Friday, May 15, 2015

Horse Race Coverage, Eurozone Finance Edition

The US press is infamous for covering domestic politics largely in terms of “who’s ahead?” rather than “whose policies are in loose conformity with reality?”  The same seems to go for its international economic coverage.

Today’s New York Times has a hit piece on Yanis Varoufakis, who it says has a “flair for inflaming the debate about his country’s economic future.”  Inflaming or informing?  Does it matter?  Does anyone at the Times bother to ask?

Anyone who is paying attention to the eurozone situation knows that the driving force pushing Greece to the wall, in the immediate term, is the European Central Bank, which has been dripfeeding the Greek financial system, intensifying capital flight and all but guaranteeing a financial collapse—the Fahrenheit 451 of central bank firefighting outfits.  Greece, of course, would have massive problems in any case, but the gun directly to its head belongs to the ECB.

Mario Draghi, the guy who would “do whatever it takes” to shore up the market for peripheral sovereign debt in the eurozone, has made an exception for Greece.  His official justifications are transparently erroneous.  Fear of suffering losses?  It’s no different for Greece than Spain, Portugal or anyone else: if the ECB firmly backstops the market with its unlimited ability to buy bonds, no default is possible.  It’s the same with any central bank that controls a currency in which the debt is denominated.

If the official reasons are wrong, what’s the real reason?  This is where Varoufakis comes in.  He says it’s because the German representatives to the ECB are holding Draghi hostage.  I don’t know whether or not this is true; I’ve seen speculation to this effect, but whether it’s the story behind the story, or even a part of it, is unclear.  Since Varoufakis has not tried to talk back his remarks, I assume he wants to spur public debate on the Bundesbank and its pressure on the ECB.  Perhaps he thinks that there is a difference between that arm of the policy apparatus and the views of Merkel and Schäuble.

In its diatribe against Varoufakis, the Times article never stops to ask, is he right about the Bundesbank and ECB?  Nor, of course, do they devote even a single word to the question of whether the ECB position on Greece is anything less than insane.

And as for the “convoluted scheme” suggested by Varoufakis, that Greece borrow from the European Stability Mechanism rather than the ECB, it’s no more convoluted than the current arrangement, and the apparent justification is political rather than economic—to reduce the direct pressure of the ECB on the day to day survival of the Greek financial system.

I’m reminded of an old saying: you point to a problem in the world and the press writes an article about your finger.

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