Who blinked?

by John Quiggin on February 24, 2015

So, the latest round of the Greek debt crisis has ended in a typical European combination of delay and compromise, much as Yanis Varoufakis predicted a week ago. But in view of the obvious incompatibility of the positions put forward, someone must have given a fair bit of ground. The Greeks wanted continued EU support, and an end to the Troika’s austerity program. The Troika (at least as represented by German Finance Minister Schauble) wanted Syriza to abandon its election program and continue with the existing ND/Pasok policy of capitulation to the Troika.

Put that way, I think it’s clear that the Troika blinked. The new agreement allows Syriza to replace the Troika’s austerity program with a set of reforms of its choice, focusing on things like tax evasion. Most of Syriza’s election platform remains intact. Of course, it’s only for four months, and none of the big issues has been resolved. But four months takes us most of the way to the next Spanish election campaign, hardly an opportune time to contemplate expelling a debtor country from the eurozone with utterly unpredictable consequences.

If the negotations were a win for Greece (feel free to disagree!) how did it happen?

First, it seems clear (and contrary to claims made in the last thread on Greece) that the Syriza leaders were prepared to take the risk of being thrown out of the eurozone rather than renege on their election platform. This makes obvious political sense and is consistent with their past statements, but seems to have taken the Troika side by surprise.

On the other side of the table, Schauble (at least in his public statements) was ready to push Greece out, a policy that would also have necessitated active measures to destroy the Greek economy, since nothing could be worse from the Troika viewpoint than a successful repudiation and exit from the euro.

(Uninformed speculation begins here) But I suspect Schauble did not get the backing he wanted from the IMF and ECB.

The IMF has already retracted its support for the bogus “expansionary austerity” hypothesis, but it still pushes microeconomic “reform”, so they had no logical reason to oppose the Greek offer, merely the difficulties of an entrenched position.

The ECB has also gone a long way towards abandoning the discredited assumptions on which it was founded, pursued with vigor by the unlamented Trichet. The biggest step, taken just before the Greek negotiations was the move to massive quantitative easing, an admission of the failure of all previous policies. More importantly, though, the ECB would have had to do most of the dirty work for Schauble, at the same time risking the destruction of the currency it was set up to manage.

That’s all pretty speculative, but the combination of ECB QE and the Greek extension means that the tide may have turned against austerity. The big question now is how all this will play out in Spain and Italy.

{ 134 comments }

1

bob mcmanus 02.24.15 at 11:30 pm

Stathis Kouvelakis …Jacobin, today I think

Let us begin with what should be indisputable: the Eurogroup agreement that the Greek government was dragged into on Friday amounts to a headlong retreat.

The memorandum regime is to be extended, the loan agreement and the totality of debt recognized, “supervision,” another word for troika rule, is to be continued under another name, and there is now little chance Syriza’s program can be implemented.

Such a thorough failure is not, and cannot be, a matter of chance, or the product of an ill-devised tactical maneuver. It represents the defeat of a specific political line that has underlain the government’s current approach.

2

John Quiggin 02.24.15 at 11:39 pm

Actually on Friday, which makes a difference, given the content of the Syriza proposals accepted by the Eurogroup. Kouvelakis buries the lede a bit, IMHO, saying well down the article

an the Greek side possibly believe that it has achieved something beyond the impressive verbal inventiveness of the text? Theoretically yes, insofar as there are no longer any explicit references to austerity measures

3

Jesús Couto Fandiño 02.24.15 at 11:44 pm

I’m so confused … I want to review what you have said, but as the first comment said, its like half the people are calling one winner and half the other, and we are just watching the thing without any idea of, exactly, what when down.

4

js. 02.24.15 at 11:50 pm

On Twitter, dsquared was arguing that it’s best seen as a compromise—I imagine you saw this—with the Eurogroup giving up primary surplus targets and Greece agreeing to reforms (here’s him responding to me about what the compromise entailed). The Guardian and other places have called Greece accepting continued “Troika oversight” a dramatic u-turn, etc. Can’t find the article using that phrasing, but this makes similar points. PK, on the other hand, seems optimistic.

I mean, I’m mostly just looking to people like you, dsquared, etc., who understand this shit way better than I do.

5

hix 02.25.15 at 12:02 am

Pretty sure this is not an exercise in game theory with punishment and attemps to out tactic the others, maybe except for one negotiation partner involved. Schäuble would be relieved if the Greece economy did good, with or without Euro.

6

dsquared 02.25.15 at 12:16 am

I don’t agree with much of this, as you’d expect, but I’m on a mobile device at the moment so everyone is spared my grumbling and moidering. Just one point though ; the IMF and ECB have both put out statements saying that the Greek proposal doesn’t go far enough in terms of reforms. So the compromising was definitely done within the allegedly recalcitrant Eurogroup, rather than under pressure from other troika members. The “€group bad austerians / IMF good Keynsians” framing never convinced me but now it’s provably wrong. Either Schaeuble gave ground under pressure from the rest of the €group, or he’s never been as inflexible as he’s been painted.

Also, the people saying that Greece has a lot of freedom within the fiscal targets are wrong, or at least taking a very optimistic reading. The actual agreement (this wasn’t emphasised at the press conference) was that they wouldn’t take any unilateral measures which jeopardised 1) the fiscal targets 2) the economic recovery or 3) financial stability. To me, that gives the troika a heck of a lot of leeway to reject Greek policies.

But in general I don’t think it’s productive to do the “who blinked” bit. It was a sensible compromise. Both sides gave up some real red lines.

7

bob mcmanus 02.25.15 at 12:24 am

I’m still just reading and watching, pretty much without comment. Too soon to tell even what’s tactical yet. Since I’m reading thousands of words, I obviously don’t mind other people opining. There are a lot of events scheduled, and I am sure there will be surprises (Will Ukraine gov’t fall?), for the next six months or so, and most of the commentary is a kinda praxis. If T & V can’t get the deal through the Greek legislature and the gov’t falls, the deal will no longer look so good.

Naked Capitalism has had full coverage for a couple weeks, including a lot of links in the posts, in comments, in Lambert’s twice-daily roundups. Opinions differ.

8

Anon. 02.25.15 at 12:31 am

>The new agreement allows Syriza to replace the Troika’s austerity program with a set of reforms of its choice, focusing on things like tax evasion.

Empty populist nonsense like that work on poor, uneducated, desperate Greek people (and even then, only about 30% of them). But on educated Westerners? For shame. I’m setting a reminder in my calendar to come back here and laugh at you in 6 months when Syriza will have done absolutely nothing whatsoever about tax evasion. And corruption, too! Surely they will stamp out corruption! ha!

The internal revolt within Syriza should tell you who won. Of course we should not confuse Greece with Syriza. The less of their program they can implement, the better off the country will be.

9

John Quiggin 02.25.15 at 12:32 am

DD, I take your point on the ECB and IMF statements, but it’s noteworthy that they are both shifting attention from fiscal austerity to micro reform. That’s the big outcome of the weekend, I think.

10

bob mcmanus 02.25.15 at 12:50 am

One last link, from Louis Proyect, “the Unrepentant Marxist”

Sometimes the Boss is Much Stronger …includes a exemplary mini-history on what Ortega and the Sandinistas had to deal with in Nicaragua. Helped me cut Tsipras and Varoufakis some slack.

11

Markos Valaris 02.25.15 at 2:26 am

But in general I don’t think it’s productive to do the “who blinked” bit. It was a sensible compromise. Both sides gave up some real red lines.

I think this is about right. The framing in terms of “chicken” never struck me as appropriate in this case. It was clear form the beginning that there was a range of compromise outcomes that would be acceptable to both parties, while walking away would be costly to both (though much worse for Greece).

In the end Syriza did win relaxation of fiscal targets for 2015, and got the green light to implement some of its social programs within these (as yet unspecified) targets. Surprisingly they also got the green light for reinstating “smart” collective bargaining and other labor protections, though what exactly that means is anyone’s guess. But they gave up on privatisation and of course ending troika supervision (I wonder if they ever really thought that was a possibility).

I wouldn’t pay too much attention to the intra-party grumbles within Syriza right now; people like Lapavitsas are in any case in favor of euro exit, so of course they would grumble. Opinion polls show 80% of Greeks support the deal, so I don’t think a revolt is imminent (or if there is one, it is likely that Syriza will get the support of other parties to get the deal approved).

12

John Quiggin 02.25.15 at 2:47 am

On privatisation, my impression was that Syriza agreed not to reverse past privatisations, but got to defer the proposed privatisations like the Port of Piraeus until some kind of review took place.

13

The Raven 02.25.15 at 3:07 am

“It is better to be a live jackal than a dead lion, for while there is life there is hope.” And so there is still hope here. The big news here, I think, is that both sides seem want to reach some sort of not-disastrous deal.

Personalities and realpolitik, I think, are the questions here. I don’t believe that the IMF has suddenly turned wholeheartedly Keynesian, personally; my impression is that it’s more a matter of it being easier to vote for things they know are not going to pass. On the other hand, it hard for me to believe that someone as authoritarian as Schaeuble has in fact turned over a new leaf. Still, with luck, the members of the troika will end up pointing at each other, providing the plausible deniability for an easing of austerity.

14

The Raven 02.25.15 at 3:10 am

Duh. Editorial fail. Please replace “on the other hand, it hard” above, with “It is hard…”

15

Markos Valaris 02.25.15 at 3:33 am

@JQ: My understanding is that privatisations where the tender process has begun have to go ahead, but I could be wrong.

16

dsquared 02.25.15 at 5:14 am

On the other hand, it hard for me to believe that someone as authoritarian as Schaeuble

This, OMT, QE, the revised S&G pact, the EFSF… For such an “authoritarian” guy, he doesn’t half seem to compromise a lot, doesn’t he? How many more major political sacrifices would Germany have to make before people started to think that their lying eyes were right and The New York Times‘s amateur national psychologising was wrong

17

magari 02.25.15 at 5:50 am

I think it’s more interesting to prognosticate into the future:

Scenario A:
These 4 months give Syriza the time to plan an orderly exit from the eurozone. And the time necessary to convince the people of its necessity. Long live social democracy.

Scenario B:
These 4 months give Syriza the time to come up with a fiscal policy that is expansionary while not reliant upon significant external financing. Remains in eurozone, sniggers at Germany.

Scenario C:
Four months pass and Syriza cannot figure out how to do B, goes back to the Eurogroup for more money, hopes that the austerity tide has turned and that they’ll get better terms (e.g. more policymaking autonomy). The new-old PASOK.

18

Kindred Winecoff 02.25.15 at 6:16 am

Just as a reminder, here’s Syriza’s platform from 6 months ago. How much of that did they get? Essentially none. The fact that nobody expected them to shouldn’t distract from the fact that they reinforced the status quo.

So predictably, I view this as a near-complete capitulation by Syriza — which is to say that I agree with repeated postings at Jacobin and a host of less-left rags — because Syriza gained very little while the Eurogroup conceded only what was going to happen under all scenarios, since Greece was going to miss its targets whether they agreed to do so or not. A four month extension (with the juice running) on the existing program with no major revisions and disbursement still at the Eurogroup’s pleasure is not exactly Change We Can Believe In. My read on the politics of this is basically the opposite of JQ’s insofar as I see Syriza compromising on everything to stay in the EZ, and the Eurogroup giving them some short-term rope and vague (i.e. non-credible) indications that they’ll get a fair chance to right the ship within the confines of the previous program.

That said, I don’t really care who “won” or “lost”. If both sides are happy with the deal then I’m happy too. In the bigger picture both sides are losing anyway.

The more interesting question is what happens if/when Syriza fails to show marked improvement over the next four months. This seems incredibly likely to me, and if conditions do improve it will likely not be due to the very marginal tweaks that are allowable under the existing program. Reducing the primary deficit by 1% of GDP or so just isn’t going to move the needle very much, particularly given that they weren’t going to hit the targets anyway. Meanwhile, four months isn’t a ton of time to crack down on tax evaders, and an honest attempt could be self-defeating anyway if it accelerates capital flight (which it will).

So if things do improve in the next four months than the Eurogroup can insist that the program is working and demand that Syriza stick to it. If things fail to improve than the Eurogroup can insist that Syriza’s attempts to dilute the program have been counter-productive and… demand that Syriza stick to the program. Now that Syriza has demonstrated a willingness to accept the program rather than Grexit they (again) won’t have much leverage.

19

John Quiggin 02.25.15 at 7:01 am

In terms of Syriza’s platform, the biggest single test is the promise to increase pensions. As I read it, the agreement says that they will do this, offset by other savings, including perhaps some restrictions on early access. In a context where the primary deficit target has been relaxed to an unspecified degree, it’s going to be relatively easy to identify offsetting savings without much of an impact on aggregate spending.

So, if Syriza increases the pension rate and the Eurogroup doesn’t stop them, I’d say that’s a win.

20

The Raven 02.25.15 at 7:06 am

DSQ: I was thinking more of his nationalism, actually; I haven’t read the NYT’s opinions of the man. (The NYT has been for every damnfool war of my lifetime; this does not lead me to trust its editorializing.) But he is also one of the architects of the European monetary union and Euroausterity, both of which which to me speak of authoritarianism.

21

Bruce Wilder 02.25.15 at 7:20 am

Yanis Varoufakis’ NYT op-ed Feb 16, No Time for Games in Europe I thought was very articulate in expressing the view that Grexit is neither an attractive option nor an effective threat for Greece. The political problem for Greece is much larger and more diffuse; Greece needs allies in France and Spain and Italy, needs time to develop a narrative more favorable to its position in the Europe at large. In the long run, Greece needs to change the focus of conversation from reform of Greece to reform of the Euro — that’s going to be a long hike.

I think I would score the agreement as announced as a technical loss for Greece on points. Given that the new government did not have time to prepare — almost certainly did not have the administrative capability yet even to manage capital controls, let alone the collapse of its banks — the Greek government could hardly play a fully defiant game. They had to play for time, and they got a little time on not particularly attractive terms. The inevitable necessity of playing for time seems to be too little appreciated on the Left. Kindred Winecoff’s summary seems fair enough to me.

