Wednesday, October 10, 2012

The Parallel Universe of Alexis Tsipras

In an article for the Guardian, Alexis Tsipras articulated his message for Angela Merkel. It is no surprise that I disagree with almost everything that comes out of Mr. Tsipras’ mouth. But there are three claims, in particular, that caught my eye. Together, they show an inability to grasp reality in a way that has deep consequences for Greece.

Claim #1: “Austerity policies have led to cuts in benefits, the deregulation of the labour market and the further deterioration of the limited welfare state that had survived a neoliberal onslaught.”

Austerity policies have led to a cut in benefits and the deregulation of the labor market – no arguments there. But is Greece’s welfare state truly limited? Let’s look at a few numbers. In 2010, the Greek state spent 13.2% of GDP on pensions (data from here). Of the 23 EU countries that have data, Greece ranked second! In fact, between 2009 and 2010, amid the “austerity,” its ranking rose from 4th place to 2nd (after Italy). Health expenditures are, at least, less egregious. In 2010, the Greek state spent 7.5% of GDP on health, which is right on the EU and Eurozone average. Greece’s share is just below Italy’s (7.6%) and slightly higher than either Germany’s 7.2% or Sweden’s 7.1%. Is spending more on pensions than almost all EU states and more on health than Germany and Sweden really having a “limited” welfare state? Some perspective, please. Besides, only 10% of the €20 bn reduction in the budget deficit from 2009 to 2011 came by limiting the welfare state. So where exactly is that “neoliberal onslaught?” There is much that can be said about Greece’s “welfare state” but that it is “limited” is not one of them.

Claim #2: “The European citizens should know, however, that loans to Greece are paid into an ‘escrow’ account and are used exclusively to repay past loans and to re-capitalise near bankrupt private banks. The money cannot be used to pay salaries and pensions, or to buy basic medicine for hospitals and milk for schools.”

To be fair, much money that came into Greece flowed straight out again (see here). But to say that the money cannot be used to pay for expenses is an odd claim. Money is fungible and for two years, Greece had a primary deficit meaning that its revenues could not cover its expenditures even without paying interest (the budget is almost balanced now, again excluding interest). The idea that all this money has gone exclusively to “repay past loans and to re-capitalise near bankrupt private banks” is untrue. It is misleading too because debt repayments went also to Greek institutions and individuals, including institutions that form part of the welfare state. Mr. Tsipras is right to point out that much money went to repay debt holders; but he is not right to claim that those payments have nothing to do with state spending; nor can he really say that having a banking system bears no relationship to social welfare and social peace.

Claim #3: "We believe that their [elites] aim is not to solve the debt crisis but to create a new regulatory framework throughout Europe that is based on cheap labour, deregulation of the labour market, low public spending and tax exemptions for capital … Europe needs a new plan to deepen European integration. Such a plan must challenge neoliberalism and lead European economies back to recovery. It should prioritise the needs of workers, pensioners and the unemployed, not the interests of multinational companies and bankrupt bankers."

Neoliberalism is a big, bad word, although despite having graduate degrees in political science and economics, I have no idea what it means (or how it differs from liberalism). But from what Mr. Tsipras writes, two points merit a response. The first is the cheapness of labor. It is true that Greece’s austerity package is focused on making labor cheaper. But the reason is not a neoliberal conspiracy. Rather, it is that the average Greek produced almost half as much per hour of work than the average employee in the Eurozone (see here). Only Portugal, among the EU-15, produced less for each working hour than Greece. Greek labor ought to get cheaper not so that companies can make more profits, but so that work and reward can be better balanced. This is a profound philosophical point because Mr. Tsipras is obsessed about wages but does not seem to care about productivity. He should.

The second point is the idea that the austerity package favors the interests of multinational companies. Big companies are easy scapegoats of course. But consider these two data points. First, Greece is dead last in the Eurozone in terms of how much foreign direct investment it has attracted, and it has been dead last since 2002 (see here). Greece has 40% less FDI than second-from-last Italy and it has one-fourth the FDI of the Eurozone on average. Second, by far the biggest driver of the recession in Greece is the complete collapse in investment, which has halved since 2007. This is mostly domestic investment and it has collapsed across the board. The reason, most recently, is deep uncertainty. But beyond uncertainty is the difficulty of doing business in Greece, including because of the worker protections that Mr. Tsipras wants to enhance. If you told the CEO of a multinational company that the austerity package in Greece is favoring the interest of multinational companies, they would laugh above all because it is a silly claim. Making Greece a haven for capital would be great, but Mr. Tsipras understands neither what it takes to get that nor what it would do to Greek living standards thereafter.

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These points underscore two bigger problems with Greece’s attitude towards the crisis which Mr. Tsipras first typified and now propounds. The first is an inability to do some serious introspection and thus get a sense of perspective. Without it, questions such as “what is fair” or “what is just” are impossible to answer. It is all well and good to bemoan the welfare state, but why isn’t Mr. Tsipras outraged that the Greek state spends so much and delivers so little? Why is his only answer to just spend more, along with the necessary (and empty) nod that he would do it better and fairly (without telling us how)? Why is he not outraged that investment has halved and that there is less foreign investment into Greece than anywhere else in the Eurozone? Crisis demand introspection, not just scapegoats.

