Burgess COMMENTARY

Peter Burgess

A Greek Suicide?

LONDON – The good news is that a Greek default, which has become more likely after Prime Minister Alexis Tsipras’ provocative rejection of what he described as the “absurd” bailout offer by Greece’s creditors, no longer poses a serious threat to the rest of Europe. The bad news is that Tsipras does not seem to understand this.

To judge by Tsipras’s belligerence, he firmly believes that Europe needs Greece as desperately as Greece needs Europe. This is the true “absurdity” in the present negotiations, and Tsipras’ misapprehension of his bargaining power now risks catastrophe for his country, humiliation for his Syriza party, or both.

The most likely outcome is that Tsipras will eat his words and submit to the conditions set by the “troika” (the European Commission, European Central Bank, and the International Monetary Fund) before the end of June. If not, the ECB will stop supporting the Greek banking system, and the government will run out of money to service foreign debts and, more dramatically, to pay Greek citizens their pensions and wages. Cut off from all external finance, Greece will become an economic pariah – the Argentina of Europe – and public pressure will presumably oust Syriza from power.

This outcome is all the more tragic, given that the economic analysis underlying Syriza’s demand for an easing of austerity was broadly right. Instead of seeking a face-saving compromise on softening the troika program, Tsipras wasted six months on symbolic battles over economically irrelevant issues such as labor laws, privatizations, even the name of the troika.

This provocative behavior lost Greece all potential allies in France and Italy. Worse still, the time wasted on political grandstanding destroyed the primary budget surplus, which was Tsipras’s trump card in the early negotiations.

Now Tsipras thinks he holds another trump card: Europe’s fear of a Greek default. But this is a delusion promoted by his finance minister, Yanis Varoufakis. A professor of game theory, Varoufakis recently boasted to the New York Times that “little Greece, in order to survive, [could] bring down the financial world,” and that his media image “as an irrational fool… is doing my work for me” by frightening other EU finance ministers.

Apparently, Varoufakis believes that his “sophisticated grasp of game theory” gives Greece a crucial advantage in “the complicated dynamics” of the negotiations. In fact, the game being played out in Europe is less like chess than like tic-tac-toe, where a draw is the normal outcome, but a wrong move means certain defeat.

The rules of this game are much simpler than Varoufakis expected because of a momentous event that occurred in the same week as the Greek election. On January 22, the ECB took decisive action to protect the eurozone from a possible Greek default. By announcing a huge program of bond purchases, much bigger relative to the eurozone bond market than the quantitative easing implemented in the United States, Britain, or Japan, ECB President Mario Draghi erected the impenetrable firewall that had long been needed to protect the monetary Union from a Lehman-style financial meltdown.

The ECB’s newfound ability to print money, essentially without limit, to support both banks and governments has reduced Greek contagion to insignificance. That represents a profound change in Europe’s financial environment, which Greek politicians, along with many economic analysts, still fail to understand.

Before the ECB’s decision, contagion from Greece was a genuine threat. If the Greek government defaulted or tried to abandon the euro, Greece’s banks would collapse, and Greeks who failed to get their money out of the country would lose their savings, as occurred in Cyprus in 2013. When savers in other indebted euro countries such as Portugal and Spain observed this, they would fear similar losses and move their money to banks in Germany or Austria, as well as sell their holdings of Portuguese or Spanish government bonds.

As a result, the debtor countries’ bond prices would collapse, interest rates would soar, and banks would be threatened with collapse. If the contagion from Greece intensified, the next-weakest country, probably Portugal, would find itself unable to support its banking system or pay its debts. In extremis, it would abandon the euro, following the Greek example.

Before January, this sequence of events was quite likely, but the ECB’s bond-buying program put a firebreak at each point of the contagion process. If holders of Portuguese bonds are alarmed by a future Greek default, the ECB will simply increase its bond buying; with no limit to its buying power, it will easily overwhelm any selling pressure.

If savers in Portuguese banks start moving their money to Germany, the ECB will recycle these euros back to Portugal through interbank deposits. Again, there is no limit to how much money the ECB can recycle, provided Portuguese banks remain solvent – which they will, so long as the ECB continues to buy Portuguese government bonds.

In short, the ECB bond-buying program has transformed the ECB from a passive observer of the euro crisis, paralyzed by the outdated legalistic constraints of the Maastricht Treaty, into a proper lender of last resort. With powers to monetize government debts similar to those exercised by the US Federal Reserve, the Bank of Japan, and the Bank of England, the ECB can now guarantee the eurozone against financial contagion.

