Abandoning a sinking ship? A plan for leaving the euro

As regulars of this blog know, I am of the view that the eurozone’s collapse will be a harbinger of a postmodern 1930s. While virulently opposed to the eurozone’s creation, in its time of crisis I have been campaigning for saving the euro. Of course, as Alain Parguez wrote aptly here, it is impossible to save someone, or something, that does not want to be saved. In this post, while not going back on my personal commitment to keep trying to save a monetary union bent on self-destruction, I shall relate to you an idea on how a peripheral member-state could try to minimise the (huge) socio-economic costs of an exit from the eurozone forced upon it by the latter’s steady disintegration.

The said plan was put together with Ireland in mind. Its authors are Warren Mosler (an investment manager and creator of the mortgage swap and the current Eurofutures swap contract) and Philip Pilkington, a journalist and writer based in Dublin, Ireland. Their starting point is a (perfectly spot on) diagnosis: “austerity programs” are “an abject failure and yet European officials continue to consider them the only game in town. So, we can only conclude at this stage that, given that European officials know that austerity programs do not work, they are pursuing them for political rather than economic reasons.”

For reasons that I have also put forward repeatedly, unless overturned, this political project will, perhaps unintentionally, lead to the eurozone’s collapse. Should a country like Ireland wait until the bitter end or should it prepare for an exit before the final nail has been hammered into the euro’s coffin? Mosler and Pilkington argue for an exit. But how can Ireland, or for that matter Portugal or Greece or Italy, exit without the sky falling on our heads? Here is what they propose. For the complete text click here:

1. Upon announcing that the country is leaving the Eurozone, the government of that country would announce that it would be making payments – to government employees etc. – exclusively in the new currency. Thus the government would stop using the euro as a means of payment.

2. The government would also announce that it would only accept payments of tax in this new currency. This would ensure that the currency was valuable and, at least for a while, in very short supply.

And that is pretty much it. The government spends to provision itself and thereby injects the new currency into the economy while their new taxation policy ensures that it is sought after by economic agents and, thus, valuable. Government spending is thus the spigot through which the government injects the new currency into the economy and taxation is the drain that ensures citizens seek out the new currency.

The idea here is to take a ‘hands off’ approach. Should the government of a given country announce an exit from the Eurozone and then freeze bank accounts and force conversion there would be chaos. The citizens of the country would run on the banks and desperately try to hold as many euro cash notes as possible in anticipation that they would be more valuable than the new currency.

Under the above plan, however, citizens’ bank accounts would be left alone. It would be up to them to convert their euros into the new currency at a floating exchange rate set by the market. They would, of course, have to seek out the currency any time they have to pay taxes and so would sell goods and services denominated in the new currency. This ‘monetises’ the economy in the new currency while at the same time helping to establish the market value of said currency.

My reaction to this plan is simple: It is a  blueprint for anyone who thinks that the euro system is past the point of no return. Once that point has been and gone, it is perhaps essential to move into this direction swiftly. However, I do not believe that the eurozone is, presently, past the point of no return. It is still possible to salvage the common currency by means of something akin to our Modest Proposal. It may take more intervention by the ECB than the Modest Proposal envisions (courtesy of the awful delay in implementing a rational plan, continuing instead on the present unsustainable path) but it is still, I think, feasible.

The reason why I am adamant that this is not, yet, the time to abandon  ship, is the huge human cost of the eurozone’s breakdown. Consider for example what will happen if we, indeed, adopt the exit plan proposed above.

  • All contracts by the government to the private sector (abroad and domestically) will be renegotiated in the new currency after the initial depreciation of the latter. In other words, domestic suppliers will face a large haircut instantly. Many of them will declare bankruptcy, with another large lump sum loss of jobs.
  • The banks will run dry and will not be kept open by the ECB. Which means that the only way Ireland or Greece or whoever adopts this plan can keep its banks open is if they are recapitalised in the new domestic currency by the Central Bank. But this means that bank account deposits will, de facto, be converted from euros to the new currency; thus annulling the beneficial measure of no compulsory conversions of bank holdings into the new currency (see above).
  • The authors claim that the above ill effects will be lessened by the government’s new found monetary independence which will enable it to discontinue austerity programs immediately and adopt counter-cyclical fiscal policy, as Argentina did after its default and discontinuation of the pesos-dollar peg. This may be so but all comparisons with Argentina must be taken with a large pinch of salt. For Argentina’s recovery, and associated fiscal policies, was far less due to its renewed independence and much more related to a serendipitous rise in demand for soya beans by China.
  • While it is true that the weaker currency will boost exports, it will also have a devastating effect: The creation of a two tier nation. One nation that has  access to hoarded euros and another that does not. The former will acquire immense socio-economic power over the latter, thus forging a new form of inequality that is bound to operate as a break on development for a long while – just like the inequality that sprang up in the post 1970s period did enormous damage to our countries’ real development (as opposed to GDP growth numbers) in the second postwar phase.
  • Last, but certainly not least, even if one country exits the eurozone in this manner, the eurozone will unwind within 24 hours. The European System of Central Banks will break instantly down, Italian spreads will hit Greek levels, France will turn instantly into a AA or AB rated country and, before we can wistle the 9th Symphony, germany will have declared the re-constitution of the DM. A massive recession will then hit the countries that will make up the new DM zone (Austria, the Netherlands. possibly Finland, Poland and Slovakia) while the rest of the former eurozone will labour under significant stagflation. The new intra-European currency wars will suppress, in unison with the ongoing recession/stagflation, international and European trade and, therefore, the US will dive into a new Great Recession. The postmodern 1930s that I keep speaking of will be a tragic reality.

In summary, this plan may end up being the only way out of a vessel heading for the rocks. We must keep it in mind given that our European leaders’ bloodymindedness has put, and keeps, a whole Continent on the rock-bound path. But it is not time yet to adopt it. For it will come at an incredible human cost; a cost that can still be averted (assuming that I am right in saying that the point of no return has not been reached – yet). We still have a chance to storm the bridge and change course. Failing that, a plan like that by Mosler and Pilkington may be the equivalent of our lifeboats. We should, however, always keep in mind that our lifeboats will be launched in icy seas and, while stranded on them, many will perish.


