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Yanis Varoufakis: Looking Back on the Global, European and Greek (post-2008) Crises: Interview with D. Polymenopoulos

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By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog

Dimitris Polymenopoulos interviewed me recently on behalf of Greek-American newspaper The Greek Star. Click here for the original source or read on…

How did the EU profit from Greek indebtedness all these years?

The implicit contract between Greece and the European Common Market, as the European Union was called back in 1980, was simple: Greece would open up its borders to northern European imports and Northern Europe would transfer surpluses to Greece. The hope was that, in the process, investment funds would also flow into Greece to support local industries thus “balancing” out Greece’s trade and capital flows vis-à-vis Europe. However, the reality was that the funds that flowed in simply inflated asset prices while, catastrophically, they came hand-in-hand with the collapse of Greek industrial facilities which were quickly purchased by northern European companies, closed down, and turned into warehouses for their imports (e.g. the white goods industry that was purchased by Siemens which then used “badge engineering” tactics to sell imported refrigerators in Greece, under Greek labels). When in the 1990s the Eurozone was being concocted, and interest rates collapsed Euroland-wide, the process sped up massively and Greece’s hitherto risk averse and debt-hating households began to borrow more, purchasing German and other northern European goods as if there was no tomorrow; funded by the flow of northern European cash that was actively seeking higher returns in the European Periphery, often resorting to predatory lending of households and governments alike.

Do the German financial sector and the German industrial sector have competing interests as a result of the crisis?

Absolutely. German banks would benefit massively from a breakup (real or rumoured) of the euro, as the inflow of capital will flood them with liquidity that, in turn, allows them to cover up their gargantuan hidden losses. On the other hand, German exporters will, naturally, suffer badly from the exchange rate appreciation that a euro breakup will bring.

The average German now thinks that they are bailing out Greece, while the average Greek thinks that the said German is trying to snuff out Greece – but this isn’t the case, is it?

No, it is not. Our very European tragedy is this dual misperception that political leaders have effected both in Greece and in Germany. The Greek bailout, just like the Irish, the Portuguese etc., was always about misleading the Athens and the Berlin Parliaments into thinking that the issue was German loans to Greece, to be justified in the context of European solidarity. The reality was, alas, quite different: The Greek bailout was all about transferring banking losses from the books of the French and German banks onto the shoulders of the Greek, French, German etc. taxpayers, under conditions that will ensure that the Greek taxpayers’ shoulders will, eventually, buckle under the inordinate pressure. Once that happens, our politicians will be celebrating the so-called OSI (“official sector involvement”; a euphemism for German taxpayer losses, supposedly in aid of Greece but in reality, a cover-up for Deutsche Bank’s and BNP-Paribas’ losses).

Has austerity ever been successful? If yes, what is the EU doing wrong?

Yes, when it is implemented in one country featuring an export-oriented private sector and in a global and regional environment of growth. E.g. Canada in the mid-1990s. Europe’s idiocy becomes apparent when it is pointed out that it is trying to impose austerity on everyone, at once, and in a recessionary global environment.

In October of 2012, the IMF’s chief economist, Olivier Blanchard, admitted that two pillars of austerity, tax hikes and spending cuts, cause more economic damage than previously thought. What does that mean for both the IMF and the IMF/EU relationship?

It means that the strains that were always there, in the relationship between Berlin-Brussels-Frankfurt, on the one hand, and Washington, on the other, are boiling up to the surface as the tremendous human and political costs of the economically idiotic policies imposed by the troika, first on Greece, and then on the rest of Europe, are becoming irrepressible. The IMF, being increasingly answerable to non-Europeans, is being forced, by circumstances, to differentiate its position and to be seen as siding with logic against the madness that is so vigorously pursued by the Berlin-Brussels-Frankfurt axis.

Are some of the IMF’s creditors starting to balk at the idea of  further financing for the Greek bailout program?

Of course. Countries, in particular, with bitter experience of the inanity of austerity at a time when the need for sharp devaluation and debt write-offs was being resisted by their creditors (e.g. Brazil, Argentina, S. Korea) are rubbing their eyes in disbelief at what they are seeing in Europe. They’re telling Mrs. Lagarde in no uncertain terms that they are decreasingly prepared to fund this sort of organized madness.

