What will happen to Greece?

[vlls]

It was never an economically sound idea. Currency unions don't work without political unions. And the southern economies - Greece, Italy, Spain and Portugal - had what FAZ called "spaghetti money", ie notoriously inflation-prone currencies which over time devalued against most others. I can't remember the exact figure but it was something like 2,500 Italian lire to the pound when the lira was abolished - yet once the lira was divided into 100 smaller parts - centesimi -which were big enough to buy stuff.

The idea was always driven by politics. Have a currency union and a political union is a requirement to make it work. The EU thought the political integration project would go ahead far faster than it has and be far further forward right now. But the constitution was rejected, the Treaty of Lisbon (which replaced it) was much later coming into force, and the next constitution (which the EU thought would be through by now) isn't even at the planning stage. At the time when Greece joined the Euro it suited the EU to accept anyone who wanted to come in, and they were not interested in checking the figures. If you are into conspiracy theory maybe the Eurocrats persuaded Wall St to cover up the Greek problems.

Options now are:
1) Political union is raced through. This is not possible on the timetable the markets are setting.
2) The Euro takes the brunt of problems. Either:
a) the whole Euro devalues substantially plunging the Eurozone and the world into recession. This is what happens if the politicians do nothing, or if somehow Greek debt is backed by the Eurozone.
b) Greece leaves (either jumps or is pushed). Probably Portugal would be in the same position, possibly Spain and others.
c) Germany leaves.
d) We get a variable speed Euro with de-facto national currencies but all controlled by the ECB.
e) a rabbit is pulled from a hat. Greece really makes its austerity policy work, and there isn't a strike or a military take-over.

Well the EU is more than just an economic union, it's a economic socio-political system of shared national sovereignty. The reason for absorbing countries of southern Europe is the same for the creation of the European Union in the first place. To guarantee social, economic and political stability in the region, as a means to promote peace.

I think Greece did pretty good considering it joined the European Community only 7 years after the collapse of the military junta. And overall, the EU is doing pretty good considering 50 years ago its member-states were fighting each other to death. I'll also add that the Lisbon treaty covers about 97% of the proposed EU constitution.

The options you present here are somewhat unrealistic and over the top. What's most likely to happen is that Greece will get some help from the EU and will sort most of its debt crisis by itself by taxing the rich and cutting benefits to middle-upper income bracket public workers. This is the plan which is proposed by the new Greek prime minister

 

[Jason]

If Greece manages to sort out its debt crisis (without devaluation) it will have managed a greater austerity programme than any country ever before. Ireland - with smaller problems - has gone for a cut of 6% in public sector pay and benefits, tax rises, the full pain. And Ireland can get its taxes in and broadly has popular support. Additionally Greece has a very major problem getting taxes in, and certainly can't get them from the rich. Yes the Greek PM is proposing taxing the rich and the middle income - it can't work. The EU is specifically demanding cuts which will hit those on low income.Some EU help sounds as if it should be a solution, but it isn't - either the EU underwrites the whole debt or it doesn't.

 

[eurotop40]

Greece is about to take it up the ass. The EU is gonna just plain bugger good ole' Greece.

Which seems historically appropriate.

... since Greece is the fatherland of socratic love ...

 

[dandelion]

If Greece manages to sort out its debt crisis (without devaluation) it will have managed a greater austerity programme than any country ever before.

Germany after WWI? did a pretty good job of recovering from massive debt to be a world class power. Fine example of a country getting its act together with no help at all.

It was never an economically sound idea. Currency unions don't work without political unions.

You keep saying that. Perhaps you can give some examples?

And a few answers from this side of the Atlantic:

Wall St. Helped Greece to Mask Debt Fueling Europe's Crisis

NY Times, February 13, 2010

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

Now what about the private finance initiative currently much in vogue for hiding national debt? At least I thought it was our own banks fleecing us?

