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Greece as a Case Study

by Upstate NY Fri Feb 12th, 2010 at 05:47:19 AM EST

I well know that Greece is in turmoil right now, and I personally have stakes in the country, but I'm trying to be dispassionate about it in order to analyze it in relation to what's going on elsewhere in Europe and the USA. Originally this diary was a response to another diary on Greece, and I included some anecdotal information (i.e. experiences with the switch from the drachma to the euro a decade ago).

I'll post the body of my response below, but in the end my conclusion is that Canada is the best country in the world. (Sort of snarky but I live just across the border and am envious of their political system, their economic policies, their multicultural makeup AND I don't mind the weather--Canada is doing quite well).

front-paged by afew


Sorry for the massive post, but--if I may be so bold as to suggest--the small size of Greece's economy as well as its lack of diversification is actually a good thing in the middle of this crisis. And indeed, the structure of its economy may make workers less willing to bear the brunt of the cuts. Greece is not a failed state, economically, as much as it is a state hurt by its own profligacy and a global market system it was not prepared to compete in. In this respect, Greece is more like Argentina than, say, Haiti.

Over 50% of the Greek economy relies on tourism and shipping, external industries both very susceptible to recessions. But it does mean that Greece does have a natural means to bring money into the country OTHER than foreign investment or local industries competing against the world (Greece has an abysmal lack of foreign investment and its industries hardly compete ESPECIALLY after entering the Eurozone).

Greeks got a stable currency, great rates for borrowing, and lots of infrastructure (bridges, airports and subways) since joining the Eurozone. Lots of money went into these projects and all three of them were undertaken by German contractors. That's the bonus of joining. The problem has of course been currency swaps that racked up prices and forced normally non-indebted Greeks to go into debt. And still, the rate of private debt in Greece is at 50% which is much lower than the rate in the UK and Spain. The recession should presumably hurt banks a lot more in those countries since Greece's decline is not as bad and the private sector owns less. Greece fails, however, because of its massive gov't deficit which exceeds all but one country in the zone, and this deficit coupled with the second highest gap in the current year (which of course drove up the interest on the bonds needed to service that debt).

Without a doubt, Greece has created many of its own problems (statistical reporting, inability to align federal bureaucracy with budget reality, corruption and failing tax system) but one wonders if the system itself would have inevitably produced the same problem for Greece. In the midst of a recession, tourism and shipping went south. Because of the Euro and the EU's rather loose monetary policy (I'm referring to a lack of integration between economies), Greece is not able to devalue currency nor is it able receive EU handouts as per the Maastricht Treaty. This produces negative effects for the economy.

As I see it, the options for the EU are to integrate the poorer countries more with a strong eurozone (meaning more German and French taxpayer money to the poorer areas) or else to cut the poorer areas loose.

Check out this story on who owns most Greek debt:

France and Switzerland most exposed to Greece's debt crisis, say analysts (The Guardian [UK], 11 February)

(As Jerome pointed out earlier, the article is actually not well-informed as to specific banks. Jerome pointed out that this passage in particular was incorrect:

The French bank Crédit Agricole was singled out by analysts at the research firm CreditSights as being particularly exposed. "It owns Emporiki Bank in Greece, which has been floundering away, and has about €23bn in loans there," Credit Sights analysts said.
Jerome wrote:
This is a local bank, that mainly lends to local clients, and happens to be owned by Crédit Agricole. This has almost nothing to do with Greek sovereign debt! That banks certainly owns Greek government bonds, so does have a bit of exposure to sovereign debt, but it's unlikely to be a large part of its balance sheet. So the actual exposure of Crédit Agricole here is unknown (there are risks associated with the recession, but Greece's is not worse than elsewhere), and this article is just stupid scaremongering.

I was mainly interested in the article because it argues many banks are exposed in Greece.

I found this article to be among the best to describe the situation from a Greek perspective:

Sick man of Europe seeks remedy from wary neighbours (The Independent [UK], 11 February)

As for my own cynical perspective, I just see more neo-liberal economics at work.

First, it should be noted that the EU invoked new powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labor markets and private commerce in Greece (the first time this power was invoked).

