Anyone for debt tennis?

“Breakfast with Samaras. You would never guess he’d won Wimbledon so many times,” tweeted @Queen_Europe, a fake Angela Merkel account, on Friday morning as the German Chancellor met Greek Prime Minister Antonis Samaras. The New Democracy leader is known to like a game of tennis but he is certainly no Pete Sampras.

In fact, he admitted that his tactics at this summit were limited; a serve and volley game that lacked any forehand or backhand flourishes.

“I prefer to be defensive on this issue,” Samaras said in response to questions about the longstanding matter of Greek debt sustainability. The Greek leader said his aim was first to conclude negotiations with the troika, secure the all-important bailout tranche of 31.5 billion euros and then consider all other matters.

The strategy has certain logic. Greece’s dwindling credibility when the three-party coalition came to power in June had to be addressed. Somehow, three parties that are ill at ease with themselves, let alone each other, and three leaders who have doubters inside as well as outside party walls have managed to present themselves as adequate interlocutors with the troika and the eurozone. The sense that Greece might be able to turn a corner has been re-established.

This was reflected in the eurozone leaders’ statement on Friday, recognizing “the determination of the Greek government” and “the remarkable efforts by the Greek people”.

However, the statement went on to stress the need for continued fiscal and reform efforts, just in case the Greeks had overlooked numerous such previous reminders. At first glance it seems as superfluous as an umpire reminding players they shouldn’t step on the baseline when serving, but on second inspection it’s clear that the reminder exists in order to set up the statement’s final sentence: “These conditions will allow Greece to achieve renewed growth and will ensure its future in the euro area.”

By linking it so directly to conditionality, the message in the leaders’ statement was that Greece’s eurozone future is far from guaranteed. The speculation that has haunted the country for the past three years will continue to linger, abetted by the unwillingness of the eurozone and its policy makers to make any clear commitment to keeping the single currency as we know it intact.

A couple of days after telling journalists that “Greece has made so much effort and it must now be assured of staying in the eurozone,” French President Francois Hollande told reporters in Brussels that a Greek spot in the single currency area was “not assured” yet.

Hollande scuttling back from the net, where he had the chance to score a game-winning smash, was a reminder that it’s not just Greek credibility that has been lacking over the past few years. The IMF’s took a battering last week after an admission of gross miscalculation on the fiscal multipliers for austerity programs. The eurozone’s has gone through the shredder thanks to a persistent failure to grasp the problem staring it in the face and stand by its currency, institutions and ideals.

This was emphasized at the Brussels summit by Merkel’s apparent backpedalling over the recapitalization of banks in crisis countries. In the early hours of June 29, eurozone leaders agreed on the wording of a text that would allow Spanish and Irish banks to be recapitalized directly from the European Stability Mechanism, thereby preventing the countries’ national debt being burdened by the recap fund. Greece has been holding out hope that it too might be included in this scheme.

Since then, the Germans – along with the eurozone’s three other “AAA” rated economies: Finland, the Netherlands and Austria – have sought for ways to wriggle out of this deal. They have conjured up the term “legacy assets” to prevent the ESM option from applying to debt accumulated before a banking supervisor is set up in 2013. Such a move would, of course, undermine the initial purpose of the proposal, which was to break the crippling link between banks and governments.

“Once recapitalization will be possible, it will be for needs arising from that point onwards,” Merkel said in reference to Spain on Friday, causing consternation in Madrid, and Dublin as well.

The ESM option is vital to Greece as it would allow the 50 billion euros being diverted to inject new capital into its faltering banks to be shifted from national debt. This would be a significant step towards achieving the sustainability that the IMF is demanding and the Europeans are avoiding.

“Let them sort out their differences but without worsening our position,” Samaras told journalists on Friday in reference to the dispute over Greece’s debt. But this seems very much like an abdication of responsibility when defining issues such as the bank recap and an official sector debt restructuring are on the table. It has been proved time after time during this crisis that Greece’s position certainly worsens when the key decisions are left up to others, without any input from Athens. Since June, Samaras and his government have adopted a proactive approach in terms of pursuing reforms and fostering better understanding among their partners of the challenges Greece faces. It seems odd to opt for a more passive line on what is the most crucial issue of all, one which also affects the level of austerity that will be demanded over the next few years.

To prioritize the talks with the troika and the securing of the next instalment is understandable but to fail to have a visible position on how to make Greece’s debt sustainable is puzzling. Samaras’s strategy has won Greece a few games but to win the match, he can’t afford to let any shots pass him by.

Nick Malkoutzis

126 responses to “Anyone for debt tennis?

  1. I dont see how any of all this money that is circulating in the financial side of the economy is helping the real economy, I only see a nation falling apart, austerity driving the creation of a new fascist junta. The nazis are taking control of the streets and of the police. Thats double power.
    I also see how these gigantic money streams are making profits to someone, somewhere. At 5-7% interest rates the vulture funds are the only winners here.
    Debt must be restructured and a Marshall plan must be made up.. THe troika are hired killers. Anyone that believes in democracy and market must go left or be trampled by the rising dark forces.

  2. Long struggle ahead before anyone can say “Game, set, match.”

  3. The formula of Greece’s needs is quite simple:

    Greece to do list = OSI + direct ESM Greek bank recap + growth.

    So far, Germany is preventing and purposely obstructing any progress on any and all components of the formula.

    Germany gets an F as a grade and soon an eff off by thoroughly disgusted European citizens.

    It’s that simple folks. We are stuck with the most incompetent of Europeans pretending to manage issues way out of their depth.

  4. Very good title and content perfectly describing Greece’s current political and economic status (also) from a strategy point of view.

  5. BTW, I don’t think there is any game played at all. There is a complete ban in full force:

    http://www.examiner.com/article/eurozone-gridlock-after-failed-e-u-summit

    • Dean, it is not a game but a tragedy because PIGS do not understand that Germany and other precautious countries will never accept to pay for the errors of careless countries.
      .
      Mr. Hollande rhetorically pushes ahead because he must prove to his citizians beeing more succesfull than Mr. Sakrozy was.
      .
      >”So far, Germany is preventing and purposely obstructing any progress on any and all components of the formula.”

      Imho you enjoy bashing Germany who has paid huge amounts to Greece and not really seen modernization of Greek administration and economy. That is the fault of Greece only, isn’t it?

      • H. Trickler:

        Let me try simplifying it for you because I think you are mixing apples and oranges.

        Following the 2008 crash in the US, Merkel declared that each European country were to be on its own. This created a divergence of sovereign debt pricing (yield) which foreclosed Greece from accessing the financing markets.

        Due to the euro structure – a prevention for any given country member to access world financing markets – immediately creates the responsibility for the EU to provide replacement financing.

        Such is now the situation with Greece, Ireland. Portugal, Spain and soon Cyprus, Malta and a few others.

        This “money for performance” thing you like referring to is a pure German fantasy and a product of Teutonic invention. This is what Germany would like to have but there is no nexus between bridge financing and reformation. The fact you choose to look at it in “less than reputable house” exchange terms (i.e. money for services) it looks to me more your problem than ours. No one has asked to to formulate it in those terms, yet you insist in formulating it so. Therefore, one has to come to the conclusion that this is a fabricated construct of your own making.

        What you owe Greece – without any shred of doubt – is relief for the faulty architecture of the euro. And such relief (to put it in mechanics language) is a problem of the manufacturer. When a fault is discovered in a vehicle purchased, the manufacturer initiates a recall process whereby the fault is cured and the faulty parts replaced. What I am trying telling you is that it is not the custom of the marketplace to blame the driver or the driver’s habits. Your part(Germany’s) as the designer and manufacturer of the euro is to deliver a product without inherent flaws. And the fact that it has flaws is not our problem. And your attempt to make it sound that it is our problem simply infuriates us – the customer.

  6. Dean,
    Roger put it very well in the Greek patient, it is not by spitting in the plate that you will bring good will and pushing the “self destruct” button harms Greece much more than Germany.

    • Estevao:

      The more biased comments you offer on the issue, the more you reinforce my point that you are framing your own fabricated reality of what you think the problem is.

      The solution is 100% political and ,no, Greece does not lose by harming Germany. Only Germany loses from that.

      When a nation withstands pressure and goes on counter-attack it’s something formidable which you are unable to cope with. Pretty soon you will understand what I am talking about.

  7. @ Dean: “Your part(Germany’s) as the designer and manufacturer of the euro” – Sorry, but how do you get on that rubbish idea?
    The Euro has been designed by the whole euro-group.
    If it where bfor the germans only, the would had stuck by their D-Mark. The Germans were not happy at all to sacrifice up their currency for the new constructed common crency, even because they feared some problems.
    Greece was mismanufacturing as well by coming with a totally wrong database about their economy. They exploited the new currency, because they where able to borrow their money much cheaper than before with the drachme.
    The blaming game can be played to each one. But no country will feel guilty by its own, not the greek neither the germans.
    There remains the question: How to repair the stuff, how to go on in a better way?
    But please, not in the way of “Germans, you pay the party or we continue pushing the self destruct button.” Otherwise the answer must be: Happy suicide.

  8. Roger:

    Without the artificial design of the euro currency (which turns out to be a distinct German advantage), today the euro would be trading at $1.80 vs. $1.30. So, right from the get go Germany gets an unfair subsidy for (mainly) its own benefit as an exporter.

    Second, due to the ongoing crisis Germany services its sovereign debt at close to 0%. In other words Germany is free loading at the expense of the rest of Europe.

    Third, by actually promoting instability in the eurozone, Germany facilitates the fleeing of all European investment capital into Germany for safety purposes. In other words Germany drains Europe for its own and sole benefit.

    It is estimated that for the last 4 years Germany has profited from the crisis to the tune of 100 Bil. euros. To my knowledge no other country in Europe has had such benefit and to such extent.

    They say that if something looks like a duck, walks like a duck and quacks like a duck then it’s probably a duck. Germany is the sole benefactor of the European crisis and has a reason to extend such crisis as long as possible versus solving it expeditiously.

    And if you want to return to the D-mark, please be my guest. Go back to your D-mark and leave the rest of us continue with the euro. We don’t need hypocrites in Europe.

  9. Only a super spoiled kid from the non tax paying Greek elite can be oblivious to the fact that the country is living the worst economic contraction of any country since WW2

  10. @Dean Plassaras | October 22, 2012 at 5:43 am

    I’m not German but an Austrian who tries to understand the Greek situation and what Greek people think. Therefore I thank you for your effort to explain your point of view.

    If you think that I mix apples and oranges, this arises from the situation that I wonder where you acquired that economic standpoint you and others in Greece express. You say that the Euro is a misconstruction and I know that some Americans also say so, but imho for American egoistic purposes.

    Right before the start of Euro it was clear to everyone that only currency’s that are ‘strong’ enough and which fulfilled so called convergence criteria could become part of the Euro zone. As can be seen in interviews (diffused by Austrian TV) of the Greek government of that period, the Greek government applied some criminal tricks to make look the drachma much better than it was. Only by such fraudulent misrepresentation Greece became a member of the Eurozone, and of course this cheating became obvious a few years later.

    Before you now blame Germany for misconstruction of the Euro I think that the criminal Greek politicians of that time should be sentenced by a Greek court and everybody in your country should learn how it really came to that disaster.

    I look forward to your reply.

  11. Trickler Aus Österreich:

    Here is the reply.

    1. The European is 2 fold. A crisis of the banking system and a crisis of competitiveness. This is how 99.9% of worthy economists around the world have framed it. Therefore Greece is not the problem, rather a symptom of the crisis. This is the big picture and so that we don’t get into these exhaustive discussions a la German mechanics language which lead nowhere.

