Bluffed

by John Quiggin on July 14, 2015

Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation. 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. Certainly Tsipras’ actions were consistent with that interpretation.

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run. (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. As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

Update Commenters generally disagree with my take on the Varoufakis interview. I’m not wedded to it. The crucial point is that exit from the euro is extremely difficult, and that this fact will be used to punish any eurozone country that tries to resist the controlling powers.

{ 287 comments }

1

Nick 07.14.15 at 12:53 am

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.

2

MPAVictoria 07.14.15 at 12:57 am

This is a disaster for Greece and Europe as a whole. When Golden Dawn is elected the Germans are going to wish they had made a deal.

3

MareeP 07.14.15 at 1:02 am

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.

4

Sandwichman 07.14.15 at 1:04 am

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

I had assumed that OXI meant “no”.

5

Layman 07.14.15 at 1:07 am

“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.

6

MareeP 07.14.15 at 1:12 am

Layman – agree

7

Tabasco 07.14.15 at 1:20 am

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?

8

marcel proust 07.14.15 at 1:29 am

MPAVictoria @ 2:

In the spirit of Inigo Montoya, I think you are mistaking a feature for a bug.

Why, given a choice between Syriza and Golden Dawn, do you think that Schäuble or Merkel would not prefer the latter?

9

Collin Street 07.14.15 at 1:56 am

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.

10

okay then 07.14.15 at 1:59 am

I agree that the surprise exit must be the assumption going forward. I would imagine nearly every member of the eurozone is now going to do their best to get a primary account surplus ASAP so that they can exit before the UK does.

11

Rusty SpikeFist 07.14.15 at 2:00 am

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.

12

Marshall 07.14.15 at 2:12 am

@MPAV #8: Whoever gets elected will find that they need to have Herr Schauble countersign all their checks.

I wouldn’t suppose this is actually about the denominated debt anymore if it ever were; YV’s point that a victory for Syzeria would destabilize the whole European south. German hegemony rides again, it seems. What will England do?

13

Sandwichman 07.14.15 at 2:17 am

“…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.

14

christian_h 07.14.15 at 2:35 am

As a former member of the German voting public I object to being made an excuse for the governments horrible handling of this. Given the utter failure of the SPD to be anything it is not conceivable that even the most extreme surprise sporting on German voters would lead to a change in government after the next elections. In fact it is this predictability that in my opinion informs the disastrous politics of the government. They can alienate the rest of the world without internal consequences.

15

Michael Drew 07.14.15 at 2:37 am

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.

16

Peter K. 07.14.15 at 2:57 am

I would withhold judgment on Syriza, Tsipras and Varoufakis and tend to give them the benefit of the doubt. The truth will come out as time passes.

But I suppose what Varoufakis reports in the interview could be true. He had plans to prepare for a Grexit to force a better deal but the majority of Syriza was against it for whatever reasons. Here he argues that a Greece can’t pull an Argentina:

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

But that was in 2012. From the interview:

“And yet Tsipras diverged from him at the last. He understands why. Varoufakis could not guarantee that a Grexit would work. After Syriza took power in January, a small team had, “in theory, on paper,” been thinking through how it might. But he said that, “I’m not sure we would manage it, because managing the collapse of a monetary union takes a great deal of expertise, and I’m not sure we have it here in Greece without the help of outsiders.” More years of austerity lie ahead, but he knows Tsipras has an obligation to “not let this country become a failed state”.”

They weren’t sure it would work. “Syriza has clearly been beaten.” I don’t see how they could have done better. The Germans refused to negotiate.

I think it is a disaster for Europe and especially the working people and debtor nations. The adjustment program after downturns are brutal and will just make the politics more toxic.

17

david 07.14.15 at 3:06 am

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!

18

ZM 07.14.15 at 3:16 am

The Greek government still has my preferred option remaining — this is where they take a leading role in collaborating with nations in similar predicaments to go with a plan to the Sustainable Development Goals Assembly in September and press for the debt relief etc Goal.

This part was taken out by Australia and the UK and Japan and maybe a couple of other countries, but I have read that Ban Ki-moon as Secretary General will ensure it is discussed.

Getting something at the UN Assembly would actually be more fair, as I agree with Christine Lagard that Greece should not get special treatment just because it is European. Their needs to be similar help for countries in the Asian-Pacific, Africa and the Americas.

And this goes well with one of the goals of the Assembly which is to get rich countries to lower their consumption to sustainable levels.

19

agressivePacifist 07.14.15 at 3:29 am

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.

20

dsquared 07.14.15 at 3:34 am

(Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that

It’s been on the front page of Bild!

21

dsquared 07.14.15 at 3:38 am

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.

22

Michael Drew 07.14.15 at 3:56 am

@20

Yep. The whole time I was assuming they at least had the Grexit option (from their own perspective). Now I feel “Bluffed” just for having paid much attention to any of this.

23

Timothy Scriven 07.14.15 at 4:02 am

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.

24

Sandwichman 07.14.15 at 4:12 am

25

Colin Danby 07.14.15 at 4:18 am

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!)

26

magari 07.14.15 at 4:38 am

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

I’m still baffled as to why the Greeks are so frightened of the drachma.

27

harb123 07.14.15 at 4:51 am

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?

28

christian_h 07.14.15 at 4:57 am

I would have to say btw that it seems to me Varoufakis is getting a jump on the apologia genre. Not sure one can trust his history here.

29

Nick 07.14.15 at 5:03 am

#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.

30

Nick 07.14.15 at 5:09 am

And here are a couple more:

http://www.nakedcapitalism.com/2015/06/nathan-tankus-the-operational-issues-of-a-grexit-part-one-understanding-the-payments-system.html

http://www.nakedcapitalism.com/2015/06/the-operational-issues-of-a-grexit-part-two-organizational-capacity-capital-controls-and-bootstrapping-a-new-monetary-system.html

Basically, talking about a new currency without looking at the operational side of introducing it is similar to discussing theoretical nutrient requirements for alleviating a famine without looking at logistics.

31

jackrousseau 07.14.15 at 5:13 am

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.

32

Colin Danby 07.14.15 at 5:13 am

nakedcapitalism has a bunch of excellent pieces on Grexit mechanics, plus this rather brutal assessment today: http://www.nakedcapitalism.com/2015/07/greece-brought-a-latte-to-a-gunfight.html

The German gov’t must have been able to track the absence of Grexit planning.

33

jackrousseau 07.14.15 at 5:17 am

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.

34

magari 07.14.15 at 5:38 am

Thanks Nick, but what I glean from this is that it would in the short-run make PoS card transactions unfeasible (link #1), and require a sustained, weeks/months-long effort to rejigger electronic monetary systems (link #3). I would add to this currency volatility and unpredictable price swings on imports. Still not sure why this is so terrifying, as to prompt the Greeks to agree to years of depression.

35

Nick 07.14.15 at 5:40 am

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.

36

Nick 07.14.15 at 6:05 am

Here’s another one — on the physical problems of introducing new money.

http://www.nakedcapitalism.com/2015/07/why-the-greek-government-rejects-a-grexit.html

And here is one on the problems of managing electronic transfers. Note that these would be particularly acute in an economy with a lot of foreigners using different instruments:

http://www.nakedcapitalism.com/2015/07/greece-beware-merchant-services-providers-bearing-ddcss.html

I think that the idea of ‘going back to the drachma’ is far more complicated, at a procedural level, than is usually discussed. People think of money as an abstract, when it is also a physical quantity, a set of behaviours, and a complex set of rules.

37

jackrousseau 07.14.15 at 6:07 am

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

38

Sebastian H 07.14.15 at 6:08 am

D-squared, what do you think of the position that pushing the Greeks out has been part of the plan all along?

39

Sebastian H 07.14.15 at 6:14 am

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?

40

The Raven 07.14.15 at 6:38 am

The relevant quote is: “I was warning the Cabinet this was going to happen [the ECB shut our banks] for a month, in order to drag us into a humiliating agreement. When it happened – and many of my colleagues couldn’t believe it happened – my recommendation for responding ‘energetically,’ let’s say, was voted down. […] out of six people we were in a minority of two.”

Looks to me like the Syriza leadership got cold feet. They also seem to me to have lacked imagination: they couldn’t imagine that the Germans would cut them off, even after it happened. Growing up reading science fiction seems to opened Krugman’s mind; when his world was overturned, he was capable of recognizing this and responding appropriately. The Syriza leadership, not so much.

I also think Syriza didn’t understand what a high-stakes negotiation would be like, and the ways the party with the upper hand acts to wear down the opposing side. Rulers need courtiers, so that they can maintain their energy and self-confidence in hard dealings. Even with good friends around me and adequate sleep, I would have trouble staying on track when faced with 14 hostile opponents. There apparently were only six members of the Greek negotiating team, which wasn’t enough. Add to that, the Eurocrats set a grueling schedule. Varoufakis comments: “I no longer have to live through this hectic timetable, which was absolutely inhuman, just unbelievable. I was on 2 hours sleep every day for five months.” After a few days of that the Greek team must have been negotiating like a crew of drunks—it is no wonder they brought back a poor agreement.

As to future Euro exits, I think that unless the Eurocrats adopt Keynesian policies, they are inevitable. Other countries will study the Greek debacle and learn from it. Civil war in Europe seems possible.

41

Peter K. 07.14.15 at 6:51 am

@ 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.

42

Tabasco 07.14.15 at 7:12 am

Schauble wants them to submit, like some Teutonic sadomasochist.

A small quibble: Schauble exhibits all the traits of a sadist, but there’s no evidence that he likes receiving pain.

43

The Raven 07.14.15 at 7:29 am

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.

44

Salem 07.14.15 at 7:48 am

Other than David Cameron, who in the UK is going campaign to stay in the EU in the coming referendum?

I don’t know why this is assumed. Cameron has said he will campaign for Yes, having secured a fundamental renegotiation. If he doesn’t get the latter, I see no reason to think he’ll do the former. Yes, I understand the cynicism that the renegotiation is impossible, so he’ll just campaign for Yes anyway, but that thinking assumes that Yes is what he really wants. But says who? I see no reason to believe Cameron is a committed Euro-enthusiast, he’s a politician who cares most of all about winning. If he can’t get renegotiation, he can just blame it on an intransigent EU and campaign for No, which will probably improve his position, and that of his party, domestically.

I think the outcome here has increased the chances of Brexit not inconsiderably.

45

reason 07.14.15 at 8:49 am

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?

46

Neel Krishnaswami 07.14.15 at 9:19 am

I think the outcome here has increased the chances of Brexit not inconsiderably

I’m an immigrant academic to the UK, and so I have an awful lot to lose with Brexit, but the past week has weakened my resistance to it considerably. Yes, it would be a disaster, but it looks like there could well be disaster all around: the EU has made it very likely the next Greek government will include Golden Dawn and this is apparently the desired outcome.

47

Tim Worstall 07.14.15 at 9:50 am

” (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!

48

Collin Street 07.14.15 at 10:16 am

> The treaties actually say that the nominal amount cannot be reduced.

Cannot be reduced by the eurogroup. I would be very, very, very surprised indeed if the treaties prohibited germany from writing down debts voluntarily.

