Back to: Bubble 2.0 | Forward to: Stuff

This is what the future of the EU hinges on

Lots of meaty analysis from Paul Mason, economics editor at BBC's Newsnight, on the nature and origins of SYRIZA, the Greek leftist bloc that is opposed to German-imposed austerity measures (as opposed to PASOK, the main centre-left party, which is reluctantly going along with things).

SYRIZA is an umbrella organization with a bewildering, mangrove-like array of tap-roots. It's also quite possible that there'll be a new election in Greece next month—if the current attempt to form an emergency government of national unity, being brokered by President Karolos Papoulias, fails—and SYRIZA will get to form the next government.

As Mason notes:

the resulting government may, in effect, be little more than a left-social democratic government, despite its symbology and the radicalism of some of its voters. By forcing the mainstream parties into positions where they could not express the will of the majority of centrist voters, the EU may end up destroying the Greek party system as it has been shaped since 1974.

Meanwhile, I note with interest that Greece has the highest per-capita military budget in the EU, the military budget has barely been touched by the austerity measures devastating the rest of the Greek economy, that Greece imports most of its weapons from Germany and France (generously funded by German and French bank loans), and that the military, within living memory, have taken an over-active role in Greek political life. (One hopes that the fate of the junta will act as a salutory warning to any would-be successors.)

265 Comments

1:

Wouldn't be surprised to a Junta(ish) authority back in power in one of the current Southern European Euro countries in the next few years, sadly.

2:

that Greece imports most of its weapons from Germany and France (generously funded by German and French bank loans)

I was reading this about much of what Greece was buying over the last 10 years or so. Stuff from Germany funded with German loans and now the Germans telling the Greeks they shouldn't have borrowed so much.

Since when are loans a one sided contract?

3:

Ten or 15 years ago I cracked a joke that went something like:

Thanks to the EU, the next time Europe fights a war one side will be shooting at the other with bullets it bought from the enemy.

Huh. I'm amazed at how flippancy can stand in for wisdom.

4:

I'm not sure about the future of the EU - that has its own momentum - but it looks like Greece is already settled. They've chosen poverty over austerity, and the rest is just dickering over who gets to keep the pieces.

What I'm worried about now is that the northern EU states will become angry about the Greek default dragging their recovering economies back down, and refuse to send aid when they have a bad year and run out of food.

(It will be completely impossible for Greece to import anything commercially for decades, so they're going to have to rely on what they can grow themselves or convince other nations to charitably donate)

5:

You're massively overstating the case against Greece. Kindly desist.

Here's a hint: they have a big tourism industry, and devaluation/ejection from the Euro will make them a cheaper tourism destination than they are at present. Eventually an equilibrium position will be reached. What's mostly likely along the way is a wipe-out of personal savings, and horrendous problems for the government if they ever want to issue bonds. So they're going to have to tool up their tax system. But starvation? Don't be silly.

6:

You mean, like Iceland?

7:

FWIW, I used to work for a Greek company in the early 90s (pre-Euro; I still have the Drachmas) and spent a bit of time in the office, there. One comment made by one of the natives was that it wasn't worth them saving money; inflation was so high that by the time they'd saved to buy (for example) a TV then they could no longer afford it.

Is that what they're going back to?

8:

Spain is next, or possibly Portugal.
Then Italy.

9:

I keep wondering if and when Greece (and perhaps some of those other Euro countries saddled with a large debt) will "do an Argentina" and simply repudiate all debts. It won't stop the tourist from coming there.

Also, Greek military spending is a very special case because of the presence of Turkey next door and more or less stable ex-communist states all around. This is where a reading of J. R. Marriott's "The Eastern Question" might be useful. Except that you have to place the name "U.S.S.R." where you read "Ottoman Empire", and place "Turkey where you read "Russian Empire. At least most of the time.

10:

While I generally agree with the overabundance of Greece military in its budget, you should not forget that Spain has less debt than Germany (compared to its gdp), yet still has the same draconian austerity measures imposed on it and very similar unemployment figures as Greece.

It seems rather a certain Germany hubris that their way has always been the right way, after going through massive austerity measures for more than a decade now. Of course, you couldn't tell from German media that insist that Germany does everything right ... except that German real wages are shrinking and German economy has grown less than the rest of Europe. In other words, Germany is doing worse than the rest of Europe but a lot of Germans have been sufficiently deluded to think that Germany is in fact the best of the bunch.

11:

Just like the USA ;)

12:

@Charlie: yes, tourism is great in Greece, but the massive inflation deriving from dropping out of the Eurozone (unless the two-speed Euro is introduced faster than Greece can get ejected) would leave them unable to buy things like oil and gas. Tourists might still want a warm shower at the end of the day, and would prefer to use a bus rather than a mule :)
Mostly, given the totalitarian past, the volatility of the present, and the current fortunes of right wing factions the future might actually look a lot more like Haiti than Ibiza.

13:

Ireland & Portugal first, then Spain, then Italy, but if the house of cards scenario happens, the sh*t hitting the fan would be thick enough to make matters a little unclear.

14:

A question from ignorance: how viable is an Euro devaluation to try and exchange some inflation for some employment across the whole Union? I guess Germany won't like it, and Sarkozy's France wouldn't either, but what would Hollande think about it?

15:

Hungary is already there.

16:

Greece will be scapegoated by Germany and all the technocratic parties in France and the UK and so on, no matter whether they're in power or not. But when Spain and Ireland threaten to default and pull out of the Euro, it's going to be harder to blame everyone else (though the Germans will probably be as shrill about it as they can), and there will be popular pressure in other countries to stop the austerity programs. At some point I suspect there will be a further wave of elections that depose the technocrats and put in populist governments that are willing to stand up to Germany and the central bank. We can only hope that none of those populist victories goes to fascistic nationalists like the Front National or the BNP.

17:

Paolo - profesdional economists in the US believe the post-departure inflation would hurt less than austerity is now. The idea that you can impose a depression to recover is considered folly over here. We frankly don't know what went wrong with Germany's economists that they thought this was the right approach.

The rest of the EU would do best to kick Germany out of the euro for six months, let the Mark deflate in relation, then let them back in. Germany won't go for that because their current prosperity is based on exports to the eurozone. Which that would stomp on.

The alternative is for those in distress to leave one by one. Which is messier but doable.

18:

"They've chosen poverty over austerity"

The austerity is also poverty. Worse poverty, even. Contractionary policies are what you do to take the heat off of a boom, not in the middle of a depression.

"It will be completely impossible for Greece to import anything commercially for decades"

Man, what?
The usual story is that a default makes it impossible to *borrow* for decades. I don't think even that's true, but there's a huge difference between state borrowing and imports.

19:

FWIW, it looks like there is some movement in Germany, finally: a bundesbank official commented that Germany may need to tolerate higher inflation, in order to facilitate rebalancing within the eurozone: http://www.spiegel.de/international/europe/bundesbank-signals-germany-would-accept-higher-inflation-a-832457.html

20:

*Haiti*?

Greek GDP per capita, PPP: $26,000
Haiti: $1200

How's that supposed to happen again?

Argentina would be a much better model, including the authoritarian past. GDP/capita $17,000. Currently suffering high inflation but also near full employment.

21:

I don't see how personal savings will be wiped out when there's nothing stopping Greek savers depositing their money in a German bank before departure from the Euro.

The wealthy ones have surely done so, years ago: as always, it's the small investors who will take the losses.

Meanwhile, I don't think the Greeks will starve, either. Tourism and remittances from gastarbeiter will buy gasoline and keep the lights on; agriculture will feed them - if export controls (or EU protectionism) - prevent the farmers exporting all if it for hard currency.

I don't think that all those German motor cars are going to be replaced real soon, though - there are towns in Greece with more Porsches and Beemers than taxpayers - and the owners won't have currency to buy another, any time in the next ten years. Just as well the Germans build to last.

Which leads me to the big, big issue: corruption and the laughably-porous Greek taxation 'system'. PASOK haven't got the will to try reforming it - and very little progress has been made since 'Beware of Greeks Bearing Bonds' was published two years ago - and I doubt that any right-wing 'national salvation' government will even try: dictatorships are notoriously corrupt.

...So no tax base to service the government's debts.

One debt that they *can* default on, without hurting anyone who matters, is the finance for those shiny tanks and submarines and military aeroplanes. One of the many undisclosed subsidies for the arms industry is that they always get an export credit guarantee (insurance against nonpayment) from the manufacturer's home government.

Which means that French and German banks (and the direct investors in the arms companies) are not 'on the hook' for a default in the same way that these politically-influential players are for (say) the collapse of Irish or Spanish banks with a significant exposure to those countries' property bubbles.

I suspect that we will see a lot of Greek banks taken over by foreign competitors - they're good businesses to buy, a bit of corruption but Greek banks haven't done the stupid things that everybody else's did - because they're probably haemorrhaging savers' funds to Germany and their regulatory reserves of Greek Government debt are worthless, rendering the banks insolvent.

Which leads me to wonder how much else of Greece will be bought out, after their ejection from the Euro, devaluation, and a spell of double-digit inflation. If too much is sold overseas (or privatised). the country will be leaking so much money that they will be unable to reflate their economy...

...So they may be trapped in poverty - ir dependence on low-wage tourism and remittances - for generations.

22:
But starvation? Don't be silly.

Starvation isn't impossible but it is unlikely to happen on any scale. What is likely is food shortages - particularly of specific types of food. Rationing is possible, and anger and rioting about distribution of food to the wealthy (what few remain - and a few always remain) seems quite likely.

they have a big tourism industry, and devaluation/ejection from the Euro will make them a cheaper tourism destination than they are at present

While true in a sense, lower prices doesn't guarantee enough volume to make up the same revenue, and they won't be able to import things for any less, so their tourism industry might fund the import of less stuff than it currently does. Certainly nobody will sell them anything on credit, and industries other than tourism are likely to take a big hit.

Will it be enough to fund import of all essentials they can't get locally? Oil - their fields are almost gone - and food being the major ones. Hard to call. But I'm not talking about "will they be okay next year?", I'm thinking more along the lines of "what are the odds of them not having any disasters in the next few decades?". Food's the worst thing for this because you can't really store it all that long, so even a brief cash crisis could be very ugly.

One dry summer when the crops fail and the heat drives away tourism would be all it would take.

I'm not saying it's going to happen for sure; I'm saying it's a risk and a really scary one.

23:

@Charlie: While a left-wing anti-austerity gov. is a possibility, I'm worried that the Greek people voted a nazi party into parliament; not right-wing populism, but all-heil-dem-führer nazis. Weimar 1932, anyone?

24:

Hope you (they) are right. For those who mentioned Argentina, I hope you are right too, but I wonder if you might not be considering two things: the fact that Greece will switch currencies in the midst of a crisis: Argentina (correct me if I'm wrong) simply unpegged it from the dollar and let it devaluate. The Greek return to the Drachma might be quite more dramatic. Second: Argentina has immense natural resources, powerful agricultural production. Greece has olive oil. Ok, I'm exaggerating a bit, but you get the point. If tourist will keep going there or not might depend on how much of a fascist state might result from a modern day Weimar Republic.

25:
The austerity is also poverty. Worse poverty, even.

Certainly they're both pretty bad, but "worse" is a bit of a stretch. Austerity would have held their economy stable at a low level. Default will crash it harder in the hope that it recovers sooner without their old debts weighing them down. Nobody really knows whether it will work, and it's academic now anyway. The Greek people have made the choice which was their right to make, and in a few decades we'll know whether it was a good idea or not, which will also be academic by that point.

Contractionary policies are what you do to take the heat off of a boom, not in the middle of a depression.

Ah, Keynsian economics, I was wondering when somebody would wave that around. Great idea for countries with strong economies, which is why places like the UK and France are borrowing money at an increased rate to get their economies moving again.

It doesn't work for countries like Greece, because what Keynsian economics says they should be doing right now is borrowing money, and there is nothing they can do to convince anybody to lend them any more money.

Both austerity and default are contractionary policies. They didn't have any non-contractionary options on the table. That's why they were screwed.

26:

It's not obvious to me that Greece can pull an Argentina.

Argentina had a lot of things in its favour, including a certain amount of regional and global heft, a primary surplus going into the recession, and a favourable export specialization (soybeans) that helped sustain a trade surplus that in turn helped the country when it was isolated from global credit markets. Argentina's issues had to relate to currency and debt issues that were easily fixable. Perhaps most importantly, domestically Argentina had fairly capable and popular leadership in the person of Kirchner.

Greece, in contrast, is a small and relatively poor European economy that hasn't had a surplus--budgetary, trade--in my lifetime and has an economy built on a resource (Mediterranean tourism) that has any number of regional competitors. Shifting to a drachma wouldn't necessarily help things: besides introducing an unpredictable exchange rate in the context of general economic unpredictability, tourism operators are going to have to finance their operations somehow, at some irreducible level. As for the Greek political classes, well, maybe the new SYRIZA leader can do better.

One good way to minimize the pain of the economic shock in the case of separation from the Euro would be to sharply increase remittances, true. To do _that_ emigration from Greece might have to hit Latvian levels. That scale of emigration has negative implications for Greece's long-term economic future, especially if it becomes a new periphery.

27:

To do _that_ emigration from Greece might have to hit Latvian levels.

Back in the 70s there were already a lot of Greeks working in Germany and sending money home. My now wife got to know a lot of them.

Is this still true? Are there still a lot of Greeks working in Germany, France, UK, etc...?

28:

Those living in the EU, take this as an honest question. Not as an insult please.

In the US the general feeling is the Greeks, as a society/county, ran their credit cards to the max and now don't want to pay the bills. And that in general the Greeks don't feel they need to work much for a "good" life.

Is this an opinion shared by much of the EU or just a distorted view of things from across the big pond.

Not that the US isn't trying to see what the max is on our credit cards by experimenting with them till we are declined. But I get the feeling our tax compliance rate is way higher than that of the Greeks. Or Italians. Or ...

This is not a statement of how the austerity plan was better than more borrowing. I really don't see either as wonderful options for Greece.

29:

Argentina would be a much better model, including the authoritarian past.

Plus they both fought a war over a small island that still represents a sore subject for both.

30:

Back to the future of the EU?

Does anyone have a rational plan for how to have a single currency and a dozen or more fiscal policies driven by governments of wildly varying goals?

From my view in the US I never did understand how it was supposed to work over the long haul.

31:

One aspect of this issue that has not been widely talked about in the discussions about Greece's debt problems is where did the money come from? The answer is more complicated then the simple answer (German and French banks) because of macroeconomics.

The French and German banks had too much money and had to get rid of it else it would (and should have) created inflation. In an attempt to deal with so much money, interest rates became very low (too much supply). But there is effectively a floor at how low interest rates can go (yes negative interest rates have happened, but very rarely and the private banks wanted to make a profit), so the banks became less choosy about who they lent too, so in an attempt to get rid of the money, they lent to countries that they shouldn't have and in crazy amounts. The inflationary effects of rising productivity were delayed a while, but are now appearing in another form as defaults.

tldr version, you can't ignore macroeconomics.

32:

There's a pretty strong argument that Germany has been a special case, with the costs of reunification.

What makes me wonder about Britain, and its manufacturing/finance balance, is that German companies have been managing to buy British companies while all that was happening

33:

Another thing that's not getting mentioned is the societal norms in Greece, which is a country where tax evasion is a way of life.

It's so bad, they had a to tie people's utility bills to their taxes. The Greeks had to be forced to pay taxes, or have their lights shut off. As a reporter on NPR quoted one Greek revenue agent, "The best way to get fired from this job is collect taxes."

Here's an article on the subject from the New Yorker, hardly a hotbed of Right Wing ideology.

http://www.newyorker.com/talk/financial/2011/07/11/110711ta_talk_surowiecki

34:

This strikes me as being endemic to elites everywhere these days:

Which leads me to the big, big issue: corruption and the laughably-porous Greek taxation 'system'. PASOK haven't got the will to try reforming it - and very little progress has been made since 'Beware of Greeks Bearing Bonds' was published two years ago - and I doubt that any right-wing 'national salvation' government will even try: dictatorships are notoriously corrupt.

Well, rich people everywhere are notoriously reluctant to pay taxes these days. And once they have got the levers of traditional institutional power in their hands - government, media, etc. - they'll do anything they can to avoid paying what they owe.

...So no tax base to service the government's debts.

This is where the hard place meets a rock. Because elites have to at least pretend to pay lip service to democracy and democratic institutions, these days government has to provide at least some services to the non-elite to maintain a patina of legitimacy. Of course, they (the elites) don't want to actually pay for those services out of their own pocket, so they'll kick the problem of how to pay for them down the road as far as they can. And then when the system crashes (with this dynamic it's inevitable), they'll use every bit of institutional apparatus at their command to get the non-elites to eat the losses.

One debt that they *can* default on, without hurting anyone who matters, is the finance for those shiny tanks and submarines and military aeroplanes. One of the many undisclosed subsidies for the arms industry is that they always get an export credit guarantee (insurance against nonpayment) from the manufacturer's home government.

Well, yes, if there's one type of spending the rich have no problem with, it's spending on the police and military services. This seems to be another constant of our lords and masters the world over. That's a big chunk of the institutional apparatus I mentioned above btw, because the police and military are what will be needed to keep the lesser orders in line once it's been made quite clear on the point of starvation that government does not work on their behalf, but rather, for the same masters it always did back before all that 20th century stuff and nonsense about 'Democracy'.

Better hope that things fall to pieces before AI gets good enough to replace police and military personal with government-controlled automata.

35:

It's important to realise that after the last election the New Democrat party (one of those that signed up to the austerity deal) was on 18.85%, with Syriza on 16.78%. The party with the most votes gets a 50 seat bonus.

So in any second election, it wouldn't take much to reverse their position, giving Syriza the bonus instead. That's particularly so since the turnout on 6th May was so low. A left wing collation with Pasok therefore a distinct possibility.