The second problem is deeper and it speaks to the inability to think beyond zero-sum politics. There is a reason that people of Mr. Tsipras’ persuasion have gone out of fashion in advanced countries. At some point, even politicians understood that trying to split the pie without growing it was self-defeating. Better to create more wealth and fight for a different allocation rather than focus solely on the allocation. When he rails against multinational companies or bankers or capital, he is saying “one wins, the other loses.” This is a great philosophy. It’s simple, compelling and massively appealing. It’s also wrong and outdated. I titled this post “The Parallel Universe of Alexis Tsipras.” Perhaps it is best to say that he lives in a time capsule. Of a time long, long ago.

32 comments:

  1. Maybe instead of comparing health expenditures between countries based on percentage of GDP you should be comparing euros per citizen. Because Greece's GDP in 2010 was much lower than the years before.

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    1. I also referenced the 2009 number when most countries in Europe had a deeper recession than Greece, so I think the point stands.

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    2. I think you should indeed compare the euros per citizen, and also take into account cost of life. According to your 2009 reference there is a €2 bn reduction in welfare state, and during the same period unemployment has skyrocketed: Less money must support more people.
      Anyone living in Greece knows that no matter what the above selective calculations show, there have been repeated serious reductions in pensions, and healthcare benefits, unexpected taxes (xaratsi), etc.
      Paying attention to the theoretical behavior of the overall system and total GDP, while ignoring distribution of wealth and the living standard of the lower income population segment is the typical bias of the right-wing perspective. These grand econ-engineering plans ignore that there is a level of hardship or perceived social injustice (effort put vs. distribution of profits) at which the societal coherence is lost, the society destabilizes, and authoritative violent oppression of the people is needed to preserve societal stability. In democracies they are unrealistic. I would shake one's hand only when one would receive the basic minimal salary, or the minimal pension, and have these opinions. Sympathy/empathy for the hardship of the weakest is one of the defining elements of the left-wing perspective.

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    3. No argument from me on the fact that there have been cuts and that the social welfare system (and the system overall) has extreme distortions and injustices. You're absolutely right on that.

      Since you mentioned unemployment benefits, Greece in 2009 and 2010 was right at the middle of the EU average when it comes to this spending, although this obviously doesn't say much because unemployment rates are different. That said, unemployment benefits held flat and rose somewhat in the 2000s, while the unemployment rate plummeted. That doesn't make much sense.

      But the bigger point is that this is not the "theoretical behavior of the overall system and total GDP." It's *not* theoretical at all. It's *the* bill. It's the amount of money that the unexpected taxes are levied to be able to pay. It's the amount of money that the troika is looking at when negotiating cuts. It's the reason why after all these cuts, Greece has yet to balance its budget (excl. interest payments) even though government revenues are at a 10-year high. It is not theoretical when everything comes back to government spending.

      You're right that there are huge distributional inequalities - and those lie at the heart of the problem and they need to be fixed.

      The problem is that by focusing on anecdote and one stories you get one picture; but when you look at the numbers, when you look at government spending and try to see how it has changed and how it compares with other countries, you get a completely different picture. And judging from the reactions that I get on my blog, I don't it's not a picture that a lot of people see or pay attention - perhaps because they think it's theoretical, when it is not. It's what their taxes pay and what their newer and newer taxes are meant to pay. It's not theoretical at all. It's the real bill and I think we are all better off to understand what's in it.

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  2. Dear KouThan
    I think it makes sense to look at both: Percentage of GDP absolute EUR terms.
    However, I believe that percentage of GDP is ultimately the more interesting one. Providing medical care is ultimately a very labor intense sector. A large part of the cost is doctors, nurses, etc. If you e.g. in the US have doctors and nurses that earn four times as much then the care is not necessarily four times as good.

    I think what the author of the post wants to say is that actually, the Greek welfare system is not that low by comparison with other EU or Eurozone countries.

    What may be a problem is that the money invested does not produce the output that may be expected. But in a time of economic crisis, just pouring more money in cannot be the solution. The solution has got to involve how to achieve more with the same or a little less input.

    That is very possible in the welfare sector. Let's take health care as an example. If the state is in such difficulties, I am sure the salaries of doctors and nurses have been reduced. Also, a lot of the medicine used is no longer patent-protected and products with a well-known brand can be replaced by generics (cheaper copies). That can cut the cost a lot.

    The purchase of very expensive medical machines can be slowed. Short- to mid-term, Greece will have a falling population. So there is no need to increase capacity at the moment. In terms of replacing equipment or purchasing new equipment, I would strictly limit that to urgent cases (where an essential machine has broken down and there is urgent need for its replacement or where there is a new type that brings significant benefits to patients).

    Applying these measures (and I am sure there are more if experts thought about it) can bring the cost down both in absolute terms and in terms of percentage of GDP, even in a shrinking economy, without substatial loss of care for the patient.

