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Monday, September 19, 2016

It's The Productive Capacity, Stupid!

Here is an article which, to the extent that I understand the rather sophisticated presentation, focuses on an aspect of the Greek economy which I have tried to emphasize since the beginning of this blog, namely: the importance of production. To illustrate my point in a less sophisticated way:

If a country/economy/society wants to enjoy products & services, it must produce the products & services which it desires. If it doesn't or cannot do that, it must import those products & services from other countries. If it imports those products & services from other countries, it needs to give those other countries something in exchange. Ideally, that would be products & services which those other countries like to have. If it is incapable to give other countries, in exchange for products & services received, those products & services which other countries desire, then it has no choice but to give other countries promissory notes in exchange. Promises to pay later. In short: debt.

Luckily, Greece has a service which other countries enjoy having almost without limitation - tourism. Unluckily, tourism alone is not sufficient to pay for all those products & services which Greeks like to import from other countries. Other countries no longer accept promissory notes in exchange. In logical consequence:

There is no way for Greece to return to prosperity other than by coming up with products & services which other countries like to have!

Foreign creditors could forgive Greece its entire debt and domestic banks could forgive their borrowers all their debt - if Greece does not manage to increase its productive capacity, the standard of living will ultimately sink to the level corresponding to the low productive capacity which Greece has (instead of corresponding to the level which Greece would have with a greater productive capacity).

In short: it's the productive capacity, stupid! That Greeks are willing to work hard and produce has been proven by Greek guest workers all over Central Europe. The guest workers had to travel to places where the productive infrastructure was and send home the money which they earned. What Greece needs to do now is to bring the productive infrastructure to the country, have the Greeks produce in their own country and keep their earnings here.

81 comments:


  1. @ Klaus.
    I fail to draw any parallel from her article to yours. In her attempt to excuse Greece she makes things so complicated and flawed that is a wonder she come up with a part correct answer.
    I cannot accuse you of the same.
    You cannot be more clear and shorter. Economists and politicians will demand your head on a platter for oversimplifying and thinking as an accountant. I trust that you will not have any sleepless nights over that.
    Lennard

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    1. As I said, I found her article rather sophisticated, actually a bit too sophisticated for my brain but, nevertheless, I interpreted it to be a testament to the importance of a productive capacity without which everything else becomes a sideshow.

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  2. It's a fact. One has to export in order to import.
    But this equation has 2 parts. Exports (i.e. productivity) is one part.
    What about the other? What was Greece importing all along?
    Was there a need to import defective german submarines? Defective security systems (C4I)? What about overpriced telecommunication systems (Siemens, Alcatel etc.)? Overpriced medical supplies? Olympic games?
    Back in 2010, the french and germans were officially "trying" to save Greece, while at the same time, under the table, they were extorting Papandreou to buy 3 new frigates...
    And here lies my problem with the typical neoliberal texts, like the one from Ms Lyberaki. They are always addressing only one part of the equation. Never the other. And the reason for this is that, if they try to attack both sides of the equation, they will have to settle to the common denominator of the problem: corruption. But, as a member of Mitsotakis family, Ms Lyberaki has valid reasons to avoid addressing corruption, doesn't she?
    The real problem is lack of justice, Mr Kastner. Ms Lyberaki, and the others like her, have every reason to try to make us look the other way.

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    1. I agree with the gist of your comment, but would not accuse Klaus of wishing to look away from corruption. It is explicitly accepted by political economists of left-centre, centre and centre-right (including neoliberals) that a strong and independent justice system is essential to the good functioning of an economy. The poor quality of Greek justice was a key criticism of Greece in official EC repors in the late 1970s and 1980s: nothing was ever done. There has been no improvement since, and no political actor even mentions the Third World characteristics of Greek justice. Just one fact is enough to tell you how corrupt they are: the Council of State not only reversed the government decision to cut their massive pensions, but also awarded themselves backpay with interest. They receive the highest pensions in Greece -- around 5,000 euros a month -- but the reduced pension of a mere 3,000 was far too low for them to survive on!

      But there are production and efficiency problems in greece, even without the euro. I mention below (in response to Herr Trickler) one such issue.

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  3. I was too lazy to read Antigone ;) but no doubt about correctness of the short conclusion. Here one example:

    When traveling across Greece I was astonished to see the huge amount of abandoned agricultural surface.

    When traveling last year across Spain, I saw huge surfaces treated by big earth-moving equipment in order to make it ready for easy production.

    Both countries are equally suitable to grow fruit which can not be produced in northern countries.

