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"[..] That demagogic rhetoric comes up commonly and it makes the same fundamental mistake or perhaps not wanting to understand that serving your creditors [..]"

Insisting that the path taken with Greece was the good decision is what looks like demagogic rhetoric to me:

-In a country of 10 million persons, half a million have immigrated (probably the young and with more studies).

-They had a fall of their economy bigger than the USA in the Great Depression, for longer.

-They had been (and are being) forced to sell assets that belong to all the Greeks.

-Their industrial capacity is in its way to disappear totally.

-Of course, the quality of life have fall and unemployment is very high.

-Their economy have been directed by foreign powers.

-All the previsions done from the IMF, EuroArea and company were totally wrong.

-Their public debt is the same, if not bigger, that when the crisis started.

So, my question: what have to happen for you understanding that the option taken was wrong?

Counter question: what would have been the alternative? Default, exit €, and then all of the above but worse? I know that there are lots of people out there that think more debt is just the answer, but consider two things:

1. Your today's debt is other people's pension fund. So with what right shall a Greek pensioner retain her quality of life at the expense of a Dutch pensioner? 2. Exiting the Euro would undoubtedly shut down imports. At least for a while it would be effectively the same as cutting wages, savings, and pensions by some massive margin. Also the state would have no one to lend money from just after a default. Hence it would be forced into an even stronger austerity program.

> Default, exit €, and then all of the above but worse?

Says who? The economists who did not even seen the financial crisis coming and were clamoring that the real estate market was solid and totally fine even as late as 2007??

Just wondering...

The troika's handling of Greece was despicable, vengeful, irrational, and counterproductive.

> what would have been the alternative?

An early writedown of some debt and extension of other, enabling the economy to return to growth and service the remaining debt.

Re 1.: Pension funds and other institutional investors invest in equity and debt world wide, taking into account risk and return. Sometimes they make mistakes (or even not - sometimes the dice fall badly), and an investment goes sour. That's the market at work. In this case, however, European put massive amounts of money into Greece that were not used to prop up the economy, but to bail out investments by German and French banks. So, basically a transfer from the European tax payer to some banks.

2. It would make imports very expensive, but free up the domestic economy and make it more competitive.

"Optimum currency area" describes what's necessary for a currency union: homogeneity wrt external shocks (not the case in the EU), high factor mobility (limited in the EU, due to language/culture), or internal transfer payments.

In my view, Europe sat down for a nice dinner (10 years ago with the introduction of the Euro) in a restaurant and enjoyed it over a decade (with massive growth financed by cheap debt in many "peripheral" countries), and when the bill came (oops, we need these internal transfers now) - refused to pay. Shameful.

> European put massive amounts of money into Greece that were not used to prop up the economy, but to bail out investments by German and French banks. So, basically a transfer from the European tax payer to some banks.

Could you elaborate a little bit more? I never heard about it before.

https://www.esmt.org/pub/where-did-greek-bailout-money-go

> Could you elaborate a little bit more? I never heard about it before.

Where are you from?

No need to be snarky. Most media reporting on that crisis was histerical rhetoric about "lazy Greeks who won't pay their debts" -- a narrative enabled by North-European politicians like Schäuble and Dijsselbloem to cover their actions. A lot of well-meaning people fell into that propaganda trap.

I wasn't snarky...

Another good source, if you want a necessarily subjective, but I think sincere inside view, is the tell-it-all by famed former Greek finance minister Yanis Varoufakis Adults in the Room: My Battle With Europe’s Deep Establishment.

It's a bit technical occasionally, but really riveting and full of drama (unfortunately not fictional).

>but to bail out investments by German and French banks. So, basically a transfer from the European tax payer to some banks.

This is what gets me. What is an "investment" after all? Some amount of potential profit with some amount of risk. If the risk just gets eliminated (win: keep the money, lose: taxpayers cover your losses) then what the fuck kind of game are we playing?

