Debt, The EU, And Greece

goman wrote:
Miashara wrote:
ZaneRockfist wrote:
They're being forced to shrink their economy to pay a debt, which is impossible.

This is not necessarily true. They're also receiving an impetus to drop long-term obligations. In the short term it is certainly problematic, but in the long term, those obligations are just as burdensome. They're also very popular, which means without the threat of imminent fiscal collapse or something similarly serious, they would never be reduced. When the economy recovers, which it will, Spain and all countries who underwent some budget slashing will be in a better position. Invariably they'll take on new obligations which will put them back in the hole, but for a while things will be good. The bailouts should keep them liquid enough to endure the contraction and hopefully put them right-side up when things recover.

What are you saying is popular? Either you are not clear or talking nonsense.

The long term obligations. Certain public programs, pension contributions, etc. In grammar, the object of a pronoun is frequently the last noun, thus, so try to at least read the sentence before getting insulting. You do yourself a disservice.

The Spanish Federal Government kept moderate deficits and surpluses during the boom years, cite, but neglected to take into account the fact that they(those years) were boom years. As a result the SFG took on a number of obligations that seem to be proving unsustainable. The additional obligations I'm maintaining are unsupportable are very popular. Thus, sustainable or not, those aforementioned obligations are not going to be revoked, reduced, or revised unless the specter of a financial crisis, default, generic economic bad effect, lurks in the foreseeable future. With such a crisis lurking in the future, impetus to revise the aforementioned obligations is present and stronger than the politically acidic deterrence to modifying them. While the global recession means the SFG may not save additional money by cutting spending now, after the global recession passes, Spain will be released of its unsustainable obligations. Thus, cutting spending, even during a recession, can, in the long run, reduce financial obligations.

And what is happening, goman, is a slow-motion disaster. See: Zimbabwe. It just takes much longer for these larger economies to get to that same place, because they have a lot more wealth to be bled away.

Look how bad a shape Greece is in. If they default, their economy crashes. If they withdraw from the Euro and print drachmas, their economy also crashes, but then it won't stop declining, because the state is simply trying to take more wealth out of the economy than that economy can provide.

It strikes me as absolutely laughable that, in a world where we can't trust politicians to handle freaking fish stocks safely, how the hell can we trust them to run an entire economy correctly?

Sorry, you weren't clear. And it is mainly because the argument is BS. It is summarized in the your last sentence above.

Growth is the only thing that can reduce obligations. Lack of employment growth is their problem, not long term obligations. Long term public programs and pensions are the problems (inflation?) and benefits (income) of the future. Unemployment and recession is the problem of the present. Their budget is doing nothing to help that. In fact it will reduce growth.

Hence why ZaneRocketfist is right on in his assessment.

Sharing fiscal debts (aka 'bailout') is the solution. Making the Spaniards reduce income is backwards and goes against the solution.

The Eurozone is taxed too much, hence why their unemployment rate is so bad.

Malor wrote:
It strikes me as absolutely laughable that, in a world where we can't trust politicians to handle freaking fish stocks safely, how the hell can we trust them to run an entire economy correctly?

True enough! Amazes me that people have trouble dealing with such a simple issue as overfishing. If they cannot even handle something as simple as they, how are they going to be credible stewards for anything else?

Malor wrote:
And what is happening, goman, is a slow-motion disaster. See: Zimbabwe. It just takes much longer for these larger economies to get to that same place, because they have a lot more wealth to be bled away.

Look how bad a shape Greece is in. If they default, their economy crashes. If they withdraw from the Euro and print drachmas, their economy also crashes, but then it won't stop declining, because the state is simply trying to take more wealth out of the economy than that economy can provide.

It strikes me as absolutely laughable that, in a world where we can't trust politicians to handle freaking fish stocks safely, how the hell can we trust them to run an entire economy correctly?


It is a disaster that already has blood on the streets and talks of a new Country. This is not because of too much government spending either. But because of lack of shared counter-cyclical institutions in the Eurozone.

We fortunately have that here in the USA.

ZaneRockfist wrote:
Malor wrote:
It strikes me as absolutely laughable that, in a world where we can't trust politicians to handle freaking fish stocks safely, how the hell can we trust them to run an entire economy correctly?

True enough! Amazes me that people have trouble dealing with such a simple issue as overfishing. If they cannot even handle something as simple as they, how are they going to be credible stewards for anything else?


HAHA politicians are to blame regarding fish stocks... Not overzelous private for profit fishermen.

It is all about the institutions.....

