The victory in Greece of anti-austerity party Syriza (in coalition with a hard right junior partner) has been warmly welcomed by anti-austerity commentators here.
Perhaps jumping the gun a little regarding the difference between voting to end austerity and actually ending it, Zoe Williams in the Guardian talks of a “a successful, transformative movement”.
The gulf between Syriza and all the other parties was suddenly, dramatically clear: the leftwing party no longer thinks of the ECB as its dad. It does not seek its patience. It will not take its terms at any price. This is the necessary precondition for credible leftism: a rejection of the bodies, mostly central banks and attendant forecasting agencies, currently in charge. You can’t build a new game to their rules.
Heartwarming and inspiring. So long as you can build a new game without their money. Though I might call “without their money” austerity in spades.
Owen Jones is similarly wetting himself…
No wonder so many leftists – from Britain, Spain, France, Italy, and all over Europe – travelled to Athens for this moment. For many of them, neoliberalist triumphalism is all they have ever known. The stripping away of hard-won social rights and the ever-growing dominance of the market are things they have almost taken for granted. Some looked rather dazed as the victorious Alexis Tsipras took to the stage, because they have grown accustomed to losing.
Syriza is not about to build a new socialist society. It has assembled a coalition with a rightwing party; it faces the determined opposition of EU leaders and powerful interests within Greece itself. It will be battered by the markets, and will compromise in a way that will undoubtedly alienate many of its own supporters, both in Greece and abroad.
Though there is a hint here, that it might not work – that those damned markets exist and because they do the project may fail. But feel the joy, and never mind the actual consequences. Judging policies by their consequences is something for grown-ups.
I shouldn’t be so dismissive. Greece has had a rough deal. It was allowed into the Euro without achieving convergence, through some blatantly fiddled figures. And Eurozone monetary policy has served the interests of the rest of the zone, particularly Germany, better than it has Greece’s. Were technocrats running Greece and Germany, perhaps a reasonable combination of bailout, austerity and reform could be agreed, but democratic politicians on all sides have a mandate to make their demands more strongly than is reasonable, and sometimes that can work, though more often it creates an impasse and further crises. Greece has voted, in hope and desperation, to go further down this path.
We should be thankful we haven’t seen anything like Greece’s problems here, or faced anything like Greece’s austerity. Even the Labour Party that bequeathed us a deficit of £150bn is lukewarm about borrowing as a panacea. Ed Miliband’s response to Syriza’s victory is described in the New Statesman
What is notable about his statement is that there is not even a hint of congratulation. Instead, he reverts to a half-hearted warning against playing politics, and a vague appreciation of democracy: classic tropes espoused by equivocating politicians.
I guess a party that has condemned cuts for 4 years and now promises to do more of them must equivocate on Syriza. But the left wants to be inspired by recklessness, and the country needs to live within its means. It is not a political identity that is right for the times.
* Joe Otten was the candidate for Sheffield Heeley in June 2017 and Doncaster North in December 2019 and is a councillor in Sheffield.
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68 Comments
I was laughed at for suggesting Syriza had some nationalism in its ideology and then the first thing they did when they got elected was join a coalition with a nationalist party.
The rhetoric and priority concerns of Alexis Tsipras clearly had a nationalist bent on them. He is far more pragmatic than a lot of this country’s left.
Good article. Linking Labour to Greece and the Tories to austerity is something that needs to be done over and over again.
QE has not produced the hyper-inflation many thought it would bring, but at the same time it has failed to stop the slide into global deflation as evidenced by the oil price collapse, weak retail sales, falling copper and iron ore prices, the Baltic Dry Iindex at a record low, and a host of other real economic indicators.
The reason is that QE money has gone into the commercial banks who have used this money to invest in equities and even in other, much more risky enterprises. It’s not surprising. After all, if you are loaned/given money at basically zero interest, you would be a foolish banker if you were to be too careful in investing it. The point is, the QE money hasn’t gone into the real economy of production.
So maybe QE could now be diverted to benefit the real economy so as to boost production and employment, and as for that deficit – we should cease to fund it through bond purchases -we should from now on simply rely on the inherent credit creation powers of the Bank of England to fund it.
You seem to be attacking Labour for agreeing with your position that Syriza is more a concern than a solution!
It’s also absolutely absurd to blame Labour for a global economic crisis, especially when their response to it at the time came under no serious criticism and has been widely praised outside UK political tribalists.
By all means express concerns about Greece, what it all means, and how it is further proof that Owen Jones is an idiot, but the latter is further away from Labour economic policy than you are so he’s hardly the right stick to choose to bash your political opponents.
you are right, Joe, about Greece getting into Euro on false figures. Its also true that all the Eurozone countries have broken the 3% rule at sometime.
Syriza has come to power at just the right time, the Greek economy is growing and the government is running a big surplus so there is plenty of room for a relaxation of the austerity measures if everyone is sensible (although you are right as well about politicians not being so sensible.) So if Syriza play their cards right they will be able to claim at the next election that they were responsible for Greece getting back on track. But they also have to tackle youth unemployment (at 50% now) and the massive tax evasion that goes on.
Finally, I am pleased with the result. It may not become socialist heaven as some believe, but it will make the arch monetarists think seriously about what they are doing. Its a pity that instead of a socialist party in the UK we have UKIP!
Tsar Nicholas – a slight correction. QE money very largely went into pension companies – who had sold their bonds to the Bank of England.
These pension companies that hold a lot of “”””our wealth”””” for our retirement sold those bonds at top price (low interest rates). When QE is unwound (because interest rates have recovered) these pension companies will buy back the bonds which the Bank will sell to them at the lower price (higher rates) and those with pension pots will benefit.
As I have been saying here for six years now, I would have preferred that the Treasury funded some of its expenditure through private bank loans to the public sector which has a similar effect on the money supply but does also create services and infrastructure enjoyed by all of us, present and future citizens, (which Adair Turner is also now advocating) but QE as used by the BofE and the Fed was a second best.
Of course we should be campaigning on economic success, but not by echoing the cautious and fearful ways that Tories specialize in campaigning on it, we should be talking of the hope we shall bring in the next five years, the opportunities we shall create, the freedoms we shall build, the life chances that we shall help people win for themselves, their families, their children and their children and their neighbours in their communities.
Congratulations to Syriza. The threat of democratic communist resurgence in Greece (and the rest of southern Europe) will surely encourage some of the money men to think that it is worth compromising with all the millions of people they have caused to suffer over the past decade. Some of the staunchest pro-austerity voices were already saying just that, even before the election.
Tsipris is a shrewd pragmatist, and seems to me likely to play his hand carefully. I rather like his attitude to the archbishop, too – the Economist reports that he politely declined clerical services at his swearing in, the first Greek PM ever to do so.
Joe Otten.
I am curious about your description of Owen Jones.
You say he is “wetting himself”.
Why did you think it is appropriate to use those particular words?
The quotation you provide from his article seems balanced and far from over-enthusiastic.
On reflection do you think you might have overdone it by saying that he is “wetting himself”. Or do you think this is just the sort of language and outlook that will guarantee you become an MP in 100 days time?
@ JohnTilley. I agree with you about the Owen Jones comment. Joe is looking pretty childish there. Not too late to edit it Joe!
I wasn’t impressed by either Williams’ or Jones’ articles and I say that as someone who was very critical of the UK government’s initial austerity policies. And why is Williams identifying the enemy as central banks and bodies like the IMF. They may have their faults but actually the IMF has been saying some quite interesting things about inequality for instance. What would be more sensible would be to point out that the IMF is funded by governments and therefore it would be quite difficult for it to go against the grain of government feeling. The real enemy though is untrammelled power in the private sector. Whether that infects the IMF and central banks is an interesting point. Williams’ article borders on anti-intellectual anti-empiricist nonsense. Why bother measuring stuff, reecordng data when you could be reinventing paradigms instead.
David Pollard
“but it will make the arch monetarists think seriously about what they are doing.”
The response of European institutions and governments is many things but monetarist is not one of them.
