Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 12 March 2014

Greece and denying responsibility

My earlier post making some parallels between attitudes to Greece and attitudes during the Irish potato famine of the 1840s was picked up by others in Ireland and Greece, and has drawn some interesting reactions. Thankfully most understood that, as I wrote: “Of course the Irish famine is different in degree and form to the difficulties being faced by many in some Eurozone economies.” So why did I still want to make the comparison? The trigger was the denial of responsibility highlighted by the Lancet study I referred to, and the common alternative view that all problems were down to a corrupt or inefficient Greek government and economy.

I wanted to make the parallel with the Irish famine for three reasons. First, there seemed to be the same type of deflection of blame going on today as at that time. Second, ideas about what could and couldn’t be done in terms of economic relationships were central. Third, the verdict of history is pretty clear with the Irish famine. The British government did provide some famine relief, but what history remembers is that it was not nearly enough. History remembers the action and inaction of the British government, and not the inefficiencies and inadequacies of Irish agriculture.

One response to my criticisms is that without Troika or IMF support, austerity would have been much more immediate and intense. This is of course true: unable to borrow at all, the Greek government’s primary deficit would have had to fall to zero even if all interest payments on debt had been halted. But as I noted above, the headline from history is not that the famine would have been worse still if the British government had not provided any relief, but rather that it did not provide enough.

Troika assistance to Greece made two major mistakes. First, wishful (at best) thinking about the amount of government debt Greece could support. Second, the Troika imposed a front loaded austerity programme that was far too severe. How much of the subsequent collapse of the economy was due to this is unclear, but few seriously doubt it played a major role. As I noted here, the estimates by the Troika of the impact of austerity that were made at the time ignored basic and widely accepted macroeconomic analysis.

Mistakes get made, particularly in a crisis. When these mistakes become evident, as they did pretty quickly in the case of Greece, there are two possible responses. The first is for those who made these mistakes to admit responsibility, and try and learn the lessons. I think the IMF has to some extent tried to do this, as I noted in this earlier post. The second possible reaction is denial, and to seek to blame others. It is this response that history does not look too kindly upon.

Denial takes many forms. There are many myths. One of the most invidious is that the failure of Greek debt to stabilise is because the Greek government failed to undertake the required austerity. This is simply not true, as this excellent study of all the assistance programmes to Eurozone countries by Pisani-Ferry, Sapir and Wolff documents. (See also the numbers I presented in this post.) The austerity programme was always far too severe, and became more so over time.

Another myth is that workers refused to cut wages, thus preventing the necessary adjustment in competitiveness. To quote the Pisani-Ferry et al study: “It is only for wage-based competitiveness indicators such as unit labour costs that the improvement is noticeable. Thanks mostly to downward wage adjustment, ULCs started to decline already in 2010 and the trend accelerated strongly in 2011-12.” So the image of the stubborn Greek worker refusing to face reality is incorrect.

There is also a denial of the extent to which the Troika promoted its self interest, rather than doing what was good for the Greek people. No doubt part of the failure to recognise the necessary debt write off was wishful thinking, but it is difficult to believe that it had nothing to do with who held that debt. As this Breugel study shows, the term ‘privatisation’ appears ten times more often in Commission programme documents than the word ‘poverty’. When it became possible that Greece might elect a government headed by Syriza, Greece was threatened with exit from the Eurozone not because the Troika believed this prospective government might do more harm to the Greek economy, but because they threatened to suspend interest payments.

A good example of this self interest is defense spending, and German built submarines in particular. Greek defense spending is well above the Eurozone average. An obvious initial austerity measure would have been a complete suspension of Greek spending on overseas produced military hardware. This is one example where austerity could actually be expansionary: Greece benefits from the reduced tax burden, but the demand impact is felt entirely overseas. Any fears about Turkey could have been covered by assurances from other governments. Indeed, given the alternatives, it seems criminal not to have made this a condition of Troika support. But of course this would be to ignore where this hardware was built - mainly in Germany and other Eurozone economies.  

As Merkel is reported as saying: “But we never asked you to spend so much of your GDP on defence”. Yet the Troika has not been afraid to ask for many things. One of the myths is that Troika loans have not involved much conditionality - as Pisani-Ferry et al note, “the Troika has immersed itself more and more in the sector-speciļ¬c regulation of microeconomic behaviour.” The extent of corruption in the procurement of Greek military hardware is immense, but the bribes have been paid by companies in other Eurozone countries, particularly Germany.

