I hope you remember the collapse of Lehman Brothers in September 2008. It was the one the US decided should be allowed to go to the wall as an example to the others. We got a world financial crisis from which we have not recovered as a result.
The logic error was simple. It was big, but no so big. And it was one bank, and each bank was different.
How wrong could you get? There is no one bank. There's a banking system and each of the bigger players is intimately related to each other in the system in a web few can, could or will ever understand at a point in time. Pulling the plug on Lehman broke the web.
And it's the same with Greece. Sure it's a mess. And there are bruised egos around a table.
But there is also a bruised people.
And there is here another web that could be broken in ways that no one can be sure about.
Suddenly the world seems to be embracing Grexit. Think next world financial crisis. I could be wrong. But the precedents aren't good.
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No, think not next world financial crisis but world crisis period. Alex Andreou is right: Greece is a massively important piece in the jigsaw – because of migration from Africa, because of its strategic impact on Cyprus and the Middle East, because of its location just beyond the Bosphorus (given recent Russian behaviour). Lose Greece and the whole of Europe is weakened.
Agreed
There was an interesting article in the Guardian this week covering pensions in Greece:
49% of Greek households depend on a pension either as the main or only income
36% of Greek HH depend on an income from a job.
Re-expressed, the demands by the troika are to cut the incomes of 49% of Greek households.
Last December I had a meeting in Athens with senior engineers in the Greek distribution network operator. I did not understand why the meeting went very badly. I then learned (later) that their salaries had just been cut by … 50%.
& still, hyper well paid people demand that badly off people in Greece – do more.
The basic approach to the Greek problem that most people take is, I think, mistaken. Forget the economics because that has been ignored for more than 5 years. The economic solution has been clear for at least that length of time and remains untried. No economic framework suggests destroying a national economy to repay institutional credit risks that are routinely absorbed across a network of large, developed trading economies. The consequences of the Greek problem have been in the real world for five years now and we all know that macroeconomic theory does not deal well with reality.
So is the nub of the issue political not economic? By that I mean, is it easier for the politicians comprising the Euro currency club (mainly German who dominate the ECB) to ‘explain’ to their electorates that noble and hard-working creditors will only be getting 5% of their debts repaid upon Grexit because the Greek people as a whole are feckless, reckless, work-shy and lying than 50% repaid because the politicos have negotiated a solution to the accumulated, unpayable debt mountain with the elected Greek government and avoided a breakup?
And by ‘easier’ do I mean they realise that explanation fits better with their stupidity and prejudices, carefully honed over many years by the political leadership through the media? I think I do.
I’d prefer to be wrong about the outcome of this crisis; I’d prefer the solution to be a negotiated settlement with the Greek government, one that they wholeheartedly committed to make work for their country, one in which the ECB looked itself in the face and admitted they had played a part in exacerbating cruelly, one that history looked back on and rightly judged to have been a moment in which a far more dark path was avoided. But it doesn’t look like that will happen, does it?
I’d like to think that we’ll look back on these moments and marvel at the acute judgments that Tsipras, Varoufakis and their Syriza colleagues made over the last few years in successfully obtaining a workable debt load from a complete mess of a situation but I can’t get past the observation that the political facts they are facing are just too dull and entrenched to allow an enlightened result to be achieved no matter the calibre of minds thrown at it.
Absolutely correct Allan but perhaps we have to let the whole pile of cards collapse before we can build a less dysfunctional monetary banking system? The ongoing war of words between austerity and stimulus – Krugman vs Rogoff; Keynes vs Hayek – is compounded, confused and ultimately reconcilable by the spectre of debt. The debt is the problem and it infests both camps and their differences lie in how they try to deal with it but both are effectively in denial that the debt itself is both the cause and the problem. Any debt-based monetary system is ultimately unsustainable and will eventually extrapolate exponentially. It is the duty of any sovereign state to provide its economy with an appropriate supply of money that allows that economy to function efficiently and if feasible expand. Unfortunately that responsibility has been abrogated by the state and the right usurped by commercial bankers so that the money supply has been increasingly provided as debt to those selfsame bankers. It is at last becoming evident that this situation is both dysfunctional and unsustainable. It has to end – and will end – either constructively and timeously or ultimately in one global almighty crash that hopefully will not involve a 3rd World War.
Sorry 4th line: irreconcilable – not reconcilable!
I’d suggest that it was only because Brown was so pressed by economic collapse that he gave all the money to the banks.. Even his brains had difficulty in seeing any other way in hours. We should have had Steve Keen in charge! The commercial bankers are intrinsically, if not corrupt, then certainly narrow-minded. Subdising the creditors is, as you say, unlikely to end happily. It is indeed (more than) time for the Courageous State! But how disheartening that it it is a still small voice…
I agree Richard that the issues are political. There is a strong argument that the difficulties created by diverse economies sharing a common currency were both predictable and inevitable… and were foreseen as a means to force political integration on the unwilling populations of the EU.
The stand-off between the Greek government and the EU elites is a game of chicken. Greece has to back down and be shown to capitulate as the ultimate example to other EZ nations that ‘There is no alternative’ (including, as you write, the German electorate). Or Greece defaults, leaves the Euro with all the possible Lehman-type consequences, and at the very least, demonstrates that ‘There is an alternative’.
Heterodox economists like Michael Hudson and Bill Mitchell have long referred to Greece as a neoliberal experiment into how far a population can be pushed into accepting wealth redistribution upward and offshore, using a ‘foreign’ currency like the Euro as a financial weapon. It is no accident that it was Hayek that first proposed divorcing the currency from national government control. The UK appears to be the experimental forum as to how to achieve the same whilst the government still controls its own currency.
I always dislike the idea of being experimented on…but I agree
Wouldn’t it be great if Greece – along with, as I currently understand it, Iceland became the experiment, following Grexit, that spawned a new global monetary system. I’m sure Ms Sturgeon would be first to jump onto the band-waggon with a dual currency system for Scotland – a debt-free unsupported pound alongside a new sovereign capital currency; it might just work! I gather Adair Turner and NEF are backing Iceland so will they take Greece under their wing too – or is she just TOO recalcitrant?
Surely this ‘dual’ currency is no more than happens currently in most if not all of South America – where the Chilean Peso for example is exchangeable only through/via the US dollar. For a trading nation it really is no improvement when to do anything at all outside of your borders you are dependant on another government’s currency.
Can’t see Nicola being too keen – or it being much use for Scotland…
Surely the focus on repayment of Greek by the banks is fundamentally misguided – cart before the horse. They should be focusing, together with the Greek government, (which is “new and improved” compared to its predecessors and has many people of talent) on how to restart the Greek economy. And then, by the way, they might eventually even get a bit more debt back. Better, as it were, late than never…
Restart?
From where?
The economy has been going downhill from Euro-entry….they have no ability to devalue to make their labour economically viable. Note also the very high level of self-employment in Greece (37%+-) has meant that taxation has been, at best, difficult!
The poor do not have any money to be taxed on, the rich do not pay tax there anyway, and the ones remaining are taking their money and getting out while they can!
Greece should get out of the Euro……
Here is an article from the Public Banking Institute referring to the Magna Carta and the next 800 years. It is very relevant to today’s situation where those in control manipulate their influence through creation and imposition of debt.
http://www.publicbankinginstitute.org/800_years_after_magna_carta_we_re_still_struggling_with_the_king?utm_campaign=pbi_magna_carta&utm_medium=email&utm_source=pbi