Its unfair to diss Milliband for equivocation since thats what he was elected to do. He was, above all, the Unity candidate & so far, hes done a surprisingly good job of holding Labour together. Now is where it starts to get difficult though as Labours lead over The Tories dissapears. For those who dont follow the polls, there were 5 last night, one showing a Labour lead of 1%, one a tie & three showing Tory leads of 1%. For comparison, the average Labour lead last month was 3%.
The crucial point is that the fall in Labours polling which appeared in the first polls of 2015 seems to be continuing.
Bill le Breton,
Thank you for your correction.
@Paul Barker
Can you please explain once and for all how it is, for the last couple of years you are totally dismissive of polls that show declining Liberal Democrat support and claim polls are nonsense and tell us nothing about the state of the party and the 2015 election.
And yet when it comes to Labours positioning in the polls, you are able to do a vault face and state how it proves how terrible Labour are doing and how badly they will do as we drawer nearer to the election.
It’s extraordinary how your able to intellectually interpret data like that
Joe Otten, “the left wants to be inspired by recklessness”.
Absolutely wrong. Syriza know that sweet reasonableness will get them absolutely nowhere. Their arrogant opponents elsewhere in the EU will drive a steamroller over sweet reasonableness. Brinkmanship is the only thing that Merkel and company will take notice of. Brinkmanship is therefore what Syriza have resolved to give them. It’s not pleasant. It wouldn’t be right for the UK. But it is right for Greece.
The ones who were bailed out when “greece was bailed out” wasn’t the Greeks – it was mainly Londoners who hadn’t done their fiduciary duty of not lending to bad creditors. It is once again a case of socialising losses, and lumping the cost onto the tax payers.
Martin Wolf had a great column about that in today’s FT.
http://www.ft.com/cms/s/0/44c56806-a556-11e4-ad35-00144feab7de.html#axzz3Q1hkQDpH (Behind paywall)
“The second proposition is that, since the crisis hit, the rest of the eurozone has been extraordinarily generous to Greece. This, too, is false. True, the loans supplied by the eurozone and the International Monetary Fund amount to the huge sum of €226.7bn (about 125 per cent of GDP), which is roughly two-thirds of total public debt of 175 per cent of GDP. But this went overwhelmingly not to benefiting Greeks but to avoiding the writedown of bad loans to the Greek government and Greek banks. Just 11 per cent of the loans directly financed government activities. Another 16 per cent went on interest payments. The rest went on capital operations of various kinds: the money came in and then flowed out again. A more honest policy would have been to bail lenders out directly. But this would have been too embarrassing.”
This is the level of debate, hoping that the readers have no understanding about state finance. Just look at what is being said about our UK national debt. “We owe 1.5 trillion! We need to cut, cut, cut!” They never mention that nearly 400 billion of that is owed to the Bank of England. How about we cancel that debt by an act of parliament and forego paying interests from one arm of the UK government to another arm of the UK government instead of sending a million more people to food banks?
Naturally, the response is going to be a technicratic explanation about why that is not possible.
Tsipras seems to be a clever man. I have no idea about how the new government will do things. But I do know that the new Finance Minister is going to run circles around the intellectually malnourished thinkers in the finance ministries and central banks here in this country and in the EU.
Paul Barker.
Unfortunately a dip in Labours polling does not mean the Lib Dems are resurgent. All it means is that the Conservatives will try to form some sort of pact with UKIP. Do you actually want a Conservative/UKIP government?
IMO a lot of Lib Dems are accidently cheerleading for a Right Wing coalition simply because they hate Labour so much. It’s like a man in a card game who just lost all his money laughing at another man losing his money instead of questioning the dealer. Labour’s slump will not benefit the Lib Dems one iota, just as the Lib Dem collapse doesn’t really benefit Labour. All it does is strengthen the Right and weakens progressive politics with no benefit to the cause of liberalism whatsoever. It’s the People’s Popular Front of Judea school of dead end infighting.
A good article. The problem is that the current euphoria of the left is soon going to come crashing onto the rocks of economic reality, as it did with Hollande in France. Another good article is this one http://thinkingliberal.co.uk/?p=1536
Well the clever types are all out in force, and lots of pompous muddled European politicians are pontificating.
Anyway I think the Greek election result is really rather good. And the rest of Europe needs to recognise a democratic decision at the ballot box by people who in years gone by would have been on the streets creating a revolution. And it’s the first major fight-back against the whole austerity con.
It’s always fun to work out how we’d vote for in elections in other countries. I might have voted for Syriza, or I might have voted for To Potami, tactically in either case depending on what I thought the result would be. But the idea that Syriza is “hard left” or “extremist” is a figment by people who seem to have forgotten what the political spectrum meant for most of the last 100 years.
Nationalisation of the economy? No. Leaving the EU and NATO? No. Massive clamp-down on civil liberties? No. Banning of other parties? No. Political take-over of the courts? No. So don’t be silly. Syriza are cuddly compared with Labour’s programme in 1983…
The problem is that people think it’s normal for the political centre-ground to be somewhere to the right of Margaret Thatcher, which is where we are now.
What is now needed is a period of negotiation, with proper respect given to the decision that has been made. And an understanding that it might happen in more European countries. Spain might elect Podemos (I would vote for them if I was not in Catalonia) but in other countries the beneficiaries might be altogether different parties.
It’s an amber warning light for the whole of Europe, and the blindness and little England narrowness of view by most politicians in this country and almost all the press is frightening.
If the Liberal Democrats were now in opposition we would have been leading the Keynesian attack on austerity. Perhaps that’s what we will be doing in a year’s time…
Tony Greaves
Tony Greaves
Colin
“it was mainly Londoners”
Was it? Does Martin Wolf say that it was “Londoners” I didn’t notice it in the article. More likely it was a spread of investors from across the globe with a heavy concentration of exposure in other European countris hence the unacceptability of default in the early stages. In the way Ireland had heavy German exposure.
Perhaps you could quote where he states it is “Londoners?”
“This is the level of debate, hoping that the readers have no understanding about state finance”
And
“forego paying interests from one arm of the UK government to another arm of the UK government”
The Interest on the BoE holding of UK treasuries doesn’t get kept by the BoE it is already accounted as being the treasury paying it self. So which bit of the UK Governement is paying another bit of the UK Governement?
“the response is going to be a technicratic explanation about why that is not possible”
Many things are possible the question is whether they are advisable. Will that £400m need to be unwound in the future to control inflation? If not they it is as good as cancelled already. The point is as this hasn’t been done before peoepl don’t know.
“Just look at what is being said about our UK national debt. “We owe 1.5 trillion! We need to cut, cut, cut!””
Strawman.
Your comment suggests that you believe that deficit spending is fine so long as we just keep printing? QE has been a specific limit for a specific purpose (which will be argued over for years as to whether it worked). Endless money printing for day to day spending is Mugabenomics.
“I do know that the new Finance Minister is going to run circles around the intellectually malnourished thinkers in the finance ministries and central banks here in this country and in the EU.”
Well I think David Allan has it right that he knows that the only option not tried by Greece so far is brinkmanship, I’m not sure that makes him smarter than everyone else. We will see.
Colin
“They never mention that nearly 400 billion of that is owed to the Bank of England. How about we cancel that debt by an act of parliament and forego paying interests from one arm of the UK government to another?”
Actually, I think we stopped paying that interest over two years ago: http://www.theguardian.com/business/2012/nov/09/bank-of-england-gilts-interest
The “debt” still exists but has no effect on government finances in the present. It effectively represents a promise to the financial markets of future fiscal rigour, no more.
Not only have Syriza already gone into coalition with a right wing party, but they’ve harmed Greece’s pensions and increased its borrowing costs too.
http://uk.reuters.com/article/2015/01/26/uk-markets-greece-idUKKBN0KZ0VV20150126?type=GCA-ForeignExchange
I know people don’t like investor retribution, but as Mark Valladares said quite simply the other day: “if you don’t pay your debts, nobody will lend you any money.”.
@Tony Greaves,
“The problem is that people think it’s normal for the political centre-ground to be somewhere to the right of Margaret Thatcher, which is where we are now.”
