Greece’s debt renegotiation talks seem to have been rumbling on forever. Today we have a “crisis” as talks break down. That is the nth time this year, and it is easy to pall.
I have not blogged about it much because it is an issue of such complexity that attempting to characterise it in a short article invariably involves trivialisation. It is also difficult to dive into a debate which has polarised into two distinct sides which are both horribly wrong.
I have witnessed IMF prescriptions in developing countries which have had abysmal results. Forcing African countries to break up their electricity utilities between producers and distributors in order to favour private electricity producers, has been an absolute disaster. It has simply meant that disproportionate percentages of electricity revenue – and effective tax subsidy of electricity prices for the majority population – has been diverted into the capacious pockets of international financiers and bankers. I have no doubt the result has been less electricity generated. I don’t even want to discuss the IMF’s immoral insistence that in Africa the very poor have to pay for clean drinking water.
The IMF’s attempt to insist that Greece privatises ports and railways is just plain wrong. It will not help the Greek economy, it is pure dogma and aimed at delivering Greece’s national assets into the hands of speculators and more financiers and bankers.
And yet we must not get starry-eyed about Greece. Greece should never have been admitted to the Euro in the first place. It very plainly met none of the convergence criteria, hidden by a number of risible accounting fixes. I do in fact have a great deal of common ground and agreement with the idealists who have driven forward the European project. But their idea that European momentum will eventually overcome all obstacles, and the detail is not important, has come back to bite them. We see it with Greece’s admission to the Euro. I predict we will see more problems in the next few years arising from the admission of Romania and Bulgaria to the EU itself when they very plainly did not meet the acquis communitaire. These examples relate to separate institutions – the Euro and the EU – but were indicative of the same “expansion at all costs” attitude.
We should not pretend that Greece is or was a socialist paradise. It has been a very corrupt country with elite tax impunity and a focus for money laundering for decades. Membership of the euro did indeed lead to lifestyle subsidy by the German taxpayer, there is no point pretending it didn’t. It also led to Greece being internationally uncompetitive.
My own view is that it would be much the best solution for Greece to default, exit the Euro and then negotiate a debt write-off of approximately 60% based on repudiation. It is a complete nonsense to pretend that after default Greece would never be able to function or indeed to borrow again. Bankers will always be on the lookout to make money, and the massive risk premium will last about two years, if that. There will quickly be those prepared to go against the market and argue that a Greece minus a mountain of repudiated debt is actually less of a risk.
Greece will be able to benefit from a realistic currency enhancing competitiveness. There will be pain but it will be their own pain, not enforced by gauleiters. They won’t have to sell their national assets, and the pensions they pay in their own currency will be their own business.
If a few irresponsible international banks go bust that will finally perhaps pound some sense into the international financial system about irresponsible lending. The most important thing is that never again is taxpayer money thrown at the bankers to maintain their corrupt lifestyle and socially irresponsible business practices.
The Euro will survive. In fact, I predict the value of the Euro will suffer very little negative effect, and the problems within the Euro from Greek exit will be isolated much more speedily and effectively than is generally believed. The demise of the Euro has been predicted for years, but it is in fact the strong currency of the world’s largest economy. It will still be so.
I am somewhat of an expert on what the Greeks themselves sometimes humorously call “the Greek reality” and on that basis find your latest excellent. To be sure, there are a couple of glosses and précisions that could be made, but overall it is spot on.
The point to remember here is that – essentially – the Greeks have brought their present problems (political, financial and social) upon themselves. And by “the Greeks” I don’t only mean the politicians and elites, I mean the man on the Athens omnibus as well. As former foreign Minister Pangalos once said, to much abuse, “we all had our snouts in the trough”.
PS – some of the usual Loonies will soon be on with their standard-issue nonsense (eg – it was all the bankers’ fault!), therefore I naturally reserve the right to intervene further as and when necessary.
And, by the way, if readers have any questions they wish to ask or seek further information on one or the other aspect of the Greek crisis, I’m sure that Craig will be as willing and able to help as I shall.
Nope, I’m off to Sandy Bell’s.
Very insightful but why 60% and not 80% or 100%? It’s default all the same.
It makes as much sense to blame average Greeks for what has happened to them as it has made in my country of the United States to blame poor Americans for suffering as a result of the predatory mortgages that they were induced to sign.
Laurent
Why 60% not 100%? It’s to avoid the Samson ending, where the temple falls and kills you as well.
Lysias
Indeed. But where we maybe disagree is that I don’t think the appropriate level of blame in nil.
