I really do not understand this:
After more than 12 hours of talks, the countries that use the euro reached an agreement early Tuesday to hand Greece euro130 billion ($170 billion) in extra bailout loans to save it from a potentially disastrous default next month, an European Union diplomat said.
The euro surged as the news broke, climbing 0.7 percent to $1.328 within minutes. While much depended on the details of the deal, a final agreement on the bailout for Greece will take some pressure off the 17-country currency union, which has been battling a serious debt crisis for two years.
Why don’t they just let Greece default rather than be a bottomless pit of banker bailouts. Default would be better for everyone involved, particularly the Greeks.
And when they decide to be a serious nation that actually collects taxes, they could move on from there.
MikeJ
It would be very bad news in Frankfurt am Main.
Lavocat
Just kicking the can down the road. What they don’t realize is that the road they are on is a dead end street and that they are getting very, very close to its end.
When this bomb goes off, it’s going to take down all the big western banks.
I honestly think this is the economic version of a Hail Mary pass.
RossInDetroit
It’ll be interesting to see what additional widespread privations the Austeritrons require in exchange for the bailout. And by interesting I mean horrifying.
Redshift
One quibble — the “people” who don’t pay taxes in Greece are mostly big corporations and professionals who can afford to hire people to help them evade taxes. The idea you’d get from the media that it’s some kind of general cultural phenomenon is just another piece of the economics-as-morality-play that’s driving so much of the counterproductive crap in Europe now.
So basically, tax collections in Greece work exactly the way Republicans wish they did here.
Yutsano
Greece actually can’t legally default and stay in the union. And if they leave the union Spain, Portugal, and Italy exit too. And the German banks take a HUGE pounding. Pretty much from there the whole world economy takes a huge dump. Lavocat is right: they’re stalling the inevitable.
Narcissus
It’s just another episode in the protracted, drawn out dissolution of Western Consumerism.
Redshift
@Lavocat: There was one of these bailout rounds (can’t remember which) that Krugman described as “packing the can with explosives and then kicking it down the road,” which I thought was a particularly lovely turn of phrase.
Hill Dweller
As K-thug repeatedly points out, characterizing this as a debt crisis is horseshit. Greece had debt issues, but some of the other countries in trouble(Spain, Ireland, Italy) didn’t have debt issues before the meltdown. The f’n banksters caused this shit, not profligacy.
Martin
Then investors will assume that Italy can default. And Spain. And so on. The cost for those countries to borrow will skyrocket because nobody wants to buy into bonds that can so easily be defaulted on, so they won’t be able to finance a recovery, and then they WILL default, and then people will worry about the next tier of nations.
The problem is that all they can do for Greece is bail them out. The rest of the EU doesn’t have the power to fix Greece’s structural problems. We bailed out Wall Street and then trusted they’d get their shit in order – that’s the EU. We bailed out GM and Chrysler, sacked their executives, brought in new management, restructured both companies, and send them back out again. That’s what needs to happen – basically an economic coup.
An old rule of mine is that authority and responsibility need to go hand-in-hand. The EU is responsible for Greece, but doesn’t have the authority to fix it. That’s a critical problem.
RossInDetroit
@Redshift:
A friend of mine from Athens said that dodging tax is commonplace among small businesses and individuals. Hire family and pay under the table. Make cash deals off the books. Under report earned income. Barter, etc. They get away with it and feel that anyone who pays what they legally owe is a fool. That’s her one point of view but she was amazed at the apparent scrupulousness of income record keeping in our workplace. maybe the Greek government is leaving some money on the table by tolerating that.
blahblah
Cool. Keep writing blog posts about shit you don’t know anything about. That’s why I keep reading!
gex
Silly. We all know they need tax CUTS. Ayn and Grover told me so.
barath
They didn’t want to be like Iceland and start making funny sounding music.
David Koch
/fixed
Valdivia
one word: Italy
if Greece goes down so will Italy the fifth biggest economy in the world (or at least top 10. meaning Italy is not insignificant in what it would do to the world)
great easy explanation here: http://www.thisamericanlife.org/radio-archives/episode/455/continental-breakup
You listen to it and shake your head in disbelief
bottyguy
Citizens must pay the bankers, its the moral thing to do.
RalfW
Why let them default when they can cause Greece to be a basket case with falling GDP, labor unrest and other capitalist delights for another decade.
Everyone likes to have somplace nearby (but not too close) that is shittier than where one is, so you can say “at least I’m not like that!”
Plus deflation, falling GDP and wages helps put downward pressure on unions, labor and all those soshulist urges throughout the eurozone.
Warren Terra
I think the fear is not Greece, it’s Italy (and Spain and Portugal and maybe others). Unlike Greece (2% of Europe’s GNP), Italy’s economy is genuinely big. Unlike Greece, Italy’s budget deficit is probably manageable – so long as interest rates stay low. A Greek default would send the interest rates on the euro-denominated debt of at least the weaker EU countries way up, and Italy couldn’t handle the new rates.
