Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis

The kind of summary (though the article is short and worth reading, if only to get some balance):

There is a not-so-subtle difference between voluntarily taking on debts made by previous, rogue governments at a currency rate favorable to the creditors -- and heedlessly accumulating debts of one's own while concealing the true size of budget deficits. In the first case, the implication is harsh self-imposed discipline and penitence. In the second case, profligacy.

For those inclined to dig in and do deeper research, http://library.fes.de/pdf-files/iez/10137.pdf and in particular http://papers.ssrn.com/sol3/papers.cfm?abstract_id=493802 give lots of great details on what happened back in 1953 with Germany.

And some of them take a much tougher stand towards Greece than Germany does. Ask Lithuania how happy they are to pump money towards a country that is richer than they are themselves.

Of course, Germany has a lot of influence. But everytime I see articles riffing off this Germany vs. Greece theme, I tend to discount them as shallow.

The reason Germans are opposed to debt relief for Greece is that they have read about Greek nepotism in the public sector, tax avoidance, and other corruption while Greek reforms have not been forthcoming. To the average German voter money for Greece without reforms is pouring water into a broken bucket.

Thomas Piketty is arguing along the similar lines but it think from the perspective that the creditors austerity policy has failed.

http://www.thenation.com/article/austerity-has-failed-an-ope...

The creditors are saying keep taking a haircut till you recover, and the debtor is saying, Sir that what we've been doing and we are getting into deeper trouble.

Are we running out of economic imaginations? Maybe we need more of startup thinking in the space of economy.

Anyway if debt relieve, why Greece? It is well developed country with good infrastructure. Lets send those money to countries which need it more.

It is true that Greeks introduced crazy socialistic ideas like having written down in the constitution the law that civil servant cannot be made redundant. It ended up with huge number of employed officials doing nothing.

It is also true that Greeks made cheating on taxes a pure art (and I am speaking this as a Polish, and people in Poland are not exactly rushing to pay taxes). Covering pools with a military masking net to avoid tax or things like hiding relatives death for many years to get their pension are kind of unusual practices. This pathologies are partly caused by absurd tax regulations, though, so I wouldn't attribute it to "Greek nature", as some people do.

But it is also true that Greeks were tricked into joining Eurozone. They had rather weak economy without well developed modern industry. As long as they had drahma, Greek products were cheap, Greece was also cheap as a touristic destination. It has all changed, when they joined Eurozone, this hasn't improved their economy, but made their often low quality products expensive.

Who was main beneficiary of this? Obviously Germany, before Euro Deutsch Mark was becoming a very strong currency, so German products were expensive (similarly to Swiss Franc).

Introducing Euro changed that. Right now German economy is blooming, they are about to have zero debt budget next year and the rest of Eurozone is kind of in trouble.

The other thing, Greeks were actively encouraged to take credits (I can't believe that banks and governments were so stupid that they couldn't analyze situation). Greeks spent those money on products bought abroad (with Germany as a big seller). Greeks bought a lot of military equipment in Germany, for instance. So, Greeks made others rich in that way. Now they are left with top quality war ships, but they cannot payback their debts.

A big advantage of having a fiat currency is that through manipulating the money supply, a country can essentially give everyone paid in that currency a pay cut (or a raise) relative to other countries. This situation where Greece is dramatically less productive than the rest of Europe is a textbook example of when currency devaluation is appropriate... but they can't do it, because they are using the same currency as Germany and other countries that have very high productivity levels.

Greece is way better off outside of the euro; loaning them more money at this point would be delaying necessary pain; and certainly, getting off the euro and bootstrapping their own currency will be painful, but... it's something they are going to have to do.

Most people these days are unable to distinguish between people and their government.

They assume that governments act on behalf of the people, yet, somehow they always claim they don't feel represented by their government.

A sad world.

EDIT: "changed government and its people" to "people and their government", added title

They asked for a restructuring. The same amount of debt was to be owed but over a longer period of time and at a lower interest rate.

The reasoning was quite simply that at the current rate and loan period, they are unable to take any advantage of the quantative easing currently being undertaken by the ECB.

Varoufakis explains it quite nicely onnhis blog. The debt as it stands is unsustainable. Restructuring would help tremendously. They haven't asked for a reduction.

Ah, the good ol' Nirvana fallacy.

The Germans argued, in short, that "we've changed, and because of the change the leniency will really help". The change was clear: The Bundestag didn't look like either the Weimar Reichstag or the Nazi regime.

It'll be difficult for the Greek to put forward the same argument, so long as their pension scheme remains severely underfinanced, etc. Syriza's argument is basically "we suffer", which is undoubtedly true, but it's a very different argument, not one that can be supported by the German experience.

* Without any impact on the US $ * Without any foreign country noticing * Without pictures of suffering people

What does the EU need to change? Is there cross financing in the US to states, e.g. California, which the EU does not want to do for Greece?

I don't want to start analysing what has gone wrong with greece. Lots of ink has been spilled and most people have formed their opinions by now anyway. Let's just say it's a mix of reckless mid-90s to late-00s borrowing/spending and a bit of short-sightedness (or over-confidence maybe) of foreign investors.

What troubles me most are two things however

First, the last 5 year reforms have afflicted low/middle class households the most. Even moderate (800-900 e/mo) pensions and wages have been slashed, collective bargaining abolished, lots of small/medium businesses have gone belly up along with their employees. It was supposed to help, and I would even be OK with it. But apparently it didn't. GDP plummeted, unemployment is all-europe high, you have probably already read about it. Every 18 months there are new reforms of the same kind only to roll-over the previous bail-outs to new ones. Assuming we keep the euro and the government signs a new 2-4-year funding programme. If in 2017 the situation is the same what would be the next step? Another bail-out? When will this end? Will it end at all? Let's say that through another set of cuts and budget adjustments there is a 3% primary surplus (wildly optimistic) by the end of 2017. How good will that be with 200% debt/GDP? These are probably naive questions for someone more learned in economics but in my eyes it seems like the trial of Sisyphus[1]; the same thing over and over again. I believe that there must be a way to manage the greek debt, not write it off maybe, but ease part of its repayment.

On a side-note some proposed or already implemented reforms are on good track. Ridiculously early pensions should be abolished, as they are an insult to those working hard for 40+, years and tax evasion should be tackled hard. But these things don't happen within a year, especially managing tax evasion. It's getting better but it will need time. The current government has vowed to address both, I wish they do, but I'm cautious.

Second, I am totally disheartened by the way the greeks are depicted by the media. For example there was this utterly disgusting sketch[2] by a dutch newspaper. I can find more, but this is one of the more recent ones. Is this what people think of greeks? Is this how we treat people that are definitely through some hard times, even if it is partially of their own wrong-doings? Don't get me wrong, there has been also in greece some relevant comments and sketches. I disagree with them, but all of them were targeted at politicians not people. Although there are harsh feeling about Mrs. Merkel, and Mr. Schäuble, and several other high profile politicians I have heard noone to say bad things of the germans, or dutch, or whatever. On the other hand I have read some totally disgusting things for the greeks as a nation over the last few months. I'm sad and disappointed.

[1]: https://en.wikipedia.org/wiki/Sisyphus

[2]: http://www.volkskrant.nl/foto/de-cartoons-van-jos-collignon~...