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85 responses to “Democracy v. EU Plutocracy: Links post”

  1. Craig Mc

    IMO, time for everyone to take their medicine.

    Call their bluff. There’s no point throwing good money after bad in Greece’s direction. They’ve shown no intention of behaving like adults. Cut them off, throw them out the Euro, let them devalue and tantrum all they like to themselves. Use whatever (probably inadequate) resources responsible nations have to prop up their own exposed national banks.

  2. Fran Barlow

    I suspect most Greeks would prefer that option Craig Mc. As far as I can tell, outside of government, the idea of borrowing shedloads of money on condition they commit ritual suicide merely so a bunch of wealth bankers can sleep easy at night and feel slightly more sanguine about counter-party risk was never going to play well.

    The near universal outrage and bemusement from the MCBM over the very notion that Greek people ought to at least have something of a say in whether they get butchered by the wealthy says a lot about boss class power. Democracy — how are you going to reconcile that notion with preserving the comforts of the wealthy?

  3. Robert Merkel

    Craig, the net result of that is that Germany and France’s banks need to be bailed out anyway, presumably by the German and French government.

  4. Robert Merkel

    Fran, the trouble is that when wealthy bankers suffer, they take the rest of us with them.

    Furthermore, they won’t personally suffer much at all.

  5. Joe

    Craig, you may be right about the medicine, BUT…

    you don’t seem to be aware of the situation. If Greece defaults it’s the end of the Euro.

    It’s the CDOs and the interlinking of other obligations attached to a Greek default, which is the problem. Nobody knows, what obligations, which financial institutes (banks) are liable for. All anyone knows is that the obligations are a factor more than the institutions are able to pay. But especially, the French banks seem to be undercapitalised.

    As well as the fact that Italy is already almost un-saveable.

    I was talking to a friend from Politics and Management faculty here the other night and, although it’s not his area of interest (post civil war reconciliation), he said he thinks that the Euro is finished. It’s now only a question of time, and the damage that this pantomime of pretending everything is OK, is going to have on politics in general.

    Exciting times.

    Re German politics: the FDP are now totally irrelevant. In recent elections their performance has been bad and getting worse. They are, however, still part of the ruling coalition, although, unable to make real demands. The CDU is more interesting– they are the centre right party from Bavaria, essentially a more vanilla version of the Christian Democrats (Merkel’s Party/ CDU) but traditionally more fiscally conservative. They have, after being placed under a lot of pressure, fallen into line with the government. The SPD, as far as I can tell, couldn’t find their ar6e with both hands.

    I think, the problem is, that there’s not a lot that governments can do. The Euro is a flawed system and the immediate problem is out of control.

  6. Fran Barlow

    Robert Merkel said:

    Fran, the trouble is that when wealthy bankers suffer, they take the rest of us with them. Furthermore, they won’t personally suffer much at all.

    I’m not sure that is as true in practice as is often asserted. I suspect that a wealthy parasite whose assets decline by 90% feels it personally a lot more than a person on low income who is on even lower income regardless of where they both are in absolute terms. After all, from the POV of wealthy parasites, society is for their benefit whereas low income people know that it is not and have found ways of getting by.

    Yet however that may be it’s a little like confronting a blackmailer. A blackmailer forces you to trade your long term interest for your short term interest, but in the end, the longer you pay they more he has his claws into you. The only way to stop a blackmailer is to refuse ab initio to pay and to invite him to try doing his worst. If the wealthy of the world stop being able to use the lower middle class and workers as human shields then a serious cap is placed on their plundering.

    By all means, let the state stand behind the bank savings of people on low to middle incomes but as for protecting the property of the elite I say stand back and let them sort each other out. Take a serious slice of the action on the way through too.

    Argentina, after persistently playing the game eventually said no more. Things were tough for a while but in the end, equilibrium was restored and the country grew all through the decade right up to Lehmann Bros in 2008.

  7. Occam's Blunt Razor

    Time to stop the death by a thousand rescue packages.

    From what I’ve learnt of the Greeks’ attitude towards fiscal responsibility it is definitely time for some attitude adjustment.

  8. John D

    From a German perspective, the Eurozone has been a good thing because the economic performance of the other members of the zone pull the value of the euro lower than it would be if it was a Germany only currency. For the converse reason it has been bad for Greece and the other weak economies. So, in a sense, Greece has been subsidizing Germany, despite what the German voters think.

    If the eurozone is to work it has to start functioning financially like our commonwealth government and acquire serious taxing powers and responsibility for a wide range of expenditures including welfare. (Though the emergence of our two speed economy may indicate even this level of integration is not enough.)

  9. jusme

    now sarkozy and merkel have “summoned” papandreou, presumably to put the pressure on to accept what he’s been offered no questions asked.

    http://www.reuters.com/article/2011/11/02/us-greece-referendum-idUSTRE79U5PQ20111102?feedType=nl&feedName=ustopnewsearly

    from that article: sarkozy says: “The Greeks must say quickly and without ambiguity whether they choose to keep their place in the euro zone or not.”

    i call BS. why ‘quickly’ ? so what if he takes a few weeks to decide. they’re trying to rush the poor guy, seems like they need greece more than greece needs them!
    or, they’re trying to rip greece off and don’t want him to ‘think’ about it. it’s like watching used car salesmen at work.

    good on papandreou and good luck greece!

    whatever happens, greece, like many others, need to think more spartan-like, who imo are just as famous for their frugality as their military strength.

  10. Jess

    I particularly liked the quote from Martin Wolf in the Financial Times:

    Blessed are the creditors, for they shall inherit the earth. This is not in the Sermon on the Mount. Yet creditors believe it: if everybody were a creditor, we would have no unpaid debts and financial crises. That, creditors believe, is the way to behave. They are mistaken. Since the world cannot trade with Mars, creditors are joined at the hip to the debtors. The former must accumulate claims on the latter. This puts them in a trap of their own making.

