A spectre is haunting Europe ...

[SimpleDon]

It seems like this is the sort of thing one could determine before one spouts one's expert opinion off on the matter in a thread.

My understanding is that the austerity measures are producing a surplus of revenue over expenditure, but damaging the economy. This has results in various experts on this thread complaining that Greece is spending (on social security) beyond it's means, despite not knowing the level of expenditure or the level of means. It's also produced a second raft of experts complaining that the government is anti-business by citing the effects of... the austerity measures the government is threatening to get rid of. Ksen's data doesn't fit in with the talking points that posters want to thrash out on this thread, but it's also the only hard data that's been cited.

I'm not a economic development expert. I'm familiar with the role the international banking system, and some of the larger banks, have had in causing the crisis, and the role the Euro has played in harming Greece's balance of payments with countires in the Eastern Med.

Whether they have produced a surplus is somewhat dependent on the definition that you apply. I am not a semantic warrior so yes, they have paid off a small part of their debt. But not even a tenth of it that the troika had projected that they would have been able to by now and at a much greater cost to the privation of the people. The troika said that the unemployment rate would peak at 15%, it actually hit 28%.

It is really simple, the question is how much pain should each party to the mess have to bear. The troika and the conservatives here seem to believe that the people should be forced to bear whatever pain is necessary for the bonds to be repaid in full. Including interest.

My point is that it is in the best interests of everyone involved to get the economy back on its feet and the people producing rather than to have it limp along at 75% for years. Even if it means that the bondholders have to have more than a haircut. Or the ECB has to bail them out. There is no room in economics for this kind of moralizing. There is also a moral hazard in the EC bailing out the bondholders, but if that is what is required then do it and let's start start to get the economies working well again. This is what we did in the US. It was distasteful and it creates a moral hazard, the banks will expect to always be bailed out. This means that they will feel free to even wilder speculation in the future.

 

[SimpleDon]

And yet you seem to not know.

That's funny, I thought I did seem to know. Having cited someone else who actually produced the answer in this very thread.

Maybe you should read it.

You don't remember what you said, at least well enough to answer yes or no to my simple questions?

 

[Togo]

My understanding is that the austerity measures are producing a surplus of revenue over expenditure, but damaging the economy. This has results in various experts on this thread complaining that Greece is spending (on social security) beyond it's means, despite not knowing the level of expenditure or the level of means. It's also produced a second raft of experts complaining that the government is anti-business by citing the effects of... the austerity measures the government is threatening to get rid of. Ksen's data doesn't fit in with the talking points that posters want to thrash out on this thread, but it's also the only hard data that's been cited.

I'm not a economic development expert. I'm familiar with the role the international banking system, and some of the larger banks, have had in causing the crisis, and the role the Euro has played in harming Greece's balance of payments with countires in the Eastern Med.

Whether they have produced a surplus is somewhat dependent on the definition that you apply. I am not a semantic warrior so yes, they have paid off a small part of their debt. But not even a tenth of it that the troika had projected that they would have been able to by now and at a much greater cost to the privation of the people. The troika said that the unemployment rate would peak at 15%, it actually hit 28%.

It is really simple, the question is how much pain should each party to the mess have to bear. The troika and the conservatives here seem to believe that the people should be forced to bear whatever pain is necessary for the bonds to be repaid in full. Including interest.

My point is that it is in the best interests of everyone involved to get the economy back on its feet and the people producing rather than to have it limp along at 75% for years. Even if it means that the bondholders have to have more than a haircut. Or the ECB has to bail them out. There is no room in economics for this kind of moralizing. There is also a moral hazard in the EC bailing out the bondholders, but if that is what is required then do it and let's start start to get the economies working well again. This is what we did in the US. It was distasteful and it creates a moral hazard, the banks will expect to always be bailed out. This means that they will feel free to even wilder speculation in the future.

From a strictly market-orientated perspective, we should let the bondholders default.