I want in too! I want to go to the casino, if I win I keep the money, if I lose people I will pick everyone's pockets until I'm in the green again.

If you want to play that kind of the game, you better be friends with the casino boss.

In short, here you better be friends with the politicians, so that you can be bailed every time you need them. That doesn't come for free either, when you are winning you need to share some spoils with them.

That is what is supposed to happen though. If you have your own currency you have more control over your economic destiny. Greece's monetary policy was set by their creditors, and they were insolvent, that is a highly irregular situation for a country to be in. Instead of weakening their currency which at least brings in more foreign investment, they had to sell assets off, which serves nobody but their creditors.

The Euro is, for all purposes, a foreign currency.

You are making the (in my opinion wrong) assumption that Greece default has been avoided instead of delayed.

There is no way Greece can pay that, the only difference is that the money is now owned to international institutions instead of French and German private banks.

You make also the assumption that a Greek government with it's own floating currency would follow a pro-cyclical fiscal policy, like the one force on them now, instead of a sane one.

1. I don't know anything about the Netherlands pension system, but I doubt is based in only private institutions. If they have a public system, the dutch pensioners could receive whatever the Netherlands decide through its democratic institutions, only constrained by the real resources available to the Netherlands. Of course, being an Euro country, that could be decided outside of Netherlands.

2. A country that works with its own floating currency don't need to borrow its own currency. So the problem would not be money.

The biggest problem for a Greece outside the Euro, would be that they are very dependent of imports. In order to fix that you have to develop an industry. In order to develop an industry you need investment and industrial policy. That's it: the opposite of what is being forcing now in Greece.

The rethoric you cite is indeed somewhat demagogic, but the idea that "the consequence for defaulting is not getting any more loans" is disingenous.

Most countries in the world have had sovereign defaults, often several times throughout their history. See, for example, the map at https://katapult-magazin.de/en/artikel/artikel/fulltext/ston...

Spain defaulted 9 times, Portugal and Greece 6 times, Germany 5 times, the UK 4 times. They still get loans now.

> Spain defaulted 9 times

This was all before 1900 though, things have changed quite a bit since then.

They have? Details, sure, like structure of debt and who the creditors are (things like the IMF didn't exist previously), but countries still default.

https://www.rstreet.org/2016/02/22/countries-dont-go-bankrup...

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

https://www.bankofcanada.ca/wp-content/uploads/2016/06/r101-...

In any case, defaulting on debt is completely natural. It is what's part of how the system is supposed to work. If lenders didn't pay attention, out of lack of knowledge or willfully, and the debtor cannot repay, that's it. There has been a very successful campaign that strengthened the side of the lenders, big and small, over many decades - not necessarily consciously and deliberately (not a concerted effort). It's been successfully made into a moral issue.

Also, most of these nations defaulted because of vast political and societal changes. (russia has defaulted many times on it's debt thanks to the soviet revolutions and dissolution of the USSR for example).

The (most likely German) authors of that map forgot about the existence of their neighbours to the West - the Netherlands are a blank void, same color as the North Sea.

> Less extreme inflation relative to economic growth could boost relative competitiveness of labor costs is their own slight advantage but even that would call for a decline in standard of living as a corollary.

The question is do you focus on the "real" economy or the spreadsheet? If you are able to devalue and take the increase of import costs and generate competitive advantage by adding more value at a lower cost then the possibility is that your real economy will grow. More activity will create more actual wealth, which will help your fiscal position and restore standards of living over time. There are a lot of dependencies there, but there is a possible out.

On the other hand you can do what happened in Greece, stand behind the currency, slash spending. The problem is that this cuts the real economy without improving competitiveness. The Greek solution (and IMF standard) is to liberalise, sell assets and introduce more market activity into controlled sectors. The problem with this is that you have to actually do it and not just talk (Greece largely hasn't) and also while sometimes it has worked it seems that the precondition for it working has to be that the sectors in question are healthy and straining at the leash... which is not the case in crisis economies in general.