This. And a common mistake is to think that the politics of the UK are the same as the politics of Germany or Spain or Sweden. Merkel, for instance, is far too intelligent to go for a Thatcherite position because German Christian Democrats are not Thatcherite. They are, and I say this in the broadest possible way, conservative collectivists inspired by Catholic ideals about communitarian social policy. They are, probably, as such kind of conservatives, quite revolted by the vulgar egotism on display in The City.
Northern European attitudes are decidedly divergent: Swedish conservatism is far more a pre-1979 Labour sentiment that even the conservative parties have adopted. That the Swedish labour party has trouble is bacause they’ve been attached to laissez faire capitalism for too long, and when the Swedish conservatives triangulated themselves into the old ideals and were elected for three sessions of parliament.
“The “debt” still exists but has no effect on government finances in the present. It effectively represents a promise to the financial markets of future fiscal rigour, no more.”
Except it’s included in the political push for more austerity. So, the ones who want to continue that failed policy say “We owe 1.5 trillion! Cut cut cut!” The national debt is a political fiction designed to achieve an ideological end – like much of economics is. Not being a science, economics has no predictive power; no laws and immutables. It’s all about fiction and soothsaying, and wishful thinking.
“The national debt is a political fiction designed to achieve an ideological end – like much of economics is. Not being a science, economics has no predictive power; no laws and immutables. It’s all about fiction and soothsaying, and wishful thinking.”
The national debt not a political fiction when you have to pay more interest to service it, which is what this country is having to do after being left with a massive deficit in 2010. Pretending this fundamental problem does not exist is flying in the face of hard reality.
“Not being a science, economics has no predictive power; no laws and immutables.”
Economics is a science, but being a social science, it is about people, and people don’t behave according to laws and immutables. People are not molecules or atoms, are they? Imagine how difficult and unpredictable chemistry would be if what was H2O one day could be H4O the next day, simply because it felt like it.
“It’s all about fiction and soothsaying, and wishful thinking.”
And at the moment, the wishful thinking is going on on the part of people who think the national debt doesn’t matter. Have you ever come across a country where this theory has been proved? Because I can’t think of one.
If the national debt is a “political fiction”, are there any real consequences that borrowing too much money would have?
Colin
You probably want to give up on the Strawman that the argument for deficit reduction is: “We owe 1.5 trillion”
I doubt you will hear £1.5 Trillion mentioned in any discussion the argument is we have a deficit projected to be £91.3Bn.
If you think a deficit is “fiction” then try overspending indefinitely yourself, see what happens.
Of course you could just advocate printing to spend but as I said there are plenty of examples where that has been tried, not a pretty picture. Or is history also a “fiction?”
“If the national debt is a “political fiction”, are there any real consequences that borrowing too much money would have?”
Yes, and obviously this party believes it is fiction too. Otherwise I will have to conclude that the Liberal Democrats are reckless, economically, because you raised the personal tax allowance so that everybody that earns less than £120000 per year gets it.
If the deficit and the debt were so dire, obviously a responsible husbandry of resources would preclude such a thing except for the poorest. A responsible party would have tapered the personal allowance off once people earned more than say £20 thousand per year rather than include nearly everybody.
Since we concluded above that between one quarted and one third of the national debt is money owed by one part of the government to the other, and since we have the evidence of the largess of tax credits and personal allowance that this current government has instituted, we have to conclude that the debt and the deficit are indeed fictions paraded before a mostly ignorant audience in order to achieve an ideological end.
Tony Greaves 27th Jan ’15 – 1:44pm
“….. the idea that Syriza is “hard left” or “extremist” is a figment by people who seem to have forgotten what the political spectrum meant for most of the last 100 years.
Nationalisation of the economy? No. Leaving the EU and NATO? No. Massive clamp-down on civil liberties? No. Banning of other parties? No. Political take-over of the courts? No. So don’t be silly. Syriza are cuddly …”
Well said Tony Greaves !
Some of the comments here and in the mainstream media seem to come straight out of the Norman Tebbit book of reactionary rubbish.
I have listened to such nonsense about the Greek Election on the BBC radio and UK TV channels (except Ch 4 News).
The representatives of Syriza that I have seen interviewed live seem to be intelligent, pragmatic and articulate.
In some cases their use of English has been superior to the BBC people interviewing them. (I often have difficulty working out what John Humphries is trying to say and English is supposed to be his first language).
The BBC seems incapable of reporting election results from other countries without presenting the results as if they can be dropped effortlessly into a Westminster context.
Come to think of it with a brace of Dimble-Bees at the helm the BBC is incapable of reporting UK election results.
@Tony Greaves : “Anyway I think the Greek election result is really rather good. And the rest of Europe needs to recognise a democratic decision at the ballot box by people who in years gone by would have been on the streets creating a revolution.”
The Greeks are of course perfectly entitled to decide they don’t want any more austerity . But why does that means anyone else is obliged to send them money so they can spend more than they can earn ? More importantly why should the ECB keep the Greek banking system afloat if the Greeks have voted not to abide by the terms of Eurozone membership?
Some of the banker-spanking on this thread is interesting. And the ‘Londoners’ – are Chas and Dave involved, Colin?
Commercial banks aren’t in this game, because they all took a 50%+ write down in 2010, if I have the date right, at the second bailout. This is about Eurozone governments, and I don’t see that they have much leeway.
France for example has a 40 billion Euro exposure. Will even M Hollande write that off?
My view is that Syriza will end up running into the same wall that Leftist Governments always run into eventually. They will run out of other people’s money that they can get their hands on.
So I won’t be holding my breath while they threaten to pull the whole Euro house down. I expect them to leave the Euro sooner or later.
The eventual Greek solution has to be a government, tax authority and civil service fit for purpose.
Matt Wardman 27th Jan ’15 – 4:30pm
Matthew Wardman, can I suggest that you are perpetuating myths ?
Myth number 1
“……….Syriza will end up running into the same wall that Leftist Governments always run into eventually. They will run out of other people’s money that they can get their hands on.”
Is this an accurate representation of whathas happened around the world?
Some Scandinavian countries had governments of the left elected and re-elected for decades, the sky did not fall in and civilisation as we know it continued.
During the last 20 years some South American countries have had obviously leftist parties elected to power, in some cases replacing some very dubious rightwing characters who had been driving the economy into the dust. Bolivia for example seems to be undergoing something of a boom since the very popular Evo Morales was first elected. He has recently been re-elected.
The truth is that this is a myth, some left governments do well, some rightwing governments are not fit to run the proverbial whelk stall. Do we think that a UKIP run economy would be fantastically successful?
Myth number 2
“……..The eventual Greek solution has to be a government, tax authority and civil service fit for purpose.”
Well we could say exactly the same about the UK.
Wouldn’t it be nice to have a Governent “fit for purpose” ?
How splendid it would be to have a tax authority that did not look the other way as large companies and oligarchs pay not a penny I tax? Think how well off we would all be if more than half of the places where our Queen is Head of State were not UK government created tax havens.
As for a civil service being fit for purpose — we cannot make that claim for the UK when we have the Cabinet Office over-run by party hacks paid out of taxpayers’ money and then described as “Special Advisors” running up a salary bill of millions of pounds every year.
Joe nicely highlights some of the internal contradictions and denialism of those on the left, and not only in Greece, who want to break free of the ‘hegemony’ of the IMF and the ECB yet want the financial transfusions to continue with no strings attached; who excoriate ‘the markets’ but whose enthusiasm for borrowing in those markets (in good times as well as bad) is undimmed; and who fondly imagine that national debts are politically created fictions, in the face of several centuries of experience the world over that suggest they are all too real.
As I posted in the other thread about Greece, there is another, equally important, paradox that the Keynesians and euro-enthusiasts in the Lib Dem ranks seem puzzlingly reluctant to grasp.
What the southern European governments, prodded by the EU and IMF, have been trying to achieve through their austerity programmes is not just a reduction in their budget deficits but an ‘internal devaluation’ to restore competitiveness in their prices and production costs vis a vis their trading partners in the northern ‘core’ and thus boost their exports. The reason they have had to resort to driving down wages and prices is that the normal adjustment mechanism – the exchange rate – is not available to them.
