The American/European divide on Greece

Is it just my imagination, or is there considerably more support for Greece in the US than in Europe?  As far as I can tell there is almost universal outrage in Europe over the recent actions of the Syriza government, except perhaps on the extreme left.  In contrast, I see significant support for Greece among US pundits.  Why? (Keep in mind that in most respects, opinion in Europe is well to the left of mainstream opinion in the US.)  Here are some possibilities:

1.  Framing effects.  In this recent article, Anne Roiphe indicated that at an emotional level she found herself sympathizing with the escaped convicts in New York, even though the logical side of her mind knew they were not deserving of sympathy.

Don’t say it. I know that is a daydream without a shred of reality. This is not the way a grown up woman should think. And yet this Jewish woman, if honest, admits that the hunted and the chased evoke her worry, and the power of the state is not always benign, and that the day I loose my faint wish that these convicts or the next ones escape captivity is the day I loose my Jewish memory. So then I have to tolerate both the twinge of fear I feel for the escapees and the hatred I have for them as killers and thugs.

Perhaps something like that is going on here.  Over at Econlog I have a post on the mezzogiorno, a failed region of 20 million people in southern Italy.  I’d guess that in Europe there’s not a lot of sympathy for this region, perhaps because outsiders feel that Sicilians and Neapolitans have only themselves to blame.  In America, progressives employ a sort of “victims and villains” framing, where poor minorities are seen as being poor precisely because they are oppressed by the dominant class.  Americans may see the Greeks as a “victimized” group, whereas the Europeans may see them simply as a country governed by irresponsible white males.

2.  Perhaps the difference is explained by the fact that it’s their money, not ours, which would be used to bailout Greece. (After all, there’s nothing stopping the US government from bailing out Greece.)  We have everything to gain from European stability, and avoiding another Lehman moment, and nothing to lose from a deal. We just want the two sides to agree on something.

3.  Maybe it’s because Americans have a better understanding of macro, and thus a better understanding of the fact that the Greek depression is partly caused by low AD, not just irresponsible Greek policies.  This is the point where my views are closest to Syriza.

4.  Perhaps Americans are less aware of just how extreme the Syriza party really is. There aren’t many Maoists in the governing coalition, but it’s kind of shocking that there are any.  In most European countries, extremists are not allowed into the ruling coalition, even if this exclusion results in a minority government, or another election.  The fact that they are sympathetic to Putin is also not widely understood here.  Europeans expect a certain degree of “seriousness” in their governments (recall they pressured the Berlusconi government to give up power), and Syriza just doesn’t have it.  We are a long way away, and maybe the fact that Syriza is a government more fitting for Argentina than a EU member is less worrisome to us.

5.  We’ve always had a sort of “debtors mentality” in America.  We have relatively lenient bankruptcy laws, compared to Europe. In America, people like Trump go bankrupt and just start over, as if nothing happened.  You can even run for president.  In many parts of Europe, a person’s responsibility to pay their debts is taken much more seriously.

6.  The Europeans (who often vacation in Greece) might think the Greeks are exaggerating the amount austerity, noting that Greeks are still about as rich as they were in 2000, while Italians are actually poorer.  In saying this, I don’t doubt that many individual Greeks are suffering, but is that because the Greek government has not spread the pain evenly? Even today, Greek pensions are far higher than pensions in Eastern Europe, and Greece is asking Eastern European taxpayers to subsidize them with debt relief.  That doesn’t go over well.  In contrast, all that Americans know is what we see on news reports showing individual Greeks who have been hurt badly by the austerity.

7.  Are there sentimental feelings in the US because western civilization began in Greece?  Would we be equally sympathetic to equal suffering in nearby Moldova?  I doubt it.  (A Greek depression would be like paradise for Moldovans, the world’s unhappiest people.)

What else?


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91 Responses to “The American/European divide on Greece”

  1. Gravatar of Ray Lopez Ray Lopez
    29. June 2015 at 06:26

    Or, it could be that Americans never lived in Europe, as I have, and they don’t understand Europeans tribal mentality. I think that’s the real reason.

    OT – Great book: Debunking Economics – Revised and Expanded Edition – Steve Keen. Excerpt:

    “Bernanke: the Great Depression was triggered by the Federal Reserve’s reduction of the US base money supply between June 1928 and June 1931.

    There are four problems with Bernanke’s argument, in addition to the fundamental one of ignoring the role of debt in macroeconomics. First, as far as smoking guns go, this is a pop-gun, not a Colt .45. Secondly, it has fired at other times since World War II (once in nominal terms, and many times when adjusted for inflation) without causing anything remotely like the Great Depression. Thirdly, a close look at the data shows that the correlations between changes in the rate of growth of the money supply3 and unemployment conflict with Bernanke’s argument that mismanagement of the monetary base was the causa causans of the Great Depression. Fourthly, the only other time that it has led to a Great Depression-like event was when Bernanke himself was chairman of the Federal Reserve.

    Between March 1928 and May 1929, base money fell at an average rate of just over 1 percent per annum in nominal terms, and a maximum rate of minus 1.8 percent.4 It fell at the same rate between 1948 and 1950, and coincided with a garden-variety recession, rather than a prolonged slump: unemployment peaked at 7.9 percent and rapidly returned to boom levels of under 3 percent. So the pop-gun has fired twice in nominal terms, and only once did it ’cause’ a Great Depression.”

  2. Gravatar of Maurizio Maurizio
    29. June 2015 at 06:49

    About the puzzle of southern Italy (the fiscal stimilus which did not work): how about having two currencies, one for southern Italy and one for Northern? Wouldn’t this be a good idea?

  3. Gravatar of dlr dlr
    29. June 2015 at 06:52

    I vote for 1, especially 2 & also 4 (but definitely not 3, and 6 probably applies equally to Americans who also don’t think of Greece as a horrible place to be). I would also add a couple more.

    8. We (the US) just came out of a crisis in which lenders were widely seen as the primary villains and borrowers the primary victims. This was not nearly as true in Europe, outside of the UK.

    9. Not only do Americans not appreciate some of the flaws in the Syriza coalition as you mentioned, they also don’t feel the anger that spread throughout most of Europe and still permeates many countries when it turned out that Greece was manipulating its debt and deficit accounts.

    10. American are not as sick of the Greece plight, because it the perpetual deathbed negotiations have a more subordinated place in the news-flow here. The suffering protagonist framing effect tends to get old after a while.

  4. Gravatar of M.C. M.C.
    29. June 2015 at 06:56

    Sympathy with debtors mostly result from the fact that creditors are usually (1) richer than debtors or (2) big anonymous institutions. If the loans came mostly from poorer countries (or say retirement funds from poorer countries) nobody would have any sympathy at all with the Greeks.

  5. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    29. June 2015 at 07:02

    Reason nr 2 is probably the dominant one. I note that the US Federal government has not been falling over itself to bail out Detroit, Chicago, or Puerto Rico (let alone bailing out Greece). And if there is a bailout, it’ll be with the Feds in charge. None of the “sure, Detroit can continue to mismanage its pensions, we’ll just co-sign the checks”

    *

    Syriza has a lot of support in the PIGS, much more than in the US.

    Not from the governments or from the Very Serious People, but in newspapers op-eds &c, they are seen as victims and fighting for the people. They are the models of many of the smaller left-wing parties (which are as small as syriza was a few years ago, but do sit in parliament and are the darlings of the chattering class). They write all the time that this is about the right-wing austeritarians strangling the possibility of an alternative (even Very Serious People argue this), that Syriza will not be allowed to succeed as the risk would be to show that there is an alternative to capitalistic obedience to creditors. Publico, a respected portuguese newspaper had an oped [http://www.publico.pt/mundo/noticia/o-regresso-de-versalhes-1700419] today using a Versailles analogy for how the Greeks are being treated (you know, like how after World War I, Germany was first given the biggest debt pardon in history and then several billion in repeated bailouts, but still managed to mess it all up), its main editorial is vaguely pro-Greek too, but less strident.

