Syriza and the French indemnity of 1871-73

http://blog.mpettis.com/2015/02/syriza-and-the-french-indemnity-of-1871-73/

by MaysonL • 11 years ago

102 81 11 years ago

blog.mpettis.com

grey-area• 11 years ago

The original article referred to here is this one, with the unfortunately esoteric title:

Syriza and the French indemnity of 1871-73

http://blog.mpettis.com/2015/02/syriza-and-the-french-indemn...

I really enjoyed reading this as it puts the Eurozone's current crisis in historical perspective. It dismisses the unhelpful rhetoric about financial probity which has come to dominate debates over Greek debt and which has obscured the real structural problems faced by a federal state which has monetary but not yet political union. One of his most important points was this:

An awful lot of Europeans have understood the crisis primarily in terms of differences in national character, economic virtue, and as a moral struggle between prudence and irresponsibility. This interpretation is intuitively appealing but it is almost wholly incorrect, and because the cost of saving Europe is debt forgiveness, and Europe must decide if this is a cost worth paying (I think it is), to the extent that the European crisis is seen as a struggle between the prudent countries and the irresponsible countries, it is extremely unlikely that Europeans will be willing to pay the cost.

dang• 11 years ago

We changed the url to the original source instead of http://ftalphaville.ft.com/2015/02/06/2113951/michael-pettis..., which is a summary of it. It's a good summary, though. Both pieces are worth reading.

In addition, since Varoufakis has been of interest to HN for a long time, some of you might like this interview that Pettis links to: http://www.zeit.de/wirtschaft/2015-02/yanis-varoufakis-greec.... (The other articles that Pettis links to about Varoufakis' proposals are behind the FT paywall.)

lkrubner• 11 years ago

This is very good:

"Third, it makes no sense to blame the recipients of the capital inflows for causing the crisis. If enough money is sloshing around willing to invest in any stupid idea, you shouldn’t be too surprised that a lot of stupid ideas get funded. When, for example, Wolfgang Schaeuble, Germany’s finance minister, says: "The reasons for Greece’s problems can be attributable only to Greece and not to actors outside the country, and certainly not in Germany." As he did during the press conference following his meeting with Yanis Varoufakis, his Greek counterpart, we have to remember that Schaeuble is talking nonsense. It’s logically impossible for excess borrowing to occur unless there is someone sufficiently reckless (or stupid) to provide the financing."

And this is also good:

"I am hesitant to introduce what may seem like class warfare, but if you separate those who benefitted the most from European policies before the crisis from those who befitted the least, and are now expected to pay the bulk of the adjustment costs, rather than posit a conflict between Germans and Spaniards, it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other. This is a conflict among economic groups, in other words, and not a national conflict, although it is increasingly hard to prevent it from becoming a national conflict."

The German government, in collusion with the German business establishment, has wrecked Europe, first through its irresponsible lending, and then, later, through the pressure it put on the ECB to raise rates despite the weak European economy. The German government can try to blame others for the problems in Europe, but the driving force behind all of these problems has been Germany. Germany had a trade deficit at the end of the 1990s, and they wanted to develop a trade surplus, and they did so through a series of irresponsible measures that have done great harm to Europe.

nhstanley• 11 years ago

When you think about it, Germany is like the hot girl in a small town high school. She doesn't care if she's pretty (rich) in the absolute sense, she only cares that she's prettier (richer) than all the other girls in the small town (Europe).

Instead of focusing on optimizing Europe's collective wealth, they are trying to maximize their wealth relative to the rest. There is certainly concerns about things like corruption in the periphery, and Spain and Greece certainly had their inefficiencies, but Germany is going about fixing it in a completely wrong way.

pastProlog• 11 years ago

The German government, in collusion with the German business establishment, has wrecked Europe, first through its irresponsible lending...

I do agree that this sanctimonious moralizing of the virtues of the German over the Greek is risible. However, with common assumptions in place, what Germans did makes sense. Businesses had high productivity, lots of capital investment, and nowhere to send the excess of the commodities it could produce, the domestic market was satiated. So they lent money to the Greeks etc. and had a place to send these excess commodities for a few years. They kicked the can down the road so that they could figure out what to do with this overproduction and - today is the result.

I see a worldwide self-reinforcing cycle for slow growth, unemployment, recession and depression. Companies have it over employees so money goes to profit more than wages. This happens eveywhere so money goes to capital, not consumption. But the more impoverished workers have no money to buy commodities. So a temporary solution is found - debt. Things go along again and then one day the game of musical chairs ends and you have a situation like now.