As such it looks quite likely that the austerity programme is a dead duck. Either Germany relents, under pressure from France, or default happens and puts Spain/Italy and then France in the firing line.

Forcing Germany out of the euro might actually be the best solution to this impasse (the original best would to be never to have done something so stupid in the first place).

The EU will soldier on, the currency was always a dumb step too far. However they really do have to start thinking "what is Europe for and how do we make it a success?" To date they haven't addressed that and come up with a plan; concentrating instead on ideology - which is why it's more burden than asset.

36:

Another thing that's not getting mentioned is the societal norms in Greece, which is a country where tax evasion is a way of life.

It's so bad, they had a to tie people's utility bills to their taxes. The Greeks had to be forced to pay taxes, or have their lights shut off. As a reporter on NPR quoted one Greek revenue agent, "The best way to get fired from this job is collect taxes."

It's one of the things I didn't get about sacking all the civil servants. Better would have been to say "your salary is now a percentage of the unpaid tax you recover - go forth and shake the tree".

Nothing like motivated self-interest for bringing out the inner b*stard.

37:

I like to quote this bit from Tichy's 24th voyage to give a sense of where I think our elite our coming from:

A certain learned constructor built the New Machines, devices so excellent that they could work quite independently, without supervision. And that was the beginning of the catastrophe. When the New Machines appeared in the factories, hordes of Drudgelings lost their jobs; and, receiving no salary, they faced starvation. . .”
“Excuse me, Phool,” I asked, “but what became of the profits the factories made?”
“The profits,” he replied, “went to the rightful owners, of course. Now, then, as I was saying, the threat of annihilation hung. . .”
“But what are you saying, worthy Phool!” I cried. “All that had to be done was to make the factories common property, and the New Machines would have become a blessing to you!”
The minute I said this the Phool trembled, blinked his ten eyes nervously, and cupped his ears to ascertain whether any of his companions milling about the stairs had overheard my remark.
“By the Ten Noses of the Phoo, I implore you, O stranger, do not utter such vile heresy, which attacks the very foundation of our freedom! Our supreme law, the principle of Civic Initiative, states that no one can be compelled, constrained, or even coaxed to do what he does not wish. Who, then, would dare expropriate the Eminents’ factories, it being their will to enjoy possession of same? That would be the most horrible violation of liberty imaginable. Now, then, to continue, the New Machines produced an abundance of extremely cheap goods and excellent food, but the Drudgelings bought nothing, for they had not the wherewithal. . .”
“But, my dear Phool!” I cried. “Surely you do not claim that the Drudgelings did this voluntarily? Where was your liberty, your civic freedom?!”
“Ah, worthy stranger,” sighed the Phool, “the laws were still observed, but they say only that the citizen is free to do whatever he wants with his property and money; they do not say where he is to obtain them. No one oppressed the Drudgelings, no one forced them to do anything; they were completely free and could do what they pleased, yet instead of rejoicing at such freedom they died off like flies.”

I'm not trying to divert the conversation away from the topic at hand and the structural dangers of increasingly sophisticated automation. Quite the contrary. I'm merely pointing out that historically[1], when push came to shove the readjustments have almost always been forced by the then-current governments on those most harmed by the new order and those least able to resist it, often with those two categories having a substantial overlap.

There's no particular reason to think the future will be much different, unfortunately. Not unless the 99% respond to the danger collectively and in a coordinated fashion.


[1]Contrast this with all those happy-fun futures from the 50's where no one works unless they actually want to and the biggest unsolved problem is how to relieve the boredom that is endless leisure. Just how humanity ever got to there from here in those stories was most often an exercise left to the reader.

38:

Scentofviolets:


I like to quote this bit from Tichy's 24th voyage to give a sense of where I think our elite our coming from: ...

Relevance to Greece is? ...

39:

"As a reporter on NPR quoted one Greek revenue agent, "The best way to get fired from this job is collect taxes."

It's one of the things I didn't get about sacking all the civil servants. Better would have been to say "your salary is now a percentage of the unpaid tax you recover - go forth and shake the tree".

Nothing like motivated self-interest for bringing out the inner b*stard."

In the news reports of the past 6 months that I've read, that quote came from a different context. It wasn't that actually collecting taxes would get you dismissed, it was that the current government would routinely instruct its tax collectors to not do their job during times of low popularity, and so *at those times* collecting taxes could easily get you fired.

Those same reports also gave an impression of a very different culture to what the Anglo world knows. Here we accept that taxation is necessary to provide a functioning civil society as opposed to a feral wasteland, even if we tend to grumble about the amounts and how they are used. In Greece, it would seem that they *don't* accept that taxation is legitimate, and yet still want the civil society with welfare. I never did learn how they expected it to be funded, but so far as I could tell not many Greeks see the logical flaw. I also haven't been able to learn the historical roots of this mindset, but I'm willing to bet that being owned by a foreign empire that didn't give a shit about you while extracting hefty taxes might have helped shape things a bit.

40:

Keynsian economics did work. Austerity never ever has without something like a war to stimulate the economy. Worse it leads to things like Hitler. But the rich love it. That way they will not be taxed. I read that Greece had one of the worst of the Wall St banks helping by telling what to do. And the bank made side bets Greece would go down.
Our Right Wing and yours should read what people like Paul Krugman and Lester Thurow have to say about Austerity. Or anybody. Before the rise of the Right here it was a well known bad joke. With out fools on Wall St. there would have been no Hitler. And now its round two of the same.

41:

Mods/Charlie:
Fyi i got a 500 error posting #38, though it worked, then a 550 SMTP error trying to email webmaster...

42:

It doesn't work for countries like Greece, because what Keynsian economics says they should be doing right now is borrowing money, and there is nothing they can do to convince anybody to lend them any more money.

Actually, Keynsian economics doesn't say that "countries should borrow money." Countries only need to borrow money if they do not have a sovereign currency. Countries with a sovereign currency can simply print money, which comes with it's own problems (i.e. Weimar Germany) but if the printed money is used for intelligent purposes such as building infrastructure or investing in better technology the investment will repay itself many times over and jump-start the economy.

Unfortunately, Greece does not control their own currency so they can't engage in any kind of monetary policymaking. The European central bank is controlled by the French and Germans, who both remember the effects of inflation on Germany in the run-up to World War II. They've forgotten that the unfairness of the Treaty of Versailles set the stage for Weimar Germany and made Hitler's rise to power possible...

Say, those right-wing parties did really well in the latest Greek election! Something to ponder, I suppose.

43:

I'm afraid that I'm going to have to object to this characterization:

Greece will be scapegoated by Germany and all the technocratic parties in France and the UK and so on . . . At some point I suspect there will be a further wave of elections that depose the technocrats and put in populist governments that are willing to stand up to Germany and the central bank.

As Paul Krugman has noted repeatedly, the so-called "technocrats" are anything but. At best they are a highly ideological ascientific bunch who take no account of the actual data. And at worst? Can you say "Disaster Capitalists"? Indeed it is the so-called "populist" movements calling for the traditional prescriptives that one associates with economics (when one thinks of it as a science at all) which should be properly called technocratic.

44:

Yes, sorry, I was using the common name for them. I agree there's absolutely nothing technical about them. I call them "technocrats" because I picture them as stereotypical Eurotrash making deals in clubs to loud techno music.

I can indeed say "Disaster Capitalists", but I have to spit every time I say it. The problem with populist movements is that while they may say things that describe the real problems, like "austerity is a bad idea because it is causing the economy to contract and increasing unemployment", their solutions may not be good for the economy either, or may be good for their economy, but not necessarily their neighbors, as in "we just have to kick out all the immigrants and everything will be fine", or "let's start a war to get the economy really booming."

45:

Bruce wrote:


I can indeed say "Disaster Capitalists", but I have to spit every time I say it. The problem with populist movements is that while they may say things that describe the real problems, like "austerity is a bad idea because it is causing the economy to contract and increasing unemployment", their solutions may not be good for the economy either, or may be good for their economy, but not necessarily their neighbors, as in "we just have to kick out all the immigrants and everything will be fine", or "let's start a war to get the economy really booming."

This thing is going to extend to being not fine for neighbors, because A) German prosperity depends on intraeurope exports now (poof) and B) even in the absence of A, the only solution that doesn't drag Europe into a depression or decade of stagnation will nail the German savings, unless they leave or are kicked out of the Euro.

It's already not fine for the whole rest of the eurozone.

46:

Would the lot of you please read Paul Krugman?

Hominids.

47:

And if we already read Krugman? What's your point?

48:

The Greek Junta were pushed by the CIA (euw) which resulted in the current Republic - even though the King (Constantine) tried a counter-coup against "The colonels" ....
Now then, it gets COMPLICATED.
One: is the EU as it is now, viable?
I have changesd stance about 2 years back, and am now fervently anti-EU _ I want us OUT. The corruption and unelected bureaucracy are really scary.
Two: In Greece who are the shadow players - Charlie has hinted at the military suppliers which is interesting, especially since Camoron's almost first move was to dangerously CUT our own defnces - we don't have naval air cover, and the RN is about half the size it should be.
Knowing what actual corporate maneuverings are going on to try to manipulate the play would be very informative.
Therr: Who's NEXT?
Four: A dangerous precedent has already been set with unelected persons being put in charge of two EU states, effectively by the comission. One wonders, in one's more paranoid moments that some of the right-wingers going on about the "EUSSR" might not have a point.
I must admit I don't like it.

Dirk @ 8
Possibly.
I wonder about Ireland - though they have another escape-route, IF they choose to use it (unlikely, I know).
The xact opposite of what that crooked shite Salmond is after, in fact.

Damien RS @ 15
Hungary?
Yes, and unpleasantly christian-crypto-fascist it is too!

Bruce Cohen @ 16
Unfortunately, I suspect that is exactly what will happen - see my comment on Hungary above.

David L @ 28
YES
... and their tax system is a bad joke.
Greece's problems would be a LOT less if they actually collected something like 90% of their tax, rather than 35-45% - and had a retiremant age of over 60.
Um.
See also Glen Murie @ 33
... & @ 30
It wasn't.
The plan - now realised by increasing numbers of people, was to have a centralised, unelected bureaucracy running "Europe" - and as for "voters" - who cares baout them?
Cynical, moi?
Yes, actually, just like SoV @ 34 - agree.

Yes, but is anyone LISTENING to P. Krugman is the vital question.


49:

It's an opinion that's widely shared. It's also one that doesn't really hold up to close scrutiny when you consider things like the funding of the military -- in what way are ordinary folks on the street responsible for their politicians in all main parties opening their wallets in order to buy shiny toys for the military as part of the unspoken post-junta compact to keep them in their barracks? One might as well plant the blame firmly on the King for having been stupid and gutless enough not to act against the plotters back in the 1960s. But he's not really around to take the blame any more ...

50:

From my view in the US I never did understand how it was supposed to work over the long haul.

The same way the US dollar works. In what way are the economies of Massachusetts and North Dakota compatible? Should Oregon and Florida share the same currency? The only edge, the thinking went, that the USA has over the EU in terms of currency union was somewhat less of an internal language barrier issue -- and even then, most people in the EU are at least bilingual and often trilingual (with the exception of the UK and Ireland).

The problem seems to be that everyone expected the EU to move towards a closer political union once it had a single currency. Whereas it didn't move fast enough, and we have the German chancellor putting the economic interests of German citizens ahead of the health of the internal EU-wide economy. It's as if the US Federal Reserve was based in California and put Californian interests first.

51:

Better would have been to say "your salary is now a percentage of the unpaid tax you recover - go forth and shake the tree".

Nothing like motivated self-interest for bringing out the inner b*stard.

Ah, tax farming! A practice with a long and ignoble history. (Lest we forget, it was one of the major catalysts for the French revolution.)

Here's the problem: given a commission basis for collecting taxes, the tax bureaucracy will (a) act as a magnet for energetic sociopaths, and (b) will tend to over-perform. At which point you generate grievances.

In a country that within the past decades has had a significant terrorism problem, this is probably Not A Good Idea.

52:

Relevance to Greece is? ...

Utterly obvious, if you'd care to think outside the box defined by late-phase capitalism.

Hint: it's not the only paradigm for evaluating societal success. In fact, much of the time, it's the wrong one.

53:

Charlie @ 49
Erm ...
Constantine DID try to act against the "plotters" - after their CIA-backed coup, but had his arm twisted by the US state department. In other words, he lost all round.
The last I looked, he was still alive, btw.

Generally, the real garuantee of revolution is starvation - a failed harvest, coupled with state bankruptcy.
As in France 1789.
The exception being the God-Kingdom of N. Korea, where the oppression is so powerful that even starvation does not cause the fall of the dictatorship.

54:

In what way are the economies of Massachusetts and North Dakota compatible? Should Oregon and Florida share the same currency?


People comparing the EU to the US often misunderstand how weak US State Governments are relative to the US Federal Government.

Follow the money to see the difference in the power balance. In the USA, citizens pay taxes to the federal government and to the government of the state in which they live. Typical working people who are not starving pay 25% to 35% of income to the federal government and 0%* to 7% of income to the state government.

The Federal government pays for Social Security, Medicare/Medicaid and War. These three slices of the budget pie, along with debt service, account for roughly 2/3rds of Federal spending.

The State governments also pay a portion of medical and the bulk of education. When you combine health care and education you'll usually see more than 50% of states' budgets. States do not have military budgets and do not have militaries of their own. Just police forces.

I'd say that the major difference between the USA and EU is that in the USA, the level of government that controls the currency is the level of government that sets economic policy for the nation as a whole. In the EU, policy is set at the state level while currency is controlled at the EU level.

The US Federal Reserve puts the interest of Wall Street (the wealthiest 0.01%) first. If they'd put the interests of all Californians first, that'd be moving the decimal 4 places to the right.

* Some state governments (i.e. Florida, Wyoming, Washington) charge 0% income tax. It does not mean they have $0 budgets, they just tax property or sales.

55:

On the taxation issue the answer seems fairly obvious. Scrap personal income taxation except for the top few percent of citizens, and set your entire tax enforcement on that tiny minority. The rest of the tax base is collected from VAT and corporation taxes.

56:

"I wonder about Ireland - though they have another escape-route, IF they choose to use it (unlikely, I know).
The xact opposite of what that crooked shite Salmond is after, in fact."

You mean rejoining her Maj's realm? Apart from the sheer bloody mentalism of that one, the UK has its own austerity thing going on at the minute, in case you haven't noticed - and that's been as spectacularly unsuccessful as the Irish version has been. (Unsuccessful for ordinary people, that is: for the elites it's been thoroughly peachy).

57:

When I think of Greece, the first thing that comes to mind is black bloc insurrectionist anarchists rioting in the streets (mostly because most anarchists are *not* insurrectionist, or are only insurrectionist in the abstract). I'm not sure if this image agrees or disagrees with this new information about Greek military budget. After all, it's hard to revolt without something to revolt against, and it's hard to revolt continuously for a long period of time against regular (as opposed to paramilitary) police forces.

58:

The impression I have is that Greeks do pay taxes, but it's collected by the grossly inefficient means of bribery.

I was about to say more, but then I realized I'd just be regurgitating Paul Krugman :).

59:

People comparing the EU to the US often misunderstand how weak US State Governments are relative to the US Federal Government.

Exactly. It should also be noted that the Federal Government has some really powerful tools for making the state governments comply with something the Feds really want, such as withholding Federal Funds that go to the state governments for education, highway construction, etc.

Historically, the EU resembles the US as it was just after the Revolutionary War, when we were governed by a document called the "Articles of Confederation," which gave each state considerably more independence than they have under the current constitution.

60:

a) Kicking Germany out of the euro - even temporarily - would not result in the Mark deflating.
b) The EU political class would need a spine infusion of massive proportions, and a worldview transplant, to even conceive of the idea.

61:

The EU political class is the problem, not the solution

62:

@9:
Also, Greek military spending is a very special case because of the presence of Turkey next door and more or less stable ex-communist states all around.
---
Greece and Turkey are both NATO members.

63:

Looking at comments 4 et seq and 12 et seq, I'm a little shocked at the level of macroeconomic ignorance. The US has competing (and rather antagonistic) schools of macroeconomic thought, but they're at least schools: they model macroeconomic events from starting premises, and make macroeconomic predictions based on those models.

I read these arguments, and I can't make heads or tails of how cause is supposed to transmit to effect. I can't tell what basic premises underlie the arguments.

I suppose this reflects a general bias against the use of macroeconomics in current European policy.

(E.g. I never knew that size was an essential component for Keynesian macroeconomics to work; rather peculiar indeed, considering that the most popular current explanatory anecdote uses a DC-area babysitting cooperative, fewer than 250 families. Similarly, the canonical example for Lucas critique macroeconomics is the hog cycle. The insight in the former is that the economy is *closed*; the insight in the latter is that there is little privileged information in the macroeconomy. The starvation and Haiti-fication scenarios I will chalk up to a general love of doom and apocalypse among science fiction readers.)

64:

(a *closed* loop, I should say.)

65:
a) Kicking Germany out of the euro - even temporarily - would not result in the Mark deflating.
It would do if the German powers-that-be insisted on austerity for the German economy. And I think they would, because the people in charge are the same ones who are trashing the British and US economies right now: the Disaster Capitalists <spit/>. If you want to see a perfect example of what's in store for everyone if these bozos are left unchecked, look at the US state of Wisconsin, where the Republican Governor and majority in the legislature are busy destroying unions and regulatory apparatus, while trying to privatise everything they can get their hands on. They're in a hurry, because there's a series of special recall elections coming up that may just kick some of them (especially the Governor) out of office, and they want to do as much damage as possible before that.
66:

People comparing the EU to the US often misunderstand how weak US State Governments are relative to the US Federal Government.

But note that some state governments are in severe financial straits at the moment. Municipalities have declared bankruptcy, and it is possible a state will too in the next few years.

