Galbraith on Greece

[thriftyandboringinohio]

Re: Pilger on Greece

Thanks astonas. When you say this:

...it became possible to place far more bets on an underlying debt than the debt itself was worth, on any debt, anywhere in the world...

You remind me of a few ideas that have been bothering me for a while.

Most to your point here, the total of all secured credit can only total the amount of collateral available, or we are lying about the debt being secured.
It seems like CDS are one way we are lying. We have lent and printed more money than the value of all the collateral in the world, including the expected production out 50 years in the future.
Dangerous indeed when, as you write, all those counter-parties default in a chain reaction.
Maybe we've confused SEcured with INsured.

Here's another idea about the ongoing PIIGS crisis, this one is less to your point.
The trade balances within Europe have Germany and the Netherlands running big trade surpluses, and the PIIGS running big trade deficits.
That's an accounting concept, so considering just trade within Europe the total of all trade surpluses must, by definition, equal the total of all trade deficits.

Now stay with me here. If the responsible Germanic nations in the north force the irresponsible Latin nations in the south to live within their means, then don't the Germans and Dutch ruin there own economies?
They can't sell all that machinery and stuff inside their own countries.
They can end their vendor-financing program for the nations in the south, but they should expect the result to be high unemployment at home in the north.

Here's another idea that seems related.
All these money printing activities by central backs to fund QE programs and bailouts appear to be contained by some ZIRP magic, so somehow there is no inflation.
But with ZIRP an individual person's life savings earn almost no returns over the years.
So today's pensioners and tomorrow's will find they can't live as they planned, and millions around the world will eventually consider buying cat food for dinner.
That situation is indistinguishable from high inflation to the old pensioner.
You can argue that the price of bread and eggs has not gone up in nominal terms, but if granny can't afford to buy them it feels just the same as high inflation to her.
High inflation by another name, courtesy of central bank QE/ZIRP.

I can't yet connect these ideas into a consistent and logical point, but they sure seem related to each other and to what we are seeing unfold in Greece.

[don]

Re: Pilger on Greece

[astonas]

Re: Pilger on Greece

Thanks astonas. When you say this:


You remind me of a few ideas that have been bothering me for a while.

Most to your point here, the total of all secured credit can only total the amount of collateral available, or we are lying about the debt being secured.
It seems like CDS are one way we are lying. We have lent and printed more money than the value of all the collateral in the world, including the expected production out 50 years in the future.
Dangerous indeed when, as you write, all those counter-parties default in a chain reaction.
Maybe we've confused SEcured with INsured.

You're right. The CDSs are being talked about by bankers trying to justify their use as though they were insurance, or hedges. But the way they're structured, and used in "hedge" funds, is anything but that. If a free market is to be allowed to apply pressures on societies to improve their lot, that market must first be made into a level playing field, by categorically eliminating swaps that aren't matched one-to-one with an underlying security. They have no productive economic purpose, and create considerable instability.

Here's another idea about the ongoing PIIGS crisis, this one is less to your point.
The trade balances within Europe have Germany and the Netherlands running big trade surpluses, and the PIIGS running big trade deficits.
That's an accounting concept, so considering just trade within Europe the total of all trade surpluses must, by definition, equal the total of all trade deficits.

Now stay with me here. If the responsible Germanic nations in the north force the irresponsible Latin nations in the south to live within their means, then don't the Germans and Dutch ruin there own economies?
They can't sell all that machinery and stuff inside their own countries.
They can end their vendor-financing program for the nations in the south, but they should expect the result to be high unemployment at home in the north.

Well, this seems to be implying that the portion of trade with southern Europe constitutes a significant fraction of northern exports. But it doesn't.

