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Grexit and the EU
zakkiel
Registered User regular
Registered User regular
Once, there was a dream. A dream of a united Europe, sharing a single currency, trade laws, and a liberal international travel regime. In the heady days of the early 2000s, this dream had blossomed into a beautiful reality. Rich countries got to sustain nice union jobs and have competitive exports, thanks to the poor countries depressing the Euro. Poor countries got a shitton of easy credit from rich countries looking for investors. Of course, there were some problems behind the scenes. The rich countries controlled monetary policy. Specifically, Germany controlled monetary policy, which it used to inflate the poor countries into gigantic bubbles. The poor countries were rife with tax evasion and corruption. In 2009, the whole thing blew up, and overnight Greece, Ireland, Spain, Portugal, and Italy suddenly faced massive budget shortfalls, huge interest rates, and overwhelming debts which, it so happens, are denominated in a currency they have no control over.
Some things happened since then:
- The debts which were held by private banks and individuals have largely been transferred to the IMF and other governments. In other words, the financial industry in the rich countries is no longer exposed to Greek debt.
- While this happened, the governments threatened by bankruptcy - namely, Greece and Spain - were kept afloat by bailout funds provided by rich EU countries
- These bailouts came with strict strings attached: tax increases and revenue cuts. Austerity for everyone! Those familiar with the economic theories of Keynes may view this as batshit insane and think the Eurozone set policies almost calculated to produce never-ending misery. Well, shows what you know!
- In addition to a strong desire to punish the naughty children for their spendthrift ways, Germany possesses another key national trait: an all-devouring fear of inflation. (Unlike the Fed, the European central bank has no mandate to combat unemployment, just inflation, for exactly this reason.) Those familiar with the economic theories of Milton Friedman may view this as batshit insane and think the Eurozone set policies almost calculated to trap the whole continent in a liquidity trap. Well, shows what you know! (Note: the general target for inflation is 2%)
- As a result of all this, Greece has lived in misery for eight years now. Greece's unemployment is 25% and its economy only exited recession in 2014. This has unsurprisingly led to the rise of crazy parties like Golden Dawn, i.e. neo-Nazis, as a political force.
- The current governing party of Greece is Syriza, a leftist group which has been trying to bargain for less onerous bailout terms. In the end, Greece conceded to nearly everything last week. Nonetheless, Germany has steadfastly refused to provide even a face-saving concession (like allowing the Greek government to decide it will collect a little more in taxes to shore up its pensions - a revenue-neutral decision.) It appears that Germany has decided that whatever the consequences may be of Greece leaving the Euro, they can be contained. That, or they think Greece won't go through with it.
- As of Tuesday, the government of Greece was in default on its debt to the IMF.
So today, the terms of the bailout have been put to a popular referendum in Greece. The Greek government is pushing for "no," and it appears likely to get it right atm. Most observers believe this will trigger a Greek exit from the Euro: the Troika is refusing to continue the bail-out unless Greece accepts its terms, and without that bailout, Greece will be insolvent and have no choice but to return to its own currency.
This is a thread for discussing this particular issue; the viability of the Eurozone as a monetary but not political union; the likelihood of other countries like Spain following suit; and monetary policy in the EU.
Some things happened since then:
- The debts which were held by private banks and individuals have largely been transferred to the IMF and other governments. In other words, the financial industry in the rich countries is no longer exposed to Greek debt.
- While this happened, the governments threatened by bankruptcy - namely, Greece and Spain - were kept afloat by bailout funds provided by rich EU countries
- These bailouts came with strict strings attached: tax increases and revenue cuts. Austerity for everyone! Those familiar with the economic theories of Keynes may view this as batshit insane and think the Eurozone set policies almost calculated to produce never-ending misery. Well, shows what you know!