    Now, let’s get into the topic of “lies and German propaganda” topic. You say that Greece cheated in getting in but you fail to use logic in such position. What you are suggesting is that some low paid Greek civil servants pulled the wool over the eyes of much higher paid Brussels bureaucrats. Obviously such could neither happen nor it happened. In reality it was the Brussels civil servants who told their Greek counterparts on how to present the data for approval.

    We all know that Greece as a state over-borrowed. It’s true but what killed the state is not the over-borrowing but the skyrocketing of borrowing costs (yield of Greek bonds) from roughly 3% to about 25%. As you know sovereign debt is almost never repaid, rather it rolls over to new debt with new interest rate. Germany never repays her sovereign debt either. All she does is to roll over her debt at almost 0% and try to grow her GDP so that the debt to GDP ratio becomes lower as the economy grows.

    When Greece found herself unable to access financing markets it goes without saying that the EU had to become the lender of last resort otherwise the entire EU banking system would have collapsed. So, regardless of the reason why Greece got into trouble, coming to the aid of Greece was a forgone conclusion and a clear European obligation.

    The problem in Greece’s case is that Merkel’s arbitrary rules of disbursement have created a depression that is already in its 5th year and probably another 3 years to go. The remedy applied by Germany has nothing to do with the disease. It’s known by now that German remedy has created a disaster beyond any acceptable bounds. Even if you are a student of Von Mises and the Austrian school of economics, the theory is a sharp contraction of no more than 10% of GDP and a rebound within 2 years more or less. In Greece we have a 30%+ contraction of the GDP and at least 7-8 years until rebound. So the Austrian School has failed to prove its thesis in Greece due to a misdiagnosis of the problem.

    If the state(Greece) over borrowed (which it did), then the state ought to go bankrupt. What we have here is theft in broad daylight. Merkel came in and took 85 Bil. of Greek assets through her PSI nonsense, thus wrecking the engine of the economy, and then refusing to give the same haircut of 80% to the Greek bonds held by her and other EU central banks.

    The people of Greece do not deserve such torture and lies. The state for us is not the same as the people. The state can go bankrupt. Transferring obligations of the state to the backs of innocent folks is a crime. And the only reason you are asking for this sacrifice is to support something beneficial to you. Why? Why would the citizen of Greece be punished for the crimes of the state? The state can reform over time and regroup but under no circumstances you should have the nerve to come to average Greek families asking to lower the cost for Germany. That we will not do under any circumstances.

    • Dean, I’m perplexed by your answer. Your knowledge of English is better than mine, you obviously know a lot about the world, but for the detail how the tragedy with Greece and the Euro started you seem to live on another planet than me😉

      Others also have mentioned how Greek government with the aid of Goldman Sachs manipulated the balance sheets in order to become a member of the EU zone and in the investigation shown in Austrian TV the responsible ministers of your country agreed to those facts (There can be no misunderstanding because the whole discussion was in English language).

      I was not “suggesting is that some low paid Greek civil servants pulled the wool over the eyes of much higher paid Brussels bureaucrats.” It was the Greek government who hired and paid a fortune to bankers who helped them to commit and hide their crime.

      But even if we take your point of view that somebody else told the Greek counterparts how to hide the unfavorable facts, it is the Greek government who is responsible for the cheating. (There is no such excuse as to tell “it was Dean who told me to kill that guy”😉

      Again, you are right that it is the tremendous rise of interest rates which finally kills states. But everybody knows that at this unforeseen, but also inevitable turning point where inconsequential financial markets suddenly loose confidence a point of no return is traversed without any possibility of escape.

      Responsible governments therefore will never allow that their economy will approach such a situation. Because politicians always have tendency to spend too much money, Switzerland has implemented a law that forces hard limits on debts of the perfectly stable Swiss state.

      “If the state(Greece) over borrowed (which it did), then the state ought to go bankrupt.” I fully agree with that, but have you ever imagined what in this case would have resulted for the ‘innocent’ folks: The state would no longer be able to pay pensions to the retired, no more salaries to anybody, the police stops working, chaos to the country. I think that the population is not innocent, all the governments of the past decades have been elected by majority and all citizens have to bear all consequences following from the actions of the state?

      That’s how a retired physicist sees the situation, and just for curiosity, may I learn more about your background. In case you prefer not to publish that, you can reach me at tricky1 at sms dot at.

      • Herr Trickler:

        My background is on the internet in full display. Just Google my name “Dean Plassaras”.

      • > There is no such excuse as to tell “it was Dean who told me to kill that guy
        Sorry for repeating your example – I hadn’t read your post when I used it myself.🙂

        > Responsible governments therefore will never allow that their economy will approach such a situation.
        I start understandig that in this topic we face a culture clash between northern “hard currency societies” and southern “soft currency societies”.

        If beeing used to live with soft currency and huge inflation, you may not see there a moral point of “irresponsible behavior”. You are used to the money press and to high inflation rate since years and tens years and it feels just common. The southern countries and societies simply adopted to their “soft currency”-environment.
        So better ignoring any morality I prefer to ask: Are these societies able to change their way of habit and to adopt (quick!) to a “hard-currency-environment”? Otherwise the single-currency-concept must fail again and again and IMHO some or all countries have to go back to a national currency.

  12. What Dean will never tell is that Giorgios Mitsotakis, former prime minister of Greece, was telling since the nineties that the model was bound to fail, with the result that he kept losing elections to the demagogic Papandreou, that the person at Goldman Sach who enabled Greece to cheat the criterias of entry is a Greek woman, that Papandreou son won the elections with the slogan “there is money” when Neo Democracia was saying the inverse, etc, etc…
    And now that the country is broken appear “ex nihilo” the figure of the state, this entity that do not represent, nor constituted, nor elected by the people, that nobody bear the responsability for it’s existence, and it is the “obligation” of the Germans to pay the bill.

  13. > If the state(Greece) over borrowed (which it did), then the state ought to
    > go bankrupt.
    In that point I totally agree. A bancrupt of the state or its banks would have given the chance for Greece to restart new. It not only would had been better for greece, it also would have been a good lecture to banks that there is a risk for you if you give someone more money than he can pay back.
    Greece still has the possibility to declare bancrupt – earlier or later it will probably happen anyway, so better an end with horror than a horror without end.
    But its up to Greece to declare bancrupt.

  14. To Estevao:

    The charge about Goldman Sachs is a later issue during the Karamanlis era. This was the time of the Olympics and Greece was already running over budget on Olympic Games venues. So, they sought advice from Goldman Sachs which suggested a form of hedging. In other words buying insurance in the marketplace for events that might go against you. And a few other procedural issues. I don’t know the details of the Goldman Sachs advisory so I can’t commend on them.

    Re: Mitsotakis, his daughter Bakoyiannis is a product of the German School of Thessaloniki. Therefore, I don’t think Mitsotakis has exactly what you call an unbiased opinion on Greek affairs. Philogerman attitudes are not exactly what you call honest assessments of situations.

    To Rodger:

    I am glad we agree but you will have to exclude the Greek banking system from bankruptcy on the grounds that none of the Greek banks engage in investment banking which is the source of liquidity flooding across the globe. So, if you want to harm French, German, Austrian and other EU banks then be my guest. Because as far as the Greek banks are concerned Merkel has already taken 80% haircuts which has left them below Tier 1 capital acceptable levels and therefore unable to function as banks. And to add salt to injury, Merkel now wants to re-capitalize them by giving Greece an additional loan despite the fact we already have a debt to GDP ratio of 170%.

    • “Iyou will have to exclude the Greek banking system from bankruptcy on the grounds that none of the Greek banks engage in investment banking”

      Greek banks who hold a considerable part of loans from the Greek state will also loose that asset and therefore go bancrupt with all consequences for the private savers.

      That is why all reasonable persons in Greece already have withdrawn their money from Greek banks. Or, Dean, do you still have your private savings in a Greek bank??

  15. BTW, look at the chart below (Germans and Austrians are precision people, so we must talk to them precisely).

    So here is the deal of fairness and equity(or lack thereof) we are talking about.

    Germany pays around 1.3% interest on its long term debt. Given that the inflation rate in Germany is closer to 2%, it means Germany is borrowing at a real (vs. nominal) negative rate (below zero).

    Greece – if it were up to markets – would have to pay an interest rate 1900% higher. Therefore Germany and others loan to Greece at rates 400% (between 4-5%) higher than what Germans pay for the exact same function. These are loans to Greece, Germany and others profit from them, and book profits on a regular basis.

    Therefore, instead of realizing that we are dealing with an issue of extreme inequity, unfairness and usury (if you wish) we instead have to hear you fellows constantly complaining about things that are far removed from such specific issues. You complain about the government of Greece, the efficacy of the political system, the competency of her politicos, her industry and the lifestyle of all her citizens.

    Do you people actually mean it? or is it a cover for the crime perpetrated so that the attention is focused elsewhere?

    http://www.ecb.int/stats/money/long/html/index.en.html

    • Dean, varying interest rates result from international auctions, where states ask to get money from big international (private) lenders. So it is not “the German” or any other government or populace who decides to punish the Greek population.

      If you think it is unfair, you must not only accuse a few nationalities but the whole rest of the world!

  16. > but you will have to exclude the Greek banking system from bankruptcy
    Bancrupt is bancrupt, therefore you cannot decide to give money to one lender but not to another one.
    After declaring bancrupt, th greece government will have to deal for several years without any deficit, because they will not get credit anymore, anywhere. There is no free lunch.
    And going bancrupt means also no more european bailout credits for greece. Greece would have to stand on their own feet, not paying money, but also not receiving some.

    You are correct that Germany actually pays historically low interest fees. I really dont feel fine with that, its not healthy at all. It motivates for taking higher debts, that may awfully hurt, when times are changing again. As it was healthy not for greece, when they paid unnaturally low interest rates the years after joining the euro and took much more depts than they could carry in worse times as we see now.
    And, on the other hand, in the last years Germany has taken (much to) high risks in giving tens ond hundreds of billions Euro in guarantees for bail-out-fonds for the debts of other countries, that in huge numbers will never ever be paid back. So at the end Germany will have to pay huge amounts in any way. The crisis will not at all going to be cheap for Germany and the other participating european countries.

    By the way: I would have preferred it if they would have continued the “no bailout-policy”. Greece had have to declare bancrupt much earlier, would had gone bust, but could already be “through the worst”. And all the banks playing casino would have gone bust, learning there is no free lunch, no deal without risk. It should have been better for all countrys, but worse for the banksters around the world.

    Sadly it did not happen, so now we have to deal with the situation we are.
    And that means for Greece: Come back on your feets, look out for the best ways to get out of the muddle, but stop the blaming game and the self destructing blackmais, it hurts you more than it works. The Greece society and the Greece government steered toward the muddle, they are responsible to get Greece out of the muddle, not the European or the German one.

  17. None of the comments above mention that one of the reasons banks were willing to lend to Greece was due that the books were “cooked” and this was certainly not their fault.
    Unless, by reading the interventions of Dean, you conclude that people unwilling to take any responsibility are the sames ones who think there is nothing wrong in duping the Xenos, and it was up to the banks to know that this is the prevalent local mentality.

    • Sry you are wrong on the details why banks wer lending to Greece: With the start of the Euro all members seemed to meet the convergence criteria and therefore were entitled to the same intest rates.

      What I never understood is why they continued lending when the manipulation had become known?

      • > What I never understood is why they continued lending when the
        > manipulation had become known?
        (Succesfully) counting on bailouts? Assuming they are to big to fail?
        I still think it was a huge mistake to bail out these banksters.

