Saturday, July 18, 2015

View from the grandstands

Well, after a couple of weeks watching the drama in the battle between Greece and the EU, all I could think of was the classic Abbott and Costello, "Who's on First".  The plethora of Presidents of Here, There, Everywhere, E I E I O were all speaking on behalf of the Institutions of the EU as if each was the final word on the subject, while various and sundry Finance Ministers and leaders of various nations were also presenting themselves as the voice of power.  What was even more surprising to me, was when the PM of Greece called for a Referendum, not only did all the Grand Pubahs challenge his right to give The People a voice in their national affairs, they publicly told the people how to vote, most typically by making threats, either veiled or overt.

So, it led me to take a closer look at this thing called the EU and the Euro Zone, and to be frank, it is quite the interesting and opaque monster.  Yes, monster.  Delegates to the various councils and commissions, be they elected or appointed, are often required to vote by secret ballot.  Many institutions do not keep minutes of their proceedings.  The Euro Group is chartered by the Treaty of Lisbon soley as an informal body of the Finance Ministers of the nations using the Euro for dialog on their national concerns.  That's it, boys and girls, the group that has had a strangle hold on the negotiations has been delegated, by TREATY, absolutely no power to decide anything.  And, of course, it is one of the many institutions of the EU that has no published rules nor keeps minutes of its meetings.

Never, once in all the blathering by the EU's officials was there a reference to "people" having any legitimacy.  In fact, in off the cuff remarks following the overwhelming "OXI" vote by the Greek people, Martin Shulz, President of the European Parliament said that while he respected the right of the Greek people to vote, anything that the Greek government brought forward as a result of that vote would need to be convincing to the other 18 governments in the Euro Zone.  In effect, people exist by the consent of governments.  Of course, as it turns out, Shulz was dead wrong, as all of the Institutions, Commissions and whatever were cast aside for the heads of the 28 member states to make the decision, and then, get their governments to approve it.  So who was "in charge", never did figure that out.

Of course, there was serious outside interference in the January election that brought Syriza to power.  Threats and the like from our so called European "partners".  More than a few people that we know, that wouldn't have voted on a bet for a far left party, were motivated by this to do so.  And once Syriza was in power, the clear attempts to topple the government only rallied more and more Greeks to support them.  Unlike their northern neighbors, Greeks do not see democracy as being rooted in obedience.

One might be tempted to say that I had a front row seat to history.  Actually, what I witnessed in terms of history was a continuing rewrite of history.  Seems that once Syriza was elected, some IMF officials had a pang of conscience and released minutes of meeting as far back as 2010, showing that the bailout was primarily a rescue of private banks from overzealous investments in risky securities.

But, the key thing in the IMF fessing up to a bank rescue was how to explain that they violated their own charter to do so.  Well, a Greek default would have spread across Europe.  Thus their involvement in the "Bailout", and the involvement of not only European taxpayer money in bailing our banks, but the tax dollars of some 170 other nations outside the EU.   Pretty slick, wasn't it.

Of course, the threats against Greece included assurances by some EU players that the "Institutions" have built adequate safeguards against contagion from a "Grexit", something that the IMF said was not the case, as there were far too many unknowns.  Little did the Grand Poohbahs realize that by refuting the IMF on contagion, they ruled out any further IMF involvement.  The cover story was gone.  So slowly, the truth changed.

At one point, Jean-Claude Juncker, president of the European Commission, in a fit of pique, made another of his false claims saying that "We have a detailed plan".  Funny that the heads of state, as the final hour came close, openly said they would need a summit to figure out what to do if the "negotiations broke down".

And the history of the impact of austerity was rewritten on the fly.  At fist, it was claimed by all the Grand Poobahs that the "Program" was working, and the Greek economy was "turning around" until the 25 January election of Syriza.  Also, they claimed that the Greek debt was definitely sustainable under the austerity measure that were to be imposed.  Then, along comes that pesky IMF ready to release a report three days before the referendum, saying the debt wasn't sustainable and that economic conditions in Greece over "the past year" had exacerbated it.  The reps of the EU countries in the IMF tried to suppress the report until after the referendum.  Of course, the EU Grand Poohbahs refuted the report for a few days, and then released their own report that the debt might not be sustainable, but the forecast wasn't as bleak as that of the IMF.   Oh, and did I mention that the final Euro Summit document also said, "past year". OOOPPPS, any admission of the debt being non-sustainable means no IMF support.  Gotta keep track of your lies.

Following the referendum, the IMF further refined their report, giving three acceptable approaches to debt restructuring, and saying quite clearly, that without same, they could not participate, as so dearly desired by the EU Grand Poohbahs, in any further programs.  One by one, once the draconian "Agreement" was made, more and more Poohbahs came to Jesus and began saying that a debt restructuring was indeed something that should be addressed, and a couple tried to make it look as if it was their own idea.

And then the intellectually insulting double talk.  The "Program" did not cause a "humanitarian crisis" as Syriza claimed, said the Poohbahs.  However, as early as March, "pledges" of billions in humanitarian aid were being made.  So one head of the Hydra is demanding that the pensions of the very poorest be cut, while another is pledging humanitarian aid for these people.  It's interesting that the EU Charter for Human Rights calls for the poorest among us to be cared for, while the Euro Zone can impose deeper poverty at will upon the people of any member state if they are in debt.

Some of the demands are just trivial, yet were treated as "deal breakers".  For example, Greek law defines a bakery as a business that purchases the raw materials, mixes them, forms them and bakes them into a final product.  The lenders say that this is a restraint of the market, and that anybody with an oven on the premises should be allowed to call themselves a "bakery", regardless of where the dough comes from.  Since they don't see how people can tell the difference in taste between baking frozen dough from a wholesaler and fresh dough made on the premises, the shops using frozen dough shouldn't be penalized.  How this will invigorate the economy and help the country pay its debt could not be offered.  So now the Parliament must come up with new definitions of stores that trade in baked goods.

