Greek Voters Reject Bailout Deal, Greece Still Largely Screwed
Greek voters rejected the latest bailout package, but that only seems likely to make things even worse for them.
Greek voters went to the polls today and overwhelmingly rejected the bailout deal that had been proposed by European officials, likely setting their nation up for further economic turmoil:
ATHENS — Greeks delivered a shocking rebuff to Europe’s leaders on Sunday, decisively rejecting a deal offered by the country’s creditors in a historic vote that could redefine Greece’s place in Europe and shake the Continent’s financial stability.
As celebrants gathered in Athens’s central Syntagma Square, the Interior Ministry reported that with more than 80 percent of the vote tallied, 61 percent of the voters had said no to a deal that would have imposed greater austerity measures on the beleaguered country.
The no votes carried virtually every district in the country, handing a sweeping victory to Prime Minister Alexis Tsipras, a leftist who came to power in January vowing to reject new austerity measures, which he called an injustice and economically self-defeating. Late last month he walked away from negotiations in frustration at the creditors’ demands, called the referendum and urged Greeks to vote no as a way to give him more bargaining power.
While Mr. Tsipras now appears to have his wish, his victory in the referendum settled little, since the creditors’ offer is no longer on the table. There remains the possibility that they could walk away, leaving Greece facing default, financial collapse and expulsion from the eurozone and, in the worst case, from the European Union.
At stake, however, may be far more than Greece’s place in Europe, as experts have offered wildly differing opinions about what the referendum could mean for the future of the euro and, indeed, the world’s financial markets.
Even before the voting was over, some European leaders began making efforts to contain the potential damage. The office of Chancellor Angela Merkel of Germany released a statement on Sunday saying she would meet with the French president, François Hollande, in Paris on Monday for a “joint assessment of the situation after the Greek referendum.”
But others were more pessimistic. Germany’s economy minister, Sigmar Gabriel, who is also the leader of the Social Democrats, said the vote made it hard to see how talks could resume on a bailout deal.
“Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness,” he told the daily Tagesspiegel, adding that they have, “torn down the last bridges on which Greece and Europe could have moved towards a compromise.”
The vote took place under what some analysts called a financial carpet bombing. The European Central Bank severely limited financial assistance to Greek banks, forcing them to close a week before the referendum, making it hard for retirees to get their money and raising widespread fear here that people would lose their deposits.
The news media, dominated by Greek oligarchs, saturated the airwaves and the newspapers with stories about losing gasoline and medicines, while the plight of the elderly was afforded far more attention than in the past, media experts said.
Nonetheless, many voters, tired of more than five years of soaring unemployment and a collapsing economy, said they could not accept the terms of the European offer, which imposed yet more pension cuts and tax increases, without any hint of debt relief.
As word spread of a likely victory for the no vote, people began gathering in Syntagma Square. They streamed out of the metro — which is free in this week of capital controls — and drove by, honking horns. Vendors sold Greek flags, and there was a peaceful, celebratory atmosphere.
People made speeches. Some remembered that at the beginning of the crisis in 2011 Syntagma became a gathering place for protesters. But in those days it was a scary place, they said, in contrast to Sunday night.
Mr. Tsipras voted late Sunday morning in his working-class neighborhood in Athens. Afterward, he said the vote was a “celebration of democracy.”
“Not only will we remain in Europe,” he said, “but we will live with dignity to prosper, to work as equals among equals.”
For some voters, the week of hardship — they could withdraw only 60 euros, or about $67, a day from A.T.M.s, and already some pharmacists were refusing to fill prescriptions — had only strengthened their sense that Greece needed to stand up for itself.
After five years in which unemployment soared beyond 20 percent and the country’s economy contracted by 25 percent, many said that a no vote was at least a vote for hope, the possibility of a new deal, rather than following the mandates
On some level, the rejection itself isn’t entirely surprising. For several years now as the Greek economy has gone from crisis to crisis and the nations various leaders have negotiated with European bankers and others in an effort to restructure the country’s debt, a combination of one of the worst economies in Europe and austerity measures put into place in an effort to find the money to keep the nation from default has apparently made situation on the ground in Greece quite bad indeed. Over the past week, that situation has been made even worse due to the fact that the nation’s banks and stock market have been essentially closed and citizens are not allowed to with draw more than what is roughly the equivalent of $60 per day from their bank accounts. These measures were put in place by the government, of course, and not by bankers elsewhere in Europe, but it appears that much of the blame for the situation among members of the public has been focused somewhere other than toward Athens. That government, though, was swept into office largely on a populist platform of opposition to the conditions that European lenders were seeking to impose on Greece and, though he appeared to concede somewhat to negotiators last week, Prime Minister Alexis Tsipras was pushing for a “No” vote with the argument that it would give him negotiating power with the European banks. The Greek people seem to have bought that argument.
Where things go from here seems to be anyone’s guess at the moment. Heading into the referendum, an assumption on both sides in Greece and from most analysts around the world was that rejection of the bailout plan would essentially be the beginning of the so-called “Grexit,” Greece’s departure from the European Monetary Union and the return, presumably, of the drachma. In one of the first reaction pieces to today’s vote, Walter Russell Mead says that a Grexit is inevitable now and suggests that a Greece outside the Euro would actually make it easier for Athens and its creditors to negotiate some kind of acceptable solution to the debt problem. The question that raises, obviously, is what that would mean for the rest of Europe and for Greece. Raoul Ruparel outlined some of those scenarios in a piece that was written before the current crisis began, and there will certainly be much more discussion of those issues in the days, weeks, and months to come. At a macro, though, it strikes that it is far more likely the Europe can survive without Greece than that Greece can survive without Europe. Greece has been an economic basket case dragging down the rest of Europe for some time now, cutting it off from the Euro is just as likely to have positive benefits as negative ones. Yes, there’s a possibility it could set off a chain of events that would lead other nations to re-examine their position in Europe, but that seems likely to happen anyway. Greece, on the other hand, is likely setting itself up for far more pain if it tries to go it alone once again. It has an unsustainable welfare state, massively high unemployment, and seemingly few prospects for real economic growth unless it radically departs from its current course, which seems unlikely. And, of course, even outside the Euro, it still has to figure out a way to pay its debts. So, while the Greek people may be happy with what they did today, all they seem likely to accomplish going forward is guaranteeing that their bad situation is just going to get worse.
Not surprised. The country is corrupt, their private sector massive, their tax collection a joke. Did we really expect anything else? The irony is that this rejection will almost certainly make things worse, with an even more severe austerity, at least in the short term.
Greece: Help, I’m hanging off a cliff. Pull me up!
EU: We’ll throw you a rope, but only if you drop your backpack off first, because we don’t want to have to haul up the weight of your gear too.
Greece: That’s not fair! All my stuff is in that backpack!
EU: Well we won’t throw down the rope until you get rid of it.
Greece: Yeah, well screw you! I don’t need your stupid rope anyways!
Should be an interesting day in the European markets tomorrow morning (or in about 9 hours).
I’m a contrarian…
I can’t wait to vacation in Greece, as the economy collapses.
Same for picking up a second home on the beach in Puerto Rico as they collapse as well.
Face it — Those of us who’ve been around for a while are no longer terrified when the bottom drops out.
The world is full of tragedy. Tragedy makes for opportunity.
Since 2010, Greece has received €219 billion or $241 billion, so about $21,900 for every Greek.
Now, these are loans with interest (which Greece failed to do a repayment on a couple of days ago).
Alabama received $17 billion more than it paid in federal taxes in 2005, so about $3,777 for each Alabamian. I doubt that the state receive less today, and if not, since 2010, each Alabamian has at least received $18,885.
And that’s not loan.
Those ready to sneer at Greece should probably take a look at this chart to see whether they live in a state with a similar imbalance between what is spent and what is raised.
Greece is just Mississippi or Montana or Kentucky. The Germans and French wanted all the advantages of a unified currency and none of the mess of nationhood. Imagine how much Mississippi would owe now if we had the same deal going. Certainly far more than they could hope to pay.
Of course the German bankers and bureaucrats knew Greece didn’t have the money. They knew it when they made the loans, they’re not imbeciles even if they are bankers. The whole world knew Greece had no economy, hell, I could have told them. And yet the loans kept going out the door and the interest payments kept coming in.
Between heroin dealer and strung-out junkie, just how do we parse the moral culpability?
@PJ:
Great minds thinking alike.
Greece is not Kentucky nor Montana. Greece is Puerto Rico.
And yes, Merkel is the great winner in this mess: she managed to bailout the German banks without having to pay any political price for that.
Hey Keynesians….quick….go tell the Greeks how much better it would be for them to get into more debt.
From the WSJ in Feb. of this year.
ATHENS—”Of all the challenges Greece has faced in recent years, prodding its citizens to pay their taxes has been one of the most difficult.
At the end of 2014, Greeks owed their government about €76 billion ($86 billion) in unpaid taxes accrued over decades, though mostly since 2009. The government says most of that has been lost to insolvency and only €9 billion can be recovered.
Billions more in taxes are owed on never-reported revenue from Greece’s vast underground economy, which was estimated before the crisis to equal more than a quarter of the country’s gross domestic product.
The International Monetary Fund and Greece’s other creditors have argued for years that the country’s debt crisis could be largely resolved if the government just cracked down on tax evasion. Tax debts in Greece equal about 90% of annual tax revenue, the highest shortfall among industrialized nations, according to the Organization for Economic Cooperation and Development.”
Greeks should have never been in it, they should have left 5 years ago. it will be painful, very bad and difficult, but they have to leave, devalue etc… continuing on this same path in the euro is just stupid.
@PJ: Greece didn’t receive a dime of that money. It all went to make the German banks who provided it with ill-conceived loans whole, in what must be the most successful money laundering scheme in history, shifting all the blame from Teutonic bankers to Mediterenian spenthrifts.
The question is whether the EU will back down this next round or finally say OK, that’s enough, we’re cutting the financial spigot off, you’re going to have to learn how to live on your own.
Since historically Greece has had a tradition of rapidly inflating its currency and then revaluing it when too many zeros were on the bills, I’m not very hopeful.
On the one hand, I’m sorry for the financial hardship the average Greek is now undergoing–on the other hand–they WERE the ones voting the corrupt politicians into power.
BTW, Greece isn’t even being run by a bunch of socialists. True socialists would have been after the tax evaders with teeth and nails, as well as insisting the oligarchs pay their fair share. What this has been is one bunch of populist governments after another voting themselves high salaries and raising the money to pay for it by issuing sovereign bonds, taking advantage of Germany’s credit rating.
Now the whole carousel has stopped and everything has collapsed.
The real trouble for Europe comes in five years when the Grexit has allowed Greece to recover with its own currency. Italy will be watching that, ditto Spain, Portugal and Ireland.
In other words, many people in Greece want something for nothing just like many people in our country…before anyone is tempted to go “holier-than-thou”, remember that wanting plenty of stuff from the government without paying the taxes to support all of that isn’t endemic just to Greece…
@humanoid.panda: Yes, but Greece had spent the money they had first borrowed.
I’m a bit tired of this “greedy banksters took all of the loan” meme. If I borrow a lot of money from X, and then pay it off with a loan from Y, I shouldn’t go around ranting that the money I got from Y was used to “pay greedy X.” I was the one who requested the loan in the first place, and the debt is still there.
@grumpy realist:
And what have the Greeks been buying with those German Euros? German products. Germany makes loans to people it knows can’t pay, collects interest, sells its goods and then when the Ponzi scheme falls apart, they blame the Greeks. I know the protestant ethic is still strong in this country, but I am not seeing this is a straightforward morality play where the Greeks deserve to be punished for lying on the beach drinking wine while the Germans are exemplars of virtue.
@michael reynolds: Well, based on Greek currency history, I sort of doubt anyone wants to imitate Europe’s equivalent of Zimbabwe…..
If Greece has its own currency, it has only two routes: keep its spending in balance with its collected taxes, or borrow to cover the difference and rapidly inflate away the worth of all debts. (P.S. Louis XIV did this with the French currency to cover the debts from all the wars he kept fighting.)
Given the Greek attitude towards tax-paying, I don’t think they’re going to do the former.
@michael reynolds: I think it’s more “German banks lent out a lot of ill-advised loans, German government steps in when banks look like they’re about to crater and take over burden, now are trying to get money back so taxpayers don’t have to be on the hook for this.”
Whatever happened to banks being prudent with their loans? And yes, I do believe that if you’re Too Big To Fail then you’re Too Big To Exist and should be broken up.
@PJ:
So you’ll be calling for rolling back the welfare state and having a less progressive tax system then?
