The future of the Euro

[kenberg]

Is anything happening? I write at Thursday Noon est which I guess is 7pm in Athens. It's getting late.

 

I am really finding this sad and frustrating. Emphasis on sad. No doubt there will be plenty of blame to go around, but to me Tsipras seems like someone out of touch with reality. I wouldn't loan the guy twenty bucks for cab fare.

 

I realize I don't understand this in any depth. I realize that. But this can't be right. Reference was made earlier to the fact that I once played chicken as an adolescent in a car. Yes. Once. We nearly killed each other and agreed afterward that it was really stupid and we did not care who won.

 

Good luck to one and all.

[y66]

The Guardian is covering this story as it unfolds.

[kenberg]

Perhaps there is some mild reason to hope. Thanks for the reference.

[Mbodell]

An interesting interview to read.

[hrothgar]

So, it looks as if the Greek government has determined that the costs of exiting the Euro are too high and has caved.

 

Its hard to blame the government for doing so. Things were apparently getting very ugly over the last week or so.

(Not a good time to require imported goods like insulin or, for that matter, food)

 

At the same time, I have a lot of trouble understanding how the Greeks can continue to share a currency with an export powerhouse like Germany.

 

I hope that things turn out for the best.

[Gerben42]

Actually the German and European economic and financial policy of the last 20-25 years have not been a success story. In Germany somewhere between 1/5 and 1/4 of the jobs are paid so little, that the employees won't get a pension that is at least the minimum income to exist.

To reach that a minimum wage of 10,50€ per hour in a full time job for 45 years would be required. The official minimum wage is 8.50€ and the list of exceptions is miles long.

Turning Germany into a low-wage country has put a lot of pressure on the other European countries, e.g. France has a minimum wage of 9.53€.

 

Years of reducing the unit labor cost have a deep impact on the state as its main tax income comes from taxing wages. The social security systems financial base is also bound to wages. This was ok 50 years ago when wages where a good measure for surplus values, but now with robots doing a lot of work, this is no longer true.

 

Europe will have to find a way to equalize economic and social standards within the EU. This is not because of the small economy of Greece, it will somehow be managed. It is because the Eurozone will fail otherwise.

 

You are mixing things up. Germany's economic policy since 2000 has been a great success, unemployement has remained low through the crisis and tax revenue is going thrpugh the roof. What is going wrong is that the government is now throwing away this advantage by giving the wrong kind of social benefits to some parts of the population (reduction of retirement age for the baby boomers when it should be increasing) and spending a trillion euro on the destined-to-fail "Energiewende".

 

Those so-called low wages that you mention are not in the productive industry which is making the 200 billion euro export surplus, but instead in the service industry. Too many Germans I found are very stingy - they don't want to pay for service and quality.

 

They are against mass production of meat and dairy products but almost all go to the discount stores like Aldi & Lidl. They are shocked by Bangladesh sewing factories but then forget this when they go shopping for new clothes, running to Kik and Primark. And a haircut shouldn't cost more than € 10 please. This comes from the attitude that even with a simple job "I should be able to afford everything", i.e. lots of new clothes, meat every day, a smartphone, a car, etc. We forget that this is luxury which 90% of the world population cannot afford.

 

Mr. Piketty is also forgetting WHY Germany didn't repay the debt after World War II. It also came with conditions. And the same for Greece: Sure we can have another deficit cut, but it comes with conditions. Greece was saved already twice, and nothing changed. This third time, it MUST be done in a way that there won't be a fourth recue. And this is only possible if Greece leaves the Euro, reduces the value of its currency and then come back into the Euro when it is strong enough.

[kenberg]

[Added: I see that while I was typing Gerben made some comments. Of course I don't know details about German haircut prices, but in general I think that we agree. ]

 

 

The interview with Piketty that Mbodell links to is indeed interesting. A side benefit of the Greek crisis might be that I learn some history, but this is like saying that a side benefit of the Viet Nam war was that I learned some geography. Anyway, some thoughts.

 

Konrad Adenauer: As a kid in Minnesota in 1953 (the time of the London agreement) I knew of Adenauer and that he was highly regarded. Tsipras? Maybe not so much. This matters, when you are thinking of giving someone some money.

