Galbraith on Greece

[gnk]

Re: Hudson on Greece

Southernguy -

"a noble people?" Yeah, my anecdotes don't jibe with your black/white evil/good memes often found in fiction.

The corruption, as I said, was endemic. Did oligarchs get a bigger slice on a per capita basis? Sure, that happens everywhere. But as I said, it was everywhere in Greek society... Did you read the bits from Lewis' article at all? Government employees working for overbloated government entities making 3X more than comparable private sector workers - with HUGE benefits to boot. What's the difference between a handful of oligarchs and thousands of government employees in terms of raw money misspent? They're both bad. And at the end of the day, both strangled the country. Here in Greece, the unions were even more powerful than the wealthy families. How did they earn 3X private sector workers? They went on strike whenever they wanted to. They made both political parties serve them. They were a massive voting bloc. They captured government and bled it dry. Just like oligarchs do. How noble is that?

As for the communists from WWII. Don't think for a minute that they were all glorious freedom fighters. I know people that lived those years. Many communists were opportunists preparing to overthrow the government and side with Stalin (Mother Russia.) Thank God for Churchill!!!!!! Is what I say. Churchill negotiated with Stalin - Greece goes West, and the rest to Russia. Otherwise, Greece would have been as backwards as the rest of the (soviet influenced) Balkans were from WWII to recent times.

Thank god those dirtbag communists were defeated. Thank you England.

Sorry Southernguy, but its a touchy subject and sorry my anecdotes and historical references don't jibe with your philosophy. I live here now. I had relatives from both sides of the spectrum during the Greek civil war after WWII. It's not as cut and dry as you think. At 16 years old my father was given a rifle to protect his village from marauding communists. They lived in the mountains and stole livestock from villagers at night.

don - I read "Confessions..." here's a suggestion for you: live in Greece for 5 years. I used to think the same way. Then we talk.

Look, I know the AFC has made a lot of you cynical. It has done the same to me as well. But regulate capitalism, reform it. Don't go looking for saviors at the other end of the political/economic spectrum. You will be disappointed, and at the end, will discredit any movement trying to reform the current Western system.

I think some people need to ease up on the Chomsky.

[Thailandnotes]

Re: Galbraith on Greece

Lewis's stuff is always fun to read, but you have to take it with 17 grains of salt. He is cocksure he has it all figured out. Having crossed many a Berkeley street, his pedestrian metaphor was worse than dumb.

It's hard to know what is really going on in a town much less a country even when you're living in it, even when things get extreme.

During the first gulf war, I lived next door to a CNN reporter who was married to a Thai. When the SHTF in Bangkok's streets, I couldn't believe his commentary on air. His wife said her whole family spent long nights telling him he was full of it, but his opinions about Thailand were set in stone.

Greece needs a new currency. Bankers need a big haircut. Pension reforms need strengthening. All at once. It's a recipe for fascism.

[don]

Re: Hudson on Greece

*Economic Hitman?

thanks for the correction lazyboy. maybe that should be my moniker - lazyboy II

[don]

Re: Hudson on Greece

don - I read "Confessions..." here's a suggestion for you: live in Greece for 5 years. I used to think the same way. Then we talk.

I am absolutely unqualified to comment on, let along pontificate, on the Greeks. (a small personal note - every Greek-American friend i have trashes their relatives in Greece as lazy, system-exploiting, scumbags) That said, Neoliberalism has a well-documented template of debt servitude and wealth extraction. Each country has its own particulars, of course, and none are heroic simply because they're being screwed. We've seen plenty of Neoliberalism's junior partners take the money - it's usually already in Switzerland, etc. - and run when things began to tip into hard times and the "middle class miracle" is over. (another note - with so much of the easy pickings picked, I suspect that's the allure of opening up Cuba. Just think, a whole country not in debt. Whoa! Time to get busy)

[jk]

Re: Hudson on Greece

It is not an EU problem, it is a Greek problem....

it is an eu problem of the eu's creation. AND it is a greek problem of greek creation. there's plenty of blame to go around.

