EU considers taking over Greece

[Thanas]

Schumpeter considered historical conditions rather important for any economic analysis, so Duchess' opinion on the Ottoman Empire is actually not a bad argument in and of itself.

...even assuming that her perception of the historical economies of Greece are correct, her stance assumes that Greece would still do the majority of its business with that newly formed union (yeah, good luck getting all these countries to work together) when Greece's economy is actually very different. In fact, it does more business with the UK than with Turkey and its main trading partner is Germany.

[K. A. Pital]

Was it the same before EMU? And actually how did the EMU make business easier for Greece? Greece lost a lot of its naval advantages over the years, vanquished its gold reserves and overborrowed. If overborrowing and default are the price for "trading" with the UK, that's just crazy. Not to mention that the UK is not part of the EMU, and so Greece not being part of EMU would not impact Greek deals with Britain.

If Greece chose another path, it might actually have started to trade more with members of "another Union" (it is all just speculation, right?). Turkey's economy is not doing too bad, despite not being let into the EU. I may despise Erdogan since he's an oligarch islamist tool, but from a strictly capitalist economic viewpoint Turkey is doing good.

[JointStrikeFighter]

Is this based on anything besides your opinion about the Ottoman empire?

It is reflected somewhat in the Hofstede graphs.

[Thanas]

Was it the same before EMU? And actually how did the EMU make business easier for Greece? Greece lost a lot of its naval advantages over the years, vanquished its gold reserves and overborrowed. If overborrowing and default are the price for "trading" with the UK, that's just crazy. Not to mention that the UK is not part of the EMU, and so Greece not being part of EMU would not impact Greek deals with Britain.

You kinda missed the point here, that being that Turkey only received 4% of the exports of Greece and does not even rank in the top import partners.

If Greece chose another path, it might actually have started to trade more with members of "another Union" (it is all just speculation, right?). Turkey's economy is not doing too bad, despite not being let into the EU. I may despise Erdogan since he's an oligarch islamist tool, but from a strictly capitalist economic viewpoint Turkey is doing good.

And this translate into success with other mediterranean countries how?

It is reflected somewhat in the Hofstede graphs.

These are economic graphs?

[Teebs]

Well it looks like the German government is hardening its stance considerably. The leader of the FDP (the smaller of the coalition parties) is now talking openly of allowing it to default. It could just be posturing to try to get the Greeks to fall in line, but I doubt it. Continuing to bail it out when it's showing no signs of improving is rapidly becoming politically inviable over there.

die Welt (German)
Financial Times Not as useful as the German article.

As the article from Welt points out, there is a sad contrast between the Greek and Portuguese reactions to the situation.

[Thanas]

As the article from Welt points out, there is a sad contrast between the Greek and Portuguese reactions to the situation.

Yeah. I haven't met anybody in Germany who fears the Portugese will squander the money given to them. Meanwhile the German finance minister Schauble is all but saying out loud "the Greeks cooked the books again".

[Logicomix]

Really now? Let me guess, the EU is responsible for Greece's situation because they believed the lies Greece told them to get into it? Curious logic there.

The Germans and the British are a lot of things (murderers and manipulators are certainly on top of the list) but gullible ain't one of them. If you really think Greece entered the EMU via trickery and deceit you have a lot to learn about how international politics and financial institutions work.
One thing is for certain: You believe the lies your media tells you.
Pro-Tip:
The purpose of the Media is not to provide you with well-researched and objective facts. They simply present you with stuff in-between commercial breaks.

[Thanas]

Really now? Let me guess, the EU is responsible for Greece's situation because they believed the lies Greece told them to get into it? Curious logic there.

The Germans and the British are a lot of things (murderers and manipulators are certainly on top of the list)

You better provide evidence for that real fast.

but gullible ain't one of them. If you really think Greece entered the EMU via trickery and deceit you have a lot to learn about how international politics and financial institutions work.

What? So they did not falsify data to get into the EMU?

One thing is for certain: You believe the lies your media tells you.

Proof?

