Greece: Here we go again

[Ad Orientem]

ATHENS — The long-dormant euro crisis could come roaring back to life Monday with a vote in the Greek Parliament that is expected to bring down the pro-austerity government and open the way for a radical leftist party to take power for the first time in the history of the European Union.

The vote will be watched closely around the continent as a marker of economic peril in the year ahead as Europe gazes into the abyss of another recession. But it could also be a key political milestone as the center gives way to forces that were once relegated to the European fringe and are now buoyed by a populist, anti-austerity backlash.

For Greece, the expected collapse of the government comes just as the economy here had begun to stabilize. Now, with the far-left Syriza Party forecast to win the elections that would follow at the end of January , all bets are off.

The party has vowed to halt payment on Greece’s debt until the terms of the country’s $284 billion bailout agreements can be renegotiated, and it says it will thumb its nose at international lenders by ramping up public spending.

Read the rest here...
http://www.washingtonpost.com/world/eur ... story.html

[goodasgold]

The party has vowed to halt payment on Greece’s debt..., and it says it will thumb its nose at international lenders by ramping up public spending.

Ramp up public spending? Using what, monopoly money? How about Russkie rubles or Venezuelan bolivares?

Greece is the Argentina of Europe.

[Jan Van]

The odds of Greece leaving the euro have never been higher

Greece is projected to have a primary surplus of 3 percent of GDP, which makes ditching the euro something approximating plausible. Greece would still have to bail out its banks, probably by printing money, and its economy would still go into another tailspin, forcing it to print even more money, but it'd be a manageable disaster.

[moda0306]

No need to travel to the Eurozone; Illinois is the 'Greece of the US'.

Illinois is like Greece in one obvious way: It overpromised and underdelivered on pensions and has little appetite for dealing with the problem, says Hal Weitzman of the University of Chicago Booth School of Business.

This large Midwestern state, with a population of 13 million (Greece has 11 million, though a far smaller GDP than Illinois), has the most underfunded retirement system of any state and the largest pension burden relative to state revenue. It also has the highest number of public-pension funds close to insolvency, such as the one looking after Chicago's police and firemen.

According to the Civic Federation, a budget watchdog, Illinois has piled up a whopping $111 billion in unfunded pension liabilities, in addition to $56 billion in debt for health benefits for pensioners.

The state devotes one in four of its tax dollars to pensions, which is more than it spends on primary and secondary education.

http://www.businessinsider.com/illinois ... is-2014-12

Well Greece doesn't have a counter-cyclical spending federal government above it. Illinois does. Allows a lot more can-kicking.

I'm pretty sure Florida would look like Spain right now if it weren't for the nature of federal government taxation/spending constants and adjustments when economies hit recession.

Greece and Spain and the like are truly an interesting and tragic case. Not perfect economies by any means, but certainly not deserving of everyone standing around looking at each other letting skills and productive potential go to waste.

[madbean]

I'm pretty sure Florida would look like Spain right now if it weren't for the nature of federal government taxation/spending constants and adjustments when economies hit recession.

Why do you say that about Florida? I think they handle government spending pretty well down here with no federal or state income taxes.

[moda0306]

I'm pretty sure Florida would look like Spain right now if it weren't for the nature of federal government taxation/spending constants and adjustments when economies hit recession.

Why do you say that about Florida? I think they handle government spending pretty well down here with no federal or state income taxes.

I wasn't trying to pick only on Florida.  Any state in the Union with a rough economy is benefitting hugely from the economic stability of counter-cyclical federal government activity, in my opinion.

Florida get's a little special attention mainly because of 1) its huge housing boom/bust (one of the worst in the country), and 2) it's massive "shortfall" in net federal government receipts/expenditures.

http://en.wikipedia.org/wiki/Federal_ta ... g_by_state

If you look a that link, and sort the charts to show net federal receipts and net federal receipts/GSP (gross state product), you'll see that Florida is near the top, namely because of its high retirement community population (I'm quite sure, anyway).

Obviously, fiat paper is just that, but in a modern economy that USES that fiat paper to engage in transactions, cash-flow is extremely important (just as it is in your household, I'd presume).

