Jacques Melitz on Greece and the Euro

I have never really understood the idea that the Greek fiscal crisis is “a threat to the euro” but have generally sensed the tide running against me on this one as serious people warn darkly about the wider repercussions of a Greek default. Still, I find the arguments in this new CEPR Policy Insight paper from Jacques Melitz (“Eurozone Reform: A Proposal”) to be pretty convincing.

Melitz argues that much of the damage to the Euro caused by the Greek crisis has been due to the inaccurate focus by EU officials on the centrality of fiscal discipline. Some quotes:

The European problem is largely self-inflicted. There have been repeated affirmations by the ECB and government officials in Eurozone member countries that fiscal discipline and the Stability and Growth Pact are the very foundation stone of the Eurozone. This can only mean that Greek default is a big problem for the euro. On this view, the Eurozone is partly a victim of its own self representation …

So far as I can see, there is little reason why Eurozone should view government defaults with any greater alarm than any other central bank management in the world would view government defaults within its territory. To the contrary, the Eurozone is particularly well armed to deal with such defaults, since its own central bank has no large central government to contend with, the Maastricht Treaty guarantees the central bank’s independence and member governments are explicitly forbidden to bailout one another …

Accordingly, must not the official doctrine change? Should it not be that nothing so manageable as a Greek government default can upset Eurozone? In the event of a Greek government default, the system would assure the stability of the Greek financial sector, and concern itself with any bank runs or bank failures in the country, but not with the Greek government’s difficulties. In step with this doctrine, government bail-outs will never be contemplated. The Stability and Growth Pact will continue to serve as a code of good fiscal conduct for all members of the EU. But if any individual member government engages in irresponsible fiscal conduct, contrary to the Pact, its taxpayers and the creditors will bear the consequences.

Melitz argues that rather than institutionalising bailouts, there should be EU-level financial supervision of banks under the auspices of the ECB to allow for more efficient containment of the effects of fiscal default on financial stability.

85 replies on “Jacques Melitz on Greece and the Euro”

@Karl Whelan

“I have never really understood ……”

You might read a little Jürgen Habermas – recent interview in Financial Times here:
http://www.ft.com/cms/s/0/eda3bcd8-5327-11df-813e-00144feab49a.html

“The financial crisis has reinforced national egoisms even further but, strangely enough, it has not shaken the underlying neo-liberal convictions of the key players. Today, for the first time, the European project has reached an impasse. Imagine the improbable scenario of a co-ordination of the economic policies of the eurozone countries which would also lead to an integration of policies in other sectors. Here what has until now tended to be an administratively driven project would also take root in the hearts and minds of the national populations. The symbolic power of a common foreign policy would certainly promote a cross-border awareness of a shared political fate and bolster a further democratisation of the EU. ”

Economics, Politics, & Globalisation ….

@Karl
I think you are in a minority on this one. Just read Wofgang Munchau in today’s FT.

I think you and Melitz are seeing but a small part of a much bigger picture. What you represent to be true certainly is; a Greek default would be neither here nor there if was an isolated problem. But, of course, it is much bigger that this. And it’s not just because Greek-style problems could quickly engulf the other PIGS.

It actually goes to the heart of what the Euro, and the EU, is for. The great project was mostly about bringing peace to Europe but also prosperity. It just doesn’t work if the club has a prosperous core and a deflating periphery. Even with default, the periphery still deflates for years.

As Munchau suggests, those many of us who argued that monetary union without political/fiscal union might not work, have been proved right. The project, according to Munchau at least, has failed. The risks of a very destabilising few years are extremely high. Unless full political/fiscal union is now back on the agenda?

For Ireland at least (and now others) that might not sem so fanciful. Brussels is running the Dept of Finance and the banks. The ECB everything else that matters.

@ Chris johns

As Rahm Emanuel said “never waste a crisis.” You are right to point out that the lacuna in the original version of EMU was the lack of political and fiscal union. These design flaws will be ironed iout in part in EMU 2.0.

Our fiscal policy is determined in Brussels but more granular decisions on taxation and spending policy are still open to question. How long before we are told to raise CT to “close the deficit”
The structure and scope of our banking industry is determined in Brussels.

Now how about some political accountability?

@chris johns – “And it’s not just because Greek-style problems could quickly engulf the other PIGS” – do you really believe the current ‘solution’ to the Greek crisis is going to stop another PIIGS getting into trouble?? I don’t – the markets got what they wanted and they will see if they can get some more. Greece can’t, without serious help, pay back its debts – so why not deal with the fact that they can’t pay back and restructure the debt. The bondholders took risks so they have to share in the losses and the Eurozone rules/institutions were not up to the task so some of the losses should be shouldered by the Eurozone members.

“It just doesn’t work if the club has a prosperous core and a deflating periphery.” – the prospeous core has been helping the poor periphery for years via the Structural Funds and the Common Agricultural Policy. Does that suggest that the club is somehow unfair or does it suggest that certain countries can’t run their affairs?

@tull mcadoo ” How long before we are told to raise CT” – I noted the likelihood of this some time ago. However, we should hold firm on that one. Unlike Greece we might be able to trade our way out of the mess but not if we loose our multinationals. I suspect that the more informed politicians in Germany have not raised the issue for that very reason although other less cerebral sorts probaly won’t be able to resist.

@Edgar

“And it’s not just because Greek-style problems could quickly engulf the other PIGS” – do you really believe the current ’solution’ to the Greek crisis is going to stop another PIIGS getting into trouble??

Nothing I said suggested anything of the kind. I said that the problems run deeper than the fiscal and monetary crisis that COULD also impact on the ret of the PIGS.

In ADDITION to those potential problems there is a political issue raised by a deflating periphery and prosperous core. As you say, structural and other funds have for years been promoting the opposite: economic convergence between periphery and core. But if all that goes into reverse, the problems solved by that convergence risk making a comeback.

Just because the German taxpayer has been on the hook for convergence for decades doesn’t doesn’t provide a reason for saying he is no longer going to be presented with the bill. He will. As ever, there is both choice and consequences. Pay up or not: both have profound consequences.

@ Chris Johns

As already noted, I’ll happily concede to being in the minority on the question of Greek default being a threat to the euro. But just because the majority of folks think something, doesn’t make it true.

I think, as if often the case when people disagree, whether I’m wrong or right about the “Greek threat to the euro” depends mainly on how one interprets that statement.

