Saturday, May 30, 2015

Greeks say they will pay the IMF as capital flight hits record

By Mehreen Khan 29 May 2015

Athens' economics minister says country will not default next week as bank deposits hit a 10-year low 

Greece's economy minister has said the country will avoid a default next Friday, promising to make its latest loan repayment to the International Monetary Fund. 

Syriza's Giorgos Stathakis said the cash-strapped government would pay back €304m on June 5 after weeks of threats that it would default in favour of continuing to pay its public sector workers. Mr Stathakis added there was only "a one-way street" to an agreement with the country's creditors. 

The promise came as Greece's financial system continued to bleed money last month. Ordinary Greeks rushed to pull their money out of the country's banking system, with figures showing private sector bank deposits shrank by €4.6bn in April to €133.6bn, their lowest level since October 2004. 

Greece's beleaguered banks have lost more than 15pc of their total deposits since December 2014 when snap elections were called to resolve the country's future in the Eurozone.
The bail-out uncertainty has also seen economic fundamentals degenerate. Greece fell back into recession at the start of the year, with official figures confirming GDP contracted by 0.2pc in the first quarter. 

Business investment has also ground to a standstill in 2015, falling in by 7.5pc in the first quarter. Greek exports also shrunk by 0.6pc, according to figures from the country's official statistics body, Elsat. 

Athens' Leftist government has been locked in a four-month negotiating stalemate with its international creditors over securing the release of €7.2bn in rescue loans. 

The International Monetary Fund warned on Thursday that Athens would not receive any partial disbursement of funds until it signs up to a "comprehensive" package of reforms.
Despite Mr Stathakis's claims, IMF chief Christine Lagarde suggested that talks between the two sides had deteriorated in recent days. 

"It's very unlikely that we'll reach a comprehensive solution in the next days," admitted Ms Lagarde.
More bad news for Greece: everyone's buying cars worse
Greek economy is bleeding 600 jobs a day, €22m in GDP
Yanis Varoufakis, Greece's finance minister, said the final deadline for an agreement was June 30 - when Greece's current bail-out programme expires. 

The comments echoed his German counterpart Wolfgang Schaeuble who hinted that Greece would leave the euro without a new deal after the end of next month 
"That is the status quo. There is lots of technical work being done, but the programme will run until the end of June," said Mr Schauble. 

"The positive news we are hearing from Athens does not correlate with what we know from the institutions." 

There are fears among European creditors that the IMF is poised to pull out of any new bail-out extension for the debtor country after the summer. 

Mr Varoufakis also maintained that his government would not impose “permanent recessionary measures”, including VAT hikes, being demanded by its lenders. 

  
"We are moving towards the moment in which one of the two sides presents a take-it-or-leave-it offer," said Carsten Breszki of ING. 

"Even if the current negotiations would come to a close in the coming days, it would not be the end of the Greek saga; only the end of part one." 

Greece's banks have been propped up by emergency liquidity from the European Central Bank since February. The ECB has been forced to hike its cash ceiling on a near weekly basis, but has the power to remove the funds if it deems the financial system to be insolvent. 

Former US treasury secretary Larry Summers warned a "Grexit" would leave rest of the continent "looking into a real abyss". 

"Greece has got to get more serious, determined and clear on the reforms that it can take," said Mr Summers. "But the Europeans need to recognise that there are limits to the degree of austerity that can be imposed. 

"Ultimately debt problems get solved through growth, not just through austerity."
The latest GDP figures confirm Greece has suffered the worst recession in Europe since the Great Depression

Following talk from the IMF's chief economist and Ms Lagarde that the continent could cope with the after-effects of a Grexit, rating's agency Moody's warned a Greek departure "would change the face and the nature of monetary union". 

Simon Tilford, of the Centre for European Reform, said: "A Greek exit will end the irreversibility of membership". 

"Unless it acts as a catalyst for closer integration, the risk is that the Eurozone will come to look like an exchange rate mechanism rather than a currency union."

Greeks say they will pay the IMF as capital flight hits record - Telegraph

Greeks say they will pay the IMF as capital flight hits record

By Mehreen Khan 29 May 2015

Athens' economics minister says country will not default next week as bank deposits hit a 10-year low

Greece's economy minister has said the country will avoid a default next Friday, promising to make its latest loan repayment to the International Monetary Fund.

Syriza's Giorgos Stathakis said the cash-strapped government would pay back €304m on June 5 after weeks of threats that it would default in favour of continuing to pay its public sector workers. Mr Stathakis added there was only "a one-way street" to an agreement with the country's creditors.

The promise came as Greece's financial system continued to bleed money last month. Ordinary Greeks rushed to pull their money out of the country's banking system, with figures showing private sector bank deposits shrank by €4.6bn in April to €133.6bn, their lowest level since October 2004.

Greece's beleaguered banks have lost more than 15pc of their total deposits since December 2014 when snap elections were called to resolve the country's future in the Eurozone.











The bail-out uncertainty has also seen economic fundamentals degenerate. Greece fell back into recession at the start of the year, with official figures confirming GDP contracted by 0.2pc in the first quarter.

Business investment has also ground to a standstill in 2015, falling in by 7.5pc in the first quarter. Greek exports also shrunk by 0.6pc, according to figures from the country's official statistics body, Elsat.

Athens' Leftist government has been locked in a four-month negotiating stalemate with its international creditors over securing the release of €7.2bn in rescue loans.

The International Monetary Fund warned on Thursday that Athens would not receive any partial disbursement of funds until it signs up to a "comprehensive" package of reforms.

Despite Mr Stathakis's claims, IMF chief Christine Lagarde suggested that talks between the two sides had deteriorated in recent days.

"It's very unlikely that we'll reach a comprehensive solution in the next days," admitted Ms Lagarde.

More bad news for Greece: everyone's buying cars worse

Greek economy is bleeding 600 jobs a day, €22m in GDP

Yanis Varoufakis, Greece's finance minister, said the final deadline for an agreement was June 30 - when Greece's current bail-out programme expires.

The comments echoed his German counterpart Wolfgang Schaeuble who hinted that Greece would leave the euro without a new deal after the end of next month.

"That is the status quo. There is lots of technical work being done, but the programme will run until the end of June," said Mr Schauble.

"The positive news we are hearing from Athens does not correlate with what we know from the institutions."

There are fears among European creditors that the IMF is poised to pull out of any new bail-out extension for the debtor country after the summer.

Mr Varoufakis also maintained that his government would not impose “permanent recessionary measures”, including VAT hikes, being demanded by its lenders.



