Greek austerity: a new version of the 1919 Versailles Treaty?
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Germany’s Destructive Anger
By JACOB SOLL JULY 15, 2015
Jacob Soll, a professor of history and accounting at the University of Southern California, is the author of “The Reckoning: Financial Accountability and the Rise and Fall of Nations.”
In the preceding article Jacob Soll compares the austerity of Germany following WWI to that which is being imposed on Greece today.
Of course those of us who have read Paris 1919: Six Months That Changed the World
by Margaret MacMillan and Richard Holbrooke had it explained why the terms of the WWI treaty were not as onerous as the Germans claimed them to be.
Anyone out there have the final word on this? Is the austerity required of Greece today the equivalent of the austerity forced on Germany following WWI?
The "origin of austerity" is that the Greek government ran up unsustainable debts, with unsustainable suspending and a risible tax system. Those who are asked to lend to Greece again would like some guarantee that they'll get some their money back this time. They're asking for Greece to cut spending and collect taxes, because they know Greece can never pay off its loans, or even pay for itself year-to-year, without that. If Greece doesn't want foreign-imposed austerity as a condition of spending more of other people's money, it can refuse the conditions, repudiate its debts, ruin its credit and international standing, and attempt to live by its own means.
Why did the EU government banks bail out the private banks that caused the problem? Has the world really reached a point where keeping wealthy bankers filthy rich is more important than keeping pensioners fed?
Fifty years ago Germany's creditors wrote off debt that was unsustainable without getting moralistic about how the debt was incurred, by starting World War II. The territory of Missouri ran up a big debt to English banks, defaulted and later wrote it into their state constitution that they would never repay the money. Haiti was forced, like Greece, to accept unrealistic terms to "repay" France after they won their independence. Like Greece they did not have power or powerful friends to stand by them at the negotiating table. Haiti did pay off that debt, over a hundred years later. Is Greece the next Haiti? Will the money they need to maintain their infrastructure and provide basic services instead go the the EU banks? Even the World Bank says the terms are to harsh for Greece to endure.
Other than some former employees who really misses Leaman Brothers? If a few more of them were allowed to fail, or if they were punished for their misdeeds as sternly as an 18 year of black man caught smoking some weed, I think they would their fiduciary responsibility in higher regard.
In the case of Greece, much of the blame falls on international institutions, not banks.
As for "Isn't it their job to investigate the creditworthiness of every borrower?" that's exactly the problem. That's what Germany the others are doing right now. They were lied to extensively the first time. They're investigating the creditworthiness and refusing to lend without changes to that creditworthiness.
I am especially interested in why it is that the creditworthiness of the U.S. remains so high given its current financial problems.
1. We do have to pay it, some day.
2. The very real fact that we can go higher, entices us to go higher.
3. Black swans happen. Everyone wants dollars now. This isn't absolutely guaranteed.
I'd add that the whole debt issue is one of the most striking examples of simple incomprehension leading to injustice. Large long-term national debt is borrowing from your children. It is immoral to borrow from your children, unless your doing so somehow benefits them. Every dollar we spend now is a dollar my son has to pay. Or, actually, more than one dollar.
Honestly, I hope that my generation has its Security Security stripped down to a bare minimum, because we don't deserve it. We've reached through time to plunder out children's bank accounts.
Re the US, I would agree that $17 trillion and counting is not a good place to be. However, this country is blessed as no other is with a currency everyone wants and an economy that, even with its gears stuck in the mud, is among the most productive in the world. This boomer worries more about the future of his grandchild and the world that he will face in 20 years. I am afraid that we will need to make adjustments in our assumptions about what is needed and how to pay for it all, just as the Greeks will have to.
Includes a provocative comparison of public debt (so-called sovereign debt) to imperial tribute.
Fans of intellectual history or economic theories might also peruse Why German economic thought made the Creek crisis inevitable. And follow the blog.
The foundation of any healthy human society is cooperation and reciprocity. While debt may at first glance look like a manifestation of these, it’s actually a perverted form that becomes their opposite. What’s special about reciprocity—what makes it the glue of human community—isn’t the one-for-one exchange of loans and repayments (let alone interest payments). What’s special is the blurring of the lines between the individual and the community. When you help a neighbor, you don’t expect to be repaid exactly and on time. You expect that the neighbor, who knows you and lives where you live, will help you in a different and inevitably unequal way when and if you most need it. You may give an egg, but you don’t expect an egg back. You expect sugar, or a cordless drill. Both you and your neighbor assume that you’re better off helping each other, because you live together, and cooperation makes you stronger. That’s reciprocity. That’s community.
