On the ECB’s latest contradiction (and how it helps Greece) 

Screen Shot 2015-01-15 at 2.08.26 AMThere is little doubt that the OMT program has been Mr Mario Draghi’s (the European Central Bank’s dexterous-yet-severely-constrained President) greatest success story. In the summer of 2012 the euro was on the brink. Mr Draghi’s announcement of an intention to buy unlimited quantities of sovereign debt (Italian in particular) to stem the contagion in the bond markets sufficed: the run on the Periphery’s bonds ended even though Mr Draghi did not buy a single bond.

While this in no way ended the euro crisis, forcing it instead to migrate to the foundations of the real economy (and causing the current deflationary bout), the ECB’s battered prestige was lifted and trust in its capacity to hold the Eurozone together improved. Alas, from the word ‘go’ German opponents of OMT (including the… Bundesbank), and of the general idea of ECB sovereign bond purchases, took the matter to the German Constitutional Court which, after much deliberation, deferred to the European Courts for a final verdict on the matter. Could the ECB legally indulge in sovereign bond purchases, as the OMT program insisted it could? That was the question.

Advocate General Pedro Cruz Villalón, of the Court of Justice of the European Union, yesterday delivered his verdict: OMT did not violate European law and could be energised at the discretion of the ECB’s board. Mr Draghi must be a pleased man. Not only has his OMT not been denied a legal foundation but, in addition, his hand has been strengthened in his current battle to convince the Bundesbank and Berlin that the ECB must buy hundreds of billions of Eurozone nations’ sovereign bonds as part of a belated Quantitative Easing exercise that Mr Draghi hopes will defeat deflation. This makes sense: If bond buying is OK in the context of the OMT it surely is OK too in the context of Quantitative Easing.

But why am I arguing that this decision is pertinent to Greece? Greece issues no bonds and cannot benefit, as long as it remains hopelessly insolvent, from QE that concentrates on government bonds. Be that as it may, there is a substantial potential benefit in Mr Cruz Villalón’s decision for the next Greek government. This decision unshackles Mr Draghi from any ban on government bond purchases. However, for this new ‘freedom’ to turn into a meaningful form of QE, there must be no constraint that the ECB only buys triple-A rated bonds and there must be no assumption that the ECB can never take any losses from the bonds it buys (in case they are restructured in the future). Just like when the Fed was purchasing oodles of private debt with no iron cast guarantee of zero-losses, similarly the ECB, in order to utilise its new freedom to conduct macroeconomically meaningful QE, must accept that it may have to take some losses from its bond purchasing program.

And here is the rub. If the ECB accepts this, as the Bank of Italy insists it should, then the ECB’s stubborn insistence (against SYRIZA’s demands) that ECB-held Greek bonds (circa the failed SMP bond purchasing program of 2010/1) cannot be restructured collapses unceremoniously.

In short, the European Court’s endorsement of OMT’s legality is a major boost in the bargaining power of a prospective SYRIZA government. For otherwise the ECB’s plans for meaningful QE, against the forces of deflation, are doomed.




  • My understanding of the court’s decision is quite different. It’s such an imperial act and such a direct challenge to democracy, that it would surely raise reactions within the German Constitutional Court and as a result harden Germany even more into a new crescendo of Madame Merkel obstructionism.

    What you consider good news I think more like a guaranteed disaster. This is another case of a dysfunctional and out of control Europa. Greek elections are one thing; dealing with the ongolith called Berlin quite another.

    • “It’s such an imperial act and such a direct challenge to democracy,”
      That is really funny. Democracy is set of rules to find out what people want.
      Within the EU Parliament it is the set of rules to find out what states (their governments) want. Only Germany doesn’t want OMT, judging by only aplication against it in state courts across EU. So democracy wants OMT.

      How did you come to conclusion that OMT is a direct challenge to democracy?
      OMT is a direct challenge to myths of benevolency of Gold Standard, yes.
      If OMT helps the whole EU, how it is an imperial act? Isn’t imperial act what fits only one state and everyone else is aagainst it. I am really interest in your line of thinking to reach your conclusion.

    • I exceptionally must support your judgment that a forthcoming disaster is guaranteed. Neither the German Constitutional Court nor the German government will accept such a tremendous loss of sovereignty.
      When Draghi will start his program he certainly will be very cautious and not follow the route that prof. Varoufakis hopes for.

    • Since the German Constitutional Court has already ruled that the question of OMT is subject to the European Court of Justice’s decision, it can not reclaim jurisdiction – wether Mrs Merkel and Mr Schäuble like it or not.
      As I understand it, the only way for the german federal government to ‘overturn’ the ECJ’s ruling, should it not be in their favour, would be to declare the underlying treaties null and void, thus breaking international law and acting against the german constitution. Which, even for a person like me who holds the federal government’s moral and ploitical integrity in such low esteem, would seem highly unlikely.

      But please correct me if I’m wrong.

    • Hebert:

      So you are saying that Germany can no longer invoke the German Constitutional Court defense which has been its major tactic for its obstructionist strategy?

      I will believe it when I see it. The red lines have become 10 times harder from where I see it.