"We are moving towards the moment in which one of the two sides presents a take-it-or-leave-it offer," said Carsten Breszki of ING.

"Even if the current negotiations would come to a close in the coming days, it would not be the end of the Greek saga; only the end of part one."

Greece's banks have been propped up by emergency liquidity from the European Central Bank since February. The ECB has been forced to hike its cash ceiling on a near weekly basis, but has the power to remove the funds if it deems the financial system to be insolvent.

Former US treasury secretary Larry Summers warned a "Grexit" would leave rest of the continent "looking into a real abyss".

"Greece has got to get more serious, determined and clear on the reforms that it can take," said Mr Summers. "But the Europeans need to recognise that there are limits to the degree of austerity that can be imposed.

"Ultimately debt problems get solved through growth, not just through austerity."

The latest GDP figures confirm Greece has suffered the worst recession in Europe since the Great Depression.

Following talk from the IMF's chief economist and Ms Lagarde that the continent could cope with the after-effects of a Grexit, rating's agency Moody's warned a Greek departure "would change the face and the nature of monetary union".

Simon Tilford, of the Centre for European Reform, said: "A Greek exit will end the irreversibility of membership".

"Unless it acts as a catalyst for closer integration, the risk is that the Eurozone will come to look like an exchange rate mechanism rather than a currency union."

ELSTAT confirms another recession in Greece. And it was already doing worse than the US Great Depression.











Greeks say they will pay the IMF as capital flight hits record - Telegraph

Friday, May 29, 2015

IMF warns of Grexit threat as judgment day approaches

By Mehreen Khan 28 May 2015

Christine Lagarde admits "it's very unlikely that we'll reach a comprehensive solution in the next days", as talks take Athens to the edge of default


Creditors have burst Greece's bubble as finance ministers gather in Dresden for the G7

The International Monetary Fund has hinted Greece could be forced out of the Eurozone, as the country edges closer to judgment day with its foreign creditors.

IMF chief Christine Lagarde admitted she could not “preclude” a "potential" Greek exit, after four months of tortuous bail-out talks that have failed to get both sides closer to a deal to release aid to the country.

“No one wishes the Europeans a Grexit,” Ms Lagarde told Germany’s Frankfurter Allgemeine Zeitung, suggesting that Greece is closer to leaving the single currency than ever before.

Extinguishing hopes in Athens that the two sides were ready to draft an agreement by the end of the week, Ms Lagarde said recent optimism over the country's future had “sobered”. 

Creditors dash optimism as US warns of an 'abyss' of a euro exit

ECB hands Greeks a reprieve as banks teeter on the brink

"It's very unlikely that we will reach a comprehensive solution in the next few days”, said Ms Lagarde, as G7 finance ministers and central bankers met in Dresden on Thursday.

She added that the prospect would not be "a walk in the park" for the single currency, but would "probably not be an end to the euro”.

Her comments reveal the mounting frustration among Greece’s paymasters at the Leftist government’s failure to cede ground over its promises to raise pensions and carry out labour reforms.

Athens has long warned it will be unable to fulfil a €300m loan obligation to the International Monetary on June 5, without external aid from its creditor powers.

However, both the IMF and European Central Bank ruled out providing any part of the €7.2bn tranche of emergency cash without a “comprehensive” deal being struck between the parties.

Ms Lagarde has previously warned there would be no “quick and dirty” deal for Greece, raising fears that the Fund is poised to pull out of a future aid package after the summer.

"We have rules, we have principles. There can be no half-baked program review,” said Ms Lagarde.

An IMF withdrawal would leave the entire financial burden of the country’s rescue on European powers - a possibility which seems to have been resolutely ruled out by the bloc’s largest creditor, Germany.

Ms Lagarde's comments came as the ECB warned Greece’s default risk had "increased sharply” and markets could be jolted out of their “muted” response to the country’s woes.


Ms Lagarde has not committed the Fund to a further Greek bail-out

“In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialise” noted the ECB’s bi-annual financial stability report.

ECB governing council member Ewald Nowotny said on Thursday there was no “legal possibility” for Greece to be given some form of bridging financing to meet its immediate cash crunch in June.

"We do not have flexibility to do, let’s say, some financing outside our rules,” said Mr Nowotny, who is also Austria’s central bank governor.

“I know that there have been some ideas floating around that we might give some interim financing just like that. I don’t see any legal possibility for that.”

Failure to pay the IMF next Friday would see Greece fall into a silent arrears process that could last up two months before an official default is declared. 

What happens if Greece defaults to the IMF?

Should the government manage to make the latest payment, it would still face another three payments totalling €1.3bn over the course of June 12 to June 19.

Grouping the repayments together has been touted as a possible way Athens could manage its repayment schedule. This was a strategy last used by debtor nation Zambia in the 1980s.

But the Leftist government seemed to dismiss the prospect of consolidating its loans, in the absence of an agreement.

Despite hopes of an imminent deal fading, Greece maintained that it hoped for an agreement to be struck by Sunday, according to a government spokesman.

The optimism came as the country marked its 36th anniversary of EU membership.



IMF warns of Grexit threat as judgment day approaches - Telegraph

Greece might quit euro, says Lagarde: IMF chief remarks are starkest warning yet country will be force to abandon currency if it cannot meet its debts

By Peter Campbell for the Daily Mail 29 May 2015
  • Greece could leave Euro head of the International Monetary Fund warned
  • Christine Lagarde’s remarks are the starkest warning yet that Athens will be forced to abandon the single currency if it fails to repay its debts
  • But she added that the single currency would ‘probably’ survive Greek exit

Greece could leave the Euro, the head of the International Monetary Fund warned publicly yesterday.

Christine Lagarde’s surprisingly unguarded remarks are the starkest warning yet that Athens will be forced to abandon the single currency if it fails to repay its debts.

But she added that the single currency would ‘probably’ survive a Greek exit – known as a ‘Grexit’ – from the euro.



Christine Lagarde’s (pictured) remarks are the starkest warning yet that Athens will be forced to abandon the single currency if it fails to repay its debts but she said the Euro could probably survive Grexit

With Britain set to hold a referendum that could see it leave the EU within two years, experts last night said chinks were beginning to show in the European project.

Athens must repay £1.1billion to a host of lenders by the end of the month or risk bankruptcy.

The deadline had originally been June 5, but was yesterday pushed back again as both sides are locked in talks.

Greece has to make the repayments in order to unlock £5billion of bailout money, which it needs to keep paying public wages.