People are always saying, for example, how much it helps Germany to be able to sell things in Greece, but it really doesn't even show up as a major factor at all. Even pre-crisis, the 2008 listing of statistics in the Economist's Pocket World in Figures shows that while Germany made up ~12% of Greece's trade, Greece makes up a negligible (not listed) fraction of Germany's. Running the numbers shows a total of $6B in imports from Germany, which makes up 0.6% of Germany's total export market. It's just because the economies are so vastly different in size. Literally two orders of magnitude. Germany's trading partners that DO matter to it are mostly either in the north, or overseas (US and China, are for example, quite meaningful.)

Purely in terms of economic impact, Greece could vanish entirely and Germany would barely even notice. The reverse, of course, is not true. That's exactly why a power discrepancy exists in the first place.

It really did take the magnification of Greece's impact through CDSs and other financial engineering to even make Greece a concern to the rest of Europe at all. Without those shenanigans, the numbers would have been small enough to simply absorb. Greece would have had its losses limited to a scale on par with its economy. But with them, they started to add up to real losses. Not just large, but systemically threatening.

For reference, the TOTAL exports expected for all of Greece in 2008 were $15B. The current bailout discussions are whether to give it $100B in additional loans.

Here's another idea that seems related.
All these money printing activities by central backs to fund QE programs and bailouts appear to be contained by some ZIRP magic, so somehow there is no inflation.
But with ZIRP an individual person's life savings earn almost no returns over the years.
So today's pensioners and tomorrow's will find they can't live as they planned, and millions around the world will eventually consider buying cat food for dinner.
That situation is indistinguishable from high inflation to the old pensioner.
You can argue that the price of bread and eggs has not gone up in nominal terms, but if granny can't afford to buy them it feels just the same as high inflation to her.
High inflation by another name, courtesy of central bank QE/ZIRP.

I can't yet connect these ideas into a consistent and logical point, but they sure seem related to each other and to what we are seeing unfold in Greece.

Yes, there's no question that the attempt to sneakily shift the ECB's mandate away from just targeting inflation to also targeting employment was a huge move. Whether it can ever be undone is a difficult, but still open, question.

[touchring]

Re: Pilger on Greece

A world recession is looming, but the extra free money will be a bonus.

[don]

Re: Pilger on Greece

A world recession is looming, but the extra free money will be a bonus.

but will the conundrum where to put it remain

[don]

Re: Pilger on Greece

The speech delivered early in the morning of July 11 by Zoe Konstantopoulou, president of the Greek parliament, on the question of the government’s proposal to the creditor institutions.

Ladies and gentlemen,

At times like these we must act and speak with binding sincerity and political boldness. We must assume the responsibility that falls to each and every one of us.

We must defend, according to the dictates of our consciences, those things that are sacred, timeless, and non-negotiable, the laws and rights of the people and of society. We must guard the legacy of those who gave their lives and their freedom so that we may live as free people today. We must preserve the inheritance of the young and of future generations, of human civilization. [We must preserve], furthermore, the inalienable values that define and animate our personal and our collective existences.

How each person chooses and decides to act may differ, and no one has the right to trivialize decisions that arise from an existential process and trial, to berate them, or to exploit them for for political consumption.

Each and every one of us are are judged and shall be judged by our positions and our decisions, by our Yes and by our No, by our actions and omissions, by our commitments and our responses, by our dedication and selflessness.

For five months the Government, with the Left as its mainstream and with anti-memorandum forces at its core, has been waging an unequal battle within a regime of suffocation and blackmail: Inside a Europe that has betrayed its founding principles, the welfare of its peoples and societies. Inside a Europe that uses the common currency, the euro, not as a means of achieving social welfare, but as a lever and tool for the coercion and humiliation of unruly peoples and leaders. Inside a Europe that is transforming into a nightmarish prison for its peoples, although it was built to be their common and hospitable home.

The Greek people entrusted this Government with the great cause of releasing them from the shackles of the Memorandum, from the vise of surveillance and supervision imposed on society under the pretext of debt.

