Greece 'far right' rejects austerity after 'socialists' capitulate!

[ag]

The two largest parliamentary parties are still in the government. Even after LAOS is gone (it has 16 MPs), and even after a few other defections (mostly from the PASOK), they need to loose another 80 MPs to fall. That's not the problem - the problem is, the whole discussion is entirely pointless.

[ag]

There are no villains here. The closest, probably, are those who designed the euro the way it got designed - but they were not villainous, they just miscalculated. It's not time to be talking about whose fault it is. One should try to figure out how to get out of it w/ fewest losses and least suffering.

[ag]

There are no villains here.

There is always a villain, and he's always easily identifiable - it is he who has the most.

Your Lordship is too self-critical.

[ag]

What reason would any Greek have to accept this system? They're being reduced to destitution for the sins of their rulers to appease a distant owning class. How does Greece benefit at all?

The alternative is an "uncontrolled" default, followed either by even deeper cuts to everything (well, your sallary might stay as it is, but the government will promise to pay it some time, perhaps, after you are dead), or reintroduction of the drachma - followed by rapid devaluation, which will have an effect of cutting everyone's real income and savings sharp (your pension is going to be there, and even paid, and enough to buy a couple of coffees a week, if you are lucky). Naturally, the Greeks are scared sh**tless at either prospect. If Europeans do not give money, though, there ARE no other options.

Now, I happen to suspect that reintroduction fo the drachma is the least bad of the bad options. But they don't have good options.

[ag]

I do feel a bit sick of the moralist talk of "punishing" the Greek populace. The real problem is that euro system has been built in a manner, in which such "punishment" is the only enforcement mechanism, its only defense against disintegration. This is not a desirable feature of the eurozone architecture, but, rather, its main flaw.

[ag]

Actually no, if they would just play the game of poker a bit more boldly the silly Germans might agree to print the debt away without this unhelpful austerity, since failing to do so would lead to a breakup of the Euro.

At that point, euro with Greece in it would likely be less attractive to the Germans than the Deutschemark. Also, if the Greek bluff is called, the pain would be far too asymmetric: what would be a hiccup for Germany, would be a disastrous bloodletting for the Greeks. And, of course, at that point the Germans (and not only the Germans) would feel only too justified in punishing the Greeks - if pushed, this might, actually, end in making EU too hot for Greece to stay in.

[ag]

the real 'Other' option would be to leave the EU, default and return to drachma, and exit world capitalism and join up in a trading partnership with ALBA.  if they did this though they'd probably get invaded or bombed by NATO.

It would be a lot worse that invaded or bombed by NATO )) Without any NATO invasion this would imply becoming permanently (i.e., very likely for the lifetime of pretty much all the Greeks currently alive) poorer than Turkey. It would also imply losing one of the few safety walves left: emigration to the wealthier European countries (if Greece leaves the EU, Greeks would need visas to travel and work). The proportion of the Greek population that would be substantially worse off than it is even now, at the height of a depression, would come close to 100%. Also, this would, probably, mean the end of Greek democracy for a long time: the country would go from a coup to a revolution for years to come.

[ag]

I do feel a bit sick of the moralist talk of "punishing" the Greek populace. The real problem is that euro system has been built in a manner, in which such "punishment" is the only enforcement mechanism, its only defense against disintegration. This is not a desirable feature of the eurozone architecture, but, rather, its main flaw.

Well, to be fair, for some people (not the ones getting hurt though of course) this outcome is considered one of the benefits.

And you know what I think of the morals of those people.

[ag]

You may be right that having the Greeks and others leave the Euro might not be a severe negative for the Germans, but on the other hand printing away the debt wouldn't be nearly as bad as they imagine either.

By itself, "printing euros to save Greece" right now wouldn't be too bad for Germany. The problem is, once this is allowed, the value of staying in the euro for Germany is negative: they will have all the incentives for going back to the Deutschemark.

[ag]

What now?  The whole benefit of the Euro for them is an 'unnaturally' devalued currency - printing loads of Euros will only increase this benefit.  Going back to the Deutschmark would kill their exports because they'd go back to having a fairly valued currency.

