Illusoire indépendance de la BCE

Jun 1, 2016 Yanis Varoufakis

ATHENES – La garantie de l'indépendance des banques centrales est un élément crucial du credo que l'on attend des dirigeants politiques "sérieux" (on peut y ajouter l'appel aux privatisations, à la flexibilité du marché du travail, etc.). Mais les banques centrales doivent être indépendantes de quoi ? La réponse paraît évidente : indépendantes des Etats.

En ce sens, la Banque centrale européenne (BCE) en est la quintessence : aucun Etat en particulier n'est derrière elle, pourtant c'est la moins indépendante de toutes les banques centrales du monde développé.

La principale difficulté tient à la clause dite de "non-intervention" - l'interdiction d'aider les pays membre insolvables. Les banques commerciales étant la source essentielle de leur financement, la BCE doit refuser toute liquidité aux banques des pays membres insolvables. Elle n'a donc pas le droit d'intervenir à titre de prêteur de dernier recours.

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0 Comments on this paragraph, 53 in all 53 Comments on this article

M M Jun 10, 2016

Gentlemen, this Greek government and all previous Greek governments should have never agreed to any bailout. Varoufakis was right to oppose any new bailout for Greece but he was in the minority (and possibly on his own in truly opposing it) in the 1st Tsipras Government. All these so-called bailouts for Greece, that happened under Obama’s watch, were done out of sheer vindictiveness against the Greek people and against the citizens of other countries living in Greece (incidentally there is a very large German community living in Greece that also suffered as a result). The EU has got one of two choices, either to truly reform or to dismantle, no third option. The US is in need of an injection of sanity right now, before they return the world to the 90s’ but with totally incompetent people in charge.
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Pierre-Jean Raugel Jun 9, 2016

@ Peter

Thank you to have taken the time to read one of my article.

However, you have read it with a nationalist and/or ethnicist point of view, which is not very rigorous.

I did not oppose a French tradition of inflation to the German phobia of inflation, but exposed the utilitarian perception of the inflation by the US macro-economist (and Nobel Prize) Paul Krugman and tried to show that the German phobia of inflation is correlated to a micro-economic point of view.

There is two evidences on which I base my reasoning:
The ordoliberalism is an obvious success from a microeconomic point of view.
The application of the ordoliberalism principle to the macroeconomic field in EZ has generated the worst macroeconomic failure of the capitalist world since the end of the WWII.

Whereas the ordoliberalism is concrete when it describes the relationships between the economic agents, it can only be an abstract catalog of ethical injunctions disconnected from the reality when it is applied to the macroeconomic aggregates.

I try to show that the macroeconomic point of view, represented by PK, JS and other neo-keynesian (from US, UK, France, and other countries) describes well a facet of the economic reality, but is incompatible with the micro-economic point of view of the ordoliberalism, which describes well another facet of this reality. This generates a double bind, which it’s impossible to resolve and imposes a permanent negotiation between the regulators (whose opinions can only derive from the necessity of the adaptation to the interdependence of the human beings) and the regulated people (whose opinions are only valid when they derive from the imperative of the control of its own life), who have nothing to say about the regulation but have the legitimacy to choose, at an individual scale, the way of its appropriation which is the more compatible with the control of their own lives.
This has nothing to do with the Mitbestimmung (an old system adapted to the after war years), but can be compared with the relationship between the GAFAM (Google, Apple, Facebook, Amazon, Microsoft) and their users/customers.

For your personnel governs, I hate Voltaire and was Hegelian when I was young. Most of my preferred French musicians lived or live in Germany (Boulez, Mark Andre, Brice Pauset), ich habe sehr gern Helmut Lachenmann but detest Henze, I have been enthused by the self-description of Enno Poppe as the son of CPE Bach and of the Krautrock, but detest Pintscher (the German conductor of the French Ensemble Intercontemporain). I think that CPE Bach was the best European musician of the 18 Jahrhundert, but consider his father JS as a vulgar ass – blessed. I would like also to be able to explain you the fascinating similarity between the suicide of the catholic German composer Bernd Alois Zimmermann and that of the Jew-Romanian German speaking poet Paul Celan, who lived in Paris, and between two of their works, respectively «Requiem für einen jungen Dichter» and «Schneepart», written 1-2 years before their deaths. In other words, I think that the Montesquieu reduction of the human individual characteristics to the national determinism is …. nationalist and, thus, not adapted to the present world.

Regarding the compensation which the net exporters of the EZ should concede to the net importers, it does not derive from an ethical principle, but from my analysis of the impact of Target2, based on the data and of the explanations of the best specialist of this subject, the brilliant Hans-Werner Sinn who, unfortunately, is blinded by his nationalism (however, he was obviously very happy in July 2015 to note that his recommendation regarding the Greek crisis was the same as those of Krugman, Stiglitz and …. Varoufakis (http://nyti.ms/1CVVGbV)).

