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My Big Fat Greek Bailout
February 20, 2012 8:25 PM   Subscribe


 
"A debt level of 120.5 percent of GDP is considered close to the maximum sustainable amount for Greece."

"An EU diplomat says that an agreement has been reached to give Greece euro130 billion ($170 billion) more in bailout loans and bring its debt down to 120.5 percent of GDP by 2020."

I think this is the correct order for these statements (from the first link), not the other way round. The "maximum sustainable amount" of debt will be reached by 2020. In the meantime, Greece will have unsustainable debt. So, more bailouts then? Indeed. As early as next month, in fact.

"Greece desperately needs another rescue package if it is to avoid a calamitous default next month when a euro14.5 billion bond issue comes due."

The same movie keeps playing over and over again.
posted by vidur at 9:01 PM on February 20, 2012


Greek Debt Nightmare Laid Bare (FT)
A “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals Athens’ rescue programme is way off track and suggests the Greek government may need another bail-out once a second rescue – set to be agreed on Monday night – runs out.

The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-o

It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.

A “tailored downside scenario” in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – well below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using in all-night negotiations in Brussels on Monday.

The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance to go through with the deal since they received the report.
posted by stbalbach at 9:06 PM on February 20, 2012 [2 favorites]


So, by imposing a technocrat government instead of holding elections, people mean suspending democracy for a while right? Because that'll just go down a treat in Greece right at the moment, apart from any other issues with telling people that no, you don't get to vote because the EU thinks you can't be trusted.
posted by lesbiassparrow at 9:21 PM on February 20, 2012 [4 favorites]


"Bailout" it really the wrong term to use, because all this does is kick the can down the road. At the end of the day the problem is the Euro and the inability of the Greeks to use inflation as the means to erase their debt as they have always done.

There are only a few options for Greece really: 1) allow the Euro to inflate, 2) transfer large sums of money from taxpayers in Northern Europe to Greeks who don't pay taxes, 3) arrange an orderly exit of Greece from the Euro (and hence from the EU.)

1) is a non-starter. Mrs. Merkel imagines the Euro as replacement for the D-marks, Dutch guilders, and to a lesser extent French Francs - not as a replacement for drachma and lira and other monopoly monies.

2) is unlikely and deeply unpopular and not sustainable for any period of time. Europe is not America in this regard. There is no federal government, no federal tax, and not many taxpayers in high-tax Northern Europe could or would want one.

3) it seems to me that the experiment with the Euro has failed. Better to arrange an orderly exit from the currency (and from the EU) for Greece than to allow this to continue to descend into chaos.

They rolled out the Euro overnight, they can roll it back as well. Pity. It all seemed so promising but the emperor stands stark naked and there is no longer any sense in pretending he is not.
posted by three blind mice at 9:24 PM on February 20, 2012 [2 favorites]


3) it seems to me that the experiment with the Euro has failed. Better to arrange an orderly exit from the currency (and from the EU) for Greece than to allow this to continue to descend into chaos.

Well, there's always option #4, the Greeks start paying taxes and learn to manage their finances more carefully.
posted by anigbrowl at 9:48 PM on February 20, 2012 [9 favorites]


I'm no expect, but I get the distinct feeling that this shit won't end well.
posted by jcreigh at 9:52 PM on February 20, 2012


On a more serious note: Why isn't a Greek default an option? Is the fear that this would have bad consequences for other Eurozone countries?
posted by jcreigh at 10:02 PM on February 20, 2012


The solution to being excessively indebted is rarely more loans. Perhaps loans to fund stimulus programs, boosting the economy and so broadening the tax base would make sense as a road out of debt, but they're doing the opposite.

#4, the Greeks start paying taxes and learn to manage their finances more carefully.

Bit late for that now. Can't pay your mortgage with coins you find in the couch.
posted by justsomebodythatyouusedtoknow at 10:08 PM on February 20, 2012 [10 favorites]


Well, there's always option #4, the Greeks start paying taxes and learn to manage their finances more carefully.

A very simplistic (and therefore very convenient) way to look at a complex problem based on the fundamental structural weakness of the Euro itself, and the rapacious nature of global finance (I'm thinking of the role Goldman Sachs played in rigging things 10 years ago so Greece could enter the common currency).
posted by KokuRyu at 10:33 PM on February 20, 2012 [4 favorites]


Is this the part of the story when the confidence fairy shows up and rewards all the good countries for severe austerity measures?
posted by Talez at 11:06 PM on February 20, 2012 [13 favorites]


I am no economic expert, but it seems like this is not going to end well. I guess I have no faith that the people who should have seen this coming and are trying to fix it now can predict what is going to happen from now until 2020?

It seems like all the discussions of Greek debt and their options assume everyone will play by the current rules. With unelected technocrats, another decade of austerity, and 50% unemployment for young people it's no mystery why Athens is burning. What happens if the answer is 'none of the options above'? What if the Greeks revolt? What if they default in a disorderly way?
posted by bradbane at 11:09 PM on February 20, 2012


Well, there's always option #4, the Greeks start paying taxes and learn to manage their finances more carefully.

Option #5: Greece needs to find something the rest of the world can't live without and make a lot of them at a low, low price.

Increase the GDP, get hard currency flowing in and the debt to GDP percentage drops.

However that situation reminds me of that episode of The Simpsons, "Homer vs. Patty and Selma" where Homer is having a dream about a revolutionary new product that every American has three or four of but can't see what the product is or find out what it does.
posted by Talez at 11:15 PM on February 20, 2012 [2 favorites]


The beatings austerity will continue until morale the economy improves.
posted by problemspace at 11:16 PM on February 20, 2012 [14 favorites]


We Greeks are not blameless; heck, I'll go ahead and say that we brought this crap on ourselves, by over-borrowing for decades, electing politicians who never even tried to explain finance to the population instead opting again and again for borrowing money to buy votes, etc.

But: at this point, the Greek economy has been running on steroids (cheap money) for 20-30 years (depending at which point you start counting). The actual productivity of the country is very low (even if you exclude the massive, bloated, public sector). Most of manufacturing has left the country for our cheaper neighbors to the north and the east. The youth is over-educated and unable to find any jobs anyway (under-30 unemployment is nearly 50%).

Foreigners draw parallels with Argentina: bullcrap; Argentina was a growing economy with a strong exporting public sector. Greece at this point imports basic staples, even ones we shouldn't need to be importing, like olive oil and tomatoes. Our ruling class, and I count private sector businessmen, are clueless. For decades they've opted out of basic productivity changes (IT, supply chains, outsourcing, healthy banking) so that at this point they themselves are lacking the knowledge and skills to actually manage their way out of this crisis. And of course, the new generation hasn't had the exposure to real work to have built up any skills yet.

Bottom line: there is no way out of this crisis without massive structural changes that will span at least a generation and most likely longer. Our GDP drop has already exceeded that of the Great Depression in the US and it will keep going.

