Sorry but no. The takeaway is the south European countries cheapen the value of the currency - their purpose is to make German exports cheaper and to deliver as close to full employment as is possible in the modern world to the German nation.
While, at the same time, being charged interest on survival loans, paying pensions people can’t live on and creating depression scale unemployment.
Greece has played an important role in making Mercs and BMW’s really well priced for a decade in markets like the US. And paid through the nose for the pleasure.
There have been a couple polls with the YES vote leading (accepting the Troika deal). If this happens then the government will follow the will of the people, accept the deal and the IMF will get their payment a couple weeks late, the Greek banks will reopen and the situation will continue a few weeks/months until the next crisis. Note: a Yes vote could well happen because people are going to start to panic over the closure of the banks.
If there is a NO vote then negotiations will continue. There is a good possibility that the Troika will make a few minor concessions, the Greek government will declare a major victory and the same thing as in the first paragraph will occur.
I think we need to wait a month before considering the possibility of something major happening.
marshmellow - The Vox article notes that both Krugman and Friedman were skeptical about currency union back during the 1990s. Sometimes differing views give similar answers, at least when the thinkers are serious. The justification for the Euro was partly based on security considerations anyway.
I am dubious. Greece is simply too small to affect exchange rates in that way. And today the Euro is only about 10% undervalued against the dollar vis a vis purchasing power parity anyway. It was over-valued for most of the 2000s.
Greece has 11 million people. The EU has 507 million people. That flea on the tail doesn’t wag the dog.
For all those who want more austerity in Greece: don’t pretend that country hasn’t done that. Check out this graph: x.com
Greece’s government spending is 80% of what it was in 2007. That’s lower than Spain, Portugal, Latvia and Ireland. And this has been the worst developed country global downturn since WWII.
A third way would be to limit currency union to Germany, France and the Benelux countries. Each would take 1/2% of their VAT and contribute it to a stabilization/ counter-cyclic fund. Plus an initial entrance charge. You get to draw on it if your unemployment is above the past decade’s moving average. Or something like that. It would be understood that some countries will inevitably get more net benefits than others. It would be understood that such a plan is a partial fix only.
The idea is to join the major powers so they aren’t interested in invading one another. You don’t need poorer nations in the club to do that. Other European countries could also institute a crawling peg against the Euro if they felt like it, facilitating trade and predictability while leaving a way out in case of crisis or even imbalance.
I’m certainly not an expert on Greece, or even the mechanics of a nation-wide conversion from one currency to another. But it seems to me, the best possible outcome for Greece is to regain control of its own currency.
The new currency would (I assume) be cheap compared to other currencies, which would lead to a number of consequences:
A tourist boom in Greece. People would go to Greece - which I understand is already a beautiful country with many touristy attractions - and would find that their dollars or euros would go much further than they do back home. In other words, you could stay in a 4-star hotel in Greece for what it would cost to stay in a rat motel in NY (for example).
Exporting businesses would suddenly find themselves at a substantial competitive advantage, compared to businesses from other parts of the world. Greek olives, or wine, or whatever Greece exports would suddenly become much cheaper, allowing them to undercut their competitors.
Imports, on the other hand, would become more expensive. The result would be a boon to local businesses, which would be able to sell their products to other Greeks for much less than products from outside the country.
All that means that unemployment - which I understand is 50% among young people in Greece - would fall dramatically.
Of course there would be a downside. If Greece, for whatever reason, simply can’t itself produce things it needs, Greeks would have to pay much more for those things. In that case, those things, for many people, would become unaffordable. Since I don’t know much about the Greek economy, or its degree of self-sufficiency, I can’t say whether that would be a devastating blow to Greece, or merely a substantial inconvenience.
But the other alternative - bleeding the country of currency to the point where a huge part of the country’s productivity is simply wasted, because of unemployment - is unsustainable and unacceptable.
