IMF staff made misjudgments in Greece, became cheerleaders for the euro (2016)(telegraph.co.uk)
telegraph.co.uk
IMF staff made misjudgments in Greece, became cheerleaders for the euro (2016)
https://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-love-affair-with-euro-apologises-for-the-i/
85 comments
This even feels like it could be a quote from The Shock Doctrine by Naomi Klein. After reading that book it's hard not to start thinking that it was completely intentional.
> That the IMF failed to anticipate any of this was a serious scientific and professional failure.
And maybe there's a consensus that everything is lower priority than ever-closer integration. Great for Commissioners, not so great for Greek pensioners.
And maybe there's a consensus that everything is lower priority than ever-closer integration. Great for Commissioners, not so great for Greek pensioners.
People making the decision had no cost to themselves if they were wrong.
It's deeper than that. The adoption of the Euro without a fiscal capacity at the Euro-area level means that the Euro countries are basically working with a foreign currency. That means that monetary issues are beyond political control. That means beyond democratic control. Some people consider that is a good thing.
Another issue is that the Euro is not a bad thing for all the countries in it. Germany, for instance, as a big exporter, get a currency devaluation for free an unencumbered access to a huge market. Interestingly, this success of the German economy have not reflected, for the best, in the quality of life of most of the Germans, but maybe, this is a discussion for other day (even if in my opinion is really the same issue, see first paragraph).
Another issue is that the Euro is not a bad thing for all the countries in it. Germany, for instance, as a big exporter, get a currency devaluation for free an unencumbered access to a huge market. Interestingly, this success of the German economy have not reflected, for the best, in the quality of life of most of the Germans, but maybe, this is a discussion for other day (even if in my opinion is really the same issue, see first paragraph).
The European Central Bank is controlled by its board of directors, who are appointed by the European Council.
The European Council is just the assembly of the EU's heads of governments.
It's basically the same system as it is for the US' FED, or most other central banks for that matter. The only difference is that it's not a single head of state but the group of 18. But then again the US Senate also needs to consent for FED appointments, and it's a rather similar body of regional delegates.
It's also doubtful that the ECB had any meaningful choices since 2008. The low-interest, quantitative-easing policy is common among all the relevant central banks, including not just the US but also Britain or Japan.
The European Council is just the assembly of the EU's heads of governments.
It's basically the same system as it is for the US' FED, or most other central banks for that matter. The only difference is that it's not a single head of state but the group of 18. But then again the US Senate also needs to consent for FED appointments, and it's a rather similar body of regional delegates.
It's also doubtful that the ECB had any meaningful choices since 2008. The low-interest, quantitative-easing policy is common among all the relevant central banks, including not just the US but also Britain or Japan.
So, you are telling me, that the FED would allow something like what have happened to Greece, happen to a USA state? A crisis deeper and longer than the Great Depression?
Or that they will thread to stop the payment systems if some state don't bend to their will like the ECB did [1]?
Anyway, the problem is not the ECB, but the lack of a federal capacity.
[1] https://www.yanisvaroufakis.eu/2017/03/14/the-campaign-goes-...
Or that they will thread to stop the payment systems if some state don't bend to their will like the ECB did [1]?
Anyway, the problem is not the ECB, but the lack of a federal capacity.
[1] https://www.yanisvaroufakis.eu/2017/03/14/the-campaign-goes-...
They wouldn't allow it to happen to a state.
But to Puerto Rico? Yes, very much so. To Detroit? Sure!
But to Puerto Rico? Yes, very much so. To Detroit? Sure!
Germany made €2.8bn from the Greek debt crisis - so not a bad deal for Germany.
That's like €25 per person. It's basically meaningless.
Meanwhile, Germany's annual net contribution to the EU is €220 per person. I'm not pointing this out to complain–the EU is worth far more than that, and seeing the giant improvements these transfers have supported in Eastern Europe, or Ireland, or Portugal makes their usefulness obvious.
But suggesting that Germany (and the other countries involved) took on billions and billions in risk hoping to earn what are obviously below-market returns is laughable. Not everything is motivated by money.
Meanwhile, Germany's annual net contribution to the EU is €220 per person. I'm not pointing this out to complain–the EU is worth far more than that, and seeing the giant improvements these transfers have supported in Eastern Europe, or Ireland, or Portugal makes their usefulness obvious.
But suggesting that Germany (and the other countries involved) took on billions and billions in risk hoping to earn what are obviously below-market returns is laughable. Not everything is motivated by money.
You are forgetting that at the start of the Greek crisis, the debt was owned by private banks (mostly German and French), now it's owned by the Europeans.
So, basically we saved those banks, make the life of the Greeks worse in the process, and now they owe even more money than before.
So, basically we saved those banks, make the life of the Greeks worse in the process, and now they owe even more money than before.
It's actually €34 per German and €237 per Greek. Different countries, different people.
