James Galbraith on Europe, Greece (and Syriza), Germany and America

What follows is the extended, English language, version of James Galbraith’s recent interview with Roger Strassburg published in NachDenkSeiten. Enjoy:

RS:  I was listening to your speeches.  One of them that I found was kind of interesting was the one in Croatia, where you talked about true and false Keynesianism.  What does that actually mean?

JG:  Well, it’s a politer term for the subspecies that John Robinson referred to by a somewhat ruder word.  What I’m getting at there, hoping to stick some needles under the skin of certain people, is the misleading, and I think fundamentally anti-Keynesian idea that the macro-economic task consists of stimulating, and thereby returning the economy from its present state to the track of potential output, which was previously considered to be normal.  What’s wrong with this, is two things.  First of all, it conveys the false impression that the macro-economic problem is a short-term problem amenable to a relatively short-term solution consisting largely just of increased spending or reduction of taxes.  That, in turn diverts attention away from the problems that I think are effective barriers to such a return.

So my view is that the Keynes, were he around today, would have a vivid appreciation of the difficulties and would be taking a strategic and long-term approach to these issues, putting in place institutional changes that in my view are required.  They include, first of all, regulation of the debt issue, a transformation and restructuring of the banking sector, new institutions to provide employment to those who need it, and a strengthened system of comprehensive social insurance.  All of those things were part of the New Deal formula, and they are all, I think, palpably essential, not to restore growth and full employment, but to face the much more urgent task of preventing any imminent disaster.

RS:  So you don’t necessarily think that the growth trend is a good measure?

JG:  I think any program which is predicated on reaching the previous trend growth in any short or medium term – or for that matter, reaching it at all – is doomed to disappointment, and it’s not a good idea to hold out a false benchmark as the predicate of an economic program.

RS:  At the same time, that was a trend that showed us at more or less full capacity.

JG:  I don’t know what full capacity means…

RS:  Everybody’s employed, more or less…

JG:  Ah, well that’s a different story.  Full capacity is normally defined by the output potential of your capital equipment.  There are two things that happen to capital equipment in major crashes.  One is that it disappears, and the other is that when it is replaced, it is replaced – particularly in the present environment – by alternatives which are vastly labor saving. The consequence of that is that – you already see this in the data – even the miserable growth rates that we have seen have not corresponded to a recovery of employment, even to the extent that you would have predicted from previous formulas.  And I think that’s substantially due to two things:  the destruction of the previous capital equipment and labor-saving technological change going forward.

RS:  There’s the school of thought that claims that labor is becoming obsolete, which is kind of an extreme way of putting it, but do you think that the work is running out?

JG:  Well, lets separate this into manageable pieces.

Manufacturing employment in the U.S. Is already down to about eight percent of the labor force.  That eight percent, most of that is not going away, it represents the people who are working in sectors where the U.S. remains a competitive player.  The parts that are vulnerable, light industrial pieces, some of that will stay, notwithstanding what happens elsewhere in the world, and the amount that is still vulnerable to leaving is not a very large faction of total employment.  And even if you lost it all, it would only be of the same order of magnitude of job losses that have already occurred in the crisis – we’ve lost eight million jobs, if we lost eleven million more, it’s not that much more.  So that’s point number one.

Point number two is the rest of the economy, which is another 130, 140 million people.  It’s a much larger piece, and a lot of that is office work, a lot of that is information processing work, a lot of that is in various sectors of this kind where businesses have purged their labor forces, and as they continue to cope with a slow growth environment, they’re not keen to hire anybody back, so they’re substituting cheap technologies for expensive labor in every possible way.

RS:  Well, do you think that the economy will tend to develop new and different kinds of jobs?

JG:  I don’t think economies tend to develop those jobs.  I think you have to create them.

RS:  Are they createable?

JG:  Of course they’re createable, sure.

RS:  So you wouldn’t go along with the notion that labor’s becoming obsolete?

JG:  No.  Old people need care, and that’s what you hire young people to do, and this is perfectly manageable so long as somebody writes the checks.  It’s not difficult.  I don’t think it can be done effectively on a profit-making basis in every sector, but it can be done for sure.  It’s actually not complicated to do.  You just have to have institutions that do it and that provide the appropriate levels of quality control and that sort of thing.

RS:  In an environment where everyone’s trying to save money, of course, that’s not likely to happen.

JG:  Well, if you’re of the view that money is a physical constraint in the system, then you’re doomed.  You’re not going to get there.

RS:  I know – you have to go dig it up out of the ground or something…

JG:  Right, exactly.

RS:  What about growth in general.  You talked about growth not necessarily being able to follow the trends in the past.  What do you see as limits on growth?  There’s the Club of Rome position that things have to start shrinking, actually, because we’re growing too much.

JG:  My view is there are three or four major obstacles.

One of them is resource costs, not the physical availability, but the cost of obtaining and also – if it were properly accounted for because of climate change – the cost of using the energy that we have.  And it’s obvious that this has changed dramatically from forty years ago.  Part of that is also the financialization of energy and commodity markets, which allows the economic rents to be extracted very rapidly if there is a movement toward faster growth.  Energy prices go up very quickly, and then you get basically a tax on the system and a drain on demand as a result.  That’s again part of the problem of having a financialized global commodities market.  So that’s point number one.

Point number two – actually a subordinate point, but closely related – is that for a while in the 1990’s the United States believed that it could stabilize the world economy with military force.  It’s obvious this doesn’t work, and the impact of that realization is being felt everywhere.

Point number three is the effect of technology on labor demand going forward, it strikes me as a significant barrier to returning to full employment primarily on the strength of the private profit-making sector.

And point number four is the collapse of the financial system, which is universal in Europe and the United States.  The banking sectors are vast institutions that have served very little public purpose, if any.  At this point, they could be run as public utilities, and the fixed cost that they presently impose on the economy could be lifted, and you would then have some more scope for private profitability in everything else, which would be a good thing.

Now, does that mean that you could manage a world economy if you can’t get any growth at all, and go down into a constant negative growth rate? I do not understand how that works.  Businesses are in the business of making money, and if they cannot make money, they will not operate at all. So I think that this would be a much more dramatic situation than the people who advocate it casually think.

RS:  You were talking about a “third way” when you were in Croatia.  Could you elaborate on that a bit more as to what that would involve?

JG:  A “third way” between the Austerians and the Stimulards?  It’s not a third way between those two alternatives.  If I used the term “third way”, it was only in deference to the historical use of that phrase in Yugoslavia and Czechoslovakia.

RS:  You weren’t against stimulus, though, were you?

JG:  I am against the use of that word as a description of any viable economic strategy.  Absolutely, I’m against the use of the word “stimulus”.  I think it should be purged from the vocabulary of anybody advocating an effective alternative to austerity, because it is not an effective alternative to austerity.

RS:  And the alternative would be?

JG:  The first necessity is to stabilize the patient, who is on the verge of collapse.  This is not about stimulus, it’s not about returning to growth, or returning to full employment, this is about preventing a disaster which will lead to the breakup of the Euro Zone and the European Union, and will lead in that direction in my view quite soon if nothing is done.  So that’s what I’ve been talking about over the last month.

My thoughts on this were very much crystallized by the visit to Greece after the trip to Croatia.  The question is, what’s the evidence?

