Letter from Mario Draghi

ECB President Mario Draghi wrote to MEP Matt Carthy on ”several aspects of the Irish adjustment programme”. Available here.

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61 thoughts on “Letter from Mario Draghi”

  1. I think the letter is intended as a parable. The letter is nonsensical as a defence of the ECB’s actions, as it retells what happened without the threats, spinning that the Irish government chose not to burn senior bondholders and that there were such small benefits to attempting to do so and such big risks that it really was a no brainer of a decision.

    The message is not intended for the Irish. It is intended as a message to communicate to readers of media monitoring services throughout Europe that the ECB is not currently in the business of enforcing its will through threatening to withdraw ELA. The parable says that Oceania was always at war with Eastasia.

    In case the message is missed, ECB PR follows up with two comments on how it now makes sense for the ECB to stay out of conflict with Greece.

  2. The discussion would really benefit from the input of Mr Quigley with his Baudrillardian insights regarding the nonsensical aspects of power. Draghi’s letter is just a longer version of “that’s the why”. Carthy should reply and ask him what the point of the ECB is when it can’t meet its own inflation target.

  3. I would think that the hint about capital conrols is a gentle reminder to Greece to get its homework in on time with all that oul Marxist s**** taken out

  4. The ECB needs to explain its dealings with Ireland during the Trichet presidency to the court in Luxembourg. All else is spin.

  5. @Tull

    The ECB, a central bank, hinting about capital controls is a heads-up to those with funds in Greece to get them out, indeed it is a encouragement to all that are listening to pull funds from Greece.

    Of course the source is very suspect- duirt bean lion , go nduirt bean lei’ but in the words of Lyndon Johnson ‘Lets make the bastard deny it’.

    Did the Frankfurter Allgemeine Zeitung (FAZ), break the news yet that a old railway car was being shipped to Piraeus Port, so that Greeks could sign the unconditional surrender document (MOU) in it.

  6. Sez who? On both counts. Courts deal with specific breaches of law. They do not deal in explanations. One man’s spin is another’s reasoned case. Unless there is a plaintiff, with locus standi, the idea of a case before the ECJ is a dead letter.

    The Eurogroup is meeting at 3 pm tomorrow. Dijsselboom has indicated in a Delphic Twitter message that a “request for a six month extension” has been received from the Greek government.

  7. Luke “Ming” Flanagan, MEP on the Draghi letter:

    THERE’S ONE SIDE TO EVERY STORY

    If you want to know why the Irish people have a one-sided view of all that has happened to us in the last few years during the bank bailout, there’s a report in today’s Irish Examiner that illustrates it perfectly. It’s headlined ‘Paying bond holders saved deposits’ and it quotes just two people – Mario Draghi, ECB President, who was defending their actions through the crisis (he would, wouldn’t he?) and Seamus Coffey of UCC, an economist who has defended this government’s actions from day one.

    By the way, I’m still waiting on Mario’s reply to six very pointed questions on the Promissory Note deal and the bonds that replaced them and I will keep ye posted on that, but in the meantime in this instance he was answering a letter sent to him by a GUE/NGL colleague out here, Sinn Fein MEP Matt Carthy.

    THE STOCK ANSWER

    In his reply Mr Draghi pointed the finger squarely at the Irish government for all decisions taken but stated (and this is what lead to the headline) that as Ireland didn’t have legislation at the time to protect depositors, if senior bondholders had been ‘burned’ then depositors – because they were on the same legal footing – would also have had to suffer losses.

    Seamus of course agreed, and of course Seamus is right, but he then went further and suggested that the government could have paid back depositors later, but ‘ this would have required the State to have billions of euro upfront, which the State did not have’. He then went further again and stated ‘nobody forced us to borrow money or pay 10 times the worth of a field for development’ – the old ‘it was all our own fault, we all partied/went mad/lost the run of ourselves’ mantra so beloved by Enda and others in Fine Gael.

    What Seamus DIDN’T say, however, is actually that which is most pertinent in all this. Yes, there was no legislation to protect depositors, but before that bloody guarantee there was no legislation either to put Ireland on the hook for all that bank debt. Governments actually write legislation Seamus – do you not know this? And – as that Fianna Fáil/Greens coalition showed after that infamous weekend, as this current Fine Gael/Labour marriage has shown many times since – they can write it in a hurry. So the glaringly obvious question then is this – if the government can introduce emergency legislation to protect the failed gambles of those who have spare cash with which to speculate, why could it not have introduced emergency legislation to protect the spare cash of those who just want to put something aside for a rainy day?