The German contribiution to the EU is not guaranteed to make it's way back into the Greek economy. And Germans could perhaps use an unpaved country road to travel and move goods to and from Greece instead of a highway that passes through 5 different states, of which two are not even in the EU but have received money from the EU exactly for this kind of infrastructure.
https://europa.rs/eu-assistance-to-serbia/?lang=en
http://ec.europa.eu/regional_policy/en/funding/ipa/fyrom/
The German contribiution to the EU is not guaranteed to make it's way back into the Greek economy. And Germans could perhaps use an unpaved country road to travel and move goods to and from Greece instead of a highway that passes through 5 different states, of which two are not even in the EU but have received money from the EU exactly for this kind of infrastructure.
https://europa.rs/eu-assistance-to-serbia/?lang=en
http://ec.europa.eu/regional_policy/en/funding/ipa/fyrom/
They'll make even more in Frankfurt when holding defaulted PIIGS sovereign debt when the ECB exhausts its capability to be largest marginal counterparty bidder while also trying to target asset price stability…
> Devaluation risk is switched into bankruptcy risk
And for the inhabitants, this is a good thing. Look at Venezuela to see what happens when a country devalues its currency to pay its debts.
The situation would have been even better (for the Greek people) if the European Union hadn't permitted Greece to introduce capital controls (which negated some of the advantages of a currency not tied to the Greek economy).
And for the inhabitants, this is a good thing. Look at Venezuela to see what happens when a country devalues its currency to pay its debts.
The situation would have been even better (for the Greek people) if the European Union hadn't permitted Greece to introduce capital controls (which negated some of the advantages of a currency not tied to the Greek economy).
Venezuela has had a long history of high inflation, much like Turkey. The problem is not that, it's that people lost faith in the currency and all the non-circulated (ie savings or foreign reserves) came into circulation again very fast, flooding the market and ultimately causing hyperinflation.
> it's that people lost faith in the currency
What do you think happens when you devalue your currency to pay your debts?
What do you think happens when you devalue your currency to pay your debts?
High inflation due to government-initiated devaluation has happened even in the US, but it didn't result in a hyperinflation. The Weimar Republic is a good example of a government that got screwed because of this.
What makes hyperinflation unique is that the price is ultimately sunk by the actions of panicked citizens who rush to spend their fiat currency because they think that it won't have value in the coming days/weeks/months. This is like a domino effect and eventually everyone jumps on the bandwagon, thus flooding the market with currency that wasn't circulating or contributing to the GDP.
Hyperinflation usually comes right after a short-lived deflationary period which, in turn, comes after a very long period of high inflation (10-30% typically). You can clearly see the pattern in Venezuela's inflation chart: https://www.businessinsider.com/venezuela-hyperinflation-cha...
Because of this $1 equals 206941.00 Venezuelan Bolivar, up from $1=119k Bolivar from a month ago, which in turn was up from $1=10 Bolivar from February (according to Google - not sure how accurate it is).
What makes hyperinflation unique is that the price is ultimately sunk by the actions of panicked citizens who rush to spend their fiat currency because they think that it won't have value in the coming days/weeks/months. This is like a domino effect and eventually everyone jumps on the bandwagon, thus flooding the market with currency that wasn't circulating or contributing to the GDP.
Hyperinflation usually comes right after a short-lived deflationary period which, in turn, comes after a very long period of high inflation (10-30% typically). You can clearly see the pattern in Venezuela's inflation chart: https://www.businessinsider.com/venezuela-hyperinflation-cha...
Because of this $1 equals 206941.00 Venezuelan Bolivar, up from $1=119k Bolivar from a month ago, which in turn was up from $1=10 Bolivar from February (according to Google - not sure how accurate it is).
I think that's the mostly useless official exchange rate rather than the defacto one.
There are a lot of things that people warn about that seem like basic economics, yet people ignore them or dismiss them as party politics.
Misinformation is easy when people don’t think through what they are hearing.
Misinformation is easy when people don’t think through what they are hearing.
"At root was a failure to grasp the elemental point that currency unions with no treasury or political union to back them up are inherently vulnerable to debt crises. States facing a shock no longer have sovereign tools to defend themselves. Devaluation risk is switched into bankruptcy risk."
This is the fundamental issue. It's not a surprise. It has been explained by many commentators even before the Euro existed (see, for instance: [1]).
[1] http://www.bondeconomics.com/2015/07/book-review-eurozone-dy...
This is the fundamental issue. It's not a surprise. It has been explained by many commentators even before the Euro existed (see, for instance: [1]).
[1] http://www.bondeconomics.com/2015/07/book-review-eurozone-dy...
If you are curious about the policies forced on Greece and how Greece is doing today, Macro Affairs had a good article on it recently.
https://macroaffairs.com/ten-years-after-the-financial-crisi...
https://macroaffairs.com/ten-years-after-the-financial-crisi...
With wisdoms such as:
> There were two decent solutions that would have ended this crisis within a year or two. One would have been that Greece default on its debts, paying back for example 30% of outstanding loans. Another would have been for Greece to leave the Euro Zone and go back to using the drachma (their currency before the Euro), and pay its creditors in the new currency. This new drachma would quickly fall in value as the Greek central bank would print more drachmas, making it easier to repay the devalued drachma loans.
