The latest move in the “so what are we gonna do about Greece?” EU vs. Greece drama was that Greece was playing non-negotiable, saying it had agreed to reduce its fiscal deficit by 4% of GDP (from over 12.7% to 8.7%) and it was premature to talk about doing more at this juncture.
That posture is not going over well in Brussels. This is the key section of a recap from Bloomberg:
The ministers from the 16 nations that use the euro told Greek authorities to ready more deficit measures by March 16, in case the government fails to show sufficient progress on its budget goals in a report to the European Commission…. “We’re waiting for Greece to prove that it’s taking very seriously the commitments it has made,” Luxembourg’s Jean- Claude Juncker said late yesterday after leading a meeting of euro-area finance ministers in Brussels. Should the government’s efforts not satisfy the commission, the EU “will impose on Greece the acceptance of additional measures,” he said….
The ministers signaled that Papandreou’s plan may not be enough and told the government to prepare more measures by mid- March, including higher value-added taxes, a new levy on luxury goods, increased taxes on energy products and cuts in capital spending. It’s up to Greece to decide on the specific actions.
Yves here. One thing that strikes me as odd is various remarks from EU officials that come close to saying that Greece needs to be punished. Huh? This may simply be playing to audiences back at home, but even the deemed-to-be-inadequate 4% budget cut is going to be exceedingly painful. Deflationary debt unwinds are ugly affairs and no country that has been through one is keen to go repeat the experience. Just consult the record of Thailand and Indonesia post the Asian crisis.
Despite the current apparent loggerheads, most observers seem confident that Greece will knuckle under because it has to. Not only does Greece face the pressure of maturing debt starting in April, but the EU can also impose very hefty fines for Greece’s violation of Maastricht rules. But even though the markets seem more upbeat about the euro this morning, any resolution is likely to be a hard-fought process.
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Yves: “One thing that strikes me as odd is various remarks from EU officials that come close to saying that Greece needs to be punished.”
I’m not sure where in the quoted article the punishment idea is coming from. The nearest I read is:
“the EU “will impose on Greece the acceptance of additional measures,””
That might be painful, but it’s not punishment. Think it as though the EU is telling a cigarette smoker he can’t smoke – that might seem like punishment to the smoker, and it may be painful, but, at least in the eyes of the doctor, it is necessary and beneficial to the smoker and society at large.
Note that Euroland is indeed allowed to punish repeat offendors of the debt limit by fining them. It’s part of the initial framework of the euro. That’s not what is happening here, however, as that requires a time-consuming procedure.
BTW, and completely off topic, I note my comment of yesterday where I wrote Krugman’s posts have descended to repeating “I was right” or just “I” in 80 million ways. Today his blog has a piece entitled “Eurosceptic, Me”. Last week there was one with the headline “Cassandra, I”. Any bets when he just leaves out the second word and titles his posts just “Me” or “I”?
As soon as proved wrong again :)
Sorry, not to be clear re the punitive tone, it is most decidedly NOT in this Bloomberg piece, but I’ve seen that tone taken in other remarks, and I do confess to being remiss and not tracking them down.
Yves,
http://www.risk.net/risk-magazine/news/1591633/greek-woes-revive-seven-goldman-swap-story)
“Greek woes revive seven-year old Goldman swap story”
“The Greek debt crisis has refocused attention on a controversial swap trade first reported by Risk in 2003. The deal, completed with Goldman Sachs in 2002…
Nothing has changed since Casablanca was filmed in 1942. “Rick I’m shocked to find gambling here!” said the French police inspector. “Your winnings, inspector!” “Oh, thank you!”
There is no basis for saying Eurostat and the EU didn’t know. The truth is they didn’t want to know. Back in those days the emphasis was on hornswoggling the population into further expansions of EU treaty powers (and budget).
Spotlighting the fact that half the member states were engaged in massive state fiscal frauds would have interferred with this agenda.
“The real scandal, according to Gustavo Piga, an economics professor at the University of Rome, is that European authorities such as the European Central Bank (ECB) and Eurostat – which sets the reporting rules for European Union members – did nothing to shut down the practice after it was brought to their attention in 2001. “It’s not at all clear to me why the European Commission, Eurostat and the ECB didn’t want to deal with this. The issue was real, so if they were interested they would have done something about it,” Piga says.
“Piga drew attention to the subject with a 2001 paper describing how an anonymous country had used swaps provided by an unnamed bank to borrow money without disclosing it – the Financial Times subsequently revealed that the trade involved Italy and JP Morgan. But despite the heat generated by these revelations, little action was taken – something Piga believes raises serious questions.
Italy and JP Morgan! Nine years ago! Opaque OTC derivatives markets with how much “notional value”? $35-$40 trillion?
What struck me about the Krugman is how here he is citing his record as a “euroskeptic” a day after declaring it “unthinkable” to not “move forward” with it.
That’s his whole act – to whine about something even as in the end he still supports it, and indeed supports it in the most deterministic terms.
That’s been his shtick with the Bailout from day one. Complain but support. My “favorite” column is the one from last summer where he basically declared Goldman Sachs an enemy of America (I think his exact words were, they’re “bad for America”), even as the column’s thesis was that GS had to be bailed out, everyone had to be bailed out, the Bailout must continue in perpetuity, and anything else would be “unthinkable.”
With Brussels, an economics degree has replaced the jackboot, and Greece now has the Euro-fascist boot on its neck. Nothing is Brussels’ fault. All blame is assigned either to Greece or to the United States, and the problems are downplayed or just dismissed outright.
We see this attitude on display in this interview with Jürgen Stark, a member of the executive board of the European Central Bank:
Stark: No one talks about whether the United States could break apart because of California’s ailing finances. So let’s not take things too far!
Reality: The comparison is inappropriate. The states that make up the US are not independent, sovereign states. We fought a civil war to establish the preeminence of central government over states’ rights.
SPIEGEL: But you have to take citizens’ worries about the euro seriously. The common currency is currently undergoing massive devaluation, partly because the Greeks can no longer control their finances.
Stark: I do take those concerns seriously. Nevertheless, I want to question your theory of cause and effect. It is often easy to find a dozen reasons for fluctuating exchange rates.
Reality: Deflect, obfuscate, deny: these are standard rhetorical ploys.
SPIEGEL: We see the current problems as the biggest test the euro has ever faced.
Stark: But all market players and currencies have been put to the same test since the Lehman Brothers bankruptcy. That, by the way, happened on the other side of the Atlantic and led to the tsunami that then hit Europe.
Reality: Deflect, obfuscate, deny, project blame onto the US: these are standard rhetorical ploys. Furthermore, what difference does it make if something that happened “on the other side of the Atlantic” triggered Europe’s problems? Does that make the problems go away?
