Tuesday, July 24, 2012

There is nothing Greece can do on its own to improve its situation. Really?

Something like a ping-pong has developed between Prof. Yanis Varoufakis and myself (in his blog) where he argues that there is nothing which Greece can do on its own until the EZ-structure is changed and I invariably respond that there are a lot of things which Greece could/should do on its own while others should worry about the EZ-structure.

Prof. Varoufakis' latest blogpost focuses on the very hypothetical question whether Germany would be satisfied if Greece were miraculously "turned-around" or whether deep down the Germans would still like to see Greeks punished for their alleged wrong-doings over the years. An extremely thought-out intellectual decision-making model was presented to help one find the answer.

A cute exchange developed. I said "Yanis, I fear you are about to go over the top". He replied "With your hand on your heart, would you predict that the German median voter would want Mrs Merkel to press the red or the yellow button?" To which I replied "I just think it is so non-productive to devote brainpower to hypothetical constructs at a time where particularly the outstanding Greek brain power would be desperately needed for constructive purposes!" Well, that then led to the professor's final verdict: "As long as you remain focused on Greece, at a time when Europe is being torn asunder by a systemic crisis that is aided and abetted by a 1930s like public mood in Europe’s core, your own brain power is wasted Klaus. As a Greek I am honoured by your focus on our country. As a European I dispair at your reluctance to recognise that there is something terribly rotten in the foundations of Europe; something that shows up first in flimsy places like Greece".

I couldn't just let that stand there. My long response to the final verdict is below.

Yanis, instead of focusing on red or yellow buttons, allow me to turn the question around.
Assume, hypothetically, that all of Greece’s sovereign debt is forgiven (at least that portion which is held by foreign creditors). So Greece would have a second chance and start all over with a clean slate. Whether Greece decides to embark on that second chance with the Euro or with the Drachma is up to Greece. In any event, Greece would again have a sufficient debt capacity.

My question to you would be: what needs to change in Greece so that the second chance is not blown like the first one?

My opinion: if nothing were to change, Greece – with the Euro – would be back to where it is today within ten years. With the Drachma, perhaps a bit longer. Either way, no long-term perspective.

So I come back to my question: what would you (and others who are in a position to make good recommendations) recommend that should change in Greece? And the follow-up question would be: why not focus on these things now and let others work on the Eurozone mess? I definitely do not buy into your premise of passivity until the big storm has settled.

I have been fascinated by some of the initiatives which Greeks have taken at the individual level such as the potato movement, the don’t-pay movement, the parallel currency in Volos, the trend to move back to the countryside and return to a “normal” life, etc. etc. I read the Greeceischanging FB site and am impressed that there are indeed people who have a forward-perspective. But individuals alone can’t do much if there is not a general movement for change.

I will not forget the point made by a student in Thessaloniki in a debate following a little talk I gave: “We know our country is in trouble; we would like to contribute something to make things better but someone has to show us what we could do!” Well, I find it saddening when all that their role models can tell them is that there is nothing they can do (except perhaps vent their frustration in blog comments).

I am not nearly as much a believer in models and structures as you are. The best structure won’t work if the users go bananas. You can have the best-structured and controlled financial sector. If intermediaries go bananas and package dodgy sub-prime debt into well-rated securities and if investors go bananas and buy the stuff like there is no tomorrow, a lot of people get hurt when it turns out that dodgy debt is dodgy debt after all.

Yes, even the most uninformed European has meanwhile gotten the message that perhaps there was something very deficient in the Euro-structure. It’s like a car whose steering wheel is slanted to the left. A good driver will compensate for that by slanting his driving to the right. A bad driver may just let the car veer off to the left and have it run into the ground. Perhaps to prove that the steering wheel was slanted.

Now, let me give you a couple of if’s how the deficient Euro-structure could have worked nevertheless. If Germany (and France) had not set the precedent that Maastricht criteria didn’t have to be taken all that seriously. If EU-politicians had not, as I understand they did, deprived Eurostat of the authority to audit national accounts. If EU-authorities had been more aware that current account deficits can be much more dangerous to an economy than budget deficits and if they had treated those imbalances with the same care that they had intended to treat budget deficits with. And so forth.

