Thursday, July 16, 2015

Paul Krugman --- Schäuble's New Fan?


3h3 hours ago
Krugman shrugs off Greek vote saying euro exit may yet be best
Stefan Loesch added,


  1. Now they both agree on the conclusion. They differ on how we ended on the conclusion...

    "The point, surely, is that the plan for Greece was never feasible. No matter how willing a nation is to suffer, no matter how willing to run primary surpluses on a scale that is very rare in history, trying to pay off high debt through austerity without any kind of monetary offset is basically a recipe for debt deflation and failure. This is, in fact, what the IMF’s own research has said."

    I would bet Schäuble wouldn't agree with that!

    The patient is dead, to that, we can all agree. How he died, will remain a point of conflict.

  2. I hope you don't mind to add a macabre joke, which is though the pure reality. If someone dies at hospital, he will get a death certificate, stating as cause of death: "cardiopulmonary arrest". You can bet anything you want, that Krugman, Schauble, me and you, will one day all come out of a hospital, unfortunately not on our own feet, with a paper citing "cardiopulmonary arrest" as cause of death. All doctors agree on that. Because eventually, any sort of underling pathology that is potentialy fatal, leads to cardiopulmonary arrest and you have to accept reality and proceed to the next stage, the funeral. It is not a lie, it is just a way to make life easier for doctors. When you really want to know the real cause of death, you have to perform autopsy, with toxicology tests, etc, as per legal medicine procedures. This would be insane in terms of time, human resources, money, as well as emotional impact to the relatives, that would receive everytime a body that has been subjected to necrotomy.

    It is certain, that Greece has had cardiopulmonary arrest. Unlike medicine, economics is more of a religion than a science, so no commonly accepted autopsy procedure exists and all sides at the end can claim they were right. Schauble was right, Krugman was right, Stiglitz was right, Trichet was right, Varoufakis was right and each will retain his worshipers. How wonderful to be an economist!

  3. As a Greek I hope that this time we make it all work out.
    There is a gap in the Greek political spectrum for a pro-GRD political party with realistic proposals.
    Not one of the Lafazanis type which cannot be taken seriously (raids on non existing pools of money etc).
    There is a realistic chance that austerity measures might not work out.
    If that happens:
    - Greeks will become disillusioned and start looking for realistic alternatives
    - Schäuble would offer his support given it helps his goal of saving the EUR project (kicking certain players out before moving for closer integration)

    1. "There is a gap in the Greek political spectrum for a pro-GRD political party"
      I suppose it was one reason Schäuble advertised his Grexit-plan. You cannot go in such confrontational negotiations like this without a second alternative.
      And as Varoufakis planned to confront but without any alternative plan, Schäuble offered and later advertised that idea, not at least to get out of the futile "There is no alternative"-thinking. That far I think Schäuble made a good job.

      Problem: Schäuble finally fell in love with the Grexit-option, so after the no-referendum he (and his partners in many other countries) spicked the "Greece remains inside Euro" proposal with really bad poison pills for Greece.
      So Varoufakis and Schäuble got arch-antagonists with a common goal: Get Greece out of EuroZone. And both will probably not stop promoting Grexit and tease the "Greece in Eurozone"-project as we can read regularly.
      It will be a additional burden for Tsipras and other greek politicians to hold up against this pressure - and they already have a huge task.

      By the way, a critical and imho very good article about Schäuble (and his struggle with Merkel) in the english version of Spiegel:

    2. Roger,

      are you aware of Varoufakis interview?
      "The Eurozone can dictate terms to Greece because it is no longer fearful of a Grexit. It is convinced that its banks are now protected if Greek banks default. But Varoufakis thought that he still had some leverage: once the ECB forced Greece’s banks to close, he could act unilaterally.

      He said he spent the past month warning the Greek cabinet that the ECB would close Greece’s banks to force a deal. When they did, he was prepared to do three things: issue euro-denominated IOUs; apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; and seize control of the Bank of Greece from the ECB."

      YV: "my constant proposal to the Troika was very simple: let us agree on three or four important reforms that we agree upon, like the tax system, like VAT, and let’s implement them immediately. And you relax the restrictions on liqiuidity from the ECB. You want a comprehensive agreement – let’s carry on negotiating – and in the meantime let us introduce these reforms in parliament by agreement between us and you."

      interesting, isn't it? Let's keep the money flowing. And if you don't we can act unilaterally:

      "HL: Right. So there were two options as far as I can see – an immediate Grexit, or printing IOUs and taking bank control of the Bank of Greece [potentially but not necessarily precipitating a Grexit]?

