"What If Berlin
And Frankfurt Do Not Budge" - How Varoufakis' Saw The "Worst Case
Scenario"
Submitted by Tyler Durden on 07/01/2015 12:55 -0400
Over a year ago, and long before he became the mascot
for fraught negotiations between Greece and its creditors, Yanis Varoufakis
penned a lengthy essay on what might happen should the Greek government decide
to stand firm in the face of pressure from Brussels, Frankfurt, and Berlin.
Earlier today we learned that in fact, Greece will
stick to its negotiating position even in default and will remain defiant to
the end, or at least until the voters who swept PM Tsipras and Varoufakis into
office indicate at the ballot box that concedeing the Syriza campaign mandate
is an acceptable outcome. With the government urging Greeks to vote
"no", the Tsipras and Varoufakis' gambit will be put to the test next
week, or perhaps even as early as this afternoon when the ECB could decide to
effectively bring the Greek banking sector to its knees.
In this context, we bring you Yanis Varoufakis' vision of the endgame, straight from the embattled FinMin himself:
That Greece has the right and the opportunity to
deploy these bargaining cards there is no doubt. The important question is
this:
What if Berlin and Frankfurt do not budge? What if they tell
Athens to ‘go jump of the tallest cliff’?
The Greek government
currently claims that it has a budget surplus. While I strongly doubt this
claim, I suspect that a small primary surplus can be concocted through some
additional cost cutting and a leximin squeeze of top public sector incomes
downwards (without affecting the lowest incomes, pensions and benefits). That
should suffice to allow the Athens government to meet its needs during any
medium term standoff with Berlin and Frankfurt, as the Greek state will need no
financing either from the official sector or from the money markets. In
short, the answer to a German “Go jump” can be: “We shall not jump but we shall
stay rock solid within the Eurozone and behind our demand for a debt conference.
Just watch us.”
Berlin and Frankfurt will, undoubtedly, be furious.
They will issue a variety of threats, including the suspension of structural
fund flows from Brussels. But the real battleground will be the banks. As
they did with Cyprus, where they threatened the government with an immediate
suspension of the island nation’s ELA, so too in the case of Greece they will
threaten to pull the plug on the Greek banks. Two points need to
be made here. First, the Greek banks no longer hold any Greek government debt,
which means that their collateral with the European System of Central Banks
cannot be downgraded legally. Secondly, Frankfurt will have to think twice
before it issues the threat of bending its own rules to close down Greek banks
– since doing this would threaten to engulf the whole of the Periphery’s
banking system into another cascading panic.
Confronted with such a reality, I have good cause to
hope that Berlin will prefer to accommodate the Greek government and to look
with a great deal more ‘kindness’ the ‘request’ for a debt relief conference. And
if it does not, and wishes to bring the Eurozone down with it, let it do its
worst, I say.
With Brussels and especially Berlin having now run
fresh out of "accommodation", we shall shortly see if the ECB intends
to "pull the plug."
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