  18. Estevao:

    The reason credit was given to Greece was not because of cooked books. It was based on the notion that all eurozone countries had the same implied risk which translated to a borrowing rate of about 3%. When the 3% financing rate shoots up to 25% obviously this creates an unsustainable burden. Nothing to do with books. This is simple math. If you have debt of 1000 at 3% it means 30 in annual interest. The same debt of 1000 at 25% means 250 in annual interest. Instead of blaming Greece for accounting entries which were inspired by Brussels guidance, it would be more accurate to blame Merkel who following the US 2008 crisis, broke this conventional thinking about pricing of eurozone debt and instead declared open hunting season upon the most vulnerable “partners” (we since learned that partners for Germany means servants instead).

    Roger:

    Here is where your logic breaks apart. At the beginning of the crisis for Greece (circa November 2009) the debt to GDP was 117%. After measures introduced and requested by Germany (for financial assistance which was to be given anyway due to pending collapse of the European banking system) out debt to GDP ratio today stands at 170%. If you want Greece (us) to stand up on our own feet, then please stop pushing us back down from either ignorance or malice or both.

  19. Dean,
    I can’t imagine more public information than the Wikipedia page on “Greek government-crisis” here is part of it and it shows what Roger and I had been saying:

    Quote

    To keep within the monetary union guidelines, the government of Greece had also for many years misreported the country’s official economic statistics.[33][34] At the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001, for arranging transactions that hid the actual level of borrowing.[35] Most notable is a cross currency swap, where billions worth of Greek debts and loans were converted into Yen and Dollars at a fictitious exchange rate by Goldman Sachs, thus hiding the true extent of Greek loans.[36] The purpose of these deals made by several successive Greek governments, was to enable them to continue spending, while hiding the actual deficit from the EU.[35] The revised statistics revealed that Greece at all years from 2000-2010 had exceeded the Euros stability criteria, with the yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and also the debt level clearly exceeding the recommended limit at 60% of GDP.

    In February 2010, the new government of George Papandreou (elected in October 2009), revised the 2009 deficit from a previously estimated 5% to an alarming 12.7% of GDP.[37] In April 2010, the reported 2009 deficit was further increased to 13.6%,[38] and at the time of the final revised calculation by Eurostat it ended at 15.6% of GDP, which proved to be the highest deficit for any EU country in 2009. The figure for Greek government debt at the end of 2009, was also increased from its first November estimate at €269.3 billion (113% of GDP),[39][40] to a revised €299.7 billion (129% of GDP).

    This major upward revision of the deficit and debt level, was caused by flawed estimates and statistics previously being reported by the Greek authorities in 2009, resulting in the need for Eurostat to perform an in depth Financial Audit of the fiscal years 2006-09. After having conducted the financial audit, Eurostat noted in November 2010, that all “methodological issues” had been fixed, and that the new revised numbers for 2006-2009 were finally considered reliable.[41][42][43]

    Despite the crisis, the Greek government’s bond auction in January 2010 had the offered amount of €8bn 5-year bonds over-subscribed by four times.[44] At the next auction in March, the Financial Times again reported: “Athens sold €5bn in 10-year bonds and received orders for three times that amount”.[45] The continued successful auction and sale of bonds, was however only possible at the cost of increased yields, which in return caused a further worsening of the Greek public deficit.

    As a result, the rating agencies downgraded the Greek economy to junk status in late April 2010. In practical terms this caused the private capital market to freeze, so that all the Greek financial needs instead had to be covered by international bailout loans, in order to avoid a sovereign default.[46]

    UNQUOTE

    This said, I still expect you to defend the indefensible, that Greece is blameless and a “poor victim” of “dark foreign forces”.

    • Thx for that quote I did not know but which exactly explains what the film in TV showed months ago.

    • Assuming for a second that you are interested in a true conversation (instead of ruling out things quickly so that you could arrive at something more manageable, usually by disciplinary means), here is a feeble attempt at replying:

      1. Wikipedia is an open source. If I wish to, I can go to this same Wikipedia article, present some financial credentials which I have, and then proceed to edit and rewrite it to the point that would appear unrecognizable to you. And I could do all of this in the next couple of hours, if I was so inclined.

      2. Currency swaps are very prevalent in the business world. I personally did a currency rate swap in financing a office high rise building for $150 Mil. because the currency swap made my effective financing rate lower and thus the Net Present Value and Internal Rate of Return for the building higher/more attractive as an investment. However, I had to use specialists for such and I could tell you that currency swaps are not for novices. Now, if you tell me that some Greek bureaucrats engaged Goldman Sachs at one point in a currency swap thinking that it would be a panacea and without fully understanding the consequences of the underlying premise of the swap (i.e. that if you bet wrongly on the outcome the swap could turn out horribly wrong) then I will concede to your point. But it is not cheating. This is more ignorance and lack of skill. Goldman Sachs was well versed in the product (that’s why they recommended it as an alternative) but the manager on the Greek side probably didn’t know what he/she was doing. Those things happen and in advisory situations like this one party has vastly superior knowledge than the other party. Also a skilled advisor also leaves room for future engagements on the same issue down the road. I am willing to bet that Goldman Sachs knew that the Greek ministry will run out of gas at one point on the currency swap and would seek competent advice again by Goldman Sachs. Whether such follow-up advice did not occur because of lack of funding, knowledge or competence should not be confused with cheating. More like creative finance but not cheating.

      What I would like to suggest is to avoid trying to interpret very big issues (like the state of the Greek economy) with very small procedural events (like the hiring of “evil” Goldman Sachs). Because trying to explain the Greek crisis in terms of sinning, cheating and through the application of a few other of the deadly sins is more like populism than science. It’s the science and reason we need to gravitate around not feelings or emotions.

      • Thanks, a very interesting post. At some points I stumbled:
        > More like creative finance but not cheating.
        What is the deep difference between “creative finance” and “cheating”? I think we learned at least nowadays, that the first is only a nifty synonym for the second.

        > But it is not cheating. This is more ignorance and lack of skill.
        Lack of Skills – Shure, I agree with you.
        Ignorance – No, thats to soft for me to follow.

        You cant tell me the greek Government didn’t have an idea of what happened. They actively hided the real economic data and showed their faked data toward Europe and the capital market because they knew, their real data are less than bad.
        I agree that the greek government probably did not understand in detail, HOW Goldman-Sachs operated to professionally fake the data, but they knew THAT GS did so because that was the dirty job GS was hired for huge amounts of money .
        Most people hiring a killer dont want to know in detail HOW the murder is done. They only want to know THAT the murder is done, and done by a professional. You can’t call them innocent and simply ignorant if they don’t know every detail of the murder itself.

        So IMHO both sides, the greek governments and Goldman-Sachs, actively cheated and betrayed.

        But nevertheless, thats history. I care less for the blame game of history than for the ways to future.

      • Dean, you certainly know what happens if you try to manipulate wikipedia: It has been shown many times that after some delay the full truth wins!

        > “I am willing to bet that Goldman Sachs knew that the Greek ministry will run out of gas at one point”

        No doubt about that, but who allows some surgeon to have a leg amputated without a hearing a secondary opinion?

  20. In ekathimerini Mr. Alexis Papachelas publishes annother proof of disturbed standpoint:

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_23/10/2012_467106

    After reading his opinion I start understanding how intelligent persons like Dean come to their conclusions.

    • Herr Trickler:

      Let me try to explain (after the reason vs. emotion speech I gave above) how one has to interpret Papahelas:

      1. He is an editor of Kathimerini, clearly a paper of what you fellows call the “Greek elite”; which you have already declared to be the core problem.

      2. His education is journalism from Columbia University. Good school, but journalism is not a exactly how one gains expertise in financial and management matters (which BTW happens to be the core problem of the Greek economy at the moment).

      3. Pahahelas is skillful in rhetoric and when I read this particular article my first reaction is that this is an “emotional call to action” with magnificent absence of what the subject of action ought to be. To me this article does not say much other than “let’s get better”. This is a typical motherhood statement. A motherhood statement for example would be to say “I love Germany and Bavarian beer”. Something pretty much all Germans would easily agree to.

      4. I just happened to see this morning an one-hour video with Papahelas and Pangalos (ex-minister) at “Anoiktoi Fakeloi” (loosely translated to an “Open Dossiers”) on Skai TV. In it Pangalos (an experienced politician but by no means my ideological model – I am not a PASOK guy) literarily cleaned Pahahelas’ clock. Pangalos came out of the interview smelling like a rose and a towering figure (we are not talking about his actual size here) and Papahelas as kind of a mean spirited journalist. My point here is that for someone to become an authority on a given subject, means that one should first become dominant. Then his/her opinion might carry some extra weight and yet again this depends on the circumstances. Good citizens never allow others to do their homework. They do it themselves first.

  21. @ Dean: In my humble opinion, the story begins earlier, much earlier, around 1999. I try to show my view quite epic:
    1. Before entering the euro, Greece had to pay higher interest rates than germany. That was reflecting the higher inflation of the national currency and a higher scepticism of the capital market toward the greece politics and economy. That did not feel fair, but at least it seemed to work at a quite stable level and all members of the markets and politics knew the mechanism.

    2. The new common currency, the euro, was designed to be a hard, stable currency with low inflation. It should guarantiee all joining countries the same economical advantages of a hard currency. Main tool: An independent currency bank, that should not be commanded by any government to print money for nothing and therefore devaluating the worth of the currency. All countrys dreamed of getting a currency as hard and respected as the Deutschmark. Only the Germans felt really bad by giving up their respected, wellknown Deutschmark for an experiment, a new, probably weaker currency.

    2. Entering the Euro, the different interest rates between the countries shrunk rapid. For Greece, the interest rates fell very strong, it was cheap and easy getting more money than bevore. The Greek society and the greek politicians must have felt as in heaven – lots of cheap money easy to spend. Think e.g. to the quite expensive Athen Olympiade. Nobody in the greek society stopped the politcians spending lots money. In contrary the politicians promising to be most lavishly got popular, won the elections and governed the country.

    3. Sadly, the Greek society and the Greek economy did not grow in the rate the debts did grow. And sadly, the society was not used to work with a currency with a much much lower inflation rate (even if they dreamed of heaving such a currency – beware of what you wish). So prices and incomes continued to grow, but the ability to compete in production with other economies, in asia as well as in europe, continued to shrink.
    (Same with other southern european countries not used to live with a hard currency and low inflation)

    4. In the first years of the euro, Germany instead had huge problems adapting to the new currency. Many of the competetive advantages of their currency seems to have been lost, additionally the competetive pressure from China was felt very strong. Germany fell into a quite deep recession, it was called the “sick old man of Europe” in that time. Germans did not forget it.
    As german society already knew and was used to it, there is no way in printing money for nothing, so they had to cut their costs instead. They did what they were used to as a hard-money-society: Increasing the efficiency of the economy, tighten the belt, shrink in income etc. pp.
    Have you ever heard of “Hartz-IV”, “Agenda 2010” and the huge demonstrations and political fights about it?
    Finally, Germany got on the feet again, getting competivite even toward China, the main economic challenge of this time.

    5. Anytime, the market members realized the shrunken competivity and the risen depts of Greece and other southern european countries and they panicked – so the interest rates grow up to heaven.
    Greece got bust and now it has to carry the burden.

    6. As far as I can see it, we have seen a classical story of
    “Be careful what you wish for”.
    Greece wished to join a “hard” currency with very low inflation.
    Greece got invited to that currency because it succesfully cheated regarding their economic base, but Greece was not used to handle with it. They continued behaving as before, when they were used having a super weak currency. The key to the problems we face today.

