The killing of Greece

As you have probably heard, the Greek parliament, if you can still call it that, has passed the austerity bill. Overnight Athens has erupted in protest with a reported 80,000 people on the streets and up to 30 buildings on fire.

All of KKE, Syriza and Democratic Left members voted no, as well as 21 New Democracy members and 13 Pasok members. Laos members also voted No with their leader absent. All but one Democratic Alliance members voted Yes.

The political fallout is in full swing as I type, with Antonis Samaras expelling 21 members from his party and George Papandreou doing the same. 43 members in total have been removed.

What a complete mess.

What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.

However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.

So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one. Worst still their refusal to work cooperatively and misguided policies based around “expansionary fiscal contraction” have plunged Greece into a depression which threatens contagion to other weak economies. Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.

That being the case, the idea that all these cuts and bailouts will somehow lead to Greece having a debt to GDP ratio of 120% by 2020 appears as misguided as the initial policies.

So what happens next?

Well there are still a number of hurdles. The EU still has to approve the bailout deal and it is yet to be seen if the country’s political parties can cope with the fall-out given there is supposed to be an election in 2 months.

If we ignore all these problems, along with the fact that the European banking system is shrinking, Portugal suffers from similar problems and Spain is the elephant in the room, then we could see some stability return to financial markets over the next few months. If this does occur then Europe has a window of opportunity to finally implement a permanent and credible solution.

Well, at least until Greece or one of the other periphery suggest the need for another bailout.

Comments

  1. Not really surprising at all. This is a typical outcome of so-called “representative government”.

    • I’ve thought for a year this was a probable outcome (ditto Spain), and still do, although last week another commenter gave a reasoned view why that wouldn’t happen.

      civil unrest would presumably have to get decidedly worse.

      • With all respect, given the history of Spain, they will never again allow a military dictatorship. IN 1975 they essentially said “No mas pronunciamento” (sorry about the rubbish Spanish grammar, Hablo muy poquito español).

      • How much worse though? At the rate they are going, a third of the populace will be unemployed by years end, and with no (obvious) way out for the average battler, the urge to riot/loot will start to become overwhelming. This provides the military with the perfect opportunity to step in, but I do think it may be tempered by other political considerations, such as how Turkey would react to a Greek military in charge.

      • For your benefit Delraiser I will explain why there will be no military coup and also why there is in fact no precedent.

        A quick political history of Greece will show that contrary to popular belief, there has never been a strong right wing political presence within Greece, and indeed there has never been a strong identifier of the military as a source of stability either politically or militarily ( a la Egypt or Turkey).

        This stems from the ability of the Greek Communist forces to weave their actions into the overall Greek historical narrative. Their success in fighting the Germans in WW2, but more importantly the assassination of the movement by the West emboldened the movement and discredited the Right Wing movements as an agent of Western interests – an agent who will always go against the will of the people.

        The imposition of the colonels, was perhaps the redeeming factor in the resurgence of the left as they were able to manipulate the half truths and present to the people an image of the colonels (which to be fair is true) as a violent and ruthless evil regime. The complicity of the military is a defining memory which to this day runs vivid in Greece.

        The strength of these images explains why the KKE and Democratic Left are so strong, and LAOS is so weak, but it does not of itself explain why there will be no military coup. All it explains is that there will not be a coup engaged by the right wing.

        However, for the Left to instigate a military overthrow is to be frank absolutely ridiculous. It would perhaps be refreshing to highlight that since the coup the military has not been a vehicle to be driven for political ends. Its growth has been independent of domestic politics and as has recently been identified in the Ergenekon revelations, its growth has been justified as a counter to ultra-turkish nationalist fervour.

        You would be much wise to find a coup movement be formulated from within the Church rather than the army. To emphasise this point, the Papandreou dismissals of all heads of military staff underscores their reluctance to interfere in any form of domestic politics. Their future as an institution depends on the will of the people. Greece is not Egypt or Turkey.

        The military is not independent of criticism nor is it presented as a saviour. It serves to safeguard Greece from external pressures and any attempt to interfere will break society in half. Thankfully, the military understands its place and acts with reluctance and reasonableness in the face of domestic and external pressures.

      • I’m just throwing an idea out there……unlikely as it is. I take your point on the apolitical nature of the Greek military, but the civilian government may find itself in a fair world of hurt if the populace get jack of being screwed over to serve external interests. At some point, what measures need to be taken to contain wholesale civil unrest

      • Okay my modern greek history came from watching Z so I bow to your greater knowledge, but …

        why not martial law following escalating anarchy and civil unrest if civilian government proves itself incapable of managing events?

