posted on 05 July 2016
Written by John Lounsbury
Former Greek Finance Minister Yanis Varoufakis has published an article in the Journal of Australian Political Economy, No. 77: Creditors Uninterested in Getting Their Money Back. This article was also used as manuscript for a presentation at the University of Sydney. But why would such a condition exist? That we will explore in the following.
Varoufakis maintains that the financial crisis in Greece is not about Greece repaying debt. Once the eurozone was established, he says, German banks no longer were concerned with underwriting standards. Instead loan officers were instructed to make loans wherever they would be accepted in the "euro periphery" up to specified amounts so that these trading deficit countries could continue to buy German exports.
Thus loans were no longer made with an eye toward repayment by the borrower. They were made to provide means to support a high level of German (and other core countries to a much lesser extent) exports.
The bank loan officers didn't care - they were paid to make the loans - not to recover principal and interest. And the money lent in the periphery comes back to Germany as German cars and other goods are bought. Capital builds up in Germany
The process is a self-reinforcing spiral. Varoufakis says:
This type of escalation is exacerbated in a monetary union like the eurozone because they lack the fiscal balancing of the asymmetry between overproducing states (like New York, Texas and California) and underproducing states (like Mississippi, Arkansas and New Mexico) that exists when a monetary union is accompanied by a fiscal union.
Varoufakis asserts that the resolution of the credit crisis with Greece is not what the austerity forced on that country is all about. He says that the objective is to avoid writing down assets (loans held) to the current repayment value. The objective of the entire destruction of Greece is to
Varoufakis has a hypothetical story which explains the utter futility of the Greek resolution process:
But the scheme is not working. Deutsche Bank (DB) is still going down - just later and after Greece has been raped. See the parallel between and Lehman Brothers (from Zero Hedge):
So, let's answer the question: Why would creditors not want to be repaid?
Because if they accepted repayment at any realistic recognition of current asset value (discounted from original loan face value) their insolvency would have to be recognized.
If Greece repaid its debts northern European banks would go belly up!
In 2010 Greek debt could have been restructured at perhaps 50 cents on the dollar (or more with repayment extension to many more years). Today the writedown would have to be much greater and the banks are not in much (or any?) better shape today than 2010.
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