Protest and the social contract in Spain and Greece

It’s interesting to think about how Ireland might fit this framework. Although ministers have had the sense to move on from Brian Lenihan’s boasts to his EU colleagues about the absence of protests in Ireland, it’s still a mystery as to why they haven’t happened — allowing for those coming from the smaller left wing parties and the highly localised movements in response to specific cuts (the current example being Roscommon). In the use of patronage and privelege Ireland seems closer to the Greek model, but as of yet there is no sign that the former beneficiaries have turned on the old order when the deal could no longer be maintained. There also seems to be a small country factor — Ireland, Iceland and the Baltics have imposed fairly severe austerity without any mass protest movement on the scale of Greece or Spain.

The more cynical interpretation would be that the Irish public sector union leadership was so c0-opted by Bertieism that they’re incapable of managing a mobilisation and/or that Croke Park is seen as a good deal (in terms of pension preservation) so there’s still a big Don’t Rock the Boat constituency in Ireland.

Although ministers have had the sense to move on from Brian Lenihan’s boasts to his EU colleagues about the absence of protests in Ireland, it’s still a mystery as to why they haven’t happened—allowing for those coming from the smaller left wing parties and the highly localised movements in response to specific cuts (the current example being Roscommon).

Because any such protests are ultimately impotent? You can protest political actions, but you can’t protest economic reality. And while there are enormous political issues of equity and fairness in all those countries (perhaps more in Spain and Greece), the economic part of the equation is more or less iron law at the national, as opposed to EU (especially EU central bank) level.

As Barry says. “Large banks prefer to never, ever lose money on any of their gambles” is an important but not very remarkable fact of society. But its corollary in American and European life, “…and to make their dream come true, ever larger numbers of people in more and more countries must suffer otherwise preventable misery for the foreseeable future.” is not an economic equivalent to F=Ma or even “every definition of ‘self’ implicitly or explicitly also defines an ‘other'”. It’s a set of policy choices, which could be chosen otherwise if those with authority wished to do so, and the point of protesting is in part to provide them with reasons to wish it.

Germany’s Marshall Plan is looking increasingly like a Versailles Treaty. And we all know how that went…

SamChevre, what does the price of oil have to do with the decision of multiple governments that various populations must bear unbounded burdens so that banks with bad loans bear none? Do you think that US and EU authorities would make better decisions if only they could go out for more drives in the country, or that protestors would be less agitated about losing their social safety nets if only they could do likewise?

Thanks for posting, Niamh. Seeing the Indignado movement covered in CT just made my day :)

What Latro said @ 1 – and then let me add a comment on the political side of the question.

Politics has been long demonized in Spain, where blanket accusations of “all politicians are the same” are commonplace, both in the media and casual conversation. IMHO we are witnessing a subtle change in this view, a shift from “politicians are corrupt” (bad in a conscious, self-serving way) to “politicians are helpless” (i.e. mere tools of Teh Market’s will). Local cases of corruption which provide evidence for the first view are quickly being overshadowed by a general feeling that rulers are slavish pawns of “the markets” – whose hands are far from invisible. The stubborn refusal of party politics (“no nos representan”) or any other institution (labour unions, etc) can be seen as a rejection of austerity measures as much as it is mere acknowledgment of the inability/inadequacy of the system itself to act in any other way.

So if I get you right, I’d say it’s a combined democratic output-input problem. Protesters are asking for a say in decisions as much as they are asking for a reaction from politicians. Interesting enough, the reactions from the political establishment have insisted on the “anti-democratic” leanings of “some protesters” after Catalan lawmakers were insulted by protestors on their way to Parliament (March 27th). The Catalan President went as far as comparing them to terrorists. Hence, demands for “more democracy” are answered with an offended “thou art not a true democrat!” from our Rulers Who Know Best.

I wonder whether in Greece and elsewhere in Europe there are similar Louis XVI-style reactiongs among the political elites.

Bruce Baugh @ 9–the only connection is that the price of oil is an example of an economic reality which protests can’t much affect.

@Henri Vieuxtemps 14

This is a very important question, however this is not something that is limited to the EU:
for example, wages are considerably higer in northern Italy than in southern Italy, but still business opens usually in the noth than in the south; the same is true for western/eastern Germany. Also, in both cases different government is not a possible explanation.

Actually Krugman’s New trade theory investigates this kind of geographic unevennes in economic developement, but I just know about it what I read in wikipedia.

