The Dim-Post

June 30, 2015

Greece, morality and technical challenges

Filed under: Uncategorized — danylmc @ 10:28 am

What happened? Roughly:

  • The two main political parties in Greece (PASOK and New Democracy, center left and center right, respectively) spent many years transforming the Greek economy into a unique ‘low tax high public spending’ model, in which there was a generous social welfare state but no tax revenue to pay for it. (Shipping, for example, which is where most of Greece’s very wealthy earn their money, was exempt from taxation).
  • So it was funded through borrowing, mostly from French and German banks. The left-wing government won entry to the EU currency union by defrauding the European Union, partly through paying Goldman Sachs to convert part of its debt into derivatives, which it didn’t have to declare to EU officials.
  • Eurozone membership allowed Greece to borrow money at extremely low rates, so the center-right government went on an insane borrowing binge for four years before the global financial crisis.
  • In the wake of the GFC it became apparent that Greece had been misreporting its economic statistics for years, that its public debt levels were unsustainable and that it was in threat of default. The Greek economy went into a deep recession.
  • Now, normally when countries go into recession they devalue their currency. Greece couldn’t do that though because it was a member of the European Currency Union. And normally when you’re in a currency union you’re also in a political union – like the United States – and wealthy members of the union simply transfer money to poorer regions. But there was zero political will in Germany and France to just transfer money to Greece, for obvious reasons.
  •  Enter the ‘Troika’. The International Monetary Fund, the European Central Bank and the European Commission undertook a series of loans to bailout the Greek government and prevent it from defaulting on its debts (which were, remember, mostly to German and French banks). The Troika made the loans contingent on a radical restructuring of the Greek economy.
  • These were the famous ‘austerity measures’. Lower government spending. Wide-scale privatization of state assets. New taxes. The austerity measures would cause some temporary pain, the Troika admitted, but according to all of their forecasts they would lead to a rapid recovery as bond markets rewarded the Greek government for making such tough choices, and business confidence soared.
  • The austerity measures were implemented, slowly, against a backdrop of massive protests, public strikes and rising political support for far-right fascist political parties. The recession worsened. Unemployment increased. More and more businesses went bankrupt.
  • The deepening recession put the Greek government in danger of default again. They went back to the Troika who agreed on another bailout loan on the conditions of even harsher austerity, the first round obviously not having been implemented properly, but the second guaranteed to lead to a recovery and robust growth.
  • The second package was passed through the Greek Parliament, amidst a backdrop of rioting and looting in central Athens. The second round of austerity measures were implemented: the economy continued to collapse. A UK economist described the outcome in 2012:

Since the beginning of 2008, Greek real GDP has fallen by more than 17pc. On my forecasts, by the end of next year, the total fall will be more like 25pc. Unsurprisingly, employment has also fallen sharply, by about 500,000, in a total workforce of about 5 million. The unemployment rate is now more than 20pc. . . . A 25pc drop is roughly what was experienced in the US in the Great Depression of the 1930s. The scale of the austerity measures already enacted makes you wince. In 2010 and 2011, Greece implemented fiscal cutbacks worth almost 17pc of GDP. But because this caused GDP to wilt, each euro of fiscal tightening reduced the deficit by only 50 cents. . . . Attempts to cut back on the debt by austerity alone will deliver misery alone.

  • The social consequences have been devastating. The suicide rate has soared. Youth unemployment is at 65%. HIV rates are up 200%. 20% of the shops in Athens are empty and the city is filled with homeless. 400,000 people in Athens eat at soup kitchens every day; about ten percent of the cities population.
  • The two centrist political parties were voted out of office, replaced at the beginning of the year with Syriza, a radical left-wing party. Because the government is unable to meet its debt repayments Syriza went to negotiate a third rescue package with the Troika, who after careful consideration decided that the Greek economy needs more austerity.
  • Syriza campaigned on an anti-austerity platform, so they’re putting the new austerity offer to a referendum, something that has deeply offended the Troika. A ‘no’ vote seems likely to trigger Greece’s exit from the euro. No one knows what will happen then. One bank estimated the cost to the Eurozone at about a trillion dollars. (Greece is defaulting on a $1.6 billion debt repayment to the European Central Bank).

So there’s plenty of blame to go around here. The politicians who ran Greece from 2000-2009 shouldn’t have borrowed all that money that they couldn’t pay back. The banks shouldn’t have loaned it to them. The EU should have anticiptaed the problem that lack of currency control would cause troubled countries.

But the real blame seems, to me, to be with the Troika. A bunch of the world’s most brilliant economists have contrived to take a moderate sovereign debt crisis and used their expertise to wreck a developed economy, inflict extraordinary misery on millions of people and initiate the break-up of the Eurozone, triggering a global market panic.

Keynes used to say ‘The economy is not a morality play. It is a series of technical challenges.’ Unfortunately, Europe’s economists turned out to be the worst people imaginable at solving this challenge.

153 Comments »

  1. One of the better summaries I’ve seen, cheers danyl. For the sake of the Greek people, I hope they choose to exit. Currency devaluation and an export-led recovery probably offers a better way forward for the Greek economy than austerity. I find it baffling that the EU won’t admit that it’s plan has failed. Yes it may work in other countries (seems to be working in UK), but it has not worked in Greece. Why won’t they show any flexibility?

    A Greek exit will not be good news for the West though. I’m sure Putin is rubbing his hands in glee at the prospect.

    Comment by Seb Rattansen — June 30, 2015 @ 10:49 am

  2. “The left-wing government won entry to the EU currency union by defrauding the European Union, partly through paying Goldman Sachs to convert part of its debt into derivatives, which it didn’t have to declare to EU officials.”

    Has this part of the EU been fixed, at least, to the point that it couldn’t happen again?

    Comment by izogi — June 30, 2015 @ 10:51 am

  3. Since its independence from the Ottomans in 1830 Greece has spent roughly half of its existence in a state of default on its debts.

    @Seb: The EU won’t permit a Grexit because it has implications beyond Greece. Robert Peston explains it better than I could here: http://www.bbc.com/news/business-33316413

    Comment by kalvarnsen — June 30, 2015 @ 10:59 am

  4. Stiglitz agrees with you: http://www.theguardian.com/business/2015/jun/29/joseph-stiglitz-how-i-would-vote-in-the-greek-referendum

    I actually think the problem is that the so-called “rational” economists in the troika *do* see this as a morality play. They think Greece should be punished for its past mistakes, so it will learn its lesson and not do it again. Besides the fact that personifying a nation is inaccurate (and idiotic), as you say it is wrecking havoc, and going to have far worse consequences than the initial wrongdoings by the Greek government.

    Surely, the actual rational thing to do is to acknowledge what went wrong, try to stop it happening again, but – above all – clean up the immediate mess to avoid it bringing the world into another recession (or worse).

    Comment by Sam.C — June 30, 2015 @ 11:10 am

  5. The EU’s approach is not unlike a fiscal Treaty of Versailles, and the PASOK/ND approach is not unlike the Weimar Republic’s desperate attempts to meet the conditions. And the rise of SYRIZA and Golden Dawn were a pale imitation of the Weimar Republic collapse and the subsequent rise of the KPD & NSDAP. It also doesn’t help that Greece’s tax department is more bent than a hairpin.

    A Grexit would probably give more than a few ideas to Podemos in Spain, and the 5 Star Movement in Italy, among others. What sort of knock-on effects would there be to Auckland’s housing bubble I wonder?

    Comment by Kumara Republic (@kumararepublic) — June 30, 2015 @ 11:38 am

  6. Well that’s the Daily Telegraph analysis.

    I’d describe Pasok as centre-right and New Democracy as right wing. I’d also lay the blame for Greece’s indebtedness and the GFC in general on right-wing governments bribing their middle classes to keep them happy and banks enabling this with credit. It’s very little different to the Auckland property bubble, except that the money was handed out as pensions rather than as house price inflation.

    The main beneficiaries in all cases are the rich, who get to be the first in and last out of the Ponzi scheme. When the ordinary people try and question this, as in Greece, they get accused (by the rich peoples media) of being a lazy bunch of thieves.

    Comment by richdrich — June 30, 2015 @ 11:50 am

  7. On 28th October every year the Greeks celebrate Ochi Day. Ochi means ‘no’ and refers to the day the Greek government refused permission for Mussolini’s troops to traverse Greece. The German army in particular wrought huge damage to Greece as a result, but the Greeks still celebrate the fact they said no. Seems it is time they did so again.

    Comment by Karen — June 30, 2015 @ 11:55 am

  8. Enough with the historical facts, that’s all way too complicated, we need to hear from New Zealand’s greatest financial genius:

    “I am pretty convinced that Labour, the Greens, and New Zealand First would probably turn us into Greece.” (John Key, October 24 2012).

    It’s become the new “Polish shipyard”, the bogeyman words you invoke to justify any right-wing policy you fancy. Shout it loud and often, and soon we’ll believe Greece caused the GFC. Like Saddam Hussein did 9/11.

    Comment by sammy 3.0 — June 30, 2015 @ 11:58 am

  9. Your summary of the events is pretty good Danyl, but the conclusions you draw from it are quite interesting. My view is that austerity worked reasonably well in the UK, and they’re progressing well. So perhaps the problem was the implementation in Greece, or perhaps the problem was that once the bubble popped there was nowhere to go but down – i.e. we’re saying the austerity didn’t work, but compared to what? What would have happened under some alternative program?

    A big question here is what you would have done instead? The other alternative seems to have been that someone should have lent money to Greece so that they could keep living beyond their means. Who exactly would lend that money? The commercial banks that already took an 80% haircut last time they loaned money to Greece? Why would they do that? Other EU members? Why would taxpayers in Spain want to pay for Greece’s problems?

    It seems to me that the basic problem is that Greece need to borrow money. When you borrow money you have to meet the terms of the lender. I don’t get to go to my bank and say “I choose not to pay you the 14% you want for an unsecured loan, and you have to lend to me anyway because everyone in my family voted and we agree you should”. The people who might lend to Greece want some likelihood of being repaid rather than defaulted. So they’re insisting that Greece must have a credible path to a primary surplus and debt repayments of 1%, then 2% then 3% of GDP. Because anything less and they are actually going backwards after interest payments. If Greece doesn’t like that deal, they should find someone else who is happy to lend without those terms.

    Comment by PaulL — June 30, 2015 @ 12:37 pm

  10. This is simplistic and largely, in many respects, horseshit. Go and read what the austerity measures actually entail. Amazingly enough, it’s not quite as austere as you make out. The measures requested by the troika are many and varied and the latest ones do not, e.g., cut pre-existing pensions, which the Greek government wanted. Pure austerity is damaging, sure; but you also can’t keep racking up wasteful amounts of debt whilst you try to “grow” the economy. You have to strike a balance. The creditors – the IMF in particular – admit they got it wrong last time. But that doesn’t mean you can suddenly turn around and just “end” austerity, and let the Greeks can just keep their mad pensions schemes and their corrupt bueracrats and their ridiculous closed profession economy. Again – balance.

    The one point I would make clearly is this:

    Syriza and Tsipras have been extraordinarly foolish and difficult. They have known for a long, long time that the end of June was it. No more negotiation past this point. And yet, with a few days to go, Tsipras announces that the offer will go to a referendum, and, wait for it, the referendum will occur past the point of no return on July 5th. This is blatantly being difficult, blatantly fucking with the creditors. They could have arranged the referendum to occur prior to the deadline but they chose to be the ones being difficult.

    This is down to Syriza, fully and clearly. If they want to leave the Eurozone, they have always had that option. If they want to stay, they have to do what the creditors want in order to stay. But Syriza is trying to have their cake and eat it too, which is why this comes down to them – not to the Troika.

    Comment by nightform — June 30, 2015 @ 12:39 pm

  11. “[Austerity] worked reasonably well in the UK”

    If you count creating a situation where nobody on a sub-six-figure salary can afford to live in London, whilst gazillionaire criminals are building enormous underground “iceberg places”.

    Of course the Brits have been fully convinced to blame the Muslims/Poles or whoever the latest other-of-choice happens to be. Systematically running down the education system for 50 years does have the advantage that a mentally sub-normal population is a whole lot more tractable.