“The treaties don’t permit this” is “I don’t want to and you can’t make me”.

49

Pete 07.14.15 at 10:16 am

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.

50

kidneystones 07.14.15 at 10:55 am

I read quite a lot of Varoufakis over the last few weeks. Henry interviewed V. several years ago for bhtv and I found V. to be very likeable, not least because he was the first lefty to place the initial responsibility for the 2008 meltdown squarely at the door ‘If they pay 500K into my foundation, I will squeak’ who is sniffing his way back to the windowless passage. Varoufakis seems, however, somewhat delusional if he seriously believes that a banker (any banker) can be shamed into forgiving debt. Demonstrating the willingness, even desire, to foreclose on widows and toss orphans into the snow are the entry-level requirements for that industry, no disrespect intended to any working in banking or finance. Hardball is the name of the game, and it’s a game that can strip every asset from any individual, company, or state, as it turns out. The responses from Syriza and their supporters seems to me to be pure CYA, finger-pointing, and groundless recrimination. The political and economic landscape tilts very heavily towards the Germans and their real supporters, by whom I mean the current UK and US governments.

Let us cast our minds back to the days of the 2010 bank bailout, shall we? That bank bailout that so crippled the Greeks, but prevented German banks from taking the hit. As I recall, one party controlled the White House and both houses of Congress. As I recall that administration was staffed very heavily by Goldman Sachs executives and other Wall St. players. The issue was contagion and defaults in Greece would lead to similar defaults in other nations. So, everybody at the top (more or less) agreed that the best solution for everyone (except perhaps the Greeks) would be to simply force Greece to borrow more money, money that could never be paid back, and then proceed as planned to make the rich as filthy rich as we all possibly can and screw the poor. Along the way, the UK, France, and the US with friends agreed to bomb the living shit out of North Africa and the Middle East to create ‘the possibility of change,’ which manifests itself daily in refugees fleeing across the Mediterranean, or walking into you guessed it Greece.

So, there’s that.

51

Salem 07.14.15 at 10:58 am

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.

52

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.

53

Lee A. Arnold 07.14.15 at 11:14 am

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.

54

Pete 07.14.15 at 11:23 am

@51 I’m not sure where “mainstream Eurosceptic” is, really. I’ve been a centre-left Eurosceptic about the democratic deficit for years, but that’s quite a lonely position.

I also don’t think that, when it comes to the EU’s relationship to the UK, that party positions matter so much as “establishment” ones. What does Sir Humphrey want from the system? What do major businesses which donate to parties want? What does the all-powerful UK finserve industry want? It doesn’t really matter what Cameron wants personally any more than what Tsipras wants matters, it’s what he can get support for and from whom. The pro-EU faction is very well funded and connected but publicity-shy. Whereas the anti-EU faction has newspapers and a flaky grassroots movement but little else.

The downside of being in the EEA is that you don’t get to control EU politics any more. That means not being able to veto Tobin taxes and suchlike.

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. I also think that there is a report circulating somewhere on what the cost of Brexit might be that looks very unfavourable.

Brexit also potentially re-triggers the Scottish independence referendum, causing further chaos. This would have to be re-fought by the hopelessly outnumbered three remaining non-SNP MPs. Provided the SNP fix the currency issue (independent Scottish pound is clearly the only sane option now, possibly with a 1:1 peg in the short term).

I agree with most of your final paragraph.

55

Pete 07.14.15 at 11:26 am

(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?)

56

Trader Joe 07.14.15 at 11:52 am

Bluffed? That would imply they had a strategy and it just didn’t pan out. While its natural to assume leaders have a plan and but for a mis-read here or there the bounces just didn’t go their way. In light of events that seems to have been an overly hopeful read. The liberal mind wanted Syriza to have a plan, to show those Germans, to help those Greeks, to spread their people first style of liberalism to Spain, to Italy and dare we hope to France.

It was all a mirage. A cynical read of the transcript from February to now would suggest that Syriza never, at no time, had a view of how to accomplish what they wanted. They were the dog chasing the garbage truck with no notion that even if they caught it, they’d still be a dog and would only gain a lot of garbage.

Someone on a prior thread, before the deal, suggested Tsipras played his bad hand rather well. Now we can see how fully bad his hand was. There was no playing well that was possible. The only score to keep was the size of the loss and Tsipras/Syriza didn’t see that by playing for break-even they risked a larger loss. This was all speculated on back in February when everyone said the Germans “fear” a spread of the left. They feared no such thing. They feared being embarrassed, which didn’t happen domestically, but likely did happen regionally.

Boxer wins – more hard work and austerity for three more years. If it happens to work, so much the better, there’s no reason to assume it should since the last two weeks have destroyed the banks for the third time in six years. Now private money can get their jabs in during the recapitalizations (and trust me, money is already lining up for the chance).

If D2 is right, maybe the glimmer of economic upturn seen in 2H14 can be reached again, maybe by early 2017 which will be just in time for us to all reconvene again and agree for the fourth time that the debt is unsustainable, the economy is hopeless, the Germans are mean and the Greeks deserve a better deal….somebody book mark this so in 2018 we can remember what happened in 2015, 2012 and 2010 as it will happen again until either Grexit or miraculously the austerity plan works and the Greeks transform their economy to something more resembling the German view of “how an economy should be”

57

kidneystones 07.14.15 at 12:09 pm

@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.

58

Roger Gathmann 07.14.15 at 12:58 pm

I wonder how Chris, who began this series of posts about Greece, now feels about voting yes in a referendum to keep Britain in the EU.
In his post, the yes position depends on the fact that without the EU, immigration policy will be well below the par by human rights standards. And this week, the EU has doubled down by creating a failed state in Greece in which the only chance for Greeks is to immigrate.
I can see a pro-Eu position that there is no alternative to neo-liberalism and ultimately it will do good, a la D-squared; I can’t see how anybody who identifies as a leftist could think that the EU is anything other than what it is. 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.

59

Salem 07.14.15 at 1:23 pm

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.

60

Pete 07.14.15 at 1:40 pm

Is the “UK -> EEA” plan actually possible, though? I regard it as very likely, especially after the way Greece was treated, that we’ll be told the options are to stay in the EU unchanged or quit and end up on the outside of the trade barriers. The latter option is really not going to be popular in the money party.

61

Barry 07.14.15 at 1:47 pm

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.

62

Roger mulberge 07.14.15 at 1:49 pm

I hesitate to enter this discussion, but no one seems to have realized that this ‘bail out’ is designed to fail. First, not only the Greek parliament, but the German and others have to ratify it; second, the conditions are so precise that, with no flexibility allowed, their is no way the Greeks can implement them without failing in some respect or other;and, finally, even if it were implemented to the letter, its result would be even greater debt and even less ability to pay. So in 3 years time Grexit is back on the agenda.

63

Barry 07.14.15 at 2:20 pm

“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.

64

Roger Gathmann 07.14.15 at 2:25 pm

I think the question of whether Poland, Czech Republic, or Hungary is ready to join the EU is a matter of misplaced concreteness. Rather, the question is whether the economic and political elites in Poland, Czech Republic and Hungary are ready to join the EU. I’d guess that they are even more eager. 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. The EU has basically decided that no such party will ever be allowed to control an EU country. People like Rojas, in Spain, are beaming. This is the true bankster European dream come true. Getting rid of communism was just act one for these guys, getting rid of Social democracy is the real deal. Sign me up, they are thinking.

65

MPAVictoria 07.14.15 at 2:40 pm

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?

66

politicalfootball 07.14.15 at 2:56 pm

As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

An explicit writedown will be necessary in a Euro area whose political, fiscal and monetary structure is sound. In the existing Euro area, not so much.

67

politicalfootball 07.14.15 at 3:03 pm

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.

68

Salem 07.14.15 at 3:16 pm

RG@64: Poland, Czech Republic and Hungary are already EU members. Hungary is actually the decisive example that shows the EU can’t control the kind of governments that get elected.

69

Barry 07.14.15 at 3:30 pm

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.

70

MPAVictoria 07.14.15 at 3:35 pm

And I just read d2 post on this deal. Where the hell is the “good will” in this agreement?

71

Map Maker 07.14.15 at 3:38 pm

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.

72

The Raven 07.14.15 at 3:42 pm

I think also that this is likely to harden opposition to German policies, rather than lead to acceptance. Punishment only leads to subservience if the subject acknowledges the authority of the master.

73

Roger Gathmann 07.14.15 at 3:49 pm

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/

74

Sandwichman 07.14.15 at 3:52 pm

Roger Gathman @58 “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.”

This sounds almost right. Of course there is ALWAYS space for illusion.

75

magari 07.14.15 at 4:00 pm

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.

76

JohnD 07.14.15 at 4:02 pm

I think one lesson from this whole episode for the UK is the one that Pete looks at @60. EU mechanisms and institutions are very deeply dug in to the daily economic and legal life of EU members – if you’re going to propose exiting them to a new state of affairs, then you had better make very damned sure that you know: a) that the state of affairs you’re proposing is better than what you have now, b) what exactly the new state of affairs looks like, in detail and c) that you have a detailed and entirely feasible way of getting there.

Otherwise you’re probably just being a windbag. My issue with the leading politicians proposing Scottish independence, Grexit and Brexit is the same – they don’t want to be clear on this stuff, often because they simply don’t have an answer. This ‘join the EEA’ bullshit is right up there with ‘oh they’ll just have to let us use the pound’ and Varoufakis’s fag-packet Grexit plan. It is not all obvious that it will work out, leaving the leavers all up shit creek; the actual counterparties in the closing exit negotiations will know this, and will be able to screw the most unpleasant deal out of the leaving party.

77

Pete 07.14.15 at 4:31 pm

@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.

78

Sandwichman 07.14.15 at 4:34 pm

Which spelling would you prefer?

Hegermany or hegermony?

79

Scott P. 07.14.15 at 5:02 pm

‘“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?

80

Sandwichman 07.14.15 at 5:16 pm

Haven’t heard much about this background. Why not?

BBC: “He [Schäuble] admitted that he had met the arms dealer and lobbyist at the centre of the scandal, Karlheinz Schreiber, and accepted an undeclared DM100,000 (£36,300) cash donation from him.”

The scandal that rocked the government of Helmut Kohl

http://www.dw.com/en/the-scandal-that-rocked-the-government-of-helmut-kohl/a-5137950

The investigation also uncovered new dimensions of the party slush fund affair including a funding scandal at the regional CDU party in the state of Hesse.
Investigators also looked into suspicions that the privatization and sale of the East German oil refinery Leuna to the French oil giant Elf in the 1990s was accompanied by bribes of 50 million deutschmarks to German politicians.

The sale of Leuna had the political support of Kohl and French President Francois Mitterand. Lobbyist Dieter Holzer and the former German deputy defense minister, Ludwig-Holger Pfahls, were key figures in the affair.

In January 2000, the CDU leadership distanced itself from its honorary president, Kohl – forcing him to quit the post. It also paved the way for the rise of current Chancellor Angela Merkel. At the time Merkel was the general secretary of the CDU and she was seen as the driving force behind her party’s break with Kohl over the scandal.

