Greece’s Proposals to End the Crisis
yanisvaroufakis.eu
yanisvaroufakis.eu
15 years ago German was stuck in a slump with high unemployment and little growth. It got out of that slump thanks to the euro, which created a boom in southern Europe, and thus generated export markets for Germany. The nation which benefited the most from the euro is Germany, and yet Germany seems willing to sabotage its own success. If Greece leaves the euro, it becomes more likely that Spain or Italy or Portugal or Ireland might leave the euro. Once these countries leave the euro, they will have weak currencies that will make it easy for them to underprice Germany. One can get a small sense of how this plays out by looking at the growth that Poland has enjoyed, thanks to the weakness of the zloty. Of course, Poland has not seen high growth, since all of its trade partners are stuck in, or near, recession, yet Poland has gained market share in dozens of small industries, such as coffins and beer. And the advantages that Poland has would also become advantages of Greece and Italy and Spain, etc, if they leave the euro. A rational German minister would avoid this at any cost, but the Germans themselves seem entirely blind to the disaster they are getting themselves into. If the euro dies, all of Europe will be hurt, but Germany most of all.
Edited to add: interesting about the rapid upvotes and downvotes on this comment. Right now the comment has a total of 20, but every time I check it has gone up 4, then down 3, then up 2, then down 1, then up 3, down 2, etc. I've never before written a comment that drew forth such intense up and down voting.
"It got out of that slump thanks to the euro, which created a boom in southern Europe, and thus generated export markets for Germany. "
Germany's biggest trade partners are France, US, UK and China.
https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvir...
Germany's improvements have more to do with Germany's changes to industrial --(relations) reform than to do with Southern Europe:
https://en.wikipedia.org/wiki/Hartz_concept
-- edit added (relatations) to the sentence.
Normally a big country's currency will appreciate once they start running prolonged large trade surpluses, but the Euro has enabled Germany to keep siphoning in wealth in a way that wasn't possible before the Euro. Similarly pre-Euro the southern countries would have seen their currencies depreciate and get a break in competitiveness.
Hartz is also part of it, Germany has kept labour costs down while southern countries in the same currency area experienced high inflation due to masses of cheap money coming in again due to the Euro.
And of course Germany has been leading the austerity brigade in response to the crisis.
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
http://www.forbes.com/sites/timworstall/2011/09/12/greece-wa...
I think most of southern Europe should be not in the euro zone at all, their economy would have better time on a weaker currency.
http://stephansmithfx.com/articles/how-a-weak-currency-affec...
Of course the voters should never have elected them in the first place, but look at the loons that American voters keep voting for. And the Greek crooks were given both the means and the motive to cook the books, because there was status attached to joining the euro, and the rules were not being enforced so strictly back then. And the easy loans after joining the euro let them pretend to their voters that all was fine.
I yet to see how the bad greek government is anybody else's problem other than the voters who put them in place and the country itself. Politicians like to take credit for every progress but never take the blame.
Imagine if you did the same thing as a leader of a corporation. Why is it different than bad leaders of a country? Just because politicians are historically untouchable?
What is the guarantee that it wont happen again with the current government? Did anything change?
Even if Greece had no corruption at all they would still be in a nearly indistinguishable position. They still would have been flooded with debt (simply a consequence of interest rates dropping during the boom) and they would still get a crushing depression (because that's what happens when you share a currency with larger and economically stronger countries).
When Greece joined the Euro the outcome was nearly inevitable, so blaming Greece for this makes little sense. The austerity policies the troika imposed on the Greek people were brutal and completely unnecessary, though. So that's the outrageous part.
To fix the humanitarian crisis in Greece they need money in the short term, and the opportunity to do substantial reform in the long term. This ultimately benefits everybody in Europe, but it's not an easy sell. The press coverage of the crisis has been so toxic that most people in Germany, Belgium, France, etc, believe that any money going to Greece will by definition get squandered. On top of that there are prejudicial stereotypes about Greeks being lazy (false: in a country with poor infrastructure you have to work more hours to get even a little work done) or that they've benefited immensely from the Euro (false: Germany is the big beneficiary because they're the biggest exporter. The "opportunity" Greece got to borrow cheaply was a trap, and Greece's economy is wrecked now).
So even the politicians who understand the economics don't dare suggest major debt forgiveness and fiscal transfers. This isn't even an outrageous solution, if you remember that states like Mississippi and Alabama net more than 500bln from the federal government, every year. This subsidy is much larger than the entire GDP of Greece. The US is willing to subsidize poorer member states, and the EU should do the same. Otherwise the Euro will fall apart, and the humanitarian catastrophe will worsen.
s/Greece/people running Greece at that time/ If you asked the who didn't profit from joining the Euro, likely you might have gotten a negative reply.
Seriously it's not a fault issue here because multiple parties (including the vampire squids that are multination financial corporations like Goldman) conspired to profit from it.
Question is what is going to be done to right the ship and avoid calamity?
After ~ 8 years of Troika mismanagement the country is in dire situation and there has not been the slightest perception of improvement. So even if SYRIZA choose to blink, the next government wont.
