2015 - Greece drops Euro?

[GRG55]

Re: 2015 - Greece drops Euro?

...Below is a picture from our 2nd week of demolition. Notice the nylon strap holding the adobe wall up until we could get some exterior bracing in place....yup, charming.

Hmmm. That's more bunker than the GRG55 "bunker"

[astonas]

Re: 2015 - Greece drops Euro?

Most commentators and observers refuse to accept or acknowledge that Germany is the biggest impediment to an integrated Europe and a workable EMU.

Germany is one of the natural centers of influence in a workable EMU, rather than an impediment to a workable EMU.

The divide between Germany and pretty well every other EMU nation will never be made up by the imposition of austerity in Greece (and Portugal, Ireland, Spain, Italy, France...). There has to be some redistribution, whether the Germans like it or not. Even in Canada we have an "equalization payment" program between the Provinces, where the less well off receive funds in an attempt to reduce the gap in the quality of various government provided social services in different parts of the country. The Germans and the Troika could start by acknowledging that instead of increasing Greek sovereign debt as they have, what was/is needed is debt relief.

The above paragraph ignores the fact that Merkel and others have repeatedly made clear that the official foreign policy of Germany (one widely supported by German voters) is precisely to participate in large-scale fiscal transfers (debt relief) to southern nations -- once sufficient structural reform has been implemented to ensure that the funds transferred are not simply siphoned away by various forms of graft.

So the sardonic jibe "whether Germans like it or not." is entirely unwarranted. Germany's plan of record is to do exactly what you imply they are refusing to do -- provide debt relief. This has been the case from very early on in the crisis, and it has been made clear numerous times, in official policy documents, in the broader press, and even here on iTulip. I'm no longer a select member, so I can't readily provide links to the prior posts in which I've best supported this with evidence, but I do recall posting documents behind the paywall supporting this assertions on several occasions in years past.

If I've misunderstood you, and you are instead merely arguing that northern Europe should be providing debt relief before structural reform, that seems (to me) to be a throughly ridiculous idea. You'd be handing money not to the people of Greece or the nation of Greece, but rather to the parasites of corruption that are still today feeding on the legitimate and productive portions of the Greek economy. If a rational framework exists that makes this appear to be a sensible financial policy, then it hasn't been adequately elucidated to me. The sensible thing to do seems obvious. Clear away the parasites, and THEN provide the required debt relief. To do otherwise is to give strength to the parasite, rather than its victim.

Why feed a tapeworm, if no nutrients can get to the patient while it remains in place? All you do is allow it to reproduce and spread. It is the people of Greece who need aid, not the deeply corrupt political, property, and taxation structures which are weighing down their economic growth, demanding bribes at every turn. Until these are clearly distinguished, making demands to help "Greece" is pointless. Which Greece is to benefit? Patient or parasite? Giving any given iteration of government free cash without demanding reform in return only tightens the grip of the parasite which feeds on the people.

I think the Germans need to be very careful what they wish for. Or, alternatively, they need to start to think through how they leave the EMU.

This ignores the fact that Germany is NOT a minority voice in Europe, but rather the most visible spokesman for the majority of the EMU nations. If this were not the case, it simply could not be implementing any economic policy at all. Just count the votes, and this quickly becomes obvious. I suppose if one wanted to modify this suggestion to be consistent with reality, one might make the rather questionable demand that a majority of European nations leave the EMU to spare the institution for the remaining few, but I don't really see much point in that either. The remaining shell would simply be insolvent.

So what Germany is wishing for is not nearly so draconian as you seem to imply. And Germany certainly has no reason to leave an EMU that for the most part is still actively cheering on, rather than griping about, its influence.

It must be remembered that it is a minority of the EMU, the tail-end stragglers like Greece, that get the most coverage in the press, since that is the more interesting headline, and the emotionally compelling story. But to extrapolate from this intrinsically ratings-skewed news coverage that Germany is in some way standing alone against the rest of Europe is to entirely misunderstand -- or intentionally misrepresent? -- the way European power is structured, both in theory, and practice.