  2. FT economist and editot Wolfgang Munchau says

    Some say it would be better to force Greece out of the eurozone right now, and use the funds to save Portugal. I disagree. I personally believe it would be best to recognise the desolate state of both countries, let both default inside the monetary union, and then use a sufficiently increased rescue fund to help them to rebuild themselves, and to ringfence the rest at the same time.

  3. Government members being kicked out of parliament because they didn’t vote a certain way?

    Or are they simply being removed from the parties but still maintaining their seats?

  4. Without wanting to sound like an Anarchist, the Greeks don’t need another European bailout. What they need is another Thermopylae!! Goldman Sachs is Ephialtes reincarnate. The country brought to its knees by not by the treachery of one man but by one company. Not by the “Million Man Army” but by excessive credit.

    Are there any “Spartans” left in Greece (or Melbourne)? Who will man up the “Gates of Hell” or has the debt fueled existence make them lazy and scared of the pack of wolves that is staring them down?

    • Frankly, given the state of “representative democracy”, being an anarchist is about the only logical position to take!

  5. “Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.”

    The conditions attached to bailing out a country are never going to be designed to make that country more competitive with the countries imposing the conditions. That’s why all such bailouts should be rejected a priori.

    • With all respect, given the history of Spain, they will never again allow a military dictatorship. IN 1975 they essentially said “No mas pronunciamento” (sorry about the rubbish Spanish grammar, Hablo muy poquito español).

  6. Just my 2 cents: All EuroZone countries need to disband and take back their sovereignty by severing investment from commercial banking with Glass-Steagall as propounded by Tremonti, Cheminade, and Zepp-LaRouche. Then adopt American credit system via fixed exchange to rebuild, and participate in building Umka with Russia, MagLev Land Bridge, etc.

    Solon would be ashamed of the current unfolding Gate to Hell.

    • Thats an incredibly complicated post for only 5 lines – you’ve basically covered the Gamut of economic academia, trans-atlantic policy, eurasian reconstruction and Greek history – phenomenal if only for the fact you have strung this all to together without a single joining narrative. In other words, …-please explain, or are you Zizeck and obfuscating as a cause belli ?

  7. It is extraordinary that official lenders to Greece are imposing such harsh terms – and that the Greeks have accepted them – in full knowledge that the Greek economy will fall further into depression, that the budget therefore will also deteriorate and the bail-outs must inevitably fail. They have quite wittingly chosen a path to failure, collapse and still more recrimination and division.

    The deal is supposedly premised on a return to growth in 2013. Yet there is no credible mechanism to explain how or why this will occur.

    What we do know is that growth in the Greek economy in the past has invariably been accompanied by a current account deficit. There is no reason to suppose things could be different now, especially as Greece is already trapped in a spiral of depression. Since Greece cannot finance an external income deficit, it follows there can be no growth in its economy. On the contrary, ever-worsening contraction is in prospect, leading inexorably to further wastage of their economy, repudiation of their debts and exit from the Euro.

    Until the Greek economy receives direct fiscal support and aid to re-figure and re-orient their economy, there will be nothing but misery in Greece and the threat of contagion in the rest of Europe. This of course threatens to exacerbate the sovereign debt burdens of the major Euro economies and to generate political hostility towards further reforms of the
    Euro system in general.

    There is no doubt that policies towards Greece are driven by political considerations in the surplus economies, rather than by measures that could actually restore economic health in Greece and the other deficit economies. This all reeks of intentionally-inflicted duress – a policy of punishment by another name. What it means is that rather than being an instrument of economic and social advancement, the EU has now become a source of repression in the Euro-periphery.

    What is also now explicit is that the EU is intended to become a series of export-oriented zones: the new model for the Euro economy is that every economy will have to achieve external balance, not merely the EU-zone as a whole. If this does come to pass, then the existing imbalances that are evident in the global economy will only worsen.

    What we have seen in Europe is the breakdown of economic stability because of systemic balance of payments crisis. What is now proposed is to transfer balance of payments pressures away from Europe towards the rest of the world. This is of course an ultimately self-serving goal which will only lead to greater global imbalances over time.

    All of this could be ameliorated by currency reform within the EU and by reform of the global reserves system. I suppose we are all heading there eventually. In the meantime, the prelude for this is completely avoidable hardship, recurrent volatility in financial markets and the menace of political unrest.

  8. Killing and plundering of Greece more like. The asset sales are behind schedule, and those private equity guys might get bitten IMO.

  9. I hate to put on the tin foil hat, but Im afraid we all know Matt Taibi has left us no choice when looking at these things.

