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Open letter to German readers: What you were never told about Greece
- mtmail 12y agoThe title of the letter in the German newspaper was (translated) 'fiscal water-boarding'.
- deleted 12y ago[deleted]
- mhd 12y agoIf I recall correctly, that's the favorite phrase of the new minister of finance.
- bagosm 12y agoWhat isn't addressed in this letter and most people don't realize is that the Greek debt as an absolute number isn't that big. The real problem is that Greece needs more money to continue operation than it produces, and this fact hasn't changed nor will in the near future. Effectively this makes Greece a black hole for incoming money where incoming money have no actual benefit for anyone other than just keep a near-corpse alive for a little more. If there was a surplus generated every year, the debt amount wouldn't matter as it would be paid off eventually. The whole point is to get to the state where the economy is healthy as a yearly in/out amount. If that's done there is no reason to get any bigger loans... Edit: Forgot to add: it's in the greater interest of the eurozone to keep Greece from bankruptcy though, and it's twofold: one is the interconnection of markets, ie Greece IS a buyer, and the second is the geography as Greece is a central node for shipments from the east, has natural gas reserves etc..
- tobias3 12y agoActually greece has a primary budget surplus, so at this point they are paying back the "loans", the problem is that they are miserable while doing so. If people are unemployed you are squandering resources.
- bagosm 12y agoThat's actually not true, you are referring to a very bad "cooking" that Samaras presented to Merkel at the fall of '14 which was proved to be too stupid to talk about ever again...
- JamesBarney 12y agoActually that is true. He was referring to Greece having a budget surplus, not a plan. They missed their target surplus but still had a budget surplus for 2014 of near 2 billion euros. http://www.wsj.com/articles/greece-misses-target-on-budget-surplus-1421244654 http://www.wsj.com/articles/greece-misses-target-on-budget-s...
- bobcostas55 12y agoThe current finance minister says they cooked the books: yanisvaroufakis.eu/2014/04/24/greek-statistics-are-back-primary-deficit-presented-as-surplus-with-eurostats-seal-of-approval/
- JamesBarney 12y agoYour link is about a 2013 budget surplus and not 2014. The reason eurostat did those adjustment was too eliminate one off expenditures that would not continue. And they didn't continue in 2014.
- dandare 12y agoWhile being miserable they are better of than let's say Slovaks who paid 660 mil Euro to bail out Greece. Think about it, they are not really living in poverty, they just lost the luxury standard they were used to.
- guelo 12y agoGreece's GDP per capita has dropped below Slovenia's.
- dandare 12y agoThe real problem is that Greece - especially under it's new leadership - will very soon generate new astronomical debt if the current one is forgiven (paid by someone else). Lenders would be silly not to lend if they know the debtor will be certainly bailed out and actually Tsipras would be silly too not to finance his communist utopia from debt if he too knows Greece will be bailed out no matter what.
- cwyers 12y agoIt doesn't seem like Tsipras is trying to get debt forgiveness paid for by the Germans, though. He wants to use the threat of default to force Greek's creditors to give them a haircut -- reduce principal or interest or both. That will reduce the amount of Greek debt repayment but it wouldn't increase the ability of Greece to incur more debtedness.
- dandare 12y agoAre you sure? I thought the private creditors were already "haircutted", most of the Greek debts is to EU states and IMF.
- cwyers 12y agoI will preface this by saying that I am totally not sure, but my impression was that the EU and IMF loans were to enable Greece to repay creditors in full or close to.
- bibabo 12y agoGreece got a debt cut around 140B already.
- imarg 12y agoWell sort of. Because after the haircut Greece owed more money than before.
- antman 12y ago
- tormeh 12y agoIt's enough that old loans are repaid faster than new ones are taken up. Given that the surplus would otherwise have to be enormous, this is standard procedure for most indebted countries. The Greek state is such a mess that bankruptcy would be a good thing, in some ways. Greece needs to keep their budget balanced, and it's unclear whether the government is able to implement the necessary changes even if they wanted to and shame or embarrassment has shown itself a poor motivator for the shadow state. In fact, in my opinion default should have happened sooner, while there was still some private debt to default on. Now it's a bit too late, as 80% of Greek debt is held by governments/IMF/ECB.
- drcode 12y agotldr; Instead of taking new loans and servicing our existing debt, we'd like new loans and NOT have to service our existing debt. EDIT: To those responding "he didn't ask for loans" in the last line he's asking for a "European New Deal"... what else could that be besides new loans or a straight-on gifting of more money?
- norswap 12y agoI must have missed the part where he asked for new loans.