My personal explanation is that:
1) there are some “capital intensive business”, that tend to generate more “added value” because the high capital required acts as a entry barrier, and shields those business from competition;
2) those capital intensive businesses have growing returns on scale, so that, in a given market, only a few of these businesses stay alive as oligopolists, and kill al the other similar but smaller enterprises, also blocking new startups
3) when various markets are joined in a big market (like EU states in the EU), the capital intensive businesses of the varius markets basically kill each other until there are just a few oligopolists; those businesses that were more developed at the beginning usually win. For example, if building dishwashers is a highly capital intensive business, german dishwashermakers outcompete greek less developed or smaller dishwashermakers.
4) hence most capital intensive, high added value business stay concentrated in an area, that is called “core” (Germany).
5) in the remaining “periphery” (Greece) the businesses that thrive are the labor intensive, small capital ones, that can take advantage of the lower wages of the periphery. But those businesses have a low added value, because there is alot of competition (say, for example, textiles). Hence “periphery” is trapped in a low added value, low wages kind of economic developement.

This is in my opinion the reason that Germany had more advantages from the EU than periphery states.

Well, for what I can understand, the point is that labor cost is not very important for Miele (as far that it really is very capital intensive, I used this as a example but I am not really sure).
On the other hand, Miele has his own well developed chain of suppliers in Germany, and his german workers have the know how and so on, so that in reality it has no real reason to relocate in Greece.

This is, at least, the explanation that I give to the continuous underperformance of southern Italy in front of northern Italy, and I think this could make sense also if applied to the EU as a whole.

A good summary of the situation:

http://www.nakedcapitalism.com/2011/07/satyajit-das-european-debt-wrong-diagnosis-wrong-treatment.html

Random Lurker, I can’t say I’m convinced by your explanation.

For the “not labor intensive” part: but German economy does employ most of the labor force in the area. So, something has to be labor-intensive there. Is it mostly local services that can’t be globalized? It seems unlikely.

For the “chain of suppliers in Germany” argument: but, again, it’s the same economy, same currency, no borders; what’s the meaning and significance of these suppliers being in Germany?

I understand that regional specifics may be real: the infrastructure, the language, the culture, I dunno – the weather? But 20% unemployment vs. 5%, and between regions as huge as Germany and Spain? That seems to imply some serious structural imbalance, some significant, fundamental difference between the regions. What is it?

What I don’t get is what the Greeks are protesting about.

They feel that by allowing this crisis to happen while denying that anything was even potentially wrong the government and the media have lost legitimacy. Economic policy is beside the point – the complaint is that democracy has failed.

On different growth models, and relations between the European economic ‘core’ and ‘periphery’ – this is a biggie which I think I will come back to another time.

On protest vs no-protest: I’m still puzzling about this one…
One way to think about it is that in democratic societies, the standard means of dealing with issues of common concern is through the institutionalized structures of representation and consultation.
A lot of our current reflections on the state opt for mid-range theories that try to capture variation on two fronts: in the linkages between policy-makers and organized interests and ‘public opinion’ more generally; and in the capacity of the policy-makers to adopt some distance from interest inputs, to aggregate opinion, to make decisions and implement policy, with reference to some conception of public interest.
Mass street protest on this view may be taken either as evidence that some section of opinion feels excluded from the terms of debate about what policy is to be, or feels disadvantaged by the distributive consequences of the policies that have been formulated.

But even if people feel strongly about something, we know that there are also collective action problems involved in generating protests outside established structures. If these can be overcome, through a process of clarifying objectives, establishing organization, and gaining ‘voice’, we see the emergence of a social movement. The choice then quickly arises over whether to press for policy change through the institutions or to keep protest movement status. Where democratic legitimacy is broadly established, the standard route is to try to leverage organizational strength to gain access to decision-making.

Massive public discontent might not necessarily generate street protest in democratic societies.
Where ongoing unrest does emerge, and in a rather inchoate way as seems to be the case in Greece, I think it does reflect a serious problem about the capacity of the state institutions to devise policy that will be deemed fair, legitimate, acceptable. If protest doesn’t evolve into organization, yet can keep some momentum going, it is potentially highly destabilizing to state institutions. European history has plenty of examples to suggest that this is a deeply worrying way to go.

