If austerity doesnt work, why did it work for Spain, Cyprus, Portugal and Ireland?:dubious:
According to latest news, Greeks are folding:
The Greek government capitulated on Thursday to demands from its creditors for severe austerity measures in return for a modest debt write-off, raising hopes that a rescue deal could be signed at an emergency meeting of EU leaders on Sunday.
Athens is understood to have put forward a package of reforms and public spending cuts worth €13bn (£9.3bn) to secure a third bailout from creditors that could raise $50bn and allow it to stay inside the currency union.
A cabinet meeting signed off the reform package after ministers agreed that the dire state of the economy and the debilitating closure of the country’s banks meant it had no option but to agree to almost all the creditors terms.
It’s about time. Tsipras should resign and join a circus. Would make a great clown.
Yeah, I think some of the folks in this thread cheering the Greeks on evidently weren’t aware that the entire Greek banking system has been frozen for the last 10 days or so. It was inevitable that they would capitulate. Wouldn’t you if you couldn’t get more than, say, $40 out of an ATM? Or if you owned a business and could no longer deal with your suppliers on credit?
Here’s the thing Shodan: financial institutions will lend to Greece again. In fact that will happen pretty quickly for fully collateralized debt such as export credits. The funny thing is that all that Greek debt from the 1990s constituted a tiny share of European bank portfolios in 2007. The only reason they got caught out was because they were leveraged up to their eyeballs. Euro bank bailouts followed.
Fair question. A: It didn’t.
Current unemployment rates:
Spain 22.5%
Portugal 13.7%
Ireland 9.7%
Realize that Greece has cut government spending since 2007 more than all of these countries. If you want to see the relationship between austerity and economic growth, you can see it here: European unemployment crisis - Economics Help
It is negative: higher austerity gives lower economic growth, consistent with textbook economics.
I ignore Cyprus because I didn’t want to look up the figures for that half of an island.
Greek voters decisively rejected previous austerity proposals from the country’s lenders in a referendum on Sunday.
According to reports in the Greek media, the measures submitted on Thursday evening involve tax rises and spending cuts worth more than 12bn euro - more than those rejected in the referendum.
Who was it here that celebrated that “Greek democracy spoke”?
You need to distinguish between short term and long term. Short term austerity gives lower economic growth and profligacy gives higher growth. OTOH, short term racking up credity card bills gives you a much higher standard of living and being disciplined drags your standard of living down.
Long term is another story, in both examples. You spend a lot and you juice up the economy and then you keep spending more and juice up the economy even more, and at some point the music stops and you’re left without a chair and things fall apart.
The Germans have been the most disciplined (or among the most disciplined) spenders on the continent in recent decades and the Greeks have been the worst (or close to it) and who has better economic growth now?
Current policies involve government spending levels 20% below that of 2007. Those sorts of policies are avoidable with either further debt haircuts -like the Germans received in 1953 - or devaluation of their currency, a Grexit, combined with possible negotiated debt repudiation.
Continued austerity is for morons. Only conservatives advocate demonstrated policy failure.
I understand your last paragraph is BS: Spain was actually pretty disciplined until 2007.
You are broadly correct to distinguish short and long term. During recession you need short term stimulus. After recovery the opposite is better. Unlike Spain, Greece indeed had some structure spending problems. I could detail the ways bad policies are corrosive to economic growth and development.
But Greece has had the worst of both worlds. They have executed slash and burn spending cuts since 2007. Have they done any sort of serious structural reform? (Real question.) If not, you can see that austerity and long run spending control are really two separate matters.
From an economic standpoint your second sentence is correct. But it doesn’t always work like that politically. If you expand spending when things are bad you - and by “you” I mean your voters, and politicians pandering to them - are just going to expand spending even more when things are a bit better. (Things are never going to be perfect and there will always be worthy things to spend money on; very very worthy things, which only cruel heartless bastards, aka conservatives, oppose.)
More below.
I don’t know that you can completely distinguish “slash and burn” spending cuts from “serious structural reform”.
And the problem Greece has in this regard is that they’re asking other people for money, and asking them to accept on faith that this time they’re going to use it responsibly to promote economic growth. If there was some way to guarantee that this would happen, then it would be a sensible argument. But there isn’t and it isn’t.
It’s like a drug or gambling addict who hits bottom and pleads with you to bail him out yet again. Right now he’s asking for his immediate needs and promising to turn it around. But if you give it to him are you doing him a favor or just enabling more of the same?
Fundamental to Greece’s case for new bailout terms is the narrative – reinforced by its current economic travails – that it has been a victim of excessive austerity. But this neglects a crucial fact: austerity worked in Europe’s other crisis-hit countries. Indeed, Portugal, Ireland, Spain, and even Cyprus are showing clear signs of recovery, with unemployment finally falling (albeit slowly and from high levels) and access to capital markets restored.