Indeed, it’s worse than that. For what the single currency has done from the very start is to reinforce and amplify the long-established trends for the economies of Germany (in particular) and southern Europe to diverge over time – while abolishing the means by which the currency markets could restore a measure of equilibrium.
As plenty of people argued at the time – and were breezily dismissed as ‘isolationists’ by europhile Lib Dems – one size of monetary policy for this economically diverse continent did not fit all.
Low interest rates – underpinned by the German record of, and commitment to, sound money – enabled the southern Europeans to go on a borrowing and spending spree, and moved their unit costs ever more out of line with those of the frugal, hard-working Germans who saw only meagre increases in their real wages.
Meanwhile the fact that the euro was a weaker currency than the old deutschmark turbocharged the Germans’ export machine and enabled them to harvest ever larger trade surpluses, where previously a rising mark kept those export surpluses in check. Indeed, one of the under-appreciated aspects of the crisis is how much of a boon the euro was for Germany – until the strains in the system took it to breaking point and Germany was presented with the bills.
As Roger Bootle and numerous other economic commentators have pointed out: “If the euro did not exist, then the market would have long ago sent the currencies of the weaker southern bloc sharply lower and the currencies of the northern bloc sharply higher.”
The effect would have been to achieve a spontaneous realignment of the economies of the ‘periphery’ and the ‘core’. Instead what has happened is an improvement in the trade balance of the peripheral European economies, but at the cost of strangling domestic demand and hammering living standards. Moreover, there has been no rebalancing within the eurozone itself; indeed Germany has actually become even more of a net exporter and saver.
As the Economist recently noted: “Given the depth of the recession Europe’s peripheral economies endured, one shouldn’t be surprised that its current account balance has improved. What is truly remarkable is that peripheral Europe’s improved current account has not come through rebalancing within the eurozone; Germany’s surplus has actually grown.”
This is partly because the Germans have not been persuaded that part of any solution to the euro crisis must involve them saving and exporting less and spending more at home.
As Bootle puts it, the Germans “do not get aggregate demand…they do not do Keynes”. Indeed, they don’t “do Friedman” either. And as Psi rightly points out above, the last thing the European response to the crisis has been is monetarist. The money supply has been allowed to contract and even the asset purchases planned in the recent move to QE will only restore the ECB’s balance sheet to where it was in 2012. And as I noted in the other threat, the Bundesbank has stymied any prospect of debt mutualisation by ensuring that the ECB will in effect be precluded from buying Greek debt and that national central banks will bear 80% of the credit risk.
Given the underlying divergent pressures within eurozone, it seems highly improbable to me either that the southern European economies (or rather their companies) will be able to price their way to competitiveness on an ongoing basis, particularly in view of the fact that their commitment to structural reforms has largely been honoured in the breach rather than the observance.
Meanwhile Germany’s quasi-mercantilist tendencies will continue to hold back demand; and its resistance to full-scale debt mutualisation is understandable, but ultimately incompatible with making the euro work. Whatever concessions Syriza manages to secure for Greece – and personally I think there is a compelling moral case for some further negotiated debt write-down in exchange for a commitment to implementing structural reforms – the straitjacket of the euro will slowly strangle it again. The failure is systemic and structural, not merely a matter of national or ECB policy.
It’s very telling how so many people treat the situation in Greece, with their cold, detached, emotionless words as if it is some sort of abstract.
Have the people of Greece not suffered enough at the hands of the money men? Many people can barely afford food and electricity now, let alone enjoy the luxury of heating their homes in winter. People cannot afford vital medications or treatments. Unemployment is staggeringly high there, still. I think I saw a figure stating youth unemployment was higher than 50%. It is a fact that Goldman Sachs helped the Greek government at the time cook the books so they would be accepted into the Eurozone. Yet the entire population of Greece has been made to suffer for their government’s actions. Collective punishment is illegal under the Geneva Conventions, yet economic collective punishment seems to be allowed. What has been waged against the Greek people is no less than financial terrorism. The vast majority of Greek people did not cause this problem. Yes, they could have done a lot more with regards to collecting tax and crushing corruption, but I fail to see why all this suffering of millions of people (due to the mistakes of a few) has been allowed – all to appease the money men.
There has been little talk in this thread of how the Greek people have suffered. Plenty of technocratic discussions of economics, but it’s as if the human side of things is just an abstract; a minor detail (which also seems to be the case when austerity here in the UK is discussed). And yet when the Greek people vote for a new government which is giving them one thing they haven’t had for so long, hope, there are sneers and predictions of even more doom. The insensitivity towards this suffering, all to appease the money men, from Lib Dems nonetheless, is a bit sad.
It seems as if all compassion and thirst for social justice in this party is dead. I think it’s pretty clear that the majority of people who remain in the Lib Dems are comfortable, right-wing types who aren’t being hurt by austerity. Technocratic people devoid of emotion and compassion. This party, it seems, is becoming increasingly detached from the rest of humanity.
The fact that the word “leftwing” is almost used as an insult in Lib Dem circles these days tells us everything we need to know.
Hi Stephen Campbell, if a party like Syriza was elected in the UK there would be a major capital flight, the pound would take a big tumble, price controls would come in to stop inflation getting out of control, but disaster would quickly take place as they can’t control the ever increasing costs of oil, gas, electricity and other internationally traded goods. We basically went through this in the 70’s.
Regards
@ Stephen Campbell
I don’t think anyone is disputing the fact that the Greek people have suffered. I certainly am not. The debate is about the origins, nature and possible solutions to their predicament.
Sadly, compassion alone, if not allied to reasoned analysis of the situation – the”technocratic discussion of economics” that you find so dispiriting – will not get the Greek economy back on its feet, improve people’s living standards or restore their electricity supplies. Peddling soft options or false panaceas – taking refuge in escapism – would do the Greek people as great a disservice as ignoring their plight.
There is nothing compassionate about a nation being plunged into bankruptcy, which is what will happen if capital flight from Greece continues on the current scale and its bailout package is not extended again in February/March. Liquidity support for Greek banks is rising fast but if the ECB were to pull the plug then Greece would face an immediate crisis.
More generally, the implication that there is a simple choice between financial responsibility and social compassion, that a compassionate government can wave away concerns about solvency and liquidity as being dry obsessions of the ‘money men’, is misleading and particularly misplaced coming from those who are enthusiastic borrowers.
Yet it is a recurring theme in the Labour party’s history, on the social-democratic right as much as the socialist left. Edmund Dell (a distinguished former Labour trade secretary who led the small group of Social Democrats that negotiated the merger with the Liberal party) lamented this tendency in his brilliant book ‘A Strange Eventful History’.
Reflecting on the importance but also the limits of Marshall Aid, Dell wrote: “Labour governments in the years to come would borrow heavily from the international financial community. But it was always only with the greatest reluctance that they conceded that borrowing implies conditions that it is necessary to respect. As a result the terms of borrowing were always worse than they might have been.
“The spirit of these transactions was perfectly expressed many years later by Roy Hattersley, who had been deputy leader of the Labour party. In an article criticising the Blair government for its failures in relieving poverty, he wrote, ‘In 1946, a National Insurance Act was implemented in full on the day when it came into force – although Lord Beveridge, its inspiration, advised a phased introduction. Attlee insisted that the demands of the poor take precedence over fiscal probity.’
“Presumably Hattersley meant that Attlee, having borrowed a vast sum of money from the USA and Canada, then made the honourable decision to renege on the conditions. But no aspect of a government is examined with more hawk-eyed interest by its creditors than its fiscal probity. Socialism in the UK was a borrowing socialism. The three postwar Labour governments [Dell was writing before Gordon Brown followed the trend] were all heavy borrowers.
“Labour governments and Labour ministers never seemed to accept that fiscal probity is much more in demand among lenders than other forms of probity are among the electorate in general. There is therefore a question not just of honour but of self-interest, especially in the case of governments given to heavy borrowing. As we shall see, Hattersley was not the only leading Labour figure who imagined that fiscal probity could be rationed according to domestic political criteria.”
