I'm really short on quality, direct feedback about what Tsipras is doing. All I can read about the topic is politics influenced.
There is a strong trend towards the Yes vote in the referendum and most people I’ve talked to view it as a consensus towards Euro regardless of how the government will try to put it. And there is still hope that even in the last minute a deal will be made for the sake of everyone involved.
You have to understand that to most people in the tech industry or any other person with some kind of liberal thinking, Tsipras is like an alien. An idealist of a communist era that was never popular in Greece and whose decisions and actions seem insane. We don’t understand what his strategy is and whether he’s bluffing or really want to take us out of the euro.
Would the Greek economy even be strong enough to support the latter?
As for leaving the Eurozone, I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Because once we leave we’ll still need the support of the ECB otherwise our banks will collapse in a matter of weeks. Our economy is still very fragile, exports are less than 20% of GDP. Tourism might flourish because of the devaluation of the local currency but it still won’t be enough.
This is wishful thinking. It won't happen anytime soon, if ever. For example, German politicians are scared of their voters who are completely unwilling to go along with this, which is exactly the reason why they have rejected such proposals for five years now.
> the debt isn’t our real problem because we pay a very low interest (less than 3%) [...] our problems are structural ones
Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time.
The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt.
> I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s.
Yes you can. There is no reason why your banks would collapse, if you have a new currency.
Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. If Greece were to come out with a new brand of money, say the "Greco", I would be extremely suspicious of holding any for fear of hyperinflation/a new currency coming out in 3 years to replace the debts taken on in Greco.
Well, investors are already wary. In any case, I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues.
edit: from ft.com: "Credit rating agencies already have said they will not consider non-payment to the IMF a proper default, since they only care about debts owed to private creditors."
> Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value.
It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value?
Once again, the situation is bad, but once things have recovered a bit (say after two or three years) the future should look better than it currently looks within the euro.
Which currency are you talking about? If Greece defaults and institutes a new currency, there would be no devaluation within the economy, rather a complete shift from the Euro to some new currency.
Also, exports (especially in the long run) are not driven so much by currency fluctuation as they are by the cost of inputs. So unless Greece suddenly finds a huge deposit of natural resources or drastically reduces the minimum wage and pushes down manufacturing wages, then exports really won't change much.
Check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
If the value of the euro and total exports are inversely related, we would expect to see the lines moving in opposite directions. Thus exports would be rising as the exchange rate declines and vice versa. We actually see the opposite happening over the past 10 years, and we see that the relationship has especially broken down in recent months.
Now check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
We see that there truly is an (lagging) inverse relationship of exports and the value of the euro for Germany. Why? I have no idea. It probably has to do with the different type of exports coming out Germany vs. Greece.
It would be naively optimistic to hope that devaluations of the currency would lead to more than a few percentage points of increase to the overall Greek GDP, and that the (supposed) growth in NE and tourism would be enough to fund vast structural reforms within Greece.
>It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value?
I control the supply of "Roynotes", aka squares of toilet paper that I have signed and guaranteed to be redeemable for $100USD in 3 year's time. I'll purchase $50 worth of goods from you today with one note, and you'll make a profit of $50USD over 3 years for a nominal 100% return - not bad! What do you say, partner?
Joking aside, supply is only 1/2 of the value equation, and wary investors + annihilated credibility = no demand for new currency = no value of new currency.
It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros.
Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time.
The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt.
Sure, the economy has tanked but the main reason that happened is that pretty much all the economy was state funded. Once the state run out of money businesses started collapsing. That’s why we had a 30% drop in GDP while other EU countries that issued similar austerity programs faced far less GDP drop.
If you take a look at the top 10 biggest companies in Greece for example, most are either state owned or subsidiaries of multinational corporations. There isn’t a single privately owned company in Greece that makes more than a billion in sales annually.
I’m not a great fan of the austerity measures but I won’t argue that it’s the root of all our problems. The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.