So I’m not sure if asking about the ‘absence’ of recurring large-scale protest in, for example, Ireland, is the right question. And I’m not sure it gets us closer to understanding what’s going on to attribute bad faith to key actors: whether you may agree with any or all of them or not, on the whole it’s a reasonable methodological starting point to assume (until proven otherwise perhaps) that they’re not stupid, they are not wicked, they are not dupes.
Better to think perhaps about the perceived legitimacy of the government strategy, the framework of ideas shaping people’s sense of available strategic options, the distributive impact of policy choices, the organizational or representative options available to oppose or resist choices that are deemed intolerable.

We see many examples in Ireland of people expressing deep and vociferous opposition to spending cuts – parents of children with disabilities, for example, protesting against the withdrawal of special needs assistants in the classroom, or home-based carers opposing cuts to allowances, home help, respite care. (The organization of emergency hospital services is a more complex issue in my view). There are obviously big collective action problems involved in taking this anywhere further, especially in a situation in which budget constraints are not determined domestically.

The further question then is what happens over a longer time-span, if governments run out of manoeuvring space to improve aggregate performance, or to shift the terms of distributive outcomes.
At what point does widespread buy-in to mainstream politics to mediate between national preferences and European arenas of decision-making starts to crack? And with what consequences?

Well, perhaps when they want to outsource, they now skip the halfway places like Spain and Greece, and go straight to eastern Europe. Race to the bottom.

What’s the alternative to fiscal adjustment in Greece? A I recall they are still running a primary deficit so even if they decided to stop paying all debt they’d still need to borrow more. And who is going to lend to them? Is the argument that they should default and then go out and ask for more money?

I guess they could jumpstart their economy if they chose to devalue, but that would lead to a massive bank run, yes even bigger than the one they have today, and they would have to freeze deposits and give people new drachmas instead of euros, what Argentina did. Do Greeks really want that? Argentina grew a lot after the crisis but that was because it’s a commodity exporter in the middle of a commodity boom, not sure that will help Greece much. And even 10 years after the crisis many families in Argentina have not recovered from the crisis. You can see that in the shantytowns that continue to increase in size across Buenos Aires.

The problem Greece has is that for too long it lived beyond its means. And now that no one is willing to lend them any new money they need to tighten their belt.

Not really William. Greek authorities have the legal authority to increase taxes if they want. As a US citizen I’m taxed no matter where I live.

The bottom line, right now, is that Greece has for years spent more than they got in revenues and now can’t do that any more. So if they want to increase spending they need to raise more revenues.

Thank you Myles. I now understand that labour mobility is wholly dependent on will.

There’s nothing stopping Greek busdrivers from becoming (much better paid) busdrivers in Monaco.

You realise, right, that they speak a different sort of weird moon-language in Greece than they do in Monaco?

The problem everybody has, including the Greeks, is that folks like you define they in terms of where they live.

Sorry, what point are you making here? Important real-world things like “do you pay taxes to the Greek government” and “do you consume Greek government services” are largely defined by where you live.

There’s nothing stopping Greek busdrivers from becoming (much better paid) busdrivers in Monaco.

Oh yeah. Family ties, lifelong friendships, language problems, the costs and uncertainties of relocating, the lack of any sort of guarantee of a decent job or of a job that will last, the love of one’s home place — all reduced to “nothing.”

Life is so simple for some people. Or rather, other people’s lives are so simple for some people.

Not to mention the vexing little question of how many busdrivers from Greece (pop. 10,000,000+) can be absorbed by Monaco (pop. ~36,000).

And about the legitimacy or not of the protest or the usefulness or what exactly do they protest about… there is a huge feeling of disconnection between people, politicians, and economical elites. When you see the crisis playing out and every single measure is a cut for the masses and every possible measure that would hit the elites dies out even before being mentioned, when you see that the differences between voting left or right is more or less if the goverment is happy or having an orgasm with the cuts… people feel the politicians are a separate caste that only see for their interests, which nowadays means doing what “the markets” want. Corruption doesnt help that view either.

Quite.

It’s Opel in Zaragoza, though (or Figueruelas, strictly speaking) and not Renault. I think Renault are in Palencia.

IOW, they’re not unhappy with what the government does, they’re unhappy with what it is. Looking at it from the perspective of “well, economically speaking the government has to abandon its unsustainable fiscal policies” is probably wrong.

No, ajay. IOW goes something like this: Cui bono, as always, is the point at which any honest analysis should begin. For all sorts of reasons, capital gets what capital wants. When, for self-defense purposes, it wants social democracy, a well-ordered social democracy — the social part, anyway — is what it gets. When it gets its teat in the poor-risk-mnanagement wringer, it wants public funding. Needless to say, it therefore wants the bus driver to start paying his taxes. The capitalist, not so much. He’s the one providing the jobs, after all. Isn’t he?