Greek youth is not going to put up with a 65% unemployment rate forever, and the election of Syriza points to that. So does the rising number of votes going to Golden Dawn and the KKE. I see news commentators calling Syriza "far left" - they are not far left, they are just socialists. People are so used to soi disant socialist and labour parties performing neoliberal cuts when elected to government, the idea that a socialist politician wants a floor to living standards is a shock to them.

_delirium• 11 years ago

I see news commentators calling Syriza "far left" - they are not far left, they are just socialists.

They do have a fairly strong far-left faction, which perhaps contributes to some of that perception. However I agree the party as such isn't, particularly the leadership that is actually in control of the party. Tsipras and his allies have fairly effectively sidelined the leftist faction over the past few years, in an attempt to turn the party into an electoral force that could win. The faction around Tsipras is inclined more towards a kind of pragmatic populist socialism, not a more hardline ideological leftism (Varoufakis is de facto in the Tsipras faction too, although I believe he's formally not even a member of Syriza).

NotableAlamode16• 11 years ago

What you say about Greek youth is true, but northern Europeans are also not going to put up with subsidising Greece forever. At some point the current setup will crack in some way or other. You need to look at the rise of Eurosceptic parties like UKIP, FN and AfD. They reduce the amount of wiggle room the northern governments have to drag out Greece's default.

tsotha10• 11 years ago

I am hesitant to introduce what may seem like class warfare, but if you separate those who benefitted the most from European policies before the crisis from those who befitted the least, and are now expected to pay the bulk of the adjustment costs, rather than posit a conflict between Germans and Spaniards, it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other.

I don't buy this for a minute. The big beneficiaries of the Greek borrowing binge were Greek civil servants, who go 50% plus wage increases.

StavrosK2• 11 years ago

Why can't it be both?

justincormack3• 11 years ago

And the rich paid no tax, which was worth more.

npalli• 11 years ago

Greek civil servants are 3.3% of the population, less than that of Germany. What about the rest of 96.7% of population who are getting crushed. How does punishing the 96.7% fix the problem of crony corruption.

NotableAlamode16• 11 years ago

Nonsense and victim blaming. Please look at who got what votes in the ECB board, and look who voted how. Also please check who had lent Greece the most. As far as I'm aware that was French banks. Next please take into account that the Euro was forced onto Germany. Then please realise that nobody forced Greece to take on these loans (and then use them to subsidise cushy government jobs). Finally please realise the Germany has a trade surplus because they produce goods that are internationally competitive.

justincormack3• 11 years ago

You cant have a trade surplus just by having great goods. People need money to buy them. The Germans lent them the money, with no means for it to be paid back.

atmosx8• 11 years ago

Hm, if Greece defaults, probably Italy and Spain will follow soon after. At that point the EU will be dissolved and Germany (probably along with the Dutch and few others) might create a new "Union" with a very strong currency.

At that point the countries of the South (and North? Ireland..?) will keep devaluing daily, while the markets will push Germany's new currency through the roof, turning exports virtually impossible. Unemployment will struck Germany and all hell will broke loose. Repercussions for the South will be devastating of course.

That's not my preview. That's the scenario Varoufakis foresees and probably the author too. Makes a lot of sense to me, but Varoufakis might be wrong. Time will tell I guess.

Just keep in mind that Greece, Italy and Spain are in dire straits anyway so the prospect of defaulting doesn't seem all that scary.

vegabook• 11 years ago

Absolute nonsense indeed - in your own comment. Germany never had the euro "forced" upon it. If you recall it was called the "écu", until Germany called it the euro. Germany has benefited by far the most from euro in the sense that it has erased the serial competitive devaluations which have been a feature of non-German monetary policy for the past 100 years. It was agreed bilaterally by Mitterand and Kohl and forced upon the rest of Europe.

By maintaining a strong currency for its customer countries, Germany has, in fully aware and calculated fashion, created purchasing power for its goods. By creating purchasing power for its goods, it has locked in its own competitive advantage, allowing more investment and consolidating its industries' lead over European competitors. The anecdotal evidence bears this out completely: witness Volkswagen's completely domination compared with the healthy competition from PSA, Fiat Group, Renault, or indeed Rover 20 years ago.

