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  1. Greece defaults.

  2. Stricken banks, Greek or otherwise, launch rights issues to recapitalise themselves.

  3. Greece returns to balanced budgets by actually enforcing its tax gathering system.


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 01:33:37 PM EST
Foreign primary deficit plus prevailing hard currency interest rates being in excess of sustainable nominal growth rates.

You can solve this with a transfer union, by Germany import more to reduce the foreign primary deficit or by increasing Eurozone inflation to boost nominal growth, while retaining low Euro-denominated interest rates. But you need at least one of those.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 03:29:32 PM EST
[ Parent ]
Well, that's only a problem if you rely on deficit spending to prop up the budget. Balance the budget by enforcing the tax laws and cut certain spending. Tax evasion is very, very large in Greece If people actually payed the taxes they're supposed to pay, there would be no deficit at all.

Or do you think the taxes would then become so high that they'd strangle growth?

In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jun 16th, 2011 at 04:17:19 PM EST
[ Parent ]
productivity improvements of the export industry (including tourism, I suppose) hasn't managed to keep up, lowering the relative strength of Greek companies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 04:19:44 PM EST
[ Parent ]
The best way to improve worker productivity in the deficit countries is to invest in productive capital. Hence the best way to resolve the Euro crisis and close the chronic imbalances is recycling of trade surpluses into EU structural funds geared towards productive investment.

As it is, EU industrial policy forces inefficient countries to shut down their physical plant, making them even less productive.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:23:27 PM EST
[ Parent ]
As for tourism, the pricing of Greek tourism is sky-high over where it was a decade ago. But tourism numbers are sky-high as well. They have more tourists than ever before.

I know because I've been taken to task by Greeks for complaining about all-inclusive resorts encroaching on the beach, for 15 euro beach umbrella rental, etc.

by Upstate NY on Thu Jun 16th, 2011 at 04:36:03 PM EST
[ Parent ]
How big do you think Greek tax evasion is?

It's at 25%.

Now, assume that if Greece were like every other European country, it only had 20% tax evasion.

Well, let's look at its tax collection. It's at 140 billion. 5% of that is 7 billion. That's not enough to cut into a 350 billion deficit. We've only accounted for 2% of a 11-15% yearly budget deficit.

Taxes should be reformed in Greece BECAUSE they are unfair to those who pay. But from a macro perspective outside Greece, here are the numbers reported by Eurostat for the last decade:

Greece collects between 40-43% of its GDP annually. The EU collects 44%.

In Greece, 8% of GDP is collected as income tax revenue. 12% social contributions. 5% corporate. 16% VAT and sales tax.

The actual rate of tax collection in Greece is on par with tax collection in Europe. In fact, I would argue that in Greece, tax collection actually exceeds that of most of Europe when you take into account two factors: Shipping and Tourism. Those two industries account for almost 40% of Greek GDP. Tourism is cash heavy, and outside of using credit cards, I'd imagine its an industry with high evasion. Shipping revenues and profits are untaxed precisely because the ships can register in any port, under any flag. The ship owners pay a tonnage tax for the weight of ships only. So here with shipping we account for 20% of the nation's GDP, but for hardly any of the country's taxes. This literally means that when you back out shipping, the GDP subject to tax is smaller, and thus the % of tax to GDP collected is much higher.

To roll back high tax evasion of high taxes would be a very good thing for Greece, but not a solution. After all, high tax evasion of high taxes already yields more revenue than the low tax evasion of low taxes. In the USA, we have hedge fund managers who pay 15% on earnings.

by Upstate NY on Thu Jun 16th, 2011 at 04:33:31 PM EST
[ Parent ]
Ah well. I calculated that tax evasion would fall from 25 % to 0 %. Or at least to 5 %, the level in Sweden. That should equal about 8-10 % of GDP and hence bring the deficit under control, if not eliminate it outright. Pie in the sky, I suppose.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 05:37:35 PM EST
[ Parent ]
http://www.economist.com/node/16792848

Here's an article about it.

