Future of Greece's Economy

[Thanas]

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.

No, but you have consistently argued for the neoliberal approach to capitalism which got us into this mess in the first place.

[K. A. Pital]

At least he was principially neoliberal to the end and said if the crisis was generated by private entities, those private entities should have been allowed to crush and burn, because they constituted a bubble. That's a more honest approach than "save failed corporations". It means capitalist entities stand or fail, and if they fail, they fail period. Now we have a problem where governments can fail, when it should have been private companies who had to fail. Not sure Starglider's logical conclusion is wrong.

[Zed]

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.

You realize that a nation that has control over the currency its bonds are issued in is in a different situation from a nation that doesn't have control over the currency its bonds are issued in, right?

[bobalot]

At least he was principially neoliberal to the end and said if the crisis was generated by private entities, those private entities should have been allowed to crush and burn, because they constituted a bubble. That's a more honest approach than "save failed corporations". It means capitalist entities stand or fail, and if they fail, they fail period. Now we have a problem where governments can fail, when it should have been private companies who had to fail. Not sure Starglider's logical conclusion is wrong.

The end result of Starglider's approach (if all the industrialised world followed it) would be another depression, which I think is far worse than bailouts (however odious they are).

[K. A. Pital]

The end result of Starglider's approach (if all the industrialised world followed it) would be another depression, which I think is far worse than bailouts (however odious they are).

*puts Captain Obvious hat* The result of reckless bailouts will be sovereign defaults and another depression.

[Surlethe]

Isn't the current European mess (Ireland, Portugal, and Spain particularly) precisely because their governments stepped in and guaranteed their banks instead of letting them fail? (And won't a Greece default lead to a run on the euro?)

[K. A. Pital]

Isn't the current European mess (Ireland, Portugal, and Spain particularly) precisely because their governments stepped in and guaranteed their banks instead of letting them fail?

Mostly. Greek bailout was over 10% of GDP and waaay over what their budget could affort, same goes for most weaker EU nations. In fact, the sum of the Greek bailout is quite a bit larger than the demands for Greek "austerity" savings. Another part of the issue is banks continuing to credit them post-bailout.

[His Divine Shadow]

"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, this and other bailouts made pretty big political changes in Finland, making our troglodyte party jump from a little backwater to the second largest party, and now it's the largest according to polls. Even the swedish-finns here, who are one of the minorities that Timo Soini wants to fuck with says that at least he's right on that point (complete rejection of all bailouts).

And in everyday comments you hear grumbles and comments about the greeks and the bailouts in the form of snide remarks and so forth. It's a simmering soup and I don't think it's gonna get better.

[Starglider]

No, but you have consistently argued for the neoliberal approach to capitalism which got us into this mess in the first place.

I am not consistently neoliberal because I evaluate individual proposals on merit, and not all neoliberal proposals make sense. For example I support single-payer healthcare, not a very neoliberal concept.

That said, the charge that neoliberalism is responsible for Greece's issues is ludicrous. Neoliberal economics has minimisation of government interference, government ownership and goverment subsidy as a central principle. Greece has a very large public sector and heavy regulation of most industries. The tax regieme is completely unfair and inappropriately enforced, government subisidy is both common and laced with corruption and the labour market is inflexible. I am highly dubious whether neoliberal economics would favour joining the euro either; it does lower barriers for private capital entry, but it removes the key ability to devalue to maximise competitiveness and for Greece the main benefit was cheaper sovereign borrowing, a bad thing for the private sector.

Greece implemented no neoliberal policies worth mentioning, while it has been implementing as much corrupt and unproductive socialism as it can borrow the money to pay for.

[Surlethe]

I am highly dubious whether neoliberal economics would favour joining the euro either; it does lower barriers for private capital entry, but it removes the key ability to devalue to maximise competitiveness and for Greece the main benefit was cheaper sovereign borrowing, a bad thing for the private sector.

To interject -- I don't think that letting the government fuck around with currency values is something that a neoliberal would favor. Joining a currency union forces the government to adhere to the discipline of international markets instead of intervening in currency exchange markets to (effectively) subsidize exporters at the expense of importers.

[Starglider]

but it removes the key ability to devalue to maximise competitiveness

To interject -- I don't think that letting the government fuck around with currency values is something that a neoliberal would favor.

Devaluation isn't something that normally requires active government intervention. If Greece was still on the drachma the value would have crashed by now regardless of the opinion of the Greek government. That would effectively force foreign lenders to take a haircut, none of this pathetic whining and endless wrangling trying to push it off onto the ECB. Imports would get more expensive but Greek products would become a lot more attractive and an industrial revivial becomes a lot more practical.

Joining a currency union forces the government to adhere to the discipline of international markets

Not in practice. Joining the euro didn't even force Greece to adhere to the stablity pact. The reality is that all discipline was abandoned and the market in Greek debt was effectively gamed by banks (and now hedge funds) who knew that near-indefinite bailouts would prop it up.

instead of intervening in currency exchange markets to (effectively) subsidize exporters at the expense of importers.

I don't think neoliberal economics has a fundamental objection to open market operations, when they are implemented by shifting central bank reserves from one currency to another (e.g. the recent Japanese and Swiss interventions). The central bank is just a market participant and is free to shift their reserves around if they wish. However printing money (as in Q.E. in the US) or banning free trade in a currency (as China does) are definitely contrary to neoliberal principles.

[Surlethe]

Devaluation isn't something that normally requires active government intervention. If Greece was still on the drachma the value would have crashed by now regardless of the opinion of the Greek government. That would effectively force foreign lenders to take a haircut, none of this pathetic whining and endless wrangling trying to push it off onto the ECB. Imports would get more expensive but Greek products would become a lot more attractive and an industrial revivial becomes a lot more practical.

