Future of Greece's Economy

[Chirios]

From Krugman's blog

Greece After The Crisis
Someday, one way or another, Greece will exit from its current state of indentured servitude. But what will it do for a living? I often hear assertions that the answer is “nothing” — what can the Greeks export? the critics ask.

In general, my response to such assertions is that they suffer from the fallacy of misplaced concreteness: an economy, even that of a small nation, is a very complex thing, with more possibilities than a casual top-down overview can reveal.

Still, it’s nice to see Kemal Dervis — who actually knows something about the Aegean economy — weighing in with some specific ideas:

"As a member of the EU and as a high-income country, despite current difficulties, Greece’s growth cannot be based on being a manufacturing hub for simple products produced with low wages. A high-quality tourism sector will remain central in Greece’s future, strengthened and complemented by more cultural activities, retirement communities from northern Europe and high-quality medical services at advantageous costs. High value- added agriculture will also be important. Greece should work on channelling a greater portion of the revenues generated by shipping to its national economy. It should find niches in the high-technology sector and participate in its worldwide structure. Finally, with considerable potential for wind and solar energy, green technologies can, in the longer run, become a major source of growth."

That sounds plausible. Basically, Dervis is saying location, location, location — and surely that’s right. A spectacular archipelago, in a wonderful climate, that’s part of Europe should offer many opportunities once Greece is no longer being crucified on a cross of euros.

[K. A. Pital]

Krug actually saying something sensible. News at 11. For the most part he's been sensible, though his neokeynesian bias sometimes blinds him to obvious problems with state takeover of private debt.

[Chirios]

Krug actually saying something sensible. News at 11. For the most part he's been sensible, though his neokeynesian bias sometimes blinds him to obvious problems with state takeover of private debt.

Not an economist so what are the problems with state takeover of private debt?

[Starglider]

Not an economist so what are the problems with state takeover of private debt?

Basically, moral hazard. This works both ways; bad debts incurred by reckless lending on the part of Greek (and Irish and Icelandic etc) banks, and also German/French/etc banks lending to Greece and pocketing the high interest rates. The high interest rates were supposed to compensate for higher risk. But guess what, turns out there's very little actual risk when dealing with government debt or too-big-to-fail banks, because since the financial crisis it's become clear that taxpayers and/or central banks will always make good any losses to private lenders.

This will continue until there is a serious dislocation and the current 'everything will turn around if we can just extend and pretend a little longer' position becomes untennable.

[Thanas]

"indentured servitude"? Funny, that is how most Germans feel nowadays when paying for the Greek mess.

[Siege]

It's not just Germans either, it's the same here. In fact I doubt it's much different in any of the other EU member states paying billions to bail out Greece.

[aerius]

"indentured servitude"? Funny, that is how most Germans feel nowadays when paying for the Greek mess.

So why did you guys bail them out in the first place? Why haven't you voted out the politicians and government officials who signed off on the bailouts and loans? Where are the mass protests where Germans tell their government to end this crap now?

[KrauserKrauser]

And yet you must pay or your banks will drop dead like the zombies they are.

If your banks go, you'll have to bail them out as well because...............well, bankers aren't allowed to fail, right.

Kick the can down the road as much as you can and you are just benefiting the banks and they could give half a shit about the people they are continually fleecing to pay for their reckless risk taking.

[Thanas]

"indentured servitude"? Funny, that is how most Germans feel nowadays when paying for the Greek mess.

So why did you guys bail them out in the first place? Why haven't you voted out the politicians and government officials who signed off on the bailouts and loans? Where are the mass protests where Germans tell their government to end this crap now?

Well, because we realize that if we do not bail them out there will be mass suffering in greece. You of course do not care about that, because we all know you are a sociopathic doomgleeer, but other people do.

[Starglider]

Well, because we realize that if we do not bail them out there will be mass suffering in greece.

You can't bail out the entire European periphery indefinitely, and the longer you do the harder the eventual crash will be. This pretense of charity, actually a cover for bank bailouts and the sheer arrogance of EU-glorifying politicians, is frankly insulting.

[Thanas]

You can't bail out the entire European periphery indefinitely, and the longer you do the harder the eventual crash will be. This pretense of charity, actually a cover for bank bailouts and the sheer arrogance of EU-glorifying politicians, is frankly insulting.

You are one to talk, considering it was the very same politics you cheerlead that led us into this mess in the first place.

[aerius]

Well, because we realize that if we do not bail them out there will be mass suffering in greece. You of course do not care about that, because we all know you are a sociopathic doomgleeer, but other people do.

Iceland was never bailed out, was there and is there mass suffering in Iceland?

[Starglider]

You are one to talk, considering it was the very same politics you cheerlead that led us into this mess in the first place.

I don't recall the UK having strong opinions on what Greece should do, nor the Greeks paying any attention to UK politics, not that there is any particular reason why they should.

By contrast they are now required to do what Germany says to get their monthly bailout funds (which the EU and ECB have convinced them they must have); a major source of discontent for the protestors.

Iceland was never bailed out, was there and is there mass suffering in Iceland?

To be fair, Iceland was a private banking default, not a sovereign default. Though I agree with your basic argument, the actual suffering caused by a default is much less than what those with the most to lose (politicians, wealthy investors, big banks) would like you to believe.

[Zaune]

So why did you guys bail them out in the first place? Why haven't you voted out the politicians and government officials who signed off on the bailouts and loans? Where are the mass protests where Germans tell their government to end this crap now?

Because the alternative is a massive humanitarian crisis and the collapse of the Greek government, with consequences that the Germans of all people can vividly imagine?