I am hopeful that the Greek people will allow the Syriza government to remain in office for their full term, as a final declaration of whatever sovereignty they have left.  IMHO, far too many EU and member state officials crossed the line in attempting to influence the January elections, destabilize the resulting government and influence the Referendum.  And I am hopeful that the economic hegemony that took place will have a positive impact on the people of Spain, France and Portugal, rather than cow them.

Where we go from here is anybody's guess.  What has happened, is that confidence in the EU has taken a beating and the Euro-skeptics' case has been strengthened.  I think it was Sam Rayburn that said, "The key to success in politics is to pick your lie and then stick by it."  Well, from what I have seen over the past five month, no attempt has been made to do that. They narrative simply changes to support the status quo, without regard for the truth.

Now, one can debate the economics of the situation until the cows come home.  What is pathetic about the whole deal is that in the final analysis, the key players in the EU played fast and loose with the truth, attempted to influence voters in a sovereign state and tried to topple a duly elected government.  I know that my country has done some very dumb things.  But, resorting to secret votes, no minutes, etc, etc is not one of them.  When we fuck up, the public record documents the deliberations hearings and votes clearly.  Not so the EU.  I am very pessimistic about the future of the EU.  It may be pleasing to the power brokers and the peoples of their states, but it is in no way operating on democratic nor humanitarian principles, no matter what their advertizing says.


  1. I know, lets put a debtor in prison until they pay off their debt.
    That will really motivate them to pay what they owe.

    A debt that can't be paid back, won't be paid back.
    That seems like the most logical starting point for discussions.

  2. Al -

    Thanks for that view from the front row seats Al.

    I am wondering what happens to the EU if Greece grows closer to Russia. There is an interesting article over at War-on-the-Rocks regarding Putin's flirtation with Tsipras. Russia of course would love to weaken the EU in any way it can.

    Any thoughts?

    Any chance of
    becoming GBRICS?

    Any chance of a Grexit from NATO?

  3. Mike- The Putin business is interesting. Syriza came into office in spite of overt threats by our European "partners" of the actions by the lenders that would result. Further, the European Commission (or Council) issued a "unanimous" statement the day following the election that the EU would increase sanctions against Russia re: The Ukraine. However, the Greek government had never been consulted, and the newly appointed Greek Foreign Minister publicly called them on this. Not unusual for the opaque EU. The EU broke out in assholes and tried to shit themselves to death, because they attributed to the Greek FM what they would have done - closed door deviousness. Actually, all he was challenging was the false "unanimous" claim.

    Now, Putin never interfered in the Greek election, and in a bold move, by EU standards, quickly recognized the new government of a sovereign Greece with a personal phone call. Meanwhile, our EU partners were not only slow to recognize the will of the people, but were starting to mobilize to topple the government. So, if you were PM of Greece, with whom would you want to simply chat about the ups and downs of being a head of state? One thug who has inflicted no damage on your country, or a band of thugs trying to topple you? To the best of my knowledge, no quid pro quo was ever discussed, although for the EU autocrats, any discussion without a quid pro quo would be unthinkable. By simply being civil with Tsipras, Putin assisted the EU in weakening itself via projection and paranoia.

    Now, about the pipeline. Currently, Europe has two choices for natural gas delivery from Russia. The northern line directly from Russia into Germany, or the lines through Ukraine serving the South. The Ukraine lines are subject to Russia-Ukraine relations, the German line not so. Thus, a line through Greece would reduce the amount of gas influenced by Russia - Ukraine relations, no less the cost of a third party middleman. In short, the same benefits that northern Europe receives by being able to bypass Ukraine could be enjoyed by southern Europe. Additionally, Greece (an EU member) would reap economic benefit previously going to Ukraine. Unless the EU can effectively replace Russian gas with that from elsewhere, why not let a fellow EU state benefit directly, and all southern states as well? This is a long term project, and again, there has been no political quid pro quo between Russia and Greece that anyone, other than conspiracy theorists and paranoids, has heard of. Let's be serious, folks, Greece is Eurocentric, as long as Europe does not openly subvert the country's sovereignty beyond a certain point. BTW, that point is not so far afield as that of the UK.

    Interestingly enough, as the 2 billion Euro Russian pipeline concept (that's concept, not deal) was being floated, Jean-Claude Junker, President of the European Council, blurted out a 2 billion Euro pledge of humanitarian aid to Greece. That was in March, and the check must be lost in the mail, as we ain't seen a penny. Funny that his analysis of our needs exactly match the very rough estimate of the pipeline benefits. As they say in detective stories, I don't believe in coincidences, nor do the Greek people. The "pledge" was as much real money in the bank as the Russian "concept", but at least the Russians clearly identified it as a concept.

    As far as Russia goes, the Grand Poobahs of the EU are simply afraid that Greece will turn from one scam artist to another.

    To be continued

  4. Greece is totally committed to NATO, and is one of four states that have met or exceeded the NATO goal of defense spending of 2% of GDP. Look up the other three via Google, lest I be accused of throwing stones at You Know Who. The current government floated the first successful attempt at reducing defense spending, identifying hardware purchases bought via bribes (convictions reached) as the first to be terminated. Interestingly enough, the lenders previously would not accept long term hardware cancellations as spending reductions, as they were "one time cost avoidance" not "cost reduction via reform", Took the imposition of prison sentences under those nasty Marxists to change the definition. Pension cuts have already been made, and a phased drawdown of personnel is on the books. If the countries of NATO spending 1.3% of GDP or less want the Southeast border protected at a higher level, then pick up the tab. Greece will stay in NATO, but no longer bear a disproportionate share. Of course, the defenders of lower defense budgets elsewhere will use the total Euros spent yardstick to defend their position, while measuring every further austerity measure in Greece via GDP.