In some respects, the situation conforms to the "disaster capitalism" meme. California is being pushed towards reneging on pay and pension contracts by a refusal of the minority Republicans to allow tax increases. To some extent, this was a self imposed problem caused by Democrats, but now the pawns are those who accepted the contract conditions. Funnily enough the targets are always "the teachers", rather than the much more generous terms for law enforcement.

This is all so highly reminiscent of the M&A activity of the 1980's, when retirees pension fund assets were looted, err..."stripped".

67:

Ok - an alternative view. What you are witnessing is a triumph of democracy and enlightened policy in action.

Why?

Compare now to 1933. The Great Depression commenced in 1929 with the wall street crash. By 1933 europe's largest economy was dominated by the Nazi party, which was embarking an a crash course of military expansion. Spain was slipping inevitably towards a coup, Italy was governed by fascists, and both France and the UK were only barely stable. Oswald Moseley's black shirts were both nastier and more influential than any current British nationalist party. Ireland was on the edge of/in e midst of a civil war. On the economic front, the debate was about the gold standard, not austerity. In places people starved.

Contrast today - a similar period of time aft the Lehman Brothers collapsed. So far, Greece's economy has tanked entirely, but the results of the last election gave the quasi-fascist golden dawn only 7% of the vote. This is a far cry from the extreme right in e 1930s. Most people voted for either the mainstream parties or a centre-left coalition. The main cause of debate is the degree to which the big economies of Europe continue to spend billions of euro trying to keep Greece afloat. Nothing of this sort was ever considered anywhere in the 1930s (each country focused solely on national priorities, even at the expense of their longer term self interest).

Only one other European country has responded to the recent crisis with a drift towards authoritarianism: Hungary. However, the current Hungarian government is a long way from any inter-war fascist party, Hungary is nothing like the threat to Europe that Germany was (and never could be), and the much-loathed Eurocrats have actually pushed back against the government's worst excesses.

Put simply, on the basis of any objective comparison, we're doing much better this time round. For most citizens across Europe, even the effects of austerity are cushioned by a welfare system that - even after cutbacks - is far beyond what was present in the Great Depression.

It's an ugly business watching the powers that be address a crisis like this. Particularly as the pressure is very strong to push the costs on to others. Even if the right solution is known up front, often every other possible approach (I'm looking at you austerity) hs to be tried first. Nonetheless, so far we're doing much better than we did last time.

Just a though.

CS

68:

My state taxes (personal and businesses) are paid in California. It is roughly akin to a top 10 nation by GNP. "Tax revenue has lagged by $3.5 billion and the state has shelled out $2.1 billion more than expected so far in the current budget, according to the state controller. Brown said Thursday that his new spending plan will fall between $85 billion and $90 billion, down from the $92.6 billion proposal he released in January." The arguments between federation and confederation still matter.
http://www.latimes.com/news/local/la-me-brown-taxes-20120511,0,3523941.story

69:

Lest we forget:

Greece only joined the Euro in the first place because of fraudulent behaviour by well-known vampire squid Goldman Sachs:

http://www.spiegel.de/international/europe/0,1518,676634,00.html

70:

@21:
I don't see how personal savings will be wiped out when there's nothing stopping Greek savers depositing their money in a German bank before departure from the Euro.
---
If Greece drops off the Euro, what's to stop them from setting the drachma/euro exchange rate to anything they want, as far as legal transactions within their own borders?

There are plenty of historical precedents of that sort of thing, the most obvious being the official vs. black exchange rates for the Soviet ruble vs. Western currencies.

A wad of Euros in Germany won't do you much good if the exchange rate+fees is unfavorable.

71:

I was reacting to the sense that some of the commentators didn't even have the basics down. Disagree or agree with Krugman, he usually has his facts straight.

72:

@50:
The same way the US dollar works. In what way are the economies of Massachusetts and North Dakota compatible? Should Oregon and Florida share the same currency?
---
Should Essex and Suffolk? What about Northumberland?

During and after the Revolution there was a Continental currency, various state currencies, and even some cities issued their own. It was about as much of as disaster as you would expect.

A common American currency and treasury were provided for by the Constitutional Convention of 1787.

All through this time, British pounds were still negotiable in the former British colonial states and Spanish coinage was accepted almost everywhere.

When new states were added, they were created from the beginning, usually as a territory, then a state. They had always used either the pound or the dollar.

The purchases from Spain and France involved some political and economic tapdancing and currency conversion, but to belabor the obvious, things were a whole lot simpler then. There never really were any "economies" as we think of them now, and they mostly used the same currencies already.


I'm aware Scotland has its own currency; so do Puerto Rico, American Samoa, and other territories and posessions. I've never seen a really good explanation as to why on the latter...

73:

And today we have a Krugman blog post entitled, "Eurodämmerung" and, yes, he heads it off with a YouTube clip of Wagner.

74:

Hey, can we start talking about the fall of capitalism yet? It's not too difficult to see that repeated great depressions don't make for a sustainable global economy.

Circle, circle, circle...

75:

#63:
The US has competing (and rather antagonistic) schools of macroeconomic thought, but they're at least schools: they model macroeconomic events from starting premises, and make macroeconomic predictions based on those models.
---
Mack Reynolds once stated something along the line of, "if any of those economists could predict trends even 1% better than random chance, he ought to be a billionaire."

Every time I start reading about statistical economic analysis and "modeling" of markets, I remember ol' Mack's words.

76:

Well, yes:

Lest we forget, the EU is about the fifth-generation descendant of the Franco-German Steel and Coal Pact of, um, going by memory, 1947 or thereabouts. (Or was it 1949?)

Which had two purposes: (a) for Germany and France to trade in coal and steel -- a trivial task -- and (b) to stop Germany and France ever going to war again. Which the treaty and its decendants have been fantastically successful at, to the point where nobody familiar with the modern EU can conceive of France and Germany going at it hanger-and-tongs ever again.

Ejecting Germany from the "let's contain Germany and divert their military ambitions into prosperous industrialism instead" pact would be a bad idea all round.

77:

Please note that some of those "stable ex-communist states" you mention are desperately eager to join the EU, even today. (Croatia, for example, seems to be more than happy to get into the Grown-Ups Club as they see it. They're in next summer ...)

78:

Strange that it seems to be so hard for a rather wealthy state like California to get about $2000-2500 of taxes on average from its people. (Minus whatever it can get from corporations.)

79:

It would do if the German powers-that-be insisted on austerity for the German economy. And I think they would, because the people in charge are the same ones who are trashing the British and US economies right now: the Disaster Capitalists

Nonsense on stilts.

A huge chunk of the problem is that the German government is pathologically unable to contemplate the faintest possibility of increasing interest rates or reducing exports to the rest of the EU; they fully intend to have their cake and eat it, and see that their banks get paid off by the lazy stupid southerners, too. Austerity in Germany simply isn't on the cards, although they're quite happy to export austerity for everyone else. (They vaguely remember being told that austerity and hard work was the way to rebuild civilization after it was bombed flat in the 1940s: that's my reading of why they're so dogmatic about it.)

80:

Nit-pick: Scotland does not have its own currency. Scotland runs on Sterling.

However, whereas in England banknotes are exclusively printed by the Bank of England, there's no equivalent national bank in Scotland (despite the confusingly-named "Bank of Scotland" and "Royal Bank of Scotland"). Instead, money is issued by banks granted a license to do so by the Crown, which boil down (after centuries of mergers) to: The Bank of Scotland, The Royal Bank of Scotland, and the Clydesdale Bank. These banknotes are in regular circulation and are effectively interchangeable with Bank of England banknotes. I believe there are a couple of other licenses floating around, but nobody is currently using them (and I suspect any attempt to acquire one in order to start printing banknotes would be viewed with extreme skepticism by TPTB).

Northern Ireland has a similar setup (I forget which the issuing banks are).

81:
Ejecting Germany from the "let's contain Germany [...]" pact would be a bad idea all round.
Nobody was suggesting forcing Germany out of the EU; and nobody is talking about Greece leaving either, but there seems to some confusion about the terms.

Maybe we need a European Venn diagram in addition to the British one, for balance...

82:

Northern Bank, for one, which is why that IRA bank heist was so hilarious: they took so much that after the robbery a Northern Bank-issued note could be assumed to be stolen.

83:
The starvation and Haiti-fication scenarios I will chalk up to a general love of doom and apocalypse among science fiction readers.

I'll just point out that the starvation scenario was proposed (and immediately dismissed) by a noted science fiction writer.

I was talking about food shortages. It's fairly obvious that Greece's supply lines are about to get mauled.

84:

Anonemouse :


a) Kicking Germany out of the euro - even temporarily - would not result in the Mark deflating.
b) The EU political class would need a spine infusion of massive proportions, and a worldview transplant, to even conceive of the idea.

Re a), i was being imprecise. The remaining euro would experience inflation absent Germany, as i understand it, relative to the Mark and rest of the world. This is not the Mark deflating, but (within the narrow scope of europe) is a relative deflation.

There are important technical differences. I understand this but, not being a professional economist, tend to fuzz the technicalities at times when communicating.

Re b), that's part of the overall point. The EU and ECB and euro were hard political compromises that missed some stuff the US got right, like a lender of last resort and a mechanism to handle financial crisis. Not that we don't have egg all over our faces after the crisis, but...

Was it ever a good idea, as formed, if the negotiators and technocrats who got it going could not actually solve these hard problems? The negotiators trapped the whole continent in a flawed system and blew off clear warnings.

The US is on Constitution 2.27, lest anyone forget.

85:

re: tp1024, I don't think that the average captures the data in the distribution (what's the average of me, Zuckerberg, Schwarzenegger, and a homeless mother with children begging on the sidewalk?), and the state has driven many corporations away to other states. I believe that California is one of the states that sends much more money to Washington DC than it gets back in services, analogously to Germany sending more money to Brussels than it gets back, but I don't have the data at my fingertips. Again, my experience is generally not interesting to people that Charlie has provoked into rational discourse; I merely wanted to give a datum on the analogy between States/USA and Nations/EU. I am more interested in hearing what other have to say than in spouting my own beliefs. Charlie is quite right to warn me about narcissim, and is in sync with my wife and so. *** returns to lurking ***

86:

Charlie:


Ejecting Germany from the "let's contain Germany [...]" pact would be a bad idea all round.

Magetoo:

Nobody was suggesting forcing Germany out of the EU; and nobody is talking about Greece leaving either, but there seems to some confusion about the terms.
Maybe we need a European Venn diagram in addition to the British one, for balance...

It's hard to clearly separate historical antecedents here, so putting that aside...

I propose Germany out of the Euro for a bit (say, six months), if push comes to shove.

Not out of the EU.

It's not clear what you'd do with their ECB membership but i think it is left alone.

I would sincerely hope that we're past the point that this would be an act of war or causus belli. If those are seriously in play, and not mere paranoia, you all have a much much worse problem than you're letting on now.

87:

Germany being removed would quite probably end the Euro; it would expose it to serious Soros-style behaviour. Germany's government debt is regarded as the closest thing to a certain bet there is these days; it lives in the same place investment-wise gold does - where you go when all else fails (to give you an idea: German treasury notes are the zero-mark all others' notes are compared to. Recently, unfavourably). Remove that backing, and the speculation would get even more hostile.

88:

Jonathan:


I believe that California is one of the states that sends much more money to Washington DC than it gets back in services,

About 79% comes back to CA, according to quick google.

89:

Anonemouse:


Germany being removed would quite probably end the Euro; it would expose it to serious Soros-style behaviour. Germany's government debt is regarded as the closest thing to a certain bet there is these days; it lives in the same place investment-wise gold does - where you go when all else fails (to give you an idea: German treasury notes are the zero-mark all others' notes are compared to. Recently, unfavourably). Remove that backing, and the speculation would get even more hostile.

And the Krugmanesque Eurodamnerrung scenario from this morning is an improvement?

There is going to be a Bad Day. The question is can the Euro hold. Krugman says no, with a scenario that to me borders on the EU collapsing in the aftermath. Germany out exposes all sorts of things, but gives the center a chance to hold.

It may well be too late, for the technocrats to understand or to execute.

90:

"if any of those economists could predict trends even 1% better than random chance, he ought to be a billionaire." Keynes was.
California started the wave of tax cutting. California's budget deficit has swelled to a projected $16 billion. So the GOP wants to do more of the same everywhere. David Stockman, who was our President Ronnie's point man, said that tax cutting were to make the government too poor to do any of the things it started after 1930.
In the long run every thing falls apart.

91:
A huge chunk of the problem is that the German government is pathologically unable to contemplate the faintest possibility of increasing interest rates or reducing exports to the rest of the EU; they fully intend to have their cake and eat it, and see that their banks get paid off by the lazy stupid southerners, too. Austerity in Germany simply isn't on the cards, although they're quite happy to export austerity for everyone else.

Since everyone here seems to think Krugman is Da Bomb, let me quote a piece from a week or so ago:

But how did it happen? I As I pointed out a couple of days ago, Germany got out of its turn-of-the-millennium doldrums by moving into a huge trade surplus, which is not possible for everyone now. Even that, however, isn’t the whole story.

That trade surplus was possible because Germany had a large fall in its costs and prices relative to other euro countries . . .

What’s really striking from the current perspective, however, is that Germany was able to achieve this “internal devaluation” without anything resembling actual deflation . . .

How was that possible? The answer is that there was relatively high inflation in the European periphery thanks to those big capital flows from the core to the periphery.

Or to put it differently: Germany believes that its successful adjustment was the result of its own virtue, but in reality it was successful in large part because of an inflationary boom in the rest of Europe.

And here’s the thing: the Germans are now demanding that the European periphery replicate its achievement (and actually surpass it, because the required adjustment is much bigger) without providing a comparably favorable environment — they’re demanding that Spain and others do what they never did, which is deflate their way to competitiveness.

Sorry about all the ellipses; Krugman, damn him, actually includes charts and data to support his points and I really don't want to make a long post even longer. I don't doubt what Charlie is saying, btw - yes, it's quite possible that your average German citizen feels like they took their lumps back in the day, now it's somebody else's turn. But here again (Chomsky's becoming more relevant rather than less with the passing of time), when speaking about what Germany "wants" you've got to distinguish between the Man on the Street being fed carefully doctored information, and the actual elites who surely know better (Heck, I know better. How plausible is it that the Top Men really don't get it?) It appears - going by the general principle I articulated way back in post number 34 - that the elites will try to get those Southerners to eat their losses, then the general populace of Germany, and finally and as an absolute last resort, their own august selves. But remember, these people didn't get to where they were by playing nicely; if scenario three ever plays out there will be a mad scramble among these worthies for the life boats and the Devil take the hindmost. That's when populism will be in it's most dangerous phase - there will be some among those fine gents who will have no problem getting in front of the mob and inciting it to violence if doing so will save their own precious skins, perks, and prerogatives.

92:
It's an ugly business watching the powers that be address a crisis like this. Particularly as the pressure is very strong to push the costs on to others. Even if the right solution is known up front, often every other possible approach (I'm looking at you austerity) hs to be tried first. Nonetheless, so far we're doing much better than we did last time.

Not to put too fine a point on it, but the multiple and interlocking crises we have now is the Powers That Be trying to push the costs of their folly onto others.[1] It's getting to the point where even the charade of Uber-Capitalism is being discarded as a no longer useful tool of control.

[1]Krugman again from a much quoted column penned in 2002:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

In short, the MOTU wanted consumer spending to prop up their corporate bottom line, but they didn't want to pay said consumers anything like a reasonable wage. So they did what they always did when they can get away with it - resorted to their tools in government to set and enforce policies favorable to them. Same as it ever was.

93:

It does not take an elitist conspiracy to suppress the facts for Germans to think that. They did "the right thing" and were rewarded. The larger context, the periphery inflation, only has to be out of the field of view of the non-economists.

Krugman's great - bringing bite-sized chunks of context and complexity to the masses. And simultaneously terrible, because he's creating a little personality cult of "oh, just listen to the right economist who popularizes and all will be well". The terrible isn't his fault, per se; he's not overly tooting his own horn for example. But anything he doesn't get or focus on, those who just slavishly follow him will miss.

Even economists and financiers depend on webs of information, as no one person can watch it all. All the webs have gaps. Everyone's information and worldview has gaps. I get geopolitics, mostly. International finance? Being educated is one thing, getting it is entirely different... I think it's the hardest thing to understand we have going. The interdependencies and scope expand bryond any specific tractable problem.

94:

"if any of those economists could predict trends even 1% better than random chance, he ought to be a billionaire." Keynes was.

Yup. Piero Sraffa also did very well: he bought deeply distressed Japanese bonds in the 1940s, and watched Japan bounce back after the war. A fair number of financial economists have done rather (or in some cases, extremely) well.

Anyhow. There's a vast literature on why it's very hard to beat the market, and there's also a substantial literature why it's rather hard to predict the macroeconomy. The Lucas critique is basically how and why time series prediction methods were less useful for macroeconomic modeling than people previously thought.

(These days, many central banks and other agencies use "dynamic stochastic general equilibrium" modeling, which is kind of screwed, but it became popular precisely because the models are based on agents trying to optimize their behavior -- "greed is good" -- rather than chasing trend lines.)

But, as always within fandom, some science fiction writer's offhand comment trumps an entire academic discipline. Mack Reynolds was an interesting guy -- his current equivalent is probably Ken MacLeod -- but you read his stuff now, fifty years after his heyday, and you wonder, WTF.

95:
It does not take an elitist conspiracy to suppress the facts for Germans to think that. They did "the right thing" and were rewarded. The larger context, the periphery inflation, only has to be out of the field of view of the non-economists.