    Indeed.

    FWIW I agree with John D – the Germans have wanted the benefits of fiscal union to pull down the value of the Euro, but without giving up any of the reins of power. Unfortunately what we end up with is no governing body with any power to deal with a crisis like this. So if Greece wants to flip the bird to Germany and France, then the Germans and French have only themselves to blame for the system they drew up.

    It’s just unfortunate that everyone else is going to suffer because of this failure of politics.

  11. su

    Both Sarkozy and Merkel will be pushing for the introduction of a Europe wide Tobin tax at the G20. Merkel wants to used funds raised to address the debt crisis. Cameron is vehemently opposed. The Archbishop of Canterbury did a backflip on the eviction of Occupy protestors and supported an FTT within the space of 24 hours.

  12. Katz

    Knowing that they are “too big to fail” the creditors of the Government of Greece continued to lend long after there was any realistic expectation of repayment.

    These banks and insurance companies assumed they would be bailed out by taxpayers. This assumption is now proven to be very rash. Now the banks and insurance companies will try to pass on as much of the losses as possible to their counterparties by invocation or rejection of Credit Default Swap contracts.

    Meanwhile, East Asian banks have announced that they are prepared to recapitalise the European financial sector, for a price.

    The banks are desperate for capital but European governments fear the exercise of Chinese commercial, financial and political power.

    The question whether Europe’s maximum concessions overlap China’s minimal demands.

    In many ways this state of affairs is similar to the need to recycle post Oil Shock petrodollars in the 1970s. In that case the sheiks eschewed the political clout that could have been bought with their oil wealth. I wonder if the Chinese banks will be as passive.

  13. derrida derider

    Calling for a Tobin tax is an easy thing for Sarkozy to do because it is the City of London that will pay it, to the principal benefit of Wall St and the Cayman Islands. Regardless of the abstract merits of a universal Tobin tax, Cameron is right to oppose this proposal.

  14. Sam

    If there is even a hint of Greece pulling out of the Euro, there will be an entirely rational run on Greek banks, which is no biggie in itself, but also partly rational runs on banks all over Europe. But if everyone is doing it, it will become rational in a self-fulfilling way, and the entire European banking system will be cactus.

    After that, who knows?

    This is why Merkozy are so keen to keep Greece inside the Euro tent.

  15. Darryl Rosin

    Keen to keep Greece in? They’ve got a funny way of showing it.

    http://online.wsj.com/article/SB10001424052970203804204577014371119242492.html?mod=djemalertNEWS

    Europe’s leaders, making it plain that they’ve reached the end of their patience with Greece, demanded that the beleaguered nation declare whether it wants to stay in the euro currency union—or risk going it alone in a dramatic secession.

    “Does Greece want to remain part of the euro zone or not,” German Chancellor Angela Merkel said. “That is the question the Greek people must now answer.”

    d

  16. su

    DD — apparently he is saying he is opposed unless a FTT is introduced globally, but rumour or scuttlebutt (depending on your inclination) has it that the city and therefore he is opposed under any circumstances. And two Democrats have just introduced a bill to impose a FTT over there, but this has happened before without result. Perhaps with the occupy movement on board and on the streets, there’s a chance, slim though it seems now?

  17. Chris

    Listening to Keating on the radio yesterday, the situation in Europe sounded a lot worse than I’d realised. Seems like Greece leaving the Euro is pretty much inevitable and as he mentioned all the Greek banks will go belly up when that happens so many years of hard times are ahead for the Greek people whether they attempt to stay in the euro or not.

    On the upside we’ll probably be able to get really cheap holidays in Greece as long as there aren’t too many riots and no revolution.

  18. Wozza

    It must shit a few of the earnest socialists around here, surely, that Henry Ergas in today’s Oz is also supporting Papandreou, comparing him to none other than Paul Keating. His point is exactly “democracy vs the EU” – what is needed is “a greater degree of faith in the democratic process than the proponents of European integration have ever accepted …. Angela Merkel and especially Nicolas Sarkozy…. are discomforted by their own reliance on elite opinion rather than popular support [for the EU agreement]”.

    Right on, Henry.

    I trust a few more commenters on LP will be reflecting on “democracy vs the EU” arguments when it comes to some of the other elitist policies being pushed by the EU. Carbon trading anyone?

    Actually I don’t of course. Intellectual consistency has never been highly prized round here.

  19. Fran Barlow

    Wozza said:

    trust a few more commenters on LP will be reflecting on “democracy vs the EU” arguments when it comes to some of the other elitist policies being pushed by the EU. Carbon trading anyone?
    Actually I don’t of course. Intellectual consistency has never been highly prized round here.

    On the contrary, those of us who think a referendum in Greece over the proposed “bailout” is a good idea are being entirely consistent. Carbon pricing was flagged before the election. Most people voted for candidates supporting it. It is in any event, quite modest in scope (about 25% of the G&ST) and likely, if anything to be modestly stimulatory. There is a consensus that this is the best way to achieve the commonly agreed 5% target. Certainly there are no job cuts, no salary cuts, no loss of pension entitlements and so forth as proposed in the Greek “bailout”. Also, the carbon pricing regime is endogenous in its development, rather than a demand being imposed by powers outside the country in the service of major banks.

    In short, whereas in the case of carbon trading there is a clear mandate and the strategy entails no serious structural disruption, in Greece there was no mandate, and the disruption will be massive and prolonged, bearing down on people now too young to vote.

    In both cases, the question of mandate is decisive.