- ewzimm 12y agoI am having a hard time getting that from this message: >My party, and I personally, disagreed fiercely with the May 2010 loan agreement not because you, the citizens of Germany, did not give us enough money but because you gave us much, much more than you should have and our government accepted far, far more than it had a right to. >Our task is not to confront our partners. It is not to secure larger loans or, equivalently, the right to higher deficits. There will have to be some money injected somewhere in Greece, but not in the same way, and the point is to get away from loans.
- drcode 12y agoWell, there's only two ways I know of that you can use to "inject" money into a person: You either give it to them as a loan or a gift.
- ewzimm 12y agoMoney doesn't have to go directly to the government. Their plan to fund things is more along the lines of making the many, many tax-evaders actually pay. Businesses that need loans can take them out on an individual basis, injecting money into the economy, but the government can get money from its own people rather than other countries.
- drcode 12y ago
- randomname2 12y agoTsipras' spoken english is very limited, it is unlikely he wrote this himself.
- bnegreve 12y agoIt was probably translated from Greek, why is it a problem?
- titanomachy 12y agoYeah, it's reasonable that a leader should do all his writing in his native language and have it professionally translated. Why would it be any other way?
- anonymfus 12y agoProbably from German, translated from Greek.
- seliopou 12y agoNo politician ever writes their own Op-Eds, for any publication. That's what their staff, freelance ghostwriters, and political think tanks are there for.
- 3pt14159 12y agoSure. I agree that (morally) the EU shouldn't have bailed out Greece. Greece cooked its books and Greek debt holders at the time of the bail out were suffering the consequences of lending to a fiscally irresponsible state. That being said, the world was uncertain as to how much economic damage had yet to be done, and by shoring up Greece it assuaged investor confidence across the western world. Personally I think that the level of debt in the developed world is completely unsustainable because it relies on population growth and productivity growth in a manner that will one day lead to a massive global failure / inflation, but my opinion isn't really the majority opinion on economics. Essentially Germany shored up Greece for Germany's own interests: stabilize the Euro and investor confidence in Europe. That being said, Greece can afford to pay back its debts. The current debt to GDP of Greece is 175%. Before the populist clowns looked like they were about to win the government, the interest rate on Greek debt was around 5 or 6%, which is affordable, and the longer it is paid, the lower that rate will go. Look at Canada during the 90s, the interest rates plummeted as soon as the government paid off 10 points of the debt to GDP ratio, just because the government gained investor confidence. Greek pensions and benefits are unsustainable. Greek tax rates, while nominally high, are not uniformly paid due to corruption. That is the real real reason Greece can't afford this debt burden. And frankly, if they are going to default, they should do so soon, since the world is at a high mark financially right now.
- stefantalpalaru 12y ago> The current debt to GDP of Greece is 175%. The GDP is not exactly a good economic indicator because in its expenditure-based determination it includes government spending which can be increased by increasing the debt. Add to that the EU habit of making up numbers for the output of black markets like drug traffic and prostitution and adding it to the GDP and you'll see why it's useless when trying to decide the solvency of a state.
- guelo 12y agoWhat I don't understand about this type of logic is the refusal to acknowledge the damage being done by the forced depression. It's like a 19th century leech therapy, keep sucking out blood until they get better. If Greece's economy is allowed to recover everybody will be better off, the banks, the politics, the people living in Greece and even the German taxpayer.
- mrweasel 12y agoIt's perhaps prudent to distinguish between the German people and the German politicians. It's my feeling that the average German would have suggested NOT to extend large loans to Greece. It is the EU (and German, French, Italian and so on) politicians that believed that in the grand scheme of the Euro, it would be the best cause of action. The sad part is that the loans to Greece perhaps wasn't so much about Greece, as it was about Spain, Ireland and perhaps even Italy. If we ignored everything else, then letting Greece leave the Euro, rather than offering large loans and unrealistic terms, most likely would have hurt neither the Euro, nor the EU. In the real world, letting Greece leave would mean that investors and speculators would start to question the dedication to the Euro, given that Spain or Italy (much larger economies) might be forced to leave the EU next. I'm not an economist, so I might be totally wrong, but for a regular person an investment (of this scale) in Greece was obviously a bad move, at least in hindsight. It's sad for Greece, but they where just casualties of their own politicians and a Euro they should never have been allowed to be part of in the first place.
- drzaiusapelord 12y agoI'm not so sure of that. Greece might be a special case. Its a tourist economy with heavy social services and a retirement age of 58 with overly generous pensions; about 80% of one's salary. Its fraudulent on practically all levels of government. Its recent cozying to Putin is just more spit in the eye of the EU partners who tried working with Greece's debt issues. While Italy and Spain aren't the shining stars of fiscal responsibility and anti-corruption, they're bush league compared to Greece's MLB financial shenanigans. An Italian exit would be a huge event, considering Italy's economy is bigger than Russia's. Greece is just a bottom feeder. As a Greek-American is pains me to say these things, but Greece is just on the wrong side of history here. Its incredible how corrupt that country is. Its a clusterfuck of far-leftist nonsense that has no place in the EU. I could see a re-entry in a few decades after they've cleaned up their act, assuming that's possible. Expecting everyone else to bankroll Greece's generous pensions seems unfair to working Europeans. This should also be a wake-up call for EU expansion. Taking on these corrupt countries is a major risk. I'm very glad they never got Turkey, considering its deep into a spiral of Islamic autocracy and has also lost its major economic growth around Q1 2014.