    Why not in Greece???
    H.Trickler

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    1. Your point is apposite, but I am not sure that there are clear answers. I will try to offer some.
      (1) Greece still has far too much small-scale production to be able to export easily. Italy and Spain have had for decades government assistance in promoting exportable production, while the Greek Min. of Agriculture was concerned primarily with embezzling money from EU funds. (It is not accidental that this ministry is the only state agency in the entire history of the EU that has been found guilty by courts of mass corruption and embezzlement of EU funds -- the Yugoslav corn scandal).
      (2) Still with the issue of small scale production, co-operatives are the norm in Spain and Italy to get around the issue. In Greece, the small producers prefer to fight and argue with each other, instead of cooperating. There is an exception on Crete, which has good agricultural exports and very high quality, too.
      (3) More modern management of land for agricultural production requires capital investment in machinery: this is out of the reach of small producers. There are large producers with such machinery, but they got used to EU funding for doing little, and are not interested to participate in the low returns to high investment that agriculture offers now.
      (4) The quality of Greek fruit and vegetable production is very high -- higher than Italy and Greece. Several issues attached to this. First, I am not sure that Europeans are interested to pay higher prices for top quality (because the transport costs will be very high). Secondly, organising the export of fresh fruit and vegetables in a country where the roads are crap and the railways slow and unreliable is likely to be a massive problems. Greeks are not renowned for their organisational skills anyway, so... Of course, this begs the question of how a country that has had structural funds poured into it for decades is still so backward. The politicians of Pasok and ND are the people who can answer that question -- from their luxury villas, yachts and offshore bank accounts all lavishly provided for by the EU.

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    2. @AnonymousSeptember 19, 2016 at 6:56

      Thanks for your thorough answer!
      Under such conditions everything will stay as is forever.

      H.Trickler

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    3. @Anonymous - September 19, 2016 at 6:56 PM

      When Russia blocked import of Turkish produce it was able to redirect its exports to Northern Europe and get top prices. Surely Turkey and Greece share the same terrestrial transport infrastructure to Northern Europe or does Turkey send its tomatoes up the Danube.

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    4. @Canutely King. The problem is with internal transport in Greece and small-scale producers that do not aggregate their production. I presume that Turkey has large-scale producers for export markets, even if it retains small-scale for its domestic market. Do not make the error of thinking that domestic and export markets are easily interchangeable, even though much Greek agricultural production was damaged after 2001 by lower price Turkish imports.

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  4. The argument seems logical enough, but it's also misleading.

    It's misleading to say that "other countries no longer accept (Greek) promissory notes". Had Greece been on the drachma and unable to finance it's external debt, this would apply 100%. However, Greece isn't on the drachma, it's on the euro. The simple truth is that other countries no longer accept Greece's promissory notes because the European Central Bank failed to do two tasks that central-banks allover the world do: support Greece's bond-market and support Greece's banking-system early in the crisis.

    The other part of the argument, that about the enhancement of Greece's productive-capacity, is also misleading. How easy is it to engineer a turnaround in Greece's productive-capacity purely through foreign-direct-investment, when it's government isn't even allowed to issue T-bills, all the while it's banking system remains in limbo, when at the same time it's forced to pursue large primary-surpluses? Nobody has provided a historical example where this has been achieved under such conditions. I don't think there is. A properly functioning banking-system supervised by a properly functioning central-bank is essential for such a plan to succeed.

    Furthermore, if Greece struggles to achieve this year's 0,5%/GDP primary surplus, how likely is it that it will achieve next year's 1,75% and 2018's 3,5%? Not very likely at all. That is assuming that there is still a Eurozone at that point, after Le Pen, Grillo etc have been voted to power by the rightly angry populace.

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  5. I think the Greeks are very productive in the 2 main industries with comparative advantage, tourism and shipping.

    Before one suggests that Greeks build Audis in Greece, one must answer a key question: who would buy them and why?

    So production for the sake of production is not the answer for Greece.

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    1. As I said: "Products & services which other countries like to have!" Definitely not for the sake of production! That's something that the state might want to do.

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    2. You mean that Greece should compete with a desperate Germany at a time German exports are collapsing?

      It sounds a bit suicidal to me because as Germany loses market share it will slash its pricing severely as a means of survival.

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    3. I am not at all saying that Greece should compete with Germany. All I am saying is that Greece should become realistic. If you have a productive capacity of the Third World, you cannot have a living standard of the First World.

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    4. There are many countries around the world such the USA and Turkey which use the consumption model for their economy. I see no connection to what you are saying about the 1st and 3rd world. Greece has traditionally been a consumption based economy and its source of revenue has been always from overseas through shipping and nowdays from tourism as well. Classical Athens was a naval power whose main purpose was to import materials and food the Athenians did not have. This is a matter of geography and I can see no intelligent way to disregard geography and attempt to transform Greece into something that it could hardly be successful at.

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    5. Yes, the US has been a consumption (and war-faring) economy for decades which, by the way, created enormous demand and growth in the rest of the world. Only, the US could afford to do that because it is such an attractive place for foreign investment and an excellent borrower of foreign loans. In short, the enormous current account deficits since the 1960s were offset by capital inflows in the form of loans and foreign investment.

      Yes, Greece has been an consumption based economy since 1981, the difference with the US being that Greece is not attractive for foreign investments and not a desirable borrower.

      I don't care which way Greece increases the value generation of its economy. If it is trade instead of production, fine. Perhaps Greece should aim at becoming the HongKong of the Eastern Mediterranean. But Greece MUST increase the value generation of its economy in order to maintain (or rather: recover) living standards.