  20. darin

    The Greek PM has got it exactly right. I hope there are some decent translations getting around of the for and against cases. It really seems to be socialist paradise versus capitalist apocalypse at the moment. I suppose if people knew exactly what was going to happen if Greece defaults it wouldn’t be such a big deal.

    @fran… Mandate? That doesn’t make things right, as the Greens will no doubt say if the libs win the next election easily.

  21. Darryl Rosin

    “Seems like Greece leaving the Euro is pretty much inevitable and as he mentioned all the Greek banks will go belly up when that happens so many years of hard times are ahead for the Greek people whether they attempt to stay in the euro or not.”

    Well, *if* Greece were to leave the Euro and re-establish the Drachma, the sensible way to go about it is to covert *all* domestically held euros to drachmas and apply strict capital flow controls, including police on the border searching luggage for euros. This forces private defaults as well as State default. Greek banks (and other large firms,
    Ike Hellenic Telecom, or whatever it’s called) will survive but the foreign owners and creditors will suffer. Big time. Perversely, it’s still the Germans and French (and probably the Swiss) that will end up paying for a bailout, but they’ll be bailing out their domestic banks directly, instead of the Greek government, who would then give it to French and German banks anyway.

    It’s the few hours after the Greeks leave that everything else goes insane, as every euro in Spain, Portugal, Italy etc flees for Germany and France (and Switzerland – are Euro deposits in Non-euro banks called euroeuros?).

    Logically, it seems like the only two non-debacle solutions to this is for all the ‘dicey’ euro nations to leave together, in a coordinated ‘December surprise’ or for Germany and maybe France to leave.

    d

  22. Chris

    Darryl @ 21 – If I remember correctly I think Keating’s point was that as soon as it looks likely that Greece will leave the Euro people will pre-emptively cause a run on the banks. The government would have to move very fast to stop that from happening. The smart people in Greece would be already pulling their money out (if they haven’t already). I’d imagine it would be next to impossible to stop people smuggling Euros out.

    Also the drachma would end up being worth pretty much nothing so imports are going to be ridiculously expensive for Greeks. On the other side for Germany their currency is going to go so high they’ll go into instant recession as no one will buy their exports. Fun to be had for everyone.

  23. Fascinated

    It certainly puts a new spin on Greeks bearing gifts!

  24. Sam

    Wozza 18, it looks like you are suffering from premature extrapolation, Pappy’s changed his made about a referendum ostensibly because the opposition conservatives are opposed to it. But it was always theatre, a ruse to get a bit of domestic cover before agreeing to the inevitable EU package.

    Carbon trading, anyone?

  25. Fran Barlow

    Darin said:

    @fran… Mandate? That doesn’t make things right, as the Greens will no doubt say if the libs win the next election easily.

    Mandates don’t win you the support of people opposed to your policy, but you do get to say that people mostly supported you. Thus, the LNP had a mandate to oppose explicit carbon pricing and the ALP/Greens + 2 Indies had a mandate to support it.

  26. Robert Merkel

    Hmmm.

    Putting my wealthy Greek capitalist pig hat on for a moment, if I had significant savings in anything that is presently valued in Euros and might conceivably be valued in “new drachmas” in the event of a default and exit from the Euro, I know what I’d be doing, and doing right now.

    I’d be shifting my money into Swiss bank accounts, gold, collectibles – expensive plonk, for that matter. If Greece stays in the Euro, no big deal, shift your money back at leisure.

    If Greece exits the Euro and imposes capital controls, all those suckers with their savings converted into new drachmas are going to lose maybe half their savings, overnight. Conversely, there’s going to be an opportunity to pick up prime Greek real estate and whatnot on the cheap.

    Meanwhile, poorer and less savvy Greeks are going to cop it in the neck.

    And (admittedly according to that high-class German publication of record Bild) it’s already happening).

    As such, I’m more than a little bothered by some of the left-wing cheerleading for a Euro exit for Greece, because (as usual) the wealthy have ways to minimize their losses, while other Greeks will cop the full brunt.

    None of this is to say that the whole situation isn’t outrageous. It’s privatize the gains, socialize the losses on a massive scale, whichever way it ends up.

  27. Sam

    I just clicked the Bild link. You don’t have to read German to appreciate it.

    Robert, don’t kid yourself that it’s just the Greek 1% that are/will pull their Euros out of Greek banks and put them into German or Swiss or English banks. It’s easy to do for anyone and they will all do it.

    And it’s not just a matter of the Greek banking system. All business between Greece and the rest of Europe is conducted in Euros.

    Scene: meeting between German and Greek businessmen, Fritz and Con.

    Fritz: You owe us 100 million Euros on that construction contract.

    Con: Can’t pay. All our revenues are now in Drachmas, and 100 Drachmas = 1 Euro.

    Fritz: See you in court.

    Con: I hear the courts are going to be clogged for the next 20 years with these cases, and if you win we’ll declare bankruptcy.

    Fritz: If you don’t pay we won’t be ble to pay our English and American suppliers.

    Con: Tough.

  28. Incurious & Unread

    I cannot see how Greece can possibly leave – or be thrown out of – the Euro. It is completely impractical, for reasons mentioned above, and many more.

    Are there any modern historical precedents, under floating exchange rates? I very much doubt it.

    Therefore, any threats to that effect are empty.

  29. Sam

    Are there any modern historical precedents

    Dunno, but when the Czecks and Slovaks split, they must have sort of had to deal with the issue, unless they kept a common currency.

  30. Incurious & Unread

    Sam,

    Actually, that is a very good example. Better than you might have expected. Here is an extract from a paper by Schroders: “Dissolving currency unions – here’s how”.