The thing is, you have Junker as a titular head of the EU, an ex-head of Luxembourg which has long batted back EU attempts for some transparency into its "tax paradise" arrangements with some of the worst scofflaws in Europe.

by Upstate NY on Thu Jun 16th, 2011 at 06:35:58 PM EST
[ Parent ]
I'm not sure about the numbers: this paper shows tax evasion ~15% of GDP for Greece - but that includes effectively non-taxable and not reported as GDP, black market economy revenue and thus a figure larger than the figure the Economist is quoting... I can't believe that any northern EU country has anything similar. I should repeat here (I've mentioned it in a comment before) that the M&F paper shows that personal income tax evasion is disproportionately due to the highest income decile in Greece. At the same time corporate tax rates on profits fell between 2000 and 2010 from 40% to 20% , as mentioned here - and that applies to undistributed profits, distributes profit rates' are at 40%, but the net effective rates were (in 2004 at least that I found data) among the lowest in Europe. In fact Greece overtaxes labor and undertaxes profits compared to EU averages even now.

Total revenues in Greece have been less than 40% GDP (but less than that as I mentioned here) an approximately 5% lower number than the Eurozone average that jibes with the 15 billion Euro evasion the Economist article mentions, and I suppose that Greece is on a par with other EU countries in (legal) tax avoidance?

Shipping offers around 7% GDP (here in Greek) and tourism another 15%... Tourism I wouldn't think has a much higher rate of tax avoidance than other industries. Shipping companies and tycoons are almost religiously tax-exempt, not even the income they make from shipping activities is taxed (this again is in Greek, and accurate AFAICT. It lists more than 55 special provisions in the tax code for shipping companies and their shareholders/owners. Quite shocking)

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:33:02 PM EST
[ Parent ]
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec0002 1&plugin=1

This is where I was pulling the tax revenue numbers from, but it also breaks down tax collections by type (income, corporate, etc.)

Interesting about shipping, since I read a number of articles recently that put it at 18% of Greek GDP. I wonder, could this be related to the spectacular deviations in shipping costs? During much of the decade until 2008, Greek shippers were charging upwards of $110,000 a day per ship. By 2009, the rates for shipping dropped to $5,000, so low in fact that companies saved money by refusing contracts, drydocking ships, laying off workers, etc. Many of these companies showed income only from scrapping older ships for metal. I wonder where one might find a year-over-year comparison of the shipping industry.

by Upstate NY on Thu Jun 16th, 2011 at 08:42:22 PM EST
[ Parent ]
Yes, that's where I got the numbers for the charts I drew too. It's near a 4-5% difference between revenues in Greece and the Eurozone average. The shipping rates recovered in 2010 (but are near crash lows in 2011). Check the Baltic Exchange Index history here:

Some numbers on tourism and shipping (2003-2008) here. In Greek.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:57:03 PM EST
[ Parent ]
Looking at that chart, I promise never to overstate, understate, or ever state anything about shipping's impact on Greece's GDP.

And people wonder why Greeks are happy-go-lucky.

by Upstate NY on Thu Jun 16th, 2011 at 09:00:02 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism"). They both use these data to extract tax concessions from the governments.  I would be happy to ask shipping and tourism lobbies to give figures not only for their supposed contribution to GDP but also to tax revenues (har, har). Their tax concessions on one hand and subsidies they get on the other one are really outrageous.

With a quick look at the official site of Hellenic Statistics I couldn't find data on Greek GDP composition braking down to shipping or tourism. That's why figures quoted by various sources differ significantly. For example, a recent paper by National Bank of Greece quotes shipping as 6.9% of GDP.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Mon Jun 20th, 2011 at 01:29:34 AM EST
[ Parent ]
Maybe you can find the data here...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 20th, 2011 at 01:56:46 AM EST
[ Parent ]
Nope, or I need to change glasses.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Mon Jun 20th, 2011 at 12:08:12 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism").

"[W]hen you add up the growth prognosis of all companies of a sector strangely the market is often a lot bigger than it should be..."

- crankykarsten

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 20th, 2011 at 09:00:12 AM EST
[ Parent ]
Shipping is so flush and bust that this alone might explain the different numbers from different sources. Their revenues are not a mystery either since many Greek shippers are public companies. Shipping could be 7% GDP recently, but again, right now business is a bust. It's easy to imagine revenues quadrupling (if not more) in a good economy, and then it becomes a higher % of GDP.

I'd really like to know about the Greek banks and the fact they were started by shipping magnates. What's the relationship between these banks and the shippers who started them. What kind of impact does this have on Greece? It seems to me, should the world economy get going again, the shippers themselves can recapitalize banks in a similar fashion if the old ones collapse, as long as their wealth isn't too closely tied to the banks they created.

by Upstate NY on Mon Jun 20th, 2011 at 09:36:34 AM EST
[ Parent ]
Shipping revenue might increase but I don't remember seeing trustworthy figures over 12% GDP, ever. Do not forget all those patriotic Greek shipowners who have their vessels under many flags of opportunity and the number of their hqs in London...

