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Euro Analysis?

by rifek Sun Sep 2nd, 2012 at 04:26:28 PM EST

Over at Credit Slips, we've started a new discussion concerning a new article in New York Times Magazine about the status of the Euro crisis.  I of course chime in with my own comments.

Interesting article, but what does it mean?

1 and 6. Yes, Greece and Germany will play chicken for awhile and ultimately enter into an agreement full of sound and fury, signifying nothing but a victory for each government's immediate goals.  Greece will gain a new round of financing, fudge the austerity measures when it comes time to implement them (Good, austerity is a crock.), and delay once again the day when it defaults on this whole mess.  For Merkel, the delay improves her odds of foisting off on someone else the consequences of serial defaults on the EU perimeter and the shocks they will send through Germany.

2 and 4.  Given facts such as set out in #2, why is #4 even being raised?  The euro zone may break up, the EU may break up, but neither of those would be a collapse of the European economy.  At the very least, Germany, France, the UK, and Scandinavia would keep on chugging along.

3. I can't even get past the first sentence.  "Since most countries left the gold standard over the last century, a currency's value is based entirely on collective faith."  I don't know if that came from Planet Goldbug, Planet Neolib, or some unholy spawn of the two, but it didn't come from Planet Reality.

5. "This would be good news for U.S. consumers, if not for U.S. producers."  A minor detail the Gray Lady just doesn't want to deal with.  A break-up would mean more cheap stuff for the 1% while costing the other 99% more jobs.  As for the rest of this paragraph concerning account transfers to Germany, has anyone at the NYT been paying attention to what has been happening in Greece, and Italy, and Spain?

7. But they end on a strong point.  Obvious, but strong.  A sovereign currency without a sovereign is, shall we say, problematic, and you need either deeper integration or dissolution.  I'm not holding my breath for the former.  I expect to see Athens, Rome, and Madrid start taking orders from Brussels bureaucrats when they see Berlin and Paris doing so.  Not going to happen.

As Migeru pointed out recently, the Eurozone (or was it the wider EU?) is doing OK collectively - it's the gross imbalances with the EU that are the problem.

I may be hallucinating, but it seems those economies that are politically stable are doing best. (The UK is politically unstable imo). Perhaps corporations require such stability for longer term planning?

Yes, there is such a thing as corporate long term planning - it's just not very sexy for the media.

You can't be me, I'm taken

by Sven Triloqvist on Mon Sep 3rd, 2012 at 01:03:07 PM EST
A major part of the antipathy of the corporate class to much long term government planning by elected governments is that they are private governments engaging in long term planning, and they view their interests as best served if the long term private corporate government plans can proceed unhindered.

And the massive blind spot of neoliberal fantasies about the economy is the fantasy that allowing all of the long term private corporate government plans to proceed unhindered except in conflict with other private corporate governments will lead anywhere but system crisis.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 5th, 2012 at 12:42:10 AM EST
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Blind spot, or convenient myth to comfort the masses?  All systems fail eventually.  The issues are who gets swept overboard first and who is in the best position for a lifeboat seat.  Those already drowned aren't competing for a seat.  Neither are those singing hymns with the dance band or "in charge" of lowering the lifeboats from the stanchions.
by rifek on Wed Sep 5th, 2012 at 08:07:12 AM EST
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All systems fail eventually, because all living social systems evolve over time, and eventually they evolve into something unsustainable.

Starting out as something unsustainable is something else.

Indeed, the neoliberal fantasy is as much a comforting myth for the elites as a comforting myth for the masses, that what they are doing in a negative sum fight for the power of their individual corporation is somehow for the greater good.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 5th, 2012 at 12:01:20 PM EST
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What chicken? Samaras went to Merkel as a vassal would to the emperor. His government will attempt to pass mind-boggling cuts (f.e. cutting the under 300 Euro disability benefit to ~200 Euros, or the 370 Euro unemployment benefit to 320 - in a country probably still more expensive in absolute euros than Germany), and cutting all hospital services to the multitudes of the uninsured (meaning the probably >10% of the working population and their families - and growing- who are over a year unemployed).
Just before Samaras meeting with Merkel his government sent yet another present to Merkel: they settled with Siemens for the huge bribery scandal (out of court) that cost the Greek state over 2 billion Euros, at something like 300 million, most of it to be paid in equipment and services such as "$112 million over the next five years, to be used to fund various institutions and activities, including anti-corruption programs and money-laundering"

So Siemens, probably the largest briber in Greece recently, will teach people about anti-corruption. And in return we will forget about the real damages... Oh and I'm sure Siemens will keep mum about the crooked conservative and "socialist" politicians who to this day remain un-named.

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

by talos (mihalis at gmail dot com) on Mon Sep 3rd, 2012 at 01:41:11 PM EST
So Greece implements every law it passes?  If so, it is alone among nations.  I find Samaras's actions to be more likely the result of either A) knowing the agreement won't pass, so he can go back to the Troika and say, "I tried.  Let's try again," or B) knowing that, while it may pass, implementation will still be blocked, and he can still play good faith to the Troika.  Completely contrived, and everyone stays on script however badly written.