Okay, here’s some evidence.  The Greek government failed to sell its gas monopoly to Gazprom for a very modest sum because Gazprom’s analysts believe, accurately, that they could not trust the forecast of income from the gas monopoly.  And did I mention that this is a gas monopoly?  We are talking here about a reasonable projection on the part of a competent firm that the economy underpinning the revenue stream of the gas monopoly is failing.  Right? It doesn’t take much if we ask ourselves, on what basis does a rational government sell a gas monopoly for cash?  The only reasonable answer is:  When it needs cash immediately and does not expect to survive for very long, because a gas monopoly is a revenue stream that goes on forever unless you sell it, in which case it goes away.  It’s just crystal clear what the situation is from the eyes of the government of Greece at the present time.

Now when they fail to sell the gas monopoly, then on six hours’ notice with no cabinet discussion and no parliamentary debate and no vote, they shut the state radio and television, ostensibly to save 200 to 250 million euros over the course of a year in order to satisfy an arbitrary demand for that amount from the troika, and to show how tough and resolute they were.

Well, the Greek people said, no, that’s enough. That’s enough.  You can put up with a lot of privation, but you cannot put up with a direct attack on the one – however flawed – institution of public discourse that the country actually has.  You can’t do it, so the journalists took over the buildings, the trade unions kept the power on, and the crowds went outside to protect them.  It was fantastic.

But it was something that really tells you you’re not far away from the brink.  And there are more things that can and will happen over time, but you’re not far away from having a confrontation that will lead to a real, let’s say, breaking point.  And, of course, we’ve already seen the political repercussions in the sense that the one of the coalition partners left the government, leaving it with a majority of three.  And it does not take much for a majority of three to lead to new elections.

RS:  What was the mood actually in Greece.  I mean, going through the streets, what did you see as physical evidence of the condition the country is in?

JG:  Well, there are two things.

One is that in the streets of Athens you see elderly people prowling through the garbage looking for food.  You see lots and lots of people sleeping on the streets, it’s a very depressing sight.  You also see miles of empty storefronts.  And you see pawn shops, chains of pawn shops, sometimes occupying the only viable business in an otherwise empty, rather ugly complex of former business showrooms and so forth.  So that’s the kind of evidence you see palpably.

The other thing that I saw was – again, outside the ERT offices – was rather more exhilarating, in fact, it was exhilarating, which was this atmosphere of – I wouldn’t call it even protest – we are here because we are going to protect, we are not going to allow this closure of state television and radio to happen, and so we are here to stand as a buffer between the staff who are inside going about their jobs and any coercive force that was outside, which was – mercifully at that point – not in evidence, but obviously a potential. If the crowds hadn’t been there, you know, you could have had…  The government had told the trade unions to turn off the electricity, and they turned off the phones, but the trade unions said no, we’re going to keep the electricity going.  The government turned off the broadcasting towers, but the staff hooked up with the web and broadcast that way.  And other private radio stations across Europe took it up.

RS:  What about Portugal.  You said at one point that there it wasn’t quite as evident at this point.

JG:  You had a general strike in Portugal, I think, yesterday.  The Portuguese situation is very serious, but my sense, and I wasn’t there for very long, my sense is that the social stress is not as serious as in Greece.  What will happen, is if the place is going to break, I think it will be Greece first, and that the problem after that, the immediate problem is not the same kind of social breakdown in Portugal, or Spain, for that matter, but that the speculative attack on those countries becomes overwhelming.  You get a bank run, in other words.

RS:  Speaking of banks, the EU has apparently decided that it’s going to be a general policy now to start including depositors in the ones that take a beating when a bank fails.  What do expect that to do.  I mean, we’re still talking about uninsured deposits here.

JG:  The problem here is the scale of deposit insurance, and there are two things.  One is the basic level, 100,000 euro, is too low.  And the other is how you treat business entities, cooperatives, and small businesses and so forth, who have payroll, which periodically is a lot more than that.  If you’re rigid about the question of whose deposits are insured, then you’re going to in this kind of a bail-in, you’re going to end up bankrupting your business sector, which is what has happened in Cyprus.

Now, what happened in the U.S.:  You don’t want to create a situation in which one hundred percent of all deposits are insured, as then it’s just an invitation for all kinds of, say, unscrupulous activity.  I mean that what happens is that a bank offers a little more interest and you have money flowing around all over the place.  What you want to do is to have a solid base of deposit insurance and a base for businesses.  And then, of course, people need to be aware that there are limits, which is again the situation.

The test of it is that you want to avoid a situation in which there is a panic, a capricious run on the banking system, and I don’t think the Europeans are there.  And, of course, the problem that they have is that if it’s the national authority that’s paying out, then the bankruptcy of the state basically means that the deposit insurance fund isn’t credible, this is why it has to be done on a collective basis.

RS:  There’s a lot of resistance to that here.

JG:  Well, that may be, but, you know, nobody is safe in this situation.

RS:  Well, Germans do worry about their deposits.  They hear that deposits aren’t necessarily safe, it makes them worry, too.  But they’re absolutely dead set against paying for anybody else’s.

JG:  I think that ultimately the decision on the future of Europe will be made in Germany, and Germany has to decide, does it want it or not?  If it wants it, it has to take minimal steps to stabilize it on the same principles on which they stabilized the East, and on which they built the Federal Republic in the first place.  And if they don’t want it, well, it will go away.

RS:  I think even if they want it, they’re not going to stabilize it.

JG:  In which case they’ll lose it, and then we can see what is left.  But when it’s lost, Germany’s going to have the problem it had before of an appreciating currency, and an industry that quickly loses competitiveness, and there’ll be higher unemployment.  And its markets will have collapsed and its debts won’t get paid.

Germany is not going to escape the consequences of this.  Again, it’s a choice that Germans can, and I’m sure, will make.  But what is necessary is to state clearly what the choice actually is.

This is why Yanis Varoufakis and I made the argument in the New York Times that a Syriza government in Greece is perhaps the best hope for Europe, because it would present the choice clearly.  Syriza is a pro-European party, it’s not proposing in a reckless way to take Greece out of the Euro, which the Greek people don’t want to do.

RS:  They’re being accused of that.

JG:  It’s a false accusation.  Syriza is a pro-European party.

RS:  You’ve met with Tsipras?

JG:  I’ve met him several times, yes.  Actually, we met up with him in the ERT offices in Thessonloniki, and that was quite a dramatic moment.  It’s interesting to watch someone in a moment like that, which has a lot of emotional charge to it.  As a political presence he’s very impressive.  It’s the first time I’d seen him in that situation, and I was very struck by it.

RS:  Well that [a Syriza government] could happen sooner than we think.  The government continues to crumble there, I mean, three votes…

JG:  …three votes, yes.  And the initial thinking was that Samaras had done this in part because he figured that he would win either way, either coalition partners would be forced out, in which case he’d get an early election, or they would cave, in which case he would be completely dominant inside the coalition.

RS:  I think he didn’t figure the people would be upset about it given the reputation…

JG:  That is what Alexis said to me, that they miscalculated the reaction of the people.  But from the people’s point of view, if you look at the alternatives that are available with commercial channels,  foreign channels, the Greek Orthodox Church channel, you end up not having a national media. You don’t have anything which has got the responsibility of conveying what’s going on in the country to the population.  So that’s unacceptable.

