Austerity politics is bonkers. When there is a recession, the state is the entity that can still borrow and lend at reasonable rates. The money will still be borrowed, but with the state pulling back, it is borrowed at rates that would make a loan-shark blush.
Whhy do you think it's a success in the UK? There are many that don't think it's working at all. I'm not criticising your position, I'm just intensely curious.
It's not. The government sharply cut when they got into power, then eased off a bit so that we got a tiny amount of growth to coincide with the election, now they're going to cut more again.
So success if you're a neo-con distaster capitalist, failure for everyone else.
Economic growth in the UK was about 0.5% quarterly for all of 2013 and 2014, and actually dropped to one of the lowest rates in the past two years in the quarter before the election. So unless you broaden "coincide" to mean "the two years preceding an election", or almost half the currently fixed term of Parliament it is not posisble to sustain the claim you make. And if governments can reliably provide economic expansion over two years it isn't clear why they wouldn't do so all the time.
The social construction of "neo-cons" and "distaster capitalists" as the hated Other by the Left cannot mask the underlying objective reality that austerity policies have not been anything like the disaster that was confidently predicted, and may have even done some good, although I'm sure the proper economic analysis of the effect of these policies is a good deal more nuanced than the simple post hoc ergo propter hoc claim that pundits will be making, although the pundits on the Right do have the slight advantage of not having to actually make up facts to support their view in this case.
EDIT: in an equally contrarian reply to another comment above I did some digging into government expenditures in the UK and your claim fails on that basis as well. Government expenditures are mostly up between 2008 and 2014 inclusive.
Indeed, the UK economy is turning around, but it's not clear that's the result of the austerity politics or just the underlying strength of the UK.
And net immigration is down, which is a sign that other countries are becoming comparatively more attractive.
Finally, George Osborne has discovered the same thing that dogged Gordon Brown: tax receipts are stubbornly failing to rise in line with economic growth.
Actually, today's report has not immigration up to within 2000 of the highest ever recorded. I guess those who vote with their feet disagrees with your assessment.
Because the UK went on heavy on cutting its budget, whereas the US went heavy on increasing expenditure (Fiscal keynesian style). The way the UK did it should have dragged them into recession but the UK employment rate improved to under 6% (in spite of the sensationalised immigration 'issue') and the economic growth rate is doing pretty good (on a relative basis to the other G* countries).
I don't want to get into the contentious political issues involved but I'll say this too: There may be some argument to the loss involved due the budget cuts but on the typical economic numbers its not too bad/quite good considering austerity was used.
Year GDP Pop Spending £ bln 2005
2008 MW gdp 61.548 582.23
2009 MW gdp 61.904 623.50
2010 1564.9 62.262 697.65
2011 1600.2 62.649 699.89
2012 1621.6 63.067 692.43
2013 1632 63.488 661.32
2014 1665.6 63.912 525.22
There's a huge drop 2013-2014, but before that the spend-up was pretty considerable, and economic growth has been solid since the start of 2013, so if this be "austerity", make the most of it!
EDIT: the drop in 2014 is due to local government not being added in. If I look at just "Central Government" from the same source:
Austerity can't be looked at only from the spending point of view, especially since it carries with it an element of affordability. Its also about looking at taxation receipts.
On overall the deficit between the two has been decreasing which is where the 'austerity' terminology is used. The comparison comes in handy where alot of Europe has been going through this (in spite of decreasing or low economic growth) whereas the US increased its deficits too.
What I mean to say is austerity is tied more to the affordability as opposed to the absolute dollar amounts.
Deficits
Year Amount
2009 156.3
2010 148.6
2011 120.6
2012 99.5
The whole problem with Greece is that the state CAN'T borrow on the market at reasonable rates. That's why they asked (and received) over €200BN in credits from the other EU countries, plus I don't remember how much from the IMF.
If they cannot borrow Euros, they will have two options: default on promises to Greeks (pensions, etc.) or leave the Eurozone and return to their own currency which they can "borrow" from hypothetical wealthier future taxpayers.
The problem is that it the Troika plan half-defaulted Greece in 2010. That half-way policy made Greece lose credibility with private institutions without substantially decreasing its debt.
No, they had one-sided confrontation, derision and bullying from the other side for several years. [1]
The Greeks merely elected a government to stand up to it.
[1] That side of the German stance has been thoroughly discussed even in the Economist, Bloomberg, Financial Times, NYT, etc (as well as the huge financial gains Germany got from the "assistance" they provided).
Voluntarily accepting conditions attached to a loan is not bullying, particularly as the countries giving the loan are in no way at fault for Greece's dire need for a loan.
