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Tuesday, February 26, 2013

"There will be an explosion of social unrest?"

This is one of the most troublesome articles which I have read of late. Particularly since I was told by a reliable Greek source that Mr. Leonidas Chrysanthopoulos, who is quoted in this article, is not a hot head. Instead, he is described as a conservative, intelligent career diplomat.

"At a certain moment, quite soon, there will be an explosion of social unrest. It will be very unpleasant,” Mr. Chrysanthopoulos is quoted as saying. He predicts the spark will be when new, retroactive and sizeable tax bills come due in the coming months that people simply cannot pay. “There will be further increases in armed actions. There will be bloody demonstrations", he says.

Does that sound plausible? To me it does. It might not sound plausible if it were Latvia, Iceland, Ireland or others but I think the case of Greece and Greeks is special.

Greece is still at point 'A' on its path to make it within the Eurozone and, to me, it is certain that once Greece reaches point 'B', things will get better on a sustained basis. To be sure, no economic miracle will occur and unemployment will persist for a long time, but things will get better. I would not expect point 'B' to occur before 2014 (at the earliest). 

Can Greece get from point 'A' to point 'B'?

It could, if no accidents happen along the way. Mr. Chrysanthopoulos feels that there are accidents only waiting to happen. Could there be some accident insurance? Yes, the EU could provide it if the EU found a way to support the Greek people without at the same time supporting a failed system. This has certainly not been happening in the last 3 years.

Would a return to the Drachma make it easier? As much as I have always opposed a return to the Drachma (and I still do), I am beginning to believe that this might be the only way out. It could be a defensible strategy if the EU provided 'financial aircover' during the transition period.

Is a return to the Drachma going to happen? I doubt it for the near term. Above all because I am sure that Greece understands that the primary reason why it has leverage against the EU is its membership in the Eurozone which no one can take away from Greece according the EU treaties. 

Adding one thing to the other, I conclude that the likelihood of something like a unilateral declaration of default is increasing. If it were handled consensually and not antagonistically, it might have benefits for all parties involved.


  1. If we stay within the eurozone, OSI at some point is inevitable. Of course this will be highly unpopular with Creditor countries, and given their investment in propaganda, will involve some clever explanations at home.

    However now that France is teetering, and the recent Italian 'no' vote, (and the US and IMF speaking out) the austerity paradigm might be beginning to shift.

    1. I think the necessity of an OSI is a given and has been understood by the lending countries for quite some time. So, to me, that's a moot point.

      I would only argue that an OSI, only per se, would not change much in the Greek economy. One could forgive Greece its ENTIRE foreign debt (of the public as well as of the private sector; i. e. banks) and the Greek economy would still not be able to employ its people adequately (it would have to borrow heavily again).

      One could easily accomplish the effect of an OSI short-term without rocking any boat: just defer payment of principal and interest for 10 years. The far greater challenge is to achieve growth and employment.

      My answer to that can be found ad nauseum in this blog: governments (EU and Greece) have to design and implement incentives so that private investment capital goes into Greek ventures which ventures hold a high promise of creating jobs and a sustainable return. No investment, no growth and now jobs. No money, no investment. All clear?

  2. I had erroneously deleted this comment from alien observer. Sorry.

    alien observer has left a new comment on your post ""There will be an explosion of social unrest?" ":

    Mr. Kastner, as I see it you are very schizo about the topic of "saving greece".

    You are obviously able to see the problems of the greek populace that is suffering from the failed policies of corrupt governments and the as corrupt troica.

    On the other hand youre solutions circle around the same ideology that brought the suffering to the greek. In your view, greece has to regain the trust of investors and become competitive.

    This is because you cant imagine an economy without growth and competition. See, I cant imagine growth to go on forever, and it has failed to be the solution for quite some time now.

    Greece struggle is in no small part about how we want to live on this planet in the future. Will we be the slaves to the markets or will we finally decide that the market has to serve the people?

    Your solutions all tend to prefer the latter. You want the "Marktkonforme Demokratie" form Angela Merkel, even if you know that it will never end the plight of the people and will only serve the interest of the rich and corrupt elites.

    Maybe the people will surprise you with their ingenuity. I am certain they will overcome growth capitalism because they must. They will throw down the financial industry because it threatens their society.

