Wednesday, June 24, 2015

Greece: complete surrender or full collapse

For two or three days, the world was fed by the news that a Greek proposal has impressed the creditors and the deal was around the corner. We heard those things once again.

Today in the morning, we learned that a part of the creditors rejects the proposal. Which part? It's no secret that the International Monetary Fund finds the proposal unacceptable. Tsipras and his comrades only want to increase the taxation – by adding and increasing various taxes attacking the rich and the corporations – but the IMF knows that this is no recipe for growth. If Greece has any chance to become a growing economy able to repay at least a part of its debt, the policies that are needed are exactly the opposite ones. Reduce the spending, reduce the taxation of those who create jobs, and increase the taxation for those who don't (especially the sales tax that is linked to and therefore discourages consumption).

Also, IMF still thinks that the Greek debt is too high (even after the haircuts) so the creditors should accept a new haircut. They don't want to and they have the holy right not to agree with such things, of course.

Alexis Tsipras himself is a textbook example of a parasitic Marxist apparatchik. He has never done any work in his life – just paid propaganda jobs in the communist movement. He has no skills unless you count effective lying to already hopelessly brainwashed Greek voters to be a "skill".

If and when the country goes bust, he will be completely incapable of stabilizing it. His career – and very likely, his very survival – probably depends on some deal. He must have thought that the blackmailing would have been far easier. It's harder than you expected, comrade, isn't it?

But Tsipras isn't the main source of Marxist delusions in his family. His wife, Peristera [="dove"] "Betty" Batziana, is worse than him. They met when they were 13-year-old kids and she has literally turned him into a hardcore Marxist. A week ago, lots of journalists claimed that Batziana will leave Tsipras (they have two kids) if he surrenders to the lenders.

Now, we know examples of politicians who may be controlled by their wives – I don't want to name a center-right ex-PM and plasma physicist and their funny leaked telephone conversations :-). And Batziana is cute, I think (do you agree?). Numerous Marxists have unreasonably beautiful wives – I don't want to mention a Spanish Marxist string theorist who is a lookalike of Tsipras'. :-) But if you look at her own blackmailing impartially, it's insane. She only wants to live with the most hardcore Bolshevik in the world. What will she do if Tsipras decides to save his life and his country and surrenders? She can't marry Che Guevara because he's no longer alive and Varoufakis is married to a top designer. So it may be hard for her, too. But does Tsipras realize that she's probably bluffing herself? ;-)

Some other journalists have shown photographs of a 2000 communist rally. These violent nutcases gathered during a G8 summit in Italy in order to protest against capitalism. I vaguely remember that I wanted the police to shoot all this scum because those individuals could have been very dangerous for the future of Europe – and I think that my instinctive reaction has been proven correct. Needless to say, Alexis Tsipras was one of the most active communist hooligans who clashed against the Italian police. Has he been adequately punished? Shouldn't the Italian cops arrest him now when the evidence emerged?

In the real world, this Marxist freeloader and destroyer has become the prime minister of Greece. We often think that the negotiations are extremely slow and nothing is changing – people are just wasting their time. However, it's much more fascinating to realize that after more than 2,000 years when Greece was doing pretty well, it took less than half a year for the new communist government to turn a recovering country into a country 6 days from the ultimate abyss. Communist radicals are a really fast form of cancer, indeed.

By the way, you may check how creditors behaved as editors and improved the latest Greek proposals today. The omnipresent red edits look much like what I used to get from my editor when I translated a book or something like that ;-) except that these editors have changed the substance at many more places than my editor who focused on the language. All the numbers were improved, exceptions were erased. Will the Greek "leaders" surrender? I am afraid that they don't have enough time to negotiate complex compromises, especially because many people and institutions have to agree with the deal and they only have 6 days to do so. I don't know whether Greece will go bust next week. But it seems rather likely to me that it will either go bust or the government will almost completely surrender.

France pretended to be surprised that the U.S. intelligence agencies have listened to all telephone talks of at least 3 recent French presidents. Well, I am not really surprised. But one report we learned through the NSA-WikiLeaks chain was the information that already back in 2012, Hollande was shocked when he learned that Merkel was ready to throw Greece under the bus.

