Once Greece goes...

http://www.lrb.co.uk/2011/06/30/john-lanchester/once-greece-goes

by andrewcooke • 15 years ago

300 194 15 years ago

lrb.co.uk

yaakov3413• 15 years ago

I feel like I should have stopped reading this missive after the first phrase, which is "The economic crisis in Greece is the most consequential thing to have happened in Europe since the Balkan wars."

The Balkan wars were in 1912-1913. I can think of a few other significant things that happened in Europe since then. This crisis - it is really more of a tantrum than a crisis, since the Greeks know perfectly well they are on the hook for the money they spent on themselves - doesn't even register as a blip. It's not going to collapse the economy of the 400 million people within the EU/eurozone area, and even if it did, it still wouldn't reach the significance of 70 years of revolutions and communism and dictatorships and the freaking Holocaust and a couple of world wars, now would it?

This sort of wild-eyed panic mongering by people who take a bath on their real estate or stock purchase, and think that they are living through the worst crisis in the 7,000 years of recorded history, is beginning to wear thin. It's annoying even as deliberate hyperbole.

On top of this, the economic points made are stale and unconvincing. He talks about low interest rates being appropriate for Germany, but not for Greece. Well, guess what? You don't have to lend at low rates to Greek institutions. You can take a risk premium on top of the basic Euro central bank rates. People weren't doing that because they thought that Greece would catch up economically to the Euro average; it didn't, and the risk premiums went up. Hardly worth killing the Euro zone over this.

EDITED to add: he probably meant the wars in former Yugoslavia, rather than what's actually known as the Balkan wars. OK, but frankly, this is still crap, since clearly the creation of the Euro block itself and the unprecedented economic expansion in its new members is far more significant than a tantrum in 3% of the Eurozone. And the economic points are absolute garbage: yes, Argentina recovered, because it is a mining/exporting country and commodity prices skyrocketed. Not very relevant to Greece.

tspiteri• 15 years ago

I think the author means the Yugoslav Wars of the 1990s, which have been called the War in the Balkans by some.

idonthack2• 15 years ago

he is obviously referring to the breakup of Yugoslavia

http://en.wikipedia.org/wiki/Breakup_of_Yugoslavia

Someone• 15 years ago

It is fairly common to describe what Wikipedia calls the Yugoslav Wars (http://en.wikipedia.org/wiki/Yugoslav_wars) as de Balkan War(s) that broke out after Yugoslavia fell apart.

I read it as referring to those conflicts. I think that makes more sense, too, as the target audience wouldn't really know of those earlier wars (I knew, but not even for a monument thought of them when reading this)

yaakov3413• 15 years ago

OK, OK, I agree now that that's what he meant. But for me, "the Balkan wars" is standard terminology referring to those wars, which really did involve all of the Balkans, and I thought he was making some kind of a point about a century of history in Europe coming full circle - some people like to do that. And I still think that the article is panic-mongering badly-argued long-winded garbage.

mcantelon2• 15 years ago

>it is really more of a tantrum than a crisis, since the Greeks know perfectly well they are on the hook for the money they spent on themselves

The Greeks didn't know the gov was in debt because Goldman Sachs colluded with corrupt government officials to hide the debt[1]. They have ample reason for a "tantrum" against their corrupt government.

[1] http://www.spiegel.de/international/europe/0,1518,676634,00....

Goldman Sachs has made a good business out of contributing to, and capitalizing on the, collapse of countries by corrupting their officials (Greece, Russia, the US). In my opinion, they should be treated like a dangerous cult (which is how they operate).

yaakov3413• 15 years ago

Come on, have you actually read the article that you quoted? It says that GS helped Greece borrow an additional $1 billion in 2002 by having it assume unrealistic exchange rates. Assuming for the sake of argument that this is completely true, this sum barely passes the threshold of significance in the mismanagement of Greece. The Greeks ran a corrupt, overspending government all by themselves, and they have themselves to blame. Maybe GS evaded half the Greek taxpayers' taxes for them, too?

dpapathanasiou2• 15 years ago

"The Greeks didn't know the gov was in debt"

Actually, it's been public knowledge since 2004 that Greece has been cooking the books: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/0...

corin_• 15 years ago

I was thinking what you suggest in your edit, though it seems weird to say "the Balkan wars" (plural) if you're referring to what is sometimes (and only sometimes) called the "third Balkan war".

If that is what he meant, then I think it's hard to debate what is "more significant", a change in the continent's politics with economic impact, or hundreds of thousands of lives ended and ruined, albeit in only a limited region of the continent. I wouldn't really know where to come down on that fence.

