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Greece Caves In

by DenisBolt94 Posted on July 9, 2015

Mother Jones

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Our story so far: On June 22nd, Greece proposed an austerity package of spending cuts and tax increases worth about €8 billion over two years. European leaders called it a credible proposal, the first they had ever seen from Greece. By June 24th, they had changed their tune. They were roughly OK with the €8 billion figure, but didn’t like the Greek tax and spending plans for getting there. Later in the day, the Europeans responded by making substantial changes to the Greek proposal and sending back a heavily red-lined revision.

The Greek prime minister, Alexis Tsipras, was apoplectic, arguing that what mattered was meeting the deficit target, not meeting it in specific ways. “This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed,” he said. Two days later he abandoned the talks and called a referendum on the European proposal. Last Sunday the Greek population overwhelmingly rejected the European plan 61-38 percent.

So how did that work out for Greece? Not so well:

Under a 10-page blueprint completed late Thursday, the country said it would undertake austerity measures worth between 12 billion and 13 billion euros ($13 billion to $14 billion), including raising taxes on cafes, bars and restaurants.

The amount is significantly higher than the package of cuts that Greek voters rejected in a hastily called referendum on the bailout Sunday. But nearly two weeks of a banking shutdown that has brought the economy to a virtual standstill have left this Mediterranean nation with few other options to avoid sliding into bankruptcy.

The Greek blueprint for pension cuts and VAT increases is essentially copied word-for-word from the June 24 European proposal. There may still be sticking points elsewhere (I haven’t done an exhaustive line-by-line comparison of the two documents), but VAT and pensions were always the key areas of difference. Combine those concessions with the higher deficit target in the new blueprint and Greece hasn’t just caved in to the Europeans, it’s all but prostrated itself and begged not to be kicked out of the eurozone.

Or so it seems. There’s always the possibility of gotchas hidden away in a stray word or two. But at a first glance, it looks like total capitulation. Two weeks of bank closings and import stoppages has given the Greeks a vivid taste of what life would be like if Europe forced it to abandon the euro—as it seemed they were all too willing to do—and that short taste was quite enough, thank you very much. Viewed through that lens, apparently another few years of German-enforced austerity didn’t look so bad after all.

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Greece Caves In

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Greece’s Big Fat No

by Lucile2956 Posted on July 5, 2015

Mother Jones

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It appears that the Greek referendum is headed toward a landslide No vote. With about half of the votes counted as I write this, the No vote is very strongly in the lead and Greece’s interior ministry has released an official projection showing the No side winning 61 percent of the vote.

There are a couple of takeaways from this. First, I obviously don’t know squat about the Greek temperament. Let’s see now. What exactly is it that I said a few days ago? Oh yes, here it is:

In the end, the Greek public will be unwilling to back Tsipras in Sunday’s referendum and will vote to accept the European deal as is. The potential catastrophe of default and leaving the euro is just too scary for most of them to contemplate….So that’s my prediction. Unless Tsipras caves completely beforehand, the referendum will be held on Sunday and Greeks will vote to stay in the euro and accept Germany’s terms. It will basically be an unconditional surrender.

In technical terms, that was totally fucking wrong. Instead of caving in, the Greeks told Europe to take a hike. They refused to accept the austerity plan put in front of them and instead voted to support prime minister Alexis Tsipris’s effort to demand better terms. In general, that means they want Europe to (a) offer debt relief, (b) permit the Greek government to pass a higher budget supported by higher taxes; and (c) go a little easier on pension cuts.

The second takeaway is….oh forget it. Why listen to me anymore after this predictive debacle? Anyway, I don’t think anyone even knows what’s next now. Tsipris obviously has a vote of confidence and will stay in power. Angela Merkel and the rest of the Troika will have to decide whether to make a few concessions or simply refuse and let Greece twist in the wind. I honestly have no idea what they’ll choose. And the ECB will have to decide whether to keep Greece’s banks on life support for a while longer.

Stay tuned. It’s going to be a fascinating few weeks for those of us who don’t actually live in Greece and have to personally face the possibility of economic catastrophe.

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Greece’s Big Fat No

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Greek Media Really, Really Wants Yes Vote On Euro-Bailout

by MerrillTerrell Posted on July 3, 2015

Mother Jones

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Henry Chu of the LA Times reports on how the Greek media is presenting Sunday’s upcoming vote on the bailout:

Strong emotions are in abundant supply. But impartial reporting is not.

Along with Skai TV, nearly all the mainstream press and television stations in Greece have skewed their coverage or are openly in favor of the “yes” campaign, throwing in doubt just how fair Sunday’s election will be. The snap referendum has already come under criticism for being called with too little notice by the left-wing Greek government — which is urging a “no” vote — to allow for proper campaigning and educating of voters.