If all of those if’s (and I could list more) had been observed, controlled and managed, well, then the Eurozone wouldn’t have been torn asunder despite its structural deficiences. So if that’s the lesson which one can learn from the first go-around, why not apply it to the second chance.

I don’t exclude Germany (and France) from any responsibilities. I once wrote that should the crash come and should I lose my savings, I would not blame Greece for that. I would blame the incompetence of EU-elites for having mismanaged everything so badly. But even after the crash, Greece will still be a country of about 11 million people and unless one wants most of them to migrate elsewhere, someone will have to come up with ideas how a country of 11 million people can take advantage of its hitherto totally underutilized competitive advantages and resources, and employ its people so that they earn salaries which allow a decent living standard and pay a fair amount of income taxes; whose employers pay corporate taxes and where the owners pay taxes on dividends.

Around the corner from where we live at the outskirts of Thessaloniki there is a dream palace which, I understand, was something like the King’s summer residence. There is at least one policeman on guard 24 hours a day. I guess his job is to make sure that no one can enter to see how the palace rots away. How about allowing those students who are looking for ways to make a contribution to fix up the place; get it into shape so that some kind of revenue-generating activity can take place there; have them organize such revenue-generating activities; promise them a share of the action. Perhaps even the policeman will quit his public sector job to join the students because it is so much fun to take part in an activity which holds promise and because his cut of the action may be more than what he is earning as a policeman now?

I am, of course, oversimplifying to make a point but I insist on my point that it is not impressive at all to me when one spends all one’s resources on trying to fix other people’s problems when there are so many “own” problems that can/should /must be fixed.

12 comments:

  1. The problem as usual, is political. The economic collapse is only a symptom of the collapse of the political establishment, which though, this time, because of the memorandum, instead of gettign burried under the debt, keeps living. ND and PASOK are 2 political corpses. Under other circumstances they would be history and new political powers would have emerged. Greek defaulted around 1897, the result was Venizelos coming to power later.

    I am a bit tired of writing the usual replies, i think i have written all i could that have a meaning, this is my last attempt to show the evident, by answering to your Palataki question.

    The Palataki belongs to the Presidentship of Democracy. In 2011, a Thessaloniki MP, asked in parliament why it is letting to rot. The reply from the minister was...natural for someone familiar with greek politics:

    "It is not labeled under the relevant law of 2002 about the protection of antiquities and cultural heritage as "newer immobile monument". Also it not close to similarly labeled buildings or to "historic places", so the ministry of Culture is not responsible for it. But, since the building has historical and architectural interest, the Macedonian Bureau for Newer Monuments is prepared to make a report, which would justify for the building to be labeled "newer monument".


    Today, that MP is the new minister of Macedonia-Thrace and in his meeting with Thessaloniki's mayor mentioned that he would like to restore it, if possible, cost permitting, in order to have some cultural events happening in there next September for the anniversary of the liberation of the city.

    As i said, you can't teach an old dog new tricks. These people have been doing the politicians for 30 years at the same, useless, way. If they had any decency,PASOK and ND would have disbanded their parties and all MPs over 10 years resigned.

    They are not used in finding money. They are used in spending it.

    The issue was political in EU too.
    - Maastricht criteria broken=Germany needed a way to absorb the social impact of Agenda 2010.
    - Eurostat asking more audit powers and not getting them=Up to 2006 if i recall correctly, swaps were widely used in odd ways.In 2006 they decided to stop that. If you ask an Italian how Italy joined the euro, he will tell you "Prodi's euro-tax and some alchemy".
    - Current account deficits= your deficit, my surplus, so all the better for me.



    Bandolero.

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  2. Herr Kastner said,

    "I once wrote that should the crash come and should I lose my savings, I would not blame Greece for that. I would blame ..."

    I that were to happen in fact, then I wonder what Frau Kastner might say

    "Dummkopf, you're an international banker of 40 years, yet you parked all our savings in the European quagmire of debt & greed. You're as barmy as those who believe rice paper mortgages can be turned into gilt edged parchment bonds, or lead into gold or water in wine."

