"The EU elites did not know that, outside of Western Europe, sovereign debt reschedulings have come a dime a dozen in recent decades" - Willem Buiter back in 2011.
Around the same time, I watched an The Economist interview with William "Bill" Rhodes, the Grand Seigneur of sovereign debt reschedulings. He said (and I quote from memory): "I have told Mr. Papandreou (the then Prime Minister) that any program must be 'his program'. That, if not, he will lose the support of the people. Greece should reschedule debt maturing in the next years with a new bond. At first, the new bond will trade at very low rates but as the markets recognize that Greece is implementing 'its' program, the bonds will rise in value".
At long last, Greece (or rather: SYRIZA as the new Greek government) is coming around to doing, at least verbally, what should have been done by a Greek government from the start: rally the citizens behind a cause; take and "own" the initiative to reform Greece; regularize debt by rescheduling it instead of a haircut; etc. etc.
Admittedly, FM Varoufakis has so far not believed in the theory that the closest distance between two points is a straight line. Instead, he has been doing an incredible amount of slaloms in his first days in office. But what matters is, as Churchill said, that one eventually does the right thing, perhaps after first exhausting all alternatives.
In the book "Why Nations Fail" (Acemoglu/Robinson), the argument was made that a society with a well entrenched and corrupt elite is virtually impossible to reform from within because it would require the elites to self-amputate themselves. The implication was that the change from without would have to be something like a revolution.
Let's just assume for a moment that SYRIZA might indeed mean what they say and that their leadership is really untainted by any of the Greek sins like cronyism and corrupution. If that were the case, SYRIZA would have the unique chance of proving that there can be a Third Way: to reform from within without a revolution. Many if not most of the soft facts suggest that SYRIZA might just be that White Knight who converts Greece into a fair and just society and who goes fearlessly after the parasites. It's too soon to look for hard facts but if supporting hard facts do not show up within a few months, then one could conclude that SYRIZA has missed its chance.
Personally, I now find myself in a very curious situation. I had become quite certain in the last couple of years that SYRIZA would blow it if they came to power; that they would run Greece into the ground. And yet, I now see a lot of soft facts which could suggest that they plan to do a lot of those things which I have recommended in this blog for 4 years.
I once wrote a series of articles under the title "Seeing the erred ways of my thinking". There were 12 such articles in total. Perhaps 13 will turn out to be a lucky number. If SYRIZA can prove with hard facts that they mean what they announced with soft facts, then I will write a 13th article in this series and I will title it: "Seeing the erred ways in my thinking - SYRIZA".
Around the same time, I watched an The Economist interview with William "Bill" Rhodes, the Grand Seigneur of sovereign debt reschedulings. He said (and I quote from memory): "I have told Mr. Papandreou (the then Prime Minister) that any program must be 'his program'. That, if not, he will lose the support of the people. Greece should reschedule debt maturing in the next years with a new bond. At first, the new bond will trade at very low rates but as the markets recognize that Greece is implementing 'its' program, the bonds will rise in value".
At long last, Greece (or rather: SYRIZA as the new Greek government) is coming around to doing, at least verbally, what should have been done by a Greek government from the start: rally the citizens behind a cause; take and "own" the initiative to reform Greece; regularize debt by rescheduling it instead of a haircut; etc. etc.
Admittedly, FM Varoufakis has so far not believed in the theory that the closest distance between two points is a straight line. Instead, he has been doing an incredible amount of slaloms in his first days in office. But what matters is, as Churchill said, that one eventually does the right thing, perhaps after first exhausting all alternatives.
In the book "Why Nations Fail" (Acemoglu/Robinson), the argument was made that a society with a well entrenched and corrupt elite is virtually impossible to reform from within because it would require the elites to self-amputate themselves. The implication was that the change from without would have to be something like a revolution.
Let's just assume for a moment that SYRIZA might indeed mean what they say and that their leadership is really untainted by any of the Greek sins like cronyism and corrupution. If that were the case, SYRIZA would have the unique chance of proving that there can be a Third Way: to reform from within without a revolution. Many if not most of the soft facts suggest that SYRIZA might just be that White Knight who converts Greece into a fair and just society and who goes fearlessly after the parasites. It's too soon to look for hard facts but if supporting hard facts do not show up within a few months, then one could conclude that SYRIZA has missed its chance.