Well, I'm not saying there's any such thing as an "elitist conspiracy" so much as some sort of coordination, but yes, that's exactly right. That's also what I meant about being fed carefully doctored information. Bear in mind that the even at the street level, the average citizen is may not be pure. Questioning the conventional wisdom rather than mindlessly beating up on foreigners leads them to uncomfortable deductions about who's next in line for a little clarifying "austerity" and just how powerful the groups pushing that line really are. No, best not to go there, and better by far to just go along with the easy out offered by the ruling classes :-(

Krugman's great - bringing bite-sized chunks of context and complexity to the masses. And simultaneously terrible, because he's creating a little personality cult of "oh, just listen to the right economist who popularizes and all will be well". The terrible isn't his fault, per se; he's not overly tooting his own horn for example. But anything he doesn't get or focus on, those who just slavishly follow him will miss.

After I read the funny pages, the next thing I look at while drinking my morning coffee is economistsview.typepad.com where in addition to the front page and the always readable Mark Thoma I can easily navigate to Krugman, Naked Capitalism, Calculated Risk, etc. Krugman is just the placeholder for responsible commentary that gets quoted a lot. For obvious sf reasons :-)

96:

I shall merely note that William L. Shirer's The Rise and Fall of the Third Reich is currently being promoted by Amazon, on their UK site, as a GBP 2.99 ebook.

It is fascinating reading. Adolf Hitler is struggling to survive in Vienna. and keenly watching the pre-WW1 Austrian politicians to discover what works.

According to Shirer's account, Hitler realised that a frightened middle class was a surer path to power than was organised labour. It is rather easy to see which British newspapers are pitching stories to terrify the middle classes.

97:

But, as always within fandom, some science fiction writer's offhand comment trumps an entire academic discipline. Mack Reynolds was an interesting guy -- his current equivalent is probably Ken MacLeod -- but you read his stuff now, fifty years after his heyday, and you wonder, WTF.

Bingo. (Not that I've read very much by Mack Reynolds -- he didn't get traction in British SF publishing.)

Stepping back from the current chew-toy argument, I have a gut feeling that in 30 years' time the entire frame for discussions of the global economy will have shifted at least as radically as they have since 1982 (when the USSR still looked to most people like a credible threatening rival superpower, with a business model that wasn't too obviously broken -- because they'd cooked the books so thoroughly that not many folks could figure out what was really going on). The whole disaster capitalism thing looks very unstable to me: it's going to eat itself, burn through accumulated infrastructure and run up huge debts, and then what?

sudo print me a new economy?

98:

This is an interesting book about Nazi Germany, written without the benefit of hindsight:
http://www.amazon.com/The-House-That-Hitler-Built/dp/1432577026

I find stuff on the Third Reich written before the war far more interesting that much written later which is poisoned with both hindsight and a partisan sense of revulsion that appears almost compulsory. This is also true of some of Shirer's book.

99:

Can we please NOT steer any mention of German politics into a discussion of the evils of Mean Mr Mustache?

That horse is not merely beaten to death: it has been flogged 'til the ivory shows and then allowed to fossilize. Modern Germany is drastically different from pre-1945 Germany in many ways, and a precise repeat of the Nasty Party is vanishingly unlikely. We have shiny and technologically-infused nightmares enough for a new century: why keep harking back to old ones?

100:

Well, in many ways the economic situation now is teetering on the edge of a repeat of the Great Depression, complete with extreme solutions. Greece is not the end of the process but IMHO the beginning.

101:

However, the Great Depression was not the same as the Long Depression. And there's no probability that history will repeat itself.

What made the GD extra-special-bad-with-special-sauce on top was that it occurred less than a generation after a gigantic political realignment -- loosely, the collapse of the old monarchical system and interlocking empires across Europe -- and the successor systems did not have the benefit of widespread popular legitimation. There was, in short, a howling power vacuum and different models of how to order a polity were competing (democracy, fascism, communism, technocracy, you name it).

Today there's a model of political legitimation throughout Europe: representative democracy with human rights. It's not unquestioned and it's not universally observed, but it's there, in much the same way that Monarchism and the Monarchical principle was "there" before 1917. And that will almost certainly make a huge difference (although what difference is anybody's guess right now).

My guess is: we will not see Hitler 2.0. However, we might see Lenin 2.0 ("what is to be done?"), although he won't be calling himself a "communist" or running a vanguard party of the proletariat. (The middle classes have supplanted the proletariat in today's world. Instead of the workers and peasants, it'll be a vanguard party of the teachers, nurses, and programmers.)

102:
Krugman's great - bringing bite-sized chunks of context and complexity to the masses. And simultaneously terrible, because he's creating a little personality cult of "oh, just listen to the right economist who popularizes and all will be well". The terrible isn't his fault, per se; he's not overly tooting his own horn for example. But anything he doesn't get or focus on, those who just slavishly follow him will miss.

There's a second and more insidious problem which already crops up in the political circles where the fate of economies in the real world is actually affected. People who are not economists read his oversimplified versions of things and think they understand economics; they then apply what he writes in different circumstances, as a metaphor, and think that this is intelligent, knowledge-led behaviour.

This is a real problem, particularly at the level of politics where experts on economics are simply not available for comment - in the UK, councils are the trickiest, as they make major decisions about how the local economy will develop with little or no expert assistance.

A third problem is that Krugman isn't writing economics papers, he is campaigning to influence political decisions, and sometimes what he writes is a rather one-sided case. There's no rule for accepting Nobel prizes that says you must henceforth always write the scientific truth in all things you do, but some people act as if there is. To quote Edward Prescott, who has also received the same Nobel prize in Economics, Krugman "doesn't command respect in the profession" and "no respectable macroeconomist [believes stimulus works]". (Yes, that's the Nae Troo Scotsman fallacy)

I'm not saying Prescott's right and Krugman's wrong, but I am saying that clearly one of them must be wrong, so it's definitely the case that at least one economist who has won the Nobel prize in economics between the years 2004 and 2008 has been completely wrong on this topic. (I have no way to know which one of them is right, although I'm inclined to think Prescott is even more partisan than Krugman)

103:

Germany's government debt is regarded as the closest thing to a certain bet there is these days

Which is a bit strange... It's not as if post-war Germany has never defaulted on its debts.

Anyway, I thought the European project was intentionally set up so that emergencies and crises would forge ever-deeper integration. I do hope they're not letting this crisis go to waste. I wish they'd just bring on some EU bonds already. All this macroeconomics talk about sovereign currencies and sovereign debt really boils down to (presumably well-meaning, but still) nationalism. I won't dispute that there are legitimate grievances about past profligacy of the Greek government (partly because I don't have enough information to confirm or refute much of anything about that), but I'd rather blame Goldman-Sachs and the political elites for that than blame the Greek population. It seems to me that the purpose of the bailouts has been to let all the private banks off the hook and leave governments (i.e., taxpayers) holding the bag. The nationalism is a diversion to keep the populists from identifying the common people in other nations as their fellow victims. Now it seems that in Greece they've got a populist left that isn't nationalist. I'm glad to hear that. Thank you for bringing it to my attention, Charlie.

104:

"What made the GD extra-special-bad-with-special-sauce on top was that it occurred less than a generation after a gigantic political realignment -- loosely, the collapse of the old monarchical system and interlocking empires across Europe -- and the successor systems did not have the benefit of widespread popular legitimation."

That in some ways describes the old Soviet Bloc today, esp Russia

105:

"Greece and Turkey are both NATO members."

Doesn't matter.

Half of the Greek population believes that Turkey won't hesitate to disregard the Treaty when it suits them, and is convinced that a large military is necessary to beat the Turks.

The other half of the Greek population is always preparing its bags to join the huge Greek diaspora in Canada and the US (and to a lesser extent Europe) just in case the Turks act up again.

Now, just think of what that travel preparedness mans in case of hard economic times.

106:

EU collapsing in the aftermath.

Depends what you mean by "collapsing". It is entirely possible that the EU falls back to a smaller number of countries and that the currency union is dissolved. But the trading area will probably remain, with the reduced tariffs.

I well remember Krugman wondering if a common currency really made sense for the EU back in the early 1990's. It looks like he was broadly correct as the real stress test has shown it to be wanting. I hope the Greeks return to the Drachma and use a favorable forex rate to make themselves very competitive, especially as tourist destination.

107:

DJPoK @ 56
Our "Austerity" isn't really - it's penny-pinching - and mostly wrongly directed.
In answer to your correct comments on Ireland.
NO
I was thinking of a "United Federation of the Island Realms/Kingdoms".
Which we SHOULD have had about 1916 IF we hadn't had erm, other problems at the time .....

TRX @ 72
Scotland DOES NOT "Have its own currency"
Some Scottish Banks print their own notes, but the BoE is the Lender of Last Resort - which it will NOT be if Salmond gets his way.
See also Charlie @ 80 - I think he means the one I can just remember - the "British Linen Bank" - which was based in Dundee?

Busy Bee @ 103
Oh dear. You still haven't got it, have you?
The EU is the PROBLEM, not the solution.
It's an UNELECTED BUREOACRACY - the "democractic" content is ZERO.
It was sold to us as an Economic free-trade area and formum for closer working.
It's turned into (?) [was actually, all along?] .... an unelected, corrupt, incompetent semi-dictatorship of so-called "technocrats".
Um, err ......


108:

If the EU was a democracy the decisions about the currency and economy would be made by the European Parliament - from which not a word has been reported concerning the ongoing economic crisis. When the shit hits the fan even the pretence of democracy is dropped.

109:

Why am I getting multiple posts held for moderation that never again show up?

110:

"People who are not economists read his oversimplified versions of things and think they understand economics; they then apply what he writes in different circumstances, as a metaphor, and think that this is intelligent, knowledge-led behaviour."

Nah, the real problem is that economists play with wildarse guesses and ideology to supposedly 'understand' the macro and micro economic situation, and then make well paid pronouncements about what everyone else should do.

Frankly, economics isn't fit for purpose.

It won't be the prols believing they understand economics that brings the house of cards tumbling down, it will be the hubris of the economist believing they do.

111:

Charlie, you're saying the greeks don't have grievances now?

Everything you say is true, but in the situation they find themselves, they are advantages, not disadvantages. Not only does it bring in cold hard cash, it redirects resentment away from the politicos. They then look like the good guys when they eventually rein them in.

112:

I believe that one of the things that causes a post to be held for moderation is length. A shorter version of the post may help.

113:

Both posts no longer than 100 words about the European P*arliament

114:

Third post disappeared into "moderation". The commonality being the Euro pean Parli ament

115:

Okay - this is number six, and I won't even mention the common words that seem to get it kicked. But its not length.

116:

The word are indicative of the democratically elected body that is supposed to run the EU

117:

Stepping back from the current chew-toy argument, I have a gut feeling that in 30 years' time the entire frame for discussions of the global economy will have shifted at least as radically as they have since 1982 (when the USSR still looked to most people like a credible threatening rival superpower, with a business model that wasn't too obviously broken -- because they'd cooked the books so thoroughly that not many folks could figure out what was really going on). The whole disaster capitalism thing looks very unstable to me: it's going to eat itself, burn through accumulated infrastructure and run up huge debts, and then what?

I have to disagree. I don't see anything new in the components of 'disaster capitalism'. (I found Klein's exposition irritating, and doubly irritating because it made extremely important points in an irritating way. But then, I'm not part of her primary audience.)

It's unstable, but it's not unfamiliar. The impulse toward social engineering and the impulse toward kleptocracy and rent-seeking go hand in hand. (Are you familiar with Rashidov in the Uzbek SSR and his cotton mafia? It should look familiar.) Where I think the current era has failed is through the too-easy acceptance of bad ideas by policymakers and other forms of elite opinion, simply because those bad ideas were claimed as part of the package that won the Cold War.

I think the world thirty years from now will still be thinking hard about the international flow of capital, labor, and goods; about the importance of democratic governance and its role in functioning economies; about the need for international institutions and the problematic nature of their power. I don't think any new system will arise and look like a successful model (though I do think there will be hype; there's always hype).

I suspect that the environment and income inequality will become important topics in international economic discussions, the latter because the Third World as we knew it in the recent past probably won't exist, but sharp disparities within countries will.

I think it's possible that international/transnational political movements will play a larger role than they do today. Curiously, I see this most among the far right at present, even though we're supposedly at a high-water mark of xenophobic nationalism. (And the spectacle of a faction within the US Republican Party bringing actor/senator Fred Thompson to visit Margaret Thatcher in 2007 to make him a plausible US presidential candidate -- he wasn't -- has stuck with me. Didn't we fight a war?)

Anyhow. My two cents.

118:

Questioning the conventional wisdom rather than mindlessly beating up on foreigners leads them to uncomfortable deductions about who's next in line for a little clarifying "austerity" and just how powerful the groups pushing that line really are.

Personal perspective from the echo chamber that is German media, not necessarily well-informed:

Most Germans think they have lately been in for quite some austerity measures themselves, spearheaded by the Social Democrats and Greens (Schröder would figure as New Labour in German in this one):

http://en.wikipedia.org/wiki/Agenda_2010

The Christian Democrats and Liberals continued that one, but, well, most Germans expect this kind of behaviour from those bastards. Let's just say we go masochist sometimes, and when we suffered enough, we go masochist the other way and vote accordingly.

Funny read for IT guys:

http://en.wikipedia.org/wiki/A2LL

BTW, I don't know how Hartz and related cuts in the German social security system relate to the situation in other countries, e.g. when explaining yourself in Italy you usually get a response like "Manacles! Ooh oooh oh oh. My idea of heaven is to be allowed to be put in manacles... just for a few hours."

Also note that all of this is portrayed as somewhat inevitable by our media. See 'going masochist' above, though a flagellant reenactment seems more productive. But at least we stopped using nuclear energy. Hooray!

So, for the man on the street, talking about Greece etc. has something of a cyclist mindset to it; bow up, kick down.

Thing is, the parties of the current coalition (Christian Democrats and Liberals) lost some state elections lately, so what happened in france might repeat itself in Germany. Experience cautions that most things will stay the same, but who knows? At least the SPD and Greens would never have instituted anything like Hartz-4, right, er?

As our current incarnation of the right populist party, well, they, e.g. pro NRW got 1.5 % in NRW 2012, add 0.5 % for our frankly neonazi friends from the NPD, and you get 2 %. Compared to 2.6 % for our Leftists (Merger of left breakaway from Social Democrats and PDS, former DDR-ruling party SED) and 7.9 % for the Pirates (imagine a hacker club turned political party, in fact, looking at some members, it is). Which figures nice with those guys doing the publicity stunt lately.

Please note that this is hard a professional analysis, just an impression.

119:

Americans and Brits love comparing modern problems to Hitler because it implies that we'll be able to solve those problems to our advantage.

Does anyone know if the Russians do the same thing?

120:

I think that's about right. I spend most of my time in Germany, and I can't help thinking that the German government is acting in bad faith, or else is being pathologically short-sighted and colossally inept.

My take on it is that the German government blew the whole problem out of proportion from the start. Not to downplay the problems or to detract from Greece's role in its own downfall, but treating it as a moral issue, for which righteous punishment must follow, probably had the effect of throwing a few litres of petrol (gasoline) onto a small fire. No wonder it's spread.

I don't live in Greece - never have - but I have been speaking with my brother, who does.
FWIW, he is convinced that the austerity which is beggaring so many people has been made much, much worse by the _attitude_ of many of the German political elite. It has made a lot of Greeks so angry they are ready to cut off their noses to spite their faces - people who were initially prepared to go along with the cuts. Telling the Greeks that they are essentially lazy, feckless and incompetent, taking a completely inflexible line, and sending German civil servants to 'make things work', has done real damage. That sort of top-down, directive-from-the-boss approach might work in the German context (probably would, from what I've observed of the culture), but it certainly doesn't work in Greece. Having said that, note that a large minority of the population nonetheless wants to continue the austerity plan.

Finally, the election in Greece turned on two main issues: economy and immigration. Comments here have talked mostly about the economy. I'd just like to mention the other issue. EU rules require that people seeking asylum do so in the first EU country in which they arrive; often this is Greece. There are now apparently over a million non-Greeks in the country - over 10% of the population. This is placing a huge burden on the state's resources, which the EU has apparently been slow to acknowledge. Greece has had lots of immigrants before, in the wake of the soviet collapse. The difference now is that the economy is tanking, and the new arrivals look obviously foreign (e.g., from Pakistan, Afghanistan, north Africa, Syria). The numbers and visuals make it easier for scary political elements to flourish, blaming the EU. Ironically, a large proportion of the migrants reportedly want to end up in Germany.

(PS: thanks for the original link to Paul Mason's analysis, Charlie)

Alain @ 105
Nicely put.
I agree that NATO membership is no barrier to paranoia.
Also, Greece is in many respects very much a construct. In a way, if you speak the language and share the Greek ideals, then you can be considered Greek: it's not so limited to a place. And the Greek Diaspora is huge, with global reach. So there isn't so much of a barrier against leaving home in the first place.

121:

"...it'll be a vanguard party of the teachers, nurses, and programmers."

This is sounding a lot like a resurgence of Technocracy. (The original political movement of that name, I mean, not the vaguely-defined modern term bandied about earlier in this thread.)

122:

107:

Two points.

"It's an UNELECTED BUREOACRACY - the "democractic" content is ZERO."

Apart from being composed of democratically elected governments which appoint their own representatives to European institutions, the singular exception being the European Parliament that's composed of parliamentarians directly elected by European electorates?

There's no single European polity in the same way that there's a German or a British or a Greek, that's true. The European Union is a democratic organization, though, with abundant democratic content. It's only capable of functioning with the consent of its member-states, which, when they decide not to cooperate, leave it incapable of acting as we see with Greece now.

"It was sold to us as an Economic free-trade area and formum for closer working."

Considering that the Treaty of Rome that created the current European architecture back in 1956--seventeen years before British entry--explicitly mentioned a desire for an "ever-closer union" at the beginning of the preamble, the idea that somehow the United Kingdom was entirely misled about what the built-in dynamics of the European architecture were strikes me as preposterous. It may well be that British politicians misrepresented the Treaty of Rome to the British electorate, but that's an entirely separate affair (and doesn't speak well to the British electorate if such a bait-and-switch thing did occur.)

