Just a matter of time now (Greece)

[Tribun]

That brings me to the third point: it's not so clear (to me, at least) that Keynesian deficit spending would jump-start their economies. It would boost demand, but I have the impression that their economies are so sclerotic that boost would just turn into a burst of inflation.

There was a chart I saw at work within the last week or so comparing government spending for various nations with GDP and unemployment from 2007 to the first quarter of this year. The only nation where increased spending improved GDP and employment is Germany which leads me to believe it's a structural issue; whatever Germany is doing the other nations will need to do as well for increased government (deficit) spending to improve their economies.

The interesting thing is, that the increased spending actually doesn't have much to do with the sinking unemployment. At the end of the 90s, Germany was suffering from some serious structural deficites, which casued high unemployment and slower economic growth (you can unload quite a bit of blame at re-unification). Reforms to raise competitiveness caused the responsible politicians to lose their jobs, but the results are by now pretty obvious.

So Germany's good position now has little to do with spending and lots with changing laws and structures, something that other contries have difficulties with.

[HMS Conqueror]

So basically the smaller Eurozone nations are unable to apply Keynsian style stimulus. They cannot deficit spend because they cannot 'print money' without consensus. Northern Euro nations see inflation as a greater threat to themselves so they say nien. There can't be any more austerity measures without people fucking starving to death, but there has to be because there is no money and they can't devalue their currency... So they starve to death? What the fuck i don't know anymore. Germany needs to man up and deal with the inflation i suppose?

Let's not get carried away; if anyone starves to death it could only be because the money is going to the wrong people, not because there isn't enough. Reducing Greek GDP (de-facto) by 15% still leaves it a first world country. It'd take something like 10x reduction to produce unavoidable starvation.

The other problem than the deficit/stimulus issue is that Greece has very high unemployment. This is responsible for a lot of the hardship and also for a lot of the loss in GDP and tax revenue. Economic theory suggests that inflation will drive down wages and get people back to work. But Greece can't do this because the inflation rate in the EUrozone is set by Germany, which has low unemployment. Spain is in the same situation as Greece.

The obvious economic response is to leave the EUro. The political response is to try to hold the EUrozone together regardless of the economic or human cost.

[UnderAGreySky]

That brings me to the third point: it's not so clear (to me, at least) that Keynesian deficit spending would jump-start their economies. It would boost demand, but I have the impression that their economies are so sclerotic that boost would just turn into a burst of inflation.

There was a chart I saw at work within the last week or so comparing government spending for various nations with GDP and unemployment from 2007 to the first quarter of this year. The only nation where increased spending improved GDP and employment is Germany which leads me to believe it's a structural issue; whatever Germany is doing the other nations will need to do as well for increased government (deficit) spending to improve their economies.

Yeah, I think a lot of the hard-hit countries (Spain, Portugal, Ireland) relied on the construction industry which was badly hurt by the housing bubble bursting; Germany seems to run on - correct me if I'm wrong - machinery, goods and services. Even with the falling Euro, if you want goods made you're going to go to Germany and not Greece or Spain, Germany has the infrastructure to support you already.

[K. A. Pital]

Germany runs with exporting stuff to other nations, but if a large enough swath of Europeriphery goes bankrupt and cuts down on German imports... the image of "Germany being cool amidst apocalypse" will shatter in an instant.

[Col. Crackpot]

Yeah, I think a lot of the hard-hit countries (Spain, Portugal, Ireland) relied on the construction industry which was badly hurt by the housing bubble bursting; Germany seems to run on - correct me if I'm wrong - machinery, goods and services. Even with the falling Euro, if you want goods made you're going to go to Germany and not Greece or Spain, Germany has the infrastructure to support you already.

Which wouldn't have hurt nearly as much if the tax structure of the EU was more like that of the US in so much as the bulk of the taxes are collected by a central authority with uniform tax code and distributed back to the states. But the EU doesn't do it that way for obvious political reasons.

[HMS Conqueror]

Why would that have helped?

[Simon_Jester]

Because then it would be relatively easy to pump emergency money into Greece without having to do it on the Greek government's terms. Brussels could effectively bypass or redesign the inherently flawed parts of the Greek system (like the corrupt bureaucracy), provide enough euros for the immediate problem of keeping the local economy of Greece from blowing up, then back off after the crisis without setting a precedent likely to cripple Germany, France, or other economic powerhouses.

The US already does this to a large degree: there are a lot of states which pay significantly more taxes than they get back in federal funds, and a lot that pay significantly less than they get back. This is how states that are overwhelmingly rural and poor are able to afford highway networks about as good as the more urbanized, wealtthy states... without which those rural states would be even poorer.

