Bluffed

Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation. Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. Certainly Tsipras’ actions were consistent with that interpretation.

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run. (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that. A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance (for example, by multiplying up the proceeds from asset sales) might have got around this problem. As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

Update Commenters generally disagree with my take on the Varoufakis interview. I’m not wedded to it. The crucial point is that exit from the euro is extremely difficult, and that this fact will be used to punish any eurozone country that tries to resist the controlling powers.

111 thoughts on “Bluffed

  1. On this matter of bluff or otherwise, maybe the Germans arent quite into game theory as your title suggests. In respect to this possibility there was a very interesting article in the Independent yesterday.

    http://www.independent.co.uk/news/world/europe/greece-referendum-result-live-monty-python-sketch-perfectly-explains-the-greek-debt-crisis-10367008.html

    Leaving aside the hilarious Monty Python skit which is worth checking out if nothing else, the article suggests the German view may be much more driven by perceptions of immutability of expert derived ‘The Law’ when it comes to economic agreements than we understand. This is in contrast to the suggested way of us viewing economic rules in the Anglosphere way – that everything is always up for negotiation.

    The suggestion is that this is deeply rooted in German philosophy (and maybe their Roman Law based system/thinking?) – whereas to judge by stories of how Greek culture works, government laws themselves are even less respected than our tax laws are by sneaky accountants – hence the allusion to the German philosophers.

    Irrespective it is interesting consider the problem as coming as much from differences deeply rooted in the different national philosophies.

    I’m loathe to be too stereotypical but it is an interesting feature of Australian environmental management that it is based on the use of ‘Guidelines’ which can be freely updated by expert panels without legislative sign off. These Guidelines are just as powerful as legal regulations thanks to Common Law. But importantly in the present instance they do illustrate the difference between black letter and common law type approaches. And in this regard it is notable that Germany I believe puts much more onus on expert judgement that our adversarial battle of arguments approach.

    I wonder if this is part of the story?

  2. while making clear to everyone else the locus of sovereignty in the post-crisis EU.

    The Germans might have over-played their hand. They crushed Greece because they could and Greece is small enough that there is no blow back onto the German economy. But bringing France and Italy, or even Spain, to heel will be much more difficult. They don’t want to be ruled by Wolfgang Schäuble. Who in their right mind does?

    A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance

    The current deal doesn’t have this. But it does have a provision for quasi-automatic further discretionary spending cuts when (not if) the primary surplus target is missed because the agreed spending cuts have shrivelled the Greek economy further.

    This is madness. Presumably Herbert Stein’s aphorism “if something cannot go on forever, it will stop” will kick in eventually, though by then the Greek economy might resemble that of the Republic of Macedonia.

  3. Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. Certainly Tsipras’ actions were consistent with that interpretation.

    That’s not my reading of that interview. And it’s certainly not what Varoufakis said on Late Night Live last night. Varoufakis says he was keen to put Greece on a footing of being prepared for Grexit (start issuing IOUs, give a unilateral haircut on ECB-owned Greek bonds and seize back control of the Greek Central Bank) but that Tsipras blinked.

  4. I’m currently thinking that insofar as the bankers have a plan, that plan is to liberate all possible assets from Greek ownership then move on. I don’t think they’re worry out grexit at all, only about whether they can gut the country before it escapes. And possibly a little bit of whether those assets will be worth anything afterwards to whoever is left holding them when the game stops.

    It’s worth noting in that context that privatisation of assets has been successful even in African countries that have fairly unhappy governments. Definitely successful in the sense that the people doing the privatising made a profit and often the initial buyers of the assets did too. But note that I have not talked at all about the people those assets were liberated from, or the “consumers” who depended on them. They’re not relevant to this type of analysis.

  5. Well, Varoufakis is an MP and, while there have been reports suggesting that he wanted to stay in the EU, the problem now is that the referendum result has given him no room for manoeuvre. Tsiparis blinked and is now yesterday’s man. Syriza wasn’t elected to behave like Pasok. The Greek people have a choice between immiseration and hardship on their own terms or Schnauble’s. I know what I’d choose.

  6. If history is to repeat itself, then perhaps Nazism in Greece (e.g. Golden Dawn) getting more popularity is likely to be inevitable. How much more support will they get in the next election will be interesting however daunting, I’m sure I won’t be happy about it though.

    On the other hand, Germany’s victory had given itself a bad diplomatic reputation and getting furious criticisms from economists to the wide social media. All of these are because of rejecting Greece’s initial austerity proposal put forth by Greece and demanding more even draconian austerity measures than before. Had they simply accepted Greece’s initial austerity proposal after Tsipras’ back down, they would not face such harsh judgements (at least from the social media) and would still declare victory over Syriza.

    My opinion is that, Greece public has lost, Syriza has lost and Germany has also lost but that’s more because of an own goal than anything else. Greece’s problem will come back again within the next 2-3 years as austerity does not solve (Euro) debt problems; by then, how much support will Germany get from the world will be questionable.

  7. I’m loathe to be too stereotypical but it is an interesting feature of Australian environmental management that it is based on the use of ‘Guidelines’ which can be freely updated by expert panels without legislative sign off. These Guidelines are just as powerful as legal regulations thanks to Common Law.


    Your last sentence is incorrect. However, the use of guidelines in Australian environmental regulation certainly does pose many conundrums.

  8. “Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation.”

    Your expectations about possible outcomes is how the situation appeared to me (see my post #45,p2 on the thread ‘Backing down on…) until I found a quote by Tsipras on how he interpreted the communications between the government and the public (which I could not follow because I don’t read or speak Greek) about the apparently contradictory objectives on wishing to stay in the EURO and wanting a solution to the debt and liquidity problem.

    “But I doubt that the outcome will work well for the other side in the long run. (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that.”

    I don’t think the German voting population hasn’t been told the Greek debt can’t be repaid. I recall having read many months ago a report in the SZ according to which Schaeuble had said words to the effect : ‘they can’t repay that’ even earlier.

    Moreover, there are hundreds of thousands of Germans who have spent holidays in Greece and many of them are not economic illiterates; they are able to form opinions on the basis of observing relative prices, incomes and asset values in relation to debt.

    The term ‘write-down’ of debt can have many meanings. The cancellation of debt of country A in the EUROzone is not possible because, the way the system is set up, it would mean countries 1, ……19-A would take on the debt of A. This would be a ‘fiscal transfer’, which is ruled out (because of national sovereignity). It is one thing to say a full federation would overcome this. It is another to start from the reality of uneven development of countries in Europe and the aim of convergence.

    But finance people know how to work around this. Evidence: Goldman-Sachs’ advice to the Greek government and the Greek government at the time accepting it. The job is essentially to undo the damange done by Goldman-Sachs and co, at least partially such that most of the hot air of high finance numbers is dispersed into the ether over time. This involves substituting one set of financial contracts (called securities) for another one such that the time profile of payments is changed sufficiently to make the whole mess bearable. (The US did it via ‘quantitative easing’, which is nothing else beside substituting one set of securities for another.)

    An astute finance expert may wish to check whether the proposed collatoral assets demanded from the Greek government explicitly excludes military hardware. If not, here we go, there is a possibility of ‘asset recycling’.

    Newtonian is raising important points about the reality in the EU. Most countries, certainly France, Italy, Spain, Germany – not sure about the more recent members of the EU from Eastern Europe- have a legal system based on the Napolionic code, much modified of course. As an outcome, engineers (Tsipras’ background) have higher incomes than lawyers and the accountants and the latter are supervised by government auditors in the sense that at regular intervals the books have to be produced.

    Note, the open letter by Piketty et al not only mentions changes now but talks about new finance rules in a future agreement.

    The whole idea of pitching Greece against Schaeuble (and Merkel) is not based in the reality of voting power in the EU and the fact that the EUROgroup consists of 19 democracies. There is no ‘leader’ in the EU. There are heads of EU bodies and there are heads of national governments.

    The media we see focused on interviews of Merkel and Holland (two easily pronouncable names from countries generally known in the English speaking world and even among immigrants from Asia in Australia, I noticed in my neighbourhood.) French news report ‘a win for Holland’, German news papers question Paul Krugman’s motivation.

    So, JQ, you were in good company regarding ignoring the institutional and cultural background of the EU. It seems to me unless one is retired one can’t even try to figure out what is going on.

    Personally, I don’t trust Varoufakis but I have great respect for Tsipras. The final outcome is up to the Greek people.

    This latest episode of critical points in the development path of the European project shows to me how difficult it is to achieve convergence by non-military and non-dictarorial (strictly centrally planned) means.

  9. @Ernestine Gross

    “This latest episode of critical points in the development path of the European project shows to me how difficult it is to achieve convergence by non-military and non-dictarorial (strictly centrally planned) means.”

    I agree with this statement. Achieving convergence in a monetary union without vertical and horizontal fiscal transfers will indeed be difficult. However, given the political and cultural difference of Europe, fiscal union is likely never achievable and thus making convergence in the monetary union likely never achievable.

    However, when Eurozone can slowly, through it’s power to phase out democracy so that regional democracies by themselves are not allowed to change anything. Then its semi-dictatorship may allow itself to impose deflationary policies to achieve convergence in the long term after everyone dies of poverty.

  10. The EU is badly designed and dysfunctional, especially the currency union. But you can’t tell the French and Germans (er um I mean the Europeans) that. I guess they will figure it out in time when it all collapses in a heap.

    Meanwhile, Greece gets asset stripped. Floored by a king hit each from Goldman-Sachs and then the “Troika”. Chalk up another victory to neoliberalism and global financial capital. More money for a few and poverty for millions.

    It’s all over for Greece. It will never recover from this. And the contagion will spread.

    ‘The Fourth Reich’: What Some Europeans See When They Look at Germany – Spiegel

    http://www.spiegel.de/international/germany/german-power-in-the-age-of-the-euro-crisis-a-1024714.html

  11. a king hit each from Goldman-Sachs

    It was a previous Greek government that hired Goldman Sachs to help them liebe economical with the truth about the true state of their finances so they could gain get the euro.

    That king hit was self-imposed.

  12. @Uncle Milton

    Yes, and there is plenty of blame to go around.

    One third blame to Goldman-Sachs for being party to a deception.
    One third blame to previous Greek government for being party to a deception.
    One third blame to the “Troika” (EC, ECB and IMF), for failing to do due diligence.

    In fact, the failure to do due diligence was so egregious one wonders whether the plan might have been to trap and asset strip Greece all along. I wouldn’t put it past some of the players involved.

  13. @Tom

    IMO, it is a mistake to conceptualise the problem only in terms of macro-economic models, developed in the Anglo-Saxon literature and very much known in Germany, the Netherlands, Denmark and probably some other countries.