Note the broad new powers the EU is assuming in this case, the power to take over Greece's economy and install austere fiscal measures. The new powers make me wonder about the set of economic circumstances that brought this about, what percentage of it is Greece's fault for corruption, fudging statistics, tax evasion, etc., and how much of it is an attack on social welfare systems in general. Rich countries can afford them, poor countries cannot. Is there a political will in Germany to pay for Greek social welfare? In a closed system such as that in the USA, we see richer states such as New York (itself highly taxed, itself heavily in debt, itself with many problems) shelling out $2 to the Feds for every $1 it gets back, and its the reverse in poorer states. A lack of such support would be problematic. From my understanding of the EU, this is not happening because the political will isn't there. There are structural funds of course moving from net-donor states to the poorer states, and Greece has been a huge recipient of structural funds in the past. No longer since 2004 of course, since Greece now has a higher standard of living than Baltic and Balkan states.

To reiterate, Greece's economy was always susceptible to recessions because of the lack of diversification. Its biggest industry shipping  accounts for almost a third of Greek GDP, and last year it saw day rates for Cape and Panamax vessels (Greek companies own the largest fleets in the world) drop from $135k a day to less than $10k a day, which forced the shipping companies to keep their ships in drydock (because not shipping was cheaper than shipping when you consider the costs of fuel and repairs) while still paying their unionized sailors and longshoremen. Next for Greek GDP is tourism at about 20%, and that too has fallen off the cliff (mainly due to the recession), followed by agriculture (cotton, dairy, citrus, olive oil, etc.) and banking. With this lack of diversification, a recession can make a budget look painful.

But there are additional reasons Greece is hurting that have nothing to do with a recession. In this light, a recession is a great tool of fear for restructuring, and Greece certainly needs that. The gov't is indeed trying to capitalize on the crisis. Greece was always a poor country in the EU, and other than its shipping industry which could bring back hordes of funds, it maintained competitiveness through cheap labor and cheap tourism. Greeks forever complained that they could not see the world because the drachma exchange rate allowed them to travel to Bulgaria or Turkey at best. Then came the Euro, and overnight Greece lost its edge. Budget travelers stopped coming when they could get what they wanted (sun & sand) in Turkey anyway. Labor and materials were no longer cheap. Fledgling industries vanished overnight. An already poor country was losing competitiveness to even poorer countries far afield. On the other hand, the Euro was a blessing for Greeks since money came pouring in from EU coffers for structural improvements (i.e. Greece's infrastructure improved greatly with new roads, a huge bridge spanning the Peloponnese and Mainland, a subway system for Athens, etc.) but along with new infrastructure came high costs for basic needs. As the Greeks were losing competitiveness, they could not adjust so quickly to the higher cost of living, and then something unheard of in Greece occurred: families went into debt, bank debt and especially credit card debt, because the change in the standard of living had been so swift (Greeks passed down homes through families for generations, and home ownership in the country has been at something like 85% for a century now). Essentially, the EU promised Greeks that they would modernize the country and give it the tools to compete in a more skilled economy, but the change happened so quickly that the reactions of everyday people were unforeseen. Previously seen as a quirky backwater, Greece held a sunny disposition before the Euro, but afterwards, without being able to control its own currency, it had to compete against the best of the best. The people were not ready.

The key, however, is that wholesale shifts in the standard of living, and a lack of training (i.e. education) for the global economy, forced a change overnight. Now they have a form of shock therapy on people's psyches and their physical sense of well being (the Greek diet has changed overnight from one of the healthiest diets in the world to one of the unhealthiest, from fresh organic foods to processed foods). The Greek wealthy, like the wealthy everywhere, did well in the last decade. As the citizens took on higher loans to maintain their standard of living, the rich made exponential profits. The problem Greeks face now is that the government is trying to deliver some hard news about the realities of the global markets. The Prime Minister complains that Greece has been attacked by speculators--and he's right. The problem is that, when banks and so-called investors are involved in the greater part of your economy, you cannot give them a reason to attack you and create the kind of psychological doubts (really, warfare) that will make you vulnerable. Greece has given the speculators ample ammunition, by fudging statistics and losing control of their social security system. When you enter this global market run by bankers, you must protect your flank. You must cut the social welfare system, because the race to the bottom is swift. So, austere measures will be taken, at the EU's behest. People will lose jobs, have their pensions cut, salaries cut (and these are the measures the people have already grudgingly agreed to, the EU has a lot more austerity in mind).

