Figuring out Greece

[OtherMichael]

War reparations are monies to be paid basically because you were a loser-jerk. But building up a war machine by buying industrial material on credit and not paying it back [or forcing loans at gunpoint], and then asking to have your debt forgiven, and having it forgiven, because a good economy benefits everybody? That’s what Germany did.

World War II reparations | Greece

Germany has defaulted on its debts, too

Piketty calls Germany's moral stance on Greek debt a 'huge joke'

Why didn't Germany pay back Debts for WWI and WWII?

But now Germany is hewing to a line that says “rules rules follow the rules, we did, you must, too!” and they’re pants are on fire and their economics are questionable.

[OtherMichael]

Welcome to BoingBoing, @andy_cooper. Stay awhile, like some other posts, have some other things to say.

[AnthonyC]

Greece has been running a small primary surplus. If they default on their loans and stop paying the interest, they are taking in enough in taxes to pay bills on an ongoing basis. The creditors will be screwed, but Greece is still a sovereign nation, EU and eurozone or not. The creditors have leverage because Greece values its relations with them.

Also, @stinkinbadgers I guess that is why France had such a slow growing economy after WWII when it inflated away debt that was a greater fraction of GDP than Greece is carrying now. Oh wait… Yup, still to a large degree a matter of having its own currency.

[anon68952647]

@Papasan

But the Greeks will have autonomy from the EU.

I do wonder what the final EU map will look like, and how may dead dictators and generals will be impressed by how the economists succeeded where they had failed.

[fuzzyfungus]

Not that it helps the Greeks much; but the Germans had the convenient(for avoiding debt repayment, less so for the eastern half) trump card of ‘because communism’ for largely wiping the slate clean on their WWII-related activities.

There may also have been some highflown moral considerations, and the notion that non-dysfunctional trading partners are better for everyone; but (at least from the US side), the “If the Europeans stay poor and huddled in the ruins of their blasted infrastructure, we’ll be swimming in Bolsheviks in no time…” issue was pretty compelling.

Now, of course, there aren’t really any commies to fall to, so Greece’s dysfunction is less scary.

[fuzzyfungus]

Typically, it’s considered better taste to scrape a debt(or, if they don’t owe you anything, just some extra cash) out of a weaker nation by exploiting its dysfunction and squalor to install your preferred local strongman, with whom you then make a variety of ‘fair’ and wholly uncoerced sweetheart deals for land, mineral rights, and whatever else is worth taking.

Sending your own troops is very uncouth; and often ends up being too expensive to be worth the trouble. That’s the neat thing about corruption: a kleptocrat hellbent on looting his country to stuff his own bank account will be perfectly willing to sell off whatever valuables the country has for pennies on the dollar; so long as those pennies are paid in cash, to him; and accompanied by a little military aid for his elite loyalist guard, should the continuation of his benevolent rule require it. People will take very low prices when what they are selling doesn’t really belong to them and the buyer is paying cash up front.

[jeff_fisher]

I think it is more likely that Euro Greece got low interest rates partly because the lenders were inadequately regulated and simply shortsighted and stupid (and the actual humans involved get paid for making deals and don’t get their pay clawed back when the deals blow up years later) and partly because they figured that Germany and France would take most of the losses off their hands if Greece was unable to pay (and they were entirely correct, because that is what happened).

Basically the same as every other bad loan in the crisis all over the world.

[bizmail_public]

@AnthonyC

Greece has been running a small primary surplus.

Greece HAD been running a small primary surplus.

But tax revenues collapsed when Syriza won the election – in no small part because publicly not paying a key tax (on housing, if memory serves) and encouraging everyone else to not pay taxes was a major part of Tsipras’ campaign.

Greece’s interest payments weren’t particularly onerous by EU standards

It’s just that Greeks, unlike their EU counterparts, don’t both bother paying their taxes

The Greeks were entirely capable of “bailing out” themselves by simply doing what so many other Small EU countries like Latvia have done over the past 10 years: reform their regulatory structure, align their tax system with reality, and streamline their public sector.

However, the Greeks had been adept at playing the “culture” and “grievance” cards to get a pass from the EU. Greece didn’t even meet EU standards when it was admitted.
However, now that the EU has grown, the Greeks can’t get what they want by just shaming the Germans anymore. The governments of Lithuania/ Slovakia/ Hungary et al know they lose elections if they don’t hold the Greeks to the same standards they put their own voters through, which ties Merkel’s hands.

[bizmail_public]

Putin has no money, either.

Yes, he has $350 Billion in reserves, but his is still burning through that at $10 billion/ month.

Supporting Greece would roughly double that burn rate.

Running an Kleptocracy is expensive; Putin can ill-afford to spend much on such a minor prize as the Greeks.

[Shash]

@pixleshifter

Is that true? I’m no economist, so am only guessing, but I thought that adjustments for devaluation and inflation would be a factor.