What and where you cut is indeed crucial; cutting government spending in a downturn is obviously going to hurt growth, but it’ll hurt it a lot more if you cut high-multiplier spending (which is often also the stuff that, if cut, will hurt the most people; this is not a coincidence).

Is this a trick question? Yeah, that’s the question alright. To answer it, I suppose in the interest of brevity, I could refer you to the history of the right-wing in the U.S., but I don’t suppose it would do much good.

Democracy has always been a somewhat difficult beast to ride, and from the Federalist Papers on, people in the U.S. who think seriously about it have worried about its unruly nature, and have been grateful — overly grateful, I think — for the powerful who imagine how much better behaved the beast would be with a bit in its mouth, and who diligently study dressage in the privacy of their club-rooms.

What you call me is up to you. As for the rest, I suppose people’s reactions depend to a large extent on who they are. Some find metaphorical shortcuts more appealing than others do.

As for the substantive question…. In specific terms, the connection between the Koch Brothers’ funding and the success of the Tea-Party in setting the national agenda is well-established — as is the Koch Brothers’ ideological background. In more general terms, government capture by powerful economic interests, driven largely by the fear of a politically active laboring class and its possible interference with capital’s agenda are also pretty well documented. Even more to the point, the political consequences of demagoguery harnessed to modern forms of advertising, propaganda, not to mention the consequences of modern campaign financing necessities, make the question of responsibility for nasty outcomes much more complex than you seem willing to admit.

Insufferably patronising manner? It wasn’t intended to be patronising, and certainly not insufferablly patronising. If it came off that way, I apologize. From my perspective, it was just a quick way of pointing out that your Er, yes left out a considerable amount of context, perhaps because you didn’t think it was relevant. I do think it is relevant, but perhaps I could have found a less inflammatory way to say so.

William, your allusion to the Federalist Papers is just about the most R. Kelly opera-esque mindbending that anyone’s just about ever seen.

And I’m amused that somehow the Tea Party is relevant in a discussion of Greece and Spain. Talk about obsessions.

Myles: William, your allusion to the Federalist Papers is just about the most R. Kelly opera-esque mindbending that anyone’s just about ever seen.

Oh I don’t know Myles, some of your efforts have been pretty impressive on that score.

Cian, you’re right, of course, but then these are supposedly brief comments, and this isn’t my blog. (I have in fact already gone on entirely too long in this thread.) Sticking to recent history, I suppose I could offer as evidence things like the purge of leftists from the CIO after WWII, or perhaps with greater relevance, to the sentiments of Walter Lippman:

What the public does is not to express its opinions but to align itself for or against a proposal. If that theory is accepted, we must abandon the notion that democratic government can be the direct expression of the will of the people. We must abandon the notion that the people govern. Instead we must adopt the theory that, by their occasional mobilizations as a majority, people support or oppose the individuals who actually govern. We must say that the popular will does not direct continuously but that it intervenes occasionally.

Perfectly true, taken out of context. The present context is, of course, that representative goovernment has come to be notably un-representative, and intervening occasionally, could very well come to mean something more drastic than one suspects Lippmann would find congenial.

I would love to hear from somebody actually knowledgeable about the protest movements in Europe. What are their political prospects? Judging from experience, mass protests and riots are not politically ineffective. They rarely achieve their maximum goals but there is evidence that they do change outcomes. The big question marks seems to be the US. So far there is almost graveyard silence but will Americans really just watch and wait when a grand coalition formed of Obama and the Republicans starts getting serious about the business of tearing up the social contract? It would be the first time in history that a social transformation of that dimension takes place without a counter-movement.

If the Tea Party is relevant to the Greek situation at all, it is in the similarity of the complete disconnect between what they say they want and the reality of the economic situation. In both cases they seem to be motivated in large part by general dislike of how the government has handled financial matters without any good understanding of A) what the problems are and B) what might be involved in fixing them.

Hume quote time! “Nothing appears more surprising to those, who consider human affairs with a philosophical eye, than the easiness with which the many are governed by the few; and the implicit submission, with which men resign their own sentiments and passions to those of their rulers. When we enquire by what means this wonder is effected, we shall find, that, as Force is always on the side of the governed, the governors have nothing to support them but opinion. It is therefore, on opinion only that government is founded; and this maxim extends to the most despotic and most military governments, as well as to the most free and most popular” What Myles is pointing out is that the opposition of even a great number is insufficient to throw a government into chaos, while the withdrawal of the acquiescence of a simple majority will lead to it crumbling. Before the Civil War the Fugitive Slave Act became a dead letter as the North rebelled against it. I’m not sure this can be applied to economic policy: no amount of rebellion will lead to Greece exiting the EU absent a government coordinating that, just as the Civil War required Lincon.