    Arguing with academics such as Varoufakis or Krugman is more often than not a waste of time. They earn their fortune and fame from what they say, not from what they do. People who never take on tasks bearing any significant responsibility for the well being of others are next to useless, worse if they're chatterboxes too.

    Varoufakis argues that nothing can be done for Greece until the EU conforms to his worldview. I've heard other EU chatterboxes argue that nothing can be done for the EU until everywhere and everything conforms to their worldview. Its the excuse of those who prefer to sit and do nothing whilst they watch fires burning under their nose. Europe has a long history of this, from Nero's Rome to Mitterand & Kohl's Balkans.

    BTW I doubt you're a Dummkopf, I'd bet next months pension payment you've spread your risk both structurally and geographically.

    CK

    @Bandolero - the reason we all keep saying the same things, is because no matter what we say, nothing changes, the madmen are in charge of the madhouse :cry:

    Good luck

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    1. @ CK

      I think change will come, but, exactly because unlike previous times, there wasn't a "sudden event", it will take more time.

      To be fair, in the past 2 years, politicians have done more than they 've done in the past 30 years. Unfortunately, this is not fast enough to keep at pace with the program's (unrealistic) timetable and they have done things in the wrong order and also some plainly idiotic errors.
      But, it is like asking someone that weighs 130 kg to run a marathon. They are not used, they are gasping for air, about to faint and thinking "i didn't sign up for this, politician used to be a pleasant job!"

      In the current parliament, there has been high percentage of rennovation. It is enough? No. For me, PASOK and ND have rotten mechanisms and should cease to exist. SYRIZA is also not such a novelty as one outsider would think and now has absorbed much of the "deep-PASOK" (trade unionists etc). But they have been untested and have young leader, that's why people rushed to SYRIZA and IMO, the rise of Mr. Tsipras to power at some point, is inevitable.

      Greece needs rennovation of the center-right and center-left. I hope it will come at some point. Probably after Mr. Tsipras. In order for a new flower to blossom, its seed must first die.

      My main issue is this: Whatever happens, Greece must take the quicker path. If unemployment and lack of hope rests like that for long, there will be no young people to reconstruct. This is worse than anything else. Otherwise, they will.

      @ Mr. Kastner,

      It is the job of politicians to guide the people. In the current goverment, there are a few people who are willing to do job. The rest are asked to kill their own shelf.Example are exactly the 11.5 bln of new cuts that troika asked. When Mr. Stournaras asked the ministers to present to him their cuts, less than 5bln were presented, because most ministers aren't used to do deep cuts, so they couldn't fathom how to do it.

      You complain about Palataki not being getting a revenue (like Achillion in Corfu). There are simpler things. When i had visited the new Acropolis museum, the ticket for adults was 5 euros. Of course, as in all museums, for youngsters and children, they have 50% discount (i think it stands for all foreign students too with a student ID). I agree in the spirit of everyone should be able to visit museums at low price. But i have visited much less important museums in Europe and paid clearly higher tickets. I don't think having the ticket at 10 euros for adults would result fatal for someone's wallet. In the worst case, you could issue political order to the museum's employees, that in case of a tourist who is complaining about the price, let him pass with the child's fare, such bending of rules is easy to do in Greece, often employees do these things on their own initiative.

      This is just an example in a Palataki-similar fashion.

      >

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    2. >

      Then one could speak for hours about agricultural tourism, winter tourism, specialized sea tourism (sea sports),health tourism (Elisabeth of Austria votes for Greece!), religious tourism, mountain tourism (Greece has 80% mountains but nobody seems to notice), yacht tourism, etc. If the Americans had Mt. Olympus, they would have built on it the biggest mountainous resort-theme park,with Zeus' palace and greek mythology tours for children. But in a Greece dominated by a left that hates anything greek and anything related to the past is "nationalistic". For example, a SYRIZA MP says that it was a disgusting act of greek nationalism the resistance to the Italians in 1940, since it was "one fascist resisting another fascist, who all that wanted was for his troops to cross a fellow fascist's country". It is hard to explain to a foreigner, but i think this example gives a brutal example to understand the dominating leftist mentality which rules in Greece since 1980.