This debt furthermore is illegal, unfair, odious and unsustainable, as demonstrated in the preliminary findings of the Truth Commission on Public Debt, and as the creditors already knew in 2010. This debt was not incurred as a cyclical phenomenon. It was created by the previous governments through corruption in procurement, bribes, misleading terms, corporate stipulations, and astronomical interest rates, all to the benefit of foreign banks and companies.

The Troika, together with the previous Greek governments, converted this fraudulent debt from private to public, saving the French and German and also the Greek private banks, and in the process condemned the Greek people to conditions of humanitarian crisis and employed the commercial organs of media misinformation to terrorize and deceive the citizenry.

This debt was neither created nor increased by the people or by the current Government. For five years it has been used as a tool to enslave the people, by forces operating within Europe under the rules of economic totalitarianism, in the absence of moral stature or historic right.

To this day Germany has not yet paid its debts to the small Greece of the wartime resistance, which history has identified for its heroism. These debts exceed the value of the present Greek public debt. According to the committee of the General Accounting Office set up by the previous government, these past debts would today reach a level of 340 billion euros, with conservative calculations. The alleged current debt of Greece is estimated at 325 billion euros.

After the Second World War, Germany enjoyed the greatest remission of debt [in history], so as to allow it to get back on track. This was done with the generous partnership of Greece. Yet now Germany has fomented the perpetrators of corporate corruption, those (including Siemens) who dealt with the previous Greek governments and their parties, and has given them protection from the Greek system of justice.

And yet Germany is behaving as if history and the Greek people owe a debt to her, as if she expects to receive a historic payback for her own atrocities. Germany is promoting and enforcing a policy that constitutes a crime, not only against the Greek people, but a crime against humanity. This is a criminal concept, a widespread and systematic attack on a population with the aim and calculation to bring about its total or partial extermination. And, unfortunately, governments and institutions that are required to live up to their history and their responsibility have aligned themselves behind this attack.

Ladies and gentlemen,

The artificial and deliberate creation of conditions of humanitarian disaster so as to keep the people and the government in conditions of suffocation and under the threat of a chaotic bankruptcy constitutes a direct violation of all international human rights protection treaties, including the Charter of the United Nations, the European treaties, and even the statutes of the International Criminal Court. Blackmail is not legal. And those who create conditions that eliminate freedom of the will may not speak of “options.” The lenders are blackmailing the government. They are acting fraudulently, since they have known since 2010 that this debt is unsustainable. They are acting consciously, since their statements anticipate the need for humanitarian aid in Greece. Humanitarian assistance for what? For an unexpected and inadvertent natural disaster? Is it an unpredictable earthquake, flooding, a fire?

No.

Humanitarian aid [would be required] because of their conscious and calculated choice to deprive the people of the means of survival, closing the tap of liquidity in retaliation for the democratic choice of the government and the parliament to call a referendum and to turn to the people to decide their own future. The Greek people honored the Government that entrusted them, and the parliament that allowed them the right to take their lives and fates in their own hands. With bravery and pride they announced

NO to blackmail

NO to ultimatums

NO to the Memoranda of servitude

NO to the repayment of a debt they did not create and that is not attributable to them

NO to new measures of impoverishment and exhaustion

The lenders have stubbornly insisted on transforming this NO into a YES, and they have found allies who gleefully collaborate with them in the same Greek parties who are responsible for the Memoranda, in those who benefited from them, in those who created this debt and loaded it on the backs of the people.

This NO of the people transcends all of us and compels us to defend their right to fight for their lives. To wrestle. Not to live a half life or a life on our knees. To be proud of what we bequeath to the next generations and to humanity.

Today the Government is being blackmailed to consent to conditions that do not represent it, that do not come from it, that it is struggling to reverse and prevent. The prime minister spoke with honesty, bravery, boldness and selflessness. He is the youngest of all Greek prime ministers and he has fought as much as any of his predecessors for the democratic and social rights of the people and of the younger generations. He represented and represents our generation, and he gives us hope. I honor him and will always honor him for this stand and this choice.