Debt, on the other hand, is distinguished by the quantification of what’s given, and the enforcement of its return—usually with interest, though this isn’t the defining attribute. Quantification means keeping exact track, and expecting exact repayment. It implies a lack of trust in the other party’s goodwill or mutual benefit. Enforcement means police and violence, or the threat of it. This can be direct, physical, and bloody; or it can be indirect financial enforcement, via impoverishment, malnutrition, foreclosed housing and healthcare, or long-term unemployment. But because debt’s defining features are quantification and enforcement, it can’t be considered of a piece with the reciprocity and cooperation that hold human societies together. It is a perversion; it’s the opposite.
Anyone really looking to see what debt is, at its core, will find that it’s much closer to that other near-universal of human societies: war. As anthropologist David Graeber argued in his remarkable book Debt: The First 5,000 Years, debt often serves to create or restore hierarchical politics within the institutional frameworks of communities formally based on political equality. Interest on an unrepayable debt is no longer the economist’s fee paid for use, but tribute exacted by conquerors; the triumphant use victory in the market to claim moral superiority, just as victors on the battlefield inevitably do. The illusion of community and right may persist, but only because the war is hidden behind a veil of debt.
Anyone looking at that sentence can only conclude the author is a fool.
I do not conclude that the author of the book paraphased in >15 Muscogulus:: is a fool. In fact, I do find that the definitions used create a good argument for the statement quoted. Remember that the bulk of human interactions are not economically devoted to the maximization of return on direct investment of resources. One's partner doesn't directly charge for sex, parents do not usually present their offspring with a bill for their maintenance costs when adulthood is achieved, and many other activities are not related to reward for interchange of goods or services. We co-operate vastly more than we compete. But the expectation of getting profit from all exchanges doesn't lead to a sense of community, instead it does create resentment in human relations. See Margaret Visser's excellent book, "The Gift of Thanks", for a non-capitalist analysis of group dynamics. There were not many poor people led to the guillotine, the vast number of White Russian refugees did not come from the Russian lower classes, and when Greek city states dissolved into civil war, it was the former top dogs who were trying to eke out a living in their exiles. The section of Arnold Toynbee's "A study of History" entitled "The breakdowns of Civilizations" will also repay the effort.
Re debt and war . Perhaps here one should note that few wars are affordable and a government has to contract or find finances to cover the costs of war . Wars are financed through inflation (print the money) , increased taxation (make your population pay through deprivation), liquidate past investments (dip into past savings or assets) or issue bonds ie borrow money to play to repay at some point in the future or maybe never . Often a combination of these approaches . If you win the war you have a "war guilt" clause and transfer the accumulated costs to the defeated enemy who now has to assume your debt , pay reparations , inflate their money and so the cycle goes on . Debt is not war but money and hence debt is contracted to fight and pay for a war , but just means we should work out who carries the debt and how is it to be settled.
It is, I think, silly to assert that "debt is, at its core, will find that it’s much closer to that other near-universal of human societies: war. But it is even more absurd to assert that "anyone really looking to see what debt is" would come to that bizarre conclusion.
We are all entitled to our opinions. When we say "anyone really looking at this" would agree with us, we cross from an opinion to a bizarre statement about reality, with an ad hominem sting at its tail.
If you don't agree, well, ANYONE who really looked at what I was saying would agree.
(Therefore you're not agreeing, you aren't really looking.)
I often find myself wishing that people would revisit their blogs and improve their phrasing — or at least correct their spelling. Sometimes they actually do. Still, it seems like one of the more slighted advantages of digital media: the ability to revise after publication. (HTML makes it easy to mark and date your changes.)
Even so, I've been impressed with this blog's coverage of the Greek crisis. Much of the passion for the subject comes from the fact that at least one of the contributors is an expat living in Greece.
Incidentally, I love how these things always talk about "bankers." It's so much more appealing to imagine that Greece is fighting evil capitalists, when in fact banks got out of it a long time ago, and Greece doesn't owe "bankers" but merely the governments and peoples of Europe.
My trips to Europe in the 70's and 80's were interesting on many angles , but many French wondered about the US; why did we work so hard? Why did we place such a priority on making money? Well, 35 years later, well those are 35 years that the French lost forever, and the Italians, et al. Without the economic base the US had in 1932, depression notwithstanding , the New Deal does not happen, for it takes resources to create cushions, and this the Greeks did not have except for other people's money .