That's a measure to adjust the inflation rate, nothing else. Greek bonds are excluded. The ECB has made it very clear that it will buy no weak bonds that give the impression it finances government spending. Furthermore, since they are still normal government bonds and just ownership changes from banks to the ECB, they will eventually have to be payed back by the countries that issued them, as far as I understand.
> I’m not a great fun of the austerity measures but I won’t argue that it’s the root of all our problems.
I agree that it's not the root of your problems. But it is what has prolonged the current crisis and will prevent a solution.
> The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.
If Greece gets a real chance to do that within the EU, yes. That would imply getting out of the crisis first and it would also imply a serious haircut. And on a reasonable timescale, say within the next five years. But it seems clear to me that the Eurogroup does not have the necessary courage to make that happen. I hope the change their mind, but if they do not, getting out looks better to me than just kicking the can down the road.
I'm a big fan of Friedrich Hayek, who argued against the absurdity of creating the EU from the beginning:
"Though I strongly sympathise with the desire to complete the economic unification of Western Europe by completely free-ing the flow of money between them, I have grave doubts about the desirability of doing so by creating a new European currency managed by any sort of supra-national authority. Quite apart from the extreme unlikelihood that the member countries would agree on the policy to be pursued in practice by a common monetary authority (and the practical inevitability of some countries getting a worse currency than they have now), it seems highly unlikely, even in the most favourable circumstances, that it would be administered better than the present national currencies. Moreover, in many respects a single international currency is not better but worse than a national currency if it is not better run. It would leave a country with a financially more sophisticated public not even the chance of escaping from the consequences of the crude prejudices governing the decisions of the others. The advantage of an international authority should be mainly to protect a member state from the harmful measures of others, not to force it to join in their follies."
1. To get future investment, it's more important that Greece starts growing again than that it pays off existing debt. While socialist policies can stifle growth, it seems in the current situation growth is stifled more by a strong Euro than by tax evasion, corruption or overspending.
2. Greece was the fastest growing state in Europe before the Euro. With all its natural advantages, there's no reason why it couldn't return to fast growth w/a devalued currency.
3. Syriza doesn't seem as "far left" as described. I certainly don't think they will go down the totalitarian communist route, vs becoming a democratic welfare state like the Nordic states.
4. As constituted, the Euro favors exporting economies over tourist/shipping economies like Greece. Switzerland is in many ways similar to Greece structurally .. a tourist mecca of about 10 million people and a service oriented economy. It does export a lot, but mainly specialty items (watches, cheese, chocolate etc). Greece would seem to be better off as a Switzerland on the sea, with strong EU relations but independent monetary policies.
Could you elaborate more on the structural similarity to Greece?
Yes, Switzerland has tourism but - unlike Greece - I doubt that they depend on it. Also, watches and cheese are only the tip of the iceberg. Switzerland's wealth probably derives from mega-banks like UBS and the not well-known, but enormous industrial sector (e.g., Nestlé, Novartis, Roche, ABB).
Before I moved here, I thought Switzerland is only about cheese and chocolate, but it really is an oasis of wealth unparalleled in Europe due to various reasons; here is my medium blog post about how it is living and working here: https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t....
I meant that it is a strategically situated, naturally beautiful, culturally strong state of about 10 million people.
Greece shares all of these traits, and can build up industries like Switzerland has if it has a more independent state and implements Swiss-like policies.
They won't be the exact same industries .. they both attractiveness for tourists, but people come to Switzerland to ski and trek, and go to Greece to sail and relax on the beach. Similarly Switzerland might make drugs, chocolate and watches, while Greece excels in shipping & shipbuilding.
Certainly Switzerland is far ahead of where Greece is now. But it's proof that a similar state can become a economic powerhouse without the Euro. With a devalued currency, in addition to boosting existing industries, Greece will become an attractive place for foreign multinationals to setup factories, so it can grow new industries from scratch as well.
To put it mildly you're completely wrong. Switzerland is an exporting powerhouse (watches, cheese and chocolate? - the bulk is phara, precision electronics, chemicals, technology, banking services, etc.). Greece is em.. not.
