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Friday, July 3, 2015

Prof. Peter Bofinger vs. Prof. Hans-Werner Sinn

Prof. Peter Bofinger is the antagonist of Prof. Hans-Werner Sinn. Where one could describe Sinn as an ordoliberal, Bofinger is a Keynesian. Bofinger is a member of Germany's Council of Economic Experts. Sinn is not. Bofinger has been very outspoken in his criticism of the Greek programs for being too recessionary. Yesterday, both were in the same TV discussion of Maybrit Illner.

Bofinger brought back to memory one of the most important laws of post-WW2 Germany, the Lastenausgleichsgesetz of 1961. Here is what he said about it:

"I, for one, have proposed to the Greek government that they should introduce a “Lastenausgleich” (“balancing out of burdens”) like the one we had in Germany after WW2. Under that system, those who had the luck of having preserved property had to pay a 50% tax on property. However, payment was not at one time but, instead, spread over 30 years. That meant instalments of 1,6% per year which was quite acceptable (it could be paid out of earnings on the property instead of out of the substance). I was in Greece and spoke with the Deputy Prime Minister Dragasakis. I told him that this would be good solution because it would be a signal that one is prepared to ask of those who have wealth to participate in the balancing out of the burden. Regrettably, I have not seen anything that would suggest that this proposal was being pursued."

The legacy of the Lastenausgleich, or "balancing out of burdens," lies in the basic practices and principles generated in the process: the values of compromise, pragmatism, social justice, and private property. In short, this was a compound fiscal, political, and social settlement that was critical to the foundation of a liberal and democratic Federal Republic. Put simply: many Germans had lost everything due to WW2 and some came away unscathed. Since the war was a project of all Germans, it was only natural that the have's would share with the have-not's. Solidarity in its truest form.

Since starting this blog, I have frequently written about what I perceive as an extreme unfairness in Greek society; and I can easily get emotional about that. It's the privileged vs. the non-privileged; the insiders vs. the outsiders; the clever operators vs. the decent citizens. In short: the suckers vs. the suckees. There has been an enormous increase in private wealth on the part of the suckers thanks to the Euro. And now there is misery for the suckees. It may be late to talk about a Lastenausgleich now that much of the suckers' wealth has left the country but, then, it's never too late to make an effort to balance out burdens. That a leftist government would not make something like a Lastenausgleich its top priority escapes my understanding.

Bofinger also made an assessment of the current Greek government. Since Bofinger is a clear opponent of excessive austerity in times of recession, I would have expected him to blow the horn for SYRIZA. Instead, he said:

"I think what we have witnessed was a game of chicken where nobody gave in and now we seem to have the collision. Regarding the Greek government, it’s fair for them to say I don’t want this measure or I don’t want that measure but what I have missed are constructive alternative proposals. And I think this is what one has to blame Mr. Tsipras for; for not saying from the Greek standpoint: ok, we don’t want those things which the Troika wants but we have an alternative program to achieve growth. 

I think the constructive element has been missing on the Greek side. One always knew what one was against. However, what the government is for remains a bit of a mystery. That would actually be a good reason for a referendum. The government says our concept is this and the Troika’s concept is that. Vote which of the two you prefer. I think the core of the problem is that this government, when it took over, did not push for compromise. Instead, it seemed to be looking for confrontation. I think that was the wrong approach. I think if one had approached the issue in a compromise mode, one might have received more support from other countries. Perhaps that would have made things easier even for Mrs. Merkel. If things come across as threats, it is very difficult for the politicians of other countries to ‘sell’ it to their voters. From that standpoint, I think this government did a disservice to its country."

Well, here is someone who could have been a friend of SYRIZA's and he no longer is. Now whose fault is that?

15 comments:

  1. PART 1
    ...and in a funny way - this bad government - and this slow motion wreck referendum lost in time - feels almost like a movie - but all to real for many Greeks - could be the push over the edge - the possibility Greece needs to move on, unite and gather momentum.
    With a new start the whole of Europe will give you all the support you need!

    Read a very nice article in Ekathimerini today - with some hope and inspiration going ahead.

    Time to change course

    We should thank the prime minister, who, in his effort to escape the dead end in negotiations with our creditors, shifted his responsibilities on to the citizens’ shoulders. The referendum, so pregnant with danger, forces us to think (perhaps for the first time) about who we are, where we are, where we’re headed. The fact that the fate of the country may hinge on a single vote shows that we have taken a very wrong turn and that we have to see how we will change direction. It would have been good to have had more than one week to hold this debate, but perhaps then we would have seen even more polarization and uncertainty.

    Now we know that on Monday the people will have decided whether they want a solution to our problems while staying inside the eurozone at any cost, or whether they have confidence that the government will achieve something through continuing its policy of conflict with our partners and creditors. Whatever the result, Greece is entering a new era.