"Nobody forced Greece to take on the loans". Classic simplistic, moralising, yet false axiom, and is the entire theme of the article which you clearly have not read, or understood, properly. The point of the article is that thrusting large amounts of money in front of the nose of a potential debtor is bound to create a debt, but under such circumstances that debt, when it turns bad, does not lay blame 100% at the door of the borrower. The irresponsible creditor must also take a share of the pain. That is what is Syriza's underlying point, and is mirrored across peripheral europe, and any idea that Germany (or French banks) must at all costs get 100c return on each euro of capital invested is completely erroneous. The periphery must take some pain, yes, but the usurious and/or opportunistic lender must also be punished.

sgift• 11 years ago

As far as I'm aware that was French banks.

https://web.archive.org/web/20141112144203/http://www.busine...

kaonashi2• 11 years ago

Please realize that mathematically, any grouping of countries sharing a single currency will have some members that export more and some that import more.

Is it fair to force the countries importing more into idleness and destitution for no more reason than they share that currency?

If you look at the U.S., states like Alabama and Mississippi receive more in federal dollars than they pay out, where the more productive states like California are the opposite. The ecu lacks this facility.

rrggrr• 11 years ago

Michael Pettis is the Tony Stark of economics for those unaware. He has a scary accurate track record of predictive accuracy, he has influence in many central banks, perhaps most notably among Chinese decision-makers. Pettis has a rare accounting-based approach to classical economics which makes his analysis fresh, but also accessible to non-economists (me). That would be enought except Pettis, also a musician, owned the most successful music club in Beijing (D22), until he closed it at its peak. I have Elon Musk and Steve Jobs playing cards like everyone else, but my Michael Pettis and Vernon Walters cards are my most cherished.

atmosx8• 11 years ago

What I don’t understand about the current stance of Brussels and Germany, is their distorted view of reality. Michael Pettis apparently and many others, view what Brussels and mainstream economic magazines fail to see.

Take this excerpt from Buttonwood's article[1] in the “economist” on Feb 3rd.:

— Yes, the Greek voters have given their opinion but what about voters in other democracies? German voters, when polled, seem pretty clear that they don't want Greece to be given debt forgiveness. Since they would bear the cost of a Greek write-off, why should their views count for nothing? And what about the Finns, Dutch, Austrians etc? —

For some reason ‘Buttonwood’ ignores Podemos in Spain, UKIP in the UK, M5S in Italy and LePen in France. All these anti-EU parties are leading the polls in their respective countries. It’s not something that will happen in the future it is something that it IS happening NOW.

The rhetoric has it that by punishing SYRIZA the current French, UK, Italian and Spanish governments can make a bad example out of Greece and reclaim lost votes. While to me seems a very unlikely outcome. No matter what will happen to Greece, LePen is going to win Frances election if Frances economy doesn’t change drastically in the next months. Same goes for Spain, Italy and the UK. The economy can not change following austerity prescription by the Germans unfortunately, that’s crystal-clear, so why are they sticking with austerity?!?

I might be wrong, I don’t know time will tell, but I get the feeling that people in key-positions throughout EU right now are severely under-educated.

The article was quite refreshing. Let’s hope for the best.

1 http://www.economist.com/blogs/buttonwood/2015/02/greece-and...

justincormack3• 11 years ago

UKIP is not an anti austerity party, you should not mix them in, and the National Front in France should not be lumped in with Syriza and Podemos. Syriza is not really anti-EU, either.

Nor is debt forgiveness a pro/anti EU issue, other than in the construction of the ECB.

atmosx8• 11 years ago

You're right, they shouldn't be mixed and SYRIZA is not really anti-EU. But UKIP and LePen are anti-EU while Podemos and SYRIZA will probably not comply with Brussels.

All of them may be oppose to the EU (or EU's austerity policy) for different reason, however the fact that all these new parties are a product of the EU's choice of policy remains IMHO.

danmaz742• 11 years ago

M5S comes as a far second in Italian polls.

WildUtah2• 11 years ago

Neither FN (Le Pen) nor UKIP has any chance of winning power in their respective countries regardless of economic conditions.

The local centers of wealth and power in each nation is committed to transnational politics and mass importation of cheap labor to control and depress wages of working people. They own the media and the mainstream parties and will not allow that control to fade. If necessary, the Labor and Tory parties will unite and dissolve their differences in order to defeat UKIP.

tsotha10• 11 years ago

Neither FN (Le Pen) nor UKIP has any chance of winning power in their respective countries regardless of economic conditions.