    I have no idea of what the BRIC crowd will do. Right now, no one has the resources to assume the debt that Greece carries. Finally, after five years, it is being admitted that the debt is not sustainable, was definitely not sustainable in 2012, and most likely not sustainable in 2010, when it all began. As former FinMin Varoufakis described it, “Extend and pretend”. Now that the foreign banks are possibly safe, the truth is not so inconvenient. Other than a philanthropic gifts, what do the BRICS have to offer? If the IMF will not play ball with the unsustainable debt, why would the BRICS offer loans that are predestined to suffer a haircut or default?

    And that question also addresses the Russia question. If key players in the lenders believe that default is inevitable, and thus want a Grexit, how could they be so ignorant as to think Russia would lend money to Greece. If you don’t think Tsipras and Putin discussed this, you are smoking something funny. From Day One, a key plank of the Syriza platform was that the debt is unsustainable. But to hold the position that the Greek debt is sustainable and defend austerity, you would have to say that there is a threat of Putin offering loans as aid. I haven’t figured out yet which lie the lenders were using.

    So, the banks and countries are now, at least as claimed by the lenders, safe from “contagion”. That claim bars the IMF from bending their rules to lend more. The debt is slowly, but surely, being recognized as unsustainable. That also precludes the IMF from lending more. So the lenders must decide between a debt restructure or a forced default. Either of which will be unpalatable, and both of which is bound to expose what a sham it all was from the beginning. The fish dies by its mouth.

    If the Syriza government accomplished anything, it was to expose the ugliness of the EU and some of its member states. Whether that will result in change, is far beyond my ability to predict.

  5. Thanks Al;

    I note that You-Know-Who is first to Tehran after the agreement with their Economy Minister shepherding a group of businessmen and industrialists.

  6. mike- business is business - human dignity is optional.

    Interesting piece from today's Ekatherimerini. Donald Tusk, the President of the European Council (still can't keep all the various Presidents straight), a Pole, and the only Grand Poohbah that did not try to influence the January Election or the June Referendum seems to have been the driving force behind the final agreement:

    "In an interview with Kathimerini and other European newspapers on Thursday, European Council President Donald Tusk said that Greece and its lenders came very close on Monday morning to failing to agree a deal to keep the country in the eurozone. “I told them, ‘If you stop this negotiation, I’m ready to say publicly: Europe is close to catastrophe because of 2.5 billion,’” said Tusk of his message to Tsipras and German Chancellor Angela Merkel before an agreement was reached."

    I guess the truth can be frightening to more folks than we know.

    And, it turns out that the was a "secret" Euopean Commission (they have a "President", too) report detailing some of the near catastrophic outcomes a Grexit would have cause. So far, while some details have been leaked, it is under lock and key in the EC President's office. Transparency in action.

  7. The sad thing about the European effort to force Greece to agree to Euro plan is that it has zero chance for success. There were some last minute efforts to lighten the insane load on the Greeks but they were far too little and far too late. I figure we have somewhere between 3 months and 3 years to wait for the next explosion.

    Al, any clue on whether Tsipras is going to face a no confidence vote any time soon? US and pro-Euro news sources made it sound like he got thumped pretty badly by his own party but I learned a long time ago to not completely trust them without verification.

  8. Pluto

    Right now, while there has been a cabinet shake up, it does not seem that there will be a call for a no confidence vote. The major opposition, center right New Democracy, party sacked their leader following the "OXI" vote, and the new party leader immediately convinced his people to band together behind Tspiras in dealing with the lenders. All the other parties, except the Communists and Neo-Nazis followed suit. There is a lot of support for the fact that Syriza forced the recognition of the two elephants in the room, debt sustainability and the primary objective being protection of French and German banks from the very beginning.

    The only serious suggestions in the local press about government change come from the right leaning media, who are suggesting a "National Unity, Technocrat" government, which, of course, is less representative of the people, and thus would be a bit more sensitive to the desires of the oligarchs, as was the last technocrat temporary government and the previous center-right coalition.

    Fighting corruption and oligarchs have been at the front of the Syriza platform. For example, in 2012, the tax office published a list of the top 3,500 individuals with tax arrears, totaling some 14 billion Euro, saying that would "shame them" into paying. The first prosecution of these people was under Syriza, collecting 1.8 million from a major oligarch as their first case. While the lenders turned a blind eye to the failure to prosecute wealthy tax evaders, now that a program seems to be underway, can they safely object and continue to place the emphasis on enforcing taxation only on the working class? Will a serious assault on corrupt oligarchs strengthen Syriza's position? Only the people know.

    yes, the current plan has zero chance for success. However, IMHO, the longer the champions of austerity demand their approach, the more likely it will be exposed as a sham. I would say that the Greek people have two choices, Grexit, suffer the misery and let the austerity crowd manipulate the narrative to make it look like they really tried and Greece was the failure, or suffer the austerity and show how bankrupt the lenders' programs have been. I am convinced that several key players want to force Greece out of the Euro ASAP only to keep austerity from coming under serious scrutiny. Could be wrong, but it sure is starting to smell that way.

    Changing the subject a bit, I was quite astounded by the release of one of the lenders' proposals during the so called "negotiations". It pertained to the "house tax" as it is called here, or ad valorum property tax in the US. The lenders' proposal was to "increase the assessed value of all property a sufficient amount for the tax revenue to equal X.X billion Euro". Not change the tax rate, but increase the assessed value. Think about that a bit.

  9. "However, IMHO, the longer the champions of austerity demand their approach, the more likely it will be exposed as a sham"

    Al, you are right that austerity cannot work under the conditions that it has been imposed on Greece. BUT it is in the best interests of the Euro leaders to pretend, no matter how bad or stupid things get for the Greeks, that the plan is perfect and the Greek execution is flawed. And they control the press outside of Greece.

