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On January 26 2015 21:10 warding wrote:
It seems that today most people believe austerity to be a bad thing. I'm a bit confused. What exactly was the alternative to austerity for countries like Portugal and Greece?
Austerity was built upon a couple key points:
1) Ensure that Eurozone creditors were repaid as much as possible. At the outset Eurozone banks were in a shabbier condition than US banks and Eurozone leaders didn't want repeat of the US experience (QE and TARP). So Greece (and other crisis countries) got a bailout, but it was structured to primarily benefit creditors.
2) Reform Greece's economy and national finances. Pretty quickly into the crisis people realized that countries like Greece were living beyond their means. Wages had risen far faster than productivity and a lot of growth was delivered by way of foreign creditors. Since creditors now knew Greece to be a bad investment, Greece would have to regain competitiveness (lower wages in the short-term).
- Tying these two things together was austerity. The big idea here being that the Greek government could use austerity to both ensure that creditors were repaid and put downward pressure on Greek wages.
Austerity then ran into a couple big problems:
1) Austerity was politically unpopular, and quite harsh. This created an odd dynamic where the Greek government had to divert resources to repaying creditors even if the extraction methods (the taxes raised, or the services cut) were not supportive of the economic reforms everyone was counting on. This created a bias towards a contracting economy, since meaningful reforms were often compromised, but austerity always marched onward.
2) The broad macro environment wasn't supportive of Greek reforms. Remember that everyone wanted Greece to regain competitiveness. If Greece could do that, their economy could be more supported by exports. However, if you looked around the world a lot of countries were trying to do that. More importantly Germany was already the net export king and that has only increased. If Germans were more willing to import from Greece, Greece would have a much easier time exporting.
-- So taking this all in and going back to your question, the alternative would have to be something that did a better job of the above (cut more debt / encourage competitiveness). For example, if Greece left the Eurozone the country would be much more free to cancel its past debts. An independent Greece would also be able to regain export competitiveness by having its own shitty currency.
Or, Eurozone leaders could just cancel more of Greece's debt, be more supportive of importing from Greece and discourage Germany from exporting so much / importing so little.
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Greece with an independent currency would also barely be able to import anything which would quite drastically reduce the living standard and another big haircut would probably scare foreign investors away for good. Tricky situation really because the pro austerity governments can't really give Greece too much leeway without looking silly should Greece decide that they want to stay in the Eurozone.
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"Increasing competitiveness" is economy speak for paying people less. You can either do it by actually slashing peoples wages and benefits or by "quantitative easing" (printing money to increase inflation) or by having your currency go down the shitter if it's independent.
The end result is the same, you pay people less so you can produce goods cheaper and export more of them. The only difference is that humans are like lobsters, if we get cooked slow enough we don't even notice it.
I think I said exactly the same thing first weak of the Euro crisis as I'm about to say now:
Greece can either stay in the Eurozone and accept paycuts and less benefits and pensions.
Or they can leave and erode their standard of living as their currency tanks.
The only difference is now the entire Euro sector has realized we can't compete against the rest of the world without decreasing everyones income so now were doing QE too.
Problem is it's clueless people with degrees in economy running everything so it will take them a decade or so before they realize the rules have changed.
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Cayman Islands24199 Posts
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement.
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On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement.
It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters.
So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government.
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I am curious what they are going to do now, Greece has a primary surplus now but if they stop receiving EU assistance right now by hard balling Germany there goes the surplus -- without any of the actual policy changes in the campaign promises. I guess Russia offered some aid but its really a fraction of what the EU is paying in already.
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Who care about the surplus. Having an entire common currency area with surplus is a foolish dream anyway.
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On January 27 2015 04:14 SC2Toastie wrote:Show nested quote +On January 27 2015 03:59 Sub40APM wrote:
Did I read it right, did the Syriza coalition partner announce that Jews dont pay taxes in Greece? ...wtf There's some very easy jokes about nobody paying tax and the Jews getting picked out on to receive the flaming... Are there any opinions on the combination of Syriza winning Greece and the Quantitative Easing? How will that go together?
Countries with help from the IMF get a different stricter ruleset to get their bonds bought in the QE programme although I don't know what these rules are spefically.