    Even some moderate left-wing people express their support for the Greeks against the German austeritarians. These people are shocked if you talk about Syriza’s links to Very Nasty People like Aleksandr Dugin, which they never heard about them as the press there does not mention it.

    *

    In the old EU, however, you are right, the Greek government has very little support. In fact, the last few years have damaged the Greek brand itself, with Greek companies and institutions in general being seen as unreliable by association.

  6. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. June 2015 at 07:07

    It’s Gregory Peck v. Danny DeVito;

    https://www.youtube.com/watch?v=62kxPyNZF3Q

    Greece. Who cares? Greece didn’t care about Europe.

  7. Gravatar of Jerry Jerry
    29. June 2015 at 07:19

    Great post.

    I do find it interesting that so many people in the econ blogosphere and twitisphere are calling the creditors demands so draconian, whereas all the Europeans I talk to (where I am in Austria and elsewhere) are happy to amputate a limb that is taking up a lot of blood and doesn’t seem to be trying to get much better.

    It could be that they should have allowed Greece to refinance (defer interest payments for seven years, so their primary surplus could be shoved back into the economy, cause them to grow and be more likely to pay back everything; just like Argentina and Mexico in the 80s), but giving Greece more money is not by any means a ‘temporary’ measure like some of the Keynesians are claiming. Greece shows no signs of structural reforms or doing anything to improve their productivity and get on a track back to growth. So giving them more money, even if it helps in the short run, is just kicking the can down the road, or enabling an addict, or whatever cliche analogy you want to use.

  8. Gravatar of Scott Freelander Scott Freelander
    29. June 2015 at 07:22

    Scott,

    Pretty good analysis, but I think what you’re missing is that Greece has been far more patient than any country was during the Great Depression, even though they’re suffering as much or more than any country during the Depression did. The Greeks want what just about every country in circumstances like this want, which is a Roosevelt-like leader to recognize that dealing with the economic emergency should override all else. Syriza is certainly not offering a Roosevelt-like figure, so maybe Greeks will vote to stay in the Euro, if Germany and France don’t capitulate.

    You and some other commenters have pointed to the dangers of leaving the Euro, but what about the dangers of staying? If you think Syriza’s extreme, how would you like Golden Dawn? I think the Greeks have been remarkably restrained, much too restrained, in fact, under the circumstances.

  9. Gravatar of collin collin
    29. June 2015 at 07:44

    Several other points:

    1) We are witnessing two cases in the US government bankruptcy and how it is handled relatively better. Conservatives are dancing on Detroits grave but it is being handled by the courts and nothing as damaging as Greece. Puerto Rico is going the same route into a court where decisions are made quickly and everybody is unhappy. Not only are bankruptcy court more lenient but it is very quick and decisive so people can move on with their lives.

    2) The US is still thinking it is the United States Of Europe. Sure Texas/California or Minnesota/Wisconsin, etc., throw all kinds of stuff at each other. But in reality it all internet noise and there really is no issue if I needed to move my family to Texas. And Minnesota/Wisconsin are really cousins that Minnesota is better run but always loses to Wisconsin in football. So the Euro is fast becoming a political failure. Germany and Greece (or France, etc.) are not assimilated like the US.

  10. Gravatar of Topher Hallquist Topher Hallquist
    29. June 2015 at 07:52

    Collin’s point #2 is something like what I was going to say. But I think it’s more to the point to say that from an American perspective, the EU is a half-assed version of the United States of Europe. If Alabama had a 25% unemployment rate, the federal government would do something about it because Alabama’s congressional delegation would make it their #1 priority and it could also affect the electoral college in the next presidential election. If fixing the problem required transferring some money from rich states like California and New York to Alabama, we’d accept that as the price of being a single nation rather than a loose coalition of 50 nations.

  11. Gravatar of Topher Hallquist Topher Hallquist
    29. June 2015 at 07:55

    BTW, in my previous comment I’m basically just stealing a point Matt Yglesias made three years ago:

    http://www.slate.com/blogs/moneybox/2012/10/18/blue_states_subsidize_red_ones_it_s_how_the_american_currency_union_works.html
    http://www.slate.com/blogs/moneybox/2012/05/02/saving_the_euro_is_pretty_easy.html

  12. Gravatar of Thanos Thanos
    29. June 2015 at 08:16

    Ι agree with points 2,3,5 and 7.

  13. Gravatar of Mike Sax Mike Sax
    29. June 2015 at 08:25

    Speaking just for myself-the others who feel sympathy can explain their views-I don’t at all feel like Ann Roiphe.

    I have no sympathy whatsoever for the escaped killers and that 1 is dead now I feel no sorrow at all. Whatever they get they have coming to them.

    However, I don’t see the analogy of the escaped killers and the Greek people. What are the Greek people guilty of?

    As for Tripas and Syrzia what makes them so extreme? I ask this question not out of snark but because I’d like to know.

    The ‘socilaist’ tag is no big deal there are plenty in Europe who call themselves that-for the record I am not a socialist. But the tag doesn’t quite mean what it used to-Bernie Sanders calls himself a socialist but his views are pretty similar to most centrist liberal Democrats today.

    To the extent that they support Putin that’s a geopolitical question rather than a monetary economic one so I don’t’ see what bearing it has here.

    It would seem that Tripas’ decision is defensible: he is putting austerity up to the voters. If it’s a no then they can leave the euro.

    Even if you think Greece is somehow wicked then why object to them finally leaving the euro?

    Those who revile Greece should be pleased.

  14. Gravatar of Monday assorted links Monday assorted links
    29. June 2015 at 08:34

    […] 3. Why are Americans more sympathetic to Greece? […]

  15. Gravatar of Thanos Thanos
    29. June 2015 at 08:35

    Mike Sax SYRIZA until 2012 was an extreme left wing party. In the elections of 2012 many politicians of SYRIZA wanted Greece to return to Drachma. But after 2012 they tried to change and became more center-left. But in reality SYRIZA is a strange mixture of social democrats, extreme left wings, left wings etc etc. Ans dont forget that we have a coalition government. The junior partner of this coalition is a party called Independ Greeks and is a nationalistic-extreme right wing party!!!

  16. Gravatar of Thanos Thanos
    29. June 2015 at 08:36

    Sorry for the typo: The name of the party is “Independent Greeks”

  17. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. June 2015 at 08:40

    Then again, who cares about Puerto Rico;

    http://www.washingtonpost.com/business/economy/puerto-rico-says-it-cannot-pay-its-debt-setting-off-potential-crisis-in-the-us/2015/06/28/cbae1bc4-1e05-11e5-84d5-eb37ee8eaa61_story.html?hpid=z1

    ‘The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.’

  18. Gravatar of Brett Brett
    29. June 2015 at 08:41

    5. They could really use loose bankruptcy laws, too. They’d act as a counter-balance to the strict job security policies* in many of these countries, giving entrepreneurs a way to go bankrupt and start over without being completely dragged down forever by failure.

    Of course, they’d also need more venture capital, and that’s usually been the strongest complaint from what I’ve read of French start-ups – a paucity of investment capital.

    * Minor side-note, but after spending what was probably an unreasonable amount of time searching for the date when French labor laws became as strict as they are now, I found out that its policies against termination of employment started becoming really strict in the early 1970s (essentially at the very end of the Thirty Glorious Years).

  19. Gravatar of Blue Eyes Blue Eyes
    29. June 2015 at 08:48

    I hate to say it, but a of American comment on the outside world is based upon ignorance of it.

  20. Gravatar of Blue Eyes Blue Eyes
    29. June 2015 at 08:55

    Jerry, nice thought, but the previous bailout (2012?) basically reduced the interest rates paid by Greece to next-to-nothing. The economy was recovering, Greece could have done some structural reforms and got back on the road to prosperity; then they elected Dimwit and his ludicrous rockstar Finance guru.