Pretty much… That’s one of the points about being sovereign (and having your currency be the world’s reserve to boot); the deal is for $X denominated in USD and that’s what the creditors get. Unless, that is, they want to contest it through a show of force - about 9/10ths of international law is the law of the jungle…

Anyway, the narrative we’ve been seeing vis a vis the US debt and China is grossly simplified. I’m not sure if the debt is sovereign to sovereign or sovereign to corporate or corporate to corporate. That is, is it the US government owing money to the Chinese government, US corporations owing money to Chinese corporations, US government to Chinese corporations or US corporations to Chinese government? All I know about it is the absurdly large dollar amount that’s been bandied about, but exactly what debt it is will affect exactly what happens.

@dacree

I was referring to the British Government selling off public infrastructure. Was it to pay off public debt? Hmm. That’s harder to answer as the money goes to coffers rather than directly to creditors.

It was to play neoliberal games, actually. But this is a very very common World Bank/IMF recommendation for countries going through debt crises: “Sell off everything except your Parliament (if we could demand that too, we would, but…)” It usually ends in tears.

@fuzzyfungus

and apparently nobody even thought to write up a hypothetical treatise upon exiting the euro;

Forget that - there’s not even a mechanism for exiting the Euro in the first place. The treaties that set it up intend it to be perpetual…

@petr

Europe also has a different mix of economies. So Greece and say Portugal have different productivity level than the northern economies. That was never really accounted for in the single currency scheme.

Yet federal nation-states routinely deal with this kind of thing; think Mississippi vs Texas or California in terms of surpluses being recycled within a political union. I think you kind of nailed it when you said in the other post:

@fuzzyfungus

but they also did not think of the fundamental problem of a single multi-state currency and that is no central government passing laws and collecting taxes.Unfortunately joining the single currency means giving up some sovereignty and you can’t have it both ways.

@bizmail_public

Greece has been running a small primary surplus. If they default on their loans and stop paying the interest, they are taking in enough in taxes to pay bills on an ongoing basis.

That was true a while back; I’m not sure it’s true anymore… More to the point, Greece’s banking system is bust. It needs all kinds of life support to get back on track. As much as you may hate the banksters, the system they run actually is too big to fail…

@bizmail_public

The governments of Lithuania/ Slovakia/ Hungary et al know they lose elections if they don’t hold the Greeks to the same standards they put their own voters through, which ties Merkel’s hands.

That sounds a hell of a lot like the lobster bucket: “we had to suffer, so you bloody well do too”. Which is actually what this is.

Remember, after 2008, Greece’s GDP sank the most of all the Euro nations. Way more than any of the other countries hit by austerity. That’s partly affected their ability to complete any meaningful reforms. For example, effective tax collection needs an effective tax collection system, which takes money - to hire people, mostly. But if you’re going to cut government spending in the short term in the name of austerity, there’s no way you’re going to have the number of tax inspectors you need.

[petr]

I think we all agree that in Greece’s case there were irresponsible debtors as well as lenders, however the problem is that the forced austerity really did more harm by contracting Greece’s economy even more - and there is no way that Greece can ever pay it back - they all know this.

Even the IMF admitted a couple of years ago that austerity really wasn’t working, but it fits into the neo-liberal narrative quite well because really it is about dismantling the welfare state. And just to prove it wrong France was able to pay down a lot of its deficit by actually raising taxes, rather than austerity.

and Shash, you raise the point that federal nation-states routinely deal with the different productivity levels of different parts of the country. Yes in fact they do, however it took the US a civil war to really consolidate the federal state. It really is in the interest of the EU states to work out some kind of central gov’t, but that is going to be hard, because you already have UK’s Cameron wanting to negotiate a better deal - which is just dreaming as none of the other member states would agree to it, but it sounds good during an election.

The issue for the EU is that whatever deal Greece gets, other countries will demand the same, for instance Estonia, Slovakia have similar GDP and would resent having to pay for Greece’s running up it own debts. And if there is a bailout, then Spain Ireland and Portugal who are making similar or larger payments would want the same deal. It is going to be interesting what they come up with, unless they just kick the can down the road.

[Mindysan33]

Not everyone agrees that austerity works:

Austerity Has Failed: An Open Letter From Thomas Piketty to Angela Merkel

[Shash]

I think everyone agrees that Austerity is wrong, except those for whom it’s an ideological sticking point - that is, the neoliberals whose “dismantle the welfare state” narrative it fits into, as @petr said. Even they, I think, know it’s bullshit, but they can’t back down without losing face and (more importantly) influence.

The same people and their supporters will reject Piketty because he’s a “collectivist”…

@petr

The issue for the EU is that whatever deal Greece gets, other countries will demand the same, for instance Estonia, Slovakia have similar GDP and would resent having to pay for Greece’s running up it own debts. And if there is a bailout, then Spain Ireland and Portugal who are making similar or larger payments would want the same deal.

The truth is, they all need something similar - they need a way to start growing again, and not just get beaten down into the ground.

But again, that requires federal thinking, not “every state for itself”…