Well then, they aren’t getting a single Euro from you. Because your demands can’t happen in Greece, because Greece can’t reform just because you demand they reform. If the financial crises could force the Greeks to face financial reality and get their house in order, it would have done so already. But it can’t, so it won’t, so it hasn’t.
You can either give them a bunch of money to pay off their debts to the various banks, or you cut them loose. Demanding reform won’t work.
And remember, the bailout isn’t so much a bailout of Greece–it’s a bailout of the banks that lent Greece all that money. Give Greece billions of euros to pay off their debts and it all goes to the creditors, not to Greece.
is the first reference I found,it’s pretty accurate,.
60% of the Greek debt is owed directly to other Eurozone nations, 10% to the IMF and 6% to the European Central Bank. Only 1% is actually owed to foreign banks.
In asking for a debt write down, Greece is actually asking it of countries that are in some respects doing worse than Greece.
Greece is not a banking crisis, and the core problem is decades of Greece government overspending, which was was going on long before it joined the Euro.
It’s come to a head now because nobody is willing to continue lending to Greece to fund that deficit without the Greeks taking serious measures to reform their economy,cut back on waste and make their tax collection mechanisms more effective.
In Germany, we hanged the people responsible for their prior performance. Greece’s culture of corruption is bad, but it is not bad enough to warrant such drastic measures, or bad enough that the Greeks would agree that it needed to be rooted out.
And to riff off what Grunman says, maybe if we hung enough of their leaders and built their political establishment up almost from scratch, it might work.
In Germany and Italy and Japan, much of the Marshall Plan was to rebuild their industrial base. Greece doesn’t have much by way of industry to rebuild, and their economy is based largely on tourism. And the Parthenon wasn’t bombed.
[QUOTE=Stringbean]
Do you give a loan to a bright student interested in getting a degree in engineering, or a disheveled vagrant with a history of substance abuse?
[/QUOTE]
The vagrant, obviously, with the condition that he stop using and get a job. Then five years later, after he has spent the money on computer games, you forgive half the debt and loan him more, on the promise that he really will get a job and stop using.
Then five years after that, he tells you that he can’t repay the money, and demands that you give him more, and threatens that if you don’t, he will stop living in your basement.
And you are a big meanie for loaning him the money (and not loaning him more).
The debt write-off Germany and Japan received post WW2 was not a form of charity. Neither will any debt write-off or other form of bailout given to Greece be a form of charity. At the end of the day both are simply an investment. When the US granted debt relief to West Germany it came from the expectation that in doing so they would help create a stble economy and prevent the country from falling under the spell of communism - an outcome the US regarded as a sound return on investment. The decision may have been helped by the assessment that the country was not likely to repeat what it had done to get into the debt in the first place anytime soon. (A sizeable military occupation force surely helped with that.)
So with Greece it really comes down to making sure that they are not making the same mistakes that ran their economy into the ground again. That however has turned out to be exceedingly difficult.
Just to try and give an explanation. Firstly I should note creditors have already “taken a haircut” on debts owed by Greece. It’s a strange myth that no Greek debt has been forgiven. Their restructuring has also been very generous, to the point that despite having far more debt-to-GDP than they did a few years ago, their interest payments as a share of GDP are much smaller than they were a few years ago. Most of their debt is nigh-interest free now. Should it be forgiven entirely? I think it should, but that’s not really the issue.
That is an issue in the popular consciousness, and in particularly the minds of the German voters who support Angela Merkel. Hell, even the liberals in German have so much of the Swabian Housewife mentality toward economics that they’re harsh on the issue of debt forgiveness.
But that’s really not the issue. The real issue is even if we waved a magic wand and erased Greece’s debt, they are still fucked. The benefit system that Tsipras wants to return back to previous levels is simply extremely unsustainable. Additionally Greece has one of the largest black and gray economies relative to GDP of any country, AND it has by far the highest rate of tax non-payment of any Eurozone country. It has a toxic business environment in which it is very difficult to setup and run a profitable business.