On the other hand - my history is very rough, but I do believe there is at least a case for claiming that the first two Balkan Wars had a hand in leading to the first world war, which in turn lay the foundation for the second world war... if you make that logic stick, then suddenly they were crazily important to the entire continent/world.

yaakov3413• 15 years ago

That's what I thought he was going for - some kind of a history-comes-full-circle argument involving the Balkans. Also, please note that I did not say that I think that economics is more important than the wars in (former) Yugoslavia. I don't know how to compare that, either. What I said is that there were more significant events since the wars in FY, and this seems clearly true to me, even just sticking to the economy.

wnight• 15 years ago

> the Greeks know perfectly well they are on the hook for the money they spent on themselves

You mean they're more able to influence their politicians than we are? Because I certainly don't spend the money my politicians take from me, or borrow in my name.

Also, why should they pay back their debt? Nobody else is going to. We printed trillions to bail out the banks to avoid paying back our debts.

fleitz6• 15 years ago

Markets are pricing greek debt as defaulted because it's the most rational thing for the greeks to do, and the most rational outcome. Greece holds power over the EU to the degree that its financial insolvency can bring the whole system down. (Technically, it's a power transfer from the EU to US as the fed has already bailed out the EU banks in anticipation of the Greek default)

When you owe the bank $1 million the bank owns you, when you owe the bank $469 billion, you own the bank. The average greek is smart enough to know this and knows that the closer they get to default the better the deal they will get. The banks have two options, get nothing, or get something.

Also, if the Greeks' can't pay at a AAA rating they certainly can't pay at AA rating, nor A, not BB, so the end game for rational thinkers is default because as the rating drops the inability to pay increases. Since Greeks hold EU notes and EU denominated assets they can't even be screwed via an exchange rate mechanism. If Greece defaults Europe basically has to eat it, and it puts Europe in a much worse negotiating position with Spain and Portugal.

Furthermore, with regard to bond pricing there is no such thing as a bad bond, only a bad price, hence they are quickly being priced to zero. It's similar to the whole subprime thing, guys who bought subprime post Aug 2008 actually did alright because the prices were so low that you'd be somewhat likely to get your money back.

fleitz6• 15 years ago

As a side note a 2 year Greek T-bill pays 26%, at that rate Greece would be better off phoning up Capital One for a VISA.

ignifero11• 15 years ago

Although, since at the moment greece borrows from emergency sources, one can't be sure how representative the price is (up or down)

redthrowaway• 15 years ago

Inflation in Greece is currently sitting at 4.5%, so the T-bills are essentially offering a real 8.5%/year ROI. How on Earth is that affordable to them? I get that they need money now, but they can't expect to be in a better position to repay in 2 years.

Also, what happens if (when) Greece defaults? Do the T-bills become worthless, or are they considered a different kind of debt than other national debts?

bd_at_rivenhill• 15 years ago

Does anybody know how an individual investor could actually buy one of these?

AlexMuir• 15 years ago

They called Capital One in 2008 but they're still on hold. It's a race to get through to Card Sales before the phones get disconnected.

nopinsight3• 15 years ago

To retaliate against this, can't the EU threaten to kick Greece out of its system while force-converting all their EU-denominated assets into a newly setup Greek currency. (We can view this as the default of their agreement to support Greece--in response to the Greek refusal to pay off its debt.) The new currency will immediately weaken significantly, basically forcing austerity measures onto the whole economy. When the Greeks are on their own, without having EU as their sugar daddy, they will have to absorb (or receive) the direct consequences of their actions--whichever fiscal/monetary path they choose to follow.

The technical issues of force-conversion of currency their assets are denominated in are probably quite immense, but it is better than losing hundreds of billions of dollars. Moreover, if it can be done, all other troubled economies in Europe will have much greater incentives to follow any rules set up by the EU.

wisty2• 15 years ago

There's no mechanism, so it would probably need some sort of vote. This would take too long, and the plan would probably leak, so the Greeks would have time to cash out all their EU assets.

sprovoost7• 15 years ago

That's probably exactly what the greeks would want, except they would add one step to this: default on foreign debt. With a weaker currency they would be very competitive and with 0 debt even more so. It's pretty risky though: 1 - the EU and others could erect trade barriers after such a default 2 - the rest of the EU could collapse with them, which means they won't be buying much stuff either

yaix6• 15 years ago

That would not solve the problem. Greek would still not pay they money back to the French and German banks they took it from.

