Cyprus Mail
Opinion

Varoufakis is no King Edward III

Greek Finance Minister Yanis Varoufakis singled out former ECB President Jean-Claude Trichet for criticism regarding the bonds

By Hermes Solomon

Anyone with their eyes even partially open could see that the vast differences in productivity, credit, risk and culture between the eurozone nations made the euro unworkable from the start. A single currency is a nonsense without fiscal unity.

Greece just blew up the Death Star of debt, and now the threat has been lifted from other debtor nations suffering from the yoke of Imperial misrule.

Historically kings borrowed to finance their wars, this practice becoming the origin of ‘public debt’.

Kings tried everything to rid themselves of their debts – raising taxes, bankrupting their lenders – some were imprisoned or even assassinated. But the most favoured solution was simply to refuse to reimburse lenders.

At the beginning of the Hundred Year War, the Italians – Florence, Genoa and Venice – became the bankers of Europe. But in 1346, when Edward III of England could no longer repay his debts, the great Florentine financiers, Bardi and Peruzzi, (today’s Deutsche Bank and UBS) were declared bankrupt.

In 1918, the Bolsheviks repudiated the debts of the Czars. More than one and a half million French investors in Russian debt, ‘guaranteed’ by the French government, were ruined.

After World War I, reparations were added to Germany’s huge public debt and the currency collapsed. To counteract the collapse, the German chancellor flooded the market with paper (quantative easing) in 1923. This provoked hyperinflation and devaluation – in just several months the ‘paper’ was worth one hundredth of its original value.

The explosion of public debt after deregulation of the world economy has haunted Europe ever since the financial crisis of 2007; the sub-prime (crime) crisis was no more than a Ponzi scheme, which is still alive and well in today’s banks.

The risk of a Greek default and its contagion has been badly handled by Brussels/Berlin, where EU member states are rarely in agreement and too hesitant to take remedial action.

Austerity has temporarily stopped the haemorrhaging of public deficits, but has brought Med economies to their knees and forced upon them mountains of unsustainable debt.

Today we all live on credit: houses, cars, education and public expenditure – everything is financed by loans.

Who makes these loans available if not banks? And just where do bank profits go if not into offering even greater loans? And so the wheel of fortune turns ever increasingly in favour of the banks and against government treasuries and the man in the street.

A spiral of unsustainable debt emerges when public debt exceeds GDP as it does today in Greece, which began taking ECB loans when their public debt in 2010 was standing at ‘only’ 105 per cent of GDP – today it’s 175 per cent.

So what was the 1992 Maastricht ‘criteria of convergence’ all about if only Germany sticks to the rules?

Public debt must not exceed 60 percent of GDP and annual inflation three per cent – thus avoiding runaway inflation and keeping the euro in your pocket worth a euro – well, more or less!

It was hoped that EU grants, subsidies and loans would bring Club Med up to scratch. But as we all now know, the mafias of the south mopped up these ‘gifts’ and sent them to tax havens – silly Brussels for not watching!

In almost all the eurozone’s member states the public debt exceeds the Maastricht criteria.

It does in Holland, France and Finland as wells as Portugal, Italy, Ireland and Spain (PIIGS) and Cyprus. And in the UK, which is not in the eurozone, it sits around 100 per cent of GDP. It’s almost as indebted as was Greece when it sought aid and the troika strolled in with its austerity ‘trap’ after discovering that Goldman Sachs had rigged the Greek treasury’s balance sheet.

The hundreds of billions of euros in so-called bailouts did not help Greece, but instead bailed out imprudent lenders and Euroland Elites.

The ‘fright’ of Yanis Varoufakis, Greek minister of finance, infecting the eurozone with his ‘old wave’ economics has met a brick wall in Germany’s minister of finance, Wolfgang Schäuble.

We have three choices: print money, increase austerity by cutting public expenditure further and increasing taxes (which has not worked in PIIGS) or else annul part of the debt of the indebted.

Crazy as it sounds, annulation seems the only way forward, and that can be brought about by extending loans to year 2100 or beyond, hoping that the indebted pay the interest and carry forward the capital, when inflation of 2 per cent annually over the next 85 years will make the capital sum worthless.

And that’s what economist Varoufakis wants. He also wants to hit the rich, asset value then back tax them, adding huge penalties for tax evasion – Greek bankers, the ‘professions’ and all Greek industrialists and shipping magnates.

If the EU were to follow ‘the dirty money’, Lichenstein, Luxembourg, Monaco, the Cayman Islands, etc. would be out of business and billions upon billions would flow back to where it belongs – into government treasuries to pay off part of their spiralling debts.

The alternative is to keep printing until the paper is worth one hundredth of what it was worth twenty years ago – hyperinflation – tough on savers, pensioners and major western banks, which today are technically insolvent sitting on 17+ trillion dollars in proliferating unsecured derivatives.

Greece cannot exit the euro for fear of forcing a Club Med domino. Varoufakis is not King Edward III of England and cannot refuse to reimburse lenders. Greece cannot bankrupt lenders, imprison or assassinate (blackmail) them. Greece will come to ‘an arrangement’ with its lenders which will satisfy all parties – temporarily.

 

 

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