Economics

Varufakisova velká hra

May 29, 2015 Hans-Werner Sinn

MNICHOV – Teoretikové her vědí, že plán A nikdy nestačí. Je nutné rozvinout a předložit také důvěryhodný plán B – implicitní hrozbu, která popožene jednání o plánu A. Řecký ministr financí Janis Varufakis to velmi dobře ví. Jako posvěcený „tvrďák“ řecké vlády pracuje na plánu B (potenciálním vystoupení z eurozóny), zatímco premiér Alexis Tsipras je svolný k jednáním o plánu A (prodloužení dohody o půjčce Řecku a novému vyjednávání o podmínkách jeho sanace). V jistém smyslu hrají oba klasickou hru na hodného a zlého policajta – a zatím s velkým úspěchem.

Plán B obsahuje dva klíčové prvky. Za prvé je tu jednoduchá provokace s cílem rozlítit řecké občany, a tím vyhrotit napětí mezi zemí a jejími věřiteli. Občané Řecka musí věřit, že se vyhýbají hrubé nespravedlnosti, mají-li dál důvěřovat vládě během složitého období, jež by následovalo po vystoupení z eurozóny.

A za druhé řecká vláda zvyšuje náklady na plán B pro druhou stranu tím, že umožňuje odliv kapitálu prostřednictvím svých občanů. Kdyby chtěla, mohla by tento trend omezit smířlivějším přístupem nebo ho rovnou zastavit zavedením kapitálových kontrol. To by však oslabilo její vyjednávací pozici a taková možnost nepřipadá v úvahu.

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Hans-Werner Sinn

Writing for PS since 2002
110 Commentaries

Hans-Werner Sinn, Professor Emeritus of Economics at the University of Munich, is a former president of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author of Casino Capitalism: How the Financial Crisis Came About and What Needs to be Done Now (Oxford University Press, 2010).

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0 Comments on this paragraph, 40 Comments on this article

Sarchis Dolmanian Jul 2, 2015

Unfortunately Professor Sin seems to forget this is about the life of real human beings, and not a scholarly debate about how pawns should be moved on a 'game' board ...
https://nicichiarasa.wordpress.com/2015/07/01/simple-arithmetics/
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Stamatis Kavvadias Jun 25, 2015

Firstly, there is no meaning in the arguments of the author, in the case of Greeks sending their money abroad and buying foreign assets. Such purchases increase the GDP of the countries that face the TARGET system claims, which is exactly the reason for the TARGET system.

Secondly, regarding deposits withdrawn from Greek banks and deposited in foreign banks, this is the result of free capital markets. The destination countries can place capital controls, if they want; proposing extortion of the Greek government to raise capital controls or not serve its interests in negotiations is just fascist ideology, by Mr Sinn.

Thirdly, regarding deposits withdrawn and hoarded, this is the result of a no-reserves system, susceptible to bank runs. This is a problem for the ECB and the euro, since it implies that, on exit, Greeks will have their money in euros. But this is just fair for the Greeks and it is not their fault that the monetary system is flawed. Suggesting that EZ governments should force a bail-in, in advance of Grexit, is as ill conceived as bail-ins themselves. It is not the depositors' fault that private banks create money out of thin air and have absolutely no reserves to back them. When the private economy of bankers fails, it is not the depositors' who should take the kit, or else the ECB is useless. Depriving, as Germany supports, The ECB of the ability to be a lender of last resort, is voted down by the ESCB council. Mr Sinn and Germany should learn its place in EZ. Taking the reverse path, would possibly lead to a EZ-wide bank run and hurt the economy, in most EZ countries, to the benefit of Germany's banking system; what would happen next, nobody can tell.

Overall, Mr Sinn's argument is that "blackmail is in order," so that creditors can force their will on negotiations. It would be the behaviour of a scared child, on behalf of the creditors. Current governments would never survive the moral damage to the European population's sense of dignity, unless everything went very smoothly for the creditors.

