Greek games and scenarios

by Daniel on January 25, 2015

Early news reports seem to be pretty clear that Syriza has won the Greek elections, so I thought CT readers might be interested in the following note, which I sent to my professionals’ mailing list a few weeks ago. Since I wrote it, there has been a lot of rather contradictory comment on what the party’s negotiation strategy might actually be, but nevertheless, it certainly seems that the “ultimatum” approach to debt reduction is very much on the table, and in any case, a dogmatic refusal to continue with past agreements on structural measures would end up having the same effect.

GREEK GAMES AND SCENARIOS

1.

In the last issue in this series, I made a few predictions around the general theme of my prediction that the resolution of the European stress tests would remove a significant supply constraint and lead to credit growth in 2015e that would surprise everyone. Specifically I was looking for a) large takeup of the second tranche of TLTRO, b) a step jump up in measures of bank sector risk appetite and c) strong lending growth starting Q1 15e. I count that so far one loss, one win and one yet to be decided. The sector is so awash with cheap funding anyway that TLTRO excess was hardly needed (and the carry trade is unprofitable given higher capital charges and lower yields on government debt), so it was always a bit of a daft idea to make that a success criterion. But the risk appetite measures and lending surveys are all going in the right direction. So I am still broadly happy to be predicting a strong credit recovery for Euroland in 2015e.

2.

But the clear risk to that forecast is another go-around with a sovereign Eurocrisis like we had in 2011-13. And in turn, the clear risk of that is that Syriza wins the election early in 2015 and starts on the program of “create a load of chaos in Euroland in order to get concessions” which it has been indicating (and occasionally and rather scandalously, pretending that it isn’t). So it’s worth wargaming out what the various parties might be thinking and how their strategies might interact.

3.

One thing it’s important to make clear is that the European policy makers aren’t stupid. I have lost count of the number of articles I’ve read where some opinion columnist or other acts as if the fact that Greece’s debt burden is unsustainable and cannot ever be repaid is some special insight available only to readers of his newspaper, and that the benighted fools of the Commission, ECB and Eurogroup are so ideologically blinkered that they can’t see this obvious fact. Often enough, this piece of pontificating is attached to some distinctly dodgy theorising about the peculiar national characteristics of “Germans”.

The fact is, everyone knows that the total burden of Greek debt is too big to be serviced by the Greek GDP, and that if it isn’t written down, then Greece will always be reliant on an increasing stream of official financing to meet its roll-overs. Everyone also knows, although some of them might not be ready to admit it to themselves, that an indefinite commitment to financing the roll-over of an ever increasing debt burden is a fiscal transfer in all but name. The thing is, though, while the Eurosystem bureaucrats know this at least as well as anyone else, they have jobs in which they can’t simply bemoan the fact in print, then submit their copy and go off to think about something else.

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills. There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s. Seeing the peripheral Eurozone debt in isolation from the politics of European integration is a sure way to lead yourself up blind alleys.

It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem. The people who don’t understand it are the ones writing editorials in the business press which support the debt reduction but don’t think that Syriza should be given carte blanche to do everything it wants.

4.

So, the question is – does Syriza have any way of getting itself into a position where it can make the Eurosystem do something that they really, really don’t want to do? It’s not that hard to see what Tsipras’ line of reasoning is:

i. The Eurosystem bureaucracy’s entire reason for existing is to ensure the continued existence of the Euro.
ii. If Greece leaves the Euro it will cause a financial crisis in Euroland
iii .A financial crisis in Euroland would immediately spread to Spain and thence to Italy
iv. In the event of a financial crisis in Spain and Italy, the Eurosystem would be at real risk of seeing the currency break up, and would have to agree massive and immediate fiscal measures to prevent this
v. So, present them with a fait accompli on the debt default, and gamble that they will not have the nerve to take measures which might have the effect of forcing Greece out of the Euro
vi. Specifically, default and then finance the deficit by selling short-term Treasury bills to the banking system, who will finance them at the ECB
vii. This effectively puts the ECB in the position of having to either cut liquidity provision to the Greek banking system (which triggers Greek euro exit), or to effectively finance the Greek deficit.
viii. In this doubly intolerable situation, you can presume that the ECB will preserve its own position by forcing the rest of the Eurosystem bureaucracy to come up with a fiscal solution that doesn’t involve the ECB.
ix. And Greece is small enough that it is always going to be less trouble to finance their problems than to deal with the consequences of not doing so.

As a strategy it is …cute. I think it might even have worked if tried three years ago; as far as I can tell, something like it was the unspoken threat under the table which led to the restructuring of the Irish bailout liability. You can see that it’s a blackmail game that is best played by a left-wing populist, because in order for the threat to be credible, it needs to be made by someone who is not susceptible to apocalyptic warnings and who is even prepared to dice with the prospect of actual bank runs. I can entirely see why it’s attractive to Syriza and why Tsipras has made it a constant theme of his recent rhetoric that Greece is in a stronger negotiating position than it realises.

5.

But this isn’t three years ago, and I think that if faced with this sort of behaviour by a Syriza government, the ECB would definitely decide to call the bluff. Reason basically being that a huge amount of work has been done precisely to reduce the dangers of this sort of contagion:

i. The ECB is now lead supervisor for any bank in Euroland which it wants to be. Greece couldn’t simply rely on the local banks to take up the T-Bill roll.
ii. The rules on liquidity provision have been tightened up significantly since the days in which the Central Bank of Ireland was able to effectively act as lender of last resort and then tell Frankfurt what it had done later.
iii. Most importantly, banking sector collapses are much less frightening to the Eurosystem bureaucrats than they used to be.

That last point could probably do with a bit of amplification.

6.

Here’s something which struck me when I was putting together an end of year review of developments in bank regulation. Euroland had a real, credible stress test and it wasn’t the one that we were all looking at. The real stress test in 2014 was the restructuring of Banco Espirito Santo.

What do I mean? Well, the key to understanding stress tests, as I’ve been saying for years, is to remember that they’re not a test of the banking system; they’re a test of the bailout system. The purpose of a stress test isn’t to bore the pants off us with megabytes of accounting data telling us things we already knew. The purpose is always to put the weakest banks in the system into a position where they need to be recapitalised, and thereby to demonstrate that the system is capable of dealing with capital shortages, and doing so without an unreasonable fiscal burden.

The AQR didn’t really do that – it was a perfectly good exercise of its type, and as I wrote in October, it performed admirably in giving a regulatory “seal of approval” to the solvent banks, but it didn’t really generate any self-inflicted crises, so it wasn’t able to demonstrate that the Euroland Banking Union was capable of dealing with crises.

On the other hand, the quick and brutal treatment of BES demonstrated that even in a comparatively large European bank, and even in one of peripheral Europe’s shakiest fiscal systems, it was possible to carry out a refinancing and resolution over a weekend, with legal certainty and without contagion to other banks or interruption of vital services. That’s the stress test which matters.

The successful outcome from BES must surely encourage the Eurosystem policy makers to think that Greek euro exit, if it happens, could be contained. It’s no longer all that likely that any Euroland bank has big enough Greek exposure to knock over its capital, and even if there is a genuine liquidity squeeze, the ECB can pour out liquidity support much more aggressively than it did in 2011, because it knows that its own balance sheet risk is small. In 2011, the ESCB’s unsecured funding was at risk of loss, because in the event of insolvency it would be just another unsecured creditor in most European legal systems. In 2015, the new structures of the Bank Resolution and Recovery Directive means that the ECB, along with all other short term and interbank creditors, get to effectively jump the priority structure by putting banks into BES-style resolution, making themselves safe by hosing the long term creditors without ever letting them see the inside of a bankruptcy court.

7.

So my guess is that Tsipras’ strategic chain described in section 4 above breaks own pretty early on – the ECB and the Eurosystem structure don’t think that he’s got a credible threat of being able to cause the kind of chaos that could lead to the Euro entirely breaking up. So game over? I think not because there are two further strategic wrinkles.

i.Although Greece can no longer destroy the whole Euro, they could certainly create a situation in which they end up being forced out themselves. This wouldn’t be disastrous, but it would be annoying for the Eurosystem bureaucrats. Their long term goal is, remember, for the Euro to cover as much of the EU as possible, and that goal has been going surprisingly well – in the last two years they’ve actually gained two members in Latvia and Lithuania. But if you lose Greece, my intuition is that you can forget about Poland. It’s worth remembering that the “ever closer union” is essentially an Empire-building project, and if you’re building an Empire, you don’t let yourself lose provinces just because they’re a pain in the neck.
ii.And given (i) above, it matters that Tsipras might not be aware that he is bluffing a pair of deuces. If he genuinely believes that the Eurosystem will give in, it is in his interests to create a situation in which Greece could end up being forced out of the Euro, even though this is an outcome that nobody actually wants.
iii.And of course, even if Tsipras understands that the game is up for the strategy in section 4, it’s in his interests to pretend otherwise.

8.

So the situations worth considering are (in the event of a Syriza victory):

i. Syriza effectively crumbles. The radical version of their strategy, with doubling of the minimum wage etc, is given up on, in favour of some broad and face-saving qualitative adjustments to the program. There is no debt default, no meaningful face-value reduction and things continue much as they were in the status quo ante (which, recall, did actually have Greece getting back to growth).
ii. Syriza plays the “madman strategy” and Greece leaves the euro. This would be the mother of all buying opportunities, in my view, as it would surely be associated with a massive risk-off trade, but the market would be quick to subsequently realise that the actual effect on the Eurozone was heavily quarantined.
iii. Syriza plays the “madman strategy” and gets given meaningful concessions to keep it in the Euro. One would expect this to be associated with a lot of self-congratulation from the ECB and repetition of “whatever it takes” speeches, and the end result would be to either monetise or mutualise a load of the Greek debt burden. This would be very bullish too.

So my view is, I guess, that if you can close your eyes and open them again in January 2016, you buy Eurozone risk and hold it. How many of us are so lucky – not one in ten thousand I guess. So I would suppose that the best trading strategy would be to keep some powder dry. It should be noted in that context though that the risk in Greece is much more quarantined than people necessarily realise. So non-Greek peripheral credit looks like it could be cheap, and potentially a way of parking cash somewhere without equity downside but some share in the upside when things get resolved and the market snaps back.

{ 320 comments }

1

Roger Gathmann 01.25.15 at 11:56 pm

Wow, German acquaintances are comparing the political situation in Greece in the 90s and 00s to that of Wilhelmine and Nazi Germany? Hmm, I’m not sure how this fits with your idea that the EU officials aren’t stupid, or that this is distinctly dodgy theorising about the peculiar national characteristics of “Germans” is wrong. I don’t think you need to talk about peculiar national characteristics of Germans, but certainly of the German elite, which seems, well, Wilhelmine.

2

duaneg 01.26.15 at 12:12 am

Eh? No: they are comparing it to the post-war reconstruction period.

3

duaneg 01.26.15 at 12:18 am

Ah, sorry, I see I misunderstood your point.

However, I still don’t see that them comparing the situation now with reconstruction implies they think preceding periods were comparable.

4

stevenjohnson 01.26.15 at 12:22 am

Two thoughts come immediately to mind.

Although there are those of us who have believed for years that the imperialist bourgeoisie wants massive unemployment; massive cuts to social spending; ever increasing reliance on regressive taxation; delegated management of economic affairs to private hands; increased police powers to regulate the rest of the population..that is, that what is happening to Greece is not a problem but a benefit, at least until this sort of thing inexplicably (to that sort of person) causes the only real kind of financial crisis, namely, lost money for the owners…well, it’s always useful when people are straightforward about it.

And the second thought is that it would be just as useful if these people were equally straightforward about the plans to punish the Greek population as a whole. As is, Syriza, as a resolutely antiCommunist organization not only hasn’t prepared itself for a real struggle (and hasn’t a clue about how to do that,) it has misled itself about the nature of the problem. See the Jacobin website for a thorough (and thoroughly depressing) expose of Syriza delusions. It is probable that at least some of the cliques pulling strings in Syriza have every intention of doing the cunning thing and save themselves, but the true believers show no indication of having a learning curve.

However, I must say that the supposedly intelligent overlords of Euroland will still find that even thought they will likely carry out their nefarious schemes, somehow, inexplicably, their successes will still somehow fail to tame the business cycle. The delusion that the current cycle is an eon in itself never fails to regenerate itself. And, their successes won’t help them compete with the US and its reliance on war and blood either.

5

Micheal Lunny 01.26.15 at 12:31 am

One thing it’s important to make clear is that the European policy makers aren’t stupid.

It must be bad luck that explains the wretchedly high unemployment and political instability in the Eurozone then.

6

Roger Gathmann 01.26.15 at 12:36 am

5., Felix Salmon thinks that the problem isn’t that we under-estimate the intelligence of the EU establishment, but that we grossly over-estimate it. I’m inclined to think he’s right.
http://fusion.net/story/40402/how-stupid-is-a-davos-audience-anyway/

7

Roger Gathmann 01.26.15 at 12:39 am

PS, well, that perhaps I am exaggerating his position. Salmon does think that, outside of contexts where they are supposed to be thought leaders, the EU and CEO establishment is competent.

8

Bruce Baugh 01.26.15 at 12:54 am

Agreeing here with Micheal Lunny@5, there’s a realm where it hardly matters whether someone is “stupid” in any general way if their actions reliably and predictably produce harm they deny or always deny responsibility for, and who keep pressing for the same kind of thing without regard for the history of outcomes so far. Stupidity, incompetence, hidebound indoctrination, maliciousness, and several other qualities blend together after a while, in much the same way that very diverse diseases can produce very similar symptoms.

9

Nine 01.26.15 at 1:01 am

“However, I still don’t see that them comparing the situation now with reconstruction implies they think preceding periods were comparable.”

If they are not comparable then why are they comparing them ?

Quote –
” it got it in the context of an equally massive national admission that the entire political system was rotten”

10

Ronan(rf) 01.26.15 at 1:11 am

“As a strategy it is …cute. I think it might even have worked if tried three years ago; as far as I can tell, something like it was the unspoken threat under the table which led to the restructuring of the Irish bailout liability. “

Not to get too parochial and drift away from the bigger picture, but would you mind expanding on that a little? I think you’ve said it before, that there was a threat(or at least it was implied) of default by Irish negotiators, and that it lost them goodwill in the long run of the Troika negotiations ?
I don’t understand the economics or the politics of the situation at all(they became too complex and I lost interest/couldn’t keep up with the specifics) but there appears to be something in the Irish negotiating strategy that irks you (I think, apologees if that’s overstated) and I’m just curious what it was ?

11

MPAVictoria 01.26.15 at 1:54 am

“I think it might even have worked if tried three years ago”

I am sorry if I am misremembering but three years ago didn’t you tell me that I was an idiot (paraphrasing ;-)) for suggesting just that course of action was what Greece should have done?
/The Atrios plan if you will.

“It must be bad luck that explains the wretchedly high unemployment and political instability in the Eurozone then.”

Yeah pretty much. I mean they did demand a raise in interest rates at the worst possible time…..

12

Dave 01.26.15 at 1:55 am

@Daniel/OP, I admittedly am no expert on the financial situation of Northern European banks (haven’t really followed the stress tests, haven’t put the effort into understanding the intricacies of banking union etc).

That said I wonder if the Troika isn’t a little more afraid of Greek default than you suggest. You rightly point out that the debt situation can’t be viewed independently of the political situation. So with that in mind, it seems to me there are major political risks inherent in the Troika’s calling Greece’s bluff.

1) if Syriza’s bluff is called, lets say it tries to save face and apply more-or-less status quo policies. The party would collapse, and it becomes clear that no democratic choices can spare people from this level of suffering not just for now, but for a generation. It seems to me socially inevitable that this will eventually lead to some kind of severe democratic breakdown, the rise of Golden Dawn and/or a military coup. It goes without saying that this would pose an array of severe problems for EU structures.

2) For the EU establishment, there is a two-way risk related to the rise of populist parties. They are obviously terrified about the moral hazard problem: if they bend too far to Syriza, then Portugal/Ireland/Spain/Italy all line up for debt write-downs as well. But if EU institutions don’t show that they can accommodate the objections of pro-EU parties like Syriza, then this gives even more fuel to overtly Eurosceptic populist parties. If I’m in the Eurobubble right now, probably the two biggest existential fears I have are the Front National winning the next Presidential elections in France, the Eurosceptic bloc in the European Parliament getting so big as to render it unworkable.

3) Separate question, since you seem to be generally well-informed on the situation. I get that there have been lots of moves behind the scenes to prepare for a potential Grexit. But what is going to stop a run on peripheral debt if Greece defaults and leaves the Euro? Is the idea that OMT/’do whatever it takes’ is enough to prevent that on its own?

13

The Raven 01.26.15 at 2:05 am

“the European policy makers aren’t stupid.”

Are they evil, then?

14

ZM 01.26.15 at 2:42 am

Reading the OP I was wondering what if any impact the two big conferences this year – on sustainable development and climate change – would potentially have on the Greek scenario.

One interesting thing I found with a quick look was that some countries in the UN wanted to put fair debt “workout mechanisms” in the sustainable development goals – but a group of countries including Australia and the UK blocked the proposal, but Ban Ki-moon is likely to ensure the issue gets raised again in September:

“The United Nations Intergovernmental Committee of Experts on Sustainable Development Financing has identified debt sustainability as one of the key financing challenges facing countries in the meeting of new Sustainable Development Goals, to be adopted in 2015. However, recommending the creation of a debt workout mechanism was blocked by the governments of France, the UK, Australia and Japan. The Sustainable Development Goals are due to replace the Millennium Development Goals when they expire in 2015.

The United Nations Intergovernmental Committee of Experts on Sustainable Development Financing has identified debt sustainability as one of the key financing challenges facing countries in the meeting of new Sustainable Development Goals, to be adopted in 2015. However, recommending the creation of a debt workout mechanism was blocked by the governments of France, the UK, Australia and Japan. The Sustainable Development Goals are due to replace the Millennium Development Goals when they expire in 2015.

The report of the experts, released on 8 August, says that:

“Sovereign debt crises severely impede nations’ efforts to finance sustainable development, with debt crises often leading to a spiral of capital flight, devaluations, rising interest rates and unemployment. Effective debt management to prevent debt crises is recognized as a priority.”

And that:

“Many debt restructurings are considered insufficient and are often delayed, with high costs for the populations of debtor countries. Recent developments with regards to Argentina’s holdout creditors have led to a deep concern about the ability of holdout creditors to derail the success of a debt restructuring, both for developed and developing countries.”

Many countries, thought to be led by Venezuela, Costa Rica, Serbia and Uruguay, pushed for specific language on the need for a fair debt workout mechanism to be included in the text. However, the governments of France, the UK, Australia and Japan blocked it. This leaves the report making the more than underwhelming suggestion that the “international community” should “continue ongoing efforts to enhance the existing architecture for sovereign debt restructuring”.

It is thought likely that UN Secretary General Ban Ki-moon will include the call for a debt workout mechanism in his report, ensuring it stays on the table for the negotiations over the next year on how to implement the Sustainable Development Goals.”

http://jubileedebt.org.uk/blog/un-experts-blocked-making-debt-proposals

15

Cranky Observer 01.26.15 at 3:01 am

= = = Everyone also knows, although some of them might not be ready to admit it to themselves, that […]= = =

Somewhat difficult to tell from the outside the difference between someone not knowing something and knowing it but not admitting it to themselves. Presumably those at the very peaks of the financial world, the Princes of Wall Street as some call them, have a special type of sensory perception that allows them to make these distinctions.

Sometimes something that stinks is an exotic ingredient for a delicious made dish. Sometimes it is a lump of dog excrement that adhered to one’s shoe unobserved. Hard to tell indeed…

16

Peter T 01.26.15 at 3:06 am

If you argue, as the OP does, the the euro project is more political than economic, then you have to take the political as well as economic consequences of Syriza’s victory into account. I don’t know enough to hazard a guess, but stonewalling Syriza might as easily spread the revolt to Italy, Spain and, in a different way, to Britain, as accommodating its demands. Either way, it’s clear from the level of support for other “maverick” parties that the overall project will have difficulty sustaining itself politically without major adjustments.

17

Bruce Wilder 01.26.15 at 3:06 am

There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help . . .

“massive national admission” = unconditional surrender at the end of a world war in which 20 millions plus were killed

Lovely.

18

The Raven 01.26.15 at 4:04 am

Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help

But is this not where Greece is now? Is not the problem is that what the ECB wants for Greece, politically, is a disaster for most citizens of Greece?

19

ckc (not kc) 01.26.15 at 4:36 am

…the entire political system was rotten and needed to be totally restructured with foreign help

It’s tempting to say “here’s what you need to do to run your holocaust properly next time”, but that’s a bit cruel.

20

Peter K. 01.26.15 at 4:50 am

@stevenjohnson #4

“As is, Syriza, as a resolutely antiCommunist organization not only hasn’t prepared itself for a real struggle (and hasn’t a clue about how to do that,) it has misled itself about the nature of the problem. “

They did manage to win an election, unlike the Jacobin magazine. And

“Although there are those of us who have believed for years that the imperialist bourgeoisie wants massive unemployment; ….”

No, pace D-squared they’re stupid. They have their short-term goals and priorities and they have the ideology of “Very Serious People” but otherwise they’re stupid and short-sighted.

The epic housing bubble and financial crisis were not orchestrated. It was a huge black eye, ideologically speaking. Also see the Great Depression. The slow-recovery was in a way planned, but the IMF predicted growth for Greece, not a 20 percent reduction of the economy. If they were evil, they’d come out and say it.

So yeah it will be interesting what happens in a year or two. It really depends on the Germans. How much will they give to save the Europroject? I bet Syriza asks for a lot, and if they are successful the Germans have to know, Greece will inspire other nations of the periphery. And so really the question is how much is too much for the Germans in their estimation of keeping Spain and Italy and (?) France in the fold? How much will the total bill be?

And so maybe they will let Greece go and again pace D-squared – who it being pleasantly trolly here I believe – it will get out of hand. The bureaucrats are stupid. The financial markets are full of greedy, panicky, venal people. Just look at 2008. Yes 2008 was a dry run as was 2011-2013, but in some ways the stupid bureaucrats got lucky. So no matter the stress test things will get out of hand if the Germans decide to call Syriza’s bluff. And yes eventually they’ll get things under control as they did in 2008, but this time we’re starting from a lower baseline. The periphery is supposed to go from 25 to 50 percent unemployment? But Greece will be better off. I’m hoping the Germans give in and this sparks tougher negotiations from the rest of the debtor nations.

21

Peter K. 01.26.15 at 5:02 am

I asked “How much will the total bill be?” for the Germans but the bright side is, it will cost them less financially speaking then they believe. The ECB can print money. A growing Greece helps the debt/GDP ration. Etc. The problem is that they imagine it will cost a lot more. Another is that they see it as “monetary socialism.” So will the cost be too much for them to bear, ideologically speaking? So if the imagined costs are too high, not the real costs, they’ll let Greece go. But if they go ahead and give, the costs will be less than imagined.

22

john c. halasz 01.26.15 at 5:05 am

” There is no debt default, no meaningful face-value reduction and things continue much as they were in the status quo ante (which, recall, did actually have Greece getting back to growth).”

Umm… Greece returned to “growth” because 1) the rate of deflation was greater than the rate of contraction of NGDP, so that counts as “real growth”, even though the debt burden operates on nominal terms. and 2) the rate at which fiscal contraction occurred in order to achieve a primary budget surplus decreased this year, though still negative, so there is an automatic rebound effect from the much lower degree of fiscal contraction. But any large rebound from depressive stagnation is not to be expected from current terms and conditions, after a 25% contraction in GDP, so slow growth, even if it were to continue, hardly ameliorates the plight of the vast majority of Greeks.

I’d rather take my commentary on Greece’s economic condition from Yanis Varoufakis, who likely got elected yesterday, than from Daniel Davies.

23

MPAVictoria 01.26.15 at 5:19 am

“Umm… Greece returned to “growth” because 1) the rate of deflation was greater than the rate of contraction of NGDP, so that counts as “real growth”, even though the debt burden operates on nominal terms. and 2) the rate at which fiscal contraction occurred in order to achieve a primary budget surplus decreased this year, though still negative, so there is an automatic rebound effect from the much lower degree of fiscal contraction. But any large rebound from depressive stagnation is not to be expected from current terms and conditions, after a 25% contraction in GDP, so slow growth, even if it were to continue, hardly ameliorates the plight of the vast majority of Greeks.”

Yep.

24

Daniel 01.26.15 at 5:56 am

I’d rather take my commentary on Greece’s economic condition from Yanis Varoufakis, who likely got elected yesterday, than from Daniel Davies.

Well why don’t you go and comment on his blog then. Please don’t comment on my threads here any more.

25

Belle Waring 01.26.15 at 5:58 am

“It’s tempting to say ‘here’s what you need to do to run your holocaust properly next time’, but that’s a bit cruel.”

In the immortal words of Pogo: “Pos’man, you is harsh, but just.”

26

Meredith 01.26.15 at 5:58 am

I get really so tired of the politics of my fellow Americans in states like Florida and Idaho, but here in Massachusetts I pay higher federal taxes anyway just to help them out of their often self-inflicted difficulties.
Taxation without representation…. How about monetary and fiscal policy without it? Germans dictating to Greeks and Italians and Spaniards sounds all too familiar, chillingly so.

27

ifthethunderdontgetya™³²®© 01.26.15 at 6:10 am

“Let the little people suffer” is the go-to strategy for our global elites when they want to prove their courage. Or get out of bed.
~

28

TM 01.26.15 at 6:18 am

The news of Syrizas victory has pushed the Euro down which is good news for Germany. The German media as far as I can tell are truly obnoxious (just as US media are obnoxious about pushing for a strong dollar) but should the captains of industry really put ideology over profit?

29

TM 01.26.15 at 6:19 am

24: Not cool.

30

tony lynch 01.26.15 at 6:27 am

You OK Daniel?

31

Bruce Wilder 01.26.15 at 7:12 am

Peter K.: The epic housing bubble and financial crisis were not orchestrated.

I can not imagine what you mean by this assertion.

Peter K.: If they were evil, they’d come out and say it.

Because that’s what evil people do? Clearly state their intentions?

I’m honestly struggling to make any sense at all of your comment.

32

RoyL 01.26.15 at 7:18 am

26. Meredith, I pick this out because this sort of rhetoric is poisonous not only to the American Union, but also because it has the sort of preening arrogance that has destroyed the left in much of the High Plains and Mountain West.