    • The official complaint before the constitutional court was not filed by the Merkel administration (which I believe would have been impossible anyway) but by several individuals, including some right wing members of parliament from Merkel’s own party who openly opposed the whole ‘rescue’ effort to begin with. The constitutional court can only rule against international treaties if they clearly violate the constitutional rights of german citizens. It does not act as a state’s attorney and it can not act on its own without at least one individual filing an official complaint. As I understand it, the Constitutional Court is given some leeway to determine whether any international legal authority higher up the ladder – i.e.: the Eropean Court of Justice – is competent to rule in the interest of german citizens and their basic rights as described by the constitution (the ‘Basic Law’, to be precise). In this case, it has decided that the ECJ is capable of doing so and I don’t see how this decision could be revoked, since there is no way to appeal the rulings of the constitutional court. But then again, I am not a lawyer.

      Although, the legal problem, or as you describe it: the tactics of the Merkel administration of justifying their obstruction of OMT or any other kind of relief for the southern eurozone members by refering to the constitutional court’s possible objection has never really been an issue in the german public opinion.
      It may have been used by Mr Schäuble, who is a lawyer by trade after all, to underline his pedantic insistence on ‘pacta sunt servanda’ against the objections of his international colleagues, but to Merkel’s voters, the question of ‘helping’ Greece has always been a moral one and the term ‘moral hazard’ is percieved quite literally.
      Should the ECJ eventually rule against the oficially stated interests of the Merkel administration, it may actually even strengthen support for the chancelor, since she could then claim to have done everything in her power to prevent OMT but was preventd by EU law from saving the german taxpayers cherished ‘savings’ from being handed over to the useless have-nots.
      So one can expect a continuation of the german refusal policy until the last minute if only for public appearance.

    • Hubert:

      High marks for the depth of the response.

      However, please consider the following:

      1. Today FT is saying that Germany has been absolved of her obligation to support other eurozone debt re: OMT. In other words, each of the 19 central banks is responsible for their own debt. This by itself nullifies the purpose of the OMT.

      2. Regarding Greece, the encirclement maneuver is of course based on pacta sund servanta, as you said. Greece is asked as a minimum requirement to uphold prior agreements, which again nullifies any sense of meaningful new negotiations.

      3. Furthermore Greek sovereign debt might be excluded from the new version of OMT, i.e. buying your own sovereign bonds.

      4. Greece will be asked to extend the current memorandum by 6 months which by itself is non-starter for new negotiations.

      As a result Greece is now faced with a layer of new dilemmas constructed in such way that they supercede each other and are interconnected in such way as to prevent even the appearance of breathing space. This is why I say that the red lines for Greece have become so much harder and of course the true extent of the damage would be revealed after the elections, otherwise it sounds like interference with the electoral process.

    • @Dean

      As always, I am not arguing with you. It sems that there is no end to the constant scheming among the European governments. And my own is certainly chief among the players.

    • @Dean

      If you’re still following this thread: I must at least partially withdraw from my earlier line of argument. As other posters on this blog have made clear to me, the german constitutional court has not reached a final decision yet, but merely haltet its ruling until after the European Court of Justice’s verdict and still reserves its constitutional right to contradict the latter’s decision. Wheter it will do so or not, nobody knows for sure. It seems like there is not only a fundamental flaw within the design of the EMU but also some serious compatibility issues with the german Basic Law, leading to paradoxes like this one.
      Although I have to say, since german politics nowadays is mostly done by people with some kind of law degree, one has to ask why this hasn’t been adressed earlier.
      In addition to that, as I wrote somewhere earlier in another comment, Ms Merkel’s coalitions have not been exactly famous for their staunch adherence to the constitution when it comes to the many laws they have proposed in the past, which were declared unconstitutional by the constitutional court and had to be revoked or rewritten after they had already been passed by the Bundestag. Naturally, the court takes its time processing the many complaints it recieves, which leaves some room for ‘creativity’. In this case however, the federal government appears to be exceptionally un-creative.

    • Hubert:

      I almost missed the comment. I think the law is something the German government would use as a tool. And it would be done in such as way so as to put the final argument to rest after all others
      have declared their position. It makes sense since Germany politically is increasingly isolated. And I expect the High Court to amplify the cause for German skepticism.

  • Yes, all good points but your positive outcome for restructuring Greek bonds is inevitably based on hypothesis with no guarantee. The only certainty is some big battles ahead.

  • Indeed the advice by Judge Villalón is another step towards the much needed empowerment of ECB. The faster Draghi proceeds with QE the faster Syriza could bring up the secondary issue of the ECB held Greek bonds…..A small part of our overall debt but not negligible…..

  • I don’t believe the legality of QE is logically connected to restructuring of Greek debt even if QE can be assumed to accept losses. Restructuring is something else completely most importantly politically but also practically. However one looks at it, the troika will demand it keep enough leverage on Greece to keep its demand moving.

    • I am surprised that you failed to notice the relevance Jerry. The issue is whether a hit on bonds owned by the ECB is banned by the ECB’s charter. This latest decision opens up the road to QE that can only work if the answer to that question is that the ECB can take such a hit. In which case the ECB’s argument that it is legally banned from taking a hit on the SMP-sourced Greek government bonds holds no water. This should be clear to you. Unless your commitment to asphyxiating the next Greek government overwhelms your judgment.

    • @yanisv: It could be that Mr. Goldstein did not fail to notice the relevance, couldn´t it? So – surprised or not – why verdict his failure? Another idea or understanding than Yours on this question means a judgement overwhelming commitment to asphyxiating the next Greek government? Thin air. It would be kind if you could keep an open minded and positive culture of debate and discussion. I.e. just ask him, why he has his opinion and tell him yours… no? Unless you two have a specific history that I don´t know.

