Greek economic independence: what independence?

It was also being reported last night that the German government wants Greece to hand over control of tax and spending decisions to a \’budget commissioner\’ appointed by the rest of the eurozone, before the country gets its second bail-out.

The budget commissioner would have to power to veto decisions made by the Greek government, according to a proposal seen by the Financial Times, marking a significant step-up in the EU\’s powers over the sovereign governments of member states.

I wonder if they\’ll actually have the balls to appoint a German as Gauleiter?

61 comments on “Greek economic independence: what independence?

  1. The actual text of the Greek annexation proposal is here:

    http://www.scribd.com/doc/79632467/Statement-on-Greece

    Everyone has focused on clause 2 – surrender of budgetary control to EU officials (ie Germany). But for me clause 1 is the bigger problem, because it means that meeting external debt obligations will in future take higher priority than funding even basic services – and the EU wants that commitment written into the Greek constitution. For the Greek population, that is debt peonage in all but name, enshrined in law.

    Greece should default and leave the Euro NOW before this poisonous piece of legislation is put in place.

  2. Frances is quite right, though it is indeed Clause 2 which will grab the headlines – assuming this is genuine?

    I thought Greece had a Gauleiter, a Reichenbacher or someone such.

  3. Just to add that “Greece” isn’t being bailed out. Greece’s creditors, the banks, are being bailed out.

    One way to look at this I think is, if a man on a certain income, say £10,000, runs up a large credit card debt, say £20,000, whether there is any “policy” that can save him at the point when the credit runs out. His life is fine until that moment, when he can no longer borrow more money to pay the monthly repayments. At that point, he gets a double whammy; he can neither service his lifestyle (which relied on borrowing more money than he was earning) nor can he pay the repayments. It is entirely questionable whether an implementation of reduced spending- “austerity” can be adequate at this point. His only way back to solvency is for the debt to be written off (and then the implementation of an austerity policy of living within his £10,000 income).

    Another point; if you are an Austrian like me who believes that the Misesian Ratchet occurs under a managed currency, there is a regional interpretation. The central (bank) interest rate can be set to a rate which serves only some particular constituency, and that will be the class operating and benefiting from the money cannons, who are economically and regionally clustered around them. Everyone else is borrowing money at the wrong rate.

    The Euro is a macroscopic illustration of this; entire countries have been borrowing money at teh wrong rate. But it works internally to nations too, and perhaps does a great deal to explain the economic regional disparity in a national currency zone like the UK and, thus, the “Westminster Bubble” effect in which apparent prosperity rises the closer you get to the booming noise of the cannons. Just a thought.

  4. Just to be clear, what I’m trying to get at there is that the consequence is that regions (or outlying nations) thus forced into either borrowing too much or having to be continually subsidised by the central government, and thus this may be a significant driving force in the development of Britain’s Soviet Boroughs.

  5. Does anyone really think they won’t come out the other end with healthier finances and better off for it? I mean, they’ve completely stuffed up their finances on their own anyway, could anyone else possibly do a worse job? It looks a bit like a mammoth version of appointing an insolvency practitioner.

    Greece’s other option is of course to refuse and cause great financial market hilarity. They do hold rather a lot of very expensive cards.

  6. It’s pretty hard to believe that the end result will be either “healthier finances” let alone “better off”. All this does is destroy the last shreds of their sovereignty as well.

  7. But Greece has the sovereignty option – they can bail out of the euro and the EU as well if they like. Sovereignty isn’t worth much when it can’t fund itself.

    I’d be worried too if they were going to import permanent commissars who would introduce national conscription, shut down the free press, dissolve parliament, institute martial law and force people to sing the Ode to Joy every morning. Making the government work more efficiently and collect the taxes it’s due isn’t really comparable to inviting in external fascism.

  8. Political change happens in stages. Right now, EU nations are still nominally sovereign. The more bound they become, the less true that will become, until a point is reached when leaving is interpreted as secession. As in the USA.

    Wedges really do have thin ends, and slopes really are slippery.

  9. That’s more or less an extension of the magical thinking that sovereignty only works on a national level, an idea which is clearly bunk as countries can break up without major trauma, and form looser or tighter unions, also without major trauma. Where sovereignty means “freedom for the government to do what the fuck it wants without concern for the sovereignty of those within its borders or those outside its borders” sovereignty can, in my mind, take a running jump. Sovereignty at anything above the individual level is all just other people telling me what to do, so I personally don’t care whether it’s exercised by a German politician with a big stick or an EU politician with a big stick. While acknowledging we need some form of societal organisation (and preferably one we can fire at intervals), less of it (at all levels) than we have now would be a positive step.

    Greece however, needs its credit cards cutting up. It can either default (and probably exit the euro in the process) or it can let the bank manager control the purse strings for a while.