    Comment by richdrich — June 30, 2015 @ 12:49 pm

  12. @richdrich: I measure by what it was intended to achieve. London has been getting more unaffordable for yonks, I don’t think austerity did that.

    What they said it would do is free up the economy and replace govt jobs with private sector jobs. It did that. The naysayers said it would plunge the UK into a recession and could never work. That didn’t happen. So, yeah, in broad terms, it worked.

    Comment by PaulL — June 30, 2015 @ 1:09 pm

  13. “This is down to Syriza, fully and clearly.” So the problem has only existed since they were elected, earlier this year?

    Comment by Jason — June 30, 2015 @ 1:29 pm

  14. Arguably it’s the euro that’s damaging Greece. Despite all the hysterics about austerity, the country actually did a pretty good job of doing the hard work to get itself close to a position of primary surplus. In ordinary circumstances, it could have made a clean default and then devalued.

    I’m not sure it’s really fair to say that Greek leaders defrauded the EU either. It may have defrauded the EU’s citizenry but the supranational bureaucracy was hardly unaware of the fact that Greece was fudging the books.

    Comment by LiamH — June 30, 2015 @ 1:32 pm

  15. Sammy 3.0: maybe we need a counter-narrative: “NZ is a sovereign nation, not a private equity branch office.”

    Comment by Kumara Republic (@kumararepublic) — June 30, 2015 @ 1:57 pm

  16. “This is down to Syriza, fully and clearly.” So the problem has only existed since they were elected, earlier this year?”

    Put it this way; if it’s all sunshine and light from here on in, Syriza can take all the credit. If their games cause them to drop from the euro which in turn causes horrible suffering; they can take some of the blame.

    Comment by ntrancer — June 30, 2015 @ 1:58 pm

  17. There’s a lot to factor in here.

    Shipping, for example, may have been made exempt from taxation for a range of reasons. Not simply because the rich made vast profits from this industry. What about the cost of shipping. To ship goods from Greece to the United Kingdom would cost a lot more than to ship goods from France to Spain.

    It has been widely reported that a majority of Greeks were against the austerity measures and this is seen as not complying with reasonable requests, but if some of those measures threatened their way of line beyond what was reasonable, then can we expect any different of a response?

    Converting debt into derivatives is a legitimate strategy in any attempt to keep debt at bay and/or to eradicate part of the debt.

    Defaulting on loans is now a possibility for Greece and it is another move which makes them look bad, but what about if they paid their loans? They could make their loan repayments but then that keeps the Euro at a stable level and makes no gains towards curbing the rate of unemployment for the Greek population. Unemployment is also an issue in countries such as Spain, Portugal and Italy. A better solution is for Greece to default on its loan repayments, the value of the Euro will fall beyond what is seen as reasonable by other Euro countries especially the likes of Germany, and then Greece will be able to adopt a new currency separate from the Euro.

    Has New Zealand learnt anything from Greece? That is the important question here. I don’t think we have learnt anything from Greece because we feel so far removed from the situation. However, we still have generous holiday entitlements for workers. So employers have to pay a minimum of 20 days of holidays per year per employee. If this was reduced to 15 days, we would be on the right track.

    Comment by Daniel Lang — June 30, 2015 @ 1:59 pm

  18. @kalvarnsen: when you say “won’t permit” what do you mean exactly? I read the article and it was good: its key point seemed to be that Greece leaving the EU would have negative repercussions for the future of the EU. But that doesn’t stop Greece from leaving. Unless liberal democracy is a bunch of BS…

    Comment by Seb Rattansen — June 30, 2015 @ 2:02 pm

  19. The referendum is an indication Tsipras is panicked and had no plan.

    He was after all elected to make just this decision – throwing it back to the voters so soon in such an ill thought out manner is not a sign of a coherent strategy.

    And in an democratic manner – how else to describe holding such an import event at such short notice.

    I can’t really make my mind up about Greece – most of the commentary has as much plot and moral complexity as a Michael Bay movie.

    The tendency is for the Left to treat Greece as the victim of evil neoliberal austerity and the Right to see Greece as proligate tax avoiders.

    Most likely both views are self serving.

    Comment by NeilM — June 30, 2015 @ 2:25 pm

  20. I wonder how much the relatively high level of corruption in Greece (69th in the world, according to Transparency International and bottom of the EU) is the underlying problem? It feels like the 323bn euros that Greece owes has not been used to create any productive assets, and until the corruption issues are addressed, pouring more money in won’t deliver the structural changes the Greek economy needs.

    Comment by Matthew Broadhead — June 30, 2015 @ 2:28 pm

  21. Hi

    I like the article.

    I also like this piece from Michael Hudson for the extra dimension – written back in Febrary when the Troika could have decided it had screwed ordinary Greek people enough on behalf of private banking and the financial markets. What’s happened after is pure vulture capitalism. And tho they describe Syriza as far left, that’s surely hysteria – I think both Tsipras and Varoufakis are very mild mannered social democrats. A referendum is still doing politics with the gloves on. A right wing coup for example would take the gloves off. The Troika seem to be trying for a financial coup to get rid of Syriza.

    http://michael-hudson.com/2015/02/greece-austerity-for-the-bankers/

    Good luck.

    Comment by Jim Whitman — June 30, 2015 @ 2:32 pm

  22. “……when the Troika could have decided it had screwed ordinary Greek people enough on behalf of private banking and the financial markets.”

    It’s the European taxpayers they are worried about, the banks already took an 80% haircut on their loans so the major Greek exposure is to the various international institutions supported by governments (and taxpayers) not private lenders.

    Comment by Tinakori — June 30, 2015 @ 2:48 pm

  23. I often wonder about our ability to maintain complex sysyems.

    I’m inherently pro the EU as a don’t much like nationalism. But one down side is who pays the cost when things go wrong.

    If Greece were just another independent country then who paid the price for the nepotism and tax avoidance would be something for them to work out in what ever messy way.

    But with the EU it means other countries- some with with a lower standard of living – having to be a part of all this acrimonious dispute.

    Comment by NeilM — June 30, 2015 @ 2:53 pm

  24. An Icelandic way out might be the least worst solution for Greece (and possibly even the EU) at this stage. The big difference, though, is that Iceland deliberately kept out of the Euro currency in the first place.

    And were the leaders of PASOK and ND taking “golden straitjacket” advice from globalists such as Thomas Friedman, when they wanted into the Eurozone?

    Comment by Kumara Republic (@kumararepublic) — June 30, 2015 @ 3:04 pm

  25. The Germans are now practially begging the Greek military to stage a coup, they are after a “stable” and ‘responsible” government that’ll obediently follow Berlin’s line and keep the locals under control with plenty of (German supplied) weapons. The arrogance and hubris of the German speakers in particular in all this is astonishing. It’s like they are hellbent on proving every suspicion anyone ever had that bad, bombastic Germany of the Kaiser and worse never really went away.

    Whatever the outcome of this it is a disaster for the EU project. In fact, I will go so far as to say it’s the end of it. Up until now, opposition to ever closer union has been by those on the fringes of power – nationalists, the poor, a scattering of academics alarmed at the authoritarianism of the EU. If the British are any guide huge swathes of the once mostly un-critically pro-European middle class is aghast at the treatment of Greece by the Germans and the Troika, and shocked by the frankly anti-democratic attitudes of the European technocrats. The alarm bells of the threat of an authoritarian northern European technocracy to local democracies are now well and truly going off in the more Atlantic inclined UK and Mediterranean countries. I used to think the anti-EU referendum in the UK had no chance, but opposition to the EU as a super-technocracy is widespread in polite company in the UK now. Whatever happens, there is now no chance of a European super state emerging and every chance it will start to fall apart.

    Comment by Sanctuary — June 30, 2015 @ 3:10 pm

  26. I actually think the problem is that the so-called “rational” economists in the troika *do* see this as a morality play.

    Lagarde in the Guardian 25/3:

    “Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.”

    Even more than she thinks about all those now struggling to survive without jobs or public services? “I think of them equally. And I think they should also help themselves collectively.” How? “By all paying their tax. Yeah.”

    Comment by Gregor W — June 30, 2015 @ 3:15 pm

  27. @Sanctuary: I think you’re seeing what you want to see. I don’t think that the UK are aghast at the treatment of Greece. They’re aghast that there’s any consideration of sending their tax money to bail out Greece.

    My thought is that the incoming govt thought they could just play hard ball with Europe and they’d cave. That was their plan. When it turned out that Merkel had the balls that the rest of the EU lacked, they had a problem. (To be fair, plenty of other northern countries also weren’t keen to pay). And now Tsipras has a problem, what he promised can’t be achieved as the rest of the EU didn’t agree to be bound by Greek elections, and if he reneges on his promises he has a legitimacy problem. Hence the referendum. Basically they’re finding out that you can’t promise the impossible. Funny that.

    Comment by PaulL — June 30, 2015 @ 3:17 pm

  28. Hi Tinakori

    Taxpayers have little to do with any of this – remember it’s a struggle between ordinary people and private banks that have persuaded government to socialise private banking’s past lending.

    The IMF is an international private bank that lends to reap rewards from captured governments. Austerity makes servicing its loans impossible – the IMF wants governments to both sell assets in a fire sale to service IMF loans and for private debt to increase to enrich its private bank members.

    The ECB is a central bank with half a remit, though it is able to function as a lender of last resort meant to keep the financial system solvent, this has artificially been made conditional on austerity programmes imposed on Greece. The ECB doesn’t use taxes to lend – it simply credits local EZ member central banks (like any other central bank). But the EZ has no political structure for this to happen decently. So ECB imposed austerity simply reduces the income Greece has to service IMF debt and ECB debt. The ECB is functioning like a private bank, not as a public institution for the public good under full democratic public accountability. So the ECB forces Greece to treat ECB lending like a private loan.

    The EZ belongs in Alice in Wonderland. Poor Greece has fallen down the rabbit hole.

    Best wishes.

    Comment by Jim Whitman — June 30, 2015 @ 3:19 pm

  29. A coup would mean Greece would be expelled from the EU – being a nominal democracy is one requirement that doesn’t have any wriggle room.

    The answer for the EU is reform, nor abandonment. On a wide range of issues (mass surveillance, for one) the EU actually protects its citizens from their national governments. That’s why whilst screaming that the EU is undemocratic, the British right is vehemently opposed to any democratisation measures.

    What the right are scared about is that Greece will get through this and will still be using the Euro as a non-issuer, and that Spain, Italy and other states will follow them, leaving the northern states isolated. Germany could of course leave the Euro and resurrect the DM, or a NordMark with the Netherlands, etc, but that would destroy the markets for their already expensive manufactures.

    Comment by richdrich — June 30, 2015 @ 3:26 pm

  30. Well, Sanctuary, here’s another mild mannered social democratic economist, without an eye to a career in banking or the IMF, with the strength to disagree with you, the IMF, and Germany.
    http://www.project-syndicate.org/commentary/imf-greece-debt-restructuring-by-james-k-galbraith-2015-06

    Comment by Jim Whitman — June 30, 2015 @ 3:31 pm

  31. A friend who works at one of the big private banks in London commented as follows when I sent him this piece:

    “How about:
    1 it worked in Ireland.
    2 even if all Greece’s debts were written off they would still be fucked.
    3 the EU would be fucked too as Italy, Spain, France would want their debts written off as well.
    4 Therefore the ECB implements a massive cheeky program of government bond buying.
    5 this is good for Greece but they decide to play hardball, threatening (3) and ending up with (2).”

    Comment by Moa — June 30, 2015 @ 3:36 pm

  32. @Jim Whitman – I don’t see where I disagree with Galbraith.His piece is scathing of ther IMF, and his postulating of a solution simply shows how determined te Troika and the Germans are to crush the will of the Greek government, lest it become a contagion of hope.

    Comment by Sanctuary — June 30, 2015 @ 3:38 pm

  33. Jim Whitman: Would the IMF, ECB & Co somehow go as far as getting on the phone to the CIA, and arranging an actual coup a la Chile in 1973 or Iran in 1953? The only winner from such an action would probably be the Golden Dawn party.

    Comment by Kumara Republic (@kumararepublic) — June 30, 2015 @ 3:42 pm

  34. I was listening to a fascinating BBC documentary on Putin the other day, and it pondered whether or not his experiences as the KGB station chief in Dresden during Gerrman reunification led him to draw precisely the wrong conclusions.