As gnk has noted - reporting directly from Greece itself - there is considerable reform needed in Greece before it can be a self-sufficient country. To decry the imposition of this from the outside is to implicitly assume that it is possible for a nation to overthrow the present level of corruption entirely on its own. The recent history of Greece appears to indicate that this is not likely to occur. A longstanding history of patronage-based governance around the mediterranean (dating literally as far back as the early roman republic) is a heavy cultural weight to overcome.

[jk]

Re: 2015 - Greece drops Euro?

germany doesn't need to offer redistributed funds to help the rest of the eurozone, it just needs to allow more growth in its own economy, perhaps at the cost of a bit of inflation. so german fiscal policy does not support the emu.

eurozone monetary policy is being set for the german economy, not for the eurozone economy. it is similar to the fed setting policy based on new york and california, ignoring the rest of the country's economy. ecb policy has from the beginning been geared to the german economy. when germany took a hit with re-unification the ecb was stimulative, which helped germany but blew bubbles down south. also germany ignored the supposed limits on national deficits and suffered no consequences for doing so. now, as long as germany remains out of recession, ecb policy remains restrained.

germany may say that they'll allow redistribution after sufficient structural reform, in the sweet by and by, but in the meantime the result will be sharply discounted assets in greece, portugal, spain, italy, france eventually. who will be the buyers?

[GRG55]

Re: 2015 - Greece drops Euro?

Germany is one of the natural centers of influence in a workable EMU, rather than an impediment to a workable EMU...

The jury is most definitely still out on this statement. When the currency zone monetary policy is repeatedly and systemically set for the sole benefit of one nation, Germany, it's an impediment.

The above paragraph ignores the fact that Merkel and others have repeatedly made clear that the official foreign policy of Germany (one widely supported by German voters) is precisely to participate in large-scale fiscal transfers (debt relief) to southern nations -- once sufficient structural reform has been implemented to ensure that the funds transferred are not simply siphoned away by various forms of graft.

So the sardonic jibe "whether Germans like it or not." is entirely unwarranted. Germany's plan of record is to do exactly what you imply they are refusing to do -- provide debt relief. This has been the case from very early on in the crisis, and it has been made clear numerous times, in official policy documents, in the broader press, and even here on iTulip. I'm no longer a select member, so I can't readily provide links to the prior posts in which I've best supported this with evidence, but I do recall posting documents behind the paywall supporting this assertions on several occasions in years past.

If I've misunderstood you, and you are instead merely arguing that northern Europe should be providing debt relief before structural reform, that seems (to me) to be a throughly ridiculous idea. You'd be handing money not to the people of Greece or the nation of Greece, but rather to the parasites of corruption that are still today feeding on the legitimate and productive portions of the Greek economy. If a rational framework exists that makes this appear to be a sensible financial policy, then it hasn't been adequately elucidated to me. The sensible thing to do seems obvious. Clear away the parasites, and THEN provide the required debt relief. To do otherwise is to give strength to the parasite, rather than its victim...

Let's be careful whom we deem parasites. The money flowed through to benefit the northern European banks. What Greece ended up with (the people of Greece, not the politicians) is more debt...and an economy that, despite recent flickers of resuscitation, is almost certainly never going to be able to grow fast enough to service it. Not when this is the result of "restructuring":

Why feed a tapeworm, if no nutrients can get to the patient while it remains in place? All you do is allow it to reproduce and spread. It is the people of Greece who need aid, not the deeply corrupt political, property, and taxation structures which are weighing down their economic growth, demanding bribes at every turn. Until these are clearly distinguished, making demands to help "Greece" is pointless. Which Greece is to benefit? Patient or parasite? Giving any given iteration of government free cash without demanding reform in return only tightens the grip of the parasite which feeds on the people.

This ignores the fact that Germany is NOT a minority voice in Europe, but rather the most visible spokesman for the majority of the EMU nations. If this were not the case, it simply could not be implementing any economic policy at all. Just count the votes, and this quickly becomes obvious. I suppose if one wanted to modify this suggestion to be consistent with reality, one might make the rather questionable demand that a majority of European nations leave the EMU to spare the institution for the remaining few, but I don't really see much point in that either. The remaining shell would simply be insolvent.

So what Germany is wishing for is not nearly so draconian as you seem to imply. And Germany certainly has no reason to leave an EMU that for the most part is still actively cheering on, rather than griping about, its influence.