[jpatter666]

Re: Hudson on Greece

it is an eu problem of the eu's creation. AND it is a greek problem of greek creation. there's plenty of blame to go around.

In Greece I suspect it's a textbook case of Tragedy of the Commons. Everyone is exploiting the system. Everyone knows its bad and can't last. Everyone is willing to stop -- when they see everyone else stop as well.

So no one stops and the train rolls on.

[jk]

Re: Hudson on Greece

In Greece I suspect it's a textbook case of Tragedy of the Commons. Everyone is exploiting the system. Everyone knows its bad and can't last. Everyone is willing to stop -- when they see everyone else stop as well.

So no one stops and the train rolls on.

i think you may be giving the participants too much credit. i have a hunch each would go on pursuing their self-interest at everyone else's expense even if everyone else refrained.

[gnk]

Re: Hudson on Greece

(a small personal note - every Greek-American friend i have trashes their relatives in Greece as lazy, system-exploiting, scumbags)

don, sorry if I seem abrasive, it's just that this is not some sterile story to me, I am living it.

That said, the above quote made me laugh. I have to admit, I used to argue with many Greek Americans that held that view. Not so much anymore. But I won't paint with a broad brush either. I know many hardworking Greeks, proud of what they do, and good at it.

I think there are two discussions going on here in this thread. One is about neoliberalism/mercantilism, the other about a failed state. There are overlaps, but I think we may agree on more things than it seems.

But we need to keep one thing in mind. Europe is moving towards federalism. EU members are no longer independent sovereign states, at least not 100% anymore. To me, that's a good thing. They are forced to work together.

[gnk]

Re: Galbraith on Greece

Here's a video clip that shows our glorious leader negotiating with those evil Germans. It's titled "the missing folder." Notice the folders each side has. Notice the composure of each side. Forget the greek words, just look at how "prepared" the Greek Marxists are compared to the Germans. It's hilarious. Left wing keystone cops are actually running a Western Country... a member of NATO!

You don't see this stuff unless you live here. What outsiders don't see are the almost daily gaffes this government commits.

[GRG55]

Re: Hudson on Greece

thanks for the correction lazyboy. maybe that should be my moniker - lazyboy II

We're all helpin' each other out here
It's what keeps me coming back!!

[GRG55]

Re: Hudson on Greece

GRG55, it is very difficult to understand or appreciate the impact Greek psychology has on the economy and government. Michael Lewis has captured it with his metaphor. I'm not surprised, as he has done a lot of "in the trenches" research here.

It is not an EU problem, it is a Greek problem spanning two centuries. I can write volumes on it. Its no coincidence that Greece has been in some sort of financial distress for half its almost two hundred year history as a modern state.

In this more recent two decade old episode of financial mismanagement, the Greeks had to take the EU candy to cover up decades old drachma mismanagement post Junta.

Greece has been broken for a very long time. I know this may sound un-PC, but some countries just are not capable of self rule. I say this as a Greek-American.

If you look at my old posts when I first moved here in 2010, I had a very different view. I even called Germany the Fourth Reich! Living here for five years changed that. I have grown to respect Germany more.

I can say this living here - last year there was a palpable stabilization. Bank deposits, 10 yr govt bonds, investments, were all growing or at least stopped falling. Most payments at the language school I work were being made on time. And then the political uncertainty in late 2014 that led to January elections. And here we are. It is typically Greek.

You know the quote: “The United States can always be relied upon to do the right thing — having first exhausted all possible alternatives.”

Well here in Greece, due to the self righteousness/victim mentality against the foreign power du jour, they rarely get it right. It always affects their judgement. Politicians or rather demagogues, use the foreign power interference meme with excellent results for their careers, poor results for Greece.

Internally, this is also affecting Greece: the social contract between the public and the private sector is broken. The government, for decades, has taken to giving out jobs and money for votes, and the private sector has taken to tax evasion as protest (with an element of greed too). That oligarch thing is not as relevant as the media and politicians suggest it is. The problem is grass roots level. It is endemic from the government employee to the souvlaki restaurant and up.