- mysticllama 12y agoA CNN article from 2010 referenced 2008 government documents that said "6 in 10 Greeks don't pay income taxes" source: http://www.cnn.com/2010/WORLD/europe/12/31/greece.taxes/ http://www.cnn.com/2010/WORLD/europe/12/31/greece.taxes/ I don't know what the rate of tax evasion is in other western countries, but I'm willing to wager the situation in Greece is dramatically worse. I remember reading a NYT article from the same year that provided further insight: Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems. The cheating is often quite bold. When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all. source: http://www.nytimes.com/2010/05/02/world/europe/02evasion.html?pagewanted=all&_r=0 http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm... I haven't seen more recent numbers, but it makes me wonder about citizens' culpability in the government's debt crisis. Maybe I'm overestimating the role of taxation in this debt fiasco, but it does seem as if the attitude of a lot of Greek citizens needs to change, if it hasn't already.
- brianwawok 12y agoHere is something that maybe I am not understanding.. but saying that 6/10 greeks pay no income tax does not tell us how much tax evasion there is, right? From what I can google: http://www.taxpolicycenter.org/taxtopics/federal-taxes-households.cfm http://www.taxpolicycenter.org/taxtopics/federal-taxes-house... 43% of Americans do not pay federal income tax (and some % of those get a net gain of federal income tax). Sure 60% is > 40%... but that could be due to a ratio of more people really poor, compared to more tax evasion. (Not doubting Greece has a tax evasion problem, but 6/10 not paying taxes seems bad evidence).
- mysticllama 12y agosaying that 6/10 greeks pay no income tax does not tell us how much tax evasion there is, right? You're right, the 6 in 10 figure seems rather misleading. Those people shouldn't be characterized as tax evaders as I suggested. That said, it probably points to an issue of not enough tax contributors. The numbers for America are interesting, I wouldn't have guessed the rates were that high. Anyway, as far as tax evasion goes, I wonder how much a lack of enforcement allows well compensated workers to get away with claiming they're below the tax exempt mark.
- shit_parade 12y ago>So, let me be frank: Greece's debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding. Despite the rhetoric this is the problem of not just Greece but many other developed governments, notably Japan. Central banks have been goosing the time value of money in an effort to spur 'growth' because if an entity can become richer faster than their debt will grow then it's a win-win situation.
- cromwellian 12y agoI don't think you can compare Japan and Greece. Japan can afford to service their debt (for the forseeable future). The problem with Japan is long term demographics, not an economy unable to service debt.
- quonn 12y agoJapan is doing just fine. Most economists accept that it will keep on like that for a long, long time. Since their debt is in yen, in the far future they can still reset their currency. Germany has done this twice in the 20th century and while it was certainly a disaster for people who has saved some money, the economy always recovered quickly. It's the same for everyone predicting doom for the US. Let's not forget that even a currency reform does not wipe out a country. It merely wipes out all wealth stored in banks. It's bad, but it's not worth keeping everyone worried for decades, when it might just happen once in a century.
- vijayboyapati 12y agoThis one sentence sums up what I think is the fundamental problem: "An insolvency problem was thus dealt with as if it were a case of illiquidity." That is, the problem isn't some ephemeral panic where people are temporarily unwilling to lend. The problem is there are massive capital losses that have yet to be acknowledged. The problem is that Euro politicians believe that by continuing to bankroll Greece they will stem a wider panic. But as John Mills observed in a speech given to the Manchester Statistical Society in 1867, “panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works” The losses must be acknowledged. The only question is by whom? By the people who made the loans? Or will the taxpayers of Europe be called upon, as the taxpayers of America were, to eat the losses?
- arethuza 12y ago"to eat the losses" We already had to eat the losses of our own banks - look at the epic bail-out of RBS here in the UK.
- Spearchucker 12y agoUK.gov will turn a profit on RBS. RBS is not a loss.
- zo1 12y agoGetting the government to bail out your failing business? Sounds like a big win for the business. *Note. I don't know the details of the RBS issue in the UK. Just commenting on a simple interpretation.
- tedunangst 12y agoIf a business wins, is it then implied that the government must lose?
- zo1 12y ago
- jasonisalive 12y agoWhen people start writing contractual obligations in quote marks, things are getting bad.