RS:  A difficulty that can be, is that, of course, it can become a state media in the negative sense.

JG:  Of course, and the ERT had all kinds of problems…

RS:  …the government’s mouthpiece…

JG:  …well, yes, yes, and Yanis Varoufakis was banned from it.  One reason we went to Thessaloníki – we went for a meeting on economics, but also had planned to have an interview with ERT 3, which was the only branch that didn’t get the memo that they couldn’t have Varoufakis.  So, yes, there were all kinds of issues here.  But interestingly enough, when we went to the building in Athens the right-wing journalists were there, too.  I mean, this crossed a line.  You have the basic institutions of a functioning self government or not.  That’s as simple as that.  It created a great deal of clarity.  People understood this was not an austerity move, this was a political act.

RS:  Do you think Greece is going to collapse?

JG:  Well, the current direction is certainly moving that way, and moving that way, I think, quite quickly. And I think the precipitating event will probably be political.  We’ll see what happens when there’s a change of government.  If I were in a position to counsel European authorities, which I do from the margins, I would say, you need to rethink your ideas quickly.  Time is not on your side on this issue.

RS:  I’m sure you’ve been in touch with Heiner Flassbeck.

JG:  I saw him two days ago.

RS:  His take?

JG:  Heiner and I see eye-to-eye on a lot of things.  I think my policy approach is where there are some differences.  I put much more emphasis on social insurance, he puts it on wages.  The social insurance in my framework, the advantage of it is if you wanted to do it, you could do it very fast.  You’re not changing labor relations.

RS:  The problem is that it appears that we’re going in exactly the opposite direction right now.

JG:  I fully understand the direction we’re going in, but my job is not to be the political realist, my job is to be the economic realist.  What I’m trying to lay out is what seems to be the minimum necessary steps to prevent the failure of the system.  And I really think that’s just minimal.  The idea is to do as little as you need to do, and to do it within the framework of current European treaties insofar as you can, because there’s a lot of grand talk about banking unions, new federalism and so forth, and the patient will be gone long before you get there.  You can erect that over the grave.

RS:  Well, I think that to some extent it’s a way of pushing things off into the future.

JG:  That’s exactly right. But pushing things off into the future in the present situation is a formula for absolute failure.

RS:  That’s clear, but I don’t think it’s clear to everyone yet.  There’s been the initiative, as well as this pact for competitiveness that Merkel started.

JG:  The idea that you’re going to have a successful European Union which is competitive in labor costs for the Chinese is a…

RS:  …pact for lower wages, and to eliminate social…

JG:  …reductio ad adsurdum. No chance of succeeding along those lines.  None.

RS:  But I fear that it may come, though.  Whether it’ll succeed or not is not the issue here.

JG:  Yeah, sure.  And it raises the question of what the real motivation behind such a scheme actually is.  Is this simply something that’s a political document designed to appease a certain constituency, or is it largely just another attack on contrary political forces, on labor and so forth.  And I’m sure that’s partly true, as well.  But what it is not is an even remotely credible document for an economic strategy.

RS:  It’s an ideology, and public opinion here as represented in the media is that the rest of Europe should become more like Germany.

JG:  It’s fair to characterize how the media represent things, but an underlying fact is that the German Federal Republic was built in the postwar years on social democratic principles, and I imagine a large part of the German population still shares those principles.

RS:  Very much so.

JG:  The German trade unions, with whom I have good relations, have, I think, staked out one of the most progressive positions, and I think they are in Europe the force that’s most alive in northern Europe to the conditions outside the core countries.  So if there is going to be a rescuing of the European project, it will be here.  I’m confident it will not come from France, and the other countries of the north are too small.  So there it is.  It’s Germany or nobody to make a change of ideas and policies.

RS:  Well, the opinion leaders, as we might call them, are going to have to change their rhetoric before that’s going to happen, because they’re still very much in the other direction.

JG:  I agree.  Or new opinion leaders need to emerge with a different rhetoric, so there you are.

RS:  They’re not there.

JG:  Well, I understand, but that doesn’t mean that they can’t be created.  You know, the project forlorn and hopeless as it may be of someone like me is to try and express ideas that can be crystallized into an alternative program.  I can’t do implement that program, I’m not German.  It has to be done in here, but I can certainly visit from time to time and open my mouth, which is what I do.

RS:  It doesn’t hurt…

It would be nice to have some sort of a force.  The social democrats do criticize that the austerity-only program isn’t working.  But they don’t really take that step far enough in the other direction.

JG:  There’s a large political class out in Brussels, well-meaning people with utopian visions.  They’re not getting out as much as they should, to see what is actually happening.  And there’s a tendency to think that, well, Greece is a long way away, and the rest of us will not be affected if Greece goes down.  But I say, show me an example of a political union, of a confederation, that holds together when a piece of it goes away.

The United States…

RS:  That was tried…

JG:  Well, what precipitated the secession of the South in 1860 was the departure of South Carolina.  That was the first, and then…

But to bring it into the 20th century, Yugoslavia fell apart following the departure of one Republic, which was Slovenia.  And the Soviet Union fell apart following the departure of the Baltics, which were tiny in relationship to the whole.  Once a piece of an entity like this is kicked out, you have cumulative processes which can operate very quickly, very quickly.

RS:  You do have the problem here that you have countries, and they have a national identity.  That doesn’t make them nationalistic…

JG:  Right.

But one needs to recognize that you have a project which has built up a standard of living of the European continent, and that’s a project of integration. Integration has a lot of efficiencies associated with it. In any event it creates a world in which there are cross-border interdependencies.  And if you want to break them up, you can, but the price is enormous.  In the experience that we’ve had recently, it’s on the order of 40%.  So that’s a good benchmark for what might happen to living standards if you suddenly went back to capital controls and trade barriers and national industries.  And good luck trying to build national industries that will compete with the industries that will be in Germany that are highly competitive, but will not have markets because nobody will be able to buy their goods.

RS:  Right.  There’s also the notion of nations competing against each other the way companies compete against each other, which is fairly strong here in Europe.

JG:  There’s that, and then the notion that Greece has a formula that will restore its competitiveness.  There’s a misunderstanding of what the Greek economy consists of.  The number one industry is shipping, number two is tourism.  Shipping is a world phenomenon that depends entirely on the movement of goods and services around the globe.  And tourism is entirely dependent on, among other things, the Germans and the British.

RS:  What’s the attitude about Germans there?  What I read in the papers here, it’s actually mixed.  You sometimes read about the Nazi symbols and all that sort of thing.  At other times – there was a picture about a year ago of people holding up a thing saying, “Thank You, Europe”, which happened to be people who were thanking people in other countries for protesting against the austerity measures, and it was twisted the other way around.  So you get a little bit of both kinds of stories as to what the attitudes there are.

JG:  Greece is a highly polarized country, and as the situation gets desperate, you have a Neo-Nazi party which is using food, among other things, as a political organizing tool, food and xenophobia.

People who have talked to the immigrant communities report that they’re very frightened, very frightened.  I saw Tariq Ali in Rome late last year.  He’d been speaking to the Pakistani community in Greece, and he said these are people who have been really intimidated.  There are a lot of immigrant communities in Greece, and they’re targets and they know it.

RS:  I was going to ask you about a totally different subject:  your talk today.  The title of it sounded interesting, but I’m not sure what it means.  I’m curious as to just what that was about.

