Philosophy & Economics

[Mangela Lansbury]

be pushed out of the EU in order to keep the EU itself whole

this makes no sense whatsoever, how can anyone's actual view be that keeping the EU together requires breaking the EU apart

[Bjorn]

I'm not that familiar (obviously much less so than Gorm), but is there also fear underlying this move as well as greed? Are people worried that there are additional houses of cards ready to topple that the general public isn't aware of if another financial crisis hit?

[Gormongous]

this makes no sense whatsoever, how can anyone's actual view be that keeping the EU together requires breaking the EU apart

 

Well, the idea is that the strong economies of France, Germany, and the Scandinavian countries are what's holding the EU together, so if they're all impoverished giving bailouts to irresponsible Mediterranean economies that are destined to fail anyway, the EU will shake itself apart. To some people, granted no one to whom I've talked personally, giving Greece increasingly harsh demands until they achieve an economic miracle or ditch the Euro is more like culling the weak from the herd, and a lot of the rhetoric about how Greece "lied" to get into the EU and "lied" about the amount of debt that it was bearing is just laying the groundwork for how Greece really doesn't belong in the EU anyway and so pushing it out doesn't represent a failure of the EU's guiding philosophies.

[Cordeos]

There are several rumors that Germany wants a tougher deal than the one Greeks just voted no on. Also Greece may have shown up to negotiations today without a plan. Possible reason:

 

"Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium."

 

http://www.telegraph.co.uk/finance/economics/11724924/Europe-is-blowing-itself-apart-over-Greece-and-nobody-can-stop-it.html

[Gormongous]

There are several rumors that Germany wants a tougher deal than the one Greeks just voted no on. Also Greece may have shown up to negotiations today without a plan. Possible reason:

 

"Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium."

 

http://www.telegraph.co.uk/finance/economics/11724924/Europe-is-blowing-itself-apart-over-Greece-and-nobody-can-stop-it.html

 

It seems a little bit more complicated than that. An acquaintance and former colleague of mine in Greece emphasizes that Tsipras showed up to negotiations without a new plan. Perhaps foolishly, it seems like he had brought the old one that Merkel et al had already declined to acknowledge until after the referendum proved that Tsipras the mandate to bring it. Now that he has the mandate, they still don't want to discuss it, so he gets castigated for not having a new plan, different than the one they've already seen and clearly don't like.

 

I agree with you, though, that Germany is playing some serious hardball here. I almost have no choice to hope that they know what they clearly think they're doing.

[Codicier]

I honestly think if Germany had any idea just how poorly this whole thing is going down in Britain it might at least have second thoughts about what it's doing, the cost of a Greece leaving the Euro is pretty high, but the cost of a Brexit from the EU on top of that itself could be even greater in terms of political stability of the whole EU project.

The one huge issue that the EU sceptics bring up again & again in the UK is perceived democratic deficit, the idea that the EU shouldn't be telling a democratically elected government what to do............

 

On a side note: Seem's china's having a stock market crash, you gotta love the timing

[Cordeos]

I agree with you, though, that Germany is playing some serious hardball here. I almost have no choice to hope that they know what they clearly think they're doing.

 

It definitely seems like both sides are not anywhere close to where they want to be. Hard to negotiate when the sides are so far apart. Although today everyone is trying to sound hopeful.

 

On a side note: Seem's china's having a stock market crash, you gotta love the timing

 

sometimes I forget just how controlled China's economy is. The government can just order people to stop trading, or let companies halt trading of their shares. No more IPOs for now. It has been unclear for a long time what the real economic numbers in China are. There are firms who spend all their time trying to figure out how the Chinese economy is actually doing once you get past the government misrepresentation and meddling. 

"Investors holding stakes of more than 5% are not allowed to sell shares in the next six months... On Wednesday, another 500 listed firms said they would stop trading their shares in an effort to insulate themselves from the meltdown. Around 1,300 firms have halted trading, almost half of China's main shares."

http://www.bbc.com/news/business-33438416

[Mangela Lansbury]

I honestly think if Germany had any idea just how poorly this whole thing is going down in Britain it might at least have second thoughts about what it's doing, the cost of a Greece leaving the Euro is pretty high, but the cost of a Brexit from the EU on top of that itself could be even greater in terms of political stability of the whole EU project.

The one huge issue that the EU sceptics bring up again & again in the UK is perceived democratic deficit, the idea that the EU shouldn't be telling a democratically elected government what to do............

On a side note: Seem's china's having a stock market crash, you gotta love the timing

I pretty much hear from everyone that if Greece gets bullied out of the EU, that's pretty much it for the project. A long, slow decline would follow, but it would ultimately end in dissolution.