- In addition to a strong desire to punish the naughty children for their spendthrift ways, Germany possesses another key national trait: an all-devouring fear of inflation. (Unlike the Fed, the European central bank has no mandate to combat unemployment, just inflation, for exactly this reason.) Those familiar with the economic theories of Milton Friedman may view this as batshit insane and think the Eurozone set policies almost calculated to trap the whole continent in a liquidity trap. Well, shows what you know! (Note: the general target for inflation is 2%)
- As a result of all this, Greece has lived in misery for eight years now. Greece's unemployment is 25% and its economy only exited recession in 2014. This has unsurprisingly led to the rise of crazy parties like Golden Dawn, i.e. neo-Nazis, as a political force.
- The current governing party of Greece is Syriza, a leftist group which has been trying to bargain for less onerous bailout terms. In the end, Greece conceded to nearly everything last week. Nonetheless, Germany has steadfastly refused to provide even a face-saving concession (like allowing the Greek government to decide it will collect a little more in taxes to shore up its pensions - a revenue-neutral decision.) It appears that Germany has decided that whatever the consequences may be of Greece leaving the Euro, they can be contained. That, or they think Greece won't go through with it.
- As of Tuesday, the government of Greece was in default on its debt to the IMF.
So today, the terms of the bailout have been put to a popular referendum in Greece. The Greek government is pushing for "no," and it appears likely to get it right atm. Most observers believe this will trigger a Greek exit from the Euro: the Troika is refusing to continue the bail-out unless Greece accepts its terms, and without that bailout, Greece will be insolvent and have no choice but to return to its own currency.
This is a thread for discussing this particular issue; the viability of the Eurozone as a monetary but not political union; the likelihood of other countries like Spain following suit; and monetary policy in the EU.
Account not recoverable. So long.
zakkiel on
+5
Posts
"Grexit" usually refers to Greece leaving the eurozone (i.e. ceasing to use the Euro as a currency), not the European Union.
I don't even want to start trying to predict anything here. The only thing that seems likely is European analysts getting things wrong! This looks like an extremely decisive vote (38.56% Y, 61.44% N says The Guardian right now). But I'm certainly watching with great interest. And some trepidation.
Steam | XBL
The basic chain of events goes:
The Greek government defaults and has no Euros. The ECB then denies the Greek central bank from printing Euros. (They only have a license to print E10 notes, but they all start with a Y so can be clearly recognized)
The Greek economy needs something to trade while this is happening, they set up an emergency currency to do so. (Drachme)
This is the point where the Greek government breaks the EU constitution, which says that any country that adopts the Euro is not allowed to have any other currency.
This is used as the reason to kick them out of the EU, and thus the Eurozone.
This is the only semi-legal path available. There is no exit path out of the Eurozone that's documented, and the only formal exit path out of the EU is if the member state requests it.
I feel that if they do it this way they'll have lost all legitimacy.
Or that they should.
But I don't think we're looking at an inevitable slide to EU exit if/when Greece exits the Euro
I was mostly just making the point for the benefit of people who don't realise that the Eurozone and the EU aren't the same thing, which is a distinction I've noticed a lot of the international press haven't been great about making clear
Which party Greece or the EU?
https://en.wikipedia.org/wiki/Yanis_Varoufakis#Valve_Corporation
Steam | XBL
Yes.
Mostly the EU. I get a Grexit from the Eurozone, but being scummy about the EU as a whole makes it less about European unity and more about Germanic hegemony.
I feel that would also play quite poorly in the UK referendum and be a field day for Putin's press/American conservatives.
Yeah. They're going to go back to the drachma and inflate themselves out of debt.
During the coverage of the referendum today, I watched a correspondent for ZDF (public broadcaster) talk about how the Greek people don't understand the implications of what they are voting on and are just going with their gut feeling while the moron in the studio just nodded along. A few minutes ago I saw Martin Schulz give an interview where he talked about how there is still hope that the Greek government could be made to see reason and agree to the demands of 'the institutions', still pretending like those same demands aren't insane nonsense, still pretending like there was a credible economic defense of the proposed policies, still not showing any sign of empathy for the suffering this shit has caused in Greece over the past few years. We got plenty of pictures of the lines at ATMs over the past few days. We don't get pictures of the lines at the food banks that have been there for years now. The tenor in the media and in the political discourse is basically "OK Greeks, you've had your fun, now do what the grownups are telling you to".
