The Greek Crisis

Greece is being played in the media as a morality play in which a profligate government is brought to account by the  bond market and forced to submit to stern – but justified – austerity measures.  While Greek economic governance before the socialists recently returned to power was not without huge flaws, this account misses out on some key fronts. For one, shrinking Greek GDP through stern austerity measures including an immediate tightening of the fiscal balance by 4% of GDP means tipping the Greek economy into a major Depression, which would make the fiscal situation even worse.  For another, so long as it remains in the Euro zone, Greece does not have the option of devaluation and  is thus forced to regain real economy competitiveness against Germany via deep wage cuts. Germany lectures the Greeks on their profligacy, but worsens the situation by running big export surpluses with the rest of the EU while  severely repressing consumption and wages at home. This is also creating enormous difficulties for Italy and Spain. Finally, there is growing evidence that financial market speculation and complicity in debt concealment is at least as much to blame for the crisis as Greek “profligacy.”

These and other key points are made in an excellent article by Andrew Watt of the European Trade Union Institute. (His columns on the Social Europe site are well worth following.)   http://www.social-europe.eu/2010/02/a-greek-tragedy-or-a-european-farce-time-to-re-write-the-script/

See also this piece by the European Trade Union Confederation economist Ronald Jannsen.  http://column.global-labour-university.org/2010/01/greece-bashing-is-hiding-obvious.html

And today’s Globe features Ben Bernanke going after Goldman Sachs for their role in the Greek crisis.

http://www.theglobeandmail.com/report-on-business/fed-eyes-insurance-contracts-on-greek-debt/article1480901/

8 comments

  • Don’t forget excessive military spending. If Greece cut their military budget down to Canada’s historic levels, their deficit would be largely resolved.

  • That was redundant on so many levels.

    “There has certainly long been endemic inefficiency in the Greek public sector and in tax collection. But this is essentially a problem for Greek citizens(citing issues with social governance), who suffer poor and expensive public services; it is not an issue of fiscal irresponsibility as such, nor clear that the bond markets are justified in suddenly pouncing on it.”

    There is a critical flaw with this reasoning that I have herd discussed lately because those so called bondholders could have been me, you or any Greek citizen. A very large percentage of bondholders would have never purchased those bonds because the required information to make a reasonable decision was not given by the state officials of Greece. This explains the knee jerk reaction to Greek bonds. In my thinking if Greece had a reported reports that reflected its decision making, they would have never have had this reaction or flight to perceived safety, in bonds but Greece wouldn’t have sold as many as they have wanted the last few years.

    People “who suffer poor and expensive public services” suffer from fiscal irresponsibility as its obvious the money spent by Greece has not improved social services. Where is the results from their debt accumulation, so bondholders would not look for an exit?

    That is one problem with debt, you are beholden to your creditor, not the other way around, no matter how much you want it.

    “Debts and deficits, even of Greek proportions, are easily financed if interest rates are low. At previously prevailing interest rates of around 3%, interest payments are manageable (if debt is 100% of GDP they are, logically, 3% of GDP. In Japan they are around 1% of GDP even though government debt is twice annual GDP, because interest rates are so low.). When rates shoot up to closer to 10%, the risk of snowballing deficits and ultimately default clearly increases. Yet the reason behind the increase in rates is a massive and sudden increase in the ‘spreads’ demanded over ‘safe’ German treasuries.”

    Yes governments with massive debts and low interest rates can pay off the debt at a much slower period for a longer time but is the equivalent of me making minimum interest payments on my mortgage because I can with taking into consideration, that my annual rate may exceed when real interests rate inch up.

    Japan where real interest rates have been negative for a very long time, they could not raise the interest rate if they needed too. That is a situation no, country or its citizens should face. Japan is a poor case to be citing more fiscal response given the lack of evidence that has helped Japan. Similar to a countries loss of domestic control in ones currency citing Zimbabwe. Where reckless monetary and fiscal measures, have left a smoldering ruin of what is known as Zimbabwe as they are dependant on foreign currencies and cannot even set an interest rate. Their solution has been less not more government….

    The author then describes “Yet the reason behind the increase in rates is a massive and sudden increase in the ‘spreads’ demanded over ‘safe’ German treasuries” without making mention it was Greek officials who cooked the books’ or released partial reports. If they had not done this, there would have been no flight to perceived safety as they would have been piling into German debt all along if had not been for those Greek official accounting tricks, a failure of socialism. Not unscrupulous bond vigilantes or evil venture capitalists.Goldman Sachs is fascist or socialist element.