- youngtaff 12y agoThe thing that seems to be often missed about the 'Greek bailout'is it wasn't about bailing out Greece, it was more about bailing out the German bankers who'd lent Greece more money than they should have. The Greek people were shafted by the EU, IMF etc. because they didn't want to see the German bankers take the pain. We see a similar problem with the current round of Quantitive Easing that the ECB are undertaking - they're giving the money to the bankers in the hope they'll lend it to others. Instead they should be giving it to people, so they can save, spend or pay off debt as they wish - it'll all end up in the banking system anyway but will actually do some benefit first.
- tormeh 12y agoI agree, but on the other hand Greece was taking the loans. It takes two to tango and it's both's fault. But yeah, QE should go directly and equally to citizens. Everything else is transfer of wealth from the poor to the rich.
- cyphunk 12y ago"Give the money to the people". The US did this in the form of tax credits for housing. Germany did something similar in the form of credits for car purchases. This form of giving goes directly toward an industry in need. I'm not sure how giving a blanket check helps. If the problem is consumer spending and IF this is an important driver for your economy it may have some impact but I think the problems the EU were facing were not this. So giving money to the people just sounds like dangerous populism and an action that makes little attempt to rebalance some ailment in the economic system.
- dpark 12y ago> I'm not sure how giving a blanket check helps. It doesn't help at all. We did that in the US with George Bush's 2008 tax rebates. Getting a check was nice, but I'm pretty sure the economic boost was smaller than the cost to the government.
- youngtaff 12y agoBut at the moment we end up subsidising the banks with our money so they can make more money at our expense If you want to kickstart economies then expecting banks that are up shit creek due to their past lending and investment practices isn't the way to do it. The way to do it is give people money to use as they wish and not pick favourite industries. If people save the money it increases banks capital ratios, if they pay off debt it reduces the banks loan book, if they spend it it may increase inflation through consumer prices. Some people might even use it as capital to create a new business. Our current bank focused model of QE does none of these things.
- marcusgarvey 12y agoExcellent. I fervently hope he can help call time on the "fiscal waterboarding". Here's the truth: the EU bailouts of Greece, Ireland, Portugal and Spain were mainly about protecting private creditors from taking losses on their investments. In fact this week the IMF had this to say about the Irish bailout: "The failure of policy makers to impose losses on some bank creditors at the height of Ireland’s financial crisis was a mistake that forced Irish taxpayers to foot a bill that should have been borne by the wider eurozone, according to the International Monetary Fund. The failure to 'bail-in' unsecured creditors to a bank rescue that cost Irish taxpayers €64bn and bankrupted the country was based on the view that doing so would have serious adverse 'spillover' effects in other eurozone countries, even though such risks were 'not obvious'."[1] All of the developed world bailouts have benefited the most well-connected, the most wealthy, entrenched interests, i.e. banks and investors. And in the case of the U.S. banks this has not led to an end to Too Big To Fail, in fact, they've just gotten bigger and the relatively modest reforms that were passed are now even in danger of being rolled back.[2] All of these extraordinary measures have led to paltry growth at best. And this includes quantitative easing which has not worked in Japan, has not worked in the U.S. and is not likely to work in Europe...unless you are wealthy or a bank, in which case it has worked just fine.[3][4] No wonder we have Davos-man plotting his escape.[5] Any fool can see this kind of economic leadership is not sustainable. ## [1] http://www.ft.com/intl/cms/s/0/5f3131a4-a7ca-11e4-8e78-00144feab7de.html#axzz3QKHoCwxb http://www.ft.com/intl/cms/s/0/5f3131a4-a7ca-11e4-8e78-00144... [2] http://www.stltoday.com/business/local/republican-led-u-s-house-to-vote-on-diluting-financial/article_b3f171f0-21dd-55ca-aa61-705f25e23803.html http://www.stltoday.com/business/local/republican-led-u-s-ho... [3] http://www.ibtimes.com/was-qe-effective-europe-awaits-qe-questions-remain-about-its-success-us-1793564 http://www.ibtimes.com/was-qe-effective-europe-awaits-qe-que... [4] http://economix.blogs.nytimes.com/2013/09/10/the-rich-get-richer-through-the-recovery/?_r=0 http://economix.blogs.nytimes.com/2013/09/10/the-rich-get-ri... [5] http://www.theguardian.com/public-leaders-network/2015/jan/23/nervous-super-rich-planning-escapes-davos-2015 http://www.theguardian.com/public-leaders-network/2015/jan/2...