    Knuckling under and putting up with more of this nonsense is not going to change expectations about the success of austerity. The only way to prove that austerity is a sham is to exit the Euro zone, take the incredibly painful hits to the Greek economy and then recover from the mess in your own time and under your own rules rather than rules imposed by the Euro zone. Iceland and Argentina are the best examples of this but it seems to me that most countries that default on an unpayable amount of debt recover far faster than those that keep trying to repay it. The earlier they default the better off they are.

    As you correctly noted, the real cause of the problem is that the bankers in 2005-8 loaned out far too much money to the Greek economy with insufficient controls to make sure they could get repaid. They've successfully gotten their governments to take the hit instead. Greek efforts to repay the loans only weaken the Greeks for the eventual exit and help the bankers avoid the blame.

    The real reason the Eurozone leaders have not already thrown Greece out of the Eurozone is that they are busy moving the blame for the failed loans from themselves and their banker friends to the Greeks. If you play to their game plan you will ensure that the European memory of austerity is a great concept foiled by lousy Greek execution despite everything the Euro leaders could do. I want better for the Greek people than to be stuck with that label. The original Greek government that lied to get the loans and the oligarchs who don't pay their taxes also deserve to be hung out to dry but the average Greek citizen deserves better than this.

  10. As a matter of fact, much of the money went into financing Greek trade deficit (and thus making life better in Greece temporarily) and only a minority of the funds went into creditor banks. Germany could have bailed out its stupid banks and other stupid buyers of Greek bonds at a much lower cost (exposure) than with this bailout.

    The Syriza cabinet proved to be astonishingly incompetent, having no Grexit plan to threaten with and thus no bargaining power whatsoever. All they could do and did was to delay the admission of their self-inflicted dependency (self-inflicted since they refuse to do the obvious; Grexit, default by converting debt into the national currency). 180° different from rumoured great game theory-driven negotiation strategy, they were the worst possible negotiators and strategists.

    And foreign-dictated austerity didn't impose any damage on Greece. Greece chose to follow the non-Grexit path, and had the consequences thereof cushioned by de facto transfers from other countries. Greece is so miserable because it's piss-poor for lack of manufacturing strength and crashed both its government and its economy all by itself.

    1. Germany had more than their banks Greek investments to worry about in 2010, Sven, and you know it. The German container ship industry was in a crisis, with billions in non-performing loans on the books of German banks. A Greek default at the time would not only have toppled banks holding Greek debt instruments, but those holding the notes for insolvent ships.

      However, the original bailout was a stroke of genius. Germany was able to shift a significant part of their burden for protecting their banks to the rest of the world. You see, Sven, by bringing IMF money into the equation, the taxpayers of some 170 non-EU nations pick up part of the cost of the, as you say, "stupid banks". Thus, those banks are not only getting 100% of their investment back, but with interest. Net sum game? Germany saves money at the expense of other nations, and changes the narrative from "bailing out stupid German banks", to "bailing out lazy Greeks". Pretty slick, if that lie weren't slowly, with the help of the IMF, unraveling.

      Syriza accomplished something that would have never happened if the Samaras government had remained in power, They got one of their two major objectives. An admission that the debt hasn't been sustainable for quite some time, if not from the outset, and that all the austerity in the world won't change that. In conjunction with that admission, Syriza changed the debt repayment and "contagion" narratives completely in so far as any further IMF involvement. Claims that the EU can now handle a messy Grexit without fear rules out the IMF from continuing to assist "Europe" as a justification to violate their own rules, and admissions that the debt is non-sustainable also rules out IMF assistance without a restructure acceptable to the IMF. In short, Europe is on its own unless there is a debt restructure.

      The battle also exposed one very significant issue. All the austerity bobble-heads were taking their cues from Germany, and when Merkle caved, the bobble-heads all jumped on the bandwagon. Donald Tusk did not address the entire Summit Group to force an end to the craziness. He pulled Merkle, Hollande and Tsipras into a room and played hard ball, threatening to make the public declaration I posted above should they fail. Angela walked out with a compromise, and the bobble-heads all shouted, “Yup, me too”.

      I beg to differ with you about what Greece chose in 2010. The then PM was ready to call a referendum on Grexit, and the EU (spelled with a capital "G") put amazing pressure on him to accept a package, so that they could play "Extend and Pretend" until the banks were in the clear, at worldwide expense.

      You can cloud the conversation with all your "economic" stuff and attack the lack of a manufacturing base, but that is not what I have been discussing at all. I am discussing the opaque nature of the EU and how it has been used to further the objectives of one major player while the truth be damned.

      In 2010, the German government did not step up to the plate and say, [i][b]"We screwed up. Our stupid banks have been making very risky investments in Greek bonds and container ships. Now, Greece is about to default, container ship losses are mounting and we must, sadly place the entire burden of these risky investments on the backs of German taxpayers. Bad us, bad Greece, bad container ship owners. But we are willing to accept the consequences of the German banking system's stupidity and handle our issues on our own."[/b][/i] No, the problem was blown up to a European and world problem, and a significant portion of the risk for Germany's "stupid banks" was craftily shifted to the world. And once again, Germany can claim they have not made one single mistake nor self serving act since May 1945.

    2. "Germany had more than their banks Greek investments to worry about in 2010, Sven, and you know it. The German container ship industry was in a crisis, with billions in non-performing loans on the books of German banks. A Greek default at the time would not only have toppled banks holding Greek debt instruments, but those holding the notes for insolvent ships."

      Sorry, the German exposure to Greece was relativley moderate, the maximum was 40 billion EUR. This was after HRE bailout a joke and no political problem for Merkel, the damage was already done with HRE, that had cost >160 billion EUR. Forget the German shipping industry.

      Which countries were 2010 in danger when they had to bail out their bank? It was NOT Germany, such assumption is nonsense. Check per capita exposure. Cui bono?