    HALF-TRUTH
    The bigger question though, and again Seamus only half-answers it, is the whole transaction dealing between lender and borrower.

    As noted above, he points out – correctly – that ‘nobody forced us to borrow’; what he DOESN’T say is that nobody forced the bigger banks from around the globe to LEND to Irish banks either; he points out – correctly – that when the ECB bullied and blackmailed Ireland into accepting a ‘bailout’, at that stage it was to protect themselves rather than big banks – ‘The ECB had provided €140bn, 85% of Ireland’s GDP, and an unprecedented quarter of the ECB’s total lending at the time, despite Ireland’s share capital of the ECB being about 1%. This is why the ECB was anxious for Ireland to take a bailout — to save its funds and not save the French and German banks’. What Seamus DOESN’T point out is the direction in which the €140bn of liquidity provided to the Irish banks went – that money enabled those who had been exposed to the Irish banks to get out, to make good any potential losses, much as what has happened in Greece in their so-called bailouts. The banks were the ones bailed out, we are their ‘get-out-of-jail’ card, and their losses have now been transformed into our losses.

    ROOTS AND FRUITS
    You can go back decades for the root cause of this current crisis, to deregulation in the banking and the financial system, to the break from the gold standard, to the creation of Central Banks privately owned by other bankers and financiers but who don’t so much create money as create debt. There is no question however that the root cause of the Eurozone’s problems was the launch of the euro itself, a currency that had so many fundamental flaws built into its design – flaws the EU/ECB is now trying to remedy on the fly – that it should NEVER have been launched as it was.
    These flaws were compounded by the ECB itself when, after it had been established, it failed in its own most fundamental duty, keeping a close eye on the eurozone countries to guard against inflation. I ask you, what is more inflationary than a property bubble?

    PROPORTION AND DISPROPORTION
    So yes, Seamus, Ireland’s share capital of the ECB is only 1%, and by 2010 Ireland WAS being provided with around 25% of the ECB’s total lending, but why are we now landed with 42% of the Europe’s official bank bailout borrowing bill (according to Eurostat)? And I know, there are caveats attached to that, but even you must admit that Ireland HAS been disproportionately hit. Given that this is a eurozone crisis, with enough blame to share across every institution, why aren’t we landed with a bill proportionate to that 1% holding in the ECB, as opposed to the tens of billions STILL being extorted from us, as opposed to the extortionate and punitive interest rates that were initially imposed on us and lifted ONLY when Greek got its second bailout?

    MY KIND OF BAD
    One comment of yours I do agree with; if Ireland had refused to be blackmailed in 2010 it would have resulted, you said, ‘in a different sort of bad to what we are going through’. It would – we’d have been working for the last five years to bail out ourselves rather than bailing out international financial gamblers, including so many vulture funds, the lowest of the low. And we would now be well on the road to recovery.

    But just be aware, people, when you read all those TINA (There Is No Alternative) articles from all the TINA news correspondents quoting all the TINA ‘expert’ commentators extolling this government, there IS alternative opinion, there IS an another way, and Syriza in Greece are living proof of that.

    Our own day is coming.

  8. @ Ernie

    Syriza is indeed living proof that there is another way. What the Irish electorate make of it, however, remains to be seen. This will, no doubt, depend on the its outcome. At the moment it is not looking too promising. All the indicators are flashing red; falling tax receipts, capital flight and no access to loan finance either by markets or official lenders. In short, the economic situation of Greece has been deteriorating both under the prospect of Syriza gaining power and accelerating since it did so.

    A point has now been reached IMHO where either Tsirpas wakes up to these realities and concedes the necessary conditionality or there will be forced resort by his government to capital controls as a possible prelude to quitting the euro.

  9. @DOCM

    Perhaps you missed it but under TINA the suffering and economic ineptitude have been massive. Ford Europe haven’t made a profit since 2010.

    On rules. I know you love them.

    European trains have a sign in 4 languages about leaning out of windows.

    Nicht hinauslehnen. German, do not lean out of the window
    Ne pas se pencher au dehors. French, do not lean outwards
    Do not lean out of the window. English
    E pericoloso sporghersi. Italian, it is dangerous to lean out of the window

    Note the difference between the German and the Italian.