*Here is a tale of two economies: Ireland and Greece. One can raise money at interest not far above 1.5 per cent from borrowers; the other remains locked out of the markets. One has a found a way out of austerity; the other is still stuck with it, and is this weekend facing great uncertainty.
Perhaps we should not be too self-congratulatory about this, given the tightrope that Ireland walked. Brian Lenihan said in December 2009 that Ireland had “turned the corner”, but in fact it was well into 2012 before the corner even came into view. In between came the bailout and the dark days that followed, when no one was sure where it would end.
There will long be debate about why Ireland succeeded where Greece failed. The underlying strength of parts of our economy have obviously been central, and we carried through the bailout programme. *
The problem is that you can’t just keep spending way more than you take in. A little more, sure, growth in GDP will handle that. But Greece can’t just keep spending other nations money.
I appreciate that. It’s nice to have some common ground to work off of.
Politics in contrast is a matter of informed speculation. Frankly I’m not sufficiently familiar with the Greek situation. But as a general principle, I can refute your claim with a single example. The US had a stimulus package which was billed as a temporary increase in government spending. It did exactly that.
No, that’s not true. In principle the core could provide a short term grant to Greece, contingent on pension reform. Again, I’m discussing general principles and not what’s actually on the table.
Good work linking to project syndicate, which is a nice website.
Sure Ireland is in recovery. Recoveries happen. But that doesn’t refute the statistical relationship I documented earlier: the greater the austerity, the weaker the recovery. Again, see the 2nd chart: European unemployment crisis - Economics Help
Ireland only banged themselves on the head with a mallet 5 times, while Greece went in for a full dozen. That doesn’t imply that hitting yourself on the mallet is a good thing, even if Ireland is staggering around while Greece is out cold.
Of course even if Greece do implement further cuts there is absolutely no guarantee that they’ll be in a better position in 2 or 3 years time. This appears to be using the sophisticated economic concept of “ignoring it and hoping it goes away” and just just the sharks in Quint’s war story, Sometime the shark goes away, sometimes he doesn’t go away.
I don’t think those sorts of policies are going to be avoidable, either with debt haircuts or with a Grexit. If they pull out, their economy goes (further) to hell and they will have results equal to or worse than austerity, and no one loans them any more money without security, like export credits, which Greece won’t have much of because their economy has gone to hell. And there isn’t much difference between government spending cuts, and inflating the drachma - both involve reducing the purchasing power of pensions and government salaries and Greek commerce in general.
Correct me if I am wrong, but it appears you think the best policy is forgiving more or all of the Greek debt, coupled with further loans. As was done in 2011, and at least partially as a result, we have current levels of Greek unemployment, poverty, and general economic recession. It doesn’t seem to me that conservatives are the ones advocating policies that have not been shown to work in Greece.
The status quo, where the EU loans Greece billions and Greece can’t pay it back, so the EU writes off the loans and loans them more, and then Greece can’t pay it back, is not sustainable. Austerity, in your opinion, also won’t work. A Grexit and even worse economic collapse won’t work any better.
The point is not, what can Greece do to avoid excruciating economic hardship and massive cuts in benefits. That’s going to happen no matter what. The point is, should they do it by remaining in the EU/Eurozone, with further loans from some of the credulous morons you mention, or pull out, have their economy collapse in ways that are probably as bad in the short run and worse in the long run.
I am no good as a prognosticator, but so far it appears they are going with the “credulous moron” model. IOW kick the problem down the road and pretend Greece is going to pay back new loans.
Regards,
Shodan
Assuming the Central Bank doesn’t provide any more loans, what do you think will happen to Greece? A failed state? Breeding ground for terrorists? Mississippi?
They’re fucked.
Regards,
Shodan
So all the Greeks are going to die? Or will it be like Iceland, who defaulted on their debt in 2008, only to rebound a few years later?
Unlike kitchen table economics, countries are not fucked after they default on their debts.
Your cite mentions that Iceland has always had -
In what ways besides tourism would you say that Greece and Iceland are similar? The Greeks may be hard-working, but they don’t pay their taxes. Is their democracy healthy? Well, given that they rejected austerity 60-40 and their prime minister is now trying to sell a deal that is even more austere, that is open for debate.
It appears they are doing more or less what I thought - more loans that won’t be repaid, coupled with promises to do what the Greek people have said they won’t accept.
They’re fucked. They have just decided what kind of lubricant to use.
Regards,
Shodan
Uh, they are right by a sea. Duh.
Not unlike what Iceland did, voted to stiff their creditors:
[QUOTE=previous cite]
That may sound like an extremely self-serving recipe – and it was. Whereas billions of public money was pumped into the banking system in Ireland so that financial institutions could pay back their creditors, Icelanders voted against this route in two separate referenda. They couldn’t see why they should pay for the greed of foreign investors who followed the Siren song of high interest rates to the island nation.
[/QUOTE]
[QUOTE=Shodan]
They’re fucked.
[/QUOTE]
That is such an ambiguous term. What does it mean for Greeks, specifically? Widespread famine? Civil war? What?