36 thoughts on “My take on the latest round in the Greek crisis

  1. I suggest that the natural line-up of positions is slightly more complex than you suggest at the end (and have suggested here previously).

    I would expect to find two groups naturally lining up in support of the view that it is the Troika that has climbed down:
    supporters of its policies who are also generally inclined to take a gloomy view of the future;
    and opponents of its policies who are also generally inclined to take a hopeful view of the future.

    Correspondingly, I would expect to find two groups naturally lining up in support of the view that it is not the Troika but Syriza that has climbed down:
    supporters of the Troika’s policies who are also generally inclined to take a hopeful view of the future;
    and opponents of its policies who are generally inclined to take a gloomy view of the future.

    In other words, people who imagine bad times are coming will take this as confirmation and so will people who imagine better times are coming.

  2. Syriza is the most interesting thing happening at the moment.

    Unfortunately the real issues are not being addressed and it is true that:

    the problems to be kicked down the road for another four months.

    This gives them breathing space.

    But, why should Greek people pay for the abhorrant behaviour of (capitalist) business?

    Tax is a far more important issue than covered by:

    …such cuts would allow room for the private sector to grow, thereby generating tax revenue and assisting in the “financial consolidation” needed to reduce debt and deficits.

    Many businesses in Greece have never paid tax. A growing “private sector” is vague – it is a growing capitalist sector with shareholders.

    According to Citibank – Greece should just simply default. Others have suggested a parallel currency – silver backed dracma as well as euro.

    All covered by Max Keiser at:

    Greek Crisis

  3. Syriza is not all about economics. It is also about the political economy of Greece which history must include the history of fascist rule. Yannis has suggested that the last thing any sensible person wants is a collapse into the social conditions that fertilized European fascism. He’s right. Keeping capitalism on a drip feed is the best current option for both the Greeks and the whole of Europe.

  4. John appears to avoid saying anything too detailed about exactly how Greece could deal with this crisis.

    If Greece stays in the EU and the Euro how can it run budget deficits (avoid austerity) without Troika permission and assistance? If the people of Greece want more government assistance (via Greek budget deficits or the EU) and the EU won’t deliver this then what is Greece to do? While it remains in the EU it is not a fully sovereign, democratic nation. It’s fiscal policy is controlled by other nations and the ECB.

    Is it workable, in John’s opinion, for Greece to exit the EU, repudiate the debt and refloat its own currency? If it is not, then this illustrates that entry into the EU for economically peripheral nations is a very risky path leading to a dead-end. Such countries get caught in a trap where they lose control of their own fiscal policy and thus of their economic policy. They fall into full fledged depression as Greece and Spain have done. I hope Iceland is paying attention.

    In 2014, Professor Joseph Stiglitz said austerity policies had been a “disastrous failure” and are directly responsible for the failed recovery over the first half of this year, with Italy falling into a triple-dip recession, France registering zero growth and even Germany contracting in the second quarter.

    Total disaster all round. The EU is a total failure. The economists and macroeconomists who know their stuff predicted its failure from the start.

  5. Why lieing that taxpayers gave anything for bailout of Greece? Why such propaganda?
    No taxpayer gave anything to Greece. Here is how the funds for bailout was achieved:

    The total amount of €110 billion would consist of €80 billion bilateral loan commitments provided by the Eurogroup and pooled by the European Commission in the Greek Loan Facility (GLF), and additional €30 billion to be provided under a Stand-By Arrangement (SBA) by the IMF,

    from Wikipedia

    Prof. Quiggin, please stop talking about taxpayer giving to Greece

    the Greeks are now seeking to shift the burden to the long-suffering taxpayers of Northern Europe, and, in particular, Germany.

    This kind of lie is what makes justification for more austerity and supporting banker’s propaganda.

    The money for bailout was procured by coutries of EZ giving pices of paper (bilateral loan comitments) to ECB that then printed money. There was no cost to anyone and there will never be if ECB cancels those commitments again as during second bailout or reuse them.
    It can keep reusing them forever or just forgeting about them. There would be no cost to anyone, especially not to any taxpayer if greek debts are forgiven today.

    Yes, banks had to take some haircut in second bailout, but they earned from interest before the haircut. Remember that interest rate went to 27%, so they bought Greek debt 75 cents on a $ and then turned it to ECB for 53. Some banks lost some money in total but that was decided by Troika’s preference. Greek banks lost 75% on Greek debt while foreign banks did not loose zilch.

