I've been wondering why Greece is so fucked. Turns out, it's not because of austerity or debt. It's not because of demographics or a lack of monetary or fiscal policy by the EUCB. And it's not because of Merkel. Greece is totally fucked because of the completely broken tax system which prevents the government from actually collecting the taxes that need collecting, and because of a political system which makes taxing the rich (particularly the celebrity-rich) impossible. For example you can look at people who were brought in to try to fix the problem, but who were completely unable to do so because everyone from the Finance Minister to the lowest level tax collectors doesn't actually do their jobs. Even when they try manfully and spend a huge amount of effort on high-publicity stunts, they don't recover more than a tenth of what the delta is. Page two is particularly telling; basically, people don't trust the government, so they don't pay their taxes if they can possibly avoid it. Then there's the question of tax morale, and it being cheaper to buy yourself massive tax loopholes than to pay your taxes. How do you fix a problem like that? The EU - well, Eurozone, I guess? - has a massive carrot (the Greek debt obligations) and somewhat of a stick (expulsion from the Eurozone?) but I don't see what solution will actually work. When it's cheaper to just cheat on your taxes and bribe the tax collector than it is to pay your taxes, and there's no likelihood of serious consequences for you personally, the system is broken. It's the age of civilization. You can't just start chopping off heads, China notwithstanding. So how do you solve it? Have Greece hand over their tax collection to Germany? That seems completely politically and culturally impossible. Wait until they fix their own shit? That basically means cutting them off and dealing with the fallout, then letting them rot for a while. Highly suboptimal in its own right. For bonus points, and fuck if I know if this site is actually legit, but apparently Greek GDP has been going steadily down, unemployment is rising, and the proportion of the economy that's a "shadow economy" and entirely untaxed is estimated as being 20% to 25% of GDP, literally the worst of the OECD countries and almost triple that of the USA. Incidentally, that last link is to paper published by the South Eastern Europe Journal of Economics, SEEJE. I was unable to, on a cursory search, find any strong information for or against them as a journal.
This has been discussed a little in the Greece default thread. See posts by Shadarr and SpoofyChop. But yeah, it's a huge deal and when basically your entire population does it it's really hard to fix.
Yes, basically, Greece is a basket case. Their idea of civil society basically isn't. That's going to have to change. There are other structural issues. Greece runs a huge current account deficit, and that's unlikely to change soon. The presence of the Euro exascerbates the issue; normally a country running a large current account deficit would see its currency drop in value, which would help to correct things. Under the Euro, this can't/won't happen. Really it's just a clusterfuck from end to end. From the perspective of European elite policymaking they're pretty much taking the worst option: crushing austerity which further reduces Greek GDP (and tax revenue) and thus increase their debt/GDP ratio, even as more and more debt is forgiven. How does this play out? It'd been said elsewhere, but I see basically one of three possibilities: 1) Populist Greek politicians come to power, say "Fuck the EU" and default. Probably they get expelled from the EU as a result. 2) Greece continues to muddle along with crushing austerity for a decade or two, eventually stuff starts to get better. 3) The Eurozone comes to its senses and either loosens monetary policy or arranges some sort of long-term fiscal transfer program to the Greeks. Basically Greece becomes the European Mississippi, a poor, somewhat crappy state that just receives an endless subsidy from everyone else. I didn't do it on purpose, but that's actually what I'd guess the order of likelihood is. A secondary (and maybe more important) question is what happens if Greece pulls #1. Does panic take down Portugal or Spain? Can the contagion be contained?
But a better question, to me, is... even if you fix those problems, whatever, how do you fix the ways in which Greece has fucked itself in a systematic way with regards to civil society and taxation? Do you just let them devolve into a banana republic and then wait for them to institute meaningful reform decades down the line? In other words, yes, I understand the issues regarding the import/export issue, the Eurozone, their debt, etc. But even if you leave them all aside, let's talk about Greece itself.
I'll be honest: I have no clue. From an economic perspective I can tell you what has to happen, in general terms at least. But getting Greeks to actually pay their taxes? That's a political problem, and hell at this point it's probably more of a cultural problem. I've never been to Greece, I don't know any Greeks, so I'm like the last person on the planet who's equipped to answer that question. I really, really hope the solution isn't just letting them rot as a banana republic until they're so miserable that they're willing to try something else but I hell if I have an idea of what else might work.
