I love Germany. And Greece. And especially Finland.
If you are sympathetic to Greece and therefore mad at Germany, you are a sucker. If you think the Greeks are lazier and more dishonest than is usual in the human species, you are also a sucker, and have let a political framing cajole you into bigotry. If you think Germans are unusually cruel, you have also let politics make a bigot of you. If you are taking sides in a conflict framed as nation versus nation, you have already taken the wrong side. You’ve made a basic error, like picking a day when a tricky prosecutor asks whether you committed the murder yesterday or last Thursday. (I presume your innocence.)
You can usually find evidence in support of lots of different narratives. Hypotheses of human affairs are not in general mutually exclusive. Many different stories can in some sense be true. Among those in-some-sense-true narratives, we should choose to emphasize those whose application will lead to better social outcomes over other potentially defensible narratives. That’s why I frequently argue that we should emphasize the role of creditors rather than debtors when lending arrangements go bad. I am not making a claim about God’s view of the subject. Perhaps Hell is a debtors’ prison, and there is truly no greater evil than failing to repay a loan. Perhaps Hell is full of creditors who failed to fit through the eye of a needle. These questions are, I think, beyond the sort of knowledge that should inform policy. What is clear is that unserviceable debt arrangements, when they accumulate, are enormously costly in human and economic terms, and so we need norms and institutions to regulate credit extension. My view, which I think almost anyone with a passing familiarity with the human species would have to concede, is that people under financial stress make decisions with a view to a shorter-term time horizon and with less capacity to be fastidious than people who have already financed their own immediate term. That is why I argue that we should emphasize norms that hold creditors accountable more than norms that hold debtors accountable. Creditors as a class are capable of regulating the initiation of debt arrangements at lower cost and with greater effectiveness that debtors are. If we want societies that yield good outcomes, then, we should impose a heavy regulatory burden on creditors, and we must choose moral narratives consistent with that.
Perhaps the very worst moral narratives in all of human history are those that allocate blame on the basis of tribal, ethnic, or national groups. There is just never, ever, any sufficient reason to go there in my view. It is perfectly reasonable to hold leaders and governments accountable, as well as the institutional embodiments of interest groups. This is not because leaders individually are worse people than members of the public who may agree with their decisions. I carry no water for fairy tales about the inherent virtue of ordinary folk. The reason we hold people and institutions that act consequentially within the political sphere accountable is because those entities are points of leverage on whom relatively humane forms of accountability — career impairment and financial loss, shame or loss of reputation, in extremis imprisonment — may powerfully regulate the behavior of the polity. To impose accountability at the level of “the people” is the logic of Dresden, barely fit even for warfare, to be avoided at all costs. (I hope in this context the World War II analogy will not further inflame national passions.) “Collective punishment” — regulating the behavior of a polity or nation by imposing consequences on all of its members — is inefficient in terms of human suffering provoked. It is also risks being much worse than counterproductive unless it lives down to the Machiavelli’s dictum that “If an injury has to be done to a man it should be so severe that his vengeance need not be feared.”
Civilized people do not blame nations, even when publics of those nations are holding mass rallies in the street supporting bad actions. Civilized people hold leaders and institutions to account for the conditions under which their constituents’ passions got that way, if the passions are misplaced. This is not to assert, as a positive claim, that political leaders and elite institutions “control” the will of their populations. Like most causal arrows, this one runs both ways. As with creditors and debtors, where we impose the accountability is a function of which choice leads to better outcomes. However hollow it may ring (and however hypocritical in the face of what people who use this rhetoric have sometimes done) claiming that “we have no argument with the people of Oceania, only its government” is a healthy impulse. [1] As civilized people, we ought to try to define political, economic, and social institutions that make good decisions on behalf of polities. Those institutions should both genuinely represent the diverse interests and views of their publics, and also constrain and shape those views so that the democratic will of the polity is consistent with high quality outcomes in both a functional and ethical sense. When things go awry, it is those institutions we must hold to account. To hold institutions to account effectively we must hold people to account, but we focus our scrutiny on people in roles of disproportionate authority rather than extending it to nations as a whole.
