Tuesday, June 9, 2015

Return Greece To Financial Sovereignty!

Roger Cohen, die NYT columnist, hit it on the nail when he said in the article "The Greek Trap":

"Creditors could tell Syriza: You have a century to repay the debt, but now you’re on your own. Fix the country, whether inside the euro or out. Get foreign corporations to put their money in Greece. You want to try the Putin route, with Gazprom stepping in for the I.M.F., go for it! We’re off your back now — so find a way to make Greeks believe in Greece again without the ready excuse that Berlin, or the International Monetary Fund or the European Commission is to blame."

I have made similar proposals several times in the past except that I even went so far as to put the interest rate to zero (or very close to it) and/or even put a lengthy moratorium on interest payments. No reform requirements whatsoever!

The only condition: no new debt!

Ever since SYRIZA became an important political force (June 2012), the party has consistently declared itself as a champion of a balanced (or even slightly positive) budget. They stated that in their First Economic Manifesto of June 2012 ("reign in expenditures at around 45% of GDP and increase revenues to about 45% of GDP"). Alexis Tsipras repeated the mantra in his Thessaloniki Speech. And, again, it found its place in SYRIZA's economic policy paper "What the SYRIZA government will do".

FinMin Varoufakis later clarified that the above referred to the primary balance and not to the overall budget balance (i. e. without interest). His words were: "I can promise you Greece will - apart from interest payments - never again present a budget deficit. Never, never, never!"

Ok. If you don't have a primary deficit and you don't have to pay interest, everything should be fine!

Why no reform requirements? Many people, particularly foreigners, defend the thesis that Greece is unable to reform without pressure from the outside. Well, let Greece itself clarify that point instead of forcing it upon the country. If Greece can get by without reforms (assuming there is no interest expense), then let Greece get by without reforms. If Greece cannot get by without reforms, it will on its own come to the conclusion that reforms are necessary. If there is no new debt, Greece will be forced to balance its primary budget. If there is a problem, it will have to increase revenues or cut expenses, or a combination of both. The key is: Greece would have to decide that on its own!

So SYRIZA would have all their wishes fulfilled if there were no debt maturities and no interest payments. And what's in this proposal for the creditors?

The creditors gain the invaluable advantage of not having to write off Greek debt at once. They can spread their losses of principal over 50 years (or more). They would incur out-of-pocket losses by financing Greek loans without receiving interest on it. But that is a most manageable problem.

Greece's debt is around 310 BEUR. In today's interest environment, the average refinancing cost to creditors is probably no more than 1%. That would be a cost of 3,1 BEUR annually for ALL creditors. The annual cost to Germany, the largest creditor, would be around 800 MEUR annually. An amount which the Germans would hardly notice in their budget.

And in 50-100 years, 310 BEUR will be a lot less in terms of purchasing power and most certainly in terms of percentage of GDP!


  1. Greece insisted on its sovereignty when making debts.
    Creditors should insist on Greece´s sovereignty in order to clean up the mess.
    Fair and effective.

    Just makes me sad that the EU´s inabilities to act according to even such simple principles are depicted so clearly.

  2. While I agree with Roger Cohen (and you) in most of it I disagree with the "inside the EURO or out". Greece will, sooner rather than later, start excessive borrowing again, promises or not. If they are still in the EZ (EU) they will start the blackmail all over again. If they are out they will just have to fight it out with their lenders.

    1. If you are suggesting that "no new debt" is easier said than done, I would agree with you. Obviously you can restrict the state easily. You simple have to call unauthorized new debt an event of default and that would take care of it. But what about other corporates and, above all, the banks? That, too, would have to be reigned in. A nightmare! But there undoubtedly would be prudent ways to accomplish what one wants to accomplish.

      Regarding the blackmail, the blackmail only worked so far because the EU wanted to avoid a Greek default at all cost ("whatever it takes"). There is really nothing illegal in the Eurozone about declaring insolvency. Except: is one is worried about "foreign pressure" today, that will be nothing compared to foreign pressure in a default situation.

      Either way, my general logic is to put Greece into a situation where it will be totally responsible for its economic fate, positive or negative.

  3. Sounds like a fair deal, for Greece as well as the european partners: The old debts are forgotten for at least the next 50 years, but there will also be no new financial payments from other european countries. The bad old money is gone and lost, but please no more good new money for the black hole.
    I suppose this deal will be hard enough for Greece as they still seem to be used to pay more than they earn.

    If anyone want to take the risk of offering his own new debt money for greece - be free to take the risk. But there should never ever come a new bail out for the bad fallen creditors. So there should be no risk of a new blackmailing.