That's not how the German public and policymakers view it. Germany sacrificed its currency for the common project on the condition that this will be the new Deutschemark. They do not want inflation - and they are pretty competitive even outside the eurozone, despite euro being strong. In any case, printing euro to save Greece is, by itself, a major transfer from Germany to Greece. If Germany doesn't want to do this directly, which would mean financing the transfer with taxes (which it has no trouble collecting), why would it want to do it in this manner, financing it with segnorage?

Furthermore, if printing euros becomes a standard remedy for situations like the current one (and, in the absense of political mechanisms that might support fiscal transfers, it will very likely become so), the resultant common currency will start inflating fairly rapidly. Nobody in Germany would want to be a part of this.

[ag]

It's going to be not 2.5% inflation, but something much more serious. Unless the political mechanisms that could support fiscal transfers on a much greater scale are introduced (and there is a near zero chance of that short-term, unfortunately), short-term fixes like "printing money now" are only bringing forward the "end of the 60-year dream" - or, at least, the end of the Euro. It seems, the single currency is just to costly for pretty much everyone involved. The best way to avoid "the lost generation" is to face the music and to get Greece (and, I guess, may be not only the Greece) out of the project, at least temporarily. If, once again, the desire is that the project itself survives.

[ag]

Anything more than Greece and Portugal out of the Euro and you likely have a systemic collapse, depression, and lost generation.

Not true. Simply not true.

And if you believe it is true, then the only way out is forward: at the very least, give the European Parliament direct taxation authority over the eurozone member states. Create a powerful European government, politically responsible primarily to the European Parliament. Create pan-European political parties and run elections on European issues. Have the first-rate politicians go into European politics - national politics can survive w/ the young and the second-rate.  Otherwise, this is not going to be sustainable - every crisis will be ending up like this. This is merely the consequence of putting the cart before the horse and going blindly into the monetary integration before the political integration. As it is, the whole architecture is simply unsustainable. Even if it doesn't collapse now, it will eventually.

PS And, of course, if Germany gets out of the euro, euro won't survive long. Even if they keep the name, within years we will be reading in the newspapers about the exchange rate of the French euro against the Italian euro

[ag]

Anything more than Greece and Portugal out of the Euro and you likely have a systemic collapse, depression, and lost generation.

Not true. Simply not true.

Do you think the banking system of Spain or Italy can survive being kicked out of the euro? Or that, given the sure devaluation of the peseta and lira, the countries' external debts would not become unbearable?

Depends on how it is done. What seems increasingly obvious, though, is that Greek economy and Greek democracy might not be able to survive STAYING in the euro.

[ag]

What you call "expansionary policies", really, is debt repudiation through inflation. Unless they generate inflation they won't work - their point is to get out of the debts that cannot be paid, and if there is no inflation, the debts will still be impossible to pay. I agree that Greece has reached a point at which debts have to be effectively abandoned, and doing this through inflation is, probably, least painful. The problem is, Germany does not need to repudiate its debts - it does not need inflation, thank you very much.

The "expansionary policies" won't be adopted - and won't work, if they are adopted - because there is no political mechanism that would make them sustainable. What you call "expansionary policy" will really be a transfer from the North (primarily, though not exclusively, Germany) to the South. There is NO support for this politically - and for a reason. If you start printing money, within a few years you will chase the Germans (and not only the Germans) out of the euro. Once this happens, France will be the next one to go.

If there existed greater political integration, inflating Greece out of the debts would not be necessary: fiscal transfers would have done the trick more efficiently. However, the lack of political integration means that monetary policy won't be sustainable either here.

The main problem is that, once you start printing money to save one country, EVERY national government would be irresponsible towards its own populace, if it behaves fiscally responsibly. If you borrow to the hilt, you can force the ECB to inflate out of your debts - spreading the cost of your borrowing. If you don't, you still suffer from the inflation, forced by other member-states. And there is no pan-European political authority that can internalize what each and every member will be doing. The result will be that the "new euro" will become weaker than the weakest european currency would be on its own. Of course, you could have all member-states pass balanced-budget constitutional amendments (not very efficient, but, ok), to prevent that - but, I am afraid, even then the incentives to misbehave would be strong enough for these to be circumvented. Before long, cutting zeros off the euros will become a common thing to do. Except that, of course, long before it happens, many, if not all, countries simply reintroduce their own currencies.