There is no chance of that, because Greece, literally, has no alternative but to negotiate toughly as it can. And that is without taking into account the possible coiling of the Greek population behind the letter of SYRIZA's negotiating tactics...
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steve from virginia Jun 8, 2015

The Greek central bank is a conduit, the funds are loans from (German) commercial banks by way of the GCB => ELS => Greek banks => back to (German) commercial banks w/ the Greeks themselves on the hook for their own deposits! Put another way, instead of redeeming their funds, Greeks are borrowing them from German banks through the back door, posting their deposits as collateral.

Who is doing what to whom? Everything in the EU is intended to 'help' the precious North-European banks have been busily digging an ever-more monstrous debt- hole for themselves ... doing so since 2009. The fleeing depositors are the only Greeks with money and with these funds are now fully encumbered: this makes capital (really loan-) controls less likely with the passage of time.

Taking place under everyone's nose there is self-feeding vicious cycle. The only way to break it is for depositors to unwind the loan-chain and redeposit into Greek banks!

What happens next? As the professor points out, at some point the Greek banks are emptied out of deposits => There are no more German bank loans to the Greek banks => the ECB will call these loans from German banks instead => then you get to see net outflows with a vengeance! Not just Greeks but Germans, racing to get their cash out of EU finance mechanism falling apart at the seams. Soon after, the euro itself disappears as German government does not want to be stuck with the (massive) bills for bailing out their own country's banks (more loans from the same banks!)

Right now there are more claims than capital, more musicians than chairs, the music is stopping and someone is going to lose. The only question is who and how much?
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maha efe Jun 6, 2015

my fafority the game http://blogreplika.blogspot.com/
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Henry Rech Jun 5, 2015

Epilogue.

Junkers is not impressed with the new arrivals. He bids them leave - pointing to the exit with his rifle. The posse and major's wife make on the scene with guns at the ready. Varoufakis and Tsipras draw their weapons. The tense silence of the desert air is broken as a bilious horse farts with a sharp crackle. All parties already on trigger edge, reflexively open fire - a storm of bullets downing all and sundry. In a pall of desert dust, the black hatted bandidos and their leader ride into the mission, surveying the results of the bloodletting - they mercifully dispatch the last moaners and groaners. It's not long before Putin spots the yellow contents of Varoufakis' saddle bags. He loads the gold and whiskey into his own saddlebags and mounts his horse. He observes, with a wry smile, a lone rider on the ridge. The US marshal has witnessed the carnage atop a suitably distant hill. Being on the wrong side of the border and by force of the numerical imperative, he concludes retreat is the better part of benign indifference.

THE bad END and a very bad beginning.
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Económico Financeiro Jun 2, 2015

I've been watching the credit aggregates of the Central Bank of Greece and Varofakis is not as villan (or smart) as Prof. Sinn thinks.
Comparing April 2015 with Dec 2014 there is a decrease in banks exposure to Greece public debt:
Total credit => -731 E6€; Government bonds => -473 E6€; Private sector => -258 E6€
http://www.bankofgreece.gr/Pages/en/Statistics/monetary/financing.aspx
ECB is more than 104 billions (and not 80 billions€) but since Mar 2015 Greece banks cannot increase exposure to public debt (ECB imposes that).
http://globaleconomicanalysis.blogspot.pt/2015/03/screws-tighten-on-greece-ecb-forbids.html
- Chris V Jun 3, 2015
  
  "Varofakis is not as villan (or smart) as Prof. Sinn thinks"
  
  He doesn't have to be.
  
  Putin, however, is.
  
  The greeks just need to be literate enough to read the script they're being handed.
  
