Euro breakup has been delayed, not averted

Taming Greece's debt crisis under the plan announced this week would take a string of miracles - and miracles have been in short supply lately. By Yanis Varoufakis.

According to the official narrative, the euro was saved (again) by preventing a ‘disorderly’ Greek default and against the background of Mario Draghi’s Central Bank ‘activism’. So much for the official narrative. In my own estimation, the sight of our leaders proclaiming such victory against the crisis has a strong whiff of the moment Neville Chamberlain returned from Munich to tell a relieved British public that agreement had been struck and to promise them “Peace in our time.”

All he had achieved, of course, was to buy time for war to become stronger, more menacing, lethal beyond comprehension. Similarly, our European leaders indulged only in a form of appeasement. Not of Germany (since our leaders are, for better or for worse, Germany) but of the crisis. A crisis that is, under the cover of inane celebrations of ‘resolution’ and ‘bailouts’, growing ever stronger, more divisive, more efficient in the manner in which it eats into the very foundations of the Eurozone.

While the claim that the euro has been saved needs only to be stated to realise its flimsiness, I shall brandish three exhibits:

First, the IMF’s own sustainability study regarding Greece’s debt dynamics, which makes it abundantly clear that to tame Greece’s debt crisis under the present plan it would take a string of miracles; of the sort that the post-2008 world is rather short of.

Secondly, while spreads have been declining (due to Mr Draghi’s spectacular open-handedness towards the banks - i.e. LTRO), the true nature of the combination of increasing internal Eurozone imbalances and of a complete breakdown in the Eurozone’s inter-banking system can be gleaned from the burgeoning Target 2 figure of the European System of Central Banks. Börsenzeitung reports that €511 billion is now the sum owed by the Central Banks of the deficit countries to those of the surplus ones (essentially to the German and Dutch Central Banks). A euro breakup may have been delayed by the ECB’s LTRO but the growing Target 2 figure is a sign that all we are witnessing is crisis appeasement.

Thirdly, at a time of pan-European recession (which is disproportionately distributed) the complete and utter lack of any policy to shift idle savings into productive investments (especially in the deficit regions) is the modern equivalent of imagining that peace can be willed when the gods of war have taken over the powers that be. Don’t take my word for it. Here is Der Spiegel making this point quite succinctly.

Image top: Πρωθυπουργός της Ελλάδας