SPIEGEL: But all that has been known for years. Was Greece cheating from the start, or was it that the people in Brussels just didn’t want to know the details?
Stark: There were corrections after the fact. But you’re right: An economy doesn’t lose its competitiveness overnight. Greece covered it up for a long time with an extremely generous spending policy.
Reality: Deflect, obfuscate, deny, project blame onto Greece: these are standard rhetorical ploys. There’s no acknowledgement of regulatory failure on the part of Brussels, or the fact that the banksters who call the tune in Brussels, and made off with massive bonuses loaning money to Greece, share any accountability or responsibility in any of this.
SPIEGEL: And if Greece simply doesn’t make it?
Stark: The country has no other choice. It has to regain the confidence of the markets. Ireland was in a similar situation and has since regained some confidence.
Reality: This is neoliberalism at its absolute worst. THE MARKETS are deemed to be like some omnipotent God that demands human sacrifice. Greece does have another choice. It can default, and tell the market absolutists in Brussels to take a hike.
SPIEGEL: Outgoing EU Economic and Monetary Affairs Commissioner Joaquin Almunia told the European Parliament in Strasbourg that the EU countries will have to help Greece if the government in Athens agrees to a strict policy of savings. How do you feel about that?
STARK: The responsibility for setting its house in order clearly lies with the Greek government.
Reality: Again, total denial that a regulatory failure on the part of Brussels had anything to do with Greece’s predicament. Everything is Greece’s fault, and therefore it is Greece that must take the bullet to the head.
SPIEGEL: Portugal, Spain, Ireland and Italy are also suffering acutely from big deficits. Could such countries really go bankrupt without threatening the very existence of the euro zone?
Stark: That isn’t a question we face. But I would like to point to one aspect in this context: Great Britain has a budget deficit of the same magnitude as Greece’s. The US budget deficit is also more than 10 percent of GDP. All advanced economies are currently having problems. In fact, it is astonishing to see where most of the criticism of the euro is coming from at the moment.
Reality: Deflect, obfuscate, deny: these are standard rhetorical ploys. What difference does it make if Great Britain and the US also have budget problems? Does that make the problems of Portugal, Spain, Ireland and Italy disappear?
http://www.spiegel.de/international/europe/0,1518,677544-2,00.html
There’s more, but I think you get the picture.
What boggles the mind is that Stark’s distortions and manipulations are so transparent, and yet people who are otherwise intelligent and reasonable fall for this bullshit.
Investors are already lining up to scoop up the next sovereign issue from Greek. After all it pays 6 to 7 percent to hold sovereign debt. The comparable IR for almost every other sovereign in the western world pay less than half. Last time Greek issued notes they were at least 2x covered. It wont be different next time.
As far as i remember more than 30 US states are borrowing billions from the federal government to cover their pension liabilities. California is one of them. It does not matter what you call it, it is still pretty close to a bail out.
What boggles the mind is that Stark’s distortions and manipulations are so transparent, and yet people who are otherwise intelligent and reasonable fall for this bullshit.
Reading the interview my thought was, if this were a movie and the guy was an Italian in a trenchcoat and fedora nobody would have any trouble identifying him as a gangster and his words as threats and extortion.
But because he’s a good Aryan banker, somehow people are inclined to whitewash it.
And yet every day we see the same terrorist threats everywhere, in the MSM and from banksters and politicians. If a Muslim went around saying alot of this stuff verbatim, he’d be asking for it.
The brainwashing runs deep.
The observation on Krugman is funny.
I guess you could is ego is quite Keynesian, as it demands more and more. “Me, bloated? Never!”
But Dan Duncan thinks Krugger’s 1st Person fixation is an ineffective ego management tool. To refer to such a colossal ego as simply, “I” or “Me”…too unwieldy. Impossible to feed such a monster.
Sure, he has the NYT column. And that helped for a little while. But eventually, even Shakespeare would run out of ways to say, “I am right.”
No, Krugman’s ego needs to evolve if it’s going to survive. It has reached that state of critical mass…if he doesn’t do something quick, it will explode. [Let’s face it, that 3 sentence blog he writes is an inadequate ego-stoke.]
The best way to understand Krugman’s predicament is to harken back to high school biology. Remember those slow motion videos of DNA replication and in an expanding cell?
That’s Krugman’s ego, but it’s in a state of unbridled expansion. It needs to undergo mitosis…in a bad way!
That’s why, Danny D suggests that Krugger ends the infantile emphasis on “Me” and “My”…and starts hitting his acolytes with some 3rd person bombs.
Split that ego up, Paulie! Don’t say “I”, say “Paul”. Don’t say “Me”, say “Krugman”. And, like a proud parent…watch all those little egos explode! You’ll get to have nicknames for your various personas, “The Krugster”, “PK”…”Paul Krugman” (when you’re angry)….
[Just think of the NYT…with The Krugster quipping “Krugsterisms”, along side Friedman’s “Friedmanism 4.0″….]
And when it’s all said and done, you’ll gather all the Kruggies together and dedicate your final column, entitled:
“How does Paul Krugman love thee? Let him Count the Ways!”
a says — “That might be painful, but it’s not punishment. Think it as though the EU is telling a cigarette smoker he can’t smoke – that might seem like punishment to the smoker, and it may be painful, but, at least in the eyes of the doctor, it is necessary and beneficial to the smoker and society at large.”
Wrong!
You need to get the drug dealer that hooked him and cut his balls off! And then you need to go after the drug itself and eliminate it from the planet. THAT would be beneficial to the ‘smoker’ and society at large.
The drug dealers are the financial institutions.
The drug is not tobacco, it is USURY. It is debt slavery.
Usury, masked in the cute little names of; credit, bonds, derivatives, etc., is as immoral now as slavery was in the 1800’s.
The civil war that must be fought now is not north against south, but rather it is the war of the wealthy ruling elite against the masses. A subset of that war is a war against the ignorance imposed by aggregate generational corruption that has instilled in the masses the dysfunctional belief that debt slavery is normal and OK. It is not normal! It is not OK!
Just as shackling and enslaving another human being with physical chains is immoral and a despicable and heinous act, so too is enslaving another human being with the invisible chains of usury with punishment for default backed up by the power of the plantation state, owned and operated not by the people, but rather by the super wealthy ruling elite!
When you engage in discussion of that slavery, without acknowledging that it is clearly slavery, and offer up instead ‘remedial’ plans for the smoother operation of that slavery, then you are in effect; legitimizing, validating, and aiding and abetting that slavery by lending your good name to the process, and at the same time you express your ignorance of the depth of your brainwashing and therefore, by those acts, you give up your power.
Deception is the strongest political force on the planet.
i on the patriot ball said:
You need to get the drug dealer that hooked him and cut his balls off! And then you need to go after the drug itself and eliminate it from the planet. THAT would be beneficial to the ‘smoker’ and society at large.