Angela Merkel with Helmut Kohl

The scandal brought Angela Merkel to prominence within the CDU

The scandal also cost the CDU dearly: Kohl’s refusal to name donors and the party’s violation of the country’s strict political funding rules saddled the party with fines of up to around 6.5 million deutschmarks.

The CDU in the state of Hesse was slapped with penalties of more than 41 million deutschmarks for cooking the books. The state party admitted it had operated a secret Swiss account, funneling millions back into party coffers and falsely booking the money.

Unanswered questions

Despite the two-and-a-half year probe into the CDU’s murky financial dealings, the chairman of the special parliamentary investigation committee said during the time that key questions in the affair still remained unanswered.

“A lot of untruths have been told in this committee, to put it mildly. I can also be more brutal and say: ‘a lot of lies have been told,'” said Volker Neumann, a member of the center-left Social Democratic Party.

“For years, the CDU hasn’t just breached party funding laws but it was also guilty of political corruption on several accounts under then Chancellor Kohl,” Wolfgang Stroebele of the Green Party said.

The CDU denied allegations of corruption but the affair engulfed other leading lights of the party too. In early January, 2000, CDU chief Wolfgang Schaeuble, Kohl’s handpicked successor, admitted he had received a payment of 100,000 deutschmarks from Schreiber.

Money being exchanged

A number of undeclared donations were made

But Schaeuble, Germany’s current finance minister, insisted he had forwarded the money to the CDU’s then treasurer, Brigitte Baumeister, and had nothing to do with the illegal booking of the money. Baumeister rejected the accusation, saying she had handed over the money to Schaeuble in an envelope.

The allegations were never proved in court but the affair cost Schaueble his job. He was replaced by Angela Merkel.

81

Sandwichman 07.14.15 at 5:21 pm

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.”

82

Stephen 07.14.15 at 5:21 pm

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.

But I also don’t think that the modern Germany, or any likely development from there, has any such intentions in the slightest. My opinion of the price to be paid for abandoning illusions about the EU is very different from yours.

83

john c. halasz 07.14.15 at 5:22 pm

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/

84

Sandwichman 07.14.15 at 5:30 pm

German party leader took cash from arms dealer

http://www.theguardian.com/world/2000/jan/11/germany.johnhooper

In a new twist to the illicit funding scandal that has embroiled Germany’s Christian Democrats, their leader, Wolfgang Schäuble, last night admitted he too had accepted cash from the arms dealer Karlheinz Schreiber for party funds.
The former chancellor Helmut Kohl is already under criminal investigation after admitting last year that he funnelled cash to the Christian Democrats (CDU) through a web of secret bank accounts. He has refused to name the donors, in contravention of German law.

According to a report to be published today in the newspaper Stuttgarter Zeitung, Mr Schäuble, who has always enjoyed a reputation for integrity, has been put “under massive pressure” by Mr Kohl to own up to his role in the irregular financing.

In an interview with the television channel ARD, Mr Schäuble said he took DM100,000 (£32,114) from the arms dealer which he had passed on to the party. He said that, unlike the money which Mr Kohl funnelled to the CDU, the cash he took did figure in the party’s accounts but was reported under “miscellaneous income”.

That would suggest that the handling of the donation contravened a law which calls for contributors who give more than DM20,000 to any political party to be identified.

Mr Schäuble, who became party chairman after Mr Kohl’s crushing defeat in the 1998 election, was already under pressure to explain another mysterious – and apparently illicit – movement of funds.

Revised accounts released by the CDU at the end of last year showed that in January 1997, more than DM1m was sent by the parliamentary party to party headquarters in apparent defiance of a ban on such transfers. Mr Schäuble was leader of the parliamentary party at the time.

Mr Kohl is currently being investigated on a charge of “breach of trust”, which is often used in cases of suspected financial misdemeanours. He also faces an all-party parliamentary commission inquiry which is to look into a claim that money given to the CDU during Mr Kohl’s chancellorship influenced decisions made by his administration.

85

bianca steele 07.14.15 at 5:43 pm

@83 Wow.

Schäuble traut den Italienern genauso wenig wie den Griechen. Übrig 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.

86

hix 07.14.15 at 5:55 pm

Guess whenever there is some market for a newsoutlet that confirms someones prejeduces, that outlet will appear.

87

Scott P. 07.14.15 at 6:37 pm

“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.

88

politicalfootball 07.14.15 at 7:00 pm

87: Surrender to Germany in either world war – or the next one – would accomplish this, too. Maybe there are some lefties out there who believe that a rightwing German hegemony is desirable as long as it isn’t military hegemony. Lesser of two evils and all that.

Me, I think that probably some other arrangement could be made where Germany doesn’t invade its neighbors.

89

Barry 07.14.15 at 7:03 pm

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.

90

Chris Bertram 07.14.15 at 7:30 pm

The more I think about it, the more I see that there are three basic arguments people are putting against the German position:

1. it is stupid (the Krugman/Varoufakis line)
2. it is mean (or at any rate “incompatible with European solidarity”)
3. it is undemocratic (an affront to Greek self-determination/sovereignty).

Taking these in turn:

1. Whether it is stupid depends on what the goals are. This is a basic flaw in the general Krugman line on austerity. For some goals, austerity, grexit etc make sense.

2. Has more promise, as an argument, in my view. But note that moral arguments advanced from the weak to the strong tend to get advanced when the weak have no options left (or failed to prepare any).

3,. though, is rubbish taken on its own (it needs 2 morally or 1 practically) Autonomy, self-determination, sovereignty all carry with them the right to make binding agreements. If you end up in a hole (or a debtor’s prison or whatever), then too bad, _if you are relying on this argument alone_ . You need something about the value of fair relationships/solidarity to ground an argument for writing-off debt. If EU countries don’t care about fair relationships among their number, then that tells us something about the EU (or some of its members) and then it loses an important moral claim to our support.

91

PlutoniumKun 07.14.15 at 7:36 pm

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.

92

politicalfootball 07.14.15 at 7:42 pm

Autonomy, self-determination, sovereignty all carry with them the right to make binding agreements.

Not all binding agreements are consistent with autonomy, self-determination, sovereignty and democracy. An agreement, even freely made, to enter into an autocracy is anti-democratic.

One might reasonably argue that the Greeks and their governments are culpable for the current anti-democratic situation. One cannot reasonably argue that the current arrangement doesn’t violate important democratic norms.

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

93

Hidari 07.14.15 at 7:43 pm

“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.

94

Salem 07.14.15 at 7:59 pm

Germany was involved in a bunch of wars before 1945. Since then, there haven’t been any. Sure, it’s possible that’s because of the EU, but lots of other organisations like to take credit – the UN, NATO, the Gas Board… or structural factors like nuclear weapons, superpower hegemony, the spread of democracy, rising living standards. Sometimes opposing trends both get credit – some people claim fear of the USSR is what kept Europe peaceful prior to 1991, others claim the lack of external threats is what has kept it peaceful since then. Clearly, not all these factors can be responsible for all of the shift. At least some of them have to be marginal or irrelevant.

I think the EU is probably the least likely candidate. Take Japan, which was also an aggressive, militarist country that went round starting wars. Is it EU membership that has made it peaceful? Or it the lack of major wars a worldwide trend?

95

Stephen 07.14.15 at 8:01 pm

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 …

96

hix 07.14.15 at 8:05 pm

Considering Greece society works as good as she does now without much of what we would consider planing in other nations, im not buying into Greece inability to organice a Grexit without much advanced planing.

http://www.nakedcapitalism.com/2015/07/greece-brought-a-latte-to-a-gunfight.html
That kind of delusional realpolitik kindergarten analysis makes it really hard for me to take political science serious.

97

Peter K. 07.14.15 at 8:21 pm

@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.

98

Chris Bertram 07.14.15 at 8:35 pm

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

Indeed, but it is hard to make that argument on the basis of the sanctity of free choice alone, you need some supplementary principle.

99

Scott P. 07.14.15 at 8:39 pm

“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.

100

Collin Street 07.14.15 at 8:47 pm

Its also clear that the Greeks completely underestimated the determination of the Germans and ECB to punish them.

Was there anybody who didn’t?

101

A H 07.14.15 at 9:00 pm

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

102

hix 07.14.15 at 9:02 pm

Suppose we can disagree about the level of vulnurability in Italy and Spain. But France, really? Why on earth would France get problems?

103

William Timberman 07.14.15 at 9:02 pm

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,

104

Phil 07.14.15 at 9:04 pm

I’ve always been impatient with the “look who you’d be lining up with” argument against left-wing Euroscepticism – if you’ve got reasons, you’ve got reasons, and what other people want to do isn’t material. 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“.

105

Sandwichman 07.14.15 at 9:07 pm

@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.

106

Glen Tomkins 07.14.15 at 9:10 pm

Another peculiar institution

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

Well, people thought that they had put slavery in the US on a path of its eventual demise by disallowing the importation of slaves after 1808. They sadly underestimated the ability of greed and heartlessness to find new ways to strengthen the institution by further dehumanizing it.

107

Sandwichman 07.14.15 at 9:14 pm

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

108

A H 07.14.15 at 9:18 pm

France’s debt to GDP has been growing over the past 5 years (total debt is already at 280% of GDP!), increased interest payments would increase the growth rate. If this coincided with inflation in Germany, the ECB is not going to lower rates any time soon. France very rapidly looks like Spain. Then say Le Pen gets elected.

Only one of many fun ways the EZ could collapse.

109

A H 07.14.15 at 9:19 pm

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

110

TheSophist 07.14.15 at 9:22 pm

Slightly OT, but I think (hope) relevant: I just got back from the un-Greece, Iceland. There construction is booming (there were several large buildings on the waterfront in R’vik that weren’t there when I last visited in 2011, with more in various stages of construction), most of the hotels and restaurants I visited (we went all around the ring road, visiting many of the island’s nooks and crannies) were staffed almost entirely by teenagers, which would seem to indicate reasonably full employment, and more than one person actually expressed to me concern about things overheating again. Clearly the devaluation worked there, although it caused a fair degree of pain. The bookshops were all stocking the autobiography of former R’vik mayor John Gnarr, which must be the only book in history to be blurbed by both Lady Gaga (“I love the mayor of Iceland” sic) and Noam Chomsky.

In the lobby of my hotel were large posters of various screenshots from “The Saga of Carl” (the episode of “the Simpsons” where Homer visits) and on Heimay I got to hold a puffin. For birdwatchers, I saw both harlequin ducks and Barrow’s goldeneye. So, basically, Iceland rocks.

111

Collin Street 07.14.15 at 9:22 pm

> 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.

112

john c. halasz 07.14.15 at 9:29 pm

Sandwichman @106:

Yeah, it is old news and widely known. (I think I recall it from when it actually happened). There was a cover-up, (just as a lot of Nazi collaborators were covered up deliberately in Adenauer’s time). I’d guess if any charges would still be possible, it would involve the cover-up not the original crime, but that would implicate a lot of the German establishment, including the judiciary.

BTW Juncker lost his job as PM and FinMin of Luxemburg due to some similar political corruption/funding scandal and as a result was promoted to EU commission president, rather than just the Eurogroup chief.

