The IMF: An inexcusable, incorrigible failure

by John Q on July 4, 2015

Chris has already pointed out the failure of the core European institutions in their response to the global financial crisis. One excuse that can be made for these institutions is that they are still in the process of development, and were ill-prepared, intellectually and institutionally, for an event so far outside their experience. The ECB and EC developed in a period when controlling inflation and stabilizing government debt were the key imperatives, and they responded to the crisis accordingly.

No such excuse can be made for the third member of the Troika, the International Monetary Fund. The IMF has understood from the start that the austerity policies it has imposed are economically unsound and a repetition of past failures. And yet it has been unwilling and unable to do anything else.

The Asian financial crisis of the late 1990s was a near-perfect dry run for the GFC. Speculation arising from rapidly expanding and weakly regulated financial systems produced a string of failures and capital flight in countries that had previously been regarded as having ‘miracle’ economies. Governments inevitably ran into financial difficulties. The IMF, used to dealing with debt crises arising from public profligacy, came in with its standard package of ‘reform’ measures, privatisation, spending cuts and so on. These measures were totally inappropriate to deal with a crisis originating in the private sector, and only made matters worse. The most successful performer in the region was Malaysia where the government ignored the IMF, and imposed capital controls. After the event, everyone agreed that the IMF had learned its lesson, and would handle things differently in future. As the GFC has shown, the truth is that the IMF has learned nothing and forgotten nothing.

The institutional failure is made worse by the fact that the IMF’s Research Department, arguably the strongest group of macroeconomic policy researchers anywhere, got their analysis right almost from the start. In 2010, the IMF chief economist Olivier Blanchard (with two colleagues) recognising the limitations of a low inflation policy, proposed raising inflation targets to 4 per cent. In the same year, the IMF World Economic Outlook presented a refutation of the idea of “expansionary austerity”, based on the now-discredited work of Alesina and Ardagna. Subsequent IMF research has reconfirmed the Keynesian view that contractionary fiscal policy will worsen a depression.

I don’t have any insight into the factors that cause the IMF to push for austerity in season and out[^1]. In particular, I’m not clear whether the problems arise from internal dynamics or from external pressures. But I can’t see any prospect of change, or any promising program for reform. The only policy conclusion I can draw is that, given the inevitability of a disastrous IMF response, financial system failures are even more dangerous than they would be otherwise. The corollary would appear to be financial repression of the type practised in the Bretton Woods era, with such success that the IMF never had to handle a crisis originating in the financial sector

[^1]: I should note that whereas I assumed that the combination of past experience and analysis would lead the IMF to break with austerity in the Greek crisis, Daniel pointed out last time we discussed this that the IMF was at least as hardline as the EC and ECB.



P O'Neill 07.04.15 at 2:37 am

Leadership certainly doesn’t help.

An IMF managing director who in 2010 as French minister for finance opposed a Greek debt writedown; then was, given IMF shareholder dynamics, appointed by European finance ministers to succeed another former French minister as MD of the IMF, and thus in charge of institution when it decided that what was needed was a write-down of Greece’s private creditors but left official creditors (i.e. European finance ministers) intact, and now hopes to serve another term as IMF managing director, a job in the gift of European finance ministers with whom she sits around the table discussing Greece, unless of course her future job involves another national or EU position chosen by … the same people she’s sitting around the table with now!

But the big freak out in Washington was that the Chinese-led Asian infrastructure bank might have, shock horror, conflicts of interest.


D.C.W. 07.04.15 at 2:56 am

If the IMF’s economists were telling it that the way to engineer a Keynesian recovery in Greece was to loan it enough money to preserve or increase government spending at essentially zero rates for a generation or more, while having the EZB to raise its inflation target to 4%, then what the IMF should have done is to simply walk away without giving Greece a dime. Because it’s patently clear that such a plan is not going to be implemented.

The IMF (and EU) should have walked away in 2010. Greece should have defaulted and then lived without access to debt markets. Fortunately all the players have that chance again in 2015; hopefully they will make the right choice this time.


G 07.04.15 at 3:00 am

The factor that causes the IMF to push for austerity is that they are a D.C.-based payday loan-shark of last resort who want their loans paid back. The policy-institution aspect is a charade.


Nick 07.04.15 at 3:30 am

I wonder to what extent the institutional actors in this situation recognize the existence of the situation as an unanswerable rebuke? I don’t think that any of them would have the temerity to argue that what is occurring as the best of all possible worlds — but it would be interesting to know if they look back and see things that the Institutional EU actors should have done differently? They certainly don’t seem to have an actual answer to the challenge that their proposals are both going to hurt Greece, and have no effect (at best) on Greece’s ability to repay debt. Have they given up the academic fight and are simply exercising power, now?


Bruce Wilder 07.04.15 at 3:52 am

We could start the reform of economics by abandoning the rhetoric of “mistakes were made.”


Daniel 07.04.15 at 5:02 am

I don’t have any insight into the factors that cause the IMF to push for austerity in season and out[^1]

As far as I can see, it’s because they have turned their “debt sustainability analyses” into a totem. This has been about as successful as you’d expect something based on thirty year economic forecasts to be. When you start with a forecasting model that always (like every long term forecasting model ever) pulls back to a guesstimated long term trend, and you don’t correct enough for the bubble period so you overestimate Greek potential output, you’re always going to guess the economy can bear more primary surplus than it can. Combine that with an obsession with the top line debt/GDP ratio (which survived the demise of Rogoff & Reinhardt, so it’s a true zombie), which means that you can’t recognise loan extensions as a big NOV reduction, and you’ve got a recipe for disaster.

There’s also the ideological view that “austerity” means spending cuts rather than (as in the successful Swedish recovery from a banking crisis) tax increases. When the last Greek proposal was presented, as far as I can tell the Europeans were ready to say deal. But the IMF suddenly decided “balancing the budget with tax rises? That’s unpossible!” and kicked it out. A really awful, shameful move that might end up causing huge needless suffering. And a genuine attack by a killer zombie – the Washington consensus argument that tax rises can never be a tool of fiscal management.


Peter T 07.04.15 at 5:18 am

I’d agree with everything Daniel says, except that the IMF aversion to tax increases seems, from my reading, only to extend to tax increases on rich people. One part of the collapse was troika insistence that the Greek government raise taxes on pensioners, the islands and the poor (eg the E500 per year extra on public housing). There’s a strong whiff of “Is there no brioche?” here (which I put down less to malevolence than to the usual clueless sociopathy of the aristocracy).


Daniel 07.04.15 at 5:36 am

when it decided that what was needed was a write-down of Greece’s private creditors but left official creditors (i.e. European finance ministers) intact

This wasn’t as nutty or corrupt as it sounds, by the way – European finance ministers were, at that point, prepared to put up tens of billions of euros of new money, so it hardly made sense to cut the legs off them politically. Particularly as they weren’t really left intact – they rolled over their debt into longer-dated loans with low coupons, losing tons of money on an NPV basis.


PlutoniumKun 07.04.15 at 8:02 am

I think something the IMF has had in common with the World Bank is a huge gulf between the often excellent technical analyses and research they carry and the actual implementation of policy.

You can explain such a gap for a certain period of time by looking at bureaucratic inertia, groupthink, etc., But eventually its hard to avoid the conclusion that its a feature, not a bug. Its what the IMF was designed to do.


Metatone 07.04.15 at 9:39 am

To echo Peter T (and to perhaps wrongly engage with the (comments switched off) Dsquared post above on Syriza) there seems to be a crucial element of refusal by IMF and Eurogroup to allow Syriza to achieve financial ends by “leftist” taxes (on corporations, or oligarchs, or even the upper end of the middle class) and an insistence on cutting spending, or taxes on the poorer end of society.

I think it would be a mistake (and to parallel Chris B’s disquiet about the EU) and accepting of a very anti-democratic stance not to notice the political flavour of the IMF/Eurogroup intransigence at various points. Analysing the deals on offer only on the top-line effects and not noticing the redistributive implications seems to miss an opportunity to understand part of how we got to where we are now.

I’m sure Syriza could have handled many things much better, but we should not ignore that the “Troika” (shorthand for all the various configurations of creditor actors) offers have been persistently and explicitly modelled on detailed policy prescriptions about the balance between tax rises and spending cuts, seemingly designed to make Syriza’s position politically impossible.