 

But it is more than that. The post-WWII world was a very special case. I will briefly point out items that I realize are common knowledge. In 1945, France, Britain, the USSR and the US divided Germany into sectors and took full responsibility for the results. With the exception of Russia, no one saw this as a permanent arrangement, the objective was to get things back on track and then get out. Piketty says " After the war ended in 1945, Germany's debt amounted to over 200% of its GDP.". Well, yeah. Having your capital city and your industry reduced to rubble can have that effect. "Nowhere to go but up" understates the matter. There were some fine decisions back then, the most obvious being that we wanted to get out as soon as practical. But we also found strong and reliable leaders whose interests were aligned with ours. And so it worked. It worked in Germany, and it worked in Japan. Congratulations all around.

 

For some reason I was unaware of the London debt agreement. I was 14 at the time and somewhat interested in world politics, but I guess the "somewhat" is the explanation. Anyway I looked it up on the web: London Agreement

 

I quote a part of it:

 

The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.^[2]

 

 

I think that those who refer to this agreement might include the fact that half of the amount written off (or more than half of what was written off if I read that right) was debt incurred from the Treaty of Versailles. The reparations forced on Germany after WWI were almost universally agreed to be a mistake.

 

At any rate, I agree that history is useful. But we need to look in detail and we need to look at differences as well as similarities.

 

 

If we give someone money, it is in the hope that they will make good use of it and become increasingly able to manage their own circumstances. I suppose everyone agrees with that. I expect that this will mean that over time some portion of the Greek debt will be written off. As I put it earlier, when the money is gone it is gone, and not coming back. But at least as I understand it, there has been great disappointment in the manner that Greece has used the substantial amounts that have already been given. Perhaps this will change. We can hope.

[hotShot]

You are mixing things up. Germany's economic policy since 2000 has been a great success, unemployement has remained low through the crisis and tax revenue is going thrpugh the roof. What is going wrong is that the government is now throwing away this advantage by giving the wrong kind of social benefits to some parts of the population (reduction of retirement age for the baby boomers when it should be increasing) and spending a trillion euro on the destined-to-fail "Energiewende".

 

Am I? Lets see:

In 02-15 the official Number of unimployed people was: 3.017.003

But you need to add: 341.199 [1] + 454.663 [2]

So th real number of unemployed people was 3.812.862.

 

[1] people the "Bundesagentur" gave up to get into a job because they are old

[2] people that are in a training program or ill

 

For further reading i suggest: http://finanzmarktwelt.de/die-tatsaechliche-arbeitslosenquote-in-deutschland-10577/

 

Additionally there are 1.268.000 people that are "Aufstocker". Aufstocker means they have a Job, but need additional funding from the state to reach the minimum income to exist. ( http://www.sueddeutsche.de/wirtschaft/arbeitsmarkt-der-mindestlohn-wirkt-1.2530726 )

 

3,8 Million + 1,2 Million is 5 Million.

 

Now take a look here: http://www.faz.net/aktuell/wirtschaft/arbeitslosigkeit-konjunktur-zu-schwach-fuer-den-arbeitsmarkt-1175275.html

 

June 2004 the official number of unemployed people was: 4.233.400

This is the last number without the Hartz-IV Reform.

 

Now if you call this a success, i disagree with your view.

 

 

 

 

Those so-called low wages that you mention are not in the productive industry which is making the 200 billion euro export surplus, but instead in the service industry. Too many Germans I found are very stingy - they don't want to pay for service and quality.

 

Did you read that: http://www.zeit.de/2013/48/werkvertraege-bmw-leipzig-autoindustrie

 

The productive industrie uses "Leiharbeit" (labor leasing) and "Werkverträge" (service contract with one-person-businesses) to introduce low wages.

 

They are against mass production of meat and dairy products but almost all go to the discount stores like Aldi & Lidl. They are shocked by Bangladesh sewing factories but then forget this when they go shopping for new clothes, running to Kik and Primark. And a haircut shouldn't cost more than € 10 please. This comes from the attitude that even with a simple job "I should be able to afford everything", i.e. lots of new clothes, meat every day, a smartphone, a car, etc. We forget that this is luxury which 90% of the world population cannot afford.

