The burden of history
[I actually wrote this before the agreement, so perhaps it’s a moot point.]
It seems to me that some of the recent commentary on Greece doesn’t provide the appropriate background information. Here’s a Bloomberg article:
When the euro region’s finance ministers gather later today, countries other than Germany need to make themselves heard with ideas for reconciling Greece’s democratic mandate for change with the integrity of the existing bailout rules.
And here’s Matt Yglesias:
This gets at the fact that the Germans simply don’t trust the Syriza government that is running Greece. It also gets at the fact that one of the reasons they don’t trust them is simply that they are Greek. The Greeks are viewed as an unreliable country that is in need of discipline and reform, and Syriza is seen as a political project that is fundamentally about resisting reform.
I can’t really argue with either statement, but the framing doesn’t really give much of a sense of why the Germans are so reluctant to negotiate with the new Greek government. Previous Greek governments lied, cheated, and swindled tens of billions of euros from northern Europeans. Unfortunately for the Syriza government, those earlier decisions, made by other governments, sharply constrain their current options. And I might add that this is also a problem for the voters in Greece, the so-called “democratic mandate.” By electing a government containing everyone from Maoists to right-wing nationalists, united only by their fierce belief that the crimes of previous Greek governments should not reduce the willingness of Northern Europeans to lend Greece even more money to prop up social spending, the voters implicitly walked away from the burden of history. As of today, it looks like the rest of the eurozone won’t let them off that easily.
PS. Just to be clear, I do think a part of the problem in Greece is the tight money policy of the ECB, strongly supported by Germany. However, this view is not at all widely held in Europe. So Germany is not perceived as having any “guilt” for the problems in Greece–except perhaps due to its tight fiscal policy (a bum rap.) That’s why you can’t really equate the two. If it was ever widely believed that tight money was to blame, the solution would not be more aid for Greece from the North, but rather less tight money. An ECB policy error that was signed off on by the policy elite of the entire eurozone is viewed as being very different from borrowing money under false pretenses, even if in some sense it is the greater “crime.”
The 20th century was a battle between the left and the right. That’s over. The 21st century is a battle between insiders and outsiders. The most extreme outsiders are ISIS and Boko Haram, hated by all governments. North Korea is perhaps the most outside government that controls an entire country. Then you have Venezuela, Iran, Russia, etc. Somewhat more moderate are Hungary, Greece, and the surging populist parties of the left and right in Western Europe. In contrast, the ECB (and the EU elite more generally) are the world’s ultimate insiders.
Off topic: Commenters often remind me that sensible Keynesians favor monetary stimulus. But of course many Keynesians, even Nobel Prize winners like Joe Stiglitz, are skeptical. Here’s another name to keep in mind next time you read Paul Krugman trashing those Neanderthals on the right who oppose monetary stimulus:
By inflating asset prices, Mr Abe’s schemes could increase the gap between haves and have nots, Mr Piketty warned during his visit.
That’s not helpful.
Tags:
20. February 2015 at 15:48
A Plan for Greece.
As ever, it’s about aligning incentives.
http://www.prienga.com/blog/2015/2/19/a-program-for-greece
20. February 2015 at 16:16
Piketty is against QE as it may raise asset prices, benefitting the haves.
Richard Fisher, Dallas Fed President is against QE as it may raise wages.
Who says the battle between left and right is over? The battle continues ever deeper into myopia…
20. February 2015 at 18:03
I think the question regarding Greece is not whether there will be a default. That train has already left the station. It is on whose debts will the default land?
The Greek voters voted just under 50% for Syriza alone, which is quite a lot considering the number of parties involved in the election, with at least three of them being against the bailout that foists the default onto the voters. Greeks voted in large numbers to say “not us,” while the rest of the EZ governments say “not us” with which their respective constituents likely agree. Just imagine the bloodbath in the next elections involving the politicians in the rest of the EZ who would have to explain why they let Greece walk away with their money if they cut some kind of deal with Greece.
The Greek voters can’t have their cake and eat it too. There is only one way out for Greece, and that is to default on the bailout and quit the euro.
