Yanis Varoufakis: Ponzi Austerity – A Definition and an Example

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

For a while now I have been arguing that Europe’s policies for reducing the public debts of fiscally stressed member-states can be described as a Ponzi austerity scheme. In this post I attempt precisely to define ‘Ponzi austerity’.

Ponzi Growth

Standard Ponzi schemes are based on a sleight of hand that creates the appearance of a fund whose value grows faster than the value that has come into it. In reality the opposite is true, as the scheme’s operator usually helps himself to some of the incoming capital while the scheme is not managing to create new capital with which to replenish these ‘leakages’, let alone pay the returns it promises. The appearances of growth that does not really exist is, of course, the lure that brings into the scheme new participants whose capital is utilised by the Ponzi scheme’s operator to maintain the facade of genuine growth.

Ponzi Austerity

Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds). As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction.

Ponzi Austerity’s Inventor: The Eurozone’s Great and Good

Ponzi growth has been around for yonks. But it took the collective wisdom of Europe’s great and good to create the first Ponzi austerity scheme. The Greek, Portuguese, Irish, Spanish and Cypriot loan agreements were the first ever examples of such a scheme. Bankrupted states, in a death embrace with bankrupted banking sectors, were forced to take in ever-increasing capital inflows (from the IMF, from the ECB, from the EFSF-ESM, shortly under the ECB’s OMT threat) on condition of belt-tightening austerity. As the scheme progresses, more capital is coming into it, debt-to-GDP ratios actually grow (just as in Ponzi growth schemes the value of the total fund is depleted) and, therefore, even more outside capital has to be brought in in order to maintain the pretense.

Ponzi Austerity’s Worst Example (*)

It is Spring 2012. The Greek government had collapsed under popular anger at the nation’s sad state and a new election is due in May. A left-wing party that advocates rescinding the bailout agreement was rising fast in the polls and the troika suspended the disbursement of loan tranches to Greece in response. Unnoticed by almost everyone, this episode represented a sinister moment when the EU asserted the right of its executive to intervene directly in the democratic process of a member-state. Unelected officials in Brussels concocted a ‘right’ to suspend unilaterally an international and intra-European loan agreement, on the basis of their assessment of which political party was and which was not ‘acceptable’ to form government in a member-state.

The caretaker Greek government was left with no alternative than to suspend its own payments to Greek institutions and individuals. Hospitals, schools, wages, pensions all diminished fast. But the concern of the great and the good was about Greece’s debt to our… ECB. You see, a year before, in an ill-fated attempt to shore up Greek government bonds, the ECB had purchased a bunch of them, at low, low prices. The ploy failed, as did Greece. Regardless, the ECB held these bonds and they started maturing. Had they not been purchased by the ECB in 2010, they would have been haircut together with the rest of the bonds in private hands a few months earlier, in early 2012. But no, the ECB cannot accept write-downs from member-states because it is against its charter which prohibits it from financing member-states. So, the caretaker Greek government, while putting Greece’s social economy through the wringer, had to find €5 billion in a few days to repay the ECB for one of these maturing bonds. But remember: the troika was not lending it any more and nor was anyone else.

The obvious thing to do, under the circumstances, would be for Athens to default on the bonds that the ECB owned. But this was something that Frankfurt and Berlin considered unacceptable. The Greek state could default against Greek and non-Greek citizens, pension funds, banks even but its debts to the ECB were sacrosanct. They had to be paid come what may. But how? This is what they came up with in lieu of a ‘solution’: The ECB allowed the Greek government to issue worthless IOUs (or, more precisely, short-term treasury bills), that no private investor would touch, and pass them on to the insolvent Greek banks. The insolvent Greek banks then handed over these IOUs to the European System of Central Banks (through the so called ELA program of the ECB) as collateral in exchange for loans that the banks then gave back to the Greek government so that Athens could repay… the ECB. If this sounds like a Ponzi scheme it is because it is the mother of all Ponzi schemes. A merry go around of Ponzi Austerity which, interestingly, left both the insolvent banks and the insolvent Greek state a little more… insolvent while, all along, the population was sinking into deeper and deeper despair. And all that so that the EU could pretend that its idiotic rules had been respected.

This is but one example of the vicious cycle of Ponzi Austerity that is being replicated incessantly throughout the Eurozone. Its stated purpose is to reduce debts. But debt is rising everywhere. Is this a failure? Yes and no. It is a failure in terms of the EU’s stated objectives but not in terms of the underlying ones. For, in reality, the true purpose of the ‘bailout’ loans was to effect a cynical transfer of the Periphery’s bad debts from the books (mainly) of the Northern European banks to the shoulders (mainly) of Northern Europe’s taxpayers. Sadly, this cynical transfer, effected in the name of European ‘solidarity’, led to a death dance of insolvent banks and bankrupt states – sad couples that were sequentially marched off the cliff of competitive austerity – with the awful result that large sections of proud European nations were dragged into the contemporary equivalent of the Victorian Poorhouse.


(*) This example comes from my recent talk entitled The Dirty War for Europe’s Integrity and Soul

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  1. kimsarah

    It’s hard to get a grasp on just how large this mother of all world ponzi schemes is. But calling what is happening a ponzi scheme makes perfect sense, because both ponzi growth and ponzi austerity are occurring now at the same time. The money grubbers can never be satisfied, and keep turning over new stones looking for fresh blood. The widening disparity between the super rich and the growing poor and of bankrupt cities is proof.
    On the growth side, it’s just banks and governments shuffling bad debt among each other and selling the junk bonds to new sucker investors. This article explains how Europe is suckering in American investors:
    Ireland has already paid its price to get out of a hole, yet is back in it again. Greece is worse off, and soon Spain and Italy will be blood-sucked dry. Not to mention France and England as soon as their populations have nothing left to give.
    With nothing real to support this ponzi scheme, it will only get uglier as the players get more desperate. Best place to put your money is under a mattress, which is pretty much what cash-accumulating and non-investing companies are now doing.

