Some comments I left on Google+ when talking about Greece. ¹²
Some of those credits should not have been granted. Creditors have duties. As people, we can declare bankruptcy and continue with our lives. As nation states, we cannot. I still think that creditors need to their homework or we’ll be encouraging creditors to keep lending to bad debtors, and we’ll be encouraging governments to borrow money that the next government will never be able to pay back. That’s why we had debt bondage in the past and we didn’t like it.
There is a report by the Truth Committee on the Greek Public Debt. The example cited in a Swiss newspaper is on page 55: “Considering that debts contracted in violation of domestic law are illegal, some local debts to private creditors should be considered as illegal. For instance, the municipality of Zografou was granted a €25 million loan by the Austrian bank KommunalKredit, a subsidiary of Dexia, for a project which did not get approval from state auditors as required by law.” It has a footnote citing Chakrabortty, A., 2011. Greece in crisis: House of the rising repayments. The Guardian. To quote: “They’re also shocked at the IMF’s insistence that a possibly illegal loan between a council and a bank should be taken on by the state.” I think the Austrian bank should just eat its $25 million loan. Lending that money was a bad decision. Forcing the government to pay back a loan some corrupt council member organized is not good. Foreign banks will continue to support local crooks because the IMF will enforce the rules and won’t let Greece default on the loans because nation states cannot go bankrupt.
a report by the Truth Committee on the Greek Public Debt
Greece in crisis: House of the rising repayments
The Eurozone setup is flawed. An economic union needs a lot of cash flow. Between the rich and the poor cantons or Bundesländer of a country as well as between the countries of a union. I guess the consequence of that is that if you don’t like how the money is spent elsewhere in your union, then perhaps the two of you shouldn’t be in an economic union…
It seems to me that we have two general problems:
1. how to get rid of corruption
2. how to get rid of debt
Right now, seeing the plight of the Greek people, I’m all for prioritizing #2. The long term solution to something like that would seem to be equalization payments. In order to prevent misappropriation of all these funds, we also need to get rid of #1. I remember how there was a lot of talk about the misappropriation of EU money in Portugal back when they joined (we lived in Portugal at the time and I went to the German school in Lisbon). I don’t know how they got rid of corruption at that level (or whether they did at all). Solving that problem is difficult because you need both institutions and a culture surrounding them to make it work. To change the minds of a population basically required a revolution or a war in the past?
I don’t deny that many mistakes were made. A little googling about the Greek welfare state led me to Greece as a Precautionary Tale of the Welfare State that shows how corruption (tax evasion, cheap credit being misused, etc.) started plaguing the Greek economy starting in 1981 (mercifully short, 10 pages):
Greece as a Precautionary Tale of the Welfare State
“No wonder that over 50 percent of young Greeks are unemployed. That is the result of a business environment that discourages entrepreneurship, where bureaucratic costs are so high and there is so much corruption.”
I guess my point is that all of this doesn’t necessarily mean that defaulting on debt should be impossible, it doesn’t necessarily mean that private debt should be turned into public debt (my 25M€ example a few comments above), it doesn’t necessarily mean we cannot even give them a short term credit so that they can do a debt swap and change from a 4% interest rate to a 1% interest rate (damn, cannot find reference for that).
So, we had a bad situation in Greece growing since 1981. But then, Why should the Greek debt be audited? “Auditing the Greek debt will show that European private banks greatly increased their loans to Greece between the end of 2005 and 2009 (they went from €80 billion to €140 billion, a €60 billion increase) not taking any account of the State’s actual insolvency. Moreover their loans were at very low interest rates (0.35% for three-month loans and 4.5% for 10 years in October 2009 whereas the average rate for German bonds at the same time was about 3.3%). Banks were foolhardy, convinced as they rightly were that European bodies would bail them out in any case.”
Why should the Greek debt be audited?
Which goes back to my initial point. Yes, starting with €80M is bad. But now we want them to also pay €60M of debt that should not have been granted by the banks.
I understand that they covered covered the lousy credits their banks gave to Greece back in 2010. Not doing that might have pulled the current troika down, because suddenly it would have been the people saving money in Germany loosing their money because of financial hooliganism in their banks. But now they managed to foist it all on Greece, bailed the bankers out, bailed their voters out – pitting Germans against Greeks, while bankers laugh and take their business elsewhere. Too big to fail, to big to reform, to big to tame. This is what the deregulation of the banking sector brought is.