The problem with this is, what kind of message and incentives does it establish for other countries that are struggling to keep their debt within manageable levels? If the worst case scenario is a EU bailout why even try, hell, better fail first while there is still money and political will to help you out.
Various US states receive open-ended fiscal transfers and it works just fine. The main problem is cultural and political. Your attitude pretty much sums it up, and I don't mean that in a snarky way. Europeans don't see themselves as members of a common entity, so there's no tolerance for what needs to be done.
As a filthy liberal, even I would have a hard time stomaching wealth transfers like that. I dont mind subsidizing other states, though i wish they'd notice and appreciate it. We give a lot of money to red states but it isn't because they're a bunch of freeloaders. But Greece is different. This isn't just a case of economic differentials, this is people who literally just don't feel like paying taxes. It feels fundamentally unfair to pay for that on an ongoing, indefinite basis.
It's apparently worse than that. It's a corrupt-to-the-core political and civil service system. How do you fix something like that? Can you wield carrot and stick as a pair of bludgeons to force a society to reform itself? It doesn't seem particularly likely to work.
You couldn't post in the existing Greece thread where a lot of this got covered and I've been posting like a boss? FFFFFFFFF. The idea that a bail out and fiscal transfers would somehow encourage people to default is just bananas. Yeah, I'm sure that what everyone is thinking right now is "gee, I really wish I could get all that free money like Greece". Do people think moral hazard is some sort of magical evil ponycorn that shows up anytime money is passed around without someone getting kicked in the balls for eight years? Serious question, I must know the answer. For reference, the ponycorn: What Greece needs is money -- loads of it -- breathing room -- loads of it -- and bankruptcy right now. In reverse order. With a technocratic government. This is now a natural disaster. There are thousands, if not hundreds of thousands, of newly homeless people. Millions more are unemployed and have no hope of getting a job any time soon, so they'll probably be homeless or squatters soon. The idea that this does not require immediate outside cash infusions is bonkers. Would you have allowed the Haitians to "suffer the consequences" of building in an area prone to natural disasters? No? Glad we're on the same page. The idea that the answer is even more austerity, poverty and deflation is absolutely fucking insane. Peoples. Lives. Are. Not. A. Morality. Play. Nor are they a toy for pissed off German voters, or people who don't understand economics but still manage to worry about moral hazard, or people who are just plain old crazy (aka Austrian schoolers). (I cut out an enourmous rant between these two paragraphs) So yeah, you could say that at this point I'm massively irritated. Something that could have been cleaned up for under a hundred billion dollars and a few months of moaning about bailouts a year ago is now going to cost the world trillions in lost wages, output and asset price decline. I hope the people who never understood the bank bail outs are finally starting to grasp why they were so necessary during the financial crisis. Here it is in black and white, here's what would have happened to all of us had the various central banks not acted to recapitalize. The entire world economy is now at risk. I've been saying this for a year now to choruses of "naaaah," and yet here we are with no resolution in sight. We're closing in on the 11th hour moment, when Italy has to refinance a giant pile of bonds on the market. It starts NEXT MONTH. If even one auction fails, we are all going to be suffering the consequences for a very long time. If the euro breaks up, it will make the Great Depression look small. Our only hope is that Merkel or the ECB breaks all the rules and does the right thing before that happens.
Right, Aeon, I get all of that, and I even agree with you. But that leaves the fundamental problems with Greece that got it into the crisis it's currently in. If you had the power, the capability, to act with the regulatory authority and suchlike of the EUCB, of Germany and Merkel, how would you fix Greece's crippling inability to levy and collect the taxes it needs to operate the government? Let's say you cleaned the situation up months ago for that under-a-hundred-billion. What prevents it from happening again? This isn't about the bailouts or the debt crisis or the Eurozone or whatever. I want to know how you think Greece can fix itself, or how outside agents can help Greece fix itself, or whether Greece needs to be fixed by an outside force at metaphorical gunpoint, and if so, how. In my OP I linked the example of a fucking brilliant systems modelling guy who was able to trivially write programs that highlighted tax collection offices that weren't doing their jobs and people who were very obviously cheating on their taxes. But nobody gave a shit, even the Greek government and the finance minister who hired him. How do you fix that? How do you fix that?