These glib comparisons to American states are silly. Alabama’s draw on taxpayer funds (which is exaggerated by retirees and the military) isn’t because they don’t pay taxes or have huge public sector or because Alabamans retire at age 50 with a greater pension than most European’s working income.
Read it and weep: Just exactly who are the corrupt people here?
Everybody thought everything was just ducky…. As long as they were making money. Now that the chickens are coming home to roost?
“NOT MY FAULT!!!!”
Read the whole damn thing. Plenty of sacred cows to be skewered on both sides. About all I can say is that when the Troika took things over? It wasn’t the best of situations, but it wasn’t Somalia either. Now? Well, it may not be Somlia, yet, but the Troika are driving it there.
In moderation, fixed for foul language in the quote (I hope):
Read it and weep: Just exactly who are the corrupt people here?
Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fwcked up. It has been fwcked up that way for a long time, for decades at least. This has never been secret. Anyone who has visited Athens knows it has far more in common with Bucharest or Istanbul than with orderly Western European capitals. In the run up to Greece’s joining the Euro, everyone who wanted to know knew that Greece’s qualifications to join the Eurozone were, shall we say, ambitious. Mainstream establishment banks “helped” Greece and other Southern European countries with accounting fudges that, while perhaps obscure, were not secret even at the time. Despite protestations when these deals hit the news in 2010 that officials were “shocked, shocked”, they were explicitly blessed by the agency that compiles the statistics on which Eurozone entrance was based in 2002 and Greece’s gaming was extensively reported in 2003 (ht Heidi Moore, both cites). The Euro was and ought to be primarily a political enterprise. In order to sell the common currency to Northern European elites, its architects required Eurozone members to meet strict “convergence criteria” and especially the requirements of the Stability and Growth Pact. But in practice, those criteria have always been interpreted flexibly. Most Eurozone members have broken their promises at one point or another, including both Germany and France. The Euro was a unification project, and erred (not unreasonably, I think) on the side of building a big tent.
Everybody thought everything was just ducky…. As long as they were making money. Now that the chickens are coming home to roost?
“NOT MY FAULT!!!!”
Read the whole dam thing. Plenty of sacred cows to be skewered on both sides. About all I can say is that when the Troika took things over? It wasn’t the best of situations, but it wasn’t Somalia either. Now? Well, it may not be Somlia, yet, but the Troika are driving it there.
@OzarkHillbilly: Oooopps, this is the quoted part:
Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fwcked up. It has been fwcked up that way for a long time, for decades at least. This has never been secret. Anyone who has visited Athens knows it has far more in common with Bucharest or Istanbul than with orderly Western European capitals. In the run up to Greece’s joining the Euro, everyone who wanted to know knew that Greece’s qualifications to join the Eurozone were, shall we say, ambitious. Mainstream establishment banks “helped” Greece and other Southern European countries with accounting fudges that, while perhaps obscure, were not secret even at the time. Despite protestations when these deals hit the news in 2010 that officials were “shocked, shocked”, they were explicitly blessed by the agency that compiles the statistics on which Eurozone entrance was based in 2002 and Greece’s gaming was extensively reported in 2003 (ht Heidi Moore, both cites). The Euro was and ought to be primarily a political enterprise. In order to sell the common currency to Northern European elites, its architects required Eurozone members to meet strict “convergence criteria” and especially the requirements of the Stability and Growth Pact. But in practice, those criteria have always been interpreted flexibly. Most Eurozone members have broken their promises at one point or another, including both Germany and France. The Euro was a unification project, and erred (not unreasonably, I think) on the side of building a big tent.
@Hal_10000:
So, what you’re saying is that the Greeks have done a much better job as using an equivalent amount of wealth income to benefit the lives of its people than Alabama has done?
Alrighty.
@michael reynolds: Excellent analysis. The next recession will put Italy in the same position Greece is in, and Italy is big enough to tell creditors to get steppin’.
One thing I absolutely am certain of: the euro is going down, to parity with the dollar, to lower and then to nothing at all. So thanks to the eurogroup, ECB and Merkel most of all; they made me enough money tonight with their third-world quality currency and galactic stupidity to fund my next vacation to Greece.
@Gustopher:
Huh? Greece’s unemployment is five times that of Alabama. Greece has all these wonderful pensions … and no money to pay for them. And things are about to get a hell of a lot worse.
@OzarkHillbilly: Don’t forget the hand that Goldman Sachs had in the salting and peppering of the finances in the beginning.
It’s ironic, because Germany didn’t want to go away from their beloved Deutschmark and could finally only be lured into the Euro by the French, who swore up down and sideways No Transfer Payments Ever Necessary.
The Euro is a great idea, but it really only works among a small set of countries all with the same attitude towards deficits and finances. Whoever thought that adding Greece to the mix was brain-damaged.
The US media has been so totally brain-damaged about this…they’re now screaming that it’s the Greek referendum vote that is causing a ruckus in the Asian markets, totally ignoring that the far more likely possibility is the meltdown on the Chinese stock exchange….
The next question mark is whether the ECB is going to shut off the spigot entirely, keep it at its present level, or open the cash flow.
(If I were them, I’d allow just enough money into the country for keep the banks ticking over.)
@michael reynolds: Greece is not going to recover. they don´t have access to the bond market. They also don´t have exports, so their ONLY access to
The Euro is a lousy concept that should go away. But Greece is on a horrible situation.
@Andre Kenji de Sousa:
The euro is a fine concept. It’s just that a monetary union without a fiscal union is not workable.
Greece is not Alabama nor Idaho or any US State. All the 48 states in the Continental United States shares common borders and a common economy. A company in California can use a highway in Alabama to transport goods, there are many people that lives in a state and works in another state.
Greece does not even have a border with a country that uses the Euro.
@Stormy Dragon: It´s not a matter of fiscal union. Take a look at Puerto Rico. Or Reunion Island. They all have high cost of living and stagnant economies.
@madjakk: Please identify in Keynes writings a passage in which he asserted, “It’s great to always go into lots of debt.”
Not to draw an exact comparision, but the same comment could be made about Poland’s rejection of you know who’s ultimatum in August 1939.
Greece was going to be screwed in the short term either way, and the only question is which answer would be a route to a better outcome long term.
I’m no expert on this stuff, so I’m just going to go with Krugtron’s take:
Greece gave themselves a chance that the Europe deal didn’t give them. Now we’ll see what they do with it. If they devalue like Canada and Iceland did…they very well may succeed.
@michael reynolds: Yeah, Ireland is watching right now. Very closely. The next election in Ireland will prove interesting, in part because Denis O’Brien (the Irish Rupert Murdoch) received an under-the-table debt write-down that is roughly the equivalent of what Greece owes.
For the most part this will be en experiment in Euro consolidation. To most observers it has been clear that there’s only a core group of about 6 states that can truly operate in a complete union, the rest is just political fluff. If they managed to separate off Greece with a modicum of grace there’s at least hope to preserve a core group of operating states in the Euro, and reexpand later when true economic convergence and not political maneuvers determine the ability to join.
@stonetools:
Democratic principles == 2% of the EU’s population votes for something that Krugman agrees with, it must be done, regardless of what the other 98% thinks about it.
@stonetools:
Whew. Now that I know Krugman was in favor of a “no” vote, I *know* it was the wrong decision. Was wondering there for a bit.
The things Krugman does not address:
1) What the Greek referendum and a Grexit means for other troubled European economies (Italy, Ireland, Spain, Portugal) whose exit would have a much more massive impact on the global economy.
2) How Greece is going to address their gigantic problems with taxation and pensions, which still exists, whether they are under the Euro, the Drachma, the dollar, the ruble or the Triganic Pu.
In short, it’s just another iteration of the Keynes Uber Alles line he’s been pushing for the last decade. It has little to say about the crisis at hand.
@Andre Kenji de Sousa:
Andre… While Puerto Rico has a challenged economy, the cost of living, compared to the USA, is low.
Here is a per item comparison:
http://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=Puerto+Rico&country2=United+States
I have read that in the USA, the lowest cost of living is Mississippi. Once you add the U.S. Territories, then Puerto Rico has the lowest cost.
So, Caribe location, low cost of living, keep my US citizenship, no need to pay taxes to two countries (as I would if I chose to expat to some other country for retirement)… Makes P.R. look attractive.
The one thing that will need to be watched is the tax rate. That’s gone up in an attempt to raise funds. On the other hand, for those that choose to relocate to Puerto Rico, they have no capital Gains tax… so that’s a nice trade-off.
@michael reynolds:
The far bigger deal, I think, is that IF Greece recovers then the entire austerity project will be shown to be a failure…as it should be. We’ve been lucky here in the US that our economy is resilient enough to have absorbed the idiocy foisted on us by Republicans. The sooner that delusion dies the better.
This was a no win situation or the people of Greece. Yes, they have some responsibility for electing corrupt politicians who award overly generous pensions but are unwilling or unable to collect the taxes to pay for them. But the Northern European bankers and Germany are also responsible giving loans to the Greeks that the knew they could never repay. And then there is Angela Merkel who was always more interested in being the queen of Europe than actually dealing with problems and the German people themselves who liked the idea of a German being the Queen of Europe.
Plenty of blame to go around and at least in the short term the Greek people will suffer. Once the Greeks leave the Euro they will be in charge of their own destiny. They may blow it but at least they will have the opportunity.
@Stormy Dragon:
There are a LOT of folks in countries like Spain, Italy, Portugal,and Ireland who may very well agree with the Greeks.
I note that a lot of people have been happy to get on their high horse and beat on the Greeks for their “profligacy”, like spinster schoolmarms tut-tutting about the behavior of “fallen” women.
Note that even countries like Portugal and Spain, whose governments were not particularly profligate or incompetent, were also hard hit by the economic crisis and are also suffering under the ECB’s austerity program. Krugman again:
If a system only works if everything is perfect and there is no margin for mistakes or failure, maybe the system isn’t that good?
@Liberal Capitalist:
PR also has a problem with the federal minimum wage. In the US, the minimum wage is about 30% of per capita income. In Puerto Rico, it’s almost 80%. It’s a big part of their 14% unemployment rate.
@C. Clavin:
Well except that almost every country practiced “austerity” and they are now seeing recovery. Ireland, the UK, Iceland (yes, they practiced austerity; a stronger one than we did), the US, etc. Greece’s problem isn’t austerity, per se. It’s a completely dysfunctional economy.
@Hal_10000:
He actually did address that- and pointed to examples of countries with their own currencies that responded to the 2008 crisis by devaluation-countries that in fact did recover.
Now Iceland isn’t Greece, and by all accounts, the path foward for Greece will be even more difficult than it was for Iceland. But austerity wasn’t working for Greece, and was never , ever, going to work. That is something you and Krugman’s critics do not address. I guess it’s a whole lot easier to assert moral superiority over those “wasteful” Greeks than to face the fact that austerity wasn’t working.
@Hal_10000:
Er, no, Iceland didn’t practice austerity-at least as commonly understood or as the US did:
Would that we had practiced Icelandic “austerity!”
@Hal_10000:
Yes…Iceland went big on austerity…and devalued it’s currency. Are you suggesting we do that???
And yes…all the nations that practiced austerity are suffering through an agonizingly slow recovery due to it.
How do Republicans deal with recessions when they are in the White House? They grow Government. How do Republicans deal with recession when Democrats are in the white House? They do everything they can to make it worse. Treasonous behavior, really.
Greece has raised revenue and reduced spending…their problem is that austerity has killed any chance at growth. Since instituting the European dictated program 5 years ago their GDP has dropped 25%. Sure they have problems…austerity is making all of them worse.
@stonetools: Nobody whipping the Greeks seems to want to mention Thursday’s IMF report which basically said the Troika’s austerity plan hadn’t worked and wouldn’t work in future. The Greek voters seem to have noticed the report. (I’d love to know the internal politics behind releasing that just before the vote. Apparently release was largely driven by the US. And I suspect thank god for the hotel maid who outed Strauss-Kahn.)
@stonetools:
It’s easy to just scream “dysfunctional economy”…and leave it at that.
@C. Clavin:
In Hal’s alternate universe, Europe, which practised more austerity, recovered faster than the USA. In our universe, the USA , which did apply a Keynesian stimulus and practised less austerity, has a lower unemployment rate and recovered more rapidly than Europe.
You can’t convince conservative ideologues to accept facts when their ideology cannot survive their accepting those facts.
So far I’ve yet to hear the critics of Greece admit that austerity simply was not working and I expect they will never admit that, because of course, conservative economics CANNOT fail-they can only be failed.
