hours siesta and then work at night at something that provides the butter with no extra taxes, since the civil service salary covers the requirements of the tax office. Doctors, teachers, electricians, drivers, you name it …. all kill time in their morning job to be fresh for the evening. I would suggest to make the schedule 9:00 to 5:00 so that either the afternoon jobs are left open for the young unemployed or , if very lucrative, the civil servant resigns and economy is achieved

    4) since 1981 hierarchy was destroyed in the civil service , as a result of the doubling of civil servants at that time, the civil service offices are now full of directors who do not want to stamp things and sit at the gate. I know of a biomedical department where all the doctors employed are directors and do not deign to look at slides, and ask for more civil servants.

    5) Because of the enormous number of directors, enormous number of directorates have been created just so that people have an excuse for a job. Which enlarged the bureaucracy, papers moving and gathering signatures exponentially, paralysing the private sector by the requirements.

    6) The EU subsidies created farmers who work one month a year, and spend the rest of the time in jobs moonlighting , or even have a morning civil service job and the afternoons as builders gardeners etc. I have seen the municipal small truck used for private hired gardening in my region.

    Note that I do not include fraud and “oiling” , just tax evasion.

    Fraud is another story, but let us not go into that.

    • The same arguments are heard in Ireland , Portugal . Spain , Italy , UK , France, Wiskonsin (US). No one is arguing that there is no rooom for improvement .
      But the fact that the same arguments are reproduced all over Europe and US , leading to austerity measures is rather tricky . Dont be too harsh on Greeks .

      If the problem in Greece is mainly due to all you say , how to you explain the fact that other countries with far more organized public sectors , face economic problems too ?

      In addition , read this article posted on spiegel from a german . I agree with you that there is room for improvement ( you must admit though that private sector needs adjustments too and i am not a public servant ) . The worst thing for us the Greeks is to lose our self esteem , our pride and our unity .


    • In contrast:
      – My incremental tax rate in Germany is 42%, my average is 36%
      – My fathers incremental tax rate was from 1975 to 1990 56%, from 1990 to 2000 52%, after that also 42%

      On top of the number above you need to add unemployment insurence, health care, pension + 2% additional tax for East Germany, plus church tax (optional)

      And now the shocker: this is not only on paper. You actually have to pay it. there is no way around it. If anyone know, please tell me!

      Maybe now you can understand why people in germany and Austria are upset when countries that have lax controls are bailed out with their money.

      I wrote to my member of parlament, that if any more bailouts are singed off, I will work half time. This reduces my ax rate to 15% (average) / 42% incremental. Can you image he replied within 24 hours?

    • To Knut34 : What you refuse to understand ( according to my opinion) is that Germany and France are actually bailing out their banks not Greece . You have every right to complain about that to your MP .
      Imagine that German and French banks have greek bonds that have lost their value. Greek bonds have better interest rates because they are supposed to be less reliable than the german ones . Your banks , due to greed , decided to invest more on greek bonds than they should .
      Greece is unable to pay its obligations (which has happened plenty of times in recent economic history by many countries including Germany ). So what european countries do ? They oblige Greece to borrow money with even higher interest rate so that Greece can pay the mature bonds . So what actually is happening is debt between Greece and Banks turns into debt between Greece and EU . So German and French private banks have managed to get rid of greek bonds and EU ( which is tax payer money) is loaded with the debt . Well done to your government .

      I am sure you agree that this is unfair to you (unless you are a banker ) right ? I can assure you for quite a few reasons that this is not in favour of greece . Who’s winning ? Greek , German and French banks . Well done!!!
      So what’s a fair solution ? Mr Varoufakis’s is an alternative .

    • @Ilias trou

      I agree that the money does not stay in Greece. It will go directly to banks everywhere. I understand that very well, trust me.

      The difference is that I also know, that the private German banks and insurance companies have no problem writing off these loans. For the ECB it might look different, maybe also for some French banks.

      I do not believe politics can fix anything. I prefer the worst capitalist over any politician. So we need to go back to free markets, not to more regulation and artificial constructs like EuroBonds. Why did so much money flow to the PIGS in the first place? Because the interest rate was below what it should be in a free market!

      So in summary I strongly oppose the 2nd bailout (as I did the 1st). It is bad for Europa and bad for Greece. Greece should be allowed to default. If I lose money due to this, i do not complain. because this is the risk I take as an investor. I lost a five digit EUR amount in Ireland with BOI and also in Greece with OPAP and NBG. No problem. If Angela takes my money and decides what to do with it I have a problem
      But the biggest problem that I have is with the ESM. This is in sharp contrast to our values. We do not live in a socialistic country, yet.

