The landslide winner’s curse?

by Daniel on February 11, 2015

In the light of current events in Greece, I have a lazyweb request for the political science bods among our readers. Is there a word for the following stylised set of facts:

a) A country has a proportional and multi-party electoral system, which often delivers coalition governments.

b) Because it anticipates a coalition, a party puts together an electoral platform designed as a basis for negotiation.

c) This package, as one would expect, includes genuine “red line” priorities. It also includes some less essential policies which might be expected to be negotiated away. It might even include some policies which are borderline undesirable – ideas which have been included intentionally to be bargained away.

d) Against its expectations, the party wins an absolute majority which is taken as a mandate for its entire platform

e) And thus it is saddled with a political imperative to implement a manifesto which is considerably more radical than it had ever really anticipated putting into practice.

If there is, I’m obviously most interested in the special case of

f) Where key parts of the platform involve negotiations with foreign parties, leaving the party subject to “landslide winner’s curse” having to take a negotiating position in international issues which it had been expecting to have diluted in domestic coalition-formation.

I’m not saying this is definitely something that’s happened in the case of Syriza. But if it’s been studied and is in the literature, it feels to me like that part of the literature is worth digging up right now.

{ 200 comments }

1

flyingrodent 02.11.15 at 8:19 am

The SNP might be a good control group for most of this, with the exception of the “landslide winner’s curse” part itself – handed an unexpected majority, all they’ve done is stake out a position slightly to the left of the opposition and then focus like a laser on trolling minor issues into massive controversies, the better to whip up yahoo enthusiasms about independence.

Although Scotland may not be the best example of your theory, given our political system and our particular manias.

2

Marcus 02.11.15 at 8:29 am

Points (a) and (b) just not the picture in Greece. The system can only be described as one that “often delivers coalition governments” in as much as the British system could also be described as one “often delivers coalition governments”. Coalitions have very much been the exception to the rule since the end of the junta in 1974.

It’s worth reading Alex Andreou in the New Statesman about the shift in Greek politics in 2012:

“It is difficult to give you a sense of the tectonic plate shift which has taken place in the Greek political geology in the last few years. If you can imagine, between now and 2015, the Tories dropping thirty-two percentage points, the LibDems disappearing into seventh place with less than 5 per cent, the BNP securing 18 MPs, the Greens emerging from nowhere to become the main opposition and the prospect of a Tory/Labour coalition, you may get a taste.”

http://tinyurl.com/cvxd9sh

3

Chris Bertram 02.11.15 at 8:40 am

There’s the local UK variation, given the current expectation of coalition. Suppose Cameron wins a majority, against expectations, he’ll then find himself in the middle of a negotiation on EU membership, constrained by all the things he says he won’t compromise on, since no LibDems as an excuse.

4

Freddy Bracke 02.11.15 at 8:51 am

There might be a comparable case in Belgium (with relevant literature by local political scientists) if you consider French and Flemish communities as separate political and electoral entities (true under present electoral law). A landslide victory in one community on a ‘radical’ platform means automatically huge problems at national level, inluding exclusion from national government ( radical Flemish NVA in past) or malfunctioning national government and broken careers (CVP’s Leo Tindemans in ’80).

5

flyingrodent 02.11.15 at 9:03 am

Actually, the SNP might be a better example than I though, even assuming its lack of control of national taxation etc. since its 2007 manifesto…

http://www.theguardian.com/politics/2007/apr/12/scotland.devolution1

…Consisted largely of comically obvious bribes to e.g. Fifers, the elderly, law’n’order enthusiasts, the young, plus pointless democratic hoo-hah on NHS trusts, a vague pledge to abolish the Council tax and a very late and tacked on promise to hold a referendum.

Of these, the expensive bribes & the elected NHS trusts sailed through Parliament; the Council tax replacement was quietly dropped down the Memory Hole after it was universally mocked and the referendum was shamelessly punted into the next parliament, because they never had any intention of holding one between 2007-11 in the first place.

All of which may help or hinder the theory.

6

otto 02.11.15 at 9:11 am

If the party was prepared to give these things up if necessary in domestic negotiations, then probably will be prepared to do so internationally too…

7

Michael Mouse 02.11.15 at 9:56 am

One obvious parallel is the UK LibDem positioning around the 2010 election, with ‘unexpectedly part of a governing coalition’ replacing ‘unexpectedly governing without (much of a) coalition’. There has been a moderate amount of polsci ink spilled along the lines you sketch out: the party did not seriously expect to be in power, and so developed an electoral platform that they later admitted was not what they would have chosen had they expected to be in power.

8

wintergreen 02.11.15 at 10:16 am

It’s definitely something that hasn’t happened in the case of Syriza. Firstly because of the win bonus that makes majorities much easier to obtain than in a genuinely proportional system, and therefore much more important to plan for. Secondly they went out of their way to choose a coalition partner to reinforce their manifesto position, when they could have easily (as many predicted) chosen a centrist party if they had wanted to water down their own commitments.

9

Daniel 02.11.15 at 10:36 am

If the party was prepared to give these things up if necessary in domestic negotiations, then probably will be prepared to do so internationally too…

You would think, but my worry is that the domestic political calculus really changes. If Syriza not only come back from Brussels having made a load of concessions, but attempt to do the Nick Clegg bit and say “well you guys have to understand that a lot of these policies were just pandering and election bollocks”, the consequences could be pretty severe for a party which is itself a fractious coalition to begin with. So it’s possible that simply the need to keep the show on the road is going to force them into a more extreme and less compromising position than they would ever have chosen if they had perfect foresight.

Add to that the fact that a) Varoufakis is a very recent addition to the team and b) the seeming lack of any concept of message discipline, not talking over each other etc, and I think it’s horribly possible that an achievable negotiated outcome could end up being missed simply because of the amount of noise and entropy in the system.

10

Daniel 02.11.15 at 10:42 am

Marcus, wintergreen: thanks. Although of course Syriza is itself a coalition in many senses, and one whose manifesto really does have that feel of never having been looked at as a whole.

11

Marcus 02.11.15 at 11:06 am

In 2012, between the two elections, I felt that Varoufakis made by far and away the most compelling case for voting Syriza back then, when he wrote the following:

“Should we be afraid of Syriza’s ‘ultra-leftism’? My answer is a resounding No. I recommend that (even those who have Greek amongst their languages) you do not read their manifesto. It is not worth the paper it is written on. While replete with good intentions, it is hort on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of policies that are neither here nor there. Just ignore it. Syriza is a party that had to progress, within weeks, from a fringe political agglomeration struggling to get into Parliament (at around the 4% mark) to a major party that may have to form government in a few short weeks. It is, in important ways, a ‘work in progress’; and so is its unappetising Manifesto.”

http://yanisvaroufakis.eu/2012/06/03/why-europe-should-fear-fina-gail-like-reasonableness-much-much-more-than-it-fears-syriza/

12

Markos Valaris 02.11.15 at 11:18 am

More fundamental for Syriza, I think, is the problem that it is a party that just five years ago was struggling to get 4% of the vote, and then swelled in numbers and support as a street protest movement. Its core membership consists of intellectuals who don’t seem to quite grasp the distinction between a faculty colloquium and a Eurogroup meeting, and protest activists whose habitual style of communication is via slogans.

On the positive side, this really is a government of outsiders. Isn’t this what a revolt against a corrupt political class would pretty much have to look like?

Incidentally, one thing that is in danger of getting lost in the whole brouhaha over the bailout is that Syriza appears set to enact social reforms that seemed unthinkable in Greece just a few months ago, including same-sex civil unions, an end to the disgraceful system of detention for asylum seekers, and the granting of Greek citizenship to children born in Greece to immigrant parents.

13

Daniel 02.11.15 at 11:24 am

Things are also complicated by the fact that a core promise of Syriza’s manifesto (and indeed, one of the most popular policies, with support in the 70%s) is to remain in the Euro.

14

stostosto 02.11.15 at 11:28 am

I am not sure the Syriza leadership can be likened to normal coalition politics players the way Daniel sets it up. Like Krugman says: They don’t wear ties.

15

Ebenezer Scrooge 02.11.15 at 11:33 am

@14:
Neither do the Isros, by and large.

16

bc 02.11.15 at 1:22 pm

@5 Is it not slightly rich to hold the SNP’s feet to the fire on undelivered manifesto promises from their 2007 manifesto? You’re conveniently leaving out that they were a minority government at the time, and did not have a landslide majority like Syriza. “The Evil SNP did not bring in referendum in 2007 (because they were a minority and all the other parties blocked it and then they brought it in when they did have a majority)” does not have quite the same ring I suppose. Same holding true for local income tax and others.

I don’t see anything particularly loony about their other pledges, they are well within the playbook of any party manifesto. Tories bribe south of England, Labour bribe Glasgow (with crossrail currently), SNP bribe Fifers.. yawn.

17

Zamfir 02.11.15 at 1:32 pm

Is this really a thing? I can see several counter-acting effects:

– if your party got an unexpected majority, then many of your voters are not that radical either. The win is as much a surprise for them as for you, they expected just as much that a coalition would weaken your program, and quite some of them will be relieved if you do not literally follow up on the program.

– Voters vote for people as much as for programs. Voters do notice when the people in charge of the party are less radical then the party, and they voted for them anyway.

– If the party is not used to majority power, then the people in the party will be more likely to gamble with that power. In fact, they might not expect to repeat such victory anyway, no matter hat they do This is different from the high-ups in the large British parties, who plan their whole career towards an eventual majority with them on top, and then work to stretch that majority.

And besides, politicians are known to break promises while keeping power, even politicians who do expect to have a majority. It’s a skill.

18

Marcus 02.11.15 at 2:22 pm

My biggest worry is that the real red lines are such that an agreement isn’t possible (I thought your post the other day about one might look like was a little optimistic).

My secondary worry is the lack of message discipline, as you say, will cock things up. (While I find it quite refreshing, in an abstract sense, now’s not the time.)

But, if a deal can be struck, I’m not remotely worried about a landslide winners curse. And it could make the deal more sustainable long run.

When Papandreou was negotiating with the troika, Samaras was a thorn in his side accusing him of negotiating hard enough. Samaras also undermined Papademos by keeping him at arms length and insisting on elections as soon as possible. Then, when Samaras was in power himself, he had Syriza accusing him of the same.

Now that Tsipras is in power, with the mandate that he has, we’re at the end of the line as far as that game’s concerned. If he had to go in with Potami, there would be those that would have put the blame on them for hamstringing the negotiations, and I even wonder if Tsipras would have been able to maintain party discipline to push any deal through.

As things are, even if he loses the Lafazanis wing of the party, he can still cobble together a new coalition with Potami and others. And he’d keep his popularity largely intact, because people will know he gave it his best shot.

19

Nick 02.11.15 at 2:35 pm

If this is a recognized situation, all I can say is Alberta exemplifies the exact opposite . . .

20

TM 02.11.15 at 2:48 pm

When a party in Britain or other majoritarian systems wins a clear majority, do they actually implement their platform, in every detail? Definitely not.

21

TM 02.11.15 at 2:52 pm

Now how many seats did Syriza win? I can’t find an answer even on google news.

22

MPAVictoria 02.11.15 at 2:59 pm

“If this is a recognized situation, all I can say is Alberta exemplifies the exact opposite . . .”

Oh so very true….

23

Argyris 02.11.15 at 3:36 pm

Ι think the ‘landslide winner’s curse’ model is wrong on two counts. First, that SYRIZA’s victory was expected since the European elections last May and the poll difference had widened at the level since September already when the government botched the real estate tax. So if they wanted to soften their policies, they had plenty of time to do it. Second, SYRIZA is two parties within a party, split between the ‘majority’, the people around Tsipras, which is itself a patchwork coalition, and the ‘minority’ also known as the Left Platform around development minister Lafazanis which is relatively homogeneous. The Left Platform comprises 30-40% of the party, elected approximately 30-40 MPs and as such the party could not have softened its programmatic declarations or the Left Platform would defect (a lot of its members are on the edge already with concessions made since 2012) and SYRIZA would neither be elected nor could it retain its parliamentary majority.

So the problem that Tsipras has is not due to an unexpected landslide but due to the way he has structured his coalition and party. It could not have governed with a centrist party, because at least 30% of his party would rather not govern at all that proceed with such a compromise. This dead-end was the reason he spent almost all the campaign asking voters to give a clear SYRIZA majority, because it was expected that his junior partner, ANEL would not enter the parliament and he would have to proceed with a second round of elections if he didn’t get a clear majority, which would have been extremely risky. But luckily for him, he didn’t get his own majority but ANEL scraped in and he could find a coalition partner that the party minority could at least tolerate. As such, the government should be really seen as a coalition of three parties. The Majority, the Minority and ANEL.

The problem therefore that the Majority has, because that is who is really doing the negotiations, since the Minority and ANEL have given carte blanche to them, is how to reach a deal that can satisfy all parts of the coalition, its electorate and Europeans. I don’t know how it’s possible to satisfy the Europeans, but I think for the domestic coalition and electorate, this deal has to contain 5+1 elements minimum:

a) Collective bargaining and former industrial relations restored.
b) Stop to massive privatisations, particularly of the Power & Water public companies.
c) Stop to pension and wage cuts, small rise to lowest pensions.
d) Replacement of the real estate tax with a more progressive one.
e) Smaller structural surpluses.
f) A reduction in debt (optional, can happen down the road).

If it does not contain a-e, I don’t think they can get it through parliament, as the Minority is highly unlikely in my opinion to vote for it. In that case, the alternative is for the Majority to either head for Euro-exit, as the Minority demanded from the start or make a ‘grand coalition’ with New Democracy, shedding the Minority in the process and sign another sort of memorandum. I don’t think the latter is rational from their perspective though, because New Democracy would have every incentive to call elections as soon as possible and wipe them off the electoral map and therefore their political future would lie in tatters. Even if the minority went along for some obscure reason, the reaction in Greece would be absolutely terrifying, because this time everyone thought they would fulfill their electoral promises to a certain degree (see a-e).

As such, the Majority for me is not bluffing, because it is constrained in such ways as to have no real moves. Signing a memorandum is a no-deal because either the government collapses immediately or they face huge electoral/protest strains (remember SYRIZA is an almost a thoroughly low-class supported party, i.e. the people most inflicted by the crisis). Getting a deal with the Europeans that guarantees a-e is their most preferred option. On the other hand, they are preparing for the alternative, first by making sensible proposals that are accepted by high-status American economists as sensible, establishing that it is not their fault negotiations failed, second by mobilizing their electorate to participate in grand protests of government support against the Europeans, binding their hands by establishing that there are thousands of people just outside parliament, expecting nothing less than a positive result. As such, I can’t see how the famous ‘rollover’ of SYRIZA expected by much of the Greek media can materialise. Everything to me indicates that it’s either a substantively better deal or a Euro-exit, while concurrently maneuvering so as to escape blame for it.

(full disclosure: I am a political scientist, Greek and voted for SYRIZA).

24

Peter K. 02.11.15 at 3:44 pm

That would be cool if “no ties” became an international sign for dealing with austerity.

I see the situation in the opposite way as Dsquared. The European Commission and the ECB were set up to keep the Euro area together and to expand it. In 2012 as it was falling apart, Draghi said he’d do “whatever it takes” and the ECB became the lender of last resort, calming the crisis. Just a few weeks ago Draghi engaged in “monetary socialism” – according to a conservative German professsor – and pushed a large QE past the governing council, as the Euro area sinks.

Greece has tried the debtor prison way for five years. That’s how bad they wanted to stay in the Euro. It hasn’t worked. What do people think is going to happen when the reasonable demands of Greece’s elected government are rejected? Probably they’ll either leave the Euro or the next elected government will. They don’t want to leave the Euro but they like the Troika’s austerity measures even less. Varoufakis likened them to “fiscal waterboarding.”

So the tie-wearing elite policymakers should try to keep the euro together and listen to Greece’s democratic request, but instead the moralizing about debt is going to override everything.

Here’s a good briefer by Teresa Tritch:
http://takingnote.blogs.nytimes.com/2015/02/10/will-greece-ever-get-out-of-debtors-prison/?ref=international

25

Trader Joe 02.11.15 at 3:54 pm

“Greece has tried the debtor prison way for five years. That’s how bad they wanted to stay in the Euro. It hasn’t worked. “

See, that’s sort of the issue. The Greeks would have you believe that they stopped buying $4 latte’s, traded down from an SUV to a Prius and somehow against all this sacrifice they managed to balance their budget and should be rewarded with a gold star and friendly deal.

While the austerity is absolutely true, nothing has been done about the underlying system which has shot wiring, a blown motor, corroded pipes and the early stages of congestive heart failure (pick your metaphor).

Its a bit like negotiating with a kid on cleaning their room – stuffing it all under the bed meets the letter of the discussion, not the spirit. Both sides of the argument are going to have their perspectives, and both need to give to get an agreement.

26

dbk 02.11.15 at 3:56 pm

TM@21
How many seats did Syriza win?
149 /300

A peculiarity of Greek parliamentary election law is that the party which wins the popular vote (Syriza, with 36%) is automatically awarded a “bonus” of 50 seats – the number 149 includes these. [This law was introduced to enable the winning party to form a government without a coalition partner.]

Thus, Syriza was 2 seats short of a majority in Parliament. They formed a coalition with ANEL (total seats: 13) in order to obtain a comfortable but not overwhelming majority of 162 seats.

Informal/unpublished polls (and some published polls) during the weeks leading up to the election had indicated what the results would be, so nobody was surprised, and in fact it had been pretty clear since the last election that Syriza would win this time round. From the speed with which the government was announced and sworn in, the coalition with ANEL was agreed before the election.

It’s unclear to me how much freedom to negotiate has been given to Varoufakis. Probably a fair amount in terms of technicalities, but less in terms of red line items that aren’t being discussed much in the Anglophone press. The latter appear to be non-negotiable, and actually represent the stance of the governing party’s moderates. They include prioritizing the enormous humanitarian crisis in the country and creating a jobs program for 300,000 people using the Greek government as ELR (Employer of Last Resort) [cf. working papers by the Levi Economics Institute, Bard College]. Privatizations which have already gone through will be honored; those pending but with no takers will be cancelled.

None of these can easily be walked away from – the party, which knew it would win far in advance – was elected on their basis, and once the Greek people understood that they weren’t planning to give up without a struggle, support surged (to 72% in the first post-election polls).

Let’s see what emerges from the emergency Eurogroup meeting in Brussels…

27

TM 02.11.15 at 4:01 pm

dbk: this is the information I had. I took DD to say that in fact Syriza did win a clear majority, which in fact they haven’t. A bit in the dark what DDs point actually is then.

28

Peter K. 02.11.15 at 4:06 pm

Here’s an interesting discussion with Stathis Kouvelakis, who teaches political theory at King’s College London and serves on the central committee of Syriza.