If one interprets the euro as a “great project” to bring peace, prosperity and happiness to all parts of Europe, then of course the very existence of the unfortunate Greek situation is proof that this project as failed. Whether further political\fiscal deepening as a way to rescue the great project is feasible is highly debatable.

However, I suspect that only some view “the euro” as being synonymous with the great project as you’ve outlined it. If one views it merely as the common currency of a subset of the EU, then I think it’s hard to view a Greek default as being a threat to euro.

To make an analogy,

in the past most countries used gold as their currency. The supply of gold was exogenous to the country, just like the Euro money supply is. Just because countries that used gold defaulted did not mean gold was no longer viable.

I suspect part of the downward swing in the Euro is just part of a negative speculative bubble. Its not like the ECB will start printing money just to pay off Greek debt.

To stretch the analogy it was only when Nixon took the dollar off the gold peg that gold stopped being the ultimate reserve. Similarly the only threat to the Euro will be if the Euro becomes overvalued for Germany, which is unlikely to happen in the forseable future.

A monetary union, without fiscal union leading to a crisis that would allow a trojan horse been given the Greeks that would in turn result in closer economic integration – by jove Holmes who would ever have guessed it! I say, didn’t that ghastly Ganley chappie warn that this would happen?

@Edgar Morgenroth
““It just doesn’t work if the club has a prosperous core and a deflating periphery.” – the prospeous core has been helping the poor periphery for years via the Structural Funds and the Common Agricultural Policy. Does that suggest that the club is somehow unfair or does it suggest that certain countries can’t run their affairs?”
http://www.highlandradio.com/2010/05/03/education-department-spent-500000-renting-from-tanaistes-uncle/
Ref. Poster Ang on another forum.

Recently Listened to George Lees Little words to the Limerick Inteligensa.

What struck me was the typical Irish conservative belief of externalising power to a higher authority.
The curse of Rome has not left this country it has just moved shop to Frankfurt.
He was asked the question – why can we not leave the Euro – his excuse not to leave, we would continue to pay our debts in Euros !
Complete boulder dash.
A sovereign country if it is truly sovereign can pay its creditors with the currency of choice.
Albert Edwards of Soc Gen as recently stated that he believes that countries have been played to perfection.
Micheal Hudson is far more open with his contempt
It is not a coincidence that we are now in the greatest contraction of the Irish economy since the Famine – just over a decade ago we have given our last vestiges of monetary control to one of the many heads of the hydra although we have harboured many snakes in this country prior to that act of treason.
I say enough to this gombeen hat tipping – we are being played like the peasants we are, if you want to remain a serf or even a absentee landlord continue on with your hand wringing.
But if you want to do anything substantial then the only option is to default and give creditors some Beautiful Lady Laverys.
I am sure they will admire her perfection.

“there is little reason why Eurozone should view government defaults with any greater alarm than any other central bank management in the world would view government defaults within its territory”

This raises two questions: (1) How many other central bank managements in the world even have multiple governments within their territories which are capable of even accruing any significant debt, never mind sovereign full-faith-and-credit debt? and (2) with how much alarm *would* such a central bank view such defaults?

California faces a debt of $85 billion and a $21 billion deficit, which as a ratio of its GDP ($1.85 trillion) is peanuts by national-debt standards, but given budgetary constraints on both supply & demand sides and other political factors, makes the possibility of default a very real one.

“Confusing what is written in the msm for what is real can cause confusion”

Discuss.

Economists are hired guns to deliver current fiscal policy for the EZ …..

As the euro is declining, then things are going well. But it has a long way to go. It will stop, once the debt burden on the EZ as a whole is considered bearable. Those who like Ireland, have taken deep and early action, will recover sooner. As this happens, they will attract investment. This may take some time as many of the credit contractions are still to come. In the meantime, panic slowly and in accordance with the rules. It is the european thing to do. How is the UK arranging to devalue the GBP?

The paper concerns itself with governments. It neglects the current source of money. Banks depend on a “system”. Once the system works, then the correct accounting entries may be made and the bank continues. For a while. They are slowly being reinflated, but it may take decades, as in Japan. In the meantime, academics must publish or perish.

@Karl W
“If one interprets the euro as a “great project” to bring peace, prosperity and happiness to all parts of Europe, then of course the very existence of the unfortunate Greek situation is proof that this project as failed. Whether further political\fiscal deepening as a way to rescue the great project is feasible is highly debatable.

However, I suspect that only some view “the euro” as being synonymous with the great project as you’ve outlined it. If one views it merely as the common currency of a subset of the EU, then I think it’s hard to view a Greek default as being a threat to euro.”

I think your comments go to the heart of the matter. If the only thing that concerns us is the ‘stability’ of the euro, somehow defined, then this is a non-trivial but merely technocratic debate. And you are right, the matter of a Greek default or restructuring should be a relatively easy affair to handle. But the failure to place financial events in a wider institutional context is surely important? And it is not the failure to analyse institutional concerns – and their historical context – that lies at the heart of many Krugman-esque critiques of modern macro?

The question is this: what is the euro for? If the answer is merely something that affords a common means of exchange, one that trades in a ‘stable’ way against other currencies, then it is working. But even that might change if contagion spreads and/or the ECB’s authority is diminished (see the change yesterday to their collateral rules). If, however, the answer is couched in terms of the great European project, as I think it should, then the answer, as you say, is quite different.

This is rubbish. The only way that a monetary union can devalue without disturbing the union is to allow the banks to hit the wall. All this current stupidity should be looked as if Sligo defaulted. Which would only matter if people made a fuss about it.
The whole beauty of the monetary union is that stupidity such as we’ve seen is eased Because there should be fiscal stability at exchequer level for who gives a hoot as long as the underlying profitability continues. What we are doing is throttling the spending of the person buying the latte of a morning.
Banks per se are important, but who thought that these banks are or any bank has the right to permanent survival.
But things have to get cheaper across the board, while holding the level of wages or increasing them for everything else from the leverage that every small firm partook to the foolishness of a property market using a model of New York or LA can be restructured.

May 4 (Bloomberg) — The European Central Bank may start
government-bond purchases should “contagion” in debt markets
in the region continue, according to Royal Bank of Scotland
Group Plc.
“Markets should be alert to the risk of ECB bond buying,
as early as today,” Harvinder Sian, a senior fixed-income
strategist in London, wrote today in an e-mailed note. “It is
the only way for the ECB to get seriously ahead of the curve
with regards to the solidarity of Europe, and this option is on
the table, we believe, if contagion risks persist.”

