Assorted questions on Greece and Europe by Chinese and Swedish journalists – with brief answers

During the last two days, I was asked several questions by a Chinese and a Swedish press agency over email. Below I list the questions and my answers to them, hoping they might be useful.

It seems to be obvious that Greeks are using the elections to reflect their frustrations on the Euro Zone’s fiscal contract. What might be the likely scenario after the second round election in early June?

It is not just frustration. It is more like depression. Depression caused by hopelessness. You see, when the Bailout-Austerity package was passed in May 2010, even though most Greeks did not like it, they wanted to believe that it would work like bitter medicine: that it would cure the country from its disease and, even though it was painful and bitter, it would in bring long term benefits. Tragically, that was not the case. Rather than bitter medicine, it proved to be poison. In the last elections they just voted against poison. It is that simple. This means that in the next election, that will most likely follow the inconclusive last one, they will vote in a similar way. If so, Greece and Northern Europe are set for a collision, a clash the result of which is, at the moment, utterly unclear. 

Do you see the chance of Greece’s leaving the Euro Zone?

I see that Europe is using this prospect as a threat by which to coy the Greek electorate into voting in favour of pro-Bailout-Austerity parties. In my estimation, this is an empty threat for the simple reason that Germany and France have more to lose from a Greek exit than Greece does. And they know it, I think.

More and more politicians have pushed for a growth stimulation program. For Greece’s case, is there any space for a growth program?  or this shouldn’t be an option. 

It is the only option consistent with the preservation of the Eurozone. Not only for Greece, of course. The problem, however is, that the countries that need to stimulate investment the most are the ones least capable of doing it by themselves (Greece being a good example). So, it has to be done at a European level. Which means it has to be implemented by means of a collaborative Investment-led Recovery Program involving the European Investment Bank and the European Central Bank. Technically, it is simple to implement. The problem is, as always, that Europe’s politics are so toxic they get in the way of such a simple solution.

———

Decision on elections 17 June decided, signs of bankrun are there already, fear of IOUs from Greek gov instead of euro, with Grexit around the corner. Could you help TT, the largest Swedish news agency serving all major media outlets in Scandinavia with a brief interview.

a) Do you see any chance for a new Greek government to re-negotiate bail out terms?

Yes, but only as long as the Greek government is prepared to turn down the next installment of bailout loans, preferring to live within its tax collected means for a year or so (with whatever top down reductions in state salaries and pensions that entails) while declaring a debt repayments’ lull.

 (b) Do you think Greek politicians like Tsipras will end up betraying his voters and settle for minor adjustments in the agreement with EU and IMF?

 My estimation is that Tsipras will avoid this. But it may well be the case that the smaller Democratic Left party, under Mr Kouvelis, will make up the numbers in some coalition with the ND conservative party and PASOK which will dress up its acquiescence to the EU-IMF-ECB in anti-austerity rhetoric.

(c) At what point do we get a proper bankrun in Greece? Has it already started?

 Some time ago. But as long as the ECB is keeping liquidity flowing, it will not come to riots outside bank branches. 

(d) At what point does ECB stop providing euro liquidity to Greek banks?

 At the point when they get the green light to push Greece out of the euro. There are no other criteria. Had the ECB stayed loyal to its own rules, it would have cut off liquidity for most eurozone banks! 

(e) When will ATM machines be empty in Greece?

When the ECB is given the green light that I mentioned above. 

(f) Would you feel safe about a vacation in Greece this summer? 

Absolutely. Greece is and will remain a civilised country. We may protest a great deal, especially at one another, but it will always be safe for foreign tourists. To put it differently, you should feel much safer in a boisterous Greece than in your own cities, especially at the time when pubs and bars are closing down!

(g) Do we face a Grexit?

Yes. But note that a Grexit will be followed in short order by a Gerxit – a German exit from the euro, as Germany will simply refuse to put at stake the solvency of the German state in order to shore up the remaining eurozone (following the cascade of insolvencies that will results from a Grexit)

40 Comments

  • Dear prof Varoufakis,

    I have been following this blog for some time and have learned a lot. In addition you have convinced me that your “modest proposal” is a logical way out of this vicious circle that the eurozone is fallen into.

