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"Austerity stagnates an economy". How did overspending work out for Greece? [ edit: I'd be glad to discuss substance. The admittedly rhetorical question sta

"Austerity stagnates an economy". How did overspending work out for Greece? [ edit: I'd be glad to discuss substance. The admittedly rhetorical question stands. What is the evidence on overspending and growth? ]

malnourish 11y ago
Not taking sides here but there are many middle-grounds between austerity and overspending.
thedataslinger 11y ago
Put simply: it is fraudulent when a creditor uses lies or deception. JP Morgan deceived the Greek people by masking a massive loan to the Greek government as a "currency swap", seemingly to avoid the financial regulators within the EU. See here: http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all http://www.nytimes.com/2010/02/14/business/global/14debt.htm...
- tosseraccount 11y ago
  "Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere." Sounds like the Greek government was culpable. Not blaming the culture of corruption in Greece and not pointing out that the Greek overspending was the root of the problem is disingenuous.
  - cmrdporcupine 11y ago
    There have been two different Greek governments in this period. Smearing Syriza, a socialist formation which made the same critique as the above poster, and would never have signed those deals -- for the corrupt actions of New Democracy & PASOK which did is a little bit of intellectual dishonesty.
    - tosseraccount 11y ago
      PASOK = Panhellenic Socialists
      - cmrdporcupine 11y ago
        They're a social democratic group with very extreme differences with Syriza.
Mikeb85 11y ago
Greece's debt was sustainable until the financial crisis. However, when they joined the EU, many of their indigenous industries weren't competitive with other nations', so they 'specialized' in tourism. This brought in lots of income, but after the financial crisis, the tourists dried up, leaving them with a massive deficit. And of course, their debt ratio went up because of the contraction in revenues. This is why Greece feels betrayed - they were spending more or less on par with other European nations prior to the financial crisis, but they were basically screwed by the cabal of European politicians and banks, who imposed absurd, punitive measures (which shrank the economy) in exchange for a 'bailout' (which was essentially more debt, on unfavourable terms).
- ptaipale 11y ago
  Greece's debt seemed sustainable partly because official statistics were manipulated. Then, along with financial crisis, came more scrutiny. The crisis was a trigger, but not a reason. Public spending in Greece was beyond what it could really afford; when skewed statistics were exposed, it turned out that the actual deficit was 12.7 % instead of 6 % - and this change came in about a month.
deepnet 11y ago
Sensible spending on jobs and the economy has always worked. Austerity is underspending not thrift.
pdkl95 11y ago
Their current economic situation has very little to do with overspending. In general, they didn't. The country has it's traditional tax revenue problems and has never had a great economy, but without the Euro they would have simply devalued their currency (among other tools available only to governments) and left the debt unpaid for a few hundred years. Just like every other country does. So what happened? Greece was effectively used to send 5 trillion (with a "t") in bailout money back to the banks big banks of Europe. This was possible because of the idiocy that is the Euro and the ECB, which removed exchange risk and devaluation risk from across the European currencies. The banks of Europe did a volume convergence trade, effectively betting against their sovereigns that their new debt would have to be bailed out as they became "too big to fail". Supposedly one of the bankers involved explained the scam like this: You borrow at one You buy at ten You use the spread To bury the dead You bank it at four And repo more And then go knock On the ECB's door Except the ECB wasn't a lender of last resort and EU banks - and the EU economy in general - has been in a slow-motion crash ever since. The recent-ish use of QE is a stupid way to fix the economy, but it's better than letting the entire economy crash. I'm leaving out a lot of details, of course. Anybody intrested in Greece and the EU (and the world economy in general) should watch Mark Blyth's very informative overview of how we got here. https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 See this more rent talk for a post-negative-interest-rate update, where Blyth observes that Europe is looking a LOT like Japan did during their "lost decade"... https://www.youtube.com/watch?v=9fP6YSCpm8g https://www.youtube.com/watch?v=9fP6YSCpm8g ...and this discussion with the former Minister of Finance of Greece, Yanis Varoufakis. https://www.youtube.com/watch?v=iMk6aVsl8Rs https://www.youtube.com/watch?v=iMk6aVsl8Rs > austerity Austerity is always a terrible solution to economic problems, because just about the stupidest thing you can do when the economy is bad is shrink the GDP. There is even a historical record of austerity (approximately) always leading to a smaller, more stagnant economy... and some nasty political shifts towards populism. The politics of austerity are terrible, because it's effectively a class-specific "put option". We are very good at socializing the risks of investment while blaming the lower classes for "overspending". Unfortunately a lot of people make the mistake of assuming governments see the economy the same way the people or businesses do. This leads to the idea that government debts are zero-sum like personal debt, but the rules change when you are the group that prints the money and sets economic policy.