Having reliable (and in many cases in inverse relation to economic stability) net cash-flow into the Florida economy that results in 18% of their GDP is hugely stabilizing when the housing market collapses just as retirement accounts collapse.


So this has almost nothing to do with how the Florida government handle's its own government funding, and much more to do with the economic benefits of having a higher level of government sending them guaranteed cash-flow that will likely go up in the face of deflationary/depression activity.  This isn't the case with Greece/Spain/Italy, and this is why they're suffering far-more than our individual states that have seen economic turmoil. 

Spain, in fact, had a pretty solid fiscal situation before the slump, but it was unfortunately built on a housing boom (much like Florida), but (unlike Florida), Spain can run deficits.  Those deficits, combined with bond-market rigidities in an international currency outside of their control, created a situation that states all over the political spectrum (whether Illinois & California or Florida & Arizona) really didn't have to deal with.

Sorry... I ramble.  And this is all "IMO," by the way.  I'm not stating this is all self-evident fact.  Though I think my analysis is correct.

[Pointedstick]

If by "counter-cyclical federal government activity" you mean "enormous subsidies," I agree. Because let's not kid ourselves here: the federal government doesn't spend counter-cyclically, they just spend, period. That shower of money helps state governments paper over and continue all manner of stupid unsustainable policies and programs.

[moda0306]

PS,

Well spending AMOUNTS actually matter.  If you start looking at the numbers, the federal government spends FAR more in some states (per unity of GSP (which is probably not TOO far off from measuring a per-capita difference as well)) than in other states.  A huge portion of their spending isn't even hiring someone to do anything or paying them directly for a product the government consumes, but simply "transfer payments," which simply allow people to spend money they wouldn't have otherwise had.  These have a real effect on the economy, especially when we can expect them to grow in the face of a recession in that state.

Naturally, of course, a government's activities are going to grow at least with inflation, if not something closer to GDP.  So assuming the latter, we can expect government spending to grow at a rate of somewhere around 4% per year (2% inflation + 2% Real GDP growth)... Kind of a spit-ball number but I think good for putting a barometer on federal spending.  Federal spending as a percentage of GDP really hasn't grown that much since 1960.  But on top of that overall expected growth, the spending system is designed to AT LEAST hold up during recessions, if not specifically to expand (Medicaid, unemployment insurance, and food stamps/welfare being the larges spending-side adjustments when economies go to $hit).  This is important to point out, because businesses plan for a certain amount of economic stability, and even if they can expect overall government spending growth, being able to plan on stability or even GROWTH in that spending when a recession hits is useful.

For instance, if I operated a restaurant in Florida, it's far better for me for there to be SS, Medicare, etc spending in the state that will hold up or even grow during a recession.  Perhaps I'll still have some risks to my business, but having that economic certainty in my community allows me to know that events like what's going on in Greece, Spain, etc right now are very unlikely unless massive policy changes are enacted. 

And the counter-cyclicality of tax policy is important as well.  We have a naturally progressive and counter-cyclical federal income tax that quickly falls off as your income falls below a certain point. 


I guess I'm not trying to make qualitative judgments about one system vs another, but a quantitative judgment about the nature of the  economy of Greece vs that of Illinois or any other economy that had a boom and quasi-bust with or without a government that can choose to (or has automatically set-up to) adjust the tax/spending policy of the region in the face of that bust.  They're simply not the same.  At least not yet.

[moda0306]

I guess I'd add that while you claim that federal subsidies allow states to continue policies that are both "stupid" and "unsustainable," I guess there's a couple things I'd say to this...

1) State pensions may not be sustainable in the ABSENCE of federal spending, but that's not the world we live in... and unless you think FEDERAL spending is unsustainable, you have to include that in the sustainability equation.  At the very least, even if sustainability is the main constraint, Illinois isn't looking nearly as close into the barrel of punishment for that unsustainable activity as Greece is.  So "visiting" Illlinois won't give you an idea of that effect.

But don't get me wrong... I'm sure if I spent a few years in Illinois I'd hate their state government.  But that's quite different than 25% unemployment going on RIGHT NOW in the economy.

