The most notable point is the that there is no firm agreement to restructure (cut) the debt. I wonder how Tsirpas will sell this to his constituents who just voted a firm "NO" to a deal without restructuring.
What was the Greek government thinking? that the EU will just give more money without asking for more responsible measures.
Meanwhile the European Central Bank maintains a freeze on emergency liquidity assistance.
Tsipras had a popular mandate to say NO, he said yes. Game over!
What was the Greek government thinking? that the EU will just give more money without asking for more responsible measures. Meanwhile the European Central Bank maintains a freeze on emergency liquidity assistance. Tsipras had a popular mandate to say NO, he said yes. Game over!
No -- the Greek government was thinking that they (Greece) needed to implement serious reforms, and that they have already achieved primary surplus. However, given the state of their economy the would never be able to pay back most o
What the EU wants instead is (1) the pipe dream of Greece paying back everything and (2) higher taxes and lower pensions now to help this repayment. In other words, for the EU the goal of any reforms is not to get Greece back on its feet but to extract money from it to pay back the loans.
You're applying reasoning which works for a country with its own currency. If a country has its own floating currency, then raising taxes and lowering pensions is not necessary to reform the economy. You can just leave those as-is and the value of your currency will decline relative to everyone else's, effectively giving all your citizens a pay cut and thus helping to reduce your expenses (measured via other currencies than your own - that's what matters when you owe money to creditors outside your country). That's what happened to Germany in the 1930s, Mexico in the 1970s when they lifted price controls on the Peso.
Greece is on the Euro though, so this is not an option. The fundamental problem is that Greek citizens are being paid too many Euros for the productivity they are generating (compared to other citizens in the Eurozone). Any long-term fix for this must involve increasing the Greek productivity-to-wages ratio to match the Eurozone norm. This is a mathematical fact - you cannot avoid it by holding an election or making political promises or complaining about fairness. Failure to correct this ratio means Greek debt will continue to increase regardless of whatever other measures you take. Even if you forgave all of Greece's debt, if you do not address this productivity-to-wages ratio imbalance between Greece and the other EU countries, Greece would just continue to accrue new debt.
That means there are three options:
(A) Boot Greece out of the Euro, forcing it to create and pay wages in its own currency. This currency can then decline in value vs the Euro until the average Greek's productivity-to-wages ratio (in Euros) matches citizens' in the Eurozone. However, neither the Eurozone nor Greece seems to want a Grexit, so you're left with the following two options:
(B) Reduce average Greek wages. That's what higher taxes and lower pensions effectively do.
(C) Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
At least one of those three things needs to happen. If none of them happen, Greece will simply continue amassing more debt no matter what else you do. Any proposal which does not include at least one of these things happening is simply not a solution.
I should also add that it's disingenuous to claim Greece's problems stem from its creditors. When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today. The only thing the creditor gets out of it is some interest payments (which can be small or large depending on the lending terms). So aside from the interest the creditors earned, any suffering the Greeks experience today and until their debt is paid off, is the cost of them living it up during the 2000s. They did this to themselves.
Debt forgiveness means the creditors (some banks and citizens in the other Eurozone countries) suffer for the Greeks having lived it up during the 2000s. Sometimes this is necessary if the interest on the debt is so onerous that the debt is growing faster than the country can pay it off. But it is not an action to be taken lightly, especially with Spain, Portugal, and Italy waiting in the wings hopeful that Greece will set a precedent which allows them to shed their debt without paying it back.
I agree with practically everything you say except the last bit.
First, the Greek wages-to-productivity ratio must fall, by a combination of (1) Government-sector wage cuts (already started); (2) productivity increases in the government sector by (a) insisting that government workers actually do their job (b) firing redundant government workers and (c) privatization and (3) wage reduction and productivity increases in the private sector – made possible by freeing labour laws.