As I have already written, there would have been no necessity to compensate for the loss of the protection of the producers of the countries in difficulty if the Buba had not been allowed by Target2 to help massively the German exporters to continue to sell in the countries whose financial systems had collapsed, in total contradiction with the free market principles of the EU …. and of Germany. Moreover, this compensation would have cost much less than the hundred of billions € spent to maintain the heads of the countries in difficulty under water and would have contributed to return of the EZ to a decent growth rate.

Since my proposition of compensation is a total utopia in the political field, the Grexit solution proposed by HWS, PK, JS and YV might appear as the best solution on a pure macroeconomic basis. However, it might trigger a systemic crisis which might not only destroy the EU, but also contribute to the return of the war in Europe, maybe not between nations, but certainly between communities of different kinds.
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Steve Hurst Jun 9, 2016

@Peter
The French situation is labour costs are now estimated to be 20% higher than Germany due to a lack of reform. It is just one more stress within the euro system. If France wants the euro it has to reform and the resistance to that is evident on the street with riots
- Peter Schneider Jun 9, 2016
  
  You are absolutely right.
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Pierre-Jean Raugel Jun 6, 2016

@ Peter

I would be very interested by the references of an econometric model, or even of statistical series proving that the purchases of German cars (or of any kind of German products or services) by Chinese increase when the purchases by the Greek of these cars (or of any German kind of products or services) decrease. As a matter of fact, the last years' statistics show rather an inverse correlation, with a lag of 3-4 years: the Chinese purchases of western goods have decreased some years after the decrease of the Greek imports, because the austerity imposed by the ordoliberals on the Euro Zone, including Greece, has lead to the reduction of the Chinese growth and, thus, of the Chinese imports.
We have not the same conception of the economics and, especially, of the macro economy: for you it’s a matter of ethical values and the winner is always the agent whose behavior is conformed to these values (for example: everything which evokes the printing press is bad for you, because inflation is bad for you). For me, it’s a study of the complex interdependence between the agents, where, for example, a given level of inflation may be bad in some occasions and good in other cases (see: http://pierrejeanraugel.blog.lemonde.fr/2014/09/07/representations-micro-et-macroeconomiques-de-la-crise-de-la-zone-euro/).
- Peter Schneider Jun 7, 2016
  
  @Pierre-Jean
  Well, it's exactly as you say "que l’acceptation de l’inflation n’est pas compatible avec les principes microéconomiques de l’ordolibéralisme allemand. [...] Ils craignent, à juste raison, que son acceptation pourrait les conduire [...] à se résoudre au démantèlement progressif des dispositifs juridiques et organisationnels sur lesquels fut fondé le succès du «capitalisme rhénan»."
  
  You have nicely carved out that the German and the French economical systems are inherently incompatible because they rely on incompatible fundamental assumptions. And I would extend this also to the political, social and cultural systems. If you had to sum it up in only one word then maybe you could say that the German system is built upon compromise whereas the French upon confrontation. From there on, you can continue endlessly with examples from past and present, from politics or economy, society or culture. Our form of government is the coalition, yours is the sole reign. In Germany federalism, in France centralism. In Germany proportional voting system, in France majority voting system. Translated into the economic system: In our "menuiserie" we have Mitbestimmung so that employess participate in the responsibility for the company. In your "menuiserie" the syndicates fight against the patron and the government (speaking in black and white terms). Antitrust stance vs. national champions. Microeconomy vs. macroeconomy. And so on and so on.
  
  I don't say that one system would be necessarily better than the other. It is just the heritage of the past and suits best to the respective societies. We had no 1789. You had no 1923. We had no Colbert. You had no Erhard. We had no Voltaire. You had no Hegel. And so on and so on. So if the political and economical system is chosen to best reduce friction between different societal forces then it is most natural that different nations come to different conclusions about the best possible solution to fulfill this challenge.
  
  So if you come to the conclusion that "il faut partir de cette double contrainte et non chercher à imposer la primauté de l’un des deux systèmes de représentation ou à dénier leur incompatibilité" then I don't understand why you look for possibilities of compensation (in the context of the Target 2 system). Your conclusion would have to be as mine that the "EU" has to be destroyed and replaced by an organization like the former European Community which allowed the coexistence of different political, economical, social and cultural approaches best suited for each country.
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P. Foofootos Jun 6, 2016

@Steve Hurst if that's not the definition of Collective Responsibility I don't know what is. And if believing that because there's endemic corruption in certain government sectors then every occupant in the country is corrupt isn't stereotyping/collonialist thinking, again I don't know what is. And I assume you also believe that productivity is low in low productivity countries because people are lazy (and they suddenly become non-lazy when they emmigrate)?

https://en.wikipedia.org/wiki/Collective_responsibility
- Steve Hurst Jun 6, 2016
  