Would you care to elaborate on which of the basic laws of economics Australians believe do not apply to them? The bottom may have fallen out of the iron ore market, but the economy is still in pretty good shape. No free lunches here, never were - how do you think we came through the GFC with barely a scratch to the paintwork? Because there was a bloody great cushion.
I am of the opinion that the current stock market kerfuffle is really a necessary correction, and there are bargains to be had if you've got the funds. Certainly it was set off by the Chinese, but it seems that they view their stock exchange as a sort of casino, not causally connected to the economy as ours (and yours) is.
And what if I were to say to you that the ASX is very tightly regulated? By way of example, when I was kiddie there was no such thing as insider trading, now you can go to jail for it. There are all sorts of situations in which trading in a stock can be suspended. Not saying it's perfect, but they try hard enough to give me confidence.
What sort of American doesn't believe in market based economies? Why do you make an exception for, of all things, commodity markets?
The saying here about banks is that better than having money in the bank is having shares in the bank, and that's certainly the way I approach it. If you own the bank you are assisting them to rob other people and taking a share of the loot, that's how capitalism works. Banks can be predatory, but their yield is very attractive to investors.
I think that the book you really, really need to read now is How to Speak Money by John Lanchester.
What does this even mean?
#27 Germany 1947 as different from Greece 2015 as water is to stones. Germany was a pre-war industrial powerhouse, making and selling globally , home of some of the biggest industrial names on the planet; and on the front lines of the Cold War. Greece , not so much. Have nothing against the Greeks or Puerto Rico. I want to visit Greece and half my family is from PR, however both played a dangerous game and both never thought that the good times (and other people's money) would ever stop.
#29 The daily trading on the stock exchange is divorced from the economy. It is emotion driven not fact driven. People that buy stocks as long term investments have become a minority with most trades done by speculators seeking gains on small price swings that, as often as not, they engineer.
Regulations mean nothing without watchmen willing to enforce them. The tactics that created the stock speculation that lead to the 1929 crash was illegal but nobody lifted a finger to stop it. The National Banking Act of the 1860s prohibited commercial banks from dealing in stocks and bonds. In 1911 a major bank decided they could get around that by creating a new corporation, with exactly the same owners and officers, to deal in stocks and bonds. The courts ruled the arrangement was a violation of the law but nobody stopped the bankers so more banks took up the practice. The Glass–Steagall Act really several parts of the 1933 Banking Act, put some teeth into the law and the Great Depression frightened regulators enough to enforce it. In 1999 two of those provisions were removed allowing commercial banks to return to the casino and play with their depositors money. It took 18 years for these practices to bring about the Great Depression but it started slow because bankers were not sure, at first, that they could violate the law with impunity. They could and did. After deregulation in 1999 it only took 8 years for the next crash.
Since the crash we have written general regulations but not the specific rules and the watchmen are still in bed with the banks. Just like the FBI and Whitey Bulger.
Well, if you treat the stock exchange as a casino you get what you deserve, which is what has happened to the Chinese.
There is a difference between trading and investing. If you follow the principles set out by Benjamin Graham in The Intelligent Investor - the man who trained Warren Buffet - and if you live in a country where the stock exchange is well regulated and accounting standards are high, then you can do very well. You just have to put a bit of effort into it.
I would not have thought the Australian economy was any more commodity driven than that of the USA, but certainly some of the miners are in trouble. Fortunately for the country in general those companies don't actually contribute as much as they would like you to think by way of taxes and jobs.
I think that both of you might find this informative:
In the past what a company did well its stock went up and all the workers, from the CEO to the janitor, saw some benefit. There is no longer any connection there. In the past if a company got a new contract the stock price went up on the promise of future earnings. Today it is just as likely to go down on the excuse that traders expected more.
Commodities at least still have a connection to the real world. Floods in the Midwest that reduces corn and wheat yields cause the price of corn and wheat to go up. Flocks of chickens being killed of to prevent the spread of bird flu causes the price of eggs to rise. The fracking boom has brought down the cost of oil. For commodities it is still the law of supply and demand. In the stock market two parties, in the past it has been husband and wife, can sell the same stocks back and forth to boost the appearance of desirability in the stock and drive up the price.
Anyone interested should read Wall Street Under Oath by Ferdinand Pecora, he was the lead investigator in the Senate investigations into the 1929 crash. The full report of the commission is on line at http://www.scribd.com/doc/73235213/Pecora-Commission-Report-Stock-Exchange-Pract... There is no equivalent for the 2008 crash because the government was not interested in justice, sorry, because they "chose to look forward not back". Several NPR shows did good investigations into the 2008 crash and I think they are still available on line.