However, raising taxes makes the wages-to-productivity ratio worse, because it increases the cost of hiring the worker without a corresponding cost to productivity, or equivalently increases deadweight losses. Instead, wage cuts in the private sector should be achieved by freeing the labour market (which is currently among the most restricted in Europe). In fact, workers need to be compensated for the wage cuts by tax cuts.
As an aside, tax cuts would also increase compliance, which is the key problem with the Tax system (far more important than the rates).
Regarding the source of problems, clearly they all stem from the behaviour of Greece (both the country and its people) and not of the creditors. Greece cooked its books before joining the Eurozone, and the Greek voters had ample opportunity to vote for free-market, better-government and smaller-government reforms in the years since.
That said, the original creditors (eurozone banks) who lend to Greece until 2010 knew all this full well and decided to extend the credit anyway. The earned the interest rates they demanded, and should now have to eat the losses when, following the crisis and resulting economic contraction, Greece can't pay back. These banks may have had to suffer, but lending to sovereigns carries default risk (just like lending to private entities carries bankruptcy risk).
What you are ignoring, however, is that the people of Europe were not creditors before their governments decided to take on the debt in 2010 (giving the banks a 50% haircut). Since the governments of Europe voluntarily decided to make public what previously was debt to private entities, they shouldn't now be able to turn around and claim that the taxpayers of Europe will suffer unfairly if the debt isn't paid. If the taxpayers were concerned about non-payments and didn't want to go into the debt vulture hedge-fund business they could have left the bad loans with the banks who made them originally.
I personally thing that. beyond being against the EU treaties, the bailouts of Greece, Spain and Italy were also ill-conceived and morally wrong. But having gone into the sovereign loans business the EU can't complain about facing default risk.
No there was another way to do this. Raise German salaries according to the growth in GDP. The problem is actually that Greece raised salaries as GDP grew while Germany froze salaries.
When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today.
You have it completely right, of course, and Gov. Schwarzenegger had it completely wrong when he subversively convinced millions of fellow Californians that deficit spending is "a gift from the future." (The citizens of the future will correctly view it as "larceny from the past.")
Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
I don't hear anyone arguing with this. Which is interesting; basically everyone is admitting that private enterprises are able to extract more productivity than state-owned enterprises.
In other circumstances, some people forget
Measure with a micrometer. Mark with chalk. Cut with an axe.
Greeks surrender: no restructuring (Score:5, Interesting)
Re: (Score:2)
Re: (Score:5, Insightful)
No -- the Greek government was thinking that they (Greece) needed to implement serious reforms, and that they have already achieved primary surplus. However, given the state of their economy the would never be able to pay back most o
Re:Greeks surrender: no restructuring (Score:5, Insightful)
You're applying reasoning which works for a country with its own currency. If a country has its own floating currency, then raising taxes and lowering pensions is not necessary to reform the economy. You can just leave those as-is and the value of your currency will decline relative to everyone else's, effectively giving all your citizens a pay cut and thus helping to reduce your expenses (measured via other currencies than your own - that's what matters when you owe money to creditors outside your country). That's what happened to Germany in the 1930s, Mexico in the 1970s when they lifted price controls on the Peso.
Greece is on the Euro though, so this is not an option. The fundamental problem is that Greek citizens are being paid too many Euros for the productivity they are generating (compared to other citizens in the Eurozone). Any long-term fix for this must involve increasing the Greek productivity-to-wages ratio to match the Eurozone norm. This is a mathematical fact - you cannot avoid it by holding an election or making political promises or complaining about fairness. Failure to correct this ratio means Greek debt will continue to increase regardless of whatever other measures you take. Even if you forgave all of Greece's debt, if you do not address this productivity-to-wages ratio imbalance between Greece and the other EU countries, Greece would just continue to accrue new debt.
That means there are three options:
(A) Boot Greece out of the Euro, forcing it to create and pay wages in its own currency. This currency can then decline in value vs the Euro until the average Greek's productivity-to-wages ratio (in Euros) matches citizens' in the Eurozone. However, neither the Eurozone nor Greece seems to want a Grexit, so you're left with the following two options:
(B) Reduce average Greek wages. That's what higher taxes and lower pensions effectively do.
