Bluffed

I hate to put up the first response, so that my profound ignorance of economics colours the rest of the thread, but I kind of disagree. My feeling about this agreement is that it does deep damage to the Euro, and everything to do with European integration — but it does it in informal ways that aren’t immediately apparent, but will show up over the months and years to come. If Germany was so unwilling to to write off debt that it was willing to do that, I just don’t see any basis at all for assuming that there are going to be debt write-downs. If debt write-downs are something that nearly everyone accepts, then why do so much fundamental damage before doing so?

If the German public doesn’t understand that there must be debt write-downs, and they elect the people who decide policy, then it seems like there probably aren’t going to be debt write-downs — or if there are, it should be possible to identify the politician who is going to tell them so. Who is that?

I guess I think that a more likely outcome of this is that many countries begin thinking, and possibly preparing, for a surprise Euro exit. This will seem unthinkable until the first one does it.

I think the most immediate likely outcome is that Tsipras will resign. Then we’ll see what happens next. It’s a debacle and it’s consequences look awful from all vantage points.

“Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. ”

That’s not entirely what I get from the interview. I read that Varoufakis had a plan – Euro-denominated IOUs, unilateral restructuring of some debts, and seizing control of the Greek Central Bank – which was intended to provoke a change in the Eurogroup position; and that he had doubts that Greece could effectively manage a Euro exit. But I don’t read that he said it could not be done, and I do read that he pressed to proceed with his plan. He was unable to convince Tsipras to agree to it, even after the referendum. It doesn’t sound like it was Varoufakis who decided it could not be done, or who gave in.

a more likely outcome of this is that many countries begin thinking, and possibly preparing, for a surprise Euro exit

Not just the Euro, but the whole shooting-match EU. Other than David Cameron, who in the UK is going campaign to stay in the EU in the coming referendum?

Like I posted on your personal blog: the negotiation hasn’t cost greece anything, long-term. I mean, they’re fucked, clearly, but they’re no more fucked than they were a week ago: the bank shutdown per se, which is the only thing different that happened, doesn’t have long-term effects.

The german government, on the other hand, burnt close to sixty years of good will in less than a fortnight, and really didn’t get a whole lot for it.

But I doubt that the outcome will work well for the other side in the long run.

In the long run we’ll all be dead. In the case of the Greeks, probably literally.

“…burnt close to sixty years of good will in less than a fortnight…”

Overstatement, but I agree in principle that the German authorities have done lasting damage to their pr image. The bigger picture, though, is that the neoliberal policy regime was uncannily strengthened rather than weakened by its utter failure leading up to the financial crisis of 2008. Ironically, Varoufakis has a paper about how the failures of mainstream economics reinforce its dominance.

I have a hard time thinking that the scorpion does damage to the project of getting across the dream when it stings the frog. Rather, the project was what it was, with the scorpion stinging, all along, because it involved getting a scorpion across a stream on the back of a frog.

So I have a hard time seeing this as a discreet event that does damage to the European project.

Varoufakis had a plan that is sufficient if you are a blogger saying “there should be a plan”, that is, to sketch out the principle of issuing Euro-denominated IOUs. But he was not an external blogger, he was Finance Minister. It would not have been enough to hash it out with a few ministerial secretaries as a theoretical option, he must have the printing presses and distribution logistics already lined up when he presents it to the Prime Minister as a proposal. By then there must be a comprehensive proposal, not a proposal to write a proposal.

He had six months to arrange it. It is a non-option by the time ELA is pulled. Varoufakis talked so much about it that I assumed that he had his aces accumulating in assorted sleeves but now it turns out it never progressed beyond discussion! “We should have done it a week ago”? No, you should have started in February!

What bothered me most was your inadequate understanding of the universe of choices the participants had.
I chalk this up to Tsiprikan Blindness. A relatively new condition but I think a cure has been found.
I also wanted to mention that austerity isn’t, a priori, bad for the economy.
Given a govt that appears to be have no notion of how to run a beaurocracy, and not aware of the kinds of debts a non-essential trading country can sustain, cuts can be necessary.

By the way:

One always needs a best alternative if there is no agreement (BATNA). If there is no alternative, well, there is no alternative (TINA).

Is it OK to say this now? A few days ago it was neoliberal garbage and evidence of bankerist deviationism.

While I know this is a place for political discussion, not organising, I note that a public sector strike has been called for Wednesday, and that solidarity actions have been requested in central squares in all major cities globally. Hasta La Victoria Siempre, I guess.

The full interview (http://www.newstatesman.com/world-affairs/2015/07/yanis-varoufakis-full-transcript-our-battle-save-greece) is quite interesting re the “triptych”

“We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.”

Varoufakis suggests doing this after ECB “shut our banks down” which I assume means when stopped providing further liquidity, as they did just over a week back. He says that this “triptych” is short of Grexit which seems technically right in that you could reverse it, but in the political context as we now understand it seems wrong — the German gov’t would have latched onto those measures to ensure a total ECB cutoff and no deal at all, and you’d be in a dual-currency situation, with a “hard” currency still in circulation that gov’t can’t issue.

One wonders about the Finance Ministry’s relationship with the Bank of Greece, the commercial banks, and the tax authorities. Seems to me if you could vigorously and effectively collect taxes in the new gov’t scrip, and get the payments system using it promptly, you could pull this kind of currency transition off despite the issues raised in the 2012 blog post that Peter K helpfully links @16. But that would depend on a lot of cooperation from officials and staff who might not really want you to go in this direction.

(P.S. Maybe Schäuble saw the 2012 blog post!)

If europe had a federal treasury and fed taxes went to say london, and the minimum pensions were paid out of say wales, would countries like Greece keep their personal pensions or medical funds in one place where they couldn’t touch them until they were needed?

#25 — look at this post on the mechanics of changing to the drachma:

http://www.nakedcapitalism.com/2015/07/the-card-system-demystified-and-implications-for-a-grexit.html

Basically, there are huge organizational requirements that mean any switch on the go would cause a discontinuity, during which Greece would lack such things as money, fuel, insulin, food, surgical sutures, etc. By saying Greece is afraid of the ‘drachma’ you’re missing the period in which they change — if someone could wave a wand and have a working drachma tomorrow, I’m sure the Greeks would be quite happy to gamble on that.

Herr Schauble gets what he wants: a pointed example to the French of what will happen if they don’t follow Germany’s rules. I think in his mind it’s worth the short-medium term risks of Greece turning into a failed state on the border (if the Greeks decided to ask Mr. Putin for help, I am sure we will see Ukraine on the Mediterranean in short order – the Americans simply won’t tolerate it), and the long term risks of burning up European solidarity probably don’t even occur to this generation of third rate elites.

Germany got the better of France when they created the Euro and they don’t intend to give up this useful national tool until forced – and who has the power to force them? This whole series of events is a brutal power play that will benefit nobody in the end, but as far as the next election is concerned it beats explaining that the Germany taxpayer in fact primarily bailed out German/Northern European banks, let alone admitting that the German strategy of building up massive, unrecycled surpluses in a non-federated monetary union is about as insane as hoarding all the gold via high interest rates in the 1930s.

25:

Most people like the idea of a “strong” currency, because most people find it difficult to understand national or global economies (and tend to make bad analogies to their own households – “you can’t spend your way out of debt when times are bad” etc etc). People see that they can go abroad and vacation cheaply with a strong currency, and don’t think of the fact that their manufacturing and export sectors are being punished for it. And who doesn’t like being “strong”? Being strong and high valued is good, right?

There’s also, I think, a long held attachment to the idea of Greece taking its rightful place among the rich European nations, of which the Euro is a potent symbol. Being thrown out of the Eurozone would be a pretty deep psychological blow to many.

I read that piece, and I think they are just a little hard on Greece. I think you could argue that as long as Germany truly wants Greece to leave the Eurozone (which seems plausible), that any overt moves Greece makes in that direction could have the effect of making that outcome more likely. All along Greece has been constrained by having to bargain with neither any good cards, nor any real threats beyond the hope that the markets would take their side.

I think that if Greece made any mistakes, it was in not recognizing that it was, actually, in a gunfight — Tsipras no doubt thought that he was in a negotiation.

What would we do without Yves Smith, honestly? Literally no other source of commentary has been even remotely as accurate on the Greece crisis.

The German proposal looks planned ahead of time, and looks punitive–not designed at all to help Greece get anywhere useful. Is it possible that you got played as much as the rest of us, Daniel, just in the opposite direction? From 2010, you were writing up scenarios with the assumption that Greece was getting help. Have you updated your priors on that assumption at all?

@ 17, 30 and 34

Okay so Yves Smith the political genius would have had the Grexit plans ready to go on day one so when the ECB shuts down the Greek banks she goes ahead and does Grexit even though the majority of Syriza and the majority of the country doesn’t want to leave the Eurozone.

Maybe they don’t allow her to do it and the government collapses? Maybe Grexit doesn’t go that well and the government collapses. Maybe Germany and the rest squeeze Greece after they exit and the government collapses. Then she can blame the Greek people and perhaps try to elect a new a people.

Dsquared:

Is it OK to say [TINA] now? A few days ago it was neoliberal garbage and evidence of bankerist deviationism.

I thought your argument was that if Varoufakis wore a tie and was polite the Greeks might bet a better deal, no? Now it seems like a better deal was never in the works no matter what. Schauble was intent on punishing the Greeks for having the nerve to vote in radical leftists and ask for a better deal like some debt reduction.

From the interview:

“Varoufakis said that Schäuble, Germany’s finance minister and the architect of the deals Greece signed in 2010 and 2012, was “consistent throughout”. “His view was ‘I’m not discussing the programme – this was accepted by the previous [Greek] government and we can’t possibly allow an election to change anything.

“So at that point I said ‘Well perhaps we should simply not hold elections anymore for indebted countries’, and there was no answer. The only interpretation I can give [of their view] is, ‘Yes, that would be a good idea, but it would be difficult. So you either sign on the dotted line or you are out.’”

Perhaps they should have highlighted this idea at the founding of the Euro: if you fall into debt, you will lose your sovereignty and the right to hold elections. You’ll be treated like a third world nation going to the IMF.

And Varoufakis: “Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”

So the implications is that French haven’t accepted TINA yet, but Schauble wants them to submit, like some Teutonic sadomasochist.

One other failure worth attention: I think the European media played a large part in this debacle, by misinforming the public. In Germany’s case, old prejudices were dragged out and inflamed. The Greek public (Lynn? Do I have this right?) seems not to have been informed that it was Grexit or certain looting of their country. I have no idea what other demons were turned loose, but if the EU had any anti-fascist media law and regulation, it appears to be in as bad shape as such law and regulation in the USA.

I was trying to explain my family last night why the agreement was useless.

They, as all the Germans seem to think, were saying the “Greeks are taking our money and wasting it”. I pointed out that “wasting it” was mostly giving it back to foreign lenders.

