Monday, July 27, 2015

Greece off the grid and other Greek stories

There were small craft warnings out on the Chesapeake yesterday, so of course I went sailing.   No rain, no storms, just sun, wind, and a field of whitecaps all across the bay through a long afternoon.  On a day like that, though, in small craft warnings, in wind creating waves up the whole fetch of the Chesapeake, sailing is, let’s say, not entirely a passive experience, so I’m a bit stiff this morning.  And I was awakened this morning at a crazy early hour by thunder and a brief but energetic rain.  So I’m not out walking or running, or any of those things I keep trying to do to keep from aging too fast. 

Which means I’m sitting idly on my couch at 6:13 AM, wondering what to do with myself. 

I guess I have a few minutes to write.  So I might as well say something about what I thought was the most interesting piece in yesterday’s Washington Post: it was on the Sunday Opinion page, at the bottom, but it wasn’t exactly opinion.  It was simply an observation.  In the print version it was titled “Greece’s invisible economy”, but online it seems to be titled “Lessons in resiliance from rural Greece”.  In it, Alexis Adams, a resident of Red Lodge, Montana (but also apparently a resident of Leonidion, Greece), described a side of the Greek economy that will be largely undisturbed by the negotiations with Europe, or with the IMF, or with a change from the Euro to the Drachma, or the New Drachma, or as Mr. Adams points out, to the Obol, which was the Greek currency 2500 years ago.  As you might have guessed, he was describing the traditional lives of rural Greeks, where “traditional” is a condition established over centuries, or even millenia.

Here’s a snippet from Mr. Adams’ piece:

my neighbors in rural Greece carry on with their lives as they have for centuries. Invisible to most economists, they subsist in ways that cannot be measured easily by typical economic yardsticks. Nonetheless, their economy is real, will help them survive the current crisis”

His whole story, but particularly this quote, reminded me about something I’ve talked about here before (using Malala Cake as an excuse): GDP is a very rough estimate, and it very specifically does not include non-market activity.   It does not include household production of things.  So he’s probably right that the Greek GDP measures includes very little of the economic activity of Mr. Adams’ neighbors.  They grow their own food, make their own cloth, and raise sheep and goats that provide them with milk and cheese and meat.  Since these things are not bought or sold in markets, they do not appear in the GDP.  But they are, without question, economic activity of the most basic kind. 

And Mr. Adams declares that 39% of the Greek population lives like this.

The official measure of the ratio Greek government debt to Greek GDP is up in the range of 170% these days, but Greece’s GDP is severely depressed.  It has declined by about 25% since 2008.  If the Greek GDP even returned just to its 2008 value, the debt-to-GDP ratio would decline to about 130% (very rough numbers).  But that doesn’t account for any possible growth in potential GDP for the last 7 years.  And if Mr. Adams’ data is right, it takes no account at all of much of the production of nearly 40% of the Greek population.

The other interesting comment on Greece yesterday, or perhaps the day before, was this column by Joseph Stiglitz, Nobel Laureate in Economics and former Chief Economist at the World Bank.  Prof. Stiglitz has an even more caustic view of the European agreements with Greece than I do.  He says:

“One underlying problem in Greece, in both its economy and its politics, is the role of a group of wealthy people who control key sectors, including banks and the media, collectively referred to as the Greek oligarchs.”


“The rationale behind many of the key structural reforms has not been explained well, either to the Greek public or to economists trying to understand them. In the absence of such an explanation, there is a widespread belief here in Greece that special interests, in and out of the country, are using the troika to get what they could not have obtained by more democratic processes.”


“…special interests in the rest of Europe and some within Greece itself have taken advantage of the troika to push their own interests at the expense of ordinary Greek citizens and the country’s overall economy…When a country is down, there is all manner of mischief that can be done.”

And he, like many others, is skeptical that the current agreement will work at all, unless there is a quick and substantial change in the strategy of the European Commission and the European Central Bank (the IMF has already changed its strategy proposals for the better).  The expanded austerity will do nothing but expand the Greek depression, which will, by the same kind of arithmetic I used above, drive the Greek GDP further down and the Greek debt-to-GDP ratio up.  And as increasing unemployment and inequality mount, so will resentment. 

At least for 60% of the Greek population.  The 40% that Mr. Adams has described will apparently simply continue their lives as they have through all the history that has washed over them and around them over the last millennium or two.

