I drove back from Greece to Austria yesterday.
I crossed borders five times, four times thereof with border controls. That meant four times showing papers to exit officials and four times showing papers to entry officials, watching them while they got their routines done (and eight times waiting in line to get to those officials).
Only three of the countries had their own currencies (FYROM, Serbia, Croatia). Still, that meant paying tolls in a currency whose name I didn't recall much less know its value. Thanks to credit cards, I didn't have to fool around with local currency cash too much but, still, I would have liked to know how much I was spending for gasoline and for shopping at the station stores.
In Slovenia, I recognized the currency again - the Euro. And when I crossed from Slovenia into Austria, I even overlooked the border because there wasn't much of a sign.
Now, convenience has its price. Since I overlooked the border into Austria, I also overlooked the office where one buys the toll vignettes. So, I only recognized that I was back in Austria when the Austrian police stopped me for not driving with a vignette and charged me 120 Euros for it. Well, I guess everything has its prize, even belonging to the EU does.
Having described this, does anyone really want to leave the EU and/or the Eurozone???
I crossed borders five times, four times thereof with border controls. That meant four times showing papers to exit officials and four times showing papers to entry officials, watching them while they got their routines done (and eight times waiting in line to get to those officials).
Only three of the countries had their own currencies (FYROM, Serbia, Croatia). Still, that meant paying tolls in a currency whose name I didn't recall much less know its value. Thanks to credit cards, I didn't have to fool around with local currency cash too much but, still, I would have liked to know how much I was spending for gasoline and for shopping at the station stores.
In Slovenia, I recognized the currency again - the Euro. And when I crossed from Slovenia into Austria, I even overlooked the border because there wasn't much of a sign.
Now, convenience has its price. Since I overlooked the border into Austria, I also overlooked the office where one buys the toll vignettes. So, I only recognized that I was back in Austria when the Austrian police stopped me for not driving with a vignette and charged me 120 Euros for it. Well, I guess everything has its prize, even belonging to the EU does.
Having described this, does anyone really want to leave the EU and/or the Eurozone???
Me, please. I am German, and I don't want to pay more taxes and accept higher government debt (which my children and grandchildren will have to pay), because our irresponsible government accepts to guarantee the debt of even more irresponsible governments elsewhere in Europe. You are right: changing currencies when you travel is a nuisance.But it is a price that I would be happy to pay for sound public finances.
ReplyDeleteI have very bad news for you. Should Germany leave EZ/EU, your tax bill would only get incredibly higher than it is already. The periphery has an enormous advantage over the core: they have already taken the damage and they can reduce further damage by not repaying their debt. The core has not yet realized any of the huge losses it has already taken. These losses still show as assets on the books but if and when they have to be realized, it will be massively painful. This, of course, is the case before a German EZ/EU exit.
DeleteWith such an exit, it only gets worse. Any chance of recuperating at least some of the debt will go to zero because that debt remains in Euro which will devalue significantly against the new DM. And then, there is, of course, the questions whether a stronger DM will affect German expors negatively. Without a decline in exports, German unemployment can quickly go through the sky.
I think the core has not yet realized on what gold mine it is sitting. It the gold mine called "we don't have that much more to lose and you still got everything to lose".
I find that many people in Austria think that if we only stopped paying, the whole thing would be over and we could move on to greener pastures. But the opposite is the case.
Germany is by far in the worst position of all. On one hand, they stand to lose the most of all out of this (and that is a certain loss; the only question is when it has to be recorded). So Germany keeps playing the music so that the musical chairs can go on. And then they are not even loved for that. Now, life really isn't fair, is it?
Correction: "I think the PERIPHERY has not yet realized on what gold mine it is sitting".
DeleteI fully agree with you that the whole thing is totally unfair, it is a scandal. What do you do when you are member of a club where people cheat, don't respect the rules, try to exploit you all the time and insult you on top of it? When you are in the minority and have no chance to improve matters, I think you have to leave, the sooner the better!
