Greece seems to have slipped below the front pages. We've moved on to other things. I haven't.
I don't have much to say here, but I can't say nothing. This is too important. I'm just going to record my thoughts, for whatever little they are worth.
I have been Googling around, trying to understand the recent "Agreement" and how it is supposed to work. And I've failed.
1. I'm not at all sure we even have an agreement. Can Greece actually deliver on these 38 items before the end of this month? Will enough of the bondholders agree? Will the Eurozone parliaments actually ratify the deal and come up with the money?
2. Even if we do have an agreement, will Greece actually stick to it? Would anybody really trust future Greek governments to stick to it? Will future Greek governments actually be able to stick to anything, even if they wanted to? Can Greece avoid becoming an ungovernable "failed state" if it tries to stick to the agreement?
3. Even if we do have an agreement, and even if Greece does stick to it, will it actually start bringing the debt/GDP ratio down?
For what it's worth (not much), my answer would be "no" to all three questions.
All the Agreement does is make it harder for Greece to abandon the Euro and redenominate its debt into Drachmas (because the new bonds will be governed by English law not Greek law). So the eventual default, when it comes, will be even messier than it would be otherwise.
And I don't see how any of the parties to the Agreement can really expect it to work. Which raises the question: so what are they doing?
A majority of Greeks want to keep the Euro.
"Most Greeks want to stay in the euro zone, the poll showed, with 77 percent saying their country must keep the currency "at all costs", the same percentage as two months ago."
That's the underlying problem. The Greek people themselves refuse to exit.
I think everyone else is just going through the motions, because they don't want to be the ones blamed for the "Agreement" failing. They don't want to be blamed for taking Greece out of the Euro. It's a game of chicken, where each side wants someone else to be the first to reject the Agreement. I hope they are indeed planning for failure.
Worthwhile Canadian Initiative 
Bingo, Nick, just on the target.
Good post. I think Greece could be “rescued” relatively easily, and even keep the EUR, if they agreed to a combination of rigorous austerity on the government’s part (to demonstrate credibility and improve the fiscal outlook), soft “incomes policy” (to bring prices and incomes into balance with the rest of the Eurozone) and investment subsidies (to boost expenditure and attract foreign capital inflows). The stock of debt would then be very high, but quite manageable in the medium-long run. However, it’s not even clear that Greek government actors are willing to seek a solution: default and devaluation is going to look more and more attractive.
The appalling thing is that lenders refuse to take much pain when they themselves lent money to a problem borrower. They cannot refuse default risk. It seems international lenders are more effective than the demonstrators in Syntagma Square in resisting change.
The English Law thing is a canard; it is impossible for the High Court in London to exercise effective jurisdiction over Athens. Interestingly at a government interview/test here in Canada I was asked just such a question, how far does the Act run. The answer: Canada, that is as far as our courts have jurisdiction. There are nice plaques that mark the Official Boundary in the middle of bridge crossings that shows exactly where Canadian court’s jurisdiction stops.
I suppose being governed by English law might have some value, if Greece had any significant foreign assets. The jurisdiction of English courts may stop at the Chanel, but courts in Canada and the US (and I suspect other jurisdictions) will generally enforce foreign court orders (as an articling student, I once worked on a Canadian injunction that was ultimately enforced in the US and the UK). Mind you, the practical limitation is (a) Greece doesn’t have many assets located in foreign jurisdictions and (b) what they do have (embassies and the like) are probably protected by some sort of sovereign immunity doctrine.
Mind you, I can suggest a more mundane reason why the agreement is governed by UK law. Think about it, if you’re negotiating a massively complex debt restructuring between dozens of parties, would you go to (a) London, which is a global financial capital and probably has one of the, if not the, deepest pools of legal talent in the world (as well as sophisticated commercial courts with a hefty body of jurisprudence) or (b) Athens, where the lawyers are on strike 2 days a week. To ask the question is to answer it.
For me, as a German, “high-tech” globalist, still pro-European die-hard agnostic, it is a first, to cite the bible in writing:
For what is a man profited, if he shall gain the whole world, and lose his own soul? or what shall a man give in exchange for his soul?
http://www.kingjamesbibleonline.org/Matthew-16-26/
There is a very deep disappointment setting in, in Germany, over the last few years,
that a lot of our EU neighbors are not what we thought.
Western, and that was for most of the time “European” civilization was built on
truth, trust, the rule of law, treaties to be kept, debt to be paid, self reliance, and compassion.
One reason for the core EU was the iron will to not let the devastating belligerence leading to WWI and WWII ever happen again.
Another, that Europe is together just one small 7% part of the world.
And this floating agreement style, around the core 6 nations, worked for quite some time surprisingly well.
But we now come to a point where the periphery got in, but does not want to play by the rules.
What worked as loose rules, “Auftragstaktik”, “Maastricht criteria” does not work anymore, and is replaced by strict, detailed micromanaging, infringing on “national sovereignity”.