113

Consumatopia 07.14.15 at 9:33 pm

“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.

114

hix 07.14.15 at 9:42 pm

Whats to say about that Schreiber story of which those 100k are just a small part? Sure corruption in politics exists in Germany too. And sure the big guys usually get out of it with no or little price to pay. Life sucks and isnt fair all that… Look on the upside, Schäuble might be chancelor if he had managed to cover his ass just a little more. Since even the corruption of Strauß is still getting sweeped under the rug, we will not hear half of it in my lifetime.

Schäuble obviously doesnt need well deserved character attacks to be very unpopular anyway. So what gives?

115

Sandwichman 07.14.15 at 9:45 pm

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.

116

Barry 07.14.15 at 9:46 pm

Collin Street: “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.”

Or rather, they Troika not only didn’t mind destroying Greece, they were eager to do so.

As I said, pretend you’re running the government in Poland, in the Summer of 1939.
What could you do with the slightest chance of success?

117

Sandwichman 07.14.15 at 9:53 pm

“So what gives?”

Karlheinz Schreiber gives.

Cash.

118

Bill Benzon 07.14.15 at 9:57 pm

FWIW, Tyler Cowen thinks that D^2 “continues to morph into a Very Serious People” and has linked to his Medium piece.

TC: http://marginalrevolution.com/marginalrevolution/2015/07/tuesday-assorted-links-20.html

D^2: https://medium.com/bull-market/greece-time-to-look-on-the-bright-side-55d86bca9536

119

magari 07.14.15 at 9:58 pm

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?

120

hix 07.14.15 at 10:06 pm

No, not working. Personal failure to adhere to donation reporting rules with regards to 100k (thats all he admited, its highly likely there was a lot more, disclosure isnt really one of those big norms in Germany) vs officially throwing the tfeu out of the window. He is not argueing based on personal virtue. Its rather typical for a strong norm that one keeps insinsting on people adhering to it after its been broken repeatedly.

121

guthrie 07.14.15 at 10:07 pm

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.

122

john c. halasz 07.14.15 at 10:12 pm

@114:

IIRC first he lied about it to the parliament, then he admitted it, but the woman he gave the cash envelop to tells a quite different story. He said/she said obfuscation, I guess. Seems to work every time.

123

hix 07.14.15 at 10:16 pm

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.

124

Russell L. Carter 07.14.15 at 10:18 pm

@117 Yes indeed. I have been waiting, waiting, waiting for D^2 to attach his (quite unusual, if you’ve been following for near 15 years) beliefs to reality. And he has now done that, which is highly admirable, as did James Hamilton 3 or 4 years ago. And in 9 months or so, we’re going to be able to see if he really did see more clearly than mere cut and paste ideologues like Krugman. (How weird it is to write that sentence, knowing what D^2 has written about Krugman in the past.)

125

Sandwichman 07.14.15 at 10:30 pm

@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.

126

bob mcmanus 07.14.15 at 10:47 pm

120:For instance, huh?

16th c pirates, who were mostly non-Japanese operating out of Kyushu. Failed expedition to Korea. That’s one. Ryukyu Islands, 1609. Add 1/2.

Name three more outside the archipelago between 400 and 1868.

Yes, Imperial Japan was a radical anomaly and frankly had little to do with the centuries of elite militarism of the bushido samurai, who were very unhappy at peasants under arms in Meiji. Had much more in common with Western Imperialism than Japanese tradition or history.

Granted there was a long and horrid period of war between the Heike and Sengoku, but Tokugawa Japan, though supposedly a military dictatorship, was arguably not at all warlike, but the opposite. The society had to be erased, wiped to the core, to support nationalism and Imperialism.

127

John Quiggin 07.15.15 at 12:20 am

@hix How does this insistence on rules square with Germany breaking the eurozone deficit rules in 2003? Or for that matter, with acquiescence in the ECB shift to quantitative easing? Both eminently sensible, but both clear breaches of well-defined rules.

In fact, these are much sharper cases. The rules broken in these cases were clearly defined results of freely negotiated agreements. By contrast, the “rule” being broken here is that creditors get to play by whatever rules they like, and debtors have to follow those rules.

128

politicalfootball 07.15.15 at 12:53 am

As serious and consequential as the Greek issue is, it’s also just an amazing narrative. Look who has stepped up to become the Voice of Reason.

The International Monetary Fund said on Tuesday that it would remain involved in Greece’s bailout only if eurozone leaders agreed on a plan that would make the country’s debt manageable for decades to come.

129

MPAVictoria 07.15.15 at 2:38 am

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.”

130

Lupita 07.15.15 at 3:39 am

First the IMF says the bailout will not serve its purpose and may not participate, then Schäuble points out that it’s so bad a Grexit would be preferable, and now Tsipras goes on television to note what a bad deal it is. Even if the Greek parliament accepts it, maybe the German one will not.

And if you thought there were no rules for leaving the euro, Schäuble just came up with one: Greece has to take that decision itself. So countries are not expelled, they are passive-aggressively shown the way to the door.

131

derrida derider 07.15.15 at 3:45 am

“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?

132

Tabasco 07.15.15 at 5:25 am

Why were so many others willing to jump off the cliff with the Germans?
The same reason the weak have always sided with bullies. They think it offers protection. They are wrong.

Did those new eastern members not think about what German hegemony has meant for them in the past?
These Germans are different. [LOL]

Did not the other southerners see how much these events have utterly destroyed their own future position?
Did you think the Spanish Prime Minister was going to, in effect, acknowledge that Podemos is right?

Are French elites not afraid of the lesson their country’s powerful left will draw from this?
The French left is not powerful. It’s not 1946 anymore.

Have they all thought through what a Brexit – now immeasurably more likely – would mean for their own future position?
We’ll worry about that later.

133

Tabasco 07.15.15 at 5:33 am

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”.

134

kidneystones 07.15.15 at 6:00 am

I’ve been reading the ‘vastly over-rated’ Smith and one of her posse, Wolf Richter, here’s his rather cruel assessment of Greece in Feb of this year. http://wolfstreet.com/2015/02/26/whats-wrong-with-our-dear-greeks/

“…Greeks at all levels are notorious for not paying their taxes. Successive governments tried to levy new taxes to make up for taxes that Greeks simply refused to pay. They tried to crack down on select groups of tax cheats, going variously after the small fry or a few trophy rich. But to no avail. Greeks simply don’t like to pay their taxes. In that respect, they’re the same as the rest of humanity. They’re just better at it. And it wouldn’t even occur to Greeks to buy Greek government bonds, though the government needs to sell bonds desperately to exit the debt crisis, move the economy forward, and finance the government’s profligate ways, sandwiched between capital flight and tax evasion…

…So Greece – the government, not the people – is still bankrupt even though it already gave the remaining private-sector bondholders a high-and-tight but “voluntary” haircut in 2012. About 77% of Greek government debt is now held by taxpayers of other countries through various institutions. But only a minuscule amount of Greek government debt is actually held in Greece.

Japan is in much, much worse fiscal shape. It has been borrowing nearly half of its entire budget, for years. Its gross national debt is headed for the ignominious level of 250% of GDP, far above Greece’s 150% or so. But there is no debt crisis in Japan. Japanese institutions and individuals have always bought Japanese government debt and own almost all of it. Only a sliver of about 5% is owned by foreigners…

Instead of stewing in their own misery, Greeks need to repatriate their money into Greek banks, all of their money. They need to clean out their bank accounts in Switzerland, Luxembourg, and London, and deposit this money into Greek banks. Hundreds of billions of euros. That would immediately solve the bank-run crisis. They need to pay taxes on this money. And they need to pay their taxes for the last 20 years, all of their taxes, including penalties. They need to do so pronto, and with a smile. This is about Greece after all, the country they’re so proud of, and that needs them in this hour of duress. Knowing this, they’ll gladly stop cheating on their taxes from now on, at all levels, from the fruit seller on the street or the doctor that takes cash for her services or even the oligarch. Budget crisis solved!

Greeks need to sell their homes in Berlin and London and elsewhere, and they need to liquidate their investments in other countries and repatriate this wealth and build… in Greece. They need to spend some of this money in Greece on consumer goods. They need to splurge on Greek food and booze. They need to invest this money in companies that design and build cool motorcycles in Greece, install solar panels on every roof, invent the next iPhone or rather a still-to-be-envisioned gadget…. And they need to pay their workers properly. Economic crisis solved.

And they need to stand in line and jostle for position to buy 100-year Greek government bonds that the new government would be all too happy to issue once there are enough buyers lined up to bring yields down to 2%. And these Greek buyers should do so with a patriotic, proud smile; they’re investing in their beloved Greece for the long run.

The proceeds from these massive bond sales should then be used to redeem all government debt that public institutions in other countries now hold, thus taking their taxpayers, including Americans, off the hook. The government then needs to pay its arrears to suppliers, healthcare providers, to every business it owes money, and it needs to pay its current bills with lightening speed. This would allow those businesses to pay their suppliers, and it would set in motion a tsunami of money getting handed from one business to the next. It would stop bankruptcies in their tracks. Debt crisis solved!”

This screed is very similar to the graphics published regularly in the German press and widely read in European countries not named Greece, or perhaps France. The references to Japan resonate – there’s a real sense, quite incomprehensible I’m sure to those outside Japan, that we’re in this together, whether the challenge is irradiated food in the larger food chain, or coping with rapidly diminishing pensions and a declining birthrate. A colleague who ran a very good MBA program for decades often said that in business the only real variable is culture.

135

ZM 07.15.15 at 6:04 am

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.

136

William Timberman 07.15.15 at 7:14 am

ZM @ 135

I don’t need to repeat what everybody knows. Incrementalism is a drag. To individuals who feel compelled to labor in its nastier environs, the work seems interminable, with no sure sign at any given moment that they’re on the right path to success. Revolution is possible only if sufficient outrage can be generated — which is a big if — and is, besides, a very blunt instrument. It wrecks the good stuff along with the bad, kills, injures, and impoverishes people without regard to their guilt or innocence, and in an age as dependent as ours is on a high level of world-wide technical efficiency, it can send everyone back to the stone age as surely and as swiftly as a nuclear war.

Adventurers, in short, have a lot to fear, and the rest of us may have a lot to fear from them. The merely imaginative present other risks. Ask Lenin’s question these days and you’ll get almost as many answers as there are butts on the folding chairs in the church basements or town halls or on the back benches of the parliaments where you ask it.

Could that be the the key? If enough people do whatever they think needs to be done, and tell us about it afterwards, maybe something truly different/applicable will emerge. One thing is certain, though. The people who claim to have the answers now are not the ones to go to with our questions.

137

ZM 07.15.15 at 7:35 am

“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.

138

William Timberman 07.15.15 at 7:37 am

Lenin’s question: What is to be done?

139

ZM 07.15.15 at 7:41 am

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

140

engels 07.15.15 at 8:49 am

As people can vote in most countries, you do not need to change things by having a revolution

Words fail.

141

hix 07.15.15 at 9:32 am

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.

142

chris y 07.15.15 at 10:06 am

He [Schäuble] admitted that he had met the arms dealer and lobbyist at the centre of the scandal, Karlheinz Schreiber, and accepted an undeclared DM100,000 (£36,300) cash donation from him.