    Looking at Merkel, I wonder if there is something in the GDR zeitgeist that has afflicted her with the same ability to draw absolutely the wrong conclusions to Greece’s problem. Because let’s be honest, the real fly in the ointment is the self-righteous Angela Merkel, who combine immense popularity at home, the austere world view of prudent Saxon shopkeepers and the GDR’s view of democracy..

    Comment by Sanctuary — June 30, 2015 @ 4:22 pm

  35. I was listening to a fascinating BBC documentary…

    Yeah right, trust the team that brought the world Jimmy Savile and Jeremy Clarkson to out-conclude Putin & Merkel.

    Comment by Joe W — June 30, 2015 @ 4:34 pm

  36. Hi Jim

    “Taxpayers have little to do with any of this – remember it’s a struggle between ordinary people and private banks that have persuaded government to socialise private banking’s past lending.”

    They sure do. the private banks are now out of the picture. It is the troika who hold the remainder of the debt that Greece is struggling to service. Their stakeholders are all taxpayers in one form or another. If the German government thought this was just a technical problem that would go away with the application of more loans on better conditions or a reduction in the value or terms of the existing loans they would make those adjustments real fast. But it’s not. The Germans and others primarily face a political problem not an economic one in that their citizens do not want further concessions given to Greece.The European governments were prepared to change the conditions which lowers the overall value of the loans but not to move the nominal loan amount. The former is politically achievable for them and the latter is not. The best solution is to leave the currency union, devalue the currency and let the economy recover without the burden of trying to stay in the Euro. The Greeks seem to both want to stay in the union and to force other governments to subsidise their living standards. The other nations are saying that is not the deal we want.

    Comment by Tinakori — June 30, 2015 @ 4:34 pm

  37. @Seb:”Permit” was a strong word, you’re right. I was just trying to explain why the EU won’t admit that it’s failed and let Greece leave the euro with a minimum of fuss. Even the most anti-Greek commentators and politicians agree that EU membership is voluntary (although the question of whether a country can leave the eurozone and not the EU is a separate one, and opinion is divided).

    Comment by kalvarnsen — June 30, 2015 @ 5:31 pm

  38. Paul Krugman’s view: “How did this turn into a catastrophe that among other things saw debt soar to 170 percent of GDP despite savage austerity?
    The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits.”

    http://krugman.blogs.nytimes.com/2015/06/29/the-awesome-gratuitousness-of-the-greek-crisis

    http://www.nytimes.com/2015/06/29/opinion/paul-krugman-greece-over-the-brink.html

    Comment by Martin V — June 30, 2015 @ 5:54 pm

  39. @kalvarnsen: Ahh ok…I’m just too super-literal on the interweb…:)

    Comment by Seb Rattansen — June 30, 2015 @ 6:43 pm

  40. Phew, glad we worked out who the goodies and badies are.

    I was worried that not only are we not rational economic units but not rational political ones either.

    Comment by NeilM — June 30, 2015 @ 8:20 pm

  41. So based on your analysis the Greeks got into the EU by doing a dirty deal with Goldman Sachs. For which the lovely people at Goldman Sachs were superlatively paid and never held to account – sounds a bit like the prequel to the GFC. Until the bankers are made accountable for the large number of frauds they have perpetuated on the world then this will continue to happen. In the last 50 years we can count the indefensible things that have happened in the name of high finance BCCI, the Savings and Loans bank crashes, the depression. Until white collar crime is dealt with properly it will continue. Greece was stupid but bet you anything you like the vulture funds have already bought up the debt ready to take Greece to court in US for all the Greek Islands and the Greek antiquities!

    Comment by Lucy — June 30, 2015 @ 8:23 pm

  42. Hi Tinakori
    I’d agree with you if you’d have said EU citizens and voters were deeply involved because surely they are – true even for German citizens who are also on the receiving end of the current fiscal policies of the EU & EZ. Germany ruthlessly suppressed wages to export, and runs a two tier economy with its own growing problems. It’s own Deutsche Bank for example, is crooked and likely insolvent. Germany is getting the backwash from beggar thy neighbour export policies and from recycling its trade earnings through its banks who are as bad at greedy lending as any bank in the U.S. & UK is.
    But Central banks issue currency. They don’t need tax to do this. I recommend Bill Mitchell on how this works http://bilbo.economicoutlook.net/blog/?p=19402
    I think this point is important because the world is so focussed on govt deficits at the moment, rather than on private debt. Govts keep money circulating in the economy by spending and creating demand – if this causes a deficit then so be it. This is how economic activity is kept going during a recession or depression and begins to right itself when things improve. The EU needs a darn good deficit in fact, but instead it’s funding bad private lending by bailing out the financial sector. This can go on for ever as Japan has demonstrated. It’s central bank has not needed taxes either.
    Jim

    Comment by Jim Whitman — June 30, 2015 @ 8:34 pm

  43. PaulL @9

    I don’t know where to start. Ok:

    “My view is that austerity worked reasonably well in the UK, and they’re progressing well”

    Um, they had their own currency, one that could help them adjust by depreciating and boosting exports. That’s the whole point about Greece. Have you been in outer space?

    And it was actually going pretty badly. Cameron stopped austerity a couple of years ago, and surprise, things have improved – which gets attributed to austerity not its ending.

    “So they’re insisting that Greece must have a credible path to a primary surplus …”

    Um, Greece is running the biggest primary surplus in Europe, one of the biggest in the world. The Greeks aren’t seeing the borrowing, that gets recycled back to creditors.

    It is a morality play, and people’s politics gets in the way of their analysis. Greeks bad. Must be punished. 1980’s Washington Consensus policies good. Must be implemented no matter what the outcome.

    My view is it’s not that the IMF policies have failed – they have worked if you realise they are not about growth but privatisation and redistribution and all that. Growth in a society is unnecessary if you have enough redistribution upwards and enough guns amongst their enforcers to suppress descent.

    Comment by Joe-90 — July 1, 2015 @ 12:05 am

  44. Good article Danyl. More proof that there’s no point reading what journalists say.

    But it’s only a morality play in the media.

    I’ve wanted Greece to get the hell out of the Eurozone five for at least five years. One of the many ‘simple facts’ about the situation was that once debt reaches a certain level there is nothing to be done but to wipe it out. Austerity was never going to work – 20 years ago when it mattered but not with debt at 120% of GDP and climbing. However the Keynesian fantasy of credit injection followed by economic growth was never going to work in this situation either.

    So to comments

    I find it baffling that the EU won’t admit that it’s plan has failed.

    It’s not baffling at all once you accept that it was never really about economics but politics. As is fairly well known now (thanks to early 90’s briefing papers being released several years ago) the upper echelons of the EU strongly suspected/knew that Greece was lying to them about the state of its finances right from the beginning – and they let them in anyway. The EU project to dilute nationalism and end war on the continent forever was a goal far greater and more important than a few piffling hundreds of billions of Euros.

    I must admit that I was gleefully rubbing my hands at the rise of Syriza in 2012. A party that had come from nowhere to 17% in the polls was perfectly on target for power after two or three more years of “austerity”. Them becoming government was entirely predictable.

    What was also predictable was that they did not have the courage of their convictions. Exit, default and back to the Drachma was always the way to go; but the reality is that it’s no easy path either as imported costs explode and the economy adjusts. They’ll be as much pain as anything “austerity” has introduced, perhaps more in the short term, Syriza always knew that, and they also thought they had an ace in the hole….

    …. the incoming govt thought they could just play hard ball with Europe and they’d cave. That was their plan.

    The theory was that the EU project was so precious and important and the damage of “Grexit” so great that the EU would cave. I wonder why Syriza’s leadership never looked at what it would mean for the rest of the PIIGS if Syriza got what it wanted from the EU? Spain, Portugal and all the rest would have looked at any such solution and promptly said, “me too”. That definitely would kill the EU and right quick; a “positive” solution for Greece always meant a very negative one for the EU as a whole. The EU leadership was never going to go there!

    Comment by tom hunter — July 1, 2015 @ 8:38 am

  45. 1 it worked in Ireland.
    2 even if all Greece’s debts were written off they would still be fucked.
    3 the EU would be fucked too as Italy, Spain, France would want their debts written off as well.
    4 Therefore the ECB implements a massive cheeky program of government bond buying.
    5 this is good for Greece but they decide to play hardball, threatening (3) and ending up with (2).”

    There’s something to some of that. If Syriza did well then Spain and Portugal would probably vote in far-left governments and play hardball too. But some of that is wrong. Greece’s economy was so much more comprehensively screwed that Ireland’s to start with, and the ECB program definitely isn’t good for Greece. Someone leaked ECB papers overnight revealing that the debt is basically unpayable, ever.

    Comment by danylmc — July 1, 2015 @ 8:45 am

  46. There’s also this …

    I’m sure Putin is rubbing his hands in glee at the prospect.

    Putin is a complete bastard but he also has more rat cunning than any Western leader I can think of, so the following would be a truly funny turn in this whole affair:

    Associated Press
    Russia today announced that it will provide $US 50 billion to Greece to eliminate the most pressing of its debt obligations to the EU.

    Speaking from Athens the Russian President, Vladimir Putin, joined with Greek Prime Minister Alexis Tsipras, in discussing the scheme. Mr Putin said that the money did not constitute a new loan that would have to be repaid:
    Our intention is to stop the collapse of an important European country into civil war and unrest, the prevention of which was supposedly the goal of the EU.

    Meanwhile at nearby Salamis Naval Base the Vice Admiral of the Greek Navy, Panagiotis Litsas, welcomed his Russian counterpart, Viktor Chirkov, at the start of a new joint Greek-Russian naval exercise. Admiral Chirkov arrived onboard the aircraft carrier Admiral Kuznetsov, their flagship, accompanied by a Kirov class battlecruiser, four missile crusiers, six destroyers and two nuclear attack aubmarines.

    Vice Admiral Litsas also announced a new 99 year lease with the Russian that will allow it to use Salamis as a naval base, joining with their base in Syria as Russia’s only warm water ports:
    We’ve made a good deal with the Russians, having learnt our lesson from the EU, that one should always be focused on the productive use of our resources.

    Mr Putin is expected to fly home to Moscow tomorrow, after touching down briefly in Tallinn, Estonia for what have been described as “sensitive” discussions. In an off-the-record comment, one of Mr Putin’s advisors said:
    Obviously we don’t want to upset cordial relationships with our near neighbours, but we will be emphasising the fact that being a member of the EU and NATO is perhaps not as valued as it once was, and that there are other European solutions.

    Angela Merkle could not be reached for comment due to a medical treatment that was described as unexpected but routine and involving the use of Vicodin.

    US President Barack Obama was also not available for comment as he dealt with the sudden and unexpected sale overnight of 10% of US Treasury bonds by the Chinese government, who announced that they had found ”more profitable” investment opportunities for the $100 billion sum.

    Impossible? I’d bet that Putin has already blown $50 billion trying to prop up Assad so they can keep Russian naval ships docking in Syria.

    Comment by tom hunter — July 1, 2015 @ 9:33 am

  47. @tom: Russia isn’t exactly rolling in cash. I don’t think Putin has 50 billion to spare.

    Comment by kalvarnsen — July 1, 2015 @ 9:39 am

  48. @tom: For reference, 50 billion USD would be 12% of the total annual Russian budget. Not exactly couch change.

    Comment by kalvarnsen — July 1, 2015 @ 9:41 am

  49. What was also predictable was that they did not have the courage of their convictions. Exit, default and back to the Drachma was always the way to go.

    I’m not so sure about the former part of this statement, Tom.
    I got the impression that default and exit was always the plan and the rest is a bit of a Punch-and-Judy show.

    Comment by Gregor W — July 1, 2015 @ 9:43 am

  50. I know. I guess you missed the last paragraph🙂

    Comment by tom hunter — July 1, 2015 @ 9:43 am

  51. My previous comment was addressed to “karlvarnsen”.

    I got the impression that default and exit was always the plan and the rest is a bit of a Punch-and-Judy show.

    If that’s true why have they pissed around for so many months? Negotiating down debt that they’re going to walk away from anyway? What would be the point of the Punch and Judy show?

