Crime & Punishment (and Guilt) in the Eurozone

Some countries in the Eurozone (notably Germany) are still holding their water and perhaps even swimming up the stream. Other countries (notably Greece) are going down the drain. Obviously a trend which cannot go on forever.

Some countries seem intent to punish the South; others seem intent on accusing the North of a crime. Guilt is being assigned all over the place.

Against this background, it is surprising that the issue of 'product liability' has not come up yet. The Eurozone was a 'product' developed and implemented by the EU. Was due diligence, or rather: were crash tests made before putting the product on the market? If not, who carries responsibility for the malfunctioning of the product? For the damages which it has caused?

Clearly, the Eurozone was implemented based on unanimous approval of all member countries. At the same time, it is clear that not all member countries had (or intended to have) a real say in it. If I recall correctly, particularly two heads of government were supremely self-confident of their supreme intelligence (Valerie Giscard d'Estaing and Helmut Schmidt) and they drove the process. Call it simply Germany and France. Did Germany and France act responsibly? Did they responsibly address all risks which were pointed out?

I am not talking about critics/warners like Milton Friedman, Ralf Dahrendorf, individual economists or journalists. No, they might have been accused of having other motives than the establishment of a potential new reserve currency; perhaps a threat to the US dollar. Instead, I am talking about the EU itself.

I am talking about the Delors Commission headed by Jacques Delors. Delors and his Commissioners are considered the 'founding fathers' of the Euro. They issued, in 1989, the Delors Report which set out the road map for creating the common currency. It was that report which stated that 'if sufficient consideration were not given to regional imbalances, the economic union would be faced with grave economic and political risks'. It was that report which prophesized all the damages which we now know and which could only have been avoided if the recommendations of the Delors Report had been fully implemented.

Why weren't they implemented? Karl-Otto Pöhl, then the President of the Bundesbank, said that 'when the report was formulated, I did not think that a monetary union would become reality in the foreseeable future. I thought perhaps sometime in the next hundred years. I thought it was improbable that other European countries would simply accept the model of the Bundesbank'.

In an interview of 2011, Jacques Delors said that 'I’m worried and I have regrets. I especially regret that when the euro became operational, during the decision-making in 1997, they rejected my idea for an Economic Policy Coordination Pact alongside the Stability and Growth Pact'.

What could such an Economic Policy Coordination Pact have achieved? Well, it could have monitored a bit more than the two principal Maastricht-criteria (maximum deficit of 3% and maximum debt of 60%). To monitor only those two criteria is based on the fallacy that an economy consists only of the fiscal sector.

An Economic Policy Coordination Pact could have monitored the cross-border flow of capital; the level of cross-border debt; the level of current account balances; the development of regional manufacturing/industrialization; etc. etc. In short, it could have monitored all those factors which, having been ignored, caused most of today's problems.

Of all people, it is now Prof. Hans-Werner Sinn who is changing his tune. In a recent interview he argued that, in order to restore competitiveness, the South must deflate AND the North must inflate (so far, I have heard him talk only about the South having to deflate). He is now saying that, relative to the average, a country like Greece must become 20-30% cheaper AND a country like Germany must become 20% more expensive. Now that is a break with his past!

Still, I would challenge Prof. Sinn to show only one period since WW2 where inflation in the South, on a sustained basis, was significantly less than in the North. If never, why should that happen now? Personally, I don't think that I will live to see that happening if it is left up to free market forces.

However, an Economic Policy Coordination Pact could still achieve progress even today. The Eurozone countries could, for example, agree to set governmental incentives so that the North/South flow of products, services, capital and investment is brought into balance, if not even turned around a bit.

Cross-border debt is the result of one-sided cross-border flows of products and services. If the cross-border flow of products and services were in balance, there would be no cross-border debt. It is just as simple as that!