The EU has to get Greece on track, and this is a good moment to do it. Greece has lied (falsified financial data) to get into the euro, and their internal economic system is not sustainable. These will be tough year for Greece but at the end they will be better off.

ignifero11• 15 years ago

If Greece could go out of the euro without a spillover effect, i would support it. Unfortunately, the decision is to keep greece in a zombie state, barely paying its debt for 2 more years. I don't even think there's a plan after that.

Uchikoma4• 15 years ago

If Greece defaults, it will go down the drain badly. They will not get out of this as good as Argentina did. With no significant exports (that the EU doesn't pay for with subsidies) and living from subsidies and dept over the years, there is no chance for progress. With real riots in Greece, Spain and Portugal will think twice. This will get Spain and Portugal get their job done, not giving Greece more money.

That said, the best would be to inject more money beside the debt into Greece to start some recovery. Given, Greece did cheat on the EU in the past concerning EU money, nevertheless this should get out Greece faster.

sek• 15 years ago

The reason for this big imbalance is the focus of the German industry on exporting goods. Every time the Euro is lowered the German exports are heavily increasing what makes the problem even worse.

Different countries with the same currency was a stupid idea to begin with.

fleitz6• 15 years ago

Please explain why it is rational for Athens and Berlin to not share the same currency, but is rational for NYC and LA to share the same currency. NYC and LA are MUCH further apart than Berlin and Athens. I fear your view of the modern economy is rather mercantilist and zero-sum rather than the capitalist view that the economy grows via increases in productivity. (Personally, I feel we are moving away from the productivity view towards an attention based economy)

Most of the arguments in regard to national economies make little sense in smaller geographic contexts, there is little worry that NYC is 'stealing' jobs from Wichita because of the various subsidies in NYC compared to the idea that China is 'stealing' jobs from the US. No one worries about the trade imbalance between Iowa and Alaska.

Why are we not worried about cheap Kentucky labour spilling into San Francisco? Most of the arguments made with regard to trade policies and imbalances are irrational, especially in light of the reserve currency status of the US dollar.

dpapathanasiou2• 15 years ago

"Please explain why it is rational for Athens and Berlin to not share the same currency, but is rational for NYC and LA to share the same currency."

The problem is that you cannot have monetary union without political union.

EU rules notwithstanding, Germany and Greece are run by different governments, with different laws, constituencies, and operational capabilities (or lack thereof, in Greece's case).

Vivtek• 15 years ago

New York and LA share a single central bank and a single set of federal law that is equally valid in both cities. Berlin and Athens have neither of these advantages. The Euro zone - while cool - is probably not quite cool enough to survive (my layman's perspective).

speckledjim• 15 years ago

NYC and LA are culturally far closer than Germany and Greece. For a start, NYC and LA speak the same language.

klbarry• 15 years ago

This is a little off topic, but do you have any links to more information on the theory of "attention based economy"? It sounds quite interesting.

CamperBob• 15 years ago

Your questions were all asked and answered by America's founders, hundreds of years ago. The EU is nothing like the US -- it's more like a collection of barely unified city-states bound more by treaties than a shared constitution.

The reason the Greek crisis may be more important than the introduction of the Euro is precisely because it may mean the downfall of the Euro, at least in some commentators' opinions. I don't personally have any insight into what might happen if/when Greece defaults.

rmc3• 15 years ago

The EU, unlike the USA, is much less centrally controlled, and has much less tax raising powers. In fact, it has none. We have 'european taxes' or 'federal taxes' here in EU.

So one country can do crazy things with it's finances, and the other countries can't really stop it.

ignifero11• 15 years ago

Different economies with the same currency is a stupid idea. The problem in the eurozone is that some economies cooperate well (germany and france) , and some dont. Also, the euro has been strengthening vs the USD and GBP during the crisis, but still german exports were booming.

Aloisius• 15 years ago

The Eurozone could go belly up because of a cascading failure. The US may default because conservative politicians think it is "not that big of a deal." China is scared of an economic slowdown and inflation. And everyone thinks we're in a bubble and we're about to hit a point of irrational exuberance.

Interesting times.

j_baker5• 15 years ago

If you haven't already, I'd suggest reading This Time is Different. It turns out that our current situation isn't unique, and is in fact a pretty vanilla financial crisis. The elements are the same: large deficits that artificially prop up the economy causing a bubble, sovereign debt defaults, loss of investor confidence caused by political division (think it was a coincidence things came to a head during the 2008 election?), and bank runs. Sad how we always forget 800 years of financial history.

http://www.amazon.com/gp/aw/d/0691142165/ref=redir_mdp_mobil...

katovatzschyn• 15 years ago

To be simplistic, it seems that things are quite different this time. The fundamentals of crises may be the same or similar, but the world has -never- been linked in the way it currently is, and the world population, and total consumption has -never- been as high as it currently is.

