Greece: a new low
from Peter Radford
Count me among those who expect Greece to default on its debt. I see no viable alternative. The Greek experience is unique. Other troubled Euro zone nations are less culpable for their demise. At least from a distance it is well known that Greece has a major problem with aspects of modern society: for one thing its citizenry seem to think they can cheat endlessly on their taxes, and yet still benefit from some of the most generous government programs in the entire world. Getting something for nothing has become a national pastime. That would be fun and quite fitting for a small marginal banana republic. It is not at all fitting when you are tethered to the German mother ship.
As the Greeks spiraled towards an inevitable debt restructuring the German and French banks were quietly cringing. They were the fools who lent a very large portion of the cash about to be declared lost. Simultaneously, strong voices have been raised within the Euro zone arguing that the private sector should not bear the brunt of the failure of the Greek government to meet its obligations. Somehow, these people argue, the Greeks should be made to straighten out their dire economy and set a good example to all the other countries who might consider default were the Greeks to lead the way. For the sake of the banks and solidity the extreme austerity needed should be forced down Greek throats. One example of the kind of extreme ideas floated is the notion that Greek taxes should be collected by someone else and not by the Greeks – no one trusts them to get it right. When you insult a nation that much you have crossed the pale. Even if you are correct. Its obviously time for the Greeks to be kicked out.
None of this would be happening, at least in its current comic book style, were Greece outside rather than within the Euro zone. Presumably an independent Greece would have mixed some form of debt restructuring with a massive devaluation of its currency in order to soften the blow domestically. It cannot follow this course whilst on the inside. Which is why many people are suggesting it should just go its own way. Perhaps, they hint, Greece was not ready for modernity.
Maybe.
But the bigger issue is on those bank balance sheets. Were the Greeks to default there would be substantial losses for a number of banks. Some of them might even find themselves needing state assistance. Bail out fatigue has set in sufficiently for politicians everywhere to be extraordinarily leery of yet another bank bail out. These idiots were stupid enough to make the loans – and surely they did enough due diligence to see that the Greeks were lying through their teeth with respect to their budget balancing capability. So why can’t they take the losses they so richly deserve? This line of reasoning is why there has been a steady drumbeat in favor of making sure that the private sector doesn’t get away scot free again. Someone has to pay for the incompetence of the banks, even if it isn’t the bankers themselves.
Then there’s the voter revolt in the northern Euro zone nations. Voters are understandably upset to see their tax money flooding south to bail out the greeks who, as everyone knows, avoid paying taxes like the plague. If the Greeks want to be childish, why should those stolid Finns, Dutch, and German folk have to cough up to underwrite the Greek games?
So while the European Central Bank declares default is not an option so as to protect the banks, politicians all over Europe are embracing exactly that default. A perfect clash between capitalism and democracy has been set in play.
The political and economic logic at play leads to only one end game: Greece defaults and leaves the Euro Zone – at least until it gets to grips with its endemic cultural aversion to modern sound governance. In terms of the totality of Europe Greece is small. It is causing problems way beyond its worth to the community. It should be put outside, maybe quarantined, and thus less able to undermine the rest of Europe.
Oh.
And the European Central Bank should stop acting as if the problems faced by the German economy are one and the same as those faced by the Euro zone as a whole. It might be that Germany needs higher interest rates right now. Spain, Portugal, Ireland, and, yes, Greece surely do not. Either Europe moves towards closer union – more along the lines of the US – or it falls apart.
But that’s all to be revealed.
As of now the Greeks have hit a new low. And that was hard to do.
“The Greek experience is unique…. it is well known that Greece has a major problem with aspects of modern society: for one thing its citizenry seem to think they can cheat endlessly on their taxes, and yet still benefit from some of the most generous government programs in the entire world. Getting something for nothing has become a national pastime.”
Oh, I don’t know. How different is that from the attitude of the typical American?
This does seem a little harsh. Wasn’t it Golden Sacks that massaged the numbers to hide melt down a little longer? Should the Greek politicians be more alert to predator finance than the Germans. It was Frederick Soddy in 1926 who pointed out that no politician anywhere on earth has the cunning to match predators in the financial industry (though of course they, the pols, think they can play in the same league).