Monday, July 20, 2015

Disgust first. Then frustration.

Good lord. 

This has been in progress for a couple of days, and much of it is old news by now.  But I’ll record my own take on it anyway. 

Last Friday I wrote out a little frustration with Greece, expressing the daydream that maybe we could get Donald Trump out of our hair for a while by sending him to Greece to teach Tsipras how to negotiate.  That used to be something Trump had a reputation for doing well, and Tsipras, apparently, has no clue about what it even means.   But I waited to post what I wrote on the count-to-ten-first principle.  Then Saturday I was out all day teaching a sailing class on the Potomac, and was thoroughly tired and hot when I got home.  So I waited until yesterday morning to look at it again.


I’ll get back to Greece in a minute, but I have to follow a distraction from yesterday morning’s news first.   I’ll say this up front: Mr. Tipras, I withdraw my threat to inflict Donald Trump on you to teach you the art of negotiation.  No matter how good at it he is, it would not be honorable any more to inflict him on anyone, for any purpose.

Donald Trump was back on the front page of the Washington Post yesterday, and has been on all kinds of news since.  I supposed it’s good for his campaign in the very short run.  This time he declared that Senator John McCain is “not a war hero” on the grounds that McCain “was captured”.   Apparently heroes, to Trump, are people who don’t get captured.  That’s what he says, anyway.

Seriously??   Wow.  This on top of the florid ignorance he excreted on the topic of Mexico and our southern border.   And the idiocy of the “birther” episode.  And, and, and.  Yesterday morning’s mental oddity from him is minor, really, compared to his past exhibitions.  But it was, I guess, that final straw for me.  I can’t understand why the Post published this about him, or why anyone anywhere publishes anything about him.  He no longer seems to me to have public prospects, or even public interest.

For the record, I don’t have any problem with Trump when he disagrees with Senator McCain on issues; I often disagree with Senator McCain on issues, and I’m sure that he and I were in very substantial disagreement on many issues in the sixties, when he was a POW in Vietnam.  But go read the Wikipedia entry on his treatment as a prisoner, and how he responded to it.  He suffered terribly as a POW, through long years, with broken limbs, a shoulder crushed by a rifle butt, years of solitary confinement and daily beatings, and he showed honor, commitment and courage that was nothing short of astonishing.  He still shows honor and courage, working for his beliefs every long day with deep injuries from that time that have never completely healed, and can’t ever completely heal.  He was a hero, and he is a hero.  He is wrong, in my opinion, about many things.  But he is still a hero.

As a presidential candidate Trump is a caricature of everything; he’s a caricature of himself, of the tea party, of the Republican Party, of some smarmy, ugly sliver of America.  He’s a Rorschach test, a blot of ink splashed across the political world.  A clown, of course, and I have to agree with the new Huffington Post policy of reporting his antics in their Entertainment section, instead of in their Politics section.  The Washington Post, and every other reputable news source, should follow their lead.  And actually, I think they should go farther: don’t report on him at all.  What could he say by now that would actually be either news or entertainment?  Nothing.

I think Trump might even have thought, for a time, that he was really running for President.  But any such fantasy on his part should now be over.  He expresses the emotional responses of a small group of voters who will be avid for him, for a while.   But he has offended so many, and so severely, that I can’t imagine any general election where he could win any office at all, much less the office of the President and Commander in Chief.

Now on to Greece, the future, the negotiations with Europe, and anything, however dismal, that does not include Donald Trump.

So here’s my question:

What on earth could Tsipras have been thinking when he went into the negotiations with Europe asserting that he had not been authorized by his voters to exit the Euro?  What, then, were the negotiations about?  What did he have to offer, or to threaten if it came to that?  He simply threw himself on their mercy, and when that was lacking he submitted all of Greece to a spanking.

Here are the basics, Alexis.  May I call you Alexis?  The fixation of the rest of Europe was this: how do we make Greece behave, how do we hold their feet to the fire, make them pay their debts and push their budget even further into primary surplus, how do we push Greece to fiscal virtue no matter what the short term cost to them?  That’s what Merkel and all the rest walked into that room determined to do.  That was their goal.  Your task, the first day, was to change the topic of the negotiations.  Your task was to make the whole discussion about this: how do we, Europe, get Greece out of this depression, this catastrophe worse than the Great Depression of the 1930s?  Because that’s the kernel of the problem, isn’t it?  If the Greek depression disappeared, then Greece would be far more able to make the the payments on its debt.  If Greece could reach its potential GDP, then the budget would be in substantial primary surplus and the debt to GDP ratio would not look nearly as scary as it does.

