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As a German I must say that in my opinion this article captures the German sentiment very well. On the one hand it is short sided, it will likely lead to more e

As a German I must say that in my opinion this article captures the German sentiment very well. On the one hand it is short sided, it will likely lead to more economic problems than necessary and the stance of the Euro members (and Germany especially) on Greece is hurting the economy there much more than necessary. On the other hand I do feel that some of this sentiment is justified. After all the example of Italy (Bond markets demand high risk premiums, Italy announces much needed reforms, ECB buys Italian bonds, Italy removes reforms) is quite telling. The same (much worse, actually) applies to the financial institutions. What precedent have we set by bailing almost all of the out. Without a lot of reform investors will no doubt assume that financial institutions are state-guaranteed, allowing them to continue the tails I win, heads you (the state, taxpayers) loose game. Clearly more decisive action is required to deal with the current problems but I think we are deluding ourselves if we believe that we can make it out of this debt crisis only by clever policies.

mtts 15y ago
While morally entirely correct (IMHO, I'm Dutch, we also use the same word for guilt as we do for debt) I doubt the Germans can hold on to this position for very long. Apparently the German "Landesbanken" are heavily invested in Greek and other crappy debt, which is a problem because these banks also fund a large part of the "real" German economy. So Germany probably has no choice but to prop up the lousy debt.
- _delirium 15y ago
  That's the main quandary that the politicians/economists appreciate but the general public doesn't, I think: either way Germany is stuck bailing out this debt, because in large part it's not really bailing out Greece, but bailing out German banks. The main choice is whether to pay the banks directly (let Greece default on the bonds, then cover the losses to keep banks solvent), or to pay them indirectly (send Greece enough money for it to keep servicing the bonds).
  - yequalsx 15y ago
    I've said this over and over again to Germans that I know and they simply don't believe what you say. They really think that they are bailing out profligate Greeks and that there is no benefit to them. Politically, it isn't feasible for Merkel to come out and say that German banks need to be bailed out. It's much easier to talk about European unity and solidarity as the reason for "bailing" out Greece. Germans pride themselves on their fiscal restraint. They save and abhor debt in their personal lives. I think it would shock them to know that their banks are close to insolvency because they took German savings and lent the money to Greeks and Portuguese. If the German government were honest about the poor state of their banks then the government would not survive.
    - discreteevent 15y ago
      I agree. The simplest way to make this clear is to simply let the Greek banks default (and any other banks for that matter). This will expose the German banks and the German Government will be forced to bail them out. This bailout will be a much easier sell than the current one as it will be clear to the German taxpayer that they are bailing out their own banks who made bad bets out of greed, lack of diligence and just plain ineptitude(just like all the other bankers around the world). There is this constant argument about "confidence" going around. We must maintain investor confidence etc. There is a limit to that and its much shorter than its usually stretched to. I've seen the same thing in software where management will cover up a systems flaws and press on with new features. In the end it all falls apart and a post mortem always reveals that they should have faced up to the problems sooner. So fk confidence, the whole thing is going to fall apart anyway and the longer we leave it the harder it will be to fix. Let the Greeks default and let the bankers take the hit, replace them with some talented young people (there are plenty) and lets get fixing things now that they are no longer covered up.
      - deleted 15y ago
        [deleted]
      - Uchikoma 15y ago
        German banks are - by a large margin - not the most exposed to Greece. French banks for example are much more exposed to Greek dept. If Greece fails, this will hit German banks, but other banks much more, it might be especially hard for countries with a smaller GDP and a higher bailout/GDP ratio. As a German taxpayer I don't care whom I bail out. Funny thing: People talk about Germany, instead of Greece. Sure, bailing out German banks will cost some money, a state breakdown in Greece will cost Greek people much more.
zerostar07 15y ago
It only makes sense, right? Personally i am quite pleased that the Germans lead this psychological warfare against the faceless 'markets', that are pushing more and more to funnel taxpayer's money in their ill-gone investments. As a greek, i find it ridiculous that the world's markets are turbulent over a tiny small country like Greece (the only PIGS country that is actually bankrupt), and exaggerate the risks so much. I do agree that markets have changed and it's time for a reform [What lessons have we learned from the 2008 crisis: None].
- HSO 15y ago
  Have you ever thought twice about what exactly "faceless markets" are? Markets are composed of many agents, people, institutions, and mostly your pension money! It's true. Pension funds and other institutional investors are the single-largest segment, esp. of sovereign bond markets! Now ask yourself, with the Greek government in its current position, if it came to you today and asked you to lend it money, not to invest it in some thing or other but merely to pay back previous creditors, would you do it?! Yeah, me neither... It's a copout by politicians and the bozos they represent to ascribe individual actions such as "pushing" or "punishing" etc. to aggregates like markets. But just as the laws on the molecular level do not simply reflect those on the subnuclear level of matter, the construct of "representative agents" is a fiction. Aggregation in the social sciences is just as hard and unintuitive as in the natural sciences, maybe even harder. So why do they do it? Because to anthropomorphize "the market" allows them do demonize it, making things simple for the bozos in describing current developments as some kind of "struggle" between supposedly good central banks and politicians and evil, "faceless markets". Unfortunately, this type of rhetoric completely misframes the issues and leads invariably to wrong decisions by building political pressure at the wrong points in the system.
  - mtts 15y ago
    Markets are indeed composed of many agents, people and institutions squandering your pension money, all of whom hide behind the faceless market, arguing that if "the market" is doing it, it has to be right. Which is exactly what got us into this mess in the first place - everyone shirking off responsibility for their actions.
overgard 15y ago
The german government seems really wise in this regard. The notion that there are any easy "fixes" to something as complex and intricate as an economy is very suspect to me. Things like quantitative easing seem way more dangerous than simply making sure your financial fundamentals are sound.