    • anna v

      you are extreemly right on all points and we must change all these self destructive habits given the chance of the crisis. However, none of them is part of the reasoning of the economic turmoil we are facing today.

      bad architecure of euro (as Yannis says for some time already) with no mechanisms of dealing with these types of events, plus vulnerability of a single currency without a single government, plus poorely regulated banking sector caused it.

      Dont forget the credit crunch that was triggered by the toxic loans and their repackaging into saleable junk products – and all that on a global scale.

      My point is that all redesigning of the public expenditure in Greece must be done now, without neglecting the multipliying effect to the economy of each expenditure and investment.

      On the other hand the austerity policy (mainly but not only it’s tax arm) is killing the economy and with it the society and the population, and knowing the history of bad habits we have, is not an alibi for such self destructing policies.

  • I believe a translation of the article in German and in Greek language it is judged essential.

    Νομίζω μια μετάφραση του άρθρού στα Γερμανικά και στα Ελληνικά κρίνεται απαραίτητη. Ευχαριστώ.

  • Don’t know if you’ve seen this already but here’s an interesting interview of
    Mike Darda
    chief economist of MKM partners in Stamford Connecticut to the WSJ. He blames the ECB and its policy for contracting the monetary base and thus prolonging the “Greek crisis”. Similar what the FED did back in ’36, essentially sabotaging fiscal austerity he says.

    Given the huge disparities between the economies of the north and the south in general terms, I do not know though how a central bank acting alone, in their “traditional role” i.e regulating rates basically and performing monetary policy, can fix those disparities and not amplify them instead. If this is to be fixed in some viable way for everybody in the Eurozone and Europe for the long run, it would have to be towards a federal system similar to the one in the US or just dissolve. Personally I don’t see any easy solution in the current scheme of things.

    • This is why all currency unions in history failed. What the Eurocrats are trying to do is like repeating “there is no gravity on earth” over and over again and spending tons of money and resources on “no gravity on earth” research. And after running out of money they will look at themselves and all say: “It looks like there is gravity on earth after all”.

    • @Knut34
      Dont use physical analogies in sociology or economy . Modelling is one thing and repeatability is another . They are not exact sciences . In short , there is no such thing as gravity in economy . If you disagree, tell us one !!!
      What you propably mean is the lack of a vision , political will , mutual interest or eagerness . I am not a prophet but , if we refer to history , federations and empires is probably the rule not the exception . You are talking about currency unions? Do you think that China is one state? Russia is one state? Is Spain or United Kingdom one state? Even US are united states . Germany was reunited 20 years ago .
      Especially in crisis , change occurs . Wheteher this would be a dissolve or a union , that decision lies before some officials , elected or not .

      If one characteristic (propably mathematical) of some physical laws appears in world history , sociology or economy that would propably be periodicity . Economists as far as i know they make profit out of this characteristic !!!!

  • I think Karl Polanyi –from above the sky- is ‘’crying’’ about what is happening…
    Told you so…It ‘s ironic.

    At this moment European vision, freedom and solidarity are crumbling.
    Europe need it ‘s citizens, otherwise we shall only have ourselves to blame as you wrote Yani, we need a political decision, not economic analysis…and the situation is very serious to start talking about postmodern Psycho Bubbles –excuse me- of the big ”other”…

    Someone must translate this article to German. -and French maybe

    Thank you.

  • I totally agree with the Greek fellow who wrote: Democracy vs Mythology: The Battle in Syntagma Square


    Especially: “Money is a commodity, invented to help people by facilitating transactions. It is not wealth in itself. Wealth is natural resources, water, food, land, education, skill, spirit, ingenuity, art. In those terms, the people of Greece are no poorer than they were two years ago. Neither are the people of Spain or Ireland or the UK. And yet, we are all being put through various levels of suffering, in order for numbers (representing money which never existed) to be transferred from one column of a spreadsheet to another.”

    Correct. A lawyer turned actor gets what our ECB central bankers seemingly don’t get. Modern money is a digital token — a unit of account. This crisis can be resolved with the push of some buttons on a keyboard to mark up/down some numbers in an electronic balance sheet in Frankfurt. But alas instead we’ve to watch this ridiculous international circus of clowns (IMF, ECB, EU) pretending we’re still digging up our units of account from mother earth.

