Monday, July 16, 2012

Don't overplay the soft point of Germans!

I have now been back to Austria after having spent about 3 months in Greece and I am being bombarded by the "other point of view". What is that "other point of view"? Let me try to summarize the feelings of my German friends which I have come across since my return.

"We didn't want to join the Eurozone and we did everything to avoid it. Greece, on the other hand, did everything to get in".

"We had a pretty high standard of living before we joined the Eurozone. Greece, on the other hand, achieved its standard of living after joining the Eurozone".

"We were essentially blackmailed into joining the Eurozone (the price for German unification). Since we couldn't resist, we made sure that our interest would be preserved contractually".

"Despite all of that; despite the fact that we had insisted from the start that the ECB would pursue monetary policies with the Euro like the Bundesbank had done with the Deutsche Mark; despite the fact that we had insisted on a no bail-out clause; despite many other things - we now find ourselves in a situation where we have to do exactly what we had been contractually guaranteed we would never have to to".

"It looks like we don't even have a say any more what we can do. It looks like the majority needs money; the majority thinks we have money; and the majority decides to take it from us. But we have to borrow that money!"

"While all of this happens, we are being blamed for being more or less re-incarnations of the Nazis".

"We hear such ridiculous claims that our standard of living is primarily due to the fact that we could exploit the poor Greeks; that we are now driving Greeks into poverty and suicides". 

I could go on.

As an Austrian, I have my own feelings about our neighbors to the North. Ever since the Prussian upstart Bismarck told the God-sent Habsburgs that they would not be part of the Unified Germany (even though the Habsburgs had been Holy Roman Emperors of German Nations for half of the Empire's existence), there has been a slight, shall we say, antipathy on the part of Austrians against Germans. We don't fight wars any more but once every 50 years or so, Austria gets to beat Germany in soccer and whenever that happens (like the 3rd goal of Cordoba in 1978 which kicked Germany out of the World Cup tournament), well, then Austrians experience moments of ecstasy.

Despite all of that, I think the Germans are being given the raw end of the stick (and they keep taking it!). It's like in an interpersonal relationship where you know your partner has one very soft point and you take advantage of that soft point and rub it in all the time to achieve your goals.

The soft point of today's Germans is the country's history. We are still seeing a country whose President once got clobbered (by Germans!) after he said that he was "proud of Germany". Why? Because it obviously was unfit for the President of such a country to be proud of it. When it comes to loving one's country, another President felt it necessary to clarify that he loved his wife but he didn't have to love his country. And yet another President felt it necessary to state that "Islam is part of Germany" just to make sure that he wouldn't make Germany subject to critique that it was anti-Islam. Where he got the idea from that Islam is part of any Judeo-Christian heritage, that he never clarified.

And now the German "guilt" is really being played by just about everyone who is after the perceived cash of Germany (which cash Germany has to borrow...). Particularly in Greece, the early part of the 1940s is being replayed with a vengeance. Sometimes I wonder how Greeks might feel if others replayed the latter part of the 1940s with the same vengeance. Perhaps asking questions like "What exactly happened at Meligala?" or "What was the Paidomazoma all about?"

Taking advantage of someone's soft point works from time to time and sometimes. Making a strategy out of it is never a good idea and it may eventually provoke undesirable reaction from the one who can no longer take the pain from his soft point. It might be worthwhile to read the following analysis by Dirk Schumacher, Senior European Economist of Goldman Sachs:

"At the core of the reluctance of Germany to agree to some form of debt mutualization is the fear that this will lead to lesser efforts or even an abandonment of the reform course. Attaching conditions to debt mutualization cannot overcome this problem since – as this crisis has shown – sovereign countries cannot be forced to stick to past agreements if the population turns against them. Thus, the reluctance of Germany to “sign up” at this point makes sense: writing a blank check without having the necessary controls in place to ensure that it is used appropriately is only going to create problems down the road. Despite these obstacles, there is a strong consensus in the political class that a break up of EMU would have an immensely negative impact on Germany. But this does not mean that Germany will try to save the Euro at any cost."


  1. It's called democracy. Any idiot can say what they want(and it goes bothways). Football hooligans or bloggers do not represent a country. Not can one go on by taking any idiot seriously: There simply won't be any time and energy left for anything else.

    1. Anon

      Democracy it may be, but in terms of Greece, what is it achieving?

      They have borrowed until they can borrow no more - and then borrow again. They could not pay it off in the first instance, and nor can they now.

      Out of the Eurozone, they are in real danger - not only from outside forces, but their own inability to deal with the crisis that grew from 2002 onwards.

    2. Democracy in Greece has failed Greece consistently. They borrowed their way out of problems, because it was easy to do. They are borrowing now because it is easy to do.

      Democratic governments should take difficult decisions on occasions - and that includes facing up to an EU that was bent on aiding lending to the peripheral nations for precisely the wrong reasons.

      So what are the Greeks doing now? Oh, dear. Not very much it seems. Well at least they are inside the Eurozone where they have protection of a kind. Outside they would face the wolves. That is when the tough decisions would have to be faced with grit.

    3. Dear Mrs. Gemma,

      Democracy has little to do with this whole story. Mr. Papandreou who signed the memorandum in 2009, did so, without asking anyone. He had a mandate which he won with a completely different agenda. Hence also why he enraged good part of the people.

      The current goverment, is also risking enraging part of her voters. Because the voters voted on the promice of the infamous "renegotiation", which, at best, will result in a prolongation, which was actually first "offered" as idea by Mrs. Lagarde before the elections and now it's what Mr. Samaras will take and try to present it as his personal victory of the "renegotiation".

      There is little to say about democracy here. There is little to say other about money, which is the only european valor left apparently. Mr. Papandreou's "finest hour", was when last December promiced referendum to the people,to be held in January with the subject "memorandum or not", only to be recalled my Merkozy at Cannes, where they changed the date to December and the subject to "euro or no euro". Which led to the demise of Mr. Papandreou,at the hands of his own parliament members (where Mr. Venizelos had something to do with it apparently).

      You should know one thing though. The Greeks have faced many wolves and much fiercer too. And do thank Mr. Papandreou for being undemocratic in 2009, because otherwise, your banks could be belly up now and the euro history. In that case, you would pray that Belgium would be half the amount Greece is, accustomed to wolves.


    4. "And now the German "guilt" is really being played by just about everyone who is after the perceived cash of Germany (which cash Germany has to borrow...). Particularly in Greece, the early part of the 1940s is being replayed with a vengeance. Sometimes I wonder how Greeks might feel if others replayed the latter part of the 1940s with the same vengeance. Perhaps asking questions like "What exactly happened at Meligala?" or "What was the Paidomazoma all about?""

      Dear Mr. Kastner,

      Now it is too late. The "german guilt" is mostly played in Greece by the "Independent Greeks" and secondarily by SYRIZA, for the fact that one of SYRIZA's PM, Mr. Glezos, is at the spearhead of a movement where Greece should ask war repaparations and a loan given by the Bank of Greece. The Independent Greeks use it to fuel their voters in an anti-memorandum position, while Mr. Glezos, is basically untouchable on the subject, since he,during WWII, together with a friend, climbed one night at the Acropolis and lowered the german flag. So he is a national hero and making him stop is impossible.

      On the other hand, i don't think anyone is playing the "german guilt" really hoping to get Germany to give money. If anything else, it makes Germany react harsher. So it is working better for internal political purposes.

      But, as i said, this is too late. This started actually in Germany, with the first Focus and Bild frontpages, followed by german ministers "advices" on "selling islands". It was about then that a small circulation greek newspaper replied with the Magdenburn gate swastika newspaper.

      On the bright side, the big circulation greek press, has abstained from following Bild-Focus tactics and i don't recall anyone from the greek goverment making any nation-insulting comments , unlike Mrs. Merkel calling Greeks lazy.


    5. "Sometimes I wonder how Greeks might feel if others replayed the latter part of the 1940s with the same vengeance. Perhaps asking questions like "What exactly happened at Meligala?" or "What was the Paidomazoma all about?""

      First, i WISH someone asked that. My bet is most young Greeks don't know anything about either.

      If you ask the KKE, they will reply "we have 100 years of glorious history that we are proud of".