It must be remembered that it is a minority of the EMU, the tail-end stragglers like Greece, that get the most coverage in the press, since that is the more interesting headline, and the emotionally compelling story. But to extrapolate from this intrinsically ratings-skewed news coverage that Germany is in some way standing alone against the rest of Europe is to entirely misunderstand -- or intentionally misrepresent? -- the way European power is structured, both in theory, and practice.

Hmmm. So the EU, led by the Germans are going to stamp out corruption in Greece are they. And Italy, Spain, Portugal, France and Brussels too? Or is corruption in Greece "different", it being a tail end straggler and all?

We'll see how much longer the argument that this is a "minority" affliction within EMU lasts:

As gnk has noted - reporting directly from Greece itself - there is considerable reform needed in Greece before it can be a self-sufficient country. To decry the imposition of this from the outside is to implicitly assume that it is possible for a nation to overthrow the present level of corruption entirely on its own. The recent history of Greece appears to indicate that this is not likely to occur...

I am not sure what you mean by a "self-sufficient country"; but if it is in any way representative of the conventional definition of that term, in this globalized world, with its interlocking ring of financial behemoths to prop it all up, I don't think I could identify a single nation that qualifies as self-sufficient anywhere on the planet today.

However, I believe a case might be made that the Greeks have some modest historical experience with governance that may provide solace during this protracted redemption, once the Troika subjugates them sufficiently to permanently dissuade further looting of the communal piggybank.

A longstanding history of patronage-based governance around the mediterranean (dating literally as far back as the early roman republic) is a heavy cultural weight to overcome.

I must say this comment drew a chuckle as it conjured images of Alaric I, King of the Visigoths, sweeping out of Germania to sack Piraeus, Corinth and Sparta (the local inhabitants apparently too patronage addled to put up much of a fight). Could it be that Frau Merkel, Herr Schaeuble and Co. are merely fulfilling German destiny set in motion 1600 years ago?

If I was Giorgio Napolitano or Matteo Renzi (or maybe even Mario Draghi) I might have cause to be a wee bit concerned. Once he was finished with ancient Greece, Alaric turned his attention westward and sacked Rome.

You and I will likely continue to have divergent perspectives astonas. We'll just have to see how things turn out. Put me down as "not optimistic". Among other things, youth unemployment and total labour force unemployment rates at the levels much of Europe has been experiencing are an open invitation to rationalize more, and more widespread corruption, not less.

[Southernguy]

Re: 2015 - Greece drops Euro?

There can be nothing more destructive to a country that 50% youth unemployment. It's difficult to imagine the magnitude of the value that is not created. There can't be nothing more corrupt or inneficient than that.
Moreover a whole generation is giving away on working habits.
How several, by now, years or this youth unemployment can correct corruption in society is something I can't imagine.
And there is no end to that situation in sight.
That's a deliberate policy from the owners of Europe, German government but corrupt politicians in Greece and the rest of southern Europe as well to perfect looting. After all, after all the pain and talk about "reform" aren't the same politicians in charge in Greece?
With such levels of youth (and adult as well) unemployment salaries go inevitably down.
And of course assets are bought on the cheap...by whom?
Just imagine.
You are correct, GRG.

[gnk]

Re: 2015 - Greece drops Euro?

Big Picture.

What everyone is forgetting here is that we are watching the birth of Federalism in Europe. If I recall what I learned in my high school US History class correctly, the US, from the Whiskey rebellion to the Civil War, experienced far more tragic episodes in its evolution towards Federalism than the EU is experiencing now.

In the US it is nothing unusual for a child to enter a University hundreds of miles away from home, and then find employment in a different state. That concept is slowly gaining ground in Europe. As it should.

This EU Federalism "process" is also emerging against the backdrop of globalization and the recent entry of well over a billion cheap Asian workers entering our global economy. Youth unemployment will be a constant issue in most of the Western world for the time being, regardless.

I would prefer that the EU harmonize laws first, even if it takes an ugly crisis or two, before entering into a Federal monetary recycling system. It will eventually, I believe it's unavoidable.

I used to fear Germany. When I moved to Greece in 2010, I was adamantly opposed to this "Fourth Reich." I believed that Greece would be better off with the Drachma. For the reasons I mentioned in this thread, I no longer think that.

