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Why Is The Eu Unable To Admit That It's Austerity Policy In Greece Has Failed?

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Everyone now knows that austerity in Greece has failed- instead of the promised recovery it has produced a 25% decline in GDP-worse even than the US experienced in the Great Depression.

The IMF has also admitted that the policy has failed and is arguing for debt restructuring as the way forward.

But the EU seems unable to deal with this reality- thus we have the embarrassing spectacle of apparently serious and intelligent men arguing that what is required is even more austerity- it's like watching a man beating a clearly exhausted horse in the expectation that the beatings will somehow restore it's vitality- pathetic and futile.

So what is going on here? Why are these smart people unable to deal with the reality of the situation?

The answer I think lies in the role that the austerity meme plays in the dynamics of the EU.

Here's a pungent analogy; Suppose you are the landlord of a residential block whose residents- one in particular- are beginning to complain of a foul stink that seems to be emanating from the building. So you visit the apartment of the most vociferous complainant and you do indeed notice an alarming stench that appears to be coming from the structure of the walls. What is to be done? This could be a hugely expensive problem, the building may even have to be torn down.

But rather than deal with this nightmare you do have another option- you can point to the tenant and say that they need to improve their hygiene and cleaning practices- and if they are diligent in this that nasty smell will go away.

The great value of the austerity idea is that it clearly locates the source of the problem inside the domain of those deemed in need of it. As long as this view holds sway it's possible to ignore any wider structural issues with the architecture of the Euro and the wider EU.

Thus the role of austerity in the EU is not really economic but political- it's providing intellectual cover for the ongoing failure of the EU to address it's deeply flawed internal structure. As long as the growing stink of economic imbalances inside the Euro area can be safely located in the domain of those who are at the nexus of the problem the fiction can be maintained that there is nothing really wrong with the structure itself.

So in this analogy Siritza are coming along with a bloody great plunger and sucking away the walls exposing the stinking pile of shite that has so far been kept safely hidden from view.

The reason the EU elite are so enraged at the Greek Government is because they are not going along with the fiction that the problems of Greece are due entirely to the actions of Greece alone- and in doing so are threatening to expose the very flaws in the architecture of the Euro and the EU that they desperately want to deny.

Edited by wonderpup

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Have you not been replaced by a robot yet?

It can't be that difficult to come up with an algorithm that will randomly select a false premise based on a topical issue, toss in some banal clich├ęs, add some self-congratulatory piffle and finish by blaming a convenient authority figure.

In fact it's so predictable I can't believe you're a real person.

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I don't think that Greece debt is beyond repayment, 180% of GDP compared to Italy at 259% and France at 280% and 250% for us post war. Moreover they have got a primary structural surplus.

Sure the GDP situation is the fly in the ointment, but that's partly explained because for ten years the left wing Governments have ''invested''in welfare as opposed to infrastructure and industry.

Syriza's answer is to continue these generous welfare arrangements (not generous in terms of value but in terms of age qualification) and target corporation tax. You really aren't going to get growth based on welfare, even though many households are now reliant on granny providing for the three idle generations below her.

Edited by crashmonitor

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I don't think that Greece debt is beyond repayment, 180% of GDP compared to Italy at 259% and France at 280% and 250% for us post war. Moreover they have got a primary structural surplus.

Sure the GDP situation is the fly in the ointment, but that's partly explained because for ten years the left wing Government's have ''invested''in welfare as opposed to infrastructure and industry.

Syriza's answer is to continue these generous welfare arrangements and target corporation tax. You really aren't going to get growth based on welfare, even though many housholds are now reliant on granny providing for the three idle generations below her.

That's a lovely turn of phrase there - positively dickensish.

I do love the writers on HPC - so many well edcuated people writing thoughtful stuff in good english.

and

Mr Pin.

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That's a lovely turn of phrase there - positively dickensish.

I do love the writers on HPC - so many well edcuated people writing thoughtful stuff in good english.

and

Mr Pin.

Idle for want of employment rather than choice.

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I don't think that Greece debt is beyond repayment, 180% of GDP compared to Italy at 259% and France at 280% and 250% for us post war. Moreover they have got a primary structural surplus.

I think you're confusing the government debt with total public/private debts in France/Italy. Note also that our own post war debt was significantly cleared by some pretty hefty inflation and presumably some healthy growth in the post war period.

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Why Is The Eu Unable To Admit That It's Austerity Policy In Greece Has Failed?