….In a widely circulated examination of how the six biggest TV networks treated the rival referendum rallies Monday and Tuesday, freelance journalist Markos Petropoulos found that the pro-government “no” demonstration got about 81/2 minutes of coverage, whereas the “yes” protest received more than five times that much.

In another newscast, one network devoted 18 minutes to warnings and statements from European leaders about the breakdown of bailout negotiations with Athens and the surprise referendum announcement that had precipitated it. The Greek government’s position got two minutes.

The bias toward the “yes” side reflects the fact that many of Greece’s biggest news outlets are owned by corporate titans and other “oligarchs” whose business interests would be directly threatened by a “no” victory and the potential abandonment of the euro in favor of the drachma, Nikolas Leontopoulos said.

I suppose it’s no surprise that Greece’s corporate class is deeply unthrilled by Prime Minister Alexis Tsipras’s leftist government, and would be happy to see him humiliated and tossed out of office. I assume that they also prefer the devil they know—grinding European-imposed austerity for years—to the devil they don’t—exiting the euro amid chaos and eventually rebuilding their economy with a devalued drachma. After all, they’ll stay rich either way, and sticking with their fellow European moguls probably seems the better bet by far.

Less than 48 hours to go now.

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Greek Media Really, Really Wants Yes Vote On Euro-Bailout

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China Adopts an Unusual Approach to Fighting a Stock Market Crash

by JerilynFremont Posted on July 2, 2015

Mother Jones

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Hum de hum hum. Greece is in trouble. Puerto Rico too. And don’t forget China:

Chinese shares plunged Thursday, even as Beijing grasps for solutions to stem the selling, including relaxing rules on the use of borrowed funds to invest in stocks….The Shanghai Composite closed down 3.5% while the smaller Shenzhen market was down 5.6%. The ChiNext board, composed of small-cap stocks, sank 4%. Even after losing nearly a quarter of its value from a mid-June high, China’s main stock market has almost doubled in value over the past year.

….In a rare move late Wednesday, Chinese regulators set in motion draft proposals to ease restrictions on margin lending earlier than scheduled….Regulators’ sudden shift in attitude about margin trading comes after vocal warnings about its risks in recent months. In April, regulators took various steps to rein in the practice, which had allowed investors to borrow several times their investment money.

Inscrutable, those Chinese. Their stock market is crashing so they’re promoting an increase in margin trading. That’s sort of like lighting a tree on fire when it gets dark outside and all your flashlights are dead. It’ll work. For a while. But it’s really not considered best practice.

Then again, maybe there’s something I don’t understand here. All I know is that panicky measures to halt a panic don’t usually work. And the Chinese stock market still has a long way to fall. I sure hope they figure something out.

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China Adopts an Unusual Approach to Fighting a Stock Market Crash

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Greece Gives Europe What It Wants, Europe Says No Anyway

by Amado57Ehyyanr Posted on June 25, 2015

Mother Jones

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European leaders were in final, last-ditch, eleventh-hour, crisis talks with their Greek counterparts today, which by my count is at least the third time we’ve held final, last-ditch, eleventh-hour, crisis talks in the past two weeks. This leaves me a little unsure of when the real “world will explode” deadline is anymore. But soon, I’m sure.

In any case, as Paul Krugman notes, the Europeans are no longer merely demanding concessions of a certain size from the Greeks, they now want final say over the exact makeup of the concessions:

The creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.

Basically, the Europeans just can’t seem to say yes even when they get what they want. Besides, although tax increases probably will hurt Greek growth, so will spending cuts. There’s just no way around it. The Greek economy is completely moribund, and any kind of austerity is going to make it worse. But the Europeans want austerity anyway, and they have the whip hand, so now they’ve decided they also want to dictate the exact nature of the concrete life preservers they’re throwing to Greece.

The Greeks have little choice left, unless they’re willing to leave the euro, which would cause massive short-term pain at home. Maybe they will, but it would take a backbone of steel to do it. Voters would probably cheer raucously the first night, but be in a mood to vote the entire team out of office after about the second day, when their savings and pensions were converted into New Drachmas and suddenly slashed in half. There is no happy ending to this.

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Greece Gives Europe What It Wants, Europe Says No Anyway

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Why the Euro Is a Selfish Jerk

by DeclanHSUlbce Posted on April 17, 2015

Mother Jones

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While Kevin Drum is focused on getting better, we’ve invited some of the remarkable writers and thinkers who have traded links and ideas with him from Blogosphere 1.0 through today to pitch in posts and keep the conversation going. Here’s a contribution from Keith Humphreys, a professor of psychiatry at Stanford University whose sharp insights on addiction, drug policy, and many other topics have helped make the Reality-Based Community group blog a must read.

