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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

Friends come and go. Enemies accumulate.

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 Carrie (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 ]

Re: What's wrong with this plan? (4.00 / 5)

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.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

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

Friends come and go. Enemies accumulate.

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?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Jun 17th, 2011 at 05:07:40 PM EST
[ Parent ]

Re: What's wrong with this plan? (4.00 / 4)

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 Carrie (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.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

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

Friends come and go. Enemies accumulate.

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

Friends come and go. Enemies accumulate.

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."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 19th, 2011 at 12:02:19 PM EST
[ Parent ]

Re: What's wrong with this plan? (4.00 / 5)

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 Carrie (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 Carrie (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 Carrie (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 Carrie (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

Friends come and go. Enemies accumulate.

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 Carrie (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 Carrie (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 Carrie (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.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

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.

"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 Carrie (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:21:49 AM EST
[ Parent ]