Thursday, July 09, 2015

Greece and the future of the Euro

One of those mornings. I woke early without any story ideas. More precisely, I have stories on my list but they require more time than I have today, indeed more time than I will ever have! So a ramble.

Greece first. This link will take you to the IMF paper on the sustainability of Greek debt that has been referred to in recent discussions. It's moderately heavy going, but worth a read. I have not absorbed it properly, but the take home message appears to be that recent turmoil in Greece has taken the country from a trajectory in which targets were achievable but vulnerable to shock to one in which debt write-offs are required. Please feel free to correct this analysis.

My own interest was attracted by the similarities between the Greek turmoil and the tumultuous events in Australia and specifically the conflict between Lang led administration in NSW and other Australian jurisdictions. See, for example, my last post, Greece, Jack Lang and the Great Depression: are there lessons?

My interest is not so much that actual economics, but the way in which a somewhat similar economic crisis in Australia created interactions within a Federal structure that might be applicable to Greece and the EU. The comments on this and other Greek posts have been helpful in refining my views, but have also illustrated the way in which different questions get mixed together.

The question of what should have been done is different from the question what was done. The question of what should be done now is different from the question what will be done now. These things all get mixed together in discussion.One of the problems with the Greek PM is that he seems to mix together could have, should have and what to do in a complicated, muddled, way without having really clear objectives in his own mind.

I have no especially profound views in all this. I am just trying to use my writing and subsequent responses to clarify my own thinking. Whether Greece will stay in the Euro is obviously an important question, especially for the Greek people.

I am less sanguine on this point than I was a few days ago.Reading the English language European media, my only source of direct information, there seems to be a high level of impatience with Greece at both public and official levels. To many, the point seems to have been reached that the costs of keeping Greece in outweigh the costs of letting Greece go.

The question will this lead to the break-up of the Euro itself, something that has been almost eagerly forecast, is very different. I seem to be very much in a minority here, for I cannot see how a break-up might happen. The political, institutional and economic linkages now created are, to my mind, just too great.

I may be wrong, of course, but you can only work on probabilities. I wouldn't get rid of those Euros just yet.


For information, this chart that came from the Guardian via the BBC, shows official exposure to Greece expressed as a percentage of GDP




Anonymous said...

Two posts from the same blog; worth a look:

January 2015

June 2015

- including this comment:

Pre Euro Greek total production increased by some 600% between 1960 and 2001 while German total production increased by a mere 255%. Now if we think about it in footballer (soccer) terms, Greece gave the German nationals a real thrashing. However, throw in the Euro and the subsequent 15 years has German total production up 20% while Greece total production is down 26%.

which I highlight as quite interesting.


Jim Belshaw said...

Hi kvd. I need to look at the material properly before commenting.

2 tanners said...

In an interesting article which encouraged Greece to stick to its guns (sorry, can't remember the title or the author) the author claimed that there was no legal way for Greece to be actually forced out of the Euro if it didn't want to go.

Jim Belshaw said...

Now following up, kvd. I think that you have to be careful with this type of analysis.

In the pre-Euro period, I would have expected (hoped?) that growth in the southern states would be higher than Germany. The starting bases were different. My impression also is that Greece in particular received considerable benefits from EU membership, including transfer payments. I'm not sure what comparisons here tell us.

Looking post Euro, Greece joined in 2001, the comparisons are perhaps more instructive. Did the Euro hinder Greece and aid Germany? I think that the answer is yes. The broader currency was valued at a lower rate than would have been the case with the DM, higher than would have been the case with the Drachma. However, another factor is involved as well.

In 2003, Germany went through an economic reform program at considerable social cost. Economic growth then accelerated. By 2007, unemployment was at a five and a half year low. Greece followed a different path, including the 2004 Olympics. Disentangling the varying impacts of all this is not easy. It's certainly not a case of just the Euro.

The situation being dealt with now is not what was or might have been, but what is. As I write, the Greek Parliament is debating the bail-out proposals. Picking up 2t's point, you don't legal way of forcing Greece out of the Euro. Without aid, Greece may still use the Euro but will be effectively forced out as a Euro participant.

Anonymous said...

to the Euro imperialists, cost is no object, Greece must be kept in no matter what because they can't risk Greece leaving and then flourishing, that would be a disaster for their narrative which is already stretched well pasts the bounds of credibility. Besides, it's not their money, they can always slug Mr. Taxpayer for even more.