64% of the land in Idaho is owned by the Feds, part of which is a hugely contaminated nuclear site, the extent of this is so great that it was more than a century before there was a road connection between the Northern part and the state capital because the Feds wouldn’t release the land. Idaho is also barely on the receiving end of all that Federal wealth and is a remarkably poor state, and has been since the 1940s when it was a Progressive bastion. It is also home to some spectacular Federal incompetence such as the Teton dam. The sagebrush rebellion that took Idaho from the state that elected Frank Church to the far right occurred because Federal regulations were being made with no consideration of the facts on the ground in places like Idaho and the end of mining in the state destroyed what was left of its organized proletariat. Since then the chief Federal aid the state gets is to create resorts for the 1% and further contaminate the state.

The EU has never exercised the kind of Imperial domination over its members than the US government has over the state of Idaho, which has regularily declared the least politically influential state. By the way do you know what state is the biggest giver and smallest receiver of Federal money? It is Delaware a state that has done far more to exploit the poor than any Idahoan could even imagine.

Greece’s elites have created most of the country’s problems and chose freely to do so, even Simplot or Albertson , Idaho’s own plutocrats, has ever had the agency of Greek elites. Whether Syriza fails or not, it has a lot more power to decide Greece’s future than Idaho does.

33

Bruce Wilder 01.26.15 at 7:37 am

RoyL

Idaho has little power to control Greece’s future. I’ll write mother and let her know.

34

Zamfir 01.26.15 at 9:23 am

And so really the question is how much is too much for the Germans in their estimation of keeping Spain and Italy and (?) France in the fold? How much will the total bill be?
Just because the EU and euro have imperial tendencies, doesn’t mean those are mostly German tendencies. Let alone Bundesbank tendencies. The bundesbank was always quite happy with indirect power. Before the Euro, other European countries had to adapt to their policies anyway, without influence .

So, I wouldn’t discount the desire from other countries to keep in the fold, relative to the German desire to keep them in. Or in other words: suppose the Euro collapses. No one expects that work out well in the short run. But who do you think is most confident about their long-term monetary prospects outside the Euro? The Germans, or the others?

35

JohnD 01.26.15 at 9:48 am

I think the point of stupid versus not-stupid, as regards the leaders of the European financial system should probably be seen on multiple levels. There are certainly questions to be raised about their overall objectives and strategy, and the system has trouble making decisions quickly. But I think that Daniel is right to say that given 3 years to create a careful fallback plan, the Eurosystem elite will probably prove competent in executing it.

The only thing I mildly disagree with is that I don’t think that EU leaders is willing to go to great lengths to keep Greece in – the country seems to be of just the right size (and geographically sufficiently remote) to be an object lesson in ‘Very Bad Things that Happen when you Leave the Euro’, especially given the insulation that’s been put in place around the core system. I suspect a UK analogy would be the Miners’ Strike of ’84, as opposed to the Miners’ Strike of ’73.

36

Peter T 01.26.15 at 10:03 am

“Stupid” is not a useful term here. I don’t know of any political leaders who think the earth is flat, but there are quite a few who think it is only a few thousand years old, that species don’t evolve, that the physical facts that keep Coca-Cola solvent and planes in the air are suspended if they imply a limit to burning coal and so on. In my time I have met quite a few who are wedded to equally bizarre notions about the economy or society, or about people of classes they never meet. In these ways, they can be as strange as people who believe that Napoleon talks to them in dreams, or that chickens are the secret rulers of the earth.

37

Ben 01.26.15 at 10:17 am

Perhaps you covered this and I am too stupid to understand, but I don’t really see why Greece can’t straight default and ask to remain within the Eurozone.

Like Italy they are running a primary surplus so would be in good shape if debts were written off, since they wouldn’t need to borrow, no? Of course nobody would lend for the next two decades, but if you don’t need to borrow that doesn’t matter.

But you are arguing (if I get it) that rather than allow Greece to default honestly and stay in the euroclub, they will try to get Greece to (continue to) submit to massive amounts of intervention, while defaulting de facto by actually paying neither the capital nor the interest payments (which will be rolled up and rolled over until the next crisis).

So why can’t the new government just say “we can’t pay and never will, we aren’t going to pay any more interest either, so kick us out of the Euro or don’t, up to you”? What does the Greek government have to gain by adopting the rollover/covert default strategy as opposed to overt default? The only possibility I can see is that they will be allowed increase borrowing, not just roll it over. What else is there to bribe them with?

38

ZM 01.26.15 at 10:34 am

“Of course nobody would lend for the next two decades, but if you don’t need to borrow that doesn’t matter.”

From what dsquared wrote in his Aunt Agatha analogy piece he tweeted about , I gather Greece does need/want to borrow further for somethings as they can’t afford these things (in the analogy this is a language class but I don’t know what in real life), and also that it is a bad idea to get the Euro people offside potentially for the long term by defaulting/exiting in order to solve this shorter term issue of debt

https://medium.com/bull-market/greece-the-eu-and-aunt-agatha-ea6d79c0bdd3

39

Ck 01.26.15 at 10:55 am

Ben, my understanding is that they’ll be defaulting on the ECB, the institution on whom their banking system depends to keep the lights on . The thinking is that the ECB would cut them loose and they would be forced to start printing dramachas to have a unit of account.

40

Metatone 01.26.15 at 11:28 am

Thoughts:

1) In line with some other commenters, I suspect that Tsipiras thinks he has a stronger position because of reasoning like:

“no finance official wants to make a call with the _political_ consequences of the size of kicking someone out of the Eurozone.”

The stress tests may indicate the Euro system would not crumble financially, but “Greece out” is quite possibly the beginning of the end of the political project for at least a generation. Of course, that punts it to the political leaders: Merkel, Hollande, etc. Whether that’s a good idea or not, I’m not sure – but I imagine Tsipiras has done his best to think it through…

2) As Ben notes, there are a number of ways to at least confuse the issue – which amounts to amplifying the threat of “making chaos.” Part of the calculus here is that it’s absolutely in Tsipiras’ political interest to make sure that whatever happens, if life in Greece is going to get worse/stay bad, he has to make it look like the fault of the Eurocrats.

And this I think is key – he may be in a no win position, but he has nothing to gain by preserving 25% unemployment, Eurosystem support for corrupt Greek oligarchs, Billion dollar arms sales from Euro countries to the Greek army, etc. He pretty much has to do something to distinguish himself from the political centre…

41

QS 01.26.15 at 12:22 pm

The “we’re not paying; your turn” strategy may cover both of Syriza’s bases, which is to stand up to the ECB while nominally remaining pro-euro. It shunts the decision to retain/boot Greece from the currency union back into Europe.

42

jackrousseau 01.26.15 at 12:25 pm

Does anyone else think it’s cool that Varoufakis gets to go from being the academic who genuinely, accurately and passionately rages against awful EU policy for the better part of a decade on lesser known blogs and such, to being possibly (I’ve heard he’s tipped for Finance Minister, which would entail a good deal of power here) one of the people with the biggest opportunities to change it?

It’s just one of those things that doesn’t happen very often. Usually modern politics is not supposed to admit such possibilities, right? Gives one hope.

43

William Timberman 01.26.15 at 12:26 pm

Let’s see if I’ve got this right: Having staved off the Greeks long enough to ensure that their own balance sheets are no longer vulnerable to Syriza’s threats, creditors, i.e. bankers are still in the driver’s seat. As did his predecessors, Tsipras will make enough noise and stink to hoodwink his constituents, then submit to administration from Brussels because Europe must go on, and Europe can’t go on if Greece and the Greeks, who are, after all, relatively insignificant in the grand scheme of things, are allowed even the appearance of a successful populist intervention. We mustn’t, after all, let the Italians and Spaniards toy seriously with any ideas above their station. German self-righteousness is excused by history, Greek rage is not. Which is clearly as it should be….

I realize that this piece was written for a professional, and therefore somewhat more realistic, i.e cold-blooded audience, but even so….

44

Elliot Grant 01.26.15 at 1:50 pm

As Daniel rightly says, what happens now will be a matter of politics rather than economics. So the views of the pundit economists which have been appearing in the media carry no special authority. My views certainly don’t carry any authority at all; but for what it’s worth I think that there is some space between Daniel’s first option (Syriza crumbles) and his second two (Syriza maintains a madman strategy). Politicians can, if the need arises, be resourceful in finding a crack in what seems to be a solid surface and then using it as a toehold for compromise presented as progress

45

Peter K. 01.26.15 at 1:51 pm

@ Bruce Wilder #31

The feeling is mutual. I always find your comments worthless, petulant and bitter. The Internet disease.

So you and Steve are actually proposing that the steering committee of the capitalist class got together and devised a plan to blow the housing bubble, the popping of which would cause an epic panic and credit crunch, thereby driving up unemployment, their ultimate goal. You’re going to need the emails and memos to prove such a conspiracy.

46

bob mcmanus 01.26.15 at 1:52 pm

42: Oh yeah

Costas Lapavitsas was also running for a Syriza seat, and is considerably to the left of Varoufakis. There are also two more moderate economists who have been in front while the campaign was being run, Giannis Dragasakis and George Stathakis. OTOH, there are some real radicals, to the left of Lapavitsas. And of course, everybody over there been reading Gramsci and Poulantzas. Good university with good econ dep’t in Athens apparently; just repressive gov’t.

47

politicalfootball 01.26.15 at 2:03 pm

William T. @43: In further support of your/dsquared’s thesis, note the calm reaction of the markets today.

48

Charrua 01.26.15 at 2:03 pm

I’m sticking with the prediction I made in the last Dsquared post about this: as long as the banking system keeps working, nothing dramatic will happen.
Greece will stay in the Euro, they will not default, etc. These kind of collapses are never chosen; they are almost always forced by the inability to keep the financial system working.
Of course, “nothing dramatic” may well include a real recovery in Europe.
I see no reason why Europe can’t keep having annual 0,2% percent growth or so for the next decade, for example.
Daniel seems more optimistic about it, but if you watch carefully, he’s no making any predictions about GDP or inflation either.

49

Peter K. 01.26.15 at 2:03 pm

@ Peter T 36

“In my time I have met quite a few who are wedded to equally bizarre notions about the economy or society, or about people of classes they never meet. “

Keynes was railing against elite stupidity in his “The Economic Consequences of the Peace” about the Versailles Treaty. As the Great Depression hit, the British and French declared they wouldn’t ease up on their war reparation debt demands of Germany, unless the Americans eased up on their debt demands to the British and French. The Americans didn’t and everyone suffered. In Germany, Brüning’s austerity policies were meant in part to convince the allies that Germany wouldn’t ever be able to pay back it’s debt and instead led to the rise of the Nazis. Smokestacks over Auschwitz and mushroom clouds over Hiroshima and Nagasaki.

50

William Timberman 01.26.15 at 2:17 pm

politicalfootball @ 46

Is that really the fat lady I hear warming up in the wings? Comforting to think so, but I’m not as sanguine as daniel is about ultimate outcomes. From the cheap seats, it’s hard to tell her triumphant throat-clearing from the shrieking of die Walküre.

51

Peter K. 01.26.15 at 2:18 pm

Maybe evil is often stupid? The Germans stupidly followed the evil Hitler into war and fascism thereby wrecking their country. The capitalists class stupidly backed Hitler.

52

mattski 01.26.15 at 2:19 pm

Krugman today:

If anything, the problem with Syriza’s plans may be that they’re not radical enough. Debt relief and an easing of austerity would reduce the economic pain, but it’s doubtful whether they are sufficient to produce a strong recovery. On the other hand, it’s not clear what more any Greek government can do unless it’s prepared to abandon the euro, and the Greek public isn’t ready for that.

53

politicalfootball 01.26.15 at 2:21 pm

I’m hoping the Germans give in and this sparks tougher negotiations from the rest of the debtor nations.

Surely the Germans are aware of this possibility also, and thus have a strong incentive not to give in.

Because of the strong (and not unreasonable) desire of the Greeks themselves to stay in the Euro, Tsipiras has been forced into a public bluff: Don’t worry about leaving the Euro, he says, because we won’t have to. The Germans won’t call our bluff.

One problem with that is, you’re not supposed to tell the guy across the table that you’re bluffing. Germany has the stronger hand here.

54

Charrua 01.26.15 at 2:22 pm

One thing I learned from living through Argentina’s collapse in 2001 is that it’s perfectly possible that the best solution available is one that will make your situation considerably worse in the short term.

55

Peter K. 01.26.15 at 2:23 pm

I’m guessing that for Merkel and the Euro elite, keeping Europe together is the priority so they won’t force a Grexit.

As Dsquared writes “Their long term goal is, remember, for the Euro to cover as much of the EU as possible, and that goal has been going surprisingly well – in the last two years they’ve actually gained two members in Latvia and Lithuania. But if you lose Greece, my intuition is that you can forget about Poland. It’s worth remembering that the “ever closer union” is essentially an Empire-building project, and if you’re building an Empire, you don’t let yourself lose provinces just because they’re a pain in the neck.”

The ECB is doing QE now after all. The Germans will give in to Syriza, thereby inspiring other anti-austerity, pro-growth parties across Europe. It will be like Nixon going to China.

56

mattski 01.26.15 at 2:24 pm

FWIW, it doesn’t pay to get bogged down over generalizations like “stupid” and “evil.”

A term with perhaps more explanatory power is “ignorance,” since we humans can be both quite intelligent and yet emotionally unable to look at certain aspects of the world.

57

Micheal Lunny 01.26.15 at 2:30 pm

I get where dsquared is coming from here, trying to show the view from the Deutsche Bloc Barad-dûr. However I just can not let go of the “policy makers not stupid” thing.

Does anyone remember when the ECB turned their best minds to try and undermine the IMF’s belated apologia on the fiscal multiplier? I think the general consensus was that the ECB’s work was embarrassing both for the quality of its analysis and for the fact the ECB was trying to give the Austerian front “scientific” cover for an entirely political position, thereby critically wounding its reputation. This happened presumably because the ECB shared those same radical (and unsupported) political positions.

European policy makers may not be stupid but they believe a lot of very stupid things and for me that will do for stupid.

58

Charrua 01.26.15 at 2:34 pm

I would say that the main question for the Greeks is ¿how confident are you that Europe hasn’t turned into Japan?.
If you think that the answer is “a lot”, that strong growth is just around the corner (as Daniel seems to imply), then it’s a good bet to remain inside the Eurozone (almost all of the damage is already done, after all).
But if you think that the answer is “not at all”, if you think that there’s a good chance that Europe will have anemic growth for the foreseeable future, then getting out the Euro seems like an interesting idea.

59

Peter K. 01.26.15 at 2:34 pm

#17 Wilder quoting Dsquared :

“There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help . . .”

Wilder:

“massive national admission” = unconditional surrender at the end of a world war in which 20 millions plus were killed

Lovely.”

“massive national admission” was more like the post-war governments who worked with the West to put the Marshall plan and debt forgiveness in place in exchange for political reforms.

That seems to have worked out well for Germany. Same with Japan. It hasn’t been working well for Greece who are on more of the punitive Treaty of Versailles plan than an updated Marshall Plan.

60

Peter K. 01.26.15 at 2:40 pm

@ 57, Michael Lunny exactly!

I believe Dsquared is being a bit trolley to provoke the usual humorless suspects.

People whose models are wrong and whose forecasts and predictions are always wrong are stupid.

Paul Mason in the Guardian:
http://www.theguardian.com/commentisfree/2015/jan/25/greece-shows-what-can-happen-when-young-revolt-against-corrupt-elites

“The IMF predicted Greece would grow as the result of its aid package in 2010. Instead, the economy has shrunk by 25%.”

That’s stupid.

61

bob mcmanus 01.26.15 at 2:42 pm

WT: No, I do not completely trust Tsipiras, he has been behind closed doors with the European movers and shakers. I don’t trust Iglesias either, for that matter. They will have to prove it. But if Tsipiras betrays Greece and us all, it won’t stop there, because the preset regime cannot fix the economies for the people.

2) I do trust Lapavitsas and Varoufakis somewhat more. Varoufakis has resigned from UT, and I believe he is serious. If you look at his program, although moderate by Greek or Marxist standards, what he is serious about is Europe and European growth. I think, hope, that Varoufakis believes he can generate the political solidarity in Spain, Italy and France, maybe Britain to resist Brussels and Frankfurt.

3) Which might mean rather than Greece et al leaving the Euro, Germany (et al) pulls out.

4) But the US, Germany, and the vampire squid still have some very heavy cards to play. Ukraine, Russia (watch if they get Russia blocked from Swift or the banking system), gas shipments…war.

5) It has not begun to get real yet.

62

Charrua 01.26.15 at 2:46 pm

I don’t think Daniel is being a bit trolley as much as he’s looking at it from the perspective of financial industry guy (which he is). And from that perspective, the Euro technocrats weren’t stupid. Banks didn’t crash, borrowers paid, the Euro survived, etc. They got what they wanted.
Now, if you look at the macro economy level, they don’t look so good, but Daniel isn’t writing about that.

63

Peter K. 01.26.15 at 2:50 pm

@ #53 mattski:

Krugman: “To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. “

That’s stupidity.

@ #56 mattski, Dsquared says the bureaucrats aren’t stupid in that they’ve stress-tested the banks in case of an Grexit, but I believe the 2008 fiasco showed the bureaucrats to be stupid and complacent. They explained it away as a once in a hundred year event.

Maybe Dsquared is right that they are on top of it now, but I kind of doubt it. Things have a way of spinning out of control.

64

Peter K. 01.26.15 at 2:52 pm

@ 62 Churra, you are right in that the document was intended for clients. But putting it up here is a bit trolley! Not that I don’t enjoy a good troll.

65

bob mcmanus 01.26.15 at 2:52 pm

I am such a simple boring person.

If the rich get poorer and the poor get poorer, probably stupidity.

If the rich get richer and the poor get poorer, probably smarts.

66

politicalfootball 01.26.15 at 2:56 pm

Like others, I stumbled over dsquared’s use of “not stupid.”

One thing it’s important to make clear is that the European policy makers aren’t stupid.

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem.

So the Germans aren’t being stupid. What are they being?

There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s.

I think this is where I part ways with dsquared – not on the practical issues, but on the idea of responsibility. The Greeks behaved badly, sure, but the Germans are, in fact, largely responsible for the current plight of Greece. The management of the Euro has been, if not phenomenally “stupid,” then engineered to fuck over the south by design.

67

J Thomas 01.26.15 at 2:59 pm

#31 Bruce Wilder

“Peter K.: The epic housing bubble and financial crisis were not orchestrated.”

I can not imagine what you mean by this assertion.

I believe he’s saying that nobody intended it to go that way, that the various individual people who had control of this-and-that were not coordinating their actions to get that result but instead each blundered along doing the best he knew how to meet his own goals.

I don’t know how to tell whether he’s right, but I find the claim reasonably plausible.

Peter K.: If they were evil, they’d come out and say it.

“Because that’s what evil people do? Clearly state their intentions?”

He says they had a plan, and they honestly believed that Greece would have some growth. That they did not predict 25% unemployment.

I think he figures if they expected Greece to have that result then they’d have predicted 25% unemployment for Greece, and possibly looked into some sort of palliation. I can see that one either way. Not so unlikely they did expect that the Greek economy would grow after the various bad policies that prevented growth were removed. On the other hand if they did predict bad results for Greece I find it perfectly plausible that they would not publish those results, because publishing that would make them look bad. Various people would say it was a bad plan that should not be followed, some people would demand some sort of palliation, etc. It’s only natural that if they settle on a plan they think is bad for somebody in the short run even though they think it’s good for everybody in the long run, they wouldn’t admit to the short-run sacrifice.

I’m honestly struggling to make any sense at all of your comment.

It’s easy for me to believe that nobody really knows what’s going to happen, and even people with some power don’t understand the consequences of using that power.

But believing that doesn’t tell me what to do, beyond not getting too convinced about conspiracy theories that say somebody in particular has it all figured out and is intentionally creating all the bad results because they think it’s all good results.

68

mattski 01.26.15 at 3:04 pm

@ 63 Peter K

‘Stupid’ is such an unsubtle word. I’m putting in a plea for subtlety! (Which carries the corollary that we all have our blind-spots and it’s good to be mindful of that.)

69

Barry 01.26.15 at 3:09 pm

“Does anyone remember when the ECB turned their best minds to try and undermine the IMF’s belated apologia on the fiscal multiplier? I think the general consensus was that the ECB’s work was embarrassing both for the quality of its analysis and for the fact the ECB was trying to give the Austerian front “scientific” cover for an entirely political position, thereby critically wounding its reputation. This happened presumably because the ECB shared those same radical (and unsupported) political positions.”

They weren’t stupid, per se, but they spent a lot of time quite deliberately ignoring reality, because it disagreed with their politics. And presumably the ECB has lots of economic, financial and banking experts, so it’s not like they were starting from stupidity, incompetency or ignorance.

70

Harald K 01.26.15 at 3:32 pm

Peter K.@63: Is it stupidity? Can we rule out evil entirely here?

As I understand it, their theory was that austerity would make things worse briefly before they got better. When this didn’t pan out, they prescribed more of the same medicine.

Maybe the troika aren’t as much the foolish doctor prescribing a quack remedy, as the cruel priest who wants the subject to suffer properly (and publicly) for his sin. Davies has no problem speculating that Syriza is playing a “madman strategy”, but what if the creditors already are? What if that rosy forecast of recovery was only a thin excuse, and the real object is getting their pound of flesh – as deterrence, for the long term good of everyone, of course.

71

Zamfir 01.26.15 at 3:34 pm

The management of the Euro has been, if not phenomenally “stupid,” then engineered to fuck over the south by design.
It’s engineered to work well for countries with an internal political economy like Germany. Influential export industry, hard currency policy, sector-wide wage negotiations to adjust to changes in external demand.

This was expected to hurt the southern countries. Because the leadership of those southern countries wanted to force their economies towards the German model. And because they wanted Germany in the Euro, and Germany would only join if the policy was based on their model. Germany was happy with their model, the south unhappy with theirs, so everyone wanted a German-style Euro.

The underlying view, on both sides, is that hardship and austerity will pressure everyone to make their economy more ‘German’. While giving in will lead to the old cycle of recurring devaluations that plagued southern Europe for so long (and that did annoy the Germans as well) .

That view might be debatable, but it’s not entirely stupid or entirely evil.

72

Layman 01.26.15 at 3:35 pm

Peter K @ 45: “So you and Steve are actually proposing that the steering committee of the capitalist class got together and devised a plan to blow the housing bubble, the popping of which would cause an epic panic and credit crunch, thereby driving up unemployment, their ultimate goal. You’re going to need the emails and memos to prove such a conspiracy”

You mean the emails where members of the steering committee shared jokes with each other about the fact that the mortgage-backed securities they were selling to pension funds were no better than shit sandwiches? Those emails?

You think they all accidentally got rich(er) selling crap to the trusting?

73

Sam Bradford 01.26.15 at 3:40 pm

This is the bit that sticks out to me:

There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s.

This is exactly what the Greek people have voted for, isn’t it? Total reform of their rotten political system. The EU didn’t want that; they were content to have corrupt, unrepresentative officials in place, so long as they were compliant. It’s disingenuous to suggest the Greeks don’t want change, because they want it desperately, and I’m sure they’re willing to sacrifice quite a lot to get it.

74

dbk 01.26.15 at 3:47 pm

I think this is a reasonable analysis of how the financial establishment views the new government of Greece, so in that respect it’s realistic and useful, though perhaps not surprising.

Watching the election and aftermath on the ground last night and this morning, I note that this is the fastest I’ve ever seen a Greek government formed (under twelve hours, even without a ruling majority), and with no fuss or fanfare. The names currently (as of two hours ago) being mentioned for economic and financial policy roles are those of Yannis Dragasakis as head of economic policy, Yanis Varoufakis as Min of Finance, and Efklidis Tsakalotos as responsible for domestic revenue. All three men are economists; Varoufakis and Tsakalotos (an Oxford graduate) are professors. Clearly none of the three espouse neo-liberalism, but this doesn’t mean they’re stupid – they simply have a different economic philosophy and hence, perspective towards unsustainable debt, absence of genuine growth (despite promises and predictions), 60% youth (under-30) unemployment and consequent mass migration …

The new PM, while quite young (40) and untested internationally, is formidably intelligent; a quick study by all accounts, totally unflappable (despite being Greek – he never loses his equanimity), and uncorrupted despite many years of experience in domestic politics. If it’s really about politics now (and the debt is a political quantity rather than an economic one), and what the Troika genuinely wanted is a corruption-free system, then that’s what the Greeks have given them.

75

mutant_dog 01.26.15 at 4:14 pm

Let us not lose sight of one key issue – the national pastime of Greece. Besides football, that is – everybody loves that. The national pastime of Greece is.. avoiding tax ! by any and all means. Any government that fails to address this crucial element in their fiscal plan must, inevitably, fail – and, thereby, be considered unserious.

I doubt this issue is on Syriza’s agenda. So, unserious.

76

JohnD 01.26.15 at 4:57 pm

#74, I think if the Syriza government was, off the back of its corruption-free aproach, able to shake sufficient back taxes out of the Greek elite (especially the super-rich) and privileged middle classes to pay back most of the money owed to the ECB, then the troika would be perfectly happy with that. In many ways that would be the fairest outcome of all.

77

The Raven 01.26.15 at 5:20 pm

Peter K. #20: “They have their short-term goals and priorities and they have the ideology of ‘Very Serious People’ but otherwise they’re stupid and short-sighted.”

Unwise, then, rather than stupid?

But also, Layman, #72: “You mean the emails where members of the steering committee shared jokes with each other about the fact that the mortgage-backed securities they were selling to pension funds were no better than shit sandwiches?”

Unwisdom can promote evil, though. At some point the Eurocrats must have realized they were hurting a lot of the little people, and decided to ignore their little cries.

78

Dimitris P. 01.26.15 at 5:31 pm

the program of “create a load of chaos in Euroland in order to get concessions” was initiated at 10:30 am when Tsipras elected to form a government with ANEL.
There is strong press speculation that Varoufakis will be the new Economy Minister to oversee negotiations with “institutional partners -EC and ECB- only as the Troika is not an institution of the Treaties Greece has signed”!

79

bob mcmanus 01.26.15 at 5:33 pm

…able to shake sufficient back taxes out of the Greek elite (especially the super-rich)…then the troika would be perfectly happy with that.

A lot of that money is now in London real-estate and, ahem, London-based investment funds. I don’t think Cameron will cooperate.