20. February 2015 at 18:07
Suppose we had a massive regional downturn in one part of this country, but the economy was booming on the on the other side of the country… National GDP is growing at 3% real 5% nominal.. with 6% real on the right coast and 0% on the left coast… what should the fed do?
Should the Fed be try to expand the monetary policy for the whole country if only part of the country is hurting? Is New York’s tight money policy really to blame for California’s problem in this hypothetical?
Would easing necessarily do anything for CA, or would the newly created money stay in the regions with the hottest economy?
Ultimately Greece has to solve their own problems.
Now… looking at Greece… the new government wants to raise the minimum wage, and raise wages for government workers. If you go for the “sticky wages” theories (which I know you do) then, this is exactly the wrong medicine. If sticky wages are the problem, then Greece should be slashing wages such that German manufactures would build where there is cheap labor.
If I ran the show in Greece, I would do everything I could to get the budget balanced before debt service payments. Then I would threaten to stop payment on my debts. If the Germans won’t play ball, then fine, they get nothing. I stop making payments, but my budget is in balance since I am not paying of the bloody Germans.
20. February 2015 at 19:21
Bonnie, That may be the best way out for Greece, but I don’t think it’s necessarily the only way out. With the current ultra-low interest rates around the world, it’s not clear to me that Greece could not service it debts, at least if they could get the Greek citizens to pay taxes. Of course if they cannot do so, then default becomes inevitable.
Doug, You asked:
“National GDP is growing at 3% real 5% nominal.. with 6% real on the right coast and 0% on the left coast… what should the fed do?”
Of course they should ignore the regional economies and focus on the national economy. If the ECB did that then monetary policy would have been dramatically more expansionary over the past 7 years (as NGDP growth has been extremely weak in the eurozone), and Greece’s crisis would have been milder.
Of course you are right about issues like the minimum wage. Most of Greece’s problems are structural, not demand-side.
20. February 2015 at 20:20
All policies have a diminishing utility. For instance infrastructure spending had tremendous utility in the 1930’s when the automotive industry was in its infancy but much less so now.
Similarly, structural policies have tremendous utility in a country where milk has an expiration date of 5 days and you have to bribe doctors so they don’t kill you during surgery. Greece is an insane country with insanely stupid moronic voters who deserve to suffer badly and will suffer badly. The reasons Germans don’t support Greece with easy monetary policy is the same reason I don’t support my bipolar friend when he does something moronic.
There is only one way to cure stupidity…tremendous suffering. The Greeks need their stupidity beaten out of them and so they will have their stupidity beaten out of them.
20. February 2015 at 20:35
Scott: you post that most of Greece’s problems are structural. But I find understanding entire other nations, where they literally speak Greek, almost impossible.
Are Greek structural impediments any worse or better than those of Great Britain? Counting in local and state governments? How do we know?
Through bribery, are Greek businessmen able to lower structural impediments below the level found in Great Britain?
As always, I suggest the lowest taxes and regulations possible.
20. February 2015 at 21:05
A democratic process in Greece elected a government which promised to pay later for money now. We call those promises “bonds” for a reason. The Greek people are bound by them, regardless of if they later elect people who pledge to violate that vow.
21. February 2015 at 00:58
“I can’t really argue with either statement, but the framing doesn’t really give much of a sense of why the Germans are so reluctant to negotiate with the new Greek government. Previous Greek governments lied, cheated, and swindled tens of billions of euros from northern Europeans. Unfortunately for the Syriza government, those earlier decisions, made by other governments, sharply constrain their current options….”
The thrust of the argument here seems to be that since prior Greek governments have lied to their Northern European partners in the past, the latter can’t trust the former, and that is a constraint in the current negotiations.
That constraint might be relative to what the Greeks might have otherwise gotten, but it does not appear to be absolute. If it were, would it not be true that other countries in the EU that have not lied and cheated (at least as much) as Greece, and therefore are not so constrained, would have come away with better terms? The opposite appears to be the case. Unless I’m mistaken, Greece has gotten much better terms than, say, Portugal, Spain or Ireland. In this case, that “history” does not seem to be much of a burden. In fact, for the Greeks, the lesson of that history might well be that lyin’, cheat’n , and steal’n, not to mention extortion, pay, at least somewhat. The real danger was in overplaying the hand. The Germans may have been reluctant but, negotiate they did and, in the end, the Greeks got a little bit out of this whole drama.