How would defaulting on debts have solved any problems? Still nobody would have bought new Greek debt and since Greece was running at a deficit before it still would have run at a deficit, just without any additional funds. They still would have had to get their administration in order to actually collect taxes etc.
The second proposition is even more ridiculous, nobody would have bought the new debt, the Drachma would have been entirely worthless and any sort of import (of, e.g., medicine) would have been impossible.
Edit to add: And what happened of course proves that these two "alternatives" would have been ridiculous. Greece could easily have (on its own) decided to default or switch to a new currency. No outside power could force them to stay in the euro or pay their incurred debts. Yet somehow they decided against these measures and instead took the horrible low-interest loans offered to them.
> There were two decent solutions that would have ended this crisis within a year or two. One would have been that Greece default on its debts, paying back for example 30% of outstanding loans. Another would have been for Greece to leave the Euro Zone and go back to using the drachma (their currency before the Euro), and pay its creditors in the new currency. This new drachma would quickly fall in value as the Greek central bank would print more drachmas, making it easier to repay the devalued drachma loans.
How would defaulting on debts have solved any problems? Still nobody would have bought new Greek debt and since Greece was running at a deficit before it still would have run at a deficit, just without any additional funds. They still would have had to get their administration in order to actually collect taxes etc.
The second proposition is even more ridiculous, nobody would have bought the new debt, the Drachma would have been entirely worthless and any sort of import (of, e.g., medicine) would have been impossible.
Edit to add: And what happened of course proves that these two "alternatives" would have been ridiculous. Greece could easily have (on its own) decided to default or switch to a new currency. No outside power could force them to stay in the euro or pay their incurred debts. Yet somehow they decided against these measures and instead took the horrible low-interest loans offered to them.
The Greek Government would buy the debt, assuming that we're talking about bonds. That's how you run a deficit.
Greek here.
The sufferings of Greece is first and foremost due to Greece's own faults and less due to the Euro.
Greek pensioners had very generous pensions. The Greek pension organizations had a deficit of around 10 billion euros each year, and the Greek state covered that through borrowing.
In 2001, Giannitsis, then minister of the greek government, suggested a pension system reform, which was ferociously opposed by every part of the Greek society.
Lots of people in Greece ended up getting pensions of around 1200-1300 euros (after taxes/insurance), which was extremely above what these people have given as insurance when they worked.
The end result was the Greek deficit was getting larger and larger and therefore the Greek economy blew up.
Had it been a different case, where the Greek governments made the necessary reforms, not only in the pension system but also in other sectors of the economy, Greece would never have this crisis.
The sufferings of Greece is first and foremost due to Greece's own faults and less due to the Euro.
Greek pensioners had very generous pensions. The Greek pension organizations had a deficit of around 10 billion euros each year, and the Greek state covered that through borrowing.
In 2001, Giannitsis, then minister of the greek government, suggested a pension system reform, which was ferociously opposed by every part of the Greek society.
Lots of people in Greece ended up getting pensions of around 1200-1300 euros (after taxes/insurance), which was extremely above what these people have given as insurance when they worked.
The end result was the Greek deficit was getting larger and larger and therefore the Greek economy blew up.
Had it been a different case, where the Greek governments made the necessary reforms, not only in the pension system but also in other sectors of the economy, Greece would never have this crisis.
Please read http://www.ieo-imf.org/ieo/files/completedevaluations/Execut... before you comment.
The best of many good sentences IMO: "Lessons from past crises were not always applied, for example when the IMF underestimated the likely negative response of private creditors to a high-risk program".
The best of many good sentences IMO: "Lessons from past crises were not always applied, for example when the IMF underestimated the likely negative response of private creditors to a high-risk program".
Reminds me of another turbulent IMF intervention: South Korea's bailout in 1997. See https://www.koreaexpose.com/imf-economy-south-korea-asian-fi...
Seeming ignored in these discussions is that right up to the bailout Greece's problems were entirely self inflicted. When you're unable to take responsibility for or support yourself you suffer the whims of others. That's the real lesson here.
That's just not the case.
When Greece had its own currency, it could devalue against the Deutsche Mark and keep people employed. That devaluation would cause some inflation and it would also raise interest rates a bit -- no debt bubble, no collapse of Greek industry. Rather, German industry finds that it's currency is more expensive to counteract increased Germany productivity and Germany fails to export more, and thus does not accumulate excess savings. There is no flow of jobs from Greece to Germany -- Greece keeps its jobs, Germany keeps its jobs, Greece is forced to consume a bit less with the lower Drachma relative to Germany, and Greece is forced to borrow a bit less with the higher interest rates.
With a forced peg against the DM, money was just being vacuumed out of Greece, which created a recycling problem in which excess German savings could be used to purchase Greek bonds. That lowers the interest rate in Greece artificially, creating more debt in Greece even while Greek production becomes less competitive and Greek jobs leave for Germany. That never ends well, and was only caused by the Euro.
The crisis was just the unravelling of the above unsustainable trends, but these trends were created by the Euro. You can't "until the crisis, Greece was creating these problems" -- the problems were created by the Euro.
