Martin Wolf on Greek Exit

His analysis piece is here.

21 replies on “Martin Wolf on Greek Exit”


I learn a lot from Martin Wolf.

Greek exit in any shape would be a disaster of massive proportions.

Getting away from the now trying ‘certainty’ and repetitive twice at least in each sentence of the PR campaign in the local matter ….


A butterfly flaps its wings in Brazil and a Hurricane wipes out Eurasia!

Whether the Greek exit is an orderly well managed affair or leads to chaos and disorder in Greece and the rest of the EZ will be determined by the rest of the EZ. Every member of the EZ and particularly the weaker members (our camp) have a vital interest to ensure that the Greek departure is well managed, well funded and orderly. Reparation payments a la 1919 should not be asked for no matter how tempting.

The German Chancellor got her wake up call at the polls in Nord Rhine-Westphalia last week and is intelligent enough to heed the public mood. I am confident that the EZ core will make every effort to ensure the Greek exit a graceful one.

My wife was at lunch today with two German women executives of a German MNC and the joke of the day was “If a Greek an Italian and an Irishman go into a bar for beer, who will pay? Answer: The German. This was not from Gretel at the Bierstube.

“If a Greek an Italian and an Irishman go into a bar for beer, who will pay?”

Wait til they’re bailing out Deutchbank & co.

That is a great piece by Martin Wolf. Its drastic scenarios really show how ridiculously facile the current fiscal treaty is. If it does not happen in Greece in the next month or so (I don’t think it will) then the break up of the Euro is assured given the current Germanic narrative of the crisis (that is why I am against the treaty).

But there in lies the rub. It is against everyone’s interest that Greece exits and the Euro breaks up. Which is why the current policy mix will be forcibly changed sooner or later, but only after the German/EU/ECB establishment are forced to stare into the abyss.

Let’s hope there is time to change course before a break up becomes inevitable.

It is quite a dramatic piece and when you bear in mind that our monetary system is supposed to be a helpful one which facilitates trading, this piece brings home just how far away we are from discussing different ways in which we could run the economy better.

Martin Wolf once wrote ,’The essence of our contemporary monetary system is the creation of money out of nothing by banks’ often foolish lending.’

He should definitely appreciate the root of the problem, which is that banks create money and can only do so by recording a corresponding debt.

If Greece goes back to the Drachma and allows its banks to create it in parallel with debt nothing will change in principal.

What a glum outlook he presents, and then he says he might be being optimistic!!
I call EUREF the “Divided nation voting in a fractured union” referendum.
Union is a big word, after many years living in a real one it is clear the concept of ‘union’ is a key problem for the E .. eh… U.
You cannot, sadly, just have union of the bits you want (money) and ignore the stuff you don’t like (corruption/culture/history)
Or…. to be completely obscure about it

Greek exit then would create a choice between big moves to a stronger union and a future of endless crises. It is a choice the dominant creditor nation, Germany, must make – among big steps to integration that horrify many of its people, a future of horrible crises or a horrible break up right now. No good choices exist. But the eurozone must become a stronger union or it will disappear.

Big steps to integration…

Big picture vision but at the other end of the spectrum, for various reasons – – from the permanent anti-EU rejectionist bloc to a range of other reasons, including a preference to return to the punt – – is small picture vision objecting to what is effectively a small step towards a closer union.

The first step in a long march has to be a set of rules and it is not unreasonable that these be enshrined in a treaty because of their importance. There is however nothing immutable: times change, governments change and a process will adapt.

Some may not like the analogy with the 1921 Treaty — again a conflict between big vision and essential compromise and the small with a latter focus on symbols.

Strangely though, despite the human cost and economic cost for the nascent state, the British system of governance and public service was comprehensively copied and remains intact to the present day.

Compromise in Greece is also possibe with Alexis Tsipras, as prime minister, rather than having a thrd election or technocratic government.

“Our first choice is to convince our European partners that, in their own interest, financing must not be stopped,” Alexis Tsipras, the 37-year-old head of the Coalition of the Radical Left, known as Syriza said in an interview with The Wall Street Journal. He said Greece doesn’t intend to take any unilateral action, “but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors.”

It is cruelly ironic, but not in the least bit surprising, that a grand EU project, EMU, established without securing sufficient democratic consent or legitimacy, runs the risk of collapsing as the requirement to secure genuine democratic consent to change its institutions and procedures cannot be avoided.

Sow the wind and reap the whirlwind.

But I agree with DOCM. The ball is in the court of governing politicians in Germany and France – and of those in the Netherlands, Luxemburg, Austria, Finland, Slovernia and Estonia – with some Italian input. They must level with their voters. Agree with them that the PIGS deserve a good kicking for deceiving them, but that this is not the time for inflicting more punishment – they have suffered and are suffering enough. And no, there isn’t sufficient evidence that they have learned their lesson – many are still posturing, conveying the impression that the world owes them a living and not doing enough to solve their own problems. But applying more punishment will be totally counter-productive. It is time to show mercy.