 

[D_Gunther Snotpole]

< snip >
Options now are:
< snip >
7 e) a rabbit is pulled from a hat. Greece really makes its austerity policy work, and there isn't a strike or a military take-over.

Do you really think a military take-over is plausible?
(The question is entirely sincere. I have no idea myself. I only know the junta is 36 years in the past, and the world, and Europe, and Greece itself have evolved a good deal since.)

 

[faceking]

Will Greece get kicked out of the EU? Will they lose control of their economy to the EU? Will countries like the UK, Germany and France be forced to bail them out?

I think Something will happen, but I still don't see the Greek economy causing the downfall of the Euro personally.

Wow... wow and wow. I knew Greece was f'd, but had it explained to me better by a foreign exchange research monkey.... wow is Greece FUCKED, FUCKED, and FUCKED.

 

[Drifterwood]

Do you really think a military take-over is plausible?
(The question is entirely sincere. I have no idea myself. I only know the junta is 36 years in the past, and the world, and Europe, and Greece itself have evolved a good deal since.)

I have been to Greece pretty much every year for the last twenty years.

Ironically, Jason's suggestion would be the final card that Greece could play to get the rest of us to bail them out, though I am not sure that even the Greek Politicians have dredged the barrel this low yet.

Much of the extremes have dwindled in Greece. I remember twenty years ago stumbling into a massive communist rally, over 100,000 people. This year I saw a few die hards sitting around playing guitars and serving hot dogs.

I think that Greece wants to be a modern European Democracy, though I am afraid that their politicians (particularly the Centre Right) have sold them easy street when they couldn't afford it. Greece needs two things in my opinion, uncorrupt politics and beauraucracy and some real national unity to pull together and face an austere decade. It is the very fabric of Europe to support them in this.

 

[Jason]

I pretty much agree Drifterwood - I don't think a military takeover is at all likely, but I think it is none the less thinkable that this would be the last card that the Greeks play. As you say Greece needs to get rid of its corruption (but this isn't going to happen quickly if at all). It needs national unity behind austerity (as Ireland seems to have) but it hasn't got this - there is still the idea that the problem should be fixed by someone else: the rish, the EU, international legislation against rating agencies. Yes Greece wants to be a modern European Democracy - but it also wants to be Greece, which means tolerating the Greek way of doing things and not being run by the ECB. There's real friction here. If the government push too far with austerity particularly in putting down strikes and cutting the secret payments to the military then a military backlash is possible. Alternatively if a leader comes along saying "Greece is fighting Germany again - lets wave the flag and bring back the drachma" then there would be quite a bit of popular support. So Senor Rubirosa I guess I do think a military take over is plausible, though not particularly likely. I think the idea demonstrates how high the stakes are right now.

Dandelion - right now there are three significant currency unions other than the Euro, two in Africa and one in the Caribbean. All three are in a post-colonial environment with countries that have very similar structures and a legacy of working together. There are minor currency unions, usually colonial, eg the UK's pound sterling is linked in a union with the Gibraltar pound (which in economic terms means Gibraltar does as she is told). There are about two dozen currency unions which have failed since the 2WW. I do not think there is a single example of a significant, non-colonial currency union which has endured for more than a decade or two without a political union. There are overwhelming economic reasons why such a currency union without political union cannot work. The Euro project only ever made sense within the context of full political integration as one nation state.

Austerity in Germany post 1WW was a contributor to the great depression and a major cause of the rise of the Nazis and the 2WW - I think this is an example of why such an austerity programme should not be contemplated. Austerity in the nations of Europe following the 2WW was dire, but still not as dire as what is being asked of Greece. All these nations had currencies which could devalue. Much of the media and the political chatter seems to be that an austerity project is right for Greece, but I think this is dangerous thinking. A country can only take so much austerity. What is being demanded of Greece is unprecedented - bringing down wages and benefits rarely works anywhere and certainly isn't going to in corrupt and unionised Greece. In economic terms the solution is straightforward - bring in the IMF with appropriate loans, float a new drachma and devalue. For Greece this isn't such a bad option - they could get quite a quick boost to their industries, and IMF loans are less punishing than what they are forced to take on the bond markets now. Rather the option is bad for the EU project.