Let's not get into the usual red herrings of tax avoidance, etc. Payroll withholdings for those that do have jobs are at this point over 50%, even for entry-level jobs. At the same time, you can't go into a public hospital and expect service without bribing someone; public schools are crap; crime is rising. We have Scandinavian-level taxation with North-African level public services. You'd be avoiding taxes too.
posted by costas at 11:19 PM on February 20, 2012 [42 favorites]


A very simplistic (and therefore very convenient) way to look at a complex problem based on the fundamental structural weakness of the Euro itself, and the rapacious nature of global finance (I'm thinking of the role Goldman Sachs played in rigging things 10 years ago so Greece could enter the common currency).
Let's not pretend that Greece is an innocent bystander here. Greece is one of the most dysfunctional and corrupt Democracies in Europe and is the primary author of their current problems.

Greece's government lied about its levels of debt just to qualify for the Eurozone. Tax evasion is rampant; Greece's "unofficial economy" (the economic activity that avoids taxation, like a Black Market) is estimated between 25-30% of the economy, and their rich cheat the most. Their tax officials are easy to bribe, and most of their "get tough" efforts to catch tax cheats are mostly for show (tax enforcement loosens before elections because incumbents don't want to lose their jobs).

Something like 70% of Greece's workforce qualifies for early retirement (between 55-59), e.g. that includes hairstylists because they too are classified as having a hazardous profession (they work with "cancer causing chemicals").

By contrast, Germany (the country that is bankrolling a large chunks of Greece's bailout) voted in 2007 to increase their retirement age from 65 to 67 over several years, i.e. without any outside pressure or severe financial crisis. Greece is still having trouble buckling down

And while austerity measures and belt tightening are usually the wrong thing to do in a bad economy, it's really difficult to feel sorry for Greece. Time and time again Greece has avoided an economic execution with last minute pleas that 'they've seen the light and will get serious this time' only to carry on as usual.

Frankly, it's difficult to imagine these bailouts working in the long run without some kind of EU intervention in Greece's political and economic affairs.
posted by Davenhill at 11:34 PM on February 20, 2012 [6 favorites]


The only realistic option now is for Greece to exit the euro. That does NOT mean exiting the EU. Just the euro. Obviously, the best would be a Marshall Plan for Greece coupled with externally supervised deep structural reforms encompassing the whole society, not just economy and politics, as I've long advocated, but this is simply not going to happen. So we're left with the euro. They need to get that millstone off from around their necks. Meanwhile, they need an emergency arrangement with Europe regarding defense - because they'll need the Europeans to guarantee their defense needs, while they cut their defense budget to 0. Of course, the latter won't happen either. Tough times ahead.
posted by VikingSword at 11:46 PM on February 20, 2012


Let's not pretend that Greece is an innocent bystander here. Greece is one of the most dysfunctional and corrupt Democracies in Europe and is the primary author of their current problems.

Davenhill, literally none of the sociopolitical observations you made are new. And they have never really been hidden. This is how Greece has been at least since my parents were born. At some point you have to just laugh at how much money the Greeks were lent. And so it follows:

"Government deficits were not the primary problem. The primary problem was the expansion of private sector credit, and there were and are no penalties for that. Nor are any proposed [by the Van Rompuy-Barroso competitiveness pact proposals]."

He said that the root of the problem is a lack of a common European banking policy, noting that Europe's banking system is three and a half times Europe's GDP, while the US banking system is only 80 percent of the US GDP.

This means you can't squeeze enough blood out of the Greeks to pay you back, ever. Do you know what it means when a banking system is three times bigger than the GDP? It means people owe three dollars for every one dollar they make. Everyone owes everyone money. One day the Greeks will come around and realize this predatory lending happened by design. The core European economies benefit at the expense of the peripheral ones. This is an immutable fact of the European Union. Over a long enough time horizon, the strong European economies will decimate the weaker ones. By. Design. The fact that this happened so quickly is a testament to the voracity of human greed.
posted by phaedon at 11:50 PM on February 20, 2012 [10 favorites]


I'd say there's a strong chance that most of this is just window-dressing. That a Greek default is accepted, and that what we are seeing now is just buying time, while the details of a default are worked out behind the scenes (I kinda hope so, because some of the things that some of the Germans and Dutch are saying are crazy...)

VikingSword: The only realistic option now is for Greece to exit the euro. That does NOT mean exiting the EU. Just the euro. Obviously, the best would be a Marshall Plan for Greece coupled with externally supervised deep structural reforms encompassing the whole society,

I'm strongly inclined to agree with you, with the caveat that there are no provisions for such an exit. Euro membership was intended to be permanent and irrevocable. Now, under the Treaty of Lisbon, there are provisions for states to leave the EU, which would imply leaving the eurozone. But the legal process for doing this would take about two years. So its really a non-starter.

Which means that either Greece has to unilaterally denounce its EU membership and just leave, or there has to be some kind of plan behind the scenes that would allow it to leave peacefully.

Three Blind Mice: They rolled out the Euro overnight, they can roll it back as well.

Again, I think your general points are good but you over-estimate, I think, the ease of changing currency. On a physical level, printing and distributing a new currency. Ensuring people don't leave Greece with huge wads of euros (which implies border controls that might actually be illegal). Setting up a framework for dealing with contracts in Euros (I mean, we really don't want Greek and other European companies to spend the next five years in court, arguing over how much a debt of 1 million euros is, and whether its payable in euros or drachma). Changing cash machines and prices. It was difficult going from drachma to euro, but they had years to prepare and it was public and non-controversial. This, I think, is more difficult.
posted by Infinite Jest at 12:06 AM on February 21, 2012


And while austerity measures and belt tightening are usually the wrong thing to do in a bad economy, it's really difficult to feel sorry for Greece.
This was poorly worded. I'm extremely sympathetic to the Greek people and their current situation (the economy is shrinking, businesses are failing, unemployment is skyrocketing). What I meant was that whereas I'm usually sympathetic to criticisms of austerity measures for countries that are experiencing economic downturns, that less the case with Greece; there are major structural (and arguably cultural) problems that need to be addressed for Greece, sooner or later. And Greece seems incapable of imposing the necessary discipline on itself.

Exiting the Euro is one way to go, I suppose. But perhaps it would be better for the EU and Eurozone countries as a whole to use this crisis as an excuse to strengthen the central government's role in managing a single currency.

The Greeks deserve better than 'more of the same'. Again, not meaning to sound callous at all, but for the moment it really does seem like they'd be better off having outsiders impose more needed discipline.
posted by Davenhill at 12:09 AM on February 21, 2012


Vidur: In the meantime, Greece will have unsustainable debt. So, more bailouts then? Indeed. As early as next month, in fact.

"Greece desperately needs another rescue package if it is to avoid a calamitous default next month when a euro14.5 billion bond issue comes due."


Not quite - the bailout that was just agreed covers the 14.5bn euro bond. (The wording in the first link is slightly confusing).

Suspect you're strongly right that another bailout will be required at some point.

So, by imposing a technocrat government instead of holding elections, people mean suspending democracy for a while right?