  10. Well in general I agree, but also in general the larger the political unit the worse it gets. In the specific example, if you have the folly of a managed currency, the bigger the area it covers, the more economic dislocation will result. And, it’s easier to have a revolution against a town council of elders than against a giant national government, and that is easier than against THe Government Of The Entire World.

  11. “Sovereignty at anything above the individual level is all just other people telling me what to do, so I personally don’t care whether it’s exercised by a German politician with a big stick or an EU politician with a big stick”

    Well that’s democracy stuffed then. I suggest we all go back to the divine right of Kings and have an absolute Monarchy, or perhaps a dictator or two. Its all the same as democracy as far as JamesV is concerned (perhaps he’s a Pretender to the throne………..)

  12. Ian B said (#11): “it’s easier to have a revolution against a town council of elders than against a giant national government”

    Not sure about that. The Town Councillor you want to disembowel probably plays bridge with your uncle, which makes it a little impolite to chase him down the street with a cleaver. But if it’s done off away in the capital, no-one minds that sort of behaviour.

  13. Yes, but fighting is basically a matter of capital. That’s how inflation got started; the guy with the biggest army wins. It’s not a per capita thing. A town council can’t afford much of an army compared to the USA for example. Hence, easier to overthrow by force of arms, or intimidate with a mob.

  14. @Jim,

    Democratic societies also have to eventually acknowledge the laws of nature – viz. in the long run production must meet or exceed consumption.

    Democratic societies are also nicer places if they have some restrictions on them, so as not to become tyrannies of the majority – see John Stuart Mill et al. Everyone is in a minority on some issue, so it’s best you and some 51% who don’t care for football don’t call for football to be banned on the basis that a different 51% would be totally unaffected by a ban on cricket.

    Democracies have also proven themselves adept at voting themselves lots of money to be paid by people who have not yet been born. In some views of democracy, such blatant theft is legitimised if it is approved by the majority. I don’t tend to that view.

    If some external consultants from the EU, IMF, World Bank or whoever can get Greece out of the financial mess it has got itself into, that’s a good thing. Cave jackboots, enforced obeisance to the twelve gold stars and the like. But Greece has to stop spending some money on some stuff it is spending money on. Their own government is not prepared to make the decisions – so they can voluntarily hand it over to someone else (who can conveniently be blamed for the pain), or have their hand forced by default. Carrying on regardless and being all sovereign about it isn’t an option available to them.

  15. Greece has of course refused to accept these terms. Politely, so far.

    However, the plot thickens. According to the BBC’s Stephanie Flanders, Greece has managed to create a small primary surplus. If she is correct, then Greece has far more bargaining power than it did before – the threat of default is now a realistic one. I think that completely explains Germany’s insistence that primacy of debt servicing (i.e. no default) is written into the Greek constitution, doesn’t it?

    I say “Germany” deliberately. There is no doubt that these demands come from Germany, although they are dressed up as EU requirements. If the captive Greek government were to agree to them Greece would in effect become a province of Germany with less ability to run its own affairs than the German Lander. I have no doubt that the people of Greece would see this as tantamount to a declaration of war. The whole situation is incredibly dangerous.

  16. If some external consultants from the EU, IMF, World Bank or whoever can get Greece out of the financial mess it has got itself into, that’s a good thing.

    Yes, but that’s the whole point James. They can’t do that so it most definitely isn’t a good thing.

  17. Ian B

    There was a comment in a Portuguese journal today to the effect that this proposal may have been crafted by the Germans in order to force Greece to leave. I don’t know how much truth there is in this, but Merkel certainly has been indicating recently that she does not expect Greece to remain in the Euro.

  18. The idea that Greece is going to be made an example of is rather more worrying than the idea that someone actually has a workable solution for them. Unfortunately, Frances Coppola may have hit the nail on the head. Hard default, Greece prints its own money creating an effective dual-currency economy, swiftly followed by EU (German) sanctions for stealing a competitive advantage through devaluation. The rest of the European banks can probably survive a Greek default, the Greek banks will not. National restrictions on the free movement of people, goods, capital, and services instituted before you can say “European Commission”. Social chaos ensues, the remaining Euro sinners are shown what happens if they don’t get their houses in order.

    Are we at least agreed that a negotiated haircut is a better end than a hard default? That being the case, what degree of (temporary?) surrender of sovereignty is an acceptable price to pay?

  19. Depends how radical you are.

    From my perspective, Greece is just doing first what is ultimately going to happen to everyone, which is what my long posts above were about. They are suffering the inherent ruin of a centrally managed currency; it’s just faster and more extreme in this case because the EU is such a Frankenstein’s monster, stitched together with separate governments remaining.

