Yves here. Yanis Varoufakis’ discussion today focuses on hot-button issues in the Eurozone, which isn’t getting the attention it warrants in the US press right now, given the competition from so many stories closer to home, such as the oil price collapse to sustained protests over police brutality to the CIA torture report.
Admittedly, while a crisis looks inevitable, with Germany committed to incompatible goals (continuing to be export-driven but not lending to its trade partners), the Troika has made kicking the can down the road into such an art form so as to have dulled the interest of most Eurozone watchers. But there’s been a bit of a wake-up call with the possibility that Greek prime minister Antonis Samaras’ gambit of calling for a presidential snap election (which is a vote within the legislature) will fail, leading to general elections. A general election is widely expected to produce a victory for the leftist party Syriza, which is opposed to more bailouts, and one is scheduled to be wrapped up within the next couple of months. Syriza wants the debts restructured and also wants to be allowed to deficit spend, which in an economy so slack, would reduce debt to GDP ratio over time (the austerians keep ignoring the results of their failed experiments: when you cut government spending, the economy shrinks disproportionately. As a result, this misguided method for putting finances on a sounder footing makes matters worse as government debt to GDP ratios rise as a direct result of spending cuts).
As much as the Syriza leader, Alexis Tsipras, has spoken against bailouts, even if he comes into power, it’s not clear that he has the resolve to bluff the Troika successfully. International lenders will rely on the notion that Tsipras can’t afford to threaten a default, since that could trigger bank runs and potentially rescues via depositor bail-ins and are likely to push back hard. But the spike up in Greek government bond yields and the near 12% plunge in the Greek stock market yesterday says investors are plenty worried about the possibility of brinksmanship, and the tail risk that Greece might actually default and print drachmas to fund its government budget, which would be grounds for kicking it out of the Eurozone.
By Yanis Varoufakis, a professor of economics at the University of Athens. Originally published at his website. From an interview with Jorge N. Rodrigues
1- Will Greece be “seen out” of the euro during the year, or is a compromise still possible in the euro framework?
A workable compromise is certainly possible and there is no need for Greece to exit the euro. Only Greece needs a government that is genuinely committed to negotiating and drawing lines in the sand thus demanding sensible changes to the rationale of the agreement between Greece, Berlin, Brussels and Frankfurt.
2- Will Euro area fall into stag-deflation? Will Germany accept a change of policies’ course?
The Euro Area is stagnating already, and doing so quite badly. But this is insufficient to change Germany’s stance. Only a doubling of German unemployment will do this or, more likely, one (or more) government from the Periphery that are prepared to veto the German position in the EU Council.
3- Will the ECB will go for a full QE?
No. Even if they start buying government bonds, they will do it in a quantity and manner that does not help much.
4- Sovereign Bond Yields will continue to go down through new historical lows, or is a reversal probable?
The low yields reflect a combination of deflationary expectations and the expectation that Europe will continue quietly to “wither”. If /when either of these expectations change, yields will shoot up.
5- Will Russia enter full recession and the euro go above 80 roubles?
Russia is in full recession. As for the rubble’s ‘equilibrium’ rate, only fools make predictions.
6- Can geopolitical risks go up?
They always do in the wake of a long term deflationary crisis. Just ask yourself: Would Mr Putin have behaved the way he did if Europe had a coherent strategy against its crisis?
7- Will Brent price go down below 60 dollars, or is a reversal probable?
The macroeconomic outlook supports the prediction of low oil prices for a while. But given the political nature of many of the relevant decisions (e.g. What will Saudi Arabia do? Will Iran be rehabilitated?), price forecasts are bound to be inaccurate.
8- Will the FED and the Bank of England delay significantly first move to higher interest rates?
It does not matter much. They will be very cautious, ready to drop them again at the first sign of a downturn.
9- In the euro area which country is the weakest link?
Italy – in the sense that it manages to have a very healthy primary surplus (and a healthy current account) but still its debt to GDP ratio is rising unsustainable.
10- Guesses for grey or black swans?
By definition, ‘swans’ are un-guessable. Except to say that the source of the next Euro Area shock will be political (under the strain of deflationary dynamics).
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I write occasionally for LiberalAmerica.org but my “real” job has me travel worldwide quite often. The one thing I have noticed over the past fifteen years is that everywhere you go, from Gallerie Lafayette in Paris, to shops on Rua Oscar Freire in Sao Paulo, there are too many goods worldwide made by slaves. It would not matter how much wealth the central banks divert to the rich if the poor had jobs. It would not matter, so much, what artificial asset bubbles were made if the middle and working classes also had their own economy. Which currently they do not because the world is flooded in slave made goods from countries that have no environmental controls, basic human rights, etc. I haven’t been to Greece. I only go where I have work. BUT from my experience I am willing to bet that if you go to any Greek mall, electronics store, maybe even grocery store you will find slave made goods. The ONLY way to save the “Western World” is to ban those goods from our markets until the countries that use that type of labor meet both our environmental and wage standards. There is a coming collapse where workers worldwide will all be working for “Chinese” wages. This will not create competition or parity or a return of jobs. It will only lead to even more war.
