Friday, February 17, 2012

Understanding the Human side of the Greek "Crisis"



There were some recent articles that can give an insight to the social uproar in Greece. Both focus on the German view of numbers being more important than humans, a major societal difference between the Germans and the "Mediterraneans".

Take the time to read these three. They are enlightening, and not one is written by a Greek!:

1. Germany must decide what the European Union is for

2. Germany Vs. the Rest Of Europe

3. The dark side of Germany's jobs miracle


Germany touts its "low unemployment", and has demanded that Greece, as one step towards recovery, follow the "German model" of lower wages (Germany has no "minimum wage") to "spur competitive productivity". However, German labor policy has created an expanding underclass of working poor. By abolishing the minimum wage and creating new categories of part time employment to "cook the unemployment books", Germany conducts a program of what amounts to massive government subsidy of private enterprise. German employers can pay paupers' wages to be competitive on the world stage, and the government pays "benefits to the poor" to these very workers to make low wages possible. In short, the "welfare" benefits are not a result of serious low wages or unemployment, they promote and support, by policy, low wages. The resulting "competitively" priced goods offered for domestic consumption and, more significantly, export provide the tax revenues to pay the welfare benefits intended to keep the price of these goods "competitive". Since this is technically a "social program", not direct government subsidies to industry, it does not trigger any WTO complaints.

As noted in article 3, the number of so-called "working poor" has grown faster in Germany than in the currency bloc as a whole over the past 10 years or so. This number has grown to the point that while PM Merkel and her Finance Minister are promoting the "German model" for the weaker economies in the EU, they are considering altering German labor law to address the growing population of working poor dependent upon the state for survival, as it is becoming a political (not just economic) liability.

As Andy, in his astute sense of the dangers of "entitlement programs" would note, allowing a totally unregulated labor policy to exist, supported by government payments to the worker, cannot go on indefinitely. A significant portion of Germany's "expanding economy" is a direct result of Berlin using tax dollars to make low wages possible, and since there are no limits on German employers establishing low wage jobs, there are no limits on the social program benefits this will entail. And, as the past 5 years or so have shown, German employers have jumped on the poor pay bandwagon with gusto. But man, it looks good on paper, if you simply look at "unemployment levels" and ignore welfare levels. Also note that there appears to be no escape from the rolls of "working underclass" once one enters that category of worker. Where in the US, we claim to have had a goal of reducing "working poverty", the German system has made it a integral and significant part of their business model.

Back to Greece. Berlin has demanded, as part of the bailout, that Greece dramatically lower minimum wages to spur "competitive pricing", as has been done in Germany. However, at the same time, they are demanding dramatically reduced government spending, particularly on social programs. Greeks are not stupid. If wages are reduced, a la the German model, but not supplemented by social services and payments, a la the German model, human misery will result. And you can't increase, no less maintain, social services and payments with an ever decreasing government budget. Greeks are well aware of the large numbers of German youth seeking summer employment in tourism here, as they can't earn that much at home, where the "employment miracle" is touted.

Couple the simple math of the German demands with some of the ill advised statements of the German Finance Minister, Wolfgang Schäuble, and Greek citizens are up in arms. Schäuble has made statements assuring Portugal, for example, of "flexibility" in their bailout, while demanding rigid adherence from Greece, as well as saying that "protecting banks" was the first priority. His aparent indifference to human suffering has rankled folks here, who know that his "German model of recovery" is pure hogwash. While other German officials have, over the past two years, have made ill advised and demeaning statements, Schäuble has become the lead and continuously visible proponent of a perceived "German superiority" stance. Anyone who has read a bit of history can guess how Greeks, amongst others, might react to any message of "German superiority". One neighbor, who has spoken quite rationally about the current mess, noted that Schäuble speaks more generously and forgivingly towards Ireland, Italy, Spain and Portugal, all of whom face larger debt burdens that pose a greater threat to the EU, but were "either an ally or neutral sympathizer to the Nazis, not an opponent, as was Greece". While I neither agree nor support such a perception, I can understand it. Emotions are running high.

(I would note, parenthetically, that early on in this mess, one German government minister suggested publicly that Greece cede sovereignty of several Greek islands that were popular German holiday destinations to pay off some debt, since "Those Greeks don't make any good use of them for any other purposes anyway". Not an endearing comment by any stretch.)

There is no question that Greece has brought her debt problems on herself. There is also no question that the plodding response by the EU, no less the demand for a phoney application of a "German model" to the current "crisis", has contributed to the worsening of the situation.



No way in hell am I excusing the rioting in Athens. However, there is also no way in hell the "German model" of recovery, as demanded by Berlin, can result in anything other than long term suffering. The "German employment miracle" is based, in no small measure, on smoke and mirrors, and any close look will find that to be the case. Trying to tackle a situation such as the current Greek governmental debt crisis cannot be done without addressing the human side of the society. Otherwise, the solution to the Greek debt problem could easily bee seen by the Greeks as "The Final Solution to the Greek Problem". As noted in the articles above, some editorial cartoonists are already beginning to depict it that way.

So, for those of you getting the "snippets" in the US news, that's a bit more for you to digest. Does this have significance outside Europe? Most definitely.

57 comments:

  1. Interesting post Al! Makes one wonder how clairvoyant the Brits and Danes were when they declined to adopt the Euro and keep their Pounds and Kronen. What will happen if nations start opting out of the Euro?

    I am sympathetic for the Greeks. However I also have to ask: 'how much of the current crisis is due to tax-dodging'? Which also impacts us here (tax-dodging I mean, we have made an art of it). Are we headed down the same road?

    Was amused to learn that the Merkel pic in your post was published in what the Financial Times reports is a right wing paper.

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  2. Mike-

    Tax avoidance (legal) and tax evasion (not legal) were major sports here. The two major parties ran on platforms for tax loophole offers and/or low enforcement for decades. There is currently a "name and shame" crackdown on evaders where the Tax Office is providing the names and amounts of major evaders to the public. A couple of tens of billions in back taxes are involved from some 4,500 people. The tax office also is notifying the media of the dates and times of scheduled arrests, so the "perp walk" can be covered. Of course, it's going to take time to process the cases and collect what can be collected. At present, there are some 100,000+ cases on the docket. The govt is making this very high profile so that the average Joe, who's taxes have been increased, sees that the "rich and famous" are being chased for taxes they owe.

    The debt burden was a result of low tax collection and profligate spending, all in attempts to pander to voters. And, of course, Goldman Sachs showed the previous government to hide debt from the books - for a while.

    If anything, the behavior of the Germans has provided a bit of a "binding element" in the national discourse, and thus "left" and "right" are reacting as the cartoons and photos depict.

    Keep in mind that none of the EU countries are in really good shape when it comes to debt load. The UK is at 81% of GDP, and Germany is at 82% of GDP, making them numbers 10 and 9 respectively in debt:GDP ratio among the developed nations. The UK benefits from having an independent central bank and the ability to print and/or devalue their own money, which is a "plus" in the credit market. Germany is buoyed up by the size of their economy as well as their low "official" unemployment rate, which, as I wrote, is more a product of their wage and labor laws than actual "living wage employment" figures.

    The Greek situation is the major attention getter in the EU because:

    1. We were the first to face a possible default, as major bond issuances were coming due.

    2. The remaining Eurozone countries were concerned that a Greek default would trigger a "domino effect" that would make it impossible for Ireland, Portugal, Italy and Spain to refinance their debt.

