경제經濟 복지福祉 WelfareEconomics

청경수려淸勁秀麗 2012. 11. 6. 14:00

 

 

 http://liberalconspiracy.org/2012/02/28/how-austerity-is-destroying-greek-society-a-report-from-athens/

How austerity is destroying Greek society: a report from Athens


by Guest    
11:15 am - February 28th 2012

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352172574163&count=horizontal&id=twitter-widget-0&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&related=sunny_hundal&size=m&text=How%20austerity%20is%20destroying%20Greek%20society%3A%20a%20report%20from%20Athens%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

<iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 150px; HEIGHT: 21px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" src="http://www.facebook.com/plugins/like.php?href=http://liberalconspiracy.org/2012/02/28/how-austerity-is-destroying-greek-society-a-report-from-athens/&send=false&layout=button_count&width=150&show_faces=false&action=recommend&colorscheme=light&font=arial&height=21&appId=135787006459018" frameborder="0" allowtransparency="allowTransparency" scrolling="no"></iframe>

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I0_1352172574102" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I0_1352172574102&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I0_1352172574102" marginwidth="0" scrolling="no"></iframe>

 

Share on Tumblr

contribution by Abi Ramanan

Theo has two degrees. “Last year I had a job in commerce and a salary. Now I am selling my possessions on the street and living day-to-day after my wage was reduced to €3 an hour due to cuts. I quit my job due to the degradation of such a low wage but many of my colleagues are still working under those conditions.”

Most of his friends have left Greece for Italy and Switzerland. The government is now calling for a further 22% cut to the minimum wage.

The austerity measures being imposed on Greece are hard to argue for, from a social, political or financial point of view.


[picture of Theo, above]

Hundreds of parents do not have money or food for their children. Four children, including a newborn baby, were recently abandoned on the doorstep of the youth centre, Ark of the World in Athens.

Anna, aged four, was left at her school holding a note that read: “I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.”

Judging by the latest protests and riots, it is clear that if these are imposed on the Greek public, a social explosion is inevitable. Not to mention the possibility of the military, who have been in check since the fall of the dictatorship in 1974, making an unwelcome comeback.

Violent crime is increasing. Recently a girl’s house was robbed during the day and her 17-year old sister’s face was slashed. This is by no means an isolated incident.

The government even switch off the traffic lights at night in an effort to save money and Zoe, a waitress, said they have also stopped all food testing.

Marlena, a store owner, in downtown Athens told me that she is experiencing significantly lower sales, an increase in theft and a lot of drug use outside her shop. I myself saw dozens of people injecting heroin in broad daylight. Ella, an estate agent, paid more in taxes than she earned in the period between December 2011 and February 2012.


[a common sentiment in Greece]

The Communist Party and the extreme-right wing party are experiencing big surges in support, primarily from the youth, over 50% of whom are unemployed.

On top of that, the asylum situation in Greece has now been declared a humanitarian crisis by the UN: a first for Europe. This short documentary outlines just how abhorrent life is for the immigrants.

Ultimately, it remains that huge wage cuts, slashed pensions and multiple tax hikes are not ways to save a failing economy. By defaulting and reverting to the Drachma, Greece would be able to shrink its existing debt to half and increase the competitiveness of its exports.

There would also be a renaissance in Greek industries meaning desperately needed job creation and a boost to public morale.

The transition will not be easy, but for Theo, Marlena, Anna and millions more Greeks – this may be the only option if they are to survive this crisis.

The average taxi driver now makes between €15 and €20 a day – one told me that he has three children and high expenses. With the constant tax hikes soon he won’t be able to cover his families basic needs: “Forget university, I am worried that I won’t be able to keep a roof over my children’s heads in the coming months.”


Names have been changed to protect people’s identities. Abi Ramanan works as a freelance writer

<iframe id="fb_xdm_frame_http" src="http://static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f2edc36ca5c4506&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F%3Ffb_xd_fragment%23xd_sig%3Df10c1222f5d5316%26" name="fb_xdm_frame_http"></iframe><iframe id="fb_xdm_frame_https" src="https://s-static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f2edc36ca5c4506&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F%3Ffb_xd_fragment%23xd_sig%3Df10c1222f5d5316%26" name="fb_xdm_frame_https"></iframe>

<fb:like class="fb_edge_widget_with_comment fb_iframe_widget" href="http://liberalconspiracy.org/2012/02/28/how-austerity-is-destroying-greek-society-a-report-from-athens/" font="arial" show_faces="false" width="500" send="true" fb-xfbml-state="rendered"><iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 500px; HEIGHT: 24px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" id="f2ff26b6787177c" class="fb_ltr" title="Like this content on Facebook." src="http://www.facebook.com/plugins/like.php?api_key=135787006459018&locale=en_US&sdk=joey&channel_url=http%3A%2F%2Fstatic.ak.facebook.com%2Fconnect%2Fxd_arbiter.php%3Fversion%3D14%23cb%3Df33361f6212588c%26origin%3Dhttp%253A%252F%252Fliberalconspiracy.org%252Ff2edc36ca5c4506%26domain%3Dliberalconspiracy.org%26relation%3Dparent.parent&href=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&node_type=link&width=500&font=arial&layout=standard&colorscheme=light&show_faces=false&send=true&extended_social_context=false" name="f26eee07239c0de" scrolling="no"></iframe></fb:like>

 

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352172574171&count=horizontal&id=twitter-widget-1&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&related=sunny_hundal&size=m&text=How%20austerity%20is%20destroying%20Greek%20society%3A%20a%20report%20from%20Athens%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

Share on Tumblr

 

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I1_1352172574103" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F28%2Fhow-austerity-is-destroying-greek-society-a-report-from-athens%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I1_1352172574103&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I1_1352172574103" marginwidth="0" scrolling="no"></iframe>


About the author
This is a guest post.
· Other posts by

<iframe style="MARGIN-TOP: 5px" class="bylineSocialButtonTwitter" height="20" src="http://platform.twitter.com/widgets/follow_button.html?show_screen_name=false&show_count=true&screen_name=libcon" frameborder="0" width="250" allowtransparency="allowTransparency" scrolling="no"></iframe>

Story Filed Under:
Blog ,Economy ,Europe ,Foreign affairs


 

<iframe height="250" marginheight="0" src="http://optimized-by.rubiconproject.com/a/7845/13377/25975-15.html?cb=337855177&keyword=liberalconspiracy.org/oas.html/L21" frameborder="0" width="300" marginwidth="0" scrolling="no"></iframe>


 

Sorry, the comment form is closed at this time.


 

Reader comments


Whilst the key tenant of the piece above, “The austerity measures being imposed on Greece are hard to argue for, from a social, political or financial point of view”, is clearly true (unless the point of view you take is that the German economy has to be protected…), this would be a better article with statistics rather than anecdote. How does the tale of one violent break in show violent crime is rising for example – unless there were previously no violent break ins in Greece?

This is emotive, but it needs something to back up the examples (anecdotes and statistics together would work far better).

2. the a&e charge nurse

[1] exact statistics may be hard to come by – but statistics are hardly necessary to recognise that ordinary people in Greece are facing serious hardship.

Perhaps there are some stats on the cash exodus?
http://www.guardian.co.uk/business/2010/apr/13/greek-debt-crisis-capital-outflow

3. Torquil Macneil

The situation facing Greeks is horrendous, but what is the alternative to austerity in that country? Where is the money going to come from? Does anyone think that the German population would accept another gigantic tax transfer? If not, what is to be done? Leave the Euro? And then what? Who would lend to Greece then?

By defaulting and reverting to the Drachma, Greece would be able to shrink its existing debt to half and increase the competitiveness of its exports.

Not quite as straightforward as that though is it? Although, if you do have a plan whereby this becomes easy, I believe Lord Wolfson has £250,000 with your name on it.

Just for a start: since, at the moment, Greece is still running a primary deficit, a default/decouple/devalue strategy will lead to more austerity and not less. For a second, since the inevitable (indeed desired) result of the DDD strategy is a collapse in the value of the New Drachma, the cost of imports would spike, leading to a further reduction in the living standards for Greeks.

It’s not austerity that is destroying Greek society. What is destroying them is that the society as a whole is spending so much more than it is producing, that it is running a deficit. Let the country default and get rid of euro.

But just devaluating won’t help. The country also needs to get rid of mindless bureaucracy and corruption. It needs a free economy instead of the regulated cleptocracy (privatise profits, socialise losses) that it has had.

One minor point, but it may show the Greek way of thinking. In the UK, food testing is done by the manufacturers either internally or at privately owned labs. Why would the government want to control it?

If you produce food that is not safe, you get closed down in the UK.

7. Peter Stewert

“What is destroying them is that the society as a whole is spending so much more than it is producing”

Ah yes, the excuse from Goldman [and now] Sachs has arrived.

At present saying that spending is outstripping production is like a kidnapper complaining that their abductees is stupidly breathing faster than the air flow in their “cell”. It isn’t as though Greek people are buying iPads to use as toiliet paper or anything. And to complain about spending in the past is criticise MirrorGroup pensioners because they unknowingly worked for a crook and a liar that no one wanted to investigate.

Greece is a disaster. It is long past time to default and prosecute the living hell out of those that cooked the books and kept quiet. It’s a strategy that has worked a charm for Iceland.

Extremely affective article, we are consistently being provided with endless statistics but less so with such explicit accounts of individual hardship and tragedy. It is important to be provided with these so we can at least attempt to comprehend what Greek citizens are truly experiencing; statistics cannot paint the picture of the girl waiting for the mother that isn’t coming. Really numbers can only ever do so much.

All this damage just to get Merkel re-elected.

@ 7 Peter Stewart

Prosecute those responsible?

Sure, but that would be previous Greek governments and a huge number of Greek companies and individuals who have been playing the national sport – tax evasion.

Austerity is painful, but as people point out above, who is going to lend to Greece without significant reform and fiscal rectitude, and devaluation won’t immediately make life easier for Greeks either. Initially it will make living standards even worse before Greece can regain competativeness.

Greece should be a lesson to all those who think that endless debt fuelled expansion of the state and welfare has no risks attached. Even the UK,insulated as it is with it’s own currency could eventually fall to the same scenario – though fortunately not nearly as easily.

” the national sport – tax evasion”

Perhaps they should move to South Africa instead?

12. the a&e charge nurse

[11] “the national sport – tax evasion” – I thought tax invasion was the main sport for large corporations?

13. the a&e charge nurse

Oops [12] was aimed at Tyler, not Planeshift.

If we’re sending them all this money to pay off their creditors can’t we at least send them some tax accountants to fix their tax evasion problem?

15. the a&e charge nurse

[14] “If we’re sending them all this money to pay off their creditors can’t we at least send them some tax accountants to fix their tax evasion problem?” – don’t send all of them, though.
http://www.bbc.co.uk/news/business-17181213

7: “Ah yes, the excuse from Goldman [and now] Sachs has arrived.”

Oh well, so avoiding the issue by starting to talk about something else?

It was the Greek government that employed Goldman Sachs to mask its deficit. Not the other eurozone countries which now have been issuing loans and guarantees to Greece. It was the Greek government, which did not want to make unpopular decisions, and therefore forged its books to be able to continue lending as long as it can.

Now it no longer can.

“At present saying that spending is outstripping production is like a kidnapper complaining that their abductees is stupidly breathing faster than the air flow in their “cell”. It isn’t as though Greek people are buying iPads to use as toiliet paper or anything.”

The Greek people are still buying more iPads than their export sales, tourism and other income can afford.

On a related note, see
http://joking.of-cour.se/pictures/greece-vs-estonia/

Here you see who’s doing austerity. Why are the Greeks rioting and demanding a socialist revolution, but the Estonians are not? Because the Estonians have experience of life after the revolution.

18. So Much For Subtlety

Meanwhile might there be some other reason for Greece’s problems?

A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

Nope. Must be those damn Germans.

19. So Much For Subtlety

Let’s see. Any other reason the Greeks might be in trouble?

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_21/02/2012_429208

Starting an online store is no easy business

By Alexandra Kassimi

It took 10 months, a fat bundle of paperwork, countless certificates, long hours of haggling with bureaucrats and overcoming myriad other inconceivable obstacles for one group of young entrepreneurs to open an online store.

As e-commerce continues to gain ground apace abroad, and even Greeks seem to be warming to the idea of Internet shopping, opening an online store based in Greece is no job for the fainthearted.

“An online store is more complicated than a regular store basically because of the way payments are carried out,” explained Fotis Antonopoulos, one of the co-founders of http://www.oliveshop.com, which sells olive oil-based products such as cosmetics, mostly to foreign markets.

“Most stores begin operating after receiving only the approval regarding their brand name, as the bureaucracy involved takes such a long time to complete that it is simply impossible to keep up with the operational costs, such as paying rent on obligatory headquarters, without making any sales,” said Antonopoulos.

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.
….

Got to keep all those liberal arts graduates employed doing something I suppose.

@ Planeshift/A+E

You chaps are clearly not quite sure about the difference between tax avoidance and evasion – the former being legal and the latter illegal. Let me describe a few examples.

Moving to SA and avoiding UK tax is perfectly legal – not least because I earn my money and pay tax on it in SA.

Companies minimising their tax bills in accordance with the law is also perfectly legal.

Greek Doctors only declaring part of their real income, the rest being received in envelopes full of cash is tax evasion and illegal. Greek retaurants only accepting cash so they can again try and minimise the earnings they present is also tax evasion.

As another anecdote about the level of beaurocracy and corruption in Greece, let alone of the dead hand of the state, let me tell you about the friend of mine working on the Greek privatisation deals. He told me that the railways were more expensive per passenger/km than the cost of putting all those passengers in taxis instead, and simply shutting the railways down. The only problem being that there wouldn’t be enough taxis to cope as getting a taxi license is now almost impossible because the process is so tortuous and corruption is endemic. Cabbies trying to minimise the amount of competition they have and beaurocrats wanting bribes to issue new licenses.

Whatever the case is though you can’t escape a simple fact. If the state becomes the main engine of spending in an economy, and that spending is fuelled by debt, you can be sure that coiuntry is heading for serious trouble sooner rather than later.

Greece is a pointed example, and has other factors (the Euro, corruption, red tape) which contribute to it’s fall, but those thinking that it could never happen in the UK so we should keep spending and not worry about our debt/deficit are smoking way to much of the good stuff.

Tyler – I couldn’t care less about the legality of things, its the cheek I was refering to. No doubt many of the scams used in Greece are legal as well. Though I am relieved you consider closing down loopholes and punishing those who break the tax law to be an important part of a deficit reducation plan.

Moving on however, these threads usually end up with some kind of consensus that Greece needs to leave the Euro.That’s something I have agreed with, as the evidence frankly supports it.

However I was in Egypt 2 weeks ago, and one of the things that suprised me was the amount of establishments and businesses that not only accepted Euro’s but would actually price things in Euros ahead of Egyptian Pounds. To some extent this can be explained by the fact I was in a tourist area, but equally there were many shops doing this that were not overtly touristy.

It is thus likely a post-euro Greece would end up very similar (more so), with large parts of the economy still using Euro as a medium of exchange rather than the new currency. What implications would this have for the options available to the greek government? What effects does it have when foriegn currency is prefered to your own?

Tyler – I couldn’t care less about the legality of things, its the cheek I was refering to. No doubt many of the scams used in Greece are legal as well.

Nope, the big problem in Greece is outright evasion. More Porsche Cayennes in Greece than registered taxpayers earning over EUR50k for example. <200 'official' swimming pools in Athens (they're taxed too) when an overflight reveals thousands of the things. It's not avoidance, it's out and out evasion.

23. the a&e charge nurse

[20] ordinary families are being ripped apart for something they had no direct control over – Tim J may be right about posh cars, but those in the food queues or handing their kids over to social services are more likely to have driven one of these?
http://files.turbosquid.com/Preview/Content_2010_09_25__08_21_24/zaz_966_001_sm.jpgac3a7047-9b36-4e60-8358-a64437da1262Larger.jpg

Don’t you guys get it – it is the little people who are suffering for the sins of their masters?

After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. … I was in a bookstore/café that could neither sell books nor make coffee.

To be fair to the Greeks, there are rules in the UK – probably in every Western country – pertaining to health and safety in food and drink. I doubt a bookshop proprietor can lawfully simply start serving coffee to customers from his new coffee machine, without having to register with his local authority and/or environmental health officer, obtain a food hygiene certificate etc. I’m sure there are rules about the minimum number of sinks and toilets, too, for staff and customers.

Here’s one such rule:

Plant such as cappuccino coffee machines, high pressure steam ovens and steam pressure jet washers, which generate steam under pressure in an enclosed volume, must meet the requirements for pressure vessel and system safety including inspections by a competent person in accordance with a written scheme of examination.