I actually think a sovereign default now would be exactly what the markets need long term. The idea that any investment is 100% risk free should be completely blown away and markets should price government bonds just like any other investment.

What the marke and governments really need is a form of subordinated government bonds where repayments are tied to growth or some other not easily manipulated statistic

Last one, I promise…

May 4 (Bloomberg) — European Central Bank President Jean- Photo
Claude Trichet, who capitulated on a January pledge not to relax
lending rules for the sake of one country, may have to sacrifice
more principles to prevent Greece from bringing down the euro.
Trichet yesterday diluted rules for the second time in a
month to guarantee the ECB will keep taking Greek government
bonds as collateral for loans. The central bank may have to
extend that to other nations, renew a program of lending
unlimited cash to banks for a year, and even start buying
government debt if the 110 billion-euro ($146 billion) bailout
plan for Greece fails to stem the euro’s slide, economists said.
“Rather you break the rule book than the euro area,” said
Jacques Cailloux, chief European economist at Royal Bank
Scotland Group Plc in London.

Maybe this will lead to government bonds being split up in tranches (as was done with the subprime).

If it were, then I suppose it would be seen as a great innovation as all government bonds would probably end having AAA rating and therefore the risk could be seen as gone and governments would have cheap access to funding again…….. However, the risk is still there & the middleman who splits the bonds will be the one with the profits. The losses (when they occur) will of course be socialised.

ECB monitoring of the banks would be a welcome bonus, especially if the people monitoring would be rotated within europe to prevent chumminess developing between the monitored and the monitor.

The euro will survive Greece restructuting of debt. It will not survive changing the rules in midgame.

For what its worth the article referred to in this post seems panglossian in the extreme. The ECB balance sheet has not been protected from a Greek default. Indeed the most recent moves to suspend the rating criteria from Greek debt will exacerbate this risk.

In the pre-crash years, credit artificially boosted living standards in several countries.

Convergence is not an easy process as Germans might tell you; after spending huge amounts in the former East Germany, total economic output (which compares per capita GDP) in 2007 in the East was about 70 percent of that in West Germany.

Are small countries better off with unstable currencies, high interest rates and inflation than in a monetary union?

Last January, George Provopoulos, governor of the Bank of Greece, wrote in the FT: During the 1980s, Greece had another twin-deficit problem (large and unsustainable fiscal and external imbalances) and its own national currency, the drachma. It waved the magic wand twice, with large devaluations of the drachma in 1983 and in 1985, but in the absence of long-lasting structural adjustment and sustained fiscal contraction. The devaluations were followed by higher wage growth and inflation, with no sustained improvement in competitiveness. Speculative attacks against the drachma were avoided only because of strict controls on capital flows, an option that is no longer feasible or desirable. The twin-deficit problem remained. So much for the magic wand of currency devaluation.”

By 2016, China will be Germany’s biggest customer; it has double digit export growth with other emerging economies including Poland.

The risk for Ireland for example, is not from German exports but that the US is becoming a cheap production location.

There is no ready solution to strategies that can require a decade or more to have an impact.

Look at our own foolish expectations from the so-called ‘smart economy.’

Developing new export markets is generally very difficult.

China may become Germany’s top export customer by 2016; Global rebalancing favours US net exports – – US becomes cheap production location

I wholeheartedly second the statement of dreaded_estate that the illusion of risk-free investment is one of the core problems in the financial psychology of the age.

Money is, after all, merely an instrument to reflect the value of goods and services in the real world. Its time value is fundamentally linked to the notion that physical goods depreciate at a certain average rate, and hence require reinvestment in order that their stock be rejuvenated.

This process (of building new widgets with yesterday’s foregone consumption) is fraught with risk (i.e. the roof of the widget factory collapses; a new health study proves the widgets cause cancer…), and hence so should be any monetary investment which acts as its clearing house.

The very idea of earning inflation + 2% risk free is just wrong. It means there is an imbalance in the financial economy (bubble) which is going to pop, leaving someone to hold the bag.

At least one of the reasons for the Euro is to provide cheaper credit to higher risk countries. Indeed, for countries such as Greece, the main reason for joining EMU was cheaper borrowing. A Greek default would bring this to an end by severing the link between individual countries’ credit ratings from that of a fictional common Euro identity.

It would not necessarily be the end of the Euro, but it would be the end of its purpose in the eyes of many European countries.

Secondly, even if the Euro was unaffected, Greece, like all EU countries, is a member of the common Economic Policy, and a default now instead of internal restructuring would be a huge reversal for EMU. The Common Economic Policy might never recover from such a failure, and the common currency would be much harder to maintain in its absence.

Well, if this comment on roubini.com is correct, the Euro may be coming under some further pressure before too long:

“RGE Analysis by Arnab Das and Natalia Gurushina:

The announcement of the Greek bailout deal is likely to result in a EUR relief rally, especially if the size of the rescue package surprises on the upside. However, RGE believes that such a rally will be temporary and would advise to use EUR strength to build up short positions, for several reasons.
First, the prospect of the Greek debt restructuring raises a question mark as to the euro’s status as a key reserve currency.
Second, we believe the Greek crisis is only the tip of the iceberg. The debt sustainability problems in other eurozone countries are equally serious while the macroeconomic limitations are often more severe than in Greece. Hence, the longer-term negative impact on EUR is likely to be more pronounced compared to the current episode.
Three, despite the recent depreciation, EUR is still very expensive compared to most advanced currencies in either real or nominal terms. Fourth, a lack of inflation pressures, the wave of fiscal austerity in the eurozone and the need for intra-eurozone rebalancing by augmenting domestic demand in Germany speaks to easier money than perhaps the relatively hawkish ECB would have envisioned prior to the debt crisis.”

Is there a Euro relief rally going on this morning? The last time I looked it was on the slide against everything except the SA Rand.

@chris johns – “Trichet yesterday diluted rules for the second time in a
month to guarantee the ECB will keep taking Greek government
bonds as collateral for loans”

Please help my understanding. Does this mean that any bank holding Greek debt, even though it’s effectively junk, can now unload onto the ECB in exchange for Euros?