But see this (p.6) and you realize that as far as shipping is concerned Greece is an international tax haven...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Mon Jun 20th, 2011 at 06:57:46 PM EST
[ Parent ]
So, not only do the shareholders pay no tax, but those working in the offices of these companies pay no tax either!
by Upstate NY on Mon Jun 20th, 2011 at 08:50:14 PM EST
[ Parent ]
and of course the officers can pay the employees less, because they won't be taxed on it of course.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 20th, 2011 at 08:56:31 PM EST
[ Parent ]
I am fairly confident that a not insignificant percentage of higher paid members of staff are family or sons/daughters/etc of serious people / potential allies / partners. They would not be that poorly remunerated, I assume...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 21st, 2011 at 10:04:45 AM EST
[ Parent ]
Indeed, some of the public companies spread out pay to family members so it doesn't look like the CEO is taking a huge salary. This is the kind of stock that Wall Street loves because there's enough suspicion behind the company officers' motives to draw a lot of short interest. Plus, the fact the company is run by Greeks also attracts short interest. Then the mo-mo guys jump on board, pump the story when revenues in oil drilling and shipping come in, and they squeeze the shorts blind.

Wall Street loves stocks with big revenues and muddy stories. Pump and dump.

by Upstate NY on Tue Jun 21st, 2011 at 10:45:04 AM EST
[ Parent ]
Well, that's only a problem if you rely on deficit spending to prop up the budget.

No, you can't solve a foreign balance problem by curtailing the sovereign budget. That just shifts the foreign debt to private hands (all too often temporarily, as we have seen recently). You have to make foreigners buy more of your stuff, or buy less foreign stuff.

That means industrial policy, which costs money. Money that the ECB should be printing on demand. But which it is not because it is run by deficit errorists.

In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the productivity improvements of the export industry (including tourism, I suppose) hasn't managed to keep up, lowering the relative strength of Greek companies.

Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 05:35:53 PM EST
[ Parent ]
You have to make foreigners buy more of your stuff, or buy less foreign stuff.

Obviously. And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.

It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

You know I agree partly here, but nothing stops Greece from looking beyond the eurozone for markets for its exports. It wouldn't be alone in that.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jun 16th, 2011 at 05:41:03 PM EST
[ Parent ]
And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.

Of course, Greek private debt is pretty low comparatively. It's the government that overspent. So it's not really a matter of buying too much foreign stuff as much as it is too much foreign fuel, or foreign military weaponry, etc. The BMWs flying around Athens are reserved for the privileged.

by Upstate NY on Thu Jun 16th, 2011 at 06:40:54 PM EST
[ Parent ]
Because clearly everyone can be a net exporter.

If Germany generates inadequate domestic demand with irresponsible wage suppression, someone, somewhere is going to have either unemployment or bubbles. Passing that problem around like a grenade with the pin pulled out does not strike me as the pinnacle of responsible behaviour.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 17th, 2011 at 05:16:31 AM EST
[ Parent ]
The eurozone is a shrinking fraction of the total world economy, and if someone is going to be a net exporter, it might as well be us.

The trick seems to be not recycling the surplus into dodgy bonds. Avoiding that can't be too hard.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Jun 17th, 2011 at 03:40:57 PM EST
[ Parent ]
And why, precisely, should countries outside the Eurozone - who are actually able to defend themselves against mercantilist attacks - voluntarily decide to subsidise our irresponsible policies?

For that matter, given that German has demonstrated no inclination to permit a currency or industrial policy that would aid Greece, how precisely do you propose that they improve exports? None of the traditional neo-mercantilist policy options are available here.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 17th, 2011 at 04:27:29 PM EST
[ Parent ]
Other countries currently seem entirely happy with doing nothing about "mercantilist attacks", as it means they can import lots of nice stuff.