[jk]

Re: 2015 - Greece drops Euro?

the original loose union of the american states post revolution was under the articles of confederation, 1777. the constitution was implemented in 1789, 12 years later, and only existed by virtue of sweeping the issue of slavery under the rug, until it burst forth in the american civil war, over half a century later.

the maastricht treaty was early 1992, 23 years ago. the emu process began even earlier, in 1990, 25 years ago.

there is no true federation in sight. will any of us, reading this now, live to see the dawn of true eurozone economic integration?

i'm not kidding. i mean this as a serious question.

[jpatter666]

Re: 2015 - Greece drops Euro?

the original loose union of the american states post revolution was under the articles of confederation, 1777. the constitution was implemented in 1789, 12 years later, and only existed by virtue of sweeping the issue of slavery under the rug, until it burst forth in the american civil war, over half a century later.

the maastricht treaty was early 1992, 23 years ago. the emu process began even earlier, in 1990, 25 years ago.

there is no true federation in sight. will any of us, reading this now, live to see the dawn of true eurozone economic integration?

i'm not kidding. i mean this as a serious question.

My vote is no. Or if so, not for another few generations.

Too many differences -- cultural, language, political. I can't think of a case where such an organizational structure has worked on this scale without military conquest and forced integration.

[gnk]

Re: 2015 - Greece drops Euro?

I think so. Actually, Europe has no choice.

Culturally, however, I think things are moving much faster than most realize.

I teach English as a second language here in Greece. My students are between 13 and 17 years old. I have learned a lot about this generation. They all have smartphones and tablets. Most, if not practically all Greek students that have higher education as a goal, speak a second if not a third language - very well. Many are gamers and interact with kids all over the world. They watch foreign television shows, actually, all Europeans are used to watching foreign movies and TV series (unlike in the US, where it is considered highbrow to watch a foreign film - read subtitles? god forbid!) Go to a bar or restaurant and you will hear music from the US and all over Europe, and nobody complains.

This generation is nothing like us.

Just about every Greek has a family member (distant or close relative) that lives abroad. In the past it was mostly the US or Australia. Now it is becoming mostly within the EU.

I have friends that work for or with larger companies and just as a businessperson in the US may travel from NYC to Houston, here in Europe, they travel from Athens to Paris, Munich, London, etc... It's very common. Working for a large company in Europe, whether it's in sales, or engineering, means traveling to several countries.

I remember going to college in the early 90s. International Business was a hot subject. Guess what? Europeans have been doing it for centuries. "International" to a European may only mean driving 100 kilometers, or a one hour flight.

I have been visiting Greece since I was a child in the 1970s. Back then, in this little corner of Greece, an island called Kefalonia, one would see a very homogenous local greek population that was very old fashioned and spoke their own colloquial/localized Greek. This was common for most of Greece outside Athens. Today, on this island, there are migrant workers from Pakistan, Albania, (although many Albanians have now assimilated), there is a Chinese community that owns shops that sell the motherland's wares, and there is also a large British expat/retiree community. I know many married couples that are of mixed nationalities. - Greek-Russian, or British, or Albanian, or Bulgarian... it's very common.

Going to the Supermarket, off season (no tourists), you can hear people speaking Albanian, Greek, English, Russian, and sometimes Bulgarian too. This island merely has a population of 37,000 off season, and yet it is almost as diverse as any major metropolitan area.

30 years ago, I would have never believed that could happen. It did.

Granted, I am only giving you my experiences from one European country. But this country has come a long way in my lifetime. And most of that period was before the internet revolution.

[jpatter666]

Re: 2015 - Greece drops Euro?

I think so. Actually, Europe has no choice.

Culturally, however, I think things are moving much faster than most realize.

I teach English as a second language here in Greece. My students are between 13 and 17 years old. I have learned a lot about this generation. They all have smartphones and tablets. Most, if not practically all Greek students that have higher education as a goal, speak a second if not a third language - very well. Many are gamers and interact with kids all over the world. They watch foreign television shows, actually, all Europeans are used to watching foreign movies and TV series (unlike in the US, where it is considered highbrow to watch a foreign film - read subtitles? god forbid!) Go to a bar or restaurant and you will hear music from the US and all over Europe, and nobody complains.

