Europe's Populist Left

[Admiral Yi]

What's so sweet a deal about figuring out what's sustainable and then restructuring to match that?

Isn't that how this sort of thing is supposed to work?

It's a sweet deal because it means paying back less you borrowed, or a lower interest rate than others are getting, or at no interest.  That's a better deal than Ireland, Portugal, and Spain got.

[Zanza]

It's a sweet deal because it means paying back less you borrowed, or a lower interest rate than others are getting, or at no interest.  That's a better deal than Ireland, Portugal, and Spain got.

That doesn't matter now as Greece has clearly gotten an extremely poor deal and the only thing that should matter now is what works short and long term to make their situation better.

[Barrister]

It's a sweet deal because it means paying back less you borrowed, or a lower interest rate than others are getting, or at no interest.  That's a better deal than Ireland, Portugal, and Spain got.

That doesn't matter now as Greece has clearly gotten an extremely poor deal and the only thing that should matter now is what works short and long term to make their situation better.

I don't think you can say it doesn't matter.

The EU can get away with restructuring Greece's debt.  But if the other PIIGS want in on that action you have a serious problem.

[Zanza]

This one is for you, Sheilbh. 

http://www.economist.com/blogs/buttonwood/2015/01/euro-crisis

The euro crisis
Don't Let's Be Beastly to the Germans

THERE is a lot of criticism of the German government in the press at the moment, particularly in Britain. A Guardian columnist described Angela Merkel as "the most monstrous Western European leader of this generation" which rather takes the breath away when coming from a liberal newspaper. Merkel has called on voters to beware the anti-immigrant movement Pegida; Syriza, which the same columnist praises as "the politics of hope" has gone into coalition with an anti-immigrant and anti-semitic nationalist party.

Greece's new prime minister is fighting for a debt write-off and an end to austerity for his people, who have endured a huge fall in GDP and a 25% unemployment rate. And fair enough; the Greek population has suffered a lot. But a new opinion poll shows that 43% of Germans don't want Merkel to offer debt relief to Greece as opposed to 16% who do. So Ms Merkel is not supposed to represent her electorate while Mr Tsipras is?

Germans were told that sacrificing the deutschmark for the euro would involve safeguards, with an ECB based in Frankfurt, strict rules about which countries would join the euro and explicit bans on bailouts for struggling countries. But the rules were eased to let too many countries in, the ECB is now run by an Italian who is creating money and vast amounts has spent buying the bonds of struggling European governments and banks; the German taxpayer will probably end up paying the bill. The Greeks asked for debt forgiveness; they have already had it and their remaining official debt has a 16-year maturity and an average coupon of 2.4%. They would not get those terms anywhere else. Meanwhile, German voters, who went through a painful period of restructuring in the early 2000s to make their economies competitive, are told that such policies are inappropriate when applied elsewhere. They have gone along with all these things without swinging to the far left and right as many voters in other parts of Europe have done.

Now of course, there are legitimate issues for criticism. Further Greek debt write-offs are required; the Greeks should not be asked to aim for such a large primary surplus; and Germany, which now has a budget surplus, could deliver a fiscal stimulus to help its neighbours.

But if I were a German, I would find it hard to be lectured about communal togetherness by Britain, a country which stands aloof from all federalising measures and might be leaving the EU in 2017. Germany contributes €29 billion to the EU budget (and €16 billion net); the UK complains bitterly about its net €11 billion payment. The German net contribution to the budget is twice that of France, although their GDP per head numbers are virtually identical.

If it is such a good deal to lend money to the Greek government without conditions, why doesn't Britain do so? The German government is not in that much better a financial position than the UK; its gross debt-to-GDP ratio is 82% as opposed to Britain's 90%. We could borrow money at our 1.4% rate (on 10-year gilts) and lend the money to Greece at 2% and make a profit (we did something similar for Ireland). Of course, it's fantasy; any party that proposed such an idea would be slaughtered in the polls. Why waste money on the Greeks, the papers would say, when we need to spend it at home? But when the Germans think along similar lines, they are monsters. Humbug.

[Zanza]

It's a sweet deal because it means paying back less you borrowed, or a lower interest rate than others are getting, or at no interest.  That's a better deal than Ireland, Portugal, and Spain got.

That doesn't matter now as Greece has clearly gotten an extremely poor deal and the only thing that should matter now is what works short and long term to make their situation better.

I don't think you can say it doesn't matter.

The EU can get away with restructuring Greece's debt.  But if the other PIIGS want in on that action you have a serious problem.

The idea is to restructure Greek debt so that becomes comparable to that of the other four countries - high, but manageable and probably sustainable.

[The Minsky Moment]

Ireland cut a deal with the ECB to redenominate billions of promissory notes . . .
There were different circumstances and facts for every country effected by the 08 collapse.  It doesn't make sense to say that every country and every situation should be addressed in the precisely identical manner.
Other than the domestic politics, how exactly is Spain or Ireland harmed by a deal on Greek debt?

