How is this philosophically different from demanding that your drunk friend (who, you know has always been a bit of a fuck up) surrender his car keys? He already has been to rehab a few times and, if you let him, he's gonna destroy a lot more than just his car.
In both cases, it is reasonable given the immediate circumstances. That said, you knew this would happen and you enabled him, so you're still an asshole.
Not my words. Their economy is smaller than Louisiana's, their population is more than twice, and they really, really like entitlements. Sorry if this hurts feelings, but that is not a recipe for success.
That's a very Keynesian perspective. The Austrian (heh) school says that in fact, the tax-and-spend policies favoured by Greek voters harm the economy in a variety of ways, one of which is by encouraging malinvestment.
In an economic union with no possibility of states to set their own monetary policy, there will always be a squeaky wheel. If this fact is not admitted, there is not point for Greece to be in the union.
"And so it is with Greece. After already securing debt relief and effectively being allowed to default by restructuring its debts over the next fifty years at subsidized interest rates — and after actually achieving economic growth in 2014 by cutting taxes and slashing the size of its sclerotic, bloated government — this toxic Greek culture prevailed once more and elected a team of socialist die-hards to drag it back into the mire. Of course it doesn’t help that on the other side of the negotiating table is another bunch of central planners in the EU, IMF, and ECB. Nevertheless, Greece sits stuck between two central planning negotiation parties because its people have been too busy demanding goodies instead of freedom."
"There is a difference between saying that "the Greek people are corrupt" and saying "the Greek government and tax-collection system (or other systems) are corrupt""
Really ?
That corrupt Greek government and tax-collection system, who is it staffed by ?
The Inuit ?
There is a difference between saying that "the Greek people are corrupt" and saying "the Greek government and tax-collection system (or other systems) are corrupt".
That has to be at the very least "compare/contrast". Individuals may well have free will but it's vastly more difficult to say the same of nation states.
The entire EU GDP growth rate is hovering around 1% and has for a very long time. Unless interest rates really are actually zero (or negative), there's no way in the aggregate to beat the vig for debt in Europe at all other than being lucky. That's closer to a lose-lose than I am comfortable with.
Apparently, there is now a tradeoff between the ECB balance sheet and whether or not certain countries are ... something like feasible.
Perhaps the analogy breaks down, but suppose that rather than this being Greece circa 2008 after the mortgage crash, this is South Carolina circa 1848ish after the Railroad Mania period? Then what?
The analogy seems inapt. More like your friend asking for a loan to get him out of a jam, and you replying "sure, if you give me your bank account details, social media passwords, and power of attorney".
Realistically, your options are to either be a soft touch and give the guy a loan, or wash your hands of it and let him crash and burn. This...isn't how people treat their friends. Or how sovereign nations treat each other. (Well, I guess it is now...)
If you think the bailout compares to a "loan", I can see why you find the analogy inapt. I would compare the requisite bailout magnitude to paying off your friend's mortgage, his friend's mortgages, and their student loan debt... In which case, send me those passwords.
Like most "loans" to friends, this one isn't being paid back, no. "Loan" is the word friends use for gifts to try and make it more palatable, but if you're charging interest and expecting prompt repayment they aren't your friend, and if you aren't it's not a loan.
But:
Either give him the money or tell him to fuck off. Those are the only realistic options. If you think he's going to spend it on drugs and he's sitting there promising that no, he'll use it to cover his rent, honest, and you don't believe him then don't give him the money. There's no moral option where you say yes, then lock him in your basement; believe it or not that's actually quite illegal.
A very brief history of debt will show you that, whenever in history countries have bowed to the demands of external creditors for reform, it never turned out well for them, and just another opportunity for predatory investors and foreign interests to get a hold of a country's internal policies for their own purposes.
Joseph Stiglitz, as chief economist of the World Bank, wrote a book on the matter on how the IMF's neoliberal policies of privatization functioned as a mechanism to give away national sovereignty and political power.
Do you understand that this transfer of fiscal sovereignty is not "temporary"? That the deals Greece makes now will be dependent on, literally, decades of compliance to reforms made now, under pain of the debt relief going away?