“Input legitimacy” and “output legitimacy” are useful terms. I hadn’t seen them before.

Of course the two legitimacy deficits can interact. At which point, one thinks of Sombart’s famous answer to the question of Why Is There No Socialism in America: the free gift of the ballot. (Well, and the frontier.) Workers’ struggles with employers were very bit as militant in the US as in Europe, but because they never had to pass through a stage of demanding basic political rights, they didn’t take specifically political form. And in general anywhere there’s contested elections, people can respond to the failure to produce the promised outputs in a way that legitimates rather than challenges the basic political structure.

So in a funny way you could imagine the current conflicts eventually recapitulating the struggles of the 19th century, where people found that the only way to get their material grievances addressed was through a more fundamental transformation of political institutions in a more democratic direction. When I read Perry Anderson’s New Old World a while back, I was largely convinced by his argument that “Europe” was an essentially liberal project, an end run around the defenses of the welfare state and unions at the national level. It would be a wonderful irony if instead the outcome was to produce a pan-European popular movement that is more radical precisely because its demands have to include political rights.

And who is going to “call the bluff” of the Greek protesters? It’s pretty clear that the bluff HAS been called, and they WERE willing to default on their own. Their legislators simply prevented it from happening.

The threat of *unexpected voluntary* default is the trump card because of the knock-on effects it has on the stability of foreign banks. It’s a card they absolutely need to show that they’re willing to play.

“Since unlike in America, bankers are just about the last credible people in Greece, your assertion is preposterous.”

Just to clue you in, the major problem is German and French and UK bankers, otherwise known as the Euro Mafia. And they have no credibility – well, with anybody who’s been paying attention.

But if you see this as simply social protests in Greece, Greek population vs. Greek (and international) elites, then it’s a different story.

I don’t think that can be accepted at face value. Who acts, and has acted, for a sovereign Greece if the Greeks suddenly say that their elites don’t count anymore? For all effective purposes the Greek government is the legitimate sovereign, and this refusal of Greeks to take responsibility for a government and parliament that they voted for in a free and democratic setting, can’t be treated as legitimate. Representative democracy is the best form of government we have, and representative does not mean populist. Indeed it’s entirely possible that a representative democracy will, in the long-term interest of the polity, make certain decisions entirely at odds with popular opinion, but they would not be no less legitimate for it.

As with a lot of other things, it is the process, rather than the result, that is determinative of legitimacy. And here the process which has led to Greeks questioning the legitimacy of their elites is quite legitimate. In fact, to use a comparison given above, the Greek protests against their government have about as much legitimacy as the Tea Party: which is, not very much.

I think the protesters would be better off learning a new trade, new skills, or devising business ideas.

I doubt that in the present economic environment it would be much use. Perhaps the more mobile should take advantage of the Four Freedoms afforded to them as citizens of the European Union, and seek greener pastures at least for the mean while. (Which is a milder version of the way I feel about Michigan and the Midwest in general: there is no government action on this earth that would revive Michigan to full employment. Although compared to Michigan, Greece has many less serious and hopeless structural deficiencies.)

Andrew F, what about the bankers who foolishly loaned so much in these conditions that people now say were so obviously unsustainable?

The bankers relied on the economic and financial data supplied by the sovereign, the Greek government, in good faith, as would have been right and proper. In cases like this, the onus is on the Greeks, because the natural presumption toward the Greek government is of good faith. It is, after all, pretty hard to do due diligence if an entire national government, with all the associated resources, is bent on cheating you. That the people who supplied the data turned out to be lying scumbags isn’t a responsibility that can be attributed to creditors.

I think the protesters would be better off learning a new trade, new skills, or devising business ideas.

Indeed, the decision to challenge the political authorities very seldom leaves you personally better off. All the more reason to be grateful that people do it anyway.

Anyway, the interesting question isn’t the normative but the positive one: What is the chance of anti-austerity politics developing into a Europe-wide movement for a genuinely democratic union, vs. the chance they will fall back into the channels of national politics? What everyone seems to agree is that the EU can’t continue to exist in its current form, it has to deepen or break up. But can it deepen without solving the legitimacy problem?

