Greece goes back into depression – having never left it

This Post Has 23 Comments

1. Why are Greeks so keen to stay in the Eurozone? Unemployment wasn’t too bad in Greece in the 20 years prior to their entering the Eurozone.

2. I am sorry, I meant to wish you a happy birthday last Saturday but I have been busy. So, a late happy birthday and let me say that I do appreciate what you are doing for the world.

3. Dear GLH (at 2015/03/09 at 19:10)

   Thanks very much. I appreciate your comment and wishes.

   best wishes
   bill

4. Let’s hope they don’t get the conduit like ” growth” which has been a characteristic of Ireland since EEC entry.
   Dijsselbloem has been videoed talking to a Greek student about debt and stuff recently.
   Presenting the model pupil again that is Irelande.

   The young fellow seemed naively perplexed by it all and overly polite to a piece of usurious scum.
   The fact that he was talking to a rep of typical orange based usury capitalism went completely over his little head.
   GDP growth in Europe orbits around the maximization of profits for the connected super companies at the expense of small and medium enterprises of a more local nature.
   The Florentine multinationals of the modern era are extracting all of the industrial surplus as can be witnessed by looking at the Irish conduit.
   Almost all of the increase in Irish sales was cars and consumerized women buying home furniture for their atomized akea lives.

5. Bill,

   You ask “The problem is that the Syriza leadership doesn’t even accept 1. and 2. so what hope is there?”

   The hope is that they’ll learn from their experience. Politically, it could have been too much to exit the Euro within weeks of winning an election on a pro-Euro platform. They need to take stock of the situation in the coming months.

   Their best tactic is to not resign from the EZ. It is to push the EU ruling class as far as they possibly can and see what happens. If the ECB set limits on on the amount of Euros which can be issued by the BoG , for example, the Greek government should see to it that the limit is exceeded! If they are given a deadline for payments. they should be late. What are the ECB going to do? Pull the plug? If and when they do that, it will be its decision. Not Syriza’s.

6. The key issue is that probably Germans and their supporters insist on imposing the same Prussian social order on the Greeks which is supposedly working charms for themselves.

   This itself is not true – but I think that people like Merkel and Schauble genuinely believe that austerity is the only way. It is a conflict of cultures. The Greeks would like to salvage the membership in the EU by transforming the rules but for the Germans the EU can only exist with the current monetary and fiscal framework. They are as stiff as the Germans can be because for Merkel economics is a branch of “objective” knowledge similar to physics or chemistry and someone explained to her that printing money leads to hyperinflation as in Weimar republic, Amen.

   She is defending not only moral rules coming from Luther – as a daughter of a pastor (repent, the debt must be paid back or die you lazy thief and bastard and rot in hell with the Teufel) but also The Immutable Scientific Truth – as a PhD. There is no way you can convince people like this to anything. They have no doubts. I am debating my old ex-Polish (currently German) friend and he behaves in exactly the same way so he is a good model.

   I think that in the end if the Greek government does not actively collaborate with the Troika in imposing the new Teutonic social order – the bankruptcy and ejection from the Eurozone is inevitable. They will simply run out of money – either the banks or the Treasury. But if they collaborate – nothing will change for the better in Greece for years or even decades (what is the main point of the blog). Varoufakis will be a Samaras with a human face. But this is not the end of the story.

   According to The Telegraph the right wing Greek defence minister has pulled the ace card from his sleeve.
   “If they deal a blow to Greece, then they should know the the migrants will get papers to go to Berlin,” he said.
   “If Europe leaves us in the crisis, we will flood it with migrants, and it will be even worse for Berlin if in that wave of millions of economic migrants there will be some jihadists of the Islamic State too.”

   At least he is trying to negotiate, not just surrender at the beginning of the process by accepting the mental framework of being a beggar asking the overlord for mercy and forgiveness – and the “objective” fiscal modelling framework with the loanable funds theory attached.

   I am afraid the language spoken by Kammenos is the only language the German intellectual elites may understand to abandon implementing yet another crazy project. Last time it was the noise of Soviet tank engines roaring through the Brandenburg Gate. Let’s hope this time the experiment will not lead to innocent people being killed.

7. «one where various “non-professional” sleuths (“inspectors”) on a casual, never-to-be-rehired basis who will pose as “customers, on behalf of the tax authorities, while ‘wired’ for sound and video” to create an environment of fear among VAT tax dodgers.»