Did you mean to address your comment to the original comment instead of mine? It was the grandparent comment who used the phrase "bullying" to imply immorality. My comment only claims that even if you assume morality in international lending, the particular phrase is not apt.
'at fault' may be too strong, but Germany surely benefited in the zero-sum game that resulted from the Euro fixing exchange rates within the eurozone: in the old system, Greece could have (and did) increase the exchange rate wrt the Mark to boost exports and keep the economy running.
The inability to do this benefited Germany, at the cost of Greece.
(1) Germany is profiting billions from the current exchange rate, that's why it isn't losing anything.
(2) Which would fuck with the EU a lot more than it would bother Greece, which is why they're making the stand that they are, they know they have less to lose.
There's a reason they haven't been kicked out already. ;)
But the artificially cheap currency comes about because savers' savings are being inflated away. Moreover it's unlikely that the money lent to Greece will ever come back. I don't see any evidence that in balance Germany benefits from this. Have you got any?
In that it's an accurate description of the state of the world.
Knowing what we do about human history, why would you assume that kindness-filled all-classes-living-in-harmony! rhetoric has much descriptive power?
With a king, a feudal lord or a pharaoh you can see the "class" thing and the exploitation immediately -- why think that with a modern man that has 1000x times the money and resources of his fellow citizens it's any different? Because democracy?
"Germany is still exporting like gangbusters [to Greece] despite the poor country being in its fifth year of recession. In fact, Germany’s trade surplus per person with Greece is 3.6 times bigger than that with the U.S. (290 euro per Greek versus 81 euro per American)."
Given that Greece is 'paying' for these imports with borrowed money, which is unlikely ever to be paid back, how is this setup benefitting?
Exports deficits are benefitting the exporter only if eventually the importers pay. But we are seeing that the importers are unwilling/unable to pay.
Moreover the article says
Euro itself collapsed, resulting in Germany’s higher positive trade balance.
Well, the Euro collapsed for everybody, so all other Euro members had exactly the same benefit.
Also read about public debts what they are and how they did evolve.
Finally, you're looking financial answers to a political problem. Strictly financially speaking, debt restructuring is the only sensible solution to Greece AND everyone else. What you're watching, is a live show of poor justifications from failed politicians (all over the EU).
I recommend that inform yourself about the decision making process on the ECB board, and who's the majority there. Germany almost always votes against the ECBs decisions but is outvoted by other countries. several German ECB members have resigned because of that.
This gives a pretty clear indication in whose interest the ECB works. Namely in the interest of the majority of the board members.
For many years, the debate about whether the European Central Bank (ECB) was too heavily influenced by Germany was confined to academic papers. As of late, it has become the central policy question of the eurozone. Germany is more influential at the ECB than it should be. In fact, Mario Draghi’s penchant for seeking German approval has been his biggest mistake as head of the ECB. He should end it.
(...)
The ECB was modelled on the German Bundesbank. As a result, it is one of the world’s most politically independent central banks; its mandate is focused narrowly on price stability; it does not take broader economic goals like unemployment into account in the way other central banks, such as the Fed, do; and it is de facto more restricted than other central banks, since controversial measures can lead to complex political and legal struggles, involving 18 (soon to be 19) countries. Its setup and philosophy are therefore ‘German‘, that is, conservative and cautious.
(...)
A wide range of studies have so far failed to establish a firm consensus on the influence of various countries on the ECB during the euro’s first decade. However, most studies have found that the ECB behaved like a multinational central bank, in which each country has a weight proportional to the size of its economy.
This gave Germany a higher weight than other countries because it is the largest economy in the eurozone.
But it is hard to argue that there was a German bias at the ECB before the crisis. In the post-crisis period, the ECB has failed to stabilise the economy, and inflation has fallen to just 0.3 per cent. It is tempting to see this as the product of a German bias, because the German economy has suffered least from the ECB’s hesitation to do more. But it is hard to argue that German pressure prevented the ECB from lowering rates faster during the last two years, for example, or managing the inflation expectations of consumers and investors more aggressively. Rather, the ECB’s misjudgement of the economic dynamic in the eurozone prevented a more timely and aggressive stance. However, now that the ECB has to move further into unconventional territory to correct its previous errors – potentially by buying government bonds – Draghi has taken German resistance into account and delayed quantitative easing (QE).
(...)
