Rogoff on Greece Post author By Philip Lane Post date February 2, 2015 here. Categories In Uncategorized 82 Comments on Rogoff on Greece ← Ideological Differences between Economists → Irish Economy Conference: Learning from Crisis 82 replies on “Rogoff on Greece” Look at the chart here for Greek GDP growth http://www.ft.com/cms/s/0/942d2312-7c65-11e4-aa9c-00144feabdc0.html 09 -3% 10 -5% 11 -7% 12 -7% 13 -4% It’s hardly rocket science that the people voted Syriza Great article! Pity about the conclusion! http://www.reuters.com/article/2015/02/02/us-greece-politics-idUSKBN0L60WO20150202 http://www.irishtimes.com/business/economy/davy-increases-irish-economic-growth-forecast-1.2087393 Maybe this time we will make it into the First (Northern) Division; and stay there! @seafóid Presumably if it hadn’t been for austerity the Greek economy would be successfully trading its way to prosperity in a viciously competitive global economy? Singapore on the Med? And the people didn’t all vote for Syriza – so when you are lauding the 35% that did presumably you are hating on the 65% that didn’t? Why are you so negative about the Greeks dude??? fyi Greece’s New Economics Minister: ‘Europe Doesn’t Need To Be Afraid’ Interview by Manfred Ertel Greece wants to remain in the euro zone, but Athens wishes to renegotiate everything relating to the current austerity regime. SPIEGEL spoke with Economics Minister Giorgios Stathakis about how the new government intends to address that challenge. Stathakis: Afraid of what? No, you don’t need to be afraid. Syriza was all along arguing that the terms imposed by the troika have extremely negative effects on our economy and on our people and that they must be changed. The same is also true of Europe. SPIEGEL: How do you mean? Stathakis: By way of changes to financial policy toward a more expansive public monetary policy. Our citizens are tired after five years of strict austerity; they feel as though they have been punished by Europe. We need a new agenda for a healthy economic development and a sturdy fiscal framework that alleviates the negative social effects of the crisis. That is why Syriza’s election victory could help push through a new type of crisis management in Europe. SPIEGEL: Still, with his demands for a debt cut and promises of billions in gifts to Greek voters, Alexis Tsipras has frightened his European partners. Stathakis: We have always said that the solution to our problems must be a European one, with agreement from Europeans on the basis of a very sound idea of mutual interests. That’s why we have partners. On the other hand, it has to be a major policy shift to be made in Greece. That is unavoidable. http://www.spiegel.de/international/europe/interview-with-new-greek-economics-minister-stathakis-a-1015956.html Georgios Stathakis, 61, is an economist by training and will be in charge of the economics, infrastructure, tourism and shipping portfolios in the cabinet of newly elected Prime Minister Alexis Tsipras. He will lead negotiations with Brussels together with Deputy Prime Minister Giannis Dragasakis and Finance Minister Giannis Varoufakis. The son of a shipping magnate, Stathakis used to be a communist and taught Marxist theory at the University of Crete prior to joining Tsipras’ cabinet. He tends to avoid shrill tones, instead favoring more moderate ones. ‘Nonetheless, Europe needs to be much more generous in permanently writing down debt and, even more urgently, in reducing short-term repayment flows. The first is necessary to reduce long-term uncertainty; the second is essential to facilitate near-term growth.’ Rogoff Methinks Kenneth doesn’t really know how to proceed …. who does? Locally, 2 Billion in dodgy financial system interest payments annualy might be pushed out … oh … A century would be a sign of decent cricket from our Deutsche mast .. er … partners. Do Germans play cricket? A real european central bank would be useful; the bundesbanke might have worked for Germany; it clearly doesn’t for the Euro Zone. @Seafoid Here is what Schaeuble thinks of those numbers. “”We want Greece to continue going down this successful path in the interests of Greece and the Greeks but we will not accept one-sided changes to the programme,” he said at the Reuters Euro Zone Summit.”” (from link provided by DOCM). Those negative GDP numbers are “successful”. Imagine that. Rogoff is reasonably balanced, except for his reserving the pejorative ‘profligate’ word for Greece only, whereas the lenders to Greece were merely “intermediating” . What a nice word for loan sharking, and insisting on keeping the children’s allowance book, in case of problems. His description of the threat to Greece from the European ‘partners’ is well made: “Third, Greece’s eurozone partners wield a massive stick that is typically absent in sovereign-debt negotiations. If Greece does not accept the conditions imposed on it to maintain its membership in the single currency, it risks being thrown out of the European Union altogether.” Some people might rightly describe such threats as blackmail. ‘Accept our failed solutions, that are destroying your country and people, or we will blow you out of the water’. We have a major problem in west, a big failure to tax who are able and should pay. Apples capitalisation is 600 billion, with 50,000 employees, based on a patents that will lapse in 10-20 years. Greek problem is 200 billion with a population of 10 million. Greek problem is caused by a lack of a federal tax in the EU to tax the multinationals, oligarchs, and billionaires operating within and living in the EU. Let us get this in perspective all the recent problems with government debt in Europe are caused by the governments themselves and their complete subservience to the 1%. Debt has become a means of taxation by the super-rich on the rest of humanity aided and abbeted by the western governments who claim “moral hazard” and “reward for entrepreneurs” as their reason for their lack of action. Lets do what it takes for Greece and tax the companies and people who can pay and