In 1929, the stock market crash showed how important it is to save banks from failing. Isn’t that what the EU has been trying to do?

No. It is one thing to ensure that the banks do not buckle under the weight of the Crash and that their ATMs carry on working. It is quite another to hand over wads of taxpayers’ cash to the same bankers, under whose watch the banks collapsed, so as to keep them in control of the banks but in a manner that condemns these banks to a living-dead existence; unable to provide credit because they are unable to borrow themselves. The EU should have done what Sweden did with its banks in 1992: take them over, cleanse them properly and then re-sell them to fresh owners (recouping taxpayers’ money in the process). The EU is simply subsidizing the bankrupt bankers in a manner that turns them into zombies, which in turn, condemn our economies to decades of a credit crunch.

Weren’t banks checked by organizations assigned to keep them from creating toxic financial products?

As in the case of Wall Street, so too in Europe the capture of regulators by the bankers was complete.

The farther back you go, the better economists understood capitalism?

Unfortunately you have a point. But this is not just a failure of cognition. The self-inflicted lobotomy of the economics profession coincided with the liberalization of the financial sector. The exponential rise in the power of finance over the rest of society required a kind of economic analysis that had forfeited any pretense to understanding really-existing capitalism. At least two generations of highly skilled analytical economists were schooled in this type of toxic economics, making a great deal of money in the process (chiefly as financial economists).

With economic globalization having made national economies interdependent, are there signs of forthcoming isolationism and protectiveness by major superpowers, who still have control over their own currency?

I do not see this, at least not yet. What we have observed is a de-coupling of economies controlling their own currencies from the rest. E.g. the different recovery paths of the US and the UK from Euro-land. Whether the failure of global capitalism to extract itself from the mire of the post-2008 crisis will give rise to protectionism and isolationism is uncertain. Perhaps the increasing energy independence of the United States, due to shale gas discoveries, will combine with Europe’s commitment to its self-inflicted stagnation to occasion a greater de-coupling. Then again, it may not as the interdependencies are cast in stone these days.

How has the European ideal suffered because of this policy? Is the Eurozone close to collapse?

Survey after survey shows that Europeans are seeing the EU as the problem, rather than as the solution to their problems. As for the Eurozone, the present policies will lead to its fragmentation with the probability tending to one.

Can/should Greece return to the Drachma? 

Such a “conversion” back to the national currency would be disastrous. Alas, the way things are panning out, it is as if Europe is engineering the end of the euro, which would force countries like Greece to return to their original national currencies, or to forge new regional ones. This will, make no mistake, be a catastrophe for the global economy as it will bring about a deflationary Germany and a stagflationary periphery; a lethal combination for a United States and a China clinging on for dear life.

What can save Greece and the Eurozone to bring back development?

Something along the lines of what Stuart Holland, James Galbraith and I refer to as our “Modest Proposal for Resolving the Euro Crisis”. Our Modest Proposal comprises four policies for addressing the Eurozone’s four intertwined crises: the banking crisis, the crisis of public debt, the dearth of investment and, of course, the humanitarian crisis that is the result of four years of dithering. Each of the four policies involves existing institutions and requires no Treaty changes, no German guarantees of other nations’ debts, no tax-funded stimuli, no Central Bank monetisation, indeed none of the commitments that Europe’s “family” is so clearly unready for.

What’s the worst case scenario?

The worst case scenario for Greece, Spain, Ireland, Portugal, Italy etc. is what I refer to as Kossovisation: the limiting case of generalized austerity that can be described as a protectorate using the euro as its currency, ruled effectively by a European commissar, terrorized by a local cleptocracy, and with its young people as the only significant export.

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33 comments

  1. John Jones

    “Can/should Greece return to the Drachma?

    Such a “conversion” back to the national currency would be disastrous.”

    I am sick and tired of this fear mongering. Greece had the Drachma before and was fine it was out of the E.U it was fine.
    If it wasent for constant talk like this Greece might of been
    out by now or atleast forced Europe to come up with a better solution.

    Know one says it will be an easy road but it is better that what has happenned to Greece. And as for the International economy why should Greece care. Know one else sure did for her.

    1. Yves Smith

      I suggest you do some analysis before offering opinions casually.

      Thanks to all the bailouts, very little if any of the Greek sovereign debt is Greek law debt any more.