ETA Or, in other words, What Valdivia Said.
pseudonymous in nc
Daniel Davies has received some flak of late, but his choose-your-own-Greece is well worth a look.
@RossInDetroit:
Tax evasion is basically a sign that you’re middle-class — and I’m defining ‘middle class’ tightly, not the mushy American spectrum that extends from Mitt Romney down to the guy who sold him the dog crate (When Italy passed a law reducing the maximum cash payment for goods to 1000 euro, there were howls of dissent, because avoiding sales tax is a national pastime.)
@Hill Dweller:
Spain had a property boom that went tits-up; Ireland fucked itself over by guaranteeing the banks without knowing the pricetag, mainly because the ruling party was a pack of nepotistic bastards in the pocket of the bankers and property developers.
Valdivia
@Warren Terra:
my point but much better said and not outsourced.
RalfW
@Hill Dweller:
The rampant tax-dodging in Greece has made their situation worse, IMO, than Spain and Italy.
Clearly, what the Greeks need is more Republicans, so that the tax rate gets so low, no one will mind ignoring it any more.
OzoneR
I don’t know why they won’t, but I know why I don’t want them to.
President Santorum
AA+ Bonds
Jesus Cole don’t be a fuckin Republican about this
Greece is pretty much engaged in class war right now
eemom
What this guy says.
And since it is never uncool around here to condemn entire nations for crimes real, imagined, or mischaracterized, I will add FUCK THE GERMANS, who invaded and destroyed with their euro just as brutally as they did with their bombs.
Warren Terra
@RossInDetroit:
I realize it’s got to be substantively much less important than unreported income and transactions, but the Greek-tax-dodging factoid I really liked was the Swimming Pool Tax. Very much as with windows in Tudor England, Greece decided to use swimming pools as an indicator of wealth, and levied a hefty tax on them. Per the article I linked:
jeff
I really don’t know what will happen if Greece departs and/or defaults, but I am sure that I will find out after the big money has already executed their trades. . . which is another reason for me to be scared.
AA+ Bonds
I’d like to point out Cole that here in America you pay taxes and Mitt Romney pays dick and the state is falling apart and our bridges are collapsing out from under us
So who is smart, you or the Greek in the same relative position who doesn’t pay into something that shorts him in return
AA+ Bonds
Occupy will have a different meaning when there is nowhere to go for that many Americans
Villago Delenda Est
@bottyguy:
That’s pretty much it.
The banksters need to be bailed out. Because. They’re banksters.
Rentiers need to be, frankly, eliminated. Keynes forsaw this.
Warren Terra
@eemom:
Um, the Euro was not only nor even principally a German invention. Sure, they deserve a huge portion of the blame, but the stuff I read and listen to suggests the main impetus behind the Euro happening when and how it did was actually France, that they saw it as a way to integrate Europe more tightly and prevent future European wars, and they made fast-tracking the Euro a condition of their smiling upon German reunification (which in the absence of greater momentum towards European peace was intrinsically frightening to them).
Also note that the failure of the (poorly conceived) regulatory mechanism meant to ensure states couldn’t run huge deficits really came in 2003 when both France and Germany exceeded deficit targets and decided exceeding targets didn’t matter.
Arclite
@Martin: What Martin said. Germany really doesn’t have a choice unless they want to plunge the entire world into another economic depression (or drastically worsen the one we’re currently in).
Warren Terra
I suppose I should add, since I commented above an argument I’ve heard about why a Greek default would be an utter disaster, that I’d love to see the banksters pay.
Still, my understanding is that as part of the current bailout the bondholders are having to accept a writedown of some 70% of their bonds’ face value. So investors are having to pay, though I suspect a lot of the banksters who facilitated these investments took their fees and bonuses up front.
MacKenna
Transcript: Thom Hartmann & Matt Taibbi: Greed, Greece and…Goldman Sachs? November 1, 2011
Goldman Sachs and hedgefund managers, bless their hearts, made a killing bringing Greece down. And they’re still making money.
OzoneR
@Warren Terra:
Problem is, there is virtually no way to do that without plunging the economic situation of hundreds of millions of people into a far worse one than they’re in now.
They’re going to get away with it, and there’s nothing anyone can do about it except make sure it doesn’t happen again.
AxelFoley
Hmm…Cole sounding like Romney here.
Doth this be snark?
eemom
@Warren Terra:
well, if I wanted to insist on my analogy, I could point out that the French were the suck-up enablers of the Germans in WWII, also.
handsmile
@RossInDetroit: (#3)
Here is the answer to your comment (from the Q&A session in Brussels following the EU’s announcement of an agreement on a second Greek financial “bailout” package):
The prophet Nostradumbass
@barath:
Well, Iceland aren’t members of the EU.
eemom
@handsmile:
That is what the good British gentleman is saying, still more bluntly, in my link above.
blahblah
@eemom: You sure could, but you’d end up looking stupid.
