Greek Finance Minister Varoufakis Retreats on Debt Writedowns, Public Spending Promises

We’ve said that Greece had a weak negotiating position in trying to get a better deal from its creditors. That is playing out before our eyes. Greek Finance Minister Yanis Varoufakis has stepped down some of his early proposals even before formal talks have begun. This is a sad but predictable situation, since the Germans and the other members of the northern bloc are not at all willing to cut Greece much if any slack, since that would lead bigger, more powerful countries to try to slip the yoke of austerity.

The tragic thing about this situation is that Varoufakis is simply describing economic reality and has a number of sound ideas for how to make conditions better for Greece, which in the end will also lead to better results for its lenders. Yet he has run into a massive, if predictable wall, with his willingness to make unvarnished descriptions of the obvious, abject failure of Eurozone economic policies regularly depicted as “confrontational”. One reason Varoufakis may be going this route is to use his newfound high profile to send a message to voters and anti-austerlity politicians throughout Europe, since as we have stressed, the more popular anti-austerity and anti-Eurozone parties become, the more even the Germans will have to fear.

The Germans have a short-sighted view of the stakes. With the ECB holding a sword of Damocles over the Greek banking system, in terms of its ability to cut off access to emergency liquidity facilities, and Syriza and Varoufakis personally having rejected a Grexit, they can dictate terms. In their eyes, the only reason to cut Greece any slack is that, as Varoufakis keeps stressing, Syriza is the sole party that is not loyal to Greek’s oligarchs. If they want corruption tamped down and the tax system cleaned up, Syriza is the only game in town.

Today in a Financial Times interview, Varoufakis walked back his negotiating ask for debt cancellation, instead proposing a series of “debt swaps” that would achieve more or less the same result. He was more obvious that might have been ideal in stating that he regarded this as a fix to placate Germany. From the Financial Times, which broke the story:

Greece’s radical new government revealed proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders…

Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds.

The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds.
He said his proposal for a debt swap would be a form of “smart debt engineering” that would avoid the need to use a term such as a debt “haircut”, politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss.

But there is still deep scepticism in many European capitals, in particular Berlin, about the new government’s brinkmanship and its calls for an end to austerity policies.

“What I’ll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda,” Mr Varoufakis, a leftwing academic economist and prolific blogger, said. “I’ll say, ‘Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece’.”

In a more sophisticated undercutting of Varoufakis than the disgraceful BBC interview of last week, a Financial Times video embedded in the article features a commentator discussing Varoufakis’ progress thus far. The segment depicts Varoufakis as being confrontational and as not having gotten on well with the UK chancellor of the exchequer, and also focuses on the flight of financial assets from Greece and its falling stock market. Does it not occur to anyone that a substantial portion of the money exodus is that of those very oligarchs that Syriza has threatened? The rest of the EU says they want the country cleaned up, yet they attack Syriza for the predictable results of their seriousness.

But while it may seem trivial for them to get their way with Greece, this victory is likely to be Pyrrhic. The more it becomes obvious that the northern countries will keep inflicting pain on Greece out of a desire to keep a bad status quo intact, the more the other victims in better bargaining positions (by virtue of having larger economies and even more fractious voters) are likely to escalate. Indeed, Varoufakis, by challenging the Troika on so many fronts, is conveying a powerful message that subservience is neither necessary nor desirable. No wonder the technocrats are out to discredit him personally.

Ambrose Evans-Pritchard argues that Greece holds the trump cards. Here I disagree. With de facto control over Greece’s banking system, the ECB can bring Greece to heel. We’ll see if the ECB imposes any conditions on its approval of the Greece’s request to use ELA funds on Wednesday. If they are anything other than cosmetic, that means the ECB is supporting the northern countries and is determined to box Syriza in. But I do agree that in a longer time frame, Germany is losing. The problem is it may not lose quickly enough for Greece to get the relief it desperately needs.

Varoufakis also stated that achieving a budget surplus of 1% to 1.5% would take precedence over Greece’s social program promises, another major concession. Again from the Financial Times:

Mr Varoufakis said the government would maintain a primary budget surplus — after interest payments — of 1 to 1.5 per cent of gross domestic product, even if this meant Syriza, the leftwing party that dominates the ruling coalition, would not fulfil all the public spending promises on which it was elected.

I’m troubled by the idea of Varoufakis pushing the idea that Greece will be a good pupil and run fiscal surpluses, which are contractionary, with no mention of other ideas that he has promoted in his Modest Proposal, like Eurozone-level funded infrastructure spending and emergency social programs. And those are essential if the Eurozone is to succeed. As Ilargi points out:

There’s an ideological battle happening between money and wellbeing, between people and banks. Western leaders have so far chosen to protect money and banks, instead of people and their wellbeing, and that’s why we find ourselves where we do. Choosing money before people can only end in the demise of the system that makes such a choice. That, however, is apparently terribly hard to comprehend.

And that got Greece where it is. That’s why Europe set up a ‘union’ that shares a currency but that has no provisions to transfer funds from – even temporarily – weak regions from stronger ones. Even the US has that, or it would have imploded long ago. It’s the kind of thing that makes you wonder if maybe the EU wasn’t set up from the start so Germany could exploit the Mediterranean.

But even that is not the core issue. It’s money over people that is. And Brussels should not just be ashamed for what they’ve done to Greece, they should be driven out of town with tar and feathers. That’s not how they see it, though. Brussels, in the voice of Eurogroup head Dijsselbloem, when he met with new Greek FinMin Varoufakis, had the audacity – and stupidity, his job is up for grabs – to point out that much progress had been made. As the troika demands have turned Greece into a third world nation. That’s known as progress.

Even Varoufakis’ concessions were brushed off by a key ECB official. From the Wall Street Journal:

Greece can quickly reduce its public debt ratio by boosting economic growth, European Central Bank policy maker Christian Noyer said Monday, casting aside the idea of writing off part of the country’s debt mountain.

Greece has the capacity to grow quickly, partly because it has an underutilized workforce, Mr. Noyer said. The country also pays little to service its debt-—which stands at around 175% of annual economic output—because European lenders have granted low interest rates and deferred repayment deadlines, said Mr. Noyer, who sits on the ECB’s governing council and is the governor of the Bank of France…

Mr. Noyer’s comments indicate little sympathy for calls to lighten Greece’s debt burden after the Syriza party won snap Greek elections last week on a platform of securing debt relief from its €240 billion bailout and changes to the terms of the deal with eurozone countries.

Readers have argued that Greece should seek support from Russia. Greece has in fact already retreated from its early gesture of objecting to not being included in a vote on extending sanctions against Russia. Varoufakis clarified that Greece supported the sanctions but objected to Greece not having been consulted. Similarly, Varoufakis is firmly opposed to Greece exiting the Eurozone, so that is not something that Greece would pursue. In the highly unlikely event that Tsipras were to decide to go that route, I am highly confident that Varoufakis would resign.

Greece simply has too short a negotiating runway to make the sort of headway in the political realm to offset its very weak position. But Varoufakis’ efforts to break the frame are not a failed effort. They are making media waves and will give other countries new ideas as to what is possible. Varoufakis is has good odds of prevailing the battle of ideas. But he is not likely to win in time for Greece.

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    1. Yves Smith Post author

      That’s good to hear, but I wonder if the FT video did more damage, since the FT is read by the European policy crowd and it was placed smack dab in the middle of the story with the FT’s exclusive interview. Why did they not show clips of the talk with Varoufakis rather than their own talking heads?

      And there was some undermining I did not unpack in the post. For instance, Varoufakis’ is clearly proposing financial structures for Greece’s creditors that are different than the ones they are using now. Yet that wasn’t even acknowledged. Instead, it was treated as if the only terms open to discussion were maturity and interest rate, plus timing of payments.

  1. charles 2

    I don’t agree with your assessment. I am sure that Varoufakis’s idea from the beginning was debt swap with GDP linked bond and perpetuals. What he just threw away is principal reduction, but from a NPV standpoint, it could be compensated with longer maturities and smaller interest rates.
    Also from the beginning, he said that he wanted to have balanced budget or run a small surplus : considering the situation of Greece, this is the best that can be done, as the state apparatus is too bloated and too inefficient for now to allocate investment capital in the Greek economy. Greece can and will grow through its private sector until the state is reformed, which will take time.