I’m a little surprised that SYRIZA’s leadership chose to trumpet a victory. Tsipras has the rhetorical chops to handle a far more nuanced narrative, and it might be wiser to adopt a narrative centered on admitting an initial loss: losing the first skirmish but keeping the forces together for further maneuvers and battles of a long war.

The statement by Germany’s “Five Experts” (Sachverständigenrat) that appeared on VoxEu.org, Greece: No escape from the inevitable (Feb 20) was pretty vicious. If anyone wants to parody German neoliberalism as reverse-fascism (“We cannot be held responsible — we were only giving the orders, those who carry out the orders are totally responsible for the results.”) they will have this model of the real thing to overcome.

The idea that austerity is being given up in favor of microeconomic “reform”, as the OP suggests, is just a continuation of a pattern of determined misunderstanding by liberal economists of just what the Euro project has always been about. Krugman has been very guilty of this: preaching Keynesianism and failing to identify the motives and purposes of the Euro architects. JW Mason, on his Slack Wire blog, has a very useful post on what the Euro is about.

The Euro was deliberately designed to prevent Keynesian interventions — there’s no scope for Keynesian fiscal policy in the Euro system. All that a debtor country in trouble can do is austerity and the austerity is a means of institutional discipline and reform. The only policy options available are “structural”. And, this was the plan from the get-go.

It wasn’t entirely nefarious, and it wasn’t a goal hidden from electorates back when. It was a selling point. Taking away the safety valves of patronage make-work employment projects, inflations and devaluations, while pressing for institutional reforms in tax systems and public administration was a package deal that was popular in the peripheral countries. The horrifying reality of deflation still isn’t appreciated fully, I think — not as fully as the opportunity to profit from the misery is appreciated by the psychopaths.

I don’t know how many of the current Euro principals are neoliberal true believers and how many are cynical opportunistic representatives of the predatory financial class. Probably many are both. Greece has to hope that there are quite a few technocrats and politicians, who are neither, who are basically muddle-headed, shallow and at least somewhat open to feeling queasy about consequences for the innocent and helpless and merely or formerly middle-class. These latter are the people, who are going to “compromise” step-by-step.

The devil is in the details goes the old adage, and I suspect that is especially true in terms of some of the particular “reform” and “privatization” schemes being pressed in the peripheral countries. There really isn’t a particularly good argument for how reducing the minimum wage in Greece or eliminating rent control in Lisbon is going solve anything. It’s just class warfare. Privatizations are often even harder to justify on legitimate economic grounds — selling the power company in Greece is crazy and selling public beachfront looks corrupt, because mostly it is corrupt.

I was a little surprised that SYRIZA was willing to yield so readily on not reversing the privatizations. It seemed like they caved completely on public broadcasting, which surprised me a lot. But, maybe they plan to hold some of the privatizations up notwithstanding their agreements — that’s certainly the approach I would take — they are useful hostages, in game theory terms. The Greeks could, potentially, get a lot of mileage out of exposing some of these deals in more detail, as well as imposing costly delays on powerful people when retaliation is necessary. (Maybe, it is even to their advantage to have plausible deniability wrapped up in an official policy of letting privatizations go forward.)

The much more difficult long-term problem is how to shape a European left agenda for reforming not Greece, but the Euro. As Podemos rises in Spain, this will become a more urgent matter. I admit I do not understand even in vague outline what can be done. Even if SYRIZA could master the administrative structures of the Greek government and gather in majority support in the famously fractious body politic, I do not see how they could manage a unilateral Grexit that wasn’t a short-term catastrophe and a long-term drag. They have to find a way forward in the Euro, by reforming the Euro and re-shaping Euro-policy to be less determinedly anti-democratic and anti-social-welfare. I cannot even imagine what that looks like.

22

dsquared 02.25.15 at 7:29 am

In terms of Syriza’s platform, the biggest single test is the promise to increase pensions.

I thought this too, but per Varoufakis’ first address to the Eurogroup (p4), the pensions restoration is a measure which costs a total of €9.5m (that’s million not billion) and which is, although presumably very important to the people who receive it, more or less irrelevant to the overall package and thus an easy give for the Eurogroup.

23

Chaz 02.25.15 at 7:57 am

“In a context where the primary deficit target has been relaxed to an unspecified degree, it’s going to be relatively easy to identify offsetting savings without much of an impact on aggregate spending.”

Can you clarify what you mean here? Even though they got a vague change to the primary deficit target they also pledged that any changes they make will be fiscally neutral; doesn’t that lock them into exactly whatever budget trajectory Greece was already on before? And if they identify an offsetting spending cut doesn’t that by definition mean the pension increase will not increase aggregate spending? (Also how is it easy to identify any savings at all given how the Greek budget has already been slashed and burned, and Independent Greeks probably would refuse military spending cuts?) Or do you mean they could identify fake savings through accounting tricks which the EU would decide to ignore?

24

PlutoniumKun 02.25.15 at 8:12 am

As others have said, the situation is extremely complex, so its quite difficult even to see who has ‘won’, if that the right way of seeing it. I’d echo Bob’s link to Naked Capitalism – they produce by far the most comprehensive and (despite being an overtly left wing blog), least ideologically blinkered overview.

My first thoughts were that Syriza was the comprehensive loser, but over the last 24 hours I’m not so sure. I think they realised there was no possibility of progress on such a short timescale and have beaten a tactical retreat, while leaving themselves largely intact. The key ‘victory’ I think they have won is that they have managed to force the Germans, or more specifically Schauble, to overplay their hand. To achieve a long term victory, Syriza must isolate the austerians from mainstream pragmatic opinion. They must shift the strategic Overton Window, in other words (the fact that they have had so much sympathetic coverage in the likes of the FT and Telegraph is significant I think). Germany may be a hegemony within Europe, but Syriza knows that the one thing Merkel will not do is act in public like one. If faced with losing the support of the core European states, Merkel will back down. Germany has already overplayed its hand dangerously in the Ukraine.

In military terms, sometimes the best strategy is to withdraw with your forces intact, and instead focus on a longer game of weakening and dividing your opponent. Call it the Michael Collins/Chairman Mao/Ho Chi Minh strategy (just to ensure the Jacobins know what its about). I think – taking the optimistic side – this is what Syriza have done. I think its quite likely that the European situation – with possible major events upcoming in Ukraine, Italy and Spain, could put them in a much stronger position come the summer and autumn. I hope I’m not being too optimistic about this, but I do think Syriza has come out of these negotiations stronger than most commentators have assumed.

25

Markos Valaris 02.25.15 at 9:30 am

while the Eurogroup conceded only what was going to happen under all scenarios, since Greece was going to miss its targets whether they agreed to do so or not

This may be true, but they were still going to *try* to meet those targets. Measures including a doubling of the lowest VAT rate and further pension cuts were in the pipeline but now got called off. That’s a win.

In fact it is very likely that the main reason the previous government brought forward the presidential election, thus causing the snap general elections, was that they did not believe they could get such measures through parliament.

26

reason 02.25.15 at 9:57 am

Judging by the German press Schäuble didn’t give ground, Merkel stepped in. I’m not sure they weren’t always playing bad kop, good kop.

27

hix 02.25.15 at 10:46 am

Authoritarian i think is a fair characterisation of Schäuble, nationalist rather not. My estimate is hes not a nice person or one i would share much political opinons with. The US characterisation is still just completly wrong. To think the EMU is about German nationalism for a start is completly off in a very weird way. While hes not into changing his non existing own opinon within a second quite like Merkel, most visible Schäuble is definitly his job role, not his personality (whatever that might really be, always hard to guess).

Note that Greek Euro membership is mainly challenged from the right side of the political spectrum in Germany. It also looks like the more the AFD is moving towards a libertarian/ethnocentric mix that already has been sucesfull in almost any other European country (FPÖ, PVV, UKIP…..albeit not Le Pen in France, thats more classical right wingery, the more sucesfull they become).

28

Jesús Couto Fandiño 02.25.15 at 10:53 am

If Syriza is waiting for help from Spain they will have to wait a bit and endure a lot of attacks in the meantime.

The PP is scared shitless of what any Greek win (even if it is purely on the moral high ground/martyr complex wah) may represent for Podemos, so it is its #1 priority that Syriza is humiliated and brought to the fold of “there is no alternative”.

29

otto 02.25.15 at 11:23 am

All modern negotiation analysis requires the separation of “win-win” elements from “win-lose” elements, both of which are present in almost any deal from buying a used car to structuring a monetary union. It’s not very useful to claim that a negotiation is just one or the other.

30

Ben 02.25.15 at 11:51 am

If it is about the Troika retaining dominance, then end of primary surpluses are a Troika win not a Syrizia win, because this reinforces the dependence of Greece on continued funding.

As I said before, the only reason not to default I can think of is a large bribe of one form or another. I expect when the dust settles that Greece will owe more money than they do now, and the additional amount will never be repaid either. (If one was planning to default, claiming loudly that one has no such plans would be necessary to prevent capital flight so I would not take at face value the Syriza pronouncements that the want to stay in the Euro).

I was in France last week and I was struck that the Euro notes have the word in the Greek alphabet too. It would be very embarrassing for the project if Greece left. Is it embarrassing enough for the Eurogroup leaders to bribe them to stay?

31

Trader Joe 02.25.15 at 12:31 pm

The view from the markets probably most closely resembles JQs, which is to say Syriza achieved a modest victory. The Troika’s unwillingness to hold absolutely to a hard line, in the view of many, takes Grexit off the table to a pretty substantial degree. The very positive reaction across Greek debt and equity markets amounts to a reasonably effective voting machine.

The weighing machine will take more time to operate.

The message I get from the deal is that yes, the Troika still holds the hammer, but they a) choose not to use it now and b) probably won’t use it in the future as long as talks are constructive. The comparatively moderate gives and takes of each side belie rhetoric which was far more polarized.

I agree also with comments upthread that the #1 think Syriza won was a bit of time. They didn’t have a lot of time between election and potential default to construct much more than an ad hoc strategy to address policies with multi-year dimensions. IF they use the time productively, they managed to kick the can forward 4 months and can likely more effectively choose what to barter to achieve more of their plaform aims.

The last comment I’d add is that, if Syriza can continue to deliver 4 months of surplus they gain a little bit of negotiating credibility and potentially can use this to purchase a few more consessions on austerity.

I don’t know that anyone blinked. I think Syriza played to a reasonable draw and has now called “time-out.”

32

Ronan(rf) 02.25.15 at 1:54 pm

Personally, I think who ‘won or lost’ is a little beside the point. These negotiations are part of an ongoing process of trying to work out how much space for independent policy decisions peripheral countries will have in the Euro, and what sort of developmental strategies they’ll be able to follow. It is fundamentally about advanced northern european economies and underdeveloped southern european economies trying to come to grips with the reality that both exist at different levels of development, which means both groups require different policy mixes, and trying to square that circle. Ireland straddles this divide in that its political class has delusions to being a northern European country, whereas we’re not.
I understand this might be a little incoherent, but in my defence I’m spitballing and don’t really know what I’m talking about. I think there’s some sort of plausible story buil around my position though, if anyone wants to try and elaborate it.
Relatedly, I don’t know if Niamh posts here anymore, but afaik her latest research program looks specifically at the political economy of the european peiphery:

http://www.ucd.ie/geary/research/leadershipregulationandgovernance/thepoliticaleconomyoftheeuropeanperiphery/

(Obviously the above research program isnt responsible for anything I’ve said in this comment.)

33

William Timberman 02.25.15 at 4:21 pm

When I consider the Spanish and Italian reaction to all of this — clinging to the gunwales of the neoliberal ship of fools while kicking at the Greeks behind them who are trying to grab hold of their ankles — I have to think that, however drawn out the process of subjugation to the imperatives of neoliberalism may be, it won’t end well. The social democrats of Europe, like the Democrats of the United States, have already declared which side their bread in future will be buttered on. The rest of us will wait, eyes glittering, just outside the reach of their still quite impressive fire. If the guy with the poker falls asleep, you know what will happen next.

34

William Timberman 02.25.15 at 4:25 pm

And if you think that there ought to be a limit on how many metaphors are included in a paragraph, I ask you how many graphs you think it would take to prove that the people of Greece are getting what they deserve.

35

William Timberman 02.25.15 at 4:41 pm

My second comment above will make more sense — I hope — when my first is released from moderation.

36

Roger Gathmann 02.25.15 at 4:55 pm

Isn’t this how the Eu always works? Compare the threats and compromises here with the way Germany remained in defiance of its Maastricht treaty commitments for 8 out of 10 years since 2002: https://www.creditwritedowns.com/2012/07/germany-government-debt.html

But nobody was talking about a Deutshexit. I am hoping that in four months, the Greeks will go back to the table with conditions of their own on the pace of “reform” – attaching it to the diminution of unemployment. Gettng the EU to recognize unemployment as a defining factor in any package of debt relief would be an excellent tactic, I think, and just in time for the elections in Spain, as JQ points out.

As in golf, one must score against handicaps. Syriza should be given a large handicap, given the clueless governments that preceded them and that basically followed the Irish way – let the banks, the Imf and the EU run roughshod over the people. Considering the handicap, I think the Greeks are playing very well. But the game isn’t really about winning over the EU but restoring the lifestyles of the vast majority of the Greek population. This is the only thing that counts.

37

Roger Gathmann 02.25.15 at 5:43 pm

ps – I do wish the term austerity was canned. Every country in which austerity is tried experiences massive increases in debt. I would call it more something like the LBO strategy. Just as Miliken and his henchman would roll a firm by supporting some mook who would buy it and put the cost of the purchase on the company, increasing its debt, in order to justify cannibalizing it and destroying the labor force, the LBO policy in Europe is to use debt as a weapon – not against countries, but against the old enemy, labor. The upper 10 percent in all the depression countries – Ireland, Portugal, Spain, Italy, Greece – are always with the “austerians”. It is a dream come true. For the Greek plutocrats, it is almost as good as the junta. And just as with LBOs, the advisors , camp followers and leaders all come from the speculative sector – finance. Its bold for, say, Germany, with a bank system that was saved from its own incompetence by the Fed, to turn around and lecture other “nations” – but LBO ideology depends on pressing its paradoxes into the face of the working class and making them eat it.