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    6. Let's keep things properly categorized. The US is not a war-faring nation by any stretch of the imagination. The US just like classical Athens is the world's supreme naval power whose only pre-occupation is to keep shipping lanes open and protect the continental US from invasion which could only come from the Atlantic and or Pacific oceans (Neither sparsely populated Canada or revenge seeking Mexico are real threats to the US as invading forces).

      Let's get back to Greece now. You are suggesting that Greece adopts a productive model within the context of the eurozone which is akin to a suicide mission. At present the German economy is in early stages of collapse and as a result Germany will lay their hands on any production line found in Europe as a means of survival. To suggest that Greece ought to compete in the production game with a bunch of desperate Germans fighting for their lives is a bit absurd.

      Greece's strengths and comparative advantage in production are elsewhere to be found.

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    7. Perhaps you haven't read my previous comment. I said "I don't care which way Greece increases the value generation in its economy". I thought production was the obvious alternative. You say Greece can do other things.

      PRAY, PLEASE TELL US WHICH WAY YOU THINK GREECE WILL INCREASE THE VALUE GENERATION IN ITS ECONOMY!

      Tell us what you think Greece should do and explain to us why Greece doesn't do it. Thank you!

      PS: by the "war-faring US" I had in mind the Vietnam War, the Gulf War and then George Bush's wars. Remember: when Clinton handed the presidency over to Bush, the US was running annual budget surpluses approaching 500 BUSD and they projected that the entire US debt would be repaid by 2010.

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    8. I think Greece is already doing the things that need to be done so that it preserves comparative advantage in the economic competitions it chooses to enter with good prospects of winning.

      Shipping and tourism are paramount. In such context Greece chose well to do business with COSCO and Piraeus soon would be the most important Mediterranean port. As I said before the Fraport business is nonsense; it would bring very little benefits to Greece other than better airport asset management by private hands.

      The other area where Greece will see a significant contribution to is economy would be the plethora of 5star hotels and ancillary developments already underway (but it will would take 2-3 years to see this new bed capacity coming on line).

      The third and most important sector of the Greek economy of the future would be the strong revival of its real estate market with new construction and similar activities.

      So new tourism, shipping and a strong real estate market would certainly set Greece towards a solid recovery path.

      To that you may add activities of the new informational age, high tech, health care and you have a comparative advantage path and a game which not only Greece could win but excel as well.

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    9. The concept of macro economic debt for the private sector is flawed. The private sector is made up of individuals and its re-occurring individuals that take on debt and its re-occurring individuals that pay of that debt , and so a figure of outstanding debt for the aggregate of individuals in one geographical area at one particular time does indicate consumption without production in that area.

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    10. But to take on more debt one first of all has to be credit worthy. You can't just be granted debt for the asking.

      This is another recurring theme of Nea Tromokratia (New Democracy) which is constantly and falsely presented as the main cause of lack of growth.

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  6. " . . . products and services which Greeks like to import from other countries. Other countries no longer accept promissory notes in exchange. "

    Really ? where is the evidence for that statement. In practice Greek people can borrow euros from their banks and use euros to buy products from the other Eurozone members, or do you have a reason for saying that is not the case.

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    1. Sorry, I was not precise enough. Thanks to the program financing and the ECB's target2, Greeks can indeed do what you say (well, not quite, due to capital controls). But that is a short-term and not a long-term situation. Greece will not be subsidized by the EU forever.

      Another point which I should have made: Greece's external accounts are presently more or less in balance. Actually in significant surplus before interest payments. So Greece would not have to issue promissory notes as of now But there is a huge price for that and that price is unemployment.

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    2. You cannot borrow from the banks -- or at least, not enough to pre-finance business imports. For several years now, even prior to the capital controls, businesses in other EU countries refused credit to Greek importers. I don't know what you mean by "evidence": this is factual and well known in commercial circles.

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    3. I should point out that "credit to Greek importers" and "issuing promissory notes" are two separate things. "Credit to Greek importers" refers to payment terms: the foreign supplier may offer 90-day payment terms or he may require cash against delivery (or even prior downpayments). "Issuing promissory notes" refers to the actual payment that is made, either in cash or via PM.

      Yes, I, too, understood that foreign suppliers, for the most part, cut their payment terms for Greek importers. Put differently, they required cash on delivery or even prior downpayments.

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    4. @kleingut

      "Greece will not be subsidized by the EU forever."

      How on earth is target2 a subsidy? It's a goddamn monetary union. Money should go from one place to another freely. Here's a thought exercise, forget for a moment that there's a German central-bank, a French central-bank, a Greek central-bank etc etc. Think instead that there's just European banks and just the ECB. That's what a proper monetary union would be like. Does target2 have any significance into such an arrangement? Nope, zero. Target2 is meaningless, a facade for Northern European populists to justify their ugly rhetoric. Bottom line, if Germany didn't want a monetary union, it shouldn't have entered one.

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    5. Agreed Target2 is not literally a subsidy but it is an IOU. However IOUs don't spend themselves, it is required that the holders of the IOUs spend the IOUs for the IOUs to be eliminated.

