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The Greek Election
Hell Is Other European Central Bankers
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  • wigwag

    Germany is far and away the biggest villain in this story. The Greeks after all, were just being Greeks. The idea that Greeks should just turn into Germans was folly from the beginning. The Greeks were no more equipped to turn into Germans than the the Arabs are to embrace pluralism, Putin is to become a liberal democrat or the American GOP is to develop a mature understanding of economics. Some things will just never happen; pretending that they will only leads to trouble in the long run.

    It’s not just Greece thats in trouble; the entire European Union faces the prospect of recapitulating Japan’s lost decade(s). None of it needed to happen; Europe could have pulled out of its doldrums almost as successfully as the United States did. Instead it faces the prospect of deflation, destitution and disaster. It was the Germans who insisted on the austerity and railed against a Keynesian stimulus like the one that rescued the United States. We can only thank providence that the Republicans weren’t in charge in 2008 or the American economy would look a lot like the European economy looks now. It was the Germans who insisted on an absurd monetary policy including actually raising interest rates in the face of economic calamity. While that policy has now been reversed, it looks like Europe’s newly adopted version of quantitative easing is a lot like closing the barn door after the horses have escaped.

    German arrogance and stupidity has been a source of profound sorrow in Europe for centuries; once again their ignorant policies look virtually certain to wreck havoc on European citizens for decades to come. Frankly, Germany should be broken up; everything the country touches causes misery.

    As for the Greeks, they should default and leave the Euro. They will be exchanging stinging short term pain for a better future. It might not be the future that either Americans or Germans want for themselves, but the Greeks are not Americans or Germans. Guess what? They never will be.

    Everything Paul Krugman says in his column today about Greece is right,

    • Suzyqpie

      Additional things that will just never happen, Democrats doing math, especially actuarial math. Example, Brookings estimate that 0bama’s “free” community college will cost $60B over 10 years. Math is remorseless.
      PS – the times link doesn’t work.

    • Pete


      What you call austerity is paying your debts.

      ‘Germany should be broken up.” What lunacy.

      What should be broken up is the European Union; it’s anti-democratic to its elitist core.

      • wigwag

        I agree; the European Union is destroying Europe. It is an experiment that went dreadfully wrong. The rules that the EU operates by didn’t materialize out of thin air; those rules were authored primarily by the Germans and French. If the EU doesn’t work (and it doesnt), it’s the Germans who are mostly to blame. By defaulting, not only will the Greeks be voluntarily taking on short term pain for long term gain, the icing on the cake is that they will significantly damage the banking systems of Germany and France. It couldnt happen to two more deserving nations. The only sad part is that there could be some blowback in North America as well. By all means crash the EU; if it happens I will celebrate.

        None of this changes the fact that Germany has caused more trouble in the world since 1870 than any other country; the world would have been better, more peaceful and more prosperous had Bismark’s nation-building endeavor failed. Every couple of decades, Germany does something that makes the world a more miserable place. The reason Europe is coming apart at the seams is largely the fault of the Germans and their pathological national psychology.

        When I think of the Germans, I am reminded of Winston Churchill’s quip about Stafford Cripps; they have all the virtues I dislike and none of the virtues I admire.

        • f1b0nacc1

          We can agree to disagree about the Germans (I share some of your concerns, but in truth I think that you overstate your case), you apportion far too much of the blame for the EU’s dysfunction on them. The Germans, having had a very bad experience with inflation following WWI (remember Weimar anyone?) is understandably skittish about any sort of currency that is not rock solid, and their concerns were taken into account when the Euro was cooked up. With that said, the bulk of the EU’s political structure was a French invention, and the rather lax conditions that let the southern tier of states into the Euro in the first place was largely a French creation. France has used the EU as a method of locking the Germans into a ‘safe mode’ from its beginning (if you are a fan of the wonderful British series ‘Yes Minister’, there is an absolutely terrific vignette covering this), and the Euro was a means of creating a single currency to offset the enormous German productivity advantage over the French.
          The Greeks (and the Italians, the Spanish, etc.) entered into a currency regime that explicitly favored a German model of economic management. None of these rules (including the entrance requirements, which the Greeks simply faked in order pass muster) were particularly complex or opaque, so blaming the Germans for the utterly predictable outcome is disingenuous at best.

  • General Maxwell Smart

    A good analysis. If I may, here is some more background on the German side.

    Germany has the most punitive personal bankruptcy laws in Europe. You cannot declare yourself bankrupt and have your personal debts discharged, not even if you are willing to give over all your remaining assets to creditors and live with a ruined credit rating thereafter. Unlike corporate debt, personal debt does not superannuate for thirty years and creditors can find ways to extend that period even longer, during which time of course interest compounds and bill collectors’ and court fees accumulate. At any time, a creditor can obtain a lien on your bank account and property; official bill collectors can, and do, order you to empty your pockets on the spot and turn over any money and valuables they find in excess of approved minimums.