Pretty much, yeah. They currently have a technocrat government, put in place a few months ago. They have elections scheduled for April. The Germans suggested that they postpone those elections. Which didn't go down particularly well in Greece (and internationally, right now the second-most read story on the Financial Times site is titled 'Greece must default if it wants democracy' (I'd link but its subscriber-only)
posted by Infinite Jest at 12:15 AM on February 21, 2012


A very simplistic (and therefore very convenient) way to look at a complex problem based on the fundamental structural weakness of the Euro itself

Bollocks. That's like saying it's a complex problem based on a fundamental weakness of arithmetic. All the Euro has done is make the problem transparent: not enough revenue covering too much spending in the midst of a demographic shift. Inflation won't fix anything, it's just a way of eroding the value of savings and screwing people who bought bonds issued in the inflating currency. If Greece left the Euro tomorrow, who would be fool enough to buy Drachma bonds, knowing that the government would like to inflate its way out of the problem? You'd have to institute currency controls to stop money fleeing the country and then sell off national assets in return for hard currency anyway.

Really, the fiscal self-delusion of the extreme left is just as pathetic as the fiscal self-delusion of the extreme right. Taxes are going to have to go up and be collected more aggressively, benefits are going to have be lowered and retirement ages will have to go up a bit. Lowering VAT somewhat will give some relief to the least well-off and help to stimulate tourism.
posted by anigbrowl at 12:18 AM on February 21, 2012 [3 favorites]


You know, at this point it doesn't matter how the Greeks got into this mess. Or at least it doesn't matter as much as the fact that the eminent powers in Europe are a) willing to see Greeks suffer horribly on a level they'd never tolerate for their own citizens and b) moot stripping them of their rights to vote (on a temporary basis only!) if they don't react well to that prospect. All while lecturing them in a way that strongly suggests they'd be happy to see the country burn for its fiscal sins. So that's the EU, our great shining promise for Europe. If you live somewhere like Ireland, it's hard not to think you'll be next up for whatever penance the EU decides you should pay, whether or not you can pay it.
posted by lesbiassparrow at 12:51 AM on February 21, 2012 [4 favorites]


Infinite Jest It was difficult going from drachma to euro, but they had years to prepare and it was public and non-controversial. This, I think, is more difficult.

I don't agree; it cannot be more difficult than when 11 countries simultaneously changed currency to the Euro. An orderly exit may take years and yes capital might flow out of Greece, but if Greece is going to maintain anything like sovereignty over its affairs, I do not see any other way.

The current path of obtaining Euro loans to pay Euro debts only makes matters worse in the long run. There is no reasonable way to grow Greek GDP in a way that can every absorb this deal in terms of its real value. The structural changes which are needed to make Greece "work" like Northern Europe are, as someone said in this thread, a generation away and what pray tell is the current generation to do? Rioting doesn't fill your stomach.

I would like to see a debt forgiveness combined with an exit from the Euro. Greece is only going to default anyway, why not do them a solid and just get on with it in an orderly and controlled way? And then at some point in the distant future when Greece is more like Holland, they can reapply for membership.

Moreover, if Greece were to exit the EU, German and French taxpayers and politicians who believe in the EU might be then willing to do more in the future to see that other EU countries do not end up in the same place.

As it is continued austerity and the demand that Greece pay the vig seems to me not even anything like a reasonable solution. Even a thug knows you don't break a man's leg and then expect him to work overtime for you.

I am planning to holiday in Greece this summer as a show of solidarity - and because Greece is awesome - but if I am left stranded at some airport with my children because of a riot or strike, I will not be happy. Greeks, please take note. How about a national agreement to keep the lid on during the summer months?
posted by three blind mice at 1:18 AM on February 21, 2012


lesbiassparrow: the eminent powers in Europe are a) willing to see Greeks suffer horribly on a level they'd never tolerate for their own citizens and b) moot stripping them of their rights to vote

Maybe I'm missing something here, but isn't it the Greeks that want something from the rest of Europe? If they are not happy with what the "eminent powers in Europe" have to offer, then why don't they look for their money elsewhere?

Also, what is your solution for all this, lesbiassparrow? Just hand over more money to the Greeks, no questions asked, every year for the foreseeable future?
posted by sour cream at 1:20 AM on February 21, 2012 [1 favorite]


Taxes are going to have to go up and be collected more aggressively, benefits are going to have be lowered and retirement ages will have to go up a bit. Lowering VAT somewhat will give some relief to the least well-off and help to stimulate tourism.

The almighty creditor must be protected at all costs. Ah, fast-track capitalism.

By now, even anigbrowl knows exactly what arguments to parrot. The Asian tigers... Latin America... Iceland allowed to borrow 1,000% of its GDP... credit boom, crash, bailout, rinse, repeat... Forget that this has happened again, and again, and again. It's the people of Greece's turn to pay the piper, if only we can explain to them why it's their fault.

You (and Merkel) have a lot to say about how Greek's should pay back their debt. When? Now. How much? All of it. Not so much to say about other countries though huh. Where does the US stand, at $15 trillion? Credit cards up the ass, real estate financing in the 90-95% range, subprime lending scandals, abysmal personal savings, broke state governments.. you act like the Greeks are exceptionally stupid and are getting their just desserts, it's that simple. Tell me more about this high horse you're sitting on, because I'm really curious why you're directing traffic on this one.
posted by phaedon at 1:41 AM on February 21, 2012 [5 favorites]


I just want to say that I love Greece and I love the Greek people and it's just fucking heartbreaking watching what's going on, the cause be damned. Hang in there guys.
posted by peacay at 1:41 AM on February 21, 2012


three blind mice: I don't agree; it cannot be more difficult than when 11 countries simultaneously changed currency to the Euro. An orderly exit may take years

Ah, right. I was reading your first post as saying literally do it overnight, with no problems :).

They are going to have to do a lot in a very short period of time. (I'm at work or I'd dig out some more detailed references).

As it is continued austerity and the demand that Greece pay the vig seems to me not even anything like a reasonable solution.

I'm with you on the austerity. Regarding the interest: the private sector write-down on the current bond exchange is 53.5%. The private sector loses half its money on the deal. The bailout from the eurozone/IMF (about 90% the eurozone): they've cut the interest rates on that so low that the other eurozone governments may be lending to Greece at a lower rate than they can borrow the money, meaning they are losing money on the deal. I'm not sure how much further they can be expected to cut. (Link, sorry, FT and probably subscriber only)
posted by Infinite Jest at 1:48 AM on February 21, 2012


Link to the analysis discussed by the Reuters article.

More can kicking it seems.
posted by JPD at 1:54 AM on February 21, 2012 [1 favorite]


Isn't the problem with letting Greece go the possible effect it could have on the larger, more bankrupt, European economies? If Greece hops out of the eurozone what will happen to interest rates for Spain, Portugal, Ireland, and Italy? Will they be forced to skip out too?
posted by xqwzts at 1:55 AM on February 21, 2012


Isn't the problem with letting Greece go the possible effect it could have on the larger, more bankrupt, European economies?