    I don’t have a cristal ball. I know there has been and there is growing public resistance in many EU countries to aspects of what JQ discussed over time under the heading of ‘neo-liberalism’.

  14. According to Der Speigel (13.07.15), 52% of the German public agree with the deal, while 44% are against it.

    “Die weitere finanzielle Unterstützung für Griechenland bezeichneten 52 Prozent der Befragten als richtig. 44 Prozent halten die Unterstützung für falsch”.

    78% of the German public do not trust the Greek government to implement the reforms.

    “Auf die Frage, ob sie der griechischen Regierung vertrauten, die vereinbarten Reformen auch umzusetzen, antworteten 78 Prozent der Befragten mit Nein, nur 18 Prozent mit Ja.”

    The German media in general seems to suggest the deal was correct.

    For all the talk of philosophy and psyche I think many here in Germany simply remember a decade ago when German unemployment was over 10% and Germany was labelled “the sick man of Europe”, while Spanish and Greek economies were humming along on a Euro fuelled debt binge.

    One of Aesops fables (Greek) that is very poppular here as a German kids story is the Grasshopper and the Ants, about the grasshopper who didn’t prepare for the winter and just played his fiddle in the sun all summer long. When the first snows came he became sick and was taken in by the ants and nursed back to health. Then he could play the fiddle for them all winter. It seems the Germans are waiting for Greece to become (really) sick so they can get the Greeks to be their muse.

  15. I was just listening to Professor Jie Chen of UWA talking about the current China Russia cooperation. The interviewer attempted to extract a statement of doom on the Greece EU situation, and Chen straight out put it into the proper perspective, which is my feeling also, he said “this is the Eurozone ‘maturing'”. Growing pains. They will get past this, they have to because they have greater to, the people of Europe have common interests. Talk of separation and going it alone makes headlines, but it does not make good sense, especially to young people looking at their future. Neither Greece nor Australia deserves the low grade bumbling fool politicians that we are lumbered with.

    Thinking about it this is about old people protecting their assets, and not giving a damn about the younger people who ultimately pay for the mess of greed. The one that amused me was the indignation that pensions for early retirement would get cut. Hello! Here in wealthy Australia wd ard told to work till 75. I’d like to retird yo sn idland villa too, but that ain’t gunna happen at the public expense.

  16. “During the Cold war era, a French intellectual observed he liked Germany so much he was glad there were two of them.”

    Tolstoy observed that the march of western and central Europe to the East (Napoleon’s Grande Armée) was matched by an equal and opposite reaction. The War of the Sixth Coalition saw Russia, Prussia, Austria, Sweden and various minor allies push Napoleon back to Paris.

    Germany, since the time a little before unification, plays a different part. It pulses in the centre, expanding and contracting at intervals, first conquering in all directions and then being repelled. Thus we have the Franco-Prussion War (1870), WW1 (1914-1918) and WW2 (1939-1945) which were all essentially about Germany’s attempt to take all of Europe as its empire.

    The above dynamic is not yet exhausted. Germany still seeks to dominate Europe. In doing this it simply does what Powers always do. They seek to expand. And when for various reasons you can’t use tanks, you use banks.

  17. Going back a little further in time to the 30 year war and you find a preview of the quagmire that is the Middle East at present.

    https://en.wikipedia.org/wiki/Thirty_Years%27_War

    I was never interested in history taught in high school because the accounts were written in the same language Ikonoclast uses. I wanted to know how the people not mentioned lived.

  18. @BilB

    Homo sapiens reached what is now Germany about 40,000 years ago. The video shows a blank space until something like 400 AD. So it is only showing some recognised civilisations when and after they arose and not earlier peoples. To my mind that gives a completely false impression but that’s just to my mind.

  19. @Ernestine Gross

    You dislike “grand narratives”. They could be just invention after all.

    It’s true that “Going back a little further in time to the 30 year war and you find a preview of the quagmire that is the Middle East at present.”

    I have my doubts however that the M.E. can recover and progress as Europe did. I base this on modern M.E. resource scarcity compared to its modern population sizes.Today Egypt alone has 80 million people and it’s basically a desert with one (big) river running through it. On the other hand, Europe in the period of the 30 years war had about 70 million people and was a rich continent relatively un-exhausted by modern standards. It had plenty of resources for recovery. I think the M.E. now, once wrecked, has no recovery in it. But I might be wrong.

  20. SBS Insight question from the audience: Why weren’t past Greek governments held to account by European Union for their financial mismanagement?

    On SBS Insight, from 9:30PM until 10:30PM on Tuesday 14 July, a female member of the audience asked why the European Union and the IMF never held to account past Greek governments for their mishandling of the money lent to them in the past.

    Just as the rulers of Nazi Germany were held to account for their crimes at the Nuremberg trials, those past Greek governments, who indebted Greece so badly for no tangible economic gain, should have been held to account by the European Union and the IMF, before they allowed them to further increase Greece’s indebtedness.

    Given that the European Union and the IMF did not hold those past Greek governments to account, why should the EU and the IMF be considered any less culpable for Greece’s economic failures and indebtedness than those past Greek governments, and why should all Greeks, including the vast majority, who were not complicit in that financial mismanagement, be expected to pay so dearly in 2015?

  21. That is the best argument put forward to date, James. It is not a get out of jail free card, though, as much of Greece’s indebtedness arose from the due taxes it failed to collect from its own people. This is money that is still owed and can still be partially recovered.

    I have suggested a tax bond system secured against the property of substantial Greek tax defaulters issued to the value of their tax default, bonds which can be bought back from the government over time.

  22. In addition to the debt crisis, Greek also has a refugee crisis. It may become very crowded on boats crossing to Southern Italy with desperate passengers. It seems that Greek airports, highways and beaches will be up for sale, if there are any buyers, which highlights the residue problem of investment. Is austerity a plan, or merely a punishment without foresight as to consequences?

  23. Hilarious to hear the pathological liars lecturing about how even deeper austerity is required because of an issue of “trust” regarding the Greeks.

    Luckily we now have the latest leak (Reuters) showing that these lying fascists knew when they strong-armed the latest “deal” that it would certainly doom Greece to an even more unsustainable position.

    And they tried to hide what they knew, yes – we really should wonder about who to trust.

    The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was “extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA”.

    European members of the IMF’s executive board tried in vain to stop the publication of that earlier study on July 2 just three days before a Greek referendum that rejected earlier bailout terms, sources familiar with the discussions told Reuters.

    Greek Prime Minister Alexis Tsipras and his former finance minister, Yanis Varoufakis, seized on the IMF study as vindicating their argument that the proposed bailout was unsustainable and that Greece was right to demand debt relief.

    The latest IMF study said Greek debt would now peak at close to 200 percent of economic output in the next two years, compared to a previously forecast high of 177 percent.

    Even by 2022, the debt would stand at 170 percent of gross domestic product, compared to an estimate of 142 percent issued just two weeks ago.

    In the real world, if you attain a negotiated settlement through fraud, duress or based on withheld information it can be voided and you can be severely sanctioned. Fascists don’t like those old fashioned constraints on their ability to extort supplication.

    I sincerely hope the elected representatives of the Greek people respect their most recently expressed instructions that there be no more austerity – i.e. vote down this disgraceful ‘package’.

    None of these people care about the real suffering of the real people (including refugees from their imperial wars of aggression).

  24. @Ernestine Gross

    Even if public resistance in what we generalise as “western countries” against neoliberalism grows, it will not solve Eurozone’s problems. The fundamental problem that I see is layed out by you in prior argument (as I understand) that because the Eurozone consists of 18 democratic countries, a single countries democratic decision should not automatically meant that Eurozone should accept that decision.

    I wish to ignore arguments over which party is at fault as it is more of a moral issue than anything else. The unsolved problem is that austerity does not solve public debt denominated in Euro problem. The crisis of Greece will not only reanimate again in another 3-5 years time, but it is highly likely to happen in Italy, Spain and Portgual as well for the foreseeable timeframe. In that time, no matter how utter failure austerity is, it will continued to be imposed not because of economical reasons but political reasons.

    The fact that Eurozone’s decision is made by democratic leaders of 18 countries meant that none of them will vote in favour in a decision of debt relief as that would constitute a fiscal transfer of potentially their taxpayer’s money to another region and this vote will highly likely to have strong local public support. The end result is of collective failure, that austerity will continued to be imposed regardless of past failures like the Eurozone itself is economically insane. Still, no matter how many past regional debt problems and austerity is imposed, the same Eurozone is forced to lend out more taxpayer’s money to troubled regions as they know for a fact that they cannot afford not to support them otherwise a default of government payment will wreck havoc on Euro bonds rate. The end result is of both a political and economic deadend which the cycle runs in liqudity problems>austerity and further lending>shrinking government tax revenue as GDP falls>liqudity problems.

    The Eurozone public does not see austerity as neoliberal zombie, they see it as a decision to lend or potentially transferring their money to another country thus even if they grow resistant to neoliberalism, it does not affect their attitude and thinking about the issue.

    This is not the only time but I sincerely hope and will be happy if I’m proven wrong and delusional by future events.

  25. @Newtownian

    As a general rule, Germany is one of the most rule oriented societies. So yes definitly, this was a lot more about rules than about game theory. The common vs roman law aspect could help to explain why so many people in also relativly rule oriented (compared to the entire world) anglo saxon nations tend to be so puzzled about Germany. But since other countries that are rather relaxed about rules, much more so than the developed common law countries have roman law, that explanation doesnt really work for the inner EU conflict.

  26. The next three years of forced austerity will leave Greece even worse off than it is now, with even higher debt. The Greeks will still be blamed for taking the medicine wrong, because the austerity remedy is infallible.

    What Greece needs is a politician who plans for Grexit and is ready to tell the creditors exactly how much of a haircut he will impose if it is forced on him, like 75%. Perhaps Varoufakis fits the bill.

  27. This article suggests that the reason for Greece’s economic problems cannot be found in corruption and laziness. Greece is not an outlier on these measures at least so far as such things can be measured or estimated.

    http://pogiblog.atlatszo.hu/2015/06/27/corrupt-lazy-greeks-debunking-ethnic-stereotyping-substituting-economics/

    Also from Wikipedia:

    “An error sometimes made is the confusion of discussion regarding Greece’s Eurozone entry with the controversy regarding usage of derivatives’ deals with U.S. Banks by Greece and other Eurozone countries to artificially reduce their reported budget deficits. A currency swap arranged with Goldman Sachs allowed Greece to “hide” 2.8 billion Euros of debt, however, this affected deficit values after 2001 (when Greece had already been admitted into the Eurozone) and is not related to Greece’s Eurozone entry.[89]

    A study of the period 1999–2009 by forensic accountants has found that data submitted to Eurostat by Greece, among other countries, had a statistical distribution indicative of manipulation; “Greece with a mean value of 17.74, shows the largest deviation from Benford’s law among the members of the eurozone, followed by Belgium with a value of 17.21 and Austria with a value of 15.25″.[90][91]” – Wikipedia.