[ag]

As for the free vacations for the Germans amid the Greek strikes... It would be a lot easier to import the Greeks to Germany to work as domestic help. And, in fact, keeping Greece in euro will do that admirably: since, as long as Greece stays in euro, there will be no jobs in Greece, traveling up north will be the main safety valve  - and will have the added advantage that those who travel won't strike.

The key problem, though, is, Germany is doing fine w/out a "stimulus" as it is. You don't, surely, suggest that Germans be paid in euros only expendable in Greece? You know, money's fungible.

[ag]

Has there been much emigration to Cyprus? That would seem to be a logical course of action.

I don't know. My Turkish friends have noted they started noticing Greeks working in Turkey )

[ag]

You have to work with what you have, not what you wish you had. You won't get a parliament which can raise taxes for decades into the future, and yes we have seen some expansion of the EU's power versus the states, but your suggestion is still too radical.

That was, actually, exactly my point.

BTW, what does US constitution have to do w/ it? I am not an American, in case you wonder ))

[ag]

That's a marvelous theory you have there - Europe turning into Zimbabwe- but rather fantastical, and frankly, incredible. It would never happen.

Of course it will never happen: long before it could, the French and Italian euros will have a floating exchange rate between them )

[ag]

The belief of the Germans (and apparently from above posts ag as well) in 'inflation' as a threat, in the middle of an enormous worldwide deflation is.. well.. I suppose faith is always just that.

Your Lordship must be living in a charmed world, in which prices have been dropping. I live in the real world, in which they are still growing.

[ag]

Of course there are many other things I disagree with - expansionary policies do not necessarily mean transfers (unless you mean transfers in both directions), and while they may lead to more inflation than the alternative, their essential character isn't inflation. The essential character is activity.

There won't be any activity, except for strike activity, in Greece if it stays in the euro for years and years to come. But the German economy will have all activity it needs even without the "expansionary policies".  Germany will suffer the inflation it does not need. Greece won't be helped, unless that inflation is high enough to allow it to get rid of the impossible to pay obligations. The countries need very different things, and there is no political space in which these needs can be reconciled.

[ag]

I concede Greece may to be too far gone to stay on the Euro. But anyway, the point isn't for Greece to have inflation so it can get rid of obligations. Greece is going to hard default, and get rid of its obligations like that. The point is to get the Greek economy going again. That's the only thing that will help Greece.

Expansionary euro monetary policy will do very little, if anything, for Greece. You can print euros till Kingdom comes - in the next few years very little will go to Greece. Greek government won't get access to financial markets for years - and few Greek businesses will. It will have to be Germany sending money to Greece. Private money (even Greek private money) will go where it is profitable to invest - to Germany, where it will cause inflation. To make any difference for Greece the thing will have to be beyond huge.

And, don't foget, that foreign debts are only part of the problem. You also have pensions - that, unless there is inflation, will have to be cut and wage contracts, that will still have to be cut. The need for "astureity" will still be there - and the strikes and riots will still be there. Not a great environemnt to invest.

[ag]

Anyway, you seem confused as to what inflation is. The price of one commodity rising/falling does not constitute inflation/deflation. It refers to the general price level, of which there are measures available.

Actually, he does have a point: in some countries (though not in all) housing costs (which are very difficult to measure accurately) are not included in usual inflation measures. I don't know, if he were aware of that, but this could, indeed, be an issue.

[ag]

Now that there are Mexican avatars, you don't have an excuse for not wearing one.

Right you are

[ag]

Obviously it is a personal attack since it is an attack on the character of his interlocutor rather than statement of an argument about the issue,

Believe me there was no attempt on my part to attack you character I would fess up, though, there was some irony involved. I am not sure, if it is against the rules - I would ask my fellow moderators (none of whom I know in person) to decide on that.

[ag]

Ironical attack is attack, ag.  Please stop abusing your position.

I notice, Your Lordship has a very Thai view of Lese Majeste

Once again, I am not moderating my own posts - if other moderators decide that I stepped over the line, I will take the consequences.

However, I'd like to note, that in this very thread I've been quite obviously and personally (and entirely seriously) critical of the morals of other posters, none of whom chose to object. If anything here was a personal attack (I myself do not believe it was a violation of any rules, but I could be wrong), it was this - and you were not subject to it.