I think he's referring to the no bail-out clause of the EU treaty. But IIRC most of the credit is now in bilateral treaties so it wont matter too much anyway. Debt is debt whether Greece remains in the euro/EU or w/e. But there's obv not too much point in trying to get paid from a bankrupt state. Think Argentina.

True but they could print the new drachmas and therefore have an unlimited resource for paying back their debts (at the expenses of currency devaluation). Just like the US wouldve certainly already collapsed under their debt were it not for their unlimited capability to print new money.

Bolded is 100% wrong.

The reason the US can borrow at low rates is its economy is enormous and has the ability to generate sufficient tax revenue to pay debt interest. If lenders thought there was a chance that debt would be paid back in inflated dollars they would demand more interest (30 year bonds are currently yielding 3.4% so yeah the market doesn't expect this.) Greece will face exactly this problem post-Euro as inflation risk on top of default risk will make floating new debt nigh impossible. Of course they get to start with a blank slate as the Euro denominated debt would have been written off via the default.

Well, sort of. Obv the US economy is a lot different, so maybe it was not fair to compare these but the US has expanded its monetary assets (aka printed money) enormously post-2008. That was not a huge problem bcos of several factors but had this instrument been not available they wouldve not been able to bail out all these banks and motor companies that easily without a good chance of bankruptcy in the process.
Edit: see this

Why would anyone accept payment with the drachma if it has no value?

Hint: they wouldn't

Right, but when you import everything you consume, how do you afford it?

Gas, food, every day necessaries become unaffordable.
Banks go insolvent, no more loans for anything, how do you buy a car? How do you buy a house? How do you open a business? Complete disaster.

The Greeks that voted No think they have nothing to lose, they haven't even hit rock bottom yet.

Greece doesn't import everything they consume?

Yeah you don't understand how money works and I don't have time to teach you. Best to stop posting about it. The market is telling you everything you need to know about expectations for the the money supply and nominal income so start your education there.

It's interesting how different the narratives are from the housing crisis in the US. Blaming the borrowers was a fringe right-wing narrative here while the banking system at large and regulatory and lending institutions in particular were largely blamed. This is a more reasonable response because blaming the powerless is living in the past - it offers no meaningful prescription for the future. Yet, this has largely been the populist response in Europe. They are too busy blaming Greece for its past actions even though they have nothing to do with the current leadership, nor the young poor Greeks that voted Syriza into power and have more to do with the systematic corruption that exists far beyond Greece and dominates European capitalism and politics.

Imagine if America's response to the housing crisis was a full bailout of the banks with the federal government buying up all the mortages, making the lenders and investors whole, while the borrowers are still on the hook. Imagine if we went around blaming irresponsible working and spending habits of the borrowers and how they should work as many hours as possible and eat nothing but ramen noodles to pay back their loans. Imagine if instead of giving out loan mods like candies, which is what actually happened, we scrutinized their lives and made every concession conditional on cutting specific expenses. Imagine if we talked about how some borrowers who are getting loan mods are still better off than some other taxpayers and demanded that they curtail their living standards further. Imagine if we threatened to foreclose after they made any purchase we didn't like and started the foreclosure process at the earliest possible opportunity without working out a payment plan that would keep the borrower in the house. We'd still be in recession if this was our response.

This whole talk of reform is just a talking point - if it was that easy, they would have done it themselves years ago. Whether they lack the competence or the political will, not much can be changed. Europe has no ability to ensure that any "structural reforms" go as planned. Ultimately there's no free money and any "structural reform" that takes money away from people is just austerity in another name. Any further economic pain will lead to further erosion of public trust and make meaningful reforms increasingly more difficult. If Germany is so convinced that "reforms" yield free additional money, they should do more "reforms" and send some of the proceeds to Greece.

He should address France next

Its a massive derail, but in a pure market in which the US Gov could not directly buy its own debt, and intervene in numerous other ways, that price would be somewhat higher.

I think some of this is wrong.

Generally you get blamed for your own mess. So when banks go bankrupt they get blamed for that. When countries go bankrupt they get blamed for that. The exception is that ordinary people get a bit more leniency, especially from politicians that need their votes, so the Greek voters or ordinary homeowners in debt get off a little lightly and instead you see the political class being blamed.

