Time-Bomb of Athens ?

Off-Topic Off Topic
#1

As I write, the Greek government and the European Union “Euro Group” are locked in conflict over how the collapse of the Greek banking system and economy is to be avoided. There had been some speculation (in Athens, hope) that Greece would be supported by other “peripheral” Member States that had been subjected to the yoke of a tripartite “bailout” - Spain, Portugal and Ireland - as well as states that were suffering similar economic problems, notably Italy. Not at all. Rather than rousing resistance to the onerous “bailout” model of relief, the rest of the Eurozone has shown a hard, common front against Greek demands. The Council of Ministers Eurogroup has gone so far as to administer an unusually public slap-down to the European Commission, which attempted to advance a somewhat conciliatory plan. German diplomacy, behind the scenes, undoubtedly did much to produce this situation.

There are two possible scenarios. First, the Greeks back down, and accept a bailout extension (at least an interim one) with highly restrictive fiscal provisions. This would allow Greece to limp on under its onerous “bailout” arrangement, its government effectively transferred to its “Troika”. It might also destroy the credibility of the Greek government overnight, with serious implications for the country’s stability. The other is that the Greeks will not blink - resulting in the probable collapse of the Greek banking system and unpredictable adverse consequences for the EU banking system generally, and for global currency and banking stability that could extend far from Greece itself.

Only days to go. Interesting times. Yours from Constitution Square, JR.

#2

As I write, Wednesday, 19 February, the war of words between Greece and Germany continues. Germany insists on Greece staying under the “Troika” yoke; Greece accuses Germany of arrogance, accusing it of behaving as it did towards Greece in WW2. One might mention a certain absence of panzers. But then, much of Germany’s approach to “Europeanism” in recent decades has been characterized by Eurosceptics as “conquest without panzers”.

These Greek references to WW2 are not particularly helpful now, but they are understandable. Greece has a particular issue with Germany, not common among occupied countries, insofar as the Nazis looted the Greek banks at time by means of forced “loans”, for which compensation was never paid. This noxious legacy is clearly poisoning the German/Greek discourse at this critical time. What were the words put in the mouth of the Emperor Claudius in “Claudius the God” - “Let all the poisons that lurk in the mud hatch out” ? This one is certainly hatching out, literally, with a vengeance. It raises an interesting question for the “peacemaking” European Union. When things are going well, the dangerous legacy issues of the past are easy to bury. When the pressure is on, they tend to “hatch out”. How many more may be lurking around Europe, awaiting just the right pressure point to cause them to “hatch out” ? Answers on a postcard … Yours from the Bunker, JR.

#3

The Greek claims relating to German occupation during WWII have some validity, in the senses that:

  1. The forced loan to Germany in WWII deprived the Greek economy of capital to operate, which was exacerbated by other aspects of the German occupation.
  2. The Marshall Plan required Greece to abandon claims if it wanted post-war aid under the Plan, which probably gave Greece a lot less than its fair share of reparations. http://www.economist.com/blogs/freeexchange/2012/06/economic-history
  3. Like the Marshall Plan, the 1960 and 1990 agreements had elements of major powers dictating terms to Greece as a minor power to accept what it was given, rather than what might have been its fair entitlement in contemporary money.

Against those aspects:

  1. The Greek economy was in a very poor state after the Germans left, but in a far worse state after the end of the Greek Civil War 1946-49 which had nothing to do with the Germans.
  2. The Greek economy would have been in a very much worse state post-war but for the Marshall Plan aid provided to Greece.
  3. Continuing Greek political instability post-war contributed to economic problems, with the Civil War, Colonels’ junta, and various experiments with democracy denying Greece the same sort of stability that Western Europe, notably Germany and France which are now the main players in the Greek debt issue, enjoyed during the same period for their strong economic growth.
  4. Greece was, by Western European standards, a pretty backward economy before WWII, and remained so for much of the post-war period.
  5. Greece has benefited from the support of stronger European economies, notably Germany.
  6. Raising inadequate war reparations to avoid paying properly incurred post-war debts to keep Greece afloat reeks of trying to weasel out of paying just debts rather than pursuing any moral or legal claim when those moral or legal claims were subsumed in the Marshall Plan and 1960 agreements and not raised until the rest of the world currently wants Greece to pay its just debts.