Ironically, there's a strong correlation between being a low-payer and being a "red state" which stands foursquare behind the party of lower taxes and more state independence from federal programs...

[Surlethe]

You still have a problem of money being cycled into Greece and then right back out. You're not going to fix its bureaucracy, corruption, and low productivity by building highways and seaports.

[cosmicalstorm]

Cover of the Economist...

[HMS Conqueror]

Because then it would be relatively easy to pump emergency money into Greece without having to do it on the Greek government's terms. Brussels could effectively bypass or redesign the inherently flawed parts of the Greek system (like the corrupt bureaucracy), provide enough euros for the immediate problem of keeping the local economy of Greece from blowing up, then back off after the crisis without setting a precedent likely to cripple Germany, France, or other economic powerhouses.

A few posts ago you were objecting to Greek governments dancing to the EU's tune, now you're advocating that the EU should be able to directly control Greece's budget, re-shape its institutions, and change its laws?

Are you just in favour of whatever sounds most socialist-y, regardless of any underlying principle? I don't quite understand how else to square the circle.

[Simon_Jester]

I don't think a federal Europe would be more socialisty than a confederate Europe. But it would make it easier to "fix" Greece from an economic point of view.

See, I can think that the Greek people want something, without thinking that what they want is the only way their troubles could end. Under the status quo, the only ways out for Greece are:

1) Divorce their economy from the overall European 'confederacy' and break their depression using financial instruments now forbidden to them by treaty. This will cause pain for Greece, and may undermine their hopes for a long-term economic recovery. Because it would gut their foreign trade economy.

2) Obey Brussels and enact austerity cuts in exchange for bailouts. This will also cause pain for Greece, and also may undermine their hopes for a long-term economic recovery. Because it's gutting their domestic trade economy.

Both (1) and (2) are bad. Under the status quo there seems to be very little advantage for Greece following (2) instead of (1). And most of that advantage is measured in macroeconomic terms. For the average man on the streets of Athens, being connected to "Europe" in this way, following (2), may be worse than having more independence and flexibility would if it let them follow (1).

I don't know. I can certainly see why they feel that way, though, because if I lived in Greece right now, I'd be thinking "anything's got to be better than this!"

Is that objectively true? Maybe not. How should I know? But it's a very human thing and I don't condemn the Greeks for thinking that way.


Now, if the EU were a federal system there would also be option (3): EU direct funding of initiatives to build infrastructure, support businesses, and otherwise provide economic relief to Greece to restart the local economy, while bypassing or fixing the Greek government. Greek representatives in the EU would no doubt be pushing for this, and if the EU were a federal system like the US, Greece would have elected representatives in more helpful positions of responsibility in the EU system. As it is, the only commissioner they've got is the one responsible for fisheries, and fat lot of good that does them.

In short, the EU would be able to deal with

Instead, the EU has a very limited range of instruments to handle the crisis- which, from the point of view of ordinary Greeks, are all sticks and no carrots. With more EU power and a genuine elected representation of Greece at the top level of the EU, Europe might be able to help Greece the same way the US has often jump-started the faltering local economies of individual states. With less EU power the Greeks could fend for themselves, in ways that would probably hurt more, but would at least be the results of independent self-determination of their national interests.


Shorter form: bigger government would mean more security, but less independence. Smaller government would mean less security, but more independence. Security is good, independence is good, and you want to find a way to combine the best mix of security and freedom you can get.

For the Greeks, I get the feeling that the balance they have right now is about as bad as they could get- they have just enough freedom to keep the EU from helping them in secure ways, but not enough freedom to make the pain stop by their own methods.

[HMS Conqueror]

Well, there maybe is a misunderstanding. Greece's problem isn't that the EU isn't giving it lots of money to keep the good times rolling a little longer. Nor is the EU proposing to do that. The only people being bailed out here are shareholders in French and German banks that own the Greek debt that will never be paid if Greece defaults.

EU control would allow them to directly impose the austerity measures without having to deal with Greek electorate or the governments they produce. I largely agree that this would be beneficial to Greece. However it does not set a good precedent, and would not be popular. In practice the EU probably doesn't want that either, because then they directly get the bad PR, rather than whatever government (doesnt really matter who) which will eventually realise the EU deal is the best they can do, or else they have to leave entirely.

[Simon_Jester]

Well, there maybe is a misunderstanding. Greece's problem isn't that the EU isn't giving it lots of money to keep the good times rolling a little longer. Nor is the EU proposing to do that. The only people being bailed out here are shareholders in French and German banks that own the Greek debt that will never be paid if Greece defaults.