By all means blame Schäuble or Merkel or Varoufakis or Tsipiras. I have my views about who is more blameworthy, your views may differ. You may blame people like me, if you like, members of “the press” generally, and hold us accountable by reputation and career. My view is that banks and securities underwriters on both side of the Atlantic, as well as many individuals who worked in that sector, ought to have been held to much greater account for events of the financial crisis (but I also think it is too late for punitive accountability to make much of a difference now). You may disagree. These are all fine arguments to have.
But do not blame “France” or “Germany” or “Greece”, do not blame the “United States” or “Iran” or “North Korea”, tribes and nations cannot be held to account, only institutions and leaders can be.
I have not visited Germany, but I very much want to, and admire very much about its culture and economic arrangements. My own family’s difficult experiences 75 years ago do not temper my affection for Germany. It is, I think, a wonderful country. I have visited Finland, and despite the fact that I think its government’s role was less-than-constructive with respect to the Greece crisis, it remains one of my favorite places in the world. As a student of political and economic systems, I admire the Scandinavian countries above all others, regardless of their role in this crisis.
The European crisis is a crisis of bad framing. Characterizing Europe-wide credit problems in terms of national actors, then fixing that characterization into place via intersovereign lending, were deeply pernicious, deeply destructive, errors. I don’t doubt these errors arose more from increments than ill intentions. There were pressures and interests and paths of less resistance — no need for any vast conspiracy. [2] The international framing was convenient to domestic constituencies throughout Europe. In every country, elites find it convenient to deflect passions to an external bad actor rather than take responsibility for mistakes at home. Sometimes on the merits they have a case, sometimes not. Regardless, inflaming passions against another nation is always a terrible choice. Even when a dispute really is a zero-sum conflict of interest between two nations, great diplomacy is called for. That may be a lot to ask for, but it is what civilized countries do. I wish my own country lived up to it more often.
The credit crisis that has writhed and recrudesced into a Greece crisis never needed to become a conflict between nations. I believe Europe’s current crop of leaders must be held to account for having made it that, and I repeat my admonition. Shame. I hope (against the odds perhaps) that a less narrow and compromised set of leaders replaces the current generation, that Eurofinance is reformed much more deeply than it has been, and that as passions fade the European project can resume. I even hope that the Euro survives, although I think the economic case against it is powerful and correct. Fixing the Euro is possible. It just requires institutional innovation that at the moment seems unthinkable. But, in the recent cliché, the unthinkable has an odd habit of becoming inevitable in politics. There is still room to hope.
[1] Yes, the Orwell reference is intentional. We are in very grey territory here.
[2] The errors in the Eurosystem’s financial architecture were not a vast conspiracy either, as some readers have mistaken from my piece on Greece. Yes, sovereign lending looked like free money to Eurozone bankers because all Eurosovereigns were risk-free as regulatory matter. But that regulatory choice came from a misguided political decision to treat sovereigns equally and optimistically, in spite of very divergent economics. Bankers did not lobby for the error, they responded to it. That does not absolve them of their bad loans. Bankers’ job is to regulate credit allocation, and if regulators give them rope to hang themselves they still oughtn’t use it, and ought to be held to account for having done. Western banks are institutions in need of fairly wholesale reform, from which they have thus far been spared. But to indulge in hatred of “bankers” as a class is ugly and unfocused. In general, when we hold people to account as we must, we should do so in sadness because it is necessary, not in glee because we are righteous.
Update History:
- 14-Jul-2015, 6:30 p.m. EEDT: “you a sympathetic” ⇒ “you are sympathetic”; “institutions that demand fairly” ⇒ “institutions in need of fairly”; “the Euro survives, even though I” ⇒ “the Euro survives, although I”
- 15-Jul-2015, 0:00 a.m. EEDT: “for fairy tales about inherent virtue” ⇒ “for fairy tales about the inherent virtue”
- 15-Jul-2015, 1:05 a.m. EEDT: “ought to be held account for having done” ⇒ “ought to be held to account for having done”
Finland’s seemingly less-than-constructive policy stance might be a bit more easy to accept, if one considers that none of the original Greek creditors were Finnish – in effect, Finland participated in bailing out the French and German banks just for the fun of it. The same thing happened with Cyprus.
