Eichengreen and Gros on Greece

Barry Eichengreen writes about the Greek situation at Eurointelligence: you can read it here.

Daniel Gros has an FT comment here.

Both emphasise that the main challenge now is for Greece to undertake a very sizeable fiscal adjustment.

Update: The Economist has a nice article on the Greek situation here.

33 replies on “Eichengreen and Gros on Greece”

@All [following the previous thread, a bit more political, but I’ll pop it here as well]

Ulrich Beck not too impressed with his Chancellor – Le Monde [were Beck an economist, as distinct from a sociologist, he would walk the Nobel Prize for his work on Global Risk – these disciplinary boundaries are a bit of a nuisance anyway and a source of this risk ……. a complex world is interdisciplinary]

“Angela Merkel n’est pas Angela Kohl ou Angela Brandt. Le chancelier Kohl avait déclaré dans son programme de gouvernement pour les années 1991-1994 : “L’Allemagne est notre patrie, l’Europe notre futur.” Willy Brandt avait dit lors de la première session du Bundestag de l’Allemagne réunifiée : “Etre allemand et être européen, désormais, cela va ensemble et, espérons-le, à jamais.” La torsion à laquelle la chancelière Merkel a soumis cette profession de foi froisse un nerf sensible, et pas seulement chez les voisins européens.

Elle n’est pas non plus Maggie Merkel, soumettant d’une main de fer l’Europe à la logique du marché. Elle est Angela Bush.” OUCH!


& More on Greece and others not too pleased with Chancellor Merkel ……….


But Barry Eichengreen thinks all OK. So all OK …


Greece matters – Europe Matters: After the Sheeply Shopping spree in the Dail on Black Tuesday I’m going all-in on EU. No big Switzerlands or little Chinas a la Beck’s description of present German policy.

It is really hard to understand two things:

1. Why the cheaper (for Greece) IMF bailout is not being pursued.

2. How the proposed euro bailout can be anything other than illegal under the Maastricht treaty.

The euro option being pursued seems to be based on ‘ever closer union’ fundamentalism. Nevermind that the bundesbank want nothing to do with it.

I thought the no bailout rule for the single currency was there for a reason.

& why is broke Ireland being asked to lend Greece 480m euros?

Not sure I like his prose …… 🙂 but the chance for Greece to have a better system is indeed there, now.

That also applies to Ireland. What most complain about is the loss of potential wealth, proving they do not deserve it in the first place, if ethics has a place in this. Reform the system. Stop the “who you know” crap that was at the centre of Iceland’s demise. Rent seeking is corruption.

I suggest it is politics. The Germans have many greedy voters… like Ireland. They have to appear to be reluctant, as they should be, but using a spade instead of a trowel?
Then the fiat currencies have to devalue. So every crisis becomes a drama!
Ireland is rich. Just ask FF!

The European Union is high on the list of great human accomplishments. The establishment of the Euro is the icing on the cake. The EU is now the premier economic power in the world and the Euro is a strong and stable currency. A half dozen members of the EU have flogged their economies until they collapsed. Nationalism has been catered to up to the present day. The luxury of catering to the tender sensibilities of the easily offended is about to end. Commissioner Rehn’s proposals to depoliticize EU rescue policies and to intervene early in the national budget making processes of future PIIGS are timely and sorely needed. Some countries will no doubt regress to pre Union primitive nationalism/patriotism state from which they have not successfully evolved. The IMF is suited to those countries who want to be browbeaten into conformance with US ideology. The EU has its opponents who eagerly look forward to its decline and the US is high on that list. I would add some vociferous elements in GB society to the list of opponents. We have some tribal memories of bobbing around in the economic eddies thrown up by dominating economies and if we have any sense we will convert the “Ourselves alone.” ideology into “We are all in this together and if we pull together we will all be better off.”

I write this in anticipation of the coming furor about faceless bureaucrats in Brussels and Frankfurt deciding our economic future. Our politicians have done such a good job of codding us that the electorate is likely to act in opposition to its own interests.

@Ciiaran Daly
There are limits to IMF funding based on the size of the country’s contribution to the IMF. The sums involved for Greece are far more than they could get from the IMF alone.

Perhaps the Greeks approach to the IMF/EU support is similar to Hank Paulson and his Bazooka:

“If you have a bazooka in your pocket and people know it, you probably won’t have to use it.”

Shame it didn’t work out for Hank. (See: http://bit.ly/9ESxd8 )

I hope Mr Lenihan asks for some nice security on Ireland’s Eu 450 million cheque. Here’s a nice idea from German politicians: http://bit.ly/9Q93Pc


Well argued.

This why in EU we need The ‘Solidarity Bond’ – the most valuable intangible bond of all if Europe is to figure itself out, prosper, and perhaps reinvent itself again. I’d pay a lot more than 5% for it; luckily enough at the mo noone can ever fully figure this bond out (but I wouldn’t put it past the Derivatives Club to be gambling with what they can sense of it right now – this form of gambling has to be banned in the EU). I’m for keeping up this momentum. Beck is perhaps a little harsh on Chancellor Merkel … but he gets his point on the dangers of a bubble in nationalism in certain areas, with social and economic consequences for the development of the whole. Politics is still politics. Here’s to Chancellor Merkel and Minister Lagarde taking a few hedgehammers to the ominous structures that allow these casinos that play with nations to operate.