Cut rates to dil (fuck yo couch) Guarantee that the ECB will print any amount necessary to prevent a messy default Declare Greece in receivership Fire everyone in the Greek public sector. Everyone. Bye, sorry, you're all gone. Also hey we're hiring, submit your resume. Provide everyone in Greece with a cash subsidy that keeps them above the poverty line using printed ECB money. Declare all employment laws, tax laws, market entry restriction regulations etc etc etc null and void in Greece Establish a provisional technocratic council to rewrite those laws in a public fora so that Greeks can have their say Declare a nominal GDP target for the entire EU economy as a whole Inflate like a boss til I hit that target Watch as Greece and the rest of Europe roars back to life
It's definitely a thorny issue. I don't see a way to "fix" Greece without them surrendering a great deal of sovereignty. I'm not aware of any modern examples of that happening; that kind of nation building only occurs after huge wars and whatnot.
I think that a lot could be done with a cash infusion built around creating infrastructure. I've seen most of Greece, and it is a run down shithole: roads are of terrible condition, the buildings are crumbling, some major highway projects start and then suddenly turn into gravel roads because they ran out of money in the middle of a town, and garbage is piled up beside the roads because no one is being paid to collect it. It must be terrifically depressing to live in a place like that, where if you do pay taxes they don't keep things from falling apart, so why bother? Just putting road crews and basic services to work with some big banners proclaiming "Isn't this great? Pay your taxes for more of this!" (along with a restructuring of the tax code, etc) would work wonders on the morale of the population.
Rates? Dil? I, uh, dunno what you mean. Literally. All of these are things that I agree with but don't touch the fundamental problem with Greece; they're more EU-general. So yes, but not what I was hoping to discuss in this thread. :) This is more what I was talking about. So basically you're talking about doing on a nation-scale level what the putative goal of the Michigan municipal interventions are. Enlightened Others to the rescue, take from them the responsibility and rights that they're failing to use in a sane way and fix their shit for them. I assume you'd put it up to the Greeks with a referendum basically saying "We cut you the fuck off if you don't let us intervene, but if you do let us intervene, here's the plan"? What sort of people would you pick to man the council? Are you going to rehire Greek management for, for example, managing the tax collection system or managing the infrastructure projects, or will you bring in foreign parties? Corporate parties or individuals, and in either case, what kind of ties are you worried about / do you want to make sure you don't have? I assume the ECB pays for all of this. It seems reasonable that it would cost less in the long run than having Greece just implode into a failed state for decades. Has anyone with any pull actually advocated for this kind of intervention, or is it just people on internet forums? And who would you pick, if you had to pick, to run the project? Are there any politicians or technocrats that you'd trust that much?
I dunno whether you can. Greece never should've been allowed into the EU to begin with. They lied about their debt and deficits (with the help of Goldman Sachs) in order to be let in, and as you note there are deep, structural problems in Greek society that are not going to be fixed from the outside. I think we're going to see a bit of #3 and #2, but #1 is inevitable simply because Greece does not belong in the Eurozone. It is already a lot more like a banana republic than a developed nation. There was an article posted on qt3 way back (probably from the Economist) about how Greece got to this point. Because a big part of the reason they've been running huge deficits, in addition to the lack of tax collection, is that they can't lay off public employees. But the reason they can't lay of public employees is that previously, every time a new party took over they would lay off the entire civil service and replace them with cronies. And granted, the people being laid off were also cronies, but presumably they'd learned how to do the job during their term there. So with the EU imposing austerity measures and demanding civil service layoffs, I'd bet there's a better than even chance it'll be used to move back toward the old system where the civil service is just a wing of the party in power.
This is insanity. Even if you fired all the civil servants, that doesn't change the fact that Greeks have a cultural issue with paying taxes. Having recently been there this is incredibly blatant and stretches from the lone shop keeper all the way to the giant retailers that exist in the country. None of this will encourage the populace to pay taxes, nor will the newly hired civil servants not accept bribes. Greeks have a fundamental distrust of their government, even to those employed by it, and no qualms about offering or accepting bribes. Bribes just make avoiding the tax easier. This won't work and won't solve the problem, which is cultural at this point, not financial or even really political. Greeks need to realize they need to pay for their government to function, currently, and from what I understand for the last few decades, this hasn't been the case. I honestly believe booting Greece out and letting them figure something out on their own is the only solution. Yes it'll suck for the Greek people but change won't happen by enabling the status quo.
