Slashdot Mirror
European Agreement Sets Up Third Greek Bailout
An anonymous reader writes: Euro zone leaders have reached a deal that will attempt to resolve Greece's financial crisis. The deal sets up negotiations for the country's third bailout, and will require the Greek government to give up significant autonomy in financial matters. Experts have estimated that Greece could require almost $100 billion to stabilize once again. While this will be a significant cost to taxpayers in other European countries, the economic repercussions of letting Greece default on its debts would be much greater. "The agreement will call for Greece to raise taxes in some cases, parepension benefits and take various other measures meant to reduce what critics see as too much bureaucracy and too many market protections that keep the Greek economy from operating efficiently. ... Despite the agreement, Greek banks are expected to remain closed this week. The banks are acutely short of cash and Greek depositors may soon find it difficult to withdraw even small sums from ATMs."
European leaders keep pretending that they are giving Greece new money, when they are merely shuffling old debts around.
The money that was loaned to Greece has been lost. The whole crisis is about everyone involved being unwilling to accept this reality and thinking that the money will somehow magically come back once the Greeks have been punished sufficiently.
It is the same theory behind debtor's prison. It should be abolished for the same reasons.
Finally! A year of moderation! Ready for 2019?
I think the point is that they couldn't vote to have other countries give them money.
banks were mostly saved in 2010 already. the debt is since then public and will be repayed with european tax money, one way or the other.
plus a bit of greek blood, i guess, since they have no money left. this show right now isn't about banks anymore, it's just political. it's about destroying syriza, sending a strong message throughout europe and, well, try to make this failed system last a little longer. doesn't look good.
>> I wonder how Tsirpas will sell this to his constituents who just voted a firm "NO" to a deal without restructuring.
Same way Bush (W) sold a tax increase to those he told "no new taxes"
Same way Clinton sold the Defense of Marriage act to those who voted for him to continue the progress of civil rights.
Same way Bush (GW) sold illegal immigrant-friendly policies to those who voted for him to close the border.
Same way Obama sold the renewal of the Patriot Act to those who voted for him to kill the program.
In short, he's a politician. I'm sure he'll manage.
Silly Greeks you thought your vote mattered.
What? They got exactly what they voted for. The EU offered them a deal, and said that if they didn't take it, the eventual deal they would have to take would be a worse one. And they voted not to take the deal. They got exactly what they voted for, as promised: they still had to take a deal of some sort, and now they've got a worse one, just like they asked for.
And as if that weren't enough evidence that Democracy works in Greece, keep in mind that they are in the position they're in because the position they're in is exactly the one they've been voting for all these years to obtain: they wanted more stuff than they could be bothered to pay for, and wanted to continue to elect socialist politicians who would promise them it would all be OK, and they'd always be able to get other Europeans to go to work each day in order to buy them the lifestyle they wanted. Democracy in Greece has worked perfectly. The problem is that the voters in Greece are fools.
Don't disappoint your bird dog. Go to the range.
"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
-- Charles Dickens, David Copperfield
Seriously, people, don't borrow money from scary international lenders who are just waiting for you to default so they can take control of your country. Don't borrow money from them! And if you do: pay it back! I can't stress that last point enough. It's really the key to the whole Greece problem.
Shutting down free speech with violence isn't fighting fascism. It IS fascism!
No -- the Greek government was thinking that they (Greece) needed to implement serious reforms, and that they have already achieved primary surplus. However, given the state of their economy the would never be able to pay back most of the debt. So what they needed was (1) forgiveness ("restructuring") for a big chunk of the debt (2) a bridge loan until the reforms kick in and the economy recovers enough. Some of the loans would be eventually paid, but much shouldn't be (and the lenders should have known better).
What the EU wants instead is (1) the pipe dream of Greece paying back everything and (2) higher taxes and lower pensions now to help this repayment. In other words, for the EU the goal of any reforms is not to get Greece back on its feet but to extract money from it to pay back the loans.
So, the question was not on whether reforms were needed before any further loans (which was universally agreed upon), but rather on the goals. What Greece capitulated was not on agreeing to the reforms, but on accepting that notion that they will try to pay back loans despite knowing full well that they will never be able to afford to.
First things first: We have to make sure that no banker ever loses so much as a Euro, no matter how bad the investment. That's primary in this deal.
You are welcome on my lawn.