    Note that Belgium shows a nearly similar deviation from Benford’s law.

    I still suspect that bad macroeconomics by the Troika is the main reason for Greece’s current problems. A contributing factor would be the lack of complexity and depth in the Greek economy. I don’t know how to express this concept in economic terms. Greece is heavily dependent on tourism and has no other industry of note except perhaps shipping.

    A further contributing factor might be the general resource depletion of modern Greece with poor vegetation cover, poor soils, poor water resources and lack of mineral resources. Demographics is also a problem with a high aged count.

  28. Greece is heavily dependent on tourism and has no other industry of note except perhaps shipping.

    Alas, this is nonsense. Greece’s biggest export, 35% of total exports, is refined petroleum. Greece’s biggest import, 25% of total imports, is crude oil. Both are priced in $US so moving to a devalued drachma would not help Greece at all, at least in respect of its biggest export industry.

  29. @Tom

    #1. Sorry Tom, but you did not understand how I outlined it in a previous post on the predecessor thread. I talked about 19 democracies in the EUROzone. Tsipras put it succinctly in words to the effect that the outcome of the EUROgroup summit last Sunday is a solution if all want it. (At present the decision of the Greek parliament as well as that of a few other parliaments is still outstanding.)

    #2. There is a distinction between researching how this mess came about and blame games. At present there are many smoke and mirror games going on in the various types of media, IMHO.
    As for the moral question, may I direct you to say Habermass (Gunther Grass also spoke up a long time ago before he died recently). I am not a philosopher. As such I observe that the UK immediately rejected the proposal by the head of the EU, Junker, to use suggestion to use EU (28 countries, including the UK) funds for a bridging loan for Greece (presumably to overcome the waiting periods entailed in the conditional agreement). So, whatever moral questions you seem to have in mind are not strictly relevant for the EUROzone. What about the people who transferred about Euro1billion out of Greece just before the referendum? How moral is that? The required bridging loan is Euro1.2billion.
    May I note, when mature natural disasters happened in Australia, John Quiggin organised fundraising and he put money into it – more than what readers could offer. What did Yanis Varoufakis do?

    Do you ever check data? There is no risk of bankruptcy for Spain, Italy, France, Portugal.

    But look at the personal bankruptcy rates for England and Wales; they surely have grown a lot since 1988.

    https://en.wikipedia.org/wiki/Bankruptcy_in_the_United_Kingdom

    (Data can be found for other countries too. The data for the UK came nicely organised such that I did not have to do any work. Moreover, the UK laws, as described in the article, look similar to those in Australia while US laws differ a lot, eg student loans are non-recourse while housing loans are recourse etc, etc. )

    Austerity. What do you think this term ‘austerity’ means? Did the UK adopt ‘austerity’ measures in response to the GFC? What were they?

    #3. See #2 above and the no rhetoric agreement – o.k.?

    #4. I don’t know what the EUROzone public thinks. Given the size of the population I should think there are many opinions.

    #5. You couldn’t be called delusional if your personal expectations about future events turn out to be wrong, I should say (unless you were Paul Krugman writing under the name of Tom, which I doubt.)

  30. Varoufakis on LNL:

    Greek bailout ‘a new Versailles Treaty’, says former finance minister Yanis Varoufakis

    Monday 13 July 2015 10:39PM
    Exclusive: Alex McClintock

    In his first interview since resigning as Greek finance minister, Yanis Varoufakis took aim at Greece’s creditors, revealed the extent of the country’s preparations to leave the euro and warned of the rise of the far right. Late Night Live reports.

    In his first interview since resigning earlier this month, former Greek finance minister Yanis Varoufakis has described the 86 billion euro bailout deal agreed to by prime minister Alexis Tsipras as ‘a new Versailles Treaty’.

    In the coup d’état the choice of weapon used in order to bring down democracy then was the tanks. Well, this time it was the banks.
    Yanis Varoufakis

    ‘This is the politics of humiliation,’ he told Late Night Live. ‘The troika have made sure that they will make him eat every single word that he uttered in criticism of the troika over the last five years. Not just these six months we’ve been in government, but in the years prior to that.

    ‘This has nothing to do with economics. It has nothing to do with putting Greece on the way to recovery. This is a new Versailles Treaty that is haunting Europe again, and the prime minister knows it. He knows that he’s damned if he does and he’s damned if he doesn’t.’

    The deal, agreed to on Monday after 17 hours of talks with eurozone leaders, contains tough conditions including pension cuts, tax increases and the movement of public assets into a trust fund to pay for the recapitalisation of Greek banks.

    Mr Varoufakis rejected the deal in the strongest possible terms, comparing it to the 1967 coup d’état that installed a military dictatorship in the Mediterranean nation.

    ‘In the coup d’état the choice of weapon used in order to bring down democracy then was the tanks. Well, this time it was the banks. The banks were used by foreign powers to take over the government. The difference is that this time they’re taking over all public property.’

    Mr Varoufakis suggested that Mr Tsipras may call a snap election rather than bring the deal before the Greek parliament, saying he would be ‘very surprised’ if Mr Tsipras wanted to stay on as prime minister.

    He insisted, however, that he and Mr Tsipras remain on good terms, and that he has kept a low profile over the last week in order to support Mr Tsipras and his successor in the finance ministry, Euclid Tsakolotos.

    ‘I jumped more than I was pushed,’ said Mr Varoufakis, describing his resignation in the immediate aftermath of the ‘no’ vote in the July 6 referendum on bailout terms similar to those accepted on Monday.

    ‘I entered the prime minister’s office elated. I was travelling on a beautiful cloud pushed by beautiful winds of the public’s enthusiasm for the victory of Greek democracy in the referendum. The moment I entered the prime ministerial office, I sensed immediately a certain sense of resignation—a negatively charged atmosphere. I was confronted with an air of defeat, which was completely at odds with what was happening outside.

    ‘At that point I had to put it to the prime minister: “If you want to use the buzz of democracy outside the gates of this building, you can count on me. But if on the other hand you feel like you cannot manage this majestic ‘no’ to an irrational proposition from our European partners, I am going to simply steal into the night.”’

    The former finance minister also described the Greek government’s secret preparations to print drachmas in the event of the country being forced to leave the euro.

    ‘As a responsible government, knowing full well that there was a very significant alliance within the eurogroup whose purpose was to throw us out of the euro, we had to make contingencies,’ he said. ‘We had to have a small team of people in secret who would create the plan in case we were forced to exit the monetary union known as the eurozone.’

    ‘Of course, there is a conundrum here. Once this plan begins to be implemented, once you go from five people working on it to 500—which is the minimum you need to implement it—it becomes public knowledge. The moment it becomes public knowledge, the power of prophecy creates a dynamic of its own … We never made that transition from five to 500. We never felt we had a mandate to do it. We never planned to do it. We had the design on paper but it was never activated.’

    Mr Varoufakis said that he will remain as a backbencher in the Greek parliament, where he has ‘a lot more room to manoeuvre and speak the truth’. He warned however, that austerity will further embolden the country’s far right.

    ‘In parliament I have to sit looking at the right hand side of the auditorium, where 10 Nazis sit, representing Golden Dawn. If our party, Syriza, that has cultivated so much hope in Greece … if we betray this hope and bow our heads to this new form of postmodern occupation, then I cannot see any other possible outcome than the further strengthening of Golden Dawn. They will inherit the mantle of the anti-austerity drive, tragically.

    ‘The project of a European democracy, of a united European democratic union, has just suffered a major catastrophe.’

  31. @Ernestine Gross

    RE#1. I don’t understand where I misunderstand the concept that Eurozone is made of 19 democratic countries so that the concept of democratic decision is separated into two different levels which are country specific democratic decisions and Eurozone specific democratic decisions.

    RE#2. I specific mentioned that I’m not going to discuss about which party is to blame or which party is at fault as well as any other moral issues because it is philosophically (which the discipline itself questions the concept of morally “right” and morally “wrong”) difficult.

    RE#3. I can no longer distinguish what you classify between rhetoric and political arguments. If you dismiss all political arguments as rhetoric then it will be difficult to understand the decisions that troika and Eurozone made. In fact if political and psychological arguments are rhetoric which you refuse to engage at, then why do you even bother to write a lengthy point 2 is beyond my understanding. Throughout my whole comment, I did not blame any party at hand but focused specifically at the conflicting psychology leading to what is in my opinion the most likely political decision that would lead to economic disaster (unless you’d want to debate about how austerity would work as a solution).

    RE#4. The size of the population does give rise to different opinion but it does not mean psychological and political analysis is then impossible. I have given an argument which is the most logically coherent and rational argument in my thinking about Eurozone and I understand that I may be wrong and that other people’s logical conclusion can be different from mine.

    RE#5. Different to most economists, I’d like to take my future reputations (economics honours student planning to do phd and hope to become an academic) at stake and give advice that is actually useful, or at the very least not to resort to giving explanations after the storm is long gone and the ocean is flat.

    With regards to Spain, Italy and Portugal, I do not see that Euro denominated public debt drop as a percentage of GDP, in fact it rose in the past years despite austerity.

  32. @Tom

    As someone who wishes to put his/her future reputation at stake, it might be helpful if you were to reveal your full name for otherwise it is not really credible.

    I wish you well in your endeavours, whatever they may turn out to be.

  33. @Ernestine Gross

    I have linked my blog in my comment name which I used to write quite a few years ago that has my full name, the content of what I wrote, even if they were written quite a few years back, can also affect how others judge me. I could well have not done so if I chose to.

    Thanks for your wishing me well, I do really hope I can succeed.

  34. The plenary session is about to begin.

    Greece (via its parliament) has precisely 7 hours to pass laws enacting even more cruel austerity upon its people by increasing GST to 23%, “reforming” pensions so that pensioners suffer even more than the more than 50% cuts they have already suffered and locking in automatically further spending cuts if surplus isn’t attained. As well as others.

    About 30-40 Syriza politicians have apparently refused to sell out the large majority of the population that clearly voted against more austerity.

    It looks like the remaining stooges (Syriza sell-outs, ND, PASOK) will have enough votes to make something happen. It remains to be seen whether they can enact that final humiliation in such a short time and whether the citizens will give up without a fight.

    The police and “anti-terrrsm” forces are apparently beefing things up around the place, according to local establishment media.