It is clearly nonsense to argue that the damage done to the economy and health of the Greek people is all down to corruption and inefficiency within Greece and nothing to do with Troika actions. Denial of responsibility is particularly dangerous if it means not admitting your mistakes but instead repeating them. The tragedy of the Greek political class is not that they failed to enact Troika policies, but that acquiesced to them. The one ray of hope is that now the Greek government is no longer running a primary deficit, so it potentially has much stronger negotiating power. I only hope they use it. 


Earlier posts on Greece

17/03/14 The sharp but effectual remedy

13/06/13 How a Greek drama became a global tragedy

19/04/13 The stupid cruelty of the creditor

14/11/12 Greece: continuing the disastrous ‘squeeze and hope’ strategy

23/07/12 Playing with Fire in the Eurozone

23/05/12 Why I can still believe the Euro will survive, just


45 comments:

  1. "One response to my criticisms is that without Troika or IMF support, austerity would have been much more immediate and intense. This is of course true: unable to borrow at all, the Greek government’s primary deficit would have had to fall to zero even if all interest payments on debt had been halted."

    I will strongly disagree on that statement. The 2010 primary deficit was (according to Ameco) €10.9bn, compared to €24.2bn during 2009. According to the Greek Ministry of Finance 2010Q1 Debt Bulletin, cash deposits were close to €7.16bn. Based on Bank of Greece data, up to the end of April 2010, the (cash flow basis) primary deficit was €4,3bn while the change in cash balances was around €46mn. As a result, the Greek government held €7.2bn in cash with a need for another €6.6bn to cover the primary deficit until the end of 2010. In terms of interest, up to April €3.3bn out of €13.2bn had already been paid. Although long-term notes could not issued, Greece had not lost access to short-term (T-Bill) financing at any point (issuance actually almost doubled from 9bn to 16bn during 2011).

    It is clear that the alternative included a PSI during 2010 (which would involve a much larger amount of debt and most probably demand a much lower haircut than the 2012 PSI) with the added benefit that the immediately lower interest payments would 'front-load' austerity and deficit reduction. Greece had the cash to be able to organize a PSI without any immediate need to reduce its primary deficit to zero.

    Even in terms of its banks, their 2010 capital position allowed them to withstand a PSI shock (as long as the haircut was not too large). Based on Bank of Greece data, Greek banks held an aggregate of €44.6bn in central government securities (of which around €3bn were in T-Bills). The IMF Financial Stability Indicators show that during 2010Q1, the banking system had total regulatory capital of €28,13bn (for €240.45bn in risk-weighted assets), a capital ratio of 11.7%.

    In 2010, the necessary NPV loss to return Greek debt on a sustainable path was much lower than the losses actually taken in the PSI. Based on the Greek MFI exposure, even a 30% loss on their holdings would mean a reduction of €12.5bn from their capital which would lower their capital to €15.6bn (still positive) and the tier-1 ratio to 5.9% (for comparison, PSI losses reached €25bn) not including any deferred tax assets. Although there would have been a need for capital injections, Greek banks would still maintain a strongly positive capital position and access to central bank liquidity.

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    1. Lots and lots of creative accounting, there... Just two points: First, Greece's access to T-bills through 2011 was made largely possible by its acceptance of Troika support. Withdraw that conditions and even short-term access to market lending at affordable rates is no longer certain. Second, the assumption that the losses of Greek banks would not top 30% of their holdings is, to put it mildly, rather optimistic. Those points aside, Mr Kalevras doesn't go into one of the main practical consequences that a default in 2010 or 2011 would likely have had, namely a Grexit, cutting off Greek banks' access to the ECB. Whatever capital was held by Greek banks and the state would automatically be denominated in a drachma that would fall sharply in value (obviously not forever, but long and sharply enough to cause untold immediate damage), with the debt still denominated in euros.

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    2. 1) Greek debt was under Greek law so I really do not comprehend the assertion that debt would still be denominated in euros in the event of a Greek exit from the Euro.

