The killing of Greece

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As you have probably heard, the Greek parliament, if you can still call it that, has passed the austerity bill. Overnight Athens has erupted in protest with a reported 80,000 people on the streets and up to 30 buildings on fire.

All of KKE, Syriza and Democratic Left members voted no, as well as 21 New Democracy members and 13 Pasok members. Laos members also voted No with their leader absent. All but one Democratic Alliance members voted Yes.

The political fallout is in full swing as I type, with Antonis Samaras expelling 21 members from his party and George Papandreou doing the same. 43 members in total have been removed.

What a complete mess.

What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.

However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.

So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one. Worst still their refusal to work cooperatively and misguided policies based around “expansionary fiscal contraction” have plunged Greece into a depression which threatens contagion to other weak economies. Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.

That being the case, the idea that all these cuts and bailouts will somehow lead to Greece having a debt to GDP ratio of 120% by 2020 appears as misguided as the initial policies.

So what happens next?

Well there are still a number of hurdles. The EU still has to approve the bailout deal and it is yet to be seen if the country’s political parties can cope with the fall-out given there is supposed to be an election in 2 months.

If we ignore all these problems, along with the fact that the European banking system is shrinking, Portugal suffers from similar problems and Spain is the elephant in the room, then we could see some stability return to financial markets over the next few months. If this does occur then Europe has a window of opportunity to finally implement a permanent and credible solution.

Well, at least until Greece or one of the other periphery suggest the need for another bailout.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


    1. Ignacio

      I also feel sorry about Greece. According to Rössler (German Economy Minister), greek parlament approvaal is just a formal prerequisite and the rescue will be approved only when the measures are applied. Trittin, the leader of the Green party in Germany agrees that those measures are “necessary” and Mrs Merkel is in her best moment of popularity amosngst germans. I feel depressed about Germany.

    2. ambrit

      Dear MLTPB;
      Oh, the possibilities!
      Perhaps some wily Greek should take Europes bull by the horns? Then that same Greek could lead himself back out of the maze by the threads of this and likeminded blogs. (I just can’t get my mind around the image of the E.U. marooned on Naxos.)
      So, yes, the offspring of the ‘union’ of Europe and a bunch of Bull is indeed a monster!

  1. Some Bloke

    “If this does occur then Europe has a window of opportunity to finally implement a permanent and credible solution.”

    I’d love to hear it…

  2. kris

    It makes absolutely no sense, mathematically, theoretically, practically put any …ally you want. There must be something else going on totally irrelevant of Greece’s issues, but Greece is being used to cover up.
    Why continue this madness? There must be sth else.

    1. Francois T

      The “something else” you are looking for is called bank insolvency. As long as the Greek charade of “borrow from me so you can pay me back” takes place, the big European banks do not have to recognize their lack of solvency.

      It is an extraordinary Charlie Fox, whichever way one looks at it.

      1. readerOfTeaLeaves

        As near as I can figure, it’s about denying the banks are insolvent, as well as pretending the CDO and CDS contracts are legally binding. The fact that CDOs have not been judged or ruled inoperative is notable.

          1. ambrit

            Dear kris;
            I believe that that is the point. The system, as it stands, is inheirently unstable. When it finally really goes, what to replace it with? That’s the emerging discussion here and on other forward looking sites.

      1. kris

        I agree but that’s not timeable unless one has a “prophetic rapture” like Meredith Whitney. She’s brilliant but she fell for (to quote the bible) “prophetic rapture” trying to time very probable event where millions are participating. The system will still collapse, eventually.
        Why just Greece?

      2. ambrit

        Mr. Kahn;
        My apologies sir. I hadn’t read your comment before my posting above. You have anticipated me, and more completely too.

        1. kris

          Thx for your input.
          I still can’t accept the concept of “replacement”.
          The real system is the one producing goods. The banking system is the one assisting the system of producing goods.
          You are implying that if the current system is cut let’s assume in half, we would run out of food, and cars and beer etc. Which I think is not correct.
          The product of the banks is “credit”. There is too much credit offered, hence a lot of banks have to die.
          What is to replace here?