Yeah, goman's right here. The last group you actually want to listen to when regulating an industry is the group that stands to benefit the most financially.

This is why the current round of financial regulation is so f*cked. We're listening to the people that caused the mess instead of enacting regulations that they scream and moan about.

goman wrote:
Sorry, you weren't clear. And it is mainly because the argument is BS. It is summarized in the your last sentence above.

Growth is the only thing that can reduce obligations. Lack of employment growth is their problem, not long term obligations. Long term public programs and pensions are the problems (inflation?) and benefits (income) of the future. Unemployment and recession is the problem of the present. Their budget is doing nothing to help that. In fact it will reduce growth.

Hence why ZaneRocketfist is right on in his assessment.

Sharing fiscal debts (aka 'bailout') is the solution. Making the Spaniards reduce income is backwards and goes against the solution.

The Eurozone is taxed too much, hence why their unemployment rate is so bad.

Care to justify that statement at all? Or did "Thus, cutting spending, even during a recession, can, in the long run, reduce financial obligations." somehow not mean exactly that.

Nice, Tangle. Or this.

I suppose that makes me Poochie

Growth is the only thing that can reduce obligations.

Um. No. Repayment is what can reduce obligations. Or default. Growth doesn't reduce them at all. They are the same obligations they always were. It may be less of a burden to repay them, if you are wealthier, but the obligations are not reduced.

This past weekend we spent some time visiting with friends from Barcelona. What they had to say about Spain's reaction to the economic crisis was pretty staggering. Not the money part, but the social backlash. The public schools have started segregating boys from girls. One of the ways they seem to be trying to deal with unemployment is to tell women to "get back in that kitchen". Seriously. Girls are being told in schools to go be successful housewives, so the men can go get jobs. And they talked about Catalonian nationalism on the rise, and this tendency of the Spanish and the Catalonians to blame each other for the mess they're in, while not taking responsibility themselves. Internal scapegoats. Yes, they did talk about job security being pretty iffy, and one of them who worked in Spanish public television will be out of a job soon, as the Spanish government has banned ads from their PBS, but have not really allowed any other way of raising money. Like the American PBS, the Spanish version is supposed to be educational, and she works in programming involving the arts.

What you don't see when you're not currently living in "Austerity Land" are the social/cultural upheavals internally, unless someone is burning a building or whatever. I just got very mixed news. At the private school where I teach (my salary is like 40-50% less than a public school teacher in U.S., but more than public school teacher here, and they don't raise salary based on years/masters/etc.) I just found out my salary will be cut 12-15%, BUT given that teachers with their own kids in the school (at 70% discount) wouldn't be able to afford for their kids to continue, they're making it free for my kids to go to school there. Still...morale sucks, and while the news of free education has helped morale, it has embittered some teachers who have no kids and want their 12-15% back.

Meanwhile, our taxes on salary literally doubled. So there's that.

Yeah, it's pretty common for conservatism to become prevalent in economic stress. People are more open to experimentation when they feel prosperous.

From what I've read, the actual income levels in Greece need to drop by about 2/3 to bring incomes in line with the actual productivity of the economy. That was from a sideways comment I read somewhere, and I'm not sure how good the numbers are, but the Greek economy has been in a gigantic bubble of false prosperity, brought on by lending made to a government that was being actively fraudulent.

From what I can see, you guys really should be throwing most of your old politicians in prison.

Oh, and you also really, really need to default. Truly, completely, default. Right now, you're being put in economic chains to work for bankers.

Malor wrote:
Growth is the only thing that can reduce obligations.

Um. No. Repayment is what can reduce obligations. Or default. Growth doesn't reduce them at all. They are the same obligations they always were. It may be less of a burden to repay them, if you are wealthier, but the obligations are not reduced.


A country can't repay it's obligations by shrinking it's economic activity. Productivity and in turn economic growth (or surplus) is what gives you the surplus to meet your monetary obligations. And by growth I mean actual real increases in tangible capital, (more people working, the creation of real things of value, etc) not increases of flows of banking capital. Austerity measures are not the solution because what you're actually doing there is destroying real productivity.

That said the Greeks need to default on the ridiculous and now worthless debts they are holding, especially so because they are being used as leverage by the Germans to enforce austerity measures on them. Sure some german and british banks will take it in the balls when that happens but frankly that's their fault for mislending. Once that's done then the Greek's can put in place a structured programme of stimulus spending that can recover their economy.

goman wrote:
The Eurozone is taxed too much, hence why their unemployment rate is so bad.