Merkel may be the most important "wild card" who may help Syriza to get billions of new dollars for free. But even 3 years ago when a potential Greek bankruptcy seemed more dangerous than today, she was apparently thinking that this possibility could have been better than a new bailout. That's a reason why, if I were a Tsipras or a Varoufakis, wouldn't really believe that Merkel will certainly save the day. Merkel may have a crush on Tsipras but is it enough? These days, Varoufakis often repeats that he doesn't believe that Germany and others will refuse to pay "any price" and allow Greece to die – because Greece is the belly of the world. Sorry, it is not.

The bankruptcy will have costs. But there are only three possibilities: Either Greece will peacefully fix itself, which requires something like the IMF or my recipe; or it will go bankrupt and adjust in the abrupt way; or Europe will transfer tons of money over there forever. I think that the first scenario is the best one but the last one is the worst one. The default is in between! To pay an infinite amount of money is clearly more expensive than to sacrifice €320 billion and finally get rid of a problem.

I was disappointed by Larry Summers' essay in the Financial Times. Let me comment on it:
Greece is Europe’s failed state in waiting [title]
This is a silly title that stores one of the key misunderstandings. The problem is that Europe is a continent, an artificially divided piece of the planetary surface (well, at least its separation from Asia is a social construct). The Europeans are a bunch of people who happen to live on this territory. But that doesn't mean that they are one nation, one demos. They are certainly not.

For a Czech or a Finn or a Slovak or an Irishman, the bankruptcy of Greece isn't much different from the bankruptcy of Detroit or RadioShack. In fact, I have bought numerous things in RadioShack but I don't remember anything that I have ever bought that was produced in Greece.

So the idea that it's a bigger problem for other Europeans if Greece goes bust – than it is for the Americans – is a fantasy of a sort. The European Union and the Eurozone are just some ad hoc territories that use some common laws and shared currency and that were chosen mostly for geographic reasons. But the geographic proximity isn't the same thing as shared responsibility or feelings of unity. Greeks just don't belong to the same nation as Germans, Finns, or Bulgarians. Larry seems to misunderstand this point.

If someone is expected by Larry to be the "rich uncle" who pays an obscene amount of money to Greece without any strings attached and without any credible plan, it it equally sensible for the Americans to play this role as it is for the Europeans. Why don't you print $50 billion for your Greek partners? You are printing the dollars out of thin air, anyway. And it seems that you are terrified by the Greek default more than the Europeans are (except e.g. for George Will whose essay is excellent). So why don't you pay the ransom that Syriza demands?

Also, the sequence of words "Europe's failed state" is supposed to sound scary. Europe is a polished Old Continent so it can't have any failed states, can it? Well, it can and it does. I would count at least Kosovo and Moldova – and probably also Ukraine – to be Europe's failed states. Europe is a highly non-uniform area so you can find such things, too. Greece would only be different from those failed states by its having been an EU member. But you know, such a failed state would probably be expelled from the EU rather soon – because of the so many EU laws that it has violated and perhaps because of the need to stop the outflow of Greeks from their post-bankruptcy country to the Schengen area. And once Greece is removed from the Eurozone and the EU, it will be literally nothing else than another example of countries like Kosovo and Moldova. Such a country would be in no way unprecedented. People in Moldova are very poor but Larry Summers never seems to care about them, either.
When, as now appears likely, Greece financially separates from Europe it will at one level be no one’s fault. The Greek leaders will rightly explain that having imposed more austerity on themselves than any industrialised country has suffered since the Depression, they could not have done more without light at the end of tunnel in the form of a clear commitment to debt relief.
Please, give me a break with this garbage, Larry. The fate of the government finances is always the fault of the politicians and the voters in the country. Both the Greek politicians and the voters may try to blame someone else but it's just demagogy. There is nothing "rightful" about it. This attitude is one of the reasons why Greece has spiraled out of control. It's always easy to blame others. But once someone becomes a victim of this victimism, it is very hard to find the actual causes and to fix them.