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

“…Syriza will insist on a solution like the one that was demanded in the case of Germany in 1953: that is, canceling the greater part of the debt and paying back the rest within the terms of a growth clause.

But what will we do if the Europeans refuse? Once again all the options are on the table, but Syriza will not retreat and let itself be blackmailed the way Anastassiades, the rightwing Cypriot president was in spring 2013 when the parliament of his country reject by a unanimous vote the bailout plan proposed by the EU.”

29

Peter K. 02.11.15 at 4:12 pm

@ 24 Trader Joe

They should get a gold star for getting to a primary surplus while suffering a humanitarian tragedy. Are you like Dsquared doing a mild troll? I agree that the Eurocrats see it as you do and this will be their self-inflicted, hubristic downfall as the panic spawned by a Grexit spins out of control. And if not that, a post-euro Greece won’t be that bad off, serving as a negative example. And the poor treatment of Greece will be a black mark on the European project.

I’m going to copy out Tritch’s argument just for you.

“The efforts of the new Greek government to write off a portion of its debt are being cast by powerful European policy makers as a bid for “debt forgiveness.” But the whole concept of “forgiveness” implies that there is a magnanimous creditor and a profligate borrower, and that’s just not true. Greece now has more debt than it can ever repay, and lenders share some of the blame for this.

Moreover, calling debt reduction “forgiveness” reinforces the kind of moralizing that has blocked a sensible resolution to the eurozone crisis since it began in 2010. In the German telling, in particular, Greece lied about its fiscal condition in order to take on excessive debt and must be punished with backbreaking austerity.

But reckless lending and reckless borrowing went hand in hand in the years leading up to the euro crisis. Greek officials did indeed use financial tricks — developed by Wall Street — to mask the size of budget deficits. Still, even before Greece joined the eurozone, it was clearly living far beyond its means. International lenders knew or should have known this; they were not defrauded so much as willfully blind, about deficits and also Greece’s inability or unwillingness to collect taxes.

So the bailout of Greece clearly was not a rescue of the country, but rather a rescue of the creditors, who could have been ruined in a default. Martin Wolf, the chief economics commentator of The Financial Times, reported recently that of the hundreds of billions of euros in bailout loans supplied to Greece by the eurozone and the International Monetary Fund, only 11 percent went to finance activities of the Greek government. Sixteen percent went toward interest payments, while the rest was funneled through Greece on its way elsewhere.

It would have been more transparent simply to bail out Greece’s lenders directly. But that would have gone off the script, which calls for Greece to bear all the blame.

It’s time for a new script. Joint responsibility calls for a joint solution. Debt reduction — meaning Greece would owe less and its creditors would receive less — would be the honest, principled way to proceed. Each side would acknowledge, at least implicitly, its role in the crisis and accept that cutting losses is the best way to salvage assets and preserve relationships that otherwise could be destroyed.

Reducing Greece’s debt is also the only practical way to impose political and economic reforms in exchange for relief, because Greece needs a fresh start in order to change.”

http://takingnote.blogs.nytimes.com/2015/02/10/will-greece-ever-get-out-of-debtors-prison/?ref=international

30

Barry 02.11.15 at 4:25 pm

Seconding Peter K, especially on two points:

1) There’s no f-ing way in H-E-double hockey sticks that the Big Boyz didn’t know about financial chicanery in the Greek budget (additionally, it’s unlikely that they were not helping/advising it).

2) The ‘bailout’ has been overwhelmingly a bailout of foreign banks, and likely a lot of it went to German banks, to reward them for being frauds.

31

Trader Joe 02.11.15 at 4:43 pm

@28 and 29
My comments were directed at where the conflict sits (i.e. troika vs. Greek perspective) not really towards what I think can get or should get done.

I expect their will be a deal and believe there needs to be a deal. In my view, what the deal will be is going to have rather little to do with “humanitarian disasters” or “fraudulent big banks” and everything to do with relative politics, who has the most will to walk a negotiating line and how much face saving each side grants the other.

Varoufakis saying he absoltuely won’t leave the Euro is an interesting negotiating ploy in my view, since it signals a willingness to compromise that won’t blow-up the banks, but yet may by needs fall far short of the significant reductions on which they campaigned.

32

Peter K. 02.11.15 at 4:55 pm

@ 30

“While the austerity is absolutely true, nothing has been done about the underlying system which has shot wiring, a blown motor, corroded pipes and the early stages of congestive heart failure (pick your metaphor).”

Well then the banks shouldn’t lend to them as they did throughout the 2000s. Their due diligence wasn’t very diligent. Aren’t they supposed to be the experts. I guess if they know they are going to be bailed out, it doesn’t matter.

Syriza has given them their proposal. I think they’ll stick to like 70 percent of the austerity measures. They have a popular mandate. It’s really up to the Troika if they’ll allow any easing up from previous negotiations. How much does keeping Greece in the Eurozone matter to them? They say a lot.

33

jsn 02.11.15 at 5:06 pm

Varoufakis is pretty knowledgable about game theory.

Here’s one theory if his actions:
http://theconversation.com/the-next-card-yanis-varoufakis-will-play-37230

34

TM 02.11.15 at 5:17 pm

Out of curuosity TJ 25, what is your expertise based on?

35

bob mcmanus 02.11.15 at 5:19 pm

Varoufakis saying he absoltuely won’t leave the Euro is an interesting negotiating ploy in my view

I think it is a serious and sincere commitment, and much more ambitious, radical and “dangerous” than the alternative. Read Global Minotaur.

Varoufakis wants a “New Deal” for Europe, with a rebalancing of capital flows via fiscal transfers, continent-wide fiscal transfers for demand management, infrastructure investment etc. Pretty conservative, in a back to the 50s way.

But I think he is also committed to “any means necessary” to get there, is looking with hope toward Spain, Italy, France, Ireland and is expecting the issues to be fought out originally in the streets. We’ll see in six months to a year if he and Tsipiras and Syriza can foment revolution.

36

Magari 02.11.15 at 5:23 pm

@ Argyris, thank you, your analysis is really useful. And I hope that you are right. The only two good outcomes here are (a) Syriza victory over Germany/the neoliberals/finance capital or (b) a Grexit where Merkel and Co. are left holding the bag and Syriza maintain their domestic popularity.

37

bob mcmanus 02.11.15 at 5:26 pm

Of course Varoufakis is first concerned with some relief for Greeks.

But he is also playing the long game for sustainable Greek prosperity and that means he is not just looking for at better deal with the EU and ECB.

He wants to take them over.

38

dbk 02.11.15 at 5:29 pm

I am wondering about Varoufakis’ ultimate goal entering negotiations with the Eurogroup.

Could his real objective be to force a rethinking of the Euro itself and get Europe to accept that a monetary union cannot succeed in absence of fiscal transfer mechanisms?

In the meantime, thousands of Greeks have began to gather in all the country’s cities in an outpouring of solidarity with the Greek team (yes, it is a team) gathered in Brussels.

39

marcel 02.11.15 at 5:44 pm

dbk wrote:

… the Greek team (yes, it is a team) gathered in Brussels

I knew that Greece is in the EU, but is it also one of the six nations?

40

dbk 02.11.15 at 5:52 pm

marcel@38

No … but come to think of it, the film Invictus is one possible parable given Greece’s current, er, position!

41

PlutoniumKun 02.11.15 at 5:56 pm

I believe that a roughly comparable situation occurred in the 1990 election for the Slovak Parliament (at the time one of two ‘national’ parliaments within Czechoslovakia. I’m not expert on Czech/Slovak politics, but a friend who lived in the country at the time told me that the main Slovak parties pushed a strongly nationalistic manifesto with the main purpose of getting a better deal in a confederation with the Czechs (only the small far-right nationalist party was a genuine independence movement). But the overwhelming success of the nationalistic parties (the result was a coalition, but with no countervailing ‘pro-Union’ party) meant that when the Czech Parliament and the President refused to play ball, they found themselves declaring independence almost by default.

Not quite the situation as set out by Daniel, but I think a pretty good example of where political grandstanding can lead to unexpectedly radical outcomes.

42

flyingrodent 02.11.15 at 6:13 pm

@5 Is it not slightly rich to hold the SNP’s feet to the fire on undelivered manifesto promises from their 2007 manifesto?

You’re right – I was talking about the 2011 election, which is quite relevant, at #1 and then switched to the previous election, which definitely isn’t, at #5. I’ve no idea why so, retracted.

43

Trader Joe 02.11.15 at 6:14 pm

@33
Not that it has any bearing on having an opinion on the matter, but I’ve been trading bonds since before the Euro was invented. I’ve heard every side of every story that anyone long or short has ever imagined about bond and currency implosions. The facts are what the markets and politicians collectively make them to be and negotiations depending on negotiating, not on facts.

44

Daniel 02.11.15 at 6:43 pm

Varoufakis saying he absoltuely won’t leave the Euro is an interesting negotiating ploy in my view

Again, why would this be a negotiating ploy, and other Syriza policies (which have less popular support than this one) the red lines?

And this really worries me:

a) Collective bargaining and former industrial relations restored.
b) Stop to massive privatisations, particularly of the Power & Water public companies.
c) Stop to pension and wage cuts, small rise to lowest pensions.
d) Replacement of the real estate tax with a more progressive one.
e) Smaller structural surpluses.
f) A reduction in debt (optional, can happen down the road).

Of these,

e) is clearly right and the single most important thing
f) has to happen and matters, although it’s not as vital and certainly not as urgent as everyone makes out
d) is in principle a good idea, but Greece doesn’t have a good track record on collecting taxes whethere they’re progressive or otherwise
a) is actively insane – who can possibly want to restore pre-2007 industrial relations to Greece?
b) is a bit less out there than a) but again – the nationalised industries represent a lot of everything that’s wrong with the Greek system
c) needs to be negotiated, but if the context is a) and b) then it is going to look to troika negotiators very much as if Greece is trying to set the clock back to 2007 and pretend that its consumption in that year was sustainable.

In other words, I don’t think these can all be red lines. They’re not consistent with continued Euro membership, because they leave the competitiveness problem in place and therefore mean that Greece either has to adjust its consumption down to the pre-Euro trendline (in which case that is where we are now), or will be consistently and structurally running a deficit with respect to the creditor countries.

45

Peter K. 02.11.15 at 7:00 pm

46

Peter K. 02.11.15 at 7:01 pm

After meeting Yanis Varoufakis, Lagarde said (courtesy Reuters):

“They are competent, intelligent, they’ve thought about their issues.”

47

Barry 02.11.15 at 7:03 pm

I’ll go ahead and say it – David, this article is not quite as bad as the one which caused you to retreat to a hermitage and wall off your blog, but it does have that same flavor. You have a totally ‘Inside The City’ viewpoint, and haven’t emotionally recognized that your viewpoint was tried, and failed miserably (except in moving money to the bankers). After five years of unmitigated failure the political pressures have been building.

48

TM 02.11.15 at 7:11 pm

TJ: “Not that it has any bearing on having an opinion on the matter, but I’ve been trading bonds since before the Euro was invented.”

You are right, your trading bonds doesn’t have any bearing on anything. But I read your statements about the Greek “system” in 25 as more than opinion – as confident claims of fact. Apparently they are based on nothing. No further questions.

49

MPAVictoria 02.11.15 at 7:21 pm

” is actively insane – who can possibly want to restore pre-2007 industrial relations to Greece?”

The right to form a union and negotiate is a human right. Full stop. Any agreement that doesn’t protect this right must be opposed by any left worthy of the name.

/You surprise me Daniel. :-(

50

Peter K. 02.11.15 at 7:22 pm

Via the NYTimes, is this true?

“There had been signs that capital was fleeing Greek bank accounts, but Michael Howell, managing director of CrossBorder Capital, played down those fears on Wednesday. He said that capital flight was “not the disaster many worried about” amid “little sign that the economy as a whole is hemorrhaging funds.””

http://www.nytimes.com/2015/02/12/business/international/greece-bailout-eurozone-finance-ministers-emergency-meeting.html

Seems like Draghi’s “flexing of the muscles” didn’t encourage a bank run, nor did intimidate the Greeks.

51

MPAVictoria 02.11.15 at 7:24 pm

Actually the more I read you at 43 the more appalled I become. Have you really become that captured by neo-liberal thought?

52

Trader Joe 02.11.15 at 8:01 pm

Reacting negatively to Daniel’s comment at 43 (or mine at 25 for that matter) reflects a difference between pragmatism and idealism.

In an ideal world, I’d be happy to see the debt slashed, money transferred, a souvlaki in every pot and retsina in every glass…but it underestimates the position of the troika and the ECB in general to assume that they have no leg to stand on in demanding further austerity.

For one, they’re the ones with the money and Greece is the one who needs the money, preferably by the end of the month, time and resource are not on Greece’s side even though all the morality of thought may be.

Second, one can hapily point to Ireland and Portugal (and to a lesser extent Spain) as a template of what can be managed if actual structural reforms are undertaken, rather than temporary reforms quickly reversed (as per Daniels points at a, b and c).

I’ve said repeatedly that what will happen isn’t at all going to be about what’s ‘Right’ it will be about relative negotiating positions. Both sides have areas of strength to their arguments, both have areas of weakness – anyone thinking either side has all the cards has been selective in their review of facts – which I think is in part what Daniel is trying to convey as being problematic for the Syriza platform and hence their popular mandate.

53

ck 02.11.15 at 8:22 pm

@51

I’ve to call bullshit on that, the Spanish economy is still a disaster. Certainly there’s been some modest improvement of late but to cite it as some sort of success story is frankly insane. Recent improvements in the Irish economy have more to do with the up swings in Britain and US than “structural reforms”.
( can you name a structural reform that the Irish government have implemented or are you just mouthing empty phrases ?)

Greece is merely the coal mine , there are no success stories under the current regime.

54

MPAVictoria 02.11.15 at 8:25 pm

@54
Plus there is the fact that the austerity program promoted by the Troika as been completely discredited as voodoo economics.

55

Peter K. 02.11.15 at 8:40 pm

@51

Dsquraed’s point seems to be a mild troll, asking the question: does Syriza have a popular mandate to leave the Eurozone because according to the polls they don’t.

And I for one am asking in return, does the Troika have a mandate to boot Greece from the Eurozone despite the failure of the Troika’s bailout program and depite the Greek election results and depite all that will probably follow from a Grexit.

Dsquared says the stress tests show that the Eurozone is ready for a Grexit. Reminds me of how Bernanke confidently assured us that “subprime was contained” and how Paulson, Bernanke, Geithner, etc. were confident that letting Lehman Brothers go to give an example wouldn’t get out of hand.

56

Trader Joe 02.11.15 at 8:44 pm

@54
“Beyond that though, Greece has democratically, effectively decided to say to the Troika, either ease up on you demands or we’ll leave the Euro. “

I agree with your assessment, which is why I find it interesting that Varoufakis said he wouldn’t do that….since that was the best card he held and he claims to be unwilling to play it.

@55
I think this is right too. Which is why (in my opinion), when real negotiations happen rather than just PR rhetoric, the Troika can gracefully say, yeah X, Y and Z can be dialed down…

57

TM 02.11.15 at 8:49 pm

MPAV 48: I believe civility compels us to assume that DD must have misspoken.

58

bob mcmanus 02.11.15 at 9:01 pm

since that was the best card he held

And I don’t think it is the best card. Euro-frustration is his hole card. Greece made the children of immigrants citizens? Is that unusual in Europe? Is that attractive to guest-workers?

What’s young unemployment in the periphery? What else do they have planned for fun this summer?

59

bob mcmanus 02.11.15 at 9:06 pm

the Troika can gracefully say, yeah X, Y and Z can be dialed down

And then Spain, Portugal, Ireland and Italy get on the line.

Tsipiras and Varoufakis are at least quasi-Marxists, and understand you can’t have anti-austerity in one country. These guys are different, and they’re serious.
Still could fail. This time. 50th anniversary of 1968 coming up fast.

60

dbk 02.11.15 at 9:20 pm

Peter K @53
Yes, I think this is actually what’s going down – great analogy.

With regard to Daniel’s points a) through f) above:
c) is non-negotiable
d) the new people in charge of trans-border financial crime and the Greek IRS department of tax fraud/financial crime are extremely experienced and deemed incorruptible by both the Greeks and foreigners who’ve dealt with them.
a) on collaborative bargaining/workers’ rights: maybe partially-negotiable with gradual reintroduction of workers’ rights. Non-negotiable long-term.
b) there will probably be a walk-back on the sale of Piraeus to the Chinese, possibly resulting in a long-term leasing arrangement profitable to both countries. Water and power – and other public goods – are non-negotiable. The members of this government have reviewed the privatization of water and power in Central and South America over the past 30 years, and were not impressed.

A few additional observations:
a) with regard to tax fraud/tax evasion: this is a political issue and does not involve technical expertise. The Greek IRS system (TAXIS.NET), which was designed by Americans, is one of the most sophisticated and comprehensive in the world, and its functions are formidable.
b) with regard to whether this government consists of “moderates” or “Social Democrats” (aka, “guys without ties, but who are basically just like Us”), er, no. At the risk of repeating myself, the new government is largely composed of somewhat moderate members of a leftist party. As Daniel noted, Syriza is itself a coalition; the men surrounding the PM and Varoufakis (Dragasakis, Stathakis, Tsakolotas, Lapavitsas to name a few) are much further left.
c) A lot is being made in the English-language (American, northern European Anglophone) press about Syriza’s lack of experience – newness to power, etc. This, while true, is not the whole story – the party’s genealogy goes back much further than its official founding 10 years ago. They’ve never been in power, but they’ve been in politics a long time, and leftist politics in Greece is about the toughest training-ground going.
d) A few years ago, in discussion with friends who have long ties to the party, we were debating whether Greece would be the EZ’s/EU’s “weak link”. The answer was “Yes.” The explanation? “Because Greeks have the longest history of resistance.” A few nights ago I met with these same friends, and we discussed the membership of the new government. Varoufakis is an outsider who was brought on board specifically for negotiations, and Tsipras is young (though an extremely experienced politician). But those surrounding them, behind them, providing the government line, are the sons and grandsons of World War II resistance fighters. As one friend noted, for these people, “Varkiza lives”. This is a very difficult point for outsiders to grasp, but really, it is the crucial point, and will explain why, if negotiations continue as they are going, it will not be 36% of Greek voters, or the current 72% polled as supporting the government, but 90% of the populace standing as one with its government.
e) Once again, as at the end of World War II, Greece finds itself in the center of a veritable geopolitical maelstrom. Tsipras has been invited to Russia in early May (May 9 iirc). Today the Russian Foreign Minister called openly for closer collaboration in a variety of areas, and the PM received an official invitation to visit China.