80% of the bonds bought by QE will be bought by the national central bank so if Greece goes for bankruptcy the costs for the ECB will be contained.
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On January 27 2015 06:16 Sub40APM wrote:
I am curious what they are going to do now, Greece has a primary surplus now but if they stop receiving EU assistance right now by hard balling Germany there goes the surplus -- without any of the actual policy changes in the campaign promises. I guess Russia offered some aid but its really a fraction of what the EU is paying in already.
I am pretty sure russia is in no position to give others a handout just right now, at least not a considerable amount.
yeah it will be interesting, my prediction is that there will be two blocs - germans with their pro austerity stance and tsipras government. and they will somewhere meet in the middle I guess - keep money flowing from the EU for slower reforms.
a grexit scenario is(imho) out of the question, no side were to gain from that. too much political, but more pressing for voters, actual capital has been invested to let that happen.
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Cayman Islands24199 Posts
On January 27 2015 06:13 JonnyBNoHo wrote:Show nested quote +On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government.
well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth.
the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand.
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They (Greece) should setup a government that actually does its job well, without so much corruption.
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On January 27 2015 06:46 oneofthem wrote:Show nested quote +On January 27 2015 06:13 JonnyBNoHo wrote:On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government. well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth. the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand.
We're pretty much on the same page. The only quibbles I have are that demand needed to contract somewhat, and regular Greeks have some responsibility when it comes to tax evasion.
On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption.
Yes, and Eurozone lenders shouldn't expect a corrupt government to be a prime borrower!
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Cayman Islands24199 Posts
On January 27 2015 07:07 JonnyBNoHo wrote:Show nested quote +On January 27 2015 06:46 oneofthem wrote:On January 27 2015 06:13 JonnyBNoHo wrote:On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government. well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth. the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand. We're pretty much on the same page. The only quibbles I have are that demand needed to contract somewhat, and regular Greeks have some responsibility when it comes to tax evasion. Show nested quote +On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption. Yes, and Eurozone lenders shouldn't expect a corrupt government to be a prime borrower!
i was just adding some agents to your picture of 'boosting consumption', which made it seem like greece as a collective group of people is responsible. it's really the government and those connected to government power there that hijacked the entire country.
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On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption.
that's something just about every western country should do. not even starting with places were things are really dire.
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On January 27 2015 07:16 oneofthem wrote:Show nested quote +On January 27 2015 07:07 JonnyBNoHo wrote:On January 27 2015 06:46 oneofthem wrote:On January 27 2015 06:13 JonnyBNoHo wrote:On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government. well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth. the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand. We're pretty much on the same page. The only quibbles I have are that demand needed to contract somewhat, and regular Greeks have some responsibility when it comes to tax evasion. On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption. Yes, and Eurozone lenders shouldn't expect a corrupt government to be a prime borrower! i was just adding some agents to your picture of 'boosting consumption', which made it seem like greece as a collective group of people is responsible. it's really the government and those connected to government power there that hijacked the entire country.
Sounds good 
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On January 27 2015 07:16 oneofthem wrote:Show nested quote +On January 27 2015 07:07 JonnyBNoHo wrote:On January 27 2015 06:46 oneofthem wrote:On January 27 2015 06:13 JonnyBNoHo wrote:On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government. well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth. the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand. We're pretty much on the same page. The only quibbles I have are that demand needed to contract somewhat, and regular Greeks have some responsibility when it comes to tax evasion. On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption. Yes, and Eurozone lenders shouldn't expect a corrupt government to be a prime borrower! i was just adding some agents to your picture of 'boosting consumption', which made it seem like greece as a collective group of people is responsible. it's really the government and those connected to government power there that hijacked the entire country.
Greece is not North Korea, though. In a democracy the people are actually collectively responsible for what happens.
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Cayman Islands24199 Posts
was that the logic of versailles
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On January 27 2015 06:25 Doublemint wrote:Show nested quote +On January 27 2015 06:16 Sub40APM wrote:
I am curious what they are going to do now, Greece has a primary surplus now but if they stop receiving EU assistance right now by hard balling Germany there goes the surplus -- without any of the actual policy changes in the campaign promises. I guess Russia offered some aid but its really a fraction of what the EU is paying in already. I am pretty sure russia is in no position to give others a handout just right now, at least not a considerable amount.
