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If you look at the Greek situation from an American lens you will mistakenly consider debt forgiveness to be a solution to the Greek problem. There are two big
by npalli 11y ago
If you look at the Greek situation from an American lens you will mistakenly consider debt forgiveness to be a solution to the Greek problem. There are two big issues with the Greek situation that go beyond the debt forgiveness issue
1. Even if substantial portion of the debt is forgiven, the Greek state runs a deficit with a corrupt clientalistic system built since 1980 that provides Denmark type social benefits with baltic-area economy. Unless this social structure is completely reworked in line with the fundamentals of the Greek economy, there will always be a mismatch and Greek will continue to need bailouts. BTW, this is Europe wide problem where old people voted massive benefits for themselves in the past thirty years and adjustment is needed. Greece happens to be the most extreme case of mismatch. As Angela Merkel says, Europe has 7% of the world population, 25% of the economy and 55% of the social programs. In contrast, the US is only 20% of social spending (if you don't include military). So the US lens is always towards more social spending.
2. Moral Hazard across the Eurozone, debt forgiveness for Syriza will embolden other left wing parties in Spain (Podemos) and Italy to make noise and 'democratically' choose to default on substantial portion of their debts. Spain and Italy are much larger economies with much larger debts, if they decide to default it will lead to massive problems in the Euro area. The German solution is to make the Greek situation so utterly painful (via Grexit if needed) that much bigger problems with Spain and Italy don't come down the line.
- TheOtherHobbes 11y agoPlease explain why public spending for public benefit counts as "moral hazard", while public spending on bank bailouts, corporate welfare, and the opportunity costs of chimerical QE lending is a moral necessity? Or why the IMF is perfectly happy to lend money it will never recover to the bankrupt Ukraine, but considers Greece to be beyond the pale? Or why Germany - which has actually had more debt forgiven than any other country in Europe - has somehow managed to persuade everyone that it's a unique model of fiscal probity?
- npalli 11y agoPublic benefits such as this -- http://www.dailymail.co.uk/news/article-3148451/A-island-pretending-blind-benefits-8-500-pensioners-faked-aged-100-lawyers-claim-earn-just-12-000-New-book-reveals-Greeks-cheated-ruin.html http://www.dailymail.co.uk/news/article-3148451/A-island-pre... Plus greeks cannot collect taxes. Tax collectors are threatened ("break their legs") http://www.businessinsider.com/greeces-former-tax-collection-chief-harry-theoharis-explains-tax-evasion-problem-2015-7 http://www.businessinsider.com/greeces-former-tax-collection... Ukraine doesn't have a social system that approximates Northern Europe level percentage and they collect taxes. The debt that Germany owed was imposed by the Victors of WWI and WWII, it wasn't that Germany bankrupted itself into ruin by spending more and not collecting taxes. Pretty hilarious to see people compare Greek situation to Germany after world wars.
- gizmo 11y agoAre you for real? When a war ravages your country and destroys your cities you can't send the bill for the reconstruction to the aggressor? THAT is somehow immoral or illegitimate debt that deserves to be forgiven?
- gizmo 11y ago1. Greece needs reform, this not disputed. However, corruption and the size of their welfare system are not the cause of this crisis. The conservative parties in Europe want to dismantle the welfare system and they're simply exploiting the crisis for this purpose. 2. The banks got a huge bailout as a reward for crashing the economy. How's that for a moral hazard? But when it comes to funding for schools, hospitals, and the rest of the population who got stuck in this depression through no fault of their own a bailout is suddenly a moral hazard? Your view is morally abhorrent.
- npalli 11y ago1. The welfare system is unsustainable, given European demographics and economic situation. So, adjustment is necessary. Having a balanced social system in line with what your economic situation is doesn't mean dismantling everything. 2. Somehow people think Banks are this magical entity that creates money out of nowhere. Or that some hedge fund money is in the bank. The money that Banks have are deposits of other common people!. So if you don't pay the banks then some common person on the other side loses money. Yes, money that could have been used for schools, hospitals etc. So when Greek people borrowed money, spent it all and now don't want to pay it we are supposed to feel sorry for them. But, the German/French pensioner who has already lost money during prior debt relief in 2010 and 2012, we shouldn't feel sorry for them. Something about Nazis and WWII etc. etc. Strange ideas.
- gizmo 11y ago1. The welfare system in Europe is entirely sustainable in the long term. It's just a matter of national priorities. Conservatives consistently attack the social safety net: in their view the government is always "too big", taxes "too high", and the welfare system "too expensive". A welfare system can also be large and balanced. Just raise the taxes necessary to pay for it. 2. Greece CANNOT pay the money back, because they don't have it. The question that remains is whether we punish the Greek people for something they had no say in and did not benefit from. I say punishment here is counterproductive and immoral. When banks or institutional investors make dumb investments they have to lose their money. The responsibility for due diligence lies primarily with the lender. The amount of interest they charge is compensation for the riskiness of the loan. The banks decided to lend money to Greece and Germany at the same interest rate. That's plain insanity. You can't expect financial mastery from regular people, but you can --and should-- demand it from billion dollar pension funds.