  2. DakotabornKansan

    I am reminded of David Graeber’s Debt: The First 5000 Years, where “the struggle between rich and poor has largely taken the form of conflicts between creditors and debtors – of arguments about the rights and wrongs of interest payments, debt peonage, amnesty, repossession, restitution, the sequestering of sheep, the seizing of vineyards, and the selling of debtors’ children into slavery.”


    We live in an age of financial tyranny.

    “For me, this is exactly what’s so pernicious about the morality of debt: the way that financial imperatives constantly try to reduce us all, despite ourselves, to the equivalent of pillagers, eyeing the world simply for what can be turned into money – and then tell us that it’s only those who are willing to see the world as pillagers who deserve access to the resources required to pursue anything in life other than money.” – David Graeber, Debt: The First 5,000 Years

    “There are two ways to conquer and enslave a country. One is by the sword. The other is by debt.” – John Adams.

    “Economics’ lack of moral sense is not only dangerous, corrupting our sensibilities, but prevents it from understanding the social reality it pretends to describe. It starts from the false premise that human beings are best viewed as self-interested actors calculating how to get the best terms possible out of any situation, the most profit or pleasure or happiness for the least sacrifice or investment.” – David Graeber

    What does it mean when we reduce moral obligations to debts?

    “About the only thing we can imagine is catastrophe.” – David Graeber, Debt: The First 5,000 Years

    1. Banger

      I don’t “believe” in economics at all I believe in culture. We are in a situation where we have a confused and highly diverse system of values. Economics rises to the top of the hierarchy of knowledge because of this fact. The cure is not to despair at the malfeasance of the rich and greedy oligarchs but to develop a value system that puts a tool (economics and money) in its proper place which is in a toolbox so we can pursue goals like happiness, love, knowledge and so on. I believe this is what we are called to do, above all else–the revolution has to come in the culture through a deep change in moral philosophy.

      1. anon y'mouse

        don’t buy it.

        sorry, just don’t.

        what do you think ‘most’ people believe that they ARE already doing? most people, even as they laud celebrities (more of a shared identity/vicarious living thing: “he’s just like me, and he’s rich & famous therefore my strange tastes in music must be OK”) and want ‘nice’ consumer objects are still following the values of love, family, friendships, happiness and so on.

        the fact is, money is portrayed as being able to have the power to obtain these things. obtaining “knowledge” has the added bonus of making you more employable. becoming “happy” means being able to do small things (usually involving spending money) on your kids, going to restaurants with your friends (money!), having enough free time to engage with your hobbies, etc.

        you are always reducing the values that you believe people in this country hold down to “rich = blessed” and while I don’t deny that this is true, you seem to miss the entire point of WHY people believe this.

        I hate to induce reading of romance-novel dreck, but please re-read your Gone With the Wind, and pay special attention to Scarlett O’Hara. her underlying motivations are to become rich so that she can be secure enough to do as she likes. that is half the equation. the other half is what most people want to use that ‘security’ to do what they like for—which usually involves family, friends, health and so on.

        unless you untie the one without the other I don’t see how you can instill something like that. a lot of people simply ‘work hard and hope for the best’ while using what pittance they get while working hard trying to build up or maintain the values that they uphold for family, friends, etc. (your ‘social connection’ or coming together).

        unless we can build security away from the symbiotic/parasitic organ we’re attached to, I don’t see it happening. the problem is, it looks like we shall have to go through the fire (absolute insecurity) to get there.

        I mean really, you think given the option most people would CHOOSE this system? that very lack of a secure alternative is what keeps most people tied to their bedside alarm clock.

        1. Banger

          I deal with reality I see before me every day in the world. Most people in the West certainly just try to get by in a state of alienation which is so familiar it seems normal. Drugs, mass entertainment and the lies of the media sustain them in one day a time with hopes of one kind or another. But we live in an age where most information is easy to get and various intellectual frameworks from the past few thousand years are all available which, in turn, cannot be evaluated because we lack a way to assess not only what is right but what is true.

          I say people need a moral/intellectual/metaphysical framework to navigate the present and the future and that need is paramount. Most Americans, for example have little interest in left-wing perspectives and knot just because the oligarchs don’t allow such a perspective airplay. If people were dissatisfied with the current system they would look at alternatives. Instead people look to the right instead of the left when the going gets rough. Even the French and Russian revolutions turned to some variant of fascism when things got rough.

          I don’t really get what your objection to what I have to say is other than you don’t like me to say that the revolution needs to be on the moral and cultural level–if you could articulate an alternative approach other than some variant of “down with the bosses!” (as I like to say, you and with what army?).

          1. anon y'mouse

            my objection is: people have the values you state they do not. they are indeed tied up with the economic values, part and parcel. most people do not value greed or the greedy, yet they are ready to say that someone like Steve Jobs deserves every billion he gets because he ‘earned’ it.

            they can’t untie their own need for security, health, family, friends and so on (which all require some measure of wealth) from the system. they have internalized a “if you work for it, it will come” religion. what comes is not money itself, but the things that having money (security, really) symbolize.

