
Why a Greece Deal Matters: A Visual Guide - dpflan
http://www.nytimes.com/interactive/2015/07/12/business/international/100000003795310.mobile.html
======
jandrese
Why is it that nobody in the Eurozone is willing to discuss the fundamental
and disastrous consequences of a unified monetary policy with independent
fiscal policy?

Are we going to wait until Greece has to be bailed out a fourth time? Or a
fifth time? What about when Spain defaults? This is going to keep on happening
until the underlying problems are addressed. Ultimately, the EU is going to
need the ability to tax and spend to redistribute wealth and keep the
economies working. It's the same way the US taxes New York, Massachusetts,
California, etc... to give to Alabama, Mississippi, Louisiana, and so on.

I know it will be unpopular politically, but the EU really needs to make
itself look more like the United States of Europe if it wants this whole
unified currency thing to work. They have been trying to ignore the elephant
in the room for so long that smaller countries are drowning in its shit.

~~~
fla
It will never be like the US because Europe countries don't share a single
language / culture, nor a common history.

The engineer in me really feels safer having many small independant systems
than a single mega unified thing that is too big to fail - but it's another
story.

~~~
jandrese
Having a bunch of small systems is no good if the failure of any one system
brings the whole thing down.

I'm not personally convinced that a Greek exit from the Euro would be the
disaster that the news outlets like to think it will be. I think it will suck
for the Greeks and basically brand them as a third world country, but it is
probably a better solution than a few years of crippling austerity followed by
another default/bailout/more austerity.

On the other hand, a Greek exit would also mean that the Eurozone countries
wouldn't be forced to examine the aggregate fiscal policy and figure out a way
to prevent this sort of problem from happening elsewhere.

------
rhodri
Most of this bailout money will go straight back to paying interest on the bad
loans that caused the crisis. Much of these loans came from banks in the very
same Eurozone countries that are imposing this deal onto Greece. So much for
European solidarity...

The austerity imposed on the Greek people will shrink the economy and ensure
that the next few generations will be labouring in servitude to pay off the
debts of the previous generations. The supreme irony in all of this is that
Germany was able to thrive after WW2 in part because of the writing-off of
more than half of their government debt, something that Angela Merkel has
claimed is 'off the table'.

Further reading: [http://www.theguardian.com/world/2015/jun/29/where-did-
the-g...](http://www.theguardian.com/world/2015/jun/29/where-did-the-greek-
bailout-money-go) [https://medium.com/@gavinschalliol/thomas-piketty-germany-
ha...](https://medium.com/@gavinschalliol/thomas-piketty-germany-has-never-
repaid-7b5e7add6fff)

~~~
tosseraccount
Bad loans did not cause the crisis.

Bad loans are a symptom of a poor fiscal situation.

No one forced Greece to take out loans.

Consider this write up :[http://www.vanityfair.com/news/2010/10/greeks-
bearing-bonds-...](http://www.vanityfair.com/news/2010/10/greeks-bearing-
bonds-201010)

This was before the "Greeks as Victims" narrative gained wide currency.

 _“The way they were keeping track of their finances—they knew how much they
had agreed to spend, but no one was keeping track of what he had actually
spent. It wasn’t even what you would call an emerging economy. It was a Third
World country.”_

 _As it turned out, what the Greeks wanted to do, once the lights went out and
they were alone in the dark with a pile of borrowed money, was turn their
government into a piñata stuffed with fantastic sums and give as many citizens
as possible a whack at it._

~~~
yequalsx
No one forced Greece to take the loans. No one forced banks to loan to Greece.
Both parties are at fault. Both parties ought to take losses. Only one is in
this case.

~~~
yummyfajitas
Lenders already took a 53.5% haircut in 2011. In return, the Greeks were
supposed to implement structural reforms and privatization. They delayed
implementing that until 2014 at which point they officially repudiated their
side of the agreement (but kept the money).

[https://en.wikipedia.org/wiki/Greek_government-
debt_crisis#2...](https://en.wikipedia.org/wiki/Greek_government-
debt_crisis#2010.E2.80.932014)

So yes, so far, only one side (lenders) has taken losses.