    After a series of “reforms”, the government proudly announced that insolvent individuals would now be allowed to discharge their personal debt by negotiating a six-year, lawyer-assisted obstacle course at the end of which, if nobody has reported you for keeping a penny extra over the monthly limit that you may keep after making payments to creditors (which then means a judge says it was all for nought), you are finally “home free”. This six-year period is called Wohlverhaltensphase or “period of good conduct”. The terminology betrays the mindset behind it, i.e., if you are insolvent you are little better than a common criminal let out from prison on probation. Studies show that it takes people years to recover a neutral credit rating even after that.

    Elsewhere in the EU, declaring personal bankruptcy can be as simple as walking into Town Hall and filling out the paperwork, wiping out your debt (as well as your credit rating). But in the UK, for example, one has to be a legal resident, meaning you need to show proof that you are a homeowner or a renter. Thus this avenue of debt relief (moving to the UK) is not open to truly indigent Germans.

    There are good sides and bad to Germany’s draconian personal bankruptcy regime. On the plus side, it acts as a curb on potential housing bubbles, as people are afraid to take on a debt burden that might crush them in the event of job loss or major illness. On the negative side, it inhibits homeownership and construction. And it partly explains why so few Germans go into business for themselves, as traders or as professionals, knowing what the penalty for failure will be. I don’t have a figure for how much GDP is impacted by able-bodied men and women effectively being frozen out of contributing as producers and consumers due to bankruptcy laws, but I should think it is substantial.

    • StephenG

      Did you happen top catch Larry Summer’s remarks at Davos regarding the “unimaginative” and “fallacious” German driven policy of austerity imposed on Southern Europe that is driving Greece into the arms of the extremists? He referred to the “fallacy of consolidation” or “error of generalization” that what might be economically beneficial for one country in Europe is good for Europe collectively.

      As an aside, I read that the German words for “debt” and “guilt” are the same.

      • General Maxwell Smart

        Almost right, “guilt” is always Schuld (singular noun) while “debt” is sometimes Schuld (sg. n.) and sometimes Schulden (plural noun), the latter occurring a little more often than “debts” (pl. n.) occurs in English. The demarcation lines between “debt” and “debts” vs. the lines between Schuld (financial, singular) and Schulden (fin., pl.) are similarly drawn in the two languages but not identically.

        I think Larry was being diplomatic, “pigheaded” and “stubborn” would have been my preferred adjectives *g*. However, as I’ve tried to show above, they are not singling out Greece for cruel and unusual punishment. Vindictiveness towards insolvent debtors is a holdover from the Middle Ages (the stocks, debtors’ prison) and very much still exercised today towards fellow Germans, too.

        I’m sure the Greeks have their own cultural pathologies that have contributed to the present mess, but I will leave commenting to those who are more familiar with them than I am.

        • StephenG

          Summer’s remarks were made during a Davos panel discussion that included Christine Lagarde and they came across as more strident than diplomatic – so much so that Gary Cohn was suppressing a smile (but not very successfully) and Lagarde looked like she had been slapped, which of course she had. This was said a day or two before the Greek elections and proved to be prescient indeed.

          Alexis Tsipras’s team is said to be exceptionally well qualified, but they said that about Obama when he swept into office on a waive of discontent as well. Former economics professor Yanis Varoufakis (finance minister) comes off as plainspoken and aggressive and Greece is not waiting for permission from the EU to implement campaign promises like an increase in the minimum wage and an increase in entitlement payments. Greece is also signaled the other EU member states that it may not sign off on new proposed economic sanctions against Russia, and Greece may be flexing its newfound resolve in other, unexpected ways as well.

          I am retired, own my home here free and clear, and my fortunes are in no way tied to the Greek economy (although I am mildly concerned about sticking it to “large” property owners (anything over 100 square meters) and increased taxes. (My feeling is with a 28% national sales tax there should be no need for income taxes at all – but what do I know?)

          My other concerns are for the country I love and I can’t get my mind around a country being led by a communist who is presiding over a far left coalition. Oh, well, it ain’t my job man.

          • General Maxwell Smart

            can’t get my mind around a country being led by a communist who is presiding over a far left coalition
            It isn’t only you, a lot of people have felt that way for a long time about Barack Hussein Obama and his motley crew of “rainbow coalition” advisors in and out of the White House 😉

          • StephenG

            Even though the newly elected PM in Greece is so far to the left of the US President that is makes Obama look right wing by Greek standards, there are some instructive parallels.