Consensus rules, exploited too often to extract some “extra”, now subjugated to last minute, weekend summit, do or die, “before the stock exchange in Tokyo opens” decision making. Most the times now prepared by Mama & Papa, France & Germany, with a coalition of some “the willing” Not exactly democratic in the way we used this word.
But Greece is the poster boy for extremely generous financial help mainly generating a sense of entitlement.
My neighbor countries Poland and Czech prosper with an extremely lower amount of help given.
And there comes a point, where also an Amish community ejects those who are not willing to live by the rules.
I ll do understand most of what is said in the movies.
“http://news.yahoo.com/bosch-ceo-tells-magazine-greece-no-place-eu-005151046.html”
Those came from the suebian area, where Bosch, a very honorable company, is centered.
We do not worship the golden calves, market cap, GDP and its growth as a purpose in itself.
At some point, it is better to live in a smaller EU, but with people you can trust and who share common values.
I should have been more precise in one point:
The never ending criminal attacks on the Maastricht Treaty: no bail out, no money printing.
There are no attempts to renegotiate, just permanently, deeply dishonest trying to break it through the back door.
It cannot be so weak. There are already some English law bonds in circulation. They are trading at 0.70, about twice the value of the Greek law bonds.
The answer is that these bonds are enforceable by the ECJ which assuredly has a reach over Greek accounts directly.
@genauer:
As you brought up the EU and WWI/WWII, there can be no better explanation for it than that of Sir Humphrey Appleby in ‘Yes, Minister’:
THE DEVIL YOU KNOW
“The Common Market: We went into it to screw the French by splitting them off from the Germans. The French went in to protect their inefficient farmers from commercial competition. The Germans went in to purge themselves of genocide and apply for readmission to the human race.”
http://www.jonathanlynn.com/tv/yes_minister_series/yes_minister_episode_quotes.htm
Oh, and since I like to get value for money for that European History course I took in First Year University, German Hyperinflation was self-inflicted and was over, gone and recovered from by the late 1920’s. The Weimar Republic was doing well economically in 1928/29. The Depression and German Hyperinflation were two separate, discrete episodes separated by a number of years.
Therefore hyperinflation had very little to do with WWII.
Nick, Good post. In my view the Greeks should leave the euro, I’m less sure about the other troubled economies. It’s clear that the British vision for the EU was the right one (a big free trade group with floating currencies) and the Franco-German vision was the wrong one. All this needless suffering.
Genauer is right about the cultural incompatibility–that problem goes away if you have a looser free trade zone.
Determinant,
I wouldn’t want to understate the importance of the Weimar hyperinflation on WWII: its destabilising effects on German society and its inculcation of inflationphobia into the German national psyche are still having consequences today. However, it obviously wasn’t a direct factor in the rise of Hitler (who was still a fringe politician when the hyperinflation ended) and I have little doubt that WWII would not have occured if there had been a better policy response to the Great Depression in Germany.
In many ways, German society prior to 1914 was one of the most stable and cosmopolitan in central Europe. Its prospects for evolving into a model liberal democracy were very good and most of the spilt ink since 1945 on the supposedly innately totalitarian tendencies in German Imperial culture is bunk. That’s what’s so disturbing: if “it” (German history from 1914-1990) can happen in Germany, then it can happen anywhere given a fairly short list of events.
Which is why money matters.
Jon, ultimately no one can enforce any law, Greek or English against the Greek government in greece, since ultimately it makes the law in that country. The ECJ? What was Stalin’s line about the pope, “how many divisions does he have?”. How many divisions does the ECJ have?
Felix Salmon has been very good on this. http://blogs.reuters.com/felix-salmon/2012/02/24/greeces-bond-exchange-its-official/ for just the most recent example.
@W. Peden
German Inflation began actually during WWI because Germany chose to finance its war effort by borrowing and inflation while Britain, France and Canada relied on Income Taxes. The Weimar hyperinflation was a continuation of that policy. The Versailles reparations were payable in gold or foreign currency (meaning US dollars and sterling) so they couldn’t be inflated away.
Germany was the leading light of 19th Century science and the history of math is the history of Germany until the 1920’s. But Germany was not a liberal democracy in 1914, it had a recurrent fault of using military gestures to solve domestic problems and both the Kaiser and the Chancellor had strongly and successfully resisted any form of “Responsible Government” as we understand it in the UK and Canada.
If money matters because of inflation, then the tragedy that was the Depression in Germany also shows that money matters because of deflation and tight money.
In point of fact, Germany resumed payment of the Versailles obligations after Reunification and the entire debt was discharged in 2010. Coincidentally so was Lend-Lease/Mutual Aid between US/Canada and the UK.
Which probably demonstrates more than anything that debts should not, under any circumstances, be beyond the ability of the debtor to pay or be allowed to impair organic economic growth. Growth means that debt will take care of itself which is why Versailles is now a settled account.