And at the same time, I consider it my binding responsibility, as president of the parliament, not to close my eyes or to pretend that I do not understand blackmail. I cannot make it easy. I could never vote for and legalize the content of this agreement.

I think the same is true and would apply to the Prime Minister, who is today blackmailed with a weapon threatening the survival of his people. I believe the same applies to the Government and to the parliamentary groups who support it.

I shall undertake my binding responsibility to history by stating “present,” as a “presence” in today’s debate and vote. I believe that in this way I make myself more useful to the people, to the Government and to the prime minister, to future generations and to the European societies, by recording the actual conditions under which the Greek parliament has been asked to make decisions. And by rejecting blackmail, by invoking Article 1-1-4 of Article 120 of the Constitution.

The Greek people are the second to suffer this form of warfare in the Eurozone, preceded by Cyprus in March 2013. This attempt to impose measures rejected by the people in a referendum, using the blackmail of closed banks and the threat of bankruptcy, constitutes a violent overthrow of the Greek constitution and deprives the parliament of the authority granted to it by the constitution.

Everyone has the right and obligation to resist. No resistance in history was easy. But we undertook the popular vote, and we trust the people on the difficult matters. It is to the difficult matters that we must respond. And we must not fear.

Translated by Nicholas Evangelos Levis

[Chris Coles]

Re: Pilger on Greece

Yanis Varoufakis recently resigned as Finance Minister in Greece.
Yes, he is a died-in-the-wool Marxist economist, but that does not mean he is stupid.
I kind of like his style.

He released a version of the Euro Summit program to save the Greek economy (Euro Summit Statement Brussels, 12 July 2015) with his own snarky annotations added in red.
I expected to read the thing and be amused by his cynical comments, but expected they would be wild, unjustified accusations and exaggerations.
Not so.
He seems spot-on, and the crowd in Brussels appears imperious, arrogant, and unrealistic to a frightening degree.

The document is short. Even with Varoufakis' cynical annotations included it's only six and a half pages.
You can read it for yourself here:

https://varoufakis.files.wordpress.com/2015/07/eurosummit-communique-terms-of-surrender.pdf

As an apprentice, 1960, in an engineering factory producing equipment for the UK nuclear industry, I came, for the first time, into direct contact with people exhibiting what today we call "Marxist" beliefs.

They were as hard line Marxist as one can ever imagine.

A couple of years ago, through my adventures surfing the Internet, I both came into contact; with what was then the European Atlantic Group, that was based from within the UK Parliament, driving debates, usually dinner debates, at the political level between the UK and the USA; and Yanis Varoufakis, with my first contact within the senior common room at the UK House of Commons, going on to the subsequent dinner debate at the Caladonian Club. Later again, I attended one of his presentations at the London School of Economics, the LSE.

His presentations have no relationship with what I grew up to believe as "Marxist". None! He comes across as a very well educated, astute, open minded individual with a particular belief regarding the failure of what one might describe as conventional economic theory. Indeed, recently, he even alluded to not being fully Marxist in one of his blog entries.

Having followed his blogs since first contact, I can only say that, as I see him; he is a classic example of the evolution of debate. Even today, the left has not discovered solid ground when it comes to economics. We need the likes of Varoufakis as he has a sufficiently open mind, to allow him to accept change where it leads to a better understanding of how the true economy works.

To sum up; I like the guy, he has the strength of mind to see what needs to be said and done; we need more like him to balance the Anglo Saxon economic model that clearly does not work for the majority.

[Polish_Silver]

Re: Pilger on Greece

Thanks astonas. . . .

Here's another idea about the ongoing PIIGS crisis, this one is less to your point.
The trade balances within Europe have Germany and the Netherlands running big trade surpluses, and the PIIGS running big trade deficits.
That's an accounting concept, so considering just trade within Europe the total of all trade surpluses must, by definition, equal the total of all trade deficits.

