Seems we now have one honest and straight forward actor in the game- the IMF.
33
The Germans are trying to run the EU as their free states in servitude, buy our goods, run a deficit to Germanies trade surplus, Germany has the advantage of an undervalued euro, from German perspective. Runs a very large trade surplus.
The US has donor states, Ny CALIF, CONN, Mass, and receiving states, Miss., Alabama, Georgia, Texas. Not the pattern here. Germany wants the best of both worlds, collect Fellow EU members money through trade, but dont finance or carry the adult responsabilites. Its a house of cards and the IMF is right, can not last. No free lunch here.
PS not that I havent dreamed of dumping the Donor states. A dream not reality
The US has donor states, Ny CALIF, CONN, Mass, and receiving states, Miss., Alabama, Georgia, Texas. Not the pattern here. Germany wants the best of both worlds, collect Fellow EU members money through trade, but dont finance or carry the adult responsabilites. Its a house of cards and the IMF is right, can not last. No free lunch here.
PS not that I havent dreamed of dumping the Donor states. A dream not reality
33
Essentially, the IMF (!) is telling Europe a simple thing: be more like Canada.
7
Perhaps you are right to see an "Emperor Has No Clothes" moment resulting from the IMF memo, but having read that memo, I'm not sure that what you see is in the memo. The Greeks seem to want to stay in the Eurozone and the other members want them to stay. Isn't that nice?
But here's a modest proposal: Why not recommend that the Greeks exit the Eurozone and hire consultants Krugman, Stiglitz and other pro-Grexit economists and pundits to put Greece on the road to prosperity?
But here's a modest proposal: Why not recommend that the Greeks exit the Eurozone and hire consultants Krugman, Stiglitz and other pro-Grexit economists and pundits to put Greece on the road to prosperity?
10
The Germans didn't mind bailing out the East Germans after reunification - by the tune of billions. Cue the song "We are family"
Germans bailing out Greeks? Stop the music - it's all Greek to them.
Germans bailing out Greeks? Stop the music - it's all Greek to them.
36
All the negotiating comes down to each side setting out their demands in order to pretend that the situation is other than reality.
1
I didn't know this was coming but now I see Syriza's game plan with if intentional is very smart. Greece either needs a serious agreement outline in the IMF or it needs to exit the Eurozone in an orderly fashion. The blackmail offered Syriza had to be accepted however, this could be viewed as a delaying tactic so either it could get a reasonable deal or exit the Eurozone in an orderly fashion. The IMF is dominated by the U.S. and hence more concerned about world stability as opposed to the German beggar thy neighbor policy. The IMF statement is tantamount to the U.S. government taking an official position. In the end and in worst case it could mean that the U.S. government indirectly through the IMF will end up aiding Greece. If not then Greece will have time to exit the Eurozone with out the ECB closing the Greek Banks. I hope the Greeks win the War and don't end up starving because of German notions of probity
14
But you have to follow the German reasoning. If they can't collect their debts in the form of Euros, then at least they can feast on the wailing and gnashing of teeth.
7
The IMF basically wants Germany and the other euro countries to keep subsidizing Greece until eternity without anything in return from Greece. How can this possibly be approved by the other parliaments? The times keeps forgetting that there are 18 other democracies in the eurozone.
10
The Euro is essentially a paper version of a gold standard. The gold standard was a failure and abandoned in the Great Depression. Only if the Euro zone was to become a single United national entity would the Euro have a chance of succeeding. Given the fighting and name calling among various different nations in the Euro zone, it is obvious that that will not happen any time soon. The Euro zone is doomed to be a mess for the foreseeable future.
12
The Euro is OK but it is Europe that doesn't work. To see yesterday that the leaders from both France and Germany still need a translator when they are talking to each other is absurd. Just a small illustration of the constant disconnection in that part of the world.
10
How about Germany gives Greece a big wad of cash, and Greece puts up Santorini as collateral. If Greece can't pay back their loan, which they won't, then Germany obtains a nice touristy island that they can use as they see fit.
8
"Under this plan, Greece would make no more debt payments until Justin Bieber is 59 years old..."
Bieber may very well reach his 59th year, but it's debatable as to whether he will have begun to behave like an adult by then.
So, fingers crossed that Greece -- not to mention its best buddy Germany -- will have attained some measure of maturity by then.
Bieber may very well reach his 59th year, but it's debatable as to whether he will have begun to behave like an adult by then.
So, fingers crossed that Greece -- not to mention its best buddy Germany -- will have attained some measure of maturity by then.
5
I've seen the standard of living nose dive with my own eyes in Portugal Spain and Italy. I've met many young well educated refugees from those three countries in France and England all looking for jobs- any jobs. The banks may have been saved in the other PIIGS, but their real economies haven't recovered at all. And in the last few months I've seen the suffering of the Greeks on my cable TV-- the same cable in Holland and Germany. And I've been reading Der Speigle in English, reading unsympathetic comments from Northern Europeans, and watching with unbelieving eyes their reaction to the Greek referendum: they shut down their ATMS to influence the result-- and it backfired!
All I can conclude is that the EU is doomed to split into trade and currency blocks of North and South, With England on the sidelines and Ireland thriving because of competitive advantage as a trading platform between the New and Old world financial and IT super nationals. Eventually all the Mediterranean countries will all follow the path of Greece and refuse to tolerate a relentless downward spiral of their standard of living.
All I can conclude is that the EU is doomed to split into trade and currency blocks of North and South, With England on the sidelines and Ireland thriving because of competitive advantage as a trading platform between the New and Old world financial and IT super nationals. Eventually all the Mediterranean countries will all follow the path of Greece and refuse to tolerate a relentless downward spiral of their standard of living.
19
But what kind of political leadership will the Mediterranean countries have for this? It looks like Greece had a youth movement to get them the leadership they have now.--a 'Greek Spring' if you will. The times and circumstances demanded this. The question is, what is needed and will the Mediterranean countries get the kind of leadership needed to successfully resist the EU and the 'troika?' It is not clear and actually doubtful that Greece got what was needed; though the change was radical.
4
This isn't too much different than the steady flow of money through the US federal government from wealthier blue states to poorer red states. The political differences are significant, but not the economic differences.
37
And that is exactly the reason you can't have a fiscal union without a political one.
13
Correct.
Some of the biggest "welfare queens" are Alabama, Mississippi and Louisiana, and we Americans barely even notice. We've just been accepting it as a cost of doing business as a union.
Some of the biggest "welfare queens" are Alabama, Mississippi and Louisiana, and we Americans barely even notice. We've just been accepting it as a cost of doing business as a union.
19
What should be done is quite simple as almost everyone comments that no one in the Euro is willing to continue sending money to Greece, support the Greek government for 12 months (as long as necessary to print and distribute Drachmas) then stand back because what is owed will be paid back in a significantly devalued currency (Greek government can print as many Drachmas as they need to repay the loans). The advantages? Greece can attempt to normalize their economy without the burden of a inflexible currency, Europe will recognize, on paper, repayment and have no further need to support the Greek economy. Why is this so hard to accomplish? If the IMF can recognize Greece can never repay their current and future (if a new bailout is agreed) debts why continue the charade?
14
There are bigger things at stake than Greece. Just consider the combined amounts of all 'rescue programs' past, present and proposed. Now compare them to the size of the Greek economy. It is insane, I know.
I am convinced that what is really going on is that the financial economic system of the western world is unsustainable, and most western banks are structurally insolvent. Perpetual economic growth isn't possible since perpetual population growth is impossible, perpetual productivity rise is impossible, perpetual credit expansion is undesirable (for all too obvious reasons) and resources aren't available in limitless quantities.
I am convinced that what is really going on is that the financial economic system of the western world is unsustainable, and most western banks are structurally insolvent. Perpetual economic growth isn't possible since perpetual population growth is impossible, perpetual productivity rise is impossible, perpetual credit expansion is undesirable (for all too obvious reasons) and resources aren't available in limitless quantities.
31
If the Euro is to work, the the European Union's strong countries like Germany need to let go of the ego and adopt a federalist system as exists in Canada -- that means stronger economies like provinces such as Alberta transfer money to the benefit of economically weaker, smaller provinces like those in Atlantic Canada. Otherwise, ditch the Euro, have common trade partnerships but separate currencies.
18
Do you have any proposals as to where the Dutch and German governments should slash their domestic spending to make fiscal transfers possible? Perhaps education, welfare and healthcare can suffer some 'austerity'?
3
The I.M.F. is right to make these suggestions (demands?). The idea that Greece will ever be able to repay additional loans is fantastical. If the Eurozone is truly a 'union' of countries, then it makes complete sense for 'equalization' payments to be made to poorer countries within the 'zone' from richer countries. This happens in both the US and Canada where 'poorer' states and provinces are given equalization payments by the federal government. All Eurozone countries are obviously not equal economically.
10
The problem is that when you look at US states, and Canadian states/provinces and their spending levels, there is room on top for federal taxes to pay for these fiscal transfers.
In European countries most people are already overtaxed, there's no room on top of current national budgets for fiscal transfers, those transfers will have to come at the expense of current domestic spending. No one here is ever going to vote for that.
In European countries most people are already overtaxed, there's no room on top of current national budgets for fiscal transfers, those transfers will have to come at the expense of current domestic spending. No one here is ever going to vote for that.
10
Dude, for fiat currency systems, taxes do not pay for anything. Look up "fiat" in a dictionary. There's no such thing as revenue to pay for fiat. That's an oxymoron. All we do is manage the tolerance limits of excessive deflation/inflation.
All taxes are policies to promote or deter given behaviors and activities, nothing more & nothing less.
Please READ this old Fed essay, to the end. Then you'll finally understand fiat currency operations.
http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
All taxes are policies to promote or deter given behaviors and activities, nothing more & nothing less.
Please READ this old Fed essay, to the end. Then you'll finally understand fiat currency operations.
http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
5
When you consider the taxes levied by American municipalities and states, there is enough room on top for federal taxes.
In European countries, after totalling the local and national taxes, there is absolutely no room on top for an extra 15-20% in taxation. Any money that is going to be used as fiscal transfers, will necessarily have to come at the expense of current domestic spending in northern European countries.
And I can tell you right now, no-one here in Netherlands, or in Germany or France is going to vote for a political party proposing to slash away a big chunk of domestic spending to do this. And considering the differences between EU/Euro countries are vastly larger (in terms of income per capita) than those of US states, any system of fiscal transfers would necessarily have to be much larger than in US states, so my 15-20% estimation (representing possibly a third of national government spending) might even be on the low side.
Anyone who ever wondered why the Euro doesn't work (no fiscal transfers) and can never work (no one is gonna vote for fiscal transfers), this to a large extent is the answer. The most obvious solution is the dissolution of the Euro.
In European countries, after totalling the local and national taxes, there is absolutely no room on top for an extra 15-20% in taxation. Any money that is going to be used as fiscal transfers, will necessarily have to come at the expense of current domestic spending in northern European countries.
And I can tell you right now, no-one here in Netherlands, or in Germany or France is going to vote for a political party proposing to slash away a big chunk of domestic spending to do this. And considering the differences between EU/Euro countries are vastly larger (in terms of income per capita) than those of US states, any system of fiscal transfers would necessarily have to be much larger than in US states, so my 15-20% estimation (representing possibly a third of national government spending) might even be on the low side.
Anyone who ever wondered why the Euro doesn't work (no fiscal transfers) and can never work (no one is gonna vote for fiscal transfers), this to a large extent is the answer. The most obvious solution is the dissolution of the Euro.
18
No big deal. The USA has been supplying excess monies to its "Greece" States (mainly those whose financial structure was originally based on slavery, and who haven't yet worked their way out of it) for decades. I say give them another 100 years or so (if only they would stop complaining about how high THEIR taxes are.)
It apparently is the price one pays to have a currency zone without portions of it trapped in perpetual grinding poverty, subservient to the richer portions. The value of a stable, strong, currency outweighs the sting of being perpetually played for suckers (although sometimes is's a close call.)
It apparently is the price one pays to have a currency zone without portions of it trapped in perpetual grinding poverty, subservient to the richer portions. The value of a stable, strong, currency outweighs the sting of being perpetually played for suckers (although sometimes is's a close call.)
18
Brian, I don't remember Illinois, Connecticut, and New Jersey as slave states. And I'm not aware of the federal government "supplying excess monies" to ex-Confederacy states. In fact the southern states seems to have their finances in order compared to the elite northern states.
2
"Fast economic growth" and "running a large primary surplus for an extended period" in an already deeply depressed economy are maybe, just possibly, at odds with each other? Has it ever worked before?
Is there no end to these fantasies cooked up the ministries of wishful thinking and virtue for others, but not ourselves?
Is there no end to these fantasies cooked up the ministries of wishful thinking and virtue for others, but not ourselves?
8
Indeed. One would almost suspect that those who are running the show are idiots, but let's not go there shall we.
Greece has no population growth and won't have that in the foreseeable future so I can already guarantee it will have no economic growth in the coming years, and that's not even taking into account the destruction of the Greek state by the EU on the orders of bankers.
Greece has no population growth and won't have that in the foreseeable future so I can already guarantee it will have no economic growth in the coming years, and that's not even taking into account the destruction of the Greek state by the EU on the orders of bankers.
8
The phrase, "Good money after bad," certainly comes to mind in this situation. And why exactly, did the IMF make this announcement now, just as a deal is about to be executed by both sides? Did this not occur to them some 5 years ago?
14
If only it were as simple as the within-family analogy offered below.
Instead, imagine a large extended family forming a business (EFB), assigning siblings roles based on interest/ability. Then imagine a small subset of siblings making repeated fiscally unsound choices for the EFB resources given them, choices where input from rest of family has been minimal. For instance, your part of the EFB allowed its labor costs to rise 5% over the last decade, your sibling 25-30%; their consequent indebtedness is 175% of the family average.
You're now in a family meeting, one such sibling coming to ask family to underwrite, yet again—or better, write off—their past fiscal mistakes. Moreover, the sibling stipulates that their employees have directed that any family assistance should ask limited or no change in their day-to-day practices.
Your own family's out of pocket cost for this wayward sibling is currently ~2% of your income—i.e., 2% you can't charitably give to others, put in your own retirement, add to your children's educational/health care savings (opportunity costs of continuing sibling support).
You have to help decide whether this sibling remains in the family business or not. What would you say at the family meeting, regarding their continuing hat-in-hand requests to the rest of family? What would your terms be for continuing their support? Or, without hope of change, would you ask them to leave? I find it helpful to bring such matters home in this way. Cheers.
Instead, imagine a large extended family forming a business (EFB), assigning siblings roles based on interest/ability. Then imagine a small subset of siblings making repeated fiscally unsound choices for the EFB resources given them, choices where input from rest of family has been minimal. For instance, your part of the EFB allowed its labor costs to rise 5% over the last decade, your sibling 25-30%; their consequent indebtedness is 175% of the family average.
You're now in a family meeting, one such sibling coming to ask family to underwrite, yet again—or better, write off—their past fiscal mistakes. Moreover, the sibling stipulates that their employees have directed that any family assistance should ask limited or no change in their day-to-day practices.
Your own family's out of pocket cost for this wayward sibling is currently ~2% of your income—i.e., 2% you can't charitably give to others, put in your own retirement, add to your children's educational/health care savings (opportunity costs of continuing sibling support).
You have to help decide whether this sibling remains in the family business or not. What would you say at the family meeting, regarding their continuing hat-in-hand requests to the rest of family? What would your terms be for continuing their support? Or, without hope of change, would you ask them to leave? I find it helpful to bring such matters home in this way. Cheers.
6
You guys are all missing the point.
Yes, there's a cost-of-coordination.
Yet the return-on-coordination is the only return that exceeds the cost-of-coordination. That's why unions (& social species) exist in the 1st place.
You either want Greece in Europe, or you don't. It's up you the rest of Europe to leverage the return on a more perfect union.
This is the same old argument as Aesop's fable about the Belly and the Limbs. At any one time, you may feel you don't need some body part, but you'll soon learn that it was there for a good reason.
Yes, there's a cost-of-coordination.
Yet the return-on-coordination is the only return that exceeds the cost-of-coordination. That's why unions (& social species) exist in the 1st place.
You either want Greece in Europe, or you don't. It's up you the rest of Europe to leverage the return on a more perfect union.
This is the same old argument as Aesop's fable about the Belly and the Limbs. At any one time, you may feel you don't need some body part, but you'll soon learn that it was there for a good reason.
4
A strictly fiscal union for Europe would never work if it had no political teeth to enforce what it asks its members to do. And it could never be the size it is currently, either. A smaller, fiscal-and-political union among the more successful, wealthier European countries would have a chance at being a world power, but I don't think Europe as a whole would ever go for such an entity. The area as a whole is some odd combination of too liberal and not unified enough. The northern countries in Europe may like vacationing in the southern countries along the Mediterranean, but they don't think of their countries as having much to do with these distant neighbors of theirs. There are too many language issues, cultural issues and previous wars for much unification to happen in Europe.
I'm certain they are going to continue to muddle along with the EU as it stands now, even if it is largely a symbolic exercise in working for the greater good of Europe as a whole. I think this most recent deal with Greece about their debts and the repayment of them is almost meaningless. Greece is never going to repay the money they owe their creditors, and they have no intention of doing so, either. We will still all be talking about these issues a year from now, and five years from now because, as it is Europe is one big bargaining table set up on political quicksand. Any deal reached sinks as fast as it is inked.
6
Couldn't the same doubts apply to our union after the Civil War? We are still resolving those issues, but we have a fiscal union. Some states even pay more into the federal system than they get back, yet we accept this in our politics.
3
It is leaping to conclusions to say that the Euro doesn't work. The root of the problem is that no Euro country can control its exchange rates, either through devaluation or floating rates. Therefore, the weaker economies such as Greece are in deficit and have to make up the balance through lending. If Greece could follow the path of Mexico or Argentina, its sovereign debt could be reduced or deferred. However, most of the lending has been between central banks, which refuse to take a haircut. When the latest agreement says "no debt relief," it means it expects every penny to come from Greek citizens, employed, underemployed and unemployed -- clearly an unrealistic goal both politically and economically. The EU needs to securitize Greece's debt into several tranches with increasingly unlikely possibilities of repayment. These could be sold on the private market, where it seems there are always bottom fishers ready to buy sovereign debt at a deep discount. This would still require the EU central banks to take a haircut, but would get it over with.
