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Also, even if they were wrong to do so, something must have caused creditors to demand austerity, have those issues been solved? If Greece was given a clean slate, would it be a healthy, productive and growing economy?
There are a lot of places in the world where people have horrible social support. I don't wish it for anyone, but that's the reality for a lot of places. Maybe that ought to be the reality for Greece? Work until you die, third rate health care and infrastructure. I'm not happy to see it, but if you can afford more, energy is something that must be produced.
Austerity in Greece (much as in America) is pure class warfare: an attempt to break the back of the working classes so that their wages and negotiating leverage will be pressured down.
There is a reason that French and German creditors demanded that pensions and public sector salaries be slashed but "allowed" Greece to continuing purchasing expensive imported military hardware.
It's the same reason why Schaeuble and Dijsselbloem keep pushing for austerity despite the fact that it will never help get the debt paid back: they aren't actually interested in being paid back.
If I rembember correctly about 100 billion in total went in thsoe sort of deals.
The greek population then became very upset, because the hardware bought don't even work right (some subs that DO work, but float always tilted and are unstable, and some military planes that need an absurd amount of ground maintenance to fly just a little, something that to greece is useless, they need planes that can fly for longer time compared to the amount of time on ground).
One of the conditions of the bailout to Greece was essentially that the Troika should have some control over the Greek budget to ensure that it wasn't "spending irresponsibly".
The fact public sector pensions were at the top of the list of 'must-do' cuts and military hardware purchases weren't even on the list demonstrates where the Troika's priorities really lay.
Can you supply actual evidence for that claim? Because for those who don't agree with you (and there are many), the bare claim is not very persuasive.
https://systemicdisorder.wordpress.com/2012/10/10/quietly-th...
>The IMF said a common figure used by governments was to assume that for each dollar lost in government spending, 50 cents is erased from gross domestic product, an assumption used when creating austerity budgets. But, the fund said, its study of the issue has found that, since the economic collapse that began in 2008, for each dollar cut from government spending, GDP is reduced from 90 cents to $1.70.
i.e. yes it cuts your deficit, but your public debt/GDP gets worse.
I don't find it surprising that things changed in 2008 - we entered a very different economic environment then. So austerity was a bad (even disastrous) policy choice starting in 2008. But it seems reasonable to ascribe the bad choice to the troika being unfamiliar with that new environment, rather than to "pure class warfare". (Except once they learned that the conditions changed, doubling down on a non-working policy is less easy to justify.)
The only reason it "worked" was because it was implemented after the New Deal, which had provisions (like social security) that acted as a counter-cyclical automatic stabilizer.
>The modern US has not bothered to reduce its borrowing or spending in a meaningful way.
Naturally. The US economy would crater if it did. There has been a lot of political pressure to chip away at US social security, however, with austerity used as the pretext for why it is "necessary".
Fortunately the AARP is a powerful enough political force in Washington to make this politically impossible. For now.
As in Greece - all arguments about austerity go out of the window when talking about the military's budget, so this is most often used by Congress as a means of giving their constituents' economies a keynesian kick while not offending their corporate backers.
"The only reason it "worked" was because it was implemented after the New Deal, which had provisions (like social security) that acted as a counter-cyclical automatic stabilizer."
references?
Personally I think that they should default now and start issuing tax anticipation notes like California did. Losing access to the credit markets is irrelevant to them now, so they might as well hit the reset button.
>references?
Explanation here:
http://socialdemocracy21stcentury.blogspot.sg/2011/01/keynes...
Austerity == reduction in Government spending.
When has that ever been bad? Isn't small-government something to which all countries should aspire.
A couple of comparisons, bear in mind Greece has a population of 12 million and the UK 60 million
Does Greece really need 700,000 civil servants ( down from 900,000 ) when the UK makes do with 420,000?
Does Greece really need a standing military of 140,000, the same size as the UK's military?