Now, to bring the North/South flow of products and services in balance might well result in somewhat lesser growth in the North. Why should an egotistical/nationalistic North agree to any such damage? For one very simple reason: that damage will be next to nothing compared to the damage which will occur otherwise. Will it occur for sure? Perhaps not for sure, but in order for it not to occur, someone will first have to rewrite the rules of mathematics.

If the Eurozone were to blow up, some countries are likely to pursue the issue of product liablity. And they would have a very legitimate case for doing so!

Prof. Ralf Dahrendorf - a visionary?

One of the first books I had to read upon entering College in 1968 was "Society and Democracy in Germany" by Prof. Ralf Dahrendorf (later Lord Dahrendorf). Ever since then have I been an admirer of this outstanding proponent of true liberal thought. To me, in the same legion as Friedrich von Hayek and Karl Popper.

I came across this interview with Prof. Dahrendorf from 1995. I repeat: the interview was made in 1995! Below are some of the more fascinating paragraphs:

The common currency project drills the countries to German behavior, but not all countries want to behave like Germans do. For Italy, periodic devaluations are much more useful than a fixed exchange rate and for France, higher government expenditures are more meaningful than a rigid adherence to stability criteria (which are, above all, an advantage for Germany).

Yes, France and Italy go along with German demands if for no other reason than national pride. However, the price for that is very high and it could soon become apparent that it is too high - psychologically, politically and economically.

Is Germany tempted to exercise some form of benevolent hegemony? Well, that is a good expression. Naturally, it can be considered as progress if Germany does that through the Bundesbank and not through military might.

The idea of a common currency union is a big mistake, an adventurous, reckless and mistaken goal which will will not unite Europe but, instead, divide it.

Prof. Dahrendorf also says in the interview that "I am sometimes tempted to form a private group which devotes its thinking to a Europe without a common currency union".  I wish he had done that!

Did they really know what they were doing?

Alekos Alavanos and the 'Plan B' Party

This is an interesting article about Alekos Alavanos who has recently formed the 'Plan B' Party. I have not read about Alekos Alavanos before. Going by the content of the article, I agree that he might be hitting a nerve, a nerve which is not only a nerve in Greece and in the periphery but also in Northern countries.

I take it Alekos Alavanos is a Communist. So much more is it interesting that his arguments are very similar to those of the newly-formed German party 'Alternative für Deutschland' (AfD), which is described as a center-right movement.

If I understand the arguments of Alavanos and AfD correctly, they are: the Euro is not only damaging the overall economy of the Eurozone but essentially destroying the economies of some countries altogether; the Euro is creating enormous political divisions between North and South; and, finally, the Euro is, again, making Germans the most hated people in Europe. If these trends are not corrected, they will lead to disaster.

Personally, I still think these trends could be corrected through policies which aim at re-balancing the flow of products, services and investments within the Eurozone but to this date I see not a single EU politician taking steps in that direction. Without such steps, Alavanos and AfD may very well turn out to be successful.

Travelling out West - Epirus' most famous hamlet

It is mandatory when we are out West to visit Lia, northwest of Ionnina near the Albanian border; once referred to as 'Epirus' most famous hamlet' in a newspaper article.

Some of my favorite readings are epic novels set against the background of a civil war. I guess the favorites are Gone with the Wind, For Whom the Bell Tolls, Dr. Shivago and Eleni. If I had to pick one of them as the super-favorite, I would pick Eleni.

As one leaves the Ioannina-Igoumenitsa road and crosses the river towards the North, one enters a different world. It is a world of more or less isolated (and now partially deserted) mountain villages connected by an asphalt road and electricity poles where only a few decades ago life was like in the Middle Ages. Lia is close the Albanian border; somewhat 'close to the end of the world'.

The village appears almost unpopulated today but if one has read the book, one can easily picture a few hundred villagers populating perhaps 100 or more stone huts and communicating via mountain paths. The vertical distance between the upper and lower village is such that the villagers must have covered the height of Mt. Everest every few months. The nearest road was almost 40 Km away.