JG:  Well, it was not that separate from what we’ve been talking about, it came around to that.

RS:  The title certainly implied something completely different.

JG:  No, it wasn’t completely different at all, but I used it as a way of saying, what is the inverse relationship between bandwidth and understanding in Transatlantic communications.

In the days before the telegraph, Europe at least one newspaper correspondent who understood the United States rather well, and his name was Karl Marx.  He’d never been to the United States, but was a good reader of maps, knew where the railroads were, knew where the mountain ranges were, knew what the political environment was, knew the census reports and the proportion of slaves and free labor in each of the states of the South and the border states.  And because he thought clearly and independently about these issues, he was able to write very clearly about the nature of the Civil War, about Abraham Lincoln’s approach, and about the likely military outcome, what a victory of the South would have required and how it quickly became a military impossibility.  So it’s very bracing to read Marx on the U.S. Civil War, and particularly in comparison with the mythologized textbook treatments that one gets even now after 150 years.

How does that bear on the modern world?

The argument I made was that the dominant European narrative of the United States now as then is utterly misleading.  It’s the notion that we have somehow in the thirty years since Ronald Reagan transformed ourselves into a free-market, deregulated, privatized, flexible labor market, weak-welfare-state country, which, if you just cast your memory back to the 60’s and 70’s, a totally unrecognizable view of the country, a country that was built by Roosevelt and Kennedy and Johnson, especially Roosevelt and Johnson, and which had extended even into the Nixon administration, which had and has a very substantial social insurance, public investment and regulatory framework.  Many things about this have been under assault, some of them have failed entirely, including the regulation of finance, but this is not a Hayekian vision that has triumphed, but rather the one I described in my book, The Predator State.  The real politics of the country controls these apparatuses and how much of the benefits are diverted to cronies and oligarchs and political constituents, which captures what happened in the Clinton and the Bush years – and ongoing, of course.

RS:  Well, that’s good for them to hear, because, that is something I face, particularly from the left.  There is the view that the United States is the epitome of unsocial, and the attitude in the United States about Europe is just the other way around.

JG:  That was the premise of my talk.  And it’s interesting that since these two reciprocal images serve the purposes of both the right and left on both continents.  They are not challenged by either side, and therefore there’s never a real corrective on the table.  So that was, the goal of my talk was to make exactly that point.

RS:  I’m glad somebody’s saying that.  I get tired of saying it.

59 thoughts on “James Galbraith on Europe, Greece (and Syriza), Germany and America

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  4. I take the liberty of linking below an article which I published in my blog, because it relates to this and a previous article in this blog.

    I had an eye opener when reading “The Euro-Liars” by Hans-Olaf Henkel. The thing about Henkel’s book is not that he reveals anything new. All he does is to trace everything which has happened in the last 3 years and everything which politicians and others have said and argued, and why.

    Over a period of one year, you get the news in portions of 1/365th. By mid-year, you have forgotten what people had said at the beginning of the year.

    When you get 3 years in a condensed version of a couple of hundred pages, then you really get worried because you really become aware of all the lying which has taken place. At least, that’s what happened to me. I really didn’t learn anything new from the book. However, it became clear to me that when liars run the show, the show won’t have a good ending. Maybe not this year or next year, but there will be a day of reckoning!


  5. To all who still state and maybe do not understand that the Greek bailouts has already cost money to the other countries (besides the Transfers since it joined the EU).

    EUR 1.5 billion of the money transfered this week was profit of the ECB which normally would have went directly to the national budgets. There it could have been used for roads in Germany or education in France.

    But of course this statement, like anything that does not fit into the “We Greeks are entitled that others pay for our problems” will be be censored.

    • Are you saying that it would be ok to use ECB’s profits from Greek Bonds ? Do I as a Greek have to be gratefull that your government(s) didn’t speculate on Greek Bonds? Wow….

    • Ok I agree.its what is being done.But how is it costing money to the national governments?Those were profits that the ECB realized from purchasing undervalued Greek Bonds that were paid in full.The ECB did not spend the money of any national government to purchase the bonds, yet it had to pass the profits to the governments because that’s what it always does with its profits.So again, how is this transaction costing money to governments ?

    • It is money that the national governments would have received and have not received. they carry the risk, but they do not get the “reward” for the risk.

      Anything that has an effect on ECB profit increases/decreses the profit distribution of the ECB, which has an impact on national government cash flow.

    • @SoundMoney

      What risk? The ECB absorbs the loss if there’s a default, which reduces the profits paid out to the countries. But the countries don’t take a loss, they just don’t get a profit. That’s not the same thing. If the debt gets paid back with interest, the countries share the ECB’s profit, without having ever risked losing what was loaned.

      So the “risk” the countries take when the ECB buys debt is to not share in the profits from loaning out money they never risked losing.

      On the other hand, if the countries loan that money to the debtor countries directly, they not only risk making a profit, but also losing the money they loaned out.

      So why again are debt purchases by the ECB a bad thing?

      > WordPress.com >

    • “It is money that the national governments would have received and have not received. they carry the risk, but they do not get the “reward” for the risk.”
      How do they carry risk when they didn’t spend a penny for these bonds to be purchased? The ECB created out of thin air the reserves with which it purchased the bonds.And its ability to create reserves out of thin air would allow it to keep performing its normal operations properly even if Greece defaulted on these specific bonds.

      So I don’t see what risk you are talking about.

      “Anything that has an effect on ECB profit increases/decreses the profit distribution of the ECB, which has an impact on national government cash flow.”
      So they should increase Greece’s debt even more by keeping profits they never actually earned?

    • Roger Strassburg
      Let me bring down to reality. Look at the ECBs equity and check how much it can absorb by way of losses before its equity is wiped out. Presently roughly 0,01% of the nominal amount of sovereign debt it records in its books at nominal value represents equity. So the issue of ECB losses only reducing the profits paid out is a farce. The ECB would have a negative equity the moment Greece defaults.

      Now, the ECB could function quite normally even with a huge negative net worth (it cannot go bankrupt). Those would be losses similar to data stored in iCloud. The moment the ECB would transfer its losses to its owners, the national Central Banks, the latter would require recapitalization by national tax payers because national Central Bank CAN go bankrupt.

      Now, you could argue that the ECB could operate with a huge negative net worth until doomsday. Is technically not wrong. The question, however, it whether politics would stand behind such a strategy. If I am correctly informed, the US WW2 war effort was financed through the Fed. Superficially a sin, in practice it worked very well because it subsequently lead to great economic growth. If the ECBs financing governments would lead to a similar result, all power to it! Only, the debate is whether that result would happen.

    • No wonder the ClubMed is in such a mess, if people cannot spot risk…

    • So the whole discussion comes down to this:

      “Now, you could argue that the ECB could operate with a huge negative net worth until doomsday. Is technically not wrong. The question, however, it whether politics would stand behind such a strategy. ”

      That’s like arguing whether I am at risk of falling from the balcony just because i CAN jump if i CHOOSE to do it.Yes the ECB can technically go bankrupt and all hell can break loose if the political choices are such that impose constraints on its monetary sovereignty.
      But it’s not clear to me why we should accept this scenario when clearly there’s another alternative.
      Why would i jump from the balcony if I can very well choose not to ?

