Der Schauble-Schrecken schleicht durch die Eurozone… (Schauble-horror creeps through Eurozone)
I’m increasingly lost about the whole Euro/Grexit/European Union project.
- How could something which is basically about something as basic as rolling over debts get so out of hand?
- Why do the Greek want to keep the Euro so badly?
- And why are politicians like Schauble and Guy Verhofstadt (who according to this blogpost has quite some ties with banks like Eurobank in Switzerland, owned by Spiros Latsis, the richest man in Greece) so hysterical about Greece?
The first two questions leave me at odds. The third seems to be answerable. It is the oldest trick in the book. Create a common enemy to be able to gain power and lead the Eurozone to your destination. And according to Varoufakis, it might indeed be something which could be called the ‘Schauble-Schrecken’: “Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”. Though Verhofstadt, who did not even understood that Greece reformed more than any other country, might just serve the needs of the richest man in Greece.
And I do of course understand that countries like Spain and Italy love the tripling of VAT rates in Greek tourism, to undo whatever kind of price decreases haven been enabled by cutting wages (source of the graph: Statistisches Bundesamt).
But even Varoufakis wants to keep the Euro. Which is weird, as the Euro has been a big fat failure:
Low unemployment -fail
Financial stability – fail
Economic stability – fail
Prosperity – fail
Income inequality – fail
Convergence – fail
Domestic harmony in Eurozone countries – fail
Low and stable inflation (includes house prices) – fail
Acceptabel level of political bickering and reasonable governance – fail
The Greek will be much better of without the Euro. And not just the Greek.
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Real-World Economics Review Blog 
Open borders is more important than the Euro, which might retreat to being traveler’s cash.
This is probably a good time to set the future EcoDrachma at 1 kilocalorie. Additionally, real democracy never borrows, for reasons of democracy preservation. Art based money can be established as legal at the same time as the EcoDrachma, any person who wants to manually paint or draw their own wallet size currency is free to do so.
All humans who care for Earth request Greeks to hold strong, almost any economist will tell you to choose freedom and democracy and let the Eurexit happen. The bright future is high speed rail from Athens to Beijing, via Moscow, with a connecting loop through Constantinople.
We need a new story about what is possible.
I hope the Greek people cherished their reclaimed dignity after the referendum , because it will soon be gone again , every last speck of it. The Troika will see to that. Especially Schauble , the Dignity Nazi : No dignity for you !!
Tsipras could get it back for good , over time , by exiting the euro , but I don’t think he has the skills or the stones to pull it off.
I pray he proves me wrong.
As far as I can tell Greeks want the Euro because they associate it with Greece’s European identify. Nearly everyone is eager to keep Greece European rather than part of the Middle East, and that feeling is generations old.
The few people I talked to (I don’t live there) confuse leaving the Euro with leaving the EU. Partly it was was sold that way and partly the familiar non-Euro country, the UK, is seen as dragging one foot out of the EU. Nobody thinks of Sweden or Norway as examples of non-Euro EEA success.
I’m not sure what material benefits, beyond identity, Greeks want from the EU. I would guess freedom of migration, lack of tariffs on imports, a few subsidies, and better institutions. When Greece joined the EU this forced Greece to repeal some of its more authoritarian laws from the 70s (after being challenged at the European Court of Justice). Well, all those benefits will stay. I guess people don’t know it.
Viscerally, Greeks associate the Euro with all the modernisation and prosperity that Greece experienced from about 1980 to 2010. They’re mistaken. Modernisation came from the EU and Greece’s own efforts. The Euro did appear to bring prosperity, in fact it appeared to bring free money, but it was a credit bubble that people are now paying dearly for. The Euro brought equality of consumer prices but not of incomes, so Greeks live in a rich-looking place but are fairly poor. Geeks don’t realise how harmful the Euro was and they fear without it Greece will relapse into 1970s backwardness, unfortunately.
The way forward? I think Tsipras and Varoufakis flunked the referendum. It should have been austerity or Drachma and Drachma would probably have won. Now the best hope is to educate Greeks (and others) of the successful examples of EU and EEA prosperity outside the Euro.
«The few people I talked to (I don’t live there) confuse leaving the Euro with leaving the EU.»
While certainly it is possible to be in the EU but not the euro, and it is conceivable leaving the euro and remaining in the EU if the EU treaties are changed, in the greek situation that’s practically impossible, because the greek government has huge debts denominated in euros.
