Europe’s Greek Test

Can Europe get past the myths and moralizing, and deal with reality in a way that respects the Continents core values?

Comments: 246

  1. what happened with all that money the Greek Gvt borrowed and as you say German and other banks not least American provided? The money was given as loans in different forms to Greek dishonest corporations who made bad investments maybe on purpose. The owners diverted the money abroad and the original Greek companies defaulted. This is where the Greek taxpayers come in: they did not benefit but now they were asked to cover the payback. Anybody wonder why they are protesting? Now the Germans figure out that Greeks have generous pension schemes and other benefits, and blame the people a lazy. What Is hard to understand is why the small Greek economy can shake the EURO-zone and the whole EU? Or is it a self inflicted problem resulting from the general austerity policy which ECB is now distancing itself from by starting its own QE.

  2. "what happened with all that money the Greek Gvt borrowed and as you say German and other banks not least American provided?"

    It went back to the hands of the Geman and Frenck bankers.

  3. Does it matter what happenend with the money inside greece ?
    Of course the greek plutocrats are to blame, i think we all can agree on that. But who is closer to them, the greek citizen or anyone from the outside.
    And just for the information, it had not been german or french banks, that whitewashed the money, most money went to cyprus, quite a lot into swiss and also the US. German banks had been just a top lender.
    If you want other nations liable for what happenend in greece, you imply that other nations may rush in and take the greek plutocrats into custody. I really would like that, we have this infamous lagarde list too, we know the names. And we, like syriza, have no mercy for the etablishment.

    We could make a deal, for every million we reclaim from greek tax dodger, we forfeit another 10 million from the loans.

  4. 'It went back to the hands of the Geman and Frenck bankers.'

    No it didn't and that's another unacceptable self serving myth -
    After 2011 when a first debt forgiveness was more or less forced by Angela Merkel on banks and private investors alike - the debt was 'restructered' in a way that now the EZB holds most of it and YES - in very strange winded and complicated way also by Greek Banks. And banking has become so absurd that supposedly a lot of the provided money goes back to the hand of the Greek bankers.

  5. Only one thing comes to mind based on your description of the scenario Prof. Krugman : This is the extortion of a state by another state.

    If the circumstances were so dire, the least Greece's "friends" could do is lend money at the lowest rate feasible, notwithstanding your description of bailing out the creditor banks.

    In my opinion, this is a scandal. It needs a fairer negotiation by the ECB / European Union with their Greek member state.

    It seems to me that, based on your description, Greece has a lot less to lose than I thought. They have much more power and should exercise it to prevent their extortion.

    Thank you for calling this out ! I hope you will take some more time on this subject in the very near future.

  6. I think the old saying is something like, if you owe the bank a little, they have the balance of power - so they call the tune, if you owe the bank a lot, you have the balance of power - so you CAN call the tune.

  7. Extortion ?
    Well, after Greece cooked the books, spent borrowed money for God knows what but certainly not a single sound investement it could benefit from, now when the money disapeared the lenders are called " extorters "
    Do you really imagine yourself helping greece people with that kind of arguments ?

  8. they are lending at very low rates.

  9. Missing in this analysis is a consideration of what the other debtor nations in Europe (Portugal, Spain, Italy) would do if the European Central Bank reduced the Greeks' payments. The consequences for the creditor-nation taxpayers would not be "minimal" if this were a collective rush to change the terms of the loans.

  10. Agreed.

    That is, if they were "fair" in the first place. Now that the weather has turned for the worse, European "austerians" may be less fulsome in the praise of the terms of the loans.

    I wonder, will the perpetrators pay the price ? Where is the talk of socialized losses and privatized profits ?

  11. In the long term, not considering a debt relief program for those countries where productivity lags would be catastrophic for the whole European program of unification. Greece may be the weakest link of the European chain, but if it breaks ....

  12. Did someone not just say something about the risks of myths and moralising...? Unfortunately German VSPs are busy talking about taking no prisoners. Expectatios of the hoi polloi are pretty much refelected by many of the German comments on this thread: KIll the hostages! If Merkel does not say something to cool things down soon, she will find it politically increasingly difficult to hold back the ordoliberal hoards.

  13. If the German and French banks insist on their bullying, the Greeks won't have an alternative to defaulting on their debt (extortion). That means Grexit, which according to the Breugel Institute would cost at least 80 billion Euros. I doubt they are willing to risk that. Syria cannot renege on their anti-austerity pledge (they would be out of power pretty soon).

    So there two likely scenarios: there is a compromise to avoid further disturbances (the biggest being the collapse of the Union project) or Grexit (with the implied fragmentation of EU) and the nationalization of Greek banks after a a run. Whatever happens, Syriza should be loyal to the citizens who elected them.

  14. The banks have already taken their loss .The Greek alrady defaulted on most of their bank credits .What is left is owed to the IMF,the ECB and for the most part to the European taxpayers .

  15. Dominique, why can't the ECB just print euros to save the taxpayers any costs? If it causes a bit of inflation, that;s what Europe needs, isn't it?

  16. As yesterday has proved there will be again a compromise - like the compromise Greece reached with the EU about the Russian sanctions.
    And it is one of the worst self serving myth, that the German moralizing is/was about 'Pay up' - or even worst 'Pay up or we destroy your banking system'.

    Yesterday the German President of the EU Martin Schulz - a fellow 'social' politician of Alexis Tsipras met with Tsipras.
    Supposedly Tsipras told him - he will do everything to fight the corruption of the oligarchs in his country and make sure that the rich pay their taxes.

    Great 'moralizing' from Tsipras - or what did Madame Lagarde say - in French and not in German?
    'This is not about austerity it is about reforms'!

    And it always was - and not so much about 'the debt' as the debt forgiveness of 2011 had proven where the Greek oligarchs promised that they would change their ways.

    And they didn't - and that's why they are gone now - and perhaps it would help not to answer 'moralizing' with 'moralizing' and to mention - just in passing' - that there was a lot more monetary help from the EU for Greece than just these loans.

  17. To return to an old theme that applies equally in New York and London and Paris, not anyone who rated a junk bond as investment grade has yet been successfully sent to jail.

  18. How about Germany just rescue its own banks, like US taxpayers had to do for our criminal syndicates?

  19. 'How about Germany just rescue its own banks, like US taxpayers had to do for our criminal syndicates?#

    As much I might have the same kind words for 'Banks' as you - There is no need to 'rescue' German Banks - as they now hold less than 10 percent of the Greek debt - and they easily can 'eat' that!

  20. Greece has no sovereignty as long as it's part of the Euro system. The debt, most of it toxic gambling debt via the too big to fail banks can never be paid off and has turned the Greek people into debt slaves. They have been force fed a destructive and murderous policy of austerity, attacks on labor, and massive amounts of virtual money printing, which isn't directed into the real economy, but instead goes to prop up the too big to fail mega banks, in effect another bailout.

    This is not just a Greek problem, but an ongoing problem of the whole European and American (trans-Atlantic) banking system. The casino banks are sitting on around 1.5 QUADRILLION worth of toxic derivatives. These derivatives were a major cause of the crisis back in 2008 and are still a major threat today.

    All this toxic debt needs to be written off, and a Glass-Steagall style bankruptcy re-organization needs to be implemented along with the creation of national development banks to inject federal credit into the economies for infrastructure, water and power projects, high technology, and nuclear energy, to get a real economic recovery going.

    An FDR style recovery for Greece and for the rest of the trans-Atlantic countries is urgently needed.

  21. "All this toxic debt needs to be written off..."

    Does this simplistic plan include ending the new loans that keep Greece functioning. Or instead do the banks "write off this toxic debt" while providing new debt? Is this "write off" to be paid for by the citizens of other countries?

    This idea that bank are a magical place where lead is spun into gold is absurd. Almost as absurd as the idea that those "evil" banks can just eats these massive losses without severe consequences to the citizenry of the loaning countries.

    The only "FDR style recovery" that worked was entry into WW2. I don't think we need another world war to ensure that a country where folks retire in their 50s do not have to pay the bills that they accrued.

  22. "Does this simplistic plan include ending the new loans that keep Greece functioning."

    Krugman clearly explains that is not true. New loans are not used to keep Greece functioning. They only roll over old debt. The money never gets to Greece. It is refinance of old debt, done for the lenders only.

    Much of that old debt went back to Germany to buy useless things like German submarines and missile boats and planes and used German Army tanks. Now all that stuff sits and rusts, never-needed right wing foolishness that benefited only Germany.

  23. Oh please, Mr. Thomason. This is semantics. Servicing the national debt is part of keeping a national government functioning. That is certainly the case when our own Congress plays Russian roulette with the full faith and credit of the United States. It is a requirement for functioning in today's global society and a duty of any responsible government. This is not "moralizing". It is a cold reality of the world that folks don't lend money to folks who don't pay them back. Morals have nothing to do with that fact.

  24. Why in retrospective all we did is just evil ?
    The greeks were in 2011 in an financial hostage situation, they brought upon themself. The bailout was to avoid bankruptcy. Didn't you americans not do the same for your bankers ? We could have avoided the middleman and could have bailed out the banks directly, but this would have been a formal default of greece.
    And you can be reassured, this was absolutly not a pleasure. The 58 Billion Euro for german taxpayer, 10% of their revenue for that year, had been a reason for outstanding wrath.
    We had the choice to let the greeks face an disorderly bankruptcy, or hand out a loan to fake solvency. Of course what we are up to now is rotten compromise, but back than i didn't anyone hear coming up with a better solution. And just saying save the greeks from their own folly isn't really an idea.
    Of course we could forfeit all the outstanding loans now, but among the lenders, only germany is strong enough to face such a loss. In total this had been 240 Billion Euro, and it will be passed through to germany. This will be 7% of our GDP. Just for comparison, the marshall plan for whole europe was 1% of the US GDP back than.
    What's the quote you hate so much ? 'keep on beating until the moral improves' ?Would it be more appropriate if it would be 'keep on beating the germans until moral improves' ?

  25. No one grudges Germans their conservative and good business and social practices.

    But no one has a good and just solution for the problems either.

    Let's not kid ourselves that no one has / had a better solution. The better solutions are never taken because who will NOT benefit from them.

  26. "Of course we could forfeit all the outstanding loans now, ..." I doubt you are a German banker. Of course German workers (rather than taxpayers) produce an immense amount of wealth due to their productivity. However, neither German or Greek workers benefit from this swindle perpetrated by the German or European (in collusion with the Greek) elites.

  27. What you conveniently forget is that the Allies chose not to force Germany into decades of reparations payments. We forgave not only your debts but your debts to the countries that you destroyed in your attempt to take over the world.

    I understand that neither of us were alive when the war took place but the fact that Germany ignores the sheer luck that the victors of WWII took pity on the losers of that war and chose to help them rebuild should serve as a moral lesson about forgiveness.

    I fear that Germany has forgotten the fact that its success, in large measure, relies on the generosity of many years ago.

    Do the right thing for the EU. Forgive the debts of Portugal, Italy, Greece and Spain.

  28. The shortsightedness of the Germans and the ECB are hard to comprehend but then again these folks brought us World War I and World War II, so rationality is not their highest quality.

    Now the Russians see an opening and yesterday apparently made some overtures to Greece about providing it financing to retire the European debt. So Europe sits on its hands and moralizes causing Putin to come to Greece's rescue. Good move Germany and ECB, and it is almost as good as your austerity policies which have driven southern Europe to a miserable state with deflation as their future.

  29. If I remember correctly, early in the crisis France and Germany while pushing Greece to rein in its expenses were insistent on Greece continue to buy expensive military hardware from both countries. The other point to consider is that Europe forgave a huge amount of Germany's WW I debt (50%) to allow the country to
    emerge from the disaster of WW II. I should think that Merkel and others would reflect on the beneficial results of that decision for Germany and, by extension, for Europe. But memory seems to be in short supply when self interests are in play.

  30. It had been 16 Million $ reparations vom Versailles, and 16 Million from the Marshall Plan (by the way, it was a loan until 53).
    Reparations hardly classify as Austerity, nor as loans.
    It's right, germans had lended heavily from american banks, and above all, it is just marginal compared to the damage they did in WW2. But the war aside, the germans were waived half of the debts of WW1 and half of the Mashall plan.
    How does 32 Million in 53 in a completly depleted country compare to roughly 210 Billion (240 in Euro) in 2015 in a country that just overspended ?

  31. I don't think Greece is any longer "a country that just overspent." It's pretty depleted, with more than 25% unemployed, about half of youth unemployed, per capita health care spending down by 25%, wages, pensions, and benefits cut drastically, depression and suicides way up, people searching through the garbage in middle-class communities, businesses closed, etc., etc. It's been compared to the American Great Depression, which needs its own New Deal. Yes, it's time to forgive some debt once again.

  32. The point is that continuing to put a burden on a country with consequential social arrest doesn't do any good to anyone. On the other hand, giving Greece some breathing room may, in the end, be more generally profitable than squeezing the last drop of blood from them. That their economy was mishandled badly no one questions. The question remains, what is the best solution given the circumstances.

  33. Greece spent itself into bankruptcy. It allowed too many citizens to escape paying their share of expenses. Tax evasion is the national pastime.

    We saw that when they government did aerial surveys it showed a great many homes with hidden amenities, where the residents had claimed far less value.
    There were and are, a great many rich

    Greeks who have stashed their money in other countries to avoid paying taxes. The government operates many enterprise such as the phone and electrical systems, and it takes baksheesh to get any service.