Because the problem isn't austerity, it's the currency itself and the illogicallity of trying to solve a debt crisis through an internal devaluation in a fixed exchange rate system.

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Because the problem isn't austerity, it's the currency itself and the illogicallity of trying to solve a debt crisis through an internal devaluation in a fixed exchange rate system.

stop blaming the currency already.

they could be trading in bottle caps.. Its the borrowing of bottlecaps beyond the production capacity that is the problem....in fact, dont really need to produce any if you borrow the lot.

Its, as you rightly say, a debt crisis.

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Yes Greece's bankruptcy is all down to the EU, it has nothing to do with bus drivers earning 60k pa, every oher civila servant having a chaffeur, other massive public spending, balance of payments deficits, early retirements, taxes unpaid, defence spending (against whom???), cr4p labour laws, 25 hours a week working etc

Yes, those Bu....rs at the EU etc. It's all their fault.

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So what is going on here? Why are these smart people unable to deal with the reality of the situation?

They're not, though. People don't join finance or city type jobs to make the world a better place, they are there to make money and take salary.

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Goldman Sachs played a big part by cooking Greece's books to get them into the Euro. Come the bailouts not even 5% of the bailouts went to the Greek people. The bailouts offload private bank debt onto public debt. The IMF published in a paper austerity didn't work in 2012 and none of neoliberal EU bureaucrats or Gideot mentioned this.

Austerity has been merely a tool for public asset stripping, including in the UK.

Anyone thinking welfare plays a part in this is economically illiterate. Private debt caused the 2008 financial crisis and will cause the next one.

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stop blaming the currency already.

they could be trading in bottle caps.. Its the borrowing of bottlecaps beyond the production capacity that is the problem....in fact, dont really need to produce any if you borrow the lot.

Its, as you rightly say, a debt crisis.

Nope, at its root its a competetiveness crisis, the debt crisis is just a manifestation of that.

Standard IMF practice is devaluation and austerity/reform to restore competetiveness plus a measure of debt relief.

The Greeks cannot devalue externally thanks to the Euro so the burden of restoring competetiveness has to rest on internal devaluation by austerity, crushing demand and driving down real wages. This is of course counterproductive since if you shrink GDP then the debt/GDP ratio invariably rises.

Add in the fact that the Greeks have had next to no meaningful debt relief and you can see why it has developed into the basket case it is today.

Frankly I think the whole bailout has been an exercise in protecting the rest of the Eurozone and a cynical attempt on the part of the creditor powers to recover as much of their own money as possible whilst shifting as much of the losses as they can onto the heads of the Greek people, the fact that those powers are now cutting off support I think indicates that they believe they've now bled the Greeks dry.

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I don't think that Greece debt is beyond repayment, 180% of GDP compared to Italy at 259% and France at 280% and 250% for us post war. Moreover they have got a primary structural surplus.

Sure the GDP situation is the fly in the ointment, but that's partly explained because for ten years the left wing Governments have ''invested''in welfare as opposed to infrastructure and industry.

Syriza's answer is to continue these generous welfare arrangements (not generous in terms of value but in terms of age qualification) and target corporation tax. You really aren't going to get growth based on welfare, even though many households are now reliant on granny providing for the three idle generations below her.

their own chancellor doesnt even believe that!

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The Euro elites think they can handle a Greek default economically but what they can't handle is the domestic politics of taking a voluntary haircut and *forgiving* Greek debts. They would prefer to tell their constituents that they are only going to get 10% of what Greece owes them because the lazy Greek bast**ds stiffed them than tell those same constituents that they are only going to get 50% of what Greece owes them because they forgave the other 50%.

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Yes Greece's bankruptcy is all down to the EU, it has nothing to do with bus drivers earning 60k pa, every oher civila servant having a chaffeur, other massive public spending, balance of payments deficits, early retirements, taxes unpaid, defence spending (against whom???), cr4p labour laws, 25 hours a week working etc

Yes, those Bu....rs at the EU etc. It's all their fault.

You have managed here to address an entirely different question to the one I posed, which was why the EU clings so irrationally to the idea that austerity will work in Greece? If the definition of insanity is repeating the same action but expecting a different result then the EU is being run by madmen.

My point was that austerity in the context of the EU is not being deployed as an economic solution but a political one- and it is only by mapping this political agenda onto the situation that we can make sense of their apparent insanity.

What austerity as a concept facilitates is the idea that the problems of Greece, Spain, Italy, Ireland ect are not in any way due to failures of the Eu and the Eurozone but are entirely due to internal failures of those individual nations. The problem with this analysis is the fact that before the crash of 2008 these countries were not all like Greece- both Spain and Ireland were in fact running surplus's, not deficits- so how come these very different nations all seem to have developed the same kinds of problems?