  I have never said everybody in GR is corrupt, but the corruption level is high statistically so it is quite clear a significant proportion of citizens participate in it. You are not seriously suggesting that the Greek population were not aware of corruption going on are you. BTW I among with many in the UK opposed Tony Blairs Iraq adventure. The UK however went ahead so the UK is responsible for some of the outcomes in Iraq, as are other interventionists. As for colonialist, it is the GR guvnt that has created debt serfdom for Greeks which will continue until the euro set up changes. When there was a GR mandate to leave the euro Tsipras walk away from it. Germany has IMO not acted well (along with others) but GR has problems. I have not commented on productivity in GR, however GR has little technology to export and despite being in a good area for agriculture has to import food. Perhaps you can tell me why. At present the message I see coming out of GR is the whole of the EU has to change not GR, somehow I just cannot see that happening. Now Varoufakis as self appointed spokesman for 3% of EZ GDP, 2% of EU GDP is wanting the ECB to change. The position appears to be GR is sustainable with a debt write-off within the euro. My question is is that the case because I doubt it. The GR Credit Card is cancelled. Last year GR guvnt asked tourists to act as GR tax inspectors effectively saying there is a widespread tax evasion problem. Strangely people do not go on holiday to do that. Its just more detacthment from reality. I dont know why you are going on at me, you need to be upset with those much nearer to you
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M M Jun 6, 2016

In a nutshell, everyone seems to agree that central bankers (to include the IMF, ECB & the World Bank) must be independent from the political class. One can never stress enough the importance of moving all these institutions away from the grip of politicians, something you Yanis should have advocated and had planned to address during your 2 years that preceded your appointment as Finance Minister.
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Pierre-Jean Raugel Jun 5, 2016

Target2 did not interfere with the industrial competitiveness of the German companies vs those of the countries in difficulty. It helped them to export to these countries although their banking system was broken. Without Target2, the German exports to these countries would have been almost totally stopped, not because the German companies were no more industrially competitive, but because the counterparts of the importers banks had no more value. In other words, Target2 allowed the German companies to sell goods and services to insolvent importers.
If the German companies had stopped to export to the countries in difficulty, as it would have happened without the Target 2 breach of the rules of the market economy, the producers of these countries would have benefited from this protection generated by the collapse of their banking system and would have had the capability to sell in their own countries, although they were still less competitive than their German competitors in industrial terms.
In a true market economy, it's not the more core competitive (in industrial terms) agent who wins, it’s the agent who combines a good industrial competitiveness with an optimal situation. After the 2007 crisis, the EZ countries in difficulty were still non competitive in industrial terms, but should have benefited from a better situation in their national markets than their German competitors who should have been unable to export to these countries, because their banking systems were no more solvent. With Target 2, this advantage has been annihilated.
Target2 was rightly justified by the necessity to restore the fluidity of the trade between the EZ member states. However, the ECB should have offered to the countries in difficulty a counterpart to the loss of the protection deriving from the financial collapse of their banking system. This counterpart might have been to oblige the countries like Germany to launch a stimulus package in order to compensate the loss of the protection of the companies of the country in difficulty by an increase of their potential export market. Obviously, this stimulus package would not have benefited always exactly to the sectors who suffered from this loss of protection, and would have sometimes benefited to other sectors. However, this would have alleviated the global difficulties of the countries in difficulty, whereas Target2 maintained their heads under water for many years, by helping the German exporters to circumvent the rules of the market economy.
- Peter Schneider Jun 7, 2016
  
  @Steve
  As I wrote above: If it turns out that our fundamental assumptions on political, economical, financial, monetary, social and cultural issues are incompatible with each other then we cannot longer deny that we are different. This would be like damming a river without drain. Denial is initially the easiest way but will inevitably lead to distortions on all levels. Obviously, the breakup of the euro cannot be organized via referendum.
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- Steve Hurst Jun 6, 2016
  
  @Peter
  We hear you Peter, so that will be goodbye Euro, goodbye Schengen, hello DMk plus say 7+% up on the euro equivalent. assuming dismantling can occur, assuming when the abyss is looked into that the voters say Yeah, bring it on. Like a Brexit but supersized
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- M M Jun 6, 2016
  
  Peter, in 10 out of the 15 years since 2002, Germany was in breach of the Maastricht Treaty (the internet is full of reading materials on this subject). You yourself admitted it in one of your comments that the German Government did act outside its authority by agreeing to the Greek and other bailouts. Also, we all know who currently calls the shots in the EZ, Herr W. Schäuble. If Herr W. Schäuble did not give his explicit blessing to Draghi, there would have been no way on earth Draghi could have passed the stimulus package. It is also now being rumoured that Schäuble may become the next German President, lucky you guys.
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- Peter Schneider Jun 6, 2016
  