> Germany's improvements have more to do with Germany's changes to industrial reform than to do with Southern Europe [...]
Then let Greece default (as a Greek I believe that's best for my country in the long term) and see how that plays out. BTW the lack of understanding of 101 macro-economics by Scheuble is disheartening[1]. Every time he speaks, he is comparing economy-wise countries to businesses and/or households, which coming from a FinMin is plain ridiculous[2].
[1] http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
[2] COMPETITIVENESS - A DANGEROUS OBSESSION P. Krugman, 1994, Foreign Affairs Magazine http://www.pkarchive.org/global/pop.html
This is simply false, and I wonder where you got this idea from. During the 1960s, the (West) German unemployment rate hovered around 1%, i.e. much lower than today.
There's no doubt that Germany is doing well compared to other countries today, but be careful about such statements about history. Germany could be doing even better.
[1] http://www.tradingeconomics.com/germany/unemployment-rate
Spain's unemployment is largely due to overinvestment in construction-related industries. It was a stupid, greedy move (that the USA made as well), but it's one they can recover from. That's completely different from the problems facing Greece.
Greece just cannot sustain itself based on its current GDP, tax, and retirement arrangement. Unless that changes, they're a lost cause.
I'm sure there were some mistakes made by the euro policy makers in drafting austerity measure agreements for Greece, but I wouldn't let that distract from the main issue, which is that Greece just does not have a sustainable economy without continual devaluation of the currency they use.
The EURO is a common currency. If one country has better infrastructures, geographical position to begin with, etc. It's impossible for countries lagging behind to compete. The 'developed' country will always produce XYZ products at a lower price because it has better technology. So the weaker country will accumulate an export deficit while the stronger country will accumulate a surplus. Now, the 'strong country' will start employing more and more man-power, driving down unemployment because it becomes more and more competitive at product/service 1, product/service 2 and so on and so forth.
At the same time in the weak country will be harder and harder to produce (primary sector or secondary sector) and sell because products flowing in from 'strong country' are in the same currency and being at the same union, there's no import tax.
Now a 2nd year economics student, who has studied macro-economics, would tell you that at this point, the surplus sitting in 'strong country' should become investment in various forms in 'weak country' in order to allow 'weak country' to somehow cope with the difference. Indirectly 'strong country' injects money in it's primary market which is (if we're talking mainly about an exporting economy) the 'weak country' in form of direct or indirect investment.
What Germany does is accumulate money. Greece is the weakest link, but if Greece goes out of the picture, you'll see how Italy, Spain, Portugal and ultimately even France will look a lot like Greece in the long run because they can't compete with the Germans having the same currency.
The above scheme underlies the biggest EUR caveat: You can't have a common currency without having political integration. It's simply impossible because in the long you will always have situations like this. While Greece is a small country so no one cares, when Italy's of France's turn comes, the repercussions and turmoil will be far greater and no matter what the media outlets say, the general feeling I'm getting from all over Europe is that the EUR didn't integrate sh*t. The common currency achieved the exact opposite: It highlighted the worst part of every nation.
I urge you to read Bernanke's article: http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03...
Also: http://www.theguardian.com/business/2014/jul/24/germany-surp...
There are numerous other articles mainly by academics and of course Varoufakis from 2013: http://yanisvaroufakis.eu/2013/11/01/the-us-treasury-is-righ...
I could argue that Greece had better infrastructure and geographical position to "begin with". Most Germans alive right now are going to remember when their country was divided into two parts under two wildly different political arrangements.
You're arguing macro economics, but you're really having to shoehorn a timescale that works for your argument.
In all of this, I'm not saying that Greece is "bad", and I don't think they should be demonized. You mention a number of "weak" countries that may be next to go, implying that the whole Eurozone will collapse. However, I don't see those countries as weak, just very different economically. I also don't think the rest of the Eurozone would collapse. In short, I think a good deal of the coastal mediterranean countries would make sense together, as part of their own union. As long as I'm playing armchair cartographer, I'd put Greece, Italy, Slovenia, Cyprus, and the coastal micronations together. I think Croatia and even Turkey would make sense there. The currency pressure could be relieved, and the governments could operate on more comfortable tax and inflation guidelines.
I see France and Spain's problems as being more short lived. France should in all likelihood stick with the rest of the original Eurozone. Spain is complicated politically, with its three distinct cultures. I could see it going either way. I don't think it would be forced out though, it just might be a better match.
I'm horrified of the carelessness with which that option seems to be considered by the Greek government.
It's been pretty clear for a while now that the debt load for the Greek economy is too great and some sort of bankruptcy(default) is required. The ECB and others have conspired to hide this with the collusion of previous Greek leaders, by heaping on more onerous debt and calling it a bailout.
It will have to end at some point. What's occurred up until now is fraud with the intent that someone further down the road will have to deal with ensuing mess. But it's likely the game of kick the can will continue.
Ideally, the debt would be reduced in a controlled manner to a point where Greece can afford to pay off the remainder, but Germany seems to be set on steering towards a Greek default.
This made the exports possible and made a few people rich.
A lot of people argue it's unhealthy and will bite Germany in the long term.