The Eastern Mediterranean Sea – coveted by all since time immemorial, currently possessed by two tiny countries which have survived for nearly 3000 years (and which, btw, will act en bloc politically henceforth). Food for thought, indeed.

61

Daniel 02.11.15 at 9:21 pm

PeterK: I have deleted a number of your comments, for the following reasons.

1. Embedded videos of “Game of Thrones” clips. If you think these are amusing or relevant, post them on your own blog. I have got a lot of useful, informative comments on this thread and don’t want them diluted by the usual CT comments banter
2. Repeat posting of embedded videos.
3. The “oh you are trolling” line. This just poisons the thread and discourages new posters from contributing serious points, which is the opposite of what I want to achieve.

Please restrict yourself to one post per day on my threads from now on.

MPAVictoria: A lot of this goes for you too. If you think Argyris’ a) above refers to basic rights of collective bargaining, can I respectfully suggest that you don’t know enough about Greek labour relations to make a useful contribution about them.

That is a point with general applicability. CT has plenty of threads where we debate general political issues. This is a post about a specific and complicated situation. If you just want to put down a marker indicating your support for the neo-liberal “side” or its opposite, you are contributing noise. I am trying to be polite about this. And for the avoidance of doubt I am not “trolling”, “mildly trolling”, “subtly trolling” or any synonym. I will delete any future comment which says I am, even if it was 1000 words long, took ages to write and had loads of replies.

62

Daniel 02.11.15 at 9:29 pm

d) the new people in charge of trans-border financial crime and the Greek IRS department of tax fraud/financial crime are extremely experienced and deemed incorruptible by both the Greeks and foreigners who’ve dealt with them

d) wasn’t a point about trans-border issues or “financial crime” – it was about the property tax, on which issue res ipsa loquitur. It’s all very easy to get tough on “oligarchs” and super-rich people living overseas (although to go too hard on the Stratos family might cause a little awkwardness for the finance minister). But the tax collection problem in Greece isn’t really about oligarchs and it’s not going to be solved without getting into the pockets of any Syriza voters.

On labour law, we need to be specific as statements like “workers’ rights are non-negotiable” are too general and emotive to say anything about. For example, the law on mass redundancies, which Syriza wants to roll back to pre-2011. That has to be negotiable; in its previous state it was miles away from anything normal in Europe.

I take your point about Syriza’s political experience, but again, res ipsa loquitur. Their communication and strategy in Europe has been frighteningly amateurish. Whatever their background in Greek politics, they have ministers being contradicted by their deputies, talking about each others’ brief and making public promises without consulting each other.

63

Peter K. 02.11.15 at 9:31 pm

No problem. I got carried away.

64

Daniel 02.11.15 at 9:32 pm

And actually, I find this comment, though unexceptional in itself, horribly revealing.

Water and power – and other public goods – are non-negotiable. The members of this government have reviewed the privatization of water and power in Central and South America over the past 30 years, and were not impressed.

Greece isn’t in Central or South America! It’s in Europe, where there are loads of privatised water and power companies and they do just fine. The fact that expectations of governance and transparency are set at Latin American levels for a country in a currency union with Finland is the whole problem here.

65

MPAVictoria 02.11.15 at 9:45 pm

Your blog your rules Daniel. Some final points (I hope this counts as my post for the day. If not you are of course free to delete)

1. I never said you were trolling in this thread.
2. I 100% stand by my comment @48. Collective bargaining rights are human rights and should be non-negotiable. I would rather see the EU collapse completely then give on this point. I remain appalled at your comments.
3. Selling off public assets to privates interests at fire sale prices cannot be in the long term interests of Greece or her people. Just ask Dr Quiggin.

Anyway thank you.

66

Daniel 02.11.15 at 9:56 pm

Sorry, I just realised that an extra “one post per day” request got appended to that comment and have edited it. The request was only meant to apply to Peter K; as you correctly note you haven’t been anything like as problematic (although we should all, probably including me, have a think about the extent to which we’re drowning out commenters like Argyris and dbk). But:

Collective bargaining rights are human rights and should be non-negotiable

As I said to dbk, this blanket phrase is too general to be the subject of negotiation. Presumably nobody would say that collective bargaining rights are absent in France, or Germany? But Greece, pre-2007, had labour laws which were much more restrictive even than somewhere like Belgium. Syriza isn’t trying to reverse some edict banning or de-recognising trade unions – it’s trying to put back laws which required full consultation arrangements on redundancies of more than four employees at a company employing 200 workers. Short-time agreements used to be banned – now they’re legal as temporary measures lasting no more than six months. In 2013, Greece legalised company-specific union agreements to terms different from the sector-wide union agreements. These are the sorts of things Syriza wants to put back, and I don’t think they can fairly be called “human rights” unless one is going to say, in my view impossibly, that human rights to collective bargaining don’t exist anywhere in Europe.

67

MPAVictoria 02.11.15 at 10:04 pm

“As I said to dbk, this blanket phrase is too general to be the subject of negotiation. Presumably nobody would say that collective bargaining rights are absent in France, or Germany? But Greece, pre-2007, had labour laws which were much more restrictive even than somewhere like Belgium. Syriza isn’t trying to reverse some edict banning or de-recognising trade unions – it’s trying to put back laws which required full consultation arrangements on redundancies of more than four employees at a company employing 200 workers. Short-time agreements used to be banned – now they’re legal as temporary measures lasting no more than six months. In 2013, Greece legalised company-specific union agreements to terms different from the sector-wide union agreements. These are the sorts of things Syriza wants to put back, and I don’t think they can fairly be called “human rights” unless one is going to say, in my view impossibly, that human rights to collective bargaining don’t exist anywhere in Europe.”

Okay Daniel, thank you.

These were rights that were bargained for by workers. If they are going to be taken away it should be at the bargaining table not by some non-democratic fiat.

68

MPAVictoria 02.11.15 at 10:06 pm

Anyway I will drop this issue as you will never, ever convince me not to side with the workers and I don’t want to pollute the thread.

Thank you

69

marcel 02.11.15 at 10:10 pm

D^2: When you delete comments, could you substitute placeholders? A number of the later comments include “@nn” references to either the comments you deleted or subsequent ones. Once you deleted comments, everything following was automatically renumbered, making it very difficult to figure out what these later comments were referring to.

Thank you.

70

NM 02.11.15 at 10:31 pm

@Daniel, dbk, and Argyris: Thank you for creating one of the most informative and interesting threads known to me on CT.

@Peter K, MPA, etc.: Accusations of trolling seem totally out of place here. Daniel is contributing some very interesting and analytical pieces here. If an argument/claim you sharply disagree with by itself constitutes trolling, we really have a problem.

******

One thing I am struck by, writing from Germany as a German basically sympathetic to Syriza (and Podemos) is how terrible Syriza’s communications strategy (behavior?) appears with respect to getting a deal. I realize that they are communicating to their own electorate and party caucus as much as to the Europeans, and that shoring up their parliamentary and extra-parliamentary base may be crucial given the compromises that will have to be stomached if they want to remain in the Euro (I mean this as a factual, not a normative, statement). However, it seems to me that it actively makes it harder to get a palatable deal from the Europeans, not only because it puts their backs up personally (Dijsselbloem is unlikely to have enjoyed that press conference), but also because every aggressive, maximalist speech or statement by a Greek leader reduces the space for Northern European politicians — not only in Germany! — to make concessions to Greece, because it won’t wash with their own electorates.

71

MPAVictoria 02.11.15 at 10:52 pm

NM: See my post @65.

72

NM 02.11.15 at 11:19 pm

@MPA
Sorry, hadn’t seen 65.

73

MPAVictoria 02.11.15 at 11:20 pm

No problem NM. Thanks. :-)

74

Markos Valaris 02.11.15 at 11:33 pm

dbk’s comment @60 is excellent!

Just a few observations.

1. I have no hard evidence to back this up, but the claim that 90% of the populace will stand behind the government in the event of a showdown seems to me false or at best misleading, and I hope they don’t buy it. The government has a lot of support *for winning concessions inside the euro; in the event of actual euro exist, I expect Syriza to go back to 3% of the vote, or more likely to break up. It doesn’t matter if people blame Merkel more than Syriza for the outcome; Syriza will have violated its core promise to voters, which was to get a better deal for Greece inside the euro.

2. It is true that many of the older politicians in Syriza go back decades in Greek leftist politics (and not just Greek for several of them). This, in my view, is a liability not a strength. Greek leftist politics has been a mess of backstabbing, factionalism and disregard for transparent decision-making procedures. I know several people in Syriza who have been very disillusioned on this score.

It also might mean that at least some members of Syriza will not necessarily view 2 as a disaster: they will be prepared to go down in flames rather than compromise. They will simply return to the role they’ve had all of their political lives.

3. An interesting twist in this might be Syriza’s “code of ethics” for MPs, according to which parliamentarians were supposed to pledge their seats to the party. According to this code, if an MP feels they can’t support the party line they are supposed to resign from parliament (with their seat to be filled by the party), rather than become independent or vote with another party.

In principle this should make the government more resilient to factionalism, though of course it hasn’t been tested.

75

TM 02.11.15 at 11:49 pm

DD: “Greece isn’t in Central or South America! It’s in Europe, where there are loads of privatised water and power companies and they do just fine.”

Britain, which reputedly is in Europe, privatized its railways with (as pretty much everybody concedes) disastrous results. As of Energy privcatization, Germans are working hard to turn them back: German Energy Remunicipalisation, http://www.epsu.org/a/8107

And Germans afaik would never even remotely have dreamed of privatizing their water companies (although they are usually organized as GmbH, but still strictly under municipal control). Maybe Germany isn’t the standard of everything but why are German policies considered crazy when the Greeks want them?

76

Markos Valaris 02.12.15 at 12:01 am

The Greek state-run electricity company had after-tax profits of 121.8 million euros in the first 9 months of 2014. It has remained profitable throughout the crisis. (Link is in Greek.)

http://news.in.gr/economy/article/?aid=1231366610

77

TM 02.12.15 at 12:05 am

Also re 75, the argument that bad things happening in South America would never happen in Europe is grotesque. Not long ago, we were all convinced that IMF-enforced austerity programs only occur in South America, never in Europe.

78

TM 02.12.15 at 12:05 am

(Western Europe, that is)

79

bob mcmanus 02.12.15 at 12:29 am

does the Troika have a mandate to boot Greece from the Eurozone

As I understand it, nobody can kick Greece out and Greece never has to leave, if it even can leave*. If for instance, the ECB closes the ELA window for Greek banks, that is not yet “kicking Greece out.” If Greece responds with capital controls, that is a violation of the EU Constitution, but is not “leaving the EU.” I think Greece printing any Euros it needs is simply another radical violation. What sanctions does the EU have legally left?

I welcome details and corrections.

*clause I-60, I guess they can withdraw.

But I expect a whole lot of mutual messing-with to go down for quite awhile, and I expect Greece to fully use its membership to make hell for the PtB within the EU if the EU plays hardball.

80

bob mcmanus 02.12.15 at 12:48 am

What If Greece Just Printed the Euros Zit Needed?

Okay, maybe cut off from Euro interbank system, but buy commodities from Russia, China, and Brazil with electronic Euros, or buy rubles and yuan, and then the ECB can decide if it wants to cut China from the banking system.

Greece can raise Holy Hell, I think. They certainly don’t want to.

81

Daniel 02.12.15 at 1:21 am

The Greek state-run electricity company had after-tax profits of 121.8 million euros in the first 9 months of 2014. It has remained profitable throughout the crisis

Well, it’s a monopoly provider with about four million customers, so even by the standards of Greek nationalised industries, it would be pretty special if it was making a loss.

82

Peter T 02.12.15 at 1:33 am

D2 is, I think, over-rating the strength of the political imperative to implement a manifesto, and under-rating the willingness of ordinary Greeks to continue paying the price of troika-imposed austerity, even if the price of the alternatives is, in economic terms, higher. We may be looking at something like US red-state politics, where politicians unwilling to give the Tea Party voters what they want get tossed out. In the US, that’s in large part an artifact of voting patterns, curable by bringing in more voters (noting that this is actively resisted). But here in Australia public distaste for privatisation has reached the point where governments that propose it lose heavily, even after one term and to oppositions that lost because they too privatised things. This leave a political class largely committed to it in a quandary. However unreasonable from D2’s perspective Syriza’s red lines may be, they may well be the ones enough of the public is committed to to leave Syriza no room. Is there polling on this?

83

js. 02.12.15 at 1:41 am

Just a quick question. I was just looking at Twitter and at the dsquared/Peter Spiegel exchange in particular, with dsquared bemoaning (that may be wrong) Tsipras’ veto of the joint statement. But I was curious how anyone would expect Tsipras or Syriza to accept this:

the Greek authorities reiterated their unequivocal commitment to the financial obligations to all their creditors.

That’s surely obviously unacceptable to Syriza, no? (Tho maybe I’m misreading/misunderstanding.)

84

Markos Valaris 02.12.15 at 2:56 am

DD @81, that’s correct; in fact I was just mulling over that comment and I was preparing to retract it, for slightly different reasons. Recent governments have added various non-transparent fees onto electricity bills as a way to collect money from people who might otherwise slip through the cracks, so the high “profits” don’t say much.

85

shah8 02.12.15 at 3:40 am

I’m not going to invest myself in threads like this, but I think there is an important element about labor in ex-fascist european parties…

A lot of the labor rules really are very bad, and much of the labor inflexibilities result from them unnecessarily.

However, most of these labor rules (and certain sort of pensions) amount to a payoff to the political base of shunted aside fascist elements in Portugal, Spain, Italy, Greece, etc.

The debate around labor rules, which *should* focus on opening up a large number of jobs from relatively unproductive, older, made folks, instead focuses on the immisseration of labor, for the most part, because the idea is about internal devaluation. As you can see, there are multiple elements to the labor issue that must be considered.

As for the point of this thread? I do not accept the framing, essentially because I believe that it’s the EU up against the wall, rather than Greece.

1) The soci0-economic background is severe, and ultimately, political operatives cannot indefinitely diverge away from supporting their own authority, from the school board level, all the way to the parliament level. Yes, security forces can bridge much of the gap, but in the end, what you will have are perpetual wildcat strikes. No matter how global political and business leaders can be, with offices in Brussels and condos in Toronto, almost all of them have some sort of local generation of political and social power.

2) The world economy is progressively demand deficient, and economic national officials are becoming progressively more proactive in corralling trade and currency flows. Creating huge trade blocks like the TPP is just one aspect to the drive, and many issues will come to play. I fully expect then, that flexible trade and currency barriers will play a role in global negotiations, and that there will be low tolerance for the rest of the world to work off the various European national bad bank liability through the contribution of what is now precious demand. Sooner or later, Merkel, or Draghi, or whoever, is going to get frog-marched on pain of trade barriers and told to sign the (more focused to)Euro Plaza Accords, and that will be that.

It’s just a matter of time, and Brussels has wasted what time there was. Focusing on the power dynamics specifically between Athens and Brussels is a waste of everyone’s time, because ultimately, Athens’ will is irrelevant, whether they knuckle under or not, and the new Finance Minister knows it.

86

magari 02.12.15 at 3:57 am

@70 and Daniel, speaking from one who reads English language publications, I think you guys are overstating the case regarding Syriza’s public relations. Varoufakis’ tour of Europe was very useful for generating the public perception of the Syriza agenda and terms. Analysts and journalists were tuned into him, not what anyone was saying back in Greece. Due to Varoufakis relatively concilitaory line, English language outlets are reporting the moderation or softening of Syriza’s position. This has generated an increasingly popular perception that a Grexit would be the fault of the EU and not Syriza.

87

Tabasco 02.12.15 at 4:00 am

Varoufakis co-wrote a textbook on game theory in his previous life. It might offer some clues on how he is approaching the negotiations.

88

magari 02.12.15 at 4:09 am

Contra Daniel’s idea that privatization in Europe is one thing, and in the Third World another: the recent privatization of Britain’s mail service was an unmitigated disaster. The British government got fleeced. The privatization of Britain’s train service was a disaster: poorer service and higher prices. Finally, many cite the privatization of Britain’s water system as a success. But it’s successes (increased efficiency, less pollution) cannot be decoupled from the presence of government regulations. The worry is that a state in a fire-sale situation will capture short-term gains from sales without implementing a policy framework necessary to ensure public goods (access, environmental protection, etc.).

89

John Quiggin 02.12.15 at 4:54 am

The evident consternation on the part of the Troika at the willingness of Syriza to stick to its commitments suggests that they haven’t really thought through the consequences of sticking to theirs. IIRC, DD said in a previous post that they’ve done enough stress testing to assure themselves that the big European banks could stand a Greek default. But that’s only the beginning of the problems.

Their threat is to let Greek banks fail and the Greek economy crash. It’s not one that can easily be implemented in gradually escalating stages. I find it hard to believe that the Troika have worked through the possible consequences. For example, under these circumstances, Greece would presumably attempt to veto continued sanctions against Russia. I don’t know how that would play out, but I doubt that the ECB and IMF have any expertise in such matters either.

An even worse scenario, from the Troika viewpoint, is that Greece, defaults,and leaves the euro but the economy survives in no worse shape than it is at present. On standard macro reasoning, this is the likely outcome. Argentina in 2002 is a pretty good template.

90

Daniel 02.12.15 at 6:05 am

Recent governments have added various non-transparent fees onto electricity bills as a way to collect money from people who might otherwise slip through the crack

Yeah, I’d love to hear more about this. To me, it sounds frankly abhorrent (and to the Greek electricity unions too apparently) and I would count it as a benefit of privatisation that the government would have to cut it out with that kind of crap.

91

Daniel 02.12.15 at 6:11 am

the recent privatization of Britain’s mail service was an unmitigated disaster. The British government got fleeced

Actually not true. The British government got more or less fair value. The people who bought the shares off the hedge funds during the post-IPO ramp, they got fleeced. Royal Mail is currently trading below its issue price.

https://uk.finance.yahoo.com/q/bc?s=RMG.L&t=2y&l=on&z=l&q=l&c=

Not meaning to have a dig (or at least, not much) but can you see how it’s frustrating for me to be discussing financial issues with people whose information is badly out of date, because it’s based on the stories that were in the news when it was politically sensitive?

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Daniel 02.12.15 at 6:17 am

Their threat is to let Greek banks fail and the Greek economy crash. It’s not one that can easily be implemented in gradually escalating stages.

Yeah it is. Cyprus-style capital controls can be titrated pretty much continuously. It is my guess that this is the big mistake that Varoufakis might be making too, and if he is it’s catastrophic because missing it means that the whole game theoretic analysis is wrong.

An even worse scenario, from the Troika viewpoint, is that Greece, defaults,and leaves the euro but the economy survives in no worse shape than it is at present. On standard macro reasoning, this is the likely outcome. Argentina in 2002 is a pretty good template.