    3. Well then, Ulenspiegel, Germany certainly had the IMF fooled. Several IMF executives have documented that the primary concern was French and German banks, and that DSK used "continental contagion" as a cover story to make their contrary to IMF rules contribution. Are you suggesting that Germany participated solely out of the kindness of their hearts, and didn't correct the IMF?

    4. I should also say that I want better treatment for the German people than they have gotten from the Merkel government. As Sven says, bailing out the German banks directly would have been far simpler and cheaper than the current nonsense with the latest Greek concessions. But I'm sure that somebody felt like they needed some sort of political cover...

  11. Watching this from the sidelines what really stands out to me is that apparent willingness of the EU authorities to believe that, in the words of another would-be Caesar, they can "make their own reality". Austerity is prosperity. Freedom is slavery. You know the rest. The notion that punitive economics could produce a positive political result seems reasonable only if you're willing to ignore everything you've ever learned about history and human nature. But this seems very possible if you're working out of Brussels.

    Without the sort of social mobility and governmental integration possible in a genuine polity the euro now appears to have been pretty much doomed from the start. Arguing over who helped kill the corpse and who didn't seems like masturbatory rhetoric as much as anything. The bottom line is that there's only two real outcomes at this point; continued Great Depression-style misery for the Greek public, or some sort of forgiveness/restructuring/devaluation that runs from some sort of change in the EU fiscal rules all the way to Grexit.

    It'd be nice (for the creditors) if there was a Third Way that meant that Greece turns into a Libertarian Paradise while validating austerity. But without magical sparkle unicorns how that happens I have no fucking idea.

    1. The "austerity" lens is misleading.
      The majority of the conditions were about abolishing bullshit that the Greek state had piled up during decades.
      There's a reason why the conditions were often described as "reforms", not "cuts".

      And yes, in the long term those reforms will ceteris paribus improve prosperity.
      The problem was that Greece was in a bad enough shape that neither short-term-optimized nor long-term-optimized measures would help much without flexible currency exchange rates.

      To give Greece enough money to go on without any cuts or reforms was never an option. That money already had owners, which in turn had their own legitimate interests. Krugman et al were delusional thinking of the EU as an entity that would bail out Greece the way Texas was bailed out in the 80's - as if it was self-evident.
      The interests of Greeks are not the interests of Germans, and the Greek minister of finance has no authority over the German budget. The Greeks and Keynesians learned this slowly.

      What I don't understand is how the societies in Europe - not only the politicians, but also the media and economists - are still able to pretend that the optimum currency area theory hasn't been confirmed to be 100% applicable and doesn't 100% recommend a Grexit RIGHT NOW.
      Here are hundreds of media comments on what Schäuble tried about a "temporary" Grexit and the consensus is that Schäuble is sabotaging European unity and German reputation.
      Fact is, for once he is almost pushing the right way, supported by science and facts.

    2. Sven- The idea of a "Europe" has become so ingrained that any and all "Europizing", however ridiculous or dysfunctional, is just too emotionally and politically overpowering to allow rational thought. You are not going to get much of an argument from me over whether Greece should have been in the currency union. Hell, I'm not sure the currency union is viable to begin with. But being in the currency union is more “Europe” than being outside, regardless of how impractical.

      As to reforms, when you make bread loaf weights and "liberalizing" the gym market issues where there are more significant reform needed, the credibility of the reform process is seriously diminished. Sadly, the OECD "Toolkit I" of reforms that have been demanded expended a lot of energy on picking fly turds out of the pepper. Will adding 250 gm loaves to the bakery shelves revitalize the Greek economy? Is a 500 gm minimum loaf size dragging down the economy? But when a people perceive that a "solution" is demanded to a "problem" that has never crossed their minds, they tend to push back. Does loaf size even twitch the needle on your give a shit meter when the economy around you is in shambles? But being told you are backward or stupid because of loaf size can score high on that same meter. Is work out gym “liberalization” as crushing a concern to the unemployed as it is to the lenders?

      Thing is, both culturally and economically, there is no such thing as "Europe". You can define a geographic "Europe", but how do you merge Protestant, Catholic and Orthodox Europe into a single cultural entity? Since those three religions have a huge impact on the world view of even the atheists in the three regions, you are talking about either creating a whole new cultural, ethical framework, or extinguishing two of the three. As I said previously, economics cannot successfully operate without accounting for sociology.

      But then, that last sentence above is where you and I diverge significantly. I was educated to understand the difference between physical science, empirical science and social science. Not one of my professors, from undergraduate through PhD, held Economics to be anything other than a social science. And, being a social science, ethically and practically barred from conducting controlled experiments Testing an economic theory would require having strict controls, and how would you subject just a portion of a given society to "Theory A" and another to "Theory B", especially if "Theory B" requires a culture change? Is it ethical to impose a culture change to test an economic theory, particularly if you are just testing? Ex post facto research cannot replace the experimental method.

      And the previous paragraph provides the answer to your "still able to pretend" question above. It's not economics or finance that is causing the constipation, but sociology. In addressing the Schuld of the Greek government, no one wants the Schuld of having screwed up from the very start. Whether or not the original bailout in 2010 was rational, and without ulterior motives on the part of any and all players, it was a disaster just dying to unfold. And disastrously unfold it did. Now, history is being rewritten, cover stories are being developed, fingers are being pointed, “I told you so” is the statement of the day and threats are being made to avoid carrying Schuld, because the price of undoing what was done in 2010 and 2012 has escalated significantly. And, that price impacts human lives.

      Strange as it may seem, some cultures place the sanctity of human life above numbers, and that is why there really isn’t, and probably never will be, a “Europe”.

      And I would ask, if "science and facts” back up Herr Schauble, why did he not have the moral or even "scientific" courage to be equally intractable based on the "science and facts" in 2010?

    3. "And I would ask, if "science and facts” back up Herr Schauble, why did he not have the moral or even "scientific" courage to be equally intractable based on the "science and facts" in 2010?"