2) There's plenty of things in the PRIVATE sector that are stupid/unsustainable if we are carrying that logic forward.  If it's STUPID for business-owners to have invested in housing, restaurants, factories, etc, in the face of a potential massive recession, then we're not just talking about government doing stupid, unsustainable things.  In fact, I'd argue that a ton of private sector activity (sprawl, factory-farming, fossil-fuel burning, ecological disruptions) is OBVIOUSLY unsustainable, and it is hard to argue there isn't a lot of "stupidity" in private sector economic decisions as well. There's nothing uniquely "governmental" about unsustainable activity, other than the general consensus (not that it is true, but most people believe this) that government defense is necessary for civilization to function, and civilization may be "unsustainable."

[Mountaineer]

I guess I'd add that while you claim that federal subsidies allow states to continue policies that are both "stupid" and "unsustainable," I guess there's a couple things I'd say to this...

1) State pensions may not be sustainable in the ABSENCE of federal spending, but that's not the world we live in... and unless you think FEDERAL spending is unsustainable, you have to include that in the sustainability equation.  At the very least, even if sustainability is the main constraint, Illinois isn't looking nearly as close into the barrel of punishment for that unsustainable activity as Greece is.  So "visiting" Illlinois won't give you an idea of that effect.

But don't get me wrong... I'm sure if I spent a few years in Illinois I'd hate their state government.  But that's quite different than 25% unemployment going on RIGHT NOW in the economy.

2) There's plenty of things in the PRIVATE sector that are stupid/unsustainable if we are carrying that logic forward.  If it's STUPID for business-owners to have invested in housing, restaurants, factories, etc, in the face of a potential massive recession, then we're not just talking about government doing stupid, unsustainable things.  In fact, I'd argue that a ton of private sector activity (sprawl, factory-farming, fossil-fuel burning, ecological disruptions) is OBVIOUSLY unsustainable, and it is hard to argue there isn't a lot of "stupidity" in private sector economic decisions as well. There's nothing uniquely "governmental" about unsustainable activity, other than the general consensus (not that it is true, but most people believe this) that government defense is necessary for civilization to function, and civilization may be "unsustainable."

I smell the diversion strategy. 

... Mountaineer

[moda0306]

I guess I'd add that while you claim that federal subsidies allow states to continue policies that are both "stupid" and "unsustainable," I guess there's a couple things I'd say to this...

1) State pensions may not be sustainable in the ABSENCE of federal spending, but that's not the world we live in... and unless you think FEDERAL spending is unsustainable, you have to include that in the sustainability equation.  At the very least, even if sustainability is the main constraint, Illinois isn't looking nearly as close into the barrel of punishment for that unsustainable activity as Greece is.  So "visiting" Illlinois won't give you an idea of that effect.

But don't get me wrong... I'm sure if I spent a few years in Illinois I'd hate their state government.  But that's quite different than 25% unemployment going on RIGHT NOW in the economy.

2) There's plenty of things in the PRIVATE sector that are stupid/unsustainable if we are carrying that logic forward.  If it's STUPID for business-owners to have invested in housing, restaurants, factories, etc, in the face of a potential massive recession, then we're not just talking about government doing stupid, unsustainable things.  In fact, I'd argue that a ton of private sector activity (sprawl, factory-farming, fossil-fuel burning, ecological disruptions) is OBVIOUSLY unsustainable, and it is hard to argue there isn't a lot of "stupidity" in private sector economic decisions as well. There's nothing uniquely "governmental" about unsustainable activity, other than the general consensus (not that it is true, but most people believe this) that government defense is necessary for civilization to function, and civilization may be "unsustainable."

I smell the diversion strategy. 

... Mountaineer

While I'm notorious for hijacking threads, I'm not trying to here.  I guess I'm just saying that at the very least, Illinois isn't Greece yet.  Unemployment is massively lower.  This alone creates a very different dynamic.

I don't see how this part is debatable.

But the rest of the sustainability/private/public/subsidy debate can be saved for a different thread.