      Even the fear of inflation does not stand when we are talking about the recapitalization of the ECB with “printed” money.You can print whatever amount you like and stuff it in the ECB as equity, it’s not going to affect prices by a bit.
      So why would anyone in his right mind choose to treat a hypothetically bankrupt ECB as another regular bankrupt corporation and transform its accounting losses into real losses for the taxpayers?
      If it serves a purpose for the common good I am all ears to hear it..

  6. Pingback: Europe Unwinding « parina

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  8. I wish that the New Democracy party were not in power, but I still do not understand what Syriza will do differently. I live in the US, but from what I read and see online, it seems as though Syriza does not listen to the people. That is why its poll numbers are not improving. Tsipras gives good speeches, but… I saw a documentary about the last elections where a person asked a representative from Syriza how Greece would pay its debt, and where would it find the money, and the answer was “Trust us.” I used to think Syriza was the best hope for Greece but now I am hoping another party emerges with clear answers. I believe that being part of the euro is somehow psychologically satisfying to some people in Greece because they consider the other members of this club to be of higher status, and they are blinded by this. Imagine, though, if they were united with other countries in the Balkan peninsula and used a “Balko” for currency. They would not hesitate to leave this currency if it was in their best interests to do so. I don’t think they would have gone back to their couches, after a brief period rebellion, if the austerity had been imposed by, say, Bulgaria.

    • “and the answer was “Trust us.”

      This is basically the answer you get from every political party everywhere🙂

    • What they should do, immediately, is stop borrowing. 98% of the North European tax payer’s money are given to the greek zombi banks, just to keep certain bankers in charge of these same banks; while the greek tax payers have to repay them. This corrupt, ridiculous situation must stop immediately. When this is done, there are a number of small but existent options, both in the political and the economic level. But the first thing to do is break this lousy propaganda that the greek citizens benefit from the money of the german citizens.

  9. Very well done for getting the interview published in a major German newspaper during the run-up to the Federal Elections.

    I couln’t find it on the online edition – but the search is pretty useless.

    And yes – who is RS?

  10. “Old people need care, and that’s what you hire young people to do”… but then he doesn’t actually SAY from where the money will come for this kind of budgetary jobs. Especially now, when they privatize the NHS. A Ministry of Old Age? And will these jobs be suitable for young men?

    • Your objection is answered literally in the next few sentences.

      “I don’t think it can be done effectively on a profit-making basis in every sector, but it can be done for sure. It’s actually not complicated to do. You just have to have institutions that do it and that provide the appropriate levels of quality control and that sort of thing.


      Well, if you’re of the view that money is a physical constraint in the system, then you’re doomed. You’re not going to get there”

      The point is that money is not a physical constraint in the system. You can make it up to allow people to live off doing something that is useful to society. Total production being enough to cover everyone’s needs is the only physical constraint on the system, money isn’t.

  11. Pingback: “James Galbraith on Europe, Greece (and Syriza), Germany and America | Arjen polku

  12. Strictly out of curiosity (and NOT to provoke), I wonder how Prof. Galbraith would compare downtown Athens with downtown Detroit today. My understanding is that Detroit lost about 25% of its population in the 2000s to other places in the USD common currency area. That’s how Detroit ‘adjusted’ and the city is still in trouble. Would Prof. Galbraith think that losing 25% of the population to out-migration is a solution for Athens and/or Greece because that’s how a common currency area sometimes works? Mobility of labor, which is very high in the US, would seriously undermine one of Europe most important USPs: the variety of nations and cultures.

    • Athens is still a business center, a strong tourist destination, an important harbor and also the center of Greece with the Parthenon at its center overlooking the sea.

      The city is loosing a lot of young people because of the crisis and this is mainly because traditionally Greek people invest a lot in education and there are no good jobs to be had within the current political and economic context.

      The biggest problem in Athens and in Greece is with illegal immigrants that enter Greece with the aid of neighbor Turkey and due to the EU Dublin treaty are not welcome in any other EU countries.

      The illegal immigrants in Greece would love to come to a country like Germany but of course the Germans would never allow that because it would be a problem right? That is the reason for the Dublin treaty right? That is the reason for Xrysi Avgi Mr. Galbraith.

      The Euro and the Dublin Treaty had turned part of Athens and other cities to centers of illegal immigrants.

      And you have this unique situation where you drive in a city with a lot less traffic, with unemployment and uncertainty and there are 3-4 illegal immigrants at every traffic light asking for euros.

      How would you feel about that in the center of Berlin or London? It is OK in Athens you said?

    • Klaus,

      Detroit is getting a new $300 million plus hockey arena. Guess who is mostly paying for it:🙂

    • Konstantinos is making a very good point: How the dreadfull Dublin treaty seriously damaged the economies of all entry point countries like Greece putting a burden that they could not possibly bear. Greece could not handle 100 thousand new imigrants per year with no chance of integration let alone the added imigrants that were sent back to Greece due to the Dublin treaty every year. Its easy to find the rise of a xenophobic party like Golden Dawn from the safety of a house in Northern Europe, a safety that is provided by turning entry point countries like Greece, Spain and Italy into buffer zones and dumping grounds for anyone that eventually made it to the core countries of the E.U. Signing that treaty was a disaster and the fact that no Greek government vetoed it goes to show that for a long time they did not have our national interest in mind, to put it mildly.

      LastGreek is also making a very good point. Detroit is not going to be left to its own devices by the federal government. Funding is going to come to Detroits way and the city will get a chance to recover. Something simmilar is politicaly unacceptable for any state in the euro zone right now so there is absolutely no chance of recovery. Peer Steinbruck again used the “New Marshal Plan” rhetoric but I doubt that he can sell this.

    • Konstantinos
      Thanks for your explanation. As I said, I didn’t ask because I might have had a prejudice but simply because I really didn’t know. The last time I was in Athens/Detroit is almost exactly 40 years ago… I only read that the situation in Detroit is rather terrible and that many people have out-migrated as a result.

      My point was the following: I have seen, over the last decades, substantial migrations between one part and another part of the common currency area called the USofA. I interpret that to be one of the adjustment instruments in a common currency area when the economy tanks in one part but grows in another part. Americans don’t mind moving from Boston to San Diego because when they land there, they hear the same language, watch the same TV programs and see the same stores.

      Thus, if the ultima ratio for the common currency area called the Eurozone were that Greeks/Portuguese etc. have to leave their countries because their economies tank and have to move to those countries where there is growth, then that would undermine the essence of what Europe is – diversity and not uniformity!

    • Labor force mobility is not the answer for the E.U. In fact we should not even call it that, we should call it immigration due to the cultural differences between member states. The people of Europe do not feel like they have one single national identity. In the US people come from all sorts of ethnic backgrounds but all of them share the same national identity. This makes true labor mobility possible. People go where the jobs are and they have little difficulty adapting to the changes. It is the same thing within the national borders of any individual member state of the E.U. People move from area to area if the need arises with little trouble. It’s another story though when someone seeks work outside his country’s borders. There are all sorts of obstacles like cultural, language and legal issues.