      He had become minister of finance in 2009 only, and had no clue about the office. His previous office was minister of interior affairs where he earned the nickname "STASI 2.0".
      I suppose it took years of economic and bureaucratic advising (on the job) to teach him the basics about the currency union and financial markets.

    4. So his stances in 2010 and 2012 that lead to a failed program were because he was a rookie? And now he knows the "basics" so his complicity in a wrong headed bailout is excusable, and thus he bears no Shuld?

    5. Obviously the Greeks refuse to do the right thing and leave the Euro currency, betting on establishing a transfer union. Schäuble thus prefers a Grexit personally.
      Meanwhile he has to protect his Chancellor's and his party's ass by delaying the realization of all the losses incurred. So far there are only "guarantees" and other abstract troubles. In case of a Greek default the German budget would blow up. To delay this also preserves Schäuble's own rather good-looking budget and thus his superficial legacy.

      The motivations involved are more intricate than 'evil Germans want to impose their Ordnungspolitik on Europe and kill off Greece to break the last left-wing resistance to German hegemony'.

    6. Sven- One treads on thin ice when one ascribes motive or hidden agendas. I doubt the current Greek government wishes to establish a transfer union, but rather terminate the fiction of the debt being ( no less ever having been) sustainable and austerity, as applied to Greece, being successful. The Greek government succeeded in the former. Now the question is how the lenders will deal with the sustainability problem. Restructure or default? I doubt Schauble or anyone else can delay that decision long enough to insure their legacy. One can only lie and obfuscate while one is alive.

  12. Ben Bernanke - not exactly a wild-eyed Keynesian - weights in:

    "What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP. Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows.3 Importantly, Germany's large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive. Germany could help restore balance within the euro zone and raise the currency area's overall pace of growth by increasing spending at home, through measures like increasing investment in infrastructure, pushing for wage increases for German workers (to raise domestic consumption), and engaging in structural reforms to encourage more domestic demand. Such measures would entail little or no short-run sacrifice for Germans, and they would serve the country's longer-term interests by reducing the risks of eventual euro breakup."

    1. By now it's not so much about full employment (which we don't have), but about the pension system. The only way capital-based pension savings can work for a shrinking population is to have a trade balance surplus for a while.
      I criticized the BS about retirement savings plans for a while, but macroeconomic theory insights don't appear to have any traction in Germany since the Kohl cabinet. The conservatives appear to be blind in this regard and the social democrats either drown in ideology when they have no strong leader or follow a strong leader (who never has the best macro ideas) like sheep.

    2. As I said above, I wish the German citizens were better led as well. Merkel's focus on staying in power for its own sake is understandable (she is a politician) but she also needs to think of her legacy.

      Nobody wants to be remembered as the person who emphatically threw away the last chance to make the Euro work or as the leader who didn't see what was coming.

    3. Sadly, Frau Merkle has exercised no serious "leadership" in the whole mess, and when she went head to head with Donald Tusk, behind closed doors, it was Tusk who had the real leadership role. He just doesn't have the manufactured image that Frau Merkle has.

      In the minds of far too many people, "Europe" can only be imposed, and deeply rooted culture along with age old enmities and suspicions make imposing it impossible. Hell, currently in the US there is not universal agreement as to cultural norms. Thus, GOP politicians pander to regional differences by saying how good it is to be in "Real America" when in fervently of right wing states. Texans do not want "California solutions". And the beat goes on.

  13. I thought that this was worth noting:

    "The reality is that the Euro is a poor match for Greece, period. Greece, prior to its current EU-imposed economic meltdown, was an emerging economy. Emerging economies need a lot of liquidity to feed the growth. The usual source of this liquidity is the government running deficits funded by printing money via their central bank, which injects freshly printed money into the economy and helps match output with money supply in order to create price inflation. Price inflation being one of the things necessary to make capitalism work, because capitalism requires money to be in banks, not under mattresses, so that banks can lend it to businesses so that businesses can invest in the capital goods needed to meet customer demand today without having to wait to slowly accumulate capital via other means. Greece needed its money supply to grow at the same pace as its GDP plus around 2%, and the overall Eurozone 2% inflation target was woefully inadequate for that."

    I would add this; I have read from several sources that "austerity" (in the sense of the desire to shrink government spending - particularly deficit spending - through slashing services and benefits rather than through increasing revenue) was pretty much baked into the euro project. A critical mass of euro proponents liked the idea the the tight inflation and deficit targets would rein in the more (as they saw it) profligate welfare states.

    Now I am NOT saying that this is "true"; I'm saying that I have read this in several accounts; some, clearly from "anti-austerity" or "anti-EU" authors that have an axe to grind, but several from relatively neutral sources. In a sense whether this is "true" doesn't matter nearly as much as this narrative appears to be not just fairly common but exactly the sort of thing that you'd expect to appeal to people who see this as "part of the grift"; an imposition of obligation on the poor by the rich, an expectation that those with little should make do with less while those with much deserve even more. A sort of "austerity for thee but not for me"

    And...this simply reinforces Al's point; the EU was an immense imposition of hope (or, perhaps more cynically, ideological conviction) over reality. The "EU" isn't any sort of genuine "union" even in the sense that the United Kingdom is a union and definitely nowhere near the unity of the U.S. which, as Al also points out, is remarkably disunited on several significant points...

    I "get" where Sven is coming from...but I think that coming at this problem is sort of like coming at the problem of poverty from the Court of Versailles; it tends to produce "well, why don't they eat cake, then..?" "solutions", as if scolding people who have no job and no prospects will make them nod politely and go away.

    1. Regardless of economic "theory", "science" or "fact", participation in the EZ strips the people of choice, as the fiscal politics have been established and there is no room for leftist popular governments, be they correct or not in their fiscal priorities. That would be fine if one could come and go based upon the will of the people, but the fact is that "going" cannot be accomplished without dire consequences. Or as Varoufakis recently said, "Tanks have been replaced by banks", and Krugman said, "A Roach Motel".

