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Yanis Varoufakis on Ringfencing Europe

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Yanis Varoufakis gave an energetic, pointed, and insightful talk at the INET conference in Berlin. His message was that the efforts by European authorities were misguided, in that they were seeking to ringfence individual countries, when it was the Eurozone as a whole that needs to be shored up. And he contends this can be done now without special approvals.

This talk is the antithesis of airy-fairy. For instance, consider these observations at around 5:30:

First, we have to accept that the ECB will not be allowed to monetize the debt, whether we would like it to do so or not, that there will be no EBC guarantees of debt issues of member states. There will not be any ECB purchases of government bonds in the primary market. And there will be no leveraging of the European financial instability mechanism, ah, stability I should have said.

The second major assumption that I wish to make is that again, whether we like it or not, surplus countries will not consent to the issue of jointly and severally guaranteed Eurobonds. For good reason, in many ways. Since the yields, the interest rates that these bonds will fetch will be the weighted average of that which Germany and the Holland on the one hand and Greece and Portugal on the other will achieve, these Eurobonds will have interest rates that will be too high for the surplus countries and and not low enough for the deficit countries.

Thirdly, federation is not the solution. It may be a long-term objective for some of us, but we’re not ready yet, and it should not be an attempt to fix the Euro crisis.

It is worth noting that one of the questions after the various presentations on the Eurozone mess raised the issue of the “democratic deficit”. The various speakers endorsed the idea of getting public approval, but they implicitly or explicitly acknowledged that it would be after the fact. Erm, so since when do you approve a fait accompli?

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25 comments

  1. Hugh

    Just to remind. The Eurozone has 6 problems that need to be dealt with together.

    1) Lack of a democratic fiscal and debt union
    2) An ineffective European central bank
    3) An insolvent predatory banking sector
    4) Unsustainable mercantilist trade patterns
    5) Corrupt political classes
    6) Its kleptocrats

    My slow connection prevents me from analyzing further what Varoufakis has to say, but in the past he hasn’t addressed most of these. And anything short of doing so is really just more can kicking which, of course, favors the kleptocrats and continuing the looting.

    1. mac

      I am not sure about this guy, but most of the wizards do a really good job of describing the problems and the likely results, BUT come up with no practical solutions, by that I mean those which will work AND can be bought in to by all the proper parties.

      1. Toasted Is Toasted

        I’m not sure which ECB this guy has been watching, but his concern about them not buying sovereign bonds in the “primary” market has already been circumvented by the ECB lowering the collateral quality they will loan against and are giving banks 1% 3 year loans for any quality sovereign bond the bank cares to pledge as collateral.

        So all you need is a bank to really go under or another sovereign default and that loan is “monetized” forever.

  2. okie farmer

    Actually, Hugh, Varoufakis’ proposal does address all the problems. Getting rid of kleptocrats will never happen anywhere, but sidelining them is possible. Corrupt political class – bypass them in his proposal. He calls on three existing European institutions, the ECB, EIB, and the EFSF, to act together to restructure the crisis in the EZ by doing what they are already empowered to do.

    Why won’t they do that? Because they adhere still to the intellectually bankrupt neo-liberal religion. They are particularly intent on liquidating labor, so austerity is imposed in such a way that the burden falls on the working classes and not the irresponible financial sector.

    1. Hugh

      Sidelining the kleptocrats? It’s the kleptocrats that are calling the shots. Who do you think are the bondholders for whom whole states, including Varoufakis’ Greece, are being sacrificed on the bloody altar of austerity? Who do you think owns the politicians who are telling the ECB and EFSF what to do, and more importantly what not to do? Neo-liberal ideology is just a convenient screen for looting.

      The problem with all these “solutions” that don’t address the core issues is that they are playing at musical chairs. They posit as a premise that some or most of the fundamental problems I listed above have somehow bee magically resolved. So apparently from what you were saying about Varoufakis. His solution presupposes that the kleptocrats can be sidelined and that entities, like the ECB, which do their bidding will suddenly start acting independently. Not. going. to. happen. Sure, it’s all very reasonable and only depends on large amounts of pixie dust to work. What could go wrong?

      1. psychohistorian

        Nice comments okie and Hugh.