While the rest of Europe had to clean up the rubble and rebuild everything periodically, the Swiss could incrementally build up their wealth.
"Better deal" meaning "a deal which doesn't involve breaking promises they made to the electorate".
Clearly such a deal wasn't possible, hence here we are.
The idea that this is somehow blackmail is ludicrous.
I think that if the successive government also reneged upon its promise, that would signal the true end of democracy is Greece.
The main difference is, of course, that it wasn't clear that it would be impossible to end austerity, with some thinking that the Troika would give in. But that doesn't mean the end of democracy.
It basically signaled that the Troika will cajole, threaten, blackmail and generally do everything in their power to keep the austerity train going.
Ultimately, though, that's the way to destroy the currency union. An economic policy based upon wage suppression and privatization of monopoly industries is nice for some people, but it isn't sustainable.
Given the way that the negotiations are going, they were essentially faced with a choice of slashing pensions and wages to the bone (wouldn't have helped with paying the debt back, incidentally) or... plan B.
Right now, Greece is stuck between a rock and a hard place: agreeing to the Troika’s demands for continued austerity and see another 5 years of economic depression with no end in sight in a way that sells out their campaign promises, vs. leave the Eurozone and see possibly immediate even more dramatic economic collapse but with a potential way out of the mess through a currency under Greek control more appropriate exchange rates.
a) Most Greeks feel that they have been wronged or cheated. Their anger is usually against 1) other Greeks (i.e. public sector employees against freelancers for not paying taxes, or private sector employees against public for being lazy) 2) against Germany, for austerity, the WWII and the loans they haven't repaid 3) against large multinational interests, etc.
b) All (recent) governments, including this one (so far), have fallen victim to voting in policies that benefit special interests, large or small, instead of making a few basic reforms that are necessary. What is necessary and what is just is debatable, of course. It's a constant battle between different social groups, where everyone is right.
c) There are a lot more and deeper problems in Greece that I can't go into, that fuel an endless feeling of injustice. Things that are taken for granted in other European countries do not work like that over here. This is why some of the analogies made when criticizing Greeks are false.
Now, about the referendum. One side, the government, is saying that a "No" will give them more power to continue the negotiations and bring in a better agreement. They are trying to reduce the issue to democracy in the EU, national pride and independence. Other sides say that the government's proposal and troika's proposal are very similar and this is a false dilemma that only serves the ruling party's interests, and some vague Drachma lobby. The previous prime minister even went out and said that the deal offered by Troika is "unacceptable" (while the one they had made was better but they were forced out) but we have to accept it.
One important point I would like to make is that no one seems to know what either deal really says, but no one bothers to explain it to the people. The news only report the "bad" and everyone is spreading FUD.
I don't know what's best. I have an opinion but I'm afraid there are things in play that I do not understand. One thing I do know is that many of our youth want more Europe and less Greece, and a very large number have already left.
http://marginalrevolution.com/marginalrevolution/2015/06/the...
Summarizing in a post the Greek problem is almost impossible, but I would say that the referendum is a terrible idea, especially at this moment.
(greek student/developer)
This ("shameful populism!") is kind of just another way of saying "I don't like this democracy thing. Stop it!"
Which is strange because those who will have to endure the consequences of the decision will be the Greek people, so I don't understand what is so negative about involving them in the choice.
The bad thing is, both ways will probably mean hell to the Greeks so it's not like there is a good answer. Trying to pay an unpayable debt by destroying the economy will never work, and changing back to the drachma and devaluating the coin won't probably do much good in an economy like Greece where there are very limited exports.
I am not sure what was the underlying expectations of the austerity route, the official narrative of eventually paying the debt is obviously not going to happen, so I suppose that the underlying message was to play along for X more years until the EU decides to solve the mess at some point. But playing along any longer was not something that politicians could sell to the Greek electorate anymore. And the EU intervening and solving the mess is probably impossible to sell to the electorate of the strong economies of Europe like Germany, specially after so many years of "lazy greeks" headlines. So some sort of scenario like the current one was bound to happen sooner or later.