    If there are uprisings, and I am certain there will be, the fault lies with the troica and the neoliberal ideology. It is the fault of the the puppets of the greedy banksters of Wall Street, and their greed knows no bounds.

    But there are examples of what happens if the greedy drive the people to revolt. These examples are Bolivia and Ecuador and Correa and Morales.

    Quite differently to your TINA-solutions they did not give a damn about the "trust of investors". They threw out the IMF and the World Bank. They socialized industries and made them work for the people.

    Above all, they are succesfull in lessening the plight of the people and these people have again and again voted for Correa and Morales to continue their course.

    1. Please don't categorize me, regardless whether it is neoliberal, marketconformist or the oppositive of it. I wouldn't know how to categorize myself in these categories. I do not share this apparent conviction that a certain model, a certain ideoloy will always produce results. Humankind is far too much a variety to be captured in models.

      Perhaps you should consider how a barter economy would work in Greece. There would be no capital and no capitalists whom you seem to dislike so much.

      The barter economy would work on the basis of "for value received...". You want to eat lunch at my restaurant? Then you have to give me something which I want as much as you want your lunch.

      And now: if you want a smartphone from foreign manufacturers, you have to give foreigners something which they want from you and which has the same value as the smartphone to them.

      Do you see my point?

    2. I dont think I categoruized you. Quite the opposite. But you keep arguing for gaining the trust of the investors by repaying the debts.

      I said you were inconsistent, not ideologic. You do see that a great part of the fault lies within the banking sector, that did obviously give credit into a failing economy.

      Every investment has risks. These must be realized by the investors in any economy.

      that they did not do so in Ireland or greece is absurd.

      And yes, I See your point.

      I am thinking you also see mine.

      If I am using all productivity and money to pay debts, I may have earned the investors trust, but will only be able to buy smartphones by making new debts. This does not solve anything.

      The vicious circle has to be broken. You know (and I read that here somewhere) that government defaults are the rule, not the exeption.

    3. To clarify: it is the 'rescheduling of debt' which is the rule of the game. The objective of a rescheduling is to move the maturities of principal and interest way into the future to relieve the budget in the nearer term.

      A default happens very often under loan agreements where they can be cured. With a public debt instrument (i. e. bond), a default cannot be cured. It's either there or not.

      To unilaterally declare default is about as imprudent as to unilaterally repudiate one's debt (see Argentina).

      Default can 'be allowed to happen' and when it happens during an overall constructive rescheduling negotiation sort of like an 'accident', there won't be major consequences. I once wrote this piece about the various instruments in a debt problem.

    4. Thanks for your answer.

      I guess what really ailes me, is that I perceive (proovable) criminal intent surrounding the struggle of greece today.

      I feel very strongly about getting the real culprits to pay, and to ensure that schemes that ruin countries to make profits will be made impossible in the future.

      You responded to another one of my comments ".. capitalists, which you obviously dont like ..".

      No, I dont like capitalists like Paul Singer or Lloy Blankfein that impoverish countries with criminal intent, and I dont accept a system where these people are constantly rewarded while the people least responsible are punished.

      I really dont care what the "name of the game" is. If it allows these schemes to go on, the game is rigged and the system must be overthrown.

      In the end, the debts are always paid py the poor to enrich the wealthy. People who did never see one cent of the money and where totally ignorant of the amounts go hungry while Wall street capitalist like Lloyd Blankfeins Goldman Sachs that helped to keep the truth from the People (and earning millions with it) are now getting every cent we send to greece.

      I dont care if this is "naive" or not according to global economy today. I say it stinks and it must be stopped!

    5. I guess the phrase is attributed to Lenin that 'all one has to do is to give capitalism the rope; the hanging it will do on its own'. Well, there is a lot of rope being distributed these days and the names you mention are doing a lot of distributing for possibly their own future demise.

      It is just occuring to me that I feel a bit uncomfortable when I write the world capitalism. I usually use the expression 'market-based economy', instead. In the post-WW2 Germany, they referred to it as the 'social market economy'. And in the last 10 years of my emplyoment, I became very well acquainted with the advantages of a co-operative system (Raiffeisen, for example).

      All these forms of capitalism have in common that they work on the premise of incentives for real economic value creation. To reasonably profit from real economic value creation is not a sin, in my opinion.