The thing is, listening to the German political "elite", I get the strong feeling that they are actually buying into the crap they are selling. That they genuinely believe that if everyone just pursued the same beggar-thy-neighbor policies we did over the past decade+, they'd all be fine. There is no real opposition to this, either. This is basically the broad consensus in German politics and public discourse. In politics, the only credible dissenting voices come from the Left, which is conveniently marginalized in mainstream discourse, and a few people in the social democrats and the greens who haven't noticed that their parties left them behind years ago. Until this changes, no reasonable approach to solving the crisis will be able to get the necessary support from Germany. And it's not going to change any time soon. These assholes are going to break the EU before they admit to their mistakes.
I genuinely hope that some compromise can be found and, most importantly, that the Greek government finds some way of helping those who have been most affected by the crisis and the disastrous effects of the European 'help'. But seeing the responses to the result of the referendum tonight, I'm pretty sure it's not going to happen.
Looking back on this slightly drunken rant, I'm not sure it adds much to the discussion, but I just needed to vent. Sorry.
In the interest of adding at least something of value to the thread, this interfluidity piece on the Greek crisis is pre-referendum but still very much worth reading.
EDIT: Oh hey, some good news: Following the results of the referendum, Samaras has stepped down as leader of Nea Dimokratia. Good riddance.
In the short run, this actually makes the debt problem worse, because you're trying to pay off a given amount of debt with a smaller economy (which is why the debt to GDP ratio is used). But the kicker is that the shrinking economy lowers inflation (or causes deflation, in extreme cases). People want money to hide in the mattress so they can ride out the crisis (raising the value of money) and they spend less (lowering the price of everything else). But less inflation makes the debt worse, because the debt is some amount of currency. The more stuff each piece of currency can buy, the harder it is to pay off the debt. And the outcome is that raising the primary surplus by 1% to pay down the debt makes the debt grow by >1% every year. So the debt just gets bigger and bigger forever. Following the dictates of the troika cannot help the debt problem. It will only make it worse. And every time it's gotten worse, the troika has demanded a fresh round of austerity. It's a Red Queen's Race.
The other important point is that this level of sustained economic catastrophe has political consequences. The EU/ECB plan is for Greece to sit at 25-30% unemployment indefinitely. They aren't expected to get back to the same GDP as 2007 until the mid 2030s, and aren't expected to ever actually recover under the current circumstances (remember, populations grow and technology advances, if your economy is the same size after 30 years people are actually worse off). There is no chance that the voters will put up with that for 20 or 30 or 40 years. When times are desperate and the respectable politicians obviously don't have any ideas, people vote for someone else. What used to be the center-left major party, PASOK, was destroyed because they were in charge during the austerity programs; their vote share fell from 44% to 4.7% in six years. That's how Syriza won. Now Syriza ran on being the pro-EU democratic opposition to austerity. If the troika destroys them, it's not going to bring PASOK back, and it won't make the public either happy with the EU or okay with austerity. All it will do is confirm that pro-EU = pro-austerity and that democracy and the EU cannot coexist. So the far-right nationalists will take power and default, or the Nazis will take power and default, or the military will launch a coup and default.
Sounds almost exactly like the discourse here in the UK, too (at least amongst anyone who can be bothered to even pay any attention). I'm seeing more of the argument against, the more Left point of view, than most people over here are, but that's only because The Guardian is my primary news source.
Steam | XBL
If it makes you feel better, this has been my impression of alot of the news and talk coming out of Germany too. German policy on this, whatever one thinks of it, does seem to be a product of popular support.
It seems generally like there's been a whole terrible narrative established on this issue, and that's not just in Germany.
I was going to say no way and then I remembered what brought about the rise of Nazism in Germany and hm.