  • Η υποτιθέμενη κυβέρνηση που θα κάνει αυτά δεν υπάρχει… Ίσως είναι η κυβέρνηση της ΠΑΠΑΡΗΓΑ αλλα δεν θα κάνει αυτά… Όταν λες: “πάμε προς τα εκεί…” θα πρέπει να σε ακολουθεί και κάποιος… ΟΙ ΕΛΛΗΝΕΣ ΠΟΥ ΕΧΟΥΝ ΤΗΝ ΔΥΝΑΜΗ ΣΤΑ ΧΕΡΙΑ ΤΟΥΣ ΑΥΤΗ ΤΗ ΣΤΙΓΜΗ ΔΕΝ ΠΙΣΤΕΥΟΥΝ ΣΕ ΑΥΤΟ ΤΟ ΜΟΝΟΠΑΤΙ
    επομένως πως μπορεί να περπατήσει;

    • Despise the “adverse effects” of the above plan , this is in fact the “least bad” scenario .
      As mentioned in this proposal , the cause of this falling is purely political. The politicians in absolute panic , failed to prove themselves useful .
      How this can be really a choice for Greece , is up to Greeks . If they can not enforce it … we are heading towards a much worse situation .

      As Mr Xaralambidis has stated 15 years ago . PASOK/ND government is perfectly capable of bringing the worst scenario . Unless we do something , we are heading there …

      I am not seeing any other options really other than elections .

    • To Anna V .

      Can you elaborate a bit more ?

      What Giannis says is not unreasonable . He is searching a political power to implement such plan .

    • @Ilias Trou
      I do not think that prof Varoufakis is recommending an implementation of the program, as in the second part of his analysis he is saying we are lost if we do and lost if we do not, and contemplates it as a last resort (life jackets). It will not matter who is the party in power when the dissolution starts, just a hope that there might be some clear thinkers there who would see the value of such a buffer.

    • To Anna

      Agreed .

      According to my understanding though , irrespectively of what euro-official state , it is actions that count .

      So far , Germany is moving STEADILY in a certain direction .

      Is it not reasonable for me to be worried about what will happened if neither modest proposal nor the desperate plan which Mr Varoufakis has commented ?

      This is an even more worse scenario .

      Is it not worrying that “greek government” has no alternative plan in its drawers ?
      If modest proposal has slim possibilities to be implemented , the implementation of such ultimate moment plan has even slimmer chances , under this political regime .

      The real nightmare is that this political system has no intention to protect its voters .
      That’s why i am worried about this “government” and i am too as Giannis in seek of a new political formation basically to protect ourselves .

    • For instance , look into what they have done with private insurance and pension funds deposited in Bank of Greece and the management of public insurance and pension funds .

      Are you going to trust these people to be in power when this moment arrives?

      It’s one thing to be democratic , it’s another to become victim in full conscience . What am i going to tell myself later on ? That i was fooled?

    • @Ilias trou
      It is too late for a strong leadership to develop in Greece, and the egalitarian path we are on does not breed them anyway, but that is another story. This is a tsunami tide that is carrying us along in any case and as Greece we are too puny to stop it.

      For this specific proposal, if one believes in its value, one would have to get the ear of the minister of economics of that time, and the prime minister and talk them into using it because of the possibility of a gentler dissolution.

    • learnt a new word 🙂 (egalitarian)

      With all the respect i disagree .

      I ll answer to your last argument first . I don’t think it’s a matter of informing the minister about the plan . It’s a matter of the minister has intentions to do such thing . I seriously doubt it .

      To the first part of your answer :

      First of all you are very pessimistic . Like you have already lost . Cheer up !

      Recall that our ancient ancestors used to say , “ουδέν κακόν αμιγές καλού ” . This is not optimism , it’s wisdom .

      That does not mean that i am happy to be in such circumstances , but we can not dismiss everything just because we lost one battle . And vice versa : believe that we solved all our problems because we won one battle .

      I am not fooled by the dilemma : if we do elections , the Europe will collapse . After all , that’s something other governments in Europe need consider as well .

      It is my strong belief that if people of Europe is to vote about the future of Europe , they will vote for it , but in a different foundation . The same for Greeks as well .

      I am not buying this stupid argument that we have to pay with our lives just because “we” did a mistake (let alone that it’s merely our mistake) .
      Shakespeare wrote about it in merchant of Venice . Moneylender Shylock demanded flesh in order for his contract to be paid .

      Solon enforced σεισάχθεια (=σείω το άχθος ) denouncing the very same ideology of Shylock 2000 years earlier .

      It constitutes crime against humanity to enforce such measures . It’s against any ethical law .

      If we encompass such cruel principles , there is no point in being Greek.

      That’s something we should fight against .

  • I’m a bit confused about the last two comments you stress out. If the eurozone breaks down in 24 hours then the euro holders in Ireland or in Greece will be holding plain paper with no value. Why then do you claim that the economy will be divided into those who have euro and those who have the newly created currency? Plus aren’t you concerned about the fact that the eurozone hasn’t been exactly what our politicians ( in Greece ) have been claiming in 2002? The promises about assistance during difficult times by the rest of the european countries and the equality of every member of the eurozone haven’t been exactly respected. As far as i’m concerned it’s Germany above all and then everyone else comes second.

    • You are absolutely right .

      There is a gap between what politicians and euro-officials state and what is agreed on paper .

      There is a gap between the expectations created and the agreements made .

      Now everyone is hiding behind legislation and terms .

    • Well spotted! I feel however that the last comment (euro break-up after one country leaving) is not as certain as the previous one (division between those having euros and those who don’t). Besides, the division can be seen between those who have strong currency in general because they have the means to do that and those who don’t. Higher class people have bank accounts in other countries (e.g. Switzerland with swiss franks), US dollars, etc.