      YV: Sure, sure. I never believed we should go straight to a new currency. My view was – and I put this to the government – that if they dared shut our banks down, which I considered to be an aggressive move of incredible potency, we should respond aggressively but without crossing the point of no return.

      We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.

      … I was warning the Cabinet this was going to happen [the ECB shut our banks] for a month, in order to drag us into a humiliating agreement. When it happened – and many of my colleagues couldn’t believe it happened – my recommendation for responding “energetically”, let’s say, was voted down."

      I surely would have loved to see Yanis intended unilateral actions. I find it interesting, that for Prof game-theory and economy Varoufakis treaties even treaties among nations only matter till the next election. No idea how he intends to handle the resulting chaos. On the other hand, he may have had an exit strategy in mind long term and simply keep the money flowing as long as possible.

      So the game-theory-expert did not succeed in his gamble against Schäuble?

    3. Anonymous, there was also always a gap between the OXI and staying in the European union. And personally, no matter to what extend I can understand Greek concerns, I don't think it was a real referendum, it was manipulation.

      In essence 61% were lured into saying:

      We don't want austerity politics, (which I can understand)

      but we also really objected to remaining in the Eurozone.

      I would love to know what percentage was actually aware of this?

    4. Ever since I stumbled across a statement by a US prof of foreign policy, I basically respect, recently about Yanis Varoufakis claiming he is some kind of martyr due to slander, libel and defamation against him in Europe, I admittedly am a little bit obsessed with him and/or his apparent recent high profile supporters.

      Varoufakis claims in the "About" section of his blog, that starting in 2000 he was concerned about the sustainability of the Eurozone:

      "From the early 2000s, my dear friend and colleague Joseph Halevi and I were alerted to the unsustainability of the ‘global arrangements’ underpinning the global economy’s so called ‘Great Moderation’. Similarly, we were in deep doubt about the sustainability of the Eurozone. We felt that, underneath the surface, the tectonic plates were on the move, ready to repay financialised capitalism’s exorbitant hubris with an almighty crash."

      He doesn't tell us if this was from a Greece-centric perspective only.

      Then in Dec 2010 he had found the two central evil forces in this context: The US or the Grand Global Hoover sucking up all the money, and Germany who created the Eurozone with only one aim in mind, to control Europe financially. ... (with a little help from the US? It's either that or Germany wants to immitate the US implicitely)

      YV-Brisbane Talk, Dec. 2010.

      "The euro, it must be remembered, was conceived at the height of the Grand Hoover’s reign. Germany thought that it could extend its growth model to the eurozone. Convinced that the Grand Hoover would continue to suck in its surpluses, Germany thought that its surpluses could expand further within Europe if deficit countries like Greece, Spain, Italy etc. were given a strong DM-linked currency. Germany’s condition for sharing its currency with the rest was that nothing else would be shared except for the common currency: Debt, taxes, government expenditure would be all nation-state-specific. Each euro of debt would belong to one country only and no surplus recycling mechanism would be set up."

      Now apparently these ideas don't hinder his celebration in rather high profile circles in the USA.

  4. I think this is interesting, if one makes the association with Italy's position in favour of Greece and the recent statement by Jürgen Habermas.

    The new cover of the italian weekly "L' Espresso". It is one of the 2 biggest periodicals and it isn't Bild. One of the regular columnists for over 10 years, has been Umberto Eco.

    "This man is scary. For us too".

    1. I used to be a fan of Umberto Eco, lately I have become a little hesitant ... He can be occasionally slightly careless in his dealings with myths.

      But interesting, you mention Bild. L'Espresso may be the equivalent to Der Spiegel over here. Did you know the Cologne equivalent to Bild Zeitung/paper is Express?

      You don't need Habermas to point out German fears concerning reputations. ...

      It's interesting to look back over the decades as far as my own "feelings about being German" are concerned. For me it started with 9 when I discovered a sin in my prayer book, a sin that needed to be confessed. It got me into a serious inner turmoil, and I seeked my mothers help. The sin, I now realize it is specifically meant for adults only, demanded that I had no contact with members of other religion. My best friend was a Protestant at the time. My mother did two things. She told me to ignore "the sin", and told me about my countries past. It took many decades to leave these "fears" behind.

      I am not suggesting anything about the intention of L'expresso, other than that the image of Schäuble may be a quite solid tool to sell the current isssue. But would you advise Schäuble to deal with matters only from a positions of being concerned about the German image?