This

123:

Austerity in Germany is in the cards. The difference is that a smaller portion of the population is targeted than in the periphery.
Germany has no minimum wage and many internship like jobs, so they have been going down the path that the US used to eliminate that part of the working class well-off enough to live a middle class life: grandfather in the current employees, but put the new ones on a secondary, much lower wage scale.
One of the reasons why there is so little support among the German population for doing anything for the periphery is that a fair portion of the Germans lived with a milder, but long-lasting semi-austerity to pay the bills for integrating the former East Germany.
By the way, there is one condition under which austerity actually does work: when there is a counter-party willing to buy one's exports. Anti-austerity in the periphery in the years leading up to the crash was not a failure to emulate German semi-austerity. It was a condition for its success.
In this sense, China has built its entire economy on maxi-austerity: extremely low wages and historically low consumption as a proportion of GDP. And that maxi-austerity is a major long-term factor in triggering the crisis in the first place.


124:

Above all, thank you for the link to Paul Mason's nicely detailed analysis.

"the resulting government may, in effect, be little more than a left-social democratic government, despite its symbology and the radicalism of some of its voters. "

That may be what the resulting government will try to be, but if the EU leadership tries to break the will of that government, in order to avoid "contagion" to the rest of the periphery, that could well force both this hypothetical leftist Greek government and its voting base farther to the left.
After all, anyone in Greece who wanted a leftist government that followed EU dictates to govern like a conservative one would have just voted for PASOK in the first place.
I must admit that my vision may well be clouded by a desire to see someone, anyone, in Europe stand up and oppose the attempts to make Europe as inhumane as America and China.

125:



I think it's possible that international/transnational political movements will play a larger role than they do today. Curiously, I see this most among the far right at present, even though we're supposedly at a high-water mark of xenophobic nationalism.

The contradiction gives your scenario a frightening ring of truth.

What's to keep FreedomWorks and co. from trying to upholster the world in their right-wing astroturf? Export-grade (i.e. crap) political/economic systems seem to be one of the US' most significant gifts to the world, after all. Ranks right up there with the recycled fairytales Disney & Hollywood sell to make up our trade deficit.

126:

I read a brief fact (from a very reputable academic economist, can't remember which) a few months ago which does a good job of summarizing in one line just how absurdly bad European policy has been on Greece.

The EU has spent more money in partial bailouts for Greece than the entire Greek national debt at the beginning of the crisis.

It is a total policy catastrophe.

127:

>>>Does anyone know if the Russians do the same thing?

Yes.

128:

I think we're going to see Mussolini 2.0 or Franco 2.0. Germany isn't going anywhere politically except deeper into the hands of the bankers and rentiers; they already run things, and while I disagree with the notion that they won't apply austerity to their own people (as long as, like the American version of austerity, they don't have to suffer from it), it could easily be years before they feel it necessary to do so, depending on exactly how things play out with the peripheral Eurozone countries. But Greece, Italy, Spain, or Ireland could be pushed far enough to elect a fascistic populist government (the government that Germany tried to install in Greece last year was certainly fascist, and those people aren't going to stop trying to obtain power just because they don't have the direct backing of Germany).

No, I'm not expecting international military conflict in Europe, and Germany's economy is healthy enough at the moment to make economic warfare against it or against anyone else to Germany's detriment unlikely. But we could see a serious weakening of the bonds in the EU, and a reduction in the cooperation among the European nations that could affect the long-term success of dealing with trans-national and global issues like controlling climate change, sharing scarce resources like water, and ameliorating the conflict among Western, Islamic, Hindu, and East Asian cultures.

129:

And, just to complicate matters, the election in North Rhine-Westphalia yesterday appears to have given the Christian Democrats a bit of drubbing, leaving the Social Democrat / Green coalition with a majority in the state legislature. If this doesn't cause Angela Merkel some headaches, it's because she's not paying attention.

130:

The EU is the PROBLEM, not the solution.

I think I do understand what you mean, saying the EU is the problem. I don't even disagree necessarily: the EU was just integrated enough to bring inflation to the periphery, but is not integrated enough to correct the overshoot now that that inflation went on too long. Nevertheless, I remain convinced that the solution to this and other problems with the EU is to accelerate further integration, instead of rolling it back.

Yelling about how undemocratic the European bureaucracy is, instead of about how the national governments cling to the power to pretend to speak in Europe for the minorities who were outvoted on a national level, isn't going to change my mind. I am less worried about bureaucracies whose democratic content is zero but whose mandate is clear, than about the representative democracies where someone speaks for the majority of the representatives who were elected by a majority of the fraction of the population who voted for a representative they agreed with on a majority of the issues in that election (perhaps speaking for 20% of the population on those election issues but less than 1% on any other given issue), but does so with the righteousness of a paragon of democracy.

It was sold to us as an Economic free-trade area and formum for closer working.

Blame the people who sold it to you, then. Where I come from, it was seen as an imperfect but feasible first step on the road from "here" to "there"; "here" being a Europe tired of war, and "there" being a free and peaceful Europe where nationalism is a quaint feature of historical politics. We wanted more, but this was feasible then, and the EU was set up to start us inexorably towards further integration. Feature creep is intentionally designed into the institutions. Free trade and cooperation aren't the end, not even the end of the beginning.

Nationalism might still be the end of it, though. The people who mis-sold the European project to you, and their ilk in other countries, aren't free from blame for that, either.

131:

From a semi-libertarian blog - I make no apologies ...

I estimate total current membership of the Big Three (Political Parties) as follows:
Conservatives 210,000
Labour 170,000
Lib Dems 50,000
TOTAL 430,000
With a UK electorate (not population) of 45m, that's fewer than 1% of voters.

So, even in this country we are being controlled by a slef-selecting "elite" with no real comcern other than feathering their own nests.
Even without reference to the unelected, unaccountable, corrupt European Commission.

NOT a good prospect, is it?
Refer also to post @ 114,


Randy Macdonald @ 119
What PLANET are you on?
Look at the numbers above.
If the then commissioners are APPOINTED it's just a giant gravy-trough Quango, isn't it?
I remind you that said bodies' books have NEVER balanced, and the people who blow the whistle on the corruption are run out of town.
However, you do have onre thing half-correct: It may well be that British politicians misrepresented the Treaty of Rome to the British electorate,
YES, they did, and we were decieved, including me ... but that's an entirely separate affair (and doesn't speak well to the British electorate if such a bait-and-switch thing did occur.)
Maybe, maybe not.

Jessica @ 121
I must admit that my vision may well be clouded by a desire to see someone, anyone, in Europe stand up and oppose the attempts to make Europe as inhumane as America and China.
Probably too late.
We already have "Strict Liability" offences, and terrorism laws used against peacefully protesting pensioners, and a political class thinner on the ground than non-TV owners.

132:

It would help if you didn't complain repeatedly an hour after I've gone to bed, at a weekend point where the trans-Atlantic mods are presumably Away From Keyboard ...

133:

You know, a quick look at the Agenda 2010 and Hartz-4 wikipedia pages suggests that, if they're remotely accurate, the German social security system is now roughly where the British one was before Maragaret Thatcher started with the hacksaw surgery in 1979.

The hollowing out of the state that has occurred in the Anglophone nations just hasn't really happened in Germany. (Translation: things can get a lot worse. Unbelievably worse. It's taken the UK 30 years of finely-diced cuts and counter-protests ignored by successive governments to get to its current point, after all ...)

134:

This is sounding a lot like a resurgence of Technocracy.

Er, no. Technocracy is pretty much dead in the water at this point in history (in the original sense: rule by engineers and scientists using a centrally planned economy designed along rational lines, whatever "rational" lines might be).

Rather, I'm noting that the working class of traditional late 19th/20th century Marxist discourse isn't the engine of production in the capitalist economy any more. It's largely been de-skilled and/or outsourced overseas or shoved into fields full of illegal migrant workers, leaving the survivors a choice between service jobs and unemployment. Meanwhile the middle class (broadly: jobs that require degree-level education) has mushroomed. Some of this is credentialism necessitated by changes in employment practice, but a chunk of it is that in many occupations a huge amount of knowledge needs to be absorbed before a new worker can even start to get to grips with the job.

I'm inclined to think that Carlos called it right in comment 117 on one key issue: in thirty years' time the third world as we know it won't exist any more. Instead we will have a world of unevenly-developed nations, with rich, well-to-do enclaves and large pockets of immiseration existing cheek-by-jowl both in the former third world and in our currently developed nations (if the kleptocrats aren't stopped).

135:

things can get a lot worse. Unbelievably worse.

I know.

Err, as mentioned, when talking about the situation in Germany with Non-Germans, the usual reaction is something akin to Ben, the old prisoner in Life of Brian. Or to paraphrase Lem, try selling "Fahrenheit 451" as a dystopia to a survivor of the Warsaw Uprising...

Thing is, many Germans saw this as drastic cuts, and they presume the cuts in Greee to be of the same order.

136:

Fully agree on both counts.
The fact that the Marxist model has been rendered obsolete on the ground has left us without a visible, coherent, alternative to neoliberalism.
One interesting aspect is that it will require different ways of control to maintain the boundaries (in whatever sense they will will function) between areas where life is like what we used to call first world and those where it is third world when those areas are so physically intermingled. That seems inherently unstable to me. Especially when even people for whom a cow-dung floor was a step up in the world have access to a smart phone.

Also, any nation that can keep its entire population in the first world (Scandinavia, maybe New Zealand, Singapore if they pull back from the Gastarbeiter economics) will have a certain advantage.
A knowledge-driven economy will flourish best in societies that have more of a commons. Nations where everything is privatized or nationalized (or a combination of the two) would by comparison be like the late Soviet Union.
Although if the private+national-only spreads over the entire planet, then it won't need to face any competition.

137:

Really Charles, yet somehow state spending is now pushing 50% of GDP, it's not going to transport, or defence. It's being swallowed by social spending, pensions and a much larger number of state employees. Have all those teaching assistants improved teaching in the UK, what about all those community support officers?

There are many types of benefit now available that weren't before. If the state was really hollowed out, we'd be spending far less money.

138:

There are straightforward and simple ways to avoid austerity. Only kleptocracy and corruption prevents us taking them.

There are two parts to QE. The first part is where the Bank of England uses its privileges as a central bank to magic some money from thin air, buy a truck load of outstanding government debt from banks and credit their reserves with the money it has created. 

This is the part that should be and is designed to be inflationary. Money is created and the banks should in theory be able to leverage the reserve crediting up and stimulate demand in the wider economy with it. 

In the last couple of years the Bank of England has created £325 billion this way. So what has been the effect on the money supply?

http://www.telegraph.co.uk/finance/economics/9242042/Record-collapse-in-UK-money-supply-blamed-on-banks.html

"Figures released by the Bank of England on Wednesday showed that the UK's broad money supply, M4, shrank by 5pc in the past year to a new record low."

QE obviously isn't working in the way it is intended. The credits given to banks are not finding their way into the real economy. QE is simply not stimulating growth in the money supply in the way it is intended to. 

So what has gone wrong? In short - bankers greed.  Banks demand a 15% return on equity to enable them to support their "business model"  of spending over half their turnover on pay packets that average £350,000 . This level of return is so high and greedy that banks have no interest at all in lending for mortgages or to small businesses - the returns are too small.

As credit creation in banks is the only way the UK economy can widen its money supply and credit creation in banks is responsible for 97% of the money supply growth. If banks won't lend then the money supply doesn't grow and our economy shrinks. The money supply must widen by at least 5% pa for any growth (money supply growth averaged 10% pa in the decade before the 2007 crash). That isn't happening so we are in recession. 

The other source of growth is government spending but since Osborne is taking many multiples of £150 billion out from public sector spending this virtually guarantees we enter a depression. 

Is there a silver lining though? Yes - the Bank of England has successfully bought up a third of the government debt that Cameron and Osborne are withering on about without sparking an inflationary spike in the money supply. 

Given that everybody was expecting QE to feed through into growth in the UK money supply there was always planned to be a second part to it. 

The second part of QE is the insane bit. Sitting in the wholly publicly owned Asset Purchase Facility is £325 billion of outstanding government debt. The same debt Cameron says it is critical we eradicate. His plan for it is that in a few years time, the Asset Purchase Facility should sell it back out to the banks we bought it off and then rip up the money the banks give us for it. 

Given the original reserve crediting didn't cause the money supply to widen this is just treasonous and insane. The resale obviously can't be inflationary - the money creation bit from part one happens over 5 years before the reissue of gilts.  Reissue will obviously be deflationary as banks will allocate liquidity to buy the gilts instead of using the money for something else. But it cannot be inflationary as there is no money creation at that point. The second part of QE should be abandoned. A sensible government would announce that the money supply is shrinking, that the £325 billion in the Asset Purchase Facility can be safely monetized and that public sector cuts are cancelled and a £175 billion stimulus package can safely be afforded. 

How likely is this? Given how corrupt, incompetent and misleading is the current government to mis explain how the economy works in order to justify selling off the public sector to their friends and funders? The Tories and their backers want high unemployment and household debts to rise as this lowers wage demands and increases corporate profits. They are deliberately engineering a slump in order that the banks who provide 50% of their funding and the donors who can afford the £250,000 dinners with Cameron can slightly increase their profits. 

Business is sitting on £700 billion of retained profits, banks are rich enough to pay an average of £350,000 to their staff. So what does Cameron do? He abolishes the bankers bonus tax, drops the 50p highest tax rate, lowers corporation tax and exempt overseas subsidiaries of multinationals from paying tax. The rest of us get a 5% hike in VAT, trebling of university tuition fees, youth unemployment raised to 20% and once again (as with Thatcher) unemployment knocking on 3 million people. 

This is the real reason the economy went from growing at nearly 4% pa in Alastair Darlings last 12 months to contracting in the last 12 months. Cameron and Osborne have sucked all demand out of the economy and with his fiscal tightening has allowed the Uk money supply to contract. Businesses and banks have plenty of money. It's their customers that don't.  Tory policies that hurt families and help the rich will continue to intensify the recession as they suck demand out of the economy. Until we get a left wing government we will remain in a prolonged slump. 

This government is corrupt and evil. It is pure out and out class warfare  It must be stopped. 

139:

Well the real core failing of the EU, the one that's been starkly highlighted by the Greece Crisis, is that when we talk about the EU we don't talk about Van Rompuy or Schulz's failures as selected and elected leaders of the EU but instead one finds oneself talking in terms of Merkel or Sarcozy as the defacto leaders of the EU - two people elected in their own countries but with no mandate or rights according to any of the EU treaties or constitution to act outside of their own countries to unilaterally affect the domestic policies of other EU nations.

140:

You missed life expectancy changes.

Back when the state pension first came in in the second decade of the 20th century, very few people lived more than 12 months beyond the retirement age. Today the average is more like 20-30 years life expectancy post-retirement. In consequence, we have a horrendous problem with (a) rent-seeking behaviour by bloated, overweight pension funds, and (b) a drop in the ratio of working-age people (the pool of employables) to dependants.

Also note that as more people live into old age, medical costs explode. Cancer and heart disease and arthritis, the diseases of old age, are vastly more expensive to treat than infectious diseases.

So even if you discount unemployment/income supplements, the cost of running a welfare state is considerably higher today than it was even 30 years ago.

When you then add the need for a more educated work force, education also adds huge amounts of expense to the mix.

The compare the cost of a modern Main Battle Tank or a modern fighter jet to their equivalents 40 years ago. The modern ones might as well be milled from a solid platinum ingot. (They're vastly better at their job, but: it comes at a huge cost.)

Finally: a few decades of outsourcing government infrastructure provision and support roles to the private sector -- who need to turn a profit -- has actually added to the cost of running the country. Because, well, see "profit" above.

Upshot: running the country costs more than it did back in the stone age. What do we need to improve things? Well, a cure for senescence -- the physical ageing process -- would go a whole long way, although the first century of the great rebalancing would qualify as "interesting times" to live through. Failing that, more flexibility and less doctrinaire ideologically-driven governance.

141:

Greg@131:

With a UK electorate (not population) of 45m, that's fewer than 1% of voters.


So, even in this country we are being controlled by a slef-selecting "elite" with no real comcern other than feathering their own nests.

Greg, I can assure you from personal experience that political party members in the UK are no such thing. Rather they are the PBI that puts in the hard work of delivering leaflets, knocking on doors, getting their fingers cut by letterboxes and being chased by dogs.

If they're really gluttons for punishment, they might even get elected to their local council, whereupon they become an unpaid social worker for the next four years.

If you're really so concerned about the small size of the "self-serving elite" why not join a local party and see if you can do something about it, or if you really find none of them to your taste, start your own.

142:

"The idea that you can impose a depression to recover is considered folly over here. We frankly don't know what went wrong with Germany's economists that they thought this was the right approach."

Because the goal was that all debts to Germany get paid first, foremost and in full; they didn't care what was left, and how high the body piles would be.

The real strange thing is that Germany is prosperous only from exporting to the rest of the EU; if most of the rest of the EU is in economic rubble, German exports drop.

It probably comes back to (a) the elites want their foolish loans repaid, and (b) there are no honest right-wing economists. Their job is to serve the elites.

One of the things that I'm wondering about is the myth of Nazism being caused by the Weimar hyperinflation. In fact, it was not. It was caused by the Great Depression. I wonder if there's a background assumption in right-wing economics that financial crises lead to right-wing political surges (either by democracy or by military coups). I'm not accusing these guys of being fascists, but of assuming that trashing the fortunes of most of the people will result in desirable political effects.

143:

I've found a USian Conservatroll; may we burn him?

144:

"You mean, like Iceland?"

Yes, like Iceland, which is now only inhabited by penguins, who waddle among the skeletons :)

Now, if only they had followed the lead of Ireland, which has completely recovered from the minor unpleasantness[1].

[1] Offer only good for the top 1% of the Irish population; side effects are minimal (unemployment, poverty, homelessness, crushing debt) since they are confined to the dregs[2] of society, who deserve it, and are having their Characters Built.