The purpose of the Media is not to provide you with well-researched and objective facts. They simply present you with stuff in-between commercial breaks.

Get bent.

[The Duchess of Zeon]

Is this based on anything besides your opinion about the Ottoman empire?

It is REALLY HARD to synthesize 150 years of fiscal policy history into a message board post, Thanas. It's not just the Ottoman Empire, I wasn't even thinking of Turkey when I wrote the first post, look up the history of the Latin Monetary Union, how it was ruined by the Papal States issuing debased coinage and so on but that a basic concensus was achieved between these states even in the 19th century. What you're making the mistake of doing is conflating fiscal policy with trade-economics. A trade partner is NOT a good partner for unified fiscal policy because trade partnerships usually form because one state has something that the other state wants and vice-versa. Think about it for a moment, having a unified fiscal policy which is functional implies similar economies... Which for states like Greece is bad. The Greek economic model requires a massively inflated currency and high debt load to function. In short, it needs a European Customs Union and a Latin Monetary Union to function best. The optimal solution for European unification would be have been two Political-Fiscal bodies with a customs union between them. Greece might well trade more with Germany than with the other members of its fiscal union... But that is fine, because the point of fiscal policy is to maximize the collective advantages of the states in that fiscal union, and you do that the same way for the Mediterranean states, and a different way with the northern European states, even if they trade more heavily with each other than with the members of their own monetary unions. In short, it's just as bad as giving the US and Mexico the same fiscal policy. This would massively fuck over Mexico whereas NAFTA has provided Mexico with huge economic trade gains. Unified customs authorities and unified fiscal policies are deeply unrelated in how they impact countries.

[Thanas]

I do however find it curious that you really assume Greece would join up with Turkey, Algeria, Marocco and Italy, when they all want different things. The divisions between them (nevermind that at least two of these are not exactly real stable states nor shining beacons of democracy) are just so large. What could possibly compell them to join together?

[The Duchess of Zeon]

I do however find it curious that you really assume Greece would join up with Turkey, Algeria, Marocco and Italy, when they all want different things. The divisions between them (nevermind that at least two of these are not exactly real stable states nor shining beacons of democracy) are just so large. What could possibly compell them to join together?

I was just going through a list of Mediterranean basin states with shared fiscal policy structures which had expressed interest in joining the EU at some level and some time in the past. Italy, Greece, Portugal and Spain certainly as old LMU members as well as the former Yugoslav states all have similar enough economies and have indicated enough shared economic history and interest that they are a more probable monetary and political union.

[Thanas]

Except that Portugal, Spain and Italy have no interest in leaving the EU, considering they gain too much from it.

They are not going to leave the EU in favor of some long-dead failed experiment at coinage.

[The Duchess of Zeon]

Except that Portugal, Spain and Italy have no interest in leaving the EU, considering they gain too much from it.

No, they gain from the customs union. The fiscal policy union is poisoning their economies and they will inevitably end up like Greece short of completely new constitutions and civil services to harmonize government policy with the fiscal policy being forced on them against their best interests by the European Central Bank. Note: That fiscal policy is in the best interests of northern Europe, and NOT forcing it on them would be disastrous for northern Europe. This is why trying to make the Eurozone and the EU fully contiguous with the customs union was a bad idea.

[Thanas]

No, they gain from the customs union. The fiscal policy union is poisoning their economies and they will inevitably end up like Greece short of completely new constitutions and civil services to harmonize government policy with the fiscal policy being forced on them against their best interests by the European Central Bank. Note: That fiscal policy is in the best interests of northern Europe, and NOT forcing it on them would be disastrous for northern Europe. This is why trying to make the Eurozone and the EU fully contiguous with the customs union was a bad idea.

Okay then - what is your evidence?

[JointStrikeFighter]

It is reflected somewhat in the Hofstede graphs.

These are economic graphs?

They attempt to quantify culture by national differences.

You can see more here http://www.geert-hofstede.com/

[Thanas]

I really doubt that this is in any way reinforcing your position, simply because cultural differences do not mean political differences.