I agree with your round up of Greece’s current predicament.
Like one or two commentors in here Greece was a basket case before it joined up.
Widespread corruption and tax dodging in the extreme Greece was always heading for a nosedive.
As you state the Greeks would be better off in the long run defaulting on their huge debts.
It’s of course folly just to single Greece out for corruption,when the banks that bailed the Greeks out are just as bent.
I am not sure that cost competitiveness is now really the issue with the Greek Economy – there has already been a substantial reduction in recent years since the crisis (just look at the fall in the general level of wages) but still the crisis persists. If Greece were to leave the Euro – I think the result would just be a bout of severe inflation, disinvestment from the Greek economy, political and social unrest – and although Greek wages would fall to a pittance I very much doubt that given everything else it would trigger much of a revival. Something rather more than cutting costs will be needed to resuscitate the Greek economy.
Yes the Greeks as a whole have brought many of the problems on themselves – there is no denying there is corruption, massive tax dodging and I know from having met Greeks before they joined the Euro that it was common knowledge that the entry criteria were being fixed – and unless the Embassies and Treasuries of other EU members were being incredibly thick . However that is not sufficient to impose collective punishment on an entire country and even worse to target cuts at sections of the Greek population who often hold the least responsibility. I also don’t think that cuts being proposed will be anything other than counterproductive – they will depress demand in the Greek economy and will do nothing that will actually improve the ability of the Greek economy to pay its way in the world. It is much easier to improve productivity in a growing economy rather than a shrinking one.
The commercial reality is that Greece is in no position to repay its debts – and sooner or later the banks and governments holding Greek debt will have to acknowledge that the debts will not be rapaid – I suspect that one of the problems given the various credit default swaps and guarantees on the debt no one is a s yet quite sure where the liability will end up or what sort of chain reaction such write offs may trigger – but that is ultimately a problem that Western financial institutions and their regulators have allowed to develop so they rather than the Greeks should take responsibility for sorting it out. If anyone has seen foreign debt renegotiations they will know that the interests of creditors are not uniform and they are invariably complex and sorting them out is often most of the problem.
Even if an when the debt repayments are sorted out – that is not the end of the issue – massive Marshall Aid investment will be necessary to improve the structural efficiency of the Greek economy – pissing it away in short term improvements in social benefits, as some in Tsiparas propose will not do anything to improve competiveness in the long term. Yes the Germans were responsible for the War, just as it may be argued that many Greeks were responsible for the current state of affairs, but that did not stop Germany being provided with Marshall Aid finance and advice after WW2 – perhaps Mrs Merkell needs to realise that now is Germany’s time for giving rather than receiving.
You’ve mentioned the IMF’s abuses in Africa.
In what way do they differ substantially from the current abuses of Greece, or Spain, Ireland, Portugal etc?
I disagree. I’m not a euro supporter but, looking at it objectively, I think it’s vital for the currency that the EU’s leaders are able to contain this crisis. Once the the precedent is set of a country leaving or being forced out, others will surely follow – and I don’t believe that Greece is as much of an exception as we’re being led to believe.
From Greece’s point of view, it is either make euro membership work or end up like Turkey – or worse. I can’t see what reasons there are to believe that a bankrupt and discredited country would prosper with its own currency. Indeed it seems more likely it would degenerate into North African-style political chaos.
What Greece needs is decent leadership, and they’re not getting it at the moment.
Craig, if you want to be taken seriously by anyone who has a brain you should at least give a mention of the ongoing Fukushima disaster.
The silence about the greatest disaster in human history is deafening.
Is it ignorance? Is it collusion? Is it fear?
Perhaps you’d like to tell us…
The first three comments are SO pompous.
^ Troll or MOLL? ^
Jealous or ignorant?
Narrow mind, narrow choices! 😉
Nor is Greece the only European country with these sorts of problems, which can only be laid at the feet of the populace in the sense that they failed to make a revolution and replace capitalism.
Ireland, of course, is another country making impossible demands of its poorest people at the behest of the IMF and the other banking agencies. The difference being that in Ireland the response of the population has been slower and less focused.
The Baltic states of Estonia and Latvia have also been very badly wounded by IMF inspired austerity packages of ‘reforms’ intended to strip wealth and income from the working people. So have Spain and Portugal, Italy and young and vulnerable people across the continent
What makes Greece unusual is that it has a government, largely comprised of those committed to repudiation of the debt, whose leaders are, rightly or wrongly, allowing the process to play out so that there is no doubt left that Greeks have to choose between taking their future into their own hands or consigning themselves into poverty and peonage for generations to come.
