If No Deal for Greece, Exit the Euro? (TRNN-Interview part 2)
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay. We’re continuing our series of interviews with Heiner Flassbeck on the situation in Greece. And he now joins us from his home in Germany.
Heiner is the former head of UNCTAD and also the coauthor of the new book with Costas Lapavitsas, and the name of the book is Against the Troika: Crisis and Austerity in the Eurozone.
Thanks for joining us again, Heiner.
HEINER FLASSBECK, COAUTHOR, AGAINST THE TROIKA: Thanks for having me again.
JAY: So, in the first part we talked about this idea of creating a coalition of Greece, perhaps with Spain and France, as a way to try to take on Germany’s policy of storing up lots of capital, loaning it to the world, and wanting to make an example out of Greece. Well, the French finance minister, Sapin, he’s made it pretty clear that France isn’t going to play ball, at least according to him. He says that there’s not going to be any more haircuts, there’s not going to be any more reduction of debt. I mean, if this coalition isn’t possible with Italy, France particularly, maybe, I mean, Spain, maybe, if there’s a change of government, but if the coalition isn’t possible and Germany sticks to its guns and the troika sticks to its guns as it seems to be saying it will, well, what other choices does SYRIZA have?
FLASSBECK: Well, then it’s going to be really hardball. Then the question becomes how long the government can survive either–either–there are only two possibilities then. Either they’re following the conditionality or the conditions that the troika puts upon them, so then they’re really betraying their electorate, because they said, we’re going to stop this, exactly this. This was the big promise in the whole of the election campaign. Before the election campaign, they said, never again with the troika, never again with a memorandum of understanding, and so on. So if they do this, then they’re gone in Greece. And then the question is: who would be next, or what will happen politically? That’s an open question I do not try to answer. But the other choice is then to say, do we have options to go out? This is the natural thing, then.
JAY: To leave the Eurozone.
FLASSBECK: To leave the Eurozone and to exit the euro. This is a very, very difficult, extremely difficult question, but it cannot be left aside. It has to be mentioned–you have to talk about it and you have, as a government, as a responsible government, you have to prepare for that. We have seen–and let me give the example of Cyprus. In Cyprus we have seen that the government resisted to the conditionality in many very crazy, absolutely crazy conditions that were put upon them by the troika to the very last moment.
JAY: What are examples of some of those conditions?
FLASSBECK: Well, the condition was to close down the biggest bank and to stop the whole, so to say, the business model of the island, to stop it because they were not allowed to take on any further loans from other countries. As I said, the most important bank had to be closed down. And there was a haircut on the people, the depositors in the Cyprus banks, which was a disaster for many people and outside and inside of Cyprus. So it was really drastic.
But at the very last moment there was–call it blackmail or however you want to call it, but it was very clear that they would not get what is called emergency liquidity assistance by the European Central Bank if they would not agree to the conditionality, and not to get this emergency liquidity would mean that the banks are bankrupt, the banks are really bankrupt, from not only one, but more or less all of the banks or most of the banks were bankrupt the next day. So this is a very strong weapon that the troika has. And I’m not quite sure whether the ECB will again be ready to play this kind of blackmailing. But nevertheless, there are other strong instruments that the troika has. If you need money, if you need money to keep your society going, if you keep the government going, well, what are you going to do if you don’t get the money, if you only get the money from the troika?
JAY: My understanding is right now the Greek banks have asked for some emergency funding because people are so freaked out with what’s happening. There’s been a big run on people taking their banking savings out of the banks. They need some currency.
FLASSBECK: Well, that’s exactly the thing that happens. The deposits run down, are run down by people exporting their savings, so to say, and then the banks are in trouble. Then they need emergency liquidity to keep running, day by day, the business, because otherwise they’re bankrupt from one day to the other.
JAY: And so if European Central Bank says, yeah, you can have it, but you agree with the terms that we gave you in the first place, then what?
FLASSBECK: And so far the European Central Bank, this a–normal national central bank would clearly do that, but European Central Bank is a different beast, and in the case of Cyprus it was part of the blackmailing of the country. So to avoid this, then the question becomes: so what are you going to do?
JAY: So if it does come down to either the new SYRIZA government has to either completely give in or leave, then what does leaving look like? I mean, it’s got to be a very dangerous proposition. But what does it look like?
FLASSBECK: Well, the first you have to do: you have to close all accounts in the next second, so to say. You say, we are going for the option to get out. Then nobody can access accounts anymore, because people will take all their money off, and then the system is anyway bankrupt. So this doesn’t go. You have to stop capitals from flowing out.
This was done in Cyprus already, so there is an example in Europe. They were–they did. It worked quite well. So the capital controls worked quite well and the people were not allowed to get their money out of the country anymore. This is the first step, clearly, to avoid panic. I think it would be very important at the same time to really be explained to the people what is going to happen and what the choices are. And if people understand that, then you could maybe reduce the level of panic.