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  3. Mr. Tsipras belongs to the very, very many people who have no idea what neoliberalism means. There are few expressions which are used so frequently as today and so poorly understood (or misunderstood) as the term neoliberalism. It seems that to most critics, liberalism was bad enough but not bad enough for some people so they delevoped it into neoliberalism, sort of like a turbo on liberalism. In short: limitless and shameless laissez-faire, cold and negating humankind, the survival of the few at the expense of the many, etc.

    Well, interested readers can look up Wikipedia et.al. on neoliberalism and I recommend that they do because it is really interesting literature.

    Despite the various definitions of neoliberalism, one point seems to be fairly certain: it was not meant to be an even more liberal liberalism but, instead, a reigning-in of the classic laissez-faire liberalism. In the 1930s/40s, a group of economists realized the shortcomings of classic liberalism and various, also differing, responses to that were developed. One of the key aspects of the new liberal thinking referred to the role of the state. Please listen, dear critics of neoliberalism, these neoliberals did not want to do away with the state altogether but, instead, they wanted a STRONG STATE. One of the best quotes I have ever read comes from the German economist Alexander Rüstow:

    "The new liberalism which one can justify today (i. e. neoliberalism), and which I and my friends support, requires a strong state, a state above the economy, a state above special interests, etc. That is where the state belongs".

    That noble state may have been possible under Plato but is not really possible in modern democracies which are, by definition, representations of special interests. Still, there is no reason that states had to become so weak, such extreme representatives of special interests as in most countries of the Western world in the last decades. The Greek state may be the record holder of defending special interests but most of the others, notably the US, are not that far behind.

    I would recommend Mr. Tsipras to get some briefing on what Ludwig Erhard did in Germany in the early 1950s. He was a believer in human potential and in the energies which are set free when individuals are not hindered in their endeavors. At the same time, he was a believer that there had to be safety nets in a society to protect those who may from time to time not be ableto unfold their potential. That was called the "social market economy" and it was credited with being the pillar of Germany's post-war success. One could have also called it a form of neoliberalism.

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    1. An excellent contribution as always Klaus - much appreciated.

      It's incredible how much laissez faire has come to mean "no state" when, in fact, almost any liberal will tell you that the foundation of any functioning society is a strong state.

      The problem, in Greece and elsewhere, is when states try to do too much and end up doing very little. Much better to focus on a few things that matter and do them well.

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    2. To those who are interested I would recommend "The Constitution of Liberty" by Friedrich von Hayek. He doesn't talk so much about the state per se but, instead, the State of Law. Interestingly, he argues that the State of Law is much more than just having the institutions. It also requires a shared belief in society in, as well as respect for those institutions.

      Greece might have the best institutions in the world but if ministers of government decide to keep a legally implicating USB stick in their home office instead of passing it on to the responsible institution, then the best structured State of Law won't help.

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  4. Nikos, on the content of your article (which is excellent), I take the liberty to link below an article about Tsipras which I had posted in my blog earlier this week.

    As you can see, I take a slightly different take than you. You argue with hard facts. That's good for the like-minded because they get more evidence. Regarding "the others", it won't do much because they tend to feel "don't confuse me with facts when I have already formed my opinion".

    The facts may suggest that the Greek welfare state is still alive and dandy but "the others" will point to over a million unemployed and you have a discussion-stopper.

    Whoever wants to change Greece for the better must give, in addition to hard facts, a "story" to Greek voters. A story, or rather a vision for a better future, which voters can accept. It's not enough to have the right facts when no story is made out of them and sold to voters. The graveyards of the world are full of people who were right...

    Tsipras tells a very good story and he should be given credit for that. In fact, I wish the present leaders would copy his story-telling ability a bit. Sadly, I know of no other Greek politician at the moment (least of all in the government) who tells a convincing story why all these measures are really good for Greece.

    All I hear is that these measures are for the Troika because if the Troika is not happy, there will be no money and without money there will be no Euro in Greece. Well, that's an excellent way to p.. off voters!

    I think everyone agrees that there must be a mentality change in Greek society, particularly in Greek political elites. The trouble is that mentality changes cannot be mandated. Good story-telling, on the other hand, can accomplish quite a bit.

    If you posted your article in Prof. Varoufakis' blog, he would probably refuse debate arguing that the facts are all wrong. If you can't get a professor to argue facts, so much less a talented populist politician.

    http://klauskastner.blogspot.gr/2012/10/disappointing-news-from-mr-tsipras.html

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    1. Dear kleingut,
      With all respect, this was a rather divisive post. it basically stops discussion and demonizes the opponents. if "the others" tell you that we have a million unemployed, then this is putting a hard fact on the table. It is only a discussion stopper if your perspective cannot cope with this part of reality and prefers to ignore it. In that case you should look at your perspective and not at cutting bridges with the "others". Similarly, if you go to Mr Varoufakis and he disagrees about the facts, then you have found to talk about. You have something to defend, at least insofar as you have any faith in economics as a science that is valuable for describing the system and not only for visualizing one's opinion. Your coming (i assume) from the land of Habermas should give more faith in the prevalence of the best argument at the end of the debate.

      Overall, if i may, you and also Mr Tsafos, and also the pro-austerity and in general right-wing politics, should get a better grasp of reality.