As for the creditors, I’d just say that creditors lend, not out of generosity, but out of greed. If creditors make a mistake by lending too much, that’s a risk the creditor was paid to take (in the form of interest) and one it voluntarily took on in the first place. Without the incentive of the possibility of default, there’s no reason for creditors to learn to wise risks, rather than stupid ones.
[QUOTE=LinusK]
As for the creditors, I’d just say that creditors lend, not out of generosity, but out of greed. If creditors make a mistake by lending too much, that’s a risk the creditor was paid to take (in the form of interest) and one it voluntarily took on in the first place. Without the incentive of the possibility of default, there’s no reason for creditors to learn to wise risks, rather than stupid ones.
[/QUOTE]
Yeah, fuck em, right? I mean, Greece sure fooled those guys! Passed themselves off as a reputable nation that would pay their debts! And those fools fell for it (because Greece was in that EU/EZ thingy and all and so benefited from that, enabling them to borrow more than they would otherwise have been able too and all)! So, of course the suckers should pay! Greedy bastards, and stupid too thinking that the Greeks would honor their debts and all!
:rolleyes:
Sounds like a hell of a deal then. They should definitely do this, and from the polls I’ve seen you’ve captured the thinking of many if not most Greeks! I think it will certainly be a boon for them to default (it’s already happened at this point unless I missed a last minute compromise) then pull out of the Euro/EU and create their own currency, fucking over their own citizens initially (many of who hold that greedy debt stuff) by forcing a currency holiday to exchange Euros for Drek’mas (at the initial and inflated rate, to be sure) and then they can inflate that currency and magically make at least some, if not all of their debt disappear! I’m sure this will be a huge boon to tourism and their industry, to be sure…I’m positive that Russia would love to import Greek goods and services, for instance! What are they waiting for, anyway??
Certainly. I mean, Greece can then print all the money to pay folks with they want after all. What could go wrong??
Well, fool them once, fool them twice, right? I’m sure investors (foreign ones that is, since the Greek ones will have been scalped by the currency trick) will flock to invest in Greece after getting fucked the first time (well…to be honest, mostly it’s countries that hold Greek debt right now, since everyone knew that this could happen and other, wiser heads knew what that would mean if private investors and investment companies held that debt when things went tits up).
All water under the bridge, as you say, though they (the EZ/EU) still have to figure out how to move forward no matter how this all spins out. But I’m not sure that planning for countries to overspend by creating a fund for when they do it would be acceptable, politically…and it might send the wrong signal. It’s an interesting idea, to be honest, and one I hadn’t heard before. I think the EU/EZ does have several development funds already (I seem to recall they spent a ton on Ireland, for instance, when they joined).
I guess it’s all in what they are wanting. The idea of a single currency and banking system is certainly a good one. But I don’t think it can work as it is without a political union, or political organization over the individual states that can set fiscal policy…this is the video I’m basing this on btw, FWIW, since to me it’s made the most sense as to what has happened and what it means (plus it has pictures, so even someone like me can understand :p). As the video ends, this is pretty unpopular and I doubt it will happen, but it’s certainly one way this could be made to work.
I suspect this–all of what you said–is the judgement of most economists in the trade and credit fields.
I wonder how much of Greece’s present economic problems are influenced by the loss of Anatolian agricultural land to Turkey generations ago. When Greek Christians from around Turkey were repatriated (and Turkish Muslims from Greek territory repatriated to Turkey), the Greeks got more money out of the deal, but the Turks got far more land, and in the long run, productive capital matters.
I blame ECB and the “troika” for abusing the Greek government once it was in debt. Apparently ECB started dictating internal fiscal policy, to the point of telling the Greek government that they had to cut spending and not crack down on tax evaders.
The Greeks ran a very high surplus, at great internal cost, and without raising revenues for most of it; and they still got scolded.
At least, that’s the unfortunate picture I’ve gotten from what I’ve read here and there. If this is so, there’s some real serious class warfare going on here.