    The situation has been further aggravated by the "austerity measures" (reduced government spending, wages, pensions, etc) imposed along the way in the never ending saga of the incremental bailout process, as they have caused the Greek economy to contract, making the debt level an increasing % of GDP, while remaining relatively constant in Euros. Finance Minister Schäuble managed to add fuel to the anti-German fires by making snarky comments to the press to the effect of, "We Germans have pitched in to help, and what do those lazy Greeks do? Allow their economy to contract!" The Greek President finally had a belly full of Schäuble's snark and spoke out loudly about it the other day. A rather surprising action, as the Greek President's role is mainly non-political and ceremonial, much like the English Monarch.

    Is the US headed down the same road? Well, since the US has it's own central bank, is fiscally accountable to no outside body and can print money, not in the manner in which Greece is being battered. Further, most of the US debt is owned domestically. HOWEVER, unlike Greece, which has relatively low levels of household and consumer debt, US household and consumer debt (97% of GDP) is larger than the federal debt (67% of GDP), and the US economy is reliant on ever increasing consumer debt to grow, as wages are stagnant. It's not a matter of whether federal debt is sustainable, as federal debt can be addressed by devaluation, etc. Is our consumer debt sustainable? In short, in Greece, it's a governmental debt crisis. In the US, it's an overall public and private debt timebomb.

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  3. P.S. Those are 2009 debt to GDP figures.

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  4. P.P.S I forgot to quantify Greek household debt, which is about 50% of GDP, or a bit more than half the US rate.

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  5. One thing that I think does become a factor in all these cases is the degree that the various societies and governments involved want to see, be seen, and accept becoming open oligarchies, with some sort of crony/capitalist/corporatist arrangement at the top and the common herd at the bottom.

    I honestly don't know how far that particular setup will be allowed, or encouraged, to proceed, but it's the logical consequence of "austerity".

    ISTM that we're looking at a fork in the road for the Western democracies. From 1945 to roughly the mid-Eighties we've had a relatively broad-based sort of popular society that depended on a combination of relatively restrained corporate profit, a relatively liberal social "safety net", and a relatively narrow range of incomes. Since then we've let the bottom drop out of wages, "financialized" commerce, and encouraged businesses to profit without concerning ourselves how much or even whether any of that profit went to the working stiffs. The result is fairly expectable, and has occurred pretty much as expected.

    Greece may be the canary in the coal mine, but the other birds are looking pretty sickly, IMO.

    The sad part of all this is that a lot of the folks driving this bus see this as a return to the "free market" and "fiscal sanity", forgetting that most of the social leavening measures were originally enacted because as Western societies became more industrialized they realized that a large, unruly underclass was becoming a serious problem - the communist and fascist revolutions in the Teens, Twenties, and Thirties drove that point home in a big way.

    At the risk of being Cassandra (and you know what happened to her...) I'd opine that we CAN keep going the way we're heading. But if we do, look to see a re-emergence of the Mussolinis, Hitlers, Lenins, and Stalins. They didn't arise in a vacuum, and we're regrowing the petri dish that cultured them.

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  6. Al,

    Very interesting post, thanks! This answers a question I've had for some time about income inequality. A little over a year ago, I did a post at my neglected blog on income inequality among OECD nations and specifically compared before-tax and transfer inequality with after-tax. And what surprised me is (charts are at the link), that Germany actually has more income inequality than the US, but that is masked because of Germany's more progressive taxes and larger social safety net. So your post really explains the fundamental reasons behind the numbers.

    As far as Greece goes, it seems to me this a problem without a solution. Even with Greece's austerity efforts they are still running a primary deficit. I can't exactly blame people for being reluctant to lend to Greece in such circumstances, not that I have any sympathy for Germany who made their own bed, continue to engage in mercantilist policies and who were willing to overlook the likely problems of a single currency because they were so focused on the "shiny precious" of reserve currency to compete with the dollar. I have no idea what the best course is at this point, but I've long thought that Greek departure from the Euro is inevitable and so far I think that's what will eventually happen.

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  7. The other thing that Germany doesn't like to discuss is how much of it's "fiscal soundness" depends on its running a trade surplus. It's a little hard to be sympathetic to the German magnates who are sneering at the Greeks for not "being more like us" while wondering, gee, guys, are you volunteering to take on a trade deficit to buy Greek products so they can be "more like you"?

    I will just echo Andy here and agree that I don't see how this ends well. Even the prospect of dropping out of the euro carries some troubling baggage for that now-looking-increasingly-poorly-thought-out project; assuming that Greece opts out, why shouldn't the other southern tier nations? Italy, Spain and Portugal would all benefit by being able to devalue their national currencies relative to the northern European nations?

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  8. One thing that might be a factor here, too; assuming that this crisis both 1) causes Greece to drop out of the Euro group, and 2) brings a hard-line right- or left-wing party into power in Athens...my take is that one thing that the combination of NATO/EU influence has managed to put on the back-burner is Greek friction with Turkey. With an angry, newly-poorer Greece at odds with the rest of Europe, and a nationalist fuck-you-assholes government in charge looking for some bread-and-circuses to distract the masses...would renewed military posturing against Turkey be off the table? Would it be a playable card for a Greek government looking for a symbol to both piss off the EU and get the Greek people to fall in behind it?

    I honestly don't know - what would be your take, Al?

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  9. Andy-

    Yes, Germany not only has seen increasing income disparity, but increasing household debt, both indicators of a segmenting society. They are simply doing it via a slightly different policy set than the US.

    How kind of you to call it "a social safety net". It was clearly designed to allow businesses to underpay and under-employ increasing numbers of people. We are not talking about a system to accommodate economic downturns or unfortunate circumstances. The objective was to create a permanent secondary labor market via proxy subsidies to business that would be a permanent part of "growing" the economy. It was never intended nor structured to get the unemployed and/or unskilled receiving public assistance to get government subsidized employment to successfully enter the labor market to achieve self-sufficiency. It is intended to keep the private sector's labor costs down through welfare payments to horribly low wage and part time workers, while claiming lower unemployment rates as more and more of the work force is converted to being "working poor", and permanently so. The wage and hours depressions are not just affecting house cleaners, but white and blue collar workers as well. It's not just the uneducated who are forced into part time work by the policy objectives of the German government. The "safety net" has simply kept the water temperature below boiling for now as a culture of dependency grows in the work force.

    Further, while the withholding of overtime pay for later payment during periods of furlough sounds warm, fuzzy and paternalistic, who do you thing is drawing the investment income on, and benefit from those retained wages? In the aggregate, we're talking about millions in held back overtime wages accruing benefit to the businesses, and the businesses alone.

    As to a Greek exit from the Euro, while some pundits say this is the "preferred course" from a fiscal standpoint, it would be a human tragedy. But then, it's bean counters that rule the Western world. If Spain, Portugal, Italy and/or Ireland were to also withdraw, Germany would be awash in defaulted paper from those states, especially Italy. The issue is Germany's unwillingness to live up to the "for better or for worse" aspects of a union they wanted in the first place. If Germany can shuck it's responsibilities to a single Eurozone state without fear of more to follow, you can bet your sweet ass they will. The strain showing in the behavior of the German leadership is that if they toss off Greece, the road for Italy, for example, becomes open to voluntarily default and exit, and Italy's debts are in the TRILLIONS, not hundreds of billions.

    Think about this - Greece has been accepting pain to remain in the Eurozone. Germany wants no inconvenience to do the same.