@Liberal Capitalist: Puerto Rico in a general sense should not be compared with Mississippi. It should be compared to it´s direct neighbors – specially Antigua and Barbuda, Montserrat and Dominican Republican.
Note that the British Overseas territories have their own currency. And these territories fare better than the French and American ones, that does not have their own currency.
@Ron Beasley: You know, with all your Merkel bashing you completely miss that Greece made it into the Euro under Schroeder, she only inherited the mess 4 years later.
@C. Clavin:
The Greek economy relied a great deal on professionals (lawyers, doctors, etc.) all cheating on their taxes. The government also faked its books for years. Dysfunction is a stupid word and moralism is a joke, but the government did not attempt to be honest. In the end, they were no different than some dumb-ass corrupt county in Alabama taken in by equally-corrupt outside money.
@gVOR08:
Strauss-Kuhn is an exemplar of austerity, though, because of his great credit score. He’s not like one of those dysfunctional poor persons with a 550.
@Modulo Myself: This “debate” seems to be between moralists who wish to punish Greece for its numerous misdeeds and realists who wish to look at the situation as it exists and find the least bad solution.
@Ben Wolf:
You’re both right. Keynes would never had called for this kind of debt. Keynesians do. It’s the difference between a model and human nature. Keynes said that over here is a magic pill that will help you every time you take it, and it’s important to take it only when you need it. Keynesians want to take the pill every day. And a pill is the right analogy: debt is as addictive as a painkiller. You needed it when you were hurting, now you need it to keep from hurting.
@gVOR08: Nice ad hominem work there.
@Pinky: As deontology and consequentialism are descriptions of their arguments, no, it isn’t.
@gVOR08:
I agree. But one of Greece’s problems was that its government refused to go after widespread tax fraud. Most of this fraud occurred due to bankers, lawyers and politicians not paying their taxes.
From the Guardian, in 2012:
Interestingly, their report, Tax Evasion Across Industries: Soft Credit Evidence From Greece, which documents the hidden, non-taxed economy, blames the current malaise not on dodgy taxi drivers or moonlighting refuse collectors, but on the professional classes.
They found that €28bn (£22.4bn) of tax was evaded in 2009 by self-employed people alone.
As GDP that year was €235bn and the total tax base was just €98bn, it is clear that this was a significant sum. At a tax rate of 40%, it amounted to almost half the country’s budget deficit in 2008, and 31% in 2009.
The chief offenders are professionals in medicine, engineering, education, accounting, financial services and law. Among the self-employed documented in the report are accountants, dentists, lawyers, doctors, personal tutors and independent financial advisers.
To me, there’s a certain kind of recapitulation going on here. In Greece, the wealthy cooked the books and screwed the less fortunate. They did so in a very crude way, it seems. Meanwhile, more sophisticated ways of screwing took place in the post-2010 debt relief, most of which seemed to go to Greek creditors and back into wealthier European countries.
The OXI decision seems like the right one to me. But you have to wonder who is going to benefit most in Greece and who is going to bear the brunt of it. As far as I can tell, Syriza has been pretty hapless in changing the balance of power in Greece, except for maybe the referendum.
@Andre Kenji de Sousa:
I can’t help but notice you left off the Cayman Islands.
@Modulo Myself:
Greece’s government got stonewalled by European bankers when they tried to get an accounting for the 100 billion euros stashed by its wealthiest citizens in Swiss bank accounts to avoid Greek taxes. The same bankers who want to foist growth destroying austerity on Greece, also enable the corruption. Agreed…Greece has serious problems. Voting no to austerity is an important step in overcoming them – maybe. Voting yes would have only made things worse – with absolutely no chance for improvement.
@Pinky:
If your opinion is based upon nonsense…then your opinion is probably nonsense.
@Modulo Myself:
In light of all this talk about “Greek” corruption and tax evasion, we also take a look at what the current Greek government is doing:
Most commenters would reject the notion that the USA should forever be judged by Nixon’s ethics or by Bush’s foreign policy. Maybe we should accord the Greeks the same courtesy?
@Pinky:
Name a few. Should be easy, right?
I’ll wait.
@gVOR08: I’d assume that you support the No vote crowd based on your comment. If I’m wrong, then my argument falls apart.
Your terminology seems designed to insult the “moralists”. Looking over this thread, I don’t see a lot of people arguing that Greece should be punished. Most of the anti-No comments I’ve read online are about how Greece’s economy is too different for monetary union to survive. Even those who say that Greece should pay its debts aren’t talking about punishing the country.
@stonetools: Krugman, for one.
(I can add more. I didn’t want you waiting too long.)
@stonetools:
In no way was America innocent of Nixon or Bush II. I’m innocent, because I knew Bush II was full of it about ten seconds after the planes went into the buildings. But America? No way. 50% of this country believed that Saddam Hussein was behind 9/11. They were crazy for war. And then they happened to forget about everything they ever believed the moment Iraq went sour.
So to with Nixon: Nixon bombed the hell out of Vietnam and received nothing except bogus honor for it, and not only was he reelected, but his sanctimonious real-American jingoistic cowardice led directly to the chickenhawks of Bush II. You can’t have Reagan and Dick Cheney’s draft deferments and Bush II landing on an aircraft carrier without a bunch of real Americans capitulating in Vietnam while hippies were being sneered at.
Americans love this approach. We’re built on confidence men and scams. We can’t pretend that our political leaders are aberrations.
And so it goes with Greece. The upper-class Greeks (not only the oligarchs) were happy to exploit the system. They treated it with contempt. Now Greece is being treated with contempt. There’s no reason to judge them, but there’s no reason to pretend that it’s not the case.
@Pinky:
Thanks for not letting me wait. Now link to where Krugman said this :
Here’s a handy link to the NYT Opinions search page.
While Pinky is trying to locate his unicorn, here’s a Krugman column on the rest of Europe, which is doing so well under austerity, according to Hal.
.
What’s interesting is that the moralists, for all their harrumphing about that free spending hussey Greece, can’t really point to any austerity success stories. Apparently even the “good girls” aren’t doing so well under the euro and austerity.
@stonetools:
What’s interesting is that the moralists, for all their harrumphing about that free spending hussey Greece, can’t really point to any austerity success stories.
Bullies and idiots have always enjoyed the virtuous poor.
@stonetools: Gosh, you’re right, Krugman didn’t use those exact words in the quote you offered. On a practical level, how do you make a distinction between those who support regular deficit spending and – you know, I can’t even finish this sentence, because I can’t figure out how to distinguish between the ideas. So please, state the distinction you’re trying to make.
Screw Greece!
@Pinky:
Stonetools is asking you to back up your comment.
The easiest thing will be to own up to baseless hyperbole.
I’m guessing you will double-down on the dumb.
@Pinky:
Maybe if you don’t understand something, you shouldn’t make sweeping statements about it?
Just sayin’.
Here is a Krugman column that ties up Keynes, deficit spending, austerity, and Europe in one package. You’re welcome:
@stonetools:
You’re making a naturalism fallacy here. Whether austerity or stimulus is better, whether it’s Greece’s fault or Germany’s fault, whether the richer EU countries should be supporting the poorer economies or not, all of these things are completely irrelevant.
The only relevant fact is that there is overwhelming opposition to futher bailouts in most of the potential donor countries. We can shake our fists at the German public all we like, but that’s not going to change.
And even if Krugman is right about how to handle the Greek crisis, suggesting that the German government rejecting the clear preferences of their constituents somehow constitutes “democratic principles” is positively Orwellian.
Greece is not Somalia nor Tunisia. It´s a country with very high GDP per capita(In fact, it´s more than in any developing economy). In fact, before this crisis, their GDP per capita was in a similar level than South Carolina or a bunch of Southern States.
They don´t have oil, commodities to export nor any high developed sector in the economy.
@stonetools: ‘
The problem is that in boom times, we don’t practice austerity. During the 00’s, I and every libertarian were sounding alarm bells about unsustainable spending at every level. And we were told we were heartless because now was the time to spend money, when the government was flush with it. Politicians of both parties were the boy who cried “sheep”. Republicans said nothing about Bush engaging in the biggest spending binge in American history. Democrats denounced Bush for “gutting” vital spending (by … massively increasing it). And both parties worked to get states to undo spending caps and restrictions.
So yeah, Bush spent a lot to grow the economy in the 00’s. And that sure worked out great, didn’t it? In the meantime, the austerity of the last few years has resulted in a reasonable real economy.
This is my primary problem with Keynesianism (or rather, the pseudo-Keynesianism we practice). The support for it isn’t motivated by a great historical track record (of which it has none) or its theoretical underpinning (which is weak). It’s motivated by a desire to justify lots of government spending. It’s like much of “supply-side economics” in that regard, which is primarily motivated by a desire to cut taxes, not any track record of theoretical basis.
Re: devaluation of Greece’s currency. Inflating your way out of debt isn’t the worst idea in the world — it’s how we eased the Great Depression. But it won’t solve Greece’s problems. They are still running a primary deficit. So even if you erased all the debt, they’d still be in the hole. And with a huge pension system and a birth rate way below replacement level, that problem isn’t going to get better anytime soon.
No matter how you slice it, the country is screwed.
@Stormy Dragon: No offense, but if there is anything European and transnational institutions are good at, it’s subverting the will of voters- hence the 2008 bailouts, for instance. Why the sudden fealty to public opinion?
@Hal_10000:
Sorry, but this is a version of aughts history from an alternative universe. In the real world, “Keynesians” were aghast at the Bush tax cuts, called to fund the wars with tax hikes, and were very unenthusiastic about Medicare Part D, because it had not pay fors (and, of course, the major policy innovation of the Obama era, the ACA more than pays for itself..). You can only argue they didn’t care about fiscal balance by pretending taxes have nothing to do with fiscal health..
@humanoid.panda:
If you think German voters are wrong and want the government to ignore them for their own good, fine. Just don’t try to pretend it’s driven by a desire for “democratic principles”. Krugman is, in fact, calling for more technocratism.
@Hal_10000:
Not true..
http://www.wsj.com/articles/greece-misses-target-on-budget-surplus-1421244654
@Stormy Dragon: This is a fair point, but the obverse is also true: the Troika openly wants to depose Syriza…
I’m curious, particulary from Stonetools and others: how do you define austerity?
Because big tax increases in the middle of a depression can’t possibly be it.
Keynesians can mean a large number of people. There is Krugman, Galbraith, Arturo Prebisch, Celso Furtado, Stiglitz, Robert Shiller, Kenneth Rogoff, and so on and on. They have different views on economics(Some of them were even called “Austerians”).
@stonetools: Ask an oxycontin addict when he’s going to stop using, he’ll tell you when the pain goes away.
My comment is simple – read Krugman.
Here is an interesting take from a German perspective in Der Spiegel, which asserts Bundeskanzlerin Merkel has exacerbated the Greek crisis through delay and indecisiveness.
Angela’s Ashes: How Merkel Failed Greece and Europe
@Barry: I’ve read enough political Krugman to know that he’s a hack, and talked to enough economists to know that economic Krugman is academically irrelevant and never would have won a Nobel Prize if it weren’t for political Krugman.
@Hal_10000:
Well…at long last someone is admitting they have gotten the economy they wanted. So I guess that’s something. Real…well that is another thing altogether.
Austerity by definition is not a natural condition…in other words it is un-real. We are shrinking the Government…our crumbling infrastructure alone is clear symptom of an unhealthy situation.
Too, exploding inequality is a clear indicator of imbalance.
And the Fed was until recently was pumping artificial stimulation (QE) into the system to keep it afloat…and even now with interest rates near zero the economy is being artificially supported.
So I’m sorry…this is not a “real” economy. It’s the economy you and your Republican friends wanted….but what you think is real is actually a delusion based upon your failed economic theories.
@Pinky:
Except that he tends to be right about many things, while you tend to be wrong. Your refusal to directly address the issue of your original comment proves that.
@Pinky: That is simply the opposite of truth. Lots of economists despise political Krugman. No one doubts his Nobel was deserved on purely technical grounds. I strongly suspect the economists you talked to are either Austrian cranks or reside inside your head.
@Hal_10000:
Sigh. This is why it’s so hard to argue with conservative ideologues. H.P beat me to it-it’s like arguing with people posting from an alternate universe.
Keynesianism was practiced by the GWB administration? Seriously? Because what was practiced looked like its opposite to me. It was straight ahead Reaganomics, with trickle down tax cuts for billionaires, huge, unpaid for military spending, an unregulated financial market, and yawning deficits ( because “deficits don’t matter “[Cheney chanelling Norquist]). Ask Krugman, who penned many, many columns about GWB economic mismanagement and correctly predicted a financial crash.