Without the money, the country has said it will default on its debts – a move that many believe will force it to leave the single currency.

But after four months of talks with the IMF, the European Central Bank and the European Commission, Greece is no closer to an agreement that would allow it to get the money.

Its lenders have been growing increasingly frustrated at the far-left government Syriza’s unwillingness to impose spending cuts and trim public sector pensions.

Speaking during a crisis meeting among G7 finance leaders Mrs Lagarde yesterday said: ‘It's very unlikely that we will reach a comprehensive solution in the next few days.’



A group photo at the G7 meeting of Finance Ministers in the Royal Palace in Dresden,Germany


She added: ‘A Greek exit is a possibility.’

But she said an exit would ‘probably not be an end to the euro’.

The European Central Bank yesterday warned that the risk of Greece defaulting on its debts had ‘increased sharply’ in recent days.

Greek interior minister Nikos Voutsis warned over the weekend that Athens does not have the money to make the repayments.

He said: ‘This money will not be given and is not there to be given.’

Stock market commentator David Buik from Panmure Gordon yesterday accused Christine Lagarde of ‘sabre-rattling’.

He said: ‘Chancellor Merkel and the bunch of irresponsible EU politicians need to realise that Greece is broke, and that hell has a better chance of freezing over than Greece has of maintaining its financial status.

‘To let them go shows that the European dream is over.

‘If you want the European dream to work you’re going to have to swallow it, write off their debts and stop wasting our time.’

Robert Oxley, campaign director for Business for Britain, said: ‘A Greek exit from the euro would not only send shock waves throughout the continent, it would demonstrate the fundamental flaws in the single currency, which have yet to be addressed.’

The Chancellor previously warned that a ‘Grexit’ would have ‘very serious consequences’ for Britain’s economy.

The former head of the US central bank Alan Greenspan has also said Greece would be forced out of the euro if it defaulted.

Speaking in February, he said: ‘Greece’s position is if they don’t get additional loans they will default and leave the Euro.

‘I don’t see any people willing to put in their funds having been disappointed so often.’



Greece might quit euro, says Lagarde | Daily Mail Online

Thursday, May 28, 2015

Markets jump as Alexis Tsipras says Greece is on the 'final stretch' towards bail-out deal

By Mehreen Khan 27 May 2015

Hopes of a draft agreement with creditors is dismissed by European officials after warnings from the White House over a Greek "accident" 


Alexis Tsipras has said a deal is near after four months of talks with creditors 

European creditors dashed hopes that Greece was finally nearing the end-stage of its bail-out negotiations, insisting both sides remained far apart on securing the embattled country’s future in the Eurozone. 

Greek stock markets jumped after comments from prime minister Alexis Tsipras that the country was "close" to a deal, following reports the two sides had begun the process of drafting an agreements 



"We have made many steps. We are on the final stretch towards a positive deal," said Mr Tsipras. 

"This agreement will be positive for the Greek economy, this agreement will redistribute the [financial] burdens and I believe that, very soon, we will be in a position to present more information," said the Leftist premier. 

Athens' benchmark closed nearly 4pc up on the day. 

View image on Twitter
 
Alexis Tsipras @tsipras_eu
We are negotiating to obtain secure & stable conditions, in advance, for #Greece's economy. http://goo.gl/pnPLxM
3:36 AM - 28 May 2015
His comments came as officials met for talks in Brussels over the country's bail-out conditions.
But European officials moved to immediately dampen hopes that an agreement was imminent. Vice president of the European Commission Valdis Dombrovskis said both sides were "still not there yet". 

“We are working very intensively to ensure a staff-level agreement," he said.
• Spain risks euro split over radical new ECB mandate
Finland embarks on 'painful' austerity blitz
Athens’ Leftist government has maintained it will not cede to creditor demands to overhaul its VAT system, slash pensions, and implement labour market reforms which make it easier to fire workers. 

France’s finance minister Michel Sapin said commitments had yet to be “put on paper”. Eurozone officials are due to hold a teleconference on Thursday to further discuss the country's reform efforts. 
Securing a release of €7.2bn in bail-out funds is crucial if Athens is to continue meetings its domestic and international obligations. 

The country faces a €1.6bn payment to the IMF in June - a bill which the Leftist government has vowed to miss in favour of paying out its public sector salaries and pensions.
Mr Tsipras added his government would fulfil its latest monthly wages and pensions obligations at the end of the week. 

Greece’s turmoil has caused concerns at the highest levels of political diplomacy. US treasury secretary Jack Lew warned that any minor miscalculation could "lead to a crisis that could be potentially very damaging". 

Dismissing the notion that the fallout from a "Grexit" could be contained, Mr Lew urged both sides to "double down" and strike an agreement. 

"Brinkmanship is a dangerous thing when it only takes one accident. Everyone has to double down and treat the next deadline as last deadline and get this resolved," said Mr Lew.
Former US treasury secretary to Bill Clinton, Larry Summers added the failure to strike a deal would leave Greece “facing an abyss”. 

The country's four-month stalemate has seen capital flee the country as ordinary Greeks have rushed to withdraw their money from the country's banks. According to reports, an estimated €5bn left the financial system in April, up from only €1.9bn in March. 

The European Central Bank has been drip feeding liquidity to the banks to keep them solvent. In its latest decision on Greece, the ECB decided to leave its emergency funding ceiling unchanged at €81.1bn. 

Although polls show most Greeks still wish to remain part of the euro, the mood in the country suggest support for the single currency is 

"more flimsy than opinion polls suggest", said Gabriel Sterne of Oxford Economics. 

“The best way to characterise Greek popular opinion is ‘angrily resigned’ to seemingly endless economic misery," said Mr Sterne. 

“There is universal anger over creditor treatment given previous fiscal effort and an acceptance that the country is near-bankrupt.”

