The Greeks merely elected a government to stand up to it.
[1] That side of the German stance has been thoroughly discussed even in the Economist, Bloomberg, Financial Times, NYT, etc (as well as the huge financial gains Germany got from the "assistance" they provided).
The inability to do this benefited Germany, at the cost of Greece.
This gives a pretty clear indication in whose interest the ECB works. Namely in the interest of the majority of the board members.
(...)
The ECB was modelled on the German Bundesbank. As a result, it is one of the world’s most politically independent central banks; its mandate is focused narrowly on price stability; it does not take broader economic goals like unemployment into account in the way other central banks, such as the Fed, do; and it is de facto more restricted than other central banks, since controversial measures can lead to complex political and legal struggles, involving 18 (soon to be 19) countries. Its setup and philosophy are therefore ‘German‘, that is, conservative and cautious.
(...)
A wide range of studies have so far failed to establish a firm consensus on the influence of various countries on the ECB during the euro’s first decade. However, most studies have found that the ECB behaved like a multinational central bank, in which each country has a weight proportional to the size of its economy.
This gave Germany a higher weight than other countries because it is the largest economy in the eurozone.
But it is hard to argue that there was a German bias at the ECB before the crisis. In the post-crisis period, the ECB has failed to stabilise the economy, and inflation has fallen to just 0.3 per cent. It is tempting to see this as the product of a German bias, because the German economy has suffered least from the ECB’s hesitation to do more. But it is hard to argue that German pressure prevented the ECB from lowering rates faster during the last two years, for example, or managing the inflation expectations of consumers and investors more aggressively. Rather, the ECB’s misjudgement of the economic dynamic in the eurozone prevented a more timely and aggressive stance. However, now that the ECB has to move further into unconventional territory to correct its previous errors – potentially by buying government bonds – Draghi has taken German resistance into account and delayed quantitative easing (QE).
(...)
In the governing council of the ECB, all relevant monetary policy decisions are taken by simple majority, with the smaller countries having one vote each, and the larger countries traditionally two (because of the additional votes of executive board members). Some of the more fundamental decisions, like recapitalising the ECB, need a two-thirds majority, based on the ECB’s capital shares, but even then Germany has no veto. What is more, there is currently a clear majority for more aggressive ECB action in the council, which Draghi can draw upon whenever he decides that the time is right. Formally, there is no need for German approval, either from Berlin or from the Bundesbank. Why, then, is Draghi waiting for German approval? There are two possible reasons. First, he might consider it unwise to conduct monetary policy in the face of opposition from the largest eurozone country. There is some merit to this view but it loses validity when the ECB is failing to fulfil its inflation mandate by a wide margin, as it is now.
(...)
Even the relatively cautious OECD has now come out in favour of further monetary stimulus, and the IMF has been urging the ECB to do more for a while. Given that the Fed and the Bank of England have bought government bonds on a massive scale, the ECB would be well in line with consensus views on monetary policy if it did the same.
(...)
The second reason why Draghi might want to get Germany’s backing is that he may fear losing the German government’s consent for the ECB’s other operations, which are not strictly monetary policy. The most important of these, of course, is the OMT programme, which was announced during a panic-driven run on eurozone government bonds in the summer of 2012. The ECB declared that it intended to buy unlimited quantities of these bonds if the panic did not subside – which it then duly did. This programme makes the ECB the implicit guardian of the eurozone as the lender of last resort to governments, but the OMT is in part a fiscal operation. Without the support of Germany, the country with the deepest pockets, the OMT might fail. Draghi therefore does not need the Bundesbank’s support but that of Merkel and the German government – which has backed him on the OMT.
http://www.cer.org.uk/insights/ecb-not-german-central-bank#s...
[I]t is hard to argue that German pressure prevented the ECB from lowering rates faster during the last two years, for example, or managing the inflation expectations of consumers and investors more aggressively.
Because it goes on and on about how Germany affected ECB for several paragraphs, and explains the reasons and how.
Italy pulled this same stunt in the past; mostly as a way to avoid actually fixing the many problems with the economy here. Floating exchange rates are good in some ways, but those kinds of devaluations are problematic in many ways: you're basically stealing wealth from savers in order to goose export industries a bit, until your crappy economic policies come back to bite you yet again and you need to repeat the cycle.
(2) Greece can change its exchange rate. Just declare bankruptcy and leave the Euro.
(2) Which would fuck with the EU a lot more than it would bother Greece, which is why they're making the stand that they are, they know they have less to lose.
There's a reason they haven't been kicked out already. ;)
(2) I agree that that's the game Greece has been playing. But it's perfectly compatible with what I said.
Germany makes its money on manufactured-goods exports, though, so an artificially cheap currency helps them.
Knowing what we do about human history, why would you assume that kindness-filled all-classes-living-in-harmony! rhetoric has much descriptive power?
With a king, a feudal lord or a pharaoh you can see the "class" thing and the exploitation immediately -- why think that with a modern man that has 1000x times the money and resources of his fellow citizens it's any different? Because democracy?
"Germany is still exporting like gangbusters [to Greece] despite the poor country being in its fifth year of recession. In fact, Germany’s trade surplus per person with Greece is 3.6 times bigger than that with the U.S. (290 euro per Greek versus 81 euro per American)."
Exports deficits are benefitting the exporter only if eventually the importers pay. But we are seeing that the importers are unwilling/unable to pay.
Moreover the article says
Euro itself collapsed, resulting in Germany’s higher positive trade balance.
> Given that Greece is 'paying' for these imports with borrowed money, which is unlikely ever to be paid back, how is this setup benefitting?
> Well, the Euro collapsed for everybody, so all other Euro members had exactly the same benefit.
I don't know if you're trolling me or not. Maybe you should read a little bit about the context before engaging into similar discussions.