You cannot arm with mailed fist.
Thank God! the German economist.
But seeing what the man will do
Unarmed, there’s no occasion to.

143

engels 07.15.15 at 10:09 am

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).

144

chris y 07.15.15 at 10:36 am

(‘parliament can not bind its successors’ is a prínciple of British democracy).

But the Fixed Term Parliament Act, 2011 was nevertheless passed, and the present parliament appears to see itself as bound by it. So not entirely false. To stretch a point we might remember that the kingdoms of Pergamon and Bithynia were both bequeathed to the SPQR by their rulers’ wills.

145

engels 07.15.15 at 11:53 am

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

146

The Raven 07.15.15 at 12:02 pm

The wheels seem to be coming off the deal before it is even made.

http://www.theguardian.com/business/2015/jul/14/imf-report-greece-needs-more-debt-relief

147

Manoel Galdino 07.15.15 at 4:48 pm

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?

148

Dave 07.15.15 at 5:29 pm

Most of us have criticized the EZ’s handling of this last chapter of the Greek crisis on the basis of it completely undermining Greek democracy. And yet at the same time, many of us attack Syriza for not having prepared for Grexit. I also think Grexit would better than austerity ad infinitum. But we have to note that every piece of polling (along with plenty of journalistic anecdata) suggests that the Greek people prefer a bad deal to Grexit by a large margin. For Tsipras to have gone for Grexit anyway would also have been patently undemocratic, no?

Tsipras knows that this deal is completely unworkable. My guess is that he’s just hoping to get enough breathing room to either 1) make a second stand following a Podemos victory or 2) prepare for Grexit, both in trying to convince public opinion and in setting up the logistics

149

Sebastian H 07.15.15 at 5:34 pm

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.

150

Sebastian H 07.15.15 at 5:45 pm

I want to point out that at the time we had that discussion , the PESSIMISTIC trioka projection was for for -1% during 2013.

151

TM 07.15.15 at 5:54 pm

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.

152

MPAVictoria 07.15.15 at 5:55 pm

Jesus Christ Sebastian is spot on @149.

153

john c. halasz 07.15.15 at 6:09 pm

@ 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.

154

F. Foundling 07.15.15 at 6:11 pm

@Chris Bertram 07.14.15 at 8:35 pm

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

>Indeed, but it is hard to make that argument on the basis of the sanctity of free choice alone, you need some supplementary principle.

Based on the sanctity of free choice, it makes sense that the one free choice you can’t make is to renounce free choice; just like, based on the sanctity of tolerance, the one thing you can’t be tolerant towards is intolerance. Furthermore, in view of the imperfect functioning of representative democracy, the right of an elected representative to sell the group he represents is, if possible, even less justifiable than the right of an individual to sell himself. In the case of Greece, I have long found it remarkable how the fact that the leadership secretly cooked the books in order to be able to borrow irresponsibly was regarded as a good reason to ‘punish’ severely an entire ‘profligate’ nation that was never consulted or informed about these actions of its leadership (by definition, since they were secret). The PM might as well have gambled away Greece in a game of poker, with that being recognised internationally as a legitimate transfer of sovereignty.

155

Rich Puchalsky 07.15.15 at 6:12 pm

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.

156

F. Foundling 07.15.15 at 6:41 pm

@OP
>Syriza has clearly been beaten.

It is now clear, more than ever, that Syriza was merely the (hopefully) last expression of Greek naive belief that ‘Europe’ is what it claims to be – a pro-democratic, liberal, social, uniting, responsibly ‘technocratic’ project and not a dictatorial, chauvinistic class war machine – and that therefore it is possible to both have your cake and eat it, to be in ‘Europe’ and to have political and social democracy. Varoufakis in particular, as shown in this 2012 post (http://yanisvaroufakis.eu/2012/02/18/greek-default-does-not-equal-greek-exit/), seriously believed that the ECB ‘technocrats’ were more interested in avoiding risks for the Eurozone than in crushing leftism, and that what has happened within the last month would never happen. It was necessary for this view to be tested and for the illusion to be shattered, so that the Greek people can now choose consciously between a bona fide pro-Grexit policy and the destruction of their freedom and existence as a sovereign entity.

Does that vindicate all those claiming to be on the left who had been critical of Syriza all along? Not most of them, because most didn’t just criticise Syriza from a more radical ally’s viewpoint, they openly sided with the enemy; they advocated, in practice, nothing else but Greek capitulation, they explicitly defended and justified the policies of ‘Europe’ and ‘the Institutions’ as politically inevitable albeit economically suboptimal, and did everything in their power to discredit the only existing resistance, Syriza, by corroborating all of the Institutions’ propaganda against it. This applies to Dsquared, who defended the actions of the troika as inevitable in his choose-your-own-adventure post and, when pressed, revealed in comments his belief that neoliberal policies with respect to privatisation, pensions etc. are the only technically sound way towards stabilisation. It also applies to Yves Smith, who advocated surrender, did everything to argue that Grexit was impossible, as in the ‘technical’ posts linked to in this discussion (and, I suppose, that secessions are a mythical phenomenon that doesn’t occur in this world) and even engaged in character assassination against the Syriza leadership (up to stuff like re-posting ‘damning’ photos of Varoufakis and his wife drinking wine). Anyone who admits that total surrender to neoliberalism and Grexit are the only two options and yet does not advocate Grexit can hardly be considered a leftist. Selling islands and national monuments, privatising national property, destroying collective bargaining and the social safety net, and, in general, disempowering the lower and midde classes and suspending popular sovereignty and national independence are not just temporary measures; they are major shifts in the power structure of a society and are extremely difficult to reverse, especially in the current thousand-year Reich of neoliberalism. Part of being a left-winger involves the recognition that while the human cost of rejecting tyranny can be very high, the cost of accepting it is even higher in the long run.

157

Ronan(rf) 07.15.15 at 7:10 pm

“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 ?

158

Trader Joe 07.15.15 at 7:14 pm

Why is no venom reserved for all of the Greek ‘patriots’ who collectively offshored > 100 billion euro, which severely weakened the banking system and thereby explicityly added to the amount needed to be requested and weakened Syriza’s already lousy bargaining position.

This was 100B that not only wasn’t being held in Greek banks, but also was not being invested in the Greek economy, not creating Greek jobs, not paying Greek taxes or invested in Greek debt.

As documented upstrand (or maybe on the other one) Japan has a much larger relative borrow than Greece, yet they don’t find themselves straitjacketed or unable to access third party lenders. I’m happy to lay loads of blame to the Troika for cutting an unscrupulous deal(s), but surely the debtor and its people are not blameless as some posts would imply.

As I type my wire service says protests are beginning in the streets of Athens

159

Rich Puchalsky 07.15.15 at 7:23 pm

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.

160

engels 07.15.15 at 7:26 pm

“Syriza has clearly been beaten”

The FT quoted an official who attended the Eurozone summit saying that Tsipras had been “crucified,” which may still turn out to be a better metaphor.

161

Dave 07.15.15 at 7:32 pm

@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.

162

Dave 07.15.15 at 7:37 pm

That at least is one plausible explanation. I think this is a decent take: Tsipras, neither an idiot nor a savior.

http://www.telesurtv.net/english/opinion/Greece-and-the-Union-of-Bullies-20150714-0017.html

163

kidneystones 07.15.15 at 7:44 pm

@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.

164

Ronan(rf) 07.15.15 at 7:54 pm

@160- you definitely have a point. People (myself included) aren’t paying enough attention to the politics surrounding syriza (either their internal and constituency politics, or what people think of the strategy in Greece…. What their “strategy” even is/was)
My own reaction to Tsipras and Syriza was instinctively hostile (driven by my own political priors and prejudices , and a lot of the rhetoric about relatively cost free Euro exits) but I’ve decided to stop second guessing them from my position of ignorance of Greek politics. (And would be interested if anyone had anything to say on the subject)

165

hix 07.15.15 at 7:54 pm

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.

166

kidneystones 07.15.15 at 7:57 pm

And just to put things in perspective for those clapping at the thought of a summer of riots in the streets of Athens, tourism is the only industry keeping Greece somewhat afloat at this point and hotel reservations were already plummeting before Syriza’s lastest CYA pantomime.

167

engels 07.15.15 at 8:05 pm

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’).

168

steven johnson 07.15.15 at 8:10 pm

F. Foundling@155 “the only existing resistance, Syriza…” KKE. Perhaps there is a case for answering the question, “Was KKE right all along?” with a no. But to not even ask the question? That seems to me to be precisely the kind of thinking those who ignore the failure of austerity to restore economies (as opposed to certain bank accounts,) indulge.

Greek national resentment of Turkey I suspect is a commonly unacknowledged factor.

As a general conclusion, I’d say the course of events demonstrate once again that there is no such thing as an anti-revolutionary “Left” that abjures sectarianism in favor of mass voting and street demos.

169

TM 07.15.15 at 8:10 pm

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.

170

Ronan(rf) 07.15.15 at 8:16 pm

“I suspect some here badly underestimate the levels of support many Europeans feel for Germany and the EU taxpayers.”

Yeah. I also think people are overstating the extent to which there’s a meaningful “pan European solidarity” (rather than many different national politics) or this idea that self interest and power politics has only now returned to the EU (!!).
I would say everyone needs to stop looking at the EU in this trite “never again” frame(everything seen through the context of early 20thC politics), but that’s a different story.

171

Collin Street 07.15.15 at 8:39 pm

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.

172

bob mcmanus 07.15.15 at 8:43 pm

Jacobin as usual, has the best recap today. Stathis Kouvelakis serves on the central committee of Syriza.

Tsipras: ” This meant that, until the very end, those people believed that they could get something from the troika, they thought that between “partners” they would find some sort of compromise, that they shared some core values like respect for the democratic mandate, or the possibility of a rational discussion based on economic arguments.” Naivete? Innocence? Idealism?

KKE:”I think what, for a Marxist, is necessary is a kind of historicized understanding of these terms. You can say, on the one hand, that what you’ve been saying is vindicated because it’s proved true.

It’s the usual I-told-you-so strategy. But, if you’re unable to give a concrete power to that position, politically you are defeated. Because, if you are powerless and you have proved unable actually to transform your position into mass practice, then obviously politically you haven’t been vindicated.

Having passed the test of that decisive period, both KKE and Antarsya have proved, in very different ways of course, how irrelevant they are. For us [Left Platform], the only alternative choice would have been to break with the Syriza leadership sooner. However, given the dynamic of the situation after this crucial bifurcation of the late 2011 to early 2012 moment, that would have immediately marginalized us. “

173

kidneystones 07.15.15 at 9:02 pm

@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?

174

hix 07.15.15 at 9:21 pm

The Schäuble plan was for Greece to leave the Eurozone without leaving the EU and to return to the Eurozone in a couple of years. Theres lots of room between unified Europe idealism and realpolitik. Pursueing ones economic self interest is not realpolitik, even the opposit to some extend.

175

engels 07.15.15 at 9:24 pm

The Kouvelakis interview Bob links to is very good.