Essentially - although "more bankrupt" may not be true. Portugal is widely thought of as the next domino to fall, and the EU would be able to survive that, but following Portugal would be Italy and Spain - either of which is big enough to be basically unfixable by the ECB and IMF.
posted by JPD at 2:10 AM on February 21, 2012 [1 favorite]


Why does anyone give a damn about the creditors? The high interest rates the Greeks have to pay are meant to reflect the risk of default. Except that people want to prevent the creditors losing even when they have been paid for accepting this risk.

The creditors were paid to accept the risk. Let them take the consequences.
posted by Francis at 2:53 AM on February 21, 2012 [7 favorites]


The reason why the ECB cares about the creditors is because most of them are large banks and not pure investors/speculators. From the ECB's view a capital loss for the already undercapitalized banks increases the size of the eventual equity raisings that will be required. Not to mention that the worse the Troika treats the private creditors the harder it becomes to get them to play ball on recap-ing the banks and supporting other sovereign restructurings if they are required.

Finally there is another tricky little point at hand here - which is that the reason why the banks ended up with so much of the outstanding Greek debt was that their home politicians told them to buy the debt. Like it wasn't an economically driven decision originally, but rather politics. So now if you are those banks you are calling up your regulator and saying "WTF you told me to buy these and that it would be money good, and now you are telling me its worthless? You gotta figure out a way to make me whole"
posted by JPD at 3:01 AM on February 21, 2012 [6 favorites]


So Greece has a massively corrupt and dysfunctional economy because, thanks to centuries of exploitation by unpopular undemocratic rulers (the Ottoman Empire), the Greeks have learned that honesty is the quickest way to be ruinously exploited, and the answer to this is unelected administrators appointed by the EU? Got it.
posted by acb at 3:22 AM on February 21, 2012 [2 favorites]


Why does anyone give a damn about the creditors? The high interest rates the Greeks have to pay are meant to reflect the risk of default. Except that people want to prevent the creditors losing even when they have been paid for accepting this risk.

They are losing. As I said above, they've voluntarily agreed a 53.5% loss. Other than that, JPD has some excellent points.
posted by Infinite Jest at 3:42 AM on February 21, 2012


Looks like some nicely informed commentary for once. Thanks jaduncan! Two questions:

Does Greece have the political will and capacity to leave the Euro? It's a massive technocratic headache even without the capital flight issues. At this point, they seem too disheartened and disorganized to do it, even though it's a prerequisite for catch-up growth and re-organization.

Is there really any reason to believe that the same thing would happen to Portugal? The Portuguese are in a comparable financial situation, but significantly more stable and politically unified. So far, it seems like the social capital deficit is the real issue.
posted by anotherpanacea at 4:01 AM on February 21, 2012


from what i understand, portugal has jumped through the austerity hoops to get bailout money and as a result their economy is shrinking which means their previous target debt level will be too high for them to service and they'll need another bailout further down the road. this sort of thing is a vicious cycle.

for me, the real question is: why haven't the people who perpetrated the fraud needed to get Greece (eurocrats and greek politicians) into the euro being prosecuted and put behind bars? nobody will be able to convince me that it's possible to completely hide a country's(!!!) financials without anybody knowing about it. the EU being naive and trusting Greece isn't an excuse.

personally i think the way the rest of europe is treating greece is digusting and i'm not sure i want to live in such a europe. i'd rather have the entire european project disbanded than see this sort of behaviour, towards any country and it's people, continue.
posted by canned polar bear at 4:22 AM on February 21, 2012


So, by imposing a technocrat government instead of holding elections, people mean suspending democracy for a while right? Because that'll just go down a treat in Greece right at the moment, apart from any other issues with telling people that no, you don't get to vote because the EU thinks you can't be trusted.
posted by lesbiassparrow at 9:21 PM on February 20 [2 favorites +] [!]

Does Greek even have a word for "democracy"?
posted by kcds at 4:42 AM on February 21, 2012 [5 favorites]


All the Euro has done is make the problem transparent: not enough revenue covering too much spending in the midst of a demographic shift. Inflation won't fix anything, it's just a way of eroding the value of savings and screwing people who bought bonds issued in the inflating currency.

Yeah, I do not believe that an exit from the euro would help. It would distribute the hardship differently, giving the advantage to people who for instance own productive land or are financially sophisticated enough to defend themselves against inflation. Even if that is somehow a good thing, it doesn't seem anywhere near big enough to offset the additional disruption caused by the transition being added to the total economic damage done. If as some say they are going to have to go for a "real" default eventually, as opposed to this "let's all pretend it's not a default" default, then it's better to do it now before their opponents figure out how to kick them out of the eurozone when it happens.
posted by sfenders at 4:50 AM on February 21, 2012


The reason Greek politicians haven't been prosecuted is because: a) it would be pointless, as the Greek constitution has a very short statue of limitations for political crimes (one parliamentary term, even if that is cut short) that politicians have conveniently set up for themselves, b) the Greek political system is very gingerly trying to avoid elections at this point as the two main parties which traditionally polled 30-40% each can now barely manage to reach 30% in combination in opinion polls.

Having said that the "Greek statistics" angle is also overblown: yes, statistics were massaged greatly, but a lot of other countries did the same before entering the EMU and it was basically well-known who was stretching the truth at the time. What blew things up were things that weren't necessarily part of the official statistics (debt by pension plans, state enterprises) and debt owned by the Greek banks as well --to a large extent debt to state or quasi-state enterprises.
posted by costas at 4:51 AM on February 21, 2012


The reason Greek politicians haven't been prosecuted is because:

Everyone has blood on their hands. The Greek politicians share blame with the German and French banks and German and French politicians, etc, etc. etc. It's rotten from the taverna that doesn't issue any receipts to the boardrooms of the banks that borrowed money from the ECB to turn around to lend to Greece (whilst earning a nice cut on the spread.) It's good and proper that bondholders take a haircut, but the problem with austerity and additional "bailout" loans is that this is a mechanism which appears more designed to point the large finger of blame on Greece, rather than designed to fix the bloody problem. It keeps the house of cards together, but does not change the fact that the house is built from cards.

Again I say, Greece out of the Euro and EU, write off their debt (which Belgian households alone could easily absorb). This would stabilize the Euro, prevent the Greek problem from becoming a moral hazard, and give the Greeks a chance for economic stability and control over their own country and currency. In another decade or so Greece can re-apply for EU membership.
posted by three blind mice at 5:20 AM on February 21, 2012


A better headline would involve the Greek PM threatening to "Release the Kraken" if they don't get the cash.
posted by The 10th Regiment of Foot at 5:35 AM on February 21, 2012


Corruption is a big problem in Greece, but while Germany might be well-regulated at home, German companies (incl. Siemens, Deutsche Bahn etc.) have been bribing officials in Greece for years to get contracts (Spiegel article). The crisis is not necessarily a matter of moral fibre.
posted by ersatz at 5:37 AM on February 21, 2012 [2 favorites]


I really do think the best course for Greece would have been the referendum proposed by Papandreou back in November. The former Greek prime minister had the full backing of his cabinet and with this move would have also received the backing of the Greek people. Whatever course taken by Greece will be very painful, however by involving the people directly on this crucial issue it would have at least stemmed the tide of social unrest. It was truly a genius move, and of course it was immediately slammed down by the EU. Greece had the chance to regain control of its destiny, and now it is too late. A default is inevitable, as the numbers clearly show, and the country will continue to suffer.