EU control would allow them to directly impose the austerity measures without having to deal with Greek electorate or the governments they produce. I largely agree that this would be beneficial to Greece. However it does not set a good precedent, and would not be popular. In practice the EU probably doesn't want that either, because then they directly get the bad PR, rather than whatever government (doesnt really matter who) which will eventually realise the EU deal is the best they can do, or else they have to leave entirely.

If the EU were a federal system, austerity would not be necessary. Because a large fraction of all the public welfare* costs of ruling Greece would be paid by Brussels, which was collecting a large share of all Europeans' tax burdens. Just as in the US, a lot of the money spent on public welfare* in California or Wisconsin or Alabama comes from the federal treasury, which is collecting a large share of total US tax revenues.

If the EU were a federal system, Brussels would go "Oh my, tax receipts from Greece have gone down," but this would not be unsustainable. The Greek government itself would be in dire straits, but this would have less direct impact on whether there's money available to run hospitals and libraries and public schools in Greece. Because the collapse of tax receipts from Greece would only be a few percent of the budget, and EU spending in Greece would only be a few percent of the EU budget, instead of being 100% of the Greek budget.*

So the balance sheet of "all taxes paid in Greece" and "all government spending in Greece" could be allowed to run at an imbalance for several years without serious consequences, except for whatever consequences might apply to the whole EU because of their overall debt level running too high across the entire system. Greece's direct impact on that problem would be tiny, just as the economic woes of Alabama are a tiny share of the economic woes of the United States as a whole.

Now, the price of this is that the Greek government would have less say in how much taxes their citizens pay, and what kind of benefits they receive. But those decisions would be instead made by a relatively accountable, democratic EU-level body. Would that be better for Greece than the current system? Possibly.

To paraphrase Lloyd George: "It is not a question of one government being better than another, but of one government being better than two." Right now, the Greek people are caught in a crossfire between the limits of their two governments. The EU has power over some spheres, the Greek parliament has power over other spheres. And neither has enough power to solve the crisis except in a way that is humiliating and painful to the Greek people.

If one government had all the power, perhaps they could at least spare themselves humiliation or pain, if not both.

*Incidentally, if the EU were a federal US-style system and Greece were like one the American states... Greece would be unable to run up debt- that's actually illegal for most American states.


*By this I mean things like roads and student loans, not just monetary handouts to poor people.

[HMS Conqueror]

There are two problems here:

First, Greece as a [US-style] state would still have a huge deficit it cannot sustain. It would still be unable to pay its old debts. Unless you mean Greece should be folded into a unitary European nationstate, the basic problem remains. In fact it's worse because the US doesn't allow states to secede, so that option is closed.

Second, Greece would still have dramatically higher unemployment due to having bad [for Greece] monetary policy forced on it by the Euro. In the US, people might just emigrate from Greece to Germany. In the EU this is perfectly legal but there are practical issues caused by totally different languages and cultures.

[Col. Crackpot]

There are two problems here:

First, Greece as a [US-style] state would still have a huge deficit it cannot sustain. It would still be unable to pay its old debts. Unless you mean Greece should be folded into a unitary European nationstate, the basic problem remains. In fact it's worse because the US doesn't allow states to secede, so that option is closed.

Second, Greece would still have dramatically higher unemployment due to having bad [for Greece] monetary policy forced on it by the Euro. In the US, people might just emigrate from Greece to Germany. In the EU this is perfectly legal but there are practical issues caused by totally different languages and cultures.

you are not getting it. Had the EU had a Federal style tax system, Greece would never have gotten to where it is in the first place because is would have been subsidized by federal tax revenue, and had uniform collection. True there are US states with budget issues, (California comes to mind) but they would never be faced with the level of shit Greece is facing because A- Texas, New York, Illinois etc keep the tax receipts flowing and B-There is a non less corrupt system ensuring tax collection.

So federalization would be logical to ensure this doesn't happen again... but it will never happen.

[HMS Conqueror]

US states don't have Greece-style problems because they're not corrupt quasi-first world kleptocracies. Most EU states don't have these problems either for the same reason. The Federal Government in the US does not even seem to have the power to stop a state acting like Greece, US states just have better cultural and institutional norms than Greece.

What would be needed to stop this is more like the total elimination of the Greek state and its replacement by a local EU bureaucracy.