The drug dealers are the financial institutions.
The drug is not tobacco, it is USURY. It is debt slavery.
Great metaphor!
And well said.
I on the Ball,
Well said… the dysfunctional belief that debt slavery is normal and OK.
Where does Modern Monetary Theory weigh in on this? Does it have anything to say about DEBT and FREEDOM? How the former limits the latter… Or is such a discussion beyond the scope of MMT? Is such a discussion outside the scope of economics altogether anymore?
If it can’t be monetized, it doesn’t exist.
What’s the Latin for, “Someone spent money on it, therefore it is.”?
Then debt-free is priceless.
No, debt-free would be communism.
We don’t want that here, so go out and treat yourself to a big dinner at Outback SnakeHouse and put it on your KapitalOne GoldKard.
You deserve it!
If LTCM or the Obama presidency are anything to go by, it takes less than a year for a Nobel laureate to completely destroy their reputation. So any time now.
I think the process began with Milton Friedman. Makes you wonder who is on this Nobel committee? Who’s on today’s short list? Larry Kudlow, Sarah Palin, Glenn Beck, Bill O’Reilly, Larry Summers, Jack Welch, Madonna? Who have I missed?
‘One thing that strikes me as odd is various remarks from EU officials that come close to saying that Greece needs to be punished.’
That because breaking the criteria does lead to punishment – this from 2003, by the way – ‘Germany must take action on its looming budget deficit by 21 May or face punishment, the European Commission has warned.
The dressing-down from Brussels is being seen as a humiliation for the government of Europe’s largest economy but is not expected to lead to any immediate financial penalty.’ http://news.bbc.co.uk/2/hi/business/2638593.stm
The next paragraphs are equally interesting – ‘It comes at a difficult time for Germany, which is suffering very low economic growth, high unemployment and the threat of strikes by public sector workers.
In the second step of a formal “excessive deficit procedure”, the Commission called on EU finance ministers to join it in piling pressure on Germany when they meet on 21 January.’
Nothing is really all that new in Europe, after all.
As could be noted by this information, from 10/01/2009 –
‘The European Commission is expected to reprimand the traditionally fiscally virtuous Germany for running a high budget deficit during the recession, it emerged Thursday.
Joaquin Almunia, the European Union’s monetary and economic affairs commissioner, confirmed at a meeting of EU finance ministers in Gothenburg, Sweden, that his office would launch so-called “excessive deficit procedures” against nine EU countries in November.
Sources attending the meeting told the German Press Agency dpa that Germany would be among them.
Eleven EU member states are already under the commission’s scrutiny for running budget deficits higher than the prescribed limit of 3 per cent of their gross domestic products.
“Next week, the European Commission will discuss reports … on nine more countries that have notified to the commission that they will breach the 3 per cent reference value this year,” said Almunia.
“We will consider opening excessive deficit procedures for these nine countries in mid-November,” Almunia said.
The commission is obliged to launch such procedures when an EU member state breaches the bloc’s strict rules on fiscal diligence. However, Brussels officials stress that the rules, revised in 2005, allow a certain degree of flexibility during severe downturns.’
But this is really a stand out last tidbit from the article –
‘Of the EU’s biggest economies, Britain is forecast to run a deficit of more than 14 per cent, Spain of 10 per cent, and France of 8 per cent.’
http://www.topnews.in/germany-faces-eu-reprimand-excessive-deficit-2219821
That’s right, the UK was projected to run higher deficits than Greece.
“Of the EU’s biggest economies, Britain is forecast to run a deficit of more than 14 per cent, Spain of 10 per cent, and France of 8 per cent.”
But the UK is not on the euro. They can trash their currency and credibility unmolestedly if they want to.
Britain will face a downgrade in its debt and higher interest rate charges.
The 14% has to be understood as an attempt by Gordon Brown to buy his re-election by spending wildly. It will end, after the election, in tears.
Re UK deficit, that is why various people, from Willem Buiter (long before this year) to even notorious euro-skeptic Ambrose Evans-Pritchard are now a tad worried about the UK.
Re the punishment bit: even though a fine is a punishment, I do find there to be something in the various pronouncements that are weighing unduly on the punishment aspect. Of course, this may simply be rhetorical escalation in the face of the Greek show of defiance.
And they ARE BEING PUNISHED as it is. The budget cuts are a big hit to the economy. So the moral hazard risk is not in play here.
Maybe I am reading too much into the various official remarks, but they are coming from very senior politicians who have spent their lives knowing how to diffuse difficult situations to buy time. I see here a need to be seen to be punishing Greece, and I’m not certain how much of this is grandstanding vs. personal frustration, as they really are mighty pissed to be put in this position.
I wouldn’t read it as punishment. They’re helping Greece in two ways:
1) They’re especifically helping the Greek government to pass budget cuts; in my country, most far-reaching policies and consensus in the last 25 years were backed/initiated by Europe.
Europe is outside everyday national political clashes, so every measure backed by Brussels is perceived as the objective truth by local populations.
2) Europe will lend them money and forget about fines. It’s pretty normal some conditions are attached.
“And they ARE BEING PUNISHED as it is.”
They were having TOO much of a quasi good time.
The Greek finance minister admitted to the BBC that he considered it odd that so many Greek doctors, lawyers etc. were submitting a yearly taxable income of only 10 -15k, while at the same time owning expensive houses, expensive boats, expensive cars. Perhaps it is a start that the finance minister at least admits this to be odd.
Many houses in Greece have no neat paint and no neat roof, just bare concrete. Well, if the house is ‘still being worked on’ you do not pay property taxes.
Greek citizens have lots of savings, both inside and outside Greek banks (see e.g. http://paul.kedrosky.com/archives/2010/02/greece_our_debt.html); it is just NOT being taxed.
The government spends too much on weapons and army. Because the spending is considered a matter of national security, it is not known, but rumor has it at 6% of GDP. All that waste of money to fight its neighbor, NATO partner and soon to be EU partner, Turkey. This spending can be slashed IMMEDIATELY, and no austerity is involved.
The government has proposed as ‘austerity’ measure to have the top marginal tax rate, 40%, start at 60k instead of at 75k. Well with so many people obfuscating their income, that will not be much punishment. And with many countries in EU having a higher marginal tax rate, kicking in at lower income, it is not austere either.
The current pension age is 60 for women and 65 for men. Now, the government ‘punishes’ the people by bringing the retirement age for men and women to 63.
The public sector has a lot of bonuses (13th, 14th month etc.), which could be reduced.
Estimates have the Greek ‘black’ economy at 30%.
If the Greek get rid of their ‘defense’ spending and the huge tax evasions, start taxing all property and savings/investment accounts, get their pension system more in line with rest of EU, the budget deficit could well be gone.
No punishment, nor austerity measures required.
