Someone recently suggested the current mood in Europe was a bit like the mood in the spring of 1914 -- a sort of uncaring and sloppy optimism, a sense that real disaster can not possibly happen, a stumbling blindness that makes real disaster more likely, exactly because so few, among those in leaderships positions, are thinking that disaster is possible.
15 years ago German was stuck in a slump with high unemployment and little growth. It got out of that slump thanks to the euro, which created a boom in southern Europe, and thus generated export markets for Germany. The nation which benefited the most from the euro is Germany, and yet Germany seems willing to sabotage its own success. If Greece leaves the euro, it becomes more likely that Spain or Italy or Portugal or Ireland might leave the euro. Once these countries leave the euro, they will have weak currencies that will make it easy for them to underprice Germany. One can get a small sense of how this plays out by looking at the growth that Poland has enjoyed, thanks to the weakness of the zloty. Of course, Poland has not seen high growth, since all of its trade partners are stuck in, or near, recession, yet Poland has gained market share in dozens of small industries, such as coffins and beer. And the advantages that Poland has would also become advantages of Greece and Italy and Spain, etc, if they leave the euro. A rational German minister would avoid this at any cost, but the Germans themselves seem entirely blind to the disaster they are getting themselves into. If the euro dies, all of Europe will be hurt, but Germany most of all.
Edited to add: interesting about the rapid upvotes and downvotes on this comment. Right now the comment has a total of 20, but every time I check it has gone up 4, then down 3, then up 2, then down 1, then up 3, down 2, etc. I've never before written a comment that drew forth such intense up and down voting.
I don't believe The Spirit of 1914 [1] was about being uncaring or just blind optimism. It was euphoria that war had finally broken out, ending bitter domestic struggles and endless, fruitless diplomacy.
But in hindsight, as miserable as the pre-war time must have been, open war itself was far, far worse.
It seems we may be at a similar place today, at least economically, if not geo-politically. People want this Greece shit to be over with, but will Europe really be better off without Greece?
Or in hindsight, will we realize that pre-Grexit was nothing compared to post-Grexit?
I think WWI is a bad analogy. In WWI all sides were completely caught off guard by the destructive power of modern industry applied to warfare. WWI was a case of ignoring the looming technological disruption of international relations and politics caused by modern warfare. I think WWI is basically the most panic inducing analogy anyone can come up with. It's great propaganda, but not at all realistic.
I think what's going on in Greece is that the new world financial order, where permanent vassal states are created that must obey and pay tribute to their banker overlords, is slowly unravelling. Not because of outright revolt, but because it's just so impossibly awkward to operate these farces in the context of nominally democratic states. The Greek people are proud and patriotic and they aren't going to believe that their country should be essentially denationalized over debt. What is a government's power if not the way it spends its tax money?
Greece borrowed a lot of money and spent more than they could afford for a long time, and now the loans are coming due and Greece can't pay. The countries who loaned them money have a right to be mad about that (they are taking a loss because of it) and demand that Greece take all reasonable measures to repay them. (Edit: And, apparently, the Greek government has likely been committing fraud by cooking its financial books, both to get into the Euro and afterward; see links elsewhere in this thread.)
The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating). This would likely ruin their import/export business and tank their economy even further (due to the difficulty of trading without loans), and is not something that anyone wants; but if Greece does not demonstrate a way to reign in their spending and repay money that was borrowed, it's what may happen.
Greece can certainly do what it wants. Other countries are not going to stage a military invasion over a loan default. However, as I said, it will ruin their ability to trade. Would you trade with someone who doesn't keep their promises to pay their creditors? How would you feel about sending a ship to Greece with some goods they've promised to purchase from you upon arrival, when you know that the Greek government has decided to default on foreign loans? What if they refuse to pay you too? Moreover, tanking their credit score will tank their ability to borrow money, which will cause their internal banking system to seize, since credit is essential to the economy -- perhaps the company you're planning to sell the goods to wants to pay you, but can't because they can't get a loan either, or can't get their hands on the currency they owe you. Really, it's no good for anyone. Countries need to make good on their promises to trading partners.
> The countries who loaned them money have a right to be mad about that
The countries that loaned them the money we're talking about lent them that money after it was already clear that Greece could not afford those loans. The original loans that Greece could not service were paid off by loans extended by the ECB and others, and Greece was given some assistance in paying off these new loans in exchange for certain austerity measures. These countries absolutely do NOT have a right to be mad if the very austerity measures they insisted on are causing the Greek GDP to shrink and making it harder for Greece to service these debts.
> The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating).
Well, no, they can't. Because, again, the last time Greece came close to defaulting on their loans, these are the people who banded together to bail them out. The entire point here is that Greek shares a common currency with the rest of the Eurozone, and a Greek default has impacts on the rest of the Euro-using countries they would rather avoid. So they are trying to come to an agreement that avoids a Greek default.
> And the advantages that Poland has would also become advantages of Greece and Italy and Spain, etc, if they leave the euro
That won't make Greeks able to make cheap BMW on their own anytime soon though. There are stuff where they could compete with a weak currency, and there are a bunch of stuff that Germans are known for that not many countries can hope to match for now. I don't think they are too worried about that.
X3, X5 and X6 are made in the US. Everything else is made in Germany. The Xs account for a large percentage of BMWs sold here (way larger than in Europe), but still I wouldn't call it a majority.
> a stumbling blindness that makes real disaster more likely
I think as long as there is a party at the table with an interest at stability and that still has deep pockets (Germany) the chance of a crisis is close to 0%. The Greeks right now have little incentive to make real "hard choices" because they know at the 11th hour, no matter how much Germany protests, there is still an almost unlimited supply of money available to bail them out and give them a bridge loan for yet another year.
I will be much more worried in some future year if/when Germany lands in a deep recession, THAT is the time when disaster can happen. THAT is when this state of affairs will stop being sustainable.
You write as if Greece has made no real "hard choices".
FTFA:
The public sector’s structural deficit turned into a surplus on
the back of a ‘world record beating’ 20% adjustment
Wages fell by 37%
Pensions were reduced by up to 48%
State employment diminished by 30%
Consumer spending was curtailed by 33%
Even the nation’s chronic current account deficit dropped by 16%.
The whole point of Varoufakis publishing this on his own blog is because the creditors and the media assume that feckless Greece has done nothing but soak up repeated bailouts.
Nothing could be further from the truth.
The truth is that Greece took the medicine that the creditors prescribed, and it made the patient sicker.
They shrunk the economy more than any other nation in peacetime. That makes it even harder to pay back the impossible sums owed.
I should clarify that by "hard choices" I mean giving up control of their fiscal matters entirely to the European Union (Similar to how US states function.)
This has nothing to do with cutting more pensions. Cutting pensions is an easy choice, in comparison (and they're still misleading the extent of those in TFA by saying "up to 48%".)
Well, they ceded the control of their currency to the EU, and I think it's clear that isn't sustainable without more fiscal unity. It's too late to complain now that they have adopted a currency that no longer under the control of their democratically elected leaders.
So the only options remaining for Greece, long term, are to either cede fiscal control as well, or go their own separate way again (grexit) with their own currency.
(But as I said, none of this matter as long as Germany is willing to continue underwriting their debt, which they will continue to do for years, most likely... but not forever.)
Well, why is Germany underwriting their debt? It's not out of the goodness of their heart. It's because Germany didn't want a Greek default to end up giving a haircut to lenders in Euro-denominated sovereign debt. Greece isn't the only country that's "ceded the control of their currency to the EU," and fiscal unity that requires that the Greeks (and the other countries in financial distress like Spain and Italy and Portugal) give up control but doesn't ask countries like Germany and France to do the same isn't really unity, it's exploitation.
The European Parliament has the 2 powers that defines a parliamentary regime: it votes the budget and nominates the governement. Without Parliament's explicit or tacit will, nothing happens in the European Union.
I'm not an European, and I get my information from an openly biased source, but this is my understanding:
There is a parliament, but there's no real pan-European parties. So the parliament is dominated by a center-right and center-left coalition which work together to make up the government. The opposition is largely made up of "fuck the EU" protest parties who pride themselves in not participating in any sort of political affairs. And since the voting is the European tradition of "you vote for the party, not individual members," you tend to have members that toe the party lines (unlike the US political system). The end result is that European elections tend not to be able to effect any change in policy in the European Parliament.
The term I heard used for this is "democratic deficit."
It does, but it would be a mistake to consider the EU fully democratic.
The European Parliament's power is quite limited in reality, and most of the power is held by the member states and the Commission in practice. It can veto some (but not all) things, but can't even introduce legislation.
And the Eurozone is definitely not democratic, it's run by finance ministers.
The European Parliament is an elected body. And for the first time, the head of the European Commission, the actual governement of the Union, reflects who won this election.
This is a very interesting point. I also believe that a proper fiscal structure for the Euro area is the only way for the Euro to survive long term. This means a Euro government, Euro area taxes, Euro area social systems, etc.
Is this a hard choice? Actually, I suspect that the choice isn't hard at all for Greece. I imagine that the Greek people would be among the easiest to convince of such a change, if it happened in a fair way where all countries are treated equally. If Greece were not treated like a vasal state, but instead simply as one of many countries that together give up some rights to a central democractic Euro government, that might well be a price that the Greek people are willing to pay for recovery within the Euro.
But good luck trying to get the Germans and other northern countries to agree to something like that.
Yeah, I agree that type of "symmetrical" arrangement will never happen. I'm surmising they will either have to come to a one-sided arrangement where fiscal autonomy varies amongst different countries, or Greece (and others) will have to leave the union eventually.
The "fucking article" is written by Greece's Finance Minister. His bio at the bottom of the blog post doesn't mention that subtle point that not only is he affected as a Greek, he actually has a horse in the race.
The mechanism by which Germany has benefited at the expense of other Euro countries is the large trade surplus vs exchange rates.
Normally a big country's currency will appreciate once they start running prolonged large trade surpluses, but the Euro has enabled Germany to keep siphoning in wealth in a way that wasn't possible before the Euro. Similarly pre-Euro the southern countries would have seen their currencies depreciate and get a break in competitiveness.
Hartz is also part of it, Germany has kept labour costs down while southern countries in the same currency area experienced high inflation due to masses of cheap money coming in again due to the Euro.
And of course Germany has been leading the austerity brigade in response to the crisis.
> I am not sure if Germany at fault here, bringing in the euro was not forced by them and Greece was cooking the books to get in.
s/Greece/people running Greece at that time/ If you asked the who didn't profit from joining the Euro, likely you might have gotten a negative reply.
Seriously it's not a fault issue here because multiple parties (including the vampire squids that are multination financial corporations like Goldman) conspired to profit from it.
Question is what is going to be done to right the ship and avoid calamity?
Given the situation, I don't think that Greece has anything to gain from staying in the common currency.
After ~ 8 years of Troika mismanagement the country is in dire situation and there has not been the slightest perception of improvement. So even if SYRIZA choose to blink, the next government wont.
Singling out Greece's creative accounting in Euro accession as the main problem is blaming the victim here. A lot of the countries did it to some extent, the EU turned a blind eye. And most of Greece's budget deficit happened only after joining the Euro. Greece is despite their own share of f-ups largely a casualty of the systemic problems and EU's failure in handling of the crisis.
Spain is also suffering and they didn't cook their books. It was also an open secret that Greece's numbers were manipulated, but the ideal of a united Europe with one currency overruled economic pragmatism.
Even if Greece had no corruption at all they would still be in a nearly indistinguishable position. They still would have been flooded with debt (simply a consequence of interest rates dropping during the boom) and they would still get a crushing depression (because that's what happens when you share a currency with larger and economically stronger countries).