And that's where the current party came in and said "Okay, we HAVE TO make reforms because we have been spending wrongly, among other things, BUT we can't do whatever just so numbers look right - it has to make sense, both for the country to continue existing and for the creditors to see that they have a longterm trustworthy partner on the other side of the table."
As for your last question, two things:
a) Why does an EU-member country have to spend on military AT ALL? Shouldn't such costs be executed at a EU-wide level?
b) Greece is neighbourhooding with Albania, FYROM, Bulgaria, Turkey. UK is surrounded by...the sea, Ireland and...France.
2) Corruption - Greece just isn't as 'well-run' as Germany - a lot of that money gets skimmed off the tops at the expense of the people. Yes, the 'people' elected the governments that took the money and skimmed the money, but if you think the U.S. government is slanted towards corporations than Greece's is backwards in comparison.
3) This matters for a lot more than just Greece - all of the EU is at stake, and yet blame seems to get layered onto Greece.
1) Greece was not always a deadbeat. a) misuse of money over many years (kleptocracy) b) lack of competitive advantage after merging economy with stronger countries (eg. Germany) and c) a large influx of cash from stronger countries that eased productivity and entrepreneurship is also to blame. Imagine if US slashed "bullshit jobs" tomorrow what effect this would have to consumerism and GDP in comparison. Austerity measures in Greece basically stagnated cash flow to the economy which like US is mostly service sector - based.
2) Structural reforms are far behind due to the Kleptocrats' influence till today. Clean slate, dealing with kleptocracy and a growth plan would do a lot to reverse this
3) Sensible management and right investments could mean no such fate for Greece. Gourmet-quality agricultural products and food processing, tourism by exploitation of natural beauty and rich history, and a strong shipping industry and tradition could help this country move forward. Mining also has some potential but I am not sure if it can account for a big chunk of the new economy.
For me, it boils down to: should reasonable people think that Greece can and will execute?
The reasons for this were complex, but had a lot of do with German fiscal and labor policy. Once the loans turned out to be bad (because why on Earth did the banks expect that all of these funds could possibly to put to good, productive use, especially once credit standards were lowered), Greece was expected to deal with the situation. They did, and they bankrupted the country doing so (same with Portugal, Spain, and Ireland).
There is, of course, plenty of blame to go around, but this is not a situation where the Greek government borrowed a ton of money and wasted it. They borrowed a ton of money to bail out their banking system including a bunch of German banks (which is where a lot of the money originated). This is exactly what the global economic elites were telling everyone to do in 2008. Then, once things got ugly, those same elites decided that the Greek people should collectively pay the price for two bad economic policies that were only partially the fault of their government.
Suggested reading:
http://www.amazon.com/Austerity-The-History-Dangerous-Idea/d... - this book goes into great depth about what exactly happened in Europe.
http://blog.mpettis.com/2015/02/syriza-and-the-french-indemn... - blog post that describes how what has happened in Greece, Spain, and Portugal was effectively inevitable and not the fault of the respective governments so much as it was a result of a series of pan-European financial blunders.
In the US there was quite a series of legal moves requiring banks to lend mortgages to people who didn't previously meet the banks criteria. Were German banks similarly compelled or was it just bad judgement of the banks?
I believe it was bad judgement^H^H^H^H^H^H^H^H^H a business decision on the part of the bank(s).
[1] http://en.wikipedia.org/wiki/Community_Reinvestment_Act [2] http://www.ritholtz.com/blog/2009/06/most-subprime-lenders-w...
A article of history [4] and the numerous WSJ articles provide a pretty clear picture. CRA had some very foolish amendments including some that affected the deployment of ATMs of all things.
It wasn't the single cause, but it was a major player.
Which brings me back to my original question "Were German banks compelled to make bad loans or was it their failed risk judgement?"
3) http://www.ocregister.com/articles/loans-20542-subprime-bank...
4) http://www.businessinsider.com/the-cra-debate-a-users-guide-...