When it comes to improving exports, I, or any political guy, is the wrong person to ask. Especially in the short-run, as government-led structural reforms like or industrial policy like improving infrastructure or having a non-insane energy policy takes years or decades to implement. No, you're better off asking those who actually run successful export companies what Greek companies are doing wrong when they fail to export outside the eurozone.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Jun 17th, 2011 at 04:51:47 PM EST
[ Parent ]
Greece's products are too expensive because property and worker's pay inflated with cheap currency, bringing it on par with the Eurozone's. Thus, what maunfacturing plants were there eventually shuttered, and it never had the ability to compete with high value technological production. Isn't that the difference?
by Upstate NY on Fri Jun 17th, 2011 at 09:16:21 PM EST
[ Parent ]
All economics is politics. If you excuse yourself from the discussion on the grounds that you're a 'political guy' what good are you?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sat Jun 18th, 2011 at 02:36:56 AM EST
[ Parent ]
All economics might be politics, but all business certainly isn't. When you ask politicians or pundits to run manufacturing companies, things usually go down the drain. Fast.

According to a recent WEF survey, Greece has the lowest competitivness of all EU nations. Greece has slipped from place 50 to place 109 on the World Banks list of the best places to run a business, below countries like Bangladesh or Ethiopia. Big stumbling blocks are things like inefficient government bureaucracy and massive corruption. During 2004-2009, employment in the public sector increased by 100.000 people, largely as a reward for political loyalty. At the same time, public salaries rose by 60 %. How this could not result is a fiscal disaster, is hard to understand. It's just not possible to keep spending more than you tax, year after year, and especially not when you're in the good part of the business cycle!

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 10:23:52 AM EST
[ Parent ]
During 2004-2009, employment in the public sector increased by 100.000 people

No. The number is supposedly +58.000 (16.000 of those were in 2008 for obvious reasons, 12.000 in 2004 - an Olympic year...). In early 2010 a detailed census of public sector employees found them to be ~768.000 - that's about 15% of the work force, not a high number by OECD or EU standards.
Public salaries rising by 60% in 4 years is a joke. Just to give you an idea: over the same period public sector wages as a percentage of GDP were pretty much steady despite the rise in public employee numbers.

So the public sector's extent was not the cause of the "fiscal disaster". Lagging revenue was. And the decile where the lagging was humongous was the top decile...

An aside:

I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis... is that the sort of thing we all have in mind that ET reports are about?

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Jun 18th, 2011 at 06:21:01 PM EST
[ Parent ]
I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis.

That would be very useful.  I can only 'dip' into the discussion/analysis intermittently so anything helping to separate Reality from the Intellectual Sludge hiding Reality would be welcome.

...is that the sort of thing we all have in mind that ET reports are about?

From my perspective: Yes.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sun Jun 19th, 2011 at 11:50:42 AM EST
[ Parent ]
Mail coming your way.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 19th, 2011 at 12:51:28 PM EST
[ Parent ]
According to the FT.

Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent.

So yeah, massive wage inflation.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 25th, 2011 at 03:18:53 PM EST
[ Parent ]
Uh, no, you can't conclude that from the data given. The data given is also consistent with asset stripping.

I note, in passing, the inherent dishonesty of comparing to German unit labour costs, since German wages have failed just as much as Greek wages to track productivity.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 25th, 2011 at 03:43:06 PM EST
[ Parent ]
Not dishonest, as in the next sentence it's mentioned that German salaries need to increase. And as far as I know, there has been no evidence of any unusually large asset stripping in Greece in the decade leading up to the Greek crisis.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 25th, 2011 at 04:01:01 PM EST
[ Parent ]
Greek unit labour costs have risen by 50 per cent since 2001

50% is outlandish even for nominal compensation. I would like to see that sourced. I'm having second thoughts about Jones' numbers, but certainly noone has claimed 50% increase in even nominal ulc netween 2001 and 2009

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:15:10 PM EST
[ Parent ]
As I said, Jones was using 2009 projections, but since the economy collapsed in 2009 these were not accurate. Here he restates his case with updated numbers

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:41:17 PM EST
[ Parent ]
One could play BTW with this from the University of Pennsylvania Center for International Comparisons and see how GDP per person per hour worked compared:


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:38:37 PM EST
[ Parent ]
In GDP per capita, Greece is now below where it was in the 1990s.
by Upstate NY on Sun Jun 26th, 2011 at 07:51:48 PM EST
[ Parent ]
If the surplus is handed to the workers then they typically consume it and consume cheap goods and services (like taking vacations), which will tend to be imported and thus eradicate the surplus.

If the surplus is handled by industrialists it will be invested, thus turning to wages, then imports.