Besides that: The average german is still far better off than the average greek.
But in hindsight, as miserable as the pre-war time must have been, open war itself was far, far worse.
It seems we may be at a similar place today, at least economically, if not geo-politically. People want this Greece shit to be over with, but will Europe really be better off without Greece?
Or in hindsight, will we realize that pre-Grexit was nothing compared to post-Grexit?
I think what's going on in Greece is that the new world financial order, where permanent vassal states are created that must obey and pay tribute to their banker overlords, is slowly unravelling. Not because of outright revolt, but because it's just so impossibly awkward to operate these farces in the context of nominally democratic states. The Greek people are proud and patriotic and they aren't going to believe that their country should be essentially denationalized over debt. What is a government's power if not the way it spends its tax money?
The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating). This would likely ruin their import/export business and tank their economy even further (due to the difficulty of trading without loans), and is not something that anyone wants; but if Greece does not demonstrate a way to reign in their spending and repay money that was borrowed, it's what may happen.
Greece can certainly do what it wants. Other countries are not going to stage a military invasion over a loan default. However, as I said, it will ruin their ability to trade. Would you trade with someone who doesn't keep their promises to pay their creditors? How would you feel about sending a ship to Greece with some goods they've promised to purchase from you upon arrival, when you know that the Greek government has decided to default on foreign loans? What if they refuse to pay you too? Moreover, tanking their credit score will tank their ability to borrow money, which will cause their internal banking system to seize, since credit is essential to the economy -- perhaps the company you're planning to sell the goods to wants to pay you, but can't because they can't get a loan either, or can't get their hands on the currency they owe you. Really, it's no good for anyone. Countries need to make good on their promises to trading partners.
The countries that loaned them the money we're talking about lent them that money after it was already clear that Greece could not afford those loans. The original loans that Greece could not service were paid off by loans extended by the ECB and others, and Greece was given some assistance in paying off these new loans in exchange for certain austerity measures. These countries absolutely do NOT have a right to be mad if the very austerity measures they insisted on are causing the Greek GDP to shrink and making it harder for Greece to service these debts.
> The organizations that Greece borrowed money from are not "banker overlords". Greece chose to take the loans, and they can choose to default on them if they wish (and accept the consequences, like a person would, including ruining their credit rating).
Well, no, they can't. Because, again, the last time Greece came close to defaulting on their loans, these are the people who banded together to bail them out. The entire point here is that Greek shares a common currency with the rest of the Eurozone, and a Greek default has impacts on the rest of the Euro-using countries they would rather avoid. So they are trying to come to an agreement that avoids a Greek default.
1. Still a lot of catch-up grow. Well educated workforce, great productivity, proximity (geo/legal/cultural) to advanced countries though way lower salaries. If you are from software company in SF Bay Area and looking to build up global presence, this region is likely your best bet.
2. Healthy banking sector. Low number of defaults. No collapse of real estate value.
3. Good use of EU development aid funds. A lot of new roads and infrastructure spending when crisis hit Europe.
4. Responded well to crisis: raised retirement age, froze public salary budget, increase some taxes (by 1% VAT).
Let me give you a couple of other examples countries with euro or currency pegged to Euro. Latvia, Estonia, Lithuania, Slovak Republic: https://www.google.pl/publicdata/explore?ds=d5bncppjof8f9_&c...
All of them have down GDP in 2008-2009, but all of them has recovered and grow a lot since then. However, they all don't have deep structural problems as Greece and got governments who can act in crisis situation effectively.
I think as long as there is a party at the table with an interest at stability and that still has deep pockets (Germany) the chance of a crisis is close to 0%. The Greeks right now have little incentive to make real "hard choices" because they know at the 11th hour, no matter how much Germany protests, there is still an almost unlimited supply of money available to bail them out and give them a bridge loan for yet another year.
I will be much more worried in some future year if/when Germany lands in a deep recession, THAT is the time when disaster can happen. THAT is when this state of affairs will stop being sustainable.
FTFA:
The public sector’s structural deficit turned into a surplus on
the back of a ‘world record beating’ 20% adjustment
Wages fell by 37%
Pensions were reduced by up to 48%
State employment diminished by 30%
Consumer spending was curtailed by 33%
Even the nation’s chronic current account deficit dropped by 16%.
Nothing could be further from the truth.
The truth is that Greece took the medicine that the creditors prescribed, and it made the patient sicker.
They shrunk the economy more than any other nation in peacetime. That makes it even harder to pay back the impossible sums owed.
This has nothing to do with cutting more pensions. Cutting pensions is an easy choice, in comparison (and they're still misleading the extent of those in TFA by saying "up to 48%".)
Is this a hard choice? Actually, I suspect that the choice isn't hard at all for Greece. I imagine that the Greek people would be among the easiest to convince of such a change, if it happened in a fair way where all countries are treated equally. If Greece were not treated like a vasal state, but instead simply as one of many countries that together give up some rights to a central democractic Euro government, that might well be a price that the Greek people are willing to pay for recovery within the Euro.
But good luck trying to get the Germans and other northern countries to agree to something like that.
Ceding sovereignty to an undemocratic body.
Wonderful.