Stephen Campbell
Alex had covered the point well but I would add a few things.
Firstly when you refer to “the money men” you are talking about German Tax payers so cleaners, teachers , mechanics, nurses etc. There has indeed been too much suffering in Greece and many other struggling Euro area countries. But what is your sollution? Sympathy is not a solution, you appear blinded by your prejudice against “money men” which I am not sure you are clear what you mean.
Alex set out some of the history as an aid to identifying solutions, you appear to object to using analysis to look for a way out of the hole these people are in.
Personally I would opt for Germany and one or too others to leave and form a seperate block, but we could just sit arround with our knitting and complain…
What a disaster of an article. Is this type of shallow thinking the best we can do when it comes to finding PPCs? First of all, saying someone was “wetting themselves” is rather cheap. Stick to serious analysis. Secondly, the Syriza finance minister is an extremely serious economist: saying that they have not thought about ‘the money’ or whatever seems a bit like a blind man criticizing a glaucoma specialist. I have not read any peer-reviewed papers by “Joseph Otten”. One can respectfully agree, of course, but this kind of rebarbative tone with no coherent critique just makes the author look stupid. Finally, lame party political attack which makes little sense.
Does this site have editors? Why allow this dross to be published? It doesn’t make the party or the author look terribly smart.
Also, an economy is not a household. Stop saying things like ‘YOU try running deficits indefinitely’! It just shows ignorance. Try reading some Keynes, Minsky, Steve Keen, Joan Robinson, Wynn Godfrey etc and then we wouldn’t have such bad cases of feet in mouths… unless this is some other kind of fetish that some have which will come out and make is look silly again.
Alex Sabine – There is another alternative. Debt write off (or to be specific, further write-off) isn’t going to happen. So what’s second best – I’d guess fiscal transfers and associated rules. Syriza have talked about some sort of Debt Conference and my guess is they would use that as a forum to open the question of full-blown EZ fiscal transfers beyond EFSF/ESM. That of course would need treaty change, referendums, constitutional court cases…the works.
I love German ordoliberalism. But for the sort of problems the EZ faces in lack of demand it is hard to see ordoliberal thinking providing solutions. I would imagine that QE is deeply unpopular in Germany?
Some people seem to think that Syriza is confused between being pro-EU and anti-Austerity. I disagree. Syriza are basically an anti-EU party, just not in the crass rejectionist UKIP sense. They are pro-EU, just not EU at any price and my sense is that is where the Greek voters are. What of course failed negotiations would mean in practice seems to me to be an exit from the Euro – I can’t think what else it would mean. Presumably that would be a catastrophe for the euro, given the thing is based on the idea of irreversibility, and pricing in the risk of places leaving the euro would become the norm.
It should be noted perhaps that questions of moral hazard as such are not restricted to a currency union. The UK had huge devaluations of currency that arguably were a sort of quiet default in paying in devalued currency. Possibly it’s worse than the Southern European countries who (at least till now) were confronting their creditors.
Others talk about emotions. Fair enough I suppose, albeit that Greece was not exactly backwards about economic sanctions and associated suffering on others in its recent history. But quite frankly from a European perspective I’m far more impressed by the very real Europe-wide risks here than I am about Greek domestic issues.
Alex Sabine should have just written the article. Much better discussion in the comments here. Alex’s structural explanations on exchange rate adjustments, or rather lack thereof, is right on, but we also have to balance out the fact that Japan had its own currency and lost a decade+ because of a commitment to “fiscal probity” that saw deflation and negative growth. One CAN be left-wing and fiscally disciplined (indeed, this was always the point of the Lib Dems, and Steve Campbell is right to be p***** off that people use “left-wing” as an insult now. The Liberal party was never libertarian or right-wing) as long as you analyze the situation according to the facts and make decisions of priorities according to values that speak to social justice. The eurozone was sleep walking to disaster with no growth, slowing growing debt. Syriza are right to demand a writedown of the debt and more spending as the only way out of the quagmire. Yelling HIPPIES at them only shows both the lack of brain AND heart that, for example, the author of the original piece possesses. (I am sorry to keep picking on him, but it really was THAT bad!)
Walter Muchau spells out all of this with greater clarity.
http://www.ft.com/cms/s/0/48e6fa76-70bd-11e4-8113-00144feabdc0.html#axzz3Q4Pl2Cm8
It can be no surprise that Labour and Miliband are tepid in their response to Syriza’s electoral success. Perhaps less close to the UK elections, Labour would have been more triumphalist, however it is obvious that Syriza has achieved its result at the expense of impossible to realise expectations, a trap that to a much lesser degree Labour too now finds itself.
It is not a question of not recognising “a democratic decision at the ballot box”, the ballot box elects representatives, but it cannot vote for a standard of living, nor can it vote for employment and productivity if the industry is not there. Greece needs investment, it is now up to Syriza to work out how it will attract investment. Does anone think a vote can do this?
correction: anyone!
LJP: It would be easier for Greece to leave the EU than to leave the Euro. Even if Greece tried to abandon the Euro, the Euro would remain as the de facto currency. I cannot see that such an attempt would be “a catastrophe” for the Euro. In fact I think it more likely to strengthen the Euro in that no other countries would have any desire to follow Greece’s example.
On the other hand Greece could default. The effect of this would be to make it more or less impossible for the Greek government to borrow money and result in a kind of stagnation. Apparently, at the moment, if debt repayments are left out, there is a small surplus of income over expenditure, so a government could carry on but it would be unable to spend in all those areas where Syriza had been making promises. Although the government would not have options and would be left trying to manage the consequent ‘austerity’, there would be nothing to prevent outside investors from coming in. Indeed this is what the government would have to try to encourage. All in all the opposite of what Syriza seems to be hoping for.
The thing I really want to say about Syriza’s win in particular is that in Greece the young, angry poor people beat the tired bitter old men in the election, and that this is broadly a good thing. Although myself I probably wouldn’t have voted for Syriza’s platform of radical leftist populism, and certainly not for the radical rightist populism of their new coalition partners in Greek UKIP, I have to recognise that the only way that a compromise that lands near where I want to be is if Greece starts the opening bid a fair way to the left of there.
To be honest, I personally prefer the Germans’ particular theme of ordoliberalism, it seems to deliver a successful country there. But, its refusal to countenance any demand side policy changes is having serious negative effects that are harming the whole European economy now that it is being managed as a single entity.
It looks to me that at least part of the trouble has been an over-mighty Bundesbank that has always been able to get away with austerity economics. Germany doesn’t do policy that boosts demand, instead, it increases competitiveness and stages export led recoveries from economic slowdown. The result is that it ends up competing its customers into the poorhouse. These customer countries in the rest of Europe then conduct the devaluations, the quantitative easings and the demand boosting policies that in turn pull Germany out of its exports slump and back into growth, all the while allowing German central bankers to continue wearing the mantle of perfect economic virtue.
The eurozone ends that, though, preventing the devalue and quantitatively ease half of the old equation from happening. The validity of that method is questionable, as it has allowed political myths to gain credence on both sides of Europe’s north/south divide, and left the European south without much of an incentive to keep an orderly house in terms of tax evasion and corruption. But the Bundesbank and its fellow travellers in the European north have been slow to see that their attempt to manage Europe as a kind of Germany writ large isn’t really terribly practical either. Europe’s institutions need to be able to manage the whole eurozone flexibly and dynamically, and to do that they must move away from only listening to the Bundesbank and the Christian Democrats. We are seeing that beginning to happen as the ECB implements its quantitative easing programme over the objections of the Bundesbank,
My expectation and hope is that Chancellor Merkel will wait until Syriza sets out what it wants, and until the hardline austerity people lay down their demands, and then pull off another one of her middle road compromises. Greece probably can’t have too much debt forgiveness, because that then sets half of the rest of the Eurozone demanding that their debts be made to vanish… but it should be restructured and have either an interest holiday or a lower rate agreed.