“But Germany was not a liberal democracy in 1914, it had a recurrent fault of using military gestures to solve domestic problems and both the Kaiser and the Chancellor had strongly and successfully resisted any form of “Responsible Government” as we understand it in the UK and Canada.”
It was evolving into a liberal democracy. They would even let women vote. Also, the use of military gestures to solve domestic problems is sadly not a distinctively German characteristic!
“If money matters because of inflation, then the tragedy that was the Depression in Germany also shows that money matters because of deflation and tight money.”
Absolutely. German inter-war monetary history reminds me of descriptions of cholera we heard in high school history: victims were drained of fluids from both ends. Analogously, German civil society was drained of its stabilising influences, first by inflation and then by deflation.
I’m not sure that debt was the key issue, though British critics of the Treaty of Versailles who were embarassed by the failure of appeasement subsequently built up the importance of Germany’s debts. That’s not to ignore the obvious and correct point that sometimes debts are so great that defaults/bailouts are a lesser evil than social collapse.
@Scott
We have since a long time the EFTA (European Free Trade Association). The UK staid that way until 1973. Norway for example opted to stay this way.
So, everybody, especially the UK, who just wants this, should go back to this status, and let the core do its own thing. The point is, they entered the EU and then again and again started to obstruct, demand special favours, like their special rebate, they kept out of the Euro, fine, they didn’t want to adopt the Social Charta, fine.
Now those EU treaties have become some hodge podge over the years, and when the topic of tighter budget rules within the 17-member Eurozone came up, it turns out we need for otherwise no good reason the unanimous consent of all 27. It didnt infringe in any way on what the UK is doing, but Cameron was trying to blackmail the rest to agree to some capital market rules exception he wanted for UK, in exchange for his signature. It is a very rare thing to leave one member completely isolated, but this was too much for everybody else.
And from now on, if somebody just wants to block, it is “who wants to do bilateral agreements, the rest leaves the room, now”. This makes for sure not for climate of mutual happiness.
The Greeks refuse to exit because they’ve been threatened with terrible consequences if they do…
The agreement itself is nuts. The whole process underlying its creation is nuts. The point of the exercise is to buy time to insulate the rest of the Eurozone, so that Greece is deprived of its economic nuclear option. That Greece is going to default at some point and probably be expelled from the Eurozone is…increasingly less in doubt.
Mandos, I’m not sure that “the rest of the Eurozone” can be meaningfully nsulated from a Greek exit. Bailing out their banking systems is not the issue anyways: the real problem is that Greek exit would send a powerful signal to money-starved Eurozone states (whichever they happen to be at that moment; we used to talk about Germany as the “sick man of Europe” and Ireland as “the Celtic tiger”) that devaluation and exit is a real possibility. Thus the Eurozone would fall apart sooner or later.
The best solution IMHO under these constraints is to “rescue” the Grecians as per above, run a stable monetary policy at the ECB and let states use local policy to address temporary NGDP shortfalls.
On the 1923 Hyperinflation, I pretty much side with @Determinant. This was self organized, and did not just come somehow about. It was basically an internal default by another word.
And it was just a small part of a much larger general conflict. Something probably most of you are not aware, that his was going on in parallel with the “Occupation of the Ruhr” (wiki it) , the resistance to completely impossible demands of the Versailles treaty.
I read Keynes 1919 The Economic consequences of Peace, last Summer, and I understand now much better,
why so many Germans between the Wars were itching for the next fight with France. And I think this also goes a long way to explain, why France and Germany to the present day do not let a shred of air mail paper get in between us, to the outside. This arch enemies pandoras box will never be opened again.
After 1923 the new Reichsmark was stable relative to the Dollar. and this had very little do to with the Great Depression.
I know this mythical German angst of Inflation is endlessly trotted out, to explain things. We did the next internal default (a.k.a. “Währungsreform” 1948) without Inflation. It was a Helmut Schmidt 1972, who declared “Better 5 % Inflation than 5 % Unemployment” (go wikiquote)And just imagine that 5 % umeployment was considered horrible. We had this multi target policy (not only Inflation) as well at that time.
@Determinant and Peden
when did we have deflation in Germany. Honest question, in the past I did learn from somebody else to see the post WWII inflation in the US.
@Determinant
All nations financed the war both by raising taxes and debt. England was in fact pretty famous for being able
to run huge debt at very reasonable rates, by having a long history of never defaulting. A nice picture for English War debt: http://bit.ly/ACTTO6
@Mandos
From my perspective Greece was starting pretty openely the blackmail back in July 2011, and did try to push the trigger in October. To make sure that everybody knows, that they do not have the slightest chance ever again, is an important paart of the present parcel.
One other lessons we took from the inter war period was, that you really have to prevent the creation of a “Dolchstosslegende”, even at considerable cost, because this is a very powerful long term poison.