      Immigration is not a solution for Greece. Right now unfortunately it is the young, most talented and well educated individuals that choose to leave. Their decision has more to do to the appalling state of our country. Most of them also choose to leave behind low paying jobs for what they perceive to be better career opportunities. The large number of doctors leaving for Britain and Germany is a good proof of that. Minimum wage for a doctor position in a public hospital is right now under 900 euros. Doctors also have to tolerate being unpaid for overtime for months at a time. For the vast majority of the unemployed work force in Greece though, immigration is not an option. There is little demand for unskilled workers and most of them do not even have the means to seek work abroad.
      In any case immigration is not the answer to the economic problems of any country. I believe it is not the solution for people from Pakistan, Bangladesh, Afghanistan, Sub-Saharan Africa, Nigeria etc. etc. looking for work and a better future in Europe as well as for Europeans looking for a way out of their troubled countries. This practice leaves all these countries drained of vital talents and in a state of decay. Like the city of Detroit. Try to do the best you can at home and build your own future with whatever means you have, that is the closest to a hope for the future that I can think of.

    • @Tasos
      “Detroit is not going to be left to its own devices by the federal government.”
      First of all, Detroit is and has paid federal taxes (as a part of the United States) and second the FED is not purchasing californian or bonds from Detroit to bail them out! Very different in the Eurozone where the ECB is buying bonds of troubled countries and frequently lowering the requirements (think of the Portuguese bond with an interest rate of about 0% and maturity date in 31.12.9999 or another anecdote: http://economia.elpais.com/economia/2011/07/25/actualidad/1311579173_850215.html).
      Remember that California had to fire thousands of public servants (teachers, firemen, etc) because of their deficits.
      Regarding interbanking payment systems, in the US there is a yearly settlement of ISA credits (even more these have to be secured by marketable assets) while there is no settlement in the Eurozone and no requirements for securities!

    • Klaus,

      Mobility is good because you will get Greeks going to Germany (better business prospects) and Germans or Brits coming to Greece to work (better weather, well suited for internet based businesses). The net effect is very positive and expansionary.

      What is bad is having all the deposits in German banks and all the illegal immigrants in the Greek cities. What you want is not to have one negative reinforcing loop in Greece with all the money leaving for safe heavens, all the major businesses relocating to major business centers to the north and all the illegals staying in the south forcing unemployment to 28% – and one positive reinforcing loop in Germany with all the money and businesses flowing in as a safe heaven, and at the same time with the rules being enforced returning all the illegal immigrants to their entry points which are all south of the Alps.

      This is not a union this is a system with different pressures creating huge flows from one section to the other.

      What does it mean if you impose a haircut on Greek banks and turn them into derelict institutions? It means they will have to lay-off 30-40% of their workers to survive – right?

      What is the effect of OTE pulling the money to the bank in Germany every night? It means there will be no jobs for bankers in Greece to invest that money.

      Europe is there to provide the framework and the basis for stability and not to encourage these huge flows of capital from one region to another.

    • @MarkDR
      You misunderstood. I was not referring to the bailout programs. I was referring to the fact that Detroit via the state of Michigan is going to receive funds for investment . Surplus recycling like that is necessary in a currency union. Concerning the bailouts, imagine how ridiculous it would seem if, say, the cities of Chicago and New York had to bail out Detroit from its creditors (citing the stability of the single currency..) and now the citizens of Detroit would be indebted to the aforementioned cities. This is what happened in the euro zone. I very much preferred what happened in Detroit, namely it invoked Chapter 9 and along with the protection the 10th amendment provides from its creditors, in an orderly way it is going to offer them whatever cents it can on the dollar, forcefully balance its budget and life will go on. This way, Detroit will get to start over ASAP.

    • Interestingly, Greece has not been “losing its population” during the crisis years, although there was a noticeable decline in the increase rate. In fact, the population of Greece is still increasing (vs. eg Germany’s which is decreasing).

      In addition, although the measured unemployment is very high (~30%) this number is not taking into count the so-called “informal employment”, that is, employment outside the “system” (no social insurance, no legal employer-employee obligation). I cannot quote numbers, because nobody seems to have them, but every Greek knows from experience several acquaintances or relatives who work but are “unemployed”.

      This is the clearest indication that the Greek society and economy is under the wrong system. This includes the currency as well as the complex of EU bylaws and rules, made in Brussels to serve the bussiness structures of “center” economies (a majority of workforce works for large companies, fewer self-employed etc). So much for not striving for a “German Europe”…

      This structural aspect of Greece is not considered by most pro-euro/EU analysts, except to mark it as undesirable, a “problem”. They may be right actually! Unfortunately for them, this trend has gotten worse during the Euro years, and it is not fixable as long as the Greek economy remains unfenced financially (movement of savings and profits) as well as in terms of competitiveness (no external devaluation, no policy on import substitution).

      A Greek economy and society, living under these wrong systemic constraints, will necessarily view immigration as a burden–currently, its own citizens are viewed as such…

  13. Academics are talking about alternatives to bail out and bail in. Nothing has caught my eye, the general recommendation being to shut bad banks over a weekend, transfer ownership to a holding company, weed out the trash and re-open on Monday.

    We used to talk seriously on structural change. Humpty-Dumpty had a great fall and no one could put him together again. It’s obvious we aren’t fixing what matters – decent jobs for all, pensions, homes, countries, planet burning …

    We were discussing today’s problems in the early to mid-80’s as this review illustrates:
    There are charts in the article on the decline in manufacturing profit and the rise of finance as the place for profit margin. Magdoff’s and Sweezy’s now old thesis—that there is an implacable drive toward stagnation in mature capitalist economies— is discussed in recent statistics. Although there is no exact relationship between
    debt creation and economic growth, in the 1970s the increase in the GDP was about sixty cents for every dollar of increased debt. By the early 2000s this had decreased to close to twenty cents of GDP growth for every dollar of new debt.

    I know we know, but what is scary is how long we have known and been able to do nothing but see things get worse. We put real effort into lean efficiency in coal, steel, cars and trucks, shipbuilding and textiles (the latter two I had personal involvement in) and I can’t remember thinking it was ever more than a rearguard action.

    I’d like to see the development of a ‘machine’ other than current economics and money, formed after a re-think on comparative advantage. I’m just back from Porto and Guimares and the situation is pretty depressed ‘restive’.

    • Eurointelligence got the attribution right – for the interview they were referring to. My interview with James isn’t online at the NachDenkSeiten yet, since we’re still getting it translated into German…

    • @ Roger

      Very thorough and insightful interview, thanks. I’m positively surprised by its quality, haven’t seen, so far, much on this level at the NDS.

  14. Galbraith says a lot of clever things, some of them are spot on. But on others he is fundametally wrong. Two examples:

    “minimal steps to stabilize it on the same principles on which they stabilized the East”

    This ‘minimal steps’ did cost the western parts of Germany so far ~2 trillion euro, and counting. The economy in most of the eastern parts are still not self-sustainable. There will be forever huge money transfers required to fulfil the German Constitution’s demand for homogeneous (which doesn’t mean “equal”) standards of livings within the national territory.

    There are in the meantime many west Germans upset about this neverending subsidy for the East, not least because the western infrastructure is by now in several regions far below the rather luxurious standards they have in the East. But -so far- the accept it grudgingly. After all, it’s between Germans, not foreigners, which makes quite a difference.

    Two trillion Euro and counting. Now, how much would that be on a eurozone size? And who would want and could finance it, sustainably so? Not Germany, that’s for sure.