And what about the pathetic propagandist word "austerity"? What is being called "austerity" isn't a policy one may choose or reject; it is a law of mathematics. Once you run out of cash reserves and once you deplete your credit and credibility in the eyes of the commercial lenders, you simply have to spend at most as much money as you earn. You may be angry about this fact or this fate of yours but inventing would-be clever words for your being in deep šit can't free you from the šit. You have devoured your future and if you're not capable of doing something really cool and nicely surprising, you have to suffer. It is a law of mathematics and physics, it's how the world works and has to work. If one could avoid the life in deep šit after he overspends and overborrows, and even after he does everything wrong and he has bad luck in everything, everyone would be overborrowing all the time. The Greeks' life in deep šit is the main thing that separates the world from hell, the only guarantee that saves the world by ultimately silencing communist demagogues who fight against capitalism and "austerity".
European leaders will rightly explain that they adjusted their positions repeatedly to accommodate the Greeks.
They did but it's nothing to boast about. They shouldn't have distorted the rules in the past. And if Larry isn't capable of learning the lesson that the European rules shouldn't have been twisted and distorted even now, many years after we have observed this escalating Greek mess, then sorry, but you suck both as an economist and general thinker. It was totally wrong. The default shouldn't have been delayed in 2012. Greece shouldn't have been accepted to the Eurozone – and probably not even to the European Union. Budget deficits above 3% shouldn't have been repeatedly tolerated. Rules were "adjusted" at those moments and it was self-evidently wrong to have done so. Such distortions don't lead to anything good.
The trouble is that all the parties are going to get much more of what they fear from a breakdown than they would even from what they regard as an unacceptable compromise.
Maybe, maybe not. A temporary panic may return to the markets but after a short time, people will realize that the life hasn't ended. Greece will have found its new place – a problem-free country similar to Moldova that people will learn to ignore just like they ignore Moldova today – and the life and business will continue elsewhere. After some years or decades, the Greeks will understand the reality, and a few years later, growth will return to Greece, too.
Historians understand how the first world war was allowed to start but are still, a century later, incredulous that it happened.
There were lots of reasons why the empires wanted some conflict back in 1914. It was a terrible war but peace under certain circumstances was simply even less acceptable for many players. When our "next emperor" was assassinated, almost all the world's public agreed that we (Austria-Hungary) had the moral capital to invade Serbia – just like the U.S. had this capital against Afghanistan after 9/11. And the conflict happened to grow to devastating proportions as various kinds of interests and tensions got polarized by the existing condensation core of the war.

However, it's silly to compare this Greek saga to the First World War. Unless the U.S. or someone like that will join Greece, Greece would have no chance in a military confrontation with the other European countries. I don't even believe that someone in Greece wants to do something like that. On the contrary, I do think that when Greece goes bust, some European armies should invade the country and confiscate assets in order to satisfy the creditors' claims. If this policy will be followed and there will be a world war coming out of that, then I am sorry, but I haven't started it.
Make no mistake about the consequence of a breakdown. With an end to European support and consequent bank closures and credit problems, austerity in Greece will get far worse than it is today and it will probably become a failed state to the great detriment of all its people and their leadership.
Right, except that the right word is simply "poverty", not "austerity". Chaos is likely to accompany it.
When Greece fails as a state, Europe will collect far less debt than it would with an orderly debt restructuring.
This is a highly questionable claim. Once a borrower starts to demand haircuts repeatedly, it's a slippery slope in which the creditor can't substantially influence how much he gets back. If we take the lousy state of affairs and especially their lack of discipline and hard work into account – those imply a growth rate for coming years that will be either negative or at least very low positive – their debt seems huge. But for another country, it wouldn't be huge. Japan's debt-to-GDP ratio is about 230 percent, much higher than Greece's, and no one is talking about a looming collapse. Japan has stabilized its lifestyle in a stable, rich, yet stagnating regime. The Greeks could do it as well if they wanted. But the real problem is that they don't want to.