DeleteI don't agree fully with the argument about the loss of exports. Yes, there would probably be a revaluation of the German currency, making German exports less competitive. This will, however, be mitigated by cheaper imports (e.g. oil is priced in dollars and would become cheaper in a currency that revalues against the dollar). It is sometimes argued that the import content of German exports is 40 percent and rising, so this effect would be considerable. Cheaper imports would also tend to reduce German inflation in general, again with a positive effect on the competitive situation. Nonetheless, I agree that there could be a very noticeable reduction in exports. But, so what? Giving away your exports for free is not a good policy, as you have pointed out in a recent post. And giving them away for foreign government bonds which then become worthless is not very attractive either. Germany is always being pushed to replace some foreign demand by domestic demand. So let us do it. We should spend less on handouts to Europe and more on domestic projects; there is no lack of possibilities, for example, many of our local communities are starving for cash.
So, should we be afraid of lost exports? Denmark and Sweden for example were wise enough to keep their national currencies; and Switzerland, of course, has done the same: they are still there, and thriving, despite rising exchange rates, and nobody expects them to guarantee for bankrupt countries in the south of Europe.
As far as the chances of recovering at least some of the lent money are concerned, I think we should be realistic and accept that most or all of it is lost. That is better than to continue throwing good money after the bad. I do not know to what extent Greek politicians will ever be in a position to pay something back; but even if they were, they may not be willing to do it, and some have already said so openly. In addition, the longer a Greek default is postponed, the more money will be lost and the bigger the part of the losses will be that is borne by governments, and not by the private sector. Each time debt is rolled over, private bond holders will get out and the ECB or some European umbrella, EFSF or ESM or whatever will come in, adding to the losses that will in the end be borne by taxpayers in Germany and elsewhere. I doubt whether that can still be justified by the risk of domino effects. In any case all this will further add to the sense of outrage in the creditor countries.
Reitzle, the CEO of Linde AG, made a proposal along the lines you suggest several months ago. Much to my surprise, he was immediately called back by his friends at the German Industry Association. They argued that a "Gexit" would be hazardous for Germany.
Deletehttp://faz-community.faz.net/blogs/adhoc/archive/2012/01/15/linde-chef-reitzle-deutschland-kann-euro-austritt-verkraften.aspx
Dear Sir 10:24 PM,
DeleteWhat do you do? You have your press giving them the middle finger, your Chanchellor calling them lazy, a good portion of your media doing "funny" jokes about them and from what i read from greek immigrants in Germany, you call them "beggars" etc.
And yes, it started in Germany, before some marginal greek press or extremist protesters replied. Here it is called "collective responsibility", but there i gather you ignore the meaning.
But never mind Greece. We are lazy, fraudolent beggars who drink ouzo on the beach with the 200 bln we took from you. I would advice you to make a small experiment. Go to El Pais or El Periodico (both spanish) and to Corriere Della Sera (italian),who all host readers' comments and you will see a repeating pattern when it comes to Germany and the daily economy.
It's about them that you should worry. Greece will see the exit as soon as Germany feels ready, unless the Cypriot gas changes that (geopolitical reasons to keep Greece in as "safe area" for the cypriot-israeli duct).
I have plenty Spanish and Italian friends and all tell me that Greece should leave the euro, because Greece will only suffer to no end before the inevitable default. But they also tell me that once their economy recover, they should also leave and devaluate.
In Cyprus, they are so scared of the troika's salvation methods, that President Christofias even after asking for EFSF aid, was still trying to find a 2nd loan from Russia and China in order to avoid the "german collar".
This should say something about where the EZ is heading.
I will refrain myself to this and nothing more.
Mr. Kastner said something right. The "wet isn't afraid of the rain". The euro after all, wasn't a greek necessity. It was Germany's plan on how to deal in the future with superpowers like China and India, which sooner or later, would produce and export the same stuff Germany does. And having a poor europeriphery, would make the Chinese products more appetizing than the german ones. And the Chinese have both the manpower and the low unit labour cost to put Germany in difficulty.