In the governing council of the ECB, all relevant monetary policy decisions are taken by simple majority, with the smaller countries having one vote each, and the larger countries traditionally two (because of the additional votes of executive board members). Some of the more fundamental decisions, like recapitalising the ECB, need a two-thirds majority, based on the ECB’s capital shares, but even then Germany has no veto. What is more, there is currently a clear majority for more aggressive ECB action in the council, which Draghi can draw upon whenever he decides that the time is right. Formally, there is no need for German approval, either from Berlin or from the Bundesbank. Why, then, is Draghi waiting for German approval? There are two possible reasons. First, he might consider it unwise to conduct monetary policy in the face of opposition from the largest eurozone country. There is some merit to this view but it loses validity when the ECB is failing to fulfil its inflation mandate by a wide margin, as it is now.
(...)
Even the relatively cautious OECD has now come out in favour of further monetary stimulus, and the IMF has been urging the ECB to do more for a while.
Given that the Fed and the Bank of England have bought government bonds on a massive scale, the ECB would be well in line with consensus views on monetary policy if it did the same.
(...)
The second reason why Draghi might want to get Germany’s backing is that he may fear losing the German government’s consent for the ECB’s other operations, which are not strictly monetary policy. The most important of these, of course, is the OMT programme, which was announced during a panic-driven run on eurozone government bonds ...
[I]t is hard to argue that German pressure prevented the ECB from lowering rates faster during the last two years, for example, or managing the inflation expectations of consumers and investors more aggressively.
The article says quite clearly that the ECB has been going against German interests and wishes.
Italy pulled this same stunt in the past; mostly as a way to avoid actually fixing the many problems with the economy here. Floating exchange rates are good in some ways, but those kinds of devaluations are problematic in many ways: you're basically stealing wealth from savers in order to goose export industries a bit, until your crappy economic policies come back to bite you yet again and you need to repeat the cycle.
Your comment indicates that you think that in the lender/borrower relationship only one side has responsibilities. The Germans via the ECB flooded Greece, Portugal, Spain with easy money in the early 2000s. It is incorrect to say, "...in no way at fault..."
Greece was bullied and has been bullied and the average Greek has suffered as a result. They are not blameless by any means but what has happened to Greece is not just.
I'm sorry that's misleading. Germany has one vote on the ECB, the same number as Greece, Spain, Portugal, Malta and every other country.
Greece was perfectly happy to get cheap money. Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
>I'm sorry that's misleading. Germany has one vote on the ECB, the same number as Greece, Spain, Portugal, Malta and every other country.
Yeah, if only democracy worked outside of power plays and diplomatic and economic might... Because after all the number of votes is all that counts...
>Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
I know. Those lazy southerners getting German money are the same kind of vermin that Jews were back in the day, right? Because what you wrote is word by word the same kind of BS propaganda repeated in German popular media, about some lazy, unproductive vermins ("PIIGS") wasting German tax-payers money.
In any case, if Greeks are so hard working, then you are actually agreeing with my point about Greece not investing the huge subsidies that they have recieved wisely into "improved prductivity". As the WaPo article you quote says: "Caveat: Long hours at the office don’t always equate to high productivity".
I've never quite bought into this "predatory lending" idea. There is exactly one way for me to take a loan, and that is to actively sign papers saying, "Yes, give me money under these terms!"
Terms that seem too good to be true, are. Borrowers know this. Nation-state borrowers certainly know this.
So sure, easy money was available. No one forced anyone to take it.
There were political considerations involved, obviously: parties that were willing to mortgage the future of their nation were more likely to get elected than parties that were willing to be fiscally responsible (to the extent that it would be astonishing if there even were parties willing to be fiscally responsible.)
So leaders offered terms, but that meant nothing without borrowers being willing to take them. I don't see how, despite politics, that the lenders bear any blame for that because national governments are presumed to be mature stewards of the state, able to say "No" to enticing but ill-advised offers. To argue otherwise is to suggest that the Greeks et al are simply not ready or able to govern themselves, which I have difficulty accepting.
>To argue otherwise is to suggest that the Greeks et al are simply not ready or able to govern themselves, which I have difficulty accepting.
And what happens when a new government is elected that is made up mainly of people who actively protested the loans and the terms the ECB made in the first place and for their trouble were gassed, beaten and jailed?
People who turn off their brains and their capacity for moral/ethical calculation for no better reason that "someone signed a contract" are reductionist, simplistic and are capable of assent to monumental crimes.
>I don't see how, despite politics, that the lenders bear any blame for that because national governments are presumed to be mature stewards of the state, able to say "No" to enticing but ill-advised offers.
Ever heards of "lackeys" in power? Countries ruled by people whose careers are sponsored by foreign powers? It's quite common in Latin America, Africa, Asia and Southern Europe, namely in all places not big enough to be colonialists themselves.