I disagree with all three of these things. If Greece genuinely is better off outside the euro than inside it, that’s good for everyone. I don’t see how anyone could say this unless they actually literally believed that the troika was trying to punish Greece, possibly as a continuation of the occupation in WW2. I don’t think that on standard macro reasoning it is the likely outcome, as Greece would have all of the problems it had in 2006, plus a binding current account constraint and a binding deficit constraint. And Argentina is not a good template for two reasons – Greece is not a commodity exporter, and Argentinean workers did not have an absolute right to migrate to more prosperous countries. Among the people who don’t agree that exit wouldn’t be a disaster are Yanis Varoufakis – remaining in the euro is a promise that Syriza have made, and well they might as “Greece should remain in the euro at all costs”polls better than 70% support.

93

magari 02.12.15 at 6:23 am

My information tells me that the shares were undervalued in the initial public offering, evidenced by the fact that share prices jumped immediately, costing the British government several hundred million pounds. And that this is not the normal course of affairs, rather that such a large leap in valuation had last occurred in the 1987, in the privatization of British Airways.

I suppose you could use this as evidence for the fact that in principle privatization doesn’t always or often manifest as a fire sale, but that’s for another discussion, and I think it’s highly debatable in the context of distressed economies.

94

NM 02.12.15 at 8:56 am

Magari @86 “Varoufakis’ tour of Europe was very useful for generating the public perception of the Syriza agenda and terms. Analysts and journalists were tuned into him, not what anyone was saying back in Greece. Due to Varoufakis relatively concilitaory line, English language outlets are reporting the moderation or softening of Syriza’s position.”

This is true of the Anglo press; it is not true of the German press. They have been following what people were/are saying in Greece rather closely, and they are reporting conciliatory language from V., but not from Tsipras at home (or from his foreign minister). The City may well blame the Euro Establishment for Grexit; that is not what the most of the German press will likely do (possible exceptions being the Spiegel [Munchau], and the taz [but they don’t matter]).

95

magari 02.12.15 at 10:03 am

@94 then the question becomes, to which audience should Syriza target their public relations? Whose perception of Syriza is most important?

96

Vasilis Vassalos 02.12.15 at 11:09 am

This has been a very informative and substantive thread, thanks to (almost) all participants.

I am not sure though the OP is very relevant right now. It will be relevant in the discussions that will lead (or not) to a new Program in June or August. Right now though, SYRIZA I think is asking for what Hugo Dixon suggested is a reasonable compromise:

https://twitter.com/Hugodixon

They want to stay in the program for 6 months in a technical sense, ie without drawing more money and without implementing the previously agreed upon measures, in order to continue having the ECB umbrella, to be able to raise some additional debt, somehow, to cover state needs for the next six months (which will really dry up liquidity for businesses in GR, but that’s another matter), and discuss a new program in these 6 months.

It seems to me they will be willing to refrain from enacting measures with financial consequences for the duration of that negotiation.

There is I guess the symbolic issue of whether the current program will be said to be extended or amended or whatever. But the meat is that the current evaluation does not go ahead on measures that are considered harmful by this government. The insistence to agree that the current program proceeds apace is not going to be accepted.

As for the Greek government’s platform:

a) Collective bargaining and former industrial relations restored.

Greek industrial relations suffered from an overrepresentation of public sector-owned companies in country-level union organizations (the reason being the different labor laws and regulations for public sector-owned and private companies and the unchecked hostility of greek employers to unions.) That difference was a disgrace, and led to all sorts of festering issues. From that, the Troika demanded demolishing any and all collective bargaining in private companies, and did precious little to change the culture at public-sector-owned companies.
Calling for privatization at fire sale prices to solve a labor relations issue is pretty pathetic, even for Greece, but that’s what was happening. This addresses b) also.

There is obviously a saner solution there, that respects workers’ rights,

BTW, the situation in private companies in Greece re: workers rights is pretty dismal. Also, uninsured/underground work, a black market for labor, is thriving, due to employer power.

b) Stop to massive privatisations, particularly of the Power & Water public companies.

c) Stop to pension and wage cuts, small rise to lowest pensions.

This needs to happen for the social collapse to stop, but it’s the trickiest bit. As Krugman has written for the US, and it holds even more for Greece post-Troika, the government is basically an insurance company with an Army. And Greece is getting older. So, the pension problem is pretty intractable…

d) Replacement of the real estate tax with a more progressive one.

The devil is in the details. As long as the new tax brings in similar amounts of revenue, they should be given room to fiddle with it, right?

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Vasilis Vassalos 02.12.15 at 11:12 am

“There is obviously a saner solution there, that respects workers’ rights,”

but I am not optimistic that SYRIZA will find it. Some of the worst elements of public sector “unionism” are core constituents and cadres. This is where Troika pressure (and communication) could do some good to the country. This is the kind of solidarity it would be nice to have.

98

NM 02.12.15 at 11:26 am

magari @95. Oh, both are of course important, probably equally so: you must communicate with your base & parl. party in a way acceptable to them to get your policies passed; you need to do the same with your creditors to get policies/conditions acceptable to you (your base). I wasn’t trying to implicitly or explicitly elevate one above the other. The problem, as far as I can tell from my very distant and non-Greek-speaking perch, is that Syriza and perhaps the left and rightwing (“populist”) opposition in Greece in general seem to have manoeuvered themselves into a position and discourse where doing the former may be actively detrimental to the latter, and vice-versa.

To be clear, the above speculation is meant entirely in a positive, not a normative sense. I have some views on the matter of course, but I’m writing this primarily from a descriptive-analytical, not a normative, perspective.

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Zamfir 02.12.15 at 1:18 pm

People are reporting what the Greeks say at all, that’s already a PR win in my view. In the local press here, the normal procedure was for some local economist to ‘explain’ the Greek POV (often with some Club Med remarks worked in), plus documentaries about tax fraud and Golden Dawn.

100

Layman 02.12.15 at 1:26 pm

Is there a handy verb one can use to describe the act by an investment banker of explaining the proper organization of governance, public finance and the social structure? Perhaps ‘Lehmansplaining?’

101

MPAVictoria 02.12.15 at 1:28 pm

“as a benefit of privatisation that the government would have to cut it out with that kind of crap.”

Cough * Enron* Cough

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Cian 02.12.15 at 2:32 pm

Private utilities in the US are notorious for loading in all kinds of hidden fees, and have very effectively used the political system to increase their profits and to reduce safety/resilience. I suppose that a very naive person might imagine things would be different in Greece.

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William Timberman 02.12.15 at 2:40 pm

Layman @ 100

Clever, but while I was chuckling, I was also thinking that having an articulate and (brutally) honest investment banker explain how he sees the situation is useful regardless of whether or not we agree with him in a political sense about what’s important and what isn’t. The bromides coming from official banking and economics sources in the EU are too often a) bereft of plain language that tells us how they really see things, b) are presented as the consequences of natural laws which we aren’t given to understand, and, of course, c) remind us, under the shadow of more or less unspecified coercive mechanisms, that there are no alternatives. In other words, they’re not very helpful.

DD is at least sensitive enough to the concerns of folks outside his area of expertise to try to explain things to them, even if he hasn’t much respect for their proposals, or the thinking they’re based on. If you can persuade him, or outwit him, you can probably succeed in taking on anyone. As I said, this is useful, even valuable, whether you succeed or fail.

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Cian 02.12.15 at 2:42 pm

#92 If Greece genuinely is better off outside the euro than inside it, that’s good for everyone. I don’t see how anyone could say this unless they actually literally believed that the troika was trying to punish Greece, possibly as a continuation of the occupation in WW2.

Another interpretation might be that the troika’s plan to force a particular economic model on Euro countries would be threatened, if Greece flouted that economic model and did well. It’s hard to claim that there’s no alternative, when an alternative is right on your doorstep.

Also it would mean that the Euro region was shrinking. Which again would go against their apparent political goals.

105

TM 02.12.15 at 2:43 pm

90, 91, 101, 102, seriously. It’s hard to avoid the impression that DD is arguing on a different plane of reality.

106

Layman 02.12.15 at 2:48 pm

Investment bankers make money on privatization. That makes privatization good. QED.

107

Layman 02.12.15 at 3:00 pm

William Timberman @ 103

“even if he hasn’t much respect for their proposals, or the thinking they’re based on.”

This is a marvel of understatement. I’ve generally resisted commenting, because, first, I’m a layman, and as such out of my depth; and second, I’ve assumed anything I post will be moderated, deleted, or result in a ban. I’ve learned from the thread, which is of course good, but I think the good could be achieved without the need for such an authoritarian approach by DD. I’ve enjoyed his travel posts (lives of the rich and famous after all!), but have been frankly stunned by the way he approaches the comments section on his economic posts.

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William Timberman 02.12.15 at 3:07 pm

TM @ 105

To put matters in another perspective: assume there is a core to this debate where the issues can be resolved, and the perceived needs of all parties (relatively) satisfied. I approach it from a place where there are some things up with which the common folk cannot be expected to put. Ignore them, and the consequences will be dire. DD seems to be coming from a place where there are some very important relationships that you can’t mess with. Mess with them, and the consequences will be even more dire, and not just for people like him.

How far have we gotten toward the aforementioned core of the debate from either of these directions? Not very far, in my judgment, but at least we’re not talking past each other as much we were just a few years ago. May we expect a resolution anytime soon? I doubt it, but even worse, the possibility also exists that while we’re arguing, something else will happen that sends us all scurrying. That, I think, is more worrying, in that it may very well come from outside anyone’s current area of expertise.

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Daniel 02.12.15 at 7:09 pm

TM, Layman, one post per day from each of you maximum, from now on, please and try to think before you post it whether it is actually contributing information.

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Doug K 02.12.15 at 7:44 pm

” it’s trying to put back laws which required full consultation arrangements on redundancies of more than four employees at a company employing 200 workers.”

So, basically the same laws as Germany has with its Works Councils ?
https://www.wilmerhale.com/pages/publicationsandNewsDetail.aspx?NewsPubId=90463

I think the German labor laws are pretty good. Maybe they could work for Greece.

For the rest I agree as usual with William Timberman. The posts and discussions are illuminating if depressing.

111

Z 02.12.15 at 9:04 pm

c) needs to be negotiated, but if the context is a) and b) then it is going to look to troika negotiators very much as if Greece is trying to set the clock back to 2007 and pretend that its consumption in that year was sustainable.

I think this sentence might be factually correct, it could be that these demands will look to troïka negotiators that way, but wouldn’t the troïka negotiators then be wrong? And shouldn’t we factor this in the discussion?

I mean, Greece has now the same GFP it had in 2006, is experiencing modest growth, has huge primary surplus but nominal wages have fallen 23,5%, unemployment is sky-high and the social crisis is truly horrendous. In that macroeconomic context, shouldn’t we expect a modest fiscal stimulus policy, say a rise in small pensions and low wages (but the linked document suggests fiddling with social contributions on wages could be more astute, as such contributions can easily be manipulated up later on), to have a positive effect even under the narrow terms of debt servicing capacity (through rather standard multiplier effect)? And what could be the downside of trying it this way (all questions asked in good faith)?

http://www.cepr.net/documents/greek-economy-2015-01.pdf

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Francis 02.12.15 at 9:29 pm

I know nothing about Greece but a fair amount about water. Mostly, water companies see their obligation to be: Provide Safe, Affordable And Reliable Water Supply As Demanded Within Its Service Area.

Public water companies, if not monitored by their voters, can divert revenues to other government agencies and can be overstaffed. The water is thus less affordable than it should otherwise be. But if people get sick or the taps run dry, they can quickly be held accountable.

Private water companies try to cut costs and use their monopoly position to raise rates. So they can fail on all three principal obligations of Safety, Affordability and Reliability. And the only way they are held to account is by an activist Public Utilities Commission.

So the most important question any reasonable government faces in privatizing a natural monopoly is whether the government is better at running the operation or monitoring it.

113

NM 02.12.15 at 9:46 pm

@Laymann & TM: at the risk of outing myself as an unscrupulous fellow-traveller, I think DD’s moderation policy should be fully supported. As I interpret DD’s mod pol, his aim is to preserve a very high level of information-to-posts and low opinionating-to-posts ratio. As a semi-layman, I appreciate that. I’ve learnt a lot on this thread, precisely because the technical and information-rich posts by the non-laymen are not overwhelmed by other posts. There are other comment fora for pure opinionating, like CiF.

114

Daniel 02.12.15 at 11:04 pm

In that macroeconomic context, shouldn’t we expect a modest fiscal stimulus policy, say a rise in small pensions and low wages (but the linked document suggests fiddling with social contributions on wages could be more astute, as such contributions can easily be manipulated up later on), to have a positive effect even under the narrow terms of debt servicing capacity (through rather standard multiplier effect)?

Yes I think that would be the best negotiated solution – my Medium piece on “looking on the bright side” more or less suggests this and to the extent that it doesn’t, it probably should. But I don’t think it’s a great negotiating tactic, from the point of view of optics, to start off by saying that the 2007 system was literally perfect and all the changes need to be rolled back.

115

Daniel 02.12.15 at 11:06 pm

(I’m aware that #114 is a bit of a caricature of the Syriza negotiating position. But not all that inaccurate a caricature, and it is pretty difficult to find out what they actually think behind the rhetoric, precisely because, so far, they have refused to table any concrete proposal to the Eurogroup and so rhetoric is all we have to work on. Apparently there is going to be a lot of work done this weekend).

116

Kindred Winecoff 02.12.15 at 11:45 pm

To answer your original question, DD, I don’t think there’s much political science work on this specific question. (With the proviso that I know the EU lit less well than some others.) The baseline model of this type of bargaining scenario seems to be one of “international institutions as domestic political cover”: a Latin American/East Asian/Southern European government believes it needs to make real and substantial reforms, but it is politically impossible for them to do so without losing their authority, so the IMF comes in and takes all the blame for “forcing” reforms that were going to be necessary with or without their involvement. James Vreeland, among others, has worked in this literature.

In this case the prior government agreed to such reforms and Syriza is basically trying to undo that bargain, so it’s a different dynamic.

Byungwon Woo (Ohio St PhD, now at Oakland University) has a three-player game — IMF, government, domestic opposition to the government — in which the government uses the presence of a significant domestic opposition movement to strong-arm the IMF into better terms. So it’s basically the reverse of the baseline “domestic political cover” model. His empirical work suggests that this logic applies in a fair number of cases.

But it doesn’t quite apply in this case, because Syriza has already won. It isn’t at all clear that the Troika wouldn’t rather work with the opposition than with Syriza. That is, if Syriza is unsuccessful in bargaining and the result is that they lose an election and/or fall apart completely then the Troika would almost certainly view that as a positive result. Syriza has no leverage. Its outside options are terrible, the Troika has wheelbarrows of money it is willing to share if its priorities are met, and it’s not as if Berlin particularly wants Syriza to succeed! Syriza and the whole rest of the world knows that Greece is the only entity that would be significantly harmed if they left the euro, since even greater austerity would be required in that case, and that’s the supposed nuclear option. So yeah: Syriza has no leverage.

Still, most political science models of which I’m aware don’t really take the idea of “red lines” (we’d call them “audience costs”) all that seriously these days. If Syriza is able to extract meaningful concessions that previous governments were unable to get, and if conditions begin to improve, then it is unlikely that they will be punished for the things they couldn’t achieve. There may be some within the party who demand purity and therefore splinter off, but voters are usually more forgiving than the ideologues.

I just don’t see what would cause the Troika to make any concessions beyond what they’ve already made.

117

Markos Valaris 02.13.15 at 1:03 am

It isn’t at all clear that the Troika wouldn’t rather work with the opposition than with Syriza. That is, if Syriza is unsuccessful in bargaining and the result is that they lose an election and/or fall apart completely then the Troika would almost certainly view that as a positive result. Syriza has no leverage. Its outside options are terrible, the Troika has wheelbarrows of money it is willing to share if its priorities are met, and it’s not as if Berlin particularly wants Syriza to succeed! Syriza and the whole rest of the world knows that Greece is the only entity that would be significantly harmed if they left the euro, since even greater austerity would be required in that case, and that’s the supposed nuclear option.

A couple of qualifications to the above analysis (which seems to me fundamentally correct):

(i) The Troika would (arguably) prefer to work with New Democracy or Pasok rather than Syriza, but one of Syriza’s recurring arguments has been that Golden Dawn could be next in line in case of a disaster.

(ii) The Troika do have a significant political interest in a successful (or at least liveable) outcome in Greece, because they remain committed to the project of European integration. The demand that Greece stick to the current agreement is not the result of economic calculations (sustained primary surprlusses of up to 4.5% in a depressed economy are not terribly rational) but of political ones, prominently including making the terms tough enough for Northern European voters to accept. But the troika ultimately needs to balance the cost of making Northern voters angry against the setback to the European project that Grexit would represent.

(iii) There is growing anti-austerity feeling across Europe, including at the ECB, and also at the IMF. This makes it a little harder for the troika to simply dismiss Syriza’s demands out of hand. The argument needs to be “you must stick to your agreements” rather than “this is good policy”.

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deliasmith 02.13.15 at 1:15 am

The opening post’s points d, e and f ([important elements of] winning party believe/claim that it has a mandate for its entire platform; party is saddled with a political imperative to implement policies more radical than it (or many of its members, at least) had anticipated being expected to put into practice; key parts of the platform involve negotiations with overseas parties, leaving the party subject to having to set off for international negotiations saddled with a rigid negotiating position) remind me of Ireland in 1920 and the 1921 negotiations that led to the Anglo-Irish Treaty. And, certainly that’s “been studied and is in the literature”. The consequences have also been studied and are in the literature, also in songs, poems, myths, films and novels, gravestones and memorials.

119

Kindred Winecoff 02.13.15 at 2:10 am

Markos Valaris @ 117,

Thanks for the clarifications. They prompted a few more thoughts, which are not meant to contradict anything you’ve written but to maybe add some nuance.

If (i) is correct and Golden Dawn is a credible threat then Woo’s model would seemingly apply and is possibly worth studying more carefully.

If (ii) is correct — and I’m not totally convinced it is, since recent developments in Ukraine, Hungary, Turkey, etc. have strongly suggested that there are big downsides to Euro overreach — then continuing harsh austerity makes even more sense. The point of austerity has never really been about putting Greece on a sustainable path to growth, or even debt service. It’s been about making this experience painful enough that every other euro user would do everything in their power to avoid getting into this kind of trouble in the first place.

I believe (iii) is correct in the abstract, but there’s something I’ve kept saying for years now that remains true: the political choice isn’t between austerity and no austerity. The political choice is about the distribution of austerity. In debt crises someone has to pay, and I’ve yet to see strong signals that the North is prepared to make a meaningful commitment to cover more of the cost. Maybe the IMF wishes this to happen, but just a day ago Lagarde and Varoufakis were unable to establish even the parameters of negotiation so it’s not like the IMF has softened all *that* much. Plus, as you say, none of the Troika want to set a precedent that hard-won deals have no future credibility.

