Why Greece and the EU aren't playing games
bbc.com
bbc.com
Step 1. Bring foreign banks into country and proceed to make loans that are known obviously to be non-repayable. No one says "no" to free money.
Step 2. Keep doing this until a debt crisis is reached.
Step 3. Have the bank-and-currency related foreign country and/or entity create a "bailout" package that fixes the foreigner bank ledgers. It does nothing else, there is no relief except to the foreign banks.
Step 4. You now own that country, its resources, and all the people in it. You just bought it.
The fact is, they got a free ride for a couple decades on free money. They can take it and set out on their own, or pay lip-service to those debts (realistically, it's not going to get paid back fully in any outcome). It is a sovereign nation and can choose what deals to make, without your help.
> Nobody is threatening Greece with military action should they not pay their debts.
It should be quite obvious in 2015 that military action is not the only way nations can destroy other nations. For example, forcing them via a corrupt and disconnected government to pay into an unsustainable financial settlement until they are bled dry and peeled down to the bone is one way you can destroy a country.
Why do we equivocate governments, states, and countries? The country of Greece suffers for the sins of its state, executed by its corrupt and inept government.
I also don't see what exactly you mean by "You now own that country, its resources, and all the people in it".
Minus hyperbole, who owns what exactly?
If you read the terms of the bailout, it consists of prosaic reforms like allowing shops to be opened on Sundays, eliminate rampant tax avoidance, rise retirement age to merely match other Euro countries, stop hiring government employees if you don't have the money to pay them.
And at the end of the day, the only way to enforce that Greece does those reforms is to stop giving Greece even more money. Greece promised and failed to deliver before.
Those are things that Greek government should have done long time ago except they didn't, got in huge debt and now some people think that it's the lender's fault.
No. I'm putting the blame on the heroin supplier.
That's why lenders make money. Because there is a risk of default.
Bailing out an irresponsible lender to turn the problem from simple finance to geopolitics is not how you solve insolvency. That is how you use insolvency as an excuse to undermine sovereignty.
> Those are things that Greek government should have done long time ago except they didn't, got in huge debt and now some people think that it's the lender's fault.
It's not the Greek people's fault either. Also, again, when a debtor cannot pay, they default. They do not suffer arbitrarily at the whims of nations and supranational institutions because it's been literally centuries since anyone thought that bankruptcy meant that your autonomy and ability to go on with life was forfeit.
Greece's economy collapsed by 25%. The people who structured the deal predicted it would shrink less than 5%. Greece 'fails to deliver'; the people who keep trying to collect on worthless debt fail to be reasonable or realistic. The people who suffer are people who did not make the deals. People have died because of austerity in Greece. For what? Your insipidly vindictive morality?
> Minus hyperbole, who owns what exactly? > Greece behaved like a heroin user and you're putting the blame on rehab clinic.
Presented without comment.
Nope! Interest paid also covers more things, like inflation, opportunity cost, and other risks. You could make money as a lender with zero default risk.
This is a complicated scenario, so simplifying definitions to make a point can end up biasing the result a lot. If it's your chain of reasoning, great; but if you publish it, it's best if you strive to be as complete and transparent as possible: https://news.ycombinator.com/item?id=9996843
In this case, we would be talking about a rehab clinic that gives heroin for free to the people in order to get more customers (patients).
All you do is have a claim over a chunk of the future earnings of that country.
All this could have been avoided many times, if the Greek government had stopped expanding its government and welfare programs. People sounded the alarms back in the 1980s when the expansion of the state was first begun in earnest.
Really, it betrays a fundamental principle that voters will knowingly keep returning government with no intention of handing down a balanced budget, if they think they can get away with it. It's rational behaviour to vote yourself largesse if you think someone else will get stuck with the bill.