The reality is that all of Europe faces the same problems which are inevitable under this system. There is an alternative but none which does not involve moving beyond capitalism.
There are worse things, not many but some, than a civilisation slipping into authoritarianism necessitated by steadily declining living standards and ruling class refusal to countenance popular resistance through unions or socio-political movements. Such an ill fate is the inevitability, under capitalism, of catastrophic climate change.
We can blame that all on the victims of course, and they do share part of the blame for refusing to stop deferring to their leaders. But the real fault lies in a system which not only encourages economic and ecological chaos so that a greedy and foolish elite can stuff its maw with gold but also lulls its victims into acquiescence even as it reduces life into a desperate and constant struggle for subsistence.
If the EU could make up its mind whether it’s a trade bloc or am entity created for the sole purpose of not being Russia, some clarity might emerge. Agree 100% that admitting nations with lousy economies is not the way to go. But otherwise, they’d slide into Russian sphere-of-influence, and that is also A Bad Thing (some of us will agree). Some intermediate, partial, provisional membership arrangement for these might be the way to go.
I think that Craig has seen off our Irish)American friend’s rather silly comparison.
I wonder if it was because our friend (deliberately?) tried to make the comparison between the average Greek and the poor American?
Those whose (alleged)expertise is in the Athens of 500BC rather than in the Greece of today would be well advised to take a back seat in this discussion. 🙂
Mary
“The first three comments are SO pompous.”
_______________
Indeed so.
I felt that the very open-minded and honest nature of Craig’s post merited a little pomp on my part.
What’s your opinion of Craig’s take on the Greek situation, Mary?
Those who blame victims lack Christian charity.
@Habbabkuk (la vita è bella)
11 Jun, 2015 – 10:05 pm
I get bored trying to explain this over and over again; but one more time: the UK is way, way more in debt than Greece is. To understand this you have to understand the different types of debt; ie, there’s government debt, business debt and personal debt.
Greece is a basketcase when it comes to government debt, because previous Greek governments borrowed recklessly on the open markets at high interest rates. But when it comes to personal debt in Greece (ie, what Joe Bloggs borrowed to buy a house, or whatever) it’s way much lower than the UK, where personal debt is on a par with government debt; ie, through the ceiling.
Overall, in financial terms, Greece is actually in better condition than the UK.
The spin and the lies will tell you otherwise.
Greece must exit the Euro. Yanis Varoufakis economic strategy holds up and challenges the validity of the neoliberal orthodoxy. Further a Greek exit would evaporate leverage over a nation with a long tradition of left resistance and recently evaporating sympathies towards the Western alliance who’s concern is plainly strategic as PM Alexis Tsipras hugs the bear.
Tsipras’s government must serve the trust of it’s people with dignity and not pander to technocratic targets and obliging bankers and ideologues.
Someone was asking something about TTIP:
https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Investment_Partnership
This is complete corporatism.
Democracy is irrelevant after that, if it isn’t already.
The Greeks are being plundered to pay for debts of Greek oligarchs and friends.
In the West, Treasuries are looted and palmed out to corporate contracts.
Relatively innocent countries are torn asunder, left to chaos, by Western weapons. Others are subdued and conform.
There’s definitely something up, like on a worldwide scale.
And it ain’t the cricket match, habby pretends.
In terms of the dispute between the West and Russia, which of course plays into this, the Russian argument is that the West, the US, vehemently rejected any input from Russia, even as the US was welcoming Russia into the community of nations and its institutions.
Russia, and this is under early Putin, not unreasonably assumed that partners would talk and discuss and reach mutually beneficial conclusions.
Not what happened.
The West treated Putin like a vassal.
All the other European leaders are vassals, Angela told Vlad. It ain’t so bad.
The rest is history.
I disagree with parts of the article, particularly the paragraph starting by saying Greece wasn’t a socialist paradise. The only people who ever thought Greece was a “socialist paradise” are tories who have never set foot there, it’s a ridiculous idea, Greece was spending far less than northern Europe on social security and health, Greece certainly wasn’t profligate in terms of social spending.
http://www.thepressproject.net/article/58136/Ignoring-the-data-about-Greeces-debt-why-austerity-is-based-on-a-myth-and-will-not-work
I also disagree with the whole angle of the article, that the Euro must be protected from Greece, it sets EU vanity projects above the well being of citizens. I agree Greece should default and leave the Euro, but I’d go further, I think the Euro needs to be scrapped as a whole and the entire EU reformed, with the EZ the EU has ceased to fulfill it’s original mission and has instead become a means for larger wealthier countries to force their selfish financial interests on others something that will tear the EU apart.
