Yanis Varoufakis report on Greece

The European System: Dream or Nightmare?

This was the title of the first session of the University of Texas at Austin conference on the Euro Crisis organized by Jamie Galbraith. The whole panel is available here. My talk starts at around the minute 33. Before Bruno Amoroso, Terri Givens and Alain Parguez. Links to all the sessions (I liked all, but highly recommend session 5) here.

Talk tomorrow

If you are around Salt Lake and have nothing better to do, you can come to my talk. Tomorrow at 1 I'll present a paper on the Euro Crisis. Flyer below has the info.

The full Monti, and Papademos too

Mario Monti in Italy and Lucas Papademos have substituted the fragile and questioned prime ministers in their respective countries. Monti was an European Commissioner with great experience with the EU institutions, while Papademos was the president of the Bank of Greece and vice president of the ECB. Both are economists. The notion is that now with serious and responsible technical men in charge the chances for a solution, which is still in the view of European authorities more austerity, have increased.

The only possible logical diagnosis in which that would be true is if this would have been a crisis of "confidence." As that is not the case the crisis will continue, and become more intractable. Today, after the Eurozone bonds of almost all countries, including France, were forced to pay a higher risk premium the chief economist of JPMorgan Asset Management said that "Germany [is] the only functioning bond market left in the eurozone." A zone of one.

Original Sin And The Euro Crisis

Krugman has now twice argued that Europe faces an original sin problem (here and here). Let me be absolutely clear. Europe does NOT have an original sin problem. The original sin, a term invented by Ricardo Hausmann (see here), is a situation in which the domestic currency cannot be used to borrow in international markets or to borrow long-term in domestic markets. By the way, a new name for an old problem that was well known by Raúl Prebisch and other Latin American structuralists at ECLAC back in the 1950s, who recommended avoiding excessive borrowing in  foreign currency.

It is true that there are no European bonds, and that Greece, as the other countries of the euro, do borrow in a currency they do not control. However, the ECB can buy Greek bonds, and does print euros. That is not the case in a developing country that borrows in foreign currency, and does have an original sin problem. In that sense, the problem in the Eurozone is the unwillingness of the ECB to monetize even small amounts of debt. Misplaced monetarism, not the original sin, is the problem in Europe.

Reuters on Greece's tiny debt load

Pedro da Costa, from Reuters, in their Macroscope blog, says that:

"No, that is not a typo in the headline. Greece has long been the focal point of Europe’s crisis. It was the first country to reveal some cracks in a monetary union that lacks a fiscal authority to back it. Indeed, Greek politics were dominating the headlines on Friday, with news that the prime minister had survived a confidence vote in parliament restoring a momentary sense of calm to a still very dramatic situation.

However, Greece’s actual debt load is only large relative to its own small and struggling economy. In the larger context of the euro zone, the actual amount of debt being haggled over is rather puny."

The rest of the post here. I can't but agree with him, in particular taking in consideration the expert he cites.

The Crisis in the Eurozone

A conference on the euro crisis at the University of Texas, Austin, organized by Jamie Galbraith, will be held this Thursday and Friday, and a live webcast will be available here. The program is here. The event will focus on “A Modest Proposal for Overcoming the Euro Crisis” by Yanis Varoufakis and Stuart Holland, a plan which would combine the innovation of the Eurobond with a “New Deal” approach to European development.

Jamie Galbraith on the European crisis

Here is the link to Jamie's take on the European crisis. Mike Mandel and Dan McCrum two journalists, are also part of the talk. I'm increasingly surprised that there is a concern that the European Financial Stability Facility (EFSF), the bailout fund, is NOT large enough. As I said before, the Greek debt is not that large, and the European Central Bank (ECB) can buy just a fraction of Greek debt and solve all problems (by the way Jamie makes that point very clearly: that the ECB can print as many euros as they wish to). It's difficult to get this whole thing, as Jamie says Greece is being destroyed, and for what exactly? To make an example.

PS: That also explains the media's need to continue lying about Argentina's post-default performance. Not only Greece must be an example, Argentina cannot be a good example of a default country doing well. On that see Dean Baker's post.

The euro is not money of account in Greece anymore

In Argentina, when the crisis got to the worst stage and reduced revenue and spending cuts were at the peak, local governments started using token currencies to pay state workers. The Buenos Aires province started paying its workers in patacónes, which became an alternative to the official currency, the peso, in 2001. In Greece we are already there. Local networks in which transactions take place using an alternative unit of account are taking place. These, if I understand correctly, are private and for the most part electronic networks, rather than public, as in the case of Argentina. No actual currency is being printed (as the 100 patacónes shown above).

At any rate, they go to the heart of the money question, i.e. they serve as alternative units of account.  Money is, after all, the unit of account that allows economic calculation to take place and facilitates the creation of credit and debit networks. Keynes said in his Treatise on Money that: “money of account comes into existence along with debts, which are contracts for deferred payment, and price lists, which are offers of contracts for sale or purchase.... [and] can only be expressed in terms of a money of account” (p. 3). This indicates that the euro is not playing that crucial role of money for the Greek people anymore.

Greek Debt is not that large

The NYTimes tells us that Greek debt is out of control, and financial markets fear that a default is around the corner.  It might be true, but the size is not a big problem. According to the Times:

"Total Greek public debt is about 370 billion euros, or $500 billion. By comparison, Argentina’s debt was $82 billion when it defaulted in 2001; when Russia defaulted, in 1998, its debt was $79 billion."

The point of this is that it is supposed to be large even when compared to Argentina and Russia that defaulted. Note, however, that the GDP of the euro-17 (the 17 countries of the euro currency area) is around 12.3 trillion euros, and as a result Greek debt corresponds to slightly more than 3% of the euro-17 income.  It is true that the euro countries, or the ECB, may not want for political reasons to buy Greek bonds, but given its size and the potential risks it is puzzling, to say the least.

In Argentina and Russia that option was out of the table altogether, since debts were in dollars, and no world central bank could stand to actually buy their bonds. So default was the only alternative. At this point, it is as if the ECB and the European elites do not want to save the euro. And the Greek people's patience is running thin.

An update on the Eurocrisis

I was again on Background Briefing with Ian Masters, Pacifica News KPFK 90.7, Los Angeles.  You can listen the to whole program here.  Previous interview is here.

PS: I'm in the second part of the program at around minute 20.

Background Briefing on the Greek debt crisis

I was on Background Briefing with Ian Masters's program yesterday tonight.  The link for the audio here.  By the way, I am actually working with UNCTAD not UNDP this summer.

How do you say devaluation in Greek?

Default is not the dirty word that nobody wants to say. Almost everybody now accepts that Greece will default. Several people will prefer to use the euphemism of “re-profiling debts,” but we all know what it means.  The interesting thing is that at least some authors, like Martin Wolf in a recent column, also acknowledged that default is not sufficient. The surprising thing that almost nobody asks is whether a default would actually solve the Greek problem.

Of course that would require understanding the problem in the first place. And herein lies the problem, since most people still argue that the Greek problem is fundamentally fiscal. In other words, in the conventional view the Greek government spent too much (and lied about it), and the solution must rely on the generation of sufficient fiscal surpluses to pay for the outstanding debt. Further, to obtain the funds it is assumed that austerity is the way to go, privatizing public firms, cutting public sector wages, and reducing pensions.

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