80

Roger Gathmann 01.26.15 at 6:03 pm

Stupidity is always armed with good reasons. The stupidity that plunged the U.S. into Iraq was full of people who said, at the time, the WMD and then later said, nobody believed there was WMD, obviously we were going in for x, y or z reason. Similarly, letting Lehman default was defended at the time as a wonderful warning to the banking system, and afterwards as who knew the international financial system was a ponzi scheme? One of the great stupidities of the EU is the idea that more is better – hence, the acceptance of players who are little more than medium size cities in the real scheme of things, like Latvia. This produces the ultimately stupid organization: too big to fail and too big to manage. We leave the realms of stupid groupthink, here, and enter the realm of truly badly constructed institutional structures. If it were simply a matter of Greece, I’d say that the EU had an overwhelming hand. But it isn’t simply a matter of Greece. If the EU lowers the boom, I don’t think this will say, to the voters in Italy and Spain and Portugal, oh oh, better do as the boss says. I think it will say, we are fucked either way, so why not fuck them back? The Anglo prejudice that all people everywhere will muddle through and settle on the lower rung lifestyle so that the EU project of banks first can keep marching gloriously onward seems to me a misjudgment on every level – here, as always, politics is not separable from economics. Thomas Friedman’s “golden straightjacket” theory, which seems to be what Daniel is endorsing, will, I think not work, and not just cause I don’t want it to work. It won’t work because it doesn’t involve the gradual diminishment of the lifestyle of the vast majority – as in the US – but the sudden and catastrophic diminishment, with no outlet except, as in Latvia, mass migration.

81

JW Mason 01.26.15 at 6:06 pm

This is a very interesting post. But there seems to be an implicit presumption that a post-default Greek government will continue to have deficits that need financing. Are we sure this is true? The ECB has Greece with a primary surplus for 2014. If that continues to be the case (a big if for sure), there will be no deficit, and no bills for Greek banks to finance. In which case, how does default force Greece out of the euro?

82

MPAVictoria 01.26.15 at 6:11 pm

“The Anglo prejudice that all people everywhere will muddle through and settle on the lower rung lifestyle so that the EU project of banks first can keep marching gloriously onward seems to me a misjudgment on every level”

I agree with most of your comment but the “Anglo prejudice” stood out as wrong to me. It isn’t Anglos who are running things into the ground here. It is the Germans.

83

JW Mason 01.26.15 at 6:22 pm

The other part of the euqation that seems to be missing from this post is that the bluffing goes both ways. Syriza may be betting that an exit will be very costly for Europe, but the other side is presumably betting that an exit will be costly for Greece. If Greece leaves the euro and does fine, that’s bad news for the empire-building project, no? Might be better to make some concessions in that case, to preserve the idea that there is no alternative.

84

Luke 01.26.15 at 6:25 pm

JohnD @ 75
“#74, I think if the Syriza government was, off the back of its corruption-free aproach, able to shake sufficient back taxes out of the Greek elite (especially the super-rich) and privileged middle classes to pay back most of the money owed to the ECB, then the troika would be perfectly happy with that. In many ways that would be the fairest outcome of all.”

The thing is, the Troika has actively resisted the idea that the tax burden in Greece should be shifted upward. Unfortunately , I can’t recall the sources right now, but one of the things I remember distinctly from the earlier days of austerity was brazen declarations from Troika officials that e.g. Greek shipping magnates should *not* be taxed.

85

Roger Gathmann 01.26.15 at 6:28 pm

#80 – oh, I was referring simply to the City-centric analysis Daniel gives with the word “muddle”. You are right that “anglo”, or “german”, or all these characterizing words extend the traits of a ruling elite to the entire people, who might not identify at all with that elite. In this case, though, I think that is what Daniel’s analysis is saying – we will muddle through, here. And that is the anglo soft focus version of the German policy that we will “radically remake” these places like Greece, who are seen, as Daniel’s German friends seem astonishingly to testify, to be just like Germany in the Nazi era. The smugness of the German elite, loaning money to Greece so that Greece can shift it to German banks, in making this comparison is a bit different than the British tone.

86

Ben 01.26.15 at 6:33 pm

Nobody needs to be evil or stupid. Sometimes people genuinely just don’t know what will happen. That’s especially true in the econopolitical sphere where everyone adjusts their behaviour to the expected response, frequently with the result that what worked last time doesn’t work next time simply because it was expected.

Sometimes you need speed and surprise. Sometimes you need clear signals. But most of all what you need is an understanding of the motives and opportunities of the various actors, big and small, a complete picture of which is something that nobody has, nor ever can have. Therefore blunders will always be an present possibility.

87

MPAVictoria 01.26.15 at 6:36 pm

Thank you for the response Roger. Seems sensible.
:-)

88

MPAVictoria 01.26.15 at 6:37 pm

“Nobody needs to be evil or stupid.”

True. But sometimes they really are one, or both, of those things.

89

Barry 01.26.15 at 6:39 pm

JohnD 01.26.15 at 4:57 pm
“#74, I think if the Syriza government was, off the back of its corruption-free aproach, able to shake sufficient back taxes out of the Greek elite (especially the super-rich) and privileged middle classes to pay back most of the money owed to the ECB, then the troika would be perfectly happy with that. In many ways that would be the fairest outcome of all.”

Presumably the EU, ECB, etc. are as much in the hands of the financial elites as the USA.

Now, why should either like something where the rich pay more in taxes?

90

Dave 01.26.15 at 6:55 pm

Zamfir@71

I disagree, the idea that all economies in Europe would converge to being Germany-like net exporters is entirely stupid. Given that most trade in the EU is between member states, it was never even vaguely plausible. The EU is the largest economy in the world. Who in the world economy is going to buy its exports ? China’s not rich enough and the U.S is unlikely to decide to run a trade deficit which is vastly bigger than its already-huge one.

The whole export-fetish to me seems like a broader stupidity which infects the rhetoric of a lot of smart, well meaning centre-left types as well. And it can’t get past the fundamental problem: who consumes? How do we resuscitate growth on a broad scale without a large consumer class whose purchasing power is based on wages? If our answer is… errrrrr TRADE, then we are screwed.

91

Trader Joe 01.26.15 at 7:01 pm

Seems like Syriza is in a position to have it both ways – which is politically clever regardless of the economics.

If they can deliver some type of reduction/relaxation of debt…really anything that allows them to dial down the austerity a bit (presumably in an obvious benefit restoring type of way), then they have delivered their promise and they can rule until they become as corrupt as those they’ve replaced.

If they can’t deliver a debt reduction/extension whatever – well it was nothing if not a campaign promise so that can be blamed alternatively on the Germans, the Troika, the Greek elities or anything short of sun spots….they’ll probably be bounced after some period of time and some other group will get to make fresh undeliverable promises.

Compromise on both sides is the only sensible way forward. The ECB can’t afford to let anyone think they can default without consequence, but as per the OP, they don’t want to start kicking people out as it undermines the premise of the EU in the first place…face saving gestures and time are the diplomats friend and a concept nearly alien to Americans who want all problems solved yesterday in black and white terms.

92

Matt 01.26.15 at 7:16 pm

The whole export-fetish to me seems like a broader stupidity which infects the rhetoric of a lot of smart, well meaning centre-left types as well. And it can’t get past the fundamental problem: who consumes? How do we resuscitate growth on a broad scale without a large consumer class whose purchasing power is based on wages? If our answer is… errrrrr TRADE, then we are screwed.

Agreed. You can’t have exporters without importers. You can’t have creditors without debtors. It is logically impossible for every nation to be a net creditor or exporter. It is abject stupidity to assign moral opprobrium to one role but not the other. It’s like conceiving of cigarette manufacturers as virtuous and smokers as sinful.

93

JW Mason 01.26.15 at 7:19 pm

According to today’s FT, Greece current has a primary surplus of around 2 percent of GDP, and a current account surplus of 1 percent of GDP. The only reason Greece has to borrow from the rest of Europe, is to service the existing debt. So what is the deficit that Dsquared supposes they will have to finance under point 4.vi?

94

xtrapnel 01.26.15 at 7:26 pm

JW Mason @91
I was wondering the same thing. The primary surplus keeps being reported as being about 7%. Why doesn’t this put the greeks in a rather strong bargaining position?

95

Anon. 01.26.15 at 7:31 pm

>One thing it’s important to make clear is that the European policy makers aren’t stupid

Of course they are. How else can you explain the fact that they’ve been pouring billions and billion into Greece without any guarantees of structural reforms? Greek politicians have played the troika like a fiddle. They promise they’ll fix their country, but (surprise!) then they just do what they’ve always done. And the troika looks on powerlessly, then proceeds to heap even more money as if that would change anything.

Unless there is alignment of incentives between the Greek economy as a whole, and Greek politicians, special interests, and bureaucrats, there is no incentive to fix anything. The country needs a complete revamp in terms of constitution, legal system, tax system, bureaucracy, etc. Every single change is going to be disadvantageous to those in power. Unless the Germans find a way to make that happen, the rest is irrelevant.

96

Micheal Lunny 01.26.15 at 7:32 pm

Dave@88

It’s all rather tiresome, isn’t it?

The ideas that all EU countries could become exporting powerhouses, or that Germany’s success was due substantially to its monetary policies or that that there was evidence that expansionary austerity was a rare exception and not a rule have been debunked so often that it can be an effort to even mention it.

Yet years after Alberto Alesina’s thesis was humiliatingly debunked Europe’s Eurogroup head Dijsselbloem is still prattling on about “growth enhancing fiscal consolidation.”

J W Mason@91

Whether there is any truth to it New Democracy were alleged both to have overstated Greece’s financial position to give the impression austerity was bearing fruit and then, in a cute way, muttering under their breaths about a possible primary balance problem when campaigning against Syriza (What will Syriza do if things are worse then we have said they are, eh?)

We’ll know more shortly.

97

Barry 01.26.15 at 7:36 pm

Dave: “I disagree, the idea that all economies in Europe would converge to being Germany-like net exporters is entirely stupid.”

This is one of the flaws in the Euro system. Germany wanted to be (and was/is) a next exporter to the rest of the EU. This means that Germany ended up with a surplus of money, which IIRC they invested in things like Spanish/Irish(Greek?) real estate, which resulted in a boom, which moved assets in those countries into building, etc.

98

dbk 01.26.15 at 7:37 pm

@ 77 bob mcmanus
Yes, that’s likely.

It’s worth noting that the amount of electronic financial data now available to the Greek IRS is impressive, irrespective of whether this has been deployed to date for the purposes of imposing higher income taxes / wealth taxes on the top five per cent of earners/property-owners.

During the campaign, it was maintained that a new tax bracket would be implemented for those with incomes over 80.000 (or 100.000, can’t remember exactly) euros, and a wealth tax levied on those with total propertied wealth in excess of around 400.000 euros assessed at current, greatly-deflated prices.

There seems to be a persistent meme in circulation among the financial cognoscenti of northern Europe that Greeks are incapable of using modern technology to trace money and propertied wealth. While there are still serious issues involving the land cadastre, these are being gradually resolved however through an electronic land registry.

What’s been lacking the past five years has been political will, not access to data.

99

Bruce Wilder 01.26.15 at 7:39 pm

The outside world seems to be fixated on the threat of Grexit, but Syriza has been explicitly rejecting Grexit all along. Grexit is politically unacceptable inside Greece and, as the OP demonstrates, no longer plausible.

As JW Mason is implicitly pointing out, Syriza seems to believe that it is possible to negotiate some kind of default or debt relief — in short, default without Grexit.

I don’t know if there’s room enough for Greece to begin a unilateral soft default, to force negotiations on favorable terms. Syriza seems to hope that their electoral victory will be followed by the election of sympathetic Parties in Italy and Spain.

Politically, it reminds me of the calculations surrounding non-violent civil disobedience: can a political drama be enacted that puts the forces of oppression into an unmistakable position?

100

JW Mason 01.26.15 at 7:48 pm

Michael Lunny-

You are certainly right that the Greek primary surplus could be a mirage. But then again, it might not. So just as Syriza may be overestimating the costs to Europe of a default, the European establishment may be overestimating the costs to Greece. If it is true that Greece would have a fiscal surplus in the absence of interest payments, then there is no logical reason why a default should be followed by exit from the euro. Of course, the ECB could still refuse to allow Greek banks access to liquidity facilities, which indeed might force Greece out of the Euro — but in that case it would be a clearly political decision. Or as Krugman says, “if Greece is driven out of the euro, it will be because Brussels and Frankfurt have in effect chosen to hold the Greek banking system hostage, and Greece has declined to pay ransom.”

101

MPAVictoria 01.26.15 at 7:48 pm

Shorter Anon: liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.

102

Anon. 01.26.15 at 7:59 pm

@73 Sam Bradford

>This is exactly what the Greek people have voted for, isn’t it? Total reform of their rotten political system.

The exact opposite. They voted for a return to the 80s Papandreou style government (to the extent that such a return is fiscally possible), with some conspiracy theory/fuck-the-rich flourishes added on top.

103

Roger Gathmann 01.26.15 at 8:06 pm

96, I think that is a good analogy as far as it goes. But just as the civil disobedience campaign depended as much on the good will of the campaigners as of the governing bodies in the US, I think Syriza will have to depend on the good will of the Greeks – which means de-prioritizing the debt issue and going ahead with New Deal-ish types of programs to make a difference in people’s lives now. If they get caught up in Debt talk and this becomes all they are about, they will fail, I think. That is why there will be a press to make Debt talk the only issue, the only question offered to Syriza. They have to make the talk all about restoring retirement, infrastructure services, education and all the rest of it. It is such a small economy that these moves could be done relatively cheaply. I think a lot will depend on whether Spain is next – and here the issue is all the more complicated by the fact that the Catalonians are going to be splitting from Spain in one way or another.

104

None 01.26.15 at 8:09 pm

“Germany wanted to be (and was/is) a next exporter to the rest of the EU.”

Revenge-fantasy scenario –
1. Eurozone break-up.
2, Germany back on DM
3. DM appreciates 30% againsnt every other currency
4. Troika no longer lectures on “structural reform”

105

Anon. 01.26.15 at 8:12 pm

@91 JW Mason

>The only reason Greece has to borrow from the rest of Europe, is to service the existing debt. So what is the deficit that Dsquared supposes they will have to finance under point 4.vi?

Well, you have to consider what is going to happen if Greece defaults. The Greek banking system will be wiped out overnight, how are they going to fix that? By borrowing. And then there’s Syriza’s program which involves significantly increasing expenditures. Again, the only source for that is further borrowing.

The current primary deficit is only relevant if things continue relatively unchanged.

106

Igor Belanov 01.26.15 at 8:29 pm

Does anyone know much about the Greek Communist Party? I was wondering why Syriza would ally with an anti-EU right-wing party rather than the KKE. Are they North-Korea supporting nuts or just too anti-EU for more diplomatic means?

107

JW Mason 01.26.15 at 8:31 pm

On the question of what European policymakers are like, some useful context is here:

Geithner: The Europeans came into that meeting basically saying: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them,” was their basic attitude, all of them….

But the main thing is I remember saying to these guys: “You can put your foot on the neck of those guys if that’s what you want to do. But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go. [You’re] going to protect the rest of the place.” I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: “Well, that’s fine. If you want to be tough on them, that’s fine, but you have to make sure you counteract that with a bit more credible reassurance that you’re going to not allow the crisis to spread beyond Greece and that’s going to require, you’ve got to make sure you’re putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson….”

I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did. But the early premonitions of that were in that initial debate. They were lied to by the Greeks. It was embarrassing to them because the Greeks had ended up like borrowing all this money and they were mad and angry and hey were like: “Definitely get out the bats.” They just wanted to take a bat to them.

If nothing else, it’s a helpful reminder of what Syriza is responding to.

108

js. 01.26.15 at 8:34 pm

James Galbraith has a rather different take on bargaining positions (and much else). Of course, he’s not an entirely disinterested party, but I found it to be a very useful piece. (And funny to note what, three days ago, he thought the margin of victory was going to be—that in itself seems quite important re what happens next.)

109

Anon. 01.26.15 at 8:36 pm

>Are they North-Korea supporting nuts

Pretty much, yeah.

110

Dave 01.26.15 at 8:37 pm

From what I understand, the KKE is still stuck in an old-school communist mindset of rejecting any power won through electoral means as bourgeois democracy. They’re well organized and have deep roots in some of the trade unions, so they’ll hang around with 5 or 6% of the vote, but they’re worried that by actually doing something constructive, Syriza will delay the implosion of capitalism. So they’ll just hang out on the sidelines criticizing Syriza for being traitors to the revolution.

111

Lasker 01.26.15 at 8:38 pm

@103

It is the KKE who are unwilling to partner with Syriza.

This very long Jacobin interview with a member of Syriza’s central committee goes into great detail about the relationships between various Greek left-wing groups:

https://www.jacobinmag.com/2015/01/phase-one/

112

Bruce Wilder 01.26.15 at 8:39 pm

J Thomas @ 67

Peter K. clearly understood that I was drawing attention to the moral and factual vacuousness of his comment. Why didn’t you?

113

MPAVictoria 01.26.15 at 8:57 pm

“Peter K. clearly understood that I was drawing attention to the moral and factual vacuousness of his comment. Why didn’t you?”

Oh I know the answer to this one…

114

William Timberman 01.26.15 at 9:05 pm

One of the most sordid aspects of this bankers’ universal morality play is the idea in the U.S. that we save the banks and the bankers because a stable national economy is more important than punishing those miscreant bankers who searched out every teensy bit of moral hazard they could find and sucked it up. When it comes to the Greeks, however, punishing those who succumbed to the moral hazard offered them the way free hits are offered to potential addicts is MUCH more important than rescuing the economy, the more so since none of those being so gleefully scourged are likely to be bankers.

Disgusting, really….

115

dsquared 01.26.15 at 9:19 pm

creditors, i.e. bankers

If you can’t keep up with the news to this extent, maybe leave the Greece opinion having to someone else ey?

Josh – three things really

1) that surplus includes quite a lot of one of privatisation receipts
2) if you default on the debt you bust the Greek banking system which leads to € exit via a number of failure modes
3) if the “anti-austerity” party just runs the same surplus budget people would ask what they’re for.

I think there’s a genuinely interesting question of whether Syriza can “default” on the future surplus targets in the program though -I’ve got a slightly inconclusive article up on Medium right now that touches on it.

116

TM 01.26.15 at 9:25 pm

People should understand that the Syriza victory is the chance for capitalist elites to prove (or at least pretend) their compatibility with democracy. The people voted against the status quo and against austerity. If it turns out that they will only get more of the same, that the oligarchy will not allow any improvement in Greek living standards and economic prospects brought about by a left populist government, if the elites decide against democracy and destroy or neutralize the Syriza government, the people will turn to the fascists next. If the elites are interested at all in saving the appearance of democracy, they must allow a measure of success to Syriza (and Podemos etc.). If they decide that democracy has outlived its usefulness – it will get interesting.

117

politicalfootball 01.26.15 at 9:25 pm

105: The Galbraith piece is a nice counterpoint to Daniel. I think Galbraith is persuasive on the normative question. He’s correct on what should happen. But I think he’s wrong on what will happen. Daniel, I think, is the reverse.*

*I’m taking Daniel to be saying that the EU is more-or-less justified in the conditions it has imposed, and likely will impose, on the Greeks. That may be a misreading on my part.

118

Anon. 01.26.15 at 9:46 pm

@TM

If the “capitalist elites” had any substantial power whatsoever, do you really think Greece would be where it is now? Ask yourself why even a “capitalist elite”-friendly technocrat like Papademos was completely unable to reform Greece, ask yourself who benefits from preventing reforms. Those are the real obstacles.

119

Bruce Wilder 01.26.15 at 9:50 pm

James Galbraith at the link provided by js. @ 105 above:

[the Troika’s plan for the “bailout” of Greece] “was a punitive rather than a recuperative strategy. I don’t think anybody can really argue otherwise. A punitive strategy that was in place partly because of the interests of creditors in getting assets at fire-sale prices. That’s basically a debt collector’s attitude. And partly because of the internal politics of the German state at that time, in which a moralizing narrative was politically more useful than a more generous one would have been.

Galbraith goes on to remark that the conservative New Democracy Greek government had cooperated in the game of pretending that what they had agreed to constituted “growth and recovery and reform policies” when those policies were “simply the conditions for the financial policy of “extend and pretend” “

I suppose all politics is a contest over socially-constructed reality, and, certainly, in America, we are all too familiar with the fantasy-land Fox News world where Obama is a Muslim Socialist, but the absurdity of that talk is an entertaining distraction. It does seem remarkable the extent to which the politics of the Euro revolves around solemn assertions about the moral labels and descriptions attached to policy intention and design, with little or no correspondence to mechanisms or outcomes. The serious people take their own seriousness very seriously.

It is also a measure of the propagandistic hegemony that neoliberal policy enjoys, that it is so difficult to outline any leftish alternative.

Syriza is regularly described in the media as “radical left”. I don’t know how much of that reflects a nostalgia among the older generation of Greeks for the “radical” PASOK of 1981-82, which turned out to be not-very-radical, but was very effective in changing the distribution of income in that short period of time.

120

TM 01.26.15 at 9:54 pm

“If the “capitalist elites” had any substantial power whatsoever, do you really think Greece would be where it is now?”

Hmmm. now that’s a really hard question. I’ll have to think that over until tomorrow. [Spoiler: it’s called sarcasm and you Anon. are a big fat troll.]

121

Peter K. 01.26.15 at 10:03 pm

@111

“J Thomas @ 67

Peter K. clearly understood that I was drawing attention to the moral and factual vacuousness of his comment. Why didn’t you?”

I wouldn’t put it that way.

122

Peter K. 01.26.15 at 10:07 pm

Peter Dorman’s opinions on the prospects for Syriza:

http://econospeak.blogspot.com/2015/01/prospects-for-syriza.html

“If you put it this way, the question is not about how the shell game is reconfigured—how large or small the fictitious flow of financing to Greece and then back to its creditors—but the role and content of political conditions. Syriza’s position seems to be maximalist in this respect: no political conditions. If they stick to this, there can be no deal unless Germany and its allies do a complete about-face, which is difficult to imagine for domestic political reasons.

But the political terrain is wide and has many dimensions….”

123

js. 01.26.15 at 10:11 pm

Syriza is regularly described in the media as “radical left”.

I was wondering about this too, but it turns out to make quite a bit of sense, given that there full name translates to “Coalition of the Radical Left” and that their roots are indeed in the radical left. (But yeah, their platform at this point seems more Keynesian (broadly speaking) than any sort of “radical left”, so it can seem a bit of a misnomer.)

124

js. 01.26.15 at 10:14 pm

Gah! “their full name”, not “there full name”! I hang my head in shame.

125

Bruce Wilder 01.26.15 at 10:29 pm

js. @ 122

“radical left” in a Greek context recalls the phenomenal success of Andreas Papandreou, founder of the “radical” PASOK, and “the Change” of 1981-2, when the Greek social welfare state was instituted, transforming the lives of the majority of Greeks.

126

William Timberman 01.26.15 at 10:30 pm

dsquared @ 114

Hard for a layman to argue with any confidence about banking with a banker, particularly one convinced that he’s not paying attention, so perhaps I should turn the soapbox over to an economist (Nouriel Roubini via Wikipedia):

A myth is developing that private creditors have accepted significant losses in the restructuring of Greece’s debt, while the official sector gets off scot free. […] The reality is that private creditors got a very sweet deal while most actual and future losses have been transferred to the official creditors [i.e. taxpayers. …]

Greece’s public debt will [remain] unsustainable at close to 140 per cent of gross domestic product: at best, it will fall to 120 per cent by 2020 and could rise as high as 160 per cent of GDP. Why? A “haircut” of €110bn on privately held bonds is matched by an increase of €130bn in the debt Greece owes to official creditors. A significant part of this increase in Greece’s official debt goes to bail out private creditors: €30bn for upfront cash sweeteners on the new bonds that effectively guarantee much of their face value. Any future further haircuts to make Greek debt sustainable will therefore fall disproportionately on the growing claims of the official sector. Loans of at least €25bn from the European Financial Stability Facility to the Greek government will go towards recapitalising banks in a scheme that will keep those banks in private hands and allow shareholders to buy back any public capital injection with sweetly priced warrants. The new bonds will also be subject to English law, where the old bonds fell under Greek jurisdiction. So if Greece were to leave the eurozone, it could no longer pass legislation to convert euro-denominated debt into new drachma debt. This is an amazing sweetener for creditors. […]

The reality is that most of the gains in good times […] were privatised while most of the losses have been now socialised. Taxpayers of Greece’s official creditors, not private bondholders, will end up paying for most of the losses deriving from Greece’s past, current and future insolvency.

I may have been wrong, but I’ve not been asleep, and I’ve not been making all this up by myself.

127

ZM 01.26.15 at 10:34 pm

Roger Gathman,

“The Anglo prejudice that all people everywhere will muddle through and settle on the lower rung lifestyle so that the EU project of banks first can keep marching gloriously onward seems to me a misjudgment on every level – here, as always, politics is not separable from economics. … it doesn’t involve the gradual diminishment of the lifestyle of the vast majority – as in the US – but the sudden and catastrophic diminishment, with no outlet except, as in Latvia, mass migration.”

I still think that in terms of the political dimension the UN Sustainable Development Goals conference later in the year has the potential to help with these problems, depending on how much support it can garner over the year by public campaigning (this is debatable given its predecessor Rio+20 was somewhat of a disappointment, but they seem to be starting to campaign now, which is well in advance to build up awareness).

Unlike the Millennium Development Goals , the SDG for the post-2015 period are intended to apply to and be met by all countries, advanced and developing. There are 17 goals, but countries like the UK are exerting pressure to reduce these to 10-12, likely wanting to cut out the goals about the environment, inequality, peace etc.

Like Australia, Canada, and the U.S. etc, overall Europe is not very sustainable in terms of its resource consumption and causing climate change etc. I think unemployment in Greece is the main problem with 1 in 4 people, and 1 in 2 young people being unemployed. So the problem is not how to grow consumption, which is too high as is, but how to enable and manage a downward trend in overall consumption, transition to renewable energy technology, etc , while providing socially beneficial work for people and ensuring equitable distribution. But how to move away from the present development model is a problem for all countries, not just Greece, so part of Greece’s solution needs to be found in international politics, not just national or pan-European.

128

js. 01.26.15 at 10:38 pm

BW @124:

I’m sure you’re right, but if you look at Syriza’s history, it’s very far from clear that that’s what they’re referencing with “radical left”. And they seem to come out of a decidedly non-Pasok politics.

In any case, my point originally was about media references to Syriza as “radical leftists”, which I thought (perhaps wrongly) you were also talking about @118. And my point was that it makes sense that the media calls them “radical left” given that they call themselves “Coalition of the Radical Left”.