The Germans may be in the same political union, but they're not Greece's friends, and will never be. Alliances and pacts are always transitory. Giving away political power is a ludicruous proposition.
The real story here isn't Greece but Germany. What happens when the other spendthrift states refuse to tow the line? If the answer is a Lufthansa flight full of bean counters administering a nation like a receiver, that doesn't bode well for the future of the EU.
And it didn't work in Africa. It didn't work in Argentina. The places where it's helped have been fewer, and the effect of failed policies has been substantially worse than the good effects of the successful policies.
It worked mostly on countries that were in a stable situation, and could use some extra money for surviving while implementing some needed changes with severe short term costs.
It could probably have worked in Argentina, but they didn't implement the changes.
Like, it's a loan. If you invest it on something good, it can be great. If you just spend it away, it'll be a problem. If you take it because you have other loans you can not pay, it'll be a disaster.
It's the same demand the Euro-elite are making to every other member of the 28 states. It's not that the offer is a bad one, it's just that it's not democratically done, not openly done, and we fucked them over for five years before this whole thing started.
The reason you're being downvoted is because your reply is logically, to be frank, bollocks. Whether or not you believe that countries gave up fiscal sovereignty upon joining the euro you'd have to believe based on your assessment of the political implications of the euro project. How each individual country manages their affairs _in no way_ could affect whether their fiscal sovereignty was called into question upon joining the euro. What you're saying doesn't make _logical_ sense, regardless of ideological position.
EDIT: sorry for saying bollocks to you, that was harsh, i'll leave it in as a record of what i said but i take it back, again sorry.
also - in light of the fiscal and monetary distinction people are making here (see: https://news.ycombinator.com/item?id=9876055) - if you remember, monetary sovereignty was definitely given up (because you can't print your own money any more) at the time of joining the euro (and even the ERM in the first place when currencies were pegged). and fiscal sovereignty was given up to a degree because there were broad parameters set, like the 60% rule and the 3% rule and so on. Remember those? I couldn't understand those rules at the time but i do now, they were there to prevent situations like what's happening now with Greece! People complained that even France and Germany broke those. I suppose this is the giving up of fiscal sovereignty at the micromanagement level now, e.g. "raise so much in taxes, implement these social reforms". it stinks.
Was it? Not technically, I think; monetary policy was surrendered, not fiscal policy. Unless you're making a comment about how there can't be sane monetary policy without matching fiscal policy, in which case, carry on.
QE is monetary policy. The (somewhat simplified) difference between the two: Fiscal policy is taxes and expenditures; monetary policy is what your central bank does.
Ah, I see -- I'm actually just going to delete my previous comment so because it does not add any value to the discussion here (and to be honest I'm a little embarrassed, heh). Interesting distinction and not one I was making. So much to learn here, thanks!
As Thomas Piketty pointed out, 60% of German debt was cancelled in 1953. (http://thewire.in/?p=5851) France defaulted on its debts after the Napoleonic wars. The United Kingdom defaulted in 1932. Apart from Greece's inability to inflate its way out of debt, how is this any different?
> Apart from Greece's inability to inflate its way out of debt, how is this any different?
The debt forgiveness because of the London Debt Agreement amounted to about 11% of West Germany's 1953 GDP. Most of West Germany's public debt was internal and was wiped out by the currency reform in 1948 (which meant that West German savings took a 93.5% haircut) [1].
Germany has to be thankful to the Allies for imposing only very light sanctions after WW2; but debt forgiveness didn't play much of a role in Germany's recovery.
I.e. there is a strong moral argument that you can make, especially given that Greece largely waived WW2 reparations, but the economic situation isn't the same.
[1] Also, East Germany wasn't as lucky and got hit hard by reparations.
Why should they be "thankful"? I'm wary of this attitude. Isn't defeat and the brutal horror of war (especially that war) sanction enough? Not trying to be smart here, genuine question.
Did not know the numbers though, thanks. The situations aren't as alike it seems as people (myself included) are making it out to be. But they're not completely unalike and people remember history ...