      I explain: Quite often, as in this case of Greece, your theoretical calculations on paper require that a part of the population goes through hell for the 'better days' to come. That might sounds to you rational and responsible when you draw lines on paper during a cozy evening at your warm home and comfortable armchair. However, it looks very different to a family of four where the parents get unemployed, or have to live with the lowered basic salary, or to a pensioner that cannot afford rent food and medicines anymore after a lifetime of working and paying taxes. Some of these people will die from poverty. Some others will have their future destroyed because they will not afford education.
      As said above, why dont you try, as an exercise, to live with the basic salary yourself? You can put the rest of your income at a safe place, and allow yourself only the German cost of life equivalent of the greek basic salary. Please dont forget to deduct the average rent for housing in case that you own your home. Read the news in the meanwhile about how the wealth of your country is managed by people that serve their own pockets.
      It will not be the perfect analogy because in your case the decision was made by you, but it comes close to give you a taste of what you are arguing for. This is the perspective from which you should argue in order to make sense to the "others".

      (to continue)

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    2. (continued -- sorry for the long post)

      Basically your suggestions require the sacrifice of those that are the least to blame: those that were not in the direct flow of money, that did not appropriate for themselves huge amounts of state money, those that paid and received bribes for suboptimal state contracts. Also the people that are about to privatize the profitable state owned lotteries in Greece, which is an economic crime (and should be prosecuted severely as treason) in a country that is in desperate need for "good" (sustainable) income. The sacrifice that is needed from the greek public cannot happen while thieves and crooks are still in power. Why should one pay taxes for the (for 2 days) president of the parliament to employ his daughter in office? The prime minister promoted in crucial position the officer from his hometown. There are testimonies for stolen billions of euro but somehow the cases do not proceed. The head of governing party had a list of illegal transactions from the French MoEc, about 1000 names, and forgot it in his desk. In these circumstances, whom do you expect to go through severe hardship and self-sacrifice? In these circumstances, it is a matter of stupidity and not of responsibility as a citizen to contribute to this company in charge of the state. Without social justice, rationally expect protests instead. If not anything else, Tsipras and other parties, would try to clean the dirt in which the two major governing parties are submerged to the bone. That and only that would create a motive the conditions for people to self-sacrifice. Among the widely acknowledged policy mistakes of Merkel and company, which however rally her own voters, was to support with all forces in the last Greek elections the same corrupt and incapable political establishment which mismanaged greece and brought her to this stage, and with which they did good (for them) business for years.

      These are parts of Tsipras story, as of the story of others, but not of the miserable story of the governing coalition as you mention. Do you know why? It is because the facts do not support the governing coalition to tell a better story. the money we get indeed got to debtors while when even a company goes bankrupt payments to debtors freeze for a while. What is left, hardly suffices to keep us on the deathbed long enough for vulture funds to grab whatever valuable remains,and the rest to minimize costs from our forthcoming complete destruction. In this environment, a good story is precious. Makes people believe that they hold their lack in their hands and motivates them to put effort that they believe wont get exploited and wasted by those that have a long record in this: By the currently governing parties, and their wider co-lunching associate environment domestically and abroad.

      This has been written in good faith, poster of 3:28 from above.

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    14. To 3:28

      I had great technical problems posting this long comment...

      1 of 3

      Thank you for your thoughtful reply. I respect that you expressed your views so emotionally. I obviously have hurt deep feelings on your part and that was not my intention. Sorry. However, allow me to say that much of what you are criticizing about my views is what you read into them and not what my views are. That seems to be a bit of a Greek trait. I have been married to a Greek for almost 40 years and every time we got into an “argument” (fight is such a bad word…) and she would blame me for this, that and the other, I asked her when I really said this, that or the other. And the typical reaction to that would be: “You may not have said it but I know you meant it that way!” When one side is determined to be in the victim’s role, it becomes a no-win-situation for the other side.

      For example, if you follow the backlinks in my above-mentioned blogpost, you will find that I have so far written 10 articles about Mr. Tsipras. The first one was titled “Cheers for Alexis Tispras! And more…” and to make sure that you can read it, I link it again here.

      http://klauskastner.blogspot.gr/2012/05/cheers-for-alexis-tsipras-and-more.html

      Perhaps it would be an idea for you to argue with me based on what I said instead of what you think I am saying. For sure, you will see that I don’t stop discussion and demonize the opponent but the opposite. So we don’t take up space in this blog, you can communicate with me directly via email, if you wish.

      I agree with you entirely that Greeks have been ripped off. One part of Greek society (I would like to think it’s still a minority) has taken the other part of Greek society for an unbelievable ride. My sense of modern Greek history is that, ever since independence, the country’s elite has pursued its own interests and not so much the interests of the country, perhaps even at the expense of the country. However, when there is not so much money to rip off, the ripping-off remains limited to a small number of oligarchs. With Greece’s joining the EU, the money started flowing and with Greece’s joining the Eurozone, the money really started flowing. Todate, Greece has received about 130 BEUR in grants from EU structural funds and another 70 BEUR from the agricultural fund. Mind you, those are non-repayable grants (instead of repayable loans!). And from 2001-10, a net amount of 300 BEUR was dumped upon the country as cheap loans. When you dump that kind of money into the middle of the desert, you will see some fantastic growth in living standards even there.