"[..] and also while sometimes it has worked [..]"

Can you give us some examples where this IMF standad solution has worked?

Britain in 1976, I think it was the first bailout by the IMF and was controversial at the time.

UK 1976, Mexico 1980's, India and Kenya in the 1980's too.

It's a pretty dire record though. I think that it's easy to argue that where there have been positive results that's mostly by accident. The UK is the best example of this - there was an IMF rescue and liberalisation but also an oil discovery which recapitalised the commercial base of the country and allowed an infrastructure building program.

If you are betting on an Indian styled recovery, then your odds are exceedingly low. Not only did we have a great economist as finmin, but also a lot of people who grew up to later take on major roles as bureaucrats and politicians.

And all of that worked because we had a PM who was able to thread the needle and make it work without giving in to any political group.

It’s a very very small window, and the resulting growth was pent up demand being brought online.

I couldn't agree more; as I said, the record is dire and where it's been seen to work I think a counter factual can be constructed that could have produced as good or better results. That's not to say that the IMF couldn't do far better, just not by using the formula of fail that they've stuck to for the last fifty years. Greece is going to be the proof point for me - all of the pain no gain at all. I give it eighteen months.

>>If you are betting on an Indian styled recovery, then your odds are exceedingly low.

And very painful.

Nobody talks of the pain in the immediate after math of the 1992 reforms. A huge section of people >40 years of age were crushed under computer based automation in factories and industries that followed. Several companies were shut down. Scores and scores of people lost jobs, and dumped into a labor market that had way high demands of productivity and skill they had to offer. This was with a huge number of both public sector and private sector companies. Heck even Bank employees suffered. All of a sudden a whole spectrum of jobs were just not needed(Accountants, Typists, Postmen etc etc)

Several families suffered quite bad. I was lucky that my dad was a driver, and those skills were reusable outside. But there were plenty of 'Supervisors' and other 'Desk job' people, who just got ruthlessly eliminated out of the economic scene.

Basically its not easy, for the existing population masses to face huge economic changes rapidly unfolding in months/decades.

I think that the lesson is that you can't avoid reality in the long run and government's role is to manage the transitions with the least destruction of human capital possible. This is what is so notable about Greece - there has been an utter disregard of the destruction of people's place in their community. I believe that this was due to the fact that the imposing authority was so overwheeningly powerful and so disconnected from Greek democracy.

>That demagogic rhetoric comes up commonly and it makes the same fundamental mistake or perhaps not wanting to understand that serving your creditors serves you as long as you need credit. The consequence for defaulting is not getting any more loans.

Yeah, idk. How many times has Argentina defaulted in the past 100 years? How many times has the IMF swooped in for that basket case and others like it?

All this means is that their yields will go up, and make it super attractive vs holding stocks, esp if you can lock in fx rates with forwards contracts on the EURUSD.

>All this means is that their yields will go up

This isn't a small thing for Argentina.

Ok fair, but the come down from the ZLB high isn't going to be pretty anywhere, except for those who managed to see past the smoke and mirrors in inflated asset prices in all markets and incredible mis-allocation of resources the world has been engaged in…

and even then, they will still have to deal with the fallout of those who took the bait (or "elected" people who took the bait on their behalf) and will be pissed… as we're seeing now all over the world today, and these were supposed to be the good times lol

/me sighs

Italy is banking on the welfare Northern Europe is giving them. Not unlike how California and New York pay for the US.

If Italy can't lend money they are finished and they know it. Politicians don't believe their own words.

What welfare are you talking about? Italy has been a net payer [0] in EU contributions from since I could remember

[0] https://www.cbs.nl/en-gb/news/2016/50/netherlands-largest-ne...

The biggest welfare is being in the same political Union as better functioning economies. I shudder to think how expensive it would be for Italy to raise money on the international bond market if it wasn't for the ECB.

More than offset by the ability to control their own currency and interest rates. They could immediately print away their external debts, for example.

You are factually wrong.