      2) You should really remind yourself that the ECB did not accept debt obligations guaranteed by the Greek state for a long time after the 2012 PSI while Greek banks had a negative capital position. Nevertheless they continued to have access to central bank refinancing through ELA which obviously also included financing T-Bill rollovers. Actually ELA was increased in August of 2012 in order to repay a bond held by the ECB. History is not on your side.

      3) The choice in 2010 was not between a troika backed program and a disorderly default and Euro exit but between postponing (along with wishful thinking about the future) PSI or not. Greece was perfectly capable of negotiating a debt restructuring in 2010. The ones who actually wanted to postpone the inevitable were core Eurozone countries (with large Greek exposure), as was clearly stated in IMF ex-post evaluation. Asserting ECB/Euro reaction to a restructuring back then is just that... assertion.

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  2. I'm not sure if this sentence "There is also a denial of the extent to which the Troika promoted its self interest" is meant to include the bankers and the people who were able to buy Greek assets at firesale prices. Apparently there were speculators contributing to the Irish famine case as well. The British speculators antics in1847 meant that the UK government did not have "extra resources" to give to Ireland and they thought the ordinary Irish were foolish to put their limited resources into potatoes. Like the Troika they did not "let a good crisis go to waste" and tried to implement "free market reforms".
    When I think of the parallels between the Irish famine and the current austerity backers I think in terms of the type of people who were responsible. It is possible that a certain personality type is implicated in both scenarios and also that this personality type does not learn from its mistakes, especially if their goals are not Greek/Irish/poor people general welfare but something else like "free market reforms" or class-based interests. Also in the Irish famine case there was some condemnation but I don't remember anyone in power losing their job, just like the Troika, ECB, IMF and World Bank people won't lose theirs.

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  3. Do you have a view on whether the Greek government should have sold "the islands" and other real estate assets? That would have raised a lot of money, reduced need for austerity, etc. Seemed just to be nationalism and Greek political class against it.

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    1. When the London Conference of 1953 arranged that the german-damaged countries of WW2 would forego reparations to help Germany rebuild, did they ask for say, Bonn, or Nordrhein Westphalia in return?

      Not only has Germany forgotten that countries that they harmed (and in the case of Greece almost completely destroyed) struggled to rebuild themselves in order to help Germany, but that the so-called German Miracle was in no way due to german hard work and sacrifice alone.

      As for humanitarian issues, within 12 years the former Allies organised the Berlin Airlift in answer to the German government's call for humanitarian aid.

      FYI

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  4. After two "world" wars mostly based in nationalisms isn´t about time for us to stop those odd concepts?

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  5. Isn't a better comparison of German policy to be made with the UK's Medium Term Financial Strategy, in which Thatcher-Merkel exported unemployment away from their electoral base through wrongheaded economic policies made up on the hoof?

    Krugman's blog January 28, 2012 'Save The Welsh' and Eichengreen's Jun. 13, 2013
    'Lessons of a Greek Tragedy' are good supplementary pieces too.

    I've taken to calling the Liberal Democrats the Euro Democrats, as I don't see much in the way of liberalism in the way they have behaved since 2008.

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  6. Regarding weapons sales to Greece, the Sipri database (look at www.sipri.org) is showing a quasi cancelling of arms imports starting in 2010. Their numbers give:
    2007 => 1708 ; 2008 => 521 ; 2009 => 1227 ; 2010 => 659 ; 2011 => 79 ; 2012 => 35
    (It's not clear what the unit is: Sipri Trend indicator values...)
    The various MoUs explicitely asked for a very strong reduction in defence spencing and this has been effectively the case. Suppliers for the 2007-2012 are roughly equally France, Germany and the USA.
    Just some facts amending the impression you give that bad Germans (and them alone) asked ruined Greece to continue defence spending.

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    1. Over the years Germany has been the main supplier of arms to Greece, but I agree other Eurozone countries have also joined in. (I did say "Germany and other Eurozone countries" in the post when talking about military hardware.) The stories about bribery have focused on German submarines, but its also pretty clear that bribes were coming from all over the place.

