tag:blogger.com,1999:blog-582368152716771238.post8873301093397854264..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Last Greek thoughtsJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-582368152716771238.post-39466866597288519492015-07-02T02:29:08.914-05:002015-07-02T02:29:08.914-05:00I believe that this is not the same thing. Banks h...I believe that this is not the same thing. Banks have to open susbsidiaries to operate in different countries and these subsidiaries are subject to the laws and regulations of that country, so I would assume that the option mentioned above would be any different. In the event of a currency change, if euros in greek banks would be converted to drachmas, the same thing would happen in any foreign subsidiary.<br /><br />Regarding the Vanguard funds, I think the major problem there would be the European Universal Banking model. I am from Portugal, and there as far as I know, if you want to invest your money in a fund, it typically goes through a bank at some point. Nevertheless you would be right, I believe that given the money is in a foreign mutual fund, your money should be safe no matter what happens to the bank. I suspect the problem here is lack of awareness and the fact that in practice, the bank has the power to move your money around (even though that would be totally ilegal, if everythinhg goes bananas, I too would feel funny owning shares in a mutual fund bought through a bankrupt retailer...)Ricardo Bnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-52486329610791778602015-06-30T14:56:15.576-05:002015-06-30T14:56:15.576-05:00The cause of this crisis was monetary union withou...The cause of this crisis was monetary union without fiscal and financial union. The intention in the 1990s was to move towards closer convergence, that would mean fiscal and political union. Britain was firmly against this - and French dominance and the German/French socialist model being imposed on the system. It pushed for the rushed entry of the A8 of the former eastern bloc countries who were much poorer. This successfully diluted the union's push towards closer integration. Their entry also put intense competition on the southern European periphery. Capital increasingly moved to the eastern bloc, eastern workers moved in their millions to the old EU. Their entry also derailed further economic and political integration, leaving the Eurozone as a monetary union without fiscal and political union. <br /><br />Devaluations never solved the problems in the southern European periphery pre-Euro. The problems in these countries relate to their industrial structures. Olive oil, goat's yoghurt and tourism does not pay for German machinery or Arab oil needed for production and to industrialise their economies. There has always been a structural current account surplus between Germany and the South of Europe. The south needs German capital. Germany is looking for a return on its surplus capital. Germans, however, are only willing to give it if the institutional framework is in place. They want a say in how the capital is spent and invested. That is how the German corporatist system works. That will require unified fiscal and financial structures.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-51626420404670227632015-06-30T14:10:28.076-05:002015-06-30T14:10:28.076-05:00Excellent information. Thanks.Excellent information. Thanks.Anonymoushttps://www.blogger.com/profile/07337447734937643086noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-60696525928205260752015-06-30T07:06:45.725-05:002015-06-30T07:06:45.725-05:00When Greece was accepted into Eurozone, it was pol...When Greece was accepted into Eurozone, it was political decision. It was clear that they were outside of all parameters, but everybody turned a blind eye. For decades in Europe, at least in southern part, exists saying "Indebted like Greece". Direct cause of the Greek crisis were European institutions who decided that middle of the crisis is the right time to emphasize that ECB won't cover debt of individual countries or provide them money as lender of last resort. Part of the reason why Greece has so high debt was that when Euro started, risk premiums for Euro countries were slashed because of common currency and implied common responsibility.<br />Greece has turned primary deficit of 2.1% in 2007. and 2.9% in 2011. (highest was 10.2 in 2009) into primary surplus of 1.5% in 2014. Greece has slashed spending by over 30% from 2009, lost 25% of GDP and some 20% of income (IMF numbers). And IMF and Euro negotiators are still claiming that further surplus generation will increase GDP.<br /><br />Italy had big devaluation in 1992 and another in 1995. In total, Lira fell to around 70% of previous value. Italy lost some 20% of GDP in 1994, but returned to 1993 level by 1997. Devaluation (impossible in Euro), if used properly, instantaneously provides wage adjustment and cuts nominal government spending, in essence delivering full extent of austerity in one day instead of 5-10 years and instantaneously stimulating the economy, specially exports.