[Admiral Yi]

Other than the domestic politics, how exactly is Spain or Ireland harmed by a deal on Greek debt?

The same way I'm harmed if Obama gives you $1,000,000 and gives me a coupon for $5 off my next purchase at Radio Shack.

Heard on NPR that some Kraut or another said debt reduction "is not on the table."

[MadImmortalMan]

The same way I'm harmed if Obama gives you $1,000,000 and gives me a coupon for $5 off my next purchase at Radio Shack.

You better use that soon.

[Ed Anger]

The same way I'm harmed if Obama gives you $1,000,000 and gives me a coupon for $5 off my next purchase at Radio Shack.

You better use that soon.

Heard a rumor Amazon might buy Radio Shack. Thanks Bezos. 

[Razgovory]

Other than the domestic politics, how exactly is Spain or Ireland harmed by a deal on Greek debt?

The same way I'm harmed if Obama gives you $1,000,000 and gives me a coupon for $5 off my next purchase at Radio Shack.

Heard on NPR that some Kraut or another said debt reduction "is not on the table."

So not harmed at all?

[Admiral Yi]

So not harmed at all?

Would Greece have been harmed if Germany had offered loans to Ireland but told Greece to fuck off?

[Razgovory]

So not harmed at all?

Would Greece have been harmed if Germany had offered loans to Ireland but told Greece to fuck off?

Only if you believe that giving bailout loans is a fundamental right.  I could be convinced, but it seems contrary to you political ideology that states are required to offer the same exact loans to everyone including other countries.  Also, they got that coupon from Radio Shack, so at least there is something.

[Jacob]

So not harmed at all?

Would Greece have been harmed if Germany had offered loans to Ireland but told Greece to fuck off?

Yeah possibly, but the thing that would have harmed Greece in your scenario is being told to fuck off, independently of anything that happened between Ireland and Germany.

[The Minsky Moment]

Other than the domestic politics, how exactly is Spain or Ireland harmed by a deal on Greek debt?

The same way I'm harmed if Obama gives you $1,000,000 and gives me a coupon for $5 off my next purchase at Radio Shack.

Let's make it more pertinent, and say they are harmed in the same way that non-farmer X is harmed because Farmer Y gets a bag full of CAP money.

Except that in the case of CAP the source of the money is EU taxpayers so there is some real harm, whereas here we are just talking about accounting entries made in cross-border central banking accounts with no real economic effect.

[Sheilbh]

So your argument is that Merkel didn't have alternatives, only Draghi had? 

Yes. However I think Draghi and Trichet's room for manoeuvre was very limited above all because of German opposition to any hint of expansionary monetary policy - see the Bundesbank taking the ECB to court over OMT. But ultimately my view is that if the Euro survives Draghi's head deserves to go on its notes.

Bailouts and fiscal pacts were never the answer and they still aren't. I think the biggest problems of the Eurozone are to do with construction and monetary policy and were treated politically, even by the ECB. The one area I think there really did need to be political change was banking union and I think that's insufficient.

And I don't think Merkel had any alternatives to the policies she was ultimately forced to concede which is why, in my opinion, it would have been better not to start from total opposition and then have a last minute construction but, as I say, try to get ahead of the crisis.

So not an alternative back then?

Possibly not in Greece. Definitely, at varying times, been an alternative in Ireland, Portugal and Italy though. Sadly no thought was given for that so Eurogroup meetings in a couple of years could include not just Syriza but Podemos and Sinn Fein.

It's called negotiations and compromise or short politics. What exactly is surprising about this? Germany has interests and thinks its interests are best served this way. I know you disagree about that, but your opinion is meaningless to how Germany sets its policy.

I don't think most negotiations end with a total u-turn, unless your initial position is simply unreasonable. It ends with as you say a compromise. I don't see how going from opposing bailouts to a €500 billion bailout fund is a compromise or negotiations. It's a failure.

Of course, but all of them less extreme than some people demanded. You may now say that's why they worked less than they could have, but first that's just conjecture and second, giving up too much under pressure for short term gains is something you might regret down the line as well. Germany should not and could not agree to sign away fiscal sovereignty to the degree that some of the discussed policies demanded.

That's not true. The UK and the US have all of those monetary policies that have been suggested for the Euro and had less austerity. Their economies are growing faster than anywhere in the Eurozone, their deficits are falling (the US dramatically, the UK less so) and their debt/GDP has or is peaking. It's not conjecture to say that those policies worked while policies of fiscal consolidation, private sector deleveraging and tight monetary policy have led to a depression (in Greece), deflation in 11 of the 17 member states and increasing debt across the Eurozone.

And their first "reforms" were to reinstate some of the old rules...

The point they've made, which is accurate, is that the problems in Greece are to do with the corruption of the state and the economy. Rather than tackling those issues the reform program has been quibbling about Sunday opening hours. Rather than tackling the oligarchs who don't pay their taxes and benefit from fire sale privatisations and rigged public sector procurement, they've focused on everyday people. They've also said they agree with 60-70% of the already implemented reforms and they will not carry out all of their manifesto if it means breaching whatever 'small' primary surplus they agree to run.