Unfortunately for Greece, this has been lost on the Tsipras government. Greek politicians who still see the threat of financial contagion as their trump card should note the coincidence of the Greek election and the ECB’s bond-buying program and draw the obvious conclusion. The ECB’s new policy was designed to protect the euro from the consequences of a Greek exit or default.

The latest Greek negotiating strategy is to demand a ransom to desist threatening suicide. Such blackmail might work for a suicide bomber. But Greece is just holding a gun to its own head – and Europe does not need to care very much if it pulls the trigger.

Farid Novin JUN 14, 2015 'Before January, this sequence of events was quite likely, but the ECB’s bond-buying program put a firebreak at each point of the contagion process. If holders of Portuguese bonds are alarmed by a future Greek default, the ECB will simply increase its bond buying; with no limit to its buying power, it will easily overwhelm any selling pressure.' -- Wouldn't it be wonderful if the financial world was such Wonderland of absolute certainty? Reply Commented CHRISTOPHER BOWEN JUN 14, 2015 Cry Wolf gets old. Maybe just 'do it'. However, there is a two-way culpability here. Anyone who spends 4 hours in Athens (with a strike practically every half hour) wouldn't lend Greeks carfare, much less the billions Euro banks loaned them. Of course they took the money and ran, just couldn't run far enough. The Euro banks are as much to blame as Greece. They never did due diligence on the Greek economy with its vested and outrageously generous pensions, salaries, retirements, and perks. Wonder what happens to Greece when it is outside the Euro financial system? Has anyone analyzed the options? Read less Reply Commented

Brent Beach JUN 14, 2015 Interesting analysis. The main argument appears to be that the EU has takenn actions that will prevent contagion. That it, it has already bailed out all countires which could be affected by the Greek default. So, while refusing to consider any bailout of Greece, it has already bailed out all the other weak countries. The author makes a second mistake. He thinks that Greece is gaming the EU. The present situation dooms Greece economically. Look at the numbers. Even the IMF analysis says that the agreement dooms Greece. So, for Greece this is not a game - it is survival. The EU politicians who cannot see that, and proponents of some new economics, are the ones playing games. In return for the authors use of the term socialist as an epithet, I use the term banksterism to describe his new econmics. And it is an epithet Read less Reply Commented Kuruvilla Abraham JUN 14, 2015 Alexis Tsipras' is betting on the fact that the ECB needs Greece as much as Greece needs ECB, that's if ECB believes in maintaining its credibility. Reply Commented

Joe Bongiovanni JUN 14, 2015 '' If not, the ECB will stop supporting the Greek banking system, and the government will run out of money to service foreign debts and, more dramatically, to pay Greek citizens their pensions and wages.'' Except for Uber-Banker (cut-off-your-nose-to-spite-your-face) logic, why would the private ECB stop supporting the private Greek banking system? I’ve understood the ECB’s newfound (illegal) power is merely to ‘float’ government bonds onto its balance sheet, in return for providing ECB liquidity to the banks holding those bonds, ostensibly to have an inflation-fighting tool in The Zone's toolbox, but actually to control certain default contagion in financial (private) markets. So, are you just saying that the ECB would not be floating any GUV-bonds from Greek banks? For Greece, Big deal. To say that Greece would “run out of money to service foreign debts” might be accurate, BECAUSE those foreign debts are payable in unavailable Euros. That’s a problem for the private European banking system, but not for Greece itself, and not for the Greek people. But, far more importantly, the paying of Greek citizens their pensions and wages, and EVERY other aspect of the internal Greek economy, can be carried out through an act of monetary sovereignty – restoration of the Drachma as the nation’s currency. One would hope that the government has recognized and prepared for this fact, which will require a significant legal reform within the money sytatutes in Greece but which is certainly feasible. In order to protect the Greek economy from the ECB’s “must-suffer-more” machinations, It would be suggested that the reform to the money and banking rules in Greece accommodate the issuance of the Drachmas BY the Greek GOVERNMENT, without any associated debt, to be used by the nation solely to consume and produce goods, also within Greece … making any general price inflation not monetary related. Greece will find its economic freedom … as opposed to its political-economic “suicide” ……. from outside the private money box of the EU. Greece’s Money System Common. Thanks. Read less Reply Commented

Ian Maitland JUN 14, 2015 Bull's-eye! The EU should call Greece's bluff. What a wonderful opportunity to demonstrate that blackmail doesn't pay. A crisis like this would be a terrible thing to waste. Reply Commented

