Considering the Greek Crisis

The NBER organised a panel on the Greek crisis last week – video here.

74 replies on “Considering the Greek Crisis”

I could not discern ANY economics in the course of the last week or so …

Neither could Yanis

Nor could Blind Biddy

The National Bureau of POWER Research might be more appropriate … if it existed.

From fiscal stance through power stance to EUCritical stance and … 2016.


With all due respect, it is time for your good selves to stop providing cover for the shambolic heinous lunacy at the heart of the EZ … and get out of the EZ.


May I recommend Marx’s chapter on Ireland in Capital … the political economy of a half acre of spuds and a fine fat pig. Spose you would wish to privatize the poor pig and place VAT on the meagre spud!

Methinks democracy really has you scared … democrats can be such a nuisance.

Paul De Grauwe argues that Greece is having a liquidity and not a solvency crisis.

“The logic of the previous analysis is that Greece is solvent provided it can return to relatively low nominal growth rates. Today Greece has no access to the capital markets except if it is willing to pay prohibitive interest rates that would call into question its solvency. As a result, it cannot rollover its debt despite the fact that the debt is sustainable”

“There is something circular here. The expectation that the Greek government will be faced with a liquidity problem is self-fulfilling. The Greek government cannot find the liquidity because markets believe it cannot find liquidity.”

De Grauwe has been spot on in his analyses of the twists and turns of the Euro crisis since 2008.

The new Greek government in early 2015 wanted to roll back a few cuts in pensions and add a few workers to its payroll – hardly a big enough deal to make any real difference in the great scheme of things.

You got to wonder what is really going in the back rooms of the “institutions.” Why their current tantrum?

With a Debt to GDP ratio of c. 180% and an average interest rate on the debt of c. 2.5% the maths indicate that 4.5% of GDP has to be found annually to service the interest alone. Thus the surplus has to run above 4.5% to start to make headway into the 180% debt. I don’t think that this is currently being done nor will it be aided with another dollop of non growth inducing austerity.

If it can’t fund itself on the capital markets the current debt cannot be rolled over (without increasing substantially the 2.5% interest cost and thus the breakeven surplus target) the 180% is going to rise. The only way out would appear to grow GDP which is uncertain given the straightjacket.

Interesting paper that runs some numbers on net inflows into Greece from the Troika:

“… inflows averaged €20 billion a year in 2010-13 vs. 18 billion in 2006-9. That is, the EU, ECB, and IMF combined to cover all payments made to private creditors and added in new money that slightly exceeded what Greece had borrowed in the previous four years. However, if we subtract out the full cost of the bank recapitalisation programme – necessary because of the banks’ losses on Greek government debt – the amount left to run primary deficits, pay other outstanding bills, and build a cash buffer falls to €43 billion.”

The problem I guess is how to keep all this money flowing while still pretending that the EZ is not a transfer union. The idea that Greece will pay it all back has pretty much run out of road!

@ DOCM: “Either economists stop confusing their model train sets with real networks or they will bury their profession irretrievably.”

It is not psychologically possible (absent the application of a loaded gun to head) for an individual to delete their Models-in-Use and substitute an alternative. I believe I have mentioned this problem several times before on this site. Hence, the very great majority of individuals will continue to hold their existing mindset views, opinions, beliefs – despite all contradictory evidences. cf: YanisV’s statement about the singing of the Swedish National anthem.

One particular model, the Efficient Market Hypothesis is a case in point. Its practical nonsense. A veritable economic zombie. Another is the Permagrowth economic paradigm. Its been shown to be completely un-sustainable.

How many of these theoretical economic zombies are there currently stumping stolidly, relentlessly, across the barren wastelands of modern Economic Theory.

Just try not to mention these matters in polite economic (or political) company. All you will hear from your respondents is a monotonic rendition of the aforementioned anthem.


I am not entering into the correctness, or otherwise, of various economic models. Such would be beyond my capacity. What I am suggesting is that, if economists try to scale up these models and apply them to real world situations, they must take account of the change in context i.e. to a political and societal one and how that is organised. Instead, what you have is very eminent people pontificating about the latter, especially in relation to the European Union, with little but elemental knowledge of it. How do they expect to be taken seriously in such circumstances?

What most appear to be forgetting is that this is the third attempt to sort out Greece, at ever increasing cost. The argument that the fault does not lie with the Greek political class does not stand up to examination. An immediate example is the manner in which the various outstanding legislative actions, subject to, in effect, prior clearance by the institutions, are now having to be pushed through parliament, the most notable being the transposition of the EU banking resolution directive. (This will have to be applied immediately in the context of further capitalisation, and almost certain rationalisation, of Greek banks; courtesy of the chaos sown by Syriza).

We will also see in the coming days democracy at work in the countriies putting up the money. The shareholders in the IMF, and notably the US, intend to get every cent back. (If the latter wish to set an example, they can bail out Puerto Rico). The taxpayers in other EZ countries are not so lucky. Trying to finger Germany as the sole problem is poppycock.

@Skeptic and Barry T

this is getting to the nub of the matter and all the righteous indignation we are hearing about having to pay tax, can’t trust the greeks etc are moot points.

The focus ought to be on the primary surplus/deficit of Greece if the EU is really just interested in getting Greece back on its feet and sustaining itself

Like E. Ball I have struggled to get answers from DOCM regularly on this issue.

The question is simple – if the Greek government are taking in more than they are spending at what point does that reflect an acceptable level of reform. Is it a question of wanting them to take much more than they spend simply to pay off past liabilities faster? Its all good and well saying they have got to collect more taxes but if they are running primary budget surpluses – taking in ever more taxes to run surpluses simply to pay bigger chunks of debt makes Greece the state, an asset (debt instrument) of other EU states and institutions.

@ DOCM: Thanks for that. Yeah, the proper term is Political Economy. Always was – until the financial institutions went global in the 1980s. Now its Financial Economy. The politicans have been corrupted by the wealth available to the international finance houses. Will do as directed.