But I pointed out my continual argument – people are concentrating on the wrong deficit. It is not the government deficit that is the key it is the trade deficit. The key question is “where do the Euros come from in the first place”. If the government doesn’t borrow then the private sector has to, otherwise Greece will just run out of Euros. When the private sector borrowing turned bad, the government needed to borrow. Long term the Euro is not sustainable so long as Germany runs a trade surplus against other European countries.

Why does nobody talk about this?

” (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that. A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance (for example, by multiplying up the proceeds from asset sales) might have got around this problem. ”

The treaties actually say that the nominal amount cannot be reduced. Which is why real reduction has been done instead. Long maturities, payment holidays and low interest rates have (around and about) halved the real burden of that debt. And the agreement says they will discuss doing more of that.

And the reason the German public hasn’t been told all this is because the German public doesn’t want to lose its money. Thus they are being lied to: look, see, the nominal amount is the same!

Reminder that the UK is not in the Eurozone, and fell out of the ERM long ago. We’re not subject to the same pressures, and we never signed up to the fiscal/monetary straitjacket.

The UK position has long been that we want the trade benefits but not the social integration. Given that the EU exists, we can’t afford to be outside its trade barriers. So we have to be in it. A softer version of Greece’s rationale for avoiding Grexit.

Allowing a referendum to happen which results in the UK leaving the EU seems almost inconcievable, given how it’s been opposed for so long. So what will happen is either Cameron comes up with a “deal” of trivial concessions which he can sell to the public and his party as a face-saver, and then all three main parties and some of the press campaign in favour of “IN” (the “Better together” operation), or the referendum is cancelled. The risk is that the EU is clearly not in a mood to hand out any concessions on anything, especially not core values like freedom of movement.

I note with interest that the “twitter left”, including a lot of SNP people, have gone anti-EU over Greece. Will this be a persistent position? How does it affect the SNP plan to quit the UK in order to remain in the EU in the event of Brexit? Not clear yet. It also shows how embarrasingly badly thought out the “poundzone” plan was.

The UK position has long been that we want the trade benefits but not the social integration. Given that the EU exists, we can’t afford to be outside its trade barriers. So we have to be in it.

The mainstream Eurosceptic position is that we should be in EAA but not the EU. Like Norway or Switzerland.

Allowing a referendum to happen which results in the UK leaving the EU seems almost inconcievable, given how it’s been opposed for so long. So what will happen is either Cameron comes up with a “deal” of trivial concessions which he can sell to the public and his party as a face-saver, and then all three main parties and some of the press campaign in favour of “IN” (the “Better together” operation), or the referendum is cancelled.

I don’t agree that leaving the EU is “inconceivable.” It’s clearly conceivable. We’re having a referendum on that very issue, our governing party is generally Eurosceptic, “No” supporters are in the Cabinet, and so on.

I think you may well be right that the EU doesn’t offer Cameron anything substantive. In which case he has a choice; he can pin the blame on an intransigent and hostile EU and campaign for “No,” in which case he:

* Probably wins the referendum
* Unites his party, and also picks up most UKIP votes, meaning the Conservatives win easily in 2020.
* Takes personal blowback on the issue of why he couldn’t get concessions. But the Greece situation makes it much easier for him to say – those guys are hostile jerks, nothing anyone could do. I think he becomes an enduring hero on the right of British politics; even if he loses the referendum.

Or, he can campaign for “Yes”:

* Certainly wins the referendum.
* Probably splits his party. Certain to lead to defeat in 2020.
* Becomes a hate figure on the right of British politics.

I think you have to ask yourself – why do you think Cameron wants to stay in the EU so badly that he’d risk splitting his party, and personal obloquy? OK, he’s a politician, so maybe all his public statements about how the EU is currently a bad deal for Britain, that we need to renegotiate, etc, can be disregarded. But you also have to believe that he is willing to go through catastrophic political failure, to support the EU – in other words, that he really is an ideologue, just in the opposite direction to his publicly stated views. Surely this is a step too far! I don’t think Cameron cares about the EU one way or other, he just wants to win.

I think there is this strange, complacent idea that the Conservatives are just bluffing on this, that when push comes to shove they don’t really mean it. It’s like the Greece situation in reverse, and I think this attitude is the think most likely to make Brexit a reality. The Commission seem to think that the Conservatives are playing with Eurosceptic sentiment, not that they themselves are a Eurosceptic party. I don’t think they understand the highly conditional nature of the UK’s attachment to the EU; because they are all “good Europeans” they think we all are too, and in particular they think Cameron is. So they think that if they take a tough line he’ll just fold, much like Varoufakis and Tsipras thought the EU would fold. If so, they are in for a big surprise.

Am I the only one who saw this coming?!

A bit longer down the road: Germany is now on the hook to make it work for everybody.

A bit little further still: EU shows the world how to reorganize the psychology of debt.

(Also the UK is Euroskeptic in the sense of never believing in the ideology of the EU, but also very EU-pragmatist. It really is all about the money. So long as leaving the EU looks like it might be expensive and risky for UK trade, it’s a losing proposition.

I’m also not clear on how an EU->EEA transition would work legally, wouldn’t it require agreement from the rest of the EU?)

@51 I completely agree with your judgment that Cameron is a Conservative of a particular class and tradition and is thus bound up absolutely on retaining power. Individual issues are essentially meaningless. That’s what makes him so appealing to some voters. He’s a patriot and reliable in a way that Ed never could be. I find your parsing of the dynamics entirely plausible, with the caveat that any real deterioration in living conditions in northern Europe would see Britain out very quickly.

The main issues, I suspect, are geopolitical. It’s easy to forget what the fall of the Berlin wall meant, perhaps too easy. The reason why Germany, France, the UK, and the US want the Euro to succeed is that they don’t see individual nations in eastern and northern Europe standing up to encroachments from the east should the EU disintegrate. That was the logic of keeping Saddam in power after the first Gulf War. That policy proved ultimately unworkable for different reasons.

I think Cameron regards EU unity, independent of US leadership, as an essential feature of a balanced European map. I suspect he will campaign very strongly to stay in the EU and point to the fact that there are few enough ‘responsible’ actors already. Britain remains essentially tolerant of immigrants and does not share UKIP’s xenophobia. British voters do look forward to the debate, Cameron will have a stronger hand because just about everyone realizes how close the EU is to slipping away. Why else to you think Germany allowed France to give Greece another chance. I realize there’s very little reason for optimism, but I think most of the players now have a vested interest in seeing the current agreement work. And that includes the majority of Greeks.

I don’t agree that Cameron going for “No” unites his party, that’s the problem. Backing either side forces an internal confrontation like in the Major years.

What do you mean, “either side”? There is no EU-integrationist or even EU-satisfied side in the Tory party any more. They got blown out of the water in 1992-3. Their last remaining member is a 75-year-old backbench MP. Since the 1997 election, they have been a solidly Eurosceptic party, with mere tactical differences as to the best way to reduce the EU’s level of control and authority in the UK. Remember, the official line that all Conservatives can agree on is that the EU relationship is broken and needs fundamental renegotiation. If Cameron comes back and says “Fundamental renegotiation wasn’t possible,” I think the party as a whole will be very happy to up and quit.

To the extent there are two sides in the Conservative Party, they are the “win elections” side and the “care deeply about Europe” side. They differ only in the priority they attach to dealing with the EU. If campaigning for “No” were an electoral advantage rather than a disadvantage – as it would be following a failed negotiation – then there would be no daylight at all between the two sides.

Matt_L 07.14.15 at 11:04 am
“So Poland, Czech Republic, Hungary, are you guys ready to join the Euro yet?

What government on the European periphery in their right mind will sign up for the Euro now? Sure it is in the treaty, but I think there are enough legal and quasi legal avenues for foot dragging that it can be postponed indefinitely. It is hard to see what the advantages would be.”

There are five things I see to encourage this:

1) ‘We’re not Greece; we’re better, and this won’t happen to us’.
2) The short-term gains are huge, for both businesses and politicians.
3) In the long term, IBG/YBG. They’ll figure that 10-15 years down the road won’t matter.
4) There will be significant political/economic/business factions who like the prospect of forced neoliberal reforms.
5) If and when the top politicians are forced out of office due to disasters, if they toe the neoliberal Troika line, they’ll have very cushy retirement jobs.

“I hesitate to enter this discussion, but no one seems to have realized that this ‘bail out’ is designed to fail.”

It depends on the words used. I for one think that this long, slow torture will work just fine, in sending a lesson to others. Of course it’s not designed to help Greece.

I wonder if people like D2 are now rethinking their advice of 5 years ago for Greece to accept Troika demands in order to stay in the Euro. Given what you know now don’t yoi think a Greek exit in 2010 would have been preferable?

This new plan is madness. How is a ten percent VAT increase supposed to help the Greek economy grow? How is having to run new laws by an unelected foreign body at all compatible with the principles of democracy? What accountability will their be when this deal fails to fix the Greek economy?

Regarding Roger mulberge’s view that “no one seems to have realized that this ‘bail out’ is designed to fail”:

I guess there are two ways to think about the phrase “designed to fail.” Was it designed in such a way that it will fail? I think that’s the general assumption underlying the original post and pretty much all of the comments. From the OP:

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run.

Was it designed with the intention that it fail (requiring us to rethink how we define “success”)? I think there’s general (though not unanimous) agreement that it was designed to do thing that it is clearly going to do: crush the Greeks, either within the Euro or outside of it.

Roger: “After all, the EU is a built in safeguard that would protect these elites from the slight chance that a lefty party would be elected and want to raise their taxes or protect unions. ”

Excellent point (and way of phrasing it). The EU is now a neoliberal regime.

Greece is a tough example:
http://www.transparency.org/country#GRC

All improvements in government performance have been led by the ’10 bailout. This one will lead to the next round of government accountability and transparency improvements. Yes, it is ironic that Germany and the EU is driving it, but someone has to do it. 18% of greeks report paying a bribe to the government, 3x the EU average.

the greek gov’t still has the infrastructure from the 1970s juntas.

68 – good point. But I’m just quoting the phrase from an earlier post at 61. The puzzle of why economies that are being heavily punished by austerity still cheerfully go along with the EU – such as Portugal, Italy and the like – is really the same question. Those semi-members like Bulgaria are still going to want to come on board – or their elites will. As for Hungary, I take the opposite lesson here: it really doesn’t matter if the government that is in power is openly fascist. what matters are those budget deficits and whether structural “refoms” have been made.
http://blogs.wsj.com/emergingeurope/2014/10/01/eu-hungary-needs-structural-reforms-to-avoid-eu-budget-surveillance/

Greece should have the effect on the pro-EU left that Hungary in 1956 had on the pro-Soviet left. There’s no space left for illusion.

Nice analogy.

@68 Hungary is not subject to this kind of political control, because it has its own currency. Admittedly a lot of its loans were foreign-denominated (CHF), but that just meant that there wasn’t a bailout which pushed the private sector problems onto the state sector.

