
A Euro Tragedy - deafcalculus
https://mainlymacro.blogspot.com/2018/06/a-euro-tragedy.html
======
YeGoblynQueenne
>> The reality, as the author describes, is that Syriza’s call for debt relief
should have been granted.

But that is 100% the failure of Syriza, not the Europeans. Syriza took this
perfectly sensible, perfectly legitimate demand and turned it into a circus
act, backed by a farcical Referendum [1] and fronted by the clownish antics of
Yanis Varoufakis.

A unique opportunity to reason with our European partners was squandered, just
so that Varoufakis could burnish his personna of the maverick economics
professor. And because Tsipras, who was in way over his head, an inexperienced
young prime minister trying to negotiate with the heavy-weights of European
politics, did not have the courage or the honesty to accept reality for what
it was: that no, we didn't hold all the aces, no, the EU would not shed a tear
if we jumped off the Grexit cliff no matter how loudly Varoufakis proclaimed
it to be the divine truth; that, no, you cannot play chicken with frau Merkel,
you silly little boy.

And that the Europeans were not even out to get us. They needed something they
could present to their own citizens as a viable option. We gave them an
Aristophanean comedy instead, a shadow play of Karagiozis with all the bells
and whistles. And we paid the price, for the populism of our leaders, their
lack of seriousness and their incompetence.

And we still do.

_________

[1] The referendum question regarded an offer by the EU that had already been
withdrawn before the referendum was called. The text of the question itself
was so vague and complex that on the one hand it immediately became a running
joke with various memes, and on the other, allowed all sides in the debate to
claim victory and only served to muddle the waters even further on what "The
Will of the People" really was.

~~~
netsharc
I got a different reading of the whole situation in 2015 from the book by Mr.
Varoufakis himself, "Adults in the Room". TL;DR: the EU was never going to
budge. They knew what he wanted was right, but they couldn't give Greece any
political wins. And the Eurocrats were expert in shaping the story in the
media, that you (yes you) got the impression the Greeks were stupid clowns.

Look at Brexit, I now get the impression the Brits are clowns, but if someone
wrote an inside story book, it's probably deliberate run-around and media
manipulation. Not that I'm saying the Brits aren't clowns...

~~~
jimnotgym
> media manipulation

This is intruiging to me. From where I am sitting in the beautiful English
sunshine, the media seems very bullish and pro-brexit!

The Daily Mail, Express and Telegrapgh are openly pro-brexit, branding those
trying to stop it as 'traitors'.

The Murdoch press (Times and Sun) is less overt, but Murdoch is well known to
be pro-brexit.

This leaves The Guardian, which is well read on the internet because it is
free but less so on paper. Also the Mirror is apparently more balanced, but
lightweight. The BBC seem very sheepish after open threats from Ian Duncan
Smith.

I think the domestic press have been very, very easy on the government and the
official opposition who are not opposing Brexit. I wonder if the international
press are behaving differently? Disclosure: I do believe the Brexit team are
clowns. I believe that most people in Britain had no interest in the EU either
way until the popular press handed them an opinion. Remember the Google.co.uk
trending searches for the day after the referendum included 'what is the EU'

~~~
repolfx
You aren't reading much press in the UK then.

Openly anti-Brexit: the Guardian, the Financial Times, the Economist, Sky
News, BBC News (e.g. their famous "despite brexit" spin on every good news
story).

The UK is really the only country in Europe that has a press that's willing to
attack the EU and (uselessly) try to hold it to account. I've always been
surprised when reading German news how flimsy so much of their broadsheet
press really is. Die Zeit's "interview" with Farage being a good example of
the low quality that passes for highbrow media there.

 _Remember the Google.co.uk trending searches for the day after the referendum
included 'what is the EU'_

You're doing what so many EU fans do, you're repeating myths whilst believing
you're above believing myths.

The Google graphs that people cited at that time didn't show any volume, but
volume data was available via their ad planner tool. What that showed is that
volume for that query is absolutely minimal, even a huge spike would still
amount to virtually nobody typing in such a query. Almost certainly, given the
wordy phrasing, those queries were coming from children via speech
recognition.

[https://www.forbes.com/sites/eliseackerman/2016/06/28/brexit...](https://www.forbes.com/sites/eliseackerman/2016/06/28/brexit-
and-the-two-faces-of-google-adwords-data/#49ac14d82ef6)

But sure, you go on and tell yourself that most people were simply repeating
things they read in the press.