And to do that, to change the topic, you had to make them believe that no agreement that did not achieve at least a hope for foreseeable, predictable, reliable Greek recovery could possibly be accepted.

I need to stress at this point that Greece does have internal problems that have to be fixed, period:  corruption has to stop, cronyism has to stop, the Greek people have to pay the taxes they owe, and so on.  And there are many things that could be changed to make your economy work better.  But you know that.  You don’t need Europe, or me, to tell you any of that.  You could offer those things in the negotiations, since you will have to do them anyway.  But more austerity, more grinding poverty, more depression, more insistence on paying back loans that can’t be repaid, are not among the things that will help Greece---or Europe either, for that matter.

And those last things were the topic that the rest of Europe walked into the room to discuss. 

How could you change the topic?  You had to make them understand that you had a ready alternative to their help, and that you were prepared---reluctantly, but still prepared---to use it, unless the negotiations could find a better way.

I know, easy in hindsight, and I do understand that Grexit would have been very hard.   Just the logistics of changing to a new currency would have been a nightmare.  And I know that the probability that you would have to exercise your Grexit option would have been far above zero; some in the negotiations seemed---and still seem---to welcome that idea. 

But now, now, with this “solution” in place, I feel the likelihood of eventual Grexit has done nothing but rise.  This “solution” is not a solution.  Not really.   It’s a thin patch on a blown tire, and an enduring grievance, and it is an engine driving Europe apart.

I understand, Alexis, what you meant to do.  You went to Europe with every faith in their good will.  You did depend on the goodness of Europe, which was wonderful of you, but naïve, perhaps, since everyone in the room was an elected politician who had to report back to the voters in their own countries.  They would loved to be good, but their first obligation was to their own constituents, not to you.  You let the conversation devolve to such a dismal state that the primary question seemed to be whether Europe could “trust” Greece.  Trust Greece to do what, for God’s sake?? Bend over and grab its ankles?  The right answer should have been: yes, you can trust Greece to do everything, everything, that is necessary for Greek recovery, and you can trust Greece to hope that is possible within the Euro: because we do hope for that.  In our deepest hearts we want that.  But we must emerge from economic cataclysm.  You, the rest of Europe, can choose to help, or can choose to stand aside.  The right answer should have been: please, help us, we would welcome that, we want that, and to survive as a common currency zone Europe must find a way to do that not just with Greece but with any member country that is in deep depression.  But if your minds or values or whatever is binding you can’t find a way to help us then it will not be left to you to decide whether you will stand aside.  Let’s find a path together, please; that is the path we want.  But if we can’t achieve that, if we in this room can’t find a way to work together, then Greece will take the only path remaining to it toward a credible, sustainable, growing future.

Here’s what you had to do---HAD to do, with no real alternative as a negotiation position:

You had to walk into the room, the first day, with Greek exit from the Euro all lined up, all prepared, planned in detail and ready to go.  You had to tell everyone in the room that Grexit was not desired, but it was prepared, that you could start printing Drachmas at a moment’s notice.  You had to tell them that you desperately wanted to be a part of the Euro zone, that you never, never wanted to start Greek exit, but that your number one priority was that depression in Greece had to be stopped one way or another.  That, you should have told them, was the only real topic of negotiation.   Then the negotiations would not be about how to make Greece behave, or even how to preserve the Euro, it would be about how to make Greece grow again, preserving the Euro whole if those two goals could be jointly achieved.  But in the order of importance, Greek recovery was first.

You had tell them this:  I know you, Europe, don’t want to delay the repayment of your loans, but you have no choice in this.  We, Greece, can’t repay those loans while we are in a deep depression: either you find a new loan structure that is viable, and that will help Greece, or Greece on its own will design that new loan structure and Greece will choose how to delay the payments.  Whether or not the loans will be delayed is not something that either Greece or her creditors have the power to decide.  History and years of austerity have taken this decision from all of our hands.  All we are talking about here is whether there is some way, some European way, to help a member state get out of depression and still remain in the Eurozone.  Any other topic is a useless waste of time: tell me now whether we can keep to the true topic, or let me leave and get started on the terrible task of exiting the Euro.

