Greece Godwins the Economics Debate

Faced with mounting criticism from other EU leaders over the disastrous handling of their economy over the last decade, the Greek deputy prime minister lashed out.

Apparently German leaders aren’t allowed to criticize Greek leaders because… well…um… Nazis!

Mr Pangalos … said Germany should not criticise Athens because it had wrecked the Greek economy and slaughtered thousands during the Nazi occupation.

“They took away the gold that was in the Bank of Greece, they took away Greek money, and they never gave it back. This is an issue that has to be faced sometime in the future,” he added.

He also declared that the standard of leadership in other EU countries was “very poor indeed” and nothing compared to the greats of Margret Thatcher and other 80s luminaries, which is very rich from a country that has mismanaged its economy to almost breaking point.

The Greek Prime Minister also seems to think that the other EU leaders are stupid, as he tried to convince them that Greece isn’t looking for financial help, only political. He wants the EU to help Greece get loans at the same favourable rates that Germany gets.

But Greece has a terrible credit rating because everyone thinks they are going to default on their debts. Germany has a good credit rating because everyone knows they will pay. Getting loans at Germany’s credit rating can only work if Germany guarantees to pay Greece’s debts should they default… which given the state of Greece’s economy is significant financial support.

Bummm Bummm Bup Bum… waahaaahhhh

The one good thing about the Greek economy is that it’s too small to cause much harm. Possibly the increased exports through devaluation of the euro will even pay for the money we’re going to throw at them…

if they default we’ll never see the money for those submarines :<

He seems like a generally bright fellow, I think that this incoherent lashing out just shows how bad Greece’s position is right now. If the EU could crank up the way back machine I bet they would let Greece in. Let’s hope that they slow down allowing new states in and they clamp down on their problem states like Ireland.

Yet another nation that could start using money on something else than weapons.

Just across the pond they got Turkie, who also spends most of their money on weapons and a useless oversized army.

While it would help it would not fix the gap they are seeing.

The Google disagrees.

Sure, as soon as Greece ponies up (HAH!) the cash for that little debacle with the big wooden horse.

While it’s a pretty hilarious Godwin, technically Greece’s and Spain’s problems are Germany’s fault. They’re the ones setting the inflation rate so goddamn low that it’s destroying Greece’s economy.

The Turkish military guarantees a clear separation of mosque and state. I think you Europeans may agree that 2% of GDP isn’t too high a price to pay for that.

I wonder how much of Greece’s debt is from the Olympics. I remember during the Athens games hearing that the country was effectively bankrupt, maybe it just took till the next financial crisis for the chickens to come home to roost.

You mean interest rate? The ECB sets the interest rates in the interest of the majority of the Eurozone, and while it’s based in Germany, it’s not actually run by the Germans. The current president is French, and he, and the rest of the governing body, is chosen by all of the eurozone members.

There is some blame for the ECB. They should have been tougher on Greece in the first place, but they, and others, were allowed to run their deficits outside of the agreed limits with little or no punishment. But ultimately the fault lies with the Greeks, effectively and “technically”, as they should never have let their spending run wild in the first place.

Personally I think letting Greece enter the Eurozone in the first place was a mistake. They’ve never been a safe bet. Unlike many of the former communist countries, especially the likes of Slovenia, Slovakia and Estonia, they’ve never got their act together. Corruption is rampant, worse than Hungary, worse than Ghana, the worst in the EU alongside Romania and Bulgaria.

The reaction of the deputy Prime Minister suggests a trait that they share with the Serbians and Hungarians: that of blaming others for their problems. Sure the Germans screwed them over several generations ago, but then Estonia got crushed by the Soviets and still managed to pull themselves up higher than Greece in less time.

In 2008 Estonia had a surplus of 3% of their GDP. They rank as one of the least corrupt countries in the world, and are famous for having a lean, transparent, accessible government. They seem to be the poster child of the Economist. This, in spite of being invaded by USSR repeatedly, Nazis once, and being under the thumb of Communism until 1991, and not having a fraction of the EU funding Greece has.

