Seeming ignored in these discussions is that right up to the bailout Greece's problems were entirely self inflicted. When you're unable to take responsibility for or support yourself you suffer the whims of others. That's the real lesson here.
When Greece had its own currency, it could devalue against the Deutsche Mark and keep people employed. That devaluation would cause some inflation and it would also raise interest rates a bit -- no debt bubble, no collapse of Greek industry. Rather, German industry finds that it's currency is more expensive to counteract increased Germany productivity and Germany fails to export more, and thus does not accumulate excess savings. There is no flow of jobs from Greece to Germany -- Greece keeps its jobs, Germany keeps its jobs, Greece is forced to consume a bit less with the lower Drachma relative to Germany, and Greece is forced to borrow a bit less with the higher interest rates.
With a forced peg against the DM, money was just being vacuumed out of Greece, which created a recycling problem in which excess German savings could be used to purchase Greek bonds. That lowers the interest rate in Greece artificially, creating more debt in Greece even while Greek production becomes less competitive and Greek jobs leave for Germany. That never ends well, and was only caused by the Euro.
The crisis was just the unravelling of the above unsustainable trends, but these trends were created by the Euro. You can't "until the crisis, Greece was creating these problems" -- the problems were created by the Euro.
The same thing for Greece's problems collecting taxes. When governments can't collect taxes efficiently, they print more money, creating more inflation, which is basically a tax on financial assets. So the money is still collected by the Greek government. Now that the Greek government was no longer able to print money, it was at the mercy of financial markets -- international financial markets, which of course can't help the Greek government collect money in the same way that an inflation tax can.
Greece simply has never been in a position where it could give up its own currency and join a pegged regime with Germany. All of this was foreseen as part of the folly of the European project. There are other bad effects, too.
Well, the Greek government cooked the books in order to be allowed to join. This is clearly Greece's fault.
The real lesson is that weak and corrupt governments are bad for most involved with them and very hard to fix, even if you try very hard. So, if you can, keep them at arm's length. They should never have been allowed to join the euro. In fact, given their conflicts with Turkey and Macedonia, they shouldn't have been allowed to join the EU at all.
What conflicts are these, pray tell? If you think Erdogan is just sitting quietly, minding his own business, while the evil Greeks plot to expand their empire into Turkey, you're either dangerously misguided or a troll.
That's what "they shouldn't have been allowed to join the EU at all" means. Unless you're saying that countries bordering aggressive nations should be banned from joining.
Why not say that? International relations isn’t a morality play. Joining into a union with a nation likely to get pulled into a conflict you don’t want isn’t a good idea.
EU membership isn’t an award for good behavior, it’s a strategic choice made to achieve certain goals.
So there isn't a hard and fast rule of "don't let countries bordering on aggressive nations" join, which is my initial point. The benefits and downsides of Greece joining the EU were weighed, and it was allowed to join.
I thought your initial point was that the other commenter implied that Greece was an aggressor against an innocent country, and that they were either misinformed or trolling. My point, in turn, is that nothing about their statement implied this.
Their statement could be taken in two ways: Either aggressors should never be allowed, or countries with a risk of receiving aggression should never be allowed. Since the latter is extreme, I can only assume the commenter meant the former.
That's not what I meant. Greece and Turkey doesn't have any military conflicts currently, and are unlikely to get any in the near future. What Greece does have are dumb and immature gripes with Macedonia and Turkey. Cyprus should be a solved problem by now. There's no reason to have it hanging around as this diplomatic pain point. The Macedonia conflict is stranger than parody, and is about to be solved because Macedonia is showing itself to be slightly less stubborn than Greece.
I don’t see them making any sort of general statement. They were always talking specifically about Greece. One could say that EU membership for Greece was a bad idea because of the potential conflict with Turkey without ever implying a general rule that countries at risk for aggression should never be allowed in any situation.