@ Planeshift

The cheek of it? I’m not sure if you are referring to me moving country and paying my tax there (at almost identical rates to UK taxes) or Barclays using legal tax avoidance measures (though their tax payments have been over 30% of their profits except for the exceptional year of 2009 which Richard Murphy seems fixated on).

Tax EVASION in Greece is endemic. At the same time it does offer Greece some hope, as they don’t have to raise taxes to increase revenues so much as simply collect them. Which in theory at least is easier.

As for a post-euro Greece, it would’nt matter a great deal if the euro was still accepted. Greek workers would be paid in Drachma, which would almost certainly devalue considerably with two major effects. It would reduce living standards in Greece but it would also make it dramatically more competative – hopefully boosting their manufacturing (7% of economy) and tourist (18%) industries dramatically.

One thing you could argue is large foreign currency earnings would make it easier for Greece to fund any hangover euro debt or raise new euro debt, which would probably be cheaper than new drachma debt. Foreign currency earnings/reserves would also probably go some way to helping Greece’s credit rating, again kowering it’s cost of funding.

But ultimately any post-euro/drachma Greece would still suffer a currency devaluation and the associated fall in living standards. You really can’t avoid the need to regain competativeness, either through internal devaluation (austerity) or external devaluation (drachma) – though the external devaluation is likely to be faster and marginally less painful, and would get my vote.

I am trying to be objective here, but Greece’s problems lie in a combination of an overburdening state, corruption, poor competativeness all masked (till lately) by debt fuelled spending enabled by far too low (euro) interest rates for Greece. That this situation is the end result is hardly a surprise, and no country really should consider itself totally immune from similar happening – and I count the US, UK, japan and china in that catagory – with the latter two by far the most vulnerable.

To be fair to the Greeks, there are rules in the UK – probably in every Western country – pertaining to health and safety in food and drink.

It’s really about the ease of setting up a business. In the World Bank’s ratings of countries by how easy it is to set up a business, the UK is 7th. Greece is 100th – the lowest ranked European country bar Bosnia and Kosovo.

In addition to the numerous fiscal reforms, Greece is in desperate need of a supply-side revolution.

Don’t you guys get it – it is the little people who are suffering for the sins of their masters?

I’m not even sure this is true. The collapse of Greece is like the Murder on the Orient Express – everyone was in on it. I’ve linked before to a great Michael Lewis piece on Greece.

As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials.

The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.”

The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something.

There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on.

The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.

http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

So, you have totally incontinent Government spending. And then, to complete the picture, you have farcical tax collection:

The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. The problem wasn’t the law—there was a law on the books that made it a jailable offense to cheat the government out of more than 150,000 euros—but its enforcement. “If the law was enforced,” the tax collector said, “every doctor in Greece would be in jail.” I laughed, and he gave me a stare. “I am completely serious.”

One reason no one is ever prosecuted—apart from the fact that prosecution would seem arbitrary, as everyone is doing it—is that the Greek courts take up to 15 years to resolve tax cases. “The one who does not want to pay, and who gets caught, just goes to court,” he says. Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to the income tax goes officially unrecorded, he says, compared with an average of about 18 percent in the rest of Europe.

…The first was an Athenian construction company that had built seven giant apartment buildings and sold off nearly 1,000 condominiums in the heart of the city. Its corporate tax bill honestly computed came to 15 million euros, but the company had paid nothing at all. Zero.

To evade taxes it had done several things. First, it never declared itself a corporation; second, it employed one of the dozens of companies that do nothing but create fraudulent receipts for expenses never incurred and then, when the tax collector stumbled upon the situation, offered him a bribe.

The tax collector blew the whistle and referred the case to his bosses—whereupon he found himself being tailed by a private investigator, and his phones tapped. In the end the case was resolved, with the construction company paying 2,000 euros. “After that I was taken off all tax investigations,” said the tax collector, “because I was good at it.”

Greece is a really poor example of evil bankers ruining an economy.

29. the a&e charge nurse

[27] “The collapse of Greece is like the Murder on the Orient Express – everyone was in on it” – even the kids who are hungry or homeless – or the oldies, not all of whom could have enjoyed the same benefits as the rapacious public sector workers?

The greeks failed in debt management – unlike our banks they didn’t have a big enough pot to underwrite the losses – of course focussing all our energies on who to blame doesn’t really help those who are in the ????? – maybe that’s the point?

Tim J,

It’s really about the ease of setting up a business. In the World Bank’s ratings of countries by how easy it is to set up a business, the UK is 7th. Greece is 100th – the lowest ranked European country bar Bosnia and Kosovo.

 

Sure, I understand that and fair point. I just don’t think a bookstore (a business already set up) trying to give away coffee is a particularly good example.

But the online store, if true, is a good example. Although I’m skeptical that any bureaucrat, no matter how anal, would demand “stool samples”.

But the online store, if true, is a good example. Although I’m skeptical that any bureaucrat, no matter how anal, would demand “stool samples”.

Heh.

But yes, agreed. Pinch of salt with that one I think.

“I’m not sure if you are referring to me moving country and paying my tax there (at almost identical rates to UK taxes”

I thought you’d moved because taxes in South Africa were lower? So my point was basically that you condeming a nation for tax evasion was a little bit like Chris Huhne complaining about speeding drivers. Legality doesn’t come into it – you can hardly criticise Greeks for seeking to minimise taxes in both legal and illegal ways when you’ve done exactly the same, albeit sticking to the legal measures first.

Nope, the big problem in Greece is outright evasion. More Porsche Cayennes in Greece than registered taxpayers earning over EUR50k for example.

That actually isn’t really true – there are something like 150 000 people in Greece with 50 k€ income registered, but only about 1500 Porsche Cayennes (not exact figures but it’s this ballpark). What you mention was a rhetorical hyperbole by some Greek which was then taken at face value. But if you count Porsche Cayennes, VW Touaregs and MB M series together, you’re getting there…

In other words, the number of Porsches in Greece is still way higher than is reasonable considering the official economy. This indicates presence of large-scale tax evasion, particularly by wealthy people. The Greek automobiles are, on the average, newer than those in Finland or Norway, which is not quite reasonable considering the official economic GDP figures (even at PPP) of the countries.

In Spain you can hire people who specialise in navigating through bureaucracy on your behalf. He’s not a solicitor or accountant – they have those too. He is called a gestor and knows what forms you need and the bureaucrats that must be spoken with. ISTM a country that has gestors has too much bureaucracy.

32:

I thought you’d moved because taxes in South Africa were lower? So my point was basically that you condeming a nation for tax evasion was a little bit like Chris Huhne complaining about speeding drivers.

You’re confusing tax avoidance (lawful) with tax evasion (illegal). There’s nothing wrong in moving to South Africa for lower taxes, or better life overall, if you just think you’re getting on there. (If you’re white, it sounds a bit risky, considering recent SA politics, but let’s set that aside.)

So, it’s a bit like Chris Huhne doing 60 mph on a motorway, complaining about people who do 60 mph on a town centre street. Quite a legitimate complaint.

you can hardly criticise Greeks for seeking to minimise taxes in both legal and illegal ways when you’ve done exactly the same, albeit sticking to the legal measures first.

That’s just daft. There’s no reason to criticise people for legally managing their taxes to minimise liabilities, and there’s no reason at all why such people shouldn’t criticise illegal tax evasion. The two aren’t the same.

“You’re confusing tax avoidance (lawful) with tax evasion (illegal).”

Thank you, despite reading this blog for several years I have yet to come accross a comment explaining the difference between avoidance and evasion – if only they had richard murphy articles on here and regular comments from Tim Worstall, I may have been aware of this.

For the millionth time – I don’t care about the legality of specific actions taken to avoid the spirit of tax laws. I’m saying that somebody who moved from the UK specifically to avoid paying a higher rate of tax has no business criticising Greeks for doing their best to avoid tax – even if one was legal and the latter actions have not been legal. They are part of the same spectrum of irresponsibility.

@ planeshfit

There is no 50% top tax rate in SA but up to that point taxes are almost identical. As others point out though, what I have done is perfectly legal – I pay all the taxes that are due. I don’t evade taxes like many Greeks – who are claiming to earn less than they really do for the sole purpose of paying less tax.

@ A+E

You make one huge mistake – Greece isn’t in trouble because they bailed out their banks. They are in trouble because the government was spending far more than they received, and made up the shortfall with massive amounts of debt. When people realised there was no chance that they could afford that debt people stopped lending to them and the government became effectively bankrupt.

Banks had nothing to do with this one, and indeed are on the hook for a lot of greek debt which is likely to default.

38 Tyler:

Banks had nothing to do with this one, and indeed are on the hook for a lot of greek debt which is likely to default.

I don’t think that’s quite right. Some banks, as well as other financial institutions, had something to do with it.

Most prominently, some institutions have collected fantastic profits from lending money to Greece – after all, the interest rates have been rather high, because of the obvious default risk. And in my opinion, if you extract large profits because the investments are high risk, you deserve anything bad that happens to you when the risk materialises. It may then be better for governments to bail out the banks, but that should be done by capitalising the banks and seizing the ownership against that capital. Not by extending the pyramid scam by issuing more and more guarantees for Greece to borrow more and more money.

The Greek government, elected by ordinary and even poor Greeks (which makes ordinary and even poor Greeks responsible also morally) still carries the primary responsibility for the scam they set up.

37 Planeshift:

For the millionth time – I don’t care about the legality of specific actions taken to avoid the spirit of tax laws

Moving to South Africa to do work there – because of tax in Europe, or other reasons – is specifically according to the spirit of the tax laws. There’s just no complaint. This is a very, very weird position: that you shouldn’t have the right to run away from an oppressive (tax or otherwise) regime.

Of course, you could do like those communists in the U.S. and collect revenue from all citizens, even those living abroad, but the U.K. and other European countries have specifically wanted to do it this way. So that people have freedom to vote with their feet (and don’t even need to denounce their citizenship).

41. the a&e charge nurse

[38] “Greece isn’t in trouble because they bailed out their banks. They are in trouble because the government was spending far more than they received, and made up the shortfall with massive amounts of debt” – maybe it wasn’t clear, Tyler, but my point was that a climate of financial irresponsibility has been ENDEMIC throughout a variety of financial institutions, as well as governments, and for some time.

Even though some amassed vast fortunes on the back of national debt culture (although I’m sure profiteers are coughing up what they owe in tax) most ordinary people are learning the hard way that a culture of blame has tended to pervade the post collapse environment.

We all know that this form of economic madness led to the near demise of some of our banks, while key players on wall street also needed bailing out by the tax payer – unfortunately, impoverished greek citizens have not been afforded quite the same level of protection.

The rich get bailed out while the poor are left to eat cake – some things never change?

Most prominently, some institutions have collected fantastic profits from lending money to Greece – after all, the interest rates have been rather high, because of the obvious default risk. And in my opinion, if you extract large profits because the investments are high risk, you deserve anything bad that happens to you when the risk materialises.

The overwhelming majority of Greek sovereign debt is now held by the ECB isn’t it? And there really isn’t much profit to be made in lending to Greece, because the risk of default is so high. If there were fantastic profits to be made, then everyone would be doing it…

“The overwhelming majority of Greek sovereign debt is now held by the ECB isn’t it?”

Which is one of the problems really, as the greek government is under-pressure to adopt measures aimed at keeping it in the Euro, when withdrawl seems to be the least-worst option.

42 TimJ:

The overwhelming majority of Greek sovereign debt is now held by the ECB isn’t it? And there really isn’t much profit to be made in lending to Greece, because the risk of default is so high

Yes, now it is held by ECB and now there are no longer profits to be made. But when the profits were made – that is, when the previous high-interest loans were paid back, along with their interests, with the newly borrowed money from ECB – it wasn’t. That is what really gets me – now the default falls in the hands of ECB, that’s all of us in the eurozone. Greece should have been forced to default right away, and then the losses would have been suffered by those who recklessly bought Greek state loans in the hope of quick profit – and they got to keep those profits.

Greece should have been forced to default right away, and then the losses would have been suffered by those who recklessly bought Greek state loans in the hope of quick profit – and they got to keep those profits

If you’re talking about sovereign debt post ’08, then they’d mostly have been covered by CDSs, which a forced default would have triggered. If you’re talking about pre-’08, then the returns on Greek debt weren’t especially dramatic anyway.

The banks most overwhelmingly screwed by a sovereign default would, obviously, be the Greek ones, all of which would collapse.

46. Abi Ramanan

Obviously leaving the Eurozone comes with it’s own array of problems but this article wasn’t really suppsoed to be just about economics – I wanted to show how austerity is affecting ordinary Greek’s lives and the overwhelming response has been ‘I had no idea that things were so bad.’
We hear the figures all the time: 3.3 billion being cut, 22% unemloyment – this is just a snapshot of what that looks like.
That aside, 3 years into the crisis and the crushing austerity by the EU, ECB and IMF is clearly having a devastating effect (what I wrote above is the tip of the ice-berg) – Greece is trapped between two shit alternatives, avoiding ‘official’ acceptance of bankruptcy and enacting further reforms, that have already killed the market, and are exacerbating recession and pushing the country further into poverty. However, growth (to the real economy) and development, the two things which could provide some form of solution to this crisis have absolutely no place in the austerity agenda, whereas reverting to the Drachma would provide this to a greater extent. Greece has already defaulted. It is not by any means an ideal solution, but further austerity is going to push a country that has been humiliated and bullied to the point of social collapse.
It is unfair to blame the Greek people (not that you were, but in general) for the actions of the institutions representing them who ran up the debts and maintained inefficient and corrupt systems. It has been shown time and time again that Greeks living in other countries are law-abiding, tax-paying citizens who thrive. Anyway, I’m going off on a tangent…

I wanted to show how austerity is affecting ordinary Greek’s lives

It’s not how austerity is affecting ordinary Greek’s lives. What is affecting ordinary Greek’s lives is the end of reckless borrowing and consequences of refusal to understand that you can’t fund your government with loans forever.

Austerity is what would have avoided the situation. This is no longer austerity, it’s that the country is out of money.


Reactions: Twitter, blogs

  1. Liberal Conspiracy

    How austerity is destroying Greek society: a report from Athens http://t.co/h5dStJvS

  2. Jason Brickley

    How austerity is destroying Greek society: a report from Athens http://t.co/1grNzaPQ

  3. Kim Blake

    Awful :( RT @libcon: How austerity is destroying Greek society: a report from Athens http://t.co/ZbdlPjcw

  4. Ahmad N

    RT @libcon: How austerity is destroying Greek society: a report from Athens http://t.co/vBaaXbPQ

  5. Kim Blake

    RT @libcon: http://t.co/ZbdlPjcw #Greeks taxed more than they're paid #insanity #injustice #desperation #Greece

  6. Raymond Shemilt

    How austerity is destroying Greek society: a report from Athens http://t.co/h5dStJvS

  7. leftlinks

    Liberal Conspiracy – How austerity is destroying Greek society: a report from Athens http://t.co/Cepys334

  8. abi ramanan

    @willirwin umm i will keep my eyes + ears open – will def holla if i hear of anything. would be nice to see you soon! http://t.co/1ohHFt6h

  9. abi ramanan

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/1ohHFt6h via @libcon

  10. Simon Chouffot

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/1ohHFt6h via @libcon

  11. anna kotzia

    How austerity is destroying Greek society: a report from Athens http://t.co/e33WUubs

  12. D Koutsolioutsos

    How austerity is destroying Greek society: a report from Athens http://t.co/e33WUubs

  13. C.Themelis

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/TGCbNP7m via @libcon v @annakotzia

  14. Stephen Oatley

    Great job @abiyooooo How austerity is destroying Greek society: report from Athens | Liberal Conspiracy http://t.co/yg8tYorP via @abiyooooo

  15. William Irwin

    the travails of Greece and the folly of austerity from @abiyooooo more shocking dispatches http://t.co/mtCCwyB4

  16. Stamp out Poverty

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/ffxEf7zi via @libcon

  17. jusTice

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/ffxEf7zi via @libcon

  18. ???

    How austerity is destroying Greek society: a report from Athens http://t.co/e33WUubs

  19. Alex Snowdon

    How austerity is destroying Greek society: a report from Athens: http://t.co/NtBpShS0 (weak grasp of political situation but worth reading)

  20. Duncan Hugh Reid

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  21. Liza Harding

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  22. Koldo Casla

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  23. Martin Steel

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  24. Pucci D

    RT @leftfootfwd: How austerity is destroying Greek society – @abiyooooo’s special report from Athens on @LibCon http://t.co/mQshIlz6 #fb

  25. Inna Mood

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  26. abi ramanan

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  27. Serena O'Sullivan

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  28. How austerity is destroying Greek society: a report from Athens « SaveTheCrisis

    [...] http://liberalconspiracy.org/2012/02/28/how-austerity-is-destroying-greek-society-a-report-from-athe… Share this:TwitterFacebookLike this:LikeBe the first to like this post. [...]