[Col. Crackpot]

US states don't have Greece-style problems because they're not corrupt quasi-first world kleptocracies. Most EU states don't have these problems either for the same reason. The Federal Government in the US does not even seem to have the power to stop a state acting like Greece, US states just have better cultural and institutional norms than Greece.

Those cultural and institutional norms come from a shared identity. Texas aside, people in the states are more apt to consider themselves American than say Californian or Oklahoman.

What would be needed to stop this is more like the total elimination of the Greek state and its replacement by a local EU bureaucracy.

No, the total elimination of EVERY European state and it's replacement with a local EU bureaucracy. If you are going to have a single currency it's the only way to prevent the less affluent 'countries' in the union from being fucked over or fucking themselves over again.

[HMS Conqueror]

For a particular type of culture, not just any that happens to be shared. There are large countries that are run like Greece.

Elimination of all the states and replacement by a central bureaucracy isn't federalism. Weak federalism is what we have now. And largely I agree, the logic implies going all the way or not doing it at all. But put like that, not doing it at all looks much more attractive.

[Simon_Jester]

There are two problems here:

First, Greece as a [US-style] state would still have a huge deficit it cannot sustain. It would still be unable to pay its old debts. Unless you mean Greece should be folded into a unitary European nationstate, the basic problem remains. In fact it's worse because the US doesn't allow states to secede, so that option is closed.

If Greece were folded into such a system now it would be a problem.

I was thinking in terms of how this would work out if Greece had been part of an existing federal EU, say, one that had existed for 10 or 15 years since around 2000. In that case, Greek government would probably already have been to a large extent reformed and their internal economy and deficits 'normalized' to some extent, before the recession hit and screwed over their income stream.

Greece would still be in bad shape, but it would arguably be less bad and there would be more tools for dealing with it.

Which is the same thing you could say about a truly independent Greece that could set its own fiscal policies without being bound by European policy.

you are not getting it. Had the EU had a Federal style tax system, Greece would never have gotten to where it is in the first place because is would have been subsidized by federal tax revenue, and had uniform collection. True there are US states with budget issues, (California comes to mind) but they would never be faced with the level of shit Greece is facing because A- Texas, New York, Illinois etc keep the tax receipts flowing and B-There is a non less corrupt system ensuring tax collection.

So federalization would be logical to ensure this doesn't happen again... but it will never happen.

Interestingly, California and Texas both pay more in taxes than they get in funding from the federal government, although relative to its size California is closer to the breakeven point than Texas.

The states at the bottom of the heap are mostly the big, ruralized ones that don't have a lot of major centers of economic productivity.

US states don't have Greece-style problems because they're not corrupt quasi-first world kleptocracies. Most EU states don't have these problems either for the same reason. The Federal Government in the US does not even seem to have the power to stop a state acting like Greece, US states just have better cultural and institutional norms than Greece.

What would be needed to stop this is more like the total elimination of the Greek state and its replacement by a local EU bureaucracy.

Not-kleptocracy is not a magical state. Many countries have gone from having one to not having one, or vice versa. The secret is to punish thieves for fraud; it's really simple* and many countries clean themselves up given the opportunity to do so.

One way the US does this is because much of the state budget comes from federal funds. Federal education money, federal highway money, federal Medicare money, money spent running army bases, laboratories, national parks, and so on. In a state where corruption is rampant, if this federal money is being misspent the Federal Bureau of Investigation can get involved- as they can also do if any of the corruption crosses state lines. In fact, just a few months ago, the FBI threw a former governor of Illinois in jail for corruption.

A federal EU would have enforcement mechanisms like this, which would at least limit opportunities for fraud and corruption. Internal Greek 'provincial' deals might still be corrupt, but a lot of the tax receipts would go directly to Europe via European bureaucracy, and would come back to Greece by the same bureaucracy.

*Think Clausewitz. "In war, everything is very simple, but the simplest thing is very difficult." "War is a continuation of politics by other means." Now put the two together.

For a particular type of culture, not just any that happens to be shared. There are large countries that are run like Greece.

Elimination of all the states and replacement by a central bureaucracy isn't federalism. Weak federalism is what we have now. And largely I agree, the logic implies going all the way or not doing it at all. But put like that, not doing it at all looks much more attractive.

Fine by me. That's a perfectly logical conclusion.

For the US, unity was so much better and cheaper and more cost-effective than division that it's amazing. For Europe, the reverse might be true- looking at the wildly different legal standards, political cultures, economic levels, and national responses to the world depression, I think that's very possible.