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  10. The first part of the article makes no sense economically.
    Germany has a trade balance surplus, an indicator of above-average competitiveness.
    It's simply impossible to subsidise the economy with welfare programs for workers because
    a) much of those transfers go to unemployed people
    b) the transfers have an origin, after all

    The German export economy is being driven by engineers and other highly-paid employees. The low wage sector is (tragically) the domestic services sector which is not in competition with foreign companies.

    Low German unemployment (dropped by one million since 2007!) is a consequence of demographic changes more than anything else. Most European countries have not the same development of unemployment despite having similar demographic developments, of course.
    -------------------
    A lasting trade balance deficit indicates that a country lives beyond its means. That's OK temporarily, not OK in the long term.

    The Greek weren't able to sustain their style and they're not able to sustain it now, even if their public debt disappeared overnight.
    They would need flexible exchange rates, and those would force them to change their style.


    The pressure right now is pressure from those who are being asked for charity. It's an imperfect substitute for the natural exchange rate pressure.

    It is absolutely crazy that any Greek thinks he's entitled to German support. Greece signed and ratified treaties which clearly state the opposite.

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  11. "Germany has a trade balance surplus, an indicator of above-average competitiveness"

    Krugman: "Those “chronic” large deficits are actually a relatively recent development; they emerged only after the false reassurance created by the euro caused huge flows from Germany to the periphery."

    I suspect that other factors in Germany's "above-average competitiveness" may also include both the de facto government support given to German firms to cramdown wages, and the effect of Eurozone in ending protective tariffs designed to prevent just such cramdowns from making foreign goods cheap.

    No argument that the Greek government brought this on themselves, and the Greek people helped them. But there's no "good guy" here. And insisting that the Greek people be the "bad guy" is a perfect way to ensure that they respond as people always will when you punish them without the coercive power to make it stick; with resentment and hate rather than contrition.

    ISTM that the powers that be in Germany have forgotten the last time they were kicked when they were down. 1919 was less than one hundred years ago. Is collective memory that short?

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  12. So how can Germany's industry be especially competitive thanks to social transfers that relieve it off wage pressure if its employees and companies pay more into said social transfer system than they get out of it?
    Try logic, please!

    The German trade balance surplus is NOT a recent development. It began during the early (yes, EARLY!) 50's in West Germany (East Germany had a real surplus as well, but trade in COMECON wasn't fair). The surplus was somewhat moderate for a long time and turned into a deficit during the 90's, but it was never in a deficit if you look at West Germany only. The 90's deficits were all about the costs of pushing East Germany up.
    West Germany had a structural trade balance surplus all the time, and that's 4/5th of Germany, after all.

    The only thing that's really 'recent' is the size of the surplus, and that's a consequence of the undervalued (for us) Euro currency.

    Now ask yourself; why is it undervalued for us and overvalued for the Greeks? Because Germany is structurally more fit, with a large and high-tech industrial base with lots of world market-capable manufacturing products. After all, we went up and they went down with the very same currency.

    So yes, they did a lot wrong; living on credit, for example. Our politicians were too stupid or indecisive to treat the surplus as a problem (common misconception is that it's something to be proud of, and industrial lobby likes this view) - disappointing, but understandable.
    Meanwhile, the Greek politicians did absolutely nothing about totally out-of-control trade balance deficits and lied grossly to the whole of Europe, repeatedly. They violated treaties (much more than we did), lied to us, lived in substantial part off credit and now they expect us to help pay their bills to us. Crazy.

    I thought they were bound to go down years ago, and I still think they're going bankrupt and their stupid lenders are deserving their losses.

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  13. Clarification:
    "never in a deficit if you look at West Germany only"
    was supposed to be about the 90's.

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  14. a) low unemployment
    b) Significant trade surplus

    Fram a bean counter standpoint, sounds good.

    From a human or social standpoint:


    From Article 3: a) One out of five jobs is a now a «mini-job,» earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.

    Translated: For 20% of the workforce (as well as another 5% that are unemployed) there is dependency on government payments. A "working poor" class is growing and being institutionalized.


    b) Depressed wages and job insecurity (in Germany) have also kept a lid on domestic demand, the Achilles heel of the export-dependent German economy, much to the exasperation of its neighbors.

    "Import demand is low, even though Germany is one of the top performers in the euro area and could contribute more to a stronger performance of its partner countries,» said Ekkehard Ernst of the International Labour Organization (ILO).


    Translation: A portion of the positive trade balance can be attributed directly to very low domestic earnings.

    However, after all is said and done, Sven, is the EU a "union" of states, or a collection of competing states? Whether or not it was a "Marriage made in heaven" is irrelevant.

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  15. To reiterate, in succinct terms, one of the more glaring thorns in the side of the Greek people is the German demand is for significantly reduced wages, along with a reduced "safety net". That is not what Germany did to spur "competitive" pricing for their goods. They dramatically reduced wages, but retained a robust "safety net".

    A second thorn has been more blame throwing than offering workable solutions, and much of that blame throwing has become "ethnic" as of late.

    A third thorn has been the the constant delays in bringing a long term solution to the table. 18 or months ago, a Belgian member of the EU's Parliament railed at Mrs Merkel for stalling until some provincial elections were held: "How dare you stall the process of addressing a viable solution to try to minimize your losses in local elections. You are costing Greece and the rest of the member states millions in the name of parochial politics." Review the stalling and stumbling over the past two years. It has only served to exacerbate the problems.

    It's no longer a matter of who is to blame in the Eurozone mess. All the Eurozone nations carry a part of the blame, be it due to actions or inaction. Nations with manageable debt looked the other way while 5 other nations ran up excess debt. Those nations who chose to look the other way had as much a fiduciary obligation to ensure treaty agreements as did the nations who fudged on them. However, they looked the other way because it was expedient.

    So, is it unreasonable to expect the full Eurozone to craft a solution that addresses both fiscal and human concerns? I think not. And I am neither Greek nor German.

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  16. We have our issues, but many of those 400 € jobs are jobs of pupils, students, interns, housewives or a second job for tax avoidance (self-employed accountants can for example employ each other in 400 € jobs and thus have 400 € income each without taxation).


    The EU is a union, one with treaties. One of the treaties (the Maastricht treaty about the common currency) says there will be no transfers to counter the effects of the fixed exchange rates. The Greek knew this and agreed, signed and ratified.
    There is also a bilateral treaty agreed back from the 60's that a payment then was the final one and there would be no more reparations. The Greeks agreed, signed and ratified.


    Talking about human dimensions; the infamously small payments to long-time unemployed people in Germany (so-called Hartz 4 payments) are just a tiny fraction of what we've spent in the Greek crisis so far. Now who's going to ask for more money transfer from Germans to the few ten thousand mostly rich creditors of the Greek government?

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  17. Sven,

    "One of the treaties (the Maastricht treaty about the common currency) says there will be no transfers to counter the effects of the fixed exchange rates. The Greek knew this and agreed, signed and ratified."

    And so did the Germans, and what are they doing? If you want to be a hard-ass about sticking to the letter of the treaty, then Germany shouldn't give Greece or the other problem countries any money. Germany signed up for these treaties and, to put it charitably, naively assumed there wouldn't or couldn't be a problem like this in the future.

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  18. Our treaty violations were mild, and yes, when you have a treaty not every party needs to win by it. Some fools lose with it because they had wrong hopes, that's their problem. They're free to leave the treaty.