  29. TheCreativeCrip

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  30. Rick Thomas

    How austerity is destroying Greek society – read @abiyooooo’s special report from Athens on @LibCon: http://t.co/XqJuqEUk #BestOfTheWeb

  31. Mike Barton

    How austerity is destroying Greek society: a report from Athens | Liberal Conspiracy http://t.co/Rion3aW6

  32. Link Loving 04.03.12 « Casper ter Kuile

    [...] How austerity is destroying Greek society: a report from Athens. Abi Ramanan. [...]

  33. abi ramanan

    @daniellesspears yes i did! http://t.co/1ohHFt6h I've got a question for ya, will email u soon. hope you're well! X

Greece « holleringabout

[...] How austerity is destroying Greek society: a report from Athens [...]

 

 

 

 http://liberalconspiracy.org/2012/05/30/why-greece-will-do-just-about-anything-to-stay-in-the-euro/

Why Greece will do just about anything to stay in the Euro


by Paul Cotterill    
8:54 am - May 30th 2012

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352172741305&count=horizontal&id=twitter-widget-0&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&related=sunny_hundal&size=m&text=Why%20Greece%20will%20do%20just%20about%20anything%20to%20stay%20in%20the%20Euro%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

<iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 150px; HEIGHT: 21px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" src="http://www.facebook.com/plugins/like.php?href=http://liberalconspiracy.org/2012/05/30/why-greece-will-do-just-about-anything-to-stay-in-the-euro/&send=false&layout=button_count&width=150&show_faces=false&action=recommend&colorscheme=light&font=arial&height=21&appId=135787006459018" frameborder="0" allowtransparency="allowTransparency" scrolling="no"></iframe>

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I0_1352172741232" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I0_1352172741232&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I0_1352172741232" marginwidth="0" scrolling="no"></iframe>

 

Share on Tumblr

Two weeks ago I was told I was a) economically illiterate; b) talking defeatist ‘cobblers’ for arguing that the Left should get behind SYRZIA and other anti-austerity parties as they refuse to do what they must do to stay in the Euro.

I argued that the pain would be just too much to bear, and that far from being a decisive act for socialism, leaving the Euro could simply tear the country apart, with untold consequences.

Now the National Bank of Greece has set out in numbers what will happen to ordinary Greeks if Greece is forced out:

Per-capita income would drop by at least 55 percent in euro terms as a new currency would depreciate by about 65 percent, according to the report, emailed from the bank today.

The recession would deepen by about 22 percent at stable prices, adding to the 14 percent recorded in the 2009 to 2011 period, National said, while unemployment would jump to 34 percent and inflation rise to above 30 percent, pushed up by the higher cost of imported goods.

Greeks know this. This is why SYRZIA may not win the elections, despite being front runners. People may feel it’s simply too dangerous.

I repeat.

Better for SYRZIA to talk up the ‘nuclear option, in the knowledge that Merkel and co will most likely blink first, but to have some form of compromise lined up if need be.

Greece will and must do what it can stay in the euro, though capital flight and bank withdrawals might just mean it’s already too late.

And we should support them in that.

<iframe id="fb_xdm_frame_http" src="http://static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f64f9767873836&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F%3Ffb_xd_fragment%23xd_sig%3Df3f92d93754cab6%26" name="fb_xdm_frame_http"></iframe><iframe id="fb_xdm_frame_https" src="https://s-static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f64f9767873836&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F%3Ffb_xd_fragment%23xd_sig%3Df3f92d93754cab6%26" name="fb_xdm_frame_https"></iframe>

<fb:like class="fb_edge_widget_with_comment fb_iframe_widget" href="http://liberalconspiracy.org/2012/05/30/why-greece-will-do-just-about-anything-to-stay-in-the-euro/" font="arial" show_faces="false" width="500" send="true" fb-xfbml-state="rendered"><iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 500px; HEIGHT: 24px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" id="f32981b70ec81b6" class="fb_ltr" title="Like this content on Facebook." src="http://www.facebook.com/plugins/like.php?api_key=135787006459018&locale=en_US&sdk=joey&channel_url=http%3A%2F%2Fstatic.ak.facebook.com%2Fconnect%2Fxd_arbiter.php%3Fversion%3D14%23cb%3Df2422693382e262%26origin%3Dhttp%253A%252F%252Fliberalconspiracy.org%252Ff64f9767873836%26domain%3Dliberalconspiracy.org%26relation%3Dparent.parent&href=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&node_type=link&width=500&font=arial&layout=standard&colorscheme=light&show_faces=false&send=true&extended_social_context=false" name="f115c1da870f098" scrolling="no"></iframe></fb:like>

 

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352172741313&count=horizontal&id=twitter-widget-1&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&related=sunny_hundal&size=m&text=Why%20Greece%20will%20do%20just%20about%20anything%20to%20stay%20in%20the%20Euro%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

Share on Tumblr

 

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I1_1352172741234" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F05%2F30%2Fwhy-greece-will-do-just-about-anything-to-stay-in-the-euro%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I1_1352172741234&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I1_1352172741234" marginwidth="0" scrolling="no"></iframe>


About the author
Paul Cotterill is a regular contributor, and blogs more regularly at
Though Cowards Flinch, an established leftwing blog and emergent think-tank. He currently has fingers in more pies than he has fingers, including disability caselaw, childcare social enterprise, and cricket.
· Other posts by

<iframe style="MARGIN-TOP: 5px" class="bylineSocialButtonTwitter" height="20" src="http://platform.twitter.com/widgets/follow_button.html?show_screen_name=false&show_count=true&screen_name=BickerRecord" frameborder="0" width="250" allowtransparency="allowTransparency" scrolling="no"></iframe>

Story Filed Under:
Blog ,Europe ,Foreign affairs


 

<iframe height="250" marginheight="0" src="http://optimized-by.rubiconproject.com/a/7845/13377/25975-15.html?cb=1024669101&keyword=liberalconspiracy.org/oas.html/L21" frameborder="0" width="300" marginwidth="0" scrolling="no"></iframe>


 

Sorry, the comment form is closed at this time.


 

Reader comments


I seem to recall similar prophesies of doom when the UK crashed out of the ERM.

In fact the opposite occurred.

Odlly, Sunny has introduced a ‘refuse to’ into the first para, which doesn’t appear in the original: http://thoughcowardsflinch.com/2012/05/29/why-greece-will-do-just-about-anything-to-stay-in-the-euro-part-2/

I think I know what he thinks I mean.

Heh ho.

A new Greek currency wouldn’t be worth the paper it was printed on. Exit is only an option in the minds of loons on the daft wings of British politics and the newspaper proprietors who encourage them.

4. Luis Enrique

Paul a couple of relevant articles for you here (one cited within)

http://www.voxeu.org/index.php?q=node/8043

Greece needs to get out of the Euro and to tear up the bailout deals that were just designed to make sure the reckless European gambling sector got paid out on what should have been losing bets. The European commission, the ECB, the IMF and Merkel don’t give a stuff about what is good for Greece and the Greek people, they have just been using the Greek crisis as an excuse to inflict even more of their defunct ideological neoliberal pseudo-economics under the guise of “austerity”.

http://anotherangryvoice.blogspot.com/2012/04/eurozone-austerity-neoliberalism.html

6. Trooper Thompson

@3

those loons, eh? At least they saw the problem coming.

Luis @4: Thanks for that. Your links always welcome. Will get to them a bit later.

In return http://ipeatunc.blogspot.co.uk/2012/05/brinksmanship-and-grexit.html?m=1 is interesting, as is the link, though I don’t agree (for reasons set out in comments at my place)

@3

those loons, eh? At least they saw the problem coming.”

Ignore him he is a toxic idiot and the exact breed of fanatic behind this mess, no substance, no know how, no legitimacy, just a big toxic vile mouth.

9. Luis Enrique

Paul,

likewise, thanks. Martin Wolf also raises the “maybe Germany wants the Greeks out” idea here but doesn’t sound like he means it.

I like his policy prescriptions “more financing, ideally via some sort of eurozone bond; collective backing of banks; less fiscal contraction; more expansionary monetary policies; and stronger German demand” in fact I fear my own opinions have just become mere replicants of Martin Wolf’s.

Luis @*: Had a look at those linked articles now.

I have a love/hate relationship with articles that say much better what I wanted to say. The Xafa article from March summarises, much better than I did in my previous post, my key concerns that a return to the drachma will not just be massively unequal in its effects in the short term, but also create a sociallly pernicious dual economy for the long term:

“If Greece drops out of the Eurozone, the inevitable adjustment to a lower standard of living will be unfairly distributed because it will happen through inflation. Low-income people are the most exposed to inflation because they do not own foreign bank accounts or other inflation-protected assets. The redenomination of all contracts from euros to drachmas is tantamount to expropriation of savings, while large debtors will benefit –including Greece’s two main political parties, which have borrowed three times their annual budget subsidies from a state-controlled bank. It is also doubtful that Greece would attract much investment from abroad. Who would guarantee the stability of the drachma after its devaluation? Surely not the same political system that brought Greece to the brink of disaster. No Greek exporter, hotel, or restaurant will convert euro income into drachmas, knowing that the drachma tomorrow will be worth less than today. The drachma would be the main currency for government employees and pensioners only. The result would be economic chaos and uncontrollable social explosion.”

4 – That article is a little bit wishful in its thinking isn’t it?

Aggressive debt restructuring would cause market discipline, notable by its absence before the crisis, to return with vengeance. Greek governments and those elsewhere would have to run a tight ship or face onerous levels of interest costs on future deficits.

Really? Let them off this time, and Greece will become a model of balanced budgets and fiscal orthodoxy? The current disastrous collapse hasn’t caused them to look at their employment laws, nor the way in which tax collection is enforced (cf a very recent case where a famous Greek singer was found guilty of evading some half million euros, and is paying it back at something like 5 euros per week).

Isn’t it more likely that debt forgiveness will just make everyone breathe a sigh of relief and carry on as if nothing has changed? Also, he talks about the possibility fo expensive interest costs on future deficits – did he see what happened to Argentina post-default? It wasn’t a question of international borrowing being expensive so much as its being impossible for many years afterwards.

Leaving the Euro and defaulting would be immensely painful. Staying in the Euro and not defaulting might be even more painful. Staying in the Euro and defaulting might work (up to a point, and for a certain given value of “worked”). but it’s asking an awful lot of (especially) German taxpayers.

12. Luis Enrique

Tim J,

maybe what the author has in mind is that the people who aren’t being “let off” are those than lent rashly to Greece, so in the future Greece will have to get its house in order if it wants to borrow from lenders who have been burnt once already.

Paul, I have been searching for a paper I read arguing that Greece exiting the Euro would be much more manageable than everybody makes out; I failed to find it. This business of trying to predict what will happen to Greece under various scenarios is too difficult for me.

maybe what the author has in mind is that the people who aren’t being “let off” are those than lent rashly to Greece, so in the future Greece will have to get its house in order if it wants to borrow from lenders who have been burnt once already

I suspect that ship has sailed rather, judging by sovereign yields in the PIIGS. But anyway I think that saying “Greece will have to get its house in order if it wants to borrow from the international markets” is a bit like saying “Tim J will have to work on his batting if he wants to get picked for England next week”. It’s true, but there’s a bit being left unsaid.

Chris: “A new Greek currency wouldn’t be worth the paper it was printed on. Exit is only an option in the minds of loons”

Yes, indeed it wouldn’t be worth the paper it’s printed on, and it would be a disaster, but I just cannot see how it can be avoided. The austerity measures which the EU insist are the cure just seem to be making the situation steadily worse…

15. Richard W

Paul,

I don’t think that you are saying anything that is likely to provoke much disagreement. A Greek exit from the EZ would see a big devaluation of the new currency and would be shit for lots of people is not news. However, the exchange rate of the new currency would be what Greek output is really worth. What we have at the moment is a pretend value and as a consequence it is self-evidently wrong. No matter what financing arrangements are in place the adjustment set out by the National Bank of Greece must and will happen anyway or they will require financing on a permanent basis. The slow and long drawn out grind of internal devaluation may well be preferable, but the have your cake and eat it which appears to be the SYRZIA approach is not an option under any scenario. Telling the Greek public that it is an option is deceitful politics.

” Better for SYRZIA to talk up the ‘nuclear option, in the knowledge that Merkel and co will most likely blink first…”

Is threatening other nations who are supposed to be your partners. That is not the way that responsible politicians conduct themselves. The reaction from their European partners to SYRZIA threats is not likely to end well for Greece. The real nuclear option is Greece is de facto squeezed out of the EZ against their wishes and that option is available to their partners. Probably best for them not to make empty threats.

One way or another Greek wages and prices have to adjust to the real value of their output, or they have to achieve an unlikely huge increase in their productivity. Marginal changes in financing is not going to change that fundamental reality.

16. Frances_coppola

Paul, the scary numbers you’ve come up with are probably about right. But Greece has to suffer that kind of devaluation one way or another. If it exits the Euro it will suffer sudden catastrophic currency devaluation and maybe hyperinflation, but this could be short-lived. Alternatively it can stay in the Euro and suffer years or even decades of slow decline to the same level as they would reach much faster if they left. The only alternative is for other Eurozone countries to subsidise it forever, which they are understandably unwilling to do.

Are you aware that Greece was already uncompetitive with respect to its main trading partners BEFORE it joined the Euro? Artificial inflation of its currency has made its lack of competitiveness worse. But Greece was already in trouble before it joined. It still has an awfully long way to fall before it gets down to the sort of economic level that will enable it to compete on the world stage.

17. MarkAustin

Two points.

First, I share 1. cjcj’s scepticism about such forecasts. All seem to be based on Greece still attempting to repay it’s debts, with a now-devalued currency. This would undoubtedly make the situation worse. But if Greece defaults…?

Secondly, what if Greece defaults, but stays in the Euro. Everyone seems to assume that Greece would have to leave in order to do so, but the situation was never envisaged, so there’s nothing in the traety about it. Indeed, there’s no exit mechanism either. Clearly a country could leave by repealing the local Act that incioporated the treaty into Greek law, but if it defaults, disowns the austerity measures and and just sits tight? There’s no expulsion mechanism. This would require a treaty change, which Greece could veto. Whether the Euro could survive this is a matter of some conjecture: the Germans (at least) would go wild. They might leave, and take the other Northern countries (e.g. Benelux) with them

We must support the left, whatever they choose to do. Not that our “support” will affect anything.

19. So Much For Subtlety

16. MarkAustin

All seem to be based on Greece still attempting to repay it’s debts, with a now-devalued currency. This would undoubtedly make the situation worse. But if Greece defaults…?

If Greece defaults, it will still have to devalue its currency to a rational level. It does not matter what Greece does, if the Germans are not willing to pay their credit cards bills, they will earn what they are worth. They produce about as much as Bulgarians, so they will earn about as much as Bulgarians. Say 50% less than they do now. They can get to this end result by introducing a new currency which will soon be worth 50% less. Or they can suffer through a decade or so if depression. Which do you think is less painful?

Secondly, what if Greece defaults, but stays in the Euro. Everyone seems to assume that Greece would have to leave in order to do so, but the situation was never envisaged, so there’s nothing in the traety about it. Indeed, there’s no exit mechanism either. Clearly a country could leave by repealing the local Act that incioporated the treaty into Greek law, but if it defaults, disowns the austerity measures and and just sits tight? There’s no expulsion mechanism. This would require a treaty change, which Greece could veto. Whether the Euro could survive this is a matter of some conjecture: the Germans (at least) would go wild. They might leave, and take the other Northern countries (e.g. Benelux) with them

If only the Germans would leave. That would be the least painful option I think. But it is unlikely to happen because Germany would suffer from a much higher currency which would hurt their exports. Suppose Greece stays within the Euro. They are still paying themselves twice as much as they earn. That will have to stop. Which means more taxes or less spending or both. It also means that the Greeks will have to suffer more recessionary measures to try to defend that currency peg. That would not be a sensible move.

SMFS: Greece’s primary deficit excluding interest payments is only around 1%. In other words, they’re only paying themselves 1% more than they earn.

The thing which ruins them is, in household finances analogy terms, the credit card bill for money they spent years ago on stuff that’s now been thrown away.

So if Greece were to default on all external debt (hence accepting that that would mean the country had no prospect of borrowing any more money for a generation or more), then the knock to standard of living would be 1%. Not 50%.