      That means if Greece were to go back to the drachma, the value of its GDP would fall in euro terms, (the drachma would me much cheaper than the euro) but it would not be able to redenominate its debt in drachma.

      So its debt problem would get worse by 40% or so immediately. Social services are already collapsing and Golden Dawn is stepping into the void. You’d assure the implosion of what little government was left.

      There are other issues, like the cost of oil and pharmaceuticals, which the Greeks can scarcely buy now, would also rise by 40% or more.

      The only Eurozone country that could leave the Euro without shooting itself in the head economically is Italy. Among other reasons, it is running a trade surplus and so would not have a problem getting the foreign exchange to pay for imported goods.

      1. Hugh

        Greece is a disaster now. The question is quickly becoming how worse it could be under the drachma. The key to a devaluation is to peg one drachma to one or more euros, convert all euro loans to drachma ones on this basis, pay off all such loans with newly minted drachmas, and then let the drachma float/devalue. This would reduce Greece’s debts and return monetary sovereignty to the country. Such an exit would be best done in the early summer when fields and gardens are becoming productive and when foreign tourists might come helping the local economy with foreign exchange.

        All of this would require a change in Greece’s political classes and government, and a commitment to go after Greece’s ruling kleptocratic rich, none of which looks likely right now but one never knows.

        Greece has increased geostrategic importance with political instability in Libya, Syria, and Egypt so it has certain cards it can play both with respect to NATO and the US. Of course, NATO and the US instead of making it worth Greece’s while, might encourage the Greek military to mount a coup of its own to “save” the country.

        I do not believe in the TINA to the euro for Greece. It is more we are entering uncharted waters. The first country to make a euro exit might get the best terms, or it might get fried pour décourager les autres. But this just brings us back to our starting point. Greece is getting fried now.

        1. Yves Smith

          Hugh,

          Please reread my comment.

          You are operating from incorrect premises as to the realities of Greece’s situation.

          I’d need to do a bit of digging to see where things stand now, but as of August 2012, and Greece has had additional bailouts since then, Greece COULD NOT, repeat COULD NOT, redenominate the considerable majority of its debt. IIRC, over 70% then was English law debt. Greece has no ability to change the terms, none. Greece can change terms in the manner you suggest ONLY on debt that is governed by Greek law.

          This is a basic boundary condition that any discussion of how Greece moves forward has to acknowledge.

          And the percent that is Greek law debt has to be even smaller than it was a year ago.

          Greece also has a trade deficit, and that perversely might not narrow all that much near term were the currency to weaken (the initial J-curve of the deficit getting worse as imports become more expensive immediately while it takes a while for prospective buyers of export goods to shift their orders more to the country with the newly-cheap currency might could persist for longer than is typical). Tourism has contracted thanks to the collapse in public services. Greece’s main exported goods are agricultural. Not clear how much it can increase production.

          Greece could in theory print, but it is constrained by inflation. That’s not an issue now (Greece is experiencing modest deflation) but printing on the scale required to service much larger debt payments and finance a functioning government (as in it will take time to get the economy back on its feet and even longer to fix its broken tax system) means Greece is at risk of not just currency instability (which is a deterrent to trade and investment) but of a continuing currency slide.

          1. Robert Dudek

            Who will “force” Greece to live up to English law? All they have to do is create a new law, cancelling all the old agreements. Of course this would make them a pariah for awhile, but that will pass and the overloads who hold Greek debt wll be happy to negotiate with the Greek government as an alternative to getting nothing.

            1. Yves Smith

              Greece depends on access to international payments systems to conduct any business, including importing critical goods like petrol.

              Expect Greek imports paid for by its government to be seized to pay the outstanding debts, or tankers to be impounded, or payments over international payments systems to be diverted. There are lots of ways to force Greece into submission, fast.

              The only country that could get away with defying the Troika is a near autarky, own that was pretty much self sufficient. Greece isn’t remotely in that category.

              1. Robert Dudek

                So what you are saying in effect is that the response by the creditors would be to declare war on Greece, rather than to renegotiate the debt as recognition that a grave injustice has been done to the Greek people.

                Didn’t Argentina renegotiate its debts?

              2. Robert Dudek

                I surmise that you disagree with Yanis when he has often stated that Greece should default on its debt “within the Eurozone”.