Right, I misread. I thought you were talking about active devaluation to spur industrialization by attracting exporters, as the Asian economies have done. You're right that joining the currency union prevents deflationary adjustment and replaces it with capital flows(?) (analogy to going on/off the gold standard during the gilded age?).

I don't think neoliberal economics has a fundamental objection to open market operations, when they are implemented by shifting central bank reserves from one currency to another (e.g. the recent Japanese and Swiss interventions). The central bank is just a market participant and is free to shift their reserves around if they wish. However printing money (as in Q.E. in the US) or banning free trade in a currency (as China does) are definitely contrary to neoliberal principles.

Right, but if the central bank is not independent and exporters own the government, that reserve shifting will change the currency's value on the exchange markets, devaluing it and driving exports up.

[K. A. Pital]

Greece implemented no neoliberal policies worth mentioning

The neoliberal dogma was the predomintant theme of the Simitis government (1996-2004) and the entrance in the Euro zone was set as the first national target. Fiscal adjustment and monetary stabilization became the priority goals of economic policy. The Maastricht accord was used as a symbolic strategy for a new sound Greek economy. Privatizations, first of all of the banking system, the liberalization of the external capital market, and the explosion of the Athens Stock Exchange promised a new round of business investment and economic growth. The Olymbic games of 2004 were to become the symbol of a renewed affluent society.

This stabilization process seemed at the time quite sound. Inflation was declining due to the policy of the «hard drachma», the budget deficit was reduced and the rates of growth of GDP were relatively high, in any case higher than the average rate of the EU. There is little doubt that a second major transformation of the Greek economy was underway.

The neoliberal dogma favored the specialization of the Greek economy wherever there was some international comparative advantage. Tourism, shipping, construction, banking and telecommunications were the major sectors that attracted investment

The Euro was central to this strategy as it made possible the free movement of capital in this broader geographical area. In addition it made possible the attraction of the Greek shipping capital back to Athens as well as it facilitated the incoming tourist receipts. In effect the Euro was a major step towards the more internationalized function of Greek capital. A weak drachma would have deterred the flow of foreign exchange back to Athens.

Yet this orientation of the economy had a negative impact on the productive sectors of the economy, agriculture and manufacturing. Aggriculture entered a period of relative decline unitl 2000 and absolute decline thereafter. Manufacturing was already in a permanent pattern of relative decline.

The analysis of the external relations of the economy is indicative of the changes. Nowadays agricultural and industrial exports represent 10% of GDP. Tourism adds another 10% and income from shipping another 10%. Imports nowadays have increased to 40% of GDP, thus there is a permanent deficit in the balance of payments, which is usually financed through loans, subsidies and other minor sources.

This new orientation of the Greek economy was sustained by the massive inflow of migrants from Albania, the Balkans, Eastern Europe and the Arab world. About one million foreign workers provided much needed cheap workforce in construction, tourism, small-scale manufacturing and other services. At the same time it renewed part of the declining agriculture. Total employment increased from 3,3 to 4,2 millions within a decade.

A major feature of this new transformation of the Greek economy towards an economy of services, is a peculiar combination of state expansion and privatization of the economy. As successive sectors were privatised this process added new expenses in the budget and the insurance system, which is run by the state. At the same time newly privatised sectors continued to depend on public finance, state regulation and of course state purchases. The interdependence of the private economy and the state reached new proportions, leading to a new phenomenon, that of political corruption.

The size of public administration did not expand, as many people think. It remained close to the OECD average. Yet public employment expanded rapidly in local authorities, education, health, various state organizations and agencies related to the management of European resources and development projects. The political system and primarily the two major parties gained immense economic power and ability to control resources. The idea that due to privatization and globalization there is a retreat of the power of the state, is totally misleading. The state had never in the past such power to control economic developments, negotiate huge contracts and manage resources. As a result during the last twenty years it is the theme of public corruption and scandals that dominate internal politics.

In effect since 1977 the Greek budget has been in deficit for 30 consecutive years. Running a deficit for so long is a paradox. Particularly during a period when successive stabilization programs have been implemented over and over again. The programs of 1985-87, 1990-93, 1996-2000, 2005-2007, and the current one, under the IMF, constitute a chain of successive stabilization programs, that all led to the decline of the budget deficit for a couple of years, by increasing at the same time overall public debt.

Since 1995 this neoliberal era facilitated not only the abolition of any idea of tax reform, but strengthened even more the idea of «legal tax evasion». A «fragmented system» was gradually build, which taxed specific social and economic groups with reduced income rates. This process included the strong business interests (banks, shipping, etc), but also various professional groups and all kinds of family business.

When the economic crisis of 2008 started to produce its worldwide impact, the Greek economy was already in a process of disintegration. The conservative government that was in office since 2004 absorbed the pressures by increasing public expenditure (probably at 50% of GDP), while it attempted to sustain growth through reduced taxation of business and wealth, the latter reducing tax receipts even below the usual 35% of GDP.

Comment: your typical Bushite neoliberal crap. Increase spending and reduce taxes.
http://www.iippe.org/wiki/images/d/db/C ... thakis.pdf

...while it has been implementing as much corrupt and unproductive socialism as it can borrow the money to pay for.

I know you're crazy about "corrupt and unproductive socialism", but lowering taxes isn't socialism. It's a neoliberal dogma, just as freetrade, removal of currency barriers and mass use of migrant labour. So you should be a bit more careful when you start railing. Better check the facts first.

Neoliberal economics has minimisation of government interference, government ownership and goverment subsidy as a central principle.

Theoretical neoliberalism, yes. Practical, as followed during the Bush years, was a bit different, however - it was an expansion of government spending coupled with reduced taxation.