Racism is a cultural problem. People not paying their taxes is a systems problem. You fix the system by getting rid of the tax man and replacing him with a computer and a witholding system. No more face to face interaction, no more checks floating about, the government starts with the money and sends it back if it took too much, or asks you for more if you owe more. You'll fill out the form or you'll lose that money. At a minimum the government is making a basic amount. Cut headline taxes, remove exemptions, establish a baseline poverty subsidy, etc etc all the standard stuff. Corruption isn't a cultural problem, it's a pay and supervision problem. You get rid of it by cutting employees and paying for a smaller number of better qualified ones who will be more productive. You then remove their ability to be corrupt by reducing the amount of direct regulatory impact they can have on a business. Now you have a class of civil servants who are well educated, well paid, and not really able to steal. Problems? RE: the economic part What I'm advocating is a very modern monetarist approach to the situation. Basically I'm saying that money matters, not "real" growth or whatever. As long as you're telling people what's gonna happen (and you print enough money to make it happen) they'll trust you and things won't go out of control Zimbabwe style. The fundamental concept is cutting the rate at which the ECB is lending to banks to zero, setting a nominal gdp target of some amount (I like 6%), and then blasting the economy with however much money is necessary to make that happen. Let's say growth is 0%. I create 6% inflation at will with my mint. Those 0% loans I gave to banks are now -6%; in other words, I am paying them to take my money, but if they hold it it will become ever less valuable. Money is now a hot potato that you want to spend as fast as possible. You think that won't create growth? It will. Can't help but do so. Some people think the V in the monetarist forumla of M * V = P * Q (the old fashioned quantity theory equation, we have way better ones now but this works for here) doesn't matter, but they're wrong. It's not a balancing factor, it's a critical driver! You can make a smaller amount of money work harder by punishing savers so badly that money is flung around the system at an absurd pace. And it's self balancing, because the more money moves, the more actual growth is happening and the less money I'm printing. Eventually inflation gets back to the standard level of 2-3% (or lower!) that everyone is comfortable with and I'm not printing money. I might even be 'destroying' it to keep the economy in my ngdp target, which prevents overheating. Now, old monetarism just wants you to print money, but that doesn't work. The negative interest rates matter, because they mean damn near every kind of lending is profitable. Lend at 1% with 6% inflation and you're effectively at 7%. That liquidity crisis? Hahahahaha what liquidity crisis. This is a very radical position to hold. It's also the right one, as people are starting to see. http://www.economist.com/node/21542174 Here's an article that gives you a good idea of what I'm on about. I think if you've read my posts on economics from, I dunno, the any time over the last couple years you'll know which one I'm a follower of. (
Yes, what does the government do when the vast majority of financial transactions are done in cash? What does the automated computer do when both the employer and the employee are in on the scam and a significant portion of a person's pay is in cash. What does it do about tips? It is a cultural problem because EVERYONE is in on it, really what do you do when there isn't a single reliable employee or employer (with respect to taxes)? The only tax the Greek government has been able to collect is income tax on reported tax earnings. When most pay is off the books and vendors don't claim sales what do you do?
You offer to pay people to install computerized payroll, you provide free payroll software, and you give lower tax rates to people who use it. These aren't impossible problems, every developed country solves them. Greece can too, if you hose it with enough money. edit: remember, the ECB has infinity money. Tax take doesn't really matter when you can easily print enough money to buy all the Greek debt ever without really impacting the eurozone inflation rate. It's amazing how effective that kind of firepower is when used to resolve things. And when you've got the breathing room necessary, well, you can putter around serving solutions and fixing things. Let go of the old concepts. They don't work. They're currently not working. This crisis is a testament to how poorly they work. Quantitative Easing is part of this school of thought, and it did work. Phenomenally. Not perfectly, no, but we didn't implement nominal GDP targeting!