    So yes, the interest rates on Greek bonds are high, it is a risk to loan to them. There is a good possibility of default. What happens then if that should occur? The creditors will have to take "hair cuts" and hope to break even, the Greek economy will sink even further, and the government will have to hold a fire sale. The creditor banks are just waiting for that, just as they did with the American Financial Crisis.

    The Greek economy will become hostage to the private equity industry, and the citizens will be bled dry. They will have to work for peon wages.
    You can look at Argentina as an example to see just what happens in these cases.

  34. The irony is that in the early 1950s Germany desperately needed to refinance the terms of its debt to the "victor" nations, who agreed, thereby launching the famous German miracle... Germany forgets its past and seeks to reassert itself as the dominant European power "conquering" teh continent by cloaking itself in the moral high ground of fiscal responsibility... It's current wealth was thanks to the generosity of its benefactors in the 50s and 60s; a charity Germany is unwilling to show to Greece today.

  35. worth repeating in this context -
    Daniel Davis at Crooked Timber:

    'There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s. Seeing the peripheral Eurozone debt in isolation from the politics of European'integration is a sure way to lead yourself up blind alleys.

  36. Debt renogiations aside, the german miracle in the 60s is contributed to the germans alone, who rebuild their industry on their own. Mashall plan was for providing survival for the first years, but not much more. The only real stimulus had been, that everything was destroyed and there had been a need of plenty. The only outside contribution had been the trust in us coming up with an own liberal economy.
    The victor nations had shown a lot of charity, but this was by freedom, by acceptance, and not by money. After 1953 (the london conference, and maybe even earlier) there had been no contribution i know off.

  37. Uh, just out of curiosity; weren't those debts incurred because we (and our allies) bombed Russia back to the stone age at the end of WWII? If so, would you agree that we be allowed to do the same to Greece before we forgive their debt? If so, I'm all for it, if not, it seems Greece has two choices - pay their debts, or exit the Euro. I'm fine with either outcome.

  38. After the Great Depression, bankers were put on notice: make sure your borrowers can pay before you lend.
    Banks take risks when they lend. Banks have a responsibility to their stockholders. Making risky loans are the fault of lenders, not borrowers. Punishing borrowers who cannot pay is deceit. Punish bankers who took excessive risks and leant money that cannot be repaid. Stockholders are NOT entitled to a return on their investments, or profits, or bailouts by governments.
    What is going on in Greece is overdue everywhere. Lenders who have made bad loans are in control of governments. Governments that made bad loans are equally culpable. Lending to Greece to keep them within the club and then punishing the Greek people is tyranny. The wealthy Greeks who do not pay taxes, who have left the country, who are the only Greeks with the means to pay are like the wealthy everywhere. They socialize risk and privatize profit.
    Germany made a lot of risky loans and they lost. Germans should stop acting like mafia loan sharks and recognize those incompetent officials who sanctioned bad loans and remove them from positions of responsibility, maybe charge them with crimes like securities fraud, or dereliction of duty. Maybe we should do that here in America to banks that made bad loans and other investors who were "rescued" instead of borrowers. At a minimum, taxpayers deserve to be compensated for tax dollars that criminals and incompetents were paid.

  39. The Greek state railway has more employees than passengers, and it would be cheaper to send all its passengers by taxi. Greek small businesses are hard-working, but there is immense featherbedding in state companies and the welfare rolls. And the featherbedding began under Andreas Papandreou senior, the ideological precursor to the Syriza party that rules today.

    For a macroeconomist, this may all be irrelevant. An unending flow of cash from Slovakia, Germany, Britain, and Finland can make the equation balance. But it is not good for the future of Europe, and economists must not make excuses for it or try to put the blame elsewhere.

  40. Amanda conveniently lacks any figure or references to back up her statements. It should be noted, however, that in the recent past, both Greece and Germany had about the same government spending of about 50% of GDP.

  41. To be clear, you yourself Dr. Krugman advised Greece in your interview with Der Spiegel in 2012 to leave the Eurozone. In your last column you pointed out again, that Greece has no room to maneuver, unless it abandons the Euro. Many in the northern EU would agree. The Greeks don't want to do this, probably because they don't relish the consequences of bank runs, capital controls and extreme inflation, that such a step would entail. Something which you are very much silent about.

    It is worth noting, that Germany is in no way reluctant to finance other EU nations. As a net contributor to the EU budget and its economic development programs it does so all the time - within the agreed-upon framework. Germans are however very reluctant to additionally finance institutions that are - by the Greeks themselves - perceived and described as fundamentally mismanaged, corrupt and above all inefficient.

    The German public would be a great deal more sympathetic towards Greece had there been rather more enthusiasm shown within the last five years in reforming said institutions. Germans are very much aware, that the bad governance in Greece is not the fault of the individual Greek "on the street" but neither is it the fault of the individual German taxpayer.

    It is unclear why Germans, and Dutch and Fins and so on, for that matter, should be made to pay for, and continue to pay for, the ineptitude of the Greek politicians, be they past, present or future.

  42. "It is unclear why Germans, and Dutch and Fins ... should be made to pay for, and continue to pay for, the ineptitude of the Greek politicians ... "

    For the same reason people from New York, Massachusetts and Connecticut pay for the ineptitude of Florida politicians; because it strengthens the nation as a whole and protects the most vulnerable of Florida's citizens from the whims of her inept politicians. But Europe is obviously not a nation, and maybe her peoples still hate each other enough to tear apart the European Union.

  43. and the rest of American are willing to pay for the ineptitude of New York wall streeet, its bankers and insurers by bailing them out.

  44. Okay, then howabout the German tax payer pay back all the loans that they were forgiven for in 1953, with back interest.

    What's good for the goose, is good for the gander.

    In all fairness, I fully expect Germans to hold themselves to the same terms they hold the Greeks.

    So, all that debt and reparations from World War I, and add to that, the loans after World War I, and then everything they borrowed during WWII.

  45. Your first point is very interesting and is being more widely reported. Rather than allow banks to deal with their own problems, we have drawn into backstopping the activities of banks. Because they hold deposits, deposits are made by rank and file citizens, and a bank collapse would touch every household, we justifiably see banks as institutions that must be prevented from failure. With the increasing combination of deposits with risk-taking activities, made more so in the US as commercial banks have become investment banks, we are basically attaching an investment bank's risk portfolio to the taxpayers.

    Some of the banks get into trouble that clearly warrants governments to step in or else risk massive economic collapse. But we also now see handfuls of large banks which control markets as oligopolies. They take the same copycat risks, and they concentrate the same potential outcomes.

    Would that we had smaller banks, less risk-taking proximate to depositors, and an attendant indifference to their collapse, putting the risk in the hands of shareholders rather than entire economies.

    But, increasingly, we separate shareholders from risk and co-opt the responsibility by encouraging outsized growth and responsibility to the economy. Some is facilitated by international competition and the need to keep up. But some is simply the increasing influence that a handful of financial institutions exert on the markets where they operate.

  46. I understand that lenders should pay their part too because they were suppose to assess their customers in an adequate way, however, I don’t back draconian measures defended by the recently formed Greek government which is suggesting cutting the debt in half and extending the life of their debt.

  47. Not so very long ago Germany similarly suffered from a crushing burden of debt, and that debt was forgiven. How soon they seem to forget.

  48. They haven't forgotten at all as Daniel Davis have pointed out - that the massive debt relief in the twentieth century, Germany got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help.

    And that's why I am as a German are for 100 percent debt relief - and I even wouldn't ask for a 'equally massive national admission that the entire political system of Greece was rotten too - and needed to be totally restructured with foreign help.
    I think Tsipras mentioned that already often enough - without carefully avoiding the words 'foreign help'.

  49. While common sense would dictate a middle ground approach to the Greek dilemma, there is no reason to believe those now in power are capable of moderation. Perhaps surviving radical leftists have appeal to Krugman but those in Greece appear to be simply another variety of thugs. They have already turned to support of Russia and its aggression in Ukraine as a tool in their efforts to evade the debt problem. It may also be germane that Greece has in the recent past created a culture of graft and tax evasion that rivals those of South Asia. The chances are greater that the EU will cast Greece out than that a sensible compromise will be found.

  50. Do not believe for one instant that economic fascists like Schauble and Merkel will not pull the plug on Greece; they have already proven truly heartless, seemingly salivating over beautiful sunny isles. Maybe Dr. Krugman would consider laying bare Germany's history on repayment of loans to other countries, like the US? US taxpayers, as always, took it on the chin to pay for Germany's war atrocities because Germans refused to shoulder the burden or repay any loans from their full-out fascist joyrides across the globe, twice in one century. So we paid not only with our fathers' and grandfathers' lives to save the innocent from Nazis, but also economically, just after our own banking depression of the 1930s. We also saved Germany after the fall of The Berlin Wall. So for the naked emperors in Germany to be constantly crowing about their fastidious natures leading to ultimate economic power sickens those of us old enough to remember their atrocities and their refusal to even pay for them. We also of course have Germans to thank for the armageddon in the ME, as it was Germany who murdered and drove out huge numbers of Jews from their native countries, forcing the creation of Israel. So the haughty, lecturing Germans could at least take the time to glance across the pond and give us a small nod of thanks for not leaving them in their very deserved misery after both of their World Wars, as they grab the mother of all democracy, by the throat.

  51. They are "always either at your throat or at your feet" - Churchill

  52. Hatred of Germany can distort one's view of history! The responsibility for the "armageddon" in the Middle East lies soley with the founding of Israel on stolen Arab land. I've never seen Germany blamed for that before! And the two world wars were "their" - Germany's - World Wars. Recent analysis certainly assigns more blame for both wars to Britain, and, for World War II, the United States.

  53. You amaze me Paul, with how you never discuss a specific scenario - which might not work. I guess Economics is "Never Having to Say You're quantitative".

    The closest you get is to look at the mountain of money some country prints and go: "meh".

    The bottom line: in a situation like this, creditors have meaningful access to only two things:

    1. Middle-class savings and assets (the rich have moved theirs out of the country and out of reach - the poor don't have any)

    For only the most recent example, look at all the folks who get paid with Zlotys and buy houses with Swiss Francs. Same said banks probably advising these folks to put their pensions in bitcoins.

    2. Future Middle-class wages (through taxes)

    The metaphorical Faustian agreement each new government strikes with the old banking system is:

    > They make a show of not letting their citizens' bodily organs be taken from them

    > They look the other way, as their citizens are continually bled

    > When things get tough, they look the other way, as organs are taken, too

  54. WWII is now a distant memory. Most of our veterans are gone. Germany seems to have forgotten its history and how it was rebuilt by the Allied nations who simply could have crushed them after the war.

    It took an agonizing amount of sheer logic to overcome the awful things that came out of that war. Pragmatism and a sheer desire to prevent such a catastrophe from happening again lead the victors to do something rather unique. They not only forgave the losing countries, they helped them rebuild their crumbled nations.

    Germany has created an extremely high-functioning economy. They should be proud of their achievements. They should also look back and ask themselves this question: Where would we be if the Allies treated us like we are treating the southern Euro zone countries.

    Germany, look back at the unlikely historical event that let you rebuild and become a very successful nation and ask yourself why you feel like it is a moral victory to not offer the same to your southern neighbors.

  55. You are missing the point Sir. Germany was rebuilt as quickly as possible to counteract Soviet aggression after WW2. The Soviets occupied the entire Eastern Europe and then left it in tatters 45 years later without having rebuilt any country what so ever. We are living with that legacy today with Russia now trying to steal parts of other countries again.

  56. It is a myth that allies have triggered the german postwar industry.
    In fact a lot of the remaining german industry was dismantled and transferred to france and britain. It took personal engagement like Major Ivan Hirst (Volkswagen) that some production plants remained operational after 1949 at all with the stuff they had.

  57. Dear Scott, I don't know where you got your history from, but the Marshall plan was not plan from the Allies instituted out of the goodness of their hearts. It was a US plan to keep the recipient countries on the "right", meaning anti-communist, side of the fence. Recipients included Germany but also allied victors such as France and wholesome countries such as fascist Franko's Spain.
    Greece is not a country recently destroyed by war but has received vast amounts of EU subsidies for decades to improve its economic backbone without much to show for. This is not the German's (or Dutch, Finish, Austrians or other creditors') fault.

  58. Mr. Krugman is ignoring the elephant that suddenly appeared in the room. The new Greek government is not-so-subtly attempting to break up a unified front on EU sanctions against Russia, some think with the goal of forcing additional concessions on their debts. While Krugman seems to read Syriza as “liberal”, they have acted so far more like old-school “leftists”. Putin is their friend, literally. Leaving debts aside for a moment, playing with fire at this critical time doesn’t inspire confidence. Add to this a plan to restore Greek bureaucracy to its previous bloated level, which no reforms to prevent a repeated collapse, one has to wonder if lack of maturity and experience will weigh heavier in the long run than the promise of new ideas.

  59. Um, Greece is hardly alone in voicing the desire to lift sanctions against Russia: prominent voices in the administrations of France and Germany, among others, have also called for lifting sanctions in recent weeks. They're all doing it out of economic self-interest—there are huge revenue losses to the EU in continued sanctions—but let's not pretend Greece is breaking a unified front here. They're wrong to suggest it, but they have plenty of company.

  60. Check your calendar. Note the century. The Soviet Union and the International are long gone. Putin is not a "leftist." Whatever the new Greek government's posture with respect to Russia comes to be -- they've hardly had time to develop one -- it will not be rooted in some lurking communist ideological affinity.

    It might also be a good idea to stop harping on Alexis Tsipras as somehow "immature." Forty is not pimply. In high tech, where the premium is on innovative problem solving, which is what Greece desperately needs, forty is over the hill. The only reason there are few 40 year old heads of state is that it typically takes at least another decade of flattery, wheedling, cajoling, maneuvering and general soul-selling to break through to the top of ossified political parties and institutions.