8
That is one component of the problem, but the reason that the Eurozone does not "work" properly is that it lacks the labor mobility and fiscal transfer measures essential for any currency union to work - especially a very large so many different economies. Without those aspects of a union, and the no ability to set monetary policy, a country in Greece's position is ultimately doomed - haircut or no haircut.
5
Actually there is a surprising amount of labor mobility between Greece and Germany and a lot between Portugal and France. This was true long before the Euro.
I think what is missing (but equally can't happen) is the Eurostate taking over things like state pensions (as is the case in the US with Social Security). Then at least the terms are the same for all, both in taxes and benefits. But it seems unlikely Greece would agree to this any more than Germany would.
I think what is missing (but equally can't happen) is the Eurostate taking over things like state pensions (as is the case in the US with Social Security). Then at least the terms are the same for all, both in taxes and benefits. But it seems unlikely Greece would agree to this any more than Germany would.
5
Seems like a Grexit was the best alternative from the start - not, of course, that that move would solve all the problems with the Eurozone comprised of too many disparate national economies.
2
It looks like a solution is fiscal unity. That will be resisted. How much unity does Europe really want? And for what? Enhanced prosperity? Surely, but without enhanced unity that goal has rendered what we see now with southern Europe: a financial catastrophe. They did not look well enough into the future when devising the Euro. Are they any better now?
6
This seems somewhat convenient for Germany and its northern allies. Offer a bailout scenario that the IMF "independently" deems unworkable. This way Europe appears to have come through for Greece with a proposal to rescue them and at the same time satisfied their electorate by making huge demands of Greece. But we are now back to square one. Greece continues to sink further with no realistic plan in place and the world is more and more aware of how fragile and unworkable this union really is.
8
I am afraid this is what happens when a country divests itself of its own currency and then runs in to economic trouble. At that point, all decisions made about that countries economic future are determine elsewhere.
3
Greece fudged the numbers in order to meet the minimum requirements to become a Euro member. The lies have come home to roost. FYI; Wall St/Goldman Sachs had a hand in fudging the last round of numbers.
2
Thank god for the injection of some reality into these discussions. The Euro cannot rely on a policy of "Deutchland Banken uber alles". Eventually even the French would sucumb, and the Bankers would rule all of Europe. Monitary systems are supposed to support the functioning of society, and not subvert it.
17
Allusions to a conceptually distinct and so all but completely irrelevant period in the history of atrocity does nothing to support (and intact undermines) the credibility of the point you wish to make. Combattre assez.
i enjoyed the basic premise: point by the financial experts, counterpoint from the politicians. the problem is that one always underestimates the capability of politicians to muck up any sensible approach to a pragmatic, well understood issue.
indeed, insofar as the greek "crisis" creates political capital of various kinds (hate, fear, anger, delusion, irresolution, nonsense, etc.), it is in the survival interests of the politicians to let it fester indefinitely.
like immigration, or health care, or gun control, or surveillance, right here in the USA.
the "old bieber scenario" did set me back a few beats, mostly because i had to deal with the implications ... either that barro was whimsical enough to look up the date of bieber's birth or, far worse, already knows what it is.
indeed, insofar as the greek "crisis" creates political capital of various kinds (hate, fear, anger, delusion, irresolution, nonsense, etc.), it is in the survival interests of the politicians to let it fester indefinitely.
like immigration, or health care, or gun control, or surveillance, right here in the USA.
the "old bieber scenario" did set me back a few beats, mostly because i had to deal with the implications ... either that barro was whimsical enough to look up the date of bieber's birth or, far worse, already knows what it is.
6
“The I.M.F. isn’t calling for a fiscal union; it’s calling for debt relief.” But once a debt relief program becomes big enough, this becomes a distinction without a difference; they’re both about other Eurozone countries giving Greece money."
Not so. This twists of the facts. The Eurozone countries have no wish to surrender their own sovereignty or exercise sovereignty over other Eurozone countries. They will pay to prevent a Greek exit from the euro only because it is in their own self-interests to do so, and that is far from being tantamount to a fiscal union with Greece..
The European union has been good for many of the countries of Europe and they do not want to lose it, nor do they want to lose any more of their investment in Greece than they have to. If Greece exits the euro, the losses on loans to Greece will be larger than if Greece stays in, and the exit will weaken the Eurozone for a number of reasons, namely (i) it will provide a precedent for other Eurozone countries struggling with their debts which may cause them to seek an exit rather than strive to get their fiscal house in order, (ii) it will introduce an element of uncertainty as to the strength of the union, which will cause creditors and others dealing with any of the Eurozone countries to question whether the country or other countries might exit the euro and if that occurs what the consequences will be, (iii) it will be a disincentive to financial assistance if another Eurozone country needs help.
Not so. This twists of the facts. The Eurozone countries have no wish to surrender their own sovereignty or exercise sovereignty over other Eurozone countries. They will pay to prevent a Greek exit from the euro only because it is in their own self-interests to do so, and that is far from being tantamount to a fiscal union with Greece..
The European union has been good for many of the countries of Europe and they do not want to lose it, nor do they want to lose any more of their investment in Greece than they have to. If Greece exits the euro, the losses on loans to Greece will be larger than if Greece stays in, and the exit will weaken the Eurozone for a number of reasons, namely (i) it will provide a precedent for other Eurozone countries struggling with their debts which may cause them to seek an exit rather than strive to get their fiscal house in order, (ii) it will introduce an element of uncertainty as to the strength of the union, which will cause creditors and others dealing with any of the Eurozone countries to question whether the country or other countries might exit the euro and if that occurs what the consequences will be, (iii) it will be a disincentive to financial assistance if another Eurozone country needs help.
4
Of course you're right: The European Union has been good for all the countries of Europe. The Euro, however, has been a disaster.
2
In the US, when a state can't pay its debts, does the federal government bail it out? No one knows the answer, because no state has yet done that, but legally there is no federal obligation to do so. So the EU is not alone in this regard. When Illinois can't pay its pensions, should it pull out of the dollar and pay in devalued Lincolns? The idea is ridiculous. The only reason it is not ridiculous in the case of Greece is that the history and politics are different. Krugman et alii to the contrary, economics has nothing to do with it.
2
The European Union is made up of 28 different countries, 19 of which are in the Euro Zone. The US is ONE country that consists of 50 different states, united permanentlty in one union. It is a false comparison.
5
Ah, but when the banks within a state can't pay their debts, yes the federal government bails them out. Interestingly on this
point, I read an article last week that 65% of the costs of the S&L bailouts of the late 80s/ early 90s were incurred in one state: Texas.
Besides, we will bail out Illinois if the renege on their pensions - through higher costs of income supplements such as food stamps and Medicaid to support those whose pensions are cut.
The good thing about that is, after it happens, we'll be to blame the pensioners for being moochers, rather than the state for reneging on its contractual obligations to its workers.
point, I read an article last week that 65% of the costs of the S&L bailouts of the late 80s/ early 90s were incurred in one state: Texas.
Besides, we will bail out Illinois if the renege on their pensions - through higher costs of income supplements such as food stamps and Medicaid to support those whose pensions are cut.
The good thing about that is, after it happens, we'll be to blame the pensioners for being moochers, rather than the state for reneging on its contractual obligations to its workers.
12
I have to agree with Sean. There are other systems in place that essentially act like a bailout without actually giving the state government any money. State governments essentially spend their money on goods and services in the state. If the Fed take over support for road construction and schools, then it is essentially bailing out the state government. Semi-relatedly, Texas has tried on a couple of occasions to get the Fed to pay for its entire education budget by cutting funds for education - to which the Fed replied: "if you don't put something in, we're not either."
The conditions that also give rise to things like a state not being able to pay for its pension are probably also the conditions on which the Fed pursues an easy-money policy - which provides the state with a way to continue financing its operation. This second approach has basically been stopped in Greece.
I guess the Fed isn't under an obligation in so far as you believe it is acting in a way that benefits the "life, liberty, and pursuit of happiness" of the US populace.
The conditions that also give rise to things like a state not being able to pay for its pension are probably also the conditions on which the Fed pursues an easy-money policy - which provides the state with a way to continue financing its operation. This second approach has basically been stopped in Greece.
I guess the Fed isn't under an obligation in so far as you believe it is acting in a way that benefits the "life, liberty, and pursuit of happiness" of the US populace.
4
Germany needs to decide that keeping Greece in the Euro and therefore subsidizing them by debt repayment delay or simple debt forgiveness has strategic advantages that one tote up on a calculator. Greece now has a democratic government and has military importance as a NATO ally sitting right at the edge of a troubled middle east and as a gateway to Russian passage through the Aegean Sea.
Just as we subsidized Germany (and Berlin especially) during the Cold War as a bulwark against Soviet tyranny and militarism, so Germany and the rest of Europe must step up now.
Just as we subsidized Germany (and Berlin especially) during the Cold War as a bulwark against Soviet tyranny and militarism, so Germany and the rest of Europe must step up now.
12
Josh is infinitely superior to his fellow hack Douthat at slipping in the dishnesty.
"expense of Greece’s creditors, most of which now are other European governments or the I.M.F."
Ladies and gentlemen, if you do not appreciate the critical role of the single word "now", then go ahead and buy th Brooklyn Bridge.
Germany will be eating what ITS inept, incompetent, unrepentant, bankers received from strong arming Greece with the EU, and, a small part of the devastating collateral damage.
But somehow moral hazad never applies to the .1 percent and lemin socialism.
"expense of Greece’s creditors, most of which now are other European governments or the I.M.F."
Ladies and gentlemen, if you do not appreciate the critical role of the single word "now", then go ahead and buy th Brooklyn Bridge.
Germany will be eating what ITS inept, incompetent, unrepentant, bankers received from strong arming Greece with the EU, and, a small part of the devastating collateral damage.
But somehow moral hazad never applies to the .1 percent and lemin socialism.
7
Per the NYT, Commenter "Query" is a "Verified Commenter… [who] can leave comments… without initial moderation… earned based on a history of quality comments." One has to wonder, in the face of the 5-paragraph, 4.5-sentence "hack" and "dishnesty" and "th" and "ITS" and "hazad" and "lemin" evidence below, whether here as elsewhere, "past performance does not necessarily predict future results," or rather if the ability to spell words, forego insults, and construct cogent sentences (and larger arguments) falls outside of the NYT definition of quality. Cheers.
1
I don't see an argument here that the Euro can't work, I see an argument that Greece can't stay in it (if Europe does not want to be on the hook for bailout after bailout). Maybe that can be developed into an argument that the Euro can't work, but that argument is not given here.
7
I can only echo most of the insightful comments commending the IMF and inditectly France for confronting Chancellor Merkel and the otjer austerity hawks of the troika and forcing them to face the fact the current crisis in not only about Greece but the EU as a collective fiscal whole.
Paul Krugman and many comments to other articles have convincingly argued Greece's current levels of foreign debt, given the size and depressed condition of their domestic economy, makes substaintial debt relief an inescapable necessity if Greece is to truly remain within the EU. The IMF is directly saying to Germany and the other austerity hawks you can't have your "austerity cake" and a viable european fiscal union too.
The truth be told, the underlying resistence to debt reilef for Greece lies in inappropriate adherence to the old Europe model not the current EU. A substantial portion of Greece's foreign debt sitting in european central banks resulted from their governments doing bailouts of private domestic banks. Now these governments are going to have to answer to their voters why these questionable loans were assumed on the basis of 100% of nominal value.
Paul Krugman and many comments to other articles have convincingly argued Greece's current levels of foreign debt, given the size and depressed condition of their domestic economy, makes substaintial debt relief an inescapable necessity if Greece is to truly remain within the EU. The IMF is directly saying to Germany and the other austerity hawks you can't have your "austerity cake" and a viable european fiscal union too.
The truth be told, the underlying resistence to debt reilef for Greece lies in inappropriate adherence to the old Europe model not the current EU. A substantial portion of Greece's foreign debt sitting in european central banks resulted from their governments doing bailouts of private domestic banks. Now these governments are going to have to answer to their voters why these questionable loans were assumed on the basis of 100% of nominal value.
14
It will help the EU members to read the history of British India and how they forged a union of various countries in the Indian subcontinent. It took more than a century to bring the warring states to become one country. Europe is in a similar situation at present trying to forge a union beginning with a common currency.
6
The Greek public debt debacle reveals a dangerous structural flaw at the eurozone. That is, the financial-banking system exposure to unsustainable public debt shocks.
The eurozone system is not set up to bailout insolvent member countries. Besides, it is far from being an optimal currency area as envisioned by Nobel prize winner Robert Mundell.
The remedy to solve the delicate question mentioned above is fiscal and political integration. This requires eurozone member countries to give up sovereignty to a central authority.
At this juncture, European politicians are not ready to contemplate the sovereignty question in the common currency area context.
The eurozone system is not set up to bailout insolvent member countries. Besides, it is far from being an optimal currency area as envisioned by Nobel prize winner Robert Mundell.
The remedy to solve the delicate question mentioned above is fiscal and political integration. This requires eurozone member countries to give up sovereignty to a central authority.
At this juncture, European politicians are not ready to contemplate the sovereignty question in the common currency area context.
4
Is anyone else amused (or horrified?) at the irony of the German position? Apparently, they've forgotten the 1919 Treaty of Versaille where the reparations (effectively debts) imposed on the new German government destroyed the German economy in a manner which was entirely predictable. And where the victor/creditor nations told the Germans to simply soak up the pain -- or else! That didn't turn out so well.
29
i have no strong feelings one way or another about how this turns out, but Greece has had a few bailouts already, no? they can't continue to expect to be a bottomless financial pit for other countries, can they?
1
Yes, finally, even the IMF is saying what I have been saying for a long time now.
Look, it's fine to use your "darn tootin" intuition about how an economy works as long as everything is going well. It's when things break down that you need people who actually know how things work. So here goes again:
Myth #1. Governments get the money to spend from people. Wrong. People get their money from Governments. It all comes from a Government, and the Government creates it out of nothing. A Government with a sovereign currency (not Greece, but the Euro area as a whole) can never "run out" of that money.
Myth #2. Printing money causes inflation. Wrong again. Look up the equation relating quantity of money to prices. There are FOUR variables, not just two. Printing money can only cause inflation if you keep on printing beyond an economy's full productive capacity. That means every man woman and child is fully employed. Until that point, you are just hiring the unemployed, increasing output, making everyone's life better.
What no one is talking about here is the incredible REAL cost Europe is bearing in lost productivity. It will take generations to recover from this. That is a REAL cost. Money is not and cannot be a problem for a sovereign currency issuer. The ECB cannot run out of Euros.
We are enduring an immense REAL cost, out of fear of suffering a nominal cost. And it is all because people "think" they know how an economy works.
Look, it's fine to use your "darn tootin" intuition about how an economy works as long as everything is going well. It's when things break down that you need people who actually know how things work. So here goes again:
Myth #1. Governments get the money to spend from people. Wrong. People get their money from Governments. It all comes from a Government, and the Government creates it out of nothing. A Government with a sovereign currency (not Greece, but the Euro area as a whole) can never "run out" of that money.
Myth #2. Printing money causes inflation. Wrong again. Look up the equation relating quantity of money to prices. There are FOUR variables, not just two. Printing money can only cause inflation if you keep on printing beyond an economy's full productive capacity. That means every man woman and child is fully employed. Until that point, you are just hiring the unemployed, increasing output, making everyone's life better.
What no one is talking about here is the incredible REAL cost Europe is bearing in lost productivity. It will take generations to recover from this. That is a REAL cost. Money is not and cannot be a problem for a sovereign currency issuer. The ECB cannot run out of Euros.
We are enduring an immense REAL cost, out of fear of suffering a nominal cost. And it is all because people "think" they know how an economy works.
15
Zimbabwe
Finally, the IMF is talking sense. They must have been reading Krugman columns.
But riddle me this: if they now realize the necessity of a haircut, then they also must have known it 6 or 12 months ago. Nothing has changed. So why didn't they take this position publicly much sooner??
But riddle me this: if they now realize the necessity of a haircut, then they also must have known it 6 or 12 months ago. Nothing has changed. So why didn't they take this position publicly much sooner??
11
politics, obviously. There is a time and a place for facing the bogeyman--the public.
2
This is what has been happening in the U.S. for a long time, when poorer states draw more money from Washington than they pay in taxes. The wealthier states subsidize the poorer ones on a permanent basis. If the Germans want union, this is the price they will have to pay. As the old saying goes, beware of getting what you want.
23
Funny, when you mention poorer states. Texas is a leading recipient of federal dollars and is not considered by many a poor state.
Canadian provinces have always subsidized the Atlantic provinces, it's what comes of being a country, the next step for the Euro Zone.
Canadian provinces have always subsidized the Atlantic provinces, it's what comes of being a country, the next step for the Euro Zone.
1
The euro has always been an absurd concoction, which benefited multi-national companies and banks, offering only risk to individual citizens and small to mid-sized companies. It also offered benefits (short-term) to profligate borrowers, like Greece, which benefits transformed into disaster in the long term.
It's time for the ostrich to stop burying its head in the sand. The IMF is finally issuing a wake-up call. The only question is, can the euro be totally disbanded without causing an international economic disaster? It's probably more prudent to push Greece out, and let the system cope with this manageable exit. Over time, creditors will reduce their lending (in euros) to other suspect countries, and raise the interest rates on that lending. If the euro is to persist, it must be limited to only the strongest, most disciplined, economies.
It's time for the ostrich to stop burying its head in the sand. The IMF is finally issuing a wake-up call. The only question is, can the euro be totally disbanded without causing an international economic disaster? It's probably more prudent to push Greece out, and let the system cope with this manageable exit. Over time, creditors will reduce their lending (in euros) to other suspect countries, and raise the interest rates on that lending. If the euro is to persist, it must be limited to only the strongest, most disciplined, economies.