give it to them to give them time to sort out their problems. Whelan ‘n’ dealin’ in the dark arts of central banking again. https://medium.com/bull-market/whats-going-on-with-the-ecb-and-greece-3821de717625 Jolly good stuff it is too – except maybe for being a bit too tough on the ECB about arbitrariness. They would, off the record, argue that they make up policies in order to try to remain a lender to (wink wink, nudge nudge) solvent institutions and that accepting self-issued government guaranteed bonds from banks is affected by the credibility of those guarantees. Lack of statute is therefore not terribly relevant to the potential ineligibility of 25bn in March and scheduling this to coincide with a programme extension was just logical housekeeping. Currently, the existence of a “programme” and adherence to it, satisfies the ECB’s judgement (or alternatively, provides them with an excuse) about ‘solvency’ of those banks, and non-junkiness of government bonds. Greece should be getting on with the PR for selling an alternative justification for the ECB to continue to accept those assets if it means what it says about staying in the Euro and ditching the programme. Ah shur – Ireland is not Greece! ‘Why would the Irish government take such a line? In the short term, it is concerned to reassure financial markets that Ireland is the success story it is supposed to be. There is a certain logic in this: Irish 10-year bond interest rates were trading at under 1.1 per cent at the beginning of this week, while Greek 10-year bond interest rates are close to 9 per cent. There’s a strong financial incentive for Ireland to place as much distance between itself and Greece as it possibly can, all the more so because it is hoping to replace some of its expensive IMF loans with cheaper money raised on those international markets. But beyond this, there is a deeper terror — the fear that Syriza might actually succeed. The strategy adopted by both the governments that have been in office since 2008 has been one of strict obedience to the demands of its lenders. Everything has been sacrificed — up to and including national sovereignty during the so-called bailout by the Troika — in order to place Ireland as the Eurozone’s exemplary pupil. […] If Syriza succeeds in getting major cThe four biggest public debtors in the Eurozone are Greece, Portugal, Italy and Ireland. The policy of socialising the liabilities of rogue private banks and the economic consequences of taking about 30 billion euro out of the economy in spending cuts and tax rises added about 160 billion to Irish public debt. At the end of 2014, the national debt was 203 billion euro — 111 per cent of GDP. (Since GDP is artificially inflated by the practices of Irish-based multinationals, even this somewhat understates the scale of the problem.) The servicing of this debt is a huge burden on a much-reduced exchequer. The total annual take in income tax for Ireland is around 18 billion euro. Interest on public debt takes around 8 billion of this. Debt service currently costs as much as the running of Ireland’s entire education system. As a percentage of GDP, Ireland’s debt service costs are actually higher than Greece’s. […] oncessions on debt, this whole strategy will be exposed as folly. The Irish political and technocratic elite is deeply invested in an essentially religious narrative: Ireland sinned, Ireland confessed, Ireland did penance, Ireland has been forgiven, Ireland will be rewarded. But if Greece stops doing penance and is nonetheless rewarded, this begins to look like what it almost certainly is — a rather childish view of how power works in the world. There is thus a kind of quiet hysteria behind the insistence that the massive public debt that is Ireland’s legacy from the Eurozone crisis is “affordable and repayable”. Who is the debt “affordable” for? Not for the 400,000 children who are now living in deprivation in Ireland. (The rate of child poverty has doubled since 2008.) And how exactly is an economy with fewer than 2 million workers and massive levels of household debt going to repay 200 billion euro, especially if Eurozone deflation makes the debt even more extreme? https://www.opendemocracy.net/can-europe-make-it/fintan-o’toole/why-irish-political-elite-is-terrified-of-syriza h/t nakedcapitalism.com Private sector investors are relieved that the Varoufakis plan does not include them! http://www.ft.com/intl/cms/s/0/7af4252c-ab03-11e4-91d2-00144feab7de.html?siteedition=intl#axzz3QQyFb0Ll Rogoff claims that Greece risks ‘being thrown out of the European Union altogether’. Surely the Germans, with their respect for law and insistence on on implementing treaties and contracts, would not tolerate inflicting such lèse-majesté on Greece? In case bloggers didn’t know of it, Yanis Varoufakis blogspot. http://yanisvaroufakis.eu/ @ Johnny The IMF were already saying back in 2012 that the numbers the last bailout were based on were very stretched. And that was when inflation in the EZ was still around 2%, remember. Not before the Germans and the Dutch sh#t in their own kitchen with deflation. http://www.bloomberg.com/news/articles/2012-03-16/imf-staff-sees-potential-need-for-more-european-aid-to-greece Greece is supposed to deflate its way to competitiveness faster than Germany where deflation is already entrenched. And your UK recovery couldn’t even get the deficit down to zero. Senior hurling will be back when the ground hardens. This is very interesting 3 years later http://ftalphaville.ft.com/2012/03/20/929371/its-mostly-fiscal-transfer/ @ Peter Stapleton He is wrong on the idea that any country can be thrown out but since the adoption of the Treaty of Lisbon, a mechanism exists to enable a country to negotiate its departure. Assuming there was a decision by the new Greek government to exit the euro and re-establish the drachma, it would also have to leave the EU as Article 3.4 of the Treaty on European Union states unequivocally “The Union shall establish an economic and monetary Union whose currency is the euro”. The euro is