So, you take care of your money ("my precious" as Gollum would say) and we should take care of our own interest, whichever that may be (as far as i am concerned, Greece can begin to organize the Grexit before some other organizes it for us).
You shouldn't be afraid of your exports in the short time. You should be afraid of the BRICS in the medium-long term, because they are elephants and unless you still have your own elephant (the EU), they will flatten you. That's what the EZ was about.
For Greece a weaker currency and a more protected economy without milk quotas and regulations that apply to Greece and to nobody else around (like in fishing), would actually benefit after the initial blow. And it's why Greece shouldnt' have joined the euro in the first place.
Bandolero.
One last thing:
Delete" "I think the PERIPHERY has not yet realized on what gold mine it is sitting"."
You 'd be surprised. If you could arrange a way for a smooth transition to the national currencies, without losing money in the bank account, my bet is Italy and Spain would jump overboard immediately. The more the pressure on them, the more they are prepared to have some losses. Mr. Monti's stance the other day, indicated exactly that.
2 italian newspapers frontpages say a lot, since they are made to reflect pubblic sentiment (a bit like Bild or Focus do):
http://images.gqitalia.it/Storage/Assets/Crops/13910/7/12596/vaffanmerkel-culona-inchiavabile_620x410.jpg
VaffanMerkel is an alteration of "Vaffanculo" (go beep yourself), where "culo" has been substituted with "Merkel".
In the "Giornale", there is "Ciao ciao fatass" (it does not say to who it refers, but i have an idea).
One happy family in two words. And imagine that Germany hasn't saved them yet. Either a scandal Or there is something wrong in the Kingdom of Denmark.
Thank you for your hospitality Mr. Kastner. I don't want to bring more scandal nor scandalize myself :)
Bandolero.
Oh another note. Statistics indicate that Greeks after the euro saw their salaries boom. This is true, however if you ask Greeks who were adults before the euro-entry, they will tell you that their purchase power decreased. This, because the salaries increased, in order to compensate for the "conversion rampage". When the euro came, because of the non corresponding value between greek money and the new money, the prices doubled or tripled. A bottle of water costing 50 drachmas before, became 50 cents (170 drachmas). Because Greeks were used to coins of small value, so 50 cents were looking of small value. The same thing happened to Italy. At the time, the Italian goverment had asked Germany to consider issuing a 1 euro banknote, in order to change the perception of the "low value coin". This was rejected and a similar trend occured to Italy too.
DeleteThe euro was of major benefit for greek banks, which expanded rapidly thanks to the low cost money, but was very destructive for the structurally less competitive greek economy (before the euro, greek food was dominant in supermarkets, now it is a minority) and boosted the consumer spending through bank loans. Even an average Greek wanted to get and could (!) a german car or was getting a bank loan to go vacations abroads instead of doing vacations to Greece. Greek taverns on the islands were buying fish from Tunisia instead of the locan fisherman and Greece started importing tomatoes from Brussels,biscuits from Italy, potatoes from Egypt and chinese garlic(!), as well as bulgarian meat. It even became more palatable to illegal migrants, who each year send back home 2 bln euros, after having boosted the black economy of Greece. Current account deficit expanded, what a surprise.
Bandolero.
Dear Mr. Kleingut,
Deleteyou mention the position of Mr Reitzle and your surprise that the German industry association does not support his ideas. In today's Frankfurter Allgemeine Zeitung there is a rather long article explaining - in my opinion rather well - why a good part of the big German enterprises have an interest in maintaining the present situation. (They profit from exchange rate stability, but they don't have to bear the cost, which is shifted to the taxpayers. An argument that is also mentioned, but in my view not elaborated sufficiently, is the fact that German industry has gained some competitive advantage in Europe because of relatively stable wages and prices in Germany compared to other euro area countries.) The article can also be found in the internet. It seems to be the same as in the print edition, but it is - of course - in German:
http://www.faz.net/aktuell/wirtschaft/unternehmen/unterstuetzung-fuer-die-rettung-grossindustrie-pro-euro-11805201.html
With kind regards
That's a very good article. Thanks! Yes, as far as the problem countries are concerned, tax payers have indeed rescued their lenders and paid the bills of exporters (indirectly, but it's the same thing). That would, of course, no longer work with a DM. I didn't say Reitzle's friends called him back out of sympathy for deficit countries. Of course, they called him back out of self-interest.