[D.Turtle]

The interesting thing is, that the increased spending actually doesn't have much to do with the sinking unemployment. At the end of the 90s, Germany was suffering from some serious structural deficites, which casued high unemployment and slower economic growth (you can unload quite a bit of blame at re-unification). Reforms to raise competitiveness caused the responsible politicians to lose their jobs, but the results are by now pretty obvious.

So Germany's good position now has little to do with spending and lots with changing laws and structures, something that other contries have difficulties with.

While that was a factor, it is largely a myth. The German recovery has to do with the Euro, cheap loans for the private industry in the "periphery", and the resulting trade surplus of Germany exporting lots of stuff to those countries:

[Tribun]

The interesting thing is, that the increased spending actually doesn't have much to do with the sinking unemployment. At the end of the 90s, Germany was suffering from some serious structural deficites, which casued high unemployment and slower economic growth (you can unload quite a bit of blame at re-unification). Reforms to raise competitiveness caused the responsible politicians to lose their jobs, but the results are by now pretty obvious.

So Germany's good position now has little to do with spending and lots with changing laws and structures, something that other contries have difficulties with.

While that was a factor, it is largely a myth. The German recovery has to do with the Euro, cheap loans for the private industry in the "periphery", and the resulting trade surplus of Germany exporting lots of stuff to those countries:

So if your simple explanation is "German growth comes from South European Countries throwing cheap money into imports" then I wonder why the German economy quickly recovered even with that factor gone due to these countries being broke? Also, the amount that's exported into the EU is shrinking for years now. Apart from Italy (which is still the top dog in the south) the mediterranian countries also weren't really important as export markets, even Poland is ahead of them.

Better tell me on what you base your claims.

[Akhlut]

Jesus fucking Christ on a cracker, will those "clever" fuckfaces who insist on making "funny" acronyms with the names of nations that are in serious trouble just fucking stop? Why not just "indebted nations of Europe"? I'm pretty sure these assholes are using word processors to type this shit up, so just use "find-replace" on this shit.

Aside from that supreme annoyance, this shit just goes to show that the EU half-assed their monetary union and either should have gone for full fiscal union or just stopped with the open borders; not give everyone the same money and act surprised when the poorer/more-indebted nations are suddenly up shit creek and can't use the regular tools nations use when they start going bankrupt.

[D.Turtle]

So if your simple explanation is "German growth comes from South European Countries throwing cheap money into imports" then I wonder why the German economy quickly recovered even with that factor gone due to these countries being broke? Also, the amount that's exported into the EU is shrinking for years now. Apart from Italy (which is still the top dog in the south) the mediterranian countries also weren't really important as export markets, even Poland is ahead of them.

Better tell me on what you base your claims.

Yes the story is a bit more complicated than that. Another large part is that the Eurozone and the resulting cheap money led to massive wage inflation in the periphery leaving them at a disadvantage in comparison to Germany, with few ways to quickly change that (as they have the same currency).

Yes, Germany lowered its wage costs, etc. However the effect of that increase in competitiveness was overshadowed by the huge increases in wages in other Euro countries and the resulting loss in competitiveness in comparison to Germany (among others).

Interest rates in the various Euro countries:

Debt owed to German banks:

Private sector debt vs government debt from 1998 to 2007:

Labor costs:

German trade surplus (EA=Eurozone):

[Surlethe]

The interesting thing is, that the increased spending actually doesn't have much to do with the sinking unemployment. At the end of the 90s, Germany was suffering from some serious structural deficites, which casued high unemployment and slower economic growth (you can unload quite a bit of blame at re-unification). Reforms to raise competitiveness caused the responsible politicians to lose their jobs, but the results are by now pretty obvious.

So Germany's good position now has little to do with spending and lots with changing laws and structures, something that other contries have difficulties with.

While that was a factor, it is largely a myth. The German recovery has to do with the Euro, cheap loans for the private industry in the "periphery", and the resulting trade surplus of Germany exporting lots of stuff to those countries:

[img]<snip>[/img]

So you're saying that structural reforms haven't caused the natural rate of unemployment to decline? Or that a declining natural rate of unemployment doesn't show up as lower unemployment after a recession? I'm a little confused.

[Surlethe]

I saw this point recently: Greece is not a real problem. Greece is too small for its collapse to do more than dint the eurozone's growth, in real terms. Greece is a problem because everybody is afraid that a Greek collapse will trigger a financial collapse, which will trigger a sharp nominal recession. And just like in 2008, because the world's central banks are more concerned about inflation than about the jobs and livelihoods of millions of people, they won't do enough to prop up income and so the'll watch the world burn.*

*Okay, I'm being melodramatic. They'll just watch a deep recession and anemic recovery.