So the only options remaining for Greece, long term, are to either cede fiscal control as well, or go their own separate way again (grexit) with their own currency.
(But as I said, none of this matter as long as Germany is willing to continue underwriting their debt, which they will continue to do for years, most likely... but not forever.)
Yes, if it ever happens that Germany and France need their economy bailed out in the future they should also have to give up some autonomy.
The European Parliament's power is quite limited in reality, and most of the power is held by the member states and the Commission in practice. It can veto some (but not all) things, but can't even introduce legislation.
And the Eurozone is definitely not democratic, it's run by finance ministers.
Some people like to call undemocratic elections that did not pan out the way they hoped.
There is a parliament, but there's no real pan-European parties. So the parliament is dominated by a center-right and center-left coalition which work together to make up the government. The opposition is largely made up of "fuck the EU" protest parties who pride themselves in not participating in any sort of political affairs. And since the voting is the European tradition of "you vote for the party, not individual members," you tend to have members that toe the party lines (unlike the US political system). The end result is that European elections tend not to be able to effect any change in policy in the European Parliament.
The term I heard used for this is "democratic deficit."
On the other hand, if you let Greece leave the euro, it signals the others that Germany (and France) are serious and they had better not fool around.
A Greece with a weak currency does not impact the euro zone economy in any great way. Yannis probably thinks Germany would blink but at this point Germany has likely written them down already.
The simple fact is that states that have large differences in productivity / accumulated infrastructure / endowments must either
1 - have floating currencies;
2 - use government purchases to sterilize the currencies ala china;
3 - support permanent financial flows from the more to the less productive states
Since the currency union effectively forbids #1 and #2, the only solutions left are #3 or the end of the currency union.
This is more-or-less identical to the continued subsidization of the south -- direct fed to state government transfers, eitc, medicare and medicaid, welfare, the military (which is, for many soldiers, essentially a work program), etc -- in the united states by the more productive coastal and northern states.
You may also be unaware that Greece has largely never been bailed out: of the so-called bailout so far, more than half the cash went to shaky German and other foreign banks [1].
[1] http://www.bloombergview.com/articles/2012-05-23/merkel-shou...
What happens if they don't?
Greece has perennially been an underachiever and on top of that wants to live like the rest of europe. One of the biggest issues is tax corruption. They just don't get the tax revenue they need in order to support the lifestyle (retirement, social services, etc) they desire.
People with means had an easy time evading taxes --for some income brackets it was practically voluntary. That's not viable.
Bailing Greece out would be throwing good money after bad. At some point you have to realize there are better places to invest your money.
This explains why today, after the financial crisis of 2007/08, it happens to be Greece in this miserable situation. Greece was the weakest link of Euro countries.
However, imagine a world in which there is a precedent for a Euro exit, and another recession hits. Big funds that have money tied in government bonds will want to exit bonds of weaker countries out of fear that the Greek story repeats.
This then creates the same self-fulfilling vicious cycle that hit Greece: as creditors move elsewhere, interest rates for the weakest countries increase, which worsens those countries' fiscal position, which makes more creditors leave, etc.
In such a situation, it is easy for the weakest link to be pushed over the brink.
Bailing Greece out would be trowing good money after bad.
Keep in mind that Greece isn't actually asking for more money for Greece. The Greek government was running a primary surplus for some time, and is perhaps even running one today, or at least close to it. The only reason for the Greek government to be in deficit is the interest payment, which means that all money that is being "thrown at Greece" actually ends up abroad in creditor countries!
Suggesting that Greece as a whole is single-handedly responsible for this mess is silly. Yes, of course their governments over the past decade and a half were incompetent and corrupt, but it was because of the cheap loans that they could cover up the problems and keep up the appearance to the voters that all was fine. Without that, they'd have been voted out of office that much sooner. Instead, the easy money left the bad situation to fester for far too long.
In the end, I think Greece will blink, they'll try to work something out, but pretend they had the best of the EU negotiators. My gut feeling is that if it came down to it, Germany would let them leave the EU. I think psychologically they have written them down and if a deal happens, well, the better.
That won't make Greeks able to make cheap BMW on their own anytime soon though. There are stuff where they could compete with a weak currency, and there are a bunch of stuff that Germans are known for that not many countries can hope to match for now. I don't think they are too worried about that.
I'm reminded of something PG wrote in a recent essay: "When experts are wrong, it's often because they're experts on an earlier version of the world."
So why is public opinion so polarized in the opposite way in these countries?
SOME FACTS
The "bail-outs" Greece received where the largest ones, but they were never meant to help Greece. They were made in order to save German and French banks. Less than 10% from the money received so far stayed in Greece. These money were issued in order for Greece to pay high-yielding bonds to Franco-German banks, until these banks were able to dump their bonds to the ECB. Basically they made a private debt (held by bankers) public (now is held by the ECB and by extension by EU tax-payers.). The result for Greece was that the public debt rose and sacrifices went largely unnoticed.
The German's gov choice for a Greek technocrat PM was, Loukas Papademos. He acted as a middleman between the Simitis government and Goldman Sachs. Isn't that a weird choice, from a country who accuses Greece of false statistics? I'd say it's weird.