Greece has been a protectorate and semi-colony (with some parts, like the Dodecanese, Ionian Islands and Cyprus being actual colonies to Italians, British, etc) ever since the country was established. From foreign powers sending a German king to rule the place in early 19th century, down to helping establish a military dictatorship back in the late sixties.
According to the pre-2008 economic consensus on monetary policy, bad central banking is the dominant force behind recessions. This theory is in no way disproved since central banks during the Great Recession failed to act according to the theoretical recommendations. The US is back on track (kind of) with QE, and perhaps coincidentally, the US economy is doing quite a bit better than the Eurozone.
The ECB, which was tasked with maintaining inflation levels and nominal expansion throughout Europe, has completely abandoned this goal to serve the (short-sighted and wrong) interests of Germany and other economic powers. If we are to believe the pre-2008 economic mainstream, it is absolutely the fault of the countries giving the loans, who swamped the Eurozone with expansionary policy then yanked it away when it was needed most.
Right now it's not politically convenient to believe in those economic theories, so you don't hear much about them from politicians or mainstream press.
It seems to me that if the entire Eurozone was subject to the same monetary policy by the ECB, it leaves a wonderful base for comparison. In other words, we can forget about monetary policy in our analysis and compare the relative health of other economies in the Eurozone based on their governments' fiscal policies and fundamental economic productiveness. Greece, Spain, and Portugal fail the test.
The entire motivation behind monetary economics is that there doesn't exist a "baseline economy" independent of monetary policy. This was the primary argument against the Euro. Developing economies are hurt more in recessions, and benefit more from widely varying monetary policy.
This is true no matter how "good" or "bad" a country is, even if the "badness" of a country was justification for economically punishing its citizens in the first place (it isn't).
>Voluntarily accepting conditions attached to a loan is not bullying, particularly as the countries giving the loan are in no way at fault for Greece's dire need for a loan.
Victims of loan-sharks, (one of the most despised kind of scum going back to the antiquity), also "voluntarily accept" the conditions attached to their loans.
When you're in need, and even more in "dire need", there's a ton of leverage people have on you, which makes the "voluntarily" part quite meaningless.
Not to mention that there are ways to pressure a country to not try other measures ("if you don't work this way and get this loan, and instead seek alternate courses of action we'll make sure we crush you"). E.g. "if you dare default, we'll kick you out of Eurozone" or "we'll kill your tourism industry", etc.
And of course the countries deciding the load, namely Germany which acts as E.U's big boss, are very much at fault for Greece's dire need for a loan, as they are for the situation with the rest of the Southern economies.
This is again something that has been studied and admitted repeatedly by leading economists and journalists. Germany used its weight and forced the Eurozone (a supposed "economic alliance" for the benefit of all members), to further its own goals, and for its own's economy benefit for decades. E.g. by imposing specific trade rules and plans that disfavor the periphery, using Euro and ECB as monetary instruments to its national advantage, etc.
Sorta like the US has been able to do with the Fed? The difference is that the monetary policy of the ECB has been much tighter than it needed to be, and that caused ripple panics through lenders about solvency.
This didn't happen to the US or Britain because there was never any doubt of solvency, just value (don't want to quantitatively ease to the point of rapid inflation). However, we're at a point where economists are arguing for more inflation in the Eurozone -- which would have fit nicely with the Greek situation.
In the end, this is a case of Germans wanting their money to be worth more abroad, and this has caused Greece harm.
The U.S. can get away with our inflationary monetary policy shenanigans because we (still) have legacy reserve currency status in the world. Currently, banks are being paid interest to keep money in government coffers, so they have no interest in lending it (the economy is also weak, which is likely a factor as well). We do have inflationary pressure in the U.S., which is probably underreported due to the CPI being taken out of official figures. In the event that there was meaningful GDP growth in the U.S., high inflation would likely be part and parcel.
If we didn't have carte blanche in terms of printing all the money we wanted, the pressure would be all on fiscal policy, as it is in Greece. An apt comparison could be U.S. state governments, where they must maintain a balanced budget.
Either you can inflate your currency (which destroys savings), you can increase taxes (which negatively affects growth), or you can cut spending to actually match what comes in. The U.S. has the luxury to do the former for a while thanks to rational monetary and fiscal policy (long) in our past and the fact that our economy is still relatively productive. We are living on borrowed time in this regard. Greece does not have the luxury, and has reached the inevitable end of collectivist economic policy.
Actually they're not "free to do anything they want", as the sanest options (those which most foreign economists advised from the start), such as defaulting and/or cutting part of the debt were taken off the table by threats and diplomatic and political pressure.
I've heard of 1 tax dodger being forced to pay in Greece, but why haven't I heard about other measure to get some of the money back from the previous corrupt government? Surely there's more that can be done there.