If the surplus is going to remain as surplus it needs to be kept as foreign assets, thus handled by financial gamblers. And what assets are more profitable in the short run for the financial gambler then dodgy assets?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Fri Jun 17th, 2011 at 05:07:40 PM EST
[ Parent ]
Recycling the surplus would mean, among other things, investing in the likes of Brodosplit in order to make their quality product price-competitive, not shutting them down because they can only price their outstanding product at a saleable price with the help of public subsidies. In other words, in order to compete with China you don't make high-end producers in low-capital-plant EU member states go out of business. You improve their capital plant.

The EU is currently unable to do this kind of thing, and the only surplus recycling allowed by market worship is the purchase of dodgy bonds. In fact, in investing in capital plant in chronically underinvested countries the EU would be introducing competition into the niche of historically well invested countries producing high-end goods.

Varoufakis' idea (part 3 of his modest proposal) is to have the European Investment Bank do it funded by contributions from the surplus countries to an EU-level budget.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 18th, 2011 at 02:35:30 AM EST
[ Parent ]
Given the track record of the ECB, the European Commission and other assorted EU bureaucracies, would you entrust them with a massive project to evaluate which companies would receive injections of huge amounts of taxpayer money?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 18th, 2011 at 10:27:54 AM EST
[ Parent ]
And we're also seeing what happens when private institutions - banks and credit rating companies - are entrusted to oversee massive projects with injections of huge amounts of private money.  Hypothesizing corporations are necessarily better at long term planning and resource allocation than governments is as fallacious as to think governments are necessarily better at it than corporations.  

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Sat Jun 18th, 2011 at 11:40:54 AM EST
[ Parent ]
We have seen that in the current regulatory climate many banks and real estate developers and so on, the so called FIRE sector, has failed in many places. Not everywhere, but in many places.

However, this does not mean that eurocrats or politicians would manage FIRE better, nor that non-FIRE enterprises which in general seem well managed, need any more political meddling what so ever. It means the FIRE sector requires better regulation.

The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts: indeed, when the Karamanlins government took power in 2004 and saw that the country was at the edge of a cliff, it pushed as hard as it could on the accelerator, increasing spending massively, including a 60 % (!!!) salary raise for public servants. This utter failure of democratic government does not mean it should be abolished and replaced by rule of corporations. Politicians should be careful not to try running businesses, and businessmen should be very careful not to try running countries. If they do, you get the USSR and USA respectively.

   

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 12:07:14 PM EST
[ Parent ]
The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts

Unless you have a plausible story about how removing the Greek sovereign deficit would have repaired the foreign balance, it would have been pissing into the wind. The debt load would have increased just the same, and judging by Greece's Mediterranean neighbours it would have increased by means of a speculative real estate bubble.

That is, unless you can make the case that the Greek sovereign (a) had a larger import quota than the Greek private sector or (b) spent the money in ways that materially degraded Greece's ability to obtain hard currency, eliminating the sovereign deficit would not have prevented the crisis. It might have brought it forward, by inducing a business depression due to demand shortfall, or it might have made it bigger by inducing a private sector bubble. But wage suppression always eventually comes back around to bite someone in the ass with a demand-side depression, and the wage suppression was going on outside Greek jurisdiction, so it's a little hard to blame them for that.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 12:36:01 PM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places. A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases... Furthermore, nothing requires that foreign balance deficits must be balanced through the issuance of debt, private or public. It can just as well be financed by foreign entities aquiring equity in domestic companies.

Speculative real estate bubbles can be reined in with regulation, if you lack the ability to raise rates (not that I'm going to focus much on this, as it wouldn't surprise me if we'll find that Sweden has failed at this very thing).

And yes, I place a very large part of the blame on "responible" German labour unions for accepting the wage suppression.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 12:55:47 PM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places.

Well, yes.

But it is not immediately obvious how this has any simple, mechanical relation to the sovereign balance.

A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases...

Has this actually happened? Do we have time series for Greek wages and productivity around here somewhere, or are we talking out of our posteriors here?

Furthermore, nothing requires that foreign balance deficits must be balanced through the issuance of debt, private or public. It can just as well be financed by foreign entities aquiring equity in domestic companies.

Ah, the foreign direct investment pony. I was wondering when that one would show up.

Thing is, when all traditional avenues of (neo-)mercantilist policy have been choked off, Greece is left with precious few policy options to encourage FDI. And most of them are bad for both the Union and, in the medium term, for Greece.