    As mentioned before, Germany has its own challenges and no desire to take the risk from stupid investors.
    The Greek won't go to a sustainable society without outside pressure, so as long they insist on not leaving the Maastricht treaty there's absolutely no reason to spend money on the Greek problems without getting anything for it.
    Now if they really believe that going back to what they deserve (and not more) is such a horrible demand, then that's their problem. Why should we spend money on them?

    Keep in mind 4/5th of Germany have subsidised East Germany for two decades. We see no reason why we should add Greece to it (and the Greeks are not exactly intent on adding a reason). We wouldn't even do it for East Germany again if we were now set back to 1992!

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  19. "Some fools lose with it because they had wrong hopes, that's their problem. They're free to leave the treaty."

    One could say the same thing of Germany.

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  20. Andy wrote: "One could say the same thing of Germany."

    Indeed. However, if Germany leaves some other coutries will follow. The remaining coutries will not be able to maintain or create a viable alternative.
    So what is your point?

    Ulenspiegel

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  21. I would offer that these nationalistic leanings in a treaty which was intended to create union is somewhat counter to the spirit and intent of the treaty. Whether or not the treaty was "smart" to begin with, there was a clearly implied "We are all in this together" aspect to the treaty. Reneging on the basis of unforeseen events is a bit off the charts.

    There is a big difference between loans, debt renegotiation and direct transfers. Germany feels free to intervene in some clearly sovereign issues (such as trying to delay the election of a representative government) of Greece, which has no legitimacy under the treaty. Yet some of your ministers claim the right to call for such.

    It's a mess. It's a mess created by each and every state, whether they went too far in debt or chose, because it was convenient, to over look those other nation's debt. Claiming superiority because "our failure to fulfill our obligations is a lesser failure than their failure to meet theirs" is simply childish. If a disorderly default costs Germany more than an orderly one, will you still disavow any responsibility for the increaded cost to Germany of the final outcome?

    Like it or not, the treaty allows for a semblance of majority rule in solving problems. So if that leaves you with an unwelcome expense, then you shouldn't have signed the treaty in the first place.

    "there's absolutely no reason to spend money on the Greek problems without getting anything for it" But investing in Greek sovereign debt was OK, as long as you were guaranteed to get something from it? Pretty one sided view. All investment carries risk - don't know about German law, but US law requires a very explicit statement on all prospectuses to that effect.

    Sorry you feel burdened by unexpected obligations that have arisen by being part of the Eurozone.

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  22. @Andy: Sure, we could leave. Or we could just enjoy the benefits and remind everyone that we meet our obligations without throwing additional money away. We've got no problem with the currency right now.


    @Aviator: Why is it nationalistic to oppose regional transfers? As I told you, it's eve doubtful we'd repeat the West-to-East transfers in our own nation. The Greek problems cannot be solved by a one-time transfer, after all. They're comparable to the Eastern German problems and the less the giver demands the less likely is that the Greeks do something about it.
    I do furthermore remember that the U.S. and many other anglophone nations are not exactly big on transferring wealth between regions.

    I personally expected and expect a default, and I doubt it would hurt Germany much. The longer this charade lasts, the more it will hurt us because the more of the risk will be transferred tot he public.

    "So if that leaves you with an unwelcome expense, then you shouldn't have signed the treaty in the first place."

    You should take into account the reality that said treaty explicitly says there will not be such an expense.

    "But investing in Greek sovereign debt was OK, as long as you were guaranteed to get something from it?"
    I called the investors foolish, Germany as a country did not invest in Greek bonds. Some state-controlled banks did so a bit, but they were rotten institutions anyway.

    "Sorry you feel burdened by unexpected obligations that have arisen by being part of the Eurozone."
    Again: THERE ARE NO SUCH OBLIGATIONS. You are living in fantasyland if you think otherwise.

    Besides; the problems were expected by competent people. I learned about the relevant economic theory for this before the new currency arrived, sometime in '99. These expectations were the reason why Germany insisted on the treaty in its actual form and content. The Greeks agreed, as did the Portuguese, Italians and Spanish.

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  23. What I find interesting here is watching Sven become in person the embodiment of why the EU was such a disaster to begin with.

    The nations of Europe were not and are not the political equivalent of the states of the US or the provinces or other internal divisions of France and Germany. There was never a workable method to make labor and manufacturing as fungible in the EU as they are in American states or French provinces.

    But here we are, with one of the "states" on the verge of collapse and one of the others taking the attitude "well, you fucked up, it's your problem, not mine" and there's no real way that the "federal government" (the EU) can fix things. It would be like Texas collapsing under the weight of internal fiscal incompetence and Oklahoma - rather than seeing that as a potential problem for themselves in the form of Texan refugees, intrastate crime and even potential war - sneering at the Texans for being fools.

    I'm sorry, Sven, you can argue all you want. But forcing the common people of Greece to "suffer" and become poorer because their government fucked up isn't "helping solve" this problem - it's just making it likely that you will end up with a Greece that is a bigger problem politically for your political union.

    One of the rooms in your house is on fire; bitching at the tenants for smoking in bed isn't putting out the flames. As Horace said: "Nam tua res agitur, paries cum proximus ardet." - It's your concern when your neighbor's house is on fire"

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  24. "I'm sorry, Sven, you can argue all you want. But forcing the common people of Greece to "suffer" and become poorer because their government fucked up isn't "helping solve" this problem - it's just making it likely that you will end up with a Greece that is a bigger problem politically for your political union."

    I wouldn't call it 'to force them' when it's all about trying to get an appropriate effort on their part in exchange for huge resources.

    Furthermore, they do not become poorer. They just drop to the standard of living that corresponds to their actual wealth. The illusion of greater wealth is being busted, that's all.


    The roots of the European Union are about cooperation, the creation of a United States of Europe was always a very long-term idea.

    By the way; I cannot recall Texas bailing out California during its 'IOU instead of budget' phase in 2011. When did THAT happen? I know Germany already guaranteed billions of Greek debt, how much of California's debt is being guaranteed by Texas right now?


    "One of the rooms in your house is on fire; bitching at the tenants for smoking in bed isn't putting out the flames."

    They insist on keeping two burning Molotov cocktails in their hands while asking us to extinguish the flames in their appartement!

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  25. Sven,

    The rich states in the US subsidize the poor states through the federal government. All you have to do is compare where federal taxes come from to where they are spent. A state like California pays more to the federal government than it receives in federal spending. A state like South Dakota or Montana is the opposite - it receives more in federal money than it's citizens pay in federal taxes.

    Additionally the federal government directly subsidizes a lot of activities in all the states like medical care and education. Also, the feds did, in response to the current economic crisis, give money to state governments to keep them afloat. I think almost all US states are not allowed to run deficits and they have much less fiscal independence than EU members.

    So our system has a lot of self-correcting features that Europe lacks. If the EU was like the US, then Germany would be like California and Greece would be like Montana and every year you'd transfer a portion of your GDP to Greece and other states like Spain and Portugal. For all the talk of integration, it doesn't appear to me that the Germans are willing to do that and much prefer the one-sided arrangement they've enjoyed up to this point.

    Long-term, you simply can't have a common currency without a fiscal union which would enable those transfers. Germany seems to want all the benefits of a single-currency (primarily a great big boost in exports as well as the prospect of a reserve currency), but doesn't want any of the inconvenient downsides, nor does it think it has any responsibility for the current mess.

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  26. This comment has been removed by the author.

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  27. Oh, we have a self-correcting feature: More than 3% GDP budget deficit was not allowed. The Greek government went much higher again and again and lied repeatedly to the rest of Europe (and somewhat to its own public).