    No EZ taxpayer gave anything to Greece, nor will gain anything from Greece if it pays off its debt, or not. Bailout was just an accounting game that did not cost anything. But it is still used to punish Greeks and show the power of Germany to perifery. That is it.

  6. How can Greece avoid austerity even under 0 surplus condition? It can not do it with positive surplus going to ECB forever.

    Yanis proposes (and he will implement it) is to print paralel money called TAN (tax advance note), but in my opinion it is a future budget reducing mechanism whith which to pay for additional spending.

    But my proposal is much more cunning and stealthy. It is using the fact that banks destroy money when clients pay off the credits. Why not give them something else to destroy instead of real money that people are giving them?
    Greece can print notes that only banks accept in lieu of credit payment and give it to all greeks on monthly basis. Say 100€ worth of note to every citizen and 50 to every child.
    That would be about 1 bilion a month or 7% aditional spending deficit. Since Galbraith asks for 10% deficit spending for Greece in order to get out of depression, this could help greatly.

    Those without outstanding debt at banks can sell their notes to those with or open a credit line and pay of their utilities and taxes. Banks print money when issuing credit.
    This would stop the need of banks for further bailouts since credit defaults stop and also accumulate banking reserves that Greece can then borrow, if it forces it’s banks to stop lending to foreign governments that almost destroyed them.

    Yanis also proposes to implement USA style personal and corporate bankrupcy (same effect as printing notes) which Eurogrop accepted, but that is slow processs and it requiers funds for seting up institutions.

  7. I am afraid, reality does not fit well into the ‘austerity’ vs Keynesian expansionary policies debates. This debate is an Anglo-Saxon debate and not germain to the EU.

    It is the UK which applied ‘austerity’ in the manner characterised by JQ. Clearly, having its own currency makes no difference to the welfare a non-trivial segment of the population but does matter a lot to ‘the City’.

    First letter from Greece to the EUROgroup

    Second letter from Greece to the EUROgroup

    As can be seen from the second letter from Greece to the EUROgroup, the institutional arrangements in Greece are part of the reform program. It is not only ‘debt’. It is clear to just about all EUROgroup economists I’ve read, that cancelling debt isn’t going to be compatible with the wishes of the majority of Greek people to remain in the EU – not just the EUROgroup.

    The EU governments not only have to consider those who have financial problems (Ireland, Spain) but also others such as Poland and Finland. As for Spain and Italy, Piketty’s statistics indicate there is a structural differences in the distribution of wealth between these countries and say Germany. These structural differences are historically based. The difference in social norms between Greece and say the Netherlands are even more pronounced. For example, the word corruption is mentioned in relation to Greece. Well, if people are used to paying a medical doctor in kind or in money in addition to the funds obtained from the health system, then this is not ‘corruption’ in their eyes – it is merely what is the norm. In Australia, medical staff in hospitals as well as other public sector employees have strict guidelines on accepting gifts. None is the norm. Obviously, if the relatively wealthy are getting gifts from the relatively poor then, over time wealth inequality can only grow. There is probably corruption in every country, using a suitable criteria.

    No mention of the ‘Troika’ is made in the second letter but the OECD is going to be involved. The usefulness of the involvement of this tax gorging organisation, the OECD, is to be seen. The OECD did play a major role in promoting neoliberalism – remember their book ‘What Governments should do’. Like the proverbial Wallstreet bankers, they were never held to account in financial terms. Their current stance is perhaps easiest to evaluate in relation to Australia: http://www.oecd.org/australia/going-for-growth-australia-2015.pdf.

    As is known by now, the German government did accept the 4 months extension of financial aid, conditional on the second letter from Greece. Thereafter, new negotions will take place.

    Shortly thereafter, doubts were raised about the sincerity of Yanis Varoufakis. Two days after he signed the second letter he gave an interview with Charlie Hebdo, saying a cut in Greece’s debt is needed. Reportedly, it is not his opinion as an independent economist that is at issue but rather his statement as Finance Minister who signed the letters. Some commentators felt he behaves like am adolescent strongman. Others wonder why he has time for interviews at all, given the enormous amount of work in the reform program.

    IMHO, it is of no practical importance to the starving people in Greece and the low income or unemployed people in Germany whether ‘the Troika’ or the new Greek government had to give.