the currency of the EU, with two states having permanent derogations (UK and Denmark) and the rest in the waiting room preparing – in theory at least – to join (including Sweden, which got to the point of holding a referendum; which failed). This is more than a technical legal issue as it goes to the heart of the political underpinning of the euro. Juncker has already publicly adverted to it. There is little possibility IMHO of either event happening. (Not so with regard to the UK which was largely instrumental in inserting the escape hatch in the Lisbon Treaty). @ DOCM “The Union shall establish an economic and monetary Union whose currency is the euro” Colm McC is not around so I will have to repeat it to you. The EZ is not a monetary union. It is a common currency area. It is an unfinished financial building site. A very accurate political analysis by the FT’s Madrid correspondent. http://www.ft.com/intl/cms/s/0/ee229664-ab08-11e4-81bc-00144feab7de.html Seafoid, If we accept the premise that the 240bn Greek debt to the EU has been termed out to infinity since service costs are very low and are never going to rise then we have a de facto fiscal transfer. It is stupid to ask for a haircut as it only draws the attnetionof the German taxpayer to the fact that the money has gone to heaven So what is this argument really about. It seems to me that what Syriza wants is to create Argentina on the Aegean where they can run a Peronist economic policy all paid for by periodic resort to the taxpayers of everywhere else. I doubt that the rest of Europe will sign off on that. “And your UK recovery couldn’t even get the deficit down to zero” So what? The UK can and will print as much money as it needs to keep things humming along. Inflation is very low, so real income growth is back. Unemployment will be below 5% by Summer. Why is the UK so successful? Because it made the reforms it needed to in the period 1979-1987. Greece didn’t. Nice if you are a civil servant retired at 55, or a tax dodging oligarch. Not so much fun if you are an ordinary Georgios wondering why the Greek State is so pathetic. @DOCM If (why not speculate) the central bank of Greece were to provide ELA in spite of a blocking majority on the GC telling it not to, it would be providing liquidity to Greek banks in “Euros”. In effect it would have started to print its own currency which would depreciate, but the currency would still be called the “Euro” – which nobody would accept as Euros outside Greece. Likely Target2 access goes straight away, so capital controls. @ DoD re Fintan O’Tool(e) Who owns around 50% of Irish debt? We do. Who receives the interest coupons off those? We do. So are we really paying €7.5bn in debt servicing costs? Are those debt servicing costs likely to fall in 2015 vs 2014 given IMF refinancing and lower market refinancing costs? Are Greece’s problems as much about its complete inability to refinance (off anyone as it stands) as its actual cost of servicing the debt? FOT’s piece is, as always, low on substance and high on moral outrage. He’s genuinely disappointed that Ireland’s economy is not of the same economic wasteland variety as Greece’s is. IMF report 2012 page 2 – this a must read. You don’t need Rogoff to tell you that the EZ made a horse’s ar*e of Greece and that the modeling was based on very stretched assumptions http://www.imf.org/external/pubs/ft/scr/2012/cr1257.pdf “Risks. The program remains subject to notable implementation risks. In general, Greece has little if any margin to absorb adverse shocks r program slippages. In the event that policy implementation takes longer or falls short, the economy takes longer to respond to labor market and supply-side reforms, or fiscal multipliers are higher (reducing the growth path), a deeper recession and a much higher debt trajectory would be the likely result. Political risks linked to the electoral calendar create additional uncertainty about policy implementation (and staff has sought political assurances to ensure continuity in policy implementation; see paragraph 50). The materialization of these risks would most likely require additional debt relief by the official sector and, short of that, lead to a sovereign default. In the absence of continued official support and access to ECB refinancing operations, a disorderly euro exit would be unavoidable, heightening risks to the Fund (see the Supplement to the Staff Report: “Greece—Assessment of the Risks to the Fund and the Fund’s Liquidity Position”). Program design—in particular the even phasing of support and tight monitoring framework—helps to reduce these risks. The euro area member states’ commitment to provide long-term support to Greece on adequate terms is also a key consideration for staff’s recommendation to approve the proposed arrangement.” @ Tull Has it been termed out to infinity already or is that the intended final act of this bit of EZ kabuki ? @ ufc First, with all due respects to academic banking experts, I see little understanding by them of the politics involved. One could say that the rules are what the ECB decides that they are. The one thing that any negotiator with an ounce of cop-on would not do IMHO would be to imply openly that this was the case, still less that the ECB was open to influence in the matter. Pity the poor Greek CB representative in this situation! Second, on ELA, the ECB has some experience at this stage and it all seems to me to depend on who holds the risk. Draghi is not going to carry the can. Neither will the rest of his colleagues. http://uk.reuters.com/article/2015/02/03/uk-eurozone-greece-ecb-idUKKBN0L70K820150203 Third, the question of “when is a euro not a euro” has come up already in the context of Cyprus and the capital controls (still in place?). The rest of the EA has not even blinked. Dijsselbloem is reported to have whispered to Varoufakis when he left the abortive press conference “You have just killed the troika”. What the latter seems not to have grasped is that this may not necessarily be in Greece’s interest. Seafoid, on a PV