      I think the clash between e.g. Varoufakis and Schäuble is an ideological clash at the core. Ideological, if I may speculate, as meaning a clash of a macroeconomic perspective facing a microeconomic one. Or may, if I may further speculate, from my deductions based on the statements by Varoufakis I have read so far, Schäuble may not have been too exited about the idea of a nation in troubles should be able to force on the rest constitutional changes from the perspective of both the countries troubles, but also a specific political perspective. Do you feel Schäuble should have surrendered completely based on fears about his image only?

    2. AnonymousJuly 18, 2015 at 3:38 PM

      I am a bit cynical and i don't believe that all politicians work for the national interests. I think Schauble wouldn't care less about Espresso. Espresso is interesting in conjunction with the position taken by the italian goverment. The italian goverment on its turn, much like the french one, couldn't care less about Varoufakis or Tsipras. As a matter of fact, Renzi would never want a Tsipras win against austerity, because he would then have to answer to a simple question: "If Tsipras succeeded with a bankrupt country, what were YOU doing all this time?".

      Italy and France simply used Greece as pretext, to send a message to Germany, that they will not tolerate Germany dictating policy without speaking. Italy is very unhappy with the way Europe is functioning. The antieuropeanism and the lira nostalgics are at all time high and the peculiar is that this is something that crosses horizontally right and left parties.

      At the end, it is a matter of different perspectives, depending on different national interests. Here, you can find the german, who prophetizes that the lazy southerners will blame Germany for discipline:

      Here, you have the british woman, that prophetizes the german who will prophetize this:

      I feel that Schauble hasn't surrendered anything, much less "completely". And i find it natural. SYRIZA was always bad at planning. Now we know that Tsipras had a completely wrong strategy. He tried to take Varoufakis' strategy and apply it partially. Take only some elements he liked and add his own, while at the same time, being unprepared and losing time. For instance, Varoufakis in his plan, was clear. You default within the euro. What happened instead, is that Tsipras insisted to keep negotiating for months, while drying out and bleeding the economy. He collected any liquidity from peripheral state structures, that would have been precious in case he had followed Varoufakis plan. Instead, he paid the IMF, only to arrive to a point where it all turned against him and he had the futile idea of making a referendum, as if he didn't have a mandate against austerity and the creditors would have a sudden change of heart if Tsipras returned with an additional mandate against austerity. I admit, that often i can't follow the way that they think inside SYRIZA.

      I also believe that nature affects us all and nature doesn't allow power vacuums. Germany is the dominant power in Europe and in nature the most powerful, always has to exercize his power. I also think that Schauble is a man with stable ideas and since 2012 wants to get Greece out of the euro. And i think this will happen, because Tsipras won't be able to follow the plan. To this, i agree with Varoufakis. This plan will fail.

      But this Europe, at the end, will fail too. Because there is no "union" , it is a clash of national interests. In good times, the clashes are small. In bad times, the clashes get big. The empires that lasted long enough, were those that nullified the local interests, in favour of global well being. Where the citizen, would gladly replace his nationality, with his citizenship. "Civis Romanus sum". This isn't happening in the EU. On the contrary. In the last summit, France took the job of countering Germany and Italy the job of countering the lesser satellite countries, with Renzi quarelling for long time with the Dutch PM. And this wasn't for their direct interests. What will happen when they will need to fight for their own interests?

    3. Back to my recent obsessions:

      What is this "accidental economical wizard" trying to tell me here? The speculative forces are ultimately some type of health force, since they only attack "unhealthy systems", while Germany is only sinister conspirator forcing countries into the EU union? As far as I know, nobody forced the Greek to enter. And I am a huge fan of ancient Greek wisdom and its culture. I also would want them to be able to remain in the union.

      But I also would love to get a much clearer idea about what surplus-transfers would mean in the larger context. And that seems to be one of his obsession:

      Yanis Varoufakis, 2012

      (in the linked pdf.doc of the Halevi paper 8 pages from 271-280 are missing.)

      "The problem was that speculators, with George Soros the better known amongst them, could see that the currency pegs of the ERM/EMS were unsustainable given the pressures on the balance of payments of Germany’s European partners. So they bet massively against it, until the EMS broke down. At that point the Bundesbank understood that nothing short of a currency union will allow it to see its grand plan through. It was a gamble. And it came with a sizeable psychological cost, given the voluntary abandonment of the DM. But it was deemed essential given the greater ‘good’ to be had from turning the RoE into the economic zone onto which Germany’s shifted the burden of its adjustment, thus allowing German oligopolistic multinationals to maintain ad infinitum their net exports (of goods and production units) to the rest of the world."

