The only reason Spain’s budgets were ‘fine’ was from their own housing bubble.
Greece would have been screwed in or out of the Euro. They mismanaged their budgets disastrously. If they dropped out of the Euro now, they might be able to spend their way out of trouble temporarily, but in the long run they’d be much worse off. They’d probably go the way of Argentina.
All the extra spending would achieve is to delay the pain. Hungary has been doing that for the last 20 years, which is why it went from one of the richest countries in the former Warsaw Pact to one of the poorest. The fault really can’t be laid at Germany’s feet, who have given more money to Greece than anyone.
Greece decided to join the Euro, it decided to spend more than it earned, it decided to host the Olympics, and it decided to not crack down on its rampant corruption. The whole of Greece is casting around for someone to blame: the bankers, the EU leaders, the Nazis, but it at the end of the day, they only have themselves to blame.
Looking for outsiders to blame, like printing money, is just a way of avoiding the inevitable: painful spending cuts or a destroyed economy.
E.g., when the economy collapses, it’s always someone’s fault, and the only solution is imposing pain on people; the usual doesn’t-agree-with-the-data libertarian line.
The only one who ignores the data here is you, Jason. And it sure looks to me like you’re assigning fault, just not to the people responsible – but instead to some bizarre “libertarian” conspiracy that, funnily enough, includes German and other EU leaders. Those notorious Euro-libertarians!
You mean like Germany?
Can you show, in history, an economic collapse that was not anyone’s fault and/or that did not require some pain for many people to recover?
Chris, worldwide zero first-world relevant government officials act like they believe Keynesian economics is bullshit and in actuality obscure Austrians are correct that lowering interest rates and increasing liquidity doesn’t end recessions. Greece needs to do that, but can’t because eurozone targets are set by the dominant economics powers, namely Germany. Germany is just as Keynesian as the rest of the world’s governments, but it’s more inflation shy than the rest of them, so its policy responses are smaller. I think they should all be far more aggressive, but none of them manage the economy like you think they should.
Shift6, the quasi-official libertarian/Austrian line on the business cycle is that doing those things doesn’t end recessions, or it does but only sets up a bigger recession in the future, depending on who you talk to. It’s full of moralizing about how pain to match the excesses is the only way to solve things; e.g., you just have to suck it up and eat 10% unemployment, or you’ll only make things worse. Note Tim literally channeling this below.
Really? According to this they’re richer than Bulgaria, Poland, and Romania; not sure how to adjust for the rest of Czech (breakup) or GDR (unification).
Jason, do you think the fact that bond buyers lack faith in Greece’s credit-worthiness could have much to do with, oh, I don’t know, the fact that they had a 2009 budget deficit of 12.7% of GDP and debt of 113% of GDP?
I’m surprised you question what I said, given that Hungary is named in nearly every report on the current economic climate as one of the danger economies. Its currency tanked in 2008, just as Latvia’s and Iceland’s. I remember vividly, because I saw my earning go down about 20% in a matter of days. The reason is that, like Latvia and Iceland, its economy is screwed and its government mismanaged, although perhaps not in bad shape as those two.
Poorest was probably not the best term “most fucked economy” would be better. Slovakia has a lower GPDPC than Hungary, but Slovakians are in the Euro and their economy is going gangbusters. Hungary has had to put off joining the Euro indefinitely, because the economy, and their government, is so messed up. This is of great embarrassment to many Hungarians, who have traditionally seen Slovakia as a poor cousin.
Poland’s economy too is so strong it has almost not noticed the economic downturn. Unemployment there has gone from 20%+ just before joining the EU, to about 5%.
This isn’t the first time he has Godwinned an argument, he also accused Israel of being Nazis a few years back.
Corruption in Greece is unbelievable, it’s endemic from top to bottom, from the leadership fiddling the countries books, to the need to pay bribes to obtain the most basic of services. Combine this with an economy that seems to be made up of failed sole proprietorships and subsidized industries, tax avoidance, striking and demonstrating are the national sport, then there’s very little chance Greece can escape default and a visit to the IMF.
Seriously, and without any unkindness, I have no idea what you just said nor do I see how it relates to what you said earlier (to which I responded).