When Greece joined the Euro the outcome was nearly inevitable, so blaming Greece for this makes little sense. The austerity policies the troika imposed on the Greek people were brutal and completely unnecessary, though. So that's the outrageous part.
The austerity measures weren't just unnecessary, they actively hurt the Greek economy, making it even harder for them to repay the remaining debt. It was totally stupid.
I don't think there's a solution that's politically palatable to all parties.
To fix the humanitarian crisis in Greece they need money in the short term, and the opportunity to do substantial reform in the long term. This ultimately benefits everybody in Europe, but it's not an easy sell. The press coverage of the crisis has been so toxic that most people in Germany, Belgium, France, etc, believe that any money going to Greece will by definition get squandered. On top of that there are prejudicial stereotypes about Greeks being lazy (false: in a country with poor infrastructure you have to work more hours to get even a little work done) or that they've benefited immensely from the Euro (false: Germany is the big beneficiary because they're the biggest exporter. The "opportunity" Greece got to borrow cheaply was a trap, and Greece's economy is wrecked now).
So even the politicians who understand the economics don't dare suggest major debt forgiveness and fiscal transfers. This isn't even an outrageous solution, if you remember that states like Mississippi and Alabama net more than 500bln from the federal government, every year. This subsidy is much larger than the entire GDP of Greece. The US is willing to subsidize poorer member states, and the EU should do the same. Otherwise the Euro will fall apart, and the humanitarian catastrophe will worsen.
You seem to pretend that Greece is a single atomic unit. The people cooking those books were neither the voters nor the current government, both of whom are victims of the mismanagement of previous governments.
Of course the voters should never have elected them in the first place, but look at the loons that American voters keep voting for. And the Greek crooks were given both the means and the motive to cook the books, because there was status attached to joining the euro, and the rules were not being enforced so strictly back then. And the easy loans after joining the euro let them pretend to their voters that all was fine.
I guess than the greek people should go find those people who were cooking the books and hold them accountable.
I yet to see how the bad greek government is anybody else's problem other than the voters who put them in place and the country itself. Politicians like to take credit for every progress but never take the blame.
Imagine if you did the same thing as a leader of a corporation. Why is it different than bad leaders of a country? Just because politicians are historically untouchable?
What is the guarantee that it wont happen again with the current government? Did anything change?
Germany enjoys the lowest unemployment rate in history, while Greece has a humanitarian crisis and Spain has also extremely high unemployment. That's not a coincidence.
> Germany's improvements have more to do with Germany's changes to industrial reform than to do with Southern Europe [...]
Then let Greece default (as a Greek I believe that's best for my country in the long term) and see how that plays out. BTW the lack of understanding of 101 macro-economics by Scheuble is disheartening[1]. Every time he speaks, he is comparing economy-wise countries to businesses and/or households, which coming from a FinMin is plain ridiculous[2].
I'm not saying it is the best option, but IIRC, the current alternative is to have the country on life support until at least 2050. The Greek government doesn't need to be carelse's to consider a default the better option.
It's not a great option, but considering the circumstances, the Greek government doesn't really have a lot of options.
Ideally, the debt would be reduced in a controlled manner to a point where Greece can afford to pay off the remainder, but Germany seems to be set on steering towards a Greek default.
A default is a horrible outcome, but "that which can't be paid back won't".
It's been pretty clear for a while now that the debt load for the Greek economy is too great and some sort of bankruptcy(default) is required. The ECB and others have conspired to hide this with the collusion of previous Greek leaders, by heaping on more onerous debt and calling it a bailout.
It will have to end at some point. What's occurred up until now is fraud with the intent that someone further down the road will have to deal with ensuing mess. But it's likely the game of kick the can will continue.
Germany enjoys the lowest unemployment rate in history
This is simply false, and I wonder where you got this idea from. During the 1960s, the (West) German unemployment rate hovered around 1%, i.e. much lower than today.
There's no doubt that Germany is doing well compared to other countries today, but be careful about such statements about history. Germany could be doing even better.
If you're going to say it's not a coincidence, you should have evidence.
Spain's unemployment is largely due to overinvestment in construction-related industries. It was a stupid, greedy move (that the USA made as well), but it's one they can recover from. That's completely different from the problems facing Greece.
Greece just cannot sustain itself based on its current GDP, tax, and retirement arrangement. Unless that changes, they're a lost cause.
I'm sure there were some mistakes made by the euro policy makers in drafting austerity measure agreements for Greece, but I wouldn't let that distract from the main issue, which is that Greece just does not have a sustainable economy without continual devaluation of the currency they use.
> If you're going to say it's not a coincidence, you should have evidence.
The EURO is a common currency. If one country has better infrastructures, geographical position to begin with, etc. It's impossible for countries lagging behind to compete. The 'developed' country will always produce XYZ products at a lower price because it has better technology. So the weaker country will accumulate an export deficit while the stronger country will accumulate a surplus. Now, the 'strong country' will start employing more and more man-power, driving down unemployment because it becomes more and more competitive at product/service 1, product/service 2 and so on and so forth.
At the same time in the weak country will be harder and harder to produce (primary sector or secondary sector) and sell because products flowing in from 'strong country' are in the same currency and being at the same union, there's no import tax.
Now a 2nd year economics student, who has studied macro-economics, would tell you that at this point, the surplus sitting in 'strong country' should become investment in various forms in 'weak country' in order to allow 'weak country' to somehow cope with the difference. Indirectly 'strong country' injects money in it's primary market which is (if we're talking mainly about an exporting economy) the 'weak country' in form of direct or indirect investment.
What Germany does is accumulate money. Greece is the weakest link, but if Greece goes out of the picture, you'll see how Italy, Spain, Portugal and ultimately even France will look a lot like Greece in the long run because they can't compete with the Germans having the same currency.
The above scheme underlies the biggest EUR caveat: You can't have a common currency without having political integration. It's simply impossible because in the long you will always have situations like this. While Greece is a small country so no one cares, when Italy's of France's turn comes, the repercussions and turmoil will be far greater and no matter what the media outlets say, the general feeling I'm getting from all over Europe is that the EUR didn't integrate sh*t. The common currency achieved the exact opposite: It highlighted the worst part of every nation.
Heh, all those links are shown as visited for me. At least we're on the same page.
I could argue that Greece had better infrastructure and geographical position to "begin with". Most Germans alive right now are going to remember when their country was divided into two parts under two wildly different political arrangements.
You're arguing macro economics, but you're really having to shoehorn a timescale that works for your argument.
In all of this, I'm not saying that Greece is "bad", and I don't think they should be demonized. You mention a number of "weak" countries that may be next to go, implying that the whole Eurozone will collapse. However, I don't see those countries as weak, just very different economically. I also don't think the rest of the Eurozone would collapse. In short, I think a good deal of the coastal mediterranean countries would make sense together, as part of their own union. As long as I'm playing armchair cartographer, I'd put Greece, Italy, Slovenia, Cyprus, and the coastal micronations together. I think Croatia and even Turkey would make sense there. The currency pressure could be relieved, and the governments could operate on more comfortable tax and inflation guidelines.
I see France and Spain's problems as being more short lived. France should in all likelihood stick with the rest of the original Eurozone. Spain is complicated politically, with its three distinct cultures. I could see it going either way. I don't think it would be forced out though, it just might be a better match.
The Hartz reforms did lower labour costs for some companies and created a huge new segment of low-income workers that have almost no chances to earn a a regular job and besides that temp work was legalized and is largely employed to lower wage costs.
This made the exports possible and made a few people rich.
A lot of people argue it's unhealthy and will bite Germany in the long term.
Besides that: The average german is still far better off than the average greek.
This is not really an evidence but maybe you could count as an symptom or even do the test by yourself. TV ads from german companies seem to be everywhere now in southern Europe. You can count three in a row easily and before the scam this was not usual at all. When a company needs to spend more resources in advertising, you can safely infer that they are having some troubles to sell their products.
It's a calculated risk though, right? If they bail out Greece that sets precedent for future mismanaged economies to get bailed out and it gives the rest of the pigs the impression you don't have to pay the piper.
On the other hand, if you let Greece leave the euro, it signals the others that Germany (and France) are serious and they had better not fool around.
A Greece with a weak currency does not impact the euro zone economy in any great way. Yannis probably thinks Germany would blink but at this point Germany has likely written them down already.
The simple fact is that states that have large differences in productivity / accumulated infrastructure / endowments must either
1 - have floating currencies;
2 - use government purchases to sterilize the currencies ala china;
3 - support permanent financial flows from the more to the less productive states
Since the currency union effectively forbids #1 and #2, the only solutions left are #3 or the end of the currency union.
This is more-or-less identical to the continued subsidization of the south -- direct fed to state government transfers, eitc, medicare and medicaid, welfare, the military (which is, for many soldiers, essentially a work program), etc -- in the united states by the more productive coastal and northern states.
You may also be unaware that Greece has largely never been bailed out: of the so-called bailout so far, more than half the cash went to shaky German and other foreign banks [1].
It also destroys confidence within countries that are near the brink of collapse, why would I invest in a country that has an unstable future, is what credit markets would be thinking. As well, the debt of Greece has been restructured in light of their financial issues so that the ECB and IMF hold the majority of Greek bonds, have the other faltering countries had their debt restructured? If not that could be an issue going forward. Would the collapse of one country lead to financial contagion? Germany has gained quite a bit from being a part of the Euro, they would also stand to lose a lot from the dissolution of it.
My understanding is the rest of the pigs are, relative to Greece, much more viable and can avert defaults and likely would not need to exit the euro. They have a good industrial base.
Greece has perennially been an underachiever and on top of that wants to live like the rest of europe. One of the biggest issues is tax corruption. They just don't get the tax revenue they need in order to support the lifestyle (retirement, social services, etc) they desire.
People with means had an easy time evading taxes --for some income brackets it was practically voluntary. That's not viable.
Bailing Greece out would be throwing good money after bad. At some point you have to realize there are better places to invest your money.
My understanding is the rest of the pigs are, relative to Greece, much more viable [...]
This explains why today, after the financial crisis of 2007/08, it happens to be Greece in this miserable situation. Greece was the weakest link of Euro countries.
However, imagine a world in which there is a precedent for a Euro exit, and another recession hits. Big funds that have money tied in government bonds will want to exit bonds of weaker countries out of fear that the Greek story repeats.
This then creates the same self-fulfilling vicious cycle that hit Greece: as creditors move elsewhere, interest rates for the weakest countries increase, which worsens those countries' fiscal position, which makes more creditors leave, etc.
In such a situation, it is easy for the weakest link to be pushed over the brink.
Bailing Greece out would be trowing good money after bad.
Keep in mind that Greece isn't actually asking for more money for Greece. The Greek government was running a primary surplus for some time, and is perhaps even running one today, or at least close to it. The only reason for the Greek government to be in deficit is the interest payment, which means that all money that is being "thrown at Greece" actually ends up abroad in creditor countries!
The problem with the mismanaged economies isn't the bailing out, it's that they got such easy loans for such a long time, because the moneylenders thought they'd get their money back no matter what. If the moneylenders lose money on this, they'll probably be a bit more hesitant keeping incompetent and corrupt governments in the saddle.
Suggesting that Greece as a whole is single-handedly responsible for this mess is silly. Yes, of course their governments over the past decade and a half were incompetent and corrupt, but it was because of the cheap loans that they could cover up the problems and keep up the appearance to the voters that all was fine. Without that, they'd have been voted out of office that much sooner. Instead, the easy money left the bad situation to fester for far too long.
