2015 June 17 Wednesday
Some Financial Facts About Greece
In game of brinkmanship being played in Europe over Greece's debt one can't tell if either side will blink. Therefore it is hard to tell whether Greece will have to exit the Euro zone. What's frustrated me after reading many articles about it is just how few facts these articles provide. The emphasis is on quotes from rival negotiators. It is rare for news stories on Greece to provide the essential facts for understanding the financial debate in Europe over Greek government expenditures. This Reuters piece helps.
Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.
With existing cuts, this figure has since fallen to 16 percent.
The article cites an example of a bank clerk who retired at age 51. Call me unsympathetic. The average retirement ages are considerably higher. They need to raise retirement ages higher still. The government has cut the size of pensions by double digit percentage amounts. Read the article for details.
This Bloomberg article also provides some useful context. The kids have been moving back in with their parents because times are hard.
More than half of those between 25 and 34 live at home.
So I wonder about minimum wage and the ability of the economy to adjust to lower living standards.
WaPo Wonkblog has some additional facts.
Still missing some facts over what percentage of the Greek people work in private industry vs in government. Also, exactly what are the labor market loosening demands from the Northern Europeans? I have no idea. Cut power of private industry unions? Cut power of government employee unions? Enable more people to work without job licenses? Just guessing.
Megan McArdle on why the Greeks may act counter to their best interests:
...nations can become what behavioral scientists call "altruistic punishers": people who are willing to cost themselves a great deal in order to punish others whom they believe to have behaved unfairly.
I've written altruistic punishment posts, if you are curious.
By Randall Parker at 2015 June 17 07:18 PM
A lot of commentators conflate default (almost certain) with both leaving the eurozone and leaving the EU itself. These are three different issues. A simple default clears up a lot of problems, especially the Greek national budget, and since Greek is such a miniscule part of the EU economy, it would have minimal effects. Leaving the euro and EU only happen if the rest of the EU decides to make an example of Greece and expels it. The Greeks themselves want to stay in both the euro and the EU. In fact, that's exactly what Syriza promised.
PS. The UK is in the EU but uses the pound. Norway is in NATO but not the EU and uses its own krone. However, it freely trades with the EU. All sorts of arrangements with the EU are possible.
Bob Sykes - I guess the problem for Greece in staying in the Eurozone is that the Greek government can't print Euros to pay their bills but they could print drachmas without limit.
If quitting the EU and giving up the Euro are non negotiable for Greece, why couldn't they bring back the Drachma and use it as a dual currency? They can inflate the drachma and pay their government employees and pensioners in that, and just use the pricier Euros when they have to, such as paying on Euro denominated debt.
Mike Street Station - To the extent that the Greek government has any Euros to spend it wouldn't make much sense to use them to pay their creditors. They might use them to purchase medical supplies and drugs.
They should just go to Russia and offer to rent them a navy base on a 99yr lease in return for guaranteeing Greece's debt. Alternatively they could do a traditional lease for a billion a year. They could offer atomic weapon basing for another billion a year. Add in free gas from the pipeline that Russia wants to build in order to bypass eastern Europe.
Plenty of great leverage open to Greece.
Stephen - The Greeks need more like 10 billion a year to cover their scheduled debt payments.
The net beneficiary of the devastation of Southern Europe is Germany because:
Greece is just a drop in the bucket, but the combined economic and social devastation of Southern European regions (Spain + Southern France + Southern Italy + Greece) comprises at least 100 million people who lost their initiative and their know-how due to the long-term EU depression in the sense that:
1) Many of the most talented young technicians have immigrated to other countries, especially to Northern Europe including Germany, giving Germany a double advantage by not only absorbing more talent into its work force but also causing its Southern rivals to lose their know-how.
2) Most long-term unemployed South Europeans became obsolete.
3) Many South European companies that became idle during this long-term EU depression are simply unable to regroup and become competitive in the intermediate and even long-term future.
Well, Greece can't just up and leave Europe. Regardless of what happens, it will still be in Greece. :P