DeleteKlaus, you seem to get bad influences,from your staying in Greece, maybe... you have on purpose overlooked to buy toll vignettes, like the movement "Den Plirono" -"Don't pay", which is lifting bars in road tolls in Greece?
ReplyDeletehttp://denplirono.wordpress.com/
Who wants to leave:
ReplyDelete- Various greek parties (but it is of no concern to a German).
- Beppe Grillo in Italy (a rising movement called "5 Stars", where Grillo's outspoken idea is "Italy out of the euro and unilateral haircut on our debt).
- Berlusconi recently flirted with the idea.
The last two should on the contrary concern a German.
Bandolero.
I made a free translation of an article which appeared today in greek newspaper after an interview.Because it is interesting coming from the person in question, although i do have my humble doubts for some points.
ReplyDeleteCharles Viplot (I am writing his name by guessing, since i don't know french)*
*Professor Of International Economics in Geneva's Graduate Institute. In the past he has been economic advisor of the french goverment, the EU Comission, the IMF, the World Bank and the UN.
"Angela Merkel is right in only one thing: Germany can't save the euro. In everything else, she is wrong. And this has to change before it is too late. Viplot appears mercyless with the policy that has been imposed by Berlin to Europe, with the tolerance of Paris. And this, because he regards that Angela Merkel's Germany has huge responsibility for the current chaos, since she orchestrated in 2010 the -on paper only- salvation of Greece, accepting to "break" one of the fundaments of the eurozone: the "no bailout clause".
Merkel presented this violation of maybe the most important principle of the EZ, as necessary in order to avoid the spreading of the crisis, promicing that it would be a "unique case". Why did she do that? "If Greece had defaulted in 2010, then many french and german banks would have collapsed" and that was what Merkel and Sarkozy wanted to avoid at all costs. And in order not to react negatively, the Germans and markets forced Greece to accept a catastrophic program of punitive austerity, claiming that this would be the road to growth.
Since then, Germany and France act with compass not the resolution of the crisis, but the at all costs salvation of the bank elite and the properties of their major stockholders.After Greece, came the turn of Portugal, Ireland and a few days ago Cyprus and Spain. "And fool yourselves! In 1 year from now Italy will surely follow and most probably, France too", warns Mr. Viplot.
Even now, at the last moment, Germany remains unmovable from a position - of no bailout-which herself first violated in order to save her banks and "talks nonsense about prolongation of the time for meeting the program targets in the case of Greece and of other countries and of fiscal Union of Europe"." The Fiscal Union is a crazy idea, a distorted version of the german federalism", claims categorical Mr. Viplot. He actually brings USA as an example where each state makes its own budget.
"The markets no longer trust the overindebted countries and this isn't going to change as long as their debt remains huge. Only if they default and get rid of it, will these countries be able to go back to the markets". As overindebted countries, Mr Viplot considers, not just Greece,Ireland and Portugal, but all the countries with above the 60% of the Maastricht Treaty, hence Belgium, Spain, Italy, France and even Germany.
All of them, he says, must proceed to a partial debt restructuring. An exception is Greece, that must proceed to complete halting of payments, with an exception maybe of the IMF debt, in order to avoid classification next to countries like Sudan. And this, because in 2010, Athens lost the great opportunity to do partial restructuring, without being submitted to the catastrophic troika programs. "I never understood why Mr. Papandreou sent the country in the teeth of the troika! This was a very weird choice".
(to continue)
(continues)
ReplyDeleteEven now, at the last moment, Germany remains unmovable from a position - of no bailout-which herself first violated in order to save her banks and "talks nonsense about prolongation of the time for meeting the program targets in the case of Greece and of other countries and of fiscal Union of Europe"." The Fiscal Union is a crazy idea, a distorted version of the german federalism", claims categorical Mr. Viplot. He actually brings USA as an example where each state makes its own budget.