  4. I am really bored with the tedious business of repeating to apparently deaf people that the primary issue in all of this is the euro. Membership of the monetary union had implications for Greece's ability to borrow, to compete in EU and international markets, and balance of trade. Nobody in their right mind would advise Greece to join a monetary union centred around Germany -- yet it did join, at the behest of Germany and others.

    The situation remains highly problematic, with an overvalued currency and debts that can never be repaid. Whining on and on about sovereignty when there is a monetary union is just nonsense. You people clearly have no grasp of concepts, by doing this. Political and economic soverignty were shared -- legally and practically -- by joining the eurozone. That situation pertains, with regard to everything in Greece today. Greece does not have sovereignty: it has a limited national sphere of action, which is heavily controlled by Germany.

    1. A word in season, Xenos: why do you bother following a blog and its commentators when you find them all so boring? The others would benefit in as much as they wouldn't be talked down by you all the time. And you might benefit even more. When people talk others down, it's often because they feel bad about themselves. If you no longer talk others down, you might start feeling better about yourself.

    2. "I am really bored with the tedious business of repeating to apparently deaf people ..." Why are you doing it then? Just to be arrogant? And we "people clearly have no grasp of concepts." But you the all-mighty have of course.

      Just to spit your venom on Germany? You have an over-simplified world-view: Evil Germany against Poor Innocent Greece with the glorious Zyriza-AN.El Government. Obviously there are no Fins, no Dutch, no Slovaks etc ...

    3. @Klaus: I have found many interesting things on your blog in the past, and I have understood from you that you have also found my comments insightful. This last comment I have made is in sheer frustration at the closed minds that are prevalent across Europe, and visibly on your blog.

      If you want your blog openly to be a neoliberal outlet, then I shall desist from wasting my time here. I had assumed that you were not engaged in propaganda and wished to engage in discussion. Instead, I see that the great majority of your posters are merely posting uninformed opinions that are hostile to Greece, and in particular to the current government. They also are inclined to deliberately misrepresent my views, as part of their closed hostile mindsets. Is that what you actually want?

      And on a personal note, I do not feel good about anything in Europe. We are in serious, very serious crisis, with a lack of meritocracy, incompetent people in charge in many sectors, and a mentality that is redolent of the buildup to 1939. To take this as my own personal deficiency is to misread the situation.

    4. Xenos,

      I find similar ground with you on many issues and as abrupt as you may be or frustrated as you may be i would like for you to continue to contribute as a balnce here.

      Mr Kastner does indeed "throw out" some points to be discussed which are neutral or objective and many commentators indeed "fill in the holes" with general mainstream media ideas and many time rascist or fascist slurs about greeks. You are necessary here for a diffierence of opinion and another way of looking at things.

      Mr. Kastner, i would like to add that indeed your articles of critique on Observing Greece are correct and concurrent, what i would like to see on occasion is, is some constructive critism of anybody aside from Greece, within the greek problem. Greece is at fault indeed but they were not alone in that.


    5. @Guest(xenos): Why do you hurt yourself by being here and reading what you do not want to read, blaming us that it hurts you what is written here by what you say: the most?

      I would like to repeat Herr Kastner's last sentence in one of the comments here above: "Either way, my general logic is to put Greece into a situation where it will be totally responsible for its economic fate, positive or negative."

      My view goes one step forward: My general logic is that in all cases Greece has its own responsibility for all what has happened, via a democratic electoral system, after the Junta time. What has been proved as wrong decisions after all realized elections is the result of a democratic system: the majority gets the loudest voice, and if the average intelligence of the majority is lesser than the intelligence of the minority than it is pure logic that the result is what can be expected via just exact counting and thinking.
      That means that Syriza is in fact showing with its acts and results what the caliber is of the majority in Greece. Simple minds, though able to be even professors on universities, govern Greece.
      IF these professors and high intelligent people, as they say they are, had been really intelligent, they would never ever have wished to govern a country in the situation as it was in January 2015. Greece was on that very moment like a fresh born baby handed over to parents who never ever had seen or learned how to feed it. You can also compare Greece with a handicapped person, traumatized and dilapidated. The society, economy, the state is rotten and needs more than words. Ideology is a poor (read: impossible) way to try to change the reality into the perfect state.
      Words are not enough. One can study to clean a kitchen in theory, to do the job is completely different and mostly not even possible to be done by not even the most brilliant professor.
      This is the difference between theory, and reality.

