Home > Uncategorized > Will The Institutions take over Greece? They are trying…

Will The Institutions take over Greece? They are trying…

1) Greece will, eventually, have to raise the pension age. But it’s not urgent. The real threat to pensions is the 25%+ unemployment rate of the country. Rasing the pension age won’t solve this problem. Cutting pensions will also not solve this problem – to the contrary. Though the ECB seems to think otherwise. According to the minutes of the ECB,

Swift and effective implementation of appropriate reforms in the euro area would not only lead to higher sustainable growth in the medium to long term but also raise expectations of permanently higher incomes and encourage households to expand consumption and firms to increase investment already in the near term

In Greece, ‘appropriate reforms’ seem pension cuts (again, or is it ‘again again’ already?). Does the ECB really think that taking money away from poor seventy-somethings will raise their expectations of ‘permanently higher incomes’ and will make them increase their consumption? Or do they mean that lower Greek pensions will directly induce Germans to spend more, therewith (over)compensating the drop in consumption from Greek pensioners? This is ‘rational expectations economics’ gone wild. ‘Rational expectations’ are assumed expectations which are consistent with the assumptions of the model dreamed up by the economist. Real scientists would try to estimate these expectations, to check the model. Not so in the case of economists. So, if you assume that cutting pensions will increase growth people will expect this and increase their consumption. Aside – despite reforms, consumption in Spain and Greece in reality declined, and declined and declined. And declined.

2) Considering such gibberish from an unelected body the recent Tsipras op-ed in Le Monde about The Institutions is a welcome albeit chilling change: factually right and politically insightful (fortuntely, at least some people finally start to understand that he has been consistent, coherent, reasonable and credible as well as the prime minister of an independent country right from the beginning):

“The proponents of this strategy begin with the assumption that it is not possible to demand that the new Greek government follows the course of the previous one – which, we must not forget, failed miserably. This assumption is the starting point, because otherwise, elections would need to be abolished in those countries that are in a Program. Namely, we would have to accept that the institutions should appoint the Ministers and Prime Ministers, and that citizens should be deprived of the right to vote until the completion of the Program. In other words, this means the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe. This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles. The second strategy seeks precisely this: The split and the division of the Eurozone, and consequently of the EU. The first step to accomplishing this is to create a two-speed Eurozone where the “core” will set tough rules regarding austerity and adaptation and will appoint a “super” Finance Minister of the EZ with unlimited power, and with the ability to even reject budgets of sovereign states that are not aligned with the doctrines of extreme neoliberalism. For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Mandatory austerity. And even worse, more restrictions on the movement of capital, disciplinary sanctions, fines and even a parallel currency. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline. What is not being taken into account is the high amount of risk and the enormous dangers involved in this second strategy. This strategy not only risks the beginning of the end for the European unification project by shifting the Eurozone from a monetary union to an exchange rate zone, but it also triggers economic and political uncertainty, which is likely to entirely transform the economic and political balances throughout the West. Europe, therefore, is at a crossroads. Following the serious concessions made by the Greek government, the decision is now not in the hands of the institutions, which in any case – with the exception of the European Commission- are not elected and are not accountable to the people, but rather in the hands of Europe’s leaders. Which strategy will prevail? The one that calls for a Europe of solidarity, equality and democracy, or the one that calls for rupture and division? If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”.

The Hemingway reference is for a country like Greece, which used to be a neighbour of Yugoslavia, not as far fetched as it might seem to people from Germany, France, the Netherlands or the UK.

3) Anyway, Greece can’t pay as nominal income keeps decreasing (graph). Real production has bottomed out and is in fact increasing, albeit at a very slow rate. But nominal income still decreases – which makes it even more impossible to pay back the debts.


  1. AMK
    June 3, 2015 at 4:09 pm

    I suppose your arguments do not take into account the dramatic rise of GDP needed to fund not only pensions but health and care at 35% of the total country’s GDP in 10 years from now….

  2. merijnknibbe
    June 3, 2015 at 4:32 pm

    Dear AMK,

    thank you for you comment. I’m not forgetting about these implied liabilities…

    Let’s do the math: unemployment in Greece is about 25%. Which means that employment can rise with about 33% when we put all these people to work in the next ten years. At the same time, labor market participation of Greek women is pretty low and can rise considerably. Which means that employment can rise with another, say, 10%. At the same time, there is nothing wrong (as Varoufakis will admit and in fact admits) with gently rising the Greek *de facto* pension age with about 3 months a year for the next 10 years (mind that socialists don’t mind work and in fact want people to work – not necessarily paid work but work, defined as a social activityand including volunteer activities and house work. Raising the pension age is *not at all* contrary to socialist ideals). This might lead to another increase of employment of about (I did not do the arithmatic) 5% and a decrease of the number of people on a pension with about 8% (again: did not do the arithmetic). Considering an increase of productivity of about 1%a year (not out of line with the possibilities for a country like Greece) this will lead to an additional potential GDP of about 65%. Let’s say that the Greek population in 2025 is about 5% larger than today this would *easily* pay for additional pensions and health care (assuming that inequality does not rise, when it decreases it will even be easier).

    The point is of course to get these people to work…

    When you look at employment in Latvia, Estonia, Ireland, Denmark, Finland, Portugal, Spain and the Netherlands, it is clear that a high level of private debt in combination with austerity does not really lead to a favourable development of employment (though Spain is doing well, lately). Somehow, demand will have to be restored. Following the cost cutting path did not work. NO country lowered wages as much as Greece and even in combination with a lower exchange rate of the Euro this did not lead to booming goods exports (though the very latest export data are not inconsistent with this possibility). In fact, no austerity country is experiencing a goods exports related boom. Tourism, however, did well in a large number of countries, especially Greece. Health care ‘exports’ might do well in the future – but this requires some government policies to guarantee good health care for the Greek themselves and to train additional nurses and doctors. Solar might be a possibility. Legalizing pot in the EU and giving Cyprus and Krete (two islands) a ten year monopoly while at the same time introducing a land tax which taxes away monopoly profits might be and idea. Anyway – there is no supply side problem. The Greek tourism sector easily managed to cater for the 15% or so larger number of tourists in 2014 – a sign of a vigourous, flexible, dynamic economic sector! The real problem is demand.

  3. Georgia Pappas
    June 7, 2015 at 1:40 pm

    Thank you for your article. I have only one comment about the participation of women in economy. You are right, though in Greece this allowed the state to have poor to no childcare facilities and other infrastructure. It also contributed to the perseverance of the Greek family and therefore “diminished” the aftermath of the crisis. By this example I mean that this generalised implement of politics in Europe seems to have disregarded altogether the particular circumstances of each european country. I’m very sorry for my poor english and do hope I got my point through. Thank you.

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