Markets jump as Alexis Tsipras says Greece is on the 'final stretch' towards bail-out deal - Telegraph

Wednesday, May 27, 2015

The incommensurate aims of the Greek people

I am continually amazed at the arrogance of the Eurozone leaders who in the face of palpable professional failure hold a straight face and continue to advocate the same disastrous policies as if nothing had happened over the last 7 years. I don’t believe they suffer from – cognitive dissonance. I think they know full well what they are doing and they personally do very well out of the chaos their policies are causing. But it is almost certain that the Greek people are suffering from a cognitive disorder brought on by historical experience and, more recently, by the media onslaught that has erroneously claimed that there would be catastrophic consequences if Greece dared to leave the Eurozone and restore currency sovereignty. The stated aims of the Greek people are incommensurate and there doesn't appear to be a broad debate going on in Greece, which might make that inconsistency transparent.
The latest – opinion polling – from Greece with respect to the standing of the parties shows that:
Syriza has a 20.2% lead over main opposition New Democracy (ND) … Asked about their voting intentions, 36.7% of respondents said Syriza, 16.5% ND, 6.1% To Potami, 5.4% Golden Dawn, 3.9% KKE, 3.1% Independent Greeks and 2.5% Pasok.
57% of respondents prefer Alexis Tsipras as Greek prime minister, 21% prefer Antonis Samaras while the 18% answered none of them.
So the sentiments that were manifest at the January national elections have persisted except that New Democracy appears to have lost support. Certainly, Syriza’s support has not seemed to change at all.
At the January 25, 2015 legislative election the standings of the parties were:
1. Coalition of the Radical Left (SYRIZA) 36.34 per cent
2. New Democracy (ND) 27.81 per cent
3. Golden Dawn (ΧΑ) 6.28 per cent
4. The River (Potami) 6.05 per cent
5. Communist Party of Greece (KKE) 5.47 per cent
6. Independent Greeks (ANEL) 4.75 per cent
7. Panhellenic Socialist Movement-Democratic Alignment (PASOK-DP) 4.68 per cent
8. Movement of Democratic Socialists (KIDISO) 2.46 per cent
9. Union of Centrists (EK) 1.79 per cent
10. Teleia (Apostolos Gkletsos) 1.77 per cent
The respondents were also sure (mostly) that the Greek government would come to some sort of agreement with the Troika:
46% believe that there will be an agreement between the Greek government and lenders, 29% answered “probably yes”, 9% answered “no”, 10% answered “probably not”.
Although a significant minority did not think that the process reflected what we might call “negotiations”:
On the question whether the government has negotiated hard with Greece’s lenders 43% answered “yes”, whereas 29% said that the negotiation was “non-existent” …
Another poll was reported on May 11, 2015 from enikos.gr which told us that – More than 85% of Greeks want to stay in Eurozone.
Only “12.2% wish the opposite”.
Further, contrary to the other poll:
Nearly 75 (74.1%) of respondents think that Greece and its Euro partners will try to find a common ground and reach an agreement with mutual concessions, while just 20.6% thinks the opposite.
And:
More than 70% (71.9%) of respondents says the Greek government should make mutual concessions in order for Greece to remain in the Euro zone.
But then you read that the Greek people still have a so-called ‘red-line’ when it comes to the type of reforms that are tolerable.
1. 91.7 per cent of the respondents thought that the Greek government “should not accept an increase in VAT (Value-Added Tax) concerning basic commodities, 89.4% is against salary reductions and 85.8% against pension cuts”.
2. “More than 7 out of 10 of the respondents (75.2%) think the government should not accept the reduction of Social Solidarity Benefit for Pensioners (EKAS) or the reduction of the number of people who are receiving it.”
But despite the strong support for Syriza, only “21.3% of the respondents think the government should accept an agreement with our Euro partners only in case that such agreement includes all the demands of Syriza, even if that bring about a Grexit.”
But interestingly “nearly 40% (39.1) would opt for Grexit and implementation of other policies” if the concessions required involved further cuts in “salaries and pension and increase in taxation”.
So how does one make sense of that seemingly inconsistent set of majority preferences? It is clear that a significant minority understand that the only option if the ‘red-line’ is crossed is to exit.
But still, a majority of Greeks do not want to accept or, perhaps, do not understand, that they – You can’t have your cake and eat it.
There are strong reasons for the preference to remain in the Eurozone. In a broad sense, it gives the battle-hardened Greeks a sense that they are in something that leaves their tawdry military dictatorship history behind.
There are also persistent effects – now they are in it and their nominal savings are denominated in Euros – then the fear is that major losses would occur if re-denomination followed an exit.
There is a sense of timing as well. Had the costs that have since been lumbered on the Greeks from recession morphing into austerity-driven depression been anticipated, say in 2008, would the support for staying still be as strong?
The argument that things cannot get any worse so why accept more pain (from exit) is often used to defend these seemingly irrational polls.
The point is obvious:
1. Syriza was elected to stop austerity and it defined some sort of ‘red line’ beyond which it was unacceptable to cross. So there is a resonance of that in the opinion polls. The Greeks will tolerate cuts but not in certain areas.
2. Unless it leaves the Eurozone, it has to strike a deal with the Troika (however it is named these days). Without the credible threat of exit, all the bargaining power is in the hands of the creditors. They appear more concerned with enforcing the austerity dogma than the possibility that the Greeks will not be able to meet their debt repayments.
After all, the ECB, which holds a significant portion of Greek’s public debt knows (but would not admit it) that it can just write the debt off without impeding its own operations. That is the capacity of the currency issuer.
3. Syriza doesn't have a credible threat because it has failed to educate the people of the costs and benefits of exit against on-going austerity. The logic of its electoral success was that it could march to Brussels and tell the elites that austerity was over and everyone would shake hands and that would be it.
The logic of the Eurozone, however, the antithesis of fiscal activism, unless the activism is of the austerity bent. If they concede to Greece that austerity is damaging and there is an alternative, then the game is up for them.
The whole structure and rules of the monetary union would be seen to have failed. So there is no way there will be significant concessions from the Troika.
4. So the Greek people want to remain in the Euro but don’t want the austerity to continue – two incommensurate positions.
That is the hallmark of a cognitively dissonant state.
It is no surprise that the population is so scared of leaving the Eurozone, despite it being a poisoned chalice.
They have been bombarded with Op Ed articles such as this one – Greece would face dire consequences from a euro exit – as its people know – which appeared recently (May 13, 2015) in the UK Guardian for some years now.
This article claims that:
It is not in the interests of either Greece or the rest of the Eurozone to reinstate the drachma. An exit from the euro would lead to a run on the banks and the collapse of the Greek banking system. If Greece was shut out of international money markets, the temptation would be to meet the government deficit through printing money, leading to rapid inflation. People’s savings would be wiped out. And an effective devaluation might do little for Greece’s balance of payments anyway, except possibly through tourism. Poverty would become increasingly widespread.
Okay, the catastrophe hypothesis.
First, the run on the banks could be easily prevented through nationalisation and deposit guarantees. The government would be able to fund the guarantees as a result of restoring its capacity to issue the currency.
Then the question would be the conversion rate between the new currency deposits and the former Euro-denominated deposits. If the new currency depreciated significantly, then in the short-term there would be losses in the exchange.
But we have seen it in Argentina and, more recently, Iceland, once the crisis is over, the exchange rate adjusts back and what were initially losses are reduced or even converted to gains. It is not an unambiguous disaster.
Second, “international money markets” are powerless against the capacity of a currency-issuing government. The latter can set yields through appropriate central bank intervention should it wish to (unnecessarily) continue issuing debt.
If the “international money markets” don’t like the yields on the bonds offered then the central bank can purchase all the tender each time.
And, of course, such a government would not have to issue any debt at all. So it could fund domestic expenditure include a national Job Guarantee and infrastructure revitalisation to the limit of the available real resources.
No one would surely suggest that there are no idle labour resources that could be brought back into productive use via appropriately targeted job creation policies.
Please read my blog – Who is in charge? – for more discussion on this point.
