Tobold's Blog
Monday, July 06, 2015
 
Great PR

Wherever you stand on the issue of the Greek referendum, you need to admire Greece for its great public relations: Everywhere the story is how the plucky Greeks said "no" to the evil European loan sharks that want to suck all the life out of Greece. Debt forgiveness is widely demanded.

Actually I am for debt forgiveness as well. I mean, there isn't much chance that Greece will ever pay back its loans and bailouts, so you might as well write the money off right away. But maybe even more importantly, it might change the narrative to be somewhat kinder to the rest of Europe: Because what Greece wants isn't simple debt forgiveness. They want fresh money, their debt forgiven in order to then be able to take out new loans. They want to continue living a lifestyle where the state spends far more money than its revenue. Yes, of course Greece's GDP would look a lot better with unlimited free money from elsewhere, but can you really blame the rest of Europe for not wanting to throw more money into that bottomless pit?

I think the rest of Europe should forgive the Greek debt, and then hold a referendum on whether to give the Greeks more money. I'd bet the people of Europe would vote "Oxi" to that. And for the Greeks it is a lot harder to walk around with signs saying "We demand your money!" instead of "No to austerity".

Comments:
Why just the Greeks should have debt forgiveness?
I say let them go bankrupt and never be able to get a single penny of loan again!
 
This comment has been removed by a blog administrator.
 
Great way to "simplify" a story, I think you're omitting quite a bit of details on how it got there.

But I have another question: loans are an investment, if I fuck up my investments I lose my money, why should it be different for a bank who loans to the wrong people?
 
I think you're omitting quite a bit of details on how it got there.

It wasn't meant to be a complete history of all details. Read a newspaper for that, preferably not a left-wing one. I was proposing a way forward.

if I fuck up my investments I lose my money, why should it be different for a bank who loans to the wrong people?

It shouldn't. That's why I'm saying that the money should be written off and the debt forgiven. But would you expect that bank to then give a loan to the *same* people again?

Deleted comment

Wow, that proved Godwin's Law surprisingly fast!
 
I disagree a bit with Tobold on this issue. Here is a translation of a piece of Russian text, which explains a lot. Remember, I am not the one who wrote this text.

I was in Greece for the first time in 1996 and in Athens in 1998. The local currency was still in use. Statements that claim that Greeks don’t know how to work properly are an outright lie. They just couldn’t imitate work.

I understood that when the ferry from the Symi Island was approaching the berth in the Athens port. The Greek sailor, who was responsible for mooring operations, was sitting at a table on the deck, drinking his coffee. He was alone. The distance to the shore was 20 meters. He was drinking his coffee. 15 meters. Still drinking his coffee. 10 meters. The coffee was really good. Five meters. The Greek took his time to leave the table with his coffee to throw the mooring line. Another Greek, which looked roughly the same, stopped his coffee drinking routine on the shore. So one Greek threw the mooring rope while another caught it. They caught the rope, made and tied the knots. 30 seconds for everything. And then they proceeded to finish their coffee. Each to his own mug. I’ve seen the mooring process many times during my pleasure cruises. Several people on the shore and several people on the board of the ship would shout, swear, argue and so on just to do the same thing the Greeks did. Working without fuss and swearwords is a skill.

But then Greece was allowed to join the eurozone. First things first, Greece was forbidden to build ships. They were told that Germany was the one responsible for building ships in the eurozone. The dockyards used to build supertankers by Onassis were shut down. Then Greece was forbidden to sell olive oil. The European Union even paid for the olive plantations to be cut down. 300 euros per tree. Greece started importing tomatoes. I am not kidding you. Instead of red ones they have had green ones for the last three years. The Greek government was then forced to raise salaries to match European standards. They were told to raise prices for fuel. The move killed the local industries. Then the Deutsche Bank opened cheap credit lines for buying only German products…

In 2008 Athens was a dump. The government was not allowed to pay less than 1,000 euros to street sweepers and could not pay more because the budget was austere. But then there was one “silver lining”. European Union laws forced the government to pay unemployment benefits twice as much as the average salary Greeks were paid before joining the European Union. The heavy industry was shut down following instructions from Berlin and as a result the number of the unemployed tripled. Money was in short supply due to all the unemployed. In 2008 near an Athens museum I was approached three times in 15 minutes with offers to buy drugs.

If Greece had no commitments to the European Union, then once they were in deep shit, they could have devalued the currency, raise the competitive ability of the local production sector and thus save the economy. But there is only one currency in the eurozone. So Greece had no opportunity to devalue its currency the way Russia did in 1998.

More to the point. Within ten years prices in the same hotel went from 285 U.S. dollars per week to 1,200 euros per week. So I have not been to Greece for recreation since 2012.

Now it is up to you to decide whether Greece should repay the debts or not.

 
Greece was forbidden to build ships. ... Then Greece was forbidden to sell olive oil.

Would somebody please show the me relevant European laws which forbid Greece to build ships and to sell olive oil? That doesn't ring true at all.

they could have devalued the currency

I would like to say something about that. Do you know who gains by devaluing a currency, and who loses? The main losers will be people like pensioners. Their pension will be devalued by far more than any austerity measures would ever have dared. The main winners will be people with debt in Greece, and Swiss franks in a bank account in Zurich. Devaluation is nearly always a redistribution of money from the poor to the rich.

Now it is up to you to decide whether Greece should repay the debts or not.

I repeat, I'm all for the right of Greece to decide in a democratic process to not repay their debts. I am also for the right of everybody else to decide in a democratic process to not give Greece any fresh money.

I place of quoting anecdotes, I'd like to know what is your proposal for the future?
 