21. So Much For Subtlety

20. john b

Greece’s primary deficit excluding interest payments is only around 1%. In other words, they’re only paying themselves 1% more than they earn.

Greece’s government budget deficit is 1%. Brought down from much higher levels very quickly. Causing massive unemployment.

So if Greece were to default on all external debt (hence accepting that that would mean the country had no prospect of borrowing any more money for a generation or more), then the knock to standard of living would be 1%. Not 50%.

Umm, no. Greek unemployment is high. It is high because Greek workers are paid much more than they are worth. Greeks just aren’t that productive. Greeks have been able to have a luxurious lifestyle because the Germans have paid. Now that is going to stop. So demand is crashing. And will continue to crash as it is a vicious circle. So suppose the Greeks default. Seems there is little alternative to that now. How is that going to help someone who runs a beach cafe? His workers are still paid too much and there are no tourists. Maybe he can run on his savings for a little while, but if business does not turn up, he will have to close. Perhaps he can go and work in his cousin’s restaurant? But that has depended on government officials lunching for hours. They won’t any more. What is more his private sector clients are staying away because they are afraid of attracting the attention of the tax man. He will close too. That means their ouzo supplier will close. And so on. Until the Greek economy is about on par with Bulgaria which is about what Greeks produce.

You keep calling them SYRZIA. It’s actually SYRIZA.

Please explain why the rest of Europe should continue subsidising the Greeks.

 

 

  • Previous image
  • 3 / 19
  • Next image
An osprey plucks a fish from the waters of the Hyeongsang River in Pohang, South Korea Photograph: Kim Jae-sun/EPA

 

 

 

<fb:like class="fb_edge_widget_with_comment fb_iframe_widget" href="http://liberalconspiracy.org/2012/02/17/five-reasons-why-germany-is-also-to-blame-for-the-euro-crisis/" font="arial" show_faces="false" width="500" send="true" fb-xfbml-state="rendered"><iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 500px; HEIGHT: 24px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" id="f2bb85d41b87876" class="fb_ltr" title="Like this content on Facebook." src="http://www.facebook.com/plugins/like.php?api_key=135787006459018&locale=en_US&sdk=joey&channel_url=http%3A%2F%2Fstatic.ak.facebook.com%2Fconnect%2Fxd_arbiter.php%3Fversion%3D14%23cb%3Df3a8c0844274dc6%26origin%3Dhttp%253A%252F%252Fliberalconspiracy.org%252Ff3e542d3f49099c%26domain%3Dliberalconspiracy.org%26relation%3Dparent.parent&href=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F17%2Ffive-reasons-why-germany-is-also-to-blame-for-the-euro-crisis%2F&node_type=link&width=500&font=arial&layout=standard&colorscheme=light&show_faces=false&send=true&extended_social_context=false" name="f2e1af6b8db6322" scrolling="no"></iframe></fb:like>

 

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352172897848&count=horizontal&id=twitter-widget-1&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F17%2Ffive-reasons-why-germany-is-also-to-blame-for-the-euro-crisis%2F&related=sunny_hundal&size=m&text=Five%20reasons%20why%20Germany%20is%20also%20to%20blame%20for%20the%20Euro-crisis%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F17%2Ffive-reasons-why-germany-is-also-to-blame-for-the-euro-crisis%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

Share on Tumblr

 

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I1_1352172897785" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F02%2F17%2Ffive-reasons-why-germany-is-also-to-blame-for-the-euro-crisis%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I1_1352172897785&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I1_1352172897785" marginwidth="0" scrolling="no"></iframe>


About the author
Jon is an occasional contributor to Liberal Conspiracy. He blogs at
The Red Rock
· Other posts by
<iframe style="MARGIN-TOP: 5px" class="bylineSocialButtonTwitter" height="20" src="http://platform.twitter.com/widgets/follow_button.html?show_screen_name=false&show_count=true&screen_name=joncstone" frameborder="0" width="250" allowtransparency="allowTransparency" scrolling="no"></iframe>

Story Filed Under:
Blog ,Economy ,Europe ,Foreign affairs


 

<iframe height="250" marginheight="0" src="http://optimized-by.rubiconproject.com/a/7845/13377/25975-15.html?cb=2017932691&keyword=liberalconspiracy.org/oas.html/L21" frameborder="0" width="300" marginwidth="0" scrolling="no"></iframe>


 

Sorry, the comment form is closed at this time.


 

Reader comments


everybody interested in the situation in Greece should head over to Crooked Timber and read dsquared choose your own adventure game: what would you do for Greece?

” But for most of the 2000s, the ECB followed a very loose monetary policy of low interest rates, which benefited the north European countries like Germany and France at the expense of Greece, Spain, and Portugal. ”

I have often read and heard this asserted without any evidence offered. The data does not support the assertion that the ECB was following a loose monetary policy. Anyway, nominal interest rates are a useless metric to measure the looseness or tightness of monetary policy.

One thing that we would expect to see if the ECB had been following a loose monetary policy is the currency would have depreciated. The euro was indeed weak in the early days of the euro. However, since 2002 the euro appreciated vis-a-vis the USD, which could of course have been USD weakness. However, the euro real effective exchange rate (REER) which is the trade-weighted exchange rate also appreciated. See historical charts here.
http://www.euroeconomics.eu.com/financial_markets.htm

If the ECB had been following a loose monetary policy we would also expect to see high EZ NGDP growth. Some parts of the EZ did indeed have high NGDP growth. However, we are looking at the notional EZ economy for which the one-size-fits-all monetary policy is supposed to be set and not some pats of it. No evidence of high EZ-wide NGDP growth.

The German unemployment rate does not support the assertion that ECB policy was favouring them in the noughties. German unemployment rose for the first half of the decade and peaked at 12% in 2005. Unemployment was still over 10% in 2007, it declined when their labour market reforms kicked in. Yes, part of those reforms were screwing the workers through repressing wages. However, monetary policy did not just suddenly start working in Germany around 2007. Sure, European incompetence is currently helping Germany, but that is a different story.
http://www.tradingeconomics.com/germany/unemployment-rate

There is no doubt that monetary policy was too loose for some pats of the EZ periphery, but that is different to saying that Monetary policy was too loose for the EZ. What you are identifying is that a one-size-fits-all monetary policy does not work for a monetary union as diverse as the EZ. No monetary policy could have worked because the EZ does not work.

@2 – That’s actually the point I was trying to make, apparently I wasn’t clear; how the ‘loose’ the monetary policy was is obviously a relative calculation. I’d be happy to qualify that by saying the monetary policy might not be loose overall, the real item of interest is it was too loose for Greece. I’d also come to the same conclusion RE the Euro.

Don’t the number of times (3?) that Germany has defaulted on debt to get itself out of a hole.

>But German industrial policy has been to hold down wages and undercut labour remuneration and costs compared to other European countries to make its capital more competitive:

That’s a tough one to argue when Germany has some of the highest salaries in Europe.

Germany got on with sorting the problems out; the rest didn’t.

RE: German wages

http://www.social-europe.eu/2011/12/following-germanys-lead-to-economic-disaster/

When you look at employee renumeration rather than unit labour cost the picture is actually even more bleak – German wages declined by 4% over the last 10 years.

I didn’t provide a hyperlink as a source on ‘Greece is being pillaged’

Paul Mason’s report is worth a read. I’m looking forward to the Newsnight film this evening…

http://www.bbc.co.uk/news/business-17067104

” were all the countries to collectively agree to raise workers’ living standards at the same rate, everyone would be better off.”

In this scenario, the value of money just inflates off. But all countries of the world do not raise their costs at the same rate. If everyone in EU does this – which is what you seem to propose – then, if you raise the workers’ wages faster than their productivity raises, the end result is an uncompetitive Europe. Not a good thing.

It’s not the fault of Germany, overall, that Greece has taken more and more borrowed money to pay for its loans. It’s the fault of those who wanted Greek government spend more than it can afford. It’s the fault of those whose have benefited from the hugely regulated, sclerotic economic system that Greece has.

Of course, the whole idea that the rest of EU bails out Greece is needed to protect the interests of German and French banks. This is why we’ve been pouring money into Greece, although it has been absolutely clear for everyone to see that Greece is going to default, and it will have to leave the euro.

The potential flaws of European monetary union were analysed in articles for the US periodical Foreign Affairs in the late 1990s:

Rudi Dornbusch: Euro fantasies (Foreign Affairs 1996) – steep subscription barrier but see too the late Dornbusch’s popular, mainstream student text: Macroeconomics (McGraw Hill)

Marty Feldstein: EMU and international conflict (Foreign Affairs, 1997), reposted to NBER website:

To most Americans, European economic and monetary union seems like an obscure financial undertaking of no relevance to the United States. That perception is far from correct. If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe and confrontations with the United States.
http://www.nber.org/feldstein/fa1197.html

Jacques Delors was quoted in the Telegraph in December:

Jacques Delors interview: Euro would still be strong if it had been built to my plan
Former president of the European Commission Jacques Delors talks to Charles Moore about the fate of the euro.

Its worth pointing out that Banks are relatively small holders of Greek debt now. Except in Greece where they still hold loads of it. Pension funds have a lot, but the main holder now of Greek debt is the ECB. Which is why there is such a problem if Greece defaults.

Re:wages

Productivity is they key here. What hat chart could equally well be showng us is how German workers increased their producivity whilst other countried didn’t

That Crooked Timber CYOA game is great, by the way

“If Greece had its own currency, it would at this point likely devalue it to make its exports cheaper, shrinking its trade deficit and kick-starting GDP growth.”

Oh please. Not this again.

This article gives you, on a plate, the best argument for joining the euro as soon as possible. Economic thinking in Britain is dominated by people who think that devaluation is the answer to all our economic woes.

It’s been tried, tried and tried again. It has never worked. Every few years the government chops a bit off the value of everything we all earn or own and take it for granted that no-one will notice. (remember Harold Wilson and his ‘pound in your pocket’ – not true then. Not true now). Our relative economic decline goes on.

The only argument for saving the pound (and imposing massive costs on all of us, every time we want to trade or travel as well as making us the last place in Europe anyone from outside wants to invest) is this idea that we can keep devaluing it. It means the financial markets know that sterling is a one way bet. British governments will always devalue it.

Devaluation doesn’t work. It’s never worked.

@11: “Devaluation doesn’t work. It’s never worked.”

So then let’s get back to the old Gold Standard or to the post-1944 Bretton Woods system of fixed exchange rates with an adjustable peg.

C’mon. Why do you suppose those systems broke down? The US Dollar floats against the Euro and the UK Pound floats against both. The Euro has gone from aound 67 pence in 2007, before the run on Northern Rock, to around 83 pence, now, a depreciation of about 24 pc.
http://www.oanda.com/currency/historical-rates/

The result:

“The UK’s trade deficit is the smallest it has been since 2003 and industrial output has recovered by more than was originally forecast, according to figures from the Office for National Statistics (ONS). The signs for the economy were said to be ‘encouraging’.”

If devaluation doesn’t work then exchange appreciation won’t work either. In which case, why are the Americans complaining that China is keeping the price of the Renminbi artificially low?

Btw the figures for Unit Labour Costs presented in the thread header convey a misleading impression that diverging trends in unit labour costs between countries are the only reason for diverging trends in competitiveness and that is not so. A country’s current account may deteriorate – or improve – for other reasons, such as falling/increasing prices for its exportables. In the early 1980s, the Pound appreciated in the forex markets as it became a petro currency because of North Sea Oil exports.

@12

Yeah right. The highest unemployment since the early 90s is ‘encouraging’

Chris you did not answer the questions put to you…

Does it matter? At the end of the day, apart from the chattering classes on the Left, does it really matter? A couple of weeks ago we had a Typical five reasons the Labour/Left cannot gain something or other. All the usual whinges were there, media bias, lack of visible support and of course the dual killer ‘Nobody is listening to us, and we talk to ourselves’. So while millions of people are under the cosh, facing unemployment, the Left seem obsessed with freedom of Information and the ‘Euro’ illustrated by graphs. Very important subjects, but not on the top of the agenda for people facing the dole.

When you chip up something that gets to the heart of the matter, People listen to us. Tesco exploiting the unemployed and we see nearly 500 tweets. What that means in the wider scheme of things, I have no idea, but we never see 500 tweets on anything else.

People listen to us when we have something to say that gets right into their personal experiences. If you have recently become unemployed the thought that you could be forced to supply your labour free of charge to a multinational, you listen to people who think that might be, well, potentially, slightly wrong, if we have the facts right, but not making any promises of course. The Right exploit people’s fears, be it hate preachers, criminal gangs, unemployed scroungers and a list as long as your arm. The Left are more interested in each other’s pet theories about some esoteric policy shuffling or other.

While the Right paint a picture of broken Britain regarding a large family or a preacher that wants dead squaddies, the Left are too busy forming human centipedes in the hope someone will excrete something important.

Football teams make their own luck. Sure, an opposition goalie can fluff a back pass or defender can be caught napping at a throw in, but you need players exploiting that. Take a poor corner at Old Trafford and Wayne Rooney will be slamming the ball in the back of the net at the other end in five passes.

I am old enough to remember Edwina Currie was a spectator sport in her own right. In fact, spitting image and Week Ending, and others wouldn’t have a show without her. Every week she paused only to swap feet. This week she made something of a comeback:

http://www.dailymail.co.uk/news/article-2102478/You-try-raising-family-1-000-month-Edwina-Mother-challenges-ex-MP-clash-national-radio-family-finances.html

The Tories have been seen to be out of touch with normal people. Here we see a shrill hectoring Tory lording over someone who had found herself struggling and yet the Left are nowhere. Millions of people in her situation are looking for a way out of their predicament and the Left are silent. Currie, dropped the ball onto her own penalty spot walked to the sidelines and the Left are at the halfway line, discussing the merits of FOI requests.

Remember the Diane Abbott thing around the new year? Yes of course you do, because the Right were all over it.

So who was it that got up and ran with this story? Christ, when we are outflanked on the Left by the Mail we have serious problems. The millionaires’ Party are seen shitting onto the poor and the ‘best’ we can come up with is a piece on FOI requests. Why? Who the fuck gives a shit one way or another?

I don’t know if that couple are dyed in the wool Tories, Labour, Lib Dems or floating voters who thought they would give the Tories a chance, but don’t be surprised to find that working part time causes them more problems than whether or not German policy has sparked a Euro crisis. So, they may or may not be looking for a party or an ideology who offers an alternative, but they needn’t look at the Left, not unless they bring a surgical needle and thread and join the back of the centipede. We are more interested in looking a Mitt Romey’s opinion on Lunar Stations, than a semi unemployed family and their dog’s dinner.

Does anyone know what Edwina Currie’s views on FOI requests are? If she makes a gaffe, perhaps we can use it to embarrass Cameron.

@13: “Yeah right. The highest unemployment since the early 90s is ‘encouraging’”

C’mon. It doesn’t follow that the current and deteriorating unemployment rate is because of the depreciation of the Pound by c. 24 pc between 2007 and 2012.

What do you suppose Britain’s unemployment rate would be if the depreciation of the Pound had not boosted net exports?

Of course, currency depreciation doesn’t ensure net exports will necessarily improve. The necessary elasticity conditions and the absorption conditions favourable to devaluation have to be met and workers have to accept the increase in import prices without starting a wage-price inflationary spiral.

International economics can be tricky for the unwary. Try Krugman + Obsfeld: International Economics

Note this inescapable policy “trilemma”:

“policy makers in open economies face a macroeconomic trilemma. Typically they are confronted with three typically desirable, yet contradictory objectives:

(1) to stabilize the exchange rate;
(2) to enjoy free international capital mobility;
(3) to engage in monetary policy orientated towards domestic goals [such as flexing interest rates to curb national inflation].

Because only two out of the three objectives can be mutually consistent, policymakers must decide which one to give up. This is the trilemma.”
http://elsa.berkeley.edu/~obstfeld/ost12.pdf

Jim: “Does it matter? At the end of the day, apart from the chattering classes on the Left, does it really matter?”

Yes, it does, very much so.

The endlessly repeated orthodoxy in the EZ is that current EZ problems are all due to fiscal indiscipline when they are not. Without the correct diagnosis of the issues, we won’t get the appropriate remedial policies.

EMU did not meet the essential conditions for a stable optimum currency union. For starters, only Luxembourg met the eligibility criteria set out in the Maastricht Treaty. A monetary union means that all participating countries have to live with the same interest rates set by the central bank of the union regardless of whether those rates suit national conditions to curb inflation – and asset-price bubbles. In short, the economies have to be sufficiently similar to be able to tolerate the same interest rates without instability. In fact, inflation rates within EZ economies diverged.