  • One question:

    what will happen when the greek brokers stop (or at least limit severely) importing primary materials for the greek industry (especially the food industry)? How much time do you think will pass till the supermarkets are empty? of course the land will keep growing goodies and the sea will keep provide fish but we have to consider that the majority of greeks r living in cities and not used to harvest anything but the supermarket shelves! If anything im expecting at least a robust plan regarding energy and food supply, else leaving the euro like that could be a cataclysmic event…

    Any feedback on that?
    Thanx in advance

  • Please note that virtually every country that drops a dollar peg (Argentina, Russia, Brazil, etc) is soon thereafter “hit” by a “serendipitous” increase in corporate profitability which re-establishes the sovereign’s budget balance.

  • Although I generally like simple things, I think this plan is too simplistic. If a country decides to follow that road, they had better make a plan that covers all aspects of social and economic details and not just the currency. I would at least expect such a plan to create a new system that distributes foodstuff, energy, water, whatever is needed so that people can live. E.g. the system used by Roosevelt during the 2nd World War, as R. Wolff was describing at the Brecht Forum (http://yanisvaroufakis.eu/2011/11/17/on-the-us-european-and-greek-crisis-a-double-act-with-rick-wolff-at-the-brecht-forum/).

    I hope Yanis is right in saying that there is still time to save the Euro, but if in the end it collapses we will need truly innovative and radical ideas. If we get ourselves out of the box we have to think out of the box.

    • I agree, pkars. But I think that the economists’ simple currency change plan is simply about the economy–They’re trained to forget the production and provision of necessary goods and services–even those who’ve forced themselves to remember.

      Mr. Grigoropoulos, I agree that is a problem–That the public has been sold the consumer debt shame story. There may be an assumption, backed by political science studies I’ve seen, that if you can convince elites, they will put the machinery in play to convince the public. However, as many have pointed out, high-inequality, finance-led neoliberalism prevents pluralistic elite political-economic innovation. It may be that there should have been a public campaign to overcome the public consumer shame trope–the public could have used its disruptive power to press for needed innovation. It’s probably too late–and Varoufakis isn’t that sort of organizer. It’s too bad not even the unions employ heterodox economists anymore. I miss Meidner.

      I am impressed that you’ve developed trolls now, Mr. Varoufakis. Congratulations at your public intellectual status.

      At the same time, sociological political economists I know are loving and incorporating your recent work. But one of my Marxist economist friends (educated in the neoclassical tradition) is having a prohibitive amount of trouble with the, I think, sociological concept of the Inherent Error. It seems difficult for him to understand its application beyond Marx’s labor theory of value (the transformation problem). Do you find that’s common with people trained in that neoclassical econ background? What’s the best short explanation you’ve found that works with that crowd?

      It may be that your dire predictions about the demise of the Euro come true, Mr. Varoufakis. I think it’s broadminded of you to suggest deliberate Euro exit planning over collapse and implosion, while of course continuing to argue for the Modest Proposal. Taking for a moment Moser & Pilkington’s argument, I have two questions:
      1) What’s to ensure that “markets” don’t act cohesively, politically to punish countries that convert to a national currency on a floating exchange rate?
      2) You mention the pain to the US economy of a crushed European capacity to consume US goods and services. I have other questions about the political-economic-military power that the demise of the Euro may entail. That the dollar is the unchallenged global reserve currency gives the US a fearsome load of hegemonic power, as we have seen. Some US military expansion into the Middle East has been in reaction to threats to drop the dollar in favor of the Euro (so that oil profits can be used for national development–eg. in Iraq). Can the DM play the same weak bargaining threat to the dollar and US hegemony that the Euro played? How does the demise of the Euro impact US hegemony?

  • The two first points of Mr. Mosler and Mr. Pilkington are, i think (and without being an economist), the most important things to do if any country chooses to leave a common currency.
    I remember reading these suggestions in an article Mr. Kolmer (economist and Greek PM advisor in the early 90’s) wrote at the time of the first Greek bailout (for EPIKAIRA magazine somewhere between April and June 2010). He suggested that every country’s has the right to vote this ( I mean that the payments of the debts hereafter must be in another currency) and it must be done right before the currency change. I have kept this in mind ever since…

    After these two checkpoints though, i think there is a wide uncharted ocean everybody must pass…

    And there is something else… in the last last deal (I mean of the October 27th) one of the few things that are known (heard it in the radio from a MP) is that the payback must be in euro and not in the current currency…

  • Dear Yanis

    I have been following your posts for a while now and I have to say that you helped me to understand many aspects of the economic crisis especially as I do not have any expertise in economics. I respect your effort to save the EMU by proposing your solution to this crisis.
    As you have noted plenty of times the Modest Proposal can not be applied as long as Germany and the other Creditor countries do not agree on this because they think that the causes of the crisis are the deficits of the debtor countries. In my view, you keep trying to change the views of the creditor countries. I think you have not payed much attention to the fact that the general public thinks the same on the debtor countries too. What I mean is that for the last two years the people of the debtor countries have been brainwashed by the Public Media thinking that they were living above their means for the last decade and that this is the only cause of the problem. As a result the general public in debtor countries still thinks that the austerity programs may be the solution to the problem. You see not all of us have the macroeconomic knowledge needed to see the reality. I have to admit that I was thinking the same.
    After watching the sessions of the resent conference in Austin, Texas I realized that all the participants agreed that the real cause of the crisis was that the Germans were living bellow their means and not the debtor countries living above their means. Germany was the one breaking the rules and not the periphery countries! I have to say it was a revelation for me.
    What I want to say is that you do not have to change the minds of Sarcozy and Merkel but you only have to change the minds of the public in GIIPS countries. They have to stop thinking they are the offenders and realize they are the victims. By realizing that they will push their governments towards a more sustainable and fair solution and not a dead end austerity road.
    This is the only way to save the EMU. After all as this paper from Deutsche Bank ( http://www.dbresearch.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000279906/Euroland%E2%80%99s+hidden+balance-of-payments+crisis.pdf ) says the debtor countries hold the majority in the governing council of ECB. I wonder how can Deutsche Bank realize the real cause and possible solutions of the problem and not our governments.



  • It’s not happening.

    This is not about Europe; it’s about the world. And the world has given enough rope to Merkozy to hang themselves.

    Soon you will begin to witness how Merkozy will be unceremoniously kicked out and be replaced by an administrative class that might be unelected but nevertheless quite determined.