Yes, you should have said, under the current regime the European Central Bank can starve the banks in Greece.  But the moment these talks fall through, the moment it becomes clear that the ECB really does intend to starve the Greek banks, I can start printing Drachmas and Greece can provide our own banks with the liquidity they need. 

Yes, Greece has debts, and (you should have assured them) we intend to repay them.  But recovery is a prerequisite.  You can try to insist on the current loan schedule, if you like, and within the Euro that would drive Greece to the ground, and your insistence would turn to ashes; the loans as they stand are not sustainable.  You know that.  The IMF says so, in well-reasoned erudite papers.  We in Greece feel that truth every day.   The loans will be repaid when we can manage that.  We want Europe to have a way to help us, to find a way to help us get to recovery, so these loans can be repaid in full.  But if you can’t do that, if we in this room can’t find a European path, then Greece can finance its own recovery both with reasonable domestic spending and by depreciating the New Drachma against the Euro and the Dollar and everything else, to stimulate exports and provide new demand for our products. 

With that background, with the plan B in place, the plan and all the preparations in place, to leave the Euro, you might have been able to change the topic of negotiation from “how do we get those blasted Greeks to behave” to “how do we help Greece to recover, so that Greece can finally grow, prosper, and fulfill all its commitments within the Euro”.   You could have changed the topic because you could have told Merkel, Scheuble, and all the others in the room that they were not in charge of the negotiation.  No one is in charge of the residue of history.  The loans would be delayed and restructured because history had left no other option on the table.  Greece had a path to hope, had a path to growth, prosperity, and fulfillment of its commitments---a bit tardy, perhaps, but fulfillment still, by exiting the Euro.  Their job in the negotiating, given that, was to find a second path, a path within the Euro, to Greek prosperity.

You needed to walk into the room with that all in your back pocket, truly prepared, with the new Drachma all designed (possibly with the word OXI stamped all over it), the right counterfeit-defying paper on the rolls, the printing presses ready to go, and with the preparation in your heart to flip the switch and turn them all on.  You needed to do that because you wanted, and the Greek people want, to avoid flipping that switch, and changing the negotiating topic was your only real long run hope of doing that. 

But without agreement on a valid plan out of here, this crisis will happen again, and again, and again, as long as Greece and Europe keep reeling down this long divisive road.  And at every crisis, Grexit will rear its head.

I hope I’m wrong about that.  Of course I do.  Maybe it all will look better tomorrow, or the day after.  Maybe Europe, now that they have brought Greece to heel, will suddenly become her benefactor, with some kind of Marshal Plan for Greece.  But for now, I don’t see that.  For now, the current agreement seems unlikely to work, and has only made the situation worse.  I hope I’m wrong.  But for now, that’s the way it looks to me.

Tuesday, July 7, 2015


Greece!  Greece!  Everyone is commenting on Greece, including many of my favorite bloggers: Paul Krugman, Jared Bernstein, Brad DeLong---but as brilliant as they are, they are not the right place to go on this.  With respect to Greece, read Steve Randy Waldman.   He says many of the things I meant to say, but didn’t, and several things I never thought of, or didn’t know.   Here’s a quote from Waldman to tantalize you before I move on:

It is difficult to overstate how deeply Europe’s leaders betrayed the ideals of European integration in their handling of the Greek crisis. The first and most fundamental goal of European integration was to blur the lines of national feeling and interest through commerce and interdependence, in order to prevent the fractures along ethnonational lines that made a charnel house of the continent, twice. That is the first thing, the main rule, that anyone who claims to represent the European project must abide: We solve problems as Europeans together, not as nations in conflict.”

Read his whole post, which is full of detail and insight. 

There are a couple of things I want to add to what Waldman said in his post. 

My first point to add: there are leaders in Europe who complain that the European taxpayers should not be expected to pay Greek debt.  The problem with this complaint is that the European taxpayers will not need to pay the Greek debt any more than they already have.  At this point acquiring Greek debt by other European taxpayers is a sunk cost; the question is how to best protect those taxpayers’ future interests.  The choice before them now is to accept reduced and extended loan repayments with Greece inside the Euro, or accept those same reductions and extensions with Greece outside the Euro. 