Here (2011) we have anger and “continued government unwillingness to bend to the whims of international organizations bodes ill for the sustainability of government debt” (Greece passim)

http://www.businessinsider.com/everything-thats-going-on-in-hungary-and-why-the-central-bank-law-it-just-passed-is-making-the-eu-and-imf-furious-2011-12?IR=T

.. and here (2013) we have them telling the IMF to get stuffed: http://www.independent.co.uk/news/world/europe/hungarian-central-bank-wants-imf-to-leave-after-it-pays-back-bailout-loan-8710008.html

The Greek banking system had its air supply under the control of the EU institutions, which could be cut off for political reasons, whereas the Hungarian one did not.

A counterfactual early-exit Greece might look a lot like Hungary today: not without its problems, but not in the headlines every day.

‘“Greece should have the effect on the pro-EU left that Hungary in 1956 had on the pro-Soviet left. There’s no space left for illusion.”’

Except that we saw the cost of no EU in 1914 and 1939. Is that really a price the left should be willing to pay?

http://www.spiegel.de/international/germany/germany-s-schreiber-affair-the-scandal-that-helped-merkel-become-chancellor-a-640938.html

Unexpected Questions In Parliament Led To Lies

Meanwhile Kohl’s likely successor in the CDU, Wolfgang Schäuble, was becoming ever more enmeshed in the Schreiber scandal. At the time, Schäuble was one of the most popular politicians in the country and in 1997 Kohl had handpicked Schäuble to succeed him at the head of the CDU — but because the CDU lost the election in 1998, Schäuble became the party’s chairman.
When questioned in parliament in 1999 about whether he had accepted a donation during a meeting with Schreiber, Schäuble disputed the question. But in a radio interview in January, he admitted he had met Schreiber at least once more. That created suspicion that a second donation had been made. Whatever the case, indignation within the ranks of the CDU and its Bavarian sister party, the Christian Social Union (CSU) toward Schäuble grew so much that he was forced to resign.

So how exactly did Merkel profit from the Schreiber incident? The former party secretary became aware that, in the face of an unexpected question in parliament, Schäuble had lied about taking cash from Schreiber. Merkel realized at the time that this secret would eventually come out and would inevitably lead to Schäuble’s downfall. She also knew that, if she wasn’t careful, she could go down with him. After all, it was only logical that the general secretary of a party would have the confidence of the head of that party.

And so she wrote about it — in what was widely described as a “Dear John” letter addressed to Kohl and published in the Frankfurter Allgemeine Zeitung newspaper on Dec. 22, 1999. In the letter she was very critical of Kohl, saying that the new generation of politicians in the CDU needed to distance themselves from him, in the same way that teenagers must distance themselves from their parents if they are to become adults. Even though Merkel had only told Schäuble about plans to publish the open letter the night before, Kohl was convinced that the missive had been published with Schäuble’s foreknowledge and approval.

Suddenly Kohl seemed to discover his old political boisterousness, attacking Schäuble ever more vigorously. Perhaps he wanted to secure a virtuous place in the national history as the “father of German unity” — he had presided over the re-unification of East and West Germany — rather than the infamous politician with the dirty donations. A war of words, via various interviews, ensued, the likes of which had not been seen before. The fight between the two former friends and allies escalated to the point that Kohl abdicated his seat as honorary chairman of the CDU and Schäuble resigned his position with the words: “The CDU finds itself in the most serious crisis in its history.”

This article is eye-opening. You need to put it through Google translation, but if you know a smattering of German you can readily make most corrections. (“Schaueble weiss” gets translated as” Schaueble white”, etc.)

http://deutsche-wirtschafts-nachrichten.de/2015/07/14/schaeubles-plan-deutschland-muss-raus-aus-dieser-euro-zone/

@83 Wow.

Schäuble traut den Italienern genauso wenig wie den Griechen. Ãœbrig bleiben: Deutschland, Österreich, die Niederlande, Luxemburg, die Slowakei und, wenn möglich, Frankreich. Doch das ist sehr fraglich . . .”

Schauble trusts the Italians as little as the Greeks. These would remain: Germany, Austria, Luxembourg, the Netherlands, Slovakia, and if possible France. This last, however, is very much in question.

NYT said something alone those lines, but less drastically.

“Scott P: if the present German government were as determined to start a war against their neighbours, to conquer France and Belgium, and later defeat Russia and cripple Britain, as was the case in ’14 and ’39, I don’t think that having an EU would make a blind bit of difference.”

My argument is that the EU makes it much much less likely that Germany, or any other country, would develop such ambitions. It is the net that keeps Europe suspended above the abyss.

Scott P. “My argument is that the EU makes it much much less likely that Germany, or any other country, would develop such ambitions. It is the net that keeps Europe suspended above the abyss.”

I would say that it’s a nice argument, but it’s more of an assertion-without-proof.

I’ve been following this primarily though Yves Smiths writing on the excellent Naked Capitalism blog and she has been consistently right in her analyses throughout the programme.

Its been pretty clear that Varoufakis has correctly known all along that a Greek exit would be catastrophic – creating a new currency from scratch would take many months to prepare, and in the meanwhile the Greek economy would simply implode without functioning banks. Its also clear that Tsipras for all his rhetoric was very much on the ‘moderate’ side of the party which was always ready for a compromise. He seems to have simply assumed he could use his charisma to sell a deal to the Greek public.

Its also clear that the Greeks completely underestimated the determination of the Germans and ECB to punish them. Its all very well going into negotiations thinking you have good strong arguments (of course they did), but this is no use when your opposition is determined to gain a ‘victory’ no matter what. The reasons why weaker members rolled in behind the Germans are another story of course, but it was always predictable that this was highly possible.

Syriza should have had a ‘plan B’ in the form of some sort of planning for a parallel currency – but its obvious that no preparations were done whatever, which is something I find astonishing. And they did not seem capable of changing their tactics once it was clear that what they thought was strong negotiating position was nothing of the sort (especially when it was clear that the Germans believed Grexit was not just manageable, but politically desirable). In effect, they walked straight into a trap.

The long term consequences of this are I think incalculable. It may take months or even years, but it will eventually undermine all the work of decades in building up a more united Europe. I’ve personally gone from being a passionate Europhile into a deeply reluctant Eurosceptic. I believe that this will completely undermine the general belief, especially in the smaller countries of the fringes, that the European project is largely benign. It will inject a poison into European politics. Europe is now not run on consensus its run on small mindedness, fear and bullying. And the blame for this lies firmly on Merkel.

“Except that we saw the cost of no EU in 1914 and 1939. Is that really a price the left should be willing to pay?”

Post hoc ergo propter hoc.

Scott P@87: “My argument is that the EU makes it much much less likely that Germany, or any other country, would develop such ambitions”.

By your argument, pre-1973 France, Belgium, the Netherlands must have been terrified that Britain (not then even restrained by the EEC) might have invaded them at any moment.

Or have I misunderstood you?

NB pre-1983 there was no danger at all of Britain invading Germany. BAOR and all such NATO dispositions made that quite unnecessary. That, rather than the EU/EEC, is what prevented any more Franco-German unpleasantnesses. I reckon that by now, force of habit has made such unthinkable anyway.

Or do you really believe that, without the EU, Kanzlerin Merkel’s Panzer divisions would be rolling westwards?

Talk about swivel-eyed lunatics …

@91

Did you read the interview with Varoufakis? I find Yves Smith very overrated. She was second guessing Syriza the whole time with no evidence. Syriza tried to get a better deal but couldn’t because the Germans wouldn’t renegotiate.

Say they had planned for a parallel currency. After they unveiled it, what if the Germans kicked them out of the Eurozone against the wishes of the majority of Greeks and of Syriza? Then what? Their government collapses?

Here is Varoufakis in 2012 saying switching over would be hard. Maybe he is wrong but what if he wasn’t?

http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/

Now personally I would have gone to a parallel currency and hired experts to help, etc. But it’s easy for me to say. The Greeks didn’t want to do it. They didn’t want to do so badly, that they’d take austerity instead. Smith just doesn’t appreciate that. Easy for her to speculate that Grexit would go smoothly when she doesn’t have to live with the consequences if it doesn’t.

“I reckon that by now, force of habit has made such unthinkable anyway.”

As Brad deLong has pointed out, for 2000 years a hostile army crossed the Rhine river in one direction or the other about once a generation. That’s the force of habit I am worried about, and a 50 year hiatus shouldn’t make one too sanguine. The Balkans were quiet for 40 years, but that didn’t mean war couldn’t break out.

“Take Japan, which was also an aggressive, militarist country that went round starting wars”

Japan had a history of getting involved in foreign wars for 50 years, not 2000 years. Its militarism was the anomaly. In Europe, peace is the anomaly.

All this obsession over whether Syriza won or lost is missing the point. The Eurozone is fundamentally broken and this episode has shown that the elite that run it are totally blind to the problems.

I would like to know what the “pragmatists” praising this deal and saying it should have happened 6 months ago will be saying when the ECB raises rates a few points and sends Italy, Spain and France into a tailspin.

The only thing that has kept the EZ together is that performance has been horrible across the board, it is ready to crack apart from any inflation or bad political result in a too large to fail country. But the serious people think that squeezing the most out of retired Greek hair dressers is the most important thing in world. Its just sad

It strikes me that Yves Smith is in some ways a lot like dsquared: they’re both very smart, very well educated, and very, very good at what they do. They also know the game — they’ve already proven themselves to be expert players.

Watching overmatched people like Tsipras and Varoufakis try to change the game makes them itchy. They’ve done the math. They know intimately the resources arrayed against the Don Quixotes of our recent history — the institutional resources they can’t hope to match, the fundamental disadvantages of the pitiful political alliances they’ve managed to scrape together, the experience, the malevolence of the players on the other side of the poker table.

The rules can’t be changed. Genuinely smart people follow them where they must, snatching what they can from them with a bluff here, a pose there, a little sleight of hand when no one is looking too closely…. Only stupid or misguided people — honest people? — attempt to substitute their own rules, much less announce their intention in advance.

Whether or not you speak in economic terms of the imperatives of the sunk cost, or in cultural and political terms of the equally imperious and equally dead hand of history, there’s a lot to be said for the seductive power of there-is-no-alternative, and the persuasiveness of its trained acolytes. Still, as JW Mason alluded to several threads ago, if you can’t understand why someone as obviously smart as Yanis Varoufakis would nevertheless go ahead and commit himself to the seemingly lost cause of insisting on the rights of Greeks in the councils of the EU, you’ve missed something very important,

@91 “…it was always predictable that this was highly possible…”

Especially in hindsight!

I like how armchair strategists have so much more insight and maneuverability than the poor saps saddled with an ambiguous mandate.

OBVIOUSLY there were flaws in Syriza’s strategy. Whether those flaws could have been easily remedied is not so obvious.