        So Hugh, who “owns” those kleptocrats? Could it be the global inherited rich that I keep trying to bring back into the picture?

        And okie, that burden on the working class. Isn’t it more like a sick global population control mechanism? That race to the bottom seems like social genocide to me, all at the whim of capital controlled by the global inherited rich.

        If we are going to return to something as a country, how about if it is the original motto of E Pluribus Unum.

    2. Jim

      “Why won’t they do that”?

      Because it would be undemocratic. The northern European countries in general, and Germany in particular, want LESS Europe, not more. All public opinion polls indicate this.

      Why is it so difficult for overpaid Eurocrats in Brussels to acknowledge that their experiment has failed and that a dissolution of the Eurozone is the best path possible?

      1. Toasted Is Toasted

        Germany has been quietly working themselves into the position where they could exit the Euro, and maybe the EU, but they may not have to exit the EU because other countries in the EU have their own currencies.

        Germany did already set up a bad bank where they bailed out German banks on their own at German taxpayer liability. They just authorized more funds for this.

        So the big surprise may be seeing Germany bail and go on the DM – leaving sort of a donut or croissant shaped eurozone.

        This way the German taxpayer is just paying off German kleptocrates.

        Economists will wring their hands saying evil mercantilist Germany (with high pay, big social net, good environment, healthcare and education expenses) won’t be able to sell to Greece anymore. Germany will say they will tough it out.

        Economists will say – how can we get money in and out of Greece then? Germany will say – there is no good way if there is no Greek productive economy to speak of now.

        The rest of us can wonder how this little gotcha always seems to elude a roomful of economists.

  3. Swedish Lex

    Thanks Yves,
    The involvement of the EIB, with financing from the ECB, goes back to what we discussed a couple of years ago; the creation of an EU (as opposed to Member State) war chest to kick-start new and massive investment in infrastructure. Such infrastructure would first and foremost be renewables, which would get citizens’ approval and acceptance of the EU’s response to the crisis (thusly the opposite of what we have now).

    1. Ignacio

      I like that. If you sum investments in renewables (and others) with some consumption de-repression in the eurocore that would help a lot to resolve imbalances and promote growth in the eurozone as well as reducing skyrocketing unemployment in the eurozone. Why these simple and sensible recipes are not applied? Why policymakers are not engaged on these policies? Why incentives are focused only on the lender side of the economy? Why there is a conservative take in all european countries, and why this populism at the nation level translates in a cacophony and lack of ideas at the EU “federal” level? Should conservatives of Spain or France get along well with german or dutch conservatives?. Why they don’t? Even mediterranean conservatives confront themselves despite the migth share interests.

      The problem is that all conservatives engage in the prosperity through competition stupidity.

    2. Carla

      This is also what Kucinich was trying to do in the US with the NEED Act, and what Ellen Brown is trying to accomplish here with Public Banks at State and local levels. The first Public Banking in American Conference will be held April 27-28 in Philadelphia: http://www.publicbankinginstitute.org.

  4. The Dork of Cork

    I simply don’t trust this European experiment , there are strange forces behind it.
    First (1970s) they came for our small farmers and they were wiped out using fiscal subsidies for the larger farmers ,then they came………..
    There is a poltical objective to its economic policey.

    This is using the crisis to centralise power even more making the EIB a quasi fiscal authority as far as I can see.

    The remaining countries do still have some monetary power – as far as I can gather they can produce base euros & credit them to accounts (it happened with the Anglo mess in Ireland)
    Why can’t they credit base euros to each person ?
    It will bring down this Soviet but I want to see this fall to be honest.
    The Euro is a manifestation of pure evil in my opinion.
    My country has been destroyed post 1987 ……. it is a unrecognizable mess.
    I want nothing more to do with it.

    1. Jim

      The vast majority of voters in northern European countries agree with you.

      Regrettably, the flunkies in Brussels believe that they know what’s better for the people than the people themselves.

      Or perhaps these flunkies have so much personally invested in this failed experiment that they won’t acknowledge the obvious.

  5. JurisV

    Yanis’ presentation was very clear. solid, and realistically bold. His clever plan is something that can been done within current EU agreements — and done NOW ! His view is generally that there is little time before the crisis explodes; with little time for altering the founding documents of the EU.