38

dbk 02.25.15 at 6:09 pm

As bob mcmanus@7 noted, Yves Smith (nakedcapitalism) has been providing a detailed blow-by-blow since negotiations started – 1 or 2 full posts a day plus lots of links (under Grexit). Her coverage has been even-handed. Although no proponent of neoliberal austerity, she didn’t award many (any?) brownie points to Varoufakis. Other places I check daily include the twitter feeds of Frances Coppola, Paul Mason (Channel 4’s economics reporter, who knows Greece from the inside and has high-level access to the government). Both Coppola and Mason publish longer pieces as well. And dsquared’s twitter feed, of course.

This seemed a compromise from which both sides departed in displeasure, although for different reasons. I think it was more teeth-gnashing and bullet-biting than blinking.

For those of us here, we’ll need to follow the Greek Parliament’s legislative program closely over the next few months, both in terms of priorities and specifics. Now that everybody’s back from Brussels, MPs are going to be very busy the next few weeks.

39

dsquared 02.25.15 at 6:41 pm

Ireland straddles this divide in that its political class has delusions to being a northern European country, whereas we’re not.

Ireland has the exact opposite delusion. It’s one of the richest countries in Europe, with gdp per capita higher than France, but it thinks that it’s not only a poor country that can’t be expected to pay for its own bank bailouts, but an industrial backwater that can’t possibly compete unless it hands out massive corporate tax breaks.

40

dsquared 02.25.15 at 6:44 pm

Every country in which austerity is tried experiences massive increases in debt.

To say nothing of the Baltic states, the term was actually coined to describe the policy of the UK in the 1945-55 postwar period. This kind of wild exaggeration doesn’t help the case.

41

Ronan(rf) 02.25.15 at 6:58 pm

But isn’t Ireland one of the richest countries in Europe because they followed a developmental plan based around attracting foreign investment ? Corporate tax breaks were only one part of that (whether they were right or wrong, morally or practically, I dont really know. Nor care about the morally part, I have to say. )
I’m going by Sean O Riain’s new book ‘the Rise and Fall of Ireland’s Celtic Tiger’, where he argues that the underlying structure of the Irish political economy is closer to that of the Southern economies than Northern:

“This is rooted in large part in Ireland’s failure to develop a system of innovation, a set of institutions and policies thatcould support a dynamic indigenous industrial sector. This was cause by a number of complex factors. Most fundamentally Ireland failed to make a transition from an agricultural economy to an industrial economy.”

He goes on. I havent finished the book yet, but that’s his point, more or less. (they became reliant on foreign investment and brokerage politics because they missed out on the post war corporatist political economy that developed in western europe)

42

hix 02.25.15 at 7:13 pm

Who better suited than Americans to lecture Germans they shall not lecture Greeks because they saved incompetent German bankers ugh, thats rich.
[one kind of incompetence German bankers seperates from American ones is that they were slightly more honest and thought American ones would be so to – not that this means they are honest by non finance standards]

43

Ronan(rf) 02.25.15 at 7:46 pm

Continued from O Riain’s book to clarify his argument, apologees for length and parochialism:

“There are of course significant differences between the various countries, but a number of key patterns can be noted. Ireland lagged behind other small open economies in (primarily public sector) social services and industrial employment. The figures also show that Ireland’s share of employment in agriculture and construction remained relatively high, mirroring the Med countries. FIRE was prominent within the employment structure, similarly to the liberal group of countries…..(ME :continues in this vein)
Ireland made some progress in some ‘leading edge’ sectors….but still clearly bore the imprints of having missed two key revolutions in european capitalism. The first was the manufacturing exports boom of he ‘Golden Age’, while the second was the major expansion in public social services through the post war decades and beyond. Despite the evidence of ‘convergence’ on european norms in income and, to a lesser extent, employment, this analysis suggests that under development of manufacturing exports and social services over the decades has never been overcome in Ireland….Even after the Celtic Tiger years, Ireland remained an incomplete model of development and european convergence, running ahead of the med periphery in terms of structural transformation and income, but remaining significantly behind the continental economies..in terms of employment in key privaye and public sectors.”

44

Kindred Winecoff 02.25.15 at 7:51 pm

RG @35,

There’s a pretty big difference between a) Germany not operating within the Maastricht criteria but being able to pay for it using their own credit rating and b) Greece asking for the Eurosystem to fund part of their government because they cannot find anyone else willing to lend. It’s not that the Troika is demanding primary surpluses just because Greece is violating Maastricht, which is obvious because similar demands were not universally made despite nearly every EMU economy violating the Maastricht terms at some point in the past 5 years. The Troika is demanding primary surpluses for Greece because they want to pay as little out of pocket for Greece’s obligations as possible, whether they be pensions or bank bailouts, and if possible they wouldn’t mind having some of their previous loans paid back.

45

john c. halasz 02.25.15 at 7:57 pm

@38:

As everyone knows, certainly in Ireland, because of its corporate tax haven status, there is a large gap between Irish GDP and GNI. In 2010, the figures were $40,400 ppp and $33,500 ppp respectively, a difference of about 17%. In GNI terms, Ireland is on a par with France, though there might be large differences in structural and distributional terms. Certainly, Ireland is relatively wealthy, but not much more so compared to its EZ peers. So it would be hard to call the Irish, given the recessionary conditions that they are laboring under, “delusional”.

46

Roger Gathmann 02.25.15 at 8:35 pm

39, the Baltic countries are a counterexample?
http://www.tradingeconomics.com/latvia/government-debt-to-gdp

“Latvia recorded a Government Debt to GDP of 38.10 percent of the country’s Gross Domestic Product in 2013. Government Debt To GDP in Latvia averaged 22.40 Percent from 1999 until 2013, reaching an all time high of 44.50 Percent in 2010 and a record low of 9 Percent in 2007. Government Debt To GDP in Latvia is reported by the Eurostat.”

So we are to think that the climb from 9 percent to 44 percent was not a massive increase in debt. This is of course what I mean by a smokescreen. Authoritative utterances are rolled out that are utterly contradicted by fact. The same kind of propaganda was used during the LBO years, with marvels reported about the efficiency of companies that were staggered by the debts accrued by those who bought them.

“the term was actually coined to describe the policy of the UK in the 1945-55 postwar period. This kind of wild exaggeration doesn’t help the case.”

Furthermore, I doubt anybody using the term austerity is thinking of the UK in the postwar period. And what case is being helped or not helped? The case against this very shabby period in European history in which the banks are treated to the easiest terms in the world, while the consequences of their reckless actions are left to the citizenry? Or is it the case that “austerity” isn’t being used to knock down the social insurance societies that grew up in the post cold war period? Actually, I think I am describing the case in the coldest way possible. The choice, in 2008, was to actually shrink financial sectors, reregulate them, reregulate capital flows, eliminate the system – which banks like HSBC have been expert at – at hiding money for the top income brackets, and instituting full employment policies that should have been instituted in Europe since the 90s – or to allow things to reset to 2007 and continue a tendency that pays no benefit whatsoever to the vast majority.
The Baltic example is one of good clean fun. Latvia has improved immensely, especially as it has shed its population faster than the downturn in GDP, which makes GDP per capita look awful good. It is rather like proclaiming that Ireland, at the end of the potato famine, had at last turned the corner and was becoming more efficient.

47

dsquared 02.25.15 at 8:49 pm

It is rather like proclaiming that Ireland, at the end of the potato famine, had at last turned the corner and was becoming more efficient.

I see nobody agrees with my suggestion about wild exaggeration.

Ronan – very interesting, thanks. But Irish agriculture *is* industry, in a lot of important economic senses. The country has a huge comparative advantage in some kinds of farming.

48

Roger Gathmann 02.25.15 at 9:07 pm

46, you are right. In the five years of the Irish famne, the population decreased 30 percent. In Latvia, over the period from 2000 to 2010, the population shrank by 13 percent. That’s less than half the Potato famine, nothing to worry about. By 202o, the population, which is now 2 million some, is projected, by the ministry of economics, to drop another 400,000 – now there we are getting some good efficiency! That, combined with the current deficit of 38 percent of the GDP – in a triumph of LBO-ism, the deficit has actually shrunk a big six points in five years! – should make for a showcase of current EU policies.

For they can always say, let’s not wildly exaggerate. At least it is better than the Irish Potato Famine!

49

dsquared 02.25.15 at 10:24 pm

Certainly, Ireland is relatively wealthy, but not much more so compared to its EZ peers

Give over. “You can’t expect us to be able to pay – we’re not all that much richer than you!”.

50

Markos Valaris 02.25.15 at 11:22 pm

This, OMT, QE, the revised S&G pact, the EFSF… For such an “authoritarian” guy, he doesn’t half seem to compromise a lot, doesn’t he? How many more major political sacrifices would Germany have to make before people started to think that their lying eyes were right and The New York Times‘s amateur national psychologising was wrong

I would add to your list the fact that Germany’s position on debt mutualisation has gradually shifted from “no way, not ever” to “not yet, but eventually yes”. Any analysis that fails to take into account how deeply committed the European political elite (and much of the population) is to making the euro work starts off on the wrong foot. Krugman for one has acknowledged making this mistake.

Obviously everyone would like someone else to pay to make it work, hence the bickering.

51

Markos Valaris 02.25.15 at 11:37 pm

It’s one of the richest countries in Europe, with gdp per capita higher than France, but it thinks that it’s not only a poor country that can’t be expected to pay for its own bank bailouts

On the other hand this reflects much of what (justifiably, IMHO) frustrates people like Krugman and Wren-Lewis.

Ireland went through a deep recession, with per capita gdp now lower than in 2004 (and actually, surprisingly to me, contracting in 2014) while unemployment remains above 10% (these are not among the richest people in Europe I bet). Did it have to be that way?

New York is one of the wealthiest places in the world; what would happen if it were expected to pay for its own bank bailouts?

52

dsquared 02.26.15 at 12:34 am

with per capita gdp now lower than in 2004

I’m very suspicious of GDP comparisons to the bubble period (you might have seen me on Twitter incoherently babbling with rage at those charts which aim to show the Greek recession as being worse than the First World War). In 2004, it doesn’t seem to me to be at all unreasonable to guess that ~10% of Ireland’s GDP was accounted for by the construction of buildings that shouldn’t have been built.

If we’re doing GDP comparisons, I think they need to be to a pre-EMU trendline. On that basis, Greece is basically back bang on the trend. Ireland is a difficult one because the Celtic Tiger boom began before EMU; it’s back on a log-trend extrapolated from 1970-1990, but way below one extrapolated from 1970-1999. I think the first would be a more valid comparison because the 90s saw a step change in the Irish labour force (basically, women) and that can’t happen again.

The unemployment figures are much more useful as a measure of wasted potential output (and potential for recovery), but they aren’t a measure of debt servicing capacity.

I think it’s pretty clear, though, that Ireland could and can afford its bank bailout (this wasn’t as obvious at the time but it is more so now) and so it doesn’t seem unreasonable to me that the rest of Europe should expect them largely to do so. Since the Irish bailout had favourable externalities for the rest of the EU, this should based on subsidised financing terms, which is what they’re doing, but it needs to fall mainly on the Member State which was responsible for it as much as possible. Otherwise (since Ireland was not exactly keen on sharing the fruits of the property bubble with the Ruhr rustbelt) you’ve got a system under which booms are national but busts are European, and that kind of sharing of profits vs losses creates really bad incentives, as people have noted in other contexts many times.

53

Roger Gathmann 02.26.15 at 1:16 am

52 – your accounting is very interesting. Here’s the formula: advocate a ruinous economic policy and then compare the ruin it causes to an edited past. I don’t like construction, so we will just take it out. In the same way, I don’t like, say, finance, or nuclear power, or coal, so we can ease those out of the GDP figures too, and pretty soon – with a little hocus pocus – we can say, proudly, that austerity has produced a huge boom in Europe.

However, this rosy picture is disturbed by the idea that it is all about nationality:

“Otherwise (since Ireland was not exactly keen on sharing the fruits of the property bubble with the Ruhr rustbelt) you’ve got a system under which booms are national but busts are European, and that kind of sharing of profits vs losses creates really bad incentives, as people have noted in other contexts many times.” This of course makes no sense. If the Irish builders weren’t borrowing from German bankers, than there would have been no boom. And that borrowing was, presumably, good for the German economy – unless of course German bankers were selfishly staying away from those poor squats in the Ruhr.

In fact, of course, the German worker has been getting screwed, increasingly, since the neo-lib reforms of the late nineties, and the medium wage has stagnated, Americanly, all through the austerian boom. I doubt that this situation is going to be remedied by the fact that the Irish state – in cahoots with the EU – decided to back “their banks”, of which they took a very inclusive view. . In fact, the capital of all those banks is international. Banks are paid a lot to take risks. But in the new world, those risks are paid for by the people who never extended the money, to begin with – but of course, in the name of the poor steelworkers in the Ruhr. They must be awful appreciative of the Irish government! I bet the celebration of St. Pat’s day in Dortmund brings tears to their eyes.

54

dsquared 02.26.15 at 1:29 am

If the Irish builders weren’t borrowing from German bankers, than there would have been no boom.

Another popular Irish delusion. I kind of wonder if there has been some sort of Doctor Who thing going on, to erase the memory of Anglo Irish, Nationwide and the rest from the public consciousness.

But in the new world, those risks are paid for by the people who never extended the money, to begin with

Yes they did! Irish depositors, Irish borrowers and Irish taxpayers are, by and large, different names for the same group of people. The Irish property bubble was, to a first approximation, funded by the Irish deposits of the Irish banks. The extent to which foreign flows contributed wouldn’t have made much of a difference.