   Syriza know very well that they were not elected to be the first greek government to make affluent greeks, or any greek voters, pay more taxes. That is political poison.

   If they wanted they could switch to, or at least create also, a serious land-value tax scheme… Or other tax schemes based on what is difficult-to-hide.

   «how catastrophic the situation is in Greece»

   Greece has a large number of immigrants from other countries, both within and outside the EU. As to the EU, not coincidentally Greece after years of crisis still has higher GDP per capita than 7 (25%) other EU countries (“EL” is the symbol for Greece in the following):

   http://ec.europa.eu/eurostat/statistics-explained/index.php/GDP_per_capita,_consumption_per_capita_and_price_level_indices

   That does not indicate a “catastrophic” situation, but rather that greek voters feel entitled to the standards of living of Slovenia rather than Hungary…

   «Their best tactic is to not resign from the EZ. It is to push the EU ruling class as far as they possibly can and see what happens.»

   The difficulty with that is that Syriza were elected on an explicit platform of “end to austerity”, which greek voters straightforwardly intend to mean higher consumption, and that means a higher trade deficit. But someone has to finance that higher consumption, and the greek state has run out of money. Yannis Varoufakis made it clear what the situation is in his blog 2-3 years ago:

   http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/
   «In sharp contrast, idle productive resources in Greece cannot produce much for which there is increasing demand.»

   and rather more recently:

   http://www.bloomberg.com/news/articles/2015-03-08/greek-tensions-revived-as-creditors-reject-reform-list
   «”I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis told Italy’s Il Corriere della Sera in an interview Sunday. “For the rest we will see.”»

8. «greek voters feel entitled to the standards of living of Slovenia rather than Hungary…»
   «”end to austerity”, which greek voters straightforwardly intend to mean higher consumption»

   I’ll explain these and how they are related in some way.

   One crucial fact of “austerity” is that in two critical ways it has *succeeded*: the greek government primary deficit has disappeared, and the greek trade deficit has also disappeared.

   That is Greece are actually “living within their means” even if this means a depression, and yet a GDP per capita higher than 7 other EU members.

   The greek problem is that “living within their means” in the sense above (government budget primary balance, trade balance) implies a standard of much reduced standard of living for greek voters compared to the recent past where the trade deficit and the government deficit were financed by eager “core country” bank loans, a standard of living rather more similar to that of the poor hungarians than of the middle class slovenians, even if still much higher than that of bulgarians and romanians.

   The greek problem is how to go back to consuming like slovenians while maintaining a government budget primary balance and a trade account in balance, that is without external financing.

   As Keynes sort of said usually if a government fixes unemployment that also balances the budget, the major problem in the greek situation is the trade balance, as Varoufakis wrote in his post in 2012. if they don’t solve that problem the greeks will have to adapt to permanently reduced imports of oil, food, medicines, durable goods, and make do with less of everything like the hungarians (and the romanians and bulgarians) already do.

   But that is not Syriza’s political platform, so they are a bit in a difficult position.

9. Petermartin – That is something like tactics that Varoufakis has sometimes outlined and may be following.

   Adam K: The problem is not really that your friend, Merkel etc believe in immutable scientific truths – good for them – but that what they believe makes no sense. and. is. not. true. As German philosophers & economists once led in understanding.

   Debts should be paid – OK. But what if the creditor systematically prevents debt repayment? – Which is what the Euro does. Germany, the leading debt-defaulter of the 20th century should understand this in particular. Post WWI – indebted to not-so-nice, illogical creditors behaving like Germany & the Eurocracy today. Post WWII- indebted to nicer, more logical creditors. Which worked out better for all concerned, which should be emulated?

   On Bill’s question:The problem is that the Syriza leadership doesn’t even accept 1. and 2. so what hope is there?
   What the Syriza leadership really believes, which way they will finally jump, is not 100% clear. But look at this poll: Table 4
   If you were given the choice, would you prefer to have the Euro or your own national currency?
   32% of Greeks say Euro, 52% say national currency.

10. «internal devaluation measures – cutting wages, pensions etc has only engineered a damaging deflationary spiral with entrenched depression»

    Not just “engineered a damaging deflationary spiral”, but also balanced the government primary budget and the trade account, that counts for a big victory for “austerians”.

    «and has done little to improve export competitiveness.»