Sorry, I meant to write reparations, not sanctions. Reparations to help restore the economies of those countries that the Third Reich had looted and pillaged and left in ruins.
That's besides the point. Even if Greece would have all its debt cancelled (hypothetically), no one would trust it with more money. Debt is about trust, and after five wasted years of crisis and not delivering on its promises there is seemingly none left for Greece.
It's actually not only austerity. It's reforming their economy that they haven't delivered on, unlike all other euro countries that needed bailing out. 8% of Greece's population still works for the state. I don't blame other EU states to not take Greece seriously anymore, particularly as everyone seems to forget that 50% debt cancellation that happened in 2011.
All in all a lack of fiscal responsibility and incompetent governments that let down their European partners for the last five years..
I'm not sure what that 8% includes (municipal/city workers? military? police?), but in Finland the government claims on their website to employ 79 000 people (~1.5%). No idea if the numbers are comparable.
The other thing that is lost in all of this is that a lot of Greek debt was originally owned by private banks. Over the past several years though most of that debt was sold off to EU governments transferring all the default risk to EU tax payers.
This is the takeaway. Private banks lent to corrupt Greek officials. If you don't want to have trouble getting your money back don't lend billions of it to people who probably won't be able to pay it back.
Because Greece still needs money from the ECB even after they refuse to pay back existing debt. If it were as simple as Greece defaulting, this drama would have been over weeks ago.
A lot of people are comparing this to the German writedown, which in someways is both apt and not apt. Its also important to note that there are no easy paths out of this - money is not invented from nowhere.
The Germans took a horrific beating at the end of World War II - whole cities (Dresden et al) were literally burned completely to the ground at the hand's of the creditor's planes.
While it was the German people's fault to some extent, they were also realistically under a dictatorship when it happened and that had to be taken into account (not everyone or even a majority of people were in favor of the war).
This is the same logic that applied during the first two Greek bailouts (and the 60% haircut the debt has already taken in the private sector) - the Greek people were mislead as to the fiscal state of their country and deserved some faith and leniency.
However, after that, they have done very little to improve the fiscal structure in their company. EVEN WITHOUT ANY DEBT PAYMENTS, the country still is running a deficit because they are way over generous on their pensions, have way too many people working in government, and have a continuing rampant tax collection problem.
This has gone on for 5 years since the start of the crisis and they haven't fixed it (or even close), and by not fixing it, have made the problem way worse.
This needs to change now. They have proven they are not able to do it themselves, it threatens the whole currency, and therefore, like receivership for a bankrupt company, they need to have an external actor come in and do it for them.
Or default and leave the currency. (Which is in my opinion what they should do.)
This is not pretty - but that's reality - and the Greek people have earned it at this point by not electing leaders that have put them on a path to a sustainable fiscal budget.
There is a lesson in there for all of us.
EDIT: And there comes the predictable vote downs. I am honestly not anti-Greek, just trying to summarize the situation as someone with an economics background.
EDIT2: This is also not "just the Germans" - there is also substantial baltic opposition to bailing out Greece without reforms happening first:
"However, after that, they have done very little to improve the fiscal structure in their company. EVEN WITHOUT ANY DEBT PAYMENTS, the country still is running a deficit because they are way over generous on their pensions, have way too many people working in government, and have a continuing rampant tax collection problem."
You know that the greek government was running a surplus as recently as 2013, right?
Most of the "bailout" money never went to Greece -- it went straight to their creditors. Greece definitely borrowed too much, but it's just factually incorrect to say that they haven't improved their fiscal structure.
This is one of the key issues with just issuing more debt to "solve the issue" - paying the right hand with the left hand doesn't solve anything. The reason the money went back to the creditor country is that the interest payments were due and they did this to "kick the can" down the road on how sustainable those payments were.
The can is down the road now and just throwing more money to Greece isn't going to solve anything. Honestly, I think Greece should just flip the bird to Europe and walk away from the debt. They should reintroduce their currency. They won't be able to get more than humanitarian assistance but this will give them the internal political will to balance their budget.