    Sterling “works” for the whole of Britain because it’s a single polity. That allows the State to do continual money transfers to the cannibalised hinterland, which is ruinous but sorta sustainable. The EU cannot. The Euro cannot function without full political integration as one polity.

    The way forward for Greece is to default, leave the EU and print its own (debt free) scrip. However much sovereignty they surrender- which will ultimately be all of it, and in short order- they can’t fix the problem with anything less radical. IMHO, of course 🙂

  20. Forgot to say, there’s no such thing as a temporary surrender of sovereignty. It’s like virginity in that regard, at least in situations like this. As the US Confederacy discovered.

  21. Here’s another little snippet that someone pointed out to me the other day. Euros are identifiable by country of origin. Banks are starting to distinguish between Euros issued in different countries for valuation purposes. Once that practice is generally accepted, the single currency is de facto finished.

  22. Ian,

    Effectively they are creating an intra-Eurozone currency market. I’ll try and find the source.

  23. JamesV – “Does anyone really think they won’t come out the other end with healthier finances and better off for it?”

    Well I do but it is definitely not a popular view around here and it is probably too late anyway.

    “I mean, they’ve completely stuffed up their finances on their own anyway, could anyone else possibly do a worse job?”

    That is not fair. They had lots of European help in stuffing up their own finances.

    “It looks a bit like a mammoth version of appointing an insolvency practitioner.”

    Actually it is exactly the opposite. A proper insolvency practitioner would declare Greece bankrupt, wipe the debt and start again. What the Germans are proposing is that the Greeks are declared minors and have a trustee appointed who will then oversee all their spending to make sure they pay back what is now an odious loan.

    8JamesV – “Making the government work more efficiently and collect the taxes it’s due isn’t really comparable to inviting in external fascism.”

    Baby steps. Besides, realistically, look at those crowds on the street. Do you think that the Greeks could be forced to pay back that debt by anything less than a return of the Colonels? In short, quasi-Fascism?

    10JamesV 0 “That’s more or less an extension of the magical thinking that sovereignty only works on a national level, an idea which is clearly bunk as countries can break up without major trauma, and form looser or tighter unions, also without major trauma.”

    Sorry but I am not sure how that follows. First of all, it is almost never true. Break ups usually involve a great deal of trauma. It is hard to think of a peaceful, non-violent break up of a country. Even where there has been – the case of Czechoslovakia perhaps – there has been a lingering cost. But if it was true, how does that matter for sovereignty? Either I can arrest you and confiscate your house or I can’t. If I can I am sovereign. If I can’t I am not. If I am, most people would call me a country. If I am not, most people would call me a province.

    “Where sovereignty means “freedom for the government to do what the fuck it wants without concern for the sovereignty of those within its borders or those outside its borders” sovereignty can, in my mind, take a running jump.”

    But that is the definition of sovereignty. Either at a national or a local level. At some level there is a government that can do what the f**k it wants. And there is no third option.

    “Sovereignty at anything above the individual level is all just other people telling me what to do, so I personally don’t care whether it’s exercised by a German politician with a big stick or an EU politician with a big stick.”

    So … those Indians had nothing to complain about? Gandhi was full of sh!t because for the average Indian, being bossed about by British people was no better or worse than being bossed about by Indian people? Actually I am a little sympathetic to that viewpoint.

    “While acknowledging we need some form of societal organisation (and preferably one we can fire at intervals), less of it (at all levels) than we have now would be a positive step.”

    Indeed. But we aren’t going to get it.

    “Greece however, needs its credit cards cutting up. It can either default (and probably exit the euro in the process) or it can let the bank manager control the purse strings for a while.”

    It should do both. It should default, leave the Euro and acquire some fiscal discipline. It won’t. I am afraid it may do none of the above but let’s hope for the first two. Although I now think that Germany leaving would be an even better solution. Greece would not have to re-value its debts.

  24. The point worth remembering about saying Greece fucked itself up, and fiscal discipline and so on, is that they only did what every other government did and does, and which has been heartily approved of since at least WWII by economists, bureaucrats, academics, etc. It’s tantamount to the entire political class of the western world following a policy of the State handing out heroin to everyone, then complaining about the drug problem.

    Anti-inflationists (e.g. the Austrian School) are considered, still, fringe cranks. The way to wealth is, supposedly, fiscal expansion via debt creation. It’s hardly a uniquely Greek thing.

  25. Frances, I’ve heard stories (unverified) of small businessses refusing to accept certain countries’ Euros, but not if banks are doing the same then it’s much more serious.