      And the rest is whether you read right or left wing historians. For example, today, leftist youth, do use as threat that they will punish the new traitors with a new Meligala. Because according to leftish historiography, it was a punishing campaign of ELAS against german collaborators. So i don't think you will make them feel bad about it.

      ""We had a pretty high standard of living before we joined the Eurozone. Greece, on the other hand, achieved its standard of living after joining the Eurozone"."

      Ah, it depends on what you mean by living standards. If you ask a middle greek family, whether they could cover their basic needs easier before or after the euro, they will tell you BEFORE the euro. Because with the euro, prices triplicated. It became easier buy some consumeristic high-tech goods, but the basic needs became harder to meet.

      ""We didn't want to join the Eurozone and we did everything to avoid it. Greece, on the other hand, did everything to get in"."

      The greek population wasn't exactly asked if they wanted to join either and certainly wasn't aware that the goverment would hide deficits. And for that choice Greeks now pay. If Greece hadn't joined the euro, the markets would have closed much earlier on Greece, which would have forced a repetition of the late Andreas scenario: a moderate austerity+devaluation.


    6. >

      ""We were essentially blackmailed into joining the Eurozone (the price for German unification). Since we couldn't resist, we made sure that our interest would be preserved contractually"."

      Blackmailed, i hope not from Greece. The euro wasn't a greek invention and the ECB isn't in Athens. Today i read an italian commentator on a newspaper also saying that "we weren't asked if we wanted to get to the euro". It seems that nobody knows how on earth this euro appeared... If the French think the same, then i think the situation becomes always more preoccupying. It can't be Greece either, because Greece joined 2 years after the others. Greece couldn't vote for herlsef on the occasion.

      ""Despite all of that; despite the fact that we had insisted from the start that the ECB would pursue monetary policies with the Euro like the Bundesbank had done with the Deutsche Mark; despite the fact that we had insisted on a no bail-out clause; despite many other things - we now find ourselves in a situation where we have to do exactly what we had been contractually guaranteed we would never have to to"."

      Maybe the Germans should do too what the Greeks did. Go in front of their Parliament and protest. Because, just like you can't force a bank to lend you money, you also can't force someone to bail you out. Alas, those bailed out are the banks for the time being, Greece is still bailed in, thanks to Mr. Papandreou's remarkable political leadership. But he was our leader, we must pay the price.

      ""While all of this happens, we are being blamed for being more or less re-incarnations of the Nazis"."

      At least they use a 60 year old history to mock you. In Greece's case, they use 2000 years back in order to mock. It appears that Greek history is good only when it is about offending Greeks. Imagine if after 2000 years, a magazine comes out with Hitler showing you the middle finger. Imagine THAT!

      ""We hear such ridiculous claims that our standard of living is primarily due to the fact that we could exploit the poor Greeks; that we are now driving Greeks into poverty and suicides". "

      This is idiocy usually from "Indepenent Greeks" and are in deed ridiculous. But, as i said, someone else started. And once it starts, it won't end as long as the crisis goes on.


  2. After having read this i understand a little bit more the whole situation.
    Thank you. Good day.

  3. And back on the main subject:

    "Taking advantage of someone's soft point works from time to time and sometimes. Making a strategy out of it is never a good idea and it may eventually provoke undesirable reaction from the one who can no longer take the pain from his soft point."

    Mr. Kastner,

    You 've been a banker for 40 years. You are also a "cousin" of the Germans. Realpolitik is a german word. Being also a banker, you know better than me, what political realism and cynism is about. I am a Greek, so i swear by Thucydides: "The strong will advance up to the point that his strength allows him and the weak will back off to the point that his weakness dictates him".

    You REALLY think that if Germany sees that it is in her best political or financial interest to oust Greece out of the euro, that it would really matter this whole discussion about "soft points"? Or is that the german pubblic opinion was ever enthusiastically about the greek bailout, that the bailout was given in the first place?

    If you ask my humble opinion, especially the greek case will be taught in political sciences university classes, about how NOT to handle your country's bankruptcy. Mr. Papandreou will earn his post in university history.

    And future economic students, will be reading the german press about how it was all to save the Greeks and they will be using it as a joke between coffee brakes "careful or i will give you a greek salvation".

    Even the PSI, will pass in the anals of economic history, as the most inconclusive debt restructuring EVER and the most ridiculous too, where about 50 bln of the 100bln, concerned greek pension funds and banks, which of course the greek state will have to recapitalize. That's why normally when a state is in bankruptcy, proceeds to restructuring immediately, doesn't wait for the situation to drag to ridiculous lenghts. But of course, had Germany agreed on early "PSI", the damage to EU banks would have been huge (never mind the debt was under greek law).


    1. No one can oust anyone from the EZ legally. That little point is often overlooked. I guess one could oust someone from the EU (and thus from the EZ in consequence) but short of the Greek neo-Nazis gaining absolute majority in parliament, I really can't see any defensible reason how someone could oust Greece from the EU. So "ousting" is not the issue.

      One could, of course, make life so miserable for Greece with the Euro that Greece decides on its own to "beg" for being allowed to leave the EZ. That, too, seems a bit far-fetched to me because no country, I am sure, wants to be seen in any way to perhaps have "leaned" on Greece to leave voluntarily.

      So I really think the only way to accomplish a Euro-exit would be for clear majority of Greeks wanting it. Everyone and his brother will want to make sure for the historical record that if a country left the EZ, it was entirely, but really entirely its own wish and desire.

      Who actually wanted the Euro? As I recall it, the Euro was the creation of EU-elites. I think the French Valery Giscard d'Estaing and the German Helmut Schmidt were totally on the same wavelength as far as a common currency was concerned. And since they considered themselves as uniquely smart, they may have even worked on the design.

      Germany was more or less "blackmailed" by the French where Mitterand insisted on Germany's participation in exchange for German Unification (as an effort "to tame Germany"...).

      If I recall, Greece's entry was a deal between Mitterand and Gerhard Schroeder. The tale goes (I think one of the two wrote about it in his memoirs) that they both knew that Greece wasn't fit to join. But then they figured something like "we can't really disallow the cradle of democracy from joining and since Greece is such a small country/economy, not much can go wrong". A small mistake the latter was...

    2. Legally yes. But indirectly, the ways are various. The easiest is for the ECB cutting the line to the greek banks. When various german politicians threaten every few days with ousting Greece, my understanding is that it's what they imply.

      Another is exactly to have the population "exhausted". Considering that not even one of the macroeconomic targets of the memorandum has achieved (with inflation being the worst problem and recession being almost double the one calculated by the troika), this is how you have people voting for Mr. Tsipras. I have close friends and relatives that were pro-memorandum in 2009 and now are fiercely against, exactly because they say that "all predictions have failed". Of course this isn't a surprise if one looks back to economical records. Countries that were asked to reduce that much (usually a bit less) deficits in so little time and with less reforms were Israel (with some US grants aid), Sweden and Denmark. Mr. Papandreou (and the troika who is supposed to be there for a reason and when really wants says "no" and do this), have failed by all accounts. And greek politicians have lied repeatedly, so many times, that very few believe them, they simply tolerate them. I don't believe either that Mr. Samaras can find 14 bln without cutting again pensions and wages as he claimed before the elections, but some did and will be the new "deluded and disappointed" , that will seek relief in Mr. Tsipras. This is why i keep saying that the coming of Mr. Tsipras seems inevitable at some point and only after Greece will reboot. Mr. Tsipras offers a hope. For me a false one, but for many others who have been lied to for 3 years and see all troika plans fail, it is better than no hope , as they perceive the troika plan.

      And no matter what theoretically they say, SYRIZA+Independent Greeks+KKE+Golden Dawn, advocate a policy which defacto will lead out of the euro. I mean, suppose SYRIZA had won the elections and tried renegotiation. Germany says "no". At that point, given that SYRIZA doesn't really care about the currency but more about its ideology, if i were Mr. Tsipras, i 'd put it at referendum "do you want to stay at all costs to euro with memorandum as is or not"? My feeling is that "no" would win. Exactly because of "exhaustion".