basis, not much between 20 years and forever I find the queue of people lining up to the boot into Greece extremely distasteful. There appears to be no regard for the extreme circumstances that the Greek people find themselves in. The clear message is the equivalent of the Norman Tebbit ‘get on your bike’, or the Marie Antoinette ‘ let them eat cake’. Interesting that the people and organizations that are now howling at the Greeks, are the same FT supported financial sectors that begged to bailed out in 2012, and were bailed out, when they held Greek bonds. The ‘official’ sector bought the bonds for 100% (one hundred per cent) to the tune of over €200 billion, giving the FT whingers not only a bail-out, but a very handsome windfall profit. They are the people who got bailed out, not the Greeks. Yet they are now in the vanguard of the howling mob screaming at the Greeks, in fine diplomatic language of course. @ ufc et al This a more detailed Reuters report. http://uk.reuters.com/article/2015/02/02/uk-greece-politics-idUKKBN0L51C720150202 Tsirpas refers to “substantial negotiations”. With whom? And on a plan the details of which have not yet been presented? cf. Report from Madrid correspondent of the FT linked to above. @ JF ‘So what? The UK can and will print as much money as it needs to keep things humming along.” If the money doesn’t go into improving productivity, salaries are not going to rise and there’ll be no sustainable long term economic growth. The current account deficit is a mess and there is a housing bubble. It appears that the UK is living beyond its means .. again. @JR Presumably your empathy is calibrated – why not debt relief for each country in order of their GDP per capita? Ireland is in the high teens. Greece is around 40th. There are six EU countries below them. Zimbabwe is close to the bottom. And yet they only have a debt-GDP ratio of 50%? Surely we should be pumping money into Zimbabwe to deal with actual starvation? Never mind how the country is run – mentioning governance is xenophobic. Just send over the dosh and get back to polishing up our consciences. @seafóid Is living beyond your means a bad thing now? Can you guys settle on one line? http://www.economicsuk.com/blog/002076.html @DOMC The Treaty says: ‘The Union shall establish an economic and monetary Union whose currency is the euro’ You say (relying on Colm McCarthy) “The EZ is not a monetary union. It is a common currency area. It is an unfinished financial building site”. I am sure the lawyers would relish trying to establish the difference between ‘a common currency area’ and ‘a monetary union’. @ JR A lot of the debt was priced at 60 cents to the Euro in 2012. Great profits there for parasites who don’t invest in growth. If they did maybe there would be some point to propping up the financial system but it really looks like the 1970s redux . @ JF Living beyond one’s means hasn’t worked that well for the UK in the past. But if you’re happy with it who am I to argue? @ Peter Monetary union requires centralised bank regulation and resolution regimes. What the EZ does not have, what defines it therefore as a common currency area, is the following: • A Banking union with a single supervisor • A single resolution authority • A common safety net involving o Deposit insurance o Fiscal backstops o Burden sharing o A credible Lender of Last Resort Instead we have Germans with rules. And deflation. and spin from DOCM @ JR/Seafoid “!Interesting that the people and organizations that are now howling at the Greeks, are the same FT supported financial sectors that begged to bailed out in 2012, and were bailed out, when they held Greek bonds. The ‘official’ sector bought the bonds for 100% (one hundred per cent) to the tune of over €200 billion, giving the FT whingers not only a bail-out, but a very handsome windfall profit.” “A lot of the debt was priced at 60 cents to the Euro in 2012. Great profits there for parasites who don’t invest in growth.” Sorry, when did this happen? @ Peter Stapleton You have me confused with seafóid regarding the second quotation. In any case, it is not relevant. With all due respect to Colm McCarthy, and seafóid, it is not their opinion of the concept of EMU as delivered that matters but what the treaty texts state. The lawyers are agreed, it seems, that, given the wording, it is not legally possible to leave the euro – which is irreversible – and stay in the EU. Varoufakis will meet Schaeuble on Thursday. http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland/der-griechische-finanzminister-giannis-varoufakis-kommt-nach-deutschland-13406874.html It is not looking too promising! Peter Stapleton: ‘…the lawyers would relish trying to establish the difference between a common currency area and a monetary union’. I imagine the lawyers would struggle, with eloquent aplomb. However any economist who does not get the difference at this stage has made a bad career choice. @DOCM The point I was making was in response to this: “Assuming there was a decision by the new Greek government to exit the euro and re-establish the drachma, it would also have to leave the EU as Article 3.4 of the Treaty on European Union states unequivocally “The Union shall establish an economic and monetary Union whose currency is the euro”. ” The hypothetical I outlined, rather like the situation in Cyprus, although more “hardball” in origin, is an illustration of a fudge that can result in a ‘different’, less valuable, currency being introduced – whilst still calling it a “Euro”. This, in principle at least, avoids the country being told it has to leave the EU. Good news. Irish government finances improved by 680m euros between Jan 2014 and Jan 2015, made up of a 460m euros rise in taxes and a 220m euros fall in spending (partly from lower interest payments). http://www.irishtimes.com/business/economy/tax-revenues-460m-ahead-of-last-year-1.2089803 Just for the record: if the same improvement was recorded every month in 2015, Ireland would have a budget surplus in 2015. This is simply a statement of