Also, let's not foget that while the news is telling us about the "Massive Greek Bailout", the money is going right to the banks that own that debt. So it is actually the banks that are being bailed out on the backs of Greek suffering. It is very sad.
posted by Vindaloo at 5:46 AM on February 21, 2012 [2 favorites]


And while austerity measures and belt tightening are usually the wrong thing to do in a bad economy, it's really difficult to feel sorry for Greece.

So completely destroying their economy and driving them deeper into debt with loan/austerity combinations is okay, because they were naughty? EU leaders are gonna have to do better than that.

Let's keep in mind that, as in the US, there's probably a very weak correlation of current suffering with past culpability.
posted by mellow seas at 5:50 AM on February 21, 2012


Vindaloo: you're horribly misinformed. That night, when the referendum idea was floated, the government just about collapsed because practically no one thought was a good idea and it wasn't discussed with the cabinet in advance. Papandreou's approval rates plummeted to below 10% where they've stayed since. In principle, a referendum might have made sense, but it was a horrible idea both politically (floated right after an intra-EU agreement on continuing support) and practically (it would have created delays and further political strife that we couldn't afford).

Even after it was withdrawn (and after it forced Papandreou to resign) it blew away the last remnants of credibility Greece had in the EU. To call the referendum a horrible idea is a massive understatement. This clip pretty much sums up the European (and most Greeks' reaction) perfectly (NSFW w/o headphones).
posted by costas at 5:57 AM on February 21, 2012 [1 favorite]


I do not know much about the subject but the idea I got last year was that Greece's economic future was being decided by two opposing sets of economic entities.

In the first group are entities that want Greece to default and trigger a CDS .

In the second group are entities that do not want Greece to default and would prefer a voluntary writedown of debt by creditors without triggering a CDS.

I always assumed that it was international banks and hedgefunds making up the first group and european banks making up the larger portion of the second group. Do I have it wrong or is this a reasonable simplification.
posted by vicx at 5:58 AM on February 21, 2012


Also, what is your solution for all this, lesbiassparrow? Just hand over more money to the Greeks, no questions asked, every year for the foreseeable future?

No, but as people have pointed out, this money is not being handed to the Greeks to fix their country; it's being handed over to banks. And it's not as if the EU seems to even give a toss about fixing the endemic issues that caused all of these issues, just about inflicting pain and making sure money is paid back. I understand that wealthy countries don't want to bail out poorer ones (though they're happy to sell them weapons they can't afford, as with Greece), but the rhetoric and the sheer contempt for Greece on the part of the wealthier and more powerful countries is disgusting. There was a point where I think that progressives and the young in smaller countries looked to the EU as giving hope of reform and new opportunities. Instead you now have generations not just in Greece, but in Ireland and Portugal and probably in Spain, that identify the EU as a pack of austerity hounds that don't care about chunks of Europeans or their suffering. That's not exactly good for Project Europe.

Yes, I am bitter, because my country (Ireland) is facing selling off huge chunks of the state because that's what the EU and the IMF demands - not to mention all the extra crap that's been thrown at people. And I believe that this is done not because they believe that this will benefit our country or even Europe, but because they can. We need the money, but nobody benefits if you insist on rubbing people's face in the shit left by bankers and developers as some sort of object lesson for the future. And, more importantly, it won't fix anything in any country. Unless you consider paying off the banks fixing things.

And, finally, none of this is worth suspending democracy for. None of it. Especially not in countries like Greece that have only fairly recently dragged themselves out of a dictatorship. If that's the only way this can be fixed, then we might as well chuck the entire project in.
posted by lesbiassparrow at 6:01 AM on February 21, 2012 [4 favorites]


lesbiassparrow: Ireland's woes can be far more precisely placed at the government's door. It was fiscally fine. Then it underwrote pretty much all Irish banking debts. Then it was royally screwed. I'm not sure that the lenders extending credit in return for assets is really where you should be pointing the finger here.
posted by jaduncan at 6:12 AM on February 21, 2012 [1 favorite]


Is there any danger for Option #6 to take place? This would be a scenario in which continued unrest throughout the streets of Athens and other parts of Greece cause a return to military rule?
posted by stannate at 6:20 AM on February 21, 2012


Instead you now have generations not just in Greece, but in Ireland and Portugal and probably in Spain, that identify the EU as a pack of austerity hounds that don't care about chunks of Europeans or their suffering

That's certainly the lesson I'm taking away - that political and fiscal closeness hasn't done anything to remove the old prejudices and divisions in Europe. When it comes to the crunch, the Greeks are the Greeks and the Germans are the Germans and they only care about their own. The strong will eat the weak, as usual.
posted by Summer at 6:21 AM on February 21, 2012


the thing that really gets me in the end is that after all these years of bullshit about european unity, european countries being partners, etc etc.. it turns out to be just that. bullshit. now we know how things work once the shit hits the fan.
posted by canned polar bear at 6:23 AM on February 21, 2012 [1 favorite]


The Benelux should never have let all those other countries join the union.
posted by Pendragon at 6:31 AM on February 21, 2012


the thing that really gets me in the end is that after all these years of bullshit about european unity, european countries being partners, etc etc.. it turns out to be just that. bullshit. now we know how things work once the shit hits the fan.

I'd be taking bets on aid agencies in Greece once the summer comes and people start having to choose between food/drink, travel and air conditioning, yes.

But they've just been lent €11,485.06 per person in this round alone after borrowing previously based on a credit rating based on a falsified set of accounts to submit to Brussels/other lenders(!). It isn't all a story about how horrible the EU have been, the Greek government have committed fraudulent acts and their population have politically enabled that. At some point some blame has to go the other way, too.
posted by jaduncan at 6:53 AM on February 21, 2012 [1 favorite]


I do not know much about the subject but the idea I got last year was that Greece's economic future was being decided by two opposing sets of economic entities.

In the first group are entities that want Greece to default and trigger a CDS .

In the second group are entities that do not want Greece to default and would prefer a voluntary writedown of debt by creditors without triggering a CDS.


No this is a really flawed analysis and far far more manichean than what is going on here. The number of people who actively actually want a default is really really minimal - it amounts to the people who are short the debt and own the CDS - this is actually quite a small class of people, and in that they are also not normally the people who would be buying new issue greek debt the can't force a default through economic might. They can be very loud and noisy about the situation hoping to convince some of the traditional owners of the debt that they won't get their money back, but it actually isn't something they can make anyone do. In the case of Greece this class of investor is actually much smaller than you would have thought given the size of the conflict. Mostly this has been because the Troika has been clear that they wanted a solution that would violate the spirit but not the letter of the law surrounding Credit Default Swaps.