The EU is out of touch if they think Greece can pay it back and that more austerity measures will grow Greece's economy. Notice how there's no claw-back from Goldman Sachs which helped hide Greece's debt and helped double it.
You're joking, but the Greeks have to give away a ton of assets for this deal. It's hard to see where they're going to get the sums necessary without looking at the antiquities.
This is clearly a bad deal and frankly it seems like most of the people at the table know it is a joke. Did you see the deadlines in the article? They're giving themselves basically until the end of the week to completely turn their economy around, for the mere promise that the rest of the EU will consider extending the repayment period of the debts. They aren't even considering debt forgiveness.
IMHO, the correct solution for Greece, painful as it would definitely be, is an exit from the Eurozone and a return to a national currency. The Eurozone has fundamental structural problems that are going to put Greece back in the hotseat in a few years even with this deal. Combined monetary policy with independent fiscal policy is not a sustainable model. It's like giving your irresponsible uncle your credit card on his promise that he will pay you back for everything he charges, even though he has defaulted on every loan he has ever had and is currently tens of thousands of euros in the hole and doesn't have a job.
It also doesn't allow your currency to fluctuate with your economy, which puts a stranglehold on your economy when you have a recession.
Sadly, a unified fiscal policy is politically impossible in the current EU. It would give up way too much sovereignty and be political suicide in most countries. You're talking about the EU itself collecting taxes and spending them on infrastructure. Foreign governments gaining oversight over national governments, an especially worrisome situation when the national government is breathtakingly corrupt. There is no chance you would get even a simple majority of countries to agree, much less the supermajority that would no doubt be required.
I read the internet for the articles.
True, Greece borrowed irresponsibly and spent it in wasteful ways. But the banks can not shirk their responsibility.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
The most notable point is the European countries would not face such horrific economic crisis without a unified currency. Greece would be in crisis; the Kronor and Franc and DM and dollar and Pound and Piece would be strong; tourists would show up with pocket change, scraps to throw the Greeks, staying in lavish hotels and buying expensive trinkets and high-dollar food for cheap; the influx of money toward Greek tourism and Greek exports would help support and rebuild the Greek economy; the sudden access to cheap Greek imports would improve the wealth of neighbors (instead of weakening their economy) by the principle of comparative advantage (and its genesis principle, the unifying economic theory which I developed to explain how wealth works); and everyone--Greece and the other Euro neighbors--would experience much less pain (Greece by more rapid recovery thanks to the more dramatic shift in trade advantage; everyone else by sudden access to more import goods for the same outlay of money--a local increase in wealth).
Instead, Greece falters; its currency (Euro) becomes no weaker than any other currency (Euro); exports don't increase because the neighboring countries's currencies (Euro) don't have a higher value than the Greek currency (Euro); the Greek currency (Euro) becomes weaker; neighboring currencies (Euro) also become weaker, thanks to Greece's shitty economy; neighboring countries must raise taxes and outlay expenses to bail out Greece, with associated strain on their economy and no return on their investment (wealth destruction); and everyone's economy stumbles and struggles to get back up.
Support my political activism on Patreon.
What this all demonstrates is that the Eurozone needs to become a full fiscal union. What is happening in Greece, with the effective seizure, or at least oversight, of the Greek government's fiscal powers, is what needs to happen.
Currencies like the US dollar work because, while there may be fifty states that use the USD, there is a single issuing central bank and a federal government that holds core constitutional fiscal powers. That's why you can have economies as diverse, small and large, as Rhode Island, Tennessee, California and New York in one federal state, because there is no "sharing" of fiscal sovereignty. The states are free to borrow money, but they have no control over central fiscal policy.
In other words, as so many have been saying since Maastricht was signed, for the Euro to actually work, the Eurozone needs to effectively become a single state, and EZ members need to surrender their fiscal powers to a central fiscal authority.
The world's burning. Moped Jesus spotted on I50. Details at 11.
It's Greece - they will get a new government instead and the agreements will be ignored. At worst it will be a hostile takeover. It wasn't long ago that Greece had a non-democratic government.
It's probably easier and cheaper to abandon the Euro for Greece.
If builders built buildings the way programmers wrote programs, then the first woodpecker would destroy civilization.
