How the Greek rescue failed

[Caliga]

[Caliga]

NB: Reconstituting Yugoslavia first might be a bit of a challenge, dudes.

[Sheilbh]

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

I've been thinking about this and I generally think the Greek should leave - for their own sake.  I know everyone seems relatively confident that this could be handled.  But I personally worry that Portugal's not too far off that, I don't think Ireland - with their bank debt - could stay and I'm far from certain that the impact on Italy and Spain's banks wouldn't kill them off too.

If the Greeks are to leave - and I think Brussels should be getting lots of plans in for that eventuality - then it needs to be managed and orderly.  So ideally not prompted by the sort of political crisis we've seen the last week or so.

[Zanza]

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...

Where does this idea of no global growth come from? All predictions I see are for about 3-3.5% global growth annually for the next few years. That's not much lower than what we saw in 2002-2007 when we did our structural reforms. 



I also don't get why structural reforms in all countries at the same time would be "kind of harmful". Either structural reforms make sense, in which case it should be virtuous if more countries do them as soon as possible, or they are useless and just a "beggar thy neighbor" policy in which case they shouldn't be done at all. Why would something like service sector liberalization or making the tax system more efficient be a problem even if it is done in many countries at the same time?

[Zanza]

I've been thinking about this and I generally think the Greek should leave - for their own sake.  I know everyone seems relatively confident that this could be handled.  But I personally worry that Portugal's not too far off that, I don't think Ireland - with their bank debt - could stay and I'm far from certain that the impact on Italy and Spain's banks wouldn't kill them off too.

If the Greeks are to leave - and I think Brussels should be getting lots of plans in for that eventuality - then it needs to be managed and orderly.  So ideally not prompted by the sort of political crisis we've seen the last week or so.

Germany's finance minister Schäuble was quoted today as saying that he thinks the Eurozone could cope with Greece leaving.

[Josquius]

I've been thinking about this and I generally think the Greek should leave - for their own sake.  I know everyone seems relatively confident that this could be handled.  But I personally worry that Portugal's not too far off that, I don't think Ireland - with their bank debt - could stay and I'm far from certain that the impact on Italy and Spain's banks wouldn't kill them off too.

If the Greeks are to leave - and I think Brussels should be getting lots of plans in for that eventuality - then it needs to be managed and orderly.  So ideally not prompted by the sort of political crisis we've seen the last week or so.

Germany's finance minister Schäuble was quoted today as saying that he thinks the Eurozone could cope with Greece leaving.

Does he believe it though?
Afterall, if there's one thing recent times have taught us its that fear of the markets diving is often a leading cause of markets diving.

[Sheilbh]

I also don't get why structural reforms in all countries at the same time would be "kind of harmful". Either structural reforms make sense, in which case it should be virtuous if more countries do them as soon as possible, or they are useless and just a "beggar thy neighbor" policy in which case they shouldn't be done at all. Why would something like service sector liberalization or making the tax system more efficient be a problem even if it is done in many countries at the same time?

Structural reforms all at once are fine.  I meant all countries in the Eurozone going through a round of austerity at the same time.  In some cases for no good reason, like the Netherlands.

Where does this idea of no global growth come from? All predictions I see are for about 3-3.5% global growth annually for the next few years. That's not much lower than what we saw in 2002-2007 when we did our structural reforms. 

True enough.  I didn't know that.  I suppose I'd split it up into major trading partners then.

Germany's finance minister Schäuble was quoted today as saying that he thinks the Eurozone could cope with Greece leaving.

I think I've read some of his comments.  He thinks the Eurozone built in enough protective mechanisms and that there's less risk of contagion.  Personally I think that's nonsense - there are no new protective mechanisms and given that Euro-exit would have become a possibility, I can't see why the markets wouldn't be concerned about whether the Eurozone would stay together in general.  It reminds me of the sort of statement that's been made throughout the past 3 years by Euro politicians, normally immediately before the crisis peaks and there's an extremely important summit.  On a purely individual level I imagine there would be inevitable and significant capital flight in Spain and Italy which could, at its worst, set off the sort of bank recapitalisations that would drive Spain to needing a bailout.

I do think he's right that because of the last 3 years the Eurozone is probably able to respond faster to any contagion.  But this Economist blog I think highlights the difficult options available to demonstrate that Greece was a one off:
http://www.economist.com/blogs/freeexchange/2012/05/euro-zone-contagion

[Iormlund]

Some reforms are easier to carry out at the same time than others. Any deep labour reform, for example, entails a very significant increase in unemployment and thus increase in uncertainenty and loss of demand.

[The Minsky Moment]

Essentially, as the work efficiency and automation increases, we are not able to get full employment anymore.

This again?

Work efficiency and automation has been increasing forover 200 years.  If this causal relationship held, we should have 98.5% unemployment by now.

[Richard Hakluyt]

Indeed. Unemployment and under-employment were rife in the past. Economic development has opened more and more job opportunities. The current problems are merely a blip, wanting to increase manufacturing employment is like an 1850 philanthropist wanting to preserve the handloom weavers. The demand for services is effectively unlimited.

[Iormlund]

Sure, automation has enabled society to dedicate resources to more valuable tasks.

I do wonder, however, if we're near the point where those "relieved" of mindless jobs will not be capable of undertaking anything else. I mean, your average factory worker is not going to be able to design a car or develop a drug, no matter how hard he or she tries. Most people just don't have what it takes, just like I can't slam dunk with my towering 1.70m height.

[The Brain]

Many people with "advanced" jobs still do some cooking, cleaning etc. Plenty room for the stupid classes to get jobs.

[MadImmortalMan]

Sure, automation has enabled society to dedicate resources to more valuable tasks.

I do wonder, however, if we're near the point where those "relieved" of mindless jobs will not be capable of undertaking anything else. I mean, your average factory worker is not going to be able to design a car or develop a drug, no matter how hard he or she tries. Most people just don't have what it takes, just like I can't slam dunk with my towering 1.70m height.

Meh. Somebody has to maintain the robot workforce. Once we stop requiring four year degrees for every peon job on the planet that kind of thing will work out naturally.

[Crazy_Ivan80]

http://www.standaard.be/artikel/detail.aspx?artikelid=DMF20120512_022

article in dutch but basic gist is that if Greece doesn't cut it's expenses they'll be kicked out of the euro. Farage idol Van Rompuy apparently said something similar (but with him you really never know). This i light of the new elections Greece will have in June/July

[Sheilbh]

Apparently SYRIZA's now polling around 30%.  If the election were held tomorrow they'd have over 100 seats and easily be able to form an anti-bailout coalition.

They still might be able to if their court challenge goes through.  From what I've read Greek law gives the party that wins an extra 50 seats.  SYRIZA are suing saying that the law says that doesn't happen if the winner gets under 20% (as ND did) in which case the 50 MPs are split proportionally.