We drive up the Eleni Gatzoyiannis Road to the house where the family had lived and which was rebuilt by Eleni's granddaugther 10 years ago. Not a soul to be seen. Everything extremely peaceful. A marvellous sight across the valley towards the mountain ranges. 70 years ago, this had been the place of brutal happenings. One is awed to think of that in the presence of today's peace.

We do find an old man a couple of houses away. He is 80 and one can tell his age. He remembers Eleni from his childhood and he has visited his childhood friend Nicolas Gage three or four times in America. Only last January had he returned from the US. Nicolas Gage had invited him to live with them but he preferred to come back to Lia. My wife asks him why he would have come back here where he is all alone and up to himself. He tells my wife 'because it's my home'.

A few men are sitting outside the small hotel and drinking coffee. There seem to be no guests at the hotel but the lady who runs it is as friendly as ever. Once again, a quick look at all the memorabilia of Eleni which are exhibited in the hotel and then on to Igoumenitsa.

The narrow road is winding through the mountains. One gets an eerie feeling driving through totally unpopulated areas without a building or anything else in sight. About 40 Km later we get to Filiates. That was the place where the road ended back in Eleni's days. That's how far the villagers had to walk if they wanted to get to the next closest city.

Once at Filiates, the 'different world' of the mountain villages is behind us.

Travelling out West - Black-out in Konitsa

Last year I only travelled, alone, through Konitsa. This time I wanted to visit the city with my wife. I had read much about Konitsa when reading about the Greek civil war. To me, one of the milestones took place there because if ELAS had succeeded in taking the city around year-end 1948, things might have turned out differently. ELAS had never managed to get control of a city as a place for a shadow government. Konitsa seemed, to me, to have been their best chance. 'General Markos' (Markos Vafiadis), to me the brain behind ELAS, had gathered around 2.000 fighters on the hills surrounding Konitsa. Why they would not have succeeded in taking the then village, launching a surprise attack between Christmas and New Year's, was a mystery to me.

The trip from Ioannina to Konitsa was eventful only in the sense that I was running low on gas. I have the habit of never refilling the tank too early. Quite frequently, this leads to a situation where I face the risk of finding a gas station too late. This time would be different because I calculated that I would easily make it to Kalpaki where I would fill up the tank.

I passed through Kalpaki and found a somewhat deserted small gas station on the way out of town. That was the place where I would stop because, I felt, they would appreciate the business. An old man, stumbling a bit due to a stiff leg, made his way to the pump. It didn't work. 'No electricity', he said. 'That figures', I said to my wife; 'he probably didn't pay his last bill'. A few Km further on there was a large Shell station. I figured they would have paid their last electricity bill. And yet, they had no electricity, either.

Now, blood pressure started rising. If this was some kind of a regional black-out, would I still make it to Konitsa to fill up the tank there? What if we ran out of gas in the middle of nowhere? Well, we made it to Konitsa but there was no electricity at the gas station there, either; neither in the whole city!

I ask the owner of the station how long he has been out of electricity and he says about half an hour. I ask when electricity will come back and he says in about half an hour. What would he tell me in half an hour if electricity had not come back? He says he would tell me to wait another half an hour.

To make a long story short, it took another 2-1/2 hours for electricity to return to Konitsa. That literally forced us to get to know the city. What an interesting place! An obviously very, very old city where most of the buildings in the center have been rebuilt in their original character. However, there are buildings here or there which look like they haven't changed since the civil war.

A bustling little place. Small shops, cafes, people moving around, etc. I am looking around and wonder why no one seems excited about the fact that the town is out of electricity. Life goes on as though nothing happened. Am I, the retiree/tourist without time pressure, the only one who feels under time pressure? I keep asking people for exact predictions when electricity will come back. They all seem to be convinced that it will take 'another half an hour'.

We follow the signs leading to the ruins of a former Turkish mansion. By golly, Turkish rulers seem to have known how to live well and how to build their mansions in the most attractive locations!