What I particularly object to is the allegation Germans have been subsidising Greece, this being no different from claims England subisdizes Scotland. Germany has been exploiting Greece for profit for decades and has been entirely complicit in Greek corruption. German companies routinely used bribery as a business model, they bribed corrupt Greek officials for overpriced state contracts and Greece borrowed the money to pay for them (the article below list some cases)
http://www.spiegel.de/international/europe/complicit-in-corruption-how-german-companies-bribed-their-way-to-greek-deals-a-693973.html
Germany until the late 90’s Germany made bribes paid by German businesses to win foreign contracts tax deductable and to this day companies cannot be prosecuted for bribery under German criminal law, only individuals.
Banks meanwhile were falling over themselves to lend to Greece because regulations allowed banks to keep less in reserve if they invested in an EU govt bonds, and Greece paid a slightly higher return on those bonds within the EU. Hence the Greek people are victims of their own corrupt elite conspiring with German business and finance and leaving the tab. By 2009 German Banks had amassed claims of 704 billion dollars on all the PIIGS, more than their aggrigate capital. The so called “Greek bailout” is thus merely about saving Franco-German banks by transfering Greece’s debt to the ECB.
http://www.bloomberg.com/news/articles/2012-05-23/merkel-should-know-her-country-has-been-bailed-out-too
The Euro is abject disaster, it put up prices of production in southern Europe faster than in Germany and lowered the cost of German goods on foreign markets at the same time, this gradually centralised production in Germany (and closely related economies). Further while this was happening Merkel’s wage restraint within Germany stopped German’s stimulating the rest of the Eurozone, buying Italian cars or taking Greek holidays and the like, thus inflating their own trade balance further, the money from this went to the Banks who then went on the lending spree, blowing up property bubbles in Spain and Ireland and feeding sovereign debt in Greece. Greece is not alone in this crisis because the cause is Germany and the CDU not Greece, Greece is only the worst case because of it’s own levels of corruption.
@Habbabkuk (la vita è bella)
“And by “the Greeks” I don’t only mean the politicians and elites, I mean the man on the Athens omnibus as well. As former foreign Minister Pangalos once said, to much abuse, “we all had our snouts in the trough”.”
If a rapist insisted everyone was a rapist of some sort would you believe them? Of bleeding course the crooks of PASOK attempt to spread the blame and responsibility away from themselves, what else would they do?
As an antidote to Craig’s & HHabbabkuk’s disgraceful smears against the people of Greece;
https://sturdyblog.wordpress.com/2012/06/15/exploding-the-myth-of-the-feckless-lazy-greeks/
Would also point out the Military Industrial Complex factor at work here; at a time when austerity is ravaging Greece, she has been on a giant military spending spree, using money loaned by Germany to fund purchases of German & French weapons & equipment.
It’s a bit rich UK citizens telling Greece what to do. The UK economy was far worse plundered by its bankers, managers and politicians and it has used printing money QE to pay the social benefits bills to avoid desperation and starvation on a grand scale. The UK is far more in debt than Greece, and no amount of bullshit from george Osborne about not being allowed to run a deficit will whitewash over the amount borrowed to keep the UK from bloody revolution against the toffs creaming off our national assets for their own gain.
The problem with Greece is that for far too long it has been prevented from economic growth by its larger partners, almost the reverse of its close neighbour Istanbul which aggressively persecutes its regional neighbours.
Habbabkuk recently underwent double surgery, mouth and penis transplant surgery. he is now an expert of Greece and erectily mobile having bent off his original one doing unspeakable things to babies. He did go pn holiday once to Teneriffe, which is a bit like Greece.
A Greek exit from the euro will probably boost the euro’s value
MODS
The post at 00h47 this morning is not from me.
It is from some clown pretending to be me.
Interesting, the lengths some Loonies will go to, isn’t it.
Please delete it.
@craig “it would be much the best solution for Greece to default, exit the Euro and then negotiate a debt write-off..”
Amen. I am against the UK joining the Euro precisely for this reason -we shouldn’t be bailing out failing economies.
“The Euro will survive”.
I don’t know about that. I will be inclined to vote “No” to remaining in the EU in the light of recent events (Europe’s refusal to give way on free movement plus a Romanian lorry carrying illegals who cut their way out in the Cotswolds – they were all arrested later (http://www.bbc.co.uk/news/uk-england-gloucestershire-33066263).