You're applying reasoning which works for a country with its own currency. If a country has its own floating currency, then raising taxes and lowering pensions is not necessary to reform the economy. You can just leave those as-is and the value of your currency will decline relative to everyone else's, effectively giving all your citizens a pay cut and thus helping to reduce your expenses (measured via other currencies than your own - that's what matters when you owe money to creditors outside your country). That's what happened to Germany in the 1930s, Mexico in the 1970s when they lifted price controls on the Peso.
Greece is on the Euro though, so this is not an option. The fundamental problem is that Greek citizens are being paid too many Euros for the productivity they are generating (compared to other citizens in the Eurozone). Any long-term fix for this must involve increasing the Greek productivity-to-wages ratio to match the Eurozone norm. This is a mathematical fact - you cannot avoid it by holding an election or making political promises or complaining about fairness. Failure to correct this ratio means Greek debt will continue to increase regardless of whatever other measures you take. Even if you forgave all of Greece's debt, if you do not address this productivity-to-wages ratio imbalance between Greece and the other EU countries, Greece would just continue to accrue new debt.
That means there are three options:
(A) Boot Greece out of the Euro, forcing it to create and pay wages in its own currency. This currency can then decline in value vs the Euro until the average Greek's productivity-to-wages ratio (in Euros) matches citizens' in the Eurozone. However, neither the Eurozone nor Greece seems to want a Grexit, so you're left with the following two options:
(B) Reduce average Greek wages. That's what higher taxes and lower pensions effectively do.
(C) Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
At least one of those three things needs to happen. If none of them happen, Greece will simply continue amassing more debt no matter what else you do. Any proposal which does not include at least one of these things happening is simply not a solution.
I should also add that it's disingenuous to claim Greece's problems stem from its creditors. When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today. The only thing the creditor gets out of it is some interest payments (which can be small or large depending on the lending terms). So aside from the interest the creditors earned, any suffering the Greeks experience today and until their debt is paid off, is the cost of them living it up during the 2000s. They did this to themselves.
Debt forgiveness means the creditors (some banks and citizens in the other Eurozone countries) suffer for the Greeks having lived it up during the 2000s. Sometimes this is necessary if the interest on the debt is so onerous that the debt is growing faster than the country can pay it off. But it is not an action to be taken lightly, especially with Spain, Portugal, and Italy waiting in the wings hopeful that Greece will set a precedent which allows them to shed their debt without paying it back.
I agree with practically everything you say except the last bit.
First, the Greek wages-to-productivity ratio must fall, by a combination of (1) Government-sector wage cuts (already started); (2) productivity increases in the government sector by (a) insisting that government workers actually do their job (b) firing redundant government workers and (c) privatization and (3) wage reduction and productivity increases in the private sector – made possible by freeing labour laws.
However, raising taxes makes the wages-to-productivity ratio worse, because it increases the cost of hiring the worker without a corresponding cost to productivity, or equivalently increases deadweight losses. Instead, wage cuts in the private sector should be achieved by freeing the labour market (which is currently among the most restricted in Europe). In fact, workers need to be compensated for the wage cuts by tax cuts.
As an aside, tax cuts would also increase compliance, which is the key problem with the Tax system (far more important than the rates).
Regarding the source of problems, clearly they all stem from the behaviour of Greece (both the country and its people) and not of the creditors. Greece cooked its books before joining the Eurozone, and the Greek voters had ample opportunity to vote for free-market, better-government and smaller-government reforms in the years since.
That said, the original creditors (eurozone banks) who lend to Greece until 2010 knew all this full well and decided to extend the credit anyway. The earned the interest rates they demanded, and should now have to eat the losses when, following the crisis and resulting economic contraction, Greece can't pay back. These banks may have had to suffer, but lending to sovereigns carries default risk (just like lending to private entities carries bankruptcy risk).
What you are ignoring, however, is that the people of Europe were not creditors before their governments decided to take on the debt in 2010 (giving the banks a 50% haircut). Since the governments of Europe voluntarily decided to make public what previously was debt to private entities, they shouldn't now be able to turn around and claim that the taxpayers of Europe will suffer unfairly if the debt isn't paid. If the taxpayers were concerned about non-payments and didn't want to go into the debt vulture hedge-fund business they could have left the bad loans with the banks who made them originally.
I personally thing that. beyond being against the EU treaties, the bailouts of Greece, Spain and Italy were also ill-conceived and morally wrong. But having gone into the sovereign loans business the EU can't complain about facing default risk.