Greece today runs a spending surplus. It spends just under 5% of its gdp servicing debt, as compared to 3% for us, but given its surplus its debt has actually stopped growing. Even fairly modest compromises from the European Union, such as relaxing the rule that requires a 4.5% budget surplus of Greece for example, will allow the Tsipras government to spend a little and start turning around the 25% drop in wealth that Greece has been through lately.
And it is important that this happens, because when people repeatedly vote and nothing changes, the very idea of democracy is discredited. I don’t want to end up like those socialists who turn around and say, sure, socialism hasn’t succeeded, but that’s only because nobody’s tried ‘real’ socialism. We can’t afford for the vested interests to prevent Europe from being a community of real democracies.
A large currency (not the drachma, but historically including the pound) can escape debt through inflation, because the debt may be nominated in that currency. This is dishonest. Nonetheless, we might not bother too much if rich oil producing Saudis lose out, however they have the foresight to sell oil in dollars, not their own currency.
In general the bulk of our material goods are exported from much poorer countries: India, Turkey^, China and Bangladesh for example. When we use inflation to get out of debt, the reality is that we are ensuring that poor people in these countries remain in their place.
The politics of Syriza and other anti-austerity groups is to use inflation in this way. Make no mistake, in global terms it is an attack on the poor – if such politics are characterised as ‘left wing’ then I would not want to count myself in the same category.
Tony Greaves
The problem is that people think it’s normal for the political centre-ground to be somewhere to the right of Margaret Thatcher, which is where we are now.
Yes, consider this article which I cannot comment on directly as it is reserved for new and infrequent contributors. However, I despair when I see stuff like this coming from our party which uses the old lines that might have been appropriate when criticising the Labour Party in 1983, but are nonsense now. Labour now is WELL to the right of where we were in the 1980s. Its problem is that it is too timid in presenting an alternative, not that it is an old-style nationalise-everything and tax-the-rich-until-the-pips-squeeze party.
I’m sceptical about Syriza. A lot of what they are saying, and the support coming for them from some here, seems to be just hand-waving. I’m not convinced they have deep well-thought out answers to the plight that Greece is in. However, it will be interesting to see how it goes, so I’m sort of glad the Greeks have given us a chance to see the experiment, even though I don’t think I would have voted that way had I been one of them.
Looks like Syriza are pro Putin. Something for the more naive here to think about
https://euobserver.com/foreign/127393
Steve
“an economy is not a household”
Indeed a household is not a national economy, the clue was in the fact they have different words to refer to them. However they do have characteristics in common as in the end all Macro Economics is Micro underneath.
Ultimately a household cannot run an indefinite deficit, though there are good and bad times to do so. Governments have longer time frames due to the whole not dying thing, however (as I was pointing out above) governments can’t run massive government deficits indefinitely. They may be different entities but lenders in the end make assessments of credit risk and over indebtedness is a significant factor in that for models of risk for both individual (as we don’t do household) lending and sovereign debt.
Your list of Keynesian economists seems pretty pointless, if you have an argument make it. If not lists of names doesn’t make you look knowledgeable.
I feel very sorry for Keynes, so many people use his name to justify policies that he is very likely to have had very different ideas about.
Tony Greaves
“If the Liberal Democrats were now in opposition we would have been leading the Keynesian attack on austerity”
Neither of the parties ‘of the left’ are actually Keynesian, they are all for spending during the bad times but when the good times come they don’t want to carry out the other side. Though to his credit Vince Cable was hinting at this before 2007.
Personally I would rather parties didn’t pursue a Keynesian approach as it would cause massive problems for public sector investment during growth and result in white elephant pork barrel politics in the recessions. But I don’t use Keynesianism to justify opinions on economic matters.
Martin, it is true that inflation can be used that way, and we should remain careful. But in a deflating eurozone, do we have leeway to implement some inflationary policy in the interests of boosting demand and reinforcing the conditions needed for growth?
Simon, let us hope that this Putin position is brinkmanship aimed at getting a hearing over the debt issue, rather than a real alignment of interests or an alliance. If the latter, then the Greek dream is over before it begins.
@Simon McGrath:
“Looks like Syriza are pro Putin. Something for the more naive here to think about”
Well that may be the case, but nobody is perfect, are they? After all, just last week we flew our flags at half mast for a head of a state that gives 1,000 lashes to a Liberal blogger, treats women no better than animals, stones adulterers, murders homosexuals, funds an extremist religious ideology here in the West, chops hands of simple shoplifters and on and on. Liberal Democrats on this very site defended our need to be allied with them and maintain a “businesslike” relationship with said tyrant’s country. Your own leader is said to be attending this tyrannical “king’s” funeral.
I despise Putin and almost everything he stands for, but he’s nowhere near as bad as our allies the Saudis.
Stephen Campbell. Thanks for your comments and those of so many contributors. Great discussion.
You are right IMO to also focus on the need for social justice in all countries, including UK. I believe all countries need to focus in their own ways, on both social justice and economics, as some contributors have suggested. What becomes clearer above is that one solution does not fit all – and a Europe-wide straight-jacket removes flexibility and choices which the various member states might wish to make, according to their customs and needs. These aspects of choice are areas in which Lib Dems can lead – as the European model does not work in its current monolithic form. (Sorry, but its the reason many of us cannot vote for what is being said in our name – though we are FOR much which is within “the EU”)
Psi- or should I say Joe Oaten- you don’t help your case with these comments. First of all, countries CAN run deficits indefinitely. Those communists at Bloomberg seem to think so anyway! http://www.bloombergview.com/articles/2013-03-12/balance-the-budget-we-can-run-deficits-forever
And your comment about ‘All Macro is micro underneath’ is extremely worrying in terms of economic literacy. In social science we have long been wrestling with levels of analysis problems that mean that you can’t say necessarily what a group would do by simply looking at individuals and assuming it scales up. Indeed, it tends not to. The theory of the firm and the household doesn’t tell you anything about the macro-economy. As you say, they have different words for these things…. So perhaps don’t then fall into this trap? The only economists who have tried to model both at the same time might be Robert Lucas and his friends- sorry to namecheck another economist who you are not familiar with, but one does need to have read these people before writing screeds which show you up. Lucas tried to say that Keynesian methods were self-defeating because individuals would immediately take into account that government spending today, rather than lifting “animal spirits”, would necessarily lead to tax rises down the line and immediately set aside enough money to pay for those taxes in the future. This made for very elegant modeling but has survived no empirical testing and has proved rather useless. Nowadays economists who want to publish in macro journals occasionally need to outline some kind of ultility function for individuals that would allow for macro patterns but: (a) they are based on bad 19th century psychology; (b) they are not testable; (c) they are irrelevant and trends might be based on insititutional arrangements rather than individual preferences; (d) many more things which I can’t be bothered to explain to you.
As for overindebtedness, the empirical research on this is tricky. Overall debt is just one very small variable when it comes to lending. Firstly, it’s a comparative measure. Investors look for somewhere to invest and most don’t just hold cash forever, so the UK has to be seen in comparison with other similar investments. Secondly, the bond vigalantes have been nowhere to be seen. Our borrowing costs are pretty low and borrowing for infrastructure spending etc will likely to be more expensive in the future while doing it now also raises long-term growth potential. Also, debt is a meaningless statistic without looking at growth potential. I might have 10K worth of debt on a credit card. But if I earn 200K a year and someone else has 8K but makes 30K a year, who is the better bet to pay it off? Shrinking spending can lower overall demand and growth while not doing anything to lower your debt. The composition of spending is also important. Should we spend the money we have allocated to Trident on UK university research? On repairing bridges? On building a northwest hub for tech and other industries not subsumed within London?
Your comment about Keynes not being a Keynesian today was meant to sound delphic, I guess, but wound up sounding silly. What on earth did you mean? There were probably no two better students on Keynes than Joan Robinson and Hyman Minsky and I don’t think they’d have agreed with a word you wrote here. I am guessing that you have not read The General Theory yourself? I am guessing so because you seem to think that the only way to boost demand is through ‘pork barrel spending’ as opposed to what? Is all spending inherently like this? Why should any additional spending be like this? If it is capital spending rather than raising current account spending, does this change your mind?
Which economists are, to you, a better guide during these times?
