Distortive "friendly" debates
The inaugural comment on this blog is quite a short exercise. A couple of weeks ago, Varoufakis and his aid, Theocharakis accused Greek central – and “friend” - banker Stournaras when he claimed that Varoufakis’s negotiations cost the Greek taxpayers 86 bn. Euro during disastrous 2015 negotiations.
According to them, a bankrun started on December 3, 2014, when Mr. Stournaras committed a single faux pas in the world history of central banking stating publicly that he fears of a "liquidity problem" in the market. In their statement, they added there is no country in the world which will not begin a bankrun after such a statement of the central banker.
I am afraid that the two well-known Greek economists are wrong on this account. First, liquidity-problems had started as early as 10th of October 2014, when there was a hike of the 10-year Government bond due to fears that Greece would not avoid a political crisis if elections could not be avoided by January 2015. So, the liquidity concerns were there before Stournaras’s statement. Secondly, the liquidity run continued long ago after Stournaras statement. Following Stournaras’ statement, yields increased from 7.3% to 9.2% immediately after, to 11.3% after Syriza victory in January 2015 elections on 31/1 and to the super-high 19.3% during the referendum period in July 2015 (see Table). Capital markets discount continuously information, but failed to ease liquidity concerns during the entire period in 2015 when Syriza government dominated the political stage. So, it was Syriza’s victory in the elections and the expectations of it, which created the liquidity run in the beginning and sustained the bankrun afterwards. Of course, with the aid of the disastrous Varoufakis negotiations which cost 86 bn euro (according to Stournaras) to Greek taxpayers to sustain Syriza’s political “illusion” as PM Tsipras recently acknowledged.
Overall, critical Marxism is not in its forte on liquidity theory and on the underlying behaviour and expectations of market participants. For this reason, arguments such as those made by Varoufakis and Theocharakis are once again distortive, and boringly so.