~~~
cirrus-clouds
> You aren't reading much press in the UK then.

Neither are you.

Researchers at Loughborough University analysed Brexit coverage on TV and in
the press in the lead up to the referendum. They found that coverage, _when
weighted by circulation_ , was 80% in favour of Brexit and 20% against.

Source: [https://blog.lboro.ac.uk/crcc/eu-referendum/uk-news-
coverage...](https://blog.lboro.ac.uk/crcc/eu-referendum/uk-news-
coverage-2016-eu-referendum-report-5-6-may-22-june-2016/)

~~~
repolfx
I wasn't making any claims about weighting by circulation, only refuting the
point that the media is very pro Brexit. In reality it's split about 50/50.

But again, trying to go from "what the media supports" to "what people voted
for" is a correlation/causation fallacy. There are plenty of anti-Brexit
papers to read. If people largely choose not to, that probably implies they
don't think those papers are very good.

~~~
jimnotgym
> If people largely choose not to, that probably implies they don't think
> those papers are very good

Another way to interpret that is that people read the Sun and the Mail for
reasons entirely unrelated to Brexit, such as celebrity gossip (The Economist
and FT are pretty lacking in those areas). However, perhaps the constant drip
feed of anti-EU/Anti-immigration stories in there have given them a certain
impression of the EU, alongside their daily non-political entertainment.

Perhaps people would care to Google why the current UK foreign secretary was
sacked by The Times, or the 'Bendy Bannanas' debacle?

~~~
repolfx
But that cuts both ways. The pro-EU press gives a misleading impression as
well, usually by refusing to report on any story that makes the EU look bad,
or by putting a spin on events that blames member states instead of the
institutions.

After all, by your argument influential people go read the Financial Times
because they think it suits their station in life, or because they want
financial news, and end up being exposed to a constant litany of pro-EU
stories, resulting in them voting that way in the referendum (and not only
voting but being quoted by other campaigners and news outlets as 'experts', a
perk accorded to the sorts of people who read the Economist but not the Daily
Mail).

After all, the FT literally flies the EU flag above its headquarters. Not
exactly a neutral source, is it.

------
cturner
Australia has about 25 million people and about five economic centres of more
than a million people. The reserve bank has to set one rate. At times, it
gives compromise rates that are a tradeoff between a mining boom on one side
of the country, and a downturn on the other.

The European central bank has a much larger version of the same problem.
Iceland was able to use rates to help it out of its economic collapse. Greece
can't do this.

The quality of consumer FX has steadily improved over the decades. Access to
technology has given tighter spreads and convenience. If the Euro goes, I hope
there is some consideration given to running regional currencies rather than
national. Imagine if a "Bank of Italy" maintained independent northern,
central, and southern notes.

~~~
alkonaut
There are similar issues in every large currency area with different
economies. However, US and Australia are countries where people are mostly
fine with the idea that having a single currency and interest rate also means
big transfers have to take place within the country. This isn’t the case in
the EU. Although Greece (And others) receive EU support, there just isn’t
popular support for the kind of transfers required to keep a single (German)
interest rate. Taxing people in one country to transfer to another isn’t
possible on that scale in the EU.

What needs to happen for the Euro to survive is that Germans have to accept a
pretty substantial and long term inflation in order to keep growth elsewhere.
But they had some bad luck with inflation in the past when it led to “economic
anxiety” so it’s a bit of a red flag for them...