      Now, such amounts of money open all doors for ripping off and the rippers were no longer a handful of oligarchs but, instead, they became quite a large segment of society. Money entered the country as debt of all and became private equity of some (and much of it left the country as private equity). And I agree with you that now you have a situation where many of those who had the least benefit from that party are asked to pay the entire bill. I would agree with you that such a rotten system should be starved to death.

      You suggest that the answer is not to pay taxes to such a rotten system. Fine. Many tax payers in the Eurozone totally agree with you except that they are not as harsh as you. They are not saying “let’s not give them our tax money”. Instead, they are saying “we’ll give you our tax money but the condition is that you must change your ways”. Is it not understandable that taxes which you as a Greek wouldn’t even give your state, foreigners want to only give your state under conditions?

      Many now seem to be saying that only Mr. Tsipras can change that rotten system because he has not been part of it and he is “fresh”. I agree with you (and you can read this in my blog) that I consider Mr. Tsipras the only Greek politician today who has the leadership traits to really motivate masses. But in order for the right change to come about, the medicine must make economic sense.

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    15. 2 of 3

      Contrary to what you read into my lines, I have no big faith in economic science because a science which has so often been so wrong can’t be much of a science. I have big faith in common sense and common sense dictates that there is no such thing as a free lunch. Common sense suggests that Greece, as an economy, needs foreign funding like a human needs oxygen.

      Since the beginning of the crisis, Greece has impressively cut down imports and increased exports. This July was a new record in that trend. And yet, in the month of July, Greece still imported almost 1.900 Euros for every 1.000 Euros which it exported! To put numbers to that: from Jan-Jul 2012, Greece imported almost 12 BEUR more that it exported! Now, income from services like tourism makes up part of that hole but still: for 2012, I would project that Greece will have spent at least 11 BEUR more abroad than it earned abroad (back in 2008, that was 35 BEUR!). You can take out interest from that, arguing that Greece shouldn’t pay any interest to foreign usurers but you still end with a hole of 6-7 BEUR.

      My point is that not only does the Greek state need foreign funding to pay salaries/pensions etc. but the Greek economy needs foreign funding to remain functioning. When you need foreign funding, it’s not smart to alienate foreign funders the way Mr. Tsipras does it. What if foreign funding stopped overnight? Well, my understanding is that, apart from energy, etc., Greece imports 40% of its foodstuffs. So, Greece could end up where Cuba ended after the Soviets stopped their funding. I fear Mr. Tsipras is not at all aware of the fact to what extent today’s Greek living standard depends on foreign funding.

      Personally, I am convinced that the only longer-term solution for Greece is foreign investment. Greece needs foreign funding but it already has more than enough of it in the form of repayable debt. It needs the funding as non-repayable foreign investment. And foreign investment would bring the know-how transfer in all areas of economic life which Greece so desperately needs. Do you think Mr. Tsipras’ actions todate have made potential foreign investors more or less interested in investing in Greece? My sense is that even Greek investors are not impressed: almost 4.000 Greek businesses have emigrated to FYROM and Bulgaria since the crisis.

      I agree that the austerity as applied in Greece is not working. But why did Greek leadership opt for the easy route (take the money from the usual suspects, i. e. those who are taxed at the source; those who have always paid taxes) instead of going for the tough route (structural reforms; making sure that money is not taken from the living and paid as pensions to the dead, etc.)?

      I am not arguing that Greeks should go through hell. I consider a million unemployed as a discussion stopper because it is an intolerable situation. But the only way to reduce unemployment is through the creation of new jobs. For new jobs to come into existence, you need investment. And for investment to come, you need favorable business conditions and a welcoming attitude for investment. Greece presently ranks, by far, the lowest in the EU for the ease of doing business and the highest for the level of corruption. Turn these 2 rankings around and Greece would have a good future.

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    16. 3 of 3

      How to do that when you have a rotten establishment? Well, the book “How nations fail” argues that when the entire political and economic establishment of a country is rotten, it is next to impossible to change it. My Greek friends are pessimistic and tell me that Greece will never change. I think that if Mr. Tsipras had a twin brother who has as much talent for economic common sense as Mr. Tsipras has for motivating the masses, and if both of them teamed up, that might work. Absent that twin brother, Mr. Tsipras needs to acquire economic common sense in a hurry if he is not to turn Greece into Europe’s equivalent of a Cuba.

      You criticize my criticism of Prof. Varoufakis. Well, I have had my private email exchanges with him where I congratulated him for all his very good suggestions about solutions to the Euro crisis but criticized him for never making any suggestions what Greece could/should do on its own to solve its problems. His well-known position is, of course, that there is nothing that Greece can do on its own because it is caught up in a much larger crisis (title of one of his upcoming seminars: “Why there is no such thing as a Greek crisis”). To me, that’s a classic example of using all one’s energies to solve someone else’s problems and no energy whatsoever to solve one’s own. Suggesting that there is no Greek crisis which Greeks could/should tackle on their own when, quite obviously, the State of Law and the enforcement of laws is not working; when the economy is controlled by monopolies, cartels, cronies, etc.; when laws passed by parliament are not always implemented; etc., etc. – well, and then suggesting to gullible followers that there is no Greek crisis is quite irresponsible, in my opinion.

