Time to copy 1953 German Debt Write-Off?

View wrote: »

Greece isn't engaging in a display of "mettle" but rather one of "theatrics", the sort than would almost be amusing in a bad production in a second-rate theatre but in a real life country with the livelihoods of millions of people being gambled with is just reckless.

Both Ireland and Portugal though have shown true mettle - namely, facing up to an awful economic situation and - despite the cries of the Cassandras - have stablised it and turned it around.

The previous Greeks governments were attempting that - and had made some progress toward that - but the current Greek government will if it continues it current performance almost certainly doom Greece to a situation where there they'll go from bad to much, much worse and have even less chance of clawing their way back from the depths of the abyss.

Whatever you call it – “mettle” or “theatrics” by the new Greek Government, it has flushed out into the open the huge problem of Greek tax evasion and now appears to have made a start on tackling the problem (not easy when a huge proportion – around 1/3rd - of the workforce is self employed – much higher than any other EU state).

Serious tackling of tax evasion never happened under previous Greek governments which, despite being fed Swiss banking specifics on thousands of named Greek individuals by Christine Legarde of the IMF, did little or nothing about it.

Previous Greek governments did make a very unbalanced attempt at austerity – foisting it mainly on the lower social echelons but leaving the wealthier sections of society, self-employed, professional middle classes, the rich and super-rich relatively unscathed.

Maybe that’s why Syriza were elected and are now trying to get out of the terrible situation their country was and still is in. They are new to all this stuff and have made lots of mistakes. But, to my mind so far, they seem to be driven by the desire to rescue their country in a much fairer way than previous Greek administrations. I believe this gives them a far greater chance of success than their predecessors!

The EU has been helping but it all takes so long – for example the new agreement between the EU and Switzerland to fight tax evasion is long overdue but doesn’t come into effect until 2018 – another 3 years: http://europa.eu/rapid/midday-express-19-03-2015.htm

Under this new agreement, Member States and Switzerland will automatically exchange information on the full range of financial account information from 2018. This means that EU residents will no longer be able to hide undeclared income in Swiss accounts to evade paying tax. Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Today we are taking a decisive step towards total tax transparency between Switzerland and the EU. I am confident that our other neighbours will soon follow suit. This transparency is vital to ensure that each country can collect the tax revenues it is due."

@view,
That’s the trouble with democracy, I guess, the people freely make their choices from the candidates and political parties, who present themselves for election, based on their own individual personal experiences and judgements about what is in their own and their country’s best interest. They then have to live with the consequences of their decisions.

Why people chose Syriza in greater numbers than the other parties and didn’t return Antonin Samaras’ New Democracy to office is irrelevant at this stage. All we know for certain, is the results – it’s votes that count.

Syriza are new to the game of government and however much was generally known about tax evasion in Greece, it is only recently becoming the subject of open debate in the Greek parliament – something which was long overdue. Hopefully, this is the start of doing something significant about this engrained problem.

It needs to be remembered that about 1/3rd of the workforce in Greece is self employed (higher than any other EU state), so this is not an insignificant problem to resolve.

Yes, Syriza are making mistakes but they are also facing up to many unpalatable issues. Most importantly, they are trying to bring the people along with them – something that the previous administration seemed to lose sight of.

It’s now their turn to run things – they are learning a lot of things the hard way – but that’s democracy – there’s really no certainty about it.

All that said, I am hopeful and cautiously optimistic that they will manage to get on top of things and restore their country to a better state – that is unless the people decide otherwise at a subsequent election. But hey, that’s democracy!

“Elections belong to the people. It's their decision. If they decide to turn their back on the fire and burn their behinds, then they will just have to sit on their blisters.”
― Abraham Lincoln

“I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal, and I’m proud of it.”
― Paul Krugman (economist)

“Democracy is always an unfinished experiment, testing the capacity of each generation to live freedom nobly.”
― George Weigel (author and political and social activist)

Jim2007 wrote: »

Well over here (Switzerland) the Greeks are seen as fools incapable of managing their own affairs, while the Irish are seen a responsible hard working people whom you can do business with.

Well into the 80’s, the Irish were seen in a similar light by some sections in Britain. We’ve worked our way out of that but there still remains some entrenched anti-Irish prejudice in the UK but far limited than before.

Like the Irish, it’s up to the Greeks themselves to sort this out with real action on the ground. But none of us are perfect, including the Swiss, particularly who have their own failings, such as how their banking has been facilitating tax evasion on a grand scale. Recent revelations about one of their major banking groups has highlighted this very prominently in the public consciousness.