As to the second sentence, man, I have to laugh. There was a big burst of stimulus spending (not big enough), followed by haphazard austerity as the Republicans voted against any and everything Obama proposed and shut down government twice in ludicrous attempts to renege on federal government obligations and to abolish the ACA. The reason the economy is doing as well it is is because of that 2009 stimulus. It’s the consensus of most economists and the CBO.
Look, man, you’re entitled to your own theories, but not to your own facts. I know of no economist who thinks Bush was practising Keynesianism during the aughts, and most economists agree that the US economy recovered as well as it did mostly due to the stimulus.
Greece can´t be compared to the United States. Part of the problem is that Emerging Economies needs Strong Currency(That the United States can print) and selling bonds is one way of doing so. These countries usually increases tax rates, cut spending and then raise taxes to convince investors to lend money to them. It´s never an easy path.
@Humanoid.panda: Krugman was known for modeling in isolation. It’s easy to model an advantage to governmental interference in trade if you don’t account for the possibility of reciprocal action. His work was out of date when it was published due to the absence of game theory in his models, and has only faded since then. But he was critical of Bush, and that’s enough to win you a Nobel Prize.
@Jeremy:
Yes, if those tax increases go to pay foreign debt and to cut deficits. (Hoover increased taxes at the height of the Great Depression).
For the Krugman haters, here is Clive Crook, a conservative business columnist:
Again, the people who actually know this stuff seem to agree on the facts. The conservative moralists, of course, create their own reality, where if only Greece would buckle down and suffer some more for the benefit of the creditors, things would work out. Well, nope.
@Pinky: If you look really hard, you still won’t find a Keynesian economist who supports unlimited government spending.
In a nutshell: There are many different types of Keynesian disagreeing on many different things. The one insight by Keynes which can most be said to unite them is that prices and wages are sticky downward; they resist falling and market pricing is therefore not perfectly flexible as the classical school of old and today’s vulgar austrians think. Because prices and wages don’t fall in line with demand we get depressions instead of deflation. To avoid a Bolshevik revolution, most Keynesians recommend government spending to push demand back up to the prevailing price level and avoid destabilizing unemployment.
I don’t actually read Paul Krugman so I don’t have a huge stake in arguments about him, but just recall that the commenter here currently calling him a “hack” has referred to Mark Levin as, I believe the phrase was, a constitutional scholar.
I yield to no man in my ignorance of economic theory, so I ask this in all humility:
Can’t Greece 1) Declare bankruptcy voiding all outstanding debt, 2) Issue a new currency, and 3) Find other sources of funding to help prop up that currency in the early stages? Couldn’t the US or China or Russia essentially cover their drachma bet until the currency stabilizes, presumably at a rather low level?
And five years from now, if a devalued currency and (hopefully) better tax collection have brought the Greeks to a better place, why wouldn’t the IMF or even private banks buy Greek bonds?
@michael reynolds: That might end up working very much to Greece’s benefit, but do you think any nation’s domestic politics would permit it to prop up a new Drachma? I think it would be seen as absolutely throwing money into a deep, black hole. And if one or more nations did step in, the conditions would probably be even more stringent than what the ECB is asking for now. There’s no way anyone would go into that with “hopefully” in any part of it.
@michael reynolds: Countries can´t declare bankruptcy – I think that it should be created some mechanism or organization to allow that.
By the way, Greece has a GDP per capita that´s considerably higher than China or Russia. As I pointed out, before this crisis, Greece had a GDP per capita that was basically the same than South Carolina. There are better targets for international charity.
@Pinky:
Wow, someone has studied up on word salad 101!
@Steve V:
Ouch! That really never happened right?
@michael reynolds: 1) Declare bankruptcy voiding all outstanding debt
Yes, though its creditors may try to seize Greek property via the courts.
2) Issue a new currency
Yes, though it will take some weeks or months.
3) Find other sources of funding to help prop up that currency in the early stages?
The U.S. or Russia could prop up the banking system now, if they wanted to. Greece can issue dollar denominated bonds which we buy, then use the dollars to purchase euros.
If they issue their own currency the Fed can open a “swap line” allowing Greece to draw on dollars in exchange. Both options carry significant risk; if Greece falls apart the Fed isn’t likely to get those dollars back. It won’t impair or hurt the Fed but taking losses is technically a violation of its charter, for what that’s worth.
Best solution is a loan on very favorable terms but try getting that past the Republicans.
@michael reynolds:
Conservatives don’t want to admit this, but there are plenty of government entities ( including several US states ) who reneged on their debts , then later got back into the good graces of creditors . Argentina has done it several times , most recently in 2001.It’s not an easy path for countries who do this, but it has been done.
People here seem to hate the Krugthulu, so here’s Joseph Stiglitz , arguing for debt structuring and debt forgiveness, citing as a successful example one particular country:
So, by my count, that’s two Nobel Prize winning economists and a respected business columnist in favor of giving Greece a chance, as opposed to some anonymous economic moralists on the Internet. So it should be an easy choice as to which way to bet, Mike, even if you don’t know much about economics.
@Davebo:
Paul Krugman’s academic work was behind the times even when it was published. This was because he failed to incorporate game theory into his economic models. Game theory is critical for modeling strategies and responses in a field like international trade. Because of this weakness, Krugman’s academic work has only fallen further into obscurity.
Better?
@stonetools:
Argentina only recently managed to return to Capital Market, and they have to sell their bonds with very high interest rates. I live in a neighboring country(I have a brother that lived in Buenos Aires for some years), Argentina is hardly any example of an economic success story.
Argentina is also a big exporter of agricultural commodities. Greece is not.
@Pinky:
Fixed that up for you.
Whether or not his modeling includes game-theory…he’s right more often than not. So are you obsessed with game theory…or obsessed with not admitting you are wrong?
@michael reynolds:
Greece can do all those things. The problem is that doing so is going to limit their ability to access international markets in the future and they’re probably not prepared to become wholly self-sustaining this week.
@stonetools:
What’s amazing about the conservative drama critics of moral hazard is that it is always the debtor, and never the creditor, that is acting in bad faith. In fact, the creditor should face zero risk, because he always needs to be bailed out no matter what.
Of course Greece should be given a chance. It’s a country, not a company. You can’t raid a country’s assets to cover its liabilities (but believe me, they’ll try).
If the EU was unwilling to help pay down Greek debt, then there should have been a plan for an orderly exit. And indeed, the conservatives are correct in that Greece probably should have never been in the Euro in the first place. Now the EU has delayed and obfuscated for years trying to squeeze blood from a stone, and have tried to kneecap Greece as a warning to other countries: Pay Up And Let Us (Mis)Manage Your Economy, or Else.
Now they’ll have a mismanaged country on their doorstep for decades to come, with all the instability and risk that comes with that. But it was worth it because bankers could trade worthless Greek bonds for a few years then leave the mess in the international community’s lap.
International financiers are not your friend.
The entire idea about Keynesian stimulus is about a healthy economy that is suppressed by an external shock. You aim at tiding things over until the “natural cycle” can continue.
There never was any option of doing this in the case of Greece. There just is no healthy economy there that could be supported by additional cash.
Despite the prevailing conspiracy theories this has nothing to do with German supremacy or anyone wanting to control Greece or discrediting Keynesianism.
The simple truth is that Greece basically implemented all of the “strangle kittens and bankrupt granny” policies (with the happy and stupid help of the creditors) but none of the productive ones.
Neither their efforts nor their rhetoric or negotiating style gave any confidence that lifting austerity would lead to any “natural” growth. Obviously permanently channelling German money into the Greek public sector would prop up the Greek GDP but what would be the point if their systems cannot be self-sustaining in the long run?
And that is why Syriza was such a failure. Instead of showing a way forward and then saying “but this will only work if we are not smothered by debt service” they basically went “first you void our tab and then we will see about non-accounting-trick changes”. And that was never going to fly.
@Ben Wolf:
Whatever the merits of a loan, even Republicans might find the idea of bailout better than internal chaos in a NATO ally that borders on Italy and Turkey-both NATO allies with internal problems of their own. Note that Greece has a nasty neo-Nazi right wing party that is quite capable of exploiting any chaos for political gain.Things could go pear shaped in Greece in ways beyond the musings of the conservative economic moralists here . This is a country that since 1944 has seen a civil war, two military coups, and a war against a NATO ally.We don’t want to find out what will happen if things really fall part in Hellas.
@Stormy Dragon: Greece can´t declare bankruptcy. Just ask Argentina and Peter Singer.
@Pinky: Game theory has little practical application in economics because it makes unrealistic assumptions about the actors involved. In the words of Alfred Marshall:
@Pinky:
OK, I hear people saying they can’t declare bankruptcy per se, but they can effectively do the same thing by other means.
And I’m hearing that it’ll be tough talking to the local loan officer after you’ve told the Germans to eff off.
But, Greece ain’t paying those debts anyway. Too big a pile. So it’s either bankruptcy or some debt reduction deal which will just put lipstick on the bankruptcy pig.
So, if they aren’t paying regardless, why not let them off the hook, and try a restart? And in that event, don’t NATO membership and various other defense advantages suggest it’d be smart for us to offer a helping hand rather than waiting for Putin to trade his help for a naval base in the Aegean?
They 1) Can’t pay and 2) Still occupy strategic positions. Doesn’t that argue for the US to play hero, once we’ve let Germany fumble about?
Don’t we have bigger fish to fry than arguing over moral culpability? Their physical position dominates the eastern Med, Turkey is drifting away from NATO and the US, and the Russians may be able to buy their way past the Bosporus. Isn’t the real estate sufficient reason for us to look for ways to help Greece? Do we really want a desperate and radicalized Greece?
@humanoid.panda: And of course, the whole issue of government regulation is a relatively minor aspect of New Trade Theory- its mostly about network effects and the benefits of scale, something that indeed game theory cannot address, because it deals with stylized individuals, not institutions.
However, all this is besides the point: both I and you are lacking the theoretical knowledge to abjudigate the issue. Shjow me a single academic economist (i.e not someone residing at the Von Mises institute or something) who argues that Krugman did not deserve his Nobel.
@michael reynolds: I couldn’t give a frog’s fat ass about moral culpability–I’m talking about the purely practical concern of not taking measures that would essentially amount to piling up a few billion dollars in the middle of the Parthenon and lighting the whole mess on fire.
There are things that could be done to help Greece–from generous debt restructuring to easing loan terms to total debt forgiveness and even monetary aid Marshall Plan-style–but none of it will amount to anything without real fundamental change in Greece, and man, that’s going to be tough. The Greek mindset on taxes goes back centuries.
@Ben Wolf: OK, we’re supposed to accept Paul Krugman because he’s a Nobel Prize winner. And then we’re supposed to reject Nobel Prize winners Robert Lucas, Reinhard Selten, John Nash, and Maskin/Hurwicz/Myerson because they used game theory? Two lessons here: the Nobel Prize doesn’t prove that an economist is infallible, and you’re underestimating the value of game theory.
@Mikey:
Well, it ain’t my money they’ll be burning. I didn’t push Greece into the Euro, and I don’t own a bank that would loan billions to people who are manifestly unable to pay. My interests as an American citizen are in regional stability, the integrity of NATO, and naval dominance in the Med.
Our interests are not aligned with Angela Merkel’s. She can play to cheap seats, we’ve got our own interests in Greece.
(Also, can you imagine what kind of a place I can get on Mykonos or Santorini when I’m paying in drachmas?)
@Mikey:
Country’s governments can change, and it does look like Syriza is serious about going after corruption and cracking down on the oligarchs. Now, they can’t produce an efficient, squeaky clean administration overnight-or even in a few years, but they certainly are making the right sounds.Make we ought to be giving them a chance, especially since we have interests in the area that go beyond making the economic moralists feel warm and tingly and helping their creditors?
Are we interested in Greece pulling out of NATO and giving Russia that warm weather port on the Mediterrean they’ve been lusting for since Peter the Great? Downvote me all you want, but don’t deny those aren’t possibilities to be guarded against. Game theory THAT.
@Pinky:
Have any of those guys signed on to your view that Krugman is wrong and continued austerity is the best solution for the Greek crisis? Because that’s what matters for the purposes of this post. Just sayin’.
@stonetools: There is no economic theory, anywhere, which says austerity after seven years of depression is the best or even a path to growth. It’s all about power and ideology at this point.