Now stay with me here. If the responsible Germanic nations in the north force the irresponsible Latin nations in the south to live within their means, then don't the Germans and Dutch ruin there own economies?
They can't sell all that machinery and stuff inside their own countries.
They can end their vendor-financing program for the nations in the south, but they should expect the result to be high unemployment at home in the north.

. . .

What is causing political problems are not trade deficits but government budget deficits. It is the Greek sovereign debt that is the problem.

Individual Greeks might have borrowed money to finance a new Audi, but that is (or should be) between them, Audi, and the lending bank.
In Greece, unlike the US, the crisis was not precipitated by bank insolvency, but by government insolvency.

Likewise, it is the governments (and taxpayers) of Germany and the Netherlands that are being expected to finance Greek borrowing, not exporting corporations. The net borrowing that Greece did as a nation possibly helped finance private sector borrowing, but that just makes the entire problem worse.

The system should never have let Greece get this deep in debt.

[gnk]

Re: Pilger on Greece

I agree with much of what you said. I too followed Varoufakis for years before he became FM in the SYRIZA gov't.

BUT.... he is no politician (not practical) he turned off a lot of people with debates that were moot given the political constraints that exist within each Euro member's government and the Eurozone itself.

He should have seen capital controls coming, he should have advised Tsipras better. As a politician, a realist, he was an utter failure. He couldn't even lie well. Did he ever have a well thought-out back up plan for introducing the drachma? Did he not realize that the vast majority of Greeks don't want to go drachma?

He actually thought his brilliant lectures would change the world. Maybe they will one day, but Greece is paying the price right now.

Yes, he has wonderful ideas, especially macro ideas. But he also represented an economy that is 2% of the EU, and one of the most corrupt and problematic economies. He was not exactly in the best position to lecture.

In this thread, I often mentioned my fear about the Marxist element in SYRIZA. That element is called the Left Platform, headed by Lafazanis - a true crackpot, and that's being nice.

[gnk]

Re: Pilger on Greece

And over 70% of Greeks have a negative view of her. There's a reason for that.

It's easy to say the Memorandum is brutal, but not one of the politicians that voted "no" or abstained had offered a better solution. Greece is on the verge, the razor's edge, of economic collapse - beyond third world levels.

Greece was, and is, drowning and these lunatic politicians are criticizing the only life preserver Greece is being offered.

She and others were moralizing while the house was on fire and others were carrying the fire hose.

What a hero.

[Woodsman]

Re: Pilger on Greece

...His presentations have no relationship with what I grew up to believe as "Marxist". None! He comes across as a very well educated, astute, open minded individual with a particular belief regarding the failure of what one might describe as conventional economic theory. Indeed, recently, he even alluded to not being fully Marxist in one of his blog entries... we need more like him to balance the Anglo Saxon economic model that clearly does not work for the majority.

People wondering if iTulip is still "worth it" should read Chris Coles' posts!

[Chris Coles]

Re: Pilger on Greece

And over 70% of Greeks have a negative view of her. There's a reason for that.

It's easy to say the Memorandum is brutal, but not one of the politicians that voted "no" or abstained had offered a better solution. Greece is on the verge, the razor's edge, of economic collapse - beyond third world levels.

Greece was, and is, drowning and these lunatic politicians are criticizing the only life preserver Greece is being offered.

She and others were moralizing while the house was on fire and others were carrying the fire hose.

What a hero.

Your comment, very much appreciated, reminds me of the point in the recent remake movie; The day the Earth Stood Still where the scientist argues that, yes we are on the brink, but that is the point in time where we are forced to change.

Again, I was not trying to make Varoufakis out as providing answers; simply that I find him open minded and not "Marxist".

So I have no option but to agree that he has not been able to introduce new workable proposals; simply that he speaks about the present in what one might call; intelligent terms.

Today, we are faced with an army of economists that owe their entire careers to the people commonly described as the Troika; that is the underlying problem; openly debated by Varoufakis.

