Europe's Populist Left

[Sheilbh]

Things that baffle me for example are that Poland's GDP per capita is 93% of Greece's GDP per capita, but Poland's minimum wage is only 58% that of Greece - yet Greeks think their minimum wage is way too low and Syriza propose to raise it even further.

I've no idea if it's a good idea or not for Greece but if you've an economy that doesn't have a floating currency and has been stuck with deflation for six years surely wage policy has to play a role? Genuine question (I'm roughly imagining it as being similar to when the UK tried to keep Sterling going, pre-monetarism, and the tools of deflation or inflation were spending, spending cuts, wage growth and wage restraint)

Especially as there's the baffling fact that despite increased labour flexibility and a fall of around 15% in unit labour costs (more if you take into account the growth in the Eurozone in general) that Greek exports aren't increasing. The European Commission's study of Greek competitiveness highlighted what it felt were the two biggest (and in my view inter-related problems): institutional weakness and its closed, oligopolistic market.

See also this, though this is far more about more developed economies:
http://www.project-syndicate.org/commentary/global-demand-deficiency-by-adair-turner-2015-01

In other news, Kammenos also said that the Greek debt is a result of international Jewish conspiracy; suports putting the Orthodox Church in charge of the country education system; and wants to kick out immigrants.

In 2010 when PASOK needed all the support they could get to support the bailout they brought the Popular Orthodox Rally into the coalition. Their leader Giorgos Katzaferis (better known in Greece by his nickname Katzafuhrer) who blamed the Jews for the economic crisis, Greece's particular crisis and 9/11. The health minister from LAOS owned a small publishing house responsible for works like 'The Jews, The Whole Truth' written by a man who described himself as a 'Nazi, fascist, racist, anti-democrat, anti-Semite.' The health minister in question even used to go on the Greek equivalent of QVC to flog his products.

Of course every single member of the Independent Greeks was previously a member of New Democracy and were a part of that government until a couple of years ago. Kammenos was, for twenty years, a fellow MP with Samaras before founding the new party.

That's not to excuse it, but after five years of working with these parties and governments including them, I'm not sure whether Captain Renault or St Augustine is the more apt analogy for Europe discovering her virtue.

Though on this I loved the Irate Greek's piece on the whys and hows and how awful it is:
https://theirategreek.wordpress.com/2015/01/26/strange-bedfellows/

Syriza has openly said that they do not support the EU policy on Russia sanctions. So we have leftists in Athens who prefer the fascist in Moscow to the technocrats in Brussels.

The last Greek government openly said they didn't support EU policy on Russia sanctions. The Foreign Minister literally said 'we don't want sanctions'.

There's reasons sensible (Russia was one of the few countries that imported stuff from Greece and supplies around 90% of their gas - annoyingly at a fixed price the last government negotiated last year ) and bad (Greco-Russian sympathy, a very anti-West left-wing) for it. Sad truth is Greece has been pro-Russia for about 300 years and I don't see it changing any time soon.

They missed target after target.

Yes, but not for want of trying. The targets were as a percent of GDP. The actual economic situation in Greece was worse than was ever predicted and they've got deflation. And the programs consistently underestimated the amount of extra debt the Greeks would need to take on. The Greeks needed to sprint to stand still - and they did. The scale of cuts to public spending - as opposed to just covering interest - they've implemented is more than was ever demanded of them.

It's a bit like the ECB's stress tests that had as an adverse deflationary scenario a rate that's already higher than reality.

I thought I read every explicitly they want to increase the deficit.

But assuming they don't, how do you expect them to finance their increase in public sector employment.

They've explicitly said they want to run a balanced budget and they will not default or try to renegotiate on their private sector debt.

To continue to roll-over their debt - that no-one thinks is sustainable - they need to run a primary surplus of 4.5% and are almost there. But even then their debt sustainability calculations are based on relatively high nominal GDP growth and a steady 4.5% primary surplus - I can't see the former happening. Without it there needs to be some form of debt relief. They want to renegotiate that debt, which would reduce their interest payments to cover so that primary surplus would just be a surplus.

As Joan says I really don't see the upside for anyone if Greece defaults. Their creditors get nothing instead of something and, at best, the Greeks get to suffer a bit more.

