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Jake's Greek LTE, questions and discussion

by talos Mon Apr 4th, 2011 at 09:18:49 PM EST

Some weeks ago Jake posted a comment/LTE draft in my last diary on the Greek crisis, that I promised to translate and circulate in the Greek blogosphere and perhaps try to publish in a newspaper or two. While I failed in my attempt to do the second, the first was more of a success. I posted it in my Greek blog (note the stamp!) and saw the piece circulated around various aggregators and blogs. This led to a discussion and a number of questions, which we thought with Jake could be answered here, as they might be of interest to the ET community, serving also as a vehicle to discuss the issue of what is to be done with and what will become of the EU periphery's (and beyond) debt crisis. Thus I post the final draft of Jake's LTE here, followed by a list of selected questions and comments that were posted or received by email...


Jake wrote:


Greece should default on all sovereign debt owed to entities that are not individuals, and all sovereign debt in excess of € 20.000 owed to individuals.

Then Greece should present the ECB with an ultimatum: Either the ECB carries Greek debt at the Frankfurt overnight rate until the hysteria in the international money markets has died down. Or Greece will leave the €, and convert all debt owed by Greek citizens and government agencies to the new currency, without seeking the creditor's consent. Greece could then conduct its domestic economic policy without
consulting the markets that have failed so completely.

As an ardent supporter of the European project, it gives me no pleasure to make a recommendation that may result in breaking the Eurozone. But I can no longer in good conscience watch Greece commit economic suicide for the sake of the failed economic doctrines at the core of current €-zone policy. Enough is enough.

None can dispute that Greece has serious economic problems. But those problems are not caused by the public debt; the problems are what is causing the debt. Attempting to solve Greece's problems by paying down the public debt is akin to bathing a fevered man in cold water to lower his temperature: It does not cure the problems, and it causes new damage in the process.

As citizens of Europe, we all have to endure occasional misguided policies from the European Union. Just as we as citizens of our countries have to endure occasional misguided policies from our national governments. But enough is enough. By imposing devastating austerity policies on Greece, the Eurozone governance has signally
failed the first duty of any government: To serve and protect its citizens and the common weal. If these policies made economic sense, the matter would be debatable. But they do not. Austerity represents a triumph of dogma over thought - it has never worked to resolve a crisis like the Greek, and it never will work. Not in Asia, not in Latin America, not in Hoover's America, not in Europe.

It is time to say no to this insanity, in the only language that will get through to the financial parasites who propagate it. Enough is enough.

Jake

These are some of the questions/comments that followed:

  1. The ECB managed to coerce Ireland into not defaulting on a much more obviously unfair debt, even after the newly elected government promised otherwise. Obviously it has some leverage on peripheral EU governments and economies. What is the nature of this blackmail and how can it be overcome?

  2. Given that the circulation (legal or not) of two currencies: the new currency - let's call it the Drachma - and the Euro is certain, won't this create a "black market" currency rate, as in the former USSR, that will undermine the drachma

  3. Hyperinflation threats: "Jake is underestimating the degree to which the Greek economy is dependent on imports" - that would include fossil fuels and basic foodstuffs, especially since it would make business sense for producers to export food at international market rates. That would mean that food would still be traded abroad in Euros and barring a government forced requisition, their prices would skyrocket in drachmas... And this wouldn't just affect oil and food, but basic capital goods, especially machinery of all sorts etc. Greece was driven to become a service economy over the past 20 years and that means it doesn't have the (short-term at least) ability to support its basic economic and vital needs.

  4. Even if feasible in principle: Does Greece (or other EU countries I should add) have a political personnel capable to organize the subtle and difficult political maneuvers required to fight off ECB blackmail and find solutions for the host of problems such a bold move would entail?

  5. Isn't it impossible in practice to default and leave the eurozone while staying in the EU at the same time?

  6. Wouldn't this sort of blackmail incur the wrath of the powers that be in the EU so that there would be a backlash in terms, say, of EU funds being withheld and general economic sabotage, by the "big" EU countries whose banks would be the main victims of such a default?

  7. If we switch back to the drachma would the currency devaluation reduce the buying power of wages and salaries even more than austerity is doing now? Why is a devaluation of local currency less painful for the mass of working people than a direct wage reduction? (The price of oil and its prospects should be taken into account in answering this question)

  8. If local loans are converted to drachmas wouldn't that mean that the Greek banking system will in large part collapse, with all that would entail? And if they are not doesn't that mean that, say, housing loans would become impossible to repay for the vast majority of debtors?

  9. For a devaluation to foster growth two things are needed: a. A tight fiscal policy: otherwise the inflationary pressures will keep increasing, leading to serial devaluations and hyperinflation. The Greek political system is not able to enforce such a disciplined fiscal policy without external constraints b. Excess potential in export industries: that means factories that are underfunctioning and can hire people as soon as competitiveness increases, or companies that can expand their potential as conditions improve. This sort of productive base doesn't exist in Greece and new businesses and jobs have to be created ab nihilio - something that would be made more difficult in a climate of devaluation and instability. In a society with governance, cohesion and a productive base like Denmark's a devaluation might help. Not in Greece...

  10. How credible could Greece's "bluff" be? Wouldn't it be called as soon as it was on the table?

  11. Does a Greek solution to the crisis even exist? Isn't Greece too small a player to be able to pull itself out of the hole it is in without the EU?

  12. Wouldn't the primary beneficiaries of a return to a (devalued) drachma be the corrupt elites that have already moved their wealth to foreign tax havens? Wouldn't they return and buy off everything for next to nothing?

  13. Wouldn't this tactic be more successful if it was used not by Greece alone but concertedly by all the IMFed countries?

  14. How does the population survive the first few months after the currency change? Rationing?

Display:
The ECB managed to coerce Ireland into not defaulting on a much more obviously unfair debt, even after the newly elected government promised otherwise.