  10. The Varoufakis letter.

    http://www.dw.de/read-varoufakis-letter-to-the-eurogroup/a-18268774

    It could be summed up, from the point of view of most members of the Eurogroup, as “promises, promises!”. There is no way IMHO that it would prove acceptable as the phrase “To agree the mutually acceptable financial and administrative terms” is simply incompatible with the very concept of conditionality.

    One gets the impression that the disparate elements that make up both Syriza and the Greek government itself are blind, because of the need to negotiate with one another, to the negotiating balance that has to be achieved.

  11. Re Ming missive,
    I wonder if that letter was drafted by Ming’s new Boswell Dermot from Ballyhea. I wonder does Seamus regret the endorsement that UCC economics dept. gave to Dermot in the Euros.
    There is a touch of the Comical Ali about it all given than Syrizia seem on the point of being crushed. Next step is for Tsippy to be accused of treachery.

    jR,
    The smart money is long gone from Greece and is safely tucked up in Zurich. I am told it will come back when Syrizia takes Greece out of the Euro and the economy and asset prices collapse.

  12. DOCM: The plaintiff with locus standi is available – none other than Rialtas na hEireann. I know they have chosen not to sue – I just don’t know why, since they have given no reason – not even undisclosed advice from the AG.

  13. @Tull
    The smart money is strangling Switzerland slowly. SMEs looking for bailouts now. I saw capital controls being mentioned. The EZ augean stables are hardly going to grow their way out of crisis. I dunno if euro parity is much of a stable floor.

  14. CMC: There’s the rub! My own view is that to do so would be entirely contrary to the general policy approach of the government and would, in itself, be monumentally unwise. As Schaeuble has just put it, it is a question of trust. Our esteemed MOF has it. The Greeks – and there can be little distinction between any of the main players – do not. Calling the decisions of already shaky institutions into question is not the way to go.

    The ECB, incidentally, is being sued by various losers in Cyprus. This opinion culled from the Web sums up the situation rather well.

    https://www.linkedin.com/pulse/20140918131620-20092204-the-cyprus-deposits-haircut-has-the-eu-tampered-with-the-right-to-property

    Martin Wolf described the UK as a nation of bystanders. This is a totally inaccurate description. The informal character of the Eurogroup is due to their insistence as is the stipulation that the EHCR only applies to the EU when implementing EU law. Both facts are now coming in very handy.

    Their divorce lawyers are not just the best, their financial legal eagles are almost as good. But not quite. The UK has lost all its cases before the ECJ when up against the ECB.

  15. According to the Torygraph, uncollected taxes in Greece now add up to 76bn and rising. How about collecting the arrears instead of dipping into the pockets of the rest of Europe.

  16. And I’ve heard that in Greece the signs in trains say:

    Eínai synarpastikó na klínei éxo̱ apó to paráthyro

    “It is thrilling to lean out of the window”

  17. To use a Juncker analogy, the excitement on here with the prospect of throwing Greece out the window is becoming almost erotic.

  18. @Joseph Ryan

    There is nothing a conservative likes more than siding with the strong against the weak with Noonan even getting a few kicks in himself at a prostrate Greece. Not hard to see the EPP’s fascist heritage in this international brutishness.

    On Twitter there is an outpouring of joy, of more than sexual pleasure, from financial journalists, former central bankers and right wing politicians over the German led attack on Greece. Genuinely upsetting to read.

    Of course Fine Gael and Labour have involved themselves in an act of utter cynicism that ultimately goes against Ireland’s interest. What do we do about them though?

  19. ‘Greece defiant as Germany tears up last-ditch EMU compromise on austerity’

    “Greece has vowed to reject any demands for further austerity at a last-ditch meeting with eurozone creditors on Friday, even though the country risks running out of money by next week without a deal.”

    http://www.telegraph.co.uk/finance/economics/11423922/Greece-defiant-as-Germany-tears-up-last-ditch-EMU-compromise-on-austerity.html

    On ECB leaking

    ‘The leak about capital controls in Greece is a sure sign the ECB is falling apart’
    Business Insider UK

    “The thing that sets the ECB apart from other central banks is that it has to set policy for 19 countries, which means it has to cater to different governments that often have divergent needs and interests. Internal politics within the organisation are magnified because so many countries are involved.