Greece does have quite a lot of middle-class and upper-middle-class entitlements, like good benefits for government employees, extremely generous employment terms for doctors, fairly good unemployment insurance for the temporarily unemployed, early retirement for professionals, etc. These tend to support people who already have more money, though. A possible exception is that the pensions in some cases act as a de facto welfare system, because pensioners are expected to support their unemployed kids, so in the case of poor households, one pension supports a meagre lifestyle for 3-4 people. So as long as you have at least one pensioner in your household, there is some minimum level of guaranteed income. If you don't, say that you're a long-term-unemployed 40-year-old who doesn't have family support, then you're pretty much screwed. At best you may try to get some support from the church, which runs soup kitchens and such.
And of course it has a big tax-evasion and corruption problem, also largely among the better-off segments of society, which causes problems on the revenue end.
For example, take this infamous episode of split or steal: https://www.youtube.com/watch?v=S0qjK3TWZE8
One side makes a choice to go with perhaps the most "irrational" choice. But if you think about it for a bit, it's obvious that they end up guaranteeing the better choice for both parties by being less greedy than they might be.
Anyone interested in the topic of rationality as it pertains to game theory might also like reading this: http://www.dklevine.com/archive/refs4375.pdf
If the politicians agree to an austere fiscal policy with the Euro, it will mean setting their economy back in a very visible manner and jeopardize their re-election chances. The countries in the E.U. are still very nationalized, and competing political incumbents will be able to spin the policies as sacrificing their own country for someone else's mistakes.
The politicians are still acting within their best interests to keep their jobs, even if that means sinking the Euro.
The power of Greece's argument was that in a case of a Greek default, the EU could either do their current QE * 30 for a month or two, paying all of it to Greece's lenders (like they did in 2008), or face nearly all regional banks going bankrupt.
Discussions weren't going well. The EU froze most of Greece's bank accounts, and ... then Tsipras simply gave in, seemingly getting very little in return.
The EU is crippling Greece, removing their ability to ever restructure or become a healthy economy, over what is piddling amounts of money.
Maybe I am just terrible at reading charts, but it seems to me that based on https://en.wikipedia.org/wiki/Federal_taxation_and_spending_... the US spends hundreds of billions of dollars per year supporting those states that aren't "profitable".
The US would fall apart very quickly if the federal government insisted on handing out loans and forcing the cancellation of aid and welfare programs in states that needed help the most.
The sorts of restructuring plans that are put into place are designed to solve this problem, but I think whoever designed them is a sadist.
It is said you cannot spend your way out of a recession (and I'd agree that one off projects that don't kick start a continued source of income don't work), but you also cannot make so many budget cuts that no one in the country has a job, or a house, or a support network of any kind. Zero tax revenue does not make for a stable government.
(It does make for a really corrupt one though, and a much worse type of corruption than what Greece had before)
Is this brutal and bleak blunt instrument really the most sophisticated strategy that we can muster in the 21st century? Can we really do no better?
You may find this interesting: http://blog.mpettis.com/2015/02/when-do-we-decide-that-europ...
Yes. Shouldn't the German national ego be counted less important than making everyone's accounting add up?
now what's your strategy on bringing germany around to that pov? Because their politicians are poisoning the environment so that you can't even start that discussion.
One of the core problems in all of this is that neoliberal political thought is forcing collective responsibility for what was poor commercial and economic management of a few companies, banks and governments on taxpayers in both creditor and debtor states. Responsibility is being enforced through tax dollars going into both debt forgiveness and service cuts. Poor due diligence and risk management on the part of creditors and reckless borrowing is burdening the populations of both "Germany" and "Greece" (where Germany and Greece are the creditor and debtor nations) with the costs.
I always thought that was the big difference between the United States and the "United Euro States"--the EU. The USA was founded "fresh" as a place in which states had a measure of independence but ultimately formed a nation at a federal level. That meant that it was in the nation's self-interest to help out states that ran in to trouble--paying off debts, etc.--because helping a state out would help the nation succeed.