And the next thing would be to–but that has to be prepared a longer time before–to replace the euros by a national currency again. So you need, physically, national currencies. You need to exchange it. You’d exchange it on the bank accounts. And wherever cash is needed, you have to change the ATMs and I don’t know what–a lot of difficult things. So it takes time.
But this time can be bridged by, say, you give out IOUs or something like that that replaces money in the first round. And so this is the way out.
And then you have too the other difficulty. Then, when the new currency is there, what is the exchange rate of the new currency to the euro? This is the [great (?)] question. Clearly, it will be a much depreciated value. So you would start with one-to-one first, and the accounts, the national currency would replace the euro. But you cannot keep an exchange rate of one-to-one. The value of the exchange rate will fall.
And then comes from either, really critical question; namely, how much should it fall. It should not fall to infinity, because if it falls by 70, 80 percent, then it would be a disaster, and that is not necessary. So you need a mechanism to stop it at a certain point of time. And if there capital controls are sufficient is a very open question that I think nobody can very clearly answer.
And so what do you have to do is you need, again, a form of assistance mechanism. And what I would be asking for, what Costas and me, what we’re asking for in the book, is that the European Union, indeed, the Union–not the Monetary Union, but the Union as such–give this kind of assistance to countries that go out to help them destabilize their currency at a reasonable level, which may be, say, 30 percent lower than before, but not 60 or 70 percent before, because otherwise you have to call the IMF, which is really disastrous, which is to get one devil out and another in, which is not reasonable. So you should have assistance from the European Union, in that case, if it is needed. If your controls are not absolutely watertight, then you would need such assistance. And yeah, then working with a national central bank is a totally different thing and the government has room of maneuver again to establish a new kind of economic policy.
JAY: Very unknown territory, all of this.
JAY: I said it’s quite unknown territory, all of this.
FLASSBECK: Absolutely. This is absolutely unknown territory. As far as I know, there is no, well, recent experience of the country, therce is definitely no recent experience of the country going out of the Monetary Union. It would be an absolutely chaotic process. That’s no doubt about it. You need a very bold politician to do it. But, as I said, the choice would come, and then it is not absolutely evident that you would reject it forever.
It’s clear that you wouldn’t talk about it a long time before, but you know at a certain point of time–maybe someone has to go public and give a speech about blood sweat and tears and tell the people, well, this the opportunity that we have. Do you want to suffer again for another five years? Or do you want to, one stroke, where we get out of it and have our fate in our own hands?
JAY: I mean, it’s not that there isn’t a lot of money in Greece. The Greek oligarchs have a lot of money. There’s plenty of dough there. I mean, isn’t part of the solution at some point there has to be some sort of extreme measures to get at some of the oligarchs‘ money?
FLASSBECK: Sure. But it will never be sufficient–I mean, absolutely clear you need a change in the tax system and you need fairer taxation, but all these things do not go quickly. You cannot grasp this money, you cannot get it for the use of the government in a couple of years. That wasn’t possible. There are too many ways to hide his capital, or the capital’s already out of the country. So you have to negotiate again, but with other countries, about tax matters with Switzerland, for example, where people say several hundred billions of euros are kept by Greek people in Switzerland. I don’t know, but it may be true, but then again it’s a question of negotiating in Switzerland.
JAY: Right. And just how threatening is this now to the troika? Have they got–they almost seem like they’ve accepted, well, if Greece goes, it’s going to be more painful for Greece and for the troika.
FLASSBECK: No, I don’t think so. I think at the moment nobody really wants Greece out. What they want is just Greece to play by the old rules, namely–.
JAY: No, but I mean if Greece won’t play by the old rules.
FLASSBECK: Yeah, then, well, I think nobody has a plan B, a clear plan B. But the Eurozone also does have no idea how to handle this. But, well, many people in Germany clearly would say–but it’s mostly innocent, ignorant people who say, well, let the Greece go, and we don’t care.
But that’s not the point. The point is that–and I mentioned it many, many times, that the main problem is not about Greece; the main problem is about France and Italy; the quantitative, important point is about France and Italy. They have the same problem as Greece in principle. They have lost competitiveness against Germany because of German wage dumping. So they have to decide sooner or later in the same way, and then comes the critical test. And then let’s see what happens politically, as well as economically. I mean, if you look at France, France has a presidential election 2017. If up to then there is still recession, no recession, or more unemployment than now [incompr.] the people going to elect is a very open question.
JAY: Alright. Okay. In the next segment of our interview, we’re going to talk about what all this means to the rest of the world, and particularly the U.S. and U.S. policy. Please join us for part three with Heiner Flassbeck on The Real News Network.