- leroy_masochist 12y agotl;dr: "This time it's different." The piece was more persuasive than I thought it would be, and Tsipras' diagnosis of the cause of the problem is dead-on: this is a crisis of insolvency, not illiquidity. The problem with what Tsipras is asking for is that markets get a vote, too, and the outright forgiveness of Greek debt would cause massive upheaval -- potentially to the point of making the EU itself unsustainable. I think the only way the Germans will agree to debt forgiveness at meaningful quantums is if Greece leaves the Euro currency union and goes back to the drachma. That would send a powerful message to the financial markets -- "you get one mulligan, and the price of that mulligan is leaving the Eurozone". Of course, Tsipras doesn't want that. He wants a "European New Deal", the details of which he provides rather sparingly. My guess is that if he were to flesh out these details, Germans would find them not only unreasonable but laughable. The "wild card" scenario is if SYRIZA undertakes a project of massive wealth confiscation from the Greek elite. That actually might move the needle of German public opinion--one of the biggest points of outrage among the German people over the last 5 years has been the juxtaposition of media coverage of the excesses of wealthy Greeks (and their creative non-payment of taxes) with the math of how much each German family was being asked to give to rescue Greece. Start levying massive one-time luxury taxes on Greek-domiciled assets of Greek citizens (with asset seizures as penalty of non-payment) and maybe you get enough schadenfreude flowing in Germany to meaningfully alter public opinion.
- Fiahil 12y agoThe "wild card" scenario seems especially accurate, as he speaks a lot of "ill-gotten privileges" and "major reforms" towards the end.
- lovelearning 12y agoPaul Krugman's opinion on this is rather eye opening. He feels even Syriza is not radical enough! [1]: http://www.pennlive.com/opinion/2015/01/new_pms_plan_to_save_greece_-.html http://www.pennlive.com/opinion/2015/01/new_pms_plan_to_save...
- bostich 12y agoI am German and have had a very negative opinion of Tsipras. He makes some very good points in this letter and his view seems to be consistent. I can understand his position and my opinion of him has improved a bit after reading the letter. Nevertheless I see no solution, only 3 possible bad outcomes: 1. Europe loans more money to Greece and we can be pretty certain that they can't pay it back. 2. Europe gifts money to Greece (forgive some of the debt) to temporarily reduce their debt and after a few years we are in the same situation again 3. Greece defaults on its debt (and maybe exits the Euro) and can't borrow money for the foreseeable future. None of these options looks particularly desirable and imo Tsipras doesn't help the situation when he says to hell with it; let's rehire all these public servant. We don't have the money for that but it wont matter much regardless which possible outcome becomes reality
- pvaldes 12y ago> only 3 possible bad outcomes 4. All south European people stop buying german products until the end of the actual bullying. This is a no-no win for all. The fact that the german people are not the same as the german government can not be ignored. Germans are suffering also this trap, carefully placed by a few. People at the South were increasedly thinging that a percentage of the debt is simply faked by banksters and not our responsability at all.
- throwaway800 12y ago4b. Northern Europeans stop visiting and spending money in Athens, Rome, Algarve, Canary Islands, and buying Mediterranean produce until the end of Northern-sponsored dolce vita. This cuts both ways, and the ultimate end is economic war and possibly real war.
- atmosx 12y agoThe Irish and the British are Northern Europeans? Because I'm not getting the feeling the majority in either of these countries would like to join the Germans (in any kind of game...).
- teamhappy 12y agoMost of you, dear Handesblatt readers, will have formed a preconception of what this article is about before you actually read it. [...] Prejudice was never a good guide, [...] How does he not hear himself? Also, "Handelsblatt" is missing a letter. Anyway ... I reject the premise of his letter. He seems to think the purpose of the money was to help the greek people, and offers a more productive way of doing so. That's all fine, but I'm pretty sure the sole purpose of the money was to save the Euro. Whether that's ethical is debatable, but I think it's important to remember that Greece has messed up quite a lot of things without considering how that might effect other EU member states; ignoring at least some of their responsibilities. But that's a different story entirely. His tone is utterly disrespectful, if you ask me. I'm really not sure who he thinks he is or what he thinks he's doing, but I know for a fact that a lot of my fellow germans aren't gonna like being spoken to in this tone of voice. He mentions fear and anxiety a lot. I don't know what he means by that. We're quite calm, as far as I can tell, and I can imagine that scares him a little. Germany is one of the riches countries on this planet. We will do almost anything to keep it that way. I appreciate that he needs to sell his own agency to his people, but if he actually believes he can control the fate of his country even so slightly, I'm afraid he's delusional. Just for the record: I'm neither proud of nor happy about how we treated the greek people, but I'm tired of pretending this is about anything but money.
- jacquesm 12y ago> That's all fine, but I'm pretty sure the sole purpose of the money was to save the Euro. It actually hurt the Euro. What it did do is save/prop up some very large French and German banks. Nothing like gambling with other people's money to see if you can come out ahead and ask for a hand-out if your plan fails. http://www.bloomberg.com/news/articles/2011-06-05/german-banks-top-french-with-23-billion-in-greek-debt-bis-says http://www.bloomberg.com/news/articles/2011-06-05/german-ban... The cynic in me says that no single politician that supported the bail out ever expected that money to be paid back. Greece would have to completely change its culture in order to be able to pay those loans back.