~~~
yequalsx
Your view is quite selective. Greece can't repay the loans and never will.
Their economy has shrunk and they are in the midst of a major depression. It
is quite incorrect to say Greeks have not suffered.

Also, by the time of the haircut the banks that did the original lending to
Greece were not holders of the private bonds. They had been unloaded. Ever
since 2009 almost all money given to Greece from the so called bailouts have
merely been transfers to primarily German and French banks. The bailout has
been nothing more than a propping up of German and French banks while at the
same time doing great damage to the Greek economy.

To be sure Greece has a pretty messed up government and they need to mature
politically. The Greek people have suffered greatly and need to reform but
further austerity is not going to help them.

~~~
yummyfajitas
_Ever since 2009 almost all money given to Greece from the so called bailouts
have merely been transfers to primarily German and French banks. The bailout
has been nothing more than a propping up of German and French banks while at
the same time doing great damage to the Greek economy._

In that case, Greece should be fine with no further bailouts - all they need
to do is officially repudiate their debt. Then they can go on running Greece
independently without any reforms and they won't need to beg the Germans and
Bulgarians to send them money.

~~~
yequalsx
Given your previous comments with regard to your knowledge of finance you know
this isn't such an easy thing. Their financial system is intimately tied into
the euro and remaining part of the EU.

~~~
yummyfajitas
If the Greeks produce X euros worth of goods/serviecs and consume Y euros for
Y < X, this should be a minor problem at best - paperwork, really. The actual
problem is that Greece can't pay for their current levels of consumption. They
haven't been able to pay for consumption in quite a while actually, but
previously EU lending propped them up.

This is why Argentina's default wasn't anywhere near as bad - they were fairly
close to consuming as much as they produced.

Unlike Greece, Argentina also instituted necessary reforms - for example,
import substitution and breaking sticky wages via a 13% _nominal_ wage cut for
govt workers and pensioners [1]. Greece has steadfastly refused to do these
things in spite of having ample time.

[1] Recall why Keynesians promote inflation - to inflate away _real wages_ ,
which this cut also did.

------
dpflan
From the OECD. Here are a few articles that explore the EU's approach on
sovereign debt crisis. One is form 2011, and the other is from 2012. The 2012
article discusses the "Greece Problem":

    
    
      The „Greece problem‟ needs to be resolved once and for all   
      with a 50% (or larger) haircut on its sovereign debt and
      necessary ancillary policies, so that its chances
      or remaining in the euro improve. (2012)
    

1\. 2011 - [http://www.oecd.org/finance/financial-
markets/49191980.pdf](http://www.oecd.org/finance/financial-
markets/49191980.pdf)

2\. 2012 - [http://www.oecd.org/finance/financial-
markets/49481502.pdf](http://www.oecd.org/finance/financial-
markets/49481502.pdf)

3\. Greece @ OECD.org:
[https://data.oecd.org/greece.htm](https://data.oecd.org/greece.htm)

~~~
dimitar
I'm actually surprised that the OECD has said that. Similar research has been
published by the IMF as well. So these organizations have experts and yet
spokesmen and officials give the opposite advice of what they tell them. Good
thing they have transparency at least.

~~~
rhodri
Indeed – illustrates very clearly how governments, institutions and
corporations aren't the unified hierarchies they present themselves as, and
instead can be many-headed organisms pursuing sometimes contradictory aims.
Compare to Samsung and Google suing each other for patent infringement while
operating a revenue-share scheme on ad profits.

~~~
TheMagicHorsey
I don't think Samsung and Google have sued each other for patent infringement.
I could be mistaken. Do you have a source?

I believe you meant to say Samsung and Apple perhaps?