The Solution:
"Since the start it was clear that a debt domino was unfolding and a indebted German goverment couldn't play the role of the savior.The cost of saving the euro skyrocketed because of the avidity of the european banks and the for decades fiscal insubordination of most of the countries, is huge and the only way to cover it, is a combination of defaults inside the eurozone and lending of govs and banks through the ECB. That's why Merkel must raise the german vetos...yesterday!"
"The markets no longer trust the overindebted countries and this isn't going to change as long as their debt remains huge. Only if they default and get rid of it, will these countries be able to go back to the markets". As overindebted countries, Mr Viplot considers, not just Greece,Ireland and Portugal, but all the countries with above the 60% of the Maastricht Treaty, hence Belgium, Spain, Italy, France and even Germany.
All of them, he says, must proceed to a partial debt restructuring. An exception is Greece, that must proceed to complete halting of payments, with an exception maybe of the IMF debt, in order to avoid classification next to countries like Sudan. And this, because in 2010, Athens lost the great opportunity to do partial restructuring, without being submitted to the catastrophic troika programs. "I never understood why Mr. Papandreou sent the country in the teeth of the troika! This was a very weird choice".
When in 2012 Greece did a restructuring,after 2 years of catastrophic policies, it ended up with the same debt as before.So the complete cease of payments is now the only way".In this case, the budget would be balanced and funds for growth would be liberated. This should have done not unilaterally, but through an honest negotiation with the creditors. The same he thinks must happen for the other countries in trouble too. "If this happens orderly", he says,"the euro can be saved, without any country exiting the eurozone. Because if even a single country leaves the euro, the euro would have finished."
For the banks, recapitalization and nationalization. The ECB should help recap and then re-enter stockmarket, exactly like the Americans did in the post-Lehman cases and in Sweden in the 90s. "Fortunately this is a profitable operation for both the state and the tax payers, since it is unavoidable, not just for Greece, but for the whole of the eurozone".
Because, as he says "when after a while, the italian debt bursts, then the big european banks will collapse. Unavoidably, they will be recapped by ECB. This requires a bank union and the creation of a common Bank Supervising Authority which will supervise the "rebirth" of the bank sector and will avoid the repeat of the behaviours that led to the current situation.
http://www.imerisia.gr/article.asp?catid=26517&subid=2&pubid=112889092
Bandolero
By and large I would agree with this article.
DeleteQuite so, this is why i took the time to translate it, despite the bad job i did (the more time passes, the more my head shuts down and it goes to sleep without asking me).
DeleteMy humble doubt is: Is his proposal politically feasible? To me, it will depend much on who will win the german elections. Mrs. Merkel to me, resembles Mr. Samaras. Mr. Samaras, if he had not commited himself to an easy populism and "red lines" while in opposition, he would have easily won the elections. Instead he had to do 2 elections, in order to get a 2% difference from Mr. Tsipras. Mrs. Merkel has cultivated so much her political positions behind a certain rhetoric and populism, which i doubt if she can commit political suicide and go against her previous policy. It's what i call "political self-entrapment".
I think Mrs Merkel since the beginning wanted a zero sum game for her, where she was to lose nothing.
I also don't know how the pubblic opinions in the other countries will react. I mean, will they still want to stay in the euro?
Otherwise i agree, i am always in favour of clean solutions. A Gordian knot is cut not solved. And i also agree on him on Mr. Papandreou. My prediction is, that as soon as Greece does the Grexit and the initial turmoil begins, Mr. Papandreou will grab his Quadriga award, take the first plane to Berlin, rush to Angela Merkel's office and ask for political asylum, because i consider it certain that his trial will be popular demand and many parties will be happy to satisfy it.
Bandolero.
And back to your question of "who will leave the euro"...
ReplyDeleteRight now, there is a strange calm in Greece. No protests, no nothing. I consider this the calm before the storm. The political parties have cultivated the idea to the population, that there will be no more cuts to their income...