Thanks for calling that out. This is a main reason why for example germans are not very fond of bailing Greece out. The question is how that EU posturing will influence Greek politics. It could be used for a nationalist agenda. This is not so unlikely but its outcome would be very ugly indeed.
It could be used as a booster to justify fiscal constraints towards the populace.
You are right only to some extent.
“Estimates have the Greek ‘black’ economy at 30%.”
Estimates have the German “black” economy at 17%. Hotels and restaurants are more difficult to tax on than manufacturing industries. Since Greece’s economy is more based on typically “black” services, they can’t collect taxes so easily.
http://www.breakingnews.ie/archives/2004/0227/business/germanys-black-economy-accounts-for-17-of-gdp-136186.html
It’s not a question of culture, but of economic structure.
“Greek citizens have lots of savings, both inside and outside Greek banks (see e.g. http://paul.kedrosky.com/archives/2010/02/greece_our_debt.html); it is just NOT being taxed.”
The same happens to Germany. Most German high-class professionals and entrepreneurs have Swiss secret accounts. The German government recently bought illegal data on those secret accounts, and thousands of Germans are confessing this week in order to pay lower fines.
“The government spends too much on weapons and army. Because the spending is considered a matter of national security, it is not known, but rumor has it at 6% of GDP.”
My own data says Defense spending in Greece is 1.7% GDP, which is considerably lower than a number of European countries, despite frequent clashes with Turkey over Greek or Greek-populated islands.
“Most German high-class professionals and entrepreneurs have Swiss secret accounts. The German government recently bought illegal data on those secret accounts, and thousands of Germans are confessing this week in order to pay lower fines.”
Most? Yes, there are some, but most?
One of the many reforms necessary is the end of secret bank accounts and secret safes (with undeclared gold bars/bullions etc.).
“Defense spending in Greece is 1.7% GDP, which is considerably lower than a number of European countries, despite frequent clashes with Turkey over Greek or Greek-populated islands.”
E.g. Leo Kolivakis wrote 15% GDP, which he today changed to 4.3% GDP. Of all the rumors I came across including off balance sheet estimates, 6% was the lowest.
You rightly indicate there is a difference between Greek islands and Greek-populated islands. The disputes between Greece and Turkey (NATO-partners) have to be solved at the negotiation table and not with military expenses. Hence, those expenses can and must come down.
But notice that the corrective actions demanded by the Euro-elites in Brussels totally avoid addressing any of the issues you raise. From the Bloomberg article Yves cites:
The ministers (in Brussels)…told the (Greek) government to prepare more measures by mid- March, including higher value-added taxes, a new levy on luxury goods, increased taxes on energy products and cuts in capital spending.
The elite in Brussels, after all, must by all means not inconvenience the elite in Greece. It is the Greek masses that must take the bullet to the head. To do otherwise might disturb the almighty MARKET god.
I suspect that any talk of “punishing” Greece is a sop to the (pissed-off) voters; political cover to ram through a Greek bailout.
I think some people are missing the point. Budget cuts are the WRONG policy for Greece right now. Maybe in a few years they will be the right policy, but not now. They should be running a deficit, and frankly, they should be devaluing their currency (but obviously can’t because of the Euro). Greece is fully justified in resisting these austerity measures. If Germany continues to push, Greece should pursue the nuclear option and leave the EMU.
Europe-wide budget cuts is the wrong policy for Greece. Europe-wide fiscal stimulus while budget cuts in Greece is the right policy both for Europe and Greece.
European economies are intertwined, you can’t analyze the Greek economy in isolation.
no budget cuts is precisely the policy which got Greece where it is. In fact, they pursued this policy for a long time before they joined EUR, devaluing at least in 1949, 1953, 1973, 1983 and 1998.
If Greece was not to make budget cuts now, pray where from would it get the money to even service its debt (as it cannot print it)?
Greece can, of course, ditch EUR, re-denom its current debt and then create whatever Keynesian policy it wants – but I doubt it will have much impact. In fact, the most likely result is running a dual currency (public drachma and private eur/USD) economy.
For successfull Keynesian policy, you need good institutions. Greece does not have good institutions at the moment (corruption, tax evasion etc. etc. ..)
Yves, if you could please explain how the EU can fine Greece. Try to be as specific as possible.
Which EU police force is empowered to collect the fine, how it would be collected (cash, bank wire or payment in kind) and where the money would be sent after it is collected. What enforcement mechanisms the EU has if the elected Greek government were to refuse to voluntarily surrender the money, et cetera.
Thanks.
ps Extra credit: how would fining Greece make Greece’s creditors more willing to extend credit to Greece?
John Haskell,
the European Commission can impose a fine on member states once repeated non-compliance is verified by the Strasbourg Court.
On euro affairs, the Finance Ministers of the Eurozone can agree to impose a fine on a member state in application of the Maastricht Treaty.
If the member state refused to pay, it would breach the international treaties giving them access to the European Union, and, as such, it would immediately lose access to the EU internal market. Such member state (let’s say Greece for the sake of brevety) wouldn’t be able to trade freely with the EU markets; exports to other EU member states typically range from 15% to 30% of GDP.
This system has been succesful over the last half century. Many fines have been imposed, all of them were accepted and paid. Right now, 80% of European national laws come from Brussels, and they are honoured with even more respect than national-only laws.
Diego, please correct me if I am wrong. Aren’t the fines paid until now for subsidy ‘errors’ only? Has any euro country ever been fined for disobeying the treaty rules (i.e. maximum debt 60% and maximum deficit 3%)? I recall the French finance minister saying to his colleagues when France clearly breached the treaty some years ago: “Nous avons des autres prioritees”. His euro colleagues just nodded their heads.
Euro Finance Ministers can agree to impose a fine. When France and Germany stagnated and ran big deficits (well, not so big by today’s standards), their European neighbours decided to give them some more time to reduce their deficits: which they did.
There have been very large fines in the past when member states repeatedly failed to comply with EU laws and decisions, e.g. when French workers blocked Spanish imports and France failed to act forcefully, some 15 years ago (which they stopped doing as soon as France was fined); when companies in any EU country received subsidies in any form (which are strictly fobidden, in contrast to the US); when some EU law wasn’t being applied correctly, etc.
“Deflationary debt unwinds are ugly affairs and no country that has been through one is keen to go repeat the experience. Just consult the record of Thailand and Indonesia post the Asian crisis” – Yves
The rupia devalued by 80% and the baht by something just less and the Suharto govt. ended. I’ve been comparing Greece to Argentina & ECB to IMF who determined there would be no contagion to default. Unless Merkel would come around they are at a similar impass. Easier for Merkel to bail out German banks? Question then becomes stopping speculative attacks on the rest os S. Europe. Seriously now, there is something about the German education system that limits their ability to consider new ideas (Junker). Or maybe it’s just in the water because I see it in Geitner too.