“What I am suggesting is that, if economists try to scale up these models and apply them to real world situations, they must take account of the change in context i.e. to a political and societal one and how that is organised.”

The economists won’t (can’t, is probably more accurate). Though your nemesis YV did try – and look what happened to him! I have a sneaking susicion – from some of his commentaries, that he does indeed understand how modern developed economies can no longer operate on the existing economic and financial models. His commentaries would have been very bad news for the politicians – both home and abroad. Better ‘kill’ the messenger!

Global debts (state, corporate and personal) have increased and increased in parallel with the decrease and decrease of interest rates. What was (is) the rationale for zero-bound interest rates? Its certainly not to get economic rates-of-growth back over that obligatory 3% p/a (compounding) level. Because after 20 years – it has not achieved this. Lots of questions. Not many straight answers.

How often does Vesuvious erupt? That’ll sort out a few folk.

I think the nub of the matter is indeed that this is the third attempt at bailing in Greece, and looks likely to be the third abject failure. The cost both to the Greeks and to the taxpayers of the countries that are supposedly bailing them out keeps escalating with no end in sight.

Despite what the ECB’s representative has claimed here, it is not just a matter of failure by the Greeks to follow the programmes. It is also that the programmes themselves have been designed as if their intention was to depress the Greek economy, to keep it depressed, and to permanently suppress what is left of Greece’s sovereignty. The latest programme seems no different.

I look forward in hope to the operation of democracy in the countries from which more money is being requisitioned. If we are very lucky, parliaments representing in excess of 15% of the relevant vote will tell the institutions to take a hike, and they will respond by facilitating an orderly exit by Greece from the euro that is throttling its economy.

Pier Carlo Padoan, Italian finance minister and former chief economist at the OECD, said in an interview published Tuesday in the daily Il Sole 24 Ore that he was surprised by how many countries fell in behind Germany, and that “in the end, only we, the French and little Cyprus were for a compromise.”

“Colm McCarthy and TCD’s Prof Frank Barry will appear before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform” today according to a press release.

If all the 19 finance minister members of the Eurogroup were economists, wonder would the outcome have been any different despite the consensus of most academic economists on what should be done.

It’s interesting that France and Italy were outliers in pushing for a compromise.

Both have challenges in reducing debt and in the more than 150 years since unification in 1861, Italy has had a debt to GDP ratio below 60% of GDP in less than 30 of those years.

The Republic of Italy was founded in 1948 and an annual budget surplus has not been achieved in any year since. From the mid-1960s to the early 1990s Italy ran unsustainable fiscal policies, with high deficits and persistent primary imbalances that resulted in the debt ratio rising to 124%.

Pension reforms and other reforms to prepare for euro entry resulted in a stabilising of the debt as interest rates fell and a primary surplus was achieved until the financial crisis and again in 2014. The debt ratio in 2015 is 134%.

Both France and Greece have run deficits every year since the mid-1970s.

The post-war catch-up period with rapid growth in 1950-1973 ended abruptly and both Italy and Greece ran annual deficits of about 10% for 20 and 15 years respectively as growth slowed and public spending increased.

As regards Greece, for both it and the Euro Area, the third bailout should be the last one and then if further assistance is needed Grexit with debt restructuring would likely be the best option – there is a big opportunity for a competent government to significantly improve on its dismal inward investment record.

“what most appear to be forgetting is that this is the third attempt to sort out Greece, at ever increasing cost.”

What you are conveniently ignoring is that all previous attempts expected to sort out Greece based on illusionary economic models around growth in Greece. As Stiglitz has pointed out the Troika has consistently got their forecasting hopelessly wrong because they are wedded to a nonsensical ideology that rejects keynesian economics. Had all the taxes been collected, the picture would be worse not better. So it matters not one iota that this is the 3rd, 4th or 20th attempt….that old adage from an eminent German that the definition of insanity is doing the same thing over and over and expecting different results.

If the Troika are in despair at the fact that with every shovel they take the hole is getting bigger and not smaller, then their despair will well deserved because they have listened to no one – including their own IMF that more digging doesn’t make holes smaller.

“As Stiglitz has pointed out the Troika has consistently got their forecasting hopelessly wrong because they are wedded to a nonsensical ideology that rejects keynesian economics.”

Well, Keynesian economics died a peaceful death back in the early 1950s. Lots of folk must have missed the RIP notice and the funeral. No matter.

” … that more digging doesn’t make holes smaller.”

Now this is a most difficult psychological paradigm to incorporate into one’s mindset or Models-in-Use. It goes by the name Successful Failure. By definition, success is the opposite of failure, but the reverse is most certainly also true. Failures can be rip-roaring successes. Even up to an including the heroic level. We are experiencing one such at the moment. Enjoy.

Again, by definition a success (no matter its actual nature) HAS to be continued with. Hence the quote. Someone was engaging in a modicum of intellectual effort.

@ Nocense

Figure 1 in the paper I linked above is interesting, it compares primary surpluses of crisis EZ countries versus those in LatAm countries that experienced crisis in the 1980s. Several of those LatAm countries ran significant surpluses for a few years. They also defaulted on or restructured debt, and received IMF bailouts. They are probably reasonable examples of what happens when a sovereign, independent nation temporarily loses access to all sources of external funding (except the IMF). “Keynesian economics” doesn’t really factor here, because although it *might* have been a better way for these countries to return to growth, in practice independent nations do not provide each other with the large stimulus funds necessary to implement it (either directly or via the IMF).

I think the LatAm countries are an interesting reference point for Greece. The LatAms ran surpluses for a few years because they had no choice, but that was sufficient for them to regain access to markets and promptly get back to deficit territory. Greece was supposed to run a primary surplus this year and might still do if the new bailout funds don’t come through in time. Assuming the bailout is agreed it will provide Greece with another 90 billion odd over 3 years. So Greece has no need for the time being to run surpluses. The plans for large surpluses for years to come should be seen for what they are – attempts by EZ politicians to justify the continuation of funding.

@ Nocense

Another definition of insanity might be paying any attention to Stiglitz et al in the matter of how to survive in the real world.