 

I assume you have a good job, because your attitude implies that you think that people have a choice to pay more. Social security grants about 4,30 € per day for an adult for food and (non-alcoholic) drinks. Don't forget that any spices you might want to use are included as well.

I am interested how you get fair produced clothes an shoes with 32,85 € per month (you need to save that money if you whant something that costs more). While you are shopping remember that your budget for transportation is 24,62 € per month and you might need a lot of this to report to the unemployment agency.

If you have a car, this is what you can use for gas and repairs.

 

Regarding the 90% of the world population, granted there are countries where 4,30 € per day is a lot of money, the problem is, you can't go there, you need to buy at the local shops. So this is rhetorical bullshit.

[y66]

How strange that so many people continue to look at Greece as a morality play in which they must continue to suffer until they acknowledge their sins instead of as yet another case study in the failure of economies to thrive under a regime of austerity and tight money and the failure of politicians and technocrats in positions of responsibility to acknowledge that their policies have only made things worse.

[Gerben42]

Am I? Lets see:

In 02-15 the official Number of unimployed people was: 3.017.003

But you need to add: 341.199 [1] + 454.663 [2]

So th real number of unemployed people was 3.812.862.

 

[1] people the "Bundesagentur" gave up to get into a job because they are old

[2] people that are in a training program or ill

 

For further reading i suggest: http://finanzmarktwelt.de/die-tatsaechliche-arbeitslosenquote-in-deutschland-10577/

 

Additionally there are 1.268.000 people that are "Aufstocker". Aufstocker means they have a Job, but need additional funding from the state to reach the minimum income to exist. ( http://www.sueddeutsche.de/wirtschaft/arbeitsmarkt-der-mindestlohn-wirkt-1.2530726 )

 

3,8 Million + 1,2 Million is 5 Million.

 

Now take a look here: http://www.faz.net/aktuell/wirtschaft/arbeitslosigkeit-konjunktur-zu-schwach-fuer-den-arbeitsmarkt-1175275.html

 

June 2004 the official number of unemployed people was: 4.233.400

This is the last number without the Hartz-IV Reform.

 

Now if you call this a success, i disagree with your view.

 

 

 

 

 

 

Did you read that: http://www.zeit.de/2013/48/werkvertraege-bmw-leipzig-autoindustrie

 

The productive industrie uses "Leiharbeit" (labor leasing) and "Werkverträge" (service contract with one-person-businesses) to introduce low wages.

 

I assume you have a good job, because your attitude implies that you think that people have a choice to pay more. Social security grants about 4,30 € per day for an adult for food and (non-alcoholic) drinks. Don't forget that any spices you might want to use are included as well.

I am interested how you get fair produced clothes an shoes with 32,85 € per month (you need to save that money if you whant something that costs more). While you are shopping remember that your budget for transportation is 24,62 € per month and you might need a lot of this to report to the unemployment agency.

If you have a car, this is what you can use for gas and repairs.

 

Regarding the 90% of the world population, granted there are countries where 4,30 € per day is a lot of money, the problem is, you can't go there, you need to buy at the local shops. So this is rhetorical bullshit.

 

Yes I have a good job now, but remember all those men and women with college degrees and good jobs out there have been students. And students rarely have more than people on benefits. Normally, less.

 

In my first 42 months in Germany I had a EU grant as Ph.D. student (which means you are not "enrolled" and do not get any student discounts), and then I had 6 months of your "horrible reform" Hartz IV. The difference between the two situations? Less than € 100 a month, because on benefits you get your rent paid, state television paid, and many more bonuses that the rest of the population does not.

 

* My travel expenses during this time? 1 bicycle + 2 flat tires, amounting to less than € 10 a month (it was a mountain bike, the one I had in Holland would not be suitable for South Germany... 150 metres elevation difference between apartment and university!). Visits to Aldi and Lidl during this time? Zero. Visits to crappy cheap clothing shops: Also zero. Nothing to write home about, but it was enough to be able to live reasonably comfortable, be connected to the world with an internet flatrate and go to the bridge club every week.

* About clothing: Guess what, if you don't go to Kik and buy junk, you can wear it longer.