[Ad Orientem]

I think it is important that we don't reduce what's going on in Greece to mathematical formulas, balance sheet equations or academic theory. It is a humanitarian catastrophe on a scale that, with the possible exception of the Balkan wars, hasn't been seen in Europe since the immediate aftermath of World War II. Officially unemployment is around 25%. There are widespread reports of people suffering from malnutrition and dying from starvation and exposure to the elements. The suicide rate has gone through the roof.

All of which makes this a very dangerous situation.

These are people who once lived in what was widely regarded as a modern first world country with an enviable standard of living. When you take a population from such circumstances and cast them down into conditions more typically associated with the third world, you are playing with fire, irrespective of who is at fault. When a large chunk of a country's population is suddenly reduced to abject poverty, where even the most elemental necessities of life are uncertain, and those who still have a job live in daily fear of losing it, the risk of some populist revolt or an embrace of radical political parties or ideology becomes acute.

Hitler and Stalin, two of the greatest monsters in history, came to power in large part due to exactly this sort of crisis.

[moda0306]

I think it is important that we don't reduce what's going on in Greece to mathematical formulas, balance sheet equations or academic theory. It is a humanitarian catastrophe on a scale that, with the possible exception of the Balkan wars, hasn't been seen in Europe since the immediate aftermath of World War II. Officially unemployment is around 25%. There are widespread reports of people suffering from malnutrition and dying from starvation and exposure to the elements. The suicide rate has gone through the roof.

All of which makes this a very dangerous situation.

These are people who once lived in what was widely regarded as a modern first world country with an enviable standard of living. When you take a population from such circumstances and cast them down into conditions more typically associated with the third world, you are playing with fire, irrespective of who is at fault. When a large chunk of a country's population is suddenly reduced to abject poverty, where even the most elemental necessities of life are uncertain, and those who still have a job live in daily fear of losing it, the risk of some populist revolt or an embrace of radical political parties or ideology becomes acute.

Hitler and Stalin, two of the greatest monsters in history, came to power in large part due to exactly this sort of crisis.

Probably a much, much better way of illustrating how much worse Greece is than... well... just about anything right now short of North Korea and a handfull of other hell-holes.

This is extremely tragic and even quite dangerous for the very reasons Ad points out.  Desperation does very nasty things to people.

[Jan Van]

This is extremely tragic and even quite dangerous for the very reasons Ad points out.  Desperation does very nasty things to people.

Which is in part why I hope they'll get out of the monetary union and go back to their Drachma.

[stone]

Hitler and Stalin, two of the greatest monsters in history, came to power in large part due to exactly this sort of crisis.

Perhaps the Syriza Party then is a good thing? Syriza don't seem to advocate any sort of tyranny do they? Perhaps they are the only people who are facing up to the reality that the Greek Euro debt can't be serviced. Pointing out that debts that can't be paid won't be paid and so a reset is needed?

Maybe the best hope for the Euro zone would be for Germany to leave. If then all of the Eurozone countries were to leave the Euro except for Greece, THEN Greece would be fine as it would have its own free-floating currency and so be able to service its debts no-problem .

[Ad Orientem]

Hitler and Stalin, two of the greatest monsters in history, came to power in large part due to exactly this sort of crisis.

Perhaps the Syriza Party then is a good thing? Syriza don't seem to advocate any sort of tyranny do they? Perhaps they are the only people who are facing up to the reality that the Greek Euro debt can't be serviced. Pointing out that debts that can't be paid won't be paid and so a reset is needed?

Maybe the best hope for the Euro zone would be for Germany to leave. If then all of the Eurozone countries were to leave the Euro except for Greece, THEN Greece would be fine as it would have its own free-floating currency and so be able to service its debts no-problem .

I don't remember Stalin advocating tyranny. In fact if you read the Soviet Constitution from the 1930's, it is a remarkably progressive document that would warm the heart of any Whig. The Syriza Party is a collection of neo-Communists.

[craigr]

I hope Greece gets out of the Euro/EU for their own sake and for the sake of the other countries involved. In fact, I hope the whole EU ends and the various countries can all go back to running their own affairs and dictating their own polices that are best for their own people. It's for everyone's own good.