      In short, to survive in the EZ, a nation must surrender the right to have certain political philosophies. That may sound fine to a culture that sees democracy as an authority/obedience model, but it definitely does not allow for a model of democracy that recognizes any expression of free will of the people.

      Additionally, the nature of how "elected representatives" are seated in national parliaments varies significantly across the EU. In some cases, MPs are presented as a party's "list", and you simply vote for a party and that party's percentage of the final vote will determine how many members of that party will be seated. Thus, there is no one in government even remotely accountable to your vote or threat of removal of same. In other states, members of parliament are directly elected by an identified "constituency", or "congressional district, as we Yanks would call it. How do you reconcile a "union" of states where such vastly different concepts of participative democracy are involved? I get to try to hold an elected rep's feet to the fire, while you only get to hold a "party's" feet to the fire. Almost in the same league as whether or not corporations are "persons". I am not claiming one is right and one is wrong. Each is the accepted norm of a given people or culture, but each is so significantly different that they cannot be said to be compatible.

      Underlying a form of government are cultural norms. Expecting Culture A to accept Culture B's notion of what represents a democratic form of government is nothing but culture clash, especially if in the "union" there are tools to impose one cultural imperative on another culture. Cultures are people, not balance sheets. Numbers cannot predict the point of creation nor outcome of a "flee or fight response".

  14. Pluto asked: "Al, any clue on whether Tsipras is going to face a no confidence vote any time soon? "

    The latest polls show 60% of the population support Tsipras. Someone in the Syriza government unofficially mentioned a "snap election", and there was a parade of opposition party members, as well as establishment media commentators saying that "we need stability, not elections"

    Most analysts suggest that a snap, or even early election could readily put Syriza in power with a commanding majority, and thus not reliant on a small coalition partner. Consider that for years Greece was ruled alternately by two major parties, New Democracy (center right) and PASOK (center left). The crisis in 2010 toppled PASOK, and resulted in a caretaker government. Elections produced a coalition government, with ND drawing 29.7% of the vote and PASOK 12.3%. PASOK joined the coalition as a survival measure. Syriza, garnered 26.9% of the vote, and the four minor parties less than 6% each.. Thus, the reality was that Syriza was the opposition to the entire previous "mainstream".

    In January 2015, Syriza captured 36.3%, ND 27.8% and PASOK was the lowest of all the "minor parties" at 4.7%. In effect, one of the two mainstream parties has ceased to exit, with many of its supporters going Syriza, and the other simply "holding on". If the 60% approval rating of Syriza is indicative of what might happen at the polls, then support for him can only come from former ND supporters, as "minor party" percentages tend to remain relatively stable. Would you, as a member of ND take such a risk?

    1. Another thing here is that 1) Greece is just better off outside the EZ, and 2) if the fascists are the only Greek party willing to push that...that's a huge problem. Because eventually the people are going to look for the party that will lead them out...

    2. Chief- Expecting the EU to develop and implement an optimal solution is quite the fantasy. The EU is best characterized by its strict adherence to NATO and OBE. Now, that's not the North Atlantic Treaty Organization and Order of the British Empire. Rather it's "No Action, Talk Only" and "Overcome By Events". What to kick those two imperatives into action? Just use the word "Crisis". Since "Crisis" requires shared sacrifice, it ain't going to result in swift and decisive action. Far too many veto powers.

      For example, the "refugee crisis". It was first raised to crisis level in October 2013. Everyone says it has to be addressed, yet selected nations and or key players from amongst the "everyone" have thwarted any program. So refugees keep piling up in Italy and Greece. From the linked article:

      But there is one thing which has changed. It's no longer as easy to shirk responsibility for what is happening. The blame game has already begun.

      Vincent Cochetel, the head of UNHCR's Europe Bureau, sounds almost resigned when he speaks about the summit that took place in the last few days. "There's no lack of ideas and concepts for a fair refugee policy in Europe," he says. "But there is a lack of will and courage to implement them."

      As to the Greek sovereign debt crisis, "extend and pretend" has allowed the avoidance of the most crucial step in the classic problem solving process - evaluate and follow up. Between 2010 and 2013, the Greek economy shrunk 25% versus a "predicted" 7%. Was there any evaluation of why? Unemployment reached 28% versus a "predicted" 15%. Again, no evaluation and follow up.

      Why does the EU institutionalize dysfunction? Simple. While there are legions of people "in charge", no one is accountable.

      So, while there are definitely those in the EU that would like to force a "Grexit", there are many more who would not be willing to take the responsibility for it. And while there are those who might be willing to offer a "managed" exit, they too are not willing to take the responsibility for one. Rather, they hide behind secrecy, opacity and go along to get along.

      In 2010, Greece could have negotiated a survivable exit. Now, with the damage the bailout inflicted, I'm not so sure. In 2010, Greece would not have needed humanitarian aid. Five years later, as a result of the "cure", key EU officials were "pledging" and/or offering humanitarian aid to sway elections. Of course not one Euro of aid has been placed on the agenda of the agencies authorized to provide same.

      So, if Greece were to voluntarily exit the EZ, do you think any assistance, costing money or otherwise, would make it through the EU in my lifetime? When the "prudent decision" leaves you isolated and even more open to exploitation, it sure is difficult to make that leap.

  15. I note, with dismay, that there has been relatively little discussion about how a Grexit could occur.

    Modern banking involves much distributed computing technology. Distributed computing by its nature tends to be slow to implement. I can't imagine what a Grexit would be like without a year of intense preparations and I can't imagine Greece actually being able to prepare for a year.

    Fasten your seatbelts, it will be a rocky ride.