fact, not a prediction. Remaining months in 2015 might show larger or smaller improvements than that seen in January. ‘Schauble to meet with Varoufakis’…..will Dieselboom be carrying Schauble’s briefcase? @ ufc On that point, I have no idea. This link sets out the present situation with regard to Cyprus. What constitutes a “less valuable” currency can only be established , it seems to me, if two currencies are in competition. In the case of Cyprus, this is clearly not so (although those with large funds locked up in the remaining Cypriot banks would hardly agree). http://www.eubusiness.com/news-eu/cyprus-economy.v3z/ The Cypriots stuck with the programme. My guess is that the new Greek government will ultimately do likewise. @ BEB Third Point made $500m profit on the last bailout . It actually bought the bonds at 17 cents on the euro. http://www.ft.com/cms/s/0/a11f5be4-4940-11e2-b25b-00144feab49a.html Other holdouts bought in between 60 and 70 cents http://www.ft.com/cms/s/0/748f4152-a0b7-11e1-9fbd-00144feabdc0.html Most of the bailout money went to financiers The IMF pointed out what a dud deal the bailout was. And now it’s the same crap all over again The Union shall establish an economic and monetary Union whose currency is the euro”. ” An ECONOMIC and monetary union. Why does DOCM and those of his ilk forget the first adjective? Last I heard, economic unions usually have intra-union fiscal transfers. So the letter of the treaty requires transfers to poorer countries. @ JR Attacking the policies of a new government that one considers mistaken cannot reasonably be construed as dumping on an entire people. What we are witnessing is the development of a real debate at a pan-European level on a par with that which takes place in the US (luckily, without a prior civil war). No taxpayer in Texas considers it part of his responsibility to dig his opposite number in California out of any funding holes that may have emerged from the latter’s penchant for popular referendums on the subject. In this context, I cannot recommend too highly the article by the FT’s Madrid correspondent. http://www.ft.com/intl/cms/s/0/ee229664-ab08-11e4-81bc-00144feab7de.html?siteedition=intl#axzz3QgcdbvbL The major risk to the euro has always been the capacity of France and Italy to stick by the SGP rules. What happens in the other smaller economies is a side-show. The difficulties faced by France, for example, in stripping out rent-seeking, can be gauged from the debate on the Loi Macron on the fees enjoyed by notaires. Named after the minister who is the white hope of the EU elites, for want of a better description, the minister in question has told the National Assembly that he has been in receipt of death threats by some of those affected! http://www.lefigaro.fr/conjoncture/2015/02/03/20002-20150203ARTFIG00281-notaires-ce-qui-va-changer-pour-les-particuliers.php @ garo The letter of the treaties (Treaty on European Union and Treaty on the Functioning of the EU which together constitute the Lisbon Treaty) does no such thing. The countries of the EU have agreed solely to coordinate their economic, employment and social policies (Article 5 TFEU). Regrettable it may but, whatever one’s ilk, it remains a fact. “The major risk to the euro has always been the capacity of France and Italy to stick by the SGP rules” Deflation is el gordo , DOCM. It’s worse than France having a deficit of 3.2%. It is income shifting from labour to capital, and if not stopped by companies returning more income either by investment or increased payroll, needs to be addressed by deficit spending. And it’s in the Eurozone now. @ DOCM Did you know that one quarter of EZ sov debt is now generating negative yields ? And the Stoxx euro 600 is on a price/earnings multiple of over 20. It’s going to be some craic when the Draghi magic peels away Pay no attention to anything @JTO A surplus? But what would Fintan write about? And what would Sinn Fein be permanently outraged about? @BEB My figures, taken from an earlier comment, were incorrect, but the essence of the argument is the same. After looking up the details, it is clear that private sector bond holders got bailed out by massive official funding. http://www.statista.com/statistics/270409/national-debt-of-greece/ Greek debt at the end of 2009 was €300 billion (actually €299.7), presumably 0% official sector. Greek debt at the end of 2014 was €316 billion (176% GDP), 77% official sector debt. 23% private sector, implying €239 billion official sector debt and €77 billion private sector debt at the end of 2014. [Eurostat and Open Europe/ Telegraph) As Greece has been close to primary balance since 2009, this means that approx. €239 billion of official debt has been used to backstop the principal and interest payments to private debt holders since 2009. (approx. €53 billion bonds purchased by the ECB in 2010 alone) [ re Primary balance : Source IMF Table 1. http://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf The private sector bondholders, supposedly took a haircut on €206 billion in 2012, but in reality as the bonds were trading at a discount of 65%, so all those bondholders made a handsome profit (about 100% profit on the market value at the time.) All the time the official IMF numbers were utter pie in the sky. The IMF actually admit and document this in the chart in paragraph 22, of the linked IMF report, just to see how far off the mark the IMF were. Greece has a massive debt to ‘official lenders’ in 2015, for one very simple reason. ‘Official lenders’ protected their private sector banks and institutions from losses on Greek loans since 2010, and the official lenders are now acting in the manner of Luca Brassi, in relation to the collection of those losses. @DOCM “What happens in the other smaller economies is a side-show. ” That does seem to be the attitude all right. “Attacking the policies of a new government that one considers mistaken cannot reasonably be construed as dumping on an entire people.” When the policies themselves are dumping on an entire people, a dumping that