      Back to the matter and not connected on the first view let me share my most worrying observations: mutual understanding and the general narrative in Greece and northern Europe are world´s apart. For years and years now mass media in Greece paints a completely false picture of Germany and Germans. The same does mass media in Germany vice versa, but in a much less interested and intense way. One nice example in Greece is Mr. Malouchos. Reading his articles in Vima I don´t know whether to laugh or to cry. But reality is what we believe it is. And so every story can become reality. And this is – just as a cute and harmless example – why its always the german banking system and not the greek and not the french (only sometimes as second announcement), that have been saved by new credits, although the greek and french banks had much more money invested in Greece and thus where also kept alive by new credits – although actually dead (the Greek ones).
      Where is the connection? You, Mr. Varoufakis, for years now circle and turn around a highly specific problem (or catastrophe..) and You have examined it from every angle and in deepest detail. And this is perfect and necessary. It´s like You play the same game of chess for years and You became a highly specialized expert for this one game. And this bears the danger to explain, understand and fit every new input with and in Your game. Your reality. So, if the moment comes (and I hope so very much) for You as a Minister of Finance of Greece to sit face to face to Dr. Schäuble or Dr. Merkel and You force them to listen and to try to follow Your arguments, chance they sit there understanding exactly nothing. Because they did not play Your game of chess. And the moment You sit there they insist to play… monopoly – not chess. Closing the circle, me for example, reading the application (there was no decision, so Your blog-teaser needs a correction) of Mr. Pedro Cruz Villalón, I think: wow, this could become a law-thriller. Maybe Advocate General against European Court, maybe European Court against federal german constitutional court and same time against german government. Because the constitutional court was quite clear about having a problem with OMT. I thought of the principals at stake and the long and complicated story of juridical tension between the European Court of Justice and the german federal constitutional court, in which until now the german court always gave way. Here one can read the order for reference to the Court of Justice of the European Union in English, officially translated. Last thing that came to my mind was that the application of Mr. Villalón means that the ECB’s argument (legally banned from taking a hit on the SMP-sourced Greek government bonds) holds no water. And so – maybe for other reasons – it did not come to Mr. Goldsteins mind. Does this mean an overwhelming commitment to asphyxiating the next Greek government? Anyway, I honestly whish You every success in the elections and even more clarity, strength and luck explaining Your game in the ivory tower(s).

  • please note (but you’re not the only one who is confused on the point) that this is just the Opinion of the Advocate General. The actual Court will decide only in the coming months and remains completely free to ignore the Opinion -and it has in fact done so in some very important decision. That being said, a positive Opinion of the Advocate General on OMT is a better starting point than a negative one.

    • There has never been, in the history of the Court, a case when the Advocate General’s recommendation has been overturned by the Court.

    • I have to disagree on that, as there are a lot of examples of such an outcome.
      Here I will just mention two quite famous cases where the Court completely “overturned” (i.e. ignored) the Opinion of the Advocate General: the recent Opinion 2/13 of the Court (about the accession of the EU to the European Convention on Human Rights) and the Laval case C-341/05 (about the right to strike vs. economic freedoms). But, again, I could go on with a quite long list of examples.

      It is true that the Court often follows the advice of the Advocate General, but that is by no means guaranteed -IMHO, even more so when a politically relevant matter is at stake.

    • I second the note of marcorocca. Another “politically sensitive” judgement came in 2012 when the Advocate General’s opinion was to follow the established rules in making the annual adjustment in salaries according to the method enshrined in EU regulations. Following the push by Council led by a group of austerity-pushing countries, the final ECJ judgement was to give the right to Council to break its own rules and not allow the salary increase for that year. So, absolutist statements such as that “never been in the history of the Court, a case..” weaken the credibility of Yanis’ otherwise well-founded arguments.

  • 1. The court has not taken any decision yet.
    2. The German Verfassungsgericht has decided that OMT does violate the German constitution.
    3. Therefore if the the European court should make a decision against Germany then certainly e very interesting legal and political battle will start.

    4. Therefore this conclusion of Mr. Varoufakis is speculation, but not fact.

    • There is no doubt that the German constitutional court can challenge this verdict by the European Court. This will signal an EU constitutional crisis. So, my conclusion is wrong only to the extent that Germany wants to start a constitutional crisis. I do not believe it will, even if you would like it to…

    • Yes, the German constitutional court has in the past refused to accept the supremacy of European law and of the Court of Justice of the EU. This is unique within the EU, as every other country does. I would respectfully remind the German people that their constitution — the Basic Law — was written by the Allied Powers and imposed on them after the defeat of Germany in World War II. It is not appropriate for Germans to think that they can now start to dictate to other European countries how the European Union should be run. If this is not understood fairly quickly, there could well be a repeat of the history of the early 20th century and much of the 19th century.

      Personally, I would have thought that any country that recently embraced an horrific ideology such as Nazism so completely, would now have the humility to keep their gobs firmly shut.

    • @Xenos
      Isn’t it obvious by now that this is exactly what the powers that be in Germany are after? Even at the cost of dismantling the EU and the EZ? Their ultimate goal is to have their sovereignty back and undo every aspect of the post WWII setlement concerning Germany.