    I will disagree though with your expectations that the Tsipras led coalition will offer a solution better than the ND Pasok coalition. They are promising everything to everybody ( A. Papandreou like) and talking in forked tongues. From 100.000 new civil servants to renationalization of Olympic and OTE and other such sweet pills; the seriousness of the situation does not seem to have penetrated the 15 fragments it is composed of. Such programs will push up the primary deficit to such heights that no compression of civil service salaries for a year will be able to compensate. They are such a loosely bound party that the pressures this will generate will bring them down in about two months and we will again have elections.

    I did not vote in the last elections because at my age, 72, I decided that the younger generation should have a say in this. Unfortunately it appears that the say is more destructive than what our generation has cooked for us and I will be forced to choose the lesser evil.

    • I mean not to offend you but it is your votes in the last at least 20-30 years that have pushed us here. Please do not vote again – at least if you want to stick with the lesser evil concept.

      My guess is that you at least have a pension. Although this is becoming smaller and smaller, it is still some money.

      I am at the other end. I need to face a long time of uncertainty. And re-negotiate every couple of months if I’ll have a job and how much I am going to be paid.

      In that retrospect, in order to build a life, I need at least some hope. I cannot put faith on what (and who) has destroyed me for all my adult life. I cannot trust the same people that have led us here. How can the same people that have led us here suddenly change? The country has been devastated with no hope of recovering with these policies. So you are saying that maybe we should stick with this lesser evil that these same people have created.

      I did not vote for Tsipras. But in the end, no matter if he is overpromising or whatever, his views are consistent. All the time till now. (since you are greek forgive me the expression: δεν είναι κωλοτούμπας – τουλάχιστον μέχρι τώρα). I feel this is better. How can I trust the others? And if I am going to make a mistake, then let us make a mistake with a glimpse of doubt that it is going to be a mistake in the end. Because following this austerity policy, the referendums and the pile up of loans with PASOK – ND at the top, sorry been there, done that, it is a huge mistake that I know for sure it is going to be a mistake.

    • These programs will not be implemented overnight. It will take sometime even a lot of time due to the conditions.

      Please do not be scared. Truth and dignity are more important.
      We have been insulted wrongly ,forced to take amounts of money not needed and you want to sustain that global system ,to preserve a fake stability? It will not last and eventualy your children and your children’s children will be in a worst position than today.

      You ofcourse have the right to vote whatever you like ,but i urge you to reconsider.

      They (elite) play games. Young people understand this better.
      Let them choose by themselves. Even if you think that whatever you do you do it for their own good. This is a phrase we all hate today.

    • @Andreas and @Dimitris

      Tsipras might be an OK leader, if there were a party behind him following consistently. The demands of the constituent small parties have been satisfied with the bizarre program proposed to the electorate at this time of crisis. Even if Syriza gets a majority in the parliament the probability that it will self destruct within two months is enormous once the small parties realize their program is pushed to infinity. He is riding a wave of “power to the people” and the constituent people of his party will self destruct it once they realize how powerless they are.

      Thus Andreas, where you see hope I foresee another election and further squeezing of the economy which certainly will not improve your economic condition. BTW Tsipras is promising to keep my pension which has been rapidly deteriorating, stable, but the probability of his success is zero, imo.

      In 1989 I was with those who wanted us to default then and there, before piling up debt on debt. This did not happen, and at this point of time, the lesser evil is to have a stable government for at least a year and hopefully for two to give a chance to the economy to recover a bit .
      The debt now is so enormous that it can be treated as monopoly money and one should look what could be salvaged of the economy within this game.

      Tsipras also has his uses, as the specter of his rise to power might beat some sense to the head of the Germans and something like the modest proposal might be implemented and get the eurozone out of trouble and increase our probability for recovery.

    • Anna v

      No worries about the time slip.
      I do not even know how to write as good.

      Now ,i do not expect to see good results immediately. Not at all.
      But i am quite sure of the bad results ,if we continue down this road.

      I am not trying to make an analysis that needs data for which one can not be certain about. Data as is the internal structure of every party in detail and the behaviour of each and everyone of them.
      It is a fallacy of logic as i see it. As is a fallacy to think that every program can be implemented ,the exact way it was designed. This is against reality.

      Changes always occur.
      They are acceptable as long as they do not manipulate the people.
      Change of opinion of a politician does not automatically prove that one is acting craftily. Years of malpractice do.