This generation is nothing like us.

Just about every Greek has a family member (distant or close relative) that lives abroad. In the past it was mostly the US or Australia. Now it is becoming mostly within the EU.

I have friends that work for or with larger companies and just as a businessperson in the US may travel from NYC to Houston, here in Europe, they travel from Athens to Paris, Munich, London, etc... It's very common. Working for a large company in Europe, whether it's in sales, or engineering, means traveling to several countries.

I remember going to college in the early 90s. International Business was a hot subject. Guess what? Europeans have been doing it for centuries. "International" to a European may only mean driving 100 kilometers, or a one hour flight.

I have been visiting Greece since I was a child in the 1970s. Back then, in this little corner of Greece, an island called Kefalonia, one would see a very homogenous local greek population that was very old fashioned and spoke their own colloquial/localized Greek. This was common for most of Greece outside Athens. Today, on this island, there are migrant workers from Pakistan, Albania, (although many Albanians have now assimilated), there is a Chinese community that owns shops that sell the motherland's wares, and there is also a large British expat/retiree community. I know many married couples that are of mixed nationalities. - Greek-Russian, or British, or Albanian, or Bulgarian... it's very common.

Going to the Supermarket, off season (no tourists), you can hear people speaking Albanian, Greek, English, Russian, and sometimes Bulgarian too. This island merely has a population of 37,000 off season, and yet it is almost as diverse as any major metropolitan area.

30 years ago, I would have never believed that could happen. It did.

Granted, I am only giving you my experiences from one European country. But this country has come a long way in my lifetime. And most of that period was before the internet revolution.

'Tis to be hoped as I agree the consequences for failure are likely to be harsh. Still, Europe has a rare knack for making the unthinkable probable.

[jk]

Re: 2015 - Greece drops Euro?

gnk, i think the kind of cultural and social integration you describe is important. but i think it's a long way from economic integration with intraregional/inter-national governmental funds flowing from the wealthier to the poorer areas. i also think some cultures may be more hospitable than others. in france and germany, for example, guest workers and even citizens are not well-accepted as "truly" french or german, witness the "eurabia" meme.

it's hard for me to foresee a german politician espousing the use of german tax moneys to support substantially activities in other eurozone countries.

[meofio]

Re: 2015 - Greece drops Euro?

There can be nothing more destructive to a country that 50% youth unemployment. It's difficult to imagine the magnitude of the value that is not created. There can't be nothing more corrupt or inneficient than that.
Moreover a whole generation is giving away on working habits.
How several, by now, years or this youth unemployment can correct corruption in society is something I can't imagine.
And there is no end to that situation in sight.
That's a deliberate policy from the owners of Europe, German government but corrupt politicians in Greece and the rest of southern Europe as well to perfect looting. After all, after all the pain and talk about "reform" aren't the same politicians in charge in Greece?
With such levels of youth (and adult as well) unemployment salaries go inevitably down.
And of course assets are bought on the cheap...by whom?
Just imagine.
You are correct, GRG.

US would have high youth unemployment too if the youth are not extending their higher education supported by loans now reaching over $1 trillion

[astonas]

Re: 2015 - Greece drops Euro?

gnk, i think the kind of cultural and social integration you describe is important. but i think it's a long way from economic integration with intraregional/inter-national governmental funds flowing from the wealthier to the poorer areas. i also think some cultures may be more hospitable than others. in france and germany, for example, guest workers and even citizens are not well-accepted as "truly" french or german, witness the "eurabia" meme.

it's hard for me to foresee a german politician espousing the use of german tax moneys to support substantially activities in other eurozone countries.

I believe you are substantially misunderstanding the motivation of the german body politic, likely based on a false extrapolation from the uniquely dysfunctional American body politic, which has been increasingly divergent from worldwide trends for several decades now.

German politicians in major parties (most vocally the SPD, Greens, and Linke) have for some time been routinely and vigorously doing exactly what you find unimaginable. An adjustment of expectations might be in order.