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stevenjohnson 01.26.15 at 11:02 pm

Peter K. @20 Keynesians believe in a reformed fiscal/monetary policy where government intervention stabilizes the economy until the financial crisis has abated and things can return to normal. The austerians know that there is no normal, that it is not just a financial/monetary liquidity trap but a problem of profitability that will prevent a return to normal. Other things, such as manipulation of imperial currency or opening of new markets or favorable terms of trade on raw materials obtained from compliant neocolonial regimes or even the rare advent of a new technology can help to revalue capital and restore profitable production.

But by and large, it is done the old fashioned way, by massive destruction of capital values and reductions in real wages. Thus austerian privatizations, union breaking, social wage cuts, etc. etc. etc. But like all those insufficient Keynesian stimuli, the magnitude and intensity of the assaults are usually seen by the committed proponents as insufficient. None of this is stupid so far as pursuing the interests of the capitalists are concerned. It is merely cruel and exploitative.

It is self-defeating in the damage done to the society, inasmuch as deflationary crises promote fascist/”populist” forces like Golden Dawn. But just as the capitalists preferred the Nazis and the fascists in their countries then, so they will hold their noses, as in Greece or the Ukraine, confident in their seriously profound ability to rule the universe…and dispose of their vulgar servants once they’ve served their purpose. The thing is, just as the 2008 crisis erupted out of nowhere despite their skillful management of humanity under the Washington consensus, so too will skill management of the Greeks by their perverse lights, will still fail to prevent the eventual eruption of financial crisis.

Igor Belanov @103 The alliance with the Independent Greeks may not even be necessary. It is remarkably hard to google the actual breakdown in seats, but it appears the last I could see that Syriza needed two votes for an absolute majority. On any given legislation or appointment, it is highly unlikely that this “minority” couldn’t pick up another two votes. (Unless there is a legal requirement forbidding so-called minority parliamentary governments in Greece?)

But an alliance with the Independents I think makes the conservative appetites of Syriza very clear, especially in that the Independent Greeks are not actually Euroskeptics. They share Syriza’s conservative attachment to the EU and the Euro, while condemning the austerity policies. They are as near as I can tell much closer to a Christian Democratic party, obviously Greek Orthodox instead of Roman Catholic. Syriza is by the way signalling the preservation of all the financial privileges of the Greek Orthodox Church.

The claim that there is no viable politics that rejects the EU because the EU is supremely popular in Greece is evidently supposed to be the takeaway from the election results. But Golden Dawn is the third largest party now, and the KKE, contrary to Syriza’s hopes, was not wiped out. (Syriza evidently convinced itself the KKE vote would be cut in half.) Plus, there was a very large abstention rate for such an election, about 30% as I understand it. Given the universal alliance against the KKE and the huge campaign themes that the KKE was finished and only Syriza could win, it seems likely that the abstention is part of the PASOK/New Democracy electorate that has broken from the EU fixation, but not yet ready to commit to either KKE or Golden Dawn.

Those are the only real choices I think. Syriza cannot successfully renegotiate without having the Eurozone exit card in hand. Without it they cannot bluff. As is, it is the EU that can threaten them with expulsion. Since Syriza has totally rejected the kind of economic controls and political engagement needed to resist the subsequent soft war against the Greek people, their official program is nothing but a macabre fraud. Whether any of the leadership are sincere is irrelevant.

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Markos Valaris 01.26.15 at 11:30 pm

Thanks, this is useful as usual.

While I totally agree with the claim that Greek debt is primarily an issue of political clout rather than cash (but is it ever otherwise with intergovernmental debt?), I’m not sure I buy much of the rest of the analysis.

This is because it is not clear that the gap on the debt is as large as it appears to be. While Syriza has been talking up face-value write-downs, in recent weeks the talk has been more about renegotiating terms of repayment rather than face-value reduction. And this makes sense for both sides.

One fundamental problem for Greece over the last few years has been that fiscal policy in Greece has been not only tight but also unpredictable. Year after year Greece has been failing to meet Troika targets, and hence having to impose *more* austerity than originally stipulated in the program. Even for 2014, Greece has a funding shortfall between 2 and 4 bn Euros that needs to made up pretty much right away for them to get the final tranche. Moreover, it is now widely recognized that this has been in large part due to unrealistic assumptions about growth built into the original agreements.

So agreeing on a repayment schedule that allows Greece some fiscal headroom seems like a no brainer for both sides. (Dragasakis, now tipped to be the next finance minister, has repeatedly said that the plan is balanced budgets but not further austerity.) This makes me suspect that face-value reduction is more of an election slogan, and an attempt to stake out a negotiating position, rather than the hill Syriza will choose to die on.

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Glen Tomkins 01.26.15 at 11:30 pm

Syriza’s at least initial negotiating positions will be directed at preparing the Greek people for what lies ahead. They’re not ready for repudiation of debt, their own currency and nationalization, and seeking foreign economic help from Russia and/or China; so Syriza has to get the EU to do and say things that will get the Greeks there. Tsipras demanding German repayment of a Nazi-era forced loan is presumably the opening shot. Perhaps we’ll see indictments of both the Greek politicos and foreign bankers who made the obviously irresponsible loans in the first place, and then the obviously irresponsible austerity scheme that followed. Icing on the cake if some of the EU’s negotiating team can’t go to Athens for fear of arrest. Better yet if EU govts retaliate in kind, and Greek negotiators can’t go to Brussels or Berlin for fear of arrest.

Whatever Tsipras does, even if he did try to be reasonable, the EU won’t budge. On the EU side, t’s a mistake to analyze this in terms of negotiating strategies. What we have is a problem of religious faith, in the strange religion of free-market fundamentalism, and its incomprehensible supply-side theology. Even those of the EU priesthood of “technocrats” in charge of these negotiations who might be able to look at the situation from non-faith-based perspectives will be trapped by generations of religious pap they’ve fed their electorates. The line will have to be that the Greeks brought this mess on themselves (and the rest of us!) by not being good Germans, and there’s no way the authorities can back down from that line because the Greeks now refuse to at least try to be good Germans and instead demand all sorts of backsliding concessions. Any reasonable negotiators on the EU side would be like Eric Blair with that elephant gun. Whether or not it makes any sense to shoot the elephant, that’s the only thing they can do this many decades into their imperial project.

There’s going to be some theater, but no negotiations, so I’m not sure it makes much sense to think about negotiating positions here as anything but theater. Neither side can offer anything the other side can accept. The Greek side probably gets that, and so will use negotiations to make that more transparent. The EU side doesn’t seem to get that, and probably would want to keep that reality as opaque as possible insofar as they do get it, in order to leave the Greek people in some hope of EU reasonableness, so that inertia will keep them paralyzed. The question is how successful Tsipras will be at getting the EU to make its position transparent.

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Markos Valaris 01.26.15 at 11:36 pm

… also, I think Syriza (possibly correctly) believe that their chief negotiating chip is their sheer existence, and popularity inside and outside of Greece — as well as that of Podemos in Spain, and even Five Stars in Italy and Le Pen in France. The Euro is primarily a political project; it cannot survive if it entirely loses legitimacy.

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J Thomas 01.27.15 at 12:20 am

#111 Bruce Wilder Bruce Wilder

Peter K. clearly understood that I was drawing attention to the moral and factual vacuousness of his comment. Why didn’t you?

Because I wanted to give you the benefit of the doubt.

You said you didn’t understand what he was saying. There was the chance that with an explanation we could discuss what he said and how much truth there could be in it etc.

But it turns out you were just pissing on him. And his response was to piss on you back. This pissing match is doing nothing to further the discussion, and as near as I can see you started it.

I wrongly hoped better of you.

Meanwhile various others are attributing the EU strategy to things other than intelligence. For example Glenn Tompkins above argues that they are caught in free-market fundamentalism, and you in #118 quote James Galbraith that they were taking a punitive approach, partly to collect greek assets at fire-sale prices, and using deontic moral language independent of moral outcomes to say it was the right thing to do.

I guess my basic take on this, is probably so obvious that likely everybody in the world understands it and it doesn’t need to be said: Every nation and every corporation or individual who intends to have a permanent positive balance of payments and who succeeds for any long while will find that it does not work. You can collect their assets, their gold and fine art etc. You can buy the rights to their raw materials. You can buy whatever of their businesses are profitable and take the profits. You can buy their homes and rent those homes back to them. But at some point they will simply no longer be able to pay.

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hix 01.27.15 at 1:04 am

It is still possible to have 30 Greeks in a room and not a single one of them will admit their government is bankrupt. And dont get me started what happens when someone calls Mazedonia Mazedonia. But sure, the German austerity masterplan is hurting them soo much and that is the problem -_-.

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John Quiggin 01.27.15 at 1:26 am

I’ve only seen a brief mention of QE. But it amounts to a total repudiation of austerity and of the idea that the ECB must never monetize government debt. The IMF has also abandoned its support of austerity. So, some questions

1. Even if pro-austerity Eurocrats are convinced that this time they’ve got it right with the stress tests etc, who’s going to believe them?

2. If it comes to a showdown, are Draghi and the IMF going to risk disaster to defend a policy they’ve already admitted as a failure

3. If so, why would Draghi have chosen the week before the Greek election to announce QE, years after everyone except the Very Serious People could see it was necessary?

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Anon. 01.27.15 at 1:30 am

What hix hinted at is incredibly important when talking about the situation in Greece. The image that foreigners have of the events is completely different from the internal one. The average Greek believes that the crisis/recession is the result of the sinister plottings of The Germans/The Americans/The Hedge Funds/Goldman Sachs/The Jews. Obviously the political class seizes on this opportunity to deflect criticism from themselves. The idea that perhaps the Greeks and the economic/political system they kept voting for is to blame does not even cross their minds. Hence there is no interest in reforms.

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Bruce Wilder 01.27.15 at 2:12 am

J Thomas @ 133

I did not “piss on him”. I could not interpret his assertion (i.e., The epic housing bubble and financial crisis were not orchestrated.) in a way that made much sense and said so, with no accusation or personal slander involved. That left open the possibility of some more elaborate explanation, that would provide a context, where it made a modicum of sense. As far as I’m concerned, @ 45 Peter K confirmed the hypothesis of original vacuity.

“Stupid or evil?” becomes a cul-de-sac of the mind, when you are unwilling to make even a modest effort to acknowledge strategic behavior.

You can collect their assets, their gold and fine art etc. You can buy the rights to their raw materials. You can buy whatever of their businesses are profitable and take the profits. You can buy their homes and rent those homes back to them. But at some point they will simply no longer be able to pay.

Right. Because they’ve already paid everything. And, that scheme “works” for the party that ends up with all the assets, gold, fine art, rights to raw materials, profitable business, profits, and houses and so on.

This is fundamental to the structure of a money economy, a financial economy: the only economic usefulness of money is as insurance. The guy with the bigger pile of money can sell insurance to the guy with the smaller or no pile. The guy with the big pile can take on bets with a positive expected return; the guy with no pile is forced to choose between risk-averse conservatism or recklessness. In the end, the guy with no pile will either share his winnings with the guy with the big pile, or he will lose everything to the guy with the big pile. It’s the law of large numbers at work, ensuring that the rich get richer as the poor get poorer.

If the whole system isn’t going to end up stuck in some blind alley, where the rich guy has everything, and the poor guy chooses between being the rich guy’s slave, his murderer, or his murder victim, then there have to be reasonable rules for distributing risk. The guy with the big pile of money has to actually bear the risks he can bear; he cannot be allowed to make rules that ad infinitum privatize the profit and socialize the losses, to coin a phrase. There have to re-set procedures — like bankruptcy. Contra the macro-economists, rational expectations will always prove less important that disappointed expectations. There have to be rules against usury, bank (and other financial institution) regulation and there has to be scope for large numbers of the relatively poor to organize social or mutual insurance and public provision of some kinds of investment (e.g. public education).

None of this should be treated as political rocket science, so complicated and esoteric that no one can ever be held accountable, when the manufactured volatility of the financial system is used to destroy people’s lives and loot the countryside. As mcmanus observed @ 65:

If the rich get poorer and the poor get poorer, probably stupidity.

If the rich get richer and the poor get poorer, probably smarts.

hix @ 134 and Anon. @ 136 may represent the level at which much of the discussion — even at a high level among the so-called technocrats, unfortunately — may take place. Greece’s problem is its own moral incapacity, in this view, and the austerity policy imposed from without is scarcely more than incidental: this is an economics of moral virtue or vice, stripped of the arithmetic of cash flows.

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hix 01.27.15 at 2:34 am

As opposed to the Anglo-Saxon old song Germany wants to punish sinners because of calvinism or saving her banks, also Nazi and holocaust level of discussion.

139

hix 01.27.15 at 2:40 am

I meant dont admit their government is bankrupt literarily by the way. They seriously dont admit they (Greece the country) defaulted on their debt.

140

QS 01.27.15 at 2:42 am

The idea that perhaps the Greeks and the economic/political system they kept voting for is to blame does not even cross their minds.

This seems highly suspect considering Syriza just about got a majority share of parliament seats.

I’ve only seen a brief mention of QE. But it amounts to a total repudiation of austerity and of the idea that the ECB must never monetize government debt.

QE is what you get when austerity works too well. It’s a “corrective” that doesn’t require doing something “drastic” like using the state budget to increase macroeconomic demand. So it strikes me that it’s not wholly incompatible with austerity. Regarding QE and Greece, given that Greek debt was taken on to help recapitalize German and French banks, and that we now have the ECB handing out more money to banks/financiers through QE, one wonders whether QE will strengthen Syriza’s hand domestically. If I were Greek, I’d find QE pretty damn upsetting.

I’m sure you’re right, but if you look at Syriza’s history, it’s very far from clear that that’s what they’re referencing with “radical left”

I’m stealing this from elsewhere, but only in a time when Keynesianism is radical and monetarism is mainstream could Syriza possibly be called radical. This is, of course, not what Syriza is referencing (their motif is the raised fist, not supply curves) but it is a nice irony of history.

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Markos Valaris 01.27.15 at 2:51 am

@Hix, Anon, of course, Syriza’s position about calling the Republic of Macedonia “Republic of Macedonia” is well known:

http://www.independent.mk/articles/4381/Greek+New+Democracy+and+Syriza+Clash+Over+Macedonias+Name

Also, the fact that nominal wages have been cut by 40%, collective bargaining severely restricted, limits to lay offs virtually eliminated, etc. clearly shows that such reforms would never cross Greeks’ minds. (Whether these reforms were effective in restoring growth is a different matter.)

But I’m sure you are basing you comments on your deep insight into the darkness of the Greek soul.

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Peter T 01.27.15 at 2:55 am

“The average Greek believes that the crisis/recession is the result of the sinister plottings of The Germans/The Americans/The Hedge Funds/Goldman Sachs/The Jews.”

While this is broadly true, it’s not a Greek specialty. There’s a line across Europe – roughly Danzig to Trieste – where the majority opinion on one side is that it’s all down to plots and conspiracies. The other side, this is a minority opinion. Call it the Paranoia Line. Of course, this being the majority opinion, politics there is pretty much all plots and conspiracies. The mistakes are ones of projection – seeing plots where there are prejudices and fumbles, and seeing open motives where there are indeed plots.

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Peter K. 01.27.15 at 3:00 am

@ John Quiggin #135

“I’ve only seen a brief mention of QE. But it amounts to a total repudiation of austerity and of the idea that the ECB must never monetize government debt. The IMF has also abandoned its support of austerity. So, some questions”

I thought it might be significant that Draghi just announced a big QE the other day right before the elections. Dsquared made a point in his Medium piece that the ECB had to get its ducks in a row over the stress tests first so January was the earliest the ECB could start given the bad European data we’ve seen in recent months. Who knows? But yeah I read a forwarded tweet of a conservative German professor who called WE Draghi’s “march into monetary socialism”!

https://twitter.com/schieritz/status/557851857008484352

“1. Even if pro-austerity Eurocrats are convinced that this time they’ve got it right with the stress tests etc, who’s going to believe them?”

That’s my view. If there is a Grexit, I wouldn’t be surprised if there’s panic.

“2. If it comes to a showdown, are Draghi and the IMF going to risk disaster to defend a policy they’ve already admitted as a failure”

Agreed. The QE is essentially an admission of failure.

“3. If so, why would Draghi have chosen the week before the Greek election to announce QE, years after everyone except the Very Serious People could see it was necessary?”

As I said above, Dsquared writes in his Medium piece that the ECB had to get through the stress test first, but come on, the announcement and the elections were days apart!

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JW Mason 01.27.15 at 3:04 am

dsquared@115-

Thanks for the response.

1) that surplus includes quite a lot of one of privatisation receipts
2) if you default on the debt you bust the Greek banking system which leads to € exit via a number of failure modes
3) if the “anti-austerity” party just runs the same surplus budget people would ask what they’re for.

On 1, of course you are right, it would be foolish to take the reported numbers at face value. It’s quite possible the primary surpluses are a mirage. But it seems to me that if they aren’t, the situation is a bit different, since (a) a post-default Greek government will not face the problem of getting someone to hold its new debt and (b) suspension of debt service will immediately open up space for increased spending in other areas. Of course it might turn out that the space opened up is not enough to satisfy Syriza’s constituents, which is your point (3). But it does seem that, all else equal, a country with a primary surplus is in a much better position to default, since it does not depend on access to credit markets to maintain its current level of spending.

Your second point is the one I’d like to understand better…

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Peter K. 01.27.15 at 3:06 am

@ John Quiggin #135

I always saw Bernanke QE3 – which was big and had forward guidance – as insurance against the Republicans going loco with their fiscal cliff brinkmanship and shutting the government as part of their debt ceiling clown show.

It could also be that Draghi’s QE was done in part as insurance. The markets are remarkably calm given that a supposedly “radical” coalition is taking over power in Greece.

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Peter K. 01.27.15 at 3:16 am

@QS #140

“Regarding QE and Greece, given that Greek debt was taken on to help recapitalize German and French banks, and that we now have the ECB handing out more money to banks/financiers through QE, one wonders whether QE will strengthen Syriza’s hand domestically. If I were Greek, I’d find QE pretty damn upsetting.”

On the one hand the German conservatives see QE as “monetary socialism” so it will upset them and then giving into the Greeks (or rather taking the boot off their necks) will upset the conservative Germans and Northern Europeans even more. Angela Merkle is no doubt is unhappy with both of these developments as she’ll get an earful. Still she’s in a strong position, domestically.

But couldn’t the German banks just take the money they’re getting from QE and pass it on through to the Greeks? I don’t see why thsi would bother either the German banks themselves or the Greeks.

147

JW Mason 01.27.15 at 3:24 am

Or, as you say in your (very helpful) Medium piece, it does make a difference whether Jim is just breaking even in terms of his own budget, or if he is actually making significant payments to Aunt Agatha.

I don’t think that’s the main argument on the Greek left, though. I think they would say — as you do — that the real issue is the political one. In terms of your Medium piece, the big problem isn’t the modest payments Jim is now making to Aunt Agatha. It’s the fact that he spends all his time thinking about what will keep his aunt happy, instead of what would be good for him. Similarly here. The problem isn’t the (modest) debt service payments Greece is making now, the problem is the political program the debt is being used as leverage for. The debate isn’t really about Jim would be better or worse off, financially, if he cut ties with Aunt Agatha. It’s about whether Aunt Agatha is giving him stern but ultimately helpful advice about prudent living, or whether she is making him keep his life on hold while he caters to her every whim. You can find that scenario in novels too.

148

JW Mason 01.27.15 at 3:36 am

For what it’s worth, Paul Krugman agrees with me (or I agree with him): The current primary surpluses are not trivial, but the more important issue is the real costs of the policies being required as a condition of rolling over the debt.

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Glen Tomkins 01.27.15 at 3:45 am

@136

“The average Greek believes that the crisis/recession is the result of the sinister plottings of The Germans/The Americans/The Hedge Funds/Goldman Sachs/The Jews.”

They’ve got it right on the first four. Four out of five isn’t bad. And that fifth one on your list would only be a valid criticism if they’ld voted in Golden Dawn rather than Syriza.

“The idea that perhaps the Greeks and the economic/political system they kept voting for is to blame does not even cross their minds. Hence there is no interest in reforms.”

Oh, I don’t know. They just voted in a literal Godless Communist. You presumably don’t agree with the direction of that reform, but it is a rather big change. When they kept voting for govts that sold them out first to foreign banksters like G-S, then to the EU, that showed a lack of spine and pride and self-confidence. Now it seems we are going to see at least that particular vice reformed.

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QS 01.27.15 at 4:18 am

But couldn’t the German banks just take the money they’re getting from QE and pass it on through to the Greeks? I don’t see why thsi would bother either the German banks themselves or the Greeks.

I think it’s even simpler. If they’re printing money to inflate the eurozone, making an inflationary policy the standard, why not also forgive Greek debt? Or go further, and spring a new Keynesian development program in the European South? We know the answers to these questions, which are both political and economic. (1) The EU masters want to inflate the eurozone but just enough to stave off deflation. Financial instruments rely upon low inflation rates to protect future earnings. (2) State-led growth implies the state is useful for something beyond keeping order, that it may even be useful in economic matters. This shatters the state-economy binary central to neoliberalism. (3) Germany wants to maintain hegemony in the EU. In ideational terms this means maintaining austerity/monetarism as the commonsensical framework/rulebook, and in political terms it means drawing lines and enforcing them (i.e. “we had an agreement, you pay or else”).

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dsquared 01.27.15 at 4:22 am

148: well, then we get to the limits of hire far the analogy can stretch. Because a lot of the policies that Greece has been implamenting under troika pressure have been of the form “you should only get a civil service salary if you are actually doing a civil service job and showing up for work every day”.

Now obviously, if this hasn’t been the policy in the past, then implamenting it is potentially very contractionary; thousands of political cronies lose their income, and conditions mean it’s very difficult for them to get a proper job. But how much cronyism can you really expect foreign lenders to finance?

In principle, the contractionary effect of cleaning up Greek politics could have been offset by infrastructure investment. But nobody (including Yanis Varoufakis) trusted the state to do that either.

People really do underestimate the difficulties faced by a totally corrupted state in getting people to take it seriously.

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geo 01.27.15 at 4:52 am

dsquared@151: How would you estimate the relative proportions of responsibility for the Greek predicament of 1) civil service cronyism of the type you mention and tax avoidance by the Greek 99 percent vs. 2) corruption and tax avoidance by the Greek 1 percent and 3) irresponsible lending by French and German banks?

If this is not a useful question, would you explain why not?

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QS 01.27.15 at 5:52 am

People really do underestimate the difficulties faced by a totally corrupted state in getting people to take it seriously

Oddly enough, I’m teaching Machiavelli’s Discourses this week, where he says much the same thing. But in this case, in the frame of Greece vs Germany, the issue is complicity. Corruption in Greece is not wholly owned by the Greeks. An equitable outcome would reflect that. At the least, this fact is not lost on the Greeks, giving Tsipras more (electoral) security should he go the hard route.

154

dsquared 01.27.15 at 6:25 am

152: 70 / 20 / 10. And the 10 would be on the basis of generalising from French and German banks to all creditors. Greece is an OECD sovereign; it’s just not irresponsible to buy their bonds and for the longest time it was even reasonable to think it would be baled out by the EU.

I would shift the balance of the rest significantly if we were talking about tax evasion generally, but the 1% is a small part of the overall tax collection problem in Greece.

But yes, this is why I find it very frustrating to discuss this with American and British liberals; they’re so used to thinking about their own, generally competent and honest civil service that they find it very hard to understand the reality of Greece.

155

ZM 01.27.15 at 6:37 am

“But yes, this is why I find it very frustrating to discuss this with American and British liberals; they’re so used to thinking about their own, generally competent and honest civil service that they find it very hard to understand the reality of Greece.”

I think that might be sort of part of the problem. Tax avoidance is an issue in South Africa too – partly because people refused to pay taxes as a protest against apartheid and then often they still don’t like to pay taxes since there are still lots of problems and inequality. Also in cultures where ties between people are important, and governments are not especially well liked, what is corruption by anglo norms can potentially be seen as a hybrid response to modernisation or something along those lines. Although I admit this sort of analysis does not really offer any help for the present plight of Greece.

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Markos Valaris 01.27.15 at 7:04 am

… so, Krugman seems to be looking at the bargaining stakes in the same way I suggested in 130 above:

http://krugman.blogs.nytimes.com/2015/01/26/greece-think-flows-not-stocks/?_r=0

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shah8 01.27.15 at 7:09 am

dsquared…

no.

Sometimes I have a great deal of trouble treating knowledgeable people like you seriously. It’s like you’re some dude, way, way, back in in Chester A Arthur’s time, and being all muckrackety. Tammany Hall was a long time ago, and wasn’t exactly as much a force for evil as people like you seem to think. The attitude that Greek’s problems come from a surfeit of no-show jobs renders me gobsmacked–or would if I wasn’t entirely regrettably disillusioned on the score of liberal intellectual attachment to reality. Elementary reasoning would have you ask who gets the crony jobs and why, and if you’re at all an experienced observer of such social phenomenons, you’d pretty quickly recognize that they are functional (or nonfunctional as you please) placeholders for a variety of inside deals that elites make with the central government. As such, it is not…actually…possible for elites to only be causing 20% of the damage if you believe that civil service corruption causes 70%.

Moreover, just only from the top of the head, one can easily remember vender financing schemes such as what is recalled in the NYT only a year ago: http://www.nytimes.com/2014/02/08/world/europe/so-many-bribes-a-greek-official-cant-recall-all.html?hpw&rref=world&_r=0

I certainly remember vendor financing issues wrt imports of heavy machinery and cars.

And even with all that considered…Greece has a problem because the real services it (and any decent state) must provide, like health care, pensions, educations, etc all ballooned the way inflexible costs always do. Austerity is the means toward addressing *this* problem…while making high minded moralistic tales about corrupt school administrators. It’s not as if this sort of corruption isn’t a huge problem–it is, but the main effect of that corruption is to slow the overall Greek economy from optimal growth, AND that this corruption is pretty much led from the top, essentially as an invisible (or not as circumstances warrant) tax during good times. I’m just tired of intellectuals talking, in effect, how not everyone “deserves” hospitals or schools or decent government in general. DD might think he indeed supports hospitals and schools and everything decent, but that’s because they’re like Mom, Apple Pie, and Santa. However, this support tends to be just WWWWAAAAAAAYYYYYY too contingent. Sometimes a country really can’t support even minimal facilities/pop, and that’s bad. Most of the time, the absence of such facilities have a lot more to do with what any particular government is *allowed* to do. Guinea, Liberia, and Sierra Leone are all massively corrupt countries with miniscule public facilities. That bit them when it came to Ebola, right? But check out how the IMF essentially forced these WA countries to underserve health care as part of their commitments in turn for IMF help. Check out how these countries have ultra-low wages that can’t pay for shit, and the consequential brain drains, including doctors, that results. As it was, we dodged a major bullet in the sense that Ebola in WA was pretty much always what it was, and was only amplified by high pop density, porous borders, and better roads. What if Ebola had actually mutated a bit to survive better outside the body? Or survive in rats or dogs as hosts? Then the bad infrastructure would have created the slow response that then makes the cost for said late response larger and imposed quite a bit more on people who aren’t West Africans.