  8. @Ivor
    Yes. Keiser rocks. I loved that one! Have a crypto-currency revolution. Australians should do this too before they notch up the austerity here.

  9. I was disappointed by JQ’s “time will tell” conclusion, an easy out.

    Syriza’s follow-up letter is definitely worth reading. I used the link kindly supplied by Ernestine Gross.
    (sueddeutsche.de/wirtschaft/brief-an-euro-partner-griechenlands-reform-liste-im-wortlaut-1.2365610, preceded by the usual URL starter).

    What you get is a remarkable list of 64 technocratic reforms, many of which will require primary legislation. It would be a very ambitious five-year agenda for any government including Germany, and inconceivable in dysfunctional Australia or the USA. Right at the end is the vague promise to “ensure that its fight against the humanitarian crisis has no negative fiscal effect.” It does include some orthodox loyalty tests like going ahead with privatisations already started, but most of is just Public Administration 101 – which doesn’t make it easy.

    What is missing is any further commitment on macroeconomic or fiscal policy. The letter supports the reading that Syriza won quite a lot of breathing room on these, at the price of accepting an ordoliberal microeconomic package.

  10. @James Wimberley

    The phrase “dysfunctional Australia” is interesting in this context. We have a dysfunctional current government but Australia itself is still quite functional. It’s an important distinction. Our governance institutions are functional on the whole though some are being misused at the present time. For example, the departments and institutions we use to manage refugee policy are currently being misused but they could be used in a much more humane manner. Treasury and the Reserve Bank are functional but are currently being misused to apply policies which maintain high unemployment and high youth unemployment.

    Greece is in a very different position. Its institutions are dysfunctional and its current government is still largely untested. In addition, Greece is in a dysfunctional and grossly, indeed terminally, maldesigned currency union which was always doomed axiomatically to fail. Its failure was designed in by neoliberal ideologues who understand nothing about economics other than protecting the wealth of the 1% by protecting the currency and bankers at the expense of workers.

    Specifically, the EU/euro design prevents periphery nations stimulating their economy when stimulus is required. It prevents currency adjustments occurring which periphery nations require as the currency exchange rate tends to move to suit the core countries due to the higher exchange weighting the core countries naturally give to euro movements. Core countries like Germany benefit from a relatively under-valued euro while peripheral countries like Greece suffer from a euro over-valued relative to their economic weakness.

    Greece has no hope of any progress unless it breaks away from the EU and euro. Even then its path will be difficult as it has many real economy problems as well as the financial problems induced by Euro membership. The Greeks need to show courage and independence and throw away the security blanket of the ill-designed EU which suffocating and destroying what is left of their economy.

  11. @Jordan

    Yes Jordan the “long suffering taxpayers of northern Europe” line is, in context, a really unfortunate one. Perhaps JQ is simply writing too much.

  12. my dad would be spinning in his grave with all this talk about (essentially) social credit ! personally, i think it would be great; can’t wait. -a.v.

  13. “long suffering taxpayers” Did I omit the irony alerts?

    Seriously, if you reread, you’ll see that I am summarising the official view, with which it should be pretty clear that I disagree.

  14. Well, next paragraf was

    There is a grain of truth in this, as in the parallel view that the the mortgage crisis in the United States, which kicked off the global financial crisis (GFC), was due to the irresponsibility of borrowers who took on loans they could not realistically hope to service.

    Not really distinct your own opinion.

  15. Professor Quiggin, i have a question.
    Why avoiding writing about this issue i wrote about funds for bailout?
    Is it not publishable, selfcensorship, holding onto Paul Samuelson’s view on truth about money, or something else?
    I believe that this fact is a strongest argument about current euro problem and can persuade many against austerity so, why not use it?

  16. @Jordan
    Failing to respond to a blog comment does not constitute self-censorship. In this case, I’m not seeing the difference between your idea and the policy I support which is printing lots of euros (aka QE).

  17. I have provided the links to the Sueddeutsche Zeitung articles (first and second letter), which James Wimberley referred to, in a post on this thread. It is in moderation.

    A follow up piece of information consists of open access debates in the Greek and in the German governments. Instead of providing the link, I summarise here what I consider to be important, namely, the Alexis Tsipras’ government intends to table legislation this coming Monday (tomorrow) to address the humanitarian crisis. Food, medical services and electricity to be provided to the needy, reopening free TV, and prohibiting foreclosure on private debt on owner occupied houses up to a maximum value of the residence of Euro300,000.