In the cafe, I order an ouzo and am surprised that they serve it with fresh ice cubes. How can that be when the electricity has been down for some time? My wife expresses concern that all the ice cream in the freezer will melt. She is told not to worry about that. The nearby supermarket is dark but somehow people are still shopping there and paying for their purchases. Life is unbelievably normal despite the black-out.

My wife strikes up a conversation with a Greek sitting at the table next to us who is nursing a beer. He is 68 and retired. He has worked 45 years as a mechanic in a factory and was promised that his pension would be 1.650 Euros/month. It's now a little less than half that amount. The economic situation in the area is terrible. They have to use part of their pension to support their children. He says there is no money left for beer after the 15th of the month (well, maybe not quite because we are already past the 15th of the month...).

He says that the farmers in the region are being taken advantage of. They have to sell all their production to traders without knowing what the price would be. They only find out afterwards what the price was; and it is far too low. Why is it that way? That's obvious; 'because of the politicians!'

I ask him about the battle of Konitsa. He points me to the hills where the most brutal parts of the battle took place. He says that some of the figthers were burned alive. I ask who burned whom. His answer: 'brother against brother'.

At a nearby photo shop, the owner shows me pictures of Konitsa in the 1940s. Seemingly not much more than a hamlet. And yet, around 2.000 fighters could not take the city fighting from the top. Quite unbelievable!

Electricity returned; I filled up the tank and we drove on to the Zagorochoria. Aristi was the place I wanted to see again because of the beautiful Mountain Resort there. If one didn't know that it was located in the mountains of Epirus, one could have guessed that it was in Gstaad. Everything close to distinguished perfection!

A young man welcomes us and shows us around. He comes across as extremely well trained: he handles himself like a gentleman; well mannered; noticeably well educated. He tells me that an uncle of his has a large Greek restaurant near the State Opera in Vienna. My wife is hungry and orders something to eat. He organizes everything and serves the food. It couldn't look better (and my wife says that it couldn't taste better; something which she doesn't always say...).

While my wife is eating, she carries on the conversation with the young gentleman. He explains that he is a University-educated civil engineer who couldn't find a job. He has taken the job at the Mountain Resort because he cannot expect his parents to support him. Life will eventually get better.

Through the villages of the Zagorochoria we drove back to Ioannina. Our hotel there, the Gran Serai, has got to be one of the nicest hotels I know in Greece. The very pleasant staff was the same as the year before. Except, the year before, the hotel seemed very busy. This time around, there seemed to be only few other guests.

Travelling out West - Lunch in Kozani

This is the time of the year for us to leave Thessaloniki for the trip to Greece's North-West. It was essentially 'the same procedure as last year'.

One difference was noticeable right away, though. The Εgnatia Odos, never a heavily travelled route to begin with, was essentially empty. It couldn't have been the tolls because, if anything, they seemed cheaper than the year before. Was there perhaps an economic crisis after all?

No economic crisis was visible at first glance in downtown Kozani. A vibrant city center with pulsating life. Cafes next to one another, full with mostly young people. Short-order places all over. However, my wife did not want a Mr. Wurst or a Burger-Boy for lunch. Instead, she wanted a regular small Greek restaurant or taverna. Not to be found in the center of Kozani! After asking about two or three people, we were ready to give up when, accidentally, we found a place in a small alley off the pedestrian zone.

We were the only guests. My wife was suspicious that the food would not be fresh. She engaged in a conversation with the owner while I nursed my beer.

Then I hear my wife ask something about 'the crisis' and I hear the owner's voice behind my back saying 'there is no crisis'. Suddenly, he has got my attention.

I turn around and see a young man (38 years old, he told us later) who could be the spitting image of Cristiano Ronaldo from Real Madrid: Posture straight like an arrow; dark hair cleanly brushed; face cleanly shaven; shoulders held back; chest moved forward; polite but self-confident expression in his face. A bit like the living version of an ancient Greek statue.

I ask him what he means by saying that there is no crisis. He repeats that he means that there is no crisis. No emotions whatsoever. Had I asked him the time of the day, he might not have reacted differently. I ask him about the fact that at least one out of four Greeks doesn't have a job. He says that that's because they don"t want to work.

