Tsipras, Varoufakis, and the Schäublegang: Pension Crisis Edition

Varoufakis and Schäuble met on 27 February to negotiate a bailout extension for Greece, a nation that already has 360 billion Euros in debt.
Yanis Varoufakis and Wolfgang Schäuble, the finance ministers of Greece and Germany, respectively, met on 27 February to negotiate a bailout extension for Greece, which already has 240 billion euros in debt.

Another day, another chapter in the ongoing Greek debt crisis. While Greece’s T-bill action earlier today was a success, the yield on Greek treasury securities reached an 11-month high of 2.97%, compared to 2.75% on the last auction in February. Another issue of contention is that 262.5 million euros were non-competitive bids, mostly comprised of funds from Greek Social Security accounts.

Concerns over a Greek exit from the Eurozone (so-called “Grexit”) peaked in late February during the Troika-Greek debt negotiation showdown. Yanis Varoufakis, the finance minister of Greece, eventually struck a deal with the Eurogroup. Many in the Bundestag were hesitant to pass the bailout extension, while many in Greece were angry at the SYRIZA Party for reneging on pre-election promises. Despite the opposition in Germany to the extension, German finance minister Wolfgang Schäuble pleaded that “we Germans should do everything possible to keep Europe together as much as we can.” Greece’s exit for the euro could cause major problems for other Eurozone members by undermining the credibility of the euro.

In the past month, many issues have rose from changes in bailout programs between the Troika and Greek government. Since 2010, the European Central Bank has accepted Greek junk bonds and related securities as collateral from banks to assist refinancing operations as long as the Greek government continues fiscal reform and austerity measures. This program ended on 4 February 2015, causing disarray and worry within the Greek banking system. To quell concerns, the ECB extended to scope of its Emergency Liquidity Assistance program to Greek banks to 65 billion euros. The last tranche of bailout from the ECB of 7.2 billion euros requires that Greece meet new budgetary requirements before the assistance is paid out.

The current crisis in Greece originates from poor government policy over the past several decades. A stringent regulatory structure discourages business formation and investment. While this is a major problem across the Western world, it contributes massive weight to Greek economic malaise. Inefficient state-owned enterprises produce poor services whilst adding to budgetary deficits. Conflicting laws in the country’s legal system discourages business production through ill-conceived prosecutions. High taxes on the wealthy have encouraged capital flight and tax evasion, reducing Greek tax receipts.

In order to expiate the debt crisis situation, Greece needs to adopt a hands-off approach to economic management through privatization, deregulation, and a streamlined tax and legal system. Tsipras and Parliament cannot pay off the 240 billion euros in government debt through tax hikes or penalties. The Greek economy needs a period of economic prosperity in order to extend Treasury reserves. While this goal seems impossible at the moment, many nations, such as Vietnam and India, have utilized successful economic reform to their advantage.

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15 thoughts on “Tsipras, Varoufakis, and the Schäublegang: Pension Crisis Edition

  1. Kiki March 4, 2015 / 12:53 pm

    Again and Again and Again …worst soap opera in TV history…
    If your husband is a repeat cheater ….the best advice is to …fire him …
    Unless you enjoy the masochism

    • Chris Hatfield March 4, 2015 / 2:27 pm

      I thought this was a forum to put forward constructive ideas to strengthen the EU but it seems you are more interested in putting forward superficial poetic metaphors that have no substance so here is one for you Kiki. If you’re a loyal husband and your wife keeps telling you she loves you only so that she can steal from you and cheat on you at the same time, then just leave the scarlet and find a more loyal partner.

  2. Bob34 March 4, 2015 / 1:21 pm

    Typical of socialism, hard working citizens will be left to pay for the political and economic errors of their masters. As President Reagan said, ‘Socialism only works in two places: Heaven where they don’t need it and hell where they already have it.”