          1. ambrit

            Dear kris;
            The gist of what I’ve read here and elsewhere is that the financial sector has abandoned its’ traditional role as capitalizer of productive enterprises and retreated into a Cloud Cooko Land of ‘financial trading. All the ‘profits’ generated this way are literally ‘paper profits.’ No actual goods were produced to engender said ‘profits.’ Hence, if the financials have divorced themselves from the reality of actual production, why not finish the job and remove them from the playing field entirely? All we have to lose are our illusions.
            Keep asking the hard questions. That’s the sure way to truth.

  3. Paul Tioxon

    It can be plainly seen, the response of people, in this day and age, educated and informed, will violently rebel. The people who press on are prepared to use even greater violence if need be. With the two Walls the first in Berlin and the second NYC’s Street, the international system of nation states is under as much stress as global capitalism. While capitalism is a tool by which the powerful control and exercise their power, it has come undone. The powerful look to a new mechanism to maintain wealth and privilege, one that could worse than anything seen to date in history. The nation state system, a different source of power is set up to protect territory and the people within it. If Greece shows anything, it is the low bar for calling a territory a nation state, if it cannot protect its populace.

  4. Glen

    Wow, wait a couple of years, and with more of the EU in flames, telling the banksters to go fuck themselves will look awful cheap.

    But then, that would force the people that caused this mess to actual have CONSEQUENCES for their actions, and that’s a complete no-no. Make the peons pay!

  5. Hugh

    Kleptocrats don’t do solutions and there is nothing misguided about what has happened.

    So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one.

    This was a feature not a bug. All that money went somewhere and almost none of it went to the Greek 99%.

    What we are seeing in Greece is our future. The Greek elites, even in the face of a disintegrating society, will bleed and continue to bleed their fellow citizens to the last drop. Out of such conditions, revolutions are made.

    1. aletheia33

      well put.

      and out of such revolutions, hitlers, stalins, maos, and chiang kai-sheks are made. i feel we may have on the horizon global slaughter like never before.

      and i am starting to see WW III as a sure thing fairly soon. european countries falling apart at the seams has never boded well.

      hope i’m wrong. i don’t say these things lightly.

      1. b.

        No. The whole point of currency creation through leverage is not to make real money, it is to extract fees and rents while that fictional money moves. A lot of that “money” went exactly nowhere, yet the substantial losses of the many still translates into profits for the few.

        There has never been “creative” destruction, but we are decades into the most profitable destruction the few have ever been able to engineer at the expense of the many.

    2. ambrit

      I agree totally. As an added bonus, if you riot now, we here at Forgotten History dot com will put up a live stream, all for just 19.95 a month. Act now!
      As before, the coming revolutions won’t occur in the expected places. What are the odds on a new “Warring States” period for China? Especially if the Japaneese, the Koreans, and the Vietnameese make a ‘United Front?’
      Interesting times ahead!

  6. falun bong

    10 years ago a government, especially a European government, would have backed down long ago in the face of all the rioting and demonstrations. Now…nothing. The elite have decided that riots in the streets no longer count for anything.
    The corner was turned about 10 years ago when 10 million people around the world turned out to protest the start of the Iraq war and the banking/military elite just said “screw them”.
    Anyone who uses the word “democracy” to describe what we have these days is deluded.

  7. Maju

    “protest with a reported 80,000 people on the streets”

    That’s the BBC whitewashing the problem. Other sources said:

    It is entirely impossible to estimate the number of people who have taken to the streets in Athens tonight. They are definitely in the hundreds of thousands – there are simply people everywhere.

    I immediately read “a million” in that statement but of course I am surely biased by the million people demo in Barcelona for independence last year. Greater Barcelona is roughly the size of Athens however, so maybe I’m not that far from the reality.

    “So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one.”.

    So true, so pathetic!

    “So what happens next?”

    In Greece? Nobody really knows. I feel as if the power of the state is collapsing and nothing is yet able to take its place.

    IF there are elections in April and IF these have anything to do with the latest mentioned polls, the current government (PASOK has imploded and lost nearly all voters) will not have majority and Greece will be with a hung Parliament in which the Socialist Democrats (breakaway faction of PASOK) will hold the balance. A possible result is a left-wing coalition government that declares bankruptcy, declares EU deals void and tries to wade the post-jubilee scenario with heavy state intervention and probably out of EU in practical terms. IMO is the only way forward.

    A military intervention is out of the question IMO, specially a successful one. They lack the legitimacy and lack the means (sure the Greek army has a huge untouched budget but it’s still a conscription army in which soldiers can turn against officers at any time: too risky). Shooting people in the streets of Athens in a scenery as that of tonight is not any “solution” anyhow but an escalation of the problem.