Actually, the jury was still out on that last time I checked. Now, admittedly that was shortly before the latest Irish bank audits so my information may not be up to date here.

Obviously it has some leverage on peripheral EU governments and economies. What is the nature of this blackmail and how can it be overcome?

We do not quite know at this point. Mig has floated the possibility that the ECB has threatened to withdraw liquidity from the Irish banking system. Another possibility is that it is simply the weight of Seriousness and appeal to the putative authority of the ECB's "experts."

But note that Ireland is not Greece. The Irish have a long-term interest in remaining within the Eurozone under the present rules, because Ireland has an intra-Eurozone trade surplus. Greece has no economic interest in remaining in the Euro unless the rules are changed in a way that treats positive and negative intra-Eurozone current account positions in a balanced manner. So exclusion from the Eurozone - either de jure or de facto - is a credible threat to Ireland's livelihood in a way it is not to Greece's.

Given that the circulation (legal or not) of two currencies: the new currency - let's call it the Drachma - and the Euro is certain, won't this create a "black market" currency rate, as in the former USSR, that will undermine the drachma

Yes.

That's a feature, not a bug. You'll convert your liabilities into Drachma when you switch, so the people holding Greek debt will get to take haircuts in direct proportion to the lack of confidence in the Greek recovery. This is the whole point of the exercise.

Hyperinflation threats: "Jake is underestimating the degree to which the Greek economy is dependent on imports" - that would include fossil fuels and basic foodstuffs, especially since it would make business sense for producers to export food at international market rates. That would mean that food would still be traded abroad in Euros and barring a government forced requisition, their prices would skyrocket in drachmas...

Greece is a net exporter of food.

Fuel would be a serious problem.

Almost everything else is stuff you won't be able to afford anyway if present economic trends continue.

And this wouldn't just affect oil and food, but basic capital goods, especially machinery of all sorts etc. Greece was driven to become a service economy over the past 20 years and that means it doesn't have the (short-term at least) ability to support its basic economic and vital needs.

That is not the question. The question is whether essential imports exceed total exports. If they do, you need to revise your definition of "essential." If they still do after the revision, then you're fucked. If they don't, then sufficiently harsh capital controls will enable you to pull through.

[If someone who can read Greek could dig up some import and export data, it would help to qualify this discussion.]

The Greek people may decide, in the end, that it does not believe that it can muster the necessary political strength to see the proposed strategy through. The Greek people may also decide that the objective economic conditions make the risks of leaving the Euro large enough that austerity is preferable. That is, ultimately, a political decision, and as a foreigner I have very little standing in that discussion (both because I lack sufficient depth of knowledge about the subjective conditions in Greece and because it is not my livelihood that is being decided upon).

My agenda here is to make it clear that there is an alternative, and that Greece has no duty to refrain from that alternative out of loyalty to a European Union that appears to be run of, by and for Bild Zeitung and Deutche Bank.

The government and people of Greece may decide to decline that alternative. And while I might personally have decided differently in their position, it is their prerogative to make that decision. I only ask that the decision is made with full knowledge that there are alternatives to AusterityTM.

Even if feasible in principle: Does Greece (or other EU countries I should add) have a political personnel capable to organize the subtle and difficult political maneuvers required to fight off ECB blackmail and find solutions for the host of problems such a bold move would entail?

Presumably not at present. But such political organisation and determination will not appear unless somebody pushes the idea into public discourse. The political will and organisation needed may not appear even if the idea is pushed forcefully in public discourse, but if it is not pushed then they certainly will not.

Isn't it impossible in practice to default and leave the eurozone while staying in the EU at the same time?

Hard to tell ahead of time. It would provoke a constitutional crisis, which means that we're in uncharted waters here. My belief is that the powers that be would want to contain the damage to the Union. But that is, at the end of the day, tea-leaf reading.

Wouldn't this sort of blackmail incur the wrath of the powers that be in the EU so that there would be a backlash in terms, say, of EU funds being withheld and general economic sabotage, by the "big" EU countries whose banks would be the main victims of such a default?

Of course. But as economic sabotage goes, AusterityTM is a pretty high bar to clear.

Again, as an outsider I cannot completely appreciate whether the real gains from EU regional development and CAP money outweighs the loss to deficit terrorism. And it is even possible that there is no objectively clear answer, because it is such a close call that the answer depends on which economic-political groups one favours.

If we switch back to the drachma would the currency devaluation reduce the buying power of wages and salaries even more than austerity is doing now?

That is unlikely. Suppose that Greece has 25 % higher unit labour costs than Germany, and an import quota (imports divided by total GDP) of 1/3. Assume that total unit costs are also 25 % above German total unit costs. In that case, achieving parity through wage cuts would cut a wage earner's purchasing power by 20 %, whereas depreciation to achieve parity will reduce the purchasing power of the average Greek by 1/15, or just a hair under 7 %.

The general expression for the zeroth-order income reduction from restoring unit labour cost parity through a wage cut is

[domestic unit labour costs]:[foreign unit labour costs] - 1

The general expression for the income reduction from depreciation to restore total unit cost parity is

(1 - [domestic unit costs]:[foreign unit costs])x[import quota]x[foreign unit costs]:[domestic unit costs]

I encourage you to play around with these equations a bit to get a feel for them.

Additionally, and not captured in these simple formula, getting rid of the debt burden would remove the single greatest current impediment to Greek recovery. On the other hand, if essential imports exceed total exports, you may find yourselves in a situation where you cannot obtain the capital goods and raw materials to sustain a recovery.