- teamhappy 12y agoWhat I was trying to say is that most politicians at the time (this applies to the US as well, I guess) were willing do to almost anything to stop the collapse, even if that meant hurting the Euro in the long term. The (somewhat hypothetical) alternative could have been a lot worse.
- bibabo 12y agoSome notes: 1. Greece is talking about Germany because it helps mobilize masses. Germany does not decide on it's on on this nor is the most agressive player. Most northern and eastern countries are more agressive in their opinion against Greece. But it helps to mobilize Greek masses with a simple enemy. 2. Greece has defaulted have a dozen times in modern times. This is the Greek way of doing things and will continue, whatever the EU, Germany or the IWF thinks and does. 3. People in Greece don't think of taxes as something you have to pay. Many Greeks stopped paying taxes the last months in anticipation of a new government. This will not change and is the main driver for Greek defaults.
- atmosx 12y agoSome counter-notes: 1. That's b*shit. It's Germany all way. The Fins and Dutch are easy to bend. 2. Germany has defaulted 3 times in the last 100 years. The Marshall plan was issued in 1948, otherwise now Germany would be worse than you date to imagine + wars damages to Greece were never paid. 3. Why don't you come live in Greece and find out. Try to deal with the state, then run a business WITHOUT tax-evading in this environment. Then share your knowledge, show us how you did it.
- bibabo 12y ago1. The Baltic states, Poland, everyone except the southern countries (and I assume Spain with a thriving economy in 2014/2015 will join the club when unemployment drops) is on the same page. But as an excellent demagogue Tsipras knows he needs a simple enemy (Germany) to rally the mob. 2. Yes Germany defaulted, but did not make it it's modus operandi. Excellent that you've brought up the Marshall plan: The Marshall plan was essentially the same as what the EU imposes on Greece: "The Marshall Plan required a lessening of interstate barriers, a dropping of many petty regulations constraining business, and encouraged increase productivity, labour union membership, and the adoption of modern business procedures." http://en.wikipedia.org/wiki/Marshall_Plan http://en.wikipedia.org/wiki/Marshall_Plan Where it differed: Beside that the Marshall Plan required European countries (beside Germany e.g. France, Britain, essentially everyone else) to buy from US companies: "Much of the Marshall Plan aid would be used by the Europeans to buy manufactured goods and raw materials from the United States and Canada. [...] The Marshall Plan aid was mostly used for the purchase of goods from the United States" (Same source) Last interesting tidbit from the Marshall plan "The first substantial aid went to Greece and Turkey in January 1947". (Same source) Indeed Greece got nearly twice the money from the Marhsall plan per person compared to Germany. (For comparision Germany got 1.5B, Greece 0.4B, UK 3.3B, France 2.3B) 2. On war damages: I agree they were not paid and I agree with you on moral grounds, but I'm not sure it is economically relevant. The billions from the EU and the (2015 Euro) Marshall plan did not help, so I would not assume paying war damages would put Greece in a different situation. Except perhaps this makes Germany (see 1) a nice enemy. While we're at war damages, I don't think Greece has paid war damages for any of the wars it started over the last 2500 years. The invasion of Turkey, the baltic war or going back to the support of Alexander the Great - I wonder if Greece paid war damages to Iran for that. Or to Italy for the occupation and exploitation of Sicily (or the other colonies when Greece was an imperialistic colonial power house). So while I agree that Germany should have paid damages on moral grounds, this is a very slippery slope. 3. Tax cheaters always find moral explainations for their behaviour.
- arca_vorago 12y agoHere is what I want to know. What role does the Greek central bank play? What is the fractional reserve rate in Greece? What is the interest rate set by the central bank? How is the money generated in the first place and what are the return rates and restrictions on that method (eg: in US it's treasury bonds)? I'm increasingly convinced that central banks operate only marginally on the interest of the country they serve, enough so they don't ruin everything, but instead are primarily (and counter to what many economists will say) working for their own profit. Keep in mind that profit is actually usually in the form of political and economic power, but not money directly. Of course I'm coming from the American perspective where I think the Federal Reserve Act was passed on suspicious circumstances by suspicious men for suspicious reasons and that congress should stick to the constitution and control coin itself and not allow some outside potentially foreign entity to control our money system, but hey, every economist I know just says trust the Fed so they must be right.