4
The comparisons with the U.S state system is turning my sympathies towards the Germans. The 'taker states' here, overwhelming Red states, invoke fiscal policies which insure they will never be self supporting. Amusingly, they believe they are being fiscally responsible.
19
Yes, but the wealthier states in the U.S. necer force the poorer states to adopt austerity that crushes their economies even further, then confiscating their wealth and finally making them more dependent on the wealthier states.
The Germans are acting in an extraordinarily hostile manner.
The Germans are acting in an extraordinarily hostile manner.
9
Actually the "Red states" are "taker states" in more than one sense. One is the transfer payments and bigger subsidies such as Medicaid. The other are the Walmart subsidies which allow large corporate businesses to relocate there for ultra cheap labor without paying the benefit costs. And then the Red states brag and blow about their being more competitive and stealing business from the subsidizing states. So, now we find the EU needs a Reconstruction just as much as the old Post-Civil War American South and the new American South. Sounds like Globalization 2.0 is in trouble?
8
But unlike Greece, the (white) majorities in the taker states are actually anxious to reduce the level of transfer. (That's why they haven't accepted the Medicaid expansion.) After all, widespread poverty is a feature, not a bug, of the plantation economy. It keeps the price of labor low. Why pay higher taxes, when the result is that you can no longer afford a house cleaner, a cook, a gardener and a driver?
1
This IMF plan is similar to the USA modus operandi first proposed by Alexander Hamilton. There was a lot of rancor when he proposed that the United Colonies accept the debts of any of the individual colonies as the responsibility of the Central Government. This is the only solution that is going to work going forward for the EU if it is to endure.
6
I commented previously that the Greek situation proves that monetary union without political union won't work. Now it seems that fiscal union is necessary as well. The inevitable conclusion is that monetary, fiscal AND political union are necessary. Duh...
2
Can IMF tell Europe what to do? I do not think so.
1
The IMF can tell Europe what reality is; Europe is under no obligation to listen. The United States maintains the dollar as a unified currency despite very different economies among the states because we take it as a given that money will be transferred from the blue states to the red states all the time: explicit subsidies to the agricultural states, and large military bases in the southern states. Nobody expects the poorer states to "pay back" the tab: that would be insanity, although Europe have been living this insanity for years now.
7
Especially as Europe probably makes up about half of the IMF budget...
Good article - important message.
But, it fails to mention that the EU finance ministers and (a day later) the EU political leaders had this "dry, 1,184-word memorandum" before they forced Greece to accept harsh terms. Germany has been a big believer in the IMF, as long as it agreed to promote austerity. Now, they ignore all three options for saving the EU proposed by the IMF and double-down on austerity - even demand that Greece sell its assets. The IMF report clearly says that the EU's austerity policies and recent withdrawal of support of the EU Central Bank have made Greece's debts a much larger % of GDP, to the point they are not re-payable.
The article inappropriately refers to "loans" to Greece by EU countries. EU countries did not make loans to Greece. German and French banks made the loans. When Greece could not re-pay, Germany and France bailed out their banks by assuming the loans - rather than allowing bankruptcy which would have required Greece and their banks to take a haircut.
Last, without naming them the article refers to "many economists" who've told European officials that the euro cannot work without fiscal union. One of those key economists is Professor Paul Krugman, who has written many articles telling EU leaders that stimulus, not austerity was needed to allow Greece to grow and re-pay debts, that a currency that leaders will not allow to be devalued is a disaster for weak economies in the EU, and that they are forcing Greece out of the EU
But, it fails to mention that the EU finance ministers and (a day later) the EU political leaders had this "dry, 1,184-word memorandum" before they forced Greece to accept harsh terms. Germany has been a big believer in the IMF, as long as it agreed to promote austerity. Now, they ignore all three options for saving the EU proposed by the IMF and double-down on austerity - even demand that Greece sell its assets. The IMF report clearly says that the EU's austerity policies and recent withdrawal of support of the EU Central Bank have made Greece's debts a much larger % of GDP, to the point they are not re-payable.
The article inappropriately refers to "loans" to Greece by EU countries. EU countries did not make loans to Greece. German and French banks made the loans. When Greece could not re-pay, Germany and France bailed out their banks by assuming the loans - rather than allowing bankruptcy which would have required Greece and their banks to take a haircut.
Last, without naming them the article refers to "many economists" who've told European officials that the euro cannot work without fiscal union. One of those key economists is Professor Paul Krugman, who has written many articles telling EU leaders that stimulus, not austerity was needed to allow Greece to grow and re-pay debts, that a currency that leaders will not allow to be devalued is a disaster for weak economies in the EU, and that they are forcing Greece out of the EU
5
The author is making an unwarranted conclusion when he states that IMF's statement that the Greek debt is not sustainable implicitly says that the euro does not work. First, it takes for granted that the Greek situation is the norm and therefore bail outs will have to be made continuously. The reforms that the troika is demanding of Greece are designed (in spite of the suffering implicit in them) to obviate such occurrences. Second, he states that wealthier countries are not willing to make payments to poorer countries. This, of course, ignores that there is already in place a system by which monies from wealthier states is shifted to poorer countries in the billions of euros. This is the so called solidarity fund through which poor regions whose per capita income is less than the average of the Union's income, receive funds to improve their infrastructure and see to other needs.
In the US, we do this automatically and richer states send, through the central government, monies to poorer states and no one complains (actually, the topic comes up now and again). Our states have long given over to the central government fiscal and monetary authority something that the European states have not yet done. So, it is not a question whether the euro works or not but what mechanism is to be implemented that will deal with this kind of situation before it becomes a crisis.
In the US, we do this automatically and richer states send, through the central government, monies to poorer states and no one complains (actually, the topic comes up now and again). Our states have long given over to the central government fiscal and monetary authority something that the European states have not yet done. So, it is not a question whether the euro works or not but what mechanism is to be implemented that will deal with this kind of situation before it becomes a crisis.
4
"So, it is not a question whether the euro works or not but what mechanism is to be implemented that will deal with this kind of situation before it becomes a crisis."
I agree, but I think his implicit point is that the leaders of the Euro are unwilling to accept the needed mechanisms.
I agree, but I think his implicit point is that the leaders of the Euro are unwilling to accept the needed mechanisms.
Finally, the VSP's at IMF admit the truth - too bad the failed austerity prescription of the last 5 years for Greece is also the new fiscal prescription, under the pretext that voodoo will for some magical reason start to work in the future when it hasn't worked in the past.
Here's an idea: If Greece conforms to the new austerity dictates, and their economy continues to shrink and their depression continue/worsen (and therefore the debt burden become even more unsustainable) then instead of Greece having to forfeit national treasures it's been extorted into placing in a creditors' trust, how about the creditors suffering a debt write-down/erasure for practicing their voodoo pretending it was sound economic policy ?
Why should Greece continue to pay for failed austerity while the ' experts ' who insist on such voodoo pay no price, losing none of their principal ?
Here's an idea: If Greece conforms to the new austerity dictates, and their economy continues to shrink and their depression continue/worsen (and therefore the debt burden become even more unsustainable) then instead of Greece having to forfeit national treasures it's been extorted into placing in a creditors' trust, how about the creditors suffering a debt write-down/erasure for practicing their voodoo pretending it was sound economic policy ?
Why should Greece continue to pay for failed austerity while the ' experts ' who insist on such voodoo pay no price, losing none of their principal ?
12
It will take the European countries many many more years to come to terms with the unity of Europe especially with their poorer neighbors. Till that happens we will continue to see this fiscal drama.. be it Greek, Spanish, Portuguese or Italian.
3
Greece cheated its way into the Eurozone, it shouldn't have been in the EZ. That much seems indisputable.
Yet, the idea that Grexit and deep devaluation of Drachma would, at least in the long run, help fix their problem seems nonetheless flawed and superficial. If Greece were an exporter like Asian countries, then devaluation might help. But what does Greece export, really? Tourism in theory might be boosted a bit. But to the degree it'll compensate for all other shortfalls of that nation and start paying down debt balances? Like a tenfold increase in the number of foreign tourists? Unlikely.
Zimbabwe had its currency devalued to the point its currency carries so many zeros and becomes a well-known worthless funny money, but their economy didn't skyrocket. For Greece, the merit of devaluation after Grexit is way overstated, even if Greek people become willing to take short-term economic chaos.
On a second note, IMF itself has so little skin in the game to call for haircuts. In one latest figure, Greece owes about EUR 323 billion, of which three quarters are held out by international bailout fund. Yet, despite being one of the 'troika', IMF holds a modest EUR 32 billion, mere one-eighth of bailouts and just 10% of the total Greek debt, while Germany and other EZ countries are exposed enormously directly or indirectly through ECB. They ARE knee-deep, especially considering potential domino effect to other EZ heavy debtors, whilst the IMF has barely wet their toes.
Yet, the idea that Grexit and deep devaluation of Drachma would, at least in the long run, help fix their problem seems nonetheless flawed and superficial. If Greece were an exporter like Asian countries, then devaluation might help. But what does Greece export, really? Tourism in theory might be boosted a bit. But to the degree it'll compensate for all other shortfalls of that nation and start paying down debt balances? Like a tenfold increase in the number of foreign tourists? Unlikely.
Zimbabwe had its currency devalued to the point its currency carries so many zeros and becomes a well-known worthless funny money, but their economy didn't skyrocket. For Greece, the merit of devaluation after Grexit is way overstated, even if Greek people become willing to take short-term economic chaos.
On a second note, IMF itself has so little skin in the game to call for haircuts. In one latest figure, Greece owes about EUR 323 billion, of which three quarters are held out by international bailout fund. Yet, despite being one of the 'troika', IMF holds a modest EUR 32 billion, mere one-eighth of bailouts and just 10% of the total Greek debt, while Germany and other EZ countries are exposed enormously directly or indirectly through ECB. They ARE knee-deep, especially considering potential domino effect to other EZ heavy debtors, whilst the IMF has barely wet their toes.
9
"Greece cheated its way into the Eurozone, it shouldn't have been in the EZ. That much seems indisputable."
Yes but in the financial world the burden of discovery of is on the lender. This called "due diligence" and is a fundamental part of any business deal.
The Europeans did the same job of discovery as our rating agencies did with the subprime mortgages that Goldman was rebundling to investors worldwide. So "cheating" their way into the Eurozone was a two way street
Why did this happen? Because they wanted the Euro zone to expand and the hedge fund managers were salivating at the chance of making 7-8% on what they assumed (correctly) was a "government " backed loan.The Euro leaders looked the other way for their own political purposes and then bailed out the hedge funds that initially lent Greece money, using taxpayer money to pay off the loan interest that Greece was defaulting on.
Once more our elected officials are taking our money and saving banks while demanding cuts in services to the very people whose money they are using.
Yes but in the financial world the burden of discovery of is on the lender. This called "due diligence" and is a fundamental part of any business deal.
The Europeans did the same job of discovery as our rating agencies did with the subprime mortgages that Goldman was rebundling to investors worldwide. So "cheating" their way into the Eurozone was a two way street
Why did this happen? Because they wanted the Euro zone to expand and the hedge fund managers were salivating at the chance of making 7-8% on what they assumed (correctly) was a "government " backed loan.The Euro leaders looked the other way for their own political purposes and then bailed out the hedge funds that initially lent Greece money, using taxpayer money to pay off the loan interest that Greece was defaulting on.
Once more our elected officials are taking our money and saving banks while demanding cuts in services to the very people whose money they are using.
7
"If Greece were an exporter like Asian countries, then devaluation might help. But what does Greece export, really?"
Well, if they stay on the Euro, pretty much nothing because Germany has that area locked up. This is akin to blaming the victim or assuming that current trends dictate the future. In order to export something, you need a competitive price and the Euro makes Greece uncompetitive, hence no exports.
Also, Zimbabwe is essentially a dictatorship with per capita income of $2000, an average of 7 years of education per person, and average life expectancy of 50-55 years. Greece is a democracy with per capita income of $18000, an average of 10 years of education per person, and average life expectancy of 80 years. I wouldn't use Zimbabwe's experience as an indicator of what might happen in Greece.
Well, if they stay on the Euro, pretty much nothing because Germany has that area locked up. This is akin to blaming the victim or assuming that current trends dictate the future. In order to export something, you need a competitive price and the Euro makes Greece uncompetitive, hence no exports.
Also, Zimbabwe is essentially a dictatorship with per capita income of $2000, an average of 7 years of education per person, and average life expectancy of 50-55 years. Greece is a democracy with per capita income of $18000, an average of 10 years of education per person, and average life expectancy of 80 years. I wouldn't use Zimbabwe's experience as an indicator of what might happen in Greece.
1
Devaluation, be that may a market phenomenon or a deliberate tool of a country, is neutral to political system. Distinction between dictatorship and democracy is irrelevant to the impact of devaluation, other factors such as existence or composition of potential exports are. Devaluation is a 'direction' of currency movement, therefore current income levels of respective country are irrelevant as well, with regard to the direction of its impact on balance of payment. So, bringing up Zimbabwe for the sake of talking about 'devaluation', not about 'Greece v Zimbabwe as nations', isn't as preposterous as you'd make it to be.
As I've stated, Greece shouldn't have been in the EZ, which also means I think Greece should actually exit the Eurozone, if that wasn't clear. But my support of Grexit would NOT be out of worry for the Greeks, or for any prospect the inevitable devaluation of Drachma will make as big of difference as some academics are suggesting. Its merit would only be too marginal to place any meaningful hope on it.
For that reason, any fix should instead come from fundamental overhaul of Greek economy, in which the Greeks have been failing for years if not decades. Calling them victim is therefore flatly disagreeable, especially since they've retained their democratic sovereignty up until current debacle, until reform had to be externally shoved down their throat. Is Germany or other creditors self-serving? ABSOLUTELY. Could Greece have fixed itself otherwise? Doubtful.
As I've stated, Greece shouldn't have been in the EZ, which also means I think Greece should actually exit the Eurozone, if that wasn't clear. But my support of Grexit would NOT be out of worry for the Greeks, or for any prospect the inevitable devaluation of Drachma will make as big of difference as some academics are suggesting. Its merit would only be too marginal to place any meaningful hope on it.
For that reason, any fix should instead come from fundamental overhaul of Greek economy, in which the Greeks have been failing for years if not decades. Calling them victim is therefore flatly disagreeable, especially since they've retained their democratic sovereignty up until current debacle, until reform had to be externally shoved down their throat. Is Germany or other creditors self-serving? ABSOLUTELY. Could Greece have fixed itself otherwise? Doubtful.
Should we really buy the story that the Greek crisis is just about morality and incompetence?
There is no chance that, in reality, what we see is a geopolitical land-grabbing game of chess, dressed under financial excuses to appease public opinion?
There is no chance that, in reality, what we see is a geopolitical land-grabbing game of chess, dressed under financial excuses to appease public opinion?
5
The article's author writes that, "Unfortunately, however, this is not Greece’s first bailout rodeo. Previous bailouts have had to be revised and enlarged..."
Unfortunately, no one has actually offered Greece a bailout. All that Greece has received is a series of payday loans, each of which puts the Greek economy further in debt.
So please, let's pay attention to the use of language. Words matter.
Unfortunately, no one has actually offered Greece a bailout. All that Greece has received is a series of payday loans, each of which puts the Greek economy further in debt.
So please, let's pay attention to the use of language. Words matter.
11
The disconnect between the IMF and the EuroZone is that the Germans are unwilling to acknowledge that Greece will not pay back all of its borrowed moneys. But the austerity measures favored by the IMF and the Euro nations do not differ on the negative effects on the Greek economy and the people of Greece. The cost of a loan from the IMF is to strengthen the books and to impoverish the population.
2
Germany was forgiven debt on more than one occasion. Yet, Germany wants to squeeze every drop of blood from the Greeks. This is economic war, economic imperialism! Let the world consider this aggression. Germany is warned.
6
Joseph--Germany was forgiven it's debt, yes, but it had a stable government. I wonder how anyone can change the culture of Greece? And should they? The idea of one currency among so many differing cultures in the Eurozone is proving to be a folly. What interests me is that so many of the problems occurring now with Greece and other countries before it were not more readily anticipated . Unless Germany is willing to keep finding these Southern countries, I think the Euro is doomed.
3
Fractured fiscal federation is a an oligarchy that got the policy wrong.
If it's the dark Greek economy or the Greek work ethic Germany tried to reform, she knew it from the beginning and her policy is a trap in a dark process. Germany wouldn't seem so shrewd if her workouts made more sense.
EU got a shadow political union with worse than no periphery representation - fall states.
IMF expertise- yes. Independence- no.
If it's the dark Greek economy or the Greek work ethic Germany tried to reform, she knew it from the beginning and her policy is a trap in a dark process. Germany wouldn't seem so shrewd if her workouts made more sense.
EU got a shadow political union with worse than no periphery representation - fall states.
IMF expertise- yes. Independence- no.
1
I urge the IMF to hold the line here and not contribute any more funds unless other creditors agree substantial debt relief for Greece. Anything else is just kicking the can down the road.
9
Is this IMF memo an attempt to derail the Greek vote that will happen in the next few hours by highlighting to the Greeks that debt restructuring was not part of the deal? The IMF can talk all it wants but if Greece fails to pass the needed legislation, it was made clear on Monday that they would be out of the euro.
Whatever IMF's intentions are for making public this memo, it sure has fired up people on the left who want Europe to become a transfer union. Yet another catastrophic agitation by the naive but well intentioned? This time, their antics might actually lead to Greece getting ejected from the eurozone.
Whatever IMF's intentions are for making public this memo, it sure has fired up people on the left who want Europe to become a transfer union. Yet another catastrophic agitation by the naive but well intentioned? This time, their antics might actually lead to Greece getting ejected from the eurozone.
5
Read Nobel Economist Joseph Stiglitz. 90% of these "lend and pretend" loans to Greece were and are and will be to pay interest back to the lenders.