[JointStrikeFighter]

Eh my position?

And Duchess was clearly talking about cultural factors.

[The Duchess of Zeon]

No, they gain from the customs union. The fiscal policy union is poisoning their economies and they will inevitably end up like Greece short of completely new constitutions and civil services to harmonize government policy with the fiscal policy being forced on them against their best interests by the European Central Bank. Note: That fiscal policy is in the best interests of northern Europe, and NOT forcing it on them would be disastrous for northern Europe. This is why trying to make the Eurozone and the EU fully contiguous with the customs union was a bad idea.

Okay then - what is your evidence?

Just look at a comparison of the relative values of the currency and the debt load of Latin versus Northern European states before the Euro was implemented. I'll post more detailed evidence for the moment but this is not hard. The southern states have structurally deeply different economies and fiscal policy management, and yes, I will made another post to this thread within 24 hours with references, but I am busy editing at a project report at the moment for something else entirely.

[Logicomix]

What? So they did not falsify data to get into the EMU?

Are you referring to the deal with Goldman Sachs (German founded, US company)?
Link
The deal was legal, immoral, and above all unnecessary.
You see, in 2000 -before Greece joined the EMU- Greek debt was estimated at 42.5 billion or 104% of GDP. That was common knowledge. Link
Which begs the question. Why did Germany allow Greece to enter the EMU in the first place?

p.s
What do you think of Milton Friedman, and his theory of free (unregulated) market capitalism?

[Chirios]

BWAHAHAHAAHA

this is the funniest shit I've heard in a while. Yep, let's just throw away all principles of sovereignty and take over another country without any legal basis to do so, that is a sensible plan.

[The Duchess of Zeon]

First reference is the EU policy paper from 2007 on the Mediterranean economies--excluding EU members, of course!--which is here:

and which identifies a series of problematic issues with those economies.

Limited due to brevity:

However,
most countries in the region also face some
specific fiscal issues, such as relatively high
public debt, dependence on some form or
another of donor dependence or concessional
financing, high budgetary exposure to
fluctuations in hydrocarbon prices, high defence
expenditure and weak tax bases. Against this
background, this paper reviews fiscal
developments and fiscal policy issues in the ten
countries that are participants or observers in
the EU’s Barcelona process.

The Greeks, so heavily linked to a maritime transport sector, also have an economy exposed to hydrocarbons if not as great, and for a long time had the third highest military expenditure of a democracy after Israel and the USA. They functionally, in short, have a structural economy of weak tax base, dependence on concessional financing, and high public debt which typifies the Mediterranean states which are not EU members. This is all objective fact which has all been discussed a thousand times. The question is the connection to the other Mediterranean EU states, which I am pleased to elucidate as follows:

Primarily, a series of articles which suggest a great deal of fiscal homogeneity across the region, and with it practices broadly considered unsustainable but which we should rather say are fiscally "cyclical", i.e., boom-and-bust cycles.

and this power-point provides a basic summary of the comparisons. It's interesting to note that in the LMU Greece was in the exact same position it is now, just with France playing Germany.

And here is a long analysis of gold standard adherence in the 19th century, contrasting Scandinavia and a collection of the Latin countries:

Which essentially comes down to this salient part of the conclusion:

Therefore, the Scandinavian countries by joining the Scandinavian Currency Union
and the classical gold standard enjoyed the benefits of a predetermined monetary regime.
On the other hand, the Southern European countries, even though they shadowed the gold
standard, followed an independent monetary policy that did not allow them to accrue
similar benefits. These results can contribute to the development of the Europe of
tomorrow. Monetary authorities can learn from history by anticipating the venues of the
changing face of Europe.

The article does not argue the gold standard was a great thing we should have back; it just analyzes it as a symbol of fiscal responsibility, i.e. that a nation that is fiscally responsible can safely adopt the gold standard and the gold standard thus served in the 19th century as a market seal of approval for good fiscal policies, a signalling device that a nation was a safe investment. The South European countries systematically did not follow these principles and fluctuated wildly in policies and debt load whereas northern Europe already had an established culture of fiscal restraint adherence.