- junto 12y agoIf Greece was to finally capitulate to the markets and declare bankruptcy, how different is that to the 2001 Argentina default? It seems crazy to me that banks are allowed to deal with corrupt inept politicians who accept debts that are not repayable on the behalf of a country's people. Countries should be allowed to declare themselves bankrupt and after should follow a period of distrust not unlike personal bankruptcy. As a result banks would think twice before lending to poor debtors. Or is this a completely niavie viewpoint? I'm not in any way an economist so I'm genuinely interested to hear people's thoughts
- jcfrei 12y agoTsirpas article is as shallow as it is boring. His statement "Greece's debt is currently unsustainable and will never be serviced" is a typical, bold, populist statement, twisting reality. Greece's debt would indeed be sustainable, if it wasn't for Tsipras' recent claims that they would rehire some recently laid of government workers and stop the privatization process. The debt is serviceable, it just isn't repayable. But that's no problem since the ECB can always take over these bad loans, once the Greece government has fulfilled all the requirements for reform. When he says in his last paragraph: I understand that, behind your 'demand' that our government fulfills all of its 'contractual obligations' hides the fear that, if you let us Greeks some breathing space, we shall return to our bad, old ways. Then this is exactly the reason why the debt needs to be retained. Tsipras has already proven with his recent actions that he's very tempted to return to the "bad, old ways" of Greece government spending. European solidarity means helping out equal partners in the union, it does not mean funding dysfunctional governments at the expense of others.
- imarg 12y agoThe "rehiring" refers actually to only a relatively small number of employees (~3500) that were unlawfully fired. They went to court and won their case but the previous government still refused to take them back. And because most of them were actually suspended and not really fired they were still receiving 75% of their wages. This means that financially speaking the extra cost is a drop in the ocean. I do not know if Syriza's politics/policies will be successful but keep in mind that most of what is circulating in media, both in Greece and abroad, are usually half-truths and sensationalist journalism. When the crisis started a lot was written about Greece's big government and its spending. After the dust settled down and more dispassionate voices were heard, a good look at the data showed that Greece's government and spending was more or less around the EU average. But by then no one was paying attention.
- netcan 12y agoEurope had and has a fundamental problem in its dealing with sovereign bankruptcy, or insolvency as Alexis Tsipras puts it. The reality is that the government of a state cannot go out of business and make way for a new one. But, it's not uncommon for states to become insolvent. State collapse is not an option. The way it is normally dealt with is inflation, which is kind of treated as default by economists but not really by financial markets and law. The print money which (A) can be used to continue operating and (B) reduces the value of the debt (sovereign and private) as the currency devalues. The 'C' is one that Greece really needs. It's also one of the hated (or loved) mystery components of "Keynsian" economics. Inflation lowers salaries, and other pre-agreed contracts. It allows (for example) houses to sell at a lower (real) price without the "animal spirit" responses involved when someone sells a house 5 years later at a 15% nominal loss. There's debate in pedantic circles about whether this effect is indeed emotional or if it's related to mortgages being denominated nominally and other "rational" reasons. Whatever the theoretically best way of understanding it (the two most vocal sides are Austrian vs Keynsian economists with actual politicians usually adopting a confusing mix of both vocabularies), it remains the case that the tried and tested (though certainly not free) solution is printing money. The German solution is just to stay solvent. They manage to do it and they want other EU countries to do it too. This is a combination of strange optimism, stubbornness, fear of inflation and belief in Beaurocratic controls (which work better in German than in Greece). This is the core of the issue. A State that runs its own budget (a fundamental EU principle) that does not control its own currency (a fundamental EU principle) cannot make it through insolvency. One option that I quite like is letting states go into a sort of "bankruptcy." The banks would have to take the hit. This means the system must be robust against bank failure (which is easier to swing than state failure, but we're not there at this point. Too big to fail, Systemic risk, etc.) But, that doesn't prevent the problem overall. It prevents states from digging quite as deep as their interest rates rise sharply, but it doesn't completely block off the risk of failure. I don't really have a solution. I don't like the Keynsian approach, but it is popular because it offers a solution to recession and state solvency at the same time. We can see similar things happen in sub-state governments. US cities & States (provinces elsewhere) can go bankrupt. They are locked into spending on salaries, physical maintenance and such which require future revenues that were never realistic or haven't been achieved for some other reason (eg migration). They control a budget, they don't control a currency. The EU needs to solve this in a way that doesn't make it happen again. bailing out Greece with an actual cash transfer would not achieve this. It would (A) make it easier for other EU states to get into the same trouble and (B) take the pressure off Greece to do what they need to do, become solvent. Greece's governmental spending is unsustainable. Not of the currently declining tax revenues. Not on the pre-austerity revenues. Not even in a best case scenario. Inflation causing a (quite but extensive) reduction in government salaries, contracts, pensions, etc. is not an option in the EU context, but it may not have been enough anyway. It's actually quite scary. I have no idea how they solve this. I have no idea how the EU gets "fixed." I use Keynsian quite loosely. It's only tangentially and perhaps spiritually related to John Maynard Keynes the person. Printing money doesn't always work either. Hyperinflation can destroy the State. Borrowing in foreign currency (as the poorest countries must do) takes away the option.
