It is something of a worst case scenario for a modern economy where usually the trend is ever upward. There are always plenty of countries where economically speaking things are very rocky but this sort of collapse and descent into barbarism is really unusual. I wonder if these sorts of things could be predicted somehow based on the nature of a country and the culture of the people there. Greece certainly has all kinds of aspects of its character that suggest that financial prudence is going to be a tough sell. Any country that has an unspoken agreement that the government won't bother to collect taxes on election years is going to have issues when people are looking for German quality financial restraint.
Greece may well be the keystone in the whole world economic construction, the thing that is stopping a even greater collapse from coming. They have demonstrated that a first world nation, even one backed by the EU, can collapse spectacularly. Not just collapse economically, of course, but also socially and politically. If Greece had been willing to take a 50% writedown in exchange for real reforms I think things would be much more secure for all the nations teetering on the brink but with the capital burning and the country in chaos nobody can be sure that any nation will be interested in paying back what it owes instead of just declaring bankruptcy. What the EU desperately needs is a clear, unmistakable signal that nations that get in trouble dig themselves out instead of just throwing in the towel. That certainty may well be the sole thing that keeps Italy, Portugal and Ireland afloat and Greece seems like it will not provide it. The EU needs investor confidence and every day that Athens burns that confidence evaporates.
What would I do if Canada were in the same situation? If the government were slashing salaries, pensions and indeed any other expenditure to the extent that the Greek government is? I think my answer would be to just sigh and keep going; I am not the protesting type, particularly when that protesting seems to be synonymous with arson and looting. Paying back their debt and reforming their finances may be a huge burden to the Greeks but I think they are on the path to revolution and destruction, not financial independence.
Photo from: http://ca.reuters.com/article/businessNews/idCATRE8120HI20120212?pageNumber=2&virtualBrandChannel=0&sp=true
When your loan shark says he'll forgive some of your debt if you'll just kill someone for him, whether to commit murder or skip town is a pretty tough decision for some people. Yes, it was bad life decisions that got you to this point, but you start asking yourself if this is what the loan shark had in mind all along.
ReplyDeleteI'm pretty worried about either outcome for Greece. If they continue on this route then, as you say, there are going to be a lot of spill-off effect. If they go the other way, however, they are deciding to do away with democracy in favour of control by foreign banks. Those foreign banks don't want "austerity" in Greece so that the Greek people can get back on their feet, they want to get paid, and any reforms they demand are about them getting their money.
Surrendering control of its economic policy to self-serving foreign interests may avert violence, or it may just delay it.
I don't think we can all agree that the situation doesn't warrant arson. When the rulers make decisions that the people disagree with what are they supposed to do? Didn't the government promise a referendum to decide what to do and then go back on that decision once it was clear the people wouldn't have voted the way the banks wanted them? Was the Boston Tea Party unwarranted?
ReplyDelete@Ziggyny
ReplyDeleteImagine this: You read that my apartment building has burned down killing me, Wendy, Elli and a bunch of people you don't know. The arsonist who did it says that he was protesting the new government bill. Would you think "Gee, that makes sense. That arson was justified!"?
I hope the answer would be an unqualified NO. Protest is justified. Strikes, boycotts, marches, graffiti, letter writing, and many other sorts of things are entirely justified and the freedom to do those things is critical. Burning down other people's houses and businesses is the act of a violent criminal madman, not a justifiable protest.
If you think the government is so bad that violent protest is warranted then prepare a revolution. Revolution is extremely bad but it can be justified. Destroying your neighbours property or their lives randomly is not. If you think burning down a building is a good protest then burn down the building *you* own and announce it publicly. That will get the message across without being a random assault on your fellow human.
@Sthenno
ReplyDeleteI don't think your metaphor works. The bankers to whom the Greeks owe their money can be reasonably modeled as loansharks, sure. However, the people demanding the reforms are not those bankers. The countries of Europe are much more like relatives of a person who is in debt to loansharks who step in and offer to pay off the loansharks to save the person in question. Those relatives want the money repaid at some point and insist that the person in question get their finances in order such that repayment is possible.
There simply isn't another option for those relatives (the EU). If they simply hand Greece a couple hundred billion dollars to erase the debt then nothing in Greece will change and Greece will continue the way it has been, racking up more debt, requiring another bailout in a couple years.
