Greek Government Already Showing Cracks

[patches70]

Let's go back to the beginning, when this crisis with Greece hit mainstream news. If you were a central banker with perfect control over the EU's monetary policy, what would you have done?

What an odd question. Tell me, BBS, if you were a central banker with perfect control over the EU's monetary policy, what would you have done when the Greek crisis hit the mainstream news?

I've no idea because I don't know what all my possible choices would be.

Don't know the choices? You have "perfect control". I take that to mean if you wanted you could print money and just give it to each and every Greek citizen. You can do anything that you could possibly imagine.

Now start imagining and tell me what you'd do.

Hint: Don't be unnerved by your inability to come up with a way to solve a problem that has no solution in regards to CB monetary policy. There is only one real solution, nations just have to stop borrowing and spend less than they take in with the excess going to paying down their debts. In fact, any possible solution you could come up with from the CB's point of view will only make matters worse. Unless, of course, the unthinkable were done. Debt forgiveness. Of course, that in itself has certain pitfalls which I'm sure you are aware of.

[GreecePwns]

I would have probably given out the same loans, but instead of attaching conditions that answered problems that weren't there, I would have attached two condition: end tax evasion and balance your budget (but, as I've said before, no tax evasion would've led to a surplus anyway).

The rest was an unnecessary power grab.

[patches70]

Applies equally well to government officials, EU bankers and keynesian economists who all delay and pray....

[BigBallinStalin]

Let's go back to the beginning, when this crisis with Greece hit mainstream news. If you were a central banker with perfect control over the EU's monetary policy, what would you have done?

What an odd question. Tell me, BBS, if you were a central banker with perfect control over the EU's monetary policy, what would you have done when the Greek crisis hit the mainstream news?

I've no idea because I don't know what all my possible choices would be.

Don't know the choices? You have "perfect control". I take that to mean if you wanted you could print money and just give it to each and every Greek citizen. You can do anything that you could possibly imagine.

Now start imagining and tell me what you'd do.

Hint: Don't be unnerved by your inability to come up with a way to solve a problem that has no solution in regards to CB monetary policy. There is only one real solution, nations just have to stop borrowing and spend less than they take in with the excess going to paying down their debts. In fact, any possible solution you could come up with from the CB's point of view will only make matters worse. Unless, of course, the unthinkable were done. Debt forgiveness. Of course, that in itself has certain pitfalls which I'm sure you are aware of.

"Perfect control" meaning I can implement any policy I want, and my policy would somehow be extremely effective. "I don't know what all my possible choices would be" because I don't know enough about monetary policy to make a wise decision, so I can't really answer the question with much credibility.

The problem is that I agree with the Austrian economics viewpoint, which is long-term. However, it's difficult to implement these policies in the short-term and in this scenario because everything is so tightly knit. For example,

(1) Greece receives no bailouts, no adjustments on its interests rates, nothing. And the banks which invested in Greece will eat their own costs (as they should; otherwise, they'll never be capable of learning to be more cautious).

What would happen?

Greece:
Most likely, the economy in Greece would suffer even more so (and like Fruitcake, I believe this to be true because Greece has yet to hit rock-bottom). If the collapse is beyond the management of their government, then it would reduce the costs for anyone attempting a coup d'etat. It's a possibility of unknown certainty, but is the risk worth it? I'm not sure.

EU:
From what I've heard, if Greece goes, then so does the Euro--unless I could somehow kick off Greece from the EU monetary list (i.e. the Greek economy would no longer be based on the Euro--officially).


(2) Greece gets bailed out, and the risks and costs are reduced (significantly? it can't be known with good enough certainty). Then, the principal-agent problem of investors dropping money into bad investments (e.g. Greece) will continue, thus increasing the costs of future potential problems in the long-run. It also gives the monetary policymakers and politicians more time to "fix" the problem.