Third, the hyperinflation bogey is always introduced when it becomes obvious that the ‘international financial markets’ scare is non-binding.
Whenever governments increase their deficits, mainstream economists and their pawns in the financial media make claims about the likely inflation that they say will result.
The large fiscal and monetary stimulus packages introduced by many governments to offset the GFC have not resulted in the predicted inflation.
It isn't the first time that the doom-sayers have been proven wrong. When QE was first introduced in Japan in the 1990s, mainstream economists rushed to predict that the massive expansion in central bank reserves would be inflationary.
Students in every mainstream macroeconomics class, and that means almost all students, would have predicted, based on the nonsense they were learning, that the high deficits and high public debt ratios in Japan at the time, should have driven interest rates sky high, that bond markets should have stopped buying government bonds, that the government should have run out of money, and all the time that these disasters were unfolding, that inflation should have been be galloping towards hyperinflation.
Nothing like that happened.
Neo-liberal economists wrote off their mistakes by claiming that Japan is ‘so strange’ that it is a ‘special case’ and therefore not generally applicable.
Their ad hoc defence was convenient because the Japanese experience with sustained high fiscal deficits, the world’s largest public debt to GDP ratio, close to zero interest rates, and deflation, was totally at odds with their economic theories.
It was a mind-boggling failure to explain reality.
Undaunted by their failure to understand Japan, the neo-liberals rehearsed the same logic when governments around the world introduced massive stimulus packages to combat the GFC. The economists were once again quoting from their undergraduate macroeconomics textbooks and predicting that it was only a matter of time before these nations would be heading down the Zimbabwean path.
Despite the significant increase in deficits and central bank reserves, inflation has been stable or falling. The economists were wrong again!
There are two arcane textbook notions that render so-called Overt Monetary Financing (OMF) taboo for neo-liberals. One (the money multiplier theory) is just plain wrong while the other (Quantity Theory of Money) has limited applicability during a recession.
Please read my blog – OMF – paranoia for many but a solution for all – for more discussion on this point.
The first notion is the rather technical sounding concept of the ‘money multiplier’, which links so-called central bank money or the ‘monetary base’ to the total stock of money in the economy (called the money supply).
Please read my blog – Money multiplier and other myths – for more discussion on this point.
The second notion then links the growth in that stock of money to the inflation rate. The combined causality then allows the mainstream economists to assert that if the central bank expands the money supply it will cause inflation.
As is often the case, many financial commentators who wax lyrical about the dangers of OMF do not even fully understand the theoretical route that is alleged to link central bank monetary expansion with inflation.
If there is idle capacity in the economy and firms who supply TVs, food, cars, etc have the capacity to supply those goods and services then they will defend their market share by increasing output and sales at the current price levels on offer.
Firms typically ‘quantity-adjust’ rather than ‘price-adjust’ when there is excess (idle) capacity. Otherwise, they risk losing market share.
Further, whether the government issues bonds or not does not alter the risk of inflation arising from government spending. The risk is tied to the idle capacity available not to the monetary operations that might accompany the spending.
Deficit spending increases private bank account balances once all the transactions (purchases and sales) that arise from the initial spending impulse are accounted for.
The extra bank account balances may be used to buy the newly issued government bonds. In this way, the sale of debt by the government is really ‘borrowing’ funds that the government has already spent into existence when it ran the deficit.
The sale of bonds just alters the composition of the portfolio of assets that are held by the non-government sector (more interest bearing bonds and less bank deposits).
In that context, it makes no sense to say that government borrowing rations finite ‘savings’ which could alternatively finance private investment.
Please read my blog – Central banks can sometimes generate higher inflation – for more discussion on this point.
The UK Guardian assessment is typical of the mainstream catastrophe viewpoint that ignores the opportunities that would be provided to the Eurozone states if they restored their own currency and took some heed of what Argentina was able to achieve when it ignored the warnings and threats of the IMF and the international bankers and restored its own sovereignty.
There is nothing irrevocable about the euro or the Eurozone.
The UK Guardian article claims that:
A Greek exit would also damage Europe’s fragile growth prospects.
It would immediately stimulate growth in Greece. From the minute the government reversed its penurious fiscal position, GDP growth in that nation would start to rise.
From the wages of those employed in the Job Guarantee, from their spending in local shops, and from the orders placed with construction companies to renew decaying infrastructure.
It is a lie to claim otherwise.
Ultimately, and to the extent that the new currency depreciated somewhat (I don’t think it would much because it would be initially in short supply), exports would be boosted.
The UK Guardian article is worried about the “contagion” because the “markets would then focus on the next country likely to go down the same route and make it prohibitively expensive for it to borrow”.
More like, the residents in those other nations would start to see Greece prospering again and start demanding some of the same action from their own governments.
The elites are desperate for Greece to remain in the Euro because it can never become a demonstration case of how bad the common union actually is. While it stays in the monetary union, it can be blamed for profligacy and the workers can be accused of being lazy or overindulgent, especially when spurious comparisons are put out with Germany.
But once Greece leaves the Eurozone, then it will become obvious to all that the austerity lie is a lie. Greece would grow quite quickly from day one and demonstrate, just as Argentina did, the capacity of ones own currency.
The author of the UK Guardian article, by the way, works in the London financial markets (the City).
Out of interest, I checked how much variability there was in GDP per capita among the Eurozone states and compared it to measures of income per capita in the US and Australian states.
One measure of variability is the – Coefficient of Variation – which expresses the standard deviation of a sample as a percentage of its mean value. It has the advantage in ratio scales (like income per capita) because it is a so-called – Dimensionless quantity – is can thus be used to compare samples of different units or vastly different mean values.
Taking the GDP (or state income) per capita measures for Australia (data from the Australian Bureau of Statistics), US (data from the http://www.census.gov”>Census Bureau), Canada (data from Statistics Canada), and the Eurozone (data from Eurostat) we find the following results for the Coefficient of Variation:
1. US (2013) – 18.6 per cent.
2. Australia (2013) – 26.5 per cent.
3. Canada (2013) – 31.7 per cent (26.9 per cent if we exclude the outlier Northwest Territories).
4. Eurozone (19 nations) (2013) – 41.6 per cent.
In other words, three functional federations generate much less variability in total income among the constituent units (states, territories, provinces) than the nations signed up for the Eurozone.
This is because they have federal fiscal capacities which reduce the variability of economic outcomes across the sub-federal political units.
I agree with the latest offering of Guardian writer Larry Elliot (May 26, 2015) – Grexit: bookmakers put smart money on an unwise move – who says that:
The economic argument for Greece staying in the euro is weak. National output is down by a quarter in five years. The debt-to-GDP ratio is heading rapidly towards 200%. One in four people are unemployed and there is widespread poverty.
Demands from Greece’s creditors for more austerity is, in these circumstances, inhumane and economically crass
He also notes that the desire to remain in the Eurozone yet not have to succumb to more austerity “is not an option”.
Which means that Syriza will likely fragment given the propensity for the leader to come to terms with the Troika and Syriza will, ultimately, prove to be a flawed experiment.
Conclusion
It is hard to tell what the balance within Syriza is between pro- and con Euro. But what is clear, under current political constraints it cannot deliver on its elected platform. In which case, what is its rationale?
One thing is certain – the elites hate the likes of Syriza and will grind it into the ground.
Maybe that is why the Finance Minister is now appearing more isolated and not playing along with the script. All power to him for exposing the elites and the austerity obsession for what it is. See – Varoufakis refuses any bailout plan that would send Greece into ‘death spiral’.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.