The original errors have been made by banks and EZ-bureaucrats that Finland had no influence over.
Finland demanded a questionable collateral arrangement for its loans to Greece. Should Finland enter negotiations on a Greek haircut, the collateral would be waived. As the collateral agreement was purchased with a steep price, accepting a haircut would in fact increase Finnish losses. Thus, the best policy stance for Finland is not to offer haircuts, but demand that it’s Greece that defaults.
Sure, there are idiots here that talk about dirty Greeks who have not reformed enough. Surprisingly, such voices are now loudest in the comments offered by banks’ chief economists and mainstream parties – the €skeptical populists knew how this would go, and warned beforehand.
July 14th, 2015 at 6:39 am PDT
link
I don’t think the Euro should survive. It was a mistake and it will generate more misery. Some way must be found to dissolve the entire thing with the least damage… Germany (with maybe some other northern neighbours) leaving might be the least disruptive exit strategy for all of them. You cannot force people to be charitable.
July 14th, 2015 at 6:56 am PDT
link
Yes, yes of course I get the point your making. But still it fails to fully satisfy. Are we not supposed to think ill of white Southerners because they took so long to take down the Confederate flag? Multiple stories? Or of the Republican base because Donald Trump is doing well in the polls.
This is how I think of conservative, moralizing Northern Europeans. They should look at the high unemployment and misery in Greece and the periphery and recognize that their economic policies are not working. Can I look at the weak French and German social democrats the same way I judge Hillary who presents Republican-lite policies for fighting wage stagnation? Not without becoming a misanthrope?
July 14th, 2015 at 9:03 am PDT
link
“we should impose a heavy regulatory burden on creditors”
Please, no!
If you simply impose a burden on creditors then all you’re doing is making it more expensive to create credit arrangements. It doesn’t even follow that the creditors are the ones that pay that expense. Even if your goal actually is to suppress debt in general, there are about a thousands better ways than regulation to do that. Why not make the tax laws more favorable to equity financing instead of debt? Why not make bankruptcy more liberal? Why not enact a NGDP target? Why not have a constitutional amendment banning bailouts of creditors? Of all the things you could suggest , why do you leap on the idea of empowering unaccountable bureaucrats to make rules and apply their discretion?
In that same paragraph you wrote that the problem was *unserviceable* debt. The thing to do isn’t to impose a burden on creditors, unconditional on whether or not the debt is serviceable. It’s to impose a greater share of the risk that arises from credit on creditors.
July 14th, 2015 at 10:56 am PDT
link
This desperately needed to be said, and you said it well, Mr. Waldman! I’m sharing this with friends who may have forgotten these basics.
As to Lawrence D’Anna, you think that we should empower banks (or anyone) to create sovereign currency without regulations?
July 14th, 2015 at 12:05 pm PDT
link
1) As a practical matter, this seems naive. Won’t there always be Schäublen and Tsiprae ready to act while the general will demands it?
2) It doesn’t follow that, just because we should avoid assigning blame based on “tribal, ethnic, or national” (or religious or….groups) that holding any collective accountable is wrong as such. There is not such a bright line between the political and economic institutions that you’re willing to hold accountable and the economic classes that shape and guide those institutions. We can all see the wisdom in not visiting punishment on a group whose unifying characteristic (race, nation…) was not the cause of the conflict. But when a group characterized by its economic status and resources acts more or less in concert and on the basis of that status and those resources, the injustice of collective accountability is harder to discern.
July 14th, 2015 at 3:33 pm PDT
link
@ Detroit Dan
I don’t see why anyone except the sovereign should be able to create currency. And indeed they can not. But banks can make these things called “deposit accounts” that most people think are the same thing as currency. I don’t see any reason why they should be allowed to do that. If a bank is going to tell me i have $10 on deposit with them, they should have $10 on deposit with the fed to back it up. Fractional reserve banking should have gone the way of the gold standard and the Dodo a long time ago.
