Click below for a China International Radio debate on the Eurozone Crisis, the extent to which austerity has caused the latest slip of the currency union area into recession and what can be done about it.
Panel Discussion involving:
-Cui Hongjian, Research Fellow with the China Institute of International Studies.
-Yanis Varoufakis, Professor of Economic Theory at the University of Athens.
-Jan Priewe, Professor of Economics at HTW Berlin the University of Applied Sciences.
(Please note that during this whole debate I was, simultaneously, driving through New Mexico and Texas, on the way to Austin. It is a sign of how the Eurozone Crisis has gotten under our skin that we can do this sort of thing!)
Here is the preamble as presented by China International Radio
Europe slipped into recession for the second time in three years against a backdrop of large and often violent demonstrations against austerity measures.The 17-nation Eurozone’s economic output further fell by 0.1% in the third quarter. These economies had already registered a 0.2% drop in the second quarter.Five eurozone countries are in recession-Greece, Spain, Italy, Portugal and Cyprus. Those five are also at the center of Europe’s debt crisis and are imposing austerity measures, such as cuts to wages and pensions and increases to taxes, in an attempt to stay afloat.
Look guys. Enough discussion about rhetorical iisues.
Let’s put you to the test. Here is the implementation program and status so far:
http://www.tovima.gr/files/1/2…
Now, please tell us specifically which areas you would like to tackle and quantify your results. Group your findings as follows:
1. Immediate results
2. Medium term results (2-5 years out)
3. Long term results.
And enough with the small talk please. I am up to here with the daily nonsense.
Dean – The link does not work but I dont think it needs to. Everything has been an utter failure and will be in the short, medium and long term. The only “thing” that will happen on this course is that thousands of Greeks are going to start losing their property & assets due to bad loans and unpaid taxes.
German economist explains the euro crisis.
Irish 2011 transport omnibus was published.
http://www.cso.ie/en/media/csoie/releasespublications/documents/transport/2011/transport11.pdf
The highlight of course continues to be the massive collapse of road freight (biggest fall in Europe by a wide margin)
Y2007 Tonnes carried (thousand) : 299 ,307
Y2011 Tonnes carried (thousand) : 110 ,260
A older transport omnibus gives road freight as 314,826 in 2007 ?
In that 2007 publication 159,865 was road and building site work
In 2011 30,981
However all activities are down hugely ( delivery of goods to retail , wholesale , factories , households ,other work , import /export……..everything.
Including even farms (livestock , farm produce ,fertilizer )
The older 2007 publication
http://www.cso.ie/en/media/csoie/releasespublications/documents/transport/2007/transport07.pdf
LUAS Dublin tram seems to be the only bright spot recovering past 2007 passenger levels (although it is a much bigger rail network now )
With a 5.1% increase over Y2010 passengers ,now standing at 16.5 million & 12.5 million for the red & green lines.
Whats really a great worry is the decline of Dublin and other areas bus fleets , this after a 20 % ~ drop in countrywide passengers since 2007
In 2007 Dublin bus fleet was 1,145 vehicles
In 2011 Dublin bus fleet was 940 vehicles
In 2007 Cork city bus fleet was 87 vehicles
In 2011 Cork city bus fleet was 78 vehicles.
Mainline domestic (Inter city rail ?) passenger numbers seem to have recovered back to their 2007 levels as they now poach the retired domestic air routes but they face stiff competition from a more liberalized (low wage) inter city Bus service that now uses the almost empty new motorway network.
Y2007 (thousand pas.) :10,537
Y2011 :10,656
However Dublin suburb & DART passenger numbers have collapsed
Y2007 Suburb :13,180
Y2011 :9,911
Dart
Y2007 :20,224
Y2011 : 15,924
However as can be seen across the border these rail declines are almost entirely caused by monetary malice as resource inputs are minimal when trains are full.
(NIR continue to report record passenger numbers)
Air passenger numbers were more or less static over this time although almost all regional airports continue to decline.
I am sure Spains transport data is much like a less extreme Ireland.
The German guy thinks wages increased in Ireland………………
They did not per person
In particular within the energy intensive areas……….
I am talking about construction , Ferries , airlines ,low end computer & agri manufacturing……. ….
This went so far as shipping in Turkish workers to build a Cork road as eastern european workers were too expensive !!!!