I wouldn't be too sure about that. I don't know much about FN, but it isn't at all inconceivable UKIP could win an outright majority in the UK.

sbmassey• 11 years ago

I can't imagine that a unified Conservative and Labour party in the UK would do anything but utterly disgust their respective voters, and ensure a UKIP victory.

atmosx8• 11 years ago

Well, I can't say what will happen in the UK. Time will tell but nothing is impossible. You seem to underestimate widespread despair and irritation the EU spread throughout Europe.

SYRIZA in 4 years grew from a 4% party to a 36.5%. Now it is steadily floating above 40%. The local centers of wealth controlling the mainstream media outlets are strongly against SYRIZA, making counter-arguments and spreading panic at every step the current government takes, which results in further popularity spikes.

Take a look and how the NSDAP rose to power in (1925-33). It's kind of watching history repeating itself like a farse. Even in Germany today, the anti-immigration 'Pegida' party on the rise[1].

In 2014 EU elections the FN came first[2]. That was before all this anti-islam frenzy driven by the Charlie Hebdo tragedy, alledged Jihadists killing live one hostage after another, etc.

Keep in mind that Hollande was a huge disappointment for the French population and since each vote counts equally I can't see how bankers are going to protect the current 'status quo' in France.

What Varoufakis says (that the only ones who will benefit from austerity are the extremists) is totally spot on and it's already happening...

[1] http://www.theguardian.com/news/datablog/2015/jan/13/german-...

[2] http://en.wikipedia.org/wiki/European_Parliament_election,_2...

danmaz742• 11 years ago

There is something I completely missed in this piece: the distinction between public and private debt. For public debt, there is a single agent that decides: the Government, that is elected democratically. How does the "there is no Spain" argument apply to that?

swatow• 11 years ago

you are right. And the same applies in the other way. If most of the lenders are in Germany or some other country, of course they are going to be annoyed if Greece defaults.

Unfortunately, the length and tone of the article are going to convince many people that the author was on to something.

mrwarn• 11 years ago

maybe the real problem is lack of grocery stores in places like Spain and Italy, http://flowingdata.com/2014/05/29/bars-versus-grocery-stores... now admittedly this might have nothing to do with the current economic problems faced by the EU, but at least in some of those places they have plenty of places to grab a drink!

psykovsky• 11 years ago

You're not wrong, you know...

markvdb4• 11 years ago

The Greek _minimum_ wage is over 50% higher than my girlfriend's in EU and euro zone Latvia .

How do I convince her of the need to participate in Greek debt relief?

coldtea4• 11 years ago

By telling her that minumum (or median) wage is not the be all end all.

Rate of economic development, cost of living and personal debt matters as do relative changes in wage levels.

The minumum wage doesn't matter at all also, when you have ~40% youth unemployment and 27% general unemployment (so those people's wage is zero).

If Americans, for example, started getting mass 40%-50% pay cut across the board, a huge amount of them would end in bankruptcy, small business closed, houses lost to unpaid loans, etc.

markvdb4• 11 years ago

The Latvians got that 5 years ago. GDP -26%, mass government layoffs, 30% paycuts for those that were left, housing prices -55%.

Once the housing cost factored out (extreme heating bills, unlike at least most of southern Greece!), cost of basic necessities here is not so incredibly different from Western Europe.

Youth unemployment was remedied by emigration.

atmosx8• 11 years ago

Hello from Greece, the country of wealthy!

A very good answer would be to ask her to come and live in Greece for two years, but to save her the shock... I will share a few sporadic thoughts.

The official unemployment rate among youths (below 32 IIRC) it's 50.60% today. Given the fact that part time jobs like working as a delivery boy counts as employment for the prior government, you can rest assure that finding a steady salary in Greece these days is extremely hard.

In the private sector almost no one is going to give you a full time job. If they do, you're expected to work at least 10 hours per day, maybe more, while you're officially paid for ~ 8.

The local social security found takes a large cut of your salary ~ 30%. Then you are taxed. Last year taxes rose at incredible levels. People lost their houses because by governments math, if you owned a house at some remote location, mostly parent's heritage, theoretically you had a income even though you resulted as unemployed. This led to extremely tragic situations where people became homeless overnight. There are other taxes like these that add up to your electricity bill. Can you imagine living without electricity? What would you if you had to choose between having EUROs but not having electricity at home or having Drachmas and having electricity at home?

Although in current Greece you pay a large amount of your income to social welfare state, that's totally inexistent. You have to double pay for your child's school, because he will never get into the University if he doesn't take extra (private) classes. You have to double pay for your health if a member of the family has a problem. Drugs became increasingly more expensive, although the prices of the actual drugs in many cases where slashed, because of added taxes at every drug prescription.