    But Varoufakis himself in comparing Greece with Argentina has made it very clear that there is not even sufficient demand for greek exports, so export growth cannot be used to pay for higher imports or for higher employment.

    The choices before Greece are:

    * Higher consumption and imports financed by more borrowing,
    if they can find a lender willing to finance in effect
    Syriza’s re-election budget.
    * Making do with permanently lower consumption and imports,
    within the EU or outside the EU in a regime of autarky.
    * Shifting a lot of consumption from affluent greeks with
    lots of euros in freezers and in Swiss banks to poorer
    greeks with little cash, by raising the fiscal pressure,
    which is political suicide even if selective.

    The latter point as hinted at by Varoufakis 3 years ago:

    yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/
    «the ongoing crises has led Greek savers to withdraw oodles of their savings from Greek banks and either shift them offshore (London, Geneva, Frankfurt) or stuff them in their mattresses, or hide them in their freezers (in ‘bricks’ of 500 notes).»

11. Blissex:
    Warren Mosler’s response to Varoufakis’s confused comments on Weisbrot in your link: Mosler trolling Varoufakis with damn good arguments

    Mosler, Weisbrot & Krugman are right and logical. It is Varoufakis who is “profoundly wrong.”

12. “If nothing happens in the United States, if nothing new is created to challenge systemic excesses and empire, it will be a bad situation for all of us. One is doomed if nothing happens in the U.S.” – Tariq Ali.

    I think we can interpret this as “No revolution in the USA = No revolution anywhere.”

    This proposition flows from the USA’s hegemonic power over the entire globe excepting the Russian landmass, the Chinese landmass and some near satellites like Nth. Korea and East Ukraine.

    And what are the chances of revolutionary change in the USA? I would say vanishingly small. Maybe in 50 years time, when limits to growth and climate change have largely wrecked the world economy, the (remaining) people might rise up.

13. SYRIZA was voted into power by people in fear of penniless starvation from cut wages, pensions lost and a nil basic tax allowance with multiple taxation on the cashless.

    Austerity kills. It is as simple and stark as that.

    If the Eurogroup insists on this threat to life of Greeks, then either the communists or the fascists will overthrow government.

    At no time in history has an elite survived when the people are left to starve.

    The Eurogroup are starving people everywhere, from Spain to the Ukraine.

    Austerity in a recession breaks the age old bond between the elite and the people, of the wealthy feeding the people in lean times.

    From all the most ancient civilisations around the globe, far back into the mists of time.

    This is not a political economics thesis. This is the lives of babes in wombs of new mothers, families and their kids and the elderly. Why should they meekily go quietly into the night, just for the few to live a life of wealth and privilege.

    No.

    The Germans are acting too much like their forebears to much of Europe and causing the same fatal result.

    The Eurgroup should ignore Germany altogether and take it out of the leadership of Europe.

    Not for nothing did we have two world wars not to be ruled by German politicians.

    We now know why.

14. Ikonoclast – You state that the USA has hegemonic power globally then contradict yourself with an abbreviated list of exceptions which represent at least half the global landmass,including Antarctica. The USA has never had hegemonic power and never will.

    “What are the chances for revolutionary change in the USA?”
    You wouldn’t know and neither would anybody else.

    Just remember – There are only 2 certainties in this universe. One is the certainty of uncertainty.
    The other is death.

15. «SYRIZA was voted into power by people in fear of penniless starvation from cut wages, pensions lost and a nil basic tax allowance with multiple taxation on the cashless.»

    GDP per capita in Greece is higher, even much higher, than that of 7 other EU countries, never mind non-EU countries.

    If greeks are realistically “in fear of penniless starvation”, what about the bulgarians who are emigrating to Greece in large numbers in the past few years?

16. “GDP per capita in Greece is higher, even much higher, than that of 7 other EU countries, never mind non-EU countries.”

    And the distribution of that GDP in reality is what?

    GDP is a convenient fiction. It doesn’t necessarily relate to anything real or mean that Greeks are living well.

    The real evidence I’ve seen is that some Greeks are doing very well and most are not.

17. @Blissex
    “””The greek problem is that “living within their means””””
    “””Greece after years of crisis still has higher GDP per capita than 7 (25%) other EU countries (“EL” is the symbol for Greece in the following)”””
    “””That does not indicate a “catastrophic” situation, but rather that greek voters feel entitled to the standards of living of Slovenia rather than Hungary.”””