      In Italy, they say that France,Germany and Italy are the founding fathers of the euro, just like of the european union going back to De Gasperi era. But, on occasion, the paternity changes. It is, as we say "victory has many fathers, defeat has none". If the EZ gets more streamlined, i am sure in a decade, countries will be quarelling on who was the father :)


    3. >

      Mr. Kastner,about Greece, maybe that was what Mitterand and Schroeder told pubblically in the cameras. That's not political talking, that's intellectual talking. Corriere della Sera in Italy has one such per day:

      You see the 4 other little videos on the bottom? They are all writers/philosophers/poets, talking about "Europe can't be only money, Europe would loose its soul, Kavafis connects us back to the roots etc". Mr. Schoeder and Mr. Mitterand were no philosophers or poets. I doubt they 've even heard of Kavafis.

      The real reason, as i have written elsewhere, was that Simitis was promicing them ludicrous deals in Greece (all big contruction works that received EU funds, ended in french and german companies) and Simitis also increased vertically the percentage of french and german weapons sales,leaving the americans "dry". For example, in Simitis time, for the first time, the greek navy was completely de-americanized and franco-germanified.To this day, the greek navy has only german and french vessels. The Americans had to remain content with the airforce. In the army, also, Simitis ordered in the vast majority franco-german.

      Some were also seeing Greece as a springboard to penetrate into the balkans, through joint ventures with greek companies that had presence there since 1990. Cheap loans to Greece would in theory facilitate the greek penetration.

      It is the repetition story of "why put Greece in the EEC in 1981". The "romantic" version is about culture, friendship and support for a country that had come out of the dictatorship. A less romantic story, is about "securing" the only non-communist country in SE Balkans,with a vibrand left (Papandreou was advocating exiting NATO before 1981) and only geographical tie to the last NATO outpost(Turkey) and having handy the relations between greek politicians and greek shipping magnates (who are to this day the 1st ship owners in EU tonnage).

      Behing the nice words about culture, as the Americans say "FOLLOW THE MONEY".


    4. My problem with german politicians or press isn't realpolitik, but the fact that they don't admit it to the public. I also consider that the whole way that the german press and politicians have handled the greek problem is outright shameful. "The Greeks do that, the Greeks do this", "the Greeks do the other","The Greeks are like this", as if Greeks were one person. Or as if 10.000.000 Greeks were all working with Goldman Sachs to make swaps.

      Maybe i am too suspicious, but i have the suspicious that this campaign is fueled by the politicians, exactly in order to be able to "force" (by ECB or exhaustion) Greece out and everybody be happy about it.

      I mean, not that Greece isn't a nut case, leftist playground country, but it surprises me how everything is presented as a greek "exclusive trait" in the german press and politics. As if nobody else had big black economy, corruption, tax evasion, pension frauds etc. I have lived long enough in Italy to know enough horror stories. But, neither the german press nor politicians dare attack Italy like that. Because, you can't have Italy leaving or Italians enraged, can you. While, if you want to have politically open the option to finally "get over" with Greece, you must also have the population prepared properly about it, both domestically and internationally. This is what i would do if i were Merkel.


  4. One of the things that come to my mind when i read all the german comments of "we didn't want the euro, we were blackmailed, we are being exploited by the others and are the victims of the eurozone", is "why do you prefer to pay then rather than get out and return to the DM"? How high is the percentage of the german parties that advocate a policy of leaving the euro? 20%? 30%?

    Or is it that realpolitik is dead in Germany and sentimentalists have taken over? There can't be another explanation.

    The only other explanation that comes to my mind is the recent "economic game" by BofA-Merrill Lynch, where they gave a number from 1 to 10 in the various EZ countries of their economic gains if they leave the euro.

    Oddly enough, Ireland and Italy scored 3,5, Greece 5,3 and Germany was last with 8,5. Maybe this is a logical explanation, that though, no politician cared explain to the german voter (as didn't explain either that the important part of the bail outs were the banks, not the countries).


  5. Klaus, taking into consideration things separately from the general perception of a specific period and make observations (which many are right) we are loosing the details which in some cases are vital.
    For the remark that Ger did not want euro zone, this is might be truth.
    But practically helped Ger to subsidize with a very good credit evaluation many other Europeans, but also strengthen above expectations i believe Ger to maintain a huge proportion of every euro used in Gr or in Por etc by "socializing" the Ger advantages where ever seen.
    An example, if all the countries near US, Canada and Latin decided to use $ who will benefited most no matter if let’s assume Latin countries make huge reforms?
    But evaluating fairly the German determination to implement reforms (in "cold time" and no recession of even 2 %) from 2000' i want to say also 2 words "Lisbon Treaty".
    This was nominated as the primary goal for periphery countries (periphery cohesion ...) without even implementing especially in case of Gr a few structural reforms or developing a model to improve competitiveness.
    So right? policies started with the worst order to achieve what in 2000-5?
    Many forget the luck of even a generally acceptable policy in large issues happen in europe's neighborhood, which in most cases underline differences of countries that could be world number one or two superpower if in a way acted as if united at least financially.
    A decision for a political or other action give a strategic advantage for the one who is taking the decision to use its influence, in clearly economic issues, he benefited from zero no matter what Ger or Fra or Esp might have planned.
    So the entry of euro was not also targeting the better economic let say cooperation but by enforcing economic inderdepence thought economy, gave indications for political multifaceted role which related and with better economic agreements (eu - the others.)
    Finally the real point TODAY is not how much Greeks benefited more and improve living standards and Germany didn't need to, or what might demand many from the Ger today, or the extreme allegations against Ger, but whether euro certify only the financial perception of a situation and nothing more or a more complicated with extend in the global balance of geo politics -influence or not. And possible unspecified effects from a denial.

    PS: “We were essentially blackmailed into joining the Eurozone (the price for German unification)”
    Is this truth? Blackmailed?

  6. The dog ate my homework.

    That's what the Germans are telling us.

    Honestly, it's getting tiring.

    Monetary union means transfers. If not direct, then indirect, like the solution that you advocate through your blog (barriers to revive domestic activity).

    If not, let's abolish the monetary union. It's gonna be remembered as yet another failed effort to establish liberalism (with the dreadful globalization soon to follow).

    But let's get back to the Germans.

    First of all, nobody wants the Germans' cash. That's a lie. It is they themselves who insist on lending their cash. What we want is the ECB's cash, or rather their cash "printing" ability. The Euro is after all the currency of 17 countries, not just Germany's.

    Secondly, the Germans' cash is a result of their artificially enhanced current account surpluses, thanks to the lack of devaluations on the part of the other Euro members. In other words, they would have never had these current account surpluses if it wasn't for the Euro.

    And finally, Germans, if you don't like it, then leave. Please.

    1. Some get some ECB cash, indirectly by selling debt instruments to banks, which then use them as collateral to borrow from the ECB. This is probably done to bypass German political objections but also to make sure that the cash injections are fine tuned. This and other similar tricks make a joke of German objections. I think the important questions are: officially, who decides when the printing press starts? Now only the ECB chairman does, making him exceedingly powerful.Secondly who burns the short positions in the Eurozone sovereign debt markets? Hopefully the stability mechanisms.
      Well ladies and gentlemen see you in September.

    2. For some reason, the Germans want a hard currency, even though they would buy little with said hard currency. They're hoarders.

      This means that they have a tendency towards shipping their production abroad, for others to enjoy, in exchange for currency, which they hoard. And in order to keep shipping their production abroad, they hoard some more (suppress domestic demand that is).

      Oh well, each to his own. But why should we share a currency?

    3. Yes, I would agree that the mentality of Germans is more that of hoarders. That goes pretty much for Austrians, too, and probably for other people who have a history of having lost everything and who want to make sure that they have something on the side as "security". I guess a German (or Austrian) feels secure when he knows that he is financially ok until the rest of his life (or even longer...).

      I first came to the US as an exchange student in the late 1960s. My guest-father owned a hardware store. One evening we had dinner out with some friends of theirs. The bill was about 100 USD. I was shocked! At the then exchange rate, that was a good portion of what my father earned a month back in Austria. But what really shocked me was when they left a tip of about 15 USD. That was so much money for me as an 18-year old!

      When I mentioned this to my guest-mother, she told me: "Look, these people buy a lot of things at our store and we want them to keep doing that".

      Well, such thinking had never crossed my mind in my Austrian education/formation. That one person's spending is another person's income was sort of a new relevation for me.

      I think it would be futile to try to change deeply-rooted national habits. It would be hopeless to teach Greeks not to make life enjoyable and it would be hopeless to teach Germans to make life more enjoyable. New Englanders will always be different from Californians.