Fuck you and your bullshit WWII metaphors. Multiple groups of people were driven almost to extermination and you’re using it as an analogy for a financial crisis. Nice.
Nemo_N
Because suffering is awesome. You are probably one of those pussies who like movies with happy endings.
Also too, they’ll be doing the same dance after a couple of months.
mclaren
Short answer: because that would mean the end of the Euro and the European Union economically. And that, in turn, would greatly raise costs for trade between the various countries in the former EU, which in turn would greatly depress the economic output of Europe as a whole.
As well, Germany would take a huge hit and to some extent France, and those are the countries that are currently economically sustaining the EU right now and which are primarily benefiting from the existence of a unified currency and no inter-country tariffs or trade barriers.
FuriousPhil
Crazy ideas like radical restructuring and *gasp* debt forgiveness aren’t in vogue anymore because
nobodybig financial institutions don’t want to lose. Why worry about risk when you can hedge it away? Oh, right, we see how that worked out…I could probably write a book on why the global financial system is in a terrible way, but I hung up my degree years ago and just work as a humble home contractor these days.
Suffern ACE
@The prophet Nostradumbass: Iceland isn’t doing too badly. But I don’t think it could be replicated. Throw some rocks, try some bankers, write down mortgage losses, elect a lesbian, put in capital controls, and order is restored. It was either that or all 300,000 people sneak out of the country, leaving the creditors with nothing but the country, which only Icelanders probably know how to make work. They could have all moved to Queens and no one would have known they were there.
dead existentialist
WTF happened to the whole debt cancellation deal that went down 10 years ago with all those Third World nations? If the IMF can recommend the cancellation of the debt of a bunch of Southern Hemisphere countries to get them back on their feet, why can’t the EU do the same for some of their southern members?
Oops. Sorry. I’m confused about the lessons that history can teach us.
eemom
@blahblah:
Fuck YOU, asshole.
My mother and her family were victims of the German invasion of Greece in WWII. They fled to the mountains, starved, and witnessed the Nazis slaughtering their neighbors.
I don’t use WWII analogies lightly.
Oh, and have I mentioned, FUCK YOU, you ignorant, presumptious piece of shit?
The prophet Nostradumbass
@eemom: You don’t use them lightly, but you do use them stupidly.
blahblah
@eemom: With that sort of history you should damn well know better.
Gai kakhen afenyam.
eemom
@The prophet Nostradumbass:
Fuck you too.
Fuck all of you smug, self-righteous assholes who have not the slightest fucking clue what any of this means for actual people living in Greece.
The prophet Nostradumbass
@eemom: My parents’ home town was repeatedly bombed by the Germans during World War 2. Fuck off, with your sanctimonious garbage, you stupid fucking asshole.
Irony Abounds
As long as they kick the can down the road until December so that there isn’t a major implosion in Europe before the elections. The US economy is picking up enough steam to get Obama reelected as long as there isn’t a major disruption. At this point two things could happen: Europe implodes or there is a war over Iran which send oil prices through the roof which kills the economy. If one or both of those events occur, say hello to President Romney or President Santorum, and we are basically f*d up the ass with a splintery broom handle.
handsmile
@eemom: (#39)
That “good British gentleman is Nigel Farage, current leader and co-founder of the United Kingdom Independence Party (UKIP) who is legendary for his blistering denunciations of the European Union. There are many similar YouTube clips of his harangues.
Of course, there is some irony in that all of these are being delivered from the chambers of the European Parliament, of which Farage has been an elected representative since 1999. UKIP, analogous to the US Libertarian Party, has virtually no electoral presence in England itself.
ETA: It seems in the time it took to type and post this, another bout of reasoned discourse has broken out. I’ll just go fuck myself and save everyone the trouble of instructing me.
dead existentialist
@eemom: The Mediterranean character is full of fire!
eemom
@handsmile:
I know who he is, and his background. I fail to see how he’s wrong in what he says in that video, however.
Edmund in Tokyo
Not sure if the original question was sincere or snark, but Greece is already effectively defaulting on large parts of its debt. It’s just they’re doing it in a negotiated way, which is less chaotic than defaulting unilaterally.
If you want to know what’s in it for Greece, it’s that they still need to borrow money to keep their schools and hospitals running, so it’s a bad idea to unilaterally screw their lenders.
If you want to know what’s in it for the EU, it’s that a disorderly default would hurt their banks and raise the cost of borrowing for other countries. Oh, and if Greece can no longer afford to pay their nurses, sick people are going to start showing up in EU countries that can.
Ron Beasley
The technocrats are unable to admit that they were wrong about the the clusterfuck known as the Euro.
eemom
@blahblah:
Let me guess: you’re the kind of asshole who clucks about how the Israelis “should know better.”