Do if we let them default and the lenders lose their shirts, this is a good lesson for both. Lenders learn to not make bad loans and governments learn fiscal responsibility. Most people in the U.S. More or less think it was a mistake to bail out so many big banks (decrying the too big to fail rationale) why do we have a different opinion when it comes to Greece and German banks? Let them lose the shirts.
In the end, I think Greece will blink, they'll try to work something out, but pretend they had the best of the EU negotiators. My gut feeling is that if it came down to it, Germany would let them leave the EU. I think psychologically they have written them down and if a deal happens, well, the better.
It's very kind of you to be so considerate of the Germans, and it's so altruistic of the Greeks and other countries to take on such selfless burdens on behalf of Germany.
So why is public opinion so polarized in the opposite way in these countries?
I will give a Greeks view, backed by some facts, then I'll express my opinion about what happened in Germany. Greece was never asked to take any burden. It was exploited and it's still being heavily exploited because it's politicians allowed this. Modern Greece is a protectorate. It has always been like that. It's political class has always acted as a low-level lackey more than anything else. Of course the population is to blame too, but with so much misinformation receive by the tightly controlled media (Press Freedom Index says Greece is 99th bellow Kyrgyzstan and Gabon - no offense to these countries) by a small oligarchy, it's only natural that the average Greek doesn't really know what's happening.
SOME FACTS
The "bail-outs" Greece received where the largest ones, but they were never meant to help Greece. They were made in order to save German and French banks. Less than 10% from the money received so far stayed in Greece. These money were issued in order for Greece to pay high-yielding bonds to Franco-German banks, until these banks were able to dump their bonds to the ECB. Basically they made a private debt (held by bankers) public (now is held by the ECB and by extension by EU tax-payers.). The result for Greece was that the public debt rose and sacrifices went largely unnoticed.
The German's gov choice for a Greek technocrat PM was, Loukas Papademos. He acted as a middleman between the Simitis government and Goldman Sachs. Isn't that a weird choice, from a country who accuses Greece of false statistics? I'd say it's weird.
Christoforakos was not extradited to Greece[1] from Germany. I'd say that this again is a weird choice from someone who is taking a "moral" stance towards Greece, wouldn't you?
I think Germany exploited Greece in every possible way, like getting paid for non-working submarines. Bribing politicians to get corporate contracts, etc. Add to that 1945 (second WW) German atrocities to all that, which is a theme revived by far-right and far-left political and social groups and you see the pictures. Some say that WWII doesn't matter, but I'd say that it's hard to swallow for people who saw their entire families annihilated and they're still alive[3].
You could say that in the end of the day, it's Greece fault. But that's partly true. Greece has it's own faults, of course, who doesn't? But in many situations, it was never given a real choice, because in the bigger picture, Greece "matters" way more than it would be optimal.
Also here, we have to understand, that Greece has 400 years of Turkish occupation that left an incredibly strong cultural sign. Greece is literally a mix between western and eastern culture and this is something that takes many generations to change.
By all means, Greeks work more hours on average than any other European[4]. Yet they are mostly seen as "lazy". Again that's not the EU's fault. Greece has a prime minister who literally took a tour of around Europe stating that "Greeks are lazy, tax evaders" (George Papandreou).
ABOUT GERMANY
Angela Merkel's 2009 victory was largely based on the promise that "Greeks will pay" for their "bad attitude". This "hate speech" (she literally called Greeks "lazy" among other negative terms) let to the largest CDU victory in their history. And she delivered, I mean Greece has already collapsed, the only who doesn't know are people getting informed from the TV.
At the same times - as other people noted - German exports boomed. Unemployment in Germany became record low, because having countries like the PIGS inside the EU drove the EURO exchange rate down and Germany exploited the situation. It even borrowed money to Greece with a "lower" interest rate (which morally speaking, it's like raping a dead woman.. but anyway).
After SYRIZA came to power, populist German media (mainly Bild, but not on...
It seems like the problem is at least partly financial. Greece lived beyond its means for years, running a significant trade deficit. The government did not take appropriate steps for the country to live within its means. The link that you provided about the submarines demonstrates significant irresponsible spending: Greece had twice as many tanks as UK. Why did it buy four new submarines? Did it not at least consider cutting all that pointless military spending?
It also seems like there's a lot of corruption and irresponsible financial policy. For example, Greece's ridiculous policies around early retirement, such as that allow hairdressers, radio or television anchors, and musicians playing wind isntruments to retire at 50 for women, and 55 for men, due to "hazardous working conditions".
A starting point would be predominately eliminating early retirement, and raising the retirement age to one similar to other countries. It seems like Syriza has been refusing to do that, because the Greek population is pushing them to keep these policies in place. Germany, by comparison, raised its retirement age to 67 years and Spain has done the same. They're talking about raising it to 69. It's understandable if German taxpayers are reluctant to fund Greeks' early retirement (on average, the lowest in Europe).
If Greece and the Greek government wants to embrace reforms, then they need to end corruption and put reasonable policies in place. To be fair, the current article has Greece's finance minister proposing to end early retirement. But, why is this being proposed at the 11th hour, right before default? Why is this part of their proposal to receive further loans, rather than an a voluntary sovereign action that's obviously necessary to correct their economy (independent from any loans)? The fact that Greece hasn't already taken steps like these to reform their economy, and is essentially holding the reforms hostage on further loans, is surely part of the reason why Greece's partners don't trust them. Greece should have put these reforms in place long ago by their own accord. They should have done it in a way that's clearly advertised to their own taxpayers as Greek responsibility for Greek spending, rather than positioning it as part of an agreement that, no doubt, they will say was "forced" on them. All of these facts together give the impression that Greece isn't committed to doing the right thing. Greece's irresponsible spending and financial policy are the responsibility of its government and people. If Greeks want to keep retiring early, OK, but it's understandable that the rest of the Eurozone doesn't want to provide them loans used to fund those pensions.
Because it was/is forced too. Geopolitically speaking it's very convenient (and maybe reasonable) to act as if every state is a "sovereign state", but it's not[0]. The submarine (along with a long series of obscure deals involving bribery, etc.) were strongly supported (almost imposed) by Germans as a bargain.
> It also seems like there's a lot of corruption and irresponsible financial policy.
That's true. There's no beating around the bush, since 1990 spending has been reckless. Basically the EUR gave a free-card access to credit.
The entire pension system should be re-structured but at the same time the base salary should be brought up and not down. Young people can not find jobs and they absolutely can not sustain families.
The current system is extremely twisted: Usually the elderly of the family receive (well used to receive, before the crisis) boosted pensions with which they support the younger members of the family who are unemployed or underpaid. The fact that the young population has "access" to elderly's money is the only reason you don't see riots around though.
The problem is that the reforms already made, slashed a huge chunk of the household's income while not giving anything back (not even hope!) in return. That's why in the end of the day, the majority which suffered from this cuts, is not likely to accept any more reforms.
According to the "Financial Times": "main pensions have been slashed 44 to 48 percent since 2010, reducing the average pension to 700 euros a month … About 45 percent of Greek pensioners receive less than 665 euros monthly — below the official poverty threshold."
> All of these facts together give the impression that Greece isn't committed to doing the right thing.
The problem (for Greeks) is that every single reform imposed by the Troika (or institutions or whatever) are always for the worse and never for the better. After 7 years of implementing reforms dictated from the Troika, I think we can rest assured that they're reform schedule was a failure which drove the public upwards incredibly AND creating a humanitarian crisis.
Greece needs a "New Deal"[1] or a "Marshal Plan". But there's no Roosevelt or G. Marshall around, unfortunately. Again, you're taking for granted that the Troika wanted to "help" Greece, but that's far and away from the feeling I have looking at the facts at hand. They'd rather "discuss" with the parties that made all the mistakes you say, instead of a new non-so-corrupted party.
And exactly the same poison was forced before by the throat of Spain, Portugal... Private debt first magically converted to public debt and then boosted to the sky. The "they party all nigth and day with our money" slogan, all of this is exactly the same history.
> And exactly the same poison was forced before by the throat of Spain, Portugal...
Yes, but neither country had a -25% GDP cut since 2009, 30% of it's business closed, 27% unemployment (60% youth unemployment), -40% salary cuts, -50% pension cuts, 100% increase in poverty since 2009 (60% increase since 2009 in child poverty), 250% increase in households without electricity, 250.000 emigrants (most of them highly educated), the richest 10% in Greece owned 56% of total wealth in 2014[1].
Greece is almost like it was after WWII. Never in history a country received such a strong cut in such a short amount of time.
While all this happened the debt to GDP ratio went from 120% to 180%...
I've heard Merkel saying time and again that Ireland, Portugal and Spain did 'well' and now everything is fine and they're back for good! That's absolutely not the feeling I'm getting talking to Portuguese, Spaniards or Irish people. They have the exact opposite feeling: Austerity doesn't work.
Once these countries leave the euro, they will have weak currencies that will make it easy for them to underprice Germany.
All this talk of "weak currencies" is delusional. It doesn't matter if workers get paid in Euros, Drachmas, Bitcoins, or precious metals; those currencies are all interchangeable.
Now, there is a way that Greece could underprice Germany -- a way which is likely to happen if Greece leaves the Euro, and which happened before Greece entered the Euro. That way is by paying workers less. Of course, this has the effect of lowering the standard of living; that is, roughly speaking, to lower the Greek standard of living to what it was before Greece entered the Eurozone and inflated their economy with lavish borrowing.
Of course, there would be (more) riots in the streets if the Greek government legislated wage cuts for the private sector. So Greece will exit the Euro, spent a tremendous amount of effort converting X EUR/hour wages to Y GRD/hour; then the Drachma will be devalued to bring wages in line with market forces. Same net result, but slower, more expensive, and less riot-prone.
Poland recent progress is mostly non-currency related:
1. Still a lot of catch-up grow. Well educated workforce, great productivity, proximity (geo/legal/cultural) to advanced countries though way lower salaries. If you are from software company in SF Bay Area and looking to build up global presence, this region is likely your best bet.
2. Healthy banking sector. Low number of defaults. No collapse of real estate value.
3. Good use of EU development aid funds. A lot of new roads and infrastructure spending when crisis hit Europe.
4. Responded well to crisis: raised retirement age, froze public salary budget, increase some taxes (by 1% VAT).
All of them have down GDP in 2008-2009, but all of them has recovered and grow a lot since then. However, they all don't have deep structural problems as Greece and got governments who can act in crisis situation effectively.
I get the feeling that the EU would rather forgive Greek debt than see Greece either leave the EU or suffer a prolonged economic stagnation. Smart people in Greece have probably figured this out, and are possibly just holding out for Germany to come out and say "you know, let's just write of a small fraction of our GDP to put this crisis behind us". Reminds me of the banks that were "too big to fail" after the GFC.
If Greece were the only one they just might do that but Greece is just the first of several EU countries in similar predicaments. After them you have countries like Spain and Italy. Same problems with bigger numbers. What you do for one the others will expect as well. This isn't about Greece it's about whom ever comes next.
Germany (and lots of Europe) was rebuilt at great expense and with considerable willingness to forgive debts or reparations, because, quite rightly, the world realized impsosing draconian penalties on Germany after wwi was a major factor leading to wwii. Even since the end of the wwii, Germany had to have debt forgiven and be bailed out more than once for reckless economic policy. Now I feel like whoever is calling the shots are not just being hypocritical, but downright shortsighted. Greece messed up, but they've paid a hefty price, just tell the creditors they're SOL and are going to have to accept a haircut, forgive a majority of the debt and move on.
"Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.[2]
An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction.[3]
The agreement significantly contributed to the growth of the post-war German economy and reemergence of Germany as a world economic power. It allowed Germany to enter international economic institutions such as the World Bank, International Monetary Fund and World Trade Organization."
Greece would kill for those kinds of terms I think.
the people in charge of policy back then cared about long-term political and economic stability, the people in charge today mostly care about getting saved from their stupid investments.
And that would, as in the case of the banks, create all kinds of moral hazard issues. Being a Greek, I could potentially feel relieved by an outcome such as the one you describe. Nevertheless, any such solution would be just a painkiller that fails to address the source of the pain. The Eurozone is fundamentally broken so, even if it is painful, I think exiting the Eurozone is the most appropriate action at this stage. How we can work together in Europe to make sure this does not mean we default to our obligations towards other European people is the question. And of course this should be based on an assessment of the debts we took to support indigenous corruption and consumption (which we should be paying) versus the debt of the last five years which has accumulated just to support imported incompetence (as proven by the outcomes) and mostly served as a concealed European banks bail out.
It seems most likely that Greece will exit. It makes the most sense. Your moral hazard argument is correct, if Greece is forgiven, then other politicians in Italy and other weaker countries will sense an opportunity; one that cannot be allowed financially. It allows Greece to survive and the euro to continue. The issue still remains with the euro, that there is a common currency and no common planning. That the euro has survived so long is a testament to the integrated economies of Europe and that their planning is typically similar as a consequence. However, only a unified planning commission can let it survive much longer.
The moral hazard argument feels a bit flat considering that
A) Imposing harsh sanctions on Germany to "repay its debts" after WWI was a major factor leading to WWII, and
B) The modern industrialized economies of northern and western Europe owe their start to the Marshall Plan. The loan portions of the plan were eventually repaid, but represented less than 10% of the over $12 billion in aid given.
In historical terms, working with Greece to restructure and actually fix the economic problems would be a financial drop in the bucket compared to the money lavished on rebuilding other European economies within living memory.
You could argue that Greece found itself in war against the financial markets. They share some of the blame (like everybody does in any war), but the markets won, so they could provide reparations for the defeated Greece. As in the Marshall Plan example, it is in the interest of (some) financial market players to ensure that Greece can come back to the table, and specially to ensure that the Euro-area has a long-term prospect.
The analogy may seem stupid, but I say it describes pretty well the world we are leaving in.
The moral hazards for the banks were already created as soon as Greek's loans from the banks were replaced by their current loans from the ECB and other sovereign institutions. That ship has sailed. The original lenders already have their money back, no matter what Greece does now.
> I get the feeling that the EU would rather forgive Greek debt than see Greece either leave the EU
I don't. For one, France, Britain, and Germany would have hell to pay in their domestic politics if that happened; for another, Italy, Portugal, and Spain would be the next cabs off the rank if an example is offered that simply refusing to pay the last round of debts gets you forgiveness and more credit.
That incentive does not seem so strong if you consider the situation that Greece has reached for them to be bailed-out (if that ever happens).
Italy, Spain and Portugal are not in the same situation as Greece. And being bailed out would not mean that Greece has just gotten German-level prosperity, just that they can start walking again on their own. I do not see that as a very alluring prospect for would-be "Greeces".
Politicians all around Europe would do us a big service if they started explaining this to their citizens, instead of fostering confrontation between the European peoples.
he's publishing material that the institutions sought to obscure and spin
Interesting. Instead of "the institutions", here in the USA we used to say "the Man"[1]. As in "the Man is keeping me down". Sadly, that phrase is from the '60s and appears to have fallen out of the vernacular.
The problem is that in his blog we're only seeing Varoufakis own spin on the situation. What is he himself obscuring? It's hard for us who are looking in from a distance to keep up.
By "the institutions" he's referring to the ECB and the EU's Council of Ministers, specifically, and making a claim about those institutions that's objectively true (regardless of the merits of his own arguments here).
He's the finance minister of Greece. He can have an op-ed published in the international press more or less at will. He's had no trouble doing that several times in the past.
>Around 1 million families survive today on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit.
It is, and that's why the institutions have urged Greece to introduce a social security net.
It's not as if the other Europeans want Greece people to starve by cutting pensions etc. They want Greece to untangle this mess where there is no dependable social security and instead small social benefits like lower prices for electricity is handed out in an ad hoc way as part of election promises by the political parties who come into power.
It sounds terrifying, and it certainly isn't pretty, but it omits all relevant information. The height of those "meagre" pensions (insanely high compared to even the Greek economy before the collapse), the age of those retired grandparents (often much younger than people that can't afford to retire in countries currently financially supporting Greece) the number of those "rest of the family members" and the sizeable black economy those family members use to supplement that income.
The whole system is terrifying, but the reality is that Greeks aren't starving in the street and this insane system needs fundamental reform to prevent that from happening.
If Greece asked for billions to feed their population they would get it, but they want us to finance keeping this system up. A systems that haemorrhages money so badly it makes aid to developing nations in Africa look like the summit of effectiveness.
When people discuss Greece they act as if every Greek person is the same. It is easy to use stereotypes. Greeks are lazy, they retire early, the pensions are "insanely high compared to even the Greek economy before the collapse". The European Union frames this conflict like this the whole time. Sure there are people that screwed up, that took advantage of the situation. There is corruption and extremely poor government for many years. But when you look past that, to the normal Greek person, trying to to the best and make a living then things aren't so simple anymore. DO you really belive that an entire country is evil and corrupt? My 2 uncles have both worked 6 days a week from 10:00AM until 22:00 PM, and 14 days a year vacation. They started working when they were 14 years old, worked until they were 78 and 79 (While we fight the 67 yr retirement rule in the rest of Europe). When they retired, they had to wait 2 years before their pension would start being paid out (normal practice). Only to find out that it was cut in half when it finally arrived. One of them died, the other one (84) now lives on a pension of less than 650 Euro per month. 300 goes to the rent. That leaves him 300 Euro to buy food, pay the bills, get healthcare, support his children (3), of which 2 have been fired and cannot get a job anywhere. And their grandchildren don't have jobs either (which is far more concerning imo). He has a heart condition, yet cannot pay for any medicines. His son has cancer, there is no money for medicines. So when you say that people aren't starving on the streets, then you may want to think about this situation and let it sink in. There is huge poverty in Greece, you may not se it, but it is there. My uncle isn't in a unique situation, this has happened to many, many Greeks.
But it is true that the retirement age in Greece is very low. Maybe that should be higher, but then again, with such high unemployment, what are you going to do with all those people?
Also, Greeks work the most hours per year of any country in Europe. Maybe that should change; countries with more days off tend to have stronger economies. Maybe people are more productive when they're more rested and relaxed or something?
Wow, I had no idea how bad it was in Greece. This article is an incredible summary. They've removed 40% of pensions, raised taxes, agreed to sell off most public assets within 10 years, agreed to put a 'fiscal council' (read: bankers) in charge of the country's budget.
As a result: Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day; Unemployment skyrocketed to 27%; Undeclared labour reached 34%; Banks are labouring under non-performing loans that exceed 40% in value, Public debt has exceeded 180% of GDP; Young well-qualified people are abandoning Greece in droves; Poverty, hunger and energy deprivation have registered increases usually associated with a state at war; Investment in productive capacity has evaporated; young workers in several chain stores get fired as they approach their 24th birthday so that the employer hires younger workers in their place to avoid paying them the normal minimum wage which is lower for employees under the age of 24; employees are hired part time for 300 euros (340USD) a month, made to work full time and threatened with dismissal if they complain; Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit. ... and I didn't summarize the whole article, this is only about 10% of it!
Overall it looks like the entire population is suffering, no sane young person will stay in the country, and the population are essentially being forcibly reverted to a permanent state of debt-slavery. Not sure about anyone else, but to me it sounds like it is time to cleanse the temple - https://en.wikipedia.org/wiki/Jesus_and_the_money_changers - and default. If the state changes its name and all of its banks go under (perhaps bar one for a kickstart), it might be enough to hammer in to the minds of the rest of the Eurozone that yes, an economically failed state is not the same as its successor. The corporate world allows this to happen: it should be allowed to happen for nations. After all, it's hardly fair for a child to be born in to the world eternally cursed under the labour of a debt which, frankly, the lender(s) made in error. There is risk in money lending, as there is in borrowing, and at this juncture it's immoral to extract anything more from a victim who has already declared bankruptcy and offered up their firstborn.
Do not confuse correlation with causation. High on cheap loans, the Greek economy had a helluva party until 2008, and they were going to have a really bad hangover no matter what. There are some pretty epic stories of the corruption of the era: http://www.theguardian.com/business/2010/may/07/greek-debt-c...
Has austerity made things worse in the short term? Almost certainly, and they've cut plenty of meat along with the fat. But there's no way Greece can pick itself up off the floor without some pretty painful reforms.
While I don't disagree, your comment is conservative and therefore uninteresting in that it is conceived and reasoned within the bounds of the de-facto international system, with all its well known problems. Problems we have to try to solve anyway. Greece is in a place that could meaningfully try something new, right away.
Saying removed 40% of something without knowing what is the original number and how it relates to other countries is not really informative. Greek pensions often outperformed German pensions and this is just wrong. The country essentially financed this by taking in more dept. Also please consider that this entire situation did not develop over night. There was the gross negligence of the financial leaders of the country for a very long time that yielded the current situation.
Well, Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit ... any further cuts will turn those three (very conservatively) million people out in to the street. Greece's total population is only 10.8 million. That isn't gonna be pretty.
The Greeks are complaining that the EU and IMF's terms are unfair, but what's really unfair is that Greece lived beyond its means for years with other people's money and now doesn't want to face reality and tighten its belt under very generous terms. Without the EU and IMF's help, Greece wouldn't even have the luxury of manufacturing these crises every time they blow their previous agreements.
They are guilty. They have paid a hefty price. Bail them out, so that they can start again. They will continue to pay a hefty price nevertheless - bailing out a country does not magically make them prosper. Your moral sense of justice will not be severely offended, don't worry.
We will bail them out, or they will default. What is the best option for the Greeks? What is the best option for the Euro-zone? I argue that, for both parties, the best option is to bail them out and keep the Euro-zone alive.
They are being bailed out, but they don't like the strings attached. They will never be a prosperous country if they don't reform their bloated public sector and onerous regulations on businesses, particularly those regarding labor. And yet those are the very reforms they refuse to implement.
Without serious reforms, I don't think it's in the EU's interests to prolong this sorry drama.
What the Greek are arguing is that those strings attached are not going to make any difference macro-economically speaking, and that they are going to be extremely painful to an already suffering population. Those measures amount to nothing if you compare it with the cost of servicing the debt.
Basically, they are bankrupt. To "end the sorry drama", either you let them fall on their own (out of the euro, maybe out of the EU), or you bail them out.
I think it is in the interest of Europe (and surely of Greece), to bail them out. Even if it on the surface creates so-called moral hazards: nobody really wants to be in the situation of Greece to be bailed out.
There are more aspects to the issue:
- monetary: the whole world is running on the printing press. The Americans are doing it, big time. Isn't California bankrupt too? Why should Europe not do it? Just restructure the debt, print the money, create a huge investment program and start funding projects in Greece - and other parts in Europe. We will get some inflation long-term, but who cares? Why should Europe be applying a harsh monetary policy while the US is rigging the markets, just because they can?
- humanitarian: do we really want to have a fallen first-world country in the middle of Europe, with third-world poverty levels? What does that say about our "community"? Can't we help one of our partners, once it has become clear that they can not get out the hole by themselves?