      Where you (and all the others who argue similarly) are totally wrong is when you suggest that someone in Germany is suppressing domestic demand on purpose. You are talking about individual companies who elect to export and you are talking about individual people who pursue their spending habits. There really is no "government guidance" to that effect, and there couldn't be in a free market.

      It's a bit like the ECB's handing out billions of Euros to banks in the hope that they would lend more and the banks, instead, deposit the money back with the ECB. If banks are fearful to make loans, they won't make them regardless how much liquidity they have. If individuals need to "hoard" to feel secure, they will do that regardless how much money they have.

    4. I am a big fan of Michael Pettis' work (at China Financial Markets).

      Perhaps you have heard of him.

      I don't think he would agree with you, about Germany not suppressing domestic demand.

      Germany went through reforms which directly affected it's balance of payments, and as such the balance of payments of it's trade partners (albeit on the opposite direction). In that aspect, Germany gave it's trading partners two options: either they would adjust pro-cyclically through recession and high unemployment, or they would go through credit expansions.

      We know the rest.

      And it would okay, if it wasn't for the monetary union.

      Mercantilism simply works to unravel monetary union. It's time the Germans learnt that.

    5. I am quite impressed how certain buzzwords make the rounds these days (mercantilism, transfer union, etc.) while most people using the terms demonstrate that they have no idea what these terms really mean. Perhaps you want to read up on mercantilism and check if there is ANY European country today with meets the definitions (a state controlling the economy to its own advantage).

      Germany was headed for terrific trouble in the early 2000s (I lived there then): enormous budget deficits; unemployment moving towards 5 million; loss of competitiveness; etc. etc. It was referred to as the "sick man of Europe" and accused of dragging the overall growth rate of the EU. Reforms were then as necessary as they are now in Greece.

      Germany's reforms aimed at LIBERALIZING its economy and not at given the state control over it!!! Germany has to be competitive in the world market and thus has to have a completely different perspective than most other European countries. Germany had no choice but to do something which would make it more competitive in world markets. And it was a Social Democrat (not a neo-liberal...) who did it. Congrats to him!

      I have explained before that none of Germany's policies did anything to unravel the monetary union (except that they, and France, were the first ones to break the Maastricht rules and that was indeed a crime!). If German banks lent so much money to other countries, that was their choice and not the government's order. If German exporters exported so much, that was their accomplishment and not the government's. Etc.

      If I had to pick only one reason which may become the cause for the unravelling of the monetary union, it is the fact that the financial sector all over the place had totally failed in its role of being an efficient allocator of financial resources. Those resources were allocated to things like sub-prime, Bernie Madoff, banking bubbles in Ireland/Iceland, real estate bubbles in Spain; public spending bubbles in Greece; etc.

      Germany is now having to learn what the US had to learn decades ago. When you are perceived to be powerful, you are going to get blamed for everything. If the dollar goes up, Americans are blamed for not controlling their currency. If it goes down, they are blamed for not supporting it. If Americans do this, that or the other, they are being blamed for this, that and the other. Germany is rapidly assuming a similar role.

      That is what Germans have to learn and get used to. Not much else, really.

    6. I apply the term mercantilism loosely.

      As for Germany, I just don't want to share the currency with them.

      No hard feelings, they can have the Deutsche Mark, and they can be as competitive as they like.

      The Mark is gonna go up, so they're gonna have to be even more competitive, then it will go up some more etc etc ad infinitum.

      It's their choice. I just don't see why we would have to go through the same deflationary policies (when we don't even have the industrial base) just because some people had the "bright" idea that Europe should have the same currency.

      It doesn't. Abolish the Euro.

    7. I can see that some may not wish to share the currency with Germany. Let me give you an example why others decided to do it.

      The Austrian economy was always a few nodges below the German one in post-WW2, among others because it was so politicized (similar to Greece). From that stanpoint, Austria was often described as a "second-class Germany" during post WW2. During the 1970s, there was enormous pressure from Austrian industry/businesses to devalue the Schilling against the DM because the strong currency was hurting.

      The young Finance Minister at the time (Androsch) took it up with his Chancellor and mentor (the sun-king Kreisky). Androsch insisted on following a hard-currency policy and pegging the Schilling to the DM. Well, that was one of the reasons why the sun-king eventually kicked out his favorite follower (but by that time, the hard-currency policy was already fully in place).

      Androsch's logic was that (a) with a soft currency we would import inflation (energy, cars) and that (b) only a hard-currency policy would succeed it making the Austrian economy as efficient as it should be.

      Androsch prevailed and I don't think there is a single Austrian today who would not consider this as one of his greatest feats. The pegging to the DM and, later, the joining of the open-market EU, put enormous pressures on the Austrian economy. Really enormous and painful pressures. But the economy, actually quite brilliantly, adapted and became efficient. A few years ago when Germany was in crisis and Austria not, DER SPIEGEL had a front-page report titled "Are Austrians now the better Germans?"

      To me, that was a turning point in the post-WW2 economic history of Austria. Had we pursued a soft-currency policy then, Austria would today be in the company of the Southern Periphery.

      People who wish Germany to leave the EZ so that the new DM revalues and hurts German exports tend to overlook one little detail: the stronger a new DM, the more purchasing power it would have in soft-currency countries. So I wonder what the reaction would be the day when German companies and Germans privately buy up much of "cheap" Greece!?!

      Why should "you" (I don't know where you are) go through deflationary policies? Well, certainly not because of the Euro! Because of your own people!!! If you had your own currency, you would have high inflation. So what? Well, I have lived in Argentina when inflation was around 30% per month!

      From the standpoint of a government and of elites, inflation is a wonderful instrument to expropriate the masses. It's a tax where only an informed minority knows that it is paying it. And that minority can as a general rule protect against it.

      Beyond doubt, inflation is a wonderful instrument to enrich the few at the expense of the masses. I don't think that this is a strategy which you want to pursue.

      At the end of the day, it's not the currency per se which matters. The curreny is only the instrument which denomitates the underlying economic strength of an economy. If the economy is weaker relative to others, then the national standard of living must be lower, too. Only if you promise all members of a monetary union the same living standard do you require a transfer union. Germany has promised that to all its federal states and that's why they have a transfer union.

      No one has promised every EZ country that they should have the same living standard. What happened through Euro (actually, a very natural thing to happen) is that everybody thought he was now entitled to the same living standard as the strongest one.

      Of course you could abolish the Euro. Currency unions have been dissolved before. National economies would find new balances against each other. The only thing is, in my opinion: national currencies would make the strong economies stronger and the weak ones weaker.

    8. Fair enough, Austria managed to reform through a hard-currency peg. Why is it assumed that other countries can manage the same?

      I am from Greece and I say that Greece won't manage. It might have managed back in the late 70's, when there was a still an industrial base, and the public administration was more effective. Today it won't.

      Furthermore, the delay to exit this dreadful monetary-union-without-a-political-union is making matters worse. Eventually Greece will be forced to leave anyway. The difference is that a lot of Greeks and Greek companies will be bankrupt by that point, after X years of trying - unsuccessfully - to reform.

      I have lived through periods when the inflation rate was 25%. It was infinitely better to the current depression. And while inflation is a redistribution in favour of certain sectors of the economy, the current deflation and contraction is a redistribution in favour of owners of capital and against everybody else.

      "The only thing is, in my opinion: national currencies would make the strong economies stronger and the weak ones weaker."

      I don't believe that's entirely true. If the currencies free-floated, there would be adjustment through the exchange rate, which is easier and preferable. If not, then the strong economies would be forced to buy financial assets of the weaker countries in order to put to use the reserves that they have accumulated, and thus allow the artificial exchange rate to be maintained.

    9. Well, as of now you may very well be correct in your views as regards Greece. It all depends whether a country can manage to reform itself into good shape. One of the ideas behind the Euro was that if the Periphery is given the Maastricht straight-jacket, they will have to reform. They did not consider that countries do not reform when money flows so freely. Whether or not Greece could still reform now? You say no. At this stage of the game and with the experiences of the last 2-3 years years, I also have to say "probably not". But I wouldn't rule it out altogether yet (hope dies last...). Give the new government a chance! What's another 6 months or so?

