Tuesday, July 10, 2018

Varoufakis on extend-and-pretend solution to euro and refugee problems

Yanis Varoufakis in an 11-minute interview with Bloomberg News on the two mega-problems that endanger the future of the European Union: the flaws of the eurozone currency construction, and the long-term refugee crisis:


He talks about how the current extend-and-pretend pseudo-solutions to both are are a deceptive mess. (The more I hear about Angela Merkel's recent deal on refugees with her Interior Minister Horst Seehofer, the more I'm impressed with what vapid political theater it is, a non-solution to a non-problem.) Phony solutions are a staple of normal politics, of course. But the EU program for Greece and the Merkel-Seehofer deal are both classic examples of the genre. The first is far more significant, the second more dramatic in its obvious phoniness.

He deals with the extend-and-pretend "solution" to the Greek debt crisis in Profiles in European Denial Project Syndicate 07/29/2018:
When bankers try to cover up bad loans on their books, they extend new loans to enable their insolvent borrowers to pretend to be servicing the original loan. When the new loan is exhausted, the client is allowed to suspend repayment for a few years, with interest accumulating. This keeps the net present value of their asset (the loan) constant while postponing the day of reckoning (when they have to confess to their regulator that the loan is unrecoverable).

Since 2010, Greece’s creditors have been practicing this extend-and-pretend strategy as though they were training for an Olympic event. Instead of a courageous and therapeutic haircut, or the moderate GDP-indexing solution, the Eurogroup’s recent decision, proclaimed as the “end of the Greek debt crisis” boiled down to the apotheosis of this cynical practice.

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