Roger Moore
@OzoneR:
Pitchforks and torches.
cmorenc
@RossInDetroit:
Why ever did the EU decide to allow Greece into the EU in the first place? Why ever did German banks decide to lend Greece so much in the first place? Regardless of the banks’ own considerable fault in this mess, the underlying problem is that Greece as a nation lacks a culture of responsibility with respect to either taxes or expenditures. No, this is not at all entirely the fault of the banks’ fecklessness and greed, it’s equally or more the fault of a Greek government and people who cannot own up to amassing huge obligations for things like pensions and subsidies without owning up to the necessary obligations of collecting and paying the tax revenue needed to sustain it.
blahblah
@eemom: No, I’m the kind of asshole who thinks equating financial domination to genocide is fucking tasteless.
How much money do you think 6 million lives are worth? Enough to bail out the euro?
What’s your point, anyway?
David Koch
I blame the debt crisis on prenatal care.
dead existentialist
Since this is also a pet blog:Loukanikos, Riot Dog of Athens says “woof.”
Xenos
@Warren Terra: These are very good points. There was a currency peg for decades before the 1930s, with the French and Belgian Francs, the Lira and the Drachma all set at the same value. It collapsed with the financial chaos of the 1930s, as did a few other institutions. One thing that is different now is that the Germans are in the mix, and the German politics are getting in the way of necessary fiscal policy. The French, whose banks are in just as much trouble as the Germans, look to be throwing the conservatives out of power over the austerity mess.
Maybe the Euro can be saved by putting the Germans back on the Mark and letting the Euro inflate back to the 1 Euro = .80$ that prevailed when the Euro was established. That rate was immediately ratcheted up to 1.20$ once Greece was admitted and that severe deflation wrecked the legitimate Greek economy. The only thing that saved the Greeks in the early 2000s was the mountain of free Euros coming from Brussels and Frankfurt. Thus the ‘profligacy’ of the Greeks was inseparable from the public following the only growing part of the economy – the various bubble created by easy money.
As for the elections, they will come after Orthodox Easter. There will be a new coalition government, maybe one with enough of a mandate to take the country out of the Euro or at least with the strength to credibly threaten to do so. In the meantime, as brutal as the cuts are in Greece, the Greeks know half their population is on the make, and they understand that there had to be a reckoning. So they are more tolerant of the cuts than most European publics would be.
eemom
@dead existentialist:
yeah. Ain’t he the coolest?
Roger Moore
@Nemo_N:
It’s not as if default would be a painless solution. The underlying problem is that the Greek government has been spending way beyond its means for a long time, and that just can’t keep going indefinitely. Defaulting would result in leaving the Euro and a massive devaluation, which would effectively raise the price of consumer good across the board. That would be at the same time the government couldn’t borrow money anymore and would thus have to cut spending or raise taxes to make up the difference. It would also cause big problems because it would forcibly separate Greece’s economy from the rest of the Euro zone, which would do business there no good at all.
I’d like to suggest a third solution: raise effective tax rates on the rich. That could be either by raising nominal tax rates or by enforcing existing tax laws. Prosecutions for back taxes might help a lot to bring debts down Rich Greeks haven’t been paying their fair share in ages. Make them pay.
Ruckus
@Warren Terra:
though I suspect a lot of the banksters who facilitated these investments took their fees and bonuses up front.
I’d imagine you could bet your house on this. And live very serenely considering how sure that bet is.
eemom
@Xenos:
As I understand it, however, 70% of Greeks want to stay ON the euro.
The other thing I understand, though I’m no economist, is that a return to the drachma would be the best hope for Greece to recover in the long term, though likely to produce chaos in the short term.
Jared
They are not bailing out Greece. They are bailing out the people and institutions that invested in Greek bonds. All of the bailout money will go to the bondholders, while the Greek citizens will be forced to endure brutal, economy crushing austerity measures.
Why must the bailout take place? European leaders will argue that if a default actually happened, it would increase the odds of bailouts in other Eurozone states, which would in turn raise borrowing costs for all. But the truth is that the bailout must take place because the people making the decisions are so connected to the people and groups who will be out a fortune if those bonds become worthless. They are heisting both the citizens of Greece and the taxpayers of the Eurozone so bondholders never have to worry about the “risk” side of their investment.
It’s just like the bailout here – privatize profit, socialize risk. Same old same old.
Xenos
@eemom:
It is interesting to check out the stated policy positions of the Vichy government. Pure Santorumism.
Villago Delenda Est
@Warren Terra:
Well, naturally. Risk for the ones making the decisions, who are supposed to be operating as fiduciaries, has been eliminated. So why not? I mean, the entire US mortgage crisis can be traced back to fees and bonuses being much more lucrative and immediate than the actual repayment of the loan with interest. Why wait for your swag for 30 years? Take it upfront, and dump it on someone else.
Paper trails need to be followed, and banksters need to be pauperized.