Tiny Tim 07.04.15 at 9:45 am

Big difference between telling Greece to cut their deficit (however wise or unwise) and telling them how to go about cutting their deficit. The former can be justified as reflecting an ability to pay back loans, the latter is just a takeover of Greece’s government.


Metatone 07.04.15 at 9:48 am

It’s worth also taking a structural lens on the Troika actions.
There is an existing problem between the core and periphery in Europe, part of ongoing trends of centralisation and urbanisation in society and economy in the “post-industrial” age.
The key actions of the Troika were to take a rickety, perhaps failing, periphery state and slam it in such a way as to massively amplify the emigration of the young and educated. It should not be missed that this has pushed the “failing state” of Greece much closer to long term failure. My own feeling is that this is too often missed in analyses of what has occurred – the doctrine of “expansionary austerity” is too easily written off as “a bit of a mistake, but nothing that serious” without proper consideration of the hysteresis effects at work.


D.C.W. 07.04.15 at 9:57 am

Daniel @6: I agree that the push-back against using tax increases instead of pension cuts looks a bit weird. Ideology is certainly one possible explanation, but I can think of a more innocent one. A pension cut is immediate, certain, and observable. The revenue from a tax increase occurs in the future, may not be as large as projected, and you have to rely on Greek government accounting to quantify it. Greece has broken many promises about reforms it would undertake (privatization, public sector layoffs) and told many lies about revenue and spending levels. It’s understandable that the Troika might prefer the former to the latter.


Peter T 07.04.15 at 10:04 am

To add to metatone – all the IMF/EU “success stories” for austerity (Cyprus, the Baltics, Ireland) have either static (Cyprus, Ireland) or declining populations (the Baltics). Success does not seem to mean the maintenance of the standard of living for the current population. In that respect, they are a bit like Australian country towns – “reform” means removing the existing means of support and encouraging those able to to move to some other place.


Sasha Clarkson 07.04.15 at 11:32 am

This angry piece on the Greek crisis brilliantly draws the disparate strands together. Recommended on Twitter by Tim Harford and Simon Wren-Lewis, who wrote: “I wish I could write so passionately and yet remain so clear. For anyone wanting a complete overview.”


Peter K. 07.04.15 at 2:25 pm

“When the last Greek proposal was presented, as far as I can tell the Europeans were ready to say deal. But the IMF suddenly decided “balancing the budget with tax rises? That’s unpossible!””

Any evidence that it was only the IMF? Links? It was the ECB that told France it needed to do deficit reduction via spending cuts and not via tax increases. Seems to be a European thing.

And the fact Dsquared doesn’t allow comments? Like the IMF he’s gone way down in my book. It’s fitting. A referendum in the birthplace of democracy won’t have any impact on the Troika’s decisions. They were never going to negotiate. And Dsquared blames Syriza?

Syriza has the right idea. If the answer to tomorrow’s referendum is Yes, then bow out and refuse to be held responsible for the ongoing, never-ending austerity disaster. No doubt the Troika will give the next government much better terms but then that just shows that it’s all about politics and not economics or budgets. But it looks like the vote will be close either way it goes.

Syriza could have behaved better than Dsquared’s wildest imagination and it wouldn’t have mattered one bit. The Troika still would have refused to budge.

@15, Steve Randy Waldman is great.


Peter K. 07.04.15 at 2:28 pm

And Daniel says it was the Europeans who were ready to deal? Again, not according to the news reports. According to them the IMF floated the idea of a debt writedown to the consternation of the Europeans.


Daniel 07.04.15 at 2:40 pm

As Paul De Grauwe explains in the link in my post, the IMF’s behaviour here is somewhere between a publicity stunt and actively destructive. They kept calling for a face value writedown because they fail to recognise the huge NPV writedown that’s already taken place (ie, the reduction of Greece’s debt servicing cost to a level where it’s lower than Italy or France). This means that their “debt sustainability analyses” underestimate the sustainability of the debt, and means that they keep failing to approve programs like the Greek offer (possibly for the reasons in 13) and putting far too much up front austerity into the programs (because they think that the debt needs to be reduced faster than it actually does).

The “idea of a debt writedown” here was accompanied with a level of primary surplus that was way above what Europe was willing to settle for. It was an offer which was, as far as I can tell, calculated to appear to nobody, from a body which wanted to be taken out of the deal.

This article, by the way has some uncomfortable home truths for an awful lot of people (not just the comments section warriors on this thread) whose knowledge of Greece comes from what they googled this morning, if that, but who have heard that they don’t like “austerity” in a different context and feel like expressing a load of rage over Greece will help them make their domestic political points while looking like concerned humanitarians.


Sasha Clarkson 07.04.15 at 2:45 pm

There has been nether good faith nor sound economics from the European Union. Krugman nailed it in one of his attacks on “Austerian” Olli Rehn:

“France has eliminated its structural primary deficit mainly by raising taxes rather than by cutting spending.

And Olli Rehn — who should be praising the French for their fiscal responsibility … is furious, declaring that fiscal restraint must come through spending cuts.

… Rehn is very clearly overstepping his bounds here: France is a sovereign nation, with a duly elected government — and is not, by the way, seeking any kind of special aid from the Commission. So he has no business whatsoever telling the French how big their government should be.

… Rehn has let the mask slip. It’s not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state.”


Mathmos 07.04.15 at 3:00 pm

I try and imagine the comments below Daniel’s piece.

Now that that’s done (thanks for the mental exercise Daniel!), can a real, not imagined, discussion be allowed?


P O'Neill 07.04.15 at 3:07 pm

Daniel — paragraphs 7-10 of the IMF’s DSA document dump discuss the issue of looking at debt service rather than face value of debt as being potentially more relevant for sustainability. They say that even by that perspective, the debt is unsustainable. If I understand their argument correctly, they’re saying that the gross financing needs are the issue, i.e. in addition to servicing the existing debt, over time their new issuance will be on closer to market terms and therefore the refinancing burden will be too much. Hence to retain sustainability, they have to be a ward of the official lenders in perpetuity. Which doesn’t change the indictment of IMF behavior.


Layman 07.04.15 at 3:09 pm

“This article, by the way has some uncomfortable home truths for an awful lot of people (not just the comments section warriors on this thread) whose knowledge of Greece comes from what they googled this morning, if that, but who have heard that they don’t like “austerity” in a different context and feel like expressing a load of rage over Greece will help them make their domestic political points while looking like concerned humanitarians.”

It is a remarkably dishonest article. I’m surprised you were impressed by it. Also, given your traditional reaction when you feel someone has insulted you, is it absolutely necessary for you to pen deliberate insults like the above?


Ronan(rf) 07.04.15 at 3:23 pm

I think the article has a lot of merit to it. How can a crisis like this, which attracts such international attention, *not* play itself out in the context of the domestic political struggles of other countries ? Of course it’s not only something that one side (the ‘default and leave the Euro’ faction) does. Both sides do it.


Peter K. 07.04.15 at 3:23 pm

Comment section warriors Stiglitz and Krugman:

Joseph Stiglitz – NO
Nobel laureate in economics and professor at Columbia University
Stiglitz has decried the economics behind the international creditors’ programme for Greece as “abysmal”. “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences,” he wrote this week.

He says it is hard to advise Greeks how to vote on 5 July, given both options carry “huge risks”. But it is clear the Nobel laureate himself would vote no:

“A no vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.”

Paul Krugman – NO
Nobel prize-winning US economist
“I would vote no, for two reasons,” Krugman wrote in the New York Times.

Firstly, thinks Krugman, the troika of international lenders – the entity consisting of the European commission, the European Central Bank and the International Monetary Fund – is effectively demanding that the policy regime of the past five years be continued indefinitely: “Where is the hope in that?”

Secondly, the political implications of a yes vote would be “deeply troubling”, he says.

“The troika clearly did a reverse Corleone – they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.””


Roger Gathmann 07.04.15 at 3:38 pm

Contra Daniel, one of the great things about google is that you can google things this morning on Greece, knowing nothing about the subject, and soon, appropriately, understand that what has been going on is a good old fashioned witchburning by a EU elite that serves only the rich and the financial sector. One can, for instance, google this site and get a potted but true account of how the EU technocrats decided that German and French banks weren’t being sexy enough, weren’t “competing” in the global market place -my God, they were making miniscule profits just doing things to the social benefit of the countries they were operating in, instead of, well, BIG things – and so pressed all the buttons to create the disaster we face now.

