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Saturday, July 4, 2015
Current Affairs ... Economics/Business ... Foreign Relations/World Affairs ...

One of the biggest world-news items over the past few weeks has been a new flare-up of the whole Greece-versus-the-rest-of-Europe (but mostly Germany) thing. As with most big issues, this thing is all about money. Lot’s of money. In a nutshell, Greece borrowed too much of it from the European Union, and now can’t pay it back. So what happens next? Greece is part of the EU. Should it be kicked out? If allowed to stay, should it be punished, or sympathetically helped to resolve its underlying problems?

You’d think that sympathy and addressing underlying problems would be the right way to go. But a lot of people think that Greece hasn’t been such a good member of the Euro Union, that it has built up a lot of bad habits and has been lying and otherwise acting in bad faith, and now needs to suffer a bit so as to discourage other members of the Union from ever trying anything like this (and dissuade the Greeks from ever thinking about it again). This is approximately the same rationale that underlies all criminal law. I.e., people don’t always act nicely, and nations don’t either. So they sometimes need to be roughed up for a while; once they’ve shown that they’ve learned their lesson, the Union can get more lenient about getting them back on their feet (i.e, give them significant debt forgiveness).

I’ve read a number of articles on the situation over the past few days, and I’m going to cite some that I’ve found interesting. First off, Bloomberg has a good overview of the whole situation, not surprisingly; if you want to understand something about big money, Bloomberg is the first place to stop. The Wall Street Journal is also a big money specialist, and they had an article saying that Germany and the EU should not be blamed, as this is mostly a matter of Greek profligacy.

The Washington Post likes to side with the little guy, however, and they have a good article pointing out that the Greek debt crisis has been building up for many years, and Germany did a lot to aid and encourage Greek borrowing until the 2008 American financial crisis (which started the dominos falling in Greece). The New York Times has an article saying that both sides are to blame, and both sides need to share the suffering. CNN tells us to have no doubt that there will be further suffering, whether or not Greece remains within the European Union or continues to use the Eurodollar as its currency.

A few writers have recognized the irony of Greece being the cradle of classic civilization, the home of Plato, Socrates, Homer, Sophocles, Aristotle, Pericles, etc. An NY Times opinion piece asks “What Would Thucydides Say About the Crisis in Greece“, Thucydides being the great chronicler of the Peloponnesian War. During that War, the Athenian League attacked and punished the island of Melos for refusing to join the League; Melos had hoped to remain neutral in the Athens vs. Sparta matter. This supposedly compares to Germany’s refusal to consider continued short-term financing and long-term debt relief unless modern Greece remains in the Euro Union and accepts its painful terms of financial reform. Another writer notes the irony of Greece possibly leaving Europe’s union, when the continent itself takes its name from the mythical Greek goddess Europa. This writer feels that Greece should cooperate with the European Union and not try to fight it.

One interesting footnote: Greek workers on average work longer weeks than German or French workers do. However, this might not be an apples-to-apples comparison, given that the Greek economy is more agricultural and tourist-based, versus the industrial and high-tech economies that France and Germany have. And that may be part of the overall problem.

As to what I think . . . to be honest, I’m not sure. Germany and the Euro Union certainly do seem to be unusually fixated on having Greece “learn a lesson”. And a Greece that remains in a long-term economic depression from “fiscal discipline” is even less likely to pay its bills (or some significant part of them). On the other hand, starting in the 1990s, Greece increasingly became a Ponzi scheme economy — they borrowed and used the money for consumption, which seemed to make the economy appear to be growing; such growth allowed them to borrow even more money. It was a viscous, illusionary cycle (like the American housing market in the 2000’s), and it was finally burst when the American housing finance crisis of 2007-2008 shook the entire world economy. Lenders around the world became much more conservative, and ever since then, Greece has been going through a series of bail-out arrangements that never seem to stick. Every year or two, a new Greek financial crisis has erupted, to be patched up with some more assistance and fiscal austerity measures. This one is being cast as the final showdown.

Many writers point out that since 2008, the Greeks have not met their bailout goals of increasing their tax collections, streamlining and downsizing a bloated government bureaucracy, cutting back on pensions and other government assistance programs, modernizing financial regulations and import/export trade laws, etc. And the recent election of the leftist Syriza Party and Prime Minister Alexis Tsipras just made things worse, as Tsipras promised that he could find a way to straighten out the mess without cutting back popular public assistance programs (especially the early retirement deals given government workers) or otherwise capitulating to German / Euro austerity demands. As a result, the Greeks are now facing closed banks and an economy that is shutting down; it thus appears that an intransigent attitude was not the best way to approach the problem.

On the other hand, the lenders (mostly European sovereign governments; most private lenders were previously bailed out) are not going to enhance whatever they might get paid on their Greek loans by continuing to starve the Greek economy with strict austerity measures. The most rational thing would appear to be contingent debt relief program, based on Greek cooperation in actually carrying out the needed reforms of their government and their taxation / regulation structure. (A milestone plan would be best, i.e. giving progressive debt relief as major reform goals are met.) At the same time, new investment from Europe should be injected (again, contingent upon achievement of reform goals) to stimulate infrastructure spending, e.g. on roads, ports, schools, data lines, etc. This infrastructure should provide the basis for a long-term plan whereby Greece would wean itself from its over-reliance on shipping, tourism and agriculture (love that olive oil, though), and join the modern information and high-tech economy. I think that Greece has been relying as a nation a bit too much on its museum status (and thinking that a European Union would never kick it out because of its historical legacy).