- reciprocity: parts of Europe have been bailed out in the past (Marshall Plan). Why can't we do it now, when the economy is doing much better, comparatively? You can argue that that was a different situation, and a looong time ago. But crisis happen (luckily) once every so many decades. Now we have a big crisis: let's show that the European project is there in case of trouble too.
- geopolitical: do we really want the Russian or the Chinese help one of our European partners? Do we really want to tell the world: we do not care about Greece, even if we can help them, while the Russians or the Chinese, with much looser ties to Greece and with a comparatively weaker economy, are willing (thinking on geopolitical interests, of course) to help them? How long will the European project survive if we are not there to help each other whenever a crisis arises?
Greece has to make reforms. Greece has made reforms. More reforms are not going to amount to much of anything. Let's bail them out.
How can anyone claim that more reforms won't amount to much?
They've barely reformed at all. The public sector is still bloated and spending too much, the tax burden is much too high, productivity across the economy is dismal, and they refuse to cut welfare programs that they can't afford going forward, let alone with the massive amount of debt they already have.
The Marshall Plan was about building up the western alliance in the aftermath of the most destructive war in history; the US was also trying to counter the USSR's expanding influence. Greece is being bailed out because they spent other people's money so irresponsibly that no one will extend credit to them and they can't afford to service their existing debt. Two very different situations.
Well, they are paying around 4% GDP in debt (2.5% real, since some creditors are allowing for a non-service period), which is actually not that much. But they have a huge debt/GDP ratio (around 200%), which has dramatically increased during the crisis, specially during the austerity period imposed by the creditors. So, austerity is not working, there is not much more that can be squeezed, and the Greek worry is that squeezing more public spending will actually further reduce GDP, making the ratios all the worse. A big chunk of the Greek economy is based on public spending now, and lots of people are living off the state, because unemployment has soared. This situation is far from ideal, but what can be done? Sure, you can just force all those people under bridges, but is that in the interest of Greece or Europe?
Faced with that prospect, Greece would leave the Euro, which would be a blow to the Euro-project. We have a terminal patient, and we can help it. With a bit of luck, in a couple of decades it will become a productive member of society again.
The Marshall Plan had a lots of good reasons going for it, and probably some critique too. In the end it proved to be a good solution, which increased prosperity worldwide. It was a political decision. You could have very well argued: "those Germans, they looked for it and they got what they deserve: let them rot", but we didn't, and we are all the better off.
Regarding countering the USSR: as I have argued above, geo-politically the situation is right now very similar. The Greeks are courting the Russians and the Chinese (or the other way around). Do we want to split the European project at the Balkans?
I understand your perspective on this, I just think that bailout money should be contingent on measures to make Greece's public sector sustainable. At the very least, that means cutting the deficit so it grows slower than GDP. In the long run, it means fixing Greece's deeper economic issues.
The EU is already being very generous by accepting tax hikes in a lot of areas where Greece should really be implementing spending cuts. But Syriza wants to convert even more of the spending cuts into tax hikes.
The structural reforms are more important. Deregulating professional trades, selling off nationalized industries, easing bureaucratic barriers to business. The problem is that the Greeks have elected an anti-capitalist far-left party, which is fundamentally opposed to the goal of the reforms.
If the EU is going to budge at all, it should be on accepting a longer term deficit reduction plan. They shouldn't budge on the structural reforms.
There's a lot of people who seem to feel like the Greeks made their own bed and now they should lie in it. Well, fine, except for a few decades now most of Europe has been in the same bed, the European Common Market. And with the introduction of the Euro everyone gets to share a blanket too. This is not just a problem for Greece, and insisting that Greece should bear all the costs of solving it puts petty moralizing ahead of actually trying to solve the problem for everybody.
Europe should split somewhere in the middle into two worlds, much like the Americas (which seem to be like a weird blown up model of the old world) - the Northern part - free and prosperous and forward thinking, and the Southern part - corrupt, criminal and tragically and indulgently self-defeating. Ideally the two should not mix much, as they both seem to find happiness in their own predicament...
There are so much things wrong with this trolling comment, that I do not not were to start. Do not feed the troll they say, but I will anyway loose a couple of seconds with you, just by giving you some keywords.
Well, the US have the dollar (reserve currency) and the bombs going for them, so they can indulge in a lot more recklessness in this regard. We in Europe need to be much more careful.
So far I can't find anyone commenting on Putin and Russia here. There are those who say the Putin is using the Greece situation to destabilize the Euro and Europe.
A lot of money is spent on sustaining Greek economy. Not only by lending money to it, but by EU funds stretching back decades.
This money can be spent in other means: maybe a highway in Estonia or increasing pensions in Slovenia. Unemployment is not high only in Greece - Finland can also use funds to lower its own unemployment. Why would the money be spent on sustaining an early retirement in Greece, instead of adding Balkan countries, for example Albania, Macedonia and Monte Negro, to the European Union?
After support from the EU for such a long time, I believe Greece should be at a point where it can help support development in other countries.
The Marshall plan supported the rebuild of Europe after the WWII ("supported" in a much stronger way: it was based on donations, not credit), for a long time. Without that, Europe would have probably needed a longer time to recover - which would have been bad for the world (and particular for the American) economy.
Let's not be naive here: the Americans did this because it was in their interest to do it. Long-term, it payed-out. And we need to learn from them in this regard: it is in the interest of Europe to "invest" in a stabilization of the Euro-area. We need to make clear that for a long-term solution, sacrifices and restructuring is necessary - but those can only go so far.
Greece has done whatever it was able to. They have no more reform margin. Greece is technically bankrupt, and the Euro-area has to bail it out. In three decades time, we will be happy. This is the first serious crisis of the Euro: how we handle it, will define if the Euro has a long-term survival chance - even if it does not mean immediately collapse. Letting go of Greece will destroy the Euro; which is what lots of short-sighted euro-parties (or self-interested outside parties) want, interestingly.
"It would be, I submit to you, a major error to allow such a minuscule difference to cause massive damage to the Eurozone’s integrity. "
It seems like this type of language is being used a lot by all sides. It kind of irritates me that Yanis throws this out like he has no responsibility for making up this "miniscule" difference. If the difference really is "miniscule," why isn't it covered in Greece's proposals?
Whether it is Yanis or Juncker, it seems they just use rhetoric to place the burden of making an actual compromise on the other side.
> It kind of irritates me that Yanis throws this out like he has no responsibility for making up this "miniscule" difference. If the difference really is "miniscule," why isn't it covered in Greece's proposals?
And why are those proposals, like eliminating Greece's very early retirement, only being made now? Greece's average retirement age is purportedly 61, with some people retiring as early as 50. Meanwhile Germany and Spain raised their retirement age to 67 and have discussed 69. It's completely understandable to me that their taxpayers who will work until 67 do not wish to fund these pensions.
It tells me something that Yanis suggests fixing the pension system now in this 11th hour proposal. If Greece was seriously committed to fiscal responsibility, the government would have done this of their own accord long ago, right? By including this as part of the "deal", presumably it will allow the Greek government to say it was "forced" on them, rather than taking responsibility and making a sovereign decision, independent from any new agreements with third parties, to do the right thing and institute policy that will allow their government and pension system to be solvent.
Greece shouldn't be in the EU in the first place... They were only admitted into it because the altered numbers about their economy ( it got exposed afterwards)...
Then again, even Belgium ( where i live) has a to high governement debt.. But nothing beats Greece in favor of manipulated / incorrect numbers though.
138 comments
[ 1493 ms ] story [ 494 ms ] thread15 years ago German was stuck in a slump with high unemployment and little growth. It got out of that slump thanks to the euro, which created a boom in southern Europe, and thus generated export markets for Germany. The nation which benefited the most from the euro is Germany, and yet Germany seems willing to sabotage its own success. If Greece leaves the euro, it becomes more likely that Spain or Italy or Portugal or Ireland might leave the euro. Once these countries leave the euro, they will have weak currencies that will make it easy for them to underprice Germany. One can get a small sense of how this plays out by looking at the growth that Poland has enjoyed, thanks to the weakness of the zloty. Of course, Poland has not seen high growth, since all of its trade partners are stuck in, or near, recession, yet Poland has gained market share in dozens of small industries, such as coffins and beer. And the advantages that Poland has would also become advantages of Greece and Italy and Spain, etc, if they leave the euro. A rational German minister would avoid this at any cost, but the Germans themselves seem entirely blind to the disaster they are getting themselves into. If the euro dies, all of Europe will be hurt, but Germany most of all.
Edited to add: interesting about the rapid upvotes and downvotes on this comment. Right now the comment has a total of 20, but every time I check it has gone up 4, then down 3, then up 2, then down 1, then up 3, down 2, etc. I've never before written a comment that drew forth such intense up and down voting.
But in hindsight, as miserable as the pre-war time must have been, open war itself was far, far worse.
It seems we may be at a similar place today, at least economically, if not geo-politically. People want this Greece shit to be over with, but will Europe really be better off without Greece?
Or in hindsight, will we realize that pre-Grexit was nothing compared to post-Grexit?
[1] https://en.wikipedia.org/wiki/Spirit_of_1914
I think what's going on in Greece is that the new world financial order, where permanent vassal states are created that must obey and pay tribute to their banker overlords, is slowly unravelling. Not because of outright revolt, but because it's just so impossibly awkward to operate these farces in the context of nominally democratic states. The Greek people are proud and patriotic and they aren't going to believe that their country should be essentially denationalized over debt. What is a government's power if not the way it spends its tax money?
The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating). This would likely ruin their import/export business and tank their economy even further (due to the difficulty of trading without loans), and is not something that anyone wants; but if Greece does not demonstrate a way to reign in their spending and repay money that was borrowed, it's what may happen.
Greece can certainly do what it wants. Other countries are not going to stage a military invasion over a loan default. However, as I said, it will ruin their ability to trade. Would you trade with someone who doesn't keep their promises to pay their creditors? How would you feel about sending a ship to Greece with some goods they've promised to purchase from you upon arrival, when you know that the Greek government has decided to default on foreign loans? What if they refuse to pay you too? Moreover, tanking their credit score will tank their ability to borrow money, which will cause their internal banking system to seize, since credit is essential to the economy -- perhaps the company you're planning to sell the goods to wants to pay you, but can't because they can't get a loan either, or can't get their hands on the currency they owe you. Really, it's no good for anyone. Countries need to make good on their promises to trading partners.
The countries that loaned them the money we're talking about lent them that money after it was already clear that Greece could not afford those loans. The original loans that Greece could not service were paid off by loans extended by the ECB and others, and Greece was given some assistance in paying off these new loans in exchange for certain austerity measures. These countries absolutely do NOT have a right to be mad if the very austerity measures they insisted on are causing the Greek GDP to shrink and making it harder for Greece to service these debts.
> The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating).
Well, no, they can't. Because, again, the last time Greece came close to defaulting on their loans, these are the people who banded together to bail them out. The entire point here is that Greek shares a common currency with the rest of the Eurozone, and a Greek default has impacts on the rest of the Euro-using countries they would rather avoid. So they are trying to come to an agreement that avoids a Greek default.
That won't make Greeks able to make cheap BMW on their own anytime soon though. There are stuff where they could compete with a weak currency, and there are a bunch of stuff that Germans are known for that not many countries can hope to match for now. I don't think they are too worried about that.
I think as long as there is a party at the table with an interest at stability and that still has deep pockets (Germany) the chance of a crisis is close to 0%. The Greeks right now have little incentive to make real "hard choices" because they know at the 11th hour, no matter how much Germany protests, there is still an almost unlimited supply of money available to bail them out and give them a bridge loan for yet another year.
