Galbraith on Greece

[astonas]

Re: Does Greece need China?

Wolfgang Schäuble is happy to point to the correct door:

Pulled by the current
Some Europeans suggest the legal tangles of Grexit can be avoided by pretending that Greece is not actually leaving. Wolfgang Schäuble, Germany’s finance minister, has spoken of a “temporary” Grexit. If the Europeans allowed the Greeks to issue scrip or temporarily to introduce an emergency parallel “currency”, Greece might in effect suspend its membership of the single currency without technically leaving (see article). Such a non-Grexit exit would allow European politicians to put off pesky problems such as how to deal with the losses on the ECB’s balance-sheet. Technically, it could also be reversed if Greece struck a deal with its creditors at a later date.

Just make it "officially" temporary, and it's all legal.

I suspected this wrinkle had been worked out long ago. It was only a question of who had the willingness to point it out. I'm sure it is no surprise to anyone by now that Schäuble has no problem being the bad guy.

[don]

Greecing the Bear

Russia the Concern

If there is a deal, it will be for one reason only: Fear of driving Greece into the hands of Russia.

Just today, Greek Energy Minister Unveils Plan for €2bn Gas Deal with Russia.

Greece has mapped out details of a planned landmark €2bn gas project with Russia in a move that could stir tensions with Brussels just as Athens is seeking a third bailout.

Panayotis Lafazanis, the firebrand leftist energy minister, presented preliminary plans for the project to Greek energy executives in Athens on Thursday in a defiant speech, vowing the government would not be pushed around by EU institutions.

The promised deal with Russia is a sharp rebuke to Brussels, which wants to reduce EU dependence on Gazprom and argues that southeastern Europe should diversify its supply by prioritising gas from Azerbaijan.

Opening his remarks with pugnacious references to the eurozone crisis, Mr Lafazanis said Greece was aiming to secure a deal with Brussels as quickly as possible. But he warned EU institutions that Athens was not about to roll over.

“Greece is no one’s hostage,” he said. “The Greek people’s No vote, and I am referring to all of the people, is not going to become a humiliating Yes. Greece is not, under threat of execution, ready to accept any fait accompli.”

No One's Hostage

If another deal is signed, Greece will remain a hostage. It's as clear as that.

[jk]

Re: Does Greece need China?

Yes. If it could do so, it should.

My understanding, however, is that due to detailed wording of the Maastricht treaty, the steps it would need to take to leave the Eurozone would cause it to be in violation of the EU rules as well.

That isn't necessarily insurmountable, but it would take time to make the changes in EU law to allow for what must, for pragmatic reasons, be a rapid movement in the EMU.

I'd need to refresh my memory with the treaties to say anything definitive on that, however. It is possible a clever EU lawyer has been working on a loophole.

even if it would somehow violate eu rules, i question whether there's any enforcement mechanism. both france and germany were in violation of eurozone deficit limits for several years early on, and nothing happend. and i would hazard that eu rules are even looser than eurozone rules. my guess is that there's no enforcement.

[astonas]

Re: Does Greece need China?

we need to distinguish between the EU [european union] and the eurozone [countries that use the euro as their currency]. the latter is a subset of the former. greece could leave the eurozone without leaving the eu.

Yes. If it could do so, it should.

My understanding, however, is that due to detailed wording of the Maastricht treaty, the steps it would need to take to leave the Eurozone would cause it to be in violation of the EU rules as well.

That isn't necessarily insurmountable, but it would take time to make the changes in EU law to allow for what must, for pragmatic reasons, be a rapid movement in the EMU.

I'd need to refresh my memory with the treaties to say anything definitive on that, however. It is possible a clever EU lawyer has been working on a loophole.

[jk]

Re: Does Greece need China?

we need to distinguish between the EU [european union] and the eurozone [countries that use the euro as their currency]. the latter is a subset of the former. greece could leave the eurozone without leaving the eu.

[gnk]

Re: Does Greece need China?

What many British and outsiders don't understand is that the EU is not just a (currently faulty, yes) monetary union. It is much more than that. It is an idea. An identity.