@ MH

You have, of course, identified the really existential question with regard to the the future of not just the EZ but the EU. It has been obvious to policymakers for years but the economic theoreticians continue to work in apparent blissful ignorance of it. I say apparent because many must be aware of it but factoring it into current theoretical models would shatter quite a few long-standing assumptions.

@ All


Ole Wilbur Ross (remember him from Bank of Ireland) hits the nail on the head.

He states

“Among the terms of the tentative agreement is a $55 billion fund that will be set up using Greek government assets for privatization.

“The privatizations really will go forward,” Ross told CNBC’s “Squawk Box” on Monday. “Transferring those activities which are highly unionized [and] highly left-wing out of the direct control of the government … that’s a huge, big deal.”

Think ESB, Bord na Mona, Irish Rail, and many former and current Irish semi-state bodies. Workers in the Greek equivalents are in the cross-hairs,

“Well, Keynesian economics died a peaceful death back in the early 1950s. Lots of folk must have missed the RIP notice and the funeral. No matter.”


But rose like a phoenix from the flames in the land of Friedman post crash. Not in the european armory or mindset not – those foolish americans don’t know how to run an economy!

Superb letter from Pat Rabbitte in today’s IT:

My favourite bit:

“Who will endure most arising from the cack-handed misgovernance of Greece? It won’t be the wealthy elite or the tax dodgers or the trendy academics advising Syriza on the politics of magical thinking.”

Over and over again left-wing parties forget this lesson: overspending is a thoroughly right-wing conservative tactic, designed to destroy a State, not build it. The State is there as a safety net for the poor, and when you become a failed State it is always the poor that suffers. And when overspending by left-wing governments happens it is rarely because too much is spent on the poor. Instead, it is spent on all the parasites that attach themselves to modern left-wing parties. But this is an insane electoral strategy as the UK Labour Party has just discovered. There aren’t enough academics, health care professionals, lawyers, civil servants and ‘consultants’ to carry an election, and the working classes won’t turn out like sheep any more.

Fair play to Rabbitte – he is at least turning the conversation in Ireland towards good governance, which should always be the first concern of the left. In the UK the clown car is being driven over the cliffs at speed by Comrade Corbyn et al, and we won’t be seeing a Labour administration in the UK for another generation.


Heaven forbid that turf should be harvested by the private sector.

@ JF

“There aren’t enough academics, health care professionals, lawyers, civil servants and ‘consultants’ to carry an election, and the working classes won’t turn out like sheep any more.”

How true!

The Labour Party has, unfortunately, no other electoral strategy open to it other than to see just how many there are (adding in pensioners – politicians included – of which there are now many more following the so-called process of reform, “a la Grece”, so to speak).


If only Deputy Rabbitte’s concerns were about good governance.

Former Minister Rabbitte’s (FMR) primary objectives while in government were (1) protecting and advancing the powerful special interest groups in the public, semi-state and sheltered private sectors which, if not pandered to at the expense of the majority of citizens, could have derailed the challenging process of fiscal adjustment and (2) clocking up time in cabinet to max the pension pot. He knows that Labour will be toast in the next election and he’s obviously concerned about his legacy, but I’m not sure moaning about his offended amour propre in public is going to help his cause.

His success in defending various powerful special interest groups has not been properly recognised or applauded by the ordinary citizens who continue to be ripped off as a result. In the initial MoU of Nov. 2010, the Troika was very keen to conduct a comprehensive investigation of the electricity and gas sectors. The financing of the electricity and gas industries and the structure and operation of these markets are among the most inefficient and costly in the EU. This imposes huge unnecessary costs on the economy and final consumers, but the powerful special interest groups involved were determined to defend their ill-gotten and unjustified gains. This was in FMR’s remit and the Troika was persuaded to back down and it consented to a typically innocuous periodic review of energy policy by the IEA. Cue much rejoicing among the management, staff and unions of the semi-states involved.

Former Minister Hogan, now in verdant Brussels pastures, is frequently blamed for the Irish Water mess, but FMR is equally, if not more, culpable. Between them they concocted the scheme of transferring water sector assets to Bord Gais for free and setting Irish Water up within it (rebadged as Ervia) to compensate the management, staff and unions for the sale of the non-network businesses of Bord Gais. The CER, which was required to cobble together an asset base for Irish Water and to set water charges, allegedly independently of government, that matched the average household charge already decided by the government (and, thereby, to insulate the government from political flak), operated in FMR’s area of responsibility. The minister appoints the commissioners and anyone who thinks it operates independently of government really needs their head examining.

Despite having two gas interconnectors from Scotland Ireland does not comply with the N-1 gas supply requirement of the EU’s Gas Security of Supply Directive. While in office, FMR, his officials, the CER and BGE conveyed the public impression of welcoming the Shannon LNG project which could provide an efficient and effective means of complying with the EU’s N-1 requirement, but they did everything they could to kill the project. The final decision by the CER on gas system entry tariffs, which is intended to compel the abandonment of the project, is expected shortly.

FMR has left an impressive legacy – and ordinary voters will be paying for it long after he’s departed public life. The groupthink and rent capture that contributed to the triple blow-outs in 2008 remain dominant in all of the sectors that didn’t experience blowouts – and even in these it’s re-emerging.

@ Johnny Foreigner

Even better from Pat Rabbitte in the same letter:
“Diarmuid Ferriter would perhaps have preferred if we had spent more time speechifying, dithering and generally faffing around like the Syriza government in Greece, making the crisis even worse and inflicting greater hardship on ordinary citizens. Of course, Syriza has in its ranks more than its fair share of academics with a part-time political sideline. The problem is, as Brendan Behan noted in another context, they know how it’s done but they’re unable to do it themselves.”


@ JF

Yeah right. Superb piece of special pleading, contempt for educated opinion, and distortion of the historical record more like.

Syriza are a later arrival. Why did no one notice a problem during the decades that his PASOK associates were in power ?

As for the UK, the Leveson enquiry provides a measure of governance standards in the ‘responsible’ party.