Genauer,
Germany experienced deflation from 1928-1933, by an average of about 4% per year and with output falling at about the same rate during that period.
“So, everybody, especially the UK, who just wants this, should go back to this status, and let the core do its own thing.”
Absolutely, though the other side of such a move should be a reduction of powers of the EU countries in the EEA (so that EFTA countries and EU countries are equal in their influence) combined with a reduction of barriers between EFTA and the EU. Many countries are in the EU for trading reasons and have become closely interlinked; it would be a breach of faith for the EU to penalise such countries when they move outwith the EU so as to make the Eurozone work better.
A free-trade zone in Europe and a single currency both have their virtues, but trying to combine the two has been a disaster.
(It would have probably been better to have a system of currency boards based around the Deutschemark rather than the euro, though.)
“It would have probably been better to have a system of currency boards based around the Deutschemark rather than the euro, though.”
If you’re going to have several currencies, pegging exchange rates to one of them (the DM) through a currency board makes very little sense. You might as well adopt flexible exchange rates and target monetary policy to local economic conditions. On the other hand, adopting the DM as single currency would leave most countries exposed to severe macro instability as monetary policy would target West Germany only.
“That’s the underlying problem. The Greek people themselves refuse to exit.”
I think that’s exactly right. Greece is now, apparently (just) making a primary surplus, so a euro exit is possible. But as you say, Greeks don’t want to leave the euro … because they like its purchasing power! But that is an illusion: Greeks cannot continue to consume more than they produce without external support, and there is no political support for it. So if they want to continue to be paid in euros, they will have to accept a lot fewer of them.
Meanwhile, the unwillingness of the rest of Europe to face the problem directly has damaging consequences for both sides. It seems to me that the decision to make the ECB senior to everyone else will severely compromise its powers going forward. Chuck Norris walks into a room and says “everyone do the opposite of what I want, or I’ll kill you!”
Yes, funny you should speak of “pushing the trigger in October”, by which you presumably mean the referendum attempt that came at the end of October. What happened thereafter was utterly infuriating. It was a denial of democracy. It was Greece’s only leverage and its sovereign right.
It’s a really funny way to avoid creating a Dolchstosslegende—sacrificing Greece’s sovereignty to preserve a set of policies that are utterly daft for the health of the Eurozone (that are in reality a form of bank bailout). I’d say that the Dolchstosslegende has if anything been well and truly made.
@Genauer:
Germany didn’t have high income taxes in WWI and has considerably more inflation and deterioration in foreign exchange rates than the UK did. Similarly Germany’s taxation and civil mobilization efforts in WWII were less complete and less effective than those put in place in the UK.
Germany did not have the second part of effective debt management, effective income taxes to service that debt. The result was that they resorted to inflation in WWI and pure default after WWII.
Britain was a more effective economic manager during wartime and a more credible economic manager afterwards by being able to contain inflation and to service its debts credibly. Anybody can run up debt. Not everyone can effectively manage and repay that debt.
@W.Peden
As one of my history profs said, speculative history isn’t history. In 1914 the executive in Germany, the Kaiser and the Chancellor, emphatically were not subject to the legislature. Women voting is nice, but the vote didn’t matter because the Reichstag was powerless next to the UK Parliament or the French National Assembly. That was the problem. The Kaiser and Germany never made the final, critical leap to Responsible Government drawn from and controlled by the legislature.
@Phil Koop
I have contended through several threads that the ECB is not nor has it ever been Chuck Norris. It isn’t a real central bank.
I have now tried several times to post a comment
[Sorry – got caught in the spam filter. SG]
Poden,
– do you have some evidence to support your deflation claim ?
– EEA (just wiki it), always something new in the european alphabet soup, lets see:
this is the EU plus the following 3:
a) Iceland, 318 k people, promised dutch and UK savers higher returns, which they guarantted to be backed up
with deposit insurance, defaulted, reimbursed their own people, and stiffed other EU people,
the nationalist crime confirmed 2 times per public votes,
but both NL and UK are man enough to take care of that without German help.
b) Liechtenstein, 33 k people,
One individual, “The Fuerst”, holds 100 % of GDP as wealth, well known tax cheat haven,
for every citizen 2 mailbox only “corporations”
“the United States Senate’s subcommittee on tax haven banks said that the LGT bank, which is owned by the royal family, and on whose board they serve, “is a willing partner, and an aider and abettor to clients trying to evade taxes, dodge creditors or defy court orders.”
c) Norway, 5 m people,
“Export revenues from oil and gas have risen to 45% of total exports and constitute more than 20% of the GDP”
“30% of the labour force are employed by the government, the highest in the OECD.[71] 22% are on welfare and 13% are too disabled to work, the highest proportions in the world”
makes a total of 65 % not working (in private industry)
“Cost of living is about 90% higher in Norway than in the United States and 50% higher than the United Kingdom”
A sovereign wealth fund worth 140 % of GDP
In such a situation, that basically the whole country can live on what 10 % of them
extract of natural resources, I would not like to join a payer association too.
