Communist take-over of Greece

Chemical Byrne

I've been reading up on the Syriza coalition of parties that surged to victory recently in Greece. It would seem that they the majority of the constituent parties are Communists of various strands. Trots, Maoists, Eurocommunists etc.
The general feeling in Berlin was that they would be all talk and no trousers and would quickly soften their line and go along with the currnet EU/Eurozone doctrine.
So far they seem to be maintaining the hard left stance and have halted privatisations etc.
The article mentions that there is talk of a bank run and capital flight – understandable but given the hard line nature of the new communist government would there be a chance that they would simply step in to stop any run on the bank, essentially wall in the capital? Privatise the banks and then only allow payouts in dribs and drabs if at all, or apply some ridiculously high tax on withdrawals & transfers over a certain threshold?
While general opinion in Germany is one of worry and hoping the Greeks will blink first, the new government is fresh in power and will seek to prove itself and flex its muscle. I’m sure there are also plenty former SED members in Germany who are frothing at the mouth with excitement of a present day Communist takeover of an EU country.

http://www.reuters.com/article/2015/01/28/us-greece-politics-germany-idUSKBN0L121R20150128

ChicagoIrish

Greece's political situation is pretty bad. There's communists on one side and there's Golden Dawn on the other. Nothing inbetween.

Peanut

Syriza coming to power could be quite good for Greece in the long-term.

As a disruptive power, they have the opportunity to restore faith in politics with the Greek public, and this is very important if you're trying to tackle an economy that has been plagued by corruption. The first step is to restore some sort of trust between the public and the administration.

As far as playing chicken with bailout funds, well they might as well - in the US, banks have been fined billions of $$$ for their lending in the sub-prime mortgage debacle, and there has to be an argument that the EU has a level of culpability (in terms of inadequate due-diligence) for the current situation in Greece (are Goldman Sachs going to get away scot-free for their role also?).

The moral hazard argument has its limits - there's no point in continuing to punish a debtor if doing so means that they're not going to have any chance of repaying their debt sooner (or at all).

Peanut

Peanut wrote: »

there's no point in continuing to punish a debtor if doing so means that they're not going to have any chance of repaying their debt sooner (or at all).

The opposition to a write-down in Greece's debt is almost 100% political. The economic arguments rejecting a write-down are the ramblings of financially-illiterate reactionaries.

The choice has very little to do with economic analysis. It is poltical.

The individual EU 'leaders' are concerned about setting a precedent, sure. But they are also concerned about having to realize a higher fiscal deficit, despite there being no actual disbursement of funds. So the reasons are both moral and selfish, but not truly economic.

Peanut

The language being used and the arguments being made are in terms of economic consequences however, e.g. the German finance minister today,

"The problem is that Greece has lived beyond its means for a long time and that nobody wants to give Greece money any more without guarantees"

Is all the talk about debt just a smokescreen for political wranglings underneath the surface?

Maybe to some extent, however I think there is a genuine confusion as to whether a write-down would be mismanaged by a new, untested left-wing government (I don't think this is necessarily the case).

Amberman

The problem with a Greek write down is that the holders of Greek debt (remember, sovereign debt is risk free...wink, wink) have used it as collateral for God knows how much additional borrowing, so a default could start a counter party cascade because of the monumental amount of leverage in the EU banking system. Deutsche is levered at 50 or 70 to 1 IIRC.

If Greeks walk away, its Lehman squared.

dlouth15

The basic options presented to Greece are:

A. Accept a continuance of the current bailout and conditions.

or

B. Don't accept a continuance of the bailout. Greece then runs out of money. The ECB then cuts off liquidity to Greek banks and Greece leaves the Euro.

There's a lot of pressure on Greece to take the A. option.

The problem with A. is that continuing the bailout only leads to more debt and the conditions attached don't lead to growth. It means that Greece doesn't default right now, greater debt only leads to more problems down the road.

The problem with B. is perhaps not Lehman's squared as some have put it but rather that the Euro will be changed forever. No longer will it be regarded as a one-way street by the markets. Whenever a country gets into trouble, and there's a couple of candidates, the markets will price a Euro exit into their lending decisions. This will cause borrowing costs to rise and compound the original problems of those countries. A grexit creates a crack that the markets then prise wider.

Some of this could be countered by the printing presses of the ECB, but eventually this will cause problems with the electorates of Germany, Finland etc. once they realize (and they will) that their wealth is being eroded.