Moreover, the non-essential assets of the Greek government are arguably much higher than €320 billion. If Greece defaults, the creditors have all the justification to invade the country and confiscate the remaining buildings, companies, and perhaps some islands. It's a much more kosher approach than to be waiting for a communist hooligan whether he generously decides to pay €100 billion or €200 billion – especially because everyone expects that they don't want to pay anything.

A haircut or "orderly debt restructuring" only makes sense if something bad happened once, this harmful event or mistake is "localized", and there is a high probability that it won't get repeated. In that case, it makes sense to view the "bad news" in the past as an exception that has led to losses (which are consensually shared by the lender and the borrower), and those are quantified as the haircut. But if a country starts to whine and demand haircuts consistently – and that's the case of Greece – one simply can't and shouldn't continue in this way because this is a regime in which undefined large amounts of money are being lost uncontrollably. Pumping additional X billions to the debtor will increase the future repayments by a very uncertain amount whose expectation value is probably less than X – the amount X is just consumed and what we get in exchange are new excuses and whining in the future – the debtor seems to be an infinite source of excuses by now. Billions for more excuses: It's not a good investment anymore. The country needs a full-fledged default in which the dysfunctional mechanisms are destroyed. The air is cleared and the resources may be reorganized. Life may start from scratch. When it does, the (former) debtor may start to take his commitments seriously again – and he may regain trustworthiness (which is the other side of the same thing).

Well, that's also what our oligarch finance minister is saying. He behaves just like other former agents of the communist secret police (he recently created a special folder with "dirt" against a social democratic lawmaker who was proposing inconvenient amendments to a law about insurance contracts – including rumors about his family) but at least, he has some business experience and he knows that bankruptcy is usually a creative event that optimizes the utilization of resources. That's why he wants Greece to finally go bankrupt in the full-fledged way.

Larry writes some things that are more reasonable, but most of the time, he doesn't:
German chancellor Angela Merkel and the European authorities must do what is necessary to make policy adjustments politically tenable in Greece.
Sorry but this "recommendation" to Merkel is a road to hell. Laws just can't be adjusted to be tenable for criminals. It's very clear that any major concession of this kind would encourage Syriza-like hooligans in Spain and other countries – perhaps even in France etc. – and unless the interconnections between the European countries were quickly broken, the whole European civilization could collapse like a house of cards.

I personally prefer a tiny risk that the military intervention into Greece will grow into a world war. The Great War was terrible but Europe has survived it. It has emerged as a different continent. But there's no guarantee that a Europe that would have paid a huge price to avoid the Great War would have been better after 1918.
That means acknowledging that the vast majority of the financial support given to Greece has gone to pay back banks rather than to support the Greek budget.
This is nothing else than the Syriza's anti-capitalist propaganda. The truth is that every bailout redirects money to the lenders. That's the very point of a bailout! The borrower can't make the repayment to the lender so someone else, a new lender (perhaps the same one), makes the payment to the lender, instead. The new lender lends new money to the troubled borrower in this state of emergency – when no one else was willing to do so. The old lenders don't lose (or write off) their money – and the borrower doesn't lose his life in the financial sense. All sides have agreed with such a solution in 2010 or 2012. The bailout is nothing else than the salvation of the borrower's bare life. A bailout isn't a gift that is meant to save his life and make him very rich – or avoid "austerity" – at the same moment. Such a "combo" may exist in the paradise or Larry's pinko commie model of the world economy – but it doesn't work in a functional world where financial entities behave rationally.
They must agree on debt relief and recognise the degree of adjustment in Greek spending that has taken place: with nearly 30 per cent of government workers laid off. It also means announcing their intention to accelerate economic growth throughout Europe.
30 percent of government workers laid off clearly wasn't enough – incidentally, Syriza has rehired most of them, anyway. Greece was living insanely beyond its means, its apparent wealth (as measured by the lifestyle) was a gigantically inflated bubble. In such cases, a 30% decrease just isn't necessarily enough – the bubble's overinflation could have been higher. When the dot-com bubble burst in 2000, a 30% drop of NASDAQ wasn't enough, either: 50%-70% was needed. What decides whether the spending cuts are enough or not is the budget balance. And Greece still doesn't have any significant budget surplus (2014) and has been returning to the budget deficits since the elections (2015) so the cuts have simply not been enough yet, whether the lies claiming the contrary have become popular or not.