The G-7's problem: Can the world deal with a Greek default?


By Paul Gordon & Alessandro Speciale


When the world’s top finance ministers and central-bank chiefs meet in Dresden this week, they may struggle to stick to an agenda set by their German hosts that doesn't mention Greece.
The Group of Seven meeting starting on Wednesday will officially focus on big-picture themes of economic growth, tax evasion and strengthening the global financial architecture. Yet the most pressing matter for many of the policy makers attending is whether Greece can stay in the euro, and whether the world can handle the consequences if it can’t.
Time is running out for the Mediterranean country to reach agreement with its German-led creditors over economic reforms needed to unlock bailout funds before loans from the International Monetary Fund come due next month. That’s leading non-European observers, like officials from the US Treasury, to warn of unpredictable consequences if Greece and its partners don’t manage to avert a default.
“There are no major pressing issues related to currencies or trade to be discussed,” Christian Schulz, an economist at Berenberg Bank in London, said in an interview. “The worry on everyone’s mind will of course be Greece, and the message for Greece is going to be that it has to do what it takes to save its economy.”

Pragmatic outcome

While the G-7 doesn't have a mandate to decide how to deal with Greece, it brings together together officials from the euro area’s three biggest economies, as well as the European Central Bank, the International Monetary Fund and the European Union -- the institutions backing the 240 billion-euro ($262 billion) aid package that expires next month.
At a former palace of Saxon princes and kings, German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann will host their counterparts from France, Italy, Japan, the UK, Canada, and the U.S.. International Monetary Fund Managing Director Christine Lagarde, European Central Bank President Mario Draghi and Eurogroup head Jeroen Dijsselbloem are all scheduled to attend.
A Treasury official said Secretary Jacob L. Lew will urge a constructive, pragmatic outcome to the current round of negotiations.
Still, as together the seven nations account for almost half of world economic output, Germany wants keep the Dresden meeting on global themes. That includes Schaeuble’s push for debt reduction and fiscal restraint that Germany is promoting for the euro area and beyond.

Austerity focused
Germany intends to use the G-7 event to push for countries to close gaps in financial regulation by implementing globally-agreed rules. It will also argue in favor of international controls to prevent large corporations from shifting their profits across borders to minimize tax, and the sharing of tax information to combat evasion.
For all the international cooperation, Schaeuble said this month that he still expects to come under fire at the meeting for his country’s austerity-focused approach to the euro area’s woes. The U.S. has previously called for a quicker fix to Greece’s problems, hinting that it views Germany’s insistence that Greece fulfil bailout terms as a risk in itself.
While differing over strategy, G-7 officials may seek to reassure each other that they’re equipped to manage the fallout should agreement not be reached on Greece. Bank of France Governor Christian Noyer said on Tuesday that he doesn't see “any particular” risk for banks and insurers related to a departure of Greece from the euro zone.
Compared to previous flare-ups in the sovereign debt crisis, the euro area has more tools now to deal immediately with turmoil, such as the ECB’s unlimited bond-buying backstop, known as OMT, said Lefteris Farmakis, an analyst at Nomura International Plc in London.
“A more relaxed attitude toward the risk of contagion is normal, as compared to 2012 we now have quantitative easing, OMT, progress on fiscal consolidation and the financial linkages are non-existent,” he said. “But there might be an impact on confidence in the future, with people wondering about the possibility of an exit every time a problem arises in one of the periphery countries.” [Bloomberg]
ekathimerini.com , Wednesday May 27, 2015 (11:22)  

Varoufakis demands creditors 'get their act together' as Greeks cling to 'impossible' promises


By Peter Spence, Economics Correspondent 26 May 2015

The euro has slipped by more than 0.7pc against the dollar as traders digest conflicting messages from the country’s officials


Yanis Varoufakis has called on Greece's creditors to "get their act together" Photo: Kostas Tsironis/Bloomberg 

Yanis Varoufakis, the Greek finance minister, said on Tuesday that the country’s creditors must “get their act together” as loan deadlines approach for the embattled country.
The government has until Friday to pay public sector salaries, a week before the first of a string of repayments to the International Monetary Fund, totalling around €1.6bn (£1.1bn) in June alone, must be paid. 

Nikos Voutsis, the Greek minister of the interior, said on Sunday that “this money will not be given and is not there to be given”. But on Tuesday Mr Varoufakis insisted that “we will make the payment because I have no doubt that we will have an agreement”. 

The euro slipped by more than 0.7pc against the dollar, as traders digested these conflicting messages from the country’s left-wing Syriza officials. 

Kit Juckes, of Societe Generale, said: “The Greek government will need some form of deal in order to release further funds if it is to avoid missing payments to the IMF in June.”
He added: “Whether Greek prime minister Alexis Tsipras can negotiate a deal that is acceptable to enough MPs of his party isn't clear and markets are once again, very edgy.” 

