by Tyler Cowen
on November 1, 2011 at 3:42 pm
Read it here, an essential article, hat tip to The Browser.
“They are voting with their spinnakers” – easily the best line of the article; I thought it sounded like Michael Lewis!
“The one thing governments have that investment banks do not is intelligence services with the power to wiretap people.” – Not yet!
And the ability to use violence against their own citizens.
When you want someone to report on a state as politically complicated as Greece, then a former Trotskyist is probably a pretty good choice.
In any event he’s a very good journalist indeed.
What do you mean “former”?
“What do you mean “What do you mean “former”?”?
As far as I can tell, Greek popular opinion wants to (1) default and (2) keep the euro.
Elite opinion disagrees on both counts, the euro-elites want to (1) stave off default with bailouts for as long as possible and if/when default does occur (2) leave the euro.
I find it interesting that the elites, having been frustrated on (1), seem so sure they will get their way on (2). Yes, from an economist’s (i.e. elite’s) perspective, it makes no sense to keep the euro after a default, but as far as I can tell, for reasons or pride, trust, or perhaps just plain lack of understanding, the Greek people want to to just that. And if they can get their way on (1), I don’t see why they couldn’t on (2). There is no mechanism for ejection from the euro; it’s hard to see how the other euro states could force it.
Why wouldn’t the Greek people want to keep their savings in Euros? Individual rational action doesn’t imply collective rational action.
The best decision here is for Greek people to use foreign banks, almost No one to buy Greek soverign debt, and for Greece to continue using Euros.
Is Moody’s likely to downgrade the sovereign debt rating of Greece in the month of November?
Is Italy likely to restructure or default on its debt by the end of the year?
This sounds like two “good judgement project” questions !
Whatever. Someone is making a lot of money whipsawing the markets like this.
“But if Greece votes no – and goes for euro-exit – there are several plans in the process of being published that explain what you have to do. Close the banks for days, ration food and energy, institute strict capital controls – with most probably a few fast patrol boats at Glyfada harbour to check every departing yacht for cash and bonds. ”
I’m sorry but how are these workable measures workable when the result of the referendum is likely to be no? There’s no point in closing the banks if people proactively transfer their savings to ‘safer’ places. As it stands and from what I have read 60% would vote against the proposal but given the will on the side of the EU and various other factions to enforce a yes vote, it wouldn’t take much too sway the vote. Especially considering that most Greeks want to stay in the eurozone.
If Greeks voted no, left the euro and defaulted they’d have to cut spending anyway (due to lack of outside financing) or deal with inflation because shortfalls would be financed with new Drachmas. Hardly a prospect that will have the masses rejoicing. The problem is that we have a huge one-off loss that hasn’t been realized yet, the debt stock, and more crucially, future losses for years to come that are unlikely to be financed on decent terms from outside eurozone entities. A year ago I thought that QE in the eurozone was off-limits but I believe that now the UK solution is the most likely one, German opinion be damned. Depending on financing needs and budget shortfalls the ECB could step in and limit inflation to 5%, just as the BOE does. UK gilts are almost at historical lows despite high inflation, that’s hardly market forces at work.
File Under: Worst / Longest Slow Motion Train Wrecks.
USA 1929-1941 (1947 depending on your scoring) and Japan 1990-??? are not sweating yet.
Touche! However, I do find it maddening & capable of terrible consequences. Certainly worse than Japan.
The almost unanimous opposition to the referendum is interesting. So long as we do not forsee vote-fraud isn’t a referendum the closest we can get to true participatory democracy? Why do commentators who are otherwise self-professed champions of democratic ideas so opposed to letting the masses state their choice. The people not knowing what’s best for themselves?
If you want democracy, here it is. That’s not the only variable we’re solving for, though.
In contemporary thought isn’t democracy the overriding objective? A referendum might not be in our best interest; but it’s disingenuous to claim that we further their best interest by not having a referendum.
After George W Bush it might be the popular opinion. That doesn’t make it the right opinion.
They’re fans of democracy so long as the people do what the self-perceived wise-men want them to do.
The EU leadership class and its supporters, in particular, are deathly afraid of anything they can’t manipulate or ignore. Considering how long they’ve been doing this, it’s a testament to their ability that it took this long before they finally hit a situation where there were too many balls in the air for them to juggle. The rats have finally been cornered.
These particular rats have been playing this gmae longer than any other group of rats I am aware of, except for maybe the German rats (which is probably why they don’t seem as good at it as the other rats). So I wouldn’t count them out. There is a huge amount of collective wisdom among European elites on how to stay on top, not to mention huge evolutionary pressuresover centuries that have selected for the most cunning rats.
I’d also like to point out that the Papandreous are proven survivors, with truly awesome levels of cunning and tenacity that have persisted for over a century, and a very unpleasant century at that. Three generations at the top, when each one has had to climb to get there is pretty impressive. They are a very tough strain of rat, possibly even cleverer than the other rats.
As I said on an earlier thread, I think a referendum is necessary. If the people vote “No”, the foreign political and economic class can wash their hands of them, and if the people vote yes, then the structural reforms will have a greater chance of success due to the moral force of the vote. The absence of an alternative to PASOK, means a plebiscite is the only way to get a popular mandate.
Anyone who thinks that this can be rammed down the Greek peoples’ throats without consulting them, has very little grasp on the internal strains inside Greece. Mason’s comment about the idea of party functionaries reporting up the chain is exactly the point. Greeks of most of our parents generation lived through a civil war, and the weakness of the Greek state is something no one wants to talk about. This Referendum is the best possible way forward, I think it even has a real chance of passing.
However that won’t be the end of the problem, but this is Greece we are talking about, it will how ever point to a way forward.
The Germans should start preparing for the euro breakup by listening to the song “Goodbye my love goodbye” by Demis Roussos, a Greek singer very popular in Germany. http://www.youtube.com/watch?v=UxuPYJwOycQ&feature=related
There Is No Way To Eject Greece.
That’s one of the keys — if the Greek people want to keep the Euro, the elites have no legal way to stop them.
Similarly, there is no real enforcement of the Growth and Stability Pact (tho I haven’t really read it to see what enforcement there is).
Also, what happens if the Greek government defaults on gov’t euro debt? Nobody knows — and because it’s not covered in the relevant treaties, it’s outside of current “rule of law”.
(What would happen if the Greek government starts “illegally” printing “Greek Euros”?)
It’s very sad that so few articles and blog posts remind readers of the underlying basic problem — the democratic government promised an Unsustainable Level of Benefits. And those politicians who promised more responsible, lower levels of gov’t benefits, were generally not elected.
In general, I think the referendum is a good idea, but the time lag is worrying.
The sacrifices required of the Greeks will be great. They should be able to commit themselves to restructuring or choose default, as they see fit. But I think explaining the options, with the attendant costs, risks and benefits, will force the public to carefully think through where they really stand. It will internalize whatever alternative is ultimately chosen. It will be the path they have chosen, rather than that which was forced upon them.
Comments on this entry are closed.
Previous post: Sugar doesn’t cause hyperactivity
Next post: What does the Old Keynesian economics predict here?
Email Tyler Cowen
Follow Tyler on Twitter
Email Alex Tabarrok
Follow Alex on Twitter
Subscribe in a reader
Follow Us on Twitter
Marginal Revolution on Twitter Counter.com
Get smart with the Thesis WordPress Theme from DIYthemes.