July 14th, 2015 at 5:10 pm PDT
link
It is good not to “blame” nations for the actions of their leaders, but I see nothing in your piece that is a rationale for applying that standard in an asymmetric fashion. The nature of such a standard itself does not suggest it should apply to Greece but not to others. Writing down debt in this case is a direct cost to taxpayers outside of Greece. That is an assignment of blame to those nations that pony up for the loss. Therefore, in judging a preferred resolution, you have effectively argued – not that nations shouldn’t be blamed – but that some nations are blameworthy and others aren’t. What is taxation to fund losses in this case if not assigning blame?
I just don’t see the reasoning for it your piece, because you are in fact willing to apply it asymmetrically, even though that would seem to contradict the universality you imply in your primary argument. And your preferred solution applies it by action if not words. Are the taxpayers of Germany somehow more to blame than the taxpayers of Greece? That’s quite a bias in the effective application of a presumably universal standard.
July 14th, 2015 at 7:54 pm PDT
link
Peter K, you write:
They should look at the high unemployment and misery in Greece and the periphery and recognize that their economic policies are not working.
They are doing exactly that. They “look at the high unemployment and misery in Greece and the periphery”, “recognize that the economic policies [of the periphery] are not working” and, in turn for lending to the same periphery which for the same reason (it’s economic policies are not working, duh) is a terrible credit prospect, are demanding that the periphery adopt something more like their (moralising Northern European) economic policies.
Why would be the so cruel? Might one think that it is because, when the moralising Northern Europeans look at their own high employment, prosperity and happiness (at least relatively), they conclude that “their economic policies” ARE “working”?
July 15th, 2015 at 3:30 am PDT
link
The euro is a fixed exchange rare system without balance of payments disciplines. From that simple fact all problems flow.
Go to the econ history of the 1950s and 1960s to see the oroblems fixed FX rates caused and why there was a general move to Floating FX rates.
So to suddenly remove barriers to the free flow of funds throughout Europe, a group of nations with widely different instiitutional and social constructs, diverse labour productivity, different tax systems, different income levels, some heavily industrial others basically agricultural , and so on, and expect it to all work out to the greatest good for the greatest number was a madness.
At the very least Min of Finance and central bank supervision and oversight needed to be in place to constantly monitor parameters such as relative wages and prices, labour productivity etc., so replacing the balance of payments disciplines and signals that had been surrendered. But such supervision was never put in place. The ship was launched without compass or map. With “free” money flowing out of TMAs Euro governmenst and banks just ran amok.
July 15th, 2015 at 3:44 am PDT
link
It seems likely that the only inside story we may get on the recent so-called negotiations, at least until the memoirs get written, comes from Varoufakis, the only participant who is now out.
http://www.newstatesman.com/world-affairs/2015/07/yanis-varoufakis-full-transcript-our-battle-save-greece
If I am not mistaken, he is saying his economic analysis is understood among the members, but their objective is different, so the economics is irrelevant. While their language is emotional (“lack of trust”), their actions are concrete and institutional.
Can we observe the effects of institutional action and infer institutional intention? Or do we say, “Mistakes were made”.
July 15th, 2015 at 4:47 am PDT
link
You seem to be confusing political entities – states – with the “tribes” or “nations” with which they sometimes coincide partially.
The United States of America, for example, is such political entity, not a tribe. It is a party to treaties and agreements. It takes actions in the world. It can sometimes take actions that are hostile, aggressive or predatory. It can take actions that reflect various degrees of intelligence or competence, foolishness or incompetence. It is subject to diplomatic treatment as a whole and to legal requirements and sanctions. A reasonably well-functioning international system requires holding states responsible for their actions, sometimes in a formal legal or procedural manner, sometimes in a less formal moral manner. At times a state is, and should be, praised or blamed for its actions and subjected to positive or negative sanctions.
States do sometimes fall into various forms direct conflict, and there is nothing wrong in principle with taking sides in such conflict. In some cases, I would think it is morally required that we do so. (That wouldn’t always be the most constructive response, but sometimes it is.) If China invaded Malaysia, for example, it would be pretty silly to say, “We shouldn’t take the side of Malaysia against China, because only people do things, not countries.” Concerted, organized, coordinated political action often requires treating a state as a single entity.
