My take on the (d)evolving situation in Greece

July 1st, 2015 at 1:42 pm

Over at MSNBC.com, or you could just go with the summary by renowned international economist Dr. John: “refried confusion is makin’ itself clear…wonder which way do I go to get on out of here!”

Or, to add a level of complexity, to conflate insolvency with illiquidity is to ask for a protracted mess that delivers more pain than relief.

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One comment in reply to "My take on the (d)evolving situation in Greece"

  1. Smith says:

    My interpretation, for what it’s worth, of the Greek situation, garnered from New York Times coverage, Krugman blogs and columns, wikipedia, and one first or second hand source:

    1) Since 2012, most Greek debt held by non-Greek entities (private foreign banks) was transferred from private institutions (e.g. German and French banks) to public ones (ECB, ESFS). Hence grexit will neither affect markets as a Lehman event would, nor directly hurt influential wealthy bank executives who otherwise might be held accountable for company losses.
    2) The amount of debt written off so far has not been that substantial, though this hinges on whether it’s in the neighborhood of $50 billion vs. $100 billion
    Here is great graphic that illustrates these two points:
    https://en.wikipedia.org/wiki/Greek_government-debt_crisis#/media/File:Creditors_of_Greece.png
    3) If one accepts the proposition that further write-offs must take place whether Greece stays in or exits, then politically it is tremendously valuable and safer for non-Greek Euro leaders to foster exit. They may then blame Greece for an immoral and illegal renunciation of debt for any costs incurred. The alternative is acceptance of costs and local opposition blaming them for any such deal.
    4) Everyone seems to be ignoring the fundamental issue, although Krugman comes very close in his first order analysis. Here it is. If you have a recession or depression, do you impose austerity or Keynesian stimulus? In Greece there is a confounding factor of not being able to devalue due to the Euro. Krugman wants to see the natural experiment, a no vote, Greek exit, and chance for meaningful recovery. It is possible a no vote will be followed by Euro leaders backing down if markets show weakness and thus they have an excuse and support of elites.

    As Krugman states or implies, Europe taken overall, suffers from a weak recovery, high unemployment, trade imbalances, and uneven prosperity. There are winners and losers, by country and economic demographic, meaning Germany vs. Spain, or average income group vs 1%, in Europe and Greece. The U.S. continues to underperform for the same reasons, to a lessor extent. Those are the stakes in a Greek vote and/or exit. No one seems to be covering the reason for this, the fact that there are winners and losers by continuing or breaking with current regime, austerity vs inflation. Greece represents is not allowed slack lest other countries follow the example. The entire Greek debt is maybe 3% of Eurozone GDP, an amount which conservatively is lost every other year due to a weak recovery while needlessly suffering mass unemployment in some countries.

    Again, it’s a story of winners and losers that no one has adequately covered.

    Note: Krugman occasionally injects psycho babble as a reason, elites demanding featly vs. just more dollars in their pocket.


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