Myles says,

The bankers relied on the economic and financial data supplied by the sovereign, the Greek government, in good faith, as would have been right and proper. In cases like this, the onus is on the Greeks, because the natural presumption toward the Greek government is of good faith. It is, after all, pretty hard to do due diligence if an entire national government, with all the associated resources, is bent on cheating you. That the people who supplied the data turned out to be lying scumbags isn’t a responsibility that can be attributed to creditors.

But then he says above

For all effective purposes the Greek government is the legitimate sovereign, and this refusal of Greeks to take responsibility for a government and parliament that they voted for in a free and democratic setting, can’t be treated as legitimate.

Apparently, it is OK for the government to deceive the public; it’s the public’s responsibility to vote non-deceptive government or accept liars and dissemblers.

However, lying to banksters is a moral outrage.

Well, it wasn’t really the metaphor as the insufferably patronising manner. Metaphors are fine.

Hey William, right-but-patronizing is my turf, now get off of my lawn! But yes, every so often you have to explicitly remind yourself of of how the world works, namely, “what Capital wants, Capitol gets”. Otherwise the discussion devolves into endless iterations of why the decisions made were the best and only rational ones. Even if they just happen to benefit Capitol at the expense of everyone else yet again.

Myles: I think I better clarify that the euro is structured such that a default would probably mean an automatic exit from the euro and possibly the Common Market. I don’t think the Greek economy would actually survive an exit from the Common Market.

I often read that, if Greece defaults, it will go out from the Euro. However, I always assumed that the idea is that when they default, they also have to devalue in order to gain competitiveness.
I don’t understand how a default would automatically mean the EU kicking out Greece, but then I’m not a lawyer. Can somebody explain this to me?

Random Lurker @ 86:
If Greece defaults, leaves the EMU, and returns to its own historic currency, the drachma, it will presumably devalue by pegging the “new” drachma to the euro at some highly unfavorable exchange rate (like, I dunno, 500:1). This would make Greek exports (food) and sources of foreign exchange (tourism) more competitive. OTOH, imports would be prohibitively expensive and would essentially have to cease, so Greece would not be a source of export surpluses for its EU neighbors, something that the Germans and French, who sell the Greeks war materiel (jets, submarines etc.), won’t be thrilled about.

Myles@78:
Okay, I get it, you think the Greek people should “suck it up” and subsist on 500 euros a month (or 400, 0r 300) until they’ve paid off the debt their rulers incurred without their knowledge or consent. I have a hard time understanding how people who earn 400 euros a month (starting pay in Greece for a college grad in most jobs, if they find a job at all) are going to pay off a debt equal to 160% of GDP, or even 140% or 120% (assuming moderate haircuts). What are your suggestions?

It’s small consolation now, but maybe in the long run this mess plays out as a good thing. Yes, it’s quite clear to everyone, whether it is in their own interests to say so or not that, as Latro put it:

… there is a huge feeling of disconnection between people, politicians, and economical elites. When you see the crisis playing out and every single measure is a cut for the masses and every possible measure that would hit the elites dies out even before being mentioned, when you see that the differences between voting left or right is more or less if the goverment is happy or having an orgasm with the cuts… people feel the politicians are a separate caste that only see for their interests, which nowadays means doing what “the markets” want.

Yes, that’s very true. And in fact it’s also the case that our current straightened circumstances were the direct (and foreseeable) consequence of making decisions which greatly benefited those same elites and caused a great deal of pain for everyone else. Even at the time they were made.

But with very rare exceptions, hasn’t this always been the case? It’s just that within living memory this has been disguised by a general and unprecedented prosperity. And as Chomsky notes, it’s an effective strategy for the elites to allow the masses the facade of a democratic decision-making process while governing as autocratically as ever they did from behind the stage scenery.

Well, not quite – an significant point in history! To carry off this deception elites have had to by and large paid lip service to the legitimacy of the democratic process, at least in public. There’s no turning back from that and, pointing out that things are really just the same as they always were is not going to cut it as a response to public unrest; the unwashed masses won’t willingly or meekly go back to being serfs again and they’re increasingly immune to any propaganda designed to nudge them in that direction, however sophisticated or omnipresent it may be.

Broadly speaking, then, there are two branches of history that can fork off from this point.

The first branch has given rise to a great deal very depressing science fiction, namely that our lords and masters temporize as long as they can in public even as behind closed doors they set in motion the machinery to brutally put down the insurgents. This being science fiction, that machinery can be quite advanced.

