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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsFor Europe’s sake Greece must renege on its bailout commitments
For Europes sake Greece must renege on its bailout commitments my op-ed in Le Monde
by Yanis Varoufakis
Conventional wisdom has it that, if Greece wants to stay in the Eurozone, it must abide by the terms and conditions of its bailout deal.
It is my considered opinion that the conventional wisdom is, once more, profoundly wrong. That Greeces only realistic chance of staying in the Eurozone is to challenge the terms of its bailout agreement. Moreover, I shall be arguing that such a challenge would be a great gift to Europe. Indeed, it may prove a prerequisite for the Eurozones survival.
Consider the following indisputable facts:
* A week ago the bankrupt Greek state borrowed 4.2 billion from Europes bailout fund (the EFSF) and immediately passed it on to the European Central Bank (ECB) so as to redeem Greek government bonds that the ECB had previously purchased in a failed attempt to shore up their price. This new loan boosted Greeces debt substantially but netted the ECB a profit of around 840 million (courtesy of the 20% discount at which the ECB had purchased these bonds).
* During the same week, the fiscally stressed Spanish government was injecting large amounts of capital into Spanish banks. Simultaneously, to help finance the Spanish state, the ECB has provided large loans to Spanish banks (at 1% interest rate) which they then re-lent to their saviour, i.e. the Spanish state, at interest rates often exceeding 6%.
* For the Greek and the Spanish governments to be allowed to borrow the monies involved in the operations described under 1 and 2 above, the ECB and the European Commission (plus, in Greeces case, the International Monetary Fund) demanded of them that they deflate their economies through savage spending cuts which will, with mathematical precision, reduce the national income from which loans, new and old, must be repaid.
* Average interest rates in the Eurozone (even if we exclude the three countries that have fallen out of the markets and have received bailouts, and include Germanys crisis-induced ultra-low rates) are at least 1.5% higher than nations with a higher average degree of indebtedness, e.g. the UK.
* During the same week, the fiscally stressed Spanish government was injecting large amounts of capital into Spanish banks. Simultaneously, to help finance the Spanish state, the ECB has provided large loans to Spanish banks (at 1% interest rate) which they then re-lent to their saviour, i.e. the Spanish state, at interest rates often exceeding 6%.
* For the Greek and the Spanish governments to be allowed to borrow the monies involved in the operations described under 1 and 2 above, the ECB and the European Commission (plus, in Greeces case, the International Monetary Fund) demanded of them that they deflate their economies through savage spending cuts which will, with mathematical precision, reduce the national income from which loans, new and old, must be repaid.
* Average interest rates in the Eurozone (even if we exclude the three countries that have fallen out of the markets and have received bailouts, and include Germanys crisis-induced ultra-low rates) are at least 1.5% higher than nations with a higher average degree of indebtedness, e.g. the UK.
The German Chancellor (correctly) argues that we cannot escape a debt trap by accumulating more debt. However, consider facts 1,2&4 above: they constitute a typical case of adding debt to debt; of insolvent states borrowing in order to pay a Central Bank that is lending to insolvent banks which, at once, receive capital from insolvent states and lend to them part of the money they themselves borrowed from the Central Bank! ................(more)
The complete piece is at: http://yanisvaroufakis.eu/2012/05/25/for-europes-sake-greece-must-renege-on-its-bailout-commitments-my-op-ed-in-le-monde/
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