But I'll say this as well - Greek society is extremely resilient. Few countries could suffer Greece's current economic situation and still maintain (relatively speaking) low crime rates, suicide rates, etc...

Here's a story a friend once told me that happened years ago:

A low level worker at the local tax office told my friend that his business was guilty of tax evasion and asked for a payola to make things "go away." Well, my friend knew this was a shakedown so he told the police, and a sting operation was implemented. There was a microphone, and the police were undercover near the meeting. The operation was a success. That government employee was suspended without pay. However, the court system is so dysfunctional that it took years for the case to go to trial. The attorney for the accused used civil procedure rules to drag the case on (and I wouldn't be surprised if some payola was used to keep the case in the bottom of the docket pile.) Anyway, the statute of limitations expired, and the accused, no longer under prosecution, was given her government salary back for those years she was suspended.

Now tell me. Where does "evil" Germany, the EU, or the "Imperial" USA fit in that story?

The consequence of Greece "playing ball" is hopefully, a nation that has been "rebuilt." Because obviously, it can not do it on its own. And remember, yes the debt is huge, but the payments, as a percentage of gdp, not so much. This debt is a necessary sword of damocles, being held over Greece, to reform an otherwise self-unreformable country.

What we are seeing here is nation-building. I know, it is rarely successful, but here in Greece, I think it is worth it.

Nobody is lily white in this affair gnk.

It most definitely is an EU problem. And the EU bears more than a little share of the responsibility for creating it (and amplifying it).

Greece was required to meet certain criteria before it was allowed to join the third stage of the EMU on Jan 1, 2001. The EU organization responsible for vetting Greek compliance was Luxembourg based Eurostat. At the time Eurostat was already in the early stages of its own corruption scandal. But the real scandal at Eurostat is the way it was neutered, primarily by Germany and the UK, as the major nations in the EU did not themselves wish to have revealed the level of statistical information necessary to achieve an comprehensive assessment of economic performance and compliance with treaty obligations. Greece may have fudged its figures, but it was the EU that allowed that transgression to slip through the pore space in the screening process. If indeed Greece is a two century basket case ("broken"), surely some added vigilance would have been obviously necessary and prudent?

Germany proposed and was the strongest advocate of the Stability and Growth Pact. Germany was also the first EU nation to violate the Pact's deficit terms, followed by France. The EU Council of Ministers failed to apply the prescribed treaty sanctions against either Germany or France, but had no hesitation to apply them to Portugal in 2002 and to Greece in 2005.

Corruption, as we all know, is far from endemic to Greece only. I have lived in India, the Middle East and in one of the former Soviet Central Asian Republics - successively increasing surreal experiences (the sophistication of the corruption taught by the Soviets makes the Arabs look like amateurs). You suggest that Greece might be "rebuilt". In what image? Germany? I wouldn't be too optimistic of such an outcome. It would take a wholesale repudiation of the "Greek psychology" you referenced in your opening paragraph.

Allow me to make a wild-azz prediction. Instead of curbing corruption in Greece, the combination of high youth unemployment, increasing economic migration, the imposition of "austerity" as the remedy, and the fundamental and dramatic system of values differences between regions (northern vs Med for example) within the EU will contribute to an increase in corruption in the historically least corrupt nations of the EU. By way of example, actual unemployment rates cannot possibly be as high as the official statistics. Over time, out of necessity, people will find a way to earn an income and put oatmeal (olives?) on their family table. I expect the underground economy and unreported income continues to rise across Europe, and the attitude that paying tax is to be avoided whenever possible (now well established in France btw) is spreading. Germany may end up more like Greece before this is over

[gnk]

Re: Hudson on Greece

Germany like Greece? Not in my lifetime... not ever. In my opinion the best governments exist in Northern Europe. If Southern Europe can be a fraction of what the North is, I would consider that a success.