    No, I’d agree with the majority of commentators here that Syriza thought they could get further “haircuts” on the debt and stay in the Eurozone. I think most Greeks thought that too: the mentality of dependents.

    Comment by tom hunter — July 1, 2015 @ 9:50 am

  52. If that’s true why have they pissed around for so many months? Negotiating down debt that they’re going to walk away from anyway? What would be the point of the Punch and Judy show?

    I just don’t think the people running Syriza are idiots. They knew they wouldn’t get voted in on an explicit policy of default and exit so they sang one song to the electorate and another to the troika.

    I suspect there were running two plans and always prepared for this eventuality.
    In terms of the optics, they also now look like stalwarts of Greek sovereignty and nationalism being bullied into a corner by Northern Europe. The signalling has been there for months.

    Engendering this siege mentality in the populace could well act as a mechanism to defuse the inevitable social upheaval an exit will cause, and should neutralise the appeal of right wing populist elements.

    Comment by Gregor W — July 1, 2015 @ 10:07 am

  53. Don’t forget finance minister Yanis Varoufakis had the gall to turn up to a meeting with the troika NOT WEARING A SUIT JACKET AND TIE. The arrogance! http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201760453/greek-crisis-what's-likely-to-happen

    Comment by MeToo — July 1, 2015 @ 10:11 am

  54. @ MeToo 53.

    I thought a hair shirt was the penitents garb de rigueur.

    Comment by Grant — July 1, 2015 @ 10:44 am

  55. Engendering this siege mentality in the populace could well act as a mechanism to defuse the inevitable social upheaval an exit will cause, and should neutralise the appeal of right wing populist elements.

    I don’t think the approaching transition from austerity to hyperinflation, is likely to strengthen Greek affections for Syriza (left wing populists).

    Comment by unaha-closp — July 1, 2015 @ 10:53 am

  56. I don’t think the approaching transition from austerity to hyperinflation, is likely to strengthen Greek affections for Syriza (left wing populists).

    I didn’t say strengthen. I said defuse.
    Basically, either way Greece is fucked. Short(ish), sharp hyperinflation or the death of 1000 cuts over decades; the former managed internally, the latter imposed with the government as patsies to foreign interests.
    I know what I’d pick if I was in charge, particularly if there is a narrative for the locals – albeit suspect – that negotiation was attempted in good faith with the nasty Eurobankers but in the end, the game was rigged and the price was too high to bear.

    Comment by Gregor W — July 1, 2015 @ 11:21 am

  57. @Tom you should be a journalist: it took me like ages to realise that your AP article was fake (or I’m just super gullible). I found a good BBC article that looks at the possibility of Greece turning to Russia though: http://www.bbc.com/news/world-europe-31837660.

    Comment by Seb Rattansen — July 1, 2015 @ 11:43 am

  58. “Has New Zealand learnt anything from Greece? ”
    Don’t borrow too much money to fund consumption, even in a recession, aim to be neutral to surplus over the “cycle” – probably check
    Don’t fix your currency to another’s (frinstance Australia), because it will inevitably come back and fuck you up big time – hopefully check

    Comment by Clunking Fist — July 1, 2015 @ 1:19 pm

  59. HIV rates are up 200%.

    Yeah the IMF have a lot to answer for…and you know the economy has tanked when HIV rates skyrocket.

    Comment by Ross — July 1, 2015 @ 2:41 pm

  60. In simple terms, Greece has been living beyond its means. Its pension scheme hasn’t helped. I think there is a lesson for NZ in there.

    http://sputniknews.com/europe/20150417/1021020691.html
    http://www.cnbc.com/id/102726573

    Comment by Ross — July 1, 2015 @ 3:00 pm

  61. I have to disagree with those that keep saying that austerity worked for the UK. Maybe they aren’t up the creek without a paddle at the moment for various reasons of their own but they are also making inhumane cuts to services such as the Independent Living Grant for disabled people which basically allowed them to access the community with a support worker. Its easy to target the vulnerable for the sake of the “greater good”. Greece has said ENOUGH!

    Comment by Invisiphilia — July 1, 2015 @ 4:11 pm

  62. Three years ago I speculated about another possibility, which was that the clowns in Brussels might actually be looking at this in Rahm Emanuel terms:

    Never let a crisis go to waste

    In other words the Eurocrats could still see this as yet another opportunity to further centralise the Euro project; another step on the way to becoming a United States of Europe. They’ve always been aware of the cracks that existed between a monetary Eurozone crunched on top of still sovereign control of tax and spending, but the attitude has been to just ignore these and keep moving forward, solving the “problems” as they arise. Look at how they dealt with multiple rejections of the European constitution.

    This is another solution to the PIIGS crisis, though one less likely with every passing day: turn the ECB into a Federal Reserve equivalent that can issue true Euro-bonds backed by every country in the European union. It would be the equivalent of what Alexander Hamilton did in the USA as the Constitution was created and the 13 colonies became one nation: a central assumption of local debts, combined with fiscal re-distribution to the poorer areas as required.

    The Eurocrats would see this as the capstone to their decades-long effort. You can see the argument that might be presented to Merkel and company:

    Either let Greece exit, with all the collateral damage involved across the rest of the PIIGS – or accept the Federalised Europe and European Central Bank solution you’ve always resisted, but that promises less short-term damage. Sure, you may say that means Germany is truly on the hook for PIIGS insanity, but you’ll have more direct control over them all: no more Maastricht Treaty bullshit that we all knew was going to be breached anyway.

    With the reduction in likely collateral damage resulting from a Grexit this argument probably has less power`than a few years ago, but I wonder if it’s ever been presented to Merkel and company?.

    Comment by tom hunter — July 1, 2015 @ 4:15 pm

  63. Another thing is that I suspect US policy makers will be loving this, which explains the absence of table thumping from there side of the Atlantic.
    If the EU is terminally destabilised it shores up the USD in the short term and puts an end to the possibility of an alternate future Euro power bloc, let alone their nightmare scenario of closer monetary ties and trade between the EU and Russia.
    Conversely though, any weakening of the EU politically may well see accelerated rapprochement with Russia on a state by state basis (probably hand-in-hand with a reassessment of the purpose of NATO) though probably not as open as the chequebook diplomacy hypothesised by Tom.

    Comment by Gregor W — July 1, 2015 @ 4:29 pm

  64. @60 “In simple terms, Greece has been living beyond its means.”

    Krugman’s blog states indebtedness was just a shade over 100% of GDP in 2007, with a budget shortfall each year of slightly more than 7%; which he states was in effect a fiscal gap of around 3% in an economy with some growth at around 2% .
    What was your point again?

    Comment by paritutu — July 1, 2015 @ 5:17 pm

  65. @tom, seb: It’s true that the SYRIZA government is relatively pro-Russian, but the BBC article speaks only of Russia providing cheap gas, not actual investment. Once again, I doubt the Russians could come up with 50 billion out of nowhere. Their support for Syria isn’t even close to that – it’s been mostly in the form of weapons, and the entire Russian weapons industry only produces 15 billion worth of product for external sale every year. Officially Syria buys 1.5 billion of arms, and most Russian “aid” has consisted of transferring those arms cheaply or with favourable payment terms. So your bet that they’ve in fact spent 50 billion on Syria is one I would be happy to take.

    Russia coming up with 50 billion USD out of nowhere to send overseas is comparable to the NZ government coming up with an extra 1.2 billion USD out of nowhere. It’s extremely unlikely, and if they could do it, would using it to buy a naval base in Greece really be their best use for it?

    Comment by kalvarnsen — July 1, 2015 @ 5:34 pm

  66. I agree this is a brilliant summary

    Just got back from Crete in Greece it is such a shame. Often you go to the countries which were known as the PIGS and you can see why their economy is fecked (Portugal, Spain I am looking at you), but Greece it isn’t due to not working, it is purely terrible governments prior fault.

    The reality is they should of never been allowed to join the Euro in its current form. However as they did the only way for them to have remained would of been to modernize their economy through allot of the reforms required (for example you may wonder why there is a pharmacy every 50 m in Greece, it is because legally they can only serve so many customers, and thus incredibly inefficient. Further generic drugs (say un branded panadol) are hardly used as a result and thus their drugs bill is high for what they get. These were some of the changes required.

    However this needed to be offset with significant financial help, in the form of large debt forgiveness. Instead what happened is Europe, mainly Germany, lent them money to pay back their own banks (corporate socialism) never dealing with the elephant in the room, notably how that would ever get paid back (never would).

    Comment by Jeffery R — July 1, 2015 @ 9:11 pm

  67. Daniel Land: “Has New Zealand learnt anything from Greece? ”
    CF: “Don’t borrow too much money to fund consumption, even in a recession, aim to be neutral to surplus over the “cycle” – probably check
    Don’t fix your currency to another’s (frinstance Australia), because it will inevitably come back and fuck you up big time – hopefully check”

    You can also add, “don’t fall for cargo cult economics”, and “don’t turn a blind eye to tax evasion and corruption in the tax department”.

    Gregor #62: Unless of course, the fiscal plague from a Grexit somehow manages to cross the Atlantic.

    Comment by Kumara Republic (@kumararepublic) — July 1, 2015 @ 10:03 pm

  68. What was your point again?

    What’s yours, unless you’re trying to paint Greece as a paragon of fiscal responsibility?

    Comment by Ross — July 1, 2015 @ 10:14 pm

  69. Debt to GDP throughout the EU. Greece isn’t the only country with problems…

    http://www.statista.com/statistics/269684/national-debt-in-eu-countries-in-relation-to-gross-domestic-product-gdp/

    Comment by Ross — July 2, 2015 @ 7:28 am

  70. The big problem with the EU was that the member state’s debt wasnt consolidated when adopting a common currency. Upon Greece entering the euro its debt doubled as the value of the Euro soared. Thats all history now.

    Anyway comrades its way past economics now. The Troika have suspended Greek democracy. The Syriza government will roll over to the Troika’s demands the referendum is meaningless. Greece is going no where. Left wing right wing this and that so what its democratic principles are dead.

    Comment by Simon — July 2, 2015 @ 7:34 am

  71. Interestingly, after WW2, Germany was heavily indebted. As a result a conference involving its creditors was called and much of Germany’s debts were halved. One of Germany’s creditors was Greece.

    “The debt cancellation for Germany was swift, taking place in advance of an actual crisis. Germany was given large cancellation of 50% of its debt. The deal covered all debts, including those owed by the private sector and even individuals. It also covered all creditors. No one was allowed to “hold out” and extract greater profits than anyone else. Any problems would be dealt with by negotiations between equals rather than through sanctions or the imposition of undemocratic policies.

    Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year. This meant those countries that were owed debt had to buy West German exports in order to be paid. It meant West Germany would only pay from genuine earnings, without recourse to new loans. And it meant Germany’s creditors had an interest in the country growing and its economy thriving.”

    http://www.theguardian.com/commentisfree/2013/feb/27/greece-spain-helped-germany-recover

    Comment by Ross — July 2, 2015 @ 7:53 am

  72. Ross – policy makers post-WW2 had just lived through two instances of a large military power causing previously unheard of death and destruction. They also recognized Europe was potentially on the brink of WW3.

    By contrast, Spain and Greece haven’t been European power’s of consequence for 400 and 2000 years, respectively.

    Comment by Phil — July 2, 2015 @ 9:00 am

  73. By contrast, Spain and Greece haven’t been European power’s of consequence for 400 and 2000 years, respectively.

    Maybe Euro policy makers should look to ancient Greece for a solution and take a leaf out of the Solonian Constitution.

    Comment by Gregor W — July 2, 2015 @ 1:42 pm

  74. By contrast, Spain and Greece haven’t been European power’s of consequence for 400 and 2000 years, respectively.

    You ignore the fact that Germany was indebted to Spain and Greece after WW2. Spain and Greece could have demanded payment plus crippling interest. But there was a better alternative, just as there is better alternative to Greece’s debt crisis.

    Comment by Ross — July 2, 2015 @ 3:19 pm

  75. You ignore the fact that Germany was indebted to Spain and Greece after WW2. Spain and Greece could have demanded payment plus crippling interest.

    The Germans could have skipped paying taxes, worked 25 hour weeks, retired at 50 from dangerous professions (like hairdressing), paid their public servants 14 months per year with full pension and required child support payments onto the child’s mid 30s.