Personally, I now find myself in a very curious situation. I had become quite certain in the last couple of years that SYRIZA would blow it if they came to power; that they would run Greece into the ground. And yet, I now see a lot of soft facts which could suggest that they plan to do a lot of those things which I have recommended in this blog for 4 years.
I once wrote a series of articles under the title "Seeing the erred ways of my thinking". There were 12 such articles in total. Perhaps 13 will turn out to be a lucky number. If SYRIZA can prove with hard facts that they mean what they announced with soft facts, then I will write a 13th article in this series and I will title it: "Seeing the erred ways in my thinking - SYRIZA".
Excellent post
ReplyDeleteUnlikely. Their first acts as government were to reinstate public-sector dominance and cancel privatizations. I didn't like them to begin with, but now I like them even less.
ReplyDeleteThey have not actually done either of those things. They reinstated employees, including cleaning staff, who had been dismissed unlawfully: this, any competent government would do, regardless of its colour. The cancelled privatisation was described by Varoufakis as a one-off case -- besides which, the clear evidence across Europe is that privatisations are a disaster in economic terms -- let alone in social justice terms. There is little evdience to make a case for or against them, at this point.
DeleteWhy are the privatizations a disaster in economic and social justice terms?
DeleteImo in the case of Greece anything public-sector related is nothing short of catastrophic.
The privatised sectors in Europe have not produced more effective management of companies. Where capital investment was needed, this has been done with massively increased prices -- which could have been done with nationalised industries. Where safety is concerned, such as British Rail, the private sector failed abysmally, and the state has to manage the safety issues at taxpayers' expense. Where services are difficult to make a quick buck from, such as remoter regions that require internet, trains, buses etc, the State has to pay subsidies to the private sector. Where privatisations have involved prison services and immigation control in the UK, the standards have collapsed and people are being abused and even dying because of the lack of professionalism of the private sector-- making a quick buck matters more than doing your job properly.
DeleteThere is hardly a sector across Europe where privatisation has delivered positive efffects for the average citizen; all it has done, is transfer public goods to the private sector, reduced taxes for the rich, and increased prices for the poor.
Bottom line? privatisation is a scam, whose nett effect is a transfer of resources from poor to rich.
I could give you quite a few examples only from Austria where privatizations paved the way towards tremendous success (and also benefits for society). One can't generalize here. As always, it is not only the principle which matters but, above all, how it is implemented. What was left of the Chilean public sector after the Chicago Boys had taken over the country's economic management (which was quite a bit!) functioned extremely well. That is, so far, the only example where I could argue that public ownership is a wonderful thing. But the reason why Chilean public sector companies were so successful was that they were run by managements as though they were private companies: no political interference, strictly meritocracies.
DeleteXenos, forget Europe for a moment. Let's focus on Greece. As a Greek who is approaching middle age I am telling you: anything public-sector related in Greece is nothing short of catastrophic.
DeleteAs an example I shall mention the erstwhile state-owned telecommunications company OTE. Did you know that prior to the Olympics of 2004 Greece had only dial-up internet? They hastily implemented adsl connections just so that we wouldn't be ridiculed across the globe. OTE wasn't only terribly expensive, it was also a playground of corruption and clientelism (particularly when it came to it's suppliers). The privatization and liberalization of telecommunications wasn't a stellar success (is anything in Greece?) but things are definitely better now than they were back then.
1. Can somebody explain me shortly where the huge amount of debts has come from, and why this obviously only is happening in the Mediterranean countries? (Cause and effect relationship)
ReplyDelete2. That, if the cause is known, are they working at avoiding this error from now on by taking away the error....., or goes everything on and on and will there be new debts again and again because the cause stays?
3. If taking away the errors means that the elite (parasites) has to be defused then it is simple and clear that never ever something will change in Greece. May I name them the Greek mafia? They work in two systems: they who are infiltrated in that what the good name the right white system including tax payers and all what is decent, and they who govern the black system with black money, and without paying taxes.
Well, that is not only supported by the elite, but by ALL Greeks, and all Greeks know that but deny it.
How can this be changed?
In my opinion: only by the Task Force for Greece, during some centuries, as long, till that self killing subversive black burglary system has disappeared completely (rooted out).
We, human beings, have to learn that it is not about the own wallet, to be able to survive, but about humanity as a whole, living on a planet as a whole. There are dangerous things happening on this planet, but we are all so focused on economy that we forget what economy (business) created and creates: climate change.