Xenos
@eemom: My understanding is that leaving the Euro is the one way around the political problem of the Germans (and the currently conservative French government) forcing a continuing deflationary economy on the Greeks. Of course, if the Euro itself could inflate it would go a long way to help the Greeks and everybody else on the periphery.
A credible threat to leave the Euro might be the thing needed to change that destructive fiscal policy. Whether a New Democracy-led coalition government could or would make that threat is an open question. I will be spending Easter in the heart of the ND electorate (Lakonia – the Greek equivalent of Alabama) so I hope to get a sense of what that sector of the public wants to do.
portlander
Ah, yes, it was those unserious Greeks that are the problem. The problem of the Greek debt had nothing to do with Goldman Sachs… I forgot, we must always blame the victims of any crime.
http://www.gregpalast.com/lazy-ouzo-swilling-olive-pit-spitting-greeksor-how-goldman-sacked-greece/
300baud
@OzoneR:
You’re confusing punishing the banksters with punishing the banks.
I agree that the banks would be in deep shit if Greece et al defaulted, especially the ones pressured into buying Greek debt by their various governments.
But there’s nothing keeping governments from mass arrests of top bankers plus prominent trials for corruption of both banksters and influenced politicians. Even if they aren’t convicted, 2-5 years of pretrial detention plus full exposure in court would put the fear of god in the remaining ones for a generation. Or, hell, governments could apply the “extraordinary rendition” powers that they have used on people who are far less dangerous and have caused far less devastation.
Well, nothing stopping them except the lack of political will, cronyism, fear of lost campaign contributions, belief that the rich and powerful are above the law, fear of retribution, and a worship of Mammon. But other than that, there’s be no problem punishing the banksters.
kdaug
@Villago Delenda Est:
Has this happened, ever, in history?
Suffern ACE
@300baud: Meh. The government can’t convict bankers here, so I doubt the laws of Europe do much for accountability. Europeans aren’t exactly known for their honest political institutions.
MikeJ
@kdaug: 1793
Peter
@portlander: Why can’t it be both? As that very article points out, the reason Goldman was able to pull one over on the Greeks was that Greece was trying to hide its deficits in order to get on the Euro cheap-borrowing gravy train.
Really, there’s blame to go around everywhere on this.
kdaug
@MikeJ: And my point is uncovered. Forsooth!
Less blood would be good.
Michael Finn
Really Greece has no choices in this.
It cannot default or leave the currency as a solution, all of it’s contracts are written in Euros which means that it is effectively a Euro country forever.
Europe cannot let it default because it’s own banks are just too exposed to this nonsense. Apparently it’s cheaper to screw the Greek’s than doing capital injections.
All of this speaks to the fact that Europe’s ability to deal with crisis sucks. During normal times, I would want a European in charge of my banks but when things go to hell, I’m putting an American in charge because they can get the things that need to be done done.
Joel
@eemom: You realize that you posted a statement from the UK equivalent of the libertarian party? Still, a far cry from Paul-ism, if for this alone:
pseudonymous in nc
@handsmile:
Specifically, European Parliament elections — low turnout, proportional representation — bring out the British equivalent of teabaggers: the middle class xenophobes vote for UKIP, the working class xenophobes vote for the BNP. (To say that UKIP is non-racist is a slight stretch: they might not beat up brown people, but they fucking hate the French.)
And yes, this is not massively different from an orderly default (something like a
70%53% haircut, I think) but I suspect that it’s just creating conditions for the Greeks to say “fuck this”, then get whacked with the immediate consequences of disorderly default, and then the shit really goes down.@Michael Finn:
Yes, the Fed’s position that 8% unemployment is preferable to 4% inflation is really doing what needs to be done. Oh.
Martin
@pseudonymous in nc:
Not sure how you come to that conclusion. You think printing less money and cranking up the borrowing rate would create jobs? Not sure how that’s supposed to work.
Another Halocene Human
Taxes, taxes, taxes. And anti-corruption efforts.
I was lucky enough to catch a lot of Business Daily this morning (BBC). Go listen if you have the chance. They had an interesting and lively panel discussion, quite the departure from their usual corporatist/High St propaganda that so reliably sends my blood pressure soaring when I’m driving home from work.
One of the guests was talking about who got screwed in this deal. They all know they can’t afford to lose and yet there’s the drive for both greed and punishment. Stupid, stupid, stupid.
Warren Terra
@Another Halocene Human:
Speaking of the BBC, Radio 4’s series of three half-hour documentaries about how the Euro was adopted and we arrived at the current state is very good. They’re available for streaming or for download as a podcast.
It doesn’t cover everything – it’s mostly about what happened in Brussels, Paris, Bonn/Berlin, and of course London, not about the streets of Athens or the budget of Italy – but it is quite good.
Ben Lehman
Germany benefits from Greece’s existence as a basket-case economy. It drags down the euro, which supports Germany’s export-focused economy.
