Discussion for article #237973
" You can only take out €60 at a time " .
In related news, Apple, Inc. (AAPL) today announced plans to purchase Greece. It will be rebranded as iNation.
It seems that for Mr. Tsipras, “democratic process” is a code word for “we refuse to pay back our loans”. And after knowing about the deadline for months, Mr. Tsipras suddenly remembered a few days before it expired that a referendum was in order. Everyone else appreciated what a reliable negotiating partner Greece is.
Anyways the crux is this: Greece owes a lot of money and will default very soon unless it is loaned more money to pay off the old debts. Creditors do not want to make further loans unless Greece fulfills certain conditions (tax reform, reducing spending, etc.). Greece doesn’t like those conditions so the flow of money stopped.
The ECB (European Central Bank) is prevented by its own rules from making “bad loans”, which at this point loaning money to Greece definitely is. Yes, that sucks for Greece, but don’t blame the ECB for that.
2 Likes
We really need an article detailing how the Greek economy was destroyed. I hear that the Euro allowed lots of capital to flow into Greece where things were relatively cheap; lots of investment. So why are the investors not taking a haircut on this rather than sink the whole national economy?
Once Greece joined the Euro (unfortunately after cooking the books to make it look like they fulfilled the criteria), it was seen as a great investment opportunity. A cheap country on the single currency, what could possibly go wrong? Lenders and investors either didn’t know or didn’t want to know that it was a risky investment. Not unlike subprime mortgage, really. The root of the problem is that the Greek economy was never fit to join the Euro, but they did (they wanted to, and they were allowed to – no one is faultless there).
That didn’t create Greece’s problems (poor governance, corruption, tax evasion, overregulation, far too large public sector) but it did make them much, much bigger.
The lenders do not want to sink the Greek economy. If they did that, they’d never get their money back. The problem is that lending Greece more money so that it could pay off older debts is not a viable long-term strategy. Greeks don’t want reforms, so the money flow now stops because no one wants to keep throwing good money after bad forever.
Basically the creditors are saying “we want you to generate a surplus” and the Greeks are saying “it’s too difficult”. It is a case of irreconcilable differences. The creditors may well have pushed too hard, then again if they hadn’t pushed they’d never get their money back either.
In the past few years, Greek debt has been effectively socialized because most of it is now held by the ECB. At this point, creditors probably consider it safe to let Greece fail, if that is what the Greek government wants. The ECB should be big enough to withstand the hit, and that is why the rest of the Eurozone started playing hardball and isn’t willing to give the Greeks more concessions for another five years. Unfortunately for Greece, after five years, everyone is just exhausted and patience has run out.
1 Like
Investors have already taken a haircut. Twice.
This is about Greece refusing to stick with commitments. They have an unsustainable pensions system, a bloated government workforce of 800,000 (in a country of 11 million) and a huge problem with tax avoidance.
@Lizabeth: For an alternate, IMHO more accurate, take:
1 Like
Greece really has little in the way of industry. What do they have to sell? Olives and tourism. Well, Germans probably won’t eat more olives than they already do and tourism is hardly going to be helped by the current situation. So there really is no way for Greece to generate a surplus. Further spending cuts and tax increases will continue and even worsen the on-going depression
The basis of the Euro was faulty, an experiment never before tried in the real world-that is a monetary union without a fiscal and political union. Many economists on the left and right warned about this. They are in the state the US was under the Articles of Confederation. Alexander Hamilton stepped up and had the federal government assume the state’s debts. Where is the European Hamilton?
Greece is actually not a third-world country, so saying that olives and tourism is all they have is a bit insulting. They do not have an efficient economy and their political system has been deeply corrupt for decades. The latter is the real problem.
Whether the basis of the Euro was faulty remains to be seen (it’s been working remarkably well for Germany). But I think everyone will agree that getting Greece on the Euro was a big mistake.
Why was the rest of the Eurozone not willing to let Greece fail three years ago but is willing to do so now? Because effectively the “federal government” (ECB) owns most of the Greek debt now. This is not the same as assuming Greek debt, but the end result is remarkably similar.
Krugman is half right and half wrong. If Greece actually implemented real austerity and real reforms, we could now say if it was a dead end or not. So far we only know that austerity without reforms doesn’t work, but we knew that already. But he’s certainly right that the Euro greatly contributed to Greece’s problems.
What industries do they have? Not much. Italy has been deeply corrupt for decades, but it has a real industrial base. Spain as well.
The Euro works for Germany because it is cheaper than the Deutschmark, thus favoring their exports. That isn’t a marker of success. I lived in France in the pre-Euro days and having separate currencies wasn’t such a burden. A minor inconvenience maybe, but nothing compared to the misery that Greece or Spain or Ireland have endured.