And I heard a thing on NPR yesterday about how China's stock market troubles are a good sign, since the economy is gradually turning from one of production to one of consumption??? I only caught half the story, but it seemed interesting.

[Cordeos]

I pretty much hear from everyone that if Greece gets bullied out of the EU, that's pretty much it for the project. A long, slow decline would follow, but it would ultimately end in dissolution.

And I heard a thing on NPR yesterday about how China's stock market troubles are a good sign, since the economy is gradually turning from one of production to one of consumption??? I only caught half the story, but it seemed interesting.

 

"CHOVANEC: Well, look, China is undergoing a profound economic adjustment right now, away from one kind of growth model which relied on exports and investment towards another kind of growth model that is more balanced between domestic consumption and investment. And in the long run, that's going to be good. It's very disruptive. That being said, this is a transition that needs to happen. It's a transition that ultimately will be good for China, and it's a transition that's actually good for the rest of the world economy because it's really going to boost consumption from China.

 

That's - when the rest of the world looks at the Chinese economy, they shouldn't be so concerned about what the output levels or GDP levels are in China. They should care about whether China continues to consume. And China has produced more than it's consumed for years. It has all these reserves - $4 trillion worth of foreign exchange reserves. It can afford to consume more than it produces, so that's one thing that I think is actually going to be - this economic adjustment in China is actually ultimately going to turn China into a driver of consumer demand globally."

 

http://www.npr.org/2015/07/08/421225041/chinas-economic-downturn-needs-to-happen-to-boost-consumption

 

Not sure I agree with that, to survive economically China does need more domestic consumption, but to survive as a planet we need to move away from consumerism and quickly. There are also a lot of questions of how much of an economic transition China can really pull off. The government needs growth to maintain legitimacy and transitions of the scale China would need would require a pretty impressive swing and will probably require recession of some kind. I have a hard time believing China's government will be able to survive the next 20 years.

[Gormongous]

As Greece is getting pushed to the brink, there are several statements coming from members of its administration that paint a Machiavellian picture of how the Troika has halfway engineered the current crisis in order to force Greece out without damaging the euro or the prestige of membership in the EU. Fans of Civilization IV should put in mind the paraphrased quotation from Jefferson to the effect that "banking establishments are more dangerous than standing armies."

 

First, a tell-all interview with an anonymous member of Greece's negotiating team:

 

All the loans we have received, 240 to 250 billion euros, go for the servicing of the debt, back to the creditors. The first bailout was a bailout of the banks to the state. We didn't get any finance in order to pay them, we couldn't borrow short-term and we couldn't facilitate the liquidity of the economy because the ECB was putting one restriction after the other. So you have the liquidity problem and at the same time you have a financing problem. The two of them are connected in what I called from the beginning ‘credit asphyxiation’.

 

In the middle of March, finally, some Brussels sources said to the correspondents in Brussels that "yes, the institutions – the EBD, IMF, European Commission, are using credit asphyxiation in order to force the government to comply, accept the reforms, do it quickly, et cetera.". For me it was an admission that they were using the worst king of economic blackmail to the country. The worst kind of economic sanctions. If we take Iraq, and instead of doing a trade embargo they said "we cut all your assets, your banks have no money, no dollars, no anything, you have to rely on printing money, you're going to have an exposure". But they didn't do that in Iraq. It was a trade embargo, not a financial or credit asphyxiation. Because at any moment, gradually, there comes a time you die. You can't survive this much longer. Varoufakis has even called it "waterboarding", financial and fiscal waterboarding.

 

The assumption is that by pulling the plug, they pull the plug of the whole world. This has not happened and I am sorry. I was following how the euro was going, how it was reacting, because they did experiments. Schäuble and Berlin are clever, they enforce artificial crises into the negotiations now and then: "Oh, the Greeks are not cooperating, they haven't understood what to do, they are not giving any figures". And instead of falling, the euro is going up. The same with European stock exchanges.

 

And a public statement by former finance minister Yanis Varoufakis:

 

With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.

 

This weekend brings the climax of the talks as Euclid Tsakalotos, my successor, strives, again, to put the horse before the cart – to convince a hostile Eurogroup that debt restructuring is a prerequisite of success for reforming Greece, not an ex-post reward for it. Why is this so hard to get across? I see three reasons.

 

One is that institutional inertia is hard to beat. A second, that unsustainable debt gives creditors immense power over debtors – and power, as we know, corrupts even the finest. But it is the third which seems to me more pertinent and, indeed, more interesting.