  35. @Uncle Milton
    Local value added is what matters and in that regard, tourism and shipping takes indead the no1 spot. The oil in refined petroleum out trade matters far less, just like those medication trade shenghians which are just price/regulation arbitrage with hardly any local Greek value added.

  36. As someone who wishes to put his/her future reputation at stake, it might be helpful if you were to reveal your full name for otherwise it is not really credible.

    Look, an issue change!

    I think it’d do you well to realise that the feelings that lead you to think that not talking about what you were talking about and to start talking about a new issue are in fact the feelings of “f***ing up”. You’ve set out a position, you’ve encountered evidence that suggests your position is wrong… but your self-image can’t cope with that, so you’ve dug up something that lets you ignore the evidence.

    Doesn’t hugely matter what. “Real name!” is just a quibble, a pretext: if not that then something else.

    At the end of the day:
    + people are fallible
    + they act according to their best efforts
    -> therefore, their mistakes must be a result of their best efforts and invisible to them. That you can’t see your mistakes is normal and expected.

  37. @Ernestine Gross “I wanted to know how the people not mentioned lived.”

    Photos of women in the French resistance were deleted as were photos of black Americans and other groups in the Allied forces of liberation. There are records of a “whitewashing”

    http://news.bbc.co.uk/2/hi/7984436.stm

  38. Yes 229
    No 64

    32 from Syriza voted No and 6 voted ‘Present’ (abstained).

    Riot police have detained about 50 protesters. Tellingly, a TV van was set on fire.

    The Troika will need to get billions of euros into Greek banks very, very quickly if they want to avoid serious citizen unrest. Even then, the Greek people probably won’t take this hyper-austerity unchallenged.

  39. @Uncle Milton

    I can’t see him having the numbers – going on the vote just passed, I guess he has a maximum of about 40 Syriza MPs who would support him. The rest have just demonstrated that they will sell-out their voters and back austerity. They obviously don’t have the spine for any alternative approach, so I’m betting they’ll back the new “Cop-out coalition”.

  40. Tsipras is trying to say that, despite the harshest austerity ever, the ‘good’ thing about this package is the ‘guarantee’ of addressing the unsustainable debt (he said ‘re-profiling’).

    But there IS no guarantee whatsoever, it isn’t even mentioned – except to explicitly rule out nominal reduction.

    The short term key issue will be how much cash, and how quickly, they can get into the banks to re-open without capital controls. I don’t think it will happen in the near term.

  41. @Megan

    You are too hard on the Syriza MPs who voted yes. It was Sophie’s Choice. The alternative was the Germans immediately destroying the Greek economy by bankrupting the Greek banks. Of course the German austerity plan is most likely going to destroy the economy anyway, but less quickly. I don’t know what I would have done.

  42. @Uncle Milton

    Actually, I might have done what Varoufakis did, voted against knowing it would pass. That way I could keep my place atop the high moral ground.

  43. I sincerely hope this is ‘off topic’ – from “ekathimerini.com” a few hours ago:

    A formation of six Turkish fighter jets violated Greek national air space in the northeastern, central and southeastern Aegean on Wednesday, defense officials said.

    The Turkish jets, which were flanked on one side by another aircraft that was not a part of the formation, carried out a total of 20 transgressions, the defense officials said, adding that two of the aircraft were armed and that one dogfight occurred.

    In all cases, the Turkish jets were chased off by Greek aircraft.

  44. Tsipras and Varoufakis should have campaigned for and then personally led a million-person march on Frankfurt. Revolt is all that remains.

  45. @Megan
    I doubt it has anything to do with the current political/economic situation in Greece. A brief Google search reveals that Greece and Turkey are more-or-less constantly violating each others’ airspace, and have been doing so for years.

  46. Those Syriza members who voted No ensure that internal income distribution will either not happen or it is so little that ‘austerity’ for the majority of the non-elite will be something very different from lofty discussions among pseudo intellectuals. These dogmatic people can be found on either the so-called ‘racical left’, the ‘radical right’ and the ‘radical idiots’ of whatever denomination. All of them have one thing in common. They only think about themselves.

    Tsipras was absolutely right, IMO from the perspective of economics-finance, when he said if we don’t get financial aid, the people (not the elite) will lose their savings and those who had taken out their money (the elite) will come back and buy up the lot.

  47. Those who are seriously interested in the Greek economy and the outcome of last Sunday’s conditional agreement may wish to know what the Greek government has voted on. The document can be found in pdf form on the following web-site

    http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/

    The document differs in detail from that published by Megan some time ago.

    This document had been published in German by the SZ earlier this week. The SZ is not read by everybody. But it is clear there is no attempt on part of the German government to hide the document from the public.

    To evaluate the implications of the conditions in this document for both, Greece as well as from the perspective of the 19-Greece national perspectives, a lot more local information is required then the s-fight of words organised and dissiminated by some.

  48. I can’t post links, but Varoufakis has an amusingly annotated version on his blog.

  49. You can’t do much if the numbers are 64 (+/- 6) to 229.

    This contagion will likely spread in the next few decades.

  50. @Ernestine Gross

    Can you point to the section of the austerity bills just passed (by the ‘Yes’ vote) which will

    “…ensure that internal income distribution will either not happen…”

    or, alternatively, any other source from which to draw support for that position?

  51. @Megan

    See the decision making structure of the the EUROgroup regarding who is responsible for country internal income and wealth redistribution.

  52. @Ernestine Gross

    Where does one find support for the idea that today’s ‘Yes’ vote will “…ensure that internal income distribution will…happen..” in Greece as a result?

  53. > “…ensure that internal income distribution will…happen..”

    Well, “all the money flows out of the country” is a kind of distribution…?

  54. @Ernestine Gross

    I don’t think that I materially rearranged the words, but to be safe here is the full sentence:

    Those Syriza members who voted No ensure that internal income distribution will either not happen or it is so little that ‘austerity’ for the majority of the non-elite will be something very different from lofty discussions among pseudo intellectuals.

    How did they “ensure” that?

  55. @Ernestine Gross

    The Greek Government could leave the Euro and re-issue its own currency. It could guarantee all savings below a certain amount. It could declare that those rich nationals who took their savings out of the country now need to pay 100% taxes on those amounts. They should pursue all legal channels to achieve this. All physical assets left in Greece could be confiscated. All Greek billionaires’ money and physical assets in the country could be confiscated and nationalised. Greece could repudiate up to 100% of its debt with the Troika and all other countries.

    There are many historical examples of sovereign default.

    “A failure of a nation to meet bond repayments has been seen on many occasions. Philip II of Spain defaulted on debt four times – in 1557, 1560, 1575 and 1596 – becoming the first nation in history to declare sovereign default due to rising military costs and the declining value of gold, as it had become increasingly dependent on the revenues flowing in from its mercantile empire in the Americas.[15][16] This sovereign default threw the German banking houses into chaos and ended the reign of the Fuggers as Spanish financiers. Genoese bankers provided the unwieldy Habsburg system with fluid credit and a dependably regular income. In return the less dependable shipments of American silver were rapidly transferred from Seville to Genoa, to provide capital for further military ventures.

    The United Kingdom also defaulted in 1822, 1834, 1888–83 and 1932, the last time as a consequence of the 1929 banking crisis.

    In the 1820s, several Latin American countries which had recently entered the bond market in London defaulted. These same countries frequently defaulted during the nineteenth century, but the situation was typically rapidly resolved with a renegotiation of loans, including the writing off of some debts.[17] – Wikipedia.

    All or most of the above actions are quite possible. Financial operations are nominal not real. To allow the nominal to control the real is to succumb to illusion. The Gordian knot of finance can be cut very easily at the national level. Even Germany has defaulted and had debts forgiven a number of times.

  56. @Ikonoclast
    “The United Kingdom also defaulted in 1822, 1834, 1888–83 and 1932, the last time as a consequence of the 1929 banking crisis.”
    Evidence? SFIK the last default by a British government on sovereign debt payments was the “Great Stop” of 1672. Commercial bank defaults don’t count.

  57. @Ernestine Gross

    In answer to your question at #57(?): I don’t know where, and I don’t advocate that idea in any case.

    I am interested in discovering the strength/quality of criticism of the “No” position (on this morning’s austerity package vote), and specifically the “how” of your first sentenced quoted in full above.

  58. @Megan

    I start from the assumption that a ‘left’ party like Syriza has the interest of the less well off members of the Greek society at heart (supported by Tsipra, as stated in an earlier post). The conditional agreement with the Eurogroup (CAJuly 2015) passed the Greek parliament because of support from opposition members. There are reports in the print media according to which opposition members told Tsipras that he can count on their support for the next round but not thereafter. Thereafter is exactly when the allocation of ‘austerity’ within Greece will take place (ie who is called upon to make a contribution). If what is now the opposition had been interested in cleaning up corruption, tax avoidance by the so-called oligarchs and some professions and thereby reducing the need for huge financial aid. then they had time since 1983 or since 2001 (including during the period when Yanis V. was adviser to the Papandreo government) or, at the latest since the first ‘bail out’. Given the No vote by a substantial number of Syriza members, it signals disunity within the party to everybody else and therefore I see the chances of having internal redistribution of income, including the allocation of tax payments, as quite small because the vested interests in the opposition won’t support it.

    Of course the creditor countries are watching. How do you think it inspires confidence in Greece being able to reform when the Prime Minister is attacked by members of his own party? It is one thing to hear Tsipras saying I do not agree with the harshness of the financial conditions but this is the best that could be achieved and the alternative is leaving the Eurozone which would cause more pain for the less well off in society and those who managed to get their Euros out of Greece come back and buy up the lot. This is a credably honest assessment of the actual situation in my books. It is another thing to read about tirades of accusations against Tsipras by members of his own party. Wasn’t the tirade of accusations delivered by a Belgium member of the Eurogroup enough?

    Tsipras knows his country men and women better than I can guess. Perhaps he just lets them spit the dummy and hopes when it comes to the ‘allocation of austerity’ (ie who pays) they will vote as I assumed in line one above. But who knows. If they don’t then I would say the word ‘ensure’ is appropriate.

    If you were to read the official conditional agreement, you would find that debt rescheduling is part of it. This item has again to be negotiated in detail. How much confidence do you think creditor countries will have in a government where a so-called leftwing government is busy tearing itself to pieces with words and action instead of having a go at the opposition. Surely, if any contemporary government can claim it has inherited a mess than it is this one.

    Today I read German economists are proposing yet again a solidarity tax, not to hand over to Yanis Varoufakis, but to pluck the expected hole left in the budget in the future due to yet another bail-out.

    There is a report of one Greek Syriza member having said words to the effect, there is too much talk, everybody talks to much. A wise man IMO.

    I shall follow his advice.