    IMHO, starting from the humanitarian crisis end of the reform plan is sensible. It is sensible because tax paying Greeks had stopped paying tax on the individually rational grounds of trying to secure their own families from starvation. Take away the servival threat (by guaranteeing minimum living conditions) and people have a incentive to cooperate. (My subjective assessment is that Schaeuble would interpret Alexis T.’s first move as an indication of being serious. My assessment is based on numerous statements by Schaeuble over a lengthy period of time. As mentioned before, the ‘expansionary austerity’ thingo has no credibility in the Eurogroup and the idea of Keynesian multipliers through additional spending being a solution is equally incredible in the case of Greece. Furthermore, the talk about loss of sovereignity due to the EURO ignores the long history of economic literature from the 70s on regarding the need to coordinate monetary policy. Sovereignity in the EU focuses on domestic income and wealth redistribution. To this end, Yanis Varoufakis has been quoted as saying Greece will need Germany’s support to get on top of financial capital flight. In effect Greece will need the support of more than just Germany; every country that does not fight tax evasion and profit shifting is not helping Greece. )

  18. @John Quiggin

    My question was about how funds for bailouts was not given by taxpayers and that they will not suffer if Greek debt was cancelled. That bailout was newly printed money given to northern banks via Greece. Operative word being newly printed money, not taxpayer’s money. I believe that is very strong argument to use. It would destroy their main argument for austerity and suffering.
    Why is there no mention about that when writing for newspapers? ( i didn’t mean about responding to comments but to newspapers)

    I appologise if my english writing skill is so bad so that it can be missunderstood easilly.

  19. @John Quiggin

    Correct me if I am wrong. QE is not the same as “printing money” (creating money) if we mean by “printing money” the creation of new money by a deficit budget.

    The Bank of England website tells us that;

    “Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending in the economy and return inflation to target.”

    It further tells us;

    “The Bank of England electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies. These investors typically do not want to hold on to this money, because it yields a low return. So they tend to use it to purchase other assets, such as corporate bonds and shares. That lowers longer-term borrowing costs and encourages the issuance of new equities and bonds and that should stimulate spending. When demand is too weak, QE can help to keep inflation on track to meet the 2% target.

    QE does not, as is sometimes suggested, involve printing more banknotes. And QE is not about giving money to banks. Rather, the policy was designed to help businesses raise finance without needing to borrow from banks. And also to lower interest rates for all households and businesses.”

    The Bank of England site makes a point of the fact that the money acquired by businesses by QE (by selling back government bonds of gilts) can be and is used to buy shares and other assets. So, we can reasonably assume QE pushes up the value of these intruments and concomittantly reduces yields.

    Wikipedia notes:-

    “According to CNBC’s Robert Frank, a Bank of England report shows that its quantitative easing policies had benefited mainly the wealthy, and that 40% of those gains went to the richest 5% of British households.[87][88] Dhaval Joshi of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it”.[88] Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality”.[88]”

    So this is clearly very different from a deficit budget where the automatic stablisers are used and even enhanced (especially welfare payments and other assistance to the poor).

    Wikipedia also notes;

    “QE for the people

    In response to concerns that QE is falling to create sufficient demand, particularly in the Eurozone, a number of economists have called for “QE for the people”. Instead of buying government bonds or other securities by creating bank reserves, as the Federal Reserve and Bank of England have done, some suggest that central banks could make payments directly to households.[113] Economists Mark Blyth & Eric Lonergan argue in Foreign Affairs, that this is the most effective solution for the Eurozone, particularly given the restrictions on fiscal policy.[114] They argue that based on the evidence from tax rebates in the United States, less than 5% of GDP transferred by the ECB to the household sector in the Eurozone would suffice to generate a recovery, a fraction of what it intends to do under standard QE. Oxford economist, John Muellbauer has suggested that this could be legally implemented using the electoral register.[115]”

    There are many who argue that QE is not “printing money”.

    “Note that there is no change in cash in the hands of the public—what we know as money.

    The whole operation leaves the Treasury’s balance sheet unchanged. No new bonds are issued, no revenues received.

    So we can see that while the central bank’s balance sheet does expand, the only impact in the private sector is to change the composition of the banks’ balance sheets, exchanging bonds for reserves. The total assets of the private sector don’t change. Hence no money is being created any more than, say, if someone sold their stocks and put the money into bonds.