So, no comments on Schäuble’s slush-fund shenanigans. I guess that’s old news. Statute of limitations. Nothing to see here?

@106 He never had a Paris Match photo spread so he is obviously a respectable and serious person.

> OBVIOUSLY there were flaws in Syriza’s strategy.

Only insofar as they failed to take sufficient account of “the man on the other side of the table is completely fucking insane”[1]. As a strategy for dealing with sensible people it worked pretty well, convincing the french and the IMF.

I really, really don’t think that Syriza can be blamed for failing to predict that the german finance minister was entirely irresponsive to anything he didn’t want to hear. And, even if they had… You don’t plan for “you’re fucked” situations because if they happen you’re fucked. Nothing you can do -> no actions you should take -> nothing to think about.

[1] Should be read in the context of the other things I’ve said.

“It is a hallmark of civilized societies that one cannot sell oneself into slavery.”

More importantly, any reasonable conception of autonomy, self-determination, and democratic sovereignty cannot allow me to sell my descendents into slavery.

john c. halasz @111 “it is old news and widely known”

I know it is literally “old” news. I didn’t know it. Probably because until this Greek crisis started blowing up I didn’t know and didn’t care who the German finance minister was.

But it seems to me to have renewed relevance in light of Herr Schäuble current mania about “the rules.” And this isn’t about allegations. He admitted receiving the cash.

“So what gives?”

Karlheinz Schreiber gives.

Cash.

On one hand, going to the drachma, even with the best of planning, was going to be very disruptive of the economy. On the other, Greece has suffered 2 weeks of economic collapse, and has years of stagnation to look forward to. Would introducing the drachma have led to a worse 2 weeks than those Greece just suffered? Would it have led to a worse short/medium-term forecast?

Was it blind devotion to the euro (just a currency!)? Was it an inability to understand how the Germans would use the ECB to destroy their banks? If the former, I wonder what psychological barrier is at play. If the latter, I wonder how anyone in Syriza leadership could be so sanguine about Germany considering Schauble. You got a vindictive madman on the rudder and you don’t even consider preparing yourself a lifeboat?

Scott P. #99- I think you’ll find that Japan has a much longer history of wars than you think, for instance shortly after becoming a properly unified country in the 16th century they invaded Korea. Moreover the roots of the militarism and chauvinistic nationalism that helped fuel the more recent foreign wars were set up then, so it’s far too simplistic to point out that they only had 50 years of foreign adventuring.

The insist on rules part of this entire story is one that im rather supportive off. Im getting the impression many countries agreed on rather stupid new rules even after the crisis broke out because they figured Germany wasnt serious about sticking to them. Big mistake – not just because Germany was sure serious, also because their own people wont just let them get away with breaking constitutional level laws with no price to pay.

@121 “…first he lied about it to the parliament…”

Yes, he lied, which is accordingly why he had to resign as leader. Merkel knew the lie would out and if she didn’t lance the Schäuble, she would perish with him.

So how exactly did Merkel profit from the Schreiber incident? The former party secretary became aware that, in the face of an unexpected question in parliament, Schäuble had lied about taking cash from Schreiber. Merkel realized at the time that this secret would eventually come out and would inevitably lead to Schäuble’s downfall. She also knew that, if she wasn’t careful, she could go down with him.

From the astute Heer Jeet on Twitter.

“@HeerJeet: It tells you everything you need to know about the EU & the troika that the IMF is the good guy in the Greek crisis.”

“Its also clear that the Greeks completely underestimated the determination of the Germans and ECB to punish them … [t]he reasons why weaker members rolled in behind the Germans are another story of course.” – PlutioniumKun@91

And that other story is the fascinating bit. Without denying German shortsightedness they are very far from all powerful in the EU (let alone the Troika); others seem at least as shortsighted, if not so foolish as to boast of their stupidity.

Why were so many others willing to jump off the cliff with the Germans? Did those new eastern members not think about what German hegemony has meant for them in the past? Did not the other southerners see how much these events have utterly destroyed their own future position? Are French elites not afraid of the lesson their country’s powerful left will draw from this? Have they all thought through what a Brexit – now immeasurably more likely – would mean for their own future position?

the “rule” being broken here is that creditors get to play by whatever rules they like, and debtors have to follow those rules.

From the Wizard if Id, 1964

King: “We must all live by The Golden Rule””.
Peasant: “What the heck is the Golden Rule?”
King: “Whoever has the gold makes the rules”.

William Timberman,

“The rules can’t be changed. Genuinely smart people follow them where they must, snatching what they can from them with a bluff here, a pose there, a little sleight of hand when no one is looking too closely”

This is why I keep saying the Greek Government should be working towards the Sustainable Development Assembly. The point of the Assembly is to change the rules.

“Revolution is possible only if sufficient outrage can be generated — which is a big if — and is, besides, a very blunt instrument.”

The United Nations are just trying to generate community awareness of and support for the September post-2015 Sustainable Development Goals Assembly and the December post-2020 Climate Change Commitments Assembly through their ACTION/2015 campaign.

http://action2015.org

As people can vote in most countries, you do not need to change things by having a revolution. You just need policies and people to vote for or if no one is doing their duty you go to court like Ingrid and get the court to order the government to do their duty.

You would only want a revolution if you were part of a militia and thought you couldn’t win the vote or a court case but maybe your militia could take control by force in a revolution.

I am afraid I haven’t heard of Lenin’s question.

Ahh, thank you, I have heard of that it just didn’t spring to mind :)

The big rule breach would be against the no bailout clause in the tfeu if Greece would default on the credits as demanded by the Tspiras government. The 2003 episode, everybody just knows about it because Germany did not just doctor the books even so it was very minor but rather went through the full formal breach procedure. Everything done by the book, even the “rule breaking” (no not really all considered).

With regards to the Schreiber story: He was probably facilitating 100 million or more in bribes to get the CDU to approve arms exports to Saudi Arabia. Also probably bribing Canadian politicans in a similar vain.

Autonomy, self-determination, sovereignty all carry with them the right to make binding agreements. [including i.a. the right to sell oneself into slavery or eternal debt bondage]

As a claim about individual autonomy I’d have thought this was at least controversial. It seems definitely false with regard to states (‘parliament can not bind its successors’ is a prínciple of British democracy).

the Fixed Term Parliament Act, 2011 was nevertheless passed, and the present parliament appears to see itself as bound by it

1. Parliament can repeal FTPA 2. FTPA ≠ selling British nation into slavery

D2 defened TINA and don’t want to be called a neoliberal? So he wants to have it both ways, hum?

More seriously, what D2 fails to understand is that the problema was not with his analysis. But with the implicit (sometimes explict) defense that, because he saw no alternative, then it was the right thing to do (morally). If a I put a gun on your head and demand your watch, it may well be the rational thing to do to give me the watch. But it doens’t seem right.

Additionaly,, history is now inevitable? It’s one thing to say that the most likely outcome is A, and when A happens, to say, see? A pice of evidence that increases my confindence that I was right. Another thing is to say that it was inevitable all the way.

And about D2 claim that austerity was working in the end of 2014, Krugman says it’s not true . I didn’t fully undestand Kugman’s point in exihbit 2, since some red points are positive and others negative in the x-axis. Could somebody explain it better to me?

I don’t believe d-squared claimed austerity was working in 2014. I pressed him on that and he seemed more to believe that it was more of a “depressions don’t last forever” thing. My main beef with him is that he seemed to be operating under the assumption that Germany was trying to keep Greece in, while the evidence seems to suggest that Germany wanted to kick the can down the road long enough to protect the banking system and THEN kick Greece out. See so what would your plan for greece be for an older d-squared take on it.

The problem with that from a moral perspective is that if that were the plan all along it would have been much better for Greece to get out in

I want to point out that in the thread I cite, I asked the pertinent questions at 241 I suggest that either A) Greece limps with massive austerity with no chance for enough growth to get out from under the debts, or that it B) takes a massive austerity but gets out from under the EU straightjacket and has a chance at growth. His response was “it’s a bit of a canard that the ECB sets policy so as to keep Germany and France booming and the periphery in recession and I don’t really see how anyone can look at policy since 1999 and conclude that. And in B), the “massive austerity” is much more massive than the “massive austerity” in A, and the initial GDP decline is much bigger. And if you have a 25% leg down, then you need quite a lot of years of recovery to get you back to where you were.”

The scary part is that his 25% leg down is a criticism of the “leaving the euro” choice. But it actually happened in the “staying in the euro” choice.

I then point out that if Italy is to avoid the same fate, it is going to need 2% growth forever, which it essentially has never had on a long multi-year basis.

At 256 I raised “Also, isn’t there the sneaking suspicion that Greece will have to limp along under hyper-austerity for 3-5 years and then STILL default with all of the pain of the default.” which wasn’t well received.

At 271 he wrote “No, Greek pension funds are in the private sector. What I meant was that the troika and ECB (and maybe the Greek banking system to an extent) would be the only creditors, and so a writedown on Greek debt would be much easier to negotiate on much easier terms. I’m not interested in what might be necessary for long term debt service in Greece because I don’t think anyone is planning that.”

I’m not saying this to pick on d-squared. I think he really was transmitting the informed consensus.

I just want to know why the failure of the informed consensus doesn’t change any minds.

What I find hard to wrap my head around is this: Everybody refers to a “deal” or an agreement having been reached that would save Greece albeit at great cost, but the small print is that Greece Parliament passing the probably impossible and probably insane reforms demanded by today, and more in a week, is only the *condition for negotiations to start* on an actual aid package. Why is this “detail” consistently being passed over? It’s not that it’s not being reported but I haven’t seen *anybody* commenting on the possibility left open that after Greece surrenders, there will still be no deal. Although maybe I just shouldn’t expect any rational debate on any of this anywhere in the MSM.

The other question I am as curious about as Matt Yglesias is why the German finance minister of all people demands that Greek stores stay open on Sunday. Or whose demand was that, and how on earth is it related to Greek government debt? A lot of this is just plain surreal.

@ 148:

The 2 squares to the left of the Y-axis should be negative numbered. IOW they both decreased their “fiscal consolidation”, i.e. slightly increased their fiscal deficits, by about .5% of GDP. They also experienced lower growth, than the others with positive reductions in deficits, which goes a bit against the point that PK is making, but that increase in deficit may be because of lower growth rather than a failure of the overall correlation. (I’d need to know which square is which country and then look up the data to check that out).

Sebastian H @ 149:

Let’s just say that Daniel Davies has scarcely covered himself in glory on the Greek crisis issues.

Sebastian H: “I’m not saying this to pick on d-squared. I think he really was transmitting the informed consensus.”

Actually, the informed consensus of hippies was that what has now actually happened was going to happen, based on the obvious politics involved. What d2 transmitted was the consensus of bankers, which really has no connection with reality.