The European Union was firmly behind this since they wanted European entities to compete on a global stage. “Sometimes it is said that competition is not to the benefit of all: It can favor larger firms, but hurt smaller businesses. I do not share this view,” Mario Monti, the European competition commissioner, said in October 1997. “Naturally, competition will reward greater efficiency. It will put pressure on less-performing companies and on sectors already suffering from structural problems.”

But French banks knew that they could not make billions by competing in Germany, nor were German banks expecting to vanquish the French. They looked instead to a simpler and easier market to loan out the plentiful supply of cash they had – the poorer, mostly southern European states that had agreed to take part in the launch of a common currency called the Euro in 1999.

The logic was clear: In the mid-1990s, national interest rates in Greece and Spain, for example, hovered around 14 percent, and at a similar level in Ireland during the 1992–1993 currency crisis. So borrowers in these countries were eager to welcome the northern bankers with seemingly unlimited supplies of cheap cash at interest rates as low as one to four percent.”

Or the newby can google Fistful of Euros, which is on the list of sites right over there to the right, and find a post about the IMF’s latest astounding turn towards reality:
The IMF has released a preliminary debt sustainability analysis for Greece — undertaken before this week’s cash crisis but after its adjustments to the numbers to take account of the deterioration in the relationship between Greece and its creditors since January. The document can be read cynically as the IMF using Syriza as an excuse to dump all the unrealistic assumptions in their earlier calculations, but it’s still helpful in spelling out those assumptions — which were there for everyone to see. Arguably the most incredible scenario was for growth (see Box 2):

What would real GDP growth look like if total factor productivity (TFP) growth were to remain at the historical average rates since Greece joined the EU? Given the shrinking working-age population (as projected by Eurostat) and maintaining investment at its projected ratio of 19 percent of GDP from 2019 onwards (up from 11 percent currently), real GDP growth would be expected to average –0.6 percent per year in steady state. If labor force participation increased to the highest in the euro area, unemployment fell to German levels, and TFP growth reached the average in the euro area since 1980, real GDP growth would average 0.8 percent of GDP. Only if TFP growth were to reach Irish levels, that is, the best performer in the euro area, would real GDP growth average about 2 percent in steady state.

That last assumption — 2 percent long-term growth — was the one that was actually in the program until now!”
The rank amateur won’t, of course, have “been there”, with all the clubby knowledge that comes when a group of like minded and well paid people exchange their views of the kind of canaille who research on google and live in those rather oily southern european nations. And the rank amateur will be all the better for it.


Tiny Tim 07.04.15 at 3:45 pm

The ultimate point is that there is zero reason for Greece to have experienced 20%+ unemployment for several years. Whether this was by design or by stupidity I do not know, but there always were other options. Making the people suffer for the sins of their (rich) leaders, whether those leaders are Greek or in EU-land (I gather this distinction isn’t so important) achieves what exactly?

It isn’t precisely analogous, but in the US they could’ve given every mortgage holder a bunch of money to pay off their mortgages, or they could have just given the banks a bunch of money and left people unable to pay their mortgages to face inevitable foreclosure. The banks got bailed out, and people faced foreclosure. This achieved what?


Diego Beghin 07.04.15 at 3:56 pm

Wow, so all Paul Krugman knows about Greece he just googled this morning? Did he really spend months writing about Greece with no actual knowledge of the country? How dare he!*

Seriously, my point is, there is a real political disagreement here, not just a lack of knowledge of some facts. People who know the same facts may come to different conclusions because, believe it or not, the slogan that “There Is No Alternative” is a lie! The people pushing the neoliberal agenda have almost all of the power right now (that’s what’s euphemistically refered as “political constraints”) but that doesn’t mean they’re right. They have the capacity to punish their political adversaries ; they don’t do this just for the evulz, but because it is in their self-interest to mantain the TINA narrative (think about the spanish PP worried about Podemos). There’s no reason us lefty folk should accept that, we have to fight back, with international solidarity if it’s necessary (see two paragraphs below).

Yes, Syriza did not use the best negotiation strategy if we look at it from the creditor’s point of view. But just as “political constraints of creditor countries are real constraints”, the political constraints of the Syriza coalition are real constraints. Tsipras couldn’t just surrender to the Troika to buy time, that would have meant the end of his government and probably anticipated elections.** Similarly, the only conceivable move for him to keep his coalition together was to call for the referendum. And seriously, I don’t see what’s so illegitimate about a goddamn referendum, I don’t see why the main actors are getting so hysterical over the fact that we’re actually consulting the Greek population about what their future should look like.

Yes, sometimes I do want to score domestic political points by talking about Greece. Again, I don’t see why that’s illegitimate. Look at what happens when one country is forced to do savage spending cuts : look at the failing health industry, look at the rising number of suicides, look at all those people unable to heat their homes, look at the elderly struggling to find something to eat, look at that 25+% unemployment (it is a goddamn huminatarian crisis). Do we want those vile policies over here, even if they’re watered down? No? So let’s stand in solidarity with the Greek people over this, that might scare some austerians here at home.

So yeah, maybe Pangloss was right and this is the best of all possible worlds. But I’m not ready to surrender for the status quo.

*Sorry for the sarcasm, but I’m not the only who’s doing it here.

**And who knows what score the Golden Dawn would have had with all the lefty vote demoralised.


Layman 07.04.15 at 3:57 pm

“I think the article has a lot of merit to it. ”

It opens by claiming that Greece was recovering last year, pointing to glowing forecasts, while ignoring that every forecast to date has been catastrophically wrong. It puts forward the claim that Greece was poised to exit the relief program smoothly, ignoring the inconvenient truth of the IMF analysis released a few days ago, which makes it clear no one believed Greece could pay back its debts in any foreseeable future. It blames the Syriza government for reversing the positive trend, by creating ‘uncertainty’ – more ‘confidence fairy’ nonsense! – while ignoring the fact that the uncertainty is whether the EU and the creditors will compel Greece to run an unreasonably high primary surplus through cutting more social services while refusing to further discuss any debt foregiveness, despite the fact that the EU and the creditors know debt forgiveness is inevitable. It repeats the lie that the referendum tomorrow addresses the question of whether Greece will remain in the Euro. It faults the Greek government for calling the referendum, even though Greece was presented with an ultimatum featuring terms which were directly contradictory to the platform on which the government was elected in the first place.


Sebastian H 07.04.15 at 4:17 pm

Driving d-squared off with insults isn’t helpful. He provides excellent insight into the mind of the banking apparatus. That may create blind spots about the rest of the social/political world, but to the extent that they exist in him, they exist far more in the rest of the banking community.

Rather than get into name calling how about interesting questions.

1. If you exclude the depression, your graph on Greek GDP shows wild fluctuations centering on something like 1.5% growth (i’m eyeballing it). How likely is it that the tiny bits of post-depression growth are really just the top end of wild fluctuations centering on something like -0.5% growth or any minus number, rather than the “it is finally over” interpretation?

2. Assuming that those quarters of growth were real and sustainable, how much of the credit for Greece’s ‘return to growth’ is due to the troika? Considering the graph you provide (showing that even with Greece’s insanely fluctuating growth pattern, it still rebounded from all its previous nasty episodes in about 1-2 quarters) I would tend to think that history suggests “none or almost none” but I would love to hear what the banker’s point of view is.

3. Compared to what you think the reality of #2 is, how much more do you think the troika was internally taking credit for the “return to growth”? Was it more or less than is due? Much more or less?

4. Even if you take your preferred method for sustainability, wasn’t Greece’s debt unsustainable? What level of assumed growth do you need for it to be sustainable? 2% is looking sketchy even for some of the successful countries (a fact I think you’ve argued somewhere when not talking about Greece but I may be mixed up)

5. Under what circumstances should a lender who makes a bad loan take the brunt of the loss? (I’m most interested in this one because the meaning of ‘moral hazard’ seems to have become inverted in recent years. It used to mean that if you don’t force creditors to take a loss, they will make bad loans which cause horrific social problems. Transforming that into ‘debtors must take a loss or the bad ones will borrow too much’ is one of the greatest coups in transformative marketing I’ve ever seen. )


Diego Beghin 07.04.15 at 4:43 pm

I would like this to add to Sebatian H’s first question : “How much of that growth was due to a slowdown of austerity by the Samaras government* and to what extent would any new ‘rescue plan’ kill that growth?”

*if I remember correctly, the last Troika loan was quite a long time ago


MPAVictoria 07.04.15 at 4:43 pm

Sebastian it is dsquared who has been insulting people and not the other way around.