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63526785715049470752015-06-29T13:43:09.844-05:002015-06-29T13:43:09.844-05:00wake up.....Greece has never been a viable country...wake up.....Greece has never been a viable country and is becoming even less so.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23836096096254570202015-06-29T02:02:34.228-05:002015-06-29T02:02:34.228-05:00John, this is a very considered and very intellige...John, this is a very considered and very intelligent post. It makes a change from Krugman etc who just see models and gadgets that have been drummed into them during all their lives as theoretical economists whatever they look at. I think when we look at the Greek case like many others, it is one where we need to know something about the country and put models away for a while. <br /><br />I think you are right that ultimately the solution for Greece, a small import dependent country with a structural terms of trade problem that has existed before the Euro (since its independence from Turkey) is export led expansion. But its pre-Euro history suggests that devaluation and default did not achieve this, and will not achieve it. Olive oil does not pay for German machinery or Middle East fuels. My guess is that if it goes alone it will have to follow something like the East Asian model - which involved licensing of foreign capital and infant industry protection and aggressive mercantilism (if you think they followed neo-liberal free trade policies, you are very wrong). <br /><br />The Greeks want a strong currency like the Euro for good reasons - trading countries want the stability hard currency brings. American Keynesians do not understand what it means to be a small country and have to work in a trading system denominated in US dollars and how difficult that is if you do not have a strong currency like the DM or Euro to buy those dollars. You need the forex to buy the essential inputs to export. But a hard currency is something that has to be earned. And I think fiscal (which will mean political) and as you point out financial, integration in Europe is the only way forward. Then it can properly function as the United States of Europe. This was made more difficult, however, by the rushed expansion eastwards in the 2000s.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21471120053215320892015-06-27T17:49:52.358-05:002015-06-27T17:49:52.358-05:00"deposits will be confiscated and redenominat..."deposits will be confiscated and redenominated under capital controls and Grexit just like everyone else's."<br /><br />correctJKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10109043115927382552015-06-27T16:47:18.800-05:002015-06-27T16:47:18.800-05:00I do not undestand why greeks do not take all thei...I do not undestand why greeks do not take all their deposits from the banks. I say that with all my Argentine experience of so many crisis. I think they are crazy-<br />Luis M. Aguirre<br />Buenos Aires - ArgentinaLuis Aguirrehttps://www.blogger.com/profile/15874770304389276807noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62731890462443369932015-06-27T11:35:26.672-05:002015-06-27T11:35:26.672-05:00This is a good point. GDP has shrunk over 25% sinc...This is a good point. GDP has shrunk over 25% since 2008. Can you imagine the social tragedy of that? 25%. And government expenditures have been slightly below to slightly above 50% of GDP for this whole period, meaning it has been cut almost as drastically.<br /><br />To the point about taxes, even though raising taxes is not a good idea when trying to kickstart the economy, tax evasion and fraud have been a major contributor to the problem of raising government revenue. So the government is reacting to the problem. This is a good article on revenues and spending relative to the rest of Europe: https://www.americanprogress.org/issues/security/news/2010/05/14/7831/the-greek-myth-of-profligacy/<br /><br />Finally, here is a good article comparing the Greek depression to the Great depression in the US: http://www.bloomberg.com/news/articles/2015-06-22/greece-is-in-a-worse-spot-than-america-was-in-1933<br /><br />What a tragedyAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69325293678859813742015-06-26T19:41:52.015-05:002015-06-26T19:41:52.015-05:00Monetary union with no Banking union and ECB overs...Monetary union with no Banking union and ECB oversight from the beginning was a grave mistake indeed,ac999https://www.blogger.com/profile/13972317586061020773noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5024844632754545612015-06-26T01:53:28.239-05:002015-06-26T01:53:28.239-05:00Who is this "Greek government" of whom y...Who is this "Greek government" of whom you speak? Did the people from Syriza borrow this money? Did they make promises that everyone knew they couldn't keep? Did people loan money to them, knowing the ECB would bail them out and push the losses on the taxpayers of the European Union?Procopiushttps://www.blogger.com/profile/17554355440319405363noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-88090940784037002772015-06-25T17:56:24.189-05:002015-06-25T17:56:24.189-05:00"Without the banks, this would all be simple...."Without the banks, this would all be simple." The most important sentence in this post. The most important lesson around the greek drama is not that the greek government is inefficient, corrupt and unsustainable (this is known for decades!).