The EU was formed with the baggage of centuries of bloody warfare among nations of wildly different and opposing cultures. I don't think that kind of history--and more importantly, the fundamental differences in culture--can be shrugged off in the 50-odd years that the idea of the EU has been around. It would seem that in practice, EU member nations are still very much about finger-pointing, and that can never lead to a successful federal bloc.
When a state goes bankrupt in the US, the other states pitch in at a federal level to solve the issue without divisiveness. When an EU member goes bankrupt, the other members demand blood.
It's pointless to compare EU to USA. They are not the same, they were never meant to be the same, and no one wants them to became the same.
I want the EU to become a successful federal _economic_ bloc. It already is a semi-successful federal _currency_ bloc. Some bailout institutions based on loan repayments have been created owing to this crisis. We need to go one step further and work out a system of fiscal transfers which upgrades us from a currency bloc to an economic one. We're one step away, that's all. Granted, it's a big step. I don't even mind if it happens covertly in the fine print of some labyrinthine deal because peoples' nationalism is a bogey that should be defeated by foul means as well as fair.
I doubt I'm the only one. I think anybody who calls themselves European first, and their own nation second would agree with me.
Greece is sovereign and run by crooks.
If Greece were under German control they wouldn't even need to cancel the debts, the country would grow so fast that it would be easily sustainable.
Let's not give them any ideas, ok?...
Isn't it a bit extreme and possibly false to claim this? Was there a study that the euro could not work, followed by a conscious decision to pursue it nonetheless?
The whole article is far too simplistic, lacking in nuance, far too reductive. It would benefit from attention to detail. But then it couldn't be quite as dramatic, excitable and voluble.
Some, such as the UK, doubted the € was workable -- but as the project is still in progress, as can be attested by the denominations of the accounts and coin of many a person, we still have to wait and see. Whereas some said that the conditions for entry mitigated the risks of failure. As things stand, the UK is right, the project will not succeed -- given the current conditions and economic trajectories. But, and it's a big but (hmm, never thought I'd write that clichéd phrase), maybe the conditions for the project to work shall be put in place. I, for one, certainly hope so.
Then others said "But Euro is different" never making it clear what's different about it.
I bet if you searched old newspapers and magazines you would find plenty of articles.
It's amazing how correct the UK "No" campaign was.
The more conservative politicians, who would have maybe had the foresight to leave, were elected out of office by the people.
The euro(the money) isn't born out of any necessity, it's purely an ideological project. So it's no surprise it is destined to fail. The only question now is, will it fail peacefully or not?
"Game Theory" in the context of this article is assuming that all countries on the Euro will rationally avoid mutual destruction. To do that, they all need to agree to the fiscal policies that would have prevented Greece and others from getting to the point that they're at now.
But that's not happening - there doesn't appear to be a universal fiscal policy for the Euro in sight and they're heading for mutual destruction (i.e. the countries are not behaving rationally and game theory doesn't apply).
https://en.wikipedia.org/wiki/Maastricht_Treaty#The_Maastric...
What would you suggest as the enforcement mechanism for such a mandate? You can't kick a country out of the currency.
That's bull. Norway, UK and others are doing pretty fine and they do not have the euro. France,Spain,Italy,and Greece are a complete disaster,only Germany is doing really well and it's clear it has nothing to do with the euro.
> The problem lay in the implementation, and not mandating a fiscal policy for membership (e.g. something similar the austerity measures).
Oh yeah, Euro is broken , so what do when need? more Europe, more power in the hands of a few ... no we need to get rid of that stuff asap and less concentrated powers.
There was no need for a monetary union. At all. It didn't bring back all the industries, it didn't create jobs (10% unemployment in my country,...) , it served no purpose at all.
Germany is doing fine particularly because of the euro. They can have very cheap exports because of it. When a single currency represents vastly different economies, it's obvious the rich get richer and the poor stay poorer.
Of course, the euro was only meant for countries with comparable economies. Too bad Greece basically lied to adopt it. And now Germany has every reason possible to keep weaker economies in the fold for its own benefit.
Germany has everything to benefit from the Euro with it's European exports.