Listen, Liberalism is meant to mean something. It isn’t meant to just be a movable show where we spout whatever meaningless blancmange counts for ‘seriousness’ from people who don’t know anything about anything. Liberalism has always been a radical, left-wing vision of the world. And economics has always been on our side. Why abandon good empirical economics for some weird voodoo Hayekian/supply-side nonsense when both the facts are not on that side, the stated traditions of the party don’t align with it, and it has disastrous political effects to boot?
It’s time to reinforce what the actual aims and traditions and philosophy of this party are meant to be or else let it die a dignified death. It’s been highjacked by intellectual lightweights like our leader and the author of this piece and the result will be the extinguishing of the strain of British life that liberalism used to represent. The next question will be whether the influx of liberals into the Labour Party (a kind of reversal of the Edwardian and 80s split) will render the latter more liberal and self-confident, or whether there will be no one left to represent us. Calling out this kind of rubbish and policing our ideological borders starts now. Raise the pitchforks and tell the libertarians to join the Tories. The stakes for party and country are too high.
“Why should we be beggars with the ballot in our hands?”
Some people in this thread seem to think that they are experts on the economy and the politics of Greece.
They would have us believe that they know all the answers and that the Greek voters got it wrong. Why?
They could have pocketed a huge consultancy fee at any point over the last seven years and solved all the economic problems for the Greeks, who they clearly think are incapable of solving their own problems. But they did not.
Why are they so keen to be telling us that the Greek voters were wrong ?
@JohnTilley,
“Why are they so keen to be telling us that the Greek voters were wrong ?”
Because they are wrong, and people don’t like being wrong.
Just today Mark Carney spoke out and sided with the Greeks in calling austerity madness.
I’m not sure Carney can be labelled a dangerous, Marxist far-left radical. In fact, there is a growing consensus that austerity is not only wrong, but dangerous and destructive to democracy. If you have Joseph Stieglitz, Mark Carney and Paul Krugman in the same camp, one ought to pause and ask oneself if they might have a point.
@Colin
You are making quite a leap in saying that Carney has sided with the Greeks.
Firstly, he was talking about the Eurozone as a whole and only not 2% of the economy within the currency zone. A very different thing.
Secondly, he made quite plain that he, perhaps unsurprisingly, was arguing that the Eurozone should adopt a model closer to that of the sterling zone. One of the four features, as reported by the Guardian, of this model was being “flexible enough to allow budget deficits to rise during downturns” – in an other word, austerity – as to do, in real-terms, you need to make cuts.
@ Colin – “Just today Mark Carney spoke out and sided with the Greeks in calling austerity madness.”
It wouldn’t do to read across too much from his statement on Greece, to any more general principle.
The eurozone does not have any useful mechanisms to transfer social relief/economic stimulus to underperforming regions, so of course grinding austerity that they can never repay due to debt-deflation dynamics!
When Osborne proposed plan A he made clear that the system had what her termed fiscal ‘stabilisers’, does Greece’s atrophied central bank with its government hostage to the troika have any ability to do the same? no.
By way of example:
Federal US taxation is ~25% of GDP and the variation in spending levels between rich and poor states is ~5% of GDP, so a variation of roughly 20% of federal spending.
How big a budget would the EU need to be able to slosh around 5% of combined GDP into the poor regions (bearing in mind the current budget is only 1% (and heavily constrained by CAP payments)?
The other point is that americans accept this, they are all american, whereas we are rapidly finding out just how german the germans are, and finnish the finns are, when it comes to firehosing cash at nations they consider to be essentially delinquent! In the UK this ‘sloshing’ occurs in the form of:
a) National pay-bargaining which benefits poorer regions (teachers, nurses, etc)
b) National social benefits more generous than poorer regions could afford alone (eg.housing benefit in glasgow)
c) Targeted regional development grants/discounts to encourage business growth (objective 1 EU/WEFO funds)
d) Additional infrastructure spending to support the local economy (the mainland-skye bridge)
e) Operating national services hubs from depressed regions to boost wages (DVLA in swansea, etc)
When we look at Greece, a country with an balance of payments and debt problems paralysed by a dysfunctional political system, what help can we offer to let them transition to the eurozone norm?
Don’t say bail-outs; all they achieved was keeping Greece afloat long enough for western banks to deleverage and reduce exposure, the bailout money pretty much all went in that direction.
having just written the above I then chose to go and read what the governor actually said, and low:
“It is difficult to avoid the conclusion that, if the eurozone were a country, fiscal policy would be substantially more supportive,” the governor said. “However, it is tighter than in the UK, even though Europe still lacks other effective risk-sharing mechanisms and is relatively inflexible.”
“As of this evening, progress on structural reforms in the euro area remains uneven. Cross border risk sharing through the financial system has slid backwards. Europe’s leaders do not currently foresee fiscal union as part of monetary union. Such timidity has costs.”
“Internal devaluations simply reallocate demand within the currency union. They do not boost aggregate demand in the euro area as a whole. Put another way, since competitiveness is relative, a solution for some cannot be a solution for all.”
ATF- your last comment got garbled. Carney said that deficits should be able to rise in downturns (like any good Keynesian would tell you), what is your point about austerity? It was unclear.
But he did, and I quote him directly: “Since the financial crisis all major advanced economies have been in a debt trap where low growth deepens the burden of debt, prompting the private sector to cut spending further. Persistent economic weakness damages the extent to which economies can recover. Skills and capital atrophy. Workers become discouraged and leave the labour force. Prospects decline and the noose tightens.”
This is, once you get out of the duck pond of the Atlanticist media, what Syriza has been saying; in particular Yanis Varoufakis, the new Finance Minister. It is almost verbatim agreement with Mr Varoufakis. Actually, reading the English and American press one would get the impression that Greece has elected a fulminating bunch of firebrand Marxist ideologues. In fact, they’ve elected an umbrella party consisting of such diverse elements as libertarians to Greens.
I asked a Greek friend to explain what was going on, as it is always better to go to the source than to rely on articles rewritten from who knows where by interns in London or New York, and his colourful explanation was that “they couldn’t do worse than the bastards that had been kicked out”.
One should be thankful that the Greeks didn’t turn to Golden Dawn, after all. I wanted to understand why they turned to the far right Independent Greeks instead of say, the liberals, and it was explained that the liberals were just as much tainted by the clientelist corruption as New Democracy and Pasok. They were just splinter groups of those parties. Seeking support from them would be to invite the cancer into their own ranks. IG was the only option when they didn’t get a majority.
I still don’t know if I would support Syriza, outside a narrow agreement that austerity is a failure. I just don’t dismiss the Greek contempt for their leadership. And I don’t dismiss their, so far, narrow plan for dealing with the immediate symptoms of their leaders’ failures. And just today there were further proofs that austerity in this country have failed as well, and given that the public holds our political leadership in no higher regard than the Greeks do, the general election is going to be interesting. Two of the main parties are heading for an absolute mauling with the third one standing still. I don’t know, but it may be the first time in UK history where a party wins an election by standing still rather than increasing their support.
Apologies, Stevo. Bleary-eyed comment posting is never the best of ideas.
You rightly point out that deficits should rise in a downturn.
What I failed to do was say that once that downturn has ended and growth has returned, spending cuts (austerity by another name) must follow. If this is not done then the next time an economy goes into a downturn even larger deficits are required.
What seems to be wrong in the debates about austerity is that it is used as an almost blanket term. The nature, severity and length of the cuts is where the debate should lie, as austerity – in whatever form – is surely unavoidable.
ATF,
But what if growth never returns, and it transpires out that growth was just a conveneint side effect of abundant cheap energy, now gone because global oil production has peaked?
Colin
I asked a Greek friend to explain what was going on, as it is always better to go to the source than to rely on articles rewritten from who knows where by interns in London or New York, and his colourful explanation was that “they couldn’t do worse than the bastards that had been kicked out”.
Er, yes, but isn’t that what people said here when the Coalition was formed?
We’ve suffered ever since from the over-optimism of those first days, when everyone seemed to think it would be just as they wanted it.