    • Well put Sfephan. With one qualification. The pushing of the said buttons will not only rejig the relative values but will also reveal the nudity of various Emperors (of a certain sector that makes oodles of these units of account simply by surf ing them around). And there is the rub.

    • Stephan

      Unfortunately we are not self sufficient. That is what the gap between income digital tokens and expense digital tokens means, about 7billioneuro. We do not make enough goods and services and arms to be self sufficient, we give tokens abroad. That is the housekeeping problem we face.

      My father worked all his life for flour mills in Pireas. He was proud that after the war we were self sufficient in wheat production as a country . Where has globalization brought us? If you have bread and olive oil you can survive anything as a nation. The wheat is no longer planted and gathered, we are not self sufficient, and the EU tried to convince people to uproot olive trees!! People let their lemons and other fruit drop from the trees and in Carrfour the lemons sold are from Italy and the garlic from China!!!

  • “Austerity Mk2 serves the main purpose of showing German MPs Greek blood and pain, hoping that its hideous sight will act as a form of (anti-Greek) anger ‘repressor’; a ‘mechanism’ that will reduce the Northern electorate’s resistance to piling more money upon the Greeks so as to pass the Bailout Mk2 loans through the German, Dutch, Austrian and Finnish Parliaments.”

    I think the second part is the real point, and as such, if anything, it’s not a misleading of parliaments at all. The point is that there is a great reluctance in the public to invest more money and as the Finnish elections showed, it is large enough to manifest in election results. As such, it is both an issue of demonstrating the public a quid pro quo and of taking the plug out of the argument that “We’re paying for them to enjoy benefits we don’t have ourself”. And for the same reason, the argument “Yes, well, there is always room for improvement in the overall organization of things” is unlikely to really be heard. Of course there always is room for improvement. That says nothing about how wide that room is and how urgent it is to reduce that width – or how these two parameters are perceived from different perspectives. It’s an issue of psychology, really. When retirement age in Germany is being raised pointing out that it is economically necessary then while I am sure there is some understanding among unions in Germany who are fighting tooth and nails against that raise for their fellows in Greece – but given the fact that the reform in Greece led to a retirement age that actually matched that in Germany before the reform there, understanding will in any case be limited. And while there may be some understanding in the German public part of which want to recover power production into public hands against a privatization of Greek power production, the understanding for the privileges enjoyed by the employees there will be limited.

    So the issue is really how to communicate the measurements to the public. In the end, politicians, whether in the executive part of government or in parliaments, want to be reelected. When the public has the impression it is paying for someone else’s privileges, that’s increasingly unlikely. No matter if this is the actual cause of the crisis, it is a factor affecting its resolution. And the psychology involved in my eyes also impacts on your “Modest proposal” – because no matter whether EU bonds will count against the national debt of anyone, the net payer taxpayers are still going to perceive them as bonds they have to pay off. The real challenge here is communication in a crisis situation and getting the public to understand the actual circumstances – and I don’t feel European politicians at this time are particularly good at communicating with their respective public. Unfortunately, that creates a feedback mechanism, which creates public pressure on politicians to do things that might be cosmetic at best, counterproductive at worst.

    • Anybody who knows european history knows that the rise of Germany with its industrial and scientific might stating from around 1860 was acompanied by its inability to find markets for its products because the UK and France carved up the world during their colonial phase (up to about 1956).

      Hence the first world war and the idiotic and unsound Versailles treaty which bancrupted germany and made Hitler possible. Basically WW2 is a continuaton of WW1.
      The reason the US helped Geermany after WW2 has to do with the appeal of the Soviet Union and the very constricted economic space that ensued from the 2nd War.

      (Readers are requested to Keynes’s remarks concerning the Versailles treaty.

      This is third rate history. Try reading Hobsbawm’s Book of this period: “The Short Century ”

      Those who do not know the pedigree of Spiegel should know that Alex Springer, the ownwer is a well known atlanticist i.e a person who wants germany to be tied to the US.

      Therefore good stuff exists is Der Spigel as well as tendentious propositions and stories.

    • Correct. Greece did not do anything wrong. Its citicens do not cheat on taxes, Greece has a thriving competitive economy, there less corruption than in any other country in Europe, the social welfare level is low, governmental controls are in place where needed (tax collection & social welfare), government is not heavily involved in running busiensses, the greek patriotes live in their own country, ….

    • Incorrect. Greece did everything wrong. What it did not do was to cause the euro crisis. Its malignancies were simply the reason it was the first domino to fall.