The Euro is the Windows 8 of the economic policy design world: In both cases, it’s very hard to understand how putatively smart people worked so hard to create a product so ill-suited to the needs of those who were supposed to rely on it. At this point, this isn’t much of a secret: as Kevin Drum pointed out back in 2011, a common currency deprives markets and nations of tools that normally ameliorate the effects of capital flow imbalances, inflation spikes, and crushing debt payments. Kevin and other people who understand fiscal policy better than I ever will (e.g., Matt O’Brien and Paul Krugman) convinced me long ago that the Euro was designed with a lack of understanding of (or an unwillingness to grapple with) basic lessons of economics.

But speaking as a psychologist, the common currency’s fundamental design flaws don’t end there: the Euro creators should have thought harder about what social scientists have learned about how compassion and cultural identity interact.

In asking nations to entrust their economic fate to the Euro, its designers were assuming that Europeans have a reservoir of goodwill among them. That goodwill was supposed to ensure, for example, that no prospective member had to worry that a powerful member would use its Euro-derived leverage to turn the screws on a weaker member which was—to pick an example out of thin air—wracked by colossal levels of debt, unemployment and economic misery.

But that’s exactly what the Germans have done to the Greeks. Why aren’t the Germans overcome with sympathy for the Greeks? It’s not that Germans are selfish or hard-hearted: after all, they have spent ten times the current GDP of Greece helping the economically struggling people of the former East Germany.

Social psychology researchers have identified a powerful in group bias in willingness to help others, whether it’s hiring someone for a job or supporting social welfare programs for the poor. Human beings are, in short, more inclined to help other people whom we perceive as being a member of our tribe.

Human psychology wouldn’t cause as many problems for the Euro if there was a strong European identity, if a West German was as likely to consider an East German a tribe member as they would a Greek or a Spaniard or an Italian. But when most Germans and Greeks look at each other, they fundamentally see someone who speaks a different language and hails from a different culture with a different history—and for that matter was a military enemy within living memory.

With no shared sense of tribe comes a sharp reduction in compassion and attendant willingness to help. The elites who designed the Euro may genuinely have believed and even felt a sense that Europe is all about “us”, but the currency’s recent struggles show that for too many Europeans, it’s more about us and them.

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Why the Euro Is a Selfish Jerk

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Greek Charm Offensive Is Charming No One So Far

by DortheaBlackmor Posted on February 6, 2015

Mother Jones

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Greek Finance Minister Yanis Varoufakis is apparently on a “charm offensive” to persuade his European counterparts—i.e., the Germans—to allow Greece to end its brutal austerity program and spend more money. The Germans, so far, are not charmed:

After a meeting in Berlin on Thursday with his German counterpart, Wolfgang Schaeuble, the two sides could not even agree on whether they had “agreed to disagree.” Schaeuble said they did. Varoufakis said they didn’t get that far. “We did not reach an agreement; it was never on the cards,” he said. “We didn’t even agree to disagree from where I’m standing.”

That’s not very promising, is it? Overall, though, my takeaway from this story is that the new Greek government, after winning office based on a very hardnosed platform of vilifying its European creditors, has decided in practice to adopt a fairly conciliatory negotiating strategy. The Times says that Varoufakis has “backed away from the party’s pledges to negotiate a debt write-down” and is instead merely seeking “a compromise that would benefit Greece and its creditors.”

So it’s sort of a good-cop-bad-cop routine: prime minister Alexis Tsipras stays in Athens and continues to insist that Greece won’t buckle under to European threats, while Varoufakis makes the rounds of finance ministries and tries to make nice.

Still, keep in mind something I mentioned a few days ago: “backing down” from demands to reduce Greece’s enormous debt doesn’t mean much, because the issue of the debt write-down has always been a bit of a charade. It’s an easy thing to demagogue, but everyone understands privately that Greece will never pay it all back. At this point, then, Greek debt is less a measure of what Greece actually owes other people than it is a crude means of political control: whenever Greece needs to roll over its debt, it’s an opportunity for Germany to hold out until they approve of Greece’s spending plans. This effectively gives them control of Greece’s budget, and they’ve insisted on huge spending cuts and a future path toward big budget surpluses.