Second, of course achieving the surplus involves fiscal probity.  How else could one get to a primary surplus in excess of 3 percent of GDP? The fact that it involves pressure from the EU is not a detracting factor.  On the contrary, it shows the Greeks kept their end up, grumbling notwithstanding.

And the fact it got to 3% of GDP from -13% of GDP at a time when their economy shrank by a quarter has to be one of the largest, most successful fiscal consolidations on record.

I can't really speak as to what Syriza intends to do, because it appears to be a grouping of somewhat disparate elements, and those manifestos translated into English are borderline incomprehensible.

Their admirably honest Finance Minister ('this is a poisoned chalice' more on him here - http://marginalrevolution.com/marginalrevolution/2015/01/yanis-varoufakis.html ) said much the same of Syriza a couple of years ago:

Should we be afraid of Syriza's 'ultra-leftism'? My answer is a resounding No. I recommend that (even those who have Greek amongst their languages) you do not read their manifesto. It is not worth the paper it is written on. While replete with good intentions, it is hort on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of  policies that are neither here nor there. Just ignore it. Syriza is a party that had to progress, within weeks, from a fringe political agglomeration struggling to get into Parliament (at around the 4% mark) to a major party that may have to form government in a few short weeks. It is, in important ways, a 'work in progress'; and so is its unappetising Manifesto. No, the reason it is safe to take a gamble on Syriza is threefold:

First, because it is probably the only party that 'gets it'; that understands (a) that Greece must stay in the Eurozone (despite the latter's obvious failures), and (b) that the Eurozone will not survive unless someone forces Europe to put an immediate halt on this "march off the cliff of competitive austerity".

Secondly, because the small team of political economists that will negotiate on Syriza's behalf are good. moderate people with a decent grasp of the grim reality that Greece and the Eurozone are facing (and, no, I am not part of that team – but I know the ones I am referring to).

Thirdly, because, in any case, a vote for Syriza is not going to establish a purely Syriza government. No party, including Syriza, will be in a position to form a government outright. So, the question is whether Europe is better off with a government in Athens which includes Syriza as a pivot or one which is supported by discredited pro-bailout parties, with Syriza leading from the opposition benches. I have no doubt whatsoever that Europe's interests are best served by the first option.

http://yanisvaroufakis.eu/2012/06/03/why-europe-should-fear-fina-gail-like-reasonableness-much-much-more-than-it-fears-syriza/

What sheilbh was arguing is that their rise to power could be an opportunity to reach a restructuring; part of that deal would presumably involve a continuing commitment to smaller primary surplus or at least a primary balance.  That would seem to me a hell of a lot better than either the status quo or default.  Whether Syriza will actually agree to such a deal I don't know.  It would have been far more advisable to do this a while ago and thus not have to test that proposition.

Yep. And the real potential upside of Syriza, which they may not achieve, is to change Greek political culture. Tsipras isn't the son of a former Prime Minister, he didn't used to board with an opposing parties' leader and they've said they want to destroy the oligarchic economy in Greece that is, in their words, sucking the life out of the rest of Greece. Again, they may fail terribly, but I think they've got a better chance than the two parties that created and were created by that system.

Alan Beattie was good on this:
http://blogs.ft.com/the-world/2015/01/the-greek-economy-the-case-against-structural-reform/

That the microeconomic structure of the Greek economy (as opposed to its position in the macroeconomic cycle) is a shambles is not in doubt: closed professions, low labour force participation, a corrupt bureaucracy and a political class that hands out state contracts to a favoured few and fails to collect tax from almost everybody. And unlike, say, Spain or Italy, Greece's inefficiencies are such that some kind of structural change is probably necessary for it to exit crisis mode, let alone show healthier growth in the medium term.

But fixing a chunk of this has nothing to do with deregulation. As part of their plan to target the "oligarchy", Syriza — whose victory on Sunday sparked celebrations (right) — have promised to clamp down on tax avoidance by the rich and clean up the notoriously corrupt public procurement system. Improving tax collection is already a big part of Greece's current agreement with the EU-IMF-ECB troika. If this happens — an "if" roughly the size of Crete, admittedly — it would stand as an excellent example of redistributive left-wing structural reform. To the extent that an economy is rigged to benefit a national elite, as Greece's partly is, a left-wing party may be one of the best hopes of positive change.