EMILIANO BRAVO JUN 14, 2015 Crystal clear. Thank you. Reply Commented steve from virginia JUN 14, 2015 Keep in mind the giant banks are, a) already insolvent, and b) massively exposed to currency- and interest rate derivatives. The Continent faces an on-running hard currency drain; (borrowed) euros flowing overseas to fund its wasteful, non-remunerative automobile use. Greece does not hold the EU hostage, The EU and its fleet of cars holds the stupid giant banks hostage: Greek failure is just another burden on the banks ... Greek default will ripple though derivatives markets, the ECB will not be able to intervene. Likely the firing of Deutsche Bank executives Jain and Fitschen last week is fallout of derivatives exposure (as well as Libor rigging.) Read less Reply Commented

Eusebio Manuel Vestias pecurto vestias JUN 14, 2015 The man reason why Greece Spain and Portugal are having trouble keeping its public debt is the 2009 financial meltdown that led their economies in the ditch and metdown undoubtedly was caused by yje ilegal activities of caused international creditors massive illegal activity their part involving the sale and value without debt of titles of resale in schemes clearly the Greece needs social security and tax reforms will not let them go do the beginning Reply Commented

steve from virginia JUN 14, 2015 @Kaletsky sez: 'Before January, this sequence of events was quite likely, but the ECB’s bond-buying program put a firebreak at each point of the contagion process. If holders of Portuguese bonds are alarmed by a future Greek default, the ECB will simply increase its bond buying; with no limit to its buying power, it will easily overwhelm any selling pressure.' vs: @Ambrose Evans-Pritchard: ' The global deflation trade is unwinding with a vengeance. Yields on 10-year Bunds blew through 1pc today, spearheading a violent repricing of credit across the world. The epicentre is in the eurozone as the 'QE' bet goes horribly wrong. Bund yields hit 1.05pc this morning before falling back in wild trading, up 100 basis points since March. French, Italian, and Spanish yields have moved in lockstep.' Considering that central banks are collateral constrained (they can only lend against 'good' collateral); the ECB cannot indeed lend without limit but only against the limited supply of bonds available to the the central by way of the refunding channel. There are other channels; the market will have its way, so will derivatives (interest rate swaps) and the excess leverage this particular market represents. Greece failed a long time ago, all this is left is the rest of Europe. Read less Reply Commented Marc de la Fouchardiere JUN 14, 2015 If a grexit were really the best solution for Greece, I guess an economic leading authority such as Varoufakis would have advocated it. All this discussion is missing one point: Greece needs money. A lot of money. And it is not ready to accept that when you ask money to somebody, you have to accept its conditions. Or forbear and come up by yourself. Greece is rejecting both. Reply Commented

Carl Buzawa JUN 14, 2015 Excellent article. I have been waiting for responsible economists to understand the political impact of the ECB program. As Kalestsky points out, Varoufakis has been playing a 'MAD', Mutual Assured Destruction, type of game where it is logical to appear 'crazy' enough to kill both parties if pushed too hard. However, his approach is overly academic, ignores the complexity of international finance, and assumed that very smart 'adversaries' wouldn't consistently be trying to undermine his position. Apart from the amorality of trying to shift national debts incurred by Greeks to national banks, and hence, the taxpayers of other countries, it never was a very sound negotiating strategy for the reasons set forth in the article. Now as to ultimate effect, yes, I suspect Greece will capitulate, but it will be given some face saving means of doing so...and economically on worse terms then it could have received 5 months ago when it had major allies all over Europe. Read less Reply Commented

Margaret Bowker JUN 14, 2015 An erudite, but rather negative essay by Anatole Kaletsky; time to analyse where it all went wrong, after it's been sorted out. I'm not as sure as he is about Greece's PM 'eating his words'. There seems potential in the Institutions accepting alternative equal value reductions in deal blocking areas, like pensions. Have the eligibility issues, such as start dates, been agreed? Primary surpluses are getting very near. But including a formal framework for addressing the vital issue of restructuring debt is a given. Tsipras says it must be there and he's right. I think it's sixty-forty in favour of an agreement this coming week. You have to assume investment and growth stimulating measures will be in it. Of course, if it didn't gel on Thursday, there are only 12 more days and it's hone your Plan B; but if there were an agreement in those 12 days and it hadn't yet been ratified, but probably would be, the ECB could transfer the profit to the IMF. However, if all this fails and how badly that would reflect on the EU, then Plan B has to be competent and market re-assuring, with, as very last resort, a substantial severance and growth package to smooth Greece's path in joining the non-euro EU group led by the UK. Read less Reply Commented