I do agree that the ECB own most of the debt, so the consequences for the general economy of Greece defaulting are likely not too great. But if corruption is the real problem, the corrupt government cannot clean itself. In the US, if a state is really corrupt, the feds step in, but Europe lacks such a mechanism,
Greece has a lot of food production (not just olives) and a huge shipping industry, for example. Yes, it’s a bit like Southern Italy without the industrial North…
Separate currencies are a problem for businesses. With so much cross-border trade, exchange rate risks are a real cost. That’s much less of a problem in a more self-contained economy.
The missing ability of the “feds to step in” is a huge problem for sure. If the Greek government collected all the tax it’s owed, there probably wouldn’t be any deficit, but the will isn’t there, and no one can do it for them.
1 Like
The shipping industry is Greek-owned, but almost none of the ships are built in Greece or have Greek crews.
Businesses managed with the separate currencies; after all the US has as much cross-border trade with Canada as Germany has with France and the currencies fluctuate, yet it’s quite manageable. I worked for a French multinational and it was managed (risks can be hedged). The idea of a single currency is reasonable, but that implies much more political integration than existed, or exists even now. The EU has no fiscal authority and that is a huge problem. Imagine the US where there were no federal taxes. That was tried and didn’t work. Nothing like the Euro has ever been proven to work. An EU taxing authority would make sure taxes were collected in Greece.
But they did implement real austerity and real reforms (and not just according to Krugman); and the result of that austerity and those reforms was a drastically shrunken economy and drastically reduced revenues, which just made their fiscal situation that much worse. It’s simply unrealistic, and plain sadistic (not to mention courting dangerous political instability), to be asking the country to suffer even more. The “troika” are power freaks who can’t admit they’ve been wrong about anything, haven’t even acknowledged that Greece was still willing to keep its belt tightened (just not as tight as the troika is demanding), and frankly seem to relish the feeling that they’ve got Greece by the short hairs: conquest without gunshots. They assume its withdrawal from the euro project would inevitably lead to disaster for the country and be a cautionary tale for other members. But at this point the disaster is already happening, and IMHO Greece has less to lose by leaving the euro than Germany et al. have to lose by the example that withdrawal is possible. They’re nuts to have let it come to this.
EDIT: Krugman again, on his blog:
http://krugman.blogs.nytimes.com/2015/06/29/the-awesome-gratuitousness-of-the-greek-crisis/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/
And there’s so much more – go to his blog and search “Greece” for charts, numbers, links to information about the country’s real reforms, and what I think is a pretty unassailable argument that Greece is being abused out of some combination of neoliberal economic faith and personal pique about the current government.
1 Like
What would you rather have, a risk that can be hedged or no risk?
Certainly, nothing like the Euro has been ever proven to work. And in 1776, nothing like the United States had been proven to work. A non-argument.
I highly respect Paul Krugman, but his picture is very skewed.
You completely disregard the fact that the “troika” doesn’t exist in a vacuum. National governments are behind it, and their voters are behind them. At this point, the biggest creditor is the rest of the Eurozone, i.e. over 200 million people. And it’s their money.
After years of wrangling, the rest of the Eurozone is simply sick and tired of Greece. The basic attitude is “if Greece isn’t paying back, we won’t lend it any money anymore”. No one has Greece by the short hairs and the latest events only confirm that. There is widespread frustration that no matter what the rest of the Eurozone does, Greece won’t play ball.
Except that Greece has been trying to play ball; instead of dealing with Greece in good faith, the troika (and, yes, I’m fully aware that they represent the entire EZ) is tightening the squeeze further – and the New Yorker’s John Cassidy, among others, has heard from more than one insider that their ultimate goal is to topple the government. Of course the other countries are resentful – the people in, eg, Spain have endured years of economic suffering for what was essentially the collapse in value of German vacation properties, in the interest of keeping the euro vision alive. And Greece surely was in bad shape from its own excesses (though, again, Krugman’s numbers demonstrate that their profligacy wasn’t quite as advertised, though certainly not insignificant). But demanding an increase in payments (insisting on a Paul-Ryan style of economic “reform” with ever more spending cuts and far less in tax increases) when savage austerity has just made Greece’s fiscal situation worse isn’t even remotely rational. Unless your goal is to break the country, or its government.
I’m sure you know that having a common currency (so no drachma that can be devalued to let Greece become more competitive) without the kind of integration that, eg, let us transfer payments to Florida (via unemployment insurance et al.) was a recipe for failure. We don’t ask Florida to pay back those transfer payments even in part; imagine if they were forced to do it in full. They’re trying to break the Greek government for the sin of not fully buckling under to the neoliberal gods. It’s disgusting, and insane. And will serve either to blow up the euro project directly, or to create the kind of political unrest that’ll blow up much more.
To believe that, you have to first believe that Greece’s creditors never wanted to get their money back and toppling the Greek government iss worth hundreds of billions of Euros to them. Of course once you believe that, the rest is easy.
Just relaying what a number of quite reliable sources have reported: that they want a pliable center/center-right government back who’ll continue to inflict increasing pain on their people, instead of the left-leaning government the people voted in to stop the pain. Cassidy, Krugman, and others who’ve reported the same aren’t exactly conspiracy theorists.