    1. Yves Smith Post author

      No, go read his own remarks in the FT. That is not what he says:

      “Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds.”

      He very clearly states that this is a change in Greece’s negotiating stance.

      He then says he can wind up economically in the same place.

      However, I have not seen on iota of indication that anyone in the officialdom, or even in the media, is receptive to his proposal regarding new financial instruments. And Varoufakis made them harder to accept by saying so openly that this was just financial sleight of hand to make it easier for Germany to swallow. Now the FT could have been unfair in how they summarized his interview, but it makes him sound like he is helping Germany solve its PR problem. That still assumes that the Germans are willing to give him financial breaks. In the end there will be some concessions, but the Germans are not predisposed to do much, and whatever ground they give will be due to pressure from within the Eurozone, from Brussels and shifts in polls.

      1. Santi

        I’d say that his first statements were directed to their greek constituency, and as such they were clear and strong. Now he is “writing the fine print”. If you have read Krugman on Greece, debt stock reduction is not an issue, but excessive primary balance is. I don’t think Varoufakis is backing off. He is setting the negotiation stage.

        You don’t see the Austerians position has moved, I don’t sense Varoufakis has moved either… The negotiation has not yet started, this is just posturing while they all measure each other

        The elephant in the room, that I think no one mentions, is that Spain has not been complying with the deficit compromises in 2013, and won’t for sure do it in 2014 with 4 different electoral processes (Andalusia, local/regional, Catalonia and national). Current Spanish “growth” is due to the new accounting of prostitution and black market into the GNP, plus the deflation deflecting the nominal value. Is anyone looking into the supposed primary balance that countries have promised?

        1. MarcoPolo

          I think the Austerians were marginalized the moment he told Dijsselbloem he wouldn’t work with the Troika. And I think he can, and will, find support for that position. Which is not to minimize how entrenched the Austerians are themselves. The ECB executive Board consists of 2 Germans, 1 German half brother, one tedesco maccihato, and 1 token peripheral; for example.

          1. Yves Smith Post author


            Varoufakis already clarified that on BBC. He said he would not work with the Troika monitors, the functionaries sent to Greece to oversee the bailout program. He made clear he is still working with the Trokia on the negotiations.

            And see the link to a story in FAZ, and and the extract in this comment:


            The ECB has apparently rejected Varoufakis’ bond plan. That alone makes it a non-starter. FAZ is also reporting that no other Eurozone country is supporting his plan. That may or may not be true, but the failure to offer even weak public support gives plenty of grist in Germany for not giving any more to Greece than what they were already willing to give.

            1. Santi

              Yves, I wasn’t agreeing with your position until I read the WSJ words from Christian Noyer. He is as delusional and out of touch with reality as they make them. I guess that when Krugman speaks about VSP it is really about Very Stupid People that he is talking about.

              Talking about growth and “underutilized work force” in a country where demand is dead, businesses are closing, deflation is (in Spain -1.5%) and unemployment is around 25%, and there is no possible devaluation is so stupid it hurts… These people should be in jail. And we will be forced to be the ones that put them in jail. As we use to say (in Spain and I guess in Greece), we have the moral duty to be optimists and defeat them.

                1. Tsigantes

                  Of course ‘no’ is the ECB’s starting position, what else would you expect? Negotiations haven’t begun. This stage is first meetings and media war – the boxers have not got into the ring yet.

  2. charles 2

    One should also remember that bonds whose maturity are dependant of nominal GDP level are in themselves major negotiations tools, because if one uses the rosy and unrealistic growth and inflation pushed forward by the Troika, the debt exchange will have a low impact on NPV. Once one uses realistic projection, the NPV shows a big haircut.

    1. Yves Smith Post author

      You are assuming the Troika goes along with his proposal. The Troika seems inclined only to offer longer maturities and some reduction in interest rates. It would be great if they will, but Greece is simply not an equal party in this situation. The idea that the Greeks are daring to make proposals is already seen as very cheeky. That is what the Noyer remarks were about, to throw some cold water on Varoufakis. And remember, this comes the day after Sapin, the French finance minister, offered “support” lite in the form of saying he’d act as an intermediary And Sapin ALSO said he would not back Greece’s demand for debt reduction. So Varoufakis sort of abandoned that ask today. So it looks like Sapin is doing a fine job of intermediating…on behalf of the Troika.

      Varoufakis has basically made two free concessions, as in concessions when the other side has traded nothing back. One of the key things in negotiations is to try to put yourself on an equal position even if you are not. For instance, at the start of the Congress of Vienna in 1814, there was every reason to think France would be partitioned among the victors or at least have its pre-war boundaries reduced.

      To start the negotiation off on a footing of agreement (it is now seen as received wisdom in negotiations to reach agreement on non-controversial matters, then move on to the harder ones), the Four Powers (Austria, Prussia, Russia, and Britain) were meeting and had come up with a memo on some minor issues that they thought that Talleyrand, representing France, and Spain, the other “Outer Power would surely agree to. Talleyrand, presented with the memo on the spot, gave it a slow and careful reading and picked it apart. As one account summarizes it:

      In a meeting on 20 September, Talleyrand questioned the authority of the Inner Circle of the Four to decide on questions that would involve the sovereignty of other nations. His argument touched on the principle of legitimacy, and as this principle was the foundation of the whole exercise, the other powers could not neglect his reasoning. To him, territorial issues could only be decided upon by the Congress as a whole. His tactics delayed the official opening of the Congress and brought him into the Inner Circle on 9 January 1815, which was therefore referred to as the Five instead of the Four.

      So Talleyrand, in a weak position, not only stymied the Four Powers in their very first meeting, establishing himself as a force to be reckoned with, he wedged his way into the inner circle while keeping Spain out. Five is an odd number, so by successfully playing the other four off against each other, Talleyrand was regularly able to act as the swing vote. That is a world class example of how you claw your way back from a position of disadvantage, by conceding nothing and oh so adeptly putting the other side on the defensive.

      Moreover, in asking Varoufakis to engage in Eurozone brinksmanship, a policy to which he is firmly opposed, is asking him to push the markets into a panic and risk a Eurozone Great Depression. If you think Varoufaki is being roughed up by the media now, it would be a pale shadow of the vitriol he would get if he were depicted as pushing the Eurozone into crisis. And if he succeeded by accident (remember, markets can move faster than policymakers can manage events), he’d go down in history with his name besmirched forever the same way Hoover is now. Hoover came into office as literally one of the most accomplished men of his era. Not only was he a completely self-made man from a poor background, but he could legitimately lay claim to be one of the most successful humanitarians in history. His tireless and amazing well organized relief efforts after the devastation of World War I are credited with saving much of the population of Belgium from starvation. He may have saved as many as a million lives.

      That remarkable effort has been relegated to the dustbin of history. All he is remembered for, and not entirely fairly, is having pursued policies that made the Great Depression more severe than it needed to be. Why should you ask Varoufakis to risk being the person to push the Eurozone into the abyss?

      Varoufakis is absolutely correct on what is the right policy, but going about it in such a direct, forthright manner is not likely to succeed unless his forceful stance rallies supporters to pressure the key decision-makers. It could work, but I don’t give it high odds of success.

      1. Gerldam

        You are perfectly right about Talleyrand. the only thing is that he was a genius diplomat and the kinds of Talleyrand are long gone. One French poltician recently said “If Talleyrand would come back within us now, he would stand as a giant among pigmies”. How true.

        1. Yves Smith Post author

          I’m just using him as the gold standard for negotiations to make a point. Varoufakis is in a no-win situation. He has to try to appeal to too many constituencies in too little time, with the media making it impossible to tailor his message to different audiences.

          1. MartyH

            Agreed. And he’s one of the best out there. If nothing else, we’ll get a calibration on the art of the possible (in this situation).

      2. norm de plume

        ‘Talleyrand questioned the authority of the Inner Circle of the Four to decide on questions that would involve the sovereignty of other nations. His argument touched on the principle of legitimacy’

        That is the crux of it for Greece too; in the end, does it have sovereignty? If a government is given a mandate thru the electoral process to take certain actions and these actions are prevented by external bodies, how can the demands of those bodies have legitimacy in the nation concerned? Can the will of a nation (which could only really be ascertained for sure by referendum) really be trumped by supra-national agreements?