    And again; whatever support is given now does not help Greece. It helps the Greeks' creditors. The Greeks need to help themselves by getting rid of the features of its society that are unsustainable.
    Right now they have still multiple times as many public servants per 100,000 capita than Germany does. I want a cushy state job with early and well-paid retirement before my government helps out the Greeks to sustain theirs.

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  28. I'm sorry, but it really is odd to read comments from Americans lecturing another country about "we take care of our own". Maybe you should take a long drive around your own country.

    If I think about the poverty I've seen in the USA, then the working life of millions of American workers(legal and non-legal) is not better than the "suffering" of a Greek citizen.

    And why would any responsible person trust the Greek political animal at all, after all that's transpired..

    Anyway, thanks for allowing my comment..

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  29. "And why would any responsible person trust the Greek political animal at all, after all that's transpired"

    Sub-human categorization of an ethnic group for nationalistic reasons again. Seems we heard that song before. Trust???????

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  30. Aviator, you should take into consideration that foreign-sounding account names may indicate that the person is not a native English speaker, and direct translations have at times a different colouring.

    Besides; you'll have a hard time justifying the "nationalistic" in any case. There are too many parallels to intra-nation differences, such as the Italian North - South economic issue.

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  31. Sven-

    My post assumed no ethnicity on the part of vanDiemerbroucke, but rather was in the context of historic (recently historic, for that matter) relations between the two peoples under discussion. Battering an entire people over the transgressions of a portion of that people, in my view, is reprehensible. Read some of my posts, and you will find that I found “The Morganthau Plan”, and it’s subsequent application to the entire population of post WWII Germany to be unacceptable, and, in fact, immoral.

    Similarly, as an eye witness to the suffering of good, hard working Greeks with whom I live, mass economic punishment of all, with the attendant human misery, for the sins of some is equally wrong. These are not the relatively small number of people gaining all the media attention by protesting in Syntagma Square. These are people, away from Athens, who, along with most of the population, hardly ever even participate in the highly publicized strikes, as they have a living to earn. Few Greeks are holding “Molotov Cocktails”. FWIW, 1/3 of those arrested in the violence in Athens have been non-Greeks.

    They are people whose income is being seriously reduced to below subsistence levels. Hard working people that certain tourists call lazy, because they take a three hour break in mid day before returning to their jobs to work until 9:00, 10:00 PM, Midnight or later to cater to those same tourists’ desires. People who are stereotyped as “lazy” and “corrupt” to justify driving them into poverty to avoid pulling a Euro out of one’s pocket to assist those who have made an economic error.

    People who were alive when a foreign occupier’s edict came to select 125 innocent civilian locals for execution as punishment for 2 occupiers being killed and several injured. People who are keenly aware of the horror of mass punishment of the innocent for the transgression of others. Yet people who freely admit that all of the foreign occupiers were not “guilty” of indifference to human suffering. Perhaps you might read:

    http://paroslife.parosweb.com/story.html?story=2773&issue=138

    http://paroslife.parosweb.com/story.html?story=2704


    These are people who listen to many, many ex-pats from a certain country whine over the Greek government finally enforcing tax compliance so that the ex-pat will have to pay taxes here or at least in their home country, where they are also evading taxes. The nerve of these crooked Greek politicians!

    These are people who hear demands that long term human suffering for all is a just punishment for the financial irresponsibility of the few, yet did not call for the human suffering of all for the mass murders committed by the few when the shoe was on the other foot. Money can be replaced, lives cannot.

    If there is no other lesson a people might learn, the immorality of mass punishment is surely at, or near, the top of the list. Thus, when I read or hear, “The Greeks need to learn”, I realize that this lesson remains ignored.

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  32. Lastly-

    You took the time to mention reparations in defense of Germans, or in offense towards Greeks, Sven. Why you chose to raise this issue escapes me, as I never even hinted at it, and I am not sure what point you were attempting to make. But, as they say in the TV courtroom dramas, “You chose to open that door.”

    The reparations paid by Germany following WWII were for material loss, not loss of innocent lives. That was clearly in the negotiations before, during and after they were agreed upon or extracted as a condition of Germany’s defeat. It was made very clear that not one Deutschmark represented payment for innocents methodically killed by the Nazis. To put a proxy price on a human life wrongfully taken would have been to agree with the Nazis that the victims were mere things, not precious, irreplaceable living human beings of inestimable value. Taking reparations for lives would have put those paid the reparations into the same cesspool as those who extinguished those innocent lives. Millions of innocent, precious, irreplaceable living human beings, whose lives were seen as worthless simply because of their birth into a given nationality or religion. I thank God that not one Mark was accepted for the slaughtered innocents.

    Here, I will admit a personal bias. My maternal family were residents of Kobryn, Belarus. None were among the mere 10 survivors of the original 9,000+ members of what the German occupiers in WWII classified as a “sub-human” group living there. Yet I have moved on. Again, I have condemned repeatedly Morganthau and JCS 1607. Your tax dollars applied to ameliorate the suffering of the innocent amongst the Greeks can someday be be replaced. My family in Kobryn cannot. One cannot proxy price human suffering and expect to be called human. So it's time to move past the material and stop accepting human suffering as "business as usual" or a just price to be imposed on all for the material error of some. If you wish to claim "an eye for an eye", then at least take the eye of the perpetrator, not the innocent.

    Substitute “numbers”, “material things” or the like for “science” in this stirring and spot on piece by Jacob Bronowski. When humanity, or just one innocent human, becomes subservient to the material, all of mankind is diminished.

    http://www.youtube.com/watch?v=FXsVKbHY_T0

    I have no skin in this game, other than as a human being. I will not accept any material excuse, be it treaties or economics for the willful imposition of suffering upon the innocent.

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  33. Sven,

    "Oh, we have a self-correcting feature: More than 3% GDP budget deficit was not allowed. "

    That's not a self-correcting feature. It's a dubious requirement that is not possible to consistently meet.

    Here's Krugman summarizing the options:

    What’s happening is that nobody is prepared to take the plunge into either of the paths that might eventually lead out of this: sustained aid (not loans) to Greece, or departure from the euro, leading eventually to higher competitiveness and faster growth. Both options would be politically catastrophic, which means that they can’t be taken until there is literally no alternative.

    Everything I've read supports this. The idea that you can have a single currency without a single fiscal policy while maintaining trade imbalances is pretty much bankrupt at this point.

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  34. "Sub-human categorization of an ethnic group for nationalistic reasons again."

    "Battering an entire people over the transgressions of a portion of that people, in my view, is reprehensible."

    I meant no such thing. I was referring to politicians only. I used a term of speech you're not used to, apparently.

    I noticed the picture of Merkel as Hitler - complete with swastika. That surely dehumanizes her. Some balance is not a bad thing.

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  35. Chancellor Merkel is a single individual - not an entire group of people, and as a politician she is fair game for caricature. Like every major politician of any country she has been mocked and ridiculed and made the butt of satire. The German press has done her much worse than the Greek media.

    My personal favorite is the Polish parody of Ms Merkel back five years ago (see the 26/2007 cover of WProst magazine):

    http://www.wprost.pl/G/wprost_covers/b/1279_b.jpg

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  36. vanDiemerbroucke

    The original post was to shed light on the HUMAN side of what is going on, with an offer of the underlying issues and emotions. I did not justify the depictions, but rather, explained their roots. There is a lot of history here, and it isn't a pretty history.

