Tuesday 10 September 2013

A rare piece of sanity about Greece

It is not by me, but it deserves to be read by as many people as possible.
Indeed, entire generations are currently being sacrificed at the altar of ensuring Merkel a smoother election.

This is by George Stathakis, a professor of economics at the University of Crete. The original article, The Greek Issue and the Imagination of German Politicians, is actually in Greek so you may or may not want to follow the link. Here is a translation (thanks to talos at the European Tribune) of the main points.

I would just add that point 4 is true when the said economy is in depression. An economy with a debt problem but in a boom can address it. An economy in depression, with or without a debt problem, needs deficits. Depressingly, we've known that for 80 years at least, but Germany demands that you forget it.
Oh, and please remember points 1 and 3 next time you hear that Germans are sick of picking the tab. Germany has not paid a single euro, on the contrary, they greatly gained (€10 billions already in 2012, estimated to reach around 67 billions from the crisis episode -and that is with the optimistic scenarios in terms of duration of the crisis, that have consistently been met with disappointment when confronted to reality) from the lowering of their interest payments.

  1. German taxpayers have not paid a single euro for the Greek crisis. The mechanism that lends the crisis countries borrows money from the markets, not the taxpayers, on the basis of government guarantees that countries like Germany offer. The organisation's equity is only 80 billion Euros with 20 billion of those coming from Germany. Only these can be called theoretically "taxpayer money". Only in the case of a hair-cut will there be some fiscal cost for the guarantor states
  2. The ECB, which has been involved with the buying of bonds of countries under the memoranda, is profiting until now. The same holds for most of the other Central Banks that are being called to return their profits to Greece, as some have already done.
  3. German banks minimized their loses from Greek bonds through the first Greek memorandum, despite the PSI deal that followed and Germany has benefited from the European crisis due to the fact that it can now borrow money at zero rates.
  4. The Greek programme is a parody that is sinking the Greek economy and weakens its ability to service not only the current debt, but even a smaller debt load. As paradoxical as it might seem, an economy that faces a debt problem needs, temporarily perhaps, more debt in order to recover. The austerity policies increase the public debt while at the same time undermining the ability to service it
  5.  A third "loan package" is needed because of the first and the second ones. Repayment of 300 billion might have been postponed till 2020, but until then 83 billion Euros must be paid as interest, an amount that the troika reckons will be paid by budget surpluses after 2014 that will reach 4,5% of GDP and from the privatisations, which are now estimated (after revision of the initial outrageous 50 billion euro target) at 22 billion Euros. For this to happen the troika is anticipating a return to growth by 2014 and a growth rate of 3% afterwards, based on an increase of exports by 50% compared to 2009 and an investment boom that will increase capital formation to 15% GDP per annum. Simply put this is a science fiction scenario. This means that the funding gap might turn out to be closer to 80 than to 10 billion Euros.
  6. Greece must exit the memorandum and avoid by any means any new loans. For this to happen three things are needed: Debt reduction - direct or indirect-, transferring the 50 billion set apart for bank recapitalization to the banking union mechanism and a generous grace period of a payment of interest moratorium or a growth clause. A return to regular borrowing by Greece will only then become feasible and only if the ECB continues to do, as in Italy, what it should do: intervene or threaten to intervene every time lending rates rise.
The Greek issue is more convenient for the German electoral campaign than the Italian or the Spanish issue. It revives the initial idea of a "special case" and diverts the discussion from its true dimensions which are European. Germany, as an "incomplete hegemon", can massacre the imaginary enemy of a "problematic" Greece, avoiding the discussion which concerns it, or which should concern it which is the European Crisis. There, silence pervades.

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