      The SIPRI numbers do suggest a sharp fall in arms imports in 2011, which is good, although its unclear how this fits with reporting like this: http://www.telegraph.co.uk/news/worldnews/europe/greece/9129234/EU-accused-of-hypocrisy-for-1-billion-in-arms-sales-to-Greece.html

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    2. The first bailout loan to Greece in 2010 was conditional on Greece buying billions of unwanted arms from Germany and France. The Greek army protested that these were completely unneeded.
      FYI

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  7. Greece is a special case, being abused in the pro/contra austerity debate.
    I have no idea what exactly is the reason the economy in Greece is still not recovering, but I do think it's too easy to blame it on austerity as there are other examples of austerity countries that are growing again.
    If we look at the eurozone, take for example Latvia. Or a more recent example is The Netherlands: committed to austerity, but economy is finally growing again. In fact, the president of the Dutch central bank said today the government should do more austerity!
    to all the economists that claim that it is simple macro economics that these countries are wrong, my question is why are these countries following these austerity policies, supported by local economists and heads of central banks?

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    1. phoenix theophrasti13 March 2014 at 10:02

      The main reason is no funding and excess taxation depriving the private sector of liquidity.
      Loans to the Greek private sector have been decreasing steadily since 2010 and money supply shrinking.
      The PSI created zombie banks and all capitalisation occured to late.
      Other reasons Colapse of internal market due to the decrease in incomes and unemployment

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    2. Hah, excess taxation?! I agree with everything Simon has said in his post, but he lets the Greek political class off too easy. They decided to impose austerity by balancing the public budget on the back of the lower classes services and taxes. The Greek political class asked very little of the upper-middle and upper classes, who had made major tax evasion essentially a national sport. And the Greek political class was incompetent in getting the government to claw back so much of the lost revenue over the past decade. The Troika had poor priorities, but so did the Greek political class -- they enabled each other. (And to pre-empt one quibble: yes, many other national political classes engage in tax evasion on behalf of their elites, but it's on the higher end of the scale for Greece, which annually loses multiple % points of GDP in tax evasion.)

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    3. Last anon

      I certainly did not mean to suggest that widespread criticism of the political class in Greece was unjustified - they deserve all the criticism they are getting.

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    4. Thanks very much for your reply. I only check out your (useful!) posts intermittently, so I've probably read too much into your necessarily selective focus.

      Nevertheless, to explain myself, I become generally frustrated when I sense that debates about the euro crisis come to center unduly on the case of Greece. If those of a center-left persuasion are going to find traction in resolving the pathologies and toxic politics of the euro crisis, they have to realize that there will be limited "political capital" to expend on bold solutions. One major target will be the EU institutions themselves, above all ECB policy and (as you have done) the ideology of the EC within the Troika. But, in addition, it is also far better to focus on the situations of countries besides Greece's. Resolving the euro crisis will proceed by resolving the economic situation of Spain and Italy (because they really are too big and central to fail). (I find Ireland to be relatively unsympathetic as well, seeing as they also have an egregiously corrupt political class that remains close to power). Greece, on the other hand, plays all too well into the just-so stories of sanctimonious "northern" Europe.

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  8. Two questions:

    You believe
    a) that Greece has the moral right to repudiate all its debts (even if that means that no one will lend it a cent in the future)
    and
    b) that other ntions are morally obliged to give (not lend) Greece money in sufficient quantities.

    a) You seem to have forgotten your Bagehot, who proved the necessity of a lender of last resort (at least for banks and, through them, for businesses), but who also said that the LOLR should lend at punitive interest rates - obviously for reasons of moral hazard.Isn't that what the Troika is doing? From what you say, Bagehot was wrong. Is that really what you believe?

    b) If other nations are morally obliged to help Greece with sufficient money - how much would that be? And for how long?

    Please remember that Italy has been pumping money into its Mezzogiorno for 150 years - to liitle avail. And Germany paid 1.3 trillion € into East Germany in the twenty yeaars after reunification - and their standard of living hasn't caught up.

    So, please be more precise.

    Hanno Achenbach

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    1. The moral hazard argument is silly. In fact quite the opposite is true. Once you allow default, Eurozone governments are under greater market discipline than those outside, which is why you need OMT.

      The logic behind partial default is also very difficult to understand, except from the creditors point of view. Default must involve a significant fixed cost, so you might as well get the benefit of doing it completely.