They could take a lesson on that from the Israeli’s. Israel certainly can’t sit back on its Holy Land laurels, even though it does all it can to encourage the tourist trade. It has developed a strong and diversified modern industrial / technical economy, one that is needed for Israel to live up to the challenges that it faces from its neighbors. Like Israel, Greece too has a problem and an historical fear of an Islamic neighbor, i.e. Turkey. But unlike Israel, Greece thought that its desirability to the rest of Europe would give it sufficient protection against Turkish domination. Germany and the EU are now rightly making the Greek people re-think that notion (one key component in Greece’s unsustainable financial position is its large military budget, inspired by its distrust of Turkey).

Another way that Germany could help Greece is to commit to taking as many temporary workers from Greece as it can, and help them to find temporary jobs there or in other European countries. This would help to soak up the many unemployed Greek workers, and also help the homeland since temporary workers send a lot of their earnings to families back home.

The whole situation is a real mess, and it’s not going to be resolved without both sides playing some real hardball. For better and for worse, Germany and Team Europe have the upper hand, and eventually Greece is going to have to “get real” with that. Hopefully that will be done sooner rather than later, as to minimize the damage and the suffering that the Greek people definitely will encounter. But, Germany is also going to have to keep the olive branch of debt relief held in plain sight, and stop being so “Teutonic” (I mean, olive branches themselves are a Greek thing).

Again, we can only hope that rationality will soon “infect” both sides. The longer that one side holds out, the longer the other one will too. And the worse things will become for the people of Greece.

◊   posted by Jim G @ 4:00 pm      
 
 


  1. Jim, I’ve been thinking about the whole Greece problem too. Somehow or other the picture of long lines of people standing in front of banks trying to get their money back reminded me of the depression of 1929. Altho I wasn’t born until 5 years later, my mother worked in a bank several years before I was born and thus she had *lots* of stories to tell about banks closing their doors, having no money to give to people, people standing in lines for days trying to get their money and not getting it in the end, etc. She was so conscious of the big problems during the depression of 1929 (have to add the year these days since there the last “great depression” is one we really are not out of yet), and hearing all the stories almost made it as if I had lived through those times myself.

    I myself remember living through the end of those depression years, not a pleasant experience (altho to be honest at my age then I tho’t that’s just how things were). Regardless of what the cause of the depression was the ordinary people, for the most part, are not the ones responsible; yet the ordinary people are the ones who get the brunt of the suffering in such situations. Same with the last, recent “great depression”. While the ordinary people might have taken advantage (temporarily) of the money situation, they were the ones who had the hard times when their homes were foreclosed on, they lost jobs, etc.

    This sets me to wondering if the countries in Europe have not remembered the basic cause of WWII – the fact that nobody helped Europe get back on its feet, that the “let them suffer for their sins” was not a really good way to handle the problems of countries going under financially. And while I’m talking “countries” here, I also might as well add “states”, as in the individual states that make up the U.S.A. My own state just over the holiday weekend has still not solved the serious money problems it has – similar to the ones in a “great depression”.

    Seems to me that no matter how upset everybody else might be with a country (state or individual) that is not “doing the right thing” financially, the worst possible way to handle the situation is the “make them suffer for their sins” solution. I’m not sure what the solution might be. However, I’ve seen individual people, individual families who were in similar trouble: Seriously in debt, almost no way to get out of it. How to handle the situation? How many TV programs have there been about individuals in just these situations; the programs designed to tell them how to get out of credit debt, etc.

    In the end it seems to me a combination of things is the solution. One thing is: Yes, indeed, the country needs to use responsible use of the money used to pay its bills. But that is useless if someone doesn’t help them out of the pickle they are in. It’s that simple. If somewhere along the line, after WWI, if even one country had helped Germany rebuild and get back on its feet, would there have been a Hitler? I don’t know, but I think it’s a good question. It’s just possible there may *not* have been a Hitler. In such situations there’s always a power vacuum; and usually, it will be the *wrong* person who fills that vacuum. Thus, it seems only sensible to me that the European countries (even the U.S.?) help out in Greece.

    A second thing is that the country itself has to learn what its mistakes were, correct them, and not continue along that line.

    It also seems to me that a lot of countries, states, individuals have been in this “depression” situation. I wonder if it may be because the economy itself is changing. We may be going from a consumer economy to some different kind of economy with the information age. The information age has changed economics too whether or not people recognize the situation. “The Atlantic” has an article about “A World without Work” by Derek Thompson that quite thoroughly handles the changing situation of the economy of the world in general.

    He asks some serious questions and has some possible answers – and “possible answers” are about all that one can talk about at this point. Among the many questions and answers he cites, one struck me: What happens when a consumer economy loses its consumers? If nobody wants/needs to buy consumer “things”, then the producers of those things also go under.

    Thus, I wonder if this problem of countries/states/individuals having serious economic problems that cause serious depressions is the result of “simple” bad economics and bad use of money. Perhaps the problem is larger; perhaps the economy of the world is changing due to the information age that has been upon us for longer than we may think. The solution to economic problems perhaps should be seen in larger terms than simply “make them pay for their sins” or help them out if they need it. Perhaps a larger, broader view of the economics of the entire world (economically we are one world at this point, or so it seems to me) is something that needs a serious “look at” and Mr. Thompson has some good tho’ts on the subject. MCS

    Comment by Mary S. — July 4, 2015 @ 7:35 pm

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