Re: Surplus: Here is the data I am working off of:
Gross Government Debt is not the same thing as a budgetary deficit. The greeks had, through massive tax increases and spending cuts, achieved an annual surplus. They still had a huge amount of debt from prior deficits:
You'll see lots of whinging (mostly from Fortune, but also a few others) that this isn't a "real" surplus, but they're splitting hairs. The point is that the Greeks made a real positive change to their economy. They're just buried under a mountain of debt, and if Germany gave a flying fuck about keeping Greece in the EU, they'd be trying to find a way to restructure it -- as they did for Ireland.
First, the graph you complained about is specifically showing large budget deficits for the last 14 years or so. It's the blue bars. You might think the data in that graph is somehow false, but at least it's very relevant data for this conversation.
Second, there indeed all kinds of sources claiming there's been a primary surplus for years. It's also clear that Greece is paying very little interest (2.6-4.0% of GDP in 2014 depending on the source -- it's quite amazing that you can't get reliable facts on something like this!). Their debt is also continuing to increase rapidly, and now they're going to need another 80 billion bailout.
This combination of supposed facts just doesn't add up. If there's a primary surplus and the interest payments are tiny, there should be either a fiscal surplus or at most a tiny fiscal deficit. And in that case there's no reason for the debt to grow. The easiest conclusion to see is that this is just the books being cooked once again. For example in 2013 that was a total of 9.5% of GDP in spending being ignored due to being supposedly non-recurring. (Not blaming Greece for this btw, it's been in the interest of the EU to pretend that the situation is somehow getting better and the plan is working).
This rather suggests that forgiving the debt (not just, some but even all the debt) would do little to get them out of the whole. They'd still be running a deficit, and would just have to start going to debt once again.
It should never have come to this. They have commendable ideals but Tsipras and Varoufakis, and activist and an academic, were the wrong people at the wrong time. What the Greeks needed was old-school politicians who have played the game for years.
In an ideal world people would all work together for the common good, but in politics it's every person for themselves, and it's naive to think anything else.
Using mainstream media and social media to constantly attack the people on the other side of the negotiating won over their voters, the Greek people, and the left in Europe, but ultimately has only served to anger their creditors (the politicians and those who voted the politicians in).
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[ 3.1 ms ] story [ 119 ms ] threadhttp://krugman.blogs.nytimes.com/2015/07/12/killing-the-euro...
In both cases, it is reasonable given the immediate circumstances. That said, you knew this would happen and you enabled him, so you're still an asshole.
(And I agree with them, FWIW).
http://www.lapasserelle.com/billets/greece_GDP_growth.jpg
No-one with any sense is trying to make this about "Greeks". But there is clearly something wrong with politics and economics in Greece.
The current growth rate is a result of austerity, not a bizarre retroactive justification for it.
a) the Greek economy is currently in debt with no realistic way of repaying it in the short term, and
b) Greek politicians have adopted a socialist-minded Keynesian tinkering-around-the-edges that has somehow been named 'austerity'.
The root cause of a), and then the body politic adopting b), is broken economic culture:
https://mises.org/library/greece%E2%80%99s-biggest-problem-i...
"And so it is with Greece. After already securing debt relief and effectively being allowed to default by restructuring its debts over the next fifty years at subsidized interest rates — and after actually achieving economic growth in 2014 by cutting taxes and slashing the size of its sclerotic, bloated government — this toxic Greek culture prevailed once more and elected a team of socialist die-hards to drag it back into the mire. Of course it doesn’t help that on the other side of the negotiating table is another bunch of central planners in the EU, IMF, and ECB. Nevertheless, Greece sits stuck between two central planning negotiation parties because its people have been too busy demanding goodies instead of freedom."
Really ?
That corrupt Greek government and tax-collection system, who is it staffed by ? The Inuit ?
Either continue with the fiction of nation-states or do without it. That's the choice that will be highlighted.
The entire EU GDP growth rate is hovering around 1% and has for a very long time. Unless interest rates really are actually zero (or negative), there's no way in the aggregate to beat the vig for debt in Europe at all other than being lucky. That's closer to a lose-lose than I am comfortable with.