    1. Had a "managed Grexit" been done in 2010, there probably would have been pain, but the economy was in far better shape that it is at present. However, there was absolutely no backing for a debt restructuring, other than IMF Chair Straus-Klein. Unfortunately, he finally fell prey to the cries of the rest of the EU and looked the other way on what he saw as non-sustainable debt.

      Keep in mind that the members of the Euro Group, the financial and economic wizards advising the EU are, in the main, on the job trainees. The only requirement to be in this powerful group is to be appointed Finance Minister of a Euro Zone Country. So, in 2010, for example, Herr Schauble has a full year of OJT to prepare him to address a major issue. There is no way to tell what may have driven Schauble's decision making, as he is not the most forthcoming fellow. What history has shown is that Wolfie has never admitted to a mistake. Take the time to read the current FIN Mins' dossiers and see if the mess is currently in the hands of impecably trained and experienced heavy weights. Do they ever call in a panel of independent, respected consultants? Hell no. Continental economics and finance, self taught. No wonder they meet in camera.

      Lacking anyone who could guide the Grand Poobahs in quickly designing a managed "Grexit" in 2010, the next best approach was to fall back on political solutions to "hold Europe together" and protect the banks. And that's what we got.

      So, Ael, the choices are more "Extend and Pretend" or a disaster, unless the IMF bring some long overdue maturity and professionals into the game and get the long overdue debt restructuring under way.

    2. It seems to me that "extend and pretend" will simply make the crater larger. The political and economic dynamic simply demands that "extending and pretending" excludes adult leadership.

      I weep for Europe.

    3. A lot depends on the ability of the growing chorus of those who say debt restructuring is necessary to influence things in the coming months. Put yourself in the shoes of a politician. "Extend and pretend" resulting in a forced Grexit may cost 300+ billion in default burden on taxpayers, but it would be easily blamed on Greece. A debt restructuring costing less than half that amount to taxpayers would be blamed on the politicians who approved it. Do you know of any politician that would choose to minimize their constituents' loses and take responsibility for a debt restructuring, when he can double the losses but put the blame elsewhere?

  16. Replies
    1. That person doesn't deserve any attention any more, for he got attention for too many wrong things.

  17. Paradoxes--

    It was announced today that the assets have been seized from over 400 physicians whose movements of a minimum of 100,000 Euro of cash out of the country since 2010 to deposit accounts in other EU countries, but whose tax declarations did not support the accumulation of such wealth.

    So far, the Syriza crackdown on corruption and tax evasion has accomplished more in 6 months than the previous three governments accomplished in 5 years.

    Funny thing is that the "Troika" said that things were "turning around" last Dec and that the people should not overturn the previous government. Yet, the previous government did not lift a finger to apprehend wealthy tax evaders, and it was obvious as the noses on their faces. Rather than reform our bakeries, the EU should assist in repatriating the billions of Euros in "partner country" banks that are the proceeds of tax evasion and corruption.

    Even more interesting that virtually every EU bank has voluntarily agreed to report any US citizen with over $50,000 in deposits, and freeze a minimum of 30% of those funds if the depositor does not provide the bank with the minimum personal data (such as social security number) to be able to make such reports (FATCA). But then, if they refused, they would have been cut off from US financial markets. Follow the money.

  18. FWIW:

  19. Interesting article, with flawed logic.

    The authors state:

    "There's an obvious way of squaring this circle: Greece and the EU should contractually link changes in the terms of the country's EU loans to milestones in structural reform. Think of the result as structural-reform-indexed (SRI) loans, akin to former Greek Finance Minister Yanis Varoufakis's gross-domestic- product-indexed bonds."

    You don't "square the circle" by using process variables as a substitute for Varoufakis' outcome variables. You simply substitute a square for a circle. The false premise is that the long list of "reforms" being demanded by the EU are guaranteed to somehow magically get some form of desired outcome, and so far, many of them simply have not.

    Take the "liberalization" of pasteurized milk. Greek consumer protection laws once defined a category of "fresh milk". That was milk which had a shorter listed shelf life than just "pasteurized" milk, and was very popular. However, it precluded imported milk being so labeled due to transportation time. So the first step in "liberalizing" milk was to extend the shelf life for qualifying for the "fresh" label. Greeks still favored "fresh" domestic milk, and thus no significant rise in imports. Net result? Troika demanded last year that the category "fresh" be abolished, and shelf life be extended to 31 days to stimulate more imported milk and thus lower prices. Had no impact on the price of milk, as the milk companies used cheaper imported bulk milk to offset increased tax burdens imposed by the Troika. Of course, it assisted Holland in getting rid of some surplus dairy product. So, how about making a billion or two of debt zero interest, indefinite maturity to celebrate a net sum zero liberalization of pasteurized milk!

    Point is, Greece can easily "liberalize" milk, bakeries, pharmacies, notaries public, lawyers, etc, but if the outcome is of negligible impact on the economy and the government's ability to service its debt, what has been achieved? What Varoufakis requested was that the Greek government be allowed to try a different approach to solving its economic disaster, and reward success in results. Rather, the assumptions are made that the mandated reforms will achieve anticipated results, and debt servicing would be scheduled based on predictions, rather than results. Since the lenders' predictions over the past five years have been wrong by several orders of magnitude, one would think there might be a consideration of a new methodology. But, since such a reconsideration might not be consistent with ideology, of course, change is not in the winds.

    It is interesting to me, that an EU that wants to "liberalize" markets also creates clear and rigid geographic monopolies for a host of agro and foodstuffs. Thus, for example, I could produce a Blue Cheese on Paros that is made in the exact same way and looks and tastes just like Stilton, but in no way can I even hint that it has anything to do with Stilton. I can't even call it "Imitation Stilton". Funny thing is that the Town of Stilton is prohibited from producing "Stilton Cheese", as it is not on one of the three counties that petitioned for and received the Protected Designation of Origin. Go figure.