@Pinky: If anyone can name a single concrete, applied advance in the study of economics produced by assuming everyone is identically rational with identical wants, I might reconsider. But these things are assumed not because the math leads one to that conclusion, they are assumed because it’s the only way to make the math work.
@humanoid.panda:
In January. Revenues have plunged this year.
No it wasn’t keynesian, because we should have been cutting spending or raising taxes. It was pseudo-Keynesian in that involved the most massive spending binge in American history. Every single department grew. Federal spending nearly doubled under GWB. And the result of this spending orgy was not a great economy: it was a pseudo-boom that exploded on us in 2008.
And … seriously? You’re going to disprove me with a five year old analysis from the CBO that happened before spending essentially froze? According to “all the economists”, the austerity is supposed to have plunged us back into a recession. The UK economy isn’t supposed to be growing. Nor Is Ireland’s. Nor is Germany’s. Nor is anywhere else.
This. This is what I’m talking about. The people who think Keynesian economics is real take one data point and ignore everything else. Its “oh, woe is 1937” while ignoring the eight years running up to that. Now it’s “Oh, but 2010!” and ignoring the five year since. It’s ignoring the entirety of the 90’s. It’s ignoring everything Japan has done for the last 25 years. You get one positive analysis in 2010 and suddenly you’re set for life.
@Ben Wolf:
One of my ongoing bitches about economists, the patently absurd notion that humans are rational or even minimally competent to discern their own interests. If humans were rational we could fit all of human history into a document the size of a Jehovah’s Witness pamphlet.
@Hal_10000:
Sorry, but this is ridicilous. The only reason we can say anything about 1937 is because it allows us a control for the policies of 1933-1937 and 1939-1945, and that “experiment” is a total verification of Keynsian theory- as much as anything can be verified in economics.
In other words, if someone points out that deficit X led to growth rate Y, and deficit 2X led to growth rate 3Y, and in 1937, a deficit of X-Z led to a much lower growth rate, that person is not cherry picking.
@Hal_10000:
Wait, so doing the exact opposite of Keynesian is pseudo-Keynesian?
@Hal_10000:
So in other words it wasn’t Keynesianism. Because nowhere did Keynes or any economist I know say that government spending increases=Keynesianism.
Yes, I cited data. What the hell have you cited other than your ipse dixit that the turn to austerity produced economic growth? You’ve cited no data or analysis by anyone to show that the turn to austerity produced economic growth, for the very good reason that no economist believes this or can show it. The overwhelming consensus among economists and the CBO is that the stimulus jump started the recovery and that the Republican led turn to austerity after 2010 retarded it.
I could cite many, many links on this point but I’ll cite one:
Essentially, all but one right wing crackpot supports the conclusion that the stimulus helped.
As to the effect of austerity, here’s an article from the dean of conservative newspapers, The Economist:
The article makes a clear a case as can be that according to data drawn from several countries, the turn to austerity retarded economic growth in the USA and Europe. Case closed, except that facts don’t matter to conservative ideologues. I’m just posting this for the lurkers. As for your economic theories, Hal, once you’ve lost the University of Chicago, the IMF, and the Economist, you are way out there beyond the boundaries of rational conservative opinion. Just sayin’.
@michael reynolds: I think those of us on the “austerity” side of things are saying that due to the incredible levels of corruption and tax dodging, shoving more money into the Greek system isn’t going to do any good in generating money for the government to run their system. People will still tax dodge like crazy and look at the rest of Europe as being schmucks gullible enough to get more money from.
Which is why I’m on the austerity side of things–if it’s a case where no matter much money gets poured into the system nothing improves, why do it? I’m sure the rest of Europe can find better stuff to do with their funds….
(I wonder if our different opinions on this matter whether we’ve had a mooching relative/friend in our lives or not.)
@Grumpy Realist:
In my fantasy I’m assuming this near-death is enough to shock the Greeks into better behavior.
As for backgrounds, I was the mooch at times. Now I’m the family guarantor. People change and situations change. I’m a big believer in redemption.
@humanoid.panda:
I think that Hal, like Doug and other libertarians, are under the spell of what is called Austrian economics. The Austrians famously say that they are unconcerned with evidence, because their their economic theories cannot be contradicted by evidence ( I am not making this up). Noah Smith has fun with them here. A sample:
Hal’s statements about austerity and growth and Keynesianism being actually disproved by the Great Depression and its aftermath line up with Austrianism. Bet he’s a big believer in gold.
@Grumpy Realist:
Calling Greece incredibly corrupt is something of a stretch. Outside of the economy, Greece is identical to any developed country. It’s not Mexico or Nigeria. Day-to-day operations are conducted honestly. At least, when I lived there no one was ever like bribes are considered a formality.
@stonetools:
From what I get from Hal, he is not an Austrian- he, for example, seems to back Friedman on monetary stimulus being all we need, and that’s a view that anathema to the Austrians.
@Modulo Myself: As I understand it, huge proportion of economic activity there happens under the table, and without alerting the tax authorities..
@humanoid.panda:
That’s true. A lot of people don’t report income. God knows what happens when property is sold.
When I think of really corrupt countries, I think of places where the police are basically a gang or where prices are a vague fiction subject to shakedown and interpretation. Greece is definitely not that.
@Modulo Myself: Well, yes. From what I’m reading about it, it is somewhere between Russia and Israel in terms of corruption- and both have functional economies. It just so happens that for seven years, it had the borrowing costs of the Netherlands, and that’s a totally different ball game..
@michael reynolds:
More or less. In theory, Greece could have negotiated a debt default with their creditors, like Argentina did. On the other hand, they could risk facing people like Peter Singer suing them forever.
Fascinating to see the morality play debates. Children. I actually liked Reynolds analogy of dealer s and addicts. That’s closer.
Speaking of children. The Greeks want their chocolate chip cookies, but no cavities. As almost every left leaning commenter here will tell you, that’s possible. Right leaning: not so much. As for the banks, if they made bad credit decisions and they get burned. Eff-m.
This is nothing more than a bare knuckled negotiation. The Greeks are saying they won’t change their ways. The EU (Germany) Is saying: you really need to rethink that stance. That’s diplomatic. Better: screw you. Oh yeah? Screw YOU!!0
The negotiation is just now getting to the point of being interesting and productive.
@michael reynolds: Well, if we’re going to “prop up” a new Drachma we’re going to have to put some skin in the game. It won’t be without cost. We’d have to convince a lot of people we weren’t just burning the money to grill souvlaki.
Cheap vacations to Greece are very appealing, though…
@stonetools: It remains to be seen how much Syriza is actually doing, and will actually do, to bring the massive tax evasion under control. Going after “the oligarchs” is a start, but could end up amounting to little more than noisy tinkering around the edges because most of the tax evasion isn’t done by “oligarchs,” but by self-employed professionals like physicians and lawyers who make up the bulk of the “shadow” economy.
I sometimes wonder if ANY Greek government could bring tax collections anywhere near proper levels. Governments have come and gone but the Greeks have been evading taxes since the Ottomans occupied Greece in the 15th century.
Believe me, I understand the strategic importance of Greece, and I might support even a US role in its recovery should that become necessary, but only with evidence they were truly reforming and cracking down on the corruption and tax evasion. At this point that seems far from clear.
@Guarneri:
Greeks have already changed…raising revenue and cutting spending.
It’s know nothings like you and your failed economic theories who refuse to change.
Do you ever stop and think:
@Modulo Myself: Bribery has been pretty much the way things are done in Greece for many years. But recently they have begun to fight back:
http://www.theguardian.com/commentisfree/2012/nov/13/greek-people-system-bribery
@stonetools: Yes, well, that’s the problem. A lot of nice sounds, but no action.
Basically, the rest of Europe is fed up, especially after Greece’s latest shenanigans, and isn’t very willing to “give them one last chance.”
P.S. And right now I’ve noticed that Greece has been chased off being the “main lead” even in the European papers because everyone’s got their eyestalks out on what’s happening with the Chinese stock market (think: 1929 again.)
So now the party is over and the champagne bottles have been cleared away and you’re left with a huge hangover, you STILL have the same problem you walked into the room with: rest of Europe is saying no dice, Greece is saying hooray, we hit the iceberg!
Doug: “In one of the first reaction pieces to today’s vote, Walter Russell Mead says that a Grexit is inevitable now and suggests that a Greece outside the Euro would actually make it easier for Athens and its creditors to negotiate some kind of acceptable solution to the debt problem.”
That guy is a worthless neocon swine. I happen to agree, but quoting him makes one’s argument appear worse.
@C. Clavin:
Yes, the Greeks certainly are models of fiscal responsibility. Perhaps they could lend a hand with Detroit, or Chicago as well,who have followed the, uh, “Greek Model” for some time now. Or perhaps you could, given such manifest financial acumen. Snicker
@grumpy realist:
I’ll give you three guesses as to what the Greeks would do with that chance. The first two don’t count.
@Guarneri:
I never said that. Perhaps that’s why everything you type is wrong…are you aware of your reading comprehension problems? There is probably a local community college that can help you overcome them. That is if your red state politicians haven’t already slashed education funding to the bone.
@grumpy realist:
I think people forget that Tsypiras and Syriza just got here. You and others are repeatedly talking about Greek malfeasance from years or even centuries ago.Syriza has been in power for six months .From the Guardian:
I think everyone has to take a step back, acknowledged shared responsibility for the this crisis, and come to a settlement that involves goals that the Greeks can actually meet and will provide a way out of unending depression from the Greeks. Consider that under the troika’s regime, the Greeks have had to undergo years of 25 per cent unemployment. That is what the USA saw at the height of the Great Depession-all this while falling behind their repayment targets ecause austerity is depressing the economy. That was a massive failure of economic management by the troika, and has little to do with Greek failures.The troika needs to change, just as much as the Greeks.
@stonetools:
I’m not talking about Greek malfeasance from centuries ago, I’m saying Greek tax evasion spans nearly 600 years and two dozen generations. It’s something the Greeks have done under the Ottomans, under military rule, and under democratic government.
Syriza may have the very best intentions and even be somewhat effective, but it is literally battling centuries-long habits and traditions. I think the best they can do is begin a process that will probably take a generation to complete, and that may not mollify an impatient Eurozone.
@Mikey:
The impatient Eurozone needs to admit that what they are demanding of Greece will not work and is not in the best interest of Greece or the Eurozone.
https://commonspace.scot/articles/1822/imf-austerity-was-more-damaging-to-greece-than-we-thought-it-would-be
@michael reynolds:
1) Sure – that’s exactly where they are headed at present.
2) Sure – but the flipside is that Greece has (and has had forever) a current account deficit. More capital leaves the country than enters it, so they have to have access to some source of capital injection in order to make up the difference. Historically, they have supplied that extra capital by printing drachmas at a breakneck pace. This devalues the drachmas, to the point where one day they just revalue it by lopping off some zeros. 1 “new” drachma equals, say, 1,000 “old” drachmas.
3) Relates to 2 above – there are few, if any, sources of capital available to them. They are having exceeding difficulty moving their sovereign EURO debt. A market for drachma denominated sovereign debt would essentially be non-existent, because buyers know they will be repaid in a static amount of a currency which will be deflating by the day. It’s a losing proposition. Greece doesn’t have the economic base or the foreign reserves to support, sat, dollar denominated debt, and what foreign reserves it does have (about €6 billion at last check) will unavoidably be exhausted in trying to prop up the drachma / slow the rate of devaluation. ECB is essentially their lender of last resort, and they just flipped Europe off.
Greece is at a decided disadvantage because 80% of its economy is based on services, mostly of a domestic consumption variety, and that doesn’t produce a capital inflow. It’s akin to Greeks doing each others laundry – that shifts capital around within the country, but doesn’t create wealth. The few manufacturing segments it operates in are heavily dependent on imported raw materials, and it doesn’t take a genius to see that foreign exporters will either demand payment in an alternative currency, or in the event that they accept drachmas, it’ll be at a the current exchange rate, which will make those imports prohibitively expensive from a Greek vantage point. No raw materials = no manufacturing = more unemployment.
I see it as doubtful, at best, that the US would step in to offer aid. Getting that through this Congress, which is what would be required to supply any amount of aid that would be material, is dead out of the gate.
Greece is essentially set to become Argentina post the collapse of the peso/dollar peg, but without Argentina’s natural resources. They are, IMO, looking at 10 to 15 years, minimum, of domestic economic contraction / disaster.
@stonetools:
Honestly, they don’t. While it would be the human thing to do, it doesn’t resolve the fundamental problems with the Greek economic model, which is profoundly broken. Nobody can accomplish that but the Greeks, and they aren’t showing any indication that they even intend to try. There is little, if any, incentive for Europe to keep pumping capital into a broken system, and a Greek exit wouldn’t be the disaster for the euro that the Greek government has bet the house that it would be.