Investors havent really been made whole. Short term bonds have been paid out and I think others have been bought at face value in some of the ECB schemes. But private investors got a haircut as part of the 2012 bailout for an overall lose of around 75% or something like €150bn.

This isnt really true. The EU has been fairly successful in making reforms a rigorous part of the membership process. https://en.wikipedia.org/wiki/Enlarg..._Union#Process

It has led to genuine improvements on a whole range issues in the countries applying for membership. In large parts the point is basically to put a finger on the scale and make it possible to take on special interest groups for the benefit of the population as a whole. It has also been part of bailouts elsewhere and generally been implemented. Even in Greece they've come pretty far in the process.

The erosion of public trust is a real issue and makes things more difficult, but it's not true that there's no free money. Some countries are richer than others and it's not without reason or unchangeable. It's partly because of the structures in place and those can be changed.

That is basically what is happening now. German unemployment has been falling since their own early 2000s structural reforms. It is in no small part what's behind the EU belief in structural reforms and it's what's making it possible to offer Greece some fairly generous terms.

Had German unemployment grown proportionately to French unemployment from 2005 onward then Europe as a whole would have been ****ed.

They don't need to be paid everything to be made whole - if I make a loan @ 20% or buy a bond @ 40, I don't need to be paid everything I'm technically owed to come out ahead. This is aside from the secondary effects to the rest of their portfolios. Either way, it does't matter.

So the current Greek crisis is a result of this rigorous membership process? Fairly successful indeed. We should keep doing this I guess. Should Canada also join the Euro so that they can benefit from this process?

This is like saying that there's a free, easy way to solve obesity since fat people are only fat because of their dietary and exercise habits, which can be changed. But I can assure you that you will not solve obesity by withholding treatment from people who come into ER with heart attacks, before they can sign pledges to reform their habits.

But didn't Germany, France and Greece all go through the same process? What are the largest developed economies outside of the eurozone? Something like US/Japan/UK right? Aren't they all doing much better than the eurozone as a whole on this front? So how's this forced reform working out for everyone?

That's (one of) the problem(s) with the Eurozone. Fiscal policy is not a hole. The German taxpayer would not be better off funding Greece indefinitely.

The process has changed a great deal since Greece joined in 1981 (it wasnt the EU back then either), so it probably cant claim too much credit, but Greece today, even with the economic trouble, is a massive success when compared to the Greece in the 70s.

No, it's like saying encouragement and different incentives can deliver different results for the benefit of everyone.

No. And it's relative too. They all had different starting points.

Also, free trade and movement of capital and labor often leads to countries not being able to capture the positive externalities generated by their own spending, which means locally optimal decisions aren't globally optimal and vice versa. For example, part of the problem in dealing with various disadvantaged populations, such as the homeless, is that efficient programs that successfully help the underclass will have a hugely positive impact on the system as a whole, but will bankrupt the local government by attracting more of the underclass. On the other end of the extreme, tax havens can generate free revenue and attract capital, but only by freeloading off other jurisdictions. I suspect what's been going on is that countries that have done well within the eurozone are the ones who had locally optimal policies while the countries that have not are the ones who had more globally optimal policies.

Then perhaps Greece should be applauded and should be allowed to continue this sustainable course that has made them such a massive success.

What incentives can Europe impose that don't already exist? Weren't you saying earlier that it's free money?

So there's no evidence of this "reform" working for anyone.

It's completely dishonest to attribute anything positive in Europe to "successful structural reforms" and anything negative to "lack of structural reforms" and claim that evidence favors reforms. Also, any major policy change is sold as a "reform" - creation of universal health care is a health care reform and dismantling universal health care and privatizing health insurance would also count as a reform. Most of the suggested "reforms" that I've seen are simply tax increases and spending cuts and have nothing to do with "structural reforms" or whatever. Yup that is known to boost the economy.

Phone Booth you are understating the malfunctioning Greek state by a lot.

The pension system is almost entirely a state funded pay-as-you-go system, while fertility rates have been below 2.0 since 1982. The rate has dropped as as low as 1.33 at the end of the nineties and is now at app. 1.4. There is no easy solution for that enormous problem, but you definitely don't solve it without serious reforming the retirement system (inside or outside the eurozone / EU).