Their interpretation of a free trade zone goes for butter as far as
“www.huffingtonpost.com/2011/12/09/norway-butter-shortage-_n_1139350.html”
“Now, the ingredient is being sold on Norway’s leading auction website
for $13 for a 250-gram piece, Reuters reported, which is about four times higher than its normal price.”
I pay for 250 g Butter 99 cent, regular price.
Now, Poden, why should any of these people have any say about what is decided in the EU?
What of their rights you even want to extend ?
No pay, no say, and classic examples of criminal free riders. And very disappointing from a moral perspective.
those are the people we want to eject, and not getting even more illegitimate obstruction options.
Yes, they defaulted and took care of their own voters according to their voters’ preferences as a responsible government does.
W. Peden’s deflation claim is also my claim and it’s historical fact. Google is your friend but it is also the actual case as found in proper history books at universities.
The Iceland incident is all about size. Iceland’s banking default injured a small number of British and Dutch savers who had and have other market choices. Further the British and Dutch are also partially at fault because they let the Icelandic banks into their markets in the first place. As a counterexample Canada does not let any foreign banks offer products here without those banks being insured by the Canada Deposit Insurance Corporation; foreign banks are liable for CDIC premiums for their activities in Canada. Seems a sensible policy to protect Canadian consumers for banking activities conducted in Canada.
Greece is a sovereign borrower whose people don’t really want it to default and leave the Euro while Germany and France don’t want a default either. If either had really wanted a default it could have been done by now. They want payment instead of default and are oblivious to the effects of austerity, which is not the same as taking a default and moving on.
Iceland and Greece are different incidents with vastly different causes, effects and solutions.
Norway is something else entirely and you illustrate a version of “Dutch Disease” which is also what we have in Canada. Stephen Gordon doesn’t think it’s so much of a disease but I disagree.
Oh, and I nearly missed this: genauer just called default, a completely legitimate option that one takes when one weighs the risks and benefits, a crime…
This is exactly the problem here. Creditors take risks in extending credit, including the risk that all guarantees may be hollow and unenforceable (can’t get blood from a stone). Some Europeans seem to want to take this all out on the hides of the Greek public.
genauer:
You write: “a) Iceland, […] promised dutch and UK savers higher returns, which they guarantted to be backed up with deposit insurance, defaulted, reimbursed their own people, and stiffed other EU people”
Iceland as a sovereign state did not promise anyone anything — its banks did. Neither did it, as a sovereign, “stiff” anyone. Its sovereign obligations had never been in danger of defaulting, as opposed to say Greece.
If the EU people were dumb enough to trust blindly private banks that failed why is Iceland as a sovereign is to blame ? If your vacation house in Spain burns down and the insurance company goes out of business, do you expect the government of Spain to build you a new house ?
Admittedly, the legal basis of Icelandic deposit insurance is a little tricky in this situation, but as far as I am aware there has never been any government guarantee, either explicit or implicit, to bail out Iceland private banks. The question of such bail out was put to the referendum and answered in negative. What’s the problem ? Setting aside the deposit insurance complication, why your investment into anything should be riskless ?
Greece is The Weakest Link in the euro chain. So its crisis is the worst. But that is a distraction. It is so easy to pick flaws in Greek political economy that it is easy to get distracted by the fact that this is a much wider crisis.
Yes, the euro was a bad idea: some crisis due to the institutional differences between European economies, given the insufficiency of equilibrating mechanisms, was always likely. But there is a difference between the likelihood of crisis and the cause of a specific crisis. The cause of this crisis is the tight money policies of the ECB. It is just that those policies affect the most dysfunctional Eurozone polity (Greece) worst: but that is what one would expect.
People hyperventilate about hyperinflation but excessively tight money is worse: Weimar Germany survived hyperinflation, it did not survive the massive Bank of France/Fed induced deflation aka Great Depression. It is clear, for example, that Bernanke will do whatever it takes to avoid deflation.
But there is tight money which is not actually deflationary but still deeply damaging. Particularly in a situation where debt has shot up because, for example, a bunch of debt-happy Mediterranean economies were allowed to “piggy back” on “hard money/low interest rate” credit. Mediterranean economies which could no longer use the devaluation option to restore competitiveness. With the most debt-happy, the most dysfunctional, economy ending up the most exposed.
And if folk who should know better fail to discuss the culpability of the ECB, then it finds it even easier to avoid accountability. (See my discussion here.) Particularly if many of those who are willing to discuss central bank responsibility are utterly fixated on inflation, so apparently do not care how many bankruptcies, job losses and soup kitchens are left in the wake of bad monetary policy.
Gelassenheit, Ordnung, Meidung
3 core principles of Amish communities
– Gelassenheit
is certainly the one, which comes first, and on which I have to work most for myself
– Ordnung
as in German Ordnungspolitik, which I perceive now more and more as a significant part of the “secret sauce”.