Christoforakos was not extradited to Greece[1] from Germany. I'd say that this again is a weird choice from someone who is taking a "moral" stance towards Greece, wouldn't you?
I think Germany exploited Greece in every possible way, like getting paid for non-working submarines. Bribing politicians to get corporate contracts, etc. Add to that 1945 (second WW) German atrocities to all that, which is a theme revived by far-right and far-left political and social groups and you see the pictures. Some say that WWII doesn't matter, but I'd say that it's hard to swallow for people who saw their entire families annihilated and they're still alive[3].
You could say that in the end of the day, it's Greece fault. But that's partly true. Greece has it's own faults, of course, who doesn't? But in many situations, it was never given a real choice, because in the bigger picture, Greece "matters" way more than it would be optimal.
Also here, we have to understand, that Greece has 400 years of Turkish occupation that left an incredibly strong cultural sign. Greece is literally a mix between western and eastern culture and this is something that takes many generations to change.
By all means, Greeks work more hours on average than any other European[4]. Yet they are mostly seen as "lazy". Again that's not the EU's fault. Greece has a prime minister who literally took a tour of around Europe stating that "Greeks are lazy, tax evaders" (George Papandreou).
ABOUT GERMANY
Angela Merkel's 2009 victory was largely based on the promise that "Greeks will pay" for their "bad attitude". This "hate speech" (she literally called Greeks "lazy" among other negative terms) let to the largest CDU victory in their history. And she delivered, I mean Greece has already collapsed, the only who doesn't know are people getting informed from the TV.
At the same times - as other people noted - German exports boomed. Unemployment in Germany became record low, because having countries like the PIGS inside the EU drove the EURO exchange rate down and Germany exploited the situation. It even borrowed money to Greece with a "lower" interest rate (which morally speaking, it's like raping a dead woman.. but anyway).
After SYRIZA came to power, populist German media (mainly Bild, but not only) fueled the feeling that "Greece is a household of people who party day and night and pass the bill to them". Merkel found herself against the wall because IMHO she would very much like to end this crisis with a debt-restructing and a New Deal for Greece... Because the numbers are not that big and ultimately the Euro is very positive for Germany, but how do you explain to your voters that you were lying all these years? That's impossible. Every time Merkel (it's Brussels but the quarrel is perceived between Germany and Greece mostly) gives away something the opposition attacks, every time she stands 'firm' she risks finding herself in uncharted waters bringing Greece closer to default.
In the end of the day the problem was never financial. The problem is/was political. SYRIZA is in the same position: If it blinks it looses the majority overnight, if it doesn't it will have to manage an extremely difficult situation (at least in the short-term, but will it survive?).
[1] https://de.wikipedia.org/wiki/Michael_Christoforakos
[2] http://www.telegraph.co.uk/news/worldnews/10895239/Greece-su...
[3] https://en.wikipedia.org/wiki/Distomo_massacre
[4] http://www.theguardian.com/news/datablog/2011/dec/08/europe-...
It also seems like there's a lot of corruption and irresponsible financial policy. For example, Greece's ridiculous policies around early retirement, such as that allow hairdressers, radio or television anchors, and musicians playing wind isntruments to retire at 50 for women, and 55 for men, due to "hazardous working conditions".
http://www.nytimes.com/2010/03/12/business/global/12pension....
http://www.theguardian.com/business/2015/jun/15/unsustainabl...
A starting point would be predominately eliminating early retirement, and raising the retirement age to one similar to other countries. It seems like Syriza has been refusing to do that, because the Greek population is pushing them to keep these policies in place. Germany, by comparison, raised its retirement age to 67 years and Spain has done the same. They're talking about raising it to 69. It's understandable if German taxpayers are reluctant to fund Greeks' early retirement (on average, the lowest in Europe).
If Greece and the Greek government wants to embrace reforms, then they need to end corruption and put reasonable policies in place. To be fair, the current article has Greece's finance minister proposing to end early retirement. But, why is this being proposed at the 11th hour, right before default? Why is this part of their proposal to receive further loans, rather than an a voluntary sovereign action that's obviously necessary to correct their economy (independent from any loans)? The fact that Greece hasn't already taken steps like these to reform their economy, and is essentially holding the reforms hostage on further loans, is surely part of the reason why Greece's partners don't trust them. Greece should have put these reforms in place long ago by their own accord. They should have done it in a way that's clearly advertised to their own taxpayers as Greek responsibility for Greek spending, rather than positioning it as part of an agreement that, no doubt, they will say was "forced" on them. All of these facts together give the impression that Greece isn't committed to doing the right thing. Greece's irresponsible spending and financial policy are the responsibility of its government and people. If Greeks want to keep retiring early, OK, but it's understandable that the rest of the Eurozone doesn't want to provide them loans used to fund those pensions.
Because it was/is forced too. Geopolitically speaking it's very convenient (and maybe reasonable) to act as if every state is a "sovereign state", but it's not[0]. The submarine (along with a long series of obscure deals involving bribery, etc.) were strongly supported (almost imposed) by Germans as a bargain.