    While separate currencies were always likely, there was no plan to create them at the start of January [1993, when Czechoslovakia was formally split]. How did the two countries introduce two separate currencies so quickly? On the 2nd of February the two governments voted to create two separate currencies on February the 8th, just six days later!! It may seem extraordinary but the actual currency split went through without any major hitches. 13,000 employees in the two countries stuck stickers on the large denomination notes. Individuals were encouraged to hold the minimum amount of cash to facilitate the process.

    So perhaps it is feasible. But I guess the fact it happened so suddenly and unexpectedly prevented the sort of bank runs feared for Greece.

    Also, negotiations between the Czech and Slovak governments would, presumably, have been much easier than negotiations between the Greek and “Euroland” governments.

  31. Sam

    I&U, but presumably the exchange rate was 1:1. That is the issue.

  32. Fran Barlow

    Robert said:

    if I had significant savings in anything that is presently valued in Euros and might conceivably be valued in “new drachmas” in the event of a default and exit from the Euro, I know what I’d be doing, and doing right now.

    I’d be shifting my money into Swiss bank accounts, gold, collectibles – expensive plonk, for that matter. If Greece stays in the Euro, no big deal, shift your money back at leisure.

    Much as I hate to burst your “capitalist pig” bubble, I suspect that if you could pull off that deal with advantage, that it would only be because some other “capitalist pig” was silling to swap their “gold collectibles, – expensive plonk” for your current Euros.

    One of you would definitely come out ahead on the trade, but unless you guess right and win — perhaps you really are that clever — then you lose. If you are thinking this, then so is everyone else on the other side of that proposed trade.

  33. Incurious & Unread

    Sam,

    It was parity initially, but that lasted less than two weeks, before a 20% depreciation of the Slovak currency.

  34. Chris

    Fran @ 32 – you don’t really need to convert the euros, though it might be safer if you think the euro is going to depreciate. You just need to get your euros out of the Greek banks and maybe out of Greece. So the Greek government can’t freeze them and turn them into worthless drachmas when they leave the Euro.

    There’s very little risk at all – just perhaps some transaction costs moving your money from one bank to another, or from having to stockpile a bunch of euros under your mattress.

  35. Fran Barlow

    Chris said:

    You just need to get your euros out of the Greek banks and maybe out of Greece.

    That’s all very well Chris, but at the moment people with money thought that they were at risk then everyone would be doing it in a mad (probably electronic) scramble. That might cause the collapse of the relevant banks or at least some sort of trading halt, with all that implies.

  36. Darryl Rosin

    I&[email protected] – Argentina in 2002 is an interesting example. Not strictly a currency union, but the Peso-USD exchange rate was pegged and the currencies were freely convertible at Argentine banks and accounts could be held in either currency.

    Greece leaving the Euro is not such a difficult problem, in and of itself. It’s the knock on effects to the other ‘PIGS’ that makes it hard. Because by the end of the trading day that Greece leaves, every bank in Italy will have collapsed.

    Every road leads to enormous quantities of aid flowing from Germany to the periphery of the Eurozone, which neither the German govt nor their Constitutional Court want to see happen.

    d
    That being said, Argentina in 1999

  37. Chris

    Fran @ 35 – true, if everyone does it then all the Greek banks fall over. Or the government intervenes and restricts withdrawls (which causes riots).

    But at the moment I think its entirely possible that the “rich” are quietly moving money out. If nothing else it seems prudent to do with very little cost.

  38. Sam

    Every road leads to enormous quantities of aid flowing from Germany to the periphery of the Eurozone

    Serves them right for invading Poland.

    Don’t scoff. Today’s situation in Europe is the direct result of WW2.

  39. Darryl Rosin

    “Today’s situation in Europe is the direct result of WW2.”

    Which was the direct result of WW1.

    I blame the Peace of Westphalia myself.

    d

  40. Incurious & Unread

    Darryl @36,

    “Greece leaving the Euro is not such a difficult problem, in and of itself.”

    OK, so how would you do it? Without what is left of the Greek economy collapsing.

  41. Sam

    OK, so how would you do it? Without what is left of the Greek economy collapsing.

    Greece is toast one way or another. They’ve tried to have first world living standards with a third world economy by borrowing on the never never. Unfortunately for the Grecians, the day of reckoning has arrived.

    If all that happened is if Greece becomes Albania, no one will give a fuck (apart from the Grecians, but, again, who could give a fuck?). The game plan is to not have the rest of the PIIGS implode. Which they will if Greece unilaterally and chaotically leaves the Euro.

  42. alfred venison

    dear Daryl Rosin
    “I blame the Peace of Westphalia myself”.

    seriously, i blame the franco-prussian war of 1870. had france gained at least a stalemate in that one (michael howard reckons france had its best chance at the battle of gravelotte-st. privat) they would not have lost alsace & lorraine, and the liberation of these territories would not have become a matter of honour for france & the casus belli between france & germany which it did become for the remainder of the 19th century & up to 1914.
    yours sincerely
    alfred venison

  43. Terry

    According to The Economist, the European Financial Stability Fund, at its current level of fiscal capacity (440 billion Euros), could cover the debts of Greece, Portugal and Ireland. What it could not withstand would be a default on Italy’s debt, and definitely not Italy and Spain.

    If Italy totters, then the question of recapitalising returns to Germany and France is itself fiscally vulnerable. And the German voters have, shall we say, issues with how this is going.

    http://www.economist.com/node/21534851

  44. Joe

    Well, no, not only.

    Germany and France couldn’t save Italy. That would be impossible. At that stage the ship is not floundering but on the rocks.