This low wage was used to disguise the increased energy costs and thus this false price signal encouraged malinvestment.
To fill this former rational demand hole in the economy the domestic banks increased credit – much of which went into houses and cars.
Germans are funny people.
They are not that bright it seems.
Or else they are good at taking the piss.
Yani,
i am caught between a dilemma. You (and others most propably) argue that if in fact Greece wanted to leave the eurozone it would be technically impossible.You mention amongst others that it would need a bank holiday week for clerks to stamp euro notes with the new currency stamp, and there would be a bank run on southern europe’s banks that would create centrifugal forces and destroy the eurozone.
On the other side there is economists like C.Lapavitsas and N.Roubini that argue that a eurozone exit is necessary and also tecnically feasible with possible parallel currency circulation etc.
Have you ever talked with them? What are their arguments and why are they wrong in your opinion?
I continue to be, as I have been from the beginning, a strong defender that Greece should avoid a Grexit as much as the devil avoids Holy Water. Having said this:
1) technically (and by that I mean operationally), a Grexit would be no problem at all. All one has to do is pass a law that, effective immediately, all domestic accounts denominated in Euro are considered as Drachma and all Euro cash within the borders of Greece is also considered as Drachma. It could be stamped over time but wouldn’t have to be stamped immediately. I guess a one-week bank holiday would be the maximum time required for implementing the operational change.
http://klauskastner.blogspot.gr/2012/09/transition-from-euro-to-drachma_6.html
2) Yes, there is no treaty provision which provides for kicking Greece out of the Euro nor for Greece voluntarily giving up the Euro. Treatywise, Greece would first have to leave the EU, then it would automatically leave the Eurozone and thereafter it would have to re-apply to the EU. In practice, however, a way would be found if Greece really wanted to leave the Eurozone on its own. So many rules have been bent/broken so far that one more won’t make that much of a difference. However, also in practice, there is no way to kick Greece out.
It is not so simple I am afraid. For this would mean that Gernan or French or Italian tourists would see their euros reconfigured into drachmas the moment they step into Greece. A fine recipe for ending tourism from the Eurozone in one quick stroke!
Yanis, you would have to look at my blogpost because a couple of sentences won’t do it. My point is not to create the Drachma as a new currency. Instead, rename the Euro within Greece’s jurisdiction into Drachma. And outside Greece’s jurisdiction, a Euro remains a Euro. Anyone who can prove that he ‘imported’ the Euro would of course get the value of the ‘real’ Euro. With incoming bank transfers that would be automatic. Tourists would simply have to exchange their ‘real’ Euros at the bank showing evidence that they are tourists. All of this obviously only for the time it takes to get the Drachma curreny into place, which should be a matter of a few months.
Obviously, in my proposal all Greeks who had Euros under mattrasses are losers (unless they spend those Euros outside Greece). But I don’t see anything terribly wrong if all Greeks were treated the same instead of giving preferential treatment to those who withdrew money from the bank.
I still think you underestimate the havoc and calamity that will befall us under your suggestion. First, we would need to establish border and capital controls, something that violates EU law. Also, tourism would slow to a trickle if tourists had to exchange, N. Korea like, their euros for stamped Greek euros upon arrival.
We are, of course, talking academically because no one knows how it would really play out. All I can say is that I once lived through a currency change in the middle of chaos (in Argentina) and it is amazing how adaptable people can be. Total chaos which is announced and predicted does not always happen. Capital controls are a must and, of course, that would violate EU laws. But if Greece would leave the Eurozone, neither the Eurozone nor the EU would be the same afterwards. If Greeks were to sue their state at EU courts for damages, they would win. But who could award them refunds? Typically, when force majeure takes place, one has to set facs first and negotiate afterwards.
The scenario that you just described is the reason I am not advocating Grexit. (Also, Argentina had the peso. All it had to do was to sever the peg. Alas, we have nothing to sever the peg of!)
I didn’t refer to the USD-unpegging but, instead, to the Peso/Austral change. Not really comparable with Euro/Drachma, but still.
And, as I said, I also argue for maintaining the Euro, but for economic reasons. I fear Greece would be bombed back into the 1960s if it returned to the Drachma.
I am trying to address the Klaus-Yani exchange.