            I think the main refusal to adopt ‘leftist’ values is because leftists have not offered security, redemption through hard work to a so-called Promised Land of milk and honey. what leftists -tend- (ok, dangerous generality zone–whoopwhoop!) to say is “we have be become ascetics” and that there is no redemption at the end of the road for this.

            the individual, who wants money only for what it can buy (security, health, family, friends, community, safety, etc.) is not comforted by this vision of throwing away your sandals and walking among the dejected outcasts, and eating ashes and so on.

            just trying to get to the heart of the matter here. economics is the rational/mathematical/scientific expression of the underlying religion (culture, you say. I say religion at this point because we’re talking ingrained moral values to the point of programmed belief underlying conscious thoughts and motivations. “culture” is so broad that it includes this, but is not specific enough here. “ideology” is closer, but sounds too rational for what we’re talking about here. most of this was not consciously chosen, just a part of the “culture”. who knows, perhaps -I- am confused about my own points. nevertheless…)

            you and I still apparently disagree about how we got to this state. economics did not just magically arise, like foam on top of the culture. this website has given details that it was concocted, like much else in our society. that it could be woven in with that society’s underlying culture was probably not a mistake (our culture driving to its end logic, as I think you are saying) but it was also not spontaneously nor intentionlessly done.

            what you are giving is the “Invisible Hand” of the culture/value system. I just keep saying it wasn’t an unguided hand. quite a bit of it has always been imposed from above—all the way down from the high priests being the right hands of the kings in nearly EVERY early culture you could name, from before the Egyptians on down.

            a quote from an article linked on the front page today might be apropos here in outlying what I -mean- to say:

            “The paradox of a large majority of Americans qualifying as operational liberals while at the same time a majority hold to a conservative ideology has been repeatedly emphasized in this study. We have described this state of affairs as mildly schizoid, with people believing in one set of principles abstractly while acting according to another set of principles in their political behavior. But the principles according to which the majority of Americans actually behave politically have not yet been adequately formulated in modern terms …”

            what does that tell you? that the value system of The People in general is not far of from the ‘leftist’ perspective, but is schizophrenic–it wants what it doesn’t want. the economic thing is the same—we want the things money buys, but not the ugliness it brings. not greed, not ‘evil’ rich men lording it over us, although we’re not against neutral or ‘benevolent’ rich men sitting on their pile like Smaug. how can we disentangle this thread? we think we are using money, and our dollars/votes to come together. most of us aren’t buying things we don’t ‘need’ per se. and yet the problems still don’t go away.

            our very dependence upon the system (money, corporations, etc.) that is our enemy is the problem.

            1. Banger

              In many ways culture and religion is the same thing so I won’t say anything about that. I do not believe so much in an invisible hand as I believe that there is a flow to history.

              Certainly powerful political forces have shaped our current situation Usually hiding in plain view. I am a follower of people like Machiavelli and Hans Morgenthau and believe with Mao that power comes out of the barrel of a gun. What I call culture, however seems to determine how people react to power-relationships, hierarchies and so on. In the USA I see that people react to politics with a studied naivite. By studied I mean wanting very little information about how power operates in order to avoid the responsibility for changing the system. So someone like Obama comes along and millions of people project their hopes on him as if they were literally born yesterday. I don’t believe O is a bad man but I know from my own analysis and experience in the world of Washington that there is very little a determined President can do these days by him or herself. Obama had to and has to deal with powerful groups who play a form of politics that is no different from those we see in movies like the Godfather only for much higher stakes.

              My point here is that when stakes are this high we aren’t going to see the political game played in a high school civics kind of way and, deep down Americans haven’t know this but don’t want to face this reality–it is too disturbing. I find this tendency particularly present on the left from MSNBC, HuffPost to the Nation magazine and beyond. The good thing about this is that this POV is increasingly unsustainable.

              Thanks for your thoughtful and stimulating reply.

            2. skippy

              Generational imprinting is a bitch… eh… especially when one would like to get a clear view… with out the herd blotting everything out…

              skippy… funny stuff down under WRT Aboriginals speaking dead peoples names or showing images of them… Taboo… why should the dead rule the world – ????

  3. The Dork of Cork

    Yanis does not seem to understand banking unions as happened in the real world.(but he does get very close with only his faith in the morality of the bankers keeping him from saying the obvious)

    The central goal is destruction of the periphery so as to act as a centralizing force as the banking system wishes to scale up even further…..The UK union of the 19th century and the EU union today are very similar outfits baby.

    The European union is working…. just not for most of us ……….like…. like those 19th century people destroyed in the satanic mills as their village agrarian life was no longer fit for the scale of banking operations
    Now the banking system has reached a different level , a different scale – former nations (controlled by banks post 1648) must now become like those extinct villages you see in the French Ariege or the shiellings of the Scottish highlands.

    Ireland and Greece will become the modern Ariege of the European market state just as the Ariege became a place where the wild beech wood grows after the French nation state reached its max capacity during and post The Great war.

    No doubt a good place for trekking and mushroom picking in the 22nd century but with little else but Ghosts from the past lost under a great mass of Beech tree leaf litter.

    1. from Mexico

      Both you and Yanis get an “A” for assessing the economic situation in which Greece and Ireland currently find themselves.

      But both you and Yanis get an “F” when it comes to using that information in decision making.

      The faster Greece and Ireland pull an Argentina, the better it will be for rank and file Greeks and Irish.

      But you seem to enjoy wallowing in defeatism too much to do that. You have completely surrendered yourself to the notion of some predestined dark future, as if there never was nor ever could be anything that could be done to alter such a future:

      Ireland and Greece will become the modern Ariege of the European market state just as the Ariege became a place where the wild beech wood grows after the French nation state reached its max capacity during and post The Great war.

      And if you are consumed in an orgy of nagativism, Yanis suffers just the opposite affliction. For him, hope springs eternal. Somehow, as if by magic, the transnational capitalists are going to experience an epiphany, see the light and renounce their evil ways.

      If we look at the full speech from which the current post was extracted, Yanis tells us “It is tempting to say: To Hell with it.” But then he immediately retracts and counters with: “Be that as it may, this is a temptation that we must resist.” ( http://www.nakedcapitalism.com/2013/10/yanis-varoufakis-the-dirty-war-for-europes-integrity-and-soul.html )

      “In this titanic battle for Europe’s integrity and soul, the forces of Reason and Humanism will have to face down the growing authoritarianism,” Yanis rhapsodizes. “I think we can pull it off.”