The same thing for Greece's problems collecting taxes. When governments can't collect taxes efficiently, they print more money, creating more inflation, which is basically a tax on financial assets. So the money is still collected by the Greek government. Now that the Greek government was no longer able to print money, it was at the mercy of financial markets -- international financial markets, which of course can't help the Greek government collect money in the same way that an inflation tax can.
Greece simply has never been in a position where it could give up its own currency and join a pegged regime with Germany. All of this was foreseen as part of the folly of the European project. There are other bad effects, too.
When Greece had its own currency, it could devalue against the Deutsche Mark and keep people employed. That devaluation would cause some inflation and it would also raise interest rates a bit -- no debt bubble, no collapse of Greek industry. Rather, German industry finds that it's currency is more expensive to counteract increased Germany productivity and Germany fails to export more, and thus does not accumulate excess savings. There is no flow of jobs from Greece to Germany -- Greece keeps its jobs, Germany keeps its jobs, Greece is forced to consume a bit less with the lower Drachma relative to Germany, and Greece is forced to borrow a bit less with the higher interest rates.
With a forced peg against the DM, money was just being vacuumed out of Greece, which created a recycling problem in which excess German savings could be used to purchase Greek bonds. That lowers the interest rate in Greece artificially, creating more debt in Greece even while Greek production becomes less competitive and Greek jobs leave for Germany. That never ends well, and was only caused by the Euro.
The crisis was just the unravelling of the above unsustainable trends, but these trends were created by the Euro. You can't "until the crisis, Greece was creating these problems" -- the problems were created by the Euro.
The same thing for Greece's problems collecting taxes. When governments can't collect taxes efficiently, they print more money, creating more inflation, which is basically a tax on financial assets. So the money is still collected by the Greek government. Now that the Greek government was no longer able to print money, it was at the mercy of financial markets -- international financial markets, which of course can't help the Greek government collect money in the same way that an inflation tax can.
Greece simply has never been in a position where it could give up its own currency and join a pegged regime with Germany. All of this was foreseen as part of the folly of the European project. There are other bad effects, too.
Well, the Greek government cooked the books in order to be allowed to join. This is clearly Greece's fault.
The real lesson is that weak and corrupt governments are bad for most involved with them and very hard to fix, even if you try very hard. So, if you can, keep them at arm's length. They should never have been allowed to join the euro. In fact, given their conflicts with Turkey and Macedonia, they shouldn't have been allowed to join the EU at all.
The real lesson is that weak and corrupt governments are bad for most involved with them and very hard to fix, even if you try very hard. So, if you can, keep them at arm's length. They should never have been allowed to join the euro. In fact, given their conflicts with Turkey and Macedonia, they shouldn't have been allowed to join the EU at all.
> their conflicts with Turkey
What conflicts are these, pray tell? If you think Erdogan is just sitting quietly, minding his own business, while the evil Greeks plot to expand their empire into Turkey, you're either dangerously misguided or a troll.
What conflicts are these, pray tell? If you think Erdogan is just sitting quietly, minding his own business, while the evil Greeks plot to expand their empire into Turkey, you're either dangerously misguided or a troll.
Nothing about that comment implied anything about which side is right or which side is the aggressor.
That's what "they shouldn't have been allowed to join the EU at all" means. Unless you're saying that countries bordering aggressive nations should be banned from joining.
Why not say that? International relations isn’t a morality play. Joining into a union with a nation likely to get pulled into a conflict you don’t want isn’t a good idea.
EU membership isn’t an award for good behavior, it’s a strategic choice made to achieve certain goals.
EU membership isn’t an award for good behavior, it’s a strategic choice made to achieve certain goals.
Why have allies, if you're going to be obliged to help them if they get attacked? Because the relationship is beneficial in other ways, of course.
Sure, but if they’re likely to pull you into a conflict you don’t want and would otherwise avoid, it’s usually a better idea to avoid it.
See, for example, Ukraine joining NATO.
See, for example, Ukraine joining NATO.
So there isn't a hard and fast rule of "don't let countries bordering on aggressive nations" join, which is my initial point. The benefits and downsides of Greece joining the EU were weighed, and it was allowed to join.
I thought your initial point was that the other commenter implied that Greece was an aggressor against an innocent country, and that they were either misinformed or trolling. My point, in turn, is that nothing about their statement implied this.
Their statement could be taken in two ways: Either aggressors should never be allowed, or countries with a risk of receiving aggression should never be allowed. Since the latter is extreme, I can only assume the commenter meant the former.
>Well, the Greek government cooked the books in order to be allowed to join. This is clearly Greece's fault.
Yes and no. Those reviewing those books (and originally allowing Greece to enter the Euro) were rather blind (selective or politically induced blindness).
Yes and no. Those reviewing those books (and originally allowing Greece to enter the Euro) were rather blind (selective or politically induced blindness).
When Greece had its own currency, it could devaluate... but that that would keep people employed doesn't follow.
Back when the Greek had the Drachma, the the Greek state had to pay high interest on its debt, and part of the reason for that was the possibility of a devaluation. The high cost of debt service was a burden on the economy, including on employment.