* Food expenses sounds about right for €4 a day considering inflation from 10 years ago.

 

Which is exactly what social benefits are for: When you receive benefits, you need to be permanently aware of the fact that you are living on money that someone else is working hard for. I know I was. I asked myself every day: "What can I do today to find a job?" Unfortunately in large companies such processes from sending your information to actually starting the job also takes quite some time. I know that most jobless ask themselves this question every day, but too many do not.

 

The same thing with Greece: If they want to burn their OWN money on corruption and tax evasion, that's fine with me. If they want to burn OUR money, which we earned by hard work on corruption and tax evasion, then I have a problem with this.

 

Also I have an issue why the "Bundesagentur" needs to find people jobs. It's their own responsibility to find a job, the government can but help provide means (which in my case, was none - all my job-searching I did at home).

 

As a wise man once said: Ask not what your country (which in this case isn't mine but the one I live in) can do for you, but what you can do for your country. This seems to be missing for too many.

[y66]

@sdonnan: Is this going to be the defining image of this deal?

 

Photo taken by @Reuters' Francois Lenoir

 

Poor Christine Lagarde. She looks like she knows exactly what she and other technocrats, politicians and bankers have done to make a bad situation even worse for Greece and does not feel good about it. How could she?

[kenberg]

I doubt that an agreement could have been reached unless a reasonable number of people thought there was some reason to do so. I also believe it would be tough to find an optimist right now. Sometimes, with a little luck and with inspired play, a bad contract in bridge can be brought in. I'm sitting seven time zones away and it's not my money, so I'll say good luck and leave it at that.

 

I am not dismissing the real disagreements about policy matters, and it is not at all certain the agreement will be ratified, but at the moment I hope that whatever is agreed is implemented as successfully as possible.

[Al_U_Card]

Anyone know "where" the loans to Greece came from? (Or "where" they will be coming from...) Who is out of pocket should they default and does it have anything to do with the latest requirement for "bail-in" acceptance? Cui bono

[y66]

From The Eurozone’s Damaging Deal for Greece by the New York Times Editorial Board

 

In the end, after trying every possible tactic, Prime Minister Alexis Tsipras of Greece threw in the towel and accepted the toughest demands yet made by creditors to extend life support for Greece and keep it in the eurozone. That may avert an immediate catastrophe, but there is little to celebrate since it will do little to address, much less repair, the slow-moving disaster of the Greek economy.

 

The Greek Parliament has to approve the main portions of the package by Wednesday just to start negotiations on a new three-year bailout of up to 86 billion euros ($96 billion). Despite pleas from the Greeks for debt relief, the creditors gave only vague indications that they might consider easing terms on Greece’s total debt of more than 300 billion euros, which it cannot possibly repay.

 

Mr. Tsipras certainly didn’t help his cause with the European leaders by calling for a confusing last-minute referendum, in which Greek voters rejected an earlier bailout deal. And now his capitulation has enraged members of his left-wing Syriza party, raising the possibility of another national election, with the attendant unknowns, or at least a thorough reshuffling of the government.

 

The guiding notion behind the creation of the European Union was to resolve problems like this through consensus and cooperation. Instead, the final 17-hour negotiating session was marked by acrimony not only between Greece and the European leaders, but also between Germany and France; between the German finance minister and the head of the European Central Bank; between north and south, east and west.

 

So the tragedy is not only that the Greek debt crisis has no end in sight, but that instead of the one-for-all-and-all-for-one ethic that was supposed to govern Europe, the rancorous talks showed a roomful of national leaders with sharply differing conceptions of what to do about a bankrupt fellow member.

 

The Greek Parliament is likely to accept the deal, if only because there is no choice. Austerity will remain firmly in place, and the increased taxes and reduced pension payments imposed in the package will only further erode the demand that the Greek economy needs to avoid a deepening depression. The deal also requires that a fund be created to sell off public assets worth 50 billion euros to repay debts and recapitalize banks, a condition hard for a socialist government to swallow, and continued monitoring of Greece’s adherence to bailout terms by the International Monetary Fund.

 

Chancellor Angela Merkel of Germany, the one who should be most dedicated to European unity, declared after the deal was sealed that its “advantages far outweigh the disadvantages.”