A few good starting points:
Macronomics: http://www.amazon.com/Macroeconomics-3rd-Edition-Paul-Krugma...
[2] http://www.amazon.com/Currency-Wars-Making-Global-Crisis-ebo...
Also read about public debts what they are and how they did evolve.
Finally, you're looking financial answers to a political problem. Strictly financially speaking, debt restructuring is the only sensible solution to Greece AND everyone else. What you're watching, is a live show of poor justifications from failed politicians (all over the EU).
Greece was bullied and has been bullied and the average Greek has suffered as a result. They are not blameless by any means but what has happened to Greece is not just.
Terms that seem too good to be true, are. Borrowers know this. Nation-state borrowers certainly know this.
So sure, easy money was available. No one forced anyone to take it.
There were political considerations involved, obviously: parties that were willing to mortgage the future of their nation were more likely to get elected than parties that were willing to be fiscally responsible (to the extent that it would be astonishing if there even were parties willing to be fiscally responsible.)
So leaders offered terms, but that meant nothing without borrowers being willing to take them. I don't see how, despite politics, that the lenders bear any blame for that because national governments are presumed to be mature stewards of the state, able to say "No" to enticing but ill-advised offers. To argue otherwise is to suggest that the Greeks et al are simply not ready or able to govern themselves, which I have difficulty accepting.
And what happens when a new government is elected that is made up mainly of people who actively protested the loans and the terms the ECB made in the first place and for their trouble were gassed, beaten and jailed?
People who turn off their brains and their capacity for moral/ethical calculation for no better reason that "someone signed a contract" are reductionist, simplistic and are capable of assent to monumental crimes.
Ever heards of "lackeys" in power? Countries ruled by people whose careers are sponsored by foreign powers? It's quite common in Latin America, Africa, Asia and Southern Europe, namely in all places not big enough to be colonialists themselves.
Greece has been a protectorate and semi-colony (with some parts, like the Dodecanese, Ionian Islands and Cyprus being actual colonies to Italians, British, etc) ever since the country was established. From foreign powers sending a German king to rule the place in early 19th century, down to helping establish a military dictatorship back in the late sixties.
Greece was perfectly happy to get cheap money. Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
Yeah, if only democracy worked outside of power plays and diplomatic and economic might... Because after all the number of votes is all that counts...
>Instead of investing it in education, improved prductivity, Greece has been wasting it on an oversized army, extremely early retirement with cushy pensions for government employees, pointless olympic games, hagiographic articles in the NY Times and so on.
I know. Those lazy southerners getting German money are the same kind of vermin that Jews were back in the day, right? Because what you wrote is word by word the same kind of BS propaganda repeated in German popular media, about some lazy, unproductive vermins ("PIIGS") wasting German tax-payers money.
Here's some reality:
http://www.washingtonpost.com/news/morning-mix/wp/2014/05/16...
In any case, if Greeks are so hard working, then you are actually agreeing with my point about Greece not investing the huge subsidies that they have recieved wisely into "improved prductivity". As the WaPo article you quote says: "Caveat: Long hours at the office don’t always equate to high productivity".
In the context of the very high complexity of the actual international system we have it doesn't really work or provide any explanatory power.
The ECB, which was tasked with maintaining inflation levels and nominal expansion throughout Europe, has completely abandoned this goal to serve the (short-sighted and wrong) interests of Germany and other economic powers. If we are to believe the pre-2008 economic mainstream, it is absolutely the fault of the countries giving the loans, who swamped the Eurozone with expansionary policy then yanked it away when it was needed most.
Right now it's not politically convenient to believe in those economic theories, so you don't hear much about them from politicians or mainstream press.
This is true no matter how "good" or "bad" a country is, even if the "badness" of a country was justification for economically punishing its citizens in the first place (it isn't).
Victims of loan-sharks, (one of the most despised kind of scum going back to the antiquity), also "voluntarily accept" the conditions attached to their loans.
When you're in need, and even more in "dire need", there's a ton of leverage people have on you, which makes the "voluntarily" part quite meaningless.
Not to mention that there are ways to pressure a country to not try other measures ("if you don't work this way and get this loan, and instead seek alternate courses of action we'll make sure we crush you"). E.g. "if you dare default, we'll kick you out of Eurozone" or "we'll kill your tourism industry", etc.
And of course the countries deciding the load, namely Germany which acts as E.U's big boss, are very much at fault for Greece's dire need for a loan, as they are for the situation with the rest of the Southern economies.
This is again something that has been studied and admitted repeatedly by leading economists and journalists. Germany used its weight and forced the Eurozone (a supposed "economic alliance" for the benefit of all members), to further its own goals, and for its own's economy benefit for decades. E.g. by imposing specific trade rules and plans that disfavor the periphery, using Euro and ECB as monetary instruments to its national advantage, etc.
This didn't happen to the US or Britain because there was never any doubt of solvency, just value (don't want to quantitatively ease to the point of rapid inflation). However, we're at a point where economists are arguing for more inflation in the Eurozone -- which would have fit nicely with the Greek situation.
In the end, this is a case of Germans wanting their money to be worth more abroad, and this has caused Greece harm.
If we didn't have carte blanche in terms of printing all the money we wanted, the pressure would be all on fiscal policy, as it is in Greece. An apt comparison could be U.S. state governments, where they must maintain a balanced budget.
Either you can inflate your currency (which destroys savings), you can increase taxes (which negatively affects growth), or you can cut spending to actually match what comes in. The U.S. has the luxury to do the former for a while thanks to rational monetary and fiscal policy (long) in our past and the fact that our economy is still relatively productive. We are living on borrowed time in this regard. Greece does not have the luxury, and has reached the inevitable end of collectivist economic policy.