As I’ve noted before, I would gladly have taken a few “faceless bureaucrats”, representatives of European deliberative democracy, from Brussels, Frankfurt, Paris, Copenhagen, Amsterdam, etc. to mention a few, to cast both a general and a specialist eye on the welfare of the Irish citizenry and in the overall interests of the European Citizenry. Just look around here! Irrefutable. Ireland in Europe? Europe in Ireland? Both simultaneously. Ouzo anyone?

@David O’Donnell – a Solidarity Bond is indeed a good thing and it has given us (Europeans) peace and prosperity. However, solidarity can’t be a one way street where the better off countries show their solidarity by forking out large wads of cash while the recipients ignore their solidarity through reckless and dishonest behaviour. There have to be effective mechanisms to incetivise good behaviour (all around) – there is plenty of evidence that bailouts do the opposite.

The big question here is, is Greece capable of the structural reforms that are needed and which constitute their part of solidarity? I have my doubts.

@Edgar Morgenroth – “The big question here is, is Greece capable of the structural reforms that are needed and which constitute their part of solidarity? ”

I suspect (having spoken to a couple of friends in Athens last week) that the Greek population think that the government have now made all the ‘adjustments’ that were needed. They have a very rude awakening coming their way. There may be trouble ahead….

@Joseph – that is exactly what I am thinking. The bailout will get them over this year and we will be in the same place again in 12 months time and again and again and again……. unless they takcle their problems properly. In the meantime there is lots of money to be made in speculation.

Yes, there is an immediate problem in Greece that needs to be dealt with now but what we need is a proper lasting solution and not a fudge that has to be revisited again soon. There are lots of people criticising the proposals that have come from Germany – what proposals have those critics offered??? Is their position that the status quo is OK??

Edgar to suggest that anything beyond the EEA is required to give Europe peace and stability seems to me to be an utter fantasy especially given the failure of the union’s regional policy and the euro’s active destruction of certain regions.

I think Peter Boone & Simon Johnson lay it out well here in relation to Portugal,


the obvious implication that even if the current illegal bailout proceeds it will simply not be affordable to bail out the other bigger players. Hence it’s fairly obvious.

“It is 50-50 whether the eurozone breaks up” – George Soros


Agree. Solidarity is a two-way street. For all EZ members, not just Greece. And yes, if a member continues to act recklessly – well, tough. Think this is the next level of Governance …

@Ciaran Daly
Maurice is correct The FT article states this –
“The contribution of the IMF had to remain marginal given that its programmes are usually limited to 10-15 times the borrower’s “quota” at the institution, which in the case of Greece is set at €900m.”

“Regulation can be strengthened to prevent Goldman Sachs from again colluding with a government to disguise its true fiscal position”
“Door may be closed after horse escapes”.
Greeces future is already mortgaged – and all to satisfy what Matt Taibbi called:
“a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”


Not just wild sovereign stallions ………………. but also Financial Moguls … that need a bit of tough-taming medicine to bring them back into sense and reality ……….

“S.E.C. Accuses Goldman Sachs of Fraud on Mortgage Deals

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a deal that helped investors capitalize on collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.


@David O’D
Matt Taibbi uses more expressive terms than NYT to describe Goldmans shenanigans:

“Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God’s sake — pretending the whole time that it wasn’t gradeD horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling”


@Aidan McGrath

Taibbi has a bit more elegant a sharp bite alrite! This is just one of a large number of rip-off equations that these moguls subject us to – solely to their own ends. Gotta stop …

eh folks, Goldman’s, for all their financial wizardy, did not get Greece into this mess, so its a tad silly to use this thread, and the other one on fiscal adjustments, to make yourselves feel better with some Goldie-bashing.

Successive corrupt and inept Greek governments is what caused their current problems, and there is now a systematic level of tax evasion or avoision in the country, as well as an almost completely broken pension entitlement system. To be honest, if Greece were a private company, it’d be pretty much insolvent and in danger of conducting reckless trading right now.

@Bond. Eoin Bond

They are connected. Part of the present out of control financialization system – one follows the connections – and this is a simple one; if so bloody blatantly cancerous in its simplicity. Time for serfs and soveriegns to wise up on these rip-off equations. Greece, once again, is both particular and universal.

..but I believe Goldman and the CDOs (not just Goldman but mainly) deserves a thread of it’s own to properly explore the extent that it is responsible for the global financial crisis.. maybe it has already been discussed. Now that the SEC has charged them with fraud it might be a good opportunity to revisit the whole subprime affair.

@ Aidan/David

Greece has a national debt of around $400 billion. How much of this has been caused or due to GS? GS may be up to dodgy shenanigans all the time, but even they are not capable of creating a crisis of this proportion.

I’m not saying GS are responsible for Greece’s national debt. Just that they had their snouts in the trough and they have large snouts.

Matt Taibbi on Bloomberg on the GS CDO scam. He makes a good point that their reputational damage will be difficult to recover from because they were ripping off their own clients in this case. And as he says “who is less popular right now the Pope or Llloyn BlankFein?”

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