Surely this is a very dangerous move for the ECB? And if they do it for Greece they will be obliged to do it for others (including Ireland/Spain/Portugal/etc.)?

Who actually ‘owns’ those Euros? This is what troubles me – might it be another method of moving money out of the public purse and into the private sector (again)? Please don’t tell me the various taxpayers are going to be in line for another hit when Greece eventually defaults (how can they not default when the mountain of debt just keeps growing – they will never be able to pay it back… is the common sense way of looking at it. You don’t need a degree in Economics – even an idiot can see that. They have simply booted the problem into the future.).

@Ger,

the reduced cost of borrowing was due to the removal of currency risk. The currency risk included a default/restructuring (devaluation) risk and it appears that some investors assumed that since the currency risk is gone, the default/restructuring risk was gone as well. Now it is clear that the default/restructuring risk is still around……

@ Jesper
Agreed. Which is why some MSs are so desperate to reinstate the Status quo ante; by ensuring no lender suffers now from the default risk that was (arguably) inherent in lending to Greece previously.

It’s convoluted and messy, but it’s also an implicit part of the Euro bargain that enticed the Southern countries to join the currency.

@Dreaded Estate
‘I actually think a sovereign default now would be exactly what the markets need long term. The idea that any investment is 100% risk free should be completely blown away and markets should price government bonds just like any other investment.’

Amen to that.
The tab would probably end up with AIG anyway since they insured everything.

The problem appears to be wider and deeper than than the EU and the Eurozone.

Countries have been engaging in effective default through devaluation for hundreds of years. It is an important basic perogative of sovereign nations. Default through devaluation and inflation done properly (i.e., not Zimbabwe style) is an important if imperfect mechanism to partially restrict the effect of money and to reconcile it with the needs of the nation.

The sovereign debt markets restrict countries’ freedom somewhat but (unless creditors are willing to go to war to enforce their debts as the British have done in the past) ultimately the creditors have to accept restructuring. Their only method of punishing the offending country is the restriction of credit to that country. In the meantime, the country can devalue its currency and internal trade can go on.

The euro has changed this as countries cannot devalue anymore and internal trade can only continue as it was through reducing wages, prices and so forth. This involves similar pain to devaluation but entails a vastly increased transaction cost as the hang-over of unsustainable debts denominated in euros must be dealt with through the courts, through negotiation or through full repayment. The pain is not spread evenly but rather is focussed on those productive people who can service the out-sized debts.

However, this does not mean that the Euro is the core problem and national devaluation is the ultimate solution. The integration of not only European markets but also world markets makes devaluation much more painful and serious than it was before. The idea of Greeks being able to provide for their needs through internal trade is no longer sustainable. Even Ireland does not produce as much food as it consumes.

The costs of fluctuating exchange rates are also difficult to deal with in such an integrated world. This is problem when competing with China, India, the USA, Brazil, Russia etc, all of which can survive better than individual EU countries on their own.

However, even if the Euro is not the core problem it does not appear to be the solution. If it is not the solution then it is likely to be blamed (politically) as being the problem. A better solution is required urgently and the political and economic situation must be kept stable while it is generated. The EU’s dithering and confusion are working against its efforts to stabilise matters.

There are serious barriers to integration (apart from Ireland’s penchant to be a vehicle for amoral tax arbitrage). The crisis has shown that each nation still has to look after its own banks and nations in trouble stand on their own to a large degree. This is coupled with the growing perception of Europe as a project of elites where sovereignty and is surreptitiously divested from countries and democratic control is divested from the peoples. Even the Greek bailout is beginning to look like a deal done at gun point for the benefit of the EU.

Part of the larger problem would seem to be the the systemic risk to the world economy if Greece and some PIIGS go under. The US previously mentioned that it was closely monitoring the situation and that the EU had undertaken to deal with it properly. Now the IMF is leading the charge with additional funds. Whilst it is good that the EU and the USA are hanging together, it appears what we have is a crisis of western capitalism where Greece cannot fail rather than a crisis of the Eurozone.

The suggestion that the ECB should support (and thereafter regulate) the Greek and other EU banks appears to be a good one. It is something which fits in with the moves towards greater supra-national regulation of the financial system. Also, people may not be too sorry to see banks being divested from their national responsibility. Whether this is a crisis of the Eurozone or a crisis of Western Captialism or a crisis of Western Democracy, it appears that the consensus is that we need a solution that goes beyond taking the market’s medecine through default and contagion.

Is the consensus right? (I think it is because contagion and amplification pose huge problems but do not serve any useful purpose that I can figure out.) If so then the solution might be coordinated EU/USA inflation/devaluation. If inflation is the solution then is Germany the main obstacle to the achievement of the solution? Maybe they should be asked to leave the Eurozone while the rest of the Western World gets on with the task in hand!

@Karl
In that article:
“We know some speculators are betting on a breakup of a euro area. There are two different kinds of bets speculators are making. One type are foreign exchange bets on currencies of central and east European countries, with the goal to drive down their currencies against the euro. The other are direct bets on sovereign defaults of euro area member states. These bets are made in the market for credit default swaps”

Who exactly are the speculators – I mean can we name names – these are not small fry I take it?

Of course, if you want a conspiracy theory about all this – the increase in the cost of debt (i.e. the removal of the risk free rate) is exactly what is desired. The two countries that rely most on cheap debt? The US and Japan. Add to this a necessity to reduce the value of the euro since jawboning it failed. You can throw in closer fiscal union/increased interdependence in the EU to the mix too. A dash of “no quick fix” makes for permanency in the uncertainties. For a final flourish, the only way to ‘allow’ the ECB to engage in QE and reflate restive economies is to create a crisis that makes even the most blow-hard back it. The crisis is that German and French savers need to be bailed out. They bet on the periphery. They lost.

@Aidan McGrath There is at least one set of speculators in this market who will cost Euro area taxpayers dearly. Euro area commercial banks, in response to political pressure and with the encouragement of the ECB, have been the largest investors in Greek sovereign bonds. Now, Euro area taxpayers are presented with a 110 billion euro expenditure, partly intended to bail out the Euro area commercial banks for this bad investment decision. (Using appropriate Eurostat criteria this is a probably better classed as an expenditure rather than an investment.)

@Karl Whelan I am also sceptical that this 110 billion euro bail-out will turn out to be the best decision. An immediate debt restructuring by Greece and its creditors, followed later by some EU funds to Greece to help ease the pain, seems to me a better long-run choice.