    It turned out getting really ugly in a way nobody did expect, neither Greece nor Germany or other European countries.
    So lets forget the blame game – IMHO all people and nations have to be blamed in the same way for not fairly understanding (or not reacting earlier to) the mechanisms the common currency created and the requirements of “habit-change” for the involved nations.

    To look toward the future I see two main questions:
    1. How to get out of the muddle we are now?
    (I think, we will see another huge dept cut for greece. But following this dept cut greece will have to stand on its own feet, not expecting to get subsidized by Europe more than eg Bulgaria or Romania.)

    2. How taking care not to repeat getting in that muddle?
    Is the greece (and other southern) society able to change its habits in the way it requires to live with a hard currency?
    – Spending cuts and incomes, if there is lack of money, instead of printing and devaluing the currency?
    – Increasing incomes only, if the production efficiency is rising as well?

    I dont think it will be easy for a society changing its habits. But if Southern European Countries wwill not feel able or willing to adapt to the demands of a hard currency (as it is required by northern european countries) , the common currency will fail and has to be ended, the sooner the better, for all or only for the failing country.

    For Spain, Italy and Portugal I am quite opimistic regarding the second topic. But as long as the typical public Greek reaction for the demand of belt tightening seems to be “press the self destruct-button, beg (or blackmail) the north for more money and only expressing hate toward a helping hand”, i am quite sceptical for Greece.

    • Roger:

      I agree with many things you said.

      Turning into the main question, how “do we get out of it”.

      Here is my quick and dirty take. The 3 pillars of the Greek economy are:

      1. Tourism
      2. Shipping (Merchant Marine)
      3. Services (Financial services (mostly banking), insurance and real estate).

      Tourism is doing fine but could always improve. Not so much on higher number of tourists but on euros spent per person per stay.

      Shipping is a global business and has to do with the state of the global economy. When there is global commerce on the upswing then shipping revenues would increase for Greece.

      This leaves us with FIRE (Finance, Insurance and Real Estate) sector. As the banks get recapitalized and real estate conditions improve then we will see more activity. But the forced liquidation of state assets is not helping real estate pricing driving it lower.

      Trade is improving for Greece as you can see here:

      http://www.investingreece.gov.gr/default.asp?pid=56&la=1

      So things are turning, competitiveness is improving (Greece was voted most improved). One thing to keep in mind is that this is like turning a big ship. While the steering wheel is turning hard the movement on the ship from the outside is not yet visible.

  22. I did expect Dean to defend the indefensible, and I was proved right.

    Let’s start by the beginning, Roger has already talked about the credibility of Wikipedia and I will not go back to it. There is also a second reason that I know that the article is right, I had been personally following the developments of this “accident waiting for happening” for the last 20 years. Let’s continue, you are asking the rest of Europe to help a country who will pay tens of millions in “consultancy fee” to a team of Goldman Sachs lead by a Greek woman, without understanding what they are doing? So, essentially you are pretending that the country is being managed by a bunch of incompetent, and that the Greeks employees of the Minister of Finance have the financial capacities of a student of High School?
    Well, for a people who likes to think that they are smart (sometimes too smart for their own good) you are suddenly very humble and I strongly suggest in this case to give it up and let Angela send her people to manage it, they had already proved many times on their own country that at least they know what they are doing.

    Let’s continue with what you wrote:

    ” Currency swaps are very prevalent in the business world. I personally did a currency rate swap in financing a office high rise building for $150 Mil. because the currency swap made my effective financing rate lower and thus the Net Present Value and Internal Rate of Return for the building higher/more attractive as an investment. However, I had to use specialists for such and I could tell you that currency swaps are not for novices.”

    Bad luck Dean, currency swap are part of my job and there is no way to reduce your effective financing rate by it, by the simple reason that the differential in rates between one currency and the other is embedded in the forward rate of the cross. The only way to reduce your rate is by financing directly in the second currency like Yen or Swiss Francs, but this are the currencies that have a tendency to go up and not down, and you are taking in this case a huge risk, much higher than what you are saving on the rate. If not, nobody will be financing themselves in any other currency than the Yen.

    I can continue indefinitely about your commentary about the pillars of the economy, but I will stop on the fact that there is no way for shipping and tourism to bring enough foreign currencies in order to pay for all the imports of Greece, you need a much more diversified base than that.

    And I finish with a question. At the end, are you saying that the Greeks are so uneducated that the best that may happens is to leave Europe to manage it?
    If that is the case, may you please ask the locals to shut up their mouths and stop striking, burning the cities, parading in nazi uniforms and other “niceties” that make it much more difficult to save it?

    • Estevao:

      Re: currency swaps. The one I did was an interest rate swap to lower our financing cost and it’s very closely related to a currency swap whereby in addition to the interest you can also swap principal as well. It is a form of hedging, certainly a derivative (deriving its true value from another financial instrument) and at the time was perfectly legal. Not fortuitous as it turned out to be but legal.

      Re: your idea of having others manage the Greek affairs, why don’t you come down to the Greek Parliament and propose it. I think it will go down very well and we might be able to erect a statute or two in your honor somewhere within the Greek territory.

      Finally, where the Greeks are competent or incompetent, intelligent or less intelligent, corrupt or straight laced I personally think all of these are issues for the Greeks themselves to decide. Only they can internalize the problem and correct it – provided they are convinced something is worth correcting.

      If on the other hand Greek internalize the kind of criticism that you are levying as a malicious attempt of defamation, I wouldn’t want to be on the receiving end.

      And since we are talking about swaps, I would never attempt swapping a Greek administration with a European one. Not only it’s a swap destined to fail but it is also a move not to be undertaken under any circumstances. Not even Goldman Sachs can make such swap pencil out.🙂

  23. Dean,
    There is a hole in your reasoning, and a big one. You are autonomous as long as you not asking for help. As soon as you ask for help, you have two choices when it comes with conditions, accept the conditions and say “thank you” or refuse the conditions and in this case your answer should be “thanks but no thanks” and pay the consequences of refusing the help.
    What should not happen, never, is what a guy from California is doing in the name of the Greeks, take the help and after spit on the ones who are taking the big risk of never seeing their money back. And the more you bad mouth them and don’t learn from your mistakes, the more it is guaranteed that they would finish looking like fools who helped who shouldn’t be helped.
    Unfortunately for me, I see red when somebody behave in a proud and arrogant way at a moment where they should be circumspect, humble and atoning for their past behavior. The Germans had been extraordinary on this aspect since the end of the WWII. Let’s hope the Greek from California may learn a bit from them.

    • Estevao:

      I happen to be a Greek from Athens and not California. We live in a global economy and there is nothing that prevents me from having multiple bases. I am also an American from California, so I think this might be a disadvantage for you but don’t let it destroy your psyche yet.

      Talking about logical gaps let me tell you of yours which happens to be a gigantic one. When Germany in November 2008 declares that each EU country is on its own and therefore any and all implied fiscal solidarity is blown to pieces, you can’t talk about countries requesting financial assistance.

      You can only talk about victims of German gross mismanagement, incompetence and malpractice. From a strictly business point of view, this is where Germany gets fired along with a strong letter of condemnation never to be hired again.

      Whether you see red or any other colors of the rainbow that’s your problem. My problem with you is that you freely dispense advice upon my people and at the same time assume that you are worth listening too. You are not of course and therefore strongly advised to keep your opinions to yourself and behave towards my motherland with respect.

      • > When Germany in November 2008 declares that each EU country is on
        > its own and therefore any and all implied fiscal solidarity is blown to
        > pieces
        2008? 1992, in the Treaty on European Union (1992)!
        Germany? All Members of the European Union!!! Including Greece!

        In 1992 the “no bailout Clause” has been included as article 104b, in the time the foundations of the EURO-project have been layed, just to calm the sorries of countries like Germany they would have to carry a dept they didnt create and they cant influence.
        http://eur-lex.europa.eu/en/treaties/dat/11992M/htm/11992M.html
        “Article 104b: 1. The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

        > you can’t talk about countries requesting financial assistance
        Of course he can, because Greece is doing exactly that.

        And e.g. for the german government it is a very thin edge they balance, because many Germans believe by giving the credit they have broken the treaties and the german government shall not be allowed to give any credit (especially in that volumes) toward the southern countries.

        > From a strictly business point of view, this is where Germany gets fired
        > along with a strong letter of condemnation never to be hired again.
        Tell me any other country that would offer that amounts of money toward onother country, expecting just to burn the money, and accepting to receive nothing else than hate. If you find that country, hire it and feel in haven.
        Indeed, Germany seems to have a masochistic streak in their relation to Greece sometimes.

      • Postscript: A question I am really curious about:
        – Did you not know about the “no-bailout-clause”?
        – Do the Greek society not know about the “no-bailout-clause” Greece subscribed 1992?
        – Or did they subscribe, know it but simply ignore and hope to forget?

        Just for comparison: For Germany that clause was a VERY big deal. Otherwise, I am shure, the Germans never ever would have accepted changing the Deutschmark to the EURO.
        So for Germany it was for all the time totally clear that there has to be no bailout, never. And now they are quite upset about it.

  24. In French there is the expression “only the truth hurt”. You may be hurt, but you shouldn’t lose your mind.
    What you wrote below doesn’t even make sense:

    Quote

    Talking about logical gaps let me tell you of yours which happens to be a gigantic one. When Germany in November 2008 declares that each EU country is on its own and therefore any and all implied fiscal solidarity is blown to pieces, you can’t talk about countries requesting financial assistance.

    Unquote

    Can you please re-write it in a way that can be understood?

  25. Dear Roger,
    Apparently you are not a fan on the subject of denial or cognitive dissonance. “The man who Estevão loves to hate” will never, ever, accept evidence at face value. You may come with the best of arguments, prove it a hundred times, you will never hear “yes you are right”. Forget about it.
    I argue with because sometimes he is funny and sometimes he is clever, and he is passionate on a subject that I love, and it is challenging to answer. Some other times, as you may had noticed, when he is cornered, he may be very aggressive, but I lost hope, many blogs ago, to reason Dean, he is beyond hope.
    Btw, he made laugh for being proud of his two passports, I live in a house where I look as the poor one for having “only” two passports🙂

  26. Roger, Estevao et al:

    It looks like we will have to work on your education first. These are the undisputed facts:

    When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it. When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement. At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.

    And then came the moment that German, formerly at the forefront of a federated Europe, stopped the progress dead in its tracks…

    The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

    This is a really huge point to grasp, because a nagging question has been: Why did the market think of Spain/Greece/Italy/Etc. as being risk-free sovereigns at one point, and then decide that they were not risk free and subject to credit risk.

    Answer: Because they were essentially risk-free so long as the arc was always towards more integration. That ended when Merkel made the declaration he says above. This is key.

    • > “At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.”

      You are correct that for many years after WW2 Germany did actively follow the international directions given by US and NATO and was also prepared to sacrifices in order to obtain agreement of unification with East Germany. The motives that you think have led to the Maastricht Treaty and the Euro look like kind of a phobia you probably have acquired by reading and misinterpreting articles in examiner.com, washingtonpost.com etc., who follow an agenda to make the Euro zone look bad.

      I won’t deny that the economy in the southern countries and France looks problematic and in the rest is not too good either. In each country there are different reasons that have led to the problems and they all try to improve the situation. When the big international crisis started, Merkel correctly repeated the ‘no bail out clause’ already cited here by Roger. It must have been obvious to every reasonable European that existence of the Euro would not have the consequence that financial problems induced by the worldwide crisis to the various EU countries would be bared by others.

      > “It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.” Who (apart from some university professors in the glass house) would think that markets are perfect? There have been dozens of financial crises since WW2, a few bancrupt states etc. and even Switzerland felt obliged to save one of it’s too big to fail banks.