Remember that Greece isn't in this mess because they owe the EU money. They owe the international bankers money and the EU could simply have walked away and let Greece explode. They are offering Greece a way out without said explosion and are setting terms that would make sure it is actually a way out instead of just another shovel to dig a deeper hole.
Maybe you think Greece should just default, maybe you don't. Either way I can't find any reason to blame the EU for wanting some assurances that their attempt to step in and rescue Greece from itself isn't going to be a gigantic waste of money.
Fair enough, my analogy isn't perfect, but yours isn't either. The reason the other countries are willing to help bail out Greece is because they are concerned banks in their own countries are going to fail if Greece defaults and that then they will have their own economic problems to deal with. So maybe the family members of the person who owes the loan shark work for the loan shark?
ReplyDeleteObviously analogies can only be stretched so far, but I think it's very clear that the measures that Greece is being asked to put in place are not for the benefit of the people of Greece, they are all about making sure that banks get their money. The fact that people torch their own neighborhoods in protest seems pretty absurd, and condemning the people who actually do that is pretty easy, but I think we also need to condemn the people who enacted the policies that led to this conclusion.
Banks made bad loans, now governments in their own countries are offering to bail them out for half of their bad decisions, but only if Greece is willing to abdicate democracy to ensure the other half gets paid back as well. Banks work under a no-fault, no-loss business model where no matter what happens governments will step in to make sure they get their money. It's time for the other EU countries to get out of the pockets of these banks and spend their money bailing out the people who will be affected by banks collapsing, not the banks themselves. They need to do what everyone should have done in 2008:
1) Nationalize large banks that fail to ensure that people and businesses that had savings and guaranteed investments with those banks don't lose everything
2) Crack down hard to make sure that banks that didn't fail don't become monopolies in the space that forms as failed banks are gradually shut down
3) Prosecute everyone who committed an actual offence (and a lot of people did and do) and as part of their punishment fine them the *entirety* of their earnings, direct or indirect, for the entire time they were running the banks
We need to change the way things work so it's actually bad for people to intentionally run their own banks into the ground to make massive personal profits. Otherwise, 34 burning buildings is going to end up looking like a pretty small matter.
I completely agree that the handling of the whole collapse has been poor. Ireland is probably the worst example of this as they had the country bail out a bunch of banks that were barely associated with the country... the vast, vast majority of the money the citizens there are paying out is going to wealthy investors in other countries.
ReplyDeleteIt is 100% true that the measures being required for the loans are not for the benefit of Greece but rather to ensure repayment of the loan. Keep in mind though that the EU is under no obligation to repay a state's debts. They could simply say "Well, Greece racked up too much debt, I guess they can figure out how to deal with it". They are putting an offer on the table that Greece can refuse. No wonder that they don't want that offer to simply be "hand Greece enormous wad of cash with no strings attached", they want their offer to be "We will bail you out in exchange for eventually getting our money back."
Are *you* going to send money to Greece to help pay their debts? I sure as hell won't! Why then should we assume the EU should send money to Greece to help pay their debts unless Greece can make the credible claim to being willing and able to repay?
I don't think the EU should give Greece a wad of cash, and I don't think that Greece should accept the wad of cash that they are offering. Also, are they actually eventually getting their money back, or is it just the banks who are getting their money back? I understood the deal was the EU would pay half the debt, not loan Greece the money to pay half the debt. It's a total loss for everyone except the bankers.
ReplyDeleteIt really depends on what some bill is. For the vast, vast, vast majority it would be completely unjustifiable. But if Canada was being given to the US as a 51st state without any Canadian getting a say in the matter? Or becoming indentured servants to China? Or deciding that only the wealthy get the antidote to the zombie disease and everyone else gets to become living dead? I can see people lashing out in any way they can think of to try to have something change. Revolution is all well and good but I think a step along the way may well be vandalism and violence.
ReplyDelete@Sthenno
ReplyDeleteGreece agreed to a deal where their private creditors (banks and mutual funds and such) agreed to a 50% loss on their bonds and a lower rate of interest. The estimated loss to the private holders is 70% overall. The EU is loaning Greece the money to pay its current debts at a very low rate of interest (which Greece could not possibly get on the open market).
Basically the private investors are hoping that a 70% cut will be enough that they don't have to take a 100% cut and the only way for it to work at all is for Greece to get a source of cash that comes with a low interest rate - which has to come from the EU.
This is in fact a brutal loss for the bankers, and also for the Greeks, and also for the rest of the EU. However, I think the loss for all 3 would be even worse in the case of a default.