The Austrian viewpoint is that the state can't have a monopoly on the legal tender within a country--only the individuals in the market can decide on which currencies to use within any given area. So, the legitimacy of money would be based on voluntary exchanges (as oppose to the use of US dollars in the US, Euros in the EU, etc.). This would likely return to the use of gold and other hard currencies as a medium of exchange. Paper money would be allowed, but then the issue revolves around 100% reserves or allowing fractional reserve banking, which is partially responsible for the magnitude of business cycles. The party which is most responsible for causing business cycles is a central bank and its legal power to adjust the base/real interest rate within its jurisdiction. For an Austrian economy, the real rate of interest would be determined by interactions within the market, and would be based on the knowledge and incentives of non-government agents.

So, if I wanted to implement an Austrian approach to the crisis, I'd do nothing for Greece, yet allow private agents to do whatever they wanted in Greece. Then I'd abolish the ECB in incremental steps to allow people to adopt any legal tender of their choosing.

[BigBallinStalin]

I would have probably given out the same loans, but instead of attaching conditions that answered problems that weren't there, I would have attached two condition: end tax evasion and balance your budget (but, as I've said before, no tax evasion would've led to a surplus anyway).

The rest was an unnecessary power grab.

Those are great conditions, but the problem of the effectiveness in enforcing these conditions remain. And, there's also the problem of vested interests of the policymakers, implementers, and politicians, whose self-interest will determine the real intentions of such conditions. For example, I could say, "yeah, end tax evasion, and balance your budget," but I might not really mean it. Or, I could mean it, but I could set a time-limit which would reduce the need to abide by the conditions (say, "indefinitely, or 5 years, then push it back to 10 years). (This is similar to the scenario of the US "pulling" out of Afghanistan and Iraq).

In other words, if you're the one making the rules, you have very little incentive to enforce yourself to abide by the rules. You'll enforce them to suit your own convenience, and in such complex scenarios, you can easily shift blame to others.

[Phatscotty]

Let's go back to the beginning, when this crisis with Greece hit mainstream news. If you were a central banker with perfect control over the EU's monetary policy, what would you have done?

What an odd question. Tell me, BBS, if you were a central banker with perfect control over the EU's monetary policy, what would you have done when the Greek crisis hit the mainstream news?

I've no idea because I don't know what all my possible choices would be.

I can answer!

I would not have bailed them out! I would have said "Greece spent the money, Greece promised to pay it back, and we will wait for that payment. There will be no bailouts, which would only lead to more bailouts. All Greece needs to do is cut spending. If they continue to be greedy and selfish, then they will suffer the consequences of their greed and selfishness. If they do the right thing, then we will know they are ready for our help and we can pitch in a little, but NO BAILOUTS PERIOD!"

[GreecePwns]

[Insert BBS post about unintended consequences]

[Phatscotty]

[Insert BBS post about unintended consequences]

If that is aimed at my post, then I will just remind you that not being able to spend money you don't have is not an unintended consequence. Paying for what they spent in the past is always an intended consequence, otherwise the people probably would have never borrowed them the money!

[GreecePwns]

Alright, if you're head of the ECB and you purposefully lead the Euro to collapse in the most nuclear way possible, odds are you are going to end up in jail.

Not lending the money would be a slap in the face that leads to Greece leaving the Euro, and the Italy and Spain following after. At that point there's no reason for any nation to hold onto a dying currency. Good job, Phatscotty. You've led all of Europe into unprecedented economic meltdown.

Game over, insert $.25 for 1 credit.

[Fruitcake]

I would have never have allowed this bloody awful set of politically driven circumstances to get going in the first place. The Euro was a complete fudge and should not have happened the way it did. So in answer to the question about 'perfect control', I would not have allowed it to happen, so the present problem would not now exist.

[Phatscotty]

Alright, if you're head of the ECB and you purposefully lead the Euro to collapse in the most nuclear way possible, odds are you are going to end up in jail.

Not lending the money would be a slap in the face that leads to Greece leaving the Euro, and the Italy and Spain following after. At that point there's no reason for any nation to hold onto a dying currency. Good job, Phatscotty. You've led all of Europe into unprecedented economic meltdown.

Game over, insert $.25 for 1 credit.

I disagree, but only about the going to jail part. Any person who purposefully collapses the Euro will find they have earned themselves a spot in Soros Heaven.