The problem with that is twofold

Firstly it messes up Greece. That's a problem and decision for Greece to take.
The second is that it messes up the Euro. That's a problem for the Euro to take. The Germans are ideologically opposed to transferring money from Germany to bail out foreign banks or countries. The Euro treaty specifies that the funds they contribute to have to be available to bail out foreign governments. That's put a lot of strain on the Euro. The solution would be to do such a good job of restructuring Greece that it doesn't become necessary, but it's become increasingly apparent that the amount of revenue needed to resolve the situation is more than the Greek economy can actually produce without trashing the economy in the process. So now it's time for the Euro countries, including Germany, to live up to their treaty obligations. Maintaing a single currency across disparite economies is going to involve monetary transfers from richer to poorer nations.

It's nothing to do with social security spending, or military spending (Greece has has historically high levels of both for several decades), nor is to do with evil socialists trying to destroy business. It's simply that whenever you have very different economies under the same currency, there are going to winners and losers. German exports love having an aritficailly lowered currency to work with. Greece, which relies more on tourism and providing services to foreigners (e.g. shippping) has been struggling with a currency its customers can't afford. It's kept going on a diet of cheap money, much of which has been stolen by corrupt officals/oligarchs. A rememdy was suggested, but the Greek people having taken their first few batches of medicine, are saying that their economy is not going to survive this course of treatment. It looks like they're right.

 

[dismal]

That's funny, I thought I did seem to know. Having cited someone else who actually produced the answer in this very thread.

Maybe you should read it.

You don't remember what you said, at least well enough to answer yes or no to my simple questions?

Again, read the thread. It's been covered.

 

[SimpleDon]

Greece should leave the EuroZone; it didn't belong there in the first place. Tying Greece to the economies of Northern Europe was a mismatch, a highly risky gamble, and it ought to be encouraged to go.

Which countries in Europe do feel deserve to be in the EMU and which don't? Do Italy and Spain deserve to be in the EMU? What about Latvia and Estonia? Ireland?

The countries that suffered the most in the Great Recession are the countries that bought in to the American idea that the financial markets could be relied on to self-regulate and who turned their home mortgage market over to the financial markets to be turned into the derivatives of mortgage backed securities backed themselves by the credit default swaps, in which the wealthy pledged their fortunes to prevent the collapse of the MBS's. Is this the criteria that we should use to decide which countries deserve to be in the EMU?

 

[T.G.G. Moogly]

A rememdy was suggested, but the Greek people having taken their first few batches of medicine, are saying that their economy is not going to survive this course of treatment. It looks like they're right.

How can anyone argue against the logic of the emerging Greek position? If austerity is the solution it ought to be working. It isn't. The arrangement now appears more a punitive action than a solution, even setting aside the obvious corruption that got everyone into this mess. The Greeks feel like they're being punished when what occurred was enabled by the very people that are profiting. I have a lot of sympathy for their position.

 

[ZiprHead]

They think they can still find lenders.

Or they'll use the printing press.

It seems the new Greek government wishes to renegotiate debt repayment so that it is sustainable, which would involve linking it to economic recovery. I personally see nothing wrong with such an arrangement. It seems the best of all worlds.

I think this is an excellent point. All the gloom and doom from the OP and the right-wingers about ho the left-leaning government wants to stop repayment when that's not what the link in the OP said at all.

 

[Trausti]

Greece should leave the EuroZone; it didn't belong there in the first place. Tying Greece to the economies of Northern Europe was a mismatch, a highly risky gamble, and it ought to be encouraged to go.

Which countries in Europe do feel deserve to be in the EMU and which don't? Do Italy and Spain deserve to be in the EMU? What about Latvia and Estonia? Ireland?

The countries that suffered the most in the Great Recession are the countries that bought in to the American idea that the financial markets could be relied on to self-regulate and who turned their home mortgage market over to the financial markets to be turned into the derivatives of mortgage backed securities backed themselves by the credit default swaps, in which the wealthy pledged their fortunes to prevent the collapse of the MBS's. Is this the criteria that we should use to decide which countries deserve to be in the EMU?