If the greek government tried to pay them back in drachmas this could be opposed in the European Court of Justice, which is an EU, not an euro, institution. Y Varoufakis wrote:
«To begin with, Greece must exit not only the Eurozone but also the European Union. This is non-negotiable and unavoidable. For if the Greek state is effectively to confiscate the few euros a citizen has in her bank account and turn them into drachmas of diminishing value, she will be able to take the Greek government to the European Courts and win outright. Additionally, the Greek state will have to introduce border and capital controls to prevent the export of its citizens euro-savings. Thus, Greece will have to get out of the European Union.»
If the Greek state were to confiscate Euro deposits like that, I agree. Euro deposits are a contract between the Eurosystem and individual citizens. The Greek state would leave them alone while introducing another currency, so people would end up with separate Euro and Drachma accounts.
In the event, it’s almost certainly the ECB who is going confiscate the Euro deposits of people who live in Greece. Is someone going to sue the ECB for that and throw them out of the EU?
As for paying debts in Euros, whatever Euros Greece now earns it’ll continue to earn, plus or minus changes in the price or volume of tourism. Introducing drachma keeps that flow of Euros in fewer hands and therefore makes it harder for Euros to leave Greece to pay for personal consumption of imports. This should make paying Euro debts easier.
Introducing drachma is basically a bid to make the majority of Greece import-poor to fix Greece’s trade deficit, while boosting the domestic economy. The domestic economy is very relevant to poverty, security, purchasing power and welfare. It’s demand-side protectionism, i.e. making tomatoes and feta domestically affordable.
In considering going it alone, a crucial issue is the level of self sufficiency of the Greek Economy — I have not seen any discussion of this, perhaps because this concept is anathema to conventional economic theory, which teaches us that comparative advantage — which means becoming dependent on other nations which might not mean well — is so much better.
Greece produces the basics: Food, housing, transport, services. This is fortunate. It imports crude oil, but fortunately at this time its cheap. Greece lacks industrial goods and imports nearly all of them. It has some small capacity to produce domestic substitutes (appliances, clothes). Exports are tourism and ores, as you know. Not enough of them and not very scalable, so devaluation won’t help much.
The majority of Greece’s economy are self-employed perofessionals (farmers, drivers, dentists, lawyers, plumbers, shopkeepers, etc.) and services (waiters, etc.). These people are really competitive. Work hard, cheap, etc. However they’re domestic focused. They can only earn a Euro or a Drachma from another Greek. Mostly money flows from person to person inside Greece.
The problem is when these professionals want to buy imports. Then the Euros leave the country. Greece could fix this problem in two ways:
1. Develop more export goods or services so that exports match imports.
2. Shift the balance of consumption from imported discretionaries to domestic basic goods.
Introducing the drachma is about option 2. It makes Greece’s extensive class of self-employed, highly competitive, but domestically focused professionals poor in Euros but rich in drachmas. They\re forced to shift consumption to domestic goods: more tomatoes, fewer iPhones. This in turn reduces the flow of Euros out of the country.
Introducing drachma also lets money flow in the liquidity-starved domestic market, which should have several benefits: invoices in arrears start to get paid, higher employment, much greater financial security.
Back in 2010 this would have been an obviously welfare-reducing move. Greeks individually like consuming imports which collectively they can’t afford. In 2015 when Greeks are generally poor and the domestic economy is grinding to a halt it will be welfare-enhancing. The bet is that more affordable tomatoes beats less affordable iPhones.
«the level of self sufficiency of the Greek Economy — I have not seen any discussion of this»
Y Varoufakis has written some clear opinions about this:
yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/
yanisvaroufakis.eu/2012/02/18/greek-default-does-not-equal-greek-exit
In the latter the crucial clause is:
«The Greek state, let me remind you, is quite close to a primary surplus. With judicious top-down reductions wages and pensions, plus the issue of tax-bonds, the Greek public sector could finance itself for the foreseeable future. All that is needed is that the ECB continues to provide liquidity to the Greek banks.»
where «ECB continues to provide liquidity to the Greek banks» translates to “ECB continues to provide an infinite overdraft to the Greek government” because every time the greek government wants “free” euros it can sell bonds to some greek bank and that bank discounts them with the ECB.
W Mosler has written a reply Y Varoufakis arguing that Greece can pull an Argentina:
http://serbanvcenache.blogspot.ro/2015/02/mosler-trolling-varoufakis-with-damn.html
“why are politicians like Schauble and Guy Verhofstadt (who according to this blogpost has quite some ties with banks like Eurobank in Switzerland, owned by Spiros Latsis, the richest man in Greece) so hysterical about Greece?”
Sounds like the Troika should be pursuing the euros in the Swiss bank accounts of Spiros Latsis rather than the pathetic pensions of the Greek poor.