I’m inclined to think that Germany got off lightly so far as reparations to Greece were concerned, but the Greeks have certainly made huge contributions to their own economic instability by the events mentioned as well as endemic corruption for much of the post-war period.

My inclination is that the argument for currently offsetting some or part of Greece’s debt for inadequate German reparations makes sense only if one ignores Greece’s own significant contribution to its own economic woes and it’s a case of a desperate nation clutching at straws rather than pursuing a deeply held and justifiable moral or legal claim.

If one wants to pursue historical claims for Greece’s economic problems, there is a much stronger case for the much, much longer occupation and exploitation of Greece by Turkey, which led to Greece being a fairly weak economy before the Germans invaded to rescue the failing Italian invasion in 1941. Which leads to Greek claims against Italy, if Greece wants to be consistent.

#4

Sitting within the Eurozone, it is in some ways difficult to sympathize with the Greece. It should not have adopted the Euro - it was not remotely ready for this change, and only obtained admittance by falsifying its own national accounts, an act of insane irresponsibility from the viewpoint of other EU Member States. The Greek banks (along with their Cypriot cousins) built a huge business on laundering dubious Russian money. Greek governments have been consistent in ignoring the need for reform of a corrupt, incompetent, bloated public service, that includes a very substantial (and mismanaged) commercial public sector. As a result, when the general crash came and the Russian money dried up, the Greek economy - with little in the way of tradeable resources and production - was exceptionally vulnerable to the prospect of a super-crash, as actually eventuated.

However, we now face a complex problem. The Greek economy - the export products of which largely consist (apart from shipping services) in olive oil (highly competitive market), wine (highly competitive market) and tobacco (heavily subsidized by EU, and unsmokeable) - has spent the last few years under the yoke of a particularly harsh regime of Troika/“austerity” rule, which has prevented any possibility of Greece “expanding” out of its crisis. The Greek people, as a result, are under severe economic pressure, beyond anything which other “Troika” countries have experienced. The Greek electorate has now emphatically rejected the Troika/austerity model that has reduced them to penury. The Greek government rejects the continuation of “Troikaism”; the Germans have rallied just about all of the rest of the EU in insisting that, if Greece is to continue to receive assistance, it must be in a “Troika/bailout” model, even by name. Unless this impasse is unjammed, the Greek banks are faced with collapse, and Greece is faced with exit from the Eurozone like Indiana Jones in his refrigerator.

However badly the Greeks have behaved, it is hard to see how the collapse of its banking system and self-expulsion from the Euro would be in anyone’s interest - not least that of Frau Merkel’s “Fourth Reaich”. The consequences are truly unpredictable. Euro-wide destabilization is a strong possibility; worldwide destabilization (by way of Euro destabilization) is distinctly possible. The whole “Euro project” - the basis for Germany’s “neo-mercantilism” in Europe - could collapse. However otiose it may be, there is a strong case for coming to some sort of settlement (at least a short-term one) between Greece and the “Eurogroup” in the few days remaining to achieve it. The continuing war of words (and insults) between the antagonists do not promise it at this point.

Oh well. I suppose the usual EU way is to achieve a compromise (often temporary) at the last moment. However, the Greeks show no sign of yielding, any more than do the Germans. We shall see. Watch this space. Yours from the Frankfurt Tower of Mystery, JR.

#5

I wonder if Greece is just another example of the tail wagging the dog in the modern world, along with ISIL, Israel, North Korea and sundry other minor, bandit or rogue states which cause problems out of all proportion to their geographic, economic or population significance.

#6

The Greek government has now repeated its request for a “bridging loan” for six months, allowing for a hoped-for re-negotiation of the terms of support for the bankrupt Greek economy. Germany quickly rejected this proposal, insisting on continued “Troika”/austerity arrangements. There may be scope for coming to some temporary arrangement around this; however, the fiscal straight-jacket implied by continuing “Troika”/bailout will be very unpalatable to the Greek government, not least because it could result in a total loss of political credibility. Who will blink first ? Can this impasse, even at this stage, be fudged ? We shall see. JR.