Why is a devaluation of local currency less painful for the mass of working people than a direct wage reduction? (The price of oil and its prospects should be taken into account in answering this question)

Because it is harder for the wealthy to escape paying their fair share. A currency depreciation redistributes from net importers to net exporters, while a wage reduction redistributes from wage earners to employers. There are more wealthy people among the net importers than among the wage earners, and more poor people among the wage earners than among the net importers. Especially when weighted for import volume, as the rich typically have a higher import quota in economies that do not have a structural import dependency on food and fuel. However the Greek import dependency on fuel complicates the latter point, as a previous comment notes.

If local loans are converted to drachmas wouldn't that mean that the Greek banking system will in large part collapse,

Not if their liabilities are similarly converted to Drachmas.

And if they are not doesn't that mean that, say, housing loans would become impossible to repay for the vast majority of debtors?

Yes. Which is why you convert them.

For a devaluation to foster growth two things are needed: a. A tight fiscal policy: otherwise the inflationary pressures will keep increasing, leading to serial devaluations and hyperinflation.

Not due to devaluation itself. Devaluation does cause increased inflation, but as long as the economy's import quota is below 1, this increase eventually converges.

Unless you believe in rational expectations "theory," which is a neo-classical fairy tale.

Now, the ability to print your own money may cause the Greek government to go overboard and create excess inflation. If you believe that this is likely, then you have sound reason to want to stay in the Eurozone. But that would be a consequence of a Greek government failure to conduct responsible macroeconomic policy, not a consequence of leaving the Eurozone per se.

b. Excess potential in export industries: that means factories that are underfunctioning and can hire people as soon as competitiveness increases, or companies that can expand their potential as conditions improve. This sort of productive base doesn't exist in Greece and new businesses and jobs have to be created ab nihilio - something that would be made more difficult in a climate of devaluation and instability.

I am aware of that. But the objective of this exercise is not to increase capacity - at least not in the short term. It is to stop the loss of capacity that AusterityTM imposes.

How credible could Greece's "bluff" be? Wouldn't it be called as soon as it was on the table?

I am not suggesting that you bluff. I am suggesting that you threaten. If you are not prepared to carry out the threat, you should not make it.

Does a Greek solution to the crisis even exist? Isn't Greece too small a player to be able to pull itself out of the hole it is in without the EU?

No, size does not have anything to do with it. In fact it is easier for a comparatively small economy to devalue itself out of a crisis. A devaluation strategy depends on everybody else to consider the loss of trade surplus less important than the added inflation from a competitive devaluation. Obviously, the chances of this are better if you are small.

(On the other hand, the amount of underhanded mischief other people can get away with increases the smaller you are.)

Wouldn't the primary beneficiaries of a return to a (devalued) drachma be the corrupt elites that have already moved their wealth to foreign tax havens?

Inasmuch as they have moved physical wealth, yes. However, if they have only moved bank deposits, a total conversion to Drachma will actually repatriate wealth, since the process of moving bank deposits abroad involves a domestic bank borrowing money from a foreign bank. Since this foreign interbank debt will diminish in value with a conversion, it will diminish the stolen wealth.

It is possible that the corrupt elites will be made whole out of other countries depositor guarantees, but that is not your problem.

Wouldn't this tactic be more successful if it was used not by Greece alone but concertedly by all the IMFed countries?

Yes. Assembling a coalition is always preferable to fighting alone.

How does the population survive the first few months after the currency change? Rationing?

Yes. The rationing does not need to take the form of rationing stamps. It may take the form of capital controls (which is a form of import rationing, in which you restrict the use of scarce hard currency to those imports which are important to the continued functioning of society and your economy). But there will be some sort of rationing while you rebalance your current accounts.

On the other hand, AusterityTM also entails rationing. It just does its rationing in a somewhat sloppier and more capricious manner.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Apr 4th, 2011 at 11:24:26 PM EST
Rereading this

My agenda here is to make it clear that there is an alternative, and that Greece has no duty to refrain from that alternative out of loyalty to a European Union that appears to be run of, by and for Bild Zeitung and Deutche Bank.

I realise that standing alone it sounds Euroskeptic. I should, perhaps, clarify that I am not a Euroskeptic. I believe in the European project, and I would be the first to lament it if the European Union collapsed. But I do not believe that Greece has a duty to commit economic suicide on the alter of monetary chickenhawk idiocy and thinly veiled German racism. I do not believe that it is in the long-term interest of the European Union to cow-tow to an EPP government that is too craven to stand up to the gutter press - one needs only look to Britain or Italy to see what happens when you allow the likes of Murdoch, Springer and Corruptioni to run your government. And I especially do not believe that it is in the long-term interest of the European Union to make impossible demands of its members.

Now, the ability to print your own money may cause the Greek government to go overboard and create excess inflation. If you believe that this is likely, then you have sound reason to want to stay in the Eurozone. But that would be a consequence of a Greek government failure to conduct responsible macroeconomic policy, not a consequence of leaving the Eurozone per se.