        Of course that question applies to Greece now, but theoretically (and perhaps practically in the not too distant future) it applies to all Eurozone members.

      3. charles 2

        Varoufakis is indeed following Talleyrand’s steps. The latter drew a wedge between the “four”, he even signed during the negotiations a secret treaty on the 3/1/1815 with Austria and the UK against Prussia and Russia ! Between Obama’s declaration and nice words from France, I think he is starting well.

  3. washunate

    Words into actions is always the tricky step with politicians…

    I would say it’s not Greece that is in a weak negotiating position. It’s the idea that the banks must be rescued and the EMU must be saved at all cost that boxes them into a corner. As long as Greece remains unwilling to credibly threaten to blow things up, it has little negotiating power.

    As if any of us really know what going on behind the scenes, of course. If you really had some big idea up your sleeve, appearing weak and conciliatory may be a wise short term strategy. The only way to run a primary budget deficit for an extended time period, for example, is to issue your own currency…

    1. juliania

      “…If you really had some big idea up your sleeve, appearing weak and conciliatory may be a wise short term strategy…”

      I can’t comment on the nuts and bolts of high finance, but this statement seems to me to hit home. This was the strategy Putin followed for a long time in the confrontation with the West over Ukraine. He, at the start of that crisis, even after the insults flung at Russia during the Winter Games, was exploring every legitimate avenue to state his case for diplomacy. As he did that, the dialogue began across the world, and the theme of it was, as Pepe Escobar often pointed out, cui bono? It is a conversation the world needed and got,( those who were listening and reading,) about the complexities of the issue.

      That conversation is beginning now for Greece, and I think those desperate citizens are prepared to stay the course.

      One comparison that keeps coming up for me is that of the ‘liars loans’ which during the mortgage crisis were foisted upon black Americans and others desperate to own their own home, even a modest one. That was a criminal enterprise reported on so effectively here. Greece was like that, and sure they went into those loans, some politicians very corruptly. But it was the citizenry of Greece that got taken; their commons now in shambles, their safety net crumbled. That’s the harsh reality, not the linings on banksters’ pockets.

      I have a feeling the Greek Finance Minister knew very well what he was facing, just as Putin did. Terrible things have indeed happened in Ukraine, but they were not Russia’s doing, and the calamity of that nation’s (Russia’s) demise has so far been prevented. Time is on Russia’s side (I know the going is tough right now) and time will be on the side of the Greeks. Plant lots of potatoes, good people – that’s what I am doing!

      1. juliania

        I will also say that Obama, very wise to his own unpopularity in matters domestic and abroad, put in his ‘approval’ of the new government very much hoping to kaibosh the entire enterprise by appearing to support it. He doesn’t. Lipstick on a pig.

    1. Yves Smith Post author

      Yes, see the Ilargi remark in the post. What is good for the money men is not good for the suffering populations of Europe. The markets’ loud vote of approval means they see Varoufakis as conceding points favorable to them.

      1. Kyle


        “What is good for the money men is not good for the suffering populations of Europe.”

        What I don’t get is how the troika can possibly conceive that the Greek loans can remain performing while they are simultaneously requiring ‘reforms’ that are bankrupting the Greek people. The unemployed do not create demand nor GDP.

      2. hemeantwell

        But it’s not at all clear to me if the interests of the money men and the Troika coincide across all options that the money men might be amenable to. Throughout the postcivilized world of financial capitalism extend and pretend measures have been central to the post-2008 fake recovery. Varoufakis is offering that in a form that allows some relief from sadomonetarism and gives the anti-austerity coalition more time to pull together.

  4. Heron

    That Wall Street Journal quote is staggering. It astounds me that a person employed by a bank can say something as stupid as “Country X can just Grow out of it’s problems”, like it’s some Civ III policy issue to be solved by switching a few cities over to Produce Commerce with a handful of mouse clicks, and still be considered a professional. How re these people 1)Employed and 2)Taken Seriously???

  5. James Levy

    This is why we can’t have nice things.

    Everyone likes to shake his or her fist at Obama and scream “sellout!” but he was weak and clueless coming into office and fell into line because it was the path of least resistance when dealing with those who do have power in this society. Here we have a well-informed and thoughtful man and he too is obviously caving and throwing principle out the window (to be fair Obama never had any principles).

    The underlying dynamic is: what decent person wants to take their society over a cliff (you can imagine the punishment that will be inflicted for telling Germany, the IMF, and the ECB to bugger off) for long-term autonomy? Who trusts the voters and the military to sit idly by while the economy goes into a world-historical depression in order to make a point about how you’ve been screwed and continue to be screwed by the Troika? How are you going to pay for food and fuel if the bankers and their State agents cut you off? How do you deal with local agitation and sabotage paid for by foreign intelligence agencies?

    In a little-known incident corollary to the Suez Crisis the French begged the British to push forward even when Ike told Eden that he’d dump US sterling holdings and sink the pound if Britain didn’t get into line. The French government told the British that if they didn’t stand up there and then to Uncle Sam, they’d be reduced to supplicants. Eden promptly had a nervous breakdown and the British caved. Would they have been better off if they had flipped Ike the bird? On some deep level, yes, they would have. Would it have been worth the cost? There’s the rub.

    1. Ignacio (2)

      Exactly. It’s easy to call the shoots when you are the one firing (or in the line of fire).

      Is a pretty difficult situation that could unleash in very unpredictable ways. If Germany and other European nations are determined they could destroy Greece without firing a single bullet in very little time. To the point no other nation ever would question to scape this nightmarish ‘debtor prison’ continent any more (until the whole thing would collapse, which would, eventually, as every corrupt and unsustainable regime does).

      Not even close to the same negotiating position, and probably both parties know it. The path to victory does not lie in Greek soil, unfortunately. They cannot do it alone, and it would not be just to ask them to do it alone.

    2. Calgacus

      Everyone likes to shake his or her fist at Obama and scream “sellout!” but he was weak and clueless coming into office and fell into line because it was the path of least resistance when dealing with those who do have power in this society.
      The fist-shakers are more correct. The US President has enormous power. Obama knew this. What occurred is what he wanted to occur; he was not following a path of least resistance to mythical greater powers. The banksters’ yachts were sinking. But Obama worked hard, even before being elected, to keep them afloat. The people who voted for him were betrayed, to an extent surprising even to his most ardent critics like Paul Street. Nobody forced this “weak” man to unprecedentedly order the open murder of US citizens – even a minor, who even Obama does not say committed a crime – and insist on the Presidential right to murder anyone he feels like, even inside the USA.

      Here we have a well-informed and thoughtful man and he too is obviously caving and throwing principle out the window (to be fair Obama never had any principles).
      Not at all obvious to me that Varoufakis and Tsipras are caving or changing. Much commentary is premature,

      Why, on what deep level it would have been better for the UK & France & Israel to continue on their fantasy-fueled course of aggression against Egypt is obscure, dubious. Suez did not reduce France & the UK to supplicants. The course of history had reduced their international political power; Suez just woke up some dreaming elites to this fact which was obvious to everyone else. Since that power had largely been used for imperialism- good riddance!

    3. 1 Kings

      All he had to do was let the Bush Tax-Cuts expire, which would have made the average person pay their $1000 or so back. The Dick Cheney’s and uber wealthy would have paid back $90,000 or something. Shows the disparity, and why we are multiple trillions in the hole.
      Obama didn’t. And just a reminder-that was several years AFTER he came into office.
      So, the he wasn’t ‘smart enough’ to stop the criminals is so, so weak.

