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Exit strategies

by melo Wed Dec 31st, 2014 at 08:04:33 AM EST

There is some technical stuff here beyond my parsing ability, so I offer this LQD as food for discussion.

Happy New Economic Year to everyone, maybe this coming year we can get the Euro to play nice in the face of so many voters who have lost faith in the whole European Project because of continuing bad faith exhibited by the Austerity-merchants of Death aka the ECB and the Banksters.

Beppe Grillo's Blog



After a third failed attempt to elect a new State President, Greece is now required to hold a general election on 25 January. The Greek share market responded by dropping 20% of its value in the past two weeks and the yield of their ten-year public bonds shot up to 10%, the highest level seen in the past two years.

Media terrorism
What better occasion for our regime media to serve up some terrorism "a la matriciana" against Italy's exit from the Euro. After all, we too have to elect a new State President under conditions that are anything but simple.

More below...


 

And here by us too, the spectre of elections is often bandied about opportunistically by highlighting the risk of an increase in the spread should the anti-Euro movements be successful. In essence, this is much the same plan that King George used to impose the Monti Technical Government's austerity programme on us back in 2011 without holding any election. It remains incredible to think that the mainstream media here in Italy have gone from totally ignoring the Euro as the main cause of the Italians' problems to now warning us about the impossibility and the cost of exiting the Euro. And what about what is involved? Shouldn't we talk about the cost and what is involved in staying in the Euro? Are we now, after seven years of crisis, actually going to think about this Plan B? The very same establishment television newsmen that ignored the issue of the Euro in their sitting rooms from their lofty position of ignorance are now suddenly taking cues from any European geopolitical event to warn us about what the cost of exiting the Euro would be. That's why they first totally avoided doing any detailed analysis of the Scottish referendum and then they jumped on the bandwagon of the Russian crisis in order to frighten the Italians (very soon they will note that the 'autonomy of the Russian Central Bank will allow Russia to come out of it stronger than before.)
Now it's Greece's turn to be used as the scarecrow according to the following theory: if the probable victory of Syriza, with his request for debt restructuring, has already led to serious instability in Greece, you can just imagine what would happen in the Euro-exit scenario pursued by the M5S via their request for a referendum.

Italy and Greece out of the Euro!
The reality is precisely that the Greek situation confirms the opportuneness of Italy exiting from the Euro. How can Tsipras even think of reviving his country while keeping the Euro? How does he think he is going to set interest rates in his country without first giving Greece back its monetary sovereignty? In 2015 Greece will have to come up with debt repayments amounting to some 15 billion Euro to private investors (mainly foreign banks). Tsipras is preparing to win the election based on a promise to repudiate the debt and the austerity programme but without getting out of the Euro. This is a contradiction, indeed it would be suicide. Repudiating the debt will not resolve Greece's problems, the only way to make their problems more manageable would be to reinstate monetary sovereignty. That is why the markets have responded badly, because Tsipras' `Euro confused' recipe, so heralded by the Italian left-wing during the European election campaign, is the worst thing the country could hope for. Repudiating the debt without editing the Euro would mean souring the relationships with the country's European partners without having any say in the matter and above all without having the monetary tools with which to actively manage the crisis.
Exiting the Euro is not an end in itself, but is merely a way to regain the monetary sovereignty that is essential in terms of reviving the economy. This is why the fears of capital flight and lack of liquidity from the BCE to our banks in the event of our exit from the Euro are unfounded. Italy's exit from the Euro must be accompanied by three essential measures to prevent possible market chaos:
1. Abolition of the `separation' between the Italian Central Bank and the Treasury.
2. Introduction of portfolio limits that specify a minimum amount of government bonds that must be held by our banks.
3. Restrictions on all capital outflow from the Country.