    Greece may have invented the word democracy, but its Demos doesn’t understand taking responsibility for its decisions.

  21. Gravatar of Jussi Jussi
    29. June 2015 at 09:01

    Good list. I don’t still get the European end. Seems that pragmatism is dead.

    “Even if you think Greece is somehow wicked then why object to them finally leaving the euro?”

    Because the media is mostly framing it wrongly. The question is now how much Greece could pay back, not how much additional support it needs. The funds to be released are actually just rolling the existing funding; Greece is a primary surplus country. Grexit, given the hostility, would quite probably mean Greece will default most of it (debt + T2 account).

    And also because then Euro would be reversible, which needs to change a lot of things in due course. And even in case of Grexit, Greece would probably end up with dual currency system – it would really have only semi independent monetary policy.

  22. Gravatar of ssumner ssumner
    29. June 2015 at 09:07

    Ray, Gee, I wonder why the outcomes were so different? Oh wait, I have a 500 page book coming out on that question later this year.

    Maurizio, No, it would not be a good idea, as the mezzogiorno’s problems are clearly 100% supply-side.

    dlr, You said:

    “We (the US) just came out of a crisis in which lenders were widely seen as the primary villains and borrowers the primary victims.”

    God, are we really that stupid? I guess so. (Actually, all three of your points are good ones.)

    MC, You said:

    “Sympathy with debtors mostly result from the fact that creditors are usually (1) richer than debtors”

    Less true than you might think. Americans are much richer than Chinese, for instance. There are many other exceptions.

    Luis, Very good points.

    Patrick, A classic.

    Jerry, Yes, without structural reforms it’s money down the drain.

    Scott, I am not opposed to them leaving the euro in the abstract, they’d be better off. My problem is having them leave and then adopt Syriza policies, which is what a no vote means. If Martin Feldstein was dictator of Greece, I’d certainly recommend they leave the euro.

    collin, See my Econlog post on southern Europe.

    Topher, Of course the EU is nothing like the US, so the analogy doesn’t really help us to solve the problem.

    Mike, You said:

    “However, I don’t see the analogy of the escaped killers and the Greek people. What are the Greek people guilty of?”

    You misunderstood the analogy, it’s about framing effects.

    You said:

    “The ‘socilaist’ tag is no big deal”

    How does that comment relate to this post? I was talking about Maoists. You really need to get your act together.

    You said:

    “Even if you think Greece is somehow wicked”

    Not only do I not think Greece is “wicked”, I’d call it one of my favorite countries.

    Brett, Very interesting.

  23. Gravatar of Mike Sax Mike Sax
    29. June 2015 at 09:31

    Ok maybe I’ll get my act together.

    But the main point I was driving at is two fold:

    1. I don’t see any analogy between the Greeks and the 2 escaped killers. That’s where the ‘wicked’ line comes in. In making an analogy to the killers this seems to put the Greeks morally on their level.

    2. What makes the Syrzian government extreme-that some people call themselves Maoists?

    But none of this has any bearing on my main argument. That it’s god for this to go to a vote. Again I’ll ask this direct question.

    Why oppose the referendum? If the Greeks vote yes then they can’t complain about austerity anymore as they’ve signed on for it. If they don’t then Greek critics have purged the euro of a bad actor.

    What is there to object with this framing?

  24. Gravatar of E. Harding E. Harding
    29. June 2015 at 09:54

    What do Europeans think about Puerto Rico?

    I think the most obvious reason for Americans being more sympathetic to Greece than Europeans is that the U.S. isn’t part of the E.U. If it was, they might look at their pocketbook and see Greece for the profligate nation it is.

  25. Gravatar of TallDave TallDave
    29. June 2015 at 09:55

    Remember, Greece received $240B in debt forgiveness in 2011, which was about half what they owed. I don’t know how many Americans realize this. Also, Americans probably look at these numbers and they don’t seem all that large next to our debt — California actually owes a bit more than Greece right now, even though the federal government spends more than the state within the state.

    The rest of the EU doesn’t want them coming back to this trough every five years, but if you feed them twice…

  26. Gravatar of E. Harding E. Harding
    29. June 2015 at 09:58

    Even bigger question: what do Americans think about Puerto Rico?

  27. Gravatar of E. Harding E. Harding
    29. June 2015 at 10:39

    And yes, I think Americans (or at least, the American left) would view Moldova as an oppressed country of poor Slavic Latinos parasitized by the dictates of neoliberalism.

  28. Gravatar of Simon Simon
    29. June 2015 at 11:14

    To me, it’s a combination of framing, selfishness and macroeconomic incompetence in Europe (I’m European myself).

    – Note that in the UK (e.g. the FT, The Economist, The Telegraph,…) there is far more criticism for the troika than in continental Europe. The British understand that the eurozone is a complete mess, mainly governed by macro-economically incompetent policymakers (with the notable exception of Mario Draghi and his allies.)
    – Within the eurozone, there is a severe lack of decent macroeconomic debate. All establishment parties (e.g. also the PS in France), are part of the status quo politics. There is hardly any self-reflection on the self-inflicted economic crisis that has been going on for the past SEVEN years.
    – Eurozone finance ministers keep on repeating that “Greece has to repay its debts”, and there is far less attention to (i) the harsh levels of austerity already having been imposed on Greece (e.g. cutting social expenditures by 25%), and (ii) sustainability of the reform-path, i.e. structural reform allowing for economic recovery instead of killing economic growth and (iii) the fact that troika loans have mainly been used to repay German and French banks instead of restructuring the debt to sustainable levels.

    In short, the debate is framed as a morality play, with no focus on feasible solutions and with a complete denial by the European policy elite of past mistakes. As such, the selfish tendencies within the national public debates are strengthened, which reinforces the incentive of politicians for taking a strong stance toward Greece instead of working towards a deal on a sustainable reform-package and debt restructuring.

  29. Gravatar of ChargerCarl ChargerCarl
    29. June 2015 at 11:25

    Scott, I think you’re missing the most obvious difference: a lot of American economists and commentators emphasize the role of nominal rigidities and the Euro. We see Europe’s problems as being inherently demand side first, supply second.

  30. Gravatar of Tyler Tyler
    29. June 2015 at 11:38

    It’s my view that most Americans are not sympathetic towards Greece. I think many economist and others in academia may be more sympathetic, but not the majority of us that work in the private sector and understand cause and effect.

  31. Gravatar of ChargerCarl ChargerCarl
    29. June 2015 at 11:39

    The most popular economic commentator in the U.S proclaims that the root of the crisis is bad monetary policy:

    http://krugman.blogs.nytimes.com/2015/06/29/the-awesome-gratuitousness-of-the-greek-crisis/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

    That’s the difference I think.

  32. Gravatar of John Thacker John Thacker
    29. June 2015 at 11:42

    The White House insists that the US will not bail out Puerto Rico. I don’t particularly note the US clamoring to give money to Greece, either.

    I think that it’s quite normal to be happy for to root for the underdog to get some of someone else’s money. Yours is a different matter.

    The charitable explanation is that US economists across the spectrum have long been skeptical of the euro, and have a lot more sympathy for the idea that drachma and devaluation would help Greece. (This despite the Greeks wanting more money without leaving the Euro.)

  33. Gravatar of John Thacker John Thacker
    29. June 2015 at 11:45

    Right now you have right-wingers talking about how Maggie Thatcher and Milton Friedman (and a long list of others) predicted all this about the euro and Greece’s need to periodically devalue, while on the left you have Krugman and others talking about how it’s bad monetary policy as well.

  34. Gravatar of Jamie Jamie
    29. June 2015 at 11:49

    I am European and not particularly left wing. I am very sympathetic to Greece. Most people I know are also sympathetic to Greece.