 

The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

 

And there’s the rub. After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

 

What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

 

I have a friend-of-a-friend-of-a-friend on Facebook who is adamant that the long-term economic destruction of Greece is Greece's fault alone for borrowing too much, no matter what abusive and extortionate methods the Troika chooses for extracting repayment of Greece's debts. I asked him, if it's entirely the business of the lendee to make sure they can repay whatever loan that they take, why no banks will lend me $1,000,000, because trust me, I'm totally good for it. He didn't respond.

[Gaizokubanou]

I always had super weak grasp of economics but this stuff is helping me getting slightly better grasp of it.  Much thanks to everyone (especially you Gorm) involved in the discussion.

 

Edit: Ok so to be clear, Gorm, your theory is that the creditors in Germany have intentionally let the Greek Gov get the loans while understanding that they most likely could not pay back...

 

And here is where it gets little tricky for me so I wanted to double check, which is, then they had this debt with interest that they knew would never materialize, but then sold that credit for profit (cause of interested added).

 

And these creditors are now blaming the Greeks for their inability to pay?

 

Is that right?  Basically the corruption is where rich keeps bouncing credit of burrowed money that would never be paid back so that someone else ends up with empty promise and the blame falls on the debtor?

[elvaq]

Quick recommendation to check out Paul Mason who's been covering the situation in Greece for a number of years and is perhaps the economics journalist with the greatest access to Syriza.

 

His twitter is good but for nearly-daily summaries, his video blogs are really dang good:

(latest one)

[itsamoose]

And here is where it gets little tricky for me so I wanted to double check, which is, then they had this debt with interest that they knew would never materialize, but then sold that credit for profit (cause of interested added).

 

And these creditors are now blaming the Greeks for their inability to pay?

 

Is that right?  Basically the corruption is where rich keeps bouncing credit of burrowed money that would never be paid back so that someone else ends up with empty promise and the blame falls on the debtor?

 

I don't have a great grasp on this stuff either, but here is my read on the situation as I currently understand it.  Prior to Greece's Euro entrance, lots of banks bought up all their debt, knowing that once they were entered into the Euro the value of that debt would almost instantaneously increase and could be sold off for a profit.  Now if Greece is kicked out of the Euro zone again, that debt would transfer to the other members of the euro zone and take on a price similar to those seen of the debt in other countries.  This has 2 main benefits for the powers that be.  1 is obvious, the value of greek debt purchased prior to their exit would become similar to the value of French or other countries' debt which currently sells at a higher value.  Secondly it would help to bolster the arguments for austerity in the other Euro zone countries as their governments are now responsible for covering the payments of said debt.  Assuming my read on the situation is correct, it's a similar situation to 2008's credit default swap related crisis.  The currently low value Greek debt could be packaged with comparatively high value debt, thereby increasing its value, as well as the value of the default insurance policies or eventually cause those policies to pay out.

 

I could be completely wrong here, as I only have a basic understanding of these kind of financial instruments, so don't take any of this to be absolutely true.

[seamus2389]

And these creditors are now blaming the Greeks for their inability to pay?

 

Is that right?  Basically the corruption is where rich keeps bouncing credit of burrowed money that would never be paid back so that someone else ends up with empty promise and the blame falls on the debtor?

 

EU governments are now one of Greece's biggest creditors and none of them want to write off greek debt cause they will be raked over the coals come election time as to why they cost their voters hundreds of millions to billions of euros to a country known for it's political corruption, joke of a tax collection system and a recent finance minister who thought calling people Nazis is a good way to conduct negotiations.

 

Instead they will continue to kick the bucket down the road till Greece leaves the euro.

[Gormongous]

EU governments are now one of Greece's biggest creditors and none of them want to write off greek debt cause they will be raked over the coals come election time as to why they cost their voters hundreds of millions to billions of euros to a country known for it's political corruption, joke of a tax collection system and a recent finance minister who thought calling people Nazis is a good way to conduct negotiations.

 

Instead they will continue to kick the bucket down the road till Greece leaves the euro.

 

Yeah, although I wouldn't put it so harshly. Since Greece failed to meet the first of the IMF's ludicrously optimistic milestones, Germany has gradually come to realize, in practice more than in theory, that a union is only as strong as its weakest member, so increasingly since then, Merkel, Schäuble, et al. have mostly been stage-managing the bailouts and the negotiations to be as politically optimal as possible for them in Germany and Germany in the EU. At the end of the day, they've used unilateral declarations and pointlessly hardline positions to push Greece into one bad decision after another, lest its leaders commit political suicide, with the ultimate outcome that Greece will leave the euro (in order to free the leaders and citizens of other members of the EU from the mess in which they had a hand) with its economy in shambles (in order to cast the blame elsewhere than austerity and to put the fear of God into other weaker members of the EU). Thereby, they will have validated authoritarian control of debt crises within the EU by its strongest members, even though they helped to create this one and are almost entirely responsible for prolonging and worsening it, and there will be no outstanding argument against them taking charge when (and it will be "when") the next one happens.