But the EU may yet be surprised by the eternal Greek stubbornness, because the Greek people are not stupid and they know very well what has befallen them. They will protest, and the EU will be left to wonder if dictates from Brussels will actually be followed by the people.

One wonders how much convergence with global markets and the world economy is really pre-planned by our banking system. Those who are lucky enough to get a great education may escape this central fact of middle-class life in the EU and the USA: average salaries for workers are dwindling and have been for a decade.

In the USA, the recession will create an ever bigger gap between not only rich and poor, but between an ever smaller middle class and a quasi-permanent underclass competing for work with 3rd world nations. When you see our prison population, our impoverished, our unemployed, and you realize the huge number of people that have been added to those classes, it becomes increasingly obvious that a social safety net in America is harder to maintain. Indeed, my thesis is that global markets practically dictate that our social system is dismantled, that a new division between working classes be created.

The power grabs, the shift of labor and capital, it all seems so darn preplanned that it takes my breath away. Did they need a horrific recession to do this? Probably, after all, listen to all the people going on and on about taxes and spending. I'm not saying it was purposely triggered, but I do think the plans were already in the vault to take advantage of the chaos. Kind of like how the plans for Iraq preceded 9/11.

Display:
Thanks for the informative and thought-provoking diary.

Wanted to make sure I understood the following passage correctly:

As the citizens took on higher loans to maintain their standard of living, the rich made exponential profits. The problem Greeks face now is that the government is trying to deliver some hard news about the realities of the global markets. The Prime Minister complains that Greece has been attacked by speculators--and he's right. The problem is that, when banks and so-called investors are involved in the greater part of your economy, you cannot give them a reason to attack you and create the kind of psychological doubts (really, warfare) that will make you vulnerable. Greece has given the speculators ample ammunition, by fudging statistics and losing control of their social security system. When you enter this global market run by bankers, you must protect your flank. You must cut the social welfare system, because the race to the bottom is swift. So, austere measures will be taken, at the EU's behest. People will lose jobs, have their pensions cut, salaries cut (and these are the measures the people have already grudgingly agreed to, the EU has a lot more austerity in mind).

Did "maintain their standard of living" include not "cut their social security system"?  Would this dynamic apply a priori to other new EU member states (current and future) who adopt the euro and have a relatively generous social security system?  Could those other countries avoid this fate if they simply refrained from "fudging statistics" and minimized corruption)?  Could Greece itself have?

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets", given the preceding excerpt:

Indeed, my thesis is that global markets practically dictate that our social system is dismantled, that a new division between working classes be created.

I am not querying out of skepticism, but merely confusion.

Here's to hoping that Greek stubbornness prevails in the end.

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Fri Feb 12th, 2010 at 01:51:52 AM EST
Well, the Greek system is confusing if you're comparing it to other systems since the bureaucracy is so large. What is a pension? What is social security? I think social security in Greece is pretty meager, but the pensions aren't. I don't want to knock the bureaucracy too badly but if I had to make an analogy so that it could be better understood, consider the pensions to be social security, and consider some of the bureaucracy to be a form of workfare.

As for the rest, I think I made the case that there was no avoiding this fate even if Greece had not fudged statistics. For one, the Independent article argues that the new government deliberately overstated the deficit as a form of shock therapy for a recalcitrant public sector (if that's the case, then they should be as vilified as the previous government that fudged the statistics in the first place). Second, what is known as corruption in Greece is known as campaign finance in America. In Greece, bribes are illegal. In the USA, Mr. Corporation (he's an actual person you know, with human rights) can brazenly bribe an official in public. Regardless, there are a lot of problems. Part of the tax problem is that the rich in Greece move money overseas. Good luck solving that, Greece, and when you found the solution, please let the rest of us know. So, yes, Greece can cut the bureaucracy, and yes the tax system can be improved, and yes things could be done more transparently, BUT it's not going to help all that much. These problems are endemic to a country that is undiversified. The lack of diversity produces vertical economies that one negotiates with difficulty and trepidation. So, it would have happened anyway.