Hm, I never thought I would come to admire a Greek politician. He is really superb. What the article failed to notice is the EXTREMELY deep domain knowledge this guy has. He literally blows everyone out of the water!
In his last interview (on Monday 18 May 2015, at tv show 'enikos') he made a quick reference to BTC stating that it's not going to work 'very well' as a currency but the underlying technology was amazing and sure as hell will heave many real-world applications in the future. He was accused of talking 'macro-economics' at the Eugogroup, as if the 'Eurogroup' is the 'kindergarten' where people are not supposed to have basic macro-economic knowledge.
Really amazing guy. I'm proud he is my FinMin.
UPDATE/OFF-TOPIC: I see many comments that are disheartening for me as a Greek on a national level. However, I also noticed a lack of basic economic concepts from large parts of the HN crowd. I'm talking about those who take the time to comment.
I noticed the same thing in bitcoin-related post discussions. Ultimately I stopped commenting on the subject because there were many people who clearly understood the theory around the protocol bad had really a very narrow (if any) understanding of how macro-economics, currencies, surpluses and public finances (generally speaking) work.
This is something that puzzles me and I can't find any reasonable explanation. In other domains, like biology, molecular biology, medicine - domains which I'm able to understand at some level because I'm a pharmacist - the HN commentators seem to be extremely prepared.
I wonder if I'm the only one who noticed this (for the specific topic of economics at least) or there are others who think that when talking 'economics' or some other topic, the HN crowd is, on average, not well prepared and the comments are not up to the expected level?
Sorry for the huge comment, have a nice day everyone :-)
If you are discussing molecular biology, it's easy to tell that you don't know anything. Not that no one makes mistakes about the subject, but at least there is a sizeable group of people prepared to say "I know nothing about that"
Economics is something that everyone participates in. This increases the ease of having an opinion about it, and decreases the number of people willing to say "I know nothing about that"
As for Bitcoin, that may be partly due to the halo effect. Bitcoin has an effective technical base. That can lead us to assume that all aspects of Bitcoin are effective.
(Note that this is not an argument against Bitcoin. Instead it's an explanation for why people might overestimate it.)
Mostly because most folks that have no understanding of molecular biology won't really comment on it, so you will get the 'experts' doing so, unfortunately, everyone thinks they know economics enough to spout some of their ideas. (you can see this at bars as well, talk about physics, and you get a conversation with the only person that understands it, you talk about economics (or politics) and everyone is an expert, including the drunk hobo in the corner)
So, if one believes that Varoufakis is right, but also believe that the European Commission and the European Central Bank are idiots, empowered by the EU democratic deficit, does anyone have any ideas how to best invest to bet against the EU?
If dollars are overbought, gold is an option. A couple of my gold mining stocks more than doubled during the dollar's advance in the past few months. Gold price in USD steady, USD rising, foreign currency and mining costs fall, soaring profit margins.
Historically Europe was a region constantly reminded of people power. The Greek crises is the first "European" action in the Eurozone since the foundation of the European Union.
Like everyone else I curse under my breath when train drivers on strike make me late to something (german train drivers just closed one of their longest strikes of recent memory). But I'm also grateful that these actions happen as they remind everyone including myself of, well, power of the people, at some point other than the token 4 year vote.
75 comments
[ 3.1 ms ] story [ 138 ms ] threadSo success if you're a neo-con distaster capitalist, failure for everyone else.
Economic growth in the UK was about 0.5% quarterly for all of 2013 and 2014, and actually dropped to one of the lowest rates in the past two years in the quarter before the election. So unless you broaden "coincide" to mean "the two years preceding an election", or almost half the currently fixed term of Parliament it is not posisble to sustain the claim you make. And if governments can reliably provide economic expansion over two years it isn't clear why they wouldn't do so all the time.
The social construction of "neo-cons" and "distaster capitalists" as the hated Other by the Left cannot mask the underlying objective reality that austerity policies have not been anything like the disaster that was confidently predicted, and may have even done some good, although I'm sure the proper economic analysis of the effect of these policies is a good deal more nuanced than the simple post hoc ergo propter hoc claim that pundits will be making, although the pundits on the Right do have the slight advantage of not having to actually make up facts to support their view in this case.
EDIT: in an equally contrarian reply to another comment above I did some digging into government expenditures in the UK and your claim fails on that basis as well. Government expenditures are mostly up between 2008 and 2014 inclusive.
And net immigration is down, which is a sign that other countries are becoming comparatively more attractive.
Finally, George Osborne has discovered the same thing that dogged Gordon Brown: tax receipts are stubbornly failing to rise in line with economic growth.