@ Nocense

“Another definition of insanity might be paying any attention to Stiglitz et al in the matter of how to survive in the real world.”

Avoid dealing with the central point of my post i.e. that the 3rd attempt to refer to is only that because the forecasting of the Troika was so hopelessly wrong on the first 2 attempts. Thats a fact, we do not need Stiglitz to ordain it thus.

But sure in typical fashion as we are increasingly learning on this site you avoid the crux of the issue, respond with quips about “fools” like Stiglitz and everyone is back in their box eh?…Should we take the subtext of the idiot that is Stiglitz to softly translate into the wonder that is Enda and Noonan?

@ skeptic01

There is already relief on debt and the priority in the short to medium term should be on developing a credible growth plan.

The foreign armchair commentators sing the mantra of debt relief but that won’t be relevant for a decade as annual interest costs are less than the annual transfers from the EU budget and debt maturities are long term.

It may seem boring but has the Greek government a growth plan? It halted the privatisation programme of the previous government last February for ideological reasons to the annoyance of Communist China! They could have received billions of euro that would have alleviated austerity!!

I am scratching my head on Labour leadership. Should I vote for Ms Kendall on the basis that she will split the party or for Jeremy on the basis that he will destroy it.

Lars Feld of the German Council of Economic Experts says blaming Germany is like blaming the fire brigade for trying to put out the fire.

“Monday’s agreement provides funds in exchange for collateral, namely the credible promise of reform. Without external funds, the Greek economy would break down even more dramatically than it has. Wages and pensions would not be paid. The deal does not impose austerity. It is the only way of avoiding it.

Should there be another debt restructuring? Not now and not without reforms. In March 2012, private creditors accepted a loss in present value terms of about 70 per cent. In November 2012, eurozone members accepted a loss in present value terms of about 50 per cent. Now it is time for Greece to modernise its economy and its public administration, privatise state-owned enterprises and balance its budget. With interest payments of about 2 per cent of output on public debt, a growth rate of 2 per cent would already help to get out of excessive indebtedness.

Sustainable economic growth does not result from another round of excessive deficit spending, but originates from a transformation to a market economy. Wolfgang Schäuble is right.”

According to RTE the effect of the VAT changes will increase the average Greek family monthly bill by €13, nearly as bad as our water charges. On top of that I see that a retirement age of 67 is to be phased in by 2022.

Now I can understand why Krugman talks of the “terrible suffering” of austerity and I must apologise to DOD for belittling one of his own links which pointed out that the effects of this neo liberal warfare were every bit as bad on the general population as military warfare.

There is a silver lining though, with this devastating assault on the Greek citizenry we can expect the inflow of Syrian refugees to dry up.

@ jf: That Rabbitte piece is self-serving and self-justifying: its vacuous rubbish. The belief that we still have Left/Right political movements is unbelievable at this stage. Some folk really do have an awfull lot of hard (political) thinking to do. Our financial institutions and international conglomerates are our new governments. Our elected parliamentarians are merely the fawning pawns who do their bidding. TPP and TIPP are coming ashore to a state near you. Ghengis Khan would have be impressed.

Nocense: Thanks for that.

You may be right,
But I’d class it as Keynsian Lite – You know,
Like Guiness Lite. All froth, no ‘bite’.

@ MH

I’m in agreement with you. A Chinese official recently called Greece a “beggar with a golden bowl” – a particularly figurative Chinese expression. In addition to FDI, Greece has significant potential to grow just by getting 25% of its workforce back to work. It is also far behind the “technological frontier” enjoyed by advanced economies, meaning that with the right policies it can benefit hugely from “catch-up” growth – the easiest kind. And it’s true that countries with healthy rapidly growing economies do often run significant primary surpluses for several years continuously.

I just don’t see any leaders in Greece who think that way. It’s quite likely to end up an economically dependent region in which politicians spend their time disbursing funds received from other places.

Johnny Foreigner Says:
July 16th, 2015 at 11:28 am

Heaven forbid that turf should be harvested by the private sector.

I’ve no idea what point you are making. I can’t respond.


As long as Labour can concentrate it’s vote in the constituencies that make up its traditional heartland (the vast region that stretches from Rathmines to Dun Laoghaire) they will get 5 or 6 seats. Even that number might be enough to get them a place at the table and ensure that all sorts of fragrant ‘side deals’ get done behind closed doors when pay restoration for social scientists earning twice the average industrial wage is discussed. Pity the Labour TDs in godforsaken spots like East Cork, who don’t haven’t an army of RTE, UCD and ESB employees to turn out for them.

@Paul Hunt
I agree with everything you say, but the contents of the letter are still right.

@ Nocense

u may recall Stiglitz embarassing performance on Newsnight back in 2010-11 when he claimed Greece did not need to default on its debts at all. Hugh Hendry ended up schooling him rather badly (see below link).

As i mentioned on the previous thread, Greece’s level of GDP in 2008 is not a sustainable figure. The Greek economy needs to find a level of GDP it can sustainably reset to, and service an appropriate level of accompanying debt, within the confines of Eurozone rules, it if wishes to remain within that Eurozone. Restructuring both its economy and its debt is what is needed if it wishes to do this, and creditors do not believe there is the political will to implement such a long term (10-15 years minimum, starting in 2012) project from the economic restructuring side of this, and so they will not allow the additional (cos there has already been a lot) debt restructuring to occur yet. This is the political (not economic) impasse which is currently being debated, and which Draghi is doing his best to support right now without becoming a principle decider in.

@ Nocense

As you are purporting to quote me further after your opening correct quotation, maybe you could indicate where I used the epithets in question.

I have never entered into the issue of the accuracy of forecasts. In general, I agree with the view of JK Galbraith that “the purpose of economic forecasting is to make astrology look respectable”.

sketic01: Apologies if I’m wrong about this, but you appear to have the (delusional) belief in the unsustainable Permagrowth economic paradigm.