  "I sense a plot to destroy the Republic." -Mace Windu
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jagjeet sinha Jun 2, 2015

Germany's turn to understand that Game Theory perhaps is another chapter in Greek Genius - whose unending credibility remains as bewildering as the Great Games of a 29 year old in history whose consequences remain endless 2300 years later.
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Económico Financeiro Jun 2, 2015

The main question is what the EU countries will do if Greece (an its central bank) declares that it will not pay to the European institutions.
Will EU declare an embargo on Greece as the USA did to Cuba or will UE forget the Greek debt?
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Eusebio Manuel Vestias pecurto vestias Jun 2, 2015

It is dificult to see this mess in Greece that has been created over the Years without any solution it is unfortunately not what we want the European Greece have to take a strong commitment to the political and its cretidors to assume its reforms Democratic
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Koutounidis Nikolaos Jun 2, 2015

Currently there is only a hanful of Greek Bank Loans in the country. The severe liquidity problem in the country is an impervious impediment. On which figures do you base the statement concerning the loans provision?
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Leo Kolivakis Jun 1, 2015

My latest on the ongoing crisis in Greece and the eurozone:

http://pensionpulse.blogspot.ca/2015/06/for-whom-bell-tolls.html

Best regards,

Leo Kolivakis

Publisher of Pension Pulse blog.
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Krzysztof Worytkiewicz Jun 1, 2015

Herr Sinn, taking your pamphlet seriously is rather difficult, since it seems that you substantiate your claims based on game theory with mere accounting tricks. Really? If so there is an immediate question of competence. Otherwise your piece consists mostly of attacks ad personam, which makes your writing frivolously toxic yet without much substance.
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George Mavros Jun 1, 2015

Every freshman student in economics has known since the world economic collapse that a Greek exit is inevitable, and it is only a matter of time ('kicking the can down the road')
The Greek Debt cannot be repaid, never, ever, for eternity. If you can't swallow this you are wasting your time.
Another great 'achievement' for the Rothschild Banking Empire at the expense of Greek & EU taxpayers.
Give some credit to the genius of Varoufakis & Tsipras.
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Nickolas Michelinakis Jun 1, 2015

Oh boy!
The loan portfolio of the Greek banks has been shrinking since the beginning of the crisis. The added emergency liquidity assistance is because of cash withdrawals due to uncertainty.
Personally speaking there was no way to convince my father to keep the family emergency cash on the bank. And to be honest, these few last days I would have withdrawn the money myself.
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Henry Rech Jun 1, 2015

The story continues.

Is the return of her daughter primarily the mayor wife's motivation - or is she seeking retribution for phoney sweet nothings and promises whispered in her ear by Tsipras in loving embrace the night before. And the daughter (Christine Lagarde), what of her motivations? Is she beguiled and charmed by Varoukis as she appears to be? Where will she stand when it matters. As the riders making their escape head off towards the hills controlled by a band of black hatted bandidos, headed by a formidable and ruthless leader (Vlady Putin), a US marshal (Barack Obama) canters into the other side of town - in relentless pursuit of the deadly duo for serious and serial misdemeanours perpetrated on the other side of the border. Before the fugitives reach the badlands they will sojourn at a missionary station to water their horses. The mission is the realm of a disconsolate and degenerate priest (Jean-Claude Juncker). Meanwhile, a posse has been raised by a now sober sheriff, even the timid bank manager has mustered sufficient courage to join the hunt. Little do any of the protoganists expect the final denouement to be played out at the mission station as all parties converge on it.
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simon noble May 31, 2015

Typical YV. It looks so cool. of course the $80bn or so is a drop in the ocean compared to what will hither average Greek citizen afterwards, not least because the debt want just go away and will plague the economy a settlement is agreed.
And of course the cost of funding A is even larger for the EZ and growing as hardball continues so YV as usual working off a slick under-researched scenario.
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Peter Schneider May 31, 2015

The ECB acts way out of its mandate. Where the treaties clearly exclude a fiscal union, the ECB effectively introduces fiscal transfers between member states through the backdoor without any democratic legitimation to do so and circumventing parliamentary approval. However, the budget right is the key right of any parliament. In the end, the ECB renders democratic elections meaningless.

Within the current constitutional framework, the ECB thus has to be considered as an illegal institution that has to be dismantled if democracy and the rule of law shall be preserved.
- Stamatis Kavvadias Jun 25, 2015
  
  I made a mistake. Where I say "strong currency", I meant "hard currency," i.e., no money printing by the central bank.
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- Stamatis Kavvadias Jun 25, 2015
  
  Firstly, "transfer union" is just a buzzword; it has no precise definition and it is not mentioned in the treaties. The treaties only forbid direct ECB financing of sovereigns, and, under the recent ruling of ECJ, this does not include secondary market operations, when targeted toward a macroeconomic end.
  
