Europe's Populist Left

[Admiral Yi]

Well that's what Argentina did after its austerity program.

It's what Argentina does every 7 years or so.

[Eddie Teach]

Spicey's people are fiscally irresponsible.

[Razgovory]

Well that's what Argentina did after its austerity program.

It's what Argentina does every 7 years or so.

Market liberalization is a tough road I guess.

[Caliga]

Merkel needs to lead a panzer division or three through the Monastir Gap.

[Admiral Yi]

Market liberalization is a tough road I guess.

You seem to be suggesting, without coming right out and saying it, that liberalization is what caused Argentina's serial defaults.

[Ed Anger]

Merkel needs to lead a panzer division or three through the Monastir Gap.

They'll just want the Americans to do it.

[Monoriu]

Merkel needs to lead a panzer division or three through the Monastir Gap.

Then demand the rights to all the assets in Greece as repayment.  The Acropolis, all the power plants, etc 

[Sheilbh]

What would managing to pull this off look like?

I hope they do exactly what they promised to do.

The ideal situation would be the orderly break-up of the Euro led by Germany. But no non-Anglo-Saxon seems to think that's a good idea, so it won't happen. The next best scenario would be some situation of the core listening to the periphery and negotiating a solution - we've tried the German approach for five years, I can't think of a measure by which you could say it's worked. What may happen is that Greece is, again, the canary in the coalmine and a failure to negotiate eventually leads to a disorderly break-up.

I agree that I hope they do exactly what they promise to do. I want them to renegotiate their debt with the Eurozone. I want them, as part of that, to start spending some of the primary surplus they now have instead of the Troika insisting on them running a 4.5% primary surplus. And I want them to successfully pull off the destruction of the corrupt, nepotistic, clientilist state that always been the biggest problem for Greece and that neither PASOK nor New Democracy would ever want to challenge, far less damage. If they get rid of the jobs-for-the-boys approach for government procurement for all sorts, but especially the army and the Piraeus, and they manage to sort out tax evasion they'll deserve a lot of credit. If they manage to do that last then that would be as important a structural reform as anything that's been demanded of them over the last few years.

Do you hope this happens?  Would you like Germany et al to lend Greece more money that will not get paid back?

How is a negotiated settlement - which is what Jake, Syriza and I are saying should happen - worse than default which is what you're saying?

And Germany et al is a useful reminder. France and Italy contributed over 50% of the bailout of Greece (which was based on the size of economy within the Eurozone) they should make that worth something. It's beyond hoping for anything from Hollande but Renzi may manage it.

The stock of Greek debt is over 170% of GDP. Even at the low interest rates and with it being a long-term loan it's a fiction if you think that's going to be either repaid or successfully rolled over by Greece before. The bailout was primarily a bailout of European banks exposed to Greece that ran through a clearing house in Athens. As Daniel Davies (who is of the right puts it) it's an accounting fiction (with an element of debt peonage) at this point:

The fact is, everyone knows that the total burden of Greek debt is too big to be serviced by the Greek GDP, and that if it isn't written down, then Greece will always be reliant on an increasing stream of official financing to meet its roll-overs. Everyone also knows, although some of them might not be ready to admit it to themselves, that an indefinite commitment to financing the roll-over of an ever increasing debt burden is a fiscal transfer in all but name. The thing is, though, while the Eurosystem bureaucrats know this at least as well as anyone else, they have jobs in which they can't simply bemoan the fact in print, then submit their copy and go off to think about something else.

Don't think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn't an economically meaningful number any more. The purpose of its existence is as a political quantity; it's part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills. There's more than a couple of Germans I've spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s. Seeing the peripheral Eurozone debt in isolation from the politics of European integration is a sure way to lead yourself up blind alleys.

It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem. The people who don't understand it are the ones writing editorials in the business press which support the debt reduction but don't think that Syriza should be given carte blanche to do everything it wants.

And I think Geithner's observation was right. There's a lot of the Eurozone response to Greece that was about punishment rather than anything 'rational'. The rational decisions were forced on them early in the morning in Brussels by market - and now, God willing, political - pressure.

Geithner: I remember coming to the dinner and I'm looking at my Blackberry. It was a fucking disaster in Europe. French bank stocks were down 7 or 8 per cent. That was a big deal. For me it was like, you know, you were having a classic complete carnage because of people [who] were saying: crisis in Greece, who's exposed to Greece?....

I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: "We're going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we're going to crush them," was their basic attitude, all of them....

But the main thing is I remember saying to these guys: "You can put your foot on the neck of those guys if that's what you want to do. But you've got to make sure that you send a countervailing signal of reassurance to Europe and the world that you're going to hold the thing together and not let it go. [You're] going to protect the rest of the place." I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: "Well, that's fine. If you want to be tough on them, that's fine, but you have to make sure you counteract that with a bit more credible reassurance that you're going to not allow the crisis to spread beyond Greece and that's going to require, you've got to make sure you're putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson...."