 

The one advantage of the agreement reached early Monday is that it buys some time. But unless that time is used to discuss how to really reduce the Greek debt and restore its moribund economy to life, it will not be long before eurozone leaders are locked in another agonizing debate about what to do. Germany and its allies have driven a hard bargain, but in forcing Greece to submit they have not resolved the crisis of the monetary union or advanced the European project.

[Trinidad]

Anyone know "where" the loans to Greece came from? (Or "where" they will be coming from...) Who is out of pocket should they default and does it have anything to do with the latest requirement for "bail-in" acceptance? Cui bono

My take on this thing:

 

The winners and losers?

 

The losers were (when the banks were threatening to collapse):

The Greek with savings

The Northern European retirement funds who had invested heavily in Greek banks

 

The EU and IMF have change this to. The losers are:

The Greek with pension, the average Greek, and the Greek tax payer

The European tax payer

 

So, who won?

The Americans who took out mortgages that they didn't pay back. (The Greek banks had taken over substandard loans from American banks that were sold as proper quality loans.)

 

That is why it is somewhat cynical when the US is pressing the Europeans to solve this Greek crisis when the root cause was a lack of oversight by the Americans on American banking products.

 

Americans are wondering why the EU is not showing any solidarity with those poor Greeks. If a poor US state would get in financial trouble, richer states would be ready to help. Europe is not different from the USA. The key is that Greece is indeed poorer than Germany, but not poorer than e.g. Estonia. The Estonians properly collect taxes, and have a very minimal social security system. Their government has a small but balanced budget. Now Greece is not asking for help, no, they claim they are entitled to help. And they want to get that help without making sure that their government finances will be sustainable.

 

Imagine that Vermont (number 32 in GDP per capita of the US states) would decide that people can retire relatively early, paid by the state of Vermont, have buses driving around that you can ride practically for free, paid by the State of Vermont and fails to collect taxes and as a result has an enormous deficit. Would the people in Alabama (number 45 in GDP per capita), where taxes are collected as they should, be eager to help those poor people in Vermont? Or would they demand some reforms in return for help? And don't you think that the people of say Texas wouldn't be more willing to help the folks in Alabama than those in Vermont?

 

Rik

[y66]

There are no winners. As for assigning the blame, Brad DeLong has an instructive blog post here.

[Al_U_Card]

The last sentence of his blog post is telling....hand over responsibility to the institutions (banks)? Might just as well send a cheque now :(

 

The losers, Rik, as always are the tax-payers and more so now with bail-ins looming, the savers. As long as banks can reserve lend and demand more than the reserve and interest there on, we are obliged to suffer the consequences.

[kenberg]

The blog post was of considerable interest. I don't follow economic theory all that much.

 

To perhaps harp a little on a previous point. History is useful, it is important to note differences as well as similarities. The Post World War II era was different than the present in many ways, the most obvious being that it was in the aftermath of a highly destructive war. The Marshall Plan, referred to in the blog and elsewhere lately, went to Europe generally, as well as simply Germany. Concentrating on Germany for a moment, there was, we could say, a change of direction and a change of leadership there.

 

At any rate, there were many differences between Post War Europe and the Greek situation today. This doesn't mean that the history of that time is useless but it does suggest that we go easy on a direct transplant of policy.

 

The Europeans, and the Germans in particular, are imposing changes in the Greek policy. You could say that the allies did something like that with Germany in 1945.

 

Mostly, I just wish them well. It's worth doing if they can do it. I freely acknowledge that I am not the person to go to for economic advice.

 

And I did like the blog. The above comments are thoughts about it, not arguments against it.

[mike777]

There are no winners. As for assigning the blame, Brad DeLong has an instructive blog post here.

 

Very interesting thanks for posting. I note this section:

 

"...Once more, panic and financial distress are widespread. And, once more, Europe lacks a hegemon – a dominant economic power capable of taking the interests of smaller powers and the operation of the larger international system into account by stabilising flows of finance and spending through the European economy...."

 

The theory demands a benevolent economic super power willing to sacrifice. The article goes on to say that none exists.

TO put it another way, Europe needs a kindly old sugardaddy.