The Euro can, in many ways, be seen as a way for Germany to export the pain of a weak currency while retaining all the benefits.
yrs–
–Ben
eemom
@Joel:
um, yeah, like I’ve said several times already, my point is that he’s right about Greece. I don’t give a shit what he or his party are supposedly the “equivalent” of in our own primitive political vocabulary –though I doubt there’s any political party anywhere that deserves the insult of being translated into that.
portlander
@Peter:
“Greece” was not trying to hide its deficits; the ruling party of Greece was trying to hide the country’s deficits. There is quite the difference. In fact, in many of these comments and much of the larger discussion the term “Greece” and “Greeks” are used to conflate the victims and the villains in this story.
But I do not wish to suggest there is an easy answer. But first we have to get the question right: what do you do when a country elects a government that drives that country’s economy off a cliff in order to increase their personal wealth?
ChrisB
@Redshift: Corporations are people too, my friend.
But as others have pointed out, tax cheating is widespread in Greece according to numerous sources.
Robert Sneddon
Didn’t America go through something like this, oh about 150 years ago? Big economic and political split between the northern states and the southern ones? What happened then?
Oh yeah, Sherman burned Atlanta.
With luck and a lot of hard work maybe, just maybe this financial mess won’t end up in a shooting war. I can see a couple of ways that could happen — a Short Victorious War is a common distraction by a government up against the wall. A big flare-up in partitioned Cyprus and an exchange of diplomatic notes with Turkey and suddenly a tichy little financial problemetto doesn’t seem so important after all.
Xenos
@Ben Lehman: @Ben Lehman: Well, the Euro is up on today’s news. The markets can’t seem to decide whether holding the Euro together means the Euro stays strong, or whether the unresolved problems with the periphery nations means that long term deflation is unavoidable. Either way, the banks (German) and savers (German) benefit while the thumbscrews tighten on everybody.
The French elections may not come soon enough to stop this process.
Xenos
@ChrisB: Tax cheating in Greece is pretty universal – the welfare state arose out of the compromises needed to end the civil war, but people resent the bloated bureaucracy and do not feel much of a moral obligation to feed it.
And the Euro made it beyond easy for the professional class to hide and launder their money. Luxury goods are a great way to do this, so cheap flights to Zurich were packed with people carrying cash, and flights to Milan were packed with people bringing cash one way and clothes and shoes the other way.
Money has not been circulating in Greece for years – notes are issued by the bank, bills to lawyers, car dealers, doctors, and landlords are paid in cash, and that cash almost immediately leaves the country. Once the flow of loans and banknotes into the country stops the economy grinds to an immediate halt.
This is not just a problem in Greece. The news this morning had a report that when German tax authorities pull over random cars with German plates coming over the border from Luxembourg one out of eight cars have someone smuggling cash back into Germany.
A lot of the problems here are structural, and it is a terrible misdirection to just blame the Greeks for being bad people (although the Greeks condemn their fellow citizens more readily than anyone else does).
These structural problems were obvious from the outset – it is fairly clear the the technocratic elites expected them to arise, and planned to exploit the inevitable crises as they developed. However, now that the crisis period is here, things are much worse than what was expected. Nonetheless, there is an unavoidable arc to this disaster and it will be some time before the political forces of the left come up with a response and find a way to pursue it.
Warren Terra
@Ben Lehman:
I’m sorry, but this is nuts. Germany is famous for hating inflation with an obsession that makes the irrational anti-inflation attitude of our own central bankers seem like carefree whimsicality. A weakening currency would mean higher inflation, and vice versa; a weakening Euro would also provide a simple way to lessen the scope of Greece’s debts, and those of other European countries. Germany is going to enormous lengths to avoid this (partial) solution. They do not want a weakening Euro.
jayackroyd
Why not let Greece default?
Because there is a shitpile of Credit Default Swaps “insuring” banks and hedge funds against said default. There is almost certainly not enough money (as with AIG’s CDSes “insuring” against mortgage-backed securities’ failure) to actually pay that “insurance” especially when a Greek default increases interest rates among other countries at risk of a default, forcing them in turn into default, which means more “insurance” payments that can’t be made.
Emma
Because they’re bailing out the German banks, which btw, do NOT deserve it. But hey.
Mino
Where are the “humanitarian disaster” agencies. Why are we seeing stories of children being given away by their parents?
Marcellus Shale, Public Dick
@Warren Terra:
to be fair, the germans have a pretty good historical basis to be irrationally afraid of what inflation can do to the german economy, and how germans respond to such events.
that is about the only thing that keeps me from getting to irate about the whole bankers must be paid thing, the alternative has real, real bad unintended consequences, historically speaking.
who wants to say germany, or some other major country won’t start taking it out on the neighbors, if their economy starts to get greek fever.
Egg Berry
Even with the latest round of bailout funds, the Greek population is not going to benefit. At some point, there will be a breaking point for the country as a whole.