    The biggest political issue in Europe of the early 21st century concerns democracy, governance and decision making. Is the Europe Union (EU) a country or a loose federation of countries? Is the Eurozone (a subset of the EU) a country or a loose federation of countries? Are individual countries (e.g. UK, Spain, Belgium) really countries or loose federations of smaller countries? Who can decide when a ‘country’ can move or be moved to another country e.g. Crimea? This must seem absurd from a US perspective.

    The best model we have of effective decision making is probably trial by jury. Two or more protagonists make their cases. A judge facilitates the trial, ensures that the correct protocols are followed, and ensures that the jury has enough information to make a decision. Technical specialists are invited to give their views on technical issues. The jury then decides the outcome.

    If Germany versus Greece were a trial then Germany is not only one of the main protagonists but has also appointed itself as judge and jury. Meanwhile, the entire internet has appointed itself an unwanted technical adviser. This is completely dysfunctional. However, the Greek issue is only one of many pressing governance issues in the EU. For example, at the moment there is a large influx of immigrants from North Africa to Italy. The Italians want to share the load of accommodating these immigrants across multiple EU countries but other countries are reluctant to share the load. However, if the Italians were to grant these immigrants Italian citizenship then they would have a legal right to travel anywhere in the EU. Again, it’s not clear who is in charge or what the rules are. There are lots of other examples. The UK will hold a referendum in 2016 or 2017 to determine whether to leave the EU completely as a result of the cumulative effect of these issues.

    I should add that many macroeconomic issues seem to be governance and decision making issues at least as much as technical issues. Debt ceiling debates in the US seem just as dysfunctional to Europeans as the Germany versus Greece issue.

    I saw that you wrote a post recently about forming a commission to sort out the best economic policies for the US. The need for such a commission is also an indication that existing decision making structures are dysfunctional. For example, if the Fed really is independent of the Treasury then who is ultimately responsible for sorting out the optimum policies if and when the Fed and the Treasury disagree? Also, many debates between economists themselves seem to involve individual protagonists appointing themselves to be judge and jury and then declaring victory for their own views. Where are the consensus builders in the economics profession?

  35. Gravatar of ssumner ssumner
    29. June 2015 at 12:22

    Mike, You said:

    “In making an analogy to the killers this seems to put the Greeks morally on their level.”

    Maybe you should stop reacting to what I “seem” to say, and start reacting to what I actually say.

    E. Harding, I’d guess there’s extremely little sympathy for Greece in East Asia. Can anyone confirm?

    Simon, Both sides treat this as a morality tale, but that’s inevitable where one side is expected to bail out another.

    ChargerCarl, No, I didn’t miss the “obvious.” Reread my post, it’s right there.

    Jamie, So perhaps it’s only at the governmental level where America is more sympathetic to Greece than is Europe?

  36. Gravatar of ssumner ssumner
    29. June 2015 at 12:24

    Tyler, Good point.

  37. Gravatar of o. nate o. nate
    29. June 2015 at 12:55

    I don’t think most Americans cared very much about Greece one way or the other until it started affecting their stock portfolios. I don’t think for the most part they are particularly sympathetic to Greece. Among pundits, I’m not sure who is standing up for Greece, other than Krugman, Stiglitz, et al. They’ve been arguing for a long time that the EU is mishandling this crisis, and their sympathy for Greece is just a natural progression of that argument.

  38. Gravatar of Gallego Gallego
    29. June 2015 at 13:06

    Maybe what’s lost on Americans is the way the negotiations are going on. We in Europe watch it week in week out and what we see (or at least I do) are two absolutely spoiled brats (Tsipras and Varufakis, his finance minister) with no respect, no decency, no humbleness, claiming that EU owes them a lot and they don’t have to do a sh*t to deserve it. For months they are pointing at the terrible Merkel and others, who don’t want to give them their free lunch and pay for the already eaten breakfast, while rejecting reforms claiming how utterly unjust it would be for the poor Greek nation to bear costs of their debt. They don’t even pretend to have regard for consequences, and when they hit them like now, they reject responsibility and have the nation choose instead in a referendum, because they don’t want to make the choice, when there are – thanks to the brinkmanship of their negotiation style – no good options left. There is so much wrong with the Greek economy, fiscally, structurally, labor market-wise etc., yet instead of admitting the problem they keep looking for outside culprits.

    Would Americans reward such behavior with more credit and/or reduction of the debt?

  39. Gravatar of Bonnie Bonnie
    29. June 2015 at 13:07

    Syriza may be extreme and incompetent. But where they fit into the Greek political fabric isn’t for us to decide. I am not pro-Greece. But I am also not pro tight money which, at least for the EZ version, I view as a different side of the same extremist and irresponsible coin. And I just have to ask which came first, the monetary extremism or the extremest Syria? Greece wasn’t a humanitarian disaster before the tight money. But it is that way now. And in that sense it’s hard to define in moral terms where the obligations between the different parties lie. Someone needs to pay for the tradeoffs, and I don’t think that obligation has U.S.A swamped on it.

  40. Gravatar of Steve Steve
    29. June 2015 at 13:13

    I would say almost entirely #2 It’s their money, not ours.

    Back in 2008 a number of European leaders criticizing the US for allowing Lehman to file bankruptcy…

    http://www.nytimes.com/2008/10/23/business/economy/23paulson.html

    But in contrast with Mr. Paulson’s perspective, other government officials and financial executives suggest that Treasury’s epic rescue efforts have evolved as chaotically as the crisis itself. Especially in the past month, as the financial system teetered on the abyss, questions have been raised about the government’s “” and Mr. Paulson’s “” decisions. Executives on Wall Street and officials in European financial capitals have criticized Mr. Paulson and Mr. Bernanke for allowing Lehman to fail, an event that sent shock waves through the banking system, turning a financial tremor into a tsunami.

    “For the equilibrium of the world financial system, this was a genuine error,” Christine Lagarde, France’s finance minister, said recently. Frederic Oudea, chief executive of Société Générale, one of France’s biggest banks, called the failure of Lehman “a trigger” for events leading to the global crash. Willem Sels, a credit strategist with Dresdner Kleinwort, said that “it is the clear that when Lehman defaulted, that is the date your money markets freaked out. It is difficult to not find a causal relationship.”

  41. Gravatar of Steve Steve
    29. June 2015 at 13:22

    I wish I had time to sift through the 2008 newspapers, for all the quotes from European economic leaders, who were livid that Bernanke and Paulson didn’t illegally appropriate US taxpayer funds for a Lehman rescue.

  42. Gravatar of Peter Peter
    29. June 2015 at 13:23

    I think you are correct in saying Americans have no idea how extreme the Greek government is. Knowledge of foreign governments in America is sorely lacking and since Greece is relatively small compared to most other countries in the news I think things like the Greek government tend to fly under the radar.

  43. Gravatar of Essayist-Lawyer Essayist-Lawyer
    29. June 2015 at 14:57

    Aren’t you the one who always says that if the central bank doesn’t provide enough monetary expansion to allow growth, conservative policies will be discredited and we will have to endure the horrors of a Roosevelt or a Kirschner. You usually neglect to add “or worse.” Well, this is a case of “or worse.”

  44. Gravatar of miguel miguel
    29. June 2015 at 15:07

    “As far as I can tell there is almost universal outrage in Europe over the recent actions of the Syriza government, except perhaps on the extreme left.”

    Wrong premise. Support/sympathy around 30-50% in southern europe, numbers will go down as we go up, but not by that much.

  45. Gravatar of Gordon Gordon
    29. June 2015 at 15:14

    “Maybe it’s because Americans have a better understanding of macro, and thus a better understanding of the fact that the Greek depression is partly caused by low AD, not just irresponsible Greek policies. This is the point where my views are closest to Syriza.”

    Wasn’t it the efforts of Syriza to undo the labor and wage reforms that caused Greece to go from having a current account surplus last year to having a current account deficit? That deficit totaled 3 billion euros in the first 4 months of the year. In a single currency area, doesn’t that cause deflationary pressure on Greece’s economy? Yes, the ECB has mismanaged AD in the eurozone. But does it come close to the problems that Syriza has created on its own?