5
Fiscal union makes sense if the German money comes with German laws, discipline and hard work. The Greeks will not accept this because they cannot do it. They just don't have the right stuff. The last referendum shows their true attitude. No banker in his right mind would trust them anymore, bailout or not. The European holders of Greek debt should kiss they money goodbye and cut their loses as fast as they can.
7
Racism is not helpful here. The Greeks are not somehow lesser people then the Germans in term of discipline, ethics, or "stuff." They are simply in a different situation.
3
Yes, please can the ethno-chauvinism being put out by the German Right.
It is the response of those who have no rational economic argument, and who resort to political slurs in order to change the subject.
It is the response of those who have no rational economic argument, and who resort to political slurs in order to change the subject.
1
Or, they don't have "the right stuff" that the Germans value and demand.
Finally, someone gets it. You cannot bring back to life a thing that never existed. Greece has never had a sustainable economic system. Pretending that 86b euros will not only ensure the creation of such an economy but will pay back with interest the money wasted on the folly they once called an economy as well is ludicrous.
Europe must subsidize Greece or set her loose. These are the choices. Pretending other choices exist only makes the size of the problem larger...
Europe must subsidize Greece or set her loose. These are the choices. Pretending other choices exist only makes the size of the problem larger...
11
Of course Greek debt is not sustainable, nor was it in 2009-10.
So. what was the point of all the "aid" since then?
Well, in 2009 the big holders of Greek bonds were big European banks, who would have taken the hit in a Greek default. Most of the bailout money since has served as a cover for the transfer of risk from banks to the taxpayers of the individual EZ countries - they and the ECB have about 70 percent of the exposure, the IMF about 10 percent and private sector less than 20 percent.
If Merkel is offended by the Greeks' perceived fiscal irresponsibility she is likely far more worried about how the German public would respond to receiving a 30-60 billion euro bill in the event of a Greek default - an obligation that was incurred with no authorization from the Bundestag.
In terms of exposure as a percent of GDP, economic basket cases Spain and Italy both have greater exposure than Germany - what do you think the chances of them being able to pay are?
Sure, the currency regime might be saved through political union, but it is not apparent that any significant percentage of Europeans *want* such a union - as the growing strength of Euro-sceptic parties shows.
What probably really scares the banking cabal about the Greeks picking up their sovereignty and heading for the door is that, like Iceland, they just might be able to live within their means and make it work.
There's a scenario to keep Eurocrats and banksters awake at night.
So. what was the point of all the "aid" since then?
Well, in 2009 the big holders of Greek bonds were big European banks, who would have taken the hit in a Greek default. Most of the bailout money since has served as a cover for the transfer of risk from banks to the taxpayers of the individual EZ countries - they and the ECB have about 70 percent of the exposure, the IMF about 10 percent and private sector less than 20 percent.
If Merkel is offended by the Greeks' perceived fiscal irresponsibility she is likely far more worried about how the German public would respond to receiving a 30-60 billion euro bill in the event of a Greek default - an obligation that was incurred with no authorization from the Bundestag.
In terms of exposure as a percent of GDP, economic basket cases Spain and Italy both have greater exposure than Germany - what do you think the chances of them being able to pay are?
Sure, the currency regime might be saved through political union, but it is not apparent that any significant percentage of Europeans *want* such a union - as the growing strength of Euro-sceptic parties shows.
What probably really scares the banking cabal about the Greeks picking up their sovereignty and heading for the door is that, like Iceland, they just might be able to live within their means and make it work.
There's a scenario to keep Eurocrats and banksters awake at night.
5
I am very impressed by the insights of the writer. He clarifies arguments by IMF. Greek tragedy is rooted to the two misunderstandings of macroeconomy by the EU policy makers. The first one is lack of understanding of the relationship between fiscal/monetary policies and Euro. As Mundell-Fleming model explains, they are all connected. Secondly, facing the output gap, Greece needs stimulus, fiscal and monetary, instead of austerity.
6
Absolute nonsense. Saying that Greek debt needs restructuring which is a commonplace does NOT amount to saying the Eurozone cannot work in it's present form. The Euro is working and will continue to do whether Greece remains or leaves the Euro. Is continuing fiscal convergence going to be necessary? Of course. This is and always has been the intention which is one to the reasons countries like Britain don't want to join. Barro is putting a construction on this report it will not bear. He's building an economic skyscraper on the foundations of a suburban home.
5
The USA provides foreign aid without expectation of repayment, even if the aid is required to buy American products (a subsidy to American business). DO European countries with large economies such as Germany provide foreign
aid ? Why not a program in which the foreign aid goes to subsidize the purchase of European products, so Greek money can be used for other purposes, like paying debt ?
aid ? Why not a program in which the foreign aid goes to subsidize the purchase of European products, so Greek money can be used for other purposes, like paying debt ?
2
First and foremost the Germans need to commit to European unity. They never bought into that in the beginning because nobody asked them: they were the csuse of the problem. Financial generosity now seems a small price for them to pay for 60 million world wide dead. Do we need to start running newsreel footage to remind everyone of who occupies the moral high ground here? Not the Germans! Yes, because of a world wide economic downturn, the Greeks can't repay money that both they and the Germans thought they could when the Germans lent it to them. But remember what the goals are here.
Is our goal the Defence of Capitalism, or European Unity and No More War? Did all those Allied soldiers die to prove Capitalism trumps Marx? They died to prove that world wide community can triumph over nationalistic imperialism. Including economic imperialism. There are times of economic growth and times of economic contraction. That's the way it is. Time now for Europe and especially Germany to commit to the values of Community, Unity, and Helping One's Neighbor. The prize being War Never Again won through shared sacrifice.
Is our goal the Defence of Capitalism, or European Unity and No More War? Did all those Allied soldiers die to prove Capitalism trumps Marx? They died to prove that world wide community can triumph over nationalistic imperialism. Including economic imperialism. There are times of economic growth and times of economic contraction. That's the way it is. Time now for Europe and especially Germany to commit to the values of Community, Unity, and Helping One's Neighbor. The prize being War Never Again won through shared sacrifice.
4
This is actually less about Greece and more about whether the EU is an economic union. I imagine the few people recognize that for a large number of US states, more federal tax dollars flow into the state than flow out of the state from taxation. We are an economic union ... New Yorkers or Californians don't grouse that "their" tax dollars flow into Mississippi. Germans have to decide whether they are Europeans first or Germans first. If it is the latter, then the EU should abandon the common currency.
17
Is the other problem that there is no Central Euro Bank that can print money when it needs to boost production and decrease unemployment? I remember that when Obama had the treasury put 900 billion into circulation to bail out GM and for public projects. FDR did the same thing. However Europe does not have that capability and austerity is the default policy when it comes to pulling out of a recession or stimulating an economy.
1
Exactly right!
1
New Yorkers don't grouse about their money flowing into Mississippi? Sure they do. We grouse because we have to listen to the red staters' endless hypocritical whining about taxes and big government, all the while taking in more from the Federal government than they pay out.
I wouldn't grouse if they would just thank us for subsidizing them and then shut up about it. But it seems the more they take the more they whine.
I wouldn't grouse if they would just thank us for subsidizing them and then shut up about it. But it seems the more they take the more they whine.
9
Greece wanted into the Eurozone so badly that she lied about her finances, forging the accounts to make it look like she was solvent when actually she was deep in debt. When this was revealed several years ago, Greece should have been kicked out of the Eurozone, given assistance in getting its affairs in order, and put on probation. Ten years or so down the road, if Greece were truly solvent, (or at least acceptably in debt,) then she could be readmitted.
But the leaders of Eurozone didn't want to admit to having been hoodwinked, so they spewed a bunch of rhetoric about unity and indivisible unions, while trying to shove Greece under the rug. Greece is such a miniscule economy in comparison to France and Germany that kicking her out would have had little consequence, but bailing her out has resulted in money disappearing, because austerity policies destroy value.
Finally, the International Monetary Fund has put its foot down and declared that the illusion cannot continue. Either Greece is allowed substantial debt relief, or the whole thing is going to collapse. The IMF wants no part in trying to perpetuate the illusion, because they know that it will only end up destroying more wealth.
Greece has avoided preparing to exit the Eurozone because that is the last thing that they want. Having their debt written off while receiving an influx of cash is the best way out of their situation, for Greece. The alternative will be very ugly.
But the leaders of Eurozone didn't want to admit to having been hoodwinked, so they spewed a bunch of rhetoric about unity and indivisible unions, while trying to shove Greece under the rug. Greece is such a miniscule economy in comparison to France and Germany that kicking her out would have had little consequence, but bailing her out has resulted in money disappearing, because austerity policies destroy value.
Finally, the International Monetary Fund has put its foot down and declared that the illusion cannot continue. Either Greece is allowed substantial debt relief, or the whole thing is going to collapse. The IMF wants no part in trying to perpetuate the illusion, because they know that it will only end up destroying more wealth.
Greece has avoided preparing to exit the Eurozone because that is the last thing that they want. Having their debt written off while receiving an influx of cash is the best way out of their situation, for Greece. The alternative will be very ugly.
8
Your analysis of current options is correct, but your history narrative is misleading. European leaders were not "hoodwinked" by the falsification of Greece's books, they were complicit. Reporting in major news outlets in Europe and the US have shown that Brussels - and Paris and Berlin - knew full well that the Greek numbers were puffed but chose to look the other way for political reasons. (Indeed they could hardly not know since some of the expert "advisors" doing the puffing lived in their countries, traveled in their social circles and moved through the revolving door between their governments and financial industries.)
Germany and EU officials are now like Claude Raines in Casablance: Shocked, SHOCKED, to find there is gambling going on as they pocket their winnings. That is why the deception has played zero role in the negotiation dialogue and why the Troika are perfectly willing - even anxious - to trade Tsipras' anti-establishment protest government for one made up of the exact parties - and people sometimes - who perpetrated the fraud. They prefer criminals they have a wink-and-od set of muturtal interest with to naive, righteous amateurs.
Germany and EU officials are now like Claude Raines in Casablance: Shocked, SHOCKED, to find there is gambling going on as they pocket their winnings. That is why the deception has played zero role in the negotiation dialogue and why the Troika are perfectly willing - even anxious - to trade Tsipras' anti-establishment protest government for one made up of the exact parties - and people sometimes - who perpetrated the fraud. They prefer criminals they have a wink-and-od set of muturtal interest with to naive, righteous amateurs.
6
The US would-be homeowner lies about their finances. The mortgage bank is OK with that, they wink and nod and robo-sign. The mortgage is rolled into MBS with an AIG-issued CDS cherry on top. We know the rest of the story.
The one thing consistently missing in the all the morality plays about debt is the story of the fiduciary responsibility of the creditor. And this absence is telling of how effective is the propaganda of the banksters and their governments who try to steer the moral story away from themselves. Evil debtors, lazy Greeks, shiftless Negroes.
That's what happens when governments decide banks are to big to fail. Under those conditions it is in the interest of banks to overlend. They get bailed, the country goes bust, its assets sold off as bargain prices to circulate in the financial whirpool, one in which the same banks intermediate for profit.
Let's hope that in the next financial crisis - there will be another one under these conditions - we are not lulled by this propaganda, and take them over, wind them down, and put them out of business once and for all.
The one thing consistently missing in the all the morality plays about debt is the story of the fiduciary responsibility of the creditor. And this absence is telling of how effective is the propaganda of the banksters and their governments who try to steer the moral story away from themselves. Evil debtors, lazy Greeks, shiftless Negroes.
That's what happens when governments decide banks are to big to fail. Under those conditions it is in the interest of banks to overlend. They get bailed, the country goes bust, its assets sold off as bargain prices to circulate in the financial whirpool, one in which the same banks intermediate for profit.
Let's hope that in the next financial crisis - there will be another one under these conditions - we are not lulled by this propaganda, and take them over, wind them down, and put them out of business once and for all.
Right on.
I join Dr. Krugman in respecting history and believing it should inform the decisions we make today.
70 years ago the Allied Powers were defending thrmselves against Germany. Greece was one of them, having suffered approx. 650,000 dead, 7.5% of its population. The fighting was entirely in Greece, devastating the country.
After the Armistice in 1918 ending WWI the Allied Powers, attempted to saddle defeated Germany with war reparations.
Experiencing the results of the peace following this "war to end all wars" the main goal for the Allies was Never Again. Never Again should nationalism be allowed to cause 60 million deaths and world wide destruction. Hence the United Nations. Hence The Marshall Plan for Germany rather than reparations. Hence organizations like the International Monetary Fund and the World Bank. And the European Community.
Now that community is suffering growing pains. The Germans, after the Germany Economic Miracle, have the strongest economy in Europe. Bravo Germans! Way to go! The world applauds you. It is clear the Greeks aren't Germans, no more than the Spanish, the Portuguese, the Italians, etc., etc., are.
But whose parties do you want to go to?
I urge the Europeans to keep their eyes on the prize. Remember the reason you're in this mess in the first place: the drive for European unity and No More War.
I join Dr. Krugman in respecting history and believing it should inform the decisions we make today.
70 years ago the Allied Powers were defending thrmselves against Germany. Greece was one of them, having suffered approx. 650,000 dead, 7.5% of its population. The fighting was entirely in Greece, devastating the country.
After the Armistice in 1918 ending WWI the Allied Powers, attempted to saddle defeated Germany with war reparations.
Experiencing the results of the peace following this "war to end all wars" the main goal for the Allies was Never Again. Never Again should nationalism be allowed to cause 60 million deaths and world wide destruction. Hence the United Nations. Hence The Marshall Plan for Germany rather than reparations. Hence organizations like the International Monetary Fund and the World Bank. And the European Community.
Now that community is suffering growing pains. The Germans, after the Germany Economic Miracle, have the strongest economy in Europe. Bravo Germans! Way to go! The world applauds you. It is clear the Greeks aren't Germans, no more than the Spanish, the Portuguese, the Italians, etc., etc., are.
But whose parties do you want to go to?
I urge the Europeans to keep their eyes on the prize. Remember the reason you're in this mess in the first place: the drive for European unity and No More War.
8
There's an old saw in the banking trade: if you owe the bank $100,000 and can't pay it back, you've got a big problem; but if you owe the bank $100,000,000 and can't pay it back, the bank has a big problem. Hello, Greece. There is no real alternative but to do what needs to be done - the banks are going to get a haircut and they either agree to a workout up front when they have some control over the payout or Greece pays them in worthless drachmas after it leaves the EU. The only real question for the EU is whether the recently executed Memorandum with Greece contains sufficient clamps to ensure Greece cannot evade its agreement to get its fiscal house in order. There is no happy end to this mess.
6
In the end, debt relief can come only if the Greeks behave like adults and deal with structural reforms to tax, pension, and fiscal policies. Economists can state the obvious math but like an addict, you provide additional drugs to ease the physical transition to sobriety but not simply because the addict wants drugs
4
No, in the end sustainable properity and stability can only come with some reforms (although maybe not the ones Europe wants) but debt relief need not be conditional on it. If the creditors want to make it conditional, that is their choice, but loans are a business arrangement. They have risk, which is why they charge interest. A creditor can (and everyday in the world does) make a decision about writing down or refinancing a debt based on the theory that something is better then nothing if the debtor goes belly-up.
Tying debt relief to the reforms they want is a political strategy. Believing that such a quid pro quo is a moral necessity is vanity.
Tying debt relief to the reforms they want is a political strategy. Believing that such a quid pro quo is a moral necessity is vanity.
4
Apparently, you have never been loaned substantial amounts of money. Lenders routinely have covenants and demand changes when refinancing. Its 100% routine and not a "vanity"
In 1788 13 states came together to "form a more perfect union". It wasn't until 1863, in the midst of a horrendous civil war, that the National Banking Act established a common currency. In 1913 we established The Fed. It took a relatively homogeneous political union 125 years to set up a monetary union. Maybe these things take time?
9
You're right: They certainly take time.
And, in some cases -- such as when deeply-ingrained national behaviors simply are too different -- such unions are, at best, ill-advised and, at worst, doomed to fail.
And, in some cases -- such as when deeply-ingrained national behaviors simply are too different -- such unions are, at best, ill-advised and, at worst, doomed to fail.
1
The politics of a USE made a fiscal union impossible, but the IMF is correct. Think how in this country badly managed states (cough cough Kansas for instance) get saved by tax funds from the rest of the country. These 'failed' states are in for a hard time, but most Americans know that we are assisting them.
6
Kansas actually pays more in Federal "revenue" than it receives in Federal spending. For details search Wikipedia for "Federal taxation and spending by state.
To paraphrase Stalin. The Euro fits Greece like a saddle fits a cow. So long as Greece stays with the Euro it will be saddled with a currency that will limit its ability to grow and compete. Even declining wages and costs won't be enough to really help it. SInce it means that local wages won't be enough to support the rest of the economy . Some exports will rise and imports will decline but overall it won't be enough.
5
Hmmm.
We have a vacant half-acre lot sandwiched in between 3 properties. It has no access to city utilities. It's over grown with at least 100 trees, still, and several of them oaks 40-45 feet tall. Last year, the owner who lives in the south of France came up to cut down 68 trees that loomed over our house and he left these cut trees where they fell. Our community has a problem with oak processionary caterpillars. One can not go outside nor open their house during the spring and summer because of this pest which resides in this specific vacant lot. The city has sprayed every property and vacant lot except this neighboring one. Why? It is impossible to access due to construction trash heaps, cut trees and wild over growth. We neighbors have offered to buy the land at half of the asking price because it will cost about $40K to clear and clean it. The owners have refused. The owners what $130,000.00 although it is worthless since it has no access. Every year they increase they asking price. They have owned it for 30 years. This vacant lot decreases everyone's property value in this neighborhood.
How is this like Greece? Replace 'vacant lot' with 'Greece'. Yes, I empathize with Greece, just as I do with the owner of the vacant lot. But last year I was miserable & covered in hives stemming from these vermin, so were our neighbors for streets away from us. Same again this year. Apparently a class action lawsuit is in order for both the owners and Greece.