Unfortunately many of these voters are looking backwards – and not forwards. They are angry with their own governing politcians (and their predecessors) who deceived them about the nature of this project – and they are angry at the PIGS who reneged on their sovereign signatures. It will require consummate political skill on the part of these governing politicians to persuade their voters to look forward rather than backwards.

In one sense, French voters are better positioned. They have just given a kicking to the centre-right in power since 1995 – and may be more keen to move on. Dutch voters are in limbo, without an effective government. It is possible that many German voters would like to give a kicking to the CDU-CSU, but probably see no sensible viable alternative to Chancellor Merkel. Hollande is key, but he and his peers look like pygmies when compared to their predecessors who overcame greater challenges.

It’s all to play for. But the re-emergence of the over-riding requirement to secure democratic consent should be welcomed by all.

I’ve said before Der Euro Ist Fertig, the euro is finished. the question is, can it be fixed and by whom? Its suggested its in the power of Hollande/Merkel to make or break the euro. I agree they can break the euro, but I don’t believe they can make as in fix the euro. In fact, the power of politicians to influence the currency events we are now witnessing, is both limited and much over estimated. We see politicians both surprised and wrong footed by unfolding events.

Some politicians I’m sure think the answer to the euro’s problems is the genie in the bottle financial equivalent FC that can be compared to Christina Anguelera’s 🙂

The problem lies deeper in the global economic system than any single set of countries in the EMU can hope to solve.

There will need to be a global solution to the volatility created by the debt genie over the past 30 yrs. Debt in the EMU is revealing fissures, uncertainties, fault lines in the very design of the euro. Unregulated out of control debt will wreak more havoc in global currencies until the fiat system itself is made much safer than it presently is.

Water is rushing in, the euro ballast holes are compromised and breached. The euro will sink.

Members of the EMU need to abandon the euro and make sure the national lifeboats they travel in are as safe and as fit for purpose as possible.

re “My wife was at lunch today with two German women executives of a German MNC and the joke of the day was “If a Greek an Italian and an Irishman go into a bar for beer, who will pay? Answer: The German. This was not from Gretel at the Bierstube.”

Sometimes Gretels at the Bierstube are more clued in than executives at MNCs. I have seen the point made here by @DOCM that he who pays the piper calls the tune.
But ultimately it is the trade deficit countries that pay the trade surplus countries.
There is a different approach to rebalancing trade and in some ways the Scandinavians, by accident or design, have managed it.
Higher taxes will leave less discretionary money in the pockets of citizens for the purchase of luxury consumables. If most of these luxury consumables are imported then the adverse consumption effect of higher taxes is not felt at home.

Mildly amusing on account of the feigned accent: The Free Republic of Clones ploughs it’s own furrow –

Just a question to throw out there; can anyone explain the reasons for the ups & downs on the markets today ?
There are ‘reports’ (rumours from ‘sources’, says the journalist) that there is or will be a ban on short-selling, and money is ‘being shifted from the financial centres of Spain & Italy to secure against future euro-exits’ by these countries.
Presumably waffle, as it isn’t imminent; but would such a trend be plausible at all ?
(thanks to anyone who can explain any of this – it’s well beyond the parish for me)

@ Mark

Complete distortion of Euro /$…..I’v been watching this for a long time….Always in favour of a weaker $….Presumably US and China backed (and perhaps also Switzerland), out of self interest……and /or continued selling of $ assets with repatriation of euros by EU FIs…..Looks more like coordinated central bank coordination, but very difficult to pin down without confirmation.

The rest was all negative Europe….Greece and Spain, and deposits being withdrawn from Santanter UK. Fear….

The ECB will presumably (directly or indirectly) fill the gap for Spanish, Italian & any other banks that need liquidity replacement for withdrawn deposits…..

Off subject – offshore locations like Jersey, Guernsey, etc are booming (again) on the back of the onshore Eurozone malaise. Massive deposit taking by the likes of HSBC Jersey, etc (the Irish are among their biggest customers). Then the likes of the Dutch (Rabobank for instance) are effectively blocking deposits being made into NL /Germany bankaccounts via various requirements…..Irish deposits are governed by Irish law, etc….Northern Rock of course sold (legal title to) its deposit book to IL&P. I wonder how the NI cross-border deposit situation is unfolding…?

@ DO”D Next thing you know, they’ll be taking St. Paddy’sDay away as well….real Austerity (captial “A”).

Whether Greece remains in the Euro is up to Germany and France. If Germany decides to shoot its own economy in the head by expelling Greece, it can do so.

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