  61. Paul, as usual you are confused. The Greek problem has nothing to do with 'austerity', it is, and as it should be about debt, and paying what you owe. Yes, Greece finds itself in 'debtors prison', as it should be, especially after cooking the books for years. In America you go to jail for that. I am sure you would like there to be an international bankruptcy court, like in America, you could get a fresh start. If only there would be, everything would work itself out? Nonsense. Best Greece leave the Euro zone. Think of it as being foreclosed on. Let Greece go off to live in their socialistic world where only they will experience all its consequences, good and bad. Finally, the good news. Real estate prices will be falling, making it easy for you to buy an island to retire to and you can experience the Greek folly.

  62. If Greece leaves the Euro zone, as you suggest, and in effect declares bankruptcy, as Iceland in effect did several years ago, then who is going to pay off its creditors, which are mostly German banks?
    Or will the German banks have off loaded the debt to, oh, gosh, you don't suppose American banks took it on?
    Nah, right, OUR bankers are too smart for that.

  63. Except the lenders had reason to know the books were cooked. On top of that, our banks helped them cook the books.

    "Let me tell you about the very rich. They are different from you and me..."

    Ordinary people are practical and exercise common sense forgiveness.

    The rich are altogether different. They will drag a billion people through discomfort to avoid one iota of their discomfort. That's the point of the Great Gatsby.

    Same with those rich and powerful banks. It's a form of insanity. In ancient Rome they killed the Grachi brothers and even Julius Caesar when they attempted to provide relief to the masses at the expense of their pocket book. In later times they employed children in coal mines and factories for better returns on their margins. Its an insanity, a kin to addiction. Like junkies they have a justification for their next hit. And if you are not paying attention you'll fall for it. But in real life, ordinary people aren't like that - only junkies and addicts and other forms of insanity.

  64. So all Greeks should pay up for the follies of its government and the fact that its wealthiest citizens avoid paying their share of taxes. This reminds of the argument that the people who could not afford floating interest mortgages are responsible for the financial crisis of 2008, and thus banks are entitled to get help but anyone facing foreclosure on their home deserve it, and small businesses looking for loans to stay afloat should not get them while the banks are trying to recover the losses from risky investments. This type of moralizing may feel good for those sitting pretty but it ignores that many people lives are impacted for no fault of their own. It is not even sensible economics.

  65. Turnabout is fair play for Greece to return the ridiculous demands on its debt. No where have I read who exactly are the creditors forcing the depression on the Greek people? All we get is the Germans demands but not players involved. This might help to clarify the points made by Professor Krugman. Buts let's just assume that the ECB is the only creditor and these Austerity measures are the main problem. So then what? It sounds that the Greeks will never be able to achieve stability under these terms. What would the end game become should this situation remained locked into the the German's way or the highway? Again and again it looks to be the same issue. Greece will never succeed.

    But this then forces the Greek government to leave the Euro and the EuroZone. Apparently this will cause a further disaster, with the inference that this last option is even worse for the creditor(s) while the debts just get written off by paying in the old Dracma currency. Talk about stupid. It's time for Greece to pull this option by reopening their treasury and reprinting this paper money. Or at least going through the motions with the firm idea of actually doing it. One has to wonder how far the Germans are willing to go while Greece calls the bluff. They can't be in any worse position than they currently seem to be.

  66. I was recently in Greece, as it remains one of my favorite places in the world, and to see the destruction wrought on the people from the last time I was there - 2010 - was heartbreaking yet uplifting at the same time. The people remain, despite their hardships, incredibly warm, generous, thoughtful and engaged regardless of where in the country I was: Athens, Crete, Thessalonica. Sitting atop the Acropolis and gazing out over all of Athens, with 2,000 + years of history speaking tangibly to me, I was overcome with both awe and hope. As I watched the sun set, painting the ocean and the landscape in colors that only Monet could dream up, the realization, one that I have understood logically but, I as learned, not emotionally, precipitated into a glorious crystal constructed of optimism, joy and relief that shone out of me like the last rays of the dying sun. There will be a sunrise in Greece again. A glorious one that illuminates all that the Greeks have given to our world; one that will now also include new hues, hues of struggle, resilience and triumph that makes the people and the land shine all the brighter!

  67. For the Germans, Pyrrhic victory,
    Making the Greeks quite unhappy,
    But Syriza's rise
    Should be no surprise,
    They've had it with austerity.

    It's time that Merkel see the light,
    A bullet the Germans must bite
    Will they be realistic
    Stop being sadistic?
    Relieve this austerity plight?

  68. This is all fine and sensible. However, your portrayal of the new Syrizia government's plans is unduly flattering. Yes they want to be allowed to spend more to stimulate demand. Yes their request to run lower primary (non-interest) budget surpluses seems sensible. However, they campaigned on a program of spending this on rehiring public sector workers let go, and raising the minimum wage and pensions. This is effectively undoing the reforms of the previous government and returning Greece to an economy where half the labour force works for the government in a corruption laden patronage machine financed ultimately by the EU. The only change is a new patron, Syrizia instead of PASOC or New Democracy. Maybe if Syrizia was proposing to spend any re-negotiated savings on an infrastructure spending program or anything else consistent with supporting productivity, their European partners and maybe their tax payers would be more sympathetic.

  69. Germany, under Angela Merkel, continues to assert its draconian position on the Greek debt. And the many Greek people who had nothing to do with the debt crisis continue to suffer. Youth unemployment is close to 60%. That's unconscionable.

    Germany's lack of memory and empathy is really quite astounding. Has it entirely forgot the debt forgiveness it received from the world in 1953, for both World War I and World War I? This, after a horrific war that it perpetuated, which included more than 11-million non-German deaths? The debt forgiveness that contributed mightily to the economic hegemony it now once again enjoys in Europe?

    Does history count for nothing?

  70. 'Does history count for nothing?'

    I'm really glad that Germany has learned that much from history that after a lot of introspection and absolutely hating themselves - it takes a stand if other nations in Europe are led by criminals.

  71. We are living in a world of well-ordered continuity. There are no million peoples murdered, not whole countries depleted. We can not 'restart' a whole system just for some country overspended. If this becomes a habit it will freeze all mutual relations and festers a moral hazard.

  72. They are "always either at your throat or at your feet" - Churchill.

  73. Why is it that in today's world only the big banks are worth bailing out and saving? This is worldwide, not just in Europe. The banks make risky investments, violate long standing rules and then get bailed out by the government and have laws enacted to protect consumers essentially rewritten by them to ensure they continue to be able to exploit the general public and reap enormous profits with little or no risk. Yet , the US Supreme Court in its infinite wisdom believes money does not influence politics !

  74. Am I not correct in remembering that onerous economic demands for repayment from Germany after the First War led to enough civil discontent in that country to allow the election of a government none of us will forget?

    We learned, and did things differently after the Second War, investing in the rebuilding that led to the recovery of a powerhouse country - wait for it! - the same country now firmly behind placing onerous terms on the Greeks.

    What part did they forget?

  75. The European arrangement based on good intentions looks more like a market guaranty for Germany.If starving a population is moral to protect bank liquidity what is going on with our civilization?

  76. "What part did they forget?"

    Answer: All of it!

    Those who don't study history are condemned to repeat it.

  77. Would it be an idea to have the Greeks pass a law that taxes assets (with some high hurdle) of Greek nationals abroad. A bit what the US does to its own nationals living abroad. The resulting claim could then be pledged to Germany, The Netherlands and the UK (wheremost of these olicharchs have property) enabling the respective tax authorities to start collecting. And they are very good at it. This would hopefully help the moral argument and to have the Greek economy to start using its primary surplus a bit more to boosts it's national economy.

  78. Greece does it the other way. They have Greek language schools in other countries, like Canada, Germany and Tanzania that I personally know of, where they pay the salaries and the pensions.

  79. "shared prosperity" Get a load of that "myth."

  80. You've written a lot about how the Euro doesn't fit the situation and the needs of many European nations. If that's so then it would be logical to spend a few columns on how to dismantle it, how to convert back to sovereign currencies and the risks and benefits.

  81. Profligate spending is unacceptable. Profligate protection of private banks, well that's OK. Greece is apparently small enough to fail.

  82. 'Profligate spending is unacceptable. Profligate protection of private banks, well that's OK.'

    Not really - but the ironius thing right now - in Greece's case everybody who is on the other side of 'profligate spending' -(by the rich Greeks Oligarchs) - might finds himself ultimately opposite of the head of the new gree government Tsipras.

    As Tsipras wants to fight the criminals, who destroyed Greece there are still some commenters here who want to fight other Europeans, who try to help Greece.

    When will they notice on what side they actually are?

  83. This quote caught my eye:
    "It's true that banks in Germany and elsewhere voluntarily lent Greece all that money. We would ordinarily expect both sides of that misjudgment to pay a price. But the private lenders have been largely bailed out (despite a “haircut” on their claims in 2012). Meanwhile, Greece is expected to keep on paying."

    It's also true that banks in our country "voluntarily lent" homeowners a lot of money in the lead up to the meltdown in 2008--- no make that "aggressively marketed" loans to homeowners. Have they taken a "haircut" on their claims? Have they accepted the regulations that some in our government want to impose? Have they paid a price for their "misjudgment"?

  84. My solution? Encourage uptight Germans to take a nice holiday in sunny, alive (at one time anyway) Greece, and spend like crazy. Who knows, they might actually enjoy themselves in the process - get a tan, eat some great food, dance a little, and get to know their neighbors a bit better. Especially Merkel looks of late like she could use a bit of a break.

  85. 'Encourage uptight Germans to take a nice holiday in sunny, alive (at one time anyway) Greece'

    No need for that - Greece is besides Spain, Italy and Southern France Germanys favorite 'southern' vacation spot.
    That's why we really like each other - the Germans and the Greeks!

  86. The Greece electing a government of a newly created Syriza Party on the promise to end poisonous austerity imposed by the Troika(IMF,ECB,EU) is a most important moment in European political and economic history.It is the moment for make or break. All dépends on German genius how the Greeks mandate through ballot is respected.
    Before commenting on the 'bailout' wrangling,I am tempted to put a few words on the crisis that Greeks inherited in the first place and people aspiration in electing Syriza.
    The financial crisis is a result of political corruption mired in Greece successive governments and oligarchs freedom not to pay taxes coupled with anarchy in executiopn of the tax codes.
    From Syriza and its leader Alexis Tsipras ,Greeks demand a thorough rooting out ofpolitical corruption and good governance and gagging oligarchs to pay taxes as per stringent rules.
    The way forward in ongoing impasse between Mr Tsipras and EU is that EU let Tsipras ease out austerity,privatise national assets like shipping industry,create jobs for some of 60 percent unemployed youth and regain competitiveness in the market.This can only be achieved by not giving moral sermons on adhering to the time table set for repayment of the bail out.The period for repayment need be enlarged and a part (not in full) of the bail out be exempted.It is justified.First, creditors knew that they were not going to get full value of the debt.Second,there are précédents of debt exemption in Germany,Russia and Irak.

  87. Wasn't Goldman Sachs involved in several of the worst loans?

  88. Actually my memory is that Goldman helped the Greek colonels who were running the government at the time hide Greece's debts via complicated financial chicanery so that Greece could enter the eurozone which it could not have done otherwise.

  89. Yes, that's what I was thinking of. Thanks.

  90. I don't understand how increasing aid to the unemployed and spending more on health care reduces unemployment? Unless Greeks are to be either unemployed or working in healthcare?

  91. Both are direct fiscal stimulus, put directly into the places where it does the most good by picking up the highest velocity.

    It als reduces suffering. That is a nice side effect.

  92. When people who had no money get some, they don't squirrel it away unlike people with a lot of money who when they get some more might. The rich who get a new windfall might also choose, say, to take that ski trip to Switzerland and spend the money there. But give a dollar to a poor person and it immediately enters the local market producing a multiplier effect.

  93. Expat, unemployment is caused by too little demand. Businesses will not hire people to make stuff if they so not have customers to buy it. People can't buy stuff, become customers, because they do not have enough money. Unemployment and health benefits get more money to people to spend and thus become customers.

    Get it?

  94. Those bankers are the pillars of society, hey!

  95. When was the first time Germany did something for another country? Usually, they are so busy being superior, they hardly notice the existence of other countries, except of course, when the advantage to the Germans is to exploit them. I would be pleasantly shocked if the Germans did the humane thing and helped Greece attempt to recover from a banking system which the Germans have exploited to their own benefit.

  96. 2011, when germany negotiated a bailout of greece's looming bankruptcy with the unvoluntrary backing of european taxpayer, germans taking the biggest part.
    A bankruptcy that came due because banks trusted the account books that the americans forged.

  97. My case rests! To the Germans it is always some one else's fault. The bailout, as you put it, was to insure German bankers that they would get some return on their misplaced loans, much like the bailout of American banks. Had the Greeks still had their own currency, things would have been far easier for Greece. and don't tell me that Greece had any control of the Euro banks.

  98. #1 the banks are entities on their own, they serve no national interests. You americans should know this better than anyone else. Banks can be the legal enemy within. Also i do not consider the banks as smart, not smart enough to see how unsustainable those credits were.
    What german banks did, like other banks is not liability of the german citizen. You americans also don't want to be held liable for all the toxic crab your banker sold us, or d'you ?
    #2 weren't access to credits not the whole idea of the EMU ? We wanted investment, we want viable loans by private banks. We wanted these loans in countries like greece, that had been the shiny prodigy of all the european policies. Weren't the greeks so eager to get these loans that they forged their books just to get an access ?
    We would have mocked the banks who would have given the greeks a bad rating, this was political just not wanted.

