Post by Progenitor A on Oct 20, 2017 16:28:37 GMT 1
Yanis Varoufakis
I am just reading his book, up to pp 58. Well written, very readable and quite astonishing
In 2010 Greece went bankrupt, it could neither repay its debt nor pay the due interest payment on the debt
It had been obvious for some time that Greece was in financial trouble- indeed it had only managed to join the Euro in 1999 by fiddling the books with the help of Goldman Sachs and the collusion of the EU – ever more interested in the politics of the Union than financial probity
The normal path that bankrupt countries follow is to negotiate a write-off of some or all the debt with its creditors and take financial measures to reduce public expenditure and increase tax revenue. A major step in this financial restructuring is to devalue the currency, making imports more expensive (encouraging home-grown industries) and exports cheaper. As a member of the Eurozone Greece could not devalue its currency
Would the ECB- the European Central Bank be sympathetic to Greece writing off its debt?
The reason that the ECB, predominantly German controlled, was not sympathetic to this was simple
Because of the 2008 Crash, the German and French banks were in a parlous condition. They held massive amounts of Junk bonds, the derivatives that caused the 2008 crash and dodgy loans to EU states including Greece, Italy Portugal and Spain
If Greece wrote off their debts to the Germans and French, then the French banks would collapse and France become penurious, the Germans would be very hard hit
So it was of paramount importance to France and Germany that Greece should make its due interest payments – in other words, Greece could not be allowed to go bankrupt, or in clearer words, Greece’s bankruptcy must be hidden from world markets
If France collapsed the EU would disintegrate, so the EU power- caucus fully backed the Franco-German position
Unfortunately the ECB/EU rules do not allow loans to rescue member states from financial troubles so an ECB/EU by-pass was devised
France and Germany arranged a number of ‘bilateral loans’ between EU countries and Greece. Thus the German Government lent the most, France the next largest, Holland, Croatia and others made these ‘bilateral arrangement ‘ loans
Merkel had a slight problem as the Bundestag had to approve such loans. She disguised the loan as help to a mutual EU member that strengthened the EU and Germany politically and financially. Greece would be obliged to reform itself socially and financially
The Bundestag approved
The money was transferred to Greece and immediately repaid to France and Germany (mainly) to service the due interest payments
The Franco-German crash was avoided
Meanwhile Greece was landed with an even larger debt and correspondingly higher repayments of interest thus driving it deeper into insolvency. Germany and France knew that another, even bigger bailout would soon be necessary
The German driven austerity programme was instigated by the Greek Government. Public pay-cuts and redundancies, reduced public expenditure, reduction of pension payments sale of State assets - a large sector of Greek society was driven into impoverishment
Unfortunately these measures reduced GDP and thus government income from taxation was reduced, forcing them to cut further public expenditure
Greece was in an irrecoverable downward spiral to poverty, and the EU knew that, but the German and French interest easily trumped the interest of tiny Greece
The EU, quite deliberately, forced a full and equal member of the EU into poverty to maintain the integrity of the EU
I look forward to where Yansi becomes Greek Finance Minister and negotiates Greek insolvency with the EU Commission
Do read the book!
I am just reading his book, up to pp 58. Well written, very readable and quite astonishing
In 2010 Greece went bankrupt, it could neither repay its debt nor pay the due interest payment on the debt
It had been obvious for some time that Greece was in financial trouble- indeed it had only managed to join the Euro in 1999 by fiddling the books with the help of Goldman Sachs and the collusion of the EU – ever more interested in the politics of the Union than financial probity
The normal path that bankrupt countries follow is to negotiate a write-off of some or all the debt with its creditors and take financial measures to reduce public expenditure and increase tax revenue. A major step in this financial restructuring is to devalue the currency, making imports more expensive (encouraging home-grown industries) and exports cheaper. As a member of the Eurozone Greece could not devalue its currency
Would the ECB- the European Central Bank be sympathetic to Greece writing off its debt?
The reason that the ECB, predominantly German controlled, was not sympathetic to this was simple
Because of the 2008 Crash, the German and French banks were in a parlous condition. They held massive amounts of Junk bonds, the derivatives that caused the 2008 crash and dodgy loans to EU states including Greece, Italy Portugal and Spain
If Greece wrote off their debts to the Germans and French, then the French banks would collapse and France become penurious, the Germans would be very hard hit
So it was of paramount importance to France and Germany that Greece should make its due interest payments – in other words, Greece could not be allowed to go bankrupt, or in clearer words, Greece’s bankruptcy must be hidden from world markets
If France collapsed the EU would disintegrate, so the EU power- caucus fully backed the Franco-German position
Unfortunately the ECB/EU rules do not allow loans to rescue member states from financial troubles so an ECB/EU by-pass was devised
France and Germany arranged a number of ‘bilateral loans’ between EU countries and Greece. Thus the German Government lent the most, France the next largest, Holland, Croatia and others made these ‘bilateral arrangement ‘ loans
Merkel had a slight problem as the Bundestag had to approve such loans. She disguised the loan as help to a mutual EU member that strengthened the EU and Germany politically and financially. Greece would be obliged to reform itself socially and financially
The Bundestag approved
The money was transferred to Greece and immediately repaid to France and Germany (mainly) to service the due interest payments
The Franco-German crash was avoided
Meanwhile Greece was landed with an even larger debt and correspondingly higher repayments of interest thus driving it deeper into insolvency. Germany and France knew that another, even bigger bailout would soon be necessary
The German driven austerity programme was instigated by the Greek Government. Public pay-cuts and redundancies, reduced public expenditure, reduction of pension payments sale of State assets - a large sector of Greek society was driven into impoverishment
Unfortunately these measures reduced GDP and thus government income from taxation was reduced, forcing them to cut further public expenditure
Greece was in an irrecoverable downward spiral to poverty, and the EU knew that, but the German and French interest easily trumped the interest of tiny Greece
The EU, quite deliberately, forced a full and equal member of the EU into poverty to maintain the integrity of the EU
I look forward to where Yansi becomes Greek Finance Minister and negotiates Greek insolvency with the EU Commission
Do read the book!