We have a vacant half-acre lot sandwiched in between 3 properties. It has no access to city utilities. It's over grown with at least 100 trees, still, and several of them oaks 40-45 feet tall. Last year, the owner who lives in the south of France came up to cut down 68 trees that loomed over our house and he left these cut trees where they fell. Our community has a problem with oak processionary caterpillars. One can not go outside nor open their house during the spring and summer because of this pest which resides in this specific vacant lot. The city has sprayed every property and vacant lot except this neighboring one. Why? It is impossible to access due to construction trash heaps, cut trees and wild over growth. We neighbors have offered to buy the land at half of the asking price because it will cost about $40K to clear and clean it. The owners have refused. The owners what $130,000.00 although it is worthless since it has no access. Every year they increase they asking price. They have owned it for 30 years. This vacant lot decreases everyone's property value in this neighborhood.
How is this like Greece? Replace 'vacant lot' with 'Greece'. Yes, I empathize with Greece, just as I do with the owner of the vacant lot. But last year I was miserable & covered in hives stemming from these vermin, so were our neighbors for streets away from us. Same again this year. Apparently a class action lawsuit is in order for both the owners and Greece.
2
I hope for the sake of peace and democracy you can consider the possibility that this is not what is happening with Greece.
Greece is the happy, comfortable, long-time residents with a small, worn-down house that the new neighbors don't like. The old residents live simply; they work little, eat simply, play and spend a lot of time with family, and live long and healthily. They keep a couple of pigs that root on the lot and eat acorns. They invite the neighbors to a barbecue every year or two.
But the neighbors can only see the dilapidated home. They pass laws against pigs and grapevines. They raise taxes. They impose fines for peeling paint and long grass and acorns that are not cleaned up.
Finally they say, "you must update your home or we will condemn it." They offer loan money to tear down and rebuild. Finally the long time residents relent and take on the debt. Unsurprisingly, they don't complete the new home and they can't pay the loan off. Their previous life is gone; they are stressed, and sick. No grape vines, no pigs; their grandchildren have nowhere to play. Finally they sell off their ancestral home to the neighbors and eke out a miserable life in an apartment somewhere.
Western society does this to people all the time. It is cruel and a violation of basics rights to liberty and property.
And now Europe is doing it to an entire nation.
Greece is the happy, comfortable, long-time residents with a small, worn-down house that the new neighbors don't like. The old residents live simply; they work little, eat simply, play and spend a lot of time with family, and live long and healthily. They keep a couple of pigs that root on the lot and eat acorns. They invite the neighbors to a barbecue every year or two.
But the neighbors can only see the dilapidated home. They pass laws against pigs and grapevines. They raise taxes. They impose fines for peeling paint and long grass and acorns that are not cleaned up.
Finally they say, "you must update your home or we will condemn it." They offer loan money to tear down and rebuild. Finally the long time residents relent and take on the debt. Unsurprisingly, they don't complete the new home and they can't pay the loan off. Their previous life is gone; they are stressed, and sick. No grape vines, no pigs; their grandchildren have nowhere to play. Finally they sell off their ancestral home to the neighbors and eke out a miserable life in an apartment somewhere.
Western society does this to people all the time. It is cruel and a violation of basics rights to liberty and property.
And now Europe is doing it to an entire nation.
You should work for Disney.
I like the different cultures and various traditions cultures bring but being lazy and asking your neighbor to buy the pig you will roast so that you can invite the rest of your family over seems a bit of lala-land to me.
Greece didn't get into the fix that they are in now by living simply and cheaply. They got into this fix because of investments and banking and illegal activities designed (they hoped) to make them all live the life of Onassis. So did quite a few people in the USA, France, England, and other nations. The other nations buckled down and pulled themselves back up. Greece appears to have thrown up their hands and cried: 'Hey! We only wanted to roast a pig so we could invite you over.' Kind of like my absent neighbor: 'Hey! Pay my price and take it as it is or suffer the rats, mice and caterpillars. They don't effect me at all. You do something about it.'
I like the different cultures and various traditions cultures bring but being lazy and asking your neighbor to buy the pig you will roast so that you can invite the rest of your family over seems a bit of lala-land to me.
Greece didn't get into the fix that they are in now by living simply and cheaply. They got into this fix because of investments and banking and illegal activities designed (they hoped) to make them all live the life of Onassis. So did quite a few people in the USA, France, England, and other nations. The other nations buckled down and pulled themselves back up. Greece appears to have thrown up their hands and cried: 'Hey! We only wanted to roast a pig so we could invite you over.' Kind of like my absent neighbor: 'Hey! Pay my price and take it as it is or suffer the rats, mice and caterpillars. They don't effect me at all. You do something about it.'
What you describe is much like the United States where southern states get contributions from other states. Even though they hate the federal government, they are happy to extend a hand to accept the payments they receive. And, they don't want restrictions on how they spend the money.
15
If Greece stays in the Euro that would not deal with its basic problem, an overvalued currency. As Krugman, and many other economists, has repeatedly pointed out a currency union (the Euro) requires perfect mobility of capital and labor between its members. Barro has identified one part of the problem but not the other. Greece's main activity is tourism yet it is unable to reduce the price of its main foreign currency earner. Exit is the only logical solution in the longer run and the IMF is implicitly accepting this.
6
So what you are saying is that the Greek PM and his former finance minister were right all along? I am not surprised. Bravo IMF!
11
The Greek government is like a frog sitting in a boiling pot. It should have prepared for Grexit before the bank holidays and capital controls devastated Greece's already feeble economy. Kept negotiating without having any plan B has been extremely foolish. The Germans are clear that they are prepared for Grexit and have a plan B. Where is Greece's plan B? What has the Greek government done in the past 6 months to prepare for negotiation failures? Now it is just waiting to be cooked.
4
This was always the surprising part of the Greek "negotiations:" the Greeks had obviously not done their homework to prepare for an exit from the euro, since that would have required significant updates to software all throughout the country (and perhaps the world) to handle a new currency, as well as printing and minting a new currency.
Nevertheless, unless the IMF's position is suddenly adopted by the Germans, Greece is going to eventually have to leave the euro (as I'm guessing Spain, Portugal and perhaps Italy as well), unless it wants to live in an economic depression forever. So, it's time to crank up those printing presses, and start circulating new drachmas, initially pegged to euros.
Nevertheless, unless the IMF's position is suddenly adopted by the Germans, Greece is going to eventually have to leave the euro (as I'm guessing Spain, Portugal and perhaps Italy as well), unless it wants to live in an economic depression forever. So, it's time to crank up those printing presses, and start circulating new drachmas, initially pegged to euros.
3
The focus has been on whether or not Greece will run a large primary surplus, to pay it's debt. That is one important issue.
The other important issue is whether Unemployment in Greece can be brought down - which has been given very little attention.
Yes, there is some inter-relation (running a bigger primary surplus exacerbating the problem of high unemployment).
But, even if the debt were magically disappeared, that would not solve the problem of mass unemployment. Neither would reducing wages in Greece solve that problem, other than at someone else's expense, reducing Demand in some other nation (bigger (X-M) for Greece means smaller (X-M) for someone else).
The world has a net shortfall of demand, which has led us to large world wide unemployment.
We can't all be net exporters, so we need another global solution to higher unemployment.
In the 1950's and 1960's, the US ran deficits, had significant wage inflation, huge growth, and very low unemployment.
The economy *worked* for everyone.
Now, here (as in Europe), these pragmatic, proven policies are eschewed in favor of ideology based solutions of Austerity which don't work to keep full employment.
And divide and conquer is being used to create contests to see which victim can suffer the most, while we all sink lower - in the US between union and private workers, and in Europe, one nation vs another.
The other important issue is whether Unemployment in Greece can be brought down - which has been given very little attention.
Yes, there is some inter-relation (running a bigger primary surplus exacerbating the problem of high unemployment).
But, even if the debt were magically disappeared, that would not solve the problem of mass unemployment. Neither would reducing wages in Greece solve that problem, other than at someone else's expense, reducing Demand in some other nation (bigger (X-M) for Greece means smaller (X-M) for someone else).
The world has a net shortfall of demand, which has led us to large world wide unemployment.
We can't all be net exporters, so we need another global solution to higher unemployment.
In the 1950's and 1960's, the US ran deficits, had significant wage inflation, huge growth, and very low unemployment.
The economy *worked* for everyone.
Now, here (as in Europe), these pragmatic, proven policies are eschewed in favor of ideology based solutions of Austerity which don't work to keep full employment.
And divide and conquer is being used to create contests to see which victim can suffer the most, while we all sink lower - in the US between union and private workers, and in Europe, one nation vs another.
6
A few weeks back there was an article reposted on the internet,(which, alas, I did not read) suggesting that Denmark intended to become the first economy with no currency. Imagine a currencyless economy in Greece. All financial transactions recorded; no money under the table; all due taxes recorded. Everyone would have a debit card and a bank account. (Here in France, even small purchases, such as stamps at the post office, can be made with a debit card.) It might be hard on street beggars. No coins to give them. And that, in turn, might discourage illegal immigration. Just a thought.
12
Greece's recently departed finance minister has said much the same, but there are practical challenges. One of the cheif constraints on Greek tax collection (which is poor, but not nearly as far behind the EU average as media reports often say or imply) is that both the state collection authority and the point-of-sale financial infrastructure are only slightly in the information age. Much of the Greek tax record keeping is still done on paper and sales (as well as payrool, etc.) with cash.
It is one thing for Denmark - where almost every cash register is a computer and firm inventories and books are all electronic, and the government authorities themselves are fully up to date technologically - to contemplate all electronic transactions. In Greece, such an effort would require an upfront investment in infrastructure and training to put every business in the country on an electronic basis. A dauntiung, and expensive, exercise.
It is one thing for Denmark - where almost every cash register is a computer and firm inventories and books are all electronic, and the government authorities themselves are fully up to date technologically - to contemplate all electronic transactions. In Greece, such an effort would require an upfront investment in infrastructure and training to put every business in the country on an electronic basis. A dauntiung, and expensive, exercise.
The economic situation is such that the eurozone cannot work in its current form, it is non-functional, and gradually leads to economic stagnation and decline, now, some EU countries are in crisis and the economy of almost of all the countries of the eurozone is in recession.
4
A final word that will end this. Countries live longer than individuals and have the ability to extend payback durations beyond the human average, without it meaning an ill desire to not pay back. Why? Because when you extend the payback period it makes the annual increments smaller, to a size that is annual not impeding for development and progress. That is the general rational of lending for organization that live longer than a person. If a payback installment is too big for the annual budget it will soon cripple the the organization. In conclusion, the golden mean for payback installments is not determined by the organization's lifespan, which in theory is eternal. The determinant factor is how much a country can spare annually without devouring itself in a few years. Now Peace be upon you and GodSpeed.
3
Greetings Mr. Barro.
I'm telling the IMF: Monetary code doesn't work.
Exponentially accelerating complexity has eroded its efficacy as a computation mechanism for determining relationship value.
Survival is largely a function of processing complex network relationship information with sufficient speed, accuracy and power, e.g.: immune systems; wars; flights from predators; a nation state processing bomb development before its rival; a world trying to process its new relationship with the atmosphere, carbon, agriculture, transportation, etc.
The dominant information processing structure for culture's reality interface -- humans using monetary code -- can't generate selectable relationship hierarchies in and across geo, eco, bio cultural & tech networks, and across time.
Weak processing to think that humans could accurately calibrate all the new relationship-value information that occurs by adding sugar, carbon, 5.5 billion people since 1915, myriad chemicals, techs, hogs, medicines, etc., to all the networks. Here people, take that added information and compute all the new relationship-value information across all networks & time by using a 5,000?-year-old culture tech: monetary code.
Again, the processing structure -- humans using monetary code -- can't handle the new and accelerating levels of complexity.
Hint: Software code is to monetary code as alphabet code was to pictograph code.
Josh, have a piece regarding this to be published soon. I'll send it to you.
I'm telling the IMF: Monetary code doesn't work.
Exponentially accelerating complexity has eroded its efficacy as a computation mechanism for determining relationship value.
Survival is largely a function of processing complex network relationship information with sufficient speed, accuracy and power, e.g.: immune systems; wars; flights from predators; a nation state processing bomb development before its rival; a world trying to process its new relationship with the atmosphere, carbon, agriculture, transportation, etc.
The dominant information processing structure for culture's reality interface -- humans using monetary code -- can't generate selectable relationship hierarchies in and across geo, eco, bio cultural & tech networks, and across time.
Weak processing to think that humans could accurately calibrate all the new relationship-value information that occurs by adding sugar, carbon, 5.5 billion people since 1915, myriad chemicals, techs, hogs, medicines, etc., to all the networks. Here people, take that added information and compute all the new relationship-value information across all networks & time by using a 5,000?-year-old culture tech: monetary code.
Again, the processing structure -- humans using monetary code -- can't handle the new and accelerating levels of complexity.
Hint: Software code is to monetary code as alphabet code was to pictograph code.
Josh, have a piece regarding this to be published soon. I'll send it to you.
3
The real exit should be Geman Exit because almost every other member of the euro zone is much more like Greece than it is like Germany. if this latest deal is used to rethink and modify the EU it might be wort all the excitement, but I don't see that happening.
6
This is why Germany wants them out it's hopeless for the Greeks, why keep throwing good money after bad? It's France that is determined to keep Greece in the euro.
Any bailout of Greece cost the taxpayers of other countries. These taxpayers have no say in how Greece is run. It's not fair to them. Cut Greece loose and let the chips fall where they may.
Any bailout of Greece cost the taxpayers of other countries. These taxpayers have no say in how Greece is run. It's not fair to them. Cut Greece loose and let the chips fall where they may.
7
As taxpayers in the state of Connecticut, we pay more in federal tax than we receive back in transfer payments from Washington (I was also a resident of NY state for years, where the same is true). For states in the south for example, the opposite is true - they take more from the federal govt than they send. Does this mean it is not fair that Connecticut does not have say in how, for example, Florida is run?
Ironically, these are states that criticize the federal govt non-stop, brag about their low taxes (in Florida's case, no state tax), all the while with their hands out to Washington. I pay for my services, plus pay for a part of theirs. Is that fair?
Don't complain to me about Germany getting a raw deal ... they love the benefits of being "European", but don't want to be around when it's time to pay the bill.
Ironically, these are states that criticize the federal govt non-stop, brag about their low taxes (in Florida's case, no state tax), all the while with their hands out to Washington. I pay for my services, plus pay for a part of theirs. Is that fair?
Don't complain to me about Germany getting a raw deal ... they love the benefits of being "European", but don't want to be around when it's time to pay the bill.
11
Connecticut does have a say in how Florida is run, through the federal government. A CT resident can move to FL and not have to learn another language and face no barriers to employment.
People in the U.S. generally don't identify by their state that's not the case in the EU. The EU is an elite vanity project that never got much buy in from the people.
Also the Souh contributes a disproportionate amount of soldiers to the Armed Services. So there are give and takes throughout our country.
People in the U.S. generally don't identify by their state that's not the case in the EU. The EU is an elite vanity project that never got much buy in from the people.
Also the Souh contributes a disproportionate amount of soldiers to the Armed Services. So there are give and takes throughout our country.
While I agree with Barro that members of the EZ sharing the common currency should move towards a more formal fiscal and political union, the IMF's argument for debt relief has nothing to do that. Rather, it is a simple recognition that some debts are utterly unpayable by Greece - indeed, they may have been unpayable when they were made initially. The actors that made those questionable decisions are no longer around to face the consequences - the greek people still are. Instead of putting them into permanent servitude in order to achieve the impossible (pay off debts that were and are inherently unpayable), the IMF is simply asking that the reality be recognized.
The germans keep talking about respect for the rules - but that should apply to the people who end up over-extending credit in the first place. Otherwise, the EZ in its current form will be subject to these types of crises forever.
The germans keep talking about respect for the rules - but that should apply to the people who end up over-extending credit in the first place. Otherwise, the EZ in its current form will be subject to these types of crises forever.
7
There can be no sustainable currency union without fiscal union, and no fiscal union can be possible without political union.
It's not right of me to gloat when so many people are suffering and so much economic turmoil is to come, but I do carry a grudge towards all those who tried to make me feel stupid about those straightforward truths. It was only extraordinary irrationality in equity and currency markets that papered over the truth.
One of the old maxims you learn on Wall Street is: "never confuse a bull market with your genius." The architects of the euro travesty either never learned or forgot that lesson.
It's not right of me to gloat when so many people are suffering and so much economic turmoil is to come, but I do carry a grudge towards all those who tried to make me feel stupid about those straightforward truths. It was only extraordinary irrationality in equity and currency markets that papered over the truth.
One of the old maxims you learn on Wall Street is: "never confuse a bull market with your genius." The architects of the euro travesty either never learned or forgot that lesson.
16
"The architects of the euro travesty either never learned or forgot that lesson."
So you completely missed the attempt by Europe to adopt a new constitution ten years ago and move towards political union?
So you completely missed the attempt by Europe to adopt a new constitution ten years ago and move towards political union?
"...attempt..."
Attempt, indeed. But it didn't work and would have been more roundly rejected if people of other countries had been allowed to vote on it.
The Common Market worked, but the chimaera of the EU is an oligarch's dream imposed on an unwilling and unready populace.
Attempt, indeed. But it didn't work and would have been more roundly rejected if people of other countries had been allowed to vote on it.
The Common Market worked, but the chimaera of the EU is an oligarch's dream imposed on an unwilling and unready populace.
Read the memo. It clearly tells it as it is. No stupid rhetoric or histrionics. Moreover, it points out that the situation is quickly worsening. Greece has become dependent on bail outs by foreigners.
What has happened has happened, but Greece does not have an eternal claim for support by the rest of the EU, such as a spouse in a divorce: the attitude of Greece seems to be one of 'you should not have so stupid to marry me'.
The longer the EU politicians wait, the worse the situation gets. Moreover, it is very bad for democracy, when the EU politicians seem incompetent and indecisive to handle a situtation that most of their voters can understand very well: how to deal with someone without money that asks for support but is unable to pay it back. A single bail out is acceptable, certainly if the receiver seems sincere and tries to do his best, and shows compassion: repeated bail outs of individuals that just seem clever and insincere are however not acceptable and make the donor the object of ridicule and disrespect.