      I also thought I had been pretty precise about what should have been done. Complete default followed by a much less severe austerity programme to get the government back to primary surplus. Its fine that this should be in the forms of loans, as long as those loans are more like equity, which pay back (with interest) when the Greek economy is growing strongly again. A period of weak growth (not large negative growth) was inevitable in the short term because of the required correction to competitiveness. But forcing too rapid austerity is a stupid mistake, because it just wastes resources - for good old fashioned Keynesian reasons.

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    2. If I read you correctly, your answer to my question a) is: Bagehot, who is as bad as the troika, is wrong and Simon Wren-Lewis is right. Let the Greeks default for all they are worth - they have the right to.

      As for question b), you are definitely not being precise. After all, you were being asked for policy recommendations so that other governments could propose to their parliaments how much money to devote to the Greeks (which could then not be spent in their own countries). If anything, your answer is: Whatever it takes,

      You once worked for your government. Then you must be aware that such an unspecified proposal cannot go through in practice.

      So, please be precise, or admit that you are unable to.

      Hanno Achenbach

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    3. the other German dude16 March 2014 at 08:52

      Always funny to see people who have no idea about what they are talking lecturing people who actually do.

      What you call "pumping money" is not a gift but a loan. And while in our native tongue the term for debt and guilt is virtually equal (Schulden, Schuld) economics is not, as Krugman has pointed out numerous times, a morality play. In a market economy it is not just debtors who are responsible for not being able to pay back a loan/bond, creditors are also responsible for lending money irresponsibly. Lawyers never get this.

      Concretely this means that Germans buying Greek government debt are partly responsible for having bought bad bonds. In a market economy they would have to pay a price for their bad lending choice, Greece would have defaulted. But instead they (and not the Greek people) were bailed out via the Troika programs.

      So if there is money "pumped" anywhere it is from the German taxpayer towards German banks. As I already said, you might wanna inform yourself about facts and basic economics before you post such nonsense. But then again we can hardly expect this from a typical economically illiterate German right-winger.

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    4. You do find it a bit hard to read, don't you?

      Hanno Achenbach

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    5. the other German dude17 March 2014 at 06:10

      You do find it a bit hard to pick up an Econ 101 textbook and read it, don't you?

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    6. Not all that hard. How about you?

      Hanno Achenbach

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    7. What does Bagehot have to do with any of this?

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    8. Read, please, if you can.

      Hanno Achenbach

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    9. Anonymous has all the facts in front of his eyes, and yet misses it.

      Yes, Italy has been giving money (not as loans) to the Mezzogiorno for years.

      Funnily enough, that money promptly gets spent on importing goods from the prosperous North while the South languishes. Meridionalists (that is pro-South) historians tend to see this as evidence of Northern exploitation, in fact going back to military occupation and colonization of the Mezzogiorno in the 1860s.

      Same goes for East Germany - West Germany essentially wiped out its industries and West German businesses pilfered what productive assets they could find.

      The lesson is that weaker nations should never join economic unions with stronger ones.

      Wish we had the example of a poor bit of a nation that broke away from its unfortunate economic union with its richer cousin and managed to finally close the gap!

      https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&hl=en&dl=en&idim=country:SVK:CZE:ROM#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_kd&scale_y=lin&ind_y=false&rdim=region&idim=country:SVK:CZE&ifdim=region&hl=en_US&dl=en&ind=false

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    10. Why is it then that a lot of North Italians would be gladly rid of the Mezzogiorno?

      Hanno Achenbach

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    11. Either you really are too stupid to understand that not Greece but German banks have been bailed out or you understand this quite well but hide your nationalism (given that quickly googleing your name revealed that your daddy was a nazi and that you defended him in vain this does not surprise me in the least) behind spewing out all this economically illiterate nonsense.