Things just aren't as individualistically oriented in Europe (as a whole) as they are in the 'states. There is a widespread understanding that for anyone to do really well, everyone has to be doing at least marginally OK, and this applies to groups as well as individuals. That is an understanding that is today absent from a full half of the U.S. political spectrum, but it is absent in less than 20% of the electorate throughout Europe. And as nationalistic as European disagreements may appear in the press, there has been no advanced nation more unified around nationalism since 9-11 than the United States. So the inevitable bias of news readers the world over: "people are more or less like us, but with a few exceptions" leads to some dramatically false conclusions about Europe, here in America.

There are indeed very vigorous differences of opinion on how to best go about achieving the goal of greater economic equality between states (based heavily on differences of monetary philosophy) but the economic goal of better aligning the states is not actually seeing any serious challenges.


(Aside: In this case, politicians like the Dutch Geert Wilders are defensibly defined as "not serious" based on their relatively low levels of public support (<20%). The reason he and those like him remain in government at all is the inherent inclusion of even very small minority viewpoints in the parliamentary systems there, a notion unfamiliar to the American winner-take-all system.)



The way monetary philosophy affects the dialogue is of course inherently complicated, but to dramatically oversimplify for the sake of more concise discussion, I'll just break it down in three parts as follows, with apologies for covering so coarsely what many long-time readers here already know well:

Keynesianism asserts that government spending is always inherently stimulating. It includes government spending of all kinds in the definition of economic activity (GDP), and therefore one additional dollar spent always leads to at least one dollar of "growth." Furthermore, it postulates the existence of a "Keynesian multiplier" greater than unity, which encompasses second-order effects in the economy, and treats this as a single, relatively unchanging, number regardless of the nature of the spending. This is why prominent economists of this school feel perfectly comfortable asserting that a manufactured alien invasion can cure the economy.

Austrianism (from Hayek) asserts that government spending is always inherently damaging to an economy, since the distortions caused by government intervention will always have negative repercussions in the long term by creating economic boom-bust cycles. Again, one can think of the long term effect of government spending as having a single universal multiplier, but this time it is integrated to less than unity.

The modern germanic model, described from 1948 on as the "Third Way," is based on the work of Ludwig Erhard, and has been mostly ignored (or mocked) by both sides of the above debate in the Anglo-Saxon economic community. It postulates that while a given element of spending may indeed be thought of as having a multiplier, it makes no sense at all to treat all government actions in aggregate as either intrinsically stimulating or destructive, of private economic activity. Instead, any such multiplier relies only minimally on the stimulative effects of direct government job creation (Keynesian theory) AND only minimally on the destructive effects of bubble creation (Austrian theory). Instead the multiplier must be determined based on the value created by the spending itself. A bunch of "bridges to nowhere" might ultimately have a low multiplier (<1), while a highway or rail connection between major cities might ultimately have a high multiplier (>1). These specific effects are seen to have a far greater influence, positive and negative, than abstract concepts based on total velocities of money, which was thought by Erhard to be a much smaller effect on markets.

A very positive multiplier could be found by particular forms of government spending, such as investing in building stable, reliable, and transparent institutions to regulate markets. Also, it can only make sense to borrow when the multiplier is sufficiently greater than the interest rate on the loan. In this way, the Erhardian conception effectively treats ROI as the central goal and metric of governments and central banks, rather than GDP.

It is important to note that unlike Keynesianism, in which government spending is always to a greater or lesser extent stimulating for an economy, and Austriansism, in which government spending is always to some extent destructive of it, Erhardianism holds that there are some things that are never worth spending money on, even if you have a large surplus, and some things that are always worth investing in, even in the face of a large deficit. As long as you can borrow the money, and spend it to get a return greater than the interest rate, it benefits the economy regardless of how much debt or surplus you have. If not, it's bad for the economy, regardless of how much debt or surplus you have.

It is not yet possible (if it ever will be, given the lack of controlled macroeconomic experiments) to definitively know which economic model best describes reality in general. I suspect that there are cases one could point to in which any one of these appears better supported than the others.

But it is crucial to understand that while Europe is relatively united in its purpose of creating more economic equality between states, these different economic models produce entirely different prescriptions for how to bring this about. The argument Europe is having is quite genuinely NOT about the goal, but about which model best fits reality, and therefore which prescription brings Europe closer to that goal.