I ask him what a young Greek who wants to work but cannot find a job should do. He points at the windows where I can see two or three people doing some painting etc. in the backyard. He tells me that those are Albanians working for 50 Euro/day. I tell him that that sounds a bit like sweat shop wages. He tells me that, with 20 working days, that adds up to 1.000 Euros per month which is a lot more than unemployment insurance. It's hard to argue with that.

I ask him why Greeks wouldn"t do that kind of work. His response: 'Because they are sitting in cafes. But, eventually, they will learn to work'.

I tell him that what he says sounds very hard, if not impassionate to me. He explains that he has been working 18 hours a day since the age of 15 doing every type of work available. With that, he saved enough to buy the restaurant. Business is slow these days but good enough for him, his wife and 2 children (a third on the way) to lead a satisfactory life.

I ask him what is needed in Greece and his response is: 'A right-wing government. Not Chrysi Avgi but a right-wing government'.

Meanwhile, the food was ready and his wife served it. She had prepared everything fresh. My wife was very happy. I nursed my beer and pondered what I had heard.

Prof. Hans-Werner Sinn: "Greece should exit the Eurozone as quickly as possible and be offered a return ticket!"

In this interview with openeurope, Prof. Hans-Werner Sinn makes the following statement:

"For the population of Greece there is only one possibility, namely, exiting (the Eurozone) as quickly as possible and become competitive. I would say Greece should have a return ticket. Greece should be able to return to the Eurozone at a depreciated exchange rate at a later point in time if they satisfy the entry conditions. That would give the population hope. It would not be expulsion out of the Eurozone. They could even legally remain part of the system. They would be in a sort of hospital for a while and then they would return to normal. This is the right strategy".

Prof. Sinn makes this statement based on two very simple assumptions: First, the kind of austerity which has become necessary as a result of staying in the Eurozone is simply not sustainable (he refers particularly to the unemployment situation). At the same time, if Greece stays in the Eurozone, that kind of austerity will have to continue for years to come. And, secondly, if deflating Greece doesn't work, one would have to inflate Germany & Co. Prof. Sinn says that Germany would have to inflate by 5,5% annually for 10 years to bring Greece back into balance. The possibility of that happening he rules out.

I have to admit that, with every passing day, it is getting harder and harder for me to support my position that Greece should stay in the Eurozone. I know that Greece can't make it with the Euro in its present structure but I also think that a Grexit would be the worst of all evils.

I herewith repeat my old argument: Greece should hold on to the Euro but simulate a situation, on a temporary basis, as though it had returned to the Drachma. That would entail, among others, special taxes on imports; special incentives for new domestic production and for exports; and - above all - special incentives for new foreign investment.

If one doesn't like that approach, then the next best solution to me would be the introduction of a new local (parallel) currency in addition to the Euro. Also on a temporary basis.

Why not a clear-cut Grexit altogether? That depends on one's vision of Greece's future. If one shares the vision, which I do, that Greece indeed has the chance to become a modernized economy with an adequate level of own value creation, then a Grexit would wipe out that vision. The last 3 years have shown that even with the greatest pressure on society, there is an enormous popular resistance to make the necessary reforms (cutting wages/salaries are not reforms, in my opinion). A Grexit would do away with all such pressures and the likelihood of Greece then making the necessary reforms voluntarily is close to zero, in my opinion.

I have friends who know Greece much better than I do and they keep telling my that my vision is not a vision but an illusion, instead. They say that Greece will never change. One of them says that 'I see insurmountable problems in Greece which can only be resolved by a return to the Drachma and a sole concentration on tourism, agriculture and shipping - together with an abandonment of true reforms across a myriad of professions (i. e. Greeks will never change) and with encouragement to enhance the acitivites in the three areas that I have mentioned'.

I have not (yet) accepted that logic but I have to admit that not doing so becomes more and more difficult with every passing day.