Phil: the US budget at the end of WWII was in comparable shape. As Krugman points out here, like the rest of Europe Greece is really dependent on international trade (unlike the US), and in the boom years the exchange rates got way out of wack.
Erm, it’s flat-out not true.
Its currency tanked in 2008, just as Latvia’s and Iceland’s. I remember vividly, because I saw my earning go down about 20% in a matter of days.
Ah, that explains it. Exchange rates are chaos and give a really misleading picture.
Shift, recessions always have someone suffering pretty much because the unemployment rate goes up, and traditionally they’re caused by either speculative boom of some sort collapsing (rare), the central bank raising interest rates to keep inflation under control (usually), or external shocks (famine, a cut-off in oil supplies). What I was talking about originally is Tim is pretty much channeling hangover theory, where the idea is that the only way to “fix” the economy is grinding intentional unemployment.
First of all, the ECB doesn’t work like you think it does. Yes, Germany is more inflation-shy than most, but when the euro was introduced that did not result in a central bank that takes orders from the German government but rather in a fully independent central bank, similar to the Bundesbank.
If ECB rates tend to be somewhat higher than elsewhere in comparable situations it’s not because they are being pushed to raise them but because they are not being pushed to lower them, which is what usually happens elsewhere. France occasionally complains about that and quite explicitly wants the ECB to take orders from governments (namely France’s), but so far they have not been successful.
The economists at the ECB really just set what they think is the best course for the euro zone’s currency and economy. Germany has a greater weight only insofar as its economy is the biggest in the euro zone, and thus the ECB would give more consideration to rate-change effects on the German economy than say Greece’s.
But none of this is relevant to the situation in Greece. One could well discuss (and Europeans do discuss all the time) whether the ECB should trade off higher inflation for higher economic growth, but either way the result would be minor adjustments for relatively healthy economies. No raising of interest rates can possibly explain the completely fucked-up state of public finances in Greece, and no lowering of interest rates could possibly fix them – as demonstrated by the current 1% rate.
Let’s have a look at the history of the ECB. The euro and the ECB were created in 1999. Since then, the ECB refinancing rate went from 3% to 4.25% where it staid from June 2000 to October 2008, then rapidly down to 1% due to the financial crisis. Comprehensive table.
And now let’s have a look at the history of the Greek economy. Handy Wikipedia chart shows that during the time of relative high rates, shown here from 2000 to 2006, Greek GDP actually grew much faster than euro-zone GDP, with per-capita GDP almost reaching parity with France in 2008!
So the facts clearly show that the ECB’s interest rates, which were never outrageously high to begin with, did nothing to cripple the Greek economy and thereby cause the catastrophic state of Greek public finances. The Greeks fucked up their budget all on their own, even during their boom years.
Chris Nahr:
Let’s have a look at the history of the ECB. The euro and the ECB were created in 1999. Since then, the ECB refinancing rate went from 3% to 4.25% where it staid from June 2000 to October 2008, then rapidly down to 1% due to the financial crisis. Comprehensive table.
Stop doing this! Otherwise, carry on, this is interesting stuff. I’m glad Ireland has only been mentioned once though.
Strange how you post GDPPC figures as “proof” of a countries relative wealth, and then follow that up by saying exchange rates give a misleading picture, because GPDPC figures fluctuate with exchange rates. Iceland’s GPD dropped 20% along with the value of its currency.
Hungary’s economy being in a bad state can only be “flat-out not true” if you ignore every economic analysis of the country.
Chris Nahr’s English is excellent, especially given that he’s a German.
Oh, the past tense is “stayed”? Sorry! Got it confused with the adjective…
I know, and I feel like a bit of a git for highlighting that but it was bugging me. Sorry Chris!
No problem, I’m glad someone corrects me when I’m using the wrong word. :)
No offence to dermot, but I find grammar nazis even more annoying than people who make the same mistake over and over again. I’m a grammar nazi also, but if I think someone needs a bit of advice I send them a PM about it. Usually works better than humiliating them in public, and keeps the forum free of “shit that I don’t want to read” :).
Although I’m sure this post is guilty of what I usually try and avoid…