(C) Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
At least one of those three things needs to happen. If none of them happen, Greece will simply continue amassing more debt no matter what else you do. Any proposal which does not include at least one of these things happening is simply not a solution.
I should also add that it's disingenuous to claim Greece's problems stem from its creditors. When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today. The only thing the creditor gets out of it is some interest payments (which can be small or large depending on the lending terms). So aside from the interest the creditors earned, any suffering the Greeks experience today and until their debt is paid off, is the cost of them living it up during the 2000s. They did this to themselves.
Debt forgiveness means the creditors (some banks and citizens in the other Eurozone countries) suffer for the Greeks having lived it up during the 2000s. Sometimes this is necessary if the interest on the debt is so onerous that the debt is growing faster than the country can pay it off. But it is not an action to be taken lightly, especially with Spain, Portugal, and Italy waiting in the wings hopeful that Greece will set a precedent which allows them to shed their debt without paying it back.
Re:Greeks surrender: no restructuring (Score:5, Insightful)
I agree with practically everything you say except the last bit.
First, the Greek wages-to-productivity ratio must fall, by a combination of (1) Government-sector wage cuts (already started); (2) productivity increases in the government sector by (a) insisting that government workers actually do their job (b) firing redundant government workers and (c) privatization and (3) wage reduction and productivity increases in the private sector – made possible by freeing labour laws.
However, raising taxes makes the wages-to-productivity ratio worse, because it increases the cost of hiring the worker without a corresponding cost to productivity, or equivalently increases deadweight losses. Instead, wage cuts in the private sector should be achieved by freeing the labour market (which is currently among the most restricted in Europe). In fact, workers need to be compensated for the wage cuts by tax cuts.
As an aside, tax cuts would also increase compliance, which is the key problem with the Tax system (far more important than the rates).
Regarding the source of problems, clearly they all stem from the behaviour of Greece (both the country and its people) and not of the creditors. Greece cooked its books before joining the Eurozone, and the Greek voters had ample opportunity to vote for free-market, better-government and smaller-government reforms in the years since.
That said, the original creditors (eurozone banks) who lend to Greece until 2010 knew all this full well and decided to extend the credit anyway. The earned the interest rates they demanded, and should now have to eat the losses when, following the crisis and resulting economic contraction, Greece can't pay back. These banks may have had to suffer, but lending to sovereigns carries default risk (just like lending to private entities carries bankruptcy risk).
What you are ignoring, however, is that the people of Europe were not creditors before their governments decided to take on the debt in 2010 (giving the banks a 50% haircut). Since the governments of Europe voluntarily decided to make public what previously was debt to private entities, they shouldn't now be able to turn around and claim that the taxpayers of Europe will suffer unfairly if the debt isn't paid. If the taxpayers were concerned about non-payments and didn't want to go into the debt vulture hedge-fund business they could have left the bad loans with the banks who made them originally.
I personally thing that. beyond being against the EU treaties, the bailouts of Greece, Spain and Italy were also ill-conceived and morally wrong. But having gone into the sovereign loans business the EU can't complain about facing default risk.
Re: (Score:2)
No there was another way to do this. Raise German salaries according to the growth in GDP. The problem is actually that Greece raised salaries as GDP grew while Germany froze salaries.
Re: (Score:2)
http://www.brookings.edu/blogs... [brookings.edu]
How to increase productivity (Score:2)
When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today.
You have it completely right, of course, and Gov. Schwarzenegger had it completely wrong when he subversively convinced millions of fellow Californians that deficit spending is "a gift from the future." (The citizens of the future will correctly view it as "larceny from the past.")
Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
I don't hear anyone arguing with this. Which is interesting; basically everyone is admitting that private enterprises are able to extract more productivity than state-owned enterprises.
In other circumstances, some people forget