This may seem like a success for the Greek populace and particularly for a populist government. Immediate results are always gratifying (especially for politicians and economists such as Tsipras and Varoufakis). However, the real burden of recent Greek history is less visible and longer term; but, certainly no less real. That burden is that the Greeks will muddle along without the necessary structural reforms and for many years down the road, they’ll pay a few extra basis points for that short-term “victory”. Those who know their history might well read about Greek King Pyrrhus of Epirus.
21. February 2015 at 02:13
I never really understood these “democratic mandate” argument. Syriza does not have any mandate to tax me or any other Northern European citizen.
They got just slightly more votes than Alternative fur Deutschland, the German euro-skeptical party. Democratically, they should both be taken into account equally, no?
*
Matt is also wrong that the dislike of Syriza is “just because they are Greek”.
Syriza has taken every opportunity since elected to piss everybody else off. As the Economist said, they promised a charm offensive, but, in the end, were just offensive.
21. February 2015 at 07:47
Aristotlean logic doesn’t seem to be the strong suit of the Greek voter.
21. February 2015 at 09:03
Ben, Years ago I did research on structural issues. At that time (2008) Greece was viewed as having the most interventionist government policies of any developed country, anywhere in the world. Britain is no where near that bad.
Vivian, You said:
“This may seem like a success for the Greek populace and particularly for a populist government.”
I find it difficult to believe that anyone in Greece really believes this. Syriza caved, it’s that simple.
21. February 2015 at 09:20
“I find it difficult to believe that anyone in Greece really believes this. Syriza caved, it’s that simple.”
Tell that to Tsipras:
“The Greek prime minister, Alexis Tsipras, has said the country has won a significant battle but has yet to win the war, in his first public reaction to the latest deal to keep the debt-stricken nation financially afloat.”
http://www.theguardian.com/business/2015/feb/21/greece-won-battle-real-difficulties-lie-ahead-alexis-tsipras
This is largely political face-saving; but, the fact that he may have “caved” is not the point at all—the issue is whether Greece will have won short-term concessions that they would not have gotten had they not entered into the battle in the first place rather than simply accepting the status quo. That remains to be seen. If your car is worth $1,000 and your opening seller’s bid is $5,000 and you eventually settle on $1,500, one can say the seller has “caved”, but it doesn’t mean you’ve struck a bad bargain. We’ll see how good a salesman he is.
21. February 2015 at 10:02
Vivian, You said:
“Tell that to Tsipras”
Yes, if he’s reading this I will tell it to him. Generally when I question whether a politician really believes X, it’s not a good rebuttal to point to what he says publicly. I’m not surprised he’s claiming victory; politicians are liars.
The Syriza government was swept into power on a wave of enthusiasm and bold talk about radical change. If they got a few crumbs, then I’d say they lost badly. I think most impartial observers have the same view.
I wonder how the Maoist wing of the party feels? How about the Trotskyite wing?
21. February 2015 at 11:50
“Mr. Bullard said making the first move will help ease fears the Fed will get behind the curve and be forced to engage a more aggressive and disruptive campaign of interest rate increases.”
https://thefaintofheart.wordpress.com/2015/02/21/mr-bullard-is-in-a-hurry
Bill Woolsey: “Now, they have learned that never increasing short term rates can be a disaster in some circumstances. Inflation might rise too high. While this is bad because of voters and politicians don’t like high and especially higher inflation, it is also true that when they are finally forced to respond to the inflation, they must hike short term rates. A series of small and modest interest rate increases now is better than much larger increases later.”
http://monetaryfreedom-billwoolsey.blogspot.com/2015/02/what-do-central-bankers-want.html
21. February 2015 at 12:28
The Portuguese and Spanish media seem to be giving Tsipras his say. El Pais has in its online front page (as I’m writing this) “Tsipras: “Hemos hecho caer el plan conservador para asfixiar a Grecia”” [we defeated the conservative plan to strangle Greece] followed by a longer quote of how him describing a total victory. The Portuguese media are following the same strategy.