While greek bonds have come back a pace from the dizy heights (esp at the short end) there is still no significant retreat. IMHO

@Gregory – “An immediate debt restructuring by Greece and its creditors, followed later by some EU funds to Greece to help ease the pain, seems to me a better long-run choice.” – I agree (and that is what I argued for in the Sunday Business Post last sunday).

@KW

I am puzzled by Melitz’s argument. On the one hand he says default should not threaten the Euro. On the other hand he suggests that there is need for EU-wide banking reform to ensure that the financial system is immunised against sovereign default. Does the suggestion for serious banking reform not imply that the current set-up, in the absence of such reform, is fragile and vulnerable? If it fragility and vulnerability of the financial system is implied then does that mean there is a credible threat to the Euro?

@Gregory
Fair enough – but I don’t think commercial bank bond holders are what Münchau and Mundschenk had in mind when they talk about speculators in credit default swaps.

@ zhou_enlai

During crises like this it appears he sky is falling as with reports on Dubai some months ago; soon the story usually moves on to something else.

According to Jean-Claude Trichet, Greece represents 2.5% of the GDP of the euro area,

The US previously mentioned that it was closely monitoring the situation and that the EU had undertaken to deal with it properly.

This isn’t a crisis of Western Capitalism or a crisis of Western Democracy. Absent the euro, the last 2 years would have been dominated by currency crises in Europe.

When the Nixon tapes were transcribed in 1973, there was one memorable line from the 1971 currency crisis. President Nixon: “Whatever about the Pound, I don’t give a shit about the Lira.”

The crisis has shown that each nation still has to look after its own banks and nations in trouble stand on their own to a large degree. This is coupled with the growing perception of Europe as a project of elites where sovereignty and is surreptitiously divested from countries and democratic control is divested from the peoples. Even the Greek bailout is beginning to look like a deal done at gun point for the benefit of the EU.

Maybe we should try democracy in Dublin first?

@ Gregory Connor

An immediate debt restructuring by Greece and its creditors, followed later by some EU funds to Greece to help ease the pain, seems to me a better long-run choice.

So against a backdrop of a fragile recovery in Europe, a debt restructuring could be arranged for Greece without a knock-on impact on the other embattled economies.

So holders of Spainish debt would have nothing to fear?

Do you know what the exposure of the 4 PIIGS economies is?

This seems a crazy idea!

Euro area commercial banks, in response to political pressure and with the encouragement of the ECB, have been the largest investors in Greek sovereign bonds.

Assuming you are not referring to the ECB emergency liquidity operations which began in Aug 2007, how did the ECB encourage banks to buy Greek bonds?

@zhou_enlai – it could mean that the system can take a hit once but not twice.

@Aidan McGrath – should policy makers care about the types of speculators you (and/or Münchau and Mundschenk) are thinking of?

@Michael Hennigan – Finfacts – “So holders of Spanish debt would have nothing to fear?” – I don’t think a Greek bailout makes a blind bit of difference to the worries of holders of Spanish debt. Spanish banks appear to be holding very little Greek debt, but Spain has a debt problem that is not going to go away unless something is actually done about it.

“Do you know what the exposure of the 4 PIIGS economies is?” – restructuring does not mean writing all of that off (but obviously some), kicking the can down the road is not going to make it disappear – the best we can hope for is that it gets a bit smaller. If the austerity measures are implemented, Greece is in for the mother of all recessions. How are they ever going to pay back their debt? We will simply be in the same place again in a few years times.

An interesting discussion would be about how much would be reasonable to write off when restructuring. 5%, 10%, 20%?

The interest charged has been low so any writeoff could/should be equally low.
All the profits from the lending to Greece in the last couple of years will probably disappear, I’m curious how much more than the profits will be lost. All the interest paid or even more than that?

@Michael Hennigan
“Not all speculation is bad.”

Agreed but that statement itself implies that some is ..

Both the NYT article and yours use the analogy of the fire insurance on the neighbours house, and the incentive it gives to burn it down.

NYT:
“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,”

Finfacts:

“While speculation no doubt has an economic function, market manipulation is forbidden and should be punished. In the DB illustration: whoever burns down the house of a neighbour, has to be aware of the fact that he will be prosecuted.”

In the case of Greece it is clear that if they didn’t actually burn the houise down – GS sure as hell poured petrol through the letterbox
http://www.huffingtonpost.com/kevin-connor/goldmans-role-in-greek-cr_b_479511.html…

@ Edgar Morgenroth

S&P last week warned in respect of Greek debt that bondholders could face losses of up to 50% of their holdings

The Wall Street Journal reported last Feb that Spain, Ireland, Greece and Portugal, owed European and US banks: $781.4bn; $644.9bn; $166.8bn and $134.1bn, respectively – – more than $1.7 trillion. However, the Irish total is dominated by inter-bank loans to Dublin’s offshore financial centre.

The total from lenders by country: Germany,  France, UK, Netherlands, US and Belgium are – –  $524.1bn, $385.0bn; $349.3bn; $184.6bn; $149.3bn and $135.1bn respectively.

kicking the can down the road is not going to make it disappear.

When the economic recovery has yet to gain traction, this type of prescription should be made with care by people in public sector positions as it would likely cause unnecessary shedding of jobs across the Eurozone.

The hope is that the IMF can force the Greeks to reform their rampantly corrupt economy in the 3 year timeframe. So you believe no reform is possible?

The prescription has echoes of Andrew Mellon, assuming Herbert Hoover’s memoirs were not totally self-serving.

He wrote in respect of his Secretary of the Treasury, Andrew Mellon on a conversation, which the two apparently had in 1931, when Mellon was 76 years of age: “…the ‘leave it alone liquidationists’ headed by [my] Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: ‘It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people’…” 

@Edgar
Sorry just realized I replied to Gregory – when It was your comment I was responding to..

@Michael Hennigan – Finfacts – you seem to be making a few assumptions.
1. the bailout will work suffiently well to calm things down;
2. other PIIGS won’t face the same issues as Greece;
3. Europe will be in better shape to take the strain in a few years time.

I can agree on the third one (I had not spotted your post on the other thread where you made that point) but I don’t think the Greek bailout will settle the markets down or prevent Spain, Portugal, Ireland or Italy from getting into trouble if that is where they are headed. I don’t know how Portugese of Spanish debt is structured but if a lot of it matures in the near future there is going to be trouble. In that context I am in favour of sorting this out once and for all rather than having a crisis every few weeks as we have had for the last 6 months over Greece, which can’t be all that helpful to the EU economy either.