    The bankers could have declared bancruptcy on greece, like they did in argentina. It was within their legal power. And it had been banks from everywhere, not only germany.
    The situation was desperate for greece back than.
    And somehow now i deeply regret, that we have tried to help on behalf of our ordinary citizen account.

  99. I suspect that Krugman's claim that Greece runs a surplus not counting interest on their debt is specious.

    If Greece's debts were eliminated, it would likely not be very long at all before they would demanding loans from the countries/banks they just stiffed in order to carry out more "stimulation".

    Krugman's tired tune of limitlss government spending, without regard for ability to pay, in order to achieve growth is old. Eventually debts need to be paid, it is just a question of who really pays.

  100. Ken our debt in 1946 was 121% of GDP. When was that debt paid? In point of fact in the next 27 years we increased the debt by 75% and enjoyed great prosperity.

    You have to understand that the finances of a huge long lived country that can print as much of it currency as it needs and whose debt is in its own currency is farm far different from your finances. Countries do not always need to pay debt.

    Greece's problem is that it cannot print its own currency.

  101. It's a little more complicated than that, although Krugman has, basically, the right idea. I've seen people here forced to sell property to pay taxes, and a lot of foreclosures have taken place. There is a smoldering resentment here, especially of Germany, and of the economic colonization of Greece that has taken place via the so-called "troika-" the ECB, the Franco-German (and, increasingly, German) led EU, and the IMF.

    In 1953, Germany was forgiven her WWII reparations debt, which allowed the country to thrive. Greeks ask, why can't we be granted a similar favor, especially since we weren't responsible for the death of 50 million human beings, many of them Greeks, as the Germans are? This is why the first act of the new PM of Greece was to lay a wreath on a monument to executed Greek Resistance fighters of WWII. A finger in the eye of Merkel, who is deeply resented here. Greeks have had enough. Now things will get interesting.

  102. 'It's a little more complicated than that,'

    I couldn't agree more and was in two demonstrations in Athens where even a picture of Angela was burned and I understand it's always helpful if the people have some 'foreigners' to blame for their misery and a few eeks later I was in Spain and followed a march in Valencia and strangely there - the people mainly accused their own politicians and bankers of being corrupt.

    And afterwards I often wondered about these difference between Athens and Valencia?

  103. Much is made of the Marshall plan. Look at the numbers. Germany got a lot less than France and England that were not leveled. What the allies did, however, as part of the plan, was to stop dismantling the country, and let the Germans get on with rebuilding. Since the war, the Germans have paid huge amounts to just about everyone you can think of.

    Greece is not Germany. The Germans were assembling fighter planes in the forest.

    You claim to live in Greece. You must know then how uncompetitive the place is. Nothing has change there in the past 5 years other than they are extracting more taxes from those who have no loopholes.

  104. Greek debt will be forgiven and Greece thrown out of the eurozone.
    This contry in history never ever paid back debt.
    Good luck to the next happy lenders.

  105. The euro is holding Greece hostage, and vice-versa. Calling (yet again) for enlightened self-interest on the part of European governments and financial institutions in granting Greece the breathing space it needs to begin to prosper again flies in the face of five years of cultural and economic biases. Ain't gonna happen. Greece needs a reboot. Period.

  106. So far the new greek government has not proposed even one idea intended to better greek economy through sound measures, investment or whatever.
    All proposals on the contrary suppose increased spendings by the state, higher salaries and so on.
    If this position is maintained the best option will be the separation of Greece from the eurozone, better loose all the previously lended money than keep such a member with no perspective.

  107. Good article, but Greece is a sideshow. Western civilization does not depend on whether Greece pays or the (now official) creditors get paid on time or at all. Greece has adjusted and will continue to adjust. Vulnerable creditors have been paid. The only issue now is how official creditors see their public duty.

  108. Or could it be - that all these comments of essentially -(or accidently?) taking the side of Rich Greek Criminals by condemning the European who try to help Greece - are another tragic misunderstanding?

    Of people who never where in Greece?
    Because if anybody ever was in Greece - the condemnation of the old and corrupt system comes quite natural - and thus the very easy choice which side to take.

    And in this case it is not the side of people, who are so confused, that they don't realize that they actually are against 'cleaning up' Greece.

  109. This would be an interesting comment if I could somehow put aside the feeling that Greece's creditors are rather more interested in getting back as close to 100 centimes on every euro they lent, than in whether or not a viable, democratic Greece will survive at all. Let the truth be told: When one profligate morgagee loses their home in foreclosure, it can be a disaster for one family, but when 20 million morgagee's lose their homes, it can be a disaster for an entire nation.
    And, let us please lose the infantile notion that the finances of nation states are - or should be - analogous to the finances of a private household.

  110. How does the suffering of the Greek people via austerity help change "the old and corrupt system"?

  111. Krugman's doing the gentlemanly thing and practically begging for more analysis. Especially if Greece is going to be exitted from the Euro! Granted, Greece's record has hardly been spotless and yes, it's been quite the taint to the continent, but when bills are due tensions run high and ECB may tip over to unfair action. Go on a wild ride and do the fun thing. Be chic and reckless.
    But o, those o so western values set in stone on the books getting in the way of kicking an entire population in the face. That can't and mustn't happen. That'd be rude. Greece is a nation of assets. Real worth? None of our business. If you have to ask, go away. If you're in the know, chances are you're corrupting the system for a kickback. What to do now! A brilliant professor could fix the system, but a country emblematic of suffering would also be a worthwhile little thing to explore. What happened in Greece is hardly our problem across the Atlantic Ocean. Krugman's concern is a sign of his great heart full of cares for the voiceless Greek citizenry.

  112. Mr. Krugman, Thnaks for the overview. Most peopole really do not understad that this is not about sovergn dept but about banking risk. The biggegst lender to Greece is Goldmann. They knowingly make high risk, or bad loans, to Greece but do not wish to share the financial responsibility. If the banks has no accountability for their risks, then the whole system is rigged. Let see if the future discussions/negotiations/actions will focus on the real issue or not. Cheers, Nick

  113. I borrowed money from my credit card, I took student loans, I took loan to buy my home, and I still have student loans. I want to go on an expensive European vacation and splurge. I will probably borrow even more from my credit card. I recently lost my job because it was too hard to get up in the mornings, and my boss got upset with me. The credit card guys don't know this and still lending to me. When I come back from my vacation, I will refuse to pay all the people who lent me money. I will not vacate my home either even if I can't pay mortgage. I think it is pure evil that all these people think I should pay back. Why not take a hair cut? As Kramer said in Seinfeld, they all write these things off, do one more time. The evil rich are are already rich, plenty evil, do they need to become even more rich and even more evil? I think they should forgive all my loans, and give me some extra loan because I need some cash for my future living expenses.

  114. People who cannot tell the difference between their finances and the finances of a huge long lived country that can print as much money as it needs and whose debts are in that currency should stay out of the argument. Greece's problem is that it cannot print its own money.

    When did the US pay off (or even down) the huge (121% of GDP) debt from WWII?

    Do you have a money printing press?

  115. And there in lies the problem, you failed to see the message. You were irresponsible. The people of Greece, like those in Latin American in the 70's and 80's, were stuck with debts agreed upon by a bunch of vacuous, vain leaders. Bottom, why must the debtor be the one who has to suffer?

  116. @Paul: the Greeks went on a huge spending spree, just as Desi described. They gave themselves luxuries. They gave themselves huge pensions, big salaries for do-nothing government jobs. They increased government spending, especially jobs. They lowered the retirement age to FIFTY and with a huge pension for life.

    So it is exactly like the example, where the person goes on vacation and quit his job, and just runs his credit card bills up -- KNOWING he will never pay, and KNOWING he will declare bankruptcy and dump the debt on others. He does not honorably stop spending and inform the credit bureau that he's broke. He just keeps spending. Because spending is FUN.

    Also: I agree with Len here that Greece needs to return to the drachma, and then devalue it. But of course, that has repercussions too and will likely lead to the destruction of the EU.

  117. If you cannot pay back what you borrow, Krugman believes you should pay back less, and that will make things good again.

    What about the investors and depositors in the banks that loaned Greece the money? Why should they suffer a loss because Krugman doesn't like Greeks suffering austerity pain? These are people whom Krugman thinks nothing of.

    I bought a house and I live with the obligation to pay off the money I borrowed to buy it. I bought a car and lived with the obligation to pay off the loan to buy it. But apparently Greece is special - it can borrow money, spend it to obey Krugman's Ideals, and then get a free pass to avoid its obligations. The contracts I signed for my loans were made to suit me and the lenders, and we both lived up to our bargains. Apparently Progressive governments shouldn't be required to live up to their contracts. Politicians - especially Progressive ones - aren't held to a higher standard.

    Maybe it's time they should be.

  118. When any honor-based system fails, this happens. Greeks failed. Or are they Grecians. They failed too. Their credit scores suffer the blow. Time for a public feud between the guilty parties with a legacy of playing dumb and dumping on innocents and those crediting the creditors. Identify these factions, report on it. Then the mule is out of the barn. Anyway, too much corruption and too little guidance lead to unnatural economic extremes. It'd be undignified to just slip like that on the banana peel from all the monkey business. Next is the EU unravelling because the individual states are all at each other's throats. It'd be too late to pretend they've got a happy marriage. They're a cold bed full of historical enmity and a liability to surviving industries. Hardly the stuff of harmony. Too bad it's not that easy to reverse the curses on the book.

  119. Except--if you couldn't pay back the money you borrowed, you could declare bankruptcy and get out from under those debts--a possibility you have conveniently overlooked.

    Yes, there are consequences to that declaration. But it would involve the forgiveness of a certain part of the debt and a restructuring of other parts of it to make it easier to pay down. I would argue that is not much different from what Mr. Krugman is discussing here.

    Left out of your argument--the possibility that the lenders do share culpability, both in your case and in the larger national case. Borrowers should not take on more debt than they can afford--but lenders should not throw business prudence to the winds in the name of greed and offer unmitigated loans to iffy borrowers. Both sides are at fault for gambling unrealistically in these situations, and both sides have to suffer some consequences of losing the gamble. But, since lenders generally have more political and economic power than borrowers, the borrowers generally suffer the bigger penalty.

  120. Personal finance is a convenient but poor and misleading model for many of the anti-intuitive concepts of macro-economics. You don't print money, nations do. You don't make the laws, nations do. You don't charter and protect the banking system, nations do. You are not responsible for thousands to millions of people who, through no fault of their own, might be starving, nations are. Default on your mortgage and car loan will not put banking systems and national or trans-national currencies at risk. Forcing your family into austerity or even starvation to pay those loans will not risk war or the dissolution of a continent's economic system.

    Regarding the notion that "progressive governments shouldn't be required to live up to their contracts", Germany holds much of the Greek debt. Germany is the strongest force enforcing payment of that debt under faulty macro-economic understanding. Yet, Germany was forgiven half of it's WWII and pre-WWII debt in August of 1953 (See Wikipedia: Agreement on German External Debts) It was the right thing to do then, Germany recovered from the devastation of WWII. It is the right thing to do now, people are starving in Greece and Greece needs to recover from its economic devastation.

    I hope you and your family never starve to pay off bank debts to which you agreed but if it ever comes to that, I hope people with larger hearts will allow you to declare bankruptcy, thereby legally defaulting on much of that debt, and be able to eat again.

  121. "a forced exit of Greece from the euro, with potentially disastrous economic and political consequences for Europe as a whole." That's an incredibly rash statement for which Krugman provides not a whit of evidence. Perhaps because it's a gross exaggeration?

    An honest appraisal would allow for a Greek departure from the European union, and the euro. Sure, there would be reverberations, but where is the proof of impending doom Krugman forecasts? Reality check - Greece should never have joined the Union and its euro. Left to its own currency the market place - Yes - the Marketplace - would have led (forced) Greek politicians and policies to a better order. Instead with the euro - undisciplined chaos.

    Abandon the euro and allow the chips to fall as they may. Greek's would be better off in the long run.

  122. Of course anyone can say the same thing about you: i.e., that "Greeks would be better off in the long run" is a "rash statement" and "gross exaggeration" without "a whit of evidence."

  123. If you have been profligate before, the way out is to spend even more recklessly

    If you lent a lot of money to a group or a country, and they squander it all and can't pay back even interest, you can be called a villain if you refuse to lend them even more

    If you are born in the western countries, you are entitled a good living. Regardless of your skill set. In this day and age, when most jobs can be done at a quarter or less cost in a different country, the people in the west, simply due to where they were born, are still entitled to a good living

    Long held values like living within ones means and living modestly are passé. People who advocate such values can be called evil rich or other names.

  124. Like with many other financial issues it is always easier to blame the victim. Blaming the victim has gone so far in the U.S. that we now see people who are bankrupted by medical expenses blamed for getting sick.

  125. Capitalism is like a fine wine. In moderation a glass of wine rewards our day's labor; but it can be addictive, in excess it is destructive to the drinker, his family, his employer and society.

    Capitalism enables us to fulfill our human desire to create, to provide, to achieve. People benefit from regulated capitalism: I work for you; your business makes a product society wants; you pay me a fair wage for my labor and we all benefit.