Oddly, Icelanders don’t seem to make this mistake – they know that the Icelandic bubble was an Icelandic bubble. I think it’s probably because they did actually have a series of criminal trials.

the Irish state – in cahoots with the EU – decided to back “their banks”, of which they took a very inclusive view

And of course they didn’t. Five banks were bailed out – Irish Nationwide, Irish Life & Permanent, Bank of Ireland, Allied Irish Banks, Anglo Irish. You might notice that all of them have either the word “Ireland” or the word “Irish” in their name. It amazes me how much rewriting of history has gone on here, in what Irish media often refers to as “The European banking crisis, centred on Ireland” (presumably following on from “the European Dublin Property boom, centred on Ireland”).

Anyway, this is off topic from John’s post, except in as much as it does speak to a big part of the problem here being that people have sneaked a look at the answers in the back of the book and realised that they need to find a solution in which Germany pays the bills. So they’ve started working on the rationalisations, in the knowledge that they want to come up with a version of history in which it was Germany which screwed up the Greek sovereign deficit, the Irish property market, the Spanish property market and the Italian political system.

55

Bruce Wilder 02.26.15 at 1:32 am

Mistakes were made.

56

The Raven 02.26.15 at 2:23 am

dsquared@54: “…they want to come up with a version of history in which it was Germany which screwed…”

Wasn’t the central screwup the Euro and the dependent screwup Euroausterity? And Germany pushed hard for those. Schäuble pushed hard for those. The countries had separate markets and currencies for reasons and bashing them together in the Eurozone was a Very Bad Idea.

57

Roger Gathmann 02.26.15 at 2:30 am

53 – Here’s the footnote from the NERI working series: http://www.nerinstitute.net/download/pdf/neri_wp20131_private_bank_debt_public_finances_.pdf

“For example, data provided by the Bank of International Settlements in March of 2011 show that
in Ireland, in the third quarter of 2010 (just prior to the bailout and in the same period as funds
were flowing out of the Irish banks), total foreign bank exposure including banks in the IFSC was
US$156.3 billion of which $57.8 billion related to German banks and $37.4 billion related to UK
banks. Only in Spain did German banks have a higher exposure, at $85.8 billion, in the third quarter
of 2010 (Bank of International Settlements, 2011). In the first quarter of 2012 total Germany bank
exposure in Ireland had fallen to $18.2 billion while in Spain it was $45.9 billion.”

What does that mean, exposure? It means that the Irish Nationwide, Irish Life & Permanent, Bank of Ireland, Allied Irish Banks, Anglo Irish were vehicles through which German banks invested in the Irish economy. I mean, this game of three card monte is threadbare. It lacks credibility. The Troika would never have been set up in the first place if German, British and French banks weren’t hugely exposed.

Again, it is the banker’s idea, when times are booming , that nations are archaic remnants of the cold war era and must get out of the way of the new international flows in capital, and in bad times, they forget all about their previous propaganda. This is about class interests. The argument about the immoral Irish housebuyer or the profligate Greek is really the same argument that was expressed by Rick Santelli in the rant that started the tea party. It is a special juncture of morality and economics homebacked for the rentier.

58

Kindred Winecoff 02.26.15 at 2:46 am

@56

A bizarre statement. Germany absolutely did not push for the euro. The euro — and European integration more generally — has always been an attempt by the Continent to prevent outright German regional hegemony (for an in depth treatment that essentially predicted all of this before the fact see Oatley 1998, *Monetary Politics*, U of Michigan Press). Germany has gone along with it for a variety of reasons but only if certain conditions were met, the chief one being that they wouldn’t be on the hook for all of Europe’s problems indefinitely. Hard Keynesianism wasn’t enforceable, so the only way to ensure that was through institutionalized austerity.

Incidentally, this is why all previous European exchange rate pegs failed, which was the whole motivation for euroisation and also a big part of why Britain refused to join. At the time German discipline was perceived as being a very good thing, and something that would help other European economies. Greece begged to be let into the euro and cooked the books to make it so. If Greece were located on Wall St rather than the Aegean most of this thread would want them in the stocks.

To take this back to the OP, this is what Syriza has to contend with. And if this is portrayed as a battle between Germany and the Rest then Germany will win. Which is why Syriza has worked pretty hard to not leave that impression.

59

John Quiggin 02.26.15 at 3:10 am

@54 The big deal in Ireland was the commitment to protect bank bondholders, who should, on the standard rules, have lost every cent. Google produces the following list for Anglo-Irish

http://www.irishcentral.com/news/list-of-bondholders-in-anglo-irish-bank-leaked-110903209-237728261.html

which contains many instances of the string GmbH.

But I don’t think the national issue is incredibly helpful, except as a counterpoint to the North European delusion that they are being made to pick up the tab for the failings of people in the periphery. As this instance shows they are bailing out lenders, mostly North European, who made bad loans. The money is sent by way of peripheral governments, but none of it stays there.

The real problem here isn’t individual borrowers or lenders but the post-Bretton Woods system of financialised capitalism as a whole. Given that the Troika,Fed, US Treasury etc are doing their best to preserve that system, regardless of the costs to the public at large, they deserve the opprobrium they get.

60

dsquared 02.26.15 at 3:16 am

Kindred is dead right above. In context, “Germany pushed hard for austerity” just means “Germany tried to a set a definite limit on the extent to which it had to finance other people’s budgets”. In actual fact, that limit turned out to be too low – in the sense that if Germany had taken bigger risks, the overall outcome might also have been better. But even if you’re correct in blaming the fire department for sending two trucks instead of three, you still need to ask the question of who actually started the fire.

61

dsquared 02.26.15 at 3:31 am

The big deal in Ireland was the commitment to protect bank bondholders, who deserved to lose every cent

I also disagree with this; in particular with the implicit idea that this would have had no consequences at all for Ireland in the short or long term.

In the long term, while I personally find the “we have to be a tax haven because otherwise our educated, English-speaking population simply can’t compete in a modern economy” argument to be a bit laughable, it’s clearly in Ireland’s interests to be a place where the rule of law operates and the commercial environment is stable. To have burned the bondholders would have required them to carry out an overnight change in Irish company law (to, ex post, strip bondholders of their status as creditors pari passu with the depositors), and one that was pretty specifically aimed at robbing foreigners. That sort of thing doesn’t really seem consistent to me with Ireland’s longer term development strategy.

But in the short term … oyyyyy! Remember that Ireland’s budget was at the time in large primary deficit, and that no private sector investors were prepared to buy the bonds. So Ireland’s government financing was more or less entirely dependent on the troika, which means that it was entirely dependent on approval by the Bundestag.

If your government financing depends on the agreement of the Bundestag, is it a good idea to unilaterally change domestic law to cause a financial crisis for your biggest creditor? Ireland’s number one priority at that time had to be to preserve its ability to borrow from Germany and France. Burning Germany and France would have immediately turned that financing into a political impossibility (or as we call it in European politics, “an impossibility”).

This isn’t like LDC or emerging markets finance. Not even for Greece, and Ireland is a much more developed and financialised economy than Greece. The counterfactual case that people seem to be judging things against (one in which Ireland reneges on its previous commitment to support the banks, but still keeps just as much external financing) is something that couldn’t have happened.

As this instance shows they are bailing out lenders, mostly North European, who made bad loans. The money is sent by way of peripheral governments, but none of it stays there.

Twitter users will also have seen me ranting about this one. If Crooked Timber had a whip-round to pay my mortgage off, I think people would be a bit surprised if instead of saying “thank you”, I said something like “Well, you’ve done nothing for me. All that money went to shore up the profits of HSBC plc, just using me as a conduit”.

It’s the nature of debt crises that they tend to happen to people and countries who have a lot of debt. Again, the fact that the majority of the bailout package ended up being spent on debt service is a result of past Greek borrowing levels, not current troika stinginess. The size of the package was determined by the size of the debt burden that needed to be serviced. What Greece (Ireland, etc) got out of it was the ability to limit the damage done to their credit in the long term, which is a very valuable thing.

The real problem here isn’t individual borrowers or lenders but the post-Bretton Woods system of financialised capitalism as a whole.

I’m not sure I agree with this either, but to the extent that it’s true, I don’t think that Ireland can be completely exonerated from having had anything to do with it.

62

Bruce Wilder 02.26.15 at 3:32 am

john c. halasz @ 45

Indeed, Ireland appears to be in a statistical shadow of some sort. Some other discrepant statistics make the point more dramatically than the difference between GDP per capita and GNI per capita.

Eurostat tells us that Luxembourg leads the EU in GDP per capita — it’s simply off the charts at a factor of more than 2x the EU average, but Eurostat helpfully allows that high-income foreign “residents” contribute to GDP but are not part of the resident population. (Yeah, really, they say that, without the scare quotes.) In the Number two spot is Netherlands, followed closely by Ireland!

If we turn to the OECD’s statistics on average (not median, mind) wages, we find (2012) Ireland in the top rank, with an average disposable income, ppp adjusted and all that, close to $50,000. That puts Ireland ahead of the U.S. (at $45,000), sandwiched between Switzerland and Luxembourg.

In 2013, Gallup published survey data on median household income across countries. These were not the very large samples done by national governments, but still they were systematic by their own lights in their search for the mythical middle class across national boundaries. The usual suspects led the list, with Luxembourg ($52,493) in the top spot, near the Scandinavians and Australia. The U.S. ($43,585) and Canada were close behind. No big surprises — very plausible rank ordering: Germany ($33,333) near Finland and Austria, France ($31,112) near UK.

Where was Ireland? Ireland was 25th in the list at $25,085, below Slovenia.

As Tonto said to the Lone Ranger, what you mean, “we”, white man?

63

dsquared 02.26.15 at 3:35 am

I would also suggest that arguments of the form “Anyone who is such an idiot to lend to a basket case like me deserves to lose every cent they get, and then to have to lend even more as punishment for their irresponsibility in lending to the likes of me, and then to lose that too” are probably best made after having achieved a fairly substantial budget surplus, rather than as part of the argument for a further lending program.

64

john c. halasz 02.26.15 at 3:39 am

@49:

Umm… this has happened repeatedly. You mis-state basic facts, then accuse others of playing fast-and-loose with the facts and being prey to some sort of delusion, with a tone of arrogance and condescension. And then when corrected, you respond with a mixture of tergiversation and deletion of said facts. Have you no self-awareness? Or sense of what makes for credibility?

For the record, I said nothing about whether Ireland should repay its debts. I simply pointed out that realistically, in crude per capita terms, Ireland is in the mid-range of EZ GNI. (I actually think that restructuring the terms of “repayment” would be beneficial all round, especially considering who actually the burdens fall upon, but I didn’t go deeper into the weeds, nor state a position on the matter that you felt free to project).

65

dsquared 02.26.15 at 3:41 am

Since Irish government debt is serviced out of the Irish tax base, GDP is the relevant metric, not GNI and definitely not median household income.

66

John Quiggin 02.26.15 at 4:26 am

It seems rather strange that an epidemic of irresponsible borrowing should emerge everywhere in the world at the same time. And even more unfortunate that the victims in every case were the trusting innocents running the major global banks. Just lucky for them that central bankers, regulators and others seem to have a lot of empathy for their situation – you might almost think they were the same people.

67

dsquared 02.26.15 at 4:51 am

the trusting innocents running the major global banks

You’re joking, obviously, but actually there’s a serious issue here. For the entire period of EMU, everyone was allowed to believe, and in many cases explicitly told, that the EMU members jointly and severally guaranteed each other. Well into 2011 (this is another thing everyone except me seems to have forgotten – luckily I was writing a daily research note about it so I can check my files), the official position of the German government was that it was inconceivable that an EMU member state would be allowed to default. I just don’t accept that taking governments at their word is evidence of culpable naivete.

And going to a much deeper point of economics, as you know the “epidemice of irresponsible borrowing” represented the market responding to the price signal of lower interest rates. But what would the world look like if banks didn’t respond to lower interest rates by increasing lending? Answer: it would look like Euroland in 2013, ie pretty bad. If monetary policy has been set to expansionary, then lending is going to expand, and if the banking system had actually followed this policy of being so prudent that they reversed the policy chosen by the ECB, then some other method would have been found to get the credit into the economy (my evidence for saying this is that it is what was actually done).

This is a great example of a Zizekian “unknown known”. We got a property bubble because we wanted one.

68

Peter K. 02.26.15 at 5:17 am

Looks to me like the Troika blinked or rather Angela Merkel blinked. Otherwise Greece would have been kicked out of the Euro zone for unilaterally demanding a better deal.

Of course the Euro governments could kick Greece out for asking for too much in four months. And I read that each government needs to vote on the deal by Friday. It seems like the Finance ministers and Eurogroup had the backing of the national governments in their negotiations, at least for the four month breather.

JQ could be right. This might be the beginning of the end of austerity. More fronts could open up in Spain, Ireland, and Portugal. The ECB will be getting it on the economic and political front. On the economic front, as JQ pointed out, Draghi just did a trillion euro QE to try to stave off deflation as the European economy sinks. Negative interest rates in Sweden, Denmark and Switzerland? On the political front, anti-austerity governments could be pushing back against the demands of their lender of last resort.

For Greece and Syriza, the war will be won if they can stem the humanitarian crisis and bring unemployment down. Either the Troika gives in to their reasonable demands of a one percent primary surplus and scrapping thirty percent of the austerity measures – if Syriza manages to do some work on their end to improve the budget situation – or Syriza shouldn’t agree to the bailout agreement. There may be creative ways to bridge some of the gap.

Either Greece is allowed to grow which will help them pay down the debt more quickly, or they shouldn’t sign the long term agreement. They shouldn’t blink. I just don’t see Syriza caving completely. Merkel doesn’t want to preside over the fragmentation of Europe.

I hope Syriza is successful not only in turning around Greece, but also in turning around Europe. As an American I was hoping a social democratic United States of Europe would be able to provide a check on and counterweight to the United States of America. It would be a shame if it fell apart because of the faulty reasoning that we’re seeing from the likes of Schauble, dsquared and Kindred Winecoff.

The Eurocrats need to make some sort of fiscal union otherwise the whole process will repeat itself in future decades. The savers in Northern Europe will make stupid loans to the periphery and after the bubble pops, the money will flow back out of the periphery leaving governments in debt and requiring bailouts.