  I can only repeat myself: handing over your printing press to bankrupt foreign states so that they can buy your goods is economical nonsense, economic policy executed by the "E"CB is in absololute breach of the treaties (TFEU art. 123/125) as it circumvents the budet right of democratically legitimated parliaments, an economic stimulus package by the central bank is in absolute contradiction of German monetary policy of the last 70 years, the German economy is competetive enough to cope with a decline in trade with Club Med and is not dependent on manipulations by the central bank (if the Greeks don't buy the Porsche cars anymore then the Chinese will do) and, last but not least, shifting credit risk to non-involved third parties undermines the foundation of our economic system.
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- M M Jun 6, 2016
  
  Pierre-Jean, you are 100% correct. Commentators including myself debated on PS this same issue when the German trade data was released over a month ago. Merkel & Co went on the offensive then against the ECB just to try and hide their tracks. Another classic example of the German establishment missing yet another golden opportunity (being the ECB stimulus which was publicly denounced but internally advocated by them) to rectify past mistakes and to create a levelled playing field for everyone in the EU.
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Piero Thor Jun 5, 2016

yes all true.. and I am sure you, a clever man, will understand this: we have to wait DB crash to see the Helicopter fly
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Pierre-Jean Raugel Jun 5, 2016

Moreover, German exports were massively supported by the Bundesbank within the framework of the Target 2 system, created and managed by the ECB (the cumulative amount of this support reached 751 billions € in 2012, 28 % of German GDP), at the expense of the producers of the countries in difficulty (Italy, Spain, Portugal, Greece) and in contradiction with the European principle that the competition must not be distorted.
Without this massive help authorized by the ECB without any counterpart, German exporters would have much more suffered from the crisis of the Eurozone and the German politicians would have better understood what “interdependence” means.
More details on this subject in these articles, written in French : http://pierrejeanraugel.blog.lemonde.fr/2014/09/02/ne-negliger-ni-linterdependance-des-pays-de-la-zone-euro-ni-leur-heterogeneite/ and http://w.latribune.fr/opinions/tribunes/20130520trib000765438/target2-la-roulette-russe-de-la-zone-euro.html.
- Steve Hurst Jun 6, 2016
  
  @Peter
  I'm not suggesting anything, simply saying that for the euro to continue into perpetuity then subsidy needs to continue into perpetuity. Germany is generally considered to have been the beneficary of the euro and takes all steps to maintain that position. Howver sooner or later the false construct will demand an answer. Its really a choice of diarrhea or explosive diarrhea, which is also the choice in Brexit. I tend to duck explosive diarrhea. If it wasnt tragic it would be funny that a country with 3% of EZ GDP could unhinge the euro, one of the major currencies of the world. I am sure the US and others woud like to see the euro diminished. Be careful about what you wish for, applies to the UK also
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- Pierre-Jean Raugel Jun 6, 2016
  
  There would have been no rationale for the German exporters to sell to importers whose banks counterparts had no more value, as Hans Werner Sinn has often repeated. Therefore, the German exports to all the EZ countries in difficulty would have almost totally stopped if the Buba had not been allowed by Target2 to take the risk of this insolvency instead of the exporters. Therefore about 15 % of the German exports (about 7% of the German GDP) would have disappeared each year in a true market system (without the Buba’s help, in contradiction with EZ principle).
  BTW, it’s a German who recognized that « die Export-Erfolge würden mit dem Geld der Steuerzahler finanziert » (http://www.welt.de/wirtschaft/article13941256/Bundesbank-verharmlost-eine-finanzielle-Atombombe.html) when a collapse of the Target2 system was feared (in 2012).
  I don’t ask for a compensation for the collapse of the banking systems of the countries of difficulty, but for a compensation for the loss of the protection which should have resulted from this collapse : since the German companies would have been obliged by this collapse to stop selling in the markets of the countries in difficulty, it would have been much easier for the local producers to sell in these markets although they were still non competitive in industrial terms.
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- Peter Schneider Jun 5, 2016
  
  @Steve
  A wide majority of the people does not want a European federal setup. The currency union was imposed on us. We were fooled by false promises. We were told that it would cost us nothing and that overendebtment of a member state was excluded by the treaties. With hindsight, the Maastricht treaty was in absolute contradiction to our constitution. Do you think, a currency union based on fraud should be continued?
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- Peter Schneider Jun 5, 2016
  
  @Pierre-Jean
  What is the economic rationale of selling to insolvent importers? And what is the political rationale of compensation for the collapse of a foreign banking system where you had absolutely no influence on the business decisions?
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- Pierre-Jean Raugel Jun 5, 2016
  