Cut your losses. Just give the Greeks enough money for a drachme of their own, say goodbye and wish them good luck. They are smart enough, they will manage. Their culture is just not suited for the EU, yet.
What has happened has happened, but Greece does not have an eternal claim for support by the rest of the EU, such as a spouse in a divorce: the attitude of Greece seems to be one of 'you should not have so stupid to marry me'.
The longer the EU politicians wait, the worse the situation gets. Moreover, it is very bad for democracy, when the EU politicians seem incompetent and indecisive to handle a situtation that most of their voters can understand very well: how to deal with someone without money that asks for support but is unable to pay it back. A single bail out is acceptable, certainly if the receiver seems sincere and tries to do his best, and shows compassion: repeated bail outs of individuals that just seem clever and insincere are however not acceptable and make the donor the object of ridicule and disrespect.
Cut your losses. Just give the Greeks enough money for a drachme of their own, say goodbye and wish them good luck. They are smart enough, they will manage. Their culture is just not suited for the EU, yet.
37
No culture is suited for the EU because there is no European culture - and therein is the essence of the problem. A bunch of undemocratic eurocrats does not a culture make.
5
"Their culture is just not suited for the EU, yet."
Wow, what ego we have!
Then stop calling yourselves "European" in some kind of political or cultural context. You are European by geography only. You can't be "European" when it is in your interest, then opt out when things are not going so well.
And enough with the "bailouts", they were dead on arrival. How on earth did you expect the Greeks to pay back when you were strangling their economy? Just because it is fashionable in conservative and neo-liberal circles to pan keynesian economics, doesn't mean that they don't work; news flash: they do.
Wow, what ego we have!
Then stop calling yourselves "European" in some kind of political or cultural context. You are European by geography only. You can't be "European" when it is in your interest, then opt out when things are not going so well.
And enough with the "bailouts", they were dead on arrival. How on earth did you expect the Greeks to pay back when you were strangling their economy? Just because it is fashionable in conservative and neo-liberal circles to pan keynesian economics, doesn't mean that they don't work; news flash: they do.
5
Once the EU has cut Greece loose it should push for the prosecution of Goldman Sachs. The head of Goldman has said that their fraudulent report for Greece in aid of its application to joing the EU was "business as usual". He even said that the "client told us what they needed and we gave it too them.!" What more could one want to convict these guys of collusion, conspiracy and fraud.
Goldman's next defense is "sure I defrauded you but you shouldn't have been defrauded it's all your fault. Why did you trust me? " It was just business as usual.
Goldman Sachs "business as usual".
Goldman's next defense is "sure I defrauded you but you shouldn't have been defrauded it's all your fault. Why did you trust me? " It was just business as usual.
Goldman Sachs "business as usual".
2
The intent was always to create a United States of Europe. But the citizens and many national officials would not have accepted it because it would have meant giving up too much sovereignty. So, they decided to have a single currency knowing up front it wouldn't work in the long run. Why?
Same reason ObamaCare was created knowing it would create confusion, chaos, and worse healthcare than before in the long run. It was because the electorate and many national officials felt they were giving up too many individual rights to go to national healthcare, so they created the unworkable to eventually force people towards national healthcare.
The Euro was created to eventually cause Greece. Now the choice for the EU is to go forward into complete union, or reverse and dissolve the union. The EU founders believe that the EU will never reverse, only go forward, because that's what governments always do. Hence the decision this week to pour more money down the rat hole called Greece knowing it won't fix the problem.
Same reason ObamaCare was created knowing it would create confusion, chaos, and worse healthcare than before in the long run. It was because the electorate and many national officials felt they were giving up too many individual rights to go to national healthcare, so they created the unworkable to eventually force people towards national healthcare.
The Euro was created to eventually cause Greece. Now the choice for the EU is to go forward into complete union, or reverse and dissolve the union. The EU founders believe that the EU will never reverse, only go forward, because that's what governments always do. Hence the decision this week to pour more money down the rat hole called Greece knowing it won't fix the problem.
2
Good analysis but bad analogy. Obamacare works much better than the Euro, and better all the time. The Euro will continue to create problems!
1
Really, the shared leftwing/rightwing delusion that Obamacare is trojan horse for national health insurance? Really, an elementary analysis will show that nothing has made single-payer more unlikely in the long-run then the advent of Obamacare, which will essentially remove the pressures and problems that made single-payer attractive to so many.
What any of that has to do with Greece, I don't know. Maybe some unified field theory of conspiracy?
What any of that has to do with Greece, I don't know. Maybe some unified field theory of conspiracy?
This IMF move is interesting. What are their intentions? They know that all of the options they present are not acceptable to Europe and assiduously avoided mention of the collateralized facility that was the hallmark of the Monday agreement.
Much has been made of the IMF position but at the end of the day, the IMF is an institution that has prestige but not a lot of power whereas European governments have effective control over the IMF. Without an electorate to answer to, the IMF can easily reverse its position and just go along with whatever they are presented.
Is this an attempt to force Europe to accept losses on Greek debt or is the move motivated by a desire to force Greece out of the euro? Tsiprais recently announced that Greek banks will close for at least a month but if the IMF sticks to its guns, it is likely that Greek banks will be closed for a lot longer than that because most European governments would fall if they accepted what the IMF is proposing. Between Greece and their own political survival, it is hard to see why any of these people would sacrifice themselves.
Much has been made of the IMF position but at the end of the day, the IMF is an institution that has prestige but not a lot of power whereas European governments have effective control over the IMF. Without an electorate to answer to, the IMF can easily reverse its position and just go along with whatever they are presented.
Is this an attempt to force Europe to accept losses on Greek debt or is the move motivated by a desire to force Greece out of the euro? Tsiprais recently announced that Greek banks will close for at least a month but if the IMF sticks to its guns, it is likely that Greek banks will be closed for a lot longer than that because most European governments would fall if they accepted what the IMF is proposing. Between Greece and their own political survival, it is hard to see why any of these people would sacrifice themselves.
1
No that's not the intent.
The IMF presented an economic/fiscal document that explains the mathematical realities.
The Greece/EU issue was purely political. The economics never made sense and frankly, are irrational. But the EUs main concerns are 1) To prove that the EU and Euro wasn't a mistake (it was) and unworkable (it isn't), and 2) For the current leaders to maintain their current political power and positions rather than being voted out by their electorates for what is their obvious ongoing failures that have been covered up by obscene amounts of loans to Greece.
The IMF presented an economic/fiscal document that explains the mathematical realities.
The Greece/EU issue was purely political. The economics never made sense and frankly, are irrational. But the EUs main concerns are 1) To prove that the EU and Euro wasn't a mistake (it was) and unworkable (it isn't), and 2) For the current leaders to maintain their current political power and positions rather than being voted out by their electorates for what is their obvious ongoing failures that have been covered up by obscene amounts of loans to Greece.
2
It was the Eurogroups insistance that the IMF remain involved when Greece sought to jettison them. Indeed it was a prime Eurogorup condition in the agreement. Maybe the IMF is simply trying to extricate themselves from this fiasco so they can return to their mission rahter then spending development money propping up the Euro.
The IMF want's either
(1) all other europe nations to pony up immidiatly debts of greece
(2) or a fig leaf to get out
both alternatives are painful, either the europeans
(1) lose a lot of money (which many believe is lost anyway). Plus setting a precedence for other nations, who did their homework, to demand a debt relief to.
(2) or lose one harsh enforcer of reforms
In (1) we have to find a general rule for debt sustainability. We don't make exceptions for one nation. We have no idea how to support greece, without annoying ireland, who is thriving because they made the hard choices.
And if we give away to much to debtor nations, it will surely annoy creditor nations, and will erode support for the EU in the north.
Of course there is also option (3)
Grexit.
And the longer we look at this conundrum, the more a Grexit looks sympathically.
(1) all other europe nations to pony up immidiatly debts of greece
(2) or a fig leaf to get out
both alternatives are painful, either the europeans
(1) lose a lot of money (which many believe is lost anyway). Plus setting a precedence for other nations, who did their homework, to demand a debt relief to.
(2) or lose one harsh enforcer of reforms
In (1) we have to find a general rule for debt sustainability. We don't make exceptions for one nation. We have no idea how to support greece, without annoying ireland, who is thriving because they made the hard choices.
And if we give away to much to debtor nations, it will surely annoy creditor nations, and will erode support for the EU in the north.
Of course there is also option (3)
Grexit.
And the longer we look at this conundrum, the more a Grexit looks sympathically.
7
Mathias, You make some astute observations. But macroeconomics just does not have room for a household rationale to economics and the resulting morality, such as strict rules about debt. This results in deep paradoxes about what to do and when to get out of the crisis, which has escaped EU leaders and continues to do so. When one nation is failing in a currency union, you simply have to do fiscal transfers very fast, which may be a hidden cost to the eurozone that is still being denied, but is a reality. So while the Greece fiscal performance has been an abomination, the EU actions since 2009 have made things much worse, albeit under justifications of morality and fiscal responsibility. By not dumping those values overboard when the economy starts to go bad, the EU is also acting very negligently and has performed very poorly it the 5 years of debt crisis management in Greece, which has not improved its internal situation much. Greece, like all EU member states, are EU babies. In your case the also denial resides in the catastrophic losses for the remaining EU members when a nation will exit the Eurozone, it does not matter which one. So the EU will actually lose more money after Greek exits than a write-off of all Greek debt now quickly, because of the lack of trust and the ruthlessness of markets to find weaknesses and imbalances. But that is not visible at the moment, tragically. Another point of blindness is the economic advantage, in billions of Euros, that nations like Germany enjoy each year due to a relatively weak currency. There is really no room left for the EU to avoid further political integration and loss of national sovereignty, but they are also in denial about that. The smugness of Germans applying rules and morality, when macroeconomically they are simply folly and destructive, is just as tragic as the total failure of the Greeks to operate their nation independently, but will have much greater consequences for Germany, sadly.
"Ireland is thriving." Hillarious.
The Euro was wrong from the day tht the ink dried on the Maastricht Treaty. There was no consideration given to the differences among the members with respect to fiscal policy, tax policy social policy or labor laws. On top of this, how can you have a common currency without unified banking laws and capital requirements for the banks. Yes, I know they did not want to create the United States of Europe, but the mess they created is far worse. Greece is the tip of the iceberg.
29
Laws and procedures were in place. Greece obviated them. The weakness that created became clear when the US whizz-kids who dreamt up credit default swaps almost crashed the world economy. In the US, there were laws in place, but GWB put a political operative called Cox in charge of the SEC, and he was asleep at the wheel when the rating agencies like S&P and Moody's gave AAA ratings to junk. You may as well say the dollar caused the whole problem. Maybe the US should pay damages to the EU?
1
I,, for one, feel that the conversion to the Euro was a huge error in judgment, pushed by an agenda to speed up the "One World Order" process, and not just a political move, but more to do with removing the obstacle that international trading partners faced to discern differences between the various countries and their currencies more quickly and easily. I'd like to see a return to the French franc, Italian lira, and the Deutschmark, as well as the former currencies of the other 8 participating countries. If the U.S. was forced to give up the dollar and convert to a new form of currency, there's be such a howl across our country, it would wake the dead.
1
No committee of humans will vote for repeated transfers of funds of the size needed to maintain Greece in the Euro. Such transfers must be automatic if they are to occur at all.
As Krugman has repeatedly stated, those transfers can be fantastically large. In the USA Savings and Loan crisis, they came to a substantial fraction of the GNP of Texas, indeed to a figure close to the entire GNP of Belgium!
No Committee of Congress could have approved such transfers. It is unlikely that any Committee in the Executive Branch would have approved such transfers.
Such transfers must be automatic if they are to occur at all, hidden from humans with their (nearly inborn) ideas of trading something for something else.
As Krugman has repeatedly stated, those transfers can be fantastically large. In the USA Savings and Loan crisis, they came to a substantial fraction of the GNP of Texas, indeed to a figure close to the entire GNP of Belgium!
No Committee of Congress could have approved such transfers. It is unlikely that any Committee in the Executive Branch would have approved such transfers.
Such transfers must be automatic if they are to occur at all, hidden from humans with their (nearly inborn) ideas of trading something for something else.
6
Except, of course, the Congress of the United States which transfers billions and billions every year from the wealthy states to the poorer states of the Union -- duh.
It's the same in EVERY country.
It's the same in EVERY country.
A fiscal union = a state, federal or not. Nobody asks whether California transfers money to Wisconsin via the federal budget or vice versa. Ditto for Paris vs the South of France. (Actually, the Bavarians whine about paying for the Northern German states, which shows that solidarity is tough in Germany. But that's caused by explicit transfers on state level in the federal German system, on top of the implicit transfers via the federal budget.)
My point is : the Euro zone is neither a state, nor a nation. I do not think that the citizens of any nation that compose it see transfers to other countries within the zone on the same footing as transfers to another region in their own country. The "realm of solidarity" in people's minds is the country, not the Euro zone (not to speak of the EU : the British show solidarity to no one.) That's why this fiscal union has not been achieved, on top of the huge cultural, fiscal and economical differences. People don't feel "European" on the level of their purse, IMHO. Certainly, the Germans do not, and less so after footing the bill of the EU for the last 40 years.
The € is a way to force political integration up to a federal state on people who don't want it, not that deeply anyway. And the Eurocrats who designed it won't admit that until it is too late.
My point is : the Euro zone is neither a state, nor a nation. I do not think that the citizens of any nation that compose it see transfers to other countries within the zone on the same footing as transfers to another region in their own country. The "realm of solidarity" in people's minds is the country, not the Euro zone (not to speak of the EU : the British show solidarity to no one.) That's why this fiscal union has not been achieved, on top of the huge cultural, fiscal and economical differences. People don't feel "European" on the level of their purse, IMHO. Certainly, the Germans do not, and less so after footing the bill of the EU for the last 40 years.
The € is a way to force political integration up to a federal state on people who don't want it, not that deeply anyway. And the Eurocrats who designed it won't admit that until it is too late.
21
Regarding explicit versus implicit transfers. in my opinion, it's good to have an explicit transfer, because people see what they're paying taxes for. That's democratic. It may cause strange discussions, but in the end it results in a compromise acceptable for at least the majority. I think the EU, and especially the Eurozone, has a democratic issue because too much is decided under the hood by elitistic circles.
And regarding the "European" feeling. Well, I feel as an European. I just cannot live with the € ;-)
And regarding the "European" feeling. Well, I feel as an European. I just cannot live with the € ;-)
11
"British show solidarity to no one." the number of British soldiers in graves around France and Europe may be an indicator that your statement is wrong.
Plus Britain is a net contributor to the EU, not many of those in the EU.
Plus Britain is a net contributor to the EU, not many of those in the EU.
People frequently talk about wealthier US states transferring money to poorer states through the federal government, it is not a question, simply a fact. During the UK referendum on independence for Scotland there was lots of discussion about wealth transfer within the UK. Italy often talks about wealth transfer from North to South. Many people don't feel solidarity within their own country. It's just that they don't like foreign aid even more.
Your point is well taken, I just think the divide is worse than you've stated.
Your point is well taken, I just think the divide is worse than you've stated.
1
A fourth way will be for the Eurozone member countries to guarantee some payments (but not the principal) of bonds to be floated in the private sector. (In the US this is called Brady bonds). This is a lot cheaper that guaranteeing the whole amount, etc.
The fifth way is that EU just prints money. This is already happening at the tune of 60 billion per month but Greece does not benefit because it is in the "troika" status. So, if the other members gave 10 billion per month for a few months, it will be newly printed money, that they did not have two months ago.
So, the problem is not about numbers. It is about using the financial crisis to implement all kind of (good and bad) agendas.
The fifth way is that EU just prints money. This is already happening at the tune of 60 billion per month but Greece does not benefit because it is in the "troika" status. So, if the other members gave 10 billion per month for a few months, it will be newly printed money, that they did not have two months ago.
So, the problem is not about numbers. It is about using the financial crisis to implement all kind of (good and bad) agendas.
2
A principle rationale for unifying Europe after World War II was to so integrate Germany into Europe, politically and economically, that it would never again pose a threat to its neighbors. That goal has failed.
The Germans are their own worst enemy. Gripped by a moralistic, puritanical mindset, they are unable to see the hypocrisy of their position. Virtue is following the rules; vice is violating them. But the rules the Germans favor are always the rules that favor their economic interests.
Thomas Piketty, the noted French economist, put it bluntly, if somewhat hyperbolically:
"When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations." http://thewire.in/?p=5851
Benjamin Friedman, a respected Harvard economist, echoed that sentiment:
“There is no economic ground for Germany to be the only European country in modern times to be granted official debt restructuring and debt relief on a massive scale, and certainly no moral ground either.” http://tinyurl.com/pmdr7x3 and http://tinyurl.com/np2ra37
A punishing austerity for the feckless, Greek people, but a back-room bailout for the reckless, German bankers. A euro that supports the German export machine, but a euro that hobbles peripheral nations in need. The double standards are obvious for all to see–except the Germans.
The Germans are their own worst enemy. Gripped by a moralistic, puritanical mindset, they are unable to see the hypocrisy of their position. Virtue is following the rules; vice is violating them. But the rules the Germans favor are always the rules that favor their economic interests.
Thomas Piketty, the noted French economist, put it bluntly, if somewhat hyperbolically:
"When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations." http://thewire.in/?p=5851
Benjamin Friedman, a respected Harvard economist, echoed that sentiment:
“There is no economic ground for Germany to be the only European country in modern times to be granted official debt restructuring and debt relief on a massive scale, and certainly no moral ground either.” http://tinyurl.com/pmdr7x3 and http://tinyurl.com/np2ra37
A punishing austerity for the feckless, Greek people, but a back-room bailout for the reckless, German bankers. A euro that supports the German export machine, but a euro that hobbles peripheral nations in need. The double standards are obvious for all to see–except the Germans.