Back when the Greek had the Drachma, the the Greek state had to pay high interest on its debt, and part of the reason for that was the possibility of a devaluation. The high cost of debt service was a burden on the economy, including on employment.
There is no reason to believe Greece was better off outside the EU. While they suffered from the ill effects of using the same currency as Germany, outside the EU they would probably have suffered from the much bigger Greek crisis, which is the absolute inability to collect taxes from the rich. Taxes that are on the books. It’s very likely that despite benefitting from the ability to devalue their currency, that benefit would have been overridden because of all the other structural issues The EU forced Greece to address.
it is not like we forced them to adopt the euro. they wanted it very much. they wanted it much more than nations with stable currencies.
i remember when i was on holiday as a kid around 1999 when the banking euro was introduced there were all these signs with prices in ECU (European Currency Unit). Back home everything was still in Guilders. My dad told me it would yet be a long time before greece would be financially stable enough to adopt the euro. yet they wanted it so much they used some creative bookkeeping to get in the same time we in holland did. was that the smartest thing ever? maybe not. but it was their choice. perhaps if the books had not been cooked, we would not have accepted them into the euro. And they would not be in this situation.
i remember when i was on holiday as a kid around 1999 when the banking euro was introduced there were all these signs with prices in ECU (European Currency Unit). Back home everything was still in Guilders. My dad told me it would yet be a long time before greece would be financially stable enough to adopt the euro. yet they wanted it so much they used some creative bookkeeping to get in the same time we in holland did. was that the smartest thing ever? maybe not. but it was their choice. perhaps if the books had not been cooked, we would not have accepted them into the euro. And they would not be in this situation.
Greek here. You said:
> no collapse of Greek industry.
In fact, Greece's industries have collapsed during the late 70s, 80s and 90s, when Greece had the Drachma.
The reason is economies of scale: local industries cannot compete with global ones.
> no collapse of Greek industry.
In fact, Greece's industries have collapsed during the late 70s, 80s and 90s, when Greece had the Drachma.
The reason is economies of scale: local industries cannot compete with global ones.
Generally good analysis, except lower exports and consuming less generally leads to fewer jobs (you don't employ people if you can't sell fruits of their work).
> Seeming ignored in these discussions is that right up to the bailout Greece's problems were entirely self inflicted.
False. Greece was in need of high rates to lower consumption and debt increase. Instead of that, and for the benefit of Germany that was in need of more debt to pay for the reunification, rates were lowered to historical minimums.
If your debt is increasing like crazy and your currency lowers the rates the result is well known. Greece could not change the rates, so they were not in control anymore.
That does not mean that Greece has not big problems. But to blame all on them makes no sense. German banks could have stopped lending money at any time, but they are seen just as victims instead of greed instigators.
False. Greece was in need of high rates to lower consumption and debt increase. Instead of that, and for the benefit of Germany that was in need of more debt to pay for the reunification, rates were lowered to historical minimums.
If your debt is increasing like crazy and your currency lowers the rates the result is well known. Greece could not change the rates, so they were not in control anymore.
That does not mean that Greece has not big problems. But to blame all on them makes no sense. German banks could have stopped lending money at any time, but they are seen just as victims instead of greed instigators.
Your crazily increasing debt is a function of your spending, so Greece was in fact in control if they chose to be.
What a joke of a statement.
You make $1000 a month but have a credit card that offers you increasingly poor rates due to your inability to make payments on time. Your monthly expenditures on medicine, food, and rent are $1500.
Are you at fault or is the system at fault? Obviously you just need to decrease your spending - so it's you. Just move somewhere cheaper, eat less, and don't get sick. Obviously it's your choice.
You make $1000 a month but have a credit card that offers you increasingly poor rates due to your inability to make payments on time. Your monthly expenditures on medicine, food, and rent are $1500.
Are you at fault or is the system at fault? Obviously you just need to decrease your spending - so it's you. Just move somewhere cheaper, eat less, and don't get sick. Obviously it's your choice.
Your narrative imply that the Euro works perfectly, what is ridiculous.
The reason for the the debt crisis is that the Euro countries are working with what is, essentially, a foreign currency. There is not fiscal capacity that will solve the possible problems, like, for instance, there is in the USA.
So, the Central European Bank is, against the spirit and probably the letter of the agreements, doing the work that a federal government should be doing. They are buying public debt in the secondary market and that is what have saved the Euro (for now).
The design of the Euro is flawed from the beginning and comments like yours show that fixing the issue is probably impossible, because it feels good to blame others instead of facing the issue, and because when we feel so above other countries, who would like to share a fiscal capacity with those losers? So, interesting times ahead.
That's the real lesson here.
The reason for the the debt crisis is that the Euro countries are working with what is, essentially, a foreign currency. There is not fiscal capacity that will solve the possible problems, like, for instance, there is in the USA.
So, the Central European Bank is, against the spirit and probably the letter of the agreements, doing the work that a federal government should be doing. They are buying public debt in the secondary market and that is what have saved the Euro (for now).