The thing the really causes a default to trigger is when the guys who used to buy your debt (in this case foreign central banks and large financial institutions in EU countries) decide that things have gotten too risky and they won't buy new debt being issued to refinance that debt that has matured and is being repaid.

The thing to remember about the main actors here isn't that they are swashbuckling risk takers, but that rather they are incredibly risk averse. If you are a big bank you just want your portfolio of bonds to perform like it says on the cover of the prospectus. You aren't out there betting things change. You just want your money back and the interest the borrower agreed to pay you.
posted by JPD at 6:57 AM on February 21, 2012 [1 favorite]


But they've just been lent €11,485.06 per person in this round alone after borrowing previously based on a credit rating based on a falsified set of accounts to submit to Brussels/other lenders(!). It isn't all a story about how horrible the EU have been, the Greek government have committed fraudulent acts and their population have politically enabled that. At some point some blame has to go the other way, too.

The problem with this argument is that any one who was remotely paying attention 15-12 years ago knew there was absolutely massive book cooking going on. No one in Europe over the age of 30 who regularly read the business and economics coverage in the quality press can possibly argue they didn't know the "as printed numbers" were a fiction.
posted by JPD at 7:00 AM on February 21, 2012


I'd be taking bets on aid agencies in Greece once the summer comes and people start having to choose between food/drink, travel and air conditioning, yes.

But they've just been lent €11,485.06 per person in this round alone after borrowing previously based on a credit rating based on a falsified set of accounts to submit to Brussels/other lenders(!). It isn't all a story about how horrible the EU have been, the Greek government have committed fraudulent acts and their population have politically enabled that. At some point some blame has to go the other way, too.


aid agencies are already in greece. for instance all greek doctors in Doctors without borders (or whatever it's called) have been recalled to greece. the number of homeless and unemployed has skyrocketted.

yes, by your logic the world should have said a big fuck you to germany after WW2 instead of rebuilding it.

actually, greece should exit the Euro, remain in the EU and become outside agitators with nothing constructive to say like the UK.
posted by canned polar bear at 7:02 AM on February 21, 2012 [1 favorite]


Greece's last coup d'etat was in 1967. The resulting military junta ran the country until 1974. That's not that long ago and makes a complete collapse of the government seem possible again. Put that in your europipe and smoke it.
posted by Nelson at 7:55 AM on February 21, 2012 [1 favorite]


I doubt Greece exiting the Euro will accomplish much except to add hyperinflation on top of its already monumental economic problem.

In or out of the Euro, and with or without a default, Greece still has around twice as much imports as exports, not very many natural recourses to export, and have ,absent austerity measures, a public sector that uses way more then it receives through taxes.

Even if they defaulted, the state would still need shrinking, only now it wouldn't be controlled because no one would lend them any money.
posted by Greald at 8:01 AM on February 21, 2012


I read somewhere that 750,000 jobs had been lost in Greece, but none of them were from the public sector. What are they cutting, then? Social services? Public works? If so, why do they need the same amount of public employees to perform less work?
posted by desjardins at 8:22 AM on February 21, 2012


I'm not sure what you are trying to ask? Between Austerity spending policies, the gutting of confidence, and the large decreases in GDP companies have decided to lay off heaps and heaps of people. The state has not laid anyone off. Its exactly the same dynamic that goes on here when the economy tanks. The difference is that normally the state maintains or hopefully expands spending when the private sector is shrinking. In this case the Troika is forcing the state to begin shrinking as well.

(This is also why that debt analysis is a pretty tough to believe -1% GDP growth in 2013 w/ a shrinking state seems quite overly optimistic - but the global economy could take back off and it ends up not being so crazy - what do I know?)
posted by JPD at 8:29 AM on February 21, 2012


costas:
My information came straight from the BBC and I followed the story for several days after. Yes I saw the horrified EU finance ministers and the general outrage from Greeks which came after Papandreou was ridiculed. However in the hours following the announcement there was a moment of stunned silence in the world, and even the financial pundits on the news didn't know what to make of it. My take on it was that had the idea been given more support from inside Greece then it might have turned out differently. Instead the PM, and the rest of Greece, were ridiculed and belittled into the corner they are now.

Think about what is happening now: the current government in Greece has no choice but to accept all the demands, no matter how humiliating, of the rest of the EU. Greece had one chance to regain control of its destiny, and instead they became the whipping dogs of the rest of Europe, to be paraded as the extreme example of how not to run a country. I am not saying that the outcome of the referendum would have been any better, but at least the people would have had a say as to which path to follow: accept bailout and the loss of sovereignty, or default and leave the EU. Again, it's not that the outcome would have been better at the macro level, just maybe that through a referendum the collapse of social order may have been avoided.

I honestly can't see how things would have turned out worse than they are now by having a referendum on the issue. And if this were happening here in Canada I would have been 100% in agreement with a referendum on such a critical issue. When the entire fate of a nation hinges on one decision, how is a referendum not in the cards? Instead you leave it up to the "elites" in government to make hose decisions for you, the same "elites" that brough this situation to such a catastrophe in the first place?
posted by Vindaloo at 8:58 AM on February 21, 2012


gah. a constitutional amendment on debt repayment. greece just bent over and grabbed its ankles. this is getting ridiculous. the fools in power are signing greece over to the banks....
posted by canned polar bear at 9:57 AM on February 21, 2012


a constitutional change will give priority to debt repayments over the funding of government services

To crib Fallout:

Imperialism... Imperialism never changes.
posted by absalom at 10:08 AM on February 21, 2012 [1 favorite]


So - are the anarchists going to start assassinating people again?
posted by symbioid at 10:18 AM on February 21, 2012


The reason why the germans wants to bail out the greek is the same why the chinese dont let the US fall: The German banks holds 530 Bn Euros from the PIGS countries.
That is if the PIGS go out of the euro there goes the 530 BN, the banks and at the same time most of they customers (Germany is big on exports).
Italy is for example World Market Nr 2 for Mercedes Benz.
In Germany (where Im working at the moment) everyone is against the bailout. They need to swallow this pill in order to gain more time - well knowing it will go bad.
But as we say at work, this will be a problem for the next generation.
If the greek had the drachma and most of the debt would be held by the greek banks: that would be a "good luck greeks" - same as with the japanese. Too bad they printed the Euro too...
posted by elcapitano at 11:39 AM on February 21, 2012


If you live somewhere like Ireland, it's hard not to think you'll be next up for whatever penance the EU decides you should pay, whether or not you can pay it.

If you live in Ireland, you're getting quiet praise for having grasped the nettle and got serious about getting the country's finances back into line some time ago. That's why the EU has kept cutting the interest rate Ireland has to pay for its relief capital, such that Ireland is only paying 2.59% now, the same as the EU itself and is therefore not being charged any risk premium by its neighbors.