It’s not a “Greek” problem and never was. As with the US, the UK, Iceland and Ireland, the question is, when private banks make stupid loans, should taxpayers bail them out? As Michael Hudson rightly says, “Debt that can’t be repaid won’t be repaid”, and private German banks have been issuing lots of debt to Greece that cannot be repaid..
No prudent banker would ever have made so many loans that cannot be repaid. Blaming Greek borrowers is like blaming borrowers for the liar loans issued by US banks, who placed them knowing they would never be repaid, since they could be sliced, diced and resold, many to the same credulous German bankers who lent money to Greece.
So northern taxpayers in Europe object not to paying tax money to indolent and dishonest Greeks, as you and others have it, but to using tax money for bailing out the northern banks who stupidly lent money to Greeece.
It is a mistake to blame the borrower for the errors of the lender, and it is a mistake to assume it is all about “the Germans” versus “the Greeks”. It is about whether in northern Europe the bottom 99% should have to pay for the foolishness of the top 1%, to hold them harmless aginst their own mistakes.
Meanwhile, Greece is closer to violent revolt than we in the US realize.
.
The sharp and most unjust critic against Greece and Greeks completely forgets that the debt problem is not uniquely a greek problem, but a european and even a global one. The inefficiency with which the greek problem has been faced by the EU and the greek government exagerated its initial importance and led to the actual bottleneck.
On the other hand, I quite agree with Tom Hagan’s conclusion that “It is a mistake to blame the borrower for the errors of the lender, and it is a mistake to assume it is all about “the Germans” versus “the Greeks”. It is about whether in northern Europe the bottom 99% should have to pay for the foolishness of the top 1%, to hold them harmless aginst their own mistakes”.
Right on Tom!
The Greeks have their faults but so do everybody else.What has to collapse is the EMU.In spite of what some politicians are saying (eg Sarkozy)I can’t see how the EMU is necessary for a peaceful Europe.
” for one thing its citizenry seem to think they can cheat endlessly on their taxes”
Is that its citizenry in *general*? I would refer you to this paper by Matasaganis & Flevotomou which estimates (see chart on p.20) that:
“The extent of income under-reporting seems to be greatest at the two ends of the income distribution, especially in the highest income decile (about 15%), followed by the bottom three deciles (10-11%). The average rate of under-reporting for the entire population is almost 10%”.
The top 1% is estimated to under-report its income by 23%…
This is on top of broad tax *avoidance* in the same top deciles – legal and quasi-legal. Regardless of the methodology and the accurate measurability of tax-evasion in Greece (which is not solely, nor mainly income tax evasion, but other forms involve a significantly smaller part of the population), this jibes with what the picture one has from the street. Note that Greece has a huge number of self-employed, and that has an effect as well…
Interestingly though, shipping magnates pay no taxes on their profits, not only their corportate profits: they are exempt from taxation on any income they make from shipping activities, in a web of tax exemptions that could fill an entire book…
“still benefit from some of the most generous government programs in the entire world”
I’m not sure what government programs you are referring to here…
I think Greece is the “canary in the coalmine”. Let’s see what happens next. Iceland has shown the way.
I do think that a restructuring of Greek debts is unavoidable…
But that won’t solve the basic problem: around 2006 and 2007 and financed by the huge global credit bubble of those years some Euro countries ran current account deficits of 10 to even 15% of GDP. And most of these are still running deficits, despite austerity, wich means that either debts are still increasing or money is leaving the country – austerity policies aimed at curbing domestic consumption (and therewith exports) did not change this too much (read the ‘plutonomy reports’ about this, these predict this – the rich will continue to spend on imported luxury goods). But that does, in fact, not matter. As long as Greece is in the Euro, it will has to have a surplus on the current account, despite low spending of the Germans and high spending of the rich, or loose its independence.
Increasing VAT on Greece its most important ‘export’ sector, tourism (15% of GDP), and increasing it again, and again, isn’t the way to solve this. All this blabbering about uncompetitive economies by economists who advise to make the most important economic sector uncompetitive – well, its not nonsense – it’s trying to carve out a much larger slice of a dwindling pie for the creditors. But it’s as hypocrit as it can be (or, equally possible, these economists did ot bother to investigate of the Greek economy)’. Tourism is price sensitive and the Turkish sun is as hot and the Turkish sea is as blue as the Greek one and the turkish hotels already have won the battle for low income ‘Ryan Air’ tourism… The EU makes this worse. A farmer with a sick cow does not try to milk it, it’s either sold or cured. The EU tries to sell and milk Greece at the same time.