MPAVictoria 07.04.15 at 5:21 pm

I pulled out some key quotes but I encourage everyone to read the whole thing.

“responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors.”

“Sovereigns have an option to default full stop. Investors in sovereign securities must price that.”

“The fact of the matter is no country, not Germany, not France, would voluntarily put up with the sort of “adjustment” that has been forced on Greece, for the good reason that gratuitous great depressions are not actually helpful to an economy. Creditors have had five years to mismanage Greece and they’ve done a startlingly effective job. Syriza has had five months to object. However much you may dislike their negotiating style, however little you think of their competence, Greece’s catastrophe was not Syriza’s work. If creditors respond to Syriza’s “intransigence” with maneuvers that cause yet more devastation, that will be on the creditors. Blaming victims for having insufficiently perfect leaders is standard fare for apologists of predation. Unfortunately, understanding this may be of little comfort to the disemboweled prey.

Europe’s creditors are behaving exactly as one might naively predict private creditors would behave, seeking to get as much blood from the stone as quickly as possible, indifferent to the cost in longer-term growth. And that, in fact, is a puzzle! Greece’s creditors are not nervous lenders panicked over their own financial situation, but public sector institutions representing primarily governments that are in no financial distress at all. They really shouldn’t be behaving like this.

I think the explanation is quite simple, though. Having recast a crisis caused by a combustible mix of regulatory failure and elite venality into a morality play about profligate Greeks who must be punished, Eurocrats are now engaged in what might be described as “loan-shark theater”. They are putting on a show for the electorates they inflamed in order to preserve their own prestige. The show must go on.

Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, which do not line up along national borders of virtue and vice, or revert to a much older playbook and manufacture scapegoats.

Such tiny, tiny people.”


Mathmos 07.04.15 at 5:37 pm

Really excellent piece MPAVictoria.


Diego Beghin 07.04.15 at 6:15 pm

Seconding Mathmos, that’s an excellent piece you’ve found, MPAVictoria.

I especially liked the part which criticised the terrible choice by the EU elites to turn this into an “us vs them” ethnonationalist conflict, the very thing the EU was meant to prevent. The Greek government weren’t the only making mistakes, or the ones making the biggest mistakes, but the people who end up footing most of the bill are the Greek working and middle classes.

It’s not a coincidence that the ones suffering the most are the most politically marginalised groups. After all, in Europe, nowadays, Might does make right.


bob mcmanus 07.04.15 at 6:37 pm

33, 34.1: Steve Randy Waldman linked here about 4 times before MPAV got to it. See 15 for instance


MPAVictoria 07.04.15 at 6:40 pm

“33, 34.1: Steve Randy Waldman linked here about 4 times before MPAV got to it. See 15 for instance”

Very true! My apologies for missing the link at 15. But either way it is worth a read. :-)


Barry 07.04.15 at 8:26 pm

BTW, in dsquared’s famous ‘post with no comments’, he makes a claim about a ‘recovery’ (‘ Greece had two quarters of consecutive growth at the beginning of 2014.’).

The Interfluidity post not only puts that in scale, but also shows that the IMF projections are quite deliberately fraudulent consistently and repeatedly very, very wrong, in the direction which they prefer.

Dsquared is technically telling the truth, but an examination of those trend charts show the level of technicality.


dsquared 07.04.15 at 10:07 pm

The recovery in 2014 was not a projection. It happened.


dsquared 07.04.15 at 10:14 pm

Sebastian: 1, possible I guess but unemployment also fell

2, 3none. In the post, I actually attribute it to three factors (time, human resilience, the Pigou Effect)

4 No, I think DeGrauwe is totally convincing on this. Not in a position to calculate my own numbers here but even very low positive growth seems to work in his model.

5 Sovereign credit is always a matter of willingness to pay rather than ability (or at least, political rather than physical ability, if you prefer), so I don’t think it’s possible to answer this in general terms. I also don’t think moral hazard is a useful concept for either side here because these stopped being debts a long time ago in any economically meaningful sense – they’re a funny way of talking about the political problem of the terms on which Euroland is prepared to finance Greece’s fiscal deficit


dsquared 07.04.15 at 10:20 pm

21: If I understand their argument correctly, they’re saying that the gross financing needs are the issue, i.e. in addition to servicing the existing debt, over time their new issuance will be on closer to market terms and therefore the refinancing burden will be too much.

You understand it right but they’re wrong. This assumption is tantamount to assuming that the benefit of the easy terms disappears over time. It is what I’m on about in saying it doesn’t give credit for the NPV reductions


BJN 07.04.15 at 11:35 pm

To repeat a little bit from @9, for both the World Bank and IMF, there is an enormous gulf between staff and management, who are career economists, and the actual decision makers on the board of directors, who are political entities appointed directly by constituent governments. The same way that Senators can have the smartest staffers in the world and still vote the wrong way, these offices, especially when it comes to high profile cases like Greece, are in fact less than the sum of their parts.


kidneystones 07.04.15 at 11:40 pm

Thanks to Daniel for his reasonably well-argued critique of the Greek government’s position, and to Chris and John for their own contributions. Daniel’s links, including @18, are worth a read. I confess I see very little evidence of good faith from any of the principal actors, especially the Greek non-tax payers.

This is the hinge upon which all future actions turn – “I want my government pension and see no reason why I should pay my share of taxes.” The current Greek government’s decision to create new jobs by hiring young student-spies to video fraud is laughable, serious, and frightening:

“The “onlookers” scheme basically involves the recruitment of “students, housekeepers and even tourists”, with a brief period of basic training, on short term two month contracts to act as undercover tax inspectors, wired for sound and video to gather data on VAT and cash-in-hand fraud. What could possibly go wrong, eh? Apart from the obvious and significant risks to the barely-trained undercover agents, and the political minefield of creating a network of government spies in a society that’s already low on trust, this is actually quite a bad idea as tax policy.”

The Greek government is surely not so daft as to be entirely unaware of the downsides of the snooper policy. So, why take these risks? The snooper policy confirms the current ‘people-friendly’ Greek government clearly believes action needs to be taken against Greek businesses. This is amateur hour.

The real risks, however, are political and social. A Spanish colleague spent some time last week recounting his idyllic youth growing up under Franco. I was not at all happy, listening to him explain to me quite convincingly that a vote worth nothing, isn’t really a vote at all – using Greece as an example.

I’d like to think we’ve come far enough from fascism to be sure of a successful democratic outcome to the Euro crisis. I don’t really want to put the matter to the test. The appeal of autocratic theocracies is based on a similar contempt for democracy. Should we see Greece slide further toward failed-state status, we are certain to see more comparisons with North Africa and in the area formerly known as Iraq and Syria.

I’m guardedly optimistic we can avoid Weimar. But surely we can raise the bar a little higher.


Sebastian H 07.05.15 at 12:43 am

“2, 3none. In the post, I actually attribute it to three factors (time, human resilience, the Pigou Effect)”

But how does the IMF and the ECB attribute it? Actually I should ask how do the policymakers attribute it? It has become crystal clear that what the analysts think and say on the issue is irrelevant.

Which suddenly raises an interesting thought: what happens if you claim the mantle of technocratic governance, to be insulated from democratic process, but then ignore your technocratic analysts?


engels 07.05.15 at 1:46 am

Driving d-squared off with insults isn’t helpful. He provides excellent insight into the mind of the banking apparatus.

True, but some of us remember the days when one used to be able to read DSquared’s posts for something like ‘financially informed left-liberalism’, rather than ‘insight into the mind of the enemy’.


kidneystones 07.05.15 at 2:30 am

@44 This is one of your poorest efforts.

d-squared knows rather less than I’d like about conservatives and libertarians, but he certainly knows much more about banking than most. I don’t know if you bothered to read the links, but they shed a great deal of light on the shortcomings of the current proposals. Citing Duncan Black isn’t ever going to add much to any discussion simply because Black is so predictable.

Whining that d-squared isn’t simply cheering for ‘our side,’ and other assorted thought crimes is silly. I’d argue very strongly that we need to know exactly what the bankers are thinking about the problem, and we need to know where we might find common cause with those on the right.

Greece leans right as well as left. The latest ADL poll confirms that 67% of Greeks believe that Jews have too much too much influence on world finance. The 2015 number is down from 69% in 2014, but is still dramatically higher than other European countries. Without sober, informed critiques of the left, you get David Cameron – at best. Witness Chris Bertram’s post-election transformation from “Euro-skeptics are bigots” to “we have to accept reality….”.

