Will There Be Another Last Minute Reprieve For Greece?

[Guinevere]

SO banks who made stupid high risk loans, blindly, and without thought about the longer-term consequences are "too big to fail" but Greece is not?

[Lord Jim]

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank.

This bozo thinks that Greece's problems (which were decades in the making, caused by successive irresponsible and/or corrupt governments) began in 2010, and are the fault of those who were trying to help them get out of the economic pig sty they had built for themselves?

Gee rube, thanks for providing yet more proof that winning a Nobel Prize is no inoculation against being a complete moron...

[Econoline]

JUN 28 5:37 PM
Grisis

OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.

Clearly, though, some decisions now have to wait on the referendum.

I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.

JUN 29 7:10 AM
The Awesome Gratuitousness of the Greek Crisis

Barry Eichengreen asks himself why his influential analysis, suggesting that the euro was irreversible now appears wrong. Surely in a direct, mechanical sense what we’re seeing is the process I warned about five years ago:

Think of it this way: the Greek government cannot announce a policy of leaving the euro — and I’m sure it has no intention of doing that. But at this point it’s all too easy to imagine a default on debt, triggering a crisis of confidence, which forces the government to impose a banking holiday — and at that point the logic of hanging on to the common currency come hell or high water becomes a lot less compelling.

But doesn’t the ultimate cause lie in wild irresponsibility on the part of the Greek government? I’ve been looking back at the numbers, readily available from the IMF, and what strikes me is how relatively mild Greek fiscal problems looked on the eve of crisis.

In 2007, Greece had public debt of slightly more than 100 percent of GDP — high, but not out of line with levels that many countries including, for example, the UK have carried for decades and even generations at a stretch. It had a budget deficit of about 7 percent of GDP. If we think that normal times involve 2 percent growth and 2 percent inflation, a deficit of 4 percent of GDP would be consistent with a stable debt/GDP ratio; so the fiscal gap was around 3 points, not trivial but hardly something that should have been impossible to close.

Now, the IMF says that the structural deficit was much larger — but this reflects its estimate that the Greek economy was operating 10 percent above capacity, which I don’t believe for a minute. (The problem here is the way standard methods for estimating potential output cause any large slump to propagate back into a reinterpretation of history, interpreting the past as an unsustainable boom.)

So yes, Greece was overspending, but not by all that much. It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170 percent of GDP despite savage austerity?

The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits. But that, surely, is the deep question here. If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.

[Long Run]

SO banks who made stupid high risk loans, blindly, and without thought about the longer-term consequences are "too big to fail" but Greece is not?

Except there was a reasonable probability (which came to pass) that the banks, and other big financial institutions, could not only survive, but also pay back all of the bailout money with interest. What is becoming clear with Greece is that it cannot pay back what it owes, and cannot even figure out how to get close to being break-even without regard to its debt, so there is no reasonable probability that it can survive unless someone (i.e., taxpayers of other countries) agree to pay back some or all of Greece's debts. Greece isn't asking for a bailout, it is asking for a gift.

[Econoline]

JUN 27 4:13 PM
Europe’s Moment of Truth

Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity — don’t let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment.

As a political matter, the big losers from this process have been the parties of the center-left, whose acquiescence in harsh austerity — and hence abandonment of whatever they supposedly stood for — does them far more damage than similar policies do to the center-right.

It seems to me that the troika — I think it’s time to stop the pretense that anything changed, and go back to the old name — expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen.

But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he’s being irresponsible, but he is, in fact, doing the right thing, for two reasons.

First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn’t, we need to know that, too.)

Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it’s even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.

If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can’t at all blame Tsipras for turning to the voters, instead of turning on them.

[Lord Jim]

If you ask me, it has been an act of monstrous folly on the part of the creditor reckless and irresponsible Greek governments and institutions to push it to this point.

Fixed

[Big RR]

To be fair, you offer free drinks to an alcoholic and they'll likely take it; you offer credit to a country in economic straits, like Greece, (mainly because if they default you'll have to take a loss, but keeping a loan, regardless of how unlikely it is ever to be repaid, on the books will allow you to stave off that ultimate loss) and they will grab it. Both sides are to blame, and the banks have little if any interest in helping Greece, but every interest in being required to show a loss this big on their books.

[Econoline]

One more from Jim's favorite economist this one from last week (before the other three blog posts of his that I've quoted above):

JUN 25 7:22 AM
Breaking Greece

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.

Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

To keep blaming the Greek people is to refuse to see the immense depressive effect of the last five years of austerity and to hope that continuing the same policies forever will somehow magically create more money. Let's see....we've already got the turnip in the blender and the dial set on 'CHOP"....maybe if we turn the dial all the way up to "PUREE" we'll finally get some blood?

[Lord Jim]

One more from Jim's favorite economist

No, that would be The Idiot Krugman...

This guy's just my second favorite moron economist...

To be fair, you offer free drinks to an alcoholic and they'll likely take it

Okay, to go with that analogy...

How does clearing their bar tab, (which is what saying, "That 300 billion you've been loaned? Fugetaboutit...would mean) and giving them a whole bunch more money to buy booze with, ("stimulus money") solve the problem?

[BoSoxGal]

If there is ANY risk whatsoever that this situation could harm the U.S. economy and global economy because the banks won't give Greece a break I'm gonna be pissed!!