Employment (15-64yrs) across Europe is fairly homogeneously somewhere around 60%. And it's mostly only down a couple of percent since 2000, whereas there's nearly an 8% drop in the US since 2000.
http://epp.eurostat.ec.europa.eu/sta...

A country can't repay it's obligations by shrinking it's economic activity.

Of course it can. If it has the obligation to send $50 billion to bondholders, then it can send $50 billion to bondholders, and the obligation is repaid.

I mean, what the hell? This is so trivial.

Productivity and in turn economic growth (or surplus) is what gives you the surplus to meet your monetary obligations.

No, taxes are what give you the money you need to pay obligations, as a state. Your economy can be steady state forever, and you can take on and dispose of obligations completely successfully. Your economy can be shrinking, and you can do the exact same thing. You just have to be careful about what you promise.

Growth is great, because it means more taxes. But growth is not required to repay obligations. To repay the obligations, you just repay them, and your growth rate may make that easier.

Austerity measures are not the solution because what you're actually doing there is destroying real productivity.

Oh, no no no no no no no no. If the government is spending way more than it's taking in, then it is destroying wealth. Austerity is how it stops destroying wealth. If the economy has to shrink because of that, then much of that activity was false prosperity to begin with. The economy was never really that strong; it was fooled into thinking it was because of the stupidity of the government. Keeping those parts of the economy going makes things WORSE, not better, because they are wealth-destructive.

That said the Greeks need to default on the ridiculous and now worthless debts they are holding, especially so because they are being used as leverage by the Germans to enforce austerity measures on them. Sure some german and british banks will take it in the balls when that happens but frankly that's their fault for mislending.

YES. Absolutely. This whole bailout package is to save banks, not the Greeks. They need to default on 100% of their debt, and then figure out what they've got left to live on. It won't be a lot, but it'll be honest, and their economy can then start growing again.

Malor wrote:
No, taxes are what give you the money you need to pay obligations, as a state.

You can't gather taxes from a population that isn't working. In order for there to be sufficient flow of money to tax then a sufficient portion of your population needs to be engaged in economic activity that is generating real wealth (and not just moving money and debt around)

Malor wrote:
Your economy can be steady state forever, and you can take on and dispose of obligations completely successfully. Your economy can be shrinking, and you can do the exact same thing. You just have to be careful about what you promise.

Surely you only take on debt in the knowledge that in the future you will have a surplus that you can use to pay off/service that debt?

Malor wrote:
Growth is great, because it means more taxes. But growth is not required to repay obligations.

But growth is required where your "steady state" doesn't bring in enough tax revenue to service your obligations.

DanB wrote:
Malor wrote:
Growth is great, because it means more taxes. But growth is not required to repay obligations.

But growth is required where your "steady state" doesn't bring in enough tax revenue to service your obligations.
These are the times when you should "declare bankruptcy", whatever that means for a country. I guess it means you tell the owners of your bonds that you will not be honoring those bonds, and then you start fresh, however that works.

What does a national bankruptcy/recovery look like?

Well Iceland did it and we'll likely see it happen with Greece soon enough.

Thing is once you're country has declared bankruptcy how do you then get everyone back to work, and back to the appropriate steady state?


but the Greek economy has been in a gigantic bubble of false prosperity, brought on by lending made to a government that was being actively fraudulent.


They need to default on 100% of their debt, and then figure out what they've got left to live on. It won't be a lot, but it'll be honest, and their economy can then start growing again.

So they'll be okay even with fiat currency, if they just let the economy crash and fix the government policies and citizen behaviors? I think you're talking yourself in several directions at once. If the *system* is bad - the global use of fiat currency, which you constantly tell us is untenable and dangerous - then no matter what countries do, it's just "delaying the inevitable" as I believe you put it, and your second conclusion is bad. If the system is okay - if they can get out of it through default - then you're leaving out that there are useful tools to avoid having to absolutely crash the economy, enabled by the very fiat currency you dislike and the monetary policies available to work with it to change the behavior of the economy.

You also don't mention any of the effects of a total default on the EU.

So they'll be okay even with fiat currency

Well, they can't print it themselves, so they'll avoid the worst inherent problems. When Zimbabwe went onto the dollar, instead of printing their own currency, their economy immediately stopped getting worse, and has slowly started improving again.

When other people are printing your money, you're still subject to their whims and excesses, but there are many of your own that you simply cannot get away with. It's not as good as solid currency, but it's better than the position they're in now.