Methinks MH may have a somewhat more dilute version about the permgrowth characteristics of FDI. There is simply not enough real, physical resources to go around to enhance and sustain an economic rate-of-growth model based on the principle of compounding interest. It works for money because you can create money ex-niliho. But physical resources (and hence the ability to re-pay debts) do have real – and finite, limits. “Are we there yet?” I’d guess so.

Its that simple – if you accept that mathematically 2 + 2 = 4, and not 4.1 or any another value – which, apparently, most folk’s wishful economic thinking leads them to believe in. Hence our present-day economic and financial mess.

“It’s quite likely to end up an economically dependent region in which politicians spend their time disbursing funds received from other places.”

You mean, like here in Ireland? But, this is our default mode. How much are we ‘borrowing’ each week? That is, how much of our day-to-day spending is being disbursed from ‘funds’ which attract an interest payment?

We might be able to afford the interest payments – for now. But not capital repayments. We roll those over – ad nauseum!

I’m not sure this is the best example of trying to show up Stiglitz – when he says paying interest at 1-2% at 130% Deb:GDP ratio is sustainable I don’t think there is anything controversial about that. Indeed had Draghi found his kahuna’s (or received his mandate) to undertake his “whatever it takes” doctrine much sooner in the crisis what Stiglitz was proposing was eminently possible.

Stiglitz put forward the European solidarity option that absolutely could have delivered the 1-2% scenario he spoke – indeed it did for Ireland and other PIIGS after the Draghi intervention – too late for Greece. The bottom line is Hendry is talking his book – as we know the book of German and French banks is what ruled the roost so it turned out the ‘real world’ turned out exactly as Hendry would advocate…what Stiglitz proposed was possible and ought to have been achieved in a properly functioning monetary union – the EZ of course isn’t a proper monetary union and that is at the core of the entire failed project. As Stiglitz noted “it is inconceivable that US would ever default on debt”….and he is right, and why, because they will print money and to paraphrase Draghi do what it bloody takes to avoid this.

But ignoring whatever you think about the Stiglitz v Hendry debate – impuning the reputation of Stiglitz does nothing to discount that he is absolute correct about how outrageously wrong each and every forecast the Troika made about the Greek economy – all the while Greece was moving towards the holy Grail primary surplus…which very little comment (Especially by the likes of DOCM) has recieved on this last several hundred posts on this site. So pray tell – having achieved a budget surplus (or close to it for arguments sake) please tell me how much better the Greek economy would be now had taxes been collected to the level and satisfaction of Greece’s creditors….the simple question of whether the Greek economy would be worse or better off is very obvious.

Three things keep surfacing in these threads, but are rarely spelled out.

1. Most sensible people appear to agree that it was simply wrong that certain classes of providers of finance to bankrupt banks and states were bailed out by taxpayers. However, most sensible people (and this excludes those who adopt a left-wing stance and don’t apparently recognise the principle) accept that there should be “no taking without due process” and that robust legal processes to enforce this due process were not in place either at the national or the EU level. They are in place now at both the EU level and at the national level in most member-states (with the exception of Greece). In addition, there was a genuine risk of widespread bank failures and widespread financial and economic meltdown if states backed by their taxpayers did not intervene.

2. Most EU member-states, whether they were in specific support programmes (such as Ireland and Portugal) or in partial or limited support programmes, had sufficient institutional capacity, governace competence, economic flexibility and social cohesion to effect the necessary adjustments. (The processes may have been far from efficient or equitable, but, in the main, have been effective.) Greece unfortunately started out in a worse position and suffers from so many profound failures of governance and economic weaknesses that it totally lacked the ability to make the adjustment required. Huge efforts were made up to the end of last year, but the burden fell disproportionately on those least able to bear it. The rise of Syriza was the predictable and inevitable consequence.

3. The creditors’ sequencing – credible evidence of reform first and then some measure of debt relief – is perfectly understandable. Greece has been serially delinquent and fallen short in the delivery of solemn and binding commitments. But the extent of governance failure in Greece is so great that the creditors are seeking to impose not only some very necessary changes in governance that should have been in place many years ago (and certainly before Greece was admitted to the EZ), but also change economic changes that would provoke widepread revolt and protest in many of their own countries. (For example, imagine the outcry in Ireland if the other EZ members demanded the privatisation of all semi-state companies with no effective national control on the disposal of the proceeds – on pain of being excluded from the EZ.)

It is impossible to avoid the conclusion that Greece should be taken out of the EZ, put in to intensive care and its citizens given the time and space to decide what kind of democratic, economic and social polity they want.

James K. Galbraith on the Greek situation:

What Europe’s “leaders” do care about is power. They posture for their own parliaments and domestic polities. There is an eastern bloc, led by Finland, which is right-wing and ultra hard line. There is a model-prisoner group—Spain, Ireland, and Portugal—which is faced with Podemos and Sinn Fein at home and cannot admit that austerity hasn’t worked. There is a soft pair, France and Italy, which would like to dampen the threats from Marine Le Pen and Beppe Grillo. And there is Germany, which, it is now clear, cannot accept debt relief inside the euro zone, because such relief would allow other countries in trouble to make similar demands. Europe’s largest creditor would then face a colossal write-off, and the Germans would face the stunning realization that the vast debts built up to finance their exports over the past fifteen years will never be repaid.

[. . .]

What will become of Europe? Clearly the hopes of the pro-European, reformist left are now over. That will leave the future in the hands of the anti-European parties, including UKIP, the National Front in France, and Golden Dawn in Greece. These are ugly, racist, xenophobic groups; Golden Dawn has proposed concentration camps for immigrants in its platform. The only counter, now, is for progressive and democratic forces to regroup behind the banner of national democratic restoration. Which means that the left in Europe will also now swing against the euro.


His recent take on the Irish is like something from Punch in the 19th century.

“They were willing to take some more pain. I don’t know whether this was some sort of Catholic guilt feelings that allowed them to take that that other societies would not have done,” he said.

These crass stereotypes seem to be all the rage on the left at the moment.


Your ability to recognise crass stereotypes is unmatched . . . by reality.