      All I understand is, that I am asked to deal with peace and/or economics the same way I deal with war. Germany may only do more underhandedly now via economy, what it earlier did via war. It always wanted to control Europe like the Romans.

    4. "But I also would love to get a much clearer idea about what surplus-transfers would mean in the larger context. And that seems to be one of his obsession:"

      This current account surplus transfer idea is not new. Varoufakis seems obsessed by it, because it got Greece to where it is now.

      A German current account in balance would have meant the peripherie in Europe being less in deficit, automatically.

      Now these surplus recycling ideas were issues which caused the Opium war - Britain with China, Keynes wrote about it in detail, the IMF is set up to deal with issues arising from excessive surpluses ( more correctly, the other side - deficits) and the EU has recognized it as a problem, even, but sets a ludicrously high limit of 6% surplus, which Germany even manages to exceed with 8%.

      No sanctions for Germany, though, only for weak and vulnerable Greece.

    5. "No sanctions for Germany, though, only for weak and vulnerable Greece."

      I suppose there is no standard on the evil of surpluses for us non-econimcally-educted?

      Can you give me in a nutshell what Yanis is suggesting in this context. So far I only got vividly he dislikes Germany.

    6. Relevance of the opium war context to current discussions in a:nutshell? What book by Keynes should I read, and does economic history have a tendency to repeat itself? Since it follows laws more rigidly then live generally?

      "the EU has recognized it as a problem, even, but sets a ludicrously high limit of 6% surplus, which Germany even manages to exceed with 8%."

      I have a problem with the idea of "recylcing surpluses" in any specific region, assuming, maybe wrongly, they are ultimately private possessions and somewhat related to economical gains, only selling products uproad instead of a nationally restricted region.. No doubt producing taxes. But how are you going to single out "the good", meaning the ones serving the local or national market only from "the bad/evil" that sell outside their own countries? Or sell to a larger amount then the EU allows? On the singly business level.

      Your percentage suggests, all the ones importing and exporting are compared. They should be equal. But below this number a rather diverse number of businesses is involved.

      I simply don't grasp it, please explain.

      What does surplus recycling mean?

      Is it related to the Modest Proposal New Deal for Europe?

      And since this is where I moved to by now, could it be related to a New Deal for Europe's deficit countries? And if, How.

    7. @ Leah Hahn
      I have written tons about the importance of current accounts. Below are two which make reference to the Opium Wars. The book of Keynes which I would recommend is "The economic consequences of peace", particularly the chapter 'Germany's capacity to pay'.

  5. To Paul Krugman's latest revelation "I may have overestimated the Greek government's competence". Yes, but don't worry, you're in good company with millions of Greeks. And since you have most likely only been to Greece for some seminars and a holiday, your lack of knowledge of their culture and competences is excused. what is inexcusable is your last year's "expert" advice to the world on something you don't know anything about.

  6. And to prove beyond any doubt that he is 180 degrees out of sync, Paul Krugman end the interview with a warning that Greece could start to recover on their own, and therefore could cause "huge implications" for Europe.
    @Lennard, Paul Krugman is allowed to express his opinions as well as you are, we may disagree but, thats life.

  7. Many different categories of "cause of death", a philosophers, a medical doctors, how about a policeman's?
    Accident, homicide, suicide?

  8. "To Paul Krugman's latest revelation "I may have overestimated the Greek government's competence". Yes, but don't worry, you're in good company with millions of Greeks."

    I do not think so, this quote relates to the question of whether Greece had a plan B. I think it certainly did, and it still has that ace up its sleeve, to be played, whenever it chooses:

  9. @ Berliner
    Of cause Paul Krugman has that right, but he has a bigger responsibility for what he says and how he say it than I do. He is writing in the most important financial publications in the world. He is a Nobel laureate in economy, a discipline many people look at as a science. He pretends to be able to predict, with mathematical precision, how a people and country he doesn't know, will react to certain financial and human events. He thereby presents his opinions as facts.
    In the scientific world he would be characterized as a quack.
    I'm an engineer without Paul Krugman's sway over public opinion. I therefore grant myself a wider license with my opinions.
    @ Matt Usselmann.
    If they have the card they should play it now, they are as much ahead in the game as Europe will ever allow them to be. From now on it's drip feed.