    “This is not a conspiracy theory: have the lessons of the crisis concerning the damage that unregulated ‘financial markets’ driven by perverse incentives cause been so quickly forgotten?”

    I don’t thinks it forgotten, and people are starting to look where the perverse incentives come from. Using the US example in Freddie Mac and Mae Fannie Mae and Freddie Mac, the biggest issuers and insurers of ARMs. There sponsored entities with a government guarantee. They were called GSE’s or known as government sponsored entities in the congress and senate. These GSE had policies that allowed people to qualify based solely on their ability to meet initial payments on the loans they would receive, not the higher payments they knew would kick in after a reset. Why didn’t the FED in all its glory, use its powers and warn congress of GSE and advise for prudent lending standards or force the institutions themselves. Either way they didn’t think these mortgages were trouble, which would make them incompetent or they knew and remained silent by choice, which can be argued a worse action. So looking back in hindsight they either didn’t foresee the problem when certain individuals screamed on plenty of shows or the political will to prevent these products which were expected they solve now in hindsight?

    These companies like Goldman would not exist if it wasn’t for regulations and taxpayers dollars. For all those that hate these companies, the market would have bankrupted them while your socialist governments prop them up. There the first ones to support any financial reform except Vocklers because Paul vockler is a real advocate for reform.

    He would strip those regulations that make Goldman so popular, he would definitely take away their bank holding status government gave them. Every line of regulation must be reviewed to make sure as on the TVO panel, the panelist opposite of wier made an admission that is rarely discussed here, is regulations to gain a comparative advantage must be eliminated. That is not regulation, that is a company like the one in Ontario that probably lobbied its way to parliament to help craft legislation that would create in a way that is not illegal to require a part that so just happens to be made at their plant.

    That crap, has too stop, that is fascism where public and private industry combine their powers to harmonize an interest, into law, regulation or mandate that serves neither the public interest or competitors to that company.

    HOWEVER this the problem even if countries start raising rates, the real interest rate will be negative for as far as the eye can see.

    Also if Greece were to in essence get immediate fiscal support, the dollar would have never-ed rallied like it has on default issues, giving ease to our currency and decrease in commodities prices

    For those that say I have no legs to stand on, I have countless borne out examples to use. One from Europe.

    In an opinion piece published this week in the Financial Times by Polish Finance Minister Jacek Rostowski. Contrary to the public flogging of the free market currently underway in Washington, under the auspices of the Financial Crisis Inquiry Commission, Rostowski explains how governments caused the Crash of 2008 by removing the necessary element of fear from the markets. He states that this was symptomatic of the “deep Keynesian project,” in which governments over the last half century have looked to smooth the economic cycle through periodic floods of monetary expansion and government spending.

    A product of the Solidarity movement that opposed the Polish Communist Party in the 1980’s, Mr. Rostowski, like many of his colleagues in the current Polish Administration, is intimately familiar with the hazards of central economic planning. He has seen this movie before, and he knows how it ends.

    Instead, Poland has enacted economic policies that are informed by a belief in Austrian School (read: free market) economics. After the downfall of the Communists in 1989, Rostowski was part of a group that called for “shock therapy”: the rapid privatization of state-owned enterprises and the dismantling of price and currency controls.

    In 2007, the center-libertarian Civic Platform party was put in power, with Rostowski as Finance Minister. Along with Prime Minister Donald Tusk, he has continued the process of transforming Poland into a laissez-faire paradise. Not accidentally, Poland is the only EU member state that showed positive GDP growth in 2009, at 1.7%. [fig for 3Q:09; Poland Central Statistical Office; 2009/11] Also, its public debt, at roughly 50% of GDP [Reuters; 2009/07/28], compares favorably with its neighbors – and with the United States.

    A top priority of their administration was reduction of the income tax. The previous system, with three-tiers of 19%, 30%, and 40%, has been reduced to two tiers: 18% and 32%. [Haaba; 2008/01/15] In addition, the system’s minimal use of deductions and credits makes it radically simpler than the U.S. income tax

    In the meantime, Civic Platform is continuing its move toward privatization. Recently, Poland held an IPO for its state-owned power utility, Polska Grupa Energetyczna. According to a news report, “The sale brought in $2.1bn, pricing at the top end of the bankers’ guidance range, and becoming Europe’s largest IPO of the year.” The government has used these revenues to fund its budget and keep taxes in check. More importantly, it has returned capital to the marketplace to be used in the most efficient manner.