170
Cheating is betrayal...how exactly has Greece betrayed germany? Rewind...,in the early 20th Germany was a friend and benefactor of Greece, until the first one. And then the second one. Not being able to repay impossible increments for a loan is nor cheating. Countries are not private individuals that borrow and must panic to pay back before they die. Countries live on and have the flexibility to decrease the increments of loan repayments to something annually possible and manageable, having a much longer life span than a person. So it's person=big annual increment, and country=small annual increment.
Your comments, while relatively apt with regard to history (and current opinion regarding that), ignore the political situation in the northern European countries, whose leaders have far less latitude that their counterpart in America, in governing by executive caveat when they haven't a true consensus of their constituents behind them. Ms Merkel can "go" nowhere (vis-à-vis her actions on behalf of Germany) that she hasn't the support from around and beneath her to go. Otherwise, your religio-political analysis of the German mindset is particularly inapt, and if coming from an American, simply amusing. Cheers.
1
It takes time to bring a large ship around, and the eurozone is huge. The slow political process has an advantage: the public can gradually adapt and forgive those who waste a lot of money. We could have solved the Greek debt crisis long ago, and at a significantly lower cost, had we listened to Paul Krugman. However, it wasn't all in vain - the suffering and the waste - if we learn our lessons and strive for a fiscal union and "more Europe".
During the ten+ years of German reunification about Euro 1 trillion was spent, and in the first years we heard more about waste, corruption and complaints than about successes. Still, it was clearly worth it. We have to show the same stubborness in the case of Greece. The IMF has already warned that the debt is unsustainable. Mrs Merkel and Mr Hollande have postponed the bad news. High costs for German taxpayers will soon be called a "disaster" from BILD in fat letters. However, a united Europe should remain our goal.
It is funny that Mrs Merkel was harping around about "lost trust". Today I have more trust to Mr Tsipras and the Syriza government than I had for other Greek governments before. The passion shown by Tsipras and the good fight by Mr Varoufakis (who knows twenty times more about economics than Schäuble) has convinced me that some real change is going on in Greece. The Greek Ecologist Green Party joined the Syriza list in the last elections. Democracy can be a slow process, but with patience we'll all be winners.
During the ten+ years of German reunification about Euro 1 trillion was spent, and in the first years we heard more about waste, corruption and complaints than about successes. Still, it was clearly worth it. We have to show the same stubborness in the case of Greece. The IMF has already warned that the debt is unsustainable. Mrs Merkel and Mr Hollande have postponed the bad news. High costs for German taxpayers will soon be called a "disaster" from BILD in fat letters. However, a united Europe should remain our goal.
It is funny that Mrs Merkel was harping around about "lost trust". Today I have more trust to Mr Tsipras and the Syriza government than I had for other Greek governments before. The passion shown by Tsipras and the good fight by Mr Varoufakis (who knows twenty times more about economics than Schäuble) has convinced me that some real change is going on in Greece. The Greek Ecologist Green Party joined the Syriza list in the last elections. Democracy can be a slow process, but with patience we'll all be winners.
87
Bravo, on all counts. Your attitude is the only one that will save the Euro (and by extension the European project as a whole). I'm also glad to see some credit given to Varoufakis - the IMF now recognizes what he said all along: the debt has to be restructured for Greece to be able to pull out of its nosedive and pay its creditors. Hopefully Merkel will sideline Herr Schäuble and make it happen. Such solidarity (which of course needs to be matched in deeds by the Greeks) is the only thing that will make the Euro attractive to anyone again...
17
Some of us in the U.S. have never lost the family memory of losing fully owned farms back in the U.S. 1930's and the damage done by bank runs.
My grandparents (100% german ancentry and still speaking german back then) lost their farm simply through the act of splitting the farm up to a subset of their kids (10 in total). When the bank failed, the bank deposit money was lost (grandparent's money), but not the debt (the lien on the property now in a several kids' names).
What Merkel and company did by using the ECB in a such an incompetent manner that essentially allowed and even encourage the bank runs in Greece to occur was borderline criminal - like shooting a shotgun into a crowd when precise aim was required to achieve a purposeful effect.
The damage done will last for generations - as it did in the U.S.
Absolutely pathetic leadership.
My grandparents (100% german ancentry and still speaking german back then) lost their farm simply through the act of splitting the farm up to a subset of their kids (10 in total). When the bank failed, the bank deposit money was lost (grandparent's money), but not the debt (the lien on the property now in a several kids' names).
What Merkel and company did by using the ECB in a such an incompetent manner that essentially allowed and even encourage the bank runs in Greece to occur was borderline criminal - like shooting a shotgun into a crowd when precise aim was required to achieve a purposeful effect.
The damage done will last for generations - as it did in the U.S.
Absolutely pathetic leadership.
1
The so called economists and their concocted fundamentally flawed economic system does not work and that fact has been experienced time and again. The creation of common currency the Euro was over all a very decent and amicable manifest and eliminate some 26 odd different currencies, open boarders, all decent free trade without barriers that still exist in the Americas and the Asian countries. For one definite real advantage it eliminated EC currency markets boondoggle and for a change challenged the US dollar as the world reserve currency and its manipulative power. Precisely why one too many Continental E. countries backed away from using the US dollar. Then again there is China that has surpassed the US as the leading fiscal power. Greece did along with Spain, Portugal etc did not wind up in the fiscal mess just over night. What lead to this predicament id the fundamentally flawed economic system. The EU other big problem is UK and its pound sterling. For the EU to unite, countries like Greece with unsustainable economy needs to be cut loose or tighten its belt. Greece by any means is not a poor country. The bigger problem is that the elite along with millionaires and billionaires are not paying their equal share of taxes and the crooked timber of humanity has taken its own toll where the rich and elite do not care about the nation or the people, Since the Olympics , the commercial facade, that Greece could not afford , the problem is obvious
1
It is not that the Euro doesn't work, it is Democracy doesn't work. On this crowded planet Democracy can't work unless it adopts a balanced budget amendment. Inherently to get elected you must promise more Entitlements to get more votes. This over promise only promotes more deficit spending and debt than eventual insolvency. The have nots will never be satisfied. Debasing of the currency is the least damage Democracy can do. Passing balanced budget amendments seem al but impossible.
3
How could all the people in the world vote themselves more benefits than all the people in the world can pay for? Makes no sense.
The IMF can take a hike. Bunch of egg head economists think they know what a text book currency area should look like. The real world is a little different.
The euro is working just fine, in fact its been an outstanding success. Strong, stable, low inflation and interest rates. That's all you can expect from a currency. You CANNOT expect a currency to magically make a country more competitive or more structurally sound. Greece would have rampant tax evasion whether it used the euro or the drachma.
The European countries have not signed up to a transfer union, nor can we politically. The euro represents a rules based pooling of sovereignty. That means each member state has a responsibility to abide by those rules. Greece found out the hard way on Sunday what the consequences are for breaking those rules. The euro is not the problem, GREECE is the problem.
The euro is working just fine, in fact its been an outstanding success. Strong, stable, low inflation and interest rates. That's all you can expect from a currency. You CANNOT expect a currency to magically make a country more competitive or more structurally sound. Greece would have rampant tax evasion whether it used the euro or the drachma.
The European countries have not signed up to a transfer union, nor can we politically. The euro represents a rules based pooling of sovereignty. That means each member state has a responsibility to abide by those rules. Greece found out the hard way on Sunday what the consequences are for breaking those rules. The euro is not the problem, GREECE is the problem.
26
I spend every summer in Spain and I don't think people here would agree that 25% unemployment (with 50% youth unemployment) represents a great success. In the old days, Spain could devalue the peseta to increase exports and tourism, but now they're stuck with high prices ($2 newspapers that cost 65 cents with the peseta, $1.50 espressos that also cost 65 cents), low salaries, and high unemployment. Spain now has Europes's highest growth rate, but it will take another two years to bring unemployment down to 20%. Some success.
13
There are plenty more with deficits not far from that of Greece. What you say is true in relation to the Northern EU countries, all of whom have a similar culture and political approach. The problem is the diversity of wealth (and politics) limits those who may need to devalue, Greece included. They're hand-cuffed. Yes, Greece has played fast and loose and is now paying the price, but had the EU done due diligence at the outset, they never would have got in. It's now too big and too difficult to manage.
9
@ Realworld. You've been reading too much Paul Krugman. A devaluation would not help Greece, in fact it would probably make things worse. Greece does not export much, theres only so much olive oil, yogurt & tourism that the world wants. Secondly, it imports far more important things like oil, medicine and all kinds of food. These would become far more expensive with a devaluation. Net net, they would be a lot worse off.
1
"Of course, the main alternative to a deal is a Greek exit from the euro, which would also be costly to European holders of existing Greek debt, who could expect to be repaid in devalued drachmas, if at all."
Speaking of distinctions without a difference, how is this any different than the proposals being put forward to forgive Greek debt to keep Greece in the EU? Either way creditors don't get repaid anything approaching full face value. Seems to me, it is in other words there are no costs to kicking Greece out that are above the costs being proposed to keep them in. Might as well kick them out because at least then you don't have to keep rebuying that same horse in perpetuity to keep them in.
Speaking of distinctions without a difference, how is this any different than the proposals being put forward to forgive Greek debt to keep Greece in the EU? Either way creditors don't get repaid anything approaching full face value. Seems to me, it is in other words there are no costs to kicking Greece out that are above the costs being proposed to keep them in. Might as well kick them out because at least then you don't have to keep rebuying that same horse in perpetuity to keep them in.
7
The costs of Grexit, or any exiting member state from the eurozone will be tremendous and will exceed the totality of Greek debt by orders of magnitude. These losses, which are not apparent now, will come from market forces that will now begin to speculate on the next nation in line, perhaps Spain or Italy, forcing their bond rates up, which will then actually create the economic downturn that will reinforce itself. The entire euro will also be devalued, as well as equity prices for assets in all of Europe. This is inherently because fiscal imbalances are there and the economies of different nations perform differently. It is just not a simple issue because the eurozone was a permanent step towards further integration, but it has been botched by the EU.
One monetary policy + multiple fiscal policies = eventual trouble. This turn of events was completely (and sadly) predictable. And the stakes are high indeed: how Greece is handled sets a precedent for Italy, Spain, Portugal and any other country that hits the debt wall down the road. The Brits look brilliant right now, eh?
11
"The Brits look brilliant right now, eh?"
Well that's what the Brits think anyway. Can't wait for Brexit, myself.
Well that's what the Brits think anyway. Can't wait for Brexit, myself.
4
You have been pushing that agenda before I see. The problem is that with the size of the UK economy, if they leave the EU it will truly be in crisis, France included, which is already slowly descending to sick-man status. Best of luck.
3
Considering the north-south divide in the fiscal cultures of European states, maybe a solution is to introduce two Euros: the Neuro and the Seuro.
26
"Debt cancellation is a one-time fiscal transfer (if I lend you $100 and then forgive the debt, that’s much like me simply giving you $100), but at least in theory it would be done only once, with Greece expected to stand on its own otherwise."
"In theory", yeah right. At that point it's probably be better to just cut Greece loose to eliminate the "in theory" part and just put done to it.
They claim "debt relief" and "fiscal union" is a distinction without a difference. Maybe, maybe not, but one thing is clear, a "fiscal union" in that sense only accomplishes allowing Greece to attach it's feeding tube to the rest of the EU. Slurping sounds ensue in the EU economy emanating from Greece. Is the EU really going to go down the road to "fiscal union" if that just means the end result is to just become the host to a handful of parasitic nations?
After all, let's not forget, this problem exists at all not anything to do with lack of fiscal union, but entirely because Greece flouted the rules that are supposed to prohibit such massive deficits and debt - precisely to prevent this. If they can't exercise fiscal restraint and financial responsibility in a non-fiscal union, how is it plausible these nations would suddenly show responsibility essentially given a blank check to siphon off the EU with a fiscal union in place? I think the rest of the EU knows this to be the case and is exactly why they refuse to adopt a full fiscal union. Why would they knowingly sign up for that?
"In theory", yeah right. At that point it's probably be better to just cut Greece loose to eliminate the "in theory" part and just put done to it.
They claim "debt relief" and "fiscal union" is a distinction without a difference. Maybe, maybe not, but one thing is clear, a "fiscal union" in that sense only accomplishes allowing Greece to attach it's feeding tube to the rest of the EU. Slurping sounds ensue in the EU economy emanating from Greece. Is the EU really going to go down the road to "fiscal union" if that just means the end result is to just become the host to a handful of parasitic nations?
After all, let's not forget, this problem exists at all not anything to do with lack of fiscal union, but entirely because Greece flouted the rules that are supposed to prohibit such massive deficits and debt - precisely to prevent this. If they can't exercise fiscal restraint and financial responsibility in a non-fiscal union, how is it plausible these nations would suddenly show responsibility essentially given a blank check to siphon off the EU with a fiscal union in place? I think the rest of the EU knows this to be the case and is exactly why they refuse to adopt a full fiscal union. Why would they knowingly sign up for that?
3
"They claim "debt relief" and "fiscal union" is a distinction without a difference. Maybe, maybe not, but one thing is clear, a "fiscal union" in that sense only accomplishes allowing Greece to attach it's feeding tube to the rest of the EU. Slurping sounds ensue in the EU economy emanating from Greece. Is the EU really going to go down the road to "fiscal union" if that just means the end result is to just become the host to a handful of parasitic nations?"
Yeah, just like the slurping sound we hear from all the Southern red states who take more money from the Federal government than they put in. If we operated like the EU, most of the South would be as bankrupt as Greece.
Yeah, just like the slurping sound we hear from all the Southern red states who take more money from the Federal government than they put in. If we operated like the EU, most of the South would be as bankrupt as Greece.
9
The same way people of Connecticut and New York have signed up to their excess taxes being siphoned off by many of the southern states which pay less in federal tax but collect much more from the federal govt. Because there is no better choice
My understanding of fiscal unions is that they involve a transfer of sovereignty over taxation between the involved parties. What the imf is proposing is simply a straight transfer of wealth from the rest of europe to greece. Given how ineffectual and ludicrous greek governments have been, it'll be great if germany and the rest of europe could make fiscal and structural reforms for greece. However that's completely beyond the realm of political feasibility.
11
Except that's exactly how we work here in the U.S. Most Southern red states get more federal money then they put in. Just like Greece, the rest of the country bankrolls them. It's a transfer of wealth. We subsidize conservative Southern red states.
42
Every Eurozone nation has different prime ministers/presidents and different laws, so having a united monetary system that works for every country doesn't make much sense.
I'm currently living is Poland, we still use the zloty. They've been pushing back the date of introducing the Euro for some time because they know this country isn't ready for it yet. Quite frankly, I don't know if it will be ready in the foreseeable future, and I'm dreading the day it is introduced (if ever).
When you think about it, why can't the Eurozone be a zone of allies working together and still have different currencies? Just because the money is different doesn't mean the countries can't be "friends". The currency exchange system works fine, and it's not that big a deal to change money when traveling over a border. In fact, exchanging money and using different currencies is part of the allure of Europe. It's cool. I understand that this may cause headaches for international businesses, but I'm sure if the heads of the Eurozone put their minds to it, they could certainly find a solution to that issue... and I believe it would be a much easier issue to resolve than the current situations in Greece, Spain, Italy, and Portugal.
I'm currently living is Poland, we still use the zloty. They've been pushing back the date of introducing the Euro for some time because they know this country isn't ready for it yet. Quite frankly, I don't know if it will be ready in the foreseeable future, and I'm dreading the day it is introduced (if ever).
When you think about it, why can't the Eurozone be a zone of allies working together and still have different currencies? Just because the money is different doesn't mean the countries can't be "friends". The currency exchange system works fine, and it's not that big a deal to change money when traveling over a border. In fact, exchanging money and using different currencies is part of the allure of Europe. It's cool. I understand that this may cause headaches for international businesses, but I'm sure if the heads of the Eurozone put their minds to it, they could certainly find a solution to that issue... and I believe it would be a much easier issue to resolve than the current situations in Greece, Spain, Italy, and Portugal.
19
"I understand that this may cause headaches for international businesses". That is precisely who devised the Euro idea - the bankers, as it would make it easy for them
8
Fully agreed. I remember well the time back when there was no Euro, and the EU was actually working fine. There were almost no hatred discussions about cultural differences and mentalities. And there was no need for a full (political, fiscal, ...) union, which tends to only boost centrifugal forces. As a traveller you can now easily pay with your credit card or, in future, with a gadget. So what is the Euro actually good for? I don't know. It's probably only a project of idealistic politicians.
10
This is as *lucid* an explanation as I've seen anywhere.
Thanks to Josh, & to the NY Times, for keeping us readers
clear-headed about the options & likely outcomes.
Thanks to Josh, & to the NY Times, for keeping us readers
clear-headed about the options & likely outcomes.
10
Remember who is the current head of the IMF and what was her previous job. This is a serious signal.
4
The makers of the European Union were wise statesmen and women who were fed up of seeing wars in their own backyard....2 huge ones in the last century alone. Very few people have that vision that look into the next generation rather than the next election....sure I am certain they saw heaps of problems in the short term, and I am just as convinced that most of them would have planned for a generation or two for the system to work properly.
This is not an issue about Money and the IMF's of this world, its about a vision of how humans should share this planet
Joe
This is not an issue about Money and the IMF's of this world, its about a vision of how humans should share this planet
Joe
10
Translation: what can't be paid, won't be paid.
8
They're just delaying the inevitable. Greece should have left the euro years ago. The UK was smart to stay out. You simply need independent monetary policy or unified fiscal policy. The middle ground doesn't work.
14
This isn't what DSK would have done.
It's nice to have someone honest in the job.
It's nice to have someone honest in the job.
2
It seems like Greece is in the position that many American red states would be in if wealthier blue states loaned them money instead of just giving it to them as they do now.
74
The Euro, whatever its advantages for other countries has been a disaster for Greece. Even with much needed debt forgiveness there is no foreseeable end to the Greek problem. Many European countries don't have the Euro as their currency and they are doing OK so the Euro isn't a necessity. The Germans say they don't want to give "free" money to Greece but that's exactly what German taxpayers did in bailing out the central banks that made the bad loans. They felt bailing out the banks was in their self interests but bailing out Greece isn't. Under that circumstance Greece should get out ASAP.