Over the weekend, a slim majority of Syriza's central committee voted for Mr Tsipras's potential compromise agreement. These included "red lines" on pensions and labour reform. Holger Schmieding, chief economist at Berenberg, said that this was a package "lenders cannot accept". 

Mr Schmieding said that Mr Tsipras had made "impossible promises" during his election campaign. The prime minister "still refuses to get real and strike the kind of deal that could end the recession and unlock the money needed to keep Greece afloat," he added. 

However, in a further indication of the fine line Mr Tsipras must tread, a large group of Syriza members voted for a counter proposal, which openly raised the prospect of returning to the drachma. 

Mr Schmieding said: "Greece does not seem to have sufficient funds to make all four June IMF instalments." 


Talking about the €300m payment due to be made to the IMF on June 5, Gabriel Sakellaridis, a Greek government spokesman, said on Monday: “To the extent that we are able to pay, we will keep on repaying these obligations.” 

An unnamed German official, speaking to Reuters, said: “I find it encouraging, if it is true, that the Greeks signalled yesterday their desire to repay the €300m.” He added: “I find it encouraging because it means that Greece has understood that without the IMF this won't work.” 

“I think there is reason to believe that we will not be talking about a default situation around June 5, neither before or immediately thereafter,” he continued, on condition of anonymity.
Mr Varoufakis has said that at some point the Greek government would have to make a choice between paying salaries and paying international creditors. 

The decision is one “that no minister of finance should ever have to make”, Mr Varoufakis said, adding: “And of course the choice that makes under those circumstances is clear cut, isn’t it?" This was widely seen as an indication creditors would be left empty handed. 

Mr Schmieding said: "Once a payment is missed, the risk of escalating trouble, such as open bank runs and major political upheaval in Athens, will rise."
Varoufakis demands creditors 'get their act together' as Greeks cling to 'impossible' promises - Telegraph

Tuesday, May 26, 2015

Greece begs for leniency as investors warn 'time for complacency' on collapse is over

By Peter Spence, Economics Correspondent 25 May 2015

Investors fear the Greek government won't make IMF payments this June as negotiators make no progress

Politicians in Athens are voting against a backdrop of civil unrest

Greece may be unable to pay the IMF this June Photo: EPA

The Greek government has pleaded with its creditors for more time, as increasingly tense negotiations have frightened euro area investors.

Greece has until Friday to pay the salaries it owes to public sector staff, a week after which it is expected to scrape together the money to repay the International Monetary Fund (IMF) close to €300m (£212m).

The single currency has weakened against most other major currencies, reflecting fears that negotiators will be unable to agree a deal and that Greece will not pay. Only those with nerves of steel can confess to being bullish on the euro at this stage.

The euro slid by 0.2pc against the dollar, as the Swiss franc - perceived as a safe haven asset - climbed against every one of its major trading partners according to Bloomberg data, suggesting that traders were looking for shelter.

If progress can not be made, it is feared that Greece may be forced out of the Eurozone entirely, leading to a messy default and turmoil throughout the wider currency union. On Sunday, Yanis Varoufakis, the Greek finance chief, warned that a reversion to the drachma would be “catastrophic”.

• How the ECB became the real villain in Greece
• AEP: defiant Greeks force Europe to the negotiating table

Michala Marcussen, global head of economics at Societe Generale, said that there is “not time for complacency” as negotiators have made it clear that any deal between Greece and its creditors must include the IMF.

This “is seen as setting a high hurdle”, she added. Although Societe Generale believes there is a 60pc chance of a stable compromise being forged, Ms Marcussen stressed that “this is no time for complacency on the Greek situation”.

The IMF is considered senior to the European Central Bank (ECB), and as such if Greece failed to pay up, it would likely also fail deliver payments to its other creditors. It is due to transfer €3.5bn to the ECB on July 20.

image

Ms Marcussen said: “The negotiating positions appear to be toughening with Greece warning of payment failure.” The Greek minister of the interior warned on Sunday that the embattled government would be unable to find the cash for the €1.6bn (£1.1bn) payments it is due to make in June.

Mr Varoufakis said that if Greece were to live the euro area “It would be a disaster for everyone involved”. “It would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” the minister said.

He continued: “Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the Eurozone is not indivisible.”

• How the Eurozone could tear apart
• Greek economy is bleeding 600 jobs a day

The finance minister’s comments came as Wolfgang Schaeuble, his German counterpart, said that making the payments was “the condition for completing the current program”. Speaking in an interview with Deutschlandfunk radio, Mr Schaeuble said that “the problems are rooted in Greece, and now Greece does have to fulfil its commitments”.

Ms Marcussen suggested that if the situation does get “really ugly”, this would likely become apparent in July, following a one-month grace period should Greece fail to cough up the cash. For now, fears that negotiations will not make progress are most critical, as these could trigger bank runs, and force Cyprus-style capital controls.

Greece begs for leniency as investors warn 'time for complacency' on collapse is over - Telegraph

Monday, May 25, 2015

Greece warns it is set to default on debt repayment loans

Phillip Inman Economics correspondent Monday 25 May 2015

Interior minister says Athens simply cannot satisfy IMF deadline next month unless it works out a deal with Eurozone creditors

Pensioners chant anti-austerity slogans during a protest in central Athens. Greece has spent the last four months wrangling with Brussels and the IMF following the election of the anti-austerity Syriza party in January.

Pensioners chant anti-austerity slogans during a protest in central Athens. Greece has spent the last four months wrangling with Brussels and the IMF following the election of the anti-austerity Syriza party in January. Photograph: Petros Giannakouris/AP

Greece has threatened to default on €1.6bn (£1.14bn) of debt repayment due on international bailout loans next month, claiming it does not have the funds to satisfy creditors at the same time as paying wages and pensions.

The Greek interior minister, Nikos Voutsis, a long-standing ally of the prime minister, Alexis Tsipras, insisted the country was near to financial collapse. In an interview with Greek television station Mega TV he said Athens needed to strike a deal with its European partners within the next couple of weeks or it would default on repayments to the International Monetary Fund that form part of its €240bn rescue package.

Voutsis said: “This money will not be given and is not there to be given.” His comments came as the finance minister, Yanis Varoufakis, repeated his warning that the entire euro project would be undermined without a deal that proved acceptable to the Greek people. Varoufakis told the Andrew Marr show that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the European Central Bank, IMF and European Union to do their bit and “meet us one-quarter of the way”.