We are far from real humanism, because egoism rules.
When there is real will to help others, it is discredited, and translated as an act for the own benefit.
This is what Greece does: distrusting and humiliating all who are willing to help. Playing the victim while all Europeans are part of what is happening in Greece and ALL are a victim of the debts of the Mediterranean countries: all rest of Europe feels it in the own wallet. Also me.
I consider myself as one of the victims of Greece's self pity, Greece, not able to create a plan, to stop what it broke down by healthy self criticism, admitting its own being not mature and behaving like a teenager, filled with resistance against all what is common sense. BE finally the Greeks as they showed they could be in the past instead of talking about it. BE a Spartan!! BE the one who the Great Alexander would take in his army. Armies change during the centuries and I consider the movement "Boroume" as a kind of a modern army. It works! Say it, do it. Boroume. "We can!"
Only strong leadership can help Europe and all involved countries, and I wish the European leaders that strong leadership, to avoid that the teenager Greece is going to rule all who belong to the European family, to destroy with that also its own existence and future Life.
Where the huge amount of debt has come from? Well, the Greek state and Greek banks were looking to get funds so that they could spend them and/or make loans, and foreign lenders were more than willing to accomodate those wishes. Why could this work in the first place? Because lenders behave like a herd. Leading steers set the course and everyone follows. When leading steers turn around, they frequently get through the exit door. By the time the herd turns around, the exit doors are nomally closed. If you want to understand more, read this esay:
Deletehttp://klauskastner.blogspot.co.at/2011/12/how-greece-could-build-up-so-much.html
Without actually disagreeing with what you have written, Klaus, I do not share your view about the primary cause. The principal cause of the debt is the euro. Which as an idea, I was always very much in favour of. However, the French pushed it very hard in the late 1990s as the currency for all of Europe (which is actually written in the EU Treaties now), and rejected the expert report on economic convergence criteria that would have excluded countries like Greece and Portugal for decades. The Germans were very happy with the idea of a weak euro, because their highly valued DM was making it difficult to compete globally with exports. Thus, a foolish euro structure was created, contrary to expert advice, and came basically from France and Germany -- as most of the history of the EU does.
DeleteThe result of the over-valued euro for weaker economies was access to very cheap credit for both government and the private sector, and no policies in place to influence how money was borrowed and spent. It was a recipe for disaster, and that is what has happened.
Who is to blame? All of the political elites of Europe. Blaming Greece is just silly, because it extends to more than half the eurozone with critical problems.
@Klaus: I agree that there are some positive effects, and as always, a generalisation is too general.
Delete@Jim. Yes, I lived in Greece 1998-2014 and rented a small apartment for research 1994-98 and did research on and in OAED in 1988. I agree with all that you say, and experienced it all firsthand. I had ISDN for internet then was one of OTE's first customers for ADSL (which didn't work properly).
But still, with poltiical will the public sector can be reformed. There has been no political will from ND or Pasok. Whether there is from Syriza is another question.
Mr. Kastner,
ReplyDeleteIn Greece we have a saying, "From your mouth to the ear of God." It is what we all hope for. Truth be said that many things they stated before such as chasing the tax evaders, they still say now. Most in the past forget and do not even mention, besides commenting when directly asked pre-election promises.
To be honest if they want to do something they just need to take a walk over to SDOE. I am sure the data is already there but there is no action.
Although there is a downside. I would like an answer from you.
Hypothetically speaking: Let's say an owner/s of a very large super market chain which is not doing well is one of these offenders. Threatens to lay off 50-100,000 workers from various companies and super markets they own. Would you go after this owner/s?
If I was in this position, yes i would even if it would mean that i would be destroyed personally, as people with such obscene money have the power to "erase you." In the short term it would have a large reprucution in the economical system, but in long term it will make an example for other to pay up or shut up.
@ Jim. Please read around before making generalizations. This governement thus far shows that it wants to do something. Don't be quick to judge. Things are coming out of context constantly. Likewise they have a plan but need to see what can be implemented because it depends on debt restructuing.
If Greece or Syriza fails at getting a new deal, which affectively makes the debt refinancing suriviable for the country, then i expect Public Vote request by Syriza. Just like Papandreou requested many years back. This time if the EU does not help, or really help, not put us in a deeper hole, the 80% wanting to stay in the EU will drop drastically. Nobody wants to be a part of a club where you are a slave. Better free and "poor."
V
May I recommend to take a look here ...