I think that we’ll see an ECB default on the 19th, a withdrawal of the facility and Greece exiting the euro shortly thereafter. At this point, barring some last minute hail mary, it’s almost a done deal.
@HarvardLaw92: Yeah, the rest of Europe is pretty much done at this point. Greece’s new finance minister showed up in Brussels with no new proposals for internal economic reforms, just basically asked for more money and said “we’ll submit some proposals later and see if they’re acceptable.”
The Latvian finance minister’s response was basically “if part of a system isn’t working, then removing it doesn’t harm the whole and may even benefit.” And he’s not alone among his peers, not by a long shot.
At this point I think you’re right about the likelihood of Grexit–not only do the Greeks have 3.5 billion Euros due to the ECB on the 20th, they have 2 billion Euros in short-term government bonds to pay on the 10th. But they’re broke and the ECB has placed even tighter collateral requirements on loans to Greek banks.
@michael reynolds:
That’s a standard issue business workout/restructuring, Michael. Screw the theory, the issue is what do the rescuing angels want in return. Probably not much different than the current players. Hence the impasse.
BTW – liked the dealers and addicts analogy. About right on this silly morals debate.
@C. Clavin:
Yawn.
@Guarneri:
Well the first step is admitting you have a problem.
Clearly you are not there yet.
@HarvardLaw92:
This is exactly right. If I recall correctly, you come from the M&A world. This stuff happens everyday in the world, but this is just political and visible. Yes, it would be the human thing, even the equitable thing. There is blood on both sides hands. But the Greeks have decided to take the FU stance, yet they have no hand to play and are going to get slaughtered.
Its a human tragedy but you are going to see variations on it all over the place in supposed free lunch economies and political entities.
@C. Clavin:
Yawn
@Guarneri:
Apparently you have never negotiated anything, or at least negotiated anything successfully.
Yawn.
Good read…even though it’s not from Drew…the worlds greatest businessman…
http://www.thenation.com/article/austerity-has-failed-an-open-letter-from-thomas-piketty-to-angela-merkel/
@C. Clavin: I bet if we hold-the-course for just a few more years that the Confidence Fairy will whisper in the ear of the Job Creators of europe and prosperity will trickle down from Germany to Greece.
(snark alert!)
@JohnMcC: Serious question: Is there an example of a nation that has transformed it’s culture of corruption in a way that, according to the consensus, Greece needs to do? I have the usual history background that includes lists of English kings, wars, treaties and some background in economics as it impacts the rise and fall of nations. But I’m out of my depth with the intricacies of this business.
Austerity doesn’t work in these circumstances, agreed. But I don’t think shoving a whole bunch of money at Greece is going to result in anything but most of it landing in unlabeled Swiss bank accounts.
And so what if the political shenanigans within Syriza meant they couldn’t get their act together to go after the tax evaders? That simply shows they weren’t able to keep their eyes on the ball and failed to take advantage of the one opportunity they had to show good faith to the rest of Europe. That’s their responsility–not the rest of Europe to hang around shovelling an incessant amount of money into Greece while its leaders learn that governing a country is a bit more complicated that shouting revolutionary slogans.
And now they can’t be bothered to show up with a detailed plan to put on the table. This is ridiculous.
@C. Clavin:
He’s correct. Greece’s entire debt load amounts to about 6% of Germany’s GDP. It’s not some sort of unsustainable mutually assured destruction sort of write-off. German taxpayers are indicating – across the board – that they resoundingly oppose further injections of German tax revenue into Greece.
There have actually been quite a few statements on the floor of the Bundestag related to just cutting Germany’s losses and letting Greece do what it will without further involvement on the part of the German government, and they aren’t all coming from the far-righters. They’re cross spectrum, and that’s essentially the death knell here. Merkel can want to do whatever she wants to do, but without approval from the Bundestag, no further German government funding can be appropriated for economic aid to Greece. They vote no, as they seem inclined to do, and its game over for German participation.
Negotiation occurs when both sides have cards to play and some ability to influence the outcome. The bond markets have already priced its sovereign debt at default levels (in other words, they expect a default). The capital markets are essentially closed to Greece entirely. In short, Greece has no cards to play that the markets haven’t already assumed will be played and reacted accordingly. The damage Greece thinks is looming has already happened. There are no more rabbits it can pull out of its hat at this point. It’s effectively already done – we’re just waiting for the i’s to be dotted and the t’s to be crossed.
Much of the commentary I see here amounts to “that is mean” and “those heartless bankers, they just do not care about the misery”.
It may be mean, but you’re correct about one thing – they do not care. This is a business proposition, and they’ve (rightly) decided that it’s a bad one, so they are positioning themselves to exit it.
@Grumpy Realist:
Exactly. That was bush league, IMO. Nothing more needs to be said about how committed Greece is to taking action to resolve its problems – it isn’t. They have an amateur hour government which is woefully not up to the task in front of it.
I mean hell, when Latvia – LATVIA – starts referring to you as a lost cause, what more needs to be, or indeed even can be, said?
Anyone still wondering about the German view of what’s happening in Greece, just look at the front page of this weekend’s Handelsblatt (a financial and economic paper): http://meedia.de/wp-content/uploads/2015/07/06-hb_meedia21.jpg
“Hand over the money, or I’ll shoot!”
@Mikey:
The bond markets have already priced Greece’s debt at default. They expect Greece to default and have priced its debt accordingly.
Heck, the Bank of Greece stopped posting benchmark price and yield for Greek sovereign debt 2 weeks ago. There’s little point for them to expend effort in admitting that it’s now essentially worthless, I guess.
@Mikey:
LOL, exactly. Classic …
Please rescue my comment from the @#$%^&^$^ spam defenses. Thanks.
@Grumpy Realist:
Actually, Greece has instituted reforms. The d@mned spam defenses have caught my comment, but Greece has in fact made comnsiderable progress making structural reforms since 2011, according to the OECD.
@C. Clavin: So what? You can get as many statements from Nobel prize-winning economists as you want, but it’s not going to bring people who are fed up back to the table.
That’s the problem with Varoufakis and his beloved “game theory” by the way: first, he forgot to look at what happens when you’re in a game where you keep doing multiple rounds, and second, whether to participate in another round is up to the free will of the other side. Under such circumstances, a game of chicken is the absolute worst strategy to indulge in. What you need to do for continuous rounds of negotiations is behavior to demonstrate that you can be trusted and that you will keep your word.
Well, Greece “oh we’re positive this is the last bailout” has managed to unite the rest of Europe against it. It now has to live with the consequences.
@HarvardLaw92:
Actually, they do have to do something, because what happens in Greece certainly won’t stay in Greece.
Take a map of Europe.
Look at Italy. Now look at Greece.
Look at Italy. Now look at Greece
Look at Italy. Now look at Greece.
Do the same for the other side of Greece,where it borders on Turkey. Understand too that you can walk to Germany from Greece.
A couple of years ago, I had the same discussion with Doug and Mike, where both were certain that the conflict in Syria would be limited to Syria, and would have strictly local effects. When I noted Syria;’s position smack dab in the center of the Middle East, on the land bridge between Europe, Asia, and Africa, they poo-pooed that.
Well, geography matters.There ain’t no way on God’s green earth that a failed state on the border of Europe isn’t going to affect the rest of Europe. You can take that to the European Central Bank, and that’s why there will be further negotiations on this.
For purposes of enlightenment, Greek 2-year sovereign euro debt, 2017 maturity, is trading as of COB today at a 49.6% yield.
49.6%, on top of a 3.375 coupon for a 2 year loan. Their 5-year sovereign euro debt, 2019 maturity in trading at a 31.162% yield with a 4.75 coupon.
Those of you who have any degree of familiarity with the bond markets know what those yield numbers imply
@stonetools:
I did. Italy has a thriving manufacturing sector and relatively rich natural resources. Greece has neither.
Italy makes things and exports things. Greece largely does not. Italy had a €5 billion current account surplus as of April of this year. Greece has been current account deficit since the late 1940s. The nature of Greece’s economic base means that economic collapse within Greece will to a large degree remain within Greece. Greece’s own economic structure isolates Europe from much of the fallout.
For purposes of comparison relative to the above, Italy’s 2-year sovereign is trading at a 0.383% yield, with a 1.150 coupon.
They are not even in the same universe.
@HarvardLaw92:
Note: for the benefit of those who aren’t familiar with how the bond markets work:
Simple version: say I’m dumb enough to buy Greek bonds from Greece (I’m not – I’m shorting them, but hypothetically …)
For every €100 worth of 2 year bonds that Greece somehow manages to sell to me, I will only pay Greece €50.40. That’s all that it will collect from me.
It still owes me a 3.375% coupon payment on the full €100 face value every year, and in 2 years it will have to repay me the full €100 face value, despite the fact that I only gave it €50.40 for the bond.
This is the extent of Greece’s monetary problem.
@HarvardLaw92:
You miss the point, HL. Not only is Greece in the same universe: it’s on Italy’s border.Italy is sure as shooting not looking for civil disorder in a neighboring state, and a flood of migrants.
On top of all that, and more to the point, there is Greece’s membership in the NATO and the question of whether it is able or willing to meet its NATO obligations. There is a heckuvalot more in play here than some financial market issues, which will already be disruptive. More, from someone who is closer to the action than us:
@stonetools:
It’s not going to happen. I realize that this is a morality play for many of you, but from the perspective of the people who will make the decisions, this is a business deal. Nothing more.
Greece has never met its NATO obligations in any participatory sense. There is no reason to expect that a collapse of the Greek economy and exit from the euro would change that. Russia is in no financial shape to assist Greece in any material way – warnings to the contrary are ludicrous at best.
Whelan is in Ireland, and he’s an academic economist. He’s going to see this – as many here seem determined to do – through the human lens. The central bankers who will have to decide whether or not to keep Greece alive in the euro will not. For them, the math does not make sense. Of course Greece isn’t going to pay back the money – any of it. The broader point is precisely that – they have no hope of repaying what they already owe, so throwing good money after bad is a fool’s errand. They don’t care whether Greece has room to fix itself – because they believe (and I agree) that Greece hasn’t the slightest intention of doing so. They care about the bottom line, and the bottom line here is: don’t chase a bad trade.
Moreover, there is water between Italy and Greece, not a border. Unless you foresee a wave of boat people, which is silly, the logical target of Greek emigration would be Bulgaria, not Italy.
@stonetools: The problem is that now no one in Europe expects that Greece will live up to those promises.
You can’t vote trust by a third party into existence, which is why the whole referendum idea was so silly.
Apparently there’s a summit meeting planned for Brussels this coming Sunday, with all 28 EU member nations in attendance. It could mean new help for Greece, but with the condition Greece must put forth concrete reform and savings proposals, which are due Wednesday. (My translation of something I just saw at Der Spiegel.)
@HarvardLaw92:
I would think a European economist is in a better place to judge this kind of thing than an American lawyer, though. Just sayin’.
The European private bankers are not directly involved any more: its the European governments , the IMF, and the ECB who are calling the shots, and they are definitely thinking about more than the return on the bond markets. Among on other things, they are thiniking about whether countries, Portugal, Spain, or Italy-might want to leave the EU. And they are thinking about migrants, and NATO.
@grumpy realist:
Er, YOU might not trust them. The parties are going back to the negotiating table because it’s in their interest to do so. Trust doesn’t really have much to do with it. Note, btw, this sentence, which I’ll highlight again:
Again, the idea that the Greek government has met no conditions nor enacted no reforms is ECB propaganda. According to institutions such as the OECD and the IMF, the Greeks have tried to reform and to make payments. That’s why you should be looking at those documents, not the business press.
@Mikey:
Almost half of the capital key in the ECB is held by just three central banks – those of France, Italy and Germany. Another 13.7% is held by the BoE.
All 28 finance ministers getting together isn’t a bad thing, although I think that we both know Greece won’t anymore be able to submit this plan that they are looking for by tomorrow than they were able to supply one at today’s meeting – because they legitimately IMO have no idea how to address the problem beyond proposing “give us more money and stop being so mean to us, and maybe we’ll be able to figure something out”.
The bottom line, though, is no German participation, no further bailouts. Of all the people who will be in that room, the Greeks have to convince Schäuble and to a lesser degree Sapin. Without their buy-in, which I think is doubtful, this will go no further.
@grumpy realist:
@HarvardLaw92:
You keep saying Greece doesn’t have any cards to play…but the Eurozone has a vested interest in not seeing Greece exit…for if they do, who is next? Portugal, Italy, Spain? Even Ireland?