If the *system* is bad - the global use of fiat currency, which you constantly tell us is untenable and dangerous - then no matter what countries do, it's just "delaying the inevitable" as I believe you put it, and your second conclusion is bad.

Well, yeah, they're still subject to many of the possible global problems. It's not as good as it should be, and the global economy will eventually crash from monetary dysfunction. But to whatever degree they build real wealth, they'll be able to reform a new economy using something more stable as a medium of exchange.

If the system is okay - if they can get out of it through default

You know, I sometimes wonder if you deliberately misunderstand what I say. If they default, they will be in a better position than they are now. That's the limit of their power; they don't run the world's monetary system. All they can do is react at the level they're at, and at their level, their best choice is a full default.

then you're leaving out that there are useful tools to avoid having to absolutely crash the economy, enabled by the very fiat currency you dislike and the monetary policies available to work with it to change the behavior of the economy.

Because those things transfer who has to pay, without really changing the behavior that got them into the problem in the first place. By defaulting, ceasing all borrowing, and then figuring out how much money they have left, and living on that, they will start moving toward as healthy a place as they can be, in the storms of speculation and floods of money circling the globe.

It's very much like being in global warming; what really needs to happen is to stop putting carbon into the air. But that doesn't mean you don't try to adapt to the bizarre weather as much as you can. Sitting there with your thumb up your butt doesn't help.

No matter what you do, if the world as a whole doesn't stop spitting out all that carbon, it won't ultimately matter. That does not mean you do nothing.

I think that's the closest I've seen you come to pragmatism.

Malor wrote:
(stuff)

From what I've read, the actual income levels in Greece need to drop by about 2/3 to bring incomes in line with the actual productivity of the economy. That was from a sideways comment I read somewhere, and I'm not sure how good the numbers are, but the Greek economy has been in a gigantic bubble of false prosperity, brought on by lending made to a government that was being actively fraudulent.

(stuff)

holy crap.

1) about 40% of the population lives in Athens.
2) Cost of living in Athens is comparable to a small city in the U.S.
3) incomes here are something like 1/3 or 1/4 of U.S. for the same job.
4) roughly you're saying incomes should be 10% of U.S. for same job
5) holy crap.

Public school teachers here, for example, net about $750 to $800 per month after taxes.
Unlike salaries in the U.S., this is a flat salary for every teacher regardless of years taught, education level (masters, etc.).

The truth is the government has been reducing salaries.

As a comparison, they were paying their own bureaucracy something like $2500 to $3000 net after taxes per month. So if you worked in the DMV equivalent, you'd take home $3000 a month, but get 14 months of payments per year (set, non-performance related bonuses). If you left that job to work in an office, using your same office skills, you'd be thrilled to take home $900 per month.

So, the sweeping statement that all Greek salaries need to lower is pretty criminal, and yet that's exactly what's happening right now. My salary just got cut 15%, and I'm seriously underpaid in the private school where I work. The people who work in the government in Greece have been paying themselves, their friends, their distant relatives salaries, kickbacks, fraud, bribes, massive tax evasion, etc. that give them overall money that is disgustingly more than normal people in normal jobs paying their taxes. And most of the austerity is aimed at making the latter group pay more, while the former group has millions and at times billions in Swiss (and similar) bank accounts, of all the money they stole from Greece and the EU.

So people in Greece are either bleak or incredibly angry, but in no way feel that anything substantive is going to change, cause the folks in charge of austerity are not likely to say, "Oh, oops, all that money we stole? We're so sorry, we'll give it right back..."

Some of the Olympics Games (2004) facilities could have been built for 20 million euros, and instead were built for 150-200 million euros, and most of the loans for those have been "forgiven" by the EU. Three guesses as to where the 130-180 million euros went, and it doesn't count if it doesn't rhyme with emshezzled eye duh overment.

oh yeah, forgot to mention all service industry companies, or any industry in which goods/services are not tracked electronically. Most transactions in Greece still happen with cash.

They typically report only 20-50% of their actual income.

So a company that makes 1,000,000 and should pay 200,000 in taxes,
will report they made 200,000 and instead of play 40,000 in taxes,
they will bribe someone in the tax office to make this appear as 20,000 instead.

So, yes incomes need to be reduced by a LOT, if you count the 180,000 that wasn't paid in taxes as income.
In this case the 180,000 income should be reduced to my hero, zero.

(when we moved houses we were offered two prices for the job, the one where the receipt reflects what they charged us, and the one that doesn't.
we were offered a 20% reduction in cost if we did the latter....)