      A couple of years ago, there were Americans that had come to Marathon to celebrate the anniversary from the battle and asked the mayor "where are your dedicated sites-venues for the battle to have a tour?". The mayor explained that there are none (except for a monument where the supposed grave is), because well, with the mentality in Greece, it would be way nationalistic to have a touristic site for the battle of Marathon. The Americans were so surprised that the mayor agreed to put up in all haste a one-off celebration to accomodate them.

      P.S: The KKE strikers at the steel company have voted to continue their strike. The goverment is trying to talk them out of it now. That's Greece... Hostage of the left impunity. One of KKE's memorable quotes "There is no way in hell we will allow a judge to audit our financial sources and give the names of our contributors, which could later be victims of prosecution" (raising again the junta guilt card).

      Anyway, i wish you to have good endurance with your effort to try and understand greek politics, Mr. Kastner. I have exhausted myself.

      Soon on your screenplays: Goverment makes new cuts-> the currently negative troika after "brutal" negotiations allows for prolongation of the greek program "as a reward" (which was certain since last spring, since prolongation was IMF's idea), so that Mr. Samaras can throw a bone to his voters.

      What will follow next will depend on various factors, internal and external to Greece.

      Bandolero.

      Bonus item: As per Mr. Samaras, he will bring down unemployment to 10% within 4 years and there will be growth from 2014:

      http://www.ethnos.gr/article.asp?catid=22767&subid=2&pubid=63688888

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    3. Bandolero

      I can tell that you are getting tired of repeating the same message over and over again. I have had that feeling within a few months after I started this blog. In fact, there was a point where I was certain that new subjects for posting would not come to mind because I had already said everything I knew.

      There is a saying in German "steter Tropfen höhlt den Stein". The more one talks about the same themes, the more natural they will become to one's mindset. That's why I enjoy to continue to write. Those who read my posts regularly undoubtedly recognize that my themes are few and almost always the same. Just different cuts to them.

      Regarding the "Palataki", I wasn't even thinking about anything so brilliant like organizing cultural events. I just thought that a bunch of "creative young Greeks" would not need a lot of money to dress up the place for something like business promotion events for which companies pay a fortune (and when events take place in the evening, one doesn't see whether all the cracks in the walls have been fixed...). I once made a day-time stop at a hotel in Vourvourou. It was rather ordinary. By afternoon, a bunch of people arrived to do something. I was told a wedding would take place that evening. They did this, that and the other and I thought (in my Austrian mindset) that this wouldn't amount to anything very impressive because they looked so "unprofessional". After the bunch of people had done this, that and the other, everything was simply fantastic. So much for Greek powers of improvisation!

      Earlier this year, I got to know a beach which has got to be one of the nicest beaches in Chalkidiki; near Paliouri. Almost hidden by overgrowings, there were the remnants of what must have been one time a hotel Soviet-Communist-style; at least 100 meters beach front but totally run down. A barrack. I figured if the same bunch of people who fixed up the hotel in Vourvourou in one afternoon would take a couple of weeks, they would have a first-class place for tourists. Perhaps not 5-stars, but a first-class place because of the location nevertheless. I was told the community owned it and didn't know what to do with it. Here is my answer: turn over 10-years' rights to that bunch of people from Vourvourou and work out a split of the revenues they will generate. At the end of the day, everyone involved will be better off.

      We had to fix up our rather large apartment in Kalamaria. In Austria/Germany, I would have spent one week there to select all the furniture, etc. and to make appointments for delivery, say, 3 months later. Then I would have been there 3 months later, looked through the yellow pages for the right kind of professionals to help me fix up the place.

      Well, we got everything done within that first week. Not through the yellow pages. Instead, a relative "knew a friend" who again "knew a friend" and before we knew it, we had the apartment completely finished. We didn't want to replace the kitchen but one store offered us to instal a new kitchen within 24 hours at a reasonable price. After we took up the offer, we realized that we still had an old kitchen in place and Austrian/German panic erupted how to solve that problem. A relative asked whether we had anything in mind for the old kitchen. We said no. Within a couple of hours he came with an Albanian who dismanteled the entire kitchen and took it away. Later we found out that the relative had already sold the kitchen so someone else before he came to tear it down. What creativity and what power of improvisation! Absolutely unimaginable in Austria or Germany!