  @ Peter
  Target2 did not interfere with the industrial competitiveness of the German companies vs those of the countries in difficulty. It helped them to export to these countries although their banking system was broken. Without Target2, the German exports to these countries would have been almost totally stopped, not because the German companies were no more industrially competitive, but because the counterparts of the importers banks had no more value. In other words, Target2 allowed the German companies to sell goods and services to insolvent importers.
  If the German companies had stopped to export to the countries in difficulty, as it would have happened without the Target 2 breach of the rules of the market economy, the producers of these countries would have benefited from this protection generated by the collapse of their banking system and would have had the capability to sell in their own countries, although they were still less competitive than their German competitors in industrial terms.
  In a true market economy, it's not the more core competitive (in industrial terms) agent who wins, it’s the agent who combines a good industrial competitiveness with an optimal situation. After the 2007 crisis, the EZ countries in difficulty were still noncompetitive in industrial terms, but should have benefited of a better situation in their national markets than their German competitors who should have been unable to export to these countries, because their banking systems were no more solvent. With Target 2, this advantage has been annihilated.
  Target2 was rightly justified by the necessity to restore the fluidity of the trade between the EZ member states. However, the ECB should have offered to the countries in difficulty a counterpart to the loss of the protection deriving from the financial collapse of their banking system. This counterpart might have been to oblige the countries like Germany to launch a stimulus package in order to compensate the loss of the protection of the companies of the country in difficulty by an increase of their potential export market. Obviously, this stimulus package would not have benefited always exactly to the sectors who suffered from this loss of protection, and would have sometimes benefited to other sectors. However, this would have alleviated the global difficulties of the countries in difficulty, whereas Target2 maintained their heads under water for many years, by helping the German exporters to circumvent the rules of the market economy.
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- Steve Hurst Jun 5, 2016
  
  @Peter
  All you are saying is you do not want a European federal set up which is fair enough, but the principle of a federal set up is you give up sovereignty. Its at a crossroads - one way to federal the other to nation state. Greece dare not say it needs perpetual subsidy, Germany dare not say Greece needs perpetual subsidy. Then there is Portugal etc etc. When the tide goes out you see who has been swimming naked and naked people dont have much influenece in society. Would you take a naked man arguing with you seriously. Thats why Yanis Varoufakis got nowhere, he was naked. At the moment federal Europe does not look likely therefore the euro does not look likely, or Schengen
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- Peter Schneider Jun 5, 2016
  
  The Target 2 system gave Club Med the possiblity to pay for goods with the printing press after their creditworthiness had been destroyed and they had lost access to the credit market. On the one hand, this is just another massive treaty breach (TFEU art. 123/125), but on the other hand it is a massive massive distortion of our economic and our political system as well - and that is even more serious.
  
  1. Germany has absolutely no need to support its economy with the printing press because we are competetive enough anyway. 2. According to the German tradition of the last 70 years (and also to the European treaties) it is absolutely an anthema for the central bank to execute economic stimulus plans. This is the task of the government and the parliament both democratically accountable to the people. 3. The Target 2 system is equivalent to a wealth transfer from Germany to the rest of the eurosystem without approval of the German parliament nor controlled by it. This means taxation without representation and is in absolute contradiction to the German constitution which states that all state authority is derived from the people. 4. In a market economy, debt and liability are two sides of the same coin. This link is broken if you have the possibility to let someone else pay your debt. This is equivalent to you undertaking an investment and someone else getting the benefits. This turns our economic system upside down.
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Doug Huggins Jun 4, 2016

I'm largely persuaded by Varoufakis' diagnosis, but I'm unclear about his prescription. I suspect the key is in Varoufakis' premise that "...commercial banks are an essential source of funding for member governments." Is there a case to be made to prohibit banks from lending to sovereigns directly or via the capital markets?
- M M Jun 4, 2016
  
  Doug, banks in the majority of the EZ countries are crippled right now. No matter what, governments are governments they can always find ways to circumvent any restriction or requirement. Regrettably, there is no solution as long as both political and financial establishments are linked (directly or indirectly). They must be truly segregated for anything to work but this will never happen. Finance has become a very powerful weapon alongside armament.
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Gerry H Jun 3, 2016

Varoufakis continues to expose the flaws at the root of the EU institutions. We live in a democracy but it's a rigged democracy and institutions like the ECB are beyond any democratic control. To make them transparent and answerable will require an enormous effort and a long struggle as central banks have been able to write their own rules for a long time and aren't inclined to give that up. The fact that they all
employ the same model hardly matters, it's the European one he's after. For Varoufakis to achieve his stated goal, to make the EU and it's institutions transparent and democratic he will have no choice but to confront them again and again.
- Steve Hurst Jun 5, 2016
  
  @Peter
  Then sooner or later you will have no eurozone, or a much reduced one of similar economies. Your complaint needs to be addressed to those who mislead on the basis of a common currency area. If you look at regional GDP and regional Public Spending in Germany you will see subsidy to poorer areas, its not there by accident. The same applies to a common currency area. If you look at the USA or the UK the same mechanism is in place. London gets 35% public spending, poorrer regions 50+%. It took 10years for the euro crisis to fruit. Kick the can by passing debt to taxpayers and debt write-off and in another 10 years it will be back. Its like continental drift, at work all the time. If I had Germanys position I would be stockpiling cash (which is what is going on) in case of it all falling apart
  