> It also seems like there's a lot of corruption and irresponsible financial policy.
That's true. There's no beating around the bush, since 1990 spending has been reckless. Basically the EUR gave a free-card access to credit.
The entire pension system should be re-structured but at the same time the base salary should be brought up and not down. Young people can not find jobs and they absolutely can not sustain families.
The current system is extremely twisted: Usually the elderly of the family receive (well used to receive, before the crisis) boosted pensions with which they support the younger members of the family who are unemployed or underpaid. The fact that the young population has "access" to elderly's money is the only reason you don't see riots around though.
The problem is that the reforms already made, slashed a huge chunk of the household's income while not giving anything back (not even hope!) in return. That's why in the end of the day, the majority which suffered from this cuts, is not likely to accept any more reforms.
According to the "Financial Times": "main pensions have been slashed 44 to 48 percent since 2010, reducing the average pension to 700 euros a month … About 45 percent of Greek pensioners receive less than 665 euros monthly — below the official poverty threshold."
> All of these facts together give the impression that Greece isn't committed to doing the right thing.
The problem (for Greeks) is that every single reform imposed by the Troika (or institutions or whatever) are always for the worse and never for the better. After 7 years of implementing reforms dictated from the Troika, I think we can rest assured that they're reform schedule was a failure which drove the public upwards incredibly AND creating a humanitarian crisis.
Greece needs a "New Deal"[1] or a "Marshal Plan". But there's no Roosevelt or G. Marshall around, unfortunately. Again, you're taking for granted that the Troika wanted to "help" Greece, but that's far and away from the feeling I have looking at the facts at hand. They'd rather "discuss" with the parties that made all the mistakes you say, instead of a new non-so-corrupted party.
[1] https://en.wikipedia.org/wiki/New_Deal
[0] http://www.counterpunch.org/2015/06/15/germany-is-bluffing-o...
Yes, but neither country had a -25% GDP cut since 2009, 30% of it's business closed, 27% unemployment (60% youth unemployment), -40% salary cuts, -50% pension cuts, 100% increase in poverty since 2009 (60% increase since 2009 in child poverty), 250% increase in households without electricity, 250.000 emigrants (most of them highly educated), the richest 10% in Greece owned 56% of total wealth in 2014[1].
Greece is almost like it was after WWII. Never in history a country received such a strong cut in such a short amount of time.
While all this happened the debt to GDP ratio went from 120% to 180%...
I've heard Merkel saying time and again that Ireland, Portugal and Spain did 'well' and now everything is fine and they're back for good! That's absolutely not the feeling I'm getting talking to Portuguese, Spaniards or Irish people. They have the exact opposite feeling: Austerity doesn't work.
[1] http://www.keeptalkinggreece.com/2015/02/18/greek-humanitari...
All this talk of "weak currencies" is delusional. It doesn't matter if workers get paid in Euros, Drachmas, Bitcoins, or precious metals; those currencies are all interchangeable.
Now, there is a way that Greece could underprice Germany -- a way which is likely to happen if Greece leaves the Euro, and which happened before Greece entered the Euro. That way is by paying workers less. Of course, this has the effect of lowering the standard of living; that is, roughly speaking, to lower the Greek standard of living to what it was before Greece entered the Eurozone and inflated their economy with lavish borrowing.
Of course, there would be (more) riots in the streets if the Greek government legislated wage cuts for the private sector. So Greece will exit the Euro, spent a tremendous amount of effort converting X EUR/hour wages to Y GRD/hour; then the Drachma will be devalued to bring wages in line with market forces. Same net result, but slower, more expensive, and less riot-prone.
This is simply terrifying
It's not as if the other Europeans want Greece people to starve by cutting pensions etc. They want Greece to untangle this mess where there is no dependable social security and instead small social benefits like lower prices for electricity is handed out in an ad hoc way as part of election promises by the political parties who come into power.
What? You mean a social security net like the one that the "reforms" Greece had to implement destroyed?
It was always "ask for money from your grandparents' pensions".
The whole system is terrifying, but the reality is that Greeks aren't starving in the street and this insane system needs fundamental reform to prevent that from happening.
If Greece asked for billions to feed their population they would get it, but they want us to finance keeping this system up. A systems that haemorrhages money so badly it makes aid to developing nations in Africa look like the summit of effectiveness.
http://www.teinteresa.es/espana/abuelos-mantienen-hogares-vi...
60% of Greek pensioners get less than €800 gross a month, and 45% live on less than the monthly poverty limit of €665.
Also, unemployment is sky high so a lot of the pension money is used to feed impoverished family members.
But it is true that the retirement age in Greece is very low. Maybe that should be higher, but then again, with such high unemployment, what are you going to do with all those people? Also, Greeks work the most hours per year of any country in Europe. Maybe that should change; countries with more days off tend to have stronger economies. Maybe people are more productive when they're more rested and relaxed or something?
As an individual, on his own blog, he's publishing material that the institutions sought to obscure and spin.
Interesting. Instead of "the institutions", here in the USA we used to say "the Man"[1]. As in "the Man is keeping me down". Sadly, that phrase is from the '60s and appears to have fallen out of the vernacular.