------
dpflan
If you'd like to visualize the physical amount of euros relative to the size
of a human and delivery trucks:
[http://demonocracy.info/infographics/eu/debt_greek/debt_gree...](http://demonocracy.info/infographics/eu/debt_greek/debt_greek.html)

------
dpflan
Access via a Google query:
[https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&c...](https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB8QqQIwAA&url=http%3A%2F%2Fwww.nytimes.com%2Finteractive%2F2015%2F07%2F12%2Fbusiness%2Finternational%2Fwhy-
the-greece-bailout-deal-matters.html)

------
stupandaus
The real reason the Greece deal matters, is the rest of the EU are looking at
it as a proxy for what will happen to Spain and Italy next. These two make up
a much larger proportion of the EU GDP, and are facing their own major debt
crises.

~~~
tosseraccount
Spain and Italy have cut their deficits in half.

[http://www.tradingeconomics.com/spain/government-
budget](http://www.tradingeconomics.com/spain/government-budget)

[http://www.tradingeconomics.com/italy/government-
budget](http://www.tradingeconomics.com/italy/government-budget)

Robust growth predicted for Spain : [http://www.oecd.org/eco/outlook/spain-
economic-forecast-summ...](http://www.oecd.org/eco/outlook/spain-economic-
forecast-summary.htm)

 _Robust growth is projected over the next two years, driven by very
supportive financial conditions_

[http://www.oecd.org/eco/outlook/italy-economic-forecast-
summ...](http://www.oecd.org/eco/outlook/italy-economic-forecast-summary.htm)

 _After a long recession, the Italian economy has started its gradual
recovery. Output is projected to grow by 0.6% in 2015 and by 1.5% in 2016_ /

~~~
cplanas
If reducing your budget matters, then Greece has a very prosperous economy.
Reducing your budget does not matter if doing so sends you into a (bigger)
depression that makes your debt grow.

Spanish debt is growing fast, having almost doubled since 2010
([http://www.tradingeconomics.com/spain/government-debt-to-
gdp](http://www.tradingeconomics.com/spain/government-debt-to-gdp)).

~~~
tosseraccount
If.

------
kwelstr
A nice visual guide of all Euro countries. Some still have too much debt
compared to GDP. Scandinavia seems to be doing just fine.

~~~
Amezarak
Unfortunately it's hard to see how austerity measures (in the "bailout" deal)
are going to improve debt compared to GDP. It certainly didn't in Greece,
where a 6% rise in debt (post-haircut) went with a ~35% increase in debt/GDP,
because austerity tanked the economy.

It's also unclear what exactly "too much debt compared to GDP" means. What
number is too much, and under what circumstances?

Additionally, while Finland's debt/GDP may be "fine", for your definition of
fine, Finland's economy is not doing fine, thanks to the constraints imposed
by the Euro and the same austerity policies in place throughout Europe. [1]
[2] Even now Finland has 8%+ unemployment and 0.8% growth. Indeed for these
reasons, Finland is expected to become one of the most indebted countries in
Europe. [3]

[1] [http://krugman.blogs.nytimes.com/2015/06/01/the-finnish-
dise...](http://krugman.blogs.nytimes.com/2015/06/01/the-finnish-
disease/?module=BlogPost-
Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body)

[2]
[http://www.interfluidity.com/uploads/2015/07/Greekovery.png](http://www.interfluidity.com/uploads/2015/07/Greekovery.png)