    But unregulated capitalism is the equivalent of alcoholism. In excess, it destroys our humanity. When you are addicted, you over drink; you no longer pay me a fair wage because you want more profit; you don't care that I and my family suffer; you only care about growing bigger, making more money. You make predatory loans because money makes money; you don't care how the loan will be repaid; you don't care about the suffering the repayment may cause; you have lost your humanity, you just want your money.

    What regulations were in place in the EU, America when loans/mortgages were readily handed out to people/countries that did not have the financial stability/capacity to repay? The borrowers were irresponsible (some intended to defraud--capitalism too) and the lenders were predatory (drunk with capitalism and blinded by $$). Why were there no regulations requiring lenders examine/factor-in repayment risk?

    I'm all for capitalism, but it can be destructive. Are the Greek people required to suffer? Is the EU to dissolve? All for money??

  126. An excellent analogy.
    Thank you.

  127. True.
    This is predatory crony Capitalism.

    The dismantling of regulations has created this monster.

  128. I still do not understand how forcing the Greeks to run surpluses of any kind can help the Greek people. Surpluses leech money out of the private sector, reducing what people get and thus can spend.

    I don't know about Greece, but ALL 6 times we have had surpluses for more than 3 years, we have immediately fallen into a depression.

  129. Well that's the point. It's not about helping the Greek people at all, it's about ensuring the profits of German investors. The sad fact is that big bankers don't believe that they should ever be at risk of losing money, and they own enough politicians to make sure they get their way. Just look at who is making money off the Greeks and the other southern Euro nations that are suffering through the collapse of bubbles. That money came from the North… instead of investing in Germany, or paying the German workers more, the big bankers sent money south and insist on never losing money regardless of what happens to the local economies.

  130. I understand that Greek has been a corrupt country governed by crony capitalism. OK, got that. The question is what do you do to turn that around. Just suppose that the EU was to invade Greece so as to set up a non-corrupt government. It seems unlikely to me that there would be an attempt to make the average Greek citizen pay back the money ripped off by the crony capitalists and corrupt politicians. Instead that debt would likely be wiped clean and institutions building would be attempted. Money stolen by the bad guys would be tracked down and confiscated.

    Perhaps it would be a good idea for the EU to just 'pretend' they've invaded Greece and help build a non-corrupt system there. It seems more likely to be a good thing for everyone in the long run.

  131. 'Perhaps it would be a good idea for the EU to just 'pretend' they've invaded Greece and help build a non-corrupt system there.'

    No need for that - Each summer a lot of Europe invades Greece - the funny thing it never stopped corruption?!

  132. Gee it sounds a bit like the Fed bailing out banks for the benefit of the purchasers of "junk" and paid for by the tax payers. Even bailed out foreign bsnks and investment companies.

    Do I detect a."moral" pattern of the wealthy and powerful? I guess I need new glasses. But the are so costly.

  133. May I suggest that Nobel Laureate Krugman might stop "substituting moralizing for analysis"? Not one word on the failures of past Greek government, which is the last few years have bled the middle class dry while giving the oligarchs break after break. How on earth is it the duty of, say, the Baltic states (with their standard of living way below Greece's) to switch their loans to a gift? Krugman's fixation on Germany is almost comical. There are more countries in the European Union, and many of them are financially engaged in Greece, including quite a number of poor countries.
    The exit of Greece from the Euro zone and from the EU *will* be disastrous - for Greece, and for nobody else. Krugman doesn't seem to agree with this, but the new prime minister in Athens apparently does.
    As long as Greece doesn't do its part (and there are indications that the new government might be much better than its corrupt predecessors), there is very little incentive for the rest of the EU to spend more and more and more money.

  134. Dear Mr. Krugman, I am an avid follower of yours and and subscribe to your theories. However, I am Greek and I know Greece well. The problem with Syriza is that they have been against every single one of those reforms which have made Greece a more competitive country with surpluses. They have been such a destructive force in society aligning themselves with corrupt trade unions that plundered public funds.. They encouraged the burning and trashing of Athens. They fought recapitalisation of the banks, reforming the public sector, slashing wasteful spending in the most violent and brutal manner. And now I am supposed to believe that they will defy their base and push through reforms necessary to modernise the Greek state and make it competitive. I can assure you, Syriza is far more opposed to cracking down on tax evasion than New Democracy. There attitude is that the oi poloi are just trying to make a living and one should turn a blind eye. That leaves the so called oligarchs. Well, good luck with that. To be honest most of them have good tax lawyers and don't have to rely on cheating the system unlawfully. I as a Greek am afraid to trust them. What should the Germans say, who hear all the stories. So please forgive me if I feel that in giving in to Syriza's demands, Europe would be rewarding the wrong political ethos with no guarantees that this government will develop the political will to push through any of the necessary reforms. I hope I am wrong.

  135. You certainly know more about Greece than I do, and for purposes of argument let's accept that it's hugely corrupt. The issue is, how does the austerity program help to end corruption? In fact, it seems to me it is more likely to encourage it, because more and more people will find it impossible to find a legitimate job or earn an honest living and will turn to ancient and traditional types of cronyism, patronage, etc.

  136. I agree with you entirely that austerity harmed the governments efforts to pass structural reforms. But Europe was adamant and the alternative in 2012 was Grexit. Like it or not, we had to deal with the German electorate. So the previous government passed structural reforms and slashed spending in the hope that Greece could return to the capital markets as soon as possible. It managed to borrow in 2014 as did the Greek banks. This was a major success. Growth was forecast at 2.6% for 2015. Unemployment was beginning to drop. Marginally but it was heading in the right direction. A surplus in 2013 and 2014 had already allowed the government to start rolling back on austerity in 2014. Property taxes were being brought down, health care was made available to uninsured Greeks in the second half of 2014, as was limited housing for homeless people. Further tax cuts were scheduled for 2015 as the economy improved. Major investments were scheduled from privatisations (now cancelled by Syriza) Had we continued Greece - like Ireland today - would soon be borrowing from markets at interest rates lower than those under the Bailout Agreement. There was no reason for a head on clash with the German electorate by a party with no track record for reforms. Sadly, Greece needed austerity to reform. Can Syriza defy its trade union & public sector base and reform without the pressure of austerity? For jobs more than anything we need an efficiently state and political stability....

  137. We are all so civil. What is happening in Europe is war. Oh not the bullets and bombs type, well not yet, but economic war. It is the same war we are fighting in the US. We have a whole party fighting a war with the takers , the 47%, while allowing those that took advantage of the less financially sophisticated to get away with their fraudulent practices and in fact made better than whole with the dollars of the people they defrauded.

    There was a Star Trek episode where two warring cultures which did not want it's stuff/culture destroyed. So they converted to a computer war. The computer would simulate an attack and then people would be told to report to a death chamber. Both civilization's computers would count the dead to make sure all the "casualties" reported and died. It was a study on how stuff becomes more important than human life.

    Today with our bail out of our banks we have put money and stuff above human suffering. Bailout the banks, leave the humans to suffer.

    When enough of the population has to walk into the "death chamber" perhaps we will end this economic war or perhaps we will have a real one. The answer may lie in Greece.

  138. Why don't all the World War II allies take back the loan foregiveness given to Germany in 1953 and say "we were just kidding guys, please pay up" or "game on" and just ask them to deposit what they owe in the Greek treasury.

    Oh, and please hurry with those payments.

  139. 'Why don't all the World War II allies take back the loan foregiveness given to Germany in 1953'?

    Perhaps because the Germans confessed their sins and - since then beat themselves up - even much more than a dude from Mesa probably ever can.

    Look at me - I feel so bad about what Germany did decades before I even was born - that I' not only for total debt forgiveness for Greece - I also always excuse myself that I#m german if I meet the ex-enemy American.

  140. Greece was not forced to sign up these loans. The cleanest way to solve the problem would have been to declare bankruptcy. But since Greece decided to loan money from other EURO countries (money that was payed out by EU banks to Greece banks because theses EU countries or, better, their tax payers guaranteed for these loans) it is time they face the real world. Why should tax payers in the other EURO countries suffer in their pension payments, infra structure (like road, school) repairs and other issues? Why does Greece not re-structure their corrupt system, find the money that the 2.000 richest families have parked abroad and collect all taxes like it is done in other Euro countries? And re-hiring all these fired government employees back in the overfilled public Greece administrative sector makes no sense, if the money needs to be borrowed form other countries again.

  141. collect all taxes like it is done in other Euro countries

    Like taxes are collected from Russian Oligarchs in London?

  142. Bravo, Prof. Krugman! Two additional points need to be made to your trenchant analysis of the Greek situation: (1) new Greek Prime Minister Alexis Tsipras has promised to continue important reforms like ending crony capitalism there and forcing the rich elite to pay their taxes (sound familiar); and (2) most nation's like the U.S. that have their own currency are allowed to carry a sizable debt, but it seems that the German-led E.U. is not willing to do that for Greece. The fundamental question facing the E.U. is: Will stubborn adherence to the failed austerity policy, as shown in the area's current economic malaise and the failure of the Greek experiment, lead to a new economic approach or some significant moderation? As European history has shown over and over again fanatical adherence to ideology has inevitably led to calamity. In this case, as Prof. Krugman indicates, it is the future of the E.U. currently the world's largest economic trading block that is at stake.

  143. Greece lived large with other people's money, was not truthful in joining the EU and the Euro, then went on a spending using the good credit of the rest of the EU. A bloated government, retire at a very young age and all kinds of services they could not afford. Now they want the rest of Europe to subsidize, specifically the German tax payer, their bad behavior. The new government has already started loading more people onto its payroll, sticking it to the EU immediately. Cut the bad apple out of the EU, Greece goes its own way and prints lots paper money which is useless for trade. Those who believe otherwise, like Paul Krugman, need the pony up and buy Greek Bonds and get a great interest rate. Of course you will eventually be asked to accept to pennies on your investment.

  144. To the contrary, Greeks don't ask the German taxpayer for a subsidy. They ask the German banks to own their bad loans. If the German taxpayers want to subsidize the German banks, and so reward them for bad behavior, that's between Germans.

  145. Greece is the poster child for the problems that happen when a bunch of disparate nations adopt the same currency. There are bound to be winners and losers with so many diverse economies--and insulting nations for problems that may go beyond their borders, then putting the squeeze on their economies is bound to backfire.

    To my mind Greece is a test for the entire Eurozone. The very fact the Eurozone got created from a group of nations with a history of fighting for centuries, frankly amazes me. Toss in the fact that Greek islands and banks were havens for international oligarchs to shield their income from the tax man, and you have a big mess.

    In a shared currency, all Euro countries have to absorb some of the Greek problems. To place it only on Greece will result in a blow up of the entire Euro concord.

  146. "Germany and elsewhere voluntarily lent Greece all that money. We would ordinarily expect both sides of that misjudgment to pay a price."
    Exactly. So if someone with a credit score of 400 successfully applies for a loan from a bank, doesn't the bank bear some(lots of?) responsibility for that misjudgment? Why should every citizen in Greece pay for the misjudgments of the German banks handing out the loans?
    And if the WW2 Allies had been bent on moralizing, 60% of Germany's debt would not have been forgiven and all of Europe would suffered the consequences of a failed country.
    Greece does not have a stellar economic history but take off the moral certitude goggles and solve some problems already.

  147. I would add to this analysis that the right wing government from 2004-09 had the help of the vampire squid, Goldman Sachs, in cooking the books to hide their economic incompetence. Goldman then shorted the Greek debt and made out handsomely by their accounting games (like many other major banks). As everywhere the average taxpayer pays for the crimes of the rich, while the oligarchs continue to hide their money (as has happened in the US as well). The point that the Germans needed help after WWII to get their economy going is a sad piece of irony given their current stance to the Green austerity disaster

  148. It is interesting the good doctor spends little time on the propensity of Greeks to not pay taxes, government officials who need bribes to get things done, and the difficulty of starting a business. He appears to be correct that there will be a haircut, but then what? More of the same is my guess, but perhaps I will be wrong.

  149. Sovereign debt never matters until it does, e.g., during an economic crisis or if global monetary conditions push up interest rates or weaken the currency or whatever. It is never prudent for governments to borrow to fund current operations. That is like using a credit card to buy food and pay rent. Eventually, sometimes after years of profligacy, the bills come due. In the case of sovereign debt, those bills are often handed to the young, who enjoyed none of the benefits of the spending.
    Of course, the theory behind the borrowing is that the money is used to build infrastructure and that everyone, including the young, will benefit. In practice, corrupt politicians line their own pockets and make sweet deals with their crony capitalist backers.
    Meanwhile, the banksters play both sides of the political game and make money no matter who wins. If there's a crisis, the banks are always first in line for the free money and the people, as always, are forced to cover it.

  150. Before I met my Greek wife in the mid 70s, I knew little about Greece. Most North Americans know nothing of Europeans, other than Greeks are cute, and Germans bad. She was studying in London. Because of currency controls, she was subsisting in England on potatoes. She walked the 4km each way to her school.

    Greece was poor. My brother in law said, poor, but with dignity. There wasn’t a divided highway in the country. The pollution was terrible. You had to watch out for donkey droppings in the villages. A Datsun pickup was a luxury vehicle. Garbage collection was spotty, and things were pretty dirty. Crossing the frontier into Greece was terrible. If by bus, customs officials would take the bus apart looking for smuggled toasters. If by car, you had to elbow your way past dozens of returning guest Arbeiters to register your car on your passport. Between the time I met my wife and the implementation of the euro, the drachma had been devalued 90%. It’s no wonder you would have to pry Euros from the Greeks’ cold dead hands.