Argentina’s default was precipated – not entirely – by an attempt to dollarize their economy at a time in which Greenspan money policy was wrong for them.
” Question then becomes stopping speculative attacks on the rest os S. Europe.”
Indeed!! How could EU do that?
Could they declare all CDS against sovereign bonds null and void?
Perhaps that Spanish economic security agency will dig up interesting info (like Goldman Sachs, having aided Greece to lie — and according to Greece minister, Spain, Portugal and Italy too — and hence knowing full well the extent of the budgetary problems, perhaps having bought CDS’s on the cheap, and shorting sovereign bonds on the cheap, before the mayhem came to the fore last November).
carol,
You ask: “Could they declare all CDS against sovereign bonds null and void?”
They could, and should, but almost assuredly won’t. That would, after all, offend the almighty god of free-market absolutism.
Almost everything I see coming out of Brussels, and much of the commentary I see on this blog, indicates European elites are every bit as enthralled by free-market mythology as we across the Atlantic are. All the nationalistic chest thumping, Euro-chauvinism and finger pointing draws attention away from the true culprits and impedes substantive solutions, such as the one you suggest.
Excuse my cynicism, but I think a much more likely scenario would be that, when Goldman Sachs’ counterparties lack liquidity to pay off on those CDS against sovereign debt, the Euro-ministers will step in and make good on Goldman’s bets, just like the Fed did.
Like your thinking but don’t think it’s very likely ECB will step in like FED did.
And Diego, I believe my nephews will disagree with you about a happy Spanish recession.
Oh one other thing I forgot. The Luxembourgish Finance Minister says that he will force Greece to do what he says. But according to Wikipedia Luxembourg’s army only has 800 people in it. So presumably he has in mind borrowing some other EU member state’s armed forces in order to break the Greeks’ will?
Persians? He would have to supply the fleet & Greeks have a lock on that.
John Haskell,
Jean-Claude Juncker wasn’t speaking as Luxembourg’s Finance Minister, but as President of Eurozone Finance Ministers (Eurogroup). As said in a previous comment, the Eurogroup can impose a fine on Greece in application of Maastricht Treaty; if Greece refused to pay, it would lose free access to EU markets.
Unlike the US, Europe understands you can solve problems without firing guns.
Diego,
You say: “Unlike the US, Europe understands you can solve problems without firing guns.”
Well that’s the theory, that you can replace the gunboat with free-market absolutism.
I guess the guys in Brussels are going to give that theory a little test drive, to see if it works out in practice or not.
The European system has been working for over half a century. That’s quite a test drive.
DownSouth, I may imagine there’s some market-fatigue in Mexico, where NAFTA and export-oriented growth hasn’t gotten the expected results. But that’s because of China.
You can’t compare a free-market, solidarity-bound, equalitary system with NAFTA states or Mexico’s market, which lacks competition in many areas and solidarity in *all* areas.
There’s no free-market absolutism in Europe. Far from that. European countries are the Brazils Lula dreams about, and the EU is the South American Union Lula would like to found.
Mexico will get the rewards it’s working hard for. Have faith in your own country.
Diego,
You claim that “There’s no free-market absolutism in Europe,” and you make this claim at the very moment your beloved Spain is being led off to slaughter on the altar of free-market absolutism.
I just don’t know what to say. You seem to have bought into an ideology that totally blinds you to factual reality.
The markets are not always rational. They are not always right. And you can forget about concepts like justice and fairness once you buy into free-market dogmatism. You yourself have bemoaned the unfairness and irrationality of the markets as they ruthlessly attack Spain.
And yet, we have Jürgen Stark, one of Brussels’ most preeminent bankers, declaring: “The country has no other choice. It has to regain the confidence of the markets.” (see my comment above for link) If that isn’t a declaration of free-market absolutism, I don’t know what is. (There’s also a nice graphic with that article showing Spain with the lowest national debt as a percentage of GDP.)
The markets are not rational, they’re not fair, and they’re not just. And despite all this, you are blind to the looming clouds of free-market absolutism that menace your suelo partrio.
DownSouth,
“The markets are not always rational. They are not always right.” Most Europeans (me included) agree with this. That’s what regulation and solidarity are for.
But in so many instances, free markets work better than monopolies (e.g. telecoms in Europe vs. telecoms in Mexico), free trade works better than isolationism (e.g. Europe vs. South America) and private companies work better than state-owned ones (Spain vs. Venezuela).
Of course, exceptions apply. The European system acknowledges this fact. Europe has high taxes, large investments in infrastracture and education, an expensive social system producing the lowest inequality in the world, etc. All this puts Europe well apart from “free-market absolutism”.
But make no mistake about Spain. Speculators can attack all they want, Spain is out of reach. Of course some budget cuts may be necessary (especially in the long term), but Spain is having a happy recession. Most unemployed people are simply working part-time in the black market while collecting unemployment benefits. Effects on GDP have been much milder than in most European countries, including Germany and Italy.
European-style free markets pulled Spain out of poverty, and I am sure that, if current policies here and abroad continue, Spain’s per-capita income will surpass France’s and Germany’s in a single decade.
Diego,
Well I still just don’t get it.
As the sharks circle in, do you really believe denying their existence will save Spain?
You are attempting to make the case that Spain is exceptional, that it doesn’t belong with the rest of Club Med because of its superior financial condition. As if that even matters! It doesn’t! Innocence offers no protection. The guiltless perish right along with the guilty.
The speculators have gotten the scent of blood. They’re in a feeding frenzy. Do you believe that once the speculators have feasted on Greece that their appetites will be sated? They won’t. The taste of blood will only embolden them to take on bigger and stronger targets. Reinhold Niebuhr explained the phenomenon most eloquently:
Man fights his battles with instruments in which mind has sharpened nature’s claws; and his ferocities are more sustained than those of the natural world, where they are prompted only the moods and the necessities of the moment. The beast of prey ceases from its conquests when its maw is crammed; but man’s lusts are fed by his imagination, and he will not be satisfied until the universal objectives which the imagination envisages are attained. His protest against finiteness makes the universal character of his imperial dreams inevitable. In his sanest moments he sees his life fulfilled as an organic part of a harmonious whole. But he has few sane moments, for he is governed more by imagination than by reason and imagination is compounded of mind and impulse.
–Reinhold Niebuhr, Moral Man and Immoral Society
Diego said; “Of course some budget cuts may be necessary (especially in the long term), but Spain is having a happy recession.”
This is one of the funnier comments I have read on this blog in quite a while. “A happy recession.”, takes doublespeak to a new level. I can hardly wait for the, “Delightful depression!”, and the “Joyous death!”