It isn’t racist or crass to point out that Ireland is an overwhelmingly Catholic country, that most of its population is indoctrinated into the tenets of the faith from a very young age and that these ideas and ways of thinking are not without effects on the population. Indeed, the whole point of the indoctrination is precisely to affect thought and action. Otherwise, why do it?

I think Galbraith is on the money. If I had a euro for every time I heard “we all partied” as the justification for the subsequent punishment, I could’ve bailed out Anglo bondholders myself.

The Earth no doubt is finite but even when we reach its limits, it will still be possible to improve people’s lives by deploying ingenuity to make better use of the same resources. You could say I’m a believer in perma-improvement.

There is one thing other than money and debt which does compound: knowledge. The more you have, the easier it is to get more.

@ PH

The Buckheit and Gulati paper confirms in large measure your analysis and underlines the intractable nature of the problem that Greece represents. The Commission’s assessment fills in any blanks.

The key issue is that of sequencing. Many commentators seem to see major differences between Merkel and Schaeuble and are puzzled by the individual furrow being ploughed by the latter. I do not think there is any real difference. Both recognise the depth of the problem and the statements by Schaeuble about Grexit being still on the table add up IMHO to signalling to the Greek side that if Tsipras wishes to continue playing a game of silly buggers, he will be matched step by step by Berlin.

As the Commission paper states;

“However, support can only be granted on the basis of a far-reaching and credible reform programme which has a high level of ownership of the Greek authorities and the general public.”

The remarkable thing is that the ownership may now actually exist with the latter (they want their banks back!!) while still being in doubt with regard to the former.

Varoufakis on June 18th; a clip I had not seen before. Seven minutes but well worth watching, even for people who disagree with Varoufakis.

Very impressive analysis of how the situation has got to where it is, and why pursuing the same path will only worsen the situation, for everybody.

Since then of course, the ECB has shut down Greek banks, and by extension, the entire economy of Greece. I wonder if there are calculations of the negative impact of this.
My suspicion is that a a GDP contraction of 5% from the three week shut down, would be an underestimation of the negative economic impact of the bank ‘closures’. If ‘negotiations’ are prolonged, then it is quite conceivable that Greek GDP will fall at least 10%.

I really do hope that the European left align itself with modern day fascists. Then we see the left as equally totalitarian as the extreme right. In many respects the current Greek Marxist/fascist coalition is the harbinger of what is to come. Shades of the Hitler/Stalin pact of 1939. Nothing changes.

Ah, skeptic – if only it were that straightforward. It is not, and it requires a monumental amount of ‘hard’ thinking to sort through the dross.

Regrettably, all and every attempt to ‘improve’ peoples’ lives will end in failure for the multitude; success for the miniscule few. And, to compound the problem even further we have already consumed the most accessible of our finite resources. Both the technological effort and the financial cost of extracting and consuming the remainder have imposed an increasing drag on overall economic activity – leading to diminishing returns. This latter is manifesting itself in our present financial crisis.

More and more folk will be unable (due to income scarcity) to avail of the physical resources, freshwater and foodstuffs that they need to ‘grow’ an economy. On this basis, Greece will never recover. It may stagnate but a slow deterioration is the probable course. Whose next?

Knowledge? Sure its compounding. Its our inability to gather what is needed together into a meaningful manner and then deploy it, that restrains us. A few weeks back there was a 2 hour electricity failure in south Dublin. No ATMs; the banks shut. Credit card readers stopped working; shops shuttered. Traffic signals blacked out. It was not funny. Our technology is quite fantastic – when it works. Its useless junk when it fails.

We’ll be back at this. Cheers.

Ah now Ernie there is no such thing as a national psyche…the notion is positively offensive. Only last week I saw a swede stand proud and sing his national anthem …but promptly corrected himself to advise all around that he didn’t really mean it!

Galbraith is bang, smack on the money…..”enda won’t have defaulter stamped on his forehead ( as long as the rest of us pay for it)”


I appreciate your offer of an alliance but must decline.

Your idea that socialists=Stalin, uh, lacks nuance.

Do you honestly see Syriza and Golden Dawn getting together? Do you honestly see them as the same thing?

On the previous thread, Mr. Bond expressed his personal view, which I share:

that there is no way this or any future Greek government will be able to implement successfully on a sustained basis what the other members of the EZ have decreed. The carrot being offered is that debt-restructuring will be addressed when solid evidence of ‘reform’ is presented by the current government. So what haircuts will be offered? The IMF and the ECB don’t do haircuts, so it’s the taxpayers of the other member-states on the hook. Chancellor Merkel has ruled out explicit haircuts, so they’ll have to be these postponed, implicit, but politically convenient, haircuts effected by postponing debt service for 30+ years. So how severe should these implicit haircuts be? I’m sure ordinary voters throughout the EU would like to know. (In addition, I think it would be grossly unfair to impose these implicit haircuts on the member-states which joined the EU in 2004 and subsequently joined the EZ. They were not involved in the decision to admit Greece.)

On another, but not totally unrelated, front, the European Commission, last week, issued a comprehensive ex-post review of Ireland’s support programme:

I’m amused, but not surprised, that it hasn’t been the subject of a post here. It’s an impressive piece of work. In particular, Section 7, on structural reforms, is a subtle, understated and restrained, but damning, description of by whom and how economic power is exercised in Ireland.

There’s one particularly poignant, almost regretful, observation:
“The relatively slow pace of reform in regulated sectors has arguably
had a negative impact on the fairness of the adjustment, with disposable incomes and prices in these sectors adjusting more slowly than for lower-income workers in other parts of the private and public sectors…..The programme may have missed an opportunity to deliver more fundamental reform to protected sectors, to confront vested interests and rigidities, and facilitate improved competition and efficiency among domestically-focused firms.”

Now who’d have guessed that when the original MOU was being drafted?

@ PH

Per our esteemed MOF at the “National Economic Dialogue”; “We’re in the position that I don’t think any Government was in before, where we actually have money to spend and under the rules we won’t be able to spend it all. So we have to prioritise when it comes to spending” (!).