      I still wonder why international banks paid for a housing bubble in Spain and a finished but unused airport there? Why did Spanish politicions not act in time before that bubble became a really big problem? Imho it is a combiniation of sillyness and greed etc.

      >”Why did the market think of Spain/Greece/Italy/Etc. as being risk-free sovereigns at one point, and then decide that they were not risk free and subject to credit risk.”

      When the Euro started, all countries met the convergence criteria which implied that they had sufficiently stable economy. Apart from Greece, who cheated too much, all other countries were healthy enough to keep their deficit low enough and therefore paid about the same interest rates.

      Your answer that “it was esentially risk-free so long …” is wrong. When deficits of countries started to rise too much, with some delay due to sillyness of the markets, the interest rates startet climbing accordingly. Once this point is reached, the big problem you described starts.

      In a previous post I wrote “Responsible governments therefore will never allow that their economy will approach such a situation.” and Roger correctly replied that we might have a culture clash between “hard currency” northern countries and “soft currency” southern societies. I agree that in the past southern countries might have been more used to inflation, but even Switzerland has had phases of too high inflation. Anyhow, the convergence criteria signed by all Euro countries oblige them to limit their fiscal deficit and as long as every country followed it’s obligations the Euro worked better than some US experts predicted.

      As Roger has correctly said, the future of the Euro depends on a quick adherence to the rules. The governements of Italy and Spain have taken some corrective actions, but only the future will show if Mr. Monti is long enough on duty and if Mr. Rajoy has enough support to go that painful route.

      As to Dean, I still wonder when and how your hate against Germany started. I perfectly know peoples attitudes from Austria, Switzerland, France, Germany and Denmark. Beleive me, that all these are unbiased, pacific and healthy ‘egoists’. They have no intention to harm other countries or people, but they do not want to pay for errors made in other countries. BTW I tried Google on your name, but it showed contradicting results. Can you please give me a link?

  27. @ Dean: Did you read the article of the treaty I showed you? 1992 there was written, there would be no bailout.
    What do you think why it has been written in a treaty, that was a basis for the Euro?
    Do you really want to tell me, 1992 the germans bitterly fought for a “no-bailout-clause”, because they didn’t mean it? Sorry?
    They demanded a “no bail-out-clause”, because they would ever bailout Greece if it wastes all its money?
    Of course Germany made its foreign policy already in 1992.
    They did not only say out loud not to bailout, they wrote it in the treaty and in all following treaties as well.
    So where do you see ANY evidence for a “virtual guarantee”?
    Where else than in your dreams?
    And where do you see ANY moral right to expect to recive that “virtual guarantee” that nobody in Germany ever meant to have given or to give?

    It sounds like if you would have had a good dream where your neighbor promised to donate you a lot of money. After awakening you claim to get it from him, because you dreamed of his “virtual present” (what he never knew) and you will blackmail to terrorize him to receive the promised money.
    In Germany there is a good chance to get to the jail or madhouse for behaving like that.

    > The first step was taken by Germany when, after the bankruptcy of Lehman Brothers
    The first step was taken by Germany (and many others) in 1992 by including the “no-bailout-clause” to the basic treaties for forming the Euro.
    If Greece for 16 Years ignored that fact and dreamed of another reality, I feel sorry for them, but its their fault. Not that of the Germans.

    > Why did the market think of Spain/Greece/Italy/Etc. as being risk-free
    > sovereigns at one point, and then decide that they were not risk free and
    > subject to credit risk.
    A miracle indeed. The same miracle as why totally ugly housing depts from America and other places had been rated as superior “AAA”-Quality.
    Why did financial markets do that? Why are they cheater?
    Was it due to “virtual german guaranties” as well?
    I have no idea at all, why financial markets are going dumb and crazy and panicking short time afterwards. I only know not to trust them any further than I really really understand what they are doing.

    > Because they were essentially risk-free so long as the arc was always
    > towards more integration.
    And the bad house depts in america where also essentially risk-free before the markets panicked? Forget it!!!

    • Why don’t we submit our respective evidence(s) in a court of law, whereby your thesis would be a violation of a treaty provision and our case would be Germany acting recklessly as a monopoly forcing indvidual countries into all sorts of acts punishable by law. And let’s see who prevails and the amount of damages involved.

  28. Dean,
    It is not the first time that you come with this absolutely act of bad faith when presented with overwhelming evidence. I pity Roger that still don’t know you, and will probably get exasperated with this “act of theatre” which is exactly what you are looking for.

    • Bad faith? mois?

      Do you think I am the Greek government? What act of good faith do you want from me?

      The whole issue here is who started what and when. You arbitrarily chose to begin your version of the story from whatever starting point fits your narrative. You exhibit a totally pre-deterministic behavior whereby you want events to fit your already arrived to conclusions. You disregard the broad picture as irrelevant and only wish to discuss small, narrow issues because you thing you have evidence and hence an advantage.

      And you are accusing me of lack of good faith?

    • @ Estevao: I think Deans reactions are really interesting indeed.
      The same as H. Trickler I am really interested to understand how there has come such a different sentiment in Germany and in Greece over this topic?
      How did it come that huge numbers of Greecs played revolution over moths and years and when Merkel visited, while her visit probably meant offering help for Greece.
      Even if I disagree with Dean in most details, his argument and his logic give good advices for understanding to which logic many greek people follow when they show hate toward germans and at the same time expect help from them, why they are regularly “pushing the self destruct button”.
      In the discussion I learnt Dean as beeing an intelligent and clever guy, beeing with much deeper knowledge in financial business than me as an german engineer (so far about fulfilled cliches), but following quite often a totally other path of logic, because he starts on different basic axioms and/or follows different fixing points at the road.
      For understanding a people like you need to understand its cultural axioms and its formative experiences. Of course they are different in Germany and in Greece. I think I learned some of it in this discussion.

      As a typical german I am used to know that you say what you mean and you mean what you say and write. (We germans are often percieved to be undiplomatic and even offending because we usually express our opinion quite frank and direct). So for me the written treaty is clear and binding without doubt.
      As I know the greek society is less direct I can imagine that they expected and pokered that also for the germans there would be a difference between the (hard and direct) words in the treaty and their real meanings about a bailout.
      So the quite frank and direct communicated neglections of Merkel and other germans toward complete bailouts may have been felt unexpected and even violating and there may be the feeling that Greece would have the title to receive money from Germany / northern Europe. It was the way I understand Dean.
      So sorry to tell so: That wont happen without gift in return, no Germans planned to do so. Neither 1992 nor 2008.

      • Dear Roger,
        You are absolutely right in everything that you wrote. But I will fasten your education by giving you one of the consequences of this indirect way of speaking and the fact that “my word is not my bound”. It makes everybody paranoid. Since you never know how your counterparty will behave, you are constantly anticipating the worst.
        This is the reason that even before the crisis the Danish where at the top of the hapiness index and the Greeks where like no 70. I can only imagine where they may be now, between Angola and Zambia?🙂

    • Please try to abstain from insults, it does not help anybody😉

  29. Going back to the main theme.

    How is it possible to call Merkel’s policies successful when the debt to GDP ratio for the entire eurozone is going higher? This is a disaster and you fellows operate under the assumption that you are doing the right thing when in fact you are implementing the worst possible policy:

    http://www.washingtonpost.com/business/eurozone-debt-burden-rises-to-90-percent-of-economys-worth-despite-raft-of-austerity/2012/10/24/13042d96-1dba-11e2-8817-41b9a7aaabc7_story.html

    • John Major at his time as Chancellor of the Exchequer said once, when asked about the recession caused by the increase in the interest rates in order to fight inflation, the following “if it is not hurting it is not working”.
      There is no way to make the other countries take the necessary measures needed to have sound budgets if you don’t squeeze them first, it is as simples as that. Nobody will be allowed to go broke, that I am confident. The exception is Greece whom, by being full of Dean Plassaras, will be perhaps be made as an example to scare the others.

      • Thank you Estevao.🙂

        So now my country has to suffer more because of me?🙂 and every time I open my mouth more punishment🙂. I love these German rules. They are so fair and inspire total cooperation.🙂

    • Dean, that ratio will further rise because changes in Spain and Italy are (too) slow. It always takes a few years to bring it back to balance etc.

      Those who still adhere to Keynes theories have not read his publications in detail. He was cautios and said that states must first make savings in good times which they can afterwards use to for countercyclical support of the weak economy!

      • But that’s exactly the problem H. Trickler. We are dealing with solutions that will take a few years to manifest improvement and instead we are pretending to cure short term problems with long term remedies. It does not compute.

        Your solution is: stick to it because eventually they will. O.K.. even if this were to be true, how do you convince folks affected by such today? You got to show them something concrete; some evidence of merit…instead you want us to say to them “trust us, it’ll be right in the end”. But that’s how you deal with children, not adults.

  30. You may perhaps don’t know the word, but what you are doing is called “sophism” and the definition given in my beloved wikipedia is the following:

    “In modern usage, sophism, sophist and sophistry are used derogatively.
    A sophism is taken as a specious argument used for deception. It might be crafted to appear logical while actually representing a falsehood, or it might use obscure words and complicated sentence constructions in order to intimidate the opponent into agreement out of fear of feeling foolish. Other techniques include manipulating the opponent’s prejudices and emotions to overcome their logical faculties.”

    If you think that your hand is so weak that you have to use this kind of argumentation, may I ask the hidden (and true) motives and satisfaction that you get from doing it?

  31. Roger and Estevao:

    Here is what the problem is.

    You are asking us to stick w/ a program that almost everybody else says it has failed and was never designed to work either because of its internal faulty engineering.

    So, they question to you both is as follows:

    How do you want us to sell to the great majority of Greek people the idea that what they are asked to do is the right path? What’s the evidence of that? How can you possibly expect people to subscribe to German logic when all signs are contrary to it?

    • @ Dean: Sorry, you are wrong again:
      No, I don’t expect sticking only on the way Merkel proposed. I am also not shure if it is the best way to help Greece out of the mud.
      I also dont say: Greece must take the money and the conditions from IMW, EU und Germany.

      If Greece prefers follow other ways feel free to walk that way.
      If Greece finds better conditions from other lenders I wouldt be really glad because it would reduce the risk for Germany and Europe.

      BUT IF Greece REALLY WANT the help and the money offered by the European Union, the IMF and Merkel, they have to accept their conditions.
      There ain’t no such thing as a free lunch.

      • Roger:

        Here is the part we tend to ignore if we go down your line of thinking.

        About 90% of the monies (loans) given to Greece go to repay existing loans as they mature and basically the new replacement money becomes the new loan with a new interest rate until such new loan matures again in a few years down the road and the whole cycle repeats.

        Greece has little to gain from such; the majority of the gain is the stability of the Eurobanking system. Therefore, in accepting the money Greece helps Europe rather than Europe helping Greece.

        About 10% of the new loans goes to repay deficits and this is where the whole fight is all about. By introducing austerity Germany is trying to get Greece back into a primary surplus, however the savage cuts introduce larger holes in the economy (via less revenue, inability to collect taxes and hostile revolt against such measures). The tragicomedy here is that the austerity (the way it has been implemented so far) produces larger deficits than otherwise (less austerity, or mild austerity or no austerity at all).

        That’s why any Greek politician has a whale of time trying to sell austerity to the Greek taxpayer. Because the benefits are disproportionate to the sacrifices.(it’s like trying to sell a car that has the fuel efficiency of one euro to the litter). In fact many now believe that any further sacrifices produce zero benefits or even negative benefits. In other words we are past the optimum intersection point and now we are doing more harm than good.