#7

My expectation is that the rest of the EU will decide that the unpredictable and potentially disastrous consequences of Greece leaving the EU or collapsing further economically will result in some sort of accommodation to Greece, which is probably just extending its current debility with no recovery in sight.

Or maybe the rest of the EU will see that there is little point in prolonging Greece’s agony and insolvency, and crunch it now. If so, stand by for a bumpy economic ride.

#8

I tend to agree - although the issue here is substantive, not just presentational. Greece wants to agree “principles” which, as far as I can make out (no details from Athens) would allow them a degree of fiscal discretion, albeit subject to “consultation” with its Eurozone partners. Germany seems to be adamantly opposed to this, understandable, as the German government would have to explain to its parliament, and its electorate, why further relief for Greece (effectively out of Germany’s pocket) is justified, or at least expedient. The confrontational approach of the Greeks clearly frustrates the Eurocracy, which is used to deciding issues on the basis of compromise brokered between bureaucrats and rubber-stamped by ministers. Not since the days of Charles de Gaulle as President of France has this sort of confrontation occurred.

There is a strong case for Greece exiting the Euro in its own long-term interest. However, neither the Greek government nor its electorate wants this - understandable, in view of the implications for their banking system and the value of savings. Also, while extensive and comprehensive planning went into the introduction of the Euro, there is no planned exit strategy for member states leaving the Single Currency. At this moment, I have no idea how this will pan out and, I suspect, neither do the parties involved in this confrontation. Interesting times. Yours from the Justus Lipsius Bunker, JR.

#9

The central problem is that, no matter how profligate and corrupt the Greeks may have been, harsh austerity wasn’t and isn’t going to cure it.

Personal debt can be reversed by austerity measures, but the same doesn’t work for nations because they aren’t simple money in / money out accounts.

Put simply, if my personal spending exceeds my income the solution is to rein in my spending until the savings correct my debt as long as I’m employed, but that doesn’t work for a national economy because reining in spending excessively causes reductions in national economic activity which reduce whatever surplus might have been produced to pay the national debt and, as predictably (by me, anyway, but I’m not an economist or Euro finance minister so WTF would I know about high finance?) happened in Greece, results in, for example, rising unemployment which reduces national income and increases the burden on national welfare which reduces any ability to repay debt. The same problem of reduced national economic activity and income occurs across most sectors under an austerity program so that austerity steadily reduced the ability of Greece to repay its debts. Add in the inevitable devaluation of domestic assets, such as Greek banks, and the problem is compounded, and further compounded by the unwillingness of external capital to invest in or lend to Greece.

The well founded Euro desire to impose austerity measures upon the prodigal Greeks is understandable, but it was always going to reduce rather than improve their ability to repay the rescue loans.

However, what was the alternative?

Pump more money into Greece and watch the Greeks piss it up against the wall in their usual fashion?

So, I can see that austerity was doomed to fail, but I don’t have a better idea.

Could well be time to cut loose these millstones on the Euro economy.

#10

Agree, RS* but … the consequences are unpredictable. To be clear - I have always opposed the “Euro Project”, as it attempts to yoke together economies that are incapable of behaving as a coherent, single monetary area. Fiscal, as well as monetary union would be necessary to allow this system to operate properly. However, this could only happen in the context of an open abandonment of fiscal authority by Eurozone Member States - an outcome obviously desired by the Brussels Eurocracy, but for which most Member States are unready, since it would involve a surrender of core sovereignty to the would-be EU superstate.

That having been said - we are so far enmired in the “Europroject” that dismantling it could have hugely disruptive consequences. We must press on, and hope that the depth of the Euro-swamp does not submerge us … Yours from the Frankfurt Bunker, JR.

#11

That goes beyond the EU but to the whole planet.

The rapacious and egregious tax avoidance of major and minor corporations hiding in low tax countries (of which yours is one) where usually they do bugger all except have a presence for tax purposes is long overdue for rectification by international cooperation.