    I recall that the Greek debts were logged up based on very, very dodgey accounting procedures by Goldman Sachs who helped them conceal the true amount of their debt in order to secure their debt – if this is true it has profound ramifications for what is going on – to be fair, how else did they get it ?

    I have also read some fairly reliable descriptions of the financial raids being conducted against these debtor nations by the likes of Goldman – just as they went after the US in response to AIG and its bailout – makes absolute sense.

    I have not looked at the figures involved in the Greek Bailout relative to GDP – but if one of our esteemed MMT theorists could please explain why is it that the US can bailout any state it so pleases with FIAT money, but the EU can not bailout any state it so pleases with its own FIAT money ?

    Makes no sense.

    • Yse – Goldman Sachs helped hide their debt in order to secure more loads

      http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all

      http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8wj2A4RttMQ

      And shorted

      http://www.forbes.com/sites/streettalk/2010/02/18/goldman-sachs-shorted-greek-debt-after-it-arranged-those-shady-swaps/

      So basically – the Greeks are being forced to pay for dodgy accounting used to hide fraud – um – the rest of them need to get out on the streets.

      Here is a photo doing the rounds at the moment – the Greek parliament was watching football while outside Athens was on fire – pretty damaging.

      http://i.imgur.com/cuH8z.jpg

      • “Here is a photo doing the rounds at the moment – the Greek parliament was watching football while outside Athens was on fire – pretty damaging.”

        I suppose it is easier to understand the game when the players stick to the rules!

    • but if one of our esteemed MMT theorists could please explain why is it that the US can bailout any state it so pleases with FIAT money, but the EU can not bailout any state it so pleases with its own FIAT money ?

      because the Euro is not a fiat currency.

      • The Euro is issued by the European central bank and governed by the EU (the government of the EU), how is it different ???

      • This says otherwise

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

        Hmm, it IS a Fiat currency,
        thats why they had the Maastricht treaty to prevent countries from over debting beyond 35 of GDP, this was flouted by Greece with the assistance of Goldman as I have already pointed out.

        Thanks Rusty Penny for ??? Nothing? Why answer if you haven’t a clue ? I don’t get that.

        http://mises.org/daily/5700

        So the question still stands…..just pay the debts and move on – which is what is happening but Germany / France is forcing austerity.

      • Under the wiki link you provided, and i agree with, there are 3 conditions to a fiat currency.

        * any money declared [b]by a government[/b] to be legal tender.
        * [b]state-issued money which is neither convertible by law to any other thing[/b], nor fixed in value in terms of any objective standard.
        * money without intrinsic value.

        The euro is a common currency, but it only meets 1 of the 3 criteria above.

        Firstly it is not issued by a government, the EU has no fiscal control over the member states.

        Secondly, the principal of a fiat currency, as not backed by a commodity for example, is that it is backed by the domestic product of a country. So while a common currency, the money that is spent is Germany is not backed by greek products, and vice versa,even though the currency is common.

    • It is helpful to realize that in the sense that it has not been able to make its debt payments on time and in full since 2008, Greece has already defaulted in practice of not in name. It is about to do so again. It has been able to avoid technical default because other parties have filled the gaps.

      The moment others cease their support for Greece, de jure default will be automatic. It is not possible to predict when this will occur, but it is likely to be sooner rather than later. This is because Greece will not achieve anything like fiscal balance while it remains in the Euro-zone and while it is being forced to deflate.

  10. “However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.”

    That outcome is certainly not a coincidence.

      • Not sure about the timing, but the results are clear. They don’t trust other Greeks not to cheat the tax system, so they all cheat. Example: all property in Greece has two prices, the actual price and the (much lower) price declared for transfer duty purposes. Every member of the Greek parliament has declared any property they own at the low price. Example two: no doctor in Greece earns more than the income tax threshold.

  11. The roof, the roof,
    The roof is on fire.

    The roof, the roof,
    The roof is on fire.

    We don’t need no bailout let this motherf**ker burn,

    Burn motherf**ker, burn.

  12. “What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.

    However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.”

    Your statements imply that the Greek government, if it had been given that full 260Bn would have used it wisely….I doubt it. The even deeper hole the country is now in can be explained by them not using at least some of the original funds wisely…
    Bear in mind the current statements about not ‘trusting the promises of the Greek government’ on the part of several other countries suggest very strongly that the money handed over so far has not been used wisely. The comments from the Germans about suggesting the actual expenditure should be controlled from now on by a third party reinforces that view.
    If the Greeks feel aggrieved about their treatment from fellow EU members let them go to the market place for the money they need….oh wait, no one wants to lend them any money….now why is that?