Cyprus Mail
CM Regular ColumnistOpinion

Extend, extend, pretend

Yanis Varoufakis

By Johan van den Kerkhof

Funny how the ECB began shaping its Quantitative Easing/kamikaze programme, in Cyprus of all places. Land of Aphrodite, and as of 2013 the bail-in, whose ostensible purpose was to avoid burdening states with bank debt and let savers take the hit. Depending on the country. Now, two years on, the ECB wants to pump, pardon, print €1 trillion into existence and funnel it into a stagnating EU economy, saddling fiscally-challenged governments with even more debt.

Because that’s what we all need, right? More debt. It’s all extend-and-pretend. Charles Hugh Smith nails it when he writes: “Here’s how extend and pretend works in the real world: if a bank is insolvent, give it unlimited access to unlimited lines of central bank credit and lower interest rates to zero so the bank doesn’t have to pay interest on deposits; if a nation is bankrupt, extend it new loans.”

Suicide bombers, the lot of them, those ECB Keynesians. Printing money out of thin air devalues a currency, but hey whatever. Indeed, that may be the whole point – to print European banks’ and governments’ debt out of existence. And Cyprus is going all happy-clappy about joining the QE programme, even though we shouldn’t be eligible since our government bonds are still rated junk.

Meantime, news that commercial banks are lowering their lending rates – but also their deposit rates let’s not forget – was greeted with cries of delight. Why? It might somewhat relieve some borrowers in their existing loans, but who in their right mind is going to take out a new loan in this climate?

In a rational world, during a depression – which is the correction of a bubble – people take the pain, defer consumption and try to build up savings. It’s savings and investment from those savings that create a healthy economy, not borrowing to infinity. And the sooner you take the medicine, the faster you recover. If not, you’re just sweeping the debt problem under the carpet.

But of course no one wants to hear that, least of all politicians. No politician will tell you, listen, things are tough but you’ve just got to sweat it out.

By the way, to the people who were shouting down the ECB during the demo in Nicosia: instead, why don’t you take your road show to the House, and ask your MPs why in March 2013 they threw out the first Eurogroup proposal, paving the way for the far worse haircut that came later? Not to mention the MPs who the previous year voted to backstop an insolvent Laiki with €1.8bn of your money. Protesting austerity after the fact is a doozy.

Over to Greece. Once the realities of negotiating with the EU ‘partners’ set in, team Tsipras and the flamboyant Varoufakis ran out of hot air. Indeed, as the Greeks like to say, their new government has pulled a ‘kolotoumba’, or a back-flip. But this was no shocker. Yes, Tsipras and co. are guilty, but not for coming to terms with the troika, sorry, institutions. No, it’s because they wussed out. Had they taken matters to their logical conclusion, Greece ought to have repudiated its €320bn debt and ditched the euro.

Now I know some people have a problem with that: you should honour your agreements etc. I couldn’t agree more. But what happens when you just can’t? Varoufakis started out well, but then mucked it up. He came out and said what everyone else knows but refuses to admit: that Greece is bankrupt. Not a cash-flow problem; Greece is bankrupt, bust. But no, it’s back to extend and pretend.

Greece could wipe the slate clean and start over. Initially the country would suffer greatly – aren’t they already? – but gradually return to real, not make-pretend, growth. It’s a nation with huge potential – agriculture, tourism. Although I do concede the point that they can’t exactly be trusted to put their economy in shape on their own.

Back here, a consumer advocacy group is planning a shopping boycott to protest the prices of goods, which refuse to go down despite the drop in fuel and transport costs. This situation is a massive scandal.

There’s something else that’s been bugging me: the haircut wiped some €8bn out of the economy, I’m talking only about the savings. If there’s a lot less money chasing the same goods and services, logically shouldn’t prices drop – and dramatically? Any economists or ‘experts’ out there who want to get out of their little work cubicles and check this out?

Lastly, a plea to our tech-savvy youngsters: we’ve got to have alternative media. Enough of the same clichéd TV shows, where the panel of guests has to include a politician. Guys, get your own podcasts going, invite interesting people for a chat. Politicians shall be barred.

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