Ariel Tejera JUN 13, 2015 However, the challenging combination of problems is circumstancial or systemic? Think of Grexit, Brexit, Economic Easying, the Ukraine war, youth unemployment and, additionally, African migration towards Europe. Can this be fixed ? Reply Commented

Point Made JUN 12, 2015 As a Greek, I think the current government of Syriza is the most ludicrous bunch of inexperienced and delusional clowns ever put to govern, actually a view shared by the majority. No prior experience, no coherence, no planning/strategic thinking whatsoever. I am still amazed, however, how many people fail to see this already. Reply Commented

Denis O'Connor JUN 12, 2015 Mr. Kaletsky, Suicide is normally fatal. Is Argentina dead? Denis O'Connor Commented

EMILIANO BRAVO JUN 14, 2015 Not yet but let´s wait an see. Reply Commented

Ian Denis JUN 12, 2015 I am having a hard time understanding this 'next-weakest country' effect. How will financials markets cause the exit of Portugal ? Can this logic go on and on ? which country will follow Portugal then ? Reply Commented

Stamatis Kavvadias JUN 12, 2015 X | | _________ | | _________ | | The 'institutions' have made the 1st move Mr Kaletsky. It was an indisputably wrong move. Read less Commented

Stamatis Kavvadias JUN 14, 2015 FYI, Daniel Gros says there is an 'ECB’s country-debt quota (determined according to eurozone member states’ GDP and population.)' Read more at http://www.project-syndicate.org/commentary/qe-ecb-bond-buying-program-by-daniel-gros-2015-06#49Yzxx1Mrg1Jh0vz.99 Read less Reply Commented

Stamatis Kavvadias JUN 12, 2015 Five questions for Mr Kaletsky: 1) FYI: 'Combined monthly purchases will amount to €60 billion.' (https://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html). Does Mr Kaletsky believe that this amount will be sufficient to counter rising sovereign bond yields, or does he have anything to back his sentences 'Draghi erected the impenetrable firewall' and '[...] the ECB will simply increase its bond buying; with no limit to its buying power, it will easily overwhelm any selling pressure'??? 2) 'Programme designed to fulfil price stability mandate' (again from https://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html). Does Mr Kaletsky believe raising fears for EZ integrity can be included in a price stability mandate? 3) Even if Mr Kaletsky thinks so (see 3 above), does he think northern Europeans, especially Germans who have demonstrated prompt action on such matters through their constitutional court, will not challenge such an effort by the ECB? Is it by luck that treaties are designed in this way? 4) And, if they northern Europeans do challenge such use of QE (see 3 above), is this not going to set northern Europeans against liquidity constrained southern Europeans and set off financial markets to a quest for gains out of such a ... 'European success'? Finally, in such a collision of northern and southern interests, is there any possible way to really crate a QE variant that would work as it would in a federation, or the game initiating Grexit would be exactly the counterargument to helping any other southern economy out of the ill-formed institutions that have left EZ without a lender of last resort? 5) Prof. Stiglitz, Martin Wolf and others, have made the argument that the OMT design (which includes conditionality) and the 'whatever it takes' bluff have now been debunked by market participants. What makes Mr Kaletsky think that QE, without conditionality, will ever have a chance to present a backstop to market pressures on sovereign bonds and EZ institutions themselves will suddenly be silent on their principles? Read less Commented

Ian Maitland JUN 14, 2015 'Geopolitical side effects.' There are those veiled threats again! Does anyone need further proof that this is a gang we can't do business with? Frankly. Putin and Tsipras deserve each other. Commented

Stamatis Kavvadias JUN 12, 2015 BTW, IMF pulling away from the negotiations with Greece, is just a forward looking step, to keep a broader, global institution in a similar position to EU lenders and future influence to EU stance on debt cancellation. Commented Stamatis Kavvadias JUN 12, 2015 Mr Kaletsky's argument would be legitimate, if only it were true. But EZ institutions and bailout programs (bailing out banks) are uniformly designed against the weaker countries; they are uniformly pursuing an austerity-based liquidity-starved course. Even if any other exit is avoided, a long period of high yields will follow, prolonging EU stagnation, possibly requiring another round of QE by the ECB, which will, sooner or later, end up in a legal dispute. Whether southern Europe will endure such prolonged austerity and stagnation, remains to be seen. Of course, there will be other, geopolitical side effects of a Grexit, since Greece will be forced to search for support and EU will have to decide on its stance to unilateral debt default. Read less Reply Commented