Greece in the meantime don't want to leave the Euro as there would be immediate problems with setting up a new currency, capital controls, devaluation and so on even though in the longer term it might be the best for Greece economically.

But option A isn't really a runner either for Greece as it doesn't address the core problems facing the country. All it really does is put off default for the time being.

Amberman

dlouth15 wrote: »

Some of this could be countered by the printing presses of the ECB, but eventually this will cause problems with the electorates of Germany, Finland etc. once they realize (and they will) that their wealth is being eroded.

Well, until someone points out to the Germans that their wealth generating export machine is humming along beautifully in no small measure due to an artificially low currency for their economy.

They can't really sustain that and nation state democracy without transfer payments in some form.

dlouth15

Amberman wrote: »

Well, until someone points out to the Germans that their wealth generating export machine is humming along beautifully in no small measure due to an artificially low currency for their economy.

They can't really sustain that and nation state democracy without transfer payments in some form.

This is the problem. Politicians there don't want to tell the German electorate that their export performance is partly due to a low valued Euro. The German electorate want to believe that their export figures are entirely due to hard work, not merely partly. But the same currency that is low for the Germans is too high for other countries and thus imbalances are created leading to unpopular bailouts which sometimes make the problems worse in the countries receiving them.

Godge

dlouth15 wrote: »

The basic options presented to Greece are:

A. Accept a continuance of the current bailout and conditions.

or

B. Don't accept a continuance of the bailout. Greece then runs out of money. The ECB then cuts off liquidity to Greek banks and Greece leaves the Euro.

There's a lot of pressure on Greece to take the A. option.

The problem with A. is that continuing the bailout only leads to more debt and the conditions attached don't lead to growth. It means that Greece doesn't default right now, greater debt only leads to more problems down the road.

The problem with B. is perhaps not Lehman's squared as some have put it but rather that the Euro will be changed forever. No longer will it be regarded as a one-way street by the markets. Whenever a country gets into trouble, and there's a couple of candidates, the markets will price a Euro exit into their lending decisions. This will cause borrowing costs to rise and compound the original problems of those countries. A grexit creates a crack that the markets then prise wider.

Some of this could be countered by the printing presses of the ECB, but eventually this will cause problems with the electorates of Germany, Finland etc. once they realize (and they will) that their wealth is being eroded.

Greece in the meantime don't want to leave the Euro as there would be immediate problems with setting up a new currency, capital controls, devaluation and so on even though in the longer term it might be the best for Greece economically.

But option A isn't really a runner either for Greece as it doesn't address the core problems facing the country. All it really does is put off default for the time being.

Your logic falls down with the bit in bold. It has worked for Portugal, Spain and Ireland who are all back in growth territory. It was also working for Greece until Syriza took power.

Godge

Godge wrote: »

Your logic falls down with the bit in bold. It has worked for Portugal, Spain and Ireland who are all back in growth territory. It was also working for Greece until Syriza took power.

Yes it's worked fantastically for everyone

Member State|GDP 2008-2013
Portugal|-7.1%
Ireland|-6.6%
Greece|-22.5%
Spain|-7.4%
Italy|-9.1%
x̄|-10.5%
σ|-6.8%


Member State|Unemployment 2014
Portugal|13.4% (Oct 2014)
Ireland|10.9% (Oct 2014)
Greece|25.9% (Aug 2014)
Spain|24% (Oct 2014)
Italy|13.2% (Oct 2014)
x̄|17.5%
σ|7%


On the whole, the only positive thing you can say about austerity is that it decimated domestic consumption, decreased ULCs, has led to a collapse in imports and has (thereby!) reduced the current account deficit.

It's so ridiculous! It's a bit like going up to a homless man and saying "well done, now you're homeless, you won't have to squander all your dosh on rent and ESB".

Very few things are black and white in economics, or homelessness. There is often some macabre benefit in having the rug pulled out from under yourself. It's funny in a grim sort of way. In fact I think we should call this whole approach "Grim Economics".

oscarBravo

A Tyrant Named Miltiades! wrote: »

Yes it's worked fantastically for everyone

Member State|GDP 2008-2013
Portugal|-7.1%
Ireland|-6.6%
Greece|-22.5%
Spain|-7.4%
Italy|-9.1%
x̄|-10.5%
σ|-6.8%

Amazing what you can do with statistics when you carefully select your dates.