You (and Merkel) have a lot to say about how Greek's should pay back their debt. When? Now. How much? All of it. Not so much to say about other countries though huh. Where does the US stand, at $15 trillion? Credit cards up the ass, real estate financing in the 90-95% range, subprime lending scandals, abysmal personal savings, broke state governments.. you act like the Greeks are exceptionally stupid and are getting their just desserts, it's that simple. Tell me more about this high horse you're sitting on, because I'm really curious why you're directing traffic on this one.

Wrong, again. I am quite OK with creditors taking a haircut, and my main concern is that this fiasco not be repeated and that the EU not be weakened. Like many people, you are looking at the absolute number for size of the debt, which is meaningless. The relevant measures are the debt to GDP ratio and GDP per capita.
posted by anigbrowl at 12:23 PM on February 21, 2012


We shouldn't underestimate the Greeks' ability to pull themselves out of this mess.
I mean, this is the country that, against all odds, managed to win the 2004 European soccer championship, meaning that they had the best soccer team in Europe and one of the best in the world at the time. And they pulled that off without any Germans on the sidelines telling them what to do.
posted by sour cream at 12:41 PM on February 21, 2012 [1 favorite]


If you live in Ireland, you're getting quiet praise for having grasped the nettle and got serious about getting the country's finances back into line some time ago. That's why the EU has kept cutting the interest rate Ireland has to pay for its relief capital, such that Ireland is only paying 2.59% now, the same as the EU itself and is therefore not being charged any risk premium by its neighbors.

Yes. It's so awesome that Ireland hasn't seen net GDP growth since 2007. But at least they get 2.59% on the debt paying for the mistakes of their bankers.
posted by Talez at 1:03 PM on February 21, 2012


Man I've had some totally bizarre conversations with the children of the Irish diaspora in NYC who made it into banking - about how the superior morality of the Irish is why they didn't default, and why the Greeks are untermenchen (not their words, mine). It was awesome. I just stood there in awe.
posted by JPD at 1:23 PM on February 21, 2012


something ironic about misspelling "untermenschen"
posted by JPD at 1:24 PM on February 21, 2012


Debt to GDP, you say?
posted by symbioid at 1:35 PM on February 21, 2012


If Greece is allowed to default and exit euro "the easy way out", Portugal, Spain, Ireland, and perhaps Italy will follow. The European banking system is heavily leveraged to sovereign debt and as of now most of these countries debts are carried at par. A default and exit would pretty much force large mark-to-market writedowns on peripheral debt and crush the banking system.
posted by H. Roark at 1:50 PM on February 21, 2012


We shouldn't underestimate the Greeks' ability to pull themselves out of this mess.
I mean, this is the country that, against all odds, managed to win the 2004 European soccer championship, meaning that they had the best soccer team in Europe and one of the best in the world at the time. And they pulled that off without any Germans on the sidelines telling them what to do.


heheh, actually their coach was german.
posted by canned polar bear at 2:58 PM on February 21, 2012 [1 favorite]


If Greece is allowed to default and exit euro "the easy way out", Portugal, Spain, Ireland, and perhaps Italy will follow. The European banking system is heavily leveraged to sovereign debt and as of now most of these countries debts are carried at par. A default and exit would pretty much force large mark-to-market writedowns on peripheral debt and crush the banking system.

Exiting the euro is not "the easy way out" by any stretch of the imagination.
posted by Talez at 3:00 PM on February 21, 2012


Yes. It's so awesome that Ireland hasn't seen net GDP growth since 2007.

After bouncing up around 6% repeatedly during the previous decade, I'm only surprised it hasn't been much worse. While no fan of the bankers, of the previous government's addle-brained decision to announce a 100% backstop for all banking liabilities, there's no denying that the country went on a construction binge. Being able to pay the baseline EU rate on outstanding government debt is going to save Irish taxpayers an awful lot of money over the rest of the decade.

Debt to GDP, you say?

Yes. You'll notice that comparison includes the EU as a whole, including countries like Germany whose fiscal health and large economy nobody seriously doubts. We're talking about Greece, and substituting the EU's debt-to-GDP ratio for that of the individual country is like substituting the Federal Government's balance sheet for that of, say, Mississippi.
posted by anigbrowl at 11:29 PM on February 21, 2012


Anigbrowl, I am so delighted that EU and the IMF are praising Ireland. Makes up for the stripping of social services, the collapse of our economy, losing yet another young generation, and more! And you know what - when they make us sell off state assets, they're actually letting us keep some of the money to spend. It's also great that they get to approve our budgets, because I know they have our best interests at heart. Not that they're said that, but I know they think it, so that's okay.

(ireland has many endemic political problems that led to the housing and building collapse. I find it fascinating that there has been not the slightest suggestion from the EU about fixing or reforming those. But they're very clear about cutting social services.)
posted by lesbiassparrow at 1:32 AM on February 22, 2012


After bouncing up around 6% repeatedly during the previous decade, I'm only surprised it hasn't been much worse. While no fan of the bankers, of the previous government's addle-brained decision to announce a 100% backstop for all banking liabilities, there's no denying that the country went on a construction binge. Being able to pay the baseline EU rate on outstanding government debt is going to save Irish taxpayers an awful lot of money over the rest of the decade.

So they've traded economic growth for a backsliding of their economy and a low interest rate on the debt they really didn't need to take on. Austerity hawks are effectively crushing the periphery economies of Europe and it's going to take them a generation to recover their social services if ever at all.

The essence of the problem is that boom times keep being squandered by populism. Instead of making hay while the sun shines and hiking up taxes on the upper end of the scale, politicians instead reduce taxes as soon as they see anything remotely resembling a surplus through extraordinary growth.

We could solve the world's energy crisis by the rolling that Keynes is doing in his grave right now. Just need some magnets and some copper wire.
posted by Talez at 7:40 AM on February 22, 2012 [1 favorite]


Spiegel Online International has some interesting views headlined 'EU Has Not Yet Faced the Whole Sad Truth About Greece'.
Also an Interview with Kenneth Rogoff who argues that Greece should be granted a "sabbatical" from the euro and that a United States of Europe may take shape far sooner than many believe.
posted by adamvasco at 9:14 AM on February 22, 2012


So - what if we had a global currency of exchange based upon all the various world currencies (or as many as feasible?) index the value of 1 to whatever counts for, the average or... median or.. something.

Why doesn't the Euro work that way, let each country have its own internal economy, and then for external trade have a standardized Euro unit that's an average of all.

Maybe I'm talking out my ass, I don't know. And there's plenty more issues at hand, and maybe this isn't even the right thread to posit this question, but ... I've always felt a sense of unease about either a purely global currency or purely local currency and I feel a sort of currency "federalism"might be the best sort of compromise?
posted by symbioid at 11:10 AM on February 22, 2012


Why doesn't the Euro work that way, let each country have its own internal economy, and then for external trade have a standardized Euro unit that's an average of all.

Because when Portugal, Spain, Ireland, Italy and Greece start printing a fuckton of their internal currencies to satisfy a budget crisis this hypothetical currency would fall through the floor lowering the living standards for every other country by making imports more expensive.
posted by Talez at 11:20 AM on February 22, 2012 [1 favorite]


So - what if we had a global currency of exchange based upon all the various world currencies (or as many as feasible?) index the value of 1 to whatever counts for, the average or... median or.. something.