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    6. TARGET2 has been a lender of last resort of sorts (hence kleingut's "subsidy") for sustaining Greek imports (something perhaps good as it cushioned the fall, perhaps bad as it prolonged the fall) and ELA for sustaining Greek deposits (hence when cut, forth came the capital controls) or transformation thereof to cash or deposits abroad etc.
      Another major cost of the former being private bank external loans/debt becoming quasi-public national center bank external debt.
      Otherwise yes you're right; a proper monetary union would... and kleingut's productive transformation views ar utopic. I'm all in for hard core production, infant industry argument etc., but this is impossible to happen in a country in a prolonged macroeconomic foreign currency foreign debt insolvency crisis, deflated to pieces, sorry I meant "saved", by foreign creditors.

      PS If you're the same J.S. of adslgr fame then why aren't you expressing the same opinions therein?

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    7. Kleingut

      I agree with you thesis that debt is not a substitute for production . However the technicalities are interesting , for example increasing industrial activity in Greece will not necessarily decrease Greek debt to the rest of the eurozone. Borrowing is a feature of commercial activity, geographic centers of commercial activity within countries can be continuously in debt to the rest as of the country as they borrow for investment. Each firm pays its dues and another takes its place as a borrower.

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    8. I disagree that the Target2 mechanism is either a subsidy, or lender of last resort, or anything like that. Target2 is a stupid technicality that makes sure that money flows from one Eurozone country to the other. If there was no such mechanism, there would be no monetary union, that's all there is to it. It has as much significance as a Greek depositor moving his money from one Greek bank to another, and the Bank of Greece managing liquidity to maintain the integrity of the Greek banking system. That's really all there is to it, and only Northern populists claim otherwise. If Hans-Werner Sinn and his acolytes really think that Germany is lending money to Greece so that Greece can import stuff from Germany, then here's an idea: next time stop ELA altogether. This would force Greece to exit the euro and the facade would end once and for all (the facade being that the euro is a real monetary union, when actually it's a glorified stable exchange-rate mechanism).

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    9. I think you are going to far there. I agree the unequal geographic distribution of indebtedness shown in the T2 balance are not unique to the Eurozone , However they do represent lending by the creditor to the debtor.

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    10. @Dinero

      No it doesn't. It's just the necessary liquidity operations that make sure the payments system functions. Without Target2, there's no monetary union. I quote from Karl Whelan's paper "TARGET2 and Central Bank Balance Sheets":

      "The ECB has operated on a principle that credit institutions must be treated equally irrespective of their location and proposals that they abandon this principle (or that they restrict the operation of payments systems in certain countries) are likely to be incompatible with the continuation of the euro as a common currency."

      If Germany believes it subsidizes Greek imports by having it's central-bank participating in Target2, then by all means it should opt out. Like I said, let's end this charade. It's getting tiresome by now. Obviously Europe wasn't prepared for such a gigantic step. Let's abolish the common currency before the political climate gets more toxic than it already is.

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    11. The T2 system facilitates the transfers of deposits which are IOUs so of course the net position is an outstanding IOU.

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  7. I would buy a Greek Audi, if the price/quality was right. I bought a Seat when the quality had reached 95% but the price only 80%, of the corresponding VW.

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  8. You could not have this discussion in any other country. Everybody moans that Germany produces and export too much, at the same time saying that their export is collapsing. They even find it despicable that Germany compete on quality/price in the markets, at the same time buying German imports with money they allegedly don't have.
    It reminds me of the eternal discussion of the Greek debt. It is allegedly criminal and should not be paid, because the lenders knew that naive Greeks (economist politicians) would waste the money and therefore never would be able to pay them back. While they are haggling with the lenders about how little they will pay back, they beg them to lend them more money without any risk premium.
    Not only a Third World country, but pure Kafka.

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    1. It is almost amusing how utterly oblivious you are to the implications of your little tirade … Also, how the hell did it escape you that this is a discussion being held in almost the whole of Europe? And lastly, go read Kafka or avoid making allusions you don't fully grasp. As it's usually the case with right-wing moralists, power dynamics are something they meticulously ignore...
      Lykinos

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  9. Don't worry about the "Productive Capacity", authorities (including the governor of the central bank) say that only 70% of the capacity is being utilized, the remaining 30% (15 men and 3 women) are there "as a compressed spring" that will jump start the economy when released.
    Mr. Stournaras, have a check at that spring, it has been broken for years.
    With the words of internet shopping, "those who bought this item also bought" the one about Muenchausen pulling himself, and his horse, out of the mire by his own hair.
    Lennard

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  10. @ Lennard.
    What a stupid thing to say. Everybody knows that after a depressed economic period when the growth starts it jumps forward because of the latent potential that has been stored. And to say that there is no latent Productive capacity in a country with 1 million people out of work is even more stupid, many of the people are young and with university degrees and waiting for a chance to work. Stupidity in second power.

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  11. I so wish that Greece had found oil in quantities that could be prosperous. That would have saved us the discussions about productive capacity. Greece would have been rich and Europe would not have to support it, it would have been a real win-win. Greece would have her honor and pride again and be an important world player. Just like Venezuela.

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    1. Yes, if Greece had hit oil fields, there is a possibility that Greece might be prosperous by now. But if Greece had behaved like Venezuela, then even with gigantic oil resources Greece would be bankrupt.