  46. Gravatar of Thanos Thanos
    29. June 2015 at 15:21

    Americans must understand that the mainstream parties of Europe dont accept policies that in the United States are considered mainstream. For example debt restructuring is something that happens in the US all the time (latest example Detroit). Also, no mainstream politician dares to criticize the Euro. For mainstream politicians Euro is not the problem and has no flaws. No mainstream politician talks about deflation or low inflation. No one (except Draghi) talks about aggregate demand. Unfortunately only the extreme left wing-right wing parties talk about these issues. This is very sad.

    http://www.ft.com/intl/cms/s/0/48e6fa76-70bd-11e4-8113-00144feabdc0.html#axzz3eUpd74SU

  47. Gravatar of AbsoluteZero AbsoluteZero
    29. June 2015 at 15:43

    Scott,
    “I’d guess there’s extremely little sympathy for Greece in East Asia. Can anyone confirm?”
    Mostly yes. First, from what I can see (meaning where I can understand the language) it’s news but not that big news. It’s on NHK. The reporting is factual more than anything. It’s not overtly unsympathetic, but not sympathetic either. It’s about the same for Hong Kong. It’s less sympathetic for mainland China. A story was on guancha.cn earlier today. It was briefly the top story. The comments are mostly unsympathetic. (Perhaps one reason is Premier Le Keqiang is in Brussels and Greece is a topic. Apparently people mostly don’t think China should help.)

  48. Gravatar of Beefcake the Mighty Beefcake the Mighty
    29. June 2015 at 16:21

    Greeks doing what Greeks do best:

    http://www.urbandictionary.com/define.php?term=Greek+Style

  49. Gravatar of no vowels no vowels
    29. June 2015 at 17:56

    i , too, am very confused about why americans seem so quick to pity greece (and i am an american). the problem isn’t that they put it up to a vote – it’s that they waited until literally the last second and then complained they didn’t get an extension. how do you work with someone in good faith who does something like that to you? (mostly in response to Mike Sax)

    re E Harding – americans aren’t really thinking about PR which is a damn shame because they don’t realize that many mutual funds are invested in PR cause of their tax benefits. that being said, it’s the opposite here – media seems to be trying to make it like they’re on the verge of economic collapse when really, everyone believes they’ll settle it

    re ChargerCarl also yes, krugman is for some reason incredibly popular but is regarded by most people who work in finance as a total clown.

  50. Gravatar of Mike Sax Mike Sax
    29. June 2015 at 18:11

    Well saying ‘seem’ was just me trying to give you the benefit of the doubt. It’s hard to interpret it any other way but I was giving you the opportunity to explain why that most obvious interpretation is not the case.

    However, you apparently are demurring. You meant something else though you don’t want to elaborate.

  51. Gravatar of Topher Hallquist Topher Hallquist
    29. June 2015 at 18:23

    Scott: I guess the sophisticated way to put the point is to say you can’t have a monetary union without a fiscal union, at least not under the circumstances that currently exist in Europe, and it’s easier for Americans to understand because they have both, whereas many Europeans are ideologically committed to having one without the other.

    Granted, that isn’t necessarily an argument for the rest of Europe being nicer to Greece-it’s largely an argument for Greece leaving the Eurozone and devaluing its currency.

  52. Gravatar of AL AL
    29. June 2015 at 19:56

    It wouldn’t cost the EU much (relative) money to keep Greece afloat. It might ultimately create a permanent or at least long-term dependence, and require regular transfers, but sort of like money for your dependent jobless adult child, it would keep things functional and it wouldn’t be that expensive.

    On the other hand…

    It doesn’t take any creativity to see myriad Black Swan threats to the EU’s existence if Greece exits. The best that can be argued is that Greece was never “EU material” in the first place, but good golly you could hop country to country right through France with that same argument if the people arguing the flawed-shared currency problem turn out to be right.

    So why not spend the money and call it a form of disaster insurance, rather than daring any number of long tail scenarios to blossom on your watch?

  53. Gravatar of Ray Lopez Ray Lopez
    29. June 2015 at 20:24

    @sumner – you have a 500 page book that explains why there were two different outcomes with the same base money contraction in these two periods? To wit: “Between March 1928 and May 1929, base money fell at an average rate of just over 1 percent per annum in nominal terms, and a maximum rate of minus 1.8 percent.4 It fell at the same rate between 1948 and 1950, and coincided with a garden-variety recession, rather than a prolonged slump: unemployment peaked at 7.9 percent and rapidly returned to boom levels of under 3 percent. So the pop-gun has fired twice in nominal terms, and only once did it ’cause’ a Great Depression.”

    You are a genius Dr. Sumner if you can explain this! But I think you are referring to something else, probably a stylized “Big Picture” version of history that never happened (ala Friedman, ala Piketty, ala Keynes, ala pretty much every economist).

    PS–still awaiting the econometrics link that proves Fed moves the economy. Please, I beg you for a link…

  54. Gravatar of Blue Eyes Blue Eyes
    29. June 2015 at 21:33

    AL, maybe because there are other Eurozone countries which would also quite like to restructure their debt, which aren’t as small as Greece?

    Maybe American “commenters” don’t know what is happening *outside* Greece?

  55. Gravatar of Postkey Postkey
    30. June 2015 at 01:20

    @Ray Lopez

    Thanks for directing me to S.K. article.

    http://bearmarketnews.blogspot.co.uk/2011/11/misunderstanding-crisis.html

    Another case where bank lending precedes economic activity?

    https://www.creditwritedowns.com/2015/05/how-do-you-say-dead-cat-in-latvian.html

  56. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    30. June 2015 at 01:43

    More than an EU/US divide, I think there is a EU-except-PIGS/US-UK/PIGS divide.

    I wrote “the old EU” in my comment above, but the new-EU (Eastern Europe) is probably even less friendly to the Greek case as they are the ones who really don’t find it endearing that Syriza is friendly to all the Russian neo-Nazis (also, that they must pay towards a richer country), but I confess I cannot read any of those languages and tell you first hand (I know that the Netherlands, who holds the Presidency of the so-called Eurogroup, also doesn’t find it funny that Syriza wasn’t on board to condemn Russia for shooting down a plane full of Dutch civilians [yeah, the timeline is more complex]).

  57. Gravatar of Anand Anand
    30. June 2015 at 02:07

    Since this post is based on impressions, it’s hard to respond specifically. My own feeling about the European hostility (at the official level that seems correct) is what I’ve alluded to before. European govts. are deeply invested in the current policies, and they have already “sacrificed” enough to countenance different policies. This is true for even center-left parties, (indeed PASOK is center-left). The press reflects the dominant political establishment, hence the hostility. At the popular level, it is a different story, as Pedro mentions in his comment.

    I do feel that Scott is engaging in a fair bit of “mood affiliation” on Greece. Why the crack about Maoists in Syriza? If you read the Thessaloniki program of Syriza (http://www.syriza.gr/article/id/59907/SYRIZA—THE-THESSALONIKI-PROGRAMME.html#.VZJiCGOhDRV), it is a fairly New Deal, FDR-style program. I can’t find any trace of Maoism there.

    This was the maximum possible, election manifesto. Syriza has been forced to retreat from almost all of the pledges under creditor pressure. In what sense is talking about Maoists useful? As if other govts. don’t include unsavoury characters with all sorts of horrible views.

  58. Gravatar of M.C. M.C.
    30. June 2015 at 02:27

    @Anand

    You’re right. They’re not Maoists. They promised lots of free stuff for their citizens, financed mostly by foreigners. The Maoists at least pretended that they could provide free stuff from the labour of the domestic population.

  59. Gravatar of Jamie Jamie
    30. June 2015 at 03:03

    Scott: “Jamie, So perhaps it’s only at the governmental level where America is more sympathetic to Greece than is Europe?”

