Greece
interfluidity.com
Greece
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Re: Greece
#2Interfulidity is one of the best economics blogs out there. Last year he did a five-part series on welfare economics[0] that, while quite lengthy, was very well-done. Anybody that's interested in political economy, but has a more traditional Econ 101 background, it's a good place to start.
Re: Greece
#3This article is far from objective, let alone 'best analysis'. It is a perfect example of cherry picking data.
Re: Greece
#4This can probably use a neutral title. 'An analysis of the situation in Greece' or somesuch.
Re: Greece
#5So today, we played the Greek themed version of the board game 'monopoly' - wow. It was quick - the bank was already empty, and it was already game over!
Re: Greece
#6The entire thing is worth reading, but the key take away:
"Regulatory mistakes and agency issues within banks encouraged poor credit decisions. Spanish banks lent into overpriced real estate, and German banks lent to a state they knew to be weak. Current account imbalances within the Eurozone — persistent and unlikely to reverse without policy attention — implied as a matter of arithmetic that there would be loan flows on a scale that might encourage a certain indifference to credit quality. These were European problems, not national problems.
But they were European problems that festered while the continent’s leaders gloated and took credit for a phantom prosperity. When the levee broke, instead of acknowledging errors and working to address them as a community, Europe’s elites — its politicians and civil servants, its bankers and financiers — deflected the blame in the worst possible way. They turned a systemic problem of financial architecture into a dispute between European nations. They brought back the very ghosts their predecessors spent half a century trying to dispell. Shame. Shame. Shame. Shame."
Re: Greece
#7> "The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a “loan”. It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place."
This is great. What, then, about a middle road? Absolve greece of its debts. Write off its liability as a sunk cost, let bygones be bygones. Then cut it off from the ECB. Let the government figure out how to run a sustainable economy, and when they're ready, bring them back in.
Re: Greece
#8This is a much better primer on the situation:
http://faculty.chicagobooth.edu/anil.kashyap/research/papers...
Re: Greece
#9"Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fucked up"
Rehash of what we already know + strong words != Great analysis
Re: Greece
#10I largely agree with this article. It is still very dubious to me how anyone thinks that things like increasing VAT at the moment are going to help anyone.
However I don't really understand the author's reasoning here:
> I’ll end this ramble with a discussion of a fashionable view that in fact, the Greece crisis is not about the money at all, it is merely about creditors wresting political control from the concededly fucked up Greek state in order to make reforms in the long term interest of the Greek public. Anyone familiar with corporate finance ought to be immediately skeptical of this claim. A state cannot be liquidated. In bankruptcy terms, it must be reorganized. Corporate bankruptcy laws wisely limit the control rights of unconverted creditors during reorganizations, because creditors have no interest in maximizing the value of firm assets. Their claim to any upside is capped, their downside is large, they seek the fastest possible exit that makes them mostly whole. The incentives of impaired creditors are simply not well aligned with maximizing the long-term value of an enterprise.
The argument he disagrees with here is that the creditors are actually not so much interested in getting back their money but in keeping leverage over the government to enact reforms [0]. He believes that this cannot be the case, because as creditors their incentive is not the long-term good of the nation, but only their short-term recovery of the debt. I don't think this is necessarily true.
In the end, the goal of the EU should be (I hope) to allow Greece to become a prosperous nation with a sustainable economy, to form a stronger union overall. Whether or not the actual debt ever gets fully repaid should be secondary to that. So aren't the incentives in this case, unlike for corporate debt, actually quite well-aligned?
To me the idea that the creditors do not want to give up all their leverage (the debt) makes perfect sense to me. The Greek government has shown time and time again that it is unable to enact the reforms it needs to. Properly reforming the political structures and getting rid of clientelism and waste is going to require some external factor forcing them to act.
[0] http://www.vox.com/2015/7/2/8883307/merkel-nsa-wikileaks-gre...