The rates would have to go below that which they pay in the corrupt system, effectively lowering tax revenue. Most countries don't have the insane levels of tax evasion and corruption at every single level that Greece does. I'm not kidding when I say that every single time I tried to pay with my credit card, outside of the hotels, I was asked if I had cash or was offered a much better deal if I payed in cash, typically 20%-30% off which is less than the sales tax! People actively screw the government.
Yes. That's the point. If no one is paying the taxes, the rates are too high. Lowering the rates raises your effective revenue because it lowers the burden of compliance. In a well designed tax system income taxes are "high" and corporate taxes are "low", encouraging productivity boosting investments and entrepreneurial activity. Take a peek at how the Baltics do it. Surprise! Greeks aren't greedy, they're stuck in a poorly designed tax system. Fix the system and the problem disappears. edit: Also a VAT is a good thing, but should be implemented once compliance is virtually automatic.
Let's bring this into absolute terms for a moment. If the current tax rate is such that an entity in the current corrupt system is paying 1000 euro then you'll have to lower the rate such that they'd owe less than that to get them to be a non-corrupt participant. At which point it'll likely still be more beneficial for them to be a corrupt participant and pay only 500 euro. Think of this like every single tax entity in the system operating like a multinational corporation in the US system. You can't beat 0% taxation, which is what the Greek culture is aiming for. You're living in a fantasy land, the Greeks aren't interested in paying taxes at any rate and everyone is on board with that, including the government. This is why it's a cultural problem. Everyone is willing to game the system even on the occasion that it doesn't work in their best interest (my 20%-30% example above). The only reason the Greek government collects any tax is in situations where they get the money first and it can't be hidden, income tax mostly. But even that is questionable as employers and employees are both happy to pay/get a portion in cash, tax free.
You're missing my larger point. The ECB can at any moment give them every single bit of breathing room they need to fix things just by committing to buy all the debt. You're also massively overestimating evasion. It isn't 0, it isn't 100. A large number of people aren't paying their taxes, a large number of people are. In far far far more corrupt and "culturally averse" to tax paying countries, the exact formula of lowering rates, "mechanizing" the process and paying civil servants more worked. The Economist did an article on it last week. Italy is solving this problem right now. India is solving this problem right now. India. This is not an impossible problem to solve. You're seeing a problem and assuming it's cultural because you are seeing it there. The economic history of nation after nation, developing and developed, shows quite clearly that evasion is a common, solvable and systems based problem, not cultural. Culture can be used to change things, or to ease the pain of obeying the system. But if the system sucks, people will break the law. A parallel is marijuana prohibition in the US. Marijuana users don't have a culture of crime, they have a system that makes them criminals. Greek workers and employers don't have a culture of crime, they have a system that makes them criminals.
Wait, my attitude? For the records, I'm Italian and if Germans were willing to make open ended fiscal transfer to us I'd be totally in favor of that. Egoism aside, I'm very strongly in favor of EU integration, including fiscal (and juridic and military), but precisely because I want it to happen I think it's important that we don't allow free riding, else we are doomed to failure. Bailing out failed institutions is a sure way to create heavy corruption and destroy all accountability. Deficit public spending is very effective in buying votes, and if you remove the constraint of having to keep a balanced budget all incentives are set in a perverse way to prevent any reform from happening. If, and until, the rest of the EU is willing to step in Greece and the other PIIS won't act responsibly and won't reform. Why force your citizens to pay taxes, and face their wrath, when you could just rely on external transfers? It's a self-perpetuating problem, and bailouts aren't the solution.
Yep, your attitude. And again, I don't mean that snarkily. But it's pretty obvious that you're prioritizing avoiding free riders and preventing moral hazard. That's all well and good, but empirically systems of permanent fiscal transfer do work without the kinds of problems you describe. You don't see everyone in Mississippi refusing to pay taxes, do you? In general, I think your attitude overemphasizes moral hazard issues at the cost of letting Greece (and the rest of the PIIGS) slide down the shitter. It's an understandable attitude, and it's widely shared (by, like, everyone in the Eurozone core it seems), but I do think it's counterproductive at this point.
That's a weird parallel to make. Greece already has the problem of people not paying their taxes. So, a solution would need to solve that problem, rather than merely not introducing it.