We need to remember that the new agreement between the EU and Switzerland won’t come into effect until 2018. If they need time to sort things out on the ground, then so too does the new Greek government.

I believe that what we need for long term peace and prosperity is honesty and openness in business, public administration and politics, as well as a realistic level of support and solidarity between all EU member states. This does not mean capitulation to the weaknesses of fellow member states but firmness and realistically achievable targets for those who are in trouble and need support.

I think Angela Merkel and many of our EU leaders realise this, although it still doesn’t make it any easier to bring about change in a realistic, politically achievable manner.

Good loser wrote: »

The trouble with Syriza/Greece is that the party is a coalition of at least five factions. I can't see them holding together long enough to get there. Surely it will take 2/3/4 years to get meaningful increases in tax payments.

In the election apparently Syz promised to get rid of the residential property tax, which is the last thing they should have done especially with the hopeless income tax returns, and got lots of votes from the wealthy in north Athens as a result.

Plus income tax collections have plummeted since before the election. Difficult to change a culture like that in the short term.
I doubt it will work.

Indeed, it's very tight with IMF repayments due next Thursday, 9th April and doubts as to whether Greece will be able to meet its public service pay bill on 14th April.

Could be a return to the Drachma and who knows how this will impact on the Euro in the short, medium and long term - plus many other unpredictable consequences for the EU (e.g. including waves of economic migration), according to this report in the Express.

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Jim2007 wrote: »

This is just 'pie in the sky' stuff - nobody is going to accept payment in Drachma not even the Greeks themselves!

Don't think so - remember the Euro was supposed to be indissoluble, irrevocable, etc. and look at Cyprus now, which has had capital controls for the past 2 years. Similar capital controls are being talked about for Greece, i.e. a "Greek Euro", which would not be interchangeable with the Euro used elsewhere in the EU monetary area.

The biggest problem is the Euro, which was introduced before we had the "closer political union", seen as the long term goal by EU visionaries, but not generally shared on the ground by the majority of the populations of EU member states.

Unlike the US Dollar, the Eurozone remains a common currency area rather than a monetary union, which took a couple of hundred years to evolve in the USA.

For example, economist, Colm McCarthy's article in today's Sunday Independent:

There remains a serious risk that Greece could end up outside the single currency, by accident or design.

and

Thus Greece could end up with a new currency (the Greek 'euro') in advance of the government actually printing new banknotes. Some commentators expect that this is precisely the way a Greek exit is most likely to happen. The public think so too: there have been large outflows from Greek banks, with funds transferred to safety abroad or converted to cash, which would be unaffected. If you hold deposits in a Greek bank, you should be nervous, even if you believe the bank to be entirely solvent.

As for the other "sabre rattling" stuff coming from Greece (e.g. on mass migration, alliance with Russia, etc.) - well maybe / maybe not. Who knows?

But illegal migration is already a major problem in Italy, Spain, Malta, etc. An exit by Greece, which spends around 5% of GDP on defence (as opposed to ourselves spending about 0.4%), from the Euro and ultimately the EU could have much more unpredictable impacts on the rest of the EU than many people think.

The Euro and German hegemony or deficiencies in its leadership role loom large in the ongoing Greek Financial crisis. Makes you wonder, who will be next after Greece to suffer the consequences of a Euro without a workable political union in which all Europeans can really feel part of.

Here’s an interesting, though provoking article on the background and current state of these issues in Spiegel Online International of 23rd March 2015:

German economist Henrik Enderlein is not dogmatic and doesn't view the world through a national lens. A professor of political economics at the Hertie School of Governance in Berlin, Enderlein studied in both France and the US, worked at the European Central Bank (ECB) and taught at Harvard. He is an economic advisor to Germany's Social Democrats and his father was a politician with the business-friendly Free Democrats. "The fact that Germany today has the highest trade surplus of all countries has a simple reason," he says. "After the introduction of the euro, we had no other choice than to become more competitive. But it is absurd to believe that Germany did so in order to harm other countries."

Enderlein believes that Germany didn't consciously strive for its current roll but that it happened due to the structure of the euro zone. He also believes that the ECB is partially to blame because in the years after the euro's 1999 introduction, the euro zone's prime interest rate was kept between 3 and 4 percent. For southern European countries, this was much too low and led to a boom with rapidly climbing salaries and prices. For Germany, on the other hand, such interest rates were too high and employers had no choice but to keep salaries low so as to keep their products affordable. At first glance, that doesn't seem aggressive, but southern European countries complained that Germany was guilty of "wage dumping," or keeping domestic wages artificially low.

