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Yanis Varoufakis – A single currency challenges national sovereignty

In 2010 the Greek state lost the capacity to service its debt. Put simply, it became insolvent and thus lost access to capital markets. To prevent a default on fragile French and German banks that had irresponsibly lent billions to irresponsible Greek governments, Europe decided to grant Greece the biggest loan in world history on condition of the largest ever fiscal consolidation (better known as austerity) which, naturally, resulted in a world-record loss of national income — the greatest since the Great Depression. And so began a vicious cycle of austerity-driven debt deflation, spearheading a humanitarian crisis and a complete inability to repay the nation’s debts.

For five years the troika of Greece’s official lenders (the International Monetary Fund, European Central Bank and European Commission, representing creditor member-states) were committed to this dead-end strategy that financiers label “extend and pretend”: lending to an insolvent debtor more and more money in order to avoid having to write off a bad debt. The more the creditors insisted on this strategy, the greater the damage to Greece’s social economy, the less reformable Greece became, and the larger the creditors’ losses.

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