    Italy’s GDP is approximately 2 trillion.
    (Greece ~300 billion)

  45. Darryl Rosin

    [email protected]

    “Greece is toast…”

    I know what you mean, but I dislike this expression. Toast can never return to being bread, but Greece can (and will) return to enjoying a healthy economy. There is at least a couple of years of misery ahead for the Greek people. The burning question is “how can we get the misery over and done with as quickly as possible?”

    “They’ve tried to have first world living standards with a third world economy…”
    “If all that happened is if Greece becomes Albania…”

    Some people lose their sense of proportion, you’ve lost your sense of scale. Greece is easily a ‘top 50’ national economy, no matter how you slice it. Albania is well outside the top 100. Greece has a solid industrial and services economy. Albania is over 50% agriculture, mostly small holding farms with ambiguous property rights. Greece is not Albania and will not become Albania. Their economic problems are real, but characterising Greece as ‘a third world economy’ is simply wrong. Their major and urgent economic problems are entirely the result of having a currency that cannot respond to their national situation. I mean seriously, if they had a floating Drachma over the last two or three years, we would’t even be talking about this.

    “The game plan is to not have the rest of the PIIGS implode. Which they will if Greece unilaterally and chaotically leaves the Euro.”

    You can drop the “and chaotically” qualifier. No matter how orderly and platonically ideal the departure is, the implications for the rest of the Eurozone are dire.

    d

  46. Joe

    Daryl, it’s not just the floating currency which is the problem, it’s the amount of debt in the system. The problems for the EU were baked in from the beginning, but the crisis, to which it is unable to respond is the Financial debt crisis. The countries which are currently in trouble, including the UK and Iceland are in trouble as a direct result of the financial debt crisis.

    It is wrong to blame Germany for Greece’s problems, as nations they are not responsible for each other and to want them to be is not realistic. Greece has a history of being a problematic EU member, beginning with the financial trickery, which it used, to even gain membership. That doesn’t make the situation for Germany any better though, or help in finding a solution.

    Economic theory has simply been proven wrong. The so-called club Med countries have not improved their competitiveness, even as they have been able to invest in infrastructure from countries like Germany. Remember, Greece wasn’t forced to mis-invest the money it borrowed. Either was Ireland etc. Democratic governments are also not allowed to over-regulate private investment (although, this has to be an area in the future where incentives for particular types of investment seek to reduce market bubbles)– they were however left with the problem of having to nationalise the debt of private investors.

    Whichever way you dice it, the private financial system (and some private finance practices in particular) are the cause of the current catastrophe.

  47. GregM

    Economic theory has simply been proven wrong.

    Which economic theory Joe? There are many of them.

    The one I subscribe to is that if you borrow far more than your capacity to repay and spend it on consumption rather than increasing your capacity for production then, after a while, the wheels are going to fall off your cart.

    The Greeks seem to be proving that economic theory correct in spades.

  48. Fran Barlow

    GregM said:

    The {economic theory} I subscribe to is that if you borrow far more than your capacity to repay and spend it on consumption rather than increasing your capacity for production then, after a while, the wheels are going to fall off your cart.

    The metaphor doesn’t quite work here Greg. In general however, your claim is unexceptionable as it stands, but I would say that

    a) that’s not really “an economic theory” but a general principle. I doubt that you will find a school of economic thought that has a monopoly on the idea or thinks it worth having someone teach it as a unit of study.
    b) it hides the complexity of the underlying questions.

    For example:

    It’s not always clear what one’s “capacity to pay” amounts to even in the present, and still less over the live of the time when repayment would be required.

    While people have long term interests and have a stake in their “legacy” in the short run, if you don’t consume, you’re dead. Regardless of your capacity to devise a maintainable program of debt service, some consumption is essential. Agreeing to die or live in unremitting misery for much of your life rather than risk getting over your head in debt would be paradoxical.

    The ethical premises that apply to individuals ought not to be recklessly mapped to whole societies. A decision by a jurisdiction to live in misery rather than put at risk its credit standing would have costs in excess of the misery directly consequent to austerity. The breakdown of community and the desperate and often criminal measures people adopt to survive can lead to costly internecine conflict that can sharply curtail the kinds of measures that can return the society in question to something like economic health.

  49. Katz

    Joe @ 46:

    Greece wasn’t forced to mis-invest the money it borrowed. Either was Ireland etc.

    It is undoubted that borrowed money was poorly invested in Ireland. But these rash investors were capitalists, notably property developers, and private banks that lent to them.

    Only after the bubble collapsed did the Irish government agree to use taxpayers’ funds to prop up these banks. Now, like Greek taxpayers, Irish taxpayers are on the hook, except that so far Irish taxpayers are paying off others’ debts in full — no haircuts for creditors of Irsih banks, at least so far.

  50. Robert Bollard

    There are comments above, from the usual culprits, which picture Greece or “the Greeks” as some individual entity, or at least as a single undifferentiated community which has been living beyond its means, presumably partying late into the night (with the ouzo and the plates) and putting it all on the Visa Card. Now, according to this scenario, the bank is calling in its debts and they have to learn to behave better, give up the partying and tighten their belts.
    The Guardian recently had an article I can recommend which provided, finally, beyond the talk of debt and schemes and the endless fascination with the minutae of financial apocalypse that signifies commodity fetishism on the brink of the abyss, concrete examples of what austerity means to ordinary Greeks.

    Take Yannis, a 43 year-old man working in a bank in Athens, who doesn’t want to return home because it is going to be cold again. The heating will be off, as nobody in the block can afford the heating prices. His 16-year old daughter, Sophia, does not want to go to school, as she finds little meaning in preparing for her exams: why would she want to enter university knowing full well she will never find a job in Greece, anyway? Or take Eleftheria’s father, a 72-year old pensioner leaving in the village of Kymi, who called her today while she was returning home and hesitantly asked her for money to buy his medicine that the state fund no longer covers for. His pension was recently cut by 50%. “But, please,” he pleaded, “do not tell your mother.” Back in the city, Eleftheria’s streets are lined with garbage which has been lying there for more than three weeks.