<br /><br />No what it shows is that fiscal policy, monetary policy, and banking regulation are inextricably linked to each other. And all the links lead back to banking.<br /><br />-A sovereign default leads to a bank run with potential contagion effects. <br />-Banks stuff their balance sheets with government debt and do not have to put any capital up for it <br />-Because of liquidity guarantees from the ECB, banks take on more credit risk than they can carry in bad times, so they offload the credit risk to taxpayers if things get ugly<br />-The ECB has to load on credit risks via ELA to keep banking in Greece afloat.<br />-The ECB has to do QE and load on sovereign risk (yes, Spanish and Italian bonds are not risk free!!) to prevent the explosion of the spread to the Bund and stabilize the banking system in these countries as well<br /><br />Banking is the real problem that needs to be addressed, so that sovereign defaults are no longer a threat to financial stability. Jonathan McMIllans End of Banking makes exactly this point and proposes a blueprint how to separate the financial system into a public sphere of money and a private sphere of credit. If money is no longer prone to runs, and monetary policy no longer forced to support credit, we could address the underlying problems of the greek tragedy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4092287785532786132015-06-25T08:21:48.888-05:002015-06-25T08:21:48.888-05:00Anonymous,
Greek government sells discounted liab...Anonymous,<br /><br />Greek government sells discounted liabilities to Greek population that can be used to discharge a future tax liability. For instance, Greek government sells a $90 euro "stock" that will cover $100 euros of tax liability two years from now. Greek government uses that sale to buy back $90 euro of its existing debt.<br /><br />Germans, French, Italians, and other foreign investors would have little reason to buy them since they don't pay Greek taxes.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-67802145987865905692015-06-25T05:16:19.957-05:002015-06-25T05:16:19.957-05:00Cochrane - (whose distant perhaps relative Thomas ...Cochrane - (whose distant perhaps relative Thomas Cochrane of the UK fought for the Greeks in their war of independence vs the Turks, and his life and exploits served as inspiration for the naval fiction of 20th century novelists C. S. Forester and Patrick O'Brian) states: "Greece needs an independent, national, banking system about as much as Ohio or Louisiana need independent, state banking systems" - but professor, didn't the early states, under a gold standard, have state banking systems? And save a panic or three, they did just fine, with GDP per capita growth rates in the late 19th C about the same as today's (source: A. Maddison). BTW I bank in Greece, live there, and am indifferent to a default.Ray Lopezhttps://www.blogger.com/profile/11134761834999705305noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-30989638047090343562015-06-25T05:04:09.836-05:002015-06-25T05:04:09.836-05:00What would be the mechanism for Greece to "co...What would be the mechanism for Greece to "convert its externally held debt to internally held equity"?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-45304787392622213192015-06-25T04:14:22.214-05:002015-06-25T04:14:22.214-05:00"Total public sector employment declined...&q..."Total public sector employment declined..." mostly by allowing (or even inviting) public servants to get early (and usually very early) retirements.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55277960219949090632015-06-25T04:06:02.944-05:002015-06-25T04:06:02.944-05:00I would guess that in Greece it works as in any ot...I would guess that in Greece it works as in any other EZ country, like Italy for instance, and here putting money in a local branch of UBS or Deutsche is not the same as putting it in an account abroad. In theory, even if you send money (legally) to a US broker in London, you are liable to pay or getting confiscated (in practice is more fuzzy, you can open without disclosing your EZ tax id...). But you can buy all the Fidelity, Pimco, Vanguard or Doubleline you want, in dollars or pounds, while being in Greece or Italy and you will be safe. This is what I recommend for instance....