    But there was a better alternative, just as there is better alternative to Greece’s debt crisis.

    Comment by unaha-closp — July 2, 2015 @ 4:45 pm

  76. In 1960, Germany paid Greece 115 deutschmarks as reparations for German war crimes. (In comparison, the World Jewish Congress was paid 450 million marks)

    Comment by kalvarnsen — July 2, 2015 @ 5:08 pm

  77. Unaha closp,

    The minimum retirement age in Greece is 62. But it’s true that up until recently, the Greek pension scheme has been relatively generous. But the fact remains that austerity is not the answer and has made Greece’s problems worse.

    http://www.economist.com/blogs/freeexchange/2015/06/greek-pensions

    Comment by Ross — July 2, 2015 @ 6:08 pm

  78. The minimum retirement age in Greece is 62.

    Greek retirement minimums are like Greek tax rates. The minimum retirement age is indeed 62 and 75% of public servants retire before they are 61.

    http://greece.greekreporter.com/2014/12/04/75-of-greek-pensioners-enjoy-early-retirement/

    Comment by unaha-closp — July 3, 2015 @ 3:01 pm

  79. Keynes used to say ‘The economy is not a morality play. It is a series of technical challenges.’

    On one level I agree with this. People are only too willing to weave simplistic, self-serving and moralising narratives that are just rationalisations for pre-existing beliefs.

    Political partisans are prone to not see social problems as complex issues difficult to solve but rather as simple issues unsolved because of evil people – the faceless enemy of foreigners, bankers, neolibs etc.

    But on the other hand characterising economics as a matter of technicalities apart from the messy business of emotion relies on assuming the old rational actor paradigm.

    And there I think we come to what emotions are for in the first place – which is to mediate social interaction. We are keenly aware of obligation and betrayal. We get angry if we feel we have unfairly lost out in an exchange.

    So I’m not sure an aspect of society can be treated as purely a matter of technicality even though I dislike how partisan politics tends to emphasise the morality play.

    I gather Varoufakis is keen on game theory. I’m not sure he’s able to think through enough iterations.

    Comment by NeilM — July 4, 2015 @ 10:27 am

  80. “The economy is not a morality play. It is a series of technical challenges.”

    It’s both. The technical challenges are allocating the ‘right’ amounts of money to various sectors; negotiating trade deals with other countries; and introducing legislation.

    The morality is having a work ethic so that employers are not taken to mediation services by members of weird Christian families who can’t be bothered to put any effort into anything; morality is taking sick leave only when you are sick; morality is acting with your conscience on pieces of social legislation when you are a MP and are pressured by other members of your Party to vote a certain way.

    Everyone has a part to play in the economy and we all have technical challenges, which could be paying the bills each week; and we all have morality challenges, which could be whether we help the homeless beggar in the park across the street. I suspect that the latter will very much depend on whether he’s asking for money, or if he’s asking for food.

    Comment by Daniel Lang — July 4, 2015 @ 11:05 am

  81. Given that it is Greece, perhaps Democracy could be defined as the unenviable task of asking some to pay the price of some one else’s mistakes all for a greater and perhaps delayed good without it all descending into tribal violence.

    Something we all think we can do but perhaps have yet to be tested.

    Comment by NeilM — July 4, 2015 @ 9:18 pm

  82. “Something we all think we can do but perhaps have yet to be tested.”

    GFC bailouts?

    Comment by izogi — July 4, 2015 @ 9:38 pm

  83. OK, so you have just deposited your hard earned money into a bank. Would you want to let then lend it on to Greece?

    Comment by Rab McDowell — July 5, 2015 @ 7:19 am

  84. On morality tales, here is a great read: http://www.interfluidity.com/v2/5965.html

    “There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world.”

    Again, shows how important framing is.

    I predict Greece will vote yes today (but I hope they vote no). Anyone else?

    Comment by Seb Rattansen — July 5, 2015 @ 10:23 am

  85. @Seb: I’m not making any predictions. A lot of Greek people seem very conflicted, right up to Tsipras.

    Comment by kalvarnsen — July 5, 2015 @ 10:41 am

  86. GFC bailouts?

    Unlikely to have lasted any populist referendum.

    Comment by NeilM — July 6, 2015 @ 11:57 am

  87. Unlikely to have lasted any populist referendum.

    I think you mean popular referendum.
    And damn right it wouldn’t have got through if it had been framed as “Are you OK with taking cuts in wages and government services and forking over future taxes in order to keep private banks afloat”.

    Comment by Gregor W — July 6, 2015 @ 12:03 pm

  88. And damn right it wouldn’t have got through if it had been framed as “Are you OK with taking cuts in wages and government services and forking over future taxes in order to keep private banks afloat”.

    But when framed as “governmental purchasing of privately held securities to promote increased liquidity and lending” it is quite popular.

    Comment by unaha-closp — July 6, 2015 @ 12:59 pm

  89. And damn right it wouldn’t have got through if it had been framed as…

    Most likely true which sort of proves my point.

    Cullen didn’t have to call a referendum, if he had I don’t think he would have worded it quite that way. Peters would have which is why used “populist”.

    But Cullen was no Peters, nor a Tsipras.

    Merkel could go to the German people and ask if they want more of their savings going to bail out Greece. And the new Eastern European members of the EU could do the same.

    Comment by NeilM — July 6, 2015 @ 1:52 pm

  90. But when framed as “governmental purchasing of privately held securities to promote increased liquidity and lending” it is quite popular.

    Agreed. It all comes down to how much glitter you roll your turd in.
    It all seems very sensible when comforting phrases like “governmental purchasing of privately held securities” are used until someone asks “So why is the government in the business of purchasing privately held securities again?”

    Merkel could go to the German people and ask if they want more of their savings going to bail out Greece. And the new Eastern European members of the EU could do the same.

    She could, but it’d be a stupid thing to ask when it would be more accurate for her to determine whether German’s want more of their savings going to bail out German banks in order to make good on bad loans to Greece.

    Comment by Gregor W — July 6, 2015 @ 2:25 pm

  91. The German banks have all been made good about 2 – 5 years ago. Today 80% of what Greece owes today is to “public” institutions and a mere fraction of 1% is to German banks.

    http://www.independent.co.uk/news/business/news/greece-crisis-how-has-greece-spent-its-money-and-who-does-it-still-owe-2428bn-to-10355847.html

    Comment by unaha-closp — July 6, 2015 @ 3:26 pm

  92. unaha closp – I think you are missing the wood for the trees. At some point a bunch of debt relief went to shore up banks rather than the Greek economy.
    The first para of your article says it all: “Almost all the money owed by Greece has been used to pay off its lenders, with only 10 per cent of it going to the Greek people, according to the Jubilee Debt Campaign.”

    Comment by Gregor W — July 6, 2015 @ 3:59 pm

  93. Gregor W – that point was 3 years ago.

    Ancient history.

    Today the Germans get to decide if they want to continue bailing out the Greeks, or build a hospital in Rostock or something.

    Comment by unaha-closp — July 6, 2015 @ 4:39 pm

  94. Ancient history.

    …which neatly ignores the facts that this crisis is not a discrete event, capable of being fixed with a couple of cash injections.

    It also ignores the notion of opportunity cost (i.e. why did those banks get money if it wasn’t going to fix the actual problem) and simplifies an incredibly complex issue into a false suck cost fallacy, which, while great for producing political sound-bites, don’t actually address the main issue.

    Greece cannot pay it’s debts. Even the IMF says this. Whatever bluster Merkel comes up with to shore up her own tanking credibility doesn’t change this.

    Comment by Gregor W — July 6, 2015 @ 5:12 pm

  95. *sunk cost fallacy

    Comment by Gregor W — July 6, 2015 @ 5:12 pm

  96. *sunk cost fallacy

    I think the original, even if due to the damnable spellcheck of this site, was far more appropriate.

    Comment by tom hunter — July 6, 2015 @ 7:27 pm

  97. By a strange coincidence I was watching a 2013 (2014?) documentary on Al Jazzera the other night, Agora, which included some brief Q&A with Varoufakis, in which he talked of the classic you-owe-$10,000-to-the-bank-you-have-a-problem-you-owe-$1million….. That showed me what he thought could be done with the Eurozone, hence his support of the “No” vote in this referendum. It also explains why he’s been perfectly happy to quit now, confident that his work is done.

    The following article also explains why he might have this confidence, as former Reagan finance guy, David Stockman points out:

    The ESM has no loan-loss contingency reserves. Its only assets—other than loans to Greece—are loans to Ireland and Portugal. Its liabilities are triple A-rated bonds sold to the public. How do you get a triple-A rating on a bond backed entirely by loans to junk-rated sovereign borrowers? Well, the governments guarantee the bonds, and because they are unfunded off-balance-sheet liabilities, they aren’t counted in their debt burdens—unless borrowers default.

    If Greece defaults hard, governments will be on the hook for €145 billion in guarantees on those loans to the ESM.

    Meh – peanuts – but the punchline is this:

    We expect credit-rating agencies to insist that these unfunded guarantees be funded. After all, unfunded guarantees are worthless guarantees.

    The strength of these guarantees is untested. Would the German Bundestag vote tomorrow to raise €35 billion by selling Bunds, the government debt, to cover Germany’s share of ESM losses on Greek bonds? That seems improbable. Bund sales of that scale, if they did occur, would flood the market, raising yields and depressing prices. If, instead, the Bundestag refused to cover its guarantees, then we would see a legal dust-up on a grand scale. With the presumption of valid guarantees, credit raters would have no choice but to downgrade ESM paper. Then losses would be borne by bondholders, and the ESM—the euro zone’s safety net and backstop—couldn’t raise money in the capital markets.

    Chuckle! Some private European banks have been “saved” since 2008, but there’s plenty of other institutions – like the ECB itself – that are on very shaky ground. I wonder what French and German voters would say about this – not to mention the lessor Eurozone members.

    Comment by tom hunter — July 6, 2015 @ 8:09 pm

  98. Varoufakis’ is done?

    He’s leaving with Greece’s economy worse off, no deal done – which is what his party promised they would achieve – and having accused the EU leaders of terrorism.

    You’d think the work has just begun.

    Comment by NeilM — July 6, 2015 @ 9:06 pm

  99. Picketty on why the Germans should cut the Greeks the same deal the Germans were:
    View story at Medium.com

    Comment by owen — July 7, 2015 @ 2:18 am

  100. “You’d think the work has just begun.”

    It is ongoing Neil. And his resigning is part of that. It removes an excuse not to deal.

    Comment by Pascal's bookie — July 7, 2015 @ 8:19 am

  101. Greece cannot pay it’s debts. Even the IMF says this. Whatever bluster Merkel comes up with to shore up her own tanking credibility doesn’t change this.

    Yeah, the Germans should have never given any state backed loans to the Greeks. That was a complete waste of money.

    Hopefully they won’t loan anymore.

    Comment by unaha-closp — July 7, 2015 @ 9:43 am

  102. Hopefully they won’t loan anymore.

    Which would mean Greece’s not so graceful exit from the Euro and leave the Euro project’s credibility in tatters.
    An interesting assessment by Michael Hudson on where to from here.

    Comment by Gregor W — July 7, 2015 @ 9:56 am

  103. I’m not sure Picketty’s comparison of Greece with post war Germany makes a lot of sense.

    The current crisis has a lot to do with the attempt to have a common currency. That wasn’t the case post WII.

    Worth noting is his proposed long term solution – Brussels should be given the power to control member countries’ debt. Not sure how that gels with the anti EU elite rhetoric going round.

    Comment by NeilM — July 7, 2015 @ 10:52 am

  104. Another day, <a href="http://davidstockmanscontracorner.com/the-eurocrats-big-lie-life-outside-the-euro-has-worked-just-swell-for-romania-bulgaria-poland-turkey-the-czech-republic-etc/&quot;,another take on the mess:

    Take a look at the chart at the top of this article. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro.

    Those other countries cover a wide range of situations, of course — from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the European Union.

    But they all have one thing in common. During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine).

    And you can see just how badly they’ve suffered as a result.

    They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece.