As I understand it, the true origin of Greece’s economic malaise is that they barely produce anything. If we looked at Greece 10 years ago, we’d find a lot of government employees, a lot of people on pensions, a lot of unemployed people on welfare, and a lot of tax cheats. We’d find very few people who actually worked hard, produced useful things, and paid tax money into the system. The government survived thanks to inflow of money from the rest of the Eurozone, plus some outright fraud. It worked … for a little while. But then came the global financial meltdown, and the system stopped working.
Fundamentally, nothing can survive forever in the global economy without producing something useful. Not a company, nor a city, state, or country.
I would hope that the Greeks would eventually turn around and get their economy going by producing real things, but I’m not holding my breath. I fear that Greece’s future looks more like Argentina, a country that’s been lurching from one political and financial disaster to the next for four generations.
Gotta stop right there. In modern economies, businesses that are bigger than a mom/pop shop cannot operate without widely available and reasonably cheap credit. Even very profitable ones. That’s just a fact. That credit will dry up immediately for Greece. No one will want to lend money to Greeks in the near future. So - how exactly will those touristy attractions and exporting businesses manage to operate?
Well, the real wealth of a country is the productivity of its citizens. I think I read that somewhere. If up to half of the younger workforce is not working, the country will suffer. And the suffering won’t be just for now, but for years to follow - people who aren’t working aren’t developing skills, learning trades, or developing discipline. Five years of unemployment isn’t just the loss of five years of production, it’s also the loss of human capital: the skills and knowledge the unemployed otherwise would have accumulated.
Getting Greek people back to work has to be the #1 priority of the Greek government. And if creditors think they can get money from Greece by pursuing policies that prevent Greeks from working, they don’t understand economics.
I can’t speak to the Anatolia situation directly, but it’s human skills - and the proportion of the population of the country that are employing them - that matter most, not natural resources. Many rich countries are relatively resource-poor. The Netherlands is a small country, with few resources, but very rich. On the other hand, many resource-rich countries are devastatingly poor. I’m looking at you, Africa.
I’m going to exhibit some ignorance here and say that I don’t know what the point of the euro was in the first place. I suppose the idea was either to challenge the dollar as the world’s reserve currency, or to eliminate currency-exchange inefficiencies.
But to me, giving up the ability to control your own currency seems like a huge price to pay for what seems like a relatively small benefit.
After the horrors of W.W. I and W.W. II, themselves sequels to earlier wars, the main goal, I think, was to bond France and Germany together so firmly that there wouldn’t ever be another war. Economic effectrs were, rightly or wrongly, viewed as secondary.
But that explains only Franco-German currency union. To let countries like Greece in on the Euro could be seen as an act of generosity; similar to West Germany letting East Germany in on the Deutschemark, or the advanced U.S. letting Mississippi and Kentucky in on the Dollar.
Greece did defraud Euro countries and bankers, but the task is to find a way forward from here. Perhaps nurturing Greece rather than punishing it, would be the best way to eventually get some of that debt paid. In any event, for the Euro countries to betray Greece at this juncture reminds of how vested interests betrayed the 1994 Mandela government in So. Africa, or how the U.S. betrayed Detroit.
What the heck is producerist fantasy? It is a fact that Greece has a very small export sector. They have tourism which count as export, and after that they have export of oil & gas and such. However they don’t themselves produce oil/gas in any substantial quantity so this is merely reexport, or refined gasoline. With an population more than double of Denmark they export about half as much, and that’s including tourism.
A devaluation is likely to be a lot less effective than what is often thought, since they import so much and produce so little outside tourism. In addition, even if tourism would be made cheaper for foreign visitors, this might of course drive an increase in mass budget tourists, but Greece already have plenty of those, and have been trying to move up the value chain towards a more wealthy segment of tourism, which I suppose are less influenced by cost and a lot more influenced by perceived security, stability, etc.
Devaluation can help if you have a large industrial or food production base which could get a temporary boost from lower export costs. Greece has neither.