<br /><br />(@F.Restly...Greeks Banks had to borrow 113 billions euros from the ECB because Greeks citizens more or less took out all that money, as JC discuss and therefore with that money which is like 40% of GDP (plus other stashed in London from before) they will be buying assets in their own country once the dracma is back... And yes, now that Greeks have improved a bit they will go back to produce food, clothes, shoes, furniture and the like once their currency will be worth 50% less than the euro...)gzhttps://www.blogger.com/profile/14615590897074345988noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4576656205886011222015-06-25T00:07:05.733-05:002015-06-25T00:07:05.733-05:00Speaking of Zeus and Draghi, it seems to me that Z...Speaking of Zeus and Draghi, it seems to me that Zeus was less cruel than the Troika. The rock Sisyphus had to push didn't get bigger with each iteration.<br /><br /><br /><br /><br /><br />JB McMunnhttps://www.blogger.com/profile/15468282698533043544noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41707993949207006682015-06-24T18:49:23.294-05:002015-06-24T18:49:23.294-05:00I have no idea. I was under the impression that th...I have no idea. I was under the impression that they couldn't "confiscate" money from foreign-owned banks. But that may depend on how these foreign banks are operating in Greece (i.e. they may be required to operate their local branches as subsidiaries or not). Other countries may have different rules. <br /><br />Either way, opening an account in a foreign bank can't be all that hard. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59781649336249197612015-06-24T18:37:11.399-05:002015-06-24T18:37:11.399-05:00I'd like to understand this better. Any Greeks...I'd like to understand this better. Any Greeks reading? Is taking your money out of a Greek bank and putting it in a local branch of UBS the same as starting an account abroad? I suspect no, that the local branch of a non-Greek bank operating in Greece does so under Greek law, so deposits will be confiscated and redenominated under capital controls and Grexit just like everyone else's. <br /><br />Or, why not transfer your money to a money market fund operating in Europe? Is there no Vanguard? Or am I being Marie-Antoinette naif here and money market funds (legally operating on a european basis, immune from a Grexit) are not available? John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46129753780292017142015-06-24T18:30:31.292-05:002015-06-24T18:30:31.292-05:00I'm fairly certain that there are numerous &qu...I'm fairly certain that there are numerous "European" and international banks operating in Greece. I.e., Greek depositors don't have to use local Greek banks. They can just as easily walk to a local branch of a German, Austria, Swiss etc. bank in Greece. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-12459221832821557902015-06-24T16:39:21.792-05:002015-06-24T16:39:21.792-05:00"Without the banks, this would all be simple...."<i>Without the banks, this would all be simple. Greece could default, stay in the Euro (unilaterally if need be) and Euro zone. One government defaulting on debts to other governments is not a crisis.<br />All along though, the involvement of the Greek banking system makes it much harder.</i>"<br /><br />Only harder because governments like to have captive banks to buy up their debt. Greece could default tomorrow even with its own banking system, so it isn't the <i>presence</i> of that banking system that makes thing difficult, but the fact that the Greek government would like to stay in the Euro with a central bank that can print Euros.Yancey Wardhttps://www.blogger.com/profile/16427042729449397357noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25686010202770365962015-06-24T16:32:37.157-05:002015-06-24T16:32:37.157-05:00Superb clarity, especially point 5.Superb clarity, especially point 5.Falstaffhttps://www.blogger.com/profile/06865552505521389155noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-2414530862575237002015-06-24T10:18:31.176-05:002015-06-24T10:18:31.176-05:00GZ,
Currency can be used to buy more than goods. ...GZ,<br /><br />Currency can be used to buy more than goods. Suppose Greece did have it's own currency and devalued it to $0.65 on the Euro. Suddenly, everything in Greece becomes cheaper to buy for owners of Euros (land, stocks, corporate bonds, buildings, etc.).<br /><br />Currency devaluation alone is not enough to reach a balance of trade, it can only help to restore a current account balance.<br /><br />To reach a balance of trade, you need to lower the cost of production of new goods without lowering the value of existing goods / capital assets.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20116009465685361572015-06-24T10:02:33.485-05:002015-06-24T10:02:33.485-05:00Thanks for the post. If I am not mistaken, at the ...Thanks for the post. If I am not mistaken, at the current moment practically all Greek debt is held by the ECB. Thus, a default of the Greek government should not have an impact on Greek banks' solvency. I understand the fear then comes from a panic-driven bank run. Is this right?Anonymousnoreply@blogger.com