the new government has been democratically elected to oppose, then it is not unreasonable to construe that opposition to the policies of the new government is nothing but a continuation of the support for the dumping on the entire people. [I don’t recall any FT campaign against the bailing out of bondholders in Greece. But, after all, their readership and supporters were the major beneficiaries of ‘official funding’.] The ‘improvement’ of 680 ml. in govt finances – aka ‘citizens’ finances’ – is not as it seems… – technical financial stuff accounts for some – however any improvement is welcome – though citizens, in the main, will be unaware and unappreciative…. @Bons Eoin Bond Methinks ur sums are a touch awry. Any specifics? Me focus, as as u know, is in the ‘odious’. It is ODIOUS. Fact. Clarification appreciatated. D. @docm @ JR Martin Wolf has a chart showing where the last bailout money went It is grim. Link below. numbers in EUR bn Interest payments 40.6 Maturing debt 81.3 Debt reduction 45.9 Bank recap 48 IMF 9.1 ESM contribution 2.3 Greek spending 27 Putting this together with your IMF report link and the third point $500 m windfall on debt bought at 17 cents this is one massive rentseeking cluster****. Martin Wolf link http://www.ft.com/intl/cms/s/0/44c56806-a556-11e4-ad35-00144feab7de.html Reminds me of Morgan Kelly’s line about being reliant on the comfort of strangers. Just to add to that, from Philippe Legrain http://www.ft.com/intl/cms/s/0/4097597a-a71c-11e4-8a71-00144feab7de.html ” The cumulative loss of Greek output in the five years between the third quarters of 2009 and 2014 is €191bn: more than 100 per cent of current gross domestic product. “ The average maturity of EFSF loans to Greece is 32 years, while the figure for Ireland and Portugal is just under 21 years. The EFSF borrows the money in the market and the average maturity of the bonds is around 6 years. Who knows what the refinancing costs will be in 5 or 10 years. As Hugo Dixon points out in his letter to the FT, the approach proposed by Martin Wolf “is not practical politics”. If it is, the next ten days or so will demonstrate the fact. From the quotes below by the governor of the French central bank below, in German translation by the FAZ, the prospect is unlikely. It is not the failure solely of oligarchs to pay taxes that is at issue but the fact that tax evasion is a general problem in Greece, largely because taxpayers see that the revenue is wasted. Syriza has done nothing to correct this impression. It has done the opposite by reversing certain actions and taking on further state expenditures, at the urging of the unions (the “multigarchs”?) concerned, which it does not have the money to pay for. Even Martin Wolf has to concede that the IMF has stated that 13 of 14 reform actions have failed to materialise. Frankreichs Notenbank-Gouverneur Christian Noyer sagte in einem Interview von France Info auf die Frage nach einem Schuldenerlass: „Meine Antwort ist Nein. Die Zinslast ist schon sehr niedrig, weil die europäischen Staaten sehr niedrigen Zinsen zugestimmt haben“, erklärte er. Vielleicht seien noch Anpassungen möglich. Aber Noyer fügte hinzu: „Die Frage ist, ob man die Franzosen, Deutschen, Spanier oder Italiener bitten möchte, um den Griechen zu helfen, ihre Steuerzahlungen zu vermeiden.“ Griechenland könnte nur durch beschleunigte Reformen aus der Krise finden. BWS raised on another thread the question of what quality a capable minister of finance requires most. Reflecting on this, it seems to me that the ability to inspire confidence in the solidity of the state’s finances is the answer. http://www.ft.com/intl/cms/s/0/b8071a34-ac5a-11e4-af0e-00144feab7de.html#axzz3QgcdbvbL @ DoD ah, yes, too fast with my typing. Let me refresh that. Irish CB + AIB+BOI+PTSB = c.45% of bond market, not total debt. So 25% of total debt. Given higher coupons on that debt vs official debt, interest we’re paying to ourselves is probably more like 33% of total. “Real” interest cost = 5bn. (ignores interest we’re paying to domestic savers from NTMA retail program, which at 16bn, is not nothing either) @ DOCM: Re your 8.02 pm of yesterday. “Attacking the policies of a new government that one considers mistaken cannot reasonably be construed as dumping on an entire people.” A mistake may be either real (you put salt in your tea rather than sugar) or a value judgement (“I believe your beliefs are mistaken.”) So which are you invoking? Anyhows, judging something a mistake in advance of actually doing it is simply prejudicial. Or plain ‘dumping’ if you prefer. And the following: (you and Tull) are doing what exactly? “To me he came across as arrogant, petulant and unwilling to contemplate the prospect of an alternative view.” “The Greek loons are going to have to capitulate …” [lawfully] concluded contracts … [contracts of adhesion?] “A cabinet of community activists, academics and the odd anti semite. Seriously short of “senior hurling” experience. How can they possibly fail?” “The chap is a ‘professor’. Exactly, not fit to send out for a pint of milk.” [Eh? Its a litre of …] “The problem is that Greece is now run by a collection of tinpot Marxists, academics and right wing fascists.” “Why would we even bothe to associate ourselves with the Greek coalition of ex commies, PUtin fans and racist semi fascists.” (as published) “The conclusion is unavoidable; if the Greeks do not wish or intend to stand by the rules of the club, they must leave it …” “It pains me equally to agree with the conclusion of TMD.” [In the butt I presume?] “MOF re-tunes his violin!” [Now which MOF would that be then?] Confidence? As in Confidence Fairy? Or what? That’s a tad vague that is. “As Hugo Dixon points out in his letter to the FT, the approach proposed by Martin Wolf “is not practical politics”. ” They will only do the right thing when they are backed up to the edge of the volcano, DOCM. That was how they got rid of Trichet, how OMT was brought in. The only thing that is practical politically is deflation. It would be laughable if there