Heather Stewart Friday 15 May 2015
Finance minister continues war of words with Eurozone policymakers, saying he wished Greece still had the drachma and had not entered monetary union
Greece’s embattled finance minister, Yanis Varoufakis, stepped up his war of words with Eurozone policymakers on Thursday, saying he wished his country still had the drachma, and would not sign up to any bailout plan that would send his country into a “death spiral”.
With Greece facing a severe cash crisis as it struggles to secure a rescue deal from its creditors, Varoufakis – who has been officially sidelined from the debt negotiations – told a conference in Athens that he would reject any agreement in which “the numbers do not add up”.
Greek GDP figures, published on Wednesday, revealed that the economy has already returned to recession.
“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. But once you are in, you don’t get out without a catastrophe”.
He also warned that a mooted proposal for a bond swap, to ease Athens’ cash-crunch, was likely to be rejected, because it struck “fear into the soul” of European Central Bank president Mario Draghi.
Despite his comments Greece on Thursday offered a concession to its international lenders by pushing ahead with the sale of its biggest port, Piraeus.
Greece has asked three firms to submit bids for a majority stake in the port, a senior privatisation official told Reuters, unblocking a major sale of a public asset as creditors demand economic reforms from Athens.
Draghi, who was in Washington on Thursday to deliver a lecture on monetary policy, pointedly failed to mention the ongoing Greek crisis.
He received a rapturous welcome from Christine Lagarde, the managing director of the International Monetary Fund, who introduced him as “maestro” – the nickname once given to Federal Reserve chairman Alan Greenspan.
“Those who know you understand that you are a man of outstanding insight, fierce determination, and above all, courage. You can call a spade a spade without putting any of your cards on the table,” she said.
While skirting the thorny subject of Greece, which has repeatedly drawn on emergency funds from the ECB through its Emergency Liquidity Assistance scheme, Draghi issued a strong defence of the bank’s quantitative easing policy.
“Faced with an environment of unprecedented complexity, the ECB has taken a series of unconventional measures to prevent a too prolonged period of low inflation and deliver its mandate. Those measures have proven so far to be potent, more so than many observers anticipated,” he said.
He also stressed that the ECB expects to continue the €60bn a month bond-buying programme for the foreseeable future, despite the recent sell-off in the bond markets, which some analysts had suggested could prompt the ECB to stay its hand.
“After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk. For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis.”
However, as Draghi was spelling out the benefits of his approach, the scale of the opposition he faces within the ECB was laid bare, as his fellow governing council member, Jens Weidmann, gave a strongly-worded interview condemning QE and questioning the support being offered to Greece.
“The question remains whether the QE programme was really necessary given our primary aim of price stability and how we should assess the risks and side-effects that inevitably come with such a scheme,” he said. Much of Draghi’s speech was given over to dismissing the argument that QE creates risks.
Weidmann, the head of the Bundesbank, also hit out at the ECB’s approach to Greece. The rules of the single currency prevent the central bank from directly bailing out member states, and many in Germany feel that by repeatedly increasing the ceiling for Emergency Liquidity Assistance to Athens, the ECB is breaking that rule.
“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,” he said, in an interview with German newspaper Handelsblatt.
The fact that Draghi and his colleagues are rehearsing their differences in public underlines the challenge facing the ECB president in forcing through his policies. Weidmann warned that the public should not be fooled into thinking the ECB was “omnipotent”.
With fraught talks continuing between Greek officials and the “Brussels Group” of creditors – the renamed “troika” of ECB, European commission and IMF – Greece’s hand may be strengthened by separate data showing that the government ran a primary budget surplus – excluding its debt repayments – in the first four months of the year.
Lagarde warned that monetary policy would not be enough to prevent the emergence of “the new mediocre”: a prolonged period of weak global growth. She called for structural reforms, continued fiscal consolidation, and a boost to women’s employment levels, to help kick-start recovery.