>Well, the Greek government cooked the books in order to be allowed to join. This is clearly Greece's fault.
Yes and no.
Those reviewing those books (and originally allowing Greece to enter the Euro) were rather blind (selective or politically induced blindness).
When Greece had its own currency, it could devaluate... but that that would keep people employed doesn't follow.
Back when the Greek had the Drachma, the the Greek state had to pay high interest on its debt, and part of the reason for that was the possibility of a devaluation. The high cost of debt service was a burden on the economy, including on employment.
There is no reason to believe Greece was better off outside the EU. While they suffered from the ill effects of using the same currency as Germany, outside the EU they would probably have suffered from the much bigger Greek crisis, which is the absolute inability to collect taxes from the rich. Taxes that are on the books. It’s very likely that despite benefitting from the ability to devalue their currency, that benefit would have been overridden because of all the other structural issues The EU forced Greece to address.
it is not like we forced them to adopt the euro. they wanted it very much. they wanted it much more than nations with stable currencies.
i remember when i was on holiday as a kid around 1999 when the banking euro was introduced there were all these signs with prices in ECU (European Currency Unit). Back home everything was still in Guilders. My dad told me it would yet be a long time before greece would be financially stable enough to adopt the euro. yet they wanted it so much they used some creative bookkeeping to get in the same time we in holland did. was that the smartest thing ever? maybe not. but it was their choice. perhaps if the books had not been cooked, we would not have accepted them into the euro. And they would not be in this situation.
Generally good analysis, except lower exports and consuming less generally leads to fewer jobs (you don't employ people if you can't sell fruits of their work).
> Seeming ignored in these discussions is that right up to the bailout Greece's problems were entirely self inflicted.
False. Greece was in need of high rates to lower consumption and debt increase. Instead of that, and for the benefit of Germany that was in need of more debt to pay for the reunification, rates were lowered to historical minimums.
If your debt is increasing like crazy and your currency lowers the rates the result is well known. Greece could not change the rates, so they were not in control anymore.
That does not mean that Greece has not big problems. But to blame all on them makes no sense. German banks could have stopped lending money at any time, but they are seen just as victims instead of greed instigators.
You make $1000 a month but have a credit card that offers you increasingly poor rates due to your inability to make payments on time. Your monthly expenditures on medicine, food, and rent are $1500.
Are you at fault or is the system at fault? Obviously you just need to decrease your spending - so it's you. Just move somewhere cheaper, eat less, and don't get sick. Obviously it's your choice.
Your narrative imply that the Euro works perfectly, what is ridiculous.
The reason for the the debt crisis is that the Euro countries are working with what is, essentially, a foreign currency. There is not fiscal capacity that will solve the possible problems, like, for instance, there is in the USA.
So, the Central European Bank is, against the spirit and probably the letter of the agreements, doing the work that a federal government should be doing. They are buying public debt in the secondary market and that is what have saved the Euro (for now).
The design of the Euro is flawed from the beginning and comments like yours show that fixing the issue is probably impossible, because it feels good to blame others instead of facing the issue, and because when we feel so above other countries, who would like to share a fiscal capacity with those losers? So, interesting times ahead.
The design of the Euro is intentional. This is why countries have to adhere to some pretty strict fiscal requirements to join the Euro: specifically to avoid BS like the one happened in Greece. Well, Greece lied about their compliance with those requirements (Goldman helped, but hey...), but now it's somehow Euro's fault?...
The point is that Euro is dysfunctional because there is not a enough fiscal capacity implemented in the design. Some of us think that it's probably politically implausible to implement that capacity because the narrative of the 'lazy neighbor'.
Presumably some lands in Germany are deficitary (or states from the USA) why the population there don't experiment the same problems? Because they have a real union.
Currently the ECB is covertly financing countries of the European Union buying their debt in the secondary market [1]. This is against the agreements [2], but if it's not done will be the end of the Euro. How is not that a dysfunctional currency area?