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  9. phoenix theophrasti13 March 2014 at 09:56

    There is no obligation for other nations to help Greece. The only reason they were all so keen to provide loan facilities, was to bail out the European banking system as Mr Rehn admitted recently in the EU parliament
    Back in 2010 UK and german banks were loaded with PIIGS bonds, or loans which some had no chance of beeing repaid. The private sector cannot impose repayment to the oficial sector, but public institutions can. The nothern European politicians would never get reelected, if they proceeded with recapitalizing the banking sector for yet a second time after the first recapitalization in 2008-9, because of the subrime crisis in the US. So the only way out was to use their contol of European institutions, to move the loss from their careless banking system, to the even more careless PIIG states run by always happy to oblidge local politicians. In the development of things the crisis turned into a fight against the social state which has been escalating in Europe since Thatcher.
    But also a new type of colonialism and geopolitical contol game.
    The US was very happy to exploit the crisis to point at the Euros design faults in a period that the USD reserve status was chalenged by helicopter money.
    So all an all the programs pursued other interests, as can be depicted by their failure across all countries (even ireland) to reduce debt and stabilize the economy.
    As time goes by, it is obvious that the story can not have a happy ending, and the huge debt that has been accumulated, will either have to be monetized, or be payed by the ultimate lender, the german saver.(German savings are a byproduct of German surpluses aides by the Euro) As the article correctly points out though, policies of both creditor and debtor countries will share the blame. Just debtor counties are suffering and will suffer even more.

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  10. There is a perfectly efficient and uncorrupt path that would have led Greece to exactly where it ended up. And forgiving any amount of debt would not have made any difference.
    The Greek economy has had, for as long as national accounts statistics are kept, a problem of domestic supply never rising to the level of domestic demand. Never has it had the problems of oversupply exercising the macroeconomists. Eurozone membership, by providing easy credit, allowed this real-economy imbalance to grow out of all control. Excessive debt is only the by-product of this imbalance and forgiving the debt, addressing the symptom, would not remedy the cause of the problem. Potato blight in Ireland was a shock. Greek balance of payments deficits was a chronic condition. Apparently, in 2013 that particular deficit turned into surplus for the first time. It would seem that austerity is, at long last, addressing the core problem of the Greek economy : Too little production.
    For longer and mildly entertaining versions of this approach, here are two links :
    http://unofficialdimioannou.wordpress.com/2013/04/18/stories-about-defaults/
    http://unofficialdimioannou.wordpress.com/2013/09/07/greece-victim-of-excessive-austerity-or-of-credit%E2%80%91induced-turbo%E2%80%91charged-dutch-disease/
    George J. Georganas

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  11. Wolfgang Munchau @ eurointelligence cites this study by Nick Malkoutzis:

    "Nick Malkoutzis shows us the social impact of the crisis in Greece in figures. While the real impact is elusive to our eyes and most evident in living rooms, offices, factories or hospitals, there are some indicators to show the sheer extent of it: 34.6% of the population live at risk of poverty or social exclusion (2012 figure), household’s disposable income contracted 30% since the crisis began, with about a third of households indicating that they are behind payments and 40% saying they will not be able to meet commitments this year. The Public Power Corporation is disconnecting around 30,000 homes and businesses a month due to unpaid bills; unemployment has risen 160% so that now 3.5m employed people have to support 4.7m unemployed or inactive. Only 15% of the 1.4m unemployed currently receive financial assistance from the state; there is no safety net for self-employed, who make up 25% of the work force. Social transfers have been cut by more than 18%, health care cuts of 11.1% between 2009-2011 are the largest in the OECD while there was a significant rise of HIV infections, tuberculosis, still births. For 48.6% of families pensions are the main source of income, expected to be cut even further. The €700 pension has been reduced by about 25% since 2010 and is due to be halved over the next few years."

    What has been done to Greece is a crime SWL is right - they should have defaulted long ago.....

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  12. " This is about the Eurozone, and it needs to be rather long to be provocative. You do not need any prior knowledge to understand the message."

    Not really. As a professor you should realize that at least once in every relevant post you should define Troika at least once with a simple parenthesis.

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  13. I live in Greece. To start with I would like to thank the author for his position but… Greece is a sole victim of a political power struggle between the right and the left. During the late 1990s and early 200s, PASOK, the socialist-leftist party, instead of spending EE money for economic development used them to hire close to 300000 workers, most with degrees, as social servants on a contract basis. They were getting very good salaries and good raises, for jobs having no connection to growth and productivity. At the same time Greece got the Olympic Games and the waste of resources was tremendous. Then, in 2004, the right party ND promised all those people that were on job contracts to give them tenure if elected. Naturally, they voted for ND, making the difference. As a result, the debt of the country started skyrocketing. Given the PASOK had not used the money for growth and now ND had a few hundred thousand more to pay, the credit expansion that followed combined with above productivity raises for especially civil workers made the banking system very vulnerable to the crisis that came in 2008. The rest you know. It is not a fault of Troika or Merkel of IMF or ECB. The fault is with the political parties and whoever is trying to reverse the burden is trying to exonerate them. The only way for Greece to survive is by following an austerity program and getting productive again like it was in the 1960s.