  26. Couple of points:
    First on the €uro notes issue mentioned by Frances above. Happen to have a couple of thou in cash at the moment & just went through the bundle. The country of issue is, I gather, determined by the prefix letter to the note serial. I’ve got notes representing half the €urozone countries here, not particularly biased towards Spanish. OK, we’re a tourist town so we have a lot of money coming in from outside but the churn in specie is enormous. I changed a 100€ in a shop yesterday & the change contains notes from 6 countries.
    Notes are a very small amount of the money anyway, aren’t they?

    Secondly, starting with IanB’s credit card analogy, everybody’s talking about Greece as if there’s some such animal. Greece is a geographical area. Greeks are individuals.
    If you want to use the credit card analogy, let’s use the hardworking, sober, responsible husband of a family as the cardholder. So far he’s been going out to work everyday, bringing in the dosh to support the family. Unfortunately our Greek’s got a profligate wife with a shoe obsession & a layabout son who doesn’t get up till noon. So far he’s been a content sort of guy. As long as there’s a meal on the table & he get’s to watch the football on TV he puts up with it. Now between them the wife & son have run up a debt on his card that his wages can’t cover. The shop won’t give the wife groceries & the bailiffs have come round & seized the TV. He’s being told that he’ll have to overtime, work weekends, dinner’s bread & olives, he’s to give up smoking & a beer down the bar to watch the TV there’s unaffordable. Meanwhile the wife’s just ordered a new pair of Gucci’s & the son the latest Playstation. There’s gonna be one helluva family row.
    In the analogy, replace the husband with the bit of the Greek economy that does actually get things done, the wife with the political class & the son with the assortment of public sector workers, benefit scroungers, financial scammers et al.
    Our Greek husband has had about all he can take of his dysfunctional family. But up till now, the fact that they are family is what has made him willing to support them. Now he’s minded to cut up the card, pack his bags & walk out. Let them get on with it. When the debt collectors come round he ain’t gonna be there.

    If things carry on the way they’re going, Greece will collapse, not as a financial entity but as a nation. The thing that keeps the Greeks as a nation is democracy. The feeling that all Greeks are a family. EU’s going to take that away. Likely result is one holy row amongst the Greeks. Only way it will be kept together is by naked power. They’ll either go back to the Colonels, which would at least still be Greeks governing Greeks, or an EU/Greek puppet government which is what it seems to be headed for. Government’s going to have to use the police & army to keep order but their members are Greeks. There’s no presumption they’ll do the government’s bidding & suppress their own brothers & sisters.
    End point of this could be civil war.

  27. On the cash thing, Faisal is talking about “electronic money”. To the extent the story is credible, I can quite believe that a bank will treat what it is owed by a Greek bank differently to what it is owed by a German bank for risk evaluation purposes.

    The cash mix in euroland is such that it would be impractical to start distinguishing between notes and coins based on where they happen to have been made, even in the event of one or more countries leaving. In any case the ECB will always accept them. There will be a few cranks around who scrutinise bills and refuse to accept Ys – the more I meet the merrier because of unenforcability of debts for which legal tender was offered. However I confess my own small “emergency” stash is exclusively X (Germany), the rest in Swiss Francs.

    @bloke in spain, people talking about “Greece” as a unit is just word saving shorthand. We get the difference between individuals, countries, and their governments.

  28. According to Reuters today, the German vice-chancellor regards the German proposals for budgetary control and enforced debt service as applicable to other countries too. So where Greece goes, Portugal, Ireland, Spain and Italy will follow. And, possibly, Hungary, since it these proposals don’t seem to be limited to Eurozone countries. The European Semester, upon which they are based, applies to the whole EU.

    @bloke in spain, I totally agree with you about the possibility of civil war in Greece.

  29. @jamesV
    Sorry, but it’s exactly that shorthand way of looking at nations encourages the thinking that their inhabitants aren’t individuals. A nation is nothing but a large number of individuals sharing a consensus view of their identity. That they’re part of some greater whole.
    Governments, any government, be it the most democratic or an outright tyranny, is little more than a couple of dozen people. Under them come tiers of functionaries & bureaucrats from the highest civil servant to the lowest form checker all bound by self interest to serve it. The whole edifice governs because again, most citizens see it in their interest to be governed.
    What the EU is doing to Greece is severing the link between the governors & the governed. If the Greeks don’t feel they’re in control of their own finances, what are they in control of? If the Greeks don’t see the government as representative of their interests, what allegiance do they owe it?. Furthermore, what obligations do they have to other Greeks? Many of those obligations are discharged through the government. Paying of taxes. Obeying laws. People don’t necessarily do those things particularly voluntarily. It takes coercion. Bad enough when the government doing it is one you regard as your own. What if you don’t?
    Last year’s ‘Arab Spring’ shows what happens when the governed lose touch with their rulers. The whole edifice starts to crumble from the bottom up. It wouldn’t take much for that phenomenon to jump the Med into Southern Europe & the EU is going the right way to make it happen.