      There has always been a small part of an economy which could profit from the real economic value creation of others (and who could not profit in the same sense if there were no real economic value generation by others.). In the Middle Ages, they were called 'parasites'. Again, that part has always been small (like there were only a few investment bankers in the world of the 1960s).

      The 'parasites' have become a very large segment of many economies. Most large capital market based banks derive less than half of their revenues from customer business. Where does the rest come from? Well, from 'counterparties' in the market.

      Warren Buffett once made a wonderful description of share prices. Something like: "You can get all shareholders of S&P companies into a conference hall and inside they can licit the value of their shares into the sky because they trade with one another. However, what matters is how much money leaves the conference hall and that can never be more than the real economic value created by the companies whose shares have been licited".

      The trouble with today's system is that the unreal values created by the licitation in the conference hall also apply to the real economy out there.

      I unswervingly argue that it is not the system which is wrong; it's the many users whose value structures have gone out of whack. Communism could work beautifully if all the users had perfect value structures and capitalism could fail if the value structure of its users goes completely over the cliff. Again, no system can assure the desired results; only the users of it can.

      If you don't follow what I am trying to say (re-reading it I could see why you couldn't), you may want to read an exchange which I once had on the subject:

    6. This is a rather long post. I hope it fits.

      I can very much relate to your discomfort with the word "capitalism".

      “The basic tool for the manipulation of reality is the manipulation of words. If you can control the meaning of words, you can control the people who must use them.”
      (Phillip K. Dick)

      Science (cognitive linguistics, psycholinguistics) has known that for a long time. This knowledge is used to change our perception of the world by controlling the meaning of words, and thus control us.

      Whenever there is a strong word in political debate, the meaning of the word itself will become a struggle of interest.

      This can be observed right now, as the word "wachstum" (growth) is to be redifined by german politicians (as the german word for "sustainability" Nachhaltigkeit has been not long ago).

      Growth is a good examample of a word, that has become a meaningless phrase in the mouth of politicians. They hope that in public perception it still promises wellbeing for everyone. I, as a growth critic, have immense problems of communicating why to pursue growth could be harmfull for society (even if my arguments are good).

      The words socialism and capitalism are very much intertwined. Today the broad public perceives socialism as what happend in stalinist countries. Both sides of the wall (mis)used the word socialism to describe these systems, even though socialism was never implemented anywhere.

      Capitalism also was misused for decades on both sides of the wall, basically it is perceived as everything not socialist or communist. This implies (and so do you in your comment) that critics of "capitalism" are automatically "socialists" (and therefore stalinist).

      In my experience, discussions about "the system" very predictably move along those rails.

      First of all, I already admitted to be an "anarchist". The meaning of this word is probably the most disfigured. In public perception it means "without order" or "lawless", while it just means "without rulers", which is soemthing very different.

      Second: I dont think that a "market-based economy" is automatically a bad thing.

      There are obviously parts of our society (and economy) where competition and market forces work in our favor. I would not want to buy my bread from a state controlled bakery, just as I would not want to buy it from an industrial monopolist. I buy my bread from a small bakery, and its clearly superior to both of the extremes i mentioned.

      But there are parts of our life where markets obviously work against our interest and are incompatible with democracy. Especially if markets become dominated by monopolists and controlled by very rich people.

      For me, banking is one such example (as would be water, energy, health care, police, armed forces, fire service, public transportation, etc. ...)

      Banking should be controlled by communal governments or cooperatives with the strict goal of serving society. (I am against all centralism, even more so as Elinor Olstrom showed that it does not work).

      Today there is an economic ideology that wants to privatize every aspect of our life. This is a radical capitalist ideology called neoliberalism, ans it seems to be controlling all economic policies in our world today.

      This ideology also sees the protection of (accumulated large) wealth as the primary aspect of society, even at the cost of the wellbeing (or life) of the poor. They also seem to favor large monopolists over small businesses and the very rich over the well off.

      This ideology threatens to ruin life on this planet for future generations. It is a very short sighted an stupid way to run society. It ruins our daily life, it makes people miserable around the world, it is the cause of savagery, atrocities that are beyond my imagination.

      It is, as you say, the rope on which we are hanging ourselfes.

      I am saying, this has to stop. Does this make me a socialist?