One of the best reasons not to leave the euro, is the reform effort itself.
What we have seen in the past (pre-euro era for Greece) is a series of internal devaluations of the drachma which meant an immediate improvement of the metrics by which the economy was measured. The essence of such false improvement is that Greece never really reformed; only hid the problem in a manner that took citizens some time to realize suspecting that their purchasing power was eroding. In other words, the drachma never gave a real incentive for Greece to self-improve; only to conceal.
In other words the use of the drachma always gave cover to Greece not never reform.
“Obviously, in my proposal all Greeks who had Euros under mattrasses are losers (unless they spend those Euros outside Greece). ”
This would encourage more purchases from abroad.it would obviously cause the trade balance to deteriorate again.I dont see how this is any good.Especially if we dont clarify what happens to the outstanding debt.Would it be redenominated in drachmas?Would it not ?Would only the domestic debt holders have their bonds redenominated in Drachmas?And what about the official european sector?
Yanis – “It is not so simple I am afraid. For this would mean that Gernan or French or Italian tourists would see their euros reconfigured into drachmas the moment they step into Greece. A fine recipe for ending tourism from the Eurozone in one quick stroke!” – You have lost me here. When you go to the states you change your Euros into dollars, when you go to Europe you do the opposite. Like people use to do when Greece had the Drachma. What is the problem? Trust me, as a tourist to Greece when the Drachma existed it was a very happy time to exchange pounds for Drachmas!
Perhaps you will. But I assure you that tourists from the Eurozone, accustomed to use their euros freely, will not. Of course this is not the main issue. The main issue is that to stop euros held by Greeks taken out of the country Greece will have to become the North Korea of Southern Europe. Strict searches of everyone leaving the country that violate EU law – which also means EU exit, that will also bring Greece being cut off structural funds. An utter calamity.
Yanis – “But I assure you that tourists from the Eurozone, accustomed to use their euros freely, will not.” Again, that’s like saying Europeans don’t like leaving the Eurozone for their holidays. Unless I am missing something?
About capital controls. That is nowhere near a big a problem as you are making out. The important thing is that the people stay in Greece. It makes no difference to the person with money if their cash is in a German bank or a Greek bank. Maybe it matters to the Greek bank but that is another matter. If the German banks are happy to lend to Greeks there is no problem. If not there will be banks wanting to fill the gap as long as the government does not put hurdles in the way.
But again, you seem to be implying the Drachma would be a disaster but I put it to you that Greece had the Drachma in 1999. It would simply be a resumption of service prior to the Euro. There will be absolutely zero difference between life with a Drachma in 2014 and life with a Drachma in 1998. And least there should not be. Unfortunately Provopoulos has already said the Greek central bank will cause chaos if the Drachma has returned.
http://independence4wales.com/2012/greek-central-bank-governor-outlines-strategy-for-drachma-return
His argument being that they would not be able to print up the currency fast enough. Of course this is utter nonsense. Sure you may argue there would have to be little or no notice if Greece were to return to the Drachma and this would not give them enough time to print up the currency. That maybe the case but the country does not have to make the transfer overnight just like it did not have to do so when the Euro was introduced.
We are not going into uncharted territory here, we are going back over a well trodden road. But again, it all comes down to how much chaos Provopoulos wants to cause.
If you ask me that is an excellent case for private banks being able to issue their own currency, sure government would lose their sponsor but is that a bad thing given the mess the Greek government has dropped the Greek taxpayer into?
@Richard
“If you ask me that is an excellent case for private banks being able to issue their own currency, sure government would lose their sponsor but is that a bad thing given the mess the Greek government has dropped the Greek taxpayer into?”
Banks already issue their own money.Its called bank deposits.They are just convertible to government money at 1 for 1 but they are NOT government money.As for the government losing their sponsor, you surely havent understood that ever since we entered the euro, the government is using “someone else’s” money.Its unable to issue euros so it already lost what you call a sponsor.If thats a good thing,then what Greece is going through now surely is a good thing too…..not.
Crossover – “Banks already issue their own money.”, if we want to get to technicalities “A” bank issues the currency the ECB. And if a private bank makes a mistake, Alpha Bank for example then the tax payer has to pay up not the “private” bank. When I say banks should issue their own currency I mean it, they issue it, they go out of business if they make the wrong choices. In short take away the “lender of last resort” who puts the people on the hook for mistakes of private companies and you will get the same result. Banks issuing their own currency and being responsible for their own currency. –
” the government is using “someone else’s” money” – governments always use other peoples money, Eurozone or not.