  30. A nation is a thing people have to live in. There is no nation on earth where all individuals “share a consensus view of their identity”.

    For the purposes of government debt it’s reasonable enough to speak of “Greece” as these debts are ultimately the responsibility of Greek taxpayers, people who we presume have been benefiting from the large amounts of other peoples’ money lavished upon them and now reluctant/unable to repay said money.

    Greece cannot control its own finances – it has already demonstrated that. If someone else does not step in there will be no finances to be in control of anyway. There is no value whatsoever in being all sovereign about stuff and puffing out your great big national chest when the bailiffs have confiscated the bunting and uniforms.

  31. Maybe it’s worth pointing out that at the time the euro was being invented another “eurozone” was being dismantled?
    I refer of course to the end of the rouble zone and the fall of the Wall.

    Maybe the bureaucrats thought: “Oh well, if it all goes tits up at least no bombs will go off”.

  32. bloke in spain – “In the analogy, replace the husband with the bit of the Greek economy that does actually get things done, the wife with the political class & the son with the assortment of public sector workers, benefit scroungers, financial scammers et al.”

    Except who is the Germans and Dutch? Surely they are the husband here. They are the ones that have been working hard so that the Greek people and their government can have an easy life. That’s the problem. If it was a purely internal matter, it wouldn’t matter. Some US states are probably headed for as big a crash as Greece, if not Italy. Illinois for instance. But as it is internal and will involve an internal default no one seems to care much.

    “The thing that keeps the Greeks as a nation is democracy. The feeling that all Greeks are a family. EU’s going to take that away.”

    Not to mention immigration. A tenth of the Greek population is not Greek. Not that the Greeks had much feeling of themselves as a family. Family members don’t cheat on their taxes. But it can only have got worse.

    “End point of this could be civil war.”

    Only if one part of the Army is organised and disciplined enough to take on another part. I think that a straight vanilla-style military coup is more likely. And frankly wouldn’t be such a bad outcome.

    35bloke in spain – “What the EU is doing to Greece is severing the link between the governors & the governed. If the Greeks don’t feel they’re in control of their own finances, what are they in control of?”

    But did the Greeks ever feel in control of their finances? The Germans came and gave them money! Which is why they need to suffer now. They need to feel in their bones that connection between spending money and earning money.

    “People don’t necessarily do those things particularly voluntarily. It takes coercion.”

    You can’t coerce people to pay their taxes. Too many of them. They have to want to.

    “It wouldn’t take much for that phenomenon to jump the Med into Southern Europe & the EU is going the right way to make it happen.”

    But how would that help the Greeks? The Egyptians are weeks away from mass famine because of the looting the state, the end of tourism and so on. They will learn the hard way what it is to live in the real world. Even if the Greeks take to the streets en masse, they too will still have to live in the real world. Which does not give out money for free indefinitely.

  33. “For the purposes of government debt it’s reasonable enough to speak of “Greece” as these debts are ultimately the responsibility of Greek taxpayers,”

    OK, you try & explain that to the Greek taxpayers.

    “Greece cannot control its own finances”

    But Greek taxpayers may feel that they’re individually capable of controlling their own finances, thanks very much. They are, after all, taxpayers. What you’re saying is that they should feel collectively responsible for the debts their government & irresponsible Greeks have run up. Why should they?

    This is the idea the people trying to manage the Eurozone crisis are counting on. That the people who have, by & large, worked & saved & behaved in an individually responsible manner will work harder & give up their savings to bail out those who haven’t.

    “There is no nation on earth where all individuals “share a consensus view of their identity”.”

    What the hell is a nation if it isn’t that? Like I said above, the ‘government’ of any country is only a tiny group of people. It only has any control because the tiers of administration & enforcement below it do its bidding & the governed consent to be governed. If you lose the consent the whole thing starts unravelling from the bottom up. The police aren’t reliable because the copper won’t arrest his brother. The taxman won’t collect the taxes from his family. The soldier won’t fire on his daughter.

    Once you cut the government lose from it’s people, which is what the EU is doing, the only ones interested in perpetuating the system are a few politicians who have a stake in its continuing.

    “The only sense in which I have ever consented to be governed is that I have never found a way to avoid it.”

  34. “For the purposes of government debt it’s reasonable enough to speak of “Greece” as these debts are ultimately the responsibility of Greek taxpayers,”

    OK, you try & explain that to the Greek taxpayers.

    “Greece cannot control its own finances”

    But Greek taxpayers may feel that they’re individually capable of controlling their own finances, thanks very much. They are, after all, taxpayers. What you’re saying is that they should feel collectively responsible for the debts their government & irresponsible Greeks have run up. Why should they?