The resistance to rising wages led to German growth, self-confidence and, as a result, power. When Angela Merkel travels to Brussels, she does so as the leader of by far the strongest economy in the euro zone. Policies she doesn't agree with don't get passed. Power as such isn't a bad thing when those that have it use it wisely. But do they?

the euro arrived, which Mitterand hoped would take away Germany's "nuclear bomb." The euro was supposed to break Germany's economic dominance, but it has had the opposite effect. The shared currency has bound together the fates of euro-zone member states and granted Germany power over the others.
Which is why the "German question" has returned. Is the new Germany too big and powerful for the other European countries or is it too small and hesitant?

The problem, Kundnani believes, is not so much that Germany is exercising hegemonic power in Europe, but that it is only halfway exercising such power. It is focused entirely on itself -- and it may be too small for the role that it should be playing.

"Germany is once again a paradox. It is strong and weak at the same time -- just like in the 19th century after unification, it seems powerful from the outside but feels vulnerable to many Germans," Kundnani writes. "It does not want to 'lead' and resists debt mutualization, but at the same time it seeks to remake Europe in its own image in order to make it more 'competitive.'"
"Lead," in this context, means to frequently pay, which is also how Varoufakis sees things. The Greek finance minister wants Merkel to establish a kind of Marshall Plan, just like the US once did to get postwar Europe back on its feet.

A real hegemon like the US, Kundnani writes, doesn't just establish norms. It also creates incentives for those it rules over so that they remain part of the system. To do so, it must compromise in the short term so as to secure its long-term interests.

Germany is acting not like a hegemon, but like a "semi-hegemon." It
is an argument previously made by the German historian Ludwig Dehio in describing Germany's position in Europe after 1871. Though the context was radically different, former Polish Foreign Minister Radoslaw Sikorski also said in a speech in Berlin in November 2011 that he was less afraid of German power than he was of German inaction and urged Germany to take the lead in Europe.

View wrote: »

Capital controls are allowed for EZ member states in certain cases (but they are not the default option).

As the case of Cyprus demonstrates their usage does not alter a member state's usage of the Euro - you pay the same price for a cup of coffee there irrespective of where you or your Euro come from.



The biggest problem in some member
states was financial mismanagement. No budget is going to improve overnight because you suddenly use a different currency.

We’re not talking about the price of a cup of coffee in one EU state – we’re talking about the free movement of capital between EU states, which will stop for Greece if currency controls are put place as part of the sticking plaster solution to hold the Euro, and indeed the EU, together.
See Colm McCarthy in last Sunday’s Independent:

The eurozone was meant to be forever, and for every country which joined, not just a permanent monetary union but the decisive catalyst for the political dream of 'ever greater union'. It has instead been revealed as premature, poorly designed, poorly managed, a burden on economic recovery, a fruitful source of new divisions in Europe and a distraction from grave geopolitical challenges at Europe's borders.

Deposits in Greek banks account for most of the money supply in that country. If convertibility is suspended - prohibiting payments abroad, as was done in Cyprus - a euro in a Greek bank ceases to be equivalent to a euro anywhere outside Greece. The ECB can suspend the convertibility of Greek bank deposits without the agreement of the Greek authorities, either by collapsing the Greek banks or by denying them access to the so-called 'Target' settlement system which it controls. All payments between eurozone banks go through Target.

I’d agree that financial management was a big part of the problem but unresolved political issues were even more important. This applies not only for Greece and the peripheral EU states (including ourselves), but also for Germany and the economically stronger states. It was the overall design of the Euro, without having the necessary much closer political and banking union systems in place first that contributed most. We were all led to believe that the Euro would result in free movement of capital, an end to currency conversion costs and closer EU integration. What we got is nearer to economic meltdown, which could soon be followed on the political front.

The Euro is great in theory if all EU economies are aligned, but cheap interest rates led to a stronger Germany economically and disastrous misallocation of resources in the peripheral states. Nation states do not like being dominated by outsiders (we didn't and broke out of the previous economic / political union we were in). And we’re kidding ourselves if we think FG / Labour would have done any better than FF if they were in office in the Celtic Tiger days.