  59. When you say “debt rescheduling is part of it” (the official conditional agreement from 12/7/15), I guess you mean the concluding paragraphs [pg 6-7 of the pdf I linked to in an earlier thread and which is identical to the pdf you link to above]:

    There are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last twelve months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment. The Euro Summit recalls that the euro area Member States have, throughout the last few years, adopted a remarkable set of measures supporting Greece’s debt sustainability, which have smoothed Greece’s debt servicing path and reduced costs significantly.

    Against this background, in the context of a possible future ESM programme, and in line with the spirit of the Eurogroup statement of November 2012, the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level. These measures will be conditional upon full implementation of the measures to be agreed in a possible new programme and will be considered after the first positive completion of a review.

    The Euro Summit stresses that nominal haircuts on the debt cannot be undertaken.

    The Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and in a timely manner.

    Provided that all the necessary conditions contained in this document are fulfilled, the Eurogroup and ESM Board of Governors may, in accordance with Article 13.2 of the ESM Treaty, mandate the Institutions to negotiate a new ESM programme, if the preconditions of Article 13 of the ESM Treaty are met on the basis of the assessment referred to in Article 13.1.

    I respectfully disagree. Debt rescheduling is not a part of it other than a vague reference to it being considered, in some form, maybe, if deemed necessary (by non-Greeks).

    And the document explicitly says: “nominal haircuts on the debt may not be undertaken”.

    Other than that, thank you for your reply but I don’t find it compelling. I still feel that the “No” position was morally and democratically required of Syriza – having been specifically elected on an anti-austerity platform and resoundingly confirmed by recent referendum against precisely the deeper austerity they have just imposed.

    Pragmatists etc… can argue away such blatant, cowardly and cynical betrayal. But I feel for the Greeks who trusted and supported that party only to be totally sold out for what amounts to a bag of platitudes about possible relief one day in the future if they are good and achieve their “benchmarks”.

  60. In answer to your question at #57(?): I don’t know where, and I don’t advocate that idea in any case.

    You should: “rearranging words to discover new things” is a pretty good description of “deductive reasoning”.

    + people’s statements exclude possibilities, often distant from the core thrust of their statements
    + different statements exclude different things
    + with enough statements you can reach the situation where all the possibilities, except for one, have been excluded in some sub-area; the one remaining possibility becomes a certainty
    + but because the link between the statements and the remaining non-excluded possibility isn’t obvious, you need to rearrange the statements to make the deduction — discovery — obvious.

  61. @Collin Street
    Yes, Collin Street, if I understand you correctly, this is a method used by lawyers in cross examination. However, there are rules regarding what evidence is admissable. Let me know if I am wrong and let me know whether you believe this method can be applied as attempted by what I assign to ‘deconstruction of text’ where there seems to be no end to so-called discussions.

  62. It is interesting to consider the economic trajectory of Greece since WW2. Quotes below are from Wikipedia.

    “The Greek economic miracle is the period of sustained economic growth in Greece from 1950 to 1973. During this period, the Greek economy grew by an average of 7.7%, second in the world only to Japan.” – Wikipedia

    “The rapid recovery of the Greek economy following the Greek Civil War was facilitated by a number of measures, including (in addition to the stimulation, as in other European countries, connected with the Marshall Plan) a drastic devaluation of the drachma, attraction of foreign investments, significant development of the chemical industry, development of tourism and the services sector in general and, last but not least, massive construction activity connected with huge infrastructure projects and rebuilding in the Greek cities.

    Greek growth rates were highest during the 1950s, often exceeding 10%, close to those of a modern tiger economy. Industrial production also grew annually by 10% for several years, mostly in the 1960s. Growth initially widened the economic gap between rich and poor, intensifying political divisions.

    In total, the Greek GDP grew for 54 of the 60 years following WWII and the Greek civil war. From 1950 until the 2008 economic crisis, with the exception of the relative economic stagnation of the 1980s, Greece consistently outperformed most European nations in terms of annual economic growth.” – Wikipedia.

    Let us sift out the basic relevant facts.

    (1) Greece was growing from a low base after the damage of WW2 and the Greek Civil War 1946-1949.

    (2) Growth was facilitated by the Marshall Plan, devaluation, attraction of foreign investment and massive re-building and infrastructure projects.

    (3) Growth was an almost consistent feature until the GFC. (Growth in 54 of the 60 years since the end of the Civil War.)

    Let us interpret the basic relevant facts.

    Greece was capable of good economic performance and growth when the conditions were right. The right conditions were international assistance, stimulatory spending, infrastructure programs and devaluation. The supposed laziness of the Greek people and corruption in Greece’s political and economic system either was not real in that era or was not significant enough to prevent this performance. I have posted earlier in this thread references to data which suggest that Greeks are not lazy and that contemporary Greek corruption while significant is only about average compared to corruption in all nations. The laziness and corruption thesis does not hold up to objective consideration.

    It is arguable that the Greek economy, like many economies in the years immediately before the GFC, was lackluster and turning in a relatively poor employment performance. The precipitation of the real crisis for Greece was in 2008 with the GFC or Global Financial Crisis as we Australians call it. Greece has responded badly to this crisis and has gone into an extended on ongoing great depression. It is most avowedly a great depression as Greece’s numbers (unemployment etc.) are worse than many nations experience in the Great Depression circa 1929-1939.

    We have to ask ourselves what has changed and made it seemingly impossible for Greece to deal with this crisis and get out of depression.

    (1) Are Greeks lazier and more corrupt than in the 1950s and 1960s? It would be hard to sustain this thesis as a sole causative agent for the current crisis. Current data show Greeks work longer hours than Germans for example (albeit in the public service they might be just sit-down hours) and that Greek corruption is not greater than for example corruption in South Korea.

    (2) Have the wrong macroeconomic policies been used this time around? It is clear that this is a much better candidate for a causative explanation. Instead of stimulatory spending in a bad downturn or broken down state, we have austerity (pro-cyclical economic policy). Instead of devaluation, we have essentially a rigid currency tie to the central dynamo of Europe. Instead of infrastructure building and job creating programs we see stagnation and inaction enforced by austerity. Instead of real international assistance we see “bailouts” where the money is taken out the Greek economy (pension cuts, wage depression, unemployment, increased taxes) and given back to the banks which made the bad loans and which should bear the risks and costs for lending without due diligence.

    (3) The only other possible explanation is that secular (long-run) stagnation is hitting all Europe and hitting worst in Greece. This is just feasible perhaps. This secular stagnation could be the result of any or all of resource exhaustion, the demographic shifts of aging or the standard (standard in the Marxian sense) movement of capitalist production from high wage areas (like Europe) to low wage areas like China and India. My own feeling now is that resource exhaustion and bioservices disruption (like climate disruption) has not yet impacted directly into economics and is not yet a good explanation and certainly not a good explanation for secular stagnation in the monetarist/neoliberal era. The demographic shift argument is also not compelling as if it were a primary cause we would expect a labour shortage not a labour surplus. The labour arbitrage explanation (manufacturing and jobs going to low wage countries) is a reasonably good explanation overall but does not explain the differentials in economic performance within Europe.

    Conclusion: In summary, we find on balance that the best explanation for Greece’s current woes is poor macro-economic policy in the Euro zone exacerbated by Greece’s tie to a currency which, for it, is overvalued. The empirical evidence all points this way. Only ideologues would deny that this is the best explanation. These ideologues want to to deny clear macroeconomic principles which have stood the test of time and empirical analysis. They want to advance various myths: the myth of the laziness and corruption of the Greek people and their national system, the myth that national debt must always be repaid, the myth that large commercial banks must be bailed out when they make ill-judged loans, the myth that the ordinary people must suffer for the odious debt incurred in the course of international financial chicanery, the myth that austerity (pro-cyclical economic policy) will get a nation out of a depression.

    The plain fact is that activity, human activity and economic activity, gets a nation out of depression (and not inactivity). The clear way to generate more activity is stimulatory spending. Where there is underutilised capacity (labour, plant and resources) stimulatory spending sets this capacity in motion again. The way to correct Greece’s problems is clear. It could even be done within the Euro with the right fiscal transfers. The obstacle to helping Greece is international finance. They want their money back no matter what it does to 11 million people. Our democratically elected governments need to stand up to international financial capital. If they don’t we are all lost in the long run. It’s not ISIS who are coming after us, it’s international financial capital.

  63. @Megan

    If you continue along this line you may end up agreeing with Schaeuble and Merkel, who have signalled for a long time the nature of the financial problem as well as their preparedness to assist Greece with a Plan B (which Y. V. failed to develop) for an ordered (non-catastrophic) exit of Greece from the EUROzone without closing the door for re-entry and promissing humanitatian aid.

    By the way, what is the present value of $1 to be paid now and what is the present value of $1 to be paid in 10 years time, considering two discount rates, one ‘low’ (close to zero) and one ‘high’ (say above 10%)?

    You don’t think agent A financing $x for say 10 years at the low interest rate on behalf of agent B (who would have to pay the high interest rate) makes not difference to the welfare of B throughout the entire period?

    The betrayal of the Greek people has not happened yesterday in Parliament. It has happened much earlier and this is part of why I don’t trust Yanis V. and respect Tsipras for having said “mistakes have been made”.

  64. I don’t trust Yanis either – who would trust a man with his intellectual ability to be able to honest with himself about his motivations – but I think it depends what one ‘thinks’ his values are that determines whether or not one can support his stated intentions and accept his explanations of his behaviour.

    There is no sandpit so I’m going off topic to introduce one I like, has anybody seen this:

    “We are experiencing what physicists would call a ‘phases change’ in our economic environment, where previously held assumptions about causal factors and relationships no longer seem to hold,” Ms Livingstone said.

    http://www.smh.com.au/federal-politics/political-news/business-council-president-catherine-livingstone-fires-warning-shot-to-australias-leaders-20150429-1mvrk0.html#ixzz3g6ZyTXVX

    I heard Ms Livingstone on RN this morning and she was talking about complexity so I looked her up and found this article from April and that she is the president of the business council of Australia.

  65. @Ernestine Gross

    By the way, what is the present value of $1 to be paid now and what is the present value of $1 to be paid in 10 years time, considering two discount rates, one ‘low’ (close to zero) and one ‘high’ (say above 10%)?

    This is one of those stock economist dogmas that may be worth deconstructing. Surely, ceteris paribus, a product today is worth the same as a product in a years time provided the need today is the same as the need will be in a year’s time.

    If I need food today – then I will need the same food later. Would I really prefer to have all my food today?

    If I need to travel today, then if nothing changes, presumably I will need to travel the same amount in a years time. Both consumptions of travel have the same cost.

    This text-book discounting proposition only makes sense if either, there is economic growth or the supplier of money has a degree of monopoly. Time by itself is irrelevant.