  8. Middle Seaman

    Wait a minute, are you asking European leaders to act prudently? That is clearly way too much. Lambert suddenly sounds very much like Marshall Auerback; are we closing on the end of time?

  9. Aris Velouchiotis

    Greetings from Greece
    First some informations from yesterday’s demonstration:
    The Syntagma square (the square you see infront of the parliament) can take well over 200,000 people. Demonstration started at 17:00 and by 17:30 the roads that leads at syntagma were all packed. Police attack started at full strength around 18:00(before the people’s gathering reaches its peak)so at 19:30 were running out of tear gas bombs after using over 1500. The duration of the struggle was supported also from new people arriving from all around Athens. So if you want to calculate how many were yesterday on the streets of Athens you can only compare with last year demonstrations, two or three of the had 500,000 people, many say that were more. I heard of a estimation of 1,2 to 1,7 million people demonstrate yesterday.
    (Latest info 100 woonded cops, about 150 arrests and prosecutions and hundreds of woonded citizens)
    Now that I try to describe what happened yesterday it seems almost unbelievable but it was more or less expected.
    About the debt:
    A quarter billion was the debt created by the corrupted politicians, if you add to that the cost of the olympics and the cost of supporting banks during 2008 economic crisis you get the 340 billions. That was the starting point of greece collapse. The situation now is simple, you can’t live until 2020 with Bulgary’s salaries and Germany’s prices, so revolution as matter of survival? maybe it will be better this time, we will see…
    P.S. Forgive my english

    1. Maju

      Thanks a lot for the info, Aris. I guessed well then that the BBC ridiculously low figure was intended to minimize the apparent size of the conflict (they are less and less objective each day) and guess I was also on track when I imagined “one million” after all (see my previous comment above).

      “Latest info 100 woonded cops, about 150 arrests and prosecutions and hundreds of woonded citizens”.

      First time I read about those figures, so thanks again for the “first line” info Aris.

      “The situation now is simple, you can’t live until 2020 with Bulgary’s salaries and Germany’s prices”…

      Right! That’s the real problem with the euro everywhere: it raises prices to “German” levels but salaries are still expected to be low. It’s untenable!

  10. UnlearningEcon

    ‘What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.’

    Wow. I realised the situation was bad but I didn’t realise it was quite this bad.

    1. Richard

      I did not realise the debt was 260billion at the start.

      I do know that bank deposits were around that much. WHy not let the banks fail and use the bailout cash to compensate depositors.

      That has to be a more effect way of forcing the Greek government to reform.

  11. skippy

    Greece riots and burns, but, the markets and investors are happy!

    Greece backs bailout as Athens burns The Greek parliament approves a controversial bailout package against a backdrop of rioting. THE Australian share market closed strongly today, with investors delighted after the Greek parliament voted for an …

    Skippy… shoving people in the pit… increases the animal spirits joy.

    1. pws

      You know, I’m starting to wonder what sort of terrifying monsters these “animal spirits” actually are. I’m getting a more H. P. Lovecraft than Native American vibe out of them these days…

    2. aletheia33

      horrific, but beautiful comment, skippy. thanks

      and thanks to all on this blog this morning. dark as the news and the above comments are, they help my spirit in the face of such news. the truth does bring light, however unwelcome. this site, where everyone is working together to keep a clear picture of reality, is a haven of sanity.

  12. James

    Previews of coming attractions, no doubt. Austerity: it’s not not just for the third world anymore. Either that, or the 99% of the first world will soon become third world themselves.

  13. Nostradamus

    It’s not Greece. It’s Capitalism, stupid!
    By Nicolas Mottas.

    […] For more than three years now, most international media and analysts refer to a “debt crisis” combined with financial mismagement by domestic governments. This is misleading. The actual truth is that the profoundly unfair and immoral capitalist system we live in – the one which supposedly “thriumphed” over marxist economics, as neoliberals and keynesians use to argue – is the source of it’s own crisis. Who can argue that the ongoing crisis, which started with the Lehman brothers scandal in 2008, isn’t the worst episode in a series of free market economy failures since the Great Depression of 1930s? In Europe, as well as internationally, the ruling elites are aware of that, thus making every possible effort to put the weight on people’s back. […]


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