A few more thoughts on the Greek referendum
To add to what I wrote yesterday—
Perhaps the large size of the “No” vote in the referendum represents an amalgam of interests. There are some on the left who want to play chicken with the EU and perhaps force it into agreeing to give Greece better terms for a bailout without Greece giving anything up. There are also the Party faithful who vote “no” because the government told them to. Then there are those on the right (is there a right in Greece?) and left who dislike the EU and want to break away from it and to have Greece stand or fall without having to answer to the EU, and who think it would be better in the long run for Greece to do this.
What that “better” would look like is different for right and left, of course.
On Sunday on Fox News, John Bolton said that he were a Greek citizen, he would have voted No. His explanation mentioned EU monetary policy. This confirms that there are arguments against austerity on both sides.
A drachma at one-half to two-thirds the value of the Euro would mean a tourism boom.
And watch Russia on this. If Putin bails them out, then big trouble. The Greeks could sell islands to the Ruskies.
A July 1 Reuters report on a poll done at the end of June confirms the idea that “no” votes came from both the Left and Right.
“The poll showed support for ‘No’ strongest among voters of the ruling leftist Syriza party (77 percent), the far-right Golden Dawn party (80 percent) and the Communist KKE (57 percent).”
link is here http://www.reuters.com/article/2015/07/01/us-eurozone-greece-poll-idUSKCN0PB3HQ20150701
The no vote does not change the fundamental fact that the euro was destined to fail. The Greeks gamed the system, but the banks are also culpable for this slow motion train wreck. The entire global financial system is headed towards an abyss that will make the 1930s look like a decade of prosperity.
The pro EU people once told me that the EU would become a superpower to “balance the US”.
And they were serious, seriously looking down on the US even. Superpower status is not something you can steal nor is it easy to maintain.
If anything the Euro will probably be stronger after this – not weaker – provided the rest of the countries involved continue to hold firm against Greek pressure. Watching Greece slowly twisting in the wind will teach other profligate countries in the Eurozone to be much more careful about their finances after this. That will make the Euro stronger in the future.
Dennis – I don’t think that is true. If Greece ends up leaving the Euro, which is more than likely if the other countries stay firm and they don’t cave, then the Euro stops being a currency union and instead becomes a hard peg. The financial markets will demand a larger risk premium for a hard peg system than for currency union.
Neo – there is a right wing in Greece. There are two parties that I’d consider further to right of ‘normal’ right parties. One is Golden Dawn while the other, The Peoples Party?, is actually in coalition with the government and I think holds the defense portfolio. Strange bedfellows.
Greece still has the same problem though: they cannot support themselves.
I don’t see this changing either.
Cornhead may be right. Russia could get a nice warm water port.
The current U.S. administration won’t stop the deal.
London Trader said:
“The financial markets will demand a larger risk premium for a hard peg system than for currency union.”
I’m curious what London Trader means by a “hard peg.” How does being a “hard peg” affect the strength of the Euro?
Agree with parker, not with Dennis. Dennis’ teaching “other profligate countries in the Eurozone to be much more careful about their finances after this” reminds me of a certain horse outside a certain barn. After this? How do you say, “Golly, gee” en Espanol?
The EU is the acme of realization of Progressive thoughts and dreams, governance by unelected Eurocrats who pontificate about the duties of others, the need for absolute honesty and austerity for others while simultaneously professing an honor code for member states that lacks any enforcement mechanism. It is the distilled essence of hypocrisy, arrogance and stupidity.Quite a perfume.
I thought the EU was doomed in 2008, and I still do. I feel a bit like Artfldgr…it is so very obvious but takes so long for others to see.
Frog, you’re not particularly alone, except in terms of statistics. Get a load of this list of people who the normals thought were wrong while maintaining the Scientific and Social Consensus.
http://amasci.com/weird/vindac.html#j22
Germany and Netherlands are the only semi-comatose economies using the euro. However, the Germans are flirting with negative gdp. France is in a recession and the rest of the PIIGS are gripped with high unemployment and stagnation at best. The wise ones in the EU resisted monetary union. The euro is doomed. How long before Germany exists the euro and reverts back to the mark?
The Euro and the EU are not synonymous. The EU badly needs reformation. Indeed, the British have already notified the rest of the EU that they wish to renegotiate their treaty with the EU.
The Euro project was flawed from the beginning. If the leaders of the Eurozone are successful in instilling discipline onto their members the Zone should be able to survive and even thrive.
Most of the PIIGS took steps to bring government spending into line with their economies and are doing OK now sith some better than others of course. The interest rates on their bonds are back down to a reasonable level indicating that investors are not fearful that they are still in imminent danger of defaulting. The structural changes they are making should lead to more stability in the future.
Greece ignited the present crisis by electing a far leftist, Alexis Tsipra, who decided he was not going to cooperate with the leaders of the Euro in restructuring the Greek economy so that they would be stable in the long haul. There are other far leftist leaders in other countries who have been contemplating the same posture, but they will be much more cautious in the future since no one wants to end up like Greece.