    7. 1 of 2

      I am not sure that you are aware that neoliberalism is not a continuation of the original laissez-faire liberalism but, instead, a reaction to the negative collateral damage of the free-wheeling liberalism. I think it was in the 1940s when a group of liberal economists concerned themselves with the negative collateral damages of free-wheeling liberalism. They concluded that for liberal policies to achieve the desired goals (the betterment of the economic lot of the people), a strong state was required (like a strong referee is required when top teams play against each other). A strong state which would assure that the negative outgrowths of liberalism (monopolies, cartels, concentration of financial power, etc.) could not come into existence.

      One of these economists described that in the following way: "The new liberalism which can be defended today requires a strong state, a state which is above the business interests and above interest groups, a state which is 'up there' where it belongs". That was defined as neoliberalism.

      The problem as I see it is that in today's democracies there is no such Plato-like state. In most democracies, the 'state' is composed of parties and parties are, by definition, interest groups. I can't think of any party anywhere which truly and unequivocally acts in the interest of the entire society.

      Austria had in the post-WW2 age its equivalent of PASOK/ND. These two parties garnered 80-90% of the vote for much of the time and they could practically do as they pleased, as long as they did it together. The entire country became politicized from top to bottom. One couldn't get a job in a public sector company whithout showing a party book. One couldn't get a students' dorm without a party recommendation. One couldn't become principal of a grammar school without a party book. Almost all banks were owned by the state or by communes. They didn't act in the interest of the state or of society at large. They acted in the interest of the party which they were alligned with. No way that a businessman associated with the 'Blacks' could get a loan from a bank associated with the 'Reds'.

      If you guarantee me that your state will always act above special interests (sort of like a committee of wise men), then I will be happy to have that state become involved in many aspects of economic life. History would suggest that such a state cannot exist.

      Thus, my thesis is that only the instruments of free supply and demand act as a controlling force. Only the reasonable and free competition of thought and performance leads to economic betterment.

      If all health service is provided by the state, the patient has no alternative. If he doesn't like his doctor (perhaps because the doctor comes from the other party...), he has no choice. The idea of free supply and demand is to give people a choice; or as Milton Friedman called it: "The Freedom to Choose".

      I agree with you that we are seeing today terrible aberrations from what a social market economy should look like. But could the financial sector have developed such a dangerous life on its own or was that accelerated by a weak state? A strong state would certainly not have allowed that any one sector can become so dangerous that the economic life of all becomes endangered.

    8. 2 of 2

      Take AIG as an example. They wouldn't exist today if they hadn't been saved by tax payers with a couple of hundred BUSD. They survived. And not too long ago, they considered suing the state for having made too much of a profit on the rescue. No law could possibly have prevented them from doing that. In fact, the law obligated them to do it. They only backed off when they saw the enormous public outrage which they created. Now they could argue vis-à-vis their shareholders that the benefit of not suing the state was greater because otherwise they would lose a lot of customers and business. This was a classic case of supply and demand being successfully at work.

      Regarding Socialism, I recently had an interesting exchange with our older son (32). He wrote to me: "Socialism in power is a nightmare. Socialism as a controller/mediator is a necessity". I got a kick out of that phrase. It is superficial but it does has some merit.

      Also, I think there is a difference between classic Socialism and Modern Leftism. Socialism, I think, had as its goal to help and protect the interests of the weaker members of society. Not all that different from the New Testament. Modern Leftists seem to want to re-shape human behavior. There is the politically correct behavior and all the other behavior which should be outlawed (I am using extremes).

      But before I get into something which will never end, I better stop right here.

  3. I am about to argue that you are not a liberal at all.

    You are just a one sided liberal, without admitting to it to yourself, and I will show you where you are in favor of the strong state.

    The state, in particular the so called market liberal state, uses all the force it is able to bring down on its inhabitants, to make the debtor pay back his debts.

    The state meddles in this business relationship between two free parties one sidedly on behalf of the creditor. If you fail to pay your debts, the state will send first the marshall and then the police, he will bring you to court and will forcefully take away your livelyhood.

    The creditor, in comparison, does not have take any risk at all, because he knows the structural violence of the state is on his side.

    I guess you never thought about this and take it for granted, "debts have to be paid!". But it is the strong state intervening in a business relationship between two free parties.

    If the state would not do so, the relationship between the creditor and debtor would change fundamentally. If a debtor would declare that he could not pay back his credit, the creditor could only react by ending this persons credit worthiness.