Germany is the de facto leader of both the European Union and the Eurozone, and plays the dominant role in setting its economic policies. As was abundantly clear during the recent round of negotiations, it is the chief architect of the post-2008 recovery regime, a regime which has been a failure for large parts of Europe and amounts to serious economic malpractice in my estimation. Nothing about this recovery regime was written in stone and little about it is assignable to the fates. It is an expression of a deliberately chosen German policy that could have been otherwise. If that policy is a threat to both Greece and the rest of the world, which I think it is, then Germany should be opposed. Of course, that leaves all sorts of room for debate about what the most constructive manner of opposition is. Perhaps subtlety and an understanding attitude will work better than strident opprobrium; perhaps not.
Whether or not these policies are a failure is a question that can be addressed, at least in part, by empirical evidence and historical experience, and so we should fall easily into some kind of postmodern indecisiveness about narratives and arbitrary social constructs. And the impact of the German-led “recovery” policy on Greece and Europe has implications for the rest of us as well. An economically weak Europe is a drain on the global economy.
Yes, of course the policies of a country are crafted by individual people. If those people change their minds, or are replaced, then Germany’s policies might change and move in a more constructive direction, at which point critics of Germany might stop criticizing it. On the other hand, Germany’s policies seem to enjoy very broad-based domestic support among leaders of many parties and the population as a whole. So we don’t want to construct the myth that it is all due to one obsessive bully in the Finance Ministry.
July 15th, 2015 at 5:03 am PDT
link
If there are n creditors and 1 debtor, this isn’t so easy. Especially if each creditor doesn’t know what the others are doing or will do in future. But maybe debt seniority(?) could help alleviate this problem? (First to lend is paid back first; last to lend gets nothing.) But I’m not quite sure how you define “seniority”, if old debts get rolled over.
July 15th, 2015 at 5:28 am PDT
link
9. Patrick
“Might one think that it is because, when the moralising Northern Europeans look at their own high employment, prosperity and happiness (at least relatively), they conclude that “their economic policies” ARE “working”?”
In fact it isn’t working. German workers haven’t done well overall. That is the biggest mystery. The strongest, best positioned working class coupled with a powerful conservative elite. And yet when you look at the number German workers haven’t done well.
They have done well comparatively speaking. They might think that if they are hubristic and self-regarding with no capacity for critical thought.
I agree that’s what’s going on. “If we can do it, why can’t we.” Krugman explains it but you need some capacity for abstract thought to understand it. The question is why don’t the Germans believe in Keynesian economics?
http://krugman.blogs.nytimes.com/2013/11/12/germanys-lack-of-reciprocity/
“Germany was able to achieve large gains in competitiveness without deflation, because Spain and others were willing to accept inflation well above 2 percent. But now the eurozone has overall core inflation below 1 percent, which means that Spain can only achieve internal devaluation through crippling deflation:
[graph]
The Germans, in other words, aren’t asking the southern Europeans to emulate them; they’re demanding that they accomplish a feat Germany never had to manage, and which hardly anyone has ever managed.”
July 15th, 2015 at 6:35 am PDT
link
9. Patrick
“Might one think that it is because, when the moralising Northern Europeans look at their own high employment, prosperity and happiness (at least relatively), they conclude that “their economic policies” ARE “working”?”
In fact it isn’t working. German workers haven’t done well overall. That is the biggest mystery. The strongest, best positioned working class coupled with a powerful conservative elite. And yet when you look at the number German workers haven’t done well.
They have done well comparatively speaking. They might think that if they are hubristic and self-regarding with no capacity for critical thought.
I agree that’s what’s going on. “If we can do it, why can’t they do it.” Krugman explains it but you need some capacity for abstract thought to understand it. The question is why don’t the Germans believe in Keynesian economics?
http://krugman.blogs.nytimes.com/2013/11/12/germanys-lack-of-reciprocity/
“Germany was able to achieve large gains in competitiveness without deflation, because Spain and others were willing to accept inflation well above 2 percent. But now the eurozone has overall core inflation below 1 percent, which means that Spain can only achieve internal devaluation through crippling deflation:
[graph]
The Germans, in other words, aren’t asking the southern Europeans to emulate them; they’re demanding that they accomplish a feat Germany never had to manage, and which hardly anyone has ever managed.”