  Secondly, the ECB is the only bond in the EZ. Removing it would remove a hell of a lot of problems, along with the euro. The undemocratic role of the ECB has two sides; government funding discipline, which is all right, as long as the targets of monetary policy are set democratically or at least politically (which is not true in the EZ); and those emerging from the denial of the central bank's role as lender of last resort and demanding a hard currency, which results in banking system externalities determining fiscal policy.
  
  The latter is unacceptable. The Germans will have to abandon their expansionary strategy of the strong currency, because it results in an intolerable, undemocratic fiscal straitjacket for the union. We cannot and do not want to be Germans, all of us in EZ. As good as your example is, we do not want to be like you; at least, not when "the union" wants us to. We need our own democratically selected timing. This was never in the treaties and should never be. It will surely break the EZ in the end.
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Michael Public May 31, 2015

What about the great game of reckless lending to the Greeks and then using suspect methods to nationalise the debt? Not much to say on THAT subject, it seems, Hans from Munich!
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Henry Rech May 31, 2015

I don't know about Greek banks lending to Greeks but surely questions arise. Why hasn't the Greek government brought capital controls to ease the pressure on it's banking system and economy? Is it just because it can, for the time being, because of the ELA arrangements? What about the new tranche of debt, rivaling its already existing sovereign debt, it's central bank has raised with the ECB? Would not the Greek government be concerned about this? Unless of course there is perhaps some strategic advantage.
- Stamatis Kavvadias Jun 25, 2015
  
  Ease pressure on the banking system and economy and exaggerate pressure on the people? I 'll tell you why. It's because there is 25% GDP contraction and 25% unemployment. Those suffering are not the companies and the banks (which you call "the economy").
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E Walker May 31, 2015

The foolish German government created this problem by buying up the bad loans its stupid banks made to Greece. Why not just bail out your stupid banks instead of ruining the lives of millions of Greeks, Spaniards and Irish?
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tina ro May 31, 2015

Is this guy for real? Does he really surmise that Greeks are getting their bank accounts refillled with loans and then running and hiding it in swiss bank accounts? A country of 10 million, with half the population agrarian, they are not movers and shakers trying to hustle and divest loaned money. .. Ha ha ha! I know it's an opinion piece, but is he referring to the 1% elite who are taking advantage of the current economic situation? I've lived in Greece over the last 2 years and believe me, banks are not giving out personal loans and nor are the people in Athens snatching up foreign assets with ECB money. Most are counting every single euro they have till the end of the month, 30 year olds are moving back home and the situation is grim. As a Canadian, I find it appalling to see how citizens are treated. Unpaid for months and wages cut. .. So I don't understand what group of 'Greeks' the author is referring to.
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anand vishrant May 30, 2015

brilliant, only commentator i've read to see this, of course euro, without central fiscal etc authority was always b.s. c.f Usa.
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hari naidu May 30, 2015

The title should be *Great Mafia Game*.
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Karl Strobl May 30, 2015

here is how this will play itself out, according to Game Theory, of which Varoufakis knows a thing or two: http://karlstrobl.com/2015/05/28/varoufakis-and-game-theory/
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Nichol Brummer May 30, 2015

Greece has already lost. I really don't see how they can now 'walk away with the pot'.

It would have been useful if Werner Sinn had given some more details of why he believes Greeks are taking on more local credit, to pay off loans outside Greece. Which numbers indicate that this is happening? Why have we not yet heard that Varoufakis is on a campaign to convince Greeks of this action? If it is happening, might it not be rather due to foreign banks refusing to roll over loans to Greek citizens, so they are forced to refinance at a Greek bank?

Finally.. how can it ever be the job of the ECB to ruin the Greek financial system by 'removing their safety net'? Isn't the job of the ECB to make sure that the banking system remains in a functioning state?