How much longer do any of you all in Crooked Timberland think we’ve got before reality makes inane austerity utterly untenable. Like no trade with countries that have bad health care systems (like what happened to WA these last few months), no trade with countries that do not have similar labor laws and costs, no trade without being part of a CO2 amelioration pact.

Or perhaps, we’ll just make do without governments, because they’ll no longer be able to fund themselves. Nobody trusts them to not be corrupt with their tax dollars. That mysteriously ends up in Western banks and Western real estate.

/rant

158

js. 01.27.15 at 7:24 am

Is there some sort of due diligence the EU is supposed to conduct before it lets a state join the union? And if there’s not, ought there to be? I’m asking becausd it seems to me that there’s some tension in simultaneously holding that (a) Greece is utterly corrupt and thus unlike “competent Western liberal democracies and that (b) it was perfectly responsible of European banks to lend to Greece because it’s an OECD sovereign. I’m sure there’s some bit I’m missing that’s supposed to reconcile (a) and (b), but I would like further enlightenment on that point.

159

QS 01.27.15 at 7:40 am

@158

Obviously it was a surprise, otherwise European banks would never have lent such money to Greece. Loans are made based on credit-worthiness! But the Greeks fooled everyone and so it’s only fair that their youth and pensioners should suffer retribution. The sanctity of the EU demands it.

160

Ze Kraggash 01.27.15 at 8:09 am

I read estimates for the cost of the Iraq war from $2 to $6 trillion. Why so much drama about pitiful $300 billion?

161

J Thomas 01.27.15 at 8:14 am

#137 Bruce Wilder

I did not “piss on him”. I could not interpret his assertion (i.e., The epic housing bubble and financial crisis were not orchestrated.) in a way that made much sense and said so, with no accusation or personal slander involved. That left open the possibility of some more elaborate explanation, that would provide a context, where it made a modicum of sense.

Ah. Good.

Peter K. clearly understood that I was drawing attention to the moral and factual vacuousness of his comment. Why didn’t you?

I misunderstood your later response to mean that he correctly understood you were not asking for an explanation but making an attack.

“You can collect their assets, their gold and fine art etc. You can buy the rights to their raw materials. You can buy whatever of their businesses are profitable and take the profits. You can buy their homes and rent those homes back to them. But at some point they will simply no longer be able to pay.”

Right. Because they’ve already paid everything. And, that scheme “works” for the party that ends up with all the assets, gold, fine art, rights to raw materials, profitable business, profits, and houses and so on.

Given a fixed supply of stuff, that “works”. You own all the stuff and they are your slaves. But we don’t have fixed supply.

It might “work” given finite resources. If there’s only so much oil to go around, then I’m better off when I own it all and I can use it for my family and my friends and stretch it out until it’s all gone. Why should I waste any of it on people I don’t need?

Apart from that, it doesn’t work. I benefit from the scientific and technical advances of the whole world. The fraction of people who do as they are told on strictly limited resources are worthless for that. I benefit from comparative advantage, from other people doing what they’re extremely good at and selling to me for less than I could do it myself. People who lack the capital to become good at something are not much use to me. I can buy their hand-carved folk crafts when my vacation tour stops at their quaint port city, and maybe I can throw them a few coins to let me photograph their native dances.

When I “win” by denying other people resources, my standard of living does not go up. Unless it’s fixed resources.

If I play marbles with people and I win all the marbles, it doesn’t matter a whole lot to me that I no longer have anybody to play marbles with. The whole point of playing marbles is to win all the marbles. Similarly when I win a Monopoly game and the game is over. I wanted the game to end with me the winner. That’s what I was playing for. But the world economy shouldn’t be like that.

This is fundamental to the structure of a money economy, a financial economy: the only economic usefulness of money is as insurance. The guy with the bigger pile of money can sell insurance to the guy with the smaller or no pile. The guy with the big pile can take on bets with a positive expected return; the guy with no pile is forced to choose between risk-averse conservatism or recklessness.

Jesus said that, in the parable of the talents.

He also who had received the one talent came and said, “Lord, I knew you that you are a hard man, reaping where you did not sow, and gathering where you did not scatter. I was afraid, and went away and hid your talent in the earth. Behold, you have what is yours.”

But his lord answered him, “You wicked and slothful servant. You knew that I reap where I didn’t sow, and gather where I didn’t scatter. You ought therefore to have deposited my money with the bankers, and at my coming I should have received back my own with interest. Take away therefore the talent from him, and give it to him who has the ten talents. For to everyone who has will be given, and he will have abundance, but from him who doesn’t have, even that which he has will be taken away. Throw out the unprofitable servant into the outer darkness, where there will be weeping and gnashing of teeth.”

If the whole system isn’t going to end up stuck in some blind alley, where the rich guy has everything, and the poor guy chooses between being the rich guy’s slave, his murderer, or his murder victim, then there have to be reasonable rules for distributing risk.

And there are not. How can we bell this cat?

162

Ze Kraggash 01.27.15 at 8:47 am

“When I “win” by denying other people resources, my standard of living does not go up.”

A capitalist entity wants to control, as much as possible, capital, resources, and labor and consumer markets. That’s the game.

Any given individual may desire, above all, peace on earth and happiness for all, but as long as they operate in this political economy, they have to play. All in the game, yo… all in the game.

163

dsquared 01.27.15 at 9:16 am

Shah8, please don’t comment on my posts any more.

164

dax 01.27.15 at 9:31 am

I largely agree with d^2. I’d disagree primarily with “Their long term goal is, remember, for the Euro to cover as much of the EU as possible.”

First, if Greece leaves the euro, there is a good chance that it will be forced out of the EU as well.

Secondly, it’s amazing how much has changed in ten years. Ten years ago, it was the French, with the help of the Germans, who were running the EU. Now France has almost disappeared. I mention this because it was the French (and the worried Anglo-Saxons looking on the outside in) who thought of the EU as an empire-sort of thing. The Germans and everyone else, not so much. So I don’t think many today will care if Euroland, or the EU, becomes a little smaller, if that means the rest of the EU/Euroland, has a better chance of prosperity.

And thirdly, I have my doubts about any analysis of the relative strengths of the two sides which does not include “London law” in its analysis . Maybe I’m misinformed, I don’t know. But it seems many think that Greece can simply decide unilaterally not to pay back its debts, and all the creditors can do is say, “Well okay, sorry we bothered you,” just before they slink away into the moonlight. Under London law there’s going to be a decent recovery for those debts, and it’s not going to be pretty to the Greek economy.

165

Markos Valaris 01.27.15 at 10:11 am

151: “People really do underestimate the difficulties faced by a totally corrupted state in getting people to take it seriously.”

Which is presumably why no one takes Jean-Claude Juncker seriously any more!

Sorry, couldn’t let that go. But of course you are right regarding the justified difficulty any Greek government will have in trying to be taken seriously.

166

Harald K 01.27.15 at 10:22 am

Bruce Wilder@137:

“Stupid or evil?” becomes a cul-de-sac of the mind, when you are unwilling to make even a modest effort to acknowledge strategic behavior.

There’s that “folk theorem” of game theory, which I think would apply here? Which suggest that maybe a punitive attitude may be a defensible strategy if you expect this sort of thing to keep happening, but so may many other strategies. If you pick a strategy that entails a lot of human suffering (I don’t much believe that those kids now living below the poverty line in Greece are there because their parents lost sinecure jobs, by the way), when having other strategies available and knowing it, isn’t that evil?

167

Harald K 01.27.15 at 10:27 am

By the way, if I’m interpreting the folk theorem wrong in saying it’s a game-theoretic rationale for practically anything, I blame dsquared. That’s where I first heard of it. But to me, the arguments for austerity/for continued austerity/against whatever Syriza is up to sound a lot like the “credibility” and “stay the course” arguments that dsquared criticized in 2006.

168

J Thomas 01.27.15 at 10:43 am

Was this the dsquared link you wanted?

http://crookedtimber.org/2006/11/29/reputations-are-made-of/

169

Chris E 01.27.15 at 10:58 am

“The fact is, everyone knows that the total burden of Greek debt is too big to be serviced by the Greek GDP, and that if it isn’t written down, then Greece will always be reliant on an increasing stream of official financing to meet its roll-overs. Everyone also knows, although some of them might not be ready to admit it to themselves, that an indefinite commitment to financing the roll-over of an ever increasing debt burden is a fiscal transfer in all but name.”

The thing is, even if you take this view, the ‘transfer’ is clearly not enough – unless maintaining Greece in its current situation of near economic collapse is thought to be sustainable. Secondly, at some point the books will have to be squared – and you could argue that there are various ways in which this is not being priced in currently.

170

J Thomas 01.27.15 at 11:54 am

OK, game theory.

Let’s say that each national economy has a collection of “elite” people who suck their resources. (I’m not at the moment interested in moral judgement, I want to just look at what happens. So I don’t care about why they have a right to do that.) And somebody in each nation is basicly playing Monopoly. The winners can sprinkle their winnings over their nations if they choose to, providing jobs and consumer goods etc.

The losers don’t have as much. They must cut the resources they give to their elites, or their proles, or both.

If they cut bennies to the elites, some of those elites might pack up and leave. They are somewhat cosmopolitan and could easily find somewhere else to live, taking their accumulated winnings with them. Also a lot of what makes them elite is their blackmail material, kickbacks etc on the guys who make the choices. If they cut bennies to the proles, a lot of proles will be angry at somebody and a lot of them will be depressed.

If a nation has been losing for a long time people just expect it, it’s simply a consequence of the iron laws of economics or something, nobody has any responsibility to change it. But if a nation starts losing that hadn’t been losing before, then people ask why and want the losing streak to change.

But what change? If they take stuff from the elites to prop up the proles, some of those elites are playing Monopoly and their chance to win is less when they have less cash to spend. And when the money is spent, it’s gone. Alternatively if they take stuff from the proles to prop up the elites, that’s bad too. The nation becomes a less attractive place for elites to live, and reduced education and infrastructure etc makes it a worse place to build Monopoly hotels.

The easy short-term solution is to borrow from the successful players, in return for a share of your rental income. But after awhile you don’t have much rental income to give them. They say your elites have lost the game so they should go be proles. But instead your nation cuts services to the proles and says to their creditors “Look at these cute puppies, when bad things happen to them it’s your fault. You’ll pay for them, won’t you?”

And the creditors say “Why should we give you money for your cute-puppy-proles when you’ll just spend it on your elites? No, when your proles starve it’s your own fault. We’ll give you more money provided we see you suffer while you pay us back.”

Game theory. Like when we had sanctions on Iraq. We said we were punishing the Iraqi people because Saddam was a bad guy. Or maybe we were punishing the Iraqi people for not overthrowing Saddam. Saddam said we were punishing the Iraqi people for nothing. Everybody tried to argue that the punishment was somebody else’s fault and not theirs.

Greece maybe has it extra bad because their gamblers don’t particularly gamble on Greece. If they own ships, the ships don’t depend on Greek sailors etc. Greek ports aren’t important ports. Why would they care about greek infrastructure etc? If taxes get too high they can just sail away.

So the plight of Greek proles is very sad but anybody who feels responsible for them can be manipulated into making losing moves in the game. Rather than do anything to help them, it is more practical to argue that they are somebody else’s fault and see if you can shame the other guy into doing something about them.

171

Harald K 01.27.15 at 12:12 pm

J Thomas, yes, thanks for the corrected link. But I was thinking about the game between Greece’s government and its creditors, not between rich and poor.

172

Charrua 01.27.15 at 1:27 pm

Daniel writes that it’s difficult for totally corrupt state to be taken seriously, and I agree with that.
But, having lived in a pretty corrupt state and next door to two completely corrupt ones, I feel like the other question should be ¿Is there any precedent for the kind of “structural reforms” that the EU imposes to have any kind of de-corrupting benefits?.
Eurocrats can say “allright, let’s cut public employment by half”, but I don’t know if the Eurocrats can make sure that the guys fired are the cronies, after all.
That kind of pervasive corruption is often so deeply ingrained in all forms of social interaction that it seems to me that an effective reform would require a very high level of micromanaging and the willing, enthusiastic participation of the local elite and society in general.
Or to put another example, American armed forces were in Irak rebuilding the Iraqi Army from scratch for more than a decade. They had WAY more direct control and leverage than the EU has over Greece. By the time they went home, generals were stealing their men’s food and charging a fee for letting soldiers go home and collect pay.
So pardon me if I’m a skeptic on the benefits of said “structural reforms”.

173

otto 01.27.15 at 1:35 pm

Because a lot of the policies that Greece has been implamenting under troika pressure have been of the form “you should only get a civil service salary if you are actually doing a civil service job and showing up for work every day”.

Is that correct? A large number of Greek civil servants – I suppose teachers, police etc – don’t show up for work every day?

174

Bruce Wilder 01.27.15 at 2:04 pm

Then, there are the sale of public property and assets, aka the looting, required by the Troika.

175

Barry 01.27.15 at 2:21 pm

Charrua 01.27.15 at 1:27 pm
“Daniel writes that it’s difficult for totally corrupt state to be taken seriously, and I agree with that.”

Considering how both the USA and the UK (IMHO) seem to be sliding down the corruption slope, ….

176

MPAVictoria 01.27.15 at 2:23 pm

“Is that correct? A large number of Greek civil servants – I suppose teachers, police etc – don’t show up for work every day?”

Yeah… I am really skeptical of that claim but happy to be corrected. Anyone have a link?

177

Anon. 01.27.15 at 2:35 pm

@158 js

Greece used fake statistics, both to join the Euro and to keep borrowing cheaply. When they brought in someone to do the job properly (the budget deficit went from 3.7% to 15.8% when they started counting everything), the politicians and unions reacted not by accepting that past statistics were falsified, but by prosecuting him. Have a read here: http://www.voxeurop.eu/en/content/article/3555681-andreas-georgiou-learns-unwritten-rules-greek-statistics and here: http://www.spiegel.de/international/europe/chief-greek-statistician-charged-for-revealing-true-size-of-debt-a-882942.html

You could say it was naive of the EU and lenders to accept these numbers at face value. And it was: it didn’t cross their poor minds that their fellow Europeans could be so different. But I don’t think there’s much to be gained by blaming the victims, I’m sure they will be more vigilant in the future.

Ultimately the problem is that northern Europeans think of Greece as a worse version of Germany, when in reality it’s a better version of the USSR.

178

Anon. 01.27.15 at 2:53 pm

@176 MPAVictoria

Obviously no numbers exist, but patronage/clientellism has been the MO of every government since Papanderou/Karamanlis. The “patronage” section here: phttps://www.opendemocracy.net/openeconomy/takis-s-pappas/causes-of-greek-crisis-are-in-greek-politics is a good primer on how the system works. How many of these people actually show up at their jobs…nobody knows. It really depends on the type of job, the “better” positions are designed in a way to make monitoring them impossible.

179

Nine 01.27.15 at 3:58 pm

js@158 – “Is there some sort of due diligence the EU is supposed to conduct before it lets a state join the union?”

js – I had an identical query when this topic was last discussed a couple of years ago because the excuses on offer then seemed all too similar to the apologia issued on behalf of sub-prime mortgage lenders – they were taken in by dishonest borrowers etc ! Someone (not dsquared) responded by posting a link to a document on finance industry risk mitigation protocols or something similar – the implication being (i think) that it was all too complicated for non-experts who should stand down leave mateers to the experts.

180

Nine 01.27.15 at 4:01 pm

“You could say it was naive of the EU and lenders to accept these numbers at face value. And it was: it didn’t cross their poor minds that their fellow Europeans could be so different. But I don’t think there’s much to be gained by blaming the victims, I’m sure they will be more vigilant in the future.”

js@158 – Right on cue. You can’t make this shi*t up. Does’nt your heart bleed for naive euro-bankers ?

181

J Thomas 01.27.15 at 4:50 pm

#171 Harald

But I was thinking about the game between Greece’s government and its creditors, not between rich and poor.

To my way of thinking, this is normally the game between the minions of Greece’s rich, versus foreign rich. The poor are not players at all, they are bargaining chips and hostages. If any player cares about them, everybody else will use that care as a club to beat them into submission.

So all the actual players must demonstrate to each other that they care nothing about Greece’s poor people to get that tactic out of the way.

Now there is a new Greek government that is supposed to represent the poor, and nobody knows what they will do. I suggest that at a minimum they will do their utmost to make sure that anything which happens that the poor don’t like, can be blamed on somebody else. But if it looks like they actually care what happens to their poor people, then all the other players will look for things they can to to hurt Greek poor people — to use as bargaining chips.

182

politicalfootball 01.27.15 at 4:50 pm

So if the Greek disaster is primarily the fault of Greek corruption and mismanagement, what happened in Spain, Italy, Ireland and Portugal? Greece has been damaged by corruption for a long time, but why did the chickens really only come home to roost after adoption of the Euro?

I feel like I’m missing the point somehow. Everybody knows there’s something pretty seriously wrong with the Euro – surely nobody here is denying that. Why is Greek malfeasance – beyond choosing to adopt the Euro – such an interesting topic when assessing blame for a regional disaster?

183

Roger Gathmann 01.27.15 at 5:00 pm

When the rules are corrupted, as they have been in the neo-liberal regime, I think the term corruption becomes unhelpful. Carlo Bastasin noted something key about the pre-crisis state of Europe in his book on the Euro crisis, Saving Europe: “Even Germany had a secret that allowed it toaccommodate the challenge of globalizatin under monetary union, and actually became a primary cause of the crisis. German banks could get money at the lowest rates in the euro zone, and invest it for a decade in higher yielding assets: for much of the 2000s, those were not only American toxic assets but the sovereign bonds of Greece, Ireland, Portugal, Spain and Italy. For ten years this German version of the carry trade brought substantial profits to the German banks – on the order of hundredds of billions of euros – that did not show up on their balance sheets because the money was transferred to German firms as low-cost loans or to the German political system in the form of abundant financing for regional projects such as infrastructure development. Those profits, paid by other countrie’s taxpayers, enabled Germany to master, like no other, its restructuring for the global challenge. The relevance of this source of profit is amazingly neglected,although between 1997 and 2008 Germany exported two thirds of its substantial domestic savings. The total amount of German capital exported between 2002 and 2010 was above 1 trillion euros, which, thanks to the euro, could be rewarded at rates far higher than the cost of provision and without currency risk.” After profiting by investing in highly risky ventures, for which they earned a higher interest rate, we are supposed to cry big tears because the risks blew up in their face, and all of Europe has to repair that hole in their pockets.
I think not. Perhaps the EU will muddle along with or without Greece, but I think by the end of the year it may well be without Greece, Spain and perhaps Italy. It is time for the EU to become something other than the extension of the German Id. This, I think, is a more likely outcome than the peaceful spread of the EU throughout the European world.

184

TM 01.27.15 at 5:07 pm

dquared 163, are you gonna ban anybody who disagrees with you on CT? Why don’t you continue this debate alone. Your behavior is as disgusting as it is telling. Why are you so invested in justifying the utterly unjustifiable, the horrific havoc wrought by austerity in Greece? You don’t even make the slightest effort to provide the slightest evidence for your ludicrous Stammtisch-Tirades. Utterly disgusting.

185

shah8 01.27.15 at 5:07 pm

dd, that’s ridiculous. I vented on you no more or less than several other people. I did expect you to be thin-skinned, so your thin reply was not a surprise.

And you know what? Most of the time, I don’t really take the trouble to write rants unless there was something really wrong with what was said, and I know enough about politics/economics/geopolitics/history in the background to know that what you said in terms of causation was pretty much 100% wrong. And I am very sick of public intellectuals being utterly blinkered in their reasoning, but said reasoning was resolute in blaming the people with the lesser/least power with the most damage, with little evidence. So much of the time, it’s just antidemocratic dross which should be pointed at and laughed at for the safety of all.

186

TM 01.27.15 at 5:19 pm

Does anybody deny that nutrition, health care, education, economic production and so on in Greece – corruption and all – were better before austerity than now? If you (the defenders of the “corruption” thesis) are denying it, what is your rationale – that all those statistics were cooked and only now we know the truth (even though the culture corruption as you claim hasn’t really changed)? I guess it’s not logically impossible but it would require some more convincing arguments than just making outrageous claims.

187

js. 01.27.15 at 5:28 pm

Nine @179/180:

Right, exactly. Anon. essentially just admits that there was no due diligence and now we’re supposed to feel oh, so bad for the European elites that helped engineer this disaster. Well, Anon., if any of them comes around, I’ll be sure to give them a cookie.

188

TM 01.27.15 at 5:29 pm

Re cooked statistics when Greece joined the Euro: It was well known to everybody that almost any country admitted to the Euro – notably including Germany – had to use some extent of creative accounting to nominally fulfill the stringent monetary criteria. This was never a case of “naive bankers” being duped. The Euro was a political decision and those in charge very consciously decided to make Euro accession a priority while pretending to play by the rules (a policy that in itself created perverse incentives). As to the international financial system, I understand there is significant evidence of direct collusion between bankers and “corrupt” Greek politicians to commit accounting fraud, always with considerable profit to the bankers. I believe that some of this evidence has been discussed on CT and hopefully somebody can provide the links (I don’t have the time right now).

189

TM 01.27.15 at 5:31 pm

But of course, we ought to feel sorry for the bankers and tough on the suffering Greek children who can’t be that innocent now can they?

190

The Temporary Name 01.27.15 at 5:32 pm

The reward for working more days appears to be working more days and less of everything else.

191

Bruce Baugh 01.27.15 at 5:36 pm

Charrua asks a crucial question: Is there precedent to give us any reason to think that favored prescriptions can actually do the job they’re supposed to? We’ve seen that austerity in general sure doesn’t; does anything else they’re pushing have a better footing?

192

dax 01.27.15 at 5:40 pm

In a complex situation “primarily” at fault doesn’t seem to have much concrete meaning. There’s fault everywhere. Wonderful. Fault isn’t going to determine what happens next. What happens next will be determined by the respective strengths of the two sides – and Greece (IMO anyway) has much the weaker hand. And those who encourage Greece to default or exit the euro are encouraging behaviour which will be enormously destructive to Greece – and, need it be said, to the poor in Greece.

193

dbk 01.27.15 at 5:43 pm

@188
I think you’re referring to the currency swap deals arranged by Goldman Sachs.
Cf.
http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html
and
http://www.wsj.com/articles/SB10001424052748703791504575079743591308292
The facilitating banker was a woman in their London office.

194

TM 01.27.15 at 5:44 pm

“What happens next will be determined by the respective strengths of the two sides”

It would be useful to actually identify who is meant by “the two sides”.

195

dax 01.27.15 at 5:46 pm

Greece and the troika would be two sides.

196

J Thomas 01.27.15 at 5:56 pm

#185 Shah8

Most of the time, I don’t really take the trouble to write rants unless there was something really wrong with what was said, and I know enough about politics/economics/geopolitics/history in the background to know that what you said in terms of causation was pretty much 100% wrong.

I didn’t see him talking about causation. I saw him talking about tactics. What is the Greek government likely to do, what is ECB etc likely to do in response.

I don’t see any justifications there about why any of them are morally right to do what they do.

It’s like a war correspondent in WWII on the eve of some battle in eastern europe talking about what the nazi generals will do and how the russian generals will respond. Nothing there about which side is right to fight the war, just stuff about which side is likely to do better in the battle and how it will affect the war.

And I am very sick of public intellectuals being utterly blinkered in their reasoning, but said reasoning was resolute in blaming the people with the lesser/least power with the most damage, with little evidence.

I see nothing there about who to blame. He’s only writing about likely outcomes.

He talks like nobody is really in control, but the Eurozone people probably are prepared well enough to do OK regardless what the Greeks do.

My own uniformed guess is that he’s probably right about the tactics, a topic where he has expertise. But the strategic concerns may change things faster than he expects, and nobody’s a proven expert on those.

I think that after everybody sees what happens to Greece, a lot of them will be concerned for themselves. Dax points out that France used to be central in running the EU and now is not. If the German system keeps working, if people all over europe put money in German banks where it’s safe and that money is used to deconstruct their own economies — why would France be safe? They could be the last one left after each of the others has been thrown out of the troika to the pursuing wolves….

The other players may decide something has to be done to change the system, maybe something drastic. But what would they do? Maybe something drastic. I don’t think we have any experts who can predict that, though we may have experts who can estimate a minimum delay before it can happen.

Anyway, I don’t see Daniel saying anything at all about what ought to happen. He’s only given us an expert opinion about what’s likely to happen.

197

The Raven 01.27.15 at 5:57 pm

Now here is a thought which scares me: if Syriza fails, the next government in Greece will probably be formed by the Golden Dawn.

198

MPAVictoria 01.27.15 at 5:58 pm

“Greece and the troika would be two sides.”

The Greeks should have left the Euro 3 years ago…

199

Ronan(rf) 01.27.15 at 6:00 pm

“So if the Greek disaster is primarily the fault of Greek corruption and mismanagement, what happened in Spain, Italy, Ireland and Portugal? Greece has been damaged by corruption for a long time, but why did the chickens really only come home to roost after adoption of the Euro?”

Well this is the obvious point. Macro economic events have macro economic causes, and all that ?
My impression is that dsquared is just arguing back against the simple story of the ‘evil euro elite’/german monsters narrative, but is unfortunately creating a mirror image morality play in its place where peripheral corruption/clientlism is a major factor in creating the crisis (rather than an explanation for the specific form it took in each country) This is obviously wrong, afaict, although I’m no expert by any means.

Yes the Greek political economy functioned , at all levels, like some premodern system for clan based gift exchange(if the system existed in modern day Beverly Hills), and yes the european elite are dealing with a difficult situation incredibly incompetently while also having to placate a financial sector run wild on it’s own corruption/self pity. Where does rehashing all of this get us, at this late hour ?