ReplyDeleteblog.mpettis.com/2015/02/syriza-and-the-french-indemnity-of-1871-73
"In summary, I think there are several points that those of us who want “Europe” to survive should be making.
1. The euro crisis is a crisis of Europe, not of European countries. It is not a conflict between Germany and Spain (and I use these two countries to represent every European country on one side or the other of the boom) about who should be deemed irresponsible, and so should absorb the enormous costs of nearly a decade of mismanagement. There was plenty of irresponsible behavior in every country, and it is absurd to think that if German and Spanish banks were pouring nearly unlimited amounts of money into countries at extremely low or even negative real interest rates, especially once these initial inflows had set off stock market and real estate booms, that there was any chance that these countries would not respond in the way every country in history, including Germany in the 1870s and in the 1920s, had responded under similar conditions.
2. The “losers” in this system have been German and Spanish workers, until now, and German and Spanish middle class savers and taxpayers in the future as European banks are directly or indirectly bailed out. The winners have been banks, owners of assets, and business owners, mainly in Germany, whose profits were much higher during the last decade than they could possibly have been otherwise
3. In fact, the current European crisis is boringly similar to nearly every currency and sovereign debt crisis in modern history, in that it pits the interests of workers and small producers against the interests of bankers. The former want higher wages and rapid economic growth. The latter want to protect the value of the currency and the sanctity of debt.
4. I am not smart enough to say with any confidence that one side or the other is right. There have been cases in history in which the bankers were probably right, and cases in which the workers were probably right. I can say, however, that the historical precedents suggest two very obvious things. First, as long as Spain suffers from its current debt burden, it does not matter how intelligently and forcefully it implements economic reforms. It will not be able to grow out of its debt burden and must choose between two paths. One path involves many, many more years of economic hell, as ordinary households are slowly forced to absorb the costs of debt — sometimes explicitly but usually implicitly in the form of financial repression, unemployment, and debt monetization. The other path is a swift resolution of the debt as it is restructured and partially forgiven in a disruptive but short process, after which growth will return and almost certainly with vigor
5. Second, it is the responsibility of the leading centrist parties to recognize the options explicitly. If they do not, extremist parties either of the right or the left will take control of the debate, and convert what is a conflict between different economic sectors into a nationalist conflict or a class conflict. If the former win, it will spell the end of the grand European experiment."
http://i.huffpost.com/gadgets/slideshows/400730/slide_400730_4953884_free.jpg
ReplyDeletehttp://i.huffpost.com/gadgets/slideshows/400730/slide_400730_4953886_free.jpg
http://i.huffpost.com/gadgets/slideshows/400730/slide_400730_4952654_free.jpg
@Klaus: not related so much to this post, but some very very important thinking here:
ReplyDeletehttp://coppolacomment.blogspot.co.uk/2015/02/what-on-earth-is-ecb-up-to.html
You should know by now that monetary theory and policy are not really my cup of tea. Perhaps for lack of sufficient brain power. Yes, I read Frances Coppola every day (because she writes one article per day, at least...). She seems extremely competent. If there is one area in the world that she is not competent in, I have not discovered it yet.
DeleteMy business career has taught me to be a practitioner. I would still believe that if you gathered a few dozen of successful Mittelstand entrepreneurs from Southern Germany and Austria in a Greek resort for a few days with the mandate to come up with a good plan for Greece's economy, you would get a blueprint for success. There wouldn't be any talk about QE and ELA and so forth. Instead, there would be a lot of talk about markets, customers, competitive strengths and weaknesses and so forth.
So, take your pick between apples and oranges. I am not saying that I am right. All I am saying is that it is good to have apples and oranges.
Nice point in the end.
DeleteIt is what i am hopeful for with this new government. They all sound different and are seemingly experience in real economy just from what they say. I truly believe that indeed they have a plan and are looking for some leway and room to move.
German wants to strangle this and stick to a program even though it is failing.
V
@ Xenos,
DeleteThank you for the link. It was quite ensightful. It is quite hard trying to follow this whole game theory.
To be honest this level of negotiation and this high stakes "poker game" is completely beyond my comprehension.
After reading the article i can't help think that both Draghu and Varoufakis agree to indeed cut liquidity exactly before the meeting with German Scauble.
After re reading the above, the funny thing that dawned on me is the power struggle between the 4 polars. ECB (Dragi), Varoufaki (Greece) and Schauble (Germany) and everybody else is on the side lines waiting for the results to follow the new line.