    Now, some people will argue that reserves are money. But let me explain why I don’t think reserves are money.

    What is money? Money has three functions: a medium of exchange, a store of value and a unit of account. Bank reserves are a store of value; they may be a unit of account; but they are definitely not a medium of exchange.

    Only financial institutions can hold reserves at the central bank. You can’t go into a store and buy a loaf of bread with bank reserves, as you can with, say, a dollar bill or a checking account at a your local bank. Reserves just sit there. Although they do earn interest, that doesn’t mean they are money. You can rent out your house and get an income stream from that, too, but that doesn’t make your house money.

    (Read More: Forget Fed Hawks, Focus on Bernanke: Alan Blinder)

    Finally, one should also look at the intentions of the economic actors holding the bonds in the first place. As Nomura Research Institute Chief Economist Richard Koo points out, the banks, bond dealers or whoever held those bonds in the first place held them as a store of value, not as a medium of exchange. When the Fed buys the bonds away from them, they are apt to replace them with another store of value, such as stocks, rather than a medium of exchange. The money simply goes from one asset to another and does not contribute to expenditure that boosts growth and, ultimately, inflation. ” – Marshall Gittler, Head of Global FX Strategy.

    IIRC the Bank of Japan has determined that QE is ineffective (after they innovated it.)

    QE is clearly another policy to help the rich and the bankers, not a policy that provides any significant help to workers, pensioners, unemployed etc.

  20. “Printing” is a C20 metaphor. Of course the money is just created electronically, as are the assets being acquired, but the effect is the same as they used a printing press to make physical notes, which were then exchanged for paper certificates.

  21. @Ernestine Gross

    “IMHO, starting from the humanitarian crisis end of the reform plan is sensible.” – E.G.

    Indeed it is but how did it ever get this bad? The Greece crisis has been dragging out ever since the GFC. Greece presumably has been taking the Troika medicine ever since then. Maybe the Troika medicine was bad medicine. Maybe the Greeks were doing other things wrong too. Whatever has been going wrong, I think we can assume it’s an egregious set of mistakes from just about everyone involved.

    “It is sensible because tax paying Greeks had stopped paying tax on the individually rational grounds of trying to secure their own families from starvation.” – E.G.

    Clearly, there are things about the Greek taxation system I don’t know about. Is taxation somehow voluntary in Greece? I mean, I know taxation is often voluntary or minimal for rich people and corporations but most of the rest of us cannot get away without paying taxes. Do the average workers in Greece (what’s left of them after 25% unemployment) face a situation where tax paying is voluntary?

    “The idea of Keynesian multipliers through additional spending being a solution is equally incredible in the case of Greece.” – E.G.


    Also, I note Stiglitz says “Germany is the problem not Greece”.

    “The policies that Europe has foisted on Greece just have not worked and that’s true of Spain and other countries.”

    “Greece made a few mistakes … but Europe made even bigger mistakes,” Stiglitz told CNBC. “The medicine they gave was poisonous. It led the debt to grow up and the economy to go down.”

    “If Greece leaves, I think Greece will actually do better. … There will be a period of adjustment. But Greece will start to grow,” he said. “If that happens, you going to see Spain and Portugal, they’ve been giving us this toxic medicine and there’s an alternative course.”

    “Insisting that it’s best for Europe and the world to keep the euro intact, he argued that keeping the single currency together requires more integration. “There’s a whole set of an unfinished economic agenda which most economists agree on, except Germany doesn’t.”

    He said the real problem is Germany, which has benefited greatly under the euro. “Most economists are saying the best solution for Europe, if it’s going to break up, is for Germany to leave. The mark would raise, the German economy would be dampened.”

    Under that scenario, Germany would find out just how much it needs the euro to stay together, he added, and possibly be more willing to help out the countries that are struggling. “The hope was, by having a shared currency, they would grow together.” But he said that should work both ways.” – Excerpts from CNBC News.

    On a final note, Germany was forgiven large debts and reparations in the early 1950s after WW2… not to mention the vast assistance they got from the Marshall Plan. Germany now needs to show some magnanimity to Greece.

  22. @John Quiggin

    I did put “printing money” in inverted commas. My quotes included reference to electronic creation of the money. I think it’s clear that I was clear (if that note was meant for me as well as others).