I'd like to take the opportunity to remind the reader that to remain in the Eurozone on these grounds would be an implicit admission that the Greek polity is incapable of managing its own sovereignty on important issues such as economic planning. That conclusion may be correct, even if it is unpleasant, but if I were a Greek citizen I would want rather stronger arguments for it than the Conventional Wisdom of the Springer Verlag. It is, after all, the macroeconomic equivalent of committing oneself to a mental hospital. ...which is presently run by doctors enamoured with full frontal lobotomies and electroshock therapy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 07:12:04 AM EST
[ Parent ]
JakeS:
Conventional Wisdom of the Springer Verlag
That should be Axel Springer AG, not the Springer Verlag we physicists know and love.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Apr 5th, 2011 at 07:19:04 AM EST
[ Parent ]
You said this in the original LTE draft:
As an ardent supporter of the European project, it gives me no pleasure to make a recommendation that may result in breaking the Eurozone. But I can no longer in good conscience watch Greece commit economic suicide for the sake of the failed economic doctrines at the core of current €-zone policy. Enough is enough.
By the way, when you say
I do not believe that it is in the long-term interest of the European Union to cow-tow to an EPP government that is too craven to stand up to the gutter press
the European Union is currently a very good approximation of a continent-wide EPP government and will be for some time. It's a dreadful prospect.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Apr 5th, 2011 at 07:21:38 AM EST
[ Parent ]
I know I said it in the original. It bears repeating.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 07:53:44 AM EST
[ Parent ]
Just to highlight how sad the situation is.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Apr 5th, 2011 at 08:22:02 AM EST
[ Parent ]
That, and to counter any instant dismissal of my argument as Euroskeptic tripe. And to prevent deter provide counterpoints against Euroskeptic quote mining.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 08:31:21 AM EST
[ Parent ]
"We" get the policies "we" vote for.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sat Apr 16th, 2011 at 11:52:57 AM EST
[ Parent ]
I'm fairly sure I've never been asked to use my vote to express an opinion on ECB, IMF, "investor", or ratings agency policy.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Apr 16th, 2011 at 02:00:40 PM EST
[ Parent ]
Perhaps the scare quotes should have been around "vote for" rather than "we."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Apr 16th, 2011 at 06:43:50 PM EST
[ Parent ]
Perhaps the quote marks should be used in addition to as opposed to rather than.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Apr 17th, 2011 at 12:20:12 PM EST
[ Parent ]
JakeS:

[If someone who can read Greek could dig up some import and export data, it would help to qualify this discussion.]

I do not read Greek, but there is some data floating around in english.

Greek GDP:
CIA - The World Factbook

$302 billion (2010 est.)

EU's contribution:
CIA - The World Factbook

Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP

Exports:
CIA - The World Factbook

$21.14 billion (2010 est.)
 $21.34 billion (2009 est.)

 Exports - commodities
food and beverages, manufactured goods, petroleum products, chemicals, textiles

Imports:
CIA - The World Factbook

$44.9 billion (2010 est.)
$64.2 billion (2009 est.)

 Imports - commodities
 machinery, transport equipment, fuels, chemicals

And an old data point that might still be relevant:

Greece is the Third Biggest Arms Importer

Biggest Importers (Million $)

India 2,400
China 2,300
Greece 1,434

With a 20 billion trade deficit, cutting 1,5 is not the final solution, but it is a start. And considering how intertvined high politics and weapons sales are, a start that would be felt in the right circles.

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

by A swedish kind of death on Tue Apr 5th, 2011 at 08:17:52 AM EST
[ Parent ]
I find the fact that imports dropped by something on the order of a quarter between 2009 and '10 to be encouraging. That looks like there's considerable elasticity in the imports.

Of course, it may well be that that was the low-hanging fruit and they're about to hit bedrock [Jake's Mixed Metaphor TechnologyTM]

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 08:32:25 AM EST
[ Parent ]
For mixed metaphors, you can issue a [Moustache of Understanding Alert] .

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Apr 5th, 2011 at 08:43:13 AM EST
[ Parent ]
I realised something.

Considering that Greece has 15% of GDP from tourism, is not current accout more relevant then trade balance?

Then instead of a trade deficit of 23 billion USD in 2010 (43 billion 2009), we are looking at 17 billion current account deficit in 2010 (34 in 2009).

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

by A swedish kind of death on Tue Apr 5th, 2011 at 03:08:28 PM EST
[ Parent ]
Tourism should enter into the balance of trade.

Current accounts, on the other hand, include interest payments, some of which would, obviously, cease. Unless I am mistaken on the English translations of the terminology.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 07:05:16 PM EST
[ Parent ]
Actually current accounts balance includes balance in services (that means tourism and shipping as well if I'm not mistaken - a big deal), incomes, capital transfers etc. Here's the Bank of Greece's latest (January 11) report on the current account balance.

Note also that less than half of that 15%GDP for tourism is foreign tourism. And while foreign tourism could indeed boom under a cheaper currency, domestic tourism would tank (actually is tanking already)

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

by talos (mihalis at gmail dot com) on Tue Apr 5th, 2011 at 08:11:59 PM EST
[ Parent ]
I don't know what "EU aid" includes but Greece received a net ~1.3% of GDP from the EU budget in 2009, (half of what it received in 2008 btw) and that's where it still is if I'm not mistaken...

Export of goods is booming, relatively speaking (which means returning to pre-2008 levels) and import of goods is declining. That's the only good news there is, but this year's petroleum cost increases alone are larger than the decline of the non-oil trade deficit

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

by talos (mihalis at gmail dot com) on Tue Apr 5th, 2011 at 08:20:43 PM EST
[ Parent ]
You can find Greek statistics at www.statistics.gr. It's the official site of the Hellenic (i.e. Greek) Statistical Authority. Everything is in English, too. You can subscribe for free and have access to data and series. Also, you can access statistics of the Bank of Greece (www.bankofgreece.gr), where everything is in English, too.

"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 Wed Apr 13th, 2011 at 05:37:38 PM EST
[ Parent ]
Thank you for spending the time to produce these answers.

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Tue Apr 5th, 2011 at 10:27:10 AM EST
[ Parent ]
It looks as if the Irish Government has decided not to burn bondholders because so much has already been paid off by the previous Government (c. €50 Billion) that the saving on giving a haircut to the remainder would not outweigh the costs.

These costs are stated to include:

  1. the ECB withrawing c. 150 Billion in short term liquidity loans to Irish Banks

  2. the difficulty in funding the current Government deficit resulting in draconian tax increases or cuts in public services/employment

  3. The "reputational damage" a default would create and result in higher sovereign debt market interest rates for the foreseeable future.