What happens if the competitiveness of national economies diverge for any of several reasons – diverging unit labour costs, rising/falling world prices for the exportable or importables of some countries in the monetary union or changing consumer preferences for traded products? Monetary unions without fiscal unions are potentially unstable – in Britain, only London and the South East regions are net contributors to the national exchequer; there is no corresponding system in the EU for countries with chronic trade surpluses to transfer funds to chronic trade deficit countries when trade deficits have a depressing effect on national economies so national governments use fiscal means to compensate for that.

Cameron’s recent speech at the Davos conference provides a better skate over relevant issues that the mindless repetition of the EZ dogma that all EZ problems are due to fiscal indiscipline:
http://www.politics.co.uk/comment-analysis/2012/01/26/david-cameron-s-davos-speech-in-full

Btw in case no one has noticed, I’m not a regular fan of Cameron.

18. Luis Enrique

“Devaluation doesn’t work. It’s never worked.”

for what?

if you are talking about a country with a balance of payments crisis, external debt crisis and such like, what the hell else is there except devaluation? How on earth would Argentina, Iceland you name it have recovered without devaluation?

although there is one often overlooked difference between Greece and these other countries – Greece really lacks export industries (except tourism) and isn’t remotely self sufficient in food, making devaluation less effective. This is something those who advocate default and Euro exit need to give some more thought to.

@17 Bob B – Well said. Something that was edited out of the original article http://theredrock.wordpress.com/2012/02/17/five-reasons-germany-isnt-innocent-in-the-euro-crisis/ by Sunny (for good reasons, it was a bit long for LibCon) actually drives this home – Spain, famously one of the PIIGS, actually kept the deficit targets on the European Stability and Growth Pact until 2008 – compared to Germany’s 2003.

It then kept the debt target until 2010, which is fairly incredible. Now that’s fiscal discipline…

11. Chris

” This article gives you, on a plate, the best argument for joining the euro as soon as possible. ”

Oh dear, the last diehard in Britain who thinks that the euro was a good idea. Devaluation often is the correct thing to do and nearly always works because the former external value was the incorrect price. Why on earth could it be the right thing to do to trade with a currency at the wrong price and obviously wrong from your point of view to have the currency at the correct price.

If Germany left the euro their currency would appreciate by around 20% i.e. the current euro is 20% undervalued for the German economy. Not difficult to sell a lot of exports 20% undervalued. Greece if they left would experience their currency depreciating by around 50% i.e. financial markets would be saying this is what your currency is really worth and not the old price that Chris was saying was the correct price.

Of course, in the long-term the external value of the currency makes absolutely no difference either way to real variables. Money, after all, is long-run neutral and a 50% depreciation will not change Greek real variables in the long-run. However, in the short-run money is not neutral and will boost the economy because the former price was the wrong price. To believe otherwise is like saying if Tesco reduced their bananas from £1 to 50p, they would not sell anymore bananas.

” The only argument for saving the pound (and imposing massive costs on all of us, every time we want to trade or travel as well as making us the last place in Europe anyone from outside wants to invest…”

No 1 for foreign investment I believe. Perhaps you would like to explain why you feel travelers etc have the right to travel with an overvalued currency, while the overvaluation imposes costs on everyone else? When the UK exited the ERM and suffered a devaluation. The only thing that happened was the exchange was moving from the wrong price set by politicians and their lackeys to the correct price set by the market. Mr Market knew the price set by politicians and their lackeys was the wrong price because he is cleverer and has more information than them. A one way bet because reality always beats wishful thinking.

” Devaluation doesn’t work. It’s never worked. ”

Devaluation always works if the price was wrong. The key thing is not to have an undervalued currency or an overvalued currency, but a correctly valued currency. Fixing the price will always eventually be the wrong price. Therefore, the correct exchange rate policy is benign neglect. Float the currency and forget about it and let financial markets determine the price based on supply and demand to hold that currency. The euro freely floats. However, even though the value of the euro exchange rate may be determined by the market for the EZ economy, if there is such a thing. As we can see from the resulting train wreck, it is the wrong price for the constituent parts of the EZ. Too low for Germany, and too high for Greece. A mess brought to you by people who think they know best, they don’t and it was arrogant folly for them to believe that they did.

I was often engaged in international online forums c. 2000 saying then that joining the Euro wasn’t a good idea.

The important insight in retrospect is that any who took that line at the time were instantly dubbed “loony” or “insane” – I was, as were others. Rational debate became impossible. It was an illuminating case of unbridled enthusiasm for European monetary union trumping all rational analysis of the issues. In a piece in the FT last year, John Major reminded us that in the EZ negotiations about Greece joining, the decisive argument from the French government at that time was: You can’t say No to the country of Plato.

When that is the quality of political debate among political leaders, there is little hope of getting rational, robust economic policy. They simply don’t know what they are doing.

Recap that c. 2000, John Monks, as general secretary of the TUC, was going round saying how home owners buying their houses on mortgages would benefit from the lower interest rates prevailing in the Eurozone. Consider what would have happened to Britain’s house-price bubble if we had had the benefit of those lower interest rates in the EZ. In the news today:

Average house prices have risen in just two local authority areas since the UK’s property boom peaked in 2007, research suggests. According to the Halifax bank, the only two areas to increase were Rochford in Essex and South Lakeland in Cumbria. Sixteen of the top 20 best performing areas were in southern England.
http://www.bbc.co.uk/news/business-17083529

Let’s be completely bipartisan about this. When Heseltine, a Euro enthusiast, was DTI minister, his personal economic adviser, Walter Eltis, was saying that it wasn’t a good idea for Britain to join – see his book: Britain, Europe and EMU (Palgrave 2000). This is another clear example of how politicians are taken by enthusiasms without understanding the economic implications of what they propose.

22. Luis Enrique

I am forever posting links to him, but Martin Wolf’s latest Economists Exchange entry, concerning balance of payments crises within currency unions, is worth a read

http://blogs.ft.com/martin-wolf-exchange/2012/02/16/can-one-have-balance-of-payments-crises-in-a-currency-union/#axzz1mk7xuEK1

@22 Luis – Thanks for that link, which I had missed.

The great tragedy is that the potential balance of payments problems within EMU were foreseen in those references to articles in the Foreign Affairs periodical cited @8, which were just swept away by the Europhiles in their enthusiasm for getting ever closer to European integration. We are where we are because of that.

See also that book in two parts: Both Sides of the Coin, by James Forder and Christopher Huhne. The Europhiles were just blind to the potential downsides of EMU and we are having to pay the price for that. Just before the 2005 election, Charles Kennedy, then LidDem leader, was interviewed on the BBC Today programme by Humphreys who threw in a question about Britain joining the Euro. Kennedy’s instant response was: it was a missed opportunity. He really didn’t have a clue.

@18 Luis

Spot on.

@20

OK keep kidding yourself. British governments have been trying it for decades. It’s never worked. How long will it take for the message to get through?

Got to love the fanatics..

@25: “OK keep kidding yourself. British governments have been trying it for decades. It’s never worked. How long will it take for the message to get through?”

Yeah. The consequence of taking the Pound out of the Gold Standard in September 1931 was that the Pound depreciated by 25 pc. Without the need to prop up the exchange rate to maintain the Gold parity of the Pound, the BoE cut the bank rate to 2 pc by April 1932 and it stayed there until war loomed in the late summer of 1939. With low interest rates, there was a speculative boom in house building in the south of England and parts of the midlands – as well as booms in building cinemas and new factories. The British economy grew through to 1937. The benefits of that growth were not evenly distributed but the British economy performed relatively better during the 1930s than did the economies of other industrialised economies in Europe.

When the Pound was forced out of the European Exchange Rate Mechanism (ERM) in September 1992, it depreciated by 25 pc. By the final quarter of 1995, Britain’s standardised ILO unemployment rate was lower than that of France, Germany or Italy, and Britain’s employment rate of working age-people was higher.

Lower GDP and higher unemployment are the real costs of an over-valued exchange rate.

@ 27,

the main ‘benefit’ of getting off the Gold Standard, was that the BofE got to keep all the gold it would otherwise have had to pay out, so that boom was at the expense of countries like the Netherlands and France, and many others besides, who had been foolish enough to have faith in the BofE honouring its commitments.

The reason the pound came under pressure prior to that decision was due to the loose, inflationary policy the BofE had pursued in the previous years, and when the chickens started coming home to roost, it repudiated its debts. The consequences went much further than a domestic building boom.

29. So Much For Subtlety

20. Richard W

Devaluation always works if the price was wrong. The key thing is not to have an undervalued currency or an overvalued currency, but a correctly valued currency.

I agree it is sensible to have a correctly valued currency but I am not sure what you mean by devaluation always works. In the short term, sure. But in the medium and long terms? The problem with devaluation is that having done it once, it becomes increasingly easy to do it again. No country that has a long history of devaluations has a strong economy. It may have worked for Argentina but then do we really want to copy Argentina? Look not at the immediate aftermath of devaluation but the entire 20th century – with many devaluations. Britain did not devalue after the Napoleonic Wars when perhaps it should. It went on to 100 years of strong growth. British did devalue after WW1. It went on to have a miserable 20th century. Devaluation destroys investor confidence. It cheats people who save. It is a cheap and easy way out of problems and hence a way of avoiding the tough choices. I am unconvinced that it works.

Fixing the price will always eventually be the wrong price. Therefore, the correct exchange rate policy is benign neglect. Float the currency and forget about it and let financial markets determine the price based on supply and demand to hold that currency.

I tend to think benign neglect is the correct solution to everything, but I am not convinced that floating is the best solution for currencies. It is *a* solution and vastly better than managing your currency. But the alternative is not to change the currency but to change the underlying economy. To make the tough fiscal and economic decisions that will defend an exchange rate. It is inevitable that people have to make those decisions in the end – so why not make them soon? Germany did. They have a devalued currency, but they also undertook the tough economic reforms the Greeks and Italians will now be forced to do. It is better to reform your economy than to devalue your currency. The latter is bad in so far as it is an alternative for the former.

SMFS: “British did devalue after WW1. It went on to have a miserable 20th century. ”

That’s pathetic – a complete travesty of history. on Britain’s economy in the 1930s after abandoning the Gold Standard in September 1931, try Feinstein et al: The European Economy Between the Wars (OUP) or Harry Richardson: Economic Recovery in Britain 1932-39 (Weidenfeld & Nicolson).

Britain’s economy grew strongly in the 1930s after the trough of the slump and performed better than the other large European economies which maintained the Gold parity of national currencies. Any familiar with the south of England can easily find rows and rows of speculatively built semi-detached houses built during the 1930s after the bank rate was cut to 2pc in April 1932. That is hardly the sign of an acutely depressed economy.

A couple of years back I went to listen to a talk with slides about cinemas in south London – collecting pics of cinemas and their histories was the speaker’s hobby. It turns out that extraordinarily large number of the Odeon and Gaumont cinemas – many are now bingo halls – were built and opened around 1936 as “palaces” of popular entertainment.

Try this on London in the 1930s:
http://www.20thcenturylondon.org.uk/server.php?show=nav.41

Leicester in the midlands was ranked as the second wealthiest city in Europe in a League of Nations report. The problem was this relative boom left out south wales, the north of England and Scotland. For Britain, the 1920s were more miserable than the 1930s because of restoring the Gold Standard at the pre-WW1 parity.

29. So Much For Subtlety

” I agree it is sensible to have a correctly valued currency but I am not sure what you mean by devaluation always works. In the short term, sure. But in the medium and long terms? The problem with devaluation is that having done it once, it becomes increasingly easy to do it again.”

What I do not mean is that devaluation is good per se. If you fix your currency and get to a stage that self-evidently the peg is the wrong price, in those circumstances it is often good because one is moving from the wrong price to something closer to a more realistic price. The key thing is not to get to a stage where the external value of the currency is the wrong price. Of course, the external value of the currency is not the fundamental problem, it is merely a symptom. The real cause are inflexibilities in the rest of the economy that are exacerbated with the fixed price of the currency.

” No country that has a long history of devaluations has a strong economy. ”

Tend to agree with you there. However, you have to consider the nuance of what is going on. They are having to deal with the consequences of other inflexibilities and problems in the rest of the economy that prevent them from being a strong economy. Devaluation alone will not make those problems go away and turn a weak economy into a strong one. The problems will keep coming back at the new price until they address the fundamental issues. However, the external fixed or pegged price of a currency is not something handed down by the gods. It was fixed or pegged by politicians and bureaucrats. Perhaps you think they are infallible, I suspect you do not and neither do I. Presumably you believe that all other prices in the economy should be flexible. Labour, for example. There is nothing magical about a currency that should prevent it also being flexible to changed circumstances.

I can appreciate the necessity of nations in the developing world having fixed currencies. Moreover, it was probably a good idea for us in the 19th century when we were at their stage of current development. However, there is no need for developed world nations not to freely float. That way adjustments in the external value of the currency are happening instantaneous and automatically as new information emerges. The EZ members were deluded into believing that they were fixing against each other. The reality is that they are pegged against Germany. Fine for the likes of The Netherlands, Austria, Finland etc, not so fine for Greece et al.

” Britain did not devalue after the Napoleonic Wars when perhaps it should. It went on to 100 years of strong growth. British did devalue after WW1. It went on to have a miserable 20th century. ”

We did. See any information about ‘ the crisis of silver currency and bank notes (1750–1870). ‘
http://en.wikipedia.org/wiki/Great_Recoinage_of_1816

I would not be so confident in Britain’s record in the distant past. What British officials did do was to change (reduce) the coupons on outstanding debt issues. In 1752, the Chancellor of the Exchequer Sir Henry Pelham converted all outstanding issues of government debt to one, Consolidated 3.5% bond. Thus reducing how much the Treasury was paying out to investors. In 1757, the coupon rate was again reduced on the stock to 3%. Chancellor of the Exchequer, George Joachim Goschen, reduced it again to 2¾% in 1888. See the Goschen’s Conversion. During our naval arms race with Germany, the coupon rate of the stock was again reduced to 2½% in 1903. Nothing in fixed exchange rates prevent the government from just unilaterally changing the rules if they are so minded.

” Devaluation destroys investor confidence. ”

It does the opposite. The loss of investor confidence is the catalyst that makes devaluation necessary. Investor confidence returns with a new realistic exchange rate. With sovereign debt after a default, on average nations who have defaulted return to private capital markets after five years. I would not invest a penny in the current Greece even though they are using the strong euro because it is the wrong price for them. If they left the EZ, and their new currency experienced a 50% depreciation, they are immediately a different prospect. I would then consider putting money to work in Greece. So, strong currency, no confidence because it is the wrong price. Weak currency at a realistic price and that increases my confidence.

” It cheats people who save. It is a cheap and easy way out of problems and hence a way of avoiding the tough choices. I am unconvinced that it works. ”

It makes absolutely no long-run difference because money is long-run neutral. The nominal external strength of a currency is just a form of money illusion. A strong external value of a currency will raise the domestic price level of non-tradable goods and services. As anyone who has ever bought a coffee or a haircut in Geneva will testify. See the:

Penn effect

Balassa–Samuelson effect hypothesis

http://en.wikipedia.org/wiki/Penn_effect

http://en.wikipedia.org/wiki/Balassa%E2%80%93Samuelson_effect

Income and wealth ultimately come from productivity and not the exchange rate.

Of course, changing the nominal exchange rate will just lead back to the same problems if one does not make the tough choices of dealing with the root cause of the problems.

” It is *a* solution and vastly better than managing your currency. ”

Well fixing or pegging your currency is de facto managing it.

” But the alternative is not to change the currency but to change the underlying economy. ”

I agree.

” To make the tough fiscal and economic decisions that will defend an exchange rate. It is inevitable that people have to make those decisions in the end – so why not make them soon? Germany did. They have a devalued currency, but they also undertook the tough economic reforms the Greeks and Italians will now be forced to do. It is better to reform your economy than to devalue your currency. ”

As I have said, I agree that devaluation is not a solution in itself if you do not deal with the problems that made the devaluation necessary. However, more fundamentally one should not fix the currency at all, let it float and the market will determine its true value. Or if one is going to fix in a monetary union, do not do effectively fix with an economically strong nation when you you are not an optimum currency area. Italy maybe can reform and make the necessary adjustments. The likes of Greece can’t because the adjustment is too great and would effectively lead to social disintegration before they get there. I hope I am wrong, albeit I suspect not.

Market fundamentalists might like to note that Milton Friedman advocated flexible exchange rates:
http://www.interfluidity.com/files/friedman-flexible-exchange.html

There are two academic papers in PDF format, accessible on the internet, advocating flexible exchange rates by Harry Johnson and Charles Kindleberger and a more recent paper from 2001 by Kenneth Rogoff, a previous chief economist at the IMF: on Why Not A Global Currency. Rogoff’s paper is highly critical of Friedman’s 1953 paper.