Central and Northern Europeans are different from their Mediterranean cousins. History shows this very clearly. Though Greece may have birthed Western Civilization, it didn't do much after that. The center and north have been the economic engines of Europe since the Middle Ages, e.g., Hanseatic League. Maybe that's a credit to Protestantism; maybe not. Though Spain and Italy had periods of wealth, it was due in large part to external factors. Spain had its American colonies and Italy had all the religious money flowing to Rome. Yet, Spain still went bankrupt despite its Potosi silver - while the Dutch bankers made a profit. And remember that the Germans found themselves in a much worse situation than the Greeks post WWII. Their factories where dismantled, intellectual property appropriated, and the obligation to pay off the Versailles reparations renewed. (Germany finished payment in 2010!) But even with these setbacks (much more onerous than what Greece has faced in recent memory), Germany rose to be Europe's top economy. This was not because of the Marshall Plan, which came late to the Wirtschaftswunder party. Hence, Germans have every privilege to disapprove of Greek lethargy. The end result is that North and South are culturally different with disparate economic behavior. An economic union makes little sense.

 

[SimpleDon]

It's less of a spectre than it was. A year or so ago, the fear was that if Greece exited the Euro, Spain, Portugal and Italy might follow. That's no longer a concern. OTOH, if the Germans agree to debt relief for Greece, those countries will want some too.

So if Greece leaves the EU, they can use a devalued currency. That will mean more pain, but it will also enable their economy to grow again. If they stay in the EU, they'll get more of the status quo.

But default is not new there. There was in negotiated default in 2012.

Actually I agree. The solution for Greece is not easy, but for them it is preferable to paying off their debts. Default. Argentina (and a few others) have shown that after a few years of difficulty, the international loan sources are more than happy to start lending again - and then the borrower defaults again. The financiers never learn.

However, the problem is that a new government would want to go back to its old ways immediately, rather than use the opportunity to transform the Greek economy.

Those countries had their own currencies that they could devalue. This meant that both the country suffered and the bondholders suffered because of the devaluation but the internal economy of the country was relatively untouched.

The Greeks can't do this. Their situation is more like the situation of the states in the US than if they were sovereign countries. They have no control over the currency, they can't devalue it. What the troika proposes is what is called "internal devaluation," in a word, deflation. The austerity would force wages down to the point that the country will have a positive trade balance which would allow them to pay off their debts. This kind of ignores a couple of simple facts. At best only half of the countries can have a trade surplus, the others have to have a trade deficit. Or one country has to have a huge trade deficit. The only country in the EMU that could support a large trade deficit, Germany, has a large trade surplus, not a deficit, making the likelihood of successful "internal devaluation" even harder. Also ignored is the simple fact that capitalism doesn't handle deflation very well if at all. The possibility that holding on to money will make the money more valuable, the definition of deflation, is a strong disincentive for productive investment.

 

[ZiprHead]

Once again, it is hard to be charitable toward Greece and especially to the government that ran up the debt. Like our crazy prior government who believed that taxes are "stealing" and should be reduced or collected poorly and that the financial markets could be trusted to regulate themselves they were tragically wrong. But why does it make sense in your mind to force the current government to impose austerity when that policy makes matters worse, when it makes the government less able to pay off the debt?

I kinda' got a kick out of one of the right-wingers who posted a story of a gym owner complaining about taxes. It wasn't the taxes that put him out of business though. It was austerity. He probably shouldn't have included that part in his quotes.

 

[Axulus]

People forgot that the whole thing started with cooking books, why no one is in prison?
Is it because if they go to prison then so must Goldman Sucks people?

Steal $100 - you are a criminal going to prison, steal $100bil - you are just a successful banker.

Which books were cooked, specifically, and how were they cooked?

 

[SimpleDon]

Yes, let's let people die because money is more important. "For want of the price of tea and a slice, the old man died." Pink Floyd - Us and Them

Would you personally lend someone money who had a history of stiffing its creditors?

No, of course not. And no amount of austerity induced poor economy in that country is going to convince me to loan them money either. Only if the ECB is willing to guarantee the loan am I willing to loan them the money. Up until recently the ECB was unwilling and according to them unable to do this because of restrictions in their charter. Restrictions that prevented the European Central Bank from behaving like a central bank. They have recently somewhat relented, but they are going to have to do more.

 

[SimpleDon]

There's the old adage that beggers can't be choosers. The Greeks had a history of demonstrating that they have no idea how to manage their finances and then went and asked others to give them a lot of money. It would have been inane to do that without a harsh set of conditions, since they clearly couldn't be trusted to set decent monetary policy themselves.

If they'd started dealing with their financial problems themselves twenty years ago, they could have spread out the pain over a long period instead of having the consequences of their poor decisions dumped on them all at once. If they do exit the Euro and all starve to death, the EU can have some nice seaside property opening up in a few years, so that's a plus.