Single monetary sovereignty out the door.
With all due respect to Andreatta, who conceived the beginning of Italy's suicide back in 1908 with the introduction of separation, the exit from the Euro will first of all put the neo-liberalist dogma of Central Bank independence up for discussion. Abolishing the separation will mean monetising the deficit, in other words enabling the Italian Central Bank, no longer independent but at the service of government's economic policies, to print money and support public investments that support demand. A more or less coordinated exit backed by the aforesaid measures would make Italy totally impervious to external affairs. The liquidity currently supplied by the BCE would go to the Italian Central Bank and above all the latter would be responsible for monetising the deficit. The BCE is awaited at the door of quantitative easing by a hostile Germany, as hostile as all creditor countries generally are, waiting to see the BCE purchase peripheral public debt, seeing that 30% of the BCE's capital is German. So the latest rumours about a compromise see QE being handled by National central banks with their respective governments standing surety in the event of insolvency. But what is the point of this? Once again we are allowing that which we just threw out the door to creep back in through the window. In 2012, right in the midst of the sovereign debt crisis and with our spread at almost 700, the BCE came up with the LTRO, very low interest loans to our banks, so as to enable the banks to buy up Long-term Government Bonds that the BCE and Italian Central Bank could not by in terms of the Charter. Now they want to come up with QE that is not actually QE because it would be brought in leaving each member country bearing the risk of insolvency without the risk being shared in any way. Once again, what is the point of this? Rather give us back our own Central Bank, our own seignorage and our own currency and we will know exactly how to get it through to our families and how to make our public debt sustainable. For our foreign creditors, devaluation of our new Lira and exiting from the Euro is equivalent to restructuring our debt, something that Tsipras refuses to understand.
Exiting the Euro and debt restructurings, there's simply no other way.

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Yeah, well what is needed is a central bank that backs the debt with the printing press and does not hold the government hostage. This could be ECB (though it looks unlikely) or it could be a national central bank.

I am also worried if Syriza gets it, if they have a plan or not. I hope they have plans with contingency plans for different scenarios, and are keeping them secret because Greece has a far worser position then Italy, but I worry that they don't.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Dec 31st, 2014 at 08:46:02 AM EST
Yeah, well what is needed is a central bank that backs the debt with the printing press and does not hold the government hostage.
 

One should point out, that this only works if you sell your debt in your own currency.

by rz on Wed Dec 31st, 2014 at 10:16:27 AM EST
[ Parent ]
Currently the neo-liberals (including the soc dems) and the hard-left share a unified view of the world.

This is mostly a view exposed by Christianity based on the idea of one-size-fits-all. We are better united and so. This mostly a view that diversity is bad (diversity requires a measure of autarky). Real diversity: not pseudo-diversity that the bobos say they like.

The hard-left and the neo-liberals, for all their modernism are channelling a very old idea.

This is why Tsipras is not a solution (or Podemos): they believe more or less in the same thing as the neo-liberals, just with a different taste. While I like the idea of halting the system, SYRIZA is not any kind of sustainable solution.

Anyway, Beppe seems to be smart (or at least surrounded by smart people - even better). Bring the Lira back. Accept that the central bank is nothing more than a political entity.

by cagatacos on Wed Dec 31st, 2014 at 01:27:13 PM EST
"Currently the neo-liberals (including the soc dems) and the hard-left share a unified view of the world.

This is mostly a view exposed by Christianity based on the idea of one-size-fits-all. We are better united and so. This mostly a view that diversity is bad"

Er, no. You tend to benefit far more from being united when you are different and complementary, otherwise it's just economies of scale (at best) and maybe dis-economies of scale.

But Europe is not united, its markets are (plus things like the European Court of Justice, which is not an EU institution anyway). It is engaged in massive internal competition between countries without any of the stabilisation mechanisms to compensate.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jan 1st, 2015 at 03:35:33 AM EST
[ Parent ]
I think people are forgetting that in 2012, as part of the austerity agreement, Greece was promised a debt rescheduling if they achieved a primary surplus.

Greece achieved that surplus 1 1/2 years ago.

This is why Syriza's "debt repudiation" is being miscast in newspaper's everywhere. In reality, Syriza's stance on debt is for the troika to fulfill their promises to Greece.

by Upstate NY on Wed Jan 7th, 2015 at 10:55:20 AM EST
[ Parent ]
I think the Austerians have had their fun, but someone needs to rein them in. Only having their Euro-toy currency threatened with total failure is a serious enough challenge to their sense of historical accountability to budge them from their thrones.

Like in fairy tales, where only courage to name the dragon can make his power crumble.

Their power is an illusion, and needs to be revealed as such.

As Jake used to say: 'What are they going to do, send in the gunboats?'

(Sorry if I misparaphrased you Jake!)

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Dec 31st, 2014 at 05:32:38 PM EST


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