The other solution is to kill (or split) the Euro to save the EU. It seems
more and more sensible.

~~~
DogPawHat
I always read German attitudes to the Eurozone with some disbelief. They
always seem to insist the burden of changing policy to make the Euro work fall
on other countries and not there own.

~~~
ajmurmann
I think that's in large part because Germany had the Agenda 2010 which heavily
cut welfare and hit many people super hard. The common narrative is that it's
because of those sacrifices the German economy is in a better position than
most other European countries. On top of that in the very least the perception
is that the lower classes didn't benefit from that at all. So I understand
that there is a lot of "I did my part and sucked it up while others didn't and
now I am supposed to suffer again to help people who failed to do the right
thing in the first place."

Not saying that that's the correct attitude, just offering a explanation.

------
ironcan
An often overlooked point is that euro is not just an economic tool but also a
social one, as being able to travel and pay freely in the whole continent is
an important unifying point.

~~~
cturner
I don't think this is a strong argument. Physical cash is on the way out. You
can do payments through mastercard/visa lines, and wired transfers are
straightforward. FX conversions are straightforward when everyone has a phone.
In 2007 I had a situation where I was being paid in Australia, but living in
London. I used the lines on my cards for that year, and don't remember it
being inconvenient.

~~~
rwmj
My bank makes me use a terrible rate and then adds a £1.50 charge on top,
every time I use my card in the rest of Europe. So I'm still looking for good
deals on Euros and carrying large amounts of cash when I go.

~~~
rtpg
the EU could simply force banks to let you withdraw at market rates at any ATM

~~~
majewsky
There was a huge pushback from banks a few years ago when transaction fees at
German ATMs were capped to (AFAIK) € 1,90.

The argument from banks is that there are a lot of online-only banks that rely
on the ATMs of banks with physical branches in a parasitic manner.

~~~
hocuspocus
And online banks like N26 complain in turn that Germany has the most expensive
ATM fees in Europe. It sounds like a bullshit argument given that operational
costs for an ATM are mostly fixed.

------
mhneu
This is a really, really valuable post (and book).

The topic of the euro's effects on Greece, and the influence of Germany,
appears to be at a wide consensus amongst academic economists. Stiglitz,
Krugman, and even people like Navarro agree.
[https://krugman.blogs.nytimes.com/2017/02/01/germany-the-
eur...](https://krugman.blogs.nytimes.com/2017/02/01/germany-the-euro-and-
currency-manipulation/)
[https://www.forbes.com/sites/timworstall/2016/09/11/the-
euro...](https://www.forbes.com/sites/timworstall/2016/09/11/the-euro-is-a-
disaster-stiglitz-krugman-milton-friedman-and-james-tobin-agree/#2e67a756063d)

I remember back 20 years ago that macroeconomists were talking about how the
lack of fiscal coordination was going to break the euro. And so it has come to
pass, it seems.

Edit: or what PaulHoule says with more detail in another reply.

------
arez
I hope that we will see a different and more rational handling in italy's
case. In fact we should allow countries to leave the EU if their economy is
not strong enough. It just doesn't make sense for anyone to have the same
currency. Right now, everyone treats the "dropping out of the EU zone" as a
failure and a stepping stone into a complete EU collapse, but the EU shouldn't
be a prison. Having the same currency and no option to devalue for a country
leaves you strangled and tied to the big guys (Germany, France,...). Let
italy, portugal, spain and finnland drop out if they want, let them devalue
their currency and let them get back on their feet, otherwise we stumble
deeper and deeper into uncharted dark territory.

Ofc it's not as easy as I'm stating it here, if they drop out of the EU,
Germany and others would be in deep trouble due to the massive credits they
gave everyone to make them stay and dependent

~~~
mhneu
Drop out of the EU, or drop out of the euro? Half of the macro arguments are
about the problems of currency union without fiscal policy union. Perhaps the
pre-2015 UK position is a good intermediate drop-back step: no currency union,
still many ties to EU and Brussels.

(that said, the German wage deflation discussed in the post is an EU issue,
not a euro issue.)