              3. Yves Smith

                Defaulting is not the same as exiting. You’ve changed topics.

                A default would be to force a real restructuring while keeping Greece in the Eurozone. Have I ever said I opposed that? Please don’t straw man me.

                The Troika is behaving tyrannically and it’s always appealing to try to beat a bully. But Greece is in no position to exit. Italy is and just might.

                1. Robert Dudek

                  I was really focusing on your statement about most Greek debt now being subject to English Law. Please explain to me how “defaulting within the Eurozone” would not violate this English Law. As far as I understood, English Law applies to the “debt” aspect of the debate, not the “exit” part.

                  1. Yves Smith

                    They can’t redenominate the bonds (turn euro bonds into drachma bonds) under English law.

                    They could refuse to pay (default). But that would have been better done about four bailouts earlier.

                    But this is all academic since there is no willingness in the Greek political classes to play hardball.

                    1. Robert Dudek

                      Okay, I understand your position clearly now. And I agree: the political class in Greece (except for Syriza and Golden Dawn) have no stomach to play hardball with the Troika.

                      So really the interesting question becomes, how much auserity can the Eurozone countries take before sanity returns to Brussels. Greece has already taken a lot more than I thought possible, and is set for more. It seems that the two main coping stategies of the population are barter and exodus.

                    2. Yves Smith

                      Yes, it’s late, so I didn’t take the effort to look up and recap the history. But my recollection is there were several points at which the close Parliamentary votes to support bailouts were not aligned with public opinion. I can’t find great polling info quickly now, but my recollection is a lot of scaremongering was done since then, which cut into the sentiment in favor of a eurozone exit.

                      The most recent poll I could find quickly similarly showed an bit of an uptick in pro-eurozone sentiment:

                      http://news.yahoo.com/greeces-ruling-conservatives-extend-lead-opinion-polls-094643577.html

                      I’d be very interested in more current and comprehensive polls.

                    3. George Harrison

                      Greece is currently showing a primary budget surplus and a positive current account balance. Does this make a default more of an option?

                      Bank of Greece:
                      “In June 2013, the current account balance showed a surplus of €663 million…”

                      According to Forbes:
                      “… Greece is likely to secure a primary budget surplus for the year, for the first time in more than a decade.”

                    4. Yves Smith

                      A current account surplus does not necessarily = a trade surplus. The current account includes short term capital flow.

                      Greece is still running a trade deficit:

                      GREECE BALANCE OF TRADE

                      Greece recorded a trade deficit of 1865.90 EUR Million in June of 2013. Balance of Trade in Greece is reported by the Elstat. Greece Balance of Trade averaged -2394.91 EUR Million from 2001 until 2013, reaching an all time high of -1277.40 EUR Million in September of 2012 and a record low of -4247.90 EUR Million in July of 2007. Greece reports regular trade deficits due to excessive amount of imports. Main imports are: motor vehicles (13 percent), fuel (9 percent) and pharmaceuticals (8 percent). Main exports are: food (19 percent of total exports), petroleum products (15 percent), pharmaceuticals (5 percent) and aluminium (4 percent). Greece main trading partners are Germany (15 percent of imports and 10 percent of exports) and Italy (13 percent of imports and 10 percent of exports)

                      http://www.tradingeconomics.com/greece/balance-of-trade

                      As for Forbes, query what their ultimate source is. The Troika has had consistently unrealistic projections for GDP growth, and hence deficit shrinkage, for all of its subject nations. They are so wildly not credible as to be a joke, but the financial media for the most part parrots them until the data comes in.

                      Euroskeptic Ambrose Evans-Pritchard has been far more accurate. His latest on Greece:

                      Greek think tank the IOBE said Greece’s economy would contract by 5pc this year. It accused the troika of paying lip service to reform, relying instead on crude austerity to cut the budget deficit. This has proved self-defeating. The scale of economic contraction has overwhelmed any gains from budget cuts.