The problem is that in his blog we're only seeing Varoufakis own spin on the situation. What is he himself obscuring? It's hard for us who are looking in from a distance to keep up.
By "the institutions" he's referring to the ECB and the EU's Council of Ministers, specifically, and making a claim about those institutions that's objectively true (regardless of the merits of his own arguments here).
http://www.bbc.com/news/world-europe-31837660
http://www.washingtonpost.com/opinions/putins-global-ambitio...
http://www.dailymail.co.uk/news/article-3133035/Greece-line-...
As a result: Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day; Unemployment skyrocketed to 27%; Undeclared labour reached 34%; Banks are labouring under non-performing loans that exceed 40% in value, Public debt has exceeded 180% of GDP; Young well-qualified people are abandoning Greece in droves; Poverty, hunger and energy deprivation have registered increases usually associated with a state at war; Investment in productive capacity has evaporated; young workers in several chain stores get fired as they approach their 24th birthday so that the employer hires younger workers in their place to avoid paying them the normal minimum wage which is lower for employees under the age of 24; employees are hired part time for 300 euros (340USD) a month, made to work full time and threatened with dismissal if they complain; Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit. ... and I didn't summarize the whole article, this is only about 10% of it!
Overall it looks like the entire population is suffering, no sane young person will stay in the country, and the population are essentially being forcibly reverted to a permanent state of debt-slavery. Not sure about anyone else, but to me it sounds like it is time to cleanse the temple - https://en.wikipedia.org/wiki/Jesus_and_the_money_changers - and default. If the state changes its name and all of its banks go under (perhaps bar one for a kickstart), it might be enough to hammer in to the minds of the rest of the Eurozone that yes, an economically failed state is not the same as its successor. The corporate world allows this to happen: it should be allowed to happen for nations. After all, it's hardly fair for a child to be born in to the world eternally cursed under the labour of a debt which, frankly, the lender(s) made in error. There is risk in money lending, as there is in borrowing, and at this juncture it's immoral to extract anything more from a victim who has already declared bankruptcy and offered up their firstborn.
Has austerity made things worse in the short term? Almost certainly, and they've cut plenty of meat along with the fat. But there's no way Greece can pick itself up off the floor without some pretty painful reforms.
Yet, what the Greece wants is more money to keep doing exactly what they were doing before - that didn't work.
What was that Einstein quote again? The definition of...
said a guy on the internet. Then he quoted Einstein.
Well, Around 1 million families survive on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit ... any further cuts will turn those three (very conservatively) million people out in to the street. Greece's total population is only 10.8 million. That isn't gonna be pretty.
This money can be spent in other means: maybe a highway in Estonia or increasing pensions in Slovenia. Unemployment is not high only in Greece - Finland can also use funds to lower its own unemployment. Why would the money be spent on sustaining an early retirement in Greece, instead of adding Balkan countries, for example Albania, Macedonia and Monte Negro, to the European Union?
After support from the EU for such a long time, I believe Greece should be at a point where it can help support development in other countries.
Let's not be naive here: the Americans did this because it was in their interest to do it. Long-term, it payed-out. And we need to learn from them in this regard: it is in the interest of Europe to "invest" in a stabilization of the Euro-area. We need to make clear that for a long-term solution, sacrifices and restructuring is necessary - but those can only go so far.
Greece has done whatever it was able to. They have no more reform margin. Greece is technically bankrupt, and the Euro-area has to bail it out. In three decades time, we will be happy. This is the first serious crisis of the Euro: how we handle it, will define if the Euro has a long-term survival chance - even if it does not mean immediately collapse. Letting go of Greece will destroy the Euro; which is what lots of short-sighted euro-parties (or self-interested outside parties) want, interestingly.
A) Imposing harsh sanctions on Germany to "repay its debts" after WWI was a major factor leading to WWII, and
B) The modern industrialized economies of northern and western Europe owe their start to the Marshall Plan. The loan portions of the plan were eventually repaid, but represented less than 10% of the over $12 billion in aid given.
In historical terms, working with Greece to restructure and actually fix the economic problems would be a financial drop in the bucket compared to the money lavished on rebuilding other European economies within living memory.
The analogy may seem stupid, but I say it describes pretty well the world we are leaving in.
I don't. For one, France, Britain, and Germany would have hell to pay in their domestic politics if that happened; for another, Italy, Portugal, and Spain would be the next cabs off the rank if an example is offered that simply refusing to pay the last round of debts gets you forgiveness and more credit.
Italy, Spain and Portugal are not in the same situation as Greece. And being bailed out would not mean that Greece has just gotten German-level prosperity, just that they can start walking again on their own. I do not see that as a very alluring prospect for would-be "Greeces".
Politicians all around Europe would do us a big service if they started explaining this to their citizens, instead of fostering confrontation between the European peoples.
https://en.wikipedia.org/wiki/London_Agreement_on_German_Ext...
"Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.[2]
An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction.[3]
The agreement significantly contributed to the growth of the post-war German economy and reemergence of Germany as a world economic power. It allowed Germany to enter international economic institutions such as the World Bank, International Monetary Fund and World Trade Organization."
the people in charge of policy back then cared about long-term political and economic stability, the people in charge today mostly care about getting saved from their stupid investments.