176

bob mcmanus 07.15.15 at 9:27 pm

The paper by Euclid Tsakalotos I read and linked the other day, about Greek exceptionalism, and the differences between social regulation by clientalism and regulation by finance led me to think about cultural imperialism (gotta read Tomlinson) and colonialism/colonizing and whether they are absolutely intrinsic to liberalism and democracy. Democracy will have a winning faction or coalition, and they will exploit and oppress the losers, and feel righteous and justified in doing so.

I am so disillusioned at this point that I am very skeptical of the liberal project and its compulsory export to differently developed societies.

177

kidneystones 07.15.15 at 9:35 pm

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

178

engels 07.15.15 at 9:43 pm

‘Good’ as in clear, informative and thorough

179

kidneystones 07.15.15 at 10:20 pm

@177 Apologies.

180

steven johnson 07.15.15 at 10:44 pm

Bob McManus@171 Asked why he played at the rigged poker game, the gambler replied “It’s the only game in town!” I thought that was a punch line, not words to live by.

Enforcing the austerity raises the possibility that KKE’s continued resistance, aka sectarianism, may cause problems. Not everyone is so wise as to accept that a no vote in the referendum meant the repudiation of sectarianism! Kouvelakis I think is working on the “left” antisectarian arguments for attacking the KKE. One must have the right priorities.

By the way, Golden Dawn is also oppositional, formally to the austerity. But the Ukrainian precedent shows that fascists can be incorporated into an antisectarian regime in the military/police/intelligence apparatus.

181

js. 07.15.15 at 10:46 pm

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.

182

F. Foundling 07.15.15 at 10:59 pm

>F. Foundling@155 “the only existing resistance, Syriza…” KKE. Perhaps there is a case for answering the question, “Was KKE right all along?” with a no. But to not even ask the question?

Fine, that was imprecise; I suppose I was thinking of something like ‘the only existing resistance with a chance to win an election and form a coalition with other anti-austerian forces in the EU’. Maybe also ‘the only resistance that most people across the political spectrum wouldn’t immediately be allergic to’. The fact is that unreconstructed Soviet-style ‘Marxism-Leninism’ is unpopular (and for a reason, IMHO, since it clearly went very wrong from a left-wing perspective). Still, if I recall the KKE’s stance correctly, I think I basically *have* said that the KKE was right all along about the Euro and the EU, albeit without mentioning it by name.

183

F. Foundling 07.15.15 at 11:19 pm

@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.

184

kidneystones 07.15.15 at 11:55 pm

181@ 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.

Kudos!

185

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.

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!

186

Sandwichman 07.16.15 at 12:08 am

“Banks want us to re-pay their money…”

No, they want us to pay the compound interest on the money they created to loan to us. They don’t give a flying fuck if we don’t pay back the principal as long we keep paying the interest. The “principal” just capitalizes an income flow. It is immaterial.

187

F. Foundling 07.16.15 at 12:19 am

@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.

188

Tabasco 07.16.15 at 12:23 am

They don’t give a flying fuck if we don’t pay back the principal

This is only true if they remain confident that we are capable of repaying the principal. The details depend on accounting and regulatory rules, but once it becomes clear that principal is never coming back then they have to write down the loan.

189

Tabasco 07.16.15 at 12:27 am

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.

190

kidneystones 07.16.15 at 12:32 am

@184 Almost entirely correct. Banks are very happy to have us repay the principal as long as we then proceed to borrow even more. The operative term in my own post, as I clearly emphasize, is that the money (principal) in question did not, does not, and will not belong to us. This applies to credit unions, co-operatives, and any pool of almost any kind that provides loans. As you correctly emphasize, and I merely note, banks do this for profit and that profit does arise in precisely the way you describe.

@185 You’re quoting the article I linked, not me, not that I object too much. Here’s how one Polish friend who grew up in a worker’s paradise put it when discussing a similar question: ‘if we don’t believe in our own institutions and values, then why should anyone else?’

You’re arguing that Greeks rightly don’t have the confidence to invest their money in Greek bonds, but others should pony up.

Do you have any idea how dense this sounds?

191

engels 07.16.15 at 12:36 am

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.

192

Sandwichman 07.16.15 at 12:44 am

@186 “The details depend on accounting and regulatory rules…”

No, the detail depend on payments. If you can’t pay, then the rules come in. But, of course, there are rules and then there are rules. Which accounting and regulatory rules apply depends on power.

193

F. Foundling 07.16.15 at 12:44 am

@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.

194

Sandwichman 07.16.15 at 1:04 am

Has it occurred to anyone else (I am assuming not) that compared to dealing with climate change, the Greek crisis was a relatively extremely simply problem to solve.

Feel better now?

195

Tabasco 07.16.15 at 1:06 am

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.

196

F. Foundling 07.16.15 at 1:20 am

@kidneystones 07.16.15 at 12:32 am
>You’re arguing that Greeks rightly don’t have the confidence to invest their money in Greek bonds, but others should pony up.

Those ‘others’ are not in the immediate danger of being left without money for food and medicine in a failed state within a few months. Pontificating about how ‘Greeks’ in general (all of whom apparently have Swiss bank accounts and homes in London) should stop thinking about their own survival and try to save their country with their own money (assuming that was even possible) strikes me as … how did you put it? ‘Smug, self-righteous, ignorant, sanctimonious, and ill-informed’.

197

Sandwichman 07.16.15 at 1:26 am

“Whether or not you ‘can’t’ pay…”

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

198

politicalfootball 07.16.15 at 3:59 am

You’re arguing that Greeks rightly don’t have the confidence to invest their money in Greek bonds, but others should pony up.

dsquared suffers from this same confusion, and it’s vexing to try to engage him on it because he seems to be completely unable to acknowledge the issue.

He told us, with considerable insight, that Greek bonds are no longer a financial quantity, but are rather a political one. As best as I can reckon, you agree.

But when it’s convenient to dsquared’s thesis – that the Greeks are suffering primarily from their own irresponsibility – he will suddenly switch and describe the debt as a financial matter.

So, yes, you’re right: Buying Greek bonds at face value is a bad financial investment. But that’s in no way relevant to anything.

And Wolf Richter, as quoted by you, is telling people not to panic in the midst of a bank run. That’s the same kind of glib nonsense that the gun nuts offer to the victims of mass shootings: “Surely those 20 people who got killed could have teamed up and taken down the shooter.”

We have governments for the purpose of carrying out collective actions such as the purchase of significant quantities of bonds – and the Greek government can’t do it, nor can any other Greek institution. Asking individuals to handle that job is absurd.

199

The Raven 07.16.15 at 5:30 am

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?

200

Collin Street 07.16.15 at 5:46 am

Does a substantial percentage of Germans sincerely believe they are the victims in this?

They are victims. Analyse “german investment in greece” as a species of affinity fraud / ponzi scheme. And as you’d expect they’re blaming the auditors for “lying” same as Madoff’s victims did.

201

JohnT 07.16.15 at 5:50 am

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?

202

Tabasco 07.16.15 at 6:27 am

@197

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.

203

The Raven 07.16.15 at 6:40 am

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.

204

ZM 07.16.15 at 9:35 am

On the UN Sustainable Development site there is a Stakeholder Engagement cluster on Macroeconomic policy questions (including international trade, international financial system and external debt sustainability) and infrastructure development

The results were summed up:

“On the cluster of Sustained and inclusive economic growth, macroeconomic policy questions (including international trade, international financial system and external debt sustainability), infrastructure development and industrialization, several speakers highlighted that Economic growth and economic development are not synonymous, and inequality can be a barrier for growth. Many raised the importance of redistribution as the most effective way to poverty eradication and sustainable development. Tackling inequality was proposed as a theme for a stand-alone SDG and also as an underlying principle for other themes and targets.

The role of the state in macroeconomic governance should be thought through when discussing the SDGs. Many speakers argued that the state should take a more proactive role and mentioned that finance should serve the economy not drive it. The need for adequate policy space was highlighted in order to make sure that states can flexibly react to the needs of their citizens and the environment. Likewise the importance of honoring existing commitments.

Macroeconomic policies cannot be looked at as a separate issue from social policies, and in this regard several speakers mentioned the need to take into account gender specific implications. One example concerned the austerity policies following the financial crisis in several countries that sometimes impose additional informal care work on women who in turn cannot fully participate in the work force.

The SDGs should help countries to shift away from the prevalent “race to the bottom” paradigm in which efforts to attract foreign direct investments result in lowered tax revenues, weakened environmental and labour requirements, and human rights violations. “

So I still think the Greek Government should be concentrating on working towards the Assembly in September, which is likely more useful than trying to bluff the European Union and Germany

205

hix 07.16.15 at 10:37 am

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.

206

Martin Bento 07.16.15 at 11:11 am

It seems to me that the fundamental problem is that the premise of the EU is that the individual nations will be able to “pull their own weight” and “balance their own books” when that is not how it works in other large integrated developed economies in the world, and it is not clear how it could so work? 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?

Yet, when the government spends that money, it spends it according to some combination of genuine disinterested need and pork barrel politics (the latter, in the US and many other countries, having a rural bias). The result has to be that California gets back less per tax dollar put in than Alabama, and therefore a constant transfer of wealth from California to Alabama.

If the federal government decided to make spending in each state a function of tax revenue collected in that state, California would party like it’s 1999, and Alabama would secede again, this time with good cause. Alabama would be better off with a weaker currency reflecting its lower productivity and making its exports more competitive. It would also do better with closed borders. As it is now, its skilled people largely head out to Cali or New York. Meanwhile, if you want a cheap place to retire, or to drink since you’re unemployed anyway, Alabama may be for you.

Somehow the EU embarked on this whole unification without realizing this. The price of unification is that Germany must subsidize Greece. Forever. And ever and ever and ever. Otherwise, Greece is better off with closed borders and its own currency (setting aside transition costs).

If Germany and the other rich countries do not accept this, and clearly they do not and no one even seems to be trying to convince them they should, then the whole unification cannot work, and the question is how best to unwind it.

207

Collin Street 07.16.15 at 11:24 am

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.

208

Collin Street 07.16.15 at 11:28 am

The newest is that Schäuble is ok with a debt writdown if Greece leaves the Eurozone, thus circumventing a breach of the TFEU.

He can be relied upon from now on to generate an endless succession of hairbrained schemes that have as their chief virtue “avoids making Schauble a liar by keeping ‘nominal debts’ in some vague half-arsed sense not-written-down”, because he strikes me as the sort of person who doesn’t take “backing down” well.

I mean, until somone gags him, which is still a few months out I guess.

209

Trader Joe 07.16.15 at 1:43 pm

@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.

210

Layman 07.16.15 at 1:48 pm

“But California and Alabama have transfered a substantial portion of their sovereignty (more every day it seems)”

Good grief.

211

Sebastian H 07.16.15 at 2:02 pm

“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.

212

Trader Joe 07.16.15 at 2:31 pm

@211
This paper provides some data on the topic. Simple answer – it would have helped, but hardly solved Greece’s problems and to do so the Greeks (and the rest of the EU) would have had to be politically willing to form the sort of union that would enable such transfers – 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 – obviously there is a lot or any nation would be willing to do it….see Britain, see Scotland, see Denmark et al

http://www.frbsf.org/economic-research/publications/economic-letter/2013/december/taxes-transfers-redistribution-us-federal-government-states/

213

Layman 07.16.15 at 2:37 pm

“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.