      Your mind will not get it, I learned that through the years something has changed in the minds of Greeks via never ending discussions, debates, low quality TV hosts, journalism and interviewers, lack of true transparency. All have become weary, and do not even listen. Ears are closed. Also that is logic.
      There is a huge gap between Europe and Greece concerning administration, simple office work via up to date data info.
      Electronical bills do not even exist in Greece: to mention one of the most easy things to achieve. The Task Force for Greece offered the needed experienced people to achieve all in a short time, but all have been thrown out.
      FinMin did not do anything else than writing a blog, tweeting, being in again another interview, as if he was really working at something, and not having time for a high emergency plan how to build up the economy in a suffering country, immediately.
      To govern a country takes more than being against all what is not Greek, and to feed the people with just words, promises, dreams.
      It needs intelligence, built up via theoretical studies AND experience, to be a true politician. there is not ONE in Greece, on the moment. It needs balls to be a leader.
      Tsipras is just a candle in the wind.

      It is your own freedom to be here, @Guest(xenos), and if you consider this as a bad place, you chose for it and the consequences are yours. Your comments are even published. Isn't that great within the idea of democracy? Do not expect therefore that the opinion here will be adjusted to your wishes. We have the freedom of speech as well.

    6. @ V 1 of 2
      I think you would be hard pressed if I asked you to show me any place where I supported or praised the Troika’s approach, but feel free to show me. On the right hand side of this blog you will find “Major contents of this blog” among the favorite links. Those are some of my articles of 2011 where I literally blasted the EU elites for the way the dealt with Greece. One article was titled “A Nueremberg trial for EU elites”.

      Let me take the issue of the primary surplus. As early as November 2012, I argued that the primary surplus should not be used for interest payments but, instead, be put into an escrow account for investments. In other words: zero interest!


      My great optimism about Greece started declining in 2013 for the simple reason that I didn’t see things happen which should have happened if Greece had really been serious about reforms. I only saw a “milking-the-regular-tax-payer” strategy but no touching of hot potatoes. ERT was a classic case in point. Samaras had justified closing ERT by promising that a new and unpoliticized ERT would be up and running within 2 months. Based on that, I said if Samaras holds his promise, then his destructive move would be justified by a constructive alternative. Well, the promise was never kept and all that was left was destruction. Totally irresponsible!

      In early 2014, Samaras had started getting really cocky because of Greece’s alleged “success” and he got the bill for cockiness towards the end of the year.

    7. @ v 2 of 2
      I am an impressionable person and the euphoric wave accompanying SYRIZA’s road to power had an impact on me. Some commentators (and Greek friends!) wondered whether I had become an enthusiastic SYRIZA supporter. My response was always that, as a general principle, I always give someone at first the benefit of doubt and I thought that SYRIZA justified that benefit; that they might indeed become the white knights rescuing Greece from vested interests and clientelism. Those were the days when I had intensive email exchanges with Varoufakis and where Varoufakis acted in a very reasonable and promising way. I must say that I felt quite honored when he offered me a job as a paid adviser on his first day in office but, then, I also have reasonably good intuition and intuition told me that I should not accept it. Today, I know that I would have regretted it within the first week.

      Why do I only not praise the Troika but not criticize it outright? Because I don’t want to do anything which smacks of supporting SYRIZA. Unless they succeed in their attempt to finally settle, over 60 years later, the civil war and turn Greece into a socialist Balkan republic, they will very much destroy of what’s left in Greece. My best friend in Thessaloniki, a Marxist by faith, warned me during my time of excitement about SYRIZA. He warned me that those people had grown up in a blackmail mindset. That they were no different from all the other corrupt Greek politicians. That they had their own clientele and they were experts at using political patronage. That they were a destructive force. That they wanted to destruct the estisting order, not only in Greece but in all of Europe. And so forth. As time goes by, I can understand better and better why he said that.

      There is zero hope left with me that SYRIZA could transform Greece into a successful modern economy. Instead, they want to move the clock back and chances are getting better with every passing day that they will succeed with that.

      As you know, I have now come so far as to say that the official creditors should simply say “pay us back in 50 or more years and you don’t have to pay interest in the meantime”. Not because I support SYRIZA. On the contrary: that (i. e. being freed of the debt problem) would give SYRIZA the chance to bring to Greeks all the wonderful things which they promised them. I see zero chance that Greeks will be happy with the results.

    8. @V: thank you for your comment. We both know Greece, unlike many of the commentators here, and seem to share many values. I cannot say anything positive about the inappropriate comments of Antoinette. I do not even understand why this delusional woman is interested in Greece, or what her connection is. All I see is ignorance and arrogance: nothing solid, no comprehension of anything at all. This woman even has the cheek to inform me that my comments are allowed here. Is she the mistress of Klaus?

      With the mentality of many posters here and across the internet, we see increasing delusions and arrogant intolerance. Different viewpoints are not respected: what really counts is power, in its multiple forms. Even those with no financial or political power seek to control, through propaganda, the expression of ideas.