  6. diptherio

    YV has discovered the first rule of living in an abusive family: you don’t talk about the abuse. If you do, you will be persecuted (even more) and belittled, since the only defense for the abuser is to impugn the character of their accuser. Now all we need is for Brussels to call the Greeks ungrateful for everything the ECB and EU has done for them. Oh wait, there it is:

    The country also pays little to service its debt-—which stands at around 175% of annual economic output—because European lenders have granted low interest rates and deferred repayment deadlines, said Mr. Noyer, who sits on the ECB’s governing council and is the governor of the Bank of France…

    Mr. Noyer’s comments indicate little sympathy for calls to lighten Greece’s debt burden

    The thing about abusers is that they are often incapable of recognizing what they are doing as abuse, even when it’s blatant. Point out their abusive behavior and it’s always, “you made me do that,” or, “I’m doing this for your own good.” They simply cannot psychologically accept that they, themselves, are abusers, and that the problem lies with the abuse, and not with the person complaining about it. Not only do they try to convince everyone else that they are responsible, respectable, non-abusive parents, but they have to believe it themselves. Mr. Noyer couldn’t sleep at night if he allowed himself to truly accept the human costs of his and the troika’s actions…no, it must be Greece’s fault…

    If I were YV, I’d just keep calling them out and pointing out the obvious, as he’s been doing. It’s a thankless task, and it’s not going to change the troika’s attitude towards Greece, but it might help break the spell that’s keeping the whole of Europe enthrall to their abusers.

    1. pebird

      “Greece has the capacity to grow quickly, partly because it has an underutilized workforce, Mr. Noyer said. ”

      I assume Mr. Noyer is prepared to invest his personal funds in Greece (bond market speculation != investment).

    2. Seamus Padraig

      Domestic abuse is exactly the metaphor I’d pick, too. The corollary to your point is that Greece, like some of the other so-called PIGS, really seems to have a battered-wife complex. They just can’t imagine facing the world alone without the EU to protect them, so they won’t get up and walk out of an abusive marriage. They probably believe that they have no better options in life than to crawl back to their abuser and beg for better treatment. But we all know how well that strategy works. Apparently, Varoufakis does not.

      1. James Levy

        I’ll bet he knows it but unlike a battered spouse, where is Greece going to “go”? How are Greek people going to eat and heat their homes and put petrol in their gas tanks if they are cut off from all sources of dollars and euros? What will they do when their banking system evaporates and everyone’s savings and all sources of credit are gone? How will the government respond when the relative “haves” (say half the population) revolt against them for impoverishing them?

        To pull off the kind of exit you are talking about would require an overwhelming consensus in the population to do it, a population willing to suffer mind-boggling austerity in the short run to establish a new currency anyone will touch with a barge pole, and a government ready, willing, and able to nationalize everything and redistribute it so that none starve or freeze during the rough transition to independence. This is the equivalent of going to war the old fashioned way (think France in World War I or the Soviet Union in World War II). Where in the West do you have overwhelming majorities who will stomach that?

          1. James Levy

            You’ve got to earn them via exports in order to spend them. What are the Greeks going to sell the Russians and Chinese at prices that would induce Russia and China to buy?

            1. Ned Ludd

              How many ports does Greece have, to lease to the Russian Navy? “There is also talk about stationing Russian naval vessels in Piraeus, Athens’s main port.” (from April 2012)

              Panos Kammenos, a former ND deputy who opposes austerity and admires Mr Putin, says Greece should turn to Russia if, as expected, it needs yet another bail-out… Mr Kammenos’s new party, Independent Greeks, is predicted to sweep into parliament with around 10% of the vote.

              The Independent Greeks are now the junior partner in the governing coalition with Syriza. If Greece asked Russia for a bail-out, Russian Finance Minister Anton Siluanov said, “we will definitely consider it, but we will take into account all the factors of our bilateral relationships between Russia and Greece”.

              Other things Greece could sell to Russia:

              State-owned Russian Railways and Gazprom have been eyeing stakes in Greek assets. Russian Railways has held talks with TrainOSE, Greece’s state-owned passenger and cargo rail operator. In 2013, Gazprom made a €900 million bid for Greece’s state gas company DEPA, but backed out of negotiations at the last minute, citing concerns over the company’s financial stability.

              Russian investment in Greek railways is estimated at up to $3 billion per year.

    3. Fool

      I like where you’re going with this analogy in extrapolating a collective psychology — both Freud and Michael Lewis would be proud — but, c’mon, the kid’s kind of a lazy asshole. How about: The Troika is the emotionally abusive millionaire parents who make their kid pay interest on his college tuition? (A three dudes’n’a’baby scenario also works if you prefer).

  7. dutchnational

    The above is a load of bs. Firstly even prior tot this Greece was promised (as fi Ireland) some easing of terms upon reaching certain criteria.

    Secondly, the restructuring of Greek economy is more than necessary and overdue and not even halfway.
    To obstruct from the beginning was the choice of the diverse greek governments and made for humiliating displays but that was their fault.

    Furthermore, it was the choice of the greek governments to put the majority of the burden on ordinary people. They refused to change the inefficient and corrupt tax system by which the rich and entrepeneurs do not pay taxes. They refused or obstructed selling or reorganizing loss generating state entreprises. They refused to open up closed economic sectors, thereby decreasing investments and growth. They refused cutting back on bloated bureaucracy.

    The new government want the rich and entrepeneurs to pay taxes and taking on part of the burden. In that they are right.

    Generating extra income and reducing unnecessary spending will free up large amounts wich can be used for investments, some reductions of burdens for ordinary people and repayment of debt.

    1. Yves Smith Post author

      Varoufakis is asking for a great deal more, which you seem to ignore. He want more than the good austerity student being given minor concessions as a reward. He wants a major revamping of the basis structure of the deal. He is trying to renegotiate the shape of the table.

      For Varoufakis merely to get what was already likely to be given to Greece regardless is inadequate and way short of what Syriza promised voters.

      As for what the Greeks can get from fixing the tax system, I have no doubt it is meaningful, but that requires getting Greece off of a significantly cash economy. That is not easy to do and will take time. And a lot of the money that has been hidden from the tax man is in the form of liquid assets. That is being moved out of the country at lightening speed. There’s no doubt that a big part of the bank run is the wealthy getting their assets out of Syriza’s hands.

      1. Kyle


        “There’s no doubt that a big part of the bank run is the wealthy getting their assets out of Syriza’s hands.”

        Is there some reason to believe that Greece can’t seize physical assets, much like the IRS does in the US?

        1. aletheia33

          i have been wondering about this also. what better way to immediately suspend the looting by the local oligarchy?
          can someone explain?

        2. Kyle

          Additionally, they should be able to freeze/ban liquid asset expatriation until those accounts have paid any and all taxes due.

        3. Yves Smith Post author

          Yes but the odds are high that a lot of the “oligarach” wealth is liquid and can’t be grabbed. Greece served as a tax haven of sorts.

          1. Kyle

            So, if they don’t pay their taxes then this would be available for seizure? –


            Doesn’t look that liquid to me.

            The banksters are doing what they have always done. Lard the economy up with debt such that they become illiquid. When the crisis ensues due to that liquidity, buy up real assets for pennies on the dollar. First by inflation, then by deflation…

            Plus, I think that if a bank officer were to authorize a transfer of funds out of the country when looking at a 20 year sentence in a Greek jail, he would give it the authorization the consideration that’s required.

            The problem appears then to be political with the oligarchs having captured the government both in Greece and the EU.

            You then, are suggesting that the EU has somehow avoided the government capture that has occurred in the US?? I would think that the best ‘assumption’ sans any evidence to the contrary is that it hasn’t.

        4. Yves Smith Post author

          They can, but I suspect the overwhelming majority of the oligarch’s wealth is liquid. And you can seize it only for non-payment of taxes. So first they have to levy taxes and have the rich not pay.

          The bigger problem is that Greece is still largely a cash economy. Even doctors are apparently paid in cash. So how do you force tax compliance with an economy that operates this way? As another reader points out later, small businesspeople are also a big part of the problem.

    2. DJG

      Thank you, dutchnational, for the official Calvinist theological / economic interpretation. The Greeks, predestined to sin, have sinned greatly. Now they must be redeemed (if they deserve it) by much redemptive suffering. And what happens when it is the turn of your neighbor, oh-so-well-managed Belgium? [And I won’t even go into the merits of Calvin and his theology, which is just the side of L. Ron Hubbard in plausibilty.]

  8. hemeantwell

    The abuse metaphor is sorta apt. However, it seems to lead you away from the point that we are witnessing an exercise in political economy, and Varoufakis is doing all he can to delegitimate the Troika’s position and thereby threaten them with the uncertainties of mobilizations against them throughout Europe. At this point it is hard to say how effective this will be, but there throughout Europe the nominal social democratic power holders are being increasingly undermined as forces to their left, and right, shape up.