  3. Quest March 4, 2015 / 1:40 pm

    Greece is a money pit until the Greeks return to living in the world of reality. Anyone can fantasize about having billions of Euros in the bank until they check their bank account which says they have nothing.

  4. Chris Hatfield March 4, 2015 / 1:42 pm

    The trend for Greece’s severe and financial economic problems seems to have been set from 1980 to 1993 with debt to gdp rising from 22% to 98% in around a decade. Joining the EU seems to have increased Greece’s debt problem.
    What the EU needs to start doing is focusing on concrete solutions to solve this problem instead of all this in fighting.
    The only way out of this mess for the EU if they want Greece to stay is to help prop up Greece’s economy through direct investment in productive industry essentially creating new industry in manufacturing of certain goods or the development of specialized services that the rest of the EU needs.
    If the EU can’t do this for Greece then it is time to just let Greece default, write the debt off and let Greece run its own economy detaching itself from the Euro dollar.

    • DoublePlos March 4, 2015 / 4:52 pm

      Greeks consciously avoid paying taxes. How can a government expect to provide any services without revenue?

  5. Dennis March 4, 2015 / 5:28 pm

    every day there is an article about greece and yes their debt is massive but greece has a tiny economy about as big as las angeles county.their debt to gdp ratio is 174 which is very high.what is surprising to me is you never see an article about japan who has a debt to gdp ratio of 227 and they are the worlds third largest economy.i think greece is being used as a distraction to deflect attention from much more serious problems like a lack of growth in china ,brazil euroland,japan russia, in other words EVERYWHERE.

    • Caravan March 4, 2015 / 6:19 pm

      And what percentage of Japan s debt do you think is owned by foreigners ? Not even 10%. It s the Japanese who own their own debt. I dont know what would exactly happen if Japan was to default, but it s Japan s own citizens who would take the loss and not banks in other countries that other governments would then have to recapitalize as in the case of Greece when the governments in the Eurozone restructured the greek debt because it was held by THEIR OWN BANKS in Paris or Frankfurt.

    • Frankfurt Rebel March 4, 2015 / 6:22 pm

      I agree, Greece is being made an example of. The fact of the matter is our monetary system is in a complete mess.

  6. Skooter March 4, 2015 / 8:54 pm

    This Liberal Progressive Democrat running Greece…Alexis Tsipras….needs to start using his mind.

    I hope next time the good people of Greece elect a President who isn’t so anti-business.

    It should take a Greek citizen no more than 5 minutes and 5 Euros to start a Taxi business

    It should take a Greek citizen no more than 5 minutes and 5 Euros to start a Real Estate business

    It should take a Greek citizen no more than 5 minutes and 5 Euros to start a Home Cleaning business

    In other words…get government out of the way…do this Greece and your economy will explode with growth !!

    • Gerald_M March 5, 2015 / 5:54 am

      I agree. And foreign companies that have in good faith invested financial capital, talent and other resources on projects in Greece should not face extortion from the Greek government.

      • Angelo Baidas March 5, 2015 / 5:55 am

        Our previous governments have sold off Greece piece by piece.Greece is a country that does not produce much.Greece needs the airports which the European Union has taken ports, utility companies etc.Greece does not need the euro bullies trying to suppress Greeks today Italians, Spanish and Portugal tomorrow wake up .

        • Dude March 5, 2015 / 5:55 am

          “Greece is a country that does not produce much.”

          That’s the problem. You have to produce stuff if you want to live like a productive country. And blaming other countries isn’t the way to prosperity.

  7. Jellin’ with Yellen March 5, 2015 / 5:57 am

    They keep putting the square peg into the round hole but it will never fit.
    Fire up the Drachma printer, time for a gyro.

  8. Itchy March 5, 2015 / 5:58 am

    As I said – people dumb enough to loan Greece more money when the rest of us know that the Greeks never intend to pay it back. Hard to believe someone has this type of deep pockets. Maybe, the loans are being written off to reduce tax liability; like a donation to charity – eh!?

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