The British, due to geography, may never get it. They still have yet to come to terms with the handing over of global power to the USA, and can never stomach a strong Germany or France at the heart of Europe.

The fact that most Europeans believe in the EU, despite the post bubble turmoil, and most politicians are spending countless sleepless nights to ensure a viable EU, to me, speaks volumes.

Arguments within the EU zone are not about questioning the existence of the EU, but on how to move the grand project forward.

I hope Greece stays in - for the EU, and for Greece.

[ProdigyofZen]

Re: Does Greece need China?

That was a great speech.

[jk]

Re: Does Greece need China?

sisci is wrong when he says couples don't stay together to pay the rent. happens all the time- couples stay separated in the same household because they can't afford to maintain 2 households.

[don]

Re: Does Greece need China?

4 minute demolition . . . .

[don]

Does Greece need China?

BY FRANCESCO SISCI on JULY 8, 2015

ROME — As stock exchanges tumble worldwide, pundits try to apportion blame. Some weigh the momentous impact of the Greek referendum that rebuffed a debt settlement offered by the European Union. Others ponder the problem of the Chinese Stock Exchange which lost about a third of its value in a matter of a few weeks. The fact that China’s Shanghai-Shenzhen Index lost the equivalent of ten times Greece’s debt, by some lights, shows that China’s current stock turmoil is far more ominous than Europe’s malaise.

I beg to differ. Behind the roller coaster ups and downs of the Chinese stock market lies a solid national economy and state, rich in foreign currency reserves and armed with many institutional instruments for intervention.

Behind the Greek tragedy, on the other hand, lies a motley collection of states which are a European Union barely in name. Days after the Greek referendum, it’s still unclear if a compromise between Athens and Brussels can still be struck and under what conditions. And though the total volume of Greece’s losses appears much smaller than China, a Greek exit from the Euro zone could trigger the end of the euro as a currency as we now know it. Its demise could also spark the reshaping of the global financial order, where the euro currently plays a key role.

Nothing of this scale is happening at the moment inside China — though the present crisis points to the need for a deep restructuring of the Chinese financial system which is still too dominated by state-owned companies and unsavory insider trading practices.

In Europe the crisis is more complex and goes beyond simple economic accounting. The common people who voted “no” in Greece to the EU offer most likely didn’t understand the deal. They didn’t grasp the concept of Europe as the grander idea behind the euro. Yet no European politician, so far, seems willing to speak on behalf of that European ideal. And in the absence of trust between countries and their peoples, the process of finding a solution to the Greek crisis reverts to a vicious cycle. That is: Brussels tries to puts mounting pressure on Athens and Athens reacts in kind, inviting a revolt of other “delinquent” nations in Southern Europe who already see themselves as suffering under the “German yoke.” This results in more mistrust and bad bargains. This is what is happening in Europe.

There is less maneuvering room for an agreement in Europe right now, especially with respect to Greece. The most ruthless opponents of the EU do not want the euro or want only selfish special conditions.

One note of optimism can perhaps be found in the bizarre story of two ports — both of Greek origin. One is under the rule of Rome and the other under that of Athens.

The ports are Taranto and Piraeus. The two are distinguished by different conclusions in negotiations with their investor, logistics giant Hutchinson Whampoa (Hong Kong). After failed attempts over a decade to transform Taranto into the logistics hub for the Mediterranean and Southern Europe, Hutchinson decided to move from Italy (in theory on the road to recovery) to Greece (in theory on the road to bankruptcy).

None of this celebrates Greek luck in the face of Italian misfortune or vice versa. But it does show the different attitudes the two countries have toward the future.

Greece clearly recognized that it must engage with Asia, the economic dynamo of the world today. It also recognized that such engagement would come at minimal cost, especially when compared with what would be extracted on the European side.

Italy, on the other hand, for reasons still incomprehensible to many, rejected engagement with Asia. Whether a sign of indifference or a short-term strategy, the result for Italy is likely to be very harmful in the long term.