won’t so many millions suffering because of it. “Griechenland könnte nur durch beschleunigte Reformen aus der Krise finden.” Imagine a German saying that. How did the Wirtschaftswunder get going again ?and why is Deutschland now in the Krise ? I had to laugh at Tull’s notion that the Gov could get debt down to 90% with some maths and then SELL AIB. 2.088% over 30 is great for BEB and the NTMA (as long as Draghi keeps a lid on volatility) but dreadful for net interest margins. Who in their right mind would buy AIB with deflation at the gates ? @ BWS I agreed with the conclusion of TMD, not with his language. As to Varoufakis, I think that his beliefs are mistaken and that he has put salt in his tea. The MOF I referred to was our own who appeared to allow some possibility to a debt conference some weeks ago, a fact that did not go unnoticed. The new Greek government has revised its position to such and extent that it seems to me that an accommodation will be found, most probably in the area of the revision of targets and a formal end to the troika. (On the last point, you can read the “IMF’s Farewell” on another recent thread as it quits the field and settles some scores in the process). BW, As the above emotive quotes show, I await the collapse of the Tsipiras regime collapse in a welter of recrimination when it starts trying to spin a messy NPV reducton as a major restructuring. It is at that point that ivory tower denizens like your good self will turn on them, bemoaning their treachery & decry the fact that they are not as clever as you (think you are). @Brian Woods Sr. There’s no mystery to the rhetoric of DOCM and Tull. They feel personally threatened by the likes of Syriza. If the people start demanding debt write-offs from the 1%, there’s no telling where it will end or what the effects on the rentier class might be. The entire project of “structural reform” (aka ever greater precarity for the 99%) might no longer be something its victims will be willing to listen to their “betters” about. Tull. Please do me a favour. What exactly are you on about? Greece is not the causal problem – its just the most salient symptom. Well? ECB revokes waiver that allows Greek banks to use Greek bonds as collateral. It states no longer possible to assume successful to govt’s talks with lenders. Tull, Greece is (or perhaps was) a sovereign. For good or ill the Hellenic government is the legitimate (depending of course on your view of these things) representative of the Greek electorate and citizens. Respect them for this. I fancy that if you and DOCM wrote about our government, Enda Kenny and Michael Noonan in the manner you have addressed their Greek equivalents ye might well have had yer comments deleted. This EZ financial mess may or may not be sorted – it will eventually, but in what manner? But what is clear is that an individual or company or state whose income is reduced – cannot by definition discharge their debts howsoever contracted (either on time, or at all). QED. The logic of the so-called austerity programmes is absurd. Our western economies rely for that essential “steady economic advance” – on consumer spending (its allegedly at 50%+). Yet the austerity programmes demand that consumers (individuals and states) have enforced income reductions. Which translates, literally, into reduced consumer demand. Its known as increasing ‘competitiveness’!!! Indeed. The distal cause of this current economic regression (its a lot more serious than is being let on) is two-fold. The fantastic ability to produce massive quantities of goods (production) and a declining consumer demand. The potential output gap is increasing. It can not be (mathematically) bridged. Yet the only remedy being advocated by our Great Men (and a few ladies) is BORROW MORE and COMSUME MORE!!! Great. So please explain how one pays back their existing debts on a reduced income, and yet is capable of taking on more debt at the same time. I know consumers are irrational, but are they totally stupid as well? Greece is a symptom – so is Spain and Italy and France. Interesting times have arrived. The schadenfreude of DOCM, TULL, and others re our fellow EZ/EU member, Greece, is sad and deeply inappropriate… @ BWS “For good or ill the Hellenic government is the legitimate (depending of course on your view of these things) representative of the Greek electorate and citizens. Respect them for this. I fancy that if you and DOCM wrote about our government, Enda Kenny and Michael Noonan in the manner you have addressed their Greek equivalents ye might well have had yer comments deleted.” I agree with your sentiments, but I note that on this and related threads the elected German government (and in some cases German people in general) have been repeatedly compared to gangsters and called mean, vicious, and stupid! I suspect you won’t have to trawl far though this blog to find similar invective directed at Kenny and Noonan. We may indeed hope that all these posts will be deleted… skeptic01: Yep! No need for any invective against named or un-named persons – it does nothing to advance our understanding of a very nasty political and economic matter. I’m not exactly enamoured of politicians in general; our own are hardly up to much, except in the self-seeking department. But that’s contemporary parliamentary party politics. Could an impartial observer actually distinguish between FG, FF, Labour, etc., if’n they were all stripped down to their jocks-an-socks? I doubt it. I stand correction on this: but the Hellenic government may be ‘regressive’ in that it sought – and may have got, a mandate from a mass of the populus. If so, this will put that government head-to-head with the minority of very powerful local and international special interest groups and EU and EZ institutions. These latter have been in the political ascendency since the 1990s, and will not take kindly to the idea that the mass of citizen voters know better about how a sovereign should be governed – for the general benefit of those masses, rather than for the specific benefit