As he says it's a big if. They're far more likely to fail than succeed. But as Marti says you can't just keep trying the same thing and expecting a different result. On that criteria the Eurozone, New Democracy and PASOK have failed. It's worth trying something new.

[Admiral Yi]

Yes, but not for want of trying. The targets were as a percent of GDP.

Their targets for cutting public sector employment were in people.

They've explicitly said they want to run a balanced budget and they will not default or try to renegotiate on their private sector debt.

They want to increase public sector employment and not increase borrowing??  Do you see the contradiction here?

[The Minsky Moment]

???
A country that runs a primary surplus is by definition transferring real resources to creditors on a net basis.

Only if one ignores accruing interest.  That's what makes it a primary surplus and not a surplus surplus.

The payment of interest is a real transfer of resources.  There is no contradiction here.

Detroit?  Stockton?  NYC?  The US taxpayer is most definitely not on the hook for any bad debts piled up by its jurisdictions.

The US taxpayer finances fiscal federalism; if a particular area is depressed, resources will flow automatically via the federal budget.  Detroit the city doesn't get its budget fixed but the people in Detroit get unemployment and Medicaid and WIC and so on.  The US taxpayer also finances financial resolution - if say all the major banks in Oklahoma and across the Sun Belt get in over the heads, the national government provides the backstop.  And if Detroit, or Stockton or any municipality wants to negotiate with its creditors, the Federal government isn't going to dictate conditions by memorandum.

The only advantage to paying off ones debts is it entitles one to borrow more.  With debt at 170% of GDP, no one will lend to Greece at a reasonable rate anyway.  And it would be the work of five generations to pay down the existing debt.  So default wipes it all clean.  Then in five to seven years they can see if investors think they have learned their lesson.

A negotiated reduction seems to achieve the same result.

[Jacob]

Yes, but not for want of trying. The targets were as a percent of GDP.

Their targets for cutting public sector employment were in people.

They've explicitly said they want to run a balanced budget and they will not default or try to renegotiate on their private sector debt.

They want to increase public sector employment and not increase borrowing??  Do you see the contradiction here?

... you're implying that they can't pay for it?

How about if they pay for it by fixing the tax collection system so they actually get the revenue they're supposed to get?

[Admiral Yi]

The payment of interest is a real transfer of resources.  There is no contradiction here.

Greece is aiming for, and presumably not yet attaining, an overall deficit of 4.5% of GDP.  Unless Greece's economy is growing by more than 4.5% a year, Greece's debt/GDP will keep getting bigger and bigger and bigger.

The US taxpayer finances fiscal federalism; if a particular area is depressed, resources will flow automatically via the federal budget.  Detroit the city doesn't get its budget fixed but the people in Detroit get unemployment and Medicaid and WIC and so on.  The US taxpayer also finances financial resolution - if say all the major banks in Oklahoma and across the Sun Belt get in over the heads, the national government provides the backstop.  And if Detroit, or Stockton or any municipality wants to negotiate with its creditors, the Federal government isn't going to dictate conditions by memorandum.

And Greece's sugar daddy, through the EU, has transferred billions of dollars in equalization blah blah assistance.  But we were talking about picking up the tab for Greece's debt, which the US doesn't do.

A negotiated reduction seems to achieve the same result.

I see the confusion now.  A mutually agreed on haircut is just a variation on the theme of default.

[Admiral Yi]

... you're implying that they can't pay for it?

How about if they pay for it by fixing the tax collection system so they actually get the revenue they're supposed to get?

Sure am.

That would be lovely.

[Martinus]

After what Sheilbh posted I am convinced we should loot anything that's of value in Greece and give the rest to the Turk.

[Sheilbh]

After what Sheilbh posted I am convinced we should loot anything that's of value in Greece and give the rest to the Turk.

Yeah. The easiest solution of all would've been if Greece hadn't been in the Eurozone at all. But they're there now and it's not clear they can be forced out in any way, or what the consequences of that would be. So it's time to make the best of it rather than, as Geithner put it, getting out the paddles.

Incidentally apparently the Greek government's initial negotiation suggestion is largely around a moratorium on interest payments until certain level of nominal growth is hit (possibly that suggested in the various program memos) and further extensions of repayment. There's also suggestions they may take on and restructure the (Greek) banks which is something that the EU would quite like.