    10. I agree, the goverment has at least the right given by the vote to try.

      Besides, maybe something else can happen in 6 months.

      Interestingly, an electronic poll conducted by "Giornale" (Berlusconi's property) italian newspaper, has 73% of the readers wanting to go back to the lira.

      So, yes, let's wait a bit more.

      As for the drachma, as Rothchild said "give me control over a country's currency and i don't care who makes the laws". The control of currency is just a tool, not a panacea. But a tool that can help you on occasion. See how the Americans printed their way out of the crisis. If the Americans were in place of the EU today, they would have also printed, to bring the euro closer to the dollar and give a helping hand to those in trouble. Instead, you have "virtuous" Spain having their finance minister saying they 're out of money, the "super-virtuous" Italy of the highly praised Monti being declassified by Moody's and regions starting to pop and isolated cities too. If you look back at the lira era, Italy's exports were much better than today.

      And i agree with Slip (Mr. Sinn does too!!!). Inflation is a much more subtle poison. Internal devaluation which among other things doesn't work, isn't.

      And there is little point in reducing and reducing your working costs, when there is nobody willing to invest in a country that may change currency every 3 months and every 3 months we are back to the usual question "will Greece default?". Would you invest or wait? I 'd wait, unless there was something ready to buy at very low price or if i could invest in something "drachma-proof", like in greek oil or gas exploration.

      If you see the charts of various economy sectors in Greece, they are all dropping like rocks. The initial theory that "the crisis will weed out the healthy from the precarious businesses", doesn't work anymore. Someone else owes to you and can't pay or the state owes you and doesn't pay or you need a bank warrancy and is not accepted abroads and you are strangled. And you have the IMF saying "drop the salaries below the 580 euros". For who? For the investors that won't come? Corporate tax in Bulgaria is 10%, why not go there instead of in country in dubious currency position?

      And as Slip says, Greece has been running without banks practically. You have better hopes to get audience from the Pope than getting a loan from a greek bank. Maybe SYRIZA's best point is actually that they want the banks nationalized, so to force them to invest the small liquidity they have. Another point is that maybe SYRIZA would really hit the higher incomes in tax evasion, because they have ideologically driven motives and not as much ties with them as PASOK-ND have. This ends SYRIZA's strong points.

      In the past, Greece wasn't reformed by the same people responsible for the bankruptcy. This time, if they manag to do it, it will be a novelty. Usually the NEED gives birth to new political forces or politicians, after the "old guard" is eliminated. With the current situation the old guard keeps struggling to live, but they are not "trainned" in reforming, since they are asked to demolish what they built.

      Consider that PASOK-ND owe,as parties, to the banks, about 220 mln euros. They can't save their own parties and are asked to save the country in record time...Not easy...


    11. The return to the drachma, in a sense, will be the first real step for "catharsis" in the greek politics. Normally, now there should have been a trial of politicians who were hiding deficits etc. But how can that happen, when they are on power and enjoy political immunity... Satisfaction of the public's opinion will for justice is important. It is an important factor that defused the political turmoil after 1922 disaster.

      Another risk is that i doubt greek politicians have a plan on when and how to exit. Ideally, in my opinion, the perfect time to do Grexit, is New Years Eve. The banks will be closed for nearly a week either way and you can start the new year with clean sheets,with everything calculated in the new currency.Also, traditionally in Greece 2 "stable" sources of foreign currency influx was tourism and shipping.January is reasonably far away from tourist period. One thing is to have a hit, another is wait for someone else to force you out 1-2 months before it.

      The other worrying thing is how the population will react.There will be some turmoil, but after, it's anyone's guess. Mr. Tsipras may actually prove useful here, in collecting the people's wrath. It will be a weird situation. Part of every Greek will feel relief i think, for not having at least, to answer to or to hide behind the troika. The KKE might be tempted to make "popular revolution" (which is its only plan to govern, as they admit), in that case the army will intervene. Which is better than civil war.

      The biggest initial hit will be to the current 20 year olds, which will have to live without new cellular phone,i-pod,i-pad,i-something and all the rest of non essential imported goods and the 20year old girl that is accustomed to put "Kerrygold" cheese on her spaghetti, rather than some greek kefalotyri, but, on the bright side, they won't be able to complain about the memorandum and since 66% are in facour of abolishing it, there, your wish is satisfied, now you have to swim the way you can and like.

      I actually think it will have a positive impact on the life-style of young Greeks, re-discover what the essential things in life are.As i said, i have lived in a Greece without asphalt in the roads, but people were better and happier too. It's like the old greek proverb, that says "much money rottens the man".

      They will also become healthier than now, going back to traditional mediterranean diet, since Greece has almost self-sufficiency in fruit and vegetables, but imports 50% of meat from the Balkans, courtesy of the euro and "free borders".It will also push the goverment to accelerate the snail-pace program of giving agricultural land to long term leasing to new unemployed people. Already several young couples return to the abbandoned farms of their grandparents in the province,something very positive, this will be accelerated once they see that cities won't be offering any big opportubity any time soon.

      Greek and foreign investors will then bring back their capitals from Switzerland and start substituting basic import products with locally produced.


    12. >

      The inflation is a problem, it will hit those on fix income the most, but will also have beneficial impact to some non rich who are indebted. Also, assuming the drachma will devaluate 50%, inflation won't be 1:1 as many analysts in Greece suggest, but 1:2 or less. There is one parameter that they ignore in the equation . High unemployment. There are historical precedents that show, that high unemployment keeps inflation lower than expected. Already a 25% inflation is something that Greece has lived with in the 80s. It may turn out less, due to the high unemployment. Italy (without defaulting) in 1992 devaluated 20% overnight, inflation was kept at 4-5%. China is also printing a lot to keep their currency down. In Greece there are several analysts that use scare tactics of 50% devulation=50% inflation (or some want to be more generous and throw a 70% on the table). Argentina if memory serves me, devaluated 75% to the dollar.

      On the positive sides, Greece has already done improvements on the current account deficit side. Imposing capital control and import tax, will further help to invert the situation.

      Scaremongering by politicians that Greece will be without fuel, is maybe a temporary situation, until Greece builds some foreign currency reserves (or decides to use her gold reserve), but is exagerated because it doesn't take into account some realities. Greece has already oil extraction in Thassos. Not enough to cover all needs, but nontheless elementary needs and extraction can be accelerated. Also, the price of fuel in Greece is overburdoned by state tax. You can easily recover on fuel price by lowering accordingly the state tax.

      It will not be a happy situation, but a) it will be clear field for investments, b) it will drop all political populism about "let's get out of the memorandum", c) It will force Greeks to either rebuild like their forefathers have done from scratch at least 2 times in the 20th century or commit suicide (a nation has the right to that too).

      It will also teach younger Greeks an old greek proverb: "If you can't scratch your own back, nobody will". And also "better with ruler of my own fate, than relying to the ECB's mercy". "Once out of the euro, stay out of it" and "don't expect to be saved by a German to which you owe money, he will rather have you die to make an example out of you" :)))

      I have followed several Italian university professors. They all agree that Greece is going nowhere with this. They all say "Greece unless helped with direct investments, will go deeper and deeper in a hole with no exit. The return to the drachma will be very bad, but at least you react and gives you a prospect.Staying in current path doesn't give you prospect and what makes our world go forward is prospect. If i have prospect that my country has hit the bottom, then i will buy something the next day. If i think that i don't see a prospect, i don't buy, i don't invest, reforms or no reforms. I simply die reformed.".

      These are elementary things...


    13. I think you hit it on the nail when you referred, conceptually, to the 20-year olds as the biggest victims. That is excactly the point which I have been making forever. You say it would be a minor point. I am not so sure.

      It is one thing never having been spoiled and not ever being spoiled. It can be quite another thing to have been spoiled but to have to give it up.

      I remember Greece in the 1970s. Cars were luxury items with high import tariffs. Everything imported was kind of expensive. Life was simple (outside the big cities) and, at least for foreigners, cheap. Living standards comparatively low. Happiness of people high (suicides probably low...).

      The dramatic increase in "modern" living standards (cars, bikes, smartphones, etc. etc.) was debt-financed and imported. You say Greeks could easily forget those niceties. Maybe yes, maybe no. For sure it wouldn't hurt if 20-year olds learned what real life is all about.