      Let me close with a link to an article where I once suggested what the Greek brainpower should use its brains for.

      http://klauskastner.blogspot.gr/2011/11/appeal-to-greek-brainpower.html

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    17. 1/4, 3:28

      Dear Kleingut

      Thank you for your considered reply, and also Mr Tsafos for his hospitality on this blog. I find much of what you write agreeable, and much of the rest rational from within your perspective. Please allow me to make only a few key comments on the main differences.

      Unfortunately, to set the discussion straight I must start with a rather sharp but well meant reaction to your opening statement. I appreciate your well-meant comment about unintentionally having ‘hurt deep feelings on [my] part’ and your ‘respect’ about expressing my views ‘so emotionally’, but these did not happen. I am not your wife :). I find off the mark comparisons and generalizations that fallaciously color the co-discussant from the outset as emotional, or as greek, or as hurt, or as adopting the role of the victim. This rational discussion is much better served when one is not so kind as to mistakenly project irrelevant personal experiences and interpret the other’s emotional state, and instead one straightforwardly focuses on the logical points made. Living for more than a decade in northern Europe, encountering all kinds of people and conscious or subconscious communication tactics, I can assure you that sharp analytic clear rationality to the point is very appreciated here. I have read some of your posts, as well as some of your comments at Kantoos Economics, much of which i find agreeable. My apoologies for what i misundertood. Misunderstandings, similarly as you also did not always grasp the essence of my comments, or I didn’t explain well, or your didn’t explain well, are unsurprising in written communication between persons that are unaccustomed to each other’s communication mode. Sorry I had to start with this.

      Perhaps what you misunderstood as emotional (here I get to the substance), was my reference to sympathy/empathy for the suffering of the weakest population segments. This is however a rational point. This sort of empathy that also rests in the heart of what has been termed societal justice or humanism is, as I see it, much of what separates non-totalitarian left from the right wing perspective. To explicate, the left respects policy constraints that the right does not. These constraints relate to how much relative pain of any sort will be inflicted on the weakest. “Each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override", as John Rawls put it. “[…R]espect for the principles of justice, or shame at gross inequality of treatment, is as basic in men as the desire for liberty” (I. Berlin). Committed to respect these constraints, the left tried to avoid policies that harm the weak, unless every other option is worse for the weak or infeasible. The right is typically more unrestricted in that it does not feel constrained by such issues and it generally considers such pain as ‘necessary evil’ for the maximization of the overall economic pie. However (here is the point) if the average supporters of such policies were subjected to what they preach for (become unable to subside oneself or one’s children and fearing about tomorrow after a lifetime of working and paying taxes, while watching others mismanaging and feasting on public money,) then these same right-wing policy supporters would suddenly be in the front lines of disobedience and protest. *That is reality.* The difference is that the left empathizes without actually being in that situation. I indeed suggest that anyone who considers the current situation in Greece as acceptable evil and preferable to any more radical solution should first try to live with an income that does not suffice for his food, rent and medicines, or for raising his children. There is a spice of Kant this suggestion. As a wise popular saying goes, give politicians the basic salary and watch how fast things improve.

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    18. 2/4
      Having said these, I appreciate that you acknowledge the unfairness of the situation in Greece, and that you do not classify all greeks within the same negative category. Also that you acknowledge the corruption problems with the governing oligarchy, and that ‘the austerity as applied in Greece is not working’.

      You misunderstood or rather I failed to explicate my point about taxes. I am much in favor of fair taxes, and especially on very high incomes (which probably partly conflicts with your suggestion to attract investments in circumstances of a global downwards regulatory competition for reduced corporate taxation). The problem is, as you also agree, the very corrupt and also highly technically incapable greek political establishment. It makes no sense to expect from the innocent and the have-nots to pay the the corrupt, and those that cover-up for the corrupt. I equally do not support sending money of the Greek and of the European taxpayer to that corrupt and inefficient system. (I am in favor however of sharing benefits enjoyed by the stronger Euro economies because of positive effects on competitiveness by artificially weakened Euro, and because of massive capital flows from the south to the north.) The post-elections corruption examples that I mentioned show that the feast goes on or at best hibernates at the top. Domestically and abroad, people must feel that their money and sacrifice is not wasted and exploited. This brings us to Ms Merkel and company, which are pretty much at the heart of this problem as well.

      The current government got the popular vote for 2%. Before elections we had intense propaganda from German and international right wing media against Tsipras, whom you also identified as a possible hope at least for cleaning up the system. Fear campaigns, populism and threats were used to shift the electorate’s opinion. His clearly stated pro-european positions, (unless remaining in Euro proved impossible, as it expectedly appears to be now following Merkel’s unrealistic dictations) were ignored and systematically ‘mistranslated’. The special interests-driven greek mass media fully participated in the propaganda and heavily quoted german press. That easily cost us the decisive 2%, and collapsed our hopes for cleaning up the system, prosecuting corruption, investigating odious dept, publicizing the Blackstone auditing on the greek banking system, temporarily freezing payment of remaining loans (we have near or achieved primary surplus; we differ on our understanding of current greek deficit), etc. In this sense the influence of Ms Merkel and company in the last elections was destructive for Greece.