The failure of the banker consensus doesn’t change any minds because they are, by definition, “informed”. Even when they are wrong, they are wrong for the right reasons, and so they are really right, unlike people who are consistently right for the wrong reasons.

“Actually, the informed consensus of hippies was that what has now actually happened was going to happen, based on the obvious politics involved. What d2 transmitted was the consensus of bankers, which really has no connection with reality.”

Really? This is a most interesting claim. Let’s go back to a recent relevant and contentious post:

dsquared – ” And in turn, the clear risk of that is that Syriza wins the election early in 2015 and starts on the program of “create a load of chaos in Euroland in order to get concessions” which it has been indicating (and occasionally and rather scandalously, pretending that it isn’t). ”

“Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills.”

“It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. ”

“So, the question is – does Syriza have any way of getting itself into a position where it can make the Eurosystem do something that they really, really don’t want to do?….As a strategy it is …cute. I think it might even have worked if tried three years ago; …. I can entirely see why it’s attractive to Syriza and why Tsipras has made it a constant theme of his recent rhetoric that Greece is in a stronger negotiating position than it realises.”

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

“The successful outcome from BES must surely encourage the Eurosystem policy makers to think that Greek euro exit, if it happens, could be contained. It’s no longer all that likely that any Euroland bank has big enough Greek exposure to knock over its capital, and even if there is a genuine liquidity squeeze, the ECB can pour out liquidity support much more aggressively than it did in 2011.”

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

You could certainly argue that Dsquared gives the Troika negotiators too much credit for negotiating in good faith, or that he is wrong on specific technical points or matters of emphasis. But this analysis seems largely spot on.
What exactly is the more accurate ‘hippy’ version ?

Ronan(rf): “What exactly is the more accurate ‘hippy’ version ?”

The more accurate version is that the banking system was never, ever going to give up on austerity, and that therefore the Greeks would do better getting out of the Eurosystem. Since Syriza intended to bluff, and not to actually prepare for Grexit, they did the wrong thing. d2 recommended giving in, as if giving in could possibly solve the problem rather than merely leading to new rounds of austerity.

@Ronan156

We’re not putting enough emphasis on the fact that Tsipras is following public opinion, and his popularity appears to be strengthened, rather than diminished. The Greeks wanted him to fight for a better deal. He did, and failed b/c of his lack of leverage. The Greeks don’t blame him and now want a deal to stay in the euro, even if it’s a terrible one.

He is literally the only one left standing in Greek politics right now (as ironic as that is given the failure of his renegotiation). The problem, of course, is that the bailout terms are completely unfeasible. I’m not sure what impact the IMF’s debt-relief-or-we-walk declaration will have, but it maybe it will lead to the dissolution of the deal (creditors’ fault) or to a better deal. If Syriza survives, as it looks like it will, it is in a position to try and break with austerity further down the road and without having to drag most of the Greek public with it.

@156 Excellent question. Sooner or later Trig Palin and the Koch brothers will named as the real authors of the Greeks’ misfortunes. I find the level of venom directed at Daniel frankly astonishing. To expand the discussion a bit, I suspect some here badly underestimate the levels of support many Europeans feel for Germany and the EU taxpayers.

The moral minority shot themselves in the face in the run-up to Labour’s catastrophic defeat sneering at UK Eurosceptics. Our betters in every sense now find themselves in the ridiculous position of defending membership in the EU project whilst attributing the vilest of motives to EU politicians and bankers over Greece. As a fraction of the Greek population take to the streets to seize headlines, Tristam Hunt asserts that the only way UK Labour can avoid disappearing is to wrap itself in the flag of St. George. Andy Burnham wants to win back ‘white van man,’ and Jeremy Corbyn is evidently the current front runner by 15 percent according to the DM. In short, UK Labour is all over the map. A 20 year-old from Scotland seems to have a far firmer grip on what ails UK Labour, and a significant subset of the Greek populace seems to believe that a benign majority of wealthy European liberals is about to ride to their rescue. Whatever Daniel’s shortcomings, his assessment of the Syriza’s questionable strategy and the potential downside of such an approach seems far more astute than most others. Stepping in front of oncoming traffic with your kids and expecting all the trucks and cars to stop is rarely a wise move.

If we want to dream, all individual Greeks owning more than say 200k should have had to use the money in excess of 200k to pay back the government debt (non liquid assets could have been handed over as government ownership stakes in the assets, no need for fast sales at discounts). The problem with that is its the kind of thing is that people like Schäuble actively discourage it. So its rather hard to lay the blame for not enforcing taxation of rich Greeks on Syriza or even individual actors.

Just to be clear, I certainly don’t think Tsipras is the Son of God, I just meant the ideological consequences of some events aren’t easy to foresee (and, like others, disagree that ‘resistance was futile’).

165: One could turn this around and observe that the creditors – if they are at all capable of rational action – should have a keen interest in preventing complete social breakdown in Greece. You are not likely to get debt service from a failed state. It doesn’t seem though that that ever entered into their consideration. The mystery is that Greece is still mostly quiet despite a 25% GDP plunge and 60% youth unemployment.

The other question I am as curious about as Matt Yglesias is why the German finance minister of all people demands that Greek stores stay open on Sunday. Or whose demand was that, and how on earth is it related to Greek government debt? A lot of this is just plain surreal.

I have a plausible explanation for this. I don’t think I’ve seen anything else offered.

@168 Agreed. The problem with that approach is that Germany is quite ready to boot Greece out of the EU and (evidently) take the short-term losses. The IMF decision to demand debt forgiveness from the Germans after the agreement was signed was cynical in the extreme and may well have been intended to trigger a collapse. Who knows? All of which leads back to

@169 also, agreed. The principle of pan-European solidarity seems farcical at this moment. What is clear is that for Germany, the UK, and nations exporting into other EU nations, solidarity meant take the profits and pass on all the pain to the poorer nations.

Who could have seen that coming?

The Kouvelakis interview Bob links to is very good.

@174 Good for whom – lint pickers and armchair theoreticians, or the people paying the price of the ongoing follies?

@177 Apologies.

Seconding engels. The Jacobin piece mcmanus links to is the best thing I’ve read post “deal”. I’d meant to link to it myself.

@kidneystones 07.15.15 at 7:44 pm
>To expand the discussion a bit, I suspect some here badly underestimate the levels of support many Europeans feel for Germany and the EU taxpayers.

@Ronan(rf) 07.15.15 at 8:16 pm
>Yeah.

Sure, the right-wing propaganda is everywhere, and many people enjoy right-wing rhetoric, want to align with the rich and the strong and to see somebody else below, the undeserving unionised welfare-consuming lazybones, rot. Some people really like the idea that eleven million nasty Greeks conspired to cook the books and deliberately take on unsustainable debt in order to have longer holidays, hoping to mooch off honest, virtuous hard-working good boys and girls (potential future millionaires) from other countries like themselves. There is a plenty of this type of individuals among the total homo sapiens population, and that includes Europe. I wish I had more opportunities to underestimate their numbers.

@181 Here’s something every union member, socialist, and right-winger who’s ever paid down a mortgage understands. Banks don’t want us to give them our money. Banks want us to re-pay their money, the money we asked them to lend us.

Their money doesn’t stop being their money, simply because it’s temporarily in our possession. That’s what the verb ‘to loan’ means. Banks don’t ‘gift’ money to those in greed, or need. Banks loan their money to others and profit from the exchange.

Hope this clear things up for you!

@kidneystones 07.15.15 at 6:00 am
>And it wouldn’t even occur to Greeks to buy Greek government bonds

Yes, brilliant. Just when everybody else knows the Greek state is unreliable and the Greek debt is rubbish, the ordinary impoverished population, which doesn’t know if it will survive the next day, should bet its own money on it. Let’s attack them and condemn them morally for not doing it! Beautiful. Also how interesting that the Institutions don’t propose some ‘solidary initiative’ like this, voluntary or mandatory, as a solution, but instead insist on privatisations, cutting benefits and firing people.

@Phil 07.14.15 at 9:04 pm

>Now, though – at the moment when the European project appears most nakedly and uncompromisingly driven by capital – I’m getting cold feet. I certainly wouldn’t vote to create the EU now, but it seems to me that – in the UK at least – the Eurosceptic running is being made by people who want to leave the EU so that they can take workers’ rights away, make immigrants second-class citizens and have a free and open debate about bringing back the rope. And some of those people are in power. Scary times, and not the time to insist on voting “in good conscience“.

If you can’t protect workers’ rights, immigrants and humane laws in your own country, you can’t protect them at all. You can’t expect a benign foreign uncle to maintain them. For one thing, he is not benign and is clearly not really interested in protecting those things. Actually, political uncles, foreign or not, are *never* benign. As for the claim that the Eurosceptic movement is a project of the Right – well if the Left goes Eurosceptic, then it won’t be a project of the Right any longer, will it.

buy Greek government bonds

I’d be happy to buy Greek government bonds if the interest rate was high enough. But only as a substitute to my trip to the local casino to play roulette. Variety is the spice of life, after all.

But would I buy Greek government bonds as part of my retirement savings plans? No. I would not.

Or to modify the classic definition: a bank is a place that’s more than happy for you to have their money, as long as you don’t need it.

@kidneystones 07.15.15 at 11:55 pm
> Excellent post. Smug, self-righteous, ignorant, sanctimonious, and ill-informed. I suppose the 12% of the British public who supported Labour on immigration are the virtuous (like you, I’m sure!) And the 48% who favoured UKIP and the 27% who supported Cameron are either bigots, wannabe millionaires and those who look down on the non-tax paying welfare spongers. Sounds like a template for success, just like a paint-by-numbers set.

I don’t remember having talked about immigration, and I don’t know anything about the specific poll you are talking about (I am not a British citizen). In fact, I think that one can make reasonable arguments for limiting immigration. But as for the fact that much of the right-wing base all over the world consists of ‘bigots, wannabe millionaires and those who look down on the non-tax paying welfare spongers’ – well yes. I talk to them, I listen to them, I read their writings, and that’s what they are. Not necessarily unpleasant or thoroughly evil people in everyday life, by the way. Sorry if you love them and don’t want to hear nasty things said about them.

@kidneystones 07.16.15 at 12:02 am
>@181 Here’s something every union member, socialist, and right-winger who’s ever paid down a mortgage understands. Banks don’t want us to give them our money. Banks want us to re-pay their money, the money we asked them to lend us. … Hope this clear things up for you!

It doesn’t really, because I’ve got no idea why you felt this was a relevant thing to post. Not quite accurate, either, but I don’t even see a reason to discuss it.

If you can’t pay, then the rules come in

Whether or not you *can’t* pay is a question of judgment, and the rules determine, in part, how that how that judgment is formed.

Thus we have the ECB making fine distinctions about whether the Greek banks are solvent but illiquid, in which case it is prepared to provide support, or insolvent, in which case it is not.

“Whether or not you ‘can’t’ pay…”

My bad. I should have said DON’T pay them.