The pension system is the default social security: due to the lack of another safety net, people who are no longer able to work go for early retirement. This compounds the problem described above. Some steps have been taken to improve this, but it's no easy problem to solve.

The government is relatively oversized and working for it means a very high job security and you essentially become part of a privileged group. There are more privileged groups, as a result of a clientelistic political system. Improving that is hard, because it means legislators need to vote against their own interests.

While the public spending is very high and the pension system is in its current form unsustainable, tax collection isn't working. Tax evasion is high, rendering state income projections unstable and unreliable and opening the door for corruption.

Nothing of that is new and it should have been addressed much earlier, but these are problems that Greece needs to fix to improve their economic outlook, regardless of whether they are in or out of the Eurozone.

They should be applauded. They've come a long way from the times of the military junta and a very divided society. But they can still do better.

They can add to the rewards, both by providing cash and opportunities, meaning that stuff special interest groups could have blocked before, to the detriment of the population as a whole, now becomes politically viable.

huh? I dont get what you're going for here?

You asked why Germany didnt take up some of these reforms they're talking about. I said they had and it had turned out well. Then you asked whether everyone had been through the same process and I said no because they havent been through the same process.

If we're talking EU enlargement then you can see what people mean by reforms here http://ec.europa.eu/enlargement/poli...s/index_en.htm

If we're talking Greece then I think we need to keep things a bit separated. The creditors want spending cuts, tax raises and structural reforms. What they mean by structural reform is stuff like labour market liberalisation, privatisations, eliminating monopolies, opening up industries to competition and so on.

I think you're understating the severity of the economic crisis at the moment and the difficulty of implementing changes.

By "serious and structural reforms" they mean paying Greek people less money so that the creditors can be paid back. I have no idea how that's supposed to help the Greek economy at the moment.

I'm all for more safety nets but I suspect this is not what Germany has in mind.

This sounds all great but weren't Eurocrats trying to get rid of Tsipras/Varoufakis/Syriza who have been tougher on tax evasion in favor of their right-wing opponents that are in bed with the tax-evading aristocrats? Isn't the effort to combat tax evasion already part of the proposed plan? Aren't changes to the tax laws that the Eurocrats are asking for, effectively huge administrative burdens on the tax collectors who are already having a hard time doing their job?

Not sure how pointing out that things are going to be very hard is understating the difficulty of implementing changes, but I'm curious what you would propose that should happen exactly?

This is the exact opposite of what's happening, which is that whatever structural reforms Greece could otherwise perform are becoming politically infeasible due to Europe's insistence that special interest groups be punished further and Greece run a punitively large budget surplus, which reduces the room to get a political consensus.

As you acknowledged, the reforms are not the same, the situations are not the same, so there's nothing to be learned here. Germany most assuredly have not internally imposed the same reforms that they want for Greece and to the extent that similarity can be argued, the situations are completely different.

So you're saying that Angela Merkel and random Eurocrats who appear to have failed basic economics classes are totally unbiased uber-experts who are working tirelessly for the benefit of the Greek people and their brilliant judgment and foresight are exactly what's going to save Greece from itself?

Other than decreasing tax evasion and reducing pensions, are any of the structural reforms things that would make it easier for Greece to pay its debts?


Or are they just things from the standard IMF neoliberal wishlist that they try to foist on every country that needs help?

Varoufakis had it right from the start - Europe has nothing to gain from squeezing Greece because the more they squeeze, the larger the bailout or debt writeoff will have to be. The Greek economy has already suffered dramatically due to this manufactured crisis that could have been prevented with much swifter, unconditional support fom Europe. If Europe gave Syriza some room, Greece was probably on pace to become somewhat closer to sustainable and Syriza would have had the political capital to ramp up their tax collection effort and other reforms they deemed suitable, at which point negotiations could happen in regards to longer-term issues, etc.

This is partially why Varoufakis was somewhat confident earlier but he misunderestimated the stupidity of the populist right-wing and the existential threat Syriza posed to various right-wing parties in Europe. This means Europe pretty much openly campaigned for the Greek regime change instead of negotiating any kind of working solution that will contain the crisis and this will end up costing European taxpayers billions.