The Corner

Varoufakis: ‘I Wish We Had Never Entered This Monetary Union’

Talks on Greece’s financial future drag on, but, as always, the most important number to watch is the cash flowing in and out of Greek banks (although the fact that the economy has slipped back, yet again, into recession won’t help).

Bloomberg News (my emphasis added):

Deposits at Greek Banks seem to have dropped by 20 percent since September; Bloomberg’s Athens bureau chief Nikos Chrysoloras reports that outflows may have quickened to as much as 7 billion euros ($7.8 billion) last month, which would leave just 131.6 billion euros in the banking system…

As a result, the European Central Bank has increased the emergency liquidity assistance it’s providing to Greek banks by 35 percent since the start of February. But the ECB can’t be pleased that a contingency program designed to temporarily ease distress has become the only thing standing between Greek banks and insolvency.

Pleased? Not exactly . . .

And Germany’s Bundesbank is the least pleased of all:

In an interview with Handelsblatt, Bundesbank President Jens Weidmann said, “Given the ban on monetary financing of states, I don’t think it’s OK that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself.”

Weidmann still believes (or pretends to believe) that the rule of law counts for something in the management of the euro zone.

And where’s the cash going?

Macropolis (my emphasis added):

An important element of the withdrawals evident so far is related to the evolution of the currency in circulation, which is provided by the Bank of Greece (BoG) on a monthly basis. The BoG data showed that the currency in circulation – equivalent to M0 – rose from a recent low of 30.1 billion euros at the end of November to 41 billion at the end of March. Banking sources say it rose even more during the course of April. This movement over the 4-month period corresponds to an increase of 10.9 billion euros – or 40.6 percent of outflows. The bulk of this amont relates to cash Greeks have started keeping under mattresses and in bank vaults or safety boxes amid increased fears about the imposition of capital controls or the collapse of talks between the government and lenders.

Meanwhile, Greece continues to meet its obligations as creatively as it can.

Project Syndicate:

By drawing on its holdings in an International Monetary Fund reserve account, it was able to repay €750 million ($851 million) — ironically to the IMF itself — just as the payment was falling due.

Ironically!

Oh, there’s this (via Bloomberg):

Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank.

Meanwhile Yanis Varoufakis, the puffed-up Marxist clown now acting as Greece’s finance minister, actually gets a few things right:

“I wish we had the drachma, I wish we had never entered this monetary union,” Varoufakis said. “And I think that deep down all member states with the eurozone would agree with that now. Because it was very badly constructed.

And then he blows it:

But once you are in, you don’t get out without a catastrophe.

Not necessarily so. The best way to start the long overdue dismantling of the euro (even Finland is beginning to feel the strain) would, yes, be to split it into two, northern and southern. Greece going it alone would be riskier (certainly for Greece) but then staying within the currency would be more bed of Procrustes than bed of roses. It wouldn’t be easy, but on balance Greece would be better off out, default and all.

If I had to guess, however, Greece will stay in the euro for now (its ‘partners’ will do anything to avoid denting the ‘irreversibility’ of the single currency), and limp on with a slightly easier reform program, new cash and yet more debt extension. 

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