The prospects for the Euro

by Henry on November 23, 2011

A bloggingheads between me and Yanis Varoufakis on the eurozone crisis. It’s more of an interview (of him) than a conventional dialogue. I do try to be slightly less pessimistic – he does his best to bring me down (and as it transpires, all his predictions about the Germans shooting down the Commission’s proposal for a eurobond etc were vindicated within a few hours.

{ 29 comments }

1

bob mcmanus 11.23.11 at 8:46 pm

Someone I read this morning said that Greeks and Spaniards and maybe Italians are getting so fed up with their local politicians that they would rather be governed by Germans.

Let the locals try to do the austerity for six more months without much help and then the ECB can come in with a pretty attractive offer. The Germans gained a lot of experience from absorbing the East and the new additions should be easier.

I’m not really kidding, nor do I think I would disapprove. Why not, the Greeks would have voting rights in the New Greater Germany. The current fiscal independence is just used for arbitrage anyway.

2

cian 11.23.11 at 9:11 pm

Thanks, its always interesting to hear what Yanis has to say.

3

Akshay 11.23.11 at 9:29 pm

Thanks for the interview! Question: Is Holland & Varoufakis’ ‘Modest Proposal’ gaining any traction? I’ve been following his blog and he is clearly getting a hearing with heterodoxy political economy people, and (presumably through his or Stuart Holland’s political contacts) with some senior politicians as well, but in the outlets of the Very Serious People (TM) I don’t recall any discussion about it.

4

John Quiggin 11.23.11 at 9:34 pm

I would have thought that the failed German bond issue should change things quite radically. It appears that everyone is now in the same boat, even if some are on the upper decks and some in steerage

5

Steve LaBonne 11.23.11 at 9:38 pm

I would have thought that the failed German bond issue should change things quite radically.

God, I hope so. If it doesn’t they’re going to take us all down with them.

6

William Timberman 11.23.11 at 9:41 pm

Varoufakis’ Last Chance Saloon. I like it, but I’m afraid that the cowboys lined up outside the swinging doors are just waiting for their chance to take a shot at the piano player.

7

bob mcmanus 11.23.11 at 10:17 pm

Question: Why should the ECB/Germans/etc take on all the PIIGS debt (QE) if it just makes the Jon Corzines richer? Is this what y’all want?

Somebody one of the days is gonna offer Jubilee. If I were Germany, that is what I would offer the Greek people. Just write it all off, and screw finance. Reboot.

I am just not sure what I would ask in return. My guess is that after it all crashes, land, loyal vassals (human capital) and serfs retain value.

The Germans all scared of inflation? They know better than anyone how to use hyperinflation (which was a plan, not a mistake) and survive.

8

cian 11.23.11 at 10:53 pm

Somebody one of the days is gonna offer Jubilee. If I were Germany, that is what I would offer the Greek people. Just write it all off, and screw finance. Reboot.

It’s their banks that own much of the debt.

9

Steve LaBonne 11.24.11 at 12:28 am

The German auction fiasco also adds an exclamation point to the fact that the US is more than ever THE safe haven, and the US government could borrow large amounts of money at essentially zero cost to rebuild crumbling infrastructure and put people back to work- if our politicians weren’t so frigging stupid.

10

Antti Nannimus 11.24.11 at 5:12 am

Hi,

Is Europe a nation, or what? If so, they will ALL need to suck it up together, and take their national lumps. If not, then what the hell is the Euro about? If the EU wants to have it both ways, sorry, nobody home here.

Which, to be consistent, sorry as well, also means we here in the US as a nation will finally have to suck it up too.

Wait, wait, I have an idea, maybe we can all get together and screw over the “third world” to solve this.