Western tax departments, inevitably being staffed by unimaginative people fond of cardigans, combovers and lunch in Thermos flasks of vegetable soup (okay, I got a bit carried away there, but you know what I mean) are very good at collecting tax from sitting duck wage and salary earners who contribute a disproportionate share of tax to the nation while the taxation authorities fail to get stuck into those with the resources to avoid tax. There comes a point in income in my country, and probably in most countries, where one has sufficiently high personal or corporate income to decide how much one is going to sacrifice in tax. And the threshold isn’t that high, for a moderately successful professional or business person to cross it. The result is that, say, 90% of the working population pays a vastly disproportionately high share of the total tax take compared with the top 10% of income earners and large corporations.

As for Greece, and sundry parts of Southern Europe, informal tax avoidance has been a national sport since the Romans paid their soldiers in salt.

#12

Friday, 20 February - the German-Greek impasse continues in Brussels. The latest Greek proposal was greeted positively by the EU Commission, but rejected - emphatically and unilaterally - by the German Finance Ministry. They apparently “fear” that a reference to future fiscal measures in Greece be subject to “mutual agreement” may be a “Trojan Horse” designed to free the Greeks from Troika austerity. Maybe so. However, I am not sure about the “Trojan Horse” comparison. Perhaps the Germans could consider “Thermopilae” as a comparison. That is one worth thinking through, right to the end of the reel.

As to global tax reform - I do not believe it will happen to any substantial degree. Why ? Well, the key to such a “programme of change” is amendment of US corporation tax law to impose worldwide taxation on profits of US corporations not repatriated to the US. US administrations have shown interest in this idea for at least the last 15 years, but have done nothing about it. Why ? Well, because the corporations that stash their overseas profits in the Cayman Islands, Bermuda etc. are also the corporations that fund the extraordinarily costly US political system. I have had some experience of working with US administrations (mainly the Office of the US Trade Representative) which made it clear to me that the US political system is under total capture by Big Business and its representative associations. (I used to joke that USTR officials needed permission from the Motion Picture Association of America, probably in writing, before they visited the “rest room”.) It will be a long day before this apparatus moves against the tax dodging ways of US business overseas. Yours from the Ronald Reagan Center, JR.

#13

There are signs that nations losing out to the mega-corporations’ tax avoidance are moving to deal with it http://www.smh.com.au/business/g20/g20-leaders-in-the-mood-to-act-on-tax-avoidance-after-luxembourg-leaks-20141107-11icy3.html Whether there is much prospect of success is a very different question. You are probably correct that there won’t be much movement adverse to the interests of the super-rich corporations and individuals, because of the golden rule: Them as has the gold, make the rules.

I’d take the view that the US political system isn’t so much a captive of those sorts of businesses, and the rich, but that the Republican Party is essentially their political incarnation forced to deal with the annoyance of the Democrats, who answer to their own and often not all that different funders.

#14

The impasse continues. At this stage, I suspect that there will be agreement on a temporary fudge - but it is far from certain.

I would make one point - it is not just the Republican Party that is in thrall to US Big Business. The Clinton administration was every bit as much a slave to the great corporations. I would not expect any change from the “progressive/liberal” Democrats, any more than from the Republicans. Yours from Georgetown, JR.

#15

The Greeks and the Eurozone ministers (actually the German Finance Ministry) cobbled together some sort of agreement designed to halt the clock on the “Time-Bomb” in Brussels last Friday. It is worrying that there are indications suggesting that they may not be agreed on what they have actually agreed. Germany thinks Greece has totally surrendered; Greece is still talking about future fiscal measures being “for agreement” between the Eurozone and the Greek government. This seems a strange sort of “agreement”.