Leo Kolivakis JUN 12, 2015 My weekend comment discussing a Greek suicide: http://pensionpulse.blogspot.ca/2015/06/a-greek-suicide.html Best regards, Leo Kolivakis Publisher of Pension Pulse blog. Read less Reply Commented

Theocharis Kromydas JUN 12, 2015 With all the respect, I believe that this is an extremely narrow view of the current circumstances, failing to acknowledge factors that are not directly related to strict economic reasoning. The article presents QE as something like a deity, which can intervene and correct any kind of economic as well as geo-political or cultural issue. And I just wonder, If the solution to all of Europe's problems was that easy, why QE has not been enacted before? So, according to Mr Kaletsky ,crisis is history after Mr Draghi announced QE. I am literally astonished by the oversimplistic perspective of this article. It is like assuming that ECB is something like a puppeteer and that it can direct policies within countries , exactly as it likes. In any case, this is not only a very abstracted and very narrow view, it is also very biased as I would have expected to hear more about the policies troika insisting to implement to a country that has lost 25% of its GDP, suffering from an economic and social depression, mainly because of these policies having de-facto failed during the last 5 years. It is very sad hearing from a well-known commentator like Mr Kaletsky such provocative statements, which unlike Mr Tsipras stance are based only in speculations rather than facts. And the facts in Greece are ruthless...Denying them and the very negative effect of the failures of the Memorandum can lead to real misery and certainly not only to Greece. Sadly, it seems that Mr Kaletsky thinks that a Greek default, apart from a Greek failure, is not also a clear indication of a failure of the European Integration Project, which can be considered now 100% safe because of the ''invention'' of money pumps... Read less Reply Commented

Alexander Robinson JUN 12, 2015 'Tsipras wasted six months on symbolic battles over economically irrelevant issues [...]' This statement is correct if you replace Tsipras with the Troika. The 'proposals' made to Greece so far have had very little to do with making the country work better on the long term, such as by improving the labour market or making reforms to combat corruption. Instead, they only try to ensure the creditors can extract as much value from the country as possible, by insisting on things like increasing the VAT (a mechanism known to hit the poor hardest), cutting pensions (even though Greece now spends less per person on pensions than the EU average) and supporting the fire sale of Greece's public resources. As I see it, Tsipras used the only word that truly describes the Troika's position towards Greece until now: absurd. Read less Commented

wolf bialon JUN 13, 2015 You are mistaken. The so-called Troika, Institutions for Greeks, worked with what they were able to work with. Promises simply did't work, not only in the last 5 years, but for decades. 5 times bankrupt in 180 years is not a problem for Greece ... and the only technically available and implementable measures were the ones the Institutions worked with. Reply Commented

Jose araujo JUN 12, 2015 The tone of this article is offensive to say the least. This is a matter of national sovereignty and should be treated by the representatives of the people. We clearly need a lesson on democracy in europe nowadays. Commented

Ian Maitland JUN 14, 2015 Carl Buzawa: LOL. I am amazed that Syriza's supporters still try to play the sovereignty/democracy card, as if German, French, Spanish sovereignty counted for nothing when it comes to how their taxes will be spent! Commented

Carl Buzawa JUN 14, 2015 Sovereignity? No country has the right to demand as a condition of their own 'Sovereignity' that others continue to lend them money! That doesn't make sense to me Reply Commented

Michael Public JUN 12, 2015 Smells a lot like 'the creditors' asked you to write this article. Greece can survive just fine without the EU and should make the moves to do so. Reply Commented

Ioannis Glinavos JUN 12, 2015 This article makes interesting points, but it is not entirely correct. Yes Syriza has made a series of cardinal mistakes, but Europe is not safe from Grexit. Varoufakis and Tsipras ought to stop now and accept whatever deal is on offer (see my criticism of their position here: http://wp.me/p5zzQG-4c ), yet there will be secondary effects from a Greek exit that will still cause a severe crisis. The ECB QE is primarily designed to fight deflation and cannot deal with the effects of a Greek default in the real economy. This is exactly what the Americans are worried about, and this is why Obama has been pressuring towards a solution. There is no one at the wheel in this crisis, Syriza and the Troika are screaming at each other, while the car is driving off the cliff. Read less Reply Commented

Alejandro Moreno JUN 12, 2015 If, a Greek exit is not dangerous, but if it is, the state of the global economy, that some economists don't see their structural flaws due to base on simplifying the model. Moreover without to mention the domino effect, and the power games of external actors to take any advantage of the situation. Reply Commented