    Since I am personally acquainted with a couple of members of the Greek Parliament who are hard working, honorable men who have been working diligently to alter the government's old habits. Thus, I would still take issue with your limiting your stereotype to politicians.

    Andy-

    For me, the difficulty arises from the possibility that all actors turned a blind eye to the potential (not necessarily inevitable) downsides of the common currency in an effort to gain national benefit. As I said above, wanting gain on investment without any risk. However, it was done too expediently, and without sufficient control mechanisms. And what mechanisms were in place were conveniently unenforced. The Eurozone is in trouble for the same type of reason Greece is in trouble. Rather than exercise internal controls, they let events rule the day - as long as events worked to their advantage. As I have stated, arguing over who's dereliction of duty in the failure is tolerable, when both derelictions were necessary for the failure, is bullshit.

    When I hear Germans cry for the Greeks to suffer severely for their transgressions because they just can't change, I am reminded of FDR's reported comment to Morganthau, "We either have to castrate the German people or you have got to treat them in such a manner so they can't just go on reproducing people who want to continue the way they have in the past." Had Henry Morganthau's values ruled the day rather than other members of the administration (Sec of War Stimson called Morganthau's ideas "Carthaginian"), it would be interesting to see what role an "eternally pastoral and agricultural Germany" would be playing on the world's stage. Tomatoes or Volkswagons?

    So, based on the experience of 1945, which plan makes more sense? Morganthau or Marshall?

    BTW, I wonder how one could create a Morganthau like caricature of Merkel or Schäuble and make it understandable? Would be difficult, as few remember that low point in US behavior, where JCS 1067 inflicted severe suffering for some two years. Nope, the Marshall Plan overshadows the JCS 1067 brutality totally.

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  37. Hi all,

    Haven't commented up to now, but think it appropriate to do so now.

    I don't think vanDiemerbroucke meant anything other than to criticise Greek politicians as a group. Not each individual Greek politician, but as a group, just as we here on this blog do exactly the same to the GOP all the time. I've read the exchange. I don't see anything more than that.

    I know this is Al's thread and with his indulgence, I would also like to welcome all the new commenters to this blog. Especially the Europeans here via Sven's great blog. Welcome. It is nice to hear other views and it is always a challenge to communicate complex ideas and concepts over this medium . . . miscommunication is part of the deal.

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  38. Hey everybody, I've been watching this space and trying to figure out what I can add to the discussion; which is very hard because you guys have been firing off a LOT of interesting thoughts.

    Sven is probably correct that Greece is going to have to leave the EU. The requirements imposed by the Troika to stay in the EU are just too stiff for the Greek government to survive the wrath of their own people.

    I'm not going to discuss who caused what and why, we don't know enough at this time and it's counter-productive at this stage of the situation to get into the finger-pointing. To quote the old song, "there will be time enough for counting when the dealing's done..."

    I'm much more interested in figuring out how, especially in light of yesterday's agreement, the EU can survive a Greek (and probably Portuguese) exit.

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  39. Pluto

    How would Greece and/or Portugal go about an "orderly" exit? Would that have an effect on Italy and Spain remaining in the Eurozone? There is a lot of speculation on what's the best approach, using examples such as Argentina or Iceland, but neither is even a close analogy, as they weren't part of an integrated currency system.

    One Brit professor friend opined that an exit would involve a lengthy currency freeze and potential sealing of the borders to prevent a disastrous initial currency replacement fiasco. It's one thing, she noted, to devalue an existing currency, and another to replace it totally. There has already been a significant amount of illegal liquid asset flight, without a scheduled institution of a currency designed to be devalued the moment it is in place. While the "math" of an exit can easily be done, the "logistics" are quite daunting and would add to the severe pain that would be inflicted on the populace by a devaluation in the first place. As she said, "The theorists understand the principles of a simple devaluation, but have no experience nor concept of its implementation in a currency zone exit."

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  40. Al,

    I'm in complete agreement with you on the technical difficulties of having Greece exit the Euro zone but it is going to happen. The imbalances are too big and too much money is owed.

    You will notice that I didn't specify whether the exit would be orderly or disorderly. I don't know enough to be able to speculate on whether or not it will be orderly. I would strongly prefer that it be an orderly exit but you have correctly identified some of the very large challenges in making that happen.

    So I suspect that the exit may be disorderly and I do not know enough about the situation to be able to predict winners and losers.

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  41. Pluto-

    I cannot imagine any real "winners". Possibly some who might end up lesser "losers". One analyst said that the time "bought" by the current shaky solution may lead the Eurozone members to rethink how the bloc must operate to handle the debt issue. He said it was clear that there can no longer be "business as usual", and there are more than default and exit options if how business is done can be addressed. It's complex and new territory in many ways.

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  42. Krugman's take: "What’s happening is that nobody is prepared to take the plunge into either of the paths that might eventually lead out of this: sustained aid (not loans) to Greece, or departure from the euro, leading eventually to higher competitiveness and faster growth. Both options would be politically catastrophic, which means that they can’t be taken until there is literally no alternative.

    So Greece will be strung along some more."


    He doesn't say which one he thinks will happen. My guess is that it will be some form of aid. But I think this points out the currently-insoluable problems regarding labor and industry immobility within the EU. Until everyone speaks Esperanto I just don't see the Eurozone being economically viable - there's just way too many ways for this sort of thing to happen again elsewhere.

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  43. "Similarly, as an eye witness to the suffering of good, hard working Greeks with whom I live, mass economic punishment of all, with the attendant human misery, for the sins of some is equally wrong."

    None of this is Germany's making, all of this is Greece's making. They want money, they get it only if they do something for it.


    About the 'human' level of the problem:
    The problems of Greek individuals are one thing.
    I'm at a loss to see why a German individual should be taken away a portion of his wealth to help Greek individuals who did not oppose a rotten political system for decades despite living in a free country.
    I'm even more at loss to see why a German worker should pay taxes (or accept additional future taxes caused by more public debt now) in order to sustain a Greek in an unsustainable government job who's actually part of the problem by enjoying consumption well beyond what is affordable.

    The Greeks are not the only ones in trouble, but among the countries of the world they're very high on the list of people who get what they deserve. They voted for corrupt politicians decade after decade because their votes were bought.
    The totally corrupted political system in Greece is collapsing, including its multiple times oversized public sector.

    It hurts if you run against a wall. It's deserved since you had eyes to see the wall and knew it was hard and there.
    Don't blame bystanders for not helping you to tear down the wall for free.
    They're not responsible for the wall or your running.

    In fact, if someone still does so and focuses a lot of negative emotions if not insults at the wealthiest bystander who's worked much a lot more all his life, then you're this someone is an idiot.


    One more thing about the human level and reparations:
    Feel free to extract whatever reparations are due from those who committed war crimes. 99.x% of Germans are entirely innocent in regard to what happened '33-'45. Those who had the slightest bit of power by 1945 (say, 20 y.o. 2nd LTs) are now older than 87 years!
    No-one who came later has committed any Nazi crime, the real assholes are almost all dead and 'we' surely didn't get a rich heritage of Nazi loot from the Nazi generation, but rather a country in dire need of rebuilding.

    So how could one possibly think there's somehow on the human level an obligation for a German to take away risks from the stupid creditors of the Greek government? That's not even going to help Greeks, it's only about shifting losses and prolonging their misery.
    The Greeks should exploit this crisis to fix their nonsensical society features. When will they repair their society if not under such pressure?