For those who share the views fo dsquared and Winecoff, I’d recommend they read Michael Pettis’s “Syriza and the French indemnity of 1871-73.”

http://blog.mpettis.com/2015/02/syriza-and-the-french-indemnity-of-1871-73/

A sample:

“But didn’t Spain have a choice? After all it seems that Spain could have refused to accept the cheap credit, and so would not have suffered from speculative market excesses, poor investment, and the collapse in the savings rate. This might be true, of course, if there were such a decision-maker as “Spain”. There wasn’t. As long as a country has a large number of individuals, households, and business entities, it does not require uniform irresponsibility, or even majority irresponsibility, for the economy to misuse unlimited credit at excessively low interest rates. Every country under those conditions has done the same. What is more, even if the decision about the disbursement of the inflows could have been concentrated in the hands of a single, responsible entity, the experience of Germany after 1871 suggests that it is nearly impossible to prevent a massive capital inflow form destabilizing domestic markets….”

69

Kindred Winecoff 02.26.15 at 5:23 am

I typed out a whole thing on Ireland and then it was eaten. Long story short: the Irish government doesn’t regret its strategy of employing foreign capital to fuel domestic development, and in fact is doubling down. Why? Because it’s largely worked. The decision to guarantee the banks was part of a very long term developmental strategy, and any of the eurocrisis countries would gladly trade places with the Irish today.

Regarding lenders and borrowers (ie JQ @66) it surely isn’t a coincidence! It’s the same story since the end of Bretton Woods: current account surpluses get recycled until the imbalances are too hard to sustain and/or there’s a policy innovation in the core that cuts short the previous cycle. Latin America, East Asia, US, EMU… these are all part of the same story. Pablo Beramendi’s (Duke poli sci) recent work is very good in explaining why particular countries were borrowing to spend on housing this time, and Herman Schwartz (U Va poli sci) is generally good on the broader global structures, but the point is that none of this is very surprising: if some countries are trying to develop by accumulating surpluses then it is only rational for others to develop via deficit-fueled investment. S-I = X-M, after all.

Eventually this will have to unwind, and when it does both the creditors and debtors will suffer to a greater or lesser degree, but in the meantime quite a lot of development could have occurred. If it has the adjustment will be more easily manageable and far less painful than it would have been otherwise, while also leaving the level of development at a higher level than it would have achieved under other reasonable counterfactuals. This was certainly true of Ireland and many East Asian economies in the 1990s. It’s also been true of many surplus economies. But recycled foreign surpluses (ie CA deficits) could also be malinvested or consumed rather than invested. In that case not much real development might have occurred, and the accumulated debt will loom large.

All to say: Ireland and Greece are very, very different cases indeed.

70

Kindred Winecoff 02.26.15 at 5:46 am

@ 68,

You don’t have to tell me to read Pettis, who I’ve consumed extensively for many years. Nor do you have to lecture me via proxy about the role of macro imbalances, which I’ve always emphasized. I’ve consistently argued that it was micro-rational to lend and to borrow even if the macro consequences were suboptimal, and continue to maintain that this crisis is structural in a way that makes blame-assignation pointless and even counter-productive.

But listen: the whole left discussion on the EZ crisis is conducted in more-or-less Keynesian terms, in that it emphasizes the deleterious impact of austerity and the positive impact of demand-based multipliers. If the macro story is all about demand then it’s really weird to alluvasudden put the onus of imbalances on the supply side. And it’s even weirder to blame the suppliers for supplying too much and then harp on them for not supplying even more!

So maybe I should ask you a question: if the problem is on the supply side — Germany luring Greece into borrowing and spending against their own interest — then shouldn’t Germany stop lending to Greece at once? No? Well, then.

71

Nine 02.26.15 at 6:18 am

“I just don’t accept that taking governments at their word is evidence of culpable naivete.”

Excellent. All professionals in all professions should aspire dance thus gracefully in the face of failure.

“We got a property bubble because we wanted one.”
Yeah, we all killed the Kennedys.

72

Nine 02.26.15 at 6:21 am

“It would be a shame if it fell apart because of the faulty reasoning that we’re seeing from the likes of Schauble, dsquared and Kindred Winecoff.”

Isn’t this a bit too much ? I doubt the latter two have any influence on Schauble.

73

dsquared 02.26.15 at 6:22 am

The trouble is that the left discussion on the Eurozone crisis is conducted in terms of Keynesian economics per se, when it’s not actually about economics; it’s about politics.

Q:What’s the optimal deficit path for Greece?
A: “Whatever the Eurogroup is willing to finance”.

Assuming a relationship of trust under which Germany finances a slower adjustment path and Greece tackles powerful interest groups is a lot more unrealistic than assuming a can opener.

74

acv 02.26.15 at 6:35 am

“Assuming a relationship of trust under which Germany finances a slower adjustment path and Greece tackles powerful interest groups is a lot more unrealistic than assuming a can opener.”

The problem is, it’s not entirely clear to me whether you are talking about what *will* happen with the Greek crisis, or what *should* happen. And it often seems to me like you slip between the two with some frequency. But perhaps I’m just having difficulty understanding.

75

dsquared 02.26.15 at 6:50 am

The problem is, it’s not entirely clear to me whether you are talking about what *will* happen with the Greek crisis, or what *should* happen.

I’m trying to talk about what should happen, but taking massively obvious and unchangeable political constraints (like “finance ministries of democracies don’t take on open-ended commitments to fund other countries’ budgets without getting some political concessions in return”) seriously. If anyone thinks I’ve made a mistake in identifying what is a genuine constraint on the process and what is a value judgement about policy, I’d find that very interesting to discuss.

But without that, it seems to me that a lot of people’s alleged “solutions” are just real assume-a-can-opener reasoning ignoring big and important political realities and ending up with something about as useful as the annoying bloke at the left-wing political meeting whose answer to everything is “well, first, we have to build a viable socialist alternative”.

76

The Raven 02.26.15 at 6:58 am

dsq, as far as my quick research tells, Schäuble is a long-standing advocate of a unified currency in Western Europe, with a uniform banking system that, somehow, is managed on the model popular with Germany and neo-liberal policy. This seems to me the right-wing equivalent of the left’s advocacy of a planned economy, and ultimately as wrong-headed and destructive.

On another aspect of the problem, one risk I haven’t seen discussed is that both the German and Greek electorates might bolt to the right at even these modest compromises. The Greeks rightly fear more austerity. The Germans are, apparently, angry at the Greeks (and the Spanish and the Portuguese and the Italians) for the “heresy” of not believing in ordoliberalism.

On another aspect, it is very possible that Schäble and Merkel are only relenting so that they can punish the Greeks by dashing their hopes. I hope this is not the case, but the punitive policies that have been pressed on Europe seem to me to make it clear that there is a faction which believes very strongly in punishment. The thing people who hold such beliefs miss is that punishment only alters behavior in a desired direction when the people being punished respect the people doing the punishing as their superiors and just. Other than that, it fuels resentment and rebellion. I am reminded of the Bush II administration’s belief that they were the adults in room, when they turned out to be just jumped-up teenage boys. It is somewhat different in Europe, I think, but it does seem to me that the austerians see the Greeks as children to be made into bad examples.

77

acv 02.26.15 at 7:04 am

To be frank, I think that part of why I’m having trouble with the “pro-Troika” or “pro-austerity” position is that it reminds me of so many ill-fated “structural adjustment programs”. So many of those pushing it sound like Anon.! Cracking down on corruption or tax evasion is “empty populist nonsense”, whereas slashing pensions, cutting wages, firing civil servants, privatizing utilities, going after the dreaded unions, and deregulation are bold and necessary reforms! Moreover these are all described as “reform” or “economic reform”, with the implication that only an idiot would oppose them. And it’s all topped off with patrician sneering at the “poor” and “uneducated” Greeks. It’s as if the case for a more “liberalized” economy is somehow so obvious, it doesn’t even have to be made!

78

acv 02.26.15 at 7:07 am

“I’m trying to talk about what should happen, but taking massively obvious and unchangeable political constraints (like “finance ministries of democracies don’t take on open-ended commitments to fund other countries’ budgets without getting some political concessions in return”) seriously. If anyone thinks I’ve made a mistake in identifying what is a genuine constraint on the process and what is a value judgement about policy, I’d find that very interesting to discuss.”

Ok dsquared, that sounds reasonable.
And I agree that a fair of the critics haven’t really thought things through

79

acv 02.26.15 at 7:09 am

sorry a fair *number* of the critics.

80

Bruce Wilder 02.26.15 at 7:38 am

dsquared @ 65: Since Irish government debt is serviced out of the Irish tax base, GDP is the relevant metric, not GNI and definitely not median household income.

Ireland’s GDP is inflated by a policy of offering corporate tax shelters. The tax potential of tax shelters is severely limited by their nature as tax shelters. Ireland’s actual tax base is better represented by their median household income than their GDP.

81

Bruce Wilder 02.26.15 at 7:55 am

I would agree that much of the Left discussion is framed by an anachronistic Keynesianism. Neoliberalism has successfully used the Euro to prohibit fiscal policy and lock the liberal national state up in a cage, where it is toothless and molting. What we have is the reincarnation of the gold standard.

The neoliberals are going to get themselves into high moral dudgeon and argue, “there is no alternative!” ad infinitum. To the extent that the neoliberals have booby-trapped the obvious exits, they are right. “Just say no” is not a practical path, as the more realistic (in my uninformed estimation) factions of SYRIZA apparently recognize.

The Left is just beginning to think about the need to design and manage the institutions of money. It is not an idea that has much appeal on the Left, I guess. Maybe, that’s a fatal shortcoming.

82

reason 02.26.15 at 8:51 am

dsquared @63
“I would also suggest that arguments of the form “Anyone who is such an idiot to lend to a basket case like me deserves to lose every cent they get, and then to have to lend even more as punishment for their irresponsibility in lending to the likes of me, and then to lose that too” are probably best made after having achieved a fairly substantial budget surplus, rather than as part of the argument for a further lending program.”

The problem here is in a democracy, this becomes “Anybody who is such an idiot as to lend to my crooked uncle deserves to lose every cent they get, and then to have to lend even more to me as the only way to get anything back”.

83

reason 02.26.15 at 8:56 am

dsquared @52
“In 2004, it doesn’t seem to me to be at all unreasonable to guess that ~10% of Ireland’s GDP was accounted for by the construction of buildings that shouldn’t have been built. “
That should read 10% of Ireland’s GDP was accounted for by commissions on the sale of land at inflated prices.

84

reason 02.26.15 at 8:59 am

dsquared,
this whole discussion seems to be missing a major point. That Germany is obsessed with running a trade surplus, but at the same time wants to extract a surplus from debtor countries. The two things are incompatible. Ordo-liberalism is just another form of mercantilism, which is fatal in with a common currency.

85

reason 02.26.15 at 9:01 am

P.S. I think IN general, the discussion of this issue concentrates too much on the government deficit and too little on the trade balances.

86

reason 02.26.15 at 9:09 am

Adendum to @83
Did the BUILDING of houses contribute substantially to Ireland’s trade deficit in 2004? This is the key issue (and please abstract from who was providing funding for the building – ultimately the net balance depends on the trade balance). In general building materials (heavy, relatively low value per kilogram) and services are locally produced. People want and need better houses, and if the resources are available how is it damaging to produce them? The real problem is the distributional issue, that essentially the banks where middlemen for foreigners buying a stake in the land which extracted wealth from ordinary locals.

87

Daniel 02.26.15 at 11:15 am

The Germans are, apparently, angry at the Greeks (and the Spanish and the Portuguese and the Italians) for the “heresy” of not believing in ordoliberalism.

What is the basis for this psychologising? Is any explanation really needed beyond “The Germans, like many other countries, are not keen on policies which involve taking hundreds of billions of euros of their money and sending it to other countries, with a large chance of never getting it back and not getting anything in return”? That seems more parsimonious to me, and has just as much explanatory power.

In general, words like “punish”, “dash hopes” etc all basically mean “put limits on the amount they are prepared to lend”. There’s a sensible case to be made that those limits are too low, but this isn’t it – as Kindred says, people seem to be suggesting that German lending to the periphery was irresponsible and punitive and there should be much more of it.

88

Jesús Couto Fandiño 02.26.15 at 11:34 am

John Quiggin @ 66

Funny enough, we just had our anual farce of a State of the Nation debate here in Spain. In which the ruling idiot Rajoy spent a good chunk of time saying how his goverment avoided having to be rescued, which was “what the opposition was asking for”.

Absent from this self-agrandizement was the small fact that we got rescued. Oh, yes, the rescue was not of Spain per se… just of Bankia and friends, with Rajoy signing all the “if you want the money you have to consent to the BDSM” stuff. But yea, it was not “a rescue of Spain”, no sire.

89

Vasilis Vassalos 02.26.15 at 12:01 pm

Daniel,

Your depiction of the situation contradicts what you have written at the outset of the crisis: that the whole EU edifice was built on the implicit assumption that country debts will somehow be covered by the EU as a whole and (I add) that the ECB is a true lender of last resort. The fact that the treaty said otherwise (and that German people really wanted it the way the treaty was formally written) you suggested was officially and us officially obfuscated during the good times. Otherwise, Greece did not ever have the same risk profile as Germany, yet it borrowed with German rates for quite a few years, which is baffling. Now, when times got bad, two things happened: Germans decided they really wanted inflation at 0 and decided that the rule about ECB finding country deficits would be enforced rather forcefully. Greece would not be asking Germany for money now if a Germany didn’t control the ECB the way it does.

Now, of course claiming “why are you now of all a sudden asking me to play by the rules” is a rather weak argument. But at the same time it
S rather weak to claim that what Greece needs to breathe is actual Euros taken out of German pockets and transferred into Greek ones .