    Civic Platform also understands that regulation hurts small business disproportionately by raising barriers of entry. Fortunately for Poland, a multi-year program of deregulation has been a boon for small businesses, and has given the country the most entrepreneurs of any state in Europe. This may explain the country’s resilience in the face of the global economic crisis.

    If the Polish and other people can hold onto the traumatic lessons of communism, where it never had had a unemployment or money supply issue and continue undeterred down their current path, then this battleground of the 20th century may be the paragon of the 21st.

  • Yes governments with massive debts and low interest rates can pay off the debt at a much slower period for a longer time but is the equivalent of me making minimum interest payments on my mortgage because I can with taking into consideration, that my annual rate may exceed my income when real interests rate inch up.

  • There is a much longer story to this but is becoming fairly obvious, (at least to me) that the financial meltdown and the required injections of public monies in the form of stimulus could most likely be the tipping point of many countries entry into zones of culturally (un)acceptable red ink in terms of debt to gdp levels.

    So why are we all surprised at workers and such of countries that actually have an organized voice that is not scared of their own shadow, coming forth and questioning the apologist policy makers with general strikes and such.

    I mean really, the fact that Goldman Sachs and the rest of the speculative community is not betting on the demise of Greece is just how far flung any notion of rationality being used to corner Greece into fiscal austerity has been stretched into such foolishness.

    This will happen right across the many of tye g20 nations that had to come forth with public many and save capitalism from the capitalists.

  • that should be public money and save capital form the capitalists

  • I have had a comment sitting in que now for the longest ever. Just slow today I guess, its funny because it touches on topics, I guess that make me evil as hitler…

    The main source of the capital accumulation over the last decade has not been just the profit of the business, it is the public money that was appropriated by means of clientele relations from the state budget. Taking this as a basis, in an extremely short historical time span, the political clientele accumulated personal wealth, which a real market economy could only have made in decades. Isnt Fascism great. The State and Companies creating the future together.

    oh yea Facists hate Capitalists, oh yea because they dont beleive in oh yea taxpayer dolars to private companies!

  • Civic Platform also understands that regulation hurts small business disproportionately by raising barriers of entry. Fortunately for Poland, a multi-year program of deregulation has been a boon for small businesses, and has given the country the most entrepreneurs of any state in Europe. This may explain the country’s resilience in the face of the global economic crisis.

    Despite the slowdown, the situation on the labour market was not bad. Employment during the whole year dropped by merely 1.2%. As small and micro enterprises proved reluctant to lay off staff, the figure for the whole economy may turn out to be even better. Wages went up by 4.5%. This indicates that despite the sharp economic slowdown, company employees overall maintained their work wages at the same level, even though wages were slashed in some firms. Capitalism at its finest.

    Core proposals in the party program include:

    – privatization of the remaining public sectors of Polish economy.
    – direct elections of mayors and regional governors.
    – first-past-the-post electoral system instead of proportional representation
    -labor law reform
    -independence over monetary policy by the National Bank of Poland
    – a 15% flat tax
    – the decentralization of the state.

  • GREECE BANCRUPT? Why don’t see it this way? [Found on a forum. Interesting.]

    All of us in this world worked and had a living until recently. Suddenly the money is gone. Where has it gone? Well, we, the people, make money by contributing something to society. That makes the real money circuit. Others make money with money, they don’t contribute anything to our society but only suck real money out of your purse. Money is not a commodity but is to make barter easier. When we put 100 dollars of our real money into a bank, the bank is allowed to lend the real-money makers [us, workers] ten times the amount you put in or 1000 dollars. You think it is money but it is credit only, it has no value at all. Immediately they start cashing in, say 7% real money for it from you, or 70 dollars a year while you get 2% for your 100 dollars in their bank that make
    their business possible, so you get 2 dollars. Thus they make 35 times more than you do and on money that does not even exist. With their profit [interest], being your real money from labor, they buy up the world and return your real money to your real money circuit to start the game all over again. That way they become richer and richer with fake money without contributing anything to society. They eventually finance wars to keep their business going. When they overdo this, people are going short on their real money from labor and that is what causes the trouble in Greece. But don’t bother. They are not the only ones. This is happening all over the world now so stay put. Always realize that there are two money circuits: a real one and a fake one which is 10 times or more bigger and which is what the rich live on and keep us in line. Oh, there is a third circuit within the real money circuit from work: the black money circuit. But that is real money without paying tax for our society. In some countries it is 40% or more. Eliminate it and the country goes bankrupt. Is everything clear now? To stop them from draining you, put as little money in the bank as is necessary for barter and don’t borrow fake money.
    Anonymous

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