An open letter from Alex Tsipras to the German people. Interesting reading.
http://www.zerohedge.com/news/2015-01-29/alexis-tsipras-open-letter-germany-what-you-were-never-told-about-greece
excellent letter, and here is a comment nearly as good:
“Greenskeeper_Carl
Just say the truth. The German taxpayers weren’t bailing out the Greek people , they were bailing out big banks who foolishly bought Greek debt. All those bailouts were about keeping douche bank solvent , along with the rest of them.”
Yes!
Steve
Well that is impressive in an 860 work comment you simply managed to misrepresent others. Well done.
Lets start with whether I am Joe Oaten.
I think if you look back through threads on LDV you will probably find occasions when I have disagreed with Joe. Infact if you actually read the comments section you should notice that I am not in total agreement with Joe on his comments I am mainly disagreeing with certain other comments. If you look back through LDV comments on other topics On a more basic level Joe types a lot better than me, I have a lot more typos and garble my explanations more often than he does.
The reality is we are different people who don’t know each other, which I’m sure will disappoint you but it is the case.
Back to your tendency to misrepresent
You said (28th Jan ’15 – 8:12pm):
“First of all, countries CAN run deficits indefinitely.”
I said (28th Jan ’15 – 10:51am):
“governments can’t run massive government deficits indefinitely”
There is a difference there, can you spot it? Did you read the context before, as that may have helped you spot the important difference.
You said (28th Jan ’15 – 8:12pm):
“sorry to namecheck another economist who you are not familiar with”
I said (28th Jan ’15 – 10:51am):
“Your list of Keynesian economists seems pretty pointless, if you have an argument make it. If not lists of names doesn’t make you look knowledgeable”
Again, can you see the problem with your statement?
On over indebtedness
You said (28th Jan ’15 – 8:12pm):
“I might have 10K worth of debt on a credit card. But if I earn 200K a year and someone else has 8K but makes 30K a year, who is the better bet to pay it off?”
I said (28th Jan ’15 – 10:51am):
“lenders in the end make assessments of credit risk and over indebtedness is a significant factor in that for models of risk for both individual (as we don’t do household) lending and sovereign debt.”
I also earlier said (27th Jan ’15 – 2:38pm):
“I doubt you will hear £1.5 Trillion mentioned in any discussion the argument is we have a deficit projected to be £91.3Bn.”
So if you read the whole exchange my point was that the size of the deficit is the important factor but over indebtedness will be a factor over time when lenders are deciding to lend. Your example would be better described as if someone who earns £30k (and has only possibility of very slow limited rises) owes £27k but also spending (and has been unable to reduce spending) $32k per year. Initially the £27k looks ok (especially if a neighbour has debts of £148k) but it is the £2k overspend that the individual seems unable to cut which is the problem.
This is the point which is actually at issue and the continued suggestion that the seriously large deficit is nothing to worry about, the deficit has been above 10%, and is still above 5% yet the demand by some is that it should rise.
Steve
Your insistence of rewriting what you would like me to have said rather than quoting what I actually said is fairly transparent as someone could just look up and see your version of what I said.
When representing what others who will not be here to defend themselves you should be extra careful. Which is why your comment on Lucas seems rather odd. I’m not sure what “Lucas tried to say” even means.
Did he say something different but you have interpreted as him saying that? Or, if he said it, then there was no “try.”
As for your representation of his work as:
“Lucas tried to say that Keynesian methods were self-defeating because individuals would immediately take into account that government spending today, rather than lifting “animal spirits”, would necessarily lead to tax rises down the line and immediately set aside enough money to pay for those taxes in the future.”
So you claim that he said (/”tried to say”) the world works on an instant basis. Could it not be that he could recognise a model of his has simplifying assumptions which he acknowledges and points out as part of his explanation. Well, let’s look at what Lucas has said (say in ‘95) when looking at the neutrality of money, where a model has used simplifying assumptions:
“these specifics are all, for the sake of tractability, highly unrealistic and stylized”
So, not claiming that models are the exact representation of the real world, fully recognising the limitations. It is odd how many people are keen to claim that some economist or other ‘believes’ some impossible short term situation because they have had to make a simplifying assumption to discuss a long run issue, I have never met an economist who believes models are perfect replicas of the real world and I would find it hard to believe you had either. It is rather hard to see what your argument is on most topics as you refuse to quote people directly. Perhaps that is how you prefer it, vague comments without specifics.
Whether Lucas is correct or not in his work (and surely even his most ardent supporters would surely accept he is going to be wrong a lot), it is surely more appropriate to represent him as accurately as possible.
Steve
You again jump to conclusions when I said:
“All Macro is micro underneath”
But on the plus side, you managed to actually quote rather the re-interpret, well done! I’m a little surprised at your interpretation as it was the blandest of statements of the obvious. I don’t state that Macro is best modelled by using micro economic models. I suspect you knew that hence your interpretative approach to quoting.
I find your description of the development of Macroeconomics rather limited as well, you appear to ignore the cross pollenisation of economic work, it is not just the work of Lucas “and his friends” that has looked to micro work to improve their macro models, unless you just consider him to be a really, really popular guy. His work effectively challenged earlier ideas, others then on the back of that work improved their ideas to intern challenge him. For years to come people will look to other fields to help improve their own work, micro will continue to produce ideas that macro may in the future pick up and use, in the same way different approaches will continue to challenge each other and improve.
You said (28th Jan ’15 – 8:12pm):
“Your comment about Keynes not being a Keynesian today was meant to sound delphic”
Let’s just check what I said (28th Jan ’15 – 10:51am):
“I feel very sorry for Keynes, so many people use his name to justify policies that he is very likely to have had very different ideas about”
Well you have certainly put an interpretation on there. Trying to avoid getting in to defining what is “Keynesian” as you have the tone of a ‘purest.’
My point is that the famous Keynes quote about change facts is a little different to the response of some who now make claims and attach his name. I’m certainly not suggesting that he wouldn’t have agreed with anyone who belongs to any of the different Keynesian schools of thought, many of which he probably would be pleased to see had developed thinking significantly.
As such, I don’t think he would have jumped ship to the Austrians.
I do believe that if he were alive now he would also have viewed the developments and critiques, observed the additional historical data and the experience to further develop his thinking. Often a lot of people (thinking here in political circles) just demand a splurge of fiscal incontinence at any opportunity; I think Keynes with the additional knowledge of the 60+ years since his death would be giving more considered (still interventionist) prescriptions than many who cite him.
As to whether Robinson or Minsky would agree with me I would just ask you to consider this that is your estimation of what two dead individuals would have estimated another dead individual would have thought about circumstances that none of them encountered. It has the ring of the economics equivalent of ‘angels on the head on a pin’ about it.
In any case I tend to find that the ‘true believers’ down the line are often more certain and hard line than their ‘prophets.’
Another point to pick up as you have littered your cooment with these inaccuracies. You said:
“you seem to think that the only way to boost demand is through ‘pork barrel spending’”
I said:
“Personally I would rather parties didn’t pursue a Keynesian approach as it would cause massive problems for public sector investment during growth and result in white elephant pork barrel politics in the recessions.”
Are you really struggling with the difference?
You also said:
“If it is capital spending rather than raising current account spending, does this change your mind?”
Investment spending is worse if done for pure demand management. If there is a piece of public investment that is needed, then to delay it during good times because you are trying to manage demand would deprive the economy of the earlier use of a productive asset (not an ideal situation). My preference would be public investments are accessed on the basis of a CBA and then built as logistics allow. When a recession hits there will probably be some on a list of that did not pass a CBA in the good times but will see costs fall more than benefits so will become worth doing. There may be some that can be brought forward as the private Sector are using less capacity but these are practical reasons to conduct this investment not for the purpose of demand management. Infrastructure projects are often long in the planning and delivery for a reason, in the US they talk of wanting “shovel ready” projects but the truth is that this is terminology of a mythical historic era when infrastructure relied upon vast amounts of unskilled labour, in reality the ability to get lots of projects up and having an impact in time would mean that most of the projects that wouldn’t get included due to the reasons above will be poor projects betting pushed for political reasons, which would be a waste (those pork barrel white elephants).