Plus – exiting, at this point – absent an alternative deal, is the best possible shitty play Greece has. And given the vote it’s the popular play.
So what…the Germans are pissed off. The US and France are both fighting to keep Greece in the EU.
HL – you typed earlier that;
I think we are going to see the Trioka ultimately cut a new deal, including debt reduction, and Greece stays in.
Time will tell.
My only real interest in this whole situation is that austerity in the face of recession be shown to be the fools errand that it is.
@stonetools:
A European economist who has been cheerleading for a moral response to this crisis for over a year now and who sees abandoning Greece as evil. He’s hardly the best perspective, or at best he has a emotionally skewed perspective. Given that you seem to be approaching this from an emotional point of view, I can respect why his viewpoint would resonate with you – he’s saying what you already believe, but with the added imprimatur of holding a PhD.
He’s an academic economist. I’m a lawyer who works with these markets every day. The market’s verdict on Greece is clear.
Nobody mentioned European private bankers. We’re discussing the likelihood that the ECB, which is controlled by the central banks of the EU proportional to their ownership of the bank’s capital. As I said above, that realistically means 4 countries – the UK, France, Italy and Germany, and of those 4, only three are in a position to fund additional aid. All three will have to agree, or it goes nowhere. What the rest of the EU wants to happen doesn’t matter much.
Which means basically what I said above – the Greeks either convince Schäuble and Sapin, neither of whom are noted either for their humor or their great sense of devotion to humanitarianism, that they have a realistic, detailed and viable plan for fixing their economy, or the exit the euro and get to enjoy a drachma roller coaster. That’s what it boils down to.
Regardless of what Whelan might prefer.
@C. Clavin:
None of the above. I’m not sure you grasp how much different, how much more dysfunctional, Greece’s economy is relative to those you just named.
The US will not supply funding, and France can’t make this happen on its own. They either convince Germany, which is exceedingly reluctant to go any further, to participate or this whole thing comes to a stop – and quick. That’s the reality of this situation.
I think you are in for a shock, but I agree – time will tell. Just don’t be upset when humanitarianism doesn’t prevail.
I’ll add as well that Merkel IMO is playing this one beautifully from a political perspective – she’s holding out the carrot of possible aid while conditioning that aid on a set of deliverables that Greece’s current government either can’t or won’t meet.
This will allow her to sit back and say that she did everything that she could to help while in the end giving her electorate what a clear majority of them clearly want – a German exit from further sandbags for Greece largely paid for by the German taxpayers. In one stroke she appeases both sides of her political base while getting exactly what I am convinced Germany by this point wants – Greece cut loose to sink or swim on its own.
@HarvardLaw92:
Schaeuble has favored Grexit, in opposition to Merkel. We’ll see how that shakes out.
@Mikey:
He’s more realistic, which is to be expected, but as I noted above, she’s a politician. He’s a banker. I think she is playing Brunhilde to the German electorate while quietly accepting behind the scenes what the bankers have already IMO determined – that it’s over. She also can’t act unilaterally – she has to convince the Bundestag to support further aid, which IMO is unlikely to happen.
In that context, she might as well mine some domestic political benefit from it.
@HarvardLaw92:
Again…I don’t care the least about humanitarianism (according to my computer I can’t even spell it). I’m interested in the complete failure of austerity to produce the promised results. I see this entire thing as a rejection of the neo-liberalism project. We have been under the thumb of this nonsense for 30 years and events like this are one way the world can begin to see how worthless these ideas are in the real world. So completely opposite of what you are saying…I’d just as soon see an entire country suffer so that the rest of us can finally throw off the chains of these failed economic theories.
@C. Clavin:
Not to put too fine a point on it, but Britain fared pretty well from privatization. That having been said, the absence of austerity measures here would not have changed Greece’s eventual fate – it would simply have delayed the collapse and left Europe in the position of holding a great deal more Greek debt than it currently does when the shoe finally dropped. Greece is broken in ways that the other troubled economies of Europe don’t even begin to approach. It’s that bad / unsustainable.
I’ll also note that Spain’s economy is charging, growing at one of the fastest rates in Europe in this quarter (also faster, just anecdotally, than the US economy grew this quarter). It has enjoyed seven consecutive quarters of GDP expansion including Q1 2015. Consumer spending and investment are driving that GDP growth in Spain.
That having been said, Spain implemented meaningful economic reforms, and Spain’s economy is quite different from Greece’s economy. I think that, longer term, you aren’t going to get the outcome that you’re looking for.
@HarvardLaw92:
Given that the people who will make the decision are politicians, I don’t know what’s the funnier: your statement, or the tone of an adult speaking to difficult children in which it was made.
@HarvardLaw92:
On this I will agree with HL: as a politician, Merkel played her cards brilliantly for the last 8 years- Just like W in the run up to the 2004 election..
@HarvardLaw92:
Spain GDP still have not recovered its 2007 level (yes, I know that value represented a bubble, but still, that’s quite an achievement, compared with other places which were hammered- say Florida).
Spanish unemployment is about 23%.
More success stories please!
Please rescue my second comment from the anti-spam. BTW, can someone let me know what the hell sets it off. I had ONE link.
@humanoid.panda:
There are only so many ways you can explain something to someone before you get tired of repeating yourself.
Bottom line – no Germany, no deal, and both the German electorate and the German legislature are pretty resoundingly opposed to further German participation. Merkel is playing to her audience, and in the end she’ll give them what they want. Greek voters don’t keep her in power – Germans do.
@humanoid.panda:
It’s a long-term realignment of the Spanish economy. We’ll have to reexamine the results in another 20 years or so.
People like to crow about the US recovery while ignoring the fact that its based on an unsustainable depression of bond rates in the US market (thereby driving capital into the equity markets in search of a return.) Sure, we’ve recovered faster, but at the price of a more unstable recovery longer term. Spain has high unemployment, and we have high underemployment. There is no free lunch / painless way to fix a broken system.
Interesting thing though – Spain’s borrowing costs are about half of ours for the same yield horizon. The only economies in the world which even approach Greece’s borrowing costs are Venezuela (which are similar) and Ukraine (which are still less than half of Greece’s). The market has already voiced its opinion on which approach is preferable.
@HarvardLaw92:
Heh:
Seems its not just the humanitarians who think Greece should get another chance. (My two trapped comments lay out much more of the case for another chance. Maybe James or Doug can DO something.. hint hint).
Bottom line, it’s not Greeks and the do gooders against the world. The troika’s plan couldn’t work, and most economic experts know this.Moreover, Greece simply wasn’t as bad as they were painted. Merkel and the Germans are going to have to take that into account.
@HarvardLaw92:
All true, and all refutes your original point: that is all about the markets.
Right now, the ECB has the same interest rate as the Fed: zero. In fact, the Spanish recovery you praised only started after the ECB brought rates to zero.
Spanish 30 year bond yields %3.287.
US 30 year bond yields %3.2
Are you sure you are in fact a market maven?
@stonetools:
The key issue that decided this for me is the fact the Troika demands Greece to raise VAT on hotel rooms, and thus make pretty much the only money-making component of the Greeek economy less competitive. This convinced me that someone here is not driven by economic logic but by vague emotions- and that someone is the soft hearted liberals, but the people who make policy for the EU.
@HarvardLaw92:
OMG…how ever will I survive???
@HarvardLaw92:
Unsustainable, how? When? Fed can’t last past Tuesday?
Better to recover more slowly? In what economics textbook?
You know how economies recover in the long-term? Good for you, because no one else does.
You conservatives. Always your minds are fixed on your personal sado-masochistic tendencies — for others, of course. Those who advocate such policies somehow manage to walk between the raindrops.
FYI, Spain’s disemployment rate is 35%.
@humanoid.panda:
Nice cherry picking. I can do it too.
For example, the yield on a 6M US with 0 coupon is 0.081%
The yield on a Spanish 6M with 0 coupon is 0.028%
1 year? Spain 0.101% vs. US 0.232%
In fact, the yields for both packages achieve parity at the 2 year mark, and maintain it from that point forward.
Which should have you wondering – is Spain, with all its problems, as credit worthy as the US, or is the US in the same boat as Spain? Food for thought.
@humanoid.panda:
Like they could collect it anyway …
Not to worry though – pretty soon they’ll be selling those hotel rooms in drachmas, which for the rest of Europe will equate to pennies on the dollar. Increased demand for the one thing with which Greece seems to be able to secure foreign currency inflows (besides loans, of course).
Remind me again why you’re against Greece exiting the Euro? 😀
@Ben Wolf:
The assets parked on the Fed’s balance sheet have ballooned from about $1 trillion in 2007 to around $4 trillion now, so no, it isn’t sustainable forever. Eventually it has to end, and when it does …
I could equally opine about bleeding hearts and their apparent certitude that there will always be enough of someone else’s money to make the world turn out as they believe that it should, but one of us arguing from an emotional position is 1 too many as it is, so spare me …
@C. Clavin:
No doubt by engaging in endless jeremiads about how unfair the world is, but doesn’t have to be, if only those meanie fiscal conservatives would see things your way.
You know, the status quo … Have a nice day 😀
In the NYT, the editorial argues that the EU should relent and work out a deal to keep Greece in the EU. OTOH, there’s an oped by a German writer saying that the Greece should be kicked out of the Eurozone, stat. He argues that such a result is just what Tsipras wanted all along. And on the third hand, Krugman argues leaving might actually be good for Greece!
Man, I’m glad I don’t have to figure this stuff out!
One thing I have figured out, though, is that austerity stifles economic growth, just about any time and anywhere it’s tried. I agree with C. Calvin-that seems clear enough.
I reiterate what I said: there should have been a plan for an orderly exit.
The fact that there isn’t and everyone in Europe is currently hooting and shrieking with their heads on fire shows how much all of the past 7 years has been purely about politics and ideology, not economics.
It was never about the markets. It was all about Northern Europe refusing to pay for Southern Europe. That’s ok and fairly logical, but it undermines the Euro’s reason for being, perhaps fatally.
@HarvardLaw92:
I, for once, think that Greece should have left years ago. What I am opposed to is the EU elites insistence to wreck the EU project…
@Lit3Bolt: +1,000 for every word you said.
@HarvardLaw92:
This is the irony of the situation: textbook economics fully supports Ben, me, and the “bleeding hearts,” and its the cold, rational technocrats like yourself that are operating out of emotions. The problem is that those emotions are not empathy, so some consider them fully rational.
No. The “textbook economics” would suggest to increase spending to cover a temporary slump in domestic consumption due to an external shock.
As mentioned before, that was not the situation of Greece. Due to the special situation of their banks and economy they basically weathered the financial meltdown quite well. Their problem is a structural one that came to light suddenly when the new government did proper accounting for the first time. However, the fact that both things happen suddenly doesn’t make them the same.
Barring constant substantial transfer payments from someone else, Greece was always going to suffer through a substantial reduction in wealth. They are now basically back at the point where they were before joining the Euro.
That process was managed atrociously by the creditors. Appropriate measures would have made a much less painful transition possible. And yes, eventually there will be a debt writeoff of some kind or another. But pretending that if only there hadn’t been austerity all would have been will is lunacy. This will not prove the anti-austerity movement right one way or the other. Greece did not conform to the Keynesian model so all this hobby-horse riding is pointless.
@stonetools: But the IMF CAN’T provide more money to Greece until they pay off the amount they have in arrears. Their own rules forbid them from doing so, and there’s already been some restlessness from non-European IMF members over the large amount of money that Greece pissed away and looks to be defaulting on.
So unless you expect them to blow up the IMF over Greece (I think the US would have something to say about this), the only thing the IMF is doing is making pretty noises.
@HarvardLaw92:
I have no idea where you are reading that sentimental emotional BS in my comments.
The Conservative economic project is a complete and utter failure. That’s a fact and Greece exemplifies it…as does Kansas and Wisconsin and New Jersey and everywhere else it’s been tried.
@grumpy realist:
You do understand that the IMF and the most economists all agree that no plan can work unless there is debt relief, right? And the Greeks simply can’t pay off the arrears because their depressed economy makes it impossible to play off the arrears?
Your opposition to Syriza is based on the idea that if they executed a bad plan flawlessly, it would work.Here, maybe you should think of Operation Barbarossa. The execution of Hitler’s plan to invade Russia was superb. The Army was great, the General Staff’s plan was brilliant, they won some amazing victories. The problem? They were never going to win, given the circumstances.