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    1. Data (see charts at http://www.greekdefaultwatch.com/2011/04/are-we-all-greeks-now-greek-political.html ) doesn't quite support this narrative. Greece debt/GDP ratio explosion pretty exactly started with the the first PASOK gov't in the 80s ending near the end of the ND Mitsotakis gov't. It remained stable pretty much until Greece was forced to participate in the cycle of financial protectionism following the US mess.

      Governments knew that the payment structure established during the 80s was unsustainable, which is why they engaged in the generationist policies of filling civil sector jobs in increasingly creative ways, until such time as each practice was declared by court functionally identical to civil service. And far as absolute numbers go, civil servants /1000 is decidedly average among EU nations. The caveats are that
      a) the services are terrible, in large part due to these odd hiring policies which make the most needed staff the easiest to let go of
      b) a number of wholly- or partly- state companies exist outside of the above count, where either the company or the state participation makes little non-patronage sense, with equally burdensome payment structures.

      1960s world-beating growth is an aberration, the result of rebuilding delayed after WWII due to resource scarcities and the Civil War; also, a time of a demographic boom. You'd need to seriously damage the country before getting something like that again. Which, come to think of it...

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    2. Someone's personal blog does not qualify as a reliable source of information.

      "It remained stable pretty much until Greece was forced to participate in the cycle of financial protectionism following the US mess."

      Facts deny this claim. When Simitis left in 2004 the debt was at 98%. When Karamanlis left was at 127%.

      Trying to counter facts with false claims and class of a narrative will not get you too far because the information is on the open. Everywhere...

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  14. Since the spring of 2010, I was a champion of the idea that Greece could rather swiftly get out of the self-created mess and embark on a better future. This article, like so many others, focuses on 'what others did to Greece'. One also has to shed light on the question 'what Greeks did NOT do for themselves'. There were a lot of different initiatives and proposals, already back in 2010, what Greece could/should do. Let me just reference two of them:

    * the EURECA proposal (http://klauskastner.blogspot.co.at/2012/01/eureca-worth-another-look.html)
    * Greece Ten Years Ahead (http://klauskastner.blogspot.co.at/2012/10/a-growth-model-for-greece-post-scriptum_27.html)

    All such proposals were simply ignored by Greece. It was in early 2012 when an ECB board member said publicly that 'it is very difficult to help someone who doesn't want to help himself'.

    Could Greece have made it out of the mess by now? Very definitely! Just look at what happened in Chile under the Chicago Boys. But that would have assumed a match in mentalities and cultures between Greeks today and Chileans then. Greek mentalities and cultures have changed very little in the last hundred years. Greeks have not had a reformation, counter-reformation, renaissence, enlightenment, industrial revolution, etc. I guess EU elites expected Greeks to behave as though they had had a reformation, counter-reformation, renaissence, enlightenment, industrial revolution, etc. By now, EU elites know that they were wrong to expect that.

    http://klauskastner.blogspot.co.at/2014/03/why-chile-and-not-greece.html

    ReplyDelete
  15. As you say, mistakes will get made, especially in a crisis. But when all the mistakes happen to serve the mistake-makers' interests at others' expense it becomes a little hard to believe they were unintended mistakes.

    I think history will judge the ECB and the German banks very harshly.

    ReplyDelete
  16. "But that would have assumed a match in mentalities and cultures between Greeks today and Chileans then"

    Chileans "mentalities and cultures" might just have been affected by the fact the government tortured and killed opponents.

    ReplyDelete
    Replies
    1. By the mid-1970s, Chile was an economic basket case ('extrema pobreza' over 20%; unemployment over 20%). When Greece joined the EC a few years later, its public debt stood at 28%; its budget deficit was below 3%; and unemployment was 2-3%. Since then, these two economies developed somewhat differently, to say the least. That's the difference I meant (and not the comparison you made).

      Delete
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