Diego, you have really been drinking the cool aid of deception far too long. The ‘happy recession’ you claim — NOT — if it is happy for anyone at all, is a result of bogus job-creation and stimulus measures created by your sell out to the wealthy ruling elite politicians (are there any other kind on the planet?), that now allow the global neo-con usury sharks to demand steeper rates of exploitation and enslavement to pay for the increased ‘budget’ run up. And of course default ‘insurance’ — there’s is a cute little euphemism for an add on fee of no fucking value, I am sure you love it and think it is a great product — costs will go through the roof.
I think you need to deal with your “happy” politicians.
Deception is the strongest political force on the planet.
If you want to understand what’s a “happy recession” like, read this:
http://www.huffingtonpost.com/martin-varsavsky/the-spanish-solution-to-t_b_167085.html
Unemployed Spaniards aren’t so worried as in other countries, because they are getting free education and healthcare and generous unemployment benefits up to 30 months while working in informal jobs.
A friend of mine was recently looking for an unqualified sales worker. He offered a permanent position with a very good salary by Spanish standards (30.000 euros/year, around 45.000$). Five candidates passed the tests; two of them rejected the offer because they earned more working informally while collecting benefits; another one proposed to have an informal arrangement to keep collecting unemployment.
That’s what a happy recession looks like.
People keep referring to this mythical construct, “Greece”.
What really exists is the Greek gangster cabal and the Greek people.
The same basic Manichaean struggle exists in every other country.
What really happened is that the cabal ran up debts on the people’s credit for its own profit while the same amount “trickled down” as always – nothing.
And now what’s proposed is to fix the situation by taking a crowbar to the people’s head. Meanwhile the gangsters will sacrifice nothing and probably find new rents to extract.
It’s the same crime the West has committed around the non-industrialized world, now coming home with a vengeance.
So it’s clear what the Greek people should do. Just as it’s clear what the German taxpayer should do. And every taxpayer, everywhere.
Refuse. Just Say No. Not a cent more for the protection rackets. No cent given to them will ever be used to rationalize the system, but will only be embezzled the same way every previous cent was. It’ll be thrown down the same rathole of crime.
Let them keep playing their games of accounting fraud. But make them fight for every real cent they try to steal.
Last week on NC Professor Randall Wray laid out the argument why comparing government deficits and those of households were dissimilar. The discussion by the commentariat that ensued then centered on the principles underlying MMT and its pros/cons.. It would be interesting to see if the good professor or one of his acolytes would care to comment on Greece because its government apparently, with the generous help of Goldman Sachs, adopted monetary policies consistent with MMT. But today’s reality suggests that its deficit spending cannot go on forever and that when it’s time to pay the piper AUSTERITY is the answer demanded by the MARKET. Perhaps I missed something but if Greece is different, a unique case, or only adopted MMT in part or not at all, how so? I would appreciate clarification anyone might care to provide.
More importantly, is there any parallel/lesson for US, the mighty brontosaurus, across the pond? Or should we adopt the attitude that if you’re STUPID enough to lend US the money and we tell you to stick your AUSTERITY proposals where they belong, who’s the DUMMY? Of course, the WMDs – white male dummies – running this country wouldn’t think of defaulting. After all, it is their game – at least for now. Or is it because the US economy dwarfs that of Greece and size renders US invulnerable? But then explain to me as we travel down the other road to serfdom how more debt will make US freer? Does this consideration of DEBT and FREEDOM fall within the purview of MMT or is it outside the purview of its intellectual scope? Something to be considered by anyone but an economist! If it is discussed please set me straight or point me in the “right” direction.
By MMT I assume you mean Mendacious Myopic Tinkering?
Wray already answered the question about Greece: the Greeks do not have a sovereign fiat currency.
The other point about MMT that you’re missing is that it’s simply a consistent accounting identity: debt of private households + private business + foreign sector + public government debt = 0. So if private and foreign sectors are saving/de-leveraging/reducing debt, then the public governmental debt will necessarily rise. The accounting identity is explanatory, not prescriptive, not a political decision over policy.
MMT is just another scam that validates the status quo of enslavement and exploitation by USURY.
Just as FICO rates the potential for further exploitation and enslavement of the individual usury slave, the MMT rating you speak of rates the potential for further exploitation and enslavement of an entire group (nation state) of usury slaves.
Deception is the strongest political force on the planet.
Ah yes… the irrationality of rationality. Or is it the price of everything but the value of nothing? To make it a “science” we had to relegate it to the ammoral realm of the banality of evil. DEBT and its relationship to FREEDOM are outside the scope of MMT then, correct? Is “economics” even relevant anymore?
But it would then seem to hinge or pivot on which “groups” within the private and foreign sectors are doing the saving? Because if one “group” in the private sector is profiting from the debts incurred in the public sector then this accounting gimmickry masks who benefits from deficit spending, correct?
Both of you are mouthing ignorant gibberish. Credit is essential to maintaining the ordinary business operations of any advanced economy, and is not simply identifiable per se with the exploitive machinations of a hyper-trophied financial sector, nor with the upward mal-distribution of income.
Prescriptively, MMT usually associated with the claim the a full employment economy is readily attainable and the limits on public debt, especially in the face of private sector de-leveraging in cyclical downturns, are not as they are claimed to be in mainstream neo-classical theory, which is itself actually based on inconsistent national accounting. There might be further room for discussion about the content of public deficit spending, but it’s not a matter of supporting and maximizing the extractions of the wealthy investor class from the broad working class, but precisely the opposite. Further MMT is not especially new; it goes back to the “functional finance” of Abba Lerner and the markup cap-and-trade tax to constrain inflation, which McVickery too fully endorsed. Use google and look it up to inform yourselves, rather than just randomly spouting off your self-righteous ignorance.
Rather Vickery.
I will investigate your assertions much more thoroughly… that’s a promise. Self-righteous ignorance? Must have struck a nerve… values are difficult issues for technocrats to address. There so damn messy and needlessly complicate the elegance of the theory. If only the clarity and purpose of the final solution had been so obvious…
Is there a relationship between DEBT and FREEDOM? Would you rather be debt-free or in debt up to your eyeballs? Why or why not?
I concede that the individual and the government are not equivalent entities in this respect. But as an individual… what would you prefer and why?
If you’re running your own business, would you rather have access to credit or run it without any debt? If you’re saving your money from current income, would you rather get a modest safe return on your savings, or simply hoard useless pieces of paper? If you’re unemployed in a recession, would you rather the government increase deficit spending to boost employment and growth, or have it balance its budget and thereby increase the depth of the downturn, while lowering its collectible tax-base?
“Freedom” always has its conditions and constraints.
John,
If profits were sufficient to run my business without incurring debt I would prefer that option. Interest on savings beats stuffing the mattress with paper. And clearly, deficit spending in a recession to foster aggregate demand is preferable to a balanced budget that precipitates a deflationary cycle that culminates in a depression.