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TM 01.27.15 at 6:07 pm

195: The “Troika” isn’t just one side, it’s at least three (see JQ’s concurrent piece). “Greece” is also hardly a monolithic entity. There are a diversity of different “sides” and interests involved in this matter. I’m surprised by how little attention is being paid to public opinion. Syriza has a lot of sympathy at least in Italy, Spain and France (Hollande’s party has welcomed Syriza, and Podemos is going to win the Spanish local elections in May I believe). Maybe I’m being naive now but I don’t think this is totally irrelevant. “The EU” or “the Troika” (whoever you think is pulling the strings) so far has been covered by the fact that elected governments went along with their programs. That is not the case any more. Maybe they will just ignore it but this cannot be without cost politically. Their goal after all is to preserve the EU and even if they think they can afford to let Greece go, they must be afraid of the effect on other countries.

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Ronan(rf) 01.27.15 at 6:09 pm

From Jason Manolopoulos’ ‘Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community ‘ , which – among other things – is a pretty devastating attack on the Greek political economy:

“There is no excuse for European Union leaders, Greek society and politicians ignoring the lax accounting, corruption and public sector waste that occurs in Greece. Much of it was on public record. The EU policy of assuming that probity and efficiency in Greece were on a par with the Netherlands was perfectly avoidable on the basis of information in the public domain.”

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Hidari 01.27.15 at 6:17 pm

If anyone cares: “The OECD estimated in August 2009 that the size of the Greek grey market (i.e. corrupt section of the econonomy) to be around €65bn (equal to 25% of GDP), resulting each year in €20bn of unpaid taxes. This was in comparison almost twice as big as the German black market (estimated to 15% of GDP). Data for 2012 place the Greek “black market” at 24.3% of GDP, compared with 28.6% for Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium and 13.5% for Germany.” (http://en.wikipedia.org/wiki/Tax_evasion_and_corruption_in_Greece).

That’s Lavia…which has just joined the Euro.

The absolutely most polite thing one can say about this is that if the Troika is genuine about getting rid of corruption in the EU then they are not doing a very good job of it.

Of course maybe the Troika are already planning to do to Latvia (and Italy) what they have done (and are doing) to Greece. If so, perhaps they could have explained to the Latvians that modern day Greece is their future before they (the Latvians) joined.

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Roger Gathmann 01.27.15 at 6:19 pm

192 – if these things were decided in a sealed off auditorium on a university, I’d agree with you. But fault is a powerful political motive, which is the reason that fault is the center of the rhetoric around this in the newspapers and in public opinion.
I don’t think that is accidental, either. I think it is fair to compare the publicity given the sad state of greek finances and their “corruption” with the non-publicity given to European banks – notably Deutsche Bank, Barclays, UBS, BNP. Deutsche Bank was basically lent 101 billion dollars by the Fed’s as the term repurchase transactions and 277 billion under TALF. The lack of rhetoric about whether Deutsche Bank deserved these extraordinary loans was delayed until well after they were made, because they were kept secret. If Greece had only been corrupt enough to launch an offshore special purposes vehicle and gone to the Fed, who knows, they would be sitting pretty right now, since given the point spread, they could have made a killing in, say, purchasing educational debt back securities, or something like that. Of course, later Deutsche bank was involved in the Libor scandal, but such corruption is dealt with by charging a fine that eats a little bit into the profit made and dropping the case.
So I’d say that fault is going to enter into the dialogue about Greece whether one wants it to or not. Just as fault will be rigorously excluded from talk about bailing out private entities like giant banks – and when it isn’t, the bailouts can proceed in secret and the fault talk can emerge after its all a done deal.

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TM 01.27.15 at 6:24 pm

A take from the Irish Times (http://www.irishtimes.com/news/world/france-welcomes-syriza-as-hollande-looks-to-role-of-consensus-seeker-1.2080236):

“In 2012, Hollande intended to lead a bloc of southern European countries as a counterweight to Germany. He instead converted to supply-side economics and “social liberalism”.
Hollande strengthened his image during the crisis over Islamist attacks that killed 17 people in France this month. Now Syriza’s victory gives him a second chance to attempt the role of consensus-seeker in Europe. Several commentators spoke of a “historic responsibility” to reconcile Greece and Germany, southern and northern Europe.
Hollande phoned Tsipras on Monday afternoon, inviting him to visit Paris soon and promising “that France will be beside Greece in this important period for its future”.

It doesn’t seem to me that the EU (whoever you think is pulling the strings…) can politically afford to ignore the Greek election (for one thing, is Hollande is seen as complicit in this, he is guaranteeing Marine Le Pen’s next election victory). Unless their attitude really is, “après moi, le déluge”.

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TM 01.27.15 at 6:25 pm

[Oh f… last paragraph is mine]

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politicalfootball 01.27.15 at 6:28 pm

Fault isn’t going to determine what happens next.

True, but I’m entirely satisfied with Daniel’s analysis of “what happens next.” I’m particularly indebted to him for the description of Greek debt as a political quantity, rather than an economic one. Once stated that way, it’s obviously correct, but it had never occurred to me before.

In the comment that you quote, though, I’m discussing a different issue – the normative and historical one that geo raises in 152. My question: How can we talk about the current crisis in Greece without giving a prominent, even dominant role to the backers of the Euro (including, historically, the Greeks)?

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William Timberman 01.27.15 at 7:16 pm

As long as there was money to be made, the corruption of the Greek political system could be — and was, by all accounts — considered a feature rather than a bug by the EU financial wizards who stood to profit from it. The complicity of ordinary Greeks, expressed in their very ordinary tax and featherbedding fiddles, was neither here nor there then. What one would expect, etc., etc., and nothing that should stop anyone from considering them good Europeans.

Now, of course, everyone claims to be shocked to discover that the Greeks are not good Europeans at all, but rather conniving, irresponsible others who, having repeatedly voted for the bastards who’ve been fleecing them all along, deserve to be brought low. Just deserts, however, tend to be defined differently by those in power and those who are powerless. Look back a little and watch the Germans bristle at being tarred uniformly with the brush of Nazi atrocities. Look forward a little and imagine Americans incensed at accusations that they repeatedly winked at the war crimes being committed in their name. If guilt is never entirely collective — and it isn’t — then collective punishment is little more than hypocritical self-congratulation on the part of those wielding the lash — there’s nothing honorable about it at all. Since we know very well how hard it is to survive as a decent person in an indecent system, or we damned well ought to know, honesty, if not compassion, should demand that we resist the temptation to scapegoat the Greeks.

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shah8 01.27.15 at 7:26 pm

I’m with politicalfootball@206. DD’s original post and much subsequent commentary is fine.

J Thomas, you need to start from JW Mason@144 and read through to DD’s response to geo.

This whole aspect of the thread started effectively because JW Mason asked about whether it’s reasonable and pragmatic that Greece runs its economy with an complete eye towards servicing debt. More than that, he’s driving at the idea that coercion isn’t working. Either that people work around it, or that the policies that people doing the coercing are asking for are unreasonable/unworkable/do not have desired outcomes.

DD then responds@151 by saying that these policies are a result of Greek untrustworthiness, giving the example of no-show civil service jobs. He remarks on how if the corruption is fiscally expansionary before, then when people are only allowed to collect one wage, a wave a contraction naturally results. He also *giggles* claims that foreign lenders don’t want to lend to a corrupt hellhole. Lastly, because Greece is a corrupt hellhole, any reflationary fiscal activity happens under parlous circumstances.

Sooo…ethical behavior is very, very, risky ‘mkay?

geo smells blood (or is trying to send a hint to DD regarding implications) as a result, and asks a certain, simple, and loaded question@152. DD responds by focusing first on foreign lenders, and narrowly, foreign banks buying Greek national bonds, remarking that it didn’t make sense not to take advantage of that yield, saying that there was a perception of a ECB put. Then because he misunderstands the drift of geo’s pointed question (too much blame for the mass of little guys, too little for the elites), he airily dismisses elite tax avoidance and acts as if geo asked specifically about elite tax avoidance and not both elite tax avoidance and elite corruption both.

And then DD rubs it in, talking about how liberals don’t understand just how much of a third world hellhole Greece is, from their own comfty perches in reliablecivilservicelandia. That’s why national-level workhouses are the order of the day!

Of course, I’m going to get all heavy-lidded eyes seeing this ginormous red blanket. It’s wrong. It’s very, very, arrogantly wrong. More than that, I am a huge consumer of news, and I can easily say: Look…remember Ebola? Remember how wartorn, corrupt, and poor West Africa was? How said corruption and international pressures lead to underfunded health services and resulting incapacity when an epidemic hits? I most certainly remember the world at large making a big effort to pretend that DD’s 151 and 154 were operative, until international operators realized that they are going to have to operate in a totally corrupt society, on a results-orientated basis, and now is about 80% of the way to ending the epidemic–and that money was very well spent, despite much of it lost to corruption! Even still, in the grand scheme of things, it’s not really enough money to really *fix* anything, just enough to stop the bleeding. The postcolonial extraction mechanism is still the order of the day, with the calculated risk that the problems it generates will not leave the borders of thirdworldlandia.

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Trader Joe 01.27.15 at 7:27 pm

@207 and several others

Supposing one agrees that yes, in fact, the Greeks shouldn’t be scapegoated for their weakness which, afterall, wasn’t terribly differnt from others who just happened to have a few more resources about with which to bargain…..what than should be done about the couple hundred odd billion of Euros which clearly can’t be paid back, even with an interest rate approaching zero, without further withering and entirely unfair austerity.

Does the Troika (and their bankers) just say, oh well, at least you tried, we’ll write off half if you promise to never ever, ever, ever, we mean ever, do that again? Even if you hate the bankers and the bank why does that make sense?

Here’s the guessing game – if half the debt was written off, how many years unitl it was again back at the same level – I’ll pick 7 to start the bidding.

How many years until the following would ask for the same treatment:

Italy – over under line = 2 years
Spain – +/- 3 years
Ireland? Portugal? Latvia? France?

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Rich Puchalsky 01.27.15 at 7:34 pm

“honesty, if not compassion, should demand that we resist the temptation to scapegoat the Greeks”

Or, on the other hand, we could uniformly tar the Germans with Nazi atrocities, blame the Greeks for generally building a corrupt society, and blame all Americans for the war crimes that people here did generally and repeatedly approve of as being committed in their name — war crimes which are being committed now as well as in the recent past. I really think that’s more honest, if not more compassionate. The number of people who resist any of these was/is a tiny few.

Perhaps if we could be honest in this way, the Greeks could point out that austerity measures are not intended to reduce corruption. Corruption can and does still occur, it just happens in the context of a shrinking pie, which the elite among the corrupt may well take more of. If the EU wanted to take actual measures against corruption that would be one thing, but you can’t starve corruption out of existence.

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Ze Kraggash 01.27.15 at 7:41 pm

Other than Anon, I don’t think anyone is scapegoating the Greeks. You can think of it as the story of Joseph and the seven years of famine, or something. It’s just business.

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The Temporary Name 01.27.15 at 7:45 pm

If the EU wanted to take actual measures against corruption that would be one thing, but you can’t starve corruption out of existence.

Perhaps they could have KPMG audit the books.

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William Timberman 01.27.15 at 7:47 pm

Trader Joe @ 209

The ancient idea of the jubilee was never believed to be a guarantee that henceforth everything would be rosy, and cumulated debt would never trouble anyone again. The idea behind it was renewal — a redistribution, a change in the game, the unfreezing of a frozen society — necessary from time to time. The rest is just accounting, and we moderns are — as we’ve needed to be — very much better at accounting than the ancients were.

Define equity however you like — it isn’t very healthy for society as a whole to have it concentrated in the hands of a few, no matter how virtuously under the current rules they claim to have acquired it. (Yes, some of those claims will be true, but some will also prove to be exaggerated, and others downright false. For our purposes, this doesn’t really matter a whole lot.)

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Micheal Lunny 01.27.15 at 8:43 pm

politicalfootball@206

True, but I’m entirely satisfied with Daniel’s analysis of “what happens next.” I’m particularly indebted to him for the description of Greek debt as a political quantity, rather than an economic one. Once stated that way, it’s obviously correct, but it had never occurred to me before.

Greece’s debt is obviously used as a means of political control (it’s true for the treatment of all the GIPSIs) but it’s also genuine debt with interest being paid on it (even if only half of the principle can be repaid), also the use of debt for political control is partially exercised to make sure as much of that debt is paid back as possible.

A very large amount of national and institutional power was exercised to control the allocation of losses from the European component of the global financial crisis and the policy changes from the treatment of Ireland (bondholders are sacred) to Cyprus (even savers are not sacred) reflected the domestic political concerns of the Deutsche bloc and the financial security needs of central European financial institutions at those times.

Greece’s treatment is about national wealth as well as national political power.

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A H 01.27.15 at 9:22 pm

Dsquared argues with himslff:

Dsquared 2015:

And the 10 would be on the basis of generalising from French and German banks to all creditors. Greece is an OECD sovereign; it’s just not irresponsible to buy their bonds and for the longest time it was even reasonable to think it would be baled out by the EU.

I would shift the balance of the rest significantly if we were talking about tax evasion generally, but the 1% is a small part of the overall tax collection problem in Greece.

But yes, this is why I find it very frustrating to discuss this with American and British liberals; they’re so used to thinking about their own, generally competent and honest civil service that they find it very hard to understand the reality of Greece.

Dsquared 2008

Look, my basic point here is not to exonerate anyone or vice versa (apart from anything, that would stray into writing about the crisis itself, which I’m still not going to do). I am sure that at the levels of individual institutions, stupid things were done and irresponsible risks were taken. But likewise, I would also dare say that during the Great Depression, a lot of the workers who were made redundant were probably a little bit lazier and not quite as skilled or conscientious as the ones who kept their jobs. But if you were going to have your main comment about the Great Depression that it was the time when lots of lazy shirkers got the sackings they deserved, then I think everyone[6] would agree that you’d kind of missed the big picture. The analysis that blames it on stupid bankers, is of a piece with the kind of analysis that regards the 1930s as being the decade when the working class of the world took it upon itself to have a great big shirk.

http://crookedtimber.org/2008/10/17/those-stupid-bankers-and-their-stupid-stupidity/

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Micheal Lunny 01.27.15 at 9:44 pm

Worth bearing in mind that dsquared is not obliged to write this stuff, and that it is interesting (200+ posts) and useful.

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Anon. 01.27.15 at 9:54 pm

@207 William Timberman

You speak of punishment. What punishment?

Troika says here’s 240 billion, you just have to promise to make some structural changes in order to increase growth.
Greece says OK. At a conservative 1.3 estimate of the fiscal multiplier, Greece has made a healthy 70b profit on those loans.
But oops, they won’t make any reforms because it’s not politically viable. They forgot to mention this when they were taking the loans, but whatever…the Europeans knew, all they cared about was limiting contagion after all. The collective profit for Europe was easily worth the money.

Now Troika says to Greece: you can’t have any more.

How is this “punishment” in any way?

Did the Troika force Greece to have terrible labor market regulations that result in high unemployment? No. Did the Troika force Greece to run deficits for decades so they had no room to maneuver when the recession hit? No. Did the Troika create a Kafkaesque, selectively enforced, corrupt bureaucratic and legal system? No.

What the Troika did is, in exchange for hundreds of billions, ask that Greece liberalize its taxi market. Not the biggest deal, it might add a few basis points in growth. The system was deeply corrupt, licenses were trading for absurd amounts in the secondary market and the government saw none of that money. That was in 2010.

What did Greece do? Well just 2 short years later, they finally introduced legislation to fulfill the requirements they agreed to. The taxi unions got everything they wanted: many special favors to benefit taxi owners, no new taxi licenses issued in large cities, and the bill ended up just adding further layers of red tape and centralized bureaucratic control. This is the Hellenic idea of liberalization.

This is not an isolated example, this is how every single item went. Literally none of the reforms agreed to were ever implemented. But of course the lack of growth cannot be the fault of Greeks. It’s those damn foreigners and the evil policies they impose on us! Is this the punishment you speak of?

If the creditors actually did something malicious to hurt Greece and the Greeks, then I would agree completely with you: collective punishment against a nation is absurd, even in this case when 80% of them are at fault. It would be doubly stupid to punish Greece because such an action would hurt the punisher as well.

But simply not giving any more money is not punishment. Are you personally lending to Greece? No? You are punishing them as much as the EC and ECB and IMF are.

If you are unwilling to bear the burden why should it be imposed on the German citizens?

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William Timberman 01.27.15 at 11:06 pm

Anon, you’re talking to someone born and raised in a country that has in short order produced Enron, Jamie Dimond, and look forward, not back. From my perspective, your justice but no mercy for the Hellenes is exactly what I’d expect from someone who thinks accounting-as-justice is suitable for application to the lower orders, but not to people of substance. Recapitalize the banks, but let the effing Greek taxi drivers go hang may balance the books, more or less, but doesn’t commend itself to anyone as justice, except perhaps to an accountant.

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J Thomas 01.27.15 at 11:16 pm

#208 Shah8

J Thomas, you need to start from JW Mason@144 and read through to DD’s response to geo.

I see! The OP was listed under Daniel and I stupidly looked only for that name in the comments.

DD then responds@151 by saying that these policies are a result of Greek untrustworthiness, giving the example of no-show civil service jobs.

I don’t understand that. If it was only thousands of jobs out of a population of 11 million, what’s the big deal? They give people sinecures for political patronage reasons, and then because of foreign interference they have to take away the jobs and give those people the money some other way. Why does it matter?

I once was involved in something vaguely like that in the USA. Some politician owed one of my relatives a favor, and they paid off with one summer job working for the US government. I would have been calling grocery stores all around the country, getting them to report prices on various foods that would go into the consumer price index. I didn’t want to do that, I wanted to take organic chemistry over the summer. So one of my cousins got the job. When he got out of college he got that job permanently. He worked for the government for until he could retire. He was in the National Guard the whole time, and when he quit the civilian job he got to work full-time for them, and when the wars heated up he wound up doing important well-paid work. I got to do much more interesting work with considerably more risk and fear. His job was by no means a sinecure and he had to show up every day and deal with irate grocery store managers on the phone. He said the bigger ones just tried to get it over with but the smaller store managers were upset that they had to spend their time talking to him. He’d explain that it was the law and they could be prosecuted for refusing. He told a story once about the others using the toll-free lines for personal calls and they got in trouble for it. He could just sit there unworried because he hadn’t done it. It was a really good feeling knowing that he wasn’t in any trouble because he’d kept his nose clean.

Anyway, I again think DD’s responses make sense in an amoral context. Yes, lenders will lend if they think there is little risk and they did think the EU would bail them out. Then if that doesn’t work of course they want to make sure somebody pays them. Is the money that can be squeezed out of Greece’s proles versus elites in the ration of 7:2? Maybe. They don’t have much but there are a lot of them, and it’s harder for them to hide what they have, and it’s harder for them to run for the border with it.

You’re bothered that he seems to present things from a banker’s point of view, when he ought to regard that as evil. Right? And he understands that point of view very well and presents it to us. That’s valuable even if the attitudes look obviously evil.

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dsquared 01.28.15 at 1:03 am

TM: please don’t comment on my posts any more.

Shah8: second time of asking. If I have to get this done by technical means I will be very annoyed.

Rich Puchalsky: you have been banned from my posts for more than a year and you know it.

In general: say what you like about the issues, but insulting me, questioning my good faith etc is not allowed. Or at least, it’s allowed but it’s not consistent with still being allowed to post comments on my posts.

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shah8 01.28.15 at 1:11 am

Be very annoyed, then, but don’t be a twit. If you wanna ban me, then ban me. I’ll still be right, and you will still be wrong, and you’ll still be publically butthurt over the lack of “civility”.

Jesus.

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Markos Valaris 01.28.15 at 1:42 am

Anon. @217 “At a conservative 1.3 estimate of the fiscal multiplier, Greece has made a healthy 70b profit on those loans.”

This is just silly. The fiscal multiplier applies to government spending, not bond repayments, which is what those loans financed. Greek government spending plunged since the bailouts, hence this whole discussion.

Look, I don’t buy the argument that Greece would have better by defaulting and exiting, so I am wary of speaking of “punishment” too. But there’s no question that the bailout was structured in a way that was extremely onerous for Greece, out of a combination of concern for “moral hazard” (see the Geithner quote above) and macroeconomic wishful thinking.

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dbk 01.28.15 at 1:43 am

DD – first of all, I would like to thank you for being a contributor to CT. I read (rather obsessively, alas for me) all your posts – the travelogue is wonderful – and all the comments; as we can once again see, your posts generate a lively, copious and often extremely… lively discussion.

I concede your expertise in finance – I don’t understand the field, I’m a humanist.

Nonetheless, I’m on the ground in Greece and have been for 35 years; I follow the news and the political scene in Greece daily, and in Greek. I hope you’ll permit me a few observations and questions:

(1) On Corruption: yes, agreed, the elite is corrupt. But frankly, where isn’t it corrupt, including in first-world countries (in my own beloved homeland, such behavior is now referred to as “legalized corruption”)? I might note that the biggest financial scandals of recent years in Greece have involved foreign partners – e.g., Siemens and Goldman Sachs. Even in high finance, as the bundlers of junk mortgages in the U.S. market knew very well, it takes two to tango.

(2) On the inherent laziness and worthlessness of Greeks: well, okay, if that’s the Euro-take. But statistics indicate otherwise, viz. that Greeks work on average 450 hours more than Northern Europeans (Germans) annually, i.e. approximately three months more than their northern masters. Speaking as an American expat here, the Greeks I hang out with are the hardest workers I ever met – and I’m from the Midwest.

(3) On the new PM / government: how just is it to decide that they’re unworthy of Euro-trust when they’ve been in office six hours? How much have you researched the political environment within which the new PM was brought up and honed? Leftist politics in Greece is incredibly fractious, and by the way, this is a genuinely leftist party; they emerged from an initially-loose coalition of M-L, Euro-communists, and others of similar persuasion, and they’re still pretty loose. The new PM has been involved in leftist politics for 25 years – from when he was in high school – and he’s been mentored by some pretty smart individuals, even though they’re not neoliberals. As far as fractiousness goes, the Eurozone is tame in comparison, honestly.

(4) On “Greece has no money and is broke”. Yes, true, and this will continue until a massive development- growth plan is implemented. One thing northern Europeans often fail to note – although I’m certain they’re perfectly aware of it – is that the Industrial Revolution entirely bypassed Greece (Ottoman rule until the 19th century in the south, until the 20th century in the north). I haven’t heard anything more than lip service from Schauble, Junker, Merkel et al regarding the absolutely critical need for a 21st-century development plan, in the absence of which, imho, GDP will just keep tanking (internal deflation and its inevitable knock-on consequences). Tourism is an okay source of foreign currency, but cannot be the main engine of growth as it’s highly sensitive to financial vagaries elsewhere in the world (for example: it’s estimated that Greece will lose up to 200.000 Russian tourists this season).

(4) On the civil service (in response to others as well): well, the Greek civil service has pretty well been decimated in the past three years (this, via Paul Krugman). Hospitals are now tragically (for those who die in them) understaffed and under-equipped. Patients’ families must somehow find bandages and sutures and chemotherapy drugs, even presuming there’s a doctor in sight. The majority of medical school graduates now emigrate upon graduation to Germany or England – Greece is paying for the education of physicians who will never work in the country whose citizens paid for their education. New teachers teach 24-25 hours per week for a salary of around 700 euros – 400 of which goes to rent, 200 to food and other associated daily living expenses, as new teachers are posted to the provinces, normally far from home. Entrance to this branch of the civil service – i.e. primary and secondary school teaching – has long been subject to a strenuous examination system (ASEP.), which, mirabile dictu, has not been accused of corruption. Regional IRS offices are drastically understaffed, thanks to the Troika-imposed reform of the civil service; understandably, this makes pursuing tax evasion by the 1% (or 5%, or 10%) pretty challenging.

(5) On shipping/ ports, etc. (not a response to dsquared but to others upthread): actually, Greece has a port or two: Piraeus, Thessaloniki (in northern Greece – the sole Balkan deep-water port, for those not up on the geography). Oh, and there’s a port in Crete which the 7th fleet once rather fancied. As for revenues from shipping: yes, the Greeks are the global shipping masters, but most Greek shipping firms are not registered in Greece – they are in England, and the tax implications are, to put it mildly, complex.

As dsquared/ Daniel/ DD very astutely noted in the OP, the debt burden on Greece (utterly unsustainable, as everybody with half a brain has known from the get-go) is really political in nature – I think that’s the major take-away from the post, in agreement with other commentators. But politics is unpredictable and fickle. So here – based solely on the new government’s members and my experience in Greece over the past three and a half decades – are a couple of predictions:

(1) the new government will not go it alone. This party is very, very long-tested in coalition-forming, and they will reach out to like-minded parties, first in the Eurozone “periphery” – Spain and Italy, then probably Portugal and France – to form a broad Eurozone coalition of those opposed to neoliberalism and TINA. Giannis Dragasakis, an economist, has been appointed as the new PM’s second-in-command, and I predict he’ll be accompanying the PM on every trip abroad.
(2) the new government will search actively for development prospects, and these will not be solely, or even primarily, in the Eurozone. Another economist, Kostas Tsakalotos, has been tasked to the Ministry of Foreign Affairs as Deputy Minister for International Financial Relations, and I predict he’ll be accompanying the MFA, asking for foreign investment from everywhere and anywhere.

And finally, for anon: I know where you’re coming from, and there are plenty of times I’ve thought the same. But then I think about my Post Office (ELTA), where three women serve 300 clients daily – with a smile, and they know our names – or my branch of the NBG (= National Bank of Greece), which serves an equal number of clients with two tellers – both of whom, by the way, are university graduates, like most tellers in Greek banks, both private and public (the tellers in my bank in the U.S. last time I was back didn’t know what a Swift code was, sigh), or the wife of my dry-cleaner, who was born and raised and graduated from university in Germany, and who now drives to five different primary schools weekly to teach – and who never, ever complains that it costs half her salary to commute – or my friends who are university professors whose salaries have been cut by 40% and can now barely survive, or my spouse, who has worked for 35 years, 12 hours a day, for Greece … well, anyway.

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Kevin 01.28.15 at 1:54 am

Thanks, dbk.

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MPAVctoria 01.28.15 at 2:25 am

Great post dbk.

Thank you and good luck.

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Anon. 01.28.15 at 2:33 am

@218 William Timberman

My point is that it doesn’t matter how much money you pour into Greece if what you’re financing is continued expropriations from the political class, the bureaucratic class, and special interests.