[astonas]

Re: Pilger on Greece

His presentations have no relationship with what I grew up to believe as "Marxist". None! He comes across as a very well educated, astute, open minded individual with a particular belief regarding the failure of what one might describe as conventional economic theory. Indeed, recently, he even alluded to not being fully Marxist in one of his blog entries.

Having followed his blogs since first contact, I can only say that, as I see him; he is a classic example of the evolution of debate. Even today, the left has not discovered solid ground when it comes to economics. We need the likes of Varoufakis as he has a sufficiently open mind, to allow him to accept change where it leads to a better understanding of how the true economy works.

To sum up; I like the guy, he has the strength of mind to see what needs to be said and done; we need more like him to balance the Anglo Saxon economic model that clearly does not work for the majority.

The challenge with the southern European left is that they (appear) to be drawing inspiration from Marx in the form of Leninism/Stalinism. In ordoliberal northern and eastern Europe, this is obviously anathema -- everyone was raised in constant fear of exactly that. Consequently, while their social attitudes DO take some lessons from Marx, it is in its Trotskyite form. I think that makes a big difference. The resultant ordoliberalism appears to be better able to adapt the concept of the prioritization of the worker, to the observation that markets permit man's motivation to be directed swiftly and efficiently.

It is worth noting that this flavor of Marx also seems to be more effective at resisting Anglo-Saxon incursions than the leftist ideologies of the mediterranean states. I don't think this is a coincidence. Marx pointed out some pretty important stuff, much of which is particularly true for Anglo-Saxon states today. But Leninism/Stalinism is another matter, adding elements which I frankly find hard to justify in any context.

I honestly can't tell if Varoufakis gets this, and is forced to oppose ordoliberalism due to geographic and political circumstance (he'd have no effect if he dared side ideologically with the "german overlords") or if he actually doesn't understand it. Sometimes he seems to fall in one category, others in another. But it should be noted that the flavor of Marx that he seems to take his lessons from is the one that had not only been implemented (ultimately unsuccessfully) in Russia, but was also unsuccessful in blocking Anglo-Saxon banking's incursion throughout the mediterranean states.

When I read Varoufakis, he always seems to be falling into this trap, even if he is mild-mannered, and appears rational in presentation. He writes as though it is the only variant that exists at all, and that there is no ordoliberal challenge to neoliberalism. I haven't read nearly as much of his writing as you, Chris. Perhaps there are depths in him that I don't see. To me he is in large parts correct in identifying the problem, but is (ideologically, not based on personal negotiation skills) incapable of solving them.


You've read more Varoufakis than I, Chris. What's your take?

Edit: I should point out that I inform my opinions with this piece on Marx, written by Varoufakis in 2013: CONFESSIONS OF AN ERRATIC MARXIST IN THE MIDST OF A REPUGNANT EUROPEAN CRISIS, in case that helps.

[astonas]

Re: NY Times update

The current deal, that the Greek parliament is voting on, is only to begin negotiations for a debt write-down. The next stage is the one that is REALLY hard. Any write-down would itself have to be bought with even more, probably far more painful, reforms. And in THIS negotiation, European Ideology isn't going to carry any weight, since write-downs directly pit creditor states against other creditors. Even if it's only in private, you can bet that Grexit will be coming up all the time, as the alternative.

I'm imagining an opening negotiating message that's something like this:

"If Greece wants debt relief on its own terms, it can have it, any time it likes. Just leave the Euro, and devalue. And if France or Italy want to keep interrupting with talk of this "disrupting the European ideal of an ever-closer union," they'll need to pay their own full share for that, this time around. The German constitution prohibits fiscal transfers, and clearing debt has been determined to qualify as such, by our Supreme Court. It is not only illegal, but unconstitutional, to do what you ask."

What does Tsipras have as a reply? What does Hollande?