    Capitalists apply interest charges over time because they expect there will be surplus value every hour, day, week or year. Capitalists will want all their ill gotten gains today if possible and would therefore want to add on a surcharge if they have to wait and can get away with it.

    But we cannot let capitalist relationships cloud our understanding of economic relationships.

  66. @Ivor

    If I need food today – then I will need the same food later

    Not if you are dead.

    That is one reason to discount the future. There are others.

  67. @Ernestine Gross

    When and where did Schaeuble and Merkel offer orderly exit etc.? Not saying I disbelieve you but cites and links please. More importantly, what terms did they offer for this course of action? I can offer another person choices but if they are all bad choices am I really offering anything?

    All your Eurozone analysis seems based on the proposition that Germany is right but “neoliberalism”, so far you accept such a tag, is wrong and austerity in the current manner is wrong. But you cannot have it both ways. The most powerful country in Europe cannot be in the right when it is pushing wrong policies (neoliberalism and austerity). This is the fundamental flaw in your analysis. If the policies are wrong, then Germany is wrong. It is as simple as that.

    Any pretence that Germany is an equal among equals in the Eurozone is exactly that, a pretence. Germany is first among “unequals”. The Eurozone and ECB are more technocratic, monetarist and financial constructs than they are the results of any genuine democratic process. In that context, the greatest economic power wields the greatest power overall.

  68. @Uncle Milton

    On a strict interpretation, Ivor is correct. “If I need food today, I will need food later.”

    While the “I” exists (lives) it needs food. When the person formerly know as Ivor is deceased, the “I” of Ivor no longer exists, no longer lives. His proposition is technically correct. The “I” reiterated presupposes his living existence at all times dealt with by the statement. While Ivor lives he requires food today, tomorrow and in to the future.

  69. I don’t know how Merkel does it, but the rich and powerful are different from us, they say.
    There is this video

    http://thinkprogress.org/world/2015/07/16/3681583/german-chancellor-makes-palestinian-asylum-seeker-cry/

    In the video, the young girl (a Palestinian girl named Reem addressed Merkel with the news that her family was soon to be deported after fleeing from a refugee camp in Lebanon four years earlier) tells Merkel in fluent German: “I have goals like anyone else. I want to study like them … it’s very unpleasant to see how others can enjoy life, and I can’t myself.”

    “Merkel’s response was an attempt at offering sympathy but still left the young girl in tears.
    “Politics is sometimes hard,” Merkel said. “You’re right in front of me now and you’re an extremely sympathetic person. But you also know in the Palestinian refugee camps in Lebanon are thousands and thousands and if we were to say you can all come … we just can’t manage it.”

    Merkel and Germany can’t manage it but….. ” Turkey has a population slightly smaller than Germany at around 75 million inhabitants and hosts more than 1.5 million refugees. Jordan, with a population at over 6.5 million, hosts over 650,000 refugees.

    “And there is Lebanon. This tiny country wedged between Syria, Israel and the Mediterranean with a population of around 4.4 million people hosts over 1.15 million refugees, according to UNHCR, and that doesn’t include the unregistered refugees who amount to more than 300,000.”

    Germans and Australians are too rich to be able to share?

  70. @Ikonoclast
    @Ikonoclast
    Continuing the semantic game, one might argue that the “I” only exists in the present. Therefore, the only need for food that the “I” has that is real is its present need. The “I” that exists in the future, and its need for food, are both imaginary. To argue that both needs have equal value is to argue that a real need has the same value as an imaginary one.

    Somewhat less obtusely, the need for food in 12 month’s time is predicated on the availability of food today. i.e. if I don’t obtain food ‘today’*, I am unlikely to survive long enough to worry about whether or not I will have food in 1 year’s time. So the availability of food now will always be a higher priority (and therefore more valuable) than its availability at some future date.

    *Obviously it is possible to go more than one day without food, but the feasible survival time without eating is considerably less than one year.

  71. @Ikonoclast
    Continuing the semantic game, one might argue that the “I” only exists in the present. Therefore, the only need for food that the “I” has that is real is its present need. The “I” that exists in the future, and its need for food, are both imaginary. To argue that both needs have equal value is to argue that a real need has the same value as an imaginary one.

    Somewhat less obtusely, the need for food in 12 month’s time is predicated on the availability of food today. i.e. if I don’t obtain food ‘today’*, I am unlikely to survive long enough to worry about whether or not I will have food in 1 year’s time. So the availability of food now will always be a higher priority (and therefore more valuable) than its availability at some future date.

    *Obviously it is possible to go more than one day without food, but the feasible survival time without eating is considerably less than one year.

    (BTW Prof Q, could you kindly delete the automoderated version of this comment?)

  72. @Tim Macknay

    Fair enough. However I don’t think these bourgeois economic games about opportunity cost and future discounting really get us very far in genuine political economy. It’s mostly a useless economic shell game. They (the bourgeois economists along with their neoliberal masters) enlist these concepts when it suits them and ignore them when it suits them. They are not genuine about such concepts. When has any one of them ever mentioned the opportunity cost to society and poor people of unemployment? They (bourgeois economists) don’t give a damn about such matters. Yet they are always worried about the cost of inflation to people who have already amassed a fortune. They are completely dishonest in their use of such concepts.

  73. @Ikonoclast
    That seems like a bit of an incoherent rant to me, Ikon. Who are the ‘bourgeois economists’ of whom you speak? IANAE, but it seems to me there’s plenty of economic literature on the costs (opportunity and otherwise) of unemployment, and a pretty broad consensus that the costs of it are high (to individuals and society).

    Concepts like opportunity cost and future discounting are attempts to make sense of aspects of economic behaviour. Future discounting, at least, is an empirical reality, however it’s used theoretically by economists. No doubt some economists, ‘bourgeois’ or otherwise, use these and other concepts dishonestly, but to damn ‘them’ all with a flounce, a pout and a Marxian barb strikes me as a tad petulant. Just sayin’.

  74. @Ivor

    You confuse intertemporal preferences defined on a commodity space (food, travel….) with a kind of arbitrage possibilities in the market for bonds. The former relates to consumption, the latter to financing, including A financing a consumption or investment plan of B for a specified period. B would benefit.

    Example on a small scale: Some stores offer x days, months or lately even years interest free. If both the seller and the buyer face the same borrowing rate, then the store can do this only by increasing the sales price to recoup the full financing cost. But, if the seller has a lower borrowing cost than the buyer then it is a mutually satisfactory deal, particularly if the buyer prefers to have the item now rather than later.

    Suely I don’t have to say much more except to remind of the subject of this thread and in particular my exchange with Megan.

    (merely mentioning ‘capitalism’ doesn’t work always, indeed hardly ever).

  75. @rog

    Sorrry rog, I overlooked your comment. It surely is a black and white example of the general problem. (Oddly, if the UK population would decide to leave the EU, the tall man might have a giggle in his grave for this is what he wanted in the first place.)

  76. @Tim Macknay

    “Bourgois economists” were described by Paul A Samuelson as:

    Adam Smith, David Ricardo, Leon Walras and Wassily Leontief.

    Presumably these were just examples.

    The phrase was coined by Karl Marx and underpins a lot of analysis of economic issues.

    Bourgeois generally refers to any social strata that accumulates surplus value from others (slaves, serfs, workers etc). All capitalist economists base themselves on such flows and then pretend they cannot see why the rich grow richer why the poor grow poorer.

    At worst they even deny this is even happening.

  77. @Ernestine Gross

    Only capitalists separate financial relations from real relations.

    Bond prices, borrowing costs, interest rates – the presumed basis of discounting – torn from real economic relations still suffer from the same problems.

    They only make sense if there is surplus value to be accumulated over time.

  78. @Ivor
    Thank you for that information, Ivor. It’s not clear to me, however, that that’s what Ikon meant by term “bourgeois economists”. For all I know, Samuelson (whom I understand to have been a Keynesian and a member of the US technocratic elite) could be a “bourgeois economist” in Ikon’s usage. I do understand what the term “bourgeois” means, though.

  79. Taking Ernestine’s point, I acknowledge that the discussion of future discounting is a derail, as is the discussion of the meaning of “bourgeois”, so I will make no more comments about them.

  80. @Ikonoclast

    “When and where did Schaeuble and Merkel offer orderly exit etc.? Not saying I disbelieve you but cites and links please. More importantly, what terms did they offer for this course of action? I can offer another person choices but if they are all bad choices am I really offering anything?”

    In a sense your question again reflects a total misunderstanding as to the legal framework of the Eurozone, embedded in the EU. You are not the only one, even a Nobel Prize winning economist from the USA ignored the institutional framework. Implicitly, so did JQ by considering an exist would be the only alternative given the referendum. So did almost everybody on this blogsite. Most importantly, Yanis Varoufakis had no plan B (exit).

    Everything has to be negotiated (like in your worker organised corporation) between the member countries and the heads of the Eurogroup, the EZB and, in this case the IMF. Nobody can come up with ‘an offer’. Finance Ministers and heads of governments of various countries may signal information in interviews. After meetings there are reports which may say a real lot to insiders who know about diplomatic language. At times some people may conclude the reports they nothing very eloquently.

    Against the background of the actual institutional environment, it is impossible for ‘Germany’ to make an offer.

    We are talking about signals. Schaeuble, implicitly and explicitly did do what Varoufakis failed to do, namely consider plan B, an exit of Greece from the Eurozone, which is the logical alternative given the referendum. (See JQ’s post).

    Schaeuble reportedly said a long time ago words to the effect ‘they can’t ever repay that’. Merkel talked about humanitarian aid. There was much heated discussion in the press about a position paper by the Finance Minister, Schaeuble (CDU), regarding the a ‘Grexit’, which was discovered before last Sunday’s meeting of Heads of Governments. The social democrat, Gabriel (I can’t remember his position in the government but I know he has one; coalition governments between ‘blue’ and ‘red’, ‘blue and yellow’, ‘red and green’, happen) first denied having seen the paper but later had to admit that it was available to the committe of which he is a member. (Same sort of political fight as we see in Australia almost daily.)

    Old references can be retrieved from the Sueddeutsche Zeitung. Fran Barlow is fluent in German. She may have read them too.
    The most recent one by Schaeuble is of today (I learned about it after having been out for about 4 hours). He is reported to have said an exist from the Eurozone may be better for Greece. The head of the Eurogroup, Jeroen Dijsselbloem, immediately objected and demanded that there is no more talk about Greece leaving the Eurozone. It was reported on ABC24.