Curbing corruption is not as difficult as you make it - it's not a wholesale repudiation. Look at any Greek that goes abroad. The vast majority adapt to the new country's rules, and their children excel. The same for many other immigrants. Fighting corruption is called law enforcement, which is not a novel concept. And there are easy ways to do it when it comes to tax evasion. Increase the use of electronic transactions. Audits. Fines. etc... that wasn't difficult - and it it being done, right now, in Greece. And another thing, Greece is a country that has a large government bill. In these past five years with EU supervision (i.e. tight leash policy), tax collection has increased - out of necessity, government excesses tamed (somewhat), the envelope of cash to the hospital doctor is nearly a thing of the past, etc...

As for that massive youth unemployment. Humbug. Go to any cafe and you will find these youths enjoying themselves. After high school many enroll (with low grades) in a free Government sponsored Associates Degree equivalent program and take five years to complete it. At their age I was working at my father's restaurant while going to college. I started at that restaurant at 15 as a busboy. Many Greek kids today consider that beneath them - it is immigrant Albanian work. I know of hotels that have a tough time finding front desk employees that are reliable. That quick instant wealth Greece enjoyed created a worthless generation. This may sound harsh, but Mommy and Daddy's allowance needs to dry up, and they need to get hungry in order to become responsible adults. Unfortunately, many of these youths think that voting in a Marxist will make their lives easier. They'll learn. Eventually.

The EU is experiencing some growing pains. But nonetheless, I am impressed at the cooperation between member states. Not too long ago, many were at each other's throats, and for millenia before that. In the grand scope of things, we've come a long way. This is just a temporary bump in the road.

Big picture, with or without Greece the EU experiment is mankind's greatest experiment. Many other regions of the world can learn a thing or two from Europe.

The naysayers will be proven wrong.

And by the way, Merkel will go down in history as one of Europe's greatest leaders. Whereas her predecessors created the EU via treaties and champagne toasts, she did all the heavy lifting making it a workable reality. I follow the news closely here. I don't think that woman sleeps at all. She has sacrificed a good part of her life for Europe.

[astonas]

Re: Hudson on Greece

Germany may end up more like Greece before this is over

Sorry, but this is just not possible. The cultural gap cannot be bridged from this direction.

The German word for debt (Schuld) has for thousands of years been numerically identical to the word for "guilt". Both the English words (debt and guilt) translate to one and the same German word. The German language thus explicitly and universally assigns responsibility for the debtor/creditor relationship entirely to the debtor. You literally can't borrow money using the German language without explicitly, in formal legal documents, declaring yourself to be both (a) in the wrong, and (b) wholly responsible for acquiring that condition. If you don't want to admit moral and legal fault, the only option you have is saying "no" the the loan.

This is also why bankruptcy in Germany does not reduce the amount of debt, but only arranges for an adjusted payment schedule. The concept of voiding a debt because of an inability to pay is simply not there, in either German law, or German language. It would be equivalent to declaring that a criminal is innocent, simply because they are for some reason not capable of serving their sentence. Trying to argue for this in the German language will always sound entirely ridiculous, and self-contradictory. Schuld remains, indefinitely, until it is paid. It cannot be linguistically expressed otherwise, in German. No man can wipe away Schuld, and if you want to escape it by death, well, that's between you and your god. But here on earth, your estate or descendants will continue to get the bill, until it is paid.

To borrow money using the German language therefore is to declare a priori that one is solely responsible for the transaction. Given this, it is no surprise that the German population to this day avoids even the most basic use of credit cards, or debt-based purchasing, even when acquiring a car or a home. It is seen as colossally reckless to voluntarily place oneself in such a financial condition, and it astonishes Germans to no end that the rest of the world insists on pretending that the debtor is ever considered incapable of saying "no" to an offer to borrow money. After all, the average German lives their entire lives saying "no" to credit card offers from banks all over the world, all the time, and a large majority possesses not a single card. To them, the temptation is self-evidently resistible, by all but the most foolish.

Furthermore, they see Anglo-Saxon finance, based as heavily as it is on highly-leveraged debt, as intrinsically untrustworthy, and foolish. It isn't sometimes associated with immoral action, it by definition is an immoral action, for which the debtor is by definition always responsible. And even today, the German Mittelstand generally saves retained earnings until it can expand its business. Taking on a bank loan would be interpreted as the equivalent of declaring yourself to be mildly insane. Sure, it might fund an expansion, but your colleagues and customers will wonder whether your judgement has gone, and whether you can still be trusted, if they found out.

