Greece and the EU: a question of trust

Της Frances Coppola

I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement – only the target for this year is under review – seemed particularly harsh.

But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We’ve all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines – he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago.

The most obvious breakdown in trust happened in 2010 when the extent of Greece’s indebtedness was revealed – and the lengths to which it had gone to conceal its true position. With the help of Goldman Sachs, it had lied about its finances to gain admission to the Euro in 2001, and had been living a lie ever since.  

What on earth is the ECB up to?

by Frances Coppola

The ECB has abruptly announced withdrawal of the “waiver” under which it was prepared to accept Greek sovereign bonds as collateral for liquidity. This created a considerable Twitter storm, with lots of angry people saying the ECB’s action was beyond its mandate and far too precipitate: it should at least have waited for the Greek Finance Minister, Yanis Varoufakis, to meet his German counterpart, and it should not be acting as if the bailout programme was ended when negotiations were still proceeding. I admit, I was one of those people.

And I stand by my views. The ECB is acting far beyond its mandate in seeking to influence negotiations between Eurozone member states regarding the terms and conditions under which member states lend to their distressed partners. It has no business interfering in fiscal policy: if the Greek government decides to run 1.5% fiscal surpluses instead of 4.5%, hike minimum wages and create lots of government jobs, it is none of the ECB’s business. The ECB’s monetary policy failures are legion: it should put its own house in order, rather than interfering with the conduct of fiscal policy. And worse, its persistent interference in fiscal policy is a clear conflict of interest, as the Advocate General of the European Court of Justice noted in relation to the OMT programme. It should not be a member of the Troika at all, and certainly should not use changes in fiscal policy by a democratically-elected sovereign government – even one that has inherited an economy in tatters with a massive debt burden – as justification for limiting liquidity to that country’s banking system. Monetary policy should never be used to serve fiscal or political ends. Not ever. 

Ένας μηχανισμός φαύλου κύκλου από την ΕΚΤ

 
του system failure

Η αυξανόμενη δύναμη της Ευρωπαϊκής Κεντρικής Τράπεζας (ΕΚΤ) και η συσσώρευση εξουσιών, αποδείχθηκε άλλη μια φορά. Eννέα Ιταλικές τράπεζες απέτυχαν να περάσουν τα τελευταία stress tests. Από το Bloomberg:

“Οι Ιταλικές τράπεζες παρουσίασαν την μεγαλύτερη κεφαλαιακή ανεπάρκεια συνολικά, σύμφωνα με την επιθεώρηση της Ευρωπαϊκής Κεντρικής Τράπεζας για τους δανειστές της περιοχής, καθώς η χώρα παλεύει να βγει από την τρίτη της ύφεση σε έξι χρόνια. […] Από τις εννέα Ιταλικές τράπεζες που απέτυχαν στα stress tests, τέσσερις παρουσίασαν κενά μετά από μέτρα που πήραν κατά τη φετινή περίοδο, σύμφωνα με την αναφορά της ΕΚΤ.”