The history of Piraeus perhaps is also a sign that Greek politicians, despite their ostentatious radicalism, may be more pragmatic and strategic than they appear. The Greeks — whether voting “yes” or “no”— wish to remain in Europe. This contrasts with an alleged move by Italy’s Berlusconi government in 2012 to sneak out of the euro zone and return to the lira without warning the rest of the EU.

Greece’s leaders desire a new European pact, beginning with the heavy restructuring of their debt. But this is not just a question for Greece. It is for all of Europe to decide. All parties must first decide in what direction they want the European economy to move. Will Greek premier Alexis Tsipras be in charge or Brussels? In the six years since the 2008 US financial crisis and the current troubles affecting the euro, Ireland has recovered, Spain seems on track, Italy gives positive signals. But despite these upbeat examples, Greece has glaringly destroyed 25% of its national wealth.

Other issues complicate the picture. Young people in Europe don’t understand the orders emanating from Brussels. There is a question of European trust. There is also a lack of democracy since technocrats make most decisions and impose them on elected politicians. There is also the growing populism of demagogues. This is because the financial issues at stake are incomprehensible to most voters, who want simple answers instead.

However, most of this sorry state of affairs, where half of Europe blames the Greek government, is really due to a dearth of European ideals and political unity. Brussels only asks states for numerical financial/economic results and doesn’t care about how those targets are achieved in each country. This is Europe’s biggest weakness: You can’t be unified just because accountants tell you to be.

It takes a project, a common ideology, which for Europeans is absent. Couples don’t stay together to better balance their bank accounts or save on rent. They stay together first and foremost, because they love each other. Accounts must also balance, but you don’t put the cart before the horse. Where is the love in Europe?

In the absence of such ideals, Greece has tried a strategy of brinkmanship, blackmailing Europe and the world on the issue of its financial accounts. It’s unjust and it’s expensive. But in the worst extremity, the EU can still afford to pay off the Greek debts or expel Greece from the euro.
Italy does not have the luxury of such brinkmanship. Its economy is too big to fail and too big to be kicked out of the euro. If Italy tried to do half of what Greece is doing, it would put everyone at risk.

This means Italy has less room to maneuver than Greece. But it’s still likely to be damaged by whatever happens with Athens. A Greek exit from the euro or a major restructuring of its debt puts Italy on the firing line of international speculation. In addition, the campaign of demagogic Tsipras, although it was in vain, incites easy populism in the vein of political party leaders Beppe Grillo and Matteo Salvini, who dream of playing similar roles in Italian politics.

Europe also lacks a common language, since every country speaks its own language, while in Asia all the political elite and intellectuals speak English. The old community of coal and steel, the forefather of the EU after World War II, was created to ensure a Europe free of the threat of a fascist past and the present communist threat. What should Europe really be today? It was not about money in the past it cannot be about money today.

Yet the shadow of money extorted with violence and threats is what present European negotiations over Greek debt seem to be about. Regardless of any agreement that may be reached, Greece has tarnished Europe. The present predicament also shows why the EU must rise above its current battle over accounts in order to survive.

Today, how does a European leader try to define European ideals and the region’s geopolitical boundaries? Where are the limits? In Ukraine or beyond? In Turkey, Morocco, or farther away? In theory the Chinese project to recreate a new Silk Road and relaunch the Mediterranean ports could help shape a new European identity. The project would serve as a terminus of a great economic exchange and social and political system that would give meaning to all the different parts of Eurasia along the Silk Road.

These are ideas that Brussels should consider when talking to Athens. But it may be that Athens is setting the terms of its union with Europe and that larger issues such as greater engagement with China will fall by the wayside. Tsipras’s electoral victory shows Greek voters are scared, unemployed, and impoverished. It is a victory of weakness, not of strength, and this weakness could bring down everything.

Angela Merkel, the virtual heir of archduchess Maria Therese of Austria, must find a voice to speak to the hearts of her people, the European people, and not to their wallets. Meantime, in very practical terms, she and President Francois Holland of France, must quickly find a way out of this mess. History will judge them all.