Have a nice day,
Antti

11

Klaus Kastner 11.24.11 at 7:11 am

Ah, Greek brainpower is fantastic at worrying (and trying to solve) other people’s problems. Unfortunately, I have yet to see one Greek politician, professor or journalist come up with proposals for their own economy. All the government seems to worry about is compliance (mostly by faking it) and all ideas of Mr. Samaras can be reduced to “cut taxes”. That’s a bit short for what Greeks actually could do for their own country, even in these dire straits. In the link below, there is a long tale of what Greeks could/should do for themselves but it is sufficient to read the first few paragraphs.

http://klauskastner.blogspot.com/2011/11/appeal-to-greek-brainpower.html

12

Avattoir 11.24.11 at 9:24 am

To me, a wonderful talk, partly as my introduction to hearing & seeing Yanis; almost as rewardingly for seeing Henry’s rendition of Ron Paul on stage with his fellow contestants in the Republican serial passion play; and most importantly for Yanis explaining a program I actually know could work, as I was involved, intimately though modestly, in a similar strategy on a roughly-as-fragile organization’s debt restructuring some years ago – which worked out quite well.

13

bob mcmanus 11.24.11 at 1:51 pm

I couldn’t listen to this whole video yesterday, having come directly from listening to 90 minutes of Eichengreen over at Thoma’s, but having finished it I do think the “Modest Proposal” looks very good indeed. I am especially pleased with the ideas about the EIB because in my opinion the transmission mechanisms for monetary policy are blocked or captured and no politically plausible amount of open-market operations or QE or cash transfers will generate the needed growth.

14

Tigara electronica 11.24.11 at 2:58 pm

wonderful speking Yanis especilly about the Germans!

15

Mirik 11.24.11 at 4:22 pm

The ranting on technocrats is unfounded. It’s not their expertise that is causing the crisis, it’s their LACK of expertise & ideology that is causing the crisis.

A real expert would know WHAT WORKS.

16

bert 11.24.11 at 8:40 pm

What’s the magic that makes the new ECB bonds more attractive than existing sovereign debt? Given that noone is putting any more money on the table, why is this anything other than an accounting move? I see two reasons, and I have doubts about them both.

The first is that, with new debt pooled the markets will be less able to isolate the weak, with the result that self-sustaining panics are less likely to take hold and push individual borrowers into insolvency. But if nothing else the recent bund auction puts into question the degree to which pooled eurozone debt would be immune from a crisis of confidence similar to that faced by individual sovereigns.

The second reason is that the markets will be lending to a genuine sovereign, with ultimate control over the printing press, and will therefore price the risk of default far lower. But for this to work the German veto would still need to be overcome. Without that, the ECB would not be able to monetise the debt, and the default risk would therefore be unaffected.

Overall though the positive intent and can-do spirit of the modest proposal is more admirable than the alternative – quietly gibbering in a foxhole – which is what I’ve been doing lately. I hope that in policymaking circles it’s taken up and developed.

17

bert 11.24.11 at 8:42 pm

The strident and obstinate tone of the Germans has attracted a lot of criticism recently. But check out the latest from guess who.

bq. First, it is Europe itself that is in crisis. Not finance. Not the economy. Europe. Its culture. Its genius. Its unconscious conscience. Its immemorial and its memory. All that makes up its bases and its origins. Its heart, that beats more and more faintly. Its soul. Its common and hidden grammar. The distinction, that it invented, between law and right. Or between man and citizen. The articulation, that is its own, of multiple forms of the Multiple and of the unique name of the One. In short, its being. Its substance. To such an extent that, in order to understand what is happening, to know what it entails when we speak of the crisis of the debt or of the euro, to understand, just to understand, what the popular movements of protest currently shaking Rome and Athens, the two great capitals of European intelligence, are saying, we should be rereading Gibbon, Humboldt, or even Polybius — these theoreticians of the fate and the fall of the Athenian paradigm or the Roman road — rather than Friedman or Keynes.

The Germans have been grinning weakly and nodding along to this kind of flatulence for fifty years. They were bound to snap sooner or later.

18

Mandos 11.24.11 at 10:01 pm

Re BHL: Oh my God. What drivel.

19

Tom Hurka 11.25.11 at 3:09 am

“multiple forms of the Multiple and the unique name of the One.”

Can I put that on my tombstone?

20

Doctor Memory 11.25.11 at 4:32 am

Dear lord. I liked him better when he was cheerleading for serial rapists.