Fun, huh?

Man, people suck. Why are people so greedy? I've never felt the need to be... or maybe that's because I've never been rich or powerful? It'd be an interesting experiment to find out my personal limits (I'm aware of research that shows increased power and wealth results in less ethical behaviour)...

/Duoae is sad

Sorry to hear about all that happening around you, Roo.

Well, I don't know what the actual stable numbers need to be, but very simply, Greece has to pay for what it uses. It needs to be exporting goods of equal value to what it imports. It's natural for this to swing around some from year to year, but overall, the balance needs to be about stable. This is true everywhere -- everyone's books ultimately will roughly balance. And this will happen whether or not you particularly want it to; it's like gravity. You don't get to argue with gravity, and over any kind of extended period, you have to pay for what you use, or there will be consequences, potentially very severe ones.

So, if the country as a whole is not exporting enough, then it simply can't import what it needs to maintain the standard of living you've all gotten accustomed to. If that means getting paid 10% as much as an American to do the same job, then that's what it means. The economy as a whole must be productive. Your farmers and your factories and your knowledge industries need to be providing value to the world, if you want the world to be providing you value in return.

The very first thing you need to be doing, is defaulting. You cannot pay those loans. Default, stop borrowing, leave the banksters to go hang, and then figure out how much economy you've got left when you can't borrow, but don't need to make interest payments.

You're right that what's happening now is criminal; the Greek population is being put in economic chains to keep banks solvent, not for their own benefit. The short-term consequences of a default will be very high, but once the dust settles, and you hit bottom, you'll start improving again. The path you're on now will probably never get better, amounting to permanent debt slavery.

Spring returns to the land. Flowers bloom, birds sing and the Eurozone implodes.

Euro debt crisis looms again as Italians defy EU austerity demands

In an earthquake result, the Five Star protest movement of comedian Beppe Grillo looked likely to emerge as the biggest single party in the lower house. The scourge of bankers and corrupt elites, Mr Grillo has campaigned for a return to the lira and a restructuring of Italy’s €1.9 trillion (£1.64 trillion) public debt.

...

A euphoric rally on European bond and stock markets early on Monday gave way to abrupt selling as it became clear that Italy would be left with a hung parliament and no consensus over fundamental policies, leaving the country almost ungovernable.
The yield spread of 10-year Italian bonds over German Bunds jumped 30 basis points to 290 in late trading. The MIB index of stocks in Milan saw a rollercoaster day, while the euro gave up its early gains against the dollar.

...

“Italy is big enough to blow up the whole eurozone. That means Italy’s leader can take a tough line in the pyschological game with Germany. The question is what markets will do. The Italian debt auction on Wednesday will be very interesting to watch.”

Interesting, indeed. Italy is Too Big To Fail; it represents a legitimate existential threat to the EZ in a way Greece doesn't. So are they going to play the game like Greece, or like France...or like JP Morgan?

Personally, I think the bond auction will be too soon to read tea leaves; it will probably be a horrorshow, but I don't think the ECB will let it fail. At the same time, I expect any measure they take to be explicitly transitional. (It might provide useful information to Italian politicians, however, about how the Troika perceive their situation.) IMO, things get much more interesting as Italy forms a government (or doesn't) and comes to the table to discuss OMTs and the like.

The American markets don't seem to care at the moment. I wonder how long that will last.

What I don't get is how Berlusconi is still getting votes. He's a Class A sleazy scumbag. Everyone in Italy knows it. You'd think by this point even his media dominance would fail him, but he keeps on getting votes. I lived in Italy for three years and I've never seen them this ... entranced, I guess.

Mussolini was a scumbag as well. That's the thing about scumbags. They often maintain power because they have a constituency. Some folks support them because that is the side on which their bread is buttered. Others support them because they believe the alternative would be worse (and here a media monopoly really shines). Still others are just sucked into the whole "it is good to be a winner" (so supporting a winner over those "whiner" so supporting the winner must make me some kind of macho man) nonsense.

Honestly. Think of all the folks barely scraping by in America that show out in droves to support tax cuts for the wealthiest 1% (folks who deliberately engineered this economic crisis) and you'll recognize how pervasive that mentality is.


What I don't get is how Berlusconi is still getting votes. He's a Class A sleazy scumbag. Everyone in Italy knows it. You'd think by this point even his media dominance would fail him, but he keeps on getting votes. I lived in Italy for three years and I've never seen them this ... entranced, I guess.

Probably a quarter of the US thinks The Donald is someone to look up to, so...