[Lord Jim]

Despite the fact that the Greeks, and the Greeks alone, are responsible for the the mess they're in, there is a reason (a very good strategic reason) for why The West should overlook the irresponsibility of the Greeks getting themselves into this fix, (and even the reckless arrogance of their idiot Prime Minister)...

It has to do with geography...

With an expansionist Russia on the prowl, it's not inconceivable that Putin could work out some agreement, (even though his own country is on the skids financially) for Greece to cancel it's debts to The West, (with the negative impact that would have economically in Europe and the US) in exchange for some operating capitol from Russia...

At the price of course, of Greece leaving NATO, and providing Russia with a Mediterranean Naval and Air Base...











that's a lot more plausible scenario then Russia invading Alaska...

[Econoline]

Jim, I thought you would have realized that all four of those blog posts I quoted above were from Paul Krugman's blog, The Conscience of a Liberal. (If you'd clicked on any of the links included, you'd have seen that immediately.) I was more interested in how you'd argue with the substance of those particular posts, than in finding out that you still hate Krugman, which I could have guessed already...

[Lord Jim]

in finding out that you still hate Krugman,

Why do I keep getting accused of "hating" people who's judgement I simply I have no respect for?

I don't "hate" Krugman; for all I know he may be a very good father and husband; certainly not a person worthy of "hate"...

I don't know the man well enough to "hate" him...

I'm not a "hater"...

On top of that, I didn't know you were referring to Krugman, I thought you were talking about this Stiglitz garbanzo that His Rubeness was quoting with his cut and pastes...:

Joseph Stiglitz
Economist
Joseph Eugene Stiglitz, ForMemRS, FBA is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal. Wikipedia

ETA:

But I have to say, I'm not surprised to learn that The Idiot Krugman would be making the same sort of brain-dead arguments as this Stiglitz character...

The pair of them prove quite conclusively what I said earlier...

Winning a Nobel Prize is no inoculation against being a complete moron....

ETA II:

I just for the first time followed your link, and discovered that your article, (as opposed to rube's, which was written by The Idiot Stiglitz) was written by The Idiot Krugman...

I apologize for not having followed the link earlier, so I could keep the idiots straight, and give proper credit for their respective idiocy...

[Gob]

[Lord Jim]

What a bunch of hater countries...

They should just write off all that money, and then give Greece a whole lot more to spend for "stimulus" because the Greeks have established such a proven record for spending money given to them wisely...*


















*In case anyone was unsure about it, that was "sarcasm".....

[Crackpot]

If there is one simple truth to this situation is you can't austerity your way out of recession. the bailout loans themselves were a recipe for failure. Really all the bailout loans did was allow for enough time for the Eurozone to stabilize so they could withstand the exit of Greece. (While simultaneously destroying the Greek economy)

[rubato]

http://equitablegrowth.org/2015/06/30/m ... ek-crisis/

Must-Read: As I first said back in 1995: Yes, Mexico had sinned against the Gods of Monetarism. But the punishment inflicted was way out of proportion to the initial sin, and strongly suggested deep fundamental flaws in the international macroeconomic order. The same is the case for Greece today.

Paul Krugman: The Awesome Gratuitousness of the Greek Crisis: “But doesn’t the ultimate cause lie in wild irresponsibility on the part of the Greek government?…

…What strikes me is how relatively mild Greek fiscal problems looked on the eve of crisis. In 2007… public debt of slightly more than 100 percent of GDP… [a] fiscal gap… around 3 points, not trivial but hardly something that should have been impossible to close…. So yes, Greece was overspending, but not by all that much. It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170 percent of GDP despite savage austerity? The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits. But that, surely, is the deep question here. If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.

... "

yrs,
rubato

[Econoline]

What a bunch of hater countries...

They should just write off all that money, and then give Greece a whole lot more to spend for "stimulus" because the Greeks have established such a proven record for spending money given to them wisely...

So you (and the IMF) are insisting that the past five years of austerity have had *NO* effect on the Greek economy, and on their ability to repay their debts? What solution would you recommend? Five more years of even more stringent austerity? Ten years? Fifty years? Is there ever a point at which you have to give up and re-evaluate your tactics?

As I quoted (from Krugman) yesterday and rubato quoted from the same article just now: "If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable."

ETA: Is the plan, perhaps, to wait until the Greek unemployment rate is 100% and the last actual Greek citizens have left for greener pastures in the US and Australia...and then to repopulate the empty country with Germans? *

*In case anyone was unsure about it, that was "sarcasm".....

[Gob]

Greece is nothing but a money pit.

Greece will need an extra 50bn euros ($55bn) over the next three years to stabilise its finances under the existing, disputed bailout plans, the International Monetary Fund (IMF) says.
The IMF also cut its forecast for Greek economic growth from 2.5% to zero.
And it repeated its earlier suggestion that Greece needed debt relief in the form of extended repayment periods and lower interest rates.
The report comes ahead of Sunday's referendum on existing bailout terms.

[rubato]

Mississippi is nothing but a money pit:

$141 Billion

Alabama is nothing but a money pit:

$166 Billion

S Carolina is nothing but a money pit:

$88 billion

Tennessee is nothing but a money pit:

$482 Billion ( WOW!)


Conservatives really are shiftless losers.


yrs,
rubato

Totals only go to 2005 so they are far higher now.