malnourish 11y ago

Not taking sides here but there are many middle-grounds between austerity and overspending.

thedataslinger 11y ago

Put simply: it is fraudulent when a creditor uses lies or deception. JP Morgan deceived the Greek people by masking a massive loan to the Greek government as a "currency swap", seemingly to avoid the financial regulators within the EU. See here: http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all http://www.nytimes.com/2010/02/14/business/global/14debt.htm...

tosseraccount 11y ago
"Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere." Sounds like the Greek government was culpable. Not blaming the culture of corruption in Greece and not pointing out that the Greek overspending was the root of the problem is disingenuous.
- cmrdporcupine 11y ago
  There have been two different Greek governments in this period. Smearing Syriza, a socialist formation which made the same critique as the above poster, and would never have signed those deals -- for the corrupt actions of New Democracy & PASOK which did is a little bit of intellectual dishonesty.
  - tosseraccount 11y ago
    PASOK = Panhellenic Socialists
    - cmrdporcupine 11y ago
      They're a social democratic group with very extreme differences with Syriza.

Mikeb85 11y ago

Greece's debt was sustainable until the financial crisis. However, when they joined the EU, many of their indigenous industries weren't competitive with other nations', so they 'specialized' in tourism. This brought in lots of income, but after the financial crisis, the tourists dried up, leaving them with a massive deficit. And of course, their debt ratio went up because of the contraction in revenues. This is why Greece feels betrayed - they were spending more or less on par with other European nations prior to the financial crisis, but they were basically screwed by the cabal of European politicians and banks, who imposed absurd, punitive measures (which shrank the economy) in exchange for a 'bailout' (which was essentially more debt, on unfavourable terms).

ptaipale 11y ago
Greece's debt seemed sustainable partly because official statistics were manipulated. Then, along with financial crisis, came more scrutiny. The crisis was a trigger, but not a reason. Public spending in Greece was beyond what it could really afford; when skewed statistics were exposed, it turned out that the actual deficit was 12.7 % instead of 6 % - and this change came in about a month.

deepnet 11y ago

Sensible spending on jobs and the economy has always worked. Austerity is underspending not thrift.

pdkl95 11y ago

Their current economic situation has very little to do with overspending. In general, they didn't. The country has it's traditional tax revenue problems and has never had a great economy, but without the Euro they would have simply devalued their currency (among other tools available only to governments) and left the debt unpaid for a few hundred years. Just like every other country does. So what happened? Greece was effectively used to send 5 trillion (with a "t") in bailout money back to the banks big banks of Europe. This was possible because of the idiocy that is the Euro and the ECB, which removed exchange risk and devaluation risk from across the European currencies. The banks of Europe did a volume convergence trade, effectively betting against their sovereigns that their new debt would have to be bailed out as they became "too big to fail". Supposedly one of the bankers involved explained the scam like this: You borrow at one You buy at ten You use the spread To bury the dead You bank it at four And repo more And then go knock On the ECB's door Except the ECB wasn't a lender of last resort and EU banks - and the EU economy in general - has been in a slow-motion crash ever since. The recent-ish use of QE is a stupid way to fix the economy, but it's better than letting the entire economy crash. I'm leaving out a lot of details, of course. Anybody intrested in Greece and the EU (and the world economy in general) should watch Mark Blyth's very informative overview of how we got here. https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 See this more rent talk for a post-negative-interest-rate update, where Blyth observes that Europe is looking a LOT like Japan did during their "lost decade"... https://www.youtube.com/watch?v=9fP6YSCpm8g https://www.youtube.com/watch?v=9fP6YSCpm8g ...and this discussion with the former Minister of Finance of Greece, Yanis Varoufakis. https://www.youtube.com/watch?v=iMk6aVsl8Rs https://www.youtube.com/watch?v=iMk6aVsl8Rs > austerity Austerity is always a terrible solution to economic problems, because just about the stupidest thing you can do when the economy is bad is shrink the GDP. There is even a historical record of austerity (approximately) always leading to a smaller, more stagnant economy... and some nasty political shifts towards populism. The politics of austerity are terrible, because it's effectively a class-specific "put option". We are very good at socializing the risks of investment while blaming the lower classes for "overspending". Unfortunately a lot of people make the mistake of assuming governments see the economy the same way the people or businesses do. This leads to the idea that government debts are zero-sum like personal debt, but the rules change when you are the group that prints the money and sets economic policy.