By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog
The world seems convinced that Europe, perhaps under duress, put together a large Solidarity Fund (the EFSF) for the purposes of helping the fiscally-stricken Eurozone member-states avoid bankruptcy once they were frozen out of the money markets. The criticisms waged at this type of ‘solidarity’ centred on two issues: First, that the Fund’s size was not large enough (and thus unable to help Italy and Spain). Secondly, that this Fund resembles more a Victorian Workhouse whose real purpose was not to show solidarity to its residents but, rather, to make their life so unpleasant as to deter able-bodied workers from ever seeking its assistance.
The first criticism, about the EFSF-ESM’s size, is true but irrelevant. As I have argued from day one of the EFSF’s creation, its problem is not its size but its CDO-like structure. Turning to the second criticism, that it resembles a Dickensian Workhouse, Spain’s current predicament is instructive: To get money to give to its decrepit banks, the nation must be humiliated and undergo further fiscal waterboarding so that Italy and others are deterred from turning to the EFSF for help. In this sense, when Europe’s functionaries say that there is no need for further action on Spain since the EFSF is available to help, they are inviting the Spanish to enter the Workhouse for a life of undeserved misery on behalf of their bankers. And they have the audacity to call this ‘solidarity’ with the Spanish people.
Still, many commentators are prepared to give Europe’s leaders the benefit of the doubt. To think of the EFSF-Workhouse like the Victorians did: better than the alternative of being left on the street to perish; a place where ‘tough Victorian love’ is practised in order to refresh Europe’s puritan ethic. Well, be that as it may, I invite those who would like to think this way, to consider the following two examples with a view to establishing whether they are consistent even with this Victorian view of ‘solidarity’.
‘Solidarity’ Exhibit A: Forcing more loans upon the bankrupt
As I wrote in a Le Monde article recently, the bankrupt Greek state was recently forced, by the troika, to borrow 4.2 billion from the EFSF so as immediately to pass it on to the European Central Bank (ECB) so as to redeem Greek government bonds that the ECB had previously purchased in a failed attempt to shore up their price. This new loan boosted Greece’s debt substantially but netted the ECB a profit of around 840 million (courtesy of the 20% discount at which the ECB had purchased these bonds). Is this ‘solidarity with the fallen’, even of a Victorian Workhouse type?
‘Solidarity’ Exhibit B: Taking money from the bankrupt to invest on behalf of prosperous countries
When the 2nd Greek ‘bailout’ was agreed, you may recall that the Finnish government asked for guarantees, for collateral, that would reduce its exposure to Greece. The Greek government conceded, promising collateral of 925 million in value. One might have expected that the said collateral would come in the form of some assets (e.g. Greek government owned real estate). But no! Helsinki would have none of that. Instead, they demanded… cash! And cash they received. Last month, in May 2012, Athens wired 311 million to the Helsinki government, as a first installment. My sources here in the United States tell me that the Finnish government is now seeking to invest this money in joint ventures with US and other European firms. Now that is what I call solidarity with Greece…
To conclude on a sad and desperate note, I would like to call upon northern European governments to cease and desist from more ‘solidarity’ offerings to our fiscally-stricken, fast impoverishing nations. Your ‘solidarity’, your ‘tough love’ is killing our proud nations and, in the process, destroying Europe’s moral, political and economic fabric.