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    2. Greece has plenty of oil reserves in large quantities. The problem is commercial extraction because it's deep oil and gas and it makes no sense to extract at today's oil and gas prices.

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  12. I must admit surprise that this brief article, which actually is a standard position of mine which I have published several times before, triggered so much discussion. If anyone wants to suggest why this might be so, I would appreciate it.

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    1. Well it's somewhat obvious to me. You have been taking the lender's position in matters involving Greece for a very long time. And as the lenders, which have committed a series of grave errors in prescribing the wrong medicine for Greece, you are actually quite nervous and anxious to see Greece do something to justify the wrong positions adopted in restoring Greece to health.

      So day after day you repeat the same mantra: When and how would ever Greece get into some sort of productive mode to justify your misleading framing of the truth?

      And the answer to your question is: never. Because Greece is a victim of European stupidity and we will never let any stupid people and dim wits to tell us what to do. Plus we are duty bound to frustrate all efforts to make the false doctors right and us the horrible victims of your incompetence wrong.

      How about this for an answer? Are you satisfied because there is a whole lot more from where this came from.

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    2. No more info required. I have discovered the answer: Greece was a victim!

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    3. Don't try to be cute now. The answer is very simple: Greece owns close to 0% of the plan imposed on her from the outside. No plan externally imposed could ever succeed unless the locals own it. And in Greece's case they categorically DO NOT own any of it.

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    4. I agree with you 100%! The trouble with Greece, since May of 2010, was that Greece never "owned" the plan it had committed to. Bill Rhodes, the legendary sovereign debt expert, said in an interview at that time: "I urged the Prime Minister that he has to have HIS plan and present it to the creditors instead of presenting the creditors' plans to his voters". Now, 9 out of 10 Greeks will argue that Greece never had the chance to propose its plan and, thus, was a victim. I am on the side of No. 10.

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    5. Dear Mr. Kastner,

      I've been following this thread and comments of this article. Truth be said, the issue with this memorandum is quite tiresome. There are good ideas from the side of the creditors and there are good ideas from the side of the Greeks. But in retrospect any plan ever submitted from the Greek side has been rejected completely. Whether the plans were thoughtfully thought through or had only good pieces of good ideas. From the creditors side there is obviously a lack of trust for any Greek politician, so they reject everything and insist to do what they want. In the end that is what happens. Thereafter you have some statement 3-4 years later example IMF, "we made some mistakes."

      What i really can not understand, is that how (the creditors) allow for example Syriza to hike up taxes on personal and businesses all while continue to ask for pension cuts one after the other after every 6 month period. How can they as "qualified economists" believe that growth will come out of that? If the creditors have the "knife and the watermelon" why do they allow for such measures?

      There should be a middle ground and room for proper dialogue. But there isn't and there never was.

      For the issue on pensions, they ask for flat reductions. Whereas i had posted some 20-30 articles back the linked article from Ekathemerini which showed that 70% of the cost of pensions fell into the hands of 10% of the pensioners. Pensioners with on average of 5 - 10 pensions, while the funds for these pensions reflected that 70% of the costs. This is the only viable case idea that the centralist Leventis party mentions. Do you actually believe the creditors don't know this? Or choose to ignore it?

      If the creditors are here to help us in the micro management of the country why do they instill an impression of "I don't give a shit just do as i tell you."

      Overall, i know there is a desire from both sides for reform and even from the Greek people, regardless if it is not represented properly, likewise i believe there is good will from the side of the creditors, but how both sides manage this reform is ridiculous.

      Can I ask you something else? Are there any other 1st world nations where businesses pay 100% upfront taxes of profits of the year to come? And even if this holds true, this idea must have come out of the twilight zone. What economical genius thought of this great idea. How is growth to come? How is investment to come?

      I am truly frustrated. I work so hard and create work for businesses and try very hard to maintain a positive attitude. If there is no hope what is all worth for. If there is no change in how we communicate, Greece and Creditors, the end will be quite ugly.

      Syriza is nearing its end. Greece will have Kyriakos of ND. I am really curious to see if they will accept his Thessaloniki plan.

      Sincerely,
      V

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    6. To Kleingut:

      Do you really believe that forcing a nation to accept something is a "commitment"? And do you really think that it makes any difference of which party pretends to govern Greece when in effect Berlin governs no matter what? And is it o.k. in Austria when someone tells you that Austria has now lost its sovereignty and please obey your new masters? What if the new masters are as hated as the Russians? Would you obey them?

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    7. @kleingut

      You are becoming increasingly stereotypical Northern, Klaus.

      Schäuble has been complaining lately about the low interest-rates of the ECB.

      I think the problem of the Northerners is that they are blind. That's what the problem is, they're blind.

      The Eurozone's trade surpluses create additional liquidity. The ECB's various easing programs create additional liquidity. And yet this additional liquidity (which pushes interest-rates lower anyway) has nowhere to go. The economy stagnates and inflation lingers at zero.

      If Schäuble and the Northerners were willing to tolerate budget deficits (financed by the ECB if need be) then the private sector's balanced sheets would heal, growth would return, inflation would pick up, and then the additional liquidity would have somewhere to go. Therefore interest rates could be increased once again.