    He pretty much covered all the various options for a solution to the Euro crisis — the usual ones — and dismissed them for the short term because they were not feasible except in the longer term. The reason was that they require changes to the EU agreements and those changes, while ultimately necessary, are going to require lots of time for political agreement.

    He was, in my humble opinion, one of the bright lights at the Conference.

    1. Susan the other

      I agree. I feel like western banking has been MMT all along but without the proper vocabulary. And using all sorts of privileges and dodges. Yaroufakis is doing one thing only here, he is literally buying time. To keep the EU from being overtaken by events which can only be accelerated by austerity. His solution sounded perfectly logical and in keeping with the existing powers of the EU financial institutions. A mere question of vocabulary? Not sure if we are yet talking about the politicalization of finance or the financialization of politics, but I am pretty sure the material object in question is at least a 50 year bond mechanism and a sane (affordable) fiscal investment policy.

    2. Jim

      JurisV, what happens if the Yanis plan is executed, and one year later Spain and Italy decide to leave the Eurozone, pay 20 cents on the dollar, and reintroduce their old currencies.

      Who gets left holding the bag?

      1. JurisV

        The question really is one of what will anyone have if the system blows up? Right now it looks to be heading toward a chaotic crash. I see Yanis’ ideas as a transitory safety valve (an emergency brake on the careening bus) while the powers that be keep talking and working out fundamental reforms for the EU. Chaos is not anyone’s friend, but that is where the bus is currently headed — following the can that’s being continually kicked down the road. Yanis has proposed a rational intermediate life-preserver for the Eurozone.

        With a chaotic crash the question of “who’s left holding the bag” will be the least of anyone’s concerns.

  6. Gerald Muller

    I think that any solution that leaves the euro intact is a doomed one. The euro, as alreayd said, was a vicious/diabolical invention. As Cato the old used to say at the end of any of his speaches: Delenda est Euro!
    The most precious thing a man owns is his liberty. The euro has taken away a lot of the liberty of Europeans. It must be destroyed. Period.

  7. Gerald Muller

    I think that any solution that leaves the euro intact is a doomed one. The euro, as already said, was a vicious/diabolical invention. As Cato the old used to say at the end of any of his speaches: Delenda est Euro!
    The most precious thing a man owns is his liberty. The euro has taken away a lot of the liberty of Europeans. It must be destroyed. Period.

  8. Hugh

    Isn’t Varoufakis echoing the Soros plan for the EIB and as the Dork of Cork points out isn’t this just control of the Southern economies by Germany/France (through the EIB, ECB, etc.) by other means?

    1. Toasted Is Toasted

      It would take more than a few minutes to analyze and digest his speech – which I haven’t – but at first pass there is not much to argue with his assesment of the facts on the ground -just the parts that are supposed to be new and different “solutions” – and are we really NOT relying on ECB monetization(or it’s softer 10-100year bond buying version)and are not relaying on external funds to somehow jump into his new Eurozone Ring Fence(not from China again?!)

      One of his areas he is trying to address is the trade deficit/surplus/imbalance/competiveness/ problem – without using the conventional econ fixall of separate floating currencies.(which is not such a great fixall IMO)

      He implies EIB funds go south (I’m not sure if this is loans, equity stake, Chinese, er, foreign investment, or just plain spending with no strings attached and euro taxpayers pick up the tab)

      Then somehow this money is spent in the south on some revenue/job creating activity – but no external purchase of goods, services or equipment is necessary because that woul cause a trade deficit!

      My gut tells me I need to see the sequel to this speech for more info.

    1. Christophe

      What’s in a name? Perhaps I should have seen this day coming, but how could I have guessed, while naively arguing against corporate property rights overreach, that I would one day pathetically covet that control of my own imagined property rights? Alas, my imagination betrayed me, and I never even thought to trademark the Christophe handle. Oh, wicked, wicked fate to rob me of my identity so mercilessly!

      Or is it more like discovering you have a twin who was separated at birth? Or a twisted alter-ego writing all the things I dare not. Or am I the alter-ego, typing this to confuse me? Now I’m really confused.

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