[2] Everybody else.

145:

Best look at a bit of data to resolve some of this-

http://www.voxeu.org/sites/default/files/image/degrauwe_fig2.gif

Greek as for all g20 nations underwent a near doubling of public sector debt levels in 2008. That would be the taxpayers taking on the costs of banksters greed and incompetence. Not as Dave and Gideon would have us believe "overspending" on social capital.

This is not a sovereign debt crisis. It's a further stage of a banking crisis. The banks are basically gouging the PIGs bond yields with the aim of creaming off bailouts from the ECB.

146:

I'm inclined to think that Carlos called it right in comment 117 on one key issue: in thirty years' time the third world as we know it won't exist any more. Instead we will have a world of unevenly-developed nations, with rich, well-to-do enclaves and large pockets of immiseration existing cheek-by-jowl both in the former third world and in our currently developed nations (if the kleptocrats aren't stopped).

Have you read Branko Milanovic's The Haves and the Have-Nots? A good quick read on current and historical income inequality. Milanovic came up with the concept of the inequality extraction ratio. Basically, the inequality extraction ratio compares the measured income inequality to theoretical income distributions where most of the people are at subsistence, with a very small elite which gets the rest. The ratio is a measure of how extractive the society is. Britain under the Raj had a very high extraction ratio; so does the modern Democratic Republic of the Congo.

What haunts me a little is the idea of a society where most people earn say $30K, with very slow income growth, while a very small elite gets all the additional income caused by economic growth. It's not horrible, it ain't the DRC, and it's better than the vast majority of human societies throughout history. But it's basically a maximum inequality frontier where the floor isn't subsistence, but a middle-class lifestyle. Meanwhile, the rich buy and sell planets.

147:

the problem is that like communism twenty years ago - capitalism has ceased to function, and would collapse tomorrow without completely imaginary money - servicing commercial and national debts

it has fallen prey to its own internal contradictions

no-one, by which I mean absolutely NO-ONE has slightest clue what do next, other than do everything to preserve their place in the economic hierarchy...

we have a massive imgination shortfall...

148:

(India under the British Raj, dammit.)

149:

But remember, these people didn't get to where they were by playing nicely; if scenario three ever plays out there will be a mad scramble among these worthies for the life boats and the Devil take the hindmost.

And the Germans created the perfect word for this ...schadenfreude. ;)

150:

Roy @ 141
Excuse me, but bollocks.
Yes, there ARE a few useful idiots, doing what you say in Part (any party) membership - but ... look at THE NUMBERS. Even Norman Tebbitt (spit) has noticed this and is complaining, and the same is ahppening to the other parties, too.
I WAS a member of the Lem-o-Crats for 4 years (I've stood for local council) unti I realised that they, too were just hypocritical LIARS, just like all the others.
Oh, and Local Councillors are paid - have been for years, so I think you are out-of-date, as well.

As for "starting my own" - well that's what worries me.
With levels of apathy and cynicism this high, what happens iof an, er, "charismatic leader" with a "new way" comes along?
See earlier comments up-thread about Franco/Mussolini II.
I just hope it isn't the really nasty, criminally insane "Greens".
[ See also von hichtofen @ 147 - and of course, it could also get much worse, instead of better, or just limping along ]

Paw4thot @ 143
If it's the same "Rational Plan" - NO.
Because there's one who corresponds on one of the London transport-related web-sites - who occasionally has flashes of sense, but usually, no real grasp of dirty engineering practicalities.
Of, course, it could be a different RP ....

Carlos @ 146 (& Charlie)
How does the Extraction Ratio correlate to the Gini coefficient?
Or doesn't it?

151:

You can burn him if he comes back for more. (RP is an irregular pop-up sock puppet here. I don't auto-ban him because he provides occasional unintentional amusement.)

152:

Greg at 150: It's a ratio of two Gini coefficients: the measured and the maximum feasible.

153:

The problem with political parties in the UK is not the individual members, but the central parties themselves.
See "The triumph of the political class" by Oborne. It clearly lays out how the various influences and changes over the decades have led us to a political class that is immune to useful critiscism, bands together across party lines whenever its perks are threatened, does a poor job of holding itself to account and is in an incestuous relationship with the media, as is coming out at the Leveson enquiry. And gives us voters no real alternatives as the main parties triangulate for the middle ground, hence the decline in numbers.

154:

“Being Poor” Excerpted in “The Rich and the Rest of Us”
MAY 14, 2012 BY JOHN SCALZI
http://whatever.scalzi.com/2012/05/14/being-poor-excerpted-in-the-rich-and-the-rest-of-us/

"I completely forgot about this until I saw a Tavis Smiley tweet about it this morning: My Whatever post 'Being Poor,' which I wrote in the aftermath of Hurricane Katrina, is excerpted in his and Cornel West’s new book The Rich and the Rest of Us: A Poverty Manifesto. Which is, as you might expect, a book about poverty here in the United States...."

155:

Carlos
Thanks

Guthrie @ 153
That's the sort of thing I was thinking of, yes.

Meanwhile is this A straw in the wind - comments, please?

156:

"Ok, I'm exaggerating a bit, but you get the point. If tourist will keep going there or not might depend on how much of a fascist state might result from a modern day Weimar Republic."

Please note that the ***Great Depression*** caused the rise to power of the Nazis; IIRC the 'Weimar hyperinflation' was well over by then. During that time, the Nazis were way down the listings, only counting right-wing parties.

157:

"Austerity would have held their economy stable at a low level."

Not really; austerity was choking the countries involved, in exchange for 'subsidies' which (as far as I could tell) were immediately rolled over to the big Eurobanks.

What is happening is that a lot of people are (a) not trusting the liars who lied to them, and (b) might be making the rational choice, since it's clear that austerity will never result in growth, just the harvesting of the economy for outsiders.

158:

"Ah, Keynsian economics, I was wondering when somebody would wave that around. Great idea for countries with strong economies, which is why places like the UK and France are borrowing money at an increased rate to get their economies moving again."

At this point Keynsian economics makes Chicaga/Bundesbank/neoliberalism look pretty bad; frankly you have no moral right to condescension.

159:

"It's one of the things I didn't get about sacking all the civil servants. Better would have been to say "your salary is now a percentage of the unpaid tax you recover - go forth and shake the tree".

Nothing like motivated self-interest for bringing out the inner b*stard."

The elites don't like to be taxed. They love to receive big-time government spending (with bailouts which pop up out from nothing to the trillions), but they hate to be taxed.

160:

"And if we already read Krugman? What's your point?"

Two points - one, that he's covered a lot of this.
Two, that he's been right more than the other side put together.

161:

It's worth noting that the UK's current government are about as anti-Keynsian as any government we've had since 1945. So, if anything, the double-dip recession here (and the rise in borrowing to pay for the unanticipated effects of putting millions more people on the dole) are evidence to support the idea that what we needed was a stimulus package rather than austerity.

As for France, Sarkozy isn't quite out of the frame yet. Another right-wing austerity-tard.

162:

You're basically using the Great Depression and WWII as your baseline. Perhaps, just perhaps, people are expecting better.

163:

"Mack Reynolds once stated something along the line of, "if any of those economists could predict trends even 1% better than random chance, he ought to be a billionaire."

Every time I start reading about statistical economic analysis and "modeling" of markets, I remember ol' Mack's words. "

As always, Krugman has covered this. I can't find the link - the gist is that in normal times, don't go to economists to predict a market; go to the people who deal with it on a daily basis. However, when things go whacky, that's when economic theory can be of great help. At that point the normal market wisdom doesn't work.

My analogy - I don't know the daily behavior of your digestive system, but if you quickly drink several shots of hard liquor on an empty stomach, I know what will happen.

164:

"It does not take an elitist conspiracy to suppress the facts for Germans to think that. They did "the right thing" and were rewarded. The larger context, the periphery inflation, only has to be out of the field of view of the non-economists."

You are rather unclear as to the late 1940's/early 1950's. Also, as I've pointed out (and many others), an economic scheme of 'Germany will export manufactured goods to the rest of the EU' is not extensible to the entirety of the EU.

165:

"Krugman's great - bringing bite-sized chunks of context and complexity to the masses. And simultaneously terrible, because he's creating a little personality cult of "oh, just listen to the right economist who popularizes and all will be well". The terrible isn't his fault, per se; he's not overly tooting his own horn for example. But anything he doesn't get or focus on, those who just slavishly follow him will miss. "

Krugman is great for being *right*, as well as a good communicator.

166:

"(These days, many central banks and other agencies use "dynamic stochastic general equilibrium" modeling, which is kind of screwed, but it became popular precisely because the models are based on agents trying to optimize their behavior -- "greed is good" -- rather than chasing trend lines.)"

Which as I understand it, still doesn't work well; the right-wing economists like it because it has microfoundations, and don't really care about predictive or explanative power.

167:

The Hyperinflation was, roughly, 1921 to 1924, and partly a consequence of how Germany funded WW1—no tax increases—which meant inflation in Germany had been high during the war.

Fighting a war without tax increases? Where have i heard that before?

168:

"I'm not saying Prescott's right and Krugman's wrong, but I am saying that clearly one of them must be wrong, so it's definitely the case that at least one economist who has won the Nobel prize in economics between the years 2004 and 2008 has been completely wrong on this topic. (I have no way to know which one of them is right, although I'm inclined to think Prescott is even more partisan than Krugman)"

What guy might do - who's actually interested in who is right and who is wrong - might be to see who has been right and who has been wrong.

What has Prescott been saying?

169:

"Third post disappeared into "moderation". The commonality being the Euro pean Parli ament"

It was your typo - you meant to say 'many, many hours of continuous, rock-hard tedium' :)

170:

(this will be my last comment for the day - I've already posted too many in a row)

My observation about people's reaction to Krugman is that his critics say many, many things about him, or suddenly hide their St. Friedman medal and dis economics as a respectable discipline, but they almost never talk about what he's said, compared to what others have said, and who has been right more often.

Which tells me a lot about his critics.

171:

Me:

"It does not take an elitist conspiracy to suppress the facts for Germans to think that. They did "the right thing" and were rewarded. The larger context, the periphery inflation, only has to be out of the field of view of the non-economists."

Barry:

You are rather unclear as to the late 1940's/early 1950's. Also, as I've pointed out (and many others), an economic scheme of 'Germany will export manufactured goods to the rest of the EU' is not extensible to the entirety of the EU.

I was referring to the 90s, not 40s/50s. German resurgence in the 2000s after they finished absorbing East Germany was largely due to a surge in intra-European exports. It's not the first time their economy benefitted from that, but is the relevant one.

It appears that you think I was unaware of this, or of the failure to scale (or if they tank the Euro, even continue) of their current intra-Europe export model. I don't know why...

I'm not an economist, but I've been Paying Attention since 2001. I've been reading Krugman's blog since ... I don't actually know when he started, but mid-2000s, long before 2008. He's not always right, but he clearly knows both his focal area of more realistic international trade models and depression era type Keynsian economics (which out of the blue became relevant again in '08, surprise). I've even read enough of the texts out there to know I don't want to be a professional economist, thank you very much, however much it's useful trying to understand what's going on in the world now...

172:

Many years since I last used any econo-speak, so plain English will have to do.

IF Germany forces it to adopt austerity (belt-tightening) measures, Greece’s tourism revenue might be affected either because (a) German tourists might want to avoid the rioting in the streets, (b) fed-up Greeks might take out their frustrations on German tourists, or (c) a combination of (a) and (b).

BTW -- Wikipedia-sourced info on Greece tourism: In 2009, total tourists rose to 19.3 million, up from 17.7 million in 2008. By region/country: 12.7 million EU, of which Brits made up the largest share (2.61 million, 15% of total), closely followed by Germans (2.3 million) with nearer neighbours providing the next largest tourist pools: 1.8 million Albanians and 1.1 million Bulgarians. What the Wiki article doesn’t say is what each country’s per capita spending is while in Greece. Albanians and Bulgarians probably take mostly day trips, with Brits and Germans probably visiting for at least a weekend – therefore contributing much more per capita-wise to the Greek economy as well as to their own economies, i.e., air/rail plus the travel agents industries. From CIA World Factbook - Tourism provides 15% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs.


So – Greece is similar to Israel geopolitically? Literally needs a large standing military to ensure its very survival, and resident Greeks are only a small proportion of the Greeks scattered around the globe? If so, couldn’t Greece use a similar strategy for raising cash, i.e., sell some of its debt/bonds to Greek ex-pats?

Has anyone considered variations of the Euro: one for intra-EU trade and one for internal/within its own country’s borders?



Re: Jessica 123: “By the way, there is one condition under which austerity actually does work: when there is a counter-party willing to buy one's exports.”

--- This sounds like kiting a check ... has any economy ever tried this? ... Wonder if bridge financing would work here ... or more accurately “seesaw”-financing. The debt never really gets paid off, but the books look nicely balanced.


Charlie 134: “I'm inclined to think that Carlos called it right in comment 117 on one key issue: in thirty years' time the third world as we know it won't exist any more. Instead we will have a world of unevenly-developed nations, with rich, well-to-do enclaves and large pockets of immiseration existing cheek-by-jowl both in the former third world and in our currently developed nations (if the kleptocrats aren't stopped).”

--- Don't agree because at some point people are going to give up on corporations, just as they got fed up with aristocrats. Then again, the success rate of politicians being able to sell dreams and outright bullsh*t continues to amaze.


Charlie 140: “Also note that as more people live into old age, medical costs explode.”

-– The last time my elderly parent went to the ER, the first question asked by the triage nurse and again by the ER MD was whether she had signed a DNR. The DNR was mentioned once again upon ‘discharge'. Take-away message: compassionate reminder that health care doesn’t necessarily mean keeping one alive or you're too old so sign a DNR and let us ignore you and not get sued.

Lastly – why do commercial credit agencies (i.e., Standard & Poors, Moody’s, Fitch) which are foremost American for-profit corporations allowed so much clout in evaluating a non-US sovereign state’s economy and thereby screwing up already-fragile recoveries? These are the same credit agencies that gave Enron gold-star ratings up to a year before it spiraled into oblivion. These credit agencies' evaluation criteria don't make sense for a national economy which is not meant to run or be measured on Quarter-over-Quarter basis nor should be measured exclusively on dollars/euros.

173:

A Modest Proposal...

Turkey acquires Greece in a leveraged buyout. Turkey's larger GDP and higher debt ratings make this viable. Goldman Sachs facilitates the deal. Greece is bailed out and can avoid austerity. The EU banks get paid off, so they are happy. Turkey gets the crown jewels - EU membership by default. This is hardly unprecedented, West Germany did something similar with East Germany...

I'm sure that Greece could be effectively asset stripped to offset the deal cost. Artworks, historical artifacts, perhaps a small island in the Cyclades or Dodecanese island chains?

The Greeks' antipathy to Turkey might make this a bit of a poison pill, but think of the synergies. This is a win-win deal.

174:

"I'm aware Scotland has its own currency; so do Puerto Rico, American Samoa, and other territories and posessions."

Uh ... American possession all use the U.S. dollar. The Philippine Islands had its own peso under U.S. rule, but it hasn't been an American territory since 1946. I'm terribly curious to know where you got the idea that Puerto Rico et. al. had their own currencies: I've never run across that misperception before.

175:

Turkey should probably defer joining the EU until the current economic crisis has been resolved ... or until 2021, the likeliest date it would be allowed to join.

176:

Goldman Sachs is currently too busy covering its ass to do anything substantive for anyone else. Jamie Dimon may or may not be able to survive the stockholders' shitstorm he walked into this morning; at least 3 of the company's other executives appear to be on the way out now. It looks very much as if the attempt to blame a $2 billion loss on a junior trader is not going to be acceptable.

Now the reason that GS was so eager to invest so much money on risky gambles like the one they just lost is that they have billions of dollars of US government (that is, taxpayers') bailout money they were expected to loan out to pump money into the US economy. But because of the low interest rates caused by economic contraction after the 2008 meltdown, and stagnation ever since, they didn't want to loan the money out; the returns were just to low to tempt the MOTU into helping out the hoi-polloi. While this has been obvious to anyone who was watching during the last three years, the tame media in the US (and elsewhere, as several people here have pointed out) have carefully obscured the real issues with sightings of hairy wookies. It may be that Goldman Sachs will unravel enough to get the banks' real behavior into the public eye, and damage the credibility of some of the Most Serious People who are trying to shove austerity down our throats. One can hope.

177:

The reaction to this plan would likely be similar to the proposal that Ireland re-Union with the UK upthread: sheer bloody war.

178:

I know you know better, but the way you worded your comment implied confusion between GS and JPM.

As or Dimon, senior executives are rapidly falling on their swords. One can be sure they are getting sweet deals to do so and protect their leader. I wouldn't count out his survival too soon.

179:

What makes you think the UK has had any meaningful degree of "austerity"? The UK has a similar budget defict (by % of GDP) to the US, which seems to have a reputation for drunken sailor level spending at the moment.

180:

@140:
Also note that as more people live into old age, medical costs explode. Cancer and heart disease and arthritis, the diseases of old age, are vastly more expensive to treat than infectious diseases.
---
The British National Health system was created shortly after WWII. At that time, medicine was fairly simple - a handful of painkilling drugs, two or three antibiotics, basic anesthesia, simple surgical procedures. Noninvasive diagnosis was primarily by X-ray. There wasn't much that could be done for heart disease, insulin was a laboratory curiosity, and the vast array of body fluid diagnostics available today weren't even science fiction.

No MRIs, no CAT scans, no genetic analysis, no drug regimens that cost more than a nice automobile, no ultrasonic kidney stone busters, only a tiny part of the vast infrastructure we think of as "medicine" today.

Some things have gotten cheaper due to economy of scale, but there's so much *more* that can be done; it all adds up to money.

