Austerity has failed. An open letter from Piketty to Merkel

[Milton PlattParticipant]

All the number quoting and finger pointing is pointless. At the end of the day there’s this: If somebody was spending far more than they were making and had no
plans to curb their spending or increase their income came to you and asked to borrow a large sum of money just so they could continue current spending habits, and asked for an interest rate under 2% what would your answer be?

[Gallup’s MirrorParticipant]

All the number quoting and finger pointing is pointless.

The point is becoming better informed.

If somebody was spending far more than they were making…

That poorly describes the cause of the economic crisis in Greece.

…and had no plans to curb their spending…

This is wrong too. Greece has drastically curbed spending.

…or increase their income…

Wrong again. Greece has raised taxes.

…came to you and asked to borrow a large sum of money just so they could continue current spending habits…

Please.

Greece wants to change the status quo, not continue it.

…and asked for an interest rate under 2% what would your answer be?

I would lower the rate nearly to zero and structure the repayment terms around emergency measures to raise employment rates and boost economic growth, while cracking down on tax fraud and corruption.

[Gallup’s MirrorParticipant]

Update: Greece just cut another deal which included what the New York Times calls “…an almost total capitulation by Athens to creditors’ demands for tough austerity.”

The crackpots win again.

[DavisModerator]

The European Union shows once again that solidarity is optional and integrity amongst their humanist values is best enacted when convenient. May Greeks rot away.

[UnseenParticipant]

I haven’t read every post. No time to. Has anyone else mentioned that while the Germans in particular resent spending more money on Greece, the Greeks forgave Germany’s WW2 war debt which contributed in part to the postwar German economic miracle? If that were to be interpreted as an investment in Germany, what would the portion of Germany they could call their own be worth today?

If the Greeks seem thankless to the Germans, how should the Germans seem to the Greeks?

• This reply was modified 9 years, 10 months ago by  Unseen.

[ArcusParticipant]

@unseen

There are a few cases to consider.

The background of the 1953 debt accords came 8 years after the war, when Germany was under occupation and management by the Allies, including having a constitution and massive social and legal reforms imposed. The country had also been split, lost territory, taken in 10% of its population as refugees, and had portions of its means of production carted off. Furthermore, it had imprisoned or executed many of those responsible for WW2.

The German debts were written down in 1953 by about 50%, from about 60%age points of GDP to 30% (from 32bDM to 16b, with a GDP of 55b). By comparison, Greece public debt stands at over 170% of GDP, and will need to be written down by 50-80%.

Greece was awarded war reparations in the Paris Peace Treaties of 1947. After the war the Greeks took 30.000 tons of machine equipment and let 18.500 rot and rust in Hamburg and shipped the rest to Piraeus. Lastly, Greece accepted further compensation in 1960 for a war time loan.

If Greece is willing to go through the same ordeal as Germany after the war – an ordeal well reserved by the Germans mind you – then they may get a similar deal. But even that won’t be enough to save Greece, and they certainly don’t have a leg to stand on when it comes to blaming the Germans for their predicament.

[UnseenParticipant]

I think the Eurozone has to ask itself if Greece is salvageable at all. If not, then its demands are torture and not assistance and perhaps Greece should be ejected and told to reapply in 10, 15, or 25 years. It appears to be in a situation where the best it can do is tread water. Since most of the “assistance” is actually a gift to Greece’s bank creditors, it does little to alleviate the increasing poverty, homelessness, ill health, and suicide afflicting Greece at the moment. It’s hard to build up an economy with money most of which doesn’t actually go into the economy where it can be spent and help the economy to grow.

[DavisModerator]

@unseen

Pretty much. Breaking someones left leg and right arm and expecting them to catch up is about as reasonable as ripping open a countries currency to limitless international speculation and being shocked when things go bananas.

Of course Greece can recover…it simply depends on the rules that all parties set. Most of the rules thrown out on the table make sense. That extra part involving letting Greeks become peasants…doesn’t make sense. Not in terms of any of the political or social principles of the European Union.

• This reply was modified 9 years, 10 months ago by  Davis.

[DrBobParticipant]

I confess I am mystified by the action of the EU. I’m in agreement with Krugman. The evidence is irrefutable. Keynes was right, austerity doesn’t work. With each successive austerity measure the economy of Greece has shrunk further into Depression, resulting in lower revenues and the need for even more austerity.

By contrast, Iceland simply defaulted. They allowed their irresponsible banks to fail, jailed their bankers, and recovered very quickly.

German banks lent lots and lots of money to Greece because they could earn a higher interest rate. Why could they earn a higher interest rate? Because Greece was more risky. That loaned money in turn got spent buying lots of goods and services from Germany, because it’s hard for small Greece to compete with large Germany in manufacturing. This made German banks and Germans more wealthy.

Then, when the collapse hit, Greece couldn’t meet its debt payments. At that point, they should have defaulted on the German bank loans. The lesson would have been that if you want to get a risk premium on interest rates, that means that you have to do your homework before loaning money and you have to accept the risk. Instead, Germany bailed out their irresponsible bankers by loaning money to Greece to pay off the German banks.

Now the German government holds the risk, and they essentially want to confiscate part of Greece to pay it off, further enriching Germany, and pushing Greek citizens further into depression and poverty. That in turn will lead to radicalism, violence, risk of revolution, a re-alignment of Greece with Russia and a lack of willingness or ability by Greeks to be a bulwark against bad people from the Middle East crossing into Europe.

All of which will in turn hurt Germans and Germany in the end.

The foolishness is breathtaking. Irresponsible German banks should have gone bust, their directors personally liable for not overseeing the banks’ portfolio. Europe should have behaved counter-cyclically by investing in Greece during the downturn. The result by now would have been a Greek recovery and a happy, prosperous Europe.

[Thomas PaineParticipant]

Why those Wall Street Bangstas aren’t hanging by the neck by piano wire from lamp posts instead of being made whole with our tax dollars remains one of the great lost moments to save the world from rampant Capitalism.

Rest assured that the German Government will never be made whole in this austerity move. Especially given that we forgave 50% of their debt from WWII right out of the gate.

[Author]

Posts