15
No country has done better under the euro than before it, except Germany and (perhaps) Netherlands and Austria. In a union of 19 members, that's a bad record.
The Euro and the ECB have been gamed from the beginning so that there will be eventually only one winner: Germany. Without changes, all of the other economies of Europe will fail, it may take 30 years or 100 years, but only Germany will remain. Of course, that's not politically acceptable. It's time for the Europeans to take their heads out of the sand and make substantive changes that will allow them to live together as a community.
W.G. Sebald, the late German writer, wrote about Europe's "avoidance system" and its repeated institutional forgetting and ignoring. Maybe we shouldn't expect the EC, EZ and ECB to be able to find a solution.
W.G. Sebald, the late German writer, wrote about Europe's "avoidance system" and its repeated institutional forgetting and ignoring. Maybe we shouldn't expect the EC, EZ and ECB to be able to find a solution.
5
Greece has to go its own way, outside the Eurozone. Greece has always been a failing state and its voters are unwilling to pay taxes, fight corruption or innovate. They want others to pay for their ridiculous retirement schemes, their third-world-rate corruption levels and their failure to face up to their shortcomings. At half the size of the Netherlands, hundredfolds the size of Luxembourg, LIechtenstein, Andorra or San Marino, Greece is in fact a banana republic that can only live off tourism because it is so involved in its glorious self-perception that it can't be part of the developed world. EU leaders must realize that the EU is not to be an experiment at social engineering like Stalinism or other forms of injustice. Nobody needs a fiscal union or the Euro in the end, least of all at the expense of freedom. Blind ideology of European leaders got Greece the second bailout with no formal strings attached and they repaid it with arrogance, name-calling, lies, deception, bullying and the exact same level of unwillingness they have had all along. End of story. Grexit the banana republic NOW!
27
Josh, It's quite discouraging to read words like yours which seem to reoccur more and more often these days - words coated with anger, frustration and selfishness. Problems in Greece surely exists. The current government seems poised to deal with them. Being an independent nation with control of their own political-economy is not a bad idea. But, ultimately, what shocks me is not the practical terms of your comments, but the spirit of how you relate to others worse off than you. Rather than lambasting folks worse off than us (Greeks in this case, but it could easily be the poor or criminals in another debate), and approaching them with the belief that they "deserve what they get" and its "their" fault, wouldn't it be more helpful to cultivate a positive spirit of helpfulness and solidarity? It would help them and you, actually. Yes, individual responsibility is an important ethic, but there is also social responsibility. Let's ask: Who needs what and why? And how do WE move in that direction?
32
So then are we to assume you'd kick Alabama out of the U.S. since it, like Greece, is a net taker, whereas NY or California are net makers like Germany and therefore virtuous?
In the long run it just doesn't work to have such huge net exporters as Germany and such huge importers as Greece together in the same current system without also periodically resetting the trade imbalances via transfers. That's what's broken with the Eurozone. That's why Germany's trade imbalance is an aggression against the other countries in the EZ.
In the long run it just doesn't work to have such huge net exporters as Germany and such huge importers as Greece together in the same current system without also periodically resetting the trade imbalances via transfers. That's what's broken with the Eurozone. That's why Germany's trade imbalance is an aggression against the other countries in the EZ.
12
Tsk tsk, so much passion, so little understanding of basic economics, not to mention basic politics.
The 'banana republic' as many commenters have already pointed out, has indirectly bankrolled Germany by keeping the euro more competitive. In addition, as Mario Draghi has insisted, you cannot have a monetary union with unsteady membership. Either the eurozone deals with the problem, or it falls apart.
The 'banana republic' as many commenters have already pointed out, has indirectly bankrolled Germany by keeping the euro more competitive. In addition, as Mario Draghi has insisted, you cannot have a monetary union with unsteady membership. Either the eurozone deals with the problem, or it falls apart.
3
What never seems to be said is that a country like Germany benefits considerably economically (i.e., it makes money) by virtue of being associated with Greece. This is because if Germany had to rely on its own proper currency that currency would be valued much higher than the Euro, just as the Swiss Franc is. Thus, Greece essentially keeps the value of the German currency "artificially" low so that Germany can make more money selling its "cheap" exports. A transfer of money to Greece would just be balancing the fiscal situation, it would not be a present. The present right now is the one Germany receives by Greece keeping the Euro low!
180
The Swiss Franc currently is worth 0.9598 Euros, presumably because the Swiss maintain it at Euro-parity or below. So actually, Greece's continued presence in the Euro zone is benefitting Swiss exporters (and foreign tourists to Switzerland) too.
4
We didn't ask for cheap currency. Germany was facing a revaluation of the Mark quite often before the Euro, too, and we did well anyway. Some economists even implicate that this actually increased Germany's competetiveness. Have a look at poor Switzerland to understand what I'm talking about.
2
That's just wrong. In fact, Swiss Franc heavily upvaluated the last years. Swiss exports became more expensive, and the tourist sector is struggling. But that's what I mean: they cannot change the currency value, but they can change their products to make them more competitive and innovative.
1
The EU nations need to have a grown-up conversation. Germany and the other northern nations have benefited from the southern states bcos the latter make the Euro cheaper than a Deutsche Mark and hence German, Dutch and Belgian exports more competitive. Of course profligate spending by the southern nations cannot be sustained forever, but everyone went into the EU experiment knowing these flaws existed.
It is time for Germany to explain to their citizens how much they have benefited and how much more they will benefit (if at all) so people can weigh the issue in a more objective manner. Similarly the folks in Greece have to ask themselves how much it is worth to them to be a part of the EU - are they willing to make sure the wealthy and powerful pay their taxes? That labor unions are more flexible? And so on, and what they need to do as citizens to make Greece a constructive member of the EU.
The EU was not created for uplifting the southern states, it was created to foster better trade, more competitive markets, and stronger competition to the US, Latin America, and emergent China, India, etc... In the bickering and posturing that seems to have been lost. It needs to be brought to the fore again and the question needs to be asked if that idea was right, and still worth it? If yes, enough with the bickering, get on with it!
It is time for Germany to explain to their citizens how much they have benefited and how much more they will benefit (if at all) so people can weigh the issue in a more objective manner. Similarly the folks in Greece have to ask themselves how much it is worth to them to be a part of the EU - are they willing to make sure the wealthy and powerful pay their taxes? That labor unions are more flexible? And so on, and what they need to do as citizens to make Greece a constructive member of the EU.
The EU was not created for uplifting the southern states, it was created to foster better trade, more competitive markets, and stronger competition to the US, Latin America, and emergent China, India, etc... In the bickering and posturing that seems to have been lost. It needs to be brought to the fore again and the question needs to be asked if that idea was right, and still worth it? If yes, enough with the bickering, get on with it!
48
I aggree that the the last two years or so the Euro is very cheap so it boosts ex-EZ exports. But how you can say Germany profits? Maybe it's just an economic bubble which will explode in near future? And also remember at the very beginning of the Euro Germany was struggling with it.
We didn't ask the southern countries for a cheap Euro. Actually, we want a strong currency, accepting the difficulties it may cause. The Mark was such a currency and we came along quite well with that. It is not that Germany was a poor country before entering the Euro, right?
If you look at the figures of northern European countries w/o the Euro (Norway, Sweden, Denmark, Switzerland) you see that there economies grew much more robust in the past than Germany's, Netherland's or Austria's. These countries can be even considered to belong to the wealthiest on the planet.
We didn't ask the southern countries for a cheap Euro. Actually, we want a strong currency, accepting the difficulties it may cause. The Mark was such a currency and we came along quite well with that. It is not that Germany was a poor country before entering the Euro, right?
If you look at the figures of northern European countries w/o the Euro (Norway, Sweden, Denmark, Switzerland) you see that there economies grew much more robust in the past than Germany's, Netherland's or Austria's. These countries can be even considered to belong to the wealthiest on the planet.
1
Great points. It does not seem that adult conversations are part of the fabric of modern political democracies, whether in the USA or in the EU. The public discussion gets reduced to the lowest common short term denominator, without a modicom of strategic analysis. That suggests a very dangerous situation where violence and demagoguery can easily result, because people are simply not informed of the true situation in their country and in the EU. We have ignorance in these matters on a wide scale.
The IMF wisdom (yup, wisdom) is to insist on these reforms before it puts its money down (and why not insist, isn't this how Germany shows thins are done?) because Greece is not the only economic nutcase. Italy, Portugal, and Spain will probably come next --if not this year, in two or three. Their debts are growing as unsustainable as Greece's as their growth remains sub-par, and their productivity is still not in the league of Germany.
Better have these reforms in place when the real problems, not 0.2% of the eurozone's GDP, come to roost.
Better have these reforms in place when the real problems, not 0.2% of the eurozone's GDP, come to roost.
16
The IMF is exactly right. The principal economic power that any nation has is the ability to create its own currency; their own monetary sovereignty . That is what is lost with the Euro. All the lesser states in the Eurozone have been beaten down by this economic cudgel.
In the US Constitution, this power is reserved exclusively to the Congress, which is the People's House.
Greece should declare bankruptcy, leave the Eurozone and take with them Italy, Portugal, Ireland and Spain, all of whom should reissue their own native currencies. Let Germany, France and Belgium squabble amongst themselves over who has the better deal for outside investors.
In the US Constitution, this power is reserved exclusively to the Congress, which is the People's House.
Greece should declare bankruptcy, leave the Eurozone and take with them Italy, Portugal, Ireland and Spain, all of whom should reissue their own native currencies. Let Germany, France and Belgium squabble amongst themselves over who has the better deal for outside investors.
57
In the USA, which obviously has fiscal as well as currency union, there are states -- red states, generally -- that every year receive more from the federal government than they send to Washington as taxes. That is the nature of a political entity in which there are rich states and poor states.
A single European currency is impractical as long as a situation in Europe similar to what I have outlined above is impossible. Achieving that kind of political union is even more difficult in Europe than it is here, and we needed a deadly Civil War to achieve. Europe has linguistic and cultural divides that dwarf the differences between New York and Mississippi.
Good luck, Europe.
A single European currency is impractical as long as a situation in Europe similar to what I have outlined above is impossible. Achieving that kind of political union is even more difficult in Europe than it is here, and we needed a deadly Civil War to achieve. Europe has linguistic and cultural divides that dwarf the differences between New York and Mississippi.
Good luck, Europe.
73
I can't help but reply that I have more in common with most citizens of the EU than I have with the citizens of the red states. A citizen of Mississippi and a Californian might share a common language but our attitudes about Welfare, Taxes, Civil Liberties, etc. are completely different. We manage to stay united and I often wonder why. I also resent subsidizing the folks in Mississippi.
Oh dear, another American with his panties in a twist. "Of course, the main alternative to a deal is a Greek exit from the euro, which would also be costly to European holders of existing Greek debt." Of course that was the preferred solution of Germany, Finland, and others. Something which Mr. Barro doesn't mention because - I guess he doesn't know.
11
I don't see the knickers in a twist. The Germans wanted Greece out, but the also want to be repaid in Euros. And they don't want the Irish and the Spanish wondering why they are unemployed for the benefit of German banks. Just like the Greeks, who would like to be the the Eurozone, while tolerate feckless and corrupt governance, you can't get everything you want. Just, in Greece, ordinary people will suffer; in Germany, mostly banks.
2
You know...I don't think that Greek deal is gonna happen.
Every day brings fresh revelations about the Greek situation, the power structure of the troika and the huge issues of bridge financing and loan forgiveness. Plus even if Greece agrees, it has to be passed in 19 other parliaments, including Germany's. I strongly suspect that everyone involved knows it's game over - not just for Greece but for the Eurozone. Not the end of the world though; Europe will trade in other ways.
Every day brings fresh revelations about the Greek situation, the power structure of the troika and the huge issues of bridge financing and loan forgiveness. Plus even if Greece agrees, it has to be passed in 19 other parliaments, including Germany's. I strongly suspect that everyone involved knows it's game over - not just for Greece but for the Eurozone. Not the end of the world though; Europe will trade in other ways.
16
Perhaps the IMF's message is that Greece has not earned the right to be in the eurozone because it cannot sustain a viable economy to pay for what its citizens insist they want. Greece reminds me of the son or daughter who grows up unable to handle money responsibly and is constantly in debt as a result of spending money, often unwisely, he or she doesn't have to spend. The wise parent doesn't keep resupplying funds, the typical parent does.
From what I have seen, after three or four decades it is obvious that the child, while legally an adult, has the maturity of 16 years of age. That is pretty much what Greece looks like. Like a teenager, it wants what it can't afford and can't comprehend what the problem is. Greece leaving the EU is not the tragedy some make it out to be. The EU will survive and thrive because the currency union works better than the alternative.
There is no compelling reason for other EU countries to enable Greece. Greece will never grow up, and everyone else will pay the cost for this. Unlike Italy, which can and eventually will enact needed reforms to drive GDP growth, the 2 percent that Greece represents in the eurozone isn't worth having. Greek voters want to be in the EU, but they haven't convinced those they vote for that they mean it.
Eclectic Pragmatist — http://eclectic-pragmatist.tumblr.com/
From what I have seen, after three or four decades it is obvious that the child, while legally an adult, has the maturity of 16 years of age. That is pretty much what Greece looks like. Like a teenager, it wants what it can't afford and can't comprehend what the problem is. Greece leaving the EU is not the tragedy some make it out to be. The EU will survive and thrive because the currency union works better than the alternative.
There is no compelling reason for other EU countries to enable Greece. Greece will never grow up, and everyone else will pay the cost for this. Unlike Italy, which can and eventually will enact needed reforms to drive GDP growth, the 2 percent that Greece represents in the eurozone isn't worth having. Greek voters want to be in the EU, but they haven't convinced those they vote for that they mean it.
Eclectic Pragmatist — http://eclectic-pragmatist.tumblr.com/
13
"Greece reminds me of the son or daughter who grows up unable to handle money responsibly and is constantly in debt as a result of spending money, often unwisely, he or she doesn't have to spend." Not unlike Red States in the U.S. "Republican states, on average, received $1.46 in federal spending for every tax dollar paid; Democratic states, on average, received $1.16." See: http://www.motherjones.com/politics/2011/11/states-federal-taxes-spendin...
3
And how would you characterize the irresponsible bankers of Northern Europe who, knowing Greece was the profligate teenager of your analogy, continued to loan money? Perhaps a better analogy would be that of an addict and a pusher with the bankers acting as the latter.
In that instance one might recall the admonition of the old Steppenwolf song.
In that instance one might recall the admonition of the old Steppenwolf song.
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@sprachnroll - The states do not receive the money - individuals do. It might even be the same people. Suppose you worked all your life in New York, and made a high income. You paid tons of Social Security tax. Now you are retired, and have moved to Florida, and are collecting the SS maximum benefit, $42K a year. The 'state of Florida' is not getting your SS, you are!
In the U.S., there are donor states and receiver states. Some states provide way more money to the Federal Government--via taxes--than they receive in return. Other states get way more money from the federal government than they pay in taxes.
For example, California, New York, Illinois and Minnesota are all donor states--paying substantially more money in Federal taxes than they receive in return. Whereas Mississippi, Alabama, Virginia, West Virginia and the Dakota's all receive way more Federal money than they pay in taxes.
That's how it works in a family and that's how it works in a nation. Children need support for 20 years, food clothes, schooling, a car, etc ....Later, when they are independent and strong, they will take care of their parents.
Greece is having problems. They need to be helped. Hey Europe--are you a nation or not? Greece made a mistake. Some big mistakes. But they've been on the ground for long enough. Give them a hand up will you?
This is not about numbers or banking ledgers. This is about family, and feelings and loyalty to your fellow European Union Citizens. It's time to do the right thing.
For example, California, New York, Illinois and Minnesota are all donor states--paying substantially more money in Federal taxes than they receive in return. Whereas Mississippi, Alabama, Virginia, West Virginia and the Dakota's all receive way more Federal money than they pay in taxes.
That's how it works in a family and that's how it works in a nation. Children need support for 20 years, food clothes, schooling, a car, etc ....Later, when they are independent and strong, they will take care of their parents.
Greece is having problems. They need to be helped. Hey Europe--are you a nation or not? Greece made a mistake. Some big mistakes. But they've been on the ground for long enough. Give them a hand up will you?
This is not about numbers or banking ledgers. This is about family, and feelings and loyalty to your fellow European Union Citizens. It's time to do the right thing.
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Firstly: no Europe isn't a Nation and then Europeans tax payers have kept Greece afloat for the past 5 years. A fiscal union is "the integration of the fiscal policy of nations or states" -dixit wikipedia- not the never ending bankrolling of foreign tax fraudsters living over their means like the author of this article imply, following a misleading headline.
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Sensi, they have kept Greece afloat while simultaneously trying to sink it with austerity. By slowing down the economy of Greece again and again, they have ensured that Greece can't do what they say they want it to do, pay back debt.
One of the ways debts get repaid is through inflation. They are paid back with money that is worth less than that loaned. Another way is through economic growth. Bill Clinton wound up with a balanced budget because of relatively minor cuts in spending (mainly reductions in the amount of increased spending that had been contemplated, not actual reductions) coupled with an economy that was booming. Countries have to earn their way out of trouble, but if you pile more and more trouble on them, doesn't work.
One of the ways debts get repaid is through inflation. They are paid back with money that is worth less than that loaned. Another way is through economic growth. Bill Clinton wound up with a balanced budget because of relatively minor cuts in spending (mainly reductions in the amount of increased spending that had been contemplated, not actual reductions) coupled with an economy that was booming. Countries have to earn their way out of trouble, but if you pile more and more trouble on them, doesn't work.
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I think you can analyze the fiscal flow of money with regard to taxes and spending all you want. Still there are no donor or receiver states. Americans pay taxes as individuals not as territorial entities. The many benefits/drawbacks of living in a higher/lower income area are obvious to people as they contemplate opportunities at different stages of life.
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