      Yea right, in a rigged game.

      Neither you nor Yanis are very realistic about what the future holds. But nonetheless, both of you are married to your predetermined visions, one overly pessimistic and the other overly optimistic. But here’s the rub: both your and Yanis’s determinism serves to quell initiative. They both serve to prevent everday Greeks and Irish from taking the bull by the horns and doing what they need to do. Your vision induces false defeatism, Yanis’s false hope. And in such a way are people rendered paralyzed and inactive.

      1. Yves Smith Post author

        Greece is now past the point of no return.

        Thanks to all the restructurings, the overwhelming majority of their debt is now “European law” bonds. They can only redenominate “Greek law” bonds.

        So if they were to leave the Eurozone and go back to drachma, the drachma would fall and they’d still have to pay back the now-bigger debt in euros.

        Plus I’ve also seen analyses that suggest that Greece would not have had as good a go of it on a cheaper drachma as conventional wisdom would lead you to believe. They have a lot of imports that they could not cue back on (like energy and pharmaceuticals) that just get more expensive on a cheaper currency, and woudn’t get that quick a boost in their exportables right now (and their big de facto exportable, tourism, has been trashed thanks to austerity). Over time that would presumably change as more businesses put operations in Greece to take advantage of the cheap currency.

        1. from Mexico

          So will the dilemma the Greek unwahsed face be any easier a few years down the road, after Greece’s government has sold off all its public assets to pay the interest on its debt?

          Mired in debt, Greece is holding a fire sale these days, and there are some hot bargains on offer. For sale are beaches, ports, airports and dozens of buildings housing the headquarters of government agencies, such as the tax authority and the education ministry in Athens. Some observers worry the government is selling its wares too cheaply, but Prime Minister Antonis Samaras is keen to play hawker….

          Beginning earlier this year, the southern European country kicked off the long-delayed sale of state assets. It wants to raise €22 billion ($29 billion) by 2020 as part of an agreement with its international creditors to reduce the country’s staggering debt burden….

          The sale of the government’s shares in Athens International Airport is generating plenty of buzz. Two big Chinese firms, Shenzhen Airport and Friedmann Pacific Asset Management, are currently in discussions with Greece over buying the state’s 55% share….

          Emma Delta, an equity fund controlled by Greek ship-owner George Melissanidis, bought up the Greek state’s 33% stake in OPAP, Europe’s largest listed gambling company, earlier this month. The deal was sealed at just €712 million ($950 million), even though OPAP generated €505 million ($673 million) in net profits last year alone. Some Greeks wonder where the money to actually run their country will come from if the state no longer owns its income-generating assets and has to lease its former buildings from new owners.

          –NIKOLIA APOSTOLOU, “Burning the furniture to heat Greece”

          Jun 26, 2013


        2. from Mexico

          And trust me, I fully understand the profundity of the dilemma which Greece faces. As The Real-World Economics Review Blog points out, Greece has this nagging trade deficit which just won’t go away, despite the fact that Greece has reduced imports by 16 billion euros between 2010 and 2012:


          The trade deficit has also been reduced by an increase of exports of 6 billion between 2010 and 2012. The very latest data indicate, however, that the double-digit increase of exports has stalled. “There is still a long way to go – and lowering wages won’t help,” the blog’s author concludes.

          The blog’s author then quotes J.W. Mason:

          From where I’m sitting, the only way for Greece to achieve current account balance with income growth comparable to Germany is for Greece to develop new industries. This, not low wages, is the structural problem…. Figuring out how to get savings to investment is, on the contrary, an immensely challenging institutional problem.

          But I think Mason lives in his own little fact-free world. The real structural problem is that Germany’s own export-driven mercantilist economy requires import nations, like Greece, in order to continue functioning.

          1. Sluggeaux

            Um, doesn’t the inability of the periphery to say “F-U” to the predator-creditor banks come down to over-population and food insecurity? The smart thing would be to renounce all these bonds — but most states on the periphery would be unable to feed their citizens without foreign exchange, so the “leaders” of their governments and central banks happily take the Ponzi pay-outs and sell-out their patrimony in order to avoid food riots. Remember, food riots were the spark igniting the Syrian civil war and the Arab Spring was torched-off by the self-immolation of Tunisian fruit vendor Mohamed Bouazizi…

            1. from Mexico

              Sluggeaux says:

              …so the “leaders” of their governments and central banks happily take the Ponzi pay-outs and sell-out their patrimony in order to avoid food riots.

              Oh, is that what you call it when Greece’s prime minister, Antonis Samaras, sells the Greek ship-owner George Melissanidis the Greek state’s 33% stake in OPAP, Europe’s largest listed gambling company, for just €712 million ($950 million), even though OPAP generated €505 million ($673 million) in net profits last year alone?

              The only function folks like Yanis Varoufakis serve is to keep the helots confused and off-balance, drunk on false hope until the corpse can be picked clean.

              1. Sluggeaux

                No doubt after leaving office Mr. Samaras will land a cozy multi-million Euro sinecure as “advisor on governmental affairs” to one of Mr. Melissandis’s looted enterprises (just like we serve our corruption up in America). Because Democracy!

          2. Banger

            I suspect that the Greeks as well as other people who are witnessing the crumbling of the state and any benevolent aspect of capitalism will develop an vigorous underground economy. There is little acknowledgement of this in both the academic and official media because that economy is hard to measure (and therefore does not exist). I believe this kind of economy should be encouraged as an alternative.

        3. James Cole

          “The drachma would fall:” from what? It depends on how many drachma the Greek government prints and the exchange rate it uses to redenominate things like bank accounts and taxes, but what would really matter at that point is what purchasing power the Greek economy could bring to bear in the world market without external public financing (since its credit would be shot at that point).