[3] [http://www.bloomberg.com/bw/articles/2014-01-23/is-
finland-a...](http://www.bloomberg.com/bw/articles/2014-01-23/is-finland-a-
victim-of-the-austerity-medicine-it-prescribed-for-europe)

~~~
wolfgke
> It's also unclear what exactly "too much debt compared to GDP" means. What
> number is too much, and under what circumstances?

It is clearly meant according to the Maastricht criteria:

[https://en.wikipedia.org/wiki/Euro_convergence_criteria](https://en.wikipedia.org/wiki/Euro_convergence_criteria)

"2\. Government budget deficit: The ratio of the annual general government
deficit relative to gross domestic product (GDP) at market prices, must not
exceed 3% at the end of the preceding fiscal year (based on notified measured
data) and neither for any of the two subsequent years (based on the European
Commission's published forecast data)."

"3\. Government debt-to-GDP ratio: The ratio of gross government debt
(measured at its nominal value outstanding at the end of the year, and
consolidated between and within the sectors of general government) relative to
GDP at market prices, must not exceed 60% at the end of the preceding fiscal
year. Or if the debt-to-GDP ratio exceeds the 60% limit, the ratio shall at
least be found to have "sufficiently diminished and must be approaching the
reference value at a satisfactory pace"."

Or in easier words:

>
> [https://en.wikipedia.org/wiki/Maastricht_Treaty](https://en.wikipedia.org/wiki/Maastricht_Treaty)

"2\. Government finance:

Annual government deficit:

The ratio of the annual government deficit to gross domestic product (GDP)
must not exceed 3% at the end of the preceding fiscal year. If not, it is at
least required to reach a level close to 3%. Only exceptional and temporary
excesses would be granted for exceptional cases.

Government debt: The ratio of gross government debt to GDP must not exceed 60%
at the end of the preceding fiscal year. Even if the target cannot be achieved
due to the specific conditions, the ratio must have sufficiently diminished
and must be approaching the reference value at a satisfactory pace.".

~~~
Amezarak
> It is clearly meant according to the Maastricht criteria:

It was not clear to me, but thank you for the explanation.

What insanity that the European nations would cripple their economic tools
with a treaty like this. There are times when debt/GDP absolutely should be in
great excess of 3%, and times when debt must be greater than 60%, and no
country should require 'approval' to tackle their own economic problems.

Fortunately, I suppose, it looks like these sections of the treaty are not
enforced very strongly.

~~~
toyg
_> it looks like these sections of the treaty are not enforced very strongly._

Or at all, for certain countries. Germany and France routinely break pretty
much any parameter, in various directions, and absolutely nothing happens.

But as soon as a minnow spends a little bit more, oooh boy...

~~~
wolfgke
> Or at all, for certain countries. Germany and France routinely break pretty
> much any parameter, in various directions, and absolutely nothing happens.

Germany has been very strict on their own budget in the last four years and
tries hard to satisfy the Masstricht criteria. For the following data, cf.
[http://www.tagesschau.de/wirtschaft/wirtschaftsdaten104.html](http://www.tagesschau.de/wirtschaft/wirtschaftsdaten104.html)

budget deficit/surplus of EU countries (% of GDP)
(Haushaltsdefizite/-überschuss der EU-Länder): -3 is allowed, Germany has

    
    
      2012: +0,1 %
      2013: +0,1 %
      2914: +0,7 %
      2015 (estimate): +0,6 %
      2016 (estimate): +0,5 %
    

which is (IMHO) exemplary.

From the Maastricht criteria only "total debt (% of GDP)" (Gesamtschulden (in
% des BIP)) is problematic, since there only 60% is allowed. But also here
Germany is working very hard to satisfy this criterion:

    
    
      2012: 79,3 %
      2013: 77,1 %
      2014: 74,7 %
      2015 (estimate): 71,5 %
      2016 (estimate): 68,2 %

~~~
gutnor
Well it does illustrate how transient "exemplary" is. Ireland and Spain were
exemplary in the years leading to the crisis, beating Germany in the debt and
surplus metrics.[0][1]

Media like to show "feel good metric" to put a patriotic positive spin (us
good, them bad) on the result of regular political arm-wrestling between
temporarily weaker countries. You won't see those metric in France however the
media will use different things to achieve the same effect. The idea is to
build a moral high horse so that your people can forget that over there, few
people have benefited but a lot will pay.

[0]
[http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&l...](http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina225&plugin=1)

[1]
[http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1...](http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=teina200)

------
hackuser
There is a far more serious issue at stake: The threat by the hardline
creditors, most importantly Germany, as well as by 'euro-skeptics' in the UK
and elsewhere, that European integration and union are not goals and ideals,
but transactional economic arrangements that are good only for the money. When
is the last time you heard someone argue the political and security benefits
of the EU and the costs of losing it?

~~~
nickik
What are these politcal benefits? Security benefits, seams like the EU is more
likly to cause war then to make it go away.