------
nordsieck
It has been pointed out (I forget where) that part of the reason the US works
as a monetary union is that people are not very attached to where they live.
When one area of the country becomes much more successful than another, many
people are often willing to move, which acts as a countervailing force to
regional productivity differences.

One of the problems with the EU is that Germans like to live in Germany and
Greeks like to live in Greece.

~~~
user5994461
The US is a single country with a single language, a single culture and a
single currency. It's not comparable to the many countries within Europe.

~~~
repolfx
Sort of but not really, right?

America has a large population of Spanish speakers and go to many cities and
you'll find official signage and documents written in Chinese and other
languages.

Single culture, well, compare people living in the deep south and Manhattan,
what they value and enjoy. Beyond sports do they have a lot in common?

That said I agree Europe is much _less_ homogenous.

~~~
user5994461
>>> Beyond sports do they have a lot in common?

They speak the same language, they go to the same shops, they watch the same
tv shows and tv channels, they have a common healthcare and education system,
they are governed by the same president, they share a similar history that
they learn in the same schools.

------
bitL
Is USD a tragedy, given California vs Appalachia?

~~~
PaulHoule
The different monetary needs of different parts of the U.S. are a real issue
but they can be papered over by taxing wealth in California and giving aid to
Appalachia. That is, one country can coordinate its own monetary and fiscal
policy, but countries in the E.U. can't, particularly because of the "Growth
and Stability" pact.

~~~
jimnotgym
> but countries in the E.U. can't

Do you mean countries in the euro?

~~~
PaulHoule
You are right. The euro currency zone is not the same as the E.U.

I'm not sure that voters know the difference, but they do know there is a
"democratic deficit".

~~~
jimnotgym
> "democratic deficit".

Sorry could you elaborate? I voted for an MEP. I voted for my national
government, whose leader sits on the Council. Commissioners are appointed by
the same people, much like the UK civil service

------
jimnotgym
I don't see it as a tragedy for Germany. You would have to feel the euro has a
lower value than the duetchmark would have today? That rather helps Germany in
their position as one of the worlds top exporters. Germany ous growing and has
a budget surplus.

I think as others have noted the idea of a single currency is always going to
be partly political. What kind of state makes all of its decisions based on
economic theory?

The euro zone as a whole right now is out-growing the UK, and according to my
fx dealer are deliberately playing down their growth to keep the euro weak.

I think criticising the idea of the euro as 'political' is a bit rich from
someone whose opposition to it seems too also be ideological.

Personally I like the easy trade it facilitates. FX risk is dreary to manage.
Only having to hedge GBPEUR makes it much simpler than the old days. Maybe the
mistake, if there was one, was letting Greece et al join before they were
ready

------
PaulHoule
What I find strange about it there was almost a universal consensus among
economists that the Euro couldn't work. The UK was fortunate enough to drop
out of the Euro as the Pound/Euro was mispriced in the transition phase.

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

Unlike many ideas in economics, the "impossible trinity" has proven itself
again and again. It's not one of the usual right wing tropes like "raising the
minimum wage will tank the economy".

Different monetary zones allow price levels to adjust. For instance I was in
Montreal and looking at the price of package tours to different parts of
Europe and Greece turned out to be the most expensive place to go. If it
wasn't for the Euro, price levels would drop in Greece as denominated in USD,
it would be more attractive to go on vacation there, manufacturing would
become more profitable there, and the Greek economy will recover.

It is true that the Eurozone and the E.U. are different but I am not sure that
Brexit voters really know that. What they have seen is Eurocracy has a
"democratic deficit" and and inability to handle problems (for better or worse
government legitimacy is more impacted by effectiveness than by process or
ideology.)

~~~
YeGoblynQueenne
I can't find any earlier information online (well, not with a quick look
anyway) but the following shows an upward trend, year-on-year, in tourist and
revenue from 2000 to 2018, and arrivals from 2008.

