Whats a Greek Urn

Well the answer to that is that you can probably pick them up pretty cheaply these days.

But a clever Greek would only sell one to you with a buy back clause, say 105% the purchase price in 12 months on his calling. In other words he would be paying you a small amount for you hold it for the specified period, but in the mean time he holds a substantial amount from you hoping to use it more cleverly than you had anticipated. This is the principle of the bond, but the European Banks have just declared Greek bonds worthless, and wont be buying any of them in the foreseeable future.

Today saw the Greek and the German Finance Ministers meet to discuss the Greek financial problem. What has been happening over the last five years is that every 3 months when several Billion of Euros were due for repayment, the triad of European Banks have leant Greece a sum equal to that about to be repaid so that the repayment can be made without trouble. This seems like playing with numbers, but that's how they play on the books, which effectively just extending the previous load repayment date. The hope was that at some point Greece would start being able to replay more than the quarterly figure and slowly chip away at the overall figure until it was fully repaid. Sounds like a good plan but how is Greece supposed to raise more than the repayment figure?

Schaeuble today effectively reiterated the German position that Greece should not have entered into debts that they cannot conceivably repay, and Germany expects the full amount to be repaid. In return for loaning Greece large sums of money Germany expects Greece to undertake structural reforms setting it on a course to be able make those repayments (This example may not be wholly appropriate, but consider your younger brother has an addiction problem and needs money for food. You wont see him starve but you also allow him to spend the money you give intended for food on his habit. You may decide to give food directly, further to prevent him selling it, you may insist on seeing him eat it. Further you may take things a step further by monitoring his progress on a rehabilitation program).

Varoukakis point is that that program has only led to a worsening of the Greek situation. The program is called austerity, and over the last five years has led to 25% reduction in Greek GDP, and a rise in the debt from 130% to 170% (round figures) of GDP, and a substantial reduction in standard of living for the average Greek citizen where to typical wage is reckoned to be around 600€ at the moment. Clearly a slide that has to stop. How can the Germans have got the management of the Greek economy so wrong?

The first point on this is the fault of the previous Greek Government who, for whatever reasons, declined to tackle the countries rampant corporate tax evasion. This was obvious when one of the conditions of the previous loans was structural tax reform and effective tax collection, stipulating not raising extra taxes on the population. In other words the Germans constitutional could not have the necessary control. What happened was the previous Government raised more tax on an already beleaguered work force. The new government has promised to reform this. The second, probably more fundamental, is a clash of political ideology between German and modern Greek politicians. Broadly, Germany believes in monetary polices, if you are spending 1500 per Month and earning merely 1000 per month, then you cut your expenditures to 900 per month, leaving you a margin of +100 to slowly repay previous debts. Without being explicitly stated, the new Greek government favours Keynesian policies along the lines of investing in the economy so the your income grows to, say, 1600 per month, with a margin of +100 to repay pervious debts. Neither policy, monetarist or Keynesian, is right or wrong, both have a place in particular circumstances. Monetary policies help slow down a booming economy and avoid destructive inflation, Keynesian policies live economies out of recession.

The clash was seen in this meeting to day.

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Varoufakis explains that Germany has to take into account policies voted for by the Greek electorate, but Schaeble retorted that the Greek government also has to take account of the greater number of German voters! He also said that Germany will do everything possible to ensure a strong Europe, but he did not define what a strong Europe means.