      2. craazyman

        The STUDS — Sane and Tranquil Utopias with Delerious Sunshine, such as Italy, Portugal and Greece (I’m no sure about Ireland, maybe they’re “Still Trying to Understand Debt Sadism” — will just have to wear them down, and they will.

        This is my prediction: Eventually Italy and France will wrest control of the helm from the Bundesbank, the way female energy can wrest control from male energy just by nagging. Eventually the dude craters and she leads him around by a leash. That’s what’ll happen. It’ll take the form of Eurobonds, investment and debt restructurings. It’ll happen over the next two years. And then you’ll see them together at the café. She’ll be smiling and he’ll have a vacant but calm look on his face, finally realizing he’s better off this way, in the end, if he wants the squeeze box a few times a week. That’s the way it works.

        It’s not defeat. It’s not acquiescence. It’s just a changing of the mind.

        1. craazyboy

          Gee, I dunno, craazyman

          You forecast an economic projection here where everything works out – he realizes “it’s only money – and I’m in love with you, dear” – and the relationship goes to natural equilibrium in a couple years.

          But what if he brings up getting a job one of these years and she says “What do I need a job for? I still have your platinum credit card!”

          That’s happened before.

          1. craazyman

            In that case, it’ll be:

            Springtime for Merkel and Germany
            Winter for Italia and France
            The deutschmark’s on the rise again
            Lira’s falling from the skies again
            and the Wehrmact’s out for lebensraum once more!

            They should just make the movie this time and forget about all the invasions and the stiff arm in the air. Did you ever notice that things happen, and then they become entertainment? If they start out as entertainment, then they avoid all the work required to make them happen. I wonder if a German director is up for the task. They can sell bonds and raise the money for the movie, do the filming in Italy, Spain, Portugal and Greece and jump start the entire Eurozone that way — if the budget is big enough. This is something like Cecil B. deMille would do, but bigger.

            1. craazyboy

              A really, really big movie might work. But a war movie may be just what it takes – lot’s of expensive props to make and that much more economic stimulus. In fact, instead of the US making donations to the IMF to buy crappy euro bonds, we could just send Europe the plans for the F-35 fighter. That’s good for a ton of Euros.

              I do think they should keep the goose stepping, however. It lets you know who is in charge at a glance, plus it always impressed me watching them do that. Instead of the Heil… salute, I would suggest the Napoleon “hand in vest” as a nod to French competence. The Italians are good butt kissers and know how to change sides, so I’m not worried about them.

              A German director probably could pull it off, but my choice would be Tarantino. As long as he tries something different with the script than Inglorious Bastards.

              I still think it is of the utmost importance to make everyone agree to bury their paychecks in the backyard. If they deposit them in bank, things will just get all screwed up again.

              1. craazyman

                the other thing they could do is cancel Greece and just make it part of Germany.

                That way Greece wouldn’t owe anybody anything and Germany would owe the money to itself, which shouldn’t be a problem. If I owe myself money I’ll just forget about it, since whatever I would have paid myself I still have, so it’s a wash.

                If it works, they can do the same for Spain and Italy.

                Who needs all those countries anyway?

                1. craazyboy

                  I don’t know why they have all those countries.

                  Owing money to yourself is just an accounting gimmick, so once you realize that, you don’t have to think about it at all. Same goes for printing money for yourself. You print some money, then pay yourself for cleaning the bathroom, vacuuming the carpet, and no one gives a crap. I think there is some economic theory about that, but I forgot the name of it.

                  But instead of just cancelling all these countries, they could just make them states – like we have in America. The advantage would be it’s easier to make street addresses.

                  That way you could have dirt poor states full of dirt poor people, like Mississippi, and everyone thinks that’s normal and doesn’t complain all the time. They could even have a good soccer team to root for.

                  Then Germany could be more like California (maybe even better) and pursue her neo-lib playbook and be a first world state and exporter world class products without fear that Greece may borrow money somewhere and be tempted to buy German stuff. Banks would just refuse to lend Greece money……wait, I have to think about that one some more.

      3. Banger

        I really like your comment because you are challenging people and not allowing them to rest in comfort! Complacency can come in both the form of “things are hopeless” and “things will turn out for the best” form. In a sense, it doesn’t matter whether things turn out well in the end or badly. The point is what does it do to us as people?

        I’m not attacking those you challenge here Dork of Cork or Yannis–they are perceptive and thoughtful and honorable people who do their best. I’m for, however, intellectual challenge and vigorous exchanges because the tendency of the left, other than in my youth, is to sit and comment in complacency and view life from a distance.

        It is not just the Greeks and the Irish who must take the bull by the horns as you say–it is all of us–not just for the benefit of others or the culture but for ourselves. We struggle because it is good to feel alive and vital–to breathe the air of freedom whether we are shot in the streets like mad dogs or whether we meet some success. For each of us it is different–some of us struggle just to get through the day and that is a noble struggle and it can be joyful. When we have others around us who work it it creates a synergetic effect. As we used to say when I lived in Italy back in the day “la lotta continua.”

      4. The Dork of Cork

        “And if you are consumed in an orgy of nagativism”

        Ireland was a neo liberal economy more or less part of the UK banking union until 1979 with some token national structures added on.
        After 1979 it became a extreme neo liberal economy which underwent a extreme deflation in the early 80s destroying all remaining rational structures which service rational domestic demand.

        You just don’t get the destruction involved in making that demonic construct…..the EU is merely it on a larger scale…..London is booming as before….oblivious to famines and stuff happening supposedly within its borders……but Bank of St George type operations do not have borders…

        1. from Mexico

          Oh I think I get the vastness of the destruction. I see it everyday around me here in Mexico, a neoliberal wet dream come true if there ever was one.