of the interest groups and institutions. That’s how I ‘see’ the situation: Democracy of the Demos v Autocracy by Technocrats. ??? @ BWS I wish that you would cease associating me with any suggestion of personal abuse relating to the Greek minister of finance. The only comment that I can recall that might even approach such a qualification is that he had zero credibility; a comment that I made right at the start of his week’s Odyssey. At the end of it, I would say that it is even below what I believe is known in economic debates as the zero bound. @DOCM: OK! Zero it is! Any comment on the relevance of this quote* – in respect of the prognostications made by our own MoF? *[I regret that I cannot recall the source of the quote – I neglected to reference it properly at the time I took it down.] “Predicting the course of the economy and the financial markets with any degree of reliability in a fiat money environment is problematic, if not impossible.” I would like to remind folk that the current Greek administration actually inherited the mess from the previous (two?) administrations: the current administration did not cause it. However, their electors have given them a mandate to deal with it. We should all wish them well in that endeavour. We, here in Ireland – do not have no interest in the matter. It would also be useful if we knew if the ECB knew about the collusions, deceptions and frauds of the previous administrations (prior to Greek accession to the EZ – encouraged and supported by their Wall Street enablers. Did the ECB know? And if not, then why not. Now Greece being in NATO would not be a factor? Hmmmmm. All politics are local – as they say! On what basis has Varoufakis got less than ‘zero credibility”? A credible MOF must have the essential capacity to create confidence, that of the markets in the first instance (unless his country has decided to go cold turkey and cease borrowing on international markets) and of his euro colleagues. An indication of success with regard to the latter would be their willingness to grant some of his demands. His score on that front up to this point is zero. It is true that this score has not yet sunk home with the Greek electorate. However, it is difficult to see how this can be avoided. He could, perhaps, recover some ground by agreeing a face-saving deal when he meets his colleagues for the first time as a group next week and avoid having his PM do so when he meets his colleagues the day after. There would, of course, be a considerable personal political cost associated with doing so. http://www.independent.ie/business/world/noonan-to-join-emergency-eu-meeting-on-greek-question-30971158.html cf. my other posts on recently opened thread on ECB. It seems that neither will! http://uk.reuters.com/article/2015/02/07/us-eurozone-greece-idUKKBN0LB0HR20150207 DOCM: ” … the markets …” Could you explain this. That is, what exactly do you, or others who regularly use this term, mean by – ‘market’. My understanding is that the so-called ‘markets’ are now defunct and have been replaced by risk-free, speculative, globalized lenders using highly leveraged fiat credit. I suppose the recent trivial (relative to their annual profits) fines levied on these global lenders for collusion to cheat and defraud their customers is a figment of the main-stream media? Rigging LIBOR was a non-event? How many pension funds were damaged by that? ” … a face-saving deal …” What would this consist of – in your op? Or do you mean – “croppy, lie down!” Sooner, perhaps sooner than many hope, governments who consume their future revenue incomes today will arrive at to-morrow and find they are actually insolvent. But so also their global lenders. And the ‘face-saving deal’ will be debt write-downs and outright defaults – except of course there is a continuation with QEs – which looks increasingly likely. So if our government is paying 4% interest rate on existing debt, but can borrow at 1% to replace it – that’s classed as an economic recovery? Maybe it is. But I doubt it. Now what eaxctly does a QE do to the value of one’s currency. Enhance it or debase it? Low or zero (and even negative) base interest rates are indicative of economic well-being? I doubt that too. Stop fretting about Greece. 100,000 gone from IBM? 75,000 gone from Siemens? Wal-Mart seems to have a problem. Several thousand retail outlets shuttered in the US? No. of new employments in US +5,000,000: increase in population over same time frame +15,000,000? What is that doing to their labour participation rate? China and India are both in rude good economic health? Their economies are enjoying that “steady advance” we hear so much about? And the EU “rate of steady advance” is – less than 1%? Dr Copper is suffering a nasty dose of economic influenza? That rate of “steady economic advance” must be 3% or above. It just MUST be. But its not. They used to refer to such situations as a “dead-cat bounces”. Looks more like a dead cat peaking and troughing at the end of a long bungy rope! This PM is not for turning! http://www.theguardian.com/world/2015/feb/08/greece-prime-minister-alexis-tsipras-unveil-anti-austerity-plan-parliament Compare and contrast! https://www.imf.org/external/np/loi/2012/grc/122112.pdf The message that has not yet registered is a simple one; the rest of the EU is fed up with Greece! This political result will add to the impatience. http://www.lefigaro.fr/politique/2015/02/08/01002-20150208LIVWWW00078-duel-entre-le-ps-et-le-fn-dans-le-doubs.php Especially in the light of the much bigger issues presented by the incipient major war in the Ukraine. The colleagues of Varoufakis will, no doubt, find his message that the “euro is a house of cards” very welcome! http://www.lemonde.fr/economie/article/2015/02/08/la-veille-d-une-semaine-cruciale-le-nouveau-premier-ministre-grec-expose-son-programme_4572195_3234.html Besides the debt issue, this Syriza administration is putting much needed reforms in place – even DeR Spiegel has positives to report….. 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