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    4. The "cultural events", is brilliant idea as long as a)the minister finds the money (because you won't think of the young Greeks like you) and b) continues to use it for cultural events on permanent basis, in order to make a revenue, instead of doing it once and then forget it.

      The common thing with your kitchen incident, is that "where there is no involvment of the state, then the Greeks can become creative". If Palataki wasn't belonging to the state, locked down and guarded, it wouldn't be rotting now.

      Usually the greek state has amazing ways of bureaucracy in order to stop private projects. This is the problem. Unemployment too could be lower, if only the state would have made it easier and less costly to start business and if had given incentives to the penetration of internet in Greece. Setting up an internet shop and selling something, could require much less initial capital and functioning expenses, but, the state has done nothing about that, so you have the unemployed idle.

      What you describe in general is known as "greek patent". You find unconventional solutions to conventional problems. This is happening historically, because of the need. You had no money but pressing needs. Either you find an "out of the box" solution or you may die. To give you some examples. My father lived as young teenager the occupation during WWII. They had barely to eat, but they were still children and wanted to play. But with what? They didn't have money and nobody was selling toys! So they had to become "Ulisses of many devises". They were making hand made sling shots and their epitomy, rifles that were able to throw stones using rubber from german storm trooper motorcycles and wood they were carving.I never saw one, so i don't know how they managed it, but they were working and were actually shooting small stones! And they also had flags and waging war against boys of the nearby villages. And they were so convincing, that one day, the local German troops that were stationed in my fathers' village,who were in pursuit of greek guerillas,looking from far away and seeing "rifles and flags" mistook my fathers' boy army for the real thing and they started shooting at them for real! Needless to say the boys disappeared into the woods like rabbits.

      Or you can see here 1922 pictures:

      http://i48.tinypic.com/21cidmb.jpg

      ^When they ran out of tents, they started using ship's sail.

      When you run out of everything, you put them in theatres:

      http://i46.tinypic.com/64qwwj.jpg

      This is what i call "2nd generation tent". About 300.000 of the 1.500.000 refugees, died from lack of food, malaria, typhus or exhaustion.

      http://i45.tinypic.com/2quucmx.png

      ^ That tent is the evolution. If you observe,it has a small white wall all around it. This was multipurpose.It was protecting the tent from incoming water (potentially infected), it was deviating rain water outside the perimeter of the tent in a direction that wouldn't disturb the nearby tents and the white colour is due to the same white layer that is used in Aegean Islands, which is caustic and thus killing microbes too.

      >

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    5. >

      But, people, specially children were keep dying like flies.On average 1000 people every day were dying and winter would come soon, you had to do something, but the country is bankrupt and you don't have money and you can't afford to pay for material or architect to make you a house. So what do you do? You send the children and women to gather building material (wood and mud bricks) and you find someone who has worked as builder and you agree to pool resources and you get in a line behind him and start copy-cating what he does. So you make a mass production of seeminly identical houses without paying anyone by watching what someone who knows the job does and you do the same. Your house may come out shorter or less pretty, but nontheless, better than spending the winter in a tent.

      http://i48.tinypic.com/2ykc2fp.jpg

      See here a "chain production" of houses:

      http://i49.tinypic.com/svkhgk.png

      So soon enough you end up with something like this:

      http://i48.tinypic.com/149s85s.png

      In less than 10 years, you 've build road and upgraded the house (see in particular the proper roofs that are like today's roofs):

      http://i47.tinypic.com/21e9rau.png

      With time you add floors (this is recent photo of an original refugee house):

      http://i49.tinypic.com/347tbvb.png

      Or, as i said elsewhere, Greece since 1996 spent 78 bln in military expenditure. Αccording to this 218bln since 1974 in defence expenditure:

      http://www.newsit.gr/default.php?pname=Article&art_id=134893&catid=3

      Oddly enough the greek weapons industry is on verge of collapse... Why? Because the greek politicians were preferring taking bribes from foreign companies instead of investing a fraction of that money on greek industries or on greek R&D.