The Greek government needs brutal, rigorous, informed critiques in order to get policy solutions right. Greece could be out of the EU this time next week. Golden Dawn is waiting to pick up the pieces if the left fails. Get it?


Kurt Schuler 07.05.15 at 2:33 am

Your description of the East Asian financial crisis as originating in the private sector is at inaccurate at least in part. The private sector was a factor, but the trigger for the crisis was the Thai central bank letting its currency depreciate sharply after depleting its foreign reserves. It had concealed the depletion from the public.


LFC 07.05.15 at 2:39 am

Isn’t it perhaps just the teeniest, tiniest bit arrogant for Angel Ubide (in the blog-post-style piece at the Peterson Institute for International Economics that was recommended by d-squared @18 and has already been criticized upthread (see Layman @28) to assert, without any qualification, that a Greek departure from the euro and subsequent devaluation of its own currency will cause a depression?

Look at the wording: Ubide doesn’t say it probably will cause a depression or that it likely will cause a depression (presumably worse than what Greece is going through now). No, he says flatly it will cause a depression. Angel Ubide knows! He knows!

I don’t pretend to have an informed opinion about any of this. But it does slightly bother me that, in a piece upbraiding unnamed U.S. and European leftists and others for fighting their proxy wars to the last Greek (so to speak), the author should be so arrogant as to assume that he and by extension the Peterson Institute of International Economics are the repositories of all-seeing wisdom and that everyone else is a misguided fool and a dunce. Which is not to say that he might not very well be right. What bothers me is how he chose to say it. It’s not just what one says that matters; how one says it also matters.


Cranky Observer 07.05.15 at 3:08 am

Boundary maintenance has been pretty intense on this topic across all the nominally reality-based blogs for the last 5 days. Message is clear: do not question the neoliberal consensus or you will never work in this town again.


kidneystones 07.05.15 at 4:24 am

@47 As usual, you customize the content of the piece to erect a straw man. Writers of longer pieces, including the Peterson author, pay more attention to structure than those of us in comments sections. Here’s the conclusion:

“…All parties involved have made mistakes, and Greece has suffered enormously. Regardless of the referendum outcome, the Greek economy is going to need massive external assistance. Europe, and especially Germany, cannot fight against moral hazard and demand respect for the rules and then avoid dealing with the consequences of fighting against moral hazard and demanding respect for the rules. After the referendum, Europe must re-engage with Greece, devote all the resources needed—including conditional debt relief…”

The Greek taxpayers are far from the only irresponsible actors in this drama. The Greeks were victimized by predatory lenders and, as others have noted, were quick to cloak the a more reality-based assessment of their credit-worthiness in that of the Germans. That charade lasted until the present. The great victory of the current Greek government, irrespective of the errors identified above, is to force a discussion of our real relationship with lenders and what we are doing and not doing to help those paying the real costs of the status quo.


John Quiggin 07.05.15 at 7:20 am

Sebastian @43

Which suddenly raises an interesting thought: what happens if you claim the mantle of technocratic governance, to be insulated from democratic process, but then ignore your technocratic analysts?

Spot on!


John Quiggin 07.05.15 at 7:23 am

@46 The kinds of crisis the IMF knows how to fight arise from *fiscal* profligacy, not financial sector failures or the (failed) central bank responses to those failure. Both Thailand and the GFC were crises of the second kind.


engels 07.05.15 at 11:25 am


engels 07.05.15 at 12:09 pm

I’d argue very strongly that we need to know exactly what the bankers are thinking about the problem

Er, that’s why I wrote ‘true’ under a statement which says just that: I agrre.


kidneystones 07.05.15 at 12:30 pm

@53 Well. Let’s be generous and say that you’re not whining about having to settle for the truth. Your musing on the d-squared of the present strikes me very much as an accusation of betrayal.

If I’m reading you wrong, please accept my apology.


Ronan(rf) 07.05.15 at 1:00 pm

Kidney stones- what does your quote in 49 have to do with the point lfc was making at 47?


Jason Weidner 07.05.15 at 1:49 pm

To someone who has been following the events in Greece and the Eurozone without being an expert, this account rings true:

It also seems to me a very different account than the one offered by dsquared. I’d be interested to hear Daniel’s view on what, if anything, this author gets wrong.


Jason Weidner 07.05.15 at 2:10 pm

Oops, never mind. I see this post has already been discussed, and Daniel has posted comments on Waldmam’s blog.


Eli Rabett 07.05.15 at 3:40 pm

View the last six months as a game playing exercise. Economically it was obvious that a) the Greeks needed out of the Euro and b) the Greeks needed debt relief and c) that the Greeks were not prepared to abandon the Euro.

Given those three it was perfectly sensible for Syriza to drive the institutions and the Germans to the point where they made the conditions for c) so onerous that Syriza could get past c and achieve a and b. They get to b) by playing Iceland.

Given that Varofakis is an expert in game theory, this is not even a stretch.


LFC 07.05.15 at 4:17 pm

kidneystones @49
As usual, you customize the content of the piece to erect a straw man

As usual, you fling insults with no basis and then proceed to write a comment that has nothing to do with what I said.


Metatone 07.05.15 at 4:26 pm

An uncomfortable home truth for the Peterson Institute and others who love the “uncertainty kills growth” meme. When oil prices drop, the value of Greek oil refining has always dented Greek growth figures. This has been true for around 20 years.

So the oil prices dropped and the Greek growth figures dropped in some mystical resonance that was clearly all about Syriza.


MPAVictoria 07.05.15 at 5:44 pm

Again we come back to Atrios (Duncan Blacks) Very Serious People framing. The technocrats in charge are not competent and face no consequences for being wrong again and again. And yet when we question this we are accused of being “shrill”.


Chris Bertram 07.05.15 at 5:49 pm

“Given that Varofakis is an expert in game theory …”

FWIW, when I mentioned this claim to an actual expert in game theory, he guffawed with laughter.


engels 07.05.15 at 6:36 pm



Colin Danby 07.05.15 at 6:39 pm

God forbid, Chris, that you should look up his CV.


Eli Rabett 07.05.15 at 7:14 pm

For an economist?


Sasha Clarkson 07.05.15 at 7:34 pm

If anyone has ever been to a rugby match in Wales, or a pub on the same day as a rugby match in Wales, they will understand the following:


(BTW the letter Χ/χ is Chi not Xi (Ξ/ξ) and is pronounced “kh”.)

Democracy Wins, despite financial terrorism and media lies and pressure: it can be done. Send not to know for whom the bell tolls Rupert Murdoch, it tolls for thee: now FOAD ASAP!

Tomorrow I shall go back to being my usual sweet and reasonable self :)


oldster 07.05.15 at 8:37 pm

Presumably the government chose the phrasing of the referendum, and so could have switched the significance of “yes” and “no”. (E.g. “yes” could have meant refuse the terms, “no” could have meant do not refuse the terms.)

The government’s choice of this polarity was probably not accidental:


kidneystones 07.05.15 at 8:53 pm

@55 “what does your quote in 49 have to do with the point lfc was making at 47?”

Sorry if you found the prefatory remarks of 49 confusing, paraphrased now as the conclusion of a structured essay cannot and should not be ignored and is certainly more representative of the author’s thinking than cherry-picked remarks. The critical line of that conclusion is that debt-forgiveness is an unavoidable part of the solution. I find nothing arrogant in the concluding remarks.

@47 and @59 We disagree, clearly, about the merits of the cited articles. I found nothing to criticize in any of the sources.

Had I written the initial post and comment @18, I would probably have highlighted two points – first, from DeGrauwe, “…in order for this solution to be applied the insatiable desire of some creditor countries to punish the Greek for their misbehaviour must be overcome… ” (my italics), and the second from the conclusion of the Peterson piece, that debt forgiveness is an unavoidable part of either solution.

To conclude and sound improperly pompous, the events of the last six hours have propelled us all into a future where a Greek exit seems unavoidable. To forestall the depression predicted by Peterson, and very likely to be engineered by the punitive, all concerned are going to have work a great deal harder on finding solutions than has been so far demonstrated.

At some point, we are going to have to set aside ideological battles and find practical solutions that work.


Layman 07.05.15 at 9:29 pm

“To conclude and sound improperly pompous, the events of the last six hours have propelled us all into a future where a Greek exit seems unavoidable.”