Proposal for the future? I don't know. Maybe quit the EU and start rebuilding the old industries? Apparently EU benefits didn't pan out for Greece. Or something else went wrong.

Italicized text is part of the translation. Not my thoughts.

As far as the proposal to allow EU citizens to vote on whether more money should be given to Greece or not, you must understand that governments will never cede that power. Arranging that kind of a referendum could be done only for the sake of public opinion. Governments will collect all the money they can in taxes and hidden fees like VAT but will decide on how to spend that money without consulting the people.
 
Or something else went wrong.

What went wrong was cheap credits. Greece could borrow money at nearly the same interest rate as Germany. Economically that isn't unlike the sub-prime mortgage financial crisis. In both cases there is a shared responsibility for the outcome between those who borrowed the money and those who did lend it. I'm just saying that "more cheap money" can't possibly be the solution.


 
You guys must be seeing different PR than I have been. They must not be paying much for propaganda over here in the US. Most of what I'm seeing characterizes the people of Greece as lacking in moral character, living well beyond their means, and now getting the comeuppance they so richly deserve.

I'm not certain I agree with that narrative, but I certainly wouldn't agree it counts as 'Good PR'. ;-)

One can look back at the history of the crisis, the chain of events that lead to this breaking point, to assess moral desert, whether we're obligated to do this or that, but I prefer to be pragmatic. Greece is small potatoes on the global scale; whether it pays back its debts or not doesn't have that big of a direct impact. Spain would have a larger impact. Portugal and Ireland would as well.

Once it's established that a country can avoid fulfilling the terms of its money borrowing, of ignoring its international commitments, simply by electing a government that opposes such, other nations are encouraged to do the same. Helping Greece out would probably make everyone better off in the short term, but would create a lot of long term issues. Best to hold fast, swallow the bitter medicine, and stop the contagion now.
 
Source of the following text: Wikipedia (english version).

Greece is number 3 (after Spain and Italy) as olive oil producer.

The world olive oil production was 2.9 million tons in 2009. Greece produced 11.4 % of that (Spain: 41.2 %, Italy 20.2%). It is interesting to note that in 2000 the ranking was the same, but the percentages were a bit closer to one another (Spain 38.2%, Italy 20.1%, Greece 16.2%).

Population of these countries for comparison: Spain 46.4 million (2014 estimate), Italy 60.8 million (2014 estimate), 10.8 million (2012 census). If you take the population into account, Greece is the state who produces the most olive oil per citizen in the world.

Conclusion: Whatever the EU said: Greeks produce olive oil like no other people (ok, closely followed by Spain). That does not agree with the quoted Russian text, as it is often with facts and fiction.

Can't find anything conclusive about ship building, though. I can only say as a resident of former big ship building German city (Kiel), that ship building is heavily in decline (judged by the number of workers for ship building companies in my city). I have no data if it declines even faster in Greece.
 
I find the moral hazard argument the most compelling; Europe caving now would make bad behaviour more likely and expensive in the future for the next Spain, Portugal, Italy, Ireland,...

Besides, isn't most of the debt owned by government and quasi-government agencies. So debt relief is not going to cost international banks and foreign investors as much as European taxpayers?

What I expect is more of what the business press here in the US refers to as "extend and pretend."

The most humorous story was the January 2013 news ticker on a Simpsons cartoon "Europe to put Greece on eBay." If the Simpsons knew Greece was in trouble, why didn't the Troika"

Nobel-ish laureate Friedman's 1997 criticism of the Euro rings true. A common currency either needs more homogeneous economies or more federal behaviour.
 
Germany has a history of not paying off their own debt while at the same time collecting every penny on debts owed to them. I fail to see how that is not relevant.

Every "economic wonder" in the last few centuries has been founded on economic aid - not austerity. The way to get a bad economy moving again is to spend money, not save it.
 
Every "economic wonder" in the last few centuries has been founded on economic aid - not austerity. The way to get a bad economy moving again is to spend money, not save it.

The Marshall Plan cost America $13 billion, which is about $120 billion in today's money according to Wikipedia. And that was for the whole of Europe, not just Germany. In comparison Europe spent over 350 billion for just Greece, for a longer period than the duration of the Marshall Plan. It is pretty obvious that European economic aid has not led to an economic wonder, but has been squandered and enriched a small elite. Economic aid for Greece has been tried, and it has failed. At some point enough is enough.

Note also that the German debt that was forgiven was mostly not money that Germany had borrowed, but reparation payments from two wars. Only 50% of that debt was forgiven. And it was only 16 billion, so again even after inflation adjustment much less than Greece's debt now. My offer to forgive all of Greece's debt is a lot more generous than the deal Germany got.
 
It's interesting that you have this view. A few days ago economist Tyler Cowen posted that, in his view, Greece lost the public relations battle. I would say his view is correct - although you do see many people defending Greece (even on this blog), there is overall a lack of support for any further aid. Not just in Germany, but also in the US and the rest of the EU. Normally it's pretty easy to get people lined up around a cause like debt relief (a great opportunity to side with poorer groups against rich ones), but the Syriza government has already squandered so much political capital that it's very difficult to support them.
 
"You guys must be seeing different PR than I have been. They must not be paying much for propaganda over here in the US. Most of what I'm seeing characterizes the people of Greece as lacking in moral character, living well beyond their means, and now getting the comeuppance they so richly deserve."

Sounds like the USA to me. Last time I checked, they are 18 trillion USD in debt of which several trillion are owed to foreign countries. What do the US export again that anyone should need? Are they gonna pay back that debt anytime soon?
 
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