    As for Varoufakis’ current proposal, I recall last week an interview with another of Syriza’s economists who was stressing conversion of the debt into long-term zero coupon bonds. This sounds similar. ?

  9. 1 Kings

    Europe yes, EU no.
    Nice succient slogan for the anti-austerity movement.
    Meaning we’d like/want light federalism, not monarchical control. Works for us U.S.’ers as well.

  10. Ned Ludd

    It is telling to observe how quickly Syriza stepped “Back Into Line With European Union Policy on Russia Sanctions”.

    The establishment was worried “that the election of a far-left government in Greece hostile to sanctions could upend Europe’s policy toward Moscow.” Look, something to bargain over! “All decisions on sanctions require unanimous approval…” Leverage within the existing rules!

    Greece’s opposition to the sanctions had stirred fears that the new government would undermine what, since last summer, has been an unusual display of unity by Europe’s normally fractious and indecisive nations.

    Even “diplomats and analysts” recognized “that Greece’s tough words against sanctions could be a bargaining ploy aimed at winning concessions from Brussels on a bailout package whose terms the new government wants to renegotiate.” I wonder how many minutes, in total, this “far-left government” kept this bargaining chip on the table.

    In the end, however, Greece backed away from strong statements denouncing sanctions and joined other countries in the 28-member bloc in a unanimous vote in favor of expanding a list of sanctioned individuals, mostly Russians… […]

    The Greeks “deleted a few words, but that is not a big deal,” Linas A. Linkevicius, the foreign minister of Lithuania, said in an interview. He said the gathering of foreign ministers had been far less contentious than expected…

    If they refuse to even attempt to use a potential bargaining chip, and they instead vote to expand sanctions designed by the U.S. to undermine European-Russian relations, then Syriza is the dog that is all bark and no bite.

    1. aletheia33

      YV’s clarification:
      ”A question of respect (or lack thereof)… – the Greek veto over Russia that never was
      ”Posted on January 29, 2015 by yanisv
      ”On the first day in our ministries, the power of the media to distort hit me again. The world’s press was full of reports on how the SYRIZA government’s first foreign policy ‘move’ was to veto fresh sanctions on Russia. Now, I am not qualified to speak on foreign affairs but, nonetheless, I must share this with you at a personal level. Our Foreign Minister, Nikos Kotzias, briefed us that on his first day at the job he heard in the news bulletins that the EU had approved new sanctions on Russia unanimously. The problem was that he, and the new Greek government, were never asked! So, clearly, the issue was not whether our new government agrees or not with fresh sanctions on Russia. The issue is whether our view can be taken for granted without even being told of what it is! From my perspective, even though (let me state it again) I am certainly not qualified to speak on foreign affairs, this is all about a question of respect for our national sovereignty. Could journalists the world over try to draw this important distinction between protesting our being neglected from protesting the sanctions themselves? Or is this too complicated?”

      1. Ned Ludd

        The Syriza-led government voted for a “six-month extension of sanctions imposed last March that would otherwise have soon expired”. These sanctions hurt the economy of Greece (and other European nations), as well as giving away a bargaining chip that, as diplomats and analysts confessed to The New York Times, could have been “aimed at winning concessions from Brussels on a bailout package whose terms the new government wants to renegotiate.”

        Greece also undermined their own energy minister:

        On Wednesday, Greece’s newly appointed energy minister, Panagiotis Lafazanis, said, “Greece has no interest in imposing sanctions on Russia,” according to the semiofficial Athens News Agency. “We have no differences with Russia and the Russian people,” he added.

        Apparently, though, what is important to the Syriza-led government is that they get their chance to hold the rubber stamp and lend their imprimatur to a damaging, anti-Russian foreign policy decision, in order to show allegiance to U.S. imperialism. “A question of respect” is Yanis Varoufakis demonstrating why no one should respect Syriza.

  11. MarcoPolo

    Again, I think you’re missing the bigger picture. A one-off debt reduction doesn’t do a lot for Greece.

    Most Greek debt is held by other EZ member-state Central Banks. It simply isn’t likely that they could ever pressure those countries to accept a direct haircut. Meaning, the only way to achieve that would be through default.

    Even if they did manage :
    Reform would likely stop right there
    They would keep the same moribund economy
    They would keep the same dysfunctional national government
    It wouldn’t instill confidence in Greek investments going forward
    Without growth in the Greek economy they would eventually be back for more

    And default doesn’t repair any of those problems either.

    From the beginning they have argued for “modest proposals”. “Breathing space” to get the economy growing. And policies that would stimulate that growth – not a continuance of the on-going austerity policies which have proven a failure.

    AND THEY HAVE ALLIES IN THAT. In negotiating you’ve got to know your limits too. This is all they were ever going to get (default being their only other option).

    All they need do is drive a stake in the heart of that failed northern ideology which has dominated policy. And I believe they’ve already done it! It looks to me that old facade was more fragile that it appeared. France is on board. Britain too (without a vote). Cyprus; I can’t guess what they’ll do after having already been nailed to the wall. Italy, probably too. Spain for certain but only after Rajoy is gone (this fall). Portugal probably like Spain.

    But this is the key: this is the last best chance for the Eurozone and everybody knows it. If this doesn’t work the whole union comes apart. The stakes are that high.

    1. Yves Smith Post author

      You seem to miss that Germany does not care. They do not want to give the Greeks any space because doing that allows everyone in the periphery to demand a better deal. That is anathema to German voters. Even if Merkel and Schauble were to have a conversion experience on this topic, trying to implement would be signing their political death warrants. And Germany has been just as opposed to plans to move far enough in the direction of Euro integration to allow more fiscal spending at the Federal level, such as Eurobonds.

      Germany seems determined to push the current model to destruction, and the Finns stand allied, and likely the Dutch. The opposition of the key surplus countries is enough to make Varoufakis’ mission fail. The “support” that Michel Sapin offered last week was very weak tea, and as I indicated, Noyer, France’s man at the ECB, is opposed.

      We’ll see how opposed the ECB is in part by what if any conditions it imposes Wednesday, but FAZ reports that the ECB is also not on board.

      1. MarcoPolo

        I’m not missing that, Yves. Greece will never bring the Germans around. That’s a given. These things will be done over German objections – and screams! And these things you are reading are the German position. But that isn’t the only position. Greece can find allies among the others. And they will. Austerity is done.

  12. Obereit

    Europerspective yesterday shows the Greek strategy – one I think has much better chances of success than we might think.

    1. PR battle for public opinion: as a commentator yesterday pointed out, Germany finally waking up to the fact that it was forgiven 90% of its debt in 1953. Rock Stars T&V make this a consistent media message: As Germany showed in 1953, debt forgiven produces economic miracle. Why won’t Germany now see that truth? Spain, Italy, Portugal, Ireland and others will be listening. Repeat, repeat, repeat.

    2. Greece remains committed to all options on the table ie, including Grexit. ECB and everyone else knows a Grexit will pop the bond bubble – which doesn’t take much when €12 trillion EU sovereign nation debt backstops €100 trillion in magical thinking derivatives trades – since at the slightest twitch of trouble the Bond Vultures will fly away like oh so many birds from a telephone wire. Why? Because Spain, Italy, Portugal and Ireland might be in play as well (see point #1 above). Margin call on this scale would be Lehman Brothers on a whole nother level.

    3. On a more emotional level, the EU, although unfortunately still only a monetary union, is for the post-war generation in Germany – and other EU states – their redemption for sins of the past. There pride as a beacon of civilization – and not colonialism and world wars – depends on the EU working. As SwedLex points out: no one wants to be known as the person who “pulled the trigger” on the EU. Draghi doesn’t, and none of the Germans do either. And the Germans won’t let the Finns kill the EU. When the Germans and others waver, repeat point #1 above.

    4. Carrot offered by Greece is renegotiating debt using 1953 type German bonds – interest generated and owed only if economy is expanding – and extending repayments to an off in the future date (I think this is what T&V are proposing, in essence.) Everybody saves face, everybody claims victory. EU moves forward towards forming a more perfect union…one like ours (Amerika), where wealth is redistributed from rich states Delaware ($.50 received per $1 fedincometax) to poor states like Alabama ($3 received per $1 fedincometax).