      I would not be worried about foreign currency for the basics. There is no way that the EU could allow a member state to become a starving nation (unless Greek radicals were to declare economic war on the EU). So I wouldn't worry so much about energy, medicines, foodstuffs, etc.

      The question really is: can Greeks return to a living standard which corresponds to the current strength of its economy? If yes, go for the Drachma. If not, try everything to hold on to the Euro!

    14. Dear Mr. Kastner,

      It's it not about forgetting, it is about living with reality. They don't want the current path, let them have the other... At that point, if one throws you in deep water, either you swim or drown.

      After all, what is "living standards"? What is happyness in life? It's not like today youngster can live with 390 euros of unemployment subsidy or make family or with none at all (most live with money from the grandfather who just eats and takes medicine and the rest gives to the grandchild).

      I don't know,i believe that when a nation sees only way out as the only road, then it unites and goes forth. Greece has done it all the time in the past. Other generations had to face wars or wars+bankruptcy. They got by, they swam.

      It may also teach them that ideals alone don't bring money. I mean young Greeks of the left, think that if you protest or "take the money of the rich",you can live forever fine. Realism brings money, not political ideology. I don't believe in an ideology that is economic panacea either. Now i am liberal, if tomorrow i judge that this brings bad to the country, i will become socialist, in other occasion i will become ultra-conservative. And one must see where and how can fight. Fighting the way the big European countries want to fight and the wars they want, isn't necessarily the same for me. For me for example, Greece must at all costs have high production in agriculture, meat and fish. For times like this. You can't eat a car. If i see the Egyptian or Turkish fisherman killing me with the euro and the EU rules about nets, i must ask the EU to do something or i must see other choices (like dropping the euro).

      The drachma, once the economy is back on tracks doesn't need to be "mud currency". The best period in modern Greece, was with the drachma pegged to the dollar. For 30 years it worked. When you are a small person, you need flexibility in your fights. You must pick your fights and the place of battle. Greece with the euro made a step father from its own foot could reach. The greek political elite and bankers wanted it. The country couldn't bare it.


    15. Dear Mr. Kastner,

      About this:

      " There is no way that the EU could allow a member state to become a starving nation (unless Greek radicals were to declare economic war on the EU). So I wouldn't worry so much about energy, medicines, foodstuffs, etc."

      A greek proverb says: "the one who guards his clothes, retains at least half of it".

      With all the faith to european charity that i may have, i would prefer for Greece to have its own means at all times. Greek history has shown many times promices of great powers to come to aid, only to find Greeks butchered. Ex. Catherine of Russia and the "Orlof case" and "Smyrne 1922", where the ships of our "allies" were docked in the port, wathching the massacre and cutting the ropes that the drowing greek civillians were trying to grab in order to climb in our "allies" ships. As the US counsul of the time Horton wrote "it was the day i felt shame for being a human being" and "if one of the allied ships had fired a single cannon shot, the greek civillians would have survived".

      Energy itself shouldnt' be a problem. Greece has lignite and hydroelectris stations that cover the country almost entirely (there are some interconnections with Bulgaria and Italy, when one gives KWh to the other when needed, i don't know at what percentages). Probably initially there will be some shortages, till DEI sorts out her finances and probably see how to work with the deals with Bulgaria-Italy.

      Greek pharmaceutical companies manufacture as generics about 80% of main drug categories. I don't know how fast they can cover the amount needed, but given that Greece overspends in drugs for no purpose, i suppose basic hospital needs and for chronic patients will be found. Some will have to be imported. Ah, another sector penalized from greek politicians. Instead of introducing generic drugs as compulsory,boosting greek pharmaceuticals, they were importing and using in hospitals the foreign ones, that cost more.

      I think your final question is to be put in referendum. I think "yes" will prevail. The more you go on with internal devaluation and the more they don't see a light, the more the "yes" will prevail. In youngsters polls show 66% don't want the memorandum. Maybe one can first try the prof. Varoufakis "trick" of basically defaulting within the euro. But i don't believe it would work.

      People adjust at the end to new realities.Before WWII Greeks at least had plenty of food.During WWII they learnt to eat even the lemons. My family was lucky enough to live in province. They were eating like 9 olives a day for a period.The entire school class photograph for my father shows skinny children with huge heads. Others were eating one day one family member,another the day after and so on. They adjusted.

      Having a full belly is more comforting that an i-pad. Young Greeks are learning that too now, the hard way.It will be then up to them to swim like their elders did or drown.

      I know happyness isn't the i-pad.My father didn't have money to buy me bicycle, so he was renting one for 1h :) When he finally got the money to get me one, it was made in Lubljana, because it was the cheaper he could afford. But i was much happier than today's children that have playstation.


  7. Greeks speciall in pre-Papandreou era were feeling secure with owning a house and a piece of land. I concur with that, it has been proven bulletproof investment. With PASOK they started investing in costly cars. PASOK did much more damage to greek psyche than just economic damage. They tried to do everything opposite of what the right wing was doing. They even changed the way greek is written, as many leftists have a sort of hatred or a complicated inferiority complex towards ancient greek or even byzantine heritage. It is what i call "balkan intellectual complex", who is a rich European wannabe and in his attempt to become the same as the rich people he envies, feels misery for anything greek, even for things that are treasured all over the world (to give you an example, with PASOK, greek students, came to study ancient greek for 2 or 3 years max, while in Italy, they do so for 5). Or a former PASOK minister, was in favour of abolishing greek alphabet and writing in latin alphabet. This is typical.

    Back to Germany, there is one thing. In a way or the other, Germany froze workers' salaries (which had already though a good purchase power) for 10 years. This wasn't politically doable in the south, exactly because of the conversion. I 've already told about Greece. In Italy it was the same. 1 euro=1936 lire. When the euro changed,a small pizza piece costing 1000 lire, became 1 euro (= 1936 lire). In the name of "free market" and "Eu regulations", a price limit could not be put. The Italian goverment correctly, asked to issue 1 euro bill, exactly because like other southerners, in the mind of an Italian, a coin had little value.The highest lira coin was 500 lire, approx 1/4 of the euro, not much you could do with it.Idea rejected by Germany at the time. You can't change easily the perception of money in people. Putting the salaries of the south in "freezer", was political impossible in the south, from the moment that this kind of abnormal conversion happened and prices doubled or worse. The error was not doing reforms either. Again, this was mentality problem. Southern politicians were accustomed to solve problems through devaluation. The rise of the euro to the dollar did the rest (in Greece,for example, American tourists dropped like a rock, because Greece was now very expensive to their eyes).

    There is little to be said. For the EU to survive, it will either function more like the US does or it will sooner or later dissolve. Crisis always happen sooner or later, you can't expect people to accept this situation as the normality forever.


    1. I cannot point out often enough: Germany (i. e. the state) DID NOT freeze salaries for 10 years. The state can't do that! Salaries are set in negotiations between employers and the unions; free negotiations that is. The government has no role in them (not even with the public sector).

      Now clearly, Agenda 2010 set policies which aimed at reducing some of the extremely costly "social security" (which security actually contributed to unemployment). Sectors of the labor market were freed up; hiring/firing was made easier; unemployee benefits were reigned in; etc. Obviously, all of that had an impact that freely negotiated salaries did not turn out as high as they would have otherwise.

      The myth is that all Germans are so rich. Well, not true. Unemployment has been reduced fantastically in recent years but where did the jobs go? Many of them into low-paying jobs, personnel leasing, etc. Certainly not the quality jobs which all Germans have been raised to think that they are entitled to them.

      So you have today a large portion of German employees who have to get along with bare minimum. Those are the Germans that really get upset when they are told that the South has to suffer because they want to live so well.

      When will Europe grow up, leave its cosy living room and start realizing that the enemy is not within but outside of Europe. Much of the rest of the world which contributed to Europe's prosperity and social welfare over the decades has awakened and realized that, with the world becoming a global village, they can now compete with their former "masters". That is where the pressure on European economies and welfare states comes from; not from Germany.

    2. Dear Mr. Kastner,

      Maybe i was misinterpreted. Yes, of course, the state, can't intervene in negotiations between the social parts and say "Listen trade unions, you will get no raise for the next 10 years,now get out of here!". It is not communism, where the state is the employer.