    Joining the Euro meant getting access to cheap money, but all that did was enable the Greeks to cruise along as they had been, and “austerity” has not meant real reform (twiddling the retirement age up by 2040, seriously?). Take a look at the Greek railways; you might as well just call it corrupt rather than something broken that needs better management.

    In any case, I don’t know of any reforms than fix the following:

    While Feeney was actually doing something to help Greece, however misguided, organic product salesman Apostolis was looking forward to catching some waves off Athens.

    “It’s not too serious,” the 39-year-old told America’s ABC News after learning he might not be paid. “First of all I could go a bit earlier in the evening and go to the beach to surf. Secondly, I will have a ready excuse not to pay electricity and water bills that have just arrived home.”

    The dude abides. Oh, and this:

    That’s the can’t-do spirit which has landed Greece in its current crisis. “It’s kind of endemic and built into that culture that if I don’t get paid, I can’t pay you,” responded business consultancy CEO John Challenger. “It’s not the right foundation culturally for the economy to come out of this tailspin.”

    All the crowdfunding in the world won’t help people who refuse to help themselves. Some refuse even to acknowledge the problem. “How can something like this happen without prior warning?” 67-year-old retired public servant Angeliki Psarianou asked last week, standing in the rain next to an empty ATM.

    Without prior warning!

    Comment by tom hunter — July 7, 2015 @ 11:02 am

  105. I read Varoufakis’ piece in The Guardian about being a Marxist.

    I took from it that bring a Marxist means ignoring every development in science and history since Marx.

    How the mind works, the evolution of our species and of society – we know a lot more now.

    I wouldn’t want to turn it into a new cult of scientific materialism but I found reading the likes of Dawkins, Pinker, Diamond, with a sprinkling of Derrida a reasonable way to get to know the problems our species has with issues such as freedom and justice.

    Comment by NeilM — July 7, 2015 @ 11:12 am

  106. As the insular, right wing, technocratic, arrogant and anti-democratic EU project eats itself, it seems to me Europe is increasingly losing relative economic importance. This is the thing the Europeans don’t get. Crushing the Greeks in the name of authoritarian austerity will weaken Europe in general, and Europe in general cannot afford that. With the rise of of the BRICs and Asia-Pacific Europe no longer take for granted it’s centrality to world cultural, political or economic affairs. The globe is pivoting; Europe is being left behind.

    Comment by Sanctuary — July 7, 2015 @ 11:22 am

  107. “…I took from it that bring a Marxist means ignoring every development in science and history since Marx…”

    A common comment from right wingers who have no idea what they are talking about.

    Comment by Sanctuary — July 7, 2015 @ 11:23 am

  108. More of the argument that this is more about Europe than Greece, a table showing the debt exposure of other European countries to Greece.

    As the article that includes this chart points out:

    What would happen if Italy suddenly got an extra funding requirement of more than €60bn? Every euro apologist point to Italy’s primary surplus, but what good does that do when your debt is over 130 per cent of GDP and rising? The interest payment on that gargantuan debt load means Italy must cough up more than €75bn a year just to service liabilities already incurred. A primary surplus is a useless concept in a situation like the one Italy finds itself in. Adding another €60bn to Italy’s balance sheet could very well be the straw that breaks the Italian camel.

    The French would be on the hook for around €70bn just when they have agreed with the European Commission to “slash” spending to get within the Maastricht goal of 3 per cent, in 2017!

    Imagine the German peoples wrath when they learn that Merkel defied their sacrosanct constitution; a constitution that clearly state that the German people, through its Bundestag, is the sole arbiter of any act that have fiscal implications regarding the German people. The Bundestag did not approve the €42bn of ECB programs that have funded the Greek states excessive consumption.

    I’m amazed that people are still referring to the Maastricht Treaty. But then I’m amazed that this whole shambles has staggered along since 2010.

    … with a sprinkling of Derrida …

    Why not also get Russell Brand appointed as the new Greek PM to deliver such thoughts? Euro meetings where he starts talking Derrida would be a mega-popcorn fest. It would do for this narrative what it’s done for the study of literature in universities.

    Comment by tom hunter — July 7, 2015 @ 11:44 am

  109. Imagine the German peoples wrath when they learn that Merkel defied their sacrosanct constitution

    This is I think the genius of Greece’s brinksmanship. Tzipiras and Varoufakis have played Merkel beautifully.
    As various industry pundits have noted, the Troika has effectively taken itself hostage. It’s lose-lose for them.

    Comment by Gregor W — July 7, 2015 @ 12:01 pm

  110. right wing, technocratic, arrogant and anti-democratic EU project….

    Clap ……. clap …….. clap.

    Comment by tom hunter — July 7, 2015 @ 12:07 pm

  111. Tzipiras and Varoufakis have played Merkel beautifully.

    Both sides I think will have to sell some unpleasantness to their electorates.

    Both agree on two basic points – Greece needs structural change and financial assistance. The disagreement is which comes first.

    For the EU they want evidence of real commitment to structural change first. Tsipras on the other hand argues structural change can’t happen before a financial support package.

    One can I think see why there’s that difference based on their different constituencies.

    I’ve seen it argued that the solution is the EU bring more democratic – with out any explanation of what that actually means. But I think if European voters had a more direct say Greece would actually be worse off. And EU leaders do have to take into account the opinions of their voters, as does Tsipras.

    So a solution is most likely Europe forking out more money – an unpopular move – and the Greek govt undertaking structural reform that will antagonise many Greeks.

    Comment by NeilM — July 7, 2015 @ 12:29 pm

  112. So a solution is most likely Europe forking out more money – an unpopular move – and the Greek govt undertaking structural reform that will antagonise many Greeks.

    And I can’t see either one happening – though the former is slightly more likely than the latter, if only because the EU could re-write the rules around the ECB that prevent it lifting the cap on its emergency lending to Greek banks. That cap is currently €89 billion – but look at this chart of Greek bank claims vs deposits from 2001 to 2015. It’s amazing how fast it can collapse. A bank run of one day would probably be all that could occur now if they re-open, because the run has already happened since 2009.

    As far as Greek reform is concerned, it’s an even more unlikely, I would say impossible:

    He points to the “cartelization” of many industries in Greece that prevents established players from facing true competition. Everyone from cab drivers to pharmacists to lawyers is protected. “You have to have connections to get a license,” he says. “And those protections are aimed at propping up the incomes of the insiders, the people who have the lucrative positions. But then the outsiders have a harder time breaking in.”

    Azariadis makes exactly the same point.

    “Lots of economists have thought about this issue, and they all, left and right, have come up with the same proposals,” he says. “The bureaucracy is enormous. To start a hotel, you need to get licenses, and the process of licensing takes many, many years. The civil service itself and the politicians are extremely corrupt, so the cost of doing business is very high, and that has choked off investment.”
    ….
    The problem is thus a lack of political will throughout the country. Too many people are benefiting from the way things have always been done in Greece to risk changing it, even for a promise of greater long-term growth. Seen that way, it’s no wonder the guy they elected to represent them has so stubbornly refused to go along with the demands of Greece’s creditors.

    More popcorn!

    Comment by tom hunter — July 7, 2015 @ 12:56 pm

  113. I took from it that bring a Marxist means ignoring every development in science and history since Marx.

    No, it means quoting Marx extensively. If you are the trust fund baby of an offshored multi-million fortune, waxing lyrical about good old Karl gains you massive credibility. In desperate times you’ll be able to rip off your own people, make millions, ransack the economy to help out your rich friends and still a wide section of the people will love you.

    Being a Marxist is a great way to make money out of suckers.

    Comment by unaha-closp — July 7, 2015 @ 1:11 pm

  114. The problem is thus a lack of political will throughout the country…

    I think that historically this is true for the reason’s laid out, but I also think Tzipiras knows this event is a catalyst to enact managed change.
    In a way, letting the Greek people give the bird to the Troika gives Syzira a mandate to embark on this programme, but on their own timeline.
    Maybe I’m being naïve but I would like to think Syzira doesn’t represent the venality and corruption of Greek politics-as-usual.

    Comment by Gregor W — July 7, 2015 @ 1:48 pm

  115. “…No, it means quoting Marx extensively. If you are the trust fund baby of an offshored multi-million fortune, waxing lyrical about good old Karl gains you massive credibility. In desperate times you’ll be able to rip off your own people, make millions, ransack the economy to help out your rich friends and still a wide section of the people will love you.

    Being a Marxist is a great way to make money out of suckers….”

    Frame this and put it on the wall for whenever you need to know why, in the richest societies in all history, the right are so lousy at building anything beyond a Hobbesian vision of nasty, brutish and short.

    Comment by Sanctuary — July 7, 2015 @ 2:40 pm

  116. Maybe I’m being naïve but I would like to think Syzira doesn’t represent the venality and corruption of Greek politics-as-usual.

    As far as I’m concerned Syzira represent that as much as any other party because politics-as-usual is simply another face of culture-as-usual; the mentality of organic product salesman Apostolis quoted above. What difference in thinking is there between his attitude – give me money and I’ll pay my bills – and that of Greece as a whole, including Syzira. As one historian noted several years ago – after years living in Greece:

    I watch fender benders a lot. In northern Europe, addresses and information are exchanged; south of Milan, shouts and empty threats of mayhem follow. When I check out of a German hotel, I know the bill reflects what I bought or used; when I check out of a Greek hotel, I dread all the nonexistent charges to appear, and a “50/50 split the difference” settlement to be offered. Germans like to talk in the abstract and theoretical; with Greeks it is always “egô” in the therapeutic mode. I rent a car in Athens and expect charges for “dents” to appear; in Germany, there are such charges only if there are actual dents.

    Add all that up — and millions more of such discrepancies repeated millions of times over each hour — and you have one country that creates vast wealth and another that cons to land vast wealth it did not create.

    Comment by tom hunter — July 7, 2015 @ 3:03 pm

  117. As far as I’m concerned Syzira represent that as much as any other party because politics-as-usual is simply another face of culture-as-usual.

    Maybe. Though I think there is a bit of a lazy thinking / clash of civilisation trap there in that the logical extension of ‘lazy dagos will always be lazy dagos’, then the same alternate stereotype can be applied to the Germans and that they’ll always revert to form of being nasty authoritarians with an imperialist streak.

    It also rejects the notion that political evolution is possible.

    Comment by Gregor W — July 7, 2015 @ 4:20 pm

  118. No more funding for Greece. Let it all burn. After a good forest fire the forest always comes back stronger…..

    Comment by dave1924 — July 7, 2015 @ 5:25 pm

  119. After a good forest fire the forest always comes back stronger…

    Unless you’re a small woodland creature that, miraculously, escaped the flames. Now you return and find you have no food, no shelter, and are exposed to all manner of predation.

    Comment by Phil — July 7, 2015 @ 5:39 pm

  120. But Phil…. those are the risks you take when your a nation like Greece living beyond its means for years and years…. and the risks you take as a Greek citizen dodging your taxes and soaking up Government benefits. Eventual it all collapses like the ponzi scheme it is – because that is what the major Greek political parties have been running for the, what, 15 years since they joined the EU. But now the suckers don’t want to throw more money in and its all tumbling in.

    The only possible saviour for the Greeks is that the prime drivers of the USofE project will swallow some dead rats to keep their dream of one European state from the Atlantic to the borders of Rus land alive….

    Let it burn. Greece is insignificant in and of itself. And the problems it will face will give Spain and Portugal pause before they try the same game theory shenanigans on the EU

    Comment by dave1924 — July 7, 2015 @ 5:48 pm

  121. dave1924 – so its all the average greek citizens fault?

    thats like blaming every NZer for whatever bullshit any one of our govts decided to do – sometimes at the behest or requirement of external factors

    Ok – democracy is great and all – but were fooling oursleves if were going to start claiming the average citizen has that level of knowledge, control and influence

    “Let it burn. Greece is insignificant in and of itself.” – i think most greeks would beg to differ – and maybe punch you in the face while they are at it – passionate people etc etc

    Comment by framu — July 8, 2015 @ 11:45 am

  122. thats like blaming every NZer for whatever bullshit any one of our govts decided to do

    It also promotes the idea of collective punishment which, I would presume, is antithetical to he notions espoused within European Human Rights conventions.

    Comment by Gregor W — July 8, 2015 @ 12:21 pm

  123. Hard to see any course of action that doesn’t entail a form of collective punishment.

    A large portion of the Greek population did line their own pockets. But not everyone could or chose to do so.

