Q&A on Greece, Portugal and Ireland – June 25th 2013

A portuguese newspaper put to me a set of questions on the state of our PIGS. I list them here, together with my answers.

1-      Is Greece heading towards a second debt restructuring?

A third one! First we had the PSI, then last December the euphimistically called ‘debt buyout’ and now we are heading for the so-called OSI.

2-      Is theIMF is right about Greece when it says that debt restructuring should have been up front and fiscal adjustment in its wake?

That has been my position all along. When bankrupt a large loan does not help, as long as the loan is not preceded by a debt write off. And when the large loan, without an upfront haircut, comes with the condition of reducing your income (for this is what austerity does), then it is a predatory, toxic, ridiculously irrational policy.

3-      Will the Samaras’ government survive? What can undo the coalition with PASOK?

Life. The intensification and deepening of the debt-deflationary-banking crisis. These are the unstoppable ‘processes’ that will kill this government off. Just as it happened with the Papandreou government and then the Papademos one which followed.

4-      Is a potential Syriza government not a threat to Brussels and the IMF (as you wrote with Galbraith Jr in an op-ed to the NYT today)?

It is certainly not a threat to the IMF, to the extent that a Syriza government would oppose the policies that the IMF itself has admonished as irrational. Brussels on the other hand, just like Berlin and Frankfurt, wil be aghast. But that is a gosent for Europe. It is a major error to assume that Brussel’s interests and views coincide with Europe’s views. Currently, Europe is being pushed off a cliff by Brussels and a Syriza victory would give Europe a shot at surviving; at pulling back from the brink. The fact that this might, at least at first, anger Brussels is fine by me.

5-      The geopolitical implications of a victory of SYRIZA have not been addressed. Would there be no disruptive changes in this field taking into account the context of the Balkans and the Middle East?

Greece is caught up in an existentialist crisis caused by its membership of a problematic currency union. Neither the Middle East nor the Balkans present Greece with a clear and present danger to its integrity and long term survival. Syriza would never wish to be distracted from this survival struggle by opening up fronts in the Middle East or the Balkans.

6-      Ireland and Portugal, although in different macro situations, are able to “return to the markets” in 2014 in a sustained way? Or will have to resort to transitional precautionary programs? Or will have to make debt restructurings?

Absolutely not. Neither Portugal’s nor Ireland’s debt dynamics would allow for an autonomous existence in the money markets; for a genuine return to the markets. All that is happening is that Mr Draghi is insinuating that these two countries may be shifted from the EFSF-ESM bailouts to the umbella of the ECB’s OMT, with harsh austerity continuing to squeeze their social economies into the sam negative dynamic of debt-deflationary-banking malaise.

7-      The change in the Fed’s QE communication for an exit in 2014 and the eventual rise of the fed funds rate from 2015 will completely change the rules of the game?

It will simply make it even fathomable that Ireland and Portugal could escape the crushing austerity imposed upon them by Europe in exchange of continued servicing of unsustainable public debts (either from the ESM or through the OMT).

8-      What should have been the policy pursued by Brussels and the ECB in the face of the debt crisis that began in 2010?

In answer to this question, Stuart Holland, James Galbraith and myself are putting forward our Modest Proposal for Resolving the Euro Crisis – see attached.

9-      Is austerity mortally wounded?  What can turn the situation?

Austerity during a debt-deflation-banking crisis is utterly self-defeating. The answer to your second question is: Italy’s collapse