The Commission has noted that the reason why Greek exports are still falling despite the cut in labour unit costs is because the issues with Greece's trade was to do with institutional capacity and governance.

Maybe I am wrong, but all parties on the radical left talk about structural reforms. The more radical the party, the more radical the structural reform they have in mind usually. I am sure that KKE in Greece had even more "structural reforms" in mind than Syriza.

They don't in my experience. 'Structural reform' means the Washington consensus/neo-liberalism/IMF/World Bank etc. It's a phrase the left don't use ever. As Alan Beattie pointed out there's more to them than that.

It's a sweet deal because it means paying back less you borrowed, or a lower interest rate than others are getting, or at no interest.  That's a better deal than Ireland, Portugal, and Spain got.

Yeah. In my view there needs to be a general conference on these issues of debt within the Eurozone. As I say I think it is in the interests of creditor countries to try and help and support the mainstream, reformist ministries in Ireland, Portugal and Spain rather than ending up negotiating with their respective populist parties. Similarly I think Renzi should really be given fiscal space as the first reformist Prime Minister Italy's had since Cavour. Having said that my understanding is that all of those countries should benefit more from QE than Greece would be likely to, but they still need more for growth. And politically Italy's the most worrying from a European perspective because support for the Euro is now around 40% in Italy.

Having said that, none of those countries are in as bad a situation as Greece and ultimately none of those governments really have the mandate to challenge the program that the Greeks do. The others don't have 175% debt-GDP, they've not had deflation for two years, or just experienced their first quarter of growth since 2009.

This one is for you, Sheilbh. 

It's entirely true - including the bit about Greeks requiring a debt write-off

Personally I'd entirely support totally writing off our contribution to the Irish bailout.  And of course the ultimate reason is that we don't share a currency union with them. We didn't make the decision to share a central bank and a currency with the rest of Europe (for which Europe should be very thankful as with our combination of bad banks and Euroscepticism we'd have blown the whole thing apart in high dudgeon - another example of Gordon Brown saving the world).

In a way we've probably been beneficiaries of the Greek bailout as our banks loaned as much to the Greeks as the Germans did. But while we've an interest in seeing the Eurozone survive and prosper, it's less existential for us if you'd tried to force them out in 2012, or now. For Germany it's still a very big gamble.

Heard on NPR that some Kraut or another said debt reduction "is not on the table."

Varoufakis has already taken it off the table. They're not seeking another haircut.

A few interesting things today. I read one ECB official said they think they need new elections - every Greek journalist in response said Syriza would increase their vote and there were big pro-government protests across Greece today. Paul Mason, who's very close to Syriza has reported that if the alternative is enforcing the program the government would rather resign.

Lots of the reaction is the UK is continued shock at how political and uncommunicative the ECB is

This interpretation by Krugman's done the rounds a fair bit I think, especially as Varoufakis had six months earlier said if threatened with this by the ECB he'd say 'go ahead':

A Dance With Draghi
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Update: Frances Coppola has the same take, with much more detail.

Family stuff, which leaves me with almost no time for posting just as stuff goes semi-crazy in the Greek drama. But a quick note.

What happened was that the ECB declared that it will no longer accept Greek government bonds as collateral when lending to Greek banks. The initial reaction of some observers was that this was the end, that the ECB was pulling the plug arbitrarily and abruptly.

But even before I had a chance to look at the details, I assumed that must be wrong. You can say many things about Mario Draghi; it's quite possible that he will fail to save the euro, and quite possible that he is making big mistakes; but stupid and crude is not his style. Sure enough, this is a much subtler action that the first headlines suggested. This funding channel is one that Greek banks no longer use very much, and it's not necessarily to keep them afloat; they can continue to borrow indirectly via the Greek central bank. So this is not a crisis-provoking event.

What's the point, then? Well, it's posturing and signaling. But to whom, and to what end?

Maybe it's an effort to push the Greeks into reaching a deal, but my guess — and it's only that — is that it's actually aimed more at the Germans than at the Greeks. On one side, it's the ECB making tough noises, which might keep Germany off their backs for a little while. On the other, it's a wake-up call: dear Chancellor Merkel, we are *this* close to watching a Greek banking collapse and euro exit, and are you really sure you want to go down this route? Really, really?

So this wasn't brinksmanship; it was sort of pre-brinksmanship, a warning shot to all sides about what will happen next.

Does Draghi know what he's doing? Of course not — nobody in this situation knows what he or she is doing, because it's structurally a mess. But don't panic — yet.

The sense I get is that the options are narrowing to either a default or a negotiated deal - which is a difficult binary for most European leaders. It's tough to sell your position as saving taxpayer money if you've just lost the entire loan. If there's default then it'll almost certainly lead to banking crisis and Grexit - though interestingly apparently Italian government lawyers have said a country can run a dual currency (which is interesting in itself) and stay in the Eurozone, based on their interpretations of the treaties.