    • Taso: I don’t know. It is not what I hear from ordinary Germans, who presumably would not support such a political position. Therefore, a German elite would have to trick the Volk into following their reckless policy, with some subterfuge such as “the Greeks, Spaniards and Italians are stealing all our money”.

      However, this is not the 1930s in terms of communications and access to information. It is probable that such a move would destroy not only the EU but also the unity of Germany. Is Merkel dangerous and stupid enough to risk such a thing?

    • Xenos: I agree that we are not in the 30s. Back then the opposition of the Versailles treaty and a return to pre WWI conditions was more or less universal in Germany. I agree that today Germany is a far more complicated place although nowdays policies are dominated more by the elites and less by the Volk since far less people are politicaly involved. Having said that, when one connects the dots I think that the picture he gets is that of a country that slowly and methodicaly is working -and succeeding- at getting back its place as a world power using the EU and the eurozone as a means to an end. Whether something like that would create tensions in Germany I do not know but I would be willing to bet that there will always be a supply for political figures in any establishment that would find such a goal appealing.

    • @Tasos & Xenos

      The German Constitutional Court does not dictate terms to the ECJ. It is, however, obligated – if called upon – by the Basic Law to determine whether a certain decision can be safely handed over to international jurisdiction without violating the constitutional rights of german citizens. This is a good thing – in theory – because it should also prevent the german government from using international treaties as an excuse to violate those rights. In practice however, Ms. Merkel’s last three administrations hold the record of laws passed through parliament via the ruling coalitions’ majority votes that had to be revoked or rewritten upon the constitutional court’s intervention. Which has never kept them from proposing these laws in the first place. The whole argument of the court preventing the german government from agreeing to anything that would bring ailing eurozone members like Greece a much needed relief from ‘fiscal waterboarding’ is a smokescreen to cover up the real agenda of the ruling coalition, which has nothing to do with the law, or even sound economic theory but is purely based on neoliberal ideology.
      It’s not about german supremacy, or regaining a lost empire, at least not from the Merkel administration’s point of view. Although the german government and its associated media are inciting nationalist tendencies among the public through their constant critizism of other eurozone member’s alleged profligacy and unwillingness to ‘reform’.
      Ms Merkel’s real purpose is to defend the interests of the 1% against any threat to the ponzi-scheme that keeps them wealthy and in power.
      Whatever demands her government has made since the crisis began have always favoured capital over labour and they were always about cutting down government expenses for the less fortunate while leaving capital income more or less untouched. (The political masterpiece in this regard certainly was the transfer of toxic sovereign debt from private banks to the public sector, all in order to placate ‘the markets’.) That goes for the people of Greece as well as for the germans themselves. The sad thing about it is that the latter still haven’t noticed what is really going on. As long as they can still consider themselves better off than the majority of europeans outside of Germany, they choose to happily remain trapped in their little self-complacent bubbles of false grandeur and to dole out judgement on the lazy southerners, while watching them suffer from the safety of their TV-sets.

    • @Hubert
      I agree to your analysis as far as the neoliberal agenda goes. It is the source of most of Greece’s misery post 2009. Especially if one considers that capital in Greece -the main beneficent of a neoliberal shift- is also completely corrupt and dissociated with our national interests. I wouldn’t put it past the 1% elite in Germany though to cause a dismantling of the EU and a return to a pure sovereign German economy. It could happen not because of empire building plans but more out of a cashing in your chips mentality and refuse to do what’s necessary to repair the EZ sinking ship.

    • @Tasos

      “I wouldn’t put it past the 1% elite in Germany though to cause a dismantling of the EU and a return to a pure sovereign German economy.”
      I wouldn’t put it past them either. Among the conservative german elite, who live in constant (irrational) fear of losing their precious savings to inflation(!) or further depreciation of the Euro, there is already widespread admiration for the Swiss National Bank’s decision to detach the Swiss Franc from the Euro and thus ‘leave the Eurozone’ – especially since the Swiss industrial elite are now demanding lower wages and longer working hours to compensate for the loss of competitiveness in their export-heavy economy. Which is exactly what would happen in Germany, should it return to its own currency – only on a much larger scale.
      Wether Syriza is successfull or Greece starves itself to death is of no real concern to them, as long as their money feels nice and hard.

    • @Xenos

      Thank you very much for those two articles. I must admit I was a little too quick to judge the whole legal issue as a mere political charade. It seems like there is in fact a massive legal contradiction caused by the initial flaws in the construction of the EMU. As much as I loathe to agree with those german right-wing conservatives who filed the complaint before the constitutional court – it seems like they have a point there.

  • Bearing in mind my own proposals, to purchase very low grade bonds; re-configuring them to become vanishing bonds, as means to deliver free enterprise equity capital investment into new private sector job creation; where each such investment made then becomes a small business capital deposit back into the banking system; then this decision is very good indeed.

    Late last year I was told that the problem I had was the price the market would charge for the funding; now all bets are off if the ECB is permitted to purchase such low quality paper and re-configure it to suit.