Paying down debt? The Fiscal Advisory Council may have its opinion in the matter but who cares! There is an election to be won.

There is little interest in the Commission’s ex-post review because the message is unwelcome on all sides. However, everything is relative. When compared with Greece, we are still the star pupil even with the comment “could do better!”.

The situation in Greece is quite different now which this Ekathimerini comment probably sums up best.

The Greek side is finally engaged, after inflicting enormous damage on itself by failing to engage seriously years ago. Tight banking restrictions and managed capital controls into the indefinite future should ensure that this engagement sticks.

Incidentally, Krugman on CNN yesterday said that he “may have overestimated the competence of the Greek government.” Now he tells us!

Syrizia is already in govt with a bunch of fascists. An alliance with Golden Dawn is but a hop & a skip.

fyi The Bungee Loan – now u see it – now u don’t …

Peter Spiegel (@SpiegelPeter)
July 20, 2015
The €7.16bn bridge loan just sent to #Greece, says @Mina_Andreeva

But over in the Greek capital, the money is already being spent to address Greece’s latest debt demands.

Government officials have confirmed that the process of repaying $4.2bn to the European Central Bank today has begun. That means Greece will avoid defaulting on its obligations to the ECB, which would have had very serious consequences.

Greece also plans to clear its arrears to the International Monetary Fund, by sending €2.05bn over to Washington. That will cover the €1.6bn repayments due in June, which was missed as Greece staggered out of its previous bailout, plus a second payment due last week.

So in short, Greece’s creditors have loaned it more money, so it can repay its creditors.

The cash spends hardly any time in Athens at all, before being yanked back out again. Maybe it should be renamed a bungee loan…..

text from Seven_of_9

“Somewhere in the cosmos, perhaps, intelligent life may be watching these lights of ours, aware of what they mean,” Hawking said. “Or do our lights wander a lifeless cosmos – unseen beacons, announcing that here, on one rock, the Universe discovered its existence.”

Humanoids! Silly beings!


On Greece, it will be interesting to see if the Syriza MPs who voted no or abstained last Wednesday will do the same this Wednesday – and if any more will join them. The key issues being voted on this Wednesday include changes in the civil justice system to speed up its processes and the transposition of the EU’s directive on bank resolution in to Greek law. The latter should have been done ages ago and the former is unambiguously in the public and national interest. That these should have been conditions imposed by the other 18 EZ members is a measure of the extent to which Greece is a failed state.

At the moment Syriza is totally dependent on the opposition parties to enact legislation. This is unsustainable and a general election in the autumn is inevitable. On can only hope that enough voters will elect politicians who will be able to close the huge gap between what is required to meet the apparent determination of a majority of voters to stay in the EZ and what voters appear to be prepared to accept.

On a more general point, the increasing dominance of the centre-right and the corresponding disarray of the centre-left thoughout the EU is neither healthy nor sustainable. The irony is that the policies of the centre-right are, not surprisingly, fuelling support for populist nationalists, green fantasists and hard left headbangers, but these factions are leaching far more voter support from the centre-left than they are from the centre-right. In fact the more they cannibalise centre-left support the more centrist voters are repelled and support the centre-right – and the centre-left is diminished even more. The well-intentioned, but totally irrelevant in terms of implementable policies, witterings of selectively blind prominent liberal (US) and left-of-centre (Europe) economists provide quasi-intellectual cover and succour for these populists, fantasists and headbangers. They are proving to be useful idiots for the centre-right and, as Clement Atlee once admonished Harold Laski, a period of silence (and reflection) would be welcome. A cogent and compelling case may be made against centre-right policies and alternatives developed that would secure widespread popular support. But the disingenuousness, dishonesty and hypocrisy that currently characterises the left-wing policy pronouncements must be abandoned.

As far as Ireland is concerned, business-as-usual has been resumed. The groupthink, greed and stupidity that infected the banking, financial and property sectors and subverted fiscal policy prior to 2008 remained alive and well in all other sectors – and is beginning to re-emerge forcefully in the former. Nothing of any lasting value has been learned.

@ PH

I am afraid that on your last point, you are correct. We faced a radical situation but, thanks to the assistance of the other countries of the EU, and notably those of the EZ, we have been able to avoid taking on board the necessary really radical changes required (as the ludicrous comment I relayed above by the MOF confirms).

For the moment?

It seems to me that many observers are missing the really seismic shifts in governance at an EU level that are in the offing. This link, and the one to the Bruegel article I gave earlier, is an indication that a lot of thought is being devoted in Berlin, notably by Weidmann of the Bundesbank, to how the landscape of a stabilised euro zone will look.

cf, in particular the embedded link to the most recent Weidmann speech.

As to the role of experts with whose views one happens not to agree, time will tell. To quote the Bruegel article.

“When trust is devastated and a country is bankrupt the idea of continuing counter-cyclical fiscal fine-tuning to boost growth, as advocated by the anti-austerity zealots such as Paul Krugman and Joseph Stiglitz[, does not make much sense. In fact it looks like an evident misreading of Keynesian theory. In the case of Greece, slower fiscal adjustment means two things: (i) slower pace of important structural and institutional reforms (overhaul of VAT, pension reform, privatisation) which are important for growth; (ii) an even higher public debt burden, which undermines business and consumer confidence and, therefore, kills growth prospects.”

@Paul Hunt
” The key issues being voted on this Wednesday include changes in the civil justice system to speed up its processes and the transposition of the EU’s directive on bank resolution in to Greek law. ”

You might wish to elaborate why translation of the BRRD into Greek law is so urgently required.
It seems to me that the urgency is required to legalise ‘haircuts’ on deposits, and I doubt that such haircuts will be restricted to deposits over 100,000.
I assume the ECB will be allowed to escape haircuts, or grab collateral of all kinds.
In other words the BRRD legislation is about the theft of deposits to safeguard ECB lending, and is as far removed from the Greek national interest as Frankfurt is from Athens.


Your link 5 lessons on Greece…. excellent I must say.