It wasn't a cause at all, as I pointed out above (with citations to the relevant studies).
The line you keep spinning is the same line used by the banks as they tried to dodge responsibility for the subprime crisis: blaming it on Congress "forcing" them to lend to black people.
The Community Reinvestment Act was at its heart about ending redlining of poor, black neighborhoods.
This is not at all a controversial part of the story.
Instead, German wanted to lend to Greek banks / Greece because they got slightly more interest in return for debt that they believed (or, more accurately, hoped) had essentially the same implicit guarantees as the German equivalent. Given how the crisis has played out, that gamble paid off. It probably shouldn't have, but then there would have been downstream issues (German banks collapsing, etc.).
I do wonder what the political implication would have been if German banks had refused to lend to Greek banks?
http://newamericamedia.org/2011/02/loans-to-minorities-did-n...
http://econpapers.repec.org/article/ucpjlawec/doi_3a10.1086_...
"On average, the CRA appears to have had little impact on mortgage lending, even during the mid-2000s, when lending to lower income areas nevertheless soared."
Unfortunately I don't have sources now (I saw the explanation back when greek protests started, some years ago)
> this is not a situation where the Greek government borrowed a ton of money and wasted it
Government rescuing private firms that made bad bets from facing the financial consequences of their actions sounds like a waste of money to me.
One way is to say this: All countries (and regions) have periodic downturns. When this happens you either have fiscal flows from richer to poorer regions (the US does this), or you have currency devaluation (the EU prior to the Euro did this). After the Euro, the EU was still reluctant to have straight up fiscal flows (if the EU worked the way the US works, Germany would straight up fund Greek unemployment benefits). But with a shared currency, currency devaluation was also not possible. This left only one answer: So called internal devaluation. The standard neoliberal textbook answer is "don't ever do this, it's slow, terrible, and doesn't really work", but Greece had no other options. (Krugman is quoted at the link; in this he speaks for the neoliberal consensus.)
You ask why you shouldn't think of Greece is a deadbeat; the answer is the same reason why you shouldn't think of Alaska as a deadbeat, or the north of England as a deadbeat (both relatively poorer regions of larger nations which are net recipients of government transfers); because they're people suffering from an economic downturn largely beyond their control, and they need help. Greece didn't need (or deserve) loans, they needed aid...or a devaluation. Since aid was politically impossible, and devaluation legally impossible, they got loans. Which they couldn't pay back, which forced them to make cuts which deepened the problem. To the surprise of no one, really, but what else could be done? Even Krugman never identified a politically and legalally feasible alternative.
Another approach is to focus on your question "If Greece was given a clean slate, would it be a healthy, productive and growing economy?" The answer is "yes of course". Until Syriza came to power Greece was running a "primary surplus" (that means their budget balanced if you don't count interest); that means that if they simply defaulted they would be, economically, fine. Greece doesn't (or didn't, but we'll come to that in a moment) need to borrow to fund ongoing government operations; they only need to borrow to fund repayments of the money they already borrowed. And again, they were forced to borrow, because the options that would normally be open (aid or devaluation) were closed to them.
(Note: Greece hasn't run a primary surplus the last two months because tax receipts crashed on the election of Syriza. Syriza ran against some of the more onerous taxes, and people stopped paying them on the assumption that they would soon be repealed, or at least unenforced. Ironically, this means that the election of Syriza has made the bargaining position of Greece's Syriza-led government much worse; the last government could credibly tell the markets to jump off a cliff, but the current one needs to continue borrowing to avoid a crisis. Not the first political party to be hamstrung by their own election promises, but it's rarely so severe.)
Anyhow, when you say "Maybe that ought to be the reality for Greece?", what you're really discussing is a devaluation, where a nation collectively realises they aren't quite as rich as they thought, and scales all their expectations down. A salary that might have stretched to a new Lexus now only stretches to a new Toyota, or whatever. Devaluations are normal and healthy; southern European countries devaluated their currencies over and over and over again in the post WWII years. Greece should have done that at the start of the global financial crisis; they should probably do that now.