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    19. 3/4
      As it has also been destructive in forcing the medicine (austerity) that kills the patient. It is possible to interpret their destructive insistence on austerity during the early phases of the crisis as misjudgment. However, their persisting insistence progressively became hard to explain in positive terms in the light of mounting evidence that austerity kills the greek economy and also greek people (reported 20% increase in suicide rates), because the confidence fairy (Krugman) unsurprisingly does not appear when money does not circulate. Even the IMF now backs down, but Ms Merkel insists against all evidence (ill-will, stupidity or emotion?). At the same time, the political future of Ms Merkel and her far right-wing coalition depends on rallying *relatively* nationalistically predisposed voters. German exports advantages from weakened euro and from capital flows from the collapsing south to german banks (unprecedented negative interest rates) are not included into the cost-benefit calculations communicated by Ms Merkel to german public. Nor is communicated Tsipras’ valid point that allowing Greece to recover is the way for Germans to get back their loans to Greece with the requested profitable (not ‘cheap’ for Germany) interest. As it appears, Ms Merkel and company have misinformed her few tens of millions voters to the effect that they will keep her in power, and possibly bring the Eurozone to an end, if not worse.

      These are not to say that there is no blame with the wider public in Greece. Of course there is. Corruption has been tolerated for long, and especially while one could make a decent living out of it. Three comments about this: First, the situation was known abroad for years, and many foreign investors, among which as a series of German companies, supported/participated in that. Second, a large part of the population did not have access to corruption. These are the people that worked with the basic salary with practically obligatory unpaid overtime, and taxed at the source. Third, believe me, living in Greece has been like living around The Tower of Kafka. The system was getting stuck for outsiders at every little step. You had right, and the reply was ‘so what?’. You never knew what happened to your case. You had to ask and ask again, and were getting conflicting replies. You had to pay bribes for most things that were meant to be your right and free. The media belong to state contractors, used openly for political blackmailing and propaganda, and are below tabloid level. (Both Greek and German public, due to the relatively low command of English in these countries, are vulnerable to manipulation by domestic press. Especially in Greece because of the low penetration of internet: The current government was voted by scared pensioners that statistically do not speak English and do not use the internet.) The juridical system is a corrupt joke. Politicians cannot be prosecuted if politicians do not allow it. After two elections, no matter how soon (another reason why failing to elect Tsipras at the second elections was a disaster), crimes by politicians are written-off. Such is the beauty of greek law. The only independent authority that investigated corruption in parliament (Zorbas) got terminated immediately when it revealed illegal flow of public money to political pockets. The police are worse than you imagine. There was/is no credible Statistical Bureau to inform voters on the performance of the economy. Voting was based on rumors and information from politicians themselves. There was no way to know what is happening, no way to get vindicated if you were right. Statistically speaking, if you wanted to progress in life, you *had* to participate into corruption, no matter if you were skilled or not, or else go abroad. For many that went abroad it was a shock to see countries where the system works in the sense that basic information is available and if you have right you can claim it. It is no coincidence that greek law prevents millions from voting in national elections while abroad.

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    20. 4/4
      So yes, we have clear blame, but the circumstances were difficult, if you would play along you could have some butter on your bread, and otherwise you had to stay at the bottom or leave the country. Now that protesters were chanting ‘we woke up’ and the dead-end of the dirt became obvious to the masses and an alternative appeared, now we got Ms Merkel and company to scare people that Tsipras would get us out of Euro and destroyed, as if this is what would happen, or as if this was not where Merkel’s own dictations were guiding us. That 2% made the difference between contributing for saving the country, or refusing to be exploited any more.

      Furthermore, of course the crisis is European and international. Greece is just the weakest link, a much weaker link than the rest –no doubt. But if you look around, everybody is in deep debt, and at the mercy of Moody’s and S&P. it is obvious that there are problems with the institutions, with sharing benefits and with controlling the financial system. If it was possible to delete Greece, there are still mountains of similar problems to cope with, which are democratically unsolvable within the current economic approach: Too much unfair hardship for the weak. The applied policies mathematically lead us to societal instability loss of coherence and aggression. This is hard facts reality and not emotion speaking. And possibly more trouble is coming from large western economies northern than the south. So it is very much to the point and not irrational to aim for European level solutions, alongside what efficiency or citizen responsibility improvements should happen within Greece but are unlikely to happen with incapable and corrupt governments. Finally, looking at the way that the common sense political and economic establishment performs for societal concerns like fairness and the environment, I do hope that Tsipras will not get this common sense. I just hope that he will be able to lead a solution that can be decently satisfactory for the worse-off, even if the economic pie does not get maximized. Contrary to you, but neither of us knows, I believe that Mr. Tsipras is aware of the extent that today’s Greek living standard depends on foreign funding, and that you overstate Greek deficit. As mentioned we are very near or have achieved primary surplus. (Cuba, which is irrelevant, has been through 60 years of politically motivated economic embargo. Argentina and many others that kicked IMF out and none of them invited it back, are much more relevant worst case scenario examples.) We basically need to temporarily stop paying the non-odious debtors (instead of selling profitable state companies,) as any defaulting corporation would legally do. Any remaining deficit can be further reduced by pursuing high level corruption that the currently political establishment is incapable to pursue because they are deeply entangled in it. If more is needed, it is easier to get it from people that believe that their efforts are not wasted than the opposite. I think that what mostly demotivates foreign investors and also what motivates the emigration of greek businesses is the predictably failed austerity policy by the greek government and by Ms Merkel and company, which stops the flow of money (demand side economics) than because of Tsipras. It has become a strange cliché to blame those that did not govern for the predictable and foretold failings of the unrealistic policies of those that governed.

