– Varoufakis’ “Strategy”: “No Grexit, But Default Inside The Euro, And Stick The Middle Finger To Germany” (ZeroHedge, March 15, 2015):
In a recently uncovered speech by the Yanis Varoufakis that took place in May of 2013, and which was either ingenious or naive beyond comprehension – we can’t decide – or is simply the contradictory stream of consciousness of a financial expert who has become the epitome of saying one thing now, and its diametrical opposite 5 minutes later, the Greek finance minister explains why he was for a Greek default but against returning to the Drachma.
Following several minutes of tortured logic, Varoufakis explains that devaluation is, drumroll, bad for a country that is on the verge of doing so and seems not quite clear with the concept of currency controls (he applauds Argentina for “sticking the finger to the IMF” and says Greece unlike Buenos Aires doesn’t have a Chinese export market ready: perhaps he should read up on the whole Dry Bulk shipper thing) yet completely ignoring the the very reason why a country devalues in the first place: to implement an external rebalancing – something it should have done years ago – the reason for which is that Greece will soon be if not already is, on the verge of outright social conflict as there is no further room for internal rebalancing, i.e., wages and welfare cuts. Just wait until the people realize their pensions are being used to repay the IMF…
Then Varoufakis, channeling Schauble, proceeds to justify the German way of thinking, namely one where the only thing that matters is the preservation of exiting wealth, an odd position for a self-proclaimed Marxist, and one which forgets that while there is a period of acute pain, the nations that made up all failed currency unions in the past (incidentally, all of them, which is why the Euro too is doomed to fail) somehow managed to survive. The reason being that once exports are cheap enough, any country – even Greece – can finally implement the much delayed reforms and return to growth on its own, and not on the back of German generosity: just how much money will the Troika agree to wire Athens this month?
There is of course an alternative, the one which Varoufakis is warming up to: a less acute, but unlimited and endless pain while existing as a vassal state of the most powerful authority in the monetary union, in this case Germany. This is precisely what Samaras had decided on, and why Greece had become a “sovereign” in name only – it was a broken country whose every state-level decision was made by the Troika. It was also why Varoufakis was elected: the break these shackles of German oppression, or perhaps he already forgot all his promises to the people?
Then the abovementioned logic gets even more tortured, when Varoufakis who until that point destroys the hypothesis in which a return to a Drachma is even remotely conceivable, crushes everything he had built up until that point: “what we should do is create a plan B, we should start the process of thinking of creating a currency in case we need it not just because we may choose to leave the euro, but because the euro may not exist after a while. If Germany leaves, that is more likely for me, as far as I am concerned that Germany would depart from the euro.”
Well, if his intention was to soothe Europe’s fears that Greece may contemplate a Plan B, he failed.
Then the stream of consciousness touches on Cyprus, which Varoufakis says should leave the Euro because it has already suffered the pain of capital controls, and because its banks are already insolvent. Here one asks: “and Greek banks are what exactly?”, especially if on one sunny day the ECB decides to cut all ELA to Greece to €0? Or maybe in some game theoretical world in which Greece is hinting at its own currency, the ECB defecting on its own (and with Q€ as a backstop why not) is impossible.
Tortured stream of consciousness “logic” aside, where things get fun is when Varoufakis says: “the most effective radical policy would be for a Greek government to rise up in Ecofin and say folks we are defaulting – we shall not be repaying next May the €6 billion that supposedly we owe the ECB…. But why step out? Because the moment the Greek prime minister declares default within the Eurozone all hell would break loose and either they would have to introduce those shock absorbers or the Euro will die anyway and then we can go to the drachma.”
Well, the Greek finance minister had his chance to do just that, at the Ecofin… and completely folded. So let’s avoid any more such hypothetical cases in which Greece “should do this or that”, when Greece had the chance to do just what Varoufakis said was the optimal path, and didn’t do it. In other words, “regardless if you want or don’t want your euro, you get to keep your euro. Just as Germany demanded”
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But the reason all of the above will be ignored by everyone, and certainly the German media, is because of what happened 2 minutes into the clip below: “my proposal was that Greece should simply announce that it is defaulting within the Euro in January 2010 and stick the finger to Germany and say well, you can now solve this problem by yourself.”
Judging by how quickly Greece retreated with its tail between its legs after Syriza took power, Germany must have been quite persuasive in explaining why, no, Germany wouldn’t solve this problem by itself.
And all questions aside why the finance minister who would rather walk out on a TV interview than answer if he has become a liability to his country didn’t do precisely that during one of the many Eurogroup and Ecofin meetings he participated in since coming to power, we know what the German public – of which the majority already want Greece out of the Eurozone – will be obsessing over the coming days and week.
Greece “sticking the finger to Germany”
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Full clip below: