We've been talking about the crisis in terms of the English-language commentary on it, and in terms of the clash between German and contemporary Anglo-Saxon economic philosophy. What we haven't really heard about is what the Greeks think, except insofar as it has been represented by Germans or Frenchmen or English or American thinkers. A Greek whose acquaintance I made in the last few days sent me this graphic to explain how the crisis looks to him.
From his perspective, the Greeks are proposing to pay 3.5B of the 4B Euros being asked. The creditors group is demanding the 4B (officially), but the way it has come up with for Greece to afford it is to violate its basic national security requirements. The Greeks were already proposing defense cuts at half the level the creditors would prefer, but -- at a time when Greece is facing a heavy influx of refugees, and possibly infiltrators, from the crises caused by ISIS and in Africa -- the creditors are demanding cuts to the bone.
Now national security in the face of an immediate threat is one of the few cases in which we often think it is reasonable for a sovereign power to run a deficit. After all, what are your alternatives?
Under this reading, the Greek position suddenly looks a lot more reasonable. They're willing to meet their creditors most of the way, but they aren't willing to commit suicide to close the remaining gap. And, by the way, isn't it really to all of Europe's advantage if Greece is able to maintain sufficient defense forces to deal with the influx of refugees? That seems like a problem it is carrying for the rest of Europe, to a certain degree. Might not the rest of Europe help to carry that burden a bit, or at least not kneecap the Greeks while the Greeks are carrying that burden for them?
Just so you know how it looks from the other side.
The Greeks were demanding a debt reduction of 12.5%, by those numbers. The third debt reduction in the last four years. Aside from haggling over the source of the funds, color me unsympathetic to the Greeks.
ReplyDeleteOn the other hand, the Greeks and Europeans were within €60 million of each other when Tsipras (according to Juncker) walked out. Juncker expressed outrage that Tsipras walked over so trifling a sum, yet Juncker refused, himself, to yield the point to the Greek.
I'd say a pox on both their houses, except that the eurozone is a cobbled together agglomeration of philosophies and ideologies that can have no hope of coexisting on the same currency.
Eric Hines
We might suspect that this is rationalisation. However, such rationalising must be based on an otherwise plausible argument, or no one would fall for it.
ReplyDeleteThey have a point. The refugees may be arriving at an oh-so-convenient time for the Greeks evading responsibility. But they are arriving nonetheless, at a time when Europe is in danger of fragmenting over them anyway. What is happening in Greece and Southern Italy is unsustainable. I don't know what Germany and France will do, but look for Switzerland, Norway, Finland, Denmark, and perhaps England to increasingly separate themselves and shut their doors. The first two are already not in the EU. and the last has always kept an exit door open.
Another point he'd like to draw my attention to, and yours: 70% of the world's intercontinental trade passes through the Suez canal. Of places it passes to, Greece is the cheapest. Note, then, the powerful desire by the creditors to increase Greek taxes on incoming tonnage, as well as an end to its favorable tax incentives for Greek shipping.
ReplyDeleteThe man's a patriot, of course. But I'm starting to think he has a point.
If Greece had a primary surplus (an ability to match income and expense before repayment of any interest or principal on its debt), I could buy this. As it is, what it amounts to is that Greece obligated itself to spend a huge chunk of its revenue on unsustainable domestic pensions, and now hasn't got enough left over to cover irreducible national expenses like basic defense. That doesn't make this a problem of mean creditors refusing to let Greek pay for its own defense. It's like an addict who complains that the bank payments are eating into his ability to pay for food, while spending 16% of his revenues on crack--and meanwhile demanding that a neighbor keep sending a monthly stipend so he won't starve. That looks plausible to the addict, too; after all, the neighbor's been sending the stipend for many years; why believe it will ever stop? Why hurry the day on which the neighbor will give it up?
ReplyDeleteCould Greece tell its creditors it refuses to repay the old debt until it can handle necessary defense functions? Sure, but then why would its creditors keep sending in the new cash that Greece demands in order to keep running a deficit? The creditors keep trying to negotiate for changes that will result in a primary surplus, so that someone might conceivably believe they're working their way out of the hole rather than deeper into it. Greece holds referenda and says "No." They like the hole, and by golly they're going to keep digging it as long as someone will keep loaning them new shovels.
I've never had any trouble understanding why Greeks are angry--anyone gets angry when you cut up the credit cards--but as as a McArdle commenter said earlier this week, "Too bad they can't eat anger."
I haven't got a lot of sympathy at all for their penchant for public pensions starting at "40 years of full employment," which is a nonsense standard in an economy like Greece's anyway. Just like our economy is becoming -- good luck finding full employment for 40 years! You'll be lucky to piece together part-time jobs.
ReplyDeleteOn the other hand, they're a sovereign nation trying to navigate a path out of a bad set of inherited policies. We're going to be there soon enough ourselves, one way or the other. So it's worth talking about what things they really ought to keep -- and national defense is surely first among those things, especially given the refugee crisis.
It might also be worth asking if it's really going to help them overcome their debt to disable one of their key competitive advantages by raising taxes on shipping. Will that, as their creditors from other nations allege, raise the money? Or will it shift shipping to those other nations, allowing those nations to collect Greece's money eventually and increased shipping revenues immediately? The latter, I think, in which case it would be a dodgy decision from the perspective of the Greeks.
I have to wonder what "overcoming their debt" means. If it means paying it back, I'd say it's a fantasy. If it means "getting along without new borrowing," well, I'm not sure "help" is the point. It's possible there just won't be any new borrowing, so whether they need help adjusting to reality or not, they'll have to figure something out. It will be a lot uglier than if they'd never got used to the deficit spending, but that's the breaks. They don't have a good enough military to force new borrowing at gunpoint, so what are their options? Make their humanitarian crisis worse and use it to extort aid? That usually works for a while, but it's not the same as doing what it takes to recover and ver slowly improve their lives. Iceland and Ireland showed us how to do that.
ReplyDeleteAs for which part of their budget to cut to make ends meet, I have private opinions, but it's up to them. I've had way too many conversations with insolvent people who'd spend all week, if you let them, explaining carefully how every single dollar of their budget is a nonnegotiable necessity of life, even if we both know people who do without any or all of them. It's just another way of shouting "gimme" louder. When the subsidies stop, people find a way to set priorities, because everything can't be No. 1 when the money runs out.
True. Still, neither a man no -- a fortiori -- a sovereign nation wisely gives in to the Company Store approach on offer. "Sure, we'll help you out today... you just have to accept an agreement that ensures your poverty and submission forever."
ReplyDeletePresumably not, but nothing even remotely like that happened here.
ReplyDeleteBingo. And the "they're making us cripple our National Defense" is SUCH a red herring. They may prioritize government spending however they wish. But if you are asking for handouts to do so, then yes, the creditor absolutely has a say in how their money is spent. Because it's not Greece's money. They ran out of their own money. I don't think Germany has to explain why they want Greece to raise revenue to at least put on a show like they have SOME intention to pay that money back. But Greece keeps saying "No". They want to (as Tex put it) buy more crack, and how DARE Germany insist they instead spend Germany's money on food! The NERVE!
ReplyDeleteA nation that wants a strong national defense is a fine thing. But it is not, nor should it ever be, another nation's responsibility to foot the bill for it. Greece wants it both ways. But the real world does not, should not, and never HAS worked that way. If the conditions the Germans are placing on their "loan" ("gift" is a more accurate word, since the Greeks have zero intentions of actually paying the money back) are too onerous for the Greeks to accept, then yes, Germany has every right not to give them the money.
But if you are asking for handouts to do so, then yes, the creditor absolutely has a say in how their money is spent. Because it's not Greece's money. They ran out of their own money.
ReplyDeleteTechnically, they stopped having their own money when they gave up the drachma. Their treatment by the EU central banks is not analogous to some immoral drunkard who spent all the rent money on Jim Beam, although that's the way people seem to want to talk about it.
Clearly they should go their own way, at which point the full raft of sovereign solutions would be available to them. They could try to inflate away the debt without becoming Zimbabwe, which might be possible given their advantages in shipping: they will at least continue to have a revenue stream of a substantial size from that.
I don't know. I'm looking at this from the perspective of the US being in a similar position down the road, when our reckless debt finally catches up to us. "You'll have to cut your military, you can't afford to keep a navy, you should do away with the Army and Marines and just have a National Guard and a rump air force," we'll be told -- probably by some of the same people who ran up the debts so high. We're going to have to find a way to deal with the impossible, outsized promises we've made without disarming ourselves. And we'll have to do it while listening to people talk about us as if we were a bunch of foolish drunkards, even though we've been yelling about this problem for decades.
Well, we'll see.
"Their treatment by the EU central banks is not analogous to some immoral drunkard who spent all the rent money on Jim Beam"
ReplyDeleteIt's a lot closer to that analogy than to most of the others that are being applied to the situation. If we get to the point where no one will voluntarily lend us any more money, and we go begging internationally for aid to support our continuing on the same path, I hope people do talk to us that way, and that we're sensible enough to listen. We're much farther along that way already than makes me happy, and it won't help us change our path to be apologizing for others who are farther along it and deeper into catastrophe, and yet who still think the whole thing is best blamed on some other country.
It's not that blame is so offensive--what does Germany really care what Greece thinks?--it's that Greece won't address its problem as long as it's telling itself the problem belongs to Germany. Misplaced blame blinds people to the only solutions they really have available.
Their treatment by the EU central banks is not analogous to some immoral drunkard who spent all the rent money on Jim Beam, although that's the way people seem to want to talk about it.
ReplyDeleteSorry Grim, but you're wrong on this. That's EXACTLY what is happening in Greece. They are spending money they do not have to engage in their ridiculous "everyone gets to be a government employee with a guaranteed pension" economy without having the tax base to pay for it, nor the GDP to even support it. So rather than cut their spending and actually get serious about collecting tax revenue, they ask other nations to pay for their government. And surprisingly, the other nations DO. But after having been told "you need to cut back, you need to cut back, you really need to cut back on your spending" the Greeks, in true childish style have said "NO!" So now, the foreign governments (mostly the Germans) are saying "Look, we'll bail you out again, but you don't get to just take the money and spend it how you like, if you want our money, here are the things you must do." And once again, the Greeks are stamping their feet and saying no.
Clearly they should go their own way, at which point the full raft of sovereign solutions would be available to them.
Here, you are 100% right. And in doing so, they will collapse. But that's what needs to happen. They cannot continue as they are, and frankly, I find it immoral that they're demanding that other nations pay for them to run their government. And their cute little threats of "you WILL pay us or we will displace out immigrants onto your countries" are pretty much hollow, because that's precisely what's going to happen anyway when the taps of public money turn off in Greece. Those immigrants will either seek out other countries that have similar public assistance, or other countries where they can actually make their own way and make a better life. Greece is about to become a poverty stricken hell hole, and if I were an immigrant living there, I'd be packing my bags right the hell now. Because sure as the sun rises, once the Greeks stop blaming the Germans, the Jews and foreigners are bound to be blamed next.
Greek polls suggest that some astounding number--I forget exactly, but in the 60-70% range--in fact blame the Jews for their financial situation.
ReplyDeleteLooks like maybe 85%.
ReplyDeleteNigel Farage, via Zero Hedge, had some thoughts on this matter, too, yesterday.
ReplyDeleteEric Hines
I think I agree with absolutely everything he just said.
ReplyDeletePeople who get in over their heads with debt often confuse wants (generous pensions) with needs (national defense).
ReplyDeleteI will pay more attention to them when they, themselves start prioritizing needs over wants, instead of foolishly demanding money to pay for the wants first, then screaming that if they don't get another extension, it will be someone else's fault that needs aren't met.
When something is REALLY viewed as a need, it gets taken care of first. They're not there, yet.
Cass,
ReplyDeleteThe Greek government took it seriously enough to cut their budget and increase taxes until they had a surplus excepting interest payments on the debt their predecessors had run up.
This particular economist cites the austerity as the cause of their present depression. That is a prominent school of thought, although I don't agree with it. Still, when was the last time we had a budgetary surplus? Clinton, sort of by accident (he wanted to spend more, but Congress wouldn't let him).
Grim, money doesn't work that way.
ReplyDeleteIf you owe a ton of money, and you cut expenses until you are spending less than your income except for payments on other people's money loaned in the past, you don't have a surplus.
We don't get to simply leave loan repayments out of our expenses! A loan is an agreement whereby you get to spend other people's money that doesn't rightfully belong to you. If you take that money and spend it, but renege on your agreement to pay it back, that's stealing (you took and kept something that didn't belong to you, and which was ONLY given to you b/c you agreed to pay it back with interest).
I don't understand the mindset that views taking and using other people's money as some sort of basic human right.
And the fact that we're doing that doesn't make it the right thing to do.
Money in banks exists because real people deposited it there. We can't just wish them away (say their ownership rights don't matter). That people who have long spent far more than their income - and now wish to continue doing so, again using other people's money - may suffer some bad effect of their decision to spend more than they actually have (*if* they don't prioritize national defense over other "wants") is not the fault of those they borrowed from.
Just as an aside, the primary reason I'm still working at the job I have is because I don't believe the military retirement my husband earned with 30 years of service is going to get paid out.
ReplyDeleteThat's a very real possibility, and we can either face it (and plan accordingly) or persist in denial and be "surprised" when a state of affairs that can't go on forever - namely, deficit spending - doesn't.
Greece's credit history is not one that should inspire would-be lenders with confidence in either their ability or willingness to repay loaned funds.
A primary surplus, as defined by the troika and Greece--one that specifically excludes a class of expenses--isn't a surplus at all. Add back in the debt costs that are excluded to arrive at the primary surplus, and you get a deficit. In the present case, it's not even a trivial, buried in the noise, rounding error deficit; it's a very significant deficit. A budget deficit, regardless of size, by its existence only increases the debt being incurred; it cannot lead to debt reduction--to debt repayment.
ReplyDeleteWhat the Greeks have been proposing and what the troika have been trying to foist off onto the Greeks--including their latest effort--isn't even a good pyramid scheme.
Europe needs to cut their losses, write off their existing lendings, and walk away. Greece needs to leave the eurozone.
It doesn't take any degree of value judgment (though I have some) to recognize that when one country, say Germany, has a view of the purpose of money and the role of government in society, and another country, say Greece, has a differing view, and those views aren't even merely orthogonal to each other, but diametrically opposed, those two countries cannot possibly exist on the same currency together for any length of time.
The eurozone as a currency union was a fine idea, well worth the try, but here we have empirical data showing its failure.
It's time to stop the transfusion of money from those who've earned it into those who haven't merely fallen on hard times but who have made a steady stream of conscious decisions to walk that path.
Eric Hines
Grim, money doesn't work that way.
ReplyDeleteGramercy for the lesson, but apparently it's a term of art among economists. I gather our own "surplus" in the Clinton era was similar. It's apparently worth distinguishing between a government that can fund its daily operations, but not the weight of its previous debt; and one that can't do either.
Not that I care for governments. My preferred outcome is the death of one of them -- the EU. But one thing no government can do with legitimacy is to pass its people into slavery, not over any debt. If sovereignty means anything, it means striving for the liberty of your people at any cost. Surely we know from the stories of Israel that seeking grain at any cost means buying slavery. When you ask a nation to disable its chief source of profit, and therefore independence, you are asking it to submit permanently in return for a momentary relief. No one should. If they did in this latest agreement, they were wrong. And if they thus submitted, to hell with them. Someone else will have to rise up to fight for Greece.