    I don’t know how to embed links so here it is if you want to read the article in full:
    http://www.guardian.co.uk/commentisfree/2011/nov/03/greeks-austerity-grassroots
    Greeks are going without electricity. Schools are going without books. As you’ve just read, old people are going without medicine. God knows how many have been made homeless, or would have if not for the magnificent willingness of working class Greeks, unlike their American equivalents, to resist eviction.
    This is what living “beyond your means” consists of now for much of the Greek working class: having shelter, having electricity, having medicine when you’re sick and books in your schools. Greece has the capacity to generate electricity, to heat the houses of its people, and to print books for schools. It has enough housing to provide them all with a roof over their head.
    As long as a single banker in Europe earns more than 50,000 Euros a year, there is no excuse for denying anyone in Europe those basic rights. Steinbeck may be unfashionable, but I suspect, if this crisis continues, that may change. Those lines from the Grapes of Wrath about “children dying of pellagra because profit cannot be squeezed from an orange” will be quoted again, as will the rest of the lines – you know, the stuff about wrath.

  51. GregM

    a) that’s not really “an economic theory” but a general principle. I doubt that you will find a school of economic thought that has a monopoly on the idea or thinks it worth having someone teach it as a unit of study.

    What?

    Next you’ll be telling us that schools of physics think that the idea of gravity is such a general principle that it’s not worth talking about or that medical schools think that the circulation of blood throughout the body is such a commonplace that they shouldn’t tie up their students’ time by mentioning the cardio-vascular system. That would not surprise me at all.

    Kudos for this though:

    The ethical premises that apply to individuals ought not to be recklessly mapped to whole societies. A decision by a jurisdiction to live in misery rather than put at risk its credit standing would have costs in excess of the misery directly consequent to austerity. The breakdown of community and the desperate and often criminal measures people adopt to survive can lead to costly internecine conflict that can sharply curtail the kinds of measures that can return the society in question to something like economic health.

    Pure babble. Your thinking at its best.

  52. GregM

    Robert [email protected]

    Greece has the capacity to generate electricity, to heat the houses of its people, and to print books for schools. It has enough housing to provide them all with a roof over their head.

    All paid for by German taxpayers, it appears. And it also appears that the German taxpayers don’t want to pay for it anymore. Naughty German taxpayers.

    I hope young Sophie doesn’t give up on her studies but directs them to learning English, Robert. As the correspondent from whom you quote points out, why would she want to enter university knowing full well she will never find a job in Greece, anyway?

    She may as well learn something that would be useful in getting her a job elsewhere.

    Street kids in Phnom Penh are smart enough to do that and they are a great deal worse off than the Greeks.

  53. John D

    It is a shame German taxpayers don’t understand how damaging the escape of Greece, Italy and Spain from would be to the German competitive position. (See @9)

  54. Robert Bollard

    Greg M. Ahhh I see, the Greeks aren’t as badly off than Cambodian street kids so they should stop complaining. And I’d thank you for illustrating my point about commodity fetishism by your apparent belief that electricity in Greece is generated by the burning of Deutschmarks, but I suspect you wouldn’t have an idea what I was talking about.

  55. GregM

    And I’d thank you for illustrating my point about commodity fetishism by your apparent belief that electricity in Greece is generated by the burning of Deutschmarks, but I suspect you wouldn’t have an idea what I was talking about.

    Robert, I never realised that you thought that electricity represented commodity fetishism, of all things. I would have thought you would have taken the conventional view of your school of thought about electricity. You surprise me.

    However to your main point. Greeks don’t generate much electricity at all by themselves. They have minimal hydro-electricity and minimal fossil fuels from which to generate electricity. They have insignificant supplies of renewable energy from such sources as wind farms, solar panels or tidal generators.

    So they are left to buying it. Either in the form of fossil fuels to burn in order to produce it, or from buying it from suppliers such as their neighbours in Albania, Serbia, Montenegro, Bulgaria and so on.

    If they don’t have the money to pay for it, and that money is Euros, not deutschmarks- the world has moved on- then they won’t get it.

    And without it their economy will shut down. So sad. So bad. But that’s economic reality for you. As the Albanians, Serbians, Montenegrons and Bulgarians and so on will tell you. And the Greeks may as well howl at the moon for all they will care.

    As to Cambodian street kids. They were doing pretty well when I last saw them. The economy they live in is growing at an impressive rate, much better than that of Greece, which is going backwards. They have opportunities from that and they are taking them.

    Perhaps young Sophie should learn Khmer as well as English.

  56. fredn

    To make money all one needs to do is flip a bit in a computer. USA have worked out how to do it and have been busy defaulting on the their debt for the last 20 years. The Europeans will come to the conclusion that they will have to do the same, given time.

  57. Fran Barlow

    Robert @50 said:

    I don’t know how to embed links

    Do it using this syntax:

    [a href=”www.dummyurl.com”]This is a link[/a]

    where the square brackets are replaced with the corresponding greater than or less than signs, the enclosed string in the speech marks is the target of the link and the “this is a link” string is replaced with an identifier of your choice.

  58. Joe

    Katz,

    you said it much clearer, thanks.

    And as for the debate above, this is a tragedy, and many people are suffering due to a financial system, over which they have no control over.

    It’s amazing how quickly things can change. We would all do well do dwell on that, because “those that are last will later be first…”

  59. GregM

    [email protected]

    And as for the debate above, this is a tragedy, and many people are suffering due to a financial system, over which they have no control over.