@MH

Is your warning against Mellon’s attitude a warning against the dangers of contagion in the EU/US financial system? Does that not fit in with my suggestion of a crisis of western capitalism? Stories may pass but we are in the throes of one narrative – a huge bubble collapsing within a hugely integrated financial world leading first to banking crises and then to sovereign defaults. The US can handle its collapsing banks and its defaulting states but the Euro are can’t and this is threatening everybody.

@EM

Perhaps Melitz does mean the system can take a Greek default. He doesn’t spell it out though. Others do spell out that Greek default and consequent contagion have the potential to cause serious, and possibly catastrophic, problems for everybody else. Roubini suggested default could be managed but only by swift pre-emptive action in the context of a comprehensive policy approach. Melitz could be clearer in his diagnosis of the lie of the land notwithstanding the merits of his proposed reform (which involves insulating financial institutions against the default of feckless taxpayers – oh the bitter irony).

@zhou_enlai – yes default does have the potential for massive problems because of financial market integration (6.1% of Portugese debt holding is Greek and in total one third of the debt held in Portugal is from other PIIGS, Spain and Portugal are very closely integrated) but I think a structured pre-emptive approach (a la Roubini) has a good chance of sorting this out. Obviously this is not costless but neither are any alternatives. By the way I do think that German tax payers will have to put their hands in their pocckets and hand over some cash as part of this. What if any of the PIIGS trips up while we wait for better weather??

re Convergence & regional policy.

People who think these things work should read up on the geography of economics development and cities. I recommend Jane Jacobs.

This discussion reminds of one that was had not too long ago.

Banks (bondholders now) have outstanding loans that were unlikely to be paid back in full. The suggestion then was to overpay for the loans so that the banks could start lending. The argument then was that overpaying or inserting equity would give the same result.

Overpaying for an asset is not the same as paying market price and getting equity shares.

Supposing Greece defaults and banks, pensionfunds etc need to be recapitalised by the state to stay solvent. Then it is possible to insert equity capital and get the upside as well.

If the Greece bailout happens, I think there is the (slight) possibility that the euro countries can be taken to the EU court for illegal state aid by anyone who will not directly benefit by this gigantic transfer of wealth from the public coffers to private institutions.

That Simon Johnson piece is interesting. He also sees a big bang comprehensive approach as being the only way forward. His analysis that an economic collapse of the EU is possible is startling. One wonders whether Roubini’s suggestion could lead to this, i.e. if Greek debt is restructured today will that kill the market for Spanish, Portuguese and Irish debt tomorrow sending the Eurozone and the rest of the EU into a tail-spin? Mr. Melitz thinks we have talked ourselves into that situation but it appears to go deeper than that.

Interesting article in Spiegel in English

http://www.spiegel.de/international/europe/0,1518,692666,00.html

A sovereign debt crisis of the dimension of Greece can really only be solved by inflating away the problem by printing money, default or a massive transfer of funds from other nations.
The 100 bn bailout is just putting off the evil day. I suppose as they are bound to default in the future the bailout could be seen as a long term transfer of funds which will never, or only partially, be repaid.

Cut-backs are demanded from Greece but because the sum is so big extra interest payments and the recessionary effects of the cutbacks will probably more than eliminate any possible gains. In any event how can they “invest” the cash to get a gain greater than the interest – Another olympics games maybe?.

One of the biggest problems of the current pigs governments is in essence we have have left them loose with the national credit card. Olympic Games, Yep I’d like one of them – Dublin Port tunnel, sounds great. Idle green fields with no development potential that cost billions – no problem get the NAMA card and the banks can run off to the ECB to get the cash with the NAMA bonds, More luxury hotel rooms than NYC, great idea – why don’t we give them a tax break. Problem bank Anglo- NO problem heres a 20 bn investment to burn.

Instead I read in todays Irish times the government is reducing support to SMEs by 20 million. Real jobs real cash.

Anyhow I ramble a bit as I have been accused of in the past

In essence a single currency only works effectively when you have a strong economic consistency in terms of fiscal and monetary policy. The Euro has not achieved this and hence the whole project looks problematic.

Ireland is to small to have its own currency. One solution would be to rejoin sterling – they seem to be getting a good dose of well needed inflation at the moment by printing Sterling bills – Also higher interest rates in the Naughties would have killed a lot of the NAMA follies before they were built and chocked back our explosive false growth rates which the government used as an excuse to double the cost of our public services.

Also just because the Euro was good for us in the past it may not be good for us in the future – My biggest worry is the Germans will demand we get rid of advantageous corporate tax rate next year when we will probably have to go for our Euro-IMF pill as the price to pay for staying in their club.

Am I the only Irish citizen who is troubled by the way our tax rates are a vehicle for tax arbitrage to the detriment of ordinary citizens and workers of other countries? If this crisis should teach us anything it is how interconnected the world is, how the financial activities of countries and institutions have serious effects on ordinary people and how a level international playing field with strong regulation is in everybody’s interest. I know we desperately need FDI in the medium term but surely we our long term goal must have reference to some moral principles.

Simon Johnson wants a new head of the IMF – -I guess that proposal has nothing to do with being pushed out himself by DSK?

@ zhou_enlai

Is your warning against Mellon’s attitude a warning against the dangers of contagion in the EU/US financial system?

The weakest economies including Ireland are in need of reform but it would be foolish to expect change if debt forgiveness came first.

In the past few decades, there was double-digit inflation, double-digit interest rates, high debt and unstable currencies.

Today, the debt of most countries is not at historic highs and there is the ECB which in the past has given funds of almost €500bn in one day to banks.

The global economy is expected to grow over 4% this year; the recovery is accelerating in Asia and the US.

The calamity howling is overdone.

I know we desperately need FDI in the medium term but surely we our long term goal must have reference to some moral principles.

In the long run…maybe we will be dead. The Swiss have thrived by reconciling John Calvin and Mammon.

Remember that line from the Merchant of Venice: The devil can cite Scripture for his purpose.

As for morals, maybe we should start with reckless politicians destroying the lives of tens of thousands of their people.

Zhou,

I suggest you go down to Leixlip and out to Sandyford and hand out leaflets outside the carpark calling for higher CT rates.

