How the Greek rescue failed

[Tamas]

The privileged rich work more and more while the poor are idle? Yes, welfare makes a portion of the population idle, but the rest either works or want to work. But it still takes plenty a poor man's work to let the rich play king.

Yes, but we "chose" (I realize there was little of actual conscious choice, but still) a set-up of widening wealth/wage differences because a situation like this is more efficient from the perspective of the economy.

But the downside is that in a "vertical" economy like that, people at the bottom cannot sustain themselves from their work anymore even if they are willing to work (and I never said they don't "want to work" - it's just that there just isn't enough gainful jobs for all the people willing to work). So it is disingenuous for the rich to now turn around, when the crisis happens, and say that they will no longer help the poor, because the poor don't work - we created the economy model where simply not all willing poor can work, so we have to deal with it now.

Ok that has two parts. A literal argument, and an allegory to Germany and the PIIGS.

For the literal take - the rich, the REAL rich, never had the burden of the modern state. That fell on the middle class. The whole thing is about maintaining the status quo, which is most benefical to the people presently at top.

For your allegory, well, yeah but not really. If you want to go that way, then Germany is the rich guy, who decides to let the poor guy, Greece, open shop in town, and helped with a generous loan. He saw the Greek books were fishy at best, but he REALLY wanted that spa Greece opened, and what could possibly go wrong lending to that fellow right?
And just to be sure, poor-man Greece kept lying about his finances, taking up more and more loans, which he spent on living a nice life, instead of investing it and living within his own means.

After rich guy Germany got a bit of short on cash because his cousins Spain and Italy got burned on a ponzi scheme, free loan money started to dry up for poor Greece. He didn't like that. Not one bit.
Surely he wasnt to sell his car and take the bus to the pub now, would he? He was living his life for decades, what's this shit about the moneyflow stopping? How DARES Germany put him down like that? He has a run-down spa, no skills, no resources, and now Germany wants him, to live like a bloke who has no good business, skills, or resources? Seriously? Monstrous?!! So he sets out to light Germany's villa on fire, so they get to the homeless shelter together.

[Tamas]

Fair point.

But I am afraid we are drifting closer to experiencing what an EU-less Europe looks like. Like we didn't try it for the past millenias.

Yeah that is melodramatic, probably we just loiter around for a decade struggling than start growing again, but if not, we may very well end up repeating the 1930s, with probably France and Ms. Le Pen taking Germany's role, as the failed strong state.

I doubt it. Keeping the EU around is beneficial to all involved. The only ones I could see leaving anytime soon are the British. And keeping the EU around has a much lower potential for economic costs than the currency union.

But the elimination of the currency union cannot be orderly and cannot be without major shocks. There will be victims, and scapegoats will have to be found. You'll see.

[Legbiter]

Yes, interesting how real world experience doesn't quite square with the internet meme that somehow Iceland has declared financial UDI from the rest of the world.

Sorry, UDI?

[Barrister]

Yes, interesting how real world experience doesn't quite square with the internet meme that somehow Iceland has declared financial UDI from the rest of the world.

Sorry, UDI?

Unilateral Declaration of Independence.

Not to be confused with a UTI.

[Legbiter]

Yes, interesting how real world experience doesn't quite square with the internet meme that somehow Iceland has declared financial UDI from the rest of the world.

Sorry, UDI?

Unilateral Declaration of Independence.

Not to be confused with a UTI.

Ah, no not exactly. The exchange rate will remain unfavorable for the next decade at least while Iceland pays for the debt hangover from the bubble years. It'll be a slog for sure.

[Sheilbh]

You know what I think was the mistake? That we got involved at all. In the bailouts. Or the Euro.

I agree.  As Gideon Rachman put it the Euro's a machine from hell Germany can't turn off.  I can't see any way that ends well for Germany.  There are more countries in support of a looser monetary policy, so that's probably the path of least resistance.  If there's fiscal union Germany will be out-voted and the NY to Greece's Mississippi.  If the current course continues then, through TARGET 2 and the ECB, Germany will be more and more tied into the system regardless.

I know Estonia did so but they had very little public debt when it was implemented.