Also, your bit about blackmailing or Greece threatening to leave the Euro if they don't get other peoples money.....I would say "GOOD FUCKING RIDDANCE!!!!!!!!!!!" Gee, I wonder what will happen the next time Greece spends more that they are supposed to? Just thug it up again!

JB, I hate to break it to you, but EUROPE ISSSSSSSSSSSSSSSSSSS IN AN UNPRECEDENTED MELTDOWN!!!!!!!!!!!!!!!!!!

what a fucking joke man! Serious! My jaw hasn't hurt like this for at least 3 days!

[GreecePwns]

Honestly, this is the third time in this thread you're trying to turn this into a spending thing and only a spending thing.

I'm done talking to you about this. I slapped you around on this subject twice before. Just read the fucking thread man. You honestly have no clue what you're talking about. At all.

[Fruitcake]

Alright, if you're head of the ECB and you purposefully lead the Euro to collapse in the most nuclear way possible, odds are you are going to end up in jail.

Not lending the money would be a slap in the face that leads to Greece leaving the Euro, and the Italy and Spain following after. At that point there's no reason for any nation to hold onto a dying currency. Good job, Phatscotty. You've led all of Europe into unprecedented economic meltdown.

Game over, insert $.25 for 1 credit.

Taking each point in turn:

if you're head of the ECB and you purposefully lead the Euro to collapse in the most nuclear way possible, odds are you are going to end up in jail.
Yer avin a larf aintcha...this is what the markets are doing to the Euro (in its present form) anyway. The head of the ECB is in no position to take on the markets, it has been tried numerous times over the last century and every time the market wins.

Not lending the money would be a slap in the face that leads to Greece leaving the Euro, and the Italy and Spain following after. At that point there's no reason for any nation to hold onto a dying currency. Good job, Phatscotty. You've led all of Europe into unprecedented economic meltdown.
Actually that's simplifying matters a tad. Not lending money to Greece would be have to be tied to a withdrawal from the present mechanism. A new Drachma is created, allowed to float, immediately devalues by 50% which would actually hurt the bankers more than anyone...well actually the central bankers who are the lapdogs of their political masters so who really gives a shite anyway. The Euro rises in value.

Ramifications to Greece? They suffer a jump in imported inflation, turn to home made goods for a couple of years while they reconstruct, export like crazy because their goods are so cheap, rebalance their economy and ease back into the mainstream. This isn't rocket science.

Winners overall? Greece, and the Greek people. Losers overall? The Germans

Now ask yourself why this isn't happening.

[GreecePwns]

End up in jail was a bit far. But if you're head of the ECB odds are that ending the ECB isn't really a choice. Then again they did say "perfect control."

What you're describing isn't happening because mainstream Greek politicians have a history of bowing to their overlords at NATO and the Bundestag (just look at the Libyan invasion). Anyway, a Greek exit would most certainly move speculation onto Italy and Spain, which are much larger economies and whose exits would most certainly kill the Euro once and for all, don't you think?

[Fruitcake]

End up in jail was a bit far. But if you're head of the ECB odds are that ending the ECB isn't really a choice. Then again they did say "perfect control."

What you're describing isn't happening because mainstream Greek politicians have a history of bowing to their overlords at NATO and the Bundestag (just look at the Libyan invasion). Anyway, a Greek exit would most certainly move speculation onto Italy and Spain, which are much larger economies and whose exits would most certainly kill the Euro once and for all, don't you think?

Actually I think the Euro would be stronger if the Med countries had an orderly exit. They arrived in the club at crazy conversion rates so it would come as no surprise to see them exit the same way.

We must never forget that most financial experts (who weren't afraid of voicing an opinion) said this would end up as a dog's breakfast from the get go. Spain could cause a problem in terms of size of economy, but it can be done. The problems now are that this Euro tripe has been forced down the throats of the populace to the point they also believe it would be an insult. So where does that leave us? Simply that this needs to be managed in such a way that the lid is kept on emotions...which is pretty much what is happening. Surely you can read between the lines? This process has been so inexorable and yet at a pace slower than crippled snail. the alternative does not bear thinking about...fault lines fracturing the EU itself.

As for Greek politicians and their attitudes. Sadly this kind of venal behaviour is pretty much standard across the political class in the west...but don't get me started on that chestnut!