  • Hello Yanis, I just discovered your blog (via Simon WL) and look forward to reading you, thanks for the time and energy! Re your post, I thought that Greece had returned to the sovereign bond markets in April 2014 (with 5-year bonds), and that the country had continued to issue short-term T-bills more or less throughout the crisis? Re seniority, my take is that the ECB has NO (legal) seniority status, it buys debt on secondary markets under the terms and conditions governing each specific issuance. Of course they can always agree for a debt swap with the Greek Gov’t, providing the ECB with a “new” issuance under “special”, more favourable, conditions (de facto seniority)…

  • I am extremely surprised that the Spanish Advocate General Pedro Cruz Villalón recommended something his de facto boss, the Greek Vassilios Skouris, President of the European Court, will certainly confirm. A confirmation the Italian President of the ECB, Mario Dracula, sorry, Draghi, will understand as carte blanche to continue to rob Germany’s and other nation’s taxpyers for the sake of zombie banks and governments in the GIIPSIFs. Who would have thought that? 🙂

    • 3 different nationalities, purposely used in a single paragraph to prove a point.
      That really says much about the way you think.

    • Aw…we have the company of France in our lovely acronym. How nice. It keeps getting longer and longer as years go by I think.

  • The court’s decision strikes a major blow at Germany’s austerity driven economic policymakers but at the same time I think I does not create much hope for a new progressive Greek government for the following reason.
    In order for the OMT to be activated towards a certain eurozone country the following four conditions must be fully met:
    First, the country needs to have received financial sovereign support from the eurozone’s bailout funds EFSF/ESM.
    Second, the signed Memorandum of Understanding attached to the EFSF/ESM support program must be complied with at the time of OMT purchases.
    Third, OMT purchases can commence only if the country has managed to regain complete access to private lending markets, which means the issue of new government bonds with a 10-year maturity.
    Fourth, OMT purchases of the government bonds with 1-3 year maturity require that the ECB considers the interest rate obtained by the said country on these new bond issues to be higher than what can be justified by the fundamentals for the concerned country.
    Also, OMT is not the same as QE, since in the latter case the central bank buys bonds and injects liquidity into the banking system with the aim of stimulating economic activity. However, the ECB has made clear that it will engage full sterilization, whereby it will reabsorb the money pumped into the system “by any means necessary.”

  • Yanis, will revenue raised by a Syriza government be spent in any significant way to ease public suffering via social welfare (and superfluous government positions falsely inflating ‘job growth’); or will you help delay the social welfare bent in an effort to kickstart the Greek economy via industrial and technological reinvestment?

    • I ask this, not to offend, but to get clarification as people seem to appreciate your economic suggestions and views but worry that the party you affiliate yourself with may act counter to economic growth by overreaching in the social welfare area.

    • There is, of course, a great difference between a justifiable social policy to reach out to those in need, and the creation of state posts in order to control the state and promote the socio-political power of the political party in government. Pasok and ND never created a welfare state — although both promoted government positions for the increased power of their party and both permitted the growth of hundreds of scam pension schemes, along with corrupted subsidies and benefits for their (small number of) members, while leaving the larger schemes for the masses (IKA and TEBE) in a deteriorating position.

      The big question is, “what will Syriza do?” I doubt that Yanis has the answer, since this is an unknown even for Syriza. It hinges on the internal dynamics of power within Syriza, and if the former Pasok members have much influence then we can expect the worst, I am sorry to say.

    • Does the Greek government every see any money from the shipping industry ? I think not that much.

      A lot of Greece’s economy is going to be further damaged by the EU/US trade agreement and the general drift in Western trade policy. Old-line manufacturing and small scale farming are being pushed out in favor of property rights protectionism and agribusiness.

  • If this is validated,it does mean a significant shift in the Eurozone,and indeed E.U.in general,economic and by extention politcal decision making/taking processes from the “uber alles” to the “fur alles”,something I feel that not only the peripheral memembers will applaude.

  • I think that Putin just gave a great bargaining gift to Syriza

    from https://euobserver.com/news/127216
    Miller noted “the Turkish Stream is the only route along which 63 billion cubic metres of Russian gas can be supplied, which at present transit Ukraine. There are no other options”, AFP reports.

    He warned Sefcovic to start building “the necessary gas transport infrastructure from the Greek and Turkish border”.

    All that gas going through Ukraine, must now go though Greece. It seems that now EU must negotiate with Greece about building gas pipelines as well.

    • Actually this big time nonsense.

      Russia sells to Turkey gas at $430 per 1000 m3. The European average for Gazprom supplied gas is $304 per 1000 m3. Greece pays $390 per 1000 m3.

      There is absolutely no way that Russia would kill the lucrative Turkish market via a construction of a pipeline which then has to supply Europe with 35% less expensive gas than what Turkey pays. For starters Turkey would be stupid to pay anything more that EU average.

      This is total BS and amateurish interpretations of geopolitics.

    • What exactly is nonsense?

      That Russia plans to build a new pipeline to Turkey?

      Or that Russia plans to divert all gas deliveries that are now routed through Ukraine, to the Greek-Turkish borders?

      The prices you cite (and I haven’t checked them, just take your word for it) are today’s prices. We are talking about the future. The new pipeline will not be operational tomorrow, neither deliveries through Ukraine will stop immediately. Future prices will be negotiated with EU third energy package in mind and probably with the bloc as a single buyer.

      Sure geopolitics are fluid, but EU most have contingencies for every outcome. If Russia sticks to it’s plan to divert all deliveries south, the planing for the new infrastructure in Greece must start yesterday.

      Now tell me that is not a huge bargaining chip for the next Greek government.