    • “What it did not do was to cause the euro crisis”

      I fully agree. The Euro crisis was created by the founders of the Euro.

  • @Anna
    You write a lot of true things on this blog. That said your way of self-flagellation is totally contra-productive and only enforces the drive of the Greek government to commit economic suicide on behalf of stupid creditors. Economics isn’t a morality play. Due to some annoying practice invented 500 years ago there’s such a thing as double entry accounting. Which basically says it takes two to Tango. You want to export? OK. We need some entity willing to import.

    I was born in Austria and live in Germany. The export-kings of the Eurozone. Both countries are also not self sufficient. But they pretend that the remedy for the Eurozone is to become SUPER competitive and export itself into economic nirvana. Which is true. Once these UFOs arrive and we can start interstellar trade. In the meantime we must confront us with the dire fact that most trade happens within the Eurozone. Which puts Yanis’ proposal about a Surplus Recycling Mechanism on the agenda. To which German/Austrian economists will say: Not so. The UFO will surely arrive!

    I can rant on the subject ad infinitum. There’s basically one remedy which is the ballot box. Which means for Greek people to reject the super-neo- colonialism of the ECB and reintroduce democratic procedures in Europe. You invented the scheme. You can do it again!

    • @Stephan
      I do not call realism self flagellation.

      It may possibly be absolutely true that for Germany to have a surplus Greece( et al) will have a deficit but it is at a meta level on the problems we have with the Greek economy and the hows and whys of the deficit.

      We probably can do something for the local economy to stop the need for borrowing every year just so we can pay the fat public sector. Our economy the past thirty years has been sovietized, and it is well known that the soviet model is unsustainable.

      In this sense the reforms/restructuring demanded by the troika might prove to be god sent, since if you ask people to vote whether they want to be fired and that their salary or pension will be cut 50% the democratic outcome is self evident.

      The only true democracy I saw working was at the canton of Geneva back in 1980s. They would gather every week to vote on price hikes and anything, and they actually voted for an increase to the price of bread, which amazed me. I doubt even they would ever vote a decrease of 50% of their salary.

    • Stephan:

      The global consensus is that we have enterered the new age of information. As a result the previous industrial age and argicultural age before it constitute old models.

      In this new age of information the premium is on knowledge, ability to think issues through and team work.

      Greeks are supremely qualified to excel in this new age of information (minus the teamwork part).

      Therefore Germany/Austria et al need to tone it down and stop trying to sell us models which are either obsolete or models which we have already decided to skip as part of our transition to the new reality.

    • The same thing US and its Allies invaded Libya or any other Arab
      countries not for Libyan citizen but for themselves . I don’t believe they love Libyan citizens a lot . Just pretending .

  • Ben Bernanke is a murderer of the middle class.

    Anyone who had a pension plan, a retirement plan, or any kind of savings, got wiped out by the low interest rates.

    If you print money, everything will go up. It doesn’t go into housing, because we have an over supply of housing. Instead, it goes into equities, and unfortunately for Mr. Bernanke, it goes into commodities. This is lifting the cost of living for the median household and the typical household in the United States.

    Mr. Bernanke is murdering the working class and the middle class.

    It’s a sad joke because the reason for the money printing was to re-inflate the housing bubble. But instead, we are seeing bubbles in food and energy. Their houses are going into negative equity, and they are paying more for food and energy. Bernanke is a fool.

    In the absence of a gold standard, inflation is a means for the confiscation of wealth. Deficit spending is simply a scheme to confiscate wealth. All of this is sold as a charitable act to help the working class, but instead it is murdering them financially.

  • err… Venizelos is relative with that Venizelos?! Everyone’s someone’s relative?! 🙂

    not unexpected, given I’m from Romania… That being said, the whole story is baffling from two points of view:

    1. If I’d have to pick between the 3 zones(E.Asia, US, Europe), I’d say Europe is has the most balanced approach and is the most viable(not dumb export driven mercantilism with currency manipulation and poor population, not dumb US consumption).

    so it’s quite remarkable that the EZ is closest to implosion. You’d believe there are limits in stupidity even for official bureaucracy(even low, but you’d believe there are some limits…)

    2. it’s a reason why there was a premium paid by Greece over Germany on Tbills. Because it was supposed to be a RISKIER asset. Really… if it’s riskier, there’s only one meaning – it’s a higher chance of a credit event. That’s the whole reason why you get a DAMN PREMIUM.

    so… uhh, when it happens, don’t cry…. Every normal investor pays for his errors. Some don’t want to pay! It’s incredible!