In the meantime: Unemployment projection for 2012 by the Labour Institute: 1.500.000 (24%). This is the "official" or "statistical" unemployment. The unofficial is about +4%.
Also the net available income of those on salary (after the wage cuts and the tax increases), has fallen to 50% of that in 2009. (Ironically, in 2009 the PASOK argument was, that an immediate default would cause a 50% loss of income, because Greece would devaluate 40-50%).
The Unit labour cost has fallen by 8% in the last 2 years, with the memorandum predicting another 15% in 2012-2014 *
http://www.protothema.gr/greece/article/?aid=207951
* The problem is, nobody told this the population. Even the current gov said "no more wages-pension cuts". And then the storm will hit...
* The only thing that holds the unemployed from storming the parliament right now, are their...grandparents. The pensioners support their unemployed grandchildren and children where possible. This is why you see Athens being hit the worst, where family ties are more loose compared to the rural part of Greece,where relatives are more close and one helps the other, while in Athens they commit suicide.
Before the elections, to the question "what will you do if your negotiations fail because the Europeans tell you no", Mr. Tsipras was replying "we have a plan B that we can't reveal". I don't know if they really had a plan B, but, if i were in Mr. Tsipras position and the storm hits the goverment and my party takes power, i 'd do it this way: a) If my renegotiation fails, i b) put "memorandum as it is with Grexit a continuous trheat" or "drachma and default on our debt". This way i could return to the drachma, without taking the blame, because i think the population won't withstand anymore the same policy.
Bandolero.
I'm sorry, but it seems to me that Europe is still in denial.
ReplyDeleteIf Europe wants the monetary union, then something has to make up for the absence of competitive devaluations and national central-banks. That something has to be fiscal transfers, plus an accommodating European Central Bank (a strong currency isn't the be-all end-all, Germans).
If some countries don't want the monetary union, then there is the door. Leave. Please.
But if not, that's how monetary unions work. Accept it and move on.
I'm as much tired of the whining in Greece as I am tired of the whining in Germany.
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DeleteWhile I agree with you that Europe has been in denial from day 1 and still is, I do not agree with your conclusion that a currency union automatically means a fiscal transfer union.
I agree with you that something has to make up for the absence of competitive devaluations but I disagree that that something has to be fiscal transfers. Instead, that something has to be living standard (essentially, devaluations are the tool to adjust living standards).
A fiscal transfer union means that the individual parts transfer taxes to the center and the center transfers them back to the parts, where some parts turn out as net payers and others as net receivers, depending on their economic strength. I would suspect that most countries have such a transfer union domestically (certainly Germany and Austria do). For the EU to have one would require the EU to collect “federal” taxes and that day certainly I won’t live to see.
In a way, the EU has been a sort of transfer union from the start (albeit it not a fiscal transfer union) because the wealthier regions paid in and the poorer regions received (not for general purposes but, allegedly, as an instrument to help to poorer regions to catch up with the wealthier regions). Germany has consistently been the largest net payer and Greece has been the second-largest net receiver, almost as large as the 4-times bigger Spain (135 BEUR since it joined the EU).
I guess what you mean is a transfer of current account surpluses to those who have current account deficits. Well, that transfer is in place whenever there are imbalances because, mathematically, a deficit in the current account must be offset with a surplus in the capital account. Greece’s current account deficit from 2001-10 was 197 BEUR. Its foreign debt increased 283 BEUR during that time. Thus, it not only received the “transfers” of 197 BEUR but a lot on top of that to invest abroad on its own.
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DeleteIf that is the transfer union which you have in mind, I would predict that it won’t work in the longer term and I give you Germany as an example. After unification, the West entered into a monetary union with the East on the basis of an artificially high exchange rate (1:1) and the West promised the East essentially the same living standard and social benefits. With the artificially high exchange rate, even the good businesses of the East went out of business. Most everything the East needed had to be “imported” from the West and elsewhere. And for that, the East needed money which it no longer had. Thus, the West was forced into transfer payments to the East of close to 100 BEUR annually (they were originally meant to be for 5 years but they are still in place). Put differently, the East will require transfer payments until it has become competitive enough to carry its own weight. This is not in sight. Thus, the population of the East has migrated to the West in hoardes (particularly the more qualified ones). Please note: “becoming competitive” would mean becoming cheaper, i. e. having a lower living standard.