It is *revolting*.
Perhaps It’s Time to Kick Germany Out of the Eurozone.
It’s Time to Kick Germany Out of the Eurozone
The Yanis Varoufakis interview I read looks all too plausible to me:
The negotiations took ages, because the other side was refusing to negotiate. They insisted on a “comprehensive agreement”, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything. But we went along with that.
And look there were absolutely no positions put forward on anything by them. So they would… let me give you an example. They would say we need all your data on the fiscal path on which Greek finds itself, we need all the data on state-owned enterprises. So we spent a lot of time trying to provide them with all the data and answering questionnaires and having countless meetings providing the data.
So that would be the first phase. The second phase was where they’d ask us what we intended to do on VAT. They would then reject our proposal but wouldn’t come up with a proposal of their own. And then, before we would get a chance to agree on VAT with them, they would shift to another issue, like privatisation. They would ask what we want to do about privatisation, we put something forward, they would reject it. Then they’d move onto another topic, like pensions, from there to product markets, from there to labour relations, from labour relations to all sorts of things right? So it was like a cat chasing its own tail.
We felt, the government felt, that we couldn’t discontinue the process. Look, my suggestion from the beginning was this: This is a country that has run aground, that ran aground a long time ago. … Surely we need to reform this country – we are in agreement on this. Because time is of the essence, and because during negotiations the central bank was squeezing liquidity [on Greek banks] in order pressurise us, in order to succumb, my constant proposal to the Troika was very simple: let us agree on three or four important reforms that we agree upon, like the tax system, like VAT, and let’s implement them immediately. And you relax the restrictions on liqiuidity from the ECB. You want a comprehensive agreement – let’s carry on negotiating – and in the meantime let us introduce these reforms in parliament by agreement between us and you.
And they said “No, no, no, this has to be a comprehensive review. Nothing will be implemented if you dare introduce any legislation. It will be considered unilateral action inimical to the process of reaching an agreement.” And then of course a few months later they would leak to the media that we had not reformed the country and that we were wasting time! And so… [chuckles] we were set up, in a sense, in an important sense.
So by the time the liquidity almost ran out completely, and we were in default, or quasi-default, to the IMF, they introduced their proposals, which were absolutely impossible… totally non-viable and toxic. So they delayed and then came up with the kind of proposal you present to another side when you don’t want an agreement.
– Yanis Varoufakis
Or, if you read some German, see Das ist ein Putsch gegen die alte BRD:
Das ist ein Putsch gegen die alte BRD
Für geschichtsbewusste Deutsche ist es diesmal schwierig, eine formschöne Antwort zu finden, wenn andere Länder morgen Begriffe wie „Kanonenbootpolitik“ verwenden. Oder „Münchner Abkommen“. Oder daran erinnern, dass Anweisungen für zu erlassende Gesetze in anderen Ländern zumindest in Westeuropa aus gutem Grund nach 1945 nicht mehr üblich sind. Auslieferung von Vermögenswerten, Eingriffe in die Tarifautonomie und Sozialgesetzgebung sind, wenn ich an dieser Stelle daran erinnern darf, durch die Europapolitik der deutschen Besatzer nicht minder historisch kontaminiert.
– Don Alphonso
1. Germany €56B
2. Other Bonds €49B
3. France €42B
4. Italy €37B
5. Other Eurozone €34B
6. IMF €32B
7. Spain €25B
8. ECB €20B
9. ...
I think that all these countries made big mistakes. Extending credit to banks they should not have, because banks extended credit to Greece it should not have, because the regulations mandated that interests be kept low when it should not have—because the monetary union does not have the tools to regulate itself that should have. And now it’s hard to understand why a country like Germany, France, Italy or Spain should risk financial upheaval and the anger of its citizens when they worked so hard and saved their money. Those citizens didn’t know that the economic setup was broken and that their banks were involved in this money making machine. And now it is breaking down and the way I see it, the creditors are trying to make Greece pay for all of it.
More links:
#Greece #Germany #Europa