In one article, Mr. Almunia of Spain analyzes that Greece's situation is not all that atypical for some European nations that adopted the Euro. He says: "In these countries we have seen a constant loss of competitiveness ever since they joined the eurozone. The external financing needs are quite big."

You write:

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets."

Yes.

I don't mean to be glib, but I can't not be. In the USA, Mr. Paulson was making policy less than a year ago. Today he's attacking Greece. When global markets are quite naturally dictating a convergence between third world labor and European labor, then what are the consequences? Is anyone recommending slowing the growth of free trade? When you have these convergences between let's say second world countries (Greece) and third world countries, how does a country like Greece maintain a safety net? I'll say this again: Mr. Paulson was making the key decisions about world finance less than a year ago. Today he is a raider.

by Upstate NY on Fri Feb 12th, 2010 at 09:49:58 AM EST
[ Parent ]
You seem to confuse Hank Paulson, former CEO of Goldman Sachs and Secretary of Treasury under Bush with John Paulson a hedge fund manager who made tons of money betting on the collapse of the real estate markets and the banks.

They are two different people.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 10:35:50 AM EST
[ Parent ]
I'm not confusing them.

It's Henry Paulson who was involved with Greece, and it's his pals at GS who have been involved with the current speculation.

by Upstate NY on Fri Feb 12th, 2010 at 10:42:32 AM EST
[ Parent ]
Darn, just when I thought I was starting to understand things.

I gather then that Greece has found itself between the rock that is Henry Paulson and his GS and the hard place that is Brussels and its Washington Consensus-lite.  But you're not going so far as to say that Paulson/GS are trying to make Greek lemonade in coordination with the EU, are you?

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Fri Feb 12th, 2010 at 11:09:52 AM EST
[ Parent ]
No, the two sides are opposed (EU and GS).
by Upstate NY on Fri Feb 12th, 2010 at 11:42:33 AM EST
[ Parent ]
well, one could say that a few years back, GS provided a valuable service to Greece in helping it massage its deficit figures and qualify for the euro. Today, their role seems more ambiguous, if not downright hostile, but it's hard to know exactly what they are doing.

That said, I don't think Hank Paulson has any involvement with Goldman Sachs today, so that's where you got me confused.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 12:26:13 PM EST
[ Parent ]
I admit that in much of my frothing I've been writing quickly without following a timeline.

The fact that he headed GS and then held considerable power during a financial meltdown, during which he supported his former company, and then after his former company continued on without contrition in their attitudes and maneuvers...well, sometimes this causes me to lose my mind.

by Upstate NY on Fri Feb 12th, 2010 at 12:29:39 PM EST
[ Parent ]

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets."

Mig has been calling this lately the Brussels Consensus - it's a softer version of the Washington Consensus, in that it's not usually imposed under threat of blackmail at times of crises, but it can be seen as a close cousin. It's one of the version of the Anglo Disease, whereby all solutions come from "reform," labor market flexibility and lower social spending.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 10:38:37 AM EST
[ Parent ]
One of the researchers at the Max Planck Institut wrote an article in 1995 describing EU social policy as neo-voluntarism.  Basically, because there was not equivalent of the national social policy regimes at the EU level, the end effect of the posted worker's directive and the like was to undermine any social protection.

Ironically, this is much more severe in places like Germany and Sweden where much of the wage regime was set through collective bargaining agreements at the sectoral level.  The only wage restrictions that firms posting workers have to respect are national minimum wages.  

So, no state based minimum wage = no minimum wage. And it's the same for all labor protections.  The only way to get past this is either to institute legislation at the national level and pull away from the project of integration, or to start a serious EU social program.  The business interests that have pushed for integration as a way to break the power of labor discount the possibility of the latter.

