Wednesday, January 21, 2015

Prof. Yanis Varoufakis - Always Good for Innovative Ideas!

Prof. Yanis Varoufakis wrote an article in his political blog where he introduced a new line of argumentation which I have never heard before and which I find innovative, for sure. I did not read the original but this German translation of the article instead.

Varoufakis makes reference to Greek bonds (volume not revealed) which the ECB under Jean-Claude Trichet purchased in the secondary market during 2010/11. The only possible benefit for Greece of the ECB's purchasing bonds in the secondary market is that Greek yields are contained and facilitate new borrowings. Since nobody would have lent to Greece at the time, Varoufakis argues correctly that Greece had no benefit from those bond purchases which were done under the exclusive responsibility of the ECB. Apparently, these bonds begin maturing by June of this year.

And here comes Varoufakis' innovation: had the ECB not purchased these bonds under their exclusive responsibility, then these bonds would have been subject to the 2012 haircut and would have been reduced by 90%. Why should Greece pay 100% for something which would have been 10% if only the ECB had not made such a blatant mistake?

Good question!

At the same time, this argument could be made for all rescue loans, too. Without the rescue loans, the debt would have remained private and would have been subject to the 2012 haircut.

All I can say is that it will be interesting to watch how this negotiation will unfold over the next months.


  1. Chris Voltaire ‏@Voltairos 48s48 seconds ago

    @kleingut Yes, but ECB returns profits from GB purchases via SMP. Adopting Varoufakis' proposal would eliminate these substantial returns.

  2. I saw this as well this morning. I checked his blog to see his opinion on this latest Draghi move and laughed out loud.

    If syriza is at the negotiation table with this guy i am sure a reasonable deal will be struck up and all will be well. Taxes will continue changes will continue. things will simply be less volitile.

    I have read some of his books. I will sleep easier with Syriza having him on their team.

    I want to see the TV tonight how the bond issue will be debated. ND will scream we will lose the bonds we will lose the bonds, Syriza will take Yionnis position and will confuse the hell out of the average citizen.


  3. The problem in the negotiations won't the debt. It will be the rest of Tsipras' program. The moment of truth for Tsipras is closing. The Germans like making examples and they can't have Tsipras setting anti-austerity example for Spanish (Podemos will likely win), Italians, French, etc.

  4. I wonder how well united Syriza really is. They seem to talk with different voices when addressing different audiences, but that might also represent different factions in the party.

    What will happen when the pressure is rising in tough negotiations with other parties and with the Troika? Will fissures appear?


  5. Varoufakis says that GCB would issue -with whose authority and money, ecb's?- zero coupons/perpetual bonds with 0.1% to buy at 10% the bonds of 2010/11 ?
    This is a kind of mutualization of debt or not?

    1. It's a disguised haircut. You give someone a promissory note for 100%, albeit not for 100% of the maturing loan but only for 10% thereof. BTW, the way I understand Varoufakis is that the new bonds would be 1:1 nominal value with the old bonds.

      Mutualization of debt? Every asset that is on the books of the ECB, ESM or whatever is mutualized debt. Sort of a Eurobond in disguise. Why? Because all countries are liable for the ECB, the ESM and so forth (not quite for the ESM, but that's a detail). As Varoufakis once very correctly said: QE on the part of the ECB is nothing other than Eurobonds, albeit in a much more complicated and more expensive fashion.

  6. "Innovative", yeah,mwhen it comes to new ideas from which foreign country or organisation Greece should get big money! Has that guy ever presented any plans about domestic economic policies, about how to create sustainable jobs? He's always only blaming others for their alleged mistakes, never the Greeks themselves for he mess they created in their own country! What a patriot.

  7. Btw, what's this nonsense really good for? Why does Varoufakis even care about whether it's some miilions more or less debt? Greece hasn't paid anything back since 2010 (debt service is totally covered by Troika money) and won't do so in the future, neither. This is a totally hypothetical problem, a pure waste of time.

    1. Well, it matters in so far that if Greece had zero debt, it would have zero interest expense. In that case, the entire primary surplus would be available for domestic purposes. Right now the entire primary surplus goes to interest on foreign debt.

    2. Pls don't make this look like a big burden - Greece has had a rather small surplus in 2014, for the first time since way before the crisis! However, I'm all for a change of the conditions, allowing Greece to keep at least 50% of the surplus (and use that for stimulus programs), as an incentive to continue the course of financial responsibility. There shouldn't be only sticks, but carrots, too.