        What you call “lack of effort”, the taxpayer citizen labels as “stupid effort”. It takes extraordinary skills for any politician to convince his/her own people to engage in “stupid” efforts for uncertain outcome.

    • On that page I have not seen anybody telling you that the program negotiated with the troika will be good and succesful.

      The theme is limited to how it came to the desaster, and we try to show you, that the root of it started with Greece becoming a member of the Euro.

  32. Dear Dean,
    I may imagine that to believe what Roger said goes against everything that you had been teached since early childhood. But if it is impossible to you to believe that he means what he says and he says what he means, imagine for us how much difficult it is to understand the inverse. And apart from that, it looks as an exausting way of living to be always trying to guess what your counterparty REALLY MEANS.

    • Dear Estevao:

      I am sorry if I have given you the impression of “double meaning”. I try to talk as straight as possible.

      The way we understand the problem in Greece is that the EU will provide bridge financing to Greece on condition that Greece eliminates its primary deficit as soon as possible.

      Therefore the whole issue of debate is the elimination of the primary deficit, pronto if you wish (right away).

      Greece is very close to such goal if not already there. Our frustration is that anytime in the previous quarter we see the gap approaching zero and thus logically anticipate that in the following quarter we will have a primary surplus, any introduction of new austerity measures make the gap higher again instead of closing it. If you want to visualize what I am saying think of a train slowly arriving at the station (zero deficit target) and as the train smoothly rolls into the station, the conductor receives new orders to add a new load of charcoal into the furnace of the locomotive thus making the train jump abruptly, missing the station altogether and now aiming at the next station further down the line.

      Therefore, what we are saying is that additional austerity does not seem to work, in fact, we have amble evidence to believe that is counterproductive. And since the Brussels bureaucracy has slow reflexes anyway it seems to us that the message either (a) does not get there on time or (b) it gets to the wrong ears. Therefore the mistrust is now mutual. You mistrust us because you think we are not executing to the plan and we mistrust you because the orders we receive prove inefficient on the ground and thus disobeyed.

  33. @ Dean:
    For the beginning:
    > I am sorry if I have given you the impression of “double meaning”.
    > I try to talk as straight as possible.
    Don’t worry, at least I got that impression and I appreciate it. Otherwise I would not have continued the discussion all that long.😉

    > About 90% of the monies (loans) given to Greece go to repay
    > existing loans as they mature and basically the new replacement
    > money becomes the new loan with a new interest rate until such
    > new loan matures again in a few years down the road and the
    > whole cycle repeats.
    >
    > Greece has little to gain from such; the majority of the gain is the
    > stability of the Eurobanking system. Therefore, in accepting the
    > money Greece helps Europe rather than Europe helping Greece.
    I don’t know the things in detail, but I get the same impression.
    Thatswhy I already confirmed your proposal, that greece should declary bancrupt. But IMHO that will mean at least:
    – There will not be any fresh money from the capital market – lack of trust
    – Probably for some times there will be no fresh money from Europe – they will feel upset.
    – There will be trouble if Greece can remain in the Euro-szone (I don’t know why they should not, but eg. the mainstream media in Germany seems to equalize bancrupt with leaving the Euro. So there will be huge discussions at least.

    In the last years I asked myself several times “Why did Greece not already declare bancrupt?”
    But there seems to remain a central point you present here:
    > Therefore the whole issue of debate is the elimination of the primary
    > deficit, pronto if you wish (right away).
    > Greece is very close to such goal if not already there.
    Of course, after declaring bancrupt there remains no external help paying that primary deficit. Greece have to stand on there feet an fix it themself.
    So Greece may now come to the point they can take action by themself.
    But than it is also up to the Greek to do so.

    Of course, some problems may even rise after declaring bancrupt because that may start some destructive domino effects like increased exodus of capital, no delivery of goods without advance pay (and other actions I dont know but expect to happen), that may additionally hurt Greece.

    > Therefore the mistrust is now mutual. You mistrust us because you
    > think we are not executing to the plan and we mistrust you because
    > the orders we receive prove inefficient on the ground and thus
    > disobeyed.
    True, there may be a kind of vicious circle of distrust (and disrespect). Trust and Respect has to be regained – but time is running. Northern Europe had to learn in the last years to distrust any greek promises – and perhaps Greeks may have felt the same vice versa. Even hence I would prefer Greece declaring bancrupt, stopping to ask for external help and showing the World and Europe that afterwards they can stand alone on there feets – at least regarding the primary deficit before dept payment.
    Iceland did a bit similar (They did not accept english and dutch demands that the country take the depts of icelandic crushed banks.), stood on their own feet without external help, seemed to recover quite well and fast and regained a lot of international respect for that behaviour.
    I really like the way Iceland handled the finance crisis.

  34. By the way: I suppose by declaring bancrupt or simply interrupt interest payment the story is not really over for Greece.
    Any time later, when Greece want come back to the financial markets, is as to set deals with all lenders, like dept cut versus continuation of interests for the remained depts. But at least Greece will have another, better standing for the negotiations.

    • In case of default of an independent country there are well established international rules how this is handled. The only new difficulty is that Euro contracts say nothing about it.

  35. Dear Dean and Roger,
    In the short term both solutions have their advantage and disadvantages, so I can defend both point of views, staying in the Euro or leaving the Euro.
    But in the long run, I think leaving the Euro is the best solution, not for economical reasons but for the trauma that it will cause. It will take a long time to be forgotten and it will certainly reduce the temptation to vote for politicians of the line “everything goes”.
    But it will be decades before the advantages appears and it will be a cause for a lot of pain in the meantime.
    PS: Roger, the right word is “bankruptcy” not bancruptcy

  36. @Dean: Each country requires solutions that remedy their specific problem. For Spain and Italy it is clearly reduction of state deficits. I do not know what is the best solution for Greece, never played the blame game and still would like to get your answers to “H. Trickler October 25, 2012 at 11:57”.

    • The link is as follows:

      https://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4SKPT_enUS438US438&q=Dean+Plassaras

      Regarding you other claims, as you know even today Germany is in clear violation of the Maastricht treaty since her debt to GDP is upwards of 90% vs. the 60% mandated limit.

      “The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

      But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money. They did not realize what that entails – and neither did the European authorities. When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications.”

      • Yes, even Germany has too high debt to GDP ratio (and was the 1st county to violate the contract), but (as you can see from the near zero interest rate) currently nobody cares.

        I had read in spring the Soros speech you cite, and I understand that when you take that for truth this can enforce your negative attitude. Even US Nobel prize winners like bashing Germany and you probably will laugh about the following cartoon shown in Swiss journals:

        However, I could now show a lot of links who argue in favor of the euro and even give some nasty reasons why English and US experts and journals prefer to criticize the Euro. I would like to summarize that the Euro worked many years as intended and can continue under the condition that all countries independently fulfill their obligations.

        The tragedy for Greece started with the cheating of the Greek government which allowed to have the Euro at a time when it’s economy was not yet ready. I’d highly appreciate if you could agree to this simple standpoint or give convincing facts that really disprove it.

      • HT:

        Say for example Greece was never part of the eurozone. What would be different in the crisis? When we say that the cause of this crisis is a banking problem we mean that during the times of high liquidity (such as the least decade) all European banks loaded up with peripheral sovereign debt on the basis that it was more profitable. Not tremendously profitable, just maybe 150-200 basis points (1.5 to 2%) higher than core sovereigns.

        Therefore, even if Greece did not exist the same banks would have loaded up on whatever country gave them the highest return based on the assumption of no great deviation in yields among eurozone countries.(that the average EU yield was about 3%).

        Greece’s debt was very small in comparison to sovereign debt of other EU countries held interchangeably among European banks.

        I fail to see why you think Europe could have avoided its current problems if Greece didn’t exist.

        Europe problem = banking + common currency.

        Take Japan as an example. Japan has a debt to GDP ratio in excess of 200%. So, in Germany’s eyes Japan is an extreme sinner. Yet there is no crisis is Japan. Because Japan holds primarily Asian and US sovereign debt (it’s biggest markets) and has its own currency.

        Show me a country that has its own currency and I will show you a country that could never get into this European mess. If Greece wasn’t around then another EU country would be the first line of defense. And if that fell then another country, all the way to the core.

        The total European GDP is say $16 Trillion. The Greek GDP about $300 Bil. This makes Greece 1.3% of the total EU GDP. Usually when one does budgets allocates about 5%-10% as a contingency item. The entire Greek case can be addressed as a contingency item. Why is Greece such a big issue?

    • @H.Trickler: I don’t know about Dean, but I do spend time and energy on the blame game. For two reasons, the first is that Greece is worth the fight, it is a beautiful country with a stunning landscape, marvelous archeological remains, extraordinary sea and weather, and the cradle of western civilization.
      The second is that I don’t want crisis like these one been repeated. My children are also Greeks, speak the language, but will not even conceive the idea of living there. Because they had been on vacation every year since their childhood and are well aware of the mentality who made this mess. And that saddens me.

      • There might be a difference of definition of “blame game”?
        http://www.wisegeek.com/what-is-the-blame-game.htm
        In German we use “Schwarzpeter Spiel” and it uses to be funny but not productive to learn anything.

      • Estevao Veiga

        I do agree with you that the best is what happens in the aviation industry, where the reports after an accident are more oriented to understand what went wrong than to shame anybody.
        But I presume that it is easier to do it in this industry because in general who made the mistake is dead, and will not spend time and energy in deflecting his responsibility🙂

      • Sorry to have let you down.

        Now, if you switch your frame of mind for a second and start looking as assets those areas of Greek society you consider to be liabilities you might get pleasantly surprised.

  37. Dean,
    You are absolutely right on what you wrote above. What we do diverge is that I take a very long view on that and say that this is a good thing and part of a learning curve. Apart from Greece, the crisis on the other countries is bearable and will be managed, and we will get out of it with a better Europe, more mature and responsible.

  38. One small question for you esteemed citizens of Northern Europe.

    If we knock at the door properly, would you let us in?

  39. No Dean,
    What I have is a dream, of Greek politicians stopping the bickering and promises that they can’t fulfill, and having serious discussion on how to get out of this mess for the best of the country and not of their party.
    But what I get is reality and the reality is that Greeks mistrust so much everybody, the xenos and their fellow citizens, that the discussion is not at the level of the adult but at the level of suspicious children.
    But I don’t blame them as individuals, I blame them as representatives of a culture that will profit to change. That is the reason of my despair when I see nobody recognizing that they were part of the problem, and by consequence not being part of the solution.
    But I will not believe on that as long as I will see people not wearing their helmets on the motorcycles. It may look like a detail for you, but for me is part of this mentality “I am the smart guy”, even when we are talking about their well being, that so distress me when I go there.

  40. And on my side I hope that you had noticed that sometimes I care more about yourselves that you seem to care, particularly when the helmet is missing, it drives me nuts😦

  41. Dean, if for example Greece was never part of the eurozone. What would be different in the crisis?

    Spain, Italy and Portugal would be in the same situation, the exchange rate of the Euro would be slightly better, but the problem of EU would be approx. the same. In Greece however that boom resulting from cheap money would not have happened. No kind of temporary ‘paradise’, no foreign bank would have bought a Greek bank (that was incredibly silly even with the Euro). In the big financial crisis, Greek economy would plummet (you know the figures of the ship transportation industry and tourism). Greek banks would not be touched too much and Greek population would keep their money there. We probably would have seen a (slight?) devaluation of the Drachma, that’s it.

    This summary also strengthens my opinion, that there is no reason to hate Germany for the current mess. Dean, what other objections do you have against my view that premature entry of Greece to the Euro was the turning point?