And from a purely utilitarian perspective, Iceland has no standing army to become thoroughly dissatisfied with its lot when the pay stops turning up, or any near neighbours to invade to take the hoi polloi's minds off the price of bread and the lousy job prospects.

[Thanas]

You are one to talk, considering it was the very same politics you cheerlead that led us into this mess in the first place.

I don't recall the UK having strong opinions on what Greece should do, nor the Greeks paying any attention to UK politics, not that there is any particular reason why they should.

I am talking about your personal views, not that of the UK.

[aerius]

Ah yes, TANKS IN THE STREETS!!

[Starglider]

I am talking about your personal views, not that of the UK.

Oh of course, because I have consistently argued for a massive, all-consuming public sector funded by huge deficits and EU transfer payments.

[J]

A Modest Proposal It's really that simple. But it will never happen since "too important to fail" European banks will be rendered insolvent in the process and require nationalization.

[Starglider]

A Modest Proposal

That's a horrible proposal. It is essentially (a) core nations issue debt guarantees to peripheral nations, (b) peripheral nations regain the low interest rates they used to have so they can continue borrowing to 300% GDP and beyond, (c) both the EU and the ECB are bloated up to even more parasitical sizes with even more license to command and control the economy, (d) no one at all takes haircuts... in the near future. All dressed up with accounting tricks and outright fraud to hide the actual implications (we will solve the 'democracy deficit'... by lying more to calm people down). Essentially it ensures that Greek, Portugal et al get to party like it's 2006 for five years or so before the whole euro zone implodes together. There is some vague talk of 'structural reforms' (won't happen in Greece unless forced) and frankly ludicrous notions of 'global recycling of surplus' (apparently because China has decided to prop up the Euro for now they will continue to do so indefinitely, out of the goodness of their hearts). And of course they blame inflation on 'speculators'; must be trying to get hired by the ECB.

This sort of thing is the logical endpoint of all the EU superstate cheerleading, and to start with such a giant implosion would be fun to watch, but unfortuantely the consequences to the bulk of the population will be far far worse than the consequences to the politicians who caused it.

[aerius]

Well, because we realize that if we do not bail them out there will be mass suffering in greece. You of course do not care about that, because we all know you are a sociopathic doomgleeer, but other people do.

Yeah, because the way to fix a country which is drowning in debt...is to load it up with even more loans and force them to privatize and sell off cash generating assets as a condition for those loans. That'll get them on the road to recovery! I'm sorry, but if you think that'll help Greece in any way you're a retard.

[aerius]

To continue with the above post, if you actually gave a shit about the Greeks as you claim, you would not be sticking them with more debt and making them privatize and sell off all their stuff. If you actually cared about helping them you'd offer them an economics development package (free of charge, not a loan, never to be paid back) to improve their productivity and cashflow along with limited debt forgiveness in exchange for reaching various economic & political goals. In other words, you'd provide the funds & means to actually fix their country and eventually produce a sustainable cashflow which allows them to pay down whatever debt remains without ruining their country & economy.

But you ain't doing that are you? You're just giving them more fucking loans which they can't afford to take on while stripping off the cash producing assets which they still have. There's a term for that. It's called debt slavery. Yeah, you guys are real fucking compassionate. And you're calling me a sociopath.

[K. A. Pital]

Thanas, as far as I know, Starglider was an opponent of the bailout craziness from the very beginning. Am I wrong here? For example, he called UK bailouts "foolish" and "unfortunate", last time I saw him talking about them. There's a lot me and Starglider disagree about, but I don't think bailouts is one of these things.

As for "massive humanitarian crisis", I'm not sure sovereign default in a wealthy nation will lead to hunger, starvation and that sort of privation. And as it would not, the current measures are also leading to lots of hardship. I am earnestly not sure which is better.

[aerius]

I'd say the current measures are worse since it destroys the long term viability of the country. They're being forced to liquidate 50 billion Euros worth of cash producing assets to private investors and foreign creditors, these assets will no longer generate revenue for Greece to help Greeks. Oh, and by the way here's another 110 billion Euros of debt to pay off. When the default happens the Greeks will be in a deeper hole and have a hell of a lot less to work with than they do now.

And as I said, Iceland. Did people starve and die there when they defaulted? No. Did the country plunge into anarchy? No. So why are we being told that Greece will if they don't take the bailout loans and default instead? Oh yeah, that's because the too important to fail bankers would get their asses burned.

[kaeneth]

I'd say the current measures are worse since it destroys the long term viability of the country. They're being forced to liquidate 50 billion Euros worth of cash producing assets to private investors and foreign creditors, these assets will no longer generate revenue for Greece to help Greeks. Oh, and by the way here's another 110 billion Euros of debt to pay off. When the default happens the Greeks will be in a deeper hole and have a hell of a lot less to work with than they do now.

And as I said, Iceland. Did people starve and die there when they defaulted? No. Did the country plunge into anarchy? No. So why are we being told that Greece will if they don't take the bailout loans and default instead? Oh yeah, that's because the too important to fail bankers would get their asses burned.

I'm with the default is inevitable, concerning Greece, crowd but....

If Greece defaults, I highly suspect it will shake up the World Economy enough to trigger minor recessions in other countries. More than the Bankers will get burned.

[K. A. Pital]

And as I said, Iceland. Did people starve and die there when they defaulted? No. Did the country plunge into anarchy? No. So why are we being told that Greece will if they don't take the bailout loans and default instead? Oh yeah, that's because the too important to fail bankers would get their asses burned.

Yeah, I was thinking about Iceland. Yes, they defaulted, learned an important lesson and are living on. But Greece is another thing entirely because the French and Swiss machinations with Greek private and state debt.

Sometimes I just want this entire situation to blow into the face of the people who are trying to maintain the status-quo.