- cyphunk 12y agoAs other comments have pointed out, and Tsipras pretty much says himself in this article, good money was thrown at bad but was done so not to prevent a productivity fallout in Greece but to prevent one in the rest of the EU or world. And now Tsipras is arguing bluntly that Greece's economic system will not rebound as expected because it's productivity problems are deeper than liquidity. It is worth looking at Detroit here. Not because of where they are similar but where they are not. Detroit could not repay debts and required restructuring (aka hair cuts). Importantly they decided the type of hair cuts on their own. They had to do this because there was no Federal bailout. Michigan agreed to pay 194 mil for pensions as a lump some (aka a gift) but Detroit had to sell off assets, renegotiate with creditors on their own and reform where they could. But again, they did this because they knew they had to. It wasn't directly dictated by "The Union" (Fed). Importantly they were given some breathing room because at least some portions of social services providing stability are Federal (social security, medicare, medicaid). And though they just exited bankruptcy it's likely without investment from overloads (state and federal) a full recovery will not happen. Or at least, investment will certainly help that become more possible. What is missing in the EU are these social safe guards. And it seems a good time to build them. Rather than dictate to Greece how to alot retirement or social welfare or other social services, they should provide a baseline EU wide option for entities that default. This option makes it easier to let them get at least as close to default as is required for them to be in a place to consider what changes they could make to provide future stability. And when it comes to bailouts it should come in the form of investment. Both seem to be a rather obvious steps in maintaining the Union and providing greater trust and integration. Anything else should be decided in negotiations only after Greece begins the hard negotiations with its creditors after all accept imminent default.
- squozzer 12y agoThe situation bears a certain resemblance to a period of history in the USA between the successful bid for independence and the ratification of its constitution. During that period, the articles of confederation was the document in force and among its many disasters was economic chaos. It was a monetary union (actually not even that as each state printed its own money but efficient currency exchanges were still a century or two in the future) without a political union. I didn't invent that phrase - Der Speigel mentioned it several years ago in reference to the Greek crisis. And while I lack the expertise to prescribe the form of a "more perfect union" in Europe, the USA can at least address competitive imbalances bewteen states through a process of income redistribution. Take for example West Virginia. It perennially ranks in the top of USA states that receive more federal money than it generates in federal taxes. Some people complain about this, but most accept it if for no other reason than the knowledge that WV is DC's fallout shelter. Last time I checked, only two or three German Laender (sorry for not using umlauts) generated net positive federal revenues. Certainly some Germans complain about it, but it's not realistic to expect every political jurisdiction to break even on the tax / revenue ledger. Both Germans and Greeks (and everyone else in the EU as well) should be willing to bear some of the blame and some of the burden as well. The Germans are smart enough to know one cannot maintain a competitive advantage forever without bankrupting one's customers. If beggaring the Greeks was part of the plan, then EU rests upon a foundation of bad faith and does not deserve to exist. The Greeks are smart enough to know that remaining uncompetitive is also not sustainable. If mooching off the Germans was part of the plan, then the EU rests upon a foundations of bad faith, you know the rest.
- peshkatari 12y agoThe author also forgets to tell the german people that he is going to just steal from them 160€ billion.
- bcheung 12y agotl;dr If there is a fire, you can't put it out by drenching it with gasoline.
- fdik 12y agoGerman translation: http://blog.fdik.org/2015-01/s1422553522 http://blog.fdik.org/2015-01/s1422553522
- fdik 12y agoGerman translation: http://blog.fdik.org/2015-01/s1422553522 http://blog.fdik.org/2015-01/s1422553522
- deleted 12y ago[deleted]
- jongraehl 12y agoPoor Greece. Exports so low. Wages and local prices so high. But nobody will hire anybody. They voted for the impossible. Better inject some more capital; they're expecting it.
- bibabo 12y agoMain point is: Poland got a lot of money from the EU and worked hard and today is a prospering country. Greece got billions from the Marshall plan, billions from the EU through many programs, cheap credit based on the Euro and squandered all of it.
- marcamillion 12y agoCan I say that it is quite refreshing to see a politician talking straight & frankly with the stakeholders publicly about what the issues are and the way forward no matter how bitter the medicine. It is quite inspiring actually. I feel like going to Greece to help. I hope they follow through, and it works!
- bibabo 12y agoAs Tsipras and his party compared Mrs. Merkel to Hitler, what is happening to Greece to the Holocaust (implying fired state employees have the same fate as victims in concentration camps) and calling the German finance minister 'Gauleiter' this is a tough sell.