214

politicalfootball 07.16.15 at 2:41 pm

Another way to phrase the California/Alabama point is to ask: Who got a better political deal, the East Germans or the Greeks? Pretty clearly the East Germans, despite having been explicitly annexed.

But it’s not just about the slackers in East Germany and Greece. California and the West Germans are better off for being in a functioning economic union with their weaker partners.

215

Layman 07.16.15 at 2:45 pm

“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.

216

Igor Belanov 07.16.15 at 2:45 pm

Layman-

Why would the German (and European) elite want the responsibility of maintaining a European state with all the tasks of ideological legitimacy, institutional coherence, economic credibility, social security, and law and order that would be entailed, when it can simply issue a nation-state with its demands and that nation-state is responsible (and willing) for enforcing them itself?

217

Layman 07.16.15 at 3:00 pm

Igor Belanov, you should ask them.

218

Trader Joe 07.16.15 at 3:01 pm

@213
I wasn’t aware Schauble had made such a proposal, so perhaps the Germans are more willing than I’d thought. That said, as the linked report suggests – the reason they might not be is the 2% of their own GDP they would forgo in transfers to others.

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 resulting convulsions across the balance of the continent were no small part of why the UK didn’t join and others wanted quite strict limits on the ECB expressly forbiding some of the support that such political union would entail.

219

F. Foundling 07.16.15 at 3:16 pm

@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.

220

Igor Belanov 07.16.15 at 3:18 pm

@ 217

I’m suggesting that they don’t want a state at all, but are more interested in tightening up the rules of the game that they are playing to such success at the moment.

221

Layman 07.16.15 at 3:23 pm

“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.

222

Layman 07.16.15 at 3:29 pm

From the Guardian today:

Habermas, widely considered one of the most influential contemporary European intellectuals, said that by threatening Greece with an exit from the eurozone over the course of the negotiations, Germany had “unashamedly revealed itself as Europe’s chief disciplinarian and for the first time openly made a claim for German hegemony in Europe.”

The outcome of the negotiations between Greece and the other eurozone member states, he said, did “not make sense in economic terms because of the toxic mixture of necessary structural reforms of state and economy with further neoliberal impositions that will completely discourage an exhausted Greek population and kill any impetus to growth.”

Habermas added: “Forcing the Greek government to agree to an economically questionable, predominantly symbolic privatisation fund cannot be understood as anything other an act of punishment against a leftwing government.”

223

F. Foundling 07.16.15 at 3:31 pm

@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.

224

politicalfootball 07.16.15 at 3:31 pm

212: That paper doesn’t speak to the current Greek situation at all. When Texas was the epicenter of the savings and loan crisis, that state got bailed out bigtime by the central government.

Greece’s current banking crisis, on the other hand, was the deliberate result of policy by the central authority. Sure, states benefit routinely from inclusion in a larger union, but states in crisis benefit particularly – as long as that union is sanely structured.

225

Sebastian H 07.16.15 at 4:05 pm

“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.

226

TM 07.16.15 at 4:05 pm

These statistics won’t be news to anybody here but highlight the catastrophic extent of Euro policy failure:

http://www.nytimes.com/interactive/2015/07/09/business/international/is-greece-worse-off-than-the-us-during-the-great-depression.html

227

Trader Joe 07.16.15 at 4:05 pm

@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.

228

Sebastian H 07.16.15 at 4:23 pm

“it would have helped, but hardly solved Greece’s problems and to do so the Greeks (and the rest of the EU) would have had to be politically willing to form the sort of union that would enable such transfers – 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 don’t understand your argument. Have you read the agreement? It is only 7 pages, and is rather crucial to understanding where we are. here it is.

It includes a mandate that the legislature pass quasi automatic spending CUTS in case of deviations from the surplus targets. (Brilliant economic policy, just brilliant). It mandates enormous cuts to the pension system (you have to remember that the very large cuts recently proposed weren’t deemed enough), full implementation of Treaty on Stability that ummm almost every other EU country isn’t in compliance with, a complete overhaul of Greece’s Code of Civil Procedure which while it was in the works is still a COMPLETE OVERHAUL OF THE CIVIL PROCEDURE SYSTEM (you have a week, get right on that), give up control of local ordinances FURTHER than German law (see Sunday trade), and sell off 50 billion in Greek assets.

Oh and it has delicious bits of irony too: Greece must “adopt the necessary steps to strengthen the financial sector, INCLUDING DECISIVE ACTION ON NON-PERFORMING LOANS….

[emphasis mine]

You Gotta write off those bad loans so we know how strong your banking institutions are. What? No. I said YOU gotta do that.

229

afeman 07.16.15 at 4:45 pm

Peter Dorman wrote this tidbit on public attitudes in Germany:

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

230

politicalfootball 07.16.15 at 4:48 pm

Well of course it doesn’t it just happened, so there’s no data.

Oh, sure. I’m not faulting the authors. I’m just saying that the benefits of a sensibly structured union go far beyond the scope of that paper.

Even if you leave aside the recent destruction of Greek banking, the structure of the EU led to Greeks (and everybody else) fleeing their banking system over a period of years.

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.

But it also fails to take into account Germany’s low-inflation monetary and fiscal policies, without which the periphery would be doing much better. I haven’t got the chops to work it out, but surely sensibly loose policies – or even half-assed policies of the sort the US has pursued – would have a larger impact than the hypothetical transfers discussed in the paper.

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The Raven 07.16.15 at 5:19 pm

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?

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Trader Joe 07.16.15 at 5:24 pm

@228 Sebastian
I think you’re applying my point somewhat differently than intended. The line of discussion I was initially responding to concerned having a “US-like” system of transfers that would act as a shock absorber for various economic downturns and my point was to enable such a system, one needed a degree of political unity before the fact.

I’m appropriately familliar with what the agreement says and what it does vis a vis Greece and I’m not endorsing it as a ‘good’ agreement by any means. That said, I think its a bit revisionist thinking to suggest that circa 2008 or 2010 or 2012 the EU could have adopted a support structure that would have enabled U.S. like transfer payments – maybe they should have, but there was little broad political will for it on the part of either those who would net-transfer in or those who would get net benfits. That was my point. I don’t disagree with your assessment.

@230 politicalfootball
I see what you’re saying now and agree (actually did a paper on it circa 1995 when this whole Euro thing was just a big idea).

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Rich Puchalsky 07.16.15 at 5:27 pm

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.

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Lupita 07.16.15 at 5:27 pm

So now Pablo Yglesias from Podemos has come out in support of Tsipras, the Greek parliament, and neoliberalism. Who’s next? Occupy?

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john c. halasz 07.16.15 at 5:32 pm

@233:

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

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engels 07.16.15 at 6:02 pm

The reason that they choose to do evil is that they choose to do evil.

I’ve said it before and I’ll say it again: this is pure dogmatism, and equally nutty in its own way to believing the government controls everyone’s minds.

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Martin Bento 07.16.15 at 6:05 pm

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.

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F. Foundling 07.16.15 at 6:10 pm

Since people discussing the crisis so often refer to ‘the Germans’ (and yes, such a way of reference is inevitable in practice), it is good to remember that there are also these Germans:

http://www.theguardian.com/world/2015/jul/15/radical-left-protests-across-germany-over-bailout-deal-coup-against-greeks

http://blockupy.org/en/

http://www.die-linke.de/die-linke/aktuell/

Yes, the ‘virtuous’, as Kidneystones put it sarcastically. They are currently a small minority, of course, but the fact that they do exist makes it even more tragic that the word ‘Germany’ is becoming synonymous with Schäuble-Merkel politics.

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TM 07.16.15 at 6:14 pm

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.

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Lupita 07.16.15 at 6:44 pm

Not only was Tsipras bluffing, so is Yglesias. Instead of offering viable alternatives to XXI century capitalism, the European left is fighting the ghost of XX century German-style fascism plus assorted imaginary monsters left over from the Cold War. According the Yglesias, “no” means “yes” to a victory by Marine Le Pen, France leaving NATO and the EU, it allying with Russia, and WWIII.

What a farce.

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Russell L. Carter 07.16.15 at 7:00 pm

“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.

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Dave 07.16.15 at 7:03 pm

@234 Lupita

Podemos and Syriza are both engaged in a (perhaps ill-fated) strategy of attempting to challenge austerity within the Euro; they aren’t endorsing neoliberalism.

They’re doing this for the simple reason that exit from the Euro isn’t feasible at the moment. The most important reason is actually a democratic one even more than a logistical one: huge majorities in both countries are deeply attached to the euro as a symbol of transition from dictatorship and of their place in the club of advanced democracies. Look at any polling. Even after suffering draconian austerity, they aren’t ready to leave. Yet.

Of course, challenging austerity within the euro may well be impossible given the prevailing balance of power within the Eurozone. I think both Podemos and Syriza expect their last chance to test this strategy will be the next Spanish general elections. Of course, the pro-euro anti-austerity movement has just been dealt a heavy blow in Greece. If the Left eventually decides the Euro is a permanent austerity dead-end, it will require a sustained effort to build up a pro-exit consensus.

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Bruce Wilder 07.16.15 at 7:22 pm

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.

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Bruce Wilder 07.16.15 at 7:33 pm

I am advocating for MMT here

I meant to say, I am NOT advocating for MMT here.

MMT obviously lectures on the point I was making, and mainstream economics elides it for reasons that remain obscure to me, but which probably contribute to the confused thinking driving Euro policy.

So, maybe I should give more credit to MMT, even if I do not want people to think that my exposition is some form of marginalized dissent from serious thinking.

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TM 07.16.15 at 7:34 pm

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.

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Dave 07.16.15 at 7:42 pm

@245 TM

You’re absolutely right.

I can understand German public opinion being unaware of the Euro’s role in artificially boosting German competitiveness. But what I CAN’T understand is what Schauble is thinking. If his goal really is to chuck Greece, Spain, Italy and France out and have a Northern European federal union, the logical consequence will be an insanely strong currency and a huge hit to the German export sector. So what’s the endgame?

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Russell L. Carter 07.16.15 at 8:41 pm

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.

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Rich Puchalsky 07.16.15 at 9:52 pm

BW: “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.”

I read the recommended link that Sandwichman left on framing, and I’m not entirely convinced. Theories about propaganda and framing seem to me both too much and too little in a complicated way that’s hard to discuss within a comment box. On the one hand, when you run into a strongly held communal frame, it’s pretty much impossible to get anything through it that isn’t interpreted by it. (Rooftop solar panels, anyone?) On the other hand, community frames are strongly held in the first place because they match what a particular culture is predisposed to believe, and I’m not sure how much propaganda has to do with that. Propaganda certainly appeals to the frame. But 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. Propaganda about shiftless Greeks wouldn’t work unless people already had a strong need for people to look down on and punish.

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hix 07.16.15 at 10:20 pm

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).

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hix 07.16.15 at 10:22 pm

Hum, to dumb for blockquote. The everyone except northern Europeans should be forced out of the Euro, even France thing, thats the conspiracy theory level speculation.