Apparently, there is now a tradeoff between the ECB balance sheet and whether or not certain countries are ... something like feasible.
Perhaps the analogy breaks down, but suppose that rather than this being Greece circa 2008 after the mortgage crash, this is South Carolina circa 1848ish after the Railroad Mania period? Then what?
Realistically, your options are to either be a soft touch and give the guy a loan, or wash your hands of it and let him crash and burn. This...isn't how people treat their friends. Or how sovereign nations treat each other. (Well, I guess it is now...)
But:
Either give him the money or tell him to fuck off. Those are the only realistic options. If you think he's going to spend it on drugs and he's sitting there promising that no, he'll use it to cover his rent, honest, and you don't believe him then don't give him the money. There's no moral option where you say yes, then lock him in your basement; believe it or not that's actually quite illegal.
Joseph Stiglitz, as chief economist of the World Bank, wrote a book on the matter on how the IMF's neoliberal policies of privatization functioned as a mechanism to give away national sovereignty and political power.
Do you understand that this transfer of fiscal sovereignty is not "temporary"? That the deals Greece makes now will be dependent on, literally, decades of compliance to reforms made now, under pain of the debt relief going away?
The Germans may be in the same political union, but they're not Greece's friends, and will never be. Alliances and pacts are always transitory. Giving away political power is a ludicruous proposition.
It worked very well for Brazil at the 90's. And yes, those were IMF demands. They helped.
Greece situation is different. But you can't generalize it either.
It could probably have worked in Argentina, but they didn't implement the changes.
Like, it's a loan. If you invest it on something good, it can be great. If you just spend it away, it'll be a problem. If you take it because you have other loans you can not pay, it'll be a disaster.
That said fiscal Union is probably a good move.
EDIT: sorry for saying bollocks to you, that was harsh, i'll leave it in as a record of what i said but i take it back, again sorry.
also - in light of the fiscal and monetary distinction people are making here (see: https://news.ycombinator.com/item?id=9876055) - if you remember, monetary sovereignty was definitely given up (because you can't print your own money any more) at the time of joining the euro (and even the ERM in the first place when currencies were pegged). and fiscal sovereignty was given up to a degree because there were broad parameters set, like the 60% rule and the 3% rule and so on. Remember those? I couldn't understand those rules at the time but i do now, they were there to prevent situations like what's happening now with Greece! People complained that even France and Germany broke those. I suppose this is the giving up of fiscal sovereignty at the micromanagement level now, e.g. "raise so much in taxes, implement these social reforms". it stinks.
The debt forgiveness because of the London Debt Agreement amounted to about 11% of West Germany's 1953 GDP. Most of West Germany's public debt was internal and was wiped out by the currency reform in 1948 (which meant that West German savings took a 93.5% haircut) [1].
Germany has to be thankful to the Allies for imposing only very light sanctions after WW2; but debt forgiveness didn't play much of a role in Germany's recovery.
I.e. there is a strong moral argument that you can make, especially given that Greece largely waived WW2 reparations, but the economic situation isn't the same.
[1] Also, East Germany wasn't as lucky and got hit hard by reparations.
Did not know the numbers though, thanks. The situations aren't as alike it seems as people (myself included) are making it out to be. But they're not completely unalike and people remember history ...
http://www.theguardian.com/commentisfree/2013/feb/27/greece-...
Greece's fiscal problems are purely fiscal, and there's no reason to think they will be fixed without fiscal changes in Greece.
All in all a lack of fiscal responsibility and incompetent governments that let down their European partners for the last five years..
What's the figure for other EU states?
Also something was done in 2010, but by just reading the Wikipedia page, I am not able to understand what the involved numbers were: https://en.wikipedia.org/wiki/First_Economic_Adjustment_Prog...
The Germans took a horrific beating at the end of World War II - whole cities (Dresden et al) were literally burned completely to the ground at the hand's of the creditor's planes.
While it was the German people's fault to some extent, they were also realistically under a dictatorship when it happened and that had to be taken into account (not everyone or even a majority of people were in favor of the war).