In the mind of Anglo-Saxon thinkers, using the English language, where the two concepts of "debt", "responsibility", and "guilt" are all separable, this may seem ridiculous. But among people who think about finances using the German language, there can never be any concession that the Greeks are anything but fully responsible for their own debt.

The words to even express such a concept do not exist. It is in this sense literally "unthinkable" in German, to imagine that the borrower is not responsible. The word "debt" or "loan" could not be used if this were the case.

[LazyBoy]

Re: Hudson on Greece

Given this, it is no surprise that the German population to this day avoids even the most basic use of credit cards, or debt-based purchasing, even when acquiring a car or a home.

...

And even today, the German Mittelstand generally saves retained earnings until it can expand its business. Taking on a bank loan would be interpreted as the equivalent of declaring yourself to be mildly insane. Sure, it might fund an expansion, but your colleagues and customers will wonder whether your judgement has gone, and whether you can still be trusted, if they found out.

And the German government?

[Thailandnotes]

Re: Hudson on Greece

The chasm between the reforms the Greek government is willing to make and the far stricter measures demanded by its European creditors now appears unbridgeable. It’s highly unlikely that Athens’ far-left leaders and the cast of central bankers, finance ministers, and analysts across the table will find the necessary common ground on pensions, taxes, and labor liberalization required to forge a deal by the effective deadline, which is slated for mid-June.

The current standoff comes as anything but a surprise to Greek prime minister Alexis Tsipras, and his finance chief Yanis Varoufakis. It’s clear that practically from the start of negotiations three months ago, they’ve been counting not on convincing ministers and bureaucrats, but rather on a minute-to-midnight intervention by Europe’s most powerful heads of state, led by Angela Merkel of Germany.

On June 3, Tsipras issued a harsh statement, charging that “the political leadership of Europe needs to accede to the realism the Greek government has been adhering to,” and adding, “I’m confident that the political leadership of Europe will do what needs to be done.”

The operative word here is political. Tsipras and Varoufakis believe that, faced with a Grexit, Merkel will overrule her finance minister and convince her peers to follow suit, forcing the European authorities to accept most of what appears to be Greece’s final offer. “It’s hard to see any way out except intervention at the highest levels,” says economist James Galbraith, a professor at the University of Texas and a former colleague of Varoufakis’.

Hence, Tsipras is focusing his campaign not on policy details but on lobbying the ultimate decision makers. On the evening of June 5, he held talks with the team whose support he urgently needs, Merkel and French President Francois Hollande.

During the week of June 1, the world got the clearest view yet of the gulf between the lenders’ position and that of the Greek government. Late on Monday evening, Athens presented its plan, which it more or less labeled as its final offer. Then on Monday evening, Merkel and Hollande met with the IMF, the European Central Bank, and European Union officials to unite on a common set of demands. On Wednesday, Greece’s creditors handed Athens their list of requirements, widely viewed as a “take-it, or leave-it” salvo.

Comparing the two documents, point by point, reveals that the differences have narrowed. Still, the dueling proposals contain demands and counter-proposals that are far too at odds to resolve quickly, if at all. The EU document, entitled “Greece–Policy Commitments,” is just four-and-a-half pages long and is extremely general. By contrast, the Greek manifesto––“Agreement on the Economic Policy, the Reforms of the period 7/2015-3/20015,” covers far more specifics and runs at over 47 pages.

The crucial issue of Greece’s “primary surplus” epitomizes the problem. Both sides have compromised, but their numbers are still far apart and would require sharply divergent policies to achieve. Primary surplus represents the surplus of revenues over expenditures, excluding interest payments on debt. Right now, Greece is running a primary deficit of around two-thirds of 1% of GDP, coming to about $1.6 billion on national income of $240 billion. Greece’s lenders—the EU, ECB and European Union—demand that the troubled nation run a surplus of 1% this year, rising to 3.5% by 2018. That’s well below the lenders’ previous requirement of 3.5% in 2015, rising to 4.5% the following year.