I tend to think that what will happen is that they are going to push to far, and there is going to be something like happened in France during the late 1990s(?) when there were attempted labor reforms.  The voice of the people will come from them yelling in the street.  And EU labor legislation will be the result.  It won't be nearly as strong as the old stuff at the national level, but it will be a major improvement over the present push to no labor protection.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Feb 12th, 2010 at 12:59:49 PM EST
[ Parent ]
Did "maintain their standard of living" include not "cut their social security system"?

From what I gather below and from linked sources, Greece has a very generous pension system for state employees and a very rudimentary one for everyone else. The differences with the USA are more of scale and degree than of kind. The primo package of retirement and medical benefits only comes from the federal, state and local governments and people can qualify at a relatively young age, leave government service, work ten years in the private sector, and qualify for both retirement systems. I know people who have done this.

I strongly suspect there will be pressure to revise downward many of these benefits. Probably the same in Greece. But it will be very difficult to do so in both countries. Does Greece allow pensioners to receive benefits while living abroad? If this proceeds along the path of squeezing everyone but the rich and the pensioners things could get ugly in Greece for those who have benefited most. We are more docile in the USA.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 12th, 2010 at 02:34:23 PM EST
[ Parent ]
I imagine that the vast majority of pensioners do not live abroad simply because--though their jobs are secured--the public sector doesn't really pay all that well.

But as for social security in Greece, yes you can live abroad. as long as you paid in (even if you paid in during the 1950s and 1960s and then left) you still get a base amount. It's so small though that my parents never bothered to apply.

by Upstate NY on Fri Feb 12th, 2010 at 05:07:05 PM EST
[ Parent ]
[ET Moderation Technology™]

Links added above the fold, lazy linking corrected below the fold.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Feb 12th, 2010 at 03:49:14 AM EST
Thank you. Sorry about that, I don't know what the heck happened.
by Upstate NY on Fri Feb 12th, 2010 at 09:34:34 AM EST
[ Parent ]
You do the hard part, I do the easy part. That's what happened.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Feb 12th, 2010 at 11:04:41 AM EST
[ Parent ]
European Tribune - Greece as a Case Study
The power grabs, the shift of labor and capital, it all seems so darn preplanned that it takes my breath away. Did they need a horrific recession to do this? Probably, after all, listen to all the people going on and on about taxes and spending. I'm not saying it was purposely triggered, but I do think the plans were already in the vault to take advantage of the chaos.

That is essentially what Klein argues in the Shock Doctrine. An economic system is pushed by neoliberals as the solution for everything, as it is implemented it creates bobbles and then crises, both is used for more reform. Over time more money is caught by the really rich, some of it used to finance more neolib propaganda.

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

by A swedish kind of death on Fri Feb 12th, 2010 at 06:01:50 AM EST
.
More likely questions, as I have no knowledge of Greece, its economy or politics.
● Tourism to Greece got hit due to great fires in recent years, origin was arson for real estate speculation?
● Great expenses for infrastructure to hold the Summer Olympics (cheating by Greek athletes a warning sign)?
● Entrance to euro zone was based on forged financial statements
● Losing competitiveness to Turkey because of euro value, perhaps Greece shouldn't block Turkey to EU (Cyprus)?
● Extensive black market in Greece to avoid paying your share of taxes .. more wealth to some, a greater deficit for the government?

● Comparison to Italy where the mafia billions keeps the economy afloat.

"But I will not let myself be reduced to silence."

by Oui on Fri Feb 12th, 2010 at 08:12:23 AM EST
Comparison to Italy where the mafia billions keeps the economy afloat.

So Greece is in trouble because it isn't criminal enough? ;)

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Fri Feb 12th, 2010 at 09:51:39 AM EST
[ Parent ]
One, what's the relation of fires to tourism? Greece's tourism is 95% on the islands.

Two, the summer Olympics cost $15 billion, and Greece made some money back. A boondoggle? For sure. But, we're talking about a huge budget deficit here. $15 billion is small.