    “But when it’s lost, Germany’s going to have the problem it had before of an appreciating currency, and an industry that quickly loses competitiveness, and there’ll be higher unemployment. And its markets will have collapsed and its debts won’t get paid”

    The debts won’t get paid anyway, so better stop right now with the hopeless bailoutommania. As for what would happen to the German economy after a break-up of the common currency: of course, the best way to go would be the overindebted nations leave the Eurozone and revalue then their new currencies. But for Germany it wouldn’t be a big issue one way or the other. She could as well leave and reintroduce a Deutsche Mark.

    This national currency which had lots of upvaluations worked like a charm before the Euro. Germany already had big export surplusses then, a fact which is often forgotten by the people who blame her for still having them.

    If the new Deutsche Mark upvalues vs. the Euro and other currencies, all imports from these countries (and also holidays there) would immediately become substantially cheaper for the Germans. And since a huge part of German export goods consist on imported pre-products, the export prices for Made In Germany would in total not increase a lot – if at all.

    And since the purchasing power of the Germans would jump, the could and would buy more stuff, German made and foreign. Besides, the exports to the countries which are now the Eurozone decreased in 2012 to 37.5% from 51.6% in 1991, the speed of the reduction became higher since the introduction of the Euro. Thus, Germany is by far not that dependend anymore on exports to the Eurozone as it was two decades ago.

    So you see, for Germany it doesn’t matter much if the GPSIFs leave this misconstructed and unsustainable currency union, of if Germany herself leaves. Important is only: stop the increasingly undemocratic, centralistic approach, and the bailoutomania. Now.

    • The argument: “if Germany reintroduces the Deutsche Mark in a world that has grown apart because of it (for the third time), it will just be like in the good old days with DM”, is beyond hopelessness, and it shows, that even if you are the first commentator in most of Varoufakis’ articles you still have no gain from them.

    • You’re forgetting a little something – a little something which would probably ruin Germany (as well as everyone else) and most likely cause the EU itself to disintegrate in a singularly nasty way.

      Let’s say that the PIGS decide to leave the EU. Presume also that they can immediately impose workable capital controls so the risk of capital flight is low or nonexistent, andpart of Professor Varoufakis’ objections to such an act can be dismissed. In that scenario, an obvious problem rears its ugly head: What will happen to existing obligations of the public and private sector in the periphery?

      Our host dismissed this by saying that “Contracts governed by Greek law… [would be] converted into drachmas. This is not as easy as it sounds, due to a variety of reasons I won’t go into right now, since this post is unholy long as it is.

      However, that discussion would probably be a moot point, as in case of the periphery (or Germany) leaving the euro, no such simple rule would be implemented by any sane peripheral country (or accepted by them, if Germany were to leave). Here’s the reason: All peripheral economies experienced a massive influx of capital from the core prior to the crisis (if memory serves, their current account deficit roughly equalled Germany’s surplus). This would leave the peripheral economies which leave the currency union with debt denominated in euros, both in terms of loans (a lender’s performance is characteristic), and bonds (their denomination is listed on the bond itself).

      Why is this a problem? Because it screws with the beneficial aspects of currency devaluation. The latter is infinitely better than deflation, to simplify to a great extent, because it does not affect or even reduce indebtedness.

      Think of it this way: I generate a net income of x. I have to pay y to repay my debt, and I have purely domestic costs of z. If I export and my currency depreciates 20%, my income relative to debt (and domestic costs) increases 20%, making it easier to repay the debt or to turn turn a profit. Or, I can reduce prices to maintain the same ratio of net income to costs and debt, undercutting the competition. If I sell for the domestic market, to a first approximation nothing changes (actually, it does, since domestic demand will shift to domestic sources, but that’s not a direct effect): If x, y, and z are all priced in the new currency, it does not matter a whit what my exchange rate is.

      The problem arises if I have debt denominated in a foreign currency. For exporters, that is not a fatal problem: If they are indebted in the same currency in which they export (exporting to Russia, taking a loan in rubles, for example), a depreciation (vis-a-vis the ruble, in this case) still decreases my domestic (read: labour) costs. The depreciation is simply less effective. If, however, I am indebted in a foreign currency and generate a profit in a domestic currency, a depreciation means I will have to devote a proportionally greater share of my income to debt service, which can crimp my expansion plans or ruin me. Not unimportantly, this is the default position of states, since they are financed largely through tax revenue.

      Because of this no sane country would leave the euro without converting its obligations and the obligations of its citizens and companies to its own currency. Of course, doing that means that, unless the creditor plans to use the funds in the country which left the euro, he incurs a loss equal to the depreciation even if each debtor repays each and every drachma/peseta/lira/florint/ducat/whatever. Which, in the chaotic breakdown of demand, won’t happen. For the same reasons, no country will tolerate a conversion of the obligations to marks if Germany leaves, since the same economy-killing consequences would arise in the case of a DEM appreciation vis-a-vis the euro as in the case of a drachma devaluation vis-a-vis the euro.

      Oh, and did I mention that for the same reasons sovereign default of the peripherals would be pretty much inevitable?

      Oh. and if Germany were to leave, no country would expect a conversion into DEM for the same reasons, while keeping the obligations in euros would reduce income for any German company actually planning to spend money or invest inside Germany (hopefully that would be most of them, for your sake).

      This would have two consequences: Firstly, the official sector, which has to a large extent taken over sovereign debts of the periphery, would see its balance sheet blown up directly. Just as importantly, a default plus conversion would blow up the balance sheets of its financial institutions as well as any other company engaged in long-term contracts with peripheral entities. That would require either new bailouts or funding new companies by the state to ensure the financial market works to a minimal extent. The two basic consequences would be, of course a nasty recession at the least and an unholy political mess which would render the EU non-viable.

      TL;DR: No matter who leaves the common currency, the only way for them to avoid disasters is to thoroughly screw over the other side (pardon my French): It would be in the best interest of the core to harm the periphery by squeezing it dry and in the best interest of the periphery to harm the core by paying as little as possible.

    • @ T

      Very good and valid remarks, thanks! But maybe you have missed my “the debts won’t get paid anyway”.

      I do indeed believe that most if not all of the money already transfered to the GIPSIFs is lost. It is sunk money. Won’t ever be paid back, and no matter in what more or less valuable currency.

    • @VSS
      If what you believe is true concerning the reintroduction of the DM, then industrialists in Germany would embrace its reintroduction. Instead many figures of industry and some of the banking sector have very specificaly stated that their industries would take a very big hit. They know the figures and the big picture and clearly do not share your opinion. Nothing wrong in being in favor of abandoning the euro zone. It is wrong though to believe the fairy tale of the “ideal solution”.

    • @ Tasos

      I don’t *know* if what I *believe* is true, I just *assume* so. As do all of us, including our estimated host Yanis. And all of us will only know with hindsight.

      The thing with the German industrialists is: a lot of them are already against the currency union in its current structure. Mainly the SMEs. Which do keep the German economy afloat, much more than the industrial giants like Siemens, Volkswagen and so on.

      The big and multinational corporations, who are (together with the finance industry) the only group in Germany who actually profited hugely from the Euro, are of course defending the Euro, may it cost the people in Germany, Greece and elsewhere what it wants.

      As for an ideal solution: there is none, you are right. But I am as sure as I can be that an orderly break-up of the euro zone is the best possible solution for all nations involved.