I hate to argue against an entire book with a sentence like that, but claiming that this is a "pretty vanilla financial crisis" seems to take the overall situation in a dismissive light that I don't agree with.

wazoox• 15 years ago

One important point in this book (p. 32 in my PDF): Greece has been in default or reschedule of its debt in 50.6% of the years since its independence in 1829. More frightening, Spain hasn't fared much better overall in the past 3 centuries.

nhaehnle2• 15 years ago

You have to be careful with your analysis. In particular when you're talking about large deficits, you should not confuse private actors and government.

In the run-up to the crisis, the economy was largely fuelled by private debt. Think excessive credit card debts and, more importantly, insanely lax mortgage requirements.

What we have been witnessing is a shift of this debt away from the private sector (which cannot sustain an unlimited amount of debt) to the government sector (which, at least in the case of a sovereign government like the US, can sustain an unlimited amount of debt because it's the entity running the system).

The distinction between private and government debt is crucial, because government debt equals private assets.

lyudmil11• 15 years ago

Every time I bring this up I get down-voted, but I cannot resist.

No one argues that the Greek economy was in good shape. It clearly had severe problems with corruption and inefficiencies, which were brutally exposed when the global financial crisis hit. Everyone suffered, but because of the problems in the fundamentals of the economy, Greece suffered disproportionately more. However, the European Central Bank lent the "bailout" money demanding cuts to public spending that, in the current economic situation, would have very likely worsened the Greek economic situation. Greeks realized this and protested, but were (understandably) dismissed as spoiled brats, demanding an unsustainable, comfortable lifestyle.

Now that the likely, predictable outcome is looking even more likely (namely, default), journalists are still omitting that crucial part of the analysis. Many economists warned that in a crisis of demand, which is what we're experiencing now, cutting government spending is a bad idea. In a situation of such great uncertainty in the market, the government is the only source of demand big enough to make a dent. It must, of course, borrow the money and therefore increase its deficit by doing so, but that's a worthwhile thing to do when the alternative is default. After the economy has stabilized, the deficit problem can be overcome by growth. Moreover, even if deficit reduction is your priority, if the economy is shrinking you're always going to be fighting a losing battle no matter how many spending cuts you make.

To summarize my point, the Greek economic turmoils are less of a cautionary tale of the perils of uncontrolled spending (although they clearly are also that), and more an illustration of the negative effect the austerity measures recommended by the ECB are having on the economies they are imposed on. It should give leading European nations pause when considering what to do with the rest of the troubled economies in the eurozone.

yaakov3413• 15 years ago

I think the element you are missing is that the Greek government spending is very inefficient; they're not investing in some kind of economy-growing infrastructure revolution, they're spending money on totally unreasonable union contracts and extraordinarily early retirement for large classes of pensioners. The cuts they agreed to are something like 78 billion euros over more than 10 years, which is quite moderate, for all the screaming. The European central banks are lending money to Greece well below market rates, and they're quite within their rights to demand a reasonable budget which might actually result in this money being repaid.

If Greece wants to increase government spending on infrastructure and investments, they can do that after getting their budget in order and convincing their own population to part with some money for the sake of these programs.

P.S. I don't think downvoting/upvoting should be a poll on whether someone agrees with a message; it's a decision of interesting/unhelpful.

lyudmil11• 15 years ago

I think I openly admitted that the way the Greek government was spending money was terrible. Yes, I agree with you. The Greek economy was a joke and it definitely needs to change, but let's talk about the situation as of the initial collapse.

The fact was (and remains now) that they need(ed) money just to keep afloat. The CEB could have put any provision it wanted on the money lent. They chose to force the Greeks to cut spending. My argument, informed by what I've read on the topic, would be that it would have been better for them to force the Greeks to spend the money as a stimulus, making the sort of investments that you talk about. Instead, the CEB likely worsened an already pretty dire situation.

I think you'll agree that the interesting part of this argument isn't Greece at all, but the case study Greece is becoming. It's clear more austerity measures are coming in more European countries and the US. I think it's a bad idea and I'm curious to find out what this community thinks.

ignifero11• 15 years ago

FYI, almost all of this new loan is going straight to bondholders, there will be very little spending. And no, it's not enough to prevent a default or some other kind of "restructuring", "reprofiling", you-name-it.

jackowayed• 15 years ago

> In a situation of such great uncertainty in the market, the government is the only source of demand big enough to make a dent. It must, of course, borrow the money and therefore increase its deficit by doing so, but that's a worthwhile thing to do when the alternative is default.