If austerity is demonstrated to be a flawed concept then it becomes increasingly hard for the stronger countries in the EU-in particular Germany- to avoid the reality that the Eurozone is itself a source of instability- and that the solution to that instability will among other things require some form of debt mutualisation- something the Germans will never accept for the simple reason that the moment they do they can't get out- they are trapped inside.

So to understand the seemingly irrational tenacity with which the Germans and others are pursuing a failed strategy in Greece you must understand the horror with which the Germans view the prospect of genuine fiscal union- and having grasped this you can then see that the Eurozone is doomed, because without such a union it will continue to generate centrifugal forces that will tear Europe apart.

Greece was the weakest link- for the reasons you articulate above- but in time it will be joined by others as the internal contradictions of a monetary union in the absence of a true fiscal union become impossible to contain.

Austerity is the fig leaf behind which this mess is being rather poorly concealed.

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You have managed here to address an entirely different question to the one I posed, which was why the EU clings so irrationally to the idea that austerity will work in Greece?

Rather than projecting, try reading what is being proposed in Greece and arguing on the facts.

Here are the proposals in full:

http://europa.eu/rapid/attachment/IP-15-5270/en/List%20of%20prior%20actions%20-%20version%20of%2026%20June%2020%2000.pdf

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I'm not sure you caught my comment on another thread about this matter when you went down this route previously?

I agree that many of the proposals are not that onerous. The key question for me is how much more does this remove demand from the economy and what are the proposals to raise demand and reduce unemployment etc.? Surely they must have an idea where this is to come from if they are to stop a member of the EU from hurtling towards social chaos. If 30% unemployment over several years hasn't restored competitiveness what will in the Greek economy?

Edit: There's quite an interesting article by Clive Crook on Blomberg re this I've just read. Sorry can't link as I'm on my tablet but someone else might be kind enough.

keeping up demand when a proportion of it is false is just silly...its what deficits are all about.

There has to be a fall in demand to where real demand exists...then any growth not deficit spending induced can be confidently called real.

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"Austerity" is the political jingoism of the decade. Why don't we just call it what it is, living within your means.

It would appear that Greek governments have been avoiding economic gravity by allowing the country's debt to pay for their ambitions for decades. Their rush to get into the EU was so that they could continue borrowing but at a lower rate.

Believing that lending Greece more will solve their problem is the problem not balancing the books.

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I don't think that Greece debt is beyond repayment, 180% of GDP compared to Italy at 259% and France at 280% and 250% for us post war. Moreover they have got a primary structural surplus.

Sure the GDP situation is the fly in the ointment, but that's partly explained because for ten years the left wing Governments have ''invested''in welfare as opposed to infrastructure and industry.

Syriza's answer is to continue these generous welfare arrangements (not generous in terms of value but in terms of age qualification) and target corporation tax. You really aren't going to get growth based on welfare, even though many households are now reliant on granny providing for the three idle generations below her.

Each Greece household would have to pay 20-30% of their income for 20 years to pay off the debt, over 100k in total. The reducation of debt hasn't really started yet, next 3 years they will only pay a few billions a year of over 300bln they own. The average duration of the loans is around 15 years.

That is only Greece state debt, private debt owned to Greece banks that is another 200bln.

BTW another countries are not in much better position. Imaging the UK asked to have 1% surplus instead 5% budget deficit, almost 120bln a year of cuts, more than NHS budget or half of social security budget (pension and benefits).

Greece is made an example to satisfy taxpayers of the EZ who owns directly or through guarantees most of the Greece debt.

Edited by slawek

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Each Greece household would have to pay 20-30% of their income for 20 years to pay off the debt, over 100k in total. snip

and of course, Greek Government would just take that tax and pay itself as normal.

Come the 20 years, the debt will still be there.

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My point was that austerity in the context of the EU is not being deployed as an economic solution but a political one- and it is only by mapping this political agenda onto the situation that we can make sense of their apparent insanity.

Austerity is not a "solution" in the sense of providing economic free beer, its merely the process of a deliberate and ordered adjustment of living standards down to match your ability to pay. The reason why you might do this is because it will be less painful than being forced to do so when you are maxed out on debt.

If your living beyond your means then at some point your living standards will have to fall, it is (to paraphrase the engineer on the titanic movie) a mathematical certainty.

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