    The only thing that’s certain is that the immediate future will be very difficult. If the majority votes “yes” the government will have to see how it manages its defeat (seeing as it campaigned so stridently in favor of “no”), and how it will achieve some kind of stability in the economy with our partners, with the European Commission, the European Central Bank and the International Monetary Fund. Whether he chooses to call elections or to negotiate with our creditors on a new basis, Alexis Tsipras will have to act in a way that unites the Greeks and also bridges the rift that has opened between the government and our partners.

    Experience does not allow optimism, but perhaps a “yes” majority will allow him to get out of the impasse in a way that does not jeopardize Greece’s participation in the eurozone.

    A “no” majority will demand even greater political finesse to keep society calm and restore stability to the economy. The passions that have burst out in the past few days, however, will make the government’s task very difficult. Our partners, too, do not hide their lack of enthusiasm to continue negotiations on a new loan deal if it is clear that the citizens as well as the government reject their proposals. It is difficult to understand what Tsipras is thinking when he says that a dominant “no” will strengthen his hand in the negotiations. The bailout program has expired, Greece defaulted on the IMF, the markets were not shaken by our bankruptcy nor by the end of the program, nor by the closing of Greece’s banks and the imposition of strict capital controls. If our hardships do not terrify our partners, how do we expect them to give in to our demands? Through pity?
    /:/
    Greece has the talent to get out of this. But the problem is that until now, few were interested in joining politics. It is clear that new people must join the fray, and bring a new mentality with them. Those already in politics must change attitude. Losing the security and prosperity that we had as members of the European Union since 1981 – simply because we cannot work together on even the most basic issues of survival – would be not only a tragedy but a crime of epic proportions.

    This dangerous referendum has allowed us the opportunity to learn who we are. But it also shows up our responsibility for where we are and it demands that we work out where we are headed.
    ------------>>>>>>

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  2. PART 2
    COMMENTS:
    Spartan greeknews.boards.net • 2 hours ago

    Arrived in a small EZ country today. Nobody is talking about debt, no graffiti splattered everywhere, no rows of closed stores, no line ups waiting to take out the days expenses, on tv, channel after channel of conversation I don't understand, but then, no crazies screaming at each other from brainless little boxes. Everything is just....normal.

    What hurts above all....they are moving ahead with their economy by investing in their future. The convoy of machinery from two different countries is on its way as I write this. The investment is going to make them more competitive, richer, more tax base, more employment....everything positive for their future.

    Tonight, instead of feeling excited and stressed....I feel let down and depressed. I would give anything to move this project and other project like this into the country that I love.

    Goodnight all....pray and hope for us.

    (Btw, I'll pop in with short inputs. All my devices have this site bookmarked and almost always open to it. If I get hit by a crane while surfing your comments, I'm blaming you guys.)
    ---
    CStem • 2 hours ago

    And that was another evening of demonstrating. We arrived at syntagma where the atmosphere felt angry and not nice, aggressive you could say. There was lots of riot police around. We walked away from there as quickly as we could along the national gardens and soon the atmosphere was a lot more relaxed.
    At Kalimarmaro it almost felt like a party. We spoke with many different people, all baffled with the behaviour of the government. A photographer of Reuters thought it necessary to take I don't know how many pictures of my wife. I'll scan the news tomorrow and will let you know if I spot her somewhere.
    Part of the discussions we had was about the fact that on Sunday Greeks are supposed to do the governments job and how completely ridiculous that is. Another story was from a friend of ours who told us about her village in central Greece and the surrounding periphery where the government has employed 3000 people. She was disgusted with it, she lost friends because of it. That is what this government is doing.
    Anyhow there where many different speakers, teachers, athletes, business men, and politicians it really well organised. The focus was not on politics, the main point was not about being Greek, this was all about being Europeans and wanting to stay in Europe.

    It was busy on the way back. We walked around the Acropolis to thisio metro station to have a better chance of a seat on the way back and we did.
    Now time for a drink, and something to nibble and catch up on the news.
    greetings from Athens
    And VOTE YES
    ---
    IRemainUnrepentantKolokotronis • an hour ago

    Even if the 'Yes!' side prevails, it is going to be very unpleasant in Greece for many years. The ugliness and division which the Tsipras government have promoted is not going to go away. Just walk through downtown Athens with it's graffiti covered walls, trash thrown everywhere and poor attitudes towards foreign tourists. That's the inevitable consequence of the hate-filled diatribes of Tspirad/Varoufakis and their minions. Will be many, many years before that changes.

    The Greek political class has been a terrible disappointment to those of us who love that country. Very few patriots and leaders among them. Very few.
    ---

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  3. More heavy stuff from FT through Zerohedge. BAILINS in the pipeline!

    Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT
    http://tinyurl.com/greece-bail-in
    With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.

    Varoufakis denies this "rumor" but he has began to lie - is he to be believed,...?

    And moments ago Bloomberg reported that according to an emailed statement by the Greek finance ministry, the "FT report on deposits bail in is outright lie, provocative, and targets undermining July 5 referendum" and as a resultt the "finance ministry demands Financial Tines to retract report."

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  4. Let me object. All Greeks benefited by the expansion. Greece was a poor nation 30-40 years ago; I know, I was around. If you wanted to go to my father's village you had to take KTEL. You would rarely see other cars. Half of the road was chaliki.