So I don't totally understand what you're saying, but I think it's that they need to borrow a bunch more money, spend it to grow their economy, and then pay off their debt once their economy is doing better.

The problem with that is that their finances are already terrible and no one really believes that they can pay back their debt. They're already paying very high rates on their new debt. If they tried to borrow even more, those rates would have to go even higher. So somehow they'll have to borrow enough that they can spend a lot to grow their economy and pay all the debt that's coming due, and then quickly recoup all the money they invested in their economy as even more debt comes due.

So I guess you're arguing that the ECB should give them the cheap loans without them trying to balance their budget in the short term, and trusting that in the long term their economy will grow and they'll pay it back. The ECB doesn't seem to think that would be effective, and a lot of countries are not too happy about the bailouts even with austerity provisions.

lyudmil11• 15 years ago

You're right about what I'm arguing and you're right in your analysis.

I think the political situation is very unfortunate and that the large European economies which effectively control the ECB are screwing up. Partly I think the problem is that the media analysis has ignored the possibility the austerity measures could be the cause the complications. The facts of this article at least seem to lend credence to the "stimulus hypothesis" and to take credibility away from austerity. It is the media's job to point that out in order to inform public opinion so that the political problems you mentioned are overcome.

ignifero11• 15 years ago

The current crisis was not a problem caused by the global economic downturn, in fact the drops in tourism were no more than 10% and shipping, well, eventhough it was hit during the recession, but shipping accounts for only 4.5% of our GDP. It had little to do with the global economic crisis because a) greek banks were not exposed to failed institutions and b) greece does not export much anyway.

The problem with the economy of Greece is that it is not diversified, it was heavily de-industrialized in the 90s, with rampant corruption, protectionism and an third-world-level tax collection policies. The governments are mainly at fault for these excesses. As things proved out to be, the growth rates of the 00s (the largest in EU) were fake, based on lending that was not reported (and, guess what, nobody has yet gone to jail for that). The current crisis emerged because they were no longer able to hide the fact that the country is insolvent.

At the current point, I think it's too late to save the Greek economy anyway. The best options we have are either a) the EU guarantees a large part of our debt (like 50% or so, via something like eurobonds that basically amounts to a bailout) or b) we default and leave the eurozone to rebuild the economy from the start.

lyudmil11• 15 years ago

It's silly to say it had little to do with the global economic crisis. Economic production following the initial global downturn went down 8% [1], construction 73% [2], and retail 9% [3].

What's interesting to me is why you think what you think about the Greek economy or the reasons for its collapse? (A sincere question)

References (PDF, sorry):

[1] http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A050...

[2] http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A130...

[3] http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A050...

yummyfajitas4• 15 years ago

Is the situation dramatically different in the EU than in the US?

Here in the US, we are not suffering from a crisis of demand at all. We are suffering from structural unemployment - demand and production have both recovered, but people remain unemployed.

http://news.ycombinator.com/item?id=2240468

I'd be very curious to see data indicating that the EU is in a different situation.

lyudmil11• 15 years ago

Your thesis is surprising, so I'll have to look more into your data.

For now I will say that (1) because of the tight correlation between employment and demand, you'd need a very solid argument that demand has recovered but employment hasn't and why and (2) the data you have in your comment doesn't show that conclusively. The only measure of demand you site is Manufacturer's New Orders, which does show an increase. However, most of it is due to airplanes, which are volatile by nature (and is partly fueled by public defense spending). Also, the best predictor of future growth in that category (Core capital goods), while growing, isn't back to 2007 levels yet. [1]

I think it's too early to say demand is back, and it's lack also explains unemployment well.

[1] http://www.economicpopulist.org/content/durable-goods-new-or...

Symmetry3• 15 years ago

We've resumed normal growth, but we haven't had any of the faster than normal catch-up growth that usually happens at the end of a depression and returns unemployment to normal. So by that measure the current high unemployment is to be expected.

wisty2• 15 years ago

There's an Australian economist called "Steve Keen", who uses mathematics (stuff like dynamic PDEs, not the crap econometricians use) to model this kind of stuff.

I think he tends to agree with Keynes, in broad terms - austerity measures are a crock, because they come at a time when the government would otherwise be the only bastion of stability. But we didn't think about this when we subjected African (and other third world) economies to the IMF's demands.

What is needed is long-term measures. Gradually raising the pension age, gradually cutting pensions, freezing spending, and so on.