                      Brazilian finance minister Guido Mantega has called for the Greek rescue programme to be “revised and improved”.
                      The IMF expects public debt to spiral to 176pc this year, and has warned EMU creditor states that they will have to provide substantial debt relief to put the country on a viable path.

                      http://www.telegraph.co.uk/finance/financialcrisis/10231989/Greece-becoming-new-Kosovo-as-youth-jobless-hits-65pc.html

                      If GDP continues to shrink, there is no way Greece will achieve a primary surplus. Even the Panglossian EU finance chief Ollie Rehn is talking 2014, not 2013, for Greek austerity to “bear fruit”.

                    5. George Harrison

                      Thanks, point taken about budget projections.

                      The trade in goods and services, however, is in strong surplus right now (although it’s the middle of the tourist season), and a default would presumeably improve the income-payments account. What it would do to the Financial Account would be a different story.

                      But I agree that a default is very unlikely barring a SYRIZA victory in the next election. And not a first choice even then. And barring a default, your Roach Motel reference is quit apt.

          2. Hugh

            TINA is the position of creditors. But just because they announce it endlessly doesn’t make it so. A fait accompli can be a very effective response. The Northern banks and governments will say, “You can’t do that!” To which the reply is “It’s already done.” While the Northern banks and governments would no doubt seek to punish Greece for such a course, they would soon be having to deal with the fallout from the fragmentation of the Eurozone.

            I disagree with Varoufakis that Germany being awash in euros in the case of such a fragmentation would be a good thing. All those foreign euro deposits would ultimately become calls on the German economy and banking sector. Germany could drown in such a flood.

            Finally, others can correct me, but I believe each EZ country prints its own euros. If you don’t like a direct conversion of euros to drachmas, you could mediate the conversion via Greek created euros to drachmas.

            1. Yves Smith

              Hugh,

              Please, you need to do more homework.

              1. If Greece were to leave, the Eurozone fragmentation would already be underway. What threat is there? They’ve got no incremental leverage.

              2. Each country prints county-specific euronotes. There have already been warnings to shun Greek euros in anticipation of a Grexit, when it was more feasible than now. See:

              http://www.dailymail.co.uk/travel/article-2144713/Greece-crisis-Get-rid-Greek-euros-holiday-company-issues-dramatic-warning-travellers.html

              http://blogs.telegraph.co.uk/finance/ianmcowie/100014982/greek-euros-how-to-spot-them/

              So they would trade at the same discount as a drachma if Greece were to leave and were to try printing more.

              Plus major import transactions aren’t paid for with banknotes.

              Oh, and another wee problem is Greece would also blow up its banking system.

              See here on the mechanics and the impact of an exit:

              http://www.bbc.co.uk/news/business-15575751

              And this, from the WSJ, is a big issue:

              One of the crucial problems Greeks would face is that the country would run out of imported goods fairly quickly. Anything from pharmaceuticals to petrol would disappear, because Greece’s trade partners would not be prepared to continue exporting goods to the country under the new currency, at least not for several months.

              This was written in 2012. There are petrol and pharmaceutical shortages NOW. How long can a country function with no fuel and no antibiotics?

              And since the EU does not allow Greece to exit (it has to be thrown out, basically), and the debt as mentioned above is largely/entirely subject to English law, I’d expect the Troika to be as punitive as possible in any negotiations. They are already making it a failed state pour decourager les autres. They are not going to relent if Greece acts unilaterally. They’ll do anything they can to tighten the screws even more.

              Look, I don’t like where things are. But the time to leave was before they tied their hands with the conversion to English law bonds. They should have refused to agree to a bailout, threatened a default and negotiated an exit. They’ve passed an event horizon.

              They are now in a roach motel. You may not like hearing that but that is where things stand. See this Google frequency search for indirect confirmation. After the December 2012 34 billion euro bailout, this topic has dropped off the radar. I no longer see anyone taking this seriously as an option any more:

              http://www.google.com/trends/explore?q=Grexit#q=Grexit&cmpt=q

              1. Robert Dudek

                Yves,

                If your assesment is correct, then I can only assume that the Troika/Brussels/the creditors are acting like an enemy, not a friend to Greece. If so, wouldn’t it make more sense to look fr new friends, such as Turkey, Russia, China and even Iran?

                1. Yves Smith

                  Greece is a member of Nato. They are a de facto EU/US military protectorate. Look at how the US was able to basically order much bigger and nominally more powerful Nato members to force Evo Morales’s plane down.