    Im interested… How does one associate downgrading aspirational consumption to entrentched hard constraints of insolvency?
    Using this logic perhaps private sector debt/debt constraints can be underwritten to the level of Hungary too perhaps:

    Private sector debt ratio.
    Greece: 122.6%
    Albania: 37.6%
    Bosnia: 62%
    Serbia: 37%
    Hungary: 50.8%

    Starting to notice a pattern that invalidates said logic used. Yes you can rank Greece per capita gdp all you like and say they are living beyond their means but thats ignoring aggregate ‘debt’ which (ask an irishman with a home loan) did not get downgraded post GFC .

18. Put another way some of the commenters ago seem to be arguing that a lot of money should be spent by the richer EU members to cancel the debts owed by Greece where average GDP per capita is 77% of the EU average, and not one euro should be spent to relieve poverty in Bulgaria where GDP per capita is 50% of the EU average.

    The reasoning seems to be that the greeks are entitled to go back to the higher standard of living they got so well used to and then lost when the borrowing stopped, but the bulgarians have always been very poor, so for them remaining poor is not as painful as for the greeks to become poorer than they used to be, even if they still are not as poor as the bulgarians… 🙂

19. Blissex,

    Poverty is a relative concept. The necessary level of income for an individual to effectively function in Australia or the USA is much higher than in many other countries. Greece isn’t a cheap country either.

    You can probably be in the top 10% of world incomes and still find yourself unable to afford the rents and so end up homeless, in London or New York for example.

    So the poverty in Greece cannot be solely judged on the 77% figure you quoted. It depends on how that wealth is distributed.

20. «The necessary level of income for an individual to effectively function in Australia or the USA is much higher than in many other countries. Greece isn’t a cheap country either.»
    «the poverty in Greece cannot be solely judged on the 77% figure you quoted. It depends on how that wealth is distributed.»

    That to me seems just futile handwaving, and rather ill-informed too, becuase the link I gave earlier contains PPP GDP per capita figures, and others are easily available, for example here:

    http://ec.europa.eu/eurostat/statistics-explained/index.php/GDP_at_regional_level
    http://ec.europa.eu/eurostat/statistics-explained/images/f/f3/Primary_income_of_private_households%2C_in_purchasing_power_consumption_standard_%28PPCS%29%2C_by_NUTS_2_regions%2C_2011_%281%29_%28PPCS_per_inhabitant%29_RYB14.png

    and it is damn easy to be informed as to the Gini coefficients of various countries, for example here:

    en.wikipedia.org/wiki/List_of_countries_by_income_equality
    ec.europa.eu/eurostat/tgm/table.do?tab=table&language=en&pcode=tessi190
    “Gini coefficient of equivalised disposable income”

    For Greece and Bulgaria it is the same and that of Hungary is quite similar.

    Also the ratio between the income of the top and bottom decile is 7 or 9 in Bulgaria, 10 in Greece and around 5.5 in Hungary; sure Greece is a bit more unequa, but the poor people of Bulgaria (or Hungary) are in a much worse situation than in Greece, and indeed there are between 1-2 million immigrants in Greece, many of them from Bulgaria and other nearby poor countries, because even in a deep depression standards of living in Greece are still better.

    This table here shows that Greece’s conditions has worsened a lot, but is still not as bad as much poorer countries:

    ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=t2020_50&language=en

    Sure the greek state is out of money and probably not paying welfare to the poorest, but the greek story is one of becoming poorer, not of being as poor as Hungary or Bulgaria.

    That explains a lot why the governments of the countries in the EU that are doing worse than Greece are among the most determinedly opposed to using EU funds to subsidize Greece.

21. Blissex, IMO the problem is the unemployment. It is such a waste at over 25% and not taking into account participation rate or underemployment. But yes Greece will have to take a cut in standard of living, ideally via exiting the euro (“Grexit”) or via austerity. But after this living standard will rise with productivity if the right policies are put in place.
    And LVT is excellent for property redistribution and demand for the new drachmas.

22. “That explains a lot why the governments of the countries in the EU that are doing worse than Greece are among the most determinedly opposed to using EU funds to subsidize Greece.”
    This is why the ECB needs to step in and use OMF.

23. i completely agree with your article. too bad for our beautiful country to no be able to import and export products and in more general terms to flourish. thank you