But I see many elements of that in japanese kaizen, aime and the founding fathers “federalist papers”
– Meidung
Determinant, Mandos, vjk,
I never bought any of that Iceland, Greece etc. stuff. I have no personal skin in that.
I am not going into details of icelandic advertisements, and how to interpret them,
especially if I didnt trust them in the first place : – )
More to the opposite, being for many years very careful with personal judgements
(“Richte du nicht, auf das du nicht gerichtet wirst”), it confirms in many ways my careful, tentative judgments
and decisions.
I do not agitate to invade them, steal their money, or anything.
All I say is that I do not want to have any contact with them, nor taking any liability for them,
nor giving them any right to decide on any aspect of my life, and the life of my community.
They should just keep away from me. And we have some pretty precisely defined borders for that.
I just reserve my right, to come with neighbors, I do trust, to agreements without the others.
As in this Sunday NYT:
“Bankruptcy is morally abhorrent and is not consistent with the values we hold [ ..] It is a dishonorable discharge of debts.”
And something I wrote to friends at the West Coast, 2 month ago:
From the mouth of the Polish Foreign Minister, Sikorski
(http://www.economist.com/blogs/easternapproaches/2011/11/polands-appeal-germany citing Kant’s categorical imperative
“the entire practice of lending money presupposed at least the honest intention to repay. If this condition were universally ignored, the very idea of lending and sharing wealth would be undermined. For Kant, honesty and responsibility were categorical imperatives: the foundation of any moral order.”
Mr Sikorski concluded:
“I demand of Germany that, for your sake and for ours, you help [the euro zone] survive and prosper. You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.
Germany, he said, was Europe’s “indispensable nation”.
You may not fail to lead. Not dominate, but to lead in reform.”
This is now the time and the place that Germany takes the lead. I have trust in Schäuble, Merkel, Jens Weidmann, and Jörg Asmussen.
Promises are supposed to mean something.
Lecturing Canadians about the Amish is silly. Mostly because they live here in significant numbers. Nice people, but you do know that many own phones, which due to “interpretation” must be in their own box on a pole by the road, not in the house.
They are as human as the rest of us.
Second, your English is getting hard to understand. I take it you don’t like being on the hook for Greece’s debts. Tough. Canada has been a working federation with interprovincial transfers since Day 1 in 1867. In any working federation, the rich parts subsidize the poor parts. In Canada every province that contributes to Equalization, the unconditional transfer of funds through the Federal Government, has been a recipient at one time or another.
British Columbia, Alberta, Saskatchewan, Ontario, Quebec and Newfoundland have all contributed either currently or in the past but are now or were recipients. Ontario was a contributor for a long time but is now a recipient. Newfoundland received Equalization for decades but is now a contributor.
Greece will pay a big price if it defaults, it will be justifiably shut out of credit markets for years. But it won’t move on until it does. Further, no lender has the right to say that credit risk doesn’t exist or should not exist. That is both silly and untrue. But the EU and Euro are a federation and its constituent parts are at odds over paying for it. Canada got over this debate decades ago. Grow up.
Determinant,
“As one of my history profs said, speculative history isn’t history.”
Hmm, that seems to be entirely wrong: if we are interested in why things happen/happened, then we need to pursue causal explanations. If we are to engage in causal explanations, then we have to have counterfactually solid propositions. If we are to have counterfactually solid propositions, then we have to engage in speculation about those counterfactuals.
The question “What would have happened in Germany if key events between 1914 and 1933 had not occured?” is a perfectly normal historical question and one that is necessary to understanding the significance of each of those events. In particular, I think that WWI, hyperinflation and deflation all drove Germany further away from achieving a lasting liberal democracy, even though WWI (in its direct effect) resulted in a liberal democracy.
The wider lesson from this is that war and economic crises, even when they have apparentely liberalising effects in the short term, are destabilising and therefore usually deliberalising in the long-term. A Weimar Republic based on a gradual transition from authoritarian state to democracy, such as occured in Britain and America, would have had much more stable foundations than a nation founded in a war that radically changed central Europe forever and which greatly increased the pressure for the hyperinflation.
That’s not to say, however, that given the situation in 1919 the best approach was a return to authoritarianism. The Weimar Republic (aside from a too strong executive) was about the best response to an awful situation and had the Great Depression been handled differently there were still good chances of its success.
My hunch is that if Greece dropped the Euro, and made its bonds payable 100% in Drachmas, the bondholders might actually get a greater value than under the Agreement. OK, suppose the Drachma depreciates 50% against the Euro. That would still be better than the 30% or so they are supposed to be getting now (if they do indeed get that 30%). If reverting to the Drachma helped loosen monetary policy in Greece, that could create a real recovery, and improve Greece’s capacity to pay.