The design of the Euro is flawed from the beginning and comments like yours show that fixing the issue is probably impossible, because it feels good to blame others instead of facing the issue, and because when we feel so above other countries, who would like to share a fiscal capacity with those losers? So, interesting times ahead.
That's the real lesson here.
The design of the Euro is intentional. This is why countries have to adhere to some pretty strict fiscal requirements to join the Euro: specifically to avoid BS like the one happened in Greece. Well, Greece lied about their compliance with those requirements (Goldman helped, but hey...), but now it's somehow Euro's fault?...
The point is that Euro is dysfunctional because there is not a enough fiscal capacity implemented in the design. Some of us think that it's probably politically implausible to implement that capacity because the narrative of the 'lazy neighbor'.
Presumably some lands in Germany are deficitary (or states from the USA) why the population there don't experiment the same problems? Because they have a real union.
Currently the ECB is covertly financing countries of the European Union buying their debt in the secondary market [1]. This is against the agreements [2], but if it's not done will be the end of the Euro. How is not that a dysfunctional currency area?
[1] https://www.bloomberg.com/view/articles/2015-12-04/the-ecb-s...
[2] https://elpais.com/elpais/2012/10/24/inenglish/1351097206_05...
Presumably some lands in Germany are deficitary (or states from the USA) why the population there don't experiment the same problems? Because they have a real union.
Currently the ECB is covertly financing countries of the European Union buying their debt in the secondary market [1]. This is against the agreements [2], but if it's not done will be the end of the Euro. How is not that a dysfunctional currency area?
[1] https://www.bloomberg.com/view/articles/2015-12-04/the-ecb-s...
[2] https://elpais.com/elpais/2012/10/24/inenglish/1351097206_05...
The Europeans are a crafty bunch. This arrangement is by design, not by accident or ignorance.
The main problem among EU members is the lack of reforms. Devaluation has been used as a panacea for all manner of economic ills, but devaluation achieves nothing except inflation and decimation of income, savings and assets.
Without the ability to devalue, members are in a vice, and the only way out is much needed reform.
In the case of Greece, things are so broken that reform is very hard, but at least their suffering serves as a warning to others who thing they can get away with it in the long term.
The main problem among EU members is the lack of reforms. Devaluation has been used as a panacea for all manner of economic ills, but devaluation achieves nothing except inflation and decimation of income, savings and assets.
Without the ability to devalue, members are in a vice, and the only way out is much needed reform.
In the case of Greece, things are so broken that reform is very hard, but at least their suffering serves as a warning to others who thing they can get away with it in the long term.
> In the case of Greece, things are so broken that reform is very hard, but at least their suffering serves as a warning to others who thing they can get away with it in the long term.
Their suffering and other countries suffering are empowering extremism around Europe. And the lesson people learn is to not trust the government and to not trust economists. And they learn that for good reasons.
To punish people to make them learn does not work. Dog trainers have known for long that punishing dogs to change their behaviour only create abnormal behaviour. It is even worse. As citizens have been punished while bankers, the main culprits, have been saved creating a dangerous moral hazard.
I agree with the post that "made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory".
Their suffering and other countries suffering are empowering extremism around Europe. And the lesson people learn is to not trust the government and to not trust economists. And they learn that for good reasons.
To punish people to make them learn does not work. Dog trainers have known for long that punishing dogs to change their behaviour only create abnormal behaviour. It is even worse. As citizens have been punished while bankers, the main culprits, have been saved creating a dangerous moral hazard.
I agree with the post that "made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory".
What those 'reform' means? Are you suggesting that Greece should become Germany? What about Portugal or Spain?
Should all the countries to be net exporters at the same time? Sounds mathematically impossible.
More interestingly, should Greece to become Germany without making any investments? only by reducing their economy? All this is craziness.
In any currency union is going to be imbalances, that's unavoidable. I don't think I have to cite examples here, only think in your own country, whatever it is, and you will see that it's true. The solution is a fiscal capacity that compensate those imbalances. If you are not ready to finance those lazy Greeks, then you can't be in the same currency union that they are. So simple like that.
I agree that the arrangement is probably by design. It makes it even more evil, in my opinion.
Should all the countries to be net exporters at the same time? Sounds mathematically impossible.
More interestingly, should Greece to become Germany without making any investments? only by reducing their economy? All this is craziness.
In any currency union is going to be imbalances, that's unavoidable. I don't think I have to cite examples here, only think in your own country, whatever it is, and you will see that it's true. The solution is a fiscal capacity that compensate those imbalances. If you are not ready to finance those lazy Greeks, then you can't be in the same currency union that they are. So simple like that.
I agree that the arrangement is probably by design. It makes it even more evil, in my opinion.
Look at the history of Greece land register (https://www.reuters.com/article/eurozone-greece-cadastre/ins...). Or their huge issues with tax fraud and benefits cheating (e.g. The Isle of the Blind https://nationalpost.com/news/world/greece-zakyntos-island-o...)
It's not about becoming Germany, it's about being less dysfunctional. The root of all that is that Greece should never have been accepted in the EU in the first place (when e.g. Serbia will get in, it will be in much better shape than Greece ever was), but was anyway to kind of ensure they would not turn to the Warsaw pact...