The real problem with Greece at least in terms of “right now” is they have a Prime Minister (who mostly just is reflecting the will of the people) who wants more money (not just debt forgiveness, but big stacks of billions of dollars) and he wants to use it to hire back unneeded public sector workers and restore benefits to even more unsustainable levels. Basically he wants a blank check to have his cake and eat it too, he wants to use the money the rest of the Eurozone will give him to continue operating Greece in the unsustainable way it was operated in the past.
Is Greece fixable? Sure. But unlike Germany in 1945 Greece doesn’t just need its infrastructure rebuilt, it really needs a fundamental shift in its economy to one that embraces modern capitalism. Instead it’s stuck in a 30+ year old mindset where they have a mix of clientelism and capitalism that isn’t competitive in the modern world. Their one saving grace would be tourism, but their being in the Eurozone mitigates how good tourism can be for them since it means going to Greece is actually quite expensive for tourists.
I should note that I’m pro debt forgiveness and anti-austerity for Greece, but just giving Tsipras more money and not requiring any structural changes is akin to throwing good money after bad. At that point it just makes more sense to kick Greece out of the Eurozone and give them an aid package for stabilization purposes during the transition. Let them hyperinflate their currency and while they’ll still have structural problems being out of the Eurozone will likely force Greece to either fix them or implode completely.
Having a large amount of young men out of work and with no prospects is always a recipe for an interesting few years in the future…and typicall the cure for fixing those interesting years is a lot more expensive then “throwing good money after bad”.
No one will disagree that high unemployment rates among younger people cause all kinds of problems. But what do you suggest to do about that high unemployment rate? You need to create actual demand on the labour market and I do not see how that could be done without structural reforms.
Europe and Japan were destroyed in the war therefore buildings, bridges, roads, etc all had to be rebuilt. What exactly are the Greeks building with the money they have been seeking ?
I’ve heard that one issue with Greece is that it doesn’t really have the industrial capabilities of a Germany or Japan to manufacture themselves out of debt. How true is that?
Well, Germany and others have demanded reform in return for debt forgiveness and they got it. The problem is, unlike the Marshall Plan, the demanded reforms smashed the Greek economy even worse that it was. Greece has been laboring under those reforms for years and are worse off then when they started.
That is the thrust of my main point. What Germany and others are imposing is more (loosely) akin to how everyone sat on Germany post WWI and that did not turn out so well for anybody. Better was how we did it post WWII.
So too here. Of course Greece should not be allowed to continue as usual. Of course they need to reform. But the demanded reforms should be more along the lines of building a better economy for themselves and less about how foreign governments can extract cash from them.
The German economy at surrender was quite a bit larger than Greece’s current economy (although worse per capita) and they still had significant manufacturing capability. Germany needed to retool to focus on making anything other than military items. Germany needed to rebuild big chunks of infrastructure. Their major structural problem (pissed off people with heavy bombers) was in the past though. That “structural problem” didn’t prevent them from significant GDP growth during most of the war. Only the last year when pissed off people with rampaging armies got added to the mix did GDP drop sharply.
Greece’s contraction since 2008 is worse than World War II’s effects on German GDP. A surrender doesn’t end the worst of their problems. In a lot of ways Germany was comparatively easy.
Ironically, one of Greece’s major budget problems is its amazingly large (for its size) defence budget. That problem was takencare of with Germany and Japan, as we took their defences away.
That’s too radical a solution for Greece but maybe they could stop pretending to be Sparta. Greece still has the draft, for God’s sake.
In 2013 they spent 2.5% of GDP. Last year, despite shrinking GDP, cuts we stringent enough they ended up spending 2.2% of GDP. That’s less than the 2.3% of gross world product being spent on the military worldwide. It’s less than that militaristic power Ecuador spends at 2.7%. It’s only 10% over the NATO target of spending at least 2% of GDP on the military.
That less sentence is the real heart of explaining perceptions about Greek military spending. The only reason their budget looks “amazingly large” is many of their NATO peers only pretend they are even going to attempt to meet their agreed upon obligations.
It may also be worth mentioning that a whole heap of essential stuff in Europe had been destroyed physically, requiring a huge amount of labor to fix - roads, plumbing, infrastructure, housing and much much more. So there would not have been a shortage of jobs for the needy, and the kind of thing that helps guarantee big loans is an economy with spinning wheels. As I understand it Greece right now is all wheel and no spinning.