      The broader picture shows that we need a change of direction.
      So if we have a chest to chest race between Tsipras and others ,i will choose to give power to the potential change.
      People are full of potential everywhere. It is time to use it.

      Doing the same things all over again and thinking that we’ll have different results ,is simply ,paranoia.

      For more of my opinion look at what i wrote above as a reply to kotzabasis post.

  • For the last couple of years you’ve been adamant that if things turned so bad for the eurozone Germany would be the one exiting from it FIRST. Are you jumping onto the financiering despots-controlled mainstream media’s “euro game of chicken” bandwagon here or just being outright inconsistent?

    • I still think that if they are rational in the pursuit of their own interests German leaders will prefer to exit the euro themselves rather than push Greece out. But then again, German leaders may prove to be irrational in the manner in which they pursue their own interests. It would not be the first time… In short, so as not to sit on the fence, here is my take: Germany will NOT, in the end, push Greece out (despite all the threats). At least not intentionally. If Greece ‘falls out’ of the euro, Germany will soon prepare the printing presses for the new DM (rather than try to shore up the remainder of the eurozone).

    • As soon as we get rid of Schäuble, the old school Euro/EU line of thinking is extinct in the government. Then will be the point in time when rational thinking will return and we get our national currency back!

      You do not win an election next year with throwing around billions left and right to other countries while at home the streets are falling apart.

  • “In the last elections they just voted again poison”
    You mean “against”?

  • ——————————
    a) Do you see any chance for a new Greek government to re-negotiate bail out terms?

    Yes, but only as long as the Greek government is prepared to turn down the next installment of bailout loans, preferring to live within its tax collected means for a year or so (with whatever top down reductions in state salaries and pensions that entails) while declaring a debt repayments’ lull.
    ——————————

    People should give emphasis to the above.
    And also know that debt repayment lull does not mean avoiding responsibilities for the legally obtained debt. It means a legal pause of payments while reforms continue ,to the best interest of all concerned. In other words ,our Greek pain for our Greek assets ,as it should have been from the beginning.
    Beautifully done.

  • Prof Varoufakis,

    I have some questions for you, if you don’t mind answering them.

    1. Do you think a SYRIZA-led Greek government will be able to stay in the euro, given that they will have to take rapid, painful measures to cover the primary deficit? And a lot of their voters are just frustrated people tired of such measures.

    2. If Greece follows your debt repayments’ lull advice, wouldn’t this mean that major european banks, Italy, Spain etc will be in deep trouble?

    3. If the ECB stops providing liquidity to the Greek banks, will they go bankrupt?
    What will happen to the money of Greek depositors? Or are you hoping that the liquidity will continue despite the rejection of the memorandum?

  • “Rather than bitter medicine, it proved to be poison. In the last elections they just voted against poison”. Really ?
    What medicine are you talking about Mr. Varufakis ? Did the Greeks attempt to shut down any redundant part of the public sector ? Did Mr. Repas ( Minister in PASOK “newspeak”of : a) “Infrastructure, Transport and Networks” from Oct 2009 till June 2011, b) “Public Reformation and Electronic Governance” from June 2011til May 2012) touch anyone of the PASOK + ND clientele ?
    The last Greek government at the time of the crisis did exactly the same thing as all the previous Greek governments did back at the good old days, when Greece was masquerading as a “first world country” ; raise taxes and leave intact the parasitic clientele employed in the public sector. (if it were ND, it would have acted exactly the same)
    Do you think that part of the swing voters for SYRIZA came only from the justifiably depressed and unemployed of the private sector, or is it that the infamous parasitic clientele that has just found a new political host?
    Mr. Varoufakis you are 100% right that the so called “austerity” will eventually kill the Eurozone, it is a part of the wider phenomenon of a disintegrating capitalistic system and the economists folly of perpetual growth in a finite planet, where there is no real place left to dump the “externalities” of their models.
    Nevertheless you will have a hard case arguing that Greece is an example of the failed austerity medicine, simply because this medicine was not administered here. Even back in the ’80s were deregulation was in full swing (i.e.Reagan, Thatcher regimes) Greece did not have any semblance of a free market in any part of its society. You can pick a different country to argue your case, which at least has had a rudimentary public administration.
    So to support that the hardships the Greeks endure now are the outcome of the failed Merkel’s medicine, is to ignore the elephant in the room which is the history of Greeks themselves…

    • Quite correct.