@MH

I hope you are right about the calamity howling being over-done.

As for punishing the reckless politicians, I was going to mention that the same people who impute all kind of foul deeds and intentions to our politicians do not even think twice about the possible negative implications of our tax policy. We can’t vote out the public.

@simpleton

I am concerned about arbitrage of wages and of workers rigths. I am particularly concerned because we are allowing those who engage in it to sell their products here and to undercut Irish workers wages and conditions. I don’t think you can enforce morals but I would be happy to see labour costs, labour conditions, actual profit margins and costs of raw materials paid to the primary producer lebelled on all goods sold in the EU.

@tull mcadoo

Very good. Was it bad manners of Dunnes workers to strike over handling South African produce because people liked their cheap satsumas??

I don’t mind people wanting to keep our low taxes. I simply think we should be honest with ourselves as to what we are engaged in.

When company structures are set up to avoid any profits being accrued and therefore any tax being paid in the countries that desperately need tax revenue, whose people are doing the work and providing the natural resources, then we need to admit that there could be a problem. We might decide that we want to show more solidarity with those countries without colonial or imperial pasts.

This problem is not specific to Ireland and others are probably more culpable than us. It may be that we can say we think all countries should charge lower corporation tax. If we do not have a good argument then the rest of the EU will be able to pressure us into giving it up.

Zhou,

Are you Fr Sean in disguise!!!
I think you should find a nice mission station somewhere in darkest Africa.
At one level you are concerned by our engaging in tax arbitrage and at the same time being arbed by cheaper labour. I can’t figure out whether we are sinned against or sinning.

@zhou
It is quite easy to get margins and labour cost details. The stock markets demand such information. Actually easier to find out than the salt content of packaged foods.
@Tull
I doubt if Fr Sean. Too Jesuitical, too much legal training. More Vincent Brown methinks

@simpleton

Brilliant. I’ll ring Davys to get the low down on each item as I pick it off the shelf during the weekly shopping. Stupid me for not thinking of that before. BTW, what did I say that was jesuitical? At least I made a point, unlike you two.

Zhou,

I am simply making the point that it is fair game to compete for FDI on the basis of an attractive tax regime and competitive labour costs as long as the activities attracted are legal and do not damage our reputation. Intel, Microsoft, Amgen, Wyeth, State Street, Pioneer Asset managment are all good projects. They all provide well paid employment in our country for Irish people and engage in commerce with indigenous Irish operations.

Perhaps you prefer a more idyllic Ireland with comely maidens dancing at the cross roads and young men engaged in handball, pitch and toss and other athletic pursuits.

@tull

I did say that we needed FDI desperately at the moment. I also said that any policy on arbitrage should be a long term project. Companies you refer to genuinely employ people here and make products here. They don’t come only for the tax though it is important. I can see reasons for differentiating their tax treatment from post-box companies. However, I think it is important to point out that there is no overall social or economic good from tax arbitrage.

Serious economic and social damage can be caused by tax-haven structures. I don’t think it is wrong to point that out. I would have thought that CT rates should increase or be harmonised within a band when we get on an even footing in terms of national wealth or that the amount by which we can subsidise business through tax should be limited in some way by reference to the competitive disadvantages which we suffer as an Island.

This is a big debate that is looming larger. Smart-alec references to comely maidens may play well with an Irish audience but they won’t carry much weight in Brussels. You might rethink which of us is stuck in the past.

With that said, Michael Hennigan is correct that we need to be careful of devils quoting scripture for their purpose. I’m not a french trade unionist by the way.

@zhou
oops. Straight over your head obviously. Let me spell it out for you: the information you seek is publicly available in great detail, should you care to look. If you can’t be bothered, try this test: if it’s plastic and made in China it was made at less than a $1 per hour. If it’s manufactured and cheap and not from an OECD country, it was made at less than $1 per hour. The PC you typed your ‘point’ on contains, in part, components and circuits assembled by people paid less than $1 per hour What will you now do with this brand new, never seen before information? Mentally reserve it?

Correct me if I’m wrong but California rarely balances it’s books. How come that never threatens the dollar?

@Eureka – that is the point Karl is trying to make. In the first instance this is a debt crisis. Damage to the euro so far is just collateral damage, and I can’t see what the problem with a slightly weaker euro is. However, if there is uncontrolled default by a bigger euro member or a number of smaller ones the debt crisis could turn into a massive financial crisis.

@Zhou,

You claim we require FDI at the moment, yet the policy you advocate of raisng CT tax would reduce our attractiveness. Simple really. The issue of brass plates is something we agree on.

That said, I suspect one of the consequences of mismananaging the economy over the last decaded by the elected and non elected govt will be the loss of some of out tax advantages. Now that we are run from Brussels, I suspect increasing the 12.5% rate will firmly put on the agenda.

@ Dreaded Estate
“actually think a sovereign default now would be exactly what the markets need long term. The idea that any investment is 100% risk free should be completely blown away and markets should price government bonds just like any other investment.”

To wish for a sovereign default now is complete bonkers. It may have escaped your attention but that prior to the crisis, govt bonds had different yields reflecting the fiscal position of each country. It is true to say that spreads were too tight and bore no relation to the fiscal track record. In this latest episode of the rolling global debt crisis, spreads have blown out a risk of default is re-priced.

Default will bring pain with it
*access to markets will be restained for a period of years. If we find vast quantities of oil or gas, it will be short if we do not it will be prolonged. Public servants will be sacked as a result.
*in most cases rates post default will be higher as will the cost of capital and growth and prosperity will be diminished.

Look what happened at the end of the 19th century. Argentina was arguably as wealthy as the USA. Botwere on the cusp of default inthe last decade of that century. The Us did not and Argentina did. It has been some divergence trade since then.

@Edgar
Thanks for that.
A debt crisis is enough to be worried about at this stage. I guess 2014 is not that far away. What are the chances of us still being in the Euro by then?

@Tull

“Default will bring pain with it”

Okay, default will bring pain. But in terms of the direct effects, it is a zero-sum pain. The loss to the sovereign bondholders is the gain to Greek children’s future earnings.

In terms of secondary effects, the consequences of a default on Greece will be that it can no longer access funds cheaply on international markets. But given that the very problem is one of profligacy, what is wrong with this?