  @M M
  Whilst I expect Brexit voters to lean towards Remain I know a number of Brexiteers and they are committed and vocal. Further it is not always a good idea to assume what others will do because their thinking can be entirely different to yours. The outcome could be decided by people who can't be bothered to vote
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- Peter Schneider Jun 5, 2016
  
  @Steve:
  If you really think that continual subsidies or perpetual debt write-offs are the solution to the eurocrisis, then you must be aware that this is only possible in a dictatorial political system because a clear majority of the German/Dutch/Finnish/Slovakian people stands against it.
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- M M Jun 5, 2016
  
  Steve, what socialists? They are more capitalists than the capitalists themselves, including the writer of this article. Most ministers in this Greek government are millionaires. Regarding the Greek elections, we’ve been through that, the abstention rate was over 42%, Syriza got only 18% of the total Greek electorates. The Greeks had no choice and I predicted exactly this outcome repeatedly since prior to the 1st 2012 General elections. At the time I said on PS, Option (1): Syriza; Option (2): Syriza; Option (3) Syriza and I did not say this because I liked them, it is because there was no other choice and I was right in my predictions. It is exactly like the Brexit Referendum, the British people are being asked to choose between the devil they know or for the abyss, so which way are they are likely to go? The choice must be obvious, better the devil you know than the one you don’t.
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- Steve Hurst Jun 5, 2016
  
  @M M
  The fundamental problem the Greeks had was the idea of electing a socialist to deal with debt
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- M M Jun 4, 2016
  
  Steve, you are correct, but it may still be cheaper to pay the price today than paying it tomorrow.
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- Steve Hurst Jun 4, 2016
  
  @M M
  
  The costs involved in unpicking the EZ totally would be humongous
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- M M Jun 4, 2016
  
  Gentlemen, the trust between the Northern and Southern (to include Eastern) EU countries has been lost. No matter the reasons and the facts, the conduct of the EZ group, especially in the cases of Greece and Cyprus, was and is unethical and one can even say criminal vis a vis everyone living in these two countries. One must stop the financial bleeding first for the sake of both debtor and creditor countries. Up until 2008, all treaties, policies and practices were flawed and everyone, with no exception, contributed to the mess that the EU is in today. Many laws that were passed since 2008 made matters worse and not better. The financial bleeding (meaning debt accumulation, to include servicing costs) must be stopped by any mean and before one contemplates anything else. The Debt, any debt, grows every second. It recognises no boundaries, no sovereignty, and no treaty. It recognises nothing. As one Greek politician and former MP/MEP on the Syriza ticket M. Glezos (he incidentally, a couple of days ago, served through a bailiff, both Tsipras and Tsakalatos a court summon) said during the 2012 Greek elections: “Money is coward, has no loyalty and no home, it changes country at the speed of light”. Germany and some other countries could be winning today but this might not remain so in the future. Peter, you said it yourself, that this German political establishment has horror stories in store for the German people after the upcoming 2017 elections, which is true. Therefore, unless the German and the French people vote for a real change, the price that every single EU citizen (present and future) will pay shall be very high indeed.
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- Steve Hurst Jun 4, 2016
  
  @Peter
  Meetings in camera transferred priavte liability openendedly to the taxpayer without debate, considered questionably legally by some. Merkel advised recently debt writeoffs in the EZ were not legally possible yet exactly that appears to be in process. It would appear any measures will be taken to hold the EZ together however temporarily. None of those steps make any difference to the fact that without continual subsidy rich to poor, or perpetual write-off of debt which is much the same thing, that the EZ can only accumulate debt in the poorer areas down south. The EZ can easily cover GR debt with GR being 3% of EZ GDP, so the issue is political and within the current setup, legality. You can throw thr ulebook away because they have no intention in following rules unless it suits them. The debt will however continue to accumulate
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- Peter Schneider Jun 4, 2016
  
  @Steve:
  Of course, you are right but what is your conclusion? If cultural and ethnic links are not strong enough to enable fiscal transfers of substantial magnitude (as it is manifestated in the binding law that prohibits any fiscal transfers) and if your approaches on economical, monetary,cultural and social issues are rather disparate then my conclusion is that a currency union is impossible (or is at least not compatible with a democratical political system). Then, of course, the question arises: What can be done?
  
  If you had to decide between the currency union and the democratical system you could, in principle, decide in favor of the currency union. In that case, you would have to circumvent democratically legitimated parliaments and instead provide an independent institution only controlled by yourself with budgetary powers in order to facilitate the necessary fiscal transfers. Of course, this had to be done in complete secrecy and without knowledge of the public and the democratically legitimated parliaments so it would be good to provide this institution only controlled by yourself also with competences for central economical planning and for price fixing so that indirect fiscal transfers would be possible. And it would be certainly helpful if you had full control over the mass media as well to defame critical voices and to misguide the public of your real intentions. For the same reason, the democratically legitimated parliaments should better continue to exist but without real power nor influence. This could be called the Soviet Solution.
  