90

Vasilis Vassalos 02.26.15 at 12:02 pm

Us officially -> unofficially

91

Ronan(rf) 02.26.15 at 12:08 pm

Since I’ve helped throw this thread off kilter a little, a question (to anyone, sorry JQ if this is completly irrelevant) but what would have been Ireland’s options in 2008 if they hadnt been in the Euro (either the Euro didnt exist or they didnt join) I understand the crisis probably wouldnt have happened in that scenario, but hypothetically.
I dont really understand monetary policy, but the argument for non Euro membership seems to be Ireland would have had more leeway to do as they pleased on the debt (although I think Kindred’s right that *they did do* what they wanted on the debt, that there wasn’t really much support among the major political parties to not pay it) and that they would have been able to devalue the Punt, which would have done something or other (im not 100% sure) Was there a hypothetical softer landing there ? Was there any option for Ireland to not join the Euro, but to remain outside of it with the Punt pegged to it ? Would that have been a better option ? (a better option hypothetically, as again there was a good bit of support, at least among the political class but afaik also the population, for Euro membership)

92

Vasilis Vassalos 02.26.15 at 12:10 pm

I see that Daniel very conveniently recalls his long stated position that I referred to upthread at @67. Given this position, it’s extremely disingenuous to then say with a straight face “well, the very reasonable position of the German government is that they don’t want to lend even more of their hard earned money ” to another member state to finance their deficit.

If it was reasonable of the banks to assume that the German position was genuine, it was also reasonable for the Greek government. The banks were made whole for being let down when Germany changed its mind, the Greek people are suffering for it though and are being lectured. Nice one. Only one member of the transaction is culpable.

93

Ronan(rf) 02.26.15 at 12:29 pm

“Oddly, Icelanders don’t seem to make this mistake – they know that the Icelandic bubble was an Icelandic bubble. I think it’s probably because they did actually have a series of criminal trials.”

I don’t really buy this, tbh. I didn’t live in ireland for most of the crash, but as far as I could see most of the blame was put on domestic sources. Most of the protests were certainly over specifically local issues (cuts to the health sector, public sector pay, now water charges etc) which is also probably why they largely went unnoticed outside Ireland. I think most people recognised the major causes were domestic, for no other reason than people were more than aware of the specific local characters involved in all the skullduggery, and understand the way Irish politics functions.
At the time the Troika were in the country, the mood shifted a bit, and I think people were right to be annoyed, but still the blame was mainly assigned domestically afaik. Except perhaps from my demographic, which might fairly be called the chattering classes, but I wouldnt take them as representative.

94

Peter K. 02.26.15 at 3:26 pm

@70

” I’ve consistently argued that it was micro-rational to lend and to borrow even if the macro consequences were suboptimal,”

I don’t think you appreciate or understand the macro consequences fully.

“So maybe I should ask you a question: if the problem is on the supply side — Germany luring Greece into borrowing and spending against their own interest — then shouldn’t Germany stop lending to Greece at once? No? Well, then.”

The problem is that the hot money flowed into the periphery and then once the bubble popped, it flowed back out. The same thing happened with the East Asian financial crisis in the late 1990s – and the IMF came in with it structural adjustment programs and toppled governments like Suharto’s . So you’re suggesting they stop lending after the hot money flows out? Obviously not. It wasn’t a case of government profligacy as conservatives would have it. Spain’s government was in the black until the crisis hit.

China side-stepped the East Asian crisis with capital controls. After witnessing the misery inflicted on economies by the IMF’s SAPs, China loaded up on foreign reserves so that it would never, ever, ever have to go to begging to the IMF.

You would think after the Greek Debt Crisis and earlier Greek governments’ accounting shenanigans were exposed, Northern Banks wouldn’t lend willy-nilly to them any time soon.

The difference is that some of us believe creditors and debtors should split the pain and the losses. Others believe it should all be wrung out of debtors, like blood from a stone. It’s because creditors have captured the political systems (and why we now have deflation and lowflation). They’ve already weakened the bankruptcy laws in the U.S. They’ll probably bring back debtors prisons.

Governments should only do austerity and pay down the debt once their economies are running at full steam with the output gap closed and inflation is increasing. Otherwise it’s a waste. As JQ wrote in the OP, “expansionary austerity” is a myth. With the election of Syriza the people are recognizing this. Hopefully it spreads to Spain, Ireland, Portugal, Italy, etc.

95

Peter K. 02.26.15 at 3:40 pm

reason @ 84,

Not only is Germany obsessed with maintaining a healthy trade surplus, it’s obsessed with keeping inflation low. If Germany allowed itself higher inflation, it would make the adjustment process of the periphery easier.

As Krugman has pointed out, Germany made itself more “competitive” in the 2000s when the periphery had higher inflation rates. It was easier for them to adjust while they want the periphery to do it the hard way – with high unemployment and wage and price rigidities – with deflation. It’s kind of hypocritical.

96

Peter K. 02.26.15 at 3:46 pm

What’s great about the Internet and Crooked Timber is that we’re getting Irish, Spanish, Welsh, etc. perspectives. I would be interested to learn more about German domestic politics. I did a Google search for “Greek German split” in an attempt to learn more about the German split. Jamie Galbraith wrote

“At the end-game, remarkably, it was the German government that split – in public – with Vice Chancellor Sigmar Gabriel calling the Greek letter a basis for negotiation after Finance Minister Wolfgang Schäuble said it wasn’t. And that set up Chancellor Angela Merkel to make a mood-changing call to Alexis Tsipras. Possibly the maneuver was choreographed. But still, it was Schäuble who took a step back in the end.”

What my search produced was a Der Spiegle story about the conservatives splitting over a new Greek aid package during the recent election:

http://www.spiegel.de/international/germany/german-conservatives-split-over-aid-to-greece-ahead-of-campaign-a-918101.html

“Chancellor Angela Merkel would like to have completely avoided the issue of Greek debt and the country’s future this campaign season. But this week, Finance Minister Wolfgang Schäuble suggested that a new aid package would soon be necessary for the country. And suddenly, Merkel’s Christian Democrats (CDU) find themselves in the middle of a flare-up with their Bavarian sister party, the Christian Social Union (CSU).

Party head Horst Seehofer on Thursday was particularly adamant in rejecting further assistance for Greece. In comments to the Munich-based daily Süddeutsche Zeitung, Seehofer, who is also the governor of Bavaria, said “raising the possibility of aid in advance — it is out of the question. That destroys all willingness (in Greece) to do what is necessary. That isn’t good.”

CSU politician Markus Söder, who is the Bavarian state finance minister, likewise went on the attack, saying it is “completely wrong to demand a third aid package.”

Schäuble, a senior member of the CDU, said at a campaign event on Tuesday morning that Athens would need more financial assistance beyond the €230 billion it has already been promised to keep it solvent through the end of 2014. It was the first time a member of Merkel’s government had explicitly said that more aid would be necessary, though there had been plenty of speculation to that effect in the media.
…”

97

Peter K. 02.26.15 at 4:01 pm

It’s weird when the autsterians claim that Greece “didn’t try” these past five years.

http://www.cepr.net/index.php/blogs/beat-the-press/nyt-fact-checkers-go-on-strike-as-column-on-greece-gets-submitted

“The claim that the other three countries had similar austerity programs is wrong. According to the I.M.F.* the decline in the structural deficit between 2007 and 2014 was 6.0 percentage points of GDP in Ireland, 1.8 percentage point of GDP in Portugal, and -4.1 percentage points of GDP in Spain (the structural deficit grew larger over this period). By comparison the structural deficit in Greece was cut by 12.5 percentage points of GDP over this period, more than twice as large as the deficit reduction in Ireland, the most austere of the other three countries.”

* http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/weorept.aspx?pr.x=82&pr.y=14&sy=2006&ey=2015&scsm=1&ssd=1&sort=country&ds=.&br=1&c=182%2C174%2C178%2C184&s=TX_RPCH%2CGGSB_NPGDP%2CBCA_NGDPD&grp=0&a=

Greece tried “expansionary austerity” for five to six years. It didn’t work. So they elected Syriza to try something else. Syriza isn’t going to blink and return to the same old failed policies.

What do the austerians and Troika expect? All dsqured and Winecoff appear to say is

“either continue with the same failed policies or you won’t get *any* bail out money.”

If that’s the answer of the Troika then we’ll see a Grexit.

98

politicalfootball 02.26.15 at 4:14 pm

I’m trying to talk about what should happen, but taking massively obvious and unchangeable political constraints (like “finance ministries of democracies don’t take on open-ended commitments to fund other countries’ budgets without getting some political concessions in return”) seriously.

I was another one who was confused about this. To someone just reading your words, it appears that you are often justifying the political constraints rather than merely identifying them. Some of us think that Germany has chosen policies designed to beggar much of the rest of the Eurozone, and believe that the case ought to be made publicly that this is so.

It may be true that Germany is unmovable on this, and the country certainly sees itself the way you do — as kindly Aunt Agatha and not Louie the Loan Shark.

But if you’re going to adopt the German political line – that it’s relationship with the periphery has been as a benevolent lender – then you can’t be surprised when you are accused of adopting the German political line.

99

William Timberman 02.26.15 at 4:48 pm

As I’m hearing the conversation….

Varoufakis to Charlie Hebdo: Après nous, le déluge.

Wolfgang Sch&auml,uble, wrestling with the machinery of German parliamentary ratification: This leftish attitudinizing is unhelpful.

D-squared: We’ve spent decades nailing all your exits shut (H/T Bruce Wilder). Do you really expect us to redesign this grand edifice just to spare one insignificant band of malcontents the consequences of their own profligacy? Von wegen!

My response: If it won’t bend, sooner or later someone will find a way to break it.

100

Roger Gathmann 02.26.15 at 5:05 pm

Is the idea that German banks were benevolently lending a joke? The austerian line is weirdly echoed in the US, where the right blames the Community Housing Act – the evil greedy poor – for the downturn. German banks were actually and are actually in it not to loan to poor spaniards, portugese and irish, but to make a big fat profit. This was the same reason that they invested heavily in mortgage backed securities in the US Market.

It is just a question of markets. To put the question in fireman terms, who set the fire? The banks. They paid for the gas, they strewed it about with incomprehensible and unnecessary financial vehicles which they gaily announced would “spread risk”, and the risk then blew up in their faces.

There’s no question that the ultra corrupt Irish leadership was in cahoots with the corrupt banking practices of Irish banks. We’ve long known that. What we don’t know is if Ireland is going to continue to lock itself up in an austerian regime that has basically failed to do anything more to lift the economy than if they had done nothing – the pablum test. Unfortunately, the anti-austerian party in Ireland is Sinn Fein, which has plenty of baggage. It is, however, the most popular party in the country right now, according to the polls. They’ve attached themselves firmly to the Syriza position. This will give the Irish people the first chance to vote on what, until now, has been a bi-partisan sell out. I suppose we will see what they think about the austerian economics that has created a joke recovery in Ireland.
Not that I think the German example is completely bad. For instance, Merkel is firmly behind lowering the age of retirement to 60, which I think is an excellent idea. The institution of a minimum wage, long long past due, and the policy of making higher education free is also highly imitable. Syriza’s vision for Greece is not that much different from the German government’s present policy in Germany.

101

James Wimberley 02.26.15 at 6:11 pm

Three lesser points.
1. The EU Commission is new. Same-old new you might think, but the switch from Ollie Rehn to Pierre Moscovici makes some difference, and Juncker doesn’t have Barroso’s problem of leaning over backwards not to look soft on Iberians. So the troika first-tier decisionmakers are : Lagarde (French), Blanchard (French), Moscovici (French), Juncker (Luxemburger), Draghi (Italian). Not the first team you would pick to enforce ordo-neo-liberalism. Of course, they all operate under severe institutional constraints. But personalities matter at the margin, and the troika will be making a lot of judgement calls over Greece in the next few months. Schäuble will be very worried they are going native. “Going native” means talking up the campaign against tax evasion and talking down the primary budget surplus.

2. Most commentators are dismissing the dropping of the term “Troika” for “the institutions” as pure window-dressing. Really? Sophisticated grown-ups don’t usually have bitter rows over nothing. Officials from the Commission, the IMF, and the ECB will still be flying regularly into Athens airport. But they will no longer be a plenipotentiary team. The officials sent to meet them will be slightly lower in rank. They may also themselves be replaced by slightly more junior colleagues. Tsipras and Varoufakis have a greater right to insist on dealing with principals whose interest is to solve the problem rather than underlings whose interest s to prolong it. A small win for Syriza no doubt, but still a win.

3. The patchup deal is terrible news for Rajoy and Sanchez of the PSOE. To puncture the threat from Podemos, they needed Syriza to fail abjectly. It hasn’t. At the very least, Greeks, unlike Spaniards, have enjoyed the refreshing sight of a government fighting for their interests instead of spinelessly kowtowing, and Spaniards have no reason not to want the same. Nothing short of Grexit can save the PP and PSOE now, and it would be unspeakably dangerous for Spain. Rajoy is not William the Silent, but neither is he the kind of crook capable of buying an election at that price.

102

Daniel 02.26.15 at 7:02 pm

If it was reasonable of the banks to assume that the German position was genuine, it was also reasonable for the Greek government. The banks were made whole for being let down when Germany changed its mind, the Greek people are suffering for it though

Neither of these things are true, though, are they Vasilis? The banks weren’t “made whole” – they lost 70% of their exposure on GGBs, and significantly more on mortgage and commercial lending made through their Greek subsidiaries. Meanwhile, Greece got EUR100bn of financing that wouldn’t otherwise have been available – without the program there would have been much more austerity.

Everyone made bad decisions during the runup to the crisis (hence, the crisis). But nobody made decisions which were so much worse than anyone else that these blame arguments can be made to look like anything other than the backward-reasoning they are.

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Roger Gathmann 02.26.15 at 7:32 pm

103 “Neither of these things are true, though, are they Vasilis? The banks weren’t “made whole” – they lost 70% of their exposure on GGBs”

This figure is whack. The agreement was for a voluntary 50 percent haircut. It is improbable that the private banks decided to throw in another 20 percent out of their well known generosity.
http://www.dw.de/greek-haircut-when-50-percent-is-not-half/a-15508757

After long negotiations with EU leaders in Brussels last week, private sector representatives from the banking, insurance and financial industries agreed to write down their debts by 50 percent – on a voluntary basis.
The voluntary nature of this haircut was a crucial component of the eurozone rescue deal. A mandatory writedown that disregarded investors’ wishes could have triggered payments on Credit Default Swap (CDS) contracts – freely traded financial instruments that act like an insurance policy against default or debt restructuring.