Contrary to popular belive you can make agreements without the EU. If you want
to have a security agreement, create a security agreement.

~~~
JamesBarney
The people creating the EU were not mistaken that the only way to create
security benefits was by creating the EU. They instead were well acquainted
with a popular theory that said trade and economic interdependence reduces the
risk of war. The architects of the EU wanted to increase this interdependence
not for economic gain but to tie together the economies of Europe so closely
that war would be next to impossible.

~~~
nickik
Yes, they were idiots. Trade does help, true. But you can agree to free trade
and free movment of people WITHOUT things like common currency and sharing of
debt. These things cause problems, and many people have pointed this out.

There are different visions of the EU, some wanted it to be a free-trade zone
others want 'United State of Europe'.

------
nickik
This is really about a institutional setup. If Greece is allowed to make debt
common to the hole EU, it will set a president.

The marekt thought that debt was held in common and bond yields were the same
for everybody, now they have to make it clear to markets that this is not the
case. Because if it was the case, then ALL the debt is held by everybody.

[https://2.bp.blogspot.com/-lDRRJhgiFTE/T9tShSNsaII/AAAAAAAAA...](https://2.bp.blogspot.com/-lDRRJhgiFTE/T9tShSNsaII/AAAAAAAAAqU/7LcljR9adLM/s1600/Europe+Bond+Yields.png)

It does not need a PhD in Game Theory to see what the likly outcome of such a
system is.

Greece is in the unfortinate situation of beeing the case were this choice has
to be made. Its not all their fault, but its also not their fault.

This is just on of the problems of the EU and the Eurozone.

Its my beliefe that if debt should be assumed commonly, it will break up the
EU because no voters in any country would agree to this.

It is really sad, and if you want to blame somebody, its the eurocrats who
have steamrolled over many economists and many others who have point out the
idiocy of their plans.

~~~
kanamekun
<< Its my beliefe that if debt should be assumed commonly, it will break up
the EU because no voters in any country would agree to this. >>

But that's exactly what happened in the early days of the founding of the US,
when Alexander Hamilton negotiated the Funding Act of 1790: "The Funding Act
authorized the federal government to receive certificates of state war-
incurred debts and to issue federal securities in exchange."
[https://en.wikipedia.org/wiki/Funding_Act_of_1790](https://en.wikipedia.org/wiki/Funding_Act_of_1790)

Without the Funding Act, the state governments would've defaulted on their
Revolutionary War debt. By assuming the debt of the states, the US greatly
strengthened their collective borrowing ability and also brought the states
closer together into the union.

~~~
nickik
If you WANT a "United State of Europe" then yes, common debt makes sence. But
in that case all nations lose their sovereignty and absolutly no nation in the
EU has voted on this, and not a single one would agree to this.

I, for one, am against a United States of Europe and theirfore Im against
common debt.

If we want to attempted such a project we should start by democratically
asking people if they want it, not just imposing it. That EU doing this now
would essentially be taking away sovereignty in a undemocratic way, and
theirfore it would be tyranny.

------
jawns
Am I the only one who found it odd for a `nytimes.com/interactive` feature to
be ... non-interactive?

~~~
andruby
I also expected more from the d3 visualisations.

------
venomsnake
The deal is terrible ... I cannot see how it will pass parliament. It is
dooming Greece for a century. And on top of that the privatization fund is
deeply humiliating.

~~~
dpflan
Krugman agrees that the list of demands is "madness":
[http://krugman.blogs.nytimes.com/2015/07/12/killing-the-
euro...](http://krugman.blogs.nytimes.com/2015/07/12/killing-the-european-
project/)

------
happyscrappy
I don't understand how they plan on reducing tax evasion if it can be
justified as only going to Germany anyway.

~~~
k-mcgrady
Much higher VAT? Tougher penalties for tax evasion + more thorough
investigation?

~~~
leereeves
And the people of Greece would vote for a government that does that?

~~~
k-mcgrady
Do they have a choice at this stage? Personally I don't think austerity is a
good way out but when you have no money, no one will give you money, and
nobody even wants anything to do with you, there aren't many other choices.