Speculative real estate bubbles can be reined in with regulation,

Yes.

But, again, it is not immediately apparent how this will repair the foreign balance.

Certainly, you can repair the foreign balance by gutting demand so far that your economy stops importing food and fuel. Please refer to Suharto's Indonesia for the results of that and get back to me if you still think that's a good idea.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 05:27:57 PM EST
[ Parent ]
Has this actually happened?

Chance would be a fine thing.

This is the usual brain rot excuse - what if wages outstrip productivity?

Well - what if they do? Profits and dividends can always be cut to keep prices level. It's not as if leaving profits and dividends to accumulate is actually going to drive investment.

But apparently this realisation is unpossible. Spending on wages must always be cut first, and must be cut more and more severely, until - er - only millionaires have anything left to spend.

At this point austerity can be applied, the state can be bought, and the cycle can repeat elsewhere.

It's specious nonsense. We know that wages and productivity have been disconnected since the 70s - which is, incidentally, when this idea first became something that "everyone knows" i.e. that paying people too much was the primary cause of the inflationary shocks that were actually caused by energy price increases and by Nixon's default on US obligations.

And for the proponents - in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Jun 18th, 2011 at 05:38:06 PM EST
[ Parent ]
in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?

It's not, of course.  

During the middle years of the Weimar Republic Germany experienced a burst of "prosperity" based on capital inflows (debt accumulation.)  This inflow was used for current account purposes instead of being deployed as long term capital to increase productive capacity  -- & is this beginning to sound familiar?  

:-)

It's the same old story: the inability to cognize the fundamental difference between "wealth" and "accumulating stuff."

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sun Jun 19th, 2011 at 12:02:19 PM EST
[ Parent ]
A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases...

No, this has not actually happened... I've quoted Erik Jones many times, here's one more:

Let's start with some data - all of which is taken from the Annual Macroeconomic Database of the European Commission and is freely available on-line.  The most damning data against Greece is the movement in real compensation per employee.  If we set the year 2000 equal to 100, then by 2009 Greece was at 122 while Germany was at 102.  This would suggest that Greek real wages have risen by 20 percent more than Germany - and they have - but that tells us very little about competitiveness.

What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees.  Moreover, we should look at their performance across the European marketplace as a whole.  By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95.  Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.

In fact Greek (inflation adjusted) wages lagged behind productivity increases all through this whole bubble period. And mind that the wages themselves were increasingly unequal... Inflation in Greece was profit driven.

As for productivity increases, check at this EUKLEMS report, p. 14

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Jun 18th, 2011 at 06:37:02 PM EST
[ Parent ]
If this is so, that compensation per labour outout is more or less the same in Greece and Germany, how can it be that Greek companies can't compete?

Seems to me Greek politicians should ask themselves what they should change in their country to attract and keep succesful companies in their nation.

Why should I choose Greece over say Bulgaria, Poland or India when I choose where to site a new factory manufacturing say, advanced cables, or machinery?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 10:16:48 AM EST
[ Parent ]
Why was Brodosplit closed as a condition of EU accession for Croatia?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:19:47 AM EST
[ Parent ]
I can't really recall. But it had something to do with subsidies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:27:14 AM EST
[ Parent ]
And I don't thuink Brodsplit has actually been closed, either.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:27:52 AM EST
[ Parent ]
It's not going to be producing many civilian boats any more.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:29:32 AM EST
[ Parent ]
It's built three this year already. http://en.wikipedia.org/wiki/Brodosplit

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:39:28 AM EST
[ Parent ]
Any new contracts for future production?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:50:11 AM EST
[ Parent ]
I've got no idea. I usually only read the annual reports of companies I consider investing in, for myself or the foundations.

But, yes: http://www.brodosplit.hr/eng/PRESSCENTER/Newsrelease/tabid/3061/articleType/ArticleView/articleId/96 7/Building-of-bulk-carriers-is-contracted.aspx

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 11:14:35 AM EST
[ Parent ]
You seemed to have an opinion about the quality of the output, though.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:30:00 AM EST
[ Parent ]
The ships are of excellent quality, just like the oil tankers we used to build in Sweden were. But you know what? They couldn't compete. They were too expensive. So we had to close the shipyards, as we didn't feel like dumping unlimited amounts of taxpayer money into loss-making companies for ever and ever.