It's not about becoming Germany, it's about being less dysfunctional. The root of all that is that Greece should never have been accepted in the EU in the first place (when e.g. Serbia will get in, it will be in much better shape than Greece ever was), but was anyway to kind of ensure they would not turn to the Warsaw pact...
Reforms are generally intended as addressing overly generous social security programs, corruption, tax evasion.
Portugal and Spain (and Ireland) implemented some of these reforms and, lo and behold, a few years later are some of the fastest growing economies in the Eurozone.
https://qz.com/1207039/portugals-economy-is-growing-at-its-f...
https://www.ft.com/content/be9d3fdb-d2fd-335c-929a-09b69752e...
https://www.irishtimes.com/business/economy/irish-economy-gr...
Why Greece should be any different (as an Italian, why Italy as well?)
Portugal and Spain (and Ireland) implemented some of these reforms and, lo and behold, a few years later are some of the fastest growing economies in the Eurozone.
https://qz.com/1207039/portugals-economy-is-growing-at-its-f...
https://www.ft.com/content/be9d3fdb-d2fd-335c-929a-09b69752e...
https://www.irishtimes.com/business/economy/irish-economy-gr...
Why Greece should be any different (as an Italian, why Italy as well?)
Ireland's GDP lost almost an entire decade of growth. It may be growing relatively quickly now, but that's only after some very serious shrinkage.
And let's not forget that to orthodox economists, any social security program is overly generous.
And let's not forget that to orthodox economists, any social security program is overly generous.
Ireland's GDP growth is a fiction. Any serious economist would only have to look at the 25% GDP growth rate, in 2015, to state that something fishy is going on. And indeed it is:
https://www.irishtimes.com/business/economy/ireland-s-gdp-fi...
Ireland is a tax haven.
https://www.irishtimes.com/business/economy/ireland-s-gdp-fi...
Ireland is a tax haven.
Portugal and Spain (I don't know about Ireland) grow when they forget the austerity rules.
Here is some prediction for you: you tell me that Spain and Portugal have reformed and that's the reason their economy is growing. At some point, this will change, do you want to bet what will be the proposed solution? More reforms.
The reforms mantra is only a way of dismantling the welfare state. That is: of a way of avoiding redistribution to the people that need it more. If you think that can be done without a political backslash you are in for a surprise.
Here is some prediction for you: you tell me that Spain and Portugal have reformed and that's the reason their economy is growing. At some point, this will change, do you want to bet what will be the proposed solution? More reforms.
The reforms mantra is only a way of dismantling the welfare state. That is: of a way of avoiding redistribution to the people that need it more. If you think that can be done without a political backslash you are in for a surprise.
How do you concile this view with the fact that other European countries (Germany, Austria, Netherlands, nordic countries) have very healthy economies and an expansive welfare state as well?
Monetary devaluation and increasing national debt had long been used by Italy and other countries as a fig leaf to avoid addressing historical problems that these reforms try to address.
The EU has removed this fig leaf. Errors have been made and the crisis should have been handled better, but it does not exempt these countries from having to fix their own problems.
Monetary devaluation and increasing national debt had long been used by Italy and other countries as a fig leaf to avoid addressing historical problems that these reforms try to address.
The EU has removed this fig leaf. Errors have been made and the crisis should have been handled better, but it does not exempt these countries from having to fix their own problems.
> those lazy Greeks
I know you're satirizing the stereotype, I just want to mention this:
https://data.oecd.org/emp/hours-worked.htm
I know you're satirizing the stereotype, I just want to mention this:
https://data.oecd.org/emp/hours-worked.htm
I assume you shared that because Germany has the lowest Total Hours/worker of the countries in the dataset (Greece is not included). The U.S. workers work 31% more hours, equivalent to 12 additional weeks (assuming 35 hours/week)! And yet Germany is very productive so I guess they work smarter, not longer.
Greece is the fourth highest in the ranking. It's a bit odd that the "lazy" stereotype is applied to countries that actually work the most (Mexico, Greece, Poland, etc).
"And yet Germany is very productive so I guess they work smarter, not longer."
I don't understand how in a technology forum this idea is so popular.
Germany is more productive because it has more technology. That technology is the result of investment, not of austerity. So, now, if you want to change Greece, you know what to do.
I don't understand how in a technology forum this idea is so popular.
Germany is more productive because it has more technology. That technology is the result of investment, not of austerity. So, now, if you want to change Greece, you know what to do.
> German is more productive because it has more technology.
Right, they work smarter by using technology. I did not address the policies that created that situation, let alone attempt to contrast Germany and Greece.
Right, they work smarter by using technology. I did not address the policies that created that situation, let alone attempt to contrast Germany and Greece.
Greece is the fourth bar from the right. It's definitely present in that link.
Sorry, I had a hard time reading the tiny, closely-packed, angled text. I wish I had seen there was a table view available. Wow, Greece workers work 49% more hours per year!