  • Yanis,

    Big fan of yours…

    Like you mention in your response, because of the “awful delay in implementing a rational plan, (we continue) instead on the present unsustainable path”. In an “ideal” world, rationality would have triumphed by now, and recovery would be plausible. But the “reality” remains that we are on an unsustainable path, and have been for quite some time. In fact, many argued, yourself included, that the adoption of the Euro currency would be unsustainable. So, it is extremely important to recognize that we have long passed the point of no return and the priority should be to prepare for an exit – whether via a plan proposed by Mosler/Pilkington or someone else.

    If I were the PM of Greece I would consider the notion of an exit maximum priority and a matter of National Security. ….that is if I loved my country and the people that lived in it.

    • What would be Greece’s advantage of leaving the euro and thus accomplish the German objective?

      If ever Greece was to consider such move it would only be as a means of leaving Germany in ruins.

      But there is not even a reason to do so anymore. The “destruct Germany” button has already been pushed from the other side of the Atlantic. All you have to do is seat back and watch Germany crumble.

      If I were you, I would leave the German destruction unattended for two months or so and go have a party. By the time you finish having a good time the awful deed would have been done:

    • I think I should apologize to call the GIIPSF countries ClubMed. It sounds too much like a vacation resort. A much better term is “Dolce Vita countries”.

  • Dear Yanis,

    If ‘Welt am Sonntag”s post on Germany’s plan for a three-speed European Union is true, then the scenario of the North-European, Germany-oriented Euro or Mark (it doesn’t really matter how they’re gonna name it) will soon become a reality. If that is the case, then the ship has already sunk…

    • If the Dolce Vita countries are cut off, at least the life boat stays afloat.

    • Dear PCARX,

      As you have seen, I am more than happy to post comments that are highly critical of everything and everyone. But I draw the line to generalisations that are the first step to racism. As I said in my recent FPA talk in London, “a deep crisis engenders a Hobbesian war of all against all that starts when we utter sentences beginning with “The Greeks do this” or “The Germans think that”.” Your last few comments have descended into that terrotory. If you wish to participate in this blog, as a commentator, I ask you to desist from generalisations bordering on the racists. In this blog, there will be no sentences castogating a whole people of anything. Whether they are Greeks, Germans,…

  • Varoufakis, the Kim Kardashian of economics, and his argument, is again weakened, despite his background, by susceptibility of a range of cognitive biases including confirmation bias, anchoring effect bias and so on. It is intellectually lazy to make inferences using past data about the future; particularly, when the more recent past data differs substantially from the past data. For example, Varoufakis suggests that if there is a recession in the “new DM zone”, stagflation in the rest of the former Eurozone and a new Great Recession in the US, then we will head into some “postmodern 1930s”. Firstly, there has been no recent equivalent to WWI and an aggrieved power such as Germany. Secondly, there are no great ideological divides today that existed during the 1920’s i.e. the clash between liberal democracies, Fascism and Communism. Thirdly, there are a greater number of effective and not so effective transnational institutions such as the IMF, EU, NATO, the UN, which help to reduce information asymmetries, provide a platform for conflict resolution, which did not exist during the 1920’s. The list could go on and on. The point is that the 1920s differ substantially from the 2000s. Unfortunately, Varoufakis’s dire warnings are entirely predictable. Every Marxist will warn bring up the common refrain that we are on the cusp of the 1930’s when there are attempts to dismantle an increasingly creaky system which they helped to create or if we simply do not adhere to their diktats. However, even a cursory reading of history will show that the rise of Hitler and his murderous regime was not an necessarily logical outcome of the economic crisis of the early 1930’s. There were a number of economic crisis’s before the early 1930’s and none of them produced a Hitler.

    • Glad to post your criticisms. Since you seem interested in pursuing this critical line, I would like to ask you to read and then criticise my Global Minotaur, where I explain why 2008 is not like any of the postwar crises. And why it is our generation’s 1929. I would like to see where and how you disagree with my thesis.

    • @Hermes

      However, even a cursory reading of history will show that the rise of Hitler and his murderous regime was not an necessarily logical outcome of the economic crisis of the early 1930’s. There were a number of economic crisis’s before the early 1930’s and none of them produced a Hitler.

      Circular logic. Be careful you might get dizzy and fall down.

  • Yanis,

    Are you saying that Poland will be forced at gunpoint to join the DM-zone? There is currenly no appetite in Poland to join the Euro (even when times were good it was a hard sell) and there would be even less if the Eurozone unravels as you foresee. Poles are very nationalistic when subject to an existential threat.

    • No, not forced. It will volunteer. The euro is one thing, from a Polist perspective, while the DM quite another.

    • Well, we will see, but, in Poland, a German currency will never be as popular as a European currency. BTW Poles are used to using the zloty for everyday transactions and saving in foreign currencies. No reason for that to change.

    • “BTW Poles are used to using the zloty for everyday transactions and saving in foreign currencies. No reason for that to change.”

      Currency competition is the best of all worlds! Unfortunately one goal of the Eurocrats is to avoid it so political influence instead of economic sense will prevail.

      Funny that given the behavior of the Poles and Greshams law, the Euro must be superior to the Zloty in terms of keeping its value.

  • Last week Yanis attempted to raise some concern about the extreme right’s growing representation in the new Greek government.

    However, far more disturbing are these “new world order” conspiracy theorists; a movement which is nothing more than a revival of the extreme far right rhetoric mixed in with Nazism.

    I have read here lately many disturbing comments in such direction, and I want to give you a clear warning to cut out this crap and run as fast as you can before I personally get on your case.

    If I hear again in this blog anything resembling the inarticulate nonsense of “new world order”. “illuminatis” or “masons” running this world it will become personal. So, beef up on the subject and be very careful of what you say or imply when you leave public commentary:


  • @yannis varoufakis on PCARX issue
    Is there a real reason to tolerate yet another crypto racist who does not have the guts to be frank? i am not suggestive. Just curious.