  4. The "reputational damage" a default would create for Ireland within the EU

  5. The prospect of reduced interest rates for being a "good European"

  6. The "belief" that the Irish debt/GDP ration will peak at 120% (after austerity measures) and decline thereafter because of the inherent underlying strength of the Irish economy - the "Grow your way out of debt" strategy Mig says can't/doesn't happen.

  7. The degree of integration between the Irish and EU economies and thus the need to remain "at the heart of the EU

These factors include a number of known unknowns.

i. The reaction of the EU big players to default or being a good European

ii. The reaction of the markets to default or being a good debtor

iii. the underlying resilience of the Irish economy in the face of continuing austerity

A Fine Gael led Government is not ideologically opposed to Austerity (many within the party welcome it) and imagines that its EPP partners in Europe will reward them for acting so responsibly.  We shall see.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 5th, 2011 at 04:40:10 PM EST
[ Parent ]
How does Labour feel about it?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Apr 5th, 2011 at 05:14:52 PM EST
[ Parent ]
I am not a party/political insider so I don't know precisely, but publicly there is no difference with Fine Gael. Colman may have better contacts. Personally I am not surprised. My April 1st. piece was not in jest as far as that was concerned.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 5th, 2011 at 06:12:18 PM EST
[ Parent ]
i. The reaction of the EU big players to default or being a good European

Considering that the reward for being a good European is AusterityTM...

ii. The reaction of the markets to default or being a good debtor

First, in what fictional alternative universe does the restructuring of Irish banks impinge on the credibility of the Irish state vis-a-vis its obligations?

Second, we know perfectly well how the markets react to people who are good debtors. They call them suckers and proceed to fleece them. The possibility of default is already priced in - if you continue to pay the punitive rate but take default off the table, you're just letting yourself and your money be parted.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 07:09:45 PM EST
[ Parent ]
Agreed on both points, but remember Fine Gael actually welcome austerity as a great opportunity to trim "the bloated state sector"

Secondly, the ECB/IMF specifically do not allow the Irish Government to buy its own debt on secondary markets - at the going market rate c. 70% on the € - i.e. to take advantage of the markets "pricing in" a default.

Mustn't interfere with the markets right to make the rich richer, now must we?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 5th, 2011 at 07:33:09 PM EST
[ Parent ]
Wait, what? The Irish are not allowed to pay down their debts ahead of time?

In which fictional alternative universe does that make ANY FUCKING SENSE?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 5th, 2011 at 07:40:58 PM EST
[ Parent ]
I don't know about Ireland, but in the Greek case it's not that Greece is forbidden to buy back part of its debt in the going rate (at 70c to the Euro), just that it cannot use the Special Fund's money to do so. Which means as things are going, that it can't

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Apr 5th, 2011 at 08:03:53 PM EST
[ Parent ]
Ireland has other capital resources (e.g. Pension reserve fund) it could use to buy out some of the debt. But then the ECB wouldn't get 5.8% on the money it is so generously using to "bail-out" the Irish: Money it borrows at 3% and thus makes a cool 3% on.

You see, we don't want a fiscal transfer Union from the centre to the periphery - its supposed to be the other way around...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 5th, 2011 at 09:16:21 PM EST
[ Parent ]
Then what the fuck are they supposed to spend the money on?

The whole damn point of buying back your own bonds at a discount is that this increases the net social wealth, because it removes a default premium (the default premium on bonds outstanding is a cost to the bondholder but not a gain for the issuer - by buying back the bond at a discount, the issuer gets to book the risk premium as a gain... but this doesn't cost the holder anything).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 6th, 2011 at 07:32:18 AM EST
[ Parent ]
You can't use the fund's money to buy back the bonds because that would be market manipulation.

It's insane, I know, but the insanity of the European economic establishment is what we have to live with.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Apr 6th, 2011 at 08:14:56 AM EST
[ Parent ]
Talos:
in the Greek case it's not that Greece is forbidden to buy back part of its debt in the going rate (at 70c to the Euro), just that it cannot use the Special Fund's money to do so.

A possible solution that is a win for Greek oligarchs and a win for the Greek Govt. and people:
Make a deal with the oligarchs that they buy the debt at the best price possible, (rumors of default could improve their price), with the agreement that the Greek government will then buy the debt from them at a few percent above their purchase price. Retiring loads of debt would increase the credit rating of Greek bonds which could be issued to the oligarchs as payment, which  would, to say the least, greatly depress the value of CDSs on the original bonds, so one or both parties could sell CDSs short prior to the transaction. What is good for the goose is good for the gander! :-)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 6th, 2011 at 09:22:31 PM EST
[ Parent ]
That would be a neat trick, if they can pull it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 6th, 2011 at 09:51:54 PM EST
[ Parent ]
It might be possible if done as private transactions. After all, central banks are notoriously secretive. If everyone can keep their mouths shut long enough, the debtor country could get well as funding costs ratcheted down.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 6th, 2011 at 10:22:24 PM EST
[ Parent ]
None of this makes any fucking sense.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Apr 6th, 2011 at 08:16:14 AM EST
[ Parent ]
You don't need a fictional alternative universe, you need the real world.

Consider this from the position of a creditor bank in a creditor country where long-term funding costs are 4%.

Debtor country bonds are now selling in the secondary market (and being issued in the primary market) at 10%.

You can fund yourself at 4% and buy the bonds at 10% in the secondary market, pocketing a 6% margin. However, there is a risk of default. If there's a default by the debtor country, you not only don't make 6% but lose your 4%, and the principal.

To avert a default, the creditor government lends money to the debtor country at 7% to pay interest. The creditor country makes 3% margin, and the debtor country can pay its interest. The market is kept in jitters about default risk so the bonds still sell at 10% in the secondary market and the creditor bank can continue to make its 6% margin from buying in the secondary market.

If you allowed the debtor country to buy the bonds in the secondary market 1) the creditor bank loses the ability to buy the bonds at firesale prices to make the nice 6% margin since the debtor country always has an incentive to outbid the creditor bank in the secondary market; 2) if the creditor bank sells the bonds in the secondary market they instanty realise a large loss.

So the game here is:

  1. the creditor country makes seigniorage income;
  2. the creditor bank avoids losses through default or through realised losses in a sale;
So far, so good. The possible scam made possible by forbidding the debtor country from repurchasing their bonds is

  1. the market in debtor country bonds remains illiquid and the bonds cheap for the creditor bank to buy,
  2. the creditor country cannot be outbid by the debtor country for bonds held by third parties;

It is important that the market be kept nervous about the possibility of a default, otherwise the bonds would become expensive again.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Apr 6th, 2011 at 08:42:21 AM EST
[ Parent ]
Migeru:
the creditor countrybank cannot be outbid by the debtor country for bonds held by third parties
Anyway, I don't think the creditor bank wants to buy bonds in the secondary market. It's better for them to lend to the creditor country to lend to the debtor country to repay the bonds until 2013, when presumably the bonds held by the creditor bank have matured and all that's left is debt owed by the debtor country to the creditor country.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Apr 6th, 2011 at 08:55:47 AM EST
[ Parent ]
... that to the EPP (and the Quisling wing of the PES) "makes sense" means "makes sense for our buddies in the banks," not "makes sense for our electorates."

I can haz honest politicians?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 6th, 2011 at 01:27:05 PM EST
[ Parent ]
You don't need a fictional alternative universe, you need the real world.

A choice would often be good.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Apr 6th, 2011 at 09:16:50 AM EST
[ Parent ]
We need a fictional alternative universe in which there's no collusion among the economic policy establishment to make the pain fall on the less well politically connected to the financial core of the Eurozone.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Apr 6th, 2011 at 09:20:17 AM EST
[ Parent ]
Thanks Jake, for your time and your thoughts. A few issues:

  • Greece is not a net exporter of food. It has an agricultural trade deficit, and is spending 2.6 billion euros as of last year, to import food and livestock. This includes most types of meat and milk.

  • Define essential imports: does, say, machinery required for various kinds of industries that produce export goods, or basic necessities, count?

  • "Devaluation does cause increased inflation, but as long as the economy's import quota is below 1, this increase eventually converges": Expand on this, it is unclear (to me) what you are saying...

  • "a total conversion to Drachma will actually repatriate wealth": Eh? How's that? I have 10 million in euros stashed somewhere in Greece (or deposited in a Greek bank), a radical government is elected and switches overnight to a new currency, say the drachma. Initially 1 Euro will buy you 1 drachma but in a week's time, you can bet that the legal exchange rate will be something like, say, 2 drachmas to a Euro - and wages and prices will be devalued with respect to Euros, so I increase my buying power in Greece when and if I decide to repatriate my foreign deposits...

  • Capital controls: aren't those a no-no in the EU? Mind you that net EU funding for Greece was in 2009 a bit over 1% of GDP, so those funds could be suspended while waiting for a court decision on the matter...


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Apr 5th, 2011 at 07:58:02 PM EST
[ Parent ]
Greece is not a net exporter of food. It has an agricultural trade deficit, and is spending 2.6 billion euros as of last year, to import food and livestock. This includes most types of meat and milk.

Being a net food importer with a trade deficit is really bad when you are planning to screw over your creditors. We'll need a more detailed breakdown of agricultural imports and exports to see whether Greece is a net calorie importer or exporter (and remember the caveat that calories are not all there is to food imports).

On the other hand, the fact that the imports are calorie-inefficient foods like meat and milk is good, because it means that there is a chance that you can actually produce enough food to feed your population in a pinch (Europeans on average eat way more meat than we have to).

Define essential imports: does, say, machinery required for various kinds of industries that produce export goods, or basic necessities, count?

Yes. Machinery that produces basic necessities is, of course, necessary, because it will typically be more expensive to import the necessities than to import the machines. Machinery that produces export goods shouldn't have a problem obtaining hard currency.

Devaluation does cause increased inflation, but as long as the economy's import quota is below 1, this increase eventually converges

Expand on this, it is unclear (to me) what you are saying...

Suppose you have a domestic structural inflation rate of, say, 4 % per year when your nominal exchange rate is constant. Suppose that your trading partners have a structural inflation rate of 2 % per year at constant nominal exchange. Then you have to devalue by 2 % per year to defend your real exchange rate. But if your import quota is - say - 1/3, then you get 2/3 of a percentage point additional inflation from this devaluation. You have to offset this with a further devaluation, which triggers a new, smaller inflation increase.

But the lucky point about this series is that it converges, as long as your import quota is below unity. So the increase in inflation from a floating currency is finite.

a total conversion to Drachma will actually repatriate wealth

Eh? How's that? I have 10 million in euros stashed somewhere in Greece (or deposited in a Greek bank), a radical government is elected and switches overnight to a new currency, say the drachma. Initially 1 Euro will buy you 1 drachma but in a week's time, you can bet that the legal exchange rate will be something like, say, 2 drachmas to a Euro - and wages and prices will be devalued with respect to Euros, so I increase my buying power in Greece when and if I decide to repatriate my foreign deposits...

Well, yes, if you have a suitcase full of Euro notes stashed somewhere, then you will gain. But if you have a bank account in Greece with ten million Euro in it, then you will, after the total conversion, end up having a bank account with ten million Drachma in it.

If you have a bank account in Switzerland with ten million Euro in it, then it means that a Greek bank owes ten million Euro to a Swiss bank (because that's how you move money to a foreign bank - the domestic bank writes in its ledger that it no longer owes you anything and it owes the foreign bank your deposit, and the foreign bank writes in its ledger that the domestic bank now owes it your deposit and it owes you your deposit). ...but after a total conversion, the domestic bank will owe the foreign bank ten million Drachma instead of ten million Euro (that's the whole point of doing a unilateral currency conversion).