Consensus seems to be, "Not much." Though I wonder if this is taking into account the sudden , terrifying squishiness of China which is sitting atop what looks like a massive housing bubble. And also, people thought it was safe to let Lehman Bros go under, so I take all the sanguine attitudes with a big grain of salt.
I don't think many sensible people thought Lehman going bad would be a good thing. The upshot though is that everyone has been divesting out of Greece since 2011 so there's not a lot of risk of contagion.
I think it will have a downward effect on the Eurozone/UK/Russia as a whole simply because it's in the neighborhood, but I don't think it will wiggle at China.
Long term probably has bad implications for Spain, Portugal, Italy, etc.
I'm surprised Samaras stepped down. One would figure since Syriza's about to enter badly uncharted territory, it would be the perfect time for an able hand at the Opposition's helm to shoot at the easy targets.
Good luck, Greece. May you find a line of credit.
To be pithy, now you have some idea of what it was like to be a lefty in the US in about 2006. "Oh, sure, we're totally going to find Saddam's nuke program real soon, and we'll win the war in the next six months." "Haven't you been saying that for two or three years now?"
It is pretty ridiculous. Europe mostly trades within Europe, you can't all run massive trade surpluses. It's basic arithmetic, for every euro of exports, someone has to have a euro of imports. Only the weak periphery holding down the value of the euro has kept Germany from massive deflation. But Germany's choice to keep wages stagnant led to a massive surplus of savings that German banks invested...stupidly. Because the EU bank regulators told them that all of Goldman Sachs' synthetic subprime CDOs, Spanish/Irish real estate and Greek sovereign debt were riskless. The banks followed the rules rather than actually investigating the investments because they knew the ECB would cover them. Which the ECB did, under the guise of "bailing out" the GIIPS.
The thing is, the EU should already be broken. Last year Switzerland decided that it was going to void some of its obligations under the treaties signed with the EU. The EU is nothing but a collection of treaties, if countries can just abrogate their obligations while keeping the benefits, the EU is dead. Now, legally, all those treaties are considered void when any one of them is broken. Legally the EU can sanction Switzerland all the way up to causing food riots. But ultimately the EU is going to whine before accepting it. Likewise, the brilliant plan to unilaterally confiscate bank deposits in Cyprus announced to all European depositors that their savings weren't safe and the EU was willing to just take them when it felt like it, even if the national government refused to comply. Spain was declared to be fiscally irresponsible, despite the fact that they had a much lower debt level than Germany. Italy was declared to be fiscally irresponsible despite the fact that they were running a primary surplus and Germany was running a primary deficit. And the EU is apparently happy with 25% unemployment in the periphery forever. The EU is a democracies-only club, but when Fidesz took power in Hungary, rewrote the constitution to give themselves control for the foreseeable future, and retroactively declared the opposition to be guilty of high crimes...the EU didn't do squat. Any one of these absurd failures of basic statecraft should have been the end of the EU. Seriously, they've lost the Mandate of Heaven four or five times in the last five years.
So since we know that deposits in EU banks are not safe, that EU treaties can be voided whenever you feel like, that EU economic policy leads to ruin, and that ending democracy has no consequences, but the EU keeps going, my prediction is that it will last surprisingly long as a machine for turning minor problems into catastrophes.
Which is a fucking travesty because the actual policies of the last Weimar government were austerity and deflation! They did the exact thing to themselves in response to the Great Depression that they are pushing on the periphery in this depression. And guess what? 30% unemployment and a collapsing economy aren't real good for the reelection chances of incumbents. And if none of the respectable parties have any ideas on how to fix the problem, the voters will pick someone else.
Weimar recovered from the hyperinflation. The Nazis were a complete irrelevance that nobody cared about. But two years of Brüning's austerity gave them and the communists more than 50% of the seats, preventing the formation of any democratic government.
I fail to see how anyone in Greece is going to read it as not condemning the democratic process. That's why I think it's tone deaf.