- deleted 15y ago
  [deleted]
jonnathanson 15y ago
The sentiment is justified, but the position is untenable. With every passing day, Greek debt compounds massively, and the hole gets bigger. Meanwhile, the uncertainty in the markets causes further volatility and pain for all concerned, and you risk the setting in of total panic. You end up with the worst of both worlds: all the market pain of a Greek default, without the default itself...but with the default still quite likely. The Greek economy is dysfunctional to its core (even a passing skim-through of Michael Lewis's new book will give you a sense for just how dysfunctional it is). But that isn't the root of the problem. The root of the problem is that Greece was brought into the Euro monetary collective in the first place, and given the credit ratings and borrowing rates of a country like Germany. Banks had a large part in helping put lipstick on the Greek pig, covering up its systemic flaws and getting it ready for EU primetime. So imagine that Greek dysfunction was like a caged and abused pitbull, and Greece's EU inclusion was like walking into that cage waving a bloody hunk of meat in either arm. Who do you blame when you lose a few limbs: the pitbull, or yourself?
- IdeaHamster 15y ago
  There's an interesting extension of this line of thought. My sister-in-law works in Istanbul for a Greek company. She says that most of the actual profit-generating work done for this company is done in Romania or Turkey. The Greek offices, from what she describes, are more or less completely dysfunctional. Now, take that insight of conditions on the ground along with a chart of the growth of the Greek vs Turkish economies over the last decade, and then ask yourself: why is Greece a full EU member and included in the Eurozone, while Turkey's membership negotiations have completely stalled (and will probably conclude with Turkey not joining the EU)? Can you imagine a world where Greece is allowed to leave the Euro, massively devalue its debt (and take the decade or more of restructuring/rebuilding its economy that would come with that), and Turkey with its strong manufacturing sector and youthful, growing middle class is brought in in Greece's place? The EU and the Euro would be in a far stronger position...but it will never happen. Unfortunately, European cultural prejudices are still to ever-present and will result in Greece continuing to be dragged along while Turkey gets shunned.
  - 15y ago
Iv 15y ago
I see only one way out : find responsibles and punish them. Through fines and prison terms. Some people have hidden the true state of Greece by fraudulent accounting with the help of experts from Goldman Sachs. Politician who participated in that should be judged for treason. Financial experts for fraud. Goldman Sachs must be fined heavily for this. Right now, Dexia is falling despite 6 billions of aid in 2008 and a successful "stress test". Obviously some fraud happened there too. There are many places where inquiries should be made. Heads must roll, then austerity will become a possibility. Many people see this as just an economical problem but it is a very political one. There is a crisis of legitimacy amongst the people who are organizing the austerity : in most place it is the same people who caused the crisis.
- _delirium 15y ago
  I'm not sure the falsification of records is really at the root of this, in the sense that it was a deception that did not really deceive anyone. There was a bit of consensual hallucination going on: nobody really believed Greece's numbers, but it was convenient for everyone to pretend to believe them. Lenders who bought Greek bonds should certainly have conducted their own analyses and had a decent idea that the headline figures were not accurate (I would guess they did, actually, but assumed that Greece wouldn't be allowed to default, so bought the bonds anyway).
  - tsotha 15y ago
    Yes, everyone knew the Greeks were cooking the books. Hell, even the press knew - it was in the papers. But the expectation was that once they joined the Euro they would act more like Germans. That seems to have been a bit of a miscalculation.
    - _delirium 15y ago
      I do think there have been significant improvements in Greek public administration since joining the Euro, but miracles would've been needed to get the turnaround that would've been necessary in such a short time. If Greece had had 20 years to gradually get its economy in line with western Europe, I think it was on pace to do so, or at least come close, but the 7 years between it joining the Euro in 2001 and the financial crisis of 2008 weren't really enough, especially since some of the positive structural changes it had made (like the beginnings of pension reform) don't really pay dividends until some time into the future. Joining the Euro did help somewhat in improvements also, because Greek politicians were able to use the "it's not us, Brussels is making us" excuse to push through some of the less popular measures. The changes, at least from the perspective of some of my Greek relatives, were pretty encouraging up 'til 2008. The notoriously inefficient public administration was still not good, but seemed to be getting better; some things that used to require you running across town to get physical stamps from 10 different offices were being consolidated in common service centers, the number of separate approvals needed for any given document was being reduced, etc. Outright corruption was greatly reduced from the pre-Euro government, and book-cooking seems to have been reduced as well (the vast majority of the dodgy statistics are pre-2001 data). The telecom sector got much better than the old OTE-or-nothing monopoly, leading to many Greeks finally having home internet. The Athens metro finally finished construction (partly spurred by the Olympics). The national sport of tax evasion was slowly being tackled, starting with "soft" shaming measures like publishing maps showing purported average incomes of various wealthy suburbs of Athens, if you took their official tax returns as accurate (all the wealthy suburbs somehow look like low-income ghettoes!), and moving to more hardball measures like doing inventories of yachts in yacht harbors and inquiring with owners who appear not to have ever reported sufficient income to explain owning one. Pensions went through at least the first round of rationalization to remove the most egregious loopholes that allowed some people to retire exceptionally early. Etc. But basically the scope of changes needed was quite large, and the amount of cushion Greece had, with an already very-large debt, was quite small. Probably someone should've noticed the looming problem earlier and worked out a sensible restructuring and feasible N-year plan before it became a crisis.
wnight 15y ago
> investors will no doubt assume that financial institutions are state-guaranteed They are state-guaranteed. Too big to fail. Every piece of financial machinery for the debt circus is required and they can't get rid of it or let it fail without exposing the same functionality elsewhere. As long as we use a debt-based state currency the banks can't be allowed to fail. At some point they'll just print new money and start fresh hoping it doesn't happen again. Until we declare the debt-currency game to be unwinnable and stop playing, we'll keep losing.