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  44. Al: "He said it was clear that there can no longer be "business as usual", and there are more than default and exit options if how business is done can be addressed. It's complex and new territory in many ways."

    I'm tempted to agree but I don't see the EU attempting to do anything except "business as usual." I definitely agree with the "complex and new territory" part.


    Sven: "They voted for corrupt politicians decade after decade because their votes were bought."

    Agreed, we are doing the same in the US and at some point in the (hopefully distant) future there will be a similar reckoning on a tremendously larger scale.

    "... political system in Greece is collapsing..."

    Again, agreed. But how is the current EU pattern of extend-and-pretend helping the EU or Greece?

    The increasingly draconian measures being forced on the Greeks are going to build up resentment against the sole tool the EU has to influence the situation, the Greek government that you disparage.

    Furthermore these increasingly strict austerity measures are pushing the Greek economy further into depression.

    Finally, the EU is loaning huge sums of money to the Greeks that will never be repaid, laying a groundwork for bitterness and feuding that will last decades, if not longer. Taken all together, this is a course of madness that cannot possibly end well.

    "The Greeks should exploit this crisis to fix their nonsensical society features. When will they repair their society if not under such pressure?"

    I thoroughly understand the emotions behind your comments but feel that they are not well thought out. People under pressure, and the Greeks are under enormous pressure, do stupid things. That's part of how the Greeks got the current system.

    Most regime changes that last, such as the German government after WWII and the US federal government created by the Constitution were developed in relatively quiet (you'll notice I didn't say peaceful) times.

    This is why Al and I were discussing having the Greeks exit the EU before they attempt such a thing. Otherwise they may adopt a governmental system that makes their current system look profoundly wise.

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  45. Hi.

    Sorry for jumping in like this, long-time reader, first-time commentator...

    I'm with Sven on this. The Euro-Zone may have been set up with deep flaws by all participants but no-one forced the peripheral staes to go on a borrowing spree with sub-optimal account management. And while Germany took the harsh Hartz medication the rest enjoyed low interst rates on their second mortgage.
    Now we have a situation where due-diligence gets enforced on the nation level. I feel with the Greek people for their pain but if you want money you have to provide (real)securities... Of course, part of the game seems to be just how much pain you can put on the greeks before they quit the Euro "volunarily". After all, no politician wants to be remembered for slaying the european dream.

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  46. MMK

    Welcome to the Pub. The more, the merrier.

    You wrote: "And while Germany took the harsh Hartz medication the rest enjoyed low interst rates on their second mortgage."

    Try not to confuse public debt with household debt.

    This EU report would question the "second mortgage" claim. While the household indebtedness rate has been rising in Greece starting about 5 years ago, it was still only about 33% of GDP in 2009, versus 56% in Germany, Belgium and Luxembourg. "Southern European countries such as Spain, Italy and Greece for example, have high home ownership rates yet in comparison with countries like the UK, Denmark and the Netherlands (where mortgages are very widespread), far fewer of the households in the Southern European countries own their homes through a mortgage." Much home ownership in Greece is due to homes being passed down from generation to generation, as well as a long standing practice of slowly building homes over several years on a pay as you go basis.

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  47. I would add a P.S. to the very slow building practice (often times in excess of 5 to 7 years). It is not unusual to hear tourists comment in demeaning terms about unoccupied, partially completed structures as an glaring example of Greek "laziness" or "sloppiness", ignorant of the fact that the local type of construction lends itself to being built slowly as cash is available. Our neighbor's three offspring have been slowly building a three family house for their future use over the past 10 years. Since all three are small business owners, they are very glad, in the current environment, that they own the 80& completed structure without debt.

    There is much more to the situation than the stereotyped ranting points.

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  48. Sven

    I am still trying to see where reparations have any bearing on the subject at hand. Can you possibly offer a basis for dragging them into the discussion of humanitarian treatment of the Greek people? Are you suggesting that the payment of these reparations absolve you of any human concern for other countries' people if they don't live up to some ideal? Could you identify the "treaty" of 1960 pertaining to reparations to Greece so that one might understand the context in which you throw it into the argument?

    From your post above, it would seem that the proper course of action would have been to continue the application of JCS 1067 far beyond 1947 to it's "pastoral, agricultural state" objective. To use your words, "The Germans were not the only ones in trouble, but among the countries of the world they're very high on the list of people who get what they deserve." Was only two years of JCS 1067 "what they deserved"? Of course, had JCS 1067 continued for a few more years, the highly elevated death rates (4x prewar levels for adults, and 10x prewar levels for children) would have resulted in significantly fewer persons today for whom you raise the issue of "no guilt" for 1933- 1945. Why you disavow "guilt" for 1933-45, when I never raised the issue to begin with is also perplexing. Your reparations argument is smoke screen at best.

    What "obligation" did the Allies have to reverse course on JCS 1067, other than human terms? In 1946, most of the world thought that the German people were beyond redemption and deserved to suffer for generation upon generation. Fortunately, both for you, and for humanity in general, this attitude was not imposed upon the German people beyond late 1947, even though, in my view, that was still too long.

    Germany is where it is today because JCS 1067 was indeed replaced by an infinitely more humane policy. In 1953, 50% of the country's 32 Billion Marks in pre and post war debt was cancelled, and the remainder was refinanced to a 30 year term. This burden by taxpayers and banks of other countries contributed greatly to Germany's economic recovery. Even those horrid reparations were allowed to be paid out over some 14 years or so. If 1067 had not been set aside, the Wirtschaftswunder would never have taken place, as there would have been no industry to be miraculous grow.

    I have read that the German Federal Agency for Civic Education claims the Morganthau Plan had no impact on the Occupation, and is mostly German right wing political propaganda, so perhaps not many Germans living today are aware of the impact of JCS 1067 and its ultimate intent, that was so humanely avoided.

    If humanity creates a notion where one's responsibility to treat one's fellow human humanely is subject to ledger accounting, then humanity is lost, and is just another accounting exercise.

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  49. MMK: "I'm with Sven on this."

    I don't argue with Sven about his goals, I just argue about the methods, which I do not feel support the goals.

    Its really amazing that the Greek government managed to pile up such amazing amounts of debt without anybody noticing or blowing the whistle. But they gamed the system and briefly looked like winners so we all have to live with the consequences.

    It just doesn't seem possible to me that the banks are ever going to get their money back from Greece so they should do the next best things (listed in no particular order)
    - Figure out how to avoid doing this again
    - Get as much money out of Greece as possible without breaking down their society. This probably involves at least a 70% loss for all involved
    - We all now know that the Greek economy isn't competitive within the Euro so somebody needs to figure out how to deal with that. Either by dropping them out of the Euro or by changing the Euro rules so they stand a chance of being more competitive if they really hustle.
    - The Greeks need to figure out how to reconfigure their economy so it is more competitive. This is something only they can do and everybody else should do nothing more than offer advice that can be ignored if necessary.

    Instead the EU is:
    - nationalizing the debt (oh, how I hate crony capitalism)
    - lending even larger amounts of money that can't be repaid
    - making demands on the Greeks that is destroying the Greek ability to repay the debt
    - while pretending that is enough to resolve the crisis

    The only good thing that has come out of this mess so far is that the Euro ministers are now well aware of the potential problems with their currency and are very tentatively beginning to hunt for solutions. But they are going WAY too slow, Greece is going to run out of time before the Euro ministers agree on seating arrangements.