    This is the idea the people trying to manage the Eurozone crisis are counting on. That the people who have, by & large, worked & saved & behaved in an individually responsible manner will work harder & give up their savings to bail out those who haven’t.

    “There is no nation on earth where all individuals “share a consensus view of their identity”.”

    What the hell is a nation if it isn’t that? Like I said above, the ‘government’ of any country is only a tiny group of people. It only has any control because the tiers of administration & enforcement below it do its bidding & the governed consent to be governed. If you lose the consent the whole thing starts unravelling from the bottom up. The police aren’t reliable because the copper won’t arrest his brother. The taxman won’t collect the taxes from his family. The soldier won’t fire on his daughter.

    Once you cut the government lose from it’s people, which is what the EU is doing, the only ones interested in perpetuating the system are a few politicians & their hangers on who have a stake in its continuing. Even a tyrant can count on the support of the wealthy & the middle class whilst he suppresses the peasants because they have an economic interest in doing so. An EU puppet government can expect no support from anyone. Only toleration which could soon wear thin.

    “The only sense in which I have ever consented to be governed is that I have never found a way to avoid it.”

    Exactly.

  35. @Bloke in Spain,

    So are the Greeks proud individuals capable of running their own finances and happy to tell other, feckless, Greeks to go swing, or are they a nation with a consensus view of their identity and happy to take collective responsibility where it is needed?

    Or does it depend which part of your argument you are supporting at any one time?

  36. JamesV
    The answer is of course both.
    People behave differently under different circumstances.
    Individuals are guided by conflicting desires. On one hand is the wish to do what is personally beneficial to them. On the other to act in manner that is beneficial to the society of which they consider themselves to be a part. They reconcile the conflict by judging that the benefits thereby accrued from being a member of that society outweigh the personal freedoms foregone. And , of course, within that society not everyone behaves with equal selflessness. From the criminal who sees his personal desires as always outweighing everything else (which is why we have police & a judicial system to enforce laws) to the sort of guy who’ll wait at the red pedestrian crossing light on an empty road (which is why we have Germans ). Generally speaking, the more the individual thinks they’ve a stake in the system the more selflessly they behave.
    Feckless Greeks? Actually there’s probably less feckless Greeks than there are feckless Brits. You’d have to search quite hard to find the sort of enclaves of never worked, benefit scroungers common in the UK. Left to it’s own devices Greece would have been a pleasant holiday destination by the Med with some doubtful cheap wines & equally doubtful & mildly corrupt politicians.
    Enter stage left the doubtlessly venal & spectacularly corrupt Common Market apparatchiks with their promises of lands flowing with milk & honey in a Pan-European Imperial Paradise. Offered the Greek pols the Golden Apple. They’ll rig the system so they can buy all the votes they need to get elected & the good times will never end. Silly bastards fell for it.
    The EU set the playing field with its low interest rates & its toy currency. Everyone else has been playing on it. Don’t blame the Greeks if they borrowed too much & overspent on public services. That’s what they were told was the name of the game by those who were supposed to be much cleverer than them. Now the shit’s hit the fan & the ordinary Greek’s expected to beggar himself to pay back money that others have frittered. If he’s borrowed money off a German bank to buy a German car made in a German factory to the benefit of the German economy it’s a bit rich the German who advised him to do so getting upset when he can’t make the payments. Mr Theodopolos might just tighten his belt & pay extra taxes & work for less if he sees himself as a Greek doing it for Greece. Why the hell should he do it for a German accountant sitting in an office in Athens telling a German appointed government what to do? It’s no longer Mr Theodopolis’s country.

  37. The interest rates on Greek government bonds should never have fallen as much as they did with the introduction of the euro – they will always be a higher non-repayment risk and should pay accordingly. But those rates were in fact determined by the market. That we have suffered an extended period of low central bank rates is because we all have to follow the fed, and Greenspan thought “better a depression on the next guy’s watch than a recession on mine”.

    Let the rate float and what currency you use is of minimal relevance. There is no reason you can’t stick all sorts of different economic activity under the same currency – it works fine in the UK in which different regions still display vast dispairities in wealth. internal transfers notwithstanding. It also worked for the bulk of the civilised world pre end-of-Bretton-Woods, demonstrating that it’s floating currencies, not fixed exchange rates, that are the experimental innovation.

  38. All very interesting James but I would.’t have thought our putative Mr Theodopolos would either understand of give a monkey’s fuck. That’s what he thought he was paying politicians to do. They did tell him so when they asked for his vote.