How do you “notice” this? Not denying the seriousness of the problem, but there aren’t any “slave made” labels, are there? (The LA Times has a fine continuing series on agriculture in Mexico. It’s not just in Galleries Lafayette.)
I was about to answer by saying that there is, in effect, a “slave made” label, the “CE” China Export label. Before posting, I looked it up on Wikipedia, and I learned that the “CE” label actually means “Communauté Européenne” or “Conformité Européenne” or something similar. It’s a symbol of marketability within the European Community. So I guess we still need to keep searching for the elusive “slave made” label.
http://en.wikipedia.org/wiki/CE_marking
I suspect he is using the word “slaves” in a somewhat poetical sense, such as I would use the word “Deep State” or others would use the word “ammosexual”.
Very few of the Bangladeshi clothesmakers who were/ will be killed in that factory collapse/ other factory collapses to come were literal legally owned SLAVE slaves in the sense that slave owners owned
slaves in various parts of the United States at various times.
But one does wonder how much goods in China, America, etc. are made by the forced labor of convicts.
The power that be, (be they in the EU or in Greece), will do what they believe is the best course of action that will maximize their well being.
Geee! I just said that the decisions will be taken because of selfish motives of those in power to decide what they want to see what they want to see happening.
Do it Greece. Print drachmas to fund you government budget. You can still use the euro, when you get some.
It does not seem wise for Greece to use a dual currency. How will you tax and what will people accept?
Before Greece exits the euro they need to understand what goods and services they buy and sell to the zone.
My sense is an exit should be a last resort.
I write occasionally for LiberalAmerica.org but my “real” job has me travel worldwide quite often. The one thing I have noticed over the past fifteen years is that everywhere you go, from Gallerie Lafayette in Paris, to shops on Rua Oscar Freire in Sao Paulo, there are too many goods worldwide made by slaves. It would not matter how much wealth the central banks divert to the rich if the poor had jobs. It would not matter, so much, what artificial asset bubbles were made if the middle and working classes also had their own economy. Which currently they do not because the world is flooded in slave made goods from countries that have no environmental controls, basic human rights, etc. I haven’t been to Greece. I only go where I have work. BUT from my experience I am willing to bet that if you go to any Greek mall, electronics store, maybe even grocery store you will find slave made goods. The ONLY way to save the “Western World” is to ban those goods from our markets until the countries that use that type of labor meet both our environmental and wage standards. There is a coming collapse where workers worldwide will all be working for “Chinese” wages. This will not create competition or parity or a return of jobs. It will only lead to even more war.
When Russia dropped the southern pipeline plan into Europe, bypassing Ukraine, and instead did a deal with Turkey, supplying Turkey with natural gas (for export to the EU or for domestic use in Turkey?) Juncker immediately did an about face. He said that the EU did really after all want to have the southern pipeline. What’s goin’ on? And if the southern pipeline is back on wouldn’t it give Greece the courage to tell the EU to stuff it? Because a spur of that pipeline will surely go out to Greece and all those lucrative islands of questionable commerce. This is almost as coincidental as the Italian police busting the Mayor and entire city government of Rome along with the Mafia in a big sweep and the next day the Vatican says, “Oh gosh, we just found that the Vatican bank is far richer than our previous accounting showed… but we don’t know where all that money came from… etc.” But just to be on the side of truth and justice we are going to expel all those naughty cardinals who ran the joint. I mean, really?
Unfortunately I disagree on question 1. In my opinion the possibility of a sensible compromise within the euro is just theoretical. The reality is that everyday we are getting farther of this possibility and nobody in the stablishment is making any noticeable effort to make that possibility foreseable. I hope I am wrong.
I happen to know from the tippy top that there is a huge fight under way between the EU and the ECB. Outwardly they would seem aligned but the EU is spitting mad that the ECB has foisted such a brittle and unworkable currency structure on its members. It’s not just individual nations, even collectively the member states are apoplectic about the binary choices they are faced with. France passed a law in June that said any initiatives that “improve the resilience of the French economy” cannot be thwarted. The total lack of “resilience” in a single currency system has everyone scared sh*tless. The game is CBs and their member banks versus nations and their people, and it’s harder and harder to pretend that warfare between the two does not exist.
Not taking issue with your overall point, but trying to imagine Hollande as apoplectic about anything is a real brain twister….
Yanis,
The eleventh (or really, first) question is: How can a monetarily non-sovereign government survive long term?
The answer: To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
This is true of all monetarily non-sovereign entities: Cities, states, counties, euro nations, businesses and people. Only Monetarily Sovereign entities (U.S., Canada, Australia, UK etc.) can survive long term with a negative balance of payments.