The remark about "announcing their intention to accelerate economic growth throughout Europe" is truly childish. Pretty much every central banker and politician will agree that he wants to accelerate the economic growth in his country, continent, or galaxy. But the economic growth isn't accelerated by "announcements". It's accelerated when people work hard and efficiently – and they need to have great conditions for that. Infrastructure, ownership rights, flexibility of the markets, free trade, enforcement of contracts etc. Too much redistribution (e.g. the situation in Greece – and the excessive pensions and public wages are the key) is pretty much incompatible with any significant economic growth; if life without a job or successful work is convenient enough, almost no one will work. Larry's "announcements" can't change anything about that.

Loose monetary policy may help the GDP growth if it were only blocked by the shortage of liquidity. But it is no recipe for additional "acceleration": too loose policies simply create inflation, not real growth. Also, budget deficits may temporarily play the same role. But they contribute to a long-term debt problem at the same moment which is why they're at most a mixed blessing, and probably a net negative. Too big government spending/redistribution is hurting the growth because the government does a worse job in the allocation of capital than the private sector.

The idea that the politicians in Europe may accelerate the economic growth by an easy solution – just by their good will to push on an accelerator pedal – is just a proof that Keynesianism is a fairy-tale for the retarded children.
The IMF needs to recognise that this is now not about the numbers. It is about the high politics of Europe. Its job is to stand behind any deal that avoids breakdown.
Sorry, Larry, but this crap is exactly what Tsipras says all the time but it is unacceptable. He says that the discussion can't be about numbers – can't be technical – and he demands a "political" agreement which basically means "save Greece at all costs" and "justify this waste of money by some ideological, non-quantitative clichés". Sorry but it is not right to save bloated parasitic systems at all costs. Every salvation has some costs and in the cost-and-benefit analysis, the salvation that costs what the plans by Syriza suggest is a worse option than the full-fledged bankruptcy and elimination of Greece from the EU.

Every sensible discussion about debt has to be about numbers and "political" discussions that "beat" any numbers are utterly unacceptable. Debt and money is business, not politics, and if someone "plays with the numbers" using political tools, he is a corrupt politician and thief.

It's also bullšit that the job for the IMF is to stand behind "any deal that avoids breakdown". A neverending life of Greece on a life support that is getting increasingly more expensive is worse than breakdown and the IMF realizes this obvious fact very well. The IMF may possess some $1.5 trillion in cash. It will lose some 15% of that if the Greek debt is completely written off. But it could lose much more if it allowed Greece to show to other countries that it's perfectly possible to happily live with a daily haircut. This would not only cost the extra money that would have to be sent to the unfixed Greece in the future but it would also harm the discipline of all other IMF's clients. 15% of IMF's cash is a lower price to pay.
The hour is late. But it’s often darkest before dawn. Let us all hope that Greece and Germany use this weekend to work back from the brink before Monday’s summit.
Well, they didn't. European bankers and especially politicians have erred once and then they have erred twice. But they are determined not to err thrice. A deal which is just "any deal" that will bring the same (or worse) Greek crisis back in 2018 if not earlier is simply worse than to do what has to be done – to stop the neverending cycle of misery and deterioration. It's not just the recurrent payments – but also the waste of time. Just realize that almost every top European politician or banker has spent hours a day every day in the recent 5+ months. Those were wasted weeks of lives of very important people – just because of a bunch of untrustworthy lazy communist parasites and their brainwashed voters. Do you want them to sacrifice the same time every year? This clearly is unsustainable.

We may go through some temporary pain but we will stop the chronic pain that never goes away. Greece has deteriorated so much fiscally and especially morally that it simply has to really suffer before there's any hope for an improvement.

The alternative for Greece is simple. To surrender and do the same thing that everyone else – Ireland, Iceland, Cyprus, Portugal etc. – has successfully done.

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