The last negotiation was about whether Greece might have to leave. And that one's absolutely still on the table now, in another form. But this new negotiation would add the additional question of splitting Europe, East from West, along the Rhine. The illegal-fiscal-transfer-to-France issue has been simmering on the back burner for a long time, and this looks like this would finally have to be the meeting where it boils over, if a write-down is to happen.

Will it put out the fire of European solidarity entirely, and chill relations between Germany and France? Will "European Solidarity" be redefined to refer to a slightly smaller Europe (without Greece)? Or will everyone just punt again, and agree to a thirty-year postponement of all interest payments, with no principal write-down at all?

Given how fraught the first two possibilities are, I'd say a simple postponement is by far the most likely option, if even that is to be had.

Everything unfolding pretty much as one would expect ...

http://www.nytimes.com/2015/07/17/wo...T.nav=top-news

Mr. Schäuble emphasized that no one was trying to dictate to Greece how it should proceed, but he made a case that forgiving a substantial amount of Greece’s public debt of more than 300 billion euros, or about $330 billion, is not compatible with membership in the eurozone.

“We have not said that we will impose this, we can’t, we don’t want to, and no one has suggested it, but it would perhaps be the better way for Greece,” Mr. Schäuble said in the interview with Deutschlandfunk radio on Thursday when asked about allowing Greece to take a time out from the eurozone.

He also questioned whether the package that Greece was seeking would be enough to bring the country’s financial situation back into a manageable position.

“Nobody knows in the moment how it is supposed to happen without debt relief, but everyone knows that debt relief is not possible within the eurozone,” Mr. Schäuble said.

Mr. Schäuble’s hard-line views on austerity and debt are not limited to him, or even to Germany. Much of Eastern Europe as well as a number of conservative northern countries share his view that Greece has been profligate and should be granted further aid only under the strictest conditions.

And the US and French are still working the lobby on behalf of the banks...

Ms. Merkel has ruled out forgiving any of Greece’s debt but has left the door open to a new negotiation over extending the payment terms or reducing interest rates to help bring down Greece’s annual debt payments. But the I.M.F. and some other countries, including the United States, are pressing for Germany to lead Europe in doing more to help Greece.

“I think the I.M.F. raising the debt sustainability issue as clearly as they did, the United States making clear that sustainability had to be dealt with, was a helpful contribution to the conversation because without dealing with some form of debt restructuring, this problem will just come right back,” a senior United States Treasury official said on Thursday, as Treasury Secretary Jack Lew traveled through Europe.

So far, unsuccessfully:

Still, some conservative German lawmakers have indicated ahead of Friday’s vote that they hold reservations about whether they believe Greece fully meets the conditions required to tap assistance from the European Union’s bailout fund, much less qualifies for debt relief.

At a vote to extend the previous bailout package in February, a record number of dissenters from the chancellor’s conservative camp showed growing impatience with the anti-austerity government in Athens, with 29 voting against it. An additional 109 from the some 310 conservative lawmakers indicated they had reservations, although they went along with the vote.

Mr. Schäuble signaled on Thursday that it might be difficult to reduce the burden of Greece’s debt payments sufficiently without some debt forgiveness — a step that he said could not be taken while Greece is a member of the common currency area.

“The more difficult question will be to reach sustainability of the debt, whether a package that is large enough can be agreed upon without any debt reduction,” Mr. Schäuble said. “Then we are back in the situation that debt reduction is not allowed in the eurozone.”

[vt]

Re: Does Greece need to borrow?