      But like I said, blind.

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  13. Yes the "Productive Capacity" certainly reinforced the disagreements. From those who think Greece have it or don't need it, to those who don't know what it is or how to achieve it. I think the reason is instinctive understanding that consensus would lead to the more painful discussions about how to achieve it, such as:
    -A motivated workforce, "fit for purpose".
    -A broad acceptance that risk capital need profit, as workers need wages.
    -A broad acceptance of the need for larger private productive units.
    -A broad acceptance of democracy's need for strong independent institutions.
    -A broad acceptance that you cannot continuously spend more than you earn.
    There are many more, but judging by past performance, these alone are good for 6 years discussion each.
    PS. At a time you said something like "Greece would rather go under, than admit the program is right". At that time I considered it slightly ridiculous, thinking creatures don't do that. I may have to change my mind. Greece is not only the eternal victim, she is also always right, no need to change that.
    Lennard

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    1. Greeks are as stubborn and conservative as Germans, although with a different style. Both cultures are highly unsuited to lead the EU, but Germany is the one that comes in for the most criticism simply for its crucial role in destroying the eurozone economies.

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  14. No need to change anything, they have found oil again yesterday. Allegedly up to 100 billion barrels. The going price for that at today's rate of 45 USD/Barrel would be 4,5 billion USD (4,0 billion EUR), on the surface, transported to Rotterdam, ready for shipment, provided it was sweet crude, it is not.
    Kathimerini publish that this reserve would give the Greek state revenues of 300 million EUR per year over a 25 year period. Or at fixed prices and exchange rate 7,5 billion EUR.
    So go ahead with the minor tasks of extracting and transporting it.
    For Greece the truth has always been too painful, "live your myth".
    Lennard

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  15. A correction to yesterdays quote from Ekathimerini. It should have read reserves of 100 million barrels.
    Lennard

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    1. You don't seem to understand the mechanics of Oil&Gas business very well. For extraction to begin at the golf of Patras a profit sharing agreement needs to be signed between the state and the extracting company. Such sharing agreements usually contain language that all revenue and profits for a number of years go to the company and none to the state until all CapEx is returned and all equipment and platform costs are thoroughly depreciated. It will take another 3-5 years for Energean to find an extracting partner and then maybe another 15 years for the depreciation cycle to complete. So you are looking at a project 20 years out before the state ever sees a penny.

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  16. V's laments
    There was a good Greek plan, it was highly recommended and praised by the European partners and even IMF. All Greek parties, and the Greek public, rejected it vehemently and still do. They realized that it meant a temporary reduction of living standards and privileges, maybe a period of 10, maybe even 20, years. Greece had/has one answer to such proposals, OXI. All later Greek plans have been lists of expenses to be distributed to various groups. There have never been plans for how Greeks could add value, make the cake bigger.
    The good Greek plan was called "Greece 10 years ahead", it was made by Athens Office of McKinsey & Company, and commissioned by McKinsey & Company, the Hellenic Bank Association and Hellenic Federation of Enterprises.
    Your European partners and IMF have tried to regulate your external, agreed, economic obligations toward them, that is their bloody duty toward their stakeholders.
    As for your internal distribution of taxes, social benefits and other privileges, your partners have tried to advise you, in vain. The responsibility for politics and execution is yours, all sorts of Greek parties and other influential groups have in the last years made a joke out of it.
    When your internal dispositions prevented you from fulfilling your external, your partners intervened.
    What is so difficult to understand?
    Lennard

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    1. What is difficult to understand is some European political BS equaling an economic plan. What has happened to Greece is the product of political theft and ignorance by Berlin wishing to see a plan justifying its stupidity. Just because German trade depends on a low valued euro it does not mean that Greece has to have a flawed plan in order for a now declining German trade surplus to remain robust. For such schemes you have to find some other countries to play with you but not Greece.

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    2. Claiming that it was a good plan is not equivalent to it being a good plan nor even a plan for that matter.
      A 10 or 20 years does not count as a temporary timeframe for exiting a macro crisis in any reasonable universe.
      Nor washing northrern european elderly butts (per parts of the plan) as a strategic plan and target for a national economy.
      Etc.

      But OK, it's seemingly fine to utter such nonsense Lennard since it's not you or your country that is supposed to live through and/or like that.

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  17. To the 2 Gents of 2:09 and 9:14.
    You seem to be in agreement, if not with me. Let's assume, for the sake of the argument, that it is a bad plan. Would you please tell me what a good plan would look like? Not what Germany, Europe or the world should do for Greece, but what Greeks shall do for Greece? If you cannot do that then the outlook for Greece is dim. We will then be back to the eternal OXI.
    Lennard

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    1. Europe and Germany are a disaster and therefore by definition can do nothing fr Greece. The best thing they can do for Greece is get out of the way and completely shut up. Not even the smallest sound to be heard by those idiots again. Clear enough?

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    2. Are you suggesting that the EU should stop all its subsidies for Greece (averaging 3-5 BEUR per year)? Or are you suggesting that the EU should give Greece the money, get out of the way and completely shut up?