The foreign bank may still decide to honour the deposit. But that's the foreign bank's affair - if it wants to give a Greek oligarch a gift of ten million Euro, then there's not much you can do about it, other than to lament the fact that it's aiding and abetting a tax cheat in protecting the proceeds from his thievery.

Capital controls: aren't those a no-no in the EU?

Yes. By the time that case is adjudicated in the European Court of Justice, the crisis will be over, one way or another.

Mind you that net EU funding for Greece was in 2009 a bit over 1% of GDP, so those funds could be suspended while waiting for a court decision on the matter...

I assumed that those funds would be suspended the moment you decided to leave the Euro. In the original diary, I wrote:

[The Powers That Be in the EU] have a variety of creative ways to screw Greece over. [...] They can refuse to release EU funds for Greece (which is a net recipient). [...] And a variety of other innovative forms of mean-spiritedness.

And there's this thing about freezing an asset: You can only do it once. You can't double-freeze the money, in the same way that you can't kill a dead man.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 6th, 2011 at 07:56:46 AM EST
[ Parent ]
A question on the equations... You say:
The general expression for the zeroth-order income reduction from restoring unit labour cost parity through a wage cut is
[domestic unit labour costs]:[foreign unit labour costs] - 1

In our example that would be 125/100 - 1 = 25%, not 20% right?

The general expression for the income reduction from depreciation to restore total unit cost parity is

(1 - [domestic unit costs]:[foreign unit costs])x[import quota]x[foreign unit costs]:[domestic unit costs]

Do foreign unit costs cancel out here, or are the first unit labor costs and the second total costs...? If the foreign unit costs are smaller than domestic costs this is a negative quantity. Also is there a standard reference for these equations, somewhere I could point to for the Serious people that might condemn the "unseriousness" of the writers credentials

An aside: I have the impression that absolute unit labor costs in Greece are substantially lower already than those in Germany (but where would one find these listed online?), and what is being paraded in the press is the fact that relative labor costs have increased faster in Greece than in Germany since Euro adoption. Thus I think labor costs are reduced to make up for non-labor costs that "can't"... How does that affect the argument if at all...
In fact even than claim, although accurate, is misleading because, as Erik Jones pointed out a year ago in Eurointelligence(in an article I link to here for the umpteenth time, though this time with the permanent link):

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.
...If we look at just manufacturing data, the story might be different - and it is.  Using national accounts data for relative real unit labor costs in manufacturing, Greece goes from 100 in the year 2000 to 87 in 2008.  Over the same period, Germany goes from 100 to 90.  It is hard to see how Germany comes off better in the comparison...
......Even if Greece is not suffering in terms of manufacturing, the high real incomes that Greek employers are doling out must surely be hitting the bottom line in the service sector, shouldn't they?  Again, that's hard to see in the data. Total compensation per employee was 53.8 percent in Greece and 57 per cent in Germany...

So where does that leave the discussion? Does it matter?

(I think that large part of the discussion is fictional to begin with, since what was monstrous in these past years in Greece was profits per worker: in that way the bubbly "boom" was for the working people half swallowed up by high inflation and half sent to swiss bank accounts and used to finance yachts, villas and, as its main "productive" outlet, corruption. )

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

by talos (mihalis at gmail dot com) on Sat Apr 9th, 2011 at 10:57:38 AM EST
[ Parent ]
A question on the equations... You say:
The general expression for the zeroth-order income reduction from restoring unit labour cost parity through a wage cut is
[domestic unit labour costs]:[foreign unit labour costs] - 1

Sorry, that's a snafu. It should be 1 - [foreign ULC]:[domestic ULC]

Both are "true," it's just a matter of whether you're saying "wages were N % higher before Austerity" or "Austerity will make wages go down by M %." We're saying the latter, so it should be 1 - [foreign ULC]:[domestic ULC].

Do foreign unit costs cancel out here, or are the first unit labor costs and the second total costs...?

Neither. The formula is good as written. Recall that division has higher rank than subtraction.

If the foreign unit costs are smaller than domestic costs this is a negative quantity.

Yes. The second equation gives you the change, not the reduction, because when I derived it I didn't bother splitting the derivation between the more and less competitive cases.

Also is there a standard reference for these equations, somewhere I could point to for the Serious people that might condemn the "unseriousness" of the writers credentials

Not as such, no. But I'm just using three standard short-run, low-order macro assumptions: Static expectations, sticky prices, constant import quota.

If they wanna argue those, then we can talk. If they just wanna toss credentialism at you, you can say "standard short-run macro assumptions about price stickiness and structural import dependencies."

I have the impression that absolute unit labor costs in Greece are substantially lower already than those in Germany (but where would one find these listed online?), and what is being paraded in the press is the fact that relative labor costs have increased faster in Greece than in Germany since Euro adoption.

I think you are confusing hourly wages and unit wages. Hourly wages are indeed much lower, but unit wages - that is, wages per widgit that actually goes out of the factory - are (supposedly) higher.

Thus I think labor costs are reduced to make up for non-labor costs that "can't"... How does that affect the argument if at all...

Yes, that's part of the larger argument we're making. Wages and profits are two sides of the same coin, accounting-wise. If AusterityTM is indicated for wages, then it is also indicated for profits. (The converse, however, does not always hold, as profits have a lower marginal rate of expenditure than wages. So there exists a demand regime where wage Austerity can kill your recovery even while profit Austerity helps it.)