      How many young greek university graduates and working posts could there be in Greece if the greek politicians were giving half of that money to greek companies like:

      http://en.wikipedia.org/wiki/Hellenic_Aerospace_Industry

      http://www.soukosrobots.gr/index.php?option=com_content&view=article&id=50&Itemid=27

      http://www.systems-sunlight.com/

      http://elbo.gr/en/home/

      http://www.intracomdefense.com/post/195

      http://www.theon.com/

      http://www.eas.gr/

      (there must be more, but these i remember by heart by now)

      Αs a relative of mine who is in the army keeps repeating me everytime he sees me, with the money we 've spent on weapons, we could have been a small Sweden in defence industry.

      Instead, you have young Greeks finishing university (some in foreign too) and not finding anything, they leave forever for abroads.

      To me it is a miracle that even those companies managed to survive.

      Bottom story: Wherever the state interferes, Greeks can't be creative.

      I rest my case. Greece needs less state interference and get rid of the political parties that led to the disaster.

      Bandolero.

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    6. Oh, i hope you have a sense of black humour. The ultimate greek adaptability. You are old and with few money, but you need several items. Where do you go? To this gentleman in Thessaloniki:

      http://www.youtube.com/watch?v=6jduEQS_Hcs&feature=related

      "Greek patent" at its best.

      Bandolero

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  3. " Greece will still be a country of about 11 million people and unless one wants most of them to migrate elsewhere, someone will have to come up with ideas how a country of 11 million people can take advantage of its hitherto totally underutilized competitive advantages and resources, and employ its people so that they earn salaries which allow a decent living standard and pay a fair amount of income taxes; whose employers pay corporate taxes and where the owners pay taxes on dividends."

    True!

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  4. Yes, Austrian master. You are right Austrian master. If the 95% of the people, which includes the disabled, the children, the already exhausted workers, the small-shop owners and their families, and the immigrants don't starve to death (after they've tried eating each other), they won't learn. We are not worthy of food and it's time someone like you, decent, hard-working, prudent and civilized people explained to us that (although you agree it's all happening due to your leaders' incompetence to drive the wheel) we will learn table manners.
    How can you be so... what's the word, awesome?

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  5. The spectacular failure of the Euro.

    What exactly was the Euro? We'll never know.

    - Was it a vehicle towards further European unification? If so, somebody should have told the Germans (and their satellites) that members of a monetary union don't compete. They complete each other. As such, policy should have been made available to manage said completion in mutually beneficial ways. But there wasn't.

    - Was it an experiment in order to fiscally emasculate governments into adhering to controversial reforms? If so, then the Euro and it's current humanitarian disaster is an even more spectacular failure.

    But we must take heart. We truly live in the end of an era.

    The era that started with the abandonment of the Keynesian model (which had served capitalism so well for over three decades) in the late 70's, the neoliberal era that brought us Ronald Reagan and Margaret Thatcher, the era that brought us the deregulation of the financial sector, the era that had to rely on bloated private credit to make up for it's deficiencies, and, finally, the era that brought the pinnacle of neoliberal policies: globalization of finance and trade, is reeling to a spectacular end.

    Rejoice.

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    1. Dear Jim Slip,

      the euro was made so that the big european industialized countries, could have a "playground" of small, non industrialized countries as their own domestic market, in order to be able to compete with the BRICS. I mean, Portugal,once inside the euro, is hardly probable that will ever produce a domestic car that will give Germans competition.

      But, the Chinese and Indians, sooner or later will, thanks to the kind idea of globalization and production shift in Asia, which brought also technology and also the shortsighted western policy of selling tech transfer to their future competitors, which some day will make them pay for their error.

      I think sooner or later, some big economic crisis will come, from the fact of all the bubble-air economy of derivaties and other "high finance-low substance" nonsense that make money out of thin air and i will never bother to understand.

      I also think that if Lenin was alive he would say "the western capitalists will sell the rope with which the eastern capitalists will hang them" :)

      At that point, many countries will pray they had the greek olive trees, because at least we will be still eating.

      I also think that at some point some new influenza or new disease will wipe out many people to allow to mother nature to breathe, but that is another story :)

      Bandolero

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