It is that view which is at the core of the problem – that by refusing to accept the continued enforcement by the Troika of a failed prescription, Greece’s only alternative is to exit the Euro. Why should that be the case when, as you say, Greece should be offered a better deal, one which includes commitments to debt forgiveness?

Why not say now that the Troika should offer that better deal – which Tsipras shows every indication of grabbing like the life preserver it would be – and that, if they fail to make such an offer, it is the Troika who are to blame, not upstart Greeks?


Ronan(rf) 07.05.15 at 9:42 pm

“Why should that be the case when, as you say, Greece should be offered a better deal, one which includes commitments to debt forgiveness? ”

Because there is absolutely no political will for it now (and if there never was then theyve played into the Troika’s hands) If anything, this situation will show that Krugman is, politically, an idiot.


Layman 07.05.15 at 9:50 pm

“Because there is absolutely no political will for it now (and if there never was then theyve played into the Troika’s hands) If anything, this situation will show that Krugman is, politically, an idiot.”

Easy enough to say, especially when you offer no alternative prescription. That aside, my read of Krugman is that he has long thought Greece might be better off with a Grexit & default than continuing to accept the Troika’s crushing terms, and so they should certainly push strongly for better terms. What have they to lose?

Why you respond to my question by bashing Krugman is a puzzler, though; as is what you think the Greeks should have done…


Ronan(rf) 07.05.15 at 9:53 pm

What exactly is yours, or anyones, ‘alternative prescription’ that is plausibly better than continuing the Troika plan ?


hix 07.05.15 at 10:01 pm

My guess is that Greece will get a slightly worse deal and take it. If not, it is still a long way to Greece leaving the Euro. That vote stunt was just iritating, it wont make anyone more willing to make concessions (which is to say my perception of public and elite opinion as well as my personal one are all aligned regarding this).


kidneystones 07.05.15 at 10:03 pm

@69 and @70

@69. Quite right of you to question the inevitability meme. However, 1. My own belief is that the current Greek government has been divided, to say the least, on the merits of remaining in the EU. 2. The scale of support the government received, if the numbers hold, very much strengthens the government’s hand at a time when Greece’s creditors are divided. Getting a workable recovery package to Greece quickly seems most unrealistic. 3. @ 70 wildly overstates resistance to large-scale debt forgiveness, but de Grauwe identifies the desire to punish Greece as a very real threat. So, @70 is effectively right on this point, and on Krugman IMHO. 4. The track record of responsible behavior by all concerned is very poor and offers little grounds for optimism.

A quick review of the responses is not encouraging either. Avoiding Weimar is now the stated goal of the more responsible leaders. From the Independent:

“…Economy Minister Emmanuel Macron…pointedly referred to one of Europe’s biggest mistakes of the past century, saying, “If the No wins, it will be our responsibility not to create the Treaty of Versailles of the Eurozone.”

I see no hyperbole in Macron’s assessment whatsoever. Merkel and Hollande may yet pull a rabbit out some hat, but whether the bunny will win over hostile lenders, punitive northern Europeans, and suspicious Greeks very much remains to be seen. Let’s hope Europe’s leaders are preparing plans to prevent Weimar with Greece outside the Euro. Not holding my breath. Work beckons.


Layman 07.05.15 at 10:06 pm

“What exactly is yours, or anyones, ‘alternative prescription’ that is plausibly better than continuing the Troika plan ?”

If ‘Tsipras should ignore the Greek polity and agree to terms they opposed’ is a politically plausible approach, why isn’t ‘Merkel should acknowledge the debt load is too great, despite what German voters think’ politically plausible?

The Troika’s plan means Greek misery for decades. It seems perfectly reasonable that Greeks should push hard to change it, even if that means they’re forced out. And, it also seems reasonable to me that if Euro leaders care about the project, they’ll make an accommodation rather than force Greece out. But perhaps they’re not reasonable. What has that to do with Krugman again?


Val 07.05.15 at 10:09 pm

@ 66

@tsipras_eu: The Greek ppl responded to real question at hand: What kind of Europe do we want?
The answer: A Europe of solidarity & #democracy. #Greece

It’s a hard road for Greece either way, but let’s celebrate their courage and wish them the best. I hope and believe this will be the end for the cruel doctrine of Austerity, which has never been about solidarity in facing problems, but about punishing the poor for the sins of the rich.


Ronan(rf) 07.05.15 at 10:13 pm

This was an elite driven vote. A choice made by Syriza.
I can think two things quite easily (1) that austerity has created the political context that Syriza developed in (2) that Tsipras et al (and their public supporters, ie Krugman) have lost the plot.
And a thord, that there are no politically plausible better alternatives than continuing with the Troika’s plan. I would like you to talk me through a better alternative.


Ronan(rf) 07.05.15 at 10:17 pm

“If ‘Tsipras should ignore the Greek polity and agree to terms they opposed’ is a politically plausible approach, why isn’t ‘Merkel should acknowledge the debt load is too great, despite what German voters think’ politically plausible? ”

If you wan’t me to acknowledge that the political pressures on Tsipras were huge, then I agree. But so what ? It doesnt mean that there is any good outcome from this ridicuolous vote. (and certainly not from leaving the euro)
But yes, I hope this signals a change of policy in Europe. Unlikely though.


kidneystones 07.05.15 at 10:24 pm

One quick point, somewhat connected to @ 75. Let’s not get confused by Merkel’s ‘frugal German housewife’ persona. She’s a proven deal-maker. There are plenty here who know far more about German politics than I, but she’s probably working very hard right now to cobble together some form of debt forgiveness.

Why might this effort fail?

Because political and cultural factors are now at least as important as the economic. The core of the tea party movement of 2008-10 was their visceral rage at being forced to bail out predatory lenders and those who bought “too much home.” A very high percentage of tax-paying citizens loathe giving tax revenues to predatory banks and irresponsible governments. There are plenty of northern Europeans who feel, wrongly, that they have in no way profited from the near criminal policies of EU practices.

Betting that rationality is going to carry the day at this point seems most unwise.


Cranky Observer 07.05.15 at 10:30 pm

Of course, the Government of Greece is able to debate strategy and take action as a sovereign nation:

= = =
Earlier this month I blogged about a wiretapping scandal in Greece.

“Unknowns tapped the mobile phones of about 100 Greek politicians and offices, including the U.S. embassy in Athens and the Greek prime minister.

Details are sketchy, but it seems that a piece of malicious code was discovered by Ericsson technicians in Vodafone’s mobile phone software. The code tapped into the conference call system. It “conference called” phone calls to 14 prepaid mobile phones where the calls were recorded.”

More details are emerging. It turns out that the “malicious code” was actually code designed into the system. It’s eavesdropping code put into the system for the police.

The attackers managed to bypass the authorization mechanisms of the eavesdropping system, and activate the “lawful interception” module in the mobile network. They then redirected about 100 numbers to 14 shadow numbers they controlled. (Here are translations of some of the press conferences with technical details. And here are details of the system used.) = = =

Links to more technical write-ups:


Layman 07.05.15 at 10:30 pm

“I can think two things quite easily”

This is a statement about you, so hardly dispositive. If you think it better that Greeks be condemned to a declining economy and ~25 % unemployment for another 20 years or so, rather than Germans and Frenchmen be discomfited by the acknowledgement that much of this debt can never be paid back, well, you’re welcome to that position, but I won’t join you there.

There are some objective truths here. A currency union without political union – which is to say, without fiscal transfers – can’t work across as disparate a collection of economies as has been included in the EU. A single central bank can’t make fiscal policy which is appropriate to all members. If the EU must forbid fiscal transfers, and the ECB must opt to control inflation in Germany, because German voters would otherwise have a fit of the vapours, then the EU will fail. Greece is only a symptom of that looming failure.


hix 07.05.15 at 10:36 pm

There is a huge difference between staying in the Eurozone and staying in the EU. No one in his right mind in Greece would want to leave the EU, if only for the huge annual transfer payments Greece receives since decades independent of the current debt situation.

The “no austerity” option for Greece is a fake option. If Greece defaults on all the debt, they still have to balance the current budget, which they dont have to do with (conditional) new credits (which are tactically acknowleged to never be paid back in full by all parties). Now like the priorities imposed by the institutions or dont, i sure dont like them, but at least admit the alternative is to have more, not less austerity overall.