While I am not a fan of the EU, let's see who goes "belly up" first.
It seems like this type of language is being used a lot by all sides. It kind of irritates me that Yanis throws this out like he has no responsibility for making up this "miniscule" difference. If the difference really is "miniscule," why isn't it covered in Greece's proposals?
Whether it is Yanis or Juncker, it seems they just use rhetoric to place the burden of making an actual compromise on the other side.
And why are those proposals, like eliminating Greece's very early retirement, only being made now? Greece's average retirement age is purportedly 61, with some people retiring as early as 50. Meanwhile Germany and Spain raised their retirement age to 67 and have discussed 69. It's completely understandable to me that their taxpayers who will work until 67 do not wish to fund these pensions.
It tells me something that Yanis suggests fixing the pension system now in this 11th hour proposal. If Greece was seriously committed to fiscal responsibility, the government would have done this of their own accord long ago, right? By including this as part of the "deal", presumably it will allow the Greek government to say it was "forced" on them, rather than taking responsibility and making a sovereign decision, independent from any new agreements with third parties, to do the right thing and institute policy that will allow their government and pension system to be solvent.
We will bail them out, or they will default. What is the best option for the Greeks? What is the best option for the Euro-zone? I argue that, for both parties, the best option is to bail them out and keep the Euro-zone alive.
Without serious reforms, I don't think it's in the EU's interests to prolong this sorry drama.
Basically, they are bankrupt. To "end the sorry drama", either you let them fall on their own (out of the euro, maybe out of the EU), or you bail them out.
I think it is in the interest of Europe (and surely of Greece), to bail them out. Even if it on the surface creates so-called moral hazards: nobody really wants to be in the situation of Greece to be bailed out.
There are more aspects to the issue:
- monetary: the whole world is running on the printing press. The Americans are doing it, big time. Isn't California bankrupt too? Why should Europe not do it? Just restructure the debt, print the money, create a huge investment program and start funding projects in Greece - and other parts in Europe. We will get some inflation long-term, but who cares? Why should Europe be applying a harsh monetary policy while the US is rigging the markets, just because they can?
- humanitarian: do we really want to have a fallen first-world country in the middle of Europe, with third-world poverty levels? What does that say about our "community"? Can't we help one of our partners, once it has become clear that they can not get out the hole by themselves?
- reciprocity: parts of Europe have been bailed out in the past (Marshall Plan). Why can't we do it now, when the economy is doing much better, comparatively? You can argue that that was a different situation, and a looong time ago. But crisis happen (luckily) once every so many decades. Now we have a big crisis: let's show that the European project is there in case of trouble too.
- geopolitical: do we really want the Russian or the Chinese help one of our European partners? Do we really want to tell the world: we do not care about Greece, even if we can help them, while the Russians or the Chinese, with much looser ties to Greece and with a comparatively weaker economy, are willing (thinking on geopolitical interests, of course) to help them? How long will the European project survive if we are not there to help each other whenever a crisis arises?
Greece has to make reforms. Greece has made reforms. More reforms are not going to amount to much of anything. Let's bail them out.
They've barely reformed at all. The public sector is still bloated and spending too much, the tax burden is much too high, productivity across the economy is dismal, and they refuse to cut welfare programs that they can't afford going forward, let alone with the massive amount of debt they already have.
The Marshall Plan was about building up the western alliance in the aftermath of the most destructive war in history; the US was also trying to counter the USSR's expanding influence. Greece is being bailed out because they spent other people's money so irresponsibly that no one will extend credit to them and they can't afford to service their existing debt. Two very different situations.
Faced with that prospect, Greece would leave the Euro, which would be a blow to the Euro-project. We have a terminal patient, and we can help it. With a bit of luck, in a couple of decades it will become a productive member of society again.
The Marshall Plan had a lots of good reasons going for it, and probably some critique too. In the end it proved to be a good solution, which increased prosperity worldwide. It was a political decision. You could have very well argued: "those Germans, they looked for it and they got what they deserve: let them rot", but we didn't, and we are all the better off.
Regarding countering the USSR: as I have argued above, geo-politically the situation is right now very similar. The Greeks are courting the Russians and the Chinese (or the other way around). Do we want to split the European project at the Balkans?
The EU is already being very generous by accepting tax hikes in a lot of areas where Greece should really be implementing spending cuts. But Syriza wants to convert even more of the spending cuts into tax hikes.
The structural reforms are more important. Deregulating professional trades, selling off nationalized industries, easing bureaucratic barriers to business. The problem is that the Greeks have elected an anti-capitalist far-left party, which is fundamentally opposed to the goal of the reforms.
If the EU is going to budge at all, it should be on accepting a longer term deficit reduction plan. They shouldn't budge on the structural reforms.
Then again, even Belgium ( where i live) has a to high governement debt.. But nothing beats Greece in favor of manipulated / incorrect numbers though.
Marshall plan, dollar, Irak, criminal population, TTIP, interest rates, NSA, waterboarding, Guantanamo, ...