[https://tradingeconomics.com/greece/tourism-
revenues](https://tradingeconomics.com/greece/tourism-revenues)
[https://tradingeconomics.com/greece/tourist-
arrivals](https://tradingeconomics.com/greece/tourist-arrivals)

Intuitively also, I don't get the feeling that tourism has been hurt by the
Euro and by higher prices. And, anecdotally, business owners are supposed to
prefer higher-earners as visitors, to backpackers and students etc (regardless
of whether that makes business sense or not).

(hi Paul :)

~~~
YeGoblynQueenne
And I just hit on this article:

[https://www.theguardian.com/world/2018/jun/03/greece-
tourism...](https://www.theguardian.com/world/2018/jun/03/greece-tourism-at-
record-high-amid-alarm-over-environmental-cost)

According to which 2018 is an exceptionally good year, so good in fact we
might have trouble accommodating all the extra people:

 _Greece is braced for another bumper year. The tourists will not stop coming.
For every one of its citizens, three foreign visitors – 32 million in total –
will arrive in 2018, more than at any other time since records began.

Tourist numbers have increased by an additional 2 million every year for the
past three years. Arrivals from China alone have doubled since 2017. But with
forecasts predicting record numbers over the next decade, a growing number of
Greeks are asking: can Greece really cope?_

------
taysic
Seems to me its doesn't make sense to have a gov sell bonds in a currency that
it doesn't have control of. This includes countries outside of the EU that use
the Euro. When buying bonds of a country, there should mean the investor
believes in the direction of the country / the governance there / believes it
is low risk that the bonds would lose value or the strength of the economy
would collapse. That's the risk that gets taken by the investor. It doesn't
make sense to peg it to an external countries' performance. Of course it
sweetens the deal but makes things confusing too.

------
candiodari
It's scary and terrible how people think of this. That this was somehow
Greece's fault, or even Greece's doing. Or worse yet: Syriza's fault.

Politicians are experts at this. This morning there was a discussion on ozzie
radio with the secretary of the treasury on radio. There, the government
decried the lack of innovation in the Australian business community.
Specifically why there aren't any Australian businesses that operate online
2-sided marketplaces like Amazon or Ebay. Similar discussions have been
happening in Europe.

Now of course, when you analyze the argument (and I assure you these
government people at that level aren't morons, they know this) it turns out
these government people are psychopaths.

You see, the reason there is no Australian 2-sided online marketplace is ...
tax. The Australian government has chosen not to impose either import tax,
rules or GST/VAT on imported goods with a value < $1000.

So after years of imposing a ~18% cost disadvantage on Australian businesses
compared to international businesses, a senior government representative comes
on public radio, and eloquently decries the fact that it must be Australian's
inadequacy that has prevented them from competing with international companies
WHILE IMPOSING AN 18% PRICE HANDICAP ON THEM. Therefore, it is only fair that
customers punish them. They called up a few of them that were clearly
preselected for their utter lack of rhetorical abilities to make them
completely ridiculous (they were cut off halfway through the argument too).

In other words, this guy has been pursuing a policy of openly sabotaging
Australian businesses for at least half a decade, blames them, wide open in
public for not performing well, and then picks the worst of them to "say a few
words".

Now this sort of thing happens a LOT in discussions. For instance, when it
comes to immigrants, ... I must say it makes it VERY clear why these people
want to censor (sorry, I mean "eliminate fake news for the good of the
people").

For the record, I am a socialist and I hate the business practices of these
businessmen, but hearing that radio discussion I must say, I got a newfound
respect for them and a deep hatred of the Australian treasury/government. I
mean I would respect someone who just stood there and said "I'm screwing you
and there's nothing you can do" more than this lying asshole.

Thing is, I'm absolutely sure 90% of people listening (at least) fell for it.

You should learn to look at European governments actions as very similar to
this. You will understand far more about the situation by assuming any
government spokesman/woman (including of course such papers as Der Spiegel)
are at best leaving out viewpoints, usually outright lying, and sometimes
directly falsifying their argument.

