Sovereign debt bubble thread

[crazy canuck]

Maybe a roller coaster in which each rider is given the power to release their own safety bar.

There was a safety bar?  Isnt that the problem.  There was supposed to be one but it was never installed?

[DGuller]

The problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.

The twerpy kid may have been physically an adult, but he was still repeating the classes in the elementary school until he was finally socially promoted out of pity.  Had he not been socially promoted, he wouldn't have been part of the class that went on the field trip to ride the shitty rollercoaster.

[Zanza]

Rollercoasters actually rely on centrifugal forces to make sure no one falls out. The problem is that the Eurozone isn't a rollercoaster and doesn't have such forces, but rather some kind of trampoline where you can easily jump off and fall hard.

[Admiral Yi]

There was a safety bar?  Isnt that the problem.  There was supposed to be one but it was never installed?

The safety bar is common sense.

[The Minsky Moment]

No, no one did.
To the contrary, the rest of the continent fell all over themselves to finance their current account deficits and deal in their securities.

And?

And so the whole game about casting moral blame is a fool's errand.  Greece was always a basket case, but the entire Eurozone acting together decided to make it into a Euro basket case. 

If 10% of the effort spent on the blame game was spent on fixing the problem, it would have been resolved long ago.  The amounts of money involved are trivial when placed in the European scale.

[The Minsky Moment]

The twerpy kid shouldn't have gotten in then.

So much for Euro-solidarity.

[frunk]

Good point.  I left unspoken the assumption that you let markets work and don't try to manage anything.

What do you mean by "don't try to manage anything"?  Anything the government does has some effect on the market, intentional or not, and can be considered a form of management.

[Zanza]

The twerpy kid shouldn't have gotten in then.

So much for Euro-solidarity.

https://www.youtube.com/watch?v=qVrN-gkzVYI

[Sheilbh]

I am sure many Germans are aware of the deep cuts Greece had to endure.

Are they aware that Greek cuts have been deeper than has ever been asked by the Troika?

However, Greece didn't reach a primary surplus yet.

They're meant to reach it in 2014. But so far it looks like they may do it this year.

And from what I read when I still cared, they didn't really put into action very many reforms to make them more competitive either.

Well there's the piece of paper problem - which is one of perception and confidence. The Greeks have passed lots of reform laws. So did Mario Monti. Greece is far further along implementing their reforms than Italy (so far the Italians have begun implementation on around 5-10% I believe). But I think because of past failures by the Greeks and the poisonous bigotry about them that's swilled around Europe these past 3-4 years that's not been noticed, a bit like their fiscal achievements.

For one example they've passed significant labour market reform. Like austerity the effect has been far greater than anyone had expected. Average wages have fallen by around 7.5% while averages for individual contracts and firm-level agreements have fallen by 20%. The problem with structural reforms is that, I believe, on average they take about 5 years to start having positive effects (the Economist posted some research on it) and they take more time during recessions.

More generally austerity isn't working in Greece either for the government or the majority of the people. 

Yep. The biggest problem with these programs is that in the medium term they're increasing debt and decreasing debt sustainability which is the opposite of the goal. I don't get on what measure they're working.

The National Institute of Economic and Social Research did some research based on the IMF's new fiscal multiplier. According to that current rates of austerity is increasing debt in every program country (with the exception of Ireland) more than lower rates of austerity would.

The problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.

What about Italy?

[Admiral Yi]

And so the whole game about casting moral blame is a fool's errand.  Greece was always a basket case, but the entire Eurozone acting together decided to make it into a Euro basket case. 

If 10% of the effort spent on the blame game was spent on fixing the problem, it would have been resolved long ago.  The amounts of money involved are trivial when placed in the European scale.

I see.  So when you accused the Germans of building a rollercoaster with no safety features, that was a morally neutral observation?  When you said buyers of Greek bonds didn't want to pay the check, that was morally neutral?

I think Greece got offered a pretty fucking good deal.  You're now in the eurozone so you automatically get bundesbank rates.  If you're smart, you'll use the interest savings to reduce your indebtedness.  If you're a goddamn retard, you'll go on a 3 year bender.  Then smash up a couple banks and cry for free money when the bender is over.

[The Minsky Moment]

For one example they've passed significant labour market reform. Like austerity the effect has been far greater than anyone had expected. Average wages have fallen by around 7.5% while averages for individual contracts and firm-level agreements have fallen by 20%. The problem with structural reforms is that, I believe, on average they take about 5 years to start having positive effects (the Economist posted some research on it) and they take more time during recessions.

Not only that but the immediate impact in those kinds of cuts is a big drop in income tax collections, which makes fiscal consolidation even more difficult. 

[The Minsky Moment]

I see.  So when you accused the Germans

I accused "the Germans" of nothing.
IIRC Germany had little role in the Greek admission other than not opposing.  It was non-controversial.  That was despite the fact that no one believed the Greek fiscal figures (which were in fact disproven conclusively way back in 2004), and despite the fact the Greeks breached the deficit criteria every year after, including the year they joined.
The decision was non-controversial because the euro was conceived first and foremost as a political project, not an economic one, and admitting Greece served the political purpose of creating a seemingly irresistable wave to universal adoption, and to overcome the few stubborn dissenters left.

Unfortunately, the political project failed, but the Eurozone never really got around to formulating an alternative economic project that would work effectively.

[Sheilbh]

What's the deadline on Cyprus getting a deal? Surely the banks can't remain closed indefinitely?

[Agelastus]

What's the deadline on Cyprus getting a deal? Surely the banks can't remain closed indefinitely?

Close-of-play Monday, I believe - by which time Cyprus should, apparently, have brought in formal capital controls rather than the more informal "Bank holiday" being used now.

Although apparently the idea of capital controls across the whole Eurozone as a temporary measure is being floated.



Surely that's something you set up the groundwork for in secret first then implement and announce at the same tim to prevent a pre-controls flight of capital?

[Tamas]

I think they need to let Cyprus fall. If they keep financing them despite all shenangians, Greeks and Italians will learn the lesson and sink the EU with themselves.