21

Doctor Memory 11.25.11 at 4:42 am

(Note: not actually.)

22

Barry 11.25.11 at 6:21 pm

Mandos 11.24.11 at 10:01 pm

” Re BHL: Oh my God. What drivel.”

Somebody made a comment about Newt, that he wasn’t a smart person, but rather a stupid person’s idea of what a smart person sounds like. BHL apparently is in that category.

23

Con George-Kotzabasis 11.26.11 at 12:20 am

Science has been built on a “mountain” of errors. No correct policy has arisen—like Athena out of Zeus’ head—from an immaculate conception but from a compilation of corrected mistakes. The task of a wise, imaginative, and intrepid technocrat is not to despair before mistakes, like professor Varoufakis, and be pessimistic about the future, but to overcome them. This is the task and challenge of both Mario Monti and Lucas Papademos, as well as, in the case of Greece, of the statesman, Antonis Samaras. But obviously, it is not the task that can be consummated by professor Varoufakis.
‘We work in the dark—we do what we can—we give what we have.’ Henry James

24

Substance McGravitas 11.26.11 at 12:26 am

No correct policy has arisen—like Athena out of Zeus’ head—from an immaculate conception but from a compilation of corrected mistakes.

When you run outta mistakes you gotta make ’em again or life would be boring.

25

Sebastian 11.26.11 at 1:44 am

“The ranting on technocrats is unfounded. It’s not their expertise that is causing the crisis, it’s their LACK of expertise & ideology that is causing the crisis.

A real expert would know WHAT WORKS.”

Maybe the point is that economics isn’t a developed enough discipline for there to be real experts.

26

john c. halasz 11.26.11 at 2:25 am

@25:

After 250 years or so, it’s a little hard to just claim that the dog ate your homework.

27

cian 11.26.11 at 7:51 pm

The task of a wise, imaginative, and intrepid technocrat is not to despair before mistakes, like professor Varoufakis, and be pessimistic about the future, but to overcome them.

So what would you call refusing to learn from the mistakes of 80 years ago? And Varoufakis actually has a solution for the crisis – he’s despairing at the politics that make sensible solutions apparently impossible.

28

Con George-Kotzabasis 11.27.11 at 12:16 am

Cian
I was not referring as to whether Varoufakis’ policies about the crisis were right or wrong. They might be right, after a steep climb on the learning curve. As I believe that for some time during the last years two years he was an advisor to the former prime minister George Papandreou, whose policies totally failed Greece in these two critical years (and which the conservative leader of the Opposition, Antonis Samaras, predicted they would), and thus he too might have learned from his own mistakes during his advisory role. I was specifically referring to his severe criticism of both Mario Monti and Lucas Papademos for their presumed mistakes during their service as technocrats to the EU, and their purported inability and political and moral strength to correct them and hence start a new course for their countries. If I have been mistaken and professor Varoufakis is not a barren pessimist but an optimistic pessimist, then I would nimbly correct my error and be the first to applaud him.

29

cian 11.27.11 at 12:34 am

#28: I have no idea what a barren pessimist, or an optimistic pessmimist might be. Are you really suggesting that someone who’s made a very detailed policy proposal is just sniping from the sidelines?

The first time I heard Yanis talk about the crisis was about two and a half years ago when he was making suggestions for what the EU should do, and predicted fairly accurately what would happen if they didn’t. As commentators on the crisis go, he’s had a pretty predictition record. That alone puts him light years ahead of your darling technocrats.

Given Greece was placed in an impossible position, not helped by the previous government’s fraudulent activity (cos hey nothing says responsible, like lying about the level of debt), I’m not sure what Greece couldn have done differently. Maybe you have some suggestions.

I was specifically referring to his severe criticism of both Mario Monti and Lucas Papademos for their presumed mistakes during their service as technocrats to the EU, and their purported inability and political and moral strength to correct them and hence start a new course for their countries.

Um, they started a cause that we knew before the crisis wouldn’t work and would be disastrous. They stuck to it even though it was disastrous. After bring Europe to the point where the Euro is in doubt, they still have not admitted they were wrong. I’m sorry, what is the problem here?

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