NP - Here's What's at the Heart of the Crisis in Greece

[rich]

will they go after the elites and get them to pay their taxes? not that
this is an issue only in Greece. i think the new gov't has its work cut out
for it. german banks have a had a hand in all this mess (not only german
banks tho). they should pay for their stupidity and greed as well

rich

On Thu, Jan 29, 2015 at 11:14 AM, David Morris <fqmorris at gmail.com> wrote:

> If you're in the market for some interesting commentary on Greece, there
> have been a couple of good ones recently. The first comes from Paul
> Krugman, who, among other things, makes a point that often gets missed:
> Greece is already running a primary surplus. That is, they've cut spending
> enough over the past few years that their budget would be balanced if it
> weren't for interest payments on their gigantic debt. What's more, their
> primary surplus isslated to rise to 4.5 percent in the future:
> <http://krugman.blogs.nytimes.com/2015/01/28/thinking-about-the-new-greek-crisis/>
>
> If Greece were to adhere totally to the previous terms, over the next five
> years it would make resource transfers of about 20 percent of one year’s
> GDP. From the point of view of the creditors, that’s a trivial sum. From
> the point of the Greeks, however, it’s crucial; the difference between a
> primary surplus of 4.5 percent of GDP and, say, 1.5 percent of GDP for the
> Greek economy and the welfare of its citizens is huge. The only reason for
> the creditors to play hardball would be to make Greece an example, to
> discourage other debtors from trying to negotiate relief.
>
> In other words, the EU is demanding that Greece not just balance its
> budget, but run a large surplus that it will mostly send to large countries
> for whom it's a trivial sum. For Greece, though, it's a *huge* sum, the
> difference between years of penury and a return to growth. This is at the
> heart of the conflict between Greece and the EU.
>
> The second commentary comes from Daniel Davies, who makes the point that
> Greece's gigantic debt doesn't really matter *as debt*. Everyone knows
> Greece will never be able to pay it back. But if everyone knows this, why
> are Germany and the rest of the EU so hellbent on refusing to write it
> off? <http://crookedtimber.org/2015/01/25/greek-games-and-scenarios/>
>
> Don’t think of the Greek debt burden, either in cash € terms or as a ratio
> to GDP, as an economic quantity. It basically isn’t an economically
> meaningful number any more. *The purpose of its existence is as a
> political quantity; it’s part of the means by which control is exercised
> over the Greek budget by the Eurosystem.* The regular rituals of
> renegotiation of the bailout package, financing of debt maturity peaks and
> so on, are the way in which the solvent Euroland nations exercise the kind
> of political control that they feel they need to have if they are going to
> be fiscally responsible for the bills.
>
> ....It is, therefore, totally inimical to the Eurosystem to hold out any
> hope of the kind of debt writedown that Syriza wants, as opposed to some
> smaller, cosmetic face value reduction or maturity extension. *The entire
> reason why Syriza wants to get a major up-front reduction in the debt
> number is to create political space to execute the rest of their program.* The
> debt issue and the political issue are the same issue. Syriza understands
> this, and so does the Eurosystem.
>
> In other words, Greece doesn't want to run a large budget surplus. They
> want to increase government spending in order to dig their way out of their
> massive economic depression. The rest of the EU wants no such thing.
> They're afraid that if they let Greece off the hook, then (a) everyone else
> will want to be let off the hook, and (b) Greece will go right back to its
> free-spending ways and soon require another bailout. If the price of that
> is years of pain and unemployment, so be it.
>
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