As for Siemens, that gravy train isn't even side-tracked, much less stopped.  And that was a lot of gravy that flowed everywhere.  Samaras may not have received anything directly, but someone close did and expects to again, hence the settlement.  And no one will call anyone on it because everyone is in on it.  The only way to stop a juggernaut like that is for it to collapse on itself, as Credit Mobilier did here in the US 140 years ago.

by rifek on Mon Sep 3rd, 2012 at 10:24:48 PM EST
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If reforms aren't being implemented, something else must be causing the Greek budget to contract by 34%.

That's a big contraction. I'm going to guess that they've put through a lot of reforms, salary cuts, budget cuts, etc.

by Upstate NY on Mon Sep 3rd, 2012 at 10:40:19 PM EST
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Where do the 34% come from? Eurostat gives me a contraction of 8,5% in government expenses in the timeframe 2008-2011
by generic on Fri Sep 7th, 2012 at 07:47:58 AM EST
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by generic on Fri Sep 7th, 2012 at 07:51:56 AM EST
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Well no, it won't implement all the measures, because these measures will cause further contraction of the economy (never mind riots) and thus they will have to be "revisited" i.e. the troika will come up with even more outrageous cuts and societal destruction.
But this will pass from parliament (with losses) and they already started to implement it: larger classes at schools, 20000 families at least unable to find public nurseries for their children, hospitals turning away people, pay cuts for what used to be respectable (i.e. relatively high-paying) jobs to poverty levels etc.
The thing is that with every new package of measures the Greek economy is being seriously damaged, because it kills off an even larger part of its productive capacity and its infrastructure (such that it was). Greek society is in shambles, creating fissures that it will take decades to mend. Meanwhile pumped up by the media and government rhetoric (Samaras' government is easily the most xenophobic and right wing government anywhere in the EU, I reckon) the Nazi party (not metaphorically, literally) is going on murderous sprees against immigrants pretty much unimpeded, if not cheered, by the police.

So anything along the lines of what we already had (austerity on steroids) is deadly. Samaras was elected on the explicit promise that he will not implement the more outrageous of the demands and will forcefully renegotiate. He has not delivered, to put it mildly.

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

by talos (mihalis at gmail dot com) on Tue Sep 4th, 2012 at 05:40:52 AM EST
[ Parent ]
from the comments:

7 Story Lines to Watch in the Euro Crisis This Fall - NYTimes.com

I don't agree in the expression "Euro crisis". To me it seems to be a bank crisis, a crisis of Greece itself (ongoing since 1820) and an additional real estate bubble in Spain. Greece need a complete restructuring of administration, infrastucture and the corrumpted political system. That will not work without political pressure on those politicians who are responsible for the current status assisted by bankers who made their benefits with high interest rates in Greece government bonds trusting in the responsibility of the stronger Euro nations. All payments from ECB and IMF are directed to the creditor banks. That 's helpfull for the banks only but not for the Greece economy. They do need programs to bring up economy after doing their homework.
On the other hand there is of course a misrelation between the spendings of national households and collateral effects on the value of the common currency. That need a fix by regulations, observations and a central control council in absence of a common democratic political body. Hopefully leading into a political integration of Europe. All in all this seems to me rather a great chance than a desaster.
Grant Greece another decade to correct the sins of more than a century. I think it's worth to help them.

    • JoanneN
    • Europe
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    You're right, it would take a decade. But it would take more than time: people need to have a sense of justice restored.

    The major failure of the EU has been its inability to bring about institutional change in Member States. Greek citizens have seen no real structural change in 30 years. The main improvement was in consumption, which was called 'development', but of course is anything but. Its politicians have carried on with the same old destructive clientilist party politics, except with a a lot more European tax-payer money to throw around.

    As a result, the flaws of Greek democracy have become even more entrenched. Now the same politicians are being asked to implement in a couple of years what they failed to do in the preceding 30. Meanwhile, citizens are asked to drastically reduce their standard of living, pay a lot more taxes (VAT has reached 24%, but cannot make up for the lower tax collection due to recession), and face worsening schools and hospitals - all without anyone in the political scene being called to account. How can this work?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Mon Sep 3rd, 2012 at 04:11:47 PM EST
I don't understand why people are going back over 100 years on Greek history.

Or 30 years.

Makes no sense.

30 years ago, Greece had a skeletal gov't and absolutely no gov't services. No gov't workers practically. It was a banana republic, and acted like one. 10 years prior to that they were a fascist regime. 15 years before that they were an American proxy. 5 years before that they were in civil war. 5 years before that they were occupied by a fascist army. 5 years before that they were governed by fascists. 10 years before that there was a national schism between the King and a rump new Greece in the north that had joined the country after WW1.