To call for the germanic block to loosen its economic policy is to implicitly assume, as the Keynesian model does, that such action will in fact provide stimulus to the weaker nations. THIS IS WHERE THE MONETARY PHILOSOPHY BLOCKS DISAGREE. The germanic block doesn't want a loose policy NOT because it doesn't want to help its southern neighbors, but because it doesn't think that such a response COULD help them, believing rather that it would HURT them at this point in time.

So yes, youth unemployment IS disastrous in the south. The germanic block would argue that applying Keynesian stimulus (fiscal or monetary) is likely to MAKE IT WORSE. Simply digging ditches and filling them up again would not provide the necessary and vital job skills to young greeks that a legitimate job would, A nominal, temporary, fix is not the same as a substantive, permanent one. Even in times of trouble, ESPECIALLY in times of trouble, ROI is crucially important.

The Erhardian would argue that in order for spending, or monetary policy shifts, to be effective in providing stimulus, there must be some mechanism to ensure that the money provided is routed to productive (positive ROI) uses, and ideally to the building of lasting institutions that actively convert parts of the current Greek economy from "black" markets (which are generally net destroyers of capital) to "white" markets, which permit the rule of law to provide greater benefits of civilization to a society.

Just one clear example of such an investment would be a national land registry that permits titles to be established unambiguously. While this is obviously unpopular for the large portion of the population who currently enjoy evading taxes through small bribes, it is just as obviously a prerequisite for not only taxation, but also meaningful real-estate industries, inheritance law, and many other parts of the economy. Hernando de Soto has done some extremely compelling, if controversial, work on this subject. It is even possible that the lack of such objective institutions is the ONLY thing holding nations like Greece back from enjoying wealth equal or greater than their northern neighbors. It is certainly a sufficiently large effect to adequately explain the difference in performance to date.

For this reason, the entire focus of the European crisis has been on meticulous tit-for-tat negotiations between debtor and creditor to ensure that money is spent on lasting reforms, rather than simply handing money (or, through monetary easing, credit) that entrenches a fundamentally broken system. A Keynesian -- BUT ONLY A KEYNSIAN -- would argue that this is a distinction without a difference.

But the problem with applying the Keynesian model to Europe today is perhaps the most damning one: it gives the wrong answer to the question of who you would expect to be succeeding, and who you would expect to be struggling, in Europe today.

Those nations now struggling are precisely those who for decades have been providing the indiscriminate stimulus of the "alien invasion" sort. Building massive edifices for a one-time Athenian olympics is exactly the sort of policy that Paul Krugman might prescribe as the cure, not the problem, of Greece. We can see exactly where that got it.

If Keynes had the right model for this time, and that place, then the PIIGS simply wouldn't be the countries in trouble at all. Following a Keynesian prescription is precisely what screwed southern Europe up. Does it really make sense to follow to the same model, which can only ever give the exact same answer, to find the way out?

[Polish_Silver]

Drachma valuation

The drachma steadily weakened versus the USD from 1981 until Greece joined the euro and dropped the drachma. In 2013 I theorized that the ghost of the drachma continued to weaken. Had Greece exited the euro in 2013 and reinstated the drachma I expected the initial exchange rate value was likely to reflect a deterioration from 400 to 600 since Greece entered the euro. Even if the New drachma were so priced, I expect that subsequently the currency might immediately depreciate by 50%
Greece will not leave the euro and will continue to tough-out austerity measures.

You seem to be saying that the Greeks fear inflation more than austerity.

But surely, the value of the drachma would depend on the quantity of currency issued, interest rates, etc.

To just extrapolate a curve does not make much sense to me. Currency valuation is the balance of supply and demand between goods and money.

When countries have introduced new currencies to replace inflated ones, the new unit was worth 10X, sometimes 1000X the original.

[santafe2]

Re: 2015 - Greece drops Euro?

will any of us, reading this now, live to see the dawn of true eurozone economic integration?

There is zero chance this will happen. I grew up in Southern California and I have almost nothing in common with Southerners and I don't care much for Yankees and, as I've learned, neither of these groups of folks care much for me. If the US was some loosely fit federation I can't imagine South Carolina, Massachusetts and So Cal finding common ground without a strong Federalist center. Even with this structure we're splintering deeply. Europe is so 500 years ago, who cares.