Yes, much of the Greek debt is now owned by other European governments or the European Central Bank rather than by private banks, although whether that first “bailout” was to aid the Greeks or the banks is a matter of interpretation.  Here’s what Waldman says about that (echoing many others from 2010 onward, but I think Waldman says it better):

With respect to Greece, the precise thing that European elites did to set the current chain of events in motion was to replace private debt with public during the 2010 first ‘bailout of Greece’.  Prior to that event, it was obvious that blame was multipolar. Here are the banks, in France, in Germany, that foolishly lent. Not just to Greece, but to Goldman’s synthetic CDOs and every other piece of idiot paper they could carry with low risk-weights. In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc.”

 And to bail out “mostly French and German banks”, the French and the German governments put up the largest chunks of the bailout money, so they now own the largest chunks of the Greek debt.   But does anyone really think that tax rates in Germany or France will rise if Greece delays repayment of its debts to those governments?  Or even if the debts are completely written off?  The governments of those countries might experience some frustration, but their taxpayers would not notice any change in their lives at all.

A chunk of the Greek debt is still privately owned.  So to the private banks and the wealthy private creditors who still own Greek bonds, I would say: you bought Greek bonds because they offered the highest yield you could find.   The reason the yield was that high was that the bonds were risky, of course.  You knew they were risky.  But for whatever reason, whether you rationally believed the risk was less than the interest rate implied or you were irrationally reaching for yield out of desperation, you bought them.  Well, sometimes taking those high-yield risks works out for you.   But the meaning of the word “risk” is that sometimes it doesn’t.  Suck it up.

 On to my second point: everyone is saying that Greece will face some kind of disaster if they leave the Euro.  My question is: compared to what??? 

Economically, Greece is a massive disaster right now, and with the deals offered by the rest of Europe, will remain a disaster far, far into the future.   Europe is offering Greece a future without hope.  A separation from the Euro and a return to the Drachma might be harsh, chaotic, at times possibly miserable, but at least it has a long-run positive buried in it somewhere: that the Drachma could devalue and make Greece’s exports cheaper and more attractive in the rest of the world, so there could be the long-run hope, at least, of an export-led recovery. 

But continue on the current path?  The Greek banks are already closed, or nearly so.  And here’s a graph that’s been wandering the internet, comparing Greece in the last few years (blue line) to America during the Great Depression (red line).  (I found it here, chart 4): 

If there is another turn of the screws of austerity, as Europe has until now demanded, that blue line will very likely turn even further down, or stay down even longer, or both, with no distant clear prospect that looks like hope.   What is going to create a recovery in that scenario?  Yes, I know, nothing lasts forever, so I assume that eventually things would change, possibly even for the better.  But there’s no obvious process that improves anything anytime soon.

Here’s another graph that I found here:

This charts the downturns during the recent recession in other European countries against the downturn in Greece; the dark blue line at the very bottom, of course, is Greece.  In each case, the GDP is plotted as a percent of that country’s GDP in 2008, which is the white dot on the 100% line.

The Greeks are exhausted by depression, sensibly fed up with austerity, and definitely fed up with haughty condescension from the rest of Europe.  Yes, the various Greek governments since the late nineteen seventies have helped create their own problems, with decades of corruption, political nepotism, and even cooking the books.  But the Greek people didn’t do that, and it’s the Greek people who are now living through a depression with no end. 

What is happening now, to Greece, seems to me to be exactly the opposite of what the financial system is supposed to do.  It’s supposed to allocate money from those who have it to those who can best use it, who can use it, that is, for the best interest of the general economy.  It’s supposed to help the economy, improve the economy.  What is happening now is that the European financial system is sabotaging the nation of Greece, systematically destroying the Greek economy, and crippling generations of Greek people. 

What should happen now?  I don’t know, precisely: but whatever is done should offer hope to the people of Greece.  Not the harsh Austerian hope that says someday, if you only believe, things will get better by magic.  And not the moralizing threat that if they don’t pay up the European austerity enforcer, the Confidence Fairy, will smite them in her terrible wrath.  No, it has to offer real hope, in a reasonable time.  

This is what has to be understood by Greece’s European creditors: any deal they offer has to contain more hope, and better long run prospects for Greece, than Grexit does.  Otherwise why should Greece accept it?