[K. A. Pital]

DZ, thanks for your post. That was rather illuminating. The more I know.

Oh, and a note - stupid one-liners and off-topic veering in this thread won't be tolerated, since it has seen good contributions and I'd rather have it stay on topic and have people bring forth data and sensible arguments than discuss "milton friedman" or add worthless one-liners (or two-liners - anyway). I'll annhilate such future posts without warning, since one was given right here.

[Thanas]

What? So they did not falsify data to get into the EMU?

Are you referring to the deal with Goldman Sachs (German founded, US company)?
Link

Goldman Sachs is not a German company. BTW, I posted the very link on this board myself. This does nothing to back up your claim of this being some kind of conspiracy. So thanks to indeed conceding that Greece lied, with the help of a US company.

And you still have to post proof for the Germans and the British being murderers. Do so now.

Which begs the question. Why did Germany allow Greece to enter the EMU in the first place?

Because Greece falsified its economic growth data to get in, not its debt. And because Greece asked for it and Germany was too idealistic at the time to deny them entry.

p.s
What do you think of Milton Friedman, and his theory of free (unregulated) market capitalism?

I hate it with passion.


***********************

That said, Duchess, I still am not convinced that such a union would be beneficial, especially considering the importance of imports to each of the countries. A highly devalued currency there would be rather bad, nor is such a union practical especially as none of the countries show any interest leaving the Euro.

Even more, as debts are handled in Euro, the devaluating currency trick will not work at all. Instead it will just create more crushing debt for the nations. (BTW, this is also why Greece cannot just up and reintroduce the Drachme, as it will not fix their debt to foreign creditors).

[Big Orange]

Here's an update on the Greek crisis:

Lenders press Greece to shrink state and avoid default


(Reuters) - International lenders told Greece on Monday it must shrink its public sector to avoid running out of money within weeks, as investors spooked by political setbacks in Europe dumped risky euro zone assets. Adding to concerns, Standard & Poor's cut its ratings on Italy in a major surprise that threatens to stoke fears of contagion in the debt-stressed euro zone. Greece is near a deal to continue receiving bailout funds, a Greek finance ministry official said after a conference call with lenders, though "some work still needs to be done." U.S. stocks recovered some of their losses on the news.

Greek Finance Minister Evangelos Venizelos held what Greece termed "productive and substantive" talks by telephone with senior officials of the European Union and International Monetary Fund after promising as much austerity as necessary to win a vital next installment of aid. The talks will resume on Tuesday evening after experts meet through the day. Earlier, the IMF's representative in Greece spelled out steps Athens must take to secure the 8 billion-euro loan it needs to pay salaries and pensions next month. "The ball is in the Greek court. Implementation is of the essence," Bob Traa told an economic conference.

Additional savings measures were required to cut the public deficit to a sustainable level and reduce the public sector's claim on resources -- code for axing jobs and cutting pay and pensions -- while improving tax collection rather than adding further taxes, Traa said.

Venizelos said Greece would do what was needed to get more funds but would not be made a scapegoat by euro zone policymakers who had failed to tackle the region's debt woes. European stocks and the euro fell sharply on fears of a Greek default, compounded by the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks, and another regional election defeat for German Chancellor Angela Merkel.

The euro fell about 0.5 percent in early Asian trade on Tuesday after S&P cut its rating on Italy, citing weakening economic growth prospects and a fragile ruling coalition. In a sign of mounting stress, yields on Italian and Spanish bonds rose further above 5 percent despite six weeks of European Central Bank buying to stabilise them. The cost of insuring peripheral debt against default also rose. "There will be additional volatility in the global financial markets heading into the end of the month as the pressure to get Greece and others to enact their reforms will be white-hot intense," said Andrew Busch, global currency strategist at BMO Capital Markets in Chicago. The euro zone debt crisis is now dominating the thoughts of policymakers worldwide with the United States, in particular, pushing for more dramatic action from Europe's leaders.