I particularly enjoyed Lesson Four…. Democracy and Responsibility.

As mentioned if Greece deserves better… then who is going to pay for it?

On a different point…. the ability of humans to hold two or more totally conflicting view points and still be at peace / contentment with themselves is truly amazing.

It is like a machine which is able to be both off and on at the same time!!

Human hypocrisy clearly has no limits.


I’m sure it was never to quote krugman out of context however it may suit ur agenda….this is what he said in full…

“it didn’t even occur to me that they would be prepared to make a stand without having done any contingency planning …amazingly – they thought they could simply demand better terms without having any backup plan. So certainly this is a shock. But, you know, in some sense, it’s hopeless in any case. …it’s not as if the terms that they were being offered before were feasible. I mean, the new terms are even worse, but the terms they were being offered before were still not going to work. So I, you know, I may have overestimated the competence of the Greek government.”

It’s not now he is only tell us the patently obvious btw…

@ PH

Thing is, nobody seems to care overmuch what the Greeks will do from one day to the next anymore…

However mad the loan of billions of – emergency-pay-your-debt-for-Chrissakes – of 7bn plus euro may appear; once it’s done and dusted, Greece is no longer ‘pivotal’ in respect of the fate of the eurozone as a system.

Surely, that is the point? Whatever economic leverage the Syriza government had as a pivotal variable no longer existed by the time they sat down to negotiate their ‘vision’ with the rest of the eurozone (?). That boat had already sailed. The euro sytem was insulated. Subsequent events proved this was right, and Syriza caved in to the inevitable because there was no other political choice available.

As far as Ireland is concerned…yes, indeed, we’re nearing the end of this government cycle. So what all the parties involved are concerned about in the immediate term is re-election, if you are already there, and supplanting the present ncumbents if you are waiting on the sidelines. There’s no sense to be had from any of them for the next six months or for however long this election charade goes on.

Right now, I await the various party political policies on seagulls. My nearest and dearest advises me that when he came out of the fish and chip shop in Howth this afternon there was a squadron of seagulls, with curved bills the length and breath of electric hedge cutters, assembled in wait….

As for Greece, I wish them well. But it will take at least a few months to negotiate ‘Bailout 3’. What’s involved is a process, not some linear end point; which means all predictions are premature at this moment in time.

There are lots of ‘nuances’ involved in the negotiations. I think much of the debate about Greece over the past two months has been quite meaningless on all sides, including economics. In the end, microeconomics trumps the macroeconomic argument: no government is going to preside over the total collapse of their domestic economy if there is a temporary fix available to avoid it. That’s what the Greek Prime Minister had to face up to, is it not?

And as for us, just watch out for the seagulls.


“On a different point…. the ability of humans to hold two or more totally conflicting view points and still be at peace / contentment with themselves is truly amazing.”

Couldn’t agree with you more and in that regard it is worth again looking at what I previously posted in the context to FG/Enda/Noonan’s position on Greece:

Enda Kenny 15 December 2010

“…the Government’s so-called recovery plan, which underpins the current EU-IMF rescue package, shows that it has learnt nothing from the crisis of the past two years. We will not restore confidence to our economy unless we credibly cap the taxpayers’ exposure to the banking system, while pursuing new policies to support growth and jobs in parallel to the fiscal adjustments

These debts were issued by the banks under private ownership to private investors, including other European banks….They are gambling that a weak Irish Government can be strong-armed into paying these bank debts in full. We support a more aggressive bail-in strategy for the banks that forces owners of these debts to participate in the recapitalisation of selected financial institutions….

The Government defends its failure to secure such a deal on the grounds that other European countries and institutions objected to burden sharing by senior bondholders in Irish banks, and fears they had about the impact of such a measure on other banking systems. If such concerns were expressed and are valid, which is arguable, then these countries and institutions should have provided Ireland with the financial incentives and means to pursue further bail-outs…

…The Government’s so-called recovery plan, on which the EU-IMF agreement is based, does not offer any credible plan to protect jobs and growth from the effects of fiscal austerity. Our support for a €6 billion adjustment in 2011 was always conditional on the introduction of a parallel plan to stimulate the economy. ”

hmmm….now this is either someone that had a road to damascus conversion or is someone totally content with themselves and their conflicting points of view. However, I fear neither is the truth and political opportunism of a hypocrite would more accurately describe this person.


I agree broadly with your take on the Greek situation and on the Irish political scene.

Syriza has replaced PASOK as the political bloc competing with ND which I suspect was the objective all along. It’s unfortunate that the Greek economy and Greek citizens had to endure so much distress during the last 6 months while Syriza manoeuvred to maintain its current supremacy. In some respects it resembles SF’s efforts in Ireland to displace FF.

In Ireland it would be wonderful if one were able to fast-forward to the aftermath of the election and one wouldn’t have to endure the avalanche of BS to which we’ll be subjected by all involved. However, Irish Water retains some potential to discombobulate the Government. The competing narratives of the Government and those opposing water charges are equally riddled with BS. The CEO of Ervia is making a despairing effort to save the sizeable Irish Water part of his empire:

But it’s a ‘saothar in aisce’. It took extraordinary skill on the part of the Government apparatus and the various powerful special interest groups involved to end up with what is probably the most inefficient, inequitable and ineffective approach to funding the delivery of water and waste water services.

@Joseph Ryan,

I can understand your continuing anguish (which appears to be shared by those positioning themselves to the left of the mainstream left-of-centre parties) that all those lenders who underpriced risk weren’t wiped out in 2008, but, for a variety of reasons, some good, some bad, they weren’t and we have to deal with the fall-out.

Wrt your query/request, I suggest you should try to track down whatever justification the former Greek FinMin has advanced to justify his parliamentary support for these measures. I’m sure it’s out there somewhere on the interwebby thing; I just haven’t time or interest in tracking down his witterings.

@ Nocense,

Is it any wonder George Lee left in 2011, 9th February to be precise after 9 months in FG!

I cannot believe it was thait long ago, where has the time gone?

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