    “Thursday’s leak regarding capital controls provides a good example of the inside squabbles. The German newspaper Faz, in which the leak was reported, is usually a reliable proxy for the mood at the Bundesbank, the German central bank. While the source of the leak has not been confirmed, if it did come from the Bundesbank, it could reveal some worrying fractures within the ECB’s Governing Council. These may be as wide as the political divide between Europe’s largest economy and the new Syriza-led government in Greece.”

    http://uk.businessinsider.com/capital-controls-leak-in-greece-is-about-internal-politics-2015-2?r=US

  20. @ DOCM

    The leaking of documents has always been done. The motivation is not always simple, or easy to discern. As your FT wrier above points out, this is also geopolitics. At a very general level, it is about power.

    The challenge for the Eurogroup, and the EZ PTB, is to bend the Greek government to its will, while obscuring the fact that they themselves are in thrall to vested interests. Tzipras and Co have to be seen not just to do the necessary in terms of debt, but to show appropriate respect for the institutions of the EZ. They must be seen to accept that this in not odious debt, but a pacta which must be properly servandad. That’s what they say.

    Respect is demonstrated in all sorts of large and small ways. Wearing a suit and tie, for example, sends a message. Ditto for body language. Showing deference for persons, ceremonies, titles is the glue which sustains even the most bizarre and outdated social arrangements. Our neighbours in Britain are past masters at dressing up the grubbiest of business and personal transactions in ermine. We used to wrap a lot of funny stuff in purple too, but those days are over.

    Varoufakis is an academic, and science progresses by open exchange of information. Perhaps he hasn’t yet learned how to keep his gob shut when doing serious business. Or perhaps he explanation is different, in that he is simply testing ways of addressing hopelessly undemocratic power structures. The Internet is not yet securely policed, its the Siberia of the globalised, buttoned down world. Bears still roam.

    The rat in the cage gets food when he presses the green button. He gets an electric shock when he presses the red one. The shock is not pleasant but there is a gain in knowledge. We have all gained knowledge from the leaked documents. If the documents are genuine and current, we have gained even more, because we can see the various cards which are being played in real time.

    One interesting question is what strategy will be adopted by the Eurogroup in response. They can hardly ask the Professor to leave the classroom.

  21. @ PQ

    No! It is about the nature of debt. It is essentially a contract. If, in a collective arrangement for the raising of debt, one of the parties thinks that they can renege on the terms of their contract, what is to stop others from doing the same and, in the process, bringing the entire system down? It is a matter of common sense of which Varoufakis seems not to have a titter.

    These contracts are also essential to the running of a modern economy and to shifting of savings into investment; and not to Swiss banks if their terms are broken.

    As to leaking of documents, I agree that the practice is prevalent. However, this is the first time I have ever heard of a delegation
    publicly documenting how it has conducted a failed negotiation.

    I would recommend to all the podcast of the interview on Morning Ireland with the editor of Ekathemerini this morning. It is a boon for the Irish electorate whenever Greek voices can be heard; instead of what passes for informed comment and political debate domestically.

  22. I indicated in a post a couple of weeks back that the Euro group were unlikely to force Greece out of the Euro (now known as Grexit) because surely even they could work out that the potential ramifications were too bleak to even consider. I had suggested that common sense would prevail and that the Greeks, who by the way, aren’t that keen on a Grexit either. Sadly it seems that common sense is in short supply and that Grexit is now a real concern. T

  23. @ DOCM: Do you actually, really, understand the variations and differences in the nature and structures of ‘contracts’ – in respect of private, commercial and sovereign ‘borrowings’?

    Your comments give me to understand that you may not have a meaningful grasp of the matter: they are naive, inadequate and unstructured. Of course, you may just be being deliberatively provocative – for the hell of it!

    This for instance is demagogary: “It is a matter of common sense of which Varoufakis seems not to have a titter.”

    Is this a matter of psychic-balm belief on your part – or a genuine statement of fact? Do you actually appreciate the difference?

  24. @docm
    The nature of debt is not immutable. In a situation where there is too much of the stuff and when the facts change the status of debt changes. Young economists don’t know much about economic history which is a pity.