    This is NOT your Monday group therapy mate. Try here

    • I really need a therapy. We had socialism for 40 years, were happy to get rid of it and now we are heading full speed back to socialism! The Euro is nothing than a tool of the French to avoid competition and make Europe a socialistic, centralistic superstate.

      The good news are that ,the shelf life of socialism (and the Euro) is limited. Sooner or later “the other people” will run out of money, as Mrs. Thatcher said,

  • This is a state money approach and it has some merit. I think it is still an open question the extent to which it can be incorporated into a commodity money approach (and Hilferding would appear to be included in that tradition). There may not be a firm consensus in the literature at this point (and I include Graeber’s book on debt, which appears to arrive at an annihilation of money which is perhaps consonant with his anarchism). I am curious to hear from Dr. Varoufakis on how the state money approach relates to the “Dance of the Meta-Axioms”.

    Obviously, money is part of circulation but it is also a means of political power. A part of sovereignty was relinquished by all Eurozone states, but not equally, since the dominant states set policy and its execution for the currency; it is not by accident that the ECB is in Frankfurt and not Florence or Thessaloniki. And perhaps this is the crux of the problem: the current interdependence of European political economy precludes a strictly state money solution unless the state can and will enforce itself over its society and against other states. Not even Germany can do this completely when one considers tax immunity and trade. This is the reason for the regional and global disaster from breakup that Dr. Varoufakis has outlined.

    This plan, however, will be the only plan for states to adopt if the Euro collapses. But the hypothetical Irish (or Greek or Italian or Spanish) state would also have to insist on certain economic relations with other European states that would undermine the interdependence of European economies, at least temporarily, and it would have to control its internal economy more vigorously. As each state grabs its liferaft, EU economics, including pre-Euro economic arrangements, will break down along with the currency. There is no adequate political union on the horizon and politicians’ mutterings about improved EU democracy seem to be too little, too late to mitigate the catastrophe; in consonance with its uneven, unequal and undemocratic form, an EU breakup will be uneven, unequal, and undemocratic. The current talk about a smaller Euroclub is a plutocratic fantasy. In other words, the economic logic of money is giving way to its political logic, at the domestic and interstate levels, regardless of the outcome; indeed, most events since 2008 seem to be driven by politics much more than economics, even at the world scale.

    Europe will descend into the mire of stagnation and chaos regardless of a breakup of the zone, which Wolfgang Münchau believes may be less than two weeks away, but a breakup will be the biggest crisis in the history of capitalism short of world war. European politicians and bankers are certainly to blame for their irresponsible response to the US financial collapse, but not all of them equally. If the zone falls apart in the coming weeks, it will be mildly amusing to see how politicians from powerful European states exonerate themselves from causing this disaster. Most likely, they’ll do much as they have done so far: whine and point fingers at weaker parties (to the absolute incredulity of the US and China). There is little doubt that along with the current Euro, this phase of European politics by visionless neoliberal middle managers has neared its end.

    In any case, Dr. Varoufakis’s approach is still the best: hold onto the frying pan to avoid falling into the fire. These are not times of great and radical change to a better world, at least not yet. He has propagated his considered views despite terrible trails, including the reproachful ignorance of an international gang of moralizing idiots, and his irrepressible forces are admirable.

  • The Mosler/Pilkington proposal reminds me of a thought I had some time ago while slurping an ouzo in the sun. Instead of replacing the Euro with a new drachma, it would introduce the new drachma as a parallel currency to the EUR (thus, the new drachma being the “local currency” of the future and the Euro remaining the “foreign currency” which it already is). I called the idea “thinking aloud” because it may very well be a silly thought; or not. Whoever is interested can open the link below.


    • Klaus:

      The drachma idea has been floated by both the extreme right and the extreme left. To make it simple, the Greek far right thinks that a return to drachma will preserve weaponry purposes without EU oversight and the Greek far left thinks it will preserve its special interest status, as well as, a few union jobs.

      If you ever been in a lab and conducted scientific experiment you know what to do. You throw out the two extreme result readings and you stick with results clustered in the middle.

      We have gone over thousands of times why a return to drachma would accomplish nothing for Greece other than a temporary illusion. So, keep drinking the 20 euro ouzo and some Lamda olive oil and we know where to find you.


    • IS IT me or is merkozy actually making things worse with this new proposal of theirs?

    • So, keep drinking the 20 euro ouzo and some Lamda olive oil and we know where to find you.

      You know, Dean, I first learned of Yanis Varoufakis when he was a guest on the Keiser Report several months ago. Watching that interview I was not only impressed by Yanis’s smarts and broad-ranging scope, but also by his demeanor: kind, courteous, and well-mannered.

      Btw, Dean, you think you can post without being rude?

  • BTW, Yanis offered some poetry a few posts back. I would like to submit to you that given the state of European cacophony this might be a poem worth considering:


    If you can keep your head when all about you
    Are losing theirs and blaming it on you;
    If you can trust yourself when all men doubt you,
    But make allowance for their doubting too:
    If you can wait and not be tired by waiting,
    Or, being lied about, don’t deal in lies,
    Or being hated don’t give way to hating,
    And yet don’t look too good, nor talk too wise;

    If you can dream—and not make dreams your master;
    If you can think—and not make thoughts your aim,
    If you can meet with Triumph and Disaster
    And treat those two impostors just the same:.
    If you can bear to hear the truth you’ve spoken
    Twisted by knaves to make a trap for fools,
    Or watch the things you gave your life to, broken,
    And stoop and build’em up with worn-out tools;

    If you can make one heap of all your winnings
    And risk it on one turn of pitch-and-toss,
    And lose, and start again at your beginnings,
    And never breathe a word about your loss:
    If you can force your heart and nerve and sinew
    To serve your turn long after they are gone,
    And so hold on when there is nothing in you
    Except the Will which says to them: “Hold on!”

    If you can talk with crowds and keep your virtue,
    Or walk with Kings—nor lose the common touch,
    If neither foes nor loving friends can hurt you,
    If all men count with you, but none too much:
    If you can fill the unforgiving minute
    With sixty seconds’ worth of distance run,
    Yours is the Earth and everything that’s in it,
    And—which is more—you’ll be a Man, my son!