    Other than that, the debtor would not suffer any consequences, because the creditor would not have the right and the power to take away his livelyhood. Creditors would have to find different ways to get securities from the debtor and I am shure they could.

    But without the aid of the strong government the responsibility of credit repayment would be euqally shared by both sides, the deptor AND the creditor.

    If you would be a true liberal, you would question these laws that favor the creditor. Preposterous I hear you say? This is just because you never really thought about it.

    The same is true for most property rights. In fact, the nation state today almost solely exists to ensure property (especially of the rich). This is actually the way it was designed:

    „Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.“
    ( James Madison )

    Property here is generally interpreted as encompassing also human rights of the individual, but another architect of the american institution made clear what was the purpose of the state:

    „The people who own the country ought to govern it.“ John Jay

    I am, in fact, a liberal, much more than you are. I am in fact for getting rid of the nation state.

    I wil quote one more thinker of the times when the foundation of todays nation state has been laid:

    “Between the weak and the strong, between the rich and the poor, between the lord and the slave, it is freedom which oppresses and the law which sets free.“
    Jean-Baptiste Henri-Dominique Lacordaire

    1. I don't follow you at all. You make statements like 'the state meddles in the business relationship between two parties one-sidedly on behalf of the creditor' like laws were carved in stone and universally valid. Laws evolve out of society and different societies have different laws.

      For example, some American bankruptcy laws (such as Chapter 11) protect more the debtor whereas the bankruptcy laws in Austria/Germany protect more the creditor.

      To say that a liberal state uses all the force it has to bring it down on its inhabitants, to make the debtor pay his debts, is lacking knowledge of facts. The state enforces laws which evolve out of society. A loan agreement is a contract between two parties within the laws of the state. Obligations are entered into. If the debtor obliges to be liable with all his personal assets, then he is just that. If a debtor restricts his liability to the assets of his company, then he is just that. There are states in the US where the bank cannot take away the home of a debtor regardless how bankrupt the person is. Again, laws and contracts determine the relationship between debtor and creditor and laws vary from place to place. Why do you think Greece wanted to have Greek laws govern the new loan agreements and not UK law?

      The 'structural violence of the state' (what a sick expression!) is not on the side of the creditor. It is on the side of the law. It's called 'a state of law' and not a 'state of sides'. The creditor has all the risk in the world: if his debtor can't repay, he loses all his money regardless how much the 'structural violence of the state' supports the creditor.

      A 'debt has to be paid' if the contract stipulates that. Look up the term hybrid loans. You will see that those are loans which only have to be repaid under certain circumstances.

      You are quoting John Jay with a view which was the view of the time in the US around 1800 but you seem to ignore that we are now in the 2010s and laws and views have evolved. Yes, in the early years of the US, voting rights were often tied to ownership of land. Please show me a modern democracy where voting rights are tied to land ownership today.

      If you can't wait for the nation state to disappear, fine with me. But whatever form of living together comes after that will still require rules which govern the living together of people.

      Please do not mistake yourself for being a liberal. A liberal would never say that he already knows what the other person thinks before that person has expressed his thoughts (instead, he allows himself to be surprised by another person's thoughts). A liberal would never work on the premise that the other person never thought about something. Neither would a prudent person do that because underestimating the other side tends to lead to hubris and we all know since Icarus where that leads to. Not to mention that it is plain arrogant.

      A liberal person would tolerate a different view and 'agree to disagree' with someone without discrediting his view. A liberal person can of course judge another person by what he says and does and form his personal opinion about him. I judge you by what you write and form my personal opinion about you without - hopefully - discrediting you. Try doing the same.

  4. You quote Friedman that freedom is "The Freedom to Choose".

    This freedom of choice is an illusion.
    I cant be free to choose because freedom of choice demands access to information to make an informed choice.

    This freedom of information is taken from me. Information has become a commodity of the markets.

    As the access to education is also taken away from those that cant afford it, this quote becomes a mockery.

    By taking control of information the market made shure the freedom of choice is taken from the weaker market participants and, as an illusion, has become a force of suppression.

    The worst form of slavery is the one that maintains the illusion of freedom, as it also enslaves the will. (Rousseau, quoted from memory)

    My anarchist manifest:
    True freedom lies not in the choice of how one wants to be ruled.
    To be truly free means the freedom to choose if one wants to be ruled or if one would rather rule himself.