I can’t read Greek, but I’m betting that the Greek media are reporting this as a partial victory.
21. February 2015 at 14:22
Thanks Travis.
Luis, Thanks, I am very interested in more details, if you have them. Are the media just reporting that he said this, or are they also accepting this interpretation? Unfortunately my foreign language skills are weak, but I’d be very interested in knowing which European countries have media are are similar to the Russian and Chinese media.
I was under the impression that El Pais was a respectable publication, is that not right?
BTW, in the long run I’m not sure this helps Syriza even if swallowed by the public. Now they’ll no longer be able to blame foreigners for the screwed up Greek economy.
21. February 2015 at 15:04
Scott, off-topic but I was watching an interview with Alan Greenspan where he claimed the long-term assets are being neglected during this recovery in favour of more short-term, liquid assets which differs from (he claims) every post-war economic recovery.
Immediately, it seems to me that this ‘search’ for liquidity is yet another indicator of low velocity/tight money, am I correct?
22. February 2015 at 00:37
Scott,
You wrote:
“Generally when I question whether a politician really believes X, it’s not a good rebuttal to point to what he says publicly.”
Scott, it’s also not a good rebuttal to ignore what the other has written:
“This is largely political face-saving; but…”
In fact, your framing of the issue suggests that you took seriously what Tsipras “really believes” in respect of what he was saying leading up to the election because you seem to think the difference between what he was then unrealistically demanding and what he’s now getting is the proper measure of success. Every serious observer knew that was just posturing (Greek voters don’t count as serious observers because, like gullible voters everywhere, they believe what they want to hear). That posturing won him an election and so far he’s gotten some small concessions that would not have been gotten had he simply agreed to live with the status quo:
http://www.wsj.com/articles/greeces-negotiations-enter-more-important-stage-says-tsipras-1424522628
(And, apropos that article, add George Kordonouris to those who think Greece won a battle)
Again, I don’t think all this, in the long-run, is good for Greece if it encourages them to delay the structural reforms that are needed to be competitive within Europe, much less the rest of the world. That is the burden of their history.
22. February 2015 at 02:13
Yes, El Pais is a respectable newspaper. Today’s print edition seems more measured that yesterday’s online reaction (I cannot read the actual article as I’m not a subscriber, but the title is about Tsipras warning that the road ahead is hard).
I was also reading Publico and Diario de Noticias in Portugal which are the two respectable newspapers (of the left and centre-left, respectively). Publico chose to promote “Tsipras says he won” to its print front page. Another headline says that Greece Won Time.
This is why I called it a strategy: they are just reporting what Tsipras said and not directly endorsing it. However, if you just glance at the cover, you’ll get the idea that Tsipras won.
One of the issues that the EU has is that the fragmentation of the public sphere into national clusters lets different narratives take hold unchallenged.
22. February 2015 at 05:59
Interesting new post by Mike Konczal:
“The One Where Larry Summers Demolished the Robots and Skills Arguments”
http://www.nextnewdeal.net/rortybomb/one-where-larry-summers-demolished-robots-and-skills-arguments
22. February 2015 at 06:03
Ashton, I’m a bit confused by that. Stocks have soared in value over the last 6 years, and they are long term assets. But yes, the large demand for ERs is certainly a sign of a preference for liquidity, and thus low velocity.
Vivian, We agree it’s not good for Greece, as what they really need is structural reform. As for as whether he got less or more than expected, I’m no expert. But the press certainly seems to think he got less than they expected.
Thanks Luis.
22. February 2015 at 07:13
Rightly or wrongly, Greeks feel like winners:
“A fresh poll Sunday published in the small, pro-government Avgi newspaper shows that eight in 10 Greeks approve of the government’s handling of the negotiations. Other recent polls, including some conducted by more independently aligned newspapers, show similar support.”
http://www.wsj.com/articles/greeces-negotiations-enter-more-important-stage-says-tsipras-1424522628
Voters love it when politicians appear to be fighting for the national interests, especially against foreign bogeymen and women. Never underestimate the political power of nationalism.