  25. The other point about debt contracts, of whatever variety, is that they are governed by the terms of the agreement made, especially one of the “master” variety. If an extension is sought, and the parties agree, they are legally extended. Again, in case it was missed, this WSJ blog link which shows that it is, indeed, a question of old wine in an old bottle.

    http://blogs.wsj.com/brussels/2015/02/18/greeces-loan-agreement-bluff/

    How the outcome is presented is now the political issue. And this seems to have run away from all involved. There is simply no political trust in Berlin that the conditions of the contract will be complied with. Neither is there such trust anywhere else but some of the major parties concerned, France, Italy and, most notably, the SPD partner of the CDU/CSU in the German government, are willing to take the risk.

    A knotty one for Merkel!

  26. The latest from Varoufakis; and from his backroom.

    http://www.ft.com/intl/cms/s/0/808f5fb0-b90e-11e4-b8e6-00144feab7de.html#axzz3S82KWmzd

    Greece is not alone when it comes to fulfilling electoral mandates. There are regular state elections in Germany, a much better guide to general electoral sentiment than any opinion poll.

    http://www.theguardian.com/world/datablog/2015/feb/16/hamburg-election-afd-enters-first-parliament-in-west-germany-cdu-at-record-low

    It would be a brave Chancellor that tried to circumvent her MOF, who enjoys considerable autonomy under the German Basic Law (constitution), and who was her opponent for election to be head of the CDU, against such a bleak electoral background. The debate in the Bundestag on whatever deal emerges, if it emerges, promises to be quite an affair.

  27. @Tull

    In all the anti-Greece rhetoric, there is little mention of the fact that the ‘clever” Germans and French have since the crisis hugely reduced their banks’ exposures to Greece while at the same time have guaranteed the socialization (again) of any losses among all the EZ taxpayers, via the ECB.

  28. @ Tull

    Actually, they have transferred their exposures to the wider periphery via the ECB, thereby socializing any losses far and wide among EZ taxpayers – all in support of European” solidarity” of course.

  29. An item on the general Greek political background.

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_20/02/2015_547506

    It must be admitted that Varoufakis puts on a good show. He has a busy weekend ahead.

    On the general question of sovereign debt, Stephen Fidler of the WSJ had an interesting, but mistimed, comment.

    http://www.wsj.com/articles/greece-can-pay-its-debts-in-full-but-it-wont-1424384652

    The bit that is missing from the analysis is the fact that countries that renege on their debt end up like Argentina i.e. excluded from the bond markets. While the country cannot be impounded or seized, assets overseas can be, as the Argentine experience demonstrates.

    Greece has, for the moment at least, decided not to become the Argentina of Europe.

    It may also be noted that while great bravado was demonstrated towards the members of the club of which Greece happens to be a member, this was not evident with regard to the IMF, a fact, one imagines, not unrelated to real, or imagined, close ties with that organisation’s largest shareholder.

  30. I am on the phone so can’t do links but Cliff Taylor has a piece at the IT called “why Greek exit from the eurozone would suit Enda Kenny”. It is a must-read
    The 2010 bailout is still politically toxic. It might suit FG short term to have Greece taken out the back and shot but the EZ doesn’t have the institutional setup to guarantee a clean divorce.

    Making big calls in the interests of bond markets is very messy. Fairness and competence count in public opinion more than markets understand.

  31. @DOCM
    Bolivia defaulted 3 times in the 1980s. It returned to the market in 2012. The hunt for yield means punters will buy anything. Argentina could sell bonds with a bit more cop on too.

  32. Brendan Keenan on the broader picture.

    http://www.independent.ie/opinion/columnists/brendan-keenan/sauce-for-greek-goose-must-also-do-for-german-gander-31010059.html

    The contradiction between these two paragraphs may be noted.

    “This may seem shocking to democrats, but it is always the case that a country’s debts remain even if its government changes. It is just that, in a voluntary monetary union, people might have expected something more than the hostile commercial relations normally found between creditors and stressed debtors.”

    “As in Ireland, new EU and IMF terms have reduced Greek debt costs to manageable levels despite the very large size of the debt.”

    People might, indeed, have expected something more; and they got it, belatedly and, no doubt, not enough in the view of many (mainly from the EU that is!). Why democrats should be shocked that when a state accepts international obligations, whether debt or otherwise, that this also binds those that succeed in charge of it, is not clear. It is a basic principle of international law.