Too many wild claims, too little data to support the claims.
- G Kara May 31, 2015
  
  I totally agree with Nichol Brummer. Sinn has been advocating Grexit since the beginning of the crisis and trying to convince all parties that this would be the best solution, even for Greece! He's never given any solid arguments, though, based on true facts or data, but he deliberately distorts truth and logic.
  
  His claim - presented as a fact - that "Greek citizens take out loans from local banks" is an awful lie, given that Greek banks have stopped giving loans a long time ago, and this can be easily found out if one looks at the official data.
  
  Furthermore, the attempt to present the withdrawal of cash from the Greek banks, which destabilizes them and fuels European banks with billions of euros is truly impressive...
  
  Indeed, is this the role of the ECB? Is it acceptable to pull out the plug of the Greek economy in order to "force it to start negotiating seriously"? Would that be a "negotiation"?
  
  I am not in favor of the Greek government's ideas, rhetorics, strategy or tactics, but Sinn's claims and arguments seem unacceptable to me.
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Gunnar Eriksson May 30, 2015

After all; Ability on the part of Greek government should be seen as good news. The return to prosperity of the land is in all our interest.
Criminal politicians with the help of a major American bank borrowed money at a completely unsustainable level for many years.
Private lenders accepted this based on the assumption that public money should rescue them. THEY WERE RIGHT!

The politicians, The American bank and the private lenders were the ones walking away with the pot!
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Henry Rech May 30, 2015

Interesting perspective.

One has to ask why hasn't the Greek Government sought to limit capital flight - unless there is strategic intent.

It might look like this.

Greek banking system borrows E100b from ECB under ELA arrangements. Funds circulate thru system and are parked by Greek citizens in non-Greek assets. Greece defaults, thumbs its nose to ECB to tune of E100b. Institutes New Drachma. Greeks with non Drachma assets, originally financed by ECB and defaulted on, now return funds, at least in part, to Greece at a time when the Drachma will need support.

If it's going to be ejected from the EZ/EU it may as well go out all guns blazing.
- Henry Rech May 30, 2015
  
  OK, here's the plot and cast.
  
  A gringo sporting a sombrero and poncho (Yanis Varoufakis) and brandishing a Colt 45 is holding up the bank - the bank manager is trembling in his shoes (Mario Draghi). Meanwhile, Yanis' sidekick (Alexis Tsipras) has just shot up the local cantina and has stolen a dozen bottles of the best desert whiskey (not quite potent as rattlesnake venom). The local sheriff (Wolfgang Schauble) is in the cantina, inebriated and yelling garbled obscenities at Tsipras. Varoufakis and Tsipras ride out of town with saddlebags full of gold and whiskey bottles. Varoufakis' horse has a second rider - it's the local mayor's ( Jeroen Dijsselbloem) daughter. But wait.....there is another rider in pursuit. It's the mayor's wife (Angela Merkel), determined to retrieve her daughter. To be continued.
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- Henry Rech May 30, 2015
  
  I should have added "all guns blazing, with (Euro) gold in its saddle bags".
  
  Perhaps Clint Eastwood could look at the next film genre - the souvlaki western?
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Jan Malek May 29, 2015

And the Greeks are, of course, the only ones playing the bad cop/ good cop routine, nobody else in Europe would ever consider something like it, that would just be bad form, right?
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dan baur May 29, 2015

No kidding "ECB bears considerable responsibility". People of Europe are too tolerant of the EU bureaucracy and will suffer just as Greeks suffer for tolerating successive incompetent governments.
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Mark Stannis May 29, 2015

Interesting analysis.

But by being so obviously devious and calculating about it, they are also driving up the cost of being conciliatory to Greece. After all, nobody likes being perceived as giving in to blackmail.

And in the mean time the Greek economy is taking hits from this continued uncertainty so the Greek citizens lose out as well.

So an alternative strategy is that they are pursuing a desperate strategy in which everybody loses.
- Mark Stannis May 29, 2015
  
  I mean alternative view of course.
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Petey Bee May 29, 2015

"First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors."

shouldn't that sentence say "between the citizens and their creditors"? if not, why not?
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