The Greek Solution Solves Nothing


ALAN S. BLINDER

July 16, 2015 6:59 p.m. ET6 COMMENTS

The modern Greek tragedy isn’t over—after an interlude, there will be more acts. The deal struck with European leaders on July 13 will, with luck, avert an immediate financial collapse. But three underlying problems remain: Greece must escape from the current depression, reduce its debt burden and restore its competitiveness. All three trace to fateful decisions made in the early days of the euro.
The euro’s founders did not dispute this judgment; they played down its importance. The order can be reversed, they insisted: First we’ll create the common currency, then we’ll create the conditions that make it work.Back when the euro was just an idea, many economists warned that the countries involved weren’t suited to using a single currency because they weren’t what economists call “an optimum currency area”—a group of nations with similar business cycles and substantial political unity, labor mobility and cross-country fiscal transfers.
Germany’s Helmut Kohl and France’s François Mitterand went further, subordinating the economics to a big political idea. What’s the theory of optimum currency areas compared with ensuring that Germany and France never go to war again? Hard to argue with that, but it doesn’t repeal the laws of economics. The eurozone still isn’t an optimum currency area, and that explains much of the Greek problem.
Start with “similar business cycles.” The Great Recession was a world-wide event, but it hit Greece especially hard. Countries have three main weapons to fight recessions: fiscal stimulus, monetary stimulus and currency depreciation. Membership in the eurozone forecloses the latter two. Greece’s large pre-crisis debt—so large that it shouldn’t have been in the eurozone in the first place—starkly limits the first. Hence Greek Problem No. 1: a depression worse than the Great Depression in the U.S.
The latest agreement looks likely to make this depression worse. Several previous bailouts held things together with chewing gum and baling wire. But in return for loans, Greece’s creditors demanded ruinous fiscal austerity. Successive rounds of austerity spread misery and ushered in the left-wing government that Europe and the IMF find so ornery, but did not reduce Greece’s debt-to-GDP ratio.
According to myth, stubborn Greece has done little to fix its budget. In reality, Greece’s structural budget balance (that is, correcting for the business cycle) moved from an Olympian 17% of GDP deficit in 2009 to about a 1% of GDP surplus in 2014, according to OECD estimates. That’s a swing of 18% of GDP in five years. But the Greek economy shrunk so much that the public debt rose as a share of GDP, to 181% from 135% over those five painful years.
Hence Greek Problem No. 2: unpayable public debt. Some sort of write-down, restructuring or default is inevitable. Sooner and smoother (e.g., a mutually-agreed restructuring) seems better than later and messier (e.g., a unilateral Greek default).
But Greece’s creditors are so far unwilling to offer much debt relief because that means that some third parties must pitch in money or relinquish claims on Greece. And that brings up the second departure from an optimum currency area: The eurozone is not a country; its mechanisms for fiscal transfers across borders are underdeveloped and contentious.
Compare the U.S. I live in New Jersey, one of the richest states. We New Jerseyans have been making fiscal transfers to poor states like Mississippi, funneled through the federal government, for decades. But few of us notice it, and we don’t vote on it. The transfers happen automatically because New Jersey and Mississippi are in the same country. Germany and Greece are not. Angela Merkel is right to worry that Germans oppose transfers to Greeks. Would Americans vote for transfers to Mexico?
Greek Problem No. 3, restoring competitiveness, may be insoluble. One of the most remarkable developments since the founding of the euro has been the extent to which Germany has outpaced the pack in competitiveness. According to data compiled by the ECB, Germany’s unit labor costs have fallen 19.5%, relative to its trading partners, since the end of 1998—leaving the rest of the eurozone in the dust.
And here’s a surprise. After Germany, which eurozone countries do you think are running second and third in competitiveness? Eureka! It’s Cyprus and Greece, where wages have crumbled under the weight of ferocious unemployment. Greek unit labor costs are down 7%. But that still leaves them further behind Germany than when Greece joined the euro.
How do you fix that? Under floating exchange rates, some semblance of parity would be restored by currency depreciation. But that can’t happen with a single currency. The answer could be either huge wage hikes in Germany or more devastating wage cuts in Greece—a terrible solution.
So the Greek problem may never be over as long as Greece remains in the eurozone.
Mr. Blinder, a professor of economics and public affairs at Princeton University and former vice chairman of the Federal Reserve, is the author of “After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead” (Penguin, 2013).

http://www.wsj.com/articles/the-greek-solution-solved-nothing-1437087551