mtts 15y ago

While morally entirely correct (IMHO, I'm Dutch, we also use the same word for guilt as we do for debt) I doubt the Germans can hold on to this position for very long. Apparently the German "Landesbanken" are heavily invested in Greek and other crappy debt, which is a problem because these banks also fund a large part of the "real" German economy. So Germany probably has no choice but to prop up the lousy debt.

_delirium 15y ago
That's the main quandary that the politicians/economists appreciate but the general public doesn't, I think: either way Germany is stuck bailing out this debt, because in large part it's not really bailing out Greece, but bailing out German banks. The main choice is whether to pay the banks directly (let Greece default on the bonds, then cover the losses to keep banks solvent), or to pay them indirectly (send Greece enough money for it to keep servicing the bonds).
- yequalsx 15y ago
  I've said this over and over again to Germans that I know and they simply don't believe what you say. They really think that they are bailing out profligate Greeks and that there is no benefit to them. Politically, it isn't feasible for Merkel to come out and say that German banks need to be bailed out. It's much easier to talk about European unity and solidarity as the reason for "bailing" out Greece. Germans pride themselves on their fiscal restraint. They save and abhor debt in their personal lives. I think it would shock them to know that their banks are close to insolvency because they took German savings and lent the money to Greeks and Portuguese. If the German government were honest about the poor state of their banks then the government would not survive.
  - discreteevent 15y ago
    I agree. The simplest way to make this clear is to simply let the Greek banks default (and any other banks for that matter). This will expose the German banks and the German Government will be forced to bail them out. This bailout will be a much easier sell than the current one as it will be clear to the German taxpayer that they are bailing out their own banks who made bad bets out of greed, lack of diligence and just plain ineptitude(just like all the other bankers around the world). There is this constant argument about "confidence" going around. We must maintain investor confidence etc. There is a limit to that and its much shorter than its usually stretched to. I've seen the same thing in software where management will cover up a systems flaws and press on with new features. In the end it all falls apart and a post mortem always reveals that they should have faced up to the problems sooner. So fk confidence, the whole thing is going to fall apart anyway and the longer we leave it the harder it will be to fix. Let the Greeks default and let the bankers take the hit, replace them with some talented young people (there are plenty) and lets get fixing things now that they are no longer covered up.
    - deleted 15y ago
      [deleted]
    - Uchikoma 15y ago
      German banks are - by a large margin - not the most exposed to Greece. French banks for example are much more exposed to Greek dept. If Greece fails, this will hit German banks, but other banks much more, it might be especially hard for countries with a smaller GDP and a higher bailout/GDP ratio. As a German taxpayer I don't care whom I bail out. Funny thing: People talk about Germany, instead of Greece. Sure, bailing out German banks will cost some money, a state breakdown in Greece will cost Greek people much more.