Posted it before i was finished with my thought earlier, i agree with you. They want to condemn the Greek people (and clearly have been angling that way anyway) but can't bring themselves to say the words.
Ah, ok.
It would also be best for Greece. Being tied to Germany's economic strategy is killing them.
If you think Germany didn't clearly know they were lying right through their teeth, you're crazy
Seems fishy to me.
Not having enough political integration certainly ensured there were likely to be problems from the get go. Germany having absolute fear of inflation and prioritizing anti-inflation methods as the end all be all for monetary policy for the Euro Zone, while not giving a fuck about unemployment, ensured this was going to be a disaster.
It's hard to say whether this means Greece will be out of the EU, if they leave the Euro Zone. Sure that is the only "official" way to do so, but given some of the other stuff going on. Russia's increasing belligerence towards it's neighbors, China sitting on a ticking economic time bomb, the Middle East being a mess (well it's been a mess for the last century+) and various groups in a number of members agitating for leaving the union. I'd think, assuming that the influential powers are paying attention, that there might be a push to just exit Greece from the Euro Zone and keep it in the EU. Kicking Greece out would likely weaken the EU, making it more likely that others leave and make the whole thing more susceptible to other problems. Then again, I'd think if people could see that, we wouldn't even be in the position.
Honestly, I find the thing rather frustrating because Greece is a great example of why austerity is a fucking stupid idea for fixing certain economic problems and a bunch wealthy assholes continue to ignore that austerity failed in Greece and demand that we implement in in other places. Last I checked, human history has shown that things go south when we let the economic problems that Greece is experience fester and then agitate with with bullshit austerity, that seems to be aimed punishing everyone that is poor.
battletag: Millin#1360
Nice chart to figure out how honest a news source is.
Slightly off topic: It's nice to know that when geth kills us all, it'll at least implement sound economic policy for the wastelandempire it controls.
battletag: Millin#1360
Nice chart to figure out how honest a news source is.
The scheme in mind was Germany benefits, and Greece will take the fall. Eventually.
I don't think there were books to be cooked. It was all made up. My understanding is that everyone knew they were exaggerating to some degree, and accommodations were made on top of those exaggerations to come to a point where Greece could enter, but the scale of the lies told by Greece exceeded anything anyone could have imagined. It was so bad that the Greek government didn't even know what their actual economy looked like.
The people who let Greece in knowing that it was lying (note: Germany and France broke the rules, too) are the same people who are now blaming Greece. Likewise, the bankers who lent all that money to Greece, and bought up Spanish and Irish real estate as well all the worthless CDOs that Wall Street could concoct got bailed out by those guys (who are, in the end, the same class of European financial elites). Now they bleat about preventing moral hazard by sticking it to the Greeks, to which I quote the interfluidity piece that Xrdd linked earlier:
If Greece had not been "bailed out" in 2010, either the French and German (and Swiss) banks that actually got the money would have had to be bailed out directly (which would be very unpopular with the voters) or the wealthy bankers would have taken it in the shorts, which the wealthy bankers making the decisions did not want. That is why there can't be any consequences for stupid lending. The people making the decisions about where the consequences fall are the people who made the stupid loans. It was insane for the IMF to become a part of this. "What, Germany and France want me to break my own rules to help them protect their own banks from their stupidity? Okay, sure!"
Note that the Greek banks, who the ECB is destroying now, never got involved in any of this. They didn't get into real estate bubbles in foreign countries. They didn't buy up crap from Wall Street. And they only held a small fraction of Greek government debt. And to reward them for being cautious and sensible, the ECB is trying to destroy them to help bring down a democratically elected EU member government. By contrast, the EU has treated the end of democracy in Hungary as a minor issue to be ignored. They're not trying to break Fidesz. So, as an EU citizen, you know that if your democracy is destroyed, the EU will sit on its ass. But if you have the temerity to elect a heretical government that refuses to meekly follow their insane dictates, the EU will smash you down.