      I hope that you agree with part of these. Thank you for the discussion and best luck over there. Looking forward to your reactions/corrections and further future communication, though I must shift my focus on finalizing other projects this period. Best regards.

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  5. I still say that the best thing Angela Merkel could have done two years ago was walk away from Greece, keep her mouth tight shut, and keep her purse strings also tight shut. It would have solved a lot of problems.

    Alexis Tsipras makes a fair and correct point that the private banks do not deserve a bailout. We can always start new banks after these ones go down. Sure, some people will lose their money but ultimately Greece has defaulted on the bondholders anyway and I think probably everyone knows that more money pumped into Greece will just be more money that never comes back. A loss is inevitable here, so the question is only who carries that loss.

    The outcome would be better for Germans, and in the long run better for Greeks too.

    I will point out to Alexis Tsipras that if he wants to talk about "democracy, equality, freedom and solidarity" then he would do well to understand that the Greek people did have an election, and what they voted for is what they got. If he doesn't like it then better luck next time, right now he can show some respect for that decision.

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  6. Many thanks for the exceptionally high quality of the debate here from all contributors.

    First I would like to remark that I did not find Anonymous' post emotional, but well reasoned and expressed. In my own experience it is very difficult - when it should be obvious - to put the poor's case to the privileged and comfortable. Though living in a 'good' part of Athens, I am surrounded on all sides by desperate pensioners, by desperate skilled workers and professionals who cannot find any work whatsoever in any sector - yet have families to care for. Where the few 'lucky' ones now find jobs at 2€ an hour working in cafes.

    The key point I want to stress is that when the full weight of austerity falls on those least able to bear it, the chief outcome is desperation. As we all know, it need not have happened in quite this way - it was the first choice of the recent successive governments, centre right, centre left and 'technocratic', to avoid at all cost the hard task of addressing their cronyism and rousfeti voter base.

    Desperation and hopelessness without end or relief is hugely destructive, leading to social and political breakdown. Social and historical faultlines in greek society have re-surfaced because there is almost no glue left to hold it together. EVERY society and nation depends upon that glue.

    By 'glue' I do not mean welfare payments, though this can be a part of it. By glue I mean hope, constructive planning for prosperity, a vision for the future, respect for and easing of conditions on those least able to bear the weight of austerity and a shifting of that weight onto the shoulders of those who can. ie 'We are all in this together'.

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  7. Mr. Tsafos I appreciate your opening up a debate on greek welfare costs. After 3 years it has become clear that health and pensions were riddled with scams, extortion, government union abuse, etc. Since these have seen the light of day with figures attached, I would be interested to see revised figures in which the % lost to abuse were removed. Secondly, having lived in 7 EU countries and 14 countries overall, Greece has in comparison very small state provision for social welfare. The only 'safety net' is a few months (to maximum a year in the old days, depending on high level of income & seniority) of unemployment payout and then people are on their own. Greece cannot be compared to Germany, Scandinavia, England or France in terms of social welfare. Of course our taxes are lower compared to Germany and Scandinavia especially; but even so, if adjustment was made, Greeks receiving comparatively little for their tax/welfare contributions - which the OECD confirms are the highest in the EU.
    Therefore, in my view this needs to be examined in MUCH more detail, and only then can constructive conclusions be drawn.

    I am a great fan of Mr. Kleingut, who blogs tirelessly on behalf of Greece with common sense, detailed suggestions and enormously constructive advice. I find hope and inspiration and social responsibility in his blog, and my belief is that if most greeks could read and debate in English, they would too.

    Leading to my final remark:
    The most scandalous condition in Greece these last few years is the almost total lack of hard information available to the public. Some information can be found in the BOG website, but most of it has to be tracked down abroad, through the EU, OECD, IMF factsheets etc. And this information is mostly economic data which is difficult for the majority, even the highly educated, to extrapolate from.

    The first duty of a clean constructive government in this emergency situation whose effects are not equally borne, is to lay all facts pertaining to Greece openly on the table (and also available on a website), explain this data, and open up debate on all Greece's options. If in addition the population was asked their views on how to improve the efficiency of their jobs, their economic sectors, a wealth of information wold emerge.

    Instead we live in a soundbite bubble of fragmented information, no public consultation, with sclerotic and/or corrupt political parties who - except for Alex Tsipras in his September speech at Thessaloniki - have made no effort whatsoever to put forward a constructive vision for change and growth. No wonder the young and energetic flock to Tsipras. Where are the parties or better still, responsible public debates, to poke holes in his analysis and suggest other alternatives?

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