There's just one problem: They can't do it, because they're part of the euro. Or rather, they can, but rather than it just being a matter of the drachma/deutchmark exchange rate shifting a bit, and everyone's drachma salaries being worth less, while all the tourist's pounds and marks are worth a bit more, with everyone's mortgages, employment contracts, pensions, etc. being left alone, Greece now faces the reality of an internal devaluation, where everything has to change in a brutal, grinding process. (Edit: Devaluing the currency would also decrease the loan burden; they could just print drachma to pay back the German loans. Which they can't do now, because they don't have the drachma. My point is its all linked; Greece has much less control over their finances than we would expect a "real" country to have, and all the obvious answers that countries all over the world have used and continue to use are closed to them. Personally, I struggle not to be sympathetic. The US and the UK don't—in fact, can't—face a problem like Greece faces, because they still have printing presses.)
(Again, US states face the same issue, but the US has a strong federal government that transfers enormous quantities of money between regions. The EU, in comparison, is tiny. And incompetent. And (arguably) dominated by Germany.)
TL;DR: Joining the euro removed every existing easy or painless way to fix the problem, but didn't add any new methods. You can blame Greece for joining the euro all those years ago, but once they did, the problems were set in stone. Calling them deadbeats now isn't really accurate, but worse, it's pointless.
Ninja edit: Or, of course, Greece could exit the Euro. But that cure might be worse than the disease. Then again, there may no longer be any other options. We live in interesting times.
[1] http://business.financialpost.com/2015/02/05/ontario-gouging...
So, for example, consider Britain. In 2006 and 2007, the pound-euro rate was quite steady, with the pound buying somewhere between 1.45 and 1.50 euros. When the financial crisis hit, the pound dropped like a rock, buying only 1.05 euros at the worst point. Since then, it's steadily re-appreciated, but even as recently as the start of this year it only bought less than 1.30 euros.
Britain's devaluation was no accident; it was in fact one of the main goals of QE (or conversely, on of the main mechanisms by which QE was meant to work). Imagine if Greece could have knocked almost 1/3 off the value of their loans to Germany, their pensions, salaries, hotel rooms. Things might have been very different!
Krugman has a column on devaluations in history you may find interesting as as well, he mentions Britain in 1992, as well as Sweden and South Korea: http://krugman.blogs.nytimes.com/2010/11/24/devaluing-histor...
In the present day, really, anywhere that had some form of QE was undergoing devaluation (under a floating rate regime, the way you devalue is to print a boatload of currency; since the demand is staying relatively constant, as supply goes up, price goes down). (Although keep in mind; devaluation is relative to somewhere else. Everyone can't devalue at once!)
Really, the bottom line is that countries routinely devalue when they get into trouble, and it serves them in good stead. Even during the great depression, there was a clear correlation between how soon the country dropped off the gold standard (and thus devalued) and how quickly they began to recover. (Britain did so quickly; the US did so slowly.)
[1] http://en.wikipedia.org/wiki/Black_Wednesday [2] http://cdn.static-economist.com/sites/default/files/imagecac...
Follow up question: if using the euro has tied the monetary hands of Greek policy makers (they cannot create currency), can they accomplish the same goals of currency devaluation using fiscal policy (taxes/spending)? (i.e. instead of everyone losing wealth through currency devaluation, everyone loses it through increased taxation). And I guess the obvious follow up to that is, is that basically what these austerity measures amount to?
If you try and balance things with higher taxes and spending cuts, then the pain will be very unevenly distributed. You can't cut spending very much without hurting the poor; you can't raise taxes very much without sending the rich overseas, which means you have to raise taxes on the middle class instead. What do you call a society that cuts the safety net of the poor while taxing the middle class?