    To some extent. However, I suspect that sympathy also varies by country. The Germans are the most unsympathetic as they are the main protagonists. The non-Eurozone countries are most sympathetic as they have less at stake and / or different agendas. For example, here is the view of a right-wing conservative UK politician.

    http://www.theguardian.com/commentisfree/2015/jun/19/greek-people-austerity-eu-greece-economic-crisis-democracy

  60. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    30. June 2015 at 03:08

    Just read a Portuguese European parliament member from the centre left describe Syriza s negotiation stance as one of “constructive criticism”.

  61. Gravatar of Le Comte de Monte Cristo Le Comte de Monte Cristo
    30. June 2015 at 03:30

    May I suggest some additional reasons?

    8) Pundits in the US and UK critical of austerity in their home countries are using Greece as an example to prove their point.

    9) Several people in the econo-blogosphere are actually paid lobbyist for the financial industry. In international media such voices from US and UK are heard the loudest.

    10) People in the US does not understand the EU. The EU is more like an upgraded regional mix of UN and Nafta than a federal nation state.

    11) Some residual latent hostility towards Germany since WWII still remains, especially in the UK.

    Personally I believe 2) is most important. 6) is also relevant. Greece is the EU’s most unequal country. It is Greece’s governments job to spread the pain evenly and it is not doing a good job. (pensioner inequality is significantly lower than overall inequality, so focusing on pensions is not helping)

    Most important for Northern Europe is to prevent that a politically clientilist, populist and corrupt South manage to finance their unsustainable vote-buying schemes out of Northern taxpayers pockets.

  62. Gravatar of Nick Nick
    30. June 2015 at 04:24

    Center left types in Europe correctly identify the politics behind the syriza coalition as a direct threat to their own parties at home, and have very little ‘sympathy’ as a consequence. Here in the U.S. it is more of an intellectual matter. Plus we are used to two party thinking. Yes, many are missing the Maoists in the coalition and that’s a mistake … But the distance removes just as many obstacles to clear thought as it introduces.

  63. Gravatar of Matt McOsker Matt McOsker
    30. June 2015 at 04:36

    I am sympathetic to 25% unemployment, and the lack of any significant policy levers to deal with that. The people of many Euro countries have no educated idea what they gave up to join a flawed Euro monetary system. They were duped by people that should supposedly know better. I would not like it if it were happening here.

  64. Gravatar of Scott Freelander Scott Freelander
    30. June 2015 at 05:14

    Scott,

    As an American, I’m appalled that the creditors in this case are telling Greece how it should run its fiscal policy. Like you, I oppose such bailouts anyway, but if bailouts are to be offered, the creditors should simply focus on being paid back, instead of how Greece will produce the income to pay them back. If they lack confidence in the ability of Greece to repay the debts, then they shouldn’t lend the funds.

    It seems to me that, especially over several years, any strategy to keep Greece in the Euro that depends on having the troika technocrats dictate terms of the Greek budget is a fool’s errand. Worse, it sometimes, at least, subverts democracy. The whole situation is so highly dysfunctional, it needs to end no matter who is in control in Athens.

    I personally hope, and I suspect, that a Greek exit will push the Euro area in one of two directions. Either the south and Ireland will leave in the coming years, or there will be progress toward greater fiscal and other political integration. I’m fine with either scenario, but I don’t at all favor the messy middle.

    I think, however, that breakup is much more likely, not only given the trauma of recent years, but also that Euro citizens wouldn’t be ready for much greater integration anyway.

  65. Gravatar of Blue Eyes Blue Eyes
    30. June 2015 at 05:29

    Matt McOsker, the debate in the UK from when the Maastricht Treaty was agreed on to the formalisation of the Euro and beyond was comprehensive and thorough. We would have known exactly what we were agreeing to and giving up, etc.. Don’t forget that only seven years before the exchange rates were fixed together, Europe experienced the ERM debacle, which ought to have shown any sentient being what might happen, only worse, under a single currency regime.

    Member countries of the Eurozone signed up enthusiastically. Do not presume that Greek voters did not know what they were diving into. If they genuinely didn’t, then you have to then ask whether Greece is a democratic country, eligible for EU membership.

  66. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    30. June 2015 at 05:45

    @Scott Freelander
    When an entity is so broke that it has a single creditor , this creditor is not a creditor anymore, is a partner. And a partner can and should meddle in the debtor internal affairs. It looks to me also that Greece has only one way out, which is to cut expenses (public workers salaries and pensions) in order to stay afloat, because that is what they will end up doing anyway, even if through a new currency (rapid) devaluation. Finally, they had so many opportunities to solve their internal problems without interference. Remenber this is a country that produced fake macro numbers in order to enter the Euro (or stay in it). People try do reduce this discussion in terms of austerity against no-austerity, but let’s facej it, this is much deeper, it is a history of failed (and sometimes criminal) institutions. This is definitely not an EU problem (although the EU has its own very serious problems, as many commentators were quick to point out in this and other comment sections).

  67. Gravatar of Mikk Mikk
    30. June 2015 at 05:47

    Number 2 and 6, but there are many country specific reasons.

    I am from Eastern Europe and Eastern Europe is generally poorer than Greece, but some EE countries still participate in Greece bailout.

    I have also an impression that in PIIGs those who are in power cannot allow further concessions because Greece already got better deal. For instance in 2014 interest payment of Greece was 2,6% of GDP, in Germany 1,9%, in France 2,2%, but 4% in Ireland, 5% in Portugal,4,7% in Italy, 3,3% in Spain.

    Also, lot of people, at least in Germany, Eastern Europe, in north think that there has not been real austerity in Greece. And then they point “old age pensions paid by Greece” in 2007 – 15,4 billions, in 2012 – 21,9 billions. “Social protection administration costs”, 2007 – 1,3 billions, 2012 -2,4 billions etc (Source: Eurostat,OECD)

  68. Gravatar of Ray Lopez Ray Lopez
    30. June 2015 at 05:51

    @Postkey: you’re welcome. The killer Keen paragraph (among many) is this one, which shows the Fed FOLLOWS the market. Indeed, I have read elsewhere that the Fed will always accept commercial paper from certain favored banks (Fed Reserve member banks) as collateral, whenever asked, so the below paragraph is accurate in that the banks ‘create’ money, not the Fed. Of course in theory the Fed could raise interest rates unnaturally and against the wishes of its member banks, but in practice that never happens. And as I say, I am waiting for Sumner to tell me what econometrics study shows the Fed leads the economy; the silence is deafening. -RL

    Keen article:

    Holmes summed up the Monetarist objective of controlling inflation by controlling the growth of Base Money”” and by inference the Money Multiplier model itself””as suffering from “a naive assumption”:

    that the banking system only expands loans after the [Federal Reserve] System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand; over time, its influence can obviously be felt. (Holmes 1969, p. 73; emphasis added)

    With causation actually running from bank lending and the deposits it creates to reserve creation, the changes in credit money should therefore precede changes in fiat money. This is the opposite of what is implied by the “Money Multiplier” model (since in it government money””Base Money or M0″”has to be created before credit money””M1, M2 and M3″”can be created), and it is precisely what Kydland and Prescott found in their empirical analysis of the timing of economic variables:

    There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly… The difference in the behavior of M1 and M2 suggests that the difference of these aggregates (M2 minus M1) should be considered… The difference of M2-M1 leads the cycle by even more than M2, with the lead being about three quarters… (Kydland and Prescott 1990, p. 4)

  69. Gravatar of ssumner ssumner
    30. June 2015 at 06:36

    Gallego, Yes, I don’t think it’s wise to insult people for 6 months, call them Nazis, and then ask them to give you billions of euros.

    Bonnie, On humanitarian grounds shouldn’t the money be given to Moldova, not Greece?

    Miguel, I suppose I was thinking of the “elite” opinion.

    Gordon, I agree.

    Thanos, I agree that the euro was a huge mistake.

    Thanks Absolute zero.

