Friday, 10 February 2012

Varoufakis: Greece should default on its debts

In this radio interview done today with Fran Kelly of Australia’s ABC, Professor Yanis Varoufakis of Athens university explains why the new bailout deal for Greece is a waste of time, doomed to failure and that the best option for the country is to default on its debts and start again.


Anonymous said...

I agree with him. Going along with the bailout for the EU banks is only in Greece's interest if they can get some international credit to operate the state and support some humane expenses such as taking care of the elderly and sick.

Right now the bailout is going only to banks. There is nothing going to the people, they ar getting no credit and they are not able to find any equilibrium that a default and currency devaluation would bring. I say default go through hell for a few years and get ready to restart on their own terms.


John Akritas said...

To be fair to Varoufakis, he's been right all along, saying after each 'bailout' that it would solve nothing – in fact, it would make matters worse – and that Greece should default; though he is adamant that this should be done within the euro – a return to the drachma might have unmanageable consequences and, indeed, there is no need or mechanism for Greece to leave the single currency. Besides which, it's now become a matter of national honour – Greece has lost it, having allowed itself to be bullied and humiliated by Merkel and Sarkozy – who even decided who Greece's PM should be; honour that needs to be restored by some kind of OXI.

Hermes said...

Varoufakis is a scoundrel and is really a footsoldier for a certain faction of PASOK and SYRYZA. The bailout packages might have had a chance of working if PASOK, and the rest of the Greek political and elite class, reacted immediately when the crisis hit a few years ago and dismantled the monstrous system they largely built over the last 35 years. However, these people thought they were smarter than the rest of the world.

The Europeans have cottoned on to their wiles, whilst global credit conditions have changed immeasureably, leaving them few good cards left in their hand. In the meantime, the Europeans have been busy building a firewall in the event of a Greek default. A Greek default is priced in to markets, yields on Italian and Spanish debt are falling; albeit, mostly driven by domestic purchases, and the European banking system as Draghi is showing a willingness to provide liquidity.

Given all the above, the Greeks have only one option, as I mentioned recently. The Greek primary budget is likely to be in surplus this quarter. They can tell their creditors they are not paying and they can still service expenditures without seeking credit.

However, the Greek and Cypriot banking systems will need rapid recaps. Also, many of the one off tax hikes by the Greek government will have to take on a permanent nature to keep the budget in surplus because growth is nowhere in sight. And, I am not so confident it is possible for Greece to default within the euro.

Anonymous said...

Petty Greek politics aside Varoufakis is a breath of fresh air when compared to the pathetic begging and despairing ennui that passes for Greek economic policy.

However I agree with H that Varoufakis is mistaken in believing that Greece can default within the euro. Without control of its currency Greece cannot pull itself out of the hole it is in and it is delusional to believe that we can suspend or cancel our debt obligations and expect to be retained within the euro.