I’m not saying the Troika is right to behave this way. But I also think that Syriza will have to make concessions of their own before the Troika is willing to budge more than an inch. And it’s not clear what those would be.

120

John Quiggin 02.13.15 at 2:43 am

And Argentina is not a good template for two reasons – Greece is not a commodity exporter, and Argentinean workers did not have an absolute right to migrate to more prosperous countries.

I don’t follow the first point – how does being a commodity exporter matter in this context

And I think the second is wrong, for a couple of reasons
(a) This ought to make it easier to deal with a shock, not harder
(b) Is it a big deal? Net emigration was 0.4 per cent of population in 2013, when the situation was already dire. http://www.enetenglish.gr/?i=news.en.article&id=1631 It might grow a bit, I guess, but it’s hard to see it as a crucial factor.

121

John Quiggin 02.13.15 at 2:54 am

As regards Greece having the same current account problems as in 2006, there are some pretty big differences, I think

(a) The external balance on goods and services was about 3 per cent of GDP in 2013, far below the 2006 level, and has presumably fallen further since then
(b) Exit from the euro would imply a substantial devaluation

So, if Greece left the eurozone and suspended debt service (even without a full-scale repudiation) it’s not obvious that there would be a current account problem.

Of course, Syriza doesn’t want to leave the eurozone and would no doubt be willing to accept a fair bit of pain to avoid that. But their actions so far, and the stunned response to them suggest
* Syriza is prepared to take the chance of being pushed out of the euro rather than continue with the current program (which is what the Troika appears to be offering)
* The Troika have assumed the opposite, and haven’t thought through the consequences of pushing Greece out

122

Daniel 02.13.15 at 3:34 am

but of political ones, prominently including making the terms tough enough for Northern European voters to accept

I think this is a generally held view in Southern Europe, but it’s not quite right IMO. It isn’t really a matter of Northern voters wanting the conditions to be “tough”; Bild sometimes makes it look that way, but even for them, there’s no real wish to make things hard for Greece etc.

What there is, is a real fear that the desire to keep the Euro together is going to turn into an unlimited and indefinite (and growing) blank-cheque drain on their finances. At the end of the day, if Greece is going to reject any and all measures which might improve productivity, and reject any and all measures which rebase government spending downward, then it is effectively voting for something like the 2000-2007 economy – which as we know, involved a structural annual growth in external financing. The only way out of that would be if there was some way of finding much more tax revenue – but of course, cutting down tax avoidance is more or less exactly as contractionary as raising tax rates.

In a genuine political union, you can sustain small regions like Wales or Alabama or the poorer parts of East Germany, which have structural deficits and are structural recipients of fiscal transfers. That’s what I think the long term future is for the EU. But it’s not anyone’s policy at present, so the issue that Northern voters have is not that they want things to be “tough”, but they don’t like the suggestion that they should be continually taxed to pay for the consumption gap of another country which keeps calling them Nazis.

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Daniel 02.13.15 at 3:40 am

I don’t follow the first point – how does being a commodity exporter matter in this context

First, Argentina was able to turn its current account deficit around quickly because it happened to default during a commodity boom, and its exports are all dollar-priced – so the J-curve effect was very greatly mitigated.

Second, Greece is a net importer of both fuel and food, so a drachma devaluation immediately means that it has a problem paying for essential imports. In fact, drachmaisation would quite likely mean that fuel rationing would have to be imposed – as a way of avoiding austerity, Euro exit involves a hell of a lot of austerity.

(b) Is it a big deal? Net emigration was 0.4 per cent of population in 2013, when the situation was already dire. http://www.enetenglish.gr/?i=news.en.article&id=1631 It might grow a bit, I guess, but it’s hard to see it as a crucial factor.

Greece was in the Euro in 2013! So Greek workers emigrating to, say, Italy, would find that their wages were more or less the same. Post Euro exit, a builder’s wage paid in Euro would buy an awful lot more in drachma terms – that’s the entire point of course. So I don’t think the two are comparable.

This was and remains a problem for the former Communist accession states – only Poland and Slovenia have incomes anywhere near those of Greece. It can’t be a step forward for them to become a remittance economy.

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Markos Valaris 02.13.15 at 4:02 am

It is possible this got posted twice; in this case, sorry!

KW, thanks, still trying to think this through.

The political choice is about the distribution of austerity. In debt crises someone has to pay

But this is not quite right for Europe right now, it it? Germany and others can borrow at negative rates; there is a free lunch out there.

More broadly, both you and Daniel make a point about moral hazard (though you don’t seem to doubt that pain is intended!) which is correct but I think still has to be weighed against the need to keep the euro attractive, or at least maintain the appearance of good governance. Greece for the first time just managed a primary surplus of around 1%; this is supposed to triple in 2015 and quadruple thereafter. I don’t think anyone believes this will happen; how far is the troika willing to go to maintain the pretence?

BTW, I just saw this report: http://www.reuters.com/article/2015/02/12/eurozone-greece-nowotny-idUSL5N0VM5J420150212

The ECB seems to be giving Greece breathing room.

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John Quiggin 02.13.15 at 4:04 am

On (a), since Greece would be defaulting during a commodity slump, the situation is exactly symmetrical. Given the drop in commodity prices since 2013, Greece must be pretty close to external balance (excluding financial flows) already

On (b), aren’t you assuming full employment?

126

Daniel 02.13.15 at 4:46 am

Given the drop in commodity prices since 2013, Greece must be pretty close to external balance (excluding financial flows) already

More or less. But if it’s close to external balance now, then a 25% devaluation on drachmaisation gives it a negative terms-of-trade J-curve effect, so on day Exit+1 it quickly goes to a deficit likely 10% of GDP or more.

127

Daniel 02.13.15 at 4:49 am

And on b) I don’t think I’m assuming full employment – only that the pressure on Greek workers, employed or otherwise to leave Greece, however strong it is now, would be multiples greater when it becomes a soft currency. And then at any level of employment for post-exit Greece, the tax base and GDP is lower, which means even more of a squeeze on pensioners and other non-earners.

128

Kindred Winecoff 02.13.15 at 4:57 am

MV @ 124,

Germany can borrow at negative interest now, but it likely will not be able to do so again when it will have to service the loans. So it must be able to expect future Greek repayment in any case. And that’s still the main question, isn’t it?

Of course the political optics of moral hazard are always important. But this is really a fundamental question about the nature of the economic union. Is it a developmental project involving open-ended transfers from North to South and West to East? Because that’s not what Germany (or others) signed up for, it’s what they’ve always been afraid of, and it’s what they will not accept. Greece’s biggest threat — Grexit — is to basically ensure that that will never happen, so I think the North will be more than happy to call the bluff. It’s even easier to do if Golden Dawn precipitates it. Why else would Syriza be so committed to staying in?

JQ @ 125,

It’s never been clear to me why the Argentinian experience should be an aspiration for OECD economies, but I do agree that Greece has a few things in its favor. One is that commodities are quite low, as you note. Another is that a depreciated drachma will boost Greece’s “exports” of tourism.

But it will still have continue to run a primary fiscal surplus more or less immediately and indefinitely — which it has never been able to do — and it will need to keep the current account close to balance as well (if not in surplus for as long as possible). This could be achievable today, but commodity prices are unlikely to stay low if major central banks continue/resume easing. And it’s a decent bet they will, given slowing inflation everywhere and persistent demand slack. Moreover, given outright conflict in the neighborhood of several major energy suppliers, supply shocks aren’t out of the question either. So it could be a touch cavalier to project these commodity prices forward very far.

Finally, even larger, previously well-performing economies (“fragile five”) have been buffeted quite a bit by currency markets recently. They’ve had the reserves and record of real growth to ride it out, and mostly-sensible monetary leaders too, but Greece wouldn’t necessarily be in the same position.

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Peter T 02.13.15 at 6:09 am

It’s been years since I took a serious look at the pol sci literature, so I can’t help there. But there are a few case studies that might help. They involve new regimes bargaining between domestic and foreign imperatives. Ireland 1920-21 has been mentioned. Russia 1917 and Iran 1978 are two others. As is, of course, Iran 1953. Argentina 2014 may also be relevant (the Elliott fund claim). I was in Iran in 78, and what stood out was the quite rapid move of almost the entire political nation to a determination that the Shah had to yield ALL effective power (for one or two months there was a chance that he might stay as a constitutional monarch, but that window closed quickly). What also stood out was the failure of the foreign press, the US embassy and some of the old political class to get this. They kept proposing various compromises, each of which lasted a few weeks and then collapsed in the face of widespread refusal to accept it.

I am not saying that Greece is in that state. Just that Syriza not only has to consider what the troika might sell, but also what the public will buy – and the latter can shift quite fast, and not necessarily in the direction the troika anticipates.

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Daniel 02.13.15 at 6:31 am

But this is really a fundamental question about the nature of the economic union. Is it a developmental project involving open-ended transfers from North to South and West to East? Because that’s not what Germany (or others) signed up for, it’s what they’ve always been afraid of, and it’s what they will not accept.

This from Kindred bears repeating, not least because it makes the point clearly and succinctly, something which I’ve tried and failed to do dozens of times. Everyone, Greece more than anyone, was promising this wasn’t a transfer union (lots of us on the outside warned that it was fundamentally incoherent to do so, but that’s politics for you). Everyone wants to find a way of expressing “Germany was irresponsible in lending / shouldn’t run such big trade surpluses / are annoying and smug and what about the Nazis?” etc, but this is just because they’ve looked at the answers in the back of the book and know that they need to come up with a “Germany pays” solution.

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NM 02.13.15 at 8:36 am

@Kindred and Markos: Thanks for some very interesting posts.

Kindred writes “Greece is the only entity that would be significantly harmed if they left the euro, since even greater austerity would be required in that case, and that’s the supposed nuclear option. So yeah: Syriza has no leverage.”

Wolfgang Münchau (FT, Spiegel) made the following point a week or so ago: Greece leaving the Euro likely means Greece taking financing from Russia, while remaining an EU member. At that point the European Council (main EU member-state decision-making forum) includes a Russian client-state. There is a huge amount of trouble that they could cause the other member states (essentially sabotaging EU diplomacy, vis-a-vis Ru., but potentially vis-a-vis all sorts of other things, too). So Syriza may have more leverage than meets the eye.

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Vasilis Vassalos 02.13.15 at 8:40 am

I am not exactly sure how internally consistent this supposed view of Northern European creditor nations is though. They don’t want the EU to be about fiscal transfers in perpetuity or ever? Because if their focus is the former, then they’re in a pretty good position to agree to Greece’s demands regarding (further) lowering of interest payments, extending the debt durati0n etc etc, while sticking to their guns about the need for a verifiable surplus for the foreseeable future. In particular, if the point they want to make is “no *more* fiscal transfers”, this is something the Greek government will agree to most probably, that’s their demand also. If the point is “no fiscal transfers ever”, ie Greece needs a surplus big enough to make do and to repay (albeit at concessionary rates) 200+bln of official debt, or at least the portion of it that’s bilateral loans (there is no question about repaying the rest pronto), then this doesn’t work for I hope obvious reasons.

Moreover, this sort of argument against fiscal transfers is not the total picture. Germany through the euro got a central bank that makes German monetary policy for the whole of the euro area. For the past 5 years, the South could use inflation of say 2% p.a. overall, meaning 4%+ in Germany. Also, the EU as a whole trades mostly within itself so German surpluses needed Southern deficits.

And moreover, the restrictive fiscal policy in Germany, at a time when everyone and their mother says they should be running deficits to help the euro area avoid recession, and the tight monetary policy, don’t really help German citizens who still feel relatively poor, but instead of lashing out at their government, they think that’s the result of Greeks living large. This I think is interesting:
http://foreignpolicy.com/2015/02/02/the-secret-berlins-bankers-dont-want-europe-to-know-euro-german-exports-greece/

So, in all, the Northern European citizens are reacting as much due to scapegoating as due to real fears regarding welfare queens in the South.

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Vasilis Vassalos 02.13.15 at 8:43 am

One more question: If indeed for various structural reasons Greece is the Wales of Europe, and if indeed DD is right that the best way forward is political union with fiscal transfers, and if he’s right that this is what will happen in the future, how would that work in the meantime? What good would policies similar to the ones sought for Greece have done on Wales?

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Minnow 02.13.15 at 11:36 am

This is a brilliantly interesting thread even for people like me who struggle with a pretty primitive understanding of economics. A digest of the substantive differences of opinion, especially the Davies/Quiggin positions would be very interesting to see. I don’t suppose one or other wants to set it out, clearing away some of the feedback noise that makes the thread a bit difficult to follow.

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Trader Joe 02.13.15 at 12:36 pm

Thank you to all of the overnight posters. Very good insights and thoughtful discussion.

As we sit today, my sense is investor sentiment is more positive on a deal getting done than it had been even a week ago (it will change 10 more times between now and month end) – not that investor sentiment is the be all and end all, but market perception does play a role and Greek legislators will have a better time getting needed money raised at reasonable terms if providers of money think there is a plan and a realistic blueprint for long-term success. Markets aren’t good at backing rebellions no matter how well intentioned.

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Barry 02.13.15 at 1:07 pm

Daniel: ” Everyone wants to find a way of expressing “Germany was irresponsible in lending / shouldn’t run such big trade surpluses “

First, they were – no irresponsible, but certainly criminal, unless big German banks were run by a different species than US/UK banks.

Second, it’s pretty clear that the German Plan is that they export durable goods and high-tech services to the rest of the EU who – ???? – prosperity for all. Step 2, I guess, is to be defined later.

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Mandos 02.13.15 at 5:19 pm

I’ve lurked on this series of thread for a while and just want to point out something I find striking in the OP. It assumes that there is an inner core of Syriza, etc., that are just dying to comply with the way business is done in the Eurozone after obtaining power. But what we are seeing is an increasingly frustrated population in parts of Europe choosing to vote for increasingly radical parties that are less likely to follow or want to follow the logic and type of rationality that dsquared is trying to ascribe to them. If Syriza ever appears that it *is* voluntarily subscribing to that logic, I suspect it would not be long for this world.

The governing Eurozone elite must at some point reckon with the idea that there are or will be political players who are not interested in being limited to their “rules of the game”. Is the EU robust enough to withstand that? I am not convinced.

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Ronan(rf) 02.13.15 at 5:21 pm

I know I said on the last thread that I wouldn’t comment anymore on DD’s posts, and dsquared of course there are no hard feelings if you delete this or ban me. (I wont say anymore either)
But short of that, just a small point to something said by Kindred above that I don’t think is going to get enough airtime:

“The point of austerity has never really been about putting Greece on a sustainable path to growth, or even debt service. It’s been about making this experience painful enough that every other euro user would do everything in their power to avoid getting into this kind of trouble in the first place.”

Doesn’t this point, if correct (and my priors would certainly lead me to favour this interpretation) make the rest of the argument around this topic a little redundant ? I do genuinely appreciate dsquared’s attempts to push back against the simple story of German/ECB intransigence and highlight the difficulties that people are trying to make decisions under, and the complexity of the politics involved. (and keep front and centre the fact that A LOT of the decisions that got peripheral countries into trouble were made in those countries, by those countries political elite responding to domestic constituents)
But if austerity is actually driven by this disciplinary logic and not a desire to reform the Greek economy, isn’t it slightly beside the point to argue over the specifics of reforms, or corruption, or privatisations etc. ? If we want to understand the politics of this (in Greece, or Ireland, or Germany, or the ECB etc) then don’t we have to be clear and unsentimental about what is actually driving the politics ? A such, the periphery as passive victims doesnt really say much, but neither (IMO) does ‘austerity as a mechanism for reform’, or German policy as primarily the outcome of domestic politics.

That’s unless I’m misunderstanding dsquared and Kindred’s positions, perhaps they’re more compatible than appears to me at first sight.

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dsquared 02.13.15 at 6:38 pm

My position on that is that Kindred is just wrong. There have been some attempts at the king-stupid strategy of trying to take a law enforcement approach to fiscal deficits – the original stability ‘n’ growth pact had a lot of that, even with fines in it. But imo all of that bollo died on the day they tried to enforce it on France and got a resounding bras d’honneur in response.

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Z 02.13.15 at 8:05 pm

At the end of the day, if Greece is going to reject any and all measures which might improve productivity, and reject any and all measures which rebase government spending downward, then it is effectively voting for something like the 2000-2007 economy

But they already accepted, in fact enacted, an almost 25% loss on nominal wages. How can you write this, except as hyperbole? Like everyone else, I don’t know what Syriza intend to do but saying “low wages and low pensions won’t go down anymore, in fact, they might get a slight bump and we’ll keep education and health care running” and expecting tax-payers in the rest of the EU to pay for that is to me a not unreasonable position. And honestly, I doubt that politicians in the rest of Europe conjuring the supposed unwillingness of their tax-payers to pay for something like that are even moderately sincere.

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Kindred Winecoff 02.14.15 at 5:59 am

DD,

I wouldn’t burn at the stake for that belief. That is, I am sure that there are some in the North for whom that is a priority — whether France can be held to the fire in the same way or not — but I am not totally sure that that is what is driving policy. The policies chosen are consistent with a variety of attitudes.

But I’d argue it shouldn’t be dismissed outright. Contra Blyth, there is no evidence that the North has ever believed that short-run growth was likely under the Troika program. There is substantial evidence that they believe — and have always believed — that moral hazard was a looming problem exacerbated by convergence (equalization, essentially) in bond rates pre-2007, and that this is not only a problem in Greece. At some point a marker was going to have to be put down.

Despite all the talk about a kinder-gentler IMF, the IMF is a party involved and has the most expertise in dealing with these situations. And this has basically followed the IMF playbook for small open economies in crisis: devalue until wages are below productivity so as to boost savings (denominated in a key international currency). These days smart developmentalist economies do this on their own, because it’s easier to gradually self-insure during growth periods than it is to sharply adjust during crises. But Greece didn’t do that. Quite the opposite.

So to me it looks like the Troika is playing a longer game, and the Greeks aren’t their only audience. I’m not saying they’re trying to crush Greece completely. But if it isn’t painful then the point isn’t being made.

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Kindred Winecoff 02.14.15 at 6:03 am

I’ll just add that most reports I’ve seen indicate that the IMF has been the least punitive party in the Troika, which again makes me think that Northern Europe doesn’t mind one bit if this stings quite a lot.

143

John Quiggin 02.14.15 at 7:53 am

@Kindred I agree with your interpretation of the Northern European view, and the Greeks obviously agree. So, based on the general history of national responses to attacks by foreigners, what leads you to think (if you do) that the Greeks are going to fold?