    I spent at least 2 days reading up a bit on the structue of the EU in which the Eurozone is embedded. I did this because the discussions on this blog seemed to me to be based on assumptions about the institutional environment which does not correspond to the actual. Looking back at my very first post, I wasn’t all that much better. My husband is fluent in French and I am fluent in German. So we followed newspapers in these languages. These papers have sections on what other foreign papers say. We found reports on what the Finish, the Dutch, the Austrian, ….. papers say about their representatives. Perhaps not surprisingly, the English press did not devout as much time to the subject since the UK is not a Eurozone member. The smh was strictly news reporting, IMO, which is o.k. for those who already know the institutional setting.

    Your next paragraph gets a separate post.

  81. This monograph argues the thesis of its title.

    “Monetary Union in Crisis The European Union as a Neo-liberal Construction”

    http://www.academia.edu/5785432/Monetary_Union_in_Crisis_The_European_Union_as_a_Neo-liberal_Construction

    Some early quotes:

    “In the 1990s neo-liberalism became the explicit doctrine, inscribed in theMaastricht treaty, of the EU and its member-states. Maastricht made “theallocation of resources through the competitive market” (art. 103) the guid-ing principle. The aim of the EU according to the draft constitution of 2003was “a competitive single market without [state interventionist] distortions.”Neo-liberalism differed from nineteenth century liberalism to the extentthat it required strong EC action through its laws, institutions and principlesto dismantle the aids, regulations and controls of the encrusted welfare state.It dictated tight money with low inflation, reduced social and public spend-ing, deregulation, free trade and the commercialization and privatization of public concerns and services even as its economic and social consequencesin slower growth and productivity and mass unemployment and job inse-curity produced a growing popular backlash and disaffection from bothnational institutions and the EU.”

    “In the 1970s Prime Minister Olaf Palme, paraphrasing a former German Socialist leader, warned the Swedes of the perils of the four Cs contained in the EC. The EC, he said, was conservative, capitalist because competitive markets across borders were bad for labor, clerical because it was dominated by Christian Democracy, which was anti-statist and anti-collectivist, and colonialist because it helped restore French and Belgian control in Africa. Because he was a social democrat Palme forgot a fifth C that was highly motivating – the EC was anti-Communist.”

    “Monetarism was not a foreign graft on the EC merely introduced to deal with growing trade interdependence, capital mobility or the crisis of profitability, but was contained in the neo-liberal logic and terms of the Rome treaty. Maastricht made this logic explicit by creating a central bank, the ECB, devoted to price stability that was independent of national or democratic control and by embracing the market allocation of resources as its guiding philosophy. The Maastricht criteria on debt and deficit aimed to compress wages and benefits and maintain sufficient unemployment, what was known technically as NAIRU, to keep wages within the bounds of productivity, prevent inflation and weaken the force of organized labor. To maintain long-term market credibility the ECB had to be insulated from popular or governmental pressures to lower interest rates and expand the money supply for the sake of growth and employment. Since governments still controlled budgetary and fiscal policies, the stability pact imposed an enforceable deficit limit of three percent per annum to be offset over the medium term to prevent them from diluting the currency and reflating through borrowing. EMU contained in vitro the essence of monetarism and the neo-liberal assault against the social or public regulation of the market (cf. Arestis, 2003).

    Monetarism was the policy of making a currency harder, scarcer and more valuable by raising interest rates and limiting money supply in order to:(1) increase purchasing power over foreign goods and assets and leverage over governments with budgetary, trade, or payments deficits; (2) obtain the rental premium or seignorage that comes from possessing currency that is used as a reserve by other countries; (3) secure the value of loans, usually held by the wealthiest rentier class, against debtors; (4) reduce the margin for working-class action, organization, and the real wage gains that price inflation affords; and (5) to prevent the redistribution of incomes and power to labor that usually comes from long-term and rapid growth. Monetarism was already enshrined in the national banks and treasuries of most major countries. While the major powers, France, Britain, and Germany, initially focused on the first two objectives, they along with the others became increasingly concerned with the last two in response to the labor mobilization and wage price spiral that exploded after 1968.”

    That is a quick review of a few themes. It is interesting that a number of points above were made (copyright is 2005) well before Piketty published his work “Capital in the 21st C” published in 2013. Note that points (4) and (5) especially are directly backed up by Piketty’s work.

    The EU and especially the ECB and Eurozone are most explicitly neoliberal constructs. To say that it’s “all institutional” is no justification of any kind for its actions. This is so whether the argument being implied is that the process is morally right because it is institutional or that the process is unavoidable because it is institutional. These positions, separately or combined, amount to taking a technocratic and legalistic stance devoid of moral judgement. The simple answer is that if the institutions are wrong and have wrong outcomes (which they clearly do both morally and empirically) then the institutions must be corrected or abolished.

  82. @Ikonoclast

    “All your Eurozone analysis seems based on the proposition that Germany is right but “neoliberalism”, so far you accept such a tag, is wrong and austerity in the current manner is wrong. But you cannot have it both ways. The most powerful country in Europe cannot be in the right when it is pushing wrong policies (neoliberalism and austerity). This is the fundamental flaw in your analysis. If the policies are wrong, then Germany is wrong. It is as simple as that.”

    Your perceptions have no relationship to what I wrote about. This is quite astonishing. I am sorry to say, you conclusions seem to due to you substituting your model as to the EU and the Eurozone for the actual institutional framework.

    See my reply to the first paragraph in your post.

    It is up to you whether you wish to re-read all my posts, starting with a predecessor thread. I don’t you whether you noticed that 2 long and 1 short posts of mine were in moderation. They have since been published.

  83. @Ikonoclast

    The third paragraph of your post:
    “Any pretence that Germany is an equal among equals in the Eurozone is exactly that, a pretence. Germany is first among “unequals”. The Eurozone and ECB are more technocratic, monetarist and financial constructs than they are the results of any genuine democratic process. In that context, the greatest economic power wields the greatest power overall.”

    In one of my post I provided a link to an EU web-site which contains the weights of each member country.

    I have no further comment and no intension of persuading you. It is up to you to read up on these matters or not.

  84. The German parliament (Bundestag) just voted in favour:

    Yes = 439
    No = 119

    50 members of Merkel’s coalition government voted “No”. It will be interesting to see the relative discussion of that “revolt” to Syriza’s “revolt” the other day.

    And what exactly is it that the Bundestag voted “Yes” to?

    “Beginning further talks with Greece on a third bail-out”.

    Wow! In terms of a framework, going forward, with a view to enabling the broad agreement around the terms of a context within which to discuss a range of possible outcomes – break out the champagne.

    But wait, long-suffering people of Greece, the news gets better…the European Council has just agreed to extend a short term (3 month) loan of 7 Billion euros – which is just enough to make good the next payments due to the IMF, ECB and (oligarch owned) Bank of Greece.

    If someone can’t see what a total stitch-up/sellout of the Greek people this is, then I don’t know whether to cry or try to sell you a matching set of Sydney Opera Houses.

  85. This paper argues there is not a so-called “democratic deficit” in the EU.

    I mean, seriously, that’s a terrible piece of writing. Have a careful look at the third and fifth sentences and see what they actually say, then compare them against what’s claimed. The problems with the third sentence is most easilly visible if you imagine how the structure described affects outcomes in the presence of a general widespread popular opinion in favour of change. The fifth is a teeny bit more subtle: it describes functions that are delegated in normal democracies… but delegations are revocable, and in the EU the functions described are not delegated by the legislature or genuine representative body but directly [==irrevocably] assigned by the constitutional framework and thus put beyond popular control. “Our structure is OK because this subtly-but-critically-different structure is commonplace” is not a compelling argument. More something you’d see if there were no possibility of a compelling argument.

    And that’s just the abstract. I don’t think I’ll read further.

  86. EuroGroup statement just now:

    The Eurogroup welcomes the successful completion of the relevant national procedures related to the decision to grant in principle a 3-year ESM stability support to Greece, and especially the recent swift legislative steps taken by the Greek parliament as a first step towards rebuilding trust.

    Following a formal decision taken by the ESM Board of Governors, the institutions were entrusted with the task of swiftly negotiating a Memorandum of Understanding (MoU) detailing the policy conditionality attached to the financial assistance facility.

    In line with the Euro Summit statement of 12 July, the Eurogroup discussed the issue of possible short-term bridge financing to ensure that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations in the coming weeks. In this respect, the Eurogroup welcomes the decision of the Council to grant short-term financial assistance to Greece, using up to EUR 7.16 bn of the funds still available under the European Financial Stability Mechanism (EFSM).

    In this context, the Eurogroup agrees in principle to transfer the 2014 SMP equivalent profits to be held at an ECB account to ensure legally enforceable rights to protect non euro area Member States from a risk of loss resulting from an EFSM programme to Greece. This will be confirmed by a letter from the President of the Eurogroup to the ESM. The SMP profits will be exclusively used either as compensation to non-euro area Member States in case of losses or will be returned to the euro area Member States, if not needed. Should Greece fail to repay the EFSM loan, the available instruments to recover the debt and protect the Union budget will be used, confirming that the risks of not concluding swiftly the negotiations on the ESM programme remain fully with Greece.

    The Eurogroup welcomes the very constructive approach taken by the non-euro area EU Member States. The Eurogroup commits to ensure proper transparency and to strengthen cooperation with the non-euro area EU Member States. The Eurogroup confirms that all matters of general application, including the EU budget and the EFSM, are to be discussed and decided upon in the Council involving all Member States.

    And all over Greece the poor starving pensioners, unemployed youth, crushed small-business owners and all other victims of 2 failed rounds of neo-liberal fascist austerity are rejoicing. “Yay” they are singing (in Greek), and dancing and joyously celebrating.

    They are elated that Tsipras stood up to them and, despite their overwhelmingly voting -twice- against more austerity, toughed it out for their own good and has brought this sweet victory so succinctly spelled out that even the silliest person dying from a non-existent health care system can now see the beauty of this EU approach.

    I should apologise for ever doubting that this would all work out so well as it has. A big glass-half-full toast to the ‘winners’.

  87. A bit more context, to keep the celebrations going:

    Eurogroup President Jeroen Dijsselbloem has welcomed the fact that the steps needed to open the way for negotiations on financial support to Greece have been taken. These steps are a follow-up to the agreement reached by the Eurozone countries and the Greek government last Monday. Eurogroup President Dijsselbloem said: “This agreement offers a chance to put the Greek economy back on track.”

    Last Wednesday the Greek parliament agreed on measures needed to stabilize and improve the current economic and financial situation in Greece. Today the Board of Governors of the European Stability Mechanism (ESM) entrusted the negotiations on a Memorandum of Understanding (MoU) to the European Commission in cooperation with ECB and IMF. This MoU will contain in principle the details of the conditions attached to a three-year loan from the European Stability Mechanism.