Could someone point me to an instance where the IMF’s prescribed austerity and privatization medicine has actually worked for the country instead of the creditors?
Juan
I did a search for “primary deficit” on this comment thread and couldn’t see it.
So Greece runs a primary deficit. Which means even if it defaulted it would still be in deficit. So Greece can’t just default. It would have to default and leave the euro. Greece is also an importer of things like oil and medicine, and the value of the new drachma would be in freefall.
The vast majority of Greeks (70%+) still support being in the euro, but leaving the euro may become more of an option as more years of painful austerity bite.
Mino
@Egg Berry: I think Latin America proved just how toxic the WB/IMF medicine was.
Populations accustomed to fairly brutal exploitation already from their own elites actually revolted at the terms.
chopper
@RalfW:
because the worse Greece gets the more negative pressure it puts on the euro. the EU is damned if it does and damned if it doesn’t.
magurakurin
@eemom: yeah those suck up French. They sure had it easy in WWII 1/4 of million military dead and and equal number of dead civilians; 1.35% of the population killed by the Germans as they were sucking up to them. Whatever. Compared to 400,000 dead Americans or %0.32 of the US population at the time, it seems hard to say that the French didn’t pay a price as the United States sat by and watched the Nazi march into Paris. Surely, though Britain paid a higher price to make the world safe for democracy; 380,000 military deaths and 67,000 civilian or %0.94 percent of the population. Doh, that’s less than the French, too. They must have been sucking up hard.
seriously, that is one dumb as comment.
OzoneR
@300baud:
Barry
John: “Why don’t they just let Greece default rather than be a bottomless pit of banker bailouts. Default would be better for everyone involved, particularly the Greeks.”
You just answered your own question.
Ben Lehman
@Warren Terra: Germany benefits strongly from a weak currency. Germany’s elites especially.
A weak currency may not be popular in the country, but that doesn’t mean that Germany’s elites don’t benefit from it. It just means that they benefit from it and have to maintain a certain degree of plausible deniability come election times.
El Cid
I dunno — is the U.S. political establishment even in favor of collecting taxes?
I thought the proper American FREEDOM FREEDOM FREEDOM view was that income taxes were evil except maybe for those schofflaws at the low income end who liberal Reagan let off the hook?
Since it’s entirely taxes, and particularly taxes on the wealthy, which hold back countries from SUCCESS, why isn’t Greece’s economy exploding with riches?
Surely the liberal Shari’a law media is making up all this bad stuff about Greece, because a country which isn’t robbing its citizens with taxes must be enormously successful.
jayackroyd
@Egg Berry:
You’ll have noted that the whole “people elect their government officials” thing has been put on hold. There is no way to impose this kind of “austerity” and also preserve free elections.
bjacques
Also, too, Germany, like the rest of northern Europe, is aging, and that means a lot of pensioners, who vote. It’s not just fear of 1920s-style hyperinflation, but also a very large bloc of voters who don’t want inflation to eat away at their fixed incomes.
Meanwhile, up here in the Netherlands, Jan Kees De Jager, the Economics Minister of the center-right coalition government, wants austerity commissars to stand over the Greek government. Others think it would be a swell idea to delay Greek elections indefinitely and install a “technocrat” (a tyrant in the classical Greek sense) to run Greece’s economic affairs, meaning its political affairs. I’m sure either plan will be very well-received locally.
I imagine the general feeling in Greece and other heavily-indebted countries can be summed up as follows: You were invited to a lavish banquet and given food that’s better than you eat at home, but not, say, the lobster Thermidor or the Lafitte-Rothschild that some others are getting. You don’t know who’s paying for it, but you got in free. At the end, the dishes are cleared away and you get the bill for all of it, and have to pay it all right now. If you’re in one of the solvent countries, you’re being told that the dinners you made yourself had been subsidized somewhat and now you have to pay it all back, as urgently as those “deadbeats” above.
Even if there were long-term benefits, which I doubt, to breaking up the Euro or just kicking Greece out, the short-term effect would be catastrophic financially and therefore politically: bank runs and hoarding of cash, general strikes and occupations of foreign-owned infrastructure, election of far-right governments. And speculators would short national currencies all the way down. Better to keep the euro together and revolt against imposition of the shock doctrine.
jayackroyd
Just picked my morning NYT up–it seems to me that a 53.5% haircut is pretty darn close to a “default.” Reinhardt and Rogoff, IIRC, would certainly label this a sovereign debt default.
currants
@Valdivia: Thanks for that link. Great program, really informative.
ericblair
@El Cid:
Sure it is, when it’s the bottom quintiles of income earners who need “skin in the game.” They need to pay more taxes and earn less money in order to be encouraged to work harder. And the top few percent of income earners need to earn more money and be taxed less in order to be encouraged to work harder. Because shut up.
keestadoll
Here’s what I know: I know that 99.9999% of us here in the US have really no fucking clue how European economics and politics play out behind their gold-gilded doors. Fuck, we barely understand what goes on behind our own doors. Add to this the haze of the global banking goliath and I think we really should just stick with exchanging salsa recpes. Meanwhile, it’s irresponsible not to speculate, and you all get in such good fights too!