“Its unable to issue euros so it already lost what you call a sponsor.” – Your joking right? Where did you think all the Greek government debt came from since Greece joined the Euro? Let me answer my own question, the ECB. And look at the mess now.
“If thats a good thing,then what Greece is going through now surely is a good thing too” Would it be a good thing if the Greek government could NOT run up debt and then force the people to pay for it? Absolutely, look at the disaster in Greece now, it is all down to governments borrowing too much money and forcing the people to pay the debts. Or if you want to look at it another way. The disaster in Greece is all down to the ECB monetising too much Greek government debt and now Greeks are being to forced to pay back debt they did not take out. If I were a private bank I would be positively pushing the Greek government to take out *too* much debt (especially if I wanted to seize land and assets). This would force them to jack up taxes to pay me back and if the people could not pay the taxes I would get the government to seize their property and sell it. Its obvious the Greek government is prepared to do whatever it takes to give these banks their money. You see what’s going on? Either the Greek government is having its power exploited by the international banks or the Greek government is in on it. Whatever the case the Greek taxpayer should not be on the hook for government mistakes.
“Crossover – “Banks already issue their own money.”, if we want to get to technicalities “A” bank issues the currency the ECB. And if a private bank makes a mistake, Alpha Bank for example then the tax payer has to pay up not the “private” bank. ”
Correct.I see nothing wrong though if i as a taxpayer have to pay to save a bank from bankruptcy, as long as im able to obtain the control of it until it reaches a state where its able to be sold again,to ppl other than the ones that caused the bankruptcy.
But instead of that, what is your beloved troika doing in the case of Greece?The recapitalization money is added to the greek government debt while the greek gvt wont take control of the banks.With that being said i dont see what else is there to discuss.
“In short take away the “lender of last resort” who puts the people on the hook for mistakes of private companies and you will get the same result. ”
Actually the lender of last resort protects depositors.Even if we followed what you advocate,with banksters being responsible for their own losses (which is totally right) depositors should be protected.I dont see whats wrong with that.
“Your joking right? Where did you think all the Greek government debt came from since Greece joined the Euro? Let me answer my own question, the ECB. And look at the mess now.”
First of all there were (are? ) 2 types of debt that comprise the total debt stock.Long Term Debt that was issued when Greece issued the drachma,thus it was denominated in drachma and the remaining debt issued after Greece adopted the euro which obviously was denominated in euros.
The Drachma debt came from the gvt itself.As any government that issues its own fiat currency the gvt added excess reserves to the system in agregate,every time it deficit spent.This was followed by bond issuances so as to drain excess reserves from the system.Thats the use for gvt debt when we are talking about a gvt issuing its own currency.And its never possible for a gvt to default on such debt…except if it chooses to do so for whatever reason (though im not aware of any such case in the past).
When Greece adopted the euro,these bonds were redenominated,in euros.Effectively,all the public debt outstanding that was impossible for Greece to default on,turned to actual debt overnight effectively enabling the possibility of a default.
Now where did the euro debt come from?The ECB?How is it possible for it to come from the ECB when ECB is not allowed to buy gvt debt from the primary market?It simply came from banks who later might have posted some of it to the ecb in exchange for liquidity.But thats how open market operations are conducted all the time and have nothing to do with debt monetisation.Thats just the way that central banks are able to maintain the interbank rate and thus the interest rate target they pick.And even when the crisis hit and the ecb started buying gvt debt,it bought it at market prices.
“And look at the mess now.”
The mess is due to the fact that gvt debt in the eurozone is not risk-free.Thats all.Else, please explain why Japan with 200+% debt to gdp isnt nowhere near close to having the problems Greece does.
And please dont start that “Japan has a big part of its debt held by domestic investors” crap because this doesnt explain how Japan is able to maintain such a big debt to gdp ratio without having to default.
“Would it be a good thing if the Greek government could NOT run up debt and then force the people to pay for it?”
If you really want to discuss this please have a look at this first: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=115128
The topic is too detailed to be broken down here, so feel free to have a look and we could discuss later.