    After joining the EU, there was a miraculous transformation. Motorways were built. Garbage was collected, and the streets cleaned. It became possible to actually see the famous hills of Athens. The current Greek subway system makes Toronto’s look bad. BMWs and Mercedes replaced the Sarkakis Mitsbishis. Subsidies to Greece from the EU are the about same as the net positive contribution to the EU by Germany, some 100B euros.

    The Greeks have a lot to lose.

  151. All good and well, but they did not invest in a decent government system and kept corruption away from the day to day operations. The northern European did, they formed a well run government apparatus, collecting taxes, etc.

  152. Germany loans money to Greece. Greeks buy Mercedes and BMWs. Money returns to Germany. The cars and the debt remain in Greece. Eventually the cars rust, but the debt could go on forever.

  153. Greece is feeling a pain similar to what went on in this country during the meltdown in 2008. Most of their 11 Million citizens have little hope for a life remotely resembling what they had before, and their young people less than that. Not unlike those here whose only choice was foreclosure.

    But there has to be some realism applied to a situation where the level of fiscal irresponsibility ran rampant nationwide, fueled by their own leadership. Greece probably thought it was getting a sweet deal with the EU, but it made a grave mistake - its economy will never be able to be on a par with the northern European countries - as has been said, it's olives and tourism. So the way out is for Greece to default, return to its own currency and accept the consequences of their own leadership's irresponsible behavior. Europe should then help as it can to ease the pain within the "new normal" that is created, functioning similar to USAID in efforts to help Greece build an economy. This is better than massive infusions of cash that haven't changed much. Greece, unlike our banks, is not too big to fail.

    It's hard to put the genie back in the bottle, but Greece limping along, pining for what was, will just prolong the agony, and create a bitterness that will last a long time.

  154. I was taught that it's usually the belief system -- here, one that sees life and economics through a prism of moralizing -- that is the last thing a person is willing to change. Even destroying another's banking system, or undermining a union of which one is a part, might seem more appealing, according to this teaching. I think it's about trying to make the self feel better -- feel better about the self and about life on life's terms.

  155. Krugman believes that lending money and then requesting that it be repaid as promised,"moralizing"and uses the term with contempt.
    "The truth is that " the great bulk of the money lent to Greece has been used simply to pay interest and principal on the debt" that was incurred by "Greek spending".

  156. "If not, the whole European project — the attempt to build peace and democracy through shared prosperity — will suffer a terrible, perhaps mortal blow."

    Despite such claims, the "attempt" has always been (not just now) to give greater profits to the few, and if a side effect was to have others prosper, it would help create illusions of upward mobility that would keep the rest of us quiet. Now this ugly system is working so badly that the 1% feels they have to be even more greedy for the profit system just to survive. What is going on in Greece is causing a panic among creditors. They will be pushing very hard to stop Greece from reducing their huge cut of government spending, regardless of how much pain they cause

    We all need to be more against, and vocal about our objections, to the profit system and be in favor of democratic economics - or we are just putting band-aids on broken legs. Among many things this means taking public funds now being diverted to private interests and channeling them back into public i.e. government work, such as rebuilding infrastructure done by government workers (like e.g. with a Civilian Conservation Corps.) and, where need be, by honest competitive bidding.

  157. Fortunately, the new Greek government has remembered that each EU country has a veto power over joint actions - like Russian sanctions.

  158. Greece has created its own financial problems. Where else in the world do people retire at age 50 with full salaries and substantial increases each succesive year? Now Greece can wallow in its own mud. Remember, Greece is one of the PIGS - Portugal, Italy, Greece, and Spain. However, Greece was the most hoggish.

  159. So let me get this right. Even assuming it is correct to claim that Greece's "people [which people? how many of them?] retire at age 50 with full salaries and substantial increases each successive year," shouldn't the solution to that be to reform the pension system so that it is in line with other European countries, rather than inflict perennial, horrific unemployment on the entire country, especially young generations who were never even able to benefit from the arrangements you describe? And if average Greek citizens should be punished indefinitely for their "greed," what about the banks who made irresponsible loans to what they knew was a poorly run government, and yet continue to profit from them?

  160. Madrazo, the banks should be punished as well, especially Goldman Sachs. But what Greeks want is to continue their system of early retirement and big pensions, and what they NEED is to have those things "clawed back" and reformed.

    That's why they are so unhappy. They were perfectly happy running up giant debts, and enjoying their early retirement and big pensions. People always are. Look at our public union sector in the US! It's always party time, until the beer runs out.

  161. Nowhere in the article is mentioned that systemic problems in Greece which still have not been dealt with. The lowest level of income tax compliance in the EU, low retirement ages in general and very low ones for many jobs, including radio broadcasters and hairdressers. Until these difficult political issues are dealt with the Greek economy even with debt relief will never truly recover.

  162. There's evidence that billions of dollars lent to Greece before the crisis was vendor financing from Germany and others for the purchase of advanced weaponry like submarines, tanks and jets... supposedly to arm Greece against the Turks. (The same weapons were sold to the Turks.) That money went from German bank to German manufacturer, or maybe most of it never left the bank at all. The weapons may have provided some Greeks with jobs and revenue for a brief period, but just enough to keep the deals moving. But arms sales are a no-fly zone when it comes to public debate. Has anyone read, "Confessions of an Economic Hit Man"? Or seen the Ferris Wheel scene from "The Third Man"?

  163. Total mischaracterization about who is receiving the interest payments on Greek debt. The debt held by private banks and private investors was repudiated in the first round of the Greek bailout, with most receiving only 10 cents on a dollar of debt for repayment. That was about one half of all Greek debt outstanding at that time. The remaining half is held by other governments or their government central banks, and thus held by the taxpayers of other European countries. That debt had its duration greatly extended and its interest rate cut more than in half in the first bailout. Thus citizens of Europe lost over half their value on these Greek bonds held by their government. Further debt reduction is just a further direct transfer of wealth from citizens of Europe to the Greek government and its people. Get the facts and story straight. Maybe such reparations are justified given how Greece started civilization, but that should be the focus of the article.

  164. Carrying on what exactly happened in the previous five years is truly irrelevant for today.
    The criitcal point is that with the present austerity regime the only prospect for Greece is to continue shrinking its economy and keep paying all its surplus revenue to service the debt for all eternity since there is no way it can repay even a significant fraction of its principal without economic growth. If the creditor nations refuse to acknowledge that the present course can only lead to Greece exiting the Euro in a chaotic fashion they will be shooting themselves in the foot. Blaming Greece for the chaos is not going to make it go away.

  165. I think you are wrong to this degree - he knows exactly what will happen if Greece keeps getting bailed out. It is what he believes should happen.

  166. If the wealthy, both here and abroad, paid their taxes instead of hiding them in offshore accounts; if the people were able to see their government as their protector rather than the protector of the wealthy alone; if reasonably smart people can see through the sadistic and ultra-conservative lens of the mainstream media, and would notice and empathize with the suffering of people everywhere under capitalism and cronyism... well, then, we'd not have these problems. But there are so many sycophants engendered by the endless pro-capitalist propaganda, and by the mythical vanishing lottery possibilities of Western corporatism, that we hear nothing but cries of class warfare every time anyone suggests that the current parasitic relationship, wherein the wealthy live off exploiting the work of those who have less, should be ended. The rich seem to have become nothing so much as whiny little children, ones who have essentially lost their humanity already. Bravo for trying, Professor Krugman; it's a lot more honesty than the effete rich will ever manage. Thus, we must soak 'em!

  167. The US has the highest level of tax compliance of all industrialized nations despite all of the talk of Cayman Island accounts. That is mostly because the criminal penalties for tax evasion are pretty harsh. I realize that doesn't jibe the with left's storyline anymore than the fact that the top 10% pay 70% of federal taxes. By comparison Greece has the lowest level of tax compliance in europe.

  168. It seems to be conceded that some kind of waiver or consent from creditors should be obtained, if only to avoid the consequences of default. The question then devolves to the terms of such consent. Does Prof Krugman hold with Mr Wolf of the FT should be conditional on domestic reform or that it should not? If the former, who should judge what reform merits debt relief? If the latter, what effect does he think unconditional relief is likely to have on the relations between EU states and the market for sovereign in general?

  169. "If not, the whole European project—the attempt to build peace and democracy through shared prosperity—will suffer a terrible, perhaps mortal blow." Ah yes, prosperity that is shared; that is the tough part

    It is sad to see Europe--the seat of the Enlightenment and social contract and from which our founding fathers drew inspiration--struggle against two basic flaws of capitalism and human nature—selfishness and greed. Many of the core values of the Enlightenment were intended to serve as a check on the selfishness and greed of the elites and to expand consideration of the rights of individuals and democracy.

    While the social contract was all about spelling out individual and government rights and responsibilities, it seems we in the West are having a lot of trouble these days with the responsibility part.

    We do have a lot of finger wagging and moralizing by the rich and powerful about the irresponsibility of the casualties of capitalism--be they Greece, the millions of subprime mortgage victims, or those Takers in need of government assistance). As Krugman suggests: what was the responsibility of the European banks that "voluntarily lent Greece all that money"?

    What is being intentionally omitted is the responsibility and accountability of wealthy elites. Look how hard our elites have worked to absolve themselves of accountability by changing our laws and demanding deregulation.

    The big question: What obligations do the wealthy & powerful have to their society?

  170. As usual flawed logic from former Enron adviser Paul Krugman. Say I buy a house and take out a $1 million mortgage (as I can't pay all cash like Paul since I don't have a cushy taxpayer funded CUNY stint on researching inequality). It would be nonsensical for me to say I could meet all my living expenses if only I didn't have to pay back the principal on my mortgage. Any since those banks were stupid enough to lend to me they should just forgive my mortgage. That would be nice in liberal fantasy land - except for the next guy that needs a mortgage and can't get one.

  171. Did the Greeks act any more irresponsibly than our financial sector preceding 2008? No. But we bailed them out, didn't we? Just as we protect the lenders so does the EU. It's all about who takes the loss. It's never the banks.

  172. I don't like to see anyone suffer, but the Greeks are primarily responsible for the mess they are in, regardless of what Krugman says. Fine, reduce their debt, their interest payments and so forth. On a practical level it's either that or they leave the EU.

    But any notion that giving the Greeks a little breathing room will end or significantly reduce political and trade union corruption, end crony capitalism, result in real reform of the welfare state and of their tax codes so no more tax evasion, all so they will be more productive and start living within their means ... is not credible.

  173. Professor Krugman is very forgiving. And in the macroeconomic sense, he may be right. But I can see the Germans' point of view. They work hard and save while Greeks cheat on their taxes, live on welfare, retire early and milk the system. We have some people in the U.S. who do the same thing and ruin it for those who really do need help.

  174. Do you have any idea how much German debt was forgiven after WWII to allow Germany to get back on its feet? And that was after starting a World War, killing scores of millions, and not just mismanaging funds. Get my drift?

  175. cheat ( underpay) on their taxes, live on (corporate) welfare, retire early and milk(lobby) the system.
    We have some people in the U.S. who do the same thing and ruin it for those who really do need help.(Like after the financial crisis - their called Wall Street, the 1%, the oligarchy)

    So the glass house logic being: let families suffer and fail now to save Mammon for the future.
    (Doesn't Germany have free education/healthcare/paid leave/ child care etc?)

    This is how America Exceptionalism really shines

  176. It is a time for us to re-learn how our federal system works in comparison with European Union. To do this, we need to examine how our distressed states like Florida after the financial crisis mainly due to the collapse of housing boom were rescued by the federal system, indirectly by the higher tax paying states mostly Democrats majority states like New York, without facing difficulty like Greece.
    This is important because sooner or later our oil producing states, mostly Republican majority states, like North Dakota will encounter revenue shortage similar to Florida after the collapse of oil boom. As you are well aware, Republicans demand small government without recognizing financial help from the federal government mostly in the area such as disaster damages, social security, unemployment insurance and numerous other programs because the distressed states like Florida could not earn enough tax revenue from the citizens and corporations of the state. Without this federal mechanism, Florida and other financially distressed states would have encountered severer and slower economic recovery for a long time. But how many voters in Florida and other distressed states know this simple fact?

  177. And what do those wealthier blue states make their money off of? everyone else. The financial industry. They are not making their money off agriculture or manufacturing. They don't MAKE anything anymore. They don't build it or mine it or farm it. They make money by manipulating the stock market and selling people investments.

    In Florida, they made it by lending people money to buy hyper-inflated homes in a bubble market. And it was hardly just Florida. They did it all over the place.

    BTW: where do you think the Bluesters go when they retire? Florida. So they have a vested interest in Florida real estate, investments and prosperity.

  178. How is it that loans to pay principle and debt do NOT subsidize Greek spending? They allow Greece to continue to borrow in order to over-spend to shore up a subsidization framework unsustainable at their size and level of productivity; and a public sector too large and unproductive, a workforce too protected from competitive realities and a destructive culture of corruption and stifling bureaucracy that is endemic.

    Apparently, the "European project" must be kept alive only by means that challenge the physical laws of the universe: you borrow money at no cost because to pay interest to capital is to render your scheme impractical.

    Guess what? Greece doesn't get to violate laws that ALLOW civilization to be sustainably financed without expropriating capital. And neither the Professor nor Euros so inclined have the votes or the guns to expropriate capital to keep UNsustainable regimes afloat.

    What the Professor suggests is that Greece simply says: "set us back to zero as regards principle and debt, so we can begin piling it on again, unsustainably". To suggest that they wouldn't go back to spending more than they take in is a joke.

    The Professor also suggests that Euro states subsidize their members, really without limit, in leveling all of Europe to some universal (high) standard of living that is divorced from what each member produces. Frankly, I don't believe for a moment that Europe is going to buy that.