      This is an internal problem and i see people are ready to address it.
      But first we have to deal with the foreign parasitic clientele that moves the strings of most corruption in Greece and all these years sabotaged investment ,arguing now that they acted in the best interest of other countries.

    • as far as I know nearly 100.000 public sector workers were laid off and wages were cut by 20-40%. That’s a substantial bloodletting from the public sector wouldn’t you agree?

  • I don’t see completely why “internal devaluation” cannot – in theory – work. (I’m, of course, not proposing this as a desired outcome, just as a theoretical possibility)
    Let’s say Greek wages (and prices) fall another x%. Companies become more profitable as their wage costs fall, tourism picks up, foreign investors buy up Greek companies etc. at lower prices and (export-led) growth starts again. Didn’t the Baltic countries and Romania do something of this kind 2008-2009? They had a huge fall in output and wages, but then growth started to pick up again pretty fast.
    One could say that the reason why that cannot work is that growth in Greece is driven primarily by internal demand, but then one could argue that internal deval. would mean a readjustment toward a more export-led model.

    Again, I’m not advocating this solution, more like looking for counterarguments against it.

    • Here are practical counterarguments:

      We produce practically nothing. Even onions and garlic come from China and India and potatoes from Egypt. Internal devaluation will not help in this except in the very long run , when farming becomes again profitable because imports will be expensive. How will you convince the sons of farmers who have a civil service job, after getting a run of the mill degree somewhere, to go back and dig potatoes?

      We sell tourism and merchant marine services for most of our foreign exchange. These, with the high unemployment due to the devaluation, are in danger from demonstrations and the communist party take overs of ports. Any competitiveness from devaluation is zeroed by the bad world wide publicity of fires in downtown Athens and closed ports.

    • Anna v

      “How will you convince the sons of farmers who have a civil service job, after getting a run of the mill degree somewhere, to go back and dig potatoes?”

      Oh ,they are already getting convinced ,they like it or not and it is good.

      Time to remember the true beginning of Greece’s evolution. All of us.

      Land.

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  • Professor Varoufakis
    I don’t share your conclusion that the next election will be as “inconclusive” as the previous one. Already there are signs, and my strong belief is, that Syriza will be a loser on June 17 and its fickle flip-flop and slipping, as adumbrated by some recent statements of Tsipras, from its original position of denouncing the Memorandum–by which it boosted its electoral results–and by replacing it with its gradual revision, that essentially is no different from ND and Pasok, will clearly expose it to the electorate as being blatantly inconsistent and fraudulent and therefore no longer trust as a serious-minded party that could get Greece off the hook. Also to consider, as you do, that New Democracy’s and Pasok’s anti-austerity stand is rhetoric, is to be a fugitive from reality especially in the case of Samaras who was the only politician both in Greece and Europe from early on May 2010, to denounce austerity measures as barren and led ND not to vote in Parliament the first Memorandum which embodied these measures.

    Demetris

    In answer to your question in another thread the following is my position.
    Syriza could not have been taken seriously by anyone with a serious disposition in politics, and Varoufakis should have known better. All of its leaders are habituated and stuck to the nostrums of socialism that have been built on sand and have been washed away by the sea long ago. Pasok, with its preposterous economic policies and political ‘sins’of the past and deep-rooted corruption, has lost all credibility among the populace, and therefore is unable by ITSELF to get the country out of the crisis. All the other parties with their ‘certified insanity’, and I would include in this group Syriza, are Napoleons locked up in mental institutions.

    Ergo, my choice is the much maligned Antonis Samaras who since his incumbency as leader of New Democracy has demonstrated magnificent qualities of leadership in political and economic insight, in resiliency and swiftness of approach to the critical issues—an example of this was the rejection of the first Memorandum and the forced acceptance of the second in circumstances when Greece was at the edge of the abyss and had to be saved–in his unflappable determination to convince the European leaders that austerity without growth would fail, and in his brilliant success in persuading them of the correctness of the argument and thus opening the second Memorandum to the necessary modifications that would include growth. Samaras is gifted with high intelligence and a strong character without the big EGO that considers le tout c’est moi that often negates the strength of character, and he is the ONLY Greek leader who has better than a chance to pull Greece out of the crisis.