      Exactly, like you say, the Agenda 2010 (which is the german implementation of the Lisbon agenda 2000 of EU), gave politically the conditions, so that employers and employees could find a new balance of "power" if you like, which resulted in a more or less freezing of wages in Germany.

      What i am saying, is that, politically, in the south, due to the conversion, it was impossible to implement their own part of Lisbon Agenda 2000, because, if they followed a policy that was shifting the power of negotiations in favour of the employers, they would be in deep political trouble. In the south, the idea about Lisbon agenda, was "let the market re-adjust itself for now and we will see about what reforms can be done later". This policy showed though, little results , because of a combination of political cowardness and instead of overcoming this fear as the euro was gaining strength, they kept going like before. At the end, it was a political action that drove the salaries to freeze.See what happens to Greece now. Basically, you have the Lisbon agenda enforced rapidly within the memorandum. Who do the employees of 500 euros now blame? Their employer?No. Mr. Venizelos...

      I don't think anyone believes that all Germans are rich, this would be naive.But on average a german worker had initially more purchase power than an italian or greek worker, and thus more easily acceptable and politically doable, to promote immediately the Lisbon agenda. As you say, many german employees are getting along with bare minimum. Imagine an a greek employee that before the crisis was complaining about living in a country with 700 euros (the so called "700 euro generation"), where the prices in greek Lidls were higher than german Lidls and a 50 m2 house was costing 250-300 euros. Or in Italy, where especially in the south due to unemployment rates, salaries were quite low too. In all southern countries, due to unemployment and illegal immigration workforce at hand, there was high black economy, which was even lower paid (also working without insurance). It is easier to apply policies which will freeze or bring down the salaries in a country where your salary is say 1200 euros, than where it is 1000 euros or 800 euros.

      The problem with the EU, is that it tries to find all the time "one that fits all economies" rules,just like the "one that fits all currency", while each country in reality stays alone and competes with the others.

      As you say, the enemy of Europe is the BRICS, the rise of which is inevitable and Europe will have to live with less. Alas, the EU as it works now, has no chance against the BRICS. Either it will work like the US or will perish.

      I continue to think that that the euro was a mistake for Greece, for various reasons, not just because of dubbious "one fits all " rules in the EU, but also about the impreparation of the greek economy to handle a strong currency like the euro and the current nature of main greek economy's competitors, which are both euro and non euro countries and several eu regulations (like the impossibility to apply import tax or the impossibility to give even temporarily visa-free entrance to the country to say Russian tourists), are like having regulations that hinder automobile or machinery industry in Germany. In lesser extent, this is what also causes discontent with the labour market reforms now happening in Spain, Italy and Portugal.


    3. In retrospect we all know that the Euro was probably a mistake for Greece (and others). Alas, in retrospect...

      I guess the idea of EU-elites versus the "spend-thrift" Southern Periphery was "let's give them the Euro and, with it, the Maastricht straight jacket and then they will have to reform".

      The minor miscalculation was that no one - no person, no company, no country, not anybody - ever makes painful reforms until everyone is convinced that it is necessary and as long as the money flows (like with the Euro), no one could really see why they should make painful reforms. From that standpoint, the Euro made things worse because more money flowed as a result of the Euro than would probably have flowed without it.

      I think the former German Chancellor Gerhard Schroeder would be offended if he read that his Agenda 2010 was nothing other than the implementation of the Lisbon Treaty. He would say - and I would tend to agree with him even though I disagreed with him in many other aspects - that the Agenda 2010 was entirely his own baby. He did it because he realized that Germany would not have a future without it. That took a lot of courage, courage which one would have much more expected to come from his conservative opponents but, if I recall correctly, his opponents made it quite difficult for him to get Agenda 2010 approved.

      Notwithstanding the above, I still think that the Euro could have worked if there had been better and more courageous governance. Governance at the EU-level as well as at the national levels.

      Mind you, this was not sub-prime where somewhat uninformed people were convinced by mortgage salesmen to take up a loan because that was the way to get rich. On the contrary, everyone involved belonged to the economic/intellectual/political elites of each country.

      Who was involved in taking on so much debt for Greece? A somewhat uninformed near-illiterate who didn't know what he was doing?

      I think over 90% of the new foreign debt from 2001-10 was taken up by the government and by the banking sector.

      Any government's debt management office, also Greece's, is staffed by the most professional people around. They are absolute experts at finance. They deal every day with the likes of Goldman, Deutsche, etc.

      The banking sector is spearheaded by the Bank of Greece. The BoG is definitely, like any national CB, a home for top experts who know what they are doing. And to the extent that loans were taken up by the banks themselves, one would like to think that the responsibles there were also experts (at least they all spoke English very well...).

      So just like very professional lenders made very irresponsible lending decisions, very professional borrowers made very irresponsible borrowing decisions. And then, of course, you had the national political elites who liked the debt since it helped them to get reelected.

      Finally, you had EU-elites who were simply arrogant; full stop. They thought that with the Euro they had invented the greatest thing since sliced bread and as late as only 3 years ago, one was still hearing voices how wonderfully strong the Euro had become and that it would replace the USD as a reserve currency soon. We Europeans will show you Americans...

      Everyone now seems to think that if there were a central Euro-treasury, all problems would be solved. Well, if that treasury were staffed by similarly arrogant elites, the results would not be much different from before. I am a firm believer in the importance of good institutions but you can have the best institutions --- if the people filling them are not up to it, the results will be messy.

    4. Dear Mr. Kastner,

      I didn't mean the Lisbon Treaty (it came after Mr. Schroeder's plan and had little to do with it). I am referring to the long forgotten Lisbon Agenda 2000, which was agreed in 2000 and if had been implemented by all states, we wouldn't be talking about many problems today. Alas, it predicted that each country would do a "national plan" (which i think is in Germany identifiable with "Agenda 2010"). Guess what, most did nothing about that. The "famous" Bolkenstein guideline that several years later had causes much talking amongst trade unions in Europe, was an attempt to force something along the reasoning of Lisbon agenda 2000.

      The "professionals" in high places are more often than not in close connection with the politicians at power or simply leave the responsibility to be held by the politicians in power. That's why you didn't see anyone resign in the southern countries despite the policy followed.

      In Greece, the goverment thought "ah, low borrowing costs, good, no reason to do something about the debt" and the fact that the conversion triplicated the prices, showed the easy way of "ok, we will give raises, time to borrow more". Similary, the banks, supported a model of bubbling the consumption through loans with nothing professional in them (get a loan to go to Tahiti in summer, get a loan to buy a BMW, everybody get a mortgage and so on). Alas, a hypertrophic services sector, sustained like that, was bound to make state finances collapse when the US crisis hit.

      A similar trend was followed in Italy, where there is primary production and high exports, but at political level, the situation was treated the same: "How do you treat the fact that that the lira-euro conversion doubled prices? You raise salaries/pensions and you borrow more of course". And again, you don't do reforms and as long as the debt/GDP remains more or less stable, you let things proceed as usual...

      You can see here how the italian public debt almost doubled in absolute numbers, after the euro.

      Now Italy's main problem isn't the economy itself (the productiva basis is there and can work), it's the italian state that is in trouble, with the high debt and low GDP growth scaring away investors.

      Like you say, it takes political courage to make unpopular reforms. To me, the big error of the south, was not predicting the blunder with the euro-conversion. This was the first lost fight. I remember at time in Greece people asking for putting "price limit" and the minister replying "it's not in EU rules". The south should have asked for provvisionary change of the rules, until the prices are stabilized within logical margins compared to pre-euro levels. It was polically impossible at the time to say "prices have doubled,but sorry, now we have to do a Schroeder-like reform too, where you will lose income".
      Despite that, the southernerns could have started with some delay, a more gradual reform later. It would have produced slower results and lesser results than Germany's agenda 2010, but it would have done things less drammatic now.

      For the rest, the EU will need to be "americanized" and a new "Basel" treaty for banks, with stricter regulation about portfolio quality and leverage limits.


    5. >

      For the little that matters, i was against the euro for Greece and the Olympics, before they happened. But in both cases, it was PASOK's decision. You didn't need to be a fortuneteller to see why. But at the time, Mr. Simitis was selling the euro like "heaven" for Greeks.