I just read Krugman’s “Angry Germans” post.

Then I read the comments.

OMFG.

How common are these attitudes in Germany? Does a substantial percentage of Germans sincerely believe they are the victims in this?

Anti-Greek ‘handout’ attitudes are common across Northern Europe at the moment, and up a lot in Germany in the last six months, according to a poll in the Daily Telegraph yesterday. That is probably not unrelated to a lot of the anti-German insults and rhetoric Tsipras and Varoufakis were throwing throwing around at the start of their term – harping on about (no, Germans still don’t like that) and speculating about seizing German (not EU) assets. Irrespective of what you think about their substantive position, that was an unbelievably stupid way to start the discussion, and has led to one of Angela Merkel’s problems, which is that if she brought back any deal remotely acceptable to people commentinghere she’d be wiped out.

More generally the Northern European position can be understood by people trying to take this down to fundamentals which is that Greeks got all the money and good living from the original loans and Northern Europeans will be the ones to actually pay a lot of that money back. That’s not a very helpful lens on this issue but surely it’s an understandable one?

Tabasco@197: Right. But—is this also the common view of the general public of Germany? If so, we are much nearer to civil war in the EU than I had thought.

Chris Bertram@90: (4) will lead to civil war within the European Union.

I’m up late, having open-eyed nightmares. I think I will try to sleep now.

Nazi comparisons are a big no go. Just dont do it. And yes, in general Anglo-Saxon public opinon, in particular the nytimsy type sounds very detached from reality here. The newest is that Schäuble is ok with a debt writdown if Greece leaves the Eurozone, thus circumventing a breach of the TFEU.

Otherwise, Greece is better off with closed borders and its own currency (setting aside transition costs).

“Floating currency as non-tariff barrier” was a thought that came into my head thinking about trans-tasman currency union. It’s a rather nice one-way mirror, too: investing in the small economy from the larger is a much riskier option given the alternatives than expanding outside your original economic area.

@206
“The US, China, Australia, etc., do not all of these feature constant monetary transfers from wealthier to poorer regions primarily through federal spending? How much tax does the US collect per capita, given average income, presence of major industries, successful businesses of all sizes reflecting the general economic climate, etc., in California? Now, how much in Alabama? ”

Yes, that’s true. But California and Alabama have transfered a substantial portion of their sovereignty (more every day it seems) and by far the greatest portion of their taxing authority to US government in exchange….if Greece or any other EU country would like to sign up for Alabama’s deal I’m quite sure there would be any number of Germans happy to help draw up the paper work.

“Yes, that’s true. But California and Alabama have transfered a substantial portion of their sovereignty (more every day it seems) and by far the greatest portion of their taxing authority to US government in exchange….if Greece or any other EU country would like to sign up for Alabama’s deal I’m quite sure there would be any number of Germans happy to help draw up the paper work.”

People keep using it like it is a winning argument, but it doesn’t make sense. First, they don’t seem to understand that states in the US really do have large amounts of general autonomy. Second, they don’t appear to have looked at the Greek ‘deal’ and what it requires of the parliament (spoiler less sovereignty than US states over economic matters). Third, on the specifically contentious matter of public sector pensions the states have almost free rein, except they aren’t permitted by the federal government to write them down! Read that last sentence again.

“none of the nations is willing to do this (probably Germany included) so a debate of the relative soverignty given-up or not is pretty much moot”

I can’t imagine why you think Germany would be unwilling to support a stronger political union – which would be dominated by Germany & therefore govern to Germany’s benefit – or why, having raised the question of surrendered sovereignty, you now think it’s moot.

“MR. SCHÄUBLE said the German government would propose treaty changes at the summit of European leaders in Brussels on Dec. 9 that would move Europe closer to the centralized fiscal government that the currency zone has lacked. The ultimate goal, Mr. Schäuble says, is a political union with a European president directly elected by the people.”

I mean, it’s trivial to find German leaders arguing for greater political union, which necessarily entails surrendering some sovereignty.

Igor Belanov, you should ask them.

@politicalfootball 07.16.15 at 3:59 am
>And Wolf Richter, as quoted by you, is telling people not to panic in the midst of a bank run.

Exactly. Even if the bank run is completely irrational and a customer knows that, the bank run can still lead to bankruptcy as a self-fulfilling prophecy, and then the ‘rational’ customer will be punished for not having participated in the irrational action.

@Tabasco 07.16.15 at 6:27 am
>According to the writer of the article linked to by Krugman, the Germans at the conference he was at, (a) were outraged at being compare to Nazis; and (b) thought it entirely appropriate that collective punishment be meted to all Greeks.

Precisely. That there might be some kind of ironic contradiction between (a) and (b) seems to escape them completely.

“I say its moot because the EU had made efforts to create a more “US-like” union back when the Euro was being introduced, for the exact reason now in evidence”

The organizing premise behind the EU and the Eurozone is the ultimate attainment of a stronger political union. Of course there’s resistance to that idea, but the strategy of the proponents is this process of loose union which gradually grows stronger – out of necessity – over time, until the step to union becomes obvious and achievable. Schauble was quoted in an interview linked here at CT, in the last week, articulating who should be in (Northern Europe, basically) and who should not (PIGS and, perhaps, France).

I don’t recall what he said about the UK, but I imagine he can live without it. I’m reminded of the principle behind Britain’s foreign policy, historically, which was to align in opposition to the strongest power on the continent. It’s easy to imagine the UK opting out of a stronger EU.

@kidneystones 07.15.15 at 11:55 pm
>Smug, self-righteous, ignorant, sanctimonious, and ill-informed.

Now that I think of it, that’s actually another really neat example of right-wing ‘tu quoque’ rhetoric. The Left is regularly accused of being smug towards the smug, self-righteous towards the self-righteous, sanctimonius towards the sanctimonius, intolerant of the intolerant, violently opposed to violence, tyrannically prohibitting tyranny, fanatically opposed to fanaticism, uncritically attached to critical thinking, violating the freedom of people to deprive others of their freedom or to renounce their own. It never gets old.

@JohnT 07.16.15 at 5:50 am
>More generally the Northern European position can be understood by people trying to take this down to fundamentals which is that Greeks got all the money and good living from the original loans and Northern Europeans will be the ones to actually pay a lot of that money back. That’s not a very helpful lens on this issue but surely it’s an understandable one?

Understandable only if one: 1. Imagines that ordinary Greeks are somehow collectively guilty of taking these loans, when they had no idea what was happening; 2. Ignores all the information about how the economic structure of the Eurozone generated this situation; 3. Ignores all the information about the fact that the measures imposed by their representatives are actually counterproductive and harmful to the Greek economy, as well as making the repayment of debt even less likely; 4. Ignores the fact that their representatives are insisting not on politically neutral ‘virtue’ and ‘thrift’, but on specific right-wing reforms concerning selling of public property and labour legislation, which are unthinkable in their own countries; 5. Ignores the plight of the Greeks and keeps imagining that they live too well, like the ‘welfare queens’ of Reagan/Thatcher rhetoric. And if the German media and political establishment were not denying or concealing all this, German public opinion wouldn’t be what it is and said political establishment would have no problem making a decent deal.

@hix 07.16.15 at 10:37 am
>Nazi comparisons are a big no go.

I’d point out that destroying Greece is a bigger no go, but in any case Syriza didn’t say the Germans were Nazis – they just talked about the war debt, and saying that German debt was cancelled does not equal saying that modern-day Germans are Nazis, unless you really want to find some pretext to be offended. By the way, Nazism has come to be perceived by most as the pole of absolute Evil; when people want to show that something is bad, they often argue that it dangerously approaches some aspect of Nazism. Therefore, everyone is potentially subject to Nazi comparisons, and the Germans are not exempt from that just because they happened literally to have an actual Nazi regime in the 30s and 40s.

@hix 07.16.15 at 10:37 am
>And yes, in general Anglo-Saxon public opinon, in particular the nytimsy type sounds very detached from reality here.

Nothing more detached from reality than German public opinion. If Germans ‘on the ground’ weren’t told by their media that they had given money to Greece, they wouldn’t even feel it in their everyday lives. The people experiencing actual hardships because of this situation are the Greeks, and German public opinion is incredibly detached from *that* reality.

“I wasn’t aware Schauble had made such a proposal…”

He hasn’t. He has said that he intends to make some such proposal at the end of the year.

Whether or not it is wiser to make such a proposal just AFTER burning through decades worth of good will about the EU rather than before, and after demonstrating a willingness to try to destroy smaller economies for your political projects rather than before, is an exercise for the reader.

@224
Well of course it doesn’t it just happened, so there’s no data. However the final two paragraphs specifically focus on the 2012 Greek crisis which is probably a reasonable approximation of the net gains and losses to GDP resulting from union.

Peter Dorman wrote this tidbit on public attitudes in Germany:

http://econospeak.blogspot.com/2015/07/the-greek-transportation-giveaway.html

John Quiggin@127: “How does this insistence on rules square with Germany breaking the eurozone deficit rules in 2003?”

Because Germany is Deserving, of course.

It astonishes me that so many people have been got to go along with this garbage. One would think there would be more public questioning. Or perhaps there is and, as when 100,000 people demonstrated against the Iraqi war in Washington or when Americans ask, “Why have no bankers been prosecuted?” it is simply under-reported.

Is there an opposition press of any more reach than Charlie Hebdo in Europe? Anything at all in Germany?

From afeman’s link to Peter Dorman’s post:

If I’m sympathetic to the average German, it’s because, as an American, I’ve lived through the same thing. Replace “Greece” with “Saddam”, Iran, “the terrorists”, and so on, and you have plenty of information bubbles of our own. Remember the runup to the war in Iraq? Americans knew lots of things about Iraq’s connections to Al-Qaeda and its imminent threat to US security that made an invasion seem like a plausible solution. The fact that this looked like a collective mass hallucination from abroad had no effect on us. And Americans, despite their widespread support for military actions that can only be described as criminal, are not, for the most part, bad people.

I don’t want to be too harsh on Dorman, but this seems nonsensical to me. There was no information bubble for the people who cared to find out what the truth was. The runup to the war in Iraq was supported mostly by a) people who like the idea of killing people, b) people who have it as a core value to trust the government, c) tribal conservatives. And yes, in the only way in which citizens can be bad people as citizens, they were / are bad people. Maybe they wouldn’t personally shoot an Iraqi child, or have a Greek child die from easily preventable medical problems, but they’d send someone else to make that happen, so they’re responsible.

Saying that there’s an information bubble that we can easily penetrate but that most people can’t comes down to elitism. We’re not so much smarter than anyone else. The reason that they choose to do evil is that they choose to do evil.

@233:

Read Sandwichman’s link on framing in the comments to the Dorman post.