    • kotzabasis

      Admittedly Tsipras experienced a power high.
      He is young. These mistakes evryone makes.

      One big problem of the people ,not the politicians ,is that they always ask of politicians to act right here – right now ,without understanding the fluctuations ,the breathing room needed to do the work.

      Well ,not only the previous parties had breathing room but we people never used a stop loss. They were fluctuating all over the place and manipulating everyone.

      I am willing to buy a position on Tsipras and give him the space needed for his moves. But with a stop loss in place. We the people are responsible. We lead them. And i want to lead a change.

      As for Samaras ,if he is the one to come forth ,at first i thought ,i will vote for DL ,so as to hopefully have a more tight stoploss in place ,with the idea that DL will act as a mental filter.

      I will not because then Samaras will have the chance to convince more about his “good deeds”. He is very smart and he did all the right things when he saw the storm coming. So ,what’s new? That is the game.
      That is how it always has been.

      Your argument is that Tsipras played the same game.

      Your mentioning of that argument is how a politician talks. It was a common political blame game argument. I do not play these games.
      I am more than bored of these games.

      The truth is ,nobody knows how Tsipras will evolve.

      We need to take the risk.

    • I do not see Tsipras’s revision/refinement of his position as being flip-flopping. It is very clear that you have no idea how to negotiate, and he does. Setting out a very strong position — even if it is unattainable — not only attracts votes but also scares the Germans and the Troika. They need a good kick in the pants, and obviously it won’t come from old farts who are afraid to say boo to a goose.

    • Sorry to double post, Yani, but I just read something above that I had missed. It certainly has me rolling on the floor laughing. ROFL indeed.

      “Samaras is gifted with high intelligence and a strong character…” must be one of the most moronic statements that I have read in recent years. It is clear that his intellectual capacity is below the average even of politicians — and his backbone resembles that of an eel. What other strength of character could you be meaning? Oh, maybe the rather obvious fact that he is absolutely desperate to gain power!

      As far as policy is concerned, I am still waiting to hear anything even slightly intelligent from this creep. It is pretty clear that he understands nothing, and presumably is either lacking decent advisors or is too arrogant to take advice. It doesn’t really matter which of the two.

      Puleez, this is beyond laughable: it is pitiful propaganda for a political party that has damaged Greece over decades. You obviously have no shame.

    • @Demetris

      Suppose a doctor tells a patient “you are dying from this cancer, but you can choose: die in a week or die in three years, according to the medicine you take” what do you think the patient will choose?

      That is the gamble we are taking, because I am convinced that fully defaulted we will be, whether immediately once Tsipras et all take over or in two three years if we follow the track.

      Most humans will think like the patient “God knows what will happen in three years”, from EU dissolving , to finding gold in Parnitha, to finding oil in the Ionian etc :). And anyway at the mind boggling numbers of debt it is just monopoly money.

      Some will commit suicide, and for me those are the ones saying let’s gamble on Tsipras who is promising everything to everybody . The same had happened in 1981 when Andreas Papandreou came to power promising everything to everybody. The problem is that the markets lent to Papandreou and he fulfilled his promises ( no matter that we are now paying for the snowball of debt he started down the hill). Nobody will lend Tsipras at this conjunction and any government he leads will fall after two months, leaving us in a worst position than we are now .

    • @ Anna v

      A counter argument could be ,well the exact opposite of what you wrote and both are without proof. If we are to default ,the delay could be more catastrophic. Could this ,could that etc.

      Noone knows. And how can one say that we are dying?
      We are in dire straights ,that’s for sure. But we are not dying yet.

      As i said i do not want to play games with scenarios that go too far into the future. This is true gambling.

      I only know that Syriza has the most complete program i have ever seen and they are more than willing to adjust now than before. They wanted more legitimacy (as others wanted) and hopefully they’ll get it in these elections ,so that they can use their most complete program at the table.

      These is not just a scenario till now. It is reality. Till now.
      Reality is the most logical choice.

      As you used the doctor ,i will to:
      “What would you like? The medicine that you see exists and you know has a good chance (not certainty) to serve you ,or to choose from these little boxes with medicines unknown or no medicine at all and with the possibility ,these boxes to contain ,due to historical proof ,poison?”