  39. Just to add:
    “The interest rates on Greek government bonds should never have fallen as much as they did with the introduction of the euro – they will always be a higher non-repayment risk and should pay accordingly. But those rates were in fact determined by the market”

    And they did so because……

    Various influential people lied through their back teeth about risk.
    Some not very clever bankers were very gullible & didn’t spot they were being sold the Brooklyn Bridge.
    So Mr Theodopolous carries the can whilst they all sit around in Davos toying with the canapes & eyeing the legs on the waitresses?

  40. There is no reason you can’t stick all sorts of different economic activity under the same currency – it works fine in the UK in which different regions still display vast dispairities in wealth.

    No, no it doesn’t. It’s one of the primary reasons we have a bubble economy around the money cannons- euphemistically termed “The South East” and a depressed hinterland. The only reason it works (in a sense) is that a unified polity can enact continual money transfers from the bubble to the hinterland. Which is why Greece’s only options are either currency independence from the EU, or a future as a Soviet Borough.

  41. Also, James-

    But those rates were in fact determined by the market. That we have suffered an extended period of low central bank rates is because we all have to follow the fed, and Greenspan thought “better a depression on the next guy’s watch than a recession on mine”.

    That seems to be a very strange definition of “determined by the market” you have there.

  42. And that’s why, IanB, it’s my fervent prayer, the other side of this shitstorm we see Europe break up into something a lot more like the city states that would suit it. Each with their own currencies, taxes & the rest. Then they can cut deals with each other to mutual advantage. No reason why Ruhrland, Lyonnaise & Turin couldn’t peg their currencies & maybe Brittany, Cornwall & the Sicily would do the same. Or maybe some of them use the Swiss franc because they can’t be arsed with printing notes. Or $Linden if that floats their boat. Exchange rates? Big deal. Simple phone ap could do conversion with realtime update if money’s mostly electronic. Rates’d move very slowly anyway because most of the pressures driving fluctuations would have disappeared. Areas that trade together would have an incentive to keep rates stable.
    A supine, powerless Europe? Not necessarily? No reason a couple hundred micro states couldn’t present a united front on things like defence, diplomacy. If it’s in everyone’s interest to do so. Might actually work better than what we have at present. Below our national governments are the various parliaments, regional assemblies, whatever, tiers that national governments draw their mandate from & have to placate. You’re just cutting out a layer of assholes. The delegate to the defence conference from Padamia is damned close to the views of Padamians on the Eurofighter MK3 coz they live just down the road from him & will give him hell if agrees to blow their dosh on a lemon. How’s that any worse from the Italian PM wheeling & dealing with a Milan MP over housing subsidies to ensure his supporting vote on defence procurement?

  43. I’m inclined to agree, BIS, but I also think that from general theoretical principles, and with internets and whatnot, it ought to be entirely feasible to have a worldwide currency, which would be self regulating, just so long as governments can’t print it (particularly pyramiding it on government debt). Gold, after all, was basically a universal currency. It just fucks up when people start printing gold certificates and then they become the currency and then everyone falls off the gold standard.

    But whenever I try to puzzle out the details of this thing, my brain turns to goo. I’m just not clever enough, sadly.

    Looking back at your #46, you make a very important point about the Greek Man In The Street. To add to it, I think the problem is that economics/politics nerds like us tend to think everyone else ought to be as au fait with economics as we are, and if they aren’t it’s their fault. But it’s like expecting other people to know a lot about astronomy, orchid breeding or architecture or something. They just aren’t going to. Any political/economic system, in order to work, has to do so with the vast majority of the population not understanding the gubbins. It’s not that they’re stupid. It’s that they haven’t the time.

  44. IanB, a central bank can only really manipulate interest rates to the extent it is prepared to lend at a little above them and pay at a little below them. There have been a couple of times in the brief history of the Euro where ordinary retail savings bonds have departed dramatically from the ECB rates – one of those is now, albeit less dramatic than the last time (about 3 years ago if memory serves). Both suggest the ECB is a bit more laissez-faire than other central banks, which is also the prevailing opinion.

    Banks will thus buy government debt when it offers a better return than stashing cash at the central bank. Sure, the central interest rate is a form of market manipulation that has direct effects on government rates, but had the bankers not been so stupid, Greece might not have found itself as able to expose itself as badly as it has done.

    They are reasonably good at assessing credit risk for you and me, how come there is such a blind spot when it comes to government bonds – which it is widely acknowledged are made more, not less riskier, in terms of getting the same numbers (value is another matter) repaid by the loss of control over printing presses.

  45. JamsV

    The “blind spot” regarding government bonds is built into the system by agreement between bankers and government. It’s a cartel.

    You keep writing these comments as if you think banking is a free market industry. I don’t know why anyone would think that.