In the case of Greece money already seems to be leaving the country by the billions (hence the ECB panic). It runs the real risk of coming into a situation where there is a severe shortage of money as a means of payment (the ATP machines won’t function anymore and, starting with the government, salaries will be earned but won’t be paid anymore) – a situation which the ECB will try to avoid even more desperately than a default…
That’s the pokergame that’s being played (and which started quite some time ago, unlike in most other EU countries government wages in Greece are quite high, compared with the private sector and increased at double digit rates until quite recently, despite the current account…).
The short run solution indeed is some kind of default, coupled with a LARGE decrease of VAT on tourism and a LARGE increase of sales taxes on cars and other imported luxury items, the closest thing to a real devaluation.
All these politically motivated delay tactics that we witness since a long time now concerning Ireland and Greece, protracted default might be the correct term here, make no sense to me other than being what they are, political decisions, not economically sound. Greek Banks are like hollow shells, depositor cash continues to flee the country. Irish citizens were already forced to put 46.3 billion Euro into zombie Banks such as Anglo Irish Bank, a Bank that never operated any ATM’s.
One can only conclude that the fraudulent acts buried in the accounts of Banks like Anglo Irish are so deeply interconnected with London based operations and other international Players, that the Irish were forced to avoid any in depth investigations, and this is exactly what happened.
Officials in governments are captured forces, captured by an internationally operating banking cartel that dictates policies to Nations. It is a coup d’état on purpose to maintain dollar hegemony. Commentators often avoid to offer analysis on the global geo political motivations and implications concerning this Heist, but it is exactly this aspect that makes the Situation extremely dangerous and points further towards possible international instabilities.
Peace should be number one on any of the political agendas. The de militarization of a world that increased military expenditure 50% in the past 10 years, with the middle east alone spending $111 bln in 2010, and Saudi Arabia on position one, should become our goal.
The USA has increased its military spending by 81 per cent since 2001, and now accounts for 43 per cent of the global total, six times its nearest rival China. At 4.8 per cent of GDP, US military spending in 2010 represents the largest economic burden outside the Middle East’, states Dr Sam Perlo-Freeman, Head of the SIPRI Military Expenditure Project.
The important and valid idea of a European Union is threatened by unaccountable and undemocratic forces from within the EU itself, the ECB! Deep structural problems in the Banking sector were not addressed in the past 4 years, instead they gave us Basel III, which at best can work from the inside, and is too little too late to address real problems.
Not good, not good enough!
Ok. Sure there is much true in the article. Sure it do not show the whole picture.
Does not all this have nothing to do with SPECULATORS?
All that attacks against sovereign debts ends as soon as ECB met its task, and buy massively greek debt. High interests rate? Good. EU incomes, and incentives for greek DEMOCRATICALLY (domestically) adopted austerity measures or whatever they decide to stop paying abroad loads of money.
Greeks don’t success? Then default. And there will be no more money.
When the hell will STOP that absurd, anti-democratic, anti-efficiency, fanatism on separating monetary and fiscal authorities?
Mythical economics seems to be a common point here – the myth that the Greeks can’t manage their own economy, hence the crisis, overrides the actions of Goldman Sachs and the other speculators who chose instead the myths of fairytale capitalist success through neoliberalism.
Economic myths continue here in my country Aotearoa New Zealand – one of our myths is that we have “clean and green” capitalism, while our waterways are increasingly polluted by agriculture run offs (pesticide and E coli). Another is that free market capitalism has succeeded in NZ while we have 25% youth unemployment. More nightmare than happy ending I fear.
I thought this was the Real-World Economics Review, not the CATO review. Blaming the Greeks for being supposedly “not-modern” is the wrong approach, it is like blaming the poor people that got loans in the US, or the Spanish minimum-wager for buying an apartment that now he cannot afford to maintain. The choices were individual, but the forces being them were social. Even if you knew what will happened in the future, maybe it was imperative to accept a loan in that moment to maintain your own social status, your job, or your wife. Looking back from the now it is easy to condemn those choices, but we are not speaking about a certain individual, but a mass of them, of which a percentage will succumb to social pressure thinking that they are doing the right thing, like almost everybody else surrounding them.