    Yes, too big to fail makes sense! Backup banks, don’t let them go bankrupt. Fully agree – Keynes was right. But he never said that, after you propped them up, then investors shouldn’t be penalized! By share dilution or other form of nationalization.

    If the shareholders put stupid CEOs and gave them stupid short term targets, they should pay! Like any investor! With their capital…

    Heck, even the americans understood that!

    • Venizelos’s original surname was Tourkoglou and he changed it to Venizelos

    • Yanni,

      You correctly describe the purpose of the curent surrealist show of France and Germany. More “realist’ observers are simply saying that another kick on the can gives european banks another six months to clear their books to the extend that they can write off the greek debt.
      (I believe the germans are ready even today).

      However it is unknown whether this show is not, also, about who is going to pay for the CDS’s. Sovereign CDS have to be canned. (pun intended ) about 78B of it (how many naked?).

      Since we are living in a typically chaotic space we must make all projections provisional.

      Therefore, i do not exclude the possibility that the political space might
      take over the economic space in more ways ahn one can imagine.

      (Otan i plateia mbei sti vouli diioxi tious 300 kleidosi kai dosei ta kleidia sto prodedro tote prepei na etrimazomaste dio isos senaria: 1) drachmi
      2) dracmi me evro )

      2) is not as far fetched as one might think. What is the funcion of the foodstamps in the US from the monetary pov?

    • No relation of the current Minister to Eleutherios Venizelos whatsoever.

  • Hello Mr Varoufakis, and congratulations for your site. I read in an earlier post that you believe that “Mr Kazakis utilises false data (whether intentionally or not I canot tell) in order to stir up a frenzy of anger that, he thinks, may give his agenda a lift”. This is quite a serious allegation, and I wonder whether you can somehow give us an idea about why you believe this to be so. Which data are your referring to?

    • I was in a panel with him and I was aghast at the rate at which he was producing misleading ‘facts’ in order to sway the crowd. One example that sticks to mind is when he said that the breakdown of the Gold Standard was followed by a large improvement in working class living standards: In the 1930s!

    • First of all , generally i found your analysis in depth , informative and well supported and thank you for that . I also listen to many other views such as Mr Lapavitsa , Margias , Kazakis and others . I have to say , according to my opinion that you overeacted at that point . There was a tension prior to your debate with Mr Kazakis (from both sides i have to admit) .
      But that specific comment you ‘re making about the gold standard and working class improvements , i think you were a bit unfair . I watched that particular video many times and i think you misunderstood what he said . He was referring to the conditions after the WW2 . He is referring to common currencies ( dont know how to translate it) in contrast to national currencies that depict real needs of the people and national economy .

      Ofcourse i may be wrong , i am not an economist but i can share the link:

      He says that at 0:50 and you respond somewhere at 8:20 after talking about option exiting euro . Ofcourse , if someone wants a clearer view , must see the whole video , not to say the whole discussion .

      The other disagreement you had about how MK1 much money was given to pensions and payments , what was the final result ? I couldn’t find anything about that at real-democracy . Not that it’s significant the knowledge of the anwer to the above question .

      I have watched many videos of you and Mr Kazakis , and my personal opinion is that you would be surprised to how many things you agree at least economically . My personal opinion is that Mr Kazakis has no faith towards a european solution (who can blame him?) , but you still want to be optimistic that a window of chance to implement a fair and viable solution for people of Europe can be found . Ofcourse our government does not help at all .

      Keep up your good work ( informing us i mean 🙂 )

  • I think President Obama has kindly summarized our collective feelings here:

  • Professor Varoufakis,

    I heard your interview on the Canadian CBC radio program “As it happens” and I thought you gave one of the most cogent explantions of the EU seconomic situation that I have heard. In regard to this post “Misleading Parliaments…” I think another cycnical motive is that most electorates are conservative and so they tend to believe that serious economic problems must be a result of the failings of government. Hence rather than view the Greek crisis as a sign of a deeping private sector financial crisis that is affecting the EU people will be much more prone to accept explantions that the latest wave of the crisis (as it is manifesting itself in Greece) must have its origins both in particular failings of Greece but most specifically in the failings of the Greek goverment. The same thing happened in Canada though on a more modest scale in the 1990s. The Canadian electorate became convinced that the low and falling Canadian dollar must have been a result of the the large government deficit, setting the stage of the auterity program. In fact the weak dollar had its origins entirely elsewhere in fundamental structural problems with the Canadian economy.

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