 

[B_nyvin]

Dandelion - right now there are three significant currency unions other than the Euro, two in Africa and one in the Caribbean. All three are in a post-colonial environment with countries that have very similar structures and a legacy of working together. There are minor currency unions, usually colonial, eg the UK's pound sterling is linked in a union with the Gibraltar pound (which in economic terms means Gibraltar does as she is told). There are about two dozen currency unions which have failed since the 2WW. I do not think there is a single example of a significant, non-colonial currency union which has endured for more than a decade or two without a political union. There are overwhelming economic reasons why such a currency union without political union cannot work. The Euro project only ever made sense within the context of full political integration as one nation state.
.

That's because all other currency unions operated with huge income inequalities in the population. The EU is the first in that the income level across the spectrum is much more evenly balanced then pretty much any other place on the planet (even the US). Having a currency union where 1% of the population own 90% of the money of course is going to fail. The EU is not the same as everyone else, for the simple fact that nothing like this has ever happened or been done before.

 

[D_Gunther Snotpole]

The EU is not the same as everyone else, for the simple fact that nothing like this has ever happened or been done before.

Which, if true, would normally be a statement introduced to explain why it's working.
But it's not.

 

[eurotop40]

Which, if true, would normally be a statement introduced to explain why it's working.
But it's not.

Define "not working".

 

[D_Gunther Snotpole]

Define "not working".

Um, the very serious problems in, like, Greece, Portugal, Spain and Italy.
The problems that this entire thread is about.

 

[eurotop40]

Um, the very serious problems in, like, Greece, Portugal, Spain and Italy.
The problems that this entire thread is about.

This has little to do with the EU per se.

 

[D_Gunther Snotpole]

This has little to do with the EU per se.

Not sure why you would say that.
But in any case, Nyvin's statement was about currency unions ... as in, to take the immediate case, the Eurozone.
Is it working?
Very many people would say No.

 

[Drifterwood]

Not sure why you would say that.
But in any case, Nyvin's statement was about currency unions ... as in, to take the immediate case, the Eurozone.
Is it working?
Very many people would say No.

The situation is like the poorest State in the US or the poorest Province in beautiful Canada, having to raise all it's own money, but still using the $. Eurozone countries retain this sovereignty, but are supposed to stay within fiscal limits. Greece hasn't and perhaps others also haven't been able to.

The Brits and the Germans, especially, get pissed off if they obey the rules and others don't.

For some the solution is to disband, for me it is closer union, and obeying the rules, or even taking that choice away from some people. If you are going to use our currency and benefit from our combined strength, you obey the rules. No more chances.

 

[D_Gunther Snotpole]

The situation is like the poorest State in the US or the poorest Province in beautiful Canada, having to raise all it's own money, but still using the $. Eurozone countries retain this sovereignty, but are supposed to stay within fiscal limits. Greece hasn't and perhaps others also haven't been able to.

Which is an obvious problem with the currency union from the outset, no?
And indeed a rather good proof of its unworkability, at least as it now is.
(Why do you mention Greece and then say "and perhaps others"? Is there any doubt?)

The Brits and the Germans, especially, get pissed off if they obey the rules and others don't.

Another argument against a currency union when states themselves retain a great degree of sovereignty.

For some the solution is to disband, for me it is closer union, and obeying the rules, or even taking that choice away from some people. If you are going to use our currency and benefit from our combined strength, you obey the rules. No more chances.

I have taken this onboard previously, drifter.
The only solution is reduced sovereignty.
But if that is anathema for many Europeans, how can one proceed further down that road?
But if that path is not taken, then the currency union will remain unworkable.
No good options here that I see.

 

[Drifterwood]

But if that path is not taken, then the currency union will remain unworkable.
No good options here that I see.