    1. Yves Smith Post author

      With all due respect…

      1. A few comments in the media are not changing public opinion. One of my colleagues reads the German press daily and sees no change in tone on austerity. For years, there has been the occasional story that austerity is terrible and will cost Germany dearly in the end. It hasn’t penetrated the collective narrative. Now if you were to see a sign of a change in official messaging, that would be a huge deal because the press follows that. It would mean Merkel and Schauble were trying to re-propagandize the public in the other direction before changing their tune. But there is no sign of that.

      For instance, today in FAZ, the message is that Varoufakis’ tour is not succeeding. FAZ had reported yesterday that Italy was backing Germany. If the biggest periphery country, one that is also suffering from austerity, but not as badly as Greece, won’t support Greece, why should Germany? Even if the report is wrong or exaggerated, that is what the Germans are being fed. From the FAZ site via Google translate, on Varoufakis’ upcoming visit to Germany:

      The new Greek Finance Minister Yanis Varoufakis is the first time to travel on Thursday since he took office in Berlin. This was announced by the politicians on Tuesday told journalists during a visit to Rome. A meeting with his Italian colleague Pier Carlo Padoan was “useful and constructive”. However, it ended without a press conference and with some cautionary words of Italian. Not a word he commented on the proposals Varoufakis’ to convert the securities held by the European Central Bank Greek debt in “eternal bonds,” without the Redemption Date , to cut interest rates for the other loans the Euro countries and their level of economic output in Greece socialize….

      Varoufakis and Tsipras find no allies

      Varoufakis and Greek Prime Minister Alexis Tsipras found on their tour through Europe no allies for their plans a restructuring of Greek debt. This Wednesday Tsipras meets French President François Hollande and the EU Commission chief Jean-Claude Juncker. That Tsipras warned against exaggerated claims: “It will not change anything because of an election result, which some like and dislike others.” The expectations for the meeting are according to diplomats information low. German Chancellor Angela Merkel (CDU) reacted cautiously to Varoufakis’ proposals. By members of the CSU demands were rejected after a debt restructuring.

      The proposals Varoufakis’ for debt restructuring initiated in the ECB no sympathy. On a debt-swap the ECB, which holds an estimated 27 billion euros Greek bonds for, will not participate, “That will not work, as it introduces Varoufakis,” it said from the ECB. “Greece has only deliver in terms of reforms.” The time until the expiry of the monitored aid program in late February is running out.

      Speigel has a report on the effect of the Syriza win on anti-austerity parties in Portugal, Ireland, Spain, and Cyprus. It says (basically) that the impact has been biggest in Spain. But its conclusion is tame:

      In summary: Syriza victory gives the anti-austerity movements in Ireland, Portugal, Spain and Cyprus buoyancy. How much they gain strength, will depend on how big the concessions that wrested Greece’s new prime minister to his creditors.

      Spiegel is less conservative than FAZ, yet the comments on that article are overwhelmingly negative towards the periphery countries. Der Spiegel also has a bland, evenhanded writeup of Varoufakis’ meeting, but gets some mild snark in the first para. Also notice this story is not on the first page; I had to search for it:

      At its charm tour through Europe wants Greece’s new finance minister also Varoufakis ECB chief Mario Draghi visit in Frankfurt. Varoufakis wants to replace bonds purchased by the ECB through bonds with an indefinite term – to the delight of speculators.

      2. As I have said repeatedly, Varoufakis has taken a Grexit off the table. He has a long history of firmly opposing it as a disaster for the Eurozone and therefore for Greece. Readers keep wanting to attribute to Syriza negotiating positions it has NEVER taken. Stop projecting your fantasies onto them.

      3. With 2 in place, no one is going to pull the trigger. The worst is that Greece defaults within the Eurozone. Greece is 11 million people out of a Eurozone of what, 340 million people?

      4. See the quotes in 1. The ECB alone can block this idea, since the ECB controls the lifeline to Greece, the emergency lending authority.

      1. Obereit

        With even more respect for one to whom it is due, YS,
        1. Public Opinion is huge. Obama out of nowhere in 2008 when the eilit narrative was Hillary? Official narratives of German establishment thrive in the echo chambers of FAZ and Spiegel. Just as our great country shows massive disconnect between popular opinion and our betters on important issues (minimum wage, health care, SocSec etc), so too in Germany. And the Greek tide changing is just that for the hoi polloi of Europe: the sign that the status quo of the past 40 years is beginning to change. Italy Spain and France are key dominoes. March elections in Spain will be huge. Public Opinion still counts – if there are leaders who can cyrstalize the general will, and T&V seem like they can do this. Reform don’t deform – V. is a genius.

        2. Grexit off the table before the election – conceded – but has a politician ever changed a ‘fundemantal position’ after an election?

        3. That won’t be necessary since endgame is still: Greece renegotiates debt using 1953 type German bonds – interest generated and owed only if economy is expanding – and extending repayments to an off in the future date. Negotiations will be about the fine print of both. Everybody saves face, everybody claims victory. Frightening ‘Radical Leftist’ parties continue to win, if they have efficient leaders – in elections throughout Europe.

        BTW: ECB considering leaving troika, Germany’s Handelsblatt Reported on Tuesday.

        Seems ECB sees sovereign bond-buying plan generating conflicts of interest, that provide excuse to exit the Trioka.

        Handelsblatt also claims the IMF seeks exit as well, while EC’s Juncker has stated he wants a rebuild “with more democratic controls.”

        Even if unrelated to Greece, if the Handleblatt report proves true, this may be a harbinger of future changes elsewhere.

        1. Yves Smith Post author

          1. Are you seriously citing Obama as proof that public opinion matters? With that statement, you’ve completely discredited yourself. Obama has consistently adopted anti-middle class, pro-rich, neoliberal policies, with some identity politics and liberal decoration to fool the chump public that he sold out.

          Moreover, Obama was annointed in the 2004 Democratic convention and moved up the ranks very quickly. He was no outsider. The idea that his success was due to small donations is a total fabrication. He was supported heavily by Wall Street and paid them back in the bailouts. And he did not win by an impressive margin either. McCain’s Hail Mary pass of choosing Palin (!!!) and his poor performance during the crisis, such as when both McCain and Obama were called in by Bush to some meetings, helped seal his fate. You seem to forget that the passage of the TARP was due in large measure to Obama whipping for it personally.

          The Italian government has reportedly indicated that it is backing Germany on Greece.

          The ECB plans to force Greece to take a deal by February 28, and if they succeed, the Spanish elections are moot.

          2. Varoufakis is personally opposed to a Grexit and has written so for years. I can pretty much guarantee he’d resign rather than pursue a Grexit.

          3. No one but Greece sees that as an option. The message back from the Eurocrats is that they expect to negotiate within the existing framework, which means the only levers are extensions of maturity and lowering the interest rate. Those will reduce Greece’s debt burden in economic terms, but it is unlikely they’d get enough of a maturity extension to make as big a difference as they want. They are already at 30 years, and taking it to 50 does not have a big impact in present value terms. They’d need to go to more like 100 years and it does not seem likely that the northern countries will swallow that.

          I see no confirmation of the Handelsblatt story. It was picked up Reuters but Reuters did not attempt to confirm it, and no other news outlet is running it, including any of the other financial press. And the Reuters writeup is unclear as to what exactly it is withdrawing from. It looks like the bailout monitor role, as opposed to the much more important role of negotiating rescues. But if the ECB is withdrawing from bailouts, that would be because it is using QE instead.

          Regardless, as we noted, the ECB’s ability to rein in Greece is due to its backstopping the Greek banking system, and its ability to approve or veto the release of funds under current bailouts. That is not changing between now and the end of February.

    1. Yves Smith Post author

      Calling it a write-off works against his messaging with the Germans. He should be willing to swallow a tactical concession. Trying to claim consistency works against his bigger aims.

  13. Fool

    Consciously or not, your headline implies that YV has betrayed some ideological position. (That’s just my impression, as someone who’s been a daily reader of NC for +2 years and is thus generally familiar with your style). I would like to point out that YV’s duty — that is, his duty to his existentially threatened country as he negotiates against her overlords — is not to ideology. As symbolically important as it might be to you that Greece’s debt gets a haircut (as, symbolically, it would be important to me too), needless to say, YV’s principal concern is with alleviating the suffering of his people and securing its future.