The EU was an incredibly bad idea and will never work long-term. The best the EU can hope for is it breaks up peacefully. Different people with different languages and cultures cannot be ruled peacefully under one central government. It is a surefire recipe for tyranny, misery, and war.

[stone]

I thought this was interesting:
https://www.bullionstar.com/blog/koos-j ... y-in-2012/

The close cooperation between the two nations and Schäuble’s statement (We have … built defenses) makes me think Germany had a similar back-up plan for a new currency (perhaps they even had a joint plan). The German Ministry Of Finance did not outright deny that it made similar plans as The Netherlands when contacted by the newswire EUobserver.

Because a lot of information was leaked to the press, many countries didn’t dare to discuss Greece leaving the euro in the Eurogroup, the council of 18 European Ministers Of Finance. Emergency plans were only discussed off the record, for example by The Netherlands and Germany. If other European countries prepared emergency currencies I don’t know. The ECB, IMF and EU (the Troika) did make plans for Greece to return to the Drachme.

[stone]

I hope Greece gets out of the Euro/EU for their own sake and for the sake of the other countries involved. In fact, I hope the whole EU ends and the various countries can all go back to running their own affairs and dictating their own polices that are best for their own people. It's for everyone's own good.

The EU was an incredibly bad idea and will never work long-term. The best the EU can hope for is it breaks up peacefully. Different people with different languages and cultures cannot be ruled peacefully under one central government. It is a surefire recipe for tyranny, misery, and war.

I largely agree with you on this. Basically monetary union should only happen if there is thorough fiscal union and fiscal union should only happen if there is political union and political union should only happen if there is a popular sense of shared national identity. The euro project basically tried to shoe horn all of that the wrong way around. People who held up pan-european solidarity as a goal introduced monetary union as a way to coerce all of the rest of it -with predictably unfortunate results.

BUT, when you say

  Different people with different languages and cultures cannot be ruled peacefully under one central government.

, I think of Switzerland. Swiss people with their different languages in some ways can seem like caricatures of the Germans, French or Italians and yet they do all work together very successfully with a country that seems to be something of a model of how best to run a country. I think the key thing is that they all want and respect the Swiss state as their system. They don't think "let's squander this so that the French-Swiss don't get their hands on it" -or whatever.

[craigr]

BUT, when you say

  Different people with different languages and cultures cannot be ruled peacefully under one central government.

,

I think of Switzerland. Swiss people with their different languages in some ways can seem like caricatures of the Germans, French or Italians and yet they do all work together very successfully with a country that seems to be something of a model of how best to run a country. I think the key thing is that they all want and respect the Swiss state as their system. They don't think "let's squander this so that the French-Swiss don't get their hands on it" -or whatever.

Switzerland is the only exception I can find to the idea of people speaking different languages and different cultures co-existing in peace and wanting to live under one government. That is largely because they are a loose confederation and the cantons have a lot of autonomy. Even then, they are all still of the same religious background largely and this doesn't rock the boat. If you toss in different people, different languages, different cultures, and different religions you are definitely going to get problems eventually living under the same government.

The EU is basically marxism in terms of treating different countries as interchangeable cogs that all have the same interests and never will abuse the goodwill of others. So in this way it too will fail just like Marxism always fails because it just doesn't work with the reality of human nature.

So in general while Switzerland is a nice place, most countries are not Switzerland and in general the idea of shoving them all together under the same government means you have to rule them with lowest common denominator in terms of laws, economy and politics. Each country and people have their own priorities and peculiarities and the idea that the Greeks are ever going to run their country like the Germans, or the Germans like the Spanish, or the Spanish like the French, etc. is just never going to work.

I say the above having visited many of those countries and liking them all. It's just that Italy ain't Germany and Germany ain't France, etc. and why would the common person benefit from being beholden to foreign legislatures and interests dictating their way of life?

I just want to be realistic about how humans really behave, and they aren't the kum-ba-ya types. So I'm pretty serious when I say we'll be lucky if the EU breaks up one day and it is done peacefully, because often these kinds of forced marriages end up with heads rolling onto the ground.