    More to the point, why address a side issue but not answer the substantive questions I raised about the relative ineffectiveness of Q.E. and its bias to assist the rich? Q.E. does not have the same effects (especially equity and distributional effects) as well targeted deficit spending to assist the poor. Q.E. is rich-guys’ policy, IMO.

  23. @Ikonoclast

    When did Professor Stiglitz say the words you quote (and interpret) and where?

    To the best of my knowledge any claims Greece had for reparation payments from Germany were settled only around the time of unification of East and West Germany.

    The Marshall plan came with a new constitution and with strict supervision. The French, the British, the Russian ‘occupying forces’ all went home, the US stayed, although not strictly as occupying forces.

    It all sounds very nice to say Germany now needs to show some magnanimity to Greece. The presumption is that it had not done so. What is the evidence? What exactly the Germany government supposed to do? Send a cheque with a huge number printed on it to Greece? How would they know if the data supplied on the latest national accounts are even vaguely accurate? What incentive would there be for the new Greek government to withstand the pressure of the old oligarchs to keep things as they are? I have now idea what you have in mind that could be even vaguely related to recorded events. Incidentally, the Deutsche Bank, not Goldman Sachs, took a hair cut on its loans to Greece. Goldman Sachs ‘made money’ on two way bets. I suppose the USA could be said to make a contribution via the IMF.

    It seems to me you are totally unaware of international treaties within the EU, within the Eurogroup, and across the Atlantic.

    The elephant in the room is why does Greece not propose to sell back all the military equipment (or a large part of it) they bought from Germany, France, Britain (?) the USA (?)?

    It is amazing how talk about a ‘Euro crisis’ has supplanted talk about the GFC, as if the order of events were reversed.

    In addition to this financial mess (GFC) there is a huge number of refugees coming from Syria, Iraq, and some African countries. Many of the former arrive in Greece (and Italy) due to geographical proximity. There is a huge refugee program in Germany (the State pays Euro 7 (or 9 I can’t remember) per day per person to the owners of houses or appartments made available, public officials supervise the whole program in terms of adequacy of accommodation etc. Still, the initial impact is on Greece (and Italy). Greece is least able to deal with these people, given that it is in a state close to emergency. Now, are you, Ikonoclast going to blame the Euro on the mess in the Middle East because Greece hasn’t got sovereignty over its own currency?

    To introduce a bit more reality, what about Poland? Poland surely would have a claim to reparation payments from Germany. Poland has not demanded any.

    It is absolutely naive to characterise the actual problem in macroeconomic terms and, specifically as ‘Germany representing the austerity school of thought’ and ‘Greece’ as ‘the periphery’.

    Let me illustrate something about ‘austerity’ closer to home. Lucy Turnbull, on a Q&Q segment, put something in words which rang true to me. I can’t remember her own words exactly. She said words to the effect that Australians don’t want to owe a lot of money (government debt) because of the experience they made in the 1930s. This corresponds to Australians being interested in getting the government budget(s) into the black. One could call this wanting ‘austerity’. But, the May 2014 budget was and still is considered ‘unfair’. I conclude, it is not merely a matter of ‘debt reduction’ but who is called upon to make major contributions. Hence my repeated statement, ‘austerity for whom’. It does matter.

  24. I read this today, titled ‘Why does Germany Insist on A Failed Programme For Greece’ which claimed that, after five years of austerity economics, the Greek economy was collapsing:

    The elephant in the room, however, is the failed structural readjustment programme which was implemented in Greece since its first bailout in 2010. Five years on, the country’s economy has contracted by 25 percent, unemployment has risen to 27 percent and national debt, seen by many as the root cause of the Greek crisis, instead of contracting has soared from 124 to 180 percent of GDP.

    In my view, admirably comprehensible political economy.

    Austerity has failed. Time to put the onus of proof onto those who urge it.

  25. @Ernestine Gross

    Google “Stiglitz, Germany is the problem not Greece.” He said these words on CNBC news. All this was in my original post albeit not in proper citation or quote format so it would be easy to miss.

    There are no doubt complex reasons Greece is having problems. Some are real world problems, some are real economy problems and some are financial economy and macroeconomic problems. We seem to be emphasising different aspects.

    I have in certain posts referred to Greece’s excess military spending so I am not unaware of that issue. Of course, it takes two to tango. The USA, Germany, France and Great Britain would be (I guess) the main culprits in over-selling military hardware to Greece.