There seems to be a concerted effort to take the political heat out of this on all sides. Syriza and the (hawkish) Dutch FinMin have both issued very calming statements, the French government also said Europe needed to stop the 'holy war' rhetoric and the (also hawkish) Finns hinted that they might be open to a deal. Lagarde's position was similarly nuanced in the IMF's ongoing long retreat from 2010.

Schaeuble took a different, rather more pessimistic view: 'I'm convinced the real problem with the economy is the human being.'

Edit: Actually it seems Germany entirely missed the memo on at least pretending to try and work together, Martin Schulz's statement: 'if you go into conflict with the Eurozone, you will lose'

I see the confusion now.  A mutually agreed on haircut is just a variation on the theme of default.

So we all support the same thing, but you call it a default?

Their targets for cutting public sector employment were in people.

What was the target?

Again I've always thought that was a wrong-headed approach in a country with real institutional weakness - see not just tax evasion but the success a very small EU team aiding the Greek state had in raising the take while they were there. It's not necessarily that they've got too many civil servants but that the civil service is in need of reform. That would involve firing people but the focus always should have been on building up Greek institutions and capability not 'cut x number of people' - not least because ND and PASOK went for the easy targets like the famous cleaning ladies of the Finance Ministry (re-hired today).

[Admiral Yi]

So we all support the same thing, but you call it a default?

So I don't know, do we? 

I was under the impression Syriza was asking for more money.

What was the target?[/quotes]

Beats me.  Does it make a difference?

[Sheilbh]

So I don't know, do we? 

I was under the impression Syriza was asking for more money.

They want to renegotiate their debts so they're not paying 4.5% of GDP a year as interest. Either with a debt write-down, some form of forgiveness (they cite the 1953 German debt forgiveness), further extensions or changing them from a loan to a conditional bond based on growth or some combination of the above. They've said they'll run a balanced budget or a smaller primary surplus.

But the money that would've gone on interest could then spent in other, more productive ways.

Beats me.  Does it make a difference?

To judge if they met their targets, yeah.

[Admiral Yi]

To judge if they met their targets, yeah.

Right.  So I could tell you what the target was, and what they achieved, so you could judge if they met their targets, or I could tell you that I read in the Economist that they failed to meet their targets for cutting public sector jobs, so you could judge if they met their targets.

[Sheilbh]

Of course I'd trust you.

But I'd counter that that is only one part of their targets. I'm not sure it's the most important or the one that had most effect, unlike, say, Greece having cut public spending per capita by over 24% (in the period 2007-2014 so it actually includes two years of massive overspending and even more drastic cuts afterwards) which is more than was ever asked or expected.

And I'd add that it does depend when you look at it. The situation now is different than in 2012 for example - and, for the most part, that change in facts has been reflected in a changed attitude towards Greece.

[Tamas]

But the money that would've gone on interest could then spent in other, more productive ways.

Maybe they should thought of that before spending the money which yielded them that interest.


Also, in more general terms, what is most annoying for me in this "new radical European left" is that it is as old as it can be. It is exactly like the old far left, there is nothing new about them, their background, or what they propose, and they have proven to be wrong once already but it seems we are destined to go through the whole thing again including the Russian influence as cherry on top.

[The Minsky Moment]

We played this game before, in 2012 when the Troika kicked the can down the road - keeping total debt at unsustainable levels while taking out most of the private creditors.  Hence my comment to Martinus' insanity line.  Virtually all of Greece's debt and thus the right to interest payments is held by EU governmental entities at this point, so it really comes down to how much symbolic blood the rest of the EU wants to wring out of the Greek stone of an economy.

One can quibble about targets (which kept moving) but the Greeks brought public expenditures down at lot and got the budget under control; they did about as much as could reasonably be expected under the circumstances.

At this point either kick them out or write down the debt already.   Anything else is just pointless cruelty.

[The Minsky Moment]

Maybe they should thought of that before spending the money which yielded them that interest.

Yes and maybe the creditors should have done reasonable calculations about rights of repayment, or insisted on conditions, etc before lending the money.

But no they did zero diligence because they relied on an implicit EZ guarantee, something that the ECB and all the EZ member states were aware was going on and chose not to discourage.

Just like the EZ members happily admitted Greece into monetary union despite its failure to meet the criteria,  and despite knowing all the institutional problems the Greeks had.  Captain Renaud indeed.

On this particular boulevard, moral hazard is a 2 way street.