Several people seem to agree with m\e that constant monetary transfers from more productive economic areas to less productive ones within a unified economy are simply part of how it works and how it has to work. But this, as Trader Joe said, is usually achieved with greater sovereignty pooling that the EU has wanted. First of all, it is not necessary to pool sovereignty simply to transfer money. These days moving money around is quite easy. Sovereignty-pooling makes the money transfer less transparent and more politically-acceptable. But in its absence, the transfer of money can simply be accepted as part of the costs of union, and, if it is not accepted, that means the costs of union are too high and there should be no union.

politicalfootball asserts that the richer areas are still better off for being in the larger units. Not sure that always true, nor true regarding California (at this point in time) or the unification of Germany, but it’s only relevance to the point is this: if the rich areas benefit enough for the union that the necessary transfers are worth it to them, then it makes sense for them to agree to the transfers for the sake of the union. If not, it may still make sense for e.g. political or military reasons. But this doesn’t change the fact that the transfers are necessary and need to be accepted as a permanent fact, nor does it make it the case that sovereignty-pooling is the only way to move money from one place to another.

This current article in Handelsblatt may give a window into German elite thinking on Greece:

http://www.handelsblatt.com/politik/deutschland/politiker-gegen-steuererhoehungen-griechen-soli-schreckt-koalition-auf/12066332.html

The suggestion of an influential economist that the new bailout amounts to transfer payments, not credits (since they won’t be paid back), causes a lot of excitement. Most politicians deny that is the case. Schaeuble still promotes Grexit. One SPD politician counters that Germany “enormously” benefits from the presence of the weak Euro members – a perspective rarely mentioned.

“One SPD politician counters that Germany “enormously” benefits from the presence of the weak Euro members”

I have heard this stated in the context of the strength of the euro. The argument goes something like: ” Were it not for the basket cases the euro would be significantly stronger wrt say the dollar, thus boosting Germany’s exports.”

Has anyone performed plausible calculations about what the magnitude of this effect is? Possibly tho it is insignificant.

Talk of a “US-like” system of transfer payments is of only limited help to understanding, I think, because there are a variety of ways of casting the insights of economic theory, and the Europeans have been trying to create a currency union that is self-consciously not-US-like in important respects, but the politicians chose to create a financial system that had several glaring defects, and it isn’t clear to me, at least, that a “transfer payments” mechanism a la the U.S. (Federal government as a funder of social welfare and business subsidies) was one of those glaring defects.

The underlying problem that talk of a transfer payments mechanism is meant to address — and, I’m having to mind-read here, because no one ever says — is that Greece at full-employment is likely to run a substantial and chronic current account deficit. So, it is necessary to have some mechanism, either to fund that deficit, or otherwise to counterbalance and regulate or eliminate it. If Greece had its own currency, the mechanism might be periodic devaluation of its currency’s exchange rate (relative to the currency of, say, Germany).

The introduction of the Euro, without a banking union or even a modicum of financial regulation, provided a mechanism for funding a very large current account deficit, and the Greek economy boomed. There were massive financial transfers in the form of Greek (private and public) borrowing from French and German banks. The public borrowing took place at remarkably low rates, and more on that in a moment.

Now, Greece must pay. Greece must run a large current account surplus paired with a primary surplus in the government budget to fund those payments. And, the Greek economy is swirling down the toilet as a result.

For a Visitor from Mars, it is surely an instance of craziness: Greece must be made to pay, but its economy is to be throttled back to half-speed and its terms of trade, reflected in wage rates, must be worsened substantially by depression-induced deflation. Greeks will work less, earn less from work, and from the resulting (!?) surplus (!!?), pay more to their creditors. No wonder that the economics department at the IMF cannot make the math work.

Treated as a technical economics problem, the problem of how to bring Greece to full-employment without blowing out the current account is not impossible, even in a currency union. What is wanted is something like an import tariff. Obviously, tariffs are antithetical to the concept of a free-trade area, but the EU member states do have a fully-harmonized VAT. The Greek VAT could be made to give an effect not unlike a tariff. The incidence of an import tariff (who actually “pays” in the sense of how the welfare effects are distributed) depends on what is taxed and at how high a rate and so on: in general, one expects that an import tariff on things that continue to be imported will be divided between producers (exporters from some other place) and consumers. Exporters (aka producers) will yield some of their economic rents to hold onto markets, while consumers will yield some of income to the government, and see their demand curtailed by higher prices, reducing the pressure full-employment incomes place on the Greek current account, while potentially funding (balanced budget?) public stimulus and development spending.

I do not intend this as a serious policy proposal — I’m not writing this in a egotistical spirit of “Look at me, Bruce the Commenter has the answer!” I’m offering this thumbnail policy sketch as an illustration of what kind of policy design Europe might be trying to fashion, if it were not caught up in its neoliberal madness.

I don’t think vague hand-waving about US-style federal transfer payments does as good a job of providing that contrast, that outline of an Alternative to TINA. I think what Krugman or Simon Wren-Lewis offers, in the way of the Keynesian insight that austerity is self-defeating as it forces the Greek economy to spiral down to Depression levels of activity, from which no surplus can be extracted, is good on the politics in the sense that they are drawing attention to the cruelty, but not very good on the economics, because they leave so much of the hydraulics out that their insights do not lead logically to an outline of a feasible alternative policy. It seems to me, by not doing an adequate job on the economics, Krugman et alia, just contribute to the sense of helplessness and impotence that Rich Puchalsky has talked about.

There’s another problem with the economics of the Euro that I do not see addressed often. There’s some hand-waving at the theoretical idea that a workable currency needs a fiscal sovereign to balance the Central Bank, in regulating the monetary and financial system, as that system tries to absorb or respond to “shocks” (as economists now are accustomed to call both endogenous and exogenous disturbances). Sometimes this hand-waving is joined to this vague notion already mentioned that there need to be fiscal transfers.

It is actually a deeper problem than whether the fiscal sovereign can finance social welfare or corporate welfare on a sufficient scale. A stable financial system needs to have the ballast of “risk-less” debt and lots of it. A Central Bank is managing the value of money by managing the value of a marketable national debt. That marketable national debt becomes an anchor and a benchmark for the hedging activities of the financial system in advancing funds for more risky ventures.

A government that borrows exclusively in its own currency and from its own people in its own economy and can collect taxes from its own economy to fund that borrowing can carry vast amounts of debt and that debt will remain “risk-less” and will carry the lowest possible interest rates, rates that hover near the rate of expected inflation. And, that debt, even its enormous size, is a good thing from the standpoint that it can help to stabilize the financial system. I am advocating for MMT here — this is just standard, mainstream economics I’m spouting, even if its significance is routinely ignored.

And, its significance in relation to the Euro is that the Euro doesn’t have this “risk-free” anchor. It only has the debts of its member states, and those are no longer “risk-free”.

For a state, whose debt is not “risk-free” for reasons of institutional mechanics (Central Bank, borrowing in one’s own currency from people subject to tax, etc.), increasing the size of the debt adds to the risk. States are mechanisms for funding public goods, and the return on efficient provision of infrastructure or public education is, by design and intent, low: the state should want to fund all public goods that have even a tiny net present value. In the U.S. State and local governments (in the U.S. scheme, county and municipal governments are creatures of the States), have remarkably limited debts. I looked up California’s numbers during its financial crisis a few years ago, when the Arnold was headed out of office, and the State’s indebtedness was something like 8% of “GDP”. Never mind Greece, the debt of France or Italy is beyond insane levels, for a state in California’s financial position. This is flying on the high trapeze without a net. Greece cannot pay, yes, but no Eurogroup state can fund its debt at the level necessary to renew and reproduce its public goods infrastructure.

I won’t try to document it, but I suspect rather strongly that the neoliberal ideologues thought that using the private financial system to discipline governments, instead of the more usual practice of post-Depression, post-WWII governments disciplining (indeed, repressing) the financial system would be a grand idea.

Rather obviously the financial industry itself would have reason to like the concept, as long as they were thinking narrowly and corruptly (like they ever think any other way).

There is something seriously, seriously wrong with economists, certainly but with people in general, who think having financial markets discipline government is a good design concept for political economy. STUPID doesn’t begin to cover it.

Like Rich Puchalsky, I cannot help but wonder how a politics becomes this stupid. That there’s a lot of propaganda behind it, propaganda that appeals to resentment and moralism and other impulses that cut off the capacity to think critically is certainly part of the means.

That explanation leaves aside the question of ends, and whose ends.

241: The Euro has declined from a high of $1.60 to almost parity as a result of the Eurozone crisis. This must have had a huge impact on German exports. Btw Bavaria now posts a 3% unemployment rate, something simply unheard of since the 1970s. The coincidence between Germany’s current economic success and the depression in the Euro periphery countries is so blatant one wonders what would happen in Germany if the Greek crisis were ever to end (and one must assume that German leaders who understand the least bit of economics shouldn’t want it to end). The irony is of course that German popular opinion loves nothing more than a strong currency. When the Euro was introduced, it was presented as if Germans were making a huge sacrifice – the strong hard Deutschmark against a soft (or fudgy, as the UK press had it) new Euro currency. I can attest to the fact that most Germans (like most Americans) don’t understand the fact that a hard currency would hurt exports and cost many jobs.

Anecdotage: A very um, close relation of mine is employed by an impressively poorly run company whose management would for ideologies sake prefer non-“socialist” sources for their very expensive and technically sophisticated equipment needs, totalling many millions of dollars. Lately they have been buying from Italy and Spain, rather than the otherwise very competent Koreans. So the exchange rate is having some effect.

However, both Italy and Spain (and Finland and Ireland and possibly Greece etc.) are also at least potential German export markets and keeping them mired in depression surely offsets somewhat the export gains Germany has achieved outside of the EZ. So I suspect the overall trade effects are more complicated than what a 1st order examination of the gross exchange rates suggests.

However, I fully agree about the confusion the VSPs and the general populace display when they pine for strong currencies.

That was not an interview, that was conspiracy theory nutter level speculation. Rather weird to permanently get to the point where i defend Schäuble (really not a fan).

ut the basic reason why the propaganda works is that people want to believe in it. Propaganda about how important it is to go to war wouldn’t work unless people already wanted to go to war.

What, if anything, does this mean? What kind of evidence would count for or against it?

Rich Puchalsky @ 248

I don’t see that there’s an important chicken-and-egg or bootstrap problem involved. Effective propaganda starts from what people already believe and moves them, step-by-step, in a direction desired by the propagandist (or her sponsor, e.g. employer).

Systems of propaganda can become self-reinforcing, because the propagandists and their sponsors eat their own dog food as well as prepare it. (Also, a good liar is a method actor.)

Propaganda works because people want to believe something that reinforces their tenuous sense of meaning in their lives. There doesn’t need to be any particular political content attached; salesmen and basketball players and nursing mothers need pep talks. Give ’em a modicum of “you’re a good and smart and trustworthy and lucky person” and you can ally that to any of a wide variety of themes.