Don’t get me wrong, I like Greece and have many Greek friends (who will probably wildly disagree with me on this). I’m just annoyed that their mismanagement risks devaluing my investments and amazed that they then come out and blame their problems on Nazis.

The inflation target is set by the ECB which is not in fact run by Germany. Even so, your statement is a wild exaggeration and you should stop reading socialist bloggers. Germany was hit by the financial crisis like everyone else, and the ECB has consequently lowered interest rates like everyone else, since the end of 2008.

If the previous higher rate magically destroyed Greece’s economy then why doesn’t the current very low rate (1% for refinancing) magically revive it? The bigger European economies are already recovering, after all – and so is Greece, by the way, but not fast enough to pay off their immense debt. And why didn’t Greece prosper during periods of high inflation when they had their own drachma? The Greek government tried to lower inflation instead – were they just stupid? (History of the modern drachma)

But they probably realized that inflation does not make everyone rich, and stable money is good for an economy. Flooding an economy with cheap money is an emergency measure, not a way to build sustainable growth. Tinkering with interest rates can guide growth in fundamentally solid economies but cannot make a public debt of 110% GDP or a budget deficit of 12.7% GDP simply disappear. Greece and Spain have much more fundamental problems than a somewhat too high ECB interest rate that was maintained for a little too long.

I believe, and correct me because i haven’t kept up with these things in recent months, that the idea is that the German obsession with keeping inflation low has artificially kept the value of the Euro high, which is detrimental to the weaker Mediterranean economies (which need currency devaluation) but beneficial to the stronger like Germany.

That doesn’t make sense. Germany’s economy depends on exports, many of them outside the Euro area – how would a strong currency benefit those? In fact German companies are quite happy that the euro is finally weakening due to the Greek crisis.

Also, how do you “artificially” keep the value of a currency high? You can artificially lower a currency’s value by deliberate inflation, but if a currency is strong it’s because people trust it more than the alternatives. There’s nothing artificial about the high value of the euro in recent years, it’s simply a vote of confidence by the global markets (and a vote of no confidence in popular alternatives, namely the US dollar and the British pound).

No, the one legitimate complaint is that Greece and other countries share the disadvantages of a strong euro with Germany – more expensive exports, no way to inflate your way out of debt – without getting the benefit of issuing government bonds at Germany’s low interest rates.

They are annoyed about that, which is understandable to some degree; but then again, the reason why they must pay higher interest rates on their debts is because they are considered less trustworthy debtors. And that’s not simply because they are small and weak and cute and cuddly, but rather because they were poorly governed and too spend-happy in the past and thus became overburdened with debts – despite massive EU subsidies which were in large part paid by Germany, I might add.

edit: Oh yeah, how did Germany deal with downward pressure on exports due to a strong euro? Staid competitive by increased productivity and reduced public spending, including few or no wage raises and cutting back on social benefits. Guess what the countries with higher debts and weaker economies didn’t do?

You keep your interest rate higher than other nations. Capital flows dwarf trade flows.

That’s only “artificial” if you assume that those other nations all set perfectly correct interest rates while the dastardly ECB increased its rates all out of proportion for the sole purpose of attracting capital, or out of sheer insanity or something. Which is retarded. ECB rates were never outrageously high, and they did not eliminate inflation.

But that’s missing the point anyway: if the global markets considered the euro an unreliable crap currency its value would fall, even if the ECB set rates at 20%.

“in the past”?

Well, up to and including now, really…

Enidigm: it’s less the euro exchange rate than that the real interest rate in Greece is negative due to the economic collapse. If Greece was independent they’d just change their interest rates and inflation rates to get out of the deflationary hole, but because they’re part of the ECB - and interest rates there are largely determined by what Germany wants, regardless of what Chris thinks - they’re stuck. Their options are default or grinding years of deflation and sky-high unemployment.

Spain has the same problem, and unlike Greece their budgets were just fine.