I will be much more worried in some future year if/when Germany lands in a deep recession, THAT is the time when disaster can happen. THAT is when this state of affairs will stop being sustainable.
FTFA:
The whole point of Varoufakis publishing this on his own blog is because the creditors and the media assume that feckless Greece has done nothing but soak up repeated bailouts.Nothing could be further from the truth.
The truth is that Greece took the medicine that the creditors prescribed, and it made the patient sicker.
They shrunk the economy more than any other nation in peacetime. That makes it even harder to pay back the impossible sums owed.
This has nothing to do with cutting more pensions. Cutting pensions is an easy choice, in comparison (and they're still misleading the extent of those in TFA by saying "up to 48%".)
Ceding sovereignty to an undemocratic body.
Wonderful.
So the only options remaining for Greece, long term, are to either cede fiscal control as well, or go their own separate way again (grexit) with their own currency.
(But as I said, none of this matter as long as Germany is willing to continue underwriting their debt, which they will continue to do for years, most likely... but not forever.)
Yes, if it ever happens that Germany and France need their economy bailed out in the future they should also have to give up some autonomy.
Some people like to call undemocratic elections that did not pan out the way they hoped.
There is a parliament, but there's no real pan-European parties. So the parliament is dominated by a center-right and center-left coalition which work together to make up the government. The opposition is largely made up of "fuck the EU" protest parties who pride themselves in not participating in any sort of political affairs. And since the voting is the European tradition of "you vote for the party, not individual members," you tend to have members that toe the party lines (unlike the US political system). The end result is that European elections tend not to be able to effect any change in policy in the European Parliament.
The term I heard used for this is "democratic deficit."
The European Parliament's power is quite limited in reality, and most of the power is held by the member states and the Commission in practice. It can veto some (but not all) things, but can't even introduce legislation.
And the Eurozone is definitely not democratic, it's run by finance ministers.
Is this a hard choice? Actually, I suspect that the choice isn't hard at all for Greece. I imagine that the Greek people would be among the easiest to convince of such a change, if it happened in a fair way where all countries are treated equally. If Greece were not treated like a vasal state, but instead simply as one of many countries that together give up some rights to a central democractic Euro government, that might well be a price that the Greek people are willing to pay for recovery within the Euro.
But good luck trying to get the Germans and other northern countries to agree to something like that.
"It got out of that slump thanks to the euro, which created a boom in southern Europe, and thus generated export markets for Germany. "
Germany's biggest trade partners are France, US, UK and China.
https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvir...
Germany's improvements have more to do with Germany's changes to industrial --(relations) reform than to do with Southern Europe:
https://en.wikipedia.org/wiki/Hartz_concept
-- edit added (relatations) to the sentence.
Normally a big country's currency will appreciate once they start running prolonged large trade surpluses, but the Euro has enabled Germany to keep siphoning in wealth in a way that wasn't possible before the Euro. Similarly pre-Euro the southern countries would have seen their currencies depreciate and get a break in competitiveness.
Hartz is also part of it, Germany has kept labour costs down while southern countries in the same currency area experienced high inflation due to masses of cheap money coming in again due to the Euro.
And of course Germany has been leading the austerity brigade in response to the crisis.
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
http://www.forbes.com/sites/timworstall/2011/09/12/greece-wa...
I think most of southern Europe should be not in the euro zone at all, their economy would have better time on a weaker currency.
http://stephansmithfx.com/articles/how-a-weak-currency-affec...
s/Greece/people running Greece at that time/ If you asked the who didn't profit from joining the Euro, likely you might have gotten a negative reply.
Seriously it's not a fault issue here because multiple parties (including the vampire squids that are multination financial corporations like Goldman) conspired to profit from it.
Question is what is going to be done to right the ship and avoid calamity?
After ~ 8 years of Troika mismanagement the country is in dire situation and there has not been the slightest perception of improvement. So even if SYRIZA choose to blink, the next government wont.
Even if Greece had no corruption at all they would still be in a nearly indistinguishable position. They still would have been flooded with debt (simply a consequence of interest rates dropping during the boom) and they would still get a crushing depression (because that's what happens when you share a currency with larger and economically stronger countries).
When Greece joined the Euro the outcome was nearly inevitable, so blaming Greece for this makes little sense. The austerity policies the troika imposed on the Greek people were brutal and completely unnecessary, though. So that's the outrageous part.
To fix the humanitarian crisis in Greece they need money in the short term, and the opportunity to do substantial reform in the long term. This ultimately benefits everybody in Europe, but it's not an easy sell. The press coverage of the crisis has been so toxic that most people in Germany, Belgium, France, etc, believe that any money going to Greece will by definition get squandered. On top of that there are prejudicial stereotypes about Greeks being lazy (false: in a country with poor infrastructure you have to work more hours to get even a little work done) or that they've benefited immensely from the Euro (false: Germany is the big beneficiary because they're the biggest exporter. The "opportunity" Greece got to borrow cheaply was a trap, and Greece's economy is wrecked now).
So even the politicians who understand the economics don't dare suggest major debt forgiveness and fiscal transfers. This isn't even an outrageous solution, if you remember that states like Mississippi and Alabama net more than 500bln from the federal government, every year. This subsidy is much larger than the entire GDP of Greece. The US is willing to subsidize poorer member states, and the EU should do the same. Otherwise the Euro will fall apart, and the humanitarian catastrophe will worsen.
Of course the voters should never have elected them in the first place, but look at the loons that American voters keep voting for. And the Greek crooks were given both the means and the motive to cook the books, because there was status attached to joining the euro, and the rules were not being enforced so strictly back then. And the easy loans after joining the euro let them pretend to their voters that all was fine.
I yet to see how the bad greek government is anybody else's problem other than the voters who put them in place and the country itself. Politicians like to take credit for every progress but never take the blame.
Imagine if you did the same thing as a leader of a corporation. Why is it different than bad leaders of a country? Just because politicians are historically untouchable?
What is the guarantee that it wont happen again with the current government? Did anything change?
> Germany's improvements have more to do with Germany's changes to industrial reform than to do with Southern Europe [...]
Then let Greece default (as a Greek I believe that's best for my country in the long term) and see how that plays out. BTW the lack of understanding of 101 macro-economics by Scheuble is disheartening[1]. Every time he speaks, he is comparing economy-wise countries to businesses and/or households, which coming from a FinMin is plain ridiculous[2].
[1] http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
[2] COMPETITIVENESS - A DANGEROUS OBSESSION P. Krugman, 1994, Foreign Affairs Magazine http://www.pkarchive.org/global/pop.html
I'm horrified of the carelessness with which that option seems to be considered by the Greek government.
Ideally, the debt would be reduced in a controlled manner to a point where Greece can afford to pay off the remainder, but Germany seems to be set on steering towards a Greek default.
It's been pretty clear for a while now that the debt load for the Greek economy is too great and some sort of bankruptcy(default) is required. The ECB and others have conspired to hide this with the collusion of previous Greek leaders, by heaping on more onerous debt and calling it a bailout.
It will have to end at some point. What's occurred up until now is fraud with the intent that someone further down the road will have to deal with ensuing mess. But it's likely the game of kick the can will continue.
This is simply false, and I wonder where you got this idea from. During the 1960s, the (West) German unemployment rate hovered around 1%, i.e. much lower than today.
There's no doubt that Germany is doing well compared to other countries today, but be careful about such statements about history. Germany could be doing even better.
[1] http://www.tradingeconomics.com/germany/unemployment-rate
Spain's unemployment is largely due to overinvestment in construction-related industries. It was a stupid, greedy move (that the USA made as well), but it's one they can recover from. That's completely different from the problems facing Greece.
Greece just cannot sustain itself based on its current GDP, tax, and retirement arrangement. Unless that changes, they're a lost cause.
I'm sure there were some mistakes made by the euro policy makers in drafting austerity measure agreements for Greece, but I wouldn't let that distract from the main issue, which is that Greece just does not have a sustainable economy without continual devaluation of the currency they use.
The EURO is a common currency. If one country has better infrastructures, geographical position to begin with, etc. It's impossible for countries lagging behind to compete. The 'developed' country will always produce XYZ products at a lower price because it has better technology. So the weaker country will accumulate an export deficit while the stronger country will accumulate a surplus. Now, the 'strong country' will start employing more and more man-power, driving down unemployment because it becomes more and more competitive at product/service 1, product/service 2 and so on and so forth.
At the same time in the weak country will be harder and harder to produce (primary sector or secondary sector) and sell because products flowing in from 'strong country' are in the same currency and being at the same union, there's no import tax.
Now a 2nd year economics student, who has studied macro-economics, would tell you that at this point, the surplus sitting in 'strong country' should become investment in various forms in 'weak country' in order to allow 'weak country' to somehow cope with the difference. Indirectly 'strong country' injects money in it's primary market which is (if we're talking mainly about an exporting economy) the 'weak country' in form of direct or indirect investment.
What Germany does is accumulate money. Greece is the weakest link, but if Greece goes out of the picture, you'll see how Italy, Spain, Portugal and ultimately even France will look a lot like Greece in the long run because they can't compete with the Germans having the same currency.
The above scheme underlies the biggest EUR caveat: You can't have a common currency without having political integration. It's simply impossible because in the long you will always have situations like this. While Greece is a small country so no one cares, when Italy's of France's turn comes, the repercussions and turmoil will be far greater and no matter what the media outlets say, the general feeling I'm getting from all over Europe is that the EUR didn't integrate sh*t. The common currency achieved the exact opposite: It highlighted the worst part of every nation.
I urge you to read Bernanke's article: http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
Also: http://www.theguardian.com/business/2014/jul/24/germany-surp...
There are numerous other articles mainly by academics and of course Varoufakis from 2013: http://yanisvaroufakis.eu/2013/11/01/the-us-treasury-is-righ...
I could argue that Greece had better infrastructure and geographical position to "begin with". Most Germans alive right now are going to remember when their country was divided into two parts under two wildly different political arrangements.
You're arguing macro economics, but you're really having to shoehorn a timescale that works for your argument.
In all of this, I'm not saying that Greece is "bad", and I don't think they should be demonized. You mention a number of "weak" countries that may be next to go, implying that the whole Eurozone will collapse. However, I don't see those countries as weak, just very different economically. I also don't think the rest of the Eurozone would collapse. In short, I think a good deal of the coastal mediterranean countries would make sense together, as part of their own union. As long as I'm playing armchair cartographer, I'd put Greece, Italy, Slovenia, Cyprus, and the coastal micronations together. I think Croatia and even Turkey would make sense there. The currency pressure could be relieved, and the governments could operate on more comfortable tax and inflation guidelines.
I see France and Spain's problems as being more short lived. France should in all likelihood stick with the rest of the original Eurozone. Spain is complicated politically, with its three distinct cultures. I could see it going either way. I don't think it would be forced out though, it just might be a better match.
This made the exports possible and made a few people rich.
A lot of people argue it's unhealthy and will bite Germany in the long term.
Besides that: The average german is still far better off than the average greek.
On the other hand, if you let Greece leave the euro, it signals the others that Germany (and France) are serious and they had better not fool around.
A Greece with a weak currency does not impact the euro zone economy in any great way. Yannis probably thinks Germany would blink but at this point Germany has likely written them down already.
The simple fact is that states that have large differences in productivity / accumulated infrastructure / endowments must either
1 - have floating currencies;
2 - use government purchases to sterilize the currencies ala china;
3 - support permanent financial flows from the more to the less productive states
Since the currency union effectively forbids #1 and #2, the only solutions left are #3 or the end of the currency union.