Most people do not have the time or energy to develop a scheme of personal moral and political judgment; they want to get one, though, at retail and cheap, and look for it in community and religion and politics and on teevee and drivetime radio.

To say that “community frames are strongly held in the first place because they match what a particular culture is predisposed to believe” seems inexplicably circular, because we are always living with a legacy of previous, now somewhat decayed propaganda.

Just as there’s no magic place outside the bubble, where the Machiavelli’s think clearly, so there’s no Eden before propaganda, where people just had beliefs as idiosyncratic personal convictions.

I think they “started out” talking about how the Euro would be beneficial . . . to Greece. And, the Greeks believed them. And, Greece experienced a boom . . . for a while.

The propensity to corruption in human affairs I am more than ready to concede. And, there are reliable limbic roots that propaganda can exploit: resentments and anxieties, for example, as well as the need for meaning and self-regard that I mentioned. The concept of austerity works on some very basic psychological receptors that incline people to accept shared sacrifices in response to stress on the society — austerity and sacrifice (to the gods) is how people got thru the risk and reality of harvest failure for millennia.

RP: I’d have a difficult time describing something like Puritanism as a legacy of previous propaganda.

Well, Puritanism was just that. Yes, John Winthrop and Jonathan Edwards were propagandists. Ditto for American racism. And, American liberalism.

I am not saying they don’t go deep in the culture or that they are not carried forward thru generations. Nor am I saying that the propaganda cum ideologies were not shaped around propensities of human character and perceptions of economic interest, because they were.

I am saying they were purposely created and reproduced. Ideological frames and filters are human creations, and not themselves, in their detailed content, strangely immutable features of human character. They are, in fact, scarily mutable.

When the Euro-crisis first hit, one of the proposals bruited about was that Germany leave the EZ, as far less disruptive than the GIPSIs. The losses that Germany would suffer through devalued debts would be compensated for by their ability to buy up much of the EZ with the high-valued DM.

That’s right. A segment for whom the strong currency means more shopping, and a segment for whom it means unemployment.

Mark Blyth at Europe’s World:

Marx has that famous line about the unfolding of events being “first tragedy, then farce”. Europe’s handling of the Greek crisis surpasses farce and shades into absurdity.

Let’s recap where we are. A country that can’t pay back what it owes, and that has shrunk by nearly a third, is to be given more money on the condition that it shrinks its economy still further. On the other side, the creditors, those who are so concerned about getting their money back, are committed to giving that country another €86 billion to pay the debts they have already accrued, thereby adding massively to a debt pile that will never be repaid.

The IMF eventually declares what its own research arm has been saying for three years, that the whole thing unsustainable, but refuses to do anything positive about it. Meanwhile, deprived of the ability to pass any legislation without the approval of ‘the institutions’, the Greek government sits in a five-month limbo while the economy shrinks. It is then roundly blamed for a decline that has been ongoing for five years.

The European Central Bank, whose main mandate is to promote financial stability in the eurozone and ensure the proper running of the European payments system, has been creating financial instability in the area by systematically choking off liquidity to the Greek banking system and bunging up its payments system. The end result of which is, according to the IMF, “a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA (debt sustainability analysis)”. Meanwhile, the man who rode a 61% referendum vote to reject austerity is now trying to implement an agreement that is worse than anything he could have signed in the prior five months. […]

Now, given that the people involved in this sad story are not idiots, why are they staging such a grand production of the Theatre of the Absurd? The answer is quite simple. Indeed, given that no one can seriously expect what is demanded of Greece to ever work, it’s the only answer possible. That is, everyone knows Greece is bankrupt but no one wants blood on their hands for chucking them out of the eurozone.

H/t 3QD.

BW: “Well, Puritanism was just that. Yes, John Winthrop and Jonathan Edwards were propagandists. Ditto for American racism. And, American liberalism.”

Well, I agree that a) frames or whatever you want to call them are human creations, and b) they are mutable, but I think that that confuses more than it illuminates. If they are mutable, human creations, can any skilled propagandist with lots of resources just create one to order? No. Some of them take off, some don’t. I also think that calling people like Jonathan Edwards “propagandists” is kind of anachronistic and a bit misleading: not everyone who has a significant influence on culture is a propagandist.

Look at American racism for another example. As far as I know, there is no Jonathan Edwards of American racism. At the beginning, African slaves were treated as in many ways similar to other people who had been sent to the U.S. under different kinds of coercive arrangements, and only later did color / origin become the basis for a slavery system that denied black people basic rights that white people had. But as far as we can tell, this was the growth of a system that white people favored, not because of propaganda from an elite, but because common white people saw its advantages for them. Similarly, I don’t think that significant elite effort went into creating the “shiftless Greek” as propaganda: I think that European people did that mostly by themselves, and the media picked up on it and continue to feed them what they want, especially since what they want coincides with elite interests.

So, to get back to this started, I don’t think that there’s any informational bubble. There’s a bubble of unreality because that’s what people want to hear. I don’t think that the elite had any significant ability to promote that line without people in general wanting it to be promoted, and I don’t think that the people escape responsibility because they were supposedly fooled by elite propaganda.

Yep

Although I assume rich p has been paying close attention to the German papers these last 5 years, so who knows.

People, of course, are getting the causal story backwards. In 2010 it was the feckless irish, then the shiftless southerners, the domineering Germans etc. The caricatures and rhetoric (so much as they exist) are a consequence of the crisis, they are not a cause of anything. People mainly associate on a national basis, they primarily vote on domestic issues and conceptualize their interests locally. They don’t want to see (even wrongly) money going to foreigners that can be spent domestically. This is not the equivalent of African Americans in the United states who are a domestic minority suffering vast significant term structural discrimination.

Ronan(rf): “They don’t want to see (even wrongly) money going to foreigners that can be spent domestically. This is not the equivalent of African Americans in the United states who are a domestic minority suffering vast significant term structural discrimination.”

So much for the EU! If the Greeks are never going to count as a domestic minority within Europe, they should get out as soon as possible.

By the way, do you think that Greeks or African Americans are suffering from worse structural discrimination at the moment? African Americans are more likely to be shot, but Greeks seem to be doing much worse in terms of differential economics.

can any skilled propagandist with lots of resources just create one to order?

Of course not, but you originally said ‘the reason people choose to do evil is that they choose to do evil’ which on a natural reading denies media any causal role, and then dug in with the equally silly assertion that ‘propaganda about how important it is to go to war wouldn’t work unless people already wanted to go to war’.

Make silly, over-the-top claim (preferably in rather imprecise way)
Wait for replies.
Bluster.
Defend much weaker claim (which no-one disagrees with)
Change subject.
Rinse.
Repeat (preferably on different thread)

And not one I would have thought Schauble would be comfortable pursuing.

The reality is that Germany doesnt want hegemony. One of the main guiding principles of post war Europe (including part of the reason for setting up the Euro) was explictly to *prevent* German hegemony, by institutional design and by making ‘Germanys interests Europes.’
The problem is that culturally, politically and institutionally, Germany (afaik, though hix can correct me) has neither the will nor the capacity to act as a European hegemon during this crisis. And that’s the problem.

Ronan(rf): The problem is that culturally, politically and institutionally, Germany (afaik, though hix can correct me) has neither the will nor the capacity to act as a European hegemon during this crisis. And that’s the problem.

Very astute. That is exactly half the problem; the other half is that Leftish are pre-programmed never to recognize that that is the problem.

I’m surprised at the above analysis. First, Germany managed to keep the entire eurozone in lockstep with its position, with nary a deviation. Recall what YV said about the French finance minister at the Eurogroup meetings. Second, Germany got everything it wanted in the negotiations. I don’t just mean the deal with Greece; Germany also made clear that a fiscal union was firmly off the table. Germany is shaping/constraining the development of the EU. Third, Germany’s coalition government has preserved its domestic stability in the face of this international challenge. Fourth, Germany spectacularly destroyed any hope on the European left that there existed an immediately deployable platform to counter neoliberalism and austerity. Not only did the Left Platform prove insufficient, Iglesias of Podemos (the other Great Left Hope) lent his support to Tspiras.

In sum, this event made clear that Germany runs the EU, and that there are no effective challengers to neoliberalism and austerity.

He didn’t say they weren’t playing a hegemonic role. He said they weren’t playing the role of a GOOD hegemon.

Bruce, I was not proposing US-style fiscal transfers. I just said monetary transfers, others leapt to the inference that this required sovereignty-pooling US-style, and I said it did not. One government can directly provide money to another, the politics being another question. I think your statement that Greece at full employment would continually run deficits, but could deal with them by deflating its currency regularly vis-a-vis Germany, is basically similar to when I said that one of the reasons they needed their own currency was because the united currency was valued too highly for their productivity,though I’m not convinced that constant active devaluation is necessary. With chronic deficits, there is likely to devaluation through inflation, which has to be contained, but could be better than the alternatives.

But Greece’s main industry is tourism, which is effectively an export industry, as it is sold primarily to foreigners. A cheaper currency is great for tourism. An overvalued currency coupled with brain drain means that, absent monetary transfers, the disparity between Greece and the more productive parts of Europe will increase and this applies to the other less productive parts as well, because the same dynamics are in place. Cheaper credit cannot ultimately make up for this, because you can only run up the debt for so long, and what you have given up for that credit is the ability to monetize debt. This should have fit into Europe’s thinking all along.

The aid of this to understanding is that it shows the decline of the poorer parts of Europe as a structural feature rather than a question of poor governance or malicious banks. Both of those existed and made the problem much worse, but the problem itself is more fundamental.

Those who think Germany will eventually have to write off the debt are arguing that Germany will ultimately be forced to effect monetary transfers (since that’s what unpaid loans are). Since the same dynamics seem to be playing out is the other less productive EU countries,and I don’t know of any examples of large integrated economies where net transfers to the poorer regions are not happening, I’d say the case for the necessity of transfers has some empirical support. The Euro experiment seems partly to have been to see whether economic union could be achieved without them (as a permanent feature – there were lots of transfers to help poor countries “catch up”, of course) and still be beneficial to all players, and the answer the experiment is providing is no.

“Above all, they wanted to maintain their dignity. Over and over, they said that their self-worth was more important than their pocketbooks.”

Otoh, many Greeks (regularly quoted in the news, FWIW) apparently fear losing their savings. “I don’t want to wake up tomorrow with only Drachmas in my account”. But how many Greeks do actually have cash savings worth fretting about? I would guess it’s a minority. Is this another instance of people identifying with the economic interest of their betters?

One important question I so far haven’t seen addressed anywhere is why isn’t there more class animus by the victims of austerity versus their own Greek plutocracy? And why has Syriza in it’s half year in government done nothing (unless it went unreported here) to transfer more of the burden of austerity upwards? Betting instead on anti-German sentiment alone may have been a mistake since it made finding allies on the German center-left very hard, and France and Italy etc. had no appetite to go all-out anti-German. Am I wrong?