    To each his own socialism, but be sure you can afford it.

  179. "Guess what? Greece doesn't get to violate laws that ALLOW civilization to be sustainably financed without expropriating capital. And neither the Professor nor Euros so inclined have the votes or the guns to expropriate capital to keep UNsustainable regimes afloat."
    Says who? The Greeks already have the votes, and who's going to say what they "get to" do, you?

  180. Greece (and by extension the Professor here) simply want to get back to the high-living days of the past -- a huge unwieldy government. Nobody paying any taxes. Big social services, modeled on Germany and France and Sweden. Early retirement at 50, with a fat public pension. Expensive foreign goods.

    Most people don't care where the money comes from, until it runs out and the party is over.

    Lefty liberals like Krugman only care about spending on social services -- bread and circuses to appease the poor and dependent. OF COURSE it is popular. Everybody likes getting stuff for free. I'm sure if you offered me a bunch of stuff for "free", I'd jump on it. But it wouldn't be good for me.

    And it won't be good when the party ends, for Greece or anyone else. And the party always ends. (When it does, you can be sure Krugman will slink off and come up with 1000 excuses why "it wasn't his ideas" and "they must have misinterpreted what he was REALLY saying".)

  181. Greece is in trouble because it followed Krugman's principles and now the bill has come due. One day interest rates in the US will rise and will consume a huge portion of the annual budget just like Greece and Krugman's answer will always be the same. He will push devaluation of the dollar in order to make the debt look smaller completing the wealth confiscation he so dearly loves.

  182. Expecting people to pay debts after losing their jobs sure won't go anywhere useful.

  183. In Wingnut World, you get to make things up and believe them. Takes James for example.

    "...because it followed Krugman's principles..."

    What Krugman principles? James doesn't tell you, but they are clearly the reason " the bill has come due." Does James have any bad words for the creditors who were lending to those awful, spendthrift Greeks (following "Krugman's principles," of coure) who wouldn't pay their loans? No, James doesn't. Why don't those creditors have to suffer for their bad lending decisions? Well, James has not even thought about that, have you James?

  184. I think we are seeing the argument Prof. K will make when one of our states falls too deeply into debt to borrow any more, in calling for a federal bailout. Not that I had any doubt before this column. And, he will blame it on governments not spending enough. He does not seem to ever recognize moral hazard or long term consequences. He recognizes that Greece is being lent money primarily to pay back its debts but writes as if that were a bad thing. There is a reason when people go bankrupt the trustee, and not the borrower, is in charge. It should not be a negotiation between equals. I love Greece for too many reasons to state in a comment, but, as some Greeks have said to me - they did this to themselves and they have to pay the consequences. We may be saying the same thing some day as we know we violate every rule of common sense.

    At the end of the day, someone has to pay for Greece's party. Prof. K wants it to be Germany. I think it should be Greece. I'm sure the prof knows a hundred times more economic minutiae and formulas than the rest of us, but, didn't we learn in the last major crisis we are still coming out of that the only experts worth listening to are those who admit they don't know a whole lot either.

  185. The European project exists through the mutual support of its member nations. However, Greece (and the other member nations) has a higher duty to its people. If the price of supporting the European project is endless suffering for Greece, the Greece should exit the euro.

    As for the lender nations, there is a thing called risk for which they charge a premium. If they get a haircut, then they need to factor that into their future risk premiums. The people of Greece should not have to suffer indefinitely because the so-called masters of finance got their risk calculations wrong.

  186. Stupid monetary policy keeps interest rates too low to cover default risks. That's why money stays in mattresses.

  187. They are "either at your throat or at your feet" - Churchill talking about some group of people.

  188. It seems to me the issue at the core of this is that the arrangements Greece is struggling with have as their primary purpose the goal of making sure the people who made the bad decisions to loan Greece money in the first place feel as little pain as possible.

    It's somewhat akin to what happened in the U.S. in that the first task of dealing with the Great Recession seemed to be ensuring that the people responsible for it, were the first ones made whole. Further, they are the ones who have mainly been soaking up all the gains from the 'recovery' to date.

    You could observe this and speculate that the system which is supposed to ensure financial stability for everyone in practice is rigged to benefit only the few who control the money; the rest are to be written off as collateral damage, whether they be Greek pensioners, people with underwater mortgages, etc.

    As a side note, an explanation for the obsession with inflation in some quarters is that the .1% - who have soaked up most of the gains in the U.S. - are seeing vast inflation in the assets they focus on, like high-end real estate. They are sloshing in so much money, they're driving up prices in their part of the marketplace.

    So, to understand the Euro system's response, look at how much pain will fall on those who have to make the critical decisions if they do what needs to be done. Wealth means never having to sacrifice - not while you can sacrifice others.

  189. Many people who analyze these sorts of things have said over and over that the debts incurred by Greece are so large, relative to their economy, that they will never be paid off. The only way to relieve the situation is to write down most of the debt to a manageable level. Then D. K says, "a forced exit of Greece from the euro, with potentially disastrous economic and political consequences for Europe as a whole." That's some pretty serious stuff.

    If leaving the Euro is disastrous, paying of the debt is disastrous, and maintaining the current situation is disastrous, this path cannot lead to any kind of resolvable solution.

    So what then is it? It's punishment. I am reminded of the horrible economic reparations that Europe imposed upon Germany after WWI. That didn't work out too well.

    Greece messed up big time, but they didn't kill anyone. The punishment should fit the crime, not be unending. No it's not fair to let them get away with it, but we let Wall Street get away with stealing trillions from the public. In fact, the evil doers made even more money after the collapse.

    The Greek people should not face perpetual suffering for their government's mistakes. No nation punished America for invading Iraq and no Wall Street Barons went to jail.

  190. Let's be clear WHO let Wall Street get away with stealing trillions.

    It was the Democrats under Barack Obama. He waa President. He had the power. He clearly knows his way around an "executive order".

    He had all the power and ability to put the banksters in jail -- to order repayment -- to give "haircuts" -- to ensure that Goldman Sachs, which engineered the Greek fiasco as well, was destroyed and never rose again. The vampire squid.

    Did he do any of this? did he even CONSIDER any of it? NO.

    He let them walk free. Even more so, he gave Goldman Sachs alums the highest positions possible in his administration and took their advice. After all, they were "experts" with "degrees", who knew how "the system worked".

  191. I agree Paul, but why hasn't Goldman Sachs been sued/fined for providing Greece a means to get into the European Union in the first place? Greece lacked the financial standing to qualify, so some smart kids at Goldman Sachs invented a money-debt swapping scheme to make it look like Greece qualified, and so they were approved. This distinction is important because it allowed Greece to borrow tens of billions of dollars at much lower rates. The wrong guys gained power in Greece, prodigious borrowing ensued and Goldman Sachs walked away with an enormous fee.

    You say there's no point in moralizing now, and I agree, what's done is done in Greece, but should that logic also provide impunity to the Machiavellian bankers who hatched this rotten egg?

  192. But isn't governmental corruption and stifling red tape on business start ups part of Greece's problem? Isn't the wide-spread refusal of the Greek population to pay taxes also part of the problem? The inefficiency of the Greek economy seems to be a core challenge that must be addressed before their problems can be resolved.

  193. Typical Krugman: blame the greedy bankers and right wing government. No mention of the stifling power of unions, incredible red tape and corruption needed to start or operate a small business, and in general the difficulties that must be overcome to earn a living (by actually working) in Greece.

  194. The events in Greece represent the first major modern challenge to the laissez-faire, state-enabled capitalism for a generation. Many can be relied upon to ask the 'right' questions, such as, why should other EU states pay for Greek debt?

    Of course, few have asked why did it come to pass that sovereign EU states should have said 'Yes' when billionaire hedge fund investors and sovereign wealth funds asked: "Can you please socialise our investment losses?" Or, perhaps more accurately, the mainstream media never derived a satisfactory answer to that question.

    It is worth remembering the words of US Senator Hiram Warren Johnson, when he said that the first casualty of war is truth, ironically delivered when discussing a very different kind of war on Germany (in 1917), than that seemingly in the mind of the new Greek Prime Minister Alexis Tsipras.

    Only when we begin to shift the focus from the truth-numbing language of mindless capitalism, to a recognition that even unfettered capitalism needs rescuing from the current crisis, will we begin a fight back.

    The drama about to play out in Greece should not be seen as putting a nation of feckless foreigners in their 'place', but the beginning of a magnificent civil rights adventure.

  195. Forgive a good part of Greece's external debt. Forgive virtually all of our claims on Cuba for its expropriation of the property of thousands of Cubans now living here and scores of American companies that operated there. Forgive the illegal entry and settlement of millions of immigrants. None are tidy solutions. All are necessary.

  196. @Stubbycat. Forgiveness never seems 'tidy' to moralists and prigs, and certainly not to bankers. Perhaps they should look at the guidance of religion. After all, even the Old Testament demands a forgiveness of loans after seven years. The Greeks have been suffering nearly that long, so call their share of forgiveness (and who among us doesn't need a little forgiveness?) a jubilee and be done with it.

  197. Why?

    Greece spent. Cuba stole. Illegals broke the law.

    Yeah, it may feel good to guilty liberals but why?

    Why should the failures of other nations be our responsibility?

  198. Do that, and it will happen again. And again. And again.

    Once you make it clear there is no downside to doing a great wrong, people revise their morality and decide it is "OK" to steal into a country and take jobs from the local citizens -- it's "OK" to borrow and not repay debts -- and it's "OK" to seize property or companies, because in the long run you will get away with it.

    That's the problem with situational ethics.

  199. My impression is that the loans made to the underdeveloped EU countries were EU sanctioned as a means to spur development. Perhaps not all of this money was used wisely or even legally, but Spain, Ireland, and Greece have dramatically improved infrastructure compared to the pre-Euro period. This is akin to a European version of US development efforts in the 30s like the Tennessee Valley Authority. As long as economies expand, paying the loans is not a problem, but the toxic assets meltdown has temporarily stopped expansion. In Germany at about the time of the collapse the press was reporting that the average standard of living in Greece and Spain exceeded that in Germany. This has not given the German populace much sympathy for their southern neighbors, and is much like US middle class reaction to reports of "welfare queens" during the Reagan years. No one in power in Germany now had anything to do with WWII, so it would probably be useful to quite flogging the war guilt horse. (If I were German, I know would find it tedious). Germany has undergone greater self-reflection for their war responsibilities than any other nation. I think a more relevant question to ask is what use will hurting the economy of a Euro zone country do for the rest of the EU? Which leads us back to Professor Krugman's assertion that austerity is the wrong course of action to restore prosperity. History suggests that nations spend their way out of recession, rather than save their way out of it.

  200. The Greek crisis arose from entirely different reasons for those in Spain, Portugal or Ireland.

  201. Same old problem: the hypocritical need to treat a debtor nation or debtor city like it was a profligate family. If we don't hold Greece's feet to the fire, then other nations will think it's ok to walk away from their debts too.

    Absurdly reductionist and short-sighted. The Germans need to recognize that they bear their share of the blame for making this mess, and they need to put their outrage aside and begin thinking about consequences and ripple effects.

  202. Dr. Krugman writes that the EU Greek bailout plan is not really a plan to bailout Greece. It is a plan to bail out creditor-country banks with the Greeks being required to also contribute at great cost to themselves.

    This is not really too different from what the Federal government did in the wake of the collapse of the house bubble. The bailout plan was designed primarily to benefit the banks whose "financial engineering" made possible the bubble in the first place. And, the plan was executed at great expense to the home owners, who like the Greeks, were clearly complicit.

    In both cases, the creditors made possible the irresponsible behavior that ended in disaster. The creditors did this to profit. And, in both cases, the creditors have been quite deft at convincing people that the borrowers are the only ones at fault.

  203. Greece standard of living has gone down and also the United States. So we have something in common. Money is going to banks in Greece and also United States. We have saved the banks but not the people and so there is suffering in Greece and some in United States. One black man found employment by holding up the local store in my area which has little crime. Do we call that progress in the recovery? Maybe next will be the local bank?

  204. During a trip to Germany in the 1990s, my friend's bank started rejecting his credit card purchases. Dependent on that credit card, he called the bank from a phone in a train station, the only phone available at the time. A sign over the phone said that calls were limited to three minutes. Of course, my friend was on hold for longer than that. A line of Germans started to form at the phone, and they started complaining that my friend had exceeded the time limit. I quickly looked around and spotted several unoccupied phones. I speak German and pointed out to the people in line that several other phones were available if they wanted to make a call. Not one of them left the line. They insisted that my friend should get off the phone. They preferred to sacrifice their own time and convenience in order to assign guilt and demonstrate self-righteousness.

    The German word for "debt," Schuld, is the same word that means "guilt." With a culture of self-righteousness, Germans would rather suffer economic hardship in Germany than admit that they were wrong and forgive Greek debt. They want Greeks to suffer for their "guilt," even it means that Germans will suffer too.

  205. Another column short on rel facts. If one goes to th link handily provided by the Times but apparently not read by Dr K one finds that being "largely bailed out" actually means having a reduction of 73% in principle and interest shoved down your throat if one is a private lender to Greece!
    Seventy Three Percent!!! In what world is taking a "haircut" of 73% being "largely bailed out"???
    Krugman fails once again to provide any useful information.

  206. Lending money entails risk. Sometimes those who borrow can not pay back all or a portion of what they borrowed. Greece is now in that position. It's time for those who lent Greece money to take a haircut, or if you prefer, "tighten their belt" or "austerity".

  207. >

    Well the first thing the Greeks must do is pay their taxes.