But if in the course of creating money – fiat currency – and then decreasing taxes on the wealthy, their increased savings would come at the expense of that deficit spending by the government? So, depending on the mix it is a transfer of wealth, correct? Because if taxation increased to 100% there would be no deficit because there technically would be nothing left over for savings.
WITH USURA
Canto XLV – by Ezra Pound
With usura hath no man a house of good stone
each block cut smooth and well fitting
that design might cover their face,
with usura
hath no man a painted paradise on his church wall
harpes et luthes
or where virgin receiveth message
and halo projects from incision,
with usura
seeth no man Gonzaga his heirs and his concubines
no picture is made to endure nor to live with
but it is made to sell and sell quickly
with usura sin against nature,
is thy bread ever more of stale rags
is thy bread dry as paper,
with no mountain wheat, no strong flour
with usura the line grows thick
with usura is no clear demarcation
and no man can find site for his dwelling.
Stone cutter is kept from his stone
weaver is kept from his loom
WITH USURA
wool comes not to market
sheep bringeth no gain with usura
Usura is a murrain, usura
blunteth the needle in the maid’s hand
and stoppeth the spinner’s cunning.
Pietro Lombardo
came not by usura
Duccio came not by usura
nor Pier della Francesca; Zuan Bellin’ not by usura
nor was “La Calunnia” painted.
Came not by usura Angelico; came not Ambrogio Praedis,
Came no church of cut stone signed: Adamo me fecit.
Not by usura St Trophime
Not by usura Saint Hilaire,
Usura rusteth the chisel
It rusteth the craft and the craftsman
It gnaweth the thread in the loom
None learneth to weave gold in her pattern;
Azure hath a canker by usura; cramoisi is unbroiled
Emerald findeth no Memling
Usura slayeth the child in the womb
It stayeth the young man’s courting
It hath brought palsey to bed, lyeth
between the young bride and her bridegroom
CONTRA NATURAM
They have brought whores for Eleusis
Corpses are set to banquet
at behest of usura.
Mickey:
Wray was widely misunderstood as saying that public debt can and should be increased without limit. What he was actually trying to convey was a) that the limits and constraints on public debt are not as tight, nor of the complexion, as is claimed in conventional mainstream economic theory; and b)that public debt can be increased in the face of a downturn and private deleveraging to the point that growth in employment and output will reach full capacity, and thus continued growth will reduce public debt as % of GDP, (whereas doing nothing will increase public debt anyway, but without any increased growth to sustain it).
Savings = investment is a short-run national income accounting identity, and if the private sector is de-leveraging and thus “saving” in a downturn, thus not investing in any further growth, then public deficit spending can and will, one way or another, increase. There remains, however, prescriptive public policy questions as to what that public spending/investment would or should go to. Bailing out the Wall St. mega-banks was not only an outrage, but a dysfunctional misuse of public fiscal “space”, whatever its alleged limits, “worse than a crime, a mistake”, as Talleyrand put it. The banks should have been put into receivership, with the bond-holders responsible for the toxic assets, and re-capitalized with public funds, to be re-privatized after the financial system had been re-regulated and downsized. (That also would amount to a liquidation of debt-loads, thus “savings”). The fact that that wasn’t done, was not a mere technical, nor economic matter, but really an exercize of raw political power without legitimacy, which we’ll be paying for for years to come.
So the question of the aims of increasing public debt is not really an accounting matter, nor even just an economic matter, but a basically political matter of public policy decisions. Wray is on record as favoring a government employer-of-last-resort program, and a program of public investment, which would have a “ratchet effect” of drawing in further piggy-backing private investment, not just during downturns, but on an on-going basis, though obviously they would expand during downturns and shrink when full employment is attained. That’s his choice, seeing full employment as the most desireable social good. Your preferences might differ, but at least it’s a subject for debate, without mischaracterizations. I’m not fully on board with chartalism, insofar as I think trade/CA imbalances and for-ex concerns need to be addressed more fully. But it’s not completely nuts; much of it makes sense, and that school was onto the financial bubble when more mainstream sorts were in full denial. (Gooble the Levy Institute, with which Wray is affiliated).
But it has nothing to do with tax cuts on high incomes and financial income, which was justified, if at all, by neo-classical growth theory. I think that’s nuts, because such cuts are little likely to induce increased real productive investment, but rather likely just bid up and inflate the extant stock of financial “assets”. But note, if public debt increases and interest rates do rise and the bulk of it is held by wealthy investors, there’s still no problem, since the government can just tax those gains in interest income and capital gains wealth right back, which is only prevented politically, insofar as they have captured or obstructed the apparatuses of political power and public decision-making. Moreover, if the wealthy have any functional justification, it’s not as savers, but as investors in the real productive economy, at which point they wouldn’t be keen to hold public bonds, but would be investing in riskier projects, in which case the public/private debt dynamic is reversing itself.
It’s not as if credit/debt is intrinsically the root of all evil. Credit is necessary for running an economy. Small businesses need it to manage cash-flow, always a key issue in managing a non-financial business. (It’s almost the sole issue for financial business). And for financing expansion in the face of local demand opportunities. It’s the hyper-trophy of the financial sector at the expense of the real productive economy that’s the real problem. Eliminating credit/debt in favor of “hard” money is a fictitious idea: all money is essentially just a token, an IOU.
Yes John, credit is essential to running an advanced economy, but charging enslaving and exploitive usurious rates for it is not. And when that ability to determine who gets that credit, and how much of an enslaving and exploitive usurious rate will be paid for that credit, is put in the hands of the private super rich wealthy few then yes — it is “identifiable per se with the exploitive machinations of a hyper-trophied financial sector, and with the upward mal-distribution of income.”
Deficit spending that shifts billions of tax dollars to the super wealthy elite financial gangsters — who have literally bought the crooked government that gives them that money — and who pay essentially nothing for those funds, and then turn around and enslave and exploit those same taxpayers by charging them usurious interest for ‘use’ of those stolen dollars, IS, “a matter of supporting and maximizing the extractions of the wealthy investor class from the broad working class.” It is not the opposite!
John C. Halasz, you are a dysfunctional child of aggregate generational corruption. It is you who is mouthing ignorant gibberish. It is you who should take your deflective nonsense theory, that validates the machinations of the wealthy ruling elite, and shove it up your ass sideways. It is you who should turn to google to inform yourself, rather than just randomly spouting off your self-righteous ignorance.
http://www.google.com/webhp?rls=ig#rls=ig&hl=en&source=hp&q=US+government+corruption&aq=f&aqi=g10&oq=&fp=c26c79a56c95bda8
Deception is the strongest political force on the planet.
Yeah, Eyeball. You alone are undeceived; you alone have a monopoly on the Truth. And you’re undoubtedly a true patriot. But patriot of what? No doubt of the fount of your own incorruptible virtue!