To find out where the money went, one should look to Yiannis Mouzakis’s analysis, since he has compared the documents from all sources. 11 percent of the loans so far, according to Mouzakis, have been used to keep the state functions of Greece going.
http://www.macropolis.gr/?i=portal.en.the-agora.2080 Mouzakis also explains how the Private Sector Initiative worked.

During the PSI, bondholders were offered new bonds with a face value equal to 31.5 percent of the face amount of those exchanged. They were also given sweeteners in the form of cash-equivalent EFSF notes maturing within 24 months for 15 percent of the face value of the debt exchanged. Also, they were offered short terms EFSF notes for the accrued interest. This totalled 34.6 billion euros or 14 percent of the combined financing needs.
An added 11.3 billion euros was used to buy back over 30 billion euros worth of debt in the second debt reduction initiative of 2012.

Basically, the banks did much better on Greece than they did on, say, mortgage backed CDOs.

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hix 02.26.15 at 9:26 pm

By the way, at the beginning of this blame Germany mudfest years ago, the data was pretty clear that German banks were disproportionally low (compared to gdp vs other Eurozone members) exposed to Greece. Now the US lettersoup shit, thats a different story unfortunately. How on earth that is supposed to have been paid by the fed is beyond my imagination. Nope, German citicens pretty much all of it. It is not like the current account deficits and surpluses within the Eurozone translate 1:1 into debtor/creditor relations.

Also, pretty much every rich European country south of Italy and to the west of France has huge current account surpluses and push by those nations is a damn unplausible explanation. Pull (nope not by Greece, hint the biggest pull starts with an U), is a far more plausible one.

Getting dull.

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Peter K. 02.26.15 at 9:43 pm

@ Daniel 102

“Meanwhile, Greece got EUR100bn of financing that wouldn’t otherwise have been available – without the program there would have been much more austerity.”

No the alternate scenario would have been Greece leaving the Eurozone, defaulting and switching to their own currency.

Most people agree they would have been better off than the six years of disastrous austerity we’ve seen. The most common comparison is Argentina 15 years ago.

How can you say “without the program there would have been more austerity” with a straight face? Is anyone saying that?

The IMF predicted a mild recession and then growth.

What Greece got was they remained in the Eurozone. If Germany kicks them out maybe we’ll actually see how much better they do.

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Kindred Winecoff 02.26.15 at 9:50 pm

PK @ 94,

Now you’re just insulting me (and seemingly ignoring my post @69). Most of my research is on capital flows and crises and cross-national financial dependencies. I get the macro consequences. Really, I do. And I’ve never said, as you claim, that “Others believe [debt payment] should all be wrung out of debtors, like blood from a stone”. I haven’t said it because I don’t believe it.

Nor is it an accurate characterization of what has occurred to say that only Greece has been paying the cost. Greek debt has already been written down multiple times and extended, and this will certainly happen several times more. German banks have already lost many billions. European taxpayers have already lent hundreds of billions of euros to Greece during this period of austerity. I’ll repeat for emphasis: Greece has already received more than 100% of its GDP in assistance from the rest of Europe. Is this what you think squeezing blood from a stone looks like?

Greece remains in dire straits because of the weakness of its real economy and there’s very little Germany can do about Greek economic weakness in the short run. Now, you may believe that Greece should be allowed to live above its means for reasons of European solidarity, or just because you dislike Germans. But it is certainly understandable that Germans might disagree. As has repeatedly been said, the anti-austerians have yet to propose any sort of plan that involves anything other than Greece spending more of Germany’s money. As it happens I would love for the Germans to agree to that or for any other country to step into the breach. I’m all for getting to spend other peoples’ money! I just think it’s very unlikely to happen, so if the entire left strategy is to try to force Germany into doing something they are quite unlikely to do then we’ll all be very disappointed.

Lastly, does anyone really think that Grexit would end austerity? Funny. But while we’re on the topic, do you know how China built up those surpluses? By using policy to limit consumption and boost domestic savings. This is what we usually call “austerity”.

My question @70 still hasn’t been answered.

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Barry 02.26.15 at 10:05 pm

Daniel: “Everyone made bad decisions during the runup to the crisis (hence, the crisis). But nobody made decisions which were so much worse than anyone else that these blame arguments can be made to look like anything other than the backward-reasoning they are.”

If it’s anything like the banking system on Wall St, it wasn’t ‘bad decisions’; it was fraud by the elites, pure and simple (or rather, pure and complex, to dupe people).

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john c. halasz 02.26.15 at 10:29 pm

Some stray comments.

When Davies “gamed” out the bailout here a couple of years ago, my impression was that most of the wooly commenters here came down on the side of default and Grexit in 2010. Indeed, that was my view at the time, from a narrowly Greek POV. Greece would have undergone a sharp severe depression for 18 months of chaos, but would then have experienced a sharp recovery and return to growth. But that would have caused rapid contagion and a disorderly break-up of the EZ. And PM Jr., having spent too much time in Sweden, wanted to play the Good European and applied for the “bailout” and accepted the harsh conditionality involved, until he was swept aside unceremoniously. Yet there is little acknowledgement in the current climate that the Greeks effectively saved the EZ, at great personal/national sacrifice, rather than being just a bunch of lazy, whiny, and incorrigibly corrupt deadbeats. Nor is there much recognition of the fact that the Greeks endured much harsher, more drastic levels of fiscal retrenchment than any of the other deficit countries.

I believe I posted on some thread here a chart of total public + private debt as % of GDP in 2010, at the start of the Euro crisis. It wasn’t an EZ chart because Sweden came in lowest, but Greece was second lowest. The big outlier on the right-side of the chart was, of course, Spain, which had a low public debt and a vast private debt level, having undergone proportionally the largest RE bubble in the world. Greece is being “crucified” on the dogma that it is only public fiscal debt and not private debt levels that matter when it comes to CA deficits and net external debt. And for all the talk of Greek corruption and inefficiency, I think it’s a fair judgment that both the Irish and Spanish cases involved far more corruption, in terms of the entwinement of entrenched political elites with financial and RE interests and in terms of the complicity of the general population in benefiting from RE bubbles, which aren’t exactly a sound basis for economic “efficiency “and development.

The IMF’s projection for the “bailout” proved drastically and predictably wrong,- (Greece was supposed to be growing robustly by now , after a mere 10-12% contraction),- and I don’t think the fault can be entirely pinned on the issues of Greek corruption and foot-dragging. And yet the IMF experiences no penalty for its obvious errors. In other reversed contexts, that is called “moral hazard” and bad incentives. Greece did grow by about 1.5% last year, after contracting by 25%, mostly after the Troika program, but as I’ve pointed out, that was largely due to relative rates of deflation, with the GDP deflator being less negative than the wage and pension reductions, and to the fact that there was some bounce back effect from a lessening degree of fiscal retrenchment. Why we should believe the Troika projections that Greece will undergo 3-5% growth in the coming years, when the debt deflation dynamics remain in place and such projections have proved repeatedly erroneous before is beyond my ken. But I think the crux of the standoff between Syriza and “the institutions” is that, while both seek “structural reforms”, they have very different conceptions of what that phrase means. For “the institutions” it means wage and spending cuts, one-off privatizations, labor market “flexibility”, and the like to further entrench “markets” as the sole organizing principle of society, by cutting costs and thereby increasing profits to private capital investment, i.e. more of the same, whereas for Syriza it means institutional reform and restructuring of the Greek state and economy, to make them more equitable as well as efficient and develop the fiscal space for a return to public investment to put the society on a more sustainable development path. Which is something that TPTB ideologically can never admit or allow, so there will just be a continuing conflict of interpretations, until something drastic is decided upon. Because the situation is really a class conflict displaced and disguised as a conflict between national governments.

The GFC wasn’t something entirely new or unprecedented. The big difference is that it originated and struck at the core rather than on the periphery of the global economy. But the Latin American debt crisis of the 1980’s bears some resemblance to the current play-book. There the U.S. money-center banks were technically insolvent but allowed to extend-and-pretend until they could recapitalize themselves by loaning back the interest payments to keep the debtor countries “current”, until such time as the real losses could be recognized and debts reduced and repackaged as “Brady bonds”, a process that took about a decade. Eventually such a thing will have to happen, with real and not just fictitious losses allocated, (though a lots of the malinvestment in RE bubbles was essentially fictitious), so that old unproductive debt can be eliminated and new credit be extended for productive purposes. But the Latin American crisis resulted in 2 “lost decades” for much of the region, with lots of unsavory military regimes, until new leftish governments emerged and sustainable and equitable growth returned. But the world can not really afford the luxury of such a long waiting period.

Finally, the invisible elephant in the room may just be Deutsche Bank, which is generally thought to be the most thinly capitalized mega-bank in the world. Officially, it claims to meet the minimum unvarnished leverage ratio of 3.5%, with 1.6 tn euros in assets (over 40% of GDP) and 55 bn euros in market value, but “equity” is as much a matter of accounting the assets on the left side of the balance sheet as the liabilities on the right. And some observers suspect that its leverage might be half the ostensible number. And with huge regulatory fines, minimal interest rates, a stagnant economic environment and an outsized trading desk, subject to much volatility, its recently reported profits are miniscule, no more than a rounding error. So much for recapitalizing to new higher requirements through earnings. And it might be no accident that precisely the Germans have dragged their feet in moving toward a supposedly agreed EZ banking union.

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Kindred Winecoff 02.26.15 at 11:44 pm

FWIW, here’s Stathis Kouvelakis (Syriza Central Committee) from yesterday. Lots of smart things in here.

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john c. halasz 02.27.15 at 1:19 am

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Ronan(rf) 02.27.15 at 1:38 am

” Nor is there much recognition of the fact that the Greeks endured much harsher, more drastic levels of fiscal retrenchment than any of the other deficit countries.”

This was my impression as well (unless anyone can complicate these graphs)

https://brianmlucey.wordpress.com/2015/02/17/a-picture-of-change-greek-reforms-in-reality/

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hix 02.27.15 at 2:35 am

113

A H 02.27.15 at 5:12 am

Very intersting https://t.co/tyI8fgEddk

dsquared @60 “Kindred is dead right above. In context, “Germany pushed hard for austerity” just means “Germany tried to a set a definite limit on the extent to which it had to finance other people’s budgets”. In actual fact, that limit turned out to be too low – in the sense that if Germany had taken bigger risks, the overall outcome might also have been better. But even if you’re correct in blaming the fire department for sending two trucks instead of three, you still need to ask the question of who actually started the fire.”

One should note that “finance other people’s budgets” is a very very weak burden when you can issue debt with negative yields.

For instance in order to “finance” greece, Germany could give away random greek vacations to its citizens. All paid for by bonds issued at a negative rate. Bond buyers would be literally paying to send germans on vacations, and this would be helping Greece out at that same time.

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A H 02.27.15 at 5:19 am

Very intersting Varoufakis interview linked above. https://t.co/tyI8fgEddk

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dbk 02.27.15 at 8:26 am

Sometimes it’s helpful, at least to me, to take a step back and consider ongoing ordoliberal vs. (outdated, apparently) Keynesianism as tools for addressing budgetary shortfalls/chronic deficits.

So here are two real-life, recent examples from the U.S. for comparison purposes:

Minnesota, reeling from 8 years of Tim Pawlenty, now governed by Mark Dayton (DFL – Democratic-Farmers-Labor Party):
http://www.huffingtonpost.com/carl-gibson/mark-dayton-minnesota-economy_b_6737786.html

vs.
Illinois, which has recently elected Bruce Rauner its governor. Some of his good ideas for dealing with the state’s deficit: massive cuts to education, Medicare, health, transportation, and community funding (structural reforms). Rauner is opposed to the minimum wage (wants municipal employees to become “right to work” employees), to unions, to public pension funds (he wants to privatize them and convert them to 401ks, which is pretty rich because Rauner became a billionaire as a hedge fund manager managing … Illinois pension funds). He wants to cut public employees’ salaries from an average of 49,000 to 39,000 at one fell swoop (except for senior staff who support his office). One thing he won’t be doing (or at least, claims he won’t do, because it would be bad for business) is raise corporate/individual taxes on high earners.

http://www.huffingtonpost.com/robert-creamer/il-governor-rauner-gets-7_b_6742500.html
http://teacherpoetmusicianglenbrown.blogspot.gr/2015/02/governor-rauners-budget-proposal-ash.html
(One of the comments on the post’s threads explicitly refers to Greece and the other EU “PIGS”.)

Perhaps we could revisit the two states in four years and review which is faring better.
When I’m home (Illinois), friends-relatives ask me, “What’s it like to be living in a corrupt/tax-evading/austerian country like Greece?” I tell them it’s not too different from what living in Illinois will soon be like – after all, Illinois can’t issue its own currency, has the worst deficit in the country, four of its past seven governors have served / are currently in prison, and it’s proposing to overcome its problems through “structural reform”.

Rauner’s getting really strong push-back, and I wouldn’t be all too surprised if the Mayor of Chicago’s being forced into a runoff by failing to receive +50% might have had something to do with the entire state’s collective awakening to what ordoliberalism really means.

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Vasilis Vassalos 02.27.15 at 9:23 am

“there’s very little Germany can do about Greek economic weakness in the short run. “

Seriously? How about looser monetary policy and wage raises to get a bit more inflation going. You know, the way Germany was able to keep wages low while the periphery obliged with high inflation and raised wages back in the 1990’s.

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Markos Valaris 02.27.15 at 10:41 am

Daniel, a rather major problem in the German position as you describe it is that insistence on too fast adjustment has, at every step of the way, made it less likely that the loans will be repaid, and more likely that new loans will be needed. This was predictable, and indeed predicted. Were German (and eurozone and IMF) policymakers deluded about this, or was punishment part of the point? I don’t know.