I think that countries have a choice/option - obey the rules or go. The people can decide that democratically. You can't have your cake and eat it. You're a grown up democracy, Greece and others, determine things for yourself.

No doubt this is a learning curve in reality for some people. Personally I live within my means and try not to expect anything from anyone, but I support our social safety nets. There but for the grace of whoever :smile:.

There is a loss of sovereignty, but all I see is that sovereignty being misused to fuck things up and the value of that sovereignty is in my opinion in the current and future global environment, outdated.

 

[D_Gunther Snotpole]

There is a loss of sovereignty, but all I see is that sovereignty being misused to fuck things up and the value of that sovereignty is in my opinion in the current and future global environment, outdated.

I agree, but it's not what happens in my cranium that counts.
It's reason vs. tribalistic impulses.
But I'm not sure that tribalistic impulses are eradicable.
If they're not, then reason better align itself with them.
The question of whether they're eradicable ... or, if they are, in what degree ... is of course completely open.

 

[Drifterwood]

Well, we have sports teams for tribalism. And as Alex Ferguson, I think said, sport isn't a matter of life and death, it's far more important.

Let's hope that there is a majority who can see beyond jingoism. If there isn't, I will be leaving the UK.

 

[Jason]

A full political union would be a solution to the Euro problems. But the problems are today, and even for the most enthusiastic proponent of full political union this is now many years in the future, at least a decade. Right now there is no discussion of a new treaty or constitution to take matters forward. And it is very hard to see how the nation states would sign up for it. Lisbon was a stretch, and the present Euro crisis has tended to dent enthusiasm for increased European integration.

In the position we are now in - a Euro crisis without full political integration - we have powerful forces attacking this single currency. Pulling the other way we have political rhetoric which at some future date may possibly be backed by some money. The idea is that the Eurozone is "too big to fail", that "failure is not an option". It seems to me that this is as daft as saying "recession is abolished" or "we are saving the world" (both Gordon Brown statements, though I know I've taken the second out of context). With a partial political union - what we have now - the Euro is facing crisis, and if it gets through this one there will be another and another.

We need a complete rethink on what the EU is doing. My personal view, which may well be tribal, is that I am happy as a citizen of the UK but do not want to be a part of the sort of EU we now have with the Lisbon Treaty, let alone a more integrated EU. I have worked in Greece, Poland and the Czech Republic and know many countries in Europe, some well, and I admire and respect them. But I don't want to merge with them. I'm pretty sure that a majority of the half billion citizens of the EU have similar views.

What we have right now is a political class - the Eurocrats - who are casting themself in the role of Aristotle's "philosopher kings", as benign dictators who make the best decisions in our interest. The idea is that the Eurocrats will bring us all prosperity and happiness, and that they will do it by ignoring democratic views (as they did on the constitution/Lisbon Treaty in those coutries which voted on it). They operate without financial checks (the European Commission's budget is so corrupt that it has not been signed off for 15 years) without democratic checks (the EU parliament is a one-party parliament with no effective opposition) and with abuse of the legal system (it is actually a crime to criticise aspects of the EU). There is a moral defecit of massive proportions through the Common Agricultural Policy which causes death in Africa to featherbed European farmers.

I used to be a big fan of the EU. No more. I see it is flawed, failing, corrupt, anti-democratic, and in the operation of the CAP evil. I think we are now seeing the start of the failure of the Euro. This will cause lots of misery - it is not something to be pleased about. But it has the potential to be cathartic. Only something as big as a failure of the Euro is going to enable the people of the nations of Europe to get the sort of political structure that is needed. Personally I would support the UK leaving - and I just don't care about whether I would be richer or poorer outside the EU. I would support Greece leaving the Euro, and on Greece's timetable leaving the EU. Ditto Portugal, Spain, Ireland. For the nations of Eastern Europe EU membership needs to transform into some Eastern customs union. France, Germany and BeNeLux have to decide whether they want to become one nation state - if they do, that is their decision.