    • Uhm, I’m sorry, but checking the German current account balance, I don’t see any of the huge surpluses you claim Germany had before the euro… I only see slight surpluses and slight deficits depending on the year, and then what can only be described as a surplus explosion, once the periphery joins the euro.


    • VSS,

      Deutche Telecom invested to buy OTE the Greek telecom company. They did that to gain a foothold in the Balkans and to have access to a near monopoly market which is currently the telecom market in Greece.
      Every night during the height of the crisis DT transferred the cash balance in Euros from Greek OTE to Germany.

      If I was a politician in Greece I would never have accepted that practice which is legal within the context of the united Europe.

      You have one of the major companies in Greece with its cash balance seating pretty in a bank in Germany. Multiply that by all the other major companies that did the same thing and you realize that there are some benefits Germans and Swiss have from the current deal. Right?

      As far as I am concerned with all the indifference and the inflexible mindsets Greece would be better on its own currency. This would mean that from the few examples above that:

      1. Greek money would stay in Greece as it would have no business in Germany or Switzerland or Luxembourg.

      2. All the illegal immigrants that line up at the traffic lights in Athens to collect Euros would know look at the drachma and maybe have another thought as to their ideal destination in Europe. The new Germany I hear you say that is ready to welcome them with open arms?

      There are a lot of structural problems in Greece and politicians have had their hand on the honey pot for years, however there are also some limits to what people in Greece and in other countries will put up with.

    • @VerySeriousSam:

      “And since the purchasing power of the Germans would jump, the could and would buy more stuff, German made and foreign.”

      And would you care to elaborate on this theory?

      I admit, my understanding of macroeconomics is rather limited. Maybe that’s why I don’t see how the appreciation of this new DM will automatically increase private demand.
      Unless you mean to tell us that if Germany left the ECU we would suddenly stop trying to reduce unit labour costs and start paying employees proper wages again – Which seems a little absurd since even your friends from the AfD admit that a lack of competitiveness in the periphery is one of the main reasons for the failure of the eurozone and almost every other political party has clearly adopted the idea that, since increasing productivity would require massive investments that are nowhere to be seen, the only way to become more competitive is to keep reducing labour costs.

      The proponents of grexit, whose ideas you so frequently advertise here also claim that the best way for the periphery countries to become more competitive is to reduce prices of goods and services on the global market by reintroducing their own currencies and having them depreciate against the new DM, or whatever you would like to call it.

      So if the german exporting industry were to more or less abandon the southern european markets and move their business entirely to the BRICS and the US, what magical powers do they posess that would enable them to keep these countries from shielding themselves against running constant trade deficits vis a vis this new independent Germany, especially since they all also have their own currencies?
      I can’t imagine China, for example, letting itself being pulled into that game.

      But then again, I’m not an economist.

    • @foofootos

      Here they are

      Obviously it is purely a coincidence that the “imbalance” of payments started after the introduction of the euro….

    • The support for the Euro in the German industry is much weaker than some of the reader here might expect:

      “”I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in,” Linde’s chief executive Wolfgang Reitzle was quoted as saying.

      “If we do not succeed in disciplining crisis countries, Germany needs to exit,” said Reitzle who was previously a board member at carmaker BMW (BMWG.DE) and head of Jaguar and Land Rover.

      Asking Germans to pay more than 50 percent taxes to help fund other euro zone countries will erode the will of the German electorate to support rescue measures, Reitzle said.

      Although this scenario is not desirable, he felt that German industry would survive working in a new currency.

      “Of course it would lead the new currency – Deutschmark, North-euro or whatever it is called – to appreciate in value. But it would be by a lesser amount than feared,” Reitzle said.”

      “Asked whether he was not alone in his view among industry CEOs, Reitzle replied that he knows that managers are under much pressure, so that they usually voice their actual views not in public, but that many agree with him in private.”

      And the Foundation for Family Businesses in Germany and Europe initiated an open letter signed by 100 leading Family Businessen to change the rescue policy of the present government:

      ” The performance of the German economy seems even less impressive in the wider European and trans-Atlantic context. During the period referred to above, Sweden grew by 2.8 percent, Britain by 2.1 percent, and the E.U. as whole by 1.8 percent. Germany also lagged significantly behind the United States, which grew at an annualized 2.2 percent. Over the period from 1998 to 2011, only Japan, Italy, Portugal and Greece performed worse than Germany. This is not the performance of a euro-winner.

      Germany’s relative economic performance within the euro zone only began to improve in 2006. Nonetheless, its G.D.P growth rate between 2006 and 2011 remained below that of Sweden and Austria, and broadly in line with the Netherlands, Finland and the United States.

      During the first decade of the euro, again according to Eurostat, German unemployment tended to be higher, at times markedly higher, than the euro zone average. It then began to decline to levels well below the euro zone average, although it is rarely noted that it remains significantly higher than the unemployment rate in Austria, the Netherlands, Switzerland and Japan.

      Finally, German wages and living standards did not rise for a decade and a half from the mid-1990s, in sharp contrast with Southern Europe, Britain, and indeed most of the world except Japan. ”

    • @ foofootos

      You should a) select an appropriate timespan and b) mind that increases in trade surpluses must be seen in context with the increases in GDPs both in Germany and her trading partners and c) the exports to the countries which are now the Eurozone decreased in 2012 to 37.5% from 51.6% in 1991, the speed of the reduction became higher since the introduction of the Euro.

      Here you can have a look at the data since 1971, which gives a more complete picture. You can even compare country by country.


    • @Hubert Marcks
      You are absolutely right in pointing out that it would take a miracle and magical powers for the German, Dutch, Finish -whatever- industries to avoid a serious hit if they reintroduced their former currencies and left the EZ.

    • Foofootos
      You are right about Germany c/a surpluses prior to the Euro but you have to consider the reasons for that.

      After unification, Germany went into a phase of massive deficit spending. The East cost about 100 BEUR annually. That lead to massive increases in demand and much of that demand was covered through imports. Thus, the c/a deficits (which increased demand elsewhere).

      Now one may reasonably ask: if that method worked then, why not do the same thing now? The answer depends on whom you ask.

      Some say that if Germany did only a moderate amount of deficit spending, it would suffice to set in motion a growth process throughout the Eurozone. Others (I believe one of the 6 critics made that point) say that East Germany alone almost overcharged the German economy. If Germany did for the EZs deficit countries what they had done for East Germany, the German economy would go down the drain.

      I cannot judge that but one has to keep in mind that, even today, every German tax payer pays a surcharge (I believe 5-8%) on his normal tax bill. If his normal tax liability is 100, he has to pay 105-08. That is called the ‘solidarity surcharge East’. The political discussion is already when that surcharge will be phased out. After over 20 years, tax payers’ tolerance is wavering. It would help to see a calculation how high that surcharge would be if Germany not only had to subsidize their East but all the deficit countries, instead.

    • @VSS

      “c) the exports to the countries which are now the Eurozone decreased in 2012 to 37.5% from 51.6% in 1991, the speed of the reduction became higher since the introduction of the Euro.”

      Is there an actual reduction?An increase of exports to the RoW would be illustrated as a reduction of the eurozone’s share in German exports but this does not constitute a reduction.
      Even more so, it shows how Germany gain advantage with the use of an undervalued currency to expand its market share to the RoW.

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