Then there's the tendency to simply shotgun test procedures for proof of due diligence. Better to spray'n'pray any random tests in hope of finding something than to take the time to make a proper diagnosis. After all, the doctor isn't paying for it...

181:

Ah, I'm confused. Why are you talking about Jamie Dimon in a discussion supposedly about Goldman Sharks Sachs?

Actually, given that it's Dimon's company JPMorgan Chase that's lost $2bn, why are you talking about GS at all?

182:

This makes as much sense as Xenophon's 10,000 abandonning their march to the sea and settling down and becoming Zoroastrian peasants instead.

183:

One would think that the Greece crisis would focus minds to face the abyss. Greece collapsing could trigger a contagious collapse of other states.

We saw how much effort was put into keeping Ireland from defaulting, even though the benefit was purely for the banks, not the populace. The worry was not so much Ireland per se, but the domino effect across Europe.
Ireland's deal was believed to have averted this. Greece is a similarly poised domino.

Greece exiting from the Eurozone is probably the best thing they can do for the country, even though the short term costs could be high. My guess is the costs would fall heavily on the wealthy as their financing and contracts are Euro denominated and would place them in a world of hurt if they had to repay in Drachma with an unfavorable (to them) forex rate.

I remember Tom Friedman's idiocy about countries with McDonald's not going to war with each other. Obviously wrong in hindsight. Maybe something stronger, like an LBO would be better?

If Greece exited not just from the common currency, but the EU itself, how much of a hit would they have to bear losing the CAP and other transfer payments from Brussels? Would increased tourism be able to make up the difference? Can they increase tourism?

184:
Edward Prescott, who has also received the same Nobel prize in Economics, Krugman "doesn't command respect in the profession" and "no respectable macroeconomist [believes stimulus works]". (Yes, that's the Nae Troo Scotsman fallacy)

It's a fallacy of a much more basic variety, unless Prescott is willing to say why he excludes not only Krugman, but Joseph Stiglitz (another fellow Nobelist), Christy Romer (former chair of Obama's Council of Economic Advisors), Simon Johnson (former lead economist at the IMF), Brad DeLong, John Quiggin and even Larry Summers (to name a few off the top of my head), all of whom have recently advocated stimulus-based policies, from the community of "respectable" macroeconomists.

Even the most abstruse argument will generally cite at least a few facts that a non-specialist can easily check. If you're trying to decide who to believe, it's often useful to check them.

185:

I meant the "Modest proposal" at 173.

186:

Perhaps I should have added <tongue firmly in cheek>?

187:

"a society where most people earn say $30K, with very slow income growth, while a very small elite gets all the additional income caused by economic growth. It's not horrible, it ain't the DRC, and it's better than the vast majority of human societies throughout history. But it's basically a maximum inequality frontier where the floor isn't subsistence, but a middle-class lifestyle. Meanwhile, the rich buy and sell planets."

I can work with that, what we need is technology cheap and abundant enough to make a 30k lifestyle functionally indistinguishable from that of a 20th century potentate and make sure democracy stops the ultra rich from swinging planets around without public support. Make the rich irrelevant.

188:

Och, just a few wee things here and there like 19% cuts to government departmental budgets, over 200,000 council employees jobs cut, an effectively 20% cut in pay to police (Amazing how much difference upping the pension contributions and changing overtime and the like makes), not to forget demands that the NHS meet hitherto impossible 'efficiency' targets, a 7.1% cut in local government money, civil service and teacher pay freezes and so on.

Your insinuation that there is little to no austerity based on debt to GDP rations shows a certain lack of knowlege of the complexities of the situation. For instance, in a recession the GDP falls, which instantly means the debt to GDP ration balloons. Furthermore, welfare spending increases; all us structurally unemployed people need money to live on otherwise we'll be breaking into your house and stealing all your stuff.

189:

Unlike the USA, the UK doesn't currently own the planetary reserve currency. (Which is but one reason why things play differently over here. Another is that, well, the current government consists of doctrinaire libertarian conservatives who are driven by ideology -- not quite the same as the US Republicans, but there is an element of "shrink the government until we can drown it in the bathtub" about what's going on.)

190:

Alex, you really ought to know by now that irony and sarcasm are filtered out in transmission via the internet. I think there's probably a popular model of router that's configured by default to drop those packets ...

191:

Argh! That's what happens when I'm in a hurry to post and not checking the copy properly. Yes, I meant J P Morgan Chase, of course. I think Goldman sneaked into my unconscious because the media started peeking behind their kimonos when one of their execs left in blaze of finger-pointing.

192:

Charlie,
I would have assumed that any post starting with "A Modest Proposal" would be assumed to automatically come with a "tongue firmly in cheek" emoticon.

Sort of like an aviator starting a story with TINS...
(and Google is not your friend, because I couldn't find it in the first several answers returned. It stands for "This is no shit", an obvious attempt at dispelling the usual response to an aviation "story").

Frank.

193:
the US, which seems to have a reputation for drunken sailor level spending at the moment.

Oh, you mean like running a couple of wars (one over and one winding down) outside the defense budget for the better part of the previous administration? Or buying fighter jets with no real mission for $150 million each to keep the military industrial complex going (and the current administration reduced the number to be purchased)? Or are you talking about cutting the social safety net in order to protect high bracket tax cuts at a time of high unemployment and stagnating growth? Or are we talking about the (alleged) tremendous growth of the Federal payroll (which has actually shrunk in the last few years)?

194:

I know I should know better, but the relevant brain cells keep dying. I thought prefacing any comment with the Swiftian "A Modest Proposal" automatically signaled that the following text was not to be taken seriously. Perhaps that just signals my parochialism. *sigh*

195:

"(These days, many central banks and other agencies use "dynamic stochastic general equilibrium" modeling, which is kind of screwed, but it became popular precisely because the models are based on agents trying to optimize their behavior -- "greed is good" -- rather than chasing trend lines.)"

Which as I understand it, still doesn't work well; the right-wing economists like it because it has microfoundations, and don't really care about predictive or explanative power.

Yeah, I'm not a fan. Too much work is being done by the "shocks" rather than by the model.

Microfoundations aren't strictly a left-right thing, but more of a reductionist/holist thing. Philip Anderson, the condensed matter physics Nobel laureate, said "More is different." I'm inclined to agree. I'm also inclined to downplay the practical importance of the Lucas critique.

196:

SF reader @ 172
because at some point people are going to give up on corporations, just as they got fed up with aristocrats.
Could be VERY messy - especially as with "aristos" they are individuals & small groups.
How are you going to erm lanterne "corporations"?
Not that I think it's a bad idea, mark you!

TRX/Noel Maurer @ 174
Scotland DOES NOT HAVE ITS OWN CURRENCY
The crook Salmond wanted to join the Euro - but has gone horribly quiet on that one of late (I wonder why?)
He's been told that if he gets "full independance" (which inside the EU is a very bad joke - see ALL of this discussion) then the Bank of England point-blank, right now is refusing to be lender of last resort.
Back to 1706 when a pound Scots was worth about 4/-
Perhaps not.

197:

Re: Jessica 123: “By the way, there is one condition under which austerity actually does work: when there is a counter-party willing to buy one's exports.”

--- This sounds like kiting a check ... has any economy ever tried this?

When one can export the production that production that is rendered surplus by cutting/holding down wages/benefits to the masses, this is no longer called austerity, but mercantilism and has been intensely practiced by basically every successful economy east of Burma for the last half century and by Germany.

198:

The Administration will have to explain the increases in depression, suicide and unemployment rates once these soldiers return to civilian status and such data can no longer be hidden.

Talk about how futile these (illegal/ill-conceived) wars have been -- spending the economy into bankruptcy and then issuing in a new generation of suicides.

199:

I read the Air Force wanted upgrades on the plane they had. Congress gave them fighter jets that cost too much to buy enough of. And are short 350 miles of range and keep making pilots pass out. They were grounded, now they are in the air so the Air Force can keep trying to find out whats wrong. SOS!
JPMorgan Chase made a big bet that Obama would run the economy. He did not and they lost big.

200:

The Air Force is largely flying jets designed in the 1960s and early 1970s (see first flight dates for the YF-15 (selected 1967, first flew July 1972) and YF-16 (Feb 2, 1974) ). Equivalent vintage designs in other countries inventories are now aluminum cans.

Airplanes don't fly forever. Aluminum, which they're nearly entirely made out of, cracks with age. At some point you can't fly them any useful amount because you're taking them apart and making so many structural repairs.

That the US went up a few notches to larger, heavier, intended to be more capable F-22 and F-35 designs and has been wrestling with cost and multi-decade research and production start programs as a result is not contested. But they needed new planes of some sort.

This has nothing to do with Greece.

201:

The USA is going the way of the USSR - bankrupted by its bloated military and security spending.

202:

Sorry it's crap to say that running the welfare state has drastically gone up in the last 30 years. Other countries have supposedly better welfare systems and higher unemployment yet manage to spend less than us.

The number of pensioners have not gone up that much since the 80's and the effects of new technology on boosting costs of healthcare are as not as great as you think. What has gone up by a massive amount is the amount of benefits paid, the numbers employed by the state, Their is no evidence of the withering of the state, it's not like America where we gave massive tax cuts to create a deficit we've spent like drunken sailors to end up where we are today.

203:

Dirk:

The USA is going the way of the USSR - bankrupted by its bloated military and security spending.

US Military spending is near 60-year lows, in terms of percentage of outlays or percentage of GDP, despite having been fighting a 2-front (now again 1-front) major regional war for a decade. It's about 4% of GDP and 20% of outlays.

Inefficient and perhaps outsized, but it's not driving the financial crisis in any significant way.

204:

Rational Plan writes:

The number of pensioners have not gone up that much since the 80's

You perhaps missed the beginnings of the retirement of the Baby Boom?

And the largescale abandonment of private pension programs in the interim?

205:

Dude --- read what I wrote! Believe you me, I am well aware that Scotland does not have its own currency. I merely pointed out that neither does Puerto Rico or American Samoa or any other unincorporated American territory.

206:

Problem number 1 is that a method would have to be invented to allow Greece to leave - there currently isn't one. As has been said upthread, the EU was designed to only ratchet one way.
The costs would likely fall heaviest on the middle classes - those with enough money to have savings in domestic banks to be forcibly converted to drachmas at the declared conversion rate at minute one, before any devaluation, but not enough money to have moved plenty outside the country as a matter of course.
I don't see how rgey could significantly grow the tourist market immediately - they'd be competing with Croatia and Albania on cost, which would be the only changed parameter.

207:

Anonemouse:

Problem number 1 is that a method would have to be invented to allow Greece to leave - there currently isn't one. As has been said upthread, the EU was designed to only ratchet one way.

Euro, not EU, but your point is valid.

The costs would likely fall heaviest on the middle classes - those with enough money to have savings in domestic banks to be forcibly converted to drachmas at the declared conversion rate at minute one, before any devaluation, but not enough money to have moved plenty outside the country as a matter of course.
I've been told that "everyone" who isn't hand-to-mouth is moving savings out (usually, apparently, to German banks). But statistics on that would be good.

The Greek banks haven't all collapsed due to runs on them, though their currency reserves are reportedly down a lot. Someone's got money in those accounts. Those someones, whoever they are, are the odd men out when it comes to the impact of an exit.

I don't see how rgey could significantly grow the tourist market immediately - they'd be competing with Croatia and Albania on cost, which would be the only changed parameter.
Croatia isn't in the EU yet, and Albania's a ways out, and not entirely stable.

It's not like Greece becomes less desirable after this, per se, though who knows what social and political backlash might happen in other EU countries. The value (in Drachma) of a Euro spent by a vacationer increases relative to local salaries and costs of goods. So even just the same trade volume would be economically more important in local terms.

I would like to see actual professional economists (COUGH) write actual professional economic analysis (COUGH) - even if it's blog postings (COUGH) - addressing the "Ok, what if they do?" questions in proper depth. Non-economists playing at it (myself included) are not-professional-grade serious review of the what-if consequences. The usual suspects aren't going enough in depth. Even though they're predicting specific outcomes.

208:
Inefficient and perhaps outsized, but it's not driving the financial crisis in any significant way.

It is insofar as the austerity a**holes in Congress want to cut spending by cutting taxes and then putting more than the cuts (and more than the DOD asked for) back into the defense budget. Oh, and remember that for the 8 years of the Bush administration the wars were not funded from the Defense budget, but from emergency unbudgeted appropriations. Though it's sort of hard to hide more than $1 trillion in expenditures, they did try.

And the largescale abandonment underfunding and theft of private pension programs in the interim?
Fixed that for you.
209:

Irrational Plan @ 202
WRONG
The French social-security system is considerably more expensive than the Brit one, especially where it comes to their equivalent of both employee's and employers' NI payments. Then there's Sweden!
Please try to get facts straight, if you are going to make assertions of this nature.

And WRONG again - the number of pensioners HAS gone up - people like me - born in the post-war "baby boom" are now collecting their bus-passes. AND, as Charlie said we're all living longer as well.

210:

I would like to see actual professional economists (COUGH) write actual professional economic analysis (COUGH) - even if it's blog postings (COUGH) - addressing the "Ok, what if they do?" questions in proper depth.

Mildly intelligent people make a big thing these days about evidence based science in all sorts of areas prone to hand waving. But when it comes to economics and politics this seems to go out the window. Macro-Economics may not lend itself to the full scientific method but we ought to be able to construct models and evaluate them rather than rely on belief systems to tell us what might work and what might not.

211:

Last I checked, the UK has had a remarkably stable dependency ratio (that of active workers to dependents) of about 350 per 1000. It's set to go up to 450 per 1000 by 2050, ceteris paribus.

the point is, though, that that rate of growth in the dependency ratio is less than the growth in productivity, output per worker. By 250 fewer people will be needed to do the work.

The pensions isn't about pensions at all, it's about who gets the proceeds of growth, employees or employers.

212:

#150 and 151 re 143.

Ok Greg, I see your point but...

Charlie, he's exhibiting all the signs of being a possibly dillusional, possibly socking USian Conservatroll from the USian politics websites I follow or followed. I'm happy to use them as chew toys as long as they don't get to take over.

Greg, if you're right then perhaps he needs advising that he's coming over as a USian Conservatroll to people who don't know him?

213:

I hear your "drunken sailor" dog-whistles but see no supporting evidence. And I also see your pseudonym and see nothing but "troll". Consider this your yellow card: provide references, or STFU.

214:

Be careful there: don't confuse the age of the design with the age of airframes. The F-16 is still being marketed, so new aircraft are available. The USAF plans to keep it in service to 2025.

Compare that to the Tornado, a design of similar age. Production ceased in 1998.

215:

MODERATION NOTE

We seem to have attracted the attention of a spamming botnet again.

I'm therefore switching off comments until it goes away. As I have a 220 mile road trip to make this afternoon, that means that comments will probably be switched back on around 6-7pm BST (or 2-3pm East Coast time for those of you in the USA), once I'm at my destination.

216:

Are there any cases of a union of states allowing a peaceful succession of a constituent part?

217:

Sweden and Norway, possibly. But the union seems to have been weak to begin with. I reckon there are bound to be others. Canada and Australia, maybe, but I am ridiculously ignorant of how the British Empire actually, you know, WORKED.

218:

dsr @ 217
Czech/o/Slovakia .....
Norway
And I think you mean SECESSION?

Latest *cough* "good news" ... Greece is going to get fresh elections unless, of course the unelected EU Commission President "asks" a collection of has-been economists group of technocrats to form a dictatorial satrapy a caretaker "government".
Until such time as a permanent EU dictatorship can be imposed, purely for their own good, you understand.
< / snark >

Bot-nets
I'm confused.
I thought these were money-making devices by low-level crooks, right?
Where's the profit, or even potential profit in locking Charlie's blog up?
(Or anyone's for that matter?)
So why do they do it - or is it just bad programming & they (the operators) don't care?
I'm assuming their ISP addresses change, so you can't simply block any message from said sender(s) ??

219:

So if Greece defaults, nobody will lend them money? - wrong. New lenders will pop out of the woodwork because *now* they actually stand a good chance of making money because the old creditors and obligations have disappeared.

220:
So if Greece defaults, nobody will lend them money? - wrong.

Well, Wonga (a payday loan company) have started lending to businesses; maybe the next thing in their business model is lending to countries!

221:

Senegal and The Gambia have a weird relationship - Senegal is a ginormous ex-french colony and The Gambia is an ex-british colony that consists of a river and a couple miles either side of the banks that almost bisects the middle of senegal from the south of senegal, so since both of them went indpendant there has been a close sense of unity and cooperation between the two nations, and even a period during I think the 70s when the two countries unified into Senegambia, before disunifying a few years later entirely peacefully back into the two original countries.

Most of the problems with seccession experienced in the US were due to that whole "firing on fort sumter and invading the north with a couple of armies" thing, where the secceeding states took the view that their cause wasn't bad enough so they decided to start a bloody civil war–the confederates honestly would have gotten away with secceeding if they hadn't actually started the civil war at the same time, the north was not in a mood where any attempt by the US to stop a peaceful seccession with force would have had wide spread support in the north itself.

In greece's case you have a situation where unilateral reversion to the drachma and exit from the EU would just lead to the rest of the EU cancelling all their trade agreements with Greece for a few years and the global markets slumping because a large chunk of the global markets are based around very very poorly run EU and US financial institutions who caused the Grecian Financial crisis in the first place. Financial institutions who've been making positive quarterly projections over the past year or so based on the assumption that the Greek debts they owned were going to be paid off, with ridiculous interest no less.

That's assuming Turkey doesn't get high on coke and just decide to invade the entire EU using a pure horse cavalry based army manned entirely by oily naked moustache wrestlers. Though that is somewhat unlikely given Turkey's preoccupation in the middle east with Iraqi Kurds atm.

222:

I am ridiculously ignorant of how the British Empire actually, you know, WORKED.