Bruce Wilder 07.05.15 at 10:42 pm

Debt forgiveness is a kind of debating point. Greece has chosen to default because they don’t have the money, and the default is almost entirely to institutions that do not need the money.

The immediate question centers on the fate of the Greek banks and associated payments system.

If the payments system is shut down entirely, . . .


F. Foundling 07.05.15 at 10:59 pm

The Greeks have shown real courage and dignity, and it’s admirable that they have chosen by such a large margin to resist in spite of – or perhaps because of? – the arrogant threats and extreme economic pressure from outside and the total propaganda campaign of collaborationists (including, from what I gather, the overwhelming majority of the media, the Church and, judging from the disparity between polls and results, the opinion polling agencies as well) from the inside. I hope – and am inclined to assume – that they also realise what they are risking, and are ready to take the possible further negative consequences of opposing tyranny. Ultimately, the current conflict is about national and popular sovereignty and the right of self-government, and this is the type of stuff that lives – not only financial resources – are sacrificed for.


Bruce Wilder 07.05.15 at 11:00 pm

If there is a “game” being played out, the Institutions (don’t you love that moniker?) are playing good cop, bad cop, where the IMF has been assigned the role of good cop, acknowledging that the debt is unsustainable, previous forecasts were sadly wrong, and “mistakes were made”. The ECB has the loaded pistol, which it has already fired several times already just so no one can pretend it’s not loaded, in the form of an accelerating bank run, now held precariously at the precipice by jerry-rigged capital controls.

The Greek government has been cast as the hapless perp, protesting against a beating.


Layman 07.05.15 at 11:08 pm

“The ECB has the loaded pistol, which it has already fired several times already just so no one can pretend it’s not loaded, in the form of an accelerating bank run, now held precariously at the precipice by jerry-rigged capital controls.”

If they learn nothing else, Eurozone members should now understand that the ECB is not reliably their central bank, or their lender of last resort, or their guarantor against bank runs.


F. Foundling 07.05.15 at 11:15 pm

As to arguments that a break with the Institutions or a Grexit would mean more austerity for Greece – I would always prefer, on principle, my nation to have fewer resources and the freedom to choose democratically how to use them, than more resources and diktat from outside as to how they will be used. Sovereignty and an internal political process are just not negotiable, it’s that simple. It has been known for a long time that defending them can require sacrifices – hardships and more.


Bruce Wilder 07.05.15 at 11:22 pm

If payments system is shutdown entirely this coming week, and a military coup overthrows the elected government, I fully expect that we will hear plenty of apologists for tyranny blaming SYRIZA, for the misbehavior that resulted in abuse necessary discipline.

I’m sure some in the Eurozone will be sure that their own probity would exempt them from any “need” for such measures, and that the Greeks are receiving exactly the kind of aid they need. The willingness of the Institutions to relent, once the government is in “responsible” hands will be the evidence that all is right with the world.

And, who knows? Maybe, the institutions will find a way to fund a bit of a recovery, just to reinforce the lesson for the audience of potential Podemos voters.


sidd 07.05.15 at 11:51 pm

“An American secret agent was responsible for setting up a wiretapping system to eavesdrop on top Greek government officials …”

“Foukas also investigated an alleged plot to assassinate Karamanlis and found that there was evidence to suggest that persons unknown had targeted the premier because of his attempts to pursue closer relations with Russia.

The magistrate referred to diplomatic cables published by Wikileaks as underlining Washington’s unhappiness with the Greek government’s approach. Plans for a pipeline between Burgas in Bulgaria and Alexandroupoli in Greece to carry Russian oil were eventually abandoned.”


Lee A. Arnold 07.05.15 at 11:56 pm

Now that the vote is in, Brussels had better tread carefully. What are the odds that China is thinking about sending aid to Greece as a way to gain a European foothold for its new bank?


F. Foundling 07.06.15 at 12:38 am

@Bruce Wilder 07.05.15 at 11:22 pm

Nailed it.


kidneystones 07.06.15 at 12:52 am

“Just a note to say I am not interested in participating in any discussions about whether or not I an evil, so basically go and look after yourselves, Crooked Timber comments.”
148 dsquared 07.06.15 at 12:21 am (from another thread).

As a sometime critic of dsquared, I have to say his histrionics over being called bad names confirms the thinnest of skins and demonstrates just how fragile the egos involved are. Bad form, IMHO. The bankers I know are made of much sterner stuff. Reminds of Chuka chucking in his leadership bid after 5 days of bad press. That’s what passes for guts these days on the left.

I’m deeply envious of the accusation of being “evil.” Damned by all the right people, and all that. Although, to be fair, if we can employ the term fair, here, Colin Street confirmed he believed dsquared to be both “evil and stupid.”

Nothing judgmental or unkind about good Colin, is there?

dsquared offers as much of value as anyone on this site. However, he isn’t here to be liked or respected, IMHO. I sincerely hope he goes somewhere to have a good cry, and comes back spitting bullets. Expertise of his kind is very hard to come by on left-leaning sites. His contributions are almost always stimulating and well-informed. The site is much poorer for his absence.


Layman 07.06.15 at 1:02 am

I confess I’m sorry I came too late to experience the valuable insight dsquared apparently once offered. In my brief time as a lurker, I’ve mostly seen his occasional Lehmansplaining, his practice of banning those who disagree with him, and his ‘rich retired banker sees the world’ series of travelogues. I admit the last are consistently good and I enjoy reading them.


Collin Street 07.06.15 at 1:04 am

> Although, to be fair, if we can employ the term fair, here, Colin Street confirmed he believed dsquared to be both “evil and stupid.”

My book-of-logic-and-grammar says I said “either”, and then demurred on the exact applicability of the terms in the sense meant. Check.


John Quiggin 07.06.15 at 1:13 am

The vote makes it impossible for Syriza to accept a deal without a debt write-off in time to stop a banking crisis that can only be dealt with by leaving the euro. So, there’s no game theory left for the Troika just a decision under uncertainty.

They can accept a facesaving backdown on debt, or they can enforce exit from the Europe and hope for a Goldilocks outcome: bad enough to make the Greeks repent, but not so bad as to lead to a broader crisis or a military coup (contra some comments above, this would be a disaster for the European project, the kind of thing it was supposed to stop once and for all).


Collin Street 07.06.15 at 1:15 am

[specifically I think that DD’s more insightful than he is analytical: insight lets you see angles, analysis lets you see what angles matter. This isn’t the same — isn’t close — to “stupid” — making mistakes is normal — but if we’re going to exclude “he made a mistake because he’s a normal human being and that’s something that normal people do from time to time” and flatten things into a two-point “100% clever — 100% stupid” axis, then… yeah. Perhaps people shouldn’t think, “the only way he can be wrong is if he’s evil or stupid”?]


Bruce Wilder 07.06.15 at 1:16 am

Lee A. Arnold @ 90

You do know that the Troika made Greece sell Piraeus Port to China? That’s already more than a “foothold”.


Collin Street 07.06.15 at 1:18 am

Or perhaps you could frame it with stupid and evil being something people do rather than something they are, so that people admit and embrace the wrong-doing and stupid-doing that they engage in rather than trying to externalise it.

I mean. Cards on the table! Writing what I did was a stupid thing and a wrong thing. Yes.


kidneystones 07.06.15 at 1:26 am

@93. I’m almost always happy to hear from rich bankers. But I very much enjoy your invective.

@94. Good for you! You’re right. Nothing venal or judgemental in your condemnation at all.

JQ is right, for the moment, regarding the next bad steps.


Map Maker 07.06.15 at 1:28 am

“Now that the vote is in, Brussels had better tread carefully. What are the odds that China is thinking about sending aid to Greece as a way to gain a European foothold for its new bank?”

I for one, would love to see the Chinese loan money to the greeks. Much like the Venezuelans, the Greeks would learn very quickly that there is no default on a Chinese loan. If the Chinese government can figure out a way to make the Greek tax collection work, government employees to show up, ghost employees to disappear, etc., etc. more power to them – may they deserve to run Greece more than the EU … or the Greeks.


kidneystones 07.06.15 at 1:30 am

@98 kudos.


Bruce Wilder 07.06.15 at 2:09 am

John Quiggin: . . . there’s no game theory left for the Troika . . .

I don’t think I would call the next move, “just a decision under uncertainty”.

As a tactic, it reminds me a bit of non-violent civil disobedience, where the point is to unmask violence and evil intent.