22. February 2015 at 08:24
Here’s the correct link:
http://www.wsj.com/articles/greeks-shrug-off-syrizas-compromise-1424612650
22. February 2015 at 09:19
Just to clarify, Scott, Greenspan was talking about the *really* long-term; construction and the like.
22. February 2015 at 10:55
The best thing Greece could do is immediately end any kind paper checks for pensions or welfare.
Then end telephone service and break up Greek telecom so that broadband VOIP is the only kind of available.
These first two efforts are to support the move of as many govt services to mobile apps as possible.
The Greek Govt needs to privatize itself, and mobile is the only lever that can do it quickly and so much better that the people are are happier.
22. February 2015 at 10:56
Unwinding the Greek postal service over a 1 year term, would also be helpful.
22. February 2015 at 11:51
Maybe enough people don’t appreciate what Greeks have actually voted for. They said “Europe should continue to finance current and growing levels of fiscal spending in Greece, and never expect to be paid back.” They want to have their free lunch and eat it too.
Greece sowed the Keynesian wind (they expanded spending by 10% a year leading up to the crisis) and now reaps the whirlwind.
23. February 2015 at 07:46
Well, of course the Greeks don’t want to ‘pay back’ their national debt.
Do the Americans want to ‘pay back’ our national debt? Of coure not. If we were told to balance our budget and raise taxes so that we could pay down our debt, we would raise bloody hell, too.
The Europeans should have some sort of deal in which the entire EU borrows (issues bonds) and then distributes them in some sort of equal proportion to all its member nations.
23. February 2015 at 10:21
Vivian, That’ll last about a week, then they’ll wake up to the fact that austerity continues and there are no jobs.
Ashton, OK, but I view stocks as really long term.
Morgan, Yes, lots of privatization is needed.
Charlie , The difference is that the Greeks want to default on their national debt, and we don’t
23. February 2015 at 10:34
The Greeks primary goal — same as ours — is to continue financing government spending via bond issuance. I don’t think Greece want to default on the debt at all.
Putting it more finely, the difference between the U.S. and Greece is our central bank will buy our debt, but Greece doesn’t have that luxury. But if the European central bank bought Greek debt, the economic crisis would be over. (But the political crisis would continue.)
23. February 2015 at 10:44
@Steven Kopits
That’s an interesting proposal. But, before we get to paying bonuses to members of Greek Parliament, perhaps we should consider how many there are.
Greece is a country of about 11 million persons and its land mass is about the size of Alabama (actually, a bit smaller). Under the Greek Constitution, the Parliament is required to be no less than 200 nor more than 300 members. So, guess how many members of Greek Parliament there are today? You guessed it—300! That seems a good place to start some modest cuts.
But, to your proposal—you are a bit vague as to who is putting up the incentive and the money. Reading somewhat between the lines, it appears that would be current creditors, to include Germany, the ECB and the IMF. I would be a little bit uncomfortable about the idea that, even within the EU, foreigners are providing financial incentives to parliamentarians of a sovereign country. Isn’t this like China agreeing to pay US Congressmen money if they meet certain conditions (as specified by the Chinese)? Not to mention the legal obstacles…
@Sumner
I’ll check back in a week on that.
25. February 2015 at 06:32
Charlie, You said:
“I don’t think Greece want to default on the debt at all.”
They’ve already defaulted.
14. April 2015 at 12:35
Well, I said I would check back in a week and it’s been more than a week; however… :
http://greece.greekreporter.com/2015/04/06/opinion-poll-greek-pm-tsipras-popularity-at-impressive-78/
Still waiting for those reforms, though.
15. April 2015 at 05:15
Here are some more:
http://www.nytimes.com/2015/04/14/business/international/greece-may-have-ruined-its-best-chance.html
http://www.bloomberg.com/news/articles/2015-04-15/ecb-s-draghi-keeps-greek-lenders-afloat-as-bailout-talks-drag-on
http://www.huffingtonpost.com/theodoros-arapis/reform-fail-greece_b_7064054.html
15. April 2015 at 07:35
Yes, but Scott, the”test” was Syriza’s popularity after just a week. (People should be more careful when establishing those tests!). :)-
15. April 2015 at 09:18
Vivian, If I thought it was a “test” I would have been more careful. 🙂