This is more-or-less identical to the continued subsidization of the south -- direct fed to state government transfers, eitc, medicare and medicaid, welfare, the military (which is, for many soldiers, essentially a work program), etc -- in the united states by the more productive coastal and northern states.
You may also be unaware that Greece has largely never been bailed out: of the so-called bailout so far, more than half the cash went to shaky German and other foreign banks [1].
[1] http://www.bloombergview.com/articles/2012-05-23/merkel-shou...
What happens if they don't?
Greece has perennially been an underachiever and on top of that wants to live like the rest of europe. One of the biggest issues is tax corruption. They just don't get the tax revenue they need in order to support the lifestyle (retirement, social services, etc) they desire.
People with means had an easy time evading taxes --for some income brackets it was practically voluntary. That's not viable.
Bailing Greece out would be throwing good money after bad. At some point you have to realize there are better places to invest your money.
This explains why today, after the financial crisis of 2007/08, it happens to be Greece in this miserable situation. Greece was the weakest link of Euro countries.
However, imagine a world in which there is a precedent for a Euro exit, and another recession hits. Big funds that have money tied in government bonds will want to exit bonds of weaker countries out of fear that the Greek story repeats.
This then creates the same self-fulfilling vicious cycle that hit Greece: as creditors move elsewhere, interest rates for the weakest countries increase, which worsens those countries' fiscal position, which makes more creditors leave, etc.
In such a situation, it is easy for the weakest link to be pushed over the brink.
Bailing Greece out would be trowing good money after bad.
Keep in mind that Greece isn't actually asking for more money for Greece. The Greek government was running a primary surplus for some time, and is perhaps even running one today, or at least close to it. The only reason for the Greek government to be in deficit is the interest payment, which means that all money that is being "thrown at Greece" actually ends up abroad in creditor countries!
Suggesting that Greece as a whole is single-handedly responsible for this mess is silly. Yes, of course their governments over the past decade and a half were incompetent and corrupt, but it was because of the cheap loans that they could cover up the problems and keep up the appearance to the voters that all was fine. Without that, they'd have been voted out of office that much sooner. Instead, the easy money left the bad situation to fester for far too long.
In the end, I think Greece will blink, they'll try to work something out, but pretend they had the best of the EU negotiators. My gut feeling is that if it came down to it, Germany would let them leave the EU. I think psychologically they have written them down and if a deal happens, well, the better.
So why is public opinion so polarized in the opposite way in these countries?
SOME FACTS
The "bail-outs" Greece received where the largest ones, but they were never meant to help Greece. They were made in order to save German and French banks. Less than 10% from the money received so far stayed in Greece. These money were issued in order for Greece to pay high-yielding bonds to Franco-German banks, until these banks were able to dump their bonds to the ECB. Basically they made a private debt (held by bankers) public (now is held by the ECB and by extension by EU tax-payers.). The result for Greece was that the public debt rose and sacrifices went largely unnoticed.
The German's gov choice for a Greek technocrat PM was, Loukas Papademos. He acted as a middleman between the Simitis government and Goldman Sachs. Isn't that a weird choice, from a country who accuses Greece of false statistics? I'd say it's weird.
Christoforakos was not extradited to Greece[1] from Germany. I'd say that this again is a weird choice from someone who is taking a "moral" stance towards Greece, wouldn't you?
I think Germany exploited Greece in every possible way, like getting paid for non-working submarines. Bribing politicians to get corporate contracts, etc. Add to that 1945 (second WW) German atrocities to all that, which is a theme revived by far-right and far-left political and social groups and you see the pictures. Some say that WWII doesn't matter, but I'd say that it's hard to swallow for people who saw their entire families annihilated and they're still alive[3].
You could say that in the end of the day, it's Greece fault. But that's partly true. Greece has it's own faults, of course, who doesn't? But in many situations, it was never given a real choice, because in the bigger picture, Greece "matters" way more than it would be optimal.
Also here, we have to understand, that Greece has 400 years of Turkish occupation that left an incredibly strong cultural sign. Greece is literally a mix between western and eastern culture and this is something that takes many generations to change.
By all means, Greeks work more hours on average than any other European[4]. Yet they are mostly seen as "lazy". Again that's not the EU's fault. Greece has a prime minister who literally took a tour of around Europe stating that "Greeks are lazy, tax evaders" (George Papandreou).
ABOUT GERMANY
Angela Merkel's 2009 victory was largely based on the promise that "Greeks will pay" for their "bad attitude". This "hate speech" (she literally called Greeks "lazy" among other negative terms) let to the largest CDU victory in their history. And she delivered, I mean Greece has already collapsed, the only who doesn't know are people getting informed from the TV.
At the same times - as other people noted - German exports boomed. Unemployment in Germany became record low, because having countries like the PIGS inside the EU drove the EURO exchange rate down and Germany exploited the situation. It even borrowed money to Greece with a "lower" interest rate (which morally speaking, it's like raping a dead woman.. but anyway).
After SYRIZA came to power, populist German media (mainly Bild, but not on...
It also seems like there's a lot of corruption and irresponsible financial policy. For example, Greece's ridiculous policies around early retirement, such as that allow hairdressers, radio or television anchors, and musicians playing wind isntruments to retire at 50 for women, and 55 for men, due to "hazardous working conditions".
http://www.nytimes.com/2010/03/12/business/global/12pension....
http://www.theguardian.com/business/2015/jun/15/unsustainabl...
A starting point would be predominately eliminating early retirement, and raising the retirement age to one similar to other countries. It seems like Syriza has been refusing to do that, because the Greek population is pushing them to keep these policies in place. Germany, by comparison, raised its retirement age to 67 years and Spain has done the same. They're talking about raising it to 69. It's understandable if German taxpayers are reluctant to fund Greeks' early retirement (on average, the lowest in Europe).
If Greece and the Greek government wants to embrace reforms, then they need to end corruption and put reasonable policies in place. To be fair, the current article has Greece's finance minister proposing to end early retirement. But, why is this being proposed at the 11th hour, right before default? Why is this part of their proposal to receive further loans, rather than an a voluntary sovereign action that's obviously necessary to correct their economy (independent from any loans)? The fact that Greece hasn't already taken steps like these to reform their economy, and is essentially holding the reforms hostage on further loans, is surely part of the reason why Greece's partners don't trust them. Greece should have put these reforms in place long ago by their own accord. They should have done it in a way that's clearly advertised to their own taxpayers as Greek responsibility for Greek spending, rather than positioning it as part of an agreement that, no doubt, they will say was "forced" on them. All of these facts together give the impression that Greece isn't committed to doing the right thing. Greece's irresponsible spending and financial policy are the responsibility of its government and people. If Greeks want to keep retiring early, OK, but it's understandable that the rest of the Eurozone doesn't want to provide them loans used to fund those pensions.
Because it was/is forced too. Geopolitically speaking it's very convenient (and maybe reasonable) to act as if every state is a "sovereign state", but it's not[0]. The submarine (along with a long series of obscure deals involving bribery, etc.) were strongly supported (almost imposed) by Germans as a bargain.
> It also seems like there's a lot of corruption and irresponsible financial policy.
That's true. There's no beating around the bush, since 1990 spending has been reckless. Basically the EUR gave a free-card access to credit.
The entire pension system should be re-structured but at the same time the base salary should be brought up and not down. Young people can not find jobs and they absolutely can not sustain families.
The current system is extremely twisted: Usually the elderly of the family receive (well used to receive, before the crisis) boosted pensions with which they support the younger members of the family who are unemployed or underpaid. The fact that the young population has "access" to elderly's money is the only reason you don't see riots around though.
The problem is that the reforms already made, slashed a huge chunk of the household's income while not giving anything back (not even hope!) in return. That's why in the end of the day, the majority which suffered from this cuts, is not likely to accept any more reforms.
According to the "Financial Times": "main pensions have been slashed 44 to 48 percent since 2010, reducing the average pension to 700 euros a month … About 45 percent of Greek pensioners receive less than 665 euros monthly — below the official poverty threshold."
> All of these facts together give the impression that Greece isn't committed to doing the right thing.
The problem (for Greeks) is that every single reform imposed by the Troika (or institutions or whatever) are always for the worse and never for the better. After 7 years of implementing reforms dictated from the Troika, I think we can rest assured that they're reform schedule was a failure which drove the public upwards incredibly AND creating a humanitarian crisis.
Greece needs a "New Deal"[1] or a "Marshal Plan". But there's no Roosevelt or G. Marshall around, unfortunately. Again, you're taking for granted that the Troika wanted to "help" Greece, but that's far and away from the feeling I have looking at the facts at hand. They'd rather "discuss" with the parties that made all the mistakes you say, instead of a new non-so-corrupted party.
[1] https://en.wikipedia.org/wiki/New_Deal
[0] http://www.counterpunch.org/2015/06/15/germany-is-bluffing-o...
Yes, but neither country had a -25% GDP cut since 2009, 30% of it's business closed, 27% unemployment (60% youth unemployment), -40% salary cuts, -50% pension cuts, 100% increase in poverty since 2009 (60% increase since 2009 in child poverty), 250% increase in households without electricity, 250.000 emigrants (most of them highly educated), the richest 10% in Greece owned 56% of total wealth in 2014[1].
Greece is almost like it was after WWII. Never in history a country received such a strong cut in such a short amount of time.
While all this happened the debt to GDP ratio went from 120% to 180%...
I've heard Merkel saying time and again that Ireland, Portugal and Spain did 'well' and now everything is fine and they're back for good! That's absolutely not the feeling I'm getting talking to Portuguese, Spaniards or Irish people. They have the exact opposite feeling: Austerity doesn't work.
[1] http://www.keeptalkinggreece.com/2015/02/18/greek-humanitari...
All this talk of "weak currencies" is delusional. It doesn't matter if workers get paid in Euros, Drachmas, Bitcoins, or precious metals; those currencies are all interchangeable.
Now, there is a way that Greece could underprice Germany -- a way which is likely to happen if Greece leaves the Euro, and which happened before Greece entered the Euro. That way is by paying workers less. Of course, this has the effect of lowering the standard of living; that is, roughly speaking, to lower the Greek standard of living to what it was before Greece entered the Eurozone and inflated their economy with lavish borrowing.
Of course, there would be (more) riots in the streets if the Greek government legislated wage cuts for the private sector. So Greece will exit the Euro, spent a tremendous amount of effort converting X EUR/hour wages to Y GRD/hour; then the Drachma will be devalued to bring wages in line with market forces. Same net result, but slower, more expensive, and less riot-prone.
1. Still a lot of catch-up grow. Well educated workforce, great productivity, proximity (geo/legal/cultural) to advanced countries though way lower salaries. If you are from software company in SF Bay Area and looking to build up global presence, this region is likely your best bet.
2. Healthy banking sector. Low number of defaults. No collapse of real estate value.
3. Good use of EU development aid funds. A lot of new roads and infrastructure spending when crisis hit Europe.
4. Responded well to crisis: raised retirement age, froze public salary budget, increase some taxes (by 1% VAT).
Let me give you a couple of other examples countries with euro or currency pegged to Euro. Latvia, Estonia, Lithuania, Slovak Republic: https://www.google.pl/publicdata/explore?ds=d5bncppjof8f9_&c...
All of them have down GDP in 2008-2009, but all of them has recovered and grow a lot since then. However, they all don't have deep structural problems as Greece and got governments who can act in crisis situation effectively.
I'm reminded of something PG wrote in a recent essay: "When experts are wrong, it's often because they're experts on an earlier version of the world."
https://en.wikipedia.org/wiki/London_Agreement_on_German_Ext...
"Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.[2]
An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction.[3]
The agreement significantly contributed to the growth of the post-war German economy and reemergence of Germany as a world economic power. It allowed Germany to enter international economic institutions such as the World Bank, International Monetary Fund and World Trade Organization."
the people in charge of policy back then cared about long-term political and economic stability, the people in charge today mostly care about getting saved from their stupid investments.
A) Imposing harsh sanctions on Germany to "repay its debts" after WWI was a major factor leading to WWII, and
B) The modern industrialized economies of northern and western Europe owe their start to the Marshall Plan. The loan portions of the plan were eventually repaid, but represented less than 10% of the over $12 billion in aid given.
In historical terms, working with Greece to restructure and actually fix the economic problems would be a financial drop in the bucket compared to the money lavished on rebuilding other European economies within living memory.
The analogy may seem stupid, but I say it describes pretty well the world we are leaving in.
I don't. For one, France, Britain, and Germany would have hell to pay in their domestic politics if that happened; for another, Italy, Portugal, and Spain would be the next cabs off the rank if an example is offered that simply refusing to pay the last round of debts gets you forgiveness and more credit.
Italy, Spain and Portugal are not in the same situation as Greece. And being bailed out would not mean that Greece has just gotten German-level prosperity, just that they can start walking again on their own. I do not see that as a very alluring prospect for would-be "Greeces".
Politicians all around Europe would do us a big service if they started explaining this to their citizens, instead of fostering confrontation between the European peoples.
As an individual, on his own blog, he's publishing material that the institutions sought to obscure and spin.
Interesting. Instead of "the institutions", here in the USA we used to say "the Man"[1]. As in "the Man is keeping me down". Sadly, that phrase is from the '60s and appears to have fallen out of the vernacular.
The problem is that in his blog we're only seeing Varoufakis own spin on the situation. What is he himself obscuring? It's hard for us who are looking in from a distance to keep up.
[1] https://en.wikipedia.org/wiki/The_Man
By "the institutions" he's referring to the ECB and the EU's Council of Ministers, specifically, and making a claim about those institutions that's objectively true (regardless of the merits of his own arguments here).
This is simply terrifying
It's not as if the other Europeans want Greece people to starve by cutting pensions etc. They want Greece to untangle this mess where there is no dependable social security and instead small social benefits like lower prices for electricity is handed out in an ad hoc way as part of election promises by the political parties who come into power.
What? You mean a social security net like the one that the "reforms" Greece had to implement destroyed?
It was always "ask for money from your grandparents' pensions".
The whole system is terrifying, but the reality is that Greeks aren't starving in the street and this insane system needs fundamental reform to prevent that from happening.
If Greece asked for billions to feed their population they would get it, but they want us to finance keeping this system up. A systems that haemorrhages money so badly it makes aid to developing nations in Africa look like the summit of effectiveness.
60% of Greek pensioners get less than €800 gross a month, and 45% live on less than the monthly poverty limit of €665.
Also, unemployment is sky high so a lot of the pension money is used to feed impoverished family members.
But it is true that the retirement age in Greece is very low. Maybe that should be higher, but then again, with such high unemployment, what are you going to do with all those people? Also, Greeks work the most hours per year of any country in Europe. Maybe that should change; countries with more days off tend to have stronger economies. Maybe people are more productive when they're more rested and relaxed or something?
http://www.teinteresa.es/espana/abuelos-mantienen-hogares-vi...
As a result: Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day; Unemployment skyrocketed to 27%; Undeclared labour reached 34%; Banks are labouring under non-performing loans that exceed 40% in value, Public debt has exceeded 180% of GDP; Young well-qualified people are abandoning Greece in droves; Poverty, hunger and energy deprivation have registered increases usually associated with a state at war; Investment in productive capacity has evaporated; young workers in several chain stores get fired as they approach their 24th birthday so that the employer hires younger workers in their place to avoid paying them the normal minimum wage which is lower for employees under the age of 24; employees are hired part time for 300 euros (340USD) a month, made to work full time and threatened with dismissal if they complain; Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit. ... and I didn't summarize the whole article, this is only about 10% of it!
Overall it looks like the entire population is suffering, no sane young person will stay in the country, and the population are essentially being forcibly reverted to a permanent state of debt-slavery. Not sure about anyone else, but to me it sounds like it is time to cleanse the temple - https://en.wikipedia.org/wiki/Jesus_and_the_money_changers - and default. If the state changes its name and all of its banks go under (perhaps bar one for a kickstart), it might be enough to hammer in to the minds of the rest of the Eurozone that yes, an economically failed state is not the same as its successor. The corporate world allows this to happen: it should be allowed to happen for nations. After all, it's hardly fair for a child to be born in to the world eternally cursed under the labour of a debt which, frankly, the lender(s) made in error. There is risk in money lending, as there is in borrowing, and at this juncture it's immoral to extract anything more from a victim who has already declared bankruptcy and offered up their firstborn.
Has austerity made things worse in the short term? Almost certainly, and they've cut plenty of meat along with the fat. But there's no way Greece can pick itself up off the floor without some pretty painful reforms.
Yet, what the Greece wants is more money to keep doing exactly what they were doing before - that didn't work.
What was that Einstein quote again? The definition of...
said a guy on the internet. Then he quoted Einstein.
Well, Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit ... any further cuts will turn those three (very conservatively) million people out in to the street. Greece's total population is only 10.8 million. That isn't gonna be pretty.
We will bail them out, or they will default. What is the best option for the Greeks? What is the best option for the Euro-zone? I argue that, for both parties, the best option is to bail them out and keep the Euro-zone alive.
Without serious reforms, I don't think it's in the EU's interests to prolong this sorry drama.
Basically, they are bankrupt. To "end the sorry drama", either you let them fall on their own (out of the euro, maybe out of the EU), or you bail them out.
I think it is in the interest of Europe (and surely of Greece), to bail them out. Even if it on the surface creates so-called moral hazards: nobody really wants to be in the situation of Greece to be bailed out.
There are more aspects to the issue:
- monetary: the whole world is running on the printing press. The Americans are doing it, big time. Isn't California bankrupt too? Why should Europe not do it? Just restructure the debt, print the money, create a huge investment program and start funding projects in Greece - and other parts in Europe. We will get some inflation long-term, but who cares? Why should Europe be applying a harsh monetary policy while the US is rigging the markets, just because they can?
- humanitarian: do we really want to have a fallen first-world country in the middle of Europe, with third-world poverty levels? What does that say about our "community"? Can't we help one of our partners, once it has become clear that they can not get out the hole by themselves?
- reciprocity: parts of Europe have been bailed out in the past (Marshall Plan). Why can't we do it now, when the economy is doing much better, comparatively? You can argue that that was a different situation, and a looong time ago. But crisis happen (luckily) once every so many decades. Now we have a big crisis: let's show that the European project is there in case of trouble too.
- geopolitical: do we really want the Russian or the Chinese help one of our European partners? Do we really want to tell the world: we do not care about Greece, even if we can help them, while the Russians or the Chinese, with much looser ties to Greece and with a comparatively weaker economy, are willing (thinking on geopolitical interests, of course) to help them? How long will the European project survive if we are not there to help each other whenever a crisis arises?
Greece has to make reforms. Greece has made reforms. More reforms are not going to amount to much of anything. Let's bail them out.
They've barely reformed at all. The public sector is still bloated and spending too much, the tax burden is much too high, productivity across the economy is dismal, and they refuse to cut welfare programs that they can't afford going forward, let alone with the massive amount of debt they already have.
The Marshall Plan was about building up the western alliance in the aftermath of the most destructive war in history; the US was also trying to counter the USSR's expanding influence. Greece is being bailed out because they spent other people's money so irresponsibly that no one will extend credit to them and they can't afford to service their existing debt. Two very different situations.
Faced with that prospect, Greece would leave the Euro, which would be a blow to the Euro-project. We have a terminal patient, and we can help it. With a bit of luck, in a couple of decades it will become a productive member of society again.
The Marshall Plan had a lots of good reasons going for it, and probably some critique too. In the end it proved to be a good solution, which increased prosperity worldwide. It was a political decision. You could have very well argued: "those Germans, they looked for it and they got what they deserve: let them rot", but we didn't, and we are all the better off.
Regarding countering the USSR: as I have argued above, geo-politically the situation is right now very similar. The Greeks are courting the Russians and the Chinese (or the other way around). Do we want to split the European project at the Balkans?
The EU is already being very generous by accepting tax hikes in a lot of areas where Greece should really be implementing spending cuts. But Syriza wants to convert even more of the spending cuts into tax hikes.
The structural reforms are more important. Deregulating professional trades, selling off nationalized industries, easing bureaucratic barriers to business. The problem is that the Greeks have elected an anti-capitalist far-left party, which is fundamentally opposed to the goal of the reforms.
If the EU is going to budge at all, it should be on accepting a longer term deficit reduction plan. They shouldn't budge on the structural reforms.
Marshall plan, dollar, Irak, criminal population, TTIP, interest rates, NSA, waterboarding, Guantanamo, ...
While I am not a fan of the EU, let's see who goes "belly up" first.
http://www.bbc.com/news/world-europe-31837660
http://www.washingtonpost.com/opinions/putins-global-ambitio...
http://www.dailymail.co.uk/news/article-3133035/Greece-line-...
This money can be spent in other means: maybe a highway in Estonia or increasing pensions in Slovenia. Unemployment is not high only in Greece - Finland can also use funds to lower its own unemployment. Why would the money be spent on sustaining an early retirement in Greece, instead of adding Balkan countries, for example Albania, Macedonia and Monte Negro, to the European Union?
After support from the EU for such a long time, I believe Greece should be at a point where it can help support development in other countries.
Let's not be naive here: the Americans did this because it was in their interest to do it. Long-term, it payed-out. And we need to learn from them in this regard: it is in the interest of Europe to "invest" in a stabilization of the Euro-area. We need to make clear that for a long-term solution, sacrifices and restructuring is necessary - but those can only go so far.
Greece has done whatever it was able to. They have no more reform margin. Greece is technically bankrupt, and the Euro-area has to bail it out. In three decades time, we will be happy. This is the first serious crisis of the Euro: how we handle it, will define if the Euro has a long-term survival chance - even if it does not mean immediately collapse. Letting go of Greece will destroy the Euro; which is what lots of short-sighted euro-parties (or self-interested outside parties) want, interestingly.
It seems like this type of language is being used a lot by all sides. It kind of irritates me that Yanis throws this out like he has no responsibility for making up this "miniscule" difference. If the difference really is "miniscule," why isn't it covered in Greece's proposals?
Whether it is Yanis or Juncker, it seems they just use rhetoric to place the burden of making an actual compromise on the other side.
And why are those proposals, like eliminating Greece's very early retirement, only being made now? Greece's average retirement age is purportedly 61, with some people retiring as early as 50. Meanwhile Germany and Spain raised their retirement age to 67 and have discussed 69. It's completely understandable to me that their taxpayers who will work until 67 do not wish to fund these pensions.
It tells me something that Yanis suggests fixing the pension system now in this 11th hour proposal. If Greece was seriously committed to fiscal responsibility, the government would have done this of their own accord long ago, right? By including this as part of the "deal", presumably it will allow the Greek government to say it was "forced" on them, rather than taking responsibility and making a sovereign decision, independent from any new agreements with third parties, to do the right thing and institute policy that will allow their government and pension system to be solvent.
Then again, even Belgium ( where i live) has a to high governement debt.. But nothing beats Greece in favor of manipulated / incorrect numbers though.