Special Drawing Rights.
posted by anotherpanacea at 1:12 PM on February 22, 2012


Salary cutbacks (called "unified payroll") for contract workers at the public sector set to be finalized today. Cuts to be valid retroactively since november 2011. Expected result: Up to 64.000 people will work without salary this month, or even be asked to return money. Amongst them 21.000 teachers, 13.000 municipal employees and 30.000 civil servants.
via zero hedge
posted by symbioid at 2:21 PM on February 22, 2012


I guess what I meant by "index the value of 1 to whatever counts for, the average or... median or.. something." then all the other countries values would adjust appropriately according to whatever shift happened with the countries to keep everything in balance trade-wise?

Again probably stupid, but just an idea. I'm not smart enough to do all the mathy end of it, so yeah.
posted by symbioid at 2:29 PM on February 22, 2012


the problem with the idea is that it can't just float against the non-EU currencies if the individual countries can devalue their currency.. you can't have multiple monetary policies within an common currency zone.

You are actually doubling down on what's wrong with the Euro.

The idea of Special Drawing Rights really isn't what you are talking about. In your example the part of the basket would still be indexed to the Euro - which would be inherently unstable.

And it wouldn't just make imports expensive in Germany and the north, it would also ramp inflation there like crazy - part of why the ECB didn't react properly to issues in the South.
posted by JPD at 2:44 PM on February 22, 2012 [1 favorite]


Or put another way your idea is fine, it's just properly called the end of the Euro.
posted by JPD at 2:45 PM on February 22, 2012


I'm not sure if this is obvious or not, but this thread got me thinking that the EU need tighter political union to go along with its currency union. So why not institute a federal fiscal union with regular interstate tax/spending transfers?

Right now, there’s little financial incentive for Germany and France to continue to subsidize Greek debt, and there’s little financial incentive for Greece to remain in the Eurozone. True, German and French banks are massively exposed to the possibilities of default, and this may well preserve the union for a while; but more than a financial bailout or an economic stimulus to jumpstart their economies, I believe the whole EU needs the political stimulus that only closer federation can supply.

Where the financial incentives fail, Habermas and other Euro-optimists have always suggested that cultural commitment to the ideal of European Unity would have to suffice. The way to cement this is to create meaningful democracy at the EU level, along with the mechanisms for regular taxation and spending decisions to be made throughout the entire Union.

Currency union without political unification has always been dangerous, yet it’s common to resist a political union because sharing governance gives people outside of our communities a legal claim on our resources and rights. Still, there’s plenty of evidence that this interstate transfer is what makes the United States function. Much as we in the US hate Congress, especially the way that politicians representing values we don’t share can still govern us… we can’t be federalists without them. And as a bonus, the perpetual transfers lead to better infrastructure investments in currently low-productivity states rather than suffering from adverse selection.
posted by anotherpanacea at 3:44 PM on February 22, 2012


Yes it's totally obvious. In fact it's what critics of the Euro project have been saying for 20 years
posted by JPD at 4:55 PM on February 22, 2012


Oh well. I guess I'd rather be right than novel. If it's so obvious, why haven't Germany et al realized it?
posted by anotherpanacea at 5:37 PM on February 22, 2012


It isn't exactly a political winner.
posted by JPD at 6:01 PM on February 22, 2012


Public choice strikes again!
posted by anotherpanacea at 3:35 AM on February 23, 2012


via Yves Smith:

An interview on Democracy Now w/the Beeb reporter...

"Mason also discusses how this program is radicalizing the public. Communists, Trotskyists and other extreme-left groups are polling at 43%."
posted by symbioid at 8:50 AM on February 23, 2012


So they've traded economic growth for a backsliding of their economy and a low interest rate on the debt they really didn't need to take on.

...but the debt that they chose to take on regardless, despite more cautious voices urging that it would need to be paid back at some point and that growth was in no way guaranteed to exceed the cost of this.

The essence of the problem is that boom times keep being squandered by populism. Instead of making hay while the sun shines and hiking up taxes on the upper end of the scale, politicians instead reduce taxes as soon as they see anything remotely resembling a surplus through extraordinary growth. We could solve the world's energy crisis by the rolling that Keynes is doing in his grave right now. Just need some magnets and some copper wire.

This, I certainly agree with. To the extent that governments have control over economies, it's somewhat like the gas pedal (accelerator) and the brake. If one keeps accelerating on a downward slope (of easy credit and smoothly rising asset prices), then eventually one risks driving the economy into the ditch, from whence it must be slowly and painfully pulled out. Ideally, during a global economic slowdown, you'd want to have more stimulus spending by government to make up for the reduced spending by the private sector, but to do that consistently you need a prudent government that, as you say, makes hay while the sun shines. If people persist in electing populist governments that promise to let the good times roll, then they're going to end up paying higher costs when the good times come to a halt.

I think the main reason you're not seeing riots in Ireland, but rather general compliance with EU and IMF requests, is that enough people remember previous boom and bust periods like the 70s and have decided they're willing to pay the cost now over a shorter period. The economic climate not is not dissimilar to that which brought Garret Fitzgerald into office at the head of Fine Gael a few decades back.

Currency union without political unification has always been dangerous, yet it’s common to resist a political union because sharing governance gives people outside of our communities a legal claim on our resources and rights. Still, there’s plenty of evidence that this interstate transfer is what makes the United States function.

Quite so. I don't think it's the case that Germany or France have failed to realize this; they've floated the idea of a more federal EU with pooled sovereignty many times before but it is typically shot down with complaints about a 2-speed Europe and so on. Germany is acting indifferently to the idea at present, because the idea of pooled sovereignty is less attractive when all the water comes out of Germany's pond. It's hard to say how it would have played out if history had been different, but the populist opposition to the Lisbon treaty and the resulting fracturing of European political consensus seem to me to be partly at the root of today's troubles. If government and eurofederalists had more persuasively made the case that a shared European identity is as important as a longstanding national identity, and that the glorification of sovereignty is often a proxy for selfishness, then there might be a Eurobond system in place by now (at best) or there might at least be a clearer consensus among European leaders about the goals and methods of fiscal policymaking.

As JPD says, 'you can't have multiple monetary policies within an common currency zone.' If monetary policy is used primarily as a hedge for poor fiscal policy, then entering into a currency union (in pursuit of the lower transaction costs and increased economic activity that that enables) is going to bring out the deficiencies in a country's fiscal policy in fairly short order. All the people proposing that Greece leave the Euro are essentially abandoning the idea of a healthy balance sheet for choosing a different number base (as well as indirectly handing money to currency arbitragers), while those arguing that all the debt should be forgiven (rather than approximately half) seem oblivious to the fact that the countries in question are still going to need to borrow money for capital improvements (such as infrastructure) in the future, and that the choice of restructuring or default is going to be factored into the cost of that borrowing.
posted by anigbrowl at 6:56 PM on February 23, 2012


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