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    3. Dear All (Lennard, Commenters and Mr. Kastner),

      The irony of my initial comment of, "lack of dialogue," in this blog is a micro graph of what is happening on the big scale.

      Lennard, i have read that plan. Yes i agree with it. I love it btw. Likewise i am also aware of the plan of reduction of living standards. You say neither have been implemented? You say we said the big OXI? Yeah ok we may have said the big OXI to the reduced living standards, but the OXI is only a word, as that plan has indeed been implemented. IMF originally requested from Papandreou originally, that there must be a minimum of 30% internal Greek deflation. When they said that in 2009 and 2010, is when i began to prepare for a long haul, as i was sure it would happen. Indeed if you look at the average personal finances of each Greek today, they have been hit with a minimum of 35-40% deflation, since the start of the crisis. Minimum!!! So a plan has been implemented.

      The other plan in parts has been indeed been implemented and if implemented in a more quick rigorous nature we would have more hope to be out of a crisis by 2030.

      To the commenters of Lenard, Do you actually believe we as a country have the ability to fix our selves? Do you live in Greece? I do not doubt that there are competent people here but do you actually believe we can not get something done on our own with clarity, with out some kind of force?

      Like i said above if there was more dialogue more concern on the ground, of the lively hood of people with a clear plan and not this bs of 6 month evaluations which lead only to more pain on us, we would be in a better situation.

      Anyway, it is all pointless because when Deutch bank goes ala Lehman, the shit will hit the fan in the EU. Economical weak nations, like Greece will suffer even more.

      Sincerely,
      V

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    4. Kleignut:

      What you call subsidies for Greece, are simple transfers from the strong to weaker economies and have nothing to do with economic performance other than the size of the economy. Under any scenario Greece will be a recipient of transfers from the most robust economies just like Bulgaria and a number of other weaker economies already experience. The eurozone mess is an entirely different story and this is the part where Europeans need to shut up and keep their advice to themselves because quite frankly they have no clue what they are talking about. It's like amateurs pretending to give you learned advice and it's quite pathetic really.

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    5. "Transfers from the stronger to the weaker" - well, subsidies. Incidentally, I remember that when the EU expanded to the East, these transfers were to be redistributed because the East was much weaker than anyone else in the EU, including Greece. Greece would have had to give up some of its subsidies for the benefit of the East but Greece adamantly opposed this idea.

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    6. Kleingut:

      I am sure Greece had to oppose anything affecting the level of its receipts from the so called "union". Of course now we know with a high degree of certainty that there never was a "European Union" rather a trade area whereby all countries involved grab whatever they can for maximum advantage. Therefore to even pretend that somehow a partnership of equal partners ever existed is very hypocritical. The strong states promote their own maximum advantage as do the weaker states (such as Greece) with much more limited success. In other words the prevailing reality in the laughable EU is the law of the jungle.

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    7. "In other words the prevailing reality in the laughable EU is the law of the jungle."

      Please grow up. Did you really expect the EU to finance the greek way of living? I can not believe the simple-mindedness of some commenters.

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    8. I'd rather you grow up because apparently you don't know that this is precisely what the EU is doing. It's rolling over old debt with new debt (at much lower rates for Greece) not in order to help Greece (which it does anyway even if it doesn't want to) so that the flawed euro does not collapse and the german export game is over.

      What the EU is doing for Greece has 0% to do with Greece and 100% to do with the EU's own self-interest.

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    9. It’s a pitty. You didn’t even understand my invitation to grow up. I didn’t question the fact that countries act in their own interest. I would like you to accept this, stop crying and ask yourself what the Greeks can do to better their situation. In other words: grow up!

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  18. > Kleingut

    You say that Greece needs to bring the productive infrastructure home, but that requires borrowing for investment, and you also say the Greek private sector cant borrow, that's contradictory. The ECB has been trying to increase lending in Greece since 2010.

    The foreign creditors don't need to cancel the IOUs , what they need to do is spend them in Greece, that is what you do with IOUs, you spend them, or the debt remains outstanding.

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    1. What do you mean when you say they have to spend them. What does Greece offer the owners of IOUs in exchange for them? If I would be the holder of IOUs with a nominal value of say 1 mil EUR would the Greek government offer me land in exchange for their debt? Please explain

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    2. At this point the IOUs are worthless. So, the answer to your question is: nothing.

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    3. I put the question up. But now as have read all comments I guess Dinero is pointing at Target2 balance surplusses and not to Greece‘ sovereign debt. With regard to Target2 balance surplusses the problem is not that you can not spend them in Greece - of course you can - but that Greece does not produce goods or services worth enough to settle the balance(s) - btw exactly the problem Mr. Kleingut pointed out in his blog post.

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    4. The point is in the monetary system, if the savers dont want to spend because they want to carry on being savers then the debt remains. If the creditors all went on Holiday to Greece then that would reduce Greece's debt.