JoeShabadoo
Bankers want that money and will fight off a default at all costs.
300baud
@Suffern ACE:
That’s not evidence that we can’t convict them. It’s that we don’t really try.
If we hauled in every one of the reptiles and raked them over the coals relentlessly it wouldn’t matter a ton whether they ended up convicted (although I’d be a significant percentage would indeed end up doing time). It would still serve as a massive deterrent because guys are looking for easy money.
chopper
@Jared:
exactly. i hate it when people say that ‘greece is being bailed out’ when the greeks don’t get a fucking dime of it. it all goes to bankers in the rest of europe.
now, people will say ‘yeah, but it cools off the creditors so greece can keep borrowing’ but it doesn’t really; giving current holders of greek bonds money to cover their losses doesn’t exactly encourage them to buy more. that’s why, despite all the bailouts, greece’s bond yields are in the stratosphere. the 1 year is at 650% or so. yesterday it was 615. despite all the news it’s still crazy.
chopper
@Villago Delenda Est:
these guys really put the ‘douche’ in ‘fiduciary’ if you know what i mean.
ET
I get the feeling this is less about Greece than it is about Spain and Ireland. Everytime they talk about the situation in Greece the next sentence/paragraph is about Spain and Ireland.
matthew
@Redshift: This is not true. Tax evasion is a way of life at all levels in Greece. It is part of the culture and has nothing to do with class.
Teresa
My personal opinion is, if Greece wants to survive as it’s own nation it will have no choice but to free itself from the Euro. The people calling the shots have zero problems with killing people via starvation.
eemom
@magurakurin:
The problem with you and all the other born again “how DARE you invoke WWII” pearl-clutchers crawling out of the woodwork all of a sudden is that….well, you’re fucking idiots.
As an aside, this is some pretty rich shit on a blog where Nazi slurs fly thick and fast on every thread where Israel is mentioned and no one bats an eyelash. But I digress.
Comparing the German military INVASION of the past with its economic INVASION of the present is a simple analogy. By making it I nowhere suggested that economic domination is the EQUAL of mass slaughter and genocide, nor did I drag every casualty suffered by every nation in WWII into the discussion. It’s you and your fellow ersatz historians that have done that.
The analogy as I made it fucking stands. Germany conquered Greece an generation ago and it has done so again. No, this episode is NOT a part of a much more vast and devastating horror as the last one was. Yes, it is WORLDS different from that. It is nevertheless an act of aggression that is going to claim plenty of casualties.
And as for the French sucking up to and enabling the Germans after the Germans beat the shit out of them? Perhaps you can explain to me how the number of French casualties means that DIDN’T happen.
Jack
It’s the juice, baby. Make Greece a Euro junkie, get ’em hooked on the stuff…
ciaran
Well Greece imports a lot more than it exports plus it spends more than it taxes, so you know a default would in fact be worse.
bcinaz
I don’t think it really matters whether there is a bailout now, or whether there is a default now; until and unless the EU addresses the issues with actual solutions rather than imposing austerity and the downward spiral, default is still a big locomotive that has not been derailed.
Also too, Goldman Sachs is not paying any price for helping Greece hide it’s enormous debt from the rest of the world until it was obviously unsustainable an irreversible.
El Cid
I dunno — is the U.S. political establishment even in favor of collecting taxes?
I thought the proper American FREEDOM FREEDOM FREEDOM view was that income taxes were evil except maybe for those schofflaws at the low income end who liberal Reagan let off the hook?
Since it’s entirely taxes, and particularly taxes on the wealthy, which hold back countries from success, shouldn’t America be throwing its full weight behind this so-called “failure” of Greek tax collection?
Shouldn’t we be sending FOXNOOZ correspondents over to hold FAIRTAX rallies?
WaterGirl
@Martin:
That’s my rule, too! In my experience, authority and responsibility NOT going hand-in-hand is the root cause of most failures.
les
@cmorenc:
In no small part so that Greece could buy lots of shit from German manufacturers, ’cause Germany’s the strongest economy, donchano. The whole thing smacks of Ponzi.
Billy Beane
John Cole trying to be an Economist again with the usual results. FAIL!
Hey John, how is that “the Dow is crashing and we are all gonna die” workin for ya! Idiot! Talking out of your ass as usual.
Xenos
Good on ya, Billie! Way to get the last word in an empty room, you dullard.
Pococurante
@Jared:
Because:
* The Greek government lied to the EU
* Greek citizens lie to the Greek government
* Greek citizens middle aged and older lie to their children
Actions have consequences.
My full empathy and sympathy go to the Greek young people. They are really and truly being betrayed by every entity on the European continent.