We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs. That's just the way of the world.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 10:35:32 AM EST
[ Parent ]
We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs.

And now...

... you can't.

But I'm sure the strong krona was worth it. For the lawyers.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 19th, 2011 at 10:48:04 AM EST
[ Parent ]
That industry didn't collapse as a result of the strong krona, it collapsed due to too high salaries 30 years ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 11:15:37 AM EST
[ Parent ]
Does Sweden still build its own military or coast guard ships?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 11:31:31 AM EST
[ Parent ]
Only submarines (for the Navy), small patrol boats (circa 25 metres, for the Navy and Coast Guard) and small amphibious assault craft (15-25 metres, for the Swedish Marines).

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 12:37:08 PM EST
[ Parent ]
The point being, in the EU you're allowed to have industrial subsidies as long as you use the military for cover. Just like the US and its crassly Keynesian Military Industrial Complex.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 06:13:48 PM EST
[ Parent ]
According to Jones, it's a capital account problem

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Jun 19th, 2011 at 11:34:37 AM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places.

But the government of an EU member state is not allowed to do anything in these areas. All it is allowed to do is deregulate.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:23:52 AM EST
[ Parent ]
It sure is allowed to do things! Improving infrastructure, fighting corruption, cutting red tape, changing taxes and so on and so on. The only thing which is disallowed is subsidies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:32:01 AM EST
[ Parent ]
However, this does not mean that eurocrats or politicians would manage FIRE better, nor that non-FIRE enterprises which in general seem well managed, need any more political meddling what so ever. It means the FIRE sector requires better regulation.

In my experience working for US, British, German, and Swiss companies there's as much Own Goal "political meddling" within and between companies as there is from the government.  Brass tacks: whether the entity is Public or Private it is run by people and people "do" politics.  An 'Empire Builder,' whether in government or IBM WILL attempt to build an Empire; a person motivated by the Common Good will work towards that.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sat Jun 18th, 2011 at 01:12:32 PM EST
[ Parent ]
would you entrust them with a massive project to evaluate which companies would receive injections of huge amounts of taxpayer money?

NO! That is the problem with capture of "public" institutions by private interests. This is the case for The Fed in the USA and the ECB in Europe. But your line of argumentation is how we got to this point and not a way out of the dilemma. We have had forty years of unchallenged propaganda advocating "deregulation" and painting "government as the problem". Enough people have bought into this that it has become true.  

It wasn't always thus. There was a time when there was a concept and an expectation of government working in the public interest. As De Gondi recently reminded us, Artistotle defines tyranny as a government run for private, not public, interests. Forty years of right wing propaganda from libertarian billionaires has sold the publics in the "developed" world on the virtues of tyranny! So now we need for the duped to wake up and to insist on a housecleaning.  


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 18th, 2011 at 12:20:23 PM EST
[ Parent ]
Given the track record of "finance, the brain of the economy" in the allocation of capital and the determination of the direction and pace of investment and the rate of money creation... don't you think the economy needs a brain transplant?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:21:49 AM EST
[ Parent ]
I think a brain implant would be more appropriate. "Finance as the brain" always seems to have its rational, judgemental and predictive functions sidelined by orgiastic biochemicals released by ongoing and never ending greed.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 22nd, 2011 at 09:07:16 AM EST
[ Parent ]
 

  Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

- Jake

 

  And yet, only yesterday, during his so-called news conference, french president Sarkozy was seen and heard making a complimentary object-lesson out of this very policy of the Germans' wage suppression(s).

  And he gets away with this!

   Look, I know our abilities to take some useful action to help are very limited here but couldn't EuroTrib at the very least do something in an organised way to vocifierously oppose the juggernaut of eco-nonsense that's still being piously peddled in the popular press, radio and television?

   France Info, France-Inter, and others, for example, continue to report off-handedly that the austerity measures --called bail-outs, etc.--are aimed at "rescuing Greece" rather than what they obviously are: a rescue of the financial interests which made lousy and corrupted investment decisions.

   Imagine the impact of hearing a news report describe Germany's wage suppression policies as being and having been "irresponsible"!  

   I was struck by that; others would be as well.  The flim-flamming is still going on flagrantly and with little apparent "blow-back" or negative consequences for those who are brazenly peddling theoretic bull-shit.  Why, now, is this still allowed to go on?

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Wed Jun 29th, 2011 at 08:06:59 AM EST
[ Parent ]

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