    We have (or depending on the outcome of the referendum had) a modern, rich -with international standards- prosperous nation. We hit a road-block, a big one. These things happen. Everybody participated in the party -directly or not- and now half of the population wants to exit the bus. They don't like us any more. Is this fair? Didn't these guys get cheap tickets for the bus, for air-travel, free healthcare, free schools, free universities and books?

    When I left Greece, early 90s, I did not know anyone that went on vacation abroad. During the good years, every summer everyone went to Europe. I stopped visiting Greece during summer because everyone was abroad.

    One final thing. When I went to the army, in 91, I noticed that a lot of those that you would consider unfairly treated by the system, people that came from poor neighborhoods of Piraeus, had pretty big donti and got good transfers; so looks can be deceiving. I would say, that the people that make the most noise right now benefited from the system pretty well all these years.

    Not a way to treat your country. Greece has had its problems. Politicians is one of them, but the voters have the biggest share of the blame.

    Peace.

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  5. This is what Tsipras was for:

    Specific Plans of a SYRIZA Government

    http://klauskastner.blogspot.com/2015/01/specific-plans-of-syriza-government.html

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    Replies
    1. A plan without a feasibility assessment is a wish list but not a plan. As I had said in my article.

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    2. I think if Greece had presented something like the below, there would have been a powerful alternative to the Troika's program.

      http://www.mckinsey.com/locations/athens/greeceexecutivesummary_new/

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  6. "Since the war was a project of all Germans, it was only natural that the have's would share with the have-not's. Solidarity in its truest form"

    that's a peculiar instance of 'solidarity' - usually solidarity is invoked to describe a situation when a person or a group expresses support in some tangible or (perhaps more frequently) intangible way towards another group or person that suffers under some constitution that is constraining them in some (or more) way(s) and is beyond their control.
    Usually, solidarity has a strong component of a sense of restitution of an injustice and empathy towards the suffering group.
    Also, the later by participating in the solidarity relation communicated to them, derive a sense of mutual identity, of belonging to a shared community delineated by those that acknowledge the essence of the said injustice that binds and the desire to overcome it.

    With all that said, I do not think solidarity is the proper term to describe the property tax imposed on those relative better off after the war. It's definitively a pragmatic way out of the tight spot but I fail to recognize the component of empathy

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    Replies
    1. I agree with you. I should have called it financial solidarity.

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    2. Well, Germany also had the Solidaritätszuschlag for East Germany for years, which was a similar form of financial solidarity. I think in German-speaking countries that is a perfectly acceptable use of the word solidarity.

      Come to think of it, that would serve as a nice example of how language shapes thinking, and recognizing the differences in this respect across the EU would be a good thing.

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    3. The socalled "Soli" (Solidaritätsbeitrag) was, if I recall, an 8% surcharge of one's tax liability. It was supposed to last for 5 years. Today, it is still in place and for the last 25 years, it has amounted to roughly 100 BEUR annually.

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  7. Lastenausgleich is of course an option. Still liquid assets of the wealthy Greeks have left Greece already. And no Greek, French or German is keen to be taxed anyway. So those funds will not be taxed easily.

    I also see that Greeks are very patriotic. And they have all this cash either abroad, or under the mattress, where it does no good for the national economy.
    I wonder if those funds could somehow be mobilized to restart the economy. Typically provide funding for trade finance.

    It could require minimum effort:
    - appeal to Greeks patriotic sentiment (in Greece or from the diaspora), and you can see they are fed up to be presented as the beggars, without ownership of the solutions.
    - and some Legal scheme or Finance engineering so that the funds deposited would have a guarantee not to be redenominated from EUR to GRD and an adequate level of guarantee for the invested funds (or seniority )

    Given the amounts that fled the banks in the past 7 months, there is ample money to make a difference to the local economy.

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  8. There is a solid majority in Germany AGAINST such a "Lastenausgleich" in favor of the totally irresponsible Greece. This won't happen. Any discussion of this nonsense is just a waste of time.

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    Replies
    1. Bofinger was talking about a Lastenausgleich WITHIN Greece, not within Europe.

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  9. So as you predicted Klaus, we are back to WW2 and the civil war. This is not going to be nice, contrary to their own belief, solidarity is not a Greek virtue, and certainly not in bad times. They are fair weather sailors who are most cruel to each other when they are in head winds. They remember the glorious moment of Metaxas's OXI, they conveniently forget their selfishness during the hardships. Even the sparse humanitarian help, that reached Greece during that period, ended up on the black market. forget your lastenausgleich, forget the TFFG's idea of a minimum income.
    As for the negotiations with the Troika. I cannot see 18 governments agree on serious negotiations with Greece. The same 18 governments who have been accused of terrorizing, torturing and enslaving them? Of stealing their resources and depriving them of pride, honor and dignity? Of being criminals? These accusations were not made by media but by Greek politicians. Contrary to Greeks most Europeans identify with their governments, this could cause bad blood for years.
    Lennard

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