Unfortunately the people who suffer the most under austerity are not the ones who profited the most under the huge budget deficits. No matter how long you spread out the pain this is going to be true.

 

[Togo]

People forgot that the whole thing started with cooking books, why no one is in prison?
Is it because if they go to prison then so must Goldman Sucks people?

Steal $100 - you are a criminal going to prison, steal $100bil - you are just a successful banker.

Which books were cooked, specifically, and how were they cooked?

Well, let's say, hypothetically,that you're a big US bank.

And let's say hypothetically, that you wanted to make money from the misfortune of a small mediterranean country.

So you start shorting their currency, their banks, their government bonds, anything you can find. You pour about a $billion into it. And people complain. You figured that noone would have even heard of this country, but apparently people have these romantic ideas that you shouldn't smash economies flat to make a few bucks. Your CEO gets attacked personally, various goverment agencies start asking questions, and generally there is a lot of heat.

You could just stop, but you'd lose much of your billion dollars. No bonus for you! So the answer is easy. You say you've stopped, you announce measures to put in place to stop the bank undercutting the government of this country. And then you just put even more money in to doing it in ways that are harder to detect. You use client money, rather than your own. You set up a dark pools fund. You use complicated financial instruments that have exactly the same effect as shorting the country as hard as you possibly can, without mentioning them by name. The country worsens, and has to be bailed out you, the markets start treating it is a partial default, and you make a few billions profit, which you channel through the Caymans, because that way no one can ask where it came from. The people involved all get bonuses galore, and everyone is happy. Except your customers, the people in the country, and their bondholders. But who cares about them?

 

[Playball40]

Would you personally lend someone money who had a history of stiffing its creditors?

If he says no, that means he thinks he personally should let people die because money is more important to him.

If someone shops for all their groceries using credit cards, and they reach the limit, is the credit card company obliged to raise the limit lest the shopper starve?

My earlier point remains unanswered by anyone. Where will the money come from once the lenders all disappear?

That doesn't make sense. Was it the actual people of Greece that borrowed or the government? People shouldn't starve.

 

[Axulus]

There's the old adage that beggers can't be choosers. The Greeks had a history of demonstrating that they have no idea how to manage their finances and then went and asked others to give them a lot of money. It would have been inane to do that without a harsh set of conditions, since they clearly couldn't be trusted to set decent monetary policy themselves.

If they'd started dealing with their financial problems themselves twenty years ago, they could have spread out the pain over a long period instead of having the consequences of their poor decisions dumped on them all at once. If they do exit the Euro and all starve to death, the EU can have some nice seaside property opening up in a few years, so that's a plus.

Unfortunately the people who suffer the most under austerity are not the ones who profited the most under the huge budget deficits. No matter how long you spread out the pain this is going to be true.

You aren't making any sense. Greece was spending X (money raised from tax revenue) + Y (borrowings). The EU and Greece implement austerity by keeping spending to X (tax revenue collected) or close to it. Now you are saying they are suffering because they can no longer spend Y, and yet you say that it was bad that the lenders allowed Greece to spend Y in the first place. Well, without the lenders, the spending would've been kept at X, which you say causes people to suffer.

You need to get your story straight.

 

[Trausti]

If he says no, that means he thinks he personally should let people die because money is more important to him.

If someone shops for all their groceries using credit cards, and they reach the limit, is the credit card company obliged to raise the limit lest the shopper starve?

My earlier point remains unanswered by anyone. Where will the money come from once the lenders all disappear?

That doesn't make sense. Was it the actual people of Greece that borrowed or the government? People shouldn't starve.

Feel free to lend them your money. They'll pay it back.

 

[Togo]

Unfortunately the people who suffer the most under austerity are not the ones who profited the most under the huge budget deficits. No matter how long you spread out the pain this is going to be true.

You aren't making any sense. Greece was spending X (money raised from tax revenue) + Y (borrowings). The EU and Greece implement "austerity" by keeping spending to X (tax revenue collected). Now you are saying they are suffering because they can no longer spend Y, and yet you say that it was bad that the lenders allowed Greece to spend Y in the first place. Well, without the lenders, the spending would've been kept at X, which you say causes people to suffer.