I don't want to get into the contentious political issues involved but I'll say this too: There may be some argument to the loss involved due the budget cuts but on the typical economic numbers its not too bad/quite good considering austerity was used.
1. http://www.tradingeconomics.com/united-kingdom/unemployment-...
EDIT: the drop in 2014 is due to local government not being added in. If I look at just "Central Government" from the same source:
Again, hard to claim much "austerity" in these data.On overall the deficit between the two has been decreasing which is where the 'austerity' terminology is used. The comparison comes in handy where alot of Europe has been going through this (in spite of decreasing or low economic growth) whereas the US increased its deficits too.
What I mean to say is austerity is tied more to the affordability as opposed to the absolute dollar amounts.
Deficits
Year Amount 2009 156.3 2010 148.6 2011 120.6 2012 99.5
The Greeks merely elected a government to stand up to it.
[1] That side of the German stance has been thoroughly discussed even in the Economist, Bloomberg, Financial Times, NYT, etc (as well as the huge financial gains Germany got from the "assistance" they provided).
In the context of the very high complexity of the actual international system we have it doesn't really work or provide any explanatory power.
The inability to do this benefited Germany, at the cost of Greece.
(2) Greece can change its exchange rate. Just declare bankruptcy and leave the Euro.
(2) Which would fuck with the EU a lot more than it would bother Greece, which is why they're making the stand that they are, they know they have less to lose.
There's a reason they haven't been kicked out already. ;)
(2) I agree that that's the game Greece has been playing. But it's perfectly compatible with what I said.
Germany makes its money on manufactured-goods exports, though, so an artificially cheap currency helps them.
Knowing what we do about human history, why would you assume that kindness-filled all-classes-living-in-harmony! rhetoric has much descriptive power?
With a king, a feudal lord or a pharaoh you can see the "class" thing and the exploitation immediately -- why think that with a modern man that has 1000x times the money and resources of his fellow citizens it's any different? Because democracy?
Exports deficits are benefitting the exporter only if eventually the importers pay. But we are seeing that the importers are unwilling/unable to pay.
Moreover the article says
Well, the Euro collapsed for everybody, so all other Euro members had exactly the same benefit.> Given that Greece is 'paying' for these imports with borrowed money, which is unlikely ever to be paid back, how is this setup benefitting?
> Well, the Euro collapsed for everybody, so all other Euro members had exactly the same benefit.
I don't know if you're trolling me or not. Maybe you should read a little bit about the context before engaging into similar discussions.
A few good starting points:
Macronomics: http://www.amazon.com/Macroeconomics-3rd-Edition-Paul-Krugma...
[2] http://www.amazon.com/Currency-Wars-Making-Global-Crisis-ebo...
Also read about public debts what they are and how they did evolve.
Finally, you're looking financial answers to a political problem. Strictly financially speaking, debt restructuring is the only sensible solution to Greece AND everyone else. What you're watching, is a live show of poor justifications from failed politicians (all over the EU).
This gives a pretty clear indication in whose interest the ECB works. Namely in the interest of the majority of the board members.
(...)
The ECB was modelled on the German Bundesbank. As a result, it is one of the world’s most politically independent central banks; its mandate is focused narrowly on price stability; it does not take broader economic goals like unemployment into account in the way other central banks, such as the Fed, do; and it is de facto more restricted than other central banks, since controversial measures can lead to complex political and legal struggles, involving 18 (soon to be 19) countries. Its setup and philosophy are therefore ‘German‘, that is, conservative and cautious.
(...)
A wide range of studies have so far failed to establish a firm consensus on the influence of various countries on the ECB during the euro’s first decade. However, most studies have found that the ECB behaved like a multinational central bank, in which each country has a weight proportional to the size of its economy.
This gave Germany a higher weight than other countries because it is the largest economy in the eurozone.
But it is hard to argue that there was a German bias at the ECB before the crisis. In the post-crisis period, the ECB has failed to stabilise the economy, and inflation has fallen to just 0.3 per cent. It is tempting to see this as the product of a German bias, because the German economy has suffered least from the ECB’s hesitation to do more. But it is hard to argue that German pressure prevented the ECB from lowering rates faster during the last two years, for example, or managing the inflation expectations of consumers and investors more aggressively. Rather, the ECB’s misjudgement of the economic dynamic in the eurozone prevented a more timely and aggressive stance. However, now that the ECB has to move further into unconventional territory to correct its previous errors – potentially by buying government bonds – Draghi has taken German resistance into account and delayed quantitative easing (QE).
(...)