The Greeks are supposed to be submitting a more detailed outline of their proposals today, Monday. Indications leaking out of the Greek camp suggest that this will rely heavily on increases in tax collection, presumably, to render some of the Troika measures unnecessary, freeing them to promote fiscal expansion in some areas. To be entirely fair, tax collection in Greece appears to have been stepped up no end in the last 18 months or so. Their Value Added Tax (sales tax) system seems actually to be working now, and some progress has been made on tightening up income tax collection. Greece, at the level of primary budget disregarding debt is actually running at a government income surplus at the moment. However - one cannot ignore the incredibly huge debt burden, mainly owed, one way or the other, to Germany and France in official debt and to banks in those countries, officially guaranteed. The German government certainly has no intention of ignoring it. Notwithstanding successes to date, the idea that the Greeks can up their tax collection further to an extent sufficient (in Germany’s eyes) to render the Troika measures unnecessary may seem fanciful from the viewpoint of Berlin and Frankfurt. The fact that tax evasion, “unacceptable” tax avoidance, black marketeering, smuggling and bootlegging of various sorts are more or less national sports in Greece will be a major barrier to further progress, certainly in the short to medium term. Thus, indications that the Greek proposals will rely to a significant extent on tackling smuggling, black marketeering and bootlegging is not reassuring.

Still less is the reliance it is said to place on collecting substantial increased taxes on Greece’s “oligarchs” and their companies, the few private sector industrial giants in its economy, notably in the shipping industry. Frankly, the Onassis, Niarchos etc. oligarchy is not in Greece because it likes paying taxes; the contrary is the case. The shipping oligarchs in particular have threatened to move their operations from Greece on previous occasions on which they appeared threatened by tax enforcement and reform. Were they to do so, this would be an economic disaster for Greece, and Greek governments in the past have always backed down in the face of this threat. Even if this proved to be a bluff, it might not do the government much good in terms of tax yield, since the super-rich Greek oligarchs can easily plug their money into the thriving international tax avoidance/evasion industry, leaving little for the Greek taxperson to collect. Taxing the “rich” (a term often defined to include workers on relatively modest remuneration) is a staple of the European Left at the moment (we have plenty of talk about it from that source here in Ireland). It usually fails to allow for the fact that, first, there are not really may rich people, for example, in Greece to target and, secondly, that the truly rich will still have ample means to protect their income and assets from taxation.

Perhaps the present Greek government is up to such a challenging programme. However, the prospects for achieving much success in the short to medium term is, frankly, poor. If this is where we are heading, Germany may simply insist that a long-term programme of improvement in tax collection is something that Greece should be doing anyway, and that the Troika austerity programme is still required. It is possible that the Time-Bomb’s clock may start ticking again as early as tonight … Yours from the Fiscal Bunker, JR.

#16

Tuesday, and the Greeks have submitted their proposals. Seem to be much on the lines indicated by yesterday’s leaks, and rather “thematic” than detailed. It will be interesting to see the response … JR.

#17

Wednesday - fascinating ! The Germans seem to have accepted the Greek crock. In effect, the Germans have blinked, a very, very surprising outcome. This is probably going to stop the Time-Bomb’s clock for about four months. But let’s hope, on that one. The Greeks’ promises are very insubstantial, and the Germans’ demands remain very concrete. We shall see. Yours from the Hall of Mirrors, JR.

#18

You are essentially correct. GDP is made up of 4 components:

  • household spending
  • government spending
  • investment spending
  • exports

Austerity is self-fulfilling prophecy that all will collapse one after another. Households are tied to employment in companies and all pay taxes for government spending.companies need market for their revenues.

In essence more money (euros) is taken out of Greek economy than pumped in and Greece can never recover.

Only debt write-off or return to national currency with devaluation and debt default will save Greece. But creditors can also swap debt for nice parts of Greek land :):slight_smile:

#19

Wednesday, 11 March - the Eurogroup/Germans have “unblinked”. The time-bomb is ticking again. Problem is that the present Greek government has a very different idea of how to get out of the mess. Some I might agree with; however, it is hard to see the “Centre” agreeing to scrap the privatization of semi-state enterprises and public sector staff/salary cuts in favour of vague promises of tax “reform” and suchlike. Unfortunately, the “crunch” is still on … JR.

#20

you are essentially correct. GDP is made up of 4 components:

  • household spending
  • government spending
  • investment spending
  • exports

But, GDP as a measurement of economic growth is much more complex than the list above. There is nominal GDP and real GDP. Is not that what you are describing above? I am confused.