    You are right Joe. It is a tragedy, but it is more than that.

    It is a catastrophe. And it is only weeks away.

    I had hoped to live my life without being visited by a Great Depression as my parents were in their youth.

    But I don’t think I will because there is no evidence that I will.

    That is a bleak assessment, I know.

    But it is what all the evidence points to.

  60. Katz

    ‘Fraid so, Joe.

    At least the Greeks may have voted for a government that declined to borrow so irresponsibly. They didn’t, of course, because both major parties competed with each other to bribe voters with borrowed money.

    On the other hand, the Irish government was fiscally quite prudent until suddenly and without warning it took on the debts of Ireland’s failed banks.

    Don’t forget that out of the blue Rudd and Swan guaranteed all Australian bank deposits. Australian banks were sound but Rudd and Swan staked a fortune on things not going pear-shaped.

  61. Robert Bollard

    Thanks Fran.

  62. Darryl Rosin

    [email protected] “However to your main point. Greeks don’t generate much electricity at all by themselves.”

    Something over 3/4 of Greece’s electricity is generated by the Public Power Company, with independent generators supplying a fair bit more.

    You really don’t know much about this at all, do you?

    d

  63. Darryl Rosin

    That was a bit ill-tempered, and I apologise.

    d

  64. GregM

    Darryl

    The issue is not whether the Greek electricity supply is produced by the Public Power Company or any other generator. It is what are the energy sources for the electricity. Are they indigenous to Greece, or are they not, and therefore something the Greeks will soon have to pay for with their drachmas or whatever else they choose to call their next to worthless new currency?

    I think that however little you think I know about the topic I know a great deal more about it than you do. It is simple economics and no-one is going to give the electricity company special consideration because it is called the Public Power Company.

  65. Darryl Rosin

    GregM,

    “…what are the energy sources for the electricity. Are they indigenous to Greece, or are they not…”

    Yes, the energy source for electricity are mostly indigenous to Greece.
    Try google sometime. It’s amazing what you can learn.

    d

  66. patrickm

    I gather Greece unsurprisingly does two things. It imports electricity @ 7,575 (million kWh) and it exports electricity @ 1,962 (million kWh). It is thus a ‘substantial’ net importer @ 5,613 (million kWh). It really is quite dramatic times we are entering when this type of issue is now being seriously discussed. Some years ago the Greeks built stadias for the Olympics and expensive public transport systems and spent bucket loads on the Parthenon etc now they are broke. Right now in SA we have an ALP government that is so incompetent that they persist with a massive stadium and hospital projects that we can ill afford if the world implodes in a classic capitalist crisis of 1930’s dimension as it appears to be rapidly doing. But the opposition tweedle is no better. The ‘left’ that we have in Australia are still into Keynes while the rest of the world is into dealing with debt. Greece has unemployment levels of 15% plus and this is only just starting. After Greece defaults and consequentially leaves the Euro zone, Italy is the big story rapidly unfolding that will pull the whole house of cards down and bring Australia into the picture. IMV there is a remarkable resemblance to the great Australian entrepreneurs like Spalvins, Eliotts, Bond etc in Berlusconi. Would you buy a used car from this guy? But it really isn’t about the baddies booms end in busts.

  67. GregM

    Patrickm, your figures are the same as mine and Greece’s net electricity imports of 5,613 million kWh represents just a little under 10% of Greece’s electricity consumption.

    There is a very close correlation between electricity consumption and economic activity. Take 10% of electricity (or a little bit less) out of play and you have a very serious hit to an economy. I don’t think we would consider it sanguinely if our economy retracted by ten per cent, or thereabouts, throwing us into a major recession.

    Then there is the Public Power Company’s net debt situation, all in Euros or another equivalent hard currency. Despite Darryl’s enthusiasm for it I’m afraid that google hasn’t disclosed that to me yet. Never mind. I am sure that will be large and, should Greece default as it seems likely it will, it will have to be paid back in euros by consumers paying drachmas which are worth a fraction of the euros they replace.

  68. Katz

    Patrickm:

    The ‘left’ that we have in Australia are still into Keynes while the rest of the world is into dealing with debt.

    In general I find myself in uncommon agreement with Patrickm.

    The Keynesian left in Australia appear to underestimate the depths of the crisis in public finances around the world. Only extraordinary measures like quantitative easing have kept the flow of funds to indebted a few indebted governments as cheap as they are so far.

    Italian bond yields, for example, soared to record levels on Friday.

    http://online.wsj.com/article/BT-CO-20111104-712369.html

    Way back in 2008 certain voices on LP pooh-poohed the notion that the financial collapse of that year would portend world-shaking difficulties.

  69. Marks

    “…The ‘left’ that we have in Australia are still into Keynes while the rest of the world is into dealing with debt…”

    Perhaps you mean that the rest of the world is talking about dealing with debt. Is there any evidence of actual dealing?

    Next point is that Australia does not have much public debt despite the stamping of little feet and pouting by some and assertions that it is hugely humungous. Of course private debt is something else. It does not require any keynesian to talk about that though surely? I mean is anyone keynesian or non-keynesian talking about the level of private debt, and is anyone listening?

  70. Robert Merkel

    Yep, Katz, I am surprised about how severe and prolonged the problems in the global economy have been.

    But I am flabbergasted at how badly governments and central banks around the world have stuffed up the response to the crisis.

  71. David Irving (no relation)

    Marks, Steve Keen’s been talking about private debt for quite a while.

  72. Katz

    Agreed Robert.

    Deregulation during the 1980s and 1990s was the necessary condition for a very bad smash.