Why not? Greece is tiny in comparison to Russia and I doubt that Putin can't spare some pennies to buy himself another ally in Europe. Maybe Russian economy isn't doing very well at the moment but I'm pretty sure that they're still strong enough to influence smaller European countries.
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On January 27 2015 08:25 Nyxisto wrote:Show nested quote +On January 27 2015 07:16 oneofthem wrote:On January 27 2015 07:07 JonnyBNoHo wrote:On January 27 2015 06:46 oneofthem wrote:On January 27 2015 06:13 JonnyBNoHo wrote:On January 27 2015 05:48 oneofthem wrote:
the debt greece accumulated is at the government level and with the rampant tax evasion and corruption, it is basically a minority in power swiping a stolen credit card on germany's dime. the inflation forced wage to go up so the workers are really bystanders in all this. when ze germans found out about this they got really mad and just wanted to punish greece, but there is no direct way of punishing the particular agents. it's this collective vengeance that clearly isn't working.
whatever they need to do, this is not it.
fixing greece has to start with fixing that government, but so far it has gotten worse and with no prospect for improvement. It wasn't just inflation though. Wages were rising faster than productivity. Basically the lending to Greece was supposed to help develop Greece's economy, but too much was used to boost consumption and make the government look nice to voters. So the Greeks absolutely blew their opportunity, but lenders blew it too - clearly more loans should have been directly invested in development rather than generic lending to the government. well yea, but the increase in wage was mainly from government spending. the greek public sector grew very fast in the 2000's and they also spent a lot on politically expedient things, but the thing with public sector spending in greece is that it is a form of patronage and entrenched interest. they nationalized a bunch of stuff and doled out these juicy properties to friends and family, china style. this obviously wasn't generating any growth so productivity lacked behind wage growth. the actual working people of greece don't have the connections and whatnot to get government jobs, so they are doubly burdened by the austerity policy. austerity is mainly bad because of severely contracting demand. We're pretty much on the same page. The only quibbles I have are that demand needed to contract somewhat, and regular Greeks have some responsibility when it comes to tax evasion. On January 27 2015 06:52 zlefin wrote:
They (Greece) should setup a government that actually does its job well, without so much corruption. Yes, and Eurozone lenders shouldn't expect a corrupt government to be a prime borrower! i was just adding some agents to your picture of 'boosting consumption', which made it seem like greece as a collective group of people is responsible. it's really the government and those connected to government power there that hijacked the entire country. Greece is not North Korea, though. In a democracy the people are actually collectively responsible for what happens.
I refuse all responsibility for what MY country does. Although maybe it doesn't qualify as "democracy" so I'm safe 
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On January 27 2015 04:48 JonnyBNoHo wrote:
-- So taking this all in and going back to your question, the alternative would have to be something that did a better job of the above (cut more debt / encourage competitiveness). For example, if Greece left the Eurozone the country would be much more free to cancel its past debts. An independent Greece would also be able to regain export competitiveness by having its own shitty currency.
Or, Eurozone leaders could just cancel more of Greece's debt, be more supportive of importing from Greece and discourage Germany from exporting so much / importing so little.
So the two alternatives are:
- Leaving the Euro which would lead to a currency devaluation which seems to me to be just as, if not more, austere than austerity itself. Not to mention the possible uncertainty and chaos with the exit that could also do quite a bit of economic destruction /at least in lawyer fees  ). This solution also lacks any incentive for the Greek government to reform spending, tax collection and incentive structures in the economy which I think all agree were a bit of a mess - in Greece and in Portugal.
- Euro solidarity. When in 2011 Northern Europeans had good reasons to look at the Greek (and PT) messes as self-inflicted, I don't see how one could expect them to be willing to continue to support the Southern status quo who they saw as unfair and thus immoral. Also, why should they offer solidarity to Greece and not to other worse-off peoples, if the ideal at play here is humanism?
I'm not sure which mechanisms could be used to get EU countries to import more from Greece other than a wage devaluation in Greece.
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EPT