    Those that voted Yes will have to suffer the consquences of Tsipras’ actions just as those that voted No would have had to suffer the consquences of policies they did not want had the vote been different.

    I think democracy is to a degree about fiairmess but also to a degree about dealing with unfairness without resort to violence.

    Comment by NeilM — July 8, 2015 @ 2:54 pm

  124. “Hard to see any course of action that doesn’t entail a form of collective punishment.”

    100% true there neil – i think though its a question of degrees and how big is the collective group being punished

    for me that group includes people and institutions across the wider EU and not just the “greek man in the street”

    Comment by framu — July 8, 2015 @ 3:03 pm

  125. I think democracy is to a degree about fairness but also to a degree about dealing with unfairness without resort to violence.

    Sure.
    My point being that state violence – or more accurately in this instance supra-state economic violence – which would likely reduce 10m people to penury for a generation, could reasonably be inferred as a result of the troika’s stance.

    Comment by Gregor W — July 8, 2015 @ 4:20 pm

  126. Framu…. no Greek can avoid their role in all this… well those of voting age, the children have no responsibility.

    Greece being reduced to penury is one thing, bailing them out via the IMF, ECB and EU Commission is another. neither are good solutions – but a another bail out is by far the worst as it just reinforcesborrow and spend with no thought for consequences.

    The Troika continually kicking the can down the road while Athens Lawyers, Doctors and other professionals declare 12k Euro annual incomes while living in flash houses and driving later model cars is just wrong.

    The Greeks need to carry their weight and pay their dues.

    My saying let it all burn is a not unreasonable tough love message. They need to stand up and pay their way.

    The Troika in my view should throw them out of the EU and the Euro, grant them an interest moratorium and a repayment moratorium and the Greeks can get busy and restructure their state to remove the rorts and tax avoidance.

    If they need additional help while things shake out over the first 18 months, i am sure some charity work by Red Cross etc can make sure the children, elderly and sick don’t suffer.

    Hell all you staunch defenders of the Greeks right to borrow with no way to repay can have a whip around every month to help them out. International Workers unite and all that

    As for punching me in the face whatever Framu I couldn’t care less.

    Comment by dave1924 — July 8, 2015 @ 4:44 pm

  127. What ever the final outcome of new negotiations, rest assured that the collective punishment is going to spread much further than just the greek-person-on-the-street. A full-blown Grexit will punch a comet-sized hole in the balances of EU government books that will take a long time to close.

    Comment by Phil — July 8, 2015 @ 6:37 pm

  128. Appears, for the time being at least, Greece and the EU are nudging towards a compromise.

    The George People vs Elites Mondiots of the world should chuck back a few valiums – this isn’t some capitalist assault on democracy, this is democracy – groups with profoundly different views voting to reach a solution.

    There’s always going to be conflict. Conflict is not a symptom of a lack of democracy. The lack of a peaceful solution is.

    Comment by NeilM — July 9, 2015 @ 1:33 am

  129. “Hell all you staunch defenders of the Greeks right to borrow with no way to repay can have a whip around every month to help them out. International Workers unite and all that”

    or – you could stop being quite so silly by deliberately misrepresenting the entire anti austerity argument –

    Theres more than one way to pay back debts and only a raving loon or some one with a very mean streak would choose the nuclear option of “let them burn” – that option would have staggering down sides for more than greece

    In a globalised world none of us are insulated

    Comment by framu — July 9, 2015 @ 8:22 am

  130. Framu… stopping being an idiot chap and read my last post. Quite clearly offered an option for Greece to be given 5 years to sort shit out – where they wouldn’t need to pay loans principal or interest for 5 years

    As always with a true lefty like yourself as soon as options you don’t like are offered the other person is a loon etc. or you try to change the focus to one paragraph and have a rant on that. Bait and switch, yawn….

    And why would a leftie not support a collectivist action to support the common people of Greece? Because then its your own money on the table and not some vague government or institution paying the way? Does your solidarity end at ranting on a keyboard??

    Keep the insults coming Framu… enjoying them.

    Comment by dave1924 — July 9, 2015 @ 10:06 am

  131. The Troika in my view should throw them out of the EU and the Euro, grant them an interest moratorium and a repayment moratorium and the Greeks can get busy and restructure their state to remove the rorts and tax avoidance.

    Why would the Greeks agree to this when they don’t have to?
    The troika has no power to throw anyone one of the EU. And certainly, if the Greeks elected to leave the logic would support a complete default, no some kind of cockamamie IOU.

    Hell all you staunch defenders of the Greeks right to borrow with no way to repay can have a whip around every month to help them out. International Workers unite and all that.

    This is a pretty egregious strawman. Who has suggested that “the Greeks [have or had] a right to borrow with no way to repay”?

    Comment by Gregor W — July 9, 2015 @ 11:09 am

  132. dave1924

    you did say let them burn did you not? and you did create a straw man to launch insults off did you not? and where did you sat anything about 5 years? – maybe i missed it – maybe you never said it? And if you are indeed suggesting a 5 year window then thats hardly a let them burn attitude – so why so defensive?

    you moan at me for trying “to change the focus to one paragraph and have a rant on that” while utterly ignoring my point –

    *a let them burn attitude such as the one youve expressed has very obvious downsides in a globalised world – agree or disagree?*

    and are you now making assumptions about my politics it seems

    righto then buddy – cant we stop this and talk like grown ups?

    Comment by framu — July 9, 2015 @ 11:48 am

  133. Some more thoughts on the root causes of this. As danyl points out, the “Troika” was not so much bailing out Greece as bailing out its own banks, which were dangerously exposed to Greek debt. But why did they need to be bailed out? The short answer seems to be they were too big to fail.

    I recall that after the GFC and in the early 2010s there was a lot of discussion about this problem, but now it seems to have gone out of fashion. In terms of Greece it does not really get mentioned at all as a root cause. Instead the root cause is Greeks being lazy and having a crappy tax system.

    I struggle with understanding the global financial system, and I don’t think I’m the only one. But the key problem it seems to me is that it is fundamentally broken. If it was working properly, banks that took on stupid risks would be punished. How it works at the moment is that banks can take on stupid risks, and the taxpayer gets punished. Blah blah blah I know this is nothing new.

    But if it’s old news, surely the problem has been fixed since 2009? In the US, there is Dodd-Frank, which according to some experts makes things even more complicated and doesn’t eliminate the “too big to fail” problem. So that sucks. And in Europe I’m not so sure the problem has been fixed either. I understand banks have fought tooth and nail against stronger regulations.

    Overall I’m fairly sure the problem of too big to fail banks – the root cause of the whole Greek crisis – still hasn’t been fixed. I’m not even sure it can be fixed because I have a nasty feeling that banks have captured the policy process.

    Comment by Seb Rattansen — July 9, 2015 @ 1:27 pm

  134. My point being that state violence – or more accurately in this instance supra-state economic violence – which would likely reduce 10m people to penury for a generation, could reasonably be inferred as a result of the troika’s stance.

    We are half a generation past the late 90s drastic financial reform imposed by the IMF and Asia is not in penury.

    Comment by unaha-closp — July 9, 2015 @ 1:56 pm

  135. Framu… first with the grown up thing sure. “Loon”, “silly”, “punch in the face”. All grown up engagements by you. Reciprocity ensues. Happy to drop that if you ; )

    As for assumptions on your politics – assuming your left leaning witha s soft spot for the greens as postings under Framu at TS seem to indicate? Not correct my apolgies no one should be unfairly tarred thus….

    As for 5 years you’re correct I didn’t say it in the post saying moratorium but in a later reply. So mea culpa.

    But the Greeks still need to take collective responsibility. They engaged in a sequence of democratic acts electing successive governments and by doing so gave those governments the power to bind them to laws and treaties and contracts. That’s representative democratic government. the buck stops with them regardless of the wailing and gnashing of teeth and cries of unfair.

    Let it burn: well if I am say a voter in GB or Holland or Germany. And my Government or a higher body like the EUC want to bail the Greeks out again my response would be exactly that. They can fend for themselves. No more good money after bad.

    It is a valid stance if you think there is minimal flow on, which I do. The problem is unwritten by large government and quasi government entities with huge balance sheets. They can wait for repayments or write off a loss over a decade…. the write off, of course would just be borne ultimately by non Greek EU citizens. So I see it as contained already

    I also think ultimately Greece will have to pay a large chunk anyway

    There maybe a case to lend more and cut the losses as RBS says from 227bn to 140bn [as reported in The Telegraph]. In context the Greek debt if lost is trivial compare to the EU’s combined GDP of circa 12.7 trillion Euros it can be sustained financially if it has to. But what risk does that expose the EUC etc to if Spain plays the same game and then Portugal and then Italy? 227bn my be a cheap price to pay to keep those 3 on the straight and narrow.

    As for the inter-connectedness of the world economy and its financing. Yip its interconnected. But that doesn’t mean that if Greece is made to toe the line everything else goes up in smoke. A moratorium as I have alternatively suggested stops that, while things are sorted out and buys Greece some time to get its structural issues like shit tax collection, uncompetitive economy and bloated government sector sorted….

    In my view Greece needs out of the Euro. It doesn’t meet their needs clearly and it exposes them to huge risk in terms of cheap financing as we are currently seeing

    Greece is going to suffer – and I don’t particular care about that. The International Aid community will help out doubtlessly. But it will send a valid market signal to countries that there is a price to bear for living like a teenager spending on daddys credit card when their is no daddy paying the bill….

    So whether is a simple walk away and let it burn or a moratorium approach, end result is not much different. It will be very painful for Greece

    Gregor:

    You say they can’t kick them out. If that’s what the various treaties say and they are locked into the EU and Euro unless they choose to go, well that is going to cause a dilemma isn’t it. I would be greatly surprised if the there are not mechanisms to kick Greece out if the other members of the Eu or Eurozone want to remove them from the agreements. But I am pretty sure that a legal solution can be found if no cast iron mechanism is documented. Law is pretty malleable from what i have observed

    As for egregious strawmen: Worzel is a favourite of mine. If I wish to offer a strawman I can do so, to support my argument. You can burn it down if you wish. In this instance it is a reasonable position to take given the tone of some of the comments on the thread supporting an ongoing support of the Greeks and of support to enter into a debt write off scheme which would, from my brief reading on other sites, entail additional lending to the Greeks to effectively provide the Greek nation with a cash float and working capital. Those comments indirectly support the stance the Greeks had a right to borrow and now have a right to not repay.

    —–
    Finally:

    Greece has access to some funding in its reserves “estimated €17bn of reserves still stashed away in various branches of the central bank” as reported by The Telegraph on 7 July. So they have a lifeline if required. Get out of the Euro, issue their own currency and start rebuilding. Won’t be pretty. Wouldn’t be at all surprised to see a lot of citizens leave Greece. Riots will occur, as Framu says they are a passionate people. But its all so what as far as I am concerned. Lending them more money when the current government doesn’t seem to seriously want to reform, from what I have read, means the crisis just rolls along forever.

    Comment by dave1924 — July 9, 2015 @ 2:15 pm

  136. fair enough dave –

    however “silly” was an attempt to not use the more sailor type language i prefer for daily use – and calling some one silly is hardly name calling or being childish – so lighten up on that one mate, its hardly a word to get upset over.

    and “punch in the face” – how on earth did you take that for an insult? – the greeks ARE known for being very, very passionate, with an easy propensity towards riots are they not? Its a turn of phrase to describe the likely reaction you might get saying what you did on a greek street – not a slur against you

    so yeah – im happy to play nice, in fact i prefer it – but you have rolled in a fair bit of muck yourself here and taken things quite the wrong way

    cool – were all adults again.
    I appreciate and applaud your more considered response by the way – the moratorium idea has merit – and its a mile away from let them burn

    ps – im actually more of an anarchist with a pragmatic/idealist paradox all wrapped up in curmudgeonly old cynic (yeah im being cute there – but “left” doesnt really work as a label as much as “right” for pretty much everything)

    Comment by framu — July 9, 2015 @ 3:07 pm

  137. I don’t think the concern is the banks failing and being too big to fail but rather that the EU financial structure will suffer a severe if not fatal hit.