Rogoff: “I will argue here that the status quo arrangement among the dollar, yen and the euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination – or even a common world currency — could be overcome.”

Surely, the notion of a World Currency must represent something approaching Nirvana for those opposing flexible exchange rates.

33. So Much For Subtlety

31. Richard W

What I do not mean is that devaluation is good per se. If you fix your currency and get to a stage that self-evidently the peg is the wrong price, in those circumstances it is often good because one is moving from the wrong price to something closer to a more realistic price. The key thing is not to get to a stage where the external value of the currency is the wrong price.

I agree with both of those. However I would also claim that the mere act of being willing to go back on your previous commitments and promises by revaluing the currency is a deterrent to economic growth in the medium and long terms. In the short term, moving closer to a realistic exchange rate is a good thing. But it does induce concern among ordinary people about the future. That implies risk which in turn implies a relative lack of confidence.

Of course, the external value of the currency is not the fundamental problem, it is merely a symptom. The real cause are inflexibilities in the rest of the economy that are exacerbated with the fixed price of the currency.

That I agree with. The solution must always be to have a more flexible economy. Floating the currency simply allows governments to put off the hard decisions and to govern on the cheap. That in turn encourages delusional thinking among the voters. Which is a vicious circle come election time. What they need is to take the plunge and stick to the peg. I have posted a comparison between Barbados and Jamaica which seems to show this – similar economies and legal systems, Jamaica devalued, Barbadoes kept its peg to the US dollar and won agreement from the Unions to restructure the economy. Barbados is now significantly richer.

Tend to agree with you there. However, you have to consider the nuance of what is going on. They are having to deal with the consequences of other inflexibilities and problems in the rest of the economy that prevent them from being a strong economy. Devaluation alone will not make those problems go away and turn a weak economy into a strong one. The problems will keep coming back at the new price until they address the fundamental issues.

So we are in agreement there. It is just that I tend to see devaluation as a way of governments avoiding addressing the fundamental issues. A peg of some sort forces them to do so. They have no choice. That is a good thing I think. If they don’t have that external discipline they will just kick the can down the road (and can anyone explain why these phrase has become so popular on the internet recently?) until after the next election.

However, the external fixed or pegged price of a currency is not something handed down by the gods. It was fixed or pegged by politicians and bureaucrats. Perhaps you think they are infallible, I suspect you do not and neither do I. Presumably you believe that all other prices in the economy should be flexible. Labour, for example. There is nothing magical about a currency that should prevent it also being flexible to changed circumstances.

I agree a fixed price is not handed down by the Gods – although you may quibble about the price of gold. I also agree at some point someone pegged it. I definitely do not think anyone is infallible. I also agree there is nothing about a currency that should prevent it being flexible except that it is better if it is not. After all currencies are a little different from other policies. They do allow every country to engage in predatory devaluations which are a bad thing – I hope we agree on that. Which is a shame as that seems to be what America is trying to do right now. They mean countries do not really compete with each other in the long run. They have wider effects. And a devaluation allows governments to cheat too easily. They can impoverish people without them noticing. If Greece had devalued, Greeks would be poorer, but it would not be so easy to see. These are all good reasons to insist on honesty with a peg.

However, there is no need for developed world nations not to freely float. That way adjustments in the external value of the currency are happening instantaneous and automatically as new information emerges.

Well adjustments would be made instantaneously and automatically with the right sort of peg too. I think there are still good reasons not to float. one is that the evidence seems to be that people who do not float tend to do better in the long run. Or at least people with the self discipline to manage a fixed currency do better than those without. I am not convinced the peg will teach people to be more self disciplined but it cannot hurt. Secondly, if people are given a free choice of currency, I do not believe they would choose a fiat currency that floats. They would vote for low inflation and a fixed exchange rate. Fixed against some external value beyond the reach of governments. If that is what people want, there is probably good reason for it.

It does the opposite. The loss of investor confidence is the catalyst that makes devaluation necessary. Investor confidence returns with a new realistic exchange rate.

In the short term. Argentina and Greece have long histories of debasing their currencies. Germany and Switzerland do not. Where is the money flowing? Not from Switzerland to Greece. Greece really does not have any economy apart from tourism and a little agriculture. Germany on the other hand does.

If they left the EZ, and their new currency experienced a 50% depreciation, they are immediately a different prospect. I would then consider putting money to work in Greece.

Yes but presumably you would factor in the likelihood of yet another devaluation in the future and so price it accordingly? Whereas I certainly wouldn’t in a place like Switzerland.

It makes absolutely no long-run difference because money is long-run neutral. The nominal external strength of a currency is just a form of money illusion. A strong external value of a currency will raise the domestic price level of non-tradable goods and services. As anyone who has ever bought a coffee or a haircut in Geneva will testify.

I am not arguing for the currency to be strong per se, but for it to be free of political manipulation in so far as that is possible. Although I am not very confident about doing that either. I do not think it matters if the currency is strong, I think it matters if there is certainty. I think it matters if people know the government will make the tough choices if they are the right choices rather than flip to a burlesque show just because that is cheap politics. I don’t think the Penn effect is relevant here.

Income and wealth ultimately come from productivity and not the exchange rate.

I agree totally. But productivity depends on investment in people and in plant. That implies a long term view of the economy. The more that you think the currency is run like a casino, the less you will be willing to make those sort of long term investments. The more that investment will be short-term plundering, at best, and the more expensive it will be. I like certainty, stability, long periods of growth with low interest rates. Inflation and devaluation both are symptoms of countries that have none of those things.

Well fixing or pegging your currency is de facto managing it.

Or letting someone else do it for you. Sort of. It is one step removed from political interference and it sends a strong message to the market. That matters.

As I have said, I agree that devaluation is not a solution in itself if you do not deal with the problems that made the devaluation necessary.

But if you devalue, the political heat goes away. There is now no pressing need to restructure. This is precisely what British governments did from 1945 to 1979. It was easier to let the pound slide than it was to take on the Unions. We surely will agree it is a shame that Britain did not embrace Thatcherism much sooner?

However, more fundamentally one should not fix the currency at all, let it float and the market will determine its true value. Or if one is going to fix in a monetary union, do not do effectively fix with an economically strong nation when you you are not an optimum currency area.

I certainly agree it is better not to fix it to an economically strong currency area if your economies are not aligned, but it has worked for Hong Kong. Do they really share an optimal currency area? The addition stupidity here is that the Euro is not merely a peg but a shared currency. At least Hong Kong has its own interest rates, as we all did under the ERM.

By the way, Hong Kong defended its peg at huge cost during the Asian Financial Crisis. The rest of South-east Asia did not. How did that work out in the long run? Hong Kong worse off than say Indonesia?

Italy maybe can reform and make the necessary adjustments. The likes of Greece can’t because the adjustment is too great and would effectively lead to social disintegration before they get there. I hope I am wrong, albeit I suspect not.

I agree Greece and probably Portugal have left it too late. They should have done so sooner. Maybe Italy can. We will see. But I still see the currency as less important. The main issue is economic reform at home. The Euro did not push the Greeks into that reform. The gold standard would have soon I think. As the ERM probably would have. The Euro is perhaps not the worst of all possible worlds, but it would take me a minute to think of one worse.

@33 SMFS: “Floating the currency simply allows governments to put off the hard decisions and to govern on the cheap”

Try reading the quotes from Friedman linked @32.

Britain’s economy in the 1930s would have been far more depressed if the Gold standards had not been abandoned in September 1931, as that would have meant the BoE maintaining high interest rates to support the exchange rate of the Pound. There would have been no housing boom in the south of England and the midlands.

With a Nazi government installed in Germany after January 1933, the Gold parity of the Reich Mark was maintained and the government was hugely successful in reducing unemployment but that was achieved through a public works programme for autobahns and civic buildings, extensive state controls over prices, wages, and business investment as well as licensing controls on foreign trade and foreign currency transactions.

Compared with that, the policy of the British government amounted to something approximating to laissez-faire. The assessment of Feistein et al in: The European Economy Between the Wars (OUP) is that the laissez-faire approach of the British government proved to be the more effective policy for recovery from the depression.

35. So Much For Subtlety

34. Bob B

Britain’s economy in the 1930s would have been far more depressed if the Gold standards had not been abandoned in September 1931, as that would have meant the BoE maintaining high interest rates to support the exchange rate of the Pound. There would have been no housing boom in the south of England and the midlands.

So, you think a housing boom was a good thing? You think it was sustainable? You think that driving interest rates down, and the currency, did much except create a speculative bubble? Notice that the real economy, apart from cars I suppose, was in deep trouble in the 1930s.

With a Nazi government installed in Germany after January 1933, the Gold parity of the Reich Mark was maintained and the government was hugely successful in reducing unemployment but that was achieved through a public works programme for autobahns and civic buildings, extensive state controls over prices, wages, and business investment as well as licensing controls on foreign trade and foreign currency transactions.

So … the Nazis maintained the Gold Standard and their economy did even better than Britains? I am not sure much of this is true, but in so far as it is, what are you trying to show Bob? That the Gold Standard was better?

Compared with that, the policy of the British government amounted to something approximating to laissez-faire. The assessment of Feistein et al in: The European Economy Between the Wars (OUP) is that the laissez-faire approach of the British government proved to be the more effective policy for recovery from the depression.

Like to compare unemployment rates? Define effective. one of the many many problems with floating is that those countries that went off the Gold Standard then engaged in competitive devaluations – seeking to restore prosperity through lowering their currency rather than reforming their economies. Something that Keynes specifically tried to stop at Bretton Woods. Britain’s prosperity was in a sense at the expense of those that stayed on Gold like America. Not through actual efficiency and productivity gains. This is bad. After all, if everyone went off Gold either Britain would not have benefited at all, or international trade would have dried up, as it did, as everyone pushed their currency lower.

We have a currency union, for now, with Scotland. Arguably Scotland would benefit from their own currency. I think they should have one. At least pegged to the pound. Everyone in favour of floating currencies going to agree that Hull should have its own currency?

@35 SMFS: “Sorry Bob, but the people you are attacking were pointing this out over a decade ago. It has been standard on the Right for years. It has been the Keynesians who have been denying it.”

That’s more demonstrable rubbish. I was first made aware of the pending pitfalls of EMU in 1996 on reading the late Rudi Dornbusch in the US periodical Foreign Affairs, issue for September 1996: Euro fantasies:
http://www.foreignaffairs.com/articles/52431/rudiger-dornbusch/euro-fantasies-common-currency-as-panacea

The essential elements of that same analysis, showing the destabilising effects on EMU of diverging competitiveness, are represented in his popular, mainstream undergraduate text: Dornbusch et al: Macroeconomics (McGraw Hill). That text has a characteristically keynesian flavour.

The Nazi government in Germany posy January 1933 was hugely successful in bringing down unemployment while maintaining the Gold parity of the Reich Mark: ” . . from 6 million in October 1933 to 4.1 million a year later, 2.8 million in February 1935, 2.5 million in February 1936, and 1.2 million in February 1937.” [CP Kindleberger: The World in Depression 1929-1939 (Allen Lane, 1973) p.240]

But that was through massive state intervention and regulation, including controls over prices, wages (the trade unions were destroyed), foreign exchange transactions and by import licensing. In comparison, the British government adopted a more-or-less laissez-faire approach, including allowing the Pound to float in the foreign exchange market. After the Gold standard was abandoned in September 1931, the Pound depreciated by c. 25 pc and – importantly – the BoE was placed to cut the bank rate to 2 pc by April 1932. It stayed there until the summer of 1939.

Of course, the boom in house construction in Britain during the 1930s wasn’t sustainable – it crucially depended on maintaining the low interest rates made possible by abandoning the Gold parity of the Pound. The boom in house building created jobs and meant that real GDP was higher than it would otherwise have been.

The assessment of Feinstein et al is that Britain’s economy in the 1930s with laissez-faire performed better than the German economy did with interventionist Nazi economics but there is no doubt that Nazi interventionist economic policy was very successful at reducing unemployment. Keynes returned from giving a lecture in Hamburg in January 1932 – a year before Hitler became Reich Chancellor – and wrote an article for the New Statesman: “Germany today is in the grips of the most powerful deflation any nation has experienced . . ” [DE Moggridge: Maynard Keynes (1992) p.539].

Somehow, I doubt that anyone will make much headway nowadays by saying the way to restore the competitiveness of a national economy while maintaining a fixed exchange rate and reducing unemployment is by adopting Nazi economics.

SMFS you are simply but deeply ignorant.

37. So Much For Subtlety

36. Bob B

That’s more demonstrable rubbish. I was first made aware of the pending pitfalls of EMU in 1996 on reading the late Rudi Dornbusch in the US periodical Foreign Affairs, issue for September 1996: Euro fantasies:

That is interesting but not only irrelevant but logically stupid. Just because there was one person on the Left condemning the idea, it does not mean everyone on the Left was doing so. Nor does it mean the Right was not. Your little anecdote is not evidence. It is nonsense.

Not that I accept Dornbusch as being on the Left.

The essential elements of that same analysis, showing the destabilising effects on EMU of diverging competitiveness, are represented in his popular, mainstream undergraduate text: Dornbusch et al: Macroeconomics (McGraw Hill). That text has a characteristically keynesian flavour.

Et. al. So someone else helped him. That person would be Stanley Fisher wouldn’t it Bob? You know, one of the most distinguished Keynesians still alive today. Someone who was a Salt Water economist – unlike Dornbusch who went to Chicago. It is not impossible that Dornbusch is a Keynesian, but he would have been very lonely at Chicago if he was.

After the Gold standard was abandoned in September 1931, the Pound depreciated by c. 25 pc and – importantly – the BoE was placed to cut the bank rate to 2 pc by April 1932. It stayed there until the summer of 1939.

Fuelling a housing boom, not investment in Britain’s productive economy. Heavy industry in particular stagnated. All signs of misallocation of resources and a credit bubble. Not good things.

The assessment of Feinstein et al is that Britain’s economy in the 1930s with laissez-faire performed better than the German economy did with interventionist Nazi economics but there is no doubt that Nazi interventionist economic policy was very successful at reducing unemployment.

It is hard to imagine anyone praising Hitler, or even his economic policies. Not the least if your name happens to be Feinstein. You keep saying this as if it means anything. It doesn’t.

Somehow, I doubt that anyone will make much headway nowadays by saying the way to restore the competitiveness of a national economy while maintaining a fixed exchange rate and reducing unemployment is by adopting Nazi economics.

I agree. And yet Nazi economics, like much else the Nazis did except kill Jews, has been enormously influential.

SMFS you are simply but deeply ignorant.

From you Bob, that is praise indeed.

@37 SMFS: “That is interesting but not only irrelevant but logically stupid. Just because there was one person on the Left condemning the idea, it does not mean everyone on the Left was doing so. Nor does it mean the Right was not. Your little anecdote is not evidence. It is nonsense.”

That’s just more rubbish from you. Dornbusch – a professor at the MIT who was born a German national – wasn’t the only prominent economist to foresee the potential stability problems of the EZ. Another was Marty Feldstein – see the link @8 – now a professor at Harvard, who was the first chairman of Pres Reagan’s Council of Economic Advisers.

You are demonstrably ignorant and totally clueless about this and most other subjects you post about.

“Fuelling a housing boom, not investment in Britain’s productive economy. Heavy industry in particular stagnated. All signs of misallocation of resources and a credit bubble. Not good things.”

By the assessment of Feinstein et al, Britain’s economy with a more-or-less laissez-faire policy stance performed relatively well during the 1930s, after the trough of the depression, compared with the other large European economies which maintained the Gold parity of national currencies.

The notable competitor for the accolade of better performer was Nazi Germany, which did maintain the Gold parity of the Reich Mark with extensive state regulation of prices, wages, investment, trade and foreign exchange. As the result of a substantial public works programme, German unemployment was dramatically cut – see the quote from Kindleberger @36. Is that your preference for restoring the failing competitiveness of EZ economies? Are you now advocating extensive state regulation of the troubled EZ economies, linked to public works programmes to reduce unemployment?

The problem in Britain during the 1930s was that the construction boom resulting from low interest rates was largely confined to the south of England and the midlands. It’s just nonsense to suggest that the traditional industries in south Wales, the north of England and Scotland would have fared better from higher interest rates and a stronger Pound, which would have made the staple exports of the traditional heavy industries, such as coal, less competitive in world markets. In the US, the Roosevelt administration in 1934, with authority from Congress, changed the value of the dollar from $20.67 to the troy ounce to $35 to the troy ounce, a devaluation of over 40%.