Henry Rech JUN 12, 2015 Suicide or fratricide? Reply Commented

jagjeet sinha JUN 12, 2015 One siege, one suicide !! Another siege, another suicide ?? Not far away. Reply Commented

Leo Kolivakis JUN 11, 2015 Anatole Kaletsky's comment can be summarized as follows: the ECB will save the Eurozone from any contagion from Grexit, which increasingly looks like a done deal. Unfortunately, he fails to understand what contagion is and the consequences of a Greek default to the global financial system. If Greece defaults, all hell will break loose, ushering in an era of global deflation. The ECB and the Fed know this. Far from ringfencing Greece, the ECB is aiding and abating Tsipras and Varoufakis's stalling strategy through its ELA program. Having said this, if Greece doesn't reform its grossly over-bloated and inefficient public sector, cut pensions and reform its labor market, then it will suffer a slow and painful death. Read less Reply Commented

Marko Vujicic JUN 11, 2015 Mr. Kaletsky, with all due respect, yours is a very simplistic view of this incredibly complex circumstance. And the last sentence, where you state that Europe should not care very much if Greece pulls a trigger of the gun pointed at its own head, is unbelievably callused, even as a metaphor. Perhaps having your articles proof read by an eight grader is not the best idea. Unlimited, and illegal, bond buying by ECB will only serve as a band aid put upon Europe's broken limb. Leveling the competitive playing field in the union is the only thing that will sustain its charter. Read less Reply Commented

Stephen K. JUN 11, 2015 Prof. Francesco Giavazzi's essay at the Financial Times takes a more belligerent attitude toward the Greeks than Mr. Kletsky, here: http://www.ft.com/intl/cms/s/0/2bc11fe8-0dd5-11e5-9a65-00144feabdc0.html?hubRefSrc=email&utm_source=lfemail&utm_medium=email&utm_campaign=lfnotification#lf_comment=326599569 Mr. Kaletsky's has impeccable Neo-Liberal credentials and he lets the Greeks know that their blackmail scheme won't work, if that is what it is? Perhaps Mr. Kaletsky doesn't even read Project Syndicate itself, for he has missed, in his zeal to warn Greece about his imagined 'blackmail' of the EU, this essay by Yanis Varoufakis here: https://www.project-syndicate.org/commentary/speech-of-hope-for-greece-by-yanis-varoufakis-2015-06 Neo-Liberal Panic about the Grekxit has given way to posturing by the technocrats: anger allied to the sentiment of good riddance, and warnings that those scheming Greeks are barking up the wrong tree, as the fate of the EU is teetering on the abyss. To adopt the political melodrama of the financial press, that now grudgingly accepts that Greek intransigence, as opposed to German fiscal virtue will be the looser. As for Argentina as pariah nation there is this : http://money.cnn.com/2015/05/07/investing/argentina-economy-stocks/ ' Argentina's Merval stock market is up 45% this year, more than Europe's stellar performance and way more than the S&P 500. Even everyday Argentines, battered by rising food prices and electric bills, are feeling better lately. The country's consumer confidence index is up over 40% from a year ago, according to Torcuato di Tella University, a private university in Buenos Aires. ' Read less Reply image: https://www.project-syndicate.org/default/library/62bca2721fc39eba194b7cb72ff9ad09.square.png Portrait of Anatole Kaletsky Commented

Anatole Kaletsky JUN 11, 2015 A brief response to just one of the comments from Peter Schneider. I said that Maastricht Treaty is 'outdated' because it was negotiated 25 years ago, since when economic (as well as political) conditions in Europe and the world have totally changed. Economic understanding has progressed since the heyday of simple-minded monetarism, of which the Maastricht Treaty was the apotheosis. As our understanding of economics changes, the laws that are based on that understanding need to change too. Commented

M M JUN 13, 2015 My dear Mr. Schneider, I fully agree with your interpretations and analysis. Greece went bust many times in its history, managed to pull itself out and survive and it will survive this time as well. Commented