    Which is what the extreme left and right want hence the clapping from the sidelines from the likes of Le Pen.

    And this possibly explains the often marked difference between some economists and the actual politicians who have to make decisions.

    Sure from an economists point of view individual acts to write off debt can make sense. But the consequence feared is the break down of trust relstionships between the member states. If Greece gets special treatment then why not other countries, why not even France?

    This is often presents as – but that’s just politics not economics – but it is economics at an inter-state level.

    It doesn’t appear that Tsipras wants to go there although some in his party probably do.

    Comment by NeilM — July 9, 2015 @ 3:07 pm

  138. Those comments indirectly support the stance the Greeks had a right to borrow and now have a right to not repay.

    @ dave – I don’t think it does at all. You’re effectively creating a sort of cause and effect fallacy.

    There is a big difference between historically allowing what amounts to a fraud to be perpetuated (inasmuch as all the parties involved in the process knew that Greece wasn’t good for it, but judged that they wouldn’t be held directly to account) where the burden really has to fall on the creditor for making a bad loan (i.e. a complete writedown), and new loans where Greece as the creditor would reasonably have to prove they are good for it in order to access new funding.

    We are half a generation past the late 90s drastic financial reform imposed by the IMF and Asia is not in penury.:

    @ unaha-closp – you might want to look at the underlying causes of each situation and the remedies proposed / applied before making this comparison. To be blunt, apples and oranges.

    Comment by Gregor W — July 10, 2015 @ 9:56 am

  139. Gregor…. all parties knew that Greece wasn’t good for it? Really? Because in 2008 Greeces GDP was over 300 Billion Euros PA and their debt was 170 odd Billion. High but not an unreasonable loading and not what I would like for an NZ scenario because of the downside risk to being unable to service if/when a downturn strikes the economy. They were making their payments

    Bottom line G: Greek politicians have played the popularity game with patronage expressed via do nothing jobs, nice government benefits and stupid spending. 2004 olympics springs directly to mind in terms of stupid spending. The Greek population has voted for sunshine and rainbows provided by debt. Time to pay up and suffer the cutbacks necessary to balance the books.

    Comment by dave1924 — July 10, 2015 @ 11:40 am

  140. Gregor…. all parties knew that Greece wasn’t good for it? Really? Because in 2008 Greeces GDP was over 300 Billion Euros PA and their debt was 170 odd Billion.

    If lender’s didn’t know Greece wasn’t good for it, then either they didn’t do they’re due diligence or they were willfiully ignorant.

    They willingly lent tons of money to a country where the public policy settings were wrt expenditure were long standing and well known, one with a well documented history of tax evasion and political nepotism and to an economy that was based almost entirely on services.

    Volenti non fit iniuria.

    Comment by Gregor W — July 10, 2015 @ 12:02 pm

  141. What was also predictable was that they did not have the courage of their convictions.

    heh, heh, heh, hehhhhhh

    The Greek government capitulated on Thursday to demands from its creditors for severe austerity measures in return for a modest debt write-off, raising hopes that a rescue deal could be signed at an emergency meeting of EU leaders on Sunday.

    Athens is understood to have put forward a package of reforms and public spending cuts worth €13bn with the aim of securing a third bailout from creditors that would raise €53.5bn and allow it to stay inside the currency union.

    A cabinet meeting signed off the reform package after ministers agreed that the dire state of the economy and the debilitating closure of the country’s banks meant it had no option but to agree to almost all the creditors terms.

    No option? One’s own currency backed by a solid taxation system – with especially high taxes on the rich?

    Useless craven bastards: My Karl, my Karl, why hath thou forsaken me?

    The good news for them is that it might still fail because of an internal revolt – not to mention riots from the 61% “NO” demographic, and that even if it does pass those hurdles the Greek government will not really do anything. Once again they’ve said what they had to say to get the money: jam tomorrow.

    Equal farting noises for the EU, who once again have taken the Greeks at their word; “Sure, we’ll reform, we’ll cut €13bn – just give us €53.5bn now”.

    In that article I see another amusing sidelight that conforms with my cynical humour:

    Panagiotis Lafazanis, the energy minister and influential hard-leftist, who on Wednesday welcomed a deal for a new €2bn gas pipeline from Russia, has ruled out a new tough austerity package.

    Go Vlad The Impaler.

    Comment by tom hunter — July 10, 2015 @ 1:59 pm

  142. Oh FFS, this spam trap bot is getting tiresome.

    Indeed, the Asian Financial Crisis was triggered by multiple bubble bursts, which were reasonably quickly dealt to. Whereas the Greek financial crisis has a lot to do with systemic book-cooking, bare-faced corruption, and weak scrutiny on the part of EU finance czars.

    Comment by Kumara Republic (@kumararepublic) — July 10, 2015 @ 8:17 pm

  143. Memo to Danyl: how strong is the moderator-bot here? It’s not like we’re getting a lot of spammers.

    Comment by Kumara Republic (@kumararepublic) — July 10, 2015 @ 8:21 pm

  144. There will no doubt be rather harsh judgements made of Tsipras. He sold out the revolution, why didn’t he let Varoufakis spend a few more months shouting terrorist at Hollande etc.

    My impression is he’s genuinely tried his best in tough times. I thought his strategy over the past 6 months left a bit to desired and might not be terribly successful but he was playing with a weak hand.

    Whose idea it ever was to suggest they could always just go with Putin needs to be placed to one side. Perhaps back to University where Varoufakis will be basking in the glow of his personal victory of antagonising people and where wearing a leather jacket and claiming to be a Marxist might impress a few 18 yr olds.

    The Guardian is claiming that increasing corporate tax and tax on luxury goods as well as clamping down on tax avoidance is austerity which suggests the term austerity has gone the way of neolib – a lazy insult.

    Comment by NeilM — July 11, 2015 @ 1:19 am

  145. If Tsipras gets thrown out, who’d replace him? It’s not likely to be the Greek political mainstream, who carry the baggage of the whole mess. If it’s the Golden Dawn, the EU’s finance czars might wish for Tsipras back.

    Comment by Kumara Republic (@kumararepublic) — July 11, 2015 @ 4:59 am

  146. Sorry, but I find the following far more interesting than the sad, slow descent of the Labour Party into the Stygian depths of Winston World.

    From The Telegraph is an article by one Pavlos Eleftheriadis – a barrister and a Fellow of Mansfield College at the University of Oxford. He is also active in Greek politics with the new centre-Left political party, To Potami – and he has discouraging words to say about his country

    Comment by tom hunter — July 12, 2015 @ 10:44 am

  147. A Ha! So that got past spambot. In that case let’s try some quotes….

    Clientelism was a substitute for social insurance.

    The civil service became part of the spoils of government. There was no room for universal benefits or long-term strategies of assisting the poor. Everyone was out to secure the best short-term outcome for themselves. The big winners were the public sector unions, the utility companies’ unions and the professionals: doctors, lawyers, engineers, pharmacists. The economy remained closed and protectionist, working largely for the benefit of powerful special interests.

    Comment by tom hunter — July 12, 2015 @ 10:53 am

  148. And this …

    Many Greeks believe that this is the normal way of running an economy and a political system and that this is how Germany, England or France work. The idea that common institutions can work for the benefit of everyone, with impartiality and objectivity, and not just pretend to do so, is remote from Greek public life. This is why Mr Tsipras is believed when he speaks of the EU as an instrument of “extreme neoliberal” capitalists and other elites.

    That’s funny – a very base form of funny but still….

    In any case the big question is where Greece goes from here:

    The governments of PaSoK and New Democracy largely balanced the books, but refused to destroy the privileges of the special interests that kept them in power. The government of Syriza also resists reform, ostensibly because of hostility to “capitalism”, but in reality because most special interests have switched their allegiance to Syriza as the real anti-reform party and the vehicle of a new cronyism. Hence, Syriza has done nothing to regulate the media oligarchs, open up the economy, or introduce meritocracy in the civil service. It even refused to introduce a universal unemployment benefit by way of a “minimum guaranteed income” as proposed by the EU.
    The deeper foundation on which populists and demagogues thrive is lack of trust in common institutions. As long as the Greek political system does not restore this trust, real reform will prove highly elusive.

    Brilliant. Kulture rules, so we’re going to run through this nonsense again a few years hence.

    Comment by tom hunter — July 12, 2015 @ 10:57 am

  149. @tom – an interesting read in terms of historical context, but let’s not forget that this is an opinion piece written by a self identified centre-left barrister, slagging off the populist left, in a right wing rag.

    Comment by Gregor W — July 12, 2015 @ 12:26 pm

  150. slagging off the populist left

    Deservedly so since they’re the bastards currently owning the Meet the new boss. Same as the old boss comedy routine.

    You’d also note that among the protected classes he rips into are the Greek mini-tycoons who set up TV stations that are little more than propaganda outlets for their interests – shades of the eternal damnation of Mr Murdoch by left-wingers around the world. That doesn’t sound like he’s a traitor to his ideology, at least for anyone to the right of Stalin.

    I’d like to think that any left-winger should now know who the real traitors are – and useless, incompetent traitors at that, except when it comes to maintaining the cronyism. The fact that a “right-wing rag” is publishing it tells me that the left don’t want to know about this now. Too embarrassing.

    Comment by tom hunter — July 12, 2015 @ 1:20 pm

  151. …self identified centre-left barrister, slagging off the populist left, in a right wing rag.

    With good reason. Syriza calls itself Marxist, but then spend its entire time in office rejecting demands for any real taxation on capital. Greece remains a corrupt low tax paradise.

    Instead Syriza has spent its entire time in office calling for a bailout of Greek capital by internationalised socialism.

    Tax the German workers to pay for the Greek bankers – Syriza 101.

    Comment by unaha-closp — July 13, 2015 @ 10:58 am

  152. To me the lesson is this : the swivel-eyed loonies on the Tory back benches, the UKIPers, the Daily Mail, The Sun, were right all along about the corrupt anti-democratic EU and the botched Euro. Greece has been forced to surrender, right down to demands by EU autocrats to reform it’s… bakeries. Presumably the Germans are annoyed at the lack of Pretzels. I am amazed the Greeks are ordered to provide 100 fair maidens as annual tribute to Berlin.

    Comment by Sanctuary — July 14, 2015 @ 11:21 am

  153. Greece has been forced to surrender, ….

    And then some. This from one of those swivel-eyed loon media groups, Breitbart:

    A Greek exit from the Euro was reportedly closer than ever at 6am European Time on Monday, 13th July 2015. It followed 14 hours worth of talks between German Chancellor Angela Merkel, and Greece Prime Minister Alexis Tsipras. That is until the unelected president of the European Council Donald Tusk got his words in:
    “Sorry, but there is no way you are leaving this room.”

    Holy crap! They’re not even hiding the personal contempt any longer. As the writer goes on to say:

    There, in just 11 words, lies the problem with the Euro and the EU; it’s not up to the member states. It’s up to the Eurocrats who have spent their whole lives dedicated to building an undemocratic, European superstate which has little regard for the will of the people of its own membership countries.

    Does this sound like a project that’s going to bring Europeans together so that they never again start a Continental-size war? It sounds like one started in that room, which The Financial Times had one participant quoted as “It was extremely hard, violent even”.

    Well, there’s a lot at stake, more than just money …

    Their whole project, decades of work, trillions of pounds, dollars, euros, marks, drachma, lira, francs, and all the rest poured into their ideal of a centralised Europe with suffocating control over national parliaments – all to be undone by a tiny little collection of islands closer to Beirut than Paris?

    That’s just not going to be allowed, and of Greeks have to be sacrificed on the bonfire of Euros then so be it. The article finishes on a even sadder note:

    “They crucified Tsipras in there,” the FT.com quotes a ‘senior eurozone official as having said, “Crucified.”

    And they’re crucifying Greece alongside him. ZeroHedge is right:
    “In other words, Greece will be liquidated piecemeal to repay creditors. In even other words, the proceeds from the Third Greek Bailout will not only not reach the Greek people, but Greece will have to sell itself in pieces to top off the creditors’ funding needs.”

    I think I’ll go watch Margin Call again. After reading about Eurozone officials it will be nice to see people acting with a modicum of ethics, scruples and decency.

    Comment by tom hunter — July 14, 2015 @ 12:42 pm


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