Dennis – a currency union is irrevocable. California cannot stop using the USD and issue its own currency. The Euro was meant to be the same. Once in there is no way out and the treaty doesn’t have a withdrawal mechanism. On the other hand a hard peg is individual currencies with fixed exchange rate (and a soft peg allows some limited movement like HKD to USD).
If Greece leaves the Euro then what about Spain, Portugal etc. If there is even a small chance that they could also leave then investors will demand higher returns for Euro investments which implies a weaker currency.
I admit this is a pretty basic analysis but I think the basics are correct.
Thanks for the response London Trader. Are you saying that up until now the Euro is a “hard peg” because Euros have the same value in every country in the Eurozone similar to the Dollar having the same value in every state?
If Greece leaves the Euro, and if the damage to the Greek economy is as bad as many have predicted, the rest of the PIIGS will probably straighten out and take the necessary steps to correct their economies. On the other hand if the Greeks have a relatively painless transition out of the Euro and back to the Drachma then the other PIIGS will be more inclined to follow them out.
,Right Wing, Left Wing is immaterial in Greece right now. When Greece is out of assets and people are starving, what will the Greeks do? Invade their neighbors, Bulgaria, Albania, Macedonia? None are awash in assets.How should Greece now grow an economy in recession, with its current 25% unemployment? That people were allowed to retire in their 50s on state pensions is causative, but right now is irrelevant. One cannot cut off the pensions and tell them to work at non-existent jobs, in order to repay loans..
Neither Wing has a short-term answer. The EU has a moral duty which it is doing its best to ignore. No one forced the Greeks into their loans, and you can’t get blood from a stone. The lenders were like parents that gave their drunken son the car keys and told him to drive carefully. Now he’s in hospital and the car totalled, they want him to replace the car?
Dennis – no, the Euro is a currency union, its meant to be irrevocable. However if Greece leaves then it become a hard peg, which means another country could leave. It doesn’t really matter how smooth the exit is the markets will perceive there is a risk of someone else leaving. What happens in a few years when another country gets into trouble? It doesn’t matter if the EU leadership says that country won’t leave because they said that about Greece.
From Wikipedia, a prime example of how Greece got into their current situation:
“The Kopais Lake Agency was created in 1957 to supervise the draining of the lake and building of a new road. The task was completed that same year, but the agency with full-time staff of 30 (including a driver for the president of the agency) still existed until 2010.”
‘Sociological Components of Economic Growth’, title of my master thesis …
It is the culture stupid!
Once one leaves, others will follow, Iceland showed the way.Tiny Iceland, with a population of 375k jailed the banksters and pointed the way to national self determination.
dennis,
You live in the reality of what neferious sobs want you to believe. The real world is a horse of a different color.
This crisis is such a wonderful example of what happens when elites (The Eurocrats) believe that all cultures and all governments are essentially equal. Denial of reality. It seemed a grand scheme designed to show how diversity works. Anyone who has ever traveled in Europe and kept their eyes open knows how different the various regions are in terms of thrift, efficiency, orderliness, organization, work ethic, and governance. Switzerland has somehow been able to keep things together in spite of the their three quite different regions (Germanic, French, and Italian), but it is a small country with special characteristics – mountains, hydro-power, democracy, & gnomes. 🙂 But the idea of a common currency for the Euro-zone was a bridge too far for such diverse countries.
The U.S has managed to keep things together because our abundant resources and a common ideal (until then last fifty years) of hard work, opportunity, and freedom created massive wealth. Now that we are working on diversity as our national idea of utopia, we are losing our wealth creating ability as well.
parker Says at 12:18 am
“dennis,
You live in the reality of what neferious sobs want you to believe. The real world is a horse of a different color.”
How can that be? I don’t even read the New York Times.
.
Well at least Greece is trying… :^9
GREEKS MAKE CONCILIATORY MOVES, APOLOGIZE TO EU WITH GIFT
.
@Ymarsakar
>>” The pro EU people once told me that the EU would become a superpower to “balance the US”. And they were serious, seriously looking down on the US even. Superpower status is not something you can steal nor is it easy to maintain.”
To became a superpower you need a homogeneous society where everybody pushes in the same direction: cohesion.
The good news for US is that Europe doesn’t have such a society.
The bad news is that US doesn’t have such society anymore, neither, so the decline is unavoidable.
The only “Right” in Greece, just as in all other Eastern Orthodox countries, are Nazi, who in economic policy are not much different from ultra-Left. That is the main reason why all these countries are doomed.
The good news for US is that Europe doesn’t have such a society.
By around 2020, Islam will start looking like the cohesive Euro society. United European States of Islam, right before the US plunges in Civil War II. When both factions exhaust themselves in the US war, Islam will come in and conquer from outside and inside, with nukes, wiping out both factions.
At least, that is one plausible scenario I teased out of looking at the future, 5 years ago.