[gnk]

Re: Does Greece need to borrow?

A Central Bank is never broke, nor is a nation. The sooner you go back to the Drachma and a Greek Central Bank the sooner things will get better. Admittedly not until after inflation and devaluation.

That's the economic theory, and I agree on a theoretical basis. BUT:

1) We have some very extreme Marxists in government right now that want to create a Soviet style republic, nationalizing just about everything they can. We're not talking a soft socialism Swedish model here, but a Venezuelan model. What value will the international markets place on a currency managed by such a government? Keep in mind, Greece's top imports are petroleum and medicine and it currently runs a trade deficit.

2) No matter what government is in power, it will be corrupt. They all are. Furthermore, there are billions of Euros held by Wealthy Greeks in offshore accounts. That money will come back after the severe devaluation of assets, (which will be followed by a likely overthrow of the current government) and many of these investors will be the new (old?) oligarchs. They will bribe government officials first, and then bring in their money and buy everything on the cheap.

We will witness in just two years what took decades to occur in the old Soviet republics.

My point is, you can't just apply sterile economic theory. You have to know the political situation.

[santafe2]

Re: Does Greece need to borrow?

A Central Bank is never broke, nor is a nation. The sooner you go back to the Drachma and a Greek Central Bank the sooner things will get better. Admittedly not until after inflation and devaluation.

You touch on a key point PoZ. The day Greece joined the EU they ceased to be sovereign. They traded their sovereignty for economic convenience without the sort of support a poor unsovereign state in the US would expect to receive. Greece is the Mississippi or New Mexico of Europe. We give our states cute little states rights, but only as long as those rights follow directives from Washington DC. As Americans, we get that this is how our economic and political system works. The folks in Mississippi don't agree with the folks in Massachusetts but they love the subsidy. Massachusetts isn't imposing austerity on the Magnolia State and California isn't demanding reparations from us in New Mexico. We never pay our fair share. The good people of California and New York and other net contributors to the federal government never complain when we take their money to support our under performing states.

Greece was a trophy for the EU but the net economic contributors are still stuck in the early 19th Century where they could pimp the entire world and none of them are smart enough to understand the value Greece offers the EU. It's the seat of Western civilization. In the US, Mississippi and New Mexico take $3 for every $1 we pay in. Where's the German style outrage in the US? Why didn't we hear about German outrage when they took on East Germany? I like Germany well enough but they have spreadsheet intelligence and they've always been the worst sort of racists. This economic experiment isn't going to end well if they don't grow up.

[ProdigyofZen]

Re: Does Greece need to borrow?

The economy and tax revenues are collapsing right now. The surplus has been kissed goodbye for some time now.

Greece is beyond broke and is bordering on third world soon.

A Central Bank is never broke, nor is a nation. The sooner you go back to the Drachma and a Greek Central Bank the sooner things will get better. Admittedly not until after inflation and devaluation.

[ProdigyofZen]

Re: Will We All Be Greeks?

Many worthless pundits, may I add, with their own agendas, good intentions or not. Too many theoreticians that are immune to the consequences either way, and with little local knowledge.

I don't see many posters here posting articles written by Greeks actually living in Greece - both pro and con articles.

And to think, we live in the "information age" where everything is accessible.

My question for you GNK is and don't take this the wrong way, "what do you stand to lose if Greece exists the Euro?" "What is your line of business in Greece?"

[Fiat Currency]

Re: Galbraith on Greece

actually euro notes, currency not electronic totals, are printed by the national central banks, including the greek national bank. they will have a Y in their serial numbers to identify that it was the greek bank that printed them. i can imagine people all over europe examining every piece of currency they get in an exchange.

Yes - and if they leave the Euro, all those Y notes will get marked with a red Sharpie, trade on par with the IOUs, eventually trade on par with the new drachma, and then be taken out of circulation and destroyed with a percentage being kept by a few people for nostalgic and numismatic reasons.

They should just mint a 50 drachma coin with 1/2 oz of silver in it.