Links. You can’t solve a financial crisis by lowering wages edition. 2 graphs.
Why are so many right wing economists so afraid for an economists like Varoufakis, who wants less debt, and why do they continue to push for lower wages and more lending?
1) On Project Syndicate Yanis Varoufakis dissects the financial shenanigans surrounding Greek debts:
” In 2012, the insolvent Greek state borrowed €41 billion ($45 billion, or 22% of Greece’s shrinking national income) from European taxpayers to recapitalize the country’s insolvent commercial banks. For an economy in the clutches of unsustainable debt, and the associated debt-deflation spiral, the new loan and the stringent austerity on which it was conditioned were a ball and chain. At least, Greeks were promised, this bailout would secure the country’s banks once and for all.In 2013, once that tranche of funds had been transferred by the European Financial Stability Facility (EFSF), the eurozone’s bailout fund, to its Greek franchise, the Hellenic Financial Stability Facility, the HFSF pumped approximately €40 billion into the four “systemic” banks in exchange for non-voting shares. A few months later, in the autumn of 2013, a second recapitalization was orchestrated, with a new share issue. To make the new shares attractive to private investors, Greece’s “troika” of official creditors (the International Monetary Fund, European Central Bank, and the European Commission) approved offering them at a remarkable 80% discount on the prices that the HFSF, on behalf of European taxpayers, had paid a few months earlier. Crucially, the HFSF was prevented from participating, imposing upon taxpayers a massive dilution of their equity stake. Sensing potential gains at taxpayers’ expense, foreign hedge funds rushed in to take advantage. As if to prove that it understood the impropriety involved, the Troika compelled Greece’s government to immunize the HFSF board members from criminal prosecution for not participating in the new share offer and for the resulting disappearance of half of the taxpayers’ €41 billion capital injection”
2) Such articles explain why many people in the banking world are still afraid of him and try to tarnish him. The ‘Lisbon Council’ think tank, sponsored by Berenberg bank, (quote) ‘deploys a unique methodology’ to ascribe the post June 2015 decline of producer confidence in Greece to Yanis Varoufakis and even coin the phrase ‘the Varoufakis effect’ to lable this drop. Looking at the data, it however shows that it should be named: ‘The ‘Troika effect’ as consumer as well as producer confidence actually inched up after the first Syriza win and, while consumer confidence started to decline in april, producer confidence only took a big hit and reached the lowest level ever after the banks were closed down – by the Troika. the graph used by the Lisbon Council however suggests otherwise, as the dates below the graph are messed up a little. Unique indeed. And oh, did I mention that Varoufakis wants less debt, which is bad for banks like Berenberg?
3) According to the Lisbon council we have to lower wages to counter the consequences of such financial shenanigans – and in its latest Economic Bulletin the ECB agrees. Though the data do not corroborate such views the text of the articles states again and again that financial shocks have to be countered by lowering wages. Fortunately, the ECb saves me a lot of work by publishing the graphs below,the first of which clearly states that the austerity darlings have totally dismal ratings, 7 to (for the Baltics) 8 years after the crisis when it comes to any ‘rebound’ of employment. France does so much better. And the second shows that on the EA macro level the development of total hours worked has been dismal, too.
Which is all of course caused by using the wrong medicine to cure the financial disease. Cutting debts, not cutting wages was (and, alas, still is) the way ahead. preferably directly but if that does not work by increasing inflation – nominal income has to come at par with the ‘house price boom’ level of debts. For which we need higher, not lower wages.