The other possibility is that elites cede some modicum of real power to the masses. Very reluctantly of course, and as little as they can get away with. But even if these are interesting times, still, it seems that the historical trend is in that direction.

john c. halasz 07.16.11 at 8:14 pm
Antoni Jaume @ 87:

“The Goldman Sachs derivative deal with the Greek government occurred in 2002, when Pasok was in office.”

As I understand it, the accession of Greece to the Euro in 2000 was based on a cooked accountancy audited by Goldman Sachs. But yes you’re right in that the Pasok was in power then. I got confused with the recent crisis.

What we are arguing about is whose debt is senior. It’s quite obvious to me that the seniormost debt is that owed to, um, actual seniors more than it is to foreign creditors.

Legally (and unfortunately), this is not necessarily the case.

Yes, but it would also likely drive Italy, Spain, and so on into default even faster than they already are going, as well as cause untold chaos in international banks.

Greece isn’t a big deal in financial terms. And frankly, the EU probably would be financially stronger without the PIIGS rather than with. Of course, it’s preferable to keep Italy and Spain, but if the Greeks insist on being truculent then the European institutions will have to be willing to exercise the ultimate option of kicking them out.

The Greek social contract thereafter became their responsibility of the European economic elite to maintain; more importantly, it became the moral responsibility of anyone who invested in Greek debt.

Hardly. The responsibility for the Greek social contract lies with the Greek elites. The responsibility of the European economic elite is to make sure that Greece meets the continued social and economic criteria for a healthy, functional EU member state. The moral responsibility of those interested in Greek debt is the responsibility to make sure that Greece is actually solvent.

And no, the Four Freedoms Myles keeps talking about were never discussed in Greece accession to the then CEE or Common Market.

It’s hardly the fault of the EU if the Greeks don’t themselves discuss the most important features of the EU.

Ed 07.16.11 at 9:41 pm

“The problem is that those promises were worthless from the beginning. It’s like me promising my son a Mercedes, but can only pay a couple of months lease by running up my credit card.”

I disagree, your comparison is not akin to reality. While it is quite certain that politicians were overly spendthrift, a lot of it was caused by unwise lending by banks.

“Greece has been living beyond its means and now needs to return to reality. It hurts but the sooner they accept their very real economic limits the better for them.”

The lenders should too feel the pain.

Just two points:

@Jaume: The Four Freedoms are not FDR’s four freedoms, but the freedoms promised by the basic EU treaties, namely the free movement of goods, people, capital, and services in Europe.

@Myles: You’re arguing that the responsibility for the maintenance of the social contract lies with the elites. This strikes me as ignoring the possibility for a classless society, and seems to be a neofeudal imagination of the obligations of the nobility, distinct from the commoners. There are no more kings: all men are created equal and bound by similar obligations to one another. The emergence of class society would to me (and many other Marxists) suggest that what we have here is a crisis of capital which undermines a particular constitution of capital, only to reconstitute it differently and more miserably.

Ed, the problem with your analogy is that there it’s not a single Big Greek who lives in Greece and can’t afford a Mercedes, but millions of people; some of them are extremely rich, others are relatively poor.

I don’t know the details, but it’s not obvious that those in, say, the bottom 80% lived beyond their means. Maybe all you need to do is to cut down the income of the top 20%.

Henri,

I suspect the top earners don’t work for the government, although who knows, maybe they do. The point remains that the government has been spending more than it can and now needs to return to reality.

John,

No one is trying to ‘impose’ austerity. The Greek government simply needs to spends less than it used to because it can’t borrow anymore. If I used to live off my credit card and the bank cuts it off, that’s not austerity, that’s reality.

No, i’m not kidding. Greece had a primary deficit of almost 11% of GDP in 2009. Once the markets decided they wouldn’t finance them any more they had to cut government spending and dramatically so. No one imposed anything. Well, I guess you could say reality finally imposed itself.

Myles, this situation came about because of attempts to paper over the true consequences of a currency union for which Greece was not ready and destroyed Greece’s competitiveness. Foreign and local oligarchs made out like bandits and now watch the gladiators of the German and Greek publics duke it out to the death. It was a swindle from top to bottom and beginning to end, like any economic liberalization without concomitant political expansion is likely to be.

Myles, there is now no good way for the Greeks to get out of this, so obviously they will be taking cuts. There, fully admitted (like I or anyone else ever claimed that Greece had some kind of Get-Out-of-Jail-Free card). Happy?