  The other choice would be to reinstall the democratical system and to respect the separation of powers and the rule of law (i.e. no bailout and no fiscal transfers, independent central bank, debt limits). Then, either those member states dependent on permanent and substantial fiscal transfers would have to leave the currency union and probably devalue their new currencies or those member states interested in sound monetary policy would leave volutarily and either found a new currency union if cultural and ethnic links are stable enough or otherwise return to their old currencies. In both scenarios, the democratically legitimated parliaments would regain full control over the budget and they would again be directly accountable to the public (i.e. taxation with representation). You would need societal forces able to peacefully moderate the transition period, while it would be certainly helpful that many people still remember the time before 1992 and the Maastricht treaty so that it would not be the establishment of a new political system but rather the return to the old political system. At the same time, those components of the "EU" that are compatible with a democratical political system should be maintained. This would have to be called then the Democratic Solution.
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- Steve Hurst Jun 4, 2016
  
  @Peter
  Problem is Peter that the Eurosystem is a false construction. I have visited Germany repeatedly but do not know it well, but I do know for sure that there will be physical areas in Germany that recieve subsidy from the central coffers in order for them to function. The same situation exists in the UK. As it does in the USA. Once you have a common currency it is necessary to stablise the economy, avoid depopulation, maintain infrastructure. The Eurozone is no different. If this transfer is not in place then local unsustainable debt builds up and will continue to build up. GR sure hasnt helped with is spending pre 2008 but thats not the problem. The richer states in the EZ will have to pay subsidy perpetually or scrap it. But there is no way the esteemed leaders of this farce will present that to their voters is there, because it would not be acceptable
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- Peter Schneider Jun 3, 2016
  
  Our historical experience was that central banks should better not be democratically controlled. But our historical experience was also that state institutions have to strictly abide the rule of law under any circumstances. These are the two sides of the same coin and the eurosystem was constructed in that way.
  
  The central bank does not have to be transparent or answerable - but it has to abide the rule of law. It is not democratically controlled on purpose so that dishonest politicians get no access to the printing press. But the independent central bank cannot abuse their given independence in order to break the rule of law.
  
  That's why the "E"CB became an illegitimate institution in the same moment when they broke the Maastricht treaty and started debt monetization and government financing.
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Alisdair Hamilton-Wilkes Jun 2, 2016

This is a good, well reasoned and, I believe, accurate article.

Essentially the ECB, like most of the EU’s institution is flawed, with structural conflict at its root, objectives that differ between those achieved from those stated and a power balance that enables the strong to crush the weak.

So why is Varofakis not educating his countrymen on the reasons to exit the Euro and why is he telling the UK population we should remain a part of such a flawed union. I know self-styled Marxists are always pretty comfortable with hypocrisy and naivety, apparently he feels reform of the European Parliament, Commission, Council of Ministers, Euro Group, ECB, ECJ are all likely to happen within our lifetime.
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G. A. Pakela Jun 2, 2016

Donald Trump would be the ultimate negotiator for Greece as he understands debt, bankruptcy and forcing restructuring down the throats of creditors very well, having engaged in these practices over his entire career. Germany's banks are as guilty of moral hazard as the Greek government, because it should be apparent to all that Greek debt should have been accorded speculative status. In the aftermath of the collapse, everyone should have taken a haircut, including Greek pensioners and government employees. The latter would have simulated the impact of a currency devaluation by deflating the compensation. Greece should have also introduced a simple flat tax with limited progressivity in order to enhance tax collection. As they see in the auto business, no one pays the sticker price anyway.
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Manos Makrakis Jun 2, 2016

Not that this should be news to anybody, but this "new"(?) realization of yours about the (non) independence of the ECB, makes your other public essay, the so called "Modest Proposal" even more irrelevant and wrong than it was before.
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Steve Hurst Jun 2, 2016

Yanis, why does nobody come out and say that you cannot have a common currency area without a transfer union. Could it be because the idea perpetual transfers from richer to poorer areas is not going to go down well with the majority of voters in richer areas despite it being essential for things to function? Could this be politics getting in the way of economics by any chance. I dont know why you are going on about the ECB when the problem is the whole construct of the EZ
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Henry Rech Jun 1, 2016

The irony is that the majority of the Greek people want to remain in the EZ and at the behest of the Troika.
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Mike Fellman Jun 1, 2016

The "solvency" of most European countries was predicated on their ability to print their own money. There's a reason why bank bailouts resulted in national insolvency in Ireland and Spain, but not in the UK. The issue is the difference between fixed and float exchange rates. The former requires that interest rates rise in times of capital flight. The in the latter interest rates stay the same and currency depreciates.