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engel 07.16.15 at 10:34 pm

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?

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Layman 07.16.15 at 10:43 pm

“But 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.”

Put another way, you propaganda can’t change people’s minds (because it only works when it reinforces what people want to believe), and propaganda is unnecessary (because people already want the object of the propaganda anyway). Pfui!

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Bruce Wilder 07.16.15 at 10:48 pm

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.

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Rich Puchalsky 07.16.15 at 11:11 pm

BW: “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’d have a difficult time describing something like Puritanism as a legacy of previous propaganda. Cultures have strong frames, or whatever you want to call them, that in many cases seem to come from an era before propaganda was really as important as it is now. They do have a legacy of decaying *attachments* — different things that have been connected with e.g. Puritanism over the years, sometimes through propaganda, sometimes not.

When someone wants to, let’s say, loot the Greek nation and reinforce existing power structures (and save their own jobs) they may well find it useful to propagandize about the shiftless Greeks. But I don’t see them creating this connection through propaganda, only reinforcing it. I think that careful attention to year-by-year attitudes on this would bear me out: the elites didn’t start out by talking about the shiftless Greeks, they started out by talking about how austerity would work beneficially. Only later did they turn to this propaganda line, and that was after it had already found solid support among Europeans, basically for the same reason that so many Americans find racism so attractive.

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Bruce Wilder 07.17.15 at 12:27 am

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.

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Tabasco 07.17.15 at 12:55 am

If his goal really is to chuck Greece, Spain, Italy and France out and have a Northern European federal union, the logical consequence will be an insanely strong currency and a huge hit to the German export sector.

If Germans got their DM back, their purchasing power, that is, standard of material living, would be much higher. Vacations to Florida, smart phones, French cheese and Italian fashion would be much cheaper. Germans too are apparent losers from having the Euro.

Of course, if they didn’t have the Euro they would lose their hegemony over the rest of Europe.

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john c. halasz 07.17.15 at 1:10 am

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.

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Sandwichman 07.17.15 at 1:22 am

If Germans got their DM back, their purchasing power, that is, standard of material living, would be much higher. Vacations to Florida, smart phones, French cheese and Italian fashion would be much cheaper. Germans too are apparent losers from having the Euro.

They could be… Americans!

259

magari 07.17.15 at 5:25 am

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

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Eimear Ní Mhéalóid 07.17.15 at 10:46 am

Bruce @ 243: Unfortunately for this idea, the fundamental bedrock principle of the EU and the EEC before it is “no tariffs”, and no equivalent measures either. Free movement of goods is king. Free movement of persons is next most important, then free movement of services. This is all well established from before the Euro came about. Free movement of capital is a more recent addition and allows for some crisis restrictions.

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Bill Benzon 07.17.15 at 2:18 pm

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.

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Sandwichman 07.17.15 at 5:16 pm

magari @259:

Bingo!

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Rich Puchalsky 07.17.15 at 5:44 pm

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.

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hix 07.17.15 at 5:48 pm

The shiftless Greek in Europeans imagination is mostly a creation of US imagination :-).

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Ronan(rf) 07.17.15 at 5:54 pm

Yep

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Ronan(rf) 07.17.15 at 5:55 pm

Easier answer: Europe has distributional conflicts built on national lines and a variety of domestic politics.

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Ronan(rf) 07.17.15 at 5:57 pm

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

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Rich Puchalsky 07.17.15 at 6:04 pm

I was originally arguing against Peter Dorman, who wrote:

Inside this bubble there is a steady stream of “news” whose common denominator is that slippery, corrupt Greeks are scheming to take advantage of Germans’ hard-earned wealth. This is something that every German now “knows”, part of the conventional wisdom that forms the bedrock for political analysis.

If you want to disagree with Dorman and say that this bubble does not exist — that it only exists in the US imagination — that’s fine. What I was specifically objecting to was the idea that this bubble, if it exists, is a matter of the media and the elite fooling people.

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Ronan(rf) 07.17.15 at 6:05 pm

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.

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Ronan(rf) 07.17.15 at 6:08 pm

Of course people exist in information bubbles. It’s hardly an original insight

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Rich Puchalsky 07.17.15 at 6:11 pm

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.

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Ronan(rf) 07.17.15 at 6:19 pm

I have sympathy with your first part, that there’s no long term hope for the Euro. Which is why I skew to thinking the non Northern countries should leave it. But there’s also no public or elite (outside of Schauble et al) support for that, or any workable plan for it to happen that Ive ever seen (and it’s not a panacea ) so it’s beside the point IMO.
Who is worse off, Greeks or African Americans ? I dont know how to answer such a thing. But the dynamics are different and the comparison doesnt go very far, also IMO.

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engel 07.17.15 at 6:37 pm

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)

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Dave 07.17.15 at 6:38 pm

@Tabasco 256

The DM might well be a better option for average Germans (as would anything that allows Germany to create its own internal demand). But Germany’s rise to its current position as the dominant exporter in Europe (and one of the dominant world exporters) has always been based on harsh wage restraint and extremely precarious labor market conditions in the service sector. While it might be better for average Germans, leaving the Euro would be a seismic shift of political-economic strategy for German political elites.

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Dave 07.17.15 at 6:43 pm

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

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magari 07.17.15 at 7:23 pm

Blyth reads the economics correctly, but whiffs on the politics. He asks, 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? Again, this crisis isn’t about Greece or debt, but the hegemony of Germany and its governing ideology, neoliberalism. Greece and its debt are epiphenomenal. The “absurdity” is why the Southern countries do not form a coalition to rebuff Germany and its economic policy.

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Ronan(rf) 07.17.15 at 7:36 pm

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.

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Bruce Wilder 07.17.15 at 7:55 pm

Rich Puchalsky @ 263: 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.

You might be right. I feel I simply don’t know enough about either the sequence of events or the institutional control of German Media, and do not immediately see an easy way to investigate, to look for some dispositive evidence. I have to say I’m generally skeptical of explanations that rely on spontaneous combustion, but not to the point of excluding the possibility a priori. And, I suspect the “shiftless Greek” is one of those ethnic prejudices that could be traced thru a nearly infinite regress, in Greece or Germany. (The Greeks, immediately after independence were saddled by the European powers with a German Prince and it was not a happy experience; I even wonder how folk memory of that affects present controversies.)

From my own very cursory experience with Germans and German Media in the last few years, I think Peter Dorman’s take is an accurate one: Germany is in a very thick bubble and that bubble is now an important driver of and constraint on the politics. But, its exact genesis is a mystery to me.

I think we have very similar ideas about how propaganda works. That it is reflexive with prior beliefs, ideology and consciousness of interests, I accept much as you do.

That said, I don’t think consumer sovereignty plays much of a controlling role in corporate American news Media, where I’m more familiar with the recent history. Publications and brand-name personalities that seem popular enough are regularly trashed because they displease the corporate bosses; ratings do not seem to matter that much, if the bosses don’t like the message.

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

Is that relevant? Whatever the ultimate limits may be, they don’t seem in play, given the mischief achieved well within ambit of established professional capability and technique.

On the surface, propaganda would seem particularly vulnerable to competition. One propagandist with resources, unopposed, might be very powerful, but, opposed even with only some minimum of resources, would seem likely to be much weaker, and unlikely to become a reliable nexus of political control.

The thing that most concerns me about propaganda is how Media homogenization or “monopoly” becomes a force multiplier. False controversy is a real problem in American Media, and the ascendancy of neoliberal politics rests in large part on stage-managed, synthetic controversy that excludes or marginalizes in a very effective silent censorship.

. . . 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.

I don’t want to get into a long discursion on that, but I don’t think that is how it happened at all. In fact, “common white people” were more likely to see the disadvantages of slavery for themselves. It was the elites, whose very elite status was founded directly on slavery as a keystone economic institution, who had to construct a propaganda that would use racism to reconcile “common white people” to slavery and a hierarchical economy centered on plantation autarky with all the retardation of economic development that implied.

It is true, as you say, that American slavery was founded in the 17th century, at a time, when the rights of common people were pretty much non-existent, and slavery was just one coercive arrangement, among many. The political developments that gave impetus to an ideology that celebrated the personal rights of common people were entangled with slavery and abolition in complex and sometimes contradictory ways, precisely because elites had a strong economic interest in slavery, as well as political and economic interests in managing the rise of a popular strata that was suspicious of any claim where a property right trumped a personal right.

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Bruce Wilder 07.17.15 at 8:01 pm

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.

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john c. halasz 07.17.15 at 8:21 pm

@279:

The need for German to occupy the role of a good hegemon was a point that Varoufakis made. No such luck.

This from a former IMF guy today:

http://www.bloombergview.com/articles/2015-07-17/germany-not-greece-should-exit-the-euro

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magari 07.17.15 at 9:04 pm

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.

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TM 07.17.15 at 9:53 pm

The idea that Germany does not play a hegemonic role in the EU would be a surprise to most European observers, including Germans.

Tabasco 256: “If Germans got their DM back, their purchasing power, that is, standard of material living, would be much higher. Vacations to Florida, smart phones, French cheese and Italian fashion would be much cheaper. Germans too are apparent losers from having the Euro.”

I am highly confident that this is not true. Germany exports much more than it imports. The effect currency appreciation on purchasing power would be much smaller than you think. The biggest effect probably would come through cheaper oil but even that isn’t as big as it seems since Germans drive efficient cars and the price at the pump is mostly determined by the gas tax.

French and other cheese is actually already quite cheap in Germany, much cheaper for example than in the US (at least quality cheese). Many Germans do travel to the US but they don’t have to. They have many cheaper and closer vacation destinations to choose from. Cheaper imports and travel would never remotely compensate for the loss of export sector jobs.

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Sebastian H 07.17.15 at 10:00 pm

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

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hix 07.17.15 at 10:51 pm

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Martin Bento 07.18.15 at 5:54 pm

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.

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Bill Benzon 07.20.15 at 12:45 am

Gregody Jusdanis:

Believing that they had little more to lose, some people began to think the unthinkable, to take risks, the see themselves beyond fear. Greeks whom I spoke with told me that they could not bear the conditions of life any longer and wanted to send a message to the world.

Above all, they wanted to maintain their dignity. Over and over, they said that their self-worth was more important than their pocketbooks. It was this aspect of pride and defiance that European and American commentators had a hard time understanding—that a people could exist for whom self-respect and honor were more significant than economic well-being.

It is important to keep in mind that “Ochi,” the Greek word for “No,” has symbolic associations in Greek history. In 1821 the Greeks launched the first national revolution in the world to end 400 years of Ottoman rule. In October 28, 1940 they said “Ochi” to the invasion of their country by the army of Benito Mussolini. Indeed October 28 is celebrated as Ochi Day, a national holiday. Subsequently Greeks fought valiantly against the Nazi invasion, even when the Germans took gruesome reprisals against them, prompting Winston Churchill to declare that, “hence we will not say that Greeks fight like heroes but that heroes fight like Greeks.”

It was this boldness that expressed itself during the referendum.

What’s the value of dignity?

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TM 07.20.15 at 5:28 pm

“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?

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