01.10.2022

EU moves to its collapse

As the former Minister of Finance of Greece, Janis Varoufakis, writes in his article, both reports were yet another proof of the amazing talent of the EU establishment – to never miss an opportunity to miss an opportunity.

It is no coincidence that both announcements were made in the same week. The Greek debt explosion in 2010 was a disgusting symptom of errors in the device of the eurozone. That is why it caused a domino effect throughout the continent. The continued insolvency of Greece is the result of deep disagreements within the Franco-German axis over the plan for the restructuring of the eurozone. While the three presidents of France and the same German chancellor could not agree on institutional changes that would make the eurozone more stable, Greece was asked to quietly bleed.

In 2015, the Greeks staged a riot, which the establishment of Europe ruthlessly suppressed. Neither Brexit nor the gradual delegitimization of the EU in the eyes of European voters could convince the establishment to change course. The election of French President Emanuel Macron seemed the last hope for a new agreement between Berlin and Paris, which was necessary to prevent the choking Italy from provoking a new – and this time fatal – domino effect.

Former Greek Finance Minister Janis Varoufakis

Under Macron, new, encouraging ideas were put forward: a common budget for the eurozone; the creation of a new safe debt instrument and the emergence of quasi-federal tax collection opportunities; general unemployment insurance fund; a unified system of bank deposit insurance and a common boiler from which it is possible to finance the recapitalization of falling banks (that is, the creation of a foundation that is currently lacking for a real banking union).

“A good step forward” and “useful meeting”. So European leaders commented on the informal summit in Brussels, where they discussed the topic of the migration crisis the day before. Did you manage to agree on something?

Plus, a new investment fund mobilizing unused savings in Europe, which avoids additional pressure on the budgets of the eurozone countries. And the Macron government seems to have accepted the proposal that I put forward back in 2015, as the Minister of Finance of Greece: restructuring the public debt using the indexation of GDP. In this option, the size of the total public debt of Greece (and the speed of its payments) was tied to the size and growth rate of the country’s nominal income.

A year passed (during this time Italy took the path of clash with the European Union), and German Chancellor Angela Merkel and Macron concluded their Meseberg Summit with an agreement on the reform of the eurozone. And a couple of days later, the Eurogroup, consisting of finance ministers of the eurozone countries, presented its “solution” to the Greek debt crisis.

In a decent universe, these two messages could signal the end of the lost decade for Europe and the start of an era of recovery, which would allow Europeans – all together – to face the challenges that U.S. President Donald Trump is creating and create the next economic downturn. Alas, this is not the universe in which we live.

Even before the Meseburg summit, Macron tempered the scope of his proposals until almost complete surrender. The unified system of bank deposit insurance and the recapitalization fund have been pushed into the unlikely future in which the banks of the peripheral countries of the eurozone will have to get rid of bad loans before a real banking union occurs. Unified unemployment insurance was not even discussed.

And finally, the last (but not in its significance): the idea of ​​a single debt instrument to maintain the eurozone budget in the amount of 2-3% of the aggregate income of its member countries (and this is the main condition for the emergence of a macroeconomically significant budget union) was sent without ceremony Add to cart.

Naturally, Merkel offered Macron only that which allowed him to present his humiliation as an alleged personal triumph. Before the press, who was in ecstasy, they solemnly announced a decision to create a budget for the eurozone, but this is only a name, since in reality it is nothing more than a line of credit from the European Stabilization Mechanism (ECM, a financial assistance fund that provided loans to Greece in 2015).

They also agreed on a small “rainy day” fund that would be funded by the eurozone countries and a fictitious tax on financial transactions and the digital economy – a similar “compromise” cost Merkel nothing, because countries like the Netherlands and Ireland are more likely to total torpedo.

Regarding the recapitalization of banks, Macron and Merkel praised the ECM-funded scheme. But any decisions of the ECM are subject to approval by the German parliament, so the Bundestag will have the right to veto the recapitalization of, say, some Italian bank. And the new Italian government is unlikely to buy it all.

When bankers try to hide bad loans on their balance sheets, they provide new loans to give insolvent borrowers the opportunity to pretend that they are servicing the original debt. When a new loan is exhausted, the client is allowed to freeze payments for several years, while interest continues to accumulate. All this helps to keep the net present value of their asset (loan) constant and to postpone the final day of reckoning (at this point they will have to admit to their regulator that the loan cannot be repaid).

Since 2010, Greece’s lenders have been practicing this “renew and pretend” strategy as actively as if they were training to perform at the Olympics. Instead of brave and therapeutic debt relief, or a moderate option with GDP indexing, the Eurogroup made a decision (presented as the “end of the Greek debt crisis”), which, in essence, is the apotheosis of this cynical practice.

Technically speaking, the central element of the new debt agreement is a ten-year postponement of payments totaling 96.6 billion euros ($ 112.5 billion), which were supposed to begin in 2023. Thus, the Greek state was offered to facilitate payments until 2033 in exchange for – continuing the policy of severely reducing government spending indefinitely (the target level of primary surplus is 3.5% of national income until 2022 and 2.2% during 2023-2060); impossible amounts of annual debt payments in the period from 2033 to 2060 (approximately 60% of state tax revenues); and an increase in the ratio of debt to national income above 230% by 2060, provided that, due to the next global recession, the super-ambitious target economic growth rates set in this regard will become unattainable, and of course, they will become

Any objective assessment of the new Eurogroup agreement on the Greek public debt leads to the conclusion that this agreement dooms Greece to eternal debt slavery. And an unbiased observer of the Meseberg summit, Merkel and Macron, will conclude that the eurozone remains as macroeconomically unstable as it was five years ago. However, the European establishment, forgetting that the Nationalist International is going to gobble up the EU, readily presents him snacks.

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