The labor force participation rate for Germany is 78% but only 68% for Greece[0]. So almost a third of working-age (defined here as 15 to 64) people in Greece aren't in the official workforce but those that are work many hours (important to remember than some portion of those not working are raising children and/or providing elder care).
[0] https://data.oecd.org/emp/labour-force-participation-rate.ht...
The labor force participation rate for Germany is 78% but only 68% for Greece[0]. So almost a third of working-age (defined here as 15 to 64) people in Greece aren't in the official workforce but those that are work many hours (important to remember than some portion of those not working are raising children and/or providing elder care).
[0] https://data.oecd.org/emp/labour-force-participation-rate.ht...
Funny how these "much needed reforms" pushed through antidemocratic means tend to screw over the majority for the benefit of the few at the top.
Others don't need to get away with anything. They can simply choose not to join the EMU like the UK, Czech Republic, Poland and Hungary did, or to delay joining until the currently broken (by design) monetary union is fixed. It's easy to force reforms on other countries when somebody else is in the driver's seat.
I would think this needs a (2016) tag, as it's a couple of years old now.
Note that the Telegraph backed Brexit.
Anyone suggesting this as a reason Greece would have been better off outside the EU is out of their mind. As poorly as the EU performed during the financial crisis, nearly every member of the EU was better off inside rather than outside. There is a reason Turkey is so keen to get into the EU even after the crisis.
Also, while it’s correct the British media has been using the mistakes the EU made during the financial crisis (which were the same as the mistakes the British made, who self-imposed austerity and continue to do so), the reality is none of these actually apply to the UK which has its own currency and as a result has/had dramatically more financial freedom.
The UK essentially had the best of the EU and had avoided the worst of it. It’s amazinf that they voluntarily gave up that deal.
Also, while it’s correct the British media has been using the mistakes the EU made during the financial crisis (which were the same as the mistakes the British made, who self-imposed austerity and continue to do so), the reality is none of these actually apply to the UK which has its own currency and as a result has/had dramatically more financial freedom.
The UK essentially had the best of the EU and had avoided the worst of it. It’s amazinf that they voluntarily gave up that deal.
>There is a reason Turkey is so keen to get into the EU even after the crisis. //
Keen in the way a person who is shovelling doughnuts in to their face is keen to lose weight. They've done basically zero about major flaws that prevent their entry; indeed rather than stop human rights offenses Erdogan has multiplied them.
Keen in the way a person who is shovelling doughnuts in to their face is keen to lose weight. They've done basically zero about major flaws that prevent their entry; indeed rather than stop human rights offenses Erdogan has multiplied them.
Is the Erdogan Turkey really keen on the EU?
To me, it seems more like Erdogan played the EU card to get internal and external critics off his back - and now that he has "consolidated" his support at home, he doesn't need the EU card, also you can only play it out so many times before it gets old.
To me, it seems more like Erdogan played the EU card to get internal and external critics off his back - and now that he has "consolidated" his support at home, he doesn't need the EU card, also you can only play it out so many times before it gets old.
> nearly every member of the EU was better off inside rather than outside
Is this true of current-day Greece (and future Greece, since things are only getting worse)?
Is this true of current-day Greece (and future Greece, since things are only getting worse)?
The Greeks seem to think so.
In fact if I was Greek I would want to stay in the Euro zone (but keep my money in a German bank).
In fact if I was Greek I would want to stay in the Euro zone (but keep my money in a German bank).
Remember this? https://en.wikipedia.org/wiki/Greek_bailout_referendum,_2015
A "no" vote was seen as a "leave from the Euro zone" vote by the average citizen. It was the Greek government that ignored the referendum, not the Greeks.
A "no" vote was seen as a "leave from the Euro zone" vote by the average citizen. It was the Greek government that ignored the referendum, not the Greeks.
A "no" vote was seen as a "leave from the Euro zone"
That wasn't what was on the ballot paper.
That wasn't what was on the ballot paper.
Ad hominem?
How is stating a possible bias an ad hominem? :)
Isn't that the very definition of ad hominem - drawing attention to the source of the material, rather than tackling the material itself?
Paul Graham's def: 'attacks the characteristics or authority of the writer without addressing the substance of the argument'
https://bigthink.com/paul-ratner/how-to-disagree-well-7-of-t...
Paul Graham's def: 'attacks the characteristics or authority of the writer without addressing the substance of the argument'
https://bigthink.com/paul-ratner/how-to-disagree-well-7-of-t...
No, the Telegraph has a known anti-EU bias.
And? Some people would say it's 'known' that CNN is fake news. That statement and yours are equal in nature - neither of them tell us anything useful about the content in question.
They're not equal. British newspapers on both sides have well known biases that they're pretty open about.
“In a monetary union, the basics of debt dynamics change as countries forgo monetary policy and exchange rate adjustment tools,” said the report. This would be amplified by a “vicious feedback between banks and sovereigns”, each taking the other down. That the IMF failed to anticipate any of this was a serious scientific and professional failure."
This is so obvious it boggles the mind how it could be ignored or not seen. Anti Eurozone people have been saying it since the formation of the Eurozone.