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  19. @Anonymous Sep 27, 8:17.
    I'm quite familiar with the hydrocarbon industry and worked in the extraction branch of it for some years. The picture you paint is realistic, but relates to the cash flow, not the potential end revenue. I would even call your picture optimistic, the exploration phase is not yet over.
    A bad cash flow on a good deal can be financed. What the government is trying to sell the people is a pipe dream. They claim a 7,5 billion EUR revenue at a product with a market value of 4,0 billion EUR, saying that profits are higher that turnover.
    Lennard

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    1. Lennard:

      Obviously this government and any previous governments know very little about the oil and gas business. These potential finds are used as a morale booster to an otherwise psychologically depressed population that somehow divine providence is working towards Greece's deliverance. In other words pure propaganda. Even though Greece has some deep oil and gas it's very difficult to extract such deposits and quite expensive; therefore the commercial value to the state is not very dependable. You are correct in what you say.

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  20. So, OXI it is, and across the board. It would be quite easy to take the model of the McKinsey report and substitute items with others, there are a few I don't believe in either. I do admire the clarity and thoroughness of it.
    Increasingly I believe that no Greek dare suggest that his compatriots do menial work for a "boss". You can of cause revert to the Ottoman model, but if Greeks want to play the Ottomans, who will be the Romaioi?
    Lennard

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    1. I am sorry to tell you Lennard that Romans and Ottomans are substitutions of the same empire model which is the antithesis of Greece. Greeks by definition are anti-empire people because in promoting democracy their number one enemy were empires and despotic institutions.

      In fact it's despotism that has ruined Greece and the number one reason that today's Church as a purely Roman construct for ruling an empire has no place in modern Greece going forward.

      So, instead of obsessing about OXI, put on your Brexit hat and ask yourself a simple question: is Greece better off as an independent country or subjugating itself to the modern manifestation of Roman administration called the EU (the same Romans who stole and copied everything Greek they could lay their hands on)and living the rest of their lives as a second rate Brussels slaves is more suitable to the Greek character?

      I may be a little biased on this question but I would say that the Greeks have an obligation to resist by all means necessary including saying OXI while tossing their heads backwards according to the ancient Greek tradition.

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    2. Look at you Lennard playing "the magnanimous little creditor plays dialogue with the natives"! And how cute when you declare: "So, after all said and done, i was right all along! Ὅπερ ἔδει δεῖξαι!"
      As for your attempt to historical slander, it's not the first time you misuse terms out of Greek history; in your enthusiasm for a wisecrack insult, you managed to come out as a half-educated smartass: be it ignorance or malice - or both - your last wordplay between Ottomans and Romaioi, it’s actually nonsense. Keep on studding and try again!
      Now, imagine how it'd be if everyone, after railing against the other's ancestry and defective national identity - mentality - collective sin or however else you want to name the noble science of αμπελοεθνοψυχολογία, in which you diligently apply yourself, proceeded then to praise his very own levelheaded analysis … Ridiculous, eh?

      Lykinos

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  21. @ Lykinos.
    I can't help you by engaging into a discussion about our respective intelligence, knowledge and character, I know far to little.
    Should you wish to revert to the discussion about what Greeks want to live from in the future, I am always at your disposal.
    Lennard

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    1. I'm afraid you're too much for me, Lennard!
      That is, mainly, because you revile over and over and over again the supposedly sick psyche of those … Greeks (albeit you don’t dare to call a spade a spade, but you hide behind words such as "culture", "history", "mentality", terms you constantly and lightheartedly misuse) and when you're finally being called out, you protest that you didn’t mean it as a personal insult and you don't engage into ad hominem attacks; Not to entertain your hypocrisy anymore, If you love dishing it out this much, Lennard, stop playing the offended gentleman when those you targeted didn’t just sit and take it..
      As for the more sincere discussion you say you want to have, prior commentators have already replied, some more levelheadedly than others, both by invoking changes needed to be done at national level but also calling into question the possibility of an alternative plan, given the euro-structure and the very real fact that the interested parties most definitely don’t stand on an equal footing; these are all legitimate concerns that you pointedly chose to ignore by screaming OXI , in hysterical glee, and reverting back into chanting your beloved mantras.
      So you see, this hasn’t so much to do with you as an intelligent and moral person - stop evading, Lennard! - but mostly with you as a commentator; and I definitely can’t engage into an honest discussion with you, without pointing out your glaring hypocrisy, least I give you the impression that your toxic bigotry goes unnoticed when trying to get a point across.

      Lykinos

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  22. That Greece has always been anti-empire I have noticed. Except for when they had one (Alexanders) or wanted one (Venizelos Megali Idea).
    To tell me that Greece should leave Europe is preaching to the choir, tell it to your fellow Greeks.
    Adam

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    1. Alexander was an empire builder because he had a personal issue with his father to whom he wanted to prove himself and also get revenge for his mother. So I young kid like Alexander hardly knew how to behave as a Greek and what actually meant to be a Greek. The Megali Idea was not empire building. It was a simple manifestation that Anatolia had more Ionian Greeks than Greece itself. Even today in Turkey there are about 10 Million Greek descendants, most of them crypto Christians practicing their religion underground, so it's almost impossible to wipe out the Greek element from its ancestral lands. The exchange of population that followed the Asia Minor disaster was based on religion and not ethnicity.

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