July 15th, 2015 at 6:36 am PDT
link
Cultural groups (which, for several reasons, have a strong tendency to be identified with nations) have values, and such values can reasonably be given a ranking in moral space. If the value system associated with a nation’s culture repeatedly results in severely nonutilitarian outcomes, then (to a utilitarian like me, but others can apply their own standards), it seems reasonable to apply some kind of moral condemnation to the “nation” (understood as a necessarily vauge concept unless one makes an explicit attempt to be precise about it). Of course this doesn’t mean that the citizens of a “bad nation” will all be sent to Hell. But it does mean that we should pray for their redemption.
July 15th, 2015 at 7:09 am PDT
link
If it were the early 1860’s and I were mad at a nation called the Confederate States of America, would I be a sucker?
July 15th, 2015 at 7:34 am PDT
link
[…] – Brookings Institution Complicated ties between inequality and growth – CBS News I love Germany. And Greece. And especially Finland. – interfluidity Sizing Up Hillary Clinton’s Plans to Help the Middle Class – New York Times ‘Where moral […]
July 15th, 2015 at 12:37 pm PDT
link
This is wrong-headed. Utilitarianism is moral philosophy. It is a claim about, as you phrase it, “What God thinks.”
The problem with economics is simple:
1. Universal failure to notice the utilitarian moral philosophy that underlies every single statement of economic “fact”;
2. Creationism. That is, failure to understand that Darwin and evolution is the core of every science involving living things and that Newtonian mechanics and quantum probability are the tools an idiot understands human behavior, even when aggregated into economies.
July 15th, 2015 at 1:07 pm PDT
link
Also, tribalism isn’t a narrative. It’s our genetic inheritance. It is a given. Our job is to evolve a culture that surmounts it.
And I can’t blame the United States for the way we treat black people, that is, the American Greeks? I should just blame Thomas Jefferson or something?
July 15th, 2015 at 1:13 pm PDT
link
Among those in-some-sense-true narratives, we should choose to emphasize those whose application will lead to better social outcomes over other potentially defensible narratives.
Can we at least blame (and shoot) the banksters who, if they don’t pull the strings of the politicians, have some influence over the gods who do (i.e., presumably the Cabots)?
July 15th, 2015 at 2:06 pm PDT
link
Well reasoned blog and equally well-reasoned responses for the most part … but just wishing this tragedy is not framed as nation v.s. nation does not and will not make it so. A major, perhaps the most noble, goal of the EU and EMU/Eurozone experiment uttered frequently outloud by the Eurocrat-Utopians in the early days of the experiment was/is that this European UNION would reduce the chance of warfare between the participating nations. This is still the belief of these True Believers and perhaps why so many of them hold on to this Really Bad Idea with such religious fervor. It is assumed, incorrectly, that that economic discord was the reason for the all that violence throughout the centuries. The fact is that peace was with us already well before the artificial constructs of both the EU and the Euro where hatched in a lab. Today the EU has become is a wider experiment involving a multinational corporate effort to micromanage the lives of millions of people coming from dramatically (and delightfully) different cultures by forcing them to homogenize into a single (and incredibly boring) culture emulating the presently most economically most powerful country … all to increase the multinational corporate bottom line. Witness the headlong (and very anti-Democratic) rush to push through the odious TTIP despite widespread majority opposition in every country involved. This one-size-fits-all approach to ANYTHING … let alone continent-wide economic policy … does not and will not work. Dissolving the Eurozone is the first step toward returning this continent to common sense. Morphing the EU into a rational, yet loose and flexible, economic alliance from the Evangelical Church of How Things Must Be Done is the next step. This process will certainly be painful now but far more painful the longer it takes the euthanize this Really Bad Idea. Greece, along with countries already not participating in the Eurozone like Norway, Denmark and the UK will be better off … as would be Italy, Spain and the rest.