The closest thing we have to him is Volcker and look how little he was able to do.
I am for both men but the forces of the Market are drowning them out.
Markets — real ones — are among the oldest human institutions, dating from at least the Neolithic, and the trading activity they house is as old as human society. But markets do not solely trade commodities and they do not run according to price theory. The intangible exchanges are as important as the quantifiable ones.
Greece is battling the "markets" and good luck with that. The big short is in for alot of countries who thought the good times would roll forever. Alas, 'twas not to be.
As an investment advisor, my clients ask me about the "market".… What will the "markets" have to say about US jobs, Chinese stocks and real estate, Brazilian politics and Russian military escapades.
Here, too, we're in the habit of treating the motions of securities markets with the superstitious seriousness our ancestors accorded to the motions of stars and planets in the spherical heavens.
My answer is it all depends or I don't know.
It's the only responsible answer. But notice how the people who make predictions on screen are almost never held accountable for them afterward. I suppose court astrologers enjoyed a similar immunity in the 14th century.
Think of American Idol where one large group of voters never watches the show but vote anyway and another group that places bets and uses large phone banks to influence the outcomes.
Edited for spelling
Integration is hard. The rise of far right politicians across Europe is no coincidence. Throughout the continent governments had grown complacent, dismissing the unease about previous generations of immigrants and failure to integrate. This without blaming any one for that failure.
The beauty of the US is that we have always welcomed them even though we sometimes change our minds once they are here. I contrast that with Europe which has the misfortune of a tradition of closed heterodox cultures antithetical to outsiders. East LA, Washington Heights and other communities are totally unlike the banilluires of France because while they are poor, dark and immigrant based, they are also dynamic way stations for many to a different life in and yet outside the mainstream. One can only hope, if only for demographic reasons, that European antipathy to people who don't look , talk, cook and pray like them slowly changes.
I've been alarmed to discover recently how common it is for people to employ immigrants with no papers — or even Latino citizens — and then refuse to pay them on some pretext. Been involved in a project to identify these employers and pressure them to pay workers who can document their work.
In one case, a restaurant worker was cheated of thousands of dollars' worth of labor by an immigrant boss — who was rumored to be here illegally himself. More common, though, is construction or landscape work where the boss has layers of subcontractors to insulate him or her from responsibility.
From what we've seen, most unpaid workers don't even protest; they just tighten their belt and look for their next job. They are convinced that protesting won't succeed.
How does a society like Europe cope with, absorb and successfully integrate 2 million people who really would rather be home were it not for the bloodshed.
Your numbers are off. The total Syrian refugee population is estimated at almost 4.2 million as of October. The majority of them are in Turkey or Jordan. The number going to Europe does not amount to 1 million, even if you double-count those passing through the European border states (Hungary, Croatia) intending to go elsehere. Except for Germany, which has pledged to take in 200,000 Syrian refugees, and Austria, the other European states have committed to taking in only a few dozen to a few hundred each.
Some countries may end up with unregistered thousands of refugees if the crisis is prolonged. But they are unlikely to prove much of a burden. The Syrians motivated to migrate to Europe appear to be among the best educated and most prosperous people in their country, and they are likely to have median income and education levels above the median for the countries they want to settle in.
There is a tacit assumption in a lot of the reporting on the crisis that every Syrian must be poorer and dumber than the typical European. I predict that this will prove to be false.
30% of the registered "refugees" are completely unschooled, i.e. analphabets, by the way. Another 30% have had a few years of school. Only about 15% have an academic background, and most of these skills will not be validated without years of special training.
We desperately need people from outside the USA to share their viewpoints here.
We're also getting some breathless reportage about a Syrian passport found on the body of a terrorist in Paris — which will be enough, I'm afraid, to convince some Europeans that all Arab refugees, nay, all immigrants, are a menace to their survival.
src: http://www.vluchtelingenwerk.nl/feiten-cijfers/landen-van-herkomst/ (refugee charity in .NL, Dutch.)
More interesting perspectives:
Maybe the difference is that the NGO is reporting how many Syrians ask for asylum ("zoeken bescherming", "vragen asiel an"; I think those mean the same thing?). The UNHCR may only be counting how many each government has promised to grant asylum to.
Perhaps unhcr is just talking about the official refugee camps and the resettlement program.
I read somewhere else that practically all who apply get asylum, because strait Syria is a warzone.
Our Xenophobic portion of the populace have flooded our CBC comment lines, but we are proceeding with the election promise of our new government. Shouldn't do us any harm to accept the refugees, in my opinion.