Looking at the options of capitulation and repudiation, it seems to me that
(a) it’s unclear which will be worse for Greece
(b) it’s clear which will be worse for Northern Europe (though unclear how much worse)

So, if the Troika sticks to its current position, I predict repudiation

144

dsquared 02.14.15 at 11:29 am

Contra Blyth, there is no evidence that the North has ever believed that short-run growth was likely under the Troika program

There is a big problem of establishing a baseline here. In 2009, Greek GDP had fallen about 15% from the 2007 peak. But at least 10% of the 2007 peak was based on massive excess consumption financed by a structurally increasing debt level! As I kept saying at the time, there were two issues – an adjustment problem, and a problem of what they were adjusting to. Short term growth was never on the cards simply because there was a substantial element of the short-term fall that was the evaporation of a mirage.

Even given that baseline, obviously, policy was totally wrong. But here again. it is not so much “wanting Greece to feel pain” for no reason as the much simpler political economy explanation that Greece was hardly ever likely to tackle any of its structural issues (or to pass budgets which reflected a genuine Quiggin/Farrell style Hard Keynesianism rather than the bastardest of bastard Keynesianism) while there was a boom going on. The fact that Greece needed to hit rock bottom in order to face up to some hard facts about its political system is hardly one that Syriza can deny – it’s the basis for their electoral success.

145

magari 02.14.15 at 11:52 am

Kindred: “The point of austerity has never really been about putting Greece on a sustainable path to growth, or even debt service.”

I’d be careful with the term austerity. The Troika imposed a draconian structural adjustment program on Greece which has austerity features. But austerity is a much larger program pushed by neoliberals in every country, whether in distressed economies or relatively stable ones. And that project is indeed not about sustainable growth or debt but marketizing state services and, correspondingly, reducing what society expects from the state.

146

Peter K. 02.14.15 at 1:30 pm

@140

“‘At the end of the day, if Greece is going to reject any and all measures which might improve productivity, and reject any and all measures which rebase government spending downward, then it is effectively voting for something like the 2000-2007 economy.’

But they already accepted, in fact enacted, an almost 25% loss on nominal wages. How can you write this, except as hyperbole?”

A 25 percent loss on nominal wages isn’t comparable to the 2000-2007 economy. How can one equate the two with a straight face? Likewise on the budget where Greece is now running a primary surplus after five years of difficult adjustment. As Krugman has pointed out repeatedly, the periphery has faced a much, much harder road of adjustment than the one Germany took in the 2000s. It looks like “Do as I say but not as I do.”

To deny those facts and characterize the Greeks as having made no progress is really demonstrating a lack of respect for the reader, almost as if one was trying to provoke an emotional reaction.

Plus Syriza isn’t rejecting “any and all” measures. From what I’ve read their bargaining position includes keeping 70 percent of the austerity measures.

But the ECB already blinked by extending the ELA deadline until Wednesday. Syriza in turn agreed to meet with representatives of the Troika. If I were part of Syriza’s leadership, I wouldn’t expect the Troika to compromise. The ECB may be talked into repeatedly kicking the can as negotiations continue. Eventually they’ll try to pull a Cypress and I don’t see Syriza being blackmailed like that. They were elected specifically to get concessions, the center-right Cypriot government wasn’t. They must know a Cypress ultimatum is coming

But the longer negotiations drag on, the more time everyone has to prepare for a “soft exit” per JW Mason. My guess is that the Eurocrats will come to wish they had taken Syriza’s offer. (The failure of their Greek bailout package already brought Syriza to power and cost them a trillion euro QE.) The Grexit will be messy and costly and Greece’s economy will recover after a couple of turbulent years thereby providing a negative example to the Troika’s preferred developmental program of recovery and competitiveness.

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john c. halasz 02.14.15 at 6:15 pm

[DD sez – This post used to contain two links to Index Mundi which I think were aimed at showing that the fall in GDP between 2007 and 2009 was less than the 15% I’d guessed above and that the big fall happened in 2010/11. This might be right or not, but I have asked John Halasz not to comment on my posts]

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Kindred Winecoff 02.14.15 at 6:18 pm

JQ, I believe it because the Greek voters and politicians quite clearly state that they want to stay in the euro, while Northern voters and politicians quite clearly state that significant transfers are off the table. Coalitions around these views seem more durable than around any repudiationist position, and as I described above the balance of power is very much in the North’s favor. So I’d put the probability somewhere around 60% Syriza backs down/loses power, 20% the North caves, 20% Grexit. But these numbers are very fuzzy for me, so I’m open to arguments that they should be adjusted.

DD, Agree w/r/t the difficulty of establishing the appropriate baseline. Under the Troika program Greece has gotten to primary fiscal surplus, which is necessary and must continue for some time, but the after a brief turn to external surplus the current account balance has turned negative again despite demand repression. So things aren’t on as solid a footing as Syriza might like to let on.

149

Ze Kraggash 02.14.15 at 7:20 pm

So, they have a customs union, free labor migration, the common currency, common business rules. And you think adding a transfer union would completely harmonize the thing. But what about the politics, the political union. Neoliberal member-states are perfect, the right-wing ones can be somewhat problematic but manageable, but a seriously left-wing state could potentially steer it into a ditch. If I were the EU designer, I think I would’ve wanted Greece out. Out of the Euro, out of the EU, out of my hair.

150

NM 02.14.15 at 7:51 pm

Kindred, DD, and esp. all Greeks reading this thread; what are your views on Wolfgang Munchau’s argument that Syriza can make some credible and serious geopolitical threats, i.e., to turn Greece into a Russian client, support the Russians (in exchange for Russian dollars) in the European Council, and perhaps more generally to disable the Council (cf. #131)?

On a slightly separate note, following on from my post at #94 above re. how damaging aspects of Syriza’s domestic and international communications strategies have been to perceptions of them in Germany, thus harming their prospects for renegotiation, a brief anecdote: I attended a somewhat larger Green Party event in a German city yesterday evening. The event was mainly about regional politics, but one of the main speakers spent a good 5 minutes attacking “macho”, “grandstanding” political leaders (the Greeks leadership & Putin were explicitly named), and praising Merkel (and Steinmaier, the SPD foreign sec.) for their “dispassionate” and “rational” approach to politics. These remarks went down very well with the audience. There is a larger backstory to this (internal Green disputes about coalitions with CDU), but the fundamental point is that it illustrates how what appears to be the dominant political style on the Greek left, at least as transmitted by international media (maximalist demands, aggressive rhetoric and gestures [e.g. publicly throwing out the Troika at a press conference; turning up to the meeting with Djisselbloem on a big motorcycle], and an emotive language of national grievance and pride / humiliation), resonates spectacularly badly in Germany and makes it harder for the Greeks to get their demands met, as it militates against building up local sympathy for the Greeks. While anecdotes should not be stretched too far, I found it striking to hear this criticism at a Green-Party event, because the Greens are probably the constituency most sympathetic to the Southern countries, in some ways perhaps even more so than the Left Party [Linke]).

151

Daniel 02.14.15 at 9:05 pm

Peter – I don’t think the 25% figure is even near right – it’s not what the Eurostat labour cost index measure suggests. I think it comes from a piece of research by Torsten Slok of Deutsche Bank, but that’s about export competitiveness and so it doesn’t include non-traded sectors including most government employees (also the majority of the labour cost decrease has been due to a reduction in overtime).

Even the about 10% fall that has been achieved is pretty huge though, but it itself has been driven by the minimum wage cuts which Syriza is claiming it is “non-negotiable” to restore, and by the redundancy of large numbers of high-paid public sector jobs. I don’t think it’s really all that fair to start off by berating me for ignoring the progress Greece has made (I haven’t) when you’re specifically talking about a government that wants to reverse those exact measures.

I can’t really comment about what you’re saying about comparisons with “Cypress” because this is pure speculation on your part, not any policy that Syriza have identified themselves with.

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Daniel 02.14.15 at 9:11 pm

Kindred, DD, and esp. all Greeks reading this thread; what are your views on Wolfgang Munchau’s argument

… sight unseen, it’s probably garbage

that Syriza can make some credible and serious geopolitical threats, i.e., to turn Greece into a Russian client, support the Russians (in exchange for Russian dollars) in the European Council, and perhaps more generally to disable the Council (cf. #131)?

Yup, thought so. Basically, Russia doesn’t have enough dollars. The whole GDP of Russia is only 8 times that of Greece; we’re no longer talking about a Transdnistria or even Crimea here, it’s an OECD state of 11 million people. If Greece wants to escape a) poverty b) austerity c) foreign dictat, then becoming a vassal state of Putin seems like a funny way to achieve this goal.

And a single vote in the European Council isn’t worth all that much. Greece could, theoretically, veto common foreign policy decisions it didn’t see as being in Russia’s interests but the effect of this would simply be to render the CFSP irrelevant and to generate a workaround institution. The best you can say about this theory is that it’s not as daft as the similar one involving China.

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Daniel 02.14.15 at 9:13 pm

it illustrates how what appears to be the dominant political style on the Greek left, at least as transmitted by international media (maximalist demands, aggressive rhetoric and gestures [e.g. publicly throwing out the Troika at a press conference; turning up to the meeting with Djisselbloem on a big motorcycle], and an emotive language of national grievance and pride / humiliation), resonates spectacularly badly in Germany

There’s a cartoon in a Syriza newspaper this week that depicts Schauble as a concentration camp guard, captioned “Negotiations” and depicting him as saying “We demand the soap from your fat; we will negotiate over the fertiliser from your ashes”. Tsipras so far hasn’t thought it worth his while to disassociate himself from it.

154

magari 02.15.15 at 3:12 am

You’re surprised that a country pushed into Depression will read history impressionistically? Yes, it’s a ridiculous comparison, but that’s what you get from these circumstances. The Golden Dawn card is not wholly rhetorical.

155

Kindred Winecoff 02.15.15 at 3:34 am

“Kindred, DD, and esp. all Greeks reading this thread; what are your views on Wolfgang Munchau’s argument that Syriza can make some credible and serious geopolitical threats, i.e., to turn Greece into a Russian client, support the Russians (in exchange for Russian dollars) in the European Council, and perhaps more generally to disable the Council (cf. #131)?”

It’s laughable for so many reasons. Just a few:

1. I’ve not seen any evidence that Syriza has such a mandate from the Greek people, who are not idiots.

2. Russia’s in no shape to do such a thing. It’s not just because Greece is much larger than Crimea. It’s also that Russia is in the early stages of a severe economic crisis that could end up leaving it in worse shape than Greece. Even if Russia manages to stabilize the ship in the short run, it’s longer-term growth model will be competed away by increased global energy supply. The trends are all bad, in other words.

3. Russia is poorer than Greece on a per-person basis. AKA, Greece is not Belarus, Moldova, or Ukraine.

4. A similar “thought experiment” was floated in the case of Cyprus just recently. It came to nothing, and Russia had much more at stake in that case *and* a greater ability to act at the time.

5. Even ignoring 1-4, Greece being a Russian client is not a “credible geopolitical threat”. Greece’s ability to influence EU institutions would remain weak, and credible geopolitical threats are dealt with by NATO or an ad hoc coalition, not (ha!) the European Council.

6. If Russia wants a vote on the European Council then Viktor Orban’s would certainly come cheaper.

156

Kindred Winecoff 02.15.15 at 3:48 am

magari @ 145, there is no scientific definition of “austerity”. I don’t happen to agree that yours is particularly useful, and I had meant to invoke Blyth’s, but it’s basically irrelevant.

magari @ 154, “pushed into Depression” by whom? The Troika has made agreements with democratically-elected governments of Greece to give Greece quite a lot of money in various forms. The attached strings have been taut, sure. That happens when you exhaust the patience of all other possible creditors while revealing that you’ve been lying to them all along. Still, the terms could have been refused at any point. If the Greek polity has enough agency that invoking the spectre of Golden Dawn is meaningful then it has enough agency to get itself into Depressions on its own.

157

John Quiggin 02.15.15 at 3:51 am

Both Kindred and DD seem to read “Syriza and Greek public want to stay in euro” in game-theoretic terms as “it is common knowledge that Syriza will do anything to avoid Grexit”. If so, it’s straightforward to derive Syriza capitulation as the equilibrium solution.

But does this make sense? Almost all the time, all governments say they want peace. Does it follow that any aggressor can get whatever they want by threatening war?

My reading of the Syriza position is that they are very keen to avoid Grexit, but not so keen as to accept a wholesale retraction of their election platform. As in all such cases, they will seek to ensure that the blame for being forced out of the euro falls on the Troika, particularly the ECB and on the Germans.

Going a bit further, the eagerness of the Troika side to assume that Grexit is unthinkable leads me to suspect that they won’t be eager to bring it about.

Coming to the national politics, the obvious game-theoretic question is: who would lose more, Syriza by capitulating or Merkel by acquiescing in a (plausibly deniable) capitulation by the Troika? I’d say that Syriza would be destroyed as a political force, while Merkel would get a week or two of bad headlines.

158

Kindred Winecoff 02.15.15 at 6:02 am

In terms of game theory this makes little sense. If a union wants concessions from management it says it is prepared to strike. Governments express seriousness by claiming that military options are on the table. In crisis bargaining situations it can make sense to dance near the cliff’s edge. You never get a bargaining advantage by pre-committing to moderation, in other words. And as Dr Strangelove reminded us, a deterrent device cannot deter if your adversary doesn’t know it exists.

Syriza could not have been elected had it not promised to stay in the euro. Surely the Troika noticed that. And again: I don’t really think Grexit is all that worrisome for Germany.

159

MPAVictoria 02.15.15 at 6:09 am

Kindred there seems to be an something an awful lot like victim blaming in your posts.

160

Daniel 02.15.15 at 7:35 am

I don’t think “victim blaming” is remotely a helpful way to think about anything. Greece’s debt burden was the result of Greek politics since the 70s. Greece’s economic crisis was a result of the debt burden, plus the sudden inability to borrow any more on any terms better than the troika’s. A better designed program would not have had such a quick adjustment path (the IMF claim otherwise but IMO they are laughably obviously wrong – it is actually quite worrying that in their great big mea culpa they castigate themselves for nearly everything except the only really important mistake they made). But the fact that the troika program was terrible does not mean it wasn’t much better than all of the alternatives, or that it was anything other than an attempt to help Greece, at considerable cost to the creditor nations (France basically sacrificed their own credit rating to achieve it).

I’d think a medical metaphor would make sense. Greece fell ill, with a condition that has to be considered lifestyle-related. They got prescribed a treatment that kept them alive, but which had much worse side-effects than the best treatment available. I suppose in America that would be grounds for a malpractice suit, but it’s not the same thing as an attack or a crime.

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John Quiggin 02.15.15 at 7:49 am

Kindred, the standard line in these cases is “if a war/strike comes, it won’t be our fault, but that of the other side”. And here’s Varoufakis, with exactly that line:

“Greece will neither want to leave the euro nor threaten to do so … That does not mean we should lower our heads and do as we are told lest we are thrown out. No, we should veto misanthropic policies within the euro, demand debt restructuring within the euro, and never give them the opportunity to claim that we opted out of the euro voluntarily. If they want us out, they should kick us out with no help from us. In so doing, however, they will be bringing down their own houses too…”

http://trumanfactor.com/2015/varoufakis-interview-2-14800.html

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Ze Kraggash 02.15.15 at 8:28 am

Kindred Winecoff 155 is full of dubious assumptions.

1. Russia is not in a position to make Greece its client state; what it’s trying to do is weakening the US/EU dominance, i.e. making Greece less of anyone’s client state. I’m sure this should be okay with the Greek people, unless they are all idiots.

2. it’s far from certain that “Russia is in the early stages of a severe economic crisis”. Yes, that’s the western propaganda line, but Dagong, the Chinese agency, for example, has the opposite opinion.

3. – see 1.

5. It depends on what “credible geopolitical threat” means. As far as the US/EU elites are concerned, any open dissent, however minor, is a credible geopolitical threat. Have you noticed the recent hysterical attacks against Hungary?

6. The more the merrier, obviously. It’d be more difficult to bribe/intimidate Greece and Hungary than Hungary alone.

163

NM 02.15.15 at 8:35 am

Thanks for comments on the Russia thing.

@ JQ “who would lose more, Syriza by capitulating or Merkel by acquiescing in a (plausibly deniable) capitulation by the Troika? I’d say that Syriza would be destroyed as a political force, while Merkel would get a week or two of bad headlines.”

Depends how plausibly denial it is. Even with some degree of deniability, Merkel risks much more than some bad headlines. The Eurocrisis/”money for lazy southerners” (their trope, not mine) has for the first time created a viable rightwing party to the right of the CDU (Merkel) in Germany, the AfD. The AfD is currently struggling; the very last thing Merkel needs is a big populist issue resurfacing to strengthen them again. Germany is on the cusp of becoming a 6-party system, and Merkel has had a decade to observe the effects of the rise of the Left Party (Linke): the destruction of the SPD as a dominant party. The AfD threatens to do the same to her, and to seriously damage the existing mode of German politics and government (2-party center-left vs center-right block coalitions), replacing this with a much less stable variant (weaker 3-party coalitions or permanent grand coalitions of the two weakened formerly dominant parties). The medium-term stakes are quite high for her as well.

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Kindred Winecoff 02.15.15 at 8:46 am

I’d never argue that Germany possesses any special virtue. They are no less self-interested than anyone else, and Greece is no more self-interested. Germany never wanted to be in this situation — they’ve never been unable to find markets for their exports, and Greece was something like Germany’s 25th largest export destination prior to the crisis and was in fact a more important destination for Germany *before* the euro — but they also didn’t do enough regulation of their capital account to prevent it from occurring. They’ve paid a significant price for that error, which I doubt they’ll repeat anytime soon.

But what if Germany does exactly what everyone says it must do: reduce its current account surplus/capital account deficit with Southern Europe. Rein in the bankers who had made so many extravagent loans. Stop perpetuating this macro imbalance.

What happens? Less Greek consumption! Less external financing of Greece’s deficits in the fiscal and current accounts! That’s austerity! Yep. The faster Germany corrects its imbalance, the faster adjustment must occur elsewhere.

We can ask Germany to front more money to make this a more gradual process — ie we can ask them to maintain a current account surplus for *longer* — but long experience has shown that without conditionality on disbursements debtor nations tend to forget their prior commitments. Greece is possibly the worst offender in modern history in this regard, so Germany’s hesitance is understandable. Hence our predicament.

So you can characterize Germany’s unwillingness to hand Greece a signed blank check as continued victimization if you like, but I just don’t see how it adds any value.

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QS 02.15.15 at 9:02 am

@kindred my post was not clear. I meant to say that austerity is a part of the broader neoliberal program, the latter being characterized by those features.