[Mangela Lansbury]

http://www.thepressproject.gr/details_en.php?aid=79155

So is Germany basically the devil

[Gormongous]

http://www.thepressproject.gr/details_en.php?aid=79155

So is Germany basically the devil

 

The full details are even more horrifying. The Eurogroup proposal is impossibly strict, essentially demanding substantial results on every point before the Greece economy is given any more relief at all, and its sovereignty as a nation is severely curtailed through economic sanctions (and a gross "time-out" from the euro) until that point. They are strangling Greece and saying that they will only loosen their grip if Greece shows that it's able to take a breath first. I'm honestly speechless at how this has played out. Like Krugman has just written, who can trust Germany with anything now?

 

 

EDIT: Note, please, provisos for changing the structure of Greece's legal system with regards to labor and for privatizing their energy system. Jesus.

[Gaizokubanou]

Yeah I was wondering if I read those parts right...

 

Granted, before I get on my own high horse to criticize them, my government did invade multiple countries to enact similar changes so :x

[Gormongous]

Granted, before I get on my own high horse to criticize them, my government did invade multiple countries to enact similar changes so :x

 

I bet they feel stupid now, they could have just bought up a bunch of their debt and then driven them into the ground while enjoying record approval. Oh wait, they'd have to entice them into a monetary union first... I bet that's not going to be a very popular proposal for a few decades now.

[Gaizokubanou]

I bet they feel stupid now, they could have just bought up a bunch of their debt and then driven them into the ground while enjoying record approval. Oh wait, they'd have to entice them into a monetary union first... I bet that's not going to be a very popular proposal for a few decades now.

 

"hey Kim Jon Un, you want to burrow some money? just cancel your nuke program and you can burrow all the money you want!"

[Mangela Lansbury]

After looking over the agreement... I mean, at least no one can really kid themselves about the fact that capitalism is a system of violence and a modern tool of war, right?

[clyde]

I have a cynical question. Why aren't covert operatives forming violent coups or assasinating the democatically elected leadership so that they can get the deals they want (like in South American countries, Hawaii or Iran). What makes this situation with Greece different? Is it because the EU membership has enough leverage to get what global-capital wants without actual acts of explicit violence?

[Gaizokubanou]

Because they probably can't do that and come out ahead due to Greece's proximity/relative stability?  Or the bankers behind this don't have such direct access to hard power?

[Cordeos]

I have a cynical question. Why aren't covert operatives forming violent coups or assasinating the democatically elected leadership so that they can get the deals they want (like in South American countries, Hawaii or Iran). What makes this situation with Greece different? Is it because the EU membership has enough leverage to get what global-capital wants without actual acts of explicit violence?

 

Because those haven't been happening for decades. Overthrowing a government from outside is a messy and often counterproductive business, especially a popular one. We live in a far more peaceful age, both the international community and populations will not support/allow that sort of behavior anymore. Those kinds of operations also require at least some local support.

This Article made me happy, I am glad to be seeing a lot more pro-restructuring, pro-greek articles out there. 

 

"Contrary to popular mythology, however, there’s absolutely no reason why being “competitive” should mean running a trade surplus. As far back as 1817, the economist David Ricardo pointed out that the optimal basis for trade is comparative, not absolute, advantage. In other words, even if a country is better at everything, it should export what it is best at and import what it is less better at. Having an across-the-board advantage does not imply that it makes good economic sense to produce everything yourself, much less to sell more than you want in return. Or, to put it a bit differently, there’s no inherent reason why earning more can’t mean spending more, on consuming both public and private goods, as well as investing in future productive capacity."

 

http://foreignpolicy.com/2015/02/20/its-time-to-kick-germany-out-of-the-eurozone/

 

[Mangela Lansbury]

I have a cynical question. Why aren't covert operatives forming violent coups or assasinating the democatically elected leadership so that they can get the deals they want (like in South American countries, Hawaii or Iran). What makes this situation with Greece different? Is it because the EU membership has enough leverage to get what global-capital wants without actual acts of explicit violence?

For one, that only works for countries that are on the left side of a stability J-curve, and that doesn't apply to any European country. For two, spy agencies have changed drastically. For sophisticated governments, information is more likely to be collected and stored somewhere in the intricate national and global intelligence data complex. When you have such a data driven complex that is as notoriously bad at managing their data as the various intelligence agencies, it's harder to act. For three, there's no need to wage a covert physical war when you're already waging an overt economic war.