Also, government reform (i.e. better transparency, whistle-blower protection, ombudsmen and auditors) is needed, not just "cutting costs".

yummyfajitas4• 15 years ago

Long term measures are impossible in government. You cannot bind the actions of future legislators. Legislators will agree to austerity measures which harm the constituents of future legislators, and then future legislators will undo it.

The only reliable way of binding the actions of future legislators is to create a politically powerful class of dependents (e.g. old people, government unions) who will fight to protect their cash cow. Unfortunately, that's what got Greece into this mess to begin with.

Evgeny• 15 years ago

There's an Australian economist called "Steve Keen", who uses mathematics (stuff like dynamic PDEs, not the crap econometricians use) to model this kind of stuff.

It is probably worth noting that he's been predicting the Australian Property Bubble to pop any time for quite a while.

He already had to walk to Mt. Kosciuszko (highest mountain in Australia, like 2000m or so) because he had lost a bet on a housing prices to another economist, but all his predictions still point out that house price bubble pops any day (I'm subscribed to his blog and I admire the way he uses mathematics btw).

Tomek_2• 15 years ago

Have you read the article you comment on? There's a paragraph or two about that there.

raganwald• 15 years ago

Every time I bring this up I get down-voted, but...

Every time someone begins a comment or blog post with text that says absolutely nothing about what they are trying to say, they weaken their point. If you cannot resist including meta-commentary, I suggest putting it after your rhetoric, like this:

p.s. I apologize for meta-commentary, obviously this has nothing to do with the Greek Economy.

lyudmil11• 15 years ago

Agreed. If I had taken time to edit my comment I would've probably taken it out.

Symmetry3• 15 years ago

But how was the government to avoid cutting spending? Even if we include the recent austerity measures and ignore the interest payments on the debt Greece is still spending more money than its taking in. Greece can't keep borrowing money from the market if the market doesn't think Greece'll be able to pay its loans back. Greece can't just borrow money from Germany with no string attached because German voters want Greek austerity. Greece cant' default without more austerity to bring its expenses under its income, like Argentina successfully did. And it can't just inflate away its debt because its part of the Euro. Austerity does really suck in bad economic times and its probably worse than inflation, but Greece doesn't have any other options.

jamesgagan• 15 years ago

"There is a good moment in one of the otherwise terrible Star Trek movies..." - a knife to the heart in an otherwise interesting article. ;)

afterburner• 15 years ago

Yeah, Star Trek VI was one of the good ones! :)

patfla• 15 years ago

I found this more compelling and succinct:

http://blogs.telegraph.co.uk/finance/andrewlilico/100010332/...

idonthack2• 15 years ago

more succinct, yes, but it imparts the reader with much less background information, which makes it much less useful to anyone who is not already informed about the situation.

mkramlich• 15 years ago

This article reminded me of the larger issue: why do so many modern, national governments seem incapable or unwilling to ever operate with a balanced budget? Why do deficits and debt seem to be the norm? Why all the excuses? Is it a kind of stupidity brought about by having a large group of people each pulling in different directions? Or is it by design and due to malevolent intent? Just curious what everyone thinks.

killerswan• 15 years ago

Elected politicians have to aim for the short-term goal of getting re-elected. Money, and both monetary and fiscal policy, are based on collective hallucinations that people rarely think clearly about. No politician wants to be seen idle, and killing projects makes enemies, so they make new projects and spend more money.

As Bob Kerry once pointed out, sometimes it can be truly heroic to simply do nothing.

brown9-23• 15 years ago

In a down economy, a requirement that the budget be balanced simply leads to a downward spiral - the state takes in less tax revenue and has to cut it's spending, which removes a large portion of demand from the economy, which results in less tax revenue, etc.

sunsu• 15 years ago

Balancing a budget in a recession does not subsequently mean that the state will take in less tax revenue. It also does not necessarily mean that a "large portion of demand" will go away. That would depend entirely on what was cut.

However, consistently running an unbalanced budget will most definitely lead to a "downward spiral".

radu_floricica• 15 years ago

Could you be more specific about this? I've seen this argument several times, and it always seemed flawed to me.

Let's say you cut the budget by X. Part of this X (X') doesn't get invested in money making enterprises any more, and less money goes back as taxes (X" less money).

Now, unless the economy is super efficient, I'd say X > X' > X". And given the realities of public government, usually X >> X".