          But Latin American have-nots are much further along on the learning curve than you guys in Ireland, Greece or Spain, and way, way ahead of those in the US, the UK or Germany. Latin America is, after all, “Empire’s Workshop,” as Greg Grandin puts it. It was the first place where neoliberalism was imposed. This was all done at the point of the gun: with military dictatorships, dirty wars and even dirtier elections, all of course orchestrated by the governments of the US, the UK and various European nations.

          Argentina suffered through the destruction, and in no small way. This is recounted by Miguel Teubal in “Rise and Collapse of Neoliberalism in Argentina”:

          Thus, Argentine society was substantially transformed in comparison with what it was 20 years before. Income distribution worsened tremendously, access to food, employment, health, housing and security have been trampled upon, as a consequence of the chaos created by what could be termed a system of ‘legal’ but not necessarily ‘legitimate’ macroeconomic looting, in the wake of the so-called process of financial valorization. A system that had given priority to large economic groups and conglomerates thus led to the wholesale transfer of income and wealth to these interests. The rest of society has remained devastated, lacking food, health, education, security, adequate housing, etc. This can be also visualized as part of a vast process whereby the state adopted a series of transfer mechanisms of income and wealth in favor of these ‘privileged’ sectors. These measures did not only serve to increase growth and accumulation – on the contrary, the performance of the economy in recent years has been notorious – but the social consequences and social costs they caused has created an enormous predicament for the future of Argentine society.


          Paul Cooney recounts an almost identical history in “Argentina’s Quarter Centruy Experiment with Neoliberalism: From Dictatorsship to Depression”:

          In order to understand how Argentina could go from one of the most developed countries of the Third World, to experiencing the crisis of 2001 and then enter a depression in 2002 with over half the population living in poverty, requires an evaluation of the last quarter century of economic policies in Argentina. The shift toward neoliberalism began during the dictatorship of 1976, deepened during the Menem administration, and was supported throughout by the imf. This paper aims to identify why the crisis occurred when it did, but also to understand how the underlying shifts in the political economy of Argentina over more than two decades led to two waves of deindustrialization, an explosion of foreign debt and such a marked decline in the standard of living for the majority of Argentinians.


          [O]ne would hope that the failures of a quarter century of the neoliberal model would resonate among leaders in government, not just among piqueteros. Unfortunately, the role of the Argentinian elite and the imf is still active in attempting to keep this failed model going. The possibility of change resides in the continued strengthening of the new movements of the socially excluded in Argentina, and probably serious mobilizations in the street will be required in order to bring a proper end to a failed quarter century experiment, with a neoliberalism that has enriched the few, both foreign and domestic elites, at the expense of the majority of Argentinians.


          So my advice to you and Yanis would be to grow a set of cojones. Ya basta with the muddling through, or “disjointed incrementatlism” as D. Lindblom called “the lack of major direction, policy, or course-setting capacity” which are due to “the severe and congenital cognitive limitations of individuals’ ability to engage in decision-making.” Disjointed incrementalism ain’t gonna work, not up against a formidable and single-minded foe like the transnational capitalist class.

            1. anon y'mouse

              the richest man in the world lives in mejico. it’s like a Disneyland for them. their own private Disneyland where they get to play king.

              then again, that describes the world at large too.

    1. Banger

      Actually you can–if you use the money to invest in something that will produce wealth. The problem here is that Greece is borrowing to pay off debt so there is no way out for them. They are finished as a country and headed for the status of a failed state. The whole project, I think, is to ease them into it so people can make arrangements to make the neo-feudal future as easy as possible. I think Greece is the pattern many other countries will follow as the current nation-state system begins to disintegrate.

  4. Banger

    Yannis has written a very nice analysis of the situation. But the whole nature of this crisis was very obvious from the beginning. Greece was, essentially, offered no way out other than stringing along month-to-month is what I can only describe as a deconstruction of Greek society.

    We have to keep in mind a couple of things: first, the monetary and debt system we live in is arbitrary and fictional. At any point the loose cabal of international bankers, international organization, sovereign funds, nation-states, super billionaires, can change the system and rewrite debts into some obscure room in the palace and provide 0% credit to build infrastructure, fund education and research and so on to bring the world to a higher level using the stunning array of talent that is out there in the world that is being drastically underused.

    Instead this cabal of a-holes (the only proper word for them) wants us to live in a world that features, stress, pain, and a royal road to neo-feudalism within a repressive international “world government” that punishes dissenters throughout the world.

    All this could change if we, the commoners, start coming together to articulate a new set of moral values–we don’t have to do anything in particular other than that–agree to some kind of grander vision than what is in store for us. These guys are losers–just have a conversation with some of these bosses and operatives them and watch their darting eyes and weakness behind the masks.

    1. Ulysses

      One source of inspiration for this “grand vision” might come from the “News from Nowhere” by William Morris: “a tradition or habit of life has been growing on us; and that habit has become a habit of acting on the whole for the best. It is easy for us to live without robbing each other. It would be possible for us to contend with and rob each other, but it would be harder for us than refraining from strife and robbery. That is in short the foundation of our life and our happiness.”

  5. greg kaiser

    Is money a token or the thing itself?

    Where do usuries, the profits on finance, come from?

    Are they ex cathedra or ex nihilo?

    Maybe they just add cost to the real things that ordinary consumers buy!?

    1. Banger

      Money is a tool we now worship as God since, for many, God is dead even to those that “believe.” We need to worship something so money seems like a safe God to connect to since we’ve devolved in our ability to perceive beyond a very narrow band of reality.

      1. mundanomaniac

        I tried to translate this text writen by walter Benjamin in the late 20th. And I posted it as a comment in 2008.
        I feel it should be contributed at this place a second time.

