ECB and Inflation

[Duque de Bragança]

Greece did fudge their finances when they joined the EZ (not the EEC). 

Yeah I also thought this was the case but didn't have time to check and didn't want to challenge Yi's statement without being sure.

Giscard d'Estaing, French president in the 70's, is commonly seen as having facilitated and accelerated Greece's entry in the EEC, compared to Spain and Portugal.

"Monsieur, on ne fait pas jouer Platon en deuxième division"

But then French farmers feared Iberian competition a lot.
Greek entry was widely seen as premature back then, but was motivated by political reasons, NATO member who had a very recent (Sorry Pericles) and fragile democracy to support after the Colonels' period.
Similar arguments were used for Portugal and Spain, Chirac was very much against it, while famously being pro-Turkey in the EU as a French president...

[Admiral Yi]

I think they were closer to shrinking debt then they were with Austerity.

Running a 19% deficit, it would have taken Greece about 2 and a half years to go from 130% debt to 180.  You would need 20% annual growth for the debt to shrink with a 19% deficit.

[Martinus]

I think noone is questioning that Greeks have lived above their station for the last two decades or so. This is beyond dispute. The dispute is that (1) can they get out of the fiscal trap they ended up in without a serious debt principal reduction (my answer is no) and (2) can they be expected to behave once they get out of it, so they do not repeat their earlier mistakes (my answer is maybe, and probably they have a better chance of that under Syriza than under Pasok).

There is, of course, an argument that once you make your bed, you should be made to lie in it but it does not work for countries as well as it works for individuals - both because of unforeseen consequences and because of the fact that it is really not that moral to punish children for sins of their fathers.

[Martinus]

Incidentally - and this is the point against my position, mind you - in addition to the "Rich North vs. Poor South" there is also another argument coming from the "Poor East" - people in countries like Poland, Romania and Bulgaria are looking at Greece and asking why Greece should be bailed out, if the minimum and average wage are still 2-3 times higher than those in Poland - why shouldn't Greeks be forced down to the same standard of living as, say, Romanians and Poles have - who have been subject to much harder austerity measures in the 90s and worked much harder to get where they are today. I admit that this argument is much harder to counter than the ones coming from Germans or Finns.

[Admiral Yi]

The creditors wouldn't be able to give money directly to their banks without running afoul EU state aid rules - so such help would need to be pre-approved by the European Commission. Of course here it was done with the EU Commission's blessing as well (as it is a part of the Troika) but as you can see the political ramifications were quite different.

For example, if the EU Commission started to allow bailing out of French and German banks en bloc by their governments, Poland would get pissy about not being to do the same about our coal mines and shipyards, for example.

Bailouts typically don't take the form of a gift.  In the US at least it has taken the form of a combination of loans and takeover of an equity stake, which is then sold off to the public.

Would this also have run afoul of EU rules?

[The Brain]

I think noone is questioning that Greeks have lived above their station for the last two decades or so. This is beyond dispute. The dispute is that (1) can they get out of the fiscal trap they ended up in without a serious debt principal reduction (my answer is no) and (2) can they be expected to behave once they get out of it, so they do not repeat their earlier mistakes (my answer is maybe, and probably they have a better chance of that under Syriza than under Pasok).

There is, of course, an argument that once you make your bed, you should be made to lie in it but it does not work for countries as well as it works for individuals - both because of unforeseen consequences and because of the fact that it is really not that moral to punish children for sins of their fathers.

How are these Greek man-children going to learn about responsibility if they never have to face the consequences of their actions?

You sound like someone who wants to build a man a fire.

[Maximus]

In fact, if you listen to an average Flemish nationalist, the Waloons are lazy and stupid just as the Greeks are.

Why would you listen to a nationalist? They are far more likely to be the ones who are lazy and stupid.

[The Larch]

I guess that's like being grateful to mafia loan sharks.

Do mafia loan sharks usually loan well below market rates?

I mean less than 3% is so low that inflation will likely mean the lenders will lose value on this deal.

Which inflation? We're the eurozone, we're terrified of it and would rather prefer the threat of deflation that even considering priting a bit more money. 

[Admiral Yi]

I think noone is questioning that Greeks have lived above their station for the last two decades or so. This is beyond dispute. The dispute is that (1) can they get out of the fiscal trap they ended up in without a serious debt principal reduction (my answer is no) and (2) can they be expected to behave once they get out of it, so they do not repeat their earlier mistakes (my answer is maybe, and probably they have a better chance of that under Syriza than under Pasok).

Why should we care if they behave or not after they default?

[The Minsky Moment]

Two points, or rather questions, about the self-serving nature of the bailouts.  Did the creditors come out ahead (as a nation) by cycling the money through Greece rather than giving it directly to their banks?  Did all countries who participated in the bailout have banks with exposure to Greece?

I don't know you'd have to check the numbers.  I think everyone has at least some exposure.

There were reasons to bail out the private creditors other than to protect ones own nationals though.  I assume the bailouts were done to stabilize the markets and halt contagion and were not self-serving in the narrow sense.

[Zanza]

For example, if the EU Commission started to allow bailing out of French and German banks en bloc by their governments, Poland would get pissy about not being to do the same about our coal mines and shipyards, for example.

Didn't governments across the Eurozone bail out their banks in 2009? 
Germany also had coal subsidies for decades without running afoul of EU regulations apparently.

[Zanza]

And to add to my point there, there was also a risk of contagion and German and other banks were exposed to Italian, Spanish or Portuguese bonds as well (and in fact, if contagion spread, there was even a risk that France - now a Greece's creditor - would itself be in trouble). So if the creditor governments just bailed out their own banks and let Greece fall, there was a substantial risk that they will have to do this again very shortly with Italy, Spain and Portugal etc. and eventually run out of bail out money.

That's the definition of contagion, but which of your points does it add to? 

[Zanza]

I think you can make a good argument that they did charge below market rates and still broke Greece's knees.

The only way you can sustain that argument is if you equate not paying someone's credit card bill for an extended period with breaking their knees.

I think austerity in some ways was inevitable. The Greek government had too many civil servants for example. That said, it would have worked better, if the EU had invested into the Greek economy at the same time to make up for the shortfall.

[Admiral Yi]

That said, it would have worked better, if the EU had invested into the Greek economy at the same time to make up for the shortfall.

I don't know what this means.

[Zanza]

Incidentally - and this is the point against my position, mind you - in addition to the "Rich North vs. Poor South" there is also another argument coming from the "Poor East" - people in countries like Poland, Romania and Bulgaria are looking at Greece and asking why Greece should be bailed out, if the minimum and average wage are still 2-3 times higher than those in Poland - why shouldn't Greeks be forced down to the same standard of living as, say, Romanians and Poles have - who have been subject to much harder austerity measures in the 90s and worked much harder to get where they are today. I admit that this argument is much harder to counter than the ones coming from Germans or Finns.

Finnland had a terrible banking crisis in the early 1990s with a massive recession as their debt-fueled growth of the 1980s collapsed. They climbed out of that to where they are now - which is by the way in recession and with rising unemployment. Why are their arguments any less valid than those of Poles or Greeks?