    “When there is an income tax, the just man will pay more and the unjust less on the same amount of income."


  208. It appears that the Europeans did the same as the Americansand . They bail out the banks , financial, markets etc,and used Greece as the AIG to fhelp funnel money to te too big to fail. Your article really implies two big differences between the American and European plans. The first is of courcs that gGeece is a country not a corporation so that millions of people are suffering. The other is the USA brought in ithe QEs bigger, faster and beeter than the Europeans.

  209. I don't understand why Greece leaving the Euro would be such a hard thing to do, or have difficult consequences. By itself it doesn't erase the debt, but as long as the ECB is committed to ultra-low inflation rates, the adjustment problem for the peripheral countries (which Krugman has often lamented) remains.

  210. Could somebody please explain how, in practice, would the Grexit happen? If, for example, I had 100 euros in a Greek bank, would they magically turn in to drachmas over night, like the prince of the fairy tale into a frog?

    If so, could I save my euros by transferring them into a German bank instead?

    And how, technically, would the Grexit work out? The euro conversion project took a lot of planning and several years. Many IT-systems were modified, and in many ways, it was more demanding than the 2000-conversion two years earlier.

    It is not so hard to mix orange juice (drachmas) and apple juice (euros), but how do you part them again once mixed?

    Would the banks and Greece just close down for 6 months while all the systems are changed back? Could that be done in secret? Inquiring minds would like to know...

  211. "Many people seem to believe that the loans Athens has received since the crisis broke have been subsidizing Greek spending. The truth, however, is that the great bulk of the money lent to Greece has been used simply to pay interest and principal on debt."

    Which frees up money for spending on the Greek welfare state. Money is fungible, professor.

    "It’s also true, however, that banks in Germany and elsewhere voluntarily lent Greece all that money. We would ordinarily expect both sides of that misjudgment to pay a price."

    Let's make a deal. You lend me your income from writing this nonsense, I will give you back half and we can call it even.

    "If it were just a matter of government finance, Greece could simply declare bankruptcy; it would be cut off from new loans, but it would also stop paying off existing debts, and its cash flow would actually improve."

    The Greeks are spending more on their welfare state than they pay in taxes. Also, when the government stiffs its creditors, those creditors also stop lending to the private economy and a depression follows, reducing tax revenues and spending further.

    There is no escape. Progressivism/socialism is unsustainable.

    Take a hard look at Greece. They are America's ghost of Christmas future.

  212. @Bart DePalma: If Dr. Krugman, or I, were foolish enough to lend you a large amount without sober investigation of your revenue, expenses, and ability to sustain repayment in hard times, we would surely deserve to lose some or even all of our loan. Why should Goldman Sachs and big European banks be exempt from the manifest consequences of their own irresponsibility?

    So, no, I suspect Dr. Krugman won't be lending you much.

  213. What is also unsustainable is the form of capitalism we seem to be under with the wealthy take all, and the rest of us get only the scraps they allow us. A world where 80 people have more wealth than half the population of the planet put together. This kind of imbalance has led to every revolution from France, to Russian to Cuba with mostly negative results for all.

  214. Not very convincing - social democracy is obviously more sustainable than unfetterrd capitalism.

  215. The Eurozone countries, the European Central Bank and International Monetary Fund (IMF) - the Troika - imposed 'austerity' on Greece, but they all followed the IMF's sadistic bankster recipe that has a record of killing the patient while soothing big banks.

    The IMF has a rich record of economic failure around the globe.

    The IMF's overreach was described by former vice-president of the World Bank, Joseph Stiglitz:

    "When the IMF arrives in a country, they are interested in only one thing. How do we make sure the banks and financial institutions are paid? It is the IMF that keeps the (financial) speculators in business. They're not interested in development, or what helps a country to get out of poverty."

    IMF policies throughout the 1990s nearly killed Argentina with excess privatization, rapid economic 'liberalization' and the lowering of corporation taxes and tightening public spending.

    Argentina suffered a catastrophic economic collapse in 2001.

    "In the case of Argentina, we seem to have got the balance wrong," said the IMF.

    No kidding.

    Stiglitz says globalization can be either a success or a failure, depending on its management. "There is success when it is managed by national government by embracing the characteristics of each individual country, but there is failure when it is managed by international institutions such as IMF."

    The IMF-led economic strangulation serves only bankers - while millions are tortured.

    The Troika is wrong.

  216. Thanks for the link, very interesting. Stuff like that's why I read the comments section.

  217. Global banking appears to operate as a US 'Pay Day Loan" service - extremely little risk and vast profits.

  218. I'm a scientist and have spoken to German and Swiss fellow scientists about this topic. They give the same moralizing nonsense about irresponsibility that Prof Krugman speaks of. If scientists, who are supposedly objective and consider data first and ideology last say such things, there is little hope that the Germans will change their policy.

    The Greeks need to exit - and demonstrate to the other countries also caught in Germany's power grab that European peoples will not submit to forced domination, economic or military.

  219. You're probably right. Krugman's proposal is the first workable solution I've seen in a long time, so I'd like to see it work. But if it doesn't, maybe Greece should leave the Euro. After all, Greece is going to suffer either way. Either they suffer indefinitely (or at least until some miracle happens and they can get out of their cycle of debt), or they can pull off the bandaid, suffer more in the short term, but have a light at the end of the tunnel.
    Of course Germany will fight to keep Greece in the Euro, because they aren't suffering now, but will if Greece leaves. Tsipras knows this, I think.

  220. Yes, you are right. The Greeks are free to leave the EU and the Euro and default. The Germans, never mind the Swiss (who are not in the EU), couldn't stop them. But as long as the Greeks want to be kept afloat by tax-payer money from other EU countries like France, Germany, and Italy they must stick by the settlements that earlier Greek governments negotiated.

    The European (including Swiss and German banks) which recklessly bought Greek bonds were punished by a 70% haircut on their holdings. The money that Greece owns now is held by her European partners at very low and well below market rate interest. And writing off hundreds of billions of taxpayer Euros is politically impossible if Greece remains as corrupt and unproductive as reported by the NYT.

  221. You may be right that Greece will need to exit. But first, the really interesting question: can poor little Greece, with its vibrant, clear-headed new government, force the mighty Germans et al. to back away from their absurdly rigid and self-serving ideology? We'll see where things stand after that fascinating drama plays out ...

  222. That interview took place before Draghi said he would do whatever it took to preserve the Euro. You should know that Bruce, and you probably do, but have chosen to forget so that you can continue your ad hominen posture against Professor Krugman.

    With Draghi backstopping Greek banks, Greece does not have to leave the Euro. Capiche?

  223. We often think of the EU as the United States of Europe. But the nature of their political union is very different from ours. We have three states, Alabama, Mississippi and Louisiana, which have received more in federal expenditures than they have paid in federal taxes each year for over a century. Nobody in the USA really cares. We view this as a cost of doing business as a Union, and life goes on. Not so in the EU. Germany gets headaches thinking that she is subsidizing debtor states in the EU. It is inevitable in the long run that some EU members will subsidize others. Until this is recognized, the EU experiment will never work.

  224. The funny thing about those three states is the political attitude that the federal government is too big, and should get out of their "hair". Akin to those who are seemingly unaware that their Medicare or Social Security are government programs.

  225. Another hyperbole laden missive from Krugman I'm afraid. A fatal blow to peace and democracy? Please. For someone who often points out that economics is not a morality play Krugman spends a lot of time moralizing. There's some truth in his claims that part of the bailout monies they have received has been used to make payments on their debts but so what. Those debts represent part of the Greek balance sheet and if they weren't being funded by loans they'd have to be paid out of tax revenues. What Krugman's argument amounts to is that the debts should be written off while the entire edifice of Greek life which created this problem in the first place (rampant tax evasion, corruption, inefficient government owned enterprises, crony capitalism, a grotesquely bloated public sector, etc. etc.) should all be allowed to remain in place so the so everyone can get back to business as usual. Namely, public and private sector borrowing at the low rates that Euro membership makes possible and spreading the largess around internally to all social classes until the next crisis occurs in about ten years time. It aint going to happen Paul.

  226. I think it is important to understand that this is an opinion column where Krugman explores the moral and political ramifications of the science of economics. When Krugman says that economics is not a morality play, I think he means that economics offers practical data-driven guidance on the very real moral choices that we all have to make. Unfortunately, some people use incorrect or discredited economic theories to advocate harming large numbers of other people, and this column is an excellent place for Dr. Krugman to explain what the science is and what the data shows.

  227. I never saw where Krugman said in any of his articles about Greece that, "rampant tax evasion, corruption, inefficient government owned enterprises, crony capitalism, a grotesquely bloated public sector, etc. etc.) should all be allowed to remain in place?"

  228. Charles
    It is implicit in his remedy.

  229. The conservatives are never remiss to remind anybody of paying for making bad decisions. It's just what has to be done for things to work out as they should. Well, what about the bad decisions of those pumping credit into Greece hoping to make a profit. It seems the conservatives would have to agree those were pretty bad business decisions, right? But not just bad business decisions, they were bad political and macroeconomic decisions that, should they go wrong, could initiate serious political and international repercussions as we see before us now.

    But I don't see conservatives saying those creditors need to pay for those bad decisions and help solve the problem they're part of creating. Why is that?

  230. It is worse than that - the babies who made the bad decision have been protected and in some cases even promoted. Not to mention the politicians who did not exercise wise oversight of the nation's banks.

    To be fair, the EU establishment also forgave PASOK, the center-right leaders who made the poor borrowing decisions - they were the darlings as the implemented austerity the last couple of years. Such nurturing tolerance for poor lending and borrowing decisions contrasts vividly with the draconian punishment the Greek electorate is made to face for poor election decisions.

  231. Yes, yes, I know. Sadly. All our brain-washed conservatives are doing is cheering on the corporate feudalism their mind-masters are working so fervently to give future generations.

  232. I guess this is all going to boil down to whether the Germans see the EU as an historical opportunity to end the tribalism and civil wars of Europe or as a vehicle to protect Germany's current account surplus. Hopefully the first view prevails but given the geopolitical acumen Germany typically displays during Europe's crises the latter seems more likely.

  233. Sounds like Greece has stopped drinking booze but still has a bar bill to pay off. Cut out the accumulated interest charges, and split bill up among the rest of the EU party. Obviously, Germany's ran a trade surplus for years with Greece, mooching drinks off them

  234. The interest charges are already tiny as a consequence of debt relief deals already concluded. In fact the debt payments in total are currently only consuming about 3% of Greek GDP.

  235. 3% of US GDP equals between 75% and 80% of our defense budget. Or, it equals about 60% of our Social Security budget. Somewhere around 50% of our Education budget. Around 100% of our transportation budget.

    3% of GDP is a lot.

  236. Dear Mr. Krugman,
    Whew! Just read Mr. Biden's column about helping Central America and now your column on helping Greece. So much help, so little money seemingly available.
    I guess this happens when you "bank roll" countries for profit; "haircuts" might soon become the norm. I do not for one moment believe banks in London, Zurich, etc. are REALLY interested in "helping" the people; they want to make a buck.
    And much like "bundling toxic mortgages" in this country helping lead to the "worst financial disaster" since the Great Depression, the folks "helping" Greece are finding their money was, perhaps, not well spent. The problem seems to be that one can handle "Banks Too Big To Fail" (The suckers known as "taxpayers" will be there to bail them out) but what about "Countries Too Big To Fail"? Is Greece really one of those? Sometimes even "bankers" choose poorly.
    And though the world is, seemingly, interconnected, I am very happy that this problem seems to concern, primarily, those of the European Union instead of good, old Uncle Sam.
    Not to worry; I think the EU will have bigger fish to fry once Mr. Putin starts rolling again.

  237. Professor Krugman alludes to the "haircut" of the bankers (which, as I recall, came only after Merkel's party lost some six regional elections and her reelection was in danger). What is needed today is a scalping ... speaking metaphorically, of course :).

  238. It actually might be Greece's 'Europe Test.'

    Because it's difficult to hate and love the other Europeans and especially Germany at the same time that much?
    And then the additional complication that there are so many Germans for complete debt forgiveness.
    And does everybody know here that Tsipras really can't stand Americans?.
    And I don't say that to imply that y'alls enemy should make y'all look at Germany with more admiration and respect.

    But allow me to assess, that it is kind of hilarious - that some 'liberal readers' or commenters of the NYT, who often like to talk about the 'corruption' in their own government - suddenly ignore it if some other confusing motives are involved.

    Is this like the 'Llibertarian Spirit' which hates itself for what it loves?

  239. I don't know...that sounds like an internet rumor.

  240. The issue is not really how much of its debt (regardless of interest rates) Greece does, or doesn't, retire, its how. Creditors will decide, either through the market place or polling booth, how much, if anything, Greece will be loaned in the future. Good luck with that. Greece's better be ready to "run ... positive surpluses" on its own.

  241. I don't expect the moneyed to let go with the money they expect to make in lending money to Greek's government. These people indirectly rule the European politics through put in power loyal friends.

  242. NO! The Germans cannot and will not. My only question is what is the fallout for our markets. What is the impact of the dissolution of the Eurozone on the world economy?

  243. "The CBO cautioned that America’s unaffordable public programs and crushing debt will condemn us to anemic economic growth. Total federal debt will reach $22.3 trillion by 2020. Unsustainable, says the CBO — especially when now-low interest rates return to normal."

    I'm just curious if Prof. Krogman knows the definition of the word "unsustainable?"

  244. An interesting quote Constance. Where's it from?

  245. Maybe a reminder to Merkel of what happened in Germany after the Treaty of Versailles would help.