But it’s far above the numbers Greece is proposing: 0.6% in 2015, increasing to 3.5% in 2018. “It’s hard to see how the lenders’ numbers can be achieved without strong growth in the short-term,” says Galbraith, a scenario that’s unlikely. In short, embracing the creditors’ demands would require bigger tax increases and spending cuts than Athens is willing to make.

A second, and related, issue is value added taxes. Today, Greece imposes a wide variety of rates under its VAT (value added tax). The lenders want the government to winnow the system down to two rates of 23% and 11%, the latter for essentials like food and medicine. The creditors are requiring that Greece raise an extra 1% of GDP, or around $2.4 billion a year, by flattening, and effectively raising, the rates.

In its proposal, the Tsipras government proposes replacing the current hodgepodge with three rates of 6%, 11%, and 23%. But it’s also refusing to increase taxes on crucial products and services, including its citizens’ electrical bills. The EU proposal would raise electricity levies by around 10 percentage points, which may be a potential deal-breaker for the Greeks. It’s also unclear how much money the Greeks expect to collect from the revamped VAT. In its presentation, the revenue line is left blank. Athens does propose raising well over $1 billion a year from a new tax on the profits of big companies. It’s also unclear if the lenders approve of this proposal. It might be viewed as a barrier to foreign investment, a crucial lever for future growth.

The most divisive issue is pensions. The lenders are demanding that outlays for retirees be lowered by as much as 0.5% of GDP this year, and 1% in 2016. Those are big numbers. In its document, Athens recognizes that pensions must be reformed. The current system invites abuse, particularly from workers in Greece’s sizable banking sector. The Greek government has agreed to gradually raise the retirement age. But the savings aren’t nearly as big as the creditors want. They amount to just $80 million this year, and will rise to $700 million by 2022. That’s a fraction of the $2 billion-plus the lenders are demanding for next year alone.

The Greek leaders, for example, are adamantly opposed to demands that they lower pensions as much as 30% to folks receiving benefits of $400 a month.

The two sides have also drawn closer on the matter of privatization of government assets and institutions. But once again, the lenders’ program is far more ambitious. The Tsipras government resists privatizing public utilities, especially those serving the Greek islands. “They’d be forced to sell the electrical grids at fire-sale prices, and the government would be replaced by a monopoly,” says Galbraith. “The government’s position is, ‘Talk to us when the economy comes back.’” All told, the EU and its partners are insisting that the Greeks follow the original requirement to raise $25 billion from privatization by 2022. In its proposal, Athens predicts garnering just $12 billion from selling government enterprises––including the ports of Thessaloniki and Piraeus––by 2020.

Greece’s plan also proposes new social programs. For example, the government plans to stop the auctioning of foreclosed houses and allow low-income Greeks to replace mortgage payments with lower amounts based on a percentage of their income, and hence remain in their homes. That would require new federal subsidies, so it’s uncertain if the lenders will endorse or reject the proposal.

For their part, the creditors have dropped demands that Greece fire government workers. They now want federal payrolls to shrink, year after year, as a portion of GDP. The Greek document makes no reference to capping spending on government employees.

The deadline for a deal is June 30, when Greece’s bailout period officially ends. But a more realistic date is around June 15, since parliaments of its EU neighbors must approve the deal to unlock $8.1 billion in aid, a tranche that’s already been delayed for a year. Wolfgang Schaeuble, the German finance minister, is a hard-liner who wants the Eurozone to comprise of well-functioning economies that follow fiscal probity. He’s unlikely to bend to Greece’s demands.

But his boss, Angela Merkel, must think on a grander scale. And the historic decision of whether to keep Greece in the club may be hers alone. Judging from her previous moves, Merkel will make peace, or side with the hard-liners, only hours before the deadline. Tsipras has long been betting that what he considers statesmanship will trump the quibbles over pensions and VATs. We’ll soon see if he’s read Merkel correctly, or if he has made a miscalculation that will drive the already-wobbling Eurozone into uncharted territory.