    That the fate of the Eurozone essentially lies in the hands of a guy who’s been featured so prominently on these pages — of all pages! — is significant in itself and which I believe calls for a little less pessimism.

    1. James Levy

      It’s not that simple. Alleviating the suffering of his people in what time frame? If I’m a slave and my master feeds and clothes me today, he’s alleviated my suffering–but not in the long term, because I remain a slave. The same is true of securing the future: which future, the future in which Greece remains a debt peon of Germany and the banks, or a future in which Greeks make democratic decisions based on what they think is good for Greece? You see, ideology is inescapable here because ideology tells me what kind of future I find normatively acceptable and which I do not.

      1. Fool

        I was conflating Greece’s continuing peonage to ze Germans — which is to say its continuing servitude under the latter’s harsh stipulations — as a continuation of its suffering. But refinancing the national debt, needless to say, is not in and of itself a form of peonage. Unless you want to be a literal jerk, debt itself isn’t peonage; indeed, all nations run on debt!

        My view is that YV has leveraged as best he can the threat of fallout that would arise as a result of a default. While a haircut would mean a national victory for Greece, it would also mean a political/ideological victory for YV/Syriza (and for Yves and her readers, myself included). But if getting everything you wanted were so easy, there wouldn’t a negotiation to begin with. If indeed YV can save Greece here it would be a magnificent achievement; and on that note, I don’t think it would be the worst thing in the world to leave the other side with their dignity in tact. If it will save Greece in such a way that placates her creditors — as the latter, I would think, presupposes achieving the former — then bring on the growth-linked bonds and other such “debt swaps”.

    2. cassiodorus

      “YV’s principal concern is with alleviating the suffering of his people and securing its future.” Right, which is why a retreat on spending would be a bad deal for Greece.

    3. Yves Smith Post author

      I am pointing out that Varoufakis has retreated on two important points from his original bargaining position without getting a single concession from the other side.

      Free concessions are either the sign of an inept negotiator (which I do not think Varoufakis is) or someone who realizes he has overplayed his hand. Varoufakis is trying to break the frame in Europe and rally support for Greece’s position. Despite the impeccable financial logic of what his is saying, he is running into a brick wall of pre-estasblished views and positions.

      1. Fool

        How often are distressed debt negotiations played out publically? The very public nature of YV’s new proposal could itself be a concession — like I said, of allowing the other side their dignity — and we have no way of knowing whether or not something was achieved in return. (Believers in Efficient Markets would be inclined to this view as the Greek stock market is up 11.27% on the day).

        Don’t forget that the Troika is principally a political body and so, literally and figuratively, their power is the sum of their political capital. YV, in contrast, is just a really smart dude serving his country; his priority is Greece, not his political image.

  14. c1ue

    So what’s your view on Varoufakis’ work thus far?
    To me, it seems poorly thought out and even more poorly executed.
    Varoufakis’ MMT ivory tower thought experiments, to date, are not playing out well in reality. On top of that, as you note above, Syriza has clearly let him throw himself to the lions. If he fails, he’ll be counted as a rogue not only by the rest of the EU banksters and MSM, but by his own party.

    1. Yves Smith Post author

      Syriza made some pretty bold promises to the electorate. Someone has to be seen to at least make a serious effort to secure them. That someone has wound up being Varoufakis.

      I think diptherio’s point re abuse and abusers has merit. A big part of the cold shoulder to Varoufakis has to do with the fact that the Eurocrats are hostile to his message, that austerity is an abject failure. He has to talk about that as a basis for trying to get a better deal. The Germans and Finns simply refuse to believe that. There is probably a contingent in Brussels that is still drinking the Kool-Aid. But there is another that knows it isn’t, and that the reasons for continuing it are lousy (to punish/scare the others) and that continuing it is going to blow the Eurozone up. Varoufakis is trying to reach and ally with them, as well as the broader public. The problem is those more sensible technocrats will admit to their views only in private. So it’s well nigh impossible to Varoufakis to find them ex-ante. Plus as I alluded in the thread, the fact that so much of what he is doing is so public is no help either. He can’t feel out specific interlocutors and tailor his pitch to them. He has to broadcast rather than narrowcast.

      So what he is doing may not look pretty but I don’t see how he could have done better, only different. The one thing I do think was a mistake was taking the Grexit threat off the table. But playing with that is a very risky strategy, and I really doubt he could have Tsipras’ backing even to bluff. Plus his clear anti-Grexit stance historically would also have made it difficult for him to bluff credibly.

      1. dbk


        Agreed. Taking the prospect of a Grexit off the table ab initio was probably a crucial mistake, and one for which the Greek people will pay dearly.

  15. Santi

    Can anyone around explain me what

    indexed to nominal economic growth

    as opposed to

    perpetual bonds

    means? I mean, how would this indexing be done.

    1. Eureka Springs

      Good question. Perpetual bonds sounds particularly onerous. I’m guessing both mean – extend and pretend.

      1. fosforos

        A “perpetual bond” is one that never has to be repaid. That is how the British Empire financed itself over the centuries (they were called “Consols”)

      2. Jim Haygood

        Moreover, consols have a fixed interest rate, such as the 2.5% UK consols which have been outstanding since 1903.

        GDP-linked bonds pay out according to a formula, when GDP exceeds a floor value (such as 3%) and sometimes other conditions. Given the unpredictability of future GDP growth, GDP-linked bonds are inherently riskier (more volatile) than fixed-coupon bonds. In fact, they can be more volatile than equities, as their prices soar or crash with each quarterly GDP update.

        Getting creditors to swap fixed-coupon bonds for GDP-linked bonds can be viewed as a kind of debt-equity swap, a common technique for giving creditors some future upside in exchange for forfeiting their entitlement to predictable coupon payments now.

        1. hemeantwell

          In the article I linked above their European Debt Conference proposal would be for 1% zero coupon bond to be bought back when the ratio of those bonds falls to 20% of GDP. It’s a bid for a breather, and one tied to indices of recovery. It’s not cancellation, but it’s making Sisyphus’ rock more manageable.

    2. michaelc

      Growrh indexed bonds were the vehicle Germany was awarded in their postwar debt deal. Basically, no payments were due if there was no growth.
      Clever of Greece to suggest they get the same deal from Germany.
      How could the Germans reject a solution that has been proven successful?.For them.

  16. /L

    Is sectoral balances still valid, businesses between state and citizens is a zero sum game? 1.5% public surplus means 1.5% citizen deficit that require at least 1.5% current account surplus to be sustainable. Otherwise private sector have to increase its debt burden. Usually Greece have current account deficits, it’s supposed for the first tine since long to have a very tiny surplus 2014. This due to extreme austurety that crushed import. How is Syriza supposed to stimulate it’s domestic economy inside the EU/euro system and keep import down?

    1. financial mattters

      The Greek economic team includes Rania Antonopoulos who is well-versed in sectoral theory,

      As Stephanie Kelton has presented:

      “”Using Godley sectoral balance (govt deficit = private surplus + current account deficit) Greece has very little fiscal space. It must keep it’s deficit to 3% of GDP and it along with 14 other Eurozone countries are running a current account deficit. This makes it virtually impossible to turn its private sector balance positive. Governments with their own currency can afford to employ labor so unemployment is always a policy failure. The only real constraints are full employment of resources and inflation. Countries with floating exchange rates have more policy space.””


      One way or another Greece needs more fiscal space. It bears mentioning that the US has fiscal space but also has an artificially imposed debt ceiling. (primarily used for social programs)

      1. Yves Smith Post author

        I agree 100% with what OUGHT to be done, but what OUGHT to be done is separate and apart from what the people that Varoufakis in negotiating with believe is in their interest.

  17. William C

    My guess, for what it is worth (I was involved in similar negotiations myself on a number of occasions during my working life), is that the new Greek government wants to establish its credentials as a responsible administration by showing a willingness to consider different ways of addressing Greece’s problems. An important part of its audience, apart from the markets, is wider opinion. If it is successfully categorised as ‘a bunch of crazy lefties’ (which plenty are trying to do) then it will have far less leverage. I hope it works . Something needs to.

  18. mpr

    Completely disagree with this analysis. In fact I’ll go out on a limb and say that the Europeans (ECB, Germany etc) have already lost the negotiation at this point, and its only a question of making precise the terms of surrender.
    The masterstroke, was Varoufakis announcing they didn’t want the next tranche of the bailout, and would cease technical cooperation with the Troika. This puts the ball back in the European court.

