The landslide winner’s curse?

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

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

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

http://tinyurl.com/cvxd9sh

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Oh so very true….

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Seconding Peter K, especially on two points:

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

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

@ 30

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

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

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

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

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

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

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

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

marcel@38

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

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

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

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

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

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

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

Via the NYTimes, is this true?

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

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

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

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

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

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

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

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

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

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

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

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

since that was the best card he held

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

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

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

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

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

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

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

Thank you

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

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

******

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

@MPA
Sorry, hadn’t seen 65.

dbk’s comment @60 is excellent!

Just a few observations.

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

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

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

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

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

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

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

(Western Europe, that is)

What If Greece Just Printed the Euros Zit Needed?

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

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

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

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

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

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

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

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

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

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

https://twitter.com/Hugodixon

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

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

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

As for the Greek government’s platform:

a) Collective bargaining and former industrial relations restored.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TM @ 105

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

KW, thanks, still trying to think this through.

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

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

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

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

The ECB seems to be giving Greece breathing room.

MV @ 124,

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

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

JQ @ 125,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

@140

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kindred Winecoff 155 is full of dubious assumptions.

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

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

3. – see 1.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

@ ck @ 53

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

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

QS @ 166:

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

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

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

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

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

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

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

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

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

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

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

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

Varoufakis in today’s NYTimes:

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

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

Varoufakis says they’re not doing game theory:

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

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

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

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

JQ @ 185,

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

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

VV @ 186,

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

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

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

PK @ 189,

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

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

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

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

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

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

KW @189

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

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

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

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

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

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

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

Krugman via Digby:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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