Btw if Britain is now to fix the exchange rate of the Pound as you urge, is that to be against the Euro or the US Dollar and by exactly what policy instruments is the adopted fixed exchange rate to be maintained?

Germany did not force Greece to borrow anything.
Germany did not force Greece to cook its books.
Germany did not force Greece to inflate the public sector and to overspend on the Olympics.
Germany did not force Greece to stop collecting taxes.

No, the problem is clearly with Greece: http://andreasmoser.wordpress.com/2012/01/24/evangelos_venizelos/

AM: “No, the problem is clearly with Greece”

You plainly have absolutely no insight into why the whole EMU project was fundamentally flawed from the start.

Try the citations @8 to Delors and two distinguished American academics.

41. Just Visiting

Th OP writes:

> But there’s not a chance in hell of the ECB devaluing to save Greece, because it would have negative consequences for consumers in northern Europe, making their imports and foreign holidays more expensive.

Why say ‘northern consumers’ when Euro devaluation would make imports more expensive for ALL EZ consumers.

JV

PS – He must mean ‘holidays outside Europe’ for ‘foreign holidays’ – as if Greece devalued, holidays there would be cheaper for non-Greeks not more expensive !

42. So Much For Subtlety

38. Bob B

That’s just more rubbish from you. Dornbusch – a professor at the MIT who was born a German national – wasn’t the only prominent economist to foresee the potential stability problems of the EZ. Another was Marty Feldstein – see the link @8 – now a professor at Harvard, who was the first chairman of Pres Reagan’s Council of Economic Advisers.

I do enjoy talking to you Bob. You’re really good value for money. Not being content with citing the inventor of Supply-side economics as a Leftist, you are now claiming that perhaps the only man to the right of Reagan on economic matters is a leftist too. Feldstein is perhaps the most distinguished living neo-Classical economist I can think of offhand. Well done.

You are demonstrably ignorant and totally clueless about this and most other subjects you post about.

Keep up the good work Bob. It is not my credibility you’re burying.

By the assessment of Feinstein et al, Britain’s economy with a more-or-less laissez-faire policy stance performed relatively well during the 1930s, after the trough of the depression, compared with the other large European economies which maintained the Gold parity of national currencies.

Good for them. So what?

Is that your preference for restoring the failing competitiveness of EZ economies? Are you now advocating extensive state regulation of the troubled EZ economies, linked to public works programmes to reduce unemployment?

Having built a strawman why do you feel the need to argue with it?

The problem in Britain during the 1930s was that the construction boom resulting from low interest rates was largely confined to the south of England and the midlands.

Thus proving the point really. A housing boom that was not good for the country as a whole.

<i.It’s just nonsense to suggest that the traditional industries in south Wales, the north of England and Scotland would have fared better from higher interest rates and a stronger Pound, which would have made the staple exports of the traditional heavy industries, such as coal, less competitive in world markets.

I did not say that they would have. What Britain needed to do was liquidate the older uncompetitive industries and invest in new ones. Which the governments at the time and down to 1979 failed to do. What they did instead was give those industries and artificial boost by devaluing. Which meant we were stuck with them until someone got the guts to get rid of them. We should have done that in the 1930s rather than dragging it out.

SMFS: “I do enjoy talking to you Bob. You’re really good value for money. Not being content with citing the inventor of Supply-side economics as a Leftist, you are now claiming that perhaps the only man to the right of Reagan on economic matters is a leftist too. Feldstein is perhaps the most distinguished living neo-Classical economist I can think of offhand. Well done.”

I cited @8 Feldstein, the first chairman of Reagan’s council of economic advisers, precisely to show that the pitfalls of EMU were foreseen by mainstream economists affiliated to the Republicans besides mainstream “keynesians” like Rudi Dornbusch – who btw was the supervisor for Paul Krugman’s PhD degree at the MIT.

SMFS: “What Britain needed to do was liquidate the older uncompetitive industries and invest in new ones. ”

You have an extraordinary interventist prescription for economic policy in the inter-war years. During the depressed 1930s, the prevailing stance of the government at the time was more-or-less laissez-faire. The sustained position of HM Treasury was that public spending by the government “crowded out” equivalent private spending. According to the official Treasury doctrine, nothing was therefore to be gained from government spending public money on new industries.

With the lower interest rates after abandoning the Gold standard in September 1931 and the depreciation of the Pound, there was nothing preventing financiers and business from investing in the traditional and heavy industries in South Wales, the north of England and Scotland but there were better and more assured returns to be made from investing in speculative house building, in cinemas and the newer and lighter industries in the south of England and the midlands:
http://en.wikipedia.org/wiki/Great_Depression_in_the_United_Kingdom

Try that link @30 to business and infrastructure developments in London:

“By 1938 London had 36,911 factories employing 743,173 people. The capital’s main industrial sectors were engineering (230,000 jobs), clothing and shoes (180,000 jobs), food and drink (90,000 jobs), furniture (70,000 jobs) and printing and paper (67,000 jobs).

“Light industry continued to move west: Hoover, EMI and Coty all built smart new factories along the western arterial roads. on the east side of London the American car manufacturer Ford opened a mammoth factory at Dagenham in 1931. This factory was designed to make cars for the British market and for export, through London, to European and world markets.”

That’s hardly a description of an acutely depressed area. Lower interest rates and a more competitive exchange rate for the Pound certainly attracted new private sector investment in new industries – but not in the parts of Britain dependent on the traditional and heavy industries. The British government – unlike the Nazi government in Germany – had strongly held ideological objections to public works programmes and government initiatives to promote business investment in depressed areas so those areas remained depressed despite lower interest rates and a depreciated Pound.

Junk your ignorant and distorted perceptions of British government policy during the 1930s and research the real history of those times in independent sources. Another recent book for those interested: J Stevenson and Chris Cook: The Slump (Longman 2009).

No serious economist that I know of claims that sticking to the Gold standard in 1931 would have helped to promote recovery but Britain’s economy did perform relative well during the 1930s compared with peer-group countries. However, that recovery was largely confined to one part of the country.

For any readers interested, I’ve just rediscovered a link to this academic paper by Stephen Broadberry and Carsten Burhop on: Real wages and Labour Productivity in Britain and Germany 1870-1938:

“Recently, a broad consensus has been reached regarding the comparative performance of the British and German economies during the second half the nineteenth century and the first half of the twentieth century, taking labour productivity as the measure. At the outset, Germany lagged behind in all three main economic sectors – agriculture, industry, and services – but its industrial labour productivity converged towards British levels at the turn of the century and hovered around British levels until World War II. In agriculture and services, Germany lagged behind throughout the period. Consequently, economy-wide labour productivity was lower in Germany than in Britain.”
http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/broadberry/wp/solgeruk7a.pdf

45. So Much For Subtlety

43. Bob B

I cited @8 Feldstein, the first chairman of Reagan’s council of economic advisers, precisely to show that the pitfalls of EMU were foreseen by mainstream economists affiliated to the Republicans besides mainstream “keynesians” like Rudi Dornbusch – who btw was the supervisor for Paul Krugman’s PhD degree at the MIT.

Yes I know Bob. But unfortunately that was my point. You were disagreeing with it. This is a follow up to a conversation which began with you objecting to my reasonable point that the Right was well aware of the problems with the euro. To be exact:

“36. Bob B

“@35 SMFS: “Sorry Bob, but the people you are attacking were pointing this out over a decade ago. It has been standard on the Right for years. It has been the Keynesians who have been denying it.”

“That’s more demonstrable rubbish. I was first made aware of the pending pitfalls of EMU in 1996 on reading the late Rudi Dornbusch in the US periodical Foreign Affairs, issue for September 1996: Euro fantasies:”

So what you then called “demonstrable rubbish” you are now agreeing with. Oh well done Bob. As I said, I enjoy having a rather one-sided conversation with you. Really I do.

You have an extraordinary interventist prescription for economic policy in the inter-war years. During the depressed 1930s, the prevailing stance of the government at the time was more-or-less laissez-faire. The sustained position of HM Treasury was that public spending by the government “crowded out” equivalent private spending. According to the official Treasury doctrine, nothing was therefore to be gained from government spending public money on new industries.

Again you have failed to understand what I said. I did not suggest that the government should actively intervene to abolish old industries. Just let the market do it. They did not, actually, adopt a laissez-faire attitude. If they did, Britain would have been much better off.

That’s hardly a description of an acutely depressed area.

No but Britain is more than London.

The British government – unlike the Nazi government in Germany – had strongly held ideological objections to public works programmes and government initiatives to promote business investment in depressed areas so those areas remained depressed despite lower interest rates and a depreciated Pound.

Not to mention Trade Union bloody mindedness that made investing in those industries in those places stupid. The sort of idiocy that saw coal miners and Glasgow dock workers strike during the war. The British government did set up all sorts of schemes for depressed areas. It did not help. Because they did not do enough to encourage new industry.

No serious economist that I know of claims that sticking to the Gold standard in 1931 would have helped to promote recovery but Britain’s economy did perform relative well during the 1930s compared with peer-group countries. However, that recovery was largely confined to one part of the country.

That is to say, it lead to an unsustainable housing bubble. Britain’s economy then went on to perform badly for the next 50 years. Devaluation only helps in the short term. It puts off tough decisions. It solves nothing. Perhaps Britain should not have gone on to the Gold Standard at the rate they chose. But going off it was not of long term benefit.

SMFS

I simply can’t be bothered to unravel your posted rubbish.


Reactions: Twitter, blogs

  1. Liberal Conspiracy

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/YUwLwMNp

  2. Henry Stockdale

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/YUwLwMNp

  3. Jennifer Hynes

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/YUwLwMNp

  4. Patron Press - #P2

    #UK : Five reasons why Germany is also to blame for the Euro-crisis http://t.co/SH1Xi5d4

  5. Spinny

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/YUwLwMNp

  6. Laurence Whiteside

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/dsAWrvoP #fb

  7. Jon Stone

    I've got a new post over on @libcon about Germany and the #Eurocrisis http://t.co/22n3q4x1

  8. leftlinks

    Liberal Conspiracy – Five reasons why Germany is also to blame for the Euro-crisis http://t.co/GLpq8uQP

  9. Jamie

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/IvLgxrvP #EU #Europe

  10. Simon Briscoe

    Five reasons why Germany is also to blame for the Euro-crisis http://t.co/YUwLwMNp

when do global stock markets crash? « JRFibonacci's blog: partnering with reality

[...] Five reasons why Germany is also to blame for the Euro-crisis (liberalconspiracy.org) [...]

 

 

 http://liberalconspiracy.org/2012/06/08/four-reasons-europes-austerity-agenda-may-be-coming-to-an-end/

Four reasons Europe’s austerity agenda may be coming to an end


by Jon Stone    
10:59 am - June 8th 2012

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352173022381&count=horizontal&id=twitter-widget-0&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&related=sunny_hundal&size=m&text=Four%20reasons%20Europe%E2%80%99s%20austerity%20agenda%20may%20be%20coming%20to%20an%20end%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

<iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 150px; HEIGHT: 21px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" src="http://www.facebook.com/plugins/like.php?href=http://liberalconspiracy.org/2012/06/08/four-reasons-europes-austerity-agenda-may-be-coming-to-an-end/&send=false&layout=button_count&width=150&show_faces=false&action=recommend&colorscheme=light&font=arial&height=21&appId=135787006459018" frameborder="0" allowtransparency="allowTransparency" scrolling="no"></iframe>

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I0_1352173022308" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I0_1352173022308&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I0_1352173022308" marginwidth="0" scrolling="no"></iframe>

 

Share on Tumblr

There are some good reasons to think the current emphasis on reducing deficits isn’t going to last forever.

1) Spain is coming onto the scene, and it doesn’t fit the current narrative
Spain seems to be moving to the
front row of the euro crisis. Significantly, it’s remarkably obvious that public spending and deficits weren’t the cause of the crisis there.

Spain had the best public books in the whole of Europe until it had to bail out its banks.

Greece was
basically a special case. But with Spain starting to go down, there’s the possibility of a narrative change, highlighting the role of private debt and monetary policy as causes.

2) SYRIZA will highlight Greece’s real problems rather than its imagined one
If the leftist party SYRIZA wins in Greece –
which is looks like they might – they want to put a moratorium on the country’s interest payments.

This would put Greece into a budget surplus – neatly illustrating the fact that Greece’s budget deficit is entirely composed of interest payments rather than spending on Greeks. The country’s interest rate on new borrowing has now risen to about 30%.

You’d hope this would prompt more mature analyses of the problems facing the country than “lazy Greece is spending to much”.

3) The balance of voices in Europe is shifting away from a focus on deficits
Hollande’s election in France has changed the narrative from austerity to growth as a means to close the deficit.

Slowly but surely, the idea that deficits aren’t a variable directly set by the government, but rather a function of other factors in the economy, is becoming popular.

And in Netherlands the anti-austerity Socialist Party look like it could win big in September – heading a leftist government. And the strategic prize of Germany looks to be in the grasp of the country’s centre-left once more; perhaps with help from the radical fringes.

It’s also worth mentioning that centre-right governments want to shrink the state anyway, and so will just cut without a second thought. So as they get booted out, (and there’s nowhere to go but down) that will have an immediate effect.

4) The bond markets seem to be smarter than we’ve been giving them credit for
Since Hollande’s election
French bond yields have fallen: it has got cheaper for the country’s government to borrow money.

This is unlikely to be his doing, but it’s important that he’s not increased the cost. Right up until the results of the auction were in many were wrongly predicting this would lead to “market turmoil”. Hollande is still pledging to close the deficit: but he’s doubtless spending more than Sarkozy was in the short term and relying in the proceeds of growth to make up most of the difference.

This highlights the fact that market reactions to events are not set in stone. The only constant is the risk of sovereign default, since that is an inherent consideration of lending. This means there is leeway on the question of budget deficits, which don’t necessarily imply a risk of default.

Of course, if Greece goes off and takes Spain with it, then all bets on everything are off. And I suspect in the UK we’ll be treated to blithering about the deficit for longer than most. But it’s something to watch out for.

<iframe id="fb_xdm_frame_http" src="http://static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f1a0fc313a171fc&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F%3Ffb_xd_fragment%23xd_sig%3Df3fee1cabd4074%26" name="fb_xdm_frame_http"></iframe><iframe id="fb_xdm_frame_https" src="https://s-static.ak.facebook.com/connect/xd_arbiter.php?version=14#channel=f1a0fc313a171fc&origin=http%3A%2F%2Fliberalconspiracy.org&channel_path=%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F%3Ffb_xd_fragment%23xd_sig%3Df3fee1cabd4074%26" name="fb_xdm_frame_https"></iframe>

<fb:like class="fb_edge_widget_with_comment fb_iframe_widget" href="http://liberalconspiracy.org/2012/06/08/four-reasons-europes-austerity-agenda-may-be-coming-to-an-end/" font="arial" show_faces="false" width="500" send="true" fb-xfbml-state="rendered"><iframe style="BORDER-BOTTOM: medium none; BORDER-LEFT: medium none; WIDTH: 500px; HEIGHT: 24px; OVERFLOW: hidden; BORDER-TOP: medium none; BORDER-RIGHT: medium none" id="f31dcda3271e924" class="fb_ltr" title="Like this content on Facebook." src="http://www.facebook.com/plugins/like.php?api_key=135787006459018&locale=en_US&sdk=joey&channel_url=http%3A%2F%2Fstatic.ak.facebook.com%2Fconnect%2Fxd_arbiter.php%3Fversion%3D14%23cb%3Df19468e24c625d8%26origin%3Dhttp%253A%252F%252Fliberalconspiracy.org%252Ff1a0fc313a171fc%26domain%3Dliberalconspiracy.org%26relation%3Dparent.parent&href=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&node_type=link&width=500&font=arial&layout=standard&colorscheme=light&show_faces=false&send=true&extended_social_context=false" name="f333f49216ba078" scrolling="no"></iframe></fb:like>

 

<iframe style="WIDTH: 109px; HEIGHT: 20px" class="twitter-share-button twitter-count-horizontal" title="Twitter Tweet Button" src="http://platform.twitter.com/widgets/tweet_button.1351848862.html#_=1352173022387&count=horizontal&id=twitter-widget-1&lang=en&original_referer=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&related=sunny_hundal&size=m&text=Four%20reasons%20Europe%E2%80%99s%20austerity%20agenda%20may%20be%20coming%20to%20an%20end%20%7C%20Liberal%20Conspiracy&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&via=libcon" frameborder="0" allowtransparency="allowTransparency" scrolling="no" data-twttr-rendered="true"></iframe>

 

Share on Tumblr

 

 

<iframe style="POSITION: static; BORDER-BOTTOM-STYLE: none; BORDER-RIGHT-STYLE: none; MARGIN: 0px; WIDTH: 90px; BORDER-TOP-STYLE: none; HEIGHT: 20px; VISIBILITY: visible; BORDER-LEFT-STYLE: none; TOP: 0px; LEFT: 0px" id="I1_1352173022310" title="+1" tabindex="0" marginheight="0" src="https://plusone.google.com/_/+1/fastbutton?bsv=m&size=medium&hl=en-US&origin=http%3A%2F%2Fliberalconspiracy.org&url=http%3A%2F%2Fliberalconspiracy.org%2F2012%2F06%2F08%2Ffour-reasons-europes-austerity-agenda-may-be-coming-to-an-end%2F&jsh=m%3B%2F_%2Fapps-static%2F_%2Fjs%2Fgapi%2F__features__%2Frt%3Dj%2Fver%3Do_gEEnY_OCw.ko.%2Fsv%3D1%2Fam%3D%215V4AwLTVPeWIaanGfQ%2Fd%3D1%2Frs%3DAItRSTMNQLsJcVRMc9YV_kzpMq5v4Mju9Q#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I1_1352173022310&parent=http%3A%2F%2Fliberalconspiracy.org" frameborder="0" width="100%" allowtransparency="allowTransparency" name="I1_1352173022310" marginwidth="0" scrolling="no"></iframe>


About the author
Jon is an occasional contributor to Liberal Conspiracy. He blogs at
The Red Rock
· Other posts by
<iframe style="MARGIN-TOP: 5px" class="bylineSocialButtonTwitter" height="20" src="http://platform.twitter.com/widgets/follow_button.html?show_screen_name=false&show_count=true&screen_name=joncstone" frameborder="0" width="250" allowtransparency="allowTransparency" scrolling="no"></iframe>

Story Filed Under:
Blog ,Economy ,Europe ,Foreign affairs


 

<iframe height="250" marginheight="0" src="http://optimized-by.rubiconproject.com/a/7845/13377/25975-15.html?cb=690502617&keyword=liberalconspiracy.org/oas.html/L21" frameborder="0" width="300" marginwidth="0" scrolling="no"></iframe>


 

Sorry, the comment form is closed at this time.