                  And Iran is not in a position to help anyone right now. The sanctions are really starting to bite:

                  http://antiwar.com/blog/2013/08/09/iran-sanctions-block-needed-medical-care-marginalize-political-dissidents/

                  As with Russia, Russia was not even willing to defy the EU over Cyprus, a much smaller country in which it has much greater interest (large Russian expat community, Russian banks in Cyprus, interest in developing gas fields off Cyprus). It pointedly stood aside rather than risk fomenting geopolitical frictions.

                  I wish there was a better answer here. Greece should have defied the Troika earlier but its leaders sold them out (I won’t go into the story, water under the dam now, but we posted on the blow-by-blow of the sellout at the time).

                  1. Jose

                    There was the same “sellout” in the other periphery countries.

                    And it started long ago, long before the present crisis.

                    The first and major step in the sellout was the signing of the Maastricht Treaty (1991) that created the single currency. This decision sealed the fate of the euro periphery – the loss of monetary sovereignty transformed the southern countries in colonies, whose states became dependent on the whims of “the markets” to get the necessary financing of their expenditures.

                    Once the markets turned against them they had to rely on troika “help”. Add to this the fiscal compact (stringent, mandatory reductions in outstanding public debt, to be implemented until 2035) and it’s clear for all to see the rope that will surely strangle the periphery’s neck.

                    Losing the central bank means giving away your independence. This is the most important history lesson that the euro has provided.

                    Unfortunately, not even well meaning economists such as Varoufakis saw that at the time. MMT (the only economics “school” that formally recognizes – and analyzes – the key nature of monetary sovereignty) didn’t even exist as such in 1991. And no less a personality than Paul Krugman has admitted that mainstream economics didn’t see clearly, until very recently, that the loss of monetary sovereignty was one of the main causes of the terrible crisis of the eurozone periphery.

                    As usual, economic thought – concentrated on mathematics, blind towards institutional changes – followed events instead of anticipating them. It could provide no guidance to the peoples of southern Europe that enthusiastically and naively signed into the euro trap in 1991. A future of economic misery, mass emigration and “kosovofication” now likely awaits them, as a consequence.

                  2. Calgacus

                    Yves:Look at how the US was able to basically order much bigger and nominally more powerful Nato members to force Evo Morales’s plane down.

                    The USA did not force the craven submission by France, Austria etc. They decided to be slaves themselves. A generation or two earlier, when the US “real” power was greater, such behavior would have been unthinkable. The most potent weapon in the hands of the oppressor is the mind of the oppressed. The “leaders” of these states think of themselves as slaves of the USA and the global elites, and can’t conceive of the possibility of any other status. That is the problem.

                    I think you exaggerate the ability of the terrorist elites and states to enforce their dictates on Greece after a default. Countries with Security Council Resolutions against them manage to trade, import and export. That is a worse degree of isolation than Greece could conceivably be subjected to. Sure, there would be immediate interruptions, but after a few months, ways would be found around them. If Greece played its cards right, there would be a lot of popular sympathy for them constraining actions and making enforcement of sanctions of dubious legality harder.

                    Those are real problems, which are hard to gauge. But part of the opposition to default and drachma is based on specious logic and imaginary long term problems, like thinking that a return to national currencies would be stagflationary. Nonsense – like the idea that there is “a United States and a China clinging on for dear life.” The USA and the rest of the world, right now is working hard to create poverty amidst plenty, not “clingin on”. Return to the level of economic understanding, social technology and policy of the 1940s, and you have the biggest boom of all time.

                    I don’t think it is an academic question. Of course it would have been better earlier. Sure, it would be better to stay with a Euro run with minimal sanity. But is this really more probable than a successful Grexit? Eventually, Greek politicians who want to represent Greek interests may arise, because the Troika plan is to torture Greece forever.

                    1. Jose

                      A generation or two earlier, when the US “real” power was greater

                      It wasn´t greater, because there was the Soviet Union acting as a deterrent.

                      But it’s indeed true that The most potent weapon in the hands of the oppressor is the mind of the oppressed

                      That’s the main reason the periphery elites – including their “leftist” sectors, as well as a large part of the population – are unable or unwilling to resist the diktats of the troikas.