    Rudyard Kipling

  • Unlike almost all economists Warren Mosler understands that fiat currency is a credit instrument, rather than a debt instrument.

    In order to provide a temporary resolution to the € crisis- pending a new approach to the fiscal basis of fiat currency (let’s call it Modern Fiscal Theory) – I advocate putting the clock back to 1693.

    This was the point when it all went wrong as the public credit was privatised by the (then privately owned) Bank of England.

    This post addresses a new public funding approach for the UK


    This post is a proposal for a debt/equity swap through the creation of Euro Stock.


    In essence Stock is fiat currency created and issued wholesale at a discount.

    Countries (and groups of countries) do not need – and never have needed – to borrow when their Treasuries can simply issue Stock.

    Unfortunately this fact has been airbrushed almost entirely from economic history.

  • Mr Varoufakis, pursuing the critical line is what you would ask of your students, right? Admittedly, I have not read the Global Minotaur but I have read much of your material and listened to a few presentations. As I have posted before, some of your argument is sound. However, alarmist predictions of another 1930’s and the rise of Fascism in Greece because of the ascension of LAOS, weaken your argument. As explained in my post below the data differs significantly from the 1930s. And as pointed out in previous posts, the threat of Fascism in Greece has come mainly from the extreme Left since 1974. Or, do you approve of political assassinations, bookshop burnings, threats to academics, destruction of property, shutting down schools, union intimidation, rhetorical slander, and disapprove of the participation of a relatively minor party in a transitional government?

    Another flaw in your argument, and this could be because this is not an area of specialty – or because as I have posted before you cannot bring yourself to criticise your own side of politics – is that you do not focus sufficiently on the supply side economy and the political economy of Greece. Even if we get through this crisis there will be another crisis in a few years time if these problems are not improved upon.

    Why do Greeks work so many hours compared to the rest of Europe but have such low productivity? Of course, starting from a lower base than Netherlands has something do to with it but is it because the State sector is just grossly inefficient because political parties since 1981 have used the provisioning of jobs in the State sector as a vote winning strategy? Why is the labour market so regulated and inefficient making it difficult for firms to absorb shocks which in turn means that they are reluctant to hire people when conditions improve? I can just hear the tired outdated and recycled Leftist slogans being wheeled out now in response. Why a certain goods and services more expensive compared to Germany despite Greek wage structure being lower? It is because closed semi-professions and professions, cartels, unions, vested interest groups have fought hard to convince Greek governments to maintain oligopolistic rules?

    The laundry list of much needed micro-economic reforms is too long list but the roots of this problem stem from Andreas Papandreou and his cronies and perpetuated later by New Democracy. Of course, the Greek economy had some of these problems before but this flawed system really took off in 1981. Any comments?

    • Replys

      As for the democratic credentials of Voridis and Plevris one can’t say much, right? Yeah, one better be silent.

      As for the “regulated labour market” and the “shocks”, we can see the benefits right now. 450 euros for 10-12 hours job with no effective security, health, education etc. Is it “socialism” or the monetarist’s dream?

      How excactly does the low productivity in the private sector connects with the inefficiency of the public sector and vice versa? Can you enlighten the rest of us on this issue? But, please, do so in economic terms.

      As for your historical remarks, man they are something. So, we can’t have another crisis of the magnitude of the 30’s because there is an IMF to guard us from it, right?

      No remarks on the banks. I assume that there is no problem there or if any, it is the “regulations” again… right? Like Ireland maybe? I may also assume that it was the left that filled the public sector with those hundrends of thousands, right?

      Finally, i see you are dismissive of the political scenery in Greece. How many times have YOU voted ND or PASOK in the past? I won’t take “none” for an answer :-))

    • Two very serious criticisms of your critique, Hermes. (1): you were asked to present a critique of the book “The Global Minotaur”, which is an analysis of global capitalism (and Greece is a semi-peripheral and more or less irrelevant part of it). Seizing on online random statements and specific comments, when there is a carefully crafted and coherent text to explain things clearly, indicates that you are opportunistic and not serious. (2): Your political undergarments are showing; better to keep them concealed. Greece’s structural economic problems do not derive from 1981: they go back to 1832 (and look very similar over most of the last 170 years. Trying to pin the blame on any individual for longterm structural defects again shows that you are not serious about understanding the real problems.

      In both cases, most of your facts are (more or less) correct: it is the analysis that is simply deficient or wrong.

    • Yanis

      It’s time to ban this troll. Please keep this place sanitary.

    • All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.

      – Sun Tzu, the Art of War

    • Alex, I have previously stated that most of LAOS are untalented clowns. Regarding the labour market, the lack of job security in Greece is not a result of Neoliberal policies because Greece has never had Neoliberal policies with the exception of the last few years, which have been forced upon it by outside powers. Many countries have more flexible labour markets, higher wages and greater welfare protection. In fact, more flexible labour markets without an adequate welfare system, job training, placement will just result in a worse system than is already in place in Greece. So, in a civilized country these two should go hand in hand. Low productivity in Greece is present across the private and public sector. Obviously, Greeks work as hard, and harder, than other people, then why is it so low?
      Xenos, it seems Varoufakis has mostly crafted a coherent text, judging by his articles and discussions; however, my point is that he weakens his argument by being alarmist, political partisan and also not adequately dealing with Greek problems. And also, I stated that elements of the Greek economic and political model were present before 1981 but they really took off into a another dimension entirely around this period as the funds from the EEC and other institutional assistance started to ramp up.
      Estrangeiro, if someone states something, and asks questions, which are not to your liking, does that mean they should be eliminated? Is this somewhat Fascist?

    • I cannot resist entering the fray.

      Apportioning blame in the past for where we are now is of no practical use except as a lesson for prevention. And, in my opinion, particularly the tax evasion problem is due to the 400 years slavery under the Ottoman, where it was a patriotic duty to evade and hide produce from the government at that time, as much as to our human nature, so well illustrated by Karagiozis : what is mine is mine, we can share what is yours. It is a matter for sociologists studying collective human behavior.