    • I repeat: nonsense in the power of 2.

      Russia can say whatever it wants. But it will not divert gas through Turkey. All it has to do is a double Nord Stream pipeline on waters that are much shallower and the construction cost much cheaper.

      What bargaining power and green horses? In 10 years from now? What bargaining power? EU laws expressly prohibit using pipeline blackmail if you want your gas to be sold in Europe.

      Such nonsense about geopolitical power and connections through the Turkish border are very naive talk.

  • Looks like the SNB taught all the QE friends a lesson today 🙂

    According to Europhile talk there will be mass unemployment, riots etc. in Switzerland soon! The only riots reported so far happened in a Lidl store in the South of Germany where Germans were buying all the can before the Swiss will use their increased purchasing power to buy everything on Saturday.

    Another nail in the coffin for the ill faited Euro!

  • The risk of «taking losses» is neither the principal nor the only pretext for the ECB’s vehement refusal to restructure, roll over, freeze or write off its holdings of sovereign bonds purchased in the secondary market under the short-lived SMP programme.
    Any of these monetization options would cost nothing to the ECB or the Holy German Taxpayer, anymore than it cost the «eurosystem» to buy these bonds in the first place. This was done by simultaneously augmenting both sides of the ECB balance sheet, with the newly acquired «assets» equal to «liabilities» on the currency issuer’s seigniorage, i.e. the power of its printing presses.
    The official explanation for withholding these bonds against the slightest PSI haircut – reiterated by senior ECB officials and Mario Draghi himself ad nauseam – is that any debt relief on ECB- or ESCB-held sovereign bonds is strictly prohibited under ECB Charter. And this is because it would constitute a form of «monetary financing of fiscal deficits», which compromises the ECB’s supposed «independence» from eurozone member states «and other EU public bodies».
    This independence, which bars the ECB from its function as «lender of last resort», does not stop it from acting as «Enforcer of first and last resort» for all sorts of harsh austerity «conditionalities» that accompany direct or indirect «bailout» programmes imposed on virtually all the countries of the European South.
    Indeed, the gnomes of Frankfurt are prone to advertise their blackmailing exploits by issuing ultimatums and threats of financial strangulation through «confidential» letters to uncooperative prime ministers. They then «leak» those letters to the media in quick succession, making sure that progressive future governments in Greece, Spain or Italy have been duly warned about the consequences of their disobedience to the Troika of Berlin, Brussels and Frankfurt that rules Europe.
    This glaring conflict of interest between the ECB as guarantor of monetary stability and bank liquidity on one hand, and the ECB as Enforcer of Compliance to Austerity (at the expense of bank liquidity «if needed»), is a far more ominous contradiction than the one Yanis dissects between ECB Profitability and Quantitative Easing. And this is not least because it also entails a double-standard treatment of Greece by excluding its bonds from Quantitative Easing after 5 years of «fiscal [and monetary] waterboarding».
    In fact, the ECJ Advocate General’s recommendations stress for the first time that this contradiction must be lifted if OMT or Q.E. are to spread their benefits more evenly across the eurozone.
    “The ECB must…refrain from any direct involvement in the financial assistance programme that applies to the State concerned”, advocates Mr Pedro Cruz Villalón.
    But a withdrawal of the ECB (as Enforcer) from the Troika, to allow the same ECB room for OMT or QE without prejudice against particular beneficiaries, implies that the Enforcer’s usurious ransom (the SMP bonds) must also be taken out of the equation.
    In the case of Greece, the amount of SMP bonds that remains to be repaid over the next three years is €28bn. A “withdrawal” – one way or the other – of this sum alone from the Greek debt overhang will give the new government a 3-year “breather” it needs to negotiate a truly sustainable economic recovery.

  • I am really surprised and disappointed by the statements on the legal aspect of the case. The opinion of the A-G is a non-binding opinion and not a verdict. Even if the Court will agree in conclusion with the A-G, we have to wait and see the full parameters of the proper verdict, which could have differences both in substance and procedure (for example the A-G did not state parameters on the behaviour of the ECB other than the obvious proportionality test and non interference with financial programs, i.s. as part of the Troika. The Court however can state many parameters that will ).
    On your comment “There has never been, in the history of the Court, a case when the Advocate General’s recommendation has been overturned by the Court”, I have to agree with marcorocca and state a few other examples. Please see cases C-60/84 Cineteque and C-583/10 Kadi II, amongst many others.
    The fact that you, Mr Varoufakis, as well as most other commentators, are primarily involved with the economic studies discipline, should not be a justification for disapplying the stated facts and law. It would be also refreshing to comment on this.
    With kind regards
    A. Brakatsoulas (EU law PhD candidate)

  • Dear Yanni,

    I have not managed to find a joint discussion between yourself and Dr Lapavitsas who i believe is another economic advisor of the SYRIZA leadership.

    Was looking at his BBC interview

    and it sounds like he has drawn a well defined negotiating ‘red line’.
    He says: either we get significant debt concessions or failing that, we are mentally prepared for moving to a new GRD.

    Even though I am quite scared (to put it politely) about his stance, i think it is at least pretty well defined.

    Your ‘red line’ is less clear to me. You have said more or less that we do not want to get out of the EUR. Does that mean you have significantly weakened your bargaining power? With your red line it sounds like the best we can get is something that will make ‘good headlines’ to save face but without any real substance.


