Greek Referendum Poll

[crazy canuck]

The pro-austerity crowd does not seem to get the fact that debt reduction or not, it is highly unlikely the creditors will see most of their money again. The Eurozone governments are engaging in the elaborate illusion of "extend and pretend" for political reasons, but Greece will never be in a position to repay all that debt. The only viable solutions are either a Greek default and Grexit, or debt haircut and allowing Greece to grow before it starts to pay off the rest of the debt. The latter would be clearly preferably from economic standpoint, but may be politically unviable for Eurozone governments.

It isn't about Greece any more.  Greece is a goner.  It is about Spain, Portugal and lots of others.  There is a need to demonstrate what the result of voting in a pro-welfare, anti-austerity party, spending until the country is bankrupt, and blackmailing more prudent countries into giving them more money to spend, is.

So precisely what Minsky just said.

[Razgovory]

Late to the party, but do we have actual examples or highly endebted countries who got themselves out of a recession and to successfull growth by taking even more debt?

Yes.  Most of Europe in fact.  The US provided low interest loans to European countries after WWII.  Germany after WWI is also an example, US loans stabilized the German economy in the 1920's.  On the other side of the coin, Dutch loans to the already debt ridden US helped stabilized the economy here.

[Razgovory]

The fundamental difference is between different views on how heavily to weight moral hazard concerns.  Yi (and those similarly inclined) weigh it very heavily, to the point where there is a willingness to let an entire small country collapse pour encourager les autres.  I don't think it merits that level of concern.

I suspect they mistake moral hazards with morality.

[Martinus]

The fundamental difference is between different views on how heavily to weight moral hazard concerns.  Yi (and those similarly inclined) weigh it very heavily, to the point where there is a willingness to let an entire small country collapse pour encourager les autres.  I don't think it merits that level of concern.

I suspect they mistake moral hazards with morality.

Collective punishment very poor morality makes. Especially when you are punishing sons for the sins of fathers.

[Valmy]

The fundamental difference is between different views on how heavily to weight moral hazard concerns.  Yi (and those similarly inclined) weigh it very heavily, to the point where there is a willingness to let an entire small country collapse pour encourager les autres.  I don't think it merits that level of concern.

The only reason the moral hazard concerns are a concern is because of the monetary union and the confederation. Everything is based on trust, political trust. Which is why these things never work.

Yes.  Most of Europe in fact.  The US provided low interest loans to European countries after WWII.  Germany after WWI is also an example, US loans stabilized the German economy in the 1920's.

In neither of those scenarios was Germany running up huge debts.

[Razgovory]

The fundamental difference is between different views on how heavily to weight moral hazard concerns.  Yi (and those similarly inclined) weigh it very heavily, to the point where there is a willingness to let an entire small country collapse pour encourager les autres.  I don't think it merits that level of concern.

The only reason the moral hazard concerns are a concern is because of the monetary union and the confederation. Everything is based on trust, political trust. Which is why these things never work.

Yes.  Most of Europe in fact.  The US provided low interest loans to European countries after WWII.  Germany after WWI is also an example, US loans stabilized the German economy in the 1920's.

In neither of those scenarios was Germany running up huge debts.

They created large amounts of debt from the war, and kept their governments afloat with more debt.

[crazy canuck]

In neither of those scenarios was Germany running up huge debts.

Doesn't the aid it was receiving from the West mask the debt it otherwise would have incurred?

[Valmy]

In neither of those scenarios was Germany running up huge debts.

Doesn't the aid it was receiving from the West mask the debt it otherwise would have incurred?

Due to reparations, sure. Which the loans were covering. The bankers were pretty sure Germany would recover and pay them back. Their powerful industry had not been physically hurt by WWI that much. It was an investment.

Post WWII was for different reasons. But again the US not only was sure the Germans would not run up huge debts with those loans but we were occupying them so we could be sure they would behave.

Neither of those scenarios is particularly relevant to this one.

[Syt]

Thomas Strobl, chairman of CDU Baden-Württemberg, deputy chairman of the CDU on federal level and son in law of Wolfgang Schäuble to journalists: "The Greek has annoyed us long enough."

[Monoriu]

I don't think this is over yet.  I think Grexit is still a real possibility.  I'll not be surprised if Tsipras announce any moment that he has changed his mind yet again and doesn't want to pass the reform laws before the deadline.  Or support for his government breaks down.  He needs to step down and fresh elections are held.  A party that wants out of the Euro gets elected and so on.  Grexit will be shock therapy, leading to short-term economic disaster but long term it is what Greece needs.  That's bad for Europe, as the market will look for the next possible Euro exit candidate, say Portugal.  The viability of the currency will be in doubt as existing members want out to save their economies, and other non-Euro countries hesitate to join.  I can't see the UK abandoning the pound under these circumstances.   

[Martinus]

I can't see the UK abandoning the pound under these circumstances.

[Razgovory]

In neither of those scenarios was Germany running up huge debts.

Doesn't the aid it was receiving from the West mask the debt it otherwise would have incurred?

Due to reparations, sure. Which the loans were covering. The bankers were pretty sure Germany would recover and pay them back. Their powerful industry had not been physically hurt by WWI that much. It was an investment.

Post WWII was for different reasons. But again the US not only was sure the Germans would not run up huge debts with those loans but we were occupying them so we could be sure they would behave.

Neither of those scenarios is particularly relevant to this one.

The Dawes plan wasn't considered an investment. " The question was: but do we have actual examples or highly endebted countries who got themselves out of a recession and to successfull growth by taking even more debt? "  The answer is, yes.  I gave three examples off the top of my head.  Western Europe post WWII, Germany Post WWI and the US after the revolution.  I think the US post 2008 is another example.  US debt went up, but the recession ended and underemployment has fallen quite a bit from 2009.

[Admiral Yi]

Your post contains an assumption that Greece running less austerity would mean someone would have to pay money that otherwise was not paid.

The assumption is false.  Greece did austerity.  Its debt load went up.  And the rest of the EU picked up the tab.    The tab would not have been any different in the absence of austerity.

The only difference in the absence of harsh austerity would be that Greece's GDP and growth prospects would be better now.

Of course the tab would have been different.  Less austerity means bigger tab.

You've stated it elsewhere.  Conditionality.

I don't understand.  Conditionality means that Greece gets free money but Portugal doesn't?

[crazy canuck]

Of course the tab would have been different.  Less austerity means bigger tab.

Really, if Greece's economy had not crashed as dramatically as it did in response to the austerity measures wouldn't there have been more tax revenue and less resulting debt - and particularly in the long run?

[Admiral Yi]

The fundamental difference is between different views on how heavily to weight moral hazard concerns.  Yi (and those similarly inclined) weigh it very heavily, to the point where there is a willingness to let an entire small country collapse pour encourager les autres.  I don't think it merits that level of concern.

You say moral hazard, I say perverse incentives.