      What do we have now?

      a) An enormous civil bureaucracy that developed in strides when the numbers were doubled after 1981, according to the well known rule :”work expands to fill the time available”. Number of people times number of hours expanded enormously and kept on expanding , where both parties are to blame.

      solution: reduce the numbers even though it hurts.( the 1.000.000 out of work in the private sector are also hurting without a cushion of efedria).

      b) Out of control power to workers unions. They are the reason for the 150% on average higher salaries in the government sector and the destruction of hierarchy.

      solution: bring salaries in balance, and even a bit lower in the civil sector as it used to be, reintroduce hierarchy. A clerk should not end up with the grade of director general.

      c) Unions will strike the death blow for the country and are doing it with the incessant strikes occupations etc. unless faced.

      My solution:

      1) pass a law that limits number of days in a month where strikes are legal. Participants in illegal strikes should be summarily fired and new people hired at minimum wage from the 1000000 pool of jobless from the private sector.

      2) Install and monitor camera controlled presence cards in all civil service and government related enterprises, so as to enforce 1) fairly. This will have the added enormous benefit of stopping late arrivals and early departures ( watch the traffic around 1:30pm ) of people resting in civil service sinecure (webster: an office or position that requires little or no work and that usually provides an income) jobs to be fresh for real work in the afternoons after lunch and siesta.


    • What of Ireland then? Or Portugal? Or Belgium? No strikes. And yet, it is impossible to refinance their debt sustainably. Time for the penny to drop: This crisis has NOTHING to do with Greek unions, tax evasion or corruption. You are fully entitled to loathe all of the above. But it is time to see that they are as related to the Crisis as the craters on the moon.

    • I suggest that there is another penny which should drop: there are several crises. The European debt crisis has nothing to do with Greek unions, tax evasion, corruption, etc. In fact, that crisis was caused by EU-elites in my opinion (helped by clever bankers who managed to turn their own problems over to the EU-elites).

      On the other hand, the crises of the Greek economy and state are exclusively home-made and there Greek unions, tax evasion and corruption play important roles but not the only roles. There is sufficient evidence that the state of law is not functioning well in Greece. There is all the evidence in the world that Greek public administration is light-years away from modernity. There is specific evidence that Greece is a lousy place to do business in (see the latest “Doing Business 2012” report of the World Bank/IFC).

      With regard to the latter, only Greece and Greeks themselves can make a turn-around. Others can help (and the EU Task Force is an excellent example in my opinion) and Greece would be well advised to accept that help. But if Greece is to avoid a fall-back in living standard by a few decades; enormous hardships for large parts of the population and mass emigration of young people and other talent, then Greeks better get started soon to work on their own challenges!

    • Varoufakis has gone off into some SYRIZA Dreamland again. The Greek crisis has “NOTHING to do with Greek unions, tax evasion or corruption”. Wow! What a clunker! Complete denial. Perhaps it would be more accurate to say that Greek unions, tax evasion, corruption and an assortment of other problems with the Greek political economy is not the source of the crisis, but it was exacerbated immeasurably for Greece because of these problems. If Greece did not have these problems it would still be in trouble but not to the point where we are confronting 20 years of austerity, mass emigration, loss of sovereignty – an existential crisis.

    • The source of all currency union problems are setting false excahnge rate in the beginning and/or then dufferent development of competitveness. Writing poems does not change that.

    • Prof Varoufakis:
      “What of Ireland then? Or Portugal? Or Belgium? No strikes. And yet, it is impossible to refinance their debt sustainably. Time for the penny to drop: This crisis has NOTHING to do with Greek unions, tax evasion or corruption.”

      The above contradicts what you posted in the next post:


      “With a conversion of debt of up to 60% of GDP to Union Bonds all Member States other than Greece would be Maastricht compliant on their remaining national debt.Greecewould remain a special problem, since still well in excess of the 60%Maastrichtlimit but, as such, an exceptional case meriting continued debt buy outs.”

      Greece is stressed as an exceptional case, and it is this exceptional position I am addressing. I will once again link to the corruption perception index for the world, http://en.wikipedia.org/wiki/Corruption_Perceptions_Index . Nobody is αναμάρτυτος so it is not a matter of ethics, but of facing reality: that the checks and balances in our Greek society are not at the level they should be in order to avoid and contain such a crisis, or at least not to exacerbate it, and that we should do something about it in order to get out of the crisis and stay out of similar ones.

    • Apologies but there is no contradiction there. None whatsoever. This crisis has nothing to do with Greece altogether. Its causes are independent of Greece. Greece was caught in it and, because of its malignancies (of which strikes are a symptom, rather than a cause), it is a ‘specia;’ case amongst the fallen. You may, of course, disagree with me. And I may well be wrong. But at least I am not inconsistent. (Though, admittedly, only the fanatics are never inconsistent…)

    • Nikos Lygeros is one of the best thinkers in Greece. He also focuses on matters of national significance, such as the Greece and Cyprus’s Exclusive Economic Zone and is not politically partisan – he has the maturity to see beyond parties, special interest groups and outdated ideologies. The most important thing for him is Greece (which obviously includes Cyprus).

    • Thanks for your post Dean

      He rarely talks about economics . The agreement with the views of Mr Varoufakis is stunning . He mentioned problems that Mr Varoufakis is constantly shouting to all directions for a a year and a half .

      His last phrase is the key point : The turning point will be to convince others that we have found a solution .

      The greatest damage that Merkozy has done is that it created poles within Europe for micro-politic purposes and consumed the concept of a unified solution upon the eyes of europeans .

      Let us hope that powers that be in Europe have not been brainwashed by their own propaganda .

      Good luck to Mr Varoufakis .

  • This morning (29th) Eurointelligence blog had this information that was not so easy to understand. Anyone know moreabout this?