My post was addressing the moral hazard issue. The bottom line is this: if you give Greece a big ass bailout, nobody in Italy is going to say "Oh boy we'd sure like to be like the Greeks!" Life sucks in Greece right now. Similarly, nobody in the US is saying "Man if only we were a bit more like Mississippi right now..." At the risk of sounding like a northeastern elite, life is comparatively sucky in Mississippi.
I'm prioritizing avoiding free riders and preventing moral hazard because in my opinion that's the only viable way to both economic prosperity and a full EU integration in the long run. About the attitude, you know, the EU still isn't a nation state like the USA and it would be foolish to pretend it was. I'm as pro EU as Europeans can be, to the point there isn't a single political party in my country that is more in favor of a full and quick integration than I am. That being said, it's important to realize there are conflicts of interest among the members of the EU. Our political class for example doesn't give a shit about the German taxpayers, so if they can waste their money they absolutely will, to the last penny they can get out of them. At the same time they are quite skeptical about real political integration and cession of sovereignty. So how would you sell the bailout to the people that would have to fork the money? And once you manage to convince them prepare to do the same 10-20 years down the line, 'cause sure as hell left to our own devices we won't cut the long term spending. Did you know that while the spread was creeping from 300 to 400 to 500 our government was actively denying the existence of a crisis or even a problem? Did you know that right now both the populist left and right are advocating returning to the same spending levels we were at before the new government tried to save the situation? These people (and the majority of voters) won't act responsibly unless they have a gun at their head, and the other members of the EU are well aware of this. They can throw an infinite amount of money at us, we'll just spend it until we'll be on the edge of complete disaster. Only then, at the last second, there is the political will to maybe try and do something about the crazy inefficient spending and the ridiculously low productivity. It must sound crazy to people in the USA where the discourse is all about cutting public spending even when it's retarded, but here it's exactly the opposite: any cut is a political non-starter (both for the left and the right) unless it's considered absolutely unavoidable. Btw Italy is a nice cautionary tale about the evils of open ended fiscal transfers. The southern third of Italy is like the PIGS, and the northern is like Germany. The south is basically a failed state: without the constant fiscal transfers they could not keep the infrastructure (schools, hospitals, roads) running. So every single politician that needs to get elected there is 100% in favor of public spending - you may think I'm exaggerating but in my entire adult life I have not heard a southern politician advocating cuts to anything ever. We have this compact voting block that can veto any change to the status quo. Meanwhile in the North many people are turning to a populist and racist right wing party that advocates secession from the central state, the exit from the Eurozone and outlawing any kind of immigration. Fortunately their voting block is not as compact, because unlike in the South people's lives don't depend on it. This has been going on for more than 50 years. Initially the plan was that by constant fiscal transfers the South would gradually catch up with the North. What actually happened is, those transfers were handled by an inept political class that used them to fuel its own power by buying consensus, so the situation got worse as corruption spread, organized crime skyrocketed decreasing productivity, people stopped paying taxes mistrusting the state, so it was unavoidable to transfer even more money to avoid a disaster. Rinse and repeat from the fifties to today, and still no solution is in sight. Probably we disagree because you are thinking Mississippi while I'm thinking Sicily, and I know the bailout would put more money in the hands of the same people that are keeping this system alive. It's a bottomless well.
You aren't well appraised of what Germany gets out of the EU, are you? Elaboration: They've pretty much been abusing the hell out of having their currency pegged to a shitton of loser countries to keep inflation in check. German industry is fueled by Greek poverty.
What, an easy market to "colonize" since the adoption of the Euro means the other states can't devalue their currency relative to Germany's? Except it doesn't really work for them if they have to give us the money to buy the stuff they are selling.
Same principle applies for the rest of the world. Germany does export to the USA, UK, and China. In those cases the currency union allows a few nations in particular to export like mad while the EU as a whole bears the effects. But of course, Greece hasn't defaulted yet, and the EU seems hell-bent on squeezing blood from that stone. So I would call that an acute observation on your part.