    Mike, I think most people understand what an analogy is.

    Topher, And you can’t have a fiscal union without having a single country. And the Greeks don’t want that either.

    AL, Don’t forget about the moral hazard problem. Greece may be too big too fail, but Italy is too big to bail.

    Ray, I already gave you the link.

    Anand, You said:

    “In what sense is talking about Maoists useful? As if other govts. don’t include unsavoury characters with all sorts of horrible views.”

    What other Western European governments include that sort of extremist? AFAIK, none of them allow Maoists, Stalinists or Nazis. If you have an example, please provide it. Krugman has done many posts on the “unsavoury” aspects of the Hungarian government. I don’t recall him doing posts like that on Syriza. Obviously I wasn’t claiming the Syriza government is itself Maoist, indeed I never even implied that. There are only a couple Maoists. But why even let them into your coalition?

    Jamie, I’ve read that the Eastern Europeans (and Finns?) are even more hostile to Greece than is Germany. Is that wrong?

    Le Comte, Good points.

    Scott, You said:

    “As an American, I’m appalled that the creditors in this case are telling Greece how it should run its fiscal policy. Like you, I oppose such bailouts anyway, but if bailouts are to be offered, the creditors should simply focus on being paid back, instead of how Greece will produce the income to pay them back. If they lack confidence in the ability of Greece to repay the debts, then they shouldn’t lend the funds.”

    I actually agree with that, but of course it would mean no bailouts, as obviously a Syriza-led Greece would not be able to repay the loans. So the actual stance of the creditors is more generous than what you and I would prefer.

  70. Gravatar of ssumner ssumner
    30. June 2015 at 06:47

    Ray, Now that’s funny! Quoting Prescott and Keen in the same post.

    I’d encourage you to read Nick Rowe’s posts in endogeniety, but they’d be way over your head.

  71. Gravatar of Postkey Postkey
    30. June 2015 at 06:59

    “Quoting Prescott and Keen in the same post.”

    Play ‘the man’ not ‘the ball’?

  72. Gravatar of Capt. J Parker Capt. J Parker
    30. June 2015 at 07:02

    “Perhaps the difference is explained by the fact that it’s their money, not ours, which would be used to bailout Greece.”

    I think replacing the word “fact” with “perception” would have made the above statement more precise. The US pays for 17% of the IMF so, it is US taxpayers who are funding the Greek bailout, at least a part of it.

  73. Gravatar of Scott Freelander Scott Freelander
    30. June 2015 at 07:11

    Scott,

    Yes, I should state clearly that I think this whole situation is very dumb on both sides. The creditors should never have lent Greece a dime and certainly shouldn’t lend them more now. Greece should’ve never joined the Euro and should leave immediately.

    And I think what bothers some people here, perhaps, is that you seem to more readily criticize Syriza than the EC, ECB, and IMF. I think it’s safe to say they’re all incompetent, and I don’t even favor the existence of the ECB or IMF, and I will no longer favor the existence of the EC without more integration.

    I think I know your views well enough to know that you probably don’t think much of EC or IMF management of the situation, and you’ve been very critical of the ECB over its monetary policy.

  74. Gravatar of ssumner ssumner
    30. June 2015 at 09:04

    Postkey, That was a reply to Ray, surely you don’t think I should take Ray seriously?

    Captain, Good point.

    Scott, I’ve had about 10 times more posts criticizing the ECB (often very harshly) than I have criticizing Syriza. I think the misunderstanding arises because I don’t fit neatly into either side of the debate. I think they are both nuts, but for different reasons. The Germans are demand-side incompetent and the Greeks are supply-side incompetent.

  75. Gravatar of Jamie Jamie
    30. June 2015 at 12:49

    Scott: “Jamie, I’ve read that the Eastern Europeans (and Finns?) are even more hostile to Greece than is Germany. Is that wrong?”

    This has been an interesting thread as it has made me realise that the media here in the UK focuses the debate on Germany / Eurocrats / IMF versus Greece with other countries peripheral. In that context, I particularly noted Mikk’s comment (from Eastern Europe). I was very sympathetic to what he said. I also noted another comment that the UK is anti-German because of WWII. I think that is wrong. The issue is about the future of the EU. The Eurocrats and the Germans want one future. The UK wants another.

    From my perspective, the history of how we got here is important. The EU was set up to open up markets across a number of western countries (a good thing). It evolved and expanded over a number of years. At one point, most western countries decided to set up the Euro (a bad thing). However, a few refused to join the Euro. In particular, UK and Denmark and have opt out agreements. Sweden then had a referendum on the Euro after it joined the EU and voted not to join the currency. These are the countries likely to be most sympathetic to Greece.

    By the time the eastern countries joined the EU they were told that they could only get access to EU markets (the good thing) if they also joined the Euro (the bad thing) subject only to meeting certain conditions. That’s an impossible choice. Mikk is correct that it is unfair that these countries should now have to bail out Greece even though they are poorer. From a UK perspective, it is understandable if they resent this. They did not create the current situation.

    All of the other countries joined the Euro by choice but without thinking through the consequences. In that sense, they are all responsible for creating the current mess. The reason I am sympathetic to Greece is that it is the Euro that is the primary problem. Greece is just the most extreme symptom of the problem. Sorting out the problem properly would require fiscal transfers from rich countries to poor countries. As far as I can tell, the Germans and the Finns are most vocal against such transfers. In the German case that is because they would bear the biggest burden of such transfers. I am not sure why the Finns are singled out as more anti-Greece than other smaller countries.

  76. Gravatar of Joss Delage Joss Delage
    30. June 2015 at 12:50

    Not sure I agree. The US-dominated IMF is being much tougher on Greece than the ECB.

  77. Gravatar of Ray Lopez Ray Lopez
    30. June 2015 at 18:26

    Sumner: “Postkey, That was a reply to Ray, surely you don’t think I should take Ray seriously?” – why not? Why attack an anonymous poster on your blog, and not their arguments? How do you win over the rest of your readers, the silent majority that may lurk here and side with me? And don’t call Postkey ‘Shirley’.

    Sumner: “Ray, I already gave you the link.” – sorry, can you resend it? You mean the link to Friedman’s 1961 classic, that’s the econometrics study that proves the Fed moves the market?

    Sumner: “Ray, Now that’s funny! Quoting Prescott and Keen in the same post.” – but Keen cites Prescott.

    Sumner: “I’d encourage you to read Nick Rowe’s posts in endogeniety [sic], but they’d be way over your head.” – no, I just read the Wikipedia link on endogeneity and it’s not over my head, not to mention I have a doctorate degree as well as science degrees (I might mention I’ve made a half million over my career, and have an intestate share of at least $5M, but that would be shameless showboating). Why don’t you do a post on this, summarizing your views? What’s the downside? Also, consider that Rowe and your sophisticated endogeneity defense is in some ways analogous to Ptolemy’s epicycles. A much simpler answer is the Fed has no control over the economy.

  78. Gravatar of Postkey Postkey
    30. June 2015 at 23:55

    @ssumner

    Maybe this ‘evidence’ should be taken ‘seriously’?

    “Holmes summed up the Monetarist objective of controlling inflation by controlling the growth of Base Money”” and by inference the Money Multiplier model itself””as suffering from “a naive assumption”: that the banking system only expands loans after the [Federal Reserve] System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand; over time, its influence can obviously be felt. (Holmes 1969, p. 73; emphasis added)
    With causation actually running from bank lending and the deposits it creates to reserve creation, the changes in credit money should therefore precede changes in fiat money. This is the opposite of what is implied by the “Money Multiplier” model (since in it government money””Base Money or M0″”has to be created before credit money””M1, M2 and M3″”can be created), and it is precisely what Kydland and Prescott found in their empirical analysis of the timing of economic variables:
    There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly… The difference in the behavior of M1 and M2 suggests that the difference of these aggregates (M2 minus M1) should be considered… The difference of M2-M1 leads the cycle by even more than M2, with the lead being about three quarters… (Kydland and Prescott 1990, p. 4)”

    http://bearmarketnews.blogspot.co.uk/2011/11/misunderstanding-crisis.html

  79. Gravatar of ssumner ssumner
    1. July 2015 at 14:32

    Jamie, I agree that the euro was a disaster. I am also sympathetic to Greece (a country I like) but not the current or former Greek governments.