U.S. President Barack Obama and Germany's Merkel spoke by telephone on Monday -- the latest of several calls between the two leaders -- and agreed that "concerted action" would be needed in the coming months to address it. Emerging economies are also worried about being hurt by a deepening of the crisis in Europe. A Brazilian official said Brazil will propose this week that it and other large emerging economies make new funds available to the IMF to help ease the crisis in the euro zone.

"A new and larger risk looms. The drop in markets and confidence could prompt slippage in developing countries' investment and a pull back by their consumers too," World Bank chief Robert Zoellick said ahead of Group of 20 talks and an IMF/World Bank meeting in Washington later in the week. Without its next loan tranche, Athens says it will run out of cash in mid-October. A default would threaten contagion to larger euro zone economies such as Italy and hammer European banks with heavy exposure to Greece.

Prime Minister George Papandreou cancelled a planned trip to Washington and the United Nations at the last minute and returned home in response to the crisis. A senior Greek government official told Reuters the EU/IMF inspectors expect a new property tax unveiled last week to yield just half the two billion euros targeted this year. Greek media published a list of 15 austerity measures it said the troika was demanding the Socialist government implement to receive the next tranche of aid.

They included firing another 20,000 state workers, cutting or freezing state salaries and pensions, increasing heating oil tax, shutting down loss-making state organizations, cutting health spending and speeding up privatizations. The European Commission said it was not asking Athens to adopt any additional austerity steps on top of what had already been agreed in the Greek reform program.

PUBLIC SUPPORT LACKING

The IMF's Traa acknowledged that the IMF/EU bailout plan lacked public support and said there was plenty of goodwill to give Greece more time for its adjustment program in a weaker-than-expected economy. He said the economy was set to contract by 5.5 percent this year and 2.5 percent in 2012. Asked whether Greece would get the next loan tranche, finance minister Venizelos told Reuters: "Yes, of course." Even if it does, many economists and investors believe Athens will default on its debt mountain -- more than 150 percent of gross national product -- perhaps within months. Former IMF chief Dominique Strauss-Kahn joined the chorus on Sunday, saying Greece's debt must be cut and government and private creditors should take losses now. "(EU) governments are not solving things, they are kicking the problem down the road, and the snowball is growing...," he told French television.

Uncertainty over Greece was compounded by another political shock in Germany at the weekend. The sixth regional election defeat this year for Merkel's centre-right coalition on Sunday raised questions about the stability of her government and her ability to push through more euro zone rescue measures. Her Free Democratic (FDR) junior coalition partners crashed out of Berlin's regional assembly with 1.8 percent of the vote, raising pressure from some party activists for a more Eurosceptical line. Leaders of both the Bavarian Christian Social Union (CSU) and the FDR have raised the prospect of Greece defaulting and possibly having to leave the 17-nation single currency area, ignoring rebukes from the chancellor for alarming markets. Merkel said on Monday it would send a disastrous political message if euro zone members could be thrown out of the bloc because they faced difficulties. Instead, she advocated tougher rules to force euro states to obey budget discipline.

German lawmakers are due to vote on September 29 on reforms agreed by euro zone leaders in July to allow the European Financial Stability Facility to buy government bonds in the secondary market, give states precautionary loans and lend to recapitalize banks. Merkel insisted she would win the vote. In another illustration of the pressures on her, German central bank chief Jens Weidmann told parliament that planned measures to beef up the euro zone's rescue fund would not encourage countries to put their budgets in order. Last week U.S. Treasury Secretary Timothy Geithner pressed euro zone finance ministers apparently in vain to take stronger action to stop the sovereign debt crisis spreading. One of his predecessors, Lawrence Summers, said in a Reuters column that all nations should pressure Europe to go beyond "grudging incrementalism" to recapitalize banks, and revive economic growth.

Reuters

Meanwhile ten major German banks demand 127 billion Euros ($175 billion).

[K. A. Pital]

That looks pretty crappy. The gift that keeps on giving, what can I say.