    Yes, its true that in a narrow technical sense the ECB could force Greece from the Euro, but they would be loath to do so without a European political consensus to that effect. I think Draghi is on record saying as much. They won’t do it while negotiations among democratically elected governments are ongoing. That would be a crisis of legitimacy for the ECB. There is also the political cost of writing off a complete default in the event of a Grexit – for ECB, Germany and everyone else, and the turmoil this would cause in the rest of the financial system. They have fireproofed it to some extent, but there would still be significant costs. More generally a Grexit would call into question the whole idea a united Europe.

    On the flip side, while Grexit would be painful for Greece, it has to be weighed against a permanent depression.
    So Syriza can credibly play chicken. Varoufakis knows the ins and outs of the monetary system in Europe, and he knows where the exploitable political pressure points are. As long as he doesn’t insist on something which makes the Germans really resign themselves to a Grexit (thats presumably why he dropped the idea of outright write downs) and gives them some politically palatable way out, he knows they’ll take it.

    1. Yves Smith Post author

      You missed that:

      1. Greece will still need a bailout by June. It can’t pay maturing debt then and will default if it does not have a deal. So refusing a deal is not an option. Varoufakis has at most 4+ months. This not needing money is true only in the short term. Greece has said it will not default so it needs to come to terms with the Troika.

      2. The ECB holds the trump card in terms of access to the ELA. The governing board will most certainly approve the Greek central bank’s request to provide ELA funds to Greek banks on Wednesday, but it may impose conditions, like moving the “you must have a deal” date up by making continued access to the ELA contingent on having a new deal in place. Shortening Varoufakis’ window to try to muster support in the rest of the Eurozone would make his already low-odds battle well nigh impossible.

      Varoufakis can get an extension of debt maturities and a reduction in interest rates. Pretty much everyone expected a deal like that regardless of what posture the winner of the Greek election took. It is getting much more than that that is in serious doubt. All Varoufakis has to offer is the Syriza commitment to crack down on the oligarchs and reform the tax system. The more enlightened bureaucrats really want to see that, but how much they are prepared to trade to get that is yet to be determined.

      1. mpr

        “Greece has said it will not default so it needs to come to terms with the Troika.”
        Of course Greece is making positive noises about working with their “European partners”, and that they are sure everyone will work together. That puts more pressure on the Europeans, not to be unreasonable. They don’t threaten outright default, but its naive to think that this means its off the table as a – possibly implicit – threat. Everyone understands that is what the alternative is. Indeed the positions Varoufakis is taking – refusing the next tranche of funding, and to cooperate with theTroika clearly amounts to that threat.

        As for 2), you’re again confusing what technically vs. politically possible. The ECB can impose whatever conditions it wants. Greece might not meet the conditions while continuing to negotiate “with their European partners”. Is the ECB going to pull the plug in such a scenario ? No, they are not.

        “Varoufakis can get an extension of debt maturities and a reduction in interest rates”
        As you well know, depending on the maturity and interest rate this can be as good as any write down.

  19. Brooklin Bridge

    I’m still running XP and my next stop will be some flavor of Unix or Lennix. In the meantime, just installed latest version of Firefox. What a mistake. That may be why i have a comment intended for this NC thread that was just eaten (twice), not even put in moderation.

    The install put Norton Virus (anti virus my foot) all over the place and Yahoo threads are choking the system. Getting rid of them as fast as I can track them down. Ugg!

    It’s slowed my machine down to just above a crawl. Essence of crapification for (their) fun and bucks.

    1. Brooklin Bridge

      Lennix Linux. Don’t know why I can’t get that misspelling out of my head, maybe it’s too close to Linus or something.

  20. fosforos

    Greece has indeed the upper hand, if it applies Modern Monetary Theory to the threat of its banks being deprived of liquidity by a ECB default on its obligations as a central bank. Because what makes something money is that it is acceptable for payment of taxes. So they could issue euro-denominated Tax Anticipation Certificates (to be called the “Solon”) both to recapitalize the banks and to pay for a portion (ie., the tax-receipt proportion of GNP) of current expenditures. The Solons would circulate domestically on a par with the regular euro because they would immediately be taken back by the government as taxes, while, (the Greek balance of trade being roughly equal), imports would be financed to the extent of export earnings. Then the “compromise” (reschedule rather than repudiate) on the long-term debt would allow the Greek economy to expand rapidly enough to retain a small primary surplus and, over time, retire the Solons.

    Their bluff Syriza humbles
    with proferred compromise.
    Omelettes not to unscramble
    explicitly. That’s wise!

      1. fosforos

        Legal Tender means “legal tender for all debts public and private.” A Certificate legally valid only for payment of taxers, but not of private debts, is therefore not legal tender under Article 16. But since everyone has to pay taxes, it would circulate as if it were “money” and so provide the needed liquidity. Greek banks could still hold euros earned from exports to finance imports. There is no formal procedure to expel Greece from either the eurozone or the EU.

    1. c1ue

      Low credibiity. Greece’s economy is simply far too small to absorb a significant enough number of Solon euros, even if such an imaginary construct were legal and accepted by the ECB – which they would not.
      Calling an illegal issuance of euros legal doesn’t make it so. The arbiter of such is not Greece, it is the ECB – hence the problem.

    2. Ben Johannson

      Solons can’t address liquidity issues. They can act as a paper currency but Greek banks, so long as the country remains in the eurozone, will require euro reserves to satisfy payments.

  21. Jess

    So, anybody have any idea what Golden Dawn’s fiscal policies will be? Because it looks to me like if YV and Syriza don’t make good, the Greek voters will throw them out and try the only remaining alternative. Would Golden Dawn bolt the Euro? Is this a case of: if the left doesn’t take the hard road, the right will?

    1. Yves Smith Post author

      Greece is already close to being a failed state. That suits Germany just fine, since it is a demonstration case of what happens if you become too profligate and don’t do austerity hard enough.

      Of course, that argument is a complete crock, since the bailout money went almost entirely to French and German bank and not the Greeks, and austerity is failing to work anywhere. But Greece is still serves as a useful warning of what happens if you try to defy the Troika.

      I agree this is remarkably short sighted, but the positions of some of the key actors are inflexible, no matter what the long-term consequences.

  22. Oregoncharles

    Syriza’s and Greece’s chances depend crucially on just how stable the Eurozone is, and especially on how stable powerful people THINK it is. I repeat that we don’t actually know that, except possibly for Varoufakis himself. Germany claims that everything is hunky-dory; they might believe that, or they might be blowing smoke for obvious reasons (that being politicians’ job). The same applies to the EU management and the ECB. Unfortunately, there’s only one way to find out. The ultimate question is whether they’re willing to risk the entire Eurozone in order to discipline Greece. Given that disciplining Spain and Italy, to say nothing of France, would be another kettle of fish altogether….

    Germany’s biggest problem may be that historical memories are much longer in Europe than here – and the Nazi occupation was a direct experience there. The more that the Euro and austerity look like a new German occupation, the more trouble they’re in. They cannot afford to stand alone on this. Come to think, France is probably the swing vote.

    1. Yves Smith Post author

      Did you miss my earlier post? Noyer, who is the head of France’s central bank and on the ECB governing council, not only nixed debt reduction, he took the position that Greece is perfectly able to pay its debts:

      Greece can quickly reduce its public debt ratio by boosting economic growth, European Central Bank policy maker Christian Noyer said Monday, casting aside the idea of writing off part of the country’s debt mountain.

      Greece has the capacity to grow quickly, partly because it has an underutilized workforce, Mr. Noyer said. The country also pays little to service its debt-—which stands at around 175% of annual economic output—because European lenders have granted low interest rates and deferred repayment deadlines, said Mr. Noyer, who sits on the ECB’s governing council and is the governor of the Bank of France…

      Mr. Noyer’s comments indicate little sympathy for calls to lighten Greece’s debt burden after the Syriza party won snap Greek elections last week on a platform of securing debt relief from its €240 billion bailout and changes to the terms of the deal with eurozone countries.

      And your assumptions about “swing vote” seem to be misplaced. The FT gives the impression that the ECB is pretty unified in its stance, and FAX reported that Italy is backing Germany.

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