 

Reader comments


1. Luis Enrique

Spain had the best public books in the whole of Europe until it had to bail out its banks.

Spanish public finances went into deficit in 2007/2008 – when did these government funded bank bailouts happen? [I don't know - I have tried a quick google but came up blank]

This would put Greece into a budget surplus – neatly illustrating the fact that Greece’s budget deficit is entirely composed of interest payments

yes, after having cut the hell out of the public sector

…. but the headline conclusion that austerity is thankfully going out of fashion (I hope to God) is correct, the main reason imho simply being its getting harder to deny the harm it does

one way or another I think we are going to need the central banks to monetize government debt – it would be helpful if left-wingers stopped referring to QE as giving free money to banks

One quarter isn’t really a primary surplus…..but imagine that it is in fact true.

Greece should thus default immediately.

Spain seems to be moving to the front row of the euro crisis. Significantly, it’s remarkably obvious that public spending and deficits weren’t the cause of the crisis there.

Spain had the best public books in the whole of Europe until it had to bail out its banks.

a link to a Wikipedia table of debts and deficits per country in 2010. Spain with the highest deficit and midtable debt has “the best public books in the whole of Europe”?

Here are a couple of graphs to add to that:
http://bit.ly/JRy9Hz debt as % of GDP all EU
http://bit.ly/L2ugUl deficit as % of GDP all EU

For serious, informed commentary on Spain, try http://spaineconomy.blogspot.co.uk

Spain and Greece both have debt related problems – as do most of Europe.

Spain’s problem was ultra-low interest rates leading to a binge on housing debt, and the resultant bubble popping means huge negative equity.

Greece’s problems were at government spending level. The ability to borrow cheaply led the government to overspend and overpromise massively. Post recession, with the world waking up to the new era of credit risk, their outstanding debt has beocme unservicable. It’s not so much that they are spending tooo much now, but they certainly did after 2002 till the crash.

I do still find it amazing that the anit-austerity campaigners still seem to be blind to the causes of the crisis – too much debt – and their solution is yet more debt, and the compounded costs that involves. Keynes’ solution makes perfect sense if you can actually agressively pay down debt via budget surpluses in the good years, allowing room for stimulus. Politically though, this never happens (cf Gordon Brown) as making cuts is never a vote winner, and social-democratic Europe now demands a huge welfare state without truly considering how it is paid for. Too many expect and demand what are effectively handouts, and many politicians are only too happy to oblige and capitalise on this – jsut have a look at Hollande.

The situation that these politicians have left Europe (if not the majority of the western world) in is that now debt burdens are high enough to negatively affect growth, and in some cases are simply unsustainable, leaving no room for a Keynesian option, even if it were the right one. Ultimately you reach a certain point where the costs of more debt funding outstrip any growth you might create through more deficit financing.

5. Luis Enrique

ukliberty

the point is Spain ran a surplus pre 2007 so its troubles cannot be blamed on having borrowed too much. Since 2007 the economy has gone down the pan, causing the government to run a deficit.

Yes– from your graphs, ukliberty, Spain was running a surplus from ’04 to ’07, looks more or less balanced from ’00 to ’04, and consequently was reducing its debt/GDP for the whole period.

That looks interesting, thanks.

9. Luis Enrique

yep, that was interesting, so maybe (lack of) deficit overstated somewhat.

10. gastro george

“… anit-austerity campaigners still seem to be blind to the causes of the crisis – too much debt …”

Maybe because it isn’t? The cause was under-regulation of the banks, the subsequent bust, their inevitable bailout and the subsequent recession.

To clarify, I’m not wholly blaming the state – I’m just saying Spain’s finances weren’t great. It isn’t “remarkably obvious” that the public sector didn’t contribute to the problem, when you look into it. And there is a more recent article on the site about how the national government is trying to pass its problems with funding to the local governments – there’s a lot going on.

I just don’t like this view of lefties that “it’s all about the banks” or righties “it’s all about the state”. It’s really facile and won’t help us mitigate the risks of these crises happening again.

12. Richard W

Jon,

I get the general point you are making, but would take issue with how you present it.

” Spain had the best public books in the whole of Europe until it had to bail out its banks. ”

No they did not. Looking only at a snapshot of the fiscal balance is highly deceptive. The government revenues before the financial crisis in Spain were illusory because they were based on an unsustainable investment boom in the property sector. That is a subtle but fundamental difference to saying that their problems are all related to overspending. They would still have experienced a large fiscal deficit at a lower level of spending relying on unsustainable revenues. Same issue in the UK, Ireland, US etc. All those nations had unbalanced economies, with high levels of personal debt and as a consequence large external deficits. Any economic downturn would inevitably see a large fiscal deficit open up for the government and that is what happened. The best public books in Europe were in those countries who had a sustainable broad-based tax system where the revenues did not all disappear in a downturn. The Nordics with high levels of indirect taxes did best. Martin Wolf replying to one of the commenters on his blog makes the point that you need to look at the whole economy to know if the state of the public finances are healthy.

Martin Wolf | June 7 5:00pm

@North Ranger, I agree entirely that the 2007 public finance figures were useless. Indeed that is quite obvious. But this shows that one has to concentrate not on the state of the public finances but on the other two sectoral balances: external and domestic private. That is the main point I have been making for about a decade. If the external and domestic private sectors are on an unsustainable path, so are the fiscal accounts, by definition. Looking at just the fiscal balance alone is a fundamental error. Nor do standard cyclical adjustments work in economies with deep and long-running private sector and external disequilibria, as we also learned over the past decade (including in the UK and US).

” The country’s interest rate on new borrowing has now risen to about 30%. ”

That is a bit misleading because they are not taking on new borrowing at 30%. The 30% is inversed from the price where already issued bonds are trading in the secondary market. Greece can only obtain new borrowing from European public institutions and the IMF, they are not paying 30%.

” The bond markets seem to be smarter than we’ve been giving them credit for…”

Surprised that it has taken you so long to notice that the bond market is nearly always smarter than anyone else.

13. Frances_coppola

Jon,

There never was one single cause of the Euro crisis, or one central characteristic of sovereigns that get themselves into trouble. Spain is very different from Greece, in that its problems manifest themselves in the banking system rather than directly at sovereign level: but the effect is the same, namely that Spain’s economy has unsustainable levels of debt that ultimately will fall onto the fiscal balance sheet. The same is true of Italy, France, probably Austria (because of its exposure to Eastern Europe) and probably Belgium. I fear that as the dominoes fall, the remaining countries will tighten the austerity shackles, not loosen them, counterproductive though it appears to be. Much of this is driven by fear, not by rational analysis of the options available.

But if France falls, the game is up. After that Germany is supporting everyone all by itself. If it gets to that point, German exit would be a racing certainty, I’d say.

By the way, you are wrong about the 30% borrowing cost. You’re confusing yields and coupons. Greece’s actual borrowing cost is the coupon on the new bonds, which at the moment I think is 2% (it’s supposed to rise gradually as the Greek economy recovers). The yield is the benefit to investors of buying bonds at a discount to their value at maturity. The deeper the discount (i.e. the cheaper the bond), the higher the yield.

Richard: I don’t disagree with you that Spanish taxpayers were essentially paying their taxes with borrowed money, or that there were systemic imbalances – the point I was trying to make is that from the perspective of the Spanish treasury there was a clear attempt to stay within the limits set by the SGP, which I think rules out simple profligacy as a credible point of blame.

Of course, you can question whether they might have had a more sensible approach to what was causing their income, and whether they ought to have seen te bubble coming, but I think there we would be getting into as much epistemology as economics. Hindsight is fairly 20:20.

Clearly governement action isn’t blameless as they set the whole framework, but what I’m trying to get across is it isn’t a case of ‘spend more than you’ve got coming in’ as could have been plausibly argued at one point for Greece’s case.

Also to Francis and earlier posters- I’m certainly not saying Spain doesn’t have fiscal imbalances now, but rather am focusing on causes.

Something I’d also add: as people are pointing out, at one level of explanation it’s about both fiscal and private debt, which are ultimately the same beast in that they are illusory growth. But I don’t think the analysis can stop there: what would have happened without debt? There would still have been no real growth. If debt is playing a role across the developed world in making up output to socially acceptable levels, then the ultimate problem is a lack of growth, which is leaving a vacuum that is either filled by either debt or recession. (unsurprisingly, most countries picked debt)

If there’s to be a long term solution, that’s what needs to be returned. I don’t even mean stimulus here, I mean identifying the causes of the fall in growth, and dealing with them.

(typed from phone, please excuse mistakes)

15. Dissident

didn’t Keynes also advocate negative intrest rates on accumulations of capital, thus forcing capitalists to reinvest and spend, otherwise they lose it all. and with negative interest forcing up investment and trade, the economy grows faster.

The mountains of private and public debt are actually owned by wealth acumulators. Right now it is a one way street, kleptocracy and plutocracy.
In other words, parasites impoverishing the majority to enrich themselves. Negative interest on accumulated capital would enforce symbiosis. Everybody wins, including the rich, because what leaves one hand comes back in the other. Reinvestment can also be with far more efficient 21stC tech instead of relying on 20thC carbon dioxide belchers.

Richard: I don’t disagree with you that Spanish taxpayers were essentially paying their taxes with borrowed money, or that there were systemic imbalances – the point I was trying to make is that from the perspective of the Spanish treasury there was a clear attempt to stay within the limits set by the SGP…

Well, per my earlier link it depends on what accounts you read. Add to that complaints from local governments that the national government is trying to foist its problems on them.

which I think rules out simple profligacy as a credible point of blame

 

Certainly people shouldn’t blame simple profligacy. There are a number of factors.

Of course, you can question whether they might have had a more sensible approach to what was causing their income, and whether they ought to have seen te bubble coming, but I think there we would be getting into as much epistemology as economics. Hindsight is fairly 20:20.

 

Well, I remember people wondering when so many apartment blocks and houses and hotels were being put up in Spain how many people would be buying them. I’m quite sure there were people warning about the bursting of the bubble before it burst.

Something I’d also add: as people are pointing out, at one level of explanation it’s about both fiscal and private debt, which are ultimately the same beast in that they are illusory growth. But I don’t think the analysis can stop there: what would have happened without debt? There would still have been no real growth. If debt is playing a role across the developed world in making up output to socially acceptable levels, then the ultimate problem is a lack of growth, which is leaving a vacuum that is either filled by either debt or recession. (unsurprisingly, most countries picked debt)

 

I don’t think anyone is seriously suggesting zero debt. The argument is about the extent of debt (and deficit) we can live with, among other things.


Reactions: Twitter, blogs

  1. Liberal Conspiracy

    Four reasons Europe's austerity agenda may be coming to an end http://t.co/M3SowrJO

  2. Jason Brickley

    Four reasons Europe’s austerity agenda may be coming to an end http://t.co/b2WuDv5j

  3. Lance Dyer

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/7XG3tzJ2 via @libcon

  4. leftlinks

    Liberal Conspiracy – Four reasons Europe’s austerity agenda may be coming to an end http://t.co/SvURqIXN

  5. Rose

    Liberal Conspiracy – Four reasons Europe’s austerity agenda may be coming to an end http://t.co/SvURqIXN

  6. Hossylass

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/YAK92TXa via @libcon

  7. Karl

    Four reasons Europe's austerity agenda may be coming to an end http://t.co/M3SowrJO

  8. Alex Braithwaite

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/cCGVbke3 via @libcon

  9. gramsci99

    Four reasons Europe's austerity agenda may be coming to an end http://t.co/M3SowrJO

  10. Jamie

    Four reasons Europe’s austerity agenda may be coming to an end

    http://t.co/uf0Ik3Cf

  11. BevR

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/GVHPKTee via @libcon

  12. Neil Bradley

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/cCGVbke3 via @libcon

  13. TheCornishRepublican

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/7XG3tzJ2 via @libcon

  14. Zeeblebum

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/Oq38m8wU via @libcon

  15. Natacha Kennedy

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/zT3ubKxO via @libcon

  16. Mike Simpson

    Austerity economics exposed as flawed by new factors. http://t.co/62PNpKIb

  17. hopbin

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/zT3ubKxO via @libcon

  18. Mike Simpson

    Spain crisis reveals: Bankers not government spending to blame (as in UK) ie failure of capitalism not socialism http://t.co/62PNpKIb

  19. BevR

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/GVHPKTee via @libcon

  20. Jeni Parsons

    Spain crisis reveals: Bankers not government spending to blame (as in UK) ie failure of capitalism not socialism http://t.co/62PNpKIb

  21. kevin leonard

    Spain crisis reveals: Bankers not government spending to blame (as in UK) ie failure of capitalism not socialism http://t.co/62PNpKIb

  22. Jeni Parsons

    4 reasons Europe’s austerityagenda coming2an end | Liberal Conspiracy http://t.co/Cvip1hfz via @libcon we come back 2 same narrative – banks

  23. Jeni Parsons

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/GVHPKTee via @libcon

  24. @GrannyWils

    Spain crisis reveals: Bankers not government spending to blame (as in UK) ie failure of capitalism not socialism http://t.co/62PNpKIb

  25. Rabih Chaaban

    Spain crisis reveals: Bankers not government spending to blame (as in UK) ie failure of capitalism not socialism http://t.co/62PNpKIb

  26. jim khamba

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/GVHPKTee via @libcon

  27. hopbin

    Four reasons Europe’s austerity agenda may be coming to an end | Liberal Conspiracy http://t.co/GVHPKTee via @libcon

  28. Zafar

    Bank bailout ¬ public spending at rt of Spanish crisis -also *gasp* Hollande's elction didn't trigger market turmoil http://t.co/RdwFUfe6

  29. ton skeel

    Bank bailout ¬ public spending at rt of Spanish crisis -also *gasp* Hollande's elction didn't trigger market turmoil http://t.co/RdwFUfe6

  30. Mike Simpson

    Failure of Spanish banks should remind all that it was bankers greed and recklessness that caused world economic crisis http://t.co/BPoeyUBG

  31. Tim Swift

    Four reasons Europe’s austerity agenda may be coming to an end http://t.co/B7GUHSDP

  32. Spir.Sotiropoulou

    Four reasons Europe’s austerity agenda may be coming to an end,Liberal Conspiracy http://t.co/YpZNYEaw via @libcon (thanks @iconicimagery )

David Davies

Four reasons Europe’s austerity agenda may be coming to an end ~ http://t.co/o3iyGt2K

 

 

  • Previous image
  • 9 / 19
  • Next image
Two juvenile great grey owls in Yosemite national park. Recent research indicates that the Yosemite population is a genetically distinct subspecies of the California great grey owl Photograph: AP