[stone]

CraigR

Switzerland is the only exception I can find to the idea of people speaking different languages and different cultures co-existing in peace and wanting to live under one government. That is largely because they are a loose confederation and the cantons have a lot of autonomy. Even then, they are all still of the same religious background largely and this doesn't rock the boat. If you toss in different people, different languages, different cultures, and different religions you are definitely going to get problems eventually living under the same government.

I have to stress that I basically agree with you. That said, were you excluding Singapore because it doesn't have a free press and has some quite repressive laws? The Singaporeans are very very culturally diverse (eg Chinese, Tamils who are Hindu, Tamils who are Muslim and Malays who are Muslim) and it seems a very peaceful place -very much like a sort of equitorial, Asian, Switzerland in many ways. Singaporeans seem to be keen to be Singaporean and I think that is what is key.

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

Religion in Singapore, census of those 15 or older (2010)[1]
  Buddhism (33.3%)
  Hinduism (5.1%)
  Protestantism (11.3%)
  Catholicism (7.1%)
  Taoism (10.9%)
  Islam (14.7%)
  Other religions (0.7%)
  Not religious (17.0%)

The government of Singapore has attempted to transcend religious and racial boundaries.[citation needed] Some religions, especially those spearheaded by Chinese ethnic groups, have merged their places of worship with other religions such as Hinduism and Islam. A prominent example is that of Loyang Tua Pek Kong Temple (situated in the eastern coastal line) wherein three religions, namely Taoism, Hinduism, and Islam are co-located.

Younger Singaporeans tend to combine traditional wisdom with religious beliefs introduced when the British colonised Singapore; for example, South Bridge Street, which was a major road through the old Chinatown, is home to the Sri Mariamman Temple (a south Indian Hindu temple that was declared a national historical site in the 1980s), as well as the Masjid Jamae Mosque that served Chulia Muslims from India's Coromandel Coast.

In schools, children are taught in social studies lessons about the Maria Hertogh riots and the 1964 Race Riots, as a reminder of the consequences of inter-religious conflict. Mixed-race classes, interaction between students of different races and the celebration of religious festivals also help inculcate religious tolerance and understanding from a young age.

Another religious landmark in Singapore is the Armenian Church of Gregory the Illuminator, the oldest church in Singapore, which was completed in 1836. It was also the first building in Singapore to have an electricity supply, when electric fans and lights were installed. Today, the church no longer holds Armenian services, as the last Armenian priest retired in the 1930s. Nonetheless, the church and its grounds have been carefully preserved and various Orthodox Church services are still held in it occasionally and Coptic Orthodox Church of Alexandria service on the first weekend of every month.

The Jehovah's Witnesses and the Unification Church are banned in Singapore.[3]

I realize that Yugloslavia is the classic case of a multicultural country that then imploded.

[Pointedstick]

There are a couple of common threads between Switzerland and Singapore. If we were to generalize from them, we might say that a kind of multiculturalism seems to work okay as long as all the different people 1) have high amounts of intelligence, wealth, and education, 2) feel united under some kind of common banner (usually nationality), and 3) have no long-simmering, unresolved historical grievances against one another.

[stone]

There are a couple of common threads between Switzerland and Singapore. If we were to generalize from them, we might say that a kind of multiculturalism seems to work okay as long as all the different people 1) have high amounts of intelligence, wealth, and education, 2) feel united under some kind of common banner (usually nationality), and 3) have no long-simmering, unresolved historical grievances against one another.

The astonishing thing about Singapore though is that happy state came about from a start that was basically the opposit. At independence they were desperately poor, had widespread illiteracy and had just had vicious race riots.
http://en.wikipedia.org/wiki/History_of ... al_tension

And of course in Northern Ireland they have appalling sectarian conflict and yet share a common language, look the same as each other, have lived together for hundreds of years and have a religion that in the general scheme of things seems pretty much the same (its hardly like the Islam vs Hinduism type difference is it).

[barrett]

Singapore is quite diverse, but from what I have seen and think I know, it is really dominated by the Chinese. They are about 3/4 of the population and I am guessing their economic clout is relatively higher still.

[Jan Van]

And Belgium, don't forget Belgium