July 16th, 2015 at 1:11 am PDT
link
[…] Mason) • The Euro-Summit ‘Agreement’ on Greece – Annotated (Yanis Varoufakis) • I Love Germany. And Greece. And Especially Finland. (Waldman) • IMF Chief: Greek Bailout Talks a ‘Colossal’ Challenge Going Forward (WSJ) • Greek […]
July 16th, 2015 at 4:25 am PDT
link
[…] That’s Not Going to Burst (ArtNet) • I love Germany. And Greece. And especially Finland. (Interfluidity) • Seriously Delinquent Mortgages at Lowest Level in 8 Years in U.S. (World Property Journal) […]
July 16th, 2015 at 4:40 am PDT
link
Not sure who’s supposed to be edified by this homily, but like other commenters I find it quite off-target, anyway insofar as I understand it. One example:
“tribes and nations cannot be held to account, only institutions and leaders can be.”
What’s the relevant difference between a ‘nation’ and an ‘institution’? How does that difference make all the difference where it comes to accountability? If ‘leaders’ can be held to account, why not the aggregate of individuals each of whom leads himself into a mass demonstration?
If the purpose of this post is to warn readers against venting frustration at random Greek or German travelers at the airport, I certainly approve. The rest is, as far as I can tell, hot air.
July 16th, 2015 at 10:37 am PDT
link
Not sure who’s supposed to be edified by this homily, but like other commenters I find it quite off-target, anyway insofar as I understand it. One example:
“tribes and nations cannot be held to account, only institutions and leaders can be.”
What’s the relevant difference between a ‘nation’ and an ‘institution’? How does that difference make all the difference where it comes to accountability? If ‘leaders’ can be held to account, why not the aggregate of individuals each of whom leads himself into a mass demonstration?
If the purpose of this post is to warn readers against venting frustration at random Greek or German travelers at the airport, well that’s laudable. The rest is, as far as I can tell, hot air.
July 16th, 2015 at 10:39 am PDT
link
[…] I love Germany. And Greece. And especially Finland. (interfluidity) […]
July 16th, 2015 at 12:05 pm PDT
link
«That’s why I frequently argue that we should emphasize the role of creditors rather than debtors when lending arrangements go bad.»
But we have been discussing recently borrowing by sovereign lenders that are first-world rich countries, where finance ministers typically are professors of economics, MBAs, experienced bankers, were experts at prestigious international bodies, assisted by teams of the best at Goldman Sachs and their central banks. We are not talking of the plantation owner lending to illiterate serfs.
July 16th, 2015 at 1:44 pm PDT
link
«Characterizing Europe-wide credit problems in terms of national actors, then fixing that characterization into place via intersovereign lending, were deeply pernicious, deeply destructive, errors. I don’t doubt these errors arose more from increments than ill intentions. There were pressures and interests and paths of less resistance — no need for any vast conspiracy.»
“Conspiracy” not, but intentions for sure. The greek side knew perfectly well that they were borrowing without any intent to repay later, they were just taking advantage of a fantastic option.
As to that option this is the smoking gun, a statement by the Bank for International Settlements in a rather annoyed tone as to how the EU applied the “Basel” framework:
«In the European Union (EU), authorities have allowed supervisors to permit banks that follow the IRB approach to stay permanently on the Standardised Approach for their sovereign exposures. In applying the Standardised Approach, in turn, EU authorities have set a zero risk weight not just to sovereign exposures denominated and funded in the currency of the corresponding Member State, but also to such exposures denominated and funded in the currencies of any other Member State. [ … ] It is the national authorities’ responsibility to implement the IRB approach in a manner consistent with the Basel framework so as to achieve appropriate risk weights for sovereigns.»
That EU approach gives each member state the ability to borrow unlimited amounts from a bank at fantastically higher leverage ratios than anybody else, and even slyly hints that member states will bail out each other.
Several greek governments and finance ministers with excellent professional qualifications, supported and advised by their central bankers and private sector consultants, then took advantage of that option to the maximum to fund a truly amazing private consumption import boom:
research.stlouisfed.org/fred2/series/BPBLTT01GRA636S
research.stlouisfed.org/fred2/series/NAEXKP01GRA189S
research.stlouisfed.org/fred2/series/NAEXKP02GRA189S
a surge of net imports of 560% to reach 15% of GDP, which coincided with a rise in employment of 4%.