Greece could lift their block on Turkey tomorrow and it wouldn't matter at all, in case you haven't noticed. I would not recommend that they do that, however. Plus, entering the EU for Turkey does not mean Turkey enters the eurozone. The aquis for Turkey will surely contain all sorts of limitations on Turks within the EU. Do you really think Turkey deserves to be in the EU given their invasion and ethnic cleansing of Greek Cypriots and the subsequent refusal to allow their rights to property (a whole other topic, I agree).

by Upstate NY on Fri Feb 12th, 2010 at 10:05:58 AM EST
[ Parent ]
European Tribune - Greece as a Case Study
The problem has of course been currency swaps that racked up prices and forced normally non-indebted Greeks to go into debt. And still, the rate of private debt in Greece is at 50% which is much lower than the rate in the UK and Spain.

I don't understand the above sentences and what the 50% is a percentage of (annual income? gross? net? assets?.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 12th, 2010 at 09:29:37 AM EST
This is the anecdotal part of my diary.

When drachmas were traded for euros, you could not buy a souvlaki for the same relative price you used to buy it for. Whatever the conversion rate (and I'm given to understand that the conversion rate was beneficial for countries moving into the zone, a soft landing if you will) the end result was hyperinflation of goods (masked, of course, by the lack of statistics to account for the inflationary impact of conversion. If a souvlaki cost 100 drachmas on Monday, and I traded 100 drachmas for 1 euro on Tuesday, I'd return to the stand on Wednesday to see that the souvlaki now cost 2 euros.

by Upstate NY on Fri Feb 12th, 2010 at 09:59:59 AM EST
[ Parent ]
Are there obvious comparison countries with similar economies (maybe in the Balkans?) who have steered clear of the Greek problems by not being in the Eurozone? I think that kind of example would help clarify some of your explanations of the problem.

(Or maybe I just need more sleep and then more caffeine before I re-read them...)

by Metatone (metatone [a|t] gmail (dot) com) on Fri Feb 12th, 2010 at 10:59:46 AM EST
[ Parent ]
maybe in the Balkans?

Maybe Central/Eastern Europe outside the Euro?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Feb 12th, 2010 at 11:03:10 AM EST
[ Parent ]
That country would need to have an economy that was dominated by something totally external (shipping) and be a big tourist destination. In other words, that country doesn't exist.

Please don't take this as wishing Greece left the eurozone (I hope beyond hope that it doesn't happen) but Greece with a devalued drachma would do very well because of currency conversion from shipping income and rise in tourism as a cheaper destination.

Greeks in the country would experience less of a ruckus in their lives, but they would once again have a lower standard of living relative to their European peers. But sometimes a lower standard of living isn't so bad when you're eating well, have a stable job, etc. Greece would not be backsliding either since tourism and shipping aren't going anywhere for the near future. This would only mean that Greece is giving up the dream of becoming the next Hong Kong. With EU help, is that in the cards?

by Upstate NY on Fri Feb 12th, 2010 at 11:50:24 AM EST
[ Parent ]
Well not wishing to cast doubt upon your anecdotal evidence, but  this is one of the big pieces of evidence used by the Anti-euro camp in the UK, allied with  a similar anecdotal memory of the change of currency from 1971, when the UK changed from £sd to new pence.  The exampled similar changes where all the shops rounded costs up that "Everyone" knows happened when coinage changed didn't appear in any financial statistics, no leap in Inflation rates happened due to this  change.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Feb 12th, 2010 at 11:21:40 AM EST
[ Parent ]
How could inflation account for the conversion?

On the ground, I can tell you that the change was certainly felt. Overnight. It really was stunning.

In tourism too. No inflationary measure or market oriented growth analysis can account for 400% increases in room rates over 5 years.

Haven't spent so much time there, I have favorite haunts and favorite hotels, and I know for certain that the cost increases were far beyond anything that economic analysis can account for.

Unless of course, there's a way to measure Greek greed, but I really don't think it's that. The smallest item changed price.

by Upstate NY on Fri Feb 12th, 2010 at 11:46:28 AM EST
[ Parent ]
"Having spent" not "haven't spent." Jeez.
by Upstate NY on Fri Feb 12th, 2010 at 11:52:19 AM EST
[ Parent ]
Inflation wouldnt account for it, but the increase in prices would appear in inflation figures, and would be a visible bump in the graphs at the time.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Feb 12th, 2010 at 12:01:21 PM EST
[ Parent ]
This part of the diary was totally anecdotal. I can't account for it.