Peter Schneider JUN 13, 2015 Even if the law was 'outdated' - what I seriously doubt because to me it seems that it is still the democratic will of the people of Northern Europe that there shall be no transfer union, and TFEU art. 125 and art. 130 effectively prohibit the ECB from being a lender of last resort - but even if it was 'outdated' then it sureley cannot be the task of the ECB to first act as an legislator and decree the collectivization of European public debt and then act as the executive to implement their own decisions. The abolition of the separation of powers to me means totalitarianism. No, in the political system in which I grew up, it would have been surely the task of democratically legitimized parliaments to change the law and abrogate art. 125 and 130. My rival hypothesis is that not the law is 'outdated' but the will of the elites and the will of the people are out of sync and that the elites just don't have a majority to implement their will (and never had since 1989). So, my suspicion is that those who want to install the ECB as lender of last resort, actually refuse a democratic form of governance and instead favor an aristocratic or even plutocratic form of governance in which the few decide and not the majority. Read less Reply Commented

Erikwim During JUN 11, 2015 Kaletsky shows a remarkable lack of historic perspective. The euro is not the first attempt at a European currency. The prior attempts failed for the simple reason that monetary policy is set too much for the benefit of Germany and France, especially the former. For a brilliant analysis of why prior attempts failed read The Rotten Heart of Europe by Connolly. And notice the central role of a certain Mr Schaueble. He knew the euro would bring the periphery countries in trouble, just like the ERM did. Also obvious from the ERM experiment was the fact that Germany would profit most in the medium term from the euro. The real risk of Greece stepping out (not being pushed out, that is legally impossible) of the eurozone is it proofs the eurozone is just another variant of the ERM. It is this perspective i guess VF realizes and so should Schaueble, he has been there before. It is also no surprise Italy, Spain, Portugal scream the loudest that they have no problem, and Greece should stick to the 'reform' medicine. They did the same right before all of them got in trouble with the ERM mechanism. As eventually did France. The playbook is remarkably similar. Introducing the ECB may have resolved several of the crucial issues, but what the ECB cannot do is change competitiveness issues and related government debt issues. Thus results painful deflation in Greece, Portugal, Spain and probably also Italy. The worst outcome for the eurozone would be a Grexit and a subsequent remarkable economic recovery of Greece. That would show Portugese, Spanish, Italian and even Irish voters that their austerity and internal deflation mainly served the creditor countries. Read less Reply Commented

Peter Schneider JUN 11, 2015 The author's mindset is obviously quite totalitarian. He seems to hate the rule of law. He seems to hate democracy. What does he mean with 'legalistic constraints'? That there is a constitution and that the authorities are bound to it? Why is the Maastricht treaty outdated? It is applicable law. And I can't remember that the ECB would be entitled to change the law as this would surely be the task of the democratically legitimized parliaments. The laws have a meaning, the constitutions protect the people from arbitrary rule by the elites. The laws state that no state shall be liable for the debt of another state within the monetary union and that the ECB may not monetize debt nor finance governments. This expresses the decision taken in 1989 to have a monetary union but no fiscal union. Now, to launch a fiscal union - and the ECB is basically doing this - would be such a fundamental change in the construction of the monetary union that surely there had to be referenda in every member state and not just a decision by the ECB council. Therefore, in my view, the ECB is an illegal institution operating outside the law and thus being a threat for peace in Europe. I don't want the central bank to indefinitely buy Portuguese junk bonds with my pension savings. Nobody has asked me if I want to guarantee for the Portuguese state where I have no vote. The comparison with England or Japan is hilarious - these are historic nations, the EU is not. Greece is not committing suicide, they had so many defaults in their history and still exist. But I'm very sure that the EU is commiting suicide because a community whose members don't stick to the rules will eventually cede to exist. I once was a supporter of the EUropean project but now that they have left the rule of law and democracy behind I have turned into a fierce opponent. My hope is that the European people one day will unite to liberate Europe from the EU. Read less Commented

Peter Schneider JUN 11, 2015 I'm not illiterate. Please read yourself: 'A Member State shall not be liable for or assume the commitments of central governments [...] or public undertakings of another Member State' (TFEU art. 125). '[...] as shall [be prohibited] the purchase directly from them [member states] by the European Central Bank or national central banks of debt instruments' (TFEU art. 123) '[...] neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body.' (TFEU art. 130) I don't know what my chancellor let alone my constitutional court are doing which gives me quite some uncertainty. Has the law been secretly abolished? What has happened to our constitution? Read less Commented

hari naidu JUN 11, 2015 Apparently you're either illiterate or don't want to know the truth. Your Chancellor is the biggest and strongest supporter of ECB/Draghi. And BTW your Deutsche Bank boss (Weidmann) sits on EZB Council and underwrites its collective decisions. Stop crying wolf....! Reply Commented