Therefore, there is, in my opinion, only one viable long-term solution for a country like Greece: the domestic “value creation” must be increased dramatically so that the country is not so dependent on foreign funding, and the foreign funding it needs should come as much as possible in the form of foreign investment which is in the country to stay.
As Greece increases its value creation, it needs to import less. As Greece imports less, others will export less to Greece. Will those others be happy? Of course not, but there is absolutely no way around it. You either allow a country to support itself as much as it can and accept lesser exports to that country, or you continue to export like made and send along the money which the country needs to pay for them. One can’t have the cake and eat it.
In my view, the role of a permanent recipient of “donations” is no perspective for any country, least of all for the proud Greek people.
PS: if trends were to continue unhindered as in the last decade (i. e. if everyone continued to be happy lending to Greece), Greece would eventually turn into a turn-table for money: money would be sent in so that Greece could send it out again for the payments of imports of everything it needs. Perhaps Warren Buffett’s tale below will help you understand my point.
http://klauskastner.blogspot.co.at/2011/11/warren-buffetts-simple-wisdoms.html
"Germany has consistently been the largest net payer and Greece has been the second-largest net receiver, almost as large as the 4-times bigger Spain (135 BEUR since it joined the EU)."
DeleteMr. Kastner,
Have you ever asked yourself, why so many transfers to Greece? Letting Spain aside, that one could claim that had lesser requisites, proportionally, it is higher than Poland or other eastern countries.
The answer is, because Greece was corrupt... It is common knowledge in Greece, that the greek goverments were "exchanging favours" especially towards Germany and France. The problem with these transfers is that they weren't meant for a productive investment that would fruit for time. Most of structural funds went to constructions, where "by pure chance", finished in the hands of consorcium of the usual greek constructing companies and almost exclusively german-french companies. For example take the Athens-Thessaloniki highway. 50% EU funding, 50% greek funding. The work was assigned for about 50% to francogerman companies (35% Hochtief,15% Vinci) and the rest to greek companies. The same pattern now collects the tolls. Hochtief pretty much took the airports building (in some small islands too). The bridge Rio-Antirrio, went to the French.
To understand more of this, you need to study a stunning turn in greek military procurements after 1996. From a clearly american-oriented procurement, it turned to a more balanced between EU and USA. Everybody in Greece knows that the procurements were always made in Greece with politics in mind. The sudden change after 1996 (with Simitis goverment), is in line with the post-Maastricht era, where Greece wanted to befriend more Germany and France. The pattern was: "You give us structural funds, we split them between greek and francogerman companies and we buy francogerman weapons". It is of no chance, that all the Siemens,submarines,etc, scandals were made during the Simitis administration. The PASOK policy of the time was "give me funds and i will give your companies contracts" (as well as the usual greek construction magnates). To me is certain, that the general "deals" were part of Simiti's policy to have Greece enter the euro.
From 1996 to 2011, Greece spent according to this article, 78bln in military expenditure, with the figure going to 216bln if we go back to 1974.
http://athenstock.capitalblogs.gr/showArticle.asp?id=37390
Now, suppose you were Germany, at the time of Mr. Simitis, wouldn't you close an eye to the huge greek debt and shaky figures, when your companies have found a goverment where they thrive from "secure" contracts? (OTE, the state phone company, was so deeply into Siemens, that even if you broke your phone and called them to bring you another, they were bringing you only Siemens. In Greek hospitals, Siemens CAT scans, ultrasounds and other electronic equipment, were bought at 3 times the normal price).
Infrastructure is needed, but isn't the most productive investment in the world, when you don't have wide export economy. In this case, it serves more so that you can import.