    • HT:

      The question is not what would have been different for Greece.

      The question is what would have been different for Germany/EU. If the architecture of the euro is flawed, with or without Greece, then the systemic problems remain.

      Say for example one is not particularly attractive. Going out with a certain person or not would not make the non attractive person any more attractive.

      The way you need to look at the problem is that Germany used the euro (and hence the eurozone) as a means of achieving its reunification. The euro mechanism is nothing more than a means of passing the costs of German reunification to the rest of Europe. It’s like Germany saying that since the division of Germany was not Germany’s idea therefore the cost of piecing it together is now a European cost.

      The deeper we get in this conversation the more you will discover that the root cause of this European crisis is political and has nothing to do with the finances of Greece (streched as they were, regardless).

  42. I never before herd anything as adventurous as your view of German reunification. I lack imagination how a well educated man can have come to this view, please explain. When former Soviet union broke apart, Germany had the opportunity to reunite, and no doubt this created high costs. This burden was paid by the German state via higher deficits that led to the too high deficit to GDP ratio we already discussed.

    The German state always fulfilled all it’s financial obligations including payments of interests, and finally due to Harz 4 and other internally unpopular measures was able to improve the deficit ratio. This would have happened exactly the same way without the Euro. You certainly know that an important part of the German populations always opposed to give up DM currency.

    Never ever anybody reasonable in Germany brought up your argument that reunification should have been paid by others. So the deeper we have been in conversation, the more I know about your standpoint, but after your last argument I’m somehow troubled…

    Remember, I never said that the Euro is perfect or will continue. If Spain or Italy should not soon resolve the problems mentioned before, it might go havoc, while a Greek default probably would not have this consequence because it’s economy is considerably smaller.

    Therefore I uphold the view expressed at the end of my previous message.

    • Dear H.Trickler,
      After reading the “explanation” about Germany passing the cost of unification through the Euro, are you still so adamant about my commentary about paranoia, that you took as an insult? Or as a German speaking person you know what I don’t, that effectively it was the most extraordinary “stealth” operation in human history, plotting in 1992 a devilish trick that needed 16 years to work?
      Because, being a a very naive and unsophisticated third word native I have extreme difficulty in believing this plot. And God knows that I have a lot of respect for the Germans, but not to this point…

      • And the more I think about it, the more brilliant this plot seems to me. Since the idea that the stability of the Euro could be abused by one of the parties was extensively discussed in the German newspapers of the time, and since the Germans fought tooth and nails to have it written explicitly in the treaty, that there will be no obligation to bail out one country by the others, who could believe that it was really the case? That there will be no bail out? Because in reality if the Germans did not intended to bail out other countries, they would had written in the treaty that there was an obligation of bail out! But no! They tricked everybody because they wrote that there will be no bail out and they meant it!
        Do you understand now how brilliant it was? It was devilish! Completely unexpected and left the Greeks wrong footed, who could imagine that somebody could mean what they put in writing, and signed, in a treaty? Nobody, you understand now?
        The Greeks on their side did the right thing, they put in writing what they had absolutely no intention to do, as you could expect from a gentleman.

    • HT and Estevao:

      I am glad we have finally arrived at the serious part of the conversation.

      Before we begin, I wanted to ask if you are familiar with the Nomura analysis that the crisis in Europe started with a big ECB bailout of Germany?

      http://www.businessinsider.com/richard-koo-the-entire-crisis-in-europe-started-with-a-big-ecb-bailout-of-germany-2012-6

      • This text of Mr. Ko lacks logic: Germany always was against the ECB flooding the markets with liquidity. I do not understand how Germany should have had an illegal benefit from it. Spain produced itself it’s housing bubble without a nasty German plan to ruin that country, analogous situation for the other PIGS. German member of the ECB, Mr. Weidmann left his post to make his protest visible to the world.

        I get the impression that if somebody gathers suitable texts from the internet and takes all that for face value this can result in your view of the world that is completely different from mine.

  43. PS: If I read that article about what Archbishop Ieronymos said I get the feeling living on annother planet:

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_27/10/2012_467647

  44. Assuming now we are willing to examine the cost of reunification for Germany and whether such cost was(attempted) to be recovered from the rest of Europe (other than Germany).

    Therefore, gentlemen isn’t it true that Germany made huge investments in the infrastructure of East Germany hoping that the rest of the East German economy would follow but in fact such aspiration/hope/objective was never fulfilled?

    And if so, isn’t it logical to expect that Germany would seek recovery of such costs through other means?

    Please refrain from telling me whether Germany ever did such thing. Simply answer the question whether it is reasonable to expect that the means/method of recovery would shift elsewhere.

    • As described above, Germany recovered these cost by modification of the welfare system towards Harz 4, rising the pension age to 67(!!), rising taxes and cutting other expenses of the state. So I do not see the slightest possibility for your argumentation.

      • HT:

        So what you are saying is that when a massive effort fails, its cumulative costs are then just written off and there is no reasonable attempt to recover such costs from other sources.

        O.k. Let’s try it a different way.

        Then, what are we to make of the following statement:

        “German reunification is not just one of the root causes of the euro crisis, it is also one of the causes of our inability to master the crisis.”

        Before you eagerly proceed to discredit such statement, please be aware that it was offered by one of your boys , Wolfgang Münchau. In fact here is his thesis which contains much more serious charges:

        http://www.presseurop.eu/en/content/article/2799441-why-german-unification-was-mistake

  45. Dear Dean,
    There is an easier way to know what are the intentions of the Germans, read their newspapers or at least their English versions. Unfortunately I can’t read them on the original, but what I know is that the quality of the debate is extremely high and they spend little time, and energy, on conspiracy theories.

    • Dear Estevao:

      Do you really expect the German newspapers to tell the truth to the German people? What for?

      Even if they attempted a hint of such they would be out of business at no time. The purpose of a newspaper is to reinforce whatever ideological bias its readership represents so that it can be read by as many readers as possible.

      Any newspaper that breaks this implied link, loses its advertising revenue and has to go out of business.

      My honest impression of German press is that it has become a non-stop propaganda production factory under the cloak of serious journalism.

      • Estevao veiga

        If you explain to me how I can convince a paranoid that he is paranoid I will perhaps try.

      • Estevao veiga

        Or by being more polite, how you convince somebody who is addicted to conspiracist theories that there is no conspiracy?
        I don’t know how to do it.

    • > “the quality of the debate is extremely high”

      Sorry but this is not true at all, they all have their sometimes perfectly hidden agenda. Spiegel is famous for investigative journalism, but although it revealed some important facts it more often is mishaps.

      I regularly read “Die Zeit” and FAZ in german, and most often thei fully contradict in perspectives and conclusions.

      German politics is strongly controversial, esentially erveryone against everyone, so it is pretty difficult to come to well founded independent conclusions!

      • Therefore, you are saying that Germany is a nation divided.

        Yet, you expect Greece to be a nation united in performing all the arbitrary austerity demands to the “t”.

  46. I just read your article, Wolfang Munchau writes also on the FT and has been a Cassandra predicting the end of the Euro for quite a long time.
    This said, accusing Germany of trying to be competitive is for me a back handed compliment, I would love that Greece had done the same!
    And as HT had written, it has implicated a lot of sacrifice, not pensions for
    50 years old like on a country that I will not name.

    • O.k. Estevao:

      So Wolfang Munchau is a regular Cassandra and since his message does not fit our pre-conceived ideas, let’s dismiss him. Heck, who needs a democratic debate when we urgently need to reach some conclusions.

      In such case, let’s turn into a more conventional German press instrument.

      “Every time the Bundesbank raised its interest rates, the French were obliged to follow suit. And every time prices in Germany rose a little faster than those of its neighbor west of the Rhine River, Paris had no choice but to devalue the franc. The system was thus a globally recognized symbol of economic inferiority. “We may have the nuclear bomb, but the Germans have the deutsche mark,” officials at Elysée Palace, the office of the French president, apparently said.

      In an attempt to defuse the conflict, the European Council — the combined EEC heads of state and government — assigned European Commission President Jacques Delors in the summer of 1988 to draw up a plan for European economic and monetary union. Just under a year later, Delors presented his plan for the phased introduction of a common currency. The concept was met with widespread approval across Europe, and even the major political parties in Germany agreed to it. However, one important factor was overlooked amid the general jubilation: The “Delors Plan” failed to resolve key areas of the dispute between Paris and Bonn.”

      …….. So great were the differences that the then-Bundesbank president, Karl Otto Pöhl, saw absolutely no cause for German concern, believing he would never live to see the introduction of the planned European currency. “I was convinced we’d have to wait at least 100 years for that,” Pöhl says. ”

      http://www.spiegel.de/international/germany/the-price-of-unity-was-the-deutsche-mark-sacrificed-for-reunification-a-719940.html

      • Dean, you must know that Spiegel, Wolfgang Münchau and many other journalists all have a hidden agenda, and if you take their word as the plain unbiased truth you get completely misled.

        It is very interesting for me to learn how you came to your conclusions and I must admit that the texts you have brought up support your standpoint. I will reply in detail what is wrong with the texts and their motivation.

      • That text in Spiegel rehashes an old question whether Kohl was pushed by Mitterrand towards a faster introduction of Euro against strong opposition within Germany. This has absolutely no relation to the question if Germany profited from the Euro.

        You might be correct that introduction of the Euro was premature, but then there is no reason at all to blame Germans because they (like Mr. Pohl) thought it would be better to introduce it combined with stronger unification in EU. And BTW if the Euro should crash, it would not be because of Germany, but due to Spain or Italy not doing their homework. (If you read that smudgy comedy in Italy with Mr. Berlusconi sentenced and still fighting against the technocrat Monti, you never know what will happen)

        So I still see no convincing reasons to give up the conclusions I told before.

      • HT:

        Except that you are missing the point again. The point is:

        1. The euro is/was a flawed currency and the method of its hasty introduction set the stage for a subsequent disaster.

        2. The euro is a subsidized currency. It’s true value should have been around $1.80 – $1.90 and not the $1.20-$1.3 is trading at today. Therefore the euro is a fabricated currency which benefits mainly Germany as an export country. When a Greek citizen counts his/her own money saved in the bank and figures out what such money buys abroad (say in the US), the Greek citizen becomes a victim of broad daylight theft. And the only beneficiary of such artificial devaluation is the German citizen who comes to Greece and pays in euro – and thus in deflated terms – further depriving Greece from true value of services offered, for example, in tourism. Therefore, we are talking about double theft. First theft due to an artificial currency peg, second theft from EU internal devaluation.

  47. Dear Dean,
    Did you read what you sent? You managed to confirm your prejudices in an “german quality” article who says the inverse of what you wrote. I presume that this is based in a single sentence “Every time the Bundesbank raised its interest rates, the French were obliged to follow suit.”
    What this sentence doesn’t says is that there was a logic on it, the fact that the French pursued a more relaxed monetary policy than the German, with the consequent result that the long term tendency of the French Franc was to devalue against the Deutsch Mark. This also appear on your article on this sentence “For instance, it said nothing about whether the future European financial regulator should be answerable to European governments (as the French had demanded) or be independent, like the Bundesbank in Germany”. Well isn’t it logical that this being the case, the market preferred the Mark to the Franc?
    And if you want a high quality explanation about strong currencies, this article from Switzerland, the strongest European currency of the last 100 years, is much better:

    http://snbchf.com/fx-theory/real-mean-reversion/

    This said, I don’t expect you to see the light, I am convinced that I can’t convince somebody who has a mind frame tuned on “conspiracy theories”. But as I wrote before, you happens to be interested in things that I care and it is amusing for me to talk about subjects who in general are of no interest to my surrounding.