    • I reject this position wholeheartedly. A SYRIZA gvt that I serve in will under no circumstances use Grexit as a bargaining chip. Period.

      PS. Costas Lapavitsas is a good colleague and a parliamentary candidate but he is not an economic advisor to the SYRIZA leadership.

  • Dear Mr. Varoufakis

    I have some bargain power for you.

    Yesterday we had in Finland great conversation about this situation in Greece. There were present your favorite fella Olli Rehn and 3 others. (People really didnt just trash talk each others and each others parties, they talked about many facts also.)

    Interesting thing was, that Olli Rehn said, that they talked, when they made this package for you guys, that they would restructure your debt, when Greece would have implemented all needed structural reforms and that day is coming now. He agreed in many things with left wing Li Anderson. Even right wing was ready to lengthen your repayment – maybe even cut interest rates. So dont really give a f”%k about Stubb and Financial Times. They are only playing poll games, because we have elections also in few months. You will have great bargain power against EU, because they really want to keep this project together. National Coalition Party is going down in drain, cause people aint like big corporate, EU-lover Stubb too much. His stool is shaking, because since Katainen left NCP’s support has gone from 22 % to 16 %, ouch!

    From EPP National Coalition Party one dude called Sasi said, that he was in Greece last year and only places where you could pay with credit card were McDonald’s and Starbucks. Is this true, that you fellas are still not paying VAT and other taxes and that’s the reason why your GDP aint bigger than it is?

    Do you have any link to give me, what structural reforms you have made and what kind social situation is there? Do you guys get social benefits, which are enough for living, like we here in Finland? Are automatic stabilizers working or did troika shoot those down?

    Even Rehn is now admitting, that he made some mistakes and Keynesian politic should have been implemented more increasingly. He will probably be our next EU- or financial minister.

    I think we should know more about each other systems in European Union. Now decision-makers are playing us against each other, because we dont know enough and theres too much misinformation.

    From Finland, with love

    Ps. We have same kind fixation with debt, than Germany does. Our policy-makers didnt want to take any loan, even when Soviet Union tried to crash us in Winter War. Crazy bros, anyway Molotov Cocktails did the thing, so why waste money to bazookas.

    • I heard of Rehn’s change of heart, so to speak. Thanks for pointing it out too – it is useful to us.

      Regarding your main questions: No, it is not true that you cannot pay with credit cards or that Greeks do not pay VAT. If there is resistance to credit card payments it is only because vendors cannot afford to pay the exorbitant VISA et al fees, especially when they are surviving on very thin margins. As for social security payments, no it is not possible to live in dignity if you receive them; let alone that most eligible people never receive them.

  • The last news say that Greece will be excluded from QE bonds of ECB, hope this is not true….

    • Good luck trying to explain that to the public. I expect an avalanche of questions after the ECB’s announcement and of course they will try to pin this on Syriza and not the complete failure of past government policies. It will be also very funny when the same people that try to ridicule mrs Makri for her “printing” comment will blame Syriza for Greece’s possible QE exemption.

    • On the same subject Yanis: what do you think of their idea of letting it up to the national central banks to actually carry out the QE? Aren’t they preventing the precendent, that you wanted to use in the negotiations?

    • Not really. It is just another silly idea for quelling German fears of mutualisation. Mutualisation that will take place through Target2 anyway.

    • We are reading news about, the plans about the QE of ECB. Why we focus on anything else, except on the obvious question , how is it that a mainly privately bank (it is owned by the local central banks in Europe that are mainly private, and nor owned above 50% through their securities by the ministries of finances) , so how is it that a private bank has the right to issue currency on behalf every nation and own this money, while the the states of the nations do not own this money , have to borrow it , and do not have the right to issue currency? In all the history of mankind from ancient Athens, Rome, Byzantine empire, etc only the state had the right to issue new currency and own it (As a public good that belongs to every body, and they did no have to borrow it!). Now the private central banks own it, and force its circulation through dept.This phenomenon which is a power coup to the states from the banking system started for the first time in Europe in 1694, in London, and the bank of England. The mass media are promoting a causality of the debt crisis based on the wrong behavior and lack of virtues of the average physical persons or enterprises, even public economies, while they skip the focus to the central role of the central banks which in fact are by far the main reason for periodic appearance of debt crisis every 50-80 years. For more discussion on this simple perspective here http://overdebtmonetarysystem.blogspot.com

    • We are reading news about, the plans about the QE of ECB. Why we focus on anything else, except on the obvious question , How is it that a mainly privately bank (it is owned by the local central banks in Europe that are mainly private, and nor owned above 50% through their securities by the ministries of finances) , so how is it that a private bank has the right to issue currency on behalf every nation and own this money, while the the states of the nations do not own this money , are forced to borrow it , and do not have the right to issue currency? In all the history of mankind from ancient Athens, Rome, Byzantine empire, etc only the state had the right to issue new currency and own it (As a public good that belongs to every body, and they did no have to borrow it!). Now the private central banks own it, and force its circulation through dept.This phenomenon which is a power coup to the states from the banking system started for the first time in Europe in 1694, in London, and the bank of England. The mass media are promoting a causality of the debt crisis based on the wrong behavior and lack of virtues of the average physical persons or enterprises, even public economies, while they skip the focus to the central role of the central banks . Common sense implies that when a private minority monopolizes the issuing and ownership of money,and forces it circulation through debts, then everybody else has to borrow it that in fact the central banks are by far the main reason for periodic appearance of debt crisis every 50-80 years. For more discussion on this simple perspective here http://overdebtmonetarysystem.blogspot.com