        “In capitalism one has to realize a religion, e.g. capitalism serves essentially to satisfy the same kind of sorrows, misery, unrest, which formerly the so called religions provided with an answer … […]
        We cannot pull the net, we are standing in, but later on there will be a view of it.
        But there are three features, that are even now about to be realized concerning this religious structure of capitalism. For the first capitalism is a plain cult religion, maybe the most radical which has ever been. Everything in it has meaning only immediately referring to cult; it knows no special dogmatics, no theology. The utilitarianism (“everything for the happiness of the most”) gains its religious color under this point of view.
        With this gaining of concreteness there is connection to a second feature of capitalism: the permanent duration of the cult […] there is no weekday, no day, that wouldn’t be a holiday in the dreadful meaning of unfolding of all sacred pomp, the utterly strain of the worshipper.
        This cult is, for the third, running into debt. Capitalism is probably the first case of a non-expiative but indebtive cult. In here this religious system is standing in the collapse of an immense movement.
        An immense sense of guilt, which has no notion how to deexpiate, grasps for cult, not to expiate in it, but to let it become universal, to hammer it into consciousness and finally and above all to include God himself into this debt to at last have him being interested in the expiation of the debt.
        It is in the essence of this religious movement, which is capitalism, to endure until the end, until the finally entire indebtedness of God, the reached world condition of desperation, which is just still hoped for.
        The historical outrageous of capitalism is lying in this, that religion is no longer the reformation of being but its smashing. The extension of desperation into a religious world condition out of which the salvation is to expect. Gods transcendence has fallen. But he is not dead; he is embedded in human fate.
        This passage of the human planet through the house of desperation in the perfect isolation of its orbit is the ethos that is determining Nietzsche. This human being is the “Übermensch” (Superman), the very first beginning to meet capitalistic religion by realization.
        The fourth feature is, that its God has to be concealed, may not be articulated until reaching the zenith of his indebtedness. The cult is celebrated in front of an unmatured deity. Every imagination, every concept on her hurts the secret of her maturity [ …]
        The concept of the “Übermensch” transfers the apocalyptic “jump” not into turning back, expiation, purification, penance, but into the apparent constantly, but in the last space of time bursting intermittent increase. […] The Übermensch is that historical human that has without turning back arrived by growing through heaven.
        This blasting of heaven by increased humanity, which is and remains religious […] indebtedness …
        Capitalism is a religion of naked cult, without dogma. Capitalism has parasitically emerged […] on Christianity in the occident in such a way, that finally its history in essence is the history of its parasite, the capitalism.
        (Walter Benjamin, Ges. Schriften, VI, S. 100, Frankfurt/M., 1991)

  6. Jackrabbit

    Lets not forget the corruption and maladministration of the Greek elites that helped to bring about this disaster.

    Pointing fingers at a failed/inadequate system (“Washington is broken!”) is a pre-requisite for TINA, not least because it is a very convenient excuse for the scoundrels that operate pre- and post- crisis.

    The real systemic issue is probably the incentive to screw the many and loot the commons. A ‘free option’, similar to CEO compensation.

    Economists like Yanis naturally (and perhaps unknowingly) excuse individual malfeasance because individual action is too hard to model. Its an economic blind spot because they been TRAINED to ignore individuals (an other factors exogenous to their models) and focus on institutional structures and markets.

    Bill Black and Hugh understand the REAL problems far better than Yanis, I think.

  7. McMike

    Ponzi Austerity: i.e. cutting off your nose to spite your face.

    In retail, it is akin to pricing an item below your cost, in hopes that you can make it up on volume.

    However, the author makes the mistake of assuming that the intent of austerity is to actually enhance the economic position of the masses. It has no such goal, except in the public justifications offered by its proponents.

    The goal of austerity is to lower taxes for the elite, transfer public assets and captive income streams to the elite, and force the masses into distracting hopeless misery and debt serfdom.

  8. Jose Guilherme

    “…the overwhelming majority of their debt is now “European law” bonds. They can only redenominate “Greek law” bonds” (Yves Smith).

    Well, the Greek government can certainly pay back those European law bonds in bank created money – just like it did in the very clever 2012 ELA scheme that Varoufakis ill-advisedly opposed.

    State-owned pension funds could inject massive amounts of fresh capital into private banks and become the majority shareholder. Then, for every new euro that has been injected the banks will be able to lend up to 10 euros to the Greek government.

    The banks would simply participate in every auction to sell newly issued public debt, make the highest bid and then open deposits to the credit of the government. The government would then transfer those deposits to the accounts of the EFSF, EFSM and IMF and pay up its debts to those institutions.

    The Bank of Greece would be forced to provide the necessary reserves for the banks to make those massive transfers, just like it was in 2012, under the ELA. If it did not, this would mean Greece could not make payments abroad – a situation tantamount to an expulsion from the eurozone, which is precisely the result that the eurozone masters want to prevent at all costs.

    At the end of the process the Greek government would owe zero to the troika entities and would become a debtor only to banks controlled by the public pension funds. It would then be free to default on this debt, exit the euro and later re-inject all the drachmas it wants (whose issue it will control, after regaining monetary sovereignty) in the banks.

    There is nothing like a fresh Ponzi scheme to defeat a previously existing Ponzi scheme.

    1. PJames

      But the Greek NCB would have to borrow the reserves from the ECB system, and would still owe the euros to the ECB under your scheme. Plus the ECB decides how much credit to extend under the ELA, so the Greek NCB might not even be able to get the funding it needs for your scheme to work.

      1. Jose Guilherme

        Good points.

        On point 1: the Greek NCB would “owe” those euros to the eurosystem of central banks, under TARGET2.

        But TARGET2 balances can accumulate without limit and without any requirement that they be “paid” in the end.

        So this would pose absolutely no problem for Greece.

        On point 2: I see no reason for the ECB to decide to order the Greek Central Bank to suspend credit to the commercial banks under the ELA.