No doubt, you’re a hard workin’ Murikan, (because that epithet “hard workin'” is an excellent demagogic substitute for actual hard thinking, ya know, with actual conceptual and empirical content, rather than just flatulent attitudinizing). Because you BELIEVE in know-nothing-ism and LIBERTY above all! Typically American traits. Anything that might interfere with your God-given “freedom” is an outrageous interference with your right to believe in perfect idiocy by evul snobs! It never occurs to you that you’re just indulging in standard paranoid thinking, which always is in alliance with reactionary sentiments. (You might as well be an “Austrian”, inveighing against the debasement of “hard” money). It also doesn’t occur to you that anyone at all acquainted with the history of this world is well aware of the tendency toward human corruption. Which scarcely absolves one of any responsibility for clear and penetrating thinking. “Force and fraud” is a venerable couplet in political theory/thinking; the modern notion of “ideology” is just a more elaborate, stabilized and “normalized” version of such pseudo-normative rationalization of the dominant interests of the status quo. Which is scarcely to be penetrated without any analytic means and operational alternatives. (And to think, we used to talk of “wage slavery”, when all along the revealed truth only involved “debt slavery”, since thinking about the dynamics of the capital-labor relation, with all its attendant implications and complications, is just a distraction from from the epiphany of your “new” revelation).
So right back at ya, babe. You can put it where the sun don’t shine, which, on the evidence that you present, includes all of your bodily orifices and senses. In accordance with your pure and perfect liberty and its adventitious wishes.
But just in case you might want to actually inform your ass, here’s a link to a sober appreciation of where we stand, though it’s penned by an evul Canuck:
http://www.ianwelsh.net/to-fix-america/
John, sheesh, your wrong again!
I’m a patriot of the universe who recognizes that we are all unwillingly thrust into a dog eat dog world that requires that all organisms, humans included, cannibalize each other in order to get their needs (perceived or real) met.
I believe that all externalizations of all organisms, including words, the rule of law, etc., are deceptions, and that deception is the strongest regulator of the cannibalization process here on the planet. Marx didn’t go deep enough — he got caught up in the complexity trap of non existent capitalism and filled his head with a lot of resultant deflective bullshit that caused him to fail to see that the root struggle of ‘hitherto all history’ is in all of us, and it is deception pitted against perception. All ideologies are deceptions, all of life is politics and you make your own reality within your limited sphere of influence by free choice.
Given this marvelous, yet at the same time shit situation, that we are all unwillingly thrust into, one can only hope to work to lessen the extremes of the cannibalization process. This is made more difficult by the fact that past externalizations (deceptions) color our present day world. Everybody is walking around with their heads full of little boxes of status quo ensuring bullshit bought and paid for by the wealthy ruling elite of the past. If you want to make a new reality, based on clear thinking, you have to dump the shit out of your head. John Lenon nailed it with,”Imagine.”
The article you pointed me to is a bitch-fest with no beef! No remedial plan of action other than, ‘I hope those scamericans wake up.’ Sheesh! I could have pissed on a banker!
The writer needs to get some balls and call for some civil disobedience like burning useless as teats on a bull voter registration cards.
John, you should try a Dale Carnegie course! It was your pretentious attitude that set me off.
Deception is the strongest political force on the planet.
Eyeball:
Ya, you and Max Stirner. Cannibalize yourself on your own shit as much as you want to. Just leave me out of your own private fantasies.
John,
I appreciate your time and willingness to acknowledge where I was already before we engaged in such a lively discussion. For as you say:
“… if public debt increases and interest rates do rise and the bulk of it is held by wealthy investors, there’s still no problem, since the government can just tax those gains in interest income and capital gains wealth right back, which is only prevented politically, insofar as they have captured or obstructed the apparatuses of political power and public decision-making.”
Making the bondholders/shareholders whole by transferring trillions to them in the course of the bank bailout is/was precisely my point. How likely is it that the government will turnaround and then “tax” this group to recoup these public monies? You don’t believe this will happen any more than I do! So we don’t really disagree as much as you might think. Once you began to answer my questions, you moved beyond the sterility of MMT by examining the political/ideological factors [the messy unquantifiable components of the equation] that accompany economic decision-making. Moreover, raising “taxes” on the wealthy to recoup such monies will likely lead to additional disinvestment in the form of capital flight, correct? So MMT is deficient inosfar as it fails to account for the political/ideological machinations inherent to the larger process which was my original point.
Let’s leave it at that. But thanks again.
Mickey, Akron, Ohio says — “So MMT is deficient inosfar as it fails to account for the political/ideological machinations inherent to the larger process which was my original point.”
I would add that it is intentionally deficient and its complexity serves as a diversionary smoke screen for the status quo which is a result of present and past political/ideological machinations.
Beating the now legions of gullible economists into plowshares will be a significant problem.
Deception is the strongest political force on the planet.
Sorry for the basic question — I know very little about this situation — but why doesn’t Brussels just kick Greece out of the EU for fraud, and simultaneously orchestrate a rescue of the banks that fail in consequence?
By using fraud as the justification, they can plausibly argue that the other three PIGS can stay. But they would be on notice to pursue transparency. Meanwhile, the systemic harm would be confined to Greece itself and a few hedge funds.
In fact, how can Brussels do otherwise? If they rescue an admitted cheat, the union’s integrity will be damaged, perhaps irrevocably.
Some here ask why Greece and why now. That Greek mismanagement was long know etc.
If Americans are not famous for applying current criteria to past events, we should be. (I once read an article which in part comparing supposed Neanderthal and Cro-Magnon man on treatment of women!)
I think that these readers ought to know about the treaty of Lisbon, just now finally ratified. It goes a long way toward strengthening the powers of the central EU government. Greece is the test case, This also explains a lot of the inconsistencies in the EU response.
And then there is Greece. I don’t think that Greece is especially well liked in the EU. Think Cypress and “Macedonia”. Then its citizens are reputed to boast about tax avoidance. That the street demonstrations were initially done by tax collectors and customs agents may give us a clue.It seems this attitude explains why Greece seems to “cheated” more consistently then then the other PIIGS (OK maybe Italy too but Italy is special)
An interesting post on the use of structured finance to disguise public debt that extends well beyond just Greece:
http://fistfulofeuros.net/afoe/economics-and-demography/just-what-is-the-real-level-of-government-debt-in-europe/
Odd question: why doesn’t Greece just take the hit and default across the board? The damage will be severe but it is likely to make the EU teeter or even fall – wouldn’t such an act actually soften the fall for Greece?
Hardball can be played back…
“We are trying to change the course of the Titanic, it cannot be done in a day,” – The Greek financial minister.
Please don’t say that.
Are you really the Titanic of Europe?