But both you and Daniel represent the situation as if there is one actor who dug it’s own grave. Oddly, for two guys into finance, you seem to forget that debtors require lenders. And that integral to lending is the risk of nonpayment. Good lenders minimize this risk and, in theory, assume that occasional losses are part of business. German banks needed to take responsibility for their bad practices. Instead, Greeks are forced to pay for their bad bets. Bets also taken on by Greek leaders, but I think the Greek people have paid sufficiently for their role in this.

The result was a bailout program which, yes, pushed Greece into depression. I say this because austerity (and other neoliberal policy) was not the sole possible response availible to Greek’s creditors but it was the one they forced upon Greece. No austerity, no depression.

As such, the bailout is another moment where creditors have to take some responsibility for their role in the problem. The terms of the bailout have undercut the ability of the Greeks to repay. Not in pure economic terms, for they are running a surplus, but in political terms. The Troika effectively bet that the Greek people would submit to the program and permit their leaders to play ball. Turns out they were wrong. Now they have to pay up.

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NM 02.15.15 at 9:04 am

“But what if Germany does exactly what everyone says it must do: reduce its current account surplus/capital account deficit with Southern Europe. Rein in the bankers who had made so many extravagent loans. Stop perpetuating this macro imbalance.

What happens? Less Greek consumption! Less external financing of Greece’s deficits in the fiscal and current accounts! That’s austerity! Yep. The faster Germany corrects its imbalance, the faster adjustment must occur elsewhere.”

Aeh, isn’t the basic idea that correcting German imbalances mainly involves paying German workers higher wages, who then spend more, thus generating demand for southern products, while also making their own products less competitive, creating space for Southern products? At which point more real as opposed to speculative investment opportunities develop in the South? Pre-07 style German capital exports to the South presumably ended in 2009, at the latest. (There is much that seems questionable about this prescription, not least that additional German import-demand and less competitive products may mainly benefit South Korea, Japan, Switzerland, Sweden, and China, rather than Italy, Greece, Spain and Portugal, but I don’t think the ‘Correct Imbalances’-prescription is mainly about ending capital exports.)

167

magari 02.15.15 at 9:04 am

Sorry kindred, that (QS) was me posting on my phone.

168

Daniel 02.15.15 at 9:09 am

If they want us out, they should kick us out with no help from us. In so doing, however, they will be bringing down their own houses too…”

It was interviews like this which made me start to worry about Varoufakis, because it’s really badly wrong about a lot of things.

1) It’s not possible to kick states out of EMU. There’s no provision for it in the treaty. It’s arguable that there’s no way to leave voluntarily either without leaving the EU, but everyone thinks that point can be finessed.

2) The failure mode, therefore, is when a country loses liquidity support from the ECB (like because it is refusing to negotiate a program), and sees its banking system unable to continue for lack of Euro financing. At that point it was always historically assumed that they’d need to print drachma to keep the local payment system working.

3) But Cyprus showed that this isn’t true – or at least, it’s one end of a long continuum rather than being an on/off speech. It’s possible (as I laid out in a Medium post on the “Penalty box”) to restrict ELA without cutting it off entirely, which would lead to a “corralito” deposit control regime, capital controls etc, but not Euro exit entirely.

4) This would be massively less damaging to the rest of Europe than exit.

5) Even total Greek exit from Euroland would not be particularly damaging to the rest of Europe any more. All sorts of safeguards have been put in place. The big difference with Lehman is that Lehman didn’t collapse in an environment that had been specifically planned for its doing so.

6) The estimate of the political cost of it being seen as someone else’s fault is also quite probably wrong. For a lot of Europe (including Spain, Portugal and Italy, all of which could reasonably regard their own crises as having been precipitated or worsened by the liquidity squeeze associated with Greece’s crisis), the “fault” is in the original decision to overrule Eurostat, ignore the Goldman Sachs transactions and allow Greece into the Euro in the first place. If it came to an ultimatum of writing a blank cheque or putting Greece onto the beginning of a continuum that had exit at the other end, then I think the political opprobrium attached to taking the second decision would be small.

Basically, the Syriza negotiating strategy really is to hold a gun to their own head and threaten that the blood and brains will ruin Schauble’s best suit. They haven’t got anything like as strong a threat as Varoufakis thinks they have, and I think that the reasons is that while his economic theory may be cutting edge, his knowledge of economic reality seems to have ossified a couple of years ago.

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Kindred Winecoff 02.15.15 at 9:09 am

John, the first line is that they will not threaten to leave the euro. So how are you interpreting that as them threatening to leave the euro? Germany will not — cannot, even if they wanted to — throw them out for asking for debt restructuring. We’ve already lived through that. Germany may refuse, but if Greece leaves the euro it will be their own choice.

If Syriza really thinks that Grexit will “bring down [Germany’s] own house” then if I was Germany I’d just ignore them.

170

Kindred Winecoff 02.15.15 at 9:19 am

NM, your closing parenthetical is exactly right except for the part about capital exports.

magari, did my post at 165 speak to your points at all? (FWIW I’ve not worked in finance for a single day.)

171

magari 02.15.15 at 9:38 am

Not really. My response was towards the question of agency and responsibility. Whether Germany closes its current account surplus is another issue.

172

Kindred Winecoff 02.15.15 at 9:46 am

Right, and part of that post was that Germany has paid a cost for bad lending to Greece, and has clearly learned from the experience because it does want to lend any more. Yet Greece wishes to continue borrowing. Are you implying that Germany is obliged? If so, on what grounds?

(The current account question is not a separate issue. If Germany lends to Greece then it adds to the capital account deficit, ie the current account surplus. It’s the same issue.)

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NM 02.15.15 at 10:40 am

Kindred, I’m not sure I fully follow on the capital account issue, and it is too interesting to let go. In highly stylized form, wasn’t the pre-09 situation as follows:

1) Germany sells products to “Greece” (southern Europe), receives EUR 100 in return.

2) Because of German wage repression, of these EUR 100 only EUR 30 go to German workers, who mainly spend them. EUR 70 go to German capital owners, who put the money in the bank. [I’m making these numbers up, I don’t know what the exact wage/capital distribution of the surplus was.]

3) Because there is little demand (investment opps) in Germany (German workers only having EUR 30 to spend), the bank invests the EUR 70 in “Greece”, where there are higher yielding investment opps than in Germany (“safe” southern bonds, real estate, air ports). Because few of these investment opportunities in fact add value/productivity, the money de facto mainly goes into consumption (high wages, construction-company profits).

Doesn’t the “Solve Eurocrisis by ending German Imbalances”-prescription then work as follows:

[As noted previously, I’m not persuaded by this prescription, at least in its primitive form; I’m just trying to get at the logic, esp. as regards capital account.]

4) Raise German wages: German workers now take EUR 70, German capital owners only EUR 30

5) –> German workers now go on a spending binge with their additional EUR 40, buying goods from “Greece”. These EUR 40 continue to flow to “Greece”, only now they flow to the “Greek” traded-goods sector and are used for productivity-enhancing investments in this sector, instead of flowing into the non-traded sector where they just increase consumption, not productivity.

6) –> German capital owners still put their EUR 30 in the bank, and the bank still invests this in “Greece”, but again, the bank now invests it in the “Greek” traded goods sector, because this sector is now growing.

I.e., as before 09, EUR 70 out of German export earnings are re-exported to “Greece”. The difference is only the channel through which they flow (EUR 40 now goes through current account, only EUR 30 goes through capital account), and their precise destination (“Greek” traded instead of non-traded sector). “Greece” now does not need to reduce consumption, because we have found a way of deploying these EUR 70 in a productive way in Greece, instead of deploying them in an unproductive way, as was the case pre-09, thus making the Greek consumption no longer excessive (because it is now based on real economic growth).

Step 7) then ensures that this particularly merry merry-go-round keeps turning, because Greek workers/traded goods sector now have more money to spend and invest, and therefore keep buying German export products.

Isn’t this the basic idea behind the “Correct German Imbalances” prescription, and if so, doesn’t this void your point about ending imbalances logically implying the immediate ending of “Greek” excess consumption, because capital exports will have ceased?

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John S 02.15.15 at 10:51 am

@ ck @ 53

“can you name a structural reform that the Irish government have implemented or are you just mouthing empty phrases ?”

Not aimed at me I know, but still… How about beefing up the competition authority and competition law, the Legal Services reform bill to open the legal services profession, various bits and pieces to improve competition in the provision of health services, water charges and consolidation of water provision (!), reducing planning restrictions, strengthening active labour market policies,…?

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magari 02.15.15 at 10:56 am

That’s a new question and not one I was treating in my previous post. Germany is not obliged to do anything, however it’s played a central and significant role in Greek’s current problem, and has the opportunity to (a) provide Greece relief and in so doing (b) help steer Europe towards a saner fiscal/monetary policy. It’s already behind the ECB on the latter. It’s better to be ahead of the issue and help guide it toward a mutually satisfactory outcome than be pulled there (and look weak to your voters) or watch the whole thing fall apart (Grexit/contagion). With Podemos in Spain coming next, the latter is an open question. Wouldn’t it be more intelligent to capture the space in the center-left (think Krugman) and give voters a reason not to go far left (or right)? After all, that’s what Keynesianism and social democracy is in part designed for.

The fact that this, the obvious strategy, is not being put forward by Germany leads me to think that its leaders view concession as a mortal blow to German hegemony. As Gramsci noted, hegemony requires compromise but there is a line across which a hegemon cannot bargain. For Germany, the Greece case may be across that line, challenging its fundamental ideology and position within the power structure of Europe. If this is the mentality of Germany’s leaders, this could get ugly, for Syriza has nothing to gain from appeasing but maybe, just maybe, something to gain from holding firm.

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Layman 02.15.15 at 1:34 pm

QS @ 166:

“But both you and Daniel represent the situation as if there is one actor who dug it’s own grave. Oddly, for two guys into finance, you seem to forget that debtors require lenders. And that integral to lending is the risk of nonpayment. Good lenders minimize this risk and, in theory, assume that occasional losses are part of business. German banks needed to take responsibility for their bad practices. Instead, Greeks are forced to pay for their bad bets. Bets also taken on by Greek leaders, but I think the Greek people have paid sufficiently for their role in this.”

Yes, precisely. The rhetoric is that of a morality tale, with one actor (“Greece”) in the wrong who must now suffer the consequences. Yet Greece was admitted into the Euro despite the fact that Greece did not meet the Euro deficit standard and had not met it for the prior 3 decades, more or less. Greece was admitted despite broad acknowledgement that Greece’s governance was and had been for some time mostly broken. European banks lined up to lend billions to broken, over-spending Greece; and to help Greece hide the true cost of those loans from their budget forecasts. Greece’s failures were unimportant, as long as German banks and manufacturers could profit from Greece, and German taxpayers could ignore Greece.

Aside from that, this rhetoric, and the current policies, treat ‘Greece’ as a synonym for ‘Greek people.’ Perhaps Greek governments were iniquitous, but what has that to do with the 25-year old Greek woman in her 5th year of unemployment? Can the Germans not take a lesson from their own history, about the likelihood of success with this kind of collective punishment by the victors?

Finally, it has to be said that no legislature has the power to bind a future legislature, and in that sense these lessons are wasted. Perhaps there will come a time when the Greek government satisfies with their meek acquiescence to this regime, and when the Greeks are deemed to have suffered enough; and then the unpayable debt can be written off. Does this mean Greek politics will be ‘fixed’ – that no Greek government will overspend in the future, and that no Greek will vote for such a thing again? Of course not! So what’s the point of the charade of demanding full payment again?

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Peter K. 02.15.15 at 4:22 pm

Not being an expert I admit all of my thoughts and conclusions are provisional. The things I have had a difficult time fulling getting a grasp on are the exact terms of the bailout package; how well Greece has done meeting those conditions; and what those terms have inflicted on the Greek economy and society. I have a general sense, but not a firm grasp.

I agree with Layman’s thoughts at #177. It looks like collective punishment. Everyone agrees that going forward Greece will face elevated borrowing costs and scrutiny compared to the 2000-2007 period. Then why the overly harsh structural adjustment and budget requirements? Can they be too harsh as to be counterproductive? As in bring Syriza (or worse) to power?

Today Krugman is getting hyperbolic:

http://krugman.blogs.nytimes.com/2015/02/15/weimar-and-greece-continued/

“Thinking about this led me to an interesting question. We know that part of the reason large postwar reparations were such an unreasonable and irresponsible demand was the dire, shrunken state of the German economy after World War I. So how does Greece compare? The answer startled me:

[chart]

Austerity, it turns out, has devastated Greece just about as much as defeat in total war devastated imperial Germany. The idea of demanding that this economy triple the size of its primary surplus is … disturbing.”

Also I admit to being not that knowledgeable about what happened with *Cyprus* – I do know how to spell it – but I would guess Greece is about to receive the same treatment from the Troika. That’s my game theory. Also, Greece is aware of this possibility. And so how does Syriza respond? Total capitulation like Cyprus? That’s not what the voters elected them to do. Do some sort of soft Grexit-default and make sure it looks like the Troika precipitated it.?

Tell the voters that you’ll try to re-enter the eurozone once the economy (and the eurozone) is in good shape again.

The wider context is a sinking European economy with Denmark, Sweden and Switzerland moving towards negative interest rates and Draghi doing a trillion euro QE which no one believes will solve the problem. Whatever happens with Greece, the European Feedback Cycle of Doom keeps spinning.

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Vasilis Vassalos 02.15.15 at 5:22 pm

“Even given that baseline, obviously, policy was totally wrong. But here again. it is not so much “wanting Greece to feel pain” for no reason as the much simpler political economy explanation that Greece was hardly ever likely to tackle any of its structural issues (or to pass budgets which reflected a genuine Quiggin/Farrell style Hard Keynesianism rather than the bastardest of bastard Keynesianism) while there was a boom going on. The fact that Greece needed to hit rock bottom in order to face up to some hard facts about its political system is hardly one that Syriza can deny – it’s the basis for their electoral success.”

DD this is inaccurate. There was a fairly wide window in 2010 for substantive reforms. The Troika messed that up fairly well by not pushing for anything substantive and not providing any cover for the Papandreou government that had shown some inclination for reform (and eventually toppling him). Instead, during the whole period, they stood ready to deal with the worst elements of the Greek political class to replace meaningful reforms with yet another tax and yet another pension cut.

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Kindred Winecoff 02.15.15 at 6:27 pm

NM,

I’ll characterize differently but I’d agree with the general approach. If I’ve understood it correctly I think your example might make a critical error around step 4, which is how a lot of people get confused by this. But there’s also a critical error in step 2. Let me try to walk through how I’m thinking about this.

1. GER exports goods worth 100EUR to Club Med. In return, Club Med gives GER financial assets worth 100EUR. This mostly takes the form of debt (bonds, mortgages) rather than equity (ownership of the Parthenon) for a variety of reasons, some of which are political and some of which aren’t. For now let’s simplify: GER receives IOUs in exchange for their goods. That is, at this point GER has given Club Med goods — Volkwagons, Nomos Tangente watches, whatever — *and* the means to finance purchases of those goods in exchange for a claim on future Club Med production.

2. Therefore, GER incomes do not go up at time ‘t’ regardless of the particularities of the German variety of capitalism. GER’s incomes are expected to go up at time ‘t+1’ when Club Med pays up the IOUs, but that is contingent upon those IOUs being repaid.

3. Since GER has only been given IOUs, not actual EUR, there is no within-GER investment that could follow from this 100EUR transaction with Club Med even if there were good opportunities. Club Med’s investment boom is a function of its consumption boom because of the imbalance in the national accounts. In this example:

For GER: Savings (100EUR) – Investment (0) = Exports (100EUR) – Imports (0)
For Club Med: Savings (0) – Investment (100EUR) = Exports (0) – Imports (100EUR)

4. So it cannot simply be said that GER wages should be raised from export proceeds, because those proceeds evaporated when Club Med decided not to pay full value on time. The value of GER savings was 100EUR but now it is 0 (or whatever the bargained agreement over repayment is). Anticipated GER higher standards of living will now not come to pass. The IOUs were lit on fire and GER’s purchasing power has permanently declined. So there are basically 2 ways to close the bilateral GER-Club Med imbalance in the national accounts:

4.a. GER exports less until S = I = X = M. This does not help Club Med except insofar as it prevents them from becoming further indebted. I.e., it’s “austerity,” but perhaps a softer form because all it requires is coming into external balance rather than surplus.
4.b. GER imports more until S < I = X < M. This is less likely now that GER is poorer than they thought they'd be (and are probably fairly resentful about that fact), and it requires Club Med to boost national savings (i.e. reduce consumption relative to production) which is the single thing they are protesting right at the moment.

5. So there is no new income stream for Club Med workers.

6. If GER's savings are high enough relative to domestic investment to keep sending Club Med 30EUR through the capital account, then it must export 30EUR worth of goods to balance the financial action. Trying to stick close to your numbers, we could have a situation like this:

GER savings (30EUR) – GER investment (x1) = GER exports (x2) – GER imports (40EUR)

which would be reflected as:

Club Med savings (x3) – Club Med investment (30EUR) = Club Med exports (40EUR) – Club Med imports (x4)

There are a variety of ways to balance out that equation but all of them involve Club Med either boosting savings significantly or going further into debt. GER doesn't want to lend anymore, so that means the choices are restricted to Club Med boosting savings beyond imports. I.e., austerity.

Note that even under that scenario GER is poorer than it would've been had it just consumed its production rather than exporting it to Club Med in steps 1-3. GER has not benefited from this at all. In fact, it is poorer by exactly 100EUR: the amount of additional consumption and investment that Club Med received in step 1.

Should I reiterate that? If the GER-Club Med bilateral relationship is what is causing economic pain, then the share of economic pain is exactly equivalent. The only difference is the temporal distribution of the pain and their respective abilities to cope with it, but asking for the end of Greek austerity is the same thing as asking for the perpetuation of German austerity. German *workers*, not just the bankers.

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Daniel 02.15.15 at 7:04 pm

but I would guess

Yeah, please don’t guess, unless you’ve got some basis for thinking the guesses are relevant.

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Daniel 02.15.15 at 7:07 pm

Finally, it has to be said that no legislature has the power to bind a future legislature

If this were true, clearly there could be no such thing as sovereign debt at all and we wouldn’t have this problem. In fact, customary international law is exactly the opposite – treaties are signed with the state, not with a particular legislature and the presumption is that they persist even after much more radical changes of government.

182

Daniel 02.15.15 at 11:23 pm

177 is a perfect example of why I don’t think turning this into a morality play makes any sense whoever you decide to portray as the villains.