That's okay: it didn't actually work, it just sort of happened. I mean, the largest part of it was absent-mindedly stolen by a large corporation, which then managed the hitherto-unimaginable feat of becoming so incompetent that it ended up being nationalised by Lord Palmerston, who was either a Liberal or a Conservative depending on the phase of the moon (and the opinion of whichever historian you ask). But he did declare war on Russia, so maybe he's a Conservative, but on the other hand, he was big on selling opium, so that probably makes him a drug dealer or something in today's weltanschauung.

My head hurts just thinking about it. Anybody got an aspirin?

223:

Two corporations, if you include the Hudson Bay Company's activities in North America...

224:

Funny pic of why the Euro is doomed. A comical version of an economic argument.

225:

Given that the Syrian civil war seems to be spilling over into Lebanon, I imagine the Turkish government is applying what concern isn't expended on the Kurds to worrying about containing anything from Syria that leaks across the Turkish border.

226:

The shit will REALLY hit the fan if Iran is attacked. The prospect of 20% of the world's oil supply being cut off indefinitely will make for interesting economic times.

227:

Penguins? In Iceland?

228:

That goes a long to explaining my twitchy eye whenever I think about it.

229:

It's that bad.

230:

Kurgan had some more posts about Greece and the Euro today.

231:

Correct - IIRC, Countries which default find lenders quickly. They probably assume that the immediate risk of default is low.

232:

The same thing happens with individuals and companies that go into debt restructuring bankruptcy in the US: because you can't declare bankruptcy again for some years, you can't default on loans given to you after bankruptcy.

233:

Nestor, if things were cheap enough that a nominal $30,000 per year could allow you to live like a modern-day potentate, then your real income would be much much larger than $30,000. Presumably in the tens of millions, actually.

What you just said was, "If the future that Carlos worries about does not happen, then it will not have happened."

You might want to rephrase the underlying thought, since I don't think that's what you meant.

234:

Charlie, what would be different if the U.K. still had the planetary reserve currency?

Honest question, because I don't see how not having one has made the U.K. situation any different. Rock-bottom interest rates, and a stubbornly high real exchange rate, just like the U.S. of A.

So school me, please. What did I miss? Ppeople I respect keep telling me it's important, but I'm just not seeing why.

235:

Here you go, sir:

http://www.cepr.net/documents/publications/greece-2012-02.pdf

I think he's a little too optimistic about the price elasticity of tourism demand, but I'd be happy to be wrong. Greece certainly has the marketing and physical infrastructure in place.

236:

Noel Maurer @ 234
Because, the UK, like the US (?) has always paid its debts in full, and has not defaulted.
It HAS deferred payments a few times, but has always paid, no matter how difficult.
[ There were many voices in the 1950's demanding that, since the US had cheated us over Lend-Lease, we should retort in kind, and tell them to stuff their debt ]
This gives us, if you like, moral credit - people will lend to us.
So the currency remains (relatively) strong.
Why the Euro remains at its current value is presumably a belief that Germany won't let it sink .....

Now, I'll wait for an *economist* to tell me I'm wrong.

237:

Hmm. Unquestioned assumptions in play ...

The big thing, it seems to me, is the external money in circulation. If something Bad were to prospectively hit the US dollar, that would hurt everyone who does business in dollars: and there's a lot more going on than just domestic US transactions. There's the alleged terabuck of T-bills held by China, not to mention everyone else's investments. Oil is no longer exclusively traded in dollars, but that'd be another example. (Other commodities?) To the extent that the dollar is used for international trade, a dollar-zone upset is everybody's problem, and so I expect the US government can count on a certain degree of cooperation to keep the currency stable.

Whereas Sterling is no longer used so much for international trade. So, for example, the UK's imports (or exports) are potentially at the mercy of speculative currency traders (cough, ERM, 1992).

Am I missing something?

238:

Czeckoslovakia becoming the Czeck Republic and Slovakia possibly.
The USSR splitting into its constituents possibly.

OTOH and AIUI those were multi-lateral and mutually agreed splits in each case.

239:

The second half of this seems to be based on a mis-understanding? It's possible to be a member state of the EU without also using the Euro as a currency. I'm not aware of a case where this has actually happened, but it's at least theoretically possible to align one currency to another and then for nation1 to officially adopt nation2's currency.

What I'd expect to happen in practice for a demerger of Nation3's economy from currency4 would be:-
1) Nation3 issues its new currency3 at a 1:1 exchange rate with currency4.
2) Nation3 floats currency3 wrt currency4.
3) Exchange rates float to their natural level.

240:

IIRC Bullion prices are also normally quoted in US$/unit mass.

241:

Noel Mauerer @234: So school me, please. What did I miss? People I respect keep telling me it's important, but I'm just not seeing why.

It's not important.

The main benefit the US government derives from being the reserve currency is seignorage -- dollars held abroad are effectively a zero-interest loan to the US government. Since the 1-year interest rate on US Treasury bonds is around 0.2%, and there are approximately 5 trillion dollars held overseas, the world is effectively giving the US derives $10 billion dollars free each year. This is basically insignificant compared to the US government's spending of around 3.7 trillion dollars per year.

The rate on 1 year gilts is 0.4%, so if the pound were the reserve currency and similar amounts were held overseas, the British government would get around $20 billion in seignorage. This is still not much compared to the 1.2 trillion USD (720 billion GBP) the British government spends each year.

Basically, the economy is in the dump, and the safest securities are first-world government bonds. The high demand for safe securities means that the yields on these bonds are very, very low. As a result, there's not much difference between a bond with a 0.2% interest rate, and a bond with a 0% interest rate (i.e., buying a dollar and sticking it in a vault).

Such low rates mean it is an ideal time for the British and American governments to finance major infrastructural projects -- upgrading to a smart grid, modernizing the train system, repairing road and bridge networks, improving public transit in major cities, etc. Incomprehensibly, though, the British and American governments are not taking advantage of the willingness of the world's investors to give them free money.

242:

Pinguinus impennis, perhaps.

Except the Icelanders and others drove them to extinction. Ah well, there are always puffins.

243:

"Penguins? In Iceland?"

Use 'reveal codes' to see the tags :)

244:

"Kurgan had some more posts about Greece and the Euro today."

They will, of course, be listed under his Earth name, 'Krugman'.

245:

"Incomprehensibly, though, the British and American governments are not taking advantage of the willingness of the world's investors to give them free money. "

It's amazing, because there are a number of large corporations who'd really like to get some multi-multi-billion dollar contracts.

There are times when the hierarchy of power becomes clearer; the last few years have shown that the Finance Lords are the 1% of the 1%.

246:

As "Kurgan" is an ancient Turkish/Tatar word for fortress, its used now in Eastern Europe to describe burial mounds and earthworks and what we'd call hillforts, and the "Kurgan Hypothesis", popular amongst Eastern European archaeologists is that there was once a "Kurgan Culture" on the steppes that introduced the Indo-European languages to Europe (and depending on who you believe all sorts of other goodies such as horse riding, agriculture, and metal-working) I think Kurgan sounds like an excellently appropriate name for someone who comments on Greece and Turkey and the EU.

247:

From my view in the US I never did understand how it was supposed to work over the long haul.

The same way the US dollar works. In what way are the economies of Massachusetts and North Dakota compatible? Should Oregon and Florida share the same currency?

The problem seems to be that everyone expected the EU to move towards a closer political union once it had a single currency. Whereas it didn't move fast enough,

States have no where near the power to set their economic policy compared to the member states of the EU. When they borrow and for what and how they set up their budgets is fairly transparent. Especially compared to EU countries. Which is everyone has known about California's budgets messes from before it got really started.

From here it looks like the EU was setup very similarly to the US Articles of Confederation. When was quickly realized as a non workable situation and replaced after about 13 years. (Of course we're still arguing about the details and interpretation of the replacement with one of the biggest arguments occurring around 1860.)

248:

It seems to me that it moved on the currency too soon - why make a single currency when the member countries are still so disparate and out of kilter with each other. Surely better to wait a decade or two whilst increasing cross border trade and free trade as much as possible. Then when the economies are as much enmeshed as possible and at similar stages in the business cycles, then go for one currency.

249:

guthrie @ 248
Yes, that would have been a sensible solution, with nations gradually joining, one at a time, as they approached convergence.
But that would have been muct too sensible a solution for bureaucratic power-hungry politicians in a hurry to follow .....

250:

"Nestor, if things were cheap enough that a nominal $30,000 per year could allow you to live like a modern-day potentate, then your real income would be much much larger than $30,000. Presumably in the tens of millions, actually."

Hmm, I thought the implication was obvious since we've already brought it up in these comment threads, but yes, a mid 21st century 30k a year would be functionally equivalent to a mid 19th century tens of millions, in that there are many things available that no amount of money could have bought in the past.

I am poor, yet I have a smartphone. Bill Gates' smartphone is undoubtedly a lot better than mine, but mine in 5 years will probably be better. Peter the First could not have bought a smartphone for all the gold in Russia. Conversely, Peter could probably have people executed at will, or start a war and ruin millions of lives single handed. Bill Gates can affect millions of people by spending his fortune on eradicating malaria, but he wouldn't get very far if he decided to pull a Hank Scorpio and annex the east coast.

tl;dr I see the trend as income inequality becoming less relevant even as the gap increases.

251:

Based on IMF and US data (off Wikipedia), 2012 U.S defense spending is anywhere from 6.6% to 9.1% of total GDP -- and not the mere 4.0% mentioned by another poster.

The CIA World Factbook shows only ‘estimated’ U.S. Military spending and – worse still – it’s for 7 years ago (4.06% of GDP, 2005 est.). Here are some selected countries’ ‘Military spending’ (% of GDP, year) for comparison: Australia (3%, 2009), Canada (1.1%, 2005 est.), China (4.3% 2006), France (2.6% 2005 est.), Germany (1.5% 2005 est.), Greece (4.3% 2005 est.), Israel (7.3% 2006), Japan (0.8% 2006), U.K. (2.7% 2010 est.).


Below are IMF estimates of GDP for 2012 based on official exchange rates, in millions of USD, unadjusted for inflation. These figures have been taken from the IMF's World Economic Outlook (WEO) Database, April 2012 edition -- so pretty recent.

U.S. $15,609,697
China $7,991,738
Japan $5,980,997
Germany $3,478,772
France $2,712,026
U.K. $2,452,689


Now for some even scarier info ...

US Budget breakdown for 2012 Defense-related Expenditure (2012 Budget request & Mandatory spending Calculation):

TOTAL U.S. Military Spending is $1.030–$1.415 TRILLION

Of which, DOD is $707.5 billion (Base budget + "Overseas Contingency Operations"). "All other" defense-related spending: $920.9–$983.5 billion. (‘Budget ranges’ are for International Affairs of $5.6–$63.0 billion for foreign arms sales, up to entire State budget; and, for NASA/satellites of from $3.5 to $8.7 billion, i.e., 20%-50% of NASA's total budget).

Here's what really doesn't make sense: INTEREST on debt incurred in past wars: $109.1–$431.5 billion (i.e., between 23% and 91% of total interest).

Don't they know what interest rate they're paying? And look at how much of "TOTAL interest" military spending accounts for. $431 billion could buy you a lot of healthcare.

252:

How exactly is NASA apportioned a military role?

No, really. DOD has its own space program. There's almost no programmatic overlap. What on earth is anyone doing allocating NASA monies to a defense role?

That fact, which I am pretty darn personally familiar with, makes the whole rest of that analysis somewhat suspect. Plus the State Department budget claims, which seem highly suspicious from what I recall of their expenditures, ....

253:

George William Herbert
I would not put all or even most of NASA's budget into the military budget.
On the other hand, we don't know how much of the military budget is hidden in other agencies besides NASA. I have noticed several instances where cross subsidisation has occured.

254:

I remember hearing years ago (pre-9/11?) that the admitted 'black budget total for the US was $50billion/year (i.e., there was an actual lump sum budgeted, with the breakdown uknown). The DOE subsidizes military spending, as well as the VA, and there's potential in all other departments. I'd hate to come up with an accurate estimate of US military spending. And by 'accurate' I mean 'within $100 billion/year'.

255:

The funny thing about Greece is that the crisis looks pretty much engineered. First give a country lots of loans, then drop its rating, and let the fun begin!

Japan has much larger problems with debt, but they do not manifest themselves due to the fact that no more than 5% of its debt is in foreign hands. As someone put it, Japanese people love their country (and suffer close to zero or even negative income on national debt instrument investment), because the country loves them back (health, job security, etc.).

Just take a look at the linked graphs for different debt indicators across countries, it might put interesting thoughts in your head.

Sovereign debt as % of GDP
http://i-business.ru/ow_userfiles/plugins/base/3801-176_1.jpg

Sovereign interest vs revenue
http://i-business.ru/ow_userfiles/plugins/base/3802-176_2.jpg

Sovereign debt vs. revenue
http://i-business.ru/ow_userfiles/plugins/base/3803-176_3.jpg

Source: http://www.zerohedge.com/news/japans-wtf-chart

256:

Who runs things such as the "ranges" the rockets are launched over?

That might formally be a military operation, with NASA paying a usage fee, and so that usage fee being countable as part of the military budget.

257:

It appears the run on the banks is well underway in Greece. That doesn't bode well for a continued membership in the Eurozone.

I feel for the Greek population, who are in for a rough time, and they know it, too. In a survey published by weekly "To Vima" last weekend more than 78% of respondents were in favor of remaining in the Eurozone.

A couple of months ago, a lot of people on this forum already discussed the imminent departure of Greece from the Eurozone and some went so far as to contemplate the inevitability of the Euro's collapse.

The latter part was obvious BS then and it still is.

About first part many believed so because I think it was Krugman who said it was a matter of days, two weeks on the outside, for the Greeks to exit the Eurozone. I said we weren't at the point where the creditor nations were ready to abandon the Greeks quite yet. I was hoping for a bit more of a reprieve, but it looks as if we'd finally got there.

Germany's finance minister said as much (".. it's their own decision .." or some equivalent). Commissioner Barroso said the Greeks had to be aware of the consequences of the next election, which sounds a lot like a threat. It isn't. It's a simple statement of fact. If SYRIZA gain influence and maintain their position on public spending, they are done with the Eurozone and vice-versa.

To think that the rest of Europe will keep paying their bills without any Greek contribution just to keep them in the Eurozone is a crazy notion, and if that even appears likely they're out. Personally I would wish them good luck and hope for them it works out with the Drachma (or Lira?).

258:

Someone upthread suggested that the economic concerns thirty years from now will look nothing like our current preoccupations on that subject, preoccupations, moreover, which will come to seem as quaint as any sort of analysis thirty years ago in which the collapse of the Soviet Union did not figure. I happen to disagree. As one of my econ professors put it in the late 70's, economics is the study of who gets how much of what (and why.) Nothing more and nothing less. And so while the outer forms may change, as well as the tools being used to analyze them, you'll still be discussing events like this:

To think that the rest of Europe will keep paying their bills without any Greek contribution just to keep them in the Eurozone is a crazy notion, and if that even appears likely they're out. Personally I would wish them good luck and hope for them it works out with the Drachma (or Lira?).

Well, no, that's not necessarily so. Let me quote from something GWH earlier:

The Greek banks haven't all collapsed due to runs on them, though their currency reserves are reportedly down a lot. Someone's got money in those accounts. Those someones, whoever they are, are the odd men out when it comes to the impact of an exit.

I'm going to go out on a limb and suggest that whoever they are, it won't be Greek shipping magnates or upper echelon political types whose money will be in those accounts if (when) Greece reneges on it's previously negotiated financial arrangements ;-)

Similarly, should Greece leave the Euro, look to the usual suspects doing an about-face with their very serious (and hitherto incessant) noise about the necessity for austerity in the periphery and instead emitting very serious noise about the need for preserving the union at all costs, say by renegotiating interest rates and allowing a little core inflation in the core countries.[1] It won't be the elite's first choice by any means, but considering that pursuing the strategy they have so far hasn't really cost them anything (in the economics sense of opportunity costs) it's a decent enough fall-back position.

The one thing the ruling classes want to avoid at all costs is the rumblings of their own citizenry, who know very well who's up next on the chopping block. Look at recent elections in Germany, which parties have made gains, and which have lost ground. This, incidentally, is why I'm a long-term optimist: because once the key concession was made by the old aristos, i.e., rule by representative governments with democratic institutions, the only way they could work their will was through misdirection and subterfuge. Fine techniques, but they tend not to work so well if you systematically neglect the welfare of the populace for too long.

[1]I'm already seeing some intimations of this on NPR.

259:

Interesting.

260:

Latest
Angela Merkel is reported as suggesting a referedum on "Euro membership"
Um.

261:

Here's a great (and long) article about the Greek economy written in 2010 by Michael Lewis (of Moneyball and Liar's Poker fame):

http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

262:

On main topic -

Bank jog in Greece seems to be accelerating into a bank run. The depositors are going to call this, before the election. Either the EU does something big soon to reassure them, or the bank jog becomes a run, all Euro assets in greek banks take a walkie to German banks (or, for the prescient, to the Dollar or Pound... given that the Germans probably have to give in and devalue the Euro not too far down the line to contain the damage at the PIGS line). And then it's all over.

And there's a clear bank walk starting in Spain and possibly Italy, show the prelim analysies I am seeing float around. Smart small depositors so far, but smart big depositors will start following soon enough if they're not reassured.

Oops. Buh-bye.

263:

"Penguins? In Iceland?"

You do understand sarcasm?

264:

'the natives'? :) Really? What oter interesting discoveries did you make down there in 'the dark orient'? ...

265:

In the US this term gets used to mean the local population. I've seen/heard it used in self referral forms plus for most any city or region in the US and even Raleigh where I live.

While I'm old enough to understand its racial connotations to most younger folks in the US it just means "those who live around here".

Specials

Merchandise

About this Entry

This page contains a single entry by Charlie Stross published on May 12, 2012 8:42 PM.

Bubble 2.0 was the previous entry in this blog.

Stuff is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

Search this blog

Propaganda