I think Latvia's the main example.  Part of it is that it happened over two years.  I think most societies can survive shock therapy, but the Greeks are in year 3 or 4 of this.  The economy's shrunk by 20%, youth unemployment's up to over 50% and they're, at best, 3/4s of the way through - I don't know how many years that's socially sustainable for.  And politically all the mainstream parties supported it, so they're all equally discredited.  I think in Greece the 30s analogy works better than most.

That we came back from being the sick man of Europe was - in our narrative - due to cuts to social state, labor costs and slowly regained competetiveness.

But that was in a context of global growth and loose credit within the Eurozone.  The periphery's doing the same, but quicker, when there's no global growth and the picture in other parts of the Eurozone's also not so healthy.  One country going through this is good for them, all countries doing it together's kind of harmful.  I'm fairly sure there's a proper name for this and it's something Keynes discussed...

Yeah that is melodramatic, probably we just loiter around for a decade struggling than start growing again, but if not, we may very well end up repeating the 1930s, with probably France and Ms. Le Pen taking Germany's role, as the failed strong state.

It is melodramatic, but I've said before I think it's a risk that the EU is pitching useful policies - like austerity and structural reform - against national pride, because the latter will always, always win.

And when them and the others see that the strongest guy in the team is not wiling to risk injury for the team, they will ask "why should we?"

I think that's certainly the view in the UK, US and probably China as well.  There's no sense here that the Eurozone or Germany have done their utmost to help save the Euro so calls for us all to contribute to bailout funds via the IMF don't come over well.  I don't know how many times China's had to say they're not interested in buying EFSF or ESM bonds

I doubt it. Keeping the EU around is beneficial to all involved. The only ones I could see leaving anytime soon are the British. And keeping the EU around has a much lower potential for economic costs than the currency union.

I don't know if we'll be in the EU much longer.  I think we'll have a referendum in the next 5 years or so.  I don't know how they vote'll go

[Legbiter]

Way I see it either the EU puts together some all-but-in-name Eurobond or Greece kills the euro dead by exiting.

[jimmy olsen]

This was inevitable, it should have been obvious that no country's population would just sit back and take a depression this deep and such a severe government austerity program for long.

[Iormlund]

I doubt it. Keeping the EU around is beneficial to all involved. The only ones I could see leaving anytime soon are the British. And keeping the EU around has a much lower potential for economic costs than the currency union.

You are completely right. Yet ideology and emotions have dominated policy decisions for the duration of the crisis. What makes you think it won't be the same when it finally blows up?

[Admiral Yi]

Way I see it either the EU puts together some all-but-in-name Eurobond or Greece kills the euro dead by exiting.

Eurobonds would only cover the first 60% of GDP.  That won't save Greece.

[Admiral Yi]

This was inevitable, it should have been obvious that no country's population would just sit back and take a depression this deep and such a severe government austerity program for long.

So what are they going to stand up and take instead Timmy?

You've bought in to the false dichotomy.

[jimmy olsen]

This was inevitable, it should have been obvious that no country's population would just sit back and take a depression this deep and such a severe government austerity program for long.

So what are they going to stand up and take instead Timmy?

You've bought in to the false dichotomy.

Someone who'll take them out of the Euro and back on the Drachma.

[Sheilbh]

Someone who'll take them out of the Euro and back on the Drachma.

They've still got a large deficit.  Without any access to credit they'd need to move that to an immediate surplus - so far more severe austerity.

[Admiral Yi]

Someone who'll take them out of the Euro and back on the Drachma.

And how much of a budget deficit will they be able to run then Timmy?

Fucking Shelf.

We won the war you know.

[Scipio]

Considering that Germany used to be the sick man of Europe and it came back precisely because of the Eurozone and lending like crazy to the Southerners, it's a rather funny statement.

The narrative here is that we went into the Eurozone at too high an exchange rate, weren't helped by too high interest rates and capital outflows to the South meant depressed investment in Germany for a decade. That we came back from being the sick man of Europe was - in our narrative - due to cuts to social state, labor costs and slowly regained competetiveness.

If you google ' Germany "sick man of Europe" ' you get X results and if you google a certain other country's name instead of Germany you get twice that amount.   

Greece is as much Europe as Turkey is.