    The Greek situation in the EU is chronic. As the editor of Ekathemerini told a wide Irish audience on Morning Ireland, it is is not so much that Greece under Syriza has a large hill to climb, it has to dig itself out of a hole that Syriza has made deeper. One would imagine that he is better placed than most to venture an opinion on what is in the best interests of the Greek people. It would coincide with that of the countries that are Greece’s creditors as there is a shared community of interest i.e. bringing growth and thereby improving the capacity of the Greek economy to service its debts which is most unlikely not to be also in the interest of the Greek people. The evidence in support of the steps required is there in the case of Ireland, Portugal and Spain. There may be legitimate differences of opinion in relation to the balance achieved, both in terms of fairness and effectiveness, but there can be none about the fact that things moved, and are continuing to move, in the right direction.

    When Syriza presents its homework next Monday, it will be clear whether they have got the message and have been able to overcome their internal factional differences to put together sufficient elements to pass muster with the Eurogroup and subsequently several other parliaments, notably the Bundestag.

  33. It is to everybody’s benefit that a disorderly Grexit has been avoided. But it is utterly shameful that it has been avoided only by the unconditional surrender and humiliation of Greece.

    That Ireland was leading with its cap out, until a few weeks ago, and then emerged as the leading bootboy in seeking to pummel Greece, is an act of diplomatic cynicism that does this nation no credit.

    The bootboys in won, having taken positions for the most narrow reasons of domestic politics.
    As for the Eurogroup, IMF, EFSF, EC, what about them. They have no relevancy. It is crystal clear now who is calling the shots in Europe.
    The decisions of next Monday/ Tuesday will have only one criteria to pass, will Berlin agree to them or not.
    Meanwhile the policy of austerity continues its destruction, and there is no way out.
    The unconditional surrender terms are summarised by Bloomberg.

    http://www.bloomberg.com/news/articles/2015-02-20/scoreboard-here-s-what-each-side-got-in-the-greece-negotiations

  34. @DOCM

    re: Kathimirini Newspaper:

    “Considered a high-quality broadsheet, Kathimerini is traditionally perceived as one of the main conservative voices of Greek media.” (Wiki)

    Owned since 1988 by the Alafouzos family.

    “In addition to the Kathimerini newspaper, the Alafouzos family is also behind the Skai TV station, which has been a leader of the digital revolution and is the only widescreen station on Greek TV.”

    No conflict of interest there, I suppose. Bit like Independent newspapers.

    http://www.tradewindsnews.com/shipsales/558169/alafouzos-confirms-samsung-brace

  35. @ Gavin K: Somewhat off topic, but not unrelated to the Haldane speech you linked me to – and quite an interesting one it is too. To-day’s IT Weekend Review has a spread about Ireland’s energy needs: prognosis? Not good! Anyhow. No immediate worries!

    Haldene’s speech – which was ostensibly about economic growth (we’ll surely be back at this topic afore long) contained not a single mention of energy – of any sort. That’s just plain odd. However, in the IT piece there were severeral references to – and I quote, “[a] zero-carbon society by 2050.” I would judge that to be equivalent to 10,000 BC – but sure what the hell!

    Methinks its the Prussians who actually need to exit the Euro economic straightjacket. They just need someone else to crash the structure – and catch the blame. They seem to be bright enough to have recognised that 30% of something is worth a lot more than 100% of nothing! We’ll see.

  36. @Gavin

    That’s it. The bailout as a political curse. Realism and cop on only work if there is a return to growth. And if there isn’t and debt has to be written down ????

  37. DOCM is fascinating. Today is sponsored by S for Schadenfreude and I for the immutability of debt. Unfortunately there is never enough time to talk about deflation.

  38. All you neos and austeriots should read Colm McCarthy in today’s Indo….ye might learn something….then again ye probably won’t….

  39. @DOCM

    ‘No! It is about the nature of debt. It is essentially a contract. If, in a collective arrangement for the raising of debt, one of the parties thinks that they can renege on the terms of their contract, what is to stop others from doing the same and, in the process, bringing the entire system down? It is a matter of common sense of which Varoufakis seems not to have a titter.

    These contracts are also essential to the running of a modern economy and to shifting of savings into investment; and not to Swiss banks if their terms are broken’

    Isn’t it amazing how all the various scientific disciplines can be brought together in the Manhatan Project or to build the biotech industry. But then they are being brought together by the powerful to serve their interests.
    Bot now we have to pretend that there’s no such thing as history, and that Germany’s debts were not forgiven. Funny how that didn’t bring the system down.