        Remember this scheme has the practical result that the official creditors in Europe and the IMF will be rapidly reimbursed. What could the ECB possibly object to that?

        Also, the fact that commercial banks would be buying massive amounts of public debt at new auctions would likely translate into an improvement of Greek ratings, that might even allow the Greek NCB to extend lending to the banks without the requirement of an ELA.

        But let’s admit for the sake of argument that the ECB would suspend the Greek ELA.

        Then the Greek Central bank would be left with 2 options.

        Option A: It could decide to keep extending credit even with no ELA.

        Of course, the ECB might react by cutting off the links of the Greek NCB to the euro clearing and payments system. But this would mean that Greece would cease to be a member of the eurozone, since no euros could then leave the country to make payments abroad.

        And preventing Greece from leaving the eurozone, at all costs, has been the number one priority of “core” Europe. So I would classify this possibility as extremely unlikely.

        Option B: the Greek NCB could abide by the ECB’s decision and cut off credit to the commercial banks. This would again mean that Greece was out of the euro, for lack of capacity to make payments abroad (as a result of lack of reserves in the commercial banks). Again, this is the outcome most feared by the ECB. So we’re back to scenario A: extremely unlikely.

        I’d like to underline I’m not saying that the whole scheme has zero risk. The risks would be low, but not inexistent. I think it’s utopian to imagine that a periphery country can throw off the yoke of the troikas under a zero risk strategy.

        It’s just the case that this idea would use existing mechanisms under the euro system to enable periphery countries like Greece to rapidly pay off their debts to offical creditors (the debts that cannot be restructured, because they are subject to European law). Said countries would then recapture a new measure of freedom of decision – and all this while running only an amount of risk quite proportionate to the outcome in view.

  9. Jim

    The ongoing debate between Banger and anony’mouse in the above comments I view as extremely important.

    Banger stated:

    “all this could change, if we, the commoners, start coming together to articulate a new set of moral values….”

    anon y’mouse stated:

    “I don’t see how you can instill something like that. a lot of people simply work hard and hope for the best while using what pittance they got while working hard to try to build up or maintain the values that they uphold for family, friends etc. (your social connection or coming together).”

    If we do live in a social system which has succeeded in largely institutionalizing selfishness (whether in the subsystems of economics, business, politics, health care, law, education and etc) then we are in an ongoing and accelerating cultural as well as economic/financial/political crisis.

    All of these subsystems, once, were forced to hide their selfishness by hiring experts who explained to the rest of us why things have to go in a particular direction and how their particular subsystem was supposedly serving some broader, more holistic purpose.

    But all of these rationalizations are now breaking down–selfishness has become a virtue and the only justification for these existing subsystems has become the subsystems themselves-the present health system seems to operate only for its own self-reproduction as do the present economic, political and educational subsystems.

    As anon y mouse argues, within this macro-situation, most of us are still attempting to maintain social connection among a small circle of intimates–where we sometimes still experience short jolts of harmony between what we say and how we live.

    Is this a zone which potentially offers us the freedom to make another life for ourselves and our country?

    Is this also the zone from which to launch the real fight against neo-liberalism and austerity ponzi schemes?

    Those of us who believe in the necessity of cultural revolution have the responsibility to begin to discuss in a more concrete way exactly how an examination of our own lives can become a properly political task and consequently help to change the world.

    1. anon y'mouse

      uh, that conversation was not meant to drive this whole page askew into navel-gazing and away from Varoufakis’ analysis of what is/should be happening in the EU.

      as far as I can tell, the EU just has not woken up to the fact that they were meant to be just like us. I understand that their problems are not identical, but in some ways parallel. their countries that need bailout are like our state and local communities. it would be, or perhaps is, like people from Detroit speaking another language and having a different culture. I just don’t think that we or they like to see it that way.

      this EU system seems intent on grinding the member-nations down the level of our states. to do that, they have to break financial sovereignty of those states and depress the people’s longstanding racial and cultural identity through shame and poverty.

      that may not be correct at all, but that is what it appears like. they just do not want to face this and do what is necessary–either bow down to the yoke or revolt and suffer. sounds like all of us here, to one degree or another.

      the financial system is at the heart of all of this, and the dependence upon it, and the dependence upon ‘trade’ to obtain daily necessities for living. perhaps that is how it ties into the derailment I helped induce above.

      1. Banger

        See my comment in answer to this comment. Basically I believe there is no choice for the Greeks but to create private arrangements that will look like feudalism. And this movement in the EU to torture the periphery will result, I believe, in new social arrangements. Already the Golden Dawn movement looks a lot like a set of feudal arrangements where businesses are being recruited to sign up to insure security.

    2. Banger

      Your last three paragraphs are on the money. Power starts from community and community is something tangible. However, each of those small atomic communities are now able to join with others to form emergent larger communities that can become politically powerful.

      I think there are signs of this happening in Greece as the central authority both moral and physical is breaking down new and older political arrangements will emerge. You see these arrangements in the Middle East and they are basically feudal much like the political arrangements illustrated in the movie Godfather.

      Central states are failing and political trade arrangements like the EU, WTO, and the TPP are all assaults on the nation state. All this results in corporate domination of the world which means, in effect, a large scale global system of neofeudalism. I’ve said before that, at this time, there is not counter-movement. All we can do is join it by creating our own feudal entities like, I believe, the Greeks will. Some of them won’t be pretty and will resemble the Golden Dawn movement.

  10. washunate

    I’m not sure ponzi schemes are the right imagery? It’s inherently an investment scheme where the seller takes advantage of information asymmetries.

    What is happening is looting. That’s where instead of persuading someone to voluntarily sign on, you use force against their will.

    Public funds were stolen the moment that governments backed the fraudulent debt of the financial sector. Everything after that isn’t a ponzi scheme; it’s just robbery.

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