And that integral to lending is the risk of nonpayment

But integral to nonpayment is the risk that people won’t lend you any more money. That’s why we’re trying to avoid it here, to the greatest extent possible. Europe in 2010 was in meltdown. If we had added a financial crisis in France and an even bigger one in Germany than they actually had, it would not have made things better for Greece – the number one priority for anyone who cared about Greece was to preserve their access to official sector finance. People who make a big deal out of the fact that the 2010 bailout program helped to preserve the French and German banking sectors also presumably look askance at anyone on an aeroplane who makes sure their own oxygen mask is firmly secured before helping others.

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Daniel 02.15.15 at 11:26 pm

Instead, during the whole period, they stood ready to deal with the worst elements of the Greek political class to replace meaningful reforms with yet another tax and yet another pension cut.

There’s certainly a lot of truth to this (this is another massive IMF failing that they are in denial with – the curious obsession with pension reform). But I don’t really agree that Papandreou was on the way to delivering the goods. He was just too weak, and I don’t think there’s much the troika could have done to prop him up. It’s a shame because he seems to me like a genuinely intelligent guy who was trying to do the best for his country – but if he’d had any other surname, there is no way that he would have gone into politics.

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John Quiggin 02.16.15 at 7:26 am

@183 As regards the morality play aspect, there’s a pretty high correlation between blame allocation and analysis of possible outcomes. That is, those who think Greek profligacy is to blame mostly believe the Greeks will fold, and that, if they don’t, it will hurt only Greece. Those who regard this as part of the greater failure of global finance that gave us the crisis and long depression mostly think that the Greeks can and should default rather than accept further austerity, and that the result will be worse for the banks than for Greece.

I don’t think this is purely wishful thinking – for example, if you regard the position of the Troika as basically sound, you will tend to believe the results of “stress tests” they undertake. If you would check your watch/phone before believing the clock in a bank, your analysis would differ.

185

Vasilis Vassalos 02.16.15 at 9:01 am

Kindred,

your response to NM is problematic in ways that seem ideological, because otherwise they are not understandable. It is of course true that when GER exports goods worth 100Eur to Greece (or Italy or Spain — to a country as worthy of having its name mentioned instead of a holiday club as Germany is), Greece pays the seller, which is a German entity, in Euros, not in “financial instruments”. The fact that these Euros came from a German bank or the German State is actually irrelevant to German incomes – incomes rising even due directly to increased state debt are still incomes rising to everyone except the most religious of hard money types.

So, German incomes at time t definitely increase. That increase is made possible by German banks acquiring more assets, ie creating more money via lending it to Greece, Greece spending it on roads, civil service salaries etc.

Given that mistake, your step 3 is also problematic.

186

Layman 02.16.15 at 2:15 pm

@ 182 “If this were true, clearly there could be no such thing as sovereign debt at all and we wouldn’t have this problem. In fact, customary international law is exactly the opposite – treaties are signed with the state, not with a particular legislature and the presumption is that they persist even after much more radical changes of government.”

Yet this is a discussion about the refusal of the current government of Greece to live up to the commitment of a previous government of Greece; a discussion in which I think you’ve acknowledged that they ultimately will not, when you wrote:

‘…but this is just because they’ve looked at the answers in the back of the book and know that they need to come up with a “Germany pays” solution.’

Everyone knows that Greece can’t pay; yet everyone insists that they continue to suffer from the effort, forever, while secretly knowing that at some undefined future time, the debt will have to be forgiven. So it’s an object lesson, either for the Greeks or for other Euro nations, or perhaps both. Someone is being taught a lesson. The lesson is a hard one, and we don’t want to seem cruel, so it must be framed in moral terms, e.g. the Greeks borrowed the money, they lied and cheated, and they’re only being made to make good. You may not like that framing, but what’s yours? Why should Greeks suffer rampant long-term unemployment and the resulting permanent personal damage, if in fact, in the end, Germany will pay, and everyone knows that?

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Z 02.16.15 at 2:25 pm

I don’t think it’s really all that fair to start off by berating me for ignoring the progress Greece has made (I haven’t) when you’re specifically talking about a government that wants to reverse those exact measures.

I hope I didn’t come out as berating you, that was not my intention. Here however are a couple of propositions and analyses I believe in, because they come from sources that have been credible in the past. I think I would have an easier time understanding your position if I knew which of them you think incorrect (or disagree with).

-Greece has suffered terrible social costs to achieve a restructuration which has largely been successful (the ball-park estimate 25% adjustment in nominal wage is from a link I provided above in which the calculation is itself linked to credible sources. I don’t have the expertise to evaluate if the paper is incorrect).
-As a consequence, it now runs a counter-cyclical budget surplus of 1,5%.
-Syriza asks that this budget surplus is maintained at this level.
-One could hope modest but real positive macroeconomic effects from basic keynesian policies in a country with such a high unemployment rate; not to mention very real positive effects from allowing social services to work properly again (things like paying doctors and teachers, for instance).

Based on these 4 points, I support efforts to maintain the surplus at a level no higher than 1,5% and use any economic capability in excess to stimulate the greek economy and alleviate the very real social sufferings this country is experiencing (some of them falling on people who have not profited from past excess lest we believe in time-travel and so cannot be blamed from them). Finally

-At the moment, Syriza is the political force pushing for the policy closest to what I have outlined in Greece.

This is why, as an observer with absolutely no dog in the fight, I rather support their efforts.

Anyway, thanks for this very informative thread.

188

Peter K. 02.16.15 at 3:18 pm

Varoufakis in today’s NYTimes:

http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?smid=tw-share

France’s finance minister is going soft, but the Germans haven’t softened at all. Can they be prevailed upon as in the cases of Draghi’s “we’ll do whatever’s necessary” lender of last resort moment in 2012 and this year’s QE?

Varoufakis says they’re not doing game theory:

“….
The problem with this line of argument is that it presumes, along with game theory, that we live in a tyranny of consequences. That there are no circumstances when we must do what is right not as a strategy but simply because it is … right.

Continue reading the main storyContinue reading the main story
Against such cynicism the new Greek government will innovate. We shall desist, whatever the consequences, from deals that are wrong for Greece and wrong for Europe. The “extend and pretend” game that began after Greece’s public debt became unserviceable in 2010 will end. No more loans — not until we have a credible plan for growing the economy in order to repay those loans, help the middle class get back on its feet and address the hideous humanitarian crisis. No more “reform” programs that target poor pensioners and family-owned pharmacies while leaving large-scale corruption untouched.

Our government is not asking our partners for a way out of repaying our debts. We are asking for a few months of financial stability that will allow us to embark upon the task of reforms that the broad Greek population can own and support, so we can bring back growth and end our inability to pay our dues.

One may think that this retreat from game theory is motivated by some radical-left agenda. Not so. The major influence here is Immanuel Kant, the German philosopher who taught us that the rational and the free escape the empire of expediency by doing what is right.
….”

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bob mcmanus 02.16.15 at 6:49 pm

189: Thanks for linking, I just read that at I Cite, Jodi Dean’s blog

“We are also determined not to be treated as a debt colony that should suffer what it must.”

Varoufakis alludes to the Melian Dialogue.

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Kindred Winecoff 02.16.15 at 8:48 pm

JQ @ 185,

I agree completely that this is a pathology of global finance, not something about German virtue or Greek vice. I haven’t yet finished reading Varoufakis’ writings on the Global Minotaur, but so far I mostly like it and see many parallels in my own work. This is a structural issue first and foremost.

Okay… we’ve accepted that. Now what should be done? The facts on the ground haven’t changed. It’s bizarre to keep seeing claims of ideological bias going only in one direction, when the pro-Syriza contingent (either in this thread or in the real world) have yet to even propose any plan other than, effectively, spending other peoples’ money.

VV @ 186,

I understand that the balance of payments can be tricky but I’ve not made a mistake at all. Greece transferred nothing to Germany other than promises to pay. That’s the key point about how the balance of payments work. You can disaggregate this all you want — Greek buyers paid German sellers and then German lenders took the proceeds from German savings and from them lent an equivalent amount back to Greek borrowers — but on net Germany was only richer if the loans were paid back on time and in full. Which they weren’t.

If you still disagree I propose an illustrative transaction: you agree to sell me your car, which I will purchase using funds borrowed from your bank account. When I default, according to you, you will be richer than before and I — despite getting a car for nothing — am no better off. At the national level this is what has happened, and the national level is the appropriate unit of analysis since this has become a negotiation between governments.

In other words, the fact that you received some euros at one stage of this cycle does not ipso facto mean that you have benefited from it. It’s right there in the data: Greek public debt, private debt, and consumption all rose significantly from 1999-2008 without German household incomes rising much at all.

PK @ 189,

Game theory isn’t a thing you “do” or “don’t do”; it’s a method for understanding strategic interactions. Tools from game theory may or may not be particularly useful in this case — they frequently are not — but that doesn’t change the fact that Syriza and the Troika are both behaving strategically. What Varoufakis is saying in that op-ed is that Europe should *stop* thinking strategically and just trust Syriza to accomplish something within a few months that no Greek government has been able to achieve in years. Which is fine but also incredibly unlikely to persuade Europe.

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bob mcmanus 02.17.15 at 12:14 am

Greece transferred nothing to Germany other than promises to pay.

Well, I shouldn’t lean in here, but there is a pretty old model of demand-driven imperialism, if you will, going back to Luxemburg, Hobson, Hilferding etc.

Country A and Country B have a single banker. Banker loans 1 million units to each. Country A builds a factory making widgets, country b has a million units of widget demand. Assuming widgets are consumable, at the end of the period Country A has a factory and country B has debts and loss of sovereignty.

This is possibly an applicable model for the British Empire, currently Chinese-US trade, many others. China “loans” money (buys T-bills, manages currency, suppresses domestic demand) to the US to sell commodities and uses that demand to build factories and infrastructure.

A hard-core Keynesian looks to the places with greater effective demand, higher wage-share and consumption, as the engines of the economy and probably the morally superior side.

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dsquared 02.17.15 at 12:34 am

I don’t have the expertise to evaluate if the paper is incorrect

There is definitely something funny going on with the data. It is hard to know which series they’re looking at, as the URL cited is just a Javascript command (http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do ). Based on the description of the data, I think they’re looking at this table

That would give a peak to trough fall from 113.4 in Q4 10 to 86.3 in Q2 14 of 23.9% (I suspect the q3 data wouldn’t have been out when they were writing it – also they say this is for the “whole economy”, but the statistical series they mention only covers the business economy. This is ballpark to the 23.5% fall on p2 of that working paper.

But there’s something else funny – this is a labour cost index scaled to 2008Q4 =100. So how did it get up to 113.4 in Q4 10??? I think there’s something funny going on with the data here, but if there isn’t, then the average Greek worker got a 10% pay rise in the two years following the crisis. Well done them, but it kind of underlines the concern that their European partners have that the peak years included lots of things that really can’t be treated as part of the base case.

Since 2006Q4, the fall in nominal wages is 8.2%. That’s still quite astounding but it makes more sense than the 25% number.

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Kindred Winecoff 02.17.15 at 1:26 am

BM @ 192

Good points about this type of dependent relationship historically being part of some imperial projects, although the China-US (and, previously, Japan-US and Germany-US and Korea-US) examples reveal some of the limits of its application. It also happens to be the only development model that has had sustained success in the post-Bretton Woods era, and I think that’s the reason Germany has — and continues to — pursue it.

Because the EU isn’t an imperial project. If anything the EMU is an *anti*-hegemonic project, which is part of why this is interesting from a political economy perspective: Germany never wanted Greece in the EMU in the first place, and I don’t think they particularly care if they’re in it now. Greece pushed for membership and is committed to maintaining it.

DD, even that’s probably not the right baseline. Per the World Bank, Greek per-person nominal income basically doubled from 1999-2006, from $13k to $25.5k. In 2008 it was $31k. Now it’s $22k, and that appears to be the bottom as contraction has stopped and modest growth has returned. Which one of those is “real”? 2006 looks like a very generous baseline to Greece, especially when you consider that a huge chunk of Greece’s GDP growth in 2006-7 was fixed capital formation — i.e., a Northern-funded investment bubble which has gone for a loss.

FWIW, from $13k to $22k in 15 years (1999-2014) is a 3.6% compound annual growth rate! During a slow-growth period in the OECD — to put it mildly — this would not be considered poor performance were it not for the volatile way Greece gotten there. But here they are, having done something like the reverse-Argentina back to 2005 levels.

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Peter K. 02.17.15 at 2:17 am

KW @189

What Varoufakis is saying is that their strategy is to “do the right thing.” Do you need game theory to know what the “right thing” is? My guess is the game theory would tell you doing the “right thing” isn’t necessarily a winning strategy. Compromise is probably the way to go.

Or as the Troika is demanding, total capitulation if Greece wants to stay in the euro zone. But’s that not what Greek voter said. They said to do the right thing.

And yes you are probably right that the Germans don’t want to pay much to keep Greece in the euro zone. So the Troika aren’t doing game theory either. It’s either abide by the agreement signed by the last government or hit the road.

So now we see how it plays out. I read Ian Bremmer in the latest Time magazine and his take echoed the Wolfgang Schäuble view. He also said flatly that Greece would cave, which was weird to read in a news summary. If not, the disaster would put off voters in Spain from bringing Podemos to power, another weird prediction in a news report. I guess it was kind of an editorial blend.

I would guess that the example of a recovered, post-euro Greece doing okay would weaken the ECB’s ultimatum threats against periphery governments. It may encourage other countries to leave the ship if it continues to sink.

And really who cares about whether the baseline is this or that when they have such insane levels of unemployment?

Give the money to Estonia or Africa instead? Like that’s going to happen.

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Peter K. 02.17.15 at 4:24 am

Yglesias commenting on some charts the Economist put up.

http://www.vox.com/2015/2/15/8042021/greece-unit-labor-costs

“…On blogs, people talk a lot about “austerity” and whether or not it “works.”

But the conversation that European Union officials have is much more about competitiveness. Their view is that the continent as a whole (and especially its wayward members like Greece) need to improve competitiveness by increasing productivity and decreasing wages. The scary message of this chart is that Europe’s prescription for Greece is doing something worse than failing — it’s succeeding. Wage cuts really are making Greece more competitive. But while wage cuts have managed to reduce incomes and living standards for the employed, they haven’t succeeded in creating any jobs for jobless or restoring economic growth.

You can see why Greek voters recently decided to give an alternative approach a try.”

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MPAVictoria 02.17.15 at 4:32 am

Krugman via Digby:

“OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:

The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.

Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP.

There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing.

I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.

Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I.

Either way, the lack of wisdom is astonishing and appalling.”

Krugman has been correct about a lot of things since 2007. I am not sure that I would bet against him.

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Kindred Winecoff 02.17.15 at 7:25 am

PK @ 195,

Besides the fact that “the right thing” is very in the eye of the beholder — isn’t it “the right thing” for German democratic leaders to represent the interests and demands of their citizens? Would it be “the right thing” for China or the United States to cover Greece’s debts rather than expecting Germany to do so? — it is also conflated with “Madman” strategies in game theory. Henry has just published a post at The Monkey Cage on this, but basically it’s impossible to determine whether Varoufakis’ is using his appeal to decency cynically (i.e., as a bargaining strategy) or not. And Varoufakis knows this as well as anyone. (I’ve written on similar things a number of times since 2010: http://ipeatunc.blogspot.com/search?q=greece.)

The only unclear part is how committed Syriza is to this bargaining strategy and what they are committed *to*, exactly. Because they have committed to not leave the eurozone and also to not live by the previous agreement with the Troika. That is, they have promised Greek voters something they cannot deliver without the agreement of the Troika and so far they have offered the Troika nothing in return. The only way for them to revise the status quo is to leave the eurozone, which they’ve promised not to do.

The appropriate baseline matters academically and economically; it doesn’t really matter politically.

PK @ 196,

The Troika program has mostly done what it was intended to do: smash the domestic political economy equilibrium that led to unsustainable debt accumulation, bring the budget into primary surplus, and bring consumption more closely into line with productivity. Yglesias is being disingenuous when he claims that this program was ever designed to create jobs or generate short-run growth. It’s called “austerity” for a reason. Whether anyone thinks those goals are sensible is another matter.

MPA,

Krugman’s been both right and wrong about many things since 2007, but who’s betting against him at this stage? His take in that post (less the mock-surprise) is exactly what many of us have been saying and writing — repeatedly, and over occasional loud denunciations — for nearly five years now: that the Germans weren’t gonna budge, and that Greece had no leverage to force them to. We’ve been right. At various points Krugman has been in that number, although mostly he’s been trying to convince Greece to jump ship.

But frankly, if Greece was ever going to leave the eurozone the time to do it was in 2010, not 2015. At this point the worst of the Troika program is probably over while leaving the eurozone would introduce a whole new program of pain.

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Minnow 02.17.15 at 10:51 am

“What Varoufakis is saying is that their strategy is to “do the right thing.” Do you need game theory to know what the “right thing” is? “

When the person you are playing poker against tells you that he no longer wants to play mind games but just wants to do the right thing so ‘relax and trust that when I bet big I have big cards and vice versa’, my advice is to check your wallet. You may disagree, in which case we have a Friday night game you may be interested in.

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MPAVictoria 02.17.15 at 2:54 pm

Yes but unlike you lot he isn’t blaming the poor Greeks!

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politicalfootball 02.17.15 at 5:05 pm

At this point the worst of the Troika program is probably over while leaving the eurozone would introduce a whole new program of pain.

“Probably” does a fair amount of work in that sentence. The ECB has woken up and is doing its job within the limits of its mandate, but nobody else in the EU seems to have any intention of putting the EU economy back to work. Germany’s non-negotiable position appears to be that no matter how badly its own economy stumbles, it will all be okay if the periphery does worse and Greece does worst of all.

I’ll accept, arguendo, the assumption that Greece no longer has any credible threat of mutually assured destruction, and that, as Daniel has said, “the Syriza negotiating strategy really is to hold a gun to their own head and threaten that the blood and brains will ruin Schauble’s best suit.”

But for the Greeks, what’s the other choice? The offer from the EU is economic strangulation. The only way the Greek people could accept that in 2010 was to believe the Troika that austerity wouldn’t lead to massive economic destruction. Of course, we all knew back then that this wasn’t true, but now the Greeks themselves know if from bitter, lived experience.

They don’t have any non-disastrous choices here, and faced with that, it probably seems like a good bet to make choices that will at least return to them some of their own sovereignty and provide some kind of hope in the long term.

Yes, reclaiming that sovereignty can only be done at massive cost, but one sympathizes with the Greeks’ belief that they have nothing to lose. As fantastically bad as the Greeks were at running their economy, it turns out that the EU is worse at running the Greek economy.

I truly don’t see any negotiating room on either side, and I suspect we’ll be finding out before too long how resilient the European financial system is in the face of Grexit. I’ll be fascinated to see if something can be worked out, but I don’t see how.

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