[Trinidad]

 

TO put it another way, Europe needs a kindly old sugardaddy.

Including the package that is on the table right now, I think the Greek have gotten 350 billion euros over the last few years. To put this in perspective: That is 35000 euro per Greek, something like a new car every year for every Greek, including children.

 

I would say that the Greek have a sugar daddy.

 

And the point is that the rest of Europe doesn't mind helping out the Greek so much, but the condition is that they need to fix their system. But the Greek are yelling that sugar daddy is blackmailing them for setting conditions to the next two cars that are given.

 

Rik

[Mbodell]

Including the package that is on the table right now, I think the Greek have gotten 350 billion euros over the last few years. To put this in perspective: That is 35000 euro per Greek, something like a new car every year for every Greek, including children.

 

I would say that the Greek have a sugar daddy.

 

And the point is that the rest of Europe doesn't mind helping out the Greek so much, but the condition is that they need to fix their system. But the Greek are yelling that sugar daddy is blackmailing them for setting conditions to the next two cars that are given.

 

Rik

 

But have "the Greek" really gotten that, or have others:

 

Only a small fraction of the €240bn (£170bn) total bailout money Greece received in 2010 and 2012 found its way into the government’s coffers to soften the blow of the 2008 financial crash and fund reform programmes.

 

Most of the money went to the banks that lent Greece funds before the crash.

...

Less than 10% of the bailout money was left to be used by the government for reforming its economy and safeguarding weaker members of society.

 

Greek government debt is still about €320bn, 78% of it owed to the troika. As the Jubilee Debt Campaign says: “The bailouts have been for the European financial sector, while passing the debt from being owed to the private sector to the public sector.”

 

Gotta love crony capitalism all throughout the world. See original guardian article for the source of the quotes.

[hotShot]

Including the package that is on the table right now, I think the Greek have gotten 350 billion euros over the last few years. To put this in perspective: That is 35000 euro per Greek, something like a new car every year for every Greek, including children.

 

I would say that the Greek have a sugar daddy.

 

And the point is that the rest of Europe doesn't mind helping out the Greek so much, but the condition is that they need to fix their system. But the Greek are yelling that sugar daddy is blackmailing them for setting conditions to the next two cars that are given.

 

Rik

 

You are aware that of this 350 billion euros, 90% (= 315 billion) were used to save European banks, insurances and pension fonds (outside of Greece), which leaves 35 billion euros for Greecewhich were mainly used to save the Greece banks.

If Greece went bankrupt 5 years ago, people who had been saving money for their retirement would have lost a lot of money and they would have know why. Now that the debt was transfered to the ESM. IWF and EZB a bankrupt Greece is no longer a threat. People will still lose the money, but they will lose it over inflation and taxes.

The direct connection between cause and effect is camouflaged, the governments won't have to take the blame for it.

[helene_t]

The original lenders lend the Greeks 320 gigaeuro which they are probably not going to pay back. And now the trojka took over most of those loans. So effectively the original lenders gave the Greeks a present and now the trojka reimbursed it.

 

My Facebook newsfeed is full of people expressing their sympathy with Greece. I am very split on this issue. Several other EU countries have managed to get their deficit under control while implementing an austerity much worse than what Greece has to do - for example Croatia: http://understanding-croatia.quora.com/Indebted-as-Greece?share=1. On the other hand, destroying the Greek economy doesn't sound like the creditor's best interest. Then again, this could be said about many other countries, so the discussion should maybe be about austerity in Europe, not about austerity in Greece. Even in the UK, the government has mismanaged the economy, although of course the UK can afford a lot more political stupidity than Greece can.

[Al_U_Card]

Yet another case of the transfer of wealth. The banks create money and "loan" it to the country. The citizen works hard to pay off this debt through their taxes and the bank receiving the country's debt-repayment then forwards the payments to share-holders (other banks). Austerity measures are just a bigger squeeze applied to the tax-payer to get more of his money, more quickly. The rest of the shenanigans are part of this financial finagle.

[helene_t]

We are awaiting whether the Greek parliament says yes, but meanwhile IMF appears to say no: http://www.theguardian.com/business/2015/jul/15/imf-greece-future-analysis-bailout