    We also have to pretend that there is no such thing as demand deficiency, and that accounting principles don’t apply to national economies. We have to pretend that you can have all the benefits of globalisation, and unprecedented private credit expansion without suffering the accompanying sectoral imbalances. And as BWS says, nothing at all about energy.

    After two world wars, we are now suppose to believe that pacta servanda sunt is a supreme principle. Truth is, we have suits where we need statesmen. No wonder Putin thinks he can take on Europe.

    The historical record shows that contracts are observed to the extent that it is expedient to do so. Armies of lawyers and spin merchants are deployed to put a skin on it all, after the fact. It’s not as easy as it was to send gunboats.

  40. No sooner said than done!

    http://www.independent.ie/opinion/as-it-stands-greece-can-not-continue-in-eurozone-31011268.html

    The bulk of the article tells us that the euro, as designed, especially with regard to adhering to the terms for membership, has not worked very well. This is, by now, accepted by all. The jury is still out on the effectiveness of the retro-fitting that has been carried out (Fiscal Compact, ESM, Six-Pack, Two-Pack, Banking Union etc.).

    The meat is in the conclusion;

    “The threat of an unplanned Greek exit from the Eurozone (unplanned by Greece that is) has been kicked to touch, presumably for the full four months of the credit extension agreed in Brussels on Friday. Minister Varoufakis must now return to Athens to complete his homework assignment from the Eurogroup – that is to conjure up a programme which will halt the Greek recession and build the foundations of a modern and competitive economy.

    This will not be achieved through hiring lots of public servants, mandating minimum wages that only the state (for now) can afford to pay, and dodging the restructuring of inefficient state enterprises.

    But there are items in the Syriza programme that will meet no resistance from the European powers-that-be, including better tax collection from wealthy Greeks and a crackdown on corruption.”

    I agree with every word.

    Even with present arrangements, the costs to Greece of servicing its debt burden compares favourably with that of other countries. It can hardly be the ball and chain suggested. Greece has hitherto failed to do its homework. It is time that it did. If it does not, the departure of the country from the euro will be its own doing.

  41. ‘These contracts are also essential to the running of a modern economy and to shifting of savings into investment; and not to Swiss banks if their terms are broken’

    Sorry. Savings are not being shifted into into investment. These days much more are being shifted into risky financial assets, to the advantage of the global speculating community.

    Why shift savings into Swiss banks where they get negative interest rates ? Share buybacks, mergers and acquisitions and leveraged ponzi schemes are so much more fun. And much more likely to provide bonuses for yield-chasing short-termist fund managers. The buy side is no more responsible than the sell side.
    Regulators are more helpless and compromised than ever.

    Quick Buck Disease has penetrated even the most conservative environments. Even the notoriously industrious German ‘capitalists’ aren’t investing, with investment rates falling for many years.

    Oh those feckless Greeks 🙂

  42. @ DOCM

    There is a bit more meat than you suggest, I think.

    ‘If foolish lenders deserve haircuts, the official lenders are in the firing line for their May 2010 (and subsequent) mistakes. The IMF cannot take haircuts, so will (and should) seek exemption. It seems to have been a reluctant participant. Which leaves the European politicians, who are understandably unwilling to explain to their constituents that they made some dud loans to Greece, which in turn paid off banks and other investors who had backed the wrong horse in the first place.’

    What the pols (and advisers) need to explain, surely, is why they shifted private debts onto taxpayers, and what the incentives were for them to do so.

  43. Colm McCarthy says:

    ‘Minister Varoufakis must now return to Athens to complete his homework assignment from the Eurogroup – that is to conjure up a programme which will halt the Greek recession and build the foundations of a modern and competitive economy.

    This will not be achieved through hiring lots of public servants, mandating minimum wages that only the state (for now) can afford to pay, and dodging the restructuring of inefficient state enterprises’

    Perhaps we should be offering Varoufakis a tutorial on our achievements in restructuring inefficient state enterprise. Starting with Eircom.

    We can tell him about the tremendous ‘efficiencies’ we have witnessed in respected banking and professional circles while we are at it.

    A joke really.

  44. @ paul quigley

    “What the pols (and advisers) need to explain, surely, is why they shifted private debts onto taxpayers, and what the incentives were for them to do so.”

    Contagion. Rightly or wrongly, in 2010 the EZ feared that if holders of Greek sovereign debt were made to suffer losses, then Italy Portugal Spain and Ireland would not be far behind.

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