If you have an undisciplined teenage child, the best way to stop their overspending is to cut the funds, not to keep giving them money and get them to sign up to all kinds of austerity pacts.

In this way, a bankrupt Greece can make the decisions on where and how to make the cuts based on the democratic will of its people, as opposed to the arbitrary whims of some IMF guys freshly flown in from DC – or worse, some CSU crony in lederhosen with a heavy Franken accent.

Another secondary effect is that we blown open the myth that sovereigns in eurozone can never default. Sovereign debt gets dearer, but so what? Perhaps that will encourage sovereigns to start living within their means.

I am reminded of a quote from that wonderful movie about the sinking of the Titanic (no, not the one with the Celine Dion noise pollution):

“But this ship can’t sink!”

“She is made of iron, sir. I assure you, she can.”

@tull mcadoo

I am happy to agree to differ but I don’t want to be misrepresented.

I didn’t advocate a policy of raising CT. I suggested that we should act as a socially responsible country by having regard to possible detrimental effects of our policy and that we should factor some moral principles into our long term strategy.

This isn’t a wholly altruistic approach. There are major benefits to having “right” on your side when you are a member of a political union that acts by consensus and influence.

@ Zhou & Jules
RE: Inflation
I have been convinced (since Christmas 2007), that the only way to really get out of this mess is to have some controlled inflation in the effected economies.

Roosevelt did this during the Depression, by threats and by some nominal actions; Eventually forcing money hoarders to come out and invest, or else surrender the value of their wealth.

Of course, our Central Banks have been hard wired to fight inflation and this will grate considerably with their institutional structure, but I see this as a good thing. It means we have the tools to fight inflation back down again once the investment cycle has spluttered back to life again.

@Zhou_EnLai

In terms of post-metaphysical morality – you most certainly raise some valid questions here on CT rates, and from a global perspective. Methinks this deserves a full thread ………… as Habermas put in my post above:

“Today, for the first time, the European project has reached an impasse. Imagine the improbable scenario of a co-ordination of the economic policies of the eurozone countries which would also lead to an integration of policies in other sectors.”

Next step is to turn the improbable into probable if European Integration, which I whole-heartedly support, is to progress. As in Ireland, the weakness, lack of courage, and self-interestedness flakiness of the political system stands out as a major impediment to progress which places the interests of the European Citizenry first – next level is to appreciate that all policies [fiscal, monetary, military, social] have to address both European and local [read national] concerns. The Money System links to the Power System which impacts on the Lifeworlds of European Citizens. Too much debate focuses solely, in a one sided-manner, on the Money System. Viable solutions and progress demands that one address all three and the interlinkages between them.

If Europe is worth it – it is certainly worth fighting for – Neutrality is yet another amoral cop-out – yet another thread, yet another shibboleth, yet another sacred cow ……..

@Chris Johns

“… monetary union without political/fiscal union might not work …”

ergo – rapid institutional reform needed now …. Power, Miney, Lifeworld

@ All

Are we European?–Or Are we Not? That is the question.

@Zhou

It is a bit jesuitical to say that the following does not imply higher CT rates

“I would have thought that CT rates should increase or be harmonised within a band when we get on an even footing in terms of national wealth or that the amount by which we can subsidise business through tax should be limited in some way by reference to the competitive disadvantages which we suffer as an Island.”

@ Ribbit

While Greek children may be ok, the current generation of Greek adults will have a tough time in a default. The Primary Balance is probably in deficit to the tune of 7-8% of GDP. This has to go to zero in short order.

The Greek Banking system would probably collapse due to withdrawal of liquidity as well. Presumably, the ECB would not accept Greek Govvies at the discount window.

Default =nuclear winter for a country without natural resources?

“I have never really understood the idea that the Greek fiscal crisis is “a threat to the euro” ”

Karl, it is where the politiics collides with the economics.

@All

A few dead in Athens, a bank burning, some real PEOPLE trapped inside.

@tull

Fair enough. I looked back and saw that and reckoned I had left myself open to being accused of having contradicted myself somewhat. You will see from what you have quoted that I did heavily qualify it to clarify that there are justifications for keeping comparatively lower CT rates within reason. I should have said subsequently that I was not suggesting increasing corporation taxes simpliciter. I thought your summarising this as “the policy you advocate of raisng CT tax” ignored that I had accepted there were possible justification for lower CT tax. Maybe, maybe not.

In any event, is it your position that Ireland should its right to determine its own corporation tax rate without regard to any social costs in other countries and without regard to the dangers of untrammeled tax competition?

@Ger

Yes the only way out of the current problem is deflation. When we are locked into a “strong” currency we can proceed via sinorage, basically a tax on some unsuspecting currency members who value some printed euro notes and are willing to give some services or goods in return because of their strong status. I dont think that really applies to us given the lifetime of the euro. I dont think we will make a lot out of sinorage and would be delighted if we did.

@David O’Donnell
Hopefully this shocks what is reported to be a violent minority of the protestors into showing restraint. The Greeks are in the terrible position of having elected into office a party that lied some years previously about the public finances (to get into the Euro) only to discover that those they replaced were also lying about a grave crisis in them. The Greek establishment are therefore deeply culpable for the country’s situation. Dramatic measures are needed to restore the confidence of the Greek people in their authorities as urgently as measures are needed to restore the confidence of the markets. The protesters wanted an election and I think Greece should hold one and then take the strongest possible legal measures against all those involved in the official duplicity.

They’ll still have to implement the austerity package though.

@David O’Donnell

Yes, the plot was certainly lost yesterday. Whatever ‘moral high ground’ vis-a-vis making the poorer people in Greece suffer for the mistakes of the elites, they lost it yesterday when they set fire to that bank.

@Oliver Vandt

I agree with you. The best thing is to get a general election under way now in order to defuse this situation. You can’t help but feel though that Greece (the ordinary people of) is damned if it does and damned if it doesn’t accept these austerity measures. Shades of ‘there is no alternative’ if the EU is going to hang together. I suspect they will still default (‘restructure’) though once the key bondholders have been paid off with EU/IMF money.

I’m told that live rounds are being issued to the various Greek forces today. I hope my source is incorrect. There is still a lot of unfinished business between the forces and the public over there, going back to before that boy was shot a couple of years back – going back to the last junta and before.

Greece and Spain won’t pay back. The only thing Germans can do is:
REPOSES 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
U.S.A must REPOSES 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.

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