      For similar reasons i have my doubts about the people's limits to continue with the memorandum. The memorandum, in the reforms part, is i think accepted by the majority of people. But, in their minds, they have also associated it, with internal devaluation (which failed). So, having to do at once, reforms+internal devaluation, is two times difficult for the goverment, because the people mainly want the first one without the latter. And today, news is the IMF wants further "compression of working cost in private sector". Which i think may very well lead to the end of this odyssey. You have (officially) min. wage at about 500 euros, unemployment subsidy for 1 year at about 390. You can't live with that in Greece. Electricity bills alone rose 10% in January (beyond VAT increases) and the electricity company wants 30% more, because is indebted. Food prices still go up, rents have dropped, but you still need 200 euros for a 40m2 flat in Athens, this way you can't live, even more you can't have family. And from the soon to be 1.500.000 unemployed, only 200.000 are currently getting unemployment subsidy. Then you had yesterday Mr. Schauble saying that the PSI was "great success" and you can't expect this to last. People understand reforms (most are angry about how the public sector functions, even people who work for it), but they don't see a light out of this and this will soon catch up with the goverment.

      Personally i see the memorandum as opportunity to pass reforms, but, social cohesion comes before all else and Greece can wait and see what happens to the euro, but up to a critical point, after which, will have to decide to take its own fate at hands.For example, i don't doubt that Mr. Schauble regards as perfecly normal the fact to run 4,5% primary budget surpluses up to 2020 (and beyond) in order to repay the debt. But i also don't doubt that this won't happen because a revolution will hit Greece. Also, if Greece could get a way for a smooth transition to the drachma (like the inverse process of passing to the euro), i would take it without second thought. The euro is simply more suited to those with more control over it, the big countries with more political and economic weight. And Greece is a frontier country that doesn't have to compete against France or Netherlands, but also SE balkan,asian and north african countries which don't have euro and don't have to abide by EU regulations either.Also latest data say that the birth rate in Greece has further plummeted since 2009, because people don't want to make a family they can't support. This can't stay for some decades as i am sure Mr. Schauble would like. A nation can recover from any economic collapse if can feed the people and give them a concrete hope. With no people and no hope, you don't recover.


    6. Now I know what you were talking about when you were mentioning Lisbon. Well, I remember that one very well. I had been back from overseas for 10 years already and I still hadn't figures out why European elites considered themselves so smart. So when they announced that, by 2010, they would be shining city on the entire globe, well, I said to myself "put it on follow-up in 2010". Well, that Lisbon is just one example more of exalted elites who have become resistant to any outside reality checks.

    7. Οf course, just read this part:

      . For industry, the focus must be on:

      better regulation with compulsory business assessment for new legislative proposals;
      reforms of social security systems;
      increased investment in R&D and innovation by Member States, universities and industry;
      reductions of company tax levels;
      better education on entrepreneurship;
      more flexible regulation of labour markets;
      implementation of internal market legislation.

      They ring a bell, don't they...

      But back then, everyone was living in low borrowing cost euphoria. In Greece who would devise a national plan according to Lisbon agenda? The whole country was being braiwashed by Mr. Simits that Greece would see great benefit from the Olympic games and the new venues for softball, horse riding etc (all traditional greek sports). All this while the deficit and debt were happily purring in the "mighty Greece", as Mr. Simitis was calling his creation.

      In Italy, Silvio Berlusconi was back with a vengeance and the promice that he wouldn't put the hand in the pocket of the Italians.

      And in Spain, they had discovered the joy of "cement welfare" (take some money and build something).


  8. To come back to the discussion: " But this does not mean that Germany will try to save the Euro at any cost.""

    There is one thing certain.Greece in one way or another, is doomed, unless something changes. At that point, once you are finished, you may as well enjoy the spectacle. As they say "the bigger they are, the harder they fall".

    Germany won't try to save at all costs to save the euro. Are Italian and Spaniards prepare to save the euro at all costs too? How long for with their politicians justify paying 6-7% interest rates with austerity not showing tangible results.

    Go to google and put "tornare alla lira". 984.000 results.

    "volvemos a la peseta" 64500 results (understandably, Italy is much fitter to exit right now).

    Beyond the real possibility of such thing happening, there is also the political question. With growing part of the population in these countries growing hostile against the euro and EU, how easy will it be to accept also Mrs. Merkel's idea of "fiscal union",according to the german model,when the perception all around southern Europe is that "central control=Germany's+northern friends control over your budget).

    May you live in interesting times (chinese proverb).

  9. This is the most succint summary i have read lately about why the "patients" in the EU hospital keep multiplicating:

    The hope is that markets will reward virtue, which is defined as austerity. But markets are more pragmatic: if, as is almost surely the case, austerity weakens economic growth, and thus undermines the capacity to service debt, interest rates will not fall. In fact, investment will decline – a vicious downward spiral on which Greece and Spain have already embarked.

    Germany seems surprised by this. Like medieval blood-letters, the country’s leaders refuse to see that the medicine does not work, and insist on more of it – until the patient finally dies.

    And he is proven by facts with the most evident one, the rapid drop in Ireland's interests rates after the deal for recapping the spanish banks. The markets anticipate that in this way Ireland will cut down her debt and thus already treat her much better than when she was self-whipping herself fiscally.

    I don't know whether it's Mrs. Merkel's ties with bankers trying to give them the less damage possible or whether it's her attempt to make her voters have less losses (i think in the end she will succeed the opposite) or it is a monolithic, religious like ideology, but what Stiglitz says is proven in facts.

    The markets won't pitty Ireland for embracing purgatory forever. They don't care. They care about seeing the irish debt fall in sustainable levels, no matter how this is done...

    Mrs. Merkel doesn't see that if she keeps pushing hard, maybe the others will also won't save the euro at all costs. And studies show that they have less to lose. Specially Italy. Italy with 20% devaluation will be just fine.

    This whole reminds WWI rigid mentality of trench wars. Keep sending them, wave after wave, no matter how many they fall, keep sending them. Or "keep Stalingrad at all costs" or "defend Berlin at all costs no matter if they are coming in from all sides".

    The Americans would have said "leave Stalingrad, save the troops to fight another day" or "time to surrender, no point in insisting, the city can't be defended anymore".

    It's flexibility that saves the Americans each time. When the Americans were seeing that Japanese front lines were hard to get, Mc Arthur did the "frog leap" strategy: take an atoll here, take a small island there, never mind if you can't keep a common front, just disrupt the japanese one and supply lines,force them to spread their forces thin".

    That's how the Americans go by. They don't have the german discipline, but they are flexible.


  10. Breaking news. After 9 months of strike and court decision pending since last spring, under the threat of the owner that he is shutting it down, the goverment decided to apply the law and send the police to break the KKE blockade on a Steel company near Athens.

    With anti-riot police and 4 police buses for arrests:

    That's the only language KKE understands. It was about time! Greece doesn't have the luxury of having steel companies closed for 9 months.

    One thing is for sure. If there is a country with strong enough left to make wealth redistribution after a return to the drachma (which should cause the rich getting richer), that's Greece. You only have to pick how strong of a left you want to vote.


  11. Just one question : how much money have the German banks made since the crisis began in Greece?

    Here is Germany’s profit from the Euro crisis. From the German national news channel.

    1. I don't think it's possible to answer this question in an objective way. Germany 'made money' (as all of the other lending countries!) in the form of interest margins on loans to Greece. Germany's lower borrowing cost cannot directly be linked to Greece because in times of financial turmoil, there is always a flight to quality lowering the interest rates of the quality. See USofA. In Terms of current account, Germany has suffered from the economic turn-down in the periphery.

      Germany & Co. are like a bank that makes a lot of new loans to a near-bankrupt borrower. As long as the loans are made, the bank earns interest margin on them and might show great profits. Once the financial music stops, the loans have to be written off and huge losses have to be realized.

      The curious situation is that, as of today, it seems like the South is shouldering all the pain. However, the losses for the North are already there, they just haven't been realized yet. When that happens (particularly if combined with a EZ-crash), the South will be better off than the North. Much of what the North has lent to the South returned to the North by way of private capital flight (right now about 800 BEUR). That capital in the North will retain value whereas the loans to the South will be wiped out. And, additionally, the currencies of the North will greatly appreciate and the currencies of the South the oppposite. Thus, the North will become less competitive and the South more competitive.