The other side of the coin being that as economies heavily dependent on importing energy and raw resources a strong currency is more of a mixed blessing than a clear detriment. Also I'm not convinced the same effects currency devaluation has on exports and occupation couldn't be achieved by wage reductions - not pleasant to swallow and with their own set of disadvantages, but it's not like devaluation is a magic painless solution either. Greece has already defaulted - they aren't paying back part of their debt, aka default - but we are supposed to pretend it hasn't. The squeezing blood metaphor is ridiculous, the EU is under no obligation to help Greece (which did have an obligation not to cheat on the budget and fail). If refusing to help when you don't have to is squeezing blood, the USA and the rest of the world are doing exactly the same. Not to mention how stupid it is that poorer countries with lower wages and pensions than Greece (but with an honest budget) are being asked to foot part of the Greek bill. Are they unreasonable in conditioning their help on Greece fixing its own mess?
I'm probably biased, being German and all, but I find this idea that Germany is responsible for any of this laughable at best. I can see how one could disagree with German politics and direction in this crisis, but "abusing loser states to keep inflation in check"? What? I always had the opinion that the big nations, and especially Germany, benefited the most from the EU and the Euro, as far as someone can judge such a thing. However, Germany did not cause Greece to run an unsustainable budget for decades. The German trade surplus did not cause Greece to go bankrupt, and Germany most certainly did not force anyone to join the EU or the Euro. Greece was not sucked dry by joining the Euro. While you could argue about the quantity and imbalance of benefits for different nations, Greece too benefited from the Euro. They paid 300 million to cook their books to be able to join, but somehow it is Germany that wanted them in to abuse their economy? It's not the state of the economy that forced them to cook their books in the first place that wrecks them now, but the Euro and the German exports? Really?
You are supposed to pretend that Greece hasn't defaulted because if you drop the pretense it will screw everyone really hard. If you do push them too hard, they ragequit the EU, repudiate their debts, print the nigh-useless New Drachma, and everyone has a shitty year as Germany's banks take a giant fucking shot to the pills while German industry finds out what the Euro is actually worth. Also, the window of opportunity for optimal was missed. It's now "shitty" with a bit of "getting shittier by the minute." Yes, trying to get Greece to pay a debt they can't is attempting to squeeze blood from a stone, that's sort of the meaning of that turn of phrase. No, nothing about this is fair, particularly not the US involvement. They didn't directly cause Greece's retarded budget. Just facilitated it maybe. Low inflation in the Euro may actually have done significant damage to Greece. The EU was specifically mandated to maintain low inflation. So yeah, it sort of did fuck over Greece to pad Germany and France's pockets. Nobody forced Germans to buy Greek debt, and when dealing in debt default is always a possibility. The argument that nobody was forced to do anything cuts both ways. Greece didn't do any fancy book-fu to get in. They did do fancy book-fu to stay in. However, by the rules of the ECB what they did was totally legit. Really. Being able to inflate or deflate your currency at will, or let it rise and fall as the market wills, is a big deal. Brevity is the soul of wit, so I shall part with these words: DERHERR HURFBLERFIN.
Greece's problems are almost entirely their own fault, but the rest of the in-trouble Euro states are in this mess partly because of German (and to a lesser extent French) industrial policy and capital flows.
I finally read that Choose Your Own Adventure guide in detail and it's really something. Virtually everything is in there. I have no idea what the best solution is, but in terms of likelihood I'm guessing: 1) Humilating IMF-style terms, with years of grinding pain. 2) Eventual left-wing (far less likely) or right-wing (far more likely) coup, probably by a narrowly elected government rewriting everything to benefit them, al-la Hungary. 3) Said government now has the political power to default on everyone in sight and deal with the domestic chaos by execution squads. They might have a tolerable path in the rest of the Eurozone wasn't in crisis, but they're just screwed with the current political situation. Best solution from the comments: China gets Greece as a Hong Kong-style deep water port colony.
I got the economic orthodox best answer on the first go: 32 48 46 38 5. I don't think it's doable without serious activity by politicians, because it requires writedowns on debt held by various governmental institutions rather than just the bondholders. Which I mentioned up top. I still think the ECB needs to do some more serious buying, but Aaron asked for the "what would you do with all the power" and not the politically possible good solution. The politically possible solution involves years of crushing agony for the average Greek, and probably a good chunk of the rest of Europe, while Germany gets to continue being international hardmoney men. At least the ECB is aiming for back door QE with lending to banks still, so I'm hopeful a saner path will be chosen.