Interviewer: I mean was that, did you have this kind of foreboding like: oh my god, these guys are just going to...?

Geithner: Yeah. I had like a definite, and of course I, as I think I've said separately, I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did. But the early premonitions of that were in that initial debate. They were lied to by the Greeks. It was embarrassing to them because the Greeks had ended up like borrowing all this money and they were mad and angry and hey were like: "Definitely get out the bats." They just wanted to take a bat to them. But in taking a bat to them, they were feeding a fire that was in its early stages. There were a lot of dry tinders.

I for one am glad to see the Greeks willing to take charge and control of their own situation, rather than be dictated to by a bunch of snooty Europeans whose loathing for them is exceeded only by the Turks, and who don't even want them in the euro zone in the first place. 

Yep.

It's worth remembering because the IMF and the EU so monumentally fucked up all sorts of economic predictions to do with austerity and the periphery and deflation etc that Greece has gone way, way beyond anything they were asked to do when given the bailout. The effects have been disastrous - ironically given the entire point of internal devaluation their exports are still falling. But how could you not vote for the 'anything else' party when this has happened:


Edit: And the current recovery? Greek real GDP fell by 28% between 2008 and 2013. Since then it's climbed by 2%. I suppose recovery's one word for it.

greek extreme-left in coalition with nationalists... funny how they have a national-socialist government now

I know. Who amongst us could have guessed that the economics of the 1930s might produce the politics of the 1930s.

[Zanza]

And I want them to successfully pull off the destruction of the corrupt, nepotistic, clientilist state that always been the biggest problem for Greece and that neither PASOK nor New Democracy would ever want to challenge, far less damage. If they get rid of the jobs-for-the-boys approach for government procurement for all sorts, but especially the army and the Piraeus, and they manage to sort out tax evasion they'll deserve a lot of credit. If they manage to do that last then that would be as important a structural reform as anything that's been demanded of them over the last few years.

I predict nothing of the sort will happen.

[Martinus]

Default and stay with the Euro, or default and go back to the Drachma?

I would go with the drachma.  The contrasting recoveries of the UK and the US have shown that it is much easier to return to full employment when real wages can be reduced through inflation.

Could you explain how the contrast has anything to do with national vs. common currency, given that both the UK and the US has a national currency? 

[Martinus]

And I want them to successfully pull off the destruction of the corrupt, nepotistic, clientilist state that always been the biggest problem for Greece and that neither PASOK nor New Democracy would ever want to challenge, far less damage. If they get rid of the jobs-for-the-boys approach for government procurement for all sorts, but especially the army and the Piraeus, and they manage to sort out tax evasion they'll deserve a lot of credit. If they manage to do that last then that would be as important a structural reform as anything that's been demanded of them over the last few years.

I predict nothing of the sort will happen.

Yeah, I'd rather have Greece effectively ruled by Germany and the Troika than hoping Greeks get their shit together for a change. Doing the same thing over and over again and expecting a different result is the definition of insanity.

[Sheilbh]

Yeah, I'd rather have Greece effectively ruled by Germany and the Troika than hoping Greeks get their shit together for a change. Doing the same thing over and over again and expecting a different result is the definition of insanity.

But that's precisely what they haven't done. They haven't voted for the parties who as I say created and benefited from that clientilist state. They voted for the party that campaigned against it. Two days before the election their new Finance Minister (who blogs in English here: http://yanisvaroufakis.eu/) and as he put it 'we are going to destroy the Greek oligarchy system.'

My major worry is the threat of political violence in collusion with the Greek state. I believe 40% of Athens cops voted for Golden Dawn and you look at their links to the judiciary and allegedly the intelligence service too and that's scary. I don't think the army's a threat but there's still a deep state in Greece.

I predict nothing of the sort will happen.

Maybe. But surely it's worth trying rather than just weighing more and more pain onto everyday Greeks.

Could you explain how the contrast has anything to do with national vs. common currency, given that both the UK and the US has a national currency? 

Monetary policy based on national conditions.

[Admiral Yi]

How is a negotiated settlement - which is what Jake, Syriza and I are saying should happen - worse than default which is what you're saying?

It's worse for the creditors who will have to finance Syriza's coming out party.  It's great for the people going to the party.  With a default, the borrowing game is over.  Although they could concievably steal money from Greeks, and call it a loan.

[Martinus]

Could you explain how the contrast has anything to do with national vs. common currency, given that both the UK and the US has a national currency? 

Monetary policy based on national conditions.

No I get it. But both the UK and the US have national monetary policies and national currencies, so how are their cases "contrasting"?

[Admiral Yi]

Could you explain how the contrast has anything to do with national vs. common currency, given that both the UK and the US has a national currency? 

I can't, because it doesn't.  It has to do with the higher inflation the UK has been running.