So you give Tsipras the money he’s asking for, and he and his buddies (and his eventual successors) continue fucking the country into the ground. Except now there are food coupons, so it’s Totally Different. Then what?

Definitions of justice may vary, but I don’t see how that could fall under any of them.

The way I see it, the only path that is just is one in which food coupons are not needed because Greece is growing at 5, 6, 7% and there is no unemployment. But this is an entirely fantastical scenario because the incentives simply aren’t there.

Which is why there is no point to framing the issue as the troika “punishing” the Greeks. First of all they are not responsible for the present situation, and second the country is screwed no matter what the troikans choose to do.

P.S. How do leftists view Syriza’s cozy relationship with the Russians? I imagine that’s gotta be uncomfortable…

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MPAVictoria 01.28.15 at 2:39 am

Great post dbk.

“Except now there are food coupons, so it’s Totally Different.”

Well… People would have food. So you know…. They would have that going for them.

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hix 01.28.15 at 2:42 am

No one ever claims Greeks are lazy. Which is good, since that often cited data trying to refute the non existing claim is wrong. First, its not full time job to full time job. Second unfortunately in some way the stereotype is very much true: Germans in particular really do work more intense, a lot more intense.

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bob mcmanus 01.28.15 at 3:03 am

How do leftists view Syriza’s cozy relationship with the Russians?

Leftists are far from monolithic, and have some very sharp differences among themselves on current geo-political affairs.

I don’t know many that aren’t rooting for Syriza and Greece.

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Ronan(rf) 01.28.15 at 3:11 am

Why should ‘the left’ care about their relationship with Russia ? Political parties and governments have all sorts of dodgy alliances, is this really news ? My own preferences would be that they dont turn out to be foreign policy grandstanders, expending a lot of political capital on idiotic symbolic causes (ie fighting against Russian sanctions) but if that’s what they do then that’s what they do.

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Peter T 01.28.15 at 3:15 am

“No one ever claims Greeks are lazy.”

Well, except for Angela Merkel:

https://euobserver.com/political/32363

More generally, a lot of people pile on to the Greek patronage structure. I’m not familiar with Greece, but I did spend a lot of time understanding patronage in SE Asia. There’s nothing particularly inefficient or corrupt about these, so long as – as Bruce Wilder keeps saying – patrons are held accountable. If you put cousin Fred in the Ministry, you have to suffer if he stuffs up. Patrons, of course, find this condition irritating. So far, Greece is not much different to Kansas, or Wisconsin, or New South Wales. Or, in a different way, Mecklenberg.

So it’s the accountability condition that’s missing. Did the Troika try to write accountability into the picture? It seems not. Did they try to write conditions that would insulate the small people from the worst of the damage? It seems not. Could they have done so? Probably much more then they did.

As for 225: bit quick to write off a government that has been in power for two days. If the Allies had taken the same attitude to Germany (look, it’s a week since April 45 and they still haven’t got it!) they’d have offed the lot.

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Ronan(rf) 01.28.15 at 3:18 am

229 cont..my own preference for a party I supported (not Syriza specifically)

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Ronan(rf) 01.28.15 at 4:26 am

How could the Troika write accountability into the picture, though ? I guess there are some institutional changes they could make, ie in Jason Manolopoulos’ book mentioned above he argues:

“It is institutionalised. Politicians, for example, have awarded themselves immunity from prosecution. Article 62 of the Constitution grants immunity for members of government: they may not be prosecuted, arrested or imprisoned without the approval of Parliament. 2 Given this flagrant breach for a founding principle of democracy – that no one should be above the law and that the judiciary and parliament should be separate – it could be called into question whether Greece is really a democracy at all. Similarly, in 2003 the Greek supreme court ruled that it was not illegal to give bribes, provided they were given after the actions they were supposed to influence! So ‘gratitude gifts’ are allowed. 3 No minister has gone to jail in the last 30 years, marking Greece out alone among all of the European Union.”

So you could make politicians more accountable by removing their immunity from prosecution, but that’s still only a tiny change if the problem is society wide. (which it seems to be) ie on corruption he says:

“A study by the Brookings Institution published in 2010 portrays a similar picture. It found that bribery, patronage and other forms of public corruption are major contributors to Greece’s public debt. Its estimate was that the Greek state has been losing the equivalent of at least 8 per cent of its gross domestic product each year to these practices, or more than € 20 billion (about $ 27 billion).
If Greece had better control of corruption – not to Swedish standards, but even at Spain’s level – it would have had a smaller budget deficit by 4 per cent of gross domestic product, on average over the past five years’, says Daniel Kaufmann, senior fellow at Brookings and the study’s author.”

And even if the Troika do push for institutional changes , how do they make sure the changes are enforced ? My understanding is that if reform doesnt come from interests and factions commited to them *inside the country* then it’s more than likely not going to be effective, as it has no buy in domestically.
I think it’s worth bearing in mind aswell the role that the Troika might be playing in Greek politics (I say ‘might be’ because I dont know about Greece specifically) Outside actors can work as a useful scapegoat for governments that want to implement changes but not take full responsibility for them. (or who want to implement reforms piecemeal/or implement reforms in the interests of their constituents, specific elites etc) This can work in complicated ways, so Id be wary of the way ‘Troika reforms’ can function as a narrative in Greek politics. (for example Nicolas Van de Walle’s book ‘African Economies and the Politics of Permanent Crisis, 1979-1999’)
I mean, I dont mind accepting that corruption and clientilism are exaggerated causes here (though I’m open to correction on that) but how do you actually reform Greek politics/economy in a meaningful way (if youre the Troika) ? What are the alternatives here, policy wise ? Do you just not bother with reform ?

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dsquared 01.28.15 at 4:41 am

I think dbk’s first number 3 is exactly the point at issue here. It surprises me a little bit that so many people want to both support Syriza and to claim that there was nothing really all that bad about PASOK. Even Yanis Varoufakis’ plan was based on handing over control of Greek infrastructure spending to the EIB because there was no way of trusting the government to do it.

I very much hope that Syriza is the new force that can break with the old crony groups and direct spending to where it can do any good. But surely one can see that from the point of view of foreign creditors this trust needs to be earned rather than given up front. Even given Tsipras’ exceptional personal qualities, his party is a coalition and includes quite a few of the bad elements of old Greek politics. I don’t think it’s realistic for them to ask for carte blanche up front.

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js. 01.28.15 at 4:52 am

dbk,

Thanks for @223. That was immense, in the best kind of way.

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acv 01.28.15 at 4:55 am

Peter T- I don’t know about that. I suppose patronage can be relatively benign at times, after all, my city works relatively decently in spite of it. However, it seems more likely to lead to inefficient and corrupt practices, and can cause serious problems if it becomes endemic. And I have to say, while there have certainly been significant examples of corruption in places like New Jersey, this sounds rather more serious than anything that would happen here. Indeed, if what I’ve read about Greece is correct, the corruption there puts the worst parts of other Western countries to shame.

And I’d think it would be obvious why Anon doesn’t like Syriza. He clearly thinks that (a) The Greeks brought the crisis on themselves, with the troika and ECB playing only a minor role. (b) The Greeks have not acknowledged this, but blamed nefarious outside forces, (c) The structure of the Greek political economy in edition to being corrupt, is far too state-dominated, and overrun with a swollen civil service and inefficient labor market regulations and that therefore (d) The best course of action for Greece is therefore to continue to abide by the bailout terms, slash government spending, and “liberalize” and deregulate the economy more generally. It is therefore not surprising that he views a left-wing “anti-austerity” party with some degree of hostility. After all, he believes that their economic approach will be disastrous for the country, and thinks that they will only bring it more ruin.

Anon is clearly pretty right-wing. There are several indications of this from his sneering references to “leftists”, to his apparent belief that unions are the source of all the trouble in Greece (as the son of a union member, that one was particularly irritating to me). In addition, some of his assertions seem odd to me (I never did get how making it easy to fire people is supposed to lower the unemployment rate). But by no means are his views extreme, or even terribly unusual. Indeed, it is almost certain that a sizable number of economists agree with him about what ails Greece. Moreover, while I remain quite skeptical, I am not certain that he is entirely wrong.

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Collin Street 01.28.15 at 5:06 am

> Anon is clearly pretty right-wing.

See, here’s the giveaway from me:

Which is why there is no point to framing the issue as the troika “punishing” the Greeks. First of all they are not responsible for the present situation

The troika did what they thought was best and this was not a “choice”. Only other people chose, only other people have responsibility.

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Peter T 01.28.15 at 5:12 am

If dbk’s point 3 is the issue, then the troika could surely have looked at investing in infrastructure, rather than in selling it off? If they have the control to enforce the latter, it seems strange to argue that they lacked the means to do the former while keeping too much money from flowing to the stickier fingers.

In the larger context, the US, Britain, France and others spent much of the C19 and C20 re-arranging other people’s lives so that they could make money off them. All in the name of “bringing civilisation” or “modernity” or (see Lend-Lease and Marshall Plan) “helping the distressed”. Japanese isolation, Hawaian and Sri Lankan land law, Fijian customs, British imperial preferences, non-US copyright and patent claims…all ruthlessly over-ridden. Sometimes the local arrangements were cruel or corrupt, but the motives of the re-arrangers were rarely pure. It was truly a heroic time. Often it was done in collusion with local elites – much as Scottish clan chiefs joined in the rush for London titles at the expense of the crofters. Over the last few decades, this enterprise has taken on somewhat the air of a cannibal party where the list of invited guests runs short and the diners start eyeing each other. The Greek elites are surely not innocent, but they have as much right to object to being re-arranged on a plate as anyone. And it seems increasingly clear to me that the ecological costs of re-making the world in this fashion are unsustainable. In short, if we have to reverse course, Greece is as good a place to start as anywhere.

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acv 01.28.15 at 5:16 am

Yes, I noticed that phrasing too.

Look, I agree that his argument is highly dubious, I’m just trying to be somewhat fair-minded here.

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acv 01.28.15 at 5:17 am

That was responding to Colin btw.

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dsquared 01.28.15 at 5:38 am

then the troika could surely have looked at investing in infrastructure, rather than in selling it off?

No. The troika was an ad hoc small body set up in an emergency with only a small staff. There was no way it could have run a port, or a motorway. That was the reason for Yanis’ idea of bringing the EIB in to do it. But even that would have required the cooperation of the Greek state, which wasn’t forthcoming, precisely because the nationalised industries were where some of the most powerful crony groups were located.

We’re up against the same problem here- lots of things could have gone a lot better if Greece had given up more sovereignty. But that’s one thing Syriza definitely doesn’t want to do (and nor do it obviously). The optimistic view is that it doesn’t matter so much now that the good guys are in charge.

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William Timberman 01.28.15 at 5:58 am

From the perspective of those who believe themselves to be responsible for the stability of the global financial system, Daniel’s evaluation of the political standoff between the EU and Greece is as astute as one has come to expect from him. From my perspective, however — if I can have one final bash at explaining it — any political initiative which takes that stability to be the only factor worth considering with any urgency ought to investigate the risks implied a good deal more seriously and systematically than most of the current European players seem to be doing.

I’m sure most of us remember this:

From the NYT, July 10, 2007:

But Mr. Prince (Citigroup’s CEO at the time) used an interesting metaphor to describe his company’s situation as a major provider of financing for leveraged buyouts. “As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”

Apparently it isn’t only Greek civil servants and taxi drivers who are susceptible to going with the flow in a corrupt system. Too many of them may well have sunk Greece, but it only took a few like Mr. Prince to sink much of the world. Like the Greek civil servants and taxi drivers Daniel complains about, they’re still with us, still largely unrepentant, and still at least as devoted as any Greek to business as usual. This, it seems to me, is a political problem which only the left, broadly defined, has ever been qualified to address. Maybe there’s reason to believe that we already know what Syriza is and what it will do — will be permitted to do, if you like. Then again, it’s not as though even the smartest of us, like Mr. Prince, haven’t outsmarted ourselves occasionally in the past.

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J Thomas 01.28.15 at 6:04 am

Imagine that you have suddenly been given official control of Greece and you are thinking about how to improve the Greek economy. Of course really your ability to take initiative is limited even if you are officially the dictator who can have anybody shot. They say that Czar Alexander said on his deathbed, “I never ruled Russia. Ten thousand clerks ruled Russia.” But still you are thinking about what to do.

And then foreigners come to you and say “Your predecessor borrowed 1 trillion euros from us and gave it to his friends. Now you owe us 1 trillion euros plus 500 billion euros interest, and you must pay up.”

What do you do?

They say “The first thing you have to do is get rid of the friends of the former government, take their money away from them and don’t give them any more. Don’t give your own friends any money either. Give all that money to us.”

Then they say “Second, you have to cut social services. You’re doing too much for your poor people. Stop spending money on the Greeks and give the money to us.”

Third, “You have some state-run businesses. Shut them down, sell them for parts, and give the money to us.”

Fourth, “You have some people who are trying to build successful new businesses, and they’re investing money in Greece. Take their money and give it to us.”

What if you try to track down the money that your predecessor gave away to his friends, and you find that a lot of it was deposited in the very banks that are demanding you repay them, and some of it bought bonds through those banks, and they refuse to give any of it back. How would you feel about that?

For myself, I think there’s a big difference between demanding that those creditors give you more money, versus insisting that you will not pay them their $1.5 trillion euros.

You might find that attempting something like autarky is better than giving in to those demands.

I’m real unclear what’s possible for Greece. If they have a bunch of bloodsucking leeches sucking wealth out of their economy they might be better off to get rid of them. But it doesn’t help them to get rid of their native bloodsucking leeches and replace them with foreign bloodsucking leeches.

If they have some state-run enterprises it might or might not be more efficient to replace them with private businesses. I don’t know. It will not help Greece to shut them down and not replace them with anything.

If you offer to make payments based on the new production you intend to invest in, and they insist that they don’t trust you to increase production so you have to pay them back without increasing production….

At some point you have to accept that this is not business, but war.

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js. 01.28.15 at 6:39 am

dsquared,

Thanks for continuing to engage in this thread. I’ve gone from semi-comprehension/bafflement to bafflement/recoiling to more or less getting where you’re coming from/what you’re saying. Not that I agree with all of it but it’s very helpful (and I don’t mean that in some weird ‘know your enemy’ kind of way–just genuinely helpful).

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shah8 01.28.15 at 7:08 am

[also deleted – you just don’t get to post rambling manifestoes if you’ve been asked twice not to comment]

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Peter T 01.28.15 at 7:18 am

First, second the thanks for continuing to engage. I (and I am sure others too) appreciate it.

In saying: “The troika was an ad hoc small body set up in an emergency with only a small staff. There was no way it could have run a port, or a motorway. ” you are not paying these people any compliments. They can cut budgets to the bone, demand deregulation and so on, but they can’t set themselves up to either understand the country they are dealing with, or gather the staff to engage properly? Sounds very like the Bush mob in Iraq. And, as with that shower of imbeciles, it raises questions over the size of their ideological blinkers and what other motivations were in the mix. They sound lucky the Greeks did not react the way the Iraqis did – with IEDs and hit squads rather than waving banners.

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shah8 01.28.15 at 7:31 am

Greeks aren’t Turks and Spanish aren’t Ugandans, Peter T.

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dsquared 01.28.15 at 8:27 am

They can cut budgets to the bone, demand deregulation and so on, but they can’t set themselves up to either understand the country they are dealing with, or gather the staff to engage properly? Sounds very like the Bush mob in Iraq….

This astonishingly tasteless analogy might have made more sense if Iraq had started the second Gulf War. The troika came into existence because Greece needed a lot of money and nobody was prepared to lend it to them. Everyone, particularly Germany, would have been much happier if they’d never heard the word. It was put together because of an emergency that Greece caused, not (despite what the stupider commenters on this thread think, btw Shah8, what part of “banned” do you not understand, future comments will be deleted and so will replies to them) out of a plot to nefariously send €10bns+ against a wall.

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dax 01.28.15 at 8:27 am

“creditors that wants localities and governments to give up sovereignty do not wish so out of any sort of good will or far sighted greed”

Creditors are not known for being far-sighted. The risk of being far-sighted is that someone runs off beforehand with the money you’re expecting. So it’s actually pretty normal creditors, when faced with the possible loss of being paid, try to get their money any which way. For all those people who think it’s no biggie their own country has lots of debt, wait a little. Debt is *always* an infringement on current sovereignty and democracy. It *must* be, because it’s the past which has decided the present needs to give up resources. (And for those who think the US will of course get by because it has the biggest military, that fact isn’t assured to still be the case in twenty years time.)

250

ZM 01.28.15 at 8:37 am

“Debt is *always* an infringement on current sovereignty and democracy. It *must* be, because it’s the past which has decided the present needs to give up resources.”

Well I don’t want to offend you but – This is just the sort of argument our annoying government keeps making to cut services, not mitigate climate change, and sell off what remains of our public infrastructure. It is not a rational argument since the past debt governments got provides for infrastructure which people in the present and future can use. And anyway the Queen has been our sovereign since around the 50s and I don’t think we are paying off any debt from before then.

If the government didn’t get into debt I suppose it could stop letting the private banks create all our new money and then the government could create all the new money itself and use that for infrastructure to get it circulating in the community.

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dax 01.28.15 at 8:48 am

“This is just the sort of argument our annoying government keeps making to cut services, not mitigate climate change, and sell off what remains of our public infrastructure.”

Uh, you could raise taxes. BTW, selling off public infrastructure is not necessarily a reduction in net debt (debt is reduced, but so are assets), so the government is being dishonest on that one.

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shah8 01.28.15 at 8:50 am

[deleted – can’t say I didn’t warn you – dd]

253

ZM 01.28.15 at 9:01 am

“Uh, you could raise taxes.”

That is fine for services, but infrastructure gets used for a long time so you may as well use debt and then pay it off over a portion of the infrastructure’s life. Plus I think the government might have got some debt for the financial stimulus during the financial crisis – this is quite an area of contention here, but it did seem to work since we didn’t have such a bad contraction as elsewhere.

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dax 01.28.15 at 9:16 am

Well then fine. If you planned your infrastructure properly, the net debt position of the government doesn’t change much or may even go down (you have more debt but you also have a valuable asset). If you didn’t plan your infrastrucutre properly and built bridges to nowhere, then your net debt position has gone up. Depending on the obligations you have given in the bonds (revenue from the bridge? general?), you may or may not have infringed on future democracy and sovereignty.

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Peter T 01.28.15 at 9:29 am

dsquared @248

I did not intend the analogy to be about blame. “Who started it” is surely not the issue, unless we are talking moral fault, is it? The issue is the competence and depth of knowledge of the players. Okay it was an emergency. But I thought the IMF, ECB and associated institutions had research staffs, analyst teams, a responsibility to keep watching briefs on their areas of responsibility and so on. And it wasn’t like this was the first time the financial fire brigades had gone into action. Now you’re telling me they just make it up as they go along?

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Hidari 01.28.15 at 9:45 am

“lots of things could have gone a lot better if Greece had given up more sovereignty”.

Things would also have gone a lot better if Greece had never joined the Euro (or been allowed to join the Euro) in the first place.

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dax 01.28.15 at 10:01 am

Things would have gone a lot better if… They usually would have, because in counterfactual Heaven our dreams paint the picture.

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Daniel 01.28.15 at 10:07 am

255: it’s more that they don’t have any mandate to establish themselves as operators of other people’s infrastructure. It wouldn’t be beyond the ability of the Commission to set up such an authority from scratch (probably taking staff from the EIB) but it’s never been done because the vires aren’t there.

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Collin Street 01.28.15 at 10:09 am

It was put together because of an emergency that Greece caused,

What do you mean by “greece”, here? Government, population, or state?

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ZM 01.28.15 at 10:13 am

Interesting news that privatisation of power company and govt shares in biggest port won’t be going ahead. And Greek banking stocks have lost a third of their value now this week…

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hix 01.28.15 at 12:35 pm

No, “greeks have to many holidays and retire to early”, is absolutly not the same as Greeks are lazy. Its rightwingish, supply sidish structural reform targeting the little people, whatever. But that a far cry from “greeks are lazy”. By the way, id love Germany to become a little more Greek with regards to attitude towards work.

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otto 01.28.15 at 12:57 pm

“it’s more that they don’t have any mandate to establish themselves as operators of other people’s infrastructure. It wouldn’t be beyond the ability of the Commission to set up such an authority from scratch (probably taking staff from the EIB) but it’s never been done because the vires aren’t there.”

“Operators of other peoples infrastructure” is sounding pretty close to the Ottoman debt commissions / etc of late 19th century. Slowly take over the running of the jurisdiction under the guise of both debt repayment and reform. So I don’t think it’s just “vires”, its the obvious similarities with 19th colonialism that put a break on such mechanisms.

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Vasilis Vassalos 01.28.15 at 1:22 pm

hix

“No, “greeks have to many holidays and retire to early”, is absolutly not the same as Greeks are lazy. Its rightwingish, supply sidish structural reform targeting the little people, whatever. But that a far cry from “greeks are lazy”. By the way, id love Germany to become a little more Greek with regards to attitude towards work.”

Greeks have fewer (a lot fewer) holidays than French and other Europeans. A few of them, mostly working mothers, retire too early. That’s it. That’s the only nugget of truth today, 2015, in what you say.

As for our attitude towards work, you came to know it how exactly? Give me a break and wag a finger to someone else.

264

Asteele 01.28.15 at 1:22 pm

Greece is in really bad shape, and lots of people are suffering, it seems that problem is more important then whatever the rest of this nonsense is about.

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Vasilis Vassalos 01.28.15 at 1:24 pm

BTW, even for working mothers the retirement age has been increased to what is the standard elsewhere in Europe. Although this only applies to younger workers (so for that category the steteotype is partially true).

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Anon. 01.28.15 at 1:49 pm

@Ronan(rf) 233

This comment hits the nail on the head.

>And even if the Troika do push for institutional changes , how do they make sure the changes are enforced ? My understanding is that if reform doesnt come from interests and factions commited to them *inside the country* then it’s more than likely not going to be effective, as it has no buy in domestically.

This is perfectly stated, and the crux of the issue. @Collin Street: the troika is not responsible because the only way it could affect change is by solving the problem above, which is not within the realm of possibility. Even if they managed to do so, how could they make sure their reforms would be preserved? They are entirely powerless to substantially influence the situation and therefore can bear no responsibility for it.

As for the Russia connection, I think your hand-waving is not enough. Come on, play ball! Tsipras’ very first foreign policy action was to break with every other EU country and support Putin’s land grab in Ukraine. Other than being anti-NATO is there any common ideological ground between Putin and Tsipras? The way I see it, Tsipras is a True Believer but also a smart, pragmatic dude. So he’s using Russia for two purposes:

1) He understands that the threat of default may not be enough to goad the troika into giving him more money. He’s therefore pretending to be friendly with Russia in order to give himself an additional bargaining chip (if you give us the money we’ll fall in line and support the sanctions).
2) Simultaneously, if that falls through, friendly relations with Russia could be a back-up source of money. Putin is obviously hungry for additional influence in the EU and giving a few billion to Greece would be a good way to achieve that.

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otto 01.28.15 at 1:52 pm

“support Putin’s land grab in Ukraine” — did he quite do that?

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MPAVictoria 01.28.15 at 2:09 pm

“Things would also have gone a lot better if Greece had never joined the Euro (or been allowed to join the Euro) in the first place.”

Bingo.

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J Thomas 01.28.15 at 2:40 pm

#256 Hidari

Things would also have gone a lot better if Greece had never joined the Euro (or been allowed to join the Euro) in the first place.

It’s always a little uncertain how history would have gone if things were different.

270

Ze Kraggash 01.28.15 at 3:29 pm

“support Putin’s land grab in Ukraine”

Not only that, but according the Kiev’s regime PM Yatsenyuk (or simply ‘Yats’, to his American handlers), Putin perfidiously invaded the previous (third) Reich back in 1944-45. Never again!

http://www.wsws.org/en/articles/2015/01/19/yats-j19.html

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Daragh McDowell 01.28.15 at 3:58 pm

Anon @266 – Not quite correct. Tsipras was supporting Putin and echoing his (false) claims about the ‘Kievan nazi-junta-oogabooga!’ way back in March, and his FM Kotzias appears to be close to Alexander Dugin, an extreme Russo-chauvinist reactionary, and currently one of the Kremlin’s favourite ‘philosophers.’

I don’t know why 21st century socialism (of the Chavez/Tsipras variety) involves applauding kleptocratic dictatorships, who pursue explicitly imperialist policies and bash their domestic minorities in the name of religious and ethnic chauvinism, but it seems to be a bit of a trend.

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FromArseToElbow 01.28.15 at 4:17 pm

Anon #266, re “if the Troika do push for institutional changes, how do they make sure the changes are enforced”.

I think the choice of ANEL (the Independent Greeks) as coalition partner provides a clue. Until a deal is done, Syriza need to secure their domestic support for confrontation with the Troika, which is what allinace with ANEL achieves.

Thereafter, ANEL are largely superfluous. This means that an additional bargaining chip for Tsipras is the offer to substitute another party, such as To Potami or the rump PASOK, for ANEL in coaliton. That new party would act as the watchdog-cum-enforcer for the Troika within the Greeek government.

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Anon. 01.28.15 at 4:19 pm

Now it starts to get truly entertaining!

Golden Dawn issues statement in support of Syriza’s pro-Russia, anti-EU, and anti-privatization policies: http://www.xryshaygh.com/enimerosi/view/ochi-stis-kurwseis-kata-ths-rwsias-ochi-stis-idiwtikopoihseis

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bob mcmanus 01.28.15 at 4:19 pm

involves applauding kleptocratic dictatorships, who pursue explicitly imperialist policies and bash their domestic minorities in the name of religious and ethnic chauvinism

Did you miss the thread immediately below about Saudi Arabia?

Those of us who don’t withdraw and are honest pretty much can only choose from a menu of bad guys, for strategic or rhetorical purposes.

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TM 01.28.15 at 4:27 pm

Ronan 233: “Article 62 of the Constitution grants immunity for members of government: they may not be prosecuted, arrested or imprisoned without the approval of Parliament. 2 Given this flagrant breach for a founding principle of democracy – that no one should be above the law and that the judiciary and parliament should be separate – it could be called into question whether Greece is really a democracy at all.”

Parliamentary immunity is standard legal procedure in many countries, including Germany.

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None 01.28.15 at 4:34 pm

hix@228 – “Second unfortunately in some way the stereotype is very much true: Germans in particular really do work more intense, a lot more intense.”