zerostar07 15y ago

It only makes sense, right? Personally i am quite pleased that the Germans lead this psychological warfare against the faceless 'markets', that are pushing more and more to funnel taxpayer's money in their ill-gone investments. As a greek, i find it ridiculous that the world's markets are turbulent over a tiny small country like Greece (the only PIGS country that is actually bankrupt), and exaggerate the risks so much. I do agree that markets have changed and it's time for a reform [What lessons have we learned from the 2008 crisis: None].

HSO 15y ago
Have you ever thought twice about what exactly "faceless markets" are? Markets are composed of many agents, people, institutions, and mostly your pension money! It's true. Pension funds and other institutional investors are the single-largest segment, esp. of sovereign bond markets! Now ask yourself, with the Greek government in its current position, if it came to you today and asked you to lend it money, not to invest it in some thing or other but merely to pay back previous creditors, would you do it?! Yeah, me neither... It's a copout by politicians and the bozos they represent to ascribe individual actions such as "pushing" or "punishing" etc. to aggregates like markets. But just as the laws on the molecular level do not simply reflect those on the subnuclear level of matter, the construct of "representative agents" is a fiction. Aggregation in the social sciences is just as hard and unintuitive as in the natural sciences, maybe even harder. So why do they do it? Because to anthropomorphize "the market" allows them do demonize it, making things simple for the bozos in describing current developments as some kind of "struggle" between supposedly good central banks and politicians and evil, "faceless markets". Unfortunately, this type of rhetoric completely misframes the issues and leads invariably to wrong decisions by building political pressure at the wrong points in the system.
- mtts 15y ago
  Markets are indeed composed of many agents, people and institutions squandering your pension money, all of whom hide behind the faceless market, arguing that if "the market" is doing it, it has to be right. Which is exactly what got us into this mess in the first place - everyone shirking off responsibility for their actions.

overgard 15y ago

The german government seems really wise in this regard. The notion that there are any easy "fixes" to something as complex and intricate as an economy is very suspect to me. Things like quantitative easing seem way more dangerous than simply making sure your financial fundamentals are sound.

deleted 15y ago
[deleted]

jonnathanson 15y ago

The sentiment is justified, but the position is untenable. With every passing day, Greek debt compounds massively, and the hole gets bigger. Meanwhile, the uncertainty in the markets causes further volatility and pain for all concerned, and you risk the setting in of total panic. You end up with the worst of both worlds: all the market pain of a Greek default, without the default itself...but with the default still quite likely. The Greek economy is dysfunctional to its core (even a passing skim-through of Michael Lewis's new book will give you a sense for just how dysfunctional it is). But that isn't the root of the problem. The root of the problem is that Greece was brought into the Euro monetary collective in the first place, and given the credit ratings and borrowing rates of a country like Germany. Banks had a large part in helping put lipstick on the Greek pig, covering up its systemic flaws and getting it ready for EU primetime. So imagine that Greek dysfunction was like a caged and abused pitbull, and Greece's EU inclusion was like walking into that cage waving a bloody hunk of meat in either arm. Who do you blame when you lose a few limbs: the pitbull, or yourself?