You need to get your story straight.

M'okay. The money was borrowed by the government, but some of it was extracted and kept by private individuals, rather than being spent. The 'austerity' measures include tax rises, not just spending cuts. The spending cuts involve cutting money spent on supporting business development. The result is that there is less investment in the state, less confidence in the economy. That leads to capital flight, investment flight, and businesses moving to other countries, or delaying their expansion. That leads to job losses, a huge rise in the unemployment rate, and the same amount of social aid now being spread amongst fewer people. Normally the currency would deflate in this situation, which helps by making investment and imports cheaper, but that can't happen because of the Euro structure. Nor can the governement de-regulate, since regulation is set centrally.

Setting the repayment rate too high leads to an erosion of the economy and destruction of the ability to pay in the medium to long term. The Greeks have shown a willingness to follow spending and tax plans imposed by their creditors and it's not working. What's the next plan?

 

[Trausti]

You aren't making any sense. Greece was spending X (money raised from tax revenue) + Y (borrowings). The EU and Greece implement "austerity" by keeping spending to X (tax revenue collected). Now you are saying they are suffering because they can no longer spend Y, and yet you say that it was bad that the lenders allowed Greece to spend Y in the first place. Well, without the lenders, the spending would've been kept at X, which you say causes people to suffer.

You need to get your story straight.

M'okay. The money was borrowed by the government, but some of it was extracted and kept by private individuals, rather than being spent. The 'austerity' measures include tax rises, not just spending cuts. The spending cuts involve cutting money spent on supporting business development. The result is that there is less investment in the state, less confidence in the economy. That leads to capital flight, investment flight, and businesses moving to other countries, or delaying their expansion. That leads to job losses, a huge rise in the unemployment rate, and the same amount of social aid now being spread amongst fewer people. Normally the currency would deflate in this situation, which helps by making investment and imports cheaper, but that can't happen because of the Euro structure. Nor can the governement de-regulate, since regulation is set centrally.

Setting the repayment rate too high leads to an erosion of the economy and destruction of the ability to pay in the medium to long term. The Greeks have shown a willingness to follow spending and tax plans imposed by their creditors and it's not working. What's the next plan?

If the Greeks don't like the terms of the loan, they should hand back the money. Then they can tax and spend all the want.

 

[Axulus]

You aren't making any sense. Greece was spending X (money raised from tax revenue) + Y (borrowings). The EU and Greece implement "austerity" by keeping spending to X (tax revenue collected). Now you are saying they are suffering because they can no longer spend Y, and yet you say that it was bad that the lenders allowed Greece to spend Y in the first place. Well, without the lenders, the spending would've been kept at X, which you say causes people to suffer.

You need to get your story straight.

M'okay. The money was borrowed by the government, but some of it was extracted and kept by private individuals, rather than being spent. The 'austerity' measures include tax rises, not just spending cuts. The spending cuts involve cutting money spent on supporting business development. The result is that there is less investment in the state, less confidence in the economy. That leads to capital flight, investment flight, and businesses moving to other countries, or delaying their expansion. That leads to job losses, a huge rise in the unemployment rate, and the same amount of social aid now being spread amongst fewer people. Normally the currency would deflate in this situation, which helps by making investment and imports cheaper, but that can't happen because of the Euro structure. Nor can the governement de-regulate, since regulation is set centrally.

Setting the repayment rate too high leads to an erosion of the economy and destruction of the ability to pay in the medium to long term. The Greeks have shown a willingness to follow spending and tax plans imposed by their creditors and it's not working. What's the next plan?

And yet we witnessed the exact opposite of what you claim: in 2014, the budget was at a slight surplus (before interest). Confidence in Greece banks was returning, capital was returning. The economy grew. Unemployment went down. What happened now that the anti-austerity party got elected? Bank stocks plummeted nearly 50% in two days (meaning confidence was broken). The Greek stock market plummeted as well. Money and capital is now leaving the economy quickly once again. Greek depositors would be wise to open up a bank account with a non-Greek bank. Keeping their euros deposited at a German bank would be quite prudent, for example, making that capital available for the German and other strong economies in the EU and not for the Greek economy.

Furthermore, what repayment rate are you referring to? There were still additional bailout payments due to Greece under the EU and IMF plan to cover repayments.