  • Unsurprisingly, most people buy the clap-trap about us having lived “beyond our means”.

    This smokescreen for a derivatives market that lost its bets: a $650 trillion of gambling by casinos with posh names like JP Morgan and Goldman Sachs, ten times the size of the real world market, a world productive market of $65 trillion per year, is going to take a strong breath of uncorrupted air to blow it away.

    We can all start to ‘do our bit’ by demanding:

    1. Sovereign debt restructuring or written-off completely.

    2. European private banks restructured, re-capitalised and nationalised. Full-stop.

    The alternative is for us and our children to keep donating our taxes in order to pay off the rich kids gambling debts while they continue to gamble and reward themselves with obscene amounts of our money for their failure.

    Incidentally, the Madrid government is to ask Goldman Sachs to audit the books of the struggling lender, Bankia.

    This obscene mary-go-round must finally come to an end.

  • Yanis, care to clarify?

    “Do we face a Grexit?”

    “Yes.”

    I’m betting one (1) Greek Euro coin against a Grexit.

  • Demetris

    “To take the risk” and allow Tsipras to experiment his policies by using the Greek people as guinea pigs? Look what has already been the response of all European leaders, including President Hollande, to Tsipras policies as they were announced prior to the May 6 election. This is not the time to let Tsipras indulge in his youthful escapades and excuse them under the general truth that we all make mistakes.

    • Sir: your sort of conformist conservatism is what has brought Greece and much of Europe to its knees. Now is precisely the time for innovations, for radical policy change. Why? Because the current scenario is so bad, that only spineless jellyfish (like Papandreou) could accept it. Those of us who know how economies work are appalled by the mess that Germany has created — making a politico-economic disaster out of a banking crisis — and cannot possibly tolerate their manipulative behaviour any longer.

      Furthermore, to characterise the Syriza political challenge as being a personal one by Tspiras — with “youthful escapades” — is no more than slander. What evidence is there that such would occur? The letter that he sent to the Commission indicated a significantly higher level of economic advice than either of Pasok or ND showed — indeed, a rather higher level of economic comprehension than has been shown by that overpaid stooge of banking called Papademos.

      As far as being guinea pigs is concerned, that is exactly what is being done by the Germans. They have driven down real wages in Germany over the last decade, pushed people into involuntary part-time work, reduced pensions… the neoliberal agenda is being aggressively pushed onto Greece now, with disgusting privatisations (e.g. of railways and water) that have only been tried in the UK, with disastrous results.

      I regret to say that at least one guinea pig has been fooled into running faster on its treadmill for the mere promise of reward, when in reality there will be none. Only austerity (=starvation).

    • Kotzabasis

      The general truth that we all make mistakes and the absolute fact that he has the most complete program and is commited to adjust ,not just for Greece but to not cause trouble to all of Europe.

      I will not say that i believe him or not. I see whatever i can see as evidence now. While history has discredited others again and again.

      This whole system of capital flow is criminal. I will NOT preserve it.
      I will NOT become a slave again. Personally ,i started trying not to be a slave years ago ,searching for alternatives in my life style. I didn’t succeed all the way ,but i still work at it. Now everybody has a chance to wake up to one’s potential and that is exactly because of the problems that make people see the truth.

      Do not get scared. This has always been the only force that kept people back. Do not listen to them terrorising everybody.

    • @Demetris can you give a link to the complete program?

      Does it include the 100.000 new civil servants? the nationalisation of DEH and Olympiaki? the offering of unemployement compensation over the year and to the illegal immigrants?

      I should also like a link to the money tree from which Syriza will cut the money .

    • I can only give you the sites of the parties. Noone is publishing everything. But you sure can make comparisons to what is.

      Anyway that is how i perceive it.

      “I should also like a link to the money tree from which Syriza will cut the money .”

      It seems you have already decided ,are convinced that if Tsipras forms a government ,then everything is a done deal for us. That the end has come.

      Everybody has a lot to lose ,if we get out of EZ or EZ and EU. It is not only economical but geopolitical in general. Relations of countries around the globe but especially around us ,will go back decades.
      So i do not see how Tsipras will get us out destroying us and how a better deal won’t be found.