In the governing council of the ECB, all relevant monetary policy decisions are taken by simple majority, with the smaller countries having one vote each, and the larger countries traditionally two (because of the additional votes of executive board members). Some of the more fundamental decisions, like recapitalising the ECB, need a two-thirds majority, based on the ECB’s capital shares, but even then Germany has no veto. What is more, there is currently a clear majority for more aggressive ECB action in the council, which Draghi can draw upon whenever he decides that the time is right. Formally, there is no need for German approval, either from Berlin or from the Bundesbank. Why, then, is Draghi waiting for German approval? There are two possible reasons. First, he might consider it unwise to conduct monetary policy in the face of opposition from the largest eurozone country. There is some merit to this view but it loses validity when the ECB is failing to fulfil its inflation mandate by a wide margin, as it is now.
(...)
Even the relatively cautious OECD has now come out in favour of further monetary stimulus, and the IMF has been urging the ECB to do more for a while. Given that the Fed and the Bank of England have bought government bonds on a massive scale, the ECB would be well in line with consensus views on monetary policy if it did the same.
(...)
The second reason why Draghi might want to get Germany’s backing is that he may fear losing the German government’s consent for the ECB’s other operations, which are not strictly monetary policy. The most important of these, of course, is the OMT programme, which was announced during a panic-driven run on eurozone government bonds ...
Because it goes on and on about how Germany affected ECB for several paragraphs, and explains the reasons and how.
Italy pulled this same stunt in the past; mostly as a way to avoid actually fixing the many problems with the economy here. Floating exchange rates are good in some ways, but those kinds of devaluations are problematic in many ways: you're basically stealing wealth from savers in order to goose export industries a bit, until your crappy economic policies come back to bite you yet again and you need to repeat the cycle.
Greece was bullied and has been bullied and the average Greek has suffered as a result. They are not blameless by any means but what has happened to Greece is not just.
Greece was perfectly happy to get cheap money. Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
Yeah, if only democracy worked outside of power plays and diplomatic and economic might... Because after all the number of votes is all that counts...
>Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
I know. Those lazy southerners getting German money are the same kind of vermin that Jews were back in the day, right? Because what you wrote is word by word the same kind of BS propaganda repeated in German popular media, about some lazy, unproductive vermins ("PIIGS") wasting German tax-payers money.
Here's some reality:
http://www.washingtonpost.com/news/morning-mix/wp/2014/05/16...
https://euobserver.com/social/124761
In any case, if Greeks are so hard working, then you are actually agreeing with my point about Greece not investing the huge subsidies that they have recieved wisely into "improved prductivity". As the WaPo article you quote says: "Caveat: Long hours at the office don’t always equate to high productivity".
Terms that seem too good to be true, are. Borrowers know this. Nation-state borrowers certainly know this.
So sure, easy money was available. No one forced anyone to take it.
There were political considerations involved, obviously: parties that were willing to mortgage the future of their nation were more likely to get elected than parties that were willing to be fiscally responsible (to the extent that it would be astonishing if there even were parties willing to be fiscally responsible.)
So leaders offered terms, but that meant nothing without borrowers being willing to take them. I don't see how, despite politics, that the lenders bear any blame for that because national governments are presumed to be mature stewards of the state, able to say "No" to enticing but ill-advised offers. To argue otherwise is to suggest that the Greeks et al are simply not ready or able to govern themselves, which I have difficulty accepting.
And what happens when a new government is elected that is made up mainly of people who actively protested the loans and the terms the ECB made in the first place and for their trouble were gassed, beaten and jailed?
People who turn off their brains and their capacity for moral/ethical calculation for no better reason that "someone signed a contract" are reductionist, simplistic and are capable of assent to monumental crimes.
Ever heards of "lackeys" in power? Countries ruled by people whose careers are sponsored by foreign powers? It's quite common in Latin America, Africa, Asia and Southern Europe, namely in all places not big enough to be colonialists themselves.
Greece has been a protectorate and semi-colony (with some parts, like the Dodecanese, Ionian Islands and Cyprus being actual colonies to Italians, British, etc) ever since the country was established. From foreign powers sending a German king to rule the place in early 19th century, down to helping establish a military dictatorship back in the late sixties.
The ECB, which was tasked with maintaining inflation levels and nominal expansion throughout Europe, has completely abandoned this goal to serve the (short-sighted and wrong) interests of Germany and other economic powers. If we are to believe the pre-2008 economic mainstream, it is absolutely the fault of the countries giving the loans, who swamped the Eurozone with expansionary policy then yanked it away when it was needed most.
Right now it's not politically convenient to believe in those economic theories, so you don't hear much about them from politicians or mainstream press.