In Greece we had ~ 7.000 suicides in the last 6 years. We became from last country in suicides, to first in the EU on average, within 6 years.

[...]

---

That's only the tip of the iceberg. Greece, is a third world country right now and the population is suffering. That's why a large % of the population doesn't care much about staying in the EUR or not.

Also note that among the Greek population there's a feeling that Brussels and Germany is heavily corrupted[1]. Indeed the fact that Berlin and Brussels so openly support the governments and oligarchs who created the financial crisis in Greece instead of punishing them, says a lot IMHO about their real interests. Most of the bail-out money went to French and German banks who held Greek Bonds.

So the private banks got away with high-yield Greek bonds while the Greek and German tax-payer had to pay the difference.

---

Now that said, it's not like everything is Greece was okay. We have an extremely awful local elite who act as an oligarchy. Indeed Varoufakis refers to them as "Oligarchs", because that's what they are. In Greece we never had a justice estate. I don't know how are things in Latvia, might be better or worst I don't know, really I don't.

Anyway Greece needs restructuring. It needs a wages alignment, but if anything, the average wage has to go up not down.

---

In view of current events, are you sure that entering the monetary union, was a good move in the long run for Latvia? I mean Czech Republic didn't enter the EURO nor Switzerland. I see them both extremely happy that didn't.

[1] https://anestis.quora.com/Links-to-credible-sources-about-Gr...

markvdb4• 11 years ago

Hey Panagiotis!

To be clear, I don't wish anyone this kind of suffering! At the same time, all you mention seem to be very similar to what the Latvians went through in 2009.

I do see the difference of the enormous Greek state debt after years of structural overspending by the Greek government. Latvia simply had almost non-existing debt before it went through the 2008-2009 economic crisis.

You say "Also note that among the Greek population there's a feeling that Brussels and Germany is heavily corrupted." The EU structures seem to be intact, if serving other (corporate?) interests than you and I would like. Greek structures seem to be crumbling under corruption much more.

I'm genuinely interested in how you would ideally see Greece regain solvability.

Kind regards,

Mark

P.S. In the case of Latvia, eurozone was not an option. It was a requirement of joining the EU. Will that be good or bad in the long run? They lost a bit of economic flexibility (no independent currency floating possible), but they still have an internal devaluation as an option. They used that once. Basicly, lower wages by 20% by decree and make local products cheaper that way. Socially quite insensitive instrument. On the other hand, jobs are plenty again here...

ta97531• 11 years ago

"People sometimes mistake their own shortcomings for those of society and want to fix it because they don't know how to fix themselves."

"It is possible for individuals, and even for whole cultures, to care about the wrong things, which is to say that it's possible for them to have beliefs and desires that reliably lead to needless human suffering."

I'm outraged. I was born in Greece to Greek parents and feel extremely unlucky about this, sort of being born in a completely third world country.

The level that the Greeks (not all of them, but to an extraordinary extend) fail to comprehend reality is astonishing. The modus operandi here is "do whatever other people do around you". And what is that? Slowing drag your feet through education, which is laughable and teaches almost nothing of practical value, go out as much as you can, drink coffee for hours on end talking about crap every day, study "whatever you like" failing to understand that some (most!) university departments are terribly anachronistic and will lead to unemployment with certainty, etc, etc. It's a failure from top to bottom: parents and especially teachers are freeloader lazy people and this is exactly what they teach to the young, by every aspect of social interaction.

I lost too many years of my life, trying to find out what's wrong with me, and eventually found out about Paul Graham, and startups, and ambition, dammit!

I read a comment somewhere about the US/western Europe just nuking the place and felt so in tune with it.

In fact, the people here are just unlucky, like me. They don't even comprehend what it means to work. They say stuff like "Greeks work more than Germans!" and they go to work 1 or 2 hours late and talk for hours about last night's football match.

Empirical data towards a proof of what I'm saying: I was saying those stuff to a sibling of mine, and they were hating me, as most people do here. But then, they moved to a Western European country, and after several years of trying to adjust, they now tell me that they themselves regard the Greeks to be lazy whining freeloaders.

I apologize for the rant. My question is this:

Why the German government, and Western European countries more advanced and with better "culture" in general, doesn't try to help Greeks become more like them, starting from education? Is it because of politics, or is it that this might be happening already, but to see actual results you have to wait a very long time?

Syriza and the French indemnity of 1871-73

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