But in the short term it doesn't matter, except as a historical digression, because in the short term what's killing the Greek economy is that it has excess hard-currency debts and a hard-currency trade deficit. How they came about is irrelevant to the economics (although they may well be relevant to the political blame game). The solution are the same in either case: The debts must be defaulted upon, and the hard-currency deficit must be turned into a soft-currency deficit. The first bit Greece can do on its own. The last bit can be done either unilaterally, by Greece leaving the Euro, or federally, with the ECB starting to do its goddamn job and provide unlimited and unrestricted funding for countercyclical stabilisation policy at the state level.

In the longer term, Greece can rebalance its foreign trade, but in the short term, "default and print money" is the only solution, and the only choice Greece and Europe has is whether it happens before or after the Greek economy has ceased to exist (resp. before or after Deutche Bank's private profligacy has been moved to the public balance sheet).

So where does that leave the discussion? Does it matter?

Yes. You want to keep citing that as often as you can get away with. Because what that quote essentially says is that Greece's current account problem is not a problem of high unit labour costs. Which means that it is either a problem of too-high profits, a problem of institutional barriers to industrialisation (including the federal rules against industrial policy) or a problem of the private Greek banking system creating a boom based on Ponzi finance.

(I think that large part of the discussion is fictional to begin with, since what was monstrous in these past years in Greece was profits per worker: in that way the bubbly "boom" was for the working people half swallowed up by high inflation and half sent to swiss bank accounts and used to finance yachts, villas and, as its main "productive" outlet, corruption.)

That would be the "excessive profits" and "irresponsible private banks" explanations from the list above.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Apr 9th, 2011 at 12:50:53 PM EST
[ Parent ]
Neither. The formula is good as written. Recall that division has higher rank than subtraction.

I know. I was trained as a physicist :-) This is equivalent to (fuc/duc - 1)*IQ. It struck me that since this would be a simpler form you might have intended the unit cost ratio you mention twice to be a different ucr. I'm intrigued as to how one arrives at this formula BTW, or is it beyond the scope of this thread?

It might possibly be of some relevance that both Ireland and Greece (unlike Spain and Portugal it seems were in the recent past) among the EU champions in making money out of their workers (see chart pg 4).

Anyway, I hope to finish translating a large part of this discussion tonight or tomorrow, post it in Greek and see how it's received. Possibly a few readers might even come over here and join the discussion, else I might retranslate for a final round if you (or anyone else) are up for it...

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

by talos (mihalis at gmail dot com) on Sat Apr 9th, 2011 at 05:57:27 PM EST
[ Parent ]
You write out the general price level as the price of domestically produced goods times 1-IQ plus foreign goods times IQ, and then you look at the case where the nominal exchange rate is 1 and the case where the real exchange rate is 1 (and assume sticky nominal prices and constant import quota).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Apr 9th, 2011 at 06:05:53 PM EST
[ Parent ]
One of the questions I left out concerns the possibility of creating a public bank (by integrating the 3 banks that are under public ownership now), endow it with publicly owned real estate, have it borrow money from the ECB at banking rates and lend it back to the Greek state at practically the same minimal rate. This is pretty much a tactical vehicle that brings about your "financing the Greek debt at the Frankfurt overnight rate" (and is what the Greek Coalition of the Left is proposing btw). Would that be more politically palatable / feasible?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Apr 5th, 2011 at 09:48:13 PM EST
In the case of Ireland the Banks - most of which are now (or will shortly be) in public ownership - have €150 Billion in liquidity assistance funding from the ECB at the overnight rate. Given these banks lend on that money at much higher rates, this should be an immensely profitable activity for them. - and thus the taxpayer could ultimately benefit from this.  In addition, the last €24 Billion of public funding for the banks to recapitalise them post the stress tests may not be entirely lost provided those banks return to "profitability".

The problem with this scenario is that the problem has effectively been passed on to home owners who are heavily mortgaged (and in negative equity).  Should they start to return the keys in large numbers this will crystallise huge losses for the banks and further depress property prices. I'm not sure the stress tests really cover this doomsday scenario.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 5th, 2011 at 10:03:20 PM EST
[ Parent ]
Yes, that would be a way to meet the demands outlined in the original letter (give or take a few unimportant details). But the ECB would have to rediscount the Greek sovereign bonds at virtually no haircut in order to make such a bank viable.

Whether the ECB rediscounts the Greek bonds directly or by proxy through the Greek central bank and via the purifying power of the bid-ask spread of a nominally private (but in reality government-controlled) bank is a matter of the most supreme indifference as far as the real economic impact is concerned. So if that is what it takes for the Austrianist chickenhawks at the ECB to save enough face for them to comply, then that's perfectly fine.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Apr 6th, 2011 at 08:06:36 AM EST
[ Parent ]
If we step out of the realm of economics a little bit, we can also discuss the political scene in Greece, whether mass demonstrations can topple the government, whether there may be a political leader in Greece that is more amenable to bucking the EU, and whether Greek society has a breaking point as far as austerity goes. Many of the economic questions may be overtaken by reality. Political stability is not a given.

Does the EU fear not only the economic instability caused by a Greek default, but also a political instability? And beyond that, does the EU value Greece strategically as a partner in its southeast corner, abutting Turkey, North Africa and the Middle East?

The economic decisions certainly seem to carry the most weight here but I would remind that there are cultural/political factors as well as strategic factors that are also involved, especially as they relate to immigration and further integration with the Middle East.

by Upstate NY on Sun Apr 10th, 2011 at 10:29:25 AM EST
EU's strongest international card was the soft power that came from a volontary expantionary project that gave of hope joining. But geostrategical concerns seem all forgotten now as the core eats the periphery, to the future poverty of both.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Apr 11th, 2011 at 01:29:25 PM EST
[ Parent ]
I posted (a summary of) the response in Greek. It will be interesting to see how it goes...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Apr 10th, 2011 at 09:01:06 PM EST


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