The SYRIZA government has been struggling to change the political narrative, from the neoliberal line taken by the Institutions and the German establishment to the effect that the Greeks are feckless and entirely in charge of their own fate, deserving all they suffer. In the German telling, it all about the unconscionably generous pensions (which every one, especially in poorer EU countries, is encouraged to resent).

I’m not sure who the intended audience is, from SYRIZA’s perspective. In some ways, SYRIZA and the Greeks generally seem to me to have tended to see the neoliberal technocrats and other EU governments as more benign than, in my judgment, they are. I think you could argue that they are, as much as anything, holding up a mirror to the technocrats themselves: “Here is a central bank destroying a banking and payments systems. [That’s not what central banks do.]”

If the ECB goes ahead, the spectacle of Greece failing as a state, falling under tyranny, will shock many of good will. Would it shock enough? Some will still dismiss even the idea that the ECB might share in the fault, saying “the ECB does not have a mandate for this or that — read the fine print, you philistines!”

If the ECB relents entirely, the bank run will end, Greek overseas deposits will flow back into the country, the government’s primary surplus and its capacity to borrow from its own citizens will buoy the SYRIZA government in defiance.

I think the ECB will try to confuse the situation, by plotting a complex course of half-measures, attempting to navigate a course between the Scylla of blame for catastrophe (no ATMs in a land of sunshine at the height of the vacation season! does it get any worse in a German imagination!) — and the Charybdis of releasing the Greek government from what has been a very short leash.

There’s no forcing Greece off the Euro, per se, without destroying the banking and payments system. And, no practical way for the Greek government to institute a drachma without an economic and humanitarian catastrophe ensuing, even if they wanted to.


Josh G. 07.06.15 at 3:08 am

Map Maker @ 100: “I for one, would love to see the Chinese loan money to the greeks. Much like the Venezuelans, the Greeks would learn very quickly that there is no default on a Chinese loan.

This is a bizarre comment. What were you referring to? Based on what I found with a quick Google search, it looks like China’s loans to Venezuela were made on fairly lenient terms, which were loosened last November. Apparently they were worried that political unrest in Venezuela might result in a loan default. It doesn’t sound like the Chinese have some magical way to make creditors pay back money that other countries lack. Were you envisioning them using 19th-century gunboat diplomacy against Venezuela or Greece?


dsquared 07.06.15 at 3:11 am

confirms the thinnest of skins and demonstrates just how fragile the egos involved are.

Just to be clear, if twitter didn’t exist I would be happy to remaon telling you guys how wrong you are. But in a world where I can swap abuse and get called a bastard by actual Greeks and by significant policy makers, the idea of debating things here is only attractive of people are going to be pleasant about it. I only bother with CT comments at all because of George Scialabba and my fellow front page posters


notsneaky 07.06.15 at 3:30 am

Ok, all this is fine and dandy, but can anyone point me to some recent (like less than 30 years old) paper in “Macroeconomics” that could shed some light on the fundamental question of whether The Greece should stay in the Euro or not? Or for that matter a recent paper in “Macroeconomics” that could shed some light as to whether country X should stay in the currency zone Y at time t?

You don’t like Macroeconomics? Ok. A paper in Applied Game Theory which illuminates what the hey just happened here. You don’t like Game Theory? Ok, how about a recent paper in Political Science which could shed some light on this. You don’t like Political Science? Ok, how about a paper in Sociol… oh, never mind, there’s a lot of that.

I will stop trolling now and go back to ignoring the CT comments section. But yes, this is as much of a failure of economic theory (regardless of your preferred flavor) – the last meaningful insight about currency unions dates back to 1950’s – as it is of the usual dysfunction of social institutions. Social institutions are always f-ed up. Here they were/are operating within a framework which dates back almost a century (and it’s actually not such a bad framework, just nobody picked it up and did anything with it because people got distracted with other nonsense).


kidneystones 07.06.15 at 4:19 am

@104 Welcome back! I wouldn’t bank on people being pleasant, though. Turn in the comments and show us you’ve got a pair.


reason 07.06.15 at 10:04 am

I’m sure I made this point before, but I think it needs making again.

In order for Greece to repay its debts, it must not run a budget surplus, but it must run a trade surplus (i.e. it must on net export capital). That means it must either export more (most obviously via tourism or hosting pensioners from elsewhere) or import less (given its relatively poor industrial development and geographical features difficult). Selling all its assets to pay its debts, would not seem a good long term solution given the nature of its exports.

It seems to me the major limitation Greece has as a tourist destination is infrastructure – it is difficult to get to and difficult to get around when you are there. In order to export more it needs to invest more. Why isn’t the discussion seriously looking about how Greece could hope to be a net exporter?

In the short term, exporting all its best qualified young people (which seems to be the main achievement of austerity) doesn’t seem a promising approach from the point of view of creditors (although it will reduce imports – at least in the short term).


reason 07.06.15 at 10:26 am

I meant to say it must not ONLY run a budget surplus. But thinking about it more, I’m not sure it is correct that it has to run a budget surplus – it could borrow from its own citizens to repay foreign creditors. Not necessarily a good long term strategy, but not necessarily bad in the short term.


engels 07.06.15 at 11:03 am


Ronan(rf) 07.06.15 at 11:07 am

He wears the loathing from other European countries with pride ?


Garrulous 07.06.15 at 3:19 pm

Layman @93. If you are a recent arrival, you will have missed the slow but steady Hitchensesque transformation of Dsquared.

Hitchensesque not as in a passage left to right, but a morphing from quick-witted mobile provocative thinker to something more sclerotic and self-important, an I’m-not-listening diva, full of the “no-bullshit bullshit.”

The process found new highpoints in the decision (surely contrary to the spirit of this site?) to preemptively close comments on that Syriza thread, and in the don’t you know who I am!??!/Tschah, me, talk with Little People?! outburst @104.

But then again… in being hectored and bankersplained at, maybe we mere below-the-liners can get a better, clearer sense of what it was like to be Dijsselbloem or Schäuble, confronted with Varoufakis in full self-righteous, self-certain, I’ll-tell-you-what flow.

Maybe, it now occurs to me, Dsquared’s entire performance is actually a great work of online theatre, intended to inculcate that very feeling, and so open us up to the Euro-creditors’ point of view in a truly, deeply empathetic way, beyond mere reasoning or persuasion.


(And, just like late Hitchens would occasionally turn out something readable on Anthony Powell or whatever, so too Dsquared’s “How to Spend It” travel pieces are well worth the read.)


Ronan(rf) 07.06.15 at 3:23 pm

My assumption was that the Syriza thread was closed as there were two threads already open on the topic?


Garrulous 07.06.15 at 3:27 pm

Could be, and if so then I apologize for the implication. But I think I’ve never seen a CT thread closed to comments from the get-go. And when there are e.g. book events there are often 6 or 7 roughly overlapping threads open at the same time.


Layman 07.06.15 at 3:29 pm

“My assumption was that the Syriza thread was closed as there were two threads already open on the topic?”

Good grief.


Ronan(rf) 07.06.15 at 3:40 pm

excuse me ?


Barry 07.06.15 at 4:26 pm

dsquared 07.06.15 at 3:11 am

“Just to be clear, if twitter didn’t exist I would be happy to remaon telling you guys how wrong you are. But in a world where I can swap abuse and get called a bastard by actual Greeks and by significant policy makers, the idea of debating things here is only attractive of people are going to be pleasant about it. I only bother with CT comments at all because of George Scialabba and my fellow front page posters”

Didn’t somebody post something about how the only rule for contrarians was ‘don’t b*tch’?


js. 07.06.15 at 11:06 pm

Jesus fucking christ! Look, I completely and totally disagree with dsquared’s analysis and position in this case. While disagreeing completely, I still learn more a dsquared comment than from most everyone else on here—who, more often than not, manage to say the very first thing that would pop into my head anyway. So for the sake of some of us, who actually really appreciate having dsquared around and commenting and engaging, would you all consider laying off just a tiny fucking bit?


MPAVictoria 07.07.15 at 12:02 am

You do realize that dsquared is ruder than pretty much anyone else here right? Also forgive me I fail to shed any tears for a rich banker currently enjoying a world tour with his family. I am sure he will be fine.


dsquared 07.07.15 at 4:51 am

My assumption was that the Syriza thread was closed as there were two threads already open on the topic?

This assumption is correct, although the fact that it probably reduced the amount of ill informed abuse I had to deal with also crossed my mind

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