  46. ianB@51
    “it ought to be entirely feasible to have a worldwide currency, which would be self regulating,”
    A bit frightening because it’s got no outside, has it? There’s no ‘black’ money. No ‘offshore’.Nothing to launder to. You need something like good, dishonest cash in a system to keep it honest.
    And who sets it up. Who’s got the trustworthyness & the integrity?
    Could ask the Mafia, I suppose…….

    Not so sure my micro-currencies couldn’t evolve in that direction though. You wouldn’t end up with one currency but a number. Effectively welded together by sheer self interest.
    It occurs the phone ap could do more than just quote a rate but also perform an exchange operation. as part of the transaction. Actually buy & sell on a permanently trading market. Add speculation to level the bumps. People would like to know where they are with their dosh so there’s a big incentive to keep your currency stable. Any issuer starts playing silly buggers with their economy or currency & folk are going to shun it. Even their own people. Natural selection should eventually produce a smaller range of currencies that are essentially the same one because all the issuers are behaving similarly. But it does have an ‘outside’ because you shouldn’t get all the issuers making the same damn fool fuck ups. Periodically it might fission into 2 or 3 strands for a while due to economic pressures then move back together as market forces correct the discrepancies.

  47. You need something like good, dishonest cash in a system to keep it honest.

    Indeed. I was thinking in a partial sense in money theory terms rather than comprehensively. As a matter of interest, wandering further off topic, there is a slow steady push towards the abolition of cash- everything electronic- which if and when it is done is going to be a major disaster for liberty.

    The question I wonder about, as we move ever more digital, is whether clever people can think up a system of non-owned money, that is, not issued by any hegemonic authority. At the moment, the ownership of money supplies by Credit Card companies, Paypal etc, scares the crap out of me. What we need is a digital coinage that has no central servers. In other words, in which transactions are genuinely and entirely peer to peer. Like good old hard cash.

    (Yes, I know that banknotes are issued and owned by the central bank, but once out in the wild they are not controlled by it).

    Dunno if that’s possible, but I feel like it ought to be. I just dont have the book-learnin’ to know how to do it.

  48. Not sure if it matters who owns the money, as long as you have the choice of whose money to use.

    Back at the end of the eastern-bloc, wasn’t there a period when the bloc currencies started to disintegrate & people used D-marks, $US or whatever they could get their hands on in the way of a hard currency? Cuba effectively uses the $US doesn’t it? I know a friend is off home to Colombia soon & I’m fixing $’s for her.

    It’s actually the legal tender requirements that are restrictive. If we go into meltdown here, as a notionally French resident, I’m presuming I can just ignore it & continue using €uro’s* via my french a/c, or £GB via UK but I’ll have to pay the ‘council tax’ in New Pesetas, or whatever they’re called, even if most of the people I’m dealing with will likely prefer a harder currency, at least until things settle down.

    *Presuming that’s the way the cookie crumbles. I suspect that the Brussels tosspots will do their level best to preserve the currency itself.
    a) because the loss of face in having to scrap it Europewide would be unacceptable
    b) because if the people of Europe got their own currencies back you wouldn’t be able to pry their fingers off of them with a crowbar after this mess.

    NB Interestingly, after a decade, all my French till receipts, bank statements etc are still showing the franc equivalent along with the Euros. Makes one wonder about the confidence in the currency in France.

  49. It matters who owns the money when, as with current electronic forms, every transaction has to be approved by the owners. Not many things more dangerous to liberty than a currency with an Acceptable Use Policy attached.

  50. ” What we need is a digital coinage that has no central servers. In other words, in which transactions are genuinely and entirely peer to peer. Like good old hard cash.”

    Mmmmmm……..

    Little thought experiment I had was a self propagating cellfone net. Start with an open source design for the hardware(so anyone could produce it) then route the calls on some sort of peer-to-peer network so there’s no actually physical network at all. To establish an identity for each fone, it’d generate a random number from a very large possible set then poll the network to double check it hadn’t already been allocated. Likewise, to make a call, each fone would be aware of all the other fones within range, send a request for the required number which would propagate out till it got to the correct handset then set up a data route back to the caller.
    Heaven knows whether any of this is possible. Know SFA about telecoms, hardware, software….
    Original idea was thinking of a way of destroying the telcom industry. Making communications immune from state interference.

    It occurs you could run a transaction system on a thing like that. Actually distribute the data processing across the network with multiple redundancy, cross checking, validation etc

    Past concept this guy’s lost but the idea of something that doesn’t touch down into the governmental clutches anywhere is so very appealing……..

  51. @IanB, how much “agreement” is there currently between the Greek government and the bankers?

    I imagine the bankers are feeling a little sore, and the Greek government wondering where April’s paycheques are coming from.

    I’m sure there are nasty agreements reached in legally smoke-free rooms all the time, but they don’t seem to extend to limitless credit in return for limitless underwriting of bonanza bonuses.

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