      I really do respect Klaus's integrity, and I find it sad that right wing propagandists are trying to monopolise the comments here. It is an insult to his work, even though they dress it up with personal praise.

    9. @Klaus. I am not very optimistic either about Syriza, but I see no choice but to support their position in power. I agree with much of what your Marxist friend says, although the leadership is mostly nowhere near as bad as the characterisation and is no worse than Pasok or ND and rather preferable to Golden Dawn.

      This does not alter the fact that what the Troika is demanding of Greece is not serious economic reform but neoliberal restructuring that will damage the population in the immediate, short and probably long runs. I am sure that Varoufakis is open to reforms that will have a benefit for the society in general, although even such reforms have to be balanced against the current economic conditions of the poorest in Greece. Austerity is not a formula for reform, and actually impedes serious reforms that would involve FDI or other investment.

      My reaction to your proposal here is that it is good in principle, and I agree with your reasoning. But this does not alter the fact that within the eurozone (and to some extent within the EU) Greece does not have absolute sovereignty. Quitting the eurozone is not only legally impossible, but would be extraordinarily costly and difficult to manage for both Greece and the eurozone. Greece remains, for the time, dependent on its structural relations with the eurozone.

    10. @ Mr. Kastner,

      Yes i am aware of those articles as i have been reading your blog since the start of the crisis. I still maintain that your site is the no. 1 blog source that i read everyday. I make it a point to check your site everyday because your critism is the best out there. What i want to see is some critique on concurrent issue on the greek problem aside from the greek side if there is any. Because the mainstream media does not give such reporting and the leftist sites i read i find them anti eu propaganistic or "conspirousy theroy" type reporting. I don't have a Mr. Kastner type reporting for the other side which i trust.

      I support any new form of government the greek people elect. I am of no side and yes i am disapointed in all the gorvernments up till syriza inclusive. But steps have been made. They are not the huge steps you seek but they have been made. I am i sure more steps will be taken. I am sure it will bear fruit. And our cause as people will show in time. Austerity or not.

      It is a shame you did not join although unfortunately your instincts were correct not to join. As you would be marked as a conspiritotor. I believe with my heart that you can help contribute if a position was offered to you at a later time. Later i say because i believe things with the greek problem diminish. I am sure with who you are, you can help and trust can be made in your character. I believe greeks will trust you and our creditors would most certainly trust you. If this opportunity does come again i ask for you to seriously consider if you have the strength and will power to take it. Then i could easily come find you and shake your hand.

      You have a very good understanding and "tie" to greek people, mentality but also hold a strong sense of logic which greeks, most greeks, understand and support.

      A bit harsh with the mistress comment. (i wonder sometime if you have some mediteranean blood in you. :-)
      I disagree with you, that even if some people's comments are propagandist or neo liberal, they are still necessary as you gain a full picture of how things are viewed from all perpsectives. It is also necessary to see they POV changing. But the truth be said many times those neoliberal points made "are right on the money." I need your side for balance and Mr. Kastner to mediate.

      I believe more and more that greece needs an ethnic governement right now. Syriza and ND and whoever else wants. Not sure if that will ever happen though. Everyday that passes Syriza gains ground and the only 20% difference in the polls is also propagandistic. If there was an election today Syriza would 60% of the base of voters.


  5. That may be applicable to EU debt, but there are still private holders, and then there is the IMF, who would not go for this. Which means that 1. Greece would have to service IMF and private loans, and 2. When they mature they would have to be refi-ed, I assume from EU funds, so there would, in effect, be more new debt.
    I think this is why EU insists on small primary surplus, and on the reforms, because they know they would have to at least continue to refi portions of the debt...

    1. You are right and I had commented about these details before (see the termsheet below). In my scenario, Greece would issue a new bond (30-50 years, or more) to repay ALL official debt (incl. ECB and IMF) which bond would be purchased by someone like the ESM. Yes, the ESM would increase its exposure to reduce ECB and IMF exposures but those 2 institutions are legal roadblocks and you have to get them out of the way, even if it costs something.

      Regarding the private debt, my suggestion was that that should be serviced by Greece out of its own resources as normal. Originally I had suggested that Greece should commit to allocate 8% of its ordinary net tax revenue to interest, and I then lowered that to 5,5%. The latter would suffice to pay private
      creditors (and even leave some for official creditors). Now it seems that even 5,5% (an extremely low percentage in comparison with other countries) is too much for Greece to accept. So I am throwing the towel and suggest to forget all interest just so that we get the subject off our radar screens. Neither Greece nor the world can go on fighting over issues which are relatively small when comparing them to the real crisis situations of the world.


  6. Mr. Kastner

    Any POV on Yanis's latest blog article? I would like your opinion.