All EU countries could have done the same, but many did not. That’s the difference with banana republics: the latter when blessed with a huge positive exogenous shock, like a giant oilfield or a wishing well of cheap loans, spend it on a huge consumer boom or it gets acquired by the local kleptocracy. Several greek governments chose to do both. The lenders did not have say in that.
July 16th, 2015 at 2:00 pm PDT
link
The new Stanford Prison Experiment movie reminded me of the Eurozone Experiment with Germany playing the guards and Greece the inmates. Power corrupts and most people will turn into bullies and thugs given the right circumstances.
https://www.youtube.com/watch?v=3XN2X72jrFk
https://en.wikipedia.org/wiki/The_Stanford_Prison_Experiment_(film)
July 17th, 2015 at 4:25 am PDT
link
«The new Stanford Prison Experiment movie reminded me of the Eurozone Experiment with Germany playing the guards and Greece the inmates»
Our blogger wrote:
«If you are sympathetic to Greece and therefore mad at Germany, you are a sucker. [ … ] If you think Germans are unusually cruel, you have also let politics make a bigot of you. If you are taking sides in a conflict framed as nation versus nation, you have already taken the wrong side.»
Good points.
July 17th, 2015 at 5:11 am PDT
link
[…] Source […]
July 17th, 2015 at 10:00 am PDT
link
Interesting and thoughtful piece. I don’t know if I agree with it totally. Is there never national guilt? Again, I’m not sure. I know it’s the most extreme example but Hitler was elected so Germans can’t say he was foisted on them.
Noam Chomsky certainly seems to think that we Americans should be riddled with guilt-not that I agree with him.
I do think that the original sin here was the euro system. Assuming it can be fixed-and I’d be interested how you think it can-why would anyone want to?
The EU has itself never been about economic logic or any other kind of logic. It’s fundamentally about the continuing Franco-German rivalry Europe has been victimized by throughout the last 2 centuries.
I think giving up on the euro project is what should happen-as for the EU I’m less sure though I’m not aware of much good it’s done.
The whole ‘European Project’ again is about the geopolitical goals and aspirations of Germany and France.
The Germans after their own shameful history needed the cover of ‘Europe’ to carry out their own geopolitical agenda.
As for the French I think a great saying abbout them is that ‘The French have never forgiven the rest of the world for losing their Empire.’
For them ‘Europe’ was pique about Pax Americana mostly going back to de Gaulle.
My question for you though it’s why fix the euro even if you could? Why not move on if most countries other than Germany would be better off without it?
July 18th, 2015 at 6:32 pm PDT
link
Your view, this view is empirically and the logically wrong:
“My view, which I think almost anyone with a passing familiarity with the human species would have to concede, is that people under financial stress make decisions with a view to a shorter-term time horizon and with less capacity to be fastidious than people who have already financed their own immediate term. That is why I argue that we should emphasize norms that hold creditors accountable more than norms that hold debtors accountable.”
Steve, repeat after me.
NO COUNTRY amasses the ability to finance their immediate term, unless they SUFFER the short term first.
AND There is no promise that suffering short term will amass capital, that is a cultural thing. Suffer, suffer, suffer and get culture wrong? Guess what you get to keep suffering.
But let’s repeat: NO COUNTRY can amass savings “when times are good” – for poor countries NO TIMES ARE GOOD.
This leaves your thinking stuck, huh?
Because it comes down to suffer until you get the CULTURE right.
And just to say it one more time: NO COUNTRY, not GREECE, not GERMANY, not FIN:LAND, NOBODY ever gets to first world status by not eating sh*t as third world first. It’s suffering all the way down buddy, until they finally amass capital, and the way they do that is by getting their culture right.
Mother nature is a brutal lady Steve, she makes people all kinds of ways and only lets some of those ways succeed.
July 19th, 2015 at 10:16 am PDT
link
[…] – Brookings Institution Complicated ties between inequality and growth – CBS News I love Germany. And Greece. And especially Finland. – interfluidity Sizing Up Hillary Clinton’s Plans to Help the Middle Class – New York Times ‘Where moral […]
July 20th, 2015 at 11:12 am PDT
link