    Joss, I’m pretty sure we dominate the World Bank, and Europe dominates the IMF. Can someone confirm?

    Ray, You’ve made over a half million over your career? Well then I take everything back. You’d have to make $20,000/year for 25 years to make a half million. I’m impressed. And you did all that with an IQ of just 120? Impressive!!

    Postkey, One of the few things I agree with Krugman on is that this stuff is nonsense:

    “Holmes summed up the Monetarist objective of controlling inflation by controlling the growth of Base Money”” and by inference the Money Multiplier model itself””as suffering from “a naive assumption”: that the banking system only expands loans after the [Federal Reserve] System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves.”

    My simple explanation is that it confuses nominal and real quantities of credit. Krugman dismisses it by noting “It’s a simultaneous system.” But Nick Rowe has the best takedowns of endogenous money nonsense. It’s almost painful to read this stuff after a while. Sorry to be so blunt, but I’ve had to deal with a zillion similar quotes over the years.

  80. Gravatar of The American/European divide on Greece – "is there considerably more support for Greece in the US than in Europe?" « Economics Info The American/European divide on Greece – "is there considerably more support for Greece in the US than in Europe?" « Economics Info
    1. July 2015 at 18:00

    […] Source […]

  81. Gravatar of Postkey Postkey
    2. July 2015 at 01:31

    @ssumner

    Krugman! Is that ‘appealing to authority’?

    This is what the ‘Thatcherite’ monetarist had to say re the US recovery!

    “Signs emerged that the American banking system was able – once more – simultaneously to expand its balance sheet and keep within new tighter regulatory standards (on capital, liquidity and so on). Because of the resumed extension of bank credit to the private sector the quantity of money started to grow again, improving balance sheets throughout the economy and helping asset prices. The upturn in money growth was healthy, in that it was not attributable to the creation of money by means of “quantitative easing” (QE2 had stopped a few months earlier). ”
    http://www.ft.com/cms/s/0/0a4f4908-776e-11e1-827d-00144feab49a.html?siteedition=uk#axzz3YvBWprbZ

  82. Gravatar of dax dax
    2. July 2015 at 04:48

    “I agree that the euro was a huge mistake.”
    Bingo Scott, you said it yourself. American academics think the euro was a mistake. Europeans don’t think the euro was a mistake. From that a lot flows.

    Other reasons:
    (1) It’s easier to see the mote in someone else’s eye. This has been going on forever.
    (2) Americans are insecure vs Europeans. They have the idea that Europeans look down on them, and criticizing European behavior to Greece is a way for Americans to look down on Europeans. (“Those idiots, don’t they know you can’t do austerity in a depression.”)
    (3) Americans have never let their ignorance get in their way of judging others. For instance, Americans don’t understand that the legal framework of the EU and the eurozone is vastly different. Long ago Krugman would write that obviously the ECB should have the same double mandate as the Fed, as if this could be changed by a wave of the wand. Changing the ECB’s mandate would be about as hard as changing the US constitution. (I could solve the American gun problem if you let me change the US constitution, but I don’t think you’d think that’s fair as a solution.)
    (4) Krugman in particular is miffed he doesn’t get respect in German circles.

    On the whole I think the Europeans are right.

  83. Gravatar of dax dax
    2. July 2015 at 04:51

    (5) The Brits are against the euro, because otherwise they would have to admit they made a mistake not joining. And Americans tend to get their European news (and opinions) from the Brits.

  84. Gravatar of dax dax
    2. July 2015 at 07:46

    (6) Americans have recently discovered that economic inequality is bad, and so there is a tendency to support those perceived as poorer, especially when they don’t have to pay for it (so this combines with your reason 2).
    (7) Americans believe there is no connection between government revenue and government spending, not Europeans. This is contra your “Americans have a better understanding of macro.”

  85. Gravatar of ssumner ssumner
    3. July 2015 at 05:18

    Postkey, I have no problem with that quote, bank credit expands for many reasons, sometimes due to more base money, other times due to a bigger multiplier.

    Dax, As you can tell from my various posts on Greece I agree with the Europeans on many aspects of the Greek crisis.

    But I can’t imagine anyone so foolish as to still think the euro was a good idea. It was an unmitigated disaster, which is currently damaging the entire European project. The fears of Milton Friedman have proven exactly correct.

    As far as American ignorance of Europe, that’s clearly true, but it’s equally true that Europeans don’t understand many aspect of American culture, such as our love of guns. It’s normal for humans not to understand far away cultures.

    You said:

    “Americans are insecure vs Europeans. They have the idea that Europeans look down on them, and criticizing European behavior to Greece is a way for Americans to look down on Europeans.”

    That applies to things like culture, cuisine, the arts, architecture, etc. In economics it’s exactly the opposite. We win almost all the Nobel Prizes and we don’t at all fear what the Europeans think of our views on econ. Indeed we are too arrogant in that area, not too insecure.

  86. Gravatar of Postkey Postkey
    3. July 2015 at 10:17

    @ssumner

    Thanks for your reply.

    “Because of the resumed extension of bank credit to the private sector the quantity of money started to grow again, . . . ”

    It appears that bank credit precedes the increase in the quantity of money?

  87. Gravatar of ssumner ssumner
    4. July 2015 at 07:18

    Postkey, Yes, but consider the US from 1964 to 1981, when a big increase in the monetary base causes an increase in bank credit and thus M1 and M2. It’s all interrelated.

  88. Gravatar of dax dax
    5. July 2015 at 05:14

    “But I can’t imagine anyone so foolish as to still think the euro was a good idea.”

    Chalk one up to American ignorance then.

    “In economics it’s exactly the opposite.” Using Nobel Prizes as the metric for economics is sort of using Nobel Prizes as the metric for literature. The great economists were all Europeans; the Americans have yet to produce a single one. Not. A. Single. One. Do you think Krugman’s constant invocation of Keynes is an accident?

  89. Gravatar of ssumner ssumner
    5. July 2015 at 05:42

    Dax, Maybe the silliest comment of the year. You’ve never heard of Irving Fisher, Milton Friedman, Paul Samuelson, etc?

    The test of a person’s character is whether they can admit they were wrong when they were OBVIOUSLY wrong. The euro was a disaster, it’s not even debatable any more. The crisis predicted by Milton Friedman happened almost exactly as he predicted it. Check out the debate between Mundell and Friedman if you want to enjoy a good laugh.

    http://www.forbes.com/sites/jerrybowyer/2012/08/01/happy-birthday-milton-friedman-the-european-crisis-is-your-latest-vindication/

  90. Gravatar of Postkey Postkey
    6. July 2015 at 00:03

    I don’t think that Mundell has ‘capitulated’?

    ‘Nobel Prize winner Robert Mundell, the father of the euro, told Canada’s Financial Post (June 8),
    “The euro is not the problem. The problem within the European Union and the European Monetary Union is government deficits and the debts of a few countries, mostly in Southern Europe. It is a failure of fiscal discipline that has threatened the solvency of the debt-ridden countries whose high deficits are due in large part to the current recession in Europe and more generally the slowdown of the world economy. The debts would only become a problem for the euro if these deficits led the European Central Bank (ECB) to create substantial inflation to try to bail out these countries.” ‘
    http://www.atimes.com/atimes/Global_Economy/NF19Dj05.html

  91. Gravatar of E. Harding E. Harding
    11. July 2015 at 11:38

    And what do you know?
    http://www.forbes.com/sites/francescoppola/2015/07/10/bankruptcy-looms-for-tiny-moldova/

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