The Olympics in substance was at the same concept a huge waste of money only to make construction companies happy. Not to mention the infamous "C4I system", paid 230mln euros to the american SAIC (with Siemens subcontractor), which never worked!
Fiscal transfers per se, mean nothing. Several politicians or farmers put the money on their pocket.
The important is, make transfers through investment in something productive. Not just transfers that is after a while untraceable and gets eaten.
This is why i wrote in another topic of yours "You will understand that greek politicians are less corrupt, when you will see the greek column fall in the funds chart".
Bandolero.
Thank you for a thought-provoking reply.
ReplyDeleteWe don't disagree.
However I suggest that the solution that you propose (value creation through foreign investment) is an indirect fiscal transfer since it shifts the surpluses/ capital balances within the monetary union.
Should that happen, it would be of uppermost importance for the EU authorities to sidestep the incompetent and corrupt Greek public administration.
Of course foreign investments are a transfers. That's the whole point: Greece has a structural current account deficit and is likely to have one for quite some time because if Greece is to grow fast, it will need the savings of other countries to finance it because it doesn't have enough savings on its own.
DeleteIf the savings of other countries come to Greece in other forms than loans, several birds are struck with one stroke: interest-bearing foreign capital is replaced with non interest-bearing foreign equity; foreign investments trigger know-how transfer; foreign investors hopefully bring something to Greek corporate culture; and foreign investors may even become effective exporters of Greek production.
Greek guest-workers went to Central Europe in the 1960/70s to work machinery & equipment there and to repatriate their savings to Greece where they increased the living standard. The answer now is to send machinery & equipment to Greece so that Greeks can work it without having to leave their country (and earn the income which they need for their living standard).
So, foreign investments are transfers but to make the balance of payments balances but they are transfers made by private investors (using their own money) and not by politicians (using tax payers' money). I have all the confidence in the world that private investors spend their money more carefully than politicians spend the money of tax payers!
"I have all the confidence in the world that private investors spend their money more carefully than politicians spend the money of tax payers!"
DeleteYou can bet! And this is why it will take a miracle to bring private investors to Greece, as long as there is the threat of Grexit around.
The goverment has only one card to play: Privatizing the "cream of the crop" of state companies (related to energy or gambling). Some investors would be interested, specially since the greek gov for the first time gave licenses for oil-gas exploration and it is almost certain that there are gas and oil fields.
If this first batch of privatizations, combined with some change in EU policy, turns the tables on Grexit, this will attract more investors.
That's the only chance the gov has right now.
Bandolero.
I guarantee you the following.
DeleteSuppose the Greek government were to establish Special Economic Zones. By virtue of a new Foreign Investment Law of constitutional rank the government would assue investors in those SEZs an optimal business framework where internationally competitive rules would govern (no special "perks" like tax breaks, etc. Just very competitive rules and business conditions). And then the EU would guarantee compliance with that Foreign Investment Law (which would also cover the risk of a Grexit).
The first money which would come back to Greece would be the offshore money of Greeks themselves. Why would they want to leave it in, say, Switzerland earning perhaps 2% when they could earn, with the same security, a multiple thereof in Greece as entrepreneurs??? And non-Greeks would also be interested to invest if such investments improved their chances of holding on to the Greek market (if Greece imposed special taxes on imports, some of those exporters to Greece might prefer to produce locally).
It's a game where everyone wins!!!
Interesting proposal. Once again, this is more of a political problem to bring to realization. Yes, i think it could work. Now someone tell the politicians inside and outside Greece...
DeleteOff topic, Switzerland is being emptied by greek deposits, to avoid the EU agreement on taxation and exposure. The greek ex vicepresident went to Switzerland and came back with a CD with names of Greeks with deposits there, but, as you may imagine, didn't reveal them, citing "privacy law". He printed the list and showed it in the parliament to the MPs, without distributing copy. The most amazing thing is that there was no leak! Not even from the communist party! Probably all of Greece's 1st rate wallets were in that list, so nobody dares speak.
Since then, deposits have moved to more "green pastures", away from the EU reach. Some even to Saudi Arabia.
Bandolero.