    The decision of the Board of Governors followed the successful completion of the procedures required from national parliaments. Greece is granted bridge-financing for the coming weeks. Eurogroup President Dijsselbloem, who also chairs the ESM Board, said that the steps taken over the last few days should gradually restore trust between the Eurozone countries and Greece: “It’s not going to be easy. We are certain to encounter problems in the years to come. But I believe we will be able to resolve them.”

    Yippee! (in Greek)

  88. @Ernestine Gross

    “In one of my post I provided a link to an EU web-site which contains the weights of each member country.” – E.G.

    I have been through your extant posts twice and cannot find this link. Either I have missed it, or the comment in question is still in moderation or you forgot to add the link.

    Remember any post with two links is automatically moderated and a link to someone else’s comment counts as one link already.

    I agree with you (I think we agree) that understanding EU governance would require retirement from all other endeavours and an extended period of focused study. I don’t know what you think but I think this would be a terrible waste of my time. That’s why an easy link for the question at hand would nice.

    Sometimes one does not have to study an horrendous mess to know that it’s a mess but one might have to study it to understand in detail how the mess came about and what all its ramifications are. That’s pretty much how I consider the EU.

    It’s like Brisbane’s road system. I know it’s an horrendous spaghetti-like mess from trying to deal with it. I haven’t studied in detail (or even in brief) how this mess came about and why our current road designers can’t improve it. And yet I know it’s a mess.

  89. @Ikon: it would have helped to put some markers into what you wrote to indicate that: something like, “this is the sort of writing that you get in opposition to the idea that the eurozone has a democratic deficit”. Reason being that people generally only say what they think is important, so not distancing yourself from the content of a piece reads as support for that piece.

  90. @Ikonoclast

    The post is #3, p2, thread “Backing down….”

    You will find, among other information, small countries in terms of population size have a proportionately higher voting right.

    How does this fit into you priors about democracy?

    Would you agree if a ‘radical idiot’ from say Queensland would try to break international treaties between Australia and other countries? Takes this as a rhetorical question.

  91. Ikon (and others),

    I have just watched this documentary, “Trail Of The Troika” and I highly recommend it as an aid to understanding the whole Greek issue we have been discussing – especially in the context of the complex (convoluted? corrupt?) web of EU/EuroGroup/ECB/EC etc… “governance”.

    It’s 1:30 minutes, but worth settling in for. Spoiler: the problem is almost entirely to do with an ideology.

  92. John, your take on the Varoufakis interview effectively blames Varoufakis for Tsipras’ capitulation because the finance minister didn’t tell Tsipras “until too late [that Grexit] couldn’t be done.” But the other reading of the interview—and almost certainly the one Varoufakis wanted to convey—is that the pivotal political mistake was that the cabinet voted against Varoufakis’ “triptych” plan: “We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece.” This “aggressive move of incredible potency” was voted down 6-2, leading to Varoufakis’ resignation and Tsipras capitulation. This is a classic case of a brilliant political partnership breaking down over tactics, or even, if you like, strategy. Syriza was never going to choose Grexit, they ALWAYS said that.

  93. The video posted by Megan has a few interesting details but, except for the comments made by the gentleman from Dublin toward the end, misses the major problems.

    To see what I mean, compare Australia’s position in the GFC to that of the countries listed.
    Australia had essentially no government debt and therefore plenty of room for deficit financed policy responses. Australia acted accordingly. Australia’s banking sector was more stringently regulated and none of its major banks (with the possible exception of MacBank) were part of the proverbial Wall Street Bankers. None of them needed to be bailed out. The government measures taken (guarantee of deposits, small relative to the size of some international billionairs funds) were aimed at preventing a bank run. Again well managed. A somewhat mixed blessing was the mining boom. Mixed because clearly the government’s revenue was predictably ‘safe’ but due to the implications for the exchange rate, the manufactoring sector lost out. The Rudd-Gillard government(s) reduced the race to the bottom regarding income inequality by getting rid of individually negotiated contracts introduced by the Howard government. Finally, and this is perhaps one of the most important elements in why Australia is so different, there is strong opposition from the public to letting wealth inequality get out of hand (‘cut down the tall popy’, ‘fair go’, ‘fair dikum’ are symbolic phrases). Evidence the public objection to the May 2014 budget, the outrage about the relevations of ICAC (how oligarchs develop). Straight and blunt talk may also help. And not to foreget, on a per capita basis, Australia is one of the richest countries in the world due to a relatively small population owning – privately or via the Crown – the absolutely biggest part of a continent. On the negative side, the public-private-partnership arrangements for infrastructure (toll roads, privatisation of airports….), discussed over time by JQ on this blogsite in terms of financial implications, shows up in other respects. For example the road usage fees (tolls) in Sydney cause a financial blockage for low income earners from the western parts of the metropolitan area where housing is cheaper. Foreign investment in real estate (15-16% of transactions in Sydney), negative gearing and capital gains tax concessions in real estate affect the wealth distribution of a non-negligible fraction of the total population (Sydney + Melbourne/ All of Australia). Cutting the top income tax rate before raising the tax free level is another one. So, things aren’t quite as people want it. But there is no ‘crisis’. Things can be mended without major ruptions.

    If I understand correctly, the EUROzone countries are individually responsible for their banking sector. What did they do?

    The video does not provide comparative information on this point.

    What does Prof Krugman and Varoufakis have to say on the role played by non-EU banks to bring about the GFC? Where is Goldman-Sachs mentioned?

    Yes, the video is a documentary but it does not tell the whole story. Indeed, it misses the major sources of the crises. JQ’s threads during the past 8-10 years provide a much more informative picture of ‘financial capitalism’ and neo-liberalism than this video. IMO.

  94. @Ernestine Gross

    Why ignore private debt?

    Let us look at some numbers. I say everything is “about” because I am reading off graphs where it is hard to get a number accurate to the final digit.

    Australia: Private debt/GDP ratio at time of GFC = 155% (about)
    Public debt/GDP ratio at time of GFC = 0% or even less (about).

    Greece: Private debt/GDP ratio at time of GFC = 115% (about) * See Note.
    Public debt/GDP ratio at time of GFC = 105% (about).

    * The only figure I could find for this was “Domestic credit to private sector” so this might not be a useful or comparable number. I don’t know what the above numbers might be telling us in themselves.

    Here is where I don’t have enough grounding in even basic national and international accounting. I wonder what number really accounts for the trouble a nation might have with total debt? I imagine that total debt (public and private debt) all counts in adding up to a problem for the nation if the debt is excessive. If they owe the money among themselves there is no net debt in the nation. (This could still cause problems for other reasons but there is no international problem per se.) If they owe foreign debt it becomes an issue.

    Surely, the key number for the nation is net private foreign debt plus net public foreign debt. All of this debt is what will cause a need to “export” money capital to pay off the debt; meaning in turn less money for imported goods and services and less money for domestic goods and services. The result of having a lot of net foreign private debt plus net public foreign debt to be paid down would be domestic recession or depression unless that net foreign debt had been invested in productive assets and the production was able to pay, or more than able to pay, the net foreign debt.

    I think it is disingenuous to talk only about public debt without bringing in these other factors.

    Forbes has an interesting but too short article on this;

    “Greece’s Net Debt Is 18% of GDP, Not 175%. What’s Germany’s?”

    Forbes and others allege that the Eurozone does not calculate its accounts correctly. Now, I don’t know the details of this but it’s food for thought. Follow the link in the Forbes article.

    The IMF is also saying that the current Greek debt deal is unlikely to work. The IMF seems to have split from the ECB and EC part of the Troika.

    This paper is worth reading too:

    Seven Myths about the Greek Debt Crisis – Stergios Skaperdas, Department of Economics, University of California, Irvine October 28, 2011 Modified on October 31, 2011.

    In particular he points out it is not a “rescue” of Greece. It is a rescue of the creditors.

    There is plenty of varied opinion and dissent out there about what is going on. We can be sure that the official EU position is propaganda and that their policies are wrong. The IMF rupture proves that now.

  95. Ernestine, please tone it down. If you don’t like Ikonoklast’s rants, there’s no need to read or reply to them.

  96. @Ernestine Gross

    If Greece’s public debt was doubled in the manner described (and I don’t doubt it) then the debt is what is known as odious debt.

    “In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.” – Wikipedia.

    Various arguments could turn on what is meant by “regime”. In older usage it simply means the the form of government. In modern usage the term often has a negative connotation, implying an authoritarian government or dictatorship. In any case, the derivative deal(s) can be seen in hindsight to be highly deceptive on the side of Goldman-Sachs and the Greek government of the day can be seen to have been duplicitous and undemocratic in the sense of not being open and accountable to its people (and to the EU).

    All of this serves to illustrate that the debt is odious debt and ought not be paid. Greece and/or the EBB should default.

    My question is this. Who now are the creditors who hold this debt particularly the doubled portion of Greece’s debt? Did they directly and knowingly participate in these derivative deals? Or were they fooled like Greece?

    It seems plain to me that Greece should default on the odious debt and the creditors should sue Goldman-Sachs and any other culpable private enterprise parties.

    When one looks at the total lineup of who Greece owes money to a number of things are plain;

    (1) This problem had and has ramifications and tentacles everywhere in global finance.
    (2) Goldman-Sachs and the Greek government are clearly culpable.
    (3) It is also clear that culpability does not end with those two parties.

    The creation of the debt is not Germany’s fault in any way I can see. The ECB on the other hand needed better oversight of what was going on. Why couldn’t they discover some of these problems earlier with forensic accounting ? I have alluded to this aspect before.

    The governing bodies EU, EC, ECB not only failed to detect the problem in time and act, they have, since they started acting, acted in the wrong manner, to whit, with austerity economics.

    There are also faults in the Eurozone setup, namely that it is not an OCA (optimal currency area), it has, in the judgement of many, a democratic deficit and it does not have rules and guidelines which would permit certain necessary operations (like fiscal transfers in a true federation and/or orderly temporary or permanent exit for a nation in difficulties like Greece.

    I consider the above balanced. What is not balanced is to seek to blame the entire crisis on Goldman-Sachs operations (financially “morally criminal” though they were) when the systemic problems in both global financial capital and the EU governance go much wider and deeper.

  97. To finish off with a news item appropriate for the heading of the thread:

    “Krugman told CNN Sunday that he may have “overestimated the competence of the Greek government.”

    “(The Greek government) thought they could simply demand better terms without having any backup plan,” he told the news channel in an interview. “So, certainly this is a shock.”

    http://www.independent.co.uk/news/business/greece-debt-crisis-live-nobel-prize-winning-economist-paul-krugman-admits-he-overestimated-the-competence-of-the-greek-government-10401092.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s