Color me seriously skeptical on this. Back in the 90’s we had a bunch of germans over from the lab there. They all seemed to think it was ok to work 9-5 and were annoyed to receive work related calls to thier hotel rooms at 9PM – something considered quite normal by the rest of us. They were not magically productive either. Maybe they are “intense” workers by “european” standards or something. But they would likely struggle to compete in the US.

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Ronan(rf) 01.28.15 at 4:34 pm

there’s a difference between parliamentary immunity (ie immunity from prosecution for things you have done in your capacity as a parliamentarian – and there’s a scale in the relevant countries of what immunity covers) , and immunity from all prosecution, even as a private citizen (which afaik is what the Greek law guarnatees. Although Im open to correction on that)

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Ronan(rf) 01.28.15 at 4:38 pm

..although, tbh, I might have that wrong so am open to correction.

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Ronan(rf) 01.28.15 at 4:46 pm

Just to be clear as well, Im not really agreeing with the ‘Greek corruption’ angle. It seems kind of a weak argument to me.
I think John Q is right, ie it is ‘a problem about the troika, the banks, and financialised capitalism in general’, rather thean DD.

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TM 01.28.15 at 4:53 pm

Ronan, to explain this, in Germany, a sitting member of the Bundestag (which includes all the government ministers) cannot be charged with any crime without a vote by the parliamentary immunity committee formally voiding the member’s immunity. The committee will normally agree to the request by the prosecutor unless there is suspicion that the prosecution is politically motivated (which for example in the US is indeed frequently the case (*)). Immunity ends when a member leaves Bundestag and prosecutors are then free to pursue charges that have been held up by immunity. Once again, this is different and separate from immunity ex officio enjoyed for example by heads of state.

(*) The Clinton impeachment circus started when a prosecutor investigated sexual harassment charges against Clinton. The Supreme Court at the time ruled that Clinton had no immunity from that investigation because it affected his private conduct. During that investigation (which ultimately produced no charges), Clinton then lied about his (unrelated) affair with Lewinsky, which then got Ken Starr started. Had the court ruled otherwise, the world would arguably have been spared a lot of BS. The charges could still have been investigated after Clinton left office.

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Ronan(rf) 01.28.15 at 4:54 pm

TM- ok, fair enough. Thanks for the clarification.

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TM 01.28.15 at 4:59 pm

283

Ze Kraggash 01.28.15 at 5:45 pm

“kleptocratic dictatorships, who pursue explicitly imperialist policies and bash their domestic minorities in the name of religious and ethnic chauvinism”

Who would that be? Sounds like a good description of the neonazi puppet regime in Kiev, currently terrorizing and exterminating people of undesired ethnicity in the eastern provinces of former Ukraine.

But Syriza doesn’t applaud it. On the contrary: I read that their spokesman characterized the latest western russophobic campaign as “neocolonial bulimia”. Colorful. “Imperialism” would do just fine.

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Harold 01.28.15 at 6:36 pm

re @285, I am quite surprised that the ongoing Ukrainian situation, the rise of right-wing extremism in the Baltics, and the US-Canadian endorsement in the UN of the “Double Holocaust” (which blames the Jews for WW2) have gone unmentioned on this forum. Jacobin magazine has mentioned it, raising my estimate of that periodical.

285

hix 01.28.15 at 6:43 pm

Well, that kind of national work culture view is always dangerous as one tends to overempashice and reinforce national generalisations after one learns the averages and its also a good case in point here that debating the differences can be emotional difficult. Its still not a rabit out of my hat. By intense i mean that work time is more strictly work time, less (not none, and again, individuals vary, im obviously lazy and unfocused for example) private chatting, reading blogs etc during official work hours. In part thats also a question of dominanting job types. E.g. assembly lines vs tourism service . Theres also less flexibility based on short term needs and hours tend to be shorter: So definitly not a question of whos more or less lazy. The US is somewhere in between Greece and Germany.

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William Berry 01.28.15 at 6:49 pm

Shorter Ze Kraggash, aka Data Tatushkia:

Deliberately starve millions to death in a country that has been forcibly occupied for centuries. Send in “settlers” to occupy the depopulated farmlands and towns. Support the theft of a third of the country by said settlers. When the country fights back, they’re the bad guys.

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Ze Kraggash 01.28.15 at 7:04 pm

Shorter William Berry: I’m a full-of-shit deranged russophobe and a nazi symp.

http://www.liveleak.com/view?i=c05_1422310781
http://www.bbc.com/news/world-europe-28329329

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William Berry 01.28.15 at 7:24 pm

I am a proud left-liberal.

You’re accusation would sting had it a germ of truth in it.

Or if it came from a faintly credible source.

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William Berry 01.28.15 at 7:25 pm

“Your”, of course.

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Anon. 01.28.15 at 7:47 pm

I would love to hear Ze Kraggash’s explanation for why Golden Dawn agrees with Syriza’s policies.

Do they, too, have an intense dislike of neonazi regimes? ha!

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None 01.28.15 at 8:06 pm

hix@287 – “The US is somewhere in between Greece and Germany.”

No, I don’t think so. I don’t know about “assembly lines vs tourism service”, i’m talking enterprise computer systems – software specifically. The kind of schedules our german counterparts were used to would be considered unacceptably generous & lax in the US. If anything things have gotten even intenser in the US since the 90’s.

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Ze Kraggash 01.28.15 at 8:14 pm

“I am a proud left-liberal.”

You may think of yourself as a left-liberal (whatever the hell that is, in your mind), but you are what you are. You approve of an ethnic cleansing on account of some ridiculous ultra-nationalist narrative full of some imaginary grievances going back “for centuries”. Obviously, there is a stupid nationalist narrative on each side, but you pick one – the one fed to you by your masters. If that’s what ‘left-liberal’ is, shove it.

Anon.,
“why Golden Dawn agrees with Syriza’s policies”
What “policies”? Golden Dawn and other European far-right movements dislike the EU. They are concerned about the loss of the national sovereignty of their countries. It’s a protest against the EU dictate. And it’s getting stronger and stronger. They want to be able to trade with Russia (or any other country) whether Merkel likes it or not. Probably mostly the same story with Syriza, actually. Although I do hope that self-proclaimed radical left has a principled position against resurgence of nazism in Europe.

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William Berry 01.28.15 at 8:21 pm

“Vlad the Paler”, hero of the anti-imperialist left.

Shove it yourself, tiresome, one-note fanatic.

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MPAVictoria 01.28.15 at 8:22 pm

“Shove it yourself, tiresome, one-note fanatic.”

Well he also attacks feminism and support for gay rights so he is at LEAST a three-note fanatic.

;-)

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Dimitris 01.28.15 at 8:29 pm

There is no promise from Syriza to double the minimum wage. The minimum wage will go from €586 to €751, as it was before the agreement with the troika. These are not net values. People on minimum wage won’t buy expensive clothes or go from trips abroad, they will spend money buying what they need to survive. This will create jobs and save small businesses from collapsing.

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Peter T 01.29.15 at 6:54 am

On thinking it over, I still don’t get how D2’s surely correct premise – that the troika approach to Greece was driven by an essentially political agenda – with the process actually implemented. I have never restructured a country, but I have had to clear up various bits of the bureaucracy which had fallen into bad ways but were still carrying out (however badly) some necessary function. Walking in, declaring that all those not sacked were on half-pay, and selling the furniture was not recognised as a good way to get the needed change while still keeping the lights on. The troika process seems to have been, on D2’s explanation, all about money, but the problem was not financial but social and political. So it’s failing financially, while generating blowback politically, and D2 thinks a financial firewall will contain the damage.

They may not be stupid, but I can’t bring myself to call this competent.

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Vasilis Vassalos 01.29.15 at 8:40 am

I think DD is saying that the social and political was not on the EU bureaucrats’ radar, and didn’t generate much interest among the EU’s political actors either. Basically, he’s showcasing the financialization of the EU project, which is really sad. I think there is a lot of hand wringing around Greece’s sociopolitical situation because EU actors fear that trying to be seriously engaged would look like colonialism or something. OTOH, it’s not clear why they don’t understand that threatening to throw the economy under the bus by cutting off support by our *collective* central bank also looks similarly imperial.

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Simon 01.29.15 at 9:39 am

Which Greek deficit ? Greece is running a primary surplus of 4.5%, isn’t it ?
And when did the Irish central bank run ahead of the ECB in providing liquidity. Everything seems to indicate the Irish were shoehorned by the ECB into bailing out their banks and nationalising the losses.

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dsquared 01.29.15 at 10:29 am

Vasilis has a good point that a lot of good work has been done under the program – lots of people thought that primary surplus couldn’t be achieved at all. But surely the troika has to get some credit for that. Greece really wasn’t, under PASOK, planning to do anything about the extent to which some of its citizens were supporting their consumption by helping to run up government liabilities. This did have to be done and it wasn’t likely to have been attempted outside a crisis. I mean, the forerunner parties to Syriza existed in 2008, and how many votes did non-crony politics get?

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Christian 01.29.15 at 11:14 am

Simon @298 “Which Greek deficit ? Greece is running a primary surplus of 4.5%, isn’t it ?”

no. they are expected/asked/pressured into running a primary surplus in the future, but at the moment it’s more or less zero:
http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=121.GST.Q.GR.N.D1300.PDF.D0000.CU.E

There’s also a blogpost by their new finance minister on whether this recent improvement in the data is not merly a return of “greek statistics”:
http://yanisvaroufakis.eu/2014/04/24/greek-statistics-are-back-primary-deficit-presented-as-surplus-with-eurostats-seal-of-approval/

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Anon. 01.29.15 at 11:27 am

>I mean, the forerunner parties to Syriza existed in 2008, and how many votes did non-crony politics get?

…how many votes did non-crony politics get in 2015?

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Anon. 01.29.15 at 8:51 pm

“Russian Finance Minister Anton Siluanov told CNBC that Russia would consider giving financial help to debt-ridden Greece”

How about that.

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dbk 01.29.15 at 9:07 pm

dsquared@234

Agreed: trust must be earned, although we’d hope for good will during the trial-of-trust period.

From my perspective, the long-term, truly challenging issue is “how does one bring a country which missed out on the Industrial Revolution” into the (post-industrial, services-oriented) twenty-first century? Can it be done? I think it can, but it would be a unique accomplishment in economic-development history.

What does Greece “produce”? Currently, agricultural products of very high quality, primarily destined for the 1% of northern Europe (vegetables – fruits), and tourist services. (Also, btw, very high-quality pharmaceuticals, but that’s a comment for the other thread!) Obviously, neither sector is remotely competitive with the powerhouse of high-tech, German-French heavy industrial output. To put it another way, what can a poor country possibly produce that would raise its per capita GDP to a level comparable to that of northern Europe? I don’t have the answer, but I understand the challenge, and to me at least, it is as fascinating as it is bedeviling.

To offer a comparison that might be useful to U.S. commenters: how would one proceed to raise the GDPs of the eleven poorest U.S. states (southern) to an equivalent level of the eleven richest U.S. states (northern, East-West Coast)?

Why is this so crucial? If I understand correctly (dquared, help, please!), the EU is a monetary union, but not a financial union like the U.S., i.e. it did not incorporate into its founding document a mechanism for the automatic redistribution of revenues from rich center to poor periphery. As long as this situation continues, there will be an imperative requirement for the periphery to enrich itself in order to avoid catastrophic imbalances of payments.

A couple of observations:
Greece has natural access to the capability of generating nearly-infinite wind power. One of its Cycladic islands (specifically, Melos) possesses an untapped treasure of geothermal energy which could power the Aegean region for a very long time. Additionally, Western Macedonia is sitting on unexploited metal deposits (~40 billion euros est. value). Furthermore, Greece – a tiny country, roughly the size of the state of Pennsylvania – has the longest (and least-polluted) coastline in the Mediterranean. Experts have long proposed (since the late 1960s, at least) that Greece dedicate its coastline to fisheries and become the world’s fish-provider, rather as Denmark has become Europe’s pork-provider (to the economic benefit of Danes, though perhaps not to their environment).

These are the real longer-term challenges, and one can only hope that the new government will address them forthwith.

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Matt 01.29.15 at 9:33 pm

To put it another way, what can a poor country possibly produce that would raise its per capita GDP to a level comparable to that of northern Europe? I don’t have the answer, but I understand the challenge, and to me at least, it is as fascinating as it is bedeviling.

I think this is a bad statement of the problem. Distribution of the pie is a much more serious problem than the size of the pie. Depending on whether you use PPP-adjusted or nominal GDP per capita, Greece is either slightly above or slightly below the Czech Republic; they are comparable if all you care about is GDP per capita. But the Czech Republic has much lower unemployment, much lower government debt, and nobody seems to think that EU will disintegrate due to GDP per capita in the Czech Republic lagging far behind neighboring Austria. That might have something to do with the Czech Republic having a pre-transfer Gini coefficient higher than Greece, but a post-transfer coefficient that’s lower. Lower than Germany or Austria post-transfer, for that matter. Greek GDP gains that aren’t shared won’t improve things.

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Matt 01.29.15 at 9:37 pm

Oh, crap. I missed that the Czech Republic isn’t a Eurozone member. That might invalidate the POV I expressed in the previous post.

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Ben 01.29.15 at 10:14 pm

In a discussion about trade, once people start talking about cakes or pies you might as well give up.

Tourism could be a perfectly good high-productivity industry. the Val d’Isere doesn’t seem to do anything else, and they seem to be doing OK. It seems like bitching that New Jersey is in a financial-services trade deficit with Manhattan. Or is it that Manhattan is in an accommodation trade deficit with New Jersey? I can never get that straight…..

Remember borders are just lines on a map people! Or at least they are when you are in a single market with free movement.

I do love that free movement.

307

Ben 01.29.15 at 10:15 pm

@Matt, I think you just made the argument for Grexit!!!! External devaluation hurts less and the hurt is spread more evenly….

308

Carlos Eduardo Morreo 01.29.15 at 11:26 pm

@42, jackrousseau dit: «Does anyone else think it’s cool that Varoufakis gets to go from being the academic who genuinely, accurately and passionately rages against awful EU policy for the better part of a decade on lesser known blogs and such, to being possibly (I’ve heard he’s tipped for Finance Minister, which would entail a good deal of power here) one of the people with the biggest opportunities to change it?

It’s just one of those things that doesn’t happen very often. Usually modern politics is not supposed to admit such possibilities, right? Gives one hope.»

Yes! I find it eqaully unbelievable, and share the enthusiasm.

309

Un Lun Dun 01.30.15 at 1:11 am

Tsipras madman act does not center on Grexit anymore, his madman act centers on a unilateral default. OECD estimates Greece is running a primary balance of nearly 8%, which makes default a credible option/threat. EU creditors are particularly vulnerable since they hold 60% of the debt (ECB 10%, IMF 10%, Private 20%). One massive write-off and Greece runs a major budget surplus. Therefore the negotiations (should) center on saving what can be saved.

Promising to drastically lower interest rates in lieu of debt write-off is unfortunately not enough. Remember the EU money was lent to tide the Greeks over until they can access the private bond markets again, without being forced to borrow at unsustainable interest rates. Now look at that current debt of 175% of GDP. Looks risky to private creditors, doesn’t it? And risk means higher interest rates. The Greeks have already extracted one write-down from private creditors, another would shut them out of the markets until a common EU bond system is set up (which I wouldn’t count on coming anytime soon). So it is clear to the Greek government that a write down of EU debt better occur before much of the rollover is financed by the markets. Otherwise the markets might demand painfully high interest rates and the cycle of EU loans and austerity begins anew.

In other words, markets think a default now would make Greece bonds safer, which lowers interest rates, which facilitates an exit from EU debt. Note how the oft-cited iron laws of the markets don’t necessarily work to the advantage of EU creditors. Note also that even if the OECD is overestimating the primary balance, Syriza will be in power for another 4 years. Any future improvements in the Greek finances work entirely to Syriza’s advantage, and they might retaliate to a humiliating backdown with an unannounced unilateral default later.

In further refutation of Grexit as a Greek negotiation tool, it was the German government that leaked a report to Der Spiegel, claiming a Greek exit was inevitable if Syriza wins, though on the upside Europe would be able to cope with it. So is the German government too stupid to understand the main threat lies in unilateral default? Too stupid to realize Grexit is therefore unlikely? Too stupid too see that such talk causes capital flight (see Greece earlier, Cyprus later), undermining the Greek banking sector, potentially forcing the Greek government to ask for help from the ECB? Or are they diabolically clever? :)

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Anon. 01.30.15 at 10:56 am

@Un Lun Dun

I have no idea where the OECD estimate is coming from, but it’s (obviously, why would you believe for a moment that Greece is running an 8% primary surplus?) wrong. The 2015 budget has a ~3b euro primary surplus, or about 1.5% of GDP. But as the new finance minister told us, the Greek statistics are still filled with bullshit (http://yanisvaroufakis.eu/2014/04/24/greek-statistics-are-back-primary-deficit-presented-as-surplus-with-eurostats-seal-of-approval/). Add to that increased spending by Syriza, and lower revenues due to the stopped privatizations, and you’re not even close to a primary surplus.

Also, you failed to consider what would happen to the Greek banking system in case of default. Where will Greece find the money to recapitalize the banks it just wiped out? Grexit is the only option at that point.

Let me remind you that Greece already did default, with a total writedown worth ~70% of GDP. How did that work out?

But sure, if Greece defaults and a miracle happens that allows Greece to remain stable and in the Euro, then their interests rates will surely drop.

But Syriza will still not be able to implement their program! Interest payments is 2.6% of GDP right now for Greece (lower than Spain or Italy), even if that goes to zero it’s a relatively small amount of money.

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Markos Valaris 01.30.15 at 11:45 am

The 8% OECD number is an estimate of the structural primary surplus, i.e. an estimate of what the surplus would be at full employment (I know, black humour). It is an indication of the stance of fiscal policy, not an actual sum of money.

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Hidari 01.30.15 at 12:30 pm

“Greece is either slightly above or slightly below the Czech Republic; they are comparable if all you care about is GDP per capita. But the Czech Republic has much lower unemployment, (and) much lower government debt”.

” I missed that the Czech Republic isn’t a Eurozone member. That might invalidate the POV I expressed in the previous post.”

It does, however, inadvertently make another point about the relative economic virtues of joining the Eurozone.

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dax 01.30.15 at 12:48 pm

It’s not just up to Greece to decide on default. The debt used to be under Greek law; it’s now under English law (this was one of the major results of the last rollover). Greece can pretend to default, but its creditors will simply sue it in English courts (which are supposed to be creditor-friendly).

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R Cottrell 01.30.15 at 1:30 pm

Gladiator
I deliberately waited for the thread to establish a trend before wading in with my own observations, as a modest Greek expert of sorts. In general I am disappointed because most commentaries so far seem somewhat off the mark and miss by miles all the decisive points in understanding what is really happening in Greece, and what is all too likely to happen next. In 1987 I published a book (Blood on their Hands) which summarised the trials and tribulations of the Greek people since they gained independence from the Ottomans. The ‘hook’ was the brutal murder in Athens of a BBC freelance reporter called Ann Chapman, during the U.S./NATO- supported fascist military junta (1967-74 – the reign of ‘The Colonels’. )
Chapman’s murder had become a cause célèbre in the U.K. because she was young (25), attractive and worked for the BBC’s London radio channel. Her parents refused to accept the nonsensical conviction of a well-known peeping tom and that is where I came in, when they petitioned the European Parliament, of which I was an elected member, according to an established procedure to redress some grievance arising in another member state. I found myself appointed the rapporteur with all the necessary means at my disposal to investigate the crime. I based myself in the country, learnt some potted Greek and collected evidence from up to a thousand individuals, including ministers and officials relevant to the task, working to the strictest precepts of investigative journalism (my profession).
What became immediately obvious was the presence of Miss Chapman in Greece at a time of considerable turmoil within the Junta was hardly co-incidence. The girl’s father was told to shut up and cease pestering officials because otherwise ‘there would be an international incident.’ I met a complete wall of silence of non-co-operation from the British authorities. The socialist government of Andreas Papandreou permitted the justice minister, Georgios Mangakis, to co-operate to a limited extent. Papandreou had old scores to settle with the British concerning the fate of his father, and this was his typically cunning ruse to annoy them. Through Mangakis, a noted opponent of the Colonels, I was led to a closer understanding of the motives which brought the Junta to power. These are significantly relevant to the current Syriza social phenomenon.
The Greek experience is stained by the extremely bitter civil war which erupted after the defeat of Germany and the award of Greece to suzerainty of the United Kingdom, as part of the Yalta carve up of the post war spheres of interest. The Americans and British regarded Greece as a priceless maritime haven and airstrip to defend their joint interests in the Middle East, in Cyprus (then still under direct British rule), and the gates of the Suez Canal. The wartime communist resistance front was the leading but not exclusive force in the war, which had it been fought, pro rata, on British soil, would have evoked some 900,000 casualties. On par, then, with the Spanish Civil War but nowhere near as notorious. There are parallels with the war between the American states, in terms of lasting toxicity.
This calamity has never left the Greek consciousness, nor the reality that victory – with the aid of massive American support – reduced Greece to the status of a fiefdom which did not henceforth enjoy the privilege of electing governments out of tune with the lights of ‘western’ interests. Timberjacks will now begin to understand where this thread is leading. In 1967 a general election approached with the centrist Liberals appearing well poised to win, on a fairly modest programme of economic reforms buoyed by an unmistakable overlay of ‘Greece for the Greeks.’ This virtual declaration of independence thoroughly rattled nerves in Washington , in London and in NATO, of which Greece was by now a full member.
The likely winner, the veteran statesman Georgios Papandreou, had strong inclinations to Greek neutrality, immediately interpreted in Washington as likely to end up with NATO getting notice to quit Hellenic soil. The whole affair was complicated by machinations over the future of Cyprus, which the Greeks regarded as a virtual province, whereas the Americans viewed the island’s elected president, a Greek Orthodox archbishop, as another Castro in clerical disguise. Papandreou’s clear ‘hands off’ warning to LBJ, led to the famous repost that if the meddlers in the Mediterranean did not watch out, the elephant would employ his big trunk to whack a pair of annoying fleas – the Greens and the Cypriots. And that is exactly what happened.
There was no general election. Papandreou was placed under house arrest. Because of contrived difficulties in getting access to medicines for his ailing heart, he died. The infamous Colonels swept to power and thus began a reign of terror which haunts Greeks to this day. Therein a warning to Tsipras and his merry men.
It scarcely matters if leaving NATO and kicking out all foreign troops is fourth or fortieth (as it is) on Syriza’s must-do list. Greece remains an important keystone in the arch of NATO interests in the Eastern Mediterranean. A Grexit from NATO will simply not be allowed to happen. Still less double Grexits, with regard to Greek participation in the EU. The necessary means will be brought to bear. There are plenty of soft methods at hand, falling far short of the rough treatment meted out to poor Georgios Papandreou almost half a century ago.
Tsipras’ wafer-thin majority depends on the alliance with a bunch of right-wing Eurosceptics and the uncertain loyalty of elements within his potentially unstable caucus. All that is necessary, on the face of it, is to prise away either the right-wingers currently riding shot gun, or weed out some of the less sturdy elements in Syriza ranks. Or both. The anti-Syriza strategy hinges for the moment on pseudo-constitutional devices to force another general election that might well produce a more amenable government in the eyes of the usual suspects, especially when the waves become bigger.
The guns are already firing on the second front. The death star Bloomberg reports how the bond and stock markets are steadily reduced to rubble by the hour. There will be more of the same, with Greeks invited to blame Syriza, and yearn for the calm stewardship of Antonis Samaras, the same man who sold his countrymen down half a dozen rivers.
Time and patience should work best. Syriza has the support of just 37% of the voting population. The majority of Greeks do not wish to find themselves in an isolation hospital, out of the EU, cut off from the markets. They might be indifferent about NATO, but put to the test in a referendum, would probably shrug their shoulders and opt for the devil they know. The boy wonder Tsipras is faced with the daunting task of managing a gloriously anarchic society which, as another former premier, Konstantine Karamanlis once advised, would get along rather better by ‘the adoption of calm habits.’
This is not the way of Greeks, who have more of the Levant about them than Europe, as anyone who spends five minutes in Omonia Square in downtown Athens will readily concur. Tsipras, I regret, is another ‘episode.’ He will be removed, one way or another. False dawns are the running story of Greece
Postscript: Ann Chapman. She was snatched by the colonel’s henchmen outside her hotel, carried off to the dungeons of the Greek secret police, battered, then strangled to death. A unlikely fate for a freelance reporter supposed to be reporting on the prospects of the Greek tourist industry. In subsequent work I have suggested that she was closely connected with British intelligence and in that role misidentified as a Soviet agent. Another Greek tragedy. The dimwitted patsy framed for the murder was released within hours of the Strasbourg parliament adopting the full report of my investigation.

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hix 01.30.15 at 3:09 pm

How does that matter if UK courts decide the default is not ok? All i would be expecting from that are some more or less amusing attempts to posses some Greek government buildings abroad that are not officially part of the embassy.

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dax 01.30.15 at 3:38 pm

The creditors can try to seiwe ships (especially important for Greece) and any financial assets held abroad, including interest held by other creditors. Because the EU will also probably impose sanctions by seizing any exports from Greece, Greece trade with the EU (or rest of the EU, depending on whether Greece stays in or not) will crumble and so Greece will need to borrow money – but it won’t be able to.

317

Ben 01.30.15 at 4:32 pm

@dax, if the Greek government defaults I don’t think that means that Greek corporations’ and individuals’ assets are subject to seizure, only government assets. If I was them I would be disposing of them right now.

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Rob 02.01.15 at 10:55 pm

Stupid is as stupid does, and the Euro/Markel handling of the ostensible “recovery” has been. . . pretty stupid, particularly the assumption that 50% yewt unemployment is tolerable for 20 years while lecturing about pay your debts from the German bail-out banksters.

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dbk 02.02.15 at 9:26 pm

dax@316

Actually, most of the Greek fleet of tankers flies under foreign flags today, and most Greek shipping firms are headquartered in London, not Piraeus. Seizure is pretty much impossible under these circumstances.

Honestly, people need to sort of forget about “Greek” shipping, which is for all intents and purposes now “global” shipping and immune to Greek taxation and law.

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J Thomas 02.02.15 at 9:40 pm

#319 dbk

Honestly, people need to sort of forget about “Greek” shipping, which is for all intents and purposes now “global” shipping and immune to Greek taxation and law.

Yes, for all practical purposes a whole lot of Greek wealth just sailed away. Some Greek rich people are culturally Greek and have a soft spot for their home nation, but don’t really have much of an economic connection any more.

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