How is then any better to borrow X just to get back X" (and still owe X), then to simply lose X"?

cynusx• 15 years ago

In my opinion the EU needs to trace the contagion effect and limit its effects. It can do this by offering to take over all credit default swaps on Greece's bonds, no sane economic actor is going to refuse that when a default is imminent. What happens then is that the ECB absorbs all losses from a Greece default, blowing a large hole in its balance sheet. However the ECB can just print itself back into solvency.

The aftermath will be a period of high inflation.

jodrellblank• 15 years ago

Is there any personal punishment for leaders ruining a country? There would be if the Greek ministers were committing war crimes, or if they were driving without due care and attention. Why not for "running a country without due care"?

j_baker5• 15 years ago

You're going to need one hell of a prison to keep all the prisoners you'd end up with. The US is possibly the only country to never have defaulted on its debt (at one point in time, France would default by executing its debtors every couple of years). Granted, most industrialized nations haven't defaulted in a long, long time. But the point still stands that Greece is hardly the only nation defaulting on its debt right now. Only the most significant.

josephcooney• 15 years ago

Australia has never defaulted.

Symmetry3• 15 years ago

We haven't defaulted yet, but our current crop of politicians seem fixated on resolving this oversight...

EDIT: Oh, and if you want to get really technical the 1933 decision to not pay back bond-holders in gold but only in US dollars might have been a default (though most people dont' consider it that). And there was one point where we were late with a few payments in the 1970s due to a bureaucratic snafu.

sprovoost7• 15 years ago

Some people have jokingly suggested that Greece should just sell a few islands. I'm just curious how much they'd have to sell to make e.g. $100 billion. I think it would be kind of cool (and historically ironic) if they sold some land to China and let them build a few descent city-states in the area in the next year or so. A couple of million extra people should prop-up the Greek and EU economy.

sprovoost7• 15 years ago

Maybe the folks a Quora know the answer to this: http://www.quora.com/How-much-is-a-typical-Greek-island-wort...

JanezStupar6• 15 years ago

There are two sides to this article one is correct and the other is deceitful. I assume that this article was written by a Greek (I infer this from the first person accounting of situation).

The true part of the article is the part about debtors options and possible scenarios.

The deceitful part is the part about "ordinary Greek not understanding the situation and having no part in it". In eastern Europe we have a saying that someone is "indebted as a Greek", meaning that someone is perpetually taking loans to repay old ones while having not a slightest intention of ever paying them off. And this proverb is centuries old AFAIK. So all this protesting going on, pleas of "ordinary Greek people" are an elaborate scheme of shedding guilt. Modern Greeks as a nation are an entitled (an order of magnitude more than attributed to gen-Y) and lazy bunch. Boasting their "heritage", while they have nothing in common with the antic culture.

Any businessman worth his salt will be weary of doing business with Greeks - thats how bad in general their ethics situation is. While I cannot offer any meaningful opinion about how to get out of this mess. I can try to provide some insight into how Germany and France got into this mess. The first would be that greedy coke powered bankers got all optimistic that Greeks will repay their debts this time and went on to issue insane amounts of subprime loans, ok this is not what happened.

What did happen was that western world knew full on from the beginning what would happen - but proceeded anyway, since Greece was too strategically placed in the cold war and could not be lost to Soviet influence. The Greeks being smart, knew that and took full advantage. What happened after the cold war, was basically the subprime mortgage scenario of US played on a national scale - it is fraud committed by German and French bankers over the people of EU. I'm not believing anyone "in the know" telling me with a straight face that they didn't know that Greeks were cooking their books.

So in a sense like US subprime fiasco is fraud committed by US elites over people of US, European sovereign subprime debt crisis is also a fraud committed by European elites over their peoples.

I recommend reading this analysis of Greek[1] and Irish[2] debt crisis. It has to be some of the best journalism I have ever read.

[1] http://www.vanityfair.com/business/features/2010/10/greeks-b... [2] http://www.vanityfair.com/business/features/2011/03/michael-...

Let the Greek diaspora and leftist lunatic downmodding begin!!

Edit: Indeed it was not written by a Greek. But the part about people of Greece not knowing what is going on is pure bullshit - I am not accusing the author of having an agenda. However I am accusing him of not having balls and bringing it out.

gordonguthrie• 15 years ago

It was written by John Lanchester as it says at the top. He is not a Greek.

route66• 15 years ago

I sincerely hope that folktales and sayings about groups are not the common source of judgement on HN. Nice also that you also have "leftist lunatic" as an explanation for any possibly contrary opinion.

JanezStupar6• 15 years ago

Are you implying that folktales have absolutely no merit?

Also I am not implying that there are no honest Greeks. But from my anecdotal experience their moral standards are quite... flexible.