  • Let’s not mix apples and oranges.
    SMP and OMT were supposed to “stabilize” eurozone borrowing costs (i.e. reduce bond yields/spreads) by means of targeted ECB purchases of ailing sovereign bonds irrespective of inflation, market liquidity and consumption.
    Quantitative Easing seeks to combat a deflationary spiral by injecting more liquidity into the financial system through massive bond purchases in the (dubious) hope of boosting effective demand and inflation.
    But if the bonds of an over-indebted country like Greece are included in Q.E., there is a possibility of cost-free debt relief as added bonus on the liquidity boost (which Greece urgently needs anyway), especially if – instead of purchasing marketed Greek bonds – the ECB rolls over or retires the remainder of Greek bonds in its possession.

    I therefore agree with Alexis that Greece’s exclusion from QE is something very serious for SYRIZA to worry about (if – and only if – it remains committed to Debt Relief).

    But what I find even more worrisome is Yanis’ dismissal of Q.E. as Greece’s ONLY post-election opportunity for Debt Relief.

  • Just read that Syriza insists that greek bondswil not be exempt from QE by the ECB and that the Spiegel leak is false. In any case and despite the fact that QE bond purhcases will have limited direct effect (but significant indirect if it manages to boost other eurozone economies and devalue the euro in the process) in Greece couldn’t we take cue from the German court and threaten to raise hell in the ECJ if the ECB does go ahead with the exemption. It’s worth a shot in any case as a bargaining chip.

    • Personally I think that Mr Draghi’s QE will prove marginal, if not irrelevant. It will fail to stem deflation and, instead, it will fragment further the Eurozone. As for Greek bonds, who cares whether the ECB will buy them since the bankrupt Greek state is not issuing any?

    • Only the media care as far as I am aware. They have been promoting the upcoming QE as an opportunity that Greece cannot afford to miss out and it will if certain voters don’t get their act together… Never mind that Greece cannot issue any significant amount of bonds or that local banks cannot purchase them. From that point of view it would be good if the ECB does not exclude them, that’s one piece of meaningless propaganda off the table.

  • @yanis varoufakis & @hubert marcks

    I would like to comment on an information and an assumption that are not correct. Both in Mr. Varoufakis text and partially in the line of arguments of Mr. Marcks:

    “Could the ECB legally indulge in sovereign bond purchases, as the OMT program insisted it could? That was the question.”

    That was not exactly the question. There are – legally – two questions and none of them found an answer yet:

    First: is the bond purchase violating german constitutional law? This question can and will (in the end) not be answered by the european court, but by the german federal constitutional court.

    Second question: is the bond purchase violating european law? This question will be answered by the court of justice of the european union. It can not be answered and has not been answered by the general advocate Pedro Cruz Villalón.

    The german federal constitutional court did not want to answer its first question without taking into account the opinion of the court of justice of the european union as far as it concerns european law. Therefore the german constitutional court decided an order for reference concerning the second question to the court of justice of the european union.

    Under the viewing angle of german constitutional law there is one main point and problem: democratic legitimization. As the ECB (and imho all european political entities) are equipped with none or mediocre democratic legitimization, there is a strong point in that argument. It´s a high value principle at stake, completely independent of economics and monetary politics’s, even independent of economic and monetary reality.

    Yes, the EU construction is and was broken from the beginning with no chance for economic weaker countries. But this is another problem – that should be addressed fast but not be mixed up with missing democratic legitimization.

    IF the court of justice of the european union will decide bond purchase legally under european law, then comes the interesting crucial question: what does the german federal constitutional court with this? Probably it will attune with that. But nothing is sure.

    • Very good point. We need to have democratic legitimization. If the peoples vote on giving up their current consitutiions in favor of a EU one, then the EU can decide. Until then there will be increased mistrust in the EU the more it decides without being entitled to do so or if it contradicts laws/consitutions or court ruling of member coutnries.

    • Thanks for clearing that up.
      Although, I still think that the federal government is using the legal argument – which after all hasn’t reached its final conclusion yet – to shield themselves from any accusations of driving the eurozone into the ground for ideological reasons and thereby sabotaging any serious efforts to solve the crisis in the periphery.

    • Let’s shift the position here a bit. You seem to think that “democratic legitimization” is a mandatory prerequisite to ECB bond-buying. Why ? Why would the ECB need democratic legitimization to conduct an operation that has been implicitely acknowledged as a legitimate monetary tool of major central banks the world over. If we are at it, do the National Central Banks enjoy any democraitc legitimization ? Hello ? I don’t remember voting for the chairman of my National Central Bank, have you ? Have the Germans voted for Weidmann ? … I didn’t think so ! So what, the Fed, the Old Lady, the BoJ can buy their sovereigns despite the fact that no one voted for Bernanke / Yellen, King / Carney etc. but the ECB would need democratic legitimization ? Why would that be so ?
      No, unlike Swiss-Frank, I definitely do not think Draghi or the ECB needs any additional “democratic legitimization” to do their job, as it has been redefined in the aftermath of the financial crisisby all major Western central banks. The whole “referring to the courts” is wrongheaded, imo.