To bring up an analogy you might like better, if you design an experiment that depends on light travelling more than 300,000 kilometers per second, it’s not going to work, whether the scientist overseeing the experiment is the greatest experimental physicist of the day or a rank amateur.
At this point, I’ve changed my mind. The Greeks should just leave the euro. It’s a straightjacket that will keep their economy in a state of permanent depression, no matter what they do. I don’t say that: every economist I’ve read says that.
Now if they leave , it won’t be unicorns and rainbows. They’ll have to do a double somersault backward through flaming hoops and nail the landing to come out OK, and Greeks aren’t famous for managerial skill or competence. But at this point I don’t see any other option, given that the Germans are rejecting the advice of most economists and insisting that the Greeks do what they can’t do. Let’s just focus on an orderly exit and on making sure Greece doesn’t implode completely and become a source of a destabilizing flow of migrants into the rest of Europe.
@C. Clavin:
Hey, he can’t concede the rational argument that the EU’s demands are impossible to meet . So he shifts to attacking the makers of the argument as sappy idealists. It’s hippie punching at its finest.
@Ebenezer_Arvigenius:
Agreed….at the same time it’s a plain fact that austerity has made things far worse than they were.
@HarvardLaw92: I haven’t checked Bunds in awhile but I think yields were negative out to 2 years and maybe even 10 years which is nuts. IMO EU/US credit spreads at this point have less to do with the credit worthiness of the borrowers and more to do with the market miss-pricing EU bonds due to factors like easing by the ECB coupled with a deterioration in EU economic data. Also treasuries have sold off somewhat in expectation of the Fed raising rates, although the long end of the curve has come down the past couple days. I wouldn’t be surprised for treasury yields to retest their lows in the coming months/years and for EU yields to rise somewhat.
@Ebenezer_Arvigenius:
In fact, they are much worse off- and this is where the “texbook economics” comes in. Inherent int he idea of a monetary union is a policy of transfers from richer to poorer regions, or at the very least, a monetary policy that fits the poorer as well as the richer members of the union. The EU’s refusal to countenance anything like that is in fact economically irrational.
@C. Clavin: Exactly right. Greece would have a world of hurt without austerity. However,austerity made things worse, and at this point, the EU is not even pretending austerity has any economic rationale (otherwise it would not be insisting on raising tourism taxes). This is either a move to push Greece out- which might be to everyone’s benefit after all, or some crazed revenge for the Greeks’ sins.
@humanoid.panda: That’s what a lot of the complaint about the Euro was at the beginning–and as mentioned, the only way that Germany was wheedled into the currency union by the French was upon the firm assurance that the EZ was NOT going to have any form of currency transfers….
My feeling is–if the French were so responsible for this to get started in the first place, they can cough up the money to rescue Greece.
Dude give it a rest. That one has been off the table for a while.
Greek GDP in 2000 was 131B $. It’s now 238B $ (down from a peak of 355B $ in 2008 before the “readjustment”).
They lost a third of their net worth (which is terrible) but are still nearly twice as well off as before the Euro.
@C. Clavin:
I am not arguing in favor of austerity. I’m a firm believer in Keynesian intervention WHEN IT MAKES SENSE.
In the case of Greece, it does not make sense. Keynesian intervention injects capital into an otherwise workable economic model which has entered into a recessionary phase in order to temper both the length and the magnitude of that recessionary cycle. It works. It has been proven to work. Greece, however, is NOT a workable economic model.
Sure, forced austerity made things worse in Greece. No argument. That having been said, pumping capital into Greece as if it were a viable economic model in need of temporary assistance is a fool’s errand. Greece’s economic model is broken. Profoundly broken, and to that end pumping capital into it would simply result in delaying its collapse, not repairing its problems.
The simple fact is that Greece’s economic model is not sustainable. Without top to bottom reforms that will by necessity have to go far beyond what Greeks accustomed to living within a massive welfare state will be willing to accept, Greece’s economy will inevitably collapse – with or without help from the rest of Europe.
This is the primary reason that the current negotiations are IMO doomed to fail. Greece is repeatedly coming to the table with “our system works, and we just need some cash to get through this temporary difficulty. ” This is obviously a ludicrous position. The rest of Europe is (rightly) sitting back and acknowledging that Greece’s economy, as currently constituted, is not sustainable. That is an accurate position. You can not blame them for acknowledging reality and questioning the wisdom of pouring capital into a black hole from which it will never return.
The unavoidable conclusion is that, one way or the other, austerity would have been coming to Greece, whether by mandate from Strasbourg or by Greece collapsing as an independent economy. This is what the folks here need to accept – Greece’s economic model is not viable. The country can not support its current level of spending, so one way or the other, they are going to have to accept a reduction in that spending. If ECB hadn’t mandated it, the credit markets would have forced it (and indeed will force it the second that Greece exits the euro). Sure, they may piddle along for a bit, printing drachmas like there is no tomorrow, fumbling about with a parallel IOU system of payments and exhausting their already quite limited foreign exchange reserves, but in the end they either implement a material (i.e. painful) level of reform or they collapse.
That is the hard truth.
@Avid sportman:
QE has depressed the yield spread in both markets. I agree that neither figure is remotely realistic, but barring the cessation of QE, those depressed yields will continue as they currently exists.
Fed, for example, has created a $4 trillion hole in the Treasuries market, which has massively depressed the yield curve. Unless they propose to hold those assets on book forever (which nobody I know, including me, sees as being realistic), somewhere down the line we have higher interest rates in our future.
@HarvardLaw92: Are there any geo-political situations in which propping up the sponge-like economy of Greece might actually be the wise diplomatic or military course? That part of the world is becoming more and more dangerous. If a sugar-daddy nation or alliance could afford to put a set of legs under the Greek stool, could that propped up Greece play a helpful role in the refugee crisis, in Syria, in Ukraine, in Caucasus, in Palestine, in the Balkans?
I’m inclined to the ‘bleeding heart’ side of this argument. But the almost certain failure of greater financial backing to improve even the Greek’s situation has convinced me you are correct. On the other hand very much of what I know about history tells me that finance is NOT the essence of what moves nations.
The failure of Greece on a national scale seems much worse to me that Greece’s failure as an economy.
@JohnMcC:
Sure, Ukraine comes to mind. Geopolitically, supporting Ukraine and eventually bringing it into the EU (although NOT the euro, IMO) makes sense. Likewise the efforts that successfully brought Lithuania, Latvia and Estonia into the EU. Potentially Belarus at some point, although they have longer term problems stemming from Chernobyl. Maybe Moldova, Serbia and Bosnia-Herzegovina down the road.
I’m not sure what sort of role a country like Greece, whose domestic economy can’t afford the people that it already has, could play with respect to a refugee crisis. It has no ability to absorb immigrants, and geographically speaking, it’s essentially isolated. If the US is to be involved from a regional stability perspective, it seems to me to make more sense for us to directly support / backstop Turkey, which is already an ally and a member of NATO.
Nothing can fix Palestine / Israel, IMO. It can only be contained.
As a matter of fact, it had been absorbing refugees- more refugees from Syria reside there than in any other EU country.
@humanoid.panda:
I didn’t say they wouldn’t come – I said that its economy has no real ability to absorb them. It’s akin to the family which is swimming in debt and unable to pay its bills adopting more children. Beautiful from a human sense, but it exacerbates their problems.
@HarvardLaw92:
And they are today the loudest voices in opposition to extending more aid to Greece.
@HarvardLaw92: Good answer. If I find myself in general agreement with you can I raid your liquor cabinet someday? Do I have to give up my “I’m a liberal” bumpersticker?
Tusk breaks ranks with Berlin:
It seems that Greece, both with “no hand to play” and practicing silly lefty-blogger politicks, is getting it done.
@HarvardLaw92: I agree at some point we’re going to get higher interest rates, probably higher than most people expect. I am also keenly aware that rates can stay low for much longer than anyone expects; Japan being the primary example.
@C. Clavin:
No, it isn’t. You’re seeing what you want to see in vague comments made by one person, and even then ignoring much of what he actually said.
Not only will Greece have to deliver concrete proposals for economic reform, which to date it has not remotely been able to supply, those proposals also have to be “realistic”. I’m sure you can grasp what realistic means.
Best case (and this is unlikely to get approved IMO because Greece is either unable or unwilling to tender “realistic” proposals) – Greece’s existing debt would have its repayment horizon extended and some reduction in interest rates would be applied. Most (i.e.a decided majority) of the other states in the EU have flatly ruled out taking a haircut – so there will be no reduction in the amount owed, just potentially a longer period in which to repay it and some reduction in the amount of interest being charged. That’s realistically the best that Greece can hope for coming out of this summit, and it’s not nearly enough to save it.
It solves little, if any, of Greece’s real problems. It has thus far been making payments on its loans by drawing down its credit lines – robbing Peter to pay Paul – and that gets it nowhere. The corollary would be you taking cash advances on your credit cards to pay your credit card bills. Meanwhile, mister interest just keeps putting you further in the hole.
And that’s just with respect to its existing credit lines, which are already close to being tapped out. EU has made it clear that any new extension of credit, which is also unlikely given German reluctance to participate, will still be conditioned on Greece getting its government revenue / spending house in order. The bottom line is that Greece is going to have accept pension cuts, tax increases, or some mix of the two, coupled with much more aggressive tax collection, if it expects to survive as a member of the eurozone. It is playing a game of chicken that it can’t win.
@Mikey: (re: Lithuania, Latvia and Estonia) “And they are today the loudest voices in opposition to extending more aid to Greece.”
Given the ability of the EU leadership to muscle the little guys around, I’m not surprised.
Also, they are coming in almost directly from Soviet rule.
@HarvardLaw92: “Not only will Greece have to deliver concrete proposals for economic reform, which to date it has not remotely been able to supply, those proposals also have to be “realistic”. I’m sure you can grasp what realistic means.”
Yes. Continue crashing the Greek economy.
Reject reforms which the Troika doesn’t want because they’re ‘recessionary’. Slashing pensions and healthcare, of course, is not.
We know what reality is.
@Barry:
The reality is that the Greek government spends more, a LOT more, than it collects in revenue, and Europe is not going to keep backstopping that situation indefinitely. Greece’s economy was headed for collapse with or without austerity measures being imposed by ECB, et al. They may have accelerated the process, but collapse was the inevitable outcome either way.
Greece created the bulk of its own problems, but is acting as though it doesn’t have any problems which are more than trivial in nature. Head in the sand is usually not the best approach.
@Barry: The Baltic nations’ attitude toward Greece is due more to how they dealt with their own economic problems starting in 2008 than to having emerged from the Soviet bloc 25 years ago. They endured far more severe austerity measures than anything being asked of Greece–Latvia, for example, cut public-sector employee salaries by as much as 40%–and have emerged with strong economies and been admitted to the Euro. Now they are balking at paying Greek pensions that are double what their own retirees receive.
Of course, their situations were very different from Greece’s, and I’m not asserting what worked for them would work for Greece. I’m just relaying what I’ve read from European outlets explaining why they are so hard-over against further bailouts.
@HarvardLaw92: And how would you fix the Greek economy? Let me guess — wipe out all those icky “welfare” programs, put high taxes on poor people, slash taxes on the rich, and privatize all public services. That about cover it?
@wr:
Melodrama …
They need to start by aggressively improving their tax collections. The country has reasonable tax rates relative to the rest of Europe, but estimates have the Greek government losing some 25 to 30 billion euros (roughly 10% of their entire GDP) on average every year in uncollected taxes.
They fix that glaring problem and then we’ll look at the rest of the fiscal situation.
@HarvardLaw92: And in the meantime? I mean, unless you think they should send out EU stormtroopers to kick in doors to search for hidden Euros, this is a process that simply must take some time. (And it has been mentioned here that the EU banks have refused to cooperate in the search for Greek money stashed away in foreign accounts.)
So while that process starts — what? There won’t be time for Greece to prove itself pure enough to satisfy the financial puritans, so they can’t have any more money. So do they just accept poverty and suffering?
Can you think of any situation in history where that has worked out well for anyone?
@wr:
They were going to eventually end up with poverty and suffering, largely as the consequence of their own history of poor fiscal management, either way.
That said, the Greek Parliament just voted to approve essentially every demand that had been previously dictated by the EU – and no debt relief was included.
It’s a measure of how tenuous their position is, and how badly they have misjudged their hand in this game of chicken they are trying to play, that the response from much of the rest of Europe has been cynicism. They view Greece like a heroin addict, who will agree to anything necessary for it to get its next fix, while having no intention of actually following through. Greece’s credibility is shot at this point, and that is entirely its own doing.