Unfortunately, I can't be convinced it didn't happen. I was shelling out money out of my own pocket and just shaking my head in amazement.

by Upstate NY on Fri Feb 12th, 2010 at 12:06:09 PM EST
[ Parent ]
Unfortunately, I can't be convinced it didn't happen. I was shelling out money out of my own pocket and just shaking my head in amazement.

This is anecdotal, yes, but a highly significant sort of data. We are all FORTUNATE that you can't be convinced, because it is exactly this sort of anomaly that points toward real insights---sometimes.

Perhaps because my point of view tends to see a strong social component in most of my useful insights (if any) I smell--a strong social component here.
The oft-repeated euroskeptic fear that the adoption of the euro could create massive conversion costs---created massive conversion costs. Partly, larger businesses- hotel chains, etc. seized on the perceived opportunity to raise prices, knowing that they had a convenient scapegoat, and smaller businesses did the same, or felt obligated to raise prices to cover their own added costs. Or both.
Sometimes the most powerful economic forces stem from a social perception- a story, true or false, internalized on a micro level.
Then we get lost in looking for some macro force at work--

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Sat Feb 13th, 2010 at 03:31:23 AM EST
[ Parent ]
I totally buy into what you're saying and it seems the most logical explanation. I sort of accounted for it in one of my posts as "greedy Greeks."
by Upstate NY on Sat Feb 13th, 2010 at 10:38:56 AM EST
[ Parent ]
Just as Blue Cross and Blue Shield of California have just announced 30%+ increased in rates for medical insurance for 2010. Everyone said Health Care Reform would drive up prices.  See!

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by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 13th, 2010 at 09:30:35 PM EST
[ Parent ]
ie claims that basic goods (like the daily espresso) got a massive bump when priced in euros rather than the earlier currency. It's never been visible in inflation statistics, but it's led to endless bitching and moaning - maybe because it probably did apply to goods like espresso, which are highly visible (you buy some every day) but meaningless in terms of overall spending power.

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by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 12:24:37 PM EST
[ Parent ]
What about in one of the country's income streams, tourism?
by Upstate NY on Fri Feb 12th, 2010 at 12:26:04 PM EST
[ Parent ]
If highly visible goods become more expensive it would not be unreasonable for tourists to take it as a signal that the destination has become more expensive. This could send the tourists to - perceived or actual - cheaper locations.

For that matter the fact that 1 drachma was so much smaller then 1 euro might have created an impression of cheapness. When exchanging money, you used to get lots of drachmas.

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by A swedish kind of death on Sat Feb 13th, 2010 at 05:05:34 AM EST
[ Parent ]
Sorry, 50% of GDP. I'm taking total amount of private debt and relating it to gross domestic product.
by Upstate NY on Fri Feb 12th, 2010 at 10:01:33 AM EST
[ Parent ]
In Ireland the experience of conversion to the Euro led to some temporary griping about shops rounding up prices.  This is not surprising.  Pricing strategies are heavily geared towards "natural" price points like 99c., 1.99, 4.99 etc.  Manufacturers frequently hide price rises by reducing package size or some such.

But overall this led to a small temprary blib in inflation stats which was amplified in popular media with "price gouging" stories of a few high visibility incidents or items.

What really caused inflation over the longer term was a boom caused by very low interest rates, irresponsible fiscal and banking policies, and a shortage of supply to meet the very rapid spike in demand for key items like, development land, commercial buildings, and prestige private housing. For a while everyone - including foreign tourists - went along, because it took a while for popular relaisation that prices had gotten way out of line with the rest of the Eurozone to sink in and lead to concrete action.  And then we had an almighty bust amplified by world economic factors over which we had no control - and now a very painful readjustment.

But there is no rocket science about all this.  Smaller peripheral economies can buck overall eurozone inflation stats only for a while and then prices - and businesses made possible by them - have to revert to something closer to what the economy can bear.  Sheltered (often public) or highly innovative or advanced sectors of the economy can busk this trend for far longer if their productivity or first mover advantage or political position allows.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Feb 15th, 2010 at 07:38:37 AM EST
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