Edit: Goes the same for people of southern Italy and whole of Balkans. Have you ever been to Balkans? Are you intimately aware of moral and ethical backgrounds of peoples living here? If not - then you might be guilty of "everybody is a good person deep inside" type of thinking yourself.

Disclaimer: I am Slovenian, as you may have noticed discussions that we might be next in line to join PIIGS. And I have to admit that our nation is guilty quite of some of balkanisms ourselves (no matter how some might try to deny it).

stfp2• 15 years ago

Am I alone in thinking this mildly disgusting mix or prejudice, xenophobia, personal opinions and pop research has no place on HN ?

JanezStupar6• 15 years ago

Is this really xenophobia and prejudice?

From my own business experience and from discussions with various businessmen that have done business on Balkans as a region. I know only of handful of people that made money there (Slovenia, Serbia, Croatia, Bosnia, Kosova, Romania, Bulgaria, Greece, Macedonia and Albania).

Everybody else got shafted one way or the other.

Are accounts of Chinese shafting foreign investors/businessmen whenever they can also prejudicious and xenophobic?

I would be glad to accept your (although anecdotal) experience that proves my point wrong. Is writing by lewis (Beware of the Greeks bearing Bonds) also xenophobic and prejudicious?

Or are you guilty of wishful thinking?

ignifero11• 15 years ago

Your point about Greece losing its strategic position after the collapse of the eastern block is spot on. The inability of greek governments to adapt is in part responsible for this mess. It is also true, though, that most greeks (e.g. me) did not realize in what great peril the country was. Had we known the country was drowning in debt, we would not borrow as much and start businesses here. Unfortunately, even today, nobody has gone on trial over these grave financial crimes.

I might even argue it's also a cultural thing, in greece almost all laws are enforced loosely. Paying taxes is usually considered the dumb thing to do; you won't find many greeks being "proud to pay their taxes". Politics is impenetrable to new ideas, it's considered to be obscure like voodoo, passed on from generation to generation between 3 families (even now, the current prime minister and the opposition leader used to be college roommates).

Not all greeks are the same though, you just hear the loudest voices. Greece has a large, educated (and largely unemployed) youth that could fuel a new wave of growth now that markets are opening here. You might hear of riots, but these were concentrated on a square in Athens. I might be wrong, but there is a growing feeling that we are expecting the impending default as a chance to start over the economy, to actually do some work.

Things are changing, in the eleventh hour, for sure, but one can only be optimistic. The country is about to enter some tectonic shifts and looking to the past has nothing to offer.

JanezStupar6• 15 years ago

It is not something unique to Greece - however it does seem to be a Balkan thing and it will take us all generations to get this train going. Like you said there are young willing educated people all over the place. However - the leeches also got their offspring, who are already being primed to take over and start the cycle anew.

Edit: When I said "people in the know" I meant Greek officials of all degrees, European officials, bankers and officials of economic institutions. The little man, deceived by demagouges could very well be oblivious to the situation.

Tomek_2• 15 years ago

If you haven't already you should also read http://www.vanityfair.com/business/features/2010/10/greeks-b... to get more of a perspective on what went wrong in Greece.

abalashov• 15 years ago

A recent Der Spiegel article (http://www.spiegel.de/international/europe/0,1518,769329,00....) made a titular remark that I found noteworthily pithy:

"The Euro Is a Fair-Weather Construct"

tluyben2• 15 years ago

What does Greece 'do'? I can tell you what France exports/makes, Germany, Netherlands, Italy, even Portugal, but Greece; do they actually do anything? Is anything created there? Do the Greek actually work? I've been on vacation there a few times, and i've never seen people so lazy; we went into restaurants and actually had to literally kick the waiters to serve us; they were annoyed that customers came in.

amurmann• 15 years ago

When I read the first half of your post I first had to laugh because I thought it was ridiculously insulting and simplifying. However, reading the part about the waiter, I quickly realized that I made the exact same experiences on my Corfu vacation years ago. The best thing was this: Our hotel had free coffe till 4pm. We ordered coffee at 3:59 or something like that. The waitress starts making coffee, but stops all the sudden. Sais "it's 4pm, no more coffee" and pures the coffee powder back into the container. We were just speechless.

joe_the_user• 15 years ago

The Greek economic situation is unsustainable. The US housing market is unsustainable. The Chinese housing market is unsustainable. I could make a longer list if anyone wanted.

My point is that this article seems to imply that Greece will be the first to go. Maybe but maybe not. If doubt shifts to US, say, the euro might look at great investment by contrast for a while.

Once Greece goes...

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