IdeaHamster 15y ago
There's an interesting extension of this line of thought. My sister-in-law works in Istanbul for a Greek company. She says that most of the actual profit-generating work done for this company is done in Romania or Turkey. The Greek offices, from what she describes, are more or less completely dysfunctional. Now, take that insight of conditions on the ground along with a chart of the growth of the Greek vs Turkish economies over the last decade, and then ask yourself: why is Greece a full EU member and included in the Eurozone, while Turkey's membership negotiations have completely stalled (and will probably conclude with Turkey not joining the EU)? Can you imagine a world where Greece is allowed to leave the Euro, massively devalue its debt (and take the decade or more of restructuring/rebuilding its economy that would come with that), and Turkey with its strong manufacturing sector and youthful, growing middle class is brought in in Greece's place? The EU and the Euro would be in a far stronger position...but it will never happen. Unfortunately, European cultural prejudices are still to ever-present and will result in Greece continuing to be dragged along while Turkey gets shunned.
- 15y ago

Iv 15y ago

I see only one way out : find responsibles and punish them. Through fines and prison terms. Some people have hidden the true state of Greece by fraudulent accounting with the help of experts from Goldman Sachs. Politician who participated in that should be judged for treason. Financial experts for fraud. Goldman Sachs must be fined heavily for this. Right now, Dexia is falling despite 6 billions of aid in 2008 and a successful "stress test". Obviously some fraud happened there too. There are many places where inquiries should be made. Heads must roll, then austerity will become a possibility. Many people see this as just an economical problem but it is a very political one. There is a crisis of legitimacy amongst the people who are organizing the austerity : in most place it is the same people who caused the crisis.

_delirium 15y ago
I'm not sure the falsification of records is really at the root of this, in the sense that it was a deception that did not really deceive anyone. There was a bit of consensual hallucination going on: nobody really believed Greece's numbers, but it was convenient for everyone to pretend to believe them. Lenders who bought Greek bonds should certainly have conducted their own analyses and had a decent idea that the headline figures were not accurate (I would guess they did, actually, but assumed that Greece wouldn't be allowed to default, so bought the bonds anyway).
- tsotha 15y ago
  Yes, everyone knew the Greeks were cooking the books. Hell, even the press knew - it was in the papers. But the expectation was that once they joined the Euro they would act more like Germans. That seems to have been a bit of a miscalculation.
  - _delirium 15y ago
    I do think there have been significant improvements in Greek public administration since joining the Euro, but miracles would've been needed to get the turnaround that would've been necessary in such a short time. If Greece had had 20 years to gradually get its economy in line with western Europe, I think it was on pace to do so, or at least come close, but the 7 years between it joining the Euro in 2001 and the financial crisis of 2008 weren't really enough, especially since some of the positive structural changes it had made (like the beginnings of pension reform) don't really pay dividends until some time into the future. Joining the Euro did help somewhat in improvements also, because Greek politicians were able to use the "it's not us, Brussels is making us" excuse to push through some of the less popular measures. The changes, at least from the perspective of some of my Greek relatives, were pretty encouraging up 'til 2008. The notoriously inefficient public administration was still not good, but seemed to be getting better; some things that used to require you running across town to get physical stamps from 10 different offices were being consolidated in common service centers, the number of separate approvals needed for any given document was being reduced, etc. Outright corruption was greatly reduced from the pre-Euro government, and book-cooking seems to have been reduced as well (the vast majority of the dodgy statistics are pre-2001 data). The telecom sector got much better than the old OTE-or-nothing monopoly, leading to many Greeks finally having home internet. The Athens metro finally finished construction (partly spurred by the Olympics). The national sport of tax evasion was slowly being tackled, starting with "soft" shaming measures like publishing maps showing purported average incomes of various wealthy suburbs of Athens, if you took their official tax returns as accurate (all the wealthy suburbs somehow look like low-income ghettoes!), and moving to more hardball measures like doing inventories of yachts in yacht harbors and inquiring with owners who appear not to have ever reported sufficient income to explain owning one. Pensions went through at least the first round of rationalization to remove the most egregious loopholes that allowed some people to retire exceptionally early. Etc. But basically the scope of changes needed was quite large, and the amount of cushion Greece had, with an already very-large debt, was quite small. Probably someone should've noticed the looming problem earlier and worked out a sensible restructuring and feasible N-year plan before it became a crisis.

wnight 15y ago

> investors will no doubt assume that financial institutions are state-guaranteed They are state-guaranteed. Too big to fail. Every piece of financial machinery for the debt circus is required and they can't get rid of it or let it fail without exposing the same functionality elsewhere. As long as we use a debt-based state currency the banks can't be allowed to fail. At some point they'll just print new money and start fresh hoping it doesn't happen again. Until we declare the debt-currency game to be unwinnable and stop playing, we'll keep losing.