Debts should have been reduced or centralized as soon as Italy and Greece joined the EMU.

Greece needed to run out the EMU yesterday. The experts keep lying about what the problems are and the Greek people are suffering because of it.
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Steve Hurst Jun 1, 2016

Yes GR should leave the pantomime, for haircuts will only be done to allow the death by a thousand cuts to continue. Unfortunately it is the Greeks who signed up for the euro, got Goldman Sacks in to dress the crab to let it happen, spent like there was no tomorrow, stayed with the euro when they had a mandate to get out, thought that at 3% of the EZ GDP could pressurise the other 97%of the EZ etc etc. I can hear 'Dont Cry for me Argentina' in the background. Fussing on about people playing it straight is the ultimate irony from GR
- Steve Hurst Jun 6, 2016
  
  @P Foofootos
  
  I am sorry P Footootos - The GR guvnt spent the money with a mandate from the GR public, somebody elected them and re-elected them and re-elected them
  Here is GR corruption ranking -
  http://www.tradingeconomics.com/greece/corruption-rank
  Anybody living in Greece must be aware of this environment and participating in it surely
  
  This economic problem is not going away, how else can you refer to a GR problem without describing it as GR problem. Its not racist, its a fact
  
  The fact the most vulnerable pay is nothing new. How many of the architects of this mess have been put inside jail. Not many I suspect
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- P. Foofootos Jun 6, 2016
  
  Collective responsibility and country personification is a dangerous path that leads to racism. In what way, did my grandmother, a 60 yo cleaning lady in the late 90's, "spent like there was no tomorrow", "got Goldman Sacks in to dress the crab to let it happen" etc. The woman heard a politician speak about "economic convergence", "protection of external borders with strong alliances" (Turkish hostility was always a major point for ordinary Greeks wanting to be part of the EU) etc and voted the party that told her so. Did she know they were corrupt? Yes, but she wouldn't fathom the economic mismanagement that took place.
  
  And again, in what way, did my 7 month old daughter "spent like there was no tomorrow", "got Goldman Sacks in to dress the crab to let it happen" etc?
  
  In what way is an economy built on stable foundations if 1-2 governments that carried on the way they were running things since the 1950's (with marked GDP increases year after year, despite corruption etc) can lead to 1.Banks with NO deposit insurance 2. 30% unemployment 3. 30% GDP contraction etc etc?
  
  Ofcourse Greece shouldnt have entered the EZ. But to pretend that the EZ works (when the Euro isn't working for 60% of the countries in it, not just Greece) as intended and blaming "Greeks" in general, is to follow the logic of a 12 year old.
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- Steve Hurst Jun 2, 2016
  
  @Mike
  Apart from the currency FX issue there are too many problems with GR to list but noteably they have little technology to export and despite being in the Med have to import food. It is GR policy independence which is illusory. Within or without the euro it is a firesale ongoing however slowly
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- Mike Fellman Jun 1, 2016
  
  I agree Steve. The realities that joining the Euro meant that inflation, and devaluations were no longer options to maintain deficits was lost on the Greek people. The problem is that the Euro actually helps many people in Greece because it creates what is effectively a highly overvalued exchange rate. This makes it easy for retirees to import Mercedes. It makes it basically impossible for industry to compete with Germany.
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Paul Friesen Jun 1, 2016

I have thought for some time that it would have been better for Greece to leave the Euro and default than to accept more austerity. I think I understand the potential problems this would cause, but they would be short term (unless the rest of Europe was really vindictive, imposing trade sanctions for instance). I see the Euro experiment as a failure, although I certainly hope that the more sensible parts of the EU could be salvaged, like free trade and free movement of people.

I can also understand and respect the tremendous effort you have made and are still making to prevent the failure of the whole European integration project.
- P. Foofootos Jun 6, 2016
  
  The rest of Europe, is obviously pretty vindictive. They've even threatened the UK, with statements from EU commissioner's and minister's of finance that "there will be no talks for new trade agreements or any accommodation of any kind if Britain decides to leave" which doesn't have any economic justification. It's purely hostile politics, so that other sheep won't decide to leave the herd. There would obviously be sanctions if Greece had decided to leave before the OMT was put in place, in 2012. And afterwards, it was already too late.
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M M Jun 1, 2016

Yanis, this is a vendetta article against your other Yiannis Stournaras, the current central bank governor of Greece and former finance minister of greece. Everyone knows that all central bankers are political appointees, to include the ECB and the IMF. All central banks are political animals and not financial institutions and that this the main cause for the problems that the world has been in for quite sometime. Mixing politics with finance (or business) is like mixing oil with water, it very simply won't work.
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dan baur Jun 1, 2016

Yes Yanis, everybody knows ECB lacks full independence. Thanks for stating the obvious.
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