However, the Greeks (as in, the Greek public) were deceived, and they are about to get stuck with severe consequences that they do not deserve to suffer, not the old people of Athens nor the young people, and a number of malefactors are about get away with it. So the entire debate revolves around how to get the Greek people the least worst deal, while preventing the malefactors from getting away with their ill-gotten gains.

Like any debtor, one of the tools in their arsenal is the credible threat of disorganized default. They have every right to use it and every right to pull the trigger if that’s what gets the the best deal. At the moment, yes, the promise of wealth through international trade to many countries comes exactly through their competitive advantage: cheap labour. This is the entire flaw in the project of globalization, and one that the Greeks are going to have to, yet again, exploit—why shouldn’t they? That’s what it’s for, if it’s for anything at all.

There is a social history to well-paid public servants and train workers. The Greeks were deceived or ill-advised into a bad arrangement that did not take at all into account the social history of Greece. It ran roughshod over their needs for the brief heroin hit of cheaper German goods. There can’t be a fair economic union without a full political union. Before the monetary union was introduced, the political union should have been well in place.

Like any debtor, one of the tools in their arsenal is the credible threat of disorganized default. They have every right to use it and every right to pull the trigger if that’s what gets the the best deal.

I encourage them to try this, as I also encourage the European institutions to rightly kick Greece out of the euro and apply all other relevant maximum sanctions if Greece actually goes ahead and does this.

Fair? I think so.

I encourage them to try this, as I also encourage the European institutions to rightly kick Greece out of the euro and apply all other relevant maximum sanctions if Greece actually goes ahead and does this.

Except that there are consequences to taking action against a defaulting Greece as well, and whatever they can do to Greece at that point would largely be analogous to closing the barn door after the livestock have already left. Greece is going to suffer either way; the question is how much else the EU would want to immolate in the process.

@102 I suspect the top earners don’t work for the government, although who knows, maybe they do. The point remains that the government has been spending more than it can and now needs to return to reality.

Yes, but, just like in the US, there are two sides to the story: government spending and government revenue. Instead of (or along with) cutting spending they could increase taxes on the top X%, or even confiscate some of their property. There are many different ways to “return to reality”; it’s a power struggle, and protests and riots are a part of it.

If Greece goes back to drachma, I think that it could: declare “new drachma” value as 1:1 with the euro; rename all public debt and obligations in new drachmas; let the market devalue the drachma, thus leaving most of the pain on lenders. I also suppose this is the whole idea of going back to the drachma. Am I wrong? Why?

If Greece goes on the drachma, it would overnight get shut out of international bond markets, which means that it can’t refinance and rollover its existing sovereign debt. Which would more or less mean an immediate funding crisis for the Greek public sector, a massive shortage of hard currency with which to buy key exports, and presumably this time the IMF won’t step in to rescue them.

Their salaries will decrease in a manner that is deeply and destructively contractionary to the rest of the real economy of the Greek public. It isn’t a matter of deflating train-workers salaries and giving their kids productive web site design jobs so that they can continue to put a roof over their heads.

I don’t see any way around it. Greek public expenditure must decrease, and do so immediately. Whether or not that’s contractionary for the real economy is beside the point, because we are dealing with something quite a bit more fundamental here: the solvency of the sovereign, which is in question. When it comes to sovereign defaults, “it’s going to hurt the real economy” (and I certainly know that the current round of cuts can’t be anything but seriously destructive for the Greek economy) isn’t much of an argument.

@Myles 116

If Greece goes on the drachma, it would overnight get shut out of international bond markets, which means that it can’t refinance and rollover its existing sovereign debt.

I’m not sure of it: when they default (one way or the other) their chance of repaying future debt grows a lot. In fact, I think that if/when they default, they would have to pay a lower interest on their debt. The problem is that now nobody would lend them because everybody expects a future default.

I expect the bond market to remember the Greeks pulling a fast one on them and take it into account when lending to Greece.

People always say this kind of thing, but it doesn’t really make sense. People buy bonds to make money, not to get revenge. Yes, a Greek default would provide some information on the probability of future defaults, but not very much: Everyone already knows default is possible. On the other hand, it would free up a lot of cashflow to service future debt. Ask yourself, would you rather lend to a country that has never defaulted, but that clearly lacks the capacity to make its debt payments? or to a country that defaulted once in the past, but has a comfortable surplus today? The question answers itself.

Do companies that have restructured through chapter 11 ever issue bonds again? Of course they do.

Do companies that have restructured through chapter 11 ever issue bonds again?

At a penalty.