Member State|GDP 2012-2014
Portugal|+7.5%
Ireland|+10.6%
Spain|+5.8%
Italy|+5.7%

oscarBravo

oscarBravo wrote: »

Amazing what you can do with statistics when you carefully select your dates.

Member State|GDP 2012-2014
Portugal|+7.5%
Ireland|+10.6%
Spain|+5.8%
Italy|+5.7%

Those were the reliable figures I had to hand. By all means, feel free to post the full figures from crisis to today, if you have reliable figures.

For comparison, we might look at countries like France who have tended to reject austerity.

oscarBravo

A Tyrant Named Miltiades! wrote: »

For comparison, we might look at countries like France who have tended to reject austerity.

+7.9% from 2012-2014.

alb

oscarBravo wrote: »

Amazing what you can do with statistics when you carefully select your dates.

Member State|GDP 2012-2014
Portugal|+7.5%
Ireland|+10.6%
Spain|+5.8%
Italy|+5.7%

Numbers are like people, if you torture them long enough they'll tell you what you want to hear.

alb

alb wrote: »

Numbers are like people, if you torture them long enough they'll tell you what you want to hear.

That an original quote, yeah? Never heard that one before.

Excluding 2014 because we're in February and 2014 figures are subject to change, (besides, I don't have them) is not some wicked misrepresentation, it's a standard practice for reporting.

The selected years are adequately representative of the effectiveness of austerity practices.

If restrictive fiscal policies are intended to remedy the current-account deficit, that's a legitimate aim. Just like becoming homeless is a legitimate aim when trying to cut down on rent. But intimating that austerity, on the whole, "was working" in any other way is just false.

Godge

A Tyrant Named Miltiades! wrote: »

Those were the reliable figures I had to hand. By all means, feel free to post the full figures from crisis to today, if you have reliable figures.

For comparison, we might look at countries like France who have tended to reject austerity.

Well, you see, it isn't about from crisis to today. An economy is like a large ship, takes time to turn around.

The PIIGS economies bottomed out two years ago and the benefits of austerity started kicking in and they are growing today. The only one that has stalled is Greece, which stalled in Q4 last year as people worried about Syriza getting in. I fully expect significant negative growth in Greece in Q1 2015 because of the Syriza effect.

Godge

Godge wrote: »

Well, you see, it isn't about from crisis to today. An economy is like a large ship, takes time to turn around.

What an awful analogy.

Firstly, it's not correct. Spain and Portugal have started implemented expansionary fiscal policies since 2013, helped significantly by disinflation which has increased real wages in that period.

The only nominally-positive thing that austerity has done is it has improved commercial profitability. The Germans think this is wonderful because they live in a world where corporate profits are traditionally reinvested. We live in a world where corporate profits buy shiny things and are less likely to be reinvested.

And look at France. Restrictive fiscal policy is abandoned, and the economy is sailing along wonderfully, to return to awful nautical analogies.

And another thing. The EU Commission has relaxed its previously-strict stance on austerity, by recently revising the application of the Stability and Growth Pact, which gives a new flexibility to member states when it comes to fiscal consolidation. Italy is about to benefit spectacularly from this.

Not exactly the approach of an organisation convinced of the benefits of austerity and the pressing need to implement it, is it?

McDave

Peanut wrote: »

Syriza coming to power could be quite good for Greece in the long-term.

As a disruptive power, they have the opportunity to restore faith in politics with the Greek public, and this is very important if you're trying to tackle an economy that has been plagued by corruption. The first step is to restore some sort of trust between the public and the administration.

As far as playing chicken with bailout funds, well they might as well - in the US, banks have been fined billions of $$$ for their lending in the sub-prime mortgage debacle, and there has to be an argument that the EU has a level of culpability (in terms of inadequate due-diligence) for the current situation in Greece (are Goldman Sachs going to get away scot-free for their role also?).

The moral hazard argument has its limits - there's no point in continuing to punish a debtor if doing so means that they're not going to have any chance of repaying their debt sooner (or at all).

The greatest disruptive contribution Syriza could have made would have been to get their tax collection system order. Right from the start Schaueble offered Syriza the assistance of 500 German tax officials. Instead, all we have is three months of posturing, insults and confrontation.

It seems all the hard left can do is generate rhetoric. In this regard, Trotskyites are no different to Neocons. Syriza are running out of road fast.