BTW, when people borrow money, they normally don’t say “this is a gift, right?” or treat it as a PWYW exchange (as in Livio’s post above). If the lender hadn’t been led to expect something in return, why did he make the loan? Sure, sometimes stuff happens, and we can’t always reasonably be expected to deliver on our promises. But the promise must have some weight, otherwise why bother?
This is poor people morality. The rich don’t think that way: there were many foreclosures of homes owned by the wealthy over the course of this current crisis. The creditor extends credit because s/he believes it is in the interest of the debtor to pay it back. For poor people (you and me; by this I mean anyone who is less than three or four paychecks away from losing their homes, which is most working people), we have credit ratings to do this for us.
The weight of the promise is the consequence of defaulting. The definition of serfdom is a debt which you cannot pay off and cannot default. (cf. student loans…)
When it comes to legislators, anyway, there is a prior “creditor”, the people whom they represent. And that’s a duty, not a debt.
Oh, and…in re firewalls and Greece:
Via here. Maybe the firewall won’t actually work, but European finance ministers certainly think that they’ve successfully robbed Greece of its only leverage (by coup, effectively).
Pure Shock Doctrine, all of it.
VJK:
The situation with Icelandic Banks was the following the UK and Netherlands were required under EU-EEA law to allow them to open branches and accept retail deposits. However they were never part of the UK or Dutch deposit insurance schemes and their customers if they looked closely enough would have known that. Iceland was in theory required to provided a deposit insurance scheme for both domestic and other EU/EEA depositors however, the EU rules related to this were unclear and perhaps uneforceable. In Canada some foreign banks such as HSBC open fully Canadian subsidiaries that are autonamous from the parent bank and fully subject to Canadian regulation, CDIC deposit insurance etc. Other banks such as Bank of America or JPMorgan just branch operations located in Toronto that are only partially regulated by OSFI and can only accept commercial and not retail deposits(They can though for the commercial customers issue checks, access to the payment system etc).
Tim:
No disagreement with what you wrote, I think”
“if they looked closely enough would have known that”
That precisely my point. I do not see why the government of Iceland should be on hook for failed Icelandic private enterprises, as our German contributor seems to expect going as far as characterize the Icelandic government behavior as criminal.
With Greece, the situation is dramatically different as it is the Greek government itself that is on hook due to its sovereign bond obligations. If any analogy is to be found (an impossible endeavor taking into account the EMU pecularities), it would be Argentina rather than Iceland.
Counterfactual is part of history.
So is having the right man at the right time.
Wilhelm ! was a tough but rational man. He made one mistake in 1870 by annexing Lorraine, which, unlike Alsace , had never been politically or culturally German. This planted a seed of distrust among Europena Powers.
Then his son Leopld died shortly after assuming office. Two essentiallly rational men, who would have been able to overcome bad institutionnal arrangement, were replaced by the essentially insane Wilhelm II. Somebody who squandered the de facto English alliance by building a navy strong enough to challenge the Royal Navy without the stenght to beat it.
In 1918, Foch decided to let the German army retreat with full arms because he thought his supply lines would be overextended if he sent the Allies into occupation duties.So the “Dolchstosslegende” could be born.
Then in the turmoil of the 30’s Germany got he-who-must-not-named while the U.S. got FDR.
Still travelling, so no personnal library available, but it was obvious that, as soon as the mid-20’s, Germany was preparing for a war with Poland. But it would have been framed as purely local war, of no interst nor consequences for anybody else.
History is nmade of time, places and the people who design institutions and those who react to that.
I trust Merkel and Schaüble personnally as human beings. I do not trust them to make the right decisions in these circumstances because of their Weltanschauung which doesn’t seem to include the old Roman maxim “Salus populi suprema lex esto” (Let to welfare of the people be the supreme law” or as a great prophet said “the sabbath is made for man, not man for the sabbath”.
In the Canadian context I should mention Alberta stopped payment on its debt between the late 1930s and 1945 without disrupting the Canadian banking system. In those days Alberta was the “poorest” province in Canada. It seems like one of the problems Europe has is it is not just 17 countries using the Euro but also 17 different banking systems unlike Canada which is one country one banking system 13 provinces and territories.
genauer, It is the right of each country to try to encourage the EU to move in the direction it thinks best. Britain is doing that. Britain did not join the EU and then set out to change it, but rather to keep it as it was (which worked fine.) It was the core countries who wanted to change it, and they pretty much wrecked it with the euro. In my view the core countries shouldn’t be worrying about whether Britain is being obstructionist, but rather think very hard about whether Britain might have been right all along. It seems to me that other members of the EFTA like Switzerland and Norway are doing just fine. If it ain’t broke, why change it?
I tend to agree with Scott on this. It’s all a tragedy, really. That which was supposed to bring the European countries closer together is now driving them further apart. The introduction of the Euro was a bridge too far (wrong metaphor?).