This is true no matter how "good" or "bad" a country is, even if the "badness" of a country was justification for economically punishing its citizens in the first place (it isn't).
Victims of loan-sharks, (one of the most despised kind of scum going back to the antiquity), also "voluntarily accept" the conditions attached to their loans.
When you're in need, and even more in "dire need", there's a ton of leverage people have on you, which makes the "voluntarily" part quite meaningless.
Not to mention that there are ways to pressure a country to not try other measures ("if you don't work this way and get this loan, and instead seek alternate courses of action we'll make sure we crush you"). E.g. "if you dare default, we'll kick you out of Eurozone" or "we'll kill your tourism industry", etc.
And of course the countries deciding the load, namely Germany which acts as E.U's big boss, are very much at fault for Greece's dire need for a loan, as they are for the situation with the rest of the Southern economies.
This is again something that has been studied and admitted repeatedly by leading economists and journalists. Germany used its weight and forced the Eurozone (a supposed "economic alliance" for the benefit of all members), to further its own goals, and for its own's economy benefit for decades. E.g. by imposing specific trade rules and plans that disfavor the periphery, using Euro and ECB as monetary instruments to its national advantage, etc.
This didn't happen to the US or Britain because there was never any doubt of solvency, just value (don't want to quantitatively ease to the point of rapid inflation). However, we're at a point where economists are arguing for more inflation in the Eurozone -- which would have fit nicely with the Greek situation.
In the end, this is a case of Germans wanting their money to be worth more abroad, and this has caused Greece harm.
If we didn't have carte blanche in terms of printing all the money we wanted, the pressure would be all on fiscal policy, as it is in Greece. An apt comparison could be U.S. state governments, where they must maintain a balanced budget.
Either you can inflate your currency (which destroys savings), you can increase taxes (which negatively affects growth), or you can cut spending to actually match what comes in. The U.S. has the luxury to do the former for a while thanks to rational monetary and fiscal policy (long) in our past and the fact that our economy is still relatively productive. We are living on borrowed time in this regard. Greece does not have the luxury, and has reached the inevitable end of collectivist economic policy.
The EU/ECB is leveraging their position, as is Greece. Someone will blink.
http://www.project-syndicate.org/commentary/syriza-eu-defaul...
In his last interview (on Monday 18 May 2015, at tv show 'enikos') he made a quick reference to BTC stating that it's not going to work 'very well' as a currency but the underlying technology was amazing and sure as hell will heave many real-world applications in the future. He was accused of talking 'macro-economics' at the Eugogroup, as if the 'Eurogroup' is the 'kindergarten' where people are not supposed to have basic macro-economic knowledge.
Really amazing guy. I'm proud he is my FinMin.
UPDATE/OFF-TOPIC: I see many comments that are disheartening for me as a Greek on a national level. However, I also noticed a lack of basic economic concepts from large parts of the HN crowd. I'm talking about those who take the time to comment.
I noticed the same thing in bitcoin-related post discussions. Ultimately I stopped commenting on the subject because there were many people who clearly understood the theory around the protocol bad had really a very narrow (if any) understanding of how macro-economics, currencies, surpluses and public finances (generally speaking) work.
This is something that puzzles me and I can't find any reasonable explanation. In other domains, like biology, molecular biology, medicine - domains which I'm able to understand at some level because I'm a pharmacist - the HN commentators seem to be extremely prepared.
I wonder if I'm the only one who noticed this (for the specific topic of economics at least) or there are others who think that when talking 'economics' or some other topic, the HN crowd is, on average, not well prepared and the comments are not up to the expected level?
Sorry for the huge comment, have a nice day everyone :-)
If you are discussing molecular biology, it's easy to tell that you don't know anything. Not that no one makes mistakes about the subject, but at least there is a sizeable group of people prepared to say "I know nothing about that"
Economics is something that everyone participates in. This increases the ease of having an opinion about it, and decreases the number of people willing to say "I know nothing about that"
As for Bitcoin, that may be partly due to the halo effect. Bitcoin has an effective technical base. That can lead us to assume that all aspects of Bitcoin are effective.
(Note that this is not an argument against Bitcoin. Instead it's an explanation for why people might overestimate it.)
I think a more "traditional looking" minister might have produced more results, as Greece work seems to suffer from his "big personality".
On the other hand, this[0] wouldn't exist without him.
[0] the funniest video on an economic minster I've ever seen https://www.youtube.com/watch?v=Afl9WFGJE0M
Like everyone else I curse under my breath when train drivers on strike make me late to something (german train drivers just closed one of their longest strikes of recent memory). But I'm also grateful that these actions happen as they remind everyone including myself of, well, power of the people, at some point other than the token 4 year vote.