                2. GRP

                  The Troika represent the interests of a certain section, which may or may not coincide wth the interests of the public of any specific country at any particular time. In the case of Greece, the interests of the Greek people and those represented by the Troika are diametrically opposite. Unfortunately for the Greeks, they have no winning options. As Yves pointed out, their options today are far worse than their options in the past. It is a Greek tragedy.

              2. Saddam Smith

                I’m not an expert in these matters, but there is lots of respectable reporting in the German media about huge oil and gas reserves under Greece. This may be something that could lend a reintroduced drachma needed credibility. This article is in German, but Google translate might get the gist of it:

                http://info.kopp-verlag.de/hintergruende/europa/f-william-engdahl/die-krise-in-griechenland-und-verborgene-oelkriege.html

                This one calls the reserves “gigantic”:

                http://www.niederrheintotal.de/47/gigantische-%C3%B6l-und-gasvorkommen-in-griechenland.html

                There are of course those who argue that Greece is being broken because of its reserves, but again, I’m no expert. Perhaps the amounts are not worth enough, I don’t know…

                1. Yves Smith

                  The problem is:

                  1. It takes a LONG time to develop offshore reserves. Cyprus supposedly has them too and I believe even with being further along in exploration, they aren’t expecting to see any revenues before 2018 or maybe 2020 (anyone here more current?)

                  2. I believe some of the reserves are contested (as in the gas field is also in Cypriot territorial waters).

                  3. Greece can’t develop them on its own. The big energy co’s are deeply involved, and they are very much tied to major governments like the US and the UK. So they’d act as Troika enforcers, not Troika breakers.

      2. Jose

        Portugal has also been posting a trade surplus since the beginning of the year.

        However, unlike Italy, it’s already under the troika’s boot. That unfortunate circumstance likely rules out the possibility of euro-exit.

      3. digi_owl

        In other words, Greek national debt would be denominated in a foreign currency. Much like German WW1 reparations were in dollars and pounds. Given that Greece already have fascists running rampant, i worry what fuel such a move would add to the fire…

      4. John Jones

        (This may well be an other uninformed opinion and I apoligize in advanced)

        Yves is it not possible to declare the debt illegal or the signing of the documents by the then Greek goverment
        to put the debt into English law illegal? Either in Greek or International law?

        I mean it goes against the Greeces constitution to hand sovereignty like that over to other countries.
        The politicians who signed this and other memoranda have commited treason.

        Cant this be done at the same time as defaulting nationalizing the banks and exiting the E.U and Euro.
        Greece is never going be able to create any sort of industry or self sustainability if it is locked into the E.U and euro.

        Simply laying down and allowing their future and sovereignty to be dictated by Europe or anyone else
        or staying in begging and hoping to change the way the E.U or euro is run is not good enough
        I dont think Europe is ever going to change and form a proper economic union so what option do they have they cant just allow what is happening to them happen. All things in Greece are only going to get worse.

  2. Hugh

    One of the important attributes of sovereignty is not being bound by the suicide pacts of previous governments. This means Greece as a sovereign state or as a state reclaiming its sovereign rights can abrogate agreements which it finds to have been coerced and unjust. So yes, it can go the euro:euro:drachma or euro:drachma conversion, or complete or partial default routes. It has options. The Greek people can choose to be poor and free or poor and serfs. The troika will try to punish Greece, but then the troika is punishing Greece now. But a Greek exit, especially a noisy, messy Greek exit (I am not sure there is any other kind to this) could split the EZ wide open. So the troika, much as it might like to crush Greece as an example, might have to forego this in light of a collapsing or collapsed eurozone.

    1. Jose

      That’s a possibility.

      Another one would be for the Greek government to start issuing a parallel currency, accepted as payment for taxes, in order to pay certain government bills.

      Perhaps that would not technically violate the Euro Treaties while providing much needed short term relief to a struggling economy.

      Of course, the troika would go mad because this might at first reduce tax receipts in euros. But what could it do? Threaten to expel Greece from the euro? That would be self-defeating. For core Europe, it’s essential that no member state be allowed to leave – one single first exit might lead to the whole edifice crumbling down like a house of cards.

      I agree that Greece’s (and the other peripheral countries’) position, while apparently desperate and with no pain-free exit in sight, migh still improve if only the local elites stopped behaving like paid, meek serfs of the eurozone and decided to show a minimum of diligence in defending the national interest.

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