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Yanis Varoufakis: Europe's Faustian Bargain: On the latest attempt to resolve the Greek debt crisis and its repercussions
Alas, going through the merits of this Agreement is akin to discussing a decent plan for extending the Maginot line through Belgium after Hitler had taken Paris. In short, the horses have bolted and we are debating the merits of the new barn gates. Am I exaggerating? Read Article 7 of the agreement to see that I am not. After Article 6 states that the haircut concerns Greece and Greece alone ("we would like to make it clear that Greece requires an exceptional and unique solution"), Article 7 adds: "All other euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms." In other words, the pledges that Greece was making till now, the rest (e.g. Ireland) will continue to make independently of their capacity to meet them. This is priceless gift to speculators who love nothing more than testing such unsustainable `solemn' and `inflexible' commitments on behalf of governments and EU bodies with a long history of such declarations that are confirmed more in the breach than in the observance.

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Now, if these three steps were enough to ringfence Greece, their implementation cost would be manageable and their outcome desirable. Unfortunately, this type of ringfencing is at least a year too late. Back then, prior to May 2010, the cost of these measures would have fallen below the EFSF's €450 billion funding base. Today, the cost has skyrocketed to around €2 trillion. For it is impossible to imagine that Greece will be borrowing at 3,5% while Spain is struggling to roll over its huge debts in the money markets at more than 6%. And it is preposterous to imagine that any sensible person will be convinced by our leaders' oath that the Irish debt will not be restructured when the Greek debt is subjected to a menu of alternative haircuts. Additionally, it is mindnumbingly perverse to think that sluggish Italy can be left to the appetite of the credit rating agencies and at the mercy of the wolves of the money markets who have already scented blood coming from Rome, Madrid even Brussels itself.

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My alternative interpretation is that Mrs Merkel has gone too far down the road of the fiscal transfers that she, supposedly, admonishes. As I argued above, this new package for Greece is hugely expensive on the German taxpayer and, worse still, it creates a fresh chain reaction (in the realm of speculation) that can only inflate that cost exponentially in the coming months. Rather than bringing about greater political union, and a new resolve to homogenise debt and investment, the escalating cost to the German taxpayer will undermine Berlin's political resolve to stick to the euro.



Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 05:04:50 PM EST
As I argued above, this new package for Greece is hugely expensive on the German taxpayer and, worse still, it creates a fresh chain reaction (in the realm of speculation) that can only inflate that cost exponentially in the coming months. Rather than bringing about greater political union, and a new resolve to homogenise debt and investment, the escalating cost to the German taxpayer will undermine Berlin's political resolve to stick to the euro.

The consequences he describes could not befall a more deserving government and Germany exiting the euro might be the best way to save the euro as an instrument for countries other than Germany and the other surplus countries.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 22nd, 2011 at 08:07:50 PM EST
[ Parent ]
ABC [AU]: The Greek deal is too late: Varoufakis
ALI MOORE: Well indeed you make it sound so simple, we are out of time. But I have to ask, if you were a betting man, would you bet this will happen, or do you truly believe the system is that close to collapse?

YANIS VAROUFAKIS: There is a fundamental difference between the bet that I would place as a rational agent and the bet I would place as a sentimental agent. My sentimental bet is that it will work, because I can't even imagine what kind of postmodern 1930s we're going to end up with in Europe if the Eurosystem breaks up.

So let's stop crowing that "this couldn't happen to a more deserving government"...

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Sat Jul 23rd, 2011 at 02:41:21 AM EST
[ Parent ]
Well, the people, regardless of how they voted, deserve better from their leaders, as do the citizens of the peripheral countries, from their own governments, from the EU and from the most powerful country in the group. The sad thing is that, even after the fact, there may never be a majority that significantly understood that they need not have gone through it all.

Nor will the USA likely be spared a similar fate, given the stupidity, the entrenched corruption and the deliberately misled popular opinion here as well. Indeed, it is looking more and more likely that the Koch brothers and their hirelings in the "Tea Party" movement may provoke a default unless Obama and the Congressional Democrats completely surrender, or even if they do. The Kochs have their assets privately held and concentrated in fossil fuels and food and may feel they will "win" if they blow up Wall Street in a Cowboy triumph. But Orlov is right in that a collapse of finance will be much more dire this time than in the 1930s, so I will get back to building my garden fence, etc.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jul 23rd, 2011 at 09:00:31 AM EST
[ Parent ]
I doubt you feel that I should be sympathetic to the Merkel or the Obama governments, both of which will be fortunate to have as generous an historical assessment as has the Hoover government in the USA.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jul 23rd, 2011 at 09:10:48 AM EST
[ Parent ]
Granted, but when you say

" Germany exiting the euro might be the best way to save the euro as an instrument for countries other than Germany and the other surplus countries.
"

then you're ignoring the fallout on us.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sun Jul 24th, 2011 at 03:06:35 PM EST
[ Parent ]
Germany can exit the €-Mark with minimal fallout.

Of course "can" and "will" are two entirely different things when you have a government run of, by and for banksters and idiots.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 24th, 2011 at 03:38:39 PM EST
[ Parent ]
This stuff doesn't happen to governments, it happens to ordinary people.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon Jul 25th, 2011 at 07:01:18 AM EST
[ Parent ]
And who, besides billionaires, would not prefer avoiding the agony to having a tiny bit of consolation?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jul 25th, 2011 at 09:08:51 AM EST
[ Parent ]

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