    Head of Greek statistical office accused of betraying national interest

    The head of the new Hellenic Statistical Authority ELSTAT Andreas Georgiou faces allegations that he and the agency betrayed the country’s national interest by cooking Greece’s debt figures in order to justify government austerity measures and to satisfy European Union officials. In 2010, Greece appointed Georgiou, an IMF statistics veteran, to the helm of the new independent statistical office. But according to Reuters, the trouble started in September when a former ELSTAT board member said shortly after she was dismissed that 2009 deficit data had been artificially inflated. Another former director complained that Georgiou kowtowed to EU officials and refused to listen to any dissenting views. Then an Elstat vice-president, Nikos Logothetis, outlined similar allegations in a memo to prosecutors who started an investigation. The revision of Greece’s 2009 budget deficit to 15.4% from 13.6% of GDP in November 2010 showed the country’s fiscal woes were even worse than previously thought and sped up the debt crisis which is still rocking the euro zone.

  • There is not a single chance of Euro zone breakup. All this para philology is just for the sake of the next day of a closer-to-the-unification-EU (and guess what else: the stronger role of the Deutsche government).
    EU is a very old bet (60 years old) that wouldn’t be into jeopardy because of the current quasi-capable leaders of France & Germany.
    PS: there is serious discussion in Brussels (and not only) right now about Varoufakis’ proposed plan.


    • I am roughly of the same opinion, that euro breakup is simply punctuated nonsense.

      It’s origin is Berlin and its objective beyond odious.

      I don’t know how many times I have to repeat this. If Merkozy thinks that they can get so cheap off the hook they have another thing coming.

    • According to James G. Rickards, we are witnessing classic negotiation tactics: “Push things to the limit, then … settle.”

    • Political will always looses against market forces. The only question is when the whole thing will blow up, not if. So all bailouts, XYZ-bonds, etc. are only delaying the death, they are not addressing the cause.

  • Their starting point is a (perfectly spot on) diagnosis: “austerity programs” are “an abject failure and yet European officials continue to consider them the only game in town.

    Last year, American economist Stephen Leeb, as a guest on some financial program on CNN, asked the following (rhetorical) question when a fellow guest on the program tried to make the argument for austerity programs:

    “Has there ever been a case where any country, anywhere in the world, in modern times, has gotten out of a severe recession/depression without massive government stimulus?”

    Of course, the answer was NO.

  • Ilia Trou:

    Indeed. Yanis is excellent too.

    Sometime in the past you asked about geopolitical publications.



    Of course everything with a grain of salt. You need to discern ideology before reading content and come up with own conclusions.

    Also, see if you like this site. Don’t take everyone’s opinion at face value. Put them into your big board and chart your course accordingly. Getting good geopolitical analysis is more like a personal Odyssey. You need to travel a lot and lose a few ships…


    also, try some of the Wikileaks analysis such as(the US cables are simply AAA stuff by very experienced and well educated diplomats. Again, not their ideology but their training in framing issues as well as removing the layers of the onion by exposing the core of an issue):


  • Ilia Trou:

    I also forgot to include this site:


    My favorite analyst there is Steven Cook, an expert on Mid East (he had an excellent interview while back with FM Kyprianou on the CyPro). You can hear it and see it here:

    • Your sources are very US-based, which I consider to be a serious problem. A lot of things are being published in English these days, so it is possible to be more eclectic.

  • Xeno aka Another guest:

    As I mentioned to another unfortunate member of your tribe, you will need to submit your educational credentials before eliciting a response from me.

    I wonder though what sort of inferiority complex is eating you up mate, when my response is only specific to Ilias Trou from way back.

    So that you know:

    Someone had posted a clip about Stratfor, a right wing think tank based in Austin, Texas. At the time I had discredited the Stratfor opinion as the favorite of semi-totalitarian regimes in the Mid East. To which Ilias asked if I had another source.

    Given the non-interactive nature of this blog, I failed to respond in time but did not forget Ilias’ request.

    I also found it a bit ironic that Austin, where Yanis recently experienced an enlightened debate is also the home of some of the most odious, right wing, Christian right and ignoramus Republicanism that one can find in the US.

    So, there you have it. The lesson here is that in life the good comes with the bad and it’s up to informed citizens to discern which.

    Now, if Ilias ever asks you to provide him with geopolitical sources you deem of valor feel free to tell us what you think. Until such time though I am compelled to tell you that your “cheap suit” approach is neither warranted nor welcomed by mois ( me ).

    • Stratfor is terrible. I don’t follow their analysis of the Eurozone but their attempts at guessing what is happening in Russia (frequently forwarded to me by well meaning friends) are comically bad.

    • Your arrogant and ridiculous comment on “educational qualifications” is answered above. It is even more absurd than it appears since you are not an academic and I am.

  • Yanis,

    You state that the eurosystem would instantly break down upon the sudden exit of one country from the euro currency. I’m trying to understand the system of credits and debits within the eurosystem. Euro-denominated capital outflows from one eurozone country to another create ECB credits for the recipient country and ECB borrowings for the other country.

    Can you explain how the eurosystem would collapse if the borrowing country exits the eurozone?

    • In ways too many to mention briefly. First, an exit would mean that the System of European Central Banks would be unhinged (for reasons you hint at). Secondly, inter-bank lending and the bond markets will seize up. Thirtdly, France will lose its AAA rating, EFSF bonds will turn into junk and, thus, Germany will be forced to choose between exiting the euro and endangering the German state’s solvency.

  • Xeno aka Another guest:

    As I mentioned to another unfortunate member of your tribe, you will need to submit your educational credentials before eliciting a response from me.

    Basically, what Dean Plassaras is saying is that anyone here without a few academic designations beside his/her name is not worthy his time.

    No loss there — anyone who spews meritless anti-semitic accusations should not be taken seriously.

    • Just a tiny, itsy, bitsy correction:

      I happen to be pro-Semitic, pro-Jewish and pro-Israel and anything else that restores dignity to a mistreated group of people.

      The reason for the academic credentials is very simple:

      We can not spend inordinate amounts of time in a censored/regulated blog (one where the responses appear a day later) on your reformation. We need to be able to zero in quickly to the source of your ignorance and cure it ASAP.

    • I happen to be pro-Semitic, pro-Jewish and pro-Israel and anything else that restores dignity to a mistreated group of people.

      LOL … no one cares, dude.

    • If you think that your academic background (and I mean published research and citation levels, as well as formal appointments) in any way matches mine, then you are seriously misguided. I have stopped posting under my real name, and most certainly will not reveal it to someone like yourself.

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