And that’s what Varoufakis really cares about. Not the debt, which is basically just a symbol at this point, but control over Greece’s budget. He wants to reverse the austerity and increase spending, which he thinks will boost Greece’s economy and allow it to get back into growth mode. What’s more, he’s arguing—none too subtly, as it happens—that this is something important to all of Europe, not just Greece. After all, Greek unemployment is currently at 26 percent, and youth unemployment is nearly 50 percent. This is dangerous territory for any country. Here’s Varoufakis:

“Germany must and can be proud that Nazism has been eradicated here, but it’s one of history’s most cruel ironies that Nazism is rearing its ugly head in Greece, a country which put up such a fine struggle against it,” Varoufakis said. He was referring to Greece’s far-right Golden Dawn party, which came third in January’s elections and has 17 seats in the Parliament sworn in Thursday.

Translation: the Greek public won’t put up with this stuff forever. You may think Syriza is a radical far-left party, but there are worse things than far left parties. If we don’t get relief soon, the far right will be up to bat next. And that’s something nobody wants to risk.

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Greek Charm Offensive Is Charming No One So Far

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Here’s What’s at the Heart of the Crisis in Greece

by MalcolmA33 Posted on January 29, 2015

Mother Jones

If you’re in the market for some interesting commentary on Greece, there have been a couple of good ones recently. The first comes from Paul Krugman, who, among other things, makes a point that often gets missed: Greece is already running a primary surplus. That is, they’ve cut spending enough over the past few years that their budget would be balanced if it weren’t for interest payments on their gigantic debt. What’s more, their primary surplus is slated to rise to 4.5 percent in the future:

If Greece were to adhere totally to the previous terms, over the next five years it would make resource transfers of about 20 percent of one year’s GDP. From the point of view of the creditors, that’s a trivial sum. From the point of the Greeks, however, it’s crucial; the difference between a primary surplus of 4.5 percent of GDP and, say, 1.5 percent of GDP for the Greek economy and the welfare of its citizens is huge. The only reason for the creditors to play hardball would be to make Greece an example, to discourage other debtors from trying to negotiate relief.

In other words, the EU is demanding that Greece not just balance its budget, but run a large surplus that it will mostly send to large countries for whom it’s a trivial sum. For Greece, though, it’s a huge sum, the difference between years of penury and a return to growth. This is at the heart of the conflict between Greece and the EU.

The second commentary comes from Daniel Davies, who makes the point that Greece’s gigantic debt doesn’t really matter as debt. Everyone knows Greece will never be able to pay it back. But if everyone knows this, why are Germany and the rest of the EU so hellbent on refusing to write it off?

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills.

….It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem.

In other words, Greece doesn’t want to run a large budget surplus. They want to increase government spending in order to dig their way out of their massive economic depression. The rest of the EU wants no such thing. They’re afraid that if they let Greece off the hook, then (a) everyone else will want to be let off the hook, and (b) Greece will go right back to its free-spending ways and soon require another bailout. If the price of that is years of pain and unemployment, so be it.

There’s more at both links, and both are worth reading.

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Here’s What’s at the Heart of the Crisis in Greece

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Guess What? Greece Is Finally Starting to Recover

by LibbyHammqmm Posted on April 9, 2014

Mother Jones

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Apropos of nothing in particular, I want to highlight this column from Hugo Dixon that I found at Counterparties yesterday:

Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.

There are still political risks, and the real economy is only now starting to turn. But the financial recovery is impressive. The 10-year bond yield, which hit 30 percent after the debt restructuring of two years ago, is now 6.2 percent….The changed mood in the markets is mainly down to external factors: the European Central Bank’s promise to “do whatever it takes” to save the euro two years ago; and the more recent end of investors’ love affair with emerging markets, meaning the liquidity sloshing around the global economy has been hunting for bargains in other places such as Greece.

That said, the centre-right government of Antonis Samaras has surprised observers at home and abroad by its ability to continue with the fiscal and structural reforms started by his predecessors. The most important successes have been reform of the labour market, which has restored Greece’s competiveness, and the achievement last year of a “primary” budgetary surplus before interest payments.

I don’t have anything to say about this, but once a narrative takes hold we sometimes don’t realize it when things change. If you had asked me last week how Greece was doing, I would have answered, “Oh, they’re still screwed.” But apparently they’re doing better. Not out of the woods yet, but doing better. Update your priors.

POSTSCRIPT: If this keeps up—and that’s still a big if—it also might be a lesson in the virtue of kicking the can down the road. Back in 2012, lots of commenters, including me, believed that the eurozone had deep structural problems that couldn’t be solved by running fire drills every six months or so and then hoping against hope that things would get better. But maybe they will! This probably still wasn’t the best way of forging a recovery of the eurozone, but so far, it seems to have worked at least a little better than the pessimists imagined. Maybe sometimes kicking the can is a good idea after all.

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Guess What? Greece Is Finally Starting to Recover

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