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  50. Krugman pointed me to this, which is very timely, all things considered.

    http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/

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  51. "Can you possibly offer a basis for dragging them into the discussion of humanitarian treatment of the Greek people?"

    They are the straw that Greeks cling to because there are no German obligations to give them money or to guarantee their debt.


    The treaty about final reparations was the bilateral German-Greek treaty of 18 March 1960, chapter III is the key.

    Individuals - even those with personal damage - have no claims against the FRG because of the international law principle of state immunity. Their government is the appropriate channel, and their government received reparations in 1960, voluntarily giving up all imaginable further claims. Any Greek who still expects reparations for Nazi cruelties is supposed to go to court against his own government, because that's now the proper address for such claims.

    Instead, populists and xenophobic agitators brought the Nazi thing into play in an attempt to blackmail the Germans into helping to sustain the unsustainable Greek model - and their accusations and caricatures became even fiercer when Germans suggested strongly that the Greek model be changed.

    "Are you suggesting that the payment of these reparations absolve you of any human concern for other countries' people if they don't live up to some ideal?"

    The Greeks are in line for our "human concerns" once we're done being concerned about billions of actually poor people in the world. I think the UN talks about several hundred million living in extreme poverty. Greeks ain't close.



    Btw, I'm not in favour of trying to play IMF on Greece. They should have defaulted in 2009 at the latest, giving other EU governments barely enough early warning so they can set up laws for dealing with their idiot banks.

    The small idiot banks should have been liquidated, the big idiot banks should have been nationalised with the well-deserved total erasure of shareholder value (an re-privatised piecemeal over a decades, similar to Swedish example), investment banking should have been destroyed save for each one moderate salary 100% investment bank with 25+% fresh private equity capital per major country.

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  52. Sven,

    Instead of dealing with the problem at hand you seem to be blaming your woes on the Greeks. Well, this is the result of an unsustainable single currency scheme and a couple decades worth of German mercantilism. Bitching and moaning about how the Greeks didn't or couldn't live up to an impossible standard won't solve anything.

    They are the straw that Greeks cling to because there are no German obligations to give them money or to guarantee their debt.

    You're right, you're not obligated to give them money. You can refuse and suffer the consequences. Whatever the case, Germany and the Euro can't return the status quo. Krugman's views on this (detailed above) are the two sustainable paths forward. Anything else is folly.

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  53. "Instead, populists and xenophobic agitators brought the Nazi thing into play in an attempt to blackmail the Germans into helping to sustain the unsustainable Greek model"

    Gee, Sven, I live in Greece and saw nothing approaching that. Rather, the cartoons are in response to recent events and expressed attitudes of selected German officials toward the Greek people in general - A "Final Solution to the Greek Problem". Foolishly, all too many of your fellow countrymen visiting here think they can speak freely and vilely towards Greeks in the presence of an American, and that goes back long before the crisis. The crisis has only provided a "cover story" for them now.

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  54. Hats off to Chief, Andy, Pluto. And all who are more focused on solutions than blame.

    The issue is indeed to find a workable solution, not to place blame, or eternally punish some transgressor.

    The post war actions of the Allies offer a good analogy. While I may personally deplore the inhumane treatment of the defeated peoples, there were much more pragmatic reasons for abandoning the Morganthau approach. Many questioned if it was in the long term interests of Europe and the "Free World" to continue on this course, not a concern for Germany and the German people. There were some who held a somewhat humanitarian aspect:

    Former President Herbert Hoover: "There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state'. It cannot be done unless we exterminate or move 25,000,000 people out of it."

    But many more expressed concern towards the "Balance of Power", as it was called back then:

    General Lucius Clay: "There is no choice between being a communist on 1,500 calories a day and a believer in democracy on a thousand"

    Alan Dulles: "The Marshall Plan ... is not a philanthropic enterprise ... It is based on our views of the requirements of American security ... This is the only peaceful avenue now open to us which may answer the communist challenge to our way of life and our national security."

    Winston Churchill: "England would be chained to a dead body."

    In short, it was not a matter of what Germany and Germans "deserved" or brought upon themselves, but what was in the best interests of the rest of the world community. Perversely, one could suggest that the current German population should be very thankful for Joe Stalin, as his threat from the East drove the West to not only abandon all Morganthau ideas, but assist Germany in their full recovery. Germany's long term well being was the "lesser of two evils", and trust me, there were many who saw it that way at the time, and I can remember such arguments in 1952-3 as politicians called for the termination of the Marshall Plan because “my taxes shouldn’t finance these people”.

    So, let's hope that the attention turns from "blame delegation" to Eurozone operational principal mending. There is blame enough to go around. While the "off the books" loans through Goldman Sachs are not the major element of the problem, Italy was using off the books Goldman Sachs derivatives long before Greece, as did other EU countries (possibly even Germany, but since they are "private transactions, it's quite difficult to tell, and Goldman isn't telling). The EU's EuroStat agency was asked by Goldman if these derivatives were OK, and EuroStat offered no objection.

    Whether or not the EuroZone concept is feasible, even as structured, there were systemic failures by all nations involved to adhere to the ground rules to begin with. Trying to avoid responsibility by arguing based on the "magnitude" of one nation's failure to meet their collective obligation versus another, or “action being more damnable than inaction” is like saying only a single machine gunner is responsible for my cousin Gershon's execution in Oct 1942.

    The current EuroZone crisis exists not because it has been proven that it cannot work. That would be like saying baseball doesn't work based on a game where the umpires did not show up. Not only was there failure to comply by some states, but failure to care about compliance by the other states. Step one is to get the current mess under control. Step two is to try to learn something constructive from all this other than "Greeks, Portuguese, etc are lazy, corrupt slobs" or "Germans are still Nazis". Step three is to move forward.

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  55. I am Greek, proud and ashamed of my country. It hurts but Sven (who's blog i visit often) is right in this part, we brought that to ourselves, and i pray for this tragedy (thousands of suicides this year alone by Greeks who cant pay their debds , amongst others) to help us became the people we deserve to be. He is wrong in saying we tricked them in leting us in euro. The beaurocrats in Europe knew and turned the other way, along with our CORRUPT politicians(who were bribed by SIEMENS amongst others, a German company as i recall) The same by the way who use the "EU wants it"scheme for their own agenda to steal our countrie's resourses and give them to their overlords, domestic or foreign. Remember Eurostat says Greeks work the most hours per week and have the less vacation days amongst all of the original 12 of the EU and many of the newest members. So please, don't call us lazy no more. One last thing. We post pictures of Merkel and her minister in Nazi uniform, (and we will increasingly continue to do so ass it seems), but NOT A SINGLE German citizen here in Greece has been scorned, mocked, ridiculed or...lynched here in Greece today, because of your government's attitude (i cannot say the same about Germany, though where Greeks these days are ashamed to say they are Greek).Not even in the first years since WW2, when you came back as tourists, not even in the villages in Krete where many mass killings took place, (when in collaborating France the ad'hoc German cemeteries were ploughed with no second thought after the war), but instead old Greek women who lost their husbands in WW2 took care of the anonymous Wermaht's soldier tomb. Hell, even the Belgians said NO when you wanted to adopt FN-FAL as your army's new weapon. This is the good side of the Greek. The bad side, is what i hope will diminish after we lose our BMWs, Mercs and Porshe Cayenne (of the last we have more than the Swiss!) to the banks, the same who loaned us to buy them.

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  56. Andy: "Even with Greece's austerity efforts they are still running a primary deficit."

    Read Krugman - a better formulation would be that the austerity is causing this.

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