hari naidu JUN 11, 2015 I used Le Misanthrope (Moliere) to describe the character of YV. It’s strange that he assumes he can corner not only EZ but also Euro and make them play his game, since Feb last. Greece represents about 2% of EU/GDP. I simply wander if he’s a political fool or not! Most academics have the inherent incapacity to understand (EU) political process and its institutional outcomes – however disingenuous. Political leverage against EU/ECB is not the usual game played by sovereign states in Brussels – principally because the institutional process is one of finding consensus and compromise on difficult issues. If Tsipras has been misled by YV, he should have been fired by now. I just heard that IMF is calling its negotiators back to HQ on grounds that there is nothing to negotiate with Greece. EU has now more or less issued a similar statement to the press. Note: Kaletsky’s critical analysis + Prof Wenn (IFO) Plan A & B needs to be revisited because of their transparency. Read less Reply Commented

Bahaa Hs JUN 11, 2015 He is such an amazing writer, that no wonder he is an economist! Reply Commented

Alisdair Hamilton-Wilkes JUN 11, 2015 Grexit will certainly be painful for Greece in the short term. However, it's hard to see that it is not the best long term option for the Greeks. Even though a majority of the Greeks wish to stay in the Euro, there is little evidence they are willing (or more importantly, even capable) of sufficient reform to keep the dream alive. The last 5 years has left Greece institutionally bankrupt as well as financially. It's hard to see how they can affect change amid such chaos. A good piece from ITN's Paul Mason: http://blogs.channel4.com/paul-mason-blog/greece-ireland-economics/3805 Read less Reply Commented

Walter Gingery JUN 11, 2015 I welcome Mr Kaletsky's analysis. He has a way of cutting through all the moralizing. But see Mr Varoufakis' comments further down in the article from the New York Times: 'Uncertainty of outcome vastly complicates any game theory analysis. Citing the work of the University of Chicago professor Frank Knight, Mr. Varoufakis pointed to the difference between risk and uncertainty. Betting on the flip of a coin involves high risk, but the potential outcomes and probability are known. “Uncertainty is when you can’t know all the outcomes or the probability with which each potential outcome will occur,” he said. “This is deep uncertainty.” ' Complicating matters further, “these negotiations are also about hearts and minds, both of the participants and of the wider community — investors, citizens in Greece and outside of Greece. Those who think that game theory can cut through this Gordian knot are badly mistaken.” ' Read less Commented

Walter Gingery JUN 11, 2015 Mr Kaletsky's point, as I take it, is that there now obtains a greatly reduced 'uncertainty of outcome' which works against Greece's bargaining position. Reply Commented

M M JUN 11, 2015 Mediocre writer / mediocre article, go back to primary school. Commented

M M JUN 14, 2015 The Greeks who are also European tax payers never opted willingly for this solution. The debt was taken out of the banking system to the European Tax payers, not by the Greeks but by the EU representatives, to save the banking system and whoever is behind it. History is written, one can only go back to the events of 2010 to see it all. The EU does not have an agreed budget, its auditors have qualified its accounts, not simply because of some of the examples quoted in here but because of the larger cash subsidies (the farmers in France is one example) and wastages that have been taking place all over the EU and not only in Greece. Read less Commented

Carl Buzawa JUN 14, 2015 The problem is that apart from the Greeks themselves, everyone in Europe other than the socialists who always rail on and on about the rich, understand that the Greeks have not shouldered their fair share of costs for the welfare of the EU itself. One example comes to mind: the state of the Athens subways...and the overall Greek passenger railroad system. The Athens line, costing over $1.5 B was largely built with EU grants to support Athen's 2004 Olympic games. Yet the largely 'honor' system for passengers to pay tolls to cover operating expenses only is apparently routinely ignored by the majority-and the government refuses to install turnstyles and other means appropriate if the population isn't honest. Similarly, I read that the Greek passenger railroad system only takes in $80M in revenue each year yet spends $500M a year on costs, due to extremely high salaries relative to private workers, extreme 'featherbedding' and early pensions. Even a Greek Minister said it would be cheaper to pay for long distance cabs for the riders than continue the service as run! Why should other European taxpayers finance that type of extravagance? Read less Commented

M M JUN 11, 2015 Anyone who knows nothing about Greece should not write about it or even comment on it and should mind their own business and not try and sell other peoples’ agendas to the poor souls…. If one needs to choose between this rubbish and mediocrity, the choice must be obvious. Commented

Pedro Carregueiro JUN 11, 2015 Maybe you should check again on which side mediocrity is, yours or the writer's.. Maybe you have been fooling yourself