This is the same logic that applied during the first two Greek bailouts (and the 60% haircut the debt has already taken in the private sector) - the Greek people were mislead as to the fiscal state of their country and deserved some faith and leniency.
However, after that, they have done very little to improve the fiscal structure in their company. EVEN WITHOUT ANY DEBT PAYMENTS, the country still is running a deficit because they are way over generous on their pensions, have way too many people working in government, and have a continuing rampant tax collection problem.
This has gone on for 5 years since the start of the crisis and they haven't fixed it (or even close), and by not fixing it, have made the problem way worse.
This needs to change now. They have proven they are not able to do it themselves, it threatens the whole currency, and therefore, like receivership for a bankrupt company, they need to have an external actor come in and do it for them.
Or default and leave the currency. (Which is in my opinion what they should do.)
This is not pretty - but that's reality - and the Greek people have earned it at this point by not electing leaders that have put them on a path to a sustainable fiscal budget.
There is a lesson in there for all of us.
EDIT: And there comes the predictable vote downs. I am honestly not anti-Greek, just trying to summarize the situation as someone with an economics background.
EDIT2: This is also not "just the Germans" - there is also substantial baltic opposition to bailing out Greece without reforms happening first:
http://www.ekathimerini.com/199040/article/ekathimerini/news...
You know that the greek government was running a surplus as recently as 2013, right?
Most of the "bailout" money never went to Greece -- it went straight to their creditors. Greece definitely borrowed too much, but it's just factually incorrect to say that they haven't improved their fiscal structure.
The can is down the road now and just throwing more money to Greece isn't going to solve anything. Honestly, I think Greece should just flip the bird to Europe and walk away from the debt. They should reintroduce their currency. They won't be able to get more than humanitarian assistance but this will give them the internal political will to balance their budget.
Re: Surplus: Here is the data I am working off of:
http://www.tutor2u.net/economics/revision-notes/a2macro-eu-g...
No surpluses or even close - send a reference if you have different data - genuinely curious.
http://www.reuters.com/article/2014/04/23/greece-primary-idU...
You'll see lots of whinging (mostly from Fortune, but also a few others) that this isn't a "real" surplus, but they're splitting hairs. The point is that the Greeks made a real positive change to their economy. They're just buried under a mountain of debt, and if Germany gave a flying fuck about keeping Greece in the EU, they'd be trying to find a way to restructure it -- as they did for Ireland.
Second, there indeed all kinds of sources claiming there's been a primary surplus for years. It's also clear that Greece is paying very little interest (2.6-4.0% of GDP in 2014 depending on the source -- it's quite amazing that you can't get reliable facts on something like this!). Their debt is also continuing to increase rapidly, and now they're going to need another 80 billion bailout.
This combination of supposed facts just doesn't add up. If there's a primary surplus and the interest payments are tiny, there should be either a fiscal surplus or at most a tiny fiscal deficit. And in that case there's no reason for the debt to grow. The easiest conclusion to see is that this is just the books being cooked once again. For example in 2013 that was a total of 9.5% of GDP in spending being ignored due to being supposedly non-recurring. (Not blaming Greece for this btw, it's been in the interest of the EU to pretend that the situation is somehow getting better and the plan is working).
This rather suggests that forgiving the debt (not just, some but even all the debt) would do little to get them out of the whole. They'd still be running a deficit, and would just have to start going to debt once again.
(2nd hit) Reuters: "Greece sees 2015 budget surplus close to bailout target: report"
and so on ...
http://www.merkfunds.com/currency-asset-class/glossary/prima...
> EVEN WITHOUT ANY DEBT PAYMENTS, the country still is running a deficit because they are way over generous on their pensions,
So clearly primary surplus is relevant.
In an ideal world people would all work together for the common good, but in politics it's every person for themselves, and it's naive to think anything else.
Using mainstream media and social media to constantly attack the people on the other side of the negotiating won over their voters, the Greek people, and the left in Europe, but ultimately has only served to anger their creditors (the politicians and those who voted the politicians in).