Hmmm. My old post still reads quite well on this. (Though Ireland seems to be doing better (i.e. not as atrociously) than I thought it would).
The introduction of the Euro was partly based on the belief that once Europeans were using the same money, it was only a matter of time before they would see the need to create federal Europe. In other words, it was intended to use economics to force the politics. It’s basically the ultimate end-point of an attempt to establish the primacy of economics over democracy. They should have focused on building the European political institutions in a serious way before they brought about the Euro—then the problems would have solved themselves.
In the recent past I had the opportunity to visit Strasbourg and I tried to take a gander at the European political institutions there. Suffice it to say that I’m totally not surprised that Europe doesn’t have enough “we” feeling to make this work; there’s no effort to make them accessible to tourists, which IMO is a basic function of a parliamentary building in the modern era. The Europarliament is set in an unappealing industrial park, and you have to book tours months in advance—there is no regular visitor’s desk, no museum-type amenities, nothing that you’d see in Ottawa or at the US Congress or anything. The cold, uninviting (if avant-garde) architecture kind of drives home the point.
Parliament Hill has a myriad of tourist accommodations. Capitol Hill recently had a brand new Visitor’s Complex installed under its front lawn for both reception and security reasons. Both institutions take visitors seriously.
It also doesn’t help that European Parliament politicians are usually the dregs from national politics.
@vjk, tim
on the “Icesave dispute” wiki, the nearly last sentence is:
“On June 10, 2011, the EFTA Surveillance Authority ruled that Iceland should take steps towards paying the full amount to the UK and the Netherlands within 3 months after the ruling.[123] The Icelandic Minister of Economic Affairs Árni Páll Árnason made a statement to the Icelandic Parliament[124] on the same day rejecting this ruling.”
So you side with the icelandic defaulter, my opinion is the one of the european majority, that their behavior is criminal. The conclusion of course is, that those vikings are not cultural compatible with us, and we restrict the contact with them to some herring trading.
If I would have said 5 years ago, dont lend any money to icelanders and greeks, you can not trust them, I would have been called racist, from the same people, who now say “if they looked closely enough [they] would have known that”
I had brought up Iceland as one of 3 non-EU countries in the EEA, which will certainly not have any say on anything decided in Europe, and as a typical example of “cultural incompatibility” (in the words of Scott Sumner) of certain periphery entities.
@Scott
Of course it is the right of everybody to bring up his opinion and make his case.
But what Cameron did was very different, he tried to blackmail the Euro countries in a time of urgency to agree to some extreme UK privileges, in exchange for his signature on Euro member budget rules, which are none of his business.
Did you give it any thought why he went under 26 against one in the night 9/12 ? Not a single EU country siding with him, none. The protection against such criminals is the extensive use of bilateral agreements, like the Schengen treaty. This option is now always on the table.
The fundamental question, “more than a trade association, or not” was long ago decided, 1992, and this will not be opened again, every time a new criminal/idiot is elected somewhere.
The consequence is not to give in to Cameron, Greece and the like, but to push forward harder and stronger in the core and give the rest incentives to leave.
@All
it was instructive again to see how many people are openly siding with the habitual liars and blackmail.
We can summarize most of that very simply around the Maastricht treaty. We Germans believed that those who sign it, are people like us, and keep to the basic principles: no bail out, no money printing. What we had to see last year, that a huge majority, verbosity especially in places like the US and UK, who are not part of it, tried to simply break it, not to negotiate on changes.
Soo, the journey will continue with a smaller core of people we can trust. People, who do not like the treaty, are not only free to leave, there will be no secession wars, we will even give them incentives.
A huge three front (“perfect”) storm is coming up:
a) our populations are ageing, there will be not more, but often less to distribute around, as long as I live
b) China will not just eat the lunch of Greece or Portugal, those guys are fit, clever and hard working.
c) the energy / CO2 question
We are determined and prepared to survive it.
But we do not have time anymore to discuss the best pedagogical approaches for Greek tantrums.
I think most European people know very well, that they can count on our help, if things do not turn out as positive as planned, but when we see they try hard.
http://www.youtube.com/watch?v=dU391h882uE
Germans don’t declare personal bankruptcy?
Grow up, Genauer. Living in a federation means that your part will not always get its way. Germany signed up for the Euro which had insufficient provision on the fiscal side. Even Germany broke the 3% deficit rule repeatedly.
You can always not bail Greece out and let it default. Most of us here think that’s actually the best course of action.
The Maastricht treaty has turned out to be dumb. A bad straightjacket that needs to be redone from top to bottom and was predicated on a theory that has turned out to be false.
All working federations with single currencies have a form of permanent bailout, if you want to think of it that way. You’re writing on a Canadian blog, from a country that has basically codified the Permanent Bailout as an “equalization formula”.
Except that, under the current official German attitude, this core will be eternally shrinking as they are eaten by ongoing uncorrected imbalances. Greek culture is a side issue; it will happen even under utmost probity.