How far do we really have to go back to talk about Greeks sins, really?

Do Americans talk about Boss Tweed still?

Should we?

by Upstate NY on Mon Sep 3rd, 2012 at 10:44:27 PM EST
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i don't think the tone is prosecutorial, but maybe i would if i were greek, dunno.

are the facts true or not, is what's interesting.

it's not like any counties in europe have exemplary histories!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Sep 4th, 2012 at 04:11:05 AM EST
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Until Andreas Papandreou, Greece had no gov't services to speak of, at all. That was 30 years ago. So, factually, the article is untrue. But even with Papandreou, the increase in gov't workers from incredibly low levels to levels still smaller not only than the European average but smaller than the USA's (by %) was only a sop for the left since the country's economy was still first and foremost a playground for oligarchs.

Greece went awry since the introduction of the euro.

by Upstate NY on Tue Sep 4th, 2012 at 09:54:52 AM EST
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American memory doesn't reach that far back.  As the old saw goes, "In Europe, 100 miles is a long way.  In the US, 100 years is a long time."
by rifek on Tue Sep 4th, 2012 at 03:28:59 PM EST
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With the fast trains in Europe, and the continuing US blockade on Cuba for something or other than happened before most of us were born, I wonder whether it's time to revise this?
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Sep 4th, 2012 at 03:52:05 PM EST
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The Cuban Revolution was 1912? Here I thought that was the Mexican one.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Sep 5th, 2012 at 12:45:57 AM EST
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Also, where does the original diarist get the idea that the austerity measures are all fudged?

According to the IMF, there have been severe cuts: http://i.telegraph.co.uk/multimedia/archive/02139/crisis_2139624c.jpg

by Upstate NY on Mon Sep 3rd, 2012 at 10:45:38 PM EST
Austerity has been unrelenting, served in dosages higher even then those reserved up till now for 3d World countries. The casual reference to the 13.5 billion Euro (and rising)cuts, omits to mention that these are something like 7% of GDP over 2 years. Now, since real recession will be higher because of the measures than that projected by the troika, and since recession means extra cuts as far as they are concerned, this will probably reach 10% of GDP, in an economy on its 3d year of turbo-austerity, with a humanitarian catastrophe looming. I just hope Merkel and the troika will allow UNICEF to send food aid and not count it as social spending / taxable income - and insist it be sent off to ECB coffers.

The primary deficit reduction between 2010-2011 must have been in absolute terms a world record. Then it started stabilizing not because the cuts stopped, but because the austerity dried up the tax base, sent people out of work or to informal work in never before seen numbers, and the ridiculous taxation imposed became impossible to collect.

A war would have been less destructive to the economy and to society...

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

by talos (mihalis at gmail dot com) on Tue Sep 4th, 2012 at 06:13:53 AM EST
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So what is the government trying to gain by continuing to accede to German demands?
by rifek on Tue Sep 4th, 2012 at 03:32:08 PM EST
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... while praying for some form of divine intervention that might let them salvage their continued ability to breathe, personal fortune and political careers. In roughly that order.

Considering their alternatives, that's not actually a bad pick. For them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 4th, 2012 at 03:46:59 PM EST
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In fact (and this has been stated almost directly) they're hoping that if they are compliant enough, at some point the Protector Powers will come and help us poor sinful paupers. They're trying to keep propping up the dilemma "austerity or GRexit" and are investing a lot in the fact that the big oligarchs are backing them 100% (watching Greek TV, private or public, a foreigner would find it difficult to surmise that SYRIZA is the Official Opposition, or what they are for). The forces the government are representing, anyway, are not exactly distressed at the prospect of seeing Greece turn into a low labor-cost, low-tax haven with most of its public lands, enterprises and infrastructure sold for pennies...

The fact that the oligarchs are backing this destruction, might point to some sort of deal between banksters (who after being bailed out are given the remnants of the public banks which were made "unsustainable" on purpose by the terms of the PSI deal), public contractors and ship-owners (who are doing well enough to have recently bought a large part of the German container fleet) with the troika, or some other involved party...

Also they are hoping that the extreme xenophobic reflexes they are triggering with the help of the Mass Media (thus creating a climate that strengthens the Golden Dawn Neonazis) are diversion enough, for enough people, that they might survive this winter.

Finally,  do not underestimate the inferiority complex that Southern European elites (I'm seeing similar attitudes in Portugal and Spain - Italy is probably different) have in respect to their Nothern counterparts. Having said that, the indifferent contempt with which Samaras is treated is shocking. Samaras asked to be spared further cuts in police officer and military salaries - for obvious enough reasons. Even this was denied by the troika.

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

by talos (mihalis at gmail dot com) on Tue Sep 4th, 2012 at 05:17:35 PM EST
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I'm saying they'll have to start reneging because more is impossible, and what they've already agreed to is nothing but destructive.
by rifek on Tue Sep 4th, 2012 at 03:30:56 PM EST
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