    • Estevao:

      As far as I am concerned, we have not reached any conclusions yet. We are still in the evidence phase of this trial.

      The Franco-German exchange and blame game are somewhat irrelevant to me. The part that is very relevant and confirmed by this article (of German quality as you put it) is the presence of a significant flaw in the architecture of the euro as well as substantial and damning evidence (despite your denials) of a sort of deal reached whereby the premature introduction of the euro was the German price payable for her re-unification.

      Furthermore, and still in the evidence phase of the trail, there is undeniable evidence of huge investments by West Germany to East Germany, which even today are considered a failure and a grand waste of resources.

      Therefore, we begin to acquire the strong notion that Germany indeed was under pressure of finding other means of reimbursement for such gigantic but largely failed internal transfer union mechanisms.

      The idea here is to prove that Germany then introduced a reverse transfer union in Europe so that she could recover her costs from the internal reunification experiment. We will then prove, as the article of German quality suggests, that the present Euro-crisis is a direct result of German reunification and that indeed the savage measures imposed on Greece and others were/are a partial means of recovering otherwise unrecoverable German costs.

      We will also be very bold to declare that at least in the German mind there is some form of equity in this whole madness. Having lost WWII and having their country split in two, I am sure in the back of their minds Germans blame the allies for such calamity – instead of themselves – and therefore consider very appropriate the reimbursement of her re-unification costs from the rest of Europeans which somehow the Germans blame responsible for losing the war.

      • Estevao Veiga

        Dear Dean,
        May you conceive that when I read your last reply I get the impression that you are in the mood “don’t bother me with facts, I had already made my mind”?

      • Dean, although you addressed that text to E.V. I must say that your declaration in the last paragraph about “the German minds” is very far away from reality. There may have been a minority of German idiots surviving WW2 who could have thought that way, but those are now dead for quite a long time and the active German generations are reasonable people. I personally know that from many experiences when negotiating with Germans during my whole life.

      • Estevao and HT:

        I normally let those opposing me in debate make their own mistakes and don’t come to their rescue.

        However in your case I would like to remind you of the following. Every good debate, especially a philosophical one, involves pushing the extreme points of view. Because it is by defining the extremes that we find the golden mean(optimum center) in thought, logic and behavior.

        Now, if every time I put forward an issue worth examining (due to amble evidence on the subject) you react with hysterics that I am already a twisted person, beyond reason or reproach; in effect what you are doing is revealing a fear about a trait in yourselves which makes this conversation difficult.

        Don’t over-react please. We are just presenting evidence here and there is a lot of it. Conclusions only at the very end. You have already tried to profile me on several occasions and it hasn’t worked out. I am not one of those who feel compelled to follow the wisdom of the crowd or to abandon an effort because the other side points an accusatory finger at me. Quite the contrary. Opposition stimulates me greatly.

        In every conversation there are tactics and strategy. Therefore I am giving you a tactical point here not to be so eager to reach conclusions. If what we present gets discredited by reason and you fellows are on the side of the truth then you have nothing to fear. You will easily prevail at the end. If on the other hand you are misinformed, biased and unable to grasp the truth then you are in for an experience.

        And so that I boost you confidence, I believe in you both that you can do it. Problem is that I also believe in myself that I can do it too. So, let the best argument prevail and let’s both sides learn from the experience. I have no particular stake in the outcome since whatever we decide will not change the minds of the officialdom. But what we can do here is give the officialdom pause by displaying that we are thinking citizens. When they see that it makes them hesitant to continue to play blatant games. It gives them a sense that they might be defeated in the end which is the surest way to inject common sense and prevent them from engaging in disaster.

  48. Dean, I don’t see how I missed the point because your arguments lack of proof:

    > “1. The euro is/was a flawed currency and the method of its hasty introduction set the stage for a subsequent disaster.”
    As said before, we must be very careful in the analysis of “disaster”. The problem of Greece arose from premature participation due to the criminal Greek government of that time. Please confirm these facts because they are well established also by what those former Greek ministers recently said in English in the Austrian TV.

    > ” 2. The euro is a subsidized currency. It’s true value should have been around $1.80 – $1.90 and not the $1.20-$1.3″

    Everybody knows that currency exchange rates result from daily markets and there is no use crying about faulty irrational market behavior. BTW too low exchange rate goes against your argumentation because Greek exports, tourism, ship transports etc. become less expensive for the whole world except Euro countries where it is neutral.

    • HT:

      Let me present the argument by numbers so that it’s better understood. BTW, in your example about future Greek revenues (be them from tourism, shipping or what have you) you are mixing current asset value with future projections of anticipated cash flows. It’s not the same.

      Here is a real example to illustrate this.

      Take one euro a Greek citizen holds. Due to the artificial peg (subsidy) I just talked about the real value of such euro is:

      ($1.30/$1.80) = 0.722

      So right from the start the Greek euro (euro held by a Greek citizen) has a real value of 0.722 cents. Think of a Greek trying to buy an American product and thus losing in this artificial devaluation (based on the subsidized peg to the dollar).

      The present measures introduced by the troika in Greece have the effect of another 40% devaluation (think of the 40% average cut in salaries, benefits etc). So now the we have a further devaluation due to cuts of:

      0.722 X 40% = 0.116 cents

      In other words the 1 initial euro which became 0.722(artificial peg) is now worth:

      0.722 – 0.116 = 0.606 cents

      You now proceed and tell us that we would be better off having the drachma as a currency. This according to the experts would mean a 60% further devaluation.

      0.606 X 60% = 0.364

      In other words the original euro would be now worth:

      0.606 – 0.364 = 0.242 cents. ( or roughly a 76% total devaluation)

      You then proceed to tell us that if you devalue our assets by roughly 76% we will then be able to rebound easily.

      Of course we will rebound but so what? If we rebound by 40% this means that our 0.242 cents are now worth (0.242+0.097 =) 0.339 cents outside the euro.

      As you can see this is a total rip off and no one in their right mind will go for such return to an own currency at this point. The point to have returned to an own currency would have been many years ago. Not now.

      • “The point to have returned to an own currency would have been many years ago. Not now.”
        Dean, I won’t enter this discussion because it irrelevant for your accusations towards Germany and Mrs. Merkel

        Please keep focused on the one point that your former government cheated and prematurely obtained membership of the euro zone. I think this argument is correct and you should soon agree to it.

      • HT:

        O.k. let’s focus on the alleged cheating part.

        If you are talking about the original admission into the eurozone, no, Greece did not cheat. It was Brussels bureaucrats telling their Greek counterparts on how exactly to present the numbers for acceptance.

        If you are talking about 2009 when then previous Karamanlis government had the debt at 3% of GDP and upon losing the election the new PASOK government declared it at 12% instead, well you know that we have politics involved here.

        Whatever the cause, Greece had too much public debt. Not overall debt. But public debt only. In terms of overall debt Greece was better than Germany.

        Please refer to the Executive Summary of this McKinsey report examining the debt and deleveraging of both mature economies and Euro-zone crisis countries.Exhibit 4 of Page #5 titled “The composition of debt varies widely across countries”. Total debt(defined as Household+Nonfinancial Corporations+ Financial Institutions+Government debt) to GDP ratio is as follows:

        ( Total Debt/GDP=):
        Japan @ 512%
        UK @ 507%
        Spain @ 363%
        France @ 346%
        Italy @ 314%
        South Korea @ 314%
        USA @ 279%
        Germany @ 278%
        Australia 277%
        Canada @ 276%
        Ireland @ 663%
        Portugal @ 356%
        Greece @ 267%

        http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Uneven_progress_on_the_path_to_growth

  49. Dear Dean,
    I don’t subscribe to the thesis of the extreme point of views, nor to manicheist views of the world. What I like are shades of grey, not black and white.

  50. Dean, thanks to the details and links you have shown I can now understand how you came to your conclusions. Frankly speaking this seems only possible if the Greek media which I unfortunately can not read never have told their citizens the full and ugly truth of the criminal behavior of your former governments. You will not be able to proof your standpoint that it was NOT “some low paid Greek civil servants pulled the wool over the eyes of much higher paid Brussels bureaucrats”. Manipulation of some balance sheets (without reliable external audit) is pretty easy. It is also well known that later a Greek lady at Goldman Sachs arranged for financial transactions that beautified the statistics. Future earnings of the state were activated at an earlier moment and so on!All that incredibly ugly story is best presented (in 45min) by the film reportage I already mentioned.

    I have lots of links to reliable newspapers in German, just a few here:
    http://www.faz.net/aktuell/wirtschaft/konjunktur/euro-raum-griechenland-erschwindelte-euro-beitritt-1189739.html
    Above text is from Nov. 2004 translated: Greece blagged entry to the Euro

    http://www.tagesschau.sf.tv/Nachrichten/Archiv/2011/11/10/International/Krise-im-Euro-Land/Lucas-Papademos-Architekt-des-griechischen-Euro-Beitritts
    Key sentence in that text: “Später wurde bekannt, dass Griechenland über Jahre hinweg falsche Zahlen nach Brüssel übermittelt hatte” Later on it has become known that Greece during many years had given wrong numbers to Brussels.

    http://www.deutsche-mittelstands-nachrichten.de/2012/03/39309/
    Title: Greece – a secret deal with Goldman Sachs started Euro crisis.
    Im Jahr 2001 befand sich Griechenland in der misslichen Lage, ein für den Euro-Beitritt zu hohes Defizit aufzuweisen. Daher beauftragte die griechische Regierung die Investmentbank Goldman Sachs, das Problem zu lösen. Goldman bot den Griechen eine 2,8 Milliarden Euro-Finanzierung an. Diese würde es der griechischen Regierung ermöglichen, die Maastricht-Kriterien der Europäischen Union zu erfüllen: Weil die Schulden aus dem Haushalt herausgerechnet werden konnten, würde Griechenland als hoffnungsvolles neues Euro-Mitglied begrüßt werden.

    http://www.cash.ch/news/alle-news/griechenland_hat_beim_eurobeitritt_geschummelt-1039950-448
    Greece only achieved entry to the Euro by cheating, said Otmar Issing, former head of EZB.

    http://www.faz.net/aktuell/wirtschaft/stabilitaetspakt-eurostat-will-auch-griechische-defizite-vor-2000-ueberpruefen-1177681.html
    “Eurostat plans to audit former Greece deficit numbers”.

    http://de.wikipedia.org/wiki/Euro
    “So konnte insbesondere Griechenland den Euro nur aufgrund von geschönten Statistiken einführen”

    Dean, I’m too easygoing to do your homework and therefore searched only a few but convincing links in English:

    http://news.bbc.co.uk/2/hi/business/4012869.stm
    “Greece has admitted it joined the euro in 2001 on the basis of figures that showed its budget deficit to be much lower than it really was.”

    http://www.independent.co.uk/news/world/europe/greece-admits-deficit-figures-were-fudged-to-secure-euro-entry-6157967.html
    “Greece admitted yesterday that the budget figures it used to gain entry to the euro three years ago were fudged. The Finance Minister, George Alogoskoufis, said the true scale of Greece’s budget deficit was massively understated enabling Athens to dip below the qualification bar and into the Eu’s single currency.”

    Dean, after so much effort from my side and those clear cut facts lying on the table, I expect you to confirm that current financial problems have their root in premature entry to the Euro by Greece. There is no reason to blame anybody else, it was the full and only intention of your former government.

    • Dean, you did not reply and as I wrote in another replay I think you live on another planet in a different epoch.
      I go to holidays now and will no longer respond.

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