Moreover, there is the role of the ECB to consider. Had the ECB been allowed to play the role of lender of last resort from the beginning it’s possible that the crisis could have been contained to Greece alone, with little contagion. And by resisting higher inflation, Germany is propping up the profits of its own exporters at the expense of unemployment elsewhere in Europe.

It is true that Germany’s strong fiscal position is what’s held the eurozone together. So Germany is not a pantomimes villain. But that’s not to say that Germany has used its position wisely, or that debtor nations have no cause to complain.

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Ronan(rf) 02.27.15 at 11:10 am

dbk and/or Vasilis and/or Markos – looking at Kindred’s link @109, what is popular opinion in Greece like on Euro membership ? My impression is that it’s still quite popular and the majority don’t wan’t to leave ? Is that still accurate ? If Syriza had taken Greece out of the Euro, what kind of reaction would there have been do you think ? Also, was there widespread domestic support for Syriza taking on the ‘institutions’ over the past couple of weeks ?

119

Daniel 02.27.15 at 12:23 pm

Daniel, a rather major problem in the German position as you describe it is that insistence on too fast adjustment has, at every step of the way, made it less likely that the loans will be repaid, and more likely that new loans will be needed.

This is true – it was a timid policy when a bold one was needed. Or at least, that’s what I think, because I regard Greece as basically an industrialised and developed country, albeit one with lots of political problems. So I think it has a normal fiscal multiplier, normal monetary policy response function etc.

If I believed that Greece should be seen not as the least developed of the developed markets, but the most developed of the emerging markets (a question on which the compilers of, eg, the MSCI indices appear totally unable to make up their mind), I might take a different view; that no amount of stimulus is going to help and that all the loans are doing is financing capital flight. I think that’s much too harsh, but one can’t say it’s totally ridiculous – at various points, I think Varoufakis has looked like he might be saying something similar. I think this is the basic error German economists have made (apart from the general error that Keynesianism is really unpopular there).

So yes, I think they’re deluded. The Germans, that is. As for the IMF, it’s not a question of what I think – they are deluded and they printed the evidence in their “mea culpa” report on the Greek program. Although this got them a load of totally undeserved plaudits because it included a recommendation for (meaningless, and not for them) debt restructuring, they absolutely refused to give an inch on the speed-of-adjustment question. They even titled a subsection “It Is Hard To Argue That The Speed Of Adjustment Was Too Fast” (or something similar, from memory). That’s idiotic, so we know that at least one party to the troika was in cloud cuckoo land on the effects of the program.

Moreover, there is the role of the ECB to consider. Had the ECB been allowed to play the role of lender of last resort from the beginning it’s possible that the crisis could have been contained to Greece alone, with little contagion. And by resisting higher inflation, Germany is propping up the profits of its own exporters at the expense of unemployment elsewhere in Europe.

I share this view. (And indeed, I made the point about LoLR repeatedly when I was at the Bank of England in the 1990s, and so did lots of people who weren’t as lowly as me). But the fact that the ECB wasn’t a lender of last resort was not exactly unknown at the time the treaty was signed, and the fact that the Euro was meant to be a low inflation currency was one of the main reasons why countries like Greece signed up to it!

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Daniel 02.27.15 at 12:27 pm

and I’m now hearing that the Greek government don’t want to bring the agreement to a vote in the parliament. Not because they are scared that it won’t pass – it has clear support from all parties. But because they don’t want to damage their own coalition by having a vote in which around 30 Syriza MPs rebel.

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Vasilis Vassalos 02.27.15 at 1:40 pm

Ronan, Euro membership remains very very popular in Greece. The main reason is stability. I think people intuitively understand that our political class, having failed at easier problems will handle the transition catastrophically. There is a big risk the country will be owned very quickly by a small number of people with wealth outside the country, and corruption will increase.

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Earwig 02.27.15 at 2:26 pm

“Greece spending more of Germany’s money. “

Curious how this is the case when Greece is transferring surplus to its creditors. The cash flow is in the opposite direction to what’s implied.

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Peter K. 02.27.15 at 2:48 pm

@ Winecoff 106

I don’t think you get the macro because that’s what we’re disagreeing about. Mostly you appear to ignore monetary and currency policy. China could keep its currency undervalued. That’s not austerity. That doesn’t cause sky-high unemployment. If China had gone the Greek route, they would have had another revolution.

But Greek is locked in the euro gold standard and so must adjust via sky-high unemployment and poverty. Would you rather be the German banks suffering millions in lost profits or the Greeks suffering a depression worse than the Great Depression?

Many of the anti-austerity people feel Greece would have been better off defaulting and the German banks would have gotten nothing.

But hopefully JQ is right and this is the beginning of something where anti-austerity parties gain power in Spain, Ireland, Portugal and then Italy.

The Germans need to decide: either run higher inflation, accept more fiscal transfers or leave the Euro.

Krugman agrees with OP John Quiggin in his column today:

“Still, nothing that just happened justifies the pervasive rhetoric of failure. Actually, my sense is that we’re seeing an unholy alliance here between left-leaning writers with unrealistic expectations and the business press, which likes the story of Greek debacle because that’s what is supposed to happen to uppity debtors. But there was no debacle. Provisionally, at least, Greece seems to have ended the cycle of ever-more-savage austerity.

And, as I said, in so doing, Greece has done the rest of Europe a favor. Remember, in the background of the Greek drama is a European economy that, despite some positive numbers lately, still seems to be sliding into a deflationary trap. Europe as a whole desperately needs to end austerity madness, and this week there have been some slightly positive signs. Notably, the European Commission has decided not to fine France and Italy for exceeding their deficit targets.

Levying these fines would have been insane given market realities; France can borrow for five years at an interest rate of 0.002 percent. That’s right, 0.002 percent. But we’ve seen a lot of similar insanity in recent years. And you have to wonder whether the Greek story played a role in this outbreak of reasonableness.

Meanwhile, the first real debtor revolt against austerity is off to a decent start, even if nobody believes it. What’s the Greek for “Keep calm and carry on”?”

http://www.nytimes.com/2015/02/27/opinion/paul-krugman-what-greece-won.html?smid=tw-share

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Peter K. 02.27.15 at 3:06 pm

Daniel @ 120

“But because they don’t want to damage their own coalition by having a vote in which around 30 Syriza MPs rebel.”

They are the mirror image of Schauble’s bad cop where Merkel and Tsipras/Varoufakis are the good cops. If Merkel doesn’t compromise enough, she may get Grexit which she very much doesn’t want.

125

Peter K. 02.27.15 at 3:10 pm

Daniel @ 119:

“But the fact that the ECB wasn’t a lender of last resort was not exactly unknown at the time the treaty was signed, and the fact that the Euro was meant to be a low inflation currency was one of the main reasons why countries like Greece signed up to it!”

Did the Greeks realize that low inflation in Germany meant deflation for the periphery?

Which Greeks signed up for it? The corrupt elite who cooked their books? Seems like collective punishment to blame all of the Greeks.

126

Ronan(rf) 02.27.15 at 4:29 pm

Peter K – I’d be slow to weigh in here, as it might come across as an appeal to authority, but in fairness I do think Kindred knows what he’s talking about. Not that you or I or anyone else have to agree with him, but that a good faith argument wouldn’t assume he’s completly ignorant of very basic concepts in an area that is, at the end of the day, his job.

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dbk 02.27.15 at 5:23 pm

I can’t decide whether the very short lease Greece continues on will make it possible to accomplish much more than address the humanitarian crisis – which is extremely important in itself, but the cost offsets work out at least in theory, so the Institutions seemed to accept that something has to be done.

For me, the long-term question – here expressed in layman’s, not financiers’ terms of course – is “how do refashion a country which never passed through the Industrial Revolution into a 21st century economy?” Considering Greece as an “emerging” rather than a “developed” market, which I think is correct, how can this be achieved? What’s it going to, uh, produce (for export)? Tourism, yeah, ok – the thing is, pundits toss around the word “tourism” as if it were the magic bullet, but then you start to discuss the actual details of tourism, and it’s a lot trickier – and less profitable, actually, given that tourism is now controlled largely by foreign operators who negotiate prices that barely cover costs and for payments that may come a season late – than it sounds, and I think the 18% may be near the upper limit for its possible contribution – maybe 20, not much more. Agricultural goods? For sure there can be vastly better land use, only about 30% of cultivable land is currently used, but with the possible/partial exception of the central Thessalian plain, “industrial” agriculture is a no-go for geographic reasons. Perhaps “sustainable agriculture of luxury produce”? Greece has some valuable (est. 50-60b worth) industrial minerals, and these could presumably be more systematically exploited, exclusively for the export market. Cf. http://www.sciencedirect.com/science/article/pii/S2212567114006947
The Aegean basin (Cycladic Islands and Milos in particular) has large reserves of geothermal energy that could be exploited for, inter alia, desalination. Fisheries? Greece, despite its tiny size, has the longest coastline in Europe, and it’s by and large still clean.

At the end of the day, whatever the outcome of this unhappy and unpleasant phase in Greece’s brief but troubled financial history, the country needs to figure out how to become reasonably rich – not as rich as Germany, but rich enough that it can both resist over-stimulation of its economy in prudent fashion, and weather global financial fluctuations, including moderately severe ones.

P.S. If any of the other Greeks reading the thread know of a full-length Syriza development document to direct me to, many thanks – I’d like to see one that covers all sectors, and from the short-, medium- and long-term perspective.

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Peter K. 02.27.15 at 6:49 pm

@126

“but that a good faith argument wouldn’t assume he’s completly ignorant of very basic concepts in an area that is, at the end of the day, his job.”

As Oscar Wilde wrote a cynic “is a man who knows the price of everything and the value of nothing.”

Trichet’s job was central banker of Europe and at the end of the day he was ignorant of very basic concept in macro.

http://macromarketmusings blogspot com/2015/02/the-eurozone-counterfactual.html

But thanks for accusing me of putting forth bad faith arguments. That’s nice.

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Peter K. 02.27.15 at 7:22 pm

Winecoff @ 106

I apologize if my comments came off as insulting or lecturing towards you and dsquared (as I see you two agreeing on many things). They weren’t intended that way. My target was “your reasoning” which many other people share so I didn’t intend to get personal. Many people share my views – the Keynesian view – so it’s really a clash of viewpoints not people.

I’m not saying this is cost-free for the Germans. It may be that they see the cost of keeping Greece within the fold as too much. Maybe they don’t see Greece as reformable. Then they would be well within their rights to halt the bailouts and put a halt to throwing good money after bad. I don’t think the Keynesians really dispute this.

But what we argue is that the Troika (IMF, ECB, Euro commission) program isn’t working. What I’m arguing is that it would be better for the Greeks to dump it if they can’t get a better deal which allows them to grow and bring down unemployment. Many of us believe that yes a Grexit would be painful for a few years, but in the long run it would be better than a continuation of the last 5 years. If the Germans don’t want to pay to keep the Greeks in the eurozone, they’re well within their rights to stop paying for the bailout.

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Markos Valaris 02.28.15 at 7:26 am

Ronan, there is a lot of domestic support for SYRIZA talking back to the Troika, but very little support for SYRIZA taking Greece out of the Euro. As a result a clear majority (68% in the latest poll I’ve seen) support the compromise deal.

In Greece the Euro was never sold as an economic project; it was always sold as a political project. Greeks are (rightly!) very skeptical of their government, and so they were quite happy to surrender a fair amount of sovereignty in policy making. There is some backlash against this now, but I don’t think the fundamental orientation of Greek society has changed.

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Markos Valaris 02.28.15 at 7:39 am

Daniel, in substance then we don’t really disagree.

But the fact that the ECB wasn’t a lender of last resort was not exactly unknown at the time the treaty was signed

It wasn’t unknown, but my impression is that everyone assumed if put to the test it would be, no? And in the end the assumption was right of course, just too late.

the fact that the Euro was meant to be a low inflation currency was one of the main reasons why countries like Greece signed up to it

Well but you can have too much of a good thing, right? I don’t think anyone signed up for deflation, or for trying to catch up to Germany with 0% inflation.

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Markos Valaris 02.28.15 at 7:44 am

By the way, speaking of delusions, the spokesperson of the German finance ministry just said that they still take Greece to be bound to the 4.5% primary surplus target for 2016. Fun times ahead.

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Walt 02.28.15 at 8:42 am

Kindred, are you saying you are an actual economist, and therefore you know what you’re talking about? Because — and maybe this is a problem with the crude medium of blog posts — you sure don’t sound like it.

If a country switches from consumption to investment, what impact does this have on GDP? It has no impact on GDP, because investment counts towards GDP. What impact does it have on employment? It has no impact on employment, because producing investment goods requires labor, and anyway the labor market should clear after adjustment. What really happened? Greek GDP contracted by 30% since 2008, and unemployment is now 25%. Austerity doesn’t mean switching from consumption to investment — it means switching from consumption to nothing. Whatever problems Greece has, they are not going to be solved by idling a quarter of the workforce.

The example of China doesn’t do what you want it to do. When the crisis hit, China switched to spending 50% of GDP on investment goods, which meant the impact on GDP and unemployment is small.

Your comments seem motivated less by objective economic analysis, and more by a moral analysis that identifies totally with bond holders. Your only real argument is that somehow the Greeks feel entitled to spend German money. But if Greece had quit the Eurozone in 2010 and defaulted completely, how bad would the consequences have been for Greece? A 26% decline in GDP? 31% unemployment? How bad would they have been for the Eurozone? It’s hard to say for sure, but they could have been severe, and they definitely would have been severe for Greek debt holders. Instead of quitting the Eurozone, Greece stayed in, with possibly no direct benefit to itself and some direct cost, but considerable benefit to the Eurozone, and to its debtors. Though I guess by your social welfare function, which seems to be the sum of utilities of bond holders, with everyone else receiving a weight of zero, the Eurozone has no reciprocal moral obligation to Greece.

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Ronan(rf) 02.28.15 at 1:41 pm

Vasilis & Markos – thanks for the responses. That helps clarify it for me.

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