With crucial debt payments looming, combined with the need for Athens to find around €1bn to pay public sector wages and welfare payments in the first week of June, the Eurozone appeared to be entering the final chapter in its dispute with Greece. Tsipras wants the EU, ECB and IMF to release a blocked final €7.2bn tranche of the bailout without imposing tough reforms and spending cuts agreed with the previous right-of-centre administration.

Greece has spent the last four months wrangling with Brussels and the IMF following the election of the anti-austerity Syriza party in January. While some senior figures at the EU Commission and IMF have urged greater flexibility from creditors — and Greek ministers have appeared to drop demands for a higher minimum wage — both sides have so far failed to find a compromise deal.

Tsipras has attempted to persuade Angela Merkel to strike a broader deal that includes the refinancing of the entire bailout package in return for commitments to tackle tax avoidance and a re-making of the Greek welfare system, without success.

Syriza’s domestic position was bolstered on Sunday by a poll that showed cash-strapped Greeks remain supportive of the government’s tough negotiating stance, though they rejected a return to the drachma, saying that any deal with creditors must retain the euro as the Greek currency. The poll conducted in May by Public Issue, for the pro-government newspaper Avgi, showed 54% backing the government’s handling of the negotiations despite concerns that the country has been taken to the brink of financial collapse.

A total of 59% believe Athens must resist demands by creditors for further austerity measures, with 89% against pension cuts and 81% against mass lay-offs. Aware that broad electoral support for his government could collapse without a deal that retains the euro, Tsipras warned his far-left supporters, many of them newly elected MPs with little experience of EU negotiations, that they must compromise in talks with creditors.

In a speech to his party’s central committee on Saturday, reported in the Greek newspaper Kathimerini, Tsipras said Greece is in the final stretch of negotiations and is ready to accept a “viable agreement” with its creditors but not on “humiliating terms.” He ruled out submitting to what he described as irrational demands to apply a 23% VAT rate across the board and further labour reform. Echoing Varoufakis, he called on lenders to make “necessary concessions”. He said: “We have made concessions but we also have red lines.”

In a barely veiled reference to Berlin, Tsipras told the committee that many European governments would happily see Greece fail in its talks and be forced to leave the euro. He is under pressure to agree a deal that excludes fresh austerity measures from members of the hard-line “left platform” within the party, led by the energy minister, Panayiotis Lafazanis, who have refused to approve any deal that departs from pre-election promises.

Lafazanis, according to reports, has been working on a proposals to find alternative sources of funding that would allow Greece to walk away from a deal. But his search, which has included seeking cash from Russia, have drawn a blank.

Greece warns it is set to default on debt repayment loans | World news | The Guardian

Greece to miss IMF payments amid fears of 'catastrophic' Eurozone rupture

By Peter Spence, Economics Correspondent 24 May 2015

A Greek reversion to the Drachma would be an irreversible "disaster" for the entire euro project, Yanis Varoufakis warns

Greece's long-term future in the Eurozone still hangs in the balance Photo: AFP

Greece will be unable to find the €1.6bn (£1.1bn) sum it is due to hand the International Monetary Fund (IMF) next month, one of the country’s ministers has admitted.

Nikos Voutsis, the Greek minister of the interior, said that “this money will not be given and is not there to be given”, speaking on Mega TV. The Greek state is due to hand over the money in four instalments in June, as part of its obligations for its 2011 bail-out.

Mr Voutsis’ comments came as Yanis Varoufakis, the Greek finance minister, told The Andrew Marr Show that if progress was not made, it would be the beginning of the end for the euro project.

The finance minister said that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the ECB, IMF and EU “to do their bit” and “meet us one-quarter of the way”.

• How the ECB became the real villain in Greece
• AEP: defiant Greeks force Europe to the negotiating table

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“It would be a disaster for everyone involved, it would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” he said.

“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the Eurozone is not indivisible,” he added.

Yanis Varoufakis, the Greek finance minister (Photo: Reuters/Alkis Konstantinidis)

“It will only be a certain amount of time before the whole thing begins to unravel.”

Mr Varoufakis' and Mr Voutsis' words followed a declaration from Alexis Tsipras, the Greek prime minister, that bargaining with Greece's creditors would soon come to a close. On Saturday he said: "We are on the final stretch of a painful and tough period shaped by the government's negotiations with the institutions."

"Rest assured that in this negotiation we will not accept humiliating terms," Mr Tsipras told Syriza's central committee. "The overwhelming majority of Greek people want a solution and not just an agreement ... it supports the government in this tough negotiation," he added.

image

For Greece itself, using the common currency is now like using a “foreign currency”, and any exit from the Eurozone would be “a disaster”, Mr Varoufakis said.

He continued: “Trying to get out of it is tantamount to announcing a devaluation 10 months in advanced.” Economists warn that if Greece were to leave the euro area, it could trigger huge levels of capital flight.

In turn, Greece would almost certainly have to resort to capital controls in order to stem the tide of money out of the domestic economy.

• How the Eurozone could tear apart
• Greek economy is bleeding 600 jobs a day

Ratings agency Moody's has warned that there is now a "high likelihood" of such controls, which might be necessary to keep the Greek financial system alive. An estimated €30bn has been withdrawn from the country's banks since snap elections were called in December 2014.

Mr Varoufakis said that at some point the Greek government would have to make a choice between paying salaries and paying international creditors.

The decision is one “that no minister of finance should ever have to make”, Mr Varoufakis said, adding that “and of course the choice that makes under those circumstances is clear cut, isn’t it”, indicating that creditors would be left empty handed.

The Greek state had done “remarkably well” at making payments so far, given its lack of access to the money markets, Mr Varoufakis said.

Wolfgang Schaeuble, the German finance minister (Photo: Jasper Juinen/Bloomberg)

The finance minister said that it would be unnecessary to for Greece to hold a referendum to refresh its mandate, as suggested by Wolfgang Schaeuble, the German finance minister.

Mr Schaeuble has said that a Greek plebiscite on continued membership of the euro would be "helpful" for both the country and its creditors. Mr Varoufakis, however, stressed that "the Greek people completely support us".

He said: "We have a fresh mandate to end this austerity trap, to end this debt-deflationary spiral, and to say to these institutions that it is not in their interests as our creditors to say that the cow that produces the milk should be into into submission."

The beatings should not continue "to the extent that the milk will not be enough for them [Greece's creditors] to get their money back", he added.

Greece to miss IMF payments amid fears of 'catastrophic' Eurozone rupture - Telegraph