Yanis Varoufakis on fiscal waterboarding and Ponzi austerity
On Friday, Yanis Varoufakis explained why he had accepted Alexis Tsipras’ invitation to run in Athens as a candidate for election to the Greek parliament on the SYRIZA ticket. The link to that explanation is here.
Yanis had a long interview on RT’s Boom Bust yesterday going into detail behind his political candidacy and what he expects SYRIZA to do regarding the unsustainable debt burden that the Greek government now has. Overall, despite his problems with the eurozone’s institutional structure, Yanis believes Greece leaving the eurozone would be a catastrophe for the simple fact that it does not have a currency and any attempt to leave would be seen as a prelude to a massive devaluation, inviting capital flight on a grand scale. This would be a catastrophe for the Greek banking system and wider economy.
Thus, Yanis is resigned to staying within the eurozone and trying to reform the eurozone system from within in order to win back some dignity for the Greek nation and set a course for sustainable economic policy in Greece and throughout the eurozone. He sees the present policy framework as fiscal waterboarding and thinks austerity in Greece is in Ponzi because cuts make the debt burden larger and larger in both real terms and in terms of interest payments, crowding out other fiscal expenditures. Government expenditure has grown in Greece only because the debt burden has done.
My own view here is that credit writedowns are going to be key to debt sustainability. While an extend and pretend compromise toward maturity lengthening and interest rate reduction might be an interim solution going forward, eventually we are going to see principal losses for the ECB as a part of the Troika.