    As for this budget surplus fetish pushed by neoliberals, I just do not understand it. A deficit or surplus is not good or bad in itself. It depends on economic conditions. If the economy is overheating you need a surplus. If the economy is weak you need a deficit to pump prime. Keynesianism works most of the time. It worked for Australia in the GFC. QE too is a kind of Keynesianism except it is mostly pump priming for rich people. Governments don’t even have to go into debt to run a deficit. That’s just another neoliberal myth.

    The GFC exposed the systemic design weakness of the EU. It’s the one developed region which can’t recover from the GFC. That has to be diagnostic in my book. The USA, Canada and Australia have recovered albeit one could argue a bit tepidly.

    I think it is naive to believe that there is not a macroeconomic dimension to the EU problem. It is clearly driven at least in part by very bad macroeconomics. We will never agree on this of course.

  26. @Ikonoclast
    Apologies to Aussies for the lack of clarity. I was writing only about the legislative and policy programme of a national government. Of course Australia and the USA have capable bureaucracies that could carry out a wide legislative programme – but this is impossible in either country until a change of government in the one, or Congress in the other.

  27. @Ikonoclast

    Ernestine Gross is right that many things were wrong in Greece even before it joined EU and EZ.
    Of course it had many internal weaknesses but mostly due to being treated as colony and instigating coups by Northern European powers. So, it was a state in bad state due to perifery status for whole century.

    And you are right about bad set up of EZ and lacking proper central bank, so Greece is in focus due to being the weakest link in EZ. If Greece was not in EZ then Spain would enjoy the same status as Greece have now. Even tough Spain have had surpluses before GFC, it did not help it and unemloyment is almost as bad as Greek.
    It is only that Greece started to resist the stupidity of EZ concept as it is now. Spain will too.

    And banks are demanding some assets that bring yields and only greek assets are giving good yields. If Greece was never there, they will be forcing the same yields onto Spain today as the Weakest link.

    But lets talk about Greek’s mess even before entering EZ and also today, which Syriza has promised to takle down.
    -Land records are a mess, many properties still hold names of owners that have been dead for 100 years. (the same case is in Croatia where the war made it messier then in Greece)
    -There is no power of institutions to enforce tax obligations due to power of oligarchs wanting to avoid taxes so many others do it too.
    – A lot of economy is cash economy so no records of sales. (Croatia recently implemented Fiscalization which banned any sales without receipt and all fiscal inspectors were closing shops even for the smallest infraction. Record of sales increased by 31% in 2 months. Today, even country markets sellers print out receipts for sales directly linked to Tax agency)
    – All previous governments refused to take steps to properly enforce the law in economy.
    – Colonial mentality of central bankers is the biggest issue, they do not think of independent monetary policy that would fit conditions of Greece. Interest rates are higher then of competition to prevent high credit demand and inflation with it. But this also prevents modernization of production due to high cost of capital.
    -Another large issue is low social and retirement benefits, low minimum wage. Low wages allow for delaying modernization of production ruining competitivness with north.

    So, high interest rates and low wages destroy competitivness. Modernization is usually done with loans, so high interest rates prevent it. My experience of having businesses in high wage country and low wage country tells me that low wage i am giving does not force me to modernize my business as it does in high wage country.

    Neoliberal theory that low competitivness was caused by high wages of workers is acctually opposing to real world experience. It is the low wage and high interest rates of poorly developed countries that are the cause of low competitivness.

  28. If Greece exits the EU, it will refinance with the Yuan and to hell with Germany, the US and NATO.

  29. @Ivor

    Clearly Greece has lost its national sovereignty not to mention its worker sovereignty. Here is Jeroen Dijsselbloem, the Dutch finance minister, telling Greeks how to run their own country. It is outrageous and insulting. He is acting solely for the bankocracy of the EU; a system which feeds the rich and creates and then starves the poor. They are the ones who have driven the Greek people into poverty along with the Greek oligarchs.

    Greece should immediately repudiate all national debts and leave the EU. The property and wealth of all the Greek oligarchs should be frozen and nationalised at once. All fixed assets in Greece owned by wealthy northern europeans (over a determined wealth limit) should be also be nationalised by Greece. The Greek left should tell the neo-fascists of the EU where to go. That is exactly what the EU is. It’s a corporate, anti-democratic, neo-fascist construct.

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