I can think of a lot of negative phrases. But here's one: "likely to elect a bunch of fascists like the Golden Dawn on a platform of doing whatever it takes to stop the pain". Even if you think it's fair, it's not a realistic proposal.
(Politics is about the art of the possible. Greece is in a situation where internal devaluation may no longer be possible.)
If the CEO wakes up to find the drachma is worth half what it is, he's likely to be only slightly affected. That's because he's unlikely to have large parts of his savings in cash.
(That being said, no, it's unlikely that the archetypal CEO will be hurt as badly as the archetypal janitor. On the other hand, the obvious alternatives are no better, and internal devaluation is clearly worse. One of the reasons being poor sucks so much is that it's so hard not to be hurt by every fluctuation, regardless of direction.)
PS: the day that the US collapses because of its giant debts, I hope you will think again about this: "shouldn't the government and people be accountable for it?".
When did France and Germany force Greece to do anything? I was under the impression that the Greek government negotiated the terms of the bailout which they're now talking about repudiating.
Lets be clear, big mistakes have been made and someone will have to pay. The opinion if Syriza is that is not the poor who have to assume the consequences.
Greek protests were the population pointing out that the deals would fuck them over.
The rulers of Greece ignored the population, and took the deal anyway, and France and Germany KNEW they would take the deal, because it would be profitable for them (Greek rulers then had lots of some bizarre derivatives in Switzerland that would appreciate if they had taken the bailout, thus a "legal" way to steal public money)
Brazil situation is so hopeless that people are just outright leaving (permanently), having given up on the fake democracy that we have here (or at least we HOPE is fake democracy, if it is real democracy some genocide is needed urgently).
Brazillian homes value outside Brazil doubled in value since 2008, and I doubt most of it is inflation.
The only reason I didn't leave myself, is because I don't figured how.
Brazil for example the same party is in de-facto power ever since the military dictatorship ended, despite (or because?) this party is extremely corrupt, and is involved in ALL corruption scandals since they took power.
Currently our election process rely on an electronic urn and some other electronic systems, that we are NOT allowed to see the source, or do penetration testing and whatnot.
There is no proof (or counter-proof) if the system really works properly, or not.
We DO have some testing done in machines made by the same manufacturer, those tests proved that cheating elections is extremely easy, and in our case if the cheating used the previously mentioned exploits, there are no way to find out (our elecronic ballots just give you the final result, there is no way to individually count the votes, so the machine can count the votes in whatever way it wants, without anyone knowing, beside the programmer of the method).
If you choose to consider the Greeks deadbeats, I hope you hold the same contempt for Germans, who had a huge debt write off in 1953. Nor, indeed, have the Germans repaid the the forced loans that the Nazi extracted at gunpoint from Greece and other occupied countries.
More like, complaining that you have to take the bus after the police seized the car which other people stole and sold to you at full price.
Slides 5 and 6 can be a bit misleading since it only shows that in Greece the monthly minimum wage is 586 Euros. This number is still higher than some countries of the Euro Zone, and people may think that it is pretty fine.
In order to understand the crisis you have to consider that the minimum wage in 2008 was 794.02. In addition to that some people settle with salaries as low as 300-400 out of fear to lose the jobs they have in struggling small businesses. 25% unemployment is really an underestimate since people who have lost their short-temp jobs or never had any job or are in some kind of educational program are not counted as unemployed.
Now take into consideration that salaries were pretty predictable for decades and people made their plans, mortgages etc, and you get a taste of what is happening...
They should exit the Euro. Better to default, deal with the temporary pain, and re-emerge vs being shackled to austerity-induced slavery. Like Iceland did.
http://www.spiegel.de/international/europe/financial-recover...
It's not black and white, but from all the people who has responsibility in that failed business, I don't think Greek citizens should be on top of the list.
http://www.wsj.com/articles/SB100014240531119044917045765747...
http://www.reuters.com/article/2012/11/03/us-greece-drugs-id...
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If you really want to show your support for Greece, you certainly can.