    Refusal to use the powers that did remain in the hands of government instrumentalities in the 2000s was the sufficient condition.

    By 2008 only bad or worse choices were available. The US authorities chose to sacrifice Main Street in the interests of Wall Street.

  73. Lefty E

    One thing that few people ( and no one in the MSM) seems to realist is that the wealthiest 20% of Greeks pay essentially no tax. This is a sad legacy of the military junta era. So while it has other issues, everyone’s ignoring a major factor. Bear that in mind when ordinary Greeks jack up at austerity cuts.

  74. David Irving (no relation)

    LeftyE, that confirms the suspicion I’ve had that the Greek Right stole all the money that the rest of Europe lent them and have left the Greek people to carry the can.

    Ain’t casino capitalism grand!

  75. GregM

    One thing that few people (and no one in the MSM) seems to realist is that the wealthiest 20% of Greeks pay essentially no tax.

    But isn’t that the problem about the whole of Greece?

    So that instead of paying tax they have ecklessly borrowed money from others and now the bill has come in?

  76. Patrickb

    @47
    Pure rightwing babble, not even approaching theory. For example could you point to the particular “Greeks” that borrowed beyond their capacity to pay? Of course you can’t because you don’t know anything about the history of the Greek financial system over the last decade. All you can do is play at being a third rate Paul Sheehan.

  77. GregM

    For example could you point to the particular “Greeks” that borrowed beyond their capacity to pay?

    Certainly, since the problem for Greece is its public borrowing over years which it can no longer pay, the particular Greeks are every Greek on the Greek electoral roll.

    I am sorry they have gotten themselves into that situation but that’s what they have done.

    Do you never wonder why the major political parties in Australia always make a feature in electoral campaigns about how they will manage government debt and why the Treasurer is making such a point about returning next year’s budget to surplus even though Australia’s public debt is relatively insignificant and entirely serviceable from the fiscal revenue base (i.e.. taxes)?

    So it’s not “pure right wing babble”. It is conventional and orthodox economic theory shared by all major parties in Australia. And they hold to that theory not only because it is sound but their well-infiormed electors think it is sound.

  78. Darryl Rosin

    “Do you never wonder why the major political parties in Australia always make a feature in electoral campaigns about how they will manage government debt and why the Treasurer is making such a point about returning next year’s budget to surplus even though Australia’s public debt is relatively insignificant and entirely serviceable from the fiscal revenue base (i.e.. taxes)?”

    Because people don’t understand economics and ‘two legs bad, four legs good’ is easy to convey in a 15second ad.

    This has been another edition of “simple answers to meaningless questions”.

    d

  79. Darryl Rosin

    [email protected] “Italian bond yields, for example, soared to record levels on Friday.”

    Meanwhile 5-year US Treasury Bonds are yielding -1%, and 20 & 30y are under +1%. People will *pay* the US to borrow money from them.

    http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield

    The US and the UK’s primary problem is demand.
    The Eurozone’s primary problem is sovereign debt without sovereign currencies.
    And the financial system is wound so tight it’s going to pop if there’s any kind of systemic shock.

    All different problems needing different solutions. Unfortunately they’re all happening at once.

    d

  80. Joe

    Hi Daryl,

    it’s the same story with the bond prices for Germany. I don’t think that this is a great indication of the strength of the US or the Germany economy. I think this is more like an artifact which is due to how distorted the financial system has become.

    in general, I think that the financial system has become too big and too centralised. Also, I think that, if you take Germany, in particular, historically Germany has more often than not over-estimated its position. Anyone living here, knows there’s a lot of bu11shit going around at the moment, about how strong the economy here is, and how Germany has to rescue the other EU economies. To some extent this is actually a cultural misunderstanding.

    This is also a problem that the EU has. Here’s an example:
    You wouldn’t think that there is much difference between the German and the English cultures. And there isn’t, but that makes the differences even harder to deal with: so, for example, in Germany, (and these are generalisations) complaining conveys that one is used to better, that the current situation is not what one expects. In England, it quite often means that one is not in control of the situation. This can be the reason for a relationship, be it business, whatever, to fail.

    Anyways… lost my train of thought, there. 😀

  81. Joe

    The other thing is: How’s Israel going to react to Iran developing a nuclear bomb?

  82. Ambigulous

    goodbye Mr Berlusconi

  83. Katz

    Meanwhile 5-year US Treasury Bonds are yielding -1%, and 20 & 30y are under +1%. People will *pay* the US to borrow money from them.

    If you think that the $US will appreciate more than 1% against your own currency then US Treasurys are a reasonable investment vehicle in dangerous and volatile times.

    I believe these times can be described accurately as dangerous and volatile.

    One alternative is to take the 7%+ now on offer from Italy, if you like to live dangerously.

  84. Lefty E

    “Certainly, since the problem for Greece is its public borrowing over years which it can no longer pay, the particular Greeks are every Greek on the Greek electoral roll.”

    Thats part of the problem: the other part is that the wealthiest 20% of Greeks pay no tax at all. Practiaclly zippo – never have since the military junta era.

    Its a strong metaphor for the origin of GFC / Eurozone crisis as a whole. But of course, the medicine must be dished to “the public” as austerity. Why? I realise the banks took a haircut in the Greek case, but they didnt over Ireland.

    (Is it worth noting here that Argentina defaulted on its debt in 2002, told the IMF to take a hike – and has had the highest growth rate in Latin America ever since?)

  85. Lefty E

    Interesting – study finds traders and finance advisers have no observable skills or talent, and random dice throwing would lead to the same results: http://www.guardian.co.uk/commentisfree/2011/nov/07/one-per-cent-wealth-destroyers?fb=optOut