            A cynic might say there is a sucker born every minute, but let’s just say that if people are desperate enough they will believe anything.

            My problem with Communism – apart from it being a thoroughly discredited idea – is that little thing about not believing in private property. Which makes it scary to own stuff.

            The new finance minister says not to worry, we won’t haircut PRIVATE bond holders (he should have added like Greece did two years ago).

          • General Maxwell Smart

            If you’re interested, here’s a good article by a German-born economist in New Zealand:

            His other articles on Greece and the euro are also worth reading.

            Stephen, I hope you have good relations with your neighbors on your Greek island. Some rough times ahead. Stock up on beans and ammo 🙂

          • StephenG

            Thanks for the links.
            The silver lining to the current economic crisis (if there is one) is (aside from my retirement savings domiciled far from Greece) that all of a sudden American’s – who have not been too popular with some Greeks ever since the CIA backed Junta in 1967 and then our failure to back the Greece against Turkey on the Cyprus issue – don’t seem so bad at the moment. Not at all.
            So, we get on great with our neighbors.
            Now, I would not want to have a German passport just now …

  • Andrew Allison

    This otherwise excellent analysis overlooks the fact that not just the Greeks, but the Italians and the French are violently opposed to the reforms necessary in order for them to live within their means. The post-bailout lenders to Greece were indeed foolish, greedy or both, and will pay the price. The question is, why would anybody give (the history shows that it would be a gift, not a loan) the Greeks any more money to burn? The same thing is going to happen to Italy and/or France, it’s just a question of when. Ireland, Spain and Portugal are recovering spendaholics, France and Italy are not; neither, incidentally, is the USA.

  • Pete

    Bad analysis, blaming the Germans.

    The Germans gave the Greeks an opportunity to join the European middle class, and Zorba blew it.

    Now Zorba wants the music to continue to play on someone else’s dime but his.

    What is happening in Greece is that the country’s standard of living is losing its artificial support and is being ratcheted down to what its society can produce and sustain on its own merits.

    The Greeks don’t like this, but without a sugar daddy, there is no alternative.

    • JR

      Greeks are not Germans. I blame neither the ordinary Greeks nor ordinary Germans. They are who they are. Full blame rests on technocratic elites who in their arrogance and hubris were blinded to the fact that Greeks are NOT Germans, have no desire to be Germans, and will never accept German way of life. People who told them that were ignored. Thankfully, our technocratic elites are way better. They will never be blinded by their biases.

      • Pete

        But the rub is that the Greeks want the comforts of a German lifestyle or close to it.

        • JR

          Exactly. The elites told them that they can have German income and Greek lifestyle/work schedule. That was obviously a lie. Ordinary Greeks will be punished by inflation. But anyone who gave money to Greece believing in the existence of German put should get a haircut as well. Look at Detroit into how this will be ultimately done.

        • Damir Marusic

          Floating exchange rates don’t solve everything, but they sure do help in situations like these.

          • f1b0nacc1

            No doubt they will help, but just as many medicines have powerful (and often unpleasant) side-effects, floating exchange rates will pauperize a huge part of Greece. Mind you I suspect that this is unavoidable (and in fact I strongly favor bringing back national currencies to enable this very process), it will be neither painless or popular.

  • JR

    Greeks want their real incomes to fall using the inflation method. I’m yet to hear a coherent argument as to why that is a bad thing. Full speed ahead!!

    • ljgude

      You are right it isn’t necessarily a bad thing. It is one way to adjust to the reality of spending more than than the country earns. If the Club Med countries want to solve their economic problems by making lots of little Drachmas or Lira – after all what are siestas for – that is fine so long as they have their own central banks (they still do) and they are not tied to the Euro. The problem is they have to BORROW Euros and theoretically that means they have to give them back. There is the problem. The whole beauty of MODERATELY inflating fiat currency is that you don’t have to give it back and life goes on albeit with the price of beer increased. The other way to deal with the problem is to work harder when you fall behind as the Northern Europeans tend to do. That doesn’t excuse the Germans from lending money to guys who take siestas, any more than I can complain of default it I lend money to a junkie relative. Or for that matter if American banks lend money to people to buy houses they can’t possibly pay back and compound the problem by forming the resulting ordure into a layer cake, coating it with irresistible chocolate icing and flogging it to us punters.

  • stanbrown

    The bankers who lent to the Greeks were stupid. But blaming the lender for the borrower’s default is really bizarre unless the borrower can’t be expected to understand his actions. For example, we can certainly blame universities who allow students to borrow money they can never pay back because they believe and trust college administrators and their lies. I don’t see that type situation with Germany and Greece. Do Greeks really want to argue that it was wrong to treat them as adults?

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