DeleteDragi on the one hand seems the most powerful because you can not know for which reason he cut liquidity. To force German's hand or to force Greece's bluff hand? He can easily tell both he did it to pressure the other. He seems like he has the best aliby in any outcome, unless europe comes to crumble which it won;t happen. He is a powerful neutrality. He can set the game but he affect it only indirectly.
Varoufakis has the power as indicated in the above article by Xenos but playing with fire.
Shauble has the power because he is Germany and has many more card to play if he wants but if greece blows up does it mean europe blows up? Will Greece be the catalyst to bring down Germany or reign of power of Europe?
In a such a high stakes game of poker will someone play for "all - in?" till the game ends? Or will there be a negotiation before everything crumbles.
Maybe everything wasn't premade as i thought it was. Lots of planning on all side but not premade.
Where does the USA play in all the above? Or are they simple watching the game or dealing the cards themselves?
V
Thanks all for the positive response to the link, When I read the article, my first thought was how impressive is the author's grasp of game theory. (It is also beyond my experience, which is why I keep reminding people that Varoufakis has a world class reputation in this area).
ReplyDelete@Klaus. I do not disagree with anything you said here. The point about your apples and oranges is not to make a choice between them at all. The macroeconomic setting has to be favourable for business to operate sucecssfully -- and this applies even for the old command economies of the Soviet Union, although in a political rather than economic way.
So, we do need investors and entrepreneurs, we do need some way forward for Greece -- which cannot be from state financing alone. Nor will it arise from privatising valuable state assets, which is the approach demanded by the Troika. The way forward is surely from a healthy relationship between private sector market activities, which are lightly regulated and taxed, and public sector services which are run in a cost-effective manner, as opposed to employing party supporters and relatives. I am sure that Varoufakis knows this perfectly well -- and his principal task now is to attend to the macroeconomic disaster that the Germans are threatening in order to control Greek politicians.
@V. I probably shouldn't post this, but I know the names of the Greek Americans who write Obama's recent public statements concerning Greece. I also believe that the current UK political reaction to varoufakis's visit is dictated by the USA.
ReplyDeleteKlaus, I don't know what you are expecting from a "party" which core is neo-marxist. Many of its members are academics who have spent decades on seminars on marxism, writing articles about class struggle and imperialism, sitting in the cafés of Exarcheia discussing and discussing ...
ReplyDeleteThey are anti-globalists and anti-capitalists, formerly anti-americanists, today anti-germans and pro-russia.
People like Tsipras grew up in the Communist Youth of Greece and certainly imbibed ideas about collectivisation and the "dictatorship of the proletariat". Tsipras even called his youngest son Ernesto after Che Guevara, a violent marxist terrorist. He and other comrades in the "party" admired Hugo Chavez. Tsipras was one of the few European politicians who attended Chavez funeral. In many ways Tsipras is almost a caricature of a marxist student leftist. His vision of what Greece should become is modeled on that of Chavez.
When Syriza talks about "necessary reforms" of the Greek society, they mean something very different from what for instance Swedish liberals or social democrats see as necessary reforms in countries like Greece.
You yourself previously wrote the following;
"What I am missing [in Syrizas programme] is much more emphasis on a competitive private secctor; an emphasized belief in a market economy; an emphasis on foreign investment and know-how transfer from abroad; and other things like that."
Those things are simply not in the mind of the Syriza-people. Their mindset is collectivistic and state-sector oriented.
Klaus, as a retired banker you could spend a little of your free time to learn modern mathematic science!
ReplyDeleteDepending on the topology of the underlying space the shortest distance between two points is no longer a straight line. This is only true in Euclidean geometry and the universe is not constructed that way ;)
And if you go from Austria to Australia, the shortest straight line would go right through the center of earth and most probably you will prefer an airplane flying a semi circle :O
H.Trickler
Yes, thanks for this. On this issue we can agree 100